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HomeMy WebLinkAbout2002-04-08 City Council (4)City of Palo Alto City Manager’s Report TO: FROM: DATE: SUBJECT: HO.NORABLE CITY COUNCIL CITY MANAGER APRIL 8, 2002 APPROVAL OF PUBLIC FINANCIAL STATEMENTS PIC-I DEPARTMENT:ADMINISTRATIVE SERVICES CMR: 197:02 IMPROVEMENT CORPORATION RECOMMENDATION Staff recommends that the Board of Directors of the Public Improvement Corporation (PIC) approve the 2000-2001 financial statements for the Public Improvement Corporation. BACKGROUND On July 13, 1998 Council adopted a resolution establishing itself as the Board of Directors of the Palo Alto Public Improvement Corporation (PIC). The PIC is a nonprofit corporation that allows the City to issue Certificates of Participation (COPs) to fund capital improvements. 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. The Board of Directors of the Corporation is required to meet at least annually and approve the financial statements for the Corporation. 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 over to the Trustee (U.S. Bank Trust) for the benefit of the investors. DISCUSSION The attached financial statements show the financial condition of the Palo Alto Public Improvement Corporation. 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, 2001, total outstanding debt (principal and interest) on the COPs equaled $15 million. Debt service payments on the Civic Center will be retired in 2011-2012 and on the Golf Course in 201, 7-2018. C!vlR:197:02 Page 1 of 2 RESOURCE IMPACT Approval of the Public Improvement resource impact. Corporation’s financial statements will have no POLICY IMPLICATIONS Approval of the Public Improvement Corporation’s financial statements is consistent with prior Council policy direction and resolutions. ENVIRONMENTALREVIEW This is not a project under the California Environmental Quality Act (CEQA). ATTACHMENTS Attachment A:City of Palo Alto Public Improvement Corporation Financial Statements for the Years Ended June 30, 2001 and 2000 PREPARED BY: DEPARTMENT APPROVAL: TARUN NARAY~4~ Senior Financial Analyst CARL YEA~_ "- Director, A/ministrative Services CITY MANAGER APPROVAL: HARRISON Assistant City Manager CMR: 197:02 Page 2 of 2 & A S$ O CIA FES INDEPENDENT AUDITOR’S REPORT A CCOUNTANC Y CORPORATION 1931 San Miguel Drive. Suite 100 Walnut Creek, California 94&96 (925) 930-0902 ¯ FAX.(92&) 930-0135 E-Mail: maze @mazeassociates.com Website: www.mazeassociates.com 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 Palo Alto Public Improvement Corporation, a comp6nent unit of the City of Palo Alto, as of and for the years ended June 30, 2001 and 2000 as listed in the Table of Contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance With generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance as to whether the financial statements are ¯ ~ee 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 opir~on. As discussed in Note. 1 to .the financial, statements, the financial statementd referred to above present only the.Corporation and are not intended to present fairly the financial position of the City and th~ results of its operations and the cash flows of its proprietary fund types in conformity with generally.acceptedaccounting principles. In our opinion, the financial statements referred to above, present fairly in all material respects the financial position of the Palo Alto PuNic Improvement Corporation as of June 30, 2001 and 2000, and the results of its operations for the years then ended, in conformity with genera!ly, accepted accounting.principles. October 25, 2001 1 A Professional Corporation PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO COMBINED BALANCE SHEETS ALL FUND TYPES AND ACCOUNT GROUP JUNE 30, 2001 WITH COMPARATIVE AMOUNTS FOR JUNE 30, 2000 ASSETS Cash and investments held by trustee (Note 3) Cash and investments with City Interest receivable Investment in lease to City of Palo Alto (Note 4) Amount available in debt service fund Amount to be provided for retirement of general long term debt Total Assets LIABILITIES Deferred revenue 1992 Certificates of Participation (Note 4) 1998 Certificates of Partieipatiun (Note 4) Total Liabilities FUND BALANCES Reserved for: Debt service Capital projects Encumbrances Total Fund Balances Total Liabilities and Fund Equity GOVERNMENTAL ACCOLrNT FUND TYPE GROUP Capital General Debt Service Projects Long Term Obligations $1,504,739. 48,352 2,265 10,700,000 $515,374 $12,255,356 $515,374 $1,555,356 9,144,644 $10,700,000 TOTALS (Memorandum Only) 2001 2000 $2,02~113 $2,012,291 48,352 3,338 2,265 21,001 10,700,000 11,625,000 1,555,356 1,541,983 9,144,644 . 10,083,017 $23,470,730 $25,286,630 $10,700,000 10,700,000 $3,670,000 7,030,000 $10,700,000 $11,625,000 3,670,000 4,220,000 . 