CITY OF MENLO PARK
CALIFORNIA
FOR THE FISCAL YEAR ENDING JUNE 30, 2006
Comprehensive
Annual
Financial
Report
COMPREHENSIVE
ANNUAL
FINANCIAL REPORT
Fiscal Year Ended June 30, 2006
CITY OF MENLO PARK, CALIFORNIA
PREPARED BY
THE FINANCE DEPARTMENT
Carol Augustine
Finance Director
Geoffrey Buchheim
Financial Services Manager
This report is printed on recycled paper.
City of Menlo Park
For the year ended June 30, 2006
Table of Contents
Page
INTRODUCTORY SECTION
Letter of Transmittal ............................................................................................................................... .............. i
Organization Chart.......................................................................................................................... .................. xiv
Principal Officials of the City of Menlo Park, California ............................................................................... xv
Certificate of Achievement for Excellence in Financial Reporting -
Government Finance Officers Association............................................................................................... xvi
Certificate of Award for Outstanding Financial Reporting -
California Society of Municipal Finance Officers................................................................................... xvii
FINANCIAL SECTION
Independent Auditors’ Report......................................................................................................................... . 1
Management Discussion and Analysis ............................................................................................................ 3
Basic Financial Statements:
Government- Wide Financial Statements:
Statement of Net Assets......................................................................................................................... 19
Statement of Activities and Changes in Net Assets........................................................................... 20
Fund Financial Statements:
Governmental Fund Financial Statements:
Balance Sheet – Governmental Funds........................................................................................... 26
Reconciliation of the Governmental Funds Balance Sheet to the
Government- Wide Statement of Net Assets.......................................................................... 29
Statement of Revenues, Expenditures and Changes Fund Balances........................................ 30
Reconciliation of the Governmental Funds Statement of Revenues,
Expenditures and Changes in Fund Balances to the Government- Wide
Statement of Activities and Changes in Nets Assets............................................................ 32
Proprietary Fund Financial Statements:
Statement of Net Assets .................................................................................................................. 34
Statement of Revenues, Expenses and Changes in Fund Net Assets....................................... 35
Statement of Cash Flows................................................................................................................. 36
Fiduciary Fund Financial Statements:
Statement of Fiduciary Net Assets ................................................................................................ 38
Notes to Basic Financial Statements ........................................................................................................... 39
City of Menlo Park
For the year ended June 30, 2006
Table of Contents, Continued
Page
FINANCIAL SECTION, Continued
Required Supplementary Information:
Budgetary Principles..................................................................................................................... ........ 76
Budgetary Comparison Schedule:
General Fund ............................................................................................................................. 77
Community Development Agency Housing Special Revenue Fund ................................ 78
Community Development Agency Non- Housing Special Revenue Fund ....................... 79
Community Development Block Grant Special Revenue Fund ......................................... 80
Schedule of Funding Progress – Public Employees Retirement System ........................................ 81
Supplementary Information:
Budgetary Schedules for Major Governmental Funds:
Budgetary Comparison Schedule – CDA Debt Service Fund.......................................................... 86
Budgetary Comparison Schedule – CDA Capital Projects Fund..................................................... 87
Non- Major Governmental Funds:
Combining Fund Statements and Schedules:
Combining Balance Sheet...................................................................................................................... 92
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances.............................................................................................................. 98
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual:
Highway Users Tax Special Revenue Fund......................................................................... 103
Federal Revenue Sharing Special Revenue Fund ............................................................... 104
Landscape Tree Assessment Special Revenue Fund.......................................................... 105
Sidewalk Assessment Special Revenue Fund ..................................................................... 106
Bayfront Park Landfill Special Revenue Fund .................................................................... 107
Below Market Rate Housing Special Revenue Fund.......................................................... 108
County Transportation Tax Special Revenue Fund ........................................................... 109
Public Library Special Revenue Fund .................................................................................. 110
Literacy Grant Special Revenue Fund .................................................................................. 111
Narcotic Seizure Special Revenue Fund .............................................................................. 112
Traffic Impact Fees Special Revenue Fund.......................................................................... 113
Downtown Parking Permits Special Revenue Fund .......................................................... 114
Storm Drainage Fees Special Revenue Fund....................................................................... 115
Solid Waste Service Special Revenue Fund......................................................................... 116
Bay Area Air Quality Management Special Revenue Fund.............................................. 117
City of Menlo Park
For the year ended June 30, 2006
Table of Contents, Continued
Page
FINANCIAL SECTION, Continued
Storm Water Management ( NPDES) Special Revenue Fund............................................ 118
Peninsula Partnership Special Revenue Fund..................................................................... 119
Supplemental Law Enforcement Special Revenue Fund................................................... 120
Local Law Enforcement Block Grant Special Revenue Fund............................................ 121
Bayfront Park Maintenance Special Revenue Fund ........................................................... 122
Recreation In- Lieu Special Revenue Fund ........................................................................... 123
Sharon Hills Park Special Revenue Fund............................................................................. 124
Vintage Oaks Landscape Special Revenue Fund................................................................ 125
Miscellaneous Trust Special Revenue Fund ........................................................................ 126
Library Bond Debt Service Fund........................................................................................... 127
Recreation GO Bond 2002 Debt Service Fund ..................................................................... 128
Library Addition Capital Projects Fund............................................................................... 129
Measure T 2002 GO Bond Capital Projects Fund................................................................ 130
Capital Improvement General Capital Projects Fund........................................................ 131
Proprietary Funds:
Combining Schedule of Net Assets.................................................................................................... 134
Combining Schedule of Revenues, Expenses and Changes in Fund Net Assets ........................ 135
Agency Fund:
Combining Statement of Net Assets .................................................................................................. 136
Combining Statement of Changes in Net Assets ............................................................................. 137
STATISTICAL SECTION ( UNAUDITED)
Net Assets by Component...................................................................................................................... ......... 140
Changes in Net Assets - Last Four Fiscal Years ............................................................................................ 141
Fund Balances - Governmental Funds - Last Ten Fiscal Years ................................................................... 144
Changes in Fund Balances - Governmental Funds - Last Ten Fiscal Years .............................................. 146
General Government Revenues by Source - Last Ten Fiscal Years ............................................................ 148
General Government Taxes Detail - Last Ten Fiscal Years.......................................................................... 150
Assessed Valuation, Tax Rate and Tax Levies - Last Ten Fiscal Years ...................................................... 152
Direct and Overlapping Property Tax Rates - Last Ten Fiscal Years ......................................................... 155
Principal Property Taxpayers .......................................................................................................................... 156
Property Tax Levies and Collections .............................................................................................................. 158
City of Menlo Park
For the year ended June 30, 2006
Table of Contents, Continued
Ratio of Net General Bonded Debt to Total Assessed Value and Net Bonded
Debt Per Capita - Last Ten Fiscal Years ................................................................................................... 160
Direct and Overlapping Debt ......................................................................................................................... 161
Computation of Legal Debt Margin ............................................................................................................... 162
Pledged Revenue Coverage- Last Ten Fiscal Years ...................................................................................... 164
Demographic and Economic Statistics ........................................................................................................... 165
Principal Employers and Labor Force Overview ......................................................................................... 166
FTE City Employees by Function ................................................................................................................... 168
Operating Indicators ............................................................................................................................... ........ 169
Capital Assets by Function....................................................................................................................... ....... 170
Menlo Park Municipal Water District Statistics ........................................................................................... 174
Miscellaneous Statistics ............................................................................................................................... ... 178
INTRODUCTORY SECTION
i
701 LAUREL STREET, MENLO PARK, CA 94025- 3483
www. menlopark. org
December 1, 2006
Honorable Mayor
Members of the City Council
and Citizens of Menlo Park
Comprehensive Annual Financial Report
We are pleased to submit the comprehensive annual financial report for the City of Menlo Park,
California ( the City), for the fiscal year ended June 30, 2006. Responsibility for the accuracy of the
data and the completeness and fairness of the presentation, including all disclosures, rests with
the City. To the best of our knowledge and belief, the data is accurate in all material respects and
is reported in such a way as to present fairly and honestly the financial position and results of
operations of the funds and account groups of the City. All disclosures necessary to enable the
reader to gain an understanding of the City's financial activities have been included.
The comprehensive annual financial report is presented in four sections: introductory, financial,
supplementary, and statistical. The introductory section includes this transmittal letter, the City's
organizational chart and a list of principal officials.
The financial section includes the basic financial statements consisting of government- wide
financial statements and fund financial statements, notes to basic financial statements, required
supplementary information on budgetary principles and schedule of funding progress for the
Public Employee Retirement System, supplementary information on non- major funds, and the
independent auditor’s report. The statistical section, which is unaudited, includes selected
financial and demographic information, generally presented on a multi- year basis.
The notes to the financial statements are provided in the financial section and are considered
essential to fair presentation and adequate disclosure for this financial report. The notes include
the summary of significant accounting polices for the City and other necessary disclosures of
important matters relating to the financial position of the City. The notes are treated as an
integral part of the financial statements and should be read in conjunction with them.
Since the year ended June 30, 2003, the City has incorporated the financial reporting requirements
as prescribed by the Governmental Accounting Standards Board ( GASB) Statement No. 34, Basic
Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments.
This GASB Statement requires that management provide a narrative introduction, overview, and
analysis to accompany the basic financial statements in the form of a Management’s Discussion &
Analysis ( MD& A). This letter of transmittal is designed to complement the MD& A and should be
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read in conjunction with it. The MD& A can be found immediately following the report of the
independent auditors.
Background
The City of Menlo Park is in San Mateo County, midway between the cities of San Francisco and
San Jose. It is an area that has comparatively high property values and is a vital part of the region
commonly referred to as the Silicon Valley. One of its noteworthy neighbors is Stanford
University. Because of the number of venture capital firms and the amount of venture capital that
is invested through companies located in Menlo Park, the City is often referred to as the “ Venture
Capital” capital.
The City maintains a healthy balance of residential, commercial, and industrial uses. Residential
home prices are among the highest in the area reflecting the desirability of living in the
community. Major companies that have facilities in Menlo Park include Sun Microsystems, Tyco
Electronics Corporation, E* Trade Financial, SRI International, and Office Max. Menlo Park is also
home to the Western Region Headquarters of the United States Geological Survey, a major
Veterans Administration medical facility, and the U. S. Department of Energy funded and
University owned and operated Stanford Linear Accelerator Center.
Reporting Entity
The financial reporting entity ( the government) includes all the funds of the primary government
( i. e. the City of Menlo Park as legally defined), as well as all of its component units. Component
units are legally separate entities for which the primary government is financially accountable.
Blended component units, although legally separate entities, are in substance part of the primary
government’s operations and are included as part of the primary government. Accordingly, the
Community Development Agency ( the Agency) is reported as a blended component unit of the
primary government.
The City of Menlo Park provides a varied range of services, including police protection,
engineering, street, park, building and vehicle maintenance, water distribution and maintenance,
transportation services, community services ( recreation, child care and senior services), planning,
zoning and building inspection, code and parking enforcement, library services, housing and
general administration ( finance, personnel, management information systems, legal and record
keeping). Fire protection services are provided by the Menlo Park Fire Protection District, an
entity which is separate and distinct from the City.
Economic Condition and Outlook
The City’s major revenue sources are property taxes, sales and use taxes, and fees and charges for
services. Until five years ago, the Silicon Valley was experiencing a strong economy. The City
was a recipient of the financial benefits of being a part of a vibrant regional economy and
experienced significant increases in sales tax revenue and property values. The national
economic downturn in 2001 has resulted in decreases in both realized and forecasted revenues,
particularly in the area of sales taxes. Although the downturn appears to have stabilized, the near
50% decline in sales tax revenues from the height of the technology boom has severely limited the
City’s fiscal flexibility. Property values have continued to rise throughout the economic slump,
but sales taxes have not significantly improved. The State’s own fiscal crisis served to exacerbate
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municipal financial issues through a re- distribution of property taxes ( away from local
governments) in 2004/ 05 and 2005/ 06 to fund State obligations. It is anticipated that Proposition
1A, approved by voters in November 2004, will prevent similar manipulation of local government
revenues by the state in the future.
Although many of the City’s revenues seemed to stabilize in the prior fiscal year, many factors
associated with on- going operating costs continued to increase: operations of new facilities, and
maintenance of the City’s infrastructure along with increased employer retirement system
assessments, higher health care premiums, increased workers compensation and unpredictable
energy costs will continue to place significant fiscal pressure on the General Fund over the next
several years. Because Menlo Park prudently built up its General Fund reserves over the
economic boon of the preceding decade, it has been able to respond to revenue challenges in the
short term with a combination of improved efficiencies, modest service reductions, fee increases,
some workforce reduction and planned use of the General Fund Reserve.
