Management's Discussion and Analysis

As management of the City of Santa Cruz we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City of Santa Cruz for the fiscal year ended June 30, 2004. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on page i of this report.

Financial Highlights – Primary Government

Government-Wide Highlights: Net Assets - The assets of the City of Santa Cruz exceeded its liabilities at the close of the fiscal year by $392.9M. Of this amount, $70.5M 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 $2.3M in fiscal year 2004.

Fund Highlights: Governmental Funds – Governmental funds include general, special revenue, debt service, and capital projects funds. As of the close of fiscal year 2004, the City’s governmental funds, including the Redevelopment Agency Fund, reported a combined ending fund balance of $37.4M, which is a decrease of $0.3M from the prior year. Approximately 52% of this amount, or $19.3M, represents the unreserved fund balance available for appropriation. 65% of the unreserved fund balance, or $12.6M, has been designated for various purposes. General Fund – Total fund balance of the General Fund on June 30, 2004 was $18.0M, a decrease of $0.2M from the prior year. Approximately 76% of this amount, or $13.6M, was unreserved. Of the unreserved fund balance, $7.6M, or approximately 56%, is designated for various purposes. These include $5.6M for the city public trust, and varying amounts for other activities. The remaining unreserved balance of $6.0M, or 44% of unreserved fund balance, is undesignated.

Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise 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 government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. They are comprised of the statement of net assets and statement of activities and changes in net assets. The statement of net assets presents information on all of the City’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities and changes in net assets presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus,
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revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., interest expense due but unpaid). Both of the above government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, parks and recreation, library, transit, social services and community and economic development. The business-type activities of the City include the four municipal utilities: water, wastewater, storm water, and refuse and landfill operation; and also the self-supporting golf course and parking enterprises. Blended Component Units – Component units are legally separate entities that meet certain criteria and would be misleading if their data were not included in this report. This report includes two separate legal entities in this category; The City of Santa Cruz Redevelopment Agency, and The Santa Cruz Public Improvement Financing Corporation. In this report all component units are blended with the primary government because the governing boards are substantively the same as the primary government, and the component units serve the primary government exclusively. The government-wide financial statements can be found on pages 20-23 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. The fund financial statements provide detail information about each of the City’s most significant funds, called major funds. The concept of major funds, and the determination of which are major funds, was established by GASB 34 and replaces the concept of combining like funds and presenting them in total. Instead, each major fund is presented individually, with all nonmajor funds summarized and presented in a single column. Individual fund data on the nonmajor funds is presented in the form of combining statements and schedules on pages 108 through 111 of this report. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the governmentwide financial statements, governmental fund statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City has nine governmental funds, of which two are considered major funds for presentation purposes. Each major fund is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the City’s two major funds – the General Fund and the Redevelopment Agency Fund. Data from the other seven governmental funds are combined into a single, aggregated presentation. The basic governmental fund
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financial statements can be found on pages 28 through 30 of this report. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements on pages 108 through 111 of this report. Proprietary Funds – The City maintains two different types of proprietary funds – enterprise funds and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for the four municipal utilities; water, wastewater, storm water, and refuse and landfill operation; and also the self-supporting golf and parking enterprises. Internal service funds are used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its equipment operations and maintenance, stores inventory, telecommunications, and risk management activities. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the governmental-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The fund financial statements for the proprietary funds provide separate information for the four municipal utilities; water, wastewater, storm water, and refuse and landfill operation; and also the self- supporting golf course and parking enterprises. Conversely, the internal service funds are combined into a single aggregated column in the proprietary fund statements. Individual fund data for the internal service funds is provided in the form of combining statements on pages 126-128 of this report. The basic proprietary fund financial statements can be found on page 34-43 of this report. Fiduciary Funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. 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. The notes to the financial statements can be found on pages 51-92 of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Santa Cruz’s progress in funding its obligation to provide pension benefits to its employees, as well as providing a budgetary comparison schedule for the General Fund and the Redevelopment Agency Fund. Required supplementary information can be found on pages 94-103 of this report. Additional budgetary schedules for the General Fund and the combining statements referred to earlier in connection with nonmajor governmental funds and internal service funds are presented immediately following the required supplementary information. Combining and individual statements and schedules can be found on pages 108-128 of this report. Government-Wide Financial Analysis Net Assets. As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Santa Cruz, combined net assets (governmental and business-type activities) totaled $392.9M at the close of the fiscal year ending June 30, 2004. This is a decrease of $2.2M or 5.7% from the previous fiscal year. By far the largest portion of the City’s net assets (79.2%) reflects its investment in capital assets (e.g., land, streets, bridges, water and sewer lines, buildings, machinery, and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide
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services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net assets (2.9%) represents resources that are subject to external restrictions on how they may be used. The remaining 17.9% or $70.5M of the City’s net assets, are “unrestricted,” and may be used to meet the government’s ongoing obligations to citizens and creditors.

City of Santa Cruz's Net Assets
June 30, 2004
(amounts expressed in $ millions) Governmental Activities Business-Type Activities

Total

2004
Current assets Noncurrent assets Capital assets Total assets Current liabilities Noncurrent liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets $ 136.6 11.4 12.2 160.2 $ $ 38.9 8.8 149.4 197.1 11.2 25.7 36.9 $

2003
39.2 9.8 149.3 198.3 11.1 23.8 34.9 $

2004
59.2 20.5 245.2 324.9 10.8 81.4 92.2 $

2003
57.4 23.0 244.2 324.6 10.5 82.3 92.8 $

2004
98.1 29.3 394.6 522.0 22.0 107.1 129.1 $

2003
96.6 32.8 393.5 522.9 21.6 106.1 127.7

136.4 10.4 16.6 163.4 $

174.4 58.3 232.7 $

168.9 62.9 231.8 $

311.0 11.4 70.5 392.9 $

305.3 10.4 79.5 395.2

Changes in Net Assets. The City’s net assets decreased by $2.3M or 5.7%, from the prior fiscal year. In fiscal year 2004, City expenses, which include both governmental and business-type activities, exceeded program revenues by $50.6M, resulting in the use of $48.3M of general revenues and $2.3M of net assets. The City’s expenses cover a range of services. The largest expense categories in the governmental activities were public safety, parks and recreation and general government. Further analysis is provided within the governmental and business-type activity sections.

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City of Santa Cruz Changes in Net Assets Fiscal Year Ending June 30, 2004
(amounts expressed in $ millions) Governmental Activities 2004 2003 Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions Total program revenues General revenues: Property taxes Sales and use taxes Franchise taxes Transient occupancy taxes Utility users taxes Admissions taxes Other taxes Total taxes Unrestricted grants and contributions Unrestricted investment earnings Gain (loss) on sale of assets Miscellaneous Total revenues Expenses: General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Interest and charges on long term debt Water Wastewater Refuse Parking Storm water Golf course Total expenses Increase (decrease) in net assets before extraordinary items and transfers Extraordinary item - insurance proceeds due to fire loss Transfers Change in net assets Net assets, beginning of year Prior period adjustment (Note 16) Net assets, beginning of year (as restated) Net assets - end of year $ Business-Type Activities 2004 2003 Total 2004 2003

$

21.5 3.1 4.9 29.5 15.8 9.1 3.3 3.0 7.7 1.7 2.5 43.1 2.6 0.4 0.7 0.7 77.0 11.5 27.1 13.0 8.7 9.6 0.6 7.1 1.8 1.1 80.5 (3.5) 0.3 (3.2) 163.5 (0.1) 163.4 160.2

$

20.6 4.0 5.8 30.4 15.1 8.3 3.1 2.9 7.6 1.6 2.0 40.6 4.5 1.1 0.7 77.3 10.4 23.7 12.3 8.4 9.8 0.6 8.3 2.0 1.0 76.5 0.8 0.5 0.1 1.4 162.1 162.1

$

47.2 0.1 3.4 50.7 0.7 0.1 51.5 13.7 15.5 14.9 2.5 1.9 1.8 50.3 1.2 (0.3) 0.9 231.3 0.5 231.8

$

44.0 0.1 2.3 46.4 2.4 0.1 0.6 49.5 14.0 14.8 14.8 2.2 2.2 1.8 49.8 (0.3) (0.1) (0.4) 231.7 231.7

$

68.7 3.2 8.3 80.2 15.8 9.1 3.3 3.0 7.7 1.7 2.5 43.1 2.6 1.1 0.7 0.8 128.5 11.5 27.1 13.0 8.7 9.6 0.6 7.1 1.8 1.1 13.7 15.5 14.9 2.5 1.9 1.8 130.8 (2.3) (2.3) 394.8 0.4 395.2

$

64.6 4.1 8.1 76.8 15.1 8.3 3.1 2.9 7.6 1.6 2.0 40.6 4.5 3.5 0.1 1.3 126.8 10.4 23.7 12.3 8.4 9.8 0.6 8.3 2.0 1.0 14.0 14.8 14.8 2.2 2.2 1.8 126.3 0.5 0.5 1.0 393.8 393.8

$

163.5

$

232.7

$

231.3

$

392.9

$

394.8

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Governmental Activities. Governmental activities decreased the City’s net assets by $3.2M. A comparison of the cost of services by function for the City’s governmental activities is shown below, along with the revenues used to cover the net expenses of the governmental activities.
Governmental Activities (amounts expressed in $ millions) 2004 2003 Expenses net of program revenues: General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Interest and fiscal charges on long-term debt Total expenses net of program revenues governmental activities General revenues, extraordinary items and transfers: General revenues: Property taxes Sales and use taxes Franchise taxes Transient occupancy taxes Utility users taxes Admission taxes Other taxes Total taxes Unrestricted grants and contributions Unrestricted investment earnings Gain on sale of assets Miscellaneous Extraordinary item - gain on insurance proceeds due to fire loss Transfers Total general revenues, extraordinary items and transfers Change in govenmental activities net assets $ 15.8 9.1 3.3 3.0 7.7 1.7 2.5 43.1 2.6 0.4 0.7 0.7 0.3 47.8 (3.2) $ 15.1 8.3 3.1 2.9 7.6 1.6 2.0 40.6 4.5 1.1 0.7 0.5 0.1 47.5 1.4 $ (7.2) (23.3) (8.0) (1.0) (2.9) (5.7) (1.8) (1.1) (51.0) $ (6.4) (20.8) (6.9) (1.4) (1.9) (5.7) (2.0) (1.0) (46.1)

Governmental Expenses. Total governmental activity expenses were $80.5M in fiscal year 2004. The largest expenses were incurred for public safety, parks and recreation, and general government. These expenses do not include capital outlays, which are now reflected in the City’s capital assets. Governmental Revenues. Per GASB 34, program revenues are derived directly from the program itself or from parties outside the reporting government’s taxpayers or citizenry. They reduce the net cost of the function to be financed from the government’s general revenues. Total program revenues from governmental activities were $29.5M in fiscal year 2004. Governmental program revenues derive primarily from charges for services, which include licenses and permits, planning fees, developer fees, recreation charges, traffic and other fines and forfeitures, charges to the Library Joint Powers Authority for personnel services provided, and several other revenues. Program revenues under the operating

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grants and contributions category include revenues restricted for specific purposes, such as gasoline tax and other federal, state and local grants. Program revenues in the capital grants and contributions category also include federal, state and local grants, but are restricted specifically to be used for capital projects or acquisitions. General revenues are all other revenues not categorized as program revenues, and include all taxes, unrestricted grants, contributions and investment earnings, material gains on sales of capital assets, and other miscellaneous revenues. Total general revenues from governmental activities were $47.5M in fiscal year 2004. Taxes of $43.1M comprised 90.7% of the City’s general revenues for fiscal year 2004. The largest single source of general revenues received during fiscal year 2004 was $15.8M of property taxes, or 33.2% of general revenues, followed by $9.1M of sales and use taxes, or 19.1% of general revenues. The largest sources of other taxes are franchise, transient occupancy, utility user’s taxes, and admissions taxes.