7,030,000 7,405,000 10,700,000 21,400,000 23,’250,000 1,555,356 1,555,356 $12,255,356 $504,010 11,364 515,374 $515,374 $10,700,000 See accompanying notes to financial statements 1,555,356 1,541,983 504,010 376,512 11,364 118 135 2,070,730 2,036,630 $23,470,730 $25,286 630 PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO COM33INED STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES ]N FUND BALANCES GOVERNMENTAL FUND TYPES FOR Tta’-E FISCAL YEARS ENDED JUNE 30, 200! AND 2000 REVENUES Lease receipts from City of Palo Alto: Principal Interest Interest from cash and investments Total Revenues EXPENDITURES. Debt service: Principal repayment Interest and fiscal agent charges. Capital projects Total Expenditures EXCESS OF REVENUES OVER (UNDER) EXPENDITURES Fund balances at beginning of year Fund balances at end of year Debt Service Capital Projects Totals 2001 2000 " $925,00O. 537,844 76,870 1,539,714 $24,517 24,517 $925,000 $855;000 537,844 505,473 !01,387 117,263 1,564,231 1,477,736 925,000 601,341 1,526,341 3,790 3,790 925,000 ~855,000 601,341 645,272 3,790 178,376 1,530,131 1,678,648 13,373 1,541,983 $i,555,356 20,727 494,647 ¯ $515,374 See accompanying notes to financial statements 34,100 2,036,630 $2,070,730 (200,912) 2,237,542- $2,036,630 CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF T]J~E CITY OF PALO ALTO Notes to Financial Statements NOTE 1 - DESCRIPTION OF REPORTING ENTITY Ao General Description The Palo Alto Public Improvement Corporation (the Corporation) 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 Internal Revenue Code. The Corporation provides financing of public capital improvements for the. City 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 fi:om the COPs are. used to construct projects which are leased to the City 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 City of Palo Alto. it primarily services the City and its governing body is composed of the City Council. Therefore, 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, 2001. NOTE, 2-SIGNIFICANT ACCOUN’ITNG POLICIES A... Fund Accounting In order to ensure proper identification of individual revenue, sources and the expenditures made from those revenues the accounts of the Corporation are organized on the basis of individual funds and account groups, each of which is considered 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. The Corporation resources are accounted for in these individual funds based on the purposes for which they are to be spent and the means by which spending activities are controlled. In the financial statements, these funds are grouped into the governmental fund types below: Debt Service Funds - These funds are Used to account for the accumulation of financial resources for the payment of general long-term debt principal, interest, and related costs. As with all governmental funds, debt service funds are accounted for on a spending or financial flow measurement focus which means that current assets and current liabilities are generally included on its balance sheet. The reported fund balance represents net current assets, which is considered only to be a measure of available spendable resources. Governmental fund operating statements present a summary of sources and uses of available spendablo resources during a period by presenting increases and decreases in net current assets. Capital Projects Fund is used to account for financial resources to be used for the acquisition or. construction of major capital facilities (other than those financed by proprietary fund types). 4 CITY OF PALO ALTO PUBLIC IM_PROVEM:ENT CORPORATION A COMPONENT UNIT OF TItlE CITY OF PALO ALTO Notes to Financial Statements INOT£ 2- SIGNIFICANT ACCOUNTING POLICIgS (Continued) General Long-Term Obligations Account Grbups are Used to account for long-term obligations of the Corporation. Because of their spending measurement focus, governmental funds exclude fixed assets and noncurrent liabilities. Instead, these assets and liabilities are reported in the General Fixed Assets Account Group and the General Long-Term Obligations Account Group. These account goups measure only financial position; they are not funds and they do not measure results of operations. They maintain accounting control over governmental fund fixed assets and long-telm obligations. Basis of Accounting Basis of accounting refers to when revenues and expenditures .are recognized in the accounts and ~eported in the financial statements, regardless of the measurement focus applied. All governmental funds are accounted for using the modified accrual basis of accounting. These fund revenues are recognized when they become measurable and available as net current assets. Measurable means the amount of the transaction can be determined and available means the ~amount is collectible within the current period or soon. enough thereafter (generally sixty days) to be used to pay liabilities of the current period. Amounts which could not be measured or were not available were not accnied as revenue in the current fiscal year. Expenditures are also generally recogrdzed under the modified accrual basis of accounting. An exception to this rule is principal and interest on general long-term debt, which is not recognized by debt service funds until it is due. Investment in Lease to City of Palo Alto and Deferred Revenue Investment in lease to City of Palo Alto and deferred revenue reflect the present valtie of remaining future, lease payments. Since lease payments are not available .