Early in 2005, facing a long- term forecast of continued deficit spending, the City Council
approved a plan to embark on a process of citizen engagement in order to gather input about
community priorities. The goal was to build a community- supported budget for the 2006- 07
fiscal year that would be sustainable in the long- term. Under this scenario, the 2005- 06 Budget
was prepared under an abbreviated timeline, reflecting the previous year’s resource allocation,
maintaining prior cost- trimming measures and providing for contractual cost increases only. The
original “ hold- over” budget for 2005- 06 kept services substantially intact, but allowed for no
funding of infrastructure maintenance and called for a $ 672,500 draw down on General Fund
reserves to balance the budget.
At mid- year, several budget adjustments were made to reflect higher revenue projections and
known salary and benefit savings projected from key departmental personnel vacancies. As the
civic engagement process, entitled “ Your City/ Your Decision”, continued into the Spring of 2006,
Staff was directed to include specific strategies in the 2006- 07 budget. These strategies reflected
the community’s interest in a combined approach, including cost reductions, fee increases and
taxes to solve the City’s budget gap. Council also determined that further cost- cutting strategies
could best be reconsidered in 2006- 07, once the net cost reductions strategies undertaken as part
of the Your City/ Your Decision process became known, and the possibilities of a successful tax
measure on the November 2007 ballot solidified. Also in 2005- 06 the City began preparations for
implementation of GASB pronouncements concerning the accounting and reporting of retiree
medical benefits, and began to include funding of these costs in its long- term forecasts. Although
a general fund surplus was anticipated as the 2005- 06 fiscal year drew to an end, the City’s long-term
budget prognosis remained relatively unchanged.
For the fiscal year ended June 30, 2006, General Fund revenues exceeded the budget by over $ 1.6
million. With the housing market remaining strong through most of the year, property tax
revenues were $ 558,000 ( 5.9%) over the projected budget. Sales Taxes ended the year $ 380,000
( 6.2%) over budget. Outside of taxes, the largest variances occurred in the area of Community
Development. Charges for services were $ 550,000 higher than budgeted in this department, and
building permit revenue exceeded projections by almost $ 275,000. General Fund departmental
expenditure savings of over $ 2.8 million were largely the result of staff vacancies ($ 1.3 million).
Uncertainties surrounding the future funding of many services kept other operating expenses
( including utilities, supplies, training, repairs and maintenance) low - $ 660,000 less than
projected - and an additional $ 360,000 represents outstanding commitments in the form of
purchase orders or contracts for services. With new GAAP accounting for compensated
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absences, additional expenses accrued for increases in staff leave time were not recorded as
departmental expenses within the fund statements. While making a concerted effort to return to
full staffing levels, many of these cost savings will not recur going forward.
Although the General Fund experienced a net surplus for the fiscal year, the City’s Capital
Improvement fund balance decreased by nearly $ 3.3 million. Funds previously appropriated to
specific projects were drawn down, and no transfer from the City’s General Fund was budgeted
to support capital expenditures in 2005- 06. A balance of $ 5.5 million remains in the Capital
Improvement Fund.
Fortunately, Menlo Park has and will continue to have an overall low rate of population growth,
which will minimize the need to expand City services. This coupled with modest commercial and
light industrial development that typically generate more in revenues than they cost the City in
services, will assist in the continued stability of the City’s finances. With commercial rental and
occupancy rates down, business development continues to be a key component in the City’s quest
for long- term fiscal sustainability. The slumping housing market anticipated to dampen
California’s economy through the end of 2007 may also have a negative impact on the City’s
revenues for the short- term.
Community Development Agency
The City Council, acting as the Community Development Agency Board, exercises authority over
redevelopment activities for which the City also provides administrative and financial services;
therefore, its financial activities are included in this report.
The Agency was established in 1981, with the first and only project area established that same
year. Plan amendments have expanded the Las Pulgas Community Development project area,
established new bonded indebtedness limits and revenue caps, and extended the Agency’s
deadline for Activities and Plan expiration. Bonds issued in 1988 ($ 4,720,000), 1992 ($ 25,000,000)
and again in 2000 ($ 44,000,000) provided funds for various redevelopment projects of the Agency.
The Agency’s investment in projects has resulted in demand for housing and considerable
investment in renovations and additions to the existing housing stock. Several streetscape
projects were completed this fiscal year, adding new curbs, gutters and driveways in varying
locations throughout the area. In keeping with the improved physical appearance of the project
area, residents and businesses hold bright prospects for future community enhancements.
In terms of new affordable housing in the community, plans are moving forward to the
completion of a 47 single family home project and one acre park on lands previously owned by
the Agency, 20 of which would be designated as Below Market Rate ( BMR) homes. Early in 2006,
the developer used this site, in a collaborative partnership with the State of California Sustainable
Building Task Force and Sunset Magazine, to showcase the construction of green- built residences
demonstrating the latest advances in green building design and construction and to promote the
benefits of sustainable building practices.
Agency staff was also active in processing rehabilitation loans, emergency repair loans and
landscaping grants – all programs developed to increase and maintain the availability of
affordable housing in the project area. Program funding for code and drug enforcement and
housing improvements continued to have a positive effect on the quality of life of the area.
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Late in the fiscal year, the Agency was able to take advantage of market conditions to refinance its
outstanding tax- exempt debt at lower interest rates. Enhancing the tax allocation refinancing
through the use of an interest rate swap agreement, the 2006 Tax Allocation Refunding Bonds
issuance will provide the Agency with approximately $ 500,000 each year in debt service savings
through 2016.
Since the Agency’s primary source of revenue is tax increments, property values and new
construction in the redevelopment area are the key economic factors that define the future
resources of the agency. Despite the fact that assessed valuation for the Agency rose 2.9% over
the prior year, tax increment revenue decreased by over 8% due to over $ 800,000 in property tax
refunds granted by the Assessment Appeals Board for fiscal years 2003- 04 and 2004- 05. These
successful appeals within the project area were due to office building vacancies in the past few
years, and will no doubt thwart increases in the area’s assessed valuation in the short term.
Although commercial and industrial activities remain slightly suppressed, the housing market
continues to show considerable resilience.
Major Initiatives
FOR THE YEAR: The City Council initiated a number of new projects and emphasized
maintaining quality city services with the goal of ensuring that Menlo Park remains a desirable
community. The passage of the $ 38 million Measure T general obligation bond in 2002, combined
with the redevelopment agency’s capital resources has provided the City with the financial
resources to improve community facilities that enhance the quality of life for residents. However,
continued budget restraints have limited the City’s ability to provide appropriate programming
and upkeep for the new facilities while sustaining the high level of current services available to
the community.
A 10- year financial forecast prepared early in 2004- 05 confirmed that annual shortfalls for the
City’s General Fund were projected to continue until the year 2012- 13. Recognizing that the
continued use of reserves, especially under a cost- deferring scenario would not be a prudent
strategy, Council approved a new approach to developing a balanced budget. With this
approach, a “ status quo” budget for 2005- 06 was approved in May in order to allow sufficient
time for the planning and implementation of a comprehensive process of community outreach
and service evaluation for the 2006- 07 budget. The focus in developing the 2005- 06 fiscal year
budget was to hold down operating costs to the extent possible, while developing a sustainable
General Fund budget for the City in the long- term through this community engagement process.
This process ( described further below) was labeled Your City/ Your Decision, as the results were
based on community input. All departments were involved in the Your City/ Your Decision budget
process: evaluating General Fund- provided services and costs, developing the educational
survey, developing net cost reduction options with minimal service impacts to the community,
responding to questions from workshop participants, and implementing the approved budget
strategies at the departmental level.
The City Manager’s Office led the charge in the Your City/ Your Decision process to develop a
long- term, sustainable General Fund budget. With the assistance of the Council- appointed
Budget Advisory Committee and outreach specialists to assist in the civic engagement process, an
informational mailer and survey was developed and distributed to the residents and businesses
of the City. This survey was Phase I of the Your City/ Your Decision process. The results were
compiled and used to develop a wide range of potential budget- balancing strategies for use in the
Phase II community workshops, attended by an estimated 225 participants. The workshops were
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intended to seek feedback on specific options for reducing services, raising fees and increasing
taxes in order to balance the budget. Consistent with the results of the survey, participants of the
workshops showed a preference for a combined approach, using both net cost reductions with an
emphasis on fee increases ( captured in the update of the City’s Municipal Fee Schedule), and
increased tax revenues. With Council direction, staff included specific Your City/ Your Decision
strategies in the 2006- 07 operating budget that reflected the mix of revenues, service reductions
and other cost savings indicated by the community feedback. In addition, a number of overhead
reductions and efficiencies were implemented, resulting in a total of $ 1,540,000 of net cost
reductions for the 2006- 07 budget. Staff also began the process of polling the community to
gauge support for tax measures that could fund City services and infrastructure needs. This
effort was designed to assist Council in deciding the size and type of tax measure ( if any) to place
before voters in the November 2006 election.
In addition to coordinating and implementing the community engagement budget process, the
Department of Administrative Services piloted a number of measures to improve the
effectiveness of the City’s operations and management.
The department created an on- site computer lab and provided 120 hours of training sessions to
build employees’ skills in important job- related computer applications. The department also
implemented a successful grant- funded pilot project to allow community members to view live
and archived City Council meetings via the Internet. Webstreaming of these meetings greatly
increased the public’s access to the Council’s deliberations and actions.
The Department’s Finance staff led the process to refinance Redevelopment Area bonds, which
will result in debt service savings to the Redevelopment Agency of approximately $ 5 million over
10 years. Staff also oversaw the completion of the City’s first actuarial valuation of its OPEB
( Other Post Employment Benefits). The study was performed to determine the City’s liability for
its retiree medical insurance benefit, as a first step towards compliance with new Governmental
Accounting Standards Board regulations regarding the accounting and disclosure requirements
for these benefits. Staff continues to investigate appropriate financing mechanisms for its OPEB
liability.
Toward the end of fiscal year, the Human Resources staff began negotiating contracts with the
City’s two safety bargaining units, whose contracts expired on June 30, 2006. In addition to
continuous recruitment and retention endeavors during a year of often- tumultuous budget
discussions, the staff succeeded in the completion of a nationwide Police Chief recruitment.
The Community Development Department not only completed the land use entitlements for the
major housing project in the Redevelopment Agency project area described above, but also for the
following major projects: 12 new residences at 966- 2003 Willow Road; residential projects at 110-
175 Linfield Drive, consisting of a total of 56 new residences; redevelopment of the Safeway
grocery store, with additional retail and service space on El Camino Real; and the Rosewood hotel
and office project, consisting of a 170,000 square- foot 125- room conference hotel and 100,000
square feet of office space on Sand Hill Road. Residential permit activity increased in 2005- 06, but
was still well below the unprecedented levels of the 2003- 04 fiscal year. Commercial permitting
volume declined moderately, but valuations increased significantly due to the size of the project
applications.
The Engineering and Maintenance divisions within Public Works stayed on course in keeping the
City’s many capital projects within budget and on schedule. Two large Measure T projects were
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completed and opened to the public in the last few months of the fiscal year. The Burgess Pool
and locker room construction, a nearly $ 7 million dollar project, consists of three new pools and a
lobby and locker room facility attached to the existing gymnasium within the Civic Center
complex. Although a third party operator will run the aquatics programs at the new site, the
Public Works Department will continue to provide maintenance and support systems oversight to
the new facilities. The Menlo Childrens’ Center ( MCC) was also completed in the Spring. This
project consisted of a total remodel of the City’s former Police building and use of an additional
foundation- mounted modular building for the Community Services Department’s Toddler,
Preschool and School Age child care programs. The $ 3.4 million project was completed in April
2006.
Several infrastructure projects were completed in 2005- 06, including the Sand Hill Road/ Santa
Cruz Avenue Project, a $ 12 million project funded totally by Stanford University. This project
took nearly 18 months to complete, and consisted of a widened, four- lane roadway ( which
required cantilevered retaining walls) with bike lanes and walking paths. Construction of the
Sherman Avenue and Santa Cruz Avenue intersection improvements was also completed, as
were major streetscape improvements in the Belle Haven Neighborhood. Attractive landscaping
improvements were made at the Onetta Harris Community Center. Renovation of Parking Plaza
5 in the downtown area is nearly complete. This project incorporated a demonstration for
pervious pavement material, for which partial funding was provided by a water quality grant. To
offset the burden of infrastructure maintenance on the General Fund, a building construction
impact fee took effect in November 2005 to recover the cost of repairing damage to streets caused
by construction- related vehicle traffic.