EXPENSES & PROGRAM REVENUES- GOVERNMENTAL ACTIVITIES FISCAL YEAR 2004
(in millions) $30

Millions

$25

$20

$15

Revenues Expenses

$10

$5

$0
General Public Safety Parks & Government Recreation Library Public Works Transit Community Devel. Social Services Interest on Long Term Debt

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REVENUES BY SOURCE- GOVERNMENTAL ACTIVITIES FISCAL YEAR 2004

Other General Revenues, 2% Unrestricted Grants and Contributions, 3% Other Taxes, 3% Admission Tax, 2% Utility Users Tax, 10% Transient Occupancy Tax, 4% Oper.Grants & Contributions, 4% Charges for Service, 29%

Franchise Taxes, 4% Sales & Use Taxes, 12% Property Taxes, 21%

Capital Grants & Contributions, 6%

Business Type Activities. Net assets for business-type activities were $232.7M, an increase of $0.9M from the prior fiscal year. Total program revenues for business-type activities were $50.7M. The largest program revenues were charges for services of $47.2M. Other program revenues included operating grants and contributions of $0.1M, and capital grants and contributions of $3.4M. Total expenses for the business-type activities were $50.3M during fiscal year 2004.
EXPENSES & PROGRAM REVENUES- BUSINESS TYPE ACTIVITIES FISCAL YEAR 2004
(in millions)

Millions

$18 $16 $14 $12 $10 $8 $6 $4 $2 $Water Wastewater Refuse
Revenues

Parking
Expenses

Storm Water

Golf Course

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REVENUES BY SOURCE- BUSINESS TYPE ACTIVITIES FISCAL YEAR 2004

General Revenues, 1.6%

Capital Grants & Contributions, 6.5% Oper. Grants & Contributions, 0.3%

Charges for Service, 91.6%

Financial Analysis of Individual Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental Funds - The focus of the City’s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $37.4M. Approximately $19.3M of this amount constitutes unreserved fund balance, which is available for spending at the government’s discretion. It should, however, be noted that 65% of the unreserved fund balance, or $12.6M, has been designated for various purposes, such as debt service, capital projects, public art, police programs and the City Public Trust, leaving $6.7M unreserved and undesignated. The remaining fund balance of $18.1M is reserved to indicate that it is not available for spending because it has already been legally committed. General Fund – Total fund balance of the General Fund on June 30, 2004 was $18.0M, a decrease of $0.2M from the prior year. Approximately 75.6% of this amount, or $13.6M, was unreserved. $7.6M, or 56.2% of the unreserved fund balance has been designated for specific uses. These include $5.6M for the City Public Trust, and varying amounts for other activities, such as unemployment insurance, housing, parks and recreation programs, and equipment and facilities maintenance. The remaining unreserved balance of $6.0M, or 43.8% of unreserved fund balance, is undesignated.

As a measure of the general fund’s liquidity, it may be useful to compare unreserved fund balance, the undesignated portion of the unreserved fund balance, and total fund balance to total fund expenditures. Unreserved fund balance represents 22.7% of total general fund expenditures, including transfers out. Unreserved and undesignated fund balance represents 10.0%, and total fund balance represents 30.1% of that same amount.
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The 10% percent of total expenditures including transfers out that is represented by the undesignated, unreserved fund balance is the City Council’s targeted minimum reserve level of 10% of the operating budget for the General Fund. Redevelopment Agency Fund – The City of Santa Cruz Redevelopment Agency is responsible for redevelopment of areas identified under the Community Redevelopment Law as being blighted. The Agency’s operations are funded primarily by the issuance of debt, which is expected to be repaid out of property tax increment revenue generated by increases in property assessed values in the redevelopment areas. At the end of fiscal year 2004, the total fund balance of the Redevelopment Agency Fund was $11.0M, an increase of $1.8M from the prior year, or 19.3%. Of that amount, $7.0M is reserved to indicate that it is not available for spending because it has already been legally committed. The remainder of the unreserved fund balance of $4.0M is designated for either debt service or capital projects. The Redevelopment Agency Fund had revenues of $8.3M, including $8.0M of property tax increment revenue. Expenditures in this fund amounted to $6.6M. Proprietary Funds. The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. They include both enterprise funds and internal service funds. For the government-wide financial statements, the internal service funds are consolidated with governmental activities, and the enterprise funds comprise the business-type activities. As discussed in the business-type activities section previously, the City’s net assets increased by $0.9M as a result of operations in the enterprise funds. Net assets in the internal service funds decreased by $5.2M. Substantial increases in claims payable in the Risk Management fund were the primary cause of this decrease.

General Fund Budgetary Highlights The final amended general fund budget, including transfers out and advances, totaled $65.5M, and included amendments to the original budget resulting in a $0.4M decrease in operating expenditure appropriations, a $0.3M increase in appropriations for transfers out, and a $0.5M increase in advances to other funds. The principal amendments can be summarized as follows: Operating Appropriations Reductions. • $915K reduction to appropriations to implement Phase III budget reductions. • $83K reduction to implement Phase IV budget reductions. • $194K reduction for Library JPA personnel budget reductions. • $147K reduction in social services program allocations. • $41K reduction for police equipment moved to Police special revenue fund. • $19K of other miscellaneous reductions. Total operating appropriations reductions – ($1.399M) Operating Appropriations Increases. Appropriations Increases Offset by Grant Revenues. • $21K for a FEMA grant used to purchase firefighting equipment. • $27K for a Youth Development Alliance Grant for teen center staffing, computer equipment and facility upgrade. • $14K for OTS Seatbelt Mini-grant.
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• • • • • •

$61K for Homeland Security Overtime Grant. $70K for Jobs Housing Balance Incentive Program Grant to fund furnishings and equipment for the new Beach Flats Community Center. $50K for expenditures related to an underage drinking grant. $20K to fund expenditures related to a Juvenile Accountability Incentive block grant for Beach Flats. $39K for expenditures related to a Homeland Security equipment grant. $31K for expenditures related to a First Five grant. Grant-related appropriations increases - $333K

Other Operating Appropriations Increases. • $77K for implementation of a downtown permit parking program. • $30K for police personnel services and structured activity at the Town Clock on New Year’s Eve. • $15K for public opinion survey testing voter support for revenue ballot measure. • $48K to fund the school crossing guard program from November 2003- June 2004. • $30K to fund a utility users tax audit. • $78K to fund special election costs. • $20K to fund the beach shuttle program funded by the Storm Water enterprise fund. • $23K for equipment needed to implement an automated time-keeping system. • $106K to fund personnel cost overruns in the Fire Department. • $37K to fund professional services for code enforcement funded by fines. • $6K to appropriate parks and recreation donations. • $125K from amount designated as the City Public Trust to fund the DeAnza Mobile Home Hardship Fund. • $11K from amount designated as the City Public Trust to fund the emergency winter shelter program. Total other operating appropriations increases - $606K Total operating appropriations increases - $939K Net operating appropriations reductions - ($460K) Operating Transfers and Long-Term Advances Appropriations Increases. • $47K to the General Capital Improvement capital projects fund for a street maintenance project and public art costs. • $292K to the Housing and Community Development special revenue fund from the housing inlieu reserve to fund a matching requirement of an Affordable Housing Trust grant. • $530K from amounts designated as the City Public Trust as a long-term advance to the Housing and Community Development special revenue fund for an additional match to the Affordable Housing Trust grant. Total operating transfers and long-term advances appropriations increases - $869K These appropriations were offset by additional estimated revenue and transfers in of $1.1M. Capital Assets and Debt Administration Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2004, amounts to $394.7M, net of accumulated depreciation of $228.6M. This investment in capital assets includes land, land improvements, infrastructure, buildings, machinery and equipment, lease improvements, software, 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,
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drainage systems, lighting systems and similar items. The total additions to the City’s investment in capital assets for the current fiscal year, after restatements and deletions, were $1.2M, net of accumulated depreciation. Major capital asset additions during the current fiscal included the following:
• • • • • • • • •

Construction of the Nueva Vista Community Center for $735K East Cliff Bridge Seismic Retrofit for $525K. River Street improvements for street lighting, storm drains, and traffic lights for $1.0M. Potrero Street curb and gutter improvements for $2.1M. Mission Street undergrounding of street lighting for $500K. Water distribution system pipe replacement for $1.7M . Wastewater collection system pipe repair for $753K Water reservoir roof partial reconstruction for $2.2M. Wastewater facility odor control improvements for $2.0M.

Additional information on the City’s capital assets can be found in Note 5 on pages 69-72 of this report.

