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HomeMy WebLinkAbout2001-06-25 City Council (12)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL 25 FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE SERVICES DATE: SUBJECT: JUNE 25, 2001 APPROVAL OF PUBLIC FINANCIAL STATEMENTS CMR: 275:01 IMPROVEMENT CORPORATION REPORT IN BRIEF On July 13, 1998 Counciladopted a resolution establishing itself as the Board of Directors ofthePalo 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. Currently, the City has two COP bond issues: one for Golf Course improvements and refinancing and one for Civic Center capital work and refinancing. The Board of Directors of the Corporation is required to meet at least annually and approve the financial statements for the Corporation. CMR:275:01 Page 1 of 3 RECOMMENDATION Staff recommends that the Board of Directors of the Public Improvement Corporation (PIC) approve the 1999-2000 financial statements for the Public Improvement Corporation. BACKGROUND In 1983 and 1998 the City of Palo Alto issued COPs to fund improvements to the Civic Center and the Golf Course, respectively. COPs are a unique form of financing public improvements. The City Council is required to meet annually as the Board of the PIC. This meeting is optimally held in conjunction with a regularly scheduled Council meeting. Once the Council adjourns, it opens a new meeting as the Board of the PIC to transact business such as the approval of minutes and reviewing financial statements. If it so chooses, the Council could adjourn the Board meeting and reconvene for Council business. 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, 2000, total outstanding debt (principal and interes0 on the COPs equaled $16.58 million. Debt service payments on the Civic Center will be retired .in 2011-2012 and on the Golf Course in 2017-2018. - 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, 2000 and 1999 CMR:275:01 ~Page 2 of 3 PREPARED BY: TARUN Senior Financial Analyst DEPARTMENT APPROVAL: CARL YEATS Director,.strative Services CITY MANAGER APPROVAL: Assistant City Manager CMR:275:01 Page 3 of 3 ATTACHMENT A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION COMPONENT UNIT FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 COMPONENT UNIT FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2000 AND 1999 Table of Contents Independent Auditor’s Report .........................................................................................................1 Component Unit Financial Statements: Combined Balance Sheets ................2 Combined Statements of Revenues, Expenditures and Changes in Fund Balances ...............................3 N~tes to Financial Statements ...........................................................................................................4 ASSOCIATES ACCOUNTANCY CORPORATION 1670 Riviera A’venue - Suite Walnut Creek, California 94596 (925) 930-0902 ¯ FAX (925) 930-0135 E-Maih maze@mazeassociates.com Website: www.mazeassociates.com 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 Palo Alto Public Improvement Corporation, a component unit of the City of Palo Alto, as of and for the years ended June 30, 2000 and 1999 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 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. As discussed in Note 1 to the financial statements, the financial statements referred to above present only the Corporation and are not intended to present fairly the financial.position of the City and the results of its operations and the cash flows of its proprietary fund types in conformity with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly in all material respects the financial position of the Palo Alto Public Improvement Corporation as of June 30, 2000 and 1999, and the results of its operations for the years then ended, in conformity with generally accepted accounting principles. October 10, 2000 1 A Professional Corporatiot~ 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, 2000 WITH COMI~ARATIVE AMOUNTS FOR JUNE 30, 1999 ASSETS Cash and investments held by ~rustee (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 Lu mrrms Deferred revenue 1992 Certificates of Participation (Note 4). 1998 Certificates of Participation (Note 4) Total Liabilities FUND BALANCES Reserved for: Debt service Capital projects Encumbrances Total Fund Balances Total Liabilities and Fund Equity GOVERNMENTAL ACCOUNT TOTALS FUND TYPE GROUP (Memorandum Only) Capital General Debt Service Projects Long Term Obligations 2000 1999 ¯ $1,520,543 $491,748- 3,338 18,102 2,899 11,625,000 $13,166,983,$494,647 $2,012,291 .