This year the Community Services Department was able to showcase the completion of a
number of major projects, beginning the fiscal year with the grand opening of the renovated
Burgess Park during a week of events culminating in the popular 4th of July parade and family
picnic. The grand openings of the Menlo Children's Center and Burgess Pool also took place in
2005- 06, basically completing the first phase of Measure T bond funded projects. The department
oversaw the smooth transition of the Burgess aquatics programs to a private swim organization
as a way to maintain service to the public and reduce cost to the City.
The Community Services Department received awards from the California Parks and Recreation
Society in 2005- 06 for the Juvenile Diversion Program, operated in collaboration with the Police
Department, and for the design of the newly completed Burgess Skate Park. The Community
Services Department also completed the Belle Haven Action Plan, which was initiated to better
understand and address the diverse needs of the Belle Haven neighborhood. The plan resulted in
weekend hours and additional programs at the Onetta Harris Community Center, such as
increased basketball leagues and new arts and crafts classes. Council approved the Belle Haven
Community School project in February 2006. The community school is an approach that provides
for the seamless integration of academic, enrichment and health and human service support to
children and their families. New programs and services through the Belle Haven Community
School are a parent center, a family resource center and a program to help English language
learners to improve their English.
The City’s Library Department successfully completed the implementation of a new catalog and
circulation system as the Peninsula Library System, of which Menlo Park Library is a member,
switched automation vendors. By the end of the fiscal year the staff had begun to input orders for
library materials into the online acquisitions system. This on- line order and tracking system will
let library customers know what materials a library has on- order but which have not yet been
viii
added to the collection. Other features of the new system can be viewed at
http:// catalog. plsinfo. org/.
Those that like to access the Menlo Park Library in person were pleased to find 42 newly
reupholstered lounge chairs in the main library; the interior wooden tables and stands were also
refinished. The technical services area was moved from the main floor to a larger, more
functional space on the lower level of the building. In the 2005- 06 fiscal year, twelve new public
access Internet terminals were installed in the main library, and four such terminals were funded
from the Cable Co- op Legacy Grant for the Belle Haven Branch. Also at the Belle Haven Branch,
English as a Second Language classes at literacy tutoring classes were expanded.
The presence of law enforcement personnel in the community often drives the perception of
quality public safety services. The Police Department continued to provide an effective presence
of law enforcement personnel throughout the community despite the constraints on departmental
personnel and other resources experienced in the past few fiscal years. The addition of a fourth
officer K- 9 unit to the force this last year will help maximize the use of current law enforcement
personnel, and is an example of leveraging grant funding to augment field services. The addition
of mobile report- writing software on the Mobile Data Terminals ( MDTs) located in all patrol cars
will also maximize manpower by increasing the officer’s time in the field.
At Police headquarters, the dispatch software has been upgraded to accept 911 calls directly form
cellular phones. This has greatly increased the convenience of placing calls for service from the
community. Also by fiscal year end, the contract for consolidation of Police Dispatch services
with the City of San Carlos was in its final stages. This regionalized approach to delivery of
dispatch services using computerized telecommunications systems has proven cost effective and
efficient in times of increasing budgetary constraints. In addition, the department has been
planning for a new state- of- the- art facility to bring more City services, and enhanced customer
service to the Belle Haven neighborhood substation. Building permits should be issued soon,
allowing for construction on this long- awaited project to begin. The department is also preparing
for implementation of red traffic signal light cameras at major intersections of the City, to reduce
the danger at these intersections and automate the citation process for red light violations
immediately upon infraction. All of these programs and projects will go forward under the
management of Bruce Goitia, who was promoted to Police Chief in May, after an extensive
recruitment effort.
FOR THE FUTURE: The net- cost reduction strategies identified and approved through the Your
City/ Your Decision budget process are recognized as an ample “ first step” in closing an ongoing
General Fund structural deficit. Although a significant surplus was experienced in the 2005- 06
fiscal year, the savings incurred through extensive departmental staff vacancies and the surge in
development project revenues are not considered on- going or part of a sustainable spending plan.
A major focus for the City will be forwarding appropriate funding strategies for not only current
operations and top- ranked priority capital improvement projects, but also to cover such long-term
on- going expenses as infrastructure maintenance and employee benefits.
To that end, staff continues to explore, per Council direction, future revenue and cost reduction
opportunities, including the Utility Users’ Tax ballot measure in November 2006, obtaining a
comprehensive cost allocation study to assist in capturing true costs of services, and reviewing
other cost reduction strategies and revenue opportunities that could be implemented without
compromising the quality of the City’s municipal services. As the needs of the community
change, the priority- setting process promulgated with each fiscal year budget should identify the
ix
most appropriate use of available funds. The presence of adequate reserves reflects the foresight
of the City Council and community and allows the City to both manage costs in a strategic
manner and prepare itself well for the future.
The program- based budget structure established in recent years will continue to evolve, with
improved ability to measure and track service- level results with varying funding levels. The
fiscal challenges ahead will continue to require creativity in terms of maintaining quality city
services and responding to community needs. The year ahead will also include a continued focus
on improving the workplace by advancing the concepts of the organizational development
initiative ( ODI) effort launched in 2004.
Accounting System & Control
The City administration is responsible for establishing and maintaining an internal control
structure designated to ensure that the assets of the City are protected from loss, theft or misuse
and to ensure that adequate accounting data are compiled to allow for the preparation of financial
statements in conformity with generally accepted accounting principles. The internal control
structure is designed to provide reasonable, but not absolute, assurance that these objectives are
met. The concept of reasonable assurance recognizes that, ( 1) the cost of a control should not
exceed the benefits likely to be derived, and ( 2) the valuation of costs and benefits require
estimates and judgments by management.
Budgeting Controls
In addition, the City maintains budgetary controls. The objective of these budgetary controls is to
ensure compliance with legal provisions embodied in the annual appropriated budget approved
by the City's governing body. Activities of the General Fund, special revenue funds and capital
projects funds are included in the annual appropriated budget. The level of budgetary control
( that is, the level at which expenditures cannot legally exceed the appropriated amount) is
established at the fund level. The City also maintains an encumbrance accounting system as a
technique of accomplishing budgetary control.
As demonstrated by the statements and schedules included in the financial section of this report,
the City continues to meet its responsibility for sound financial management.
Cash Management
Cash temporarily idle during the year was invested in the Local Agency Investment Fund ( LAIF),
administered by the Treasurer of the State of California, obligations of the United States Treasury,
Federal Agency Discount Notes, Medium Term Notes, and Certificates of Deposit. The average
daily balance of the investments for the City and the Agency for the fiscal year was $ 82.4 million,
which earned approximately $ 3.5 million with an annualized return net of fees of 3.1 percent.
Although cash and investment balances were lower, the amount of investment income earned
increased from the prior year due largely to higher average interest rates on City investments.
The City’s Cash and Investments footnote disclosures have been changed with the
implementation of GASB Statement # 40, Deposit and Investment Risk Disclosures. The statement
requires risk disclosures beyond the custodial credit risks identified in prior year reports to
include interest rate and overall credit risks inherent in the portfolio. Because the City's
x
investment policy is to obtain the highest yield available as long as investments meet the criteria
established for safety and liquidity, it is reasonable that these risks should be measured and
disclosed.
At June 30, 2006, 35 percent of investments held by the City were invested in LAIF. Investments
in LAIF are highly liquid, and generally may be converted to cash within twenty- four hours
without loss of investment income. Combined with other investments of limited duration, the
City’s portfolio carries an average investment maturity of 221 days, with 75.8 percent of the
portfolio invested in securities with a maturity of less than a year. By remaining short in
duration, exposure to fair value losses from rising interest rates is mitigated. Since LAIF is a
state- administered external investment pool, additional disclosures are included regarding LAIF
investments.
Risk Management
The General Fund designates $ 2.8 million in cash reserves for possible future catastrophic claims.
In addition, various risk control techniques, including employee safety training, an employee
safety committee to analyze accidents, and a safety and loss control consultant have been utilized
to minimize employee accident and liability claim losses.
Other Information
Statistical Section. In May 2004, the Governmental Accounting Standards Board ( GASB) issued
Statement No. 44, Economic Condition Reporting: the Statistical Section. GASB No. 44 significantly
changes the content and presentation of the information reported in the statistical section of a
Comprehensive Annual Financial Report ( CAFR). The new Statistical Section structure was
developed as a means to assist the reader in: understanding financial trends over time, assessing
the City’s revenue capacity, gauging the affordability of the City’s levels of outstanding debt, and
understanding the environment with in which the City’s financial activities take place.
Operating information is also included to help the reader understand how the data in the City’s
financial report relates to the services the City provides and the activities it performs. Over time,
the intent is to accumulate meaningful trend information with which to assess performance. The
overhaul of the City’s CAFR Statistical Section for compliance with GASB No. 44 was a major
effort of the Finance staff for the fiscal year ended June 30, 2006, and should provide useful
information now and in the future as this trend information is collected.
Independent Audit. State statutes require an annual audit by independent certified public
accountants. The accounting firm of Caporicci & Larson, Certified Public Accountants, was
selected by the City Council for this purpose. The auditor's report on the general purpose
financial statements and combining and individual fund statements is included in the financial
section of this report.
Awards. The Government Finance Officers Association of the United States has awarded a
Certificate of Achievement for Excellence in Financial Reporting to the City for its comprehensive
annual financial report for the fiscal year ended June 30, 2005. In order to be awarded this
Certificate, a governmental unit must publish an easily readable and efficiently organized
comprehensive annual financial report. This report must satisfy both generally accepted
accounting principles and applicable legal requirements. A Certificate of Achievement is valid
for a period of one year. We believe our current comprehensive annual financial report continues
to meet the Certificate of Achievement Program’s requirements. The City has also been awarded
xiv
CITY OF MENLO PARK, CALIFORNIA
ORGANIZATIONAL CHART
JUNE 30, 2006
City Attorney
Boards
Commissions
Committees
Community
Development
Public Works Community
Services
Administrative
Services
Police Library
City Manager
City Council
Citizens
xv
CITY OF MENLO PARK, CALIFORNIA
LIST OF CITY OFFICIALS
JUNE 30, 2006
CITY COUNCIL
Nicholas P. Jellins, Mayor
Kelly Fergusson, Mayor Pro Tem
Mickie Winkler, Councilmember
Lee B. Duboc, Councilmember
Andrew Cohen, Councilmember
ADMINISTRATION AND DEPARTMENT HEADS
City Attorney .................................................................................................... William McClure
City Manager .......................................................................................................... David Boesch
Assistant City Manager................................................................................... Audrey Seymour
Administrative Services:
Personnel and Information Services Director............................................... Glen Kramer
Finance Director ......................................................................................... Carol Augustine
City Clerk ............................................................................................. Sylvia Vonderlinden
Community Services Director, Acting .............................................................. Michael Taylor
Police Chief ................................................................................................................ Bruce Goitia
Library Director..................................................................................................... Susan Holmer
Developmental Services:
Director of Community Development ................................................... Arlinda Heineck
Director of Public Works ................................................................................ Kent Steffens
FINANCIAL SECTION
3
701 LAUREL STREET, MENLO PARK, CA 94025- 3483
www. menlopark. org
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fiscal Year Ended June 30, 2006
This management’s discussion and analysis ( MD& A) of the City of Menlo Park’s financial performance
provides an overview of the City’s financial activities for the fiscal year ended June 30, 2006. The MD& A is
intended to provide an objective and easily readable analysis. Please read it in conjunction with the
accompanying transmittal letter and the basic financial statements which follow this section.
FINANCIAL HIGHLIGHTS
Government- Wide Highlights:
Net Assets - The assets of the City exceeded its liabilities at fiscal year ending June 30, 2006 by $ 375,204,723.
Of this amount, $ 55,360,065 was reported as “ unrestricted net assets” and may be used to meet the
government’s ongoing obligations to citizens and creditors.
Changes in Net Assets – The City’s total net assets decreased by $ 10,410,741 in fiscal year 2005- 06. Net assets
of governmental activities decreased by $ 11,168,355, due largely to the loss recorded on the sale of a 6.2-
acre Housing and Park site within the Community Development Agency’s project area. Net assets of the
business type activities increased by $ 757,614, reflecting in large part the $ 574,980 revenue from the Water
Capital Facility surcharge associated with future water system improvements, which remained unspent at
year end.
Fund Highlights:
Governmental Funds – Fund Balances- As of the close of fiscal year 2005- 06, the City’s governmental funds
reported a combined ending fund balance of $ 91,148,647, substantially unchanged from the prior year. Of
the total fund balances, $ 47,654,923 is categorized as “ unreserved, undesignated fund balances” available
for appropriation.