Capital Assets
(net of depreciation) (amounts expressed in $ millions) Governmental Activities June 30 2004 Land Construction in progress Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Totals $ $ 43.4 8.6 1.3 67.7 24.3 3.0 0.6 0.5 149.4 $ $ 2003 42.9 9.5 1.0 67.5 23.7 3.6 0.6 0.4 149.2 $ $ 2004 11.9 9.0 0.8 98.9 114.2 10.0 0.1 0.3 245.2 $ $ Business-Type Activities June 30 2003 11.9 8.2 0.9 95.4 117.2 10.3 0.1 0.2 244.2 $ $ 2004 55.3 17.6 2.1 166.6 138.5 13.0 0.7 0.8 394.6 $ $ Total 2003 54.8 17.7 1.9 162.9 140.9 13.9 0.7 0.6 393.4

Debt Administration. Long Term Debt - At the end of the current fiscal year, the City had $117.9M in long term debt outstanding compared to $116.7M last year, a 1.0% net increase. Decreases in bonds, notes, loans and leases payable due to retirement of debt were offset by increases in claims and judgments payable and landfill closure costs liability. The debt associated with governmental activities increased by 7.9% from $28.5M to $30.7M. Business-type activity debt was reduced by 1.2% from $88.2M to $87.2M. Major increases in debt during the year include the issuance of certificates of participation to fund golf course improvements ($5.3M) in the Golf Course enterprise fund, and an increase in workers’ compensation claims liability of $3.7M. The City currently has $7.2M in outstanding general obligation debt. This debt was approved by voters in November 1998 and authorized an ad valorem tax override for acquisition of open space property, improvements to fire stations, acquisition of a fire administrative headquarters building, and construction of a community park. This tax override is currently assessed at $9 per $100,000 of assessed value. The largest single debt obligation of the City is a note payable to the State of California for the construction of secondary treatment improvements at the City's wastewater treatment plant. As of June 30, 2004 the outstanding balance on this note was $41.2M. The City has a corresponding note receivable
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from the County of Santa Cruz for $19.4M. This note receivable relates to the County’s obligation related to the construction of the treatment plant improvements. The chart below illustrates the changes in bonds, notes, loans and leases payable for the year ending June 30, 2004.

Bonds, Notes, Loans and Leases Payable
(amounts expressed in $ millions) Governmental Activities June 30 2004 Certificates of participation Revenue bonds payable General obligation bonds Notes payable Notes payable-County-RDA Tax allocation bonds payable Capital lease obligations Other long-term liabilities Totals $ $ 4.5 7.2 1.5 0.1 2.7 1.7 1.0 18.7 $ $ 2003 4.6 7.2 1.5 2.9 2.5 1.0 19.7 $ $ 2004 29.8 4.8 42.6 4.0 81.2 $ $ Business-Type Activities June 30 2003 28.0 5.0 44.9 4.6 82.5 $ $ 2004 34.3 4.8 7.2 44.1 0.1 2.7 5.7 1.0 99.9 $ $ Total 2003 32.6 5.0 7.2 46.4 2.9 7.1 1.0 102.2

The City of Santa Cruz also has significant liabilities for claims and judgments, compensated absences (accrued vacation pay), and landfill closure and post closure costs. The amounts and changes of these liabilities are shown below.

Claims and Judgments, Compensated Absences, and Landfill Closure Costs Payable
(amounts expressed in $ millions) June 30, 2004 June 30 2004 Workers compensation claims payable Liability claims payable Dental and vision insurance claims Total claims and judgments Compensated absences Closure and post closure landfill costs Totals $ $ 8.7 1.0 0.1 9.8 2.9 5.3 18.0 $ $ 2003 5.0 1.4 0.1 6.5 3.0 5.0 14.5 $ $ Increase (Decrease) 3.7 (0.4) 3.3 (0.1) 0.3 3.5 Percent Change 74.0% -28.6% 0.0% 50.8% -3.3% 6.0% 24.1% $ $ Due in less than one year 1.7 0.3 0.1 2.1 1.9 4.0 $ Due in more than one year $ 7.0 0.7 7.7 1.0 5.3 14.0

Additional information on the City of Santa Cruz’s long term debt can be found in Note 6 to the financial statements. Economic Climate The City of Santa Cruz, and Santa Cruz County for that matter, is closely tied to the regional economy of the nine-county San Francisco Bay Area and to Silicon Valley in particular. Fiscal Year 2004 showed signs of recovery at the national level, along with the Bay Area and Silicon Valley. Local private employers include a diverse array of manufacturing, business services, retail, hotel and food services, and biotechnology companies. In addition to the local private employers, the local economy also benefits from the University of California Santa Cruz. The University is a major employer, and has potential spin-off benefits from federal and state funded scientific research ventures including biomedical research, technology research, and adaptive optics.
15

The state, and the bay area in particular, experienced modest growth in jobs, personal income, and tourism in 2004 and the economy is expected to continue to improve during 2005, albeit modestly. However, the bay area regional economic opportunities and challenges including continued job growth, housing prices, interest rates, state and national economic issues will, of course, moderate the rate of improvement.

Requests for Information This financial report is designed to provide a general overview of the City’s finances for all of its citizens, taxpayers, customers, investors and creditors. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City of Santa Cruz, Finance Department, 809 Center Street, Room 8, Santa Cruz, CA 95060.

16

BASIC FINANCIAL STATEMENTS

17

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18

GOVERNMENT-WIDE FINANCIAL STATEMENTS

19

City of Santa Cruz
Statement of Net Assets June 30, 2004

Primary Government Governmental Activities ASSETS Current assets: Cash and cash equivalents Restricted cash and cash equivalents Restricted investments Interest receivable Taxes receivable Accounts receivable - net Short-term internal balances Due from other governments Notes receivable - due within one year Loans receivable - due within one year Intergovernmental receivable - due within one year Prepaid items Inventories Deposits Total current assets Noncurrent assets: Notes receivable - due in more than one year Loans receivable - due in more than one year Intergovernmental receivable - due in more than one year Deferred charges Long-term internal balances Capital assets: Land Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Construction in progress Total capital assets Less accumulated depreciation Total capital assets, net Total noncurrent assets Total assets 43,391,660 2,322,108 160,705,554 31,843,990 9,225,617 724,114 1,021,592 8,582,123 257,816,758 (108,381,923) 149,434,835 158,238,075 197,137,727 11,939,799 1,236,496 164,722,864 159,392,371 18,667,397 70,000 418,237 9,027,793 365,474,957 (120,258,358) 245,216,599 265,720,677 324,899,490 55,331,459 3,558,604 325,428,418 191,236,361 27,893,014 794,114 1,439,829 17,609,916 623,291,715 (228,640,281) 394,651,434 423,958,752 522,037,217 7,708,815 1,060,140 34,285 1,013,736 18,370,380 1,154,247 (34,285) 8,722,551 1,060,140 18,370,380 1,154,247 $ 26,823,795 1,429,934 64,492 455,154 3,288,111 1,793,400 (521) 3,312,703 210,895 91,728 142,020 99,463 1,188,478 38,899,652 $ 38,411,240 9,025,707 1,528,191 850,969 5,392,949 521 2,142,780 472,936 1,060,118 65,013 228,389 59,178,813 $ 65,235,035 10,455,641 1,592,683 1,306,123 3,288,111 7,186,349 5,455,483 683,831 91,728 1,060,118 207,033 327,852 1,188,478 98,078,465 Business-Type Activities Total

See accompanying Notes to Basic Financial Statements.

20

City of Santa Cruz
Statement of Net Assets, Continued June 30, 2004

Primary Government Governmental Activities LIABILITIES Current liabilities: Accounts payable and other current liabilities Intergovernmental payable Interest payable Deferred revenue Deposits payable Claims and judgments payable - due within one year Compensated absences payable - due within one year Bonds, notes, loans and leases payable - due within one year Total current liabilities Noncurrent liabilities: Claims and judgments payable - due in more than one year Compensated absences payable - due in more than one year Bonds, notes, loans and leases payable - due in more than one year Landfill closure costs Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital projects Debt service Public safety Parks and recreation Community and economic development Unrestricted Total net assets $ 4,262,875 4,075,939 108,835 86,623 2,877,339 12,267,438 160,235,068 $ 58,267,139 232,662,289 $ 4,262,875 4,075,939 108,835 86,623 2,877,339 70,534,577 392,897,357 136,556,019 174,395,150 310,951,169 7,644,100 708,869 17,331,855 25,684,824 36,902,659 261,130 75,915,771 5,230,144 81,407,045 92,237,201 7,644,100 969,999 93,247,626 5,230,144 107,091,869 129,139,860 $ 4,442,737 323,072 324,574 969,705 136,664 2,188,200 1,417,740 1,415,143 11,217,835 $ 3,520,177 1,438,808 50,597 29,985 522,260 5,268,329 10,830,156 $ 7,962,914 323,072 1,763,382 1,020,302 166,649 2,188,200 1,940,000 6,683,472 22,047,991 Business-Type Activities Total

Assets - Liab.& Net Assets $ Bal. Sheet Net Assets - IS Net Assets $

-

$ $

-

$ $

-

See accompanying Notes to Basic Financial Statements.

21

City of Santa Cruz
Statement of Activities and Changes in Net Assets For the year ended June 30, 2004

Program Revenues Operating Functions/Programs Primary government: Governmental activities: General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Interest and fiscal charges on long-term debt Total governmental activities Business-type activities: Water Wastewater Refuse Parking Storm water Golf course Total business-type activities Total primary government $ 13,707,644 15,456,161 14,924,093 2,471,710 1,956,563 1,811,128 50,327,299 130,829,959 $ 15,687,800 11,664,391 14,583,240 2,478,911 862,150 1,933,684 47,210,176 68,731,634 $ 1,681 113,474 23,360 138,515 3,303,876 $ 432,223 892,468 62,721 4,750 1,955,711 43,128 3,391,001 8,255,758 $ 16,121,704 12,670,333 14,669,321 2,483,661 2,817,861 1,976,812 50,739,692 80,291,268 1,126,311 80,502,660 21,521,458 3,165,361 4,864,757 29,551,576 $ 11,451,699 27,054,407 13,022,089 8,697,195 9,618,748 588,183 7,140,903 1,803,125 $ 3,938,389 2,760,629 3,956,257 7,672,089 3,083,205 110,889 $ 129,711 903,233 287,182 227,944 588,183 1,029,108 $ 185,000 68,553 795,067 3,471,877 344,260 $ 4,253,100 3,732,415 5,038,506 7,672,089 6,783,026 588,183 1,484,257 Expenses Charges for Services Grants and Contributions Capital Grants and Contributions Total

General Revenues: Taxes: Property taxes Sales and use taxes Franchise taxes Transient occupancy taxes Utility users taxes Admission taxes Other taxes Total taxes Unrestricted grants and contributions Unrestricted investment earnings Gain (loss) on sale of assets Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets - beginning of year, as restated (Note 16) Net assets - end of year See accompanying Notes to Basic Financial Statements.