- 3,338 21,001 11,625,000 $1,541,983 1,541,983 10~0831017 ~0r083~017 $2,217,175 20,367 12,480,000 .1,596,380 10,883r620 , $11,625,000 $25,286,630 $27,197,542 $11,625,000 11,625~000 " $11,625,000 $12,480,000 $4,220,000 4,220,000 4,730,000 7,405,000 7~405,000 7~750,000 11,625~000 23,250~000 24~960,000 1,541,983 $376,512 1181135 1~541,983 .494~647 $13,166,983 $494,647 See accompanying notes to financial statements 1,541,983 376,512 1181135 2~036~630 1,596,380 171,588 469r574 2~237r542 $11~625,000 $25,286,630 $27,197,542 PALO ALTO PUBLIC I2V~PP,.OVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO COMBINED STATEMENTS OF REVENUES, EXPENDITUKES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUND TYPES FOR THE FISCAL YEARS ENDED JIJNE 30, 2000 AND 1999 Debt Service Capital Projects Totals 2000 1999 1LEVENUES 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 $855,000 505,473 85,402 1,445,875 855,000 645,272 1,500,272 (54,397) ¯ $31,861 31,861 178,376 178,376 $855,000 $485,000 505,473 508,494 117,:263 183,814 1,477,736 !,177,308, 855,000 485,000 645,272 701,407 178,376 5,842,276 1,678,648 7,028,683 (146,515)(200,912)(5;851,376) OTHER FINANCING SOURCES AND (USES) Proceeds from long term debt (Note 4) Payment to Golf Course Corporation (Note 4) Total Other Financing Sources (Uses) EXCESS OF REVENUES AND OTHER FINANCING SOURCES (USES) ¯ OVEI~(UNDER) EX~rrU~s Fund balances at beginning of year Fund balances at end of year (54,397). ’ 1,596,380 $1,541,983 7,750,000 (472,625) 7,277~375 (146,5!5)(200,912)1,425,999 641,162 2,237,542 811,543 $494,647 $2,036,630 $2~237,542 See accompanying notes to financial statements CITY OF PALO ALTO PUBLIC IMi~I~U V~-,~v~l~ l t~u~u~t~lul~l A COMPONENT UNIT OF THE .CITY OF PALO ALTO Notes to Financial Statements 1 - DESCRIPTION OF REPORTING ENTITY General Description The Palo Alto Public Improvement Corporation (the Corporation) was incoqgorated 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 from 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, 2000. I NOTE2- SIGNIFICANT ACCOUNTING 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 sepay.ate 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. foi" the payment of general long-term debt principal, interest, and related costs. As with all governmental ftmds, 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 summa~ of sources and uses of available spendable resources during a period by presenting increases and decreases in net current assets. A COMPONENT UNIT OF THE CITY OF PALO ALTo Notes to Financial Statements [NOTE 2- SIGNIFICANT ACCOUNTING POLICIES (Continued) General Long-Term Obligations Account Groups are used to account for long-ter~rt obligations of the Corporation. Because of their spending measurement focus, governmental funds exclude fixed assets and noncurrent liabilities. Instead, these assets and liabilities are. rep.orted in the General Fixed Assets Account Group and the General Long-Term Obligations Account Group. These account groups measure onlyfinancial position; they are not funds and they do not measure results of operations. They maintain accounting control over govenmaental fund fixed assets and long-term obligations. Basis of Accounting Basis of accounting refers to when revenues and expenditures, are recognized in the accounts and reported, 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 cotfld not be measured or were not available were not accrued as revenue in the current fiscal year. Expenditures are also generally recognized 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. C.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 value 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. D."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. CITY OF PALO ALTO PUBLiL ltVtV~O v r.,~v~_~l~ l ~ov, r oxx2~ A COMPONENT UNIT OF THE CITY OF PALOALTO Notes to Financial Statements [NOTE 3- CASH AND INVESTMENTS HELD 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, 2000. 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 trust department or agent- in the Corporation’s name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterpai’ty, 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, 2000 the Corporation’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 2000 1999 $749,775 $755,175. 726,034 738,564 536,482 723,436 Total cash and investments held by trustee $2,012,291 $2,217,175 The Trustee is only permittedto 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 l~ehalf of the Corporation and are held to maturity to match with payments 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 year. A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements I NOTE 4 -INVESTMENT IN LEASE AND CERTIFICATESOF PARTICIPATION I ¯ In 1992, the Corporation issued $7,670,000 principal amount of 1992 Civic,Ceaater Project 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 under 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. The Civic Center COPsbea~ 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 $1,130,000 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 Golf 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 1 beginning in 1999. 7 A COMPONENT UNIT OF THE CITY OF PALOALTO Notes to Financial Statements I NOTE 4 -INVESTMENT IN LEASE AND CERTIFICATES OF PARTICIPATION (Ca.ntinued) I Future annual debt service on the COPs is expected to be provided by the lease receipt~ discussed above, and equaled the following: For the Year Ended June 30:Amount 2001 $1,525,271 2002 1,521,146 2003 1,518,996 2004 1,366,751 2005 1,373,401 Thereafter 9,275,279 Total debt service 16,580,844 Less amount representing interest 4,955,844 Principal $11,625,000 The Bond documents require a Trustee to hold a portion of proceeds in a reserve fund for debt service purposes only. At June 30, 2000; the Trustee held $1,5.20,543 reserved, as discussed in Note 3.