General Fund - The undesignated fund balance of the general fund on June 30, 2006 was $ 25,001,249. The
total fund balance increased by $ 3,694,464 from the prior year.
Long- Term Debt:
The City’s total bonded debt obligations decreased by $ 286,972 during fiscal year 2005- 06, reflecting the
annual payment of the principal balance of outstanding debt. Although the 1996 and 2000 debt issuances
were refinanced with the issuance of the 2006 Las Pulgas Project Tax Allocation Bonds, the transaction did
not result in a change in the overall debt obligation.
City Highlights:
Although the City continues to struggle with the effects of the economic slowdown that began in the spring
of 2001, much has been achieved with the financial resources available. The priorities of capital projects
resided in the completion of the remaining two projects funded by the first round of the Measure T bond
funds approved by voters in November 2001. Construction of the Burgess Pool and Locker Room, at a
capitalized cost of $ 6,488,862, was completed and opened to the public in April 2006. The Menlo Children’s
Center ( MCC) was also completed in the spring, with a capitalized cost of $ 3,620,782.
4
In regards to operations, all City departments focused their efforts on promoting a public dialogue in order
to establish community priorities within the parameters of a long- term, sustainable budget for the City’s
General Fund. This budget process, entitled Your City/ Your Decision, was initiated late in the 2004- 05 fiscal
year. An informational mailer/ survey was distributed in September 2005 and the results were used to
develop specific budget strategies from which the community could choose. Community workshops in
February 2006 allowed participants to voice their preferences of the various cost- cutting and revenue-enhancing
strategies that would provide for a balanced budget for 2006- 07 and beyond. The process
culminated in a mix of strategies that reflected the community feedback generated. These strategies would
generally minimize the impact on health, safety and general welfare, preserve services to the Belle Haven
neighborhood, increase the degree to which other community services pay for themselves, and retain key
elements of what makes Menlo Park a unique place to live and work. In addition to other budget balancing
strategies, the placement of a new Utility User Tax measure on the ballot for November 2006 was pursued.
The City’s Redevelopment Agency ( RDA) saw the execution of a Disposition and Development Agreement
(“ DDA”) which culminated in the sale of property for the development of a small- lot, single- family
residential area and neighborhood park on an underutilized site within the redevelopment area. The
Agency- owned property had been acquired and readied for development at a cost of $ 17,692,855 to the
agency; the sales price was $ 3,977,000. The new homes ( including 20 Below Market Rate homes), public
park and improved infrastructure will enhance the overall living environment of the Project Area. An RDA
streetscape project was also completed this fiscal year at a total cost of $ 1,253,502.
OVERVIEW OF FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements.
The City’s basic financial statements are comprised of three components: 1) government- wide financial
statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains
other supplementary information in addition to the basic financial statements themselves.
Government- Wide Financial Statements
The Statement of Net Assets and the Statement of Activities and Changes in Net Assets
The Statement of Net Assets and the Statement of Activities and Changes in Net Assets report information
about the City as a whole and about its activities. These statements include all assets and liabilities of the
City using the accrual basis of accounting, which is similar to the accounting used by most private- sector
companies. All of the current year’s revenues and expenses are taken into account regardless of when cash
is received or paid.
These two statements report the City’s net assets and changes in them. Net assets are the difference between
assets and liabilities, which is one way to measure the City’s financial health, or financial position. Over time,
increases or decreases in the City’s net assets are an indicator of whether its financial health is improving or
deteriorating. Other factors to consider are changes in the City’s property tax base and the condition of the
City’s roads.
In the Statement of Net Assets and the Statement of Activities and Changes in Net Assets, City activities are
separated as follows:
Governmental activities— Most of the City’s basic services are reported in this category, including the
General Government, Public Safety, Public Works, Culture and Recreation that includes the library services
and Community Development. Property and sales taxes, user fees, interest income, franchise fees, and state
and federal grants finance these activities.
Business- type activities— The City charges a fee to customers to cover all or most of the cost of its water
distribution services, including a surcharge for future capital improvements as necessary. The City’s Water
system activities are the only activities reported in this category.
5
Fund Financial Stements
The fund financial statements provide detailed information about the most significant funds— not the City
as a whole. Some funds are required to be established by State law and by bond covenants. However,
management establishes many other funds to help it control and manage money for particular purposes or
to show that it is meeting legal responsibilities for using certain taxes, grants, and other money.
Governmental funds— Most of the City’s basic services are reported in governmental funds, which focus
on how money flows into and out of those funds and the balances left at year- end that are available for
spending. These funds are reported using an accounting method called modified accrual accounting, which
measures cash and all other financial assets that can readily be converted to cash. The governmental fund
statements provide a detailed short- term view of the City’s general government operations and the basic
services it provides. Governmental fund information helps determine whether there are more or fewer
financial resources that can be spent in the near future to finance the City’s programs. The differences of
results in the Governmental fund financial statements to those in the Government- Wide financial
statements are explained in a reconciliation schedule following each Governmental Fund financial
statement.
Proprietary funds— When the City charges customers for the services it provides— whether to outside
customers or to other units of the City— these services are generally reported in proprietary funds.
Proprietary funds are reported in the same way that all activities are reported in the Statement of Net
Assets and the Statement of Revenues, Expenses and Changes in Fund Net Assets. In fact, the City’s single
enterprise fund accounts for the business- type activities reported in the government- wide statements but
provides more detail and additional information, such as cash flows, for proprietary funds.
Fiduciary Funds
The City is the trustee, or fiduciary, for certain funds held on behalf of individuals, private organizations,
other governments and/ or other funds. The City’s fiduciary activities are reported in separate Statements
of Fiduciary Net Assets. We exclude these activities from the City’s other financial statements because the
City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets
reported in these funds are used for their intended purposes.
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in
the Government- Wide and Fund financial statements.
Required Supplementary Information
In addition to the basic financial statements and accompanying notes, this report also presents certain
required supplementary information providing a budgetary comparison statement for the general fund and
all major funds. It also includes Employees Pension Plan Schedule of Funding.
GOVERNMENT- WIDE FINANCIAL ANALYSIS
As noted earlier, the City as a whole has net assets of $ 375,204,723 at June 30, 2006. Program expenses by
function, general revenues by major source, excess and/ or deficiency of revenues over expenses before
contributions to fund principal, special, and extraordinary items, and total assets are presented in the
Statement of Activities and Changes in Net Assets.
The City’s programs for governmental activities include General Government, Public Safety, Public Works,
Culture and Recreation and Community Development. The programs for the business type activities consist
of water services provided by the Menlo Park Municipal Water District.
6
City of Menlo Park's Net Assets
Governmental Activities Business- Type Activities Total
2006 2005 2006 2005 2006 2005
Current Assets $ 82,788,898 $ 78,708,292 $ 15,275,373 $ 14,875,090 $ 98,064,271 $ 93,583,382
Non- Current Assets 22,033,507 26,229,579 - - 22,033,507 26,229,579
Capital Assets 350,162,325 361,919,601 7,440,931 7,119,922 357,603,256 369,039,523
Total Assets 454,984,730 466,857,472 22,716,304 21,995,012 477,701,034 488,852,484
Current Liabilities 7,179,280 9,381,799 528,206 539,344 7,707,486 9,921,143
Long- term Liabilities 94,762,657 93,264,525 26,168 51,352 94,788,825 93,315,877
Total Liabilities 101,941,937 102,646,324 554,374 590,696 102,496,311 103,237,020
Investments in Capital
Net of Related Debt 266,250,790 276,025,463 7,440,931 7,119,922 273,691,721 283,145,385
Restricted 35,499,220 40,834,828 10,653,717 9,743,217 46,152,937 50,578,045
Unrestricted 51,292,783 47,350,857 4,067,282 4,541,177 55,360,065 51,892,034
Total Net Assets $ 353,042,793 $ 364,211,148 $ 22,161,930 $ 21,404,316 $ 375,204,723 $ 385,615,464
City of Menlo Park's Changes in Net Assets
Governmental Activities Business- Type Activities Total
2006 2005 2006 2005 2006 2005
Revenues:
Program Revenues:
Charges for Services $ 16,193,197 $ 12,386,707 $ 3,567,919 $ 3,305,954 $ 19,761,116 $ 15,692,661
Operating Grants and Contributions 1,681,506 1,712,952 - - 1,681,506 1,712,952
Capital Grants and Contributions 268,468 686,540 - 462,525 268,468 1,149,065
General Revenue: - -
Property Taxes 19,621,262 17,755,873 - - 19,621,262 17,755,873
Sales Taxes 6,503,635 6,057,460 - - 6,503,635 6,057,460
Motor Vehicle License 741,466 2,008,458 - - 741,466 2,008,458
Other Taxes 2,518,404 2,352,535 - - 2,518,404 2,352,535
Investment Earnings 3,482,982 2,239,123 498,773 333,040 3,981,755 2,572,163
Miscellaneous 212,819 77,106 - - 212,819 77,106
Total Revenues 51,223,739 45,276,754 4,066,692 4,101,519 55,290,431 49,378,273
Expenses:
General Government 7,761,696 7,322,997 - - 7,761,696 7,322,997
Public Safety 9,092,996 9,196,468 - - 9,092,996 9,196,468
Public Works 10,275,029 9,094,984 - - 10,275,029 9,094,984
Culture and Recreation 7,781,549 7,547,337 - - 7,781,549 7,547,337
Community Development 23,179,192 8,721,659 - - 23,179,192 8,721,659
Interest on Long- term Debt 4,529,332 4,602,336 - - 4,529,332 4,602,336
Water Operations - - 3,081,378 3,187,578 3,081,378 3,187,578
Total Expenses 62,619,794 46,485,781 3,081,378 3,187,578 65,701,172 49,673,359
Inc/ Dec in Net Assets before Transfers ( 11,396,055) ( 1,209,027) 985,314 913,941 ( 10,410,741) ( 295,086)
Transfers 227,700 216,700 ( 227,700) ( 216,700) - -
Changes in Net Assets ( 11,168,355) ( 992,327) 757,614 697,241 ( 10,410,741) ( 295,086)
Net Assets - Beginning of the Year 364,211,148 365,203,475 21,404,316 20,707,075 385,615,464 385,910,550
Net Assets - End of the Year $ 353,042,793 $ 364,211,148 $ 22,161,930 $ 21,404,316 $ 375,204,723 $ 385,615,464
7
Governmental Expense by Activity
Public Safety
15%
Public
Works
17%
Culture &
Recreation
7%
Community
Developmen
t
10%
Interest on
Long- term
Debt
14%
General
Government
37%
Net Cost of Governmental Activities
Interest on
Long- term
Debt
15%
Culture &
Recreation
11%
Public Works
21%
Public Safety
24%
General
Government
9%
Community
Development
20%
BUSINESS TYPE ACTIVITIES
Net assets for business- type activities were $ 22,161,930. Total program revenues for business- type activities
were $ 3,567,919, which consisted solely of Charges for Services related to the water usage and capital
surcharge fees. Total expenses for the business- type activities were $ 3,081,378 during fiscal year 2006, all
related to water operations.
FINANCIAL ANALYSIS OF INDIVIDUAL FUNDS
Major Fund Balances
A key function of fund accounting is to segregate resources. In order to reduce frustration when different
individual funds are combined for financial reporting purposes and because it is common for governments
to have too many funds to include information on each individual fund within the basic financial
statements, Major Fund reporting was implemented with Government Accounting Standards Board
( GASB) Statement 34. Each major individual fund is required to be presented separately and all non- major
governmental funds to be aggregated into a single other governmental fund category. The General Fund is
always considered a major fund. The criteria to determine what other funds must be reported as a major
fund are:
• Ten percent criterion. An individual fund reports at least 10 percent of any of the following:
a) total governmental fund assets, b) total governmental fund liabilities, c) total
governmental fund revenues, or d) total governmental fund expenditures.
• Five percent criterion. An individual governmental fund reports at least 5 percent of the
total for both governmental and enterprise funds of any one of the items for which it met the
10 percent criterion.
8
The City’s major fund balances and aggregate other governmental funds balances are:
Increase
June 30 June 30 ( Decrease)
Fund Balances for Major Funds 2006 2005 From 2004- 05
General Fund $ 35,500,676 $ 31,806,212 $ 3,694,464
CDA Housing Fund 4 10,902 ( 3,607,736) 4 ,018,638
CDA Non- Housing Fund 1 5,016,940 1 9,250,262 ( 4,233,322)
CDA Debt Service Fund 6 ,849,552 6 ,849,552
CDA Capital Projects Fund 7 ,902,504 1 2,042,619 ( 4,140,115)
Community Development Block Grant 9 ,683 5 ,594 4 ,089
Other Governmental Funds 2 5,458,390 3 2,900,773 ( 7 , 4 4 2 , 3 8 3 )
TOTAL $ 91,148,647 $ 92,397,724 ($ 1,249,077)
Note that these 2005- 06 statements present the City’s Community Development Agency funds as four
distinct major funds, rather than the combined treatment provided in prior years.