22

Net (Expense) Revenue and Changes in Net Assets Governmental Activities Business-Type Activities

Total

$

(7,198,599) (23,321,992) (7,983,583) (1,025,106) (2,835,722) (5,656,646) (1,803,125) (1,126,311) (50,951,084) (50,951,084)

$

2,414,060 (2,785,828) (254,772) 11,951 861,298 165,684 412,393 412,393

$

(7,198,599) (23,321,992) (7,983,583) (1,025,106) (2,835,722) (5,656,646) (1,803,125) (1,126,311) (50,951,084) 2,414,060 (2,785,828) (254,772) 11,951 861,298 165,684 412,393 (50,538,691)

15,792,225 9,084,026 3,329,454 3,016,463 7,638,926 1,724,330 2,480,973 43,066,397 2,565,897 437,672 716,218 679,168 334,346 47,799,698 (3,151,386) 163,386,454 $ 160,235,068 $

250 717,261 (11,712) 108,532 (334,346) 479,985 892,378 231,769,911 232,662,289 $

15,792,225 9,084,026 3,329,454 3,016,463 7,638,926 1,724,330 2,480,973 43,066,397 2,566,147 1,154,933 704,506 787,700 48,279,683 (2,259,008) 395,156,365 392,897,357

23

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24

FUND FINANCIAL STATEMENTS

25

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26

Governmental Fund Financial Statements
General Fund - The General Fund is used to account for sources and uses of financial resources traditionally associated with governments, and which are not required to be accounted for in another fund. Redevelopment Agency Fund - The Redevelopment Agency fund is used to account for all the activities of the City of Santa Cruz Redevelopment Agency. This includes the accumulation of resources for and the payment of interest and principal on debt issued to finance redevelopment activities, and general redevelopment operations. Other Governmental Funds - Other Governmental funds is the aggregate of all the non-major governmental funds.

27

City of Santa Cruz
Balance Sheet Governmental Funds June 30, 2004

Major Funds General Fund ASSETS Cash and cash equivalents Restricted cash and cash equivalents Restricted investments Interest receivable Taxes receivable Accounts receivable - net Due from other governments Due from other funds Prepaid items Deposits Notes receivable - net Loans receivable - net Advances to other funds Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Due to other funds Intergovernmental payable Deferred revenue Deposits payable Advances from other funds Total liabilities Fund Balances: Reserved Unreserved, designated, reported in: General fund Redevelopment Agency fund Special revenue funds Debt service funds Unreserved, undesignated, reported in: General fund Special revenue funds Capital projects funds Total fund balances Total liabilities and fund balances $ 5,964,197 17,990,954 21,325,107 $ 11,010,824 12,449,924 $ 7,638,171 3,987,557 4,388,586 7,023,267 $ 2,587,366 187,109 462,614 97,064 3,334,153 $ 327,948 24,941 39,600 1,046,611 1,439,100 $ $ $ 12,932,034 78,486 2,518,907 745,175 443,292 73,315 134,852 200,973 2,658,942 1,539,131 21,325,107 $ $ 7,286,389 491,033 64,492 72,225 251,767 24,941 4,064,512 194,565 12,449,924 $ $ Redevelopment Agency

Other Governmental Funds

Total Governmental Funds

4,922,952 878,415 286,028 517,437 235,112 2,869,411 7 2,398 1,196,256 1,151,868 12,059,884

$

25,141,375 1,369,448 64,492 436,739 3,288,111 1,005,228 3,312,703 73,322 137,250 200,973 7,919,710 1,151,868 1,733,696

$

45,834,915

1,233,981 24,630 323,072 1,426,591 652,800 3,661,074 6,668,015 509,404 457,945 2,207,906 (1,444,460) 8,398,810 12,059,884

$

4,149,295 211,739 323,072 1,914,146 136,664 1,699,411 8,434,327 18,079,868 7,638,171 3,987,557 509,404 457,945 5,964,197 2,207,906 (1,444,460) 37,400,588

$

45,834,915

See accompanying Notes to Basic Financial Statements.

28

Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets June 30, 2004

City of Santa Cruz

Total Fund Balances - All Governmental Funds Amounts reported for Governmental Activities in the Statement of Net Assets were different because: Capital assets used in governmental activities are not current financial resources. Therefore, they are not reported in the Governmental Funds Balance Sheet. Except for the internal service funds reported below, the capital assets were adjusted as follows: Non-depreciable Depreciable, net Total capital assets Interest payable on long-term debt does not require current financial resources. Therefore, interest payable is not reported as a liability in the Governmental Funds Balance Sheet.

$

37,400,588

GovernmentWide Statement of Net Assets $ 51,973,783 97,461,052 $ 149,434,835

Internal Service Funds $ (342,194) $ (342,194) 51,973,783 97,118,858 149,092,641

(324,574)

Internal Service Funds are used by management to charge the costs of certain activities, such as insurance and equipment management, to individual funds. The assets and liabilities of the Internal Service Funds are included in governmental activities in the Government-Wide Statement of Net Assets. Equipment Operations Fund Stores Services Fund Telecommunications Fund Risk Management Fund Total internal service funds Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. Long-term liabilities were not due and payable in the current period. Therefore, they were not reported in the Governmental Funds Balance Sheet. Except for the internal service funds reported above, the long-term liabilities were adjusted as follows.
Compensated absences payable - due within one year Compensated absences payable - due in more than one year Bonds, notes, loans and leases payable - due within one year Bonds, notes, loans and leases payable - due in more than one year

251,201 175,682 414,031 (6,919,775) (6,078,861)

944,441

GovernmentWide Statement of Net Assets $ (1,417,740) (708,869) (1,415,143) (17,331,855) $ (20,873,607)

Internal Service Funds $ 23,651 11,825 25,663 13,301 $ 74,440 (1,394,089) (697,044) (1,389,480) (17,318,554) (20,799,167) $ 160,235,068

Total long-term liabilities Net Assets of Governmental Activities

See accompanying Notes to Basic Financial Statements.

29

City of Santa Cruz
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the year ended June 30, 2004

Major Funds Other General Fund REVENUES: Taxes Licenses and permits Intergovernmental Charges for services Fines and forfeitures Use of money and property Other revenues Total revenues EXPENDITURES: General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Proceeds from asset disposition Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of year Prior period adjustment (Note 16) Beginning of the year, as restated End of year $ 15,966,948 2,238,215 18,205,163 17,990,954 $ 9,226,755 9,226,755 11,010,824 $ 10,297,895 4,096 10,301,991 8,398,810 $ 35,491,598 2,242,311 37,733,909 37,400,588 756,823 1,687,534 (602,164) 1,842,193 (214,209) 100,000 100,000 1,784,069 1,456,812 (1,537,590) (80,778) (1,903,181) 756,823 3,244,346 (2,139,754) 1,861,415 (333,321) 295,835 68,575 59,198,212 (2,056,402) 832,589 290,773 6,626,474 1,684,069 590,513 492,373 11,622,395 (1,822,403) 1,718,937 851,721 77,447,081 (2,194,736) 8,967,025 24,647,937 9,721,229 8,528,577 3,989,048 71,949 1,656,875 1,251,162 5,449,617 53,495 195,826 550,144 588,183 810,590 146,250 8,248,516 8,967,025 24,843,763 9,721,229 8,528,577 4,539,192 588,183 6,332,156 1,803,125 9,553,173 $ 31,696,322 529,649 3,745,601 16,865,754 1,799,557 2,086,163 418,764 57,141,810 $ 8,008,622 207,607 94,314 8,310,543 $ 2,824,812 6,512,513 325,619 6,177 51,937 78,934 9,799,992 $ 42,529,756 529,649 10,258,114 17,191,373 1,805,734 2,345,707 592,012 75,252,345 Redevelopment Agency Governmental Funds Total Governmental Funds

See accompanying Notes to Basic Financial Statements.

30

City of Santa Cruz
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, 2004

Net Change in Fund Balances - All Governmental Funds Amounts reported for governmental activities in the Statement of Activities and Changes in Net Assets were different because: Governmental funds reported capital outlay as expenditures. However, in the Government-Wide Statement of Activities and Changes in Net Assets, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This was the amount of capital assets recorded in the current period. 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, except for the internal service funds amount of $164,049 which are reported below. The net effect of transactions involving the deletions to capital assets is to decrease net assets. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Some expenses reported in the Government-Wide Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Repayment of 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 Certain payments on contractual obligations were classified as short-term principal repayments (debt service) in the governmental funds, but are reclassified as "Community and economic development" expense in the Government-Wide Statement of Activities and Changes in Net Assets. Debt service principal payments were reclassified as "Community and economic development" expense in the Government-Wide Statement of Activities and Changes in Net Assets. Accrued but unpaid and accreted interest on long-term debt was reported in the Government-Wide Statement of Activities and Changes in Net Assets, but did not require the use of current financial resources. Therefore, it was not reported as an expenditure in the governmental funds. The following amount represents the change in accrued interest from the prior year. Internal service funds were used by management to charge the costs of certain activities, such as insurance and equipment management, to individual funds. The net revenue of the internal service funds was reported with governmental activities. Change in Net Assets of Governmental Activities

$

(333,321)

7,410,171

(6,262,588) (834,878)

944,441

151,178

1,225,690

493,247

(493,247)

(271,807)

(5,180,272) $ (3,151,386)

See accompanying Notes to Basic Financial Statements.

31

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32

Proprietary Fund Financial Statements
Water - Accounts for the activities of the City's water utility, which provides water delivery services to the residents of the City and some residents of the County. Wastewater - Accounts for the activities of the City's wastewater utility, which provides wastewater collection and treatment services to the residents of the City and some residents of the County. Refuse - Accounts for the activities of the City's refuse utility, which provides refuse pick-up services, recycling services, and a sanitary landfill for residents of the City. Parking - Accounts for the activities of the Downtown Parking District, which provides parking facilities in the downtown area. Storm Water - Accounts for storm water utility fees on properties within the City limits. These fees provide funding for flood control improvements associated with the U.S. Army Corps of Engineers San Lorenzo River Flood Control project, storm water pollution prevention programs, and measures to comply with the U.S. Environmental Protection Agency Non-Point Pollution Discharge Emissions Standards Program (NPDES). Golf Course - Accounts for the activities of the Delaveaga Golf Course, which provides recreational facilities to the public. Internal Service Funds - These funds are used to provide goods and services by one department or agency to other departments or agencies of the City on a cost reimbursement basis.