-to fund current operations, the Investment in Lease to City of Palo Alto has been offset by deferred revenue. As lease revenues are received, both the investment and deferred revenue balances are reduced. "Totals (Memorandum Only)" Columns on the accompanying financial statements captioned "Totals (Memorandum Only)" do not present consolidated financial information. They are not necessary for. a fair presentation of the financial statements,but are presented only to facilitate additional financial analysis. 5 CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COM:PONENT UNIT OF Tt~ CITY OF.PALO ALTO Notes to Financial Statements 3- CAS]t AND INVEST1VfENTS WI~,LD BY TRUSTEE A Trustee under the provisions of the Corporation’s COP issues holds and invests all the Corporation’s cash. The Corporation’s investments are categorized below to give an indication of the level of credit risk assumed by the Corporation at June 30, 2001. Category 1 includes investments that are-insured or registered or for which the Securities are held by the Corporation or its agent in the Corporation’s name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty’s trustdepartment or agent in the Corporation’s name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty~ or are held by the counterparty’s trust department or agent but not in the Corporation’s name,. Pooled investments .are not categorized because of their pooled, rather than individual, nature. At June 30, 2001 the Corporafio..n’s investments were recorded at market value and comprised the following: Category 2 Investments: U.S. Agency’obligations Pooled Investments (non. Categorized): California Arbitrage Management Program Mutual funds Total cash and investments held by trustee 2001 2000 $749,775 $725,405 .726,034 1,294,708 536,482 $2,020,113 $2,012,291 The Trustee is only permitted to invest in US Agency securities, US dollar denominated deposit accounts, federal funds, banker’s, acceptances, mutual funds, money market accounts, pre-funded municipal obligations, written repurchase agreement, and the California Arbitrage Management Program. .Investments are purchased and held in the name of the Trustee on behalf of the Corporation and are held to maturity to match with 16ayments required under the COP issue. The Corporation’s investments are carried at fair value, as required by generally accepted accounting principles. The Corporation adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in income for that fiscal yea.r, INOTE 4 -INVESTMENT ]~ LEASE AND CERTI2FICATES OF PARTICIPA_q2rON [ In 1992, the Corporation issued $7,670,000 principal amount of 1992 Civic CenterProject Certificates of Participation (Civic Center COPs) to refinance 1983 Project Costs consisting of the assembly of a third elevator and seismic restructuring of the Civic Center and to finance additional improvements consisting of the structural retrofitting of the police headquarters and .a portion of the Civic Center for sprinkler system fire prevention facilities. These improvements have been pledged as collateral urider a lease agreement with the City which provides lease payments to be used to pay debt service on the Civic Center COPs. Upon retirement of the Civic Center COPs and related interest~ the lease agreement terminates and title to the improvements reverts to the City. CItY OF PALO ALTO PUBLIC I1VIPROVENI~NT CORPORATION A COMI°ONtgNT UNIT OF TIlE CITY OF PALO ALTO Notes to Financial Statements INOTE 4 -!NVESTNIENT IN LEASE AND CERTI~I?ICATES OF PARTICIPATION I . The Civic Center COPs bear interest at 3.6% to 6.7% and are due serially each March 1 until 2003. Interest payments are due semi-annually on March 1 and September 1. A $1,345,000.6.5% term bond will be due March 1, 2005, and a second 6.7% term bond in the amount of $!,130,000 will be due March 1, 2012. The Civic Center COPs maturing on or after March 1, 2001 may be Prepaid on any payment date beginning March 1, 2001 at par plus 2%. The prepayment price decreases one percent each year until March 1, 2003, at which time the bonds may be prepaid at par. In August 1998, the Corporation issued the Golf Course Capital Improvements and Refinancing Project Certificates of Participation, Series 1998 in the amount of $7,750,000 to refund 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 $472,625 to an agent for the Goif Course Corporation which used the funds to retire 1978 Bonds. 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 I begriming in 1999. Futtwe annual debt service on the COPs is expected to be provided by the lease receipts discussed above, and equaled the following: For the Year Ended June 30: 2002 2003 2004 2005 2006 Thereafter Total debt service Less amount representing interest Principal A_rnount $1,521,146 1,518,996 1,366,751 1,373,401 761,479 8,513,800 15,055,573 4,355,573 $10,700,000 The Bond documents require a Trustee to hold a portion of proceeds in a reserve fund for debt service purposes only. At June 30, 2001; the Trustee held $1,504,739 reserved, as discussed in Note 3.