General Fund Balance
As noted, the General Fund is always one of the major Governmental funds, and is the primary operating
fund of the City. Most City services are accounted for in the General Fund, including most public safety,
public works, parks and community services, library, planning and community development, and general
government.
At the end of the current fiscal year, the undesignated fund balance of the General Fund was $ 25,001,249,
while the total fund balance reached $ 35,500,676. As a measure of the General Fund’s liquidity, it may be
useful to compare both the undesignated fund balance and total fund balance to total fund expenditures.
The unreserved fund balance represents 122 percent of total General Fund expenditures including transfers
out for the year, while total fund balance represents 129 percent of that same amount.
During the current year, the total fund balance of the General Fund increased by $ 3,694,464. This represents
12.2% of the General Fund operating budget. Of the total fund balance of $ 35,500,676, $ 1,887,470 is reserved
for certain commitments and $ 8,611,957 is designated for various items such as insurance claims,
equipment and infrastructure replacement and fiscal uncertainties leaving $ 25,001,249 as the undesignated
fund balance.
The available fund balance of the City’s General Fund increased by $ 3,496,062 during the current fiscal year.
Key factors ( discussed further in General Fund Budgetary Highlights) in the increase were:
• Operating revenues exceeded operating expenditures by $ 3,694,464
• Funds designated for Insurance claim liability increased by $ 758,639
Note that a prior- period adjustment to remove the liability for compensated absences from the fund
financial statements ( intended for inclusion only in the City- wide financial statements) added $ 697,090 to
the General Fund’s beginning fund balance at July 1, 2005.
9
Special Revenue Fund Balance
At the end of the current fiscal year, the total fund balance of all the Special Revenue Funds was
$ 32,697,170. During the year, the total fund balance for all special revenue funds increased by $ 94,295. The
Community Development Agency ( CDA) Special Revenue funds had a decrease of $ 214,684 in fund balance
to an end of year balance of $ 15,427,842. These funds recorded a decrease in revenue of $ 942,891 from the
prior fiscal year, but at year end revenues were $ 4,535,685 over expenditures. The decline of the CDA
Special Revenue fund balance during the fiscal year was due largely to transfers to the debt service fund for
the escrow account and issuance costs related to the refinancing of the Agency’s tax allocation bonds.
Capital Projects Fund Balance
At June 30, 2006, the total fund balance for the Capital Projects Funds was $ 7,966,821. This is the result of a
$ 7,726,766 decrease in fund balance during the fiscal year. The Capital Improvement General fund
experienced a decrease of $ 3,277,723 to a year- end fund balance of $ 5,558,135 due to the continuance of
infrastructure maintenance and improvements along with other capital project priorities without funding
for these improvements from the General Fund. The Measure T 2002 GO Bond Capital Improvement fund
had a decrease of $ 4,416,500 in fund balance to an end of year balance of $ 1,996,118, the result of completing
the major projects of the Menlo Children’s Center and the Burgess Aquatics Center.
Enterprise Funds
The City has one enterprise operation: the Water Fund. An enterprise fund accounts for activities that are
financed and operated in a manner similar to private business enterprises. The City Council has
determined that the cost of providing these services to the public be recovered primarily through user
charges.
The Water Fund accounts for water supplied to the approximately 4,000 customers of the Menlo Park
Municipal Water District. The retained earnings at June 30, 2006 were $ 22,161,930, an increase of $ 757,614.
In 2005, the City adopted consumption block rates and a capital surcharge per unit of consumption as
recommended in the rate study done by Bartle Wells and Associates. The rates are structured to encourage
water conservation, to increase the operating fund balance, to support capital improvement projects, and to
find new sources of water.
Fiduciary Operations
As previously stated, the City holds certain assets on behalf of others in separate Fiduciary, or Agency,
funds. These funds cannot be used to finance City operations. The amount of fiduciary funds held at year
end increased by $ 67,066, due largely to payroll contributions ( for the payroll dated June 30, 2006) not yet
remitted to the appropriate entities.
DEBT ADMINISTRATION
As of June 30, 2005, the City has various debt obligations outstanding. These debt obligations are
comprised of:
Type Principal Outstanding
General Obligation Bonds $ 16,050,000
Tax Allocation Bonds 72,430,000
During fiscal year 1995- 1996, the City issued $ 4,630,000 of General Obligation Refunding Bonds, Series 1996
to refund and defease $ 4,080,000 of the $ 4,665,000 aggregate principal amount of the outstanding City of
Menlo Park Library Improvement Project General Obligation Bonds, Series 1990. The proceeds of the 1990
Bonds were used to finance certain improvements to the City’s library, including the renovation of existing
structures. The balance of the 1996 General Obligation Refunding Bonds at June 30, 2006 was $ 3,345,000.
The bonds are to be paid from special assessments to property owners within the City.
10
During fiscal year 2001- 2002 the City issued $ 13,245,000 of General Obligation Bonds, Series 2002 to finance
certain parks and recreation improvements. The balance of the 2002 General Obligation Bonds at June 30,
2006 was $ 12,705,000.
In May 2006, the City’s Community Development Agency issued Tax Allocation Refunding Bonds in a par
amount of $ 72,430,000 for the purpose of refunding at lower interest rates outstanding Series 1996 and
Series 2000 Tax Allocation Bonds. These bonds had been issued to finance capital projects of benefit to the
Las Pulgas Community Development Project Area. The 2006 net bond proceeds together with other
available monies pledged toward repayment of the 1996 and 2000 bonds were used to refund all
outstanding principal of these bond issues ($ 25,515,000 and $ 43,215,000, respectively). In order to maximize
refunding savings, the Agency utilized a “ synthetic “ fixed- rate bond structure by issuing variable- rate
bonds and then entering into a floating- to- fixed interest rate swap. The refinancing provides an estimated
net savings of over $ 5,122,000 over the life of the bonds.
Additional information on the City’s long- term debt can be found in note 6 on pages 58 through 63 of this
report.
As disclosed in the Notes to Basic Financial Statements, a liability has been recorded to reflect the City’s
obligation to provide post- closure care of the landfill at Bayfront Park. Although the City has established a
revenue stream to fund landfill post- closure care, governmental accounting standards require the
calculation and recording of the liability associated with this activity. The liability is included in the
reporting of the City’s long- term debt, at an estimated $ 7,220,173 at June 30, 2006.
CAPITAL ASSETS
The City’s investment in capital assets for its governmental and business type activities as of June 30, 2006
amounts to $ 357,603,256, net of accumulated depreciation of $ 63,117,630. This investment in capital assets
includes land, buildings, improvements, machinery and equipment, infrastructure and construction in
progress. Infrastructure assets are items that are normally immovable and of value only to the City such as
roads, bridges, streets and sidewalks, drainage systems, lighting systems and similar items. The City’s
investment in capital assets for the current fiscal year decreased by $ 11,436,266, due largely to the sale of the
housing and park site noted earlier.
Major capital asset additions during the current fiscal year included the following completed projects:
• Burgess Park pool and gymnasium - $ 6,488,862
• Burgess Park improvements and skate park - $ 3,939,725
• Child care center - $ 3,620,782
• RDA streetscape improvements – $ 1,253,502
• City street resurfacing – $ 491,841
Capital asset additions during the current fiscal year included only one Works In Progress project
exceeding $ 200,000 at the end of 2005- 06:
• Parking plaza renovation - $ 680,820
Additional information on the City’s capital assets can be found in note 5 on pages 56 through 57 of this
report.
11
GENERAL FUND BUDGETARY HIGHLIGHTS
The 2005- 06 fiscal year adopted budget for General Fund expenditures including transfers out amounted to
$ 29,358,547. The final ( adjusted) budget amount was $ 30,346,201, a net increase of $ 987,654.
Increases to the adopted budget include $ 471,895 in committed purchase orders from the prior June 30
balance and:
• $ 57,980 for expenses associated with various public safety, community services and library
programs funded through increased grant revenues
• $ 42,000 in Community Development for contract building permit and plan review services
• $ 95,000 to settle a suit over past DUI billings
• $ 52,120 in Community Development for contract assistance with the Commercial Zoning Ordinance
Update
• $ 50,000 in Administrative Services for contract polling services and other costs of exploring a tax
measure on the November 7, 2006 ballot
General Fund Revenues
• Property tax revenues increased 37.9 percent over the prior year primarily due to the State’s Motor
Vehicle License Fee ( VLF) “ Swap” arrangement. This plan of revenue realignment was prescribed
by the State, with 2004- 05 being the transition year. In 2004- 05, the State “ backfilled” the VLF
revenue loss to cities with an additional allocation of local property tax from county ERAF
( Educational Revenue Augmentation Funds). The backfilled amount was based on the original
amount of VLF lost. Beginning in 2005- 06, this amount is now based upon assessed valuation and
should therefore be classified as property taxes. The amount of “ Property Tax in Lieu of VLF” in
2005- 06 was $ 1,993,660. Without this reclassification, property taxes for the City increased 10.5
percent. Assessed property values in the City increased 6.25 percent, and revenues from property
transfer tax grew 6.9 percent. The housing market has remained strong throughout the economic
downturn of the last five years.
The City received a distribution of excess contributions to the County’s ERAF fund that exceeded the
prior year distribution by over $ 214,000, partially due to the final liquidation of ERAF Fund reserves
from fiscal year 2001- 02. In addition, excess ERAF distributed to redevelopment agencies for fiscal
years 2002- 03 and 2003- 04 was retroactively disallowed, and redistributed to all other taxing
agencies along with the excess ERAF of 2004- 05. This amounted to an additional $ 94,858 of property
tax revenue to the City’s General Fund, which alone represents an additional 1.3 percent increase
over the prior year.
• Sales tax revenues, at just over $ 6.5 million, marked a 7.37 percent increase ($ 446,175) over the prior
year, exceeding the mid- year budget estimate by $ 380,000. Projecting sales tax revenues has been
complicated since the implementation of the “ Triple Flip” mechanism designed to secured payment
of the State’s new debt in 2004- 05. It appears that the steep slide of sales taxes from its peak in fiscal
year 2000- 01 has ended, although it should be noted that sales tax receipts for the final two quarters
of the year were 2.3 percent lower than the same quarters of the previous year.
• A 29.7 percent increase in revenues from use of money and property was mainly the result of an
increase from investment earnings. Yields on investments increased as interest rates continued to
rise steadily throughout the fiscal year. Whereas the annualized return on the portfolio at June 30,
2005 was 2.65 percent, the same return at June 30, 2006 was 4.16 percent. The increase on
investments was $ 344,467 ( 35.8 percent) over the prior fiscal year, though due to increased capital
spending, the portfolio balance dropped almost $ 6 million ( 6.1 percent). Rental income was up
$ 38,148, or 11.7 percent.
12
• Intergovernmental revenue dropped over 44 percent from the prior year due mainly to the
reclassification of the “ property tax in lieu of VLF” to property taxes, as explained above. However,
the State did pay back a VLF “ loan” from 2003- 04, which increased intergovernmental revenues by
$ 530,000. This classification also includes federal and state grant revenue, which experienced little
change over the prior fiscal year.
• Revenues from charges for services increased $ 396,124 ( 10.3 percent), largely due to an increase in
the demand for Community Development services. Planning fees, improvement plan checks, and
subdivision inspection fees, up a combined $ 369,935, accounted for most of the increase.
• Licenses and permits revenues increased 20.25 percent from 2004- 05 levels. Again, the source of the
increase was largely the result of Community Development activities. The volume of building
permit activity pushed revenues 15.6 percent over the $ 1.76 million projected.
Total General Fund revenues, exclusive of transfers in from other funds, rose 11.8 percent ($ 3,231,280) over
the 2004- 05 fiscal year.
General Fund Expenditures
Although budgetary savings were experienced in all departments, departmental expenses varied greatly
from the prior year.
• General government expenditures increased 9.2 percent over the prior fiscal year, largely due to
anticipated personnel, insurance and contract cost increases. However, expenditures were 14.2
percent under budget. Several factors contributed to these budgetary savings, including: the budget
for Workers Compensation program expenses were revised upward by $ 300,000 at mid- year in
anticipation of higher claims expenses, when only an additional $ 100,000 proved to be necessary;
insurance premiums, claims and legal expenses were $ 307,201 under budget in the City’s General
Liability program; and Administrative Service contract commitments of $ 80,000 remained and will
carry forward to the next fiscal year.