33

City of Santa Cruz
Statement of Net Assets Proprietary Funds June 30, 2004

Major Funds

Water ASSETS Current assets: Cash and cash equivalents Restricted cash and cash equivalents Restricted investments Interest receivable Accounts receivable - net Due from other governments Notes receivable - due within one year Intergovernmental receivable - due within one year Due from other funds Prepaid items Inventories Deposits Total current assets Noncurrent assets: Notes receivable - due in more than one year Intergovernmental receivable - due in more than one year Advances to other funds Deferred charges Capital assets: Land Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Construction in progress Total capital assets Less accumulated depreciation Total capital assets, net Total noncurrent assets Total assets 3,658,840 71,900 46,149,261 4,811,278 5,630,172 183,106 6,129,851 66,634,408 (28,031,142) 38,603,266 39,433,904 64,192,776 793,158 37,480 $ 20,423,310 82,352 165,811 3,441,800 33,764 362,500 20,946 228,389 24,758,872 $

Wastewater

Refuse

Parking

7,654,663 504,357 555,943 887,655 733,632 110,436 1,060,118 521 14,743 11,522,068 220,578 18,370,380 122,800 97,642 1,331,330 808,396 49,980,385 130,676,321 2,779,124 70,000 125,861 907,896 186,679,313 (60,400,302) 126,279,011 145,090,411 156,612,479

$

6,236,451 4,879,053 347,295 64,265 908,564 22,827 12,458,455 403,509 98,575 18,938,549 2,506,636 9,613,282 99,336 162,965 31,419,343 (15,485,402) 15,933,941 16,337,450 28,795,905

$

2,176,297 199 519,452 28,825 21,418 2,917 2,749,108 232,059 4,979,102 266,200 1,189,967 20,398,375 123,698 9,934 47,122 27,014,398 (6,049,939) 20,964,459 21,196,518 23,945,626

See accompanying Notes to Basic Financial Statements.

34

Major Funds

Governmental Activities Internal

Storm Water

Golf Course

Total

Service Funds

$

1,462,453 136 500,763 25,170 37,720 1,375,384 184 3,401,810 258,954 8,822 48,464,702 1,478,876 49,952,400 (9,120,950) 40,831,450 41,090,404 44,492,214

$

458,066 3,559,610 160,681 10,955 95,792 3,396 4,288,500 162,083 1,863,130 90,000 999,761 521,121 301,083 3,775,095 (1,170,623) 2,604,472 2,766,555 7,055,055

$

38,411,240 9,025,707 1,528,191 850,969 5,392,949 2,142,780 472,936 1,060,118 521 65,013 228,389 59,178,813 1,013,736 18,370,380 160,280 1,154,247 11,939,799 1,236,496 164,722,864 159,392,371 18,667,397 70,000 418,237 9,027,793 365,474,957 (120,258,358) 245,216,599 265,915,242 325,094,055

$

1,682,420 60,486 18,415 788,172 187,102 4,770 99,463 987,505 3,828,333 1,010,887 336,296 1,347,183 (1,004,989) 342,194 342,194 4,170,527

(Continued)

35

City of Santa Cruz
Statement of Net Assets, Continued Proprietary Funds June 30, 2004

Major Funds

Water LIABILITIES Current liabilities: Accounts payable and other current liabilities Due to other funds Interest payable Deferred revenue Deposits payable Claims and judgments payable - due within one year Compensated absences payable - due within one year Bonds, notes, loans and leases payable due within one year Total current liabilities Noncurrent liabilities: Advances from other funds Claims and judgments payable - due in more than one year Compensated absences payable - due in more than one year Bonds, notes, loans and leases payable due in more than one year Landfill closure costs Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Debt service Unrestricted Total net assets $ 23,594,092 61,125,373 $ 37,531,281 919,165 1,023,666 3,067,403 104,501 152,820 2,043,737 $ 1,633,152 8,658 29,500 10,605 209,002 $

Wastewater

Refuse

Parking

1,180,506 1,106,349 128,379 2,476,752 4,891,986 64,190 43,758,928 43,823,118 48,715,104

$

351,064 165,458 21,097 141,615 2,183,851 2,863,085 70,807 14,205,570 5,230,144 19,506,521 22,369,606

$

115,574 52,808 19,380 22,138 178,060 387,960 194,565 11,069 6,534,227 6,739,861 7,127,821

80,545,701 27,351,674 107,897,375 $

4,659,125 1,767,174 6,426,299 $

14,785,279 2,032,526 16,817,805

See accompanying Notes to Basic Financial Statements.

36

Major Funds

Governmental Activities Internal

Storm Water

Golf Course

Total

Service Funds

$

63,496 84,850 3,365 120,238 271,949 1,683 6,090,123 6,091,806 6,363,755

$

176,385 20,685 17,761 156,608 371,439 8,880 4,407,758 4,416,638 4,788,077

$

3,520,177 1,438,808 50,597 29,985 522,260 5,268,329 10,830,156 194,565 261,130 75,915,771 5,230,144 81,601,610 92,431,766

$

293,442 49,206 2,188,200 23,651 25,663 2,580,162 7,644,100 11,825 13,301 7,669,226 10,249,388

35,117,128 3,011,331 $ 38,128,459 $

1,756,636 510,342 2,266,978 $

174,395,150 58,267,139 232,662,289 $

303,230 60,486 (6,442,577) (6,078,861)

(Concluded)

37

City of Santa Cruz
Statement of Revenues, Expenses and Changes in Net Assets Proprietary Funds For the year ended June 30, 2004

Major Funds

Water OPERATING REVENUES: Charges for services Use of property Other revenues Total operating revenues OPERATING EXPENSES: Personnel services Services, supplies, and other charges Depreciation and amortization Total operating expenses Operating income (loss) NONOPERATING REVENUES (EXPENSES): Intergovernmental Investment earnings Interest expense and fiscal charges Debt issuance costs Gain (loss) on sale of capital assets Total nonoperating revenues (expenses) Income (loss) before contributions and transfers Capital contributions Transfers out Total contributions and transfers Change in net assets NET ASSETS: Beginning of year Prior period adjustments (Note 16) Beginning of the year, as restated End of year $ 58,296,110 401,058 58,697,168 61,125,373 $ 221,157 106,578 (38,053) (23,582) 266,100 2,314,023 212,633 (98,451) 114,182 2,428,205 5,944,645 6,324,098 1,400,848 13,669,591 2,047,923 $ 15,515,274 6,750 195,490 15,717,514 $

Wastewater

Refuse

Parking

11,664,382 9,625 11,674,007

$

14,583,240 64,580 14,647,820

$

2,294,075 141,675 46,851 2,482,601

4,289,870 5,565,502 4,150,247 14,005,619 (2,331,612)

5,177,126 6,381,588 2,533,292 14,092,006 555,814

906,656 723,476 503,693 2,133,825 348,776

1,005,866 556,212 (1,445,492) (5,050) 111,536 (2,220,076) (31,216) (31,216) (2,251,292)

23,360 72,639 (806,780) (25,307) 47,000 (689,088) (133,274) (56,479) (56,479) (189,753)

249 23,816 (327,975) (9,910) (313,820) 34,956 (7,716) (7,716) 27,240

110,148,667 110,148,667 107,897,375 $

6,616,052 6,616,052 6,426,299 $

16,790,565 16,790,565 16,817,805

See accompanying Notes to Basic Financial Statements.

38

Major Funds

Governmental Activities Internal

Storm Water

Golf Course

Total

Service Funds

$

862,107 144 862,251

$

1,738,820 2,040 193,657 1,934,517

$

46,657,898 150,465 510,347 47,318,710

$

7,318,370 499,225 7,817,595

143,820 246,052 1,212,486 1,602,358 (740,107)

753,650 949,290 47,870 1,750,810 183,707

17,215,767 20,190,006 9,848,436 47,254,209 64,501

1,453,630 10,623,546 164,049 12,241,225 (4,423,630)

1,950,502 27,146 (343,949) (10,256) 1,623,443 883,336 (126,383) (126,383) 756,953

41,672 5,195 (55,342) (4,976) (35,130) (48,581) 135,126 (14,101) (14,101) 121,025

3,242,806 791,586 (3,017,591) (55,499) (11,712) 949,590 1,014,091 212,633 (334,346) (121,713) 892,378

10,887 (2,783) 5,500 13,604 (4,410,026) (770,246) (770,246) (5,180,272)

37,371,506 37,371,506 $ 38,128,459 $

2,145,953 2,145,953 2,266,978 $

231,368,853 401,058 231,769,911 232,662,289 $

(875,697) (22,892) (898,589) (6,078,861)

39

City of Santa Cruz
Statements of Cash Flows Proprietary Funds For the year ended June 30, 2004

Major Funds

Water CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and users Cash received from interfund services provided Cash payments to suppliers for goods and services Cash payments to employees for services Cash payments for interfund services used Cash payments to other governments Cash received from (payments to) others Net cash provided (used) by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out Advances from other funds Receipts from other governments Net cash provided (used) by noncapital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from capital debt Capital contributions Purchase and construction of capital assets Principal paid on capital debt Interest paid on capital debt Proceeds from sales of capital assets Net cash provided (used) by capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES: Receipts from collections of loans Receipts from collections of interfund advances Advances to other funds Proceeds from sales and maturities of investments Investment income received Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents CASH AND CASH EQUIVALENTS: Beginning of year End of year $ 24,449,033 20,505,662 $ 7,778 128,860 136,638 (3,943,371) (6,669,817) 22,361 (6,488,941) (163,490) (39,747) (98,451) 297,633 199,182 $ 13,732,414 415,366 (3,895,944) (5,941,509) (1,800,716) (113,388) (5,597) 2,390,626 $

Wastewater

Refuse

Parking

11,802,401 31,692 (3,636,552) (4,285,772) (1,543,476) (92,125) 9,625 2,285,793

$

14,595,028 5,706 (2,137,758) (5,214,484) (3,944,205) (122,507) 64,580 3,246,360

$

2,287,992 792 (535,402) (888,209) (126,256) (24,695) 188,526 902,748

(31,216) 2,550,060 2,518,844

(56,479) 15,529 (40,950)

(7,716) (35,303) 249 (42,770)

(1,771,365) (2,415,224) (1,504,242) -

2,405,137 (212,638) (4,410,325) (866,267) -

(86,008) (177,925) (329,104) -

(5,690,831)

(3,084,093)

(593,037)

31,372 (122,800) 67,502 (23,926) (910,120)

565,000 119,167 684,167 805,484

49,757 49,757 316,698

9,069,140 8,159,020 $

10,310,020 11,115,504 $

1,859,798 2,176,496

See accompanying Notes to Basic Financial Statements.