• Public safety expenditures actually decreased 0.83 percent from the prior fiscal year. Due to large
number of vacancies in the police force, including top administrative positions, the department
experienced $ 730,000 in personnel savings alone.
• The Community Services department also experienced significant personnel savings ($ 330,000), due
both to numerous vacancies and cost- cutting strategies implemented in the last quarter of the year.
There was a total of $ 188,500 of budgetary savings in the Aquatics program, due to the delayed
opening of the new Burgess Aquatics Center and outsourcing of the Center’s operations.
• General Fund expenditures for capital outlay increased $ 80,132 ( 21.5 percent) from the prior year,
but fell short of budget due to planned fixed asset purchases or improvements delayed to the
subsequent fiscal year.
Total actual General Fund expenditures, exclusive of transfers out, increased 3.96 percent ($ 1,040,012) over
the 2004- 05 fiscal year.
Operating transfers to other funds decreased due to the transfer of $ 2,000,000 to the General Capital
Improvement Fund made in 2004- 05 to fund infrastructure replacement and repairs. No such transfer was
made in the 2005- 06 fiscal year.
13
ECONOMIC CONDITION AND OUTLOOK
To what extent the 2005- 06 results of General Fund operations will impact the City’s budgetary bottom line
in the future is uncertain. Clearly, the City does not foresee continued personnel savings as key vacancies
are filled and personnel retention improves. Funding of infrastructure, through a transfer from the General
Fund, was restored in the 2006- 07 operating budget to prevent further declines in available capital fund
balances. Although the City has continued to experience fiscal challenges associated with the sales tax
revenue reductions experienced since the region’s economic slump, which began in 2001, sales taxes appear
to have leveled off from the prior years’ decline. However, the loss of sales- tax generators is still of concern.
Despite intensified business development efforts to retain current businesses and to promote new
commercial development throughout the City, four of Menlo Park’s five car dealerships have closed in
search of locations with higher visibility than currently afforded along the City’s main corridor, El Camino
Real. Some success in terms of new commercial development is apparent: a luxury hotel facility at the
City’s southwest highway interchange should break ground early in 2006- 07. The housing market, which
has buoyed property taxes in the Silicon Valley throughout the first years of the millennium, is expected to
slow considerably in the near future. In order to keep pace with rising labor, insurance and energy costs,
the City’s revenue picture must be carefully nurtured for the long term.
With the completion of the Your City/ Your Decision community engagement process in 2005- 06, the City
included many of the cost cutting and revenue enhancing strategies preferred by the populace in the
development of the 2006- 07 operating budget. The Council also approved pursuit of a Utility User Tax for
the November 2006 ballot to possibly support future year budgets.
The City continues its efforts in forming partnerships with private entities and other stakeholders in the
community, and looks regionally for more efficient ways to provide quality governmental services. Long-term
financial planning will be utilized to securely match revenue streams with its operational liabilities.
The City completed its first valuation of retiree medical benefits this fiscal year, and intends to develop
viable budget strategies to secure funding for the associated liability. The goal of a balanced, sustainable
budget that will allow for Menlo Park’s continued financial stability in the long term remains a priority for
the City.
REQUESTS FOR INFORMATION
This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors
with a general overview of the City’s finances and to show the City’s accountability for the money it
receives. If you have questions about this report or need additional financial information, contact the City of
Menlo Park Finance Department, 701 Laurel Street, California 94025.
14
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BASIC FINANCIAL STATEMENTS
15
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16
GOVERNMENT- WIDE
FINANCIAL STATEMENTS
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18
City of Menlo Park
Statement of Net Assets
June 30, 2006
Governmental Business- Type
Activities Activities Total
ASSETS
Current assets:
Cash and investments $ 69,811,664 $ 14,851,693 $ 84,663,357
Receivables:
Accounts 947,833 275,159 1,222,992
Interest 701,401 148,521 849,922
Notes 9,407,175 - 9,407,175
Due from other governments 1,717,414 - 1,717,414
Deposits and prepaid items 203,411 - 203,411
Total current assets 82,788,898 15,275,373 98,064,271
Noncurrent assets:
Restricted cash and investments 20,387,394 - 2 0,387,394
Deferred Charges 1,646,113 - 1,646,113
Capital assets
Non- depreciable 2 39,100,764 1,066,454 2 40,167,218
Depreciable, net 1 11,061,561 6,374,477 1 17,436,038
Total capital asset 350,162,325 7,440,931 3 57,603,256
Total noncurrent assets 372,195,832 7,440,931 3 79,636,763
Total assets 4 54,984,730 2 2,716,304 477,701,034
LIABILITIES
Current liabilities:
Accounts payable 2,770,282 441,706 3,211,988
Accrued payroll 477,012 1 2,502 489,514
Interest payable 614,620 - 614,620
Deposits 556,962 5 0,794 607,756
Unearned revenue 858,770 - 858,770
Claims payable due within one year 5 50,220 - 550,220
Compensated absences due within one year 768,905 2 3,204 792,109
Landfill postclosure care due within one year 107,509 - 107,509
Long- term debt due within one year 4 75,000 - 475,000
Total current liabilities 7 ,179,280 528,206 7,707,486
Noncurrent liabilities:
Claims payable due in more than one year 2 ,314,902 - 2,314,902
Compensated absences due in more than one year 867,063 2 6,168 893,231
Landfill postclosure care due n more than one year 7,112,664 - 7,112,664
Long- term debt due in more than one year 8 4,468,028 - 8 4,468,028
Total noncurrent liabilities 9 4,762,657 2 6,168 9 4,788,825
Total liabilities 1 01,941,937 554,374 1 02,496,311
NET ASSETS
Invested in capital assets, net of related debt 266,250,790 7,440,931 2 73,691,721
Restricted for:
Capital projects 1 6,297,615 1 0,653,717 26,951,332
Debt service 8,366,348 - 8,366,348
Community Development 6,187,396 - 6,187,396
Special projects 4,647,861 - 4,647,861
Unrestricted 5 1,292,783 4,067,282 5 5,360,065
$ 3 53,042,793 $ 2 2,161,930 $ 3 75,204,723
See accompanying Notes to Basic Financial Statements.
Primary Government
Total net assets
19
City of Menlo Park
Statement of Activities and Changes in Net Assets
For the year ended June 30, 2006
Operating Capital
Charges for Grants and Grants and
Functions/ Programs Expenses Services Contributions Contributions Total
Primary government:
Governmental activities:
General Government $ 7 ,761,696 $ 4 ,649,505 $ 5 9,099 $ - $ 4 ,708,604
Public Safety 9 ,092,996 1 ,086,348 2 04,363 - 1 ,290,711
Public Works 1 0,275,029 3 ,609,732 1 88,092 2 68,468 4 ,066,292
Culture and recreation 7 ,781,549 2 ,949,807 1 ,040,281 - 3 ,990,088
Community development 2 3,179,192 3 ,897,805 1 89,670 - 4 ,087,475
Interest on long- term debt 4 ,529,332 - - - -
Total governmental activities 6 2,619,794 1 6,193,197 1 ,681,505 2 68,468 1 8,143,170
Business- type activities:
Water 3 ,081,378 3 ,567,919 - - 3 ,567,919
Total business- type activities 3 ,081,378 3 ,567,919 - - 3 ,567,919
Total primary government $ 6 5,701,172 $ 1 9,761,116 $ 1 ,681,505 $ 2 68,468 $ 2 1,711,089
General Revenues:
Taxes:
Property taxes
Sales taxes
Motor vehicle fee taxes
Transient occupancy taxes
Franchise taxes
Total taxes
Investment earnings
Miscellaneous
Transfers
Total general revenues and transfers
Change in net assets
Net assets - beginning of year
Net assets - end of year
See accompanying Notes to Basic Financial Statements.
Program Revenues
20
Governmental Business- Type
Activities Activities Total
$ ( 3,053,092) $ - $ ( 3,053,092)
( 7,802,285) - ( 7,802,285)
( 6,208,737) - ( 6,208,737)
( 3,791,461) - ( 3,791,461)
( 19,091,717) - ( 19,091,717)
( 4,529,332) - ( 4,529,332)
( 44,476,624) - ( 44,476,624)
- 4 86,541 4 86,541
- 4 86,541 4 86,541
( 44,476,624) 4 86,541 ( 43,990,083)
1 9,621,262 - 1 9,621,262
6 ,503,635 - 6 ,503,635
7 41,467 - 7 41,467
1 ,237,697 - 1 ,237,697
1 ,280,707 - 1 ,280,707
2 9,384,768 - 2 9,384,768
3 ,482,982 4 98,773 3 ,981,755
2 12,819 - 2 12,819
2 27,700 ( 227,700) -
3 3,308,269 2 71,073 3 3,579,342
( 11,168,355) 7 57,614 ( 10,410,741)
3 64,211,148 2 1,404,316 3 85,615,464
$ 3 53,042,793 $ 2 2,161,930 $ 3 75,204,723
$ 3 53,042,793 $ 2 2,161,930
and Changes in Net Assets
Net ( Expense) Revenue
21
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22
FUND FINANCIAL STATEMENTS
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24
Debt Service Fund - Established to comply with interest and redemption requirements of the Las
Pulgas Tax Allocation Refunding Bonds.
GOVERNMENTAL FUND
FINANCIAL STATEMENTS
General Fund - Accounts for all revenues and expenditures necessary to carry out basic governmental
activities of the City that are not accounted for through other funds. For the City, the General Fund includes
such activities as police, planning, engineering, public works operations and maintenance, and legal and
administrative services.
Community Development Block Grant Special Revenue Fund - Established in 1981 to account for Federal
Housing and Community Development Block Grant funds utilized for single family housing rehabilitation
and related administration.
Capital Projects Fund - Established to account for the proceeds of the Las Pulgas Tax Allocation
Refunding Bond Issue and used to construct improvements to the project area.
Housing Special Revenue Fund - Established to account for 20% of the tax increment property taxes
received under State of California Health and Safety Code Division 24, Part 1. Funds are used to
promote the expansion of local housing opportunities for low and moderate income residents.
Non- Housing Special Revenue Fund - Accounts for 80% of the tax increment property taxes received
under State of California Health and Safety Code Division 24, Part 1 and utilized to reduce and
eliminate visual, economic, physical and social blight existing within the Las Pulgas Community
Development Project Area.
Community Development Agency Fund - Established to account for tax increment property taxes received
under State of California Health and Safety Code Division 24, Part 1. Funds are utilized to reduce and
eliminate visual, economic, physical and social blight existing within the Agency's project area( s). The
following funds are presented for the Community Development Agency:
25
City of Menlo Park
Balance Sheet
Governmental Funds
June 30, 2006
General Special Revenue Special Revenue Debt Capital
Fund Housing Non- Housing Service Projects
ASSETS
Cash and investments $ 34,196,870 $ 465,547 $ 11,357,373 $ - $ 36,222
Restricted cash and investments - - 1,389 6,849,552 11,776,361
Receivables:
Accounts 796,470 - - - -
Interest 422,919 4,656 113,546 - 362
Notes 1,457,292 4,918,351 - - -
Due from other governments 916,557 - 2,225 - -
Deposits and prepaid items 203,411 - - - -
Due from other funds - - 4,247,065 - -
Advances to other funds - - - - -
Total assets $ 37,993,519 $ 5,388,554 $ 15,721,598 $ 6,849,552 $ 11,812,945
LIABILITIES AND
FUND BALANCES
Liabilities:
Accounts payable $ 837,505 $ 79,318 $ 690,075 $ - $ 85,466
Accrued payroll and related liabilities 414,729 3,630 14,583 - 1,131
Due to other funds - - - - 3,823,844
Deposits 556,962 - - - -
Deferred revenue 683,647 4,394,704 - - -
Advances from other funds - 500,000 - - -
Total liabilities 2,492,843 4,977,652 704,658 - 3,910,441
Fund Balances:
Reserved 1,887,470 1,999,466 11,847 6,849,552 1,790,084
Unreserved:
Designated, reported in:
General fund 8,611,957 - - - -
Special revenue funds - - - - -
Capital project funds - - - - 6,112,420
Undesignated, reported in:
General fund 25,001,249 - - - -
Special revenue funds - ( 1,588,564) 15,005,093 - -
Total unreserved 33,613,206 ( 1,588,564) 15,005,093 - 6,112,420
Total fund balances 35,500,676 410,902 15,016,940 6,849,552 7,902,504
Total liabilities and fund balances $ 37,993,519 $ 5,388,554 $ 15,721,598 $ 6,849,552 $ 11,812,945
See accompanying Notes to Basic Financial Statements.