40

Major Funds

Governmental Activities Internal

Storm Water

Golf Course

Total

Service Funds

$

854,841 768 (147,758) (140,132) (74,594) (7,965) 144 485,304

$

1,756,283 (731,239) (750,881) (135,633) (2,249) 195,697 331,978

$

45,028,959 454,324 (11,084,653) (17,220,987) (7,624,880) (362,929) 452,975 9,642,809

$

118,778 6,955,116 (7,334,039) (1,458,347) (313,538) 499,225 (1,532,805)

(126,383) 1,936,513 1,810,130

(14,101) 36,889 22,788

(334,346) (35,303) 4,836,873 4,467,224

(770,246) (770,246)

(1,469,552) (115,226) (345,099) -

3,700,000 (248,227) (148,857) (176,127) 1,972

6,105,137 22,361 (10,276,731) (7,431,047) (3,260,586) 1,972

(24,463) (2,783) 5,500

(1,929,877)

3,128,761

(14,838,894)

(21,746)

52,060 52,060 417,617

10,644 10,644 3,494,171

31,372 7,778 (122,800) 565,000 427,990 909,340 180,479

10,499 10,499 (2,314,298)

1,044,972 $ 1,462,589 $

523,505 4,017,676 $

47,256,468 47,436,947 $

4,057,204 1,742,906

(Continued)

41

City of Santa Cruz
Statements of Cash Flows, Continued Proprietary Funds For the year ended June 30, 2004

Major Funds

Water

Wastewater

Refuse

Parking

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Estimated closure/postclosure costs Changes in assets and liabilities: Accounts receivable Prepaid items Inventories Deposits Notes and loans receivable Accounts payable and other current liabilities Due to other funds Deferred revenue Deposits payable Claims and judgments payable Compensated absences payable Total adjustments Net cash provided (used) by operating activities $ (228,906) (20,946) (29,149) (754,600) 335,362 (382,738) (1,250) 24,082 342,703 2,390,626 $ 395,211 (14,743) (225,500) 293,349 18,841 4,617,405 2,285,793 $ 17,494 (22,827) (39,127) (14,531) 2,690,546 3,246,360 $ (5,291) (2,917) 39,243 (2,120) 21,364 553,972 902,748 1,400,848 4,150,247 2,533,292 216,245 503,693 $ 2,047,923 $ (2,331,612) $ 555,814 $ 348,776

See accompanying Notes to Basic Financial Statements.

42

Major Funds

Governmental Activities Internal

Storm Water

Golf Course

Total

Service Funds

$

(740,107)

$

183,707

$

64,501

$

(4,423,630)

1,212,486 (6,498) (184) 15,735 3,872 1,225,411 $ 485,304 $

47,870 17,463 (3,396) 80,169 6,165 148,271 331,978 $

9,848,436 216,245 189,473 (65,013) (29,149) (980,100) 724,731 (382,738) (3,370) 59,793 9,578,308 9,642,809 $

164,049 473,699 (4,770) 20,507 18,789 (427,388) (718,175) 3,368,831 (4,717) 2,890,825 (1,532,805)

43

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44

Fiduciary Fund Financial Statements
Private - Purpose Trust Funds: Private-purpose trust funds are used to report the trust arrangements under which the principal and income benefit the Library Joint Powers Authority. Agency Funds: Agency funds are used to account for resources held by the City in a custodial capacity. These funds account for the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments.

45

City of Santa Cruz
Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2004

PrivatePurpose Trust Funds ASSETS Cash and cash equivalents Investments Receivables: Interest receivable Taxes receivable Accounts receivable Due from other governments Prepaid items Total assets LIABILITIES Accounts payable and other current liabilities Due to other governments Deferred revenue Deposits payable Payable to bondholders Total liabilities NET ASSETS Held in trust for library programs $ 521,378 $ $ $ 943,651 679,339 38,826 354,406 263,903 2,280,125 $ 3,837 521,378 $ 6,458 533,783 611,522 1,999 136 2,280,125 $ 517,541 $ 1,026,227 100,000 Agency Funds

See accompanying Notes to Basic Financial Statements.

46

City of Santa Cruz
Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the year ended June 30, 2004

PrivatePurpose Trust Funds ADDITIONS: Investment earnings Total additions DEDUCTIONS: Library programs Total deductions Change in net assets NET ASSETS: Beginning of year End of year $ 528,941 521,378 10,001 10,001 (7,563) $ 2,438 2,438

See accompanying Notes to Basic Financial Statements.

47

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48

City of Santa Cruz
Index to Notes to the Basic Financial Statements For the year ended June 30, 2004

Page
Note 1 - Summary of Significant Accounting Policies..................................................................................52 A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P. Q. R. S. Reporting Entity..............................................................................................................................52 Basis of Accounting and Measurement Focus............................................................................52 Use of Restricted/Unrestricted Net Assets.................................................................................55 Cash, Cash Equivalents and Investments ...................................................................................55 Restricted Cash and Investments with Fiscal Agents................................................................56 Prepaid Items ..................................................................................................................................57 Inventories .......................................................................................................................................57 Interfund Transactions...................................................................................................................57 Capital Assets..................................................................................................................................57 Interest Payable...............................................................................................................................58 Deferred Revenue ...........................................................................................................................58 Compensated Absences .................................................................................................................59 Bond Premiums, Discounts, and Issuance Costs .......................................................................59 Long-Term Debt..............................................................................................................................59 Net Assets ........................................................................................................................................59 Fund Balances – Reservations and Designations .......................................................................60 Property Taxes ................................................................................................................................60 Use of Estimates..............................................................................................................................60 Implementation of New GASB Pronouncements ......................................................................60

Note 2 - Cash Deposits and Investments .........................................................................................................60 A. B. C. D. Cash Deposits..................................................................................................................................60 Investments .....................................................................................................................................61 Derivatives.......................................................................................................................................63 Reconciliation to Cash, Cash Equivalents, and Investments....................................................64

Note 3 – Receivables ............................................................................................................................................65 Note 4 – Interfund Balances and Transactions ...............................................................................................66 A. Government-Wide Financial Statements ....................................................................................66 B. Fund Financial Statements ............................................................................................................67

49

City of Santa Cruz
Index to Notes to the Basic Financial Statements, Continued For the year ended June 30, 2004

Page
Note 5 – Capital Assets ........................................................................................................................................69 A. Government-Wide Financial Statements ....................................................................................69 B. Fund Financial Statements ............................................................................................................72 Note 6 – Long-Term Debt....................................................................................................................................72 A. Governmental Activities Long-Term Debt .................................................................................72 B. Proprietary Fund Obligations .......................................................................................................76 C. Defeased Debt .................................................................................................................................81 Note 7 – Risk Management and Self Insurance..............................................................................................81 Note 8 – Landfill Closure and Postclosure Costs ...........................................................................................84 Note 9 – Retirement Plans...................................................................................................................................85 A. Pension Plan ....................................................................................................................................85 Note 10 – Post-Employment Retirement Benefits ..........................................................................................86 Note 11 – Commitments and Contingencies ...................................................................................................86 Note 12 – Operating Leases ................................................................................................................................88 Note 13 – Reserved and Designated Fund Balances ......................................................................................89 Note 14 – Deficit Net Assets ...............................................................................................................................90 Note 15 – Prior Period Adjustments..................................................................................................................90 A. Government-Wide Financial Statements...................................................................................90 B. Fund Financial Statements...........................................................................................................91 Note 16 – Subsequent Events .............................................................................................................................91

50

NOTES TO BASIC FINANCIAL STATEMENTS

51

City of Santa Cruz
Notes to Basic Financial Statements For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the City of Santa Cruz, California (City) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the City’s accounting policies are described below. A. Reporting Entity The City was incorporated as a town in 1866 under the laws of the State of California. It became a City in 1876. The City is a charter city administered under a council/manager form of government. The financial statements present the City and its component units (legally separate entities for which the City is considered to be financially accountable). Component units include those entities for which the City may have governing authority or is in a relationship of financial benefit or burden. Component units also include entities that are fiscally dependent upon the City. The financial activities of these entities are integrally related to those of the City and, therefore, blended with those of the City. Blending involves aggregating/merging component unit data and data from the City at the combined financial statement level. Based on the above criteria, the accompanying financial statements include the financial activities of the following entities as blended component units. Separate financial statements of these entities alone can be obtained from the Finance Department of the City. City of Santa Cruz Redevelopment Agency - The City of Santa Cruz Redevelopment Agency (Agency) was formed in 1956 to improve social, physical and economic conditions of the City by constructing a series of commercial, residential and public buildings in the downtown area. The City's Council members are the Agency's Directors and have full accountability for the Agency's fiscal matters. Santa Cruz Public Improvement Financing Corporation - The Santa Cruz Public Improvement Financing Corporation (Corporation) is a non-profit benefit corporation organized and operated under the laws of the State of California. The primary purpose of the Corporation is to serve as a financing vehicle for the City. The City Council has final responsibility for the operations of the Corporation. 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. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Government - Wide Financial Statements The City’s 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 accompanied by a total column. Fiduciary activities of the City are not included in these statements.
52

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus, Continued These basic 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, as well as 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 businesstype activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities and Changes in Net Assets, internal service fund transactions have been eliminated; however, those transactions between governmental and businesstype 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 For its business type activities, the City applies all applicable GASB pronouncements currently in effect, as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB) of the Committee on Accounting Procedure that do not conflict with or contradict GASB pronouncements. 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 all major funds that met the applicable criteria. 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 presents increases (revenues 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.
53

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus, Continued Revenues are recorded when received in cash, except for that 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 Changes in Net Assets, and a Statement of Cash Flows for each major proprietary fund. A separate column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the Government-Wide Financial Statements. 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 the liability is incurred. In these funds, receivables have been recorded as revenue and provisions have been made for uncollectible amounts. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Government Entities that Use Proprietary Fund Accounting, the City applies all GASB pronouncements currently in effect as well as FASB Statements and Interpretations, APB Opinions and ARB of the Committee on Accounting Procedure that do not conflict with or contradict GASB pronouncements. 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 non-operating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses.

54

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus, Continued Fiduciary Fund Financial Statements Fiduciary Fund Financial Statements include a Statement of Net Assets and a Statement of Changes in Fiduciary Net Assets. The City's fiduciary funds represent agency funds and private-purpose trust funds. Agency funds 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. The private-purpose trust funds are used to account for resources legally held in trust for special purposes. C. Use of Restricted/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, Cash Equivalents and Investments The City pools its available cash for investment purposes. Investment income from this pool is allocated to each fund based on its proportionate share of the pool. Cash and investments not pooled include bond proceeds held by fiscal agents, and other amounts required to be segregated by bond indentures or other regulations. Investment income from cash and investments with fiscal agents is credited directly to the related fund. Cash and cash equivalents are considered to be amounts in demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. For purposes of both the balance sheet and statements of cash flows, cash and cash equivalents includes not only currency on hand, but deposits in the City’s cash and investment pool. These deposits have the same characteristics for the participating funds as demand deposit accounts, in that the funds may deposit additional cash at any time and also effectively withdraw cash at any time without prior notice or penalty. Cash and cash equivalents also include restricted cash and money market funds held by fiscal agents. Investments include unpooled investments in securities having original maturities greater than three months. In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, both these investments and investments included in the City’s cash and investment pool are stated at fair value, which is based on a quoted market price. This includes all investments except the City’s investment in the California Local Agency Investment Fund (LAIF). LAIF determines fair value on its investment portfolio based on market quotations for those securities where market quotations are readily available and based on amortized cost or best estimate for those securities where market value is not readily available. The City valued its investments in LAIF as of June 30, 2004, by multiplying its account balance with LAIF times a fair value factor determined by LAIF (.998384177). This fair value factor was determined by dividing all LAIF participants’ total aggregate amortized cost by total aggregate fair value. The investments made by the City treasurer are limited to those allowable under State statutes as incorporated into the City’s Investment Policy, dated April 27, 2004, which is more conservative than that allowed by State statute.
55

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued D. Cash, Cash Equivalents and Investments, Continued The scope of the investment policy includes all activities of the City and the following reporting entities: City of Santa Cruz City of Santa Cruz Redevelopment Agency Santa Cruz Public Improvement Financing Corporation Under provisions of this policy, the City is authorized to invest in the following types of investments: Bonds issued by the City. Purchases of this type shall not exceed five years to maturity, and 15% of the cost value of the portfolio. U.S. Treasury bills, notes, bonds, or certificates of indebtedness, or those securities backed by the full faith and credit of the U.S. Government with maturities not exceeding five years. Obligations, participations, or other instruments of, or issued by, a Federal Agency or a United States Government-Sponsored Enterprise with maturities not to exceed five years. Money Market accounts deposited with a nationally or state-chartered bank. Bankers’ acceptances with a term not to exceed 180 days maturity and 40 percent of the City’s portfolio. Nonnegotiable and nontransferable certificates of deposit issued by a nationally or statechartered bank, state or federal association, or by a state-licensed branch of a foreign bank. Purchases of these certificates of deposit may not exceed 30% of the City’s portfolio and purchases in a single issuer in this category shall not exceed 5% of the cost value of the portfolio. State of California Local Agency Investment Fund as long as the total amount of City and Agency combined funds invested does not exceed the limit set by LAIF. Shares of beneficial interest issued by diversified management companies investing in authorized securities and obligations (e.g., money market mutual funds). Repurchase agreements with primary dealers of the Federal Reserve with specific terms and conditions. The market value of securities that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities and shall be valued daily by the third party custodial agent. Securities that can be pledged for collateral consist only of investments permitted within this policy with a maximum maturity of five years. Purchases shall not exceed 90 days to maturity and 15% of the cost value of the portfolio. Bond proceeds held by fiscal agents to be used only for specific capital outlay, payments of certain longterm debt and maintaining required reserves are invested in accordance with the requirements and restrictions of the City’s investment policy and as permitted by specific State statutes, applicable City ordinance or resolution, and bond indenture requirements. E. Restricted Cash and Investments with Fiscal Agents Certain restricted cash and investments are held by fiscal agents for the redemption of bonded debt and for acquisition and construction of capital projects.

56

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued F. Prepaid Items Certain payments applicable to future accounting periods are recorded as prepaid items. Prepaid items do not reflect current appropriable resources and, thus, an equivalent portion of fund balance is reserved. G. Inventories Inventories consist of material and supplies which are stated at cost using the first-in, first-out method. Inventories are recognized as expenditures when consumed rather than when purchased. H. Interfund Transactions Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the long-term portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the Government-Wide Financial Statements as “internal balances.” I. Capital Assets Capital assets are defined by the City as assets having an estimated useful life in excess of one year, and an initial, individual cost in excess of the capitalization thresholds described below:
Infrastructure Buildings and lease improvements Machinery and equipment Software (if qualified) $ 25,000 10,000 5,000 5,000

All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated fixed assets are valued at their estimated fair market value on the date donated. Assets acquired under capital leases are capitalized in accordance with generally accepted accounting principles. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest accrued during capital assets construction, if any, is capitalized for the businesstype activities and proprietary funds as part of the asset cost. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset’s useful life are not capitalized. Capital assets are reported in the applicable governmental or business-type activities in the Government-Wide Financial Statements.

57

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued I. Capital Assets, Continued Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows:
Land improvements Buildings and lease improvements Water tanks and water mains Underground sewer lines Other infrastructure Machinery and equipment Software(if qualified) 20 years 15-50 years 30-50 years 50 years 5-100 years 5-20 years 5 years

Assets are grouped by asset type into one of the following accounts – land, land improvements, infrastructure assets (e.g. roads, bridges, sidewalks, and similar items), buildings (and improvements), machinery and equipment, lease improvements, software, and construction in progress. The GASB Statement No. 34 requires the inclusion of infrastructure capital assets in local governments’ basic financial statements. In accordance with Statement No. 34, the City has included the value of all infrastructure in the basic financial statements. For all infrastructure systems, the City elected to use the Basic Approach as defined by GASB Statement No. 34 for infrastructure reporting. Estimated historical costs were developed in one of three ways: (1) historical records; (2) standard unit costs appropriate for the construction/acquisition date; or (3) present cost indexed by a reciprocal factor of the price increase from the construction/acquisition date to the current date. The accumulated depreciation, defined as the total depreciation from the date of construction/acquisition to the current date on a straight line, unrecovered cost method was computed using industry accepted life expectancies for each infrastructure subsystem. The book value was then computed by deducting the accumulated depreciation from the estimated historical cost. J. Interest Payable In the Government-Wide Financial Statements, interest payable on long-term debt is recognized as the liability is incurred for governmental fund types and proprietary fund types. In the Fund Financial Statements, propriety fund types recognize the interest payable when the liability is incurred. K. Deferred Revenue In the Government-Wide Financial Statements, deferred revenue is recognized for transactions for which revenue has not yet been earned. Typical transactions recorded as deferred revenues in the Government-Wide Financial Statements are long-term assessments, long-term loans receivable, and prepaid charges for services. In the Fund Financial Statements, deferred revenue is recorded when transactions have not yet met the revenue recognition criteria based on the modified accrual basis of accounting. The City records deferred revenue for transactions for which revenues have not been earned, or for which funds are not
58

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued K. Deferred Revenue, Continued available to meet current financial obligations. Typical transactions for which deferred revenue is recorded are grants received but not yet earned or available, interest on interfund advances receivable, long-term assessments and loans receivable. L. Compensated Absences The City has accumulated unpaid regular vacation leave (for all departments) which is accounted for in accordance with GAAP. The maximum accumulation of vacation leave is limited to the total number of hours accruable during two years. Employees are paid 100% of their accumulated vacation pay when they terminate their employment for any reason. Employees are allowed a partial payoff of accumulated sick leave up to a certain maximum amount. M. Bond Premiums, Discounts, and Issuance Costs For governmental type activities, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as other financing sources net of the applicable premium or discount. Issuance costs, whether or not withheld from the actual net proceeds received, are reported as debt service expenditures. For business type activities, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using a straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs and costs in excess of net assets acquired are reported as other assets in the accompanying financial statements. N. Long-Term Debt Government-Wide Financial Statements - Long-term debt and other long-term obligations are reported as liabilities in the appropriate activities. Fund Financial Statements - With the exception of advances from other funds, the governmental fund financial statements do not present long-term liabilities. However, the long term debt is shown in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets. O. Net Assets In the Government-Wide Financial Statements, net assets are classified in the following categories: Invested in Capital Assets, net of Related Debt – This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that attributed to the acquisition, construction, or improvement of the assets. Restricted Net Assets – This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. Unrestricted Net Assets – This amount is all net assets that do not meet the definition of “invested in capital assets, net of related debt” or “restricted net assets.”

59

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued P. Fund Balances - Reservations and Designations In the Fund Financial Statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balances represent tentative management plans that are subject to change. Q. Property Taxes Assessed property values are determined annually by the County Assessor as of March 1, and become a lien on real property at July 1. Taxes are due November 1 and February 1 and are delinquent if not paid by December 10 and April 10, respectively. The County bills and collects property taxes and remits them to the City under the State authorized method of apportioning taxes whereby all local agencies, including cities, receive from the county their respective shares of the amount of ad valorem taxes collected. Property tax revenues are recognized when levied provided the measurement and availability criteria have been met. R. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. In addition, estimates affect the reported amount of expenses. Actual results could differ from these estimates and assumptions. S. Implementation of New GASB Pronouncements The City adopted new accounting standards in order to conform to the following Governmental Accounting Standards Board Statements: Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No. 3 GASB Statement No. 40 updates the custodial credit risk disclosure requirements of Statement No. 3 and establishes more comprehensive disclosure requirements addressing other common risks of deposits and investments of state and local governments, such as credit risk, concentration of credit risk, interest rate risk, and foreign currency risk.

2. CASH DEPOSITS AND INVESTMENTS A. Cash Deposits The carrying amounts of the City’s time and demand deposits were $2,265,415 at June 30, 2004. Bank balances before reconciling items were $2,917,793. The total bank balance was collateralized or insured with securities held by the pledging financial institutions in the City’s name as discussed below.
60

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

2. CASH DEPOSITS AND INVESTMENTS, Continued A. Cash Deposits, Continued The California Government Code requires California banks and savings and loan associations to secure the City’s cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name. The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also allows institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the City’s total cash deposits. The City may waive collateral requirements for cash deposits, which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation. The carrying amount of the City’s time and demand deposits held by fiscal agents was $6 at June 30, 2004 and the bank balance was the same amount. This amount was fully insured. B. Investments As of June 30, 2004, the City had the following investments:
Investment Type Fair Value Maturity (Days)

U.S. Treasuries U.S. Agencies U.S. Treasury Money Market Mutual Funds Local Agency Investment Fund Total Portfolio Weighted Average Maturity (Days) Portfolio Weighted Average Maturity (Years)

$

2,092,190 33,957,943 2,841,390 37,770,183

851 484 1 196

$

76,661,706 334 0.92

Interest Rate Risk. The City assumes that callable U.S. Agencies will be called. As of June 30, 2004, the portfolio contained $9,889,220 of callable U.S. Agencies, representing 12.90% of investments at June 30, 2004. The City’s Investment Policy (Policy) limits the purchase of callable U.S. Agency instruments to discrete calls and those that pay 100% of the principal at the redemption date. In addition, purchases of callable U.S. Agency instruments are not to exceed 30% of the value of the portfolio. The City is in compliance with these provisions of the Policy. In accordance with the Policy, the City manages its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio to two and-one half (2 ½) years or less. The City is in compliance with this provision of the Policy.