Major Funds
Community Development Agency
26
Major Fund
Community
Development Non- Major Total
Block Grant Governmental Governmental
Special Revenue Funds Funds
$ - $ 23,755,652 $ 69,811,664
- 1,760,092 20,387,394
- 151,363 947,833
- 159,918 701,401
2,257,235 774,297 9,407,175
440,997 357,635 1,717,414
- - 203,411
- 21,769 4,268,834
500,000 - 500,000
$ 3,198,232 $ 26,980,726 $ 107,945,126
$ 5,928 $ 1,071,990 $ 2,770,282
2,164 40,775 477,012
423,221 21,769 4,268,834
- - 556,962
2,757,236 387,802 8,223,389
- - 500,000
3,188,549 1,522,336 16,796,479
501,375 8,252,902 21,292,696
- - 8,611,957
- 849,074 849,074
- 6,627,577 12,739,997
- - 25,001,249
( 491,692) 9,728,837 22,653,674
( 491,692) 17,205,488 69,855,951
9,683 25,458,390 91,148,647
$ 3,198,232 $ 26,980,726 $ 107,945,126
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City of Menlo Park
Reconciliation of the Governmental Funds Balance Sheet
to the Government- Wide Statement of Net Assets
June 30, 2006
Total Fund Balances - Total Governmental Funds $ 91,148,647
Capital assets used in governmental activities were not current financial resources. Therefore, they
were not reported in the Governmental Funds Balance Sheet.
Non- depreciable 239,100,764
Depreciable, net 111,061,561
Interest payable on long- term debt did not require current financial resources. Therefore, interest
payable was not reported as a liability in the Governmental Funds Balance Sheet. ( 614,620)
Deferred charges on issuance of debt are recorded as expenditures in the Fund Financial
Statements. In the Government- Wide Financial Statements, these costs are capitalized and
amortized over the life of the debt. 1,646,113
Deferred revenues recorded in governmental fund financial statements resulting from activities in
which revenues were earned but funds were not available are reclassified as revenues in the
Government- Wide Financial Statements. 7,364,619
Landfill postclosure care costs do not require current financial resources and are not reported as a
liability in the fund financials statements. ( 7,220,173)
Long- term liabilities were not due and payable in the current period. Therefore, they were not
reported in the Governmental Funds Balance Sheet.
Long- term liabilities - due within one year:
Claims and judgments payable ( 550,220)
Compensated absences payable ( 768,905)
Long- term debt ( 475,000)
Long- term liabilities - due in more than one year:
Claims and judgments payable ( 2,314,902)
Compensated absences payable ( 867,063)
Long- term debt ( 84,468,028)
Net Assets of Governmental Activities $ 353,042,793
See accompanying Notes to Basic Financial Statements.
Amounts reported for Governmental Activities in the Statement of Net Assets were different because:
29
City of Menlo Park
Statement of Revenues, Expenditures and Changes in Fund Balances
Governmental Funds
For the year ended June 30, 2006
General Special Revenue Special Revenue Debt Capital
Fund Housing Non- Housing Service Projects
REVENUES:
Taxes:
Secured property taxes $ 6,892,935 $ 1,737,325 $ 6,949,301 $ - $ -
Unsecured property taxes 404,056 185,366 741,463 - -
Other property taxes 2,710,817 - - - -
Sales taxes 6,503,635 - - - -
Other taxes 2,476,443 - - - -
Special assessments - - - - -
Licenses and permits 3,091,469 - - - -
Fines and forfeitures 792,005 - - - -
Use of money and property 1,671,653 90,418 334,617 379 644,367
Intergovernmental 1,732,929 - - - -
Charges for services 4,225,135 50 11,626 - -
Other 47,996 - - - -
Total revenues 30,549,073 2,013,159 8,037,007 379 644,367
EXPENDITURES:
Current:
General government 5,173,093 - - - -
Public safety 8,865,022 - - - -
Public works 3,932,849 - - - -
Culture and recreation 6,875,398 - - - -
Rehabilitation loans - - - - -
Community development 1,980,028 - 1,182,264 - 181,430
Urban development and housing - 436,066 3,895,331 - 27,293
Capital outlay 452,479 820 - - 1,075,759
Debt service:
Principal - - - 1,405,000 -
Interest and fiscal charges - - - 3,738,815 -
Cost of Issuance - - - 1,646,113 -
Total expenditures 27,278,869 436,886 5,077,595 6,789,928 1,284,482
REVENUES OVER ( UNDER) EXPENDITURES 3,270,204 1,576,273 2,959,412 ( 6,789,549) ( 640,115)
OTHER FINANCING SOURCES ( USES):
Transfers in 609,518 3,500,000 - 12,071,073 -
Transfers out ( 196,000) ( 1,057,635) ( 11,167,438) - ( 3,500,000)
Issuance of debt - - - 72,430,000 -
Payment to escrow agent - - - ( 70,525,172) -
Discount on issuance of debt - - - ( 336,800) -
Proceeds from sale of capital assets 10,742 - 3,974,704 - -
Total other financing sources ( uses) 424,260 2,442,365 ( 7,192,734) 13,639,101 ( 3,500,000)
Net change in fund balances 3,694,464 4,018,638 ( 4,233,322) 6,849,552 ( 4,140,115)
FUND BALANCES:
Beginning of year, as restated 31,806,212 ( 3,607,736) 19,250,262 - 12,042,619
End of year $ 35,500,676 $ 410,902 $ 15,016,940 $ 6,849,552 $ 7,902,504
See accompanying Notes to Basic Financial Statements.
Community Development Agency
Major Funds
30
Major Fund
Community
Development Non- Major Total
Block Grant Governmental Governmental
Special Revenue Funds Funds
$ - $ - $ 15,579,561
- - 1,330,885
- - 2,710,817
- - 6,503,635
- 1,285,506 3,761,949
- 2,433,635 2,433,635
- 341,276 3,432,745
- - 792,005
- 741,548 3,482,982
189,670 768,840 2,691,439
364,694 3,445,640 8,047,145
- 164,821 212,817
554,364 9,181,266 50,979,615
- 1,479,037 6,652,130
- 64,655 8,929,677
- 3,818,033 7,750,882
- 428,175 7,303,573
400,100 - 400,100
- 744,561 4,088,283
150,175 35,400 4,544,265
- 8,731,935 10,260,993
- 450,000 1,855,000
- 840,035 4,578,850
- - 1,646,113
550,275 16,591,831 58,009,866
4,089 ( 7,410,565) ( 7,030,251)
- 196,000 16,376,591
- ( 227,818) ( 16,148,891)
- - 72,430,000
- - ( 70,525,172)
- - ( 336,800)
- - 3,985,446
- ( 31,818) 5,781,174
4,089 ( 7,442,383) ( 1,249,077)
5,594 32,900,773 92,397,724
$ 9,683 $ 25,458,390 $ 91,148,647
31
City of Menlo Park
Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in
Fund Balances to the Government- Wide Statement of Activities and Changes in Net Assets
For the year ended June 30, 2006
Net Change in Fund Balances - Total Governmental Funds $ ( 1,249,077)
Governmental Funds reported acquisition of capital assets as expenditures in various functions and in capital outlay.
However, in the Government- Wide Statement of Activities and Changes in Net Assets, the cost of those assets was
allocated over their estimated useful lives as depreciation expense. This was the amount of capital assets recorded in
the current period. 1 0,251,488
Depreciation expense on capital assets was reported in the Government- Wide Statement of Activities and Changes in
Net Assets, but they did not require the use of current financial resources. Therefore, depreciation expense was not
reported as expenditures in Governmental Funds. ( 3,896,104)
Loss on the disposal of capital assets was reported in the Government- Wide Statement of Activities and Changes in Net
Assets, but they did not require the use of current financial resources. Therefore, it was not reported as expenditures in
Governmental Funds. ( 14,127,214)
Proceeds from sale of fixed assets were reported in Governmental Funds as revenue. However, in the Government-
Wide Statement of Activities and Changes in Net Assets, the amount is included in the calculation of gain/ loss on
disposal of capital assets. ( 3,985,446)
Revenues that have not met the revenue recognition criteria in the Fund Financial statements are recognized as revenue
in the Government- Wide Financial Statements. This amount represents the change in deferred revenue from prior year. 2 44,124
Expenses to accrue for long- term compensated absences and claims liability is reported in the Government- Wide
Statement of Activities and Changes in Net Assets, but they do not require the use of current financial resources.
Therefore, these expenses are not reported in Governmental Funds.
Change in compensated absences 1 53,971
Change in claims liability ( 647,527)
Bond proceeds provided current financial resources to Governmental Funds, but issuing debt increased long- term
liabilities in the Government- Wide Statement of Net Assets. Repayment of bond principal was an expenditure in
Governmental Funds, but the repayment reduced long- term liabilities in the Government- Wide Statement of Net Assets.
Long- term debt repayments 1,855,000
Issuance of debt ( 72,430,000)
Payments to escrow agents 70,525,172
Deferred charges on issuance of debt are recorded as expenditures in the Fund Financial Statements. In the Government-
Wide Financial Statements, these costs are capitalized and amortized over the life of the debt. 1,646,113
Discounts on issuance of debt are recorded as expenditures in the Fund Financial Statements. In the Government- Wide
Financial Statements, these costs are capitalized and reported as part of long- term debt and amortized over the life of
the debt. 336,800
Expenses for landfill postclosure costs are expenditures in the Governmental Fund Financial Statements but reduce the
liability in the Government- Wide Financial Statements. 1 04,827
Interest expense on long- term debt was reported in the Government- Wide Statement of Activities and Changes in Net
Assets, but they did not require the use of current financial resources. Therefore, interest expense was not reported as
expenditures in Governmental Funds. The following amount represented the change in accrued interest from prior
year. 4 9,518
Change in Net Assets of Governmental Activities $ ( 11,168,355)
See accompanying Notes to Basic Financial Statements.
Amounts reported for governmental activities in the Statement of Activities were different because:
32
Water Fund - Established to account for water distribution operations of the Menlo Park Municipal
Water District.
PROPRIETARY FUND
FINANCIAL STATEMENTS
Enterprise funds are used to account for activities that are financed and operated in a manner similar to
private business enterprises. The City Council has determined that the cost of providing the following
services to the public be recovered primarily through user charges.
33
City of Menlo Park
Statement of Net Assets
Proprietary Funds
June 30, 2006
Major Fund
Water
ASSETS
Current assets:
Cash and investments $ 14,851,693
Receivables:
Accounts 275,159
Interest 148,521
Total current assets 15,275,373
Noncurrent assets:
Non- depreciable 1,066,454
Depreciable, net 6,374,477
Total noncurrent assets 7,440,931
Total assets 22,716,304
LIABILITIES
Current liabilities:
Accounts payable 441,706
Accrued payroll 12,502
Deposits 50,794
Compensated absences 23,204
Total current liabilities 528,206
Noncurrent liabilities:
Compensated absences 26,168
Total noncurrent liabilities 26,168
Total liabilities 554,374
NET ASSETS
Invested in capital assets, net of related debt 7,440,931
Restricted for:
Capital projects 10,653,717
Unrestricted 4,067,282
Total net assets $ 22,161,930
See accompanying Notes to Basic Financial Statements.
34
City of Menlo Park
Statement of Revenues, Expenses and Changes in Fund Net Assets
Proprietary Funds
For the year ended June 30, 2006
Major Fund
Water
OPERATING REVENUES:
Water sales $ 3,562,094
Connection fees 5,825
Total operating revenues 3,567,919
OPERATING EXPENSES:
Cost of sales and services 2,562,837
General and administrative 393,047
Depreciation 125,494
Total operating expenses 3,081,378
OPERATING INCOME ( LOSS) 486,541
NONOPERATING REVENUES ( EXPENSES):
Interest income 498,773
Total nonoperating revenues 498,773
INCOME ( LOSS) BEFORE OPERATING TRANSFERS 985,314
OPERATING TRANSFERS:
Transfers out ( 227,700)
Total operating transfers ( 227,700)
Net income ( loss) 757,614
NET ASSETS:
Beginning of year 21,404,316
End of year $ 22,161,930
See accompanying Notes to Basic Financial Statements.