61

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

2. CASH DEPOSITS AND INVESTMENTS B. Investments, Continued Credit Risk. The City’s investments are rated by the nationally recognized statistical rating organizations as follows:
Standard Moody's U.S. Agencies Federal Farm Credit Bank Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal National Mortgage Association Student Loan Marketing Association U.S. Treasury Money Market Mutual Funds Blackrock Provident - Treasury Trust Fund Goldman Sachs - Treasury Only Wells Fargo Treasury Plus External Pool State of California - Local Agency Investment Fund Not Rated Not Rated Not Rated Aaa Aaa AAAm-G AAAm-G AAA-m Aaa Aaa Aaa Aaa Aaa AAA AAA AAA AAA Not Rated & Poor's

The City’s Policy requires that the management company of mutual funds must have attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. The investment in Blackrock Provident U.S. Treasury Money Market Mutual Fund is rated by only one nationally recognized statistical rating organization. Blackrock Provident U.S. Treasury Money Market Mutual Fund is approved by the National Association of Investors Corporation. Concentration of Credit Risk. The City’s Policy states that not more than 25% of the portfolio shall be invested in any one entity or any one instrument to protect the City from concentration of credit risk, with the following exceptions: U.S. Treasury Obligations and the external investment pool (State of California – Local Agency Investment Fund). In addition, purchases of mutual funds must not exceed 20% of the value of the portfolio. Purchases in a single mutual fund may not exceed 10% of the value of the portfolio. The City is in compliance with these provisions of the Policy. The following is a chart of investments that represents five (5) percent or more of the total investments:
Percentage of U.S. Agencies Federal Farm Credit Bank Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal National Mortgage Association Total $ $ Amount Invested 5,022,190 11,520,453 7,336,665 8,068,015 31,947,323 Investments 6.55% 15.03% 9.57% 10.52% 41.67%

62

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

2. CASH DEPOSITS AND INVESTMENTS B. Investments, Continued The following is a chart of investments in money market mutual funds:
U.S. Treasury Money Market Mutual Funds Blackrock Provident - Treasury Trust Fund Goldman Sachs - Treasury Only Wells Fargo Treasury Plus Total $ $ Amount Invested 947,306 945,558 948,526 2,841,390 Percentage of Investments 1.24% 1.23% 1.24% 3.71%

C. Derivatives During the year, the City held structured notes. Structured notes are debt securities (other than assetbacked securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. They are issued by corporations and by government-sponsored enterprises such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB). These securities could be called prior to maturity, depending on changes in interest rates. As of June 30, 2004, the City held $9,889,220 in callable securities, which amounted to approximately 12.90% of investments at June 30, 2004. As of June 30, 2004, the City had $37,770,183 (estimated fair value) invested in LAIF accounts, which had invested 1.603% of the pooled investments in structured notes and asset-backed securities. Assetbacked securities entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages or credit card receivables. The City’s share of structured notes and asset-backed securities due to its holdings in LAIF amounted to approximately 0.790% of investments at June 30, 2004.

63

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

2. CASH DEPOSITS AND INVESTMENTS, Continued D. Reconciliation to Cash, Cash Equivalents, and Investments
Deposits and investments at June 30, 2004 consisted of the following: Current assets: Cash & cash equivalents: Pooled cash deposits Other deposits and cash held by city Cash held by fiscal agents available for debt service Money market mutual funds available for debt service Federal securities State local agency investment fund Total cash and cash equivalents Restricted cash and cash equivalents: Pooled cash deposits Other cash deposits Money market mutual funds held by fiscal agents State local agency investment fund Total restricted cash and cash equivalents Investments: Federal securities Federal securities held by fiscal agents Total investments Total cash, cash equivalents, and investments $ 100,000 1,592,683 1,692,683 78,927,127 $ 1,412,836 33,771 6 1,365 34,357,450 30,973,375 66,778,803 715,760 103,048 2,840,025 6,796,808 10,455,641

The following is a summary of cash, cash equivalents, and investments, including restricted cash and investments with fiscal agents at June 30, 2004:
Government-Wide Statement of Net Assets Governmental Activities Current Assets Unrestricted assets: Cash and cash equivalents Investments Total unrestricted assets Restricted assets: Cash and cash equivalents Investments with fiscal agents Total restricted assets Grand Total $ 1,429,934 64,492 1,494,426 28,318,221 $ 9,025,707 1,528,191 10,553,898 48,965,138 $ 10,455,641 1,592,683 12,048,324 77,283,359 $ 1,643,768 $ 10,455,641 1,592,683 12,048,324 78,927,127 $ 26,823,795 26,823,795 $ 38,411,240 38,411,240 $ 65,235,035 65,235,035 $ 1,543,768 100,000 1,643,768 $ 66,778,803 100,000 66,878,803 Business-Type Activities Total Statement of Fiduciary Net Assets Total

64

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

3. RECEIVABLES Government-Wide Statements The following is a summary of receivables net of allowances for uncollectible amounts at June 30, 2004:
Government-Wide Statement of Net Assets Governmental Business-Type Activities Activities Total Interest receivable Taxes receivable Accounts receivable, net Due from other governments Notes receivable Loans receivable Intergovernmental receivable Total $ 455,154 3,288,111 1,793,400 3,312,703 7,919,710 1,151,868 17,920,946 $ 850,969 5,392,949 2,142,780 1,486,672 19,430,498 $ 1,306,123 3,288,111 7,186,349 5,455,483 9,406,382 1,151,868 19,430,498 47,224,814 Statement of Fiduciary Net Assets $ 10,295 533,783 611,522 1,999 1,157,599 $

Total 1,316,418 3,821,894 7,797,871 5,457,482 9,406,382 1,151,868 19,430,498

$

$ 29,303,868

$

$

$ 48,382,413

Fund Financial Statements At June 30, 2004, the Fund Financial Statements show the following notes, loans and intergovernmental receivables: Notes Receivable in the General Fund of $2,658,942 (offset by an allowance for uncollectible notes of $362,845) consist of a note from Neary Lagoon Partners in the amount of $78,800, a promissory note to Santa Cruz Shaffer Road Investors for housing developments in the amount of $407,800, a loan to the River Street Shelter for repairs in the amount of $23,700, a loan to First Night Santa Cruz for $20,000, Harvey West Assessment District notes in the amount of $92,700, employee computer loans in the amount of $89,740, various notes for housing improvement activities in the Housing In-Lieu program of $264,045 and a note for the sale of land to the Redevelopment Agency of the City of Scotts Valley in the amount of $2,045,002 . The repayment of the Redevelopment Agency of the City of Scotts Valley note receivable consists of annual principal and interest payments of $206,594 through June 1, 2018. The employee computer loan program provides two-year loans to employees with a simple interest rate of 5%, payable through payroll deductions. Some notes are secured by a deed of trust. The Redevelopment Agency Fund notes receivable of $4,064,512 (net of an allowance of $483,740) consists of loans for low/moderate income housing projects. There are two types of loan repayment for these notes: due upon sale or transfer and lump sum payment at maturity. Interest rates range from 0% to 7%. The notes are all secured by a deed of trust. Notes receivable in the Parks and Recreation special revenue fund of $511,700 consist of a promissory note for housing developments – development impact fees. There is no interest on this promissory note. Loan repayment is deferred to a future date when monthly repayment will begin. The note is secured by a personal guarantee of Santa Cruz Shaffer Road Investors, LP, a California limited partnership. The notes receivable in the Housing and Community Development special revenue fund of $684,556 (net of an allowance of $1,294,737) consist of loans for buildings damaged in the 1989 earthquake. There are two
65

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

3. RECEIVABLES, Continued types of loan repayments: monthly repayment and deferred to a future date when monthly repayment will begin. The interest rate on these notes is 3%. The notes are all secured by a deed of trust. Notes receivable in the enterprise funds consist of three notes, including two from governmental agencies totaling $946,272. One is for water and sewer connection fees with monthly payments through the year 2010; interest is at 5%. The other note is for the governmental agency's share of improvements to the City's wastewater treatment plant with annual payments through the year 2006; interest is at 6.3%. Both notes are unsecured. The third note receivable in the enterprise funds of $540,400 consists of a promissory note for housing developments-development impact fees. Loan repayment is deferred to a future date when monthly repayment will begin. There is no interest on this promissory note. The note is secured by a personal guarantee of Santa Cruz Shaffer Road Investors, LP, a California limited partnership. Loans Receivable in the other governmental funds of $1,151,868 (net of an allowance of $4,797,692) consists of loans for rehabilitation of low/moderate income housing. The loans are made with Federal funds from the Department of Housing and Urban Development (HUD). The City administers these funds for HUD. There are four types of loan repayment: monthly installments, due upon sale or transfer, deferred to a future date when monthly repayment will begin, and no repayment if the property remains in use for low/moderate income housing for a specified time period. Interest rates range from 0% to 7%. The loans are all secured by a deed of trust on the property being rehabilitated. Intergovernmental Receivable included in the enterprise funds is a total of $19,430,498 ($18,370,380 due in more than one year and $1,060,118 due within one year) due from the County of Santa Cruz for their share of a State Water Resources Board loan for wastewater treatment plant upgrades. Payments of interest and principal are due in annual installments of $1,604,172, with an interest rate of 2.8%. The final payment is due August 1, 2018. Allowance for uncollectible notes and loans - When considerable uncertainty exists as to the collectibility of a note (as determined by management) due to the terms of the loan or other factors, it is offset by an allowance for uncollectible notes. 4. INTERFUND BALANCES AND TRANSACTIONS A. Government-Wide Financial Statements Short-Term Internal Balances At June 30, 2004, the City had the following short-term internal balances:
Internal Balances Payable Governmental Activities Internal Balances Receivable Business-Type Activities $ 521

66

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

4. INTERFUND BALANCES AND TRANSACTIONS, Continued A. Government-Wide Financial