35
City of Menlo Park
Statement of Cash Flows
Proprietary Funds
For the year ended June 30, 2006
Major Fund
Water
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers/ other funds $ 3,625,367
Cash payment to suppliers ( 2,588,048)
Cash payments for general and administrative ( 404,537)
Net cash provided ( used) by operating activities 632,782
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:
Transfers out ( 227,700)
Net cash provided ( used) by noncapital financing activities ( 227,700)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:
Acquisition and construction of capital assets ( 446,503)
Net cash provided ( used) by capital and related financing activities ( 446,503)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment income 448,720
Net cash provided ( used) by investing activities 448,720
Net increase ( decrease) in cash and cash equivalents 407,299
CASH AND CASH EQUIVALENTS:
Beginning of year 14,444,394
End of year $ 1 4,851,693
$ 14,851,693
RECONCILIATION OF OPERATING INCOME ( LOSS) TO NET $ -
CASH PROVIDED ( USED) BY OPERATING ACTIVITIES:
Operating income ( loss) $ 486,541
Adjustments to reconcile operating income ( loss) to net
cash provided ( used) by operating activities:
Depreciation 125,494
Changes in current assets and liabilities:
Accounts receivable 57,069
Accounts payable ( 23,231)
Accrued payroll ( 11,490)
Compensated absences ( 1,980)
Deposits 379
Total adjustments 146,241
Net cash provided ( used) by operating activities $ 632,782
See accompanying Notes to Basic Financial Statements.
36
FIDUCIARY FUND
FINANCIAL STATEMENTS
Agency Funds are custodial in nature ( assets equal liabilities) and do not involve measurements of results of
operations. They are used to account for assets held in an agency capacity for others and therefore cannot be
used to support the City's programs.
37
City of Menlo Park
Statement of Fiduciary Net Assets
Fiduciary Funds
June 30, 2006
Agency
Funds
ASSETS
Cash and cash equivalents $ 217,069
Total assets $ 217,069
LIABILITIES
Accrued payroll $ 134,842
Deposits 82,227
Total liabilities $ 217,069
$ -
See accompanying Notes to Basic Financial Statements.
38
NOTES TO BASIC
FINANCIAL STATEMENTS
39
City of Menlo Park
Notes to Basic Financial Statements
For the year ended June 30, 2006
40
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
The City of Menlo Park ( City) was incorporated under the General Laws of the State of California and
enjoys all the rights and privileges pertaining to such “ General Law” cities. The City uses the City
Council/ Manager form of government. The financial reporting entity consists of ( a) the primary
government, the City; ( b) organizations for which the primary government is financially accountable;
and ( c) other organizations for which the primary government is not accountable, but for which the
nature and significance of their relationship with the primary government are such that exclusion
would cause the reporting entity’s financial statements to be misleading or incomplete.
Component units are legally separate organizations for which the elected officials of the primary
government are financially accountable. In addition, component units can be other organizations for
which the primary government’s exclusion would cause the reporting entity’s financial statements to be
misleading or incomplete.
The following is a brief review of the component unit included in the accompanying Basic Financial
Statements of the City.
Community Development Agency of the City of Menlo Park - The Community Development Agency
( Agency) was established in November 1981 pursuant to the State of California Health and Safety
Codes, Section 33000, entitled “ Community Redevelopment Law.” Its purpose is to prepare and
carry out plans for the improvement, rehabilitation, and redevelopment of blighted areas within the
territorial limits of the City.
The criteria used in determining the scope of the reporting entity are based on the provisions of GASB
Statement No. 14, The Financial Reporting Entity. The City is the primary government unit. Component
units are those entities which are financially accountable to the primary government, either because the
City appoints a voting majority of the component unit’s board, or because the component unit will
provide a financial benefit or impose a financial burden on the City. The Agency has been accounted
for as a “ blended” component unit of the City. Despite being legally separate, this entity is so
intertwined with the City that it is, in substance, part of the City’s operations. Accordingly, the
balances and transactions of these component units are reported within the funds of the City. Balances
for the Agency consisting of special revenue, debt service and capital projects are reported as separate
funds.
The following specific criteria were used in determining that the Agency was a blended component
unit:
􀂾 The members of the City Council also act as the governing bodies of the Agency.
􀂾 The Agency is managed by employees of the City. A portion of the City’s salary and overhead
expenses are billed to the Agency each year.
􀂾 The City and the Agency are financially interdependent. The City makes loans to the Agency to
use for redevelopment purposes. Property tax revenues of the Agency are used to repay the
loans to the City.
Detailed financial statements are available for the above component unit from the City’s Finance
Department.
City of Menlo Park
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2006
41
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
B. Basis of Accounting and Measurement Focus
The accounts of the City are organized on the basis of funds, 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 or expenses as
appropriate. Government resources are allocated to and accounted for in individual funds based upon
the purpose for which they are to be spent and the means by which spending activities are controlled.
Government– Wide Financial Statements
The City government– wide financial statements include a Statement of Net Assets and a Statement of
Activities and Changes in Net Assets. These statements present summaries of governmental and
business- type activities for the City, the primary government, accompanied by a total column.
Fiduciary activities of the City are not included in these statements.
These government- wide financial statements are presented on an “ economic resources” measurement
focus and the accrual basis of accounting. Accordingly, all of the City’s assets and liabilities, including
capital assets and related infrastructure assets and long- term liabilities, are included in the
accompanying Statement of Net Assets. The Statement of Activities presents changes in net assets.
Under the accrual basis of accounting, revenues are recognized in the period in which they are earned
while expenses are recognized in the period in which the liability is incurred.
Certain types of transactions are reported as program revenues for the City in three categories:
􀂾 Charges for services
􀂾 Operating grants and contributions
􀂾 Capital grants and contributions
Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund
activities, payables and receivables. All internal balances in the Statement of Net Assets have been
eliminated except those representing balances between the governmental activities and the business-type
activities, which are presented as internal balances and eliminated in the total primary
government column. However, those transactions between governmental and business- type activities
have not been eliminated. The following interfund activities have been eliminated:
􀂾 Due to/ from other funds
􀂾 Advances to/ from other funds
􀂾 Transfers in/ out
The City applies all applicable GASB pronouncements ( including all NCGA Statements and
Interpretations currently in effect) as well as the following pronouncements issued on or before
November 30, 1989, to the business- type activities, unless those pronouncements conflict with or
contradict GASB pronouncements: Financial Accounting Standards Board ( FASB) Statements and
Interpretations, Accounting Principles Board ( APB) Opinions, and Accounting Research Bulletins
( ARB) of the committee on Accounting Procedure. The City applies all applicable FASB Statements and
Interpretations issued after November 30, 1989, except those that conflict with or contradict GASB
pronouncements.
City of Menlo Park
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2006
42
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
B. Basis of Accounting and Measurement Focus, Continued
Governmental Fund Financial Statements
Governmental fund financial statements include a Balance Sheet and a Statement of Revenues,
Expenditures and Changes in Fund Balances for all major governmental funds and non- major funds
aggregated. An accompanying schedule is presented to reconcile and explain the differences in net
assets as presented in these statements to the net assets presented in the government- wide financial
statements. The City has presented the following major funds:
General Fund - Accounts for all revenues and expenditures necessary to carry out basic
governmental activities of the City that are not accounted for through other funds. For the City, the
General Fund includes such activities as police, planning, engineering, public works operations and
maintenance, and legal and administrative services.
Community Development Agency Housing Special Revenue Fund – Established to account for 20% of
the tax increment property taxes received under State of California Health and Safety Code Division
24, Part 1. Funds are used to promote the expansion of local housing opportunities for low and
moderate income residents.
Community Development Agency Non- Housing Special Revenue Fund – Accounts for 80% of the tax
increment property taxes received under State of California Health and Safety Code Division 24,
Part 1 and utilized to reduce and eliminate visual, economic, physical and social blight existing
within the Las Pulgas Community Development Project Area.
Community Development Agency Debt Service Fund – Established to comply with interest and
redemption requirements of the Las Pulgas Tax Allocation Refunding Bonds.
Community Development Agency Capital Improvement Fund – Established to account for the
proceeds of the Las Pulgas Tax Allocation Refunding Bond Issue and used to construct
improvements to the project area.
Community Development Block Grant Special Revenue Fund - Established in 1981 to account for
Federal Housing and Community Development Block Grant funds utilized for single family
housing rehabilitation and related administration.
All governmental funds are accounted for on a spending or “ current financial resources” measurement
focus and the modified accrual basis of accounting. Accordingly, only current assets and current
liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in
Fund Balances present increases ( revenue and other financing sources) and decreases ( expenditures
and other financing uses) in net current assets. Under the modified accrual basis of accounting,
revenues are recognized in the accounting period in which they become both measurable and available
to finance expenditures of the current period.
City of Menlo Park
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2006
43
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
B. Basis of Accounting and Measurement Focus, Continued
Governmental Fund Financial Statements, Continued
Revenues are recorded when received in cash, except those revenues subject to accrual ( generally 60
days after year- end) are recognized when due. The primary revenue sources, which have been treated
as susceptible to accrual by the City, are property tax, sales tax, intergovernmental revenues and other
taxes. Expenditures are recorded in the accounting period in which the related fund liability is
incurred.
Deferred revenues arise when potential revenues do not meet both the “ measurable” and “ available”
criteria for recognition in the current period. Deferred revenues also arise when the government
receives resources before it has a legal claim to them, as when grant monies are received prior to
incurring qualifying expenditures. In subsequent periods when both revenue recognition criteria are
met or when the government has a legal claim to the resources, the deferred revenue is removed from
the balance sheet and revenue is recognized.
The Reconciliation of the Fund Financial Statements to the Government- Wide Financial Statements is
provided to explain the differences created by the integrated approach of GASB Statement No. 34.
Proprietary Fund Financial Statements
Proprietary fund financial statements include a Statement of Net Assets, a Statement of Revenues,
Expenses and Change in Net Assets, and a Statement of Cash Flows for all proprietary funds.
Proprietary funds are accounted for using the “ economic resources” measurement focus and the accrual
basis of accounting. Accordingly, all assets and liabilities ( whether current or noncurrent) are included
on the Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Net Assets
presents increases ( revenues) and decreases ( expenses) in total net assets. Under the accrual basis of
accounting, revenues are recognized in the period in which they are earned while expenses are
recognized in the period in which liability is incurred.
Operating revenues in the proprietary funds are those revenues that are generated from the primary
operations of the fund. All other revenues are reported as nonoperating revenues. Operating expenses
are those expenses that are essential to the primary operations of the fund. All other expenses are
reported as nonoperating expenses.
The City’s only Proprietary Fund is an Enterprise which accounts for the Water distribution operations
of the Menlo Park Municipal Water District.
Fiduciary Fund Financial Statements
Fiduciary fund financial statements include a Statement of Net Assets. The City’s fiduciary funds
represent agency funds, which are custodial in nature ( assets equal liabilities) and do not involve
measurement of results of operations. The agency funds are accounted for using the accrual basis of
accounting. Agency funds are used to account for Refundable Deposits, Cash Bonds Payable and the
Payroll Revolving.
City of Menlo Park
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2006
44
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
C. Use of Restricted and Unrestricted Net Assets
When an expense is incurred for purposes for which both restricted and unrestricted net assets are
available, the City’s policy is to apply restricted net assets first.
D. Cash and Investments
The City pools cash resources from all funds in order to facilitate the management of cash. The balance
in the pooled cash account is available to meet current operating requirements. Cash in excess of
current requirements is invested in various interest- bearing accounts and other investments for varying
terms.
In accordance with GASB Statement No. 40, Deposit and Investment Disclosures ( Amendment of GASB No.
3), certain disclosure requirements for Deposits and Investment Risks were made in the following areas:
􀂾 Interest Rate Risk
􀂾 Credit Risk
• Overall
• Custodial Credit Risk
• Concentrations of Credit Risk
In addition, other disclosures are specified including use of certain methods to present deposits and
investments, highly sensitive investments, credit quality at year- end and other disclosures.
In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments
and for External Investment Pools, highly liquid market investments with maturities of one year or less at
time of purchase are stated at amortized cost. All other investments are stated at fair value. Market
value is used as fair value for those securities for which market quotations are readily available.
The City participates in an investment pool managed by the State of California titled Local Agency
Investment Fund ( LAIF) which has invested a portion of the pooled funds in Structured Notes and
Asset- Backed Securities. LAIF’s investments are subject to credit risk with the full faith and credit of
the State of California collateralizing these investments. In addition, these Structured Notes and Asset-
Backed Securities are subject to market risk as to change in interest rates.
Cash equivalents are considered amounts in demand deposits and short- term investments with a
maturity date within three months of the date acquired by the City and are presented as “ Cash and
Investments” in the accompanying Basic Financial Statements.
City of Menlo Park
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2006
45
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
E. Capital Assets
Capital assets are valued at historical cost or estimated historical cost if actual historical cost was not
available. Donated fixed assets are valued at their estimated fair market value on the date donated.
City policy has set the capitalization threshold for reporting capital assets at $ 2,000. Depreciation is
recorded on a straight- line basis over estimated useful lives of the assets as follows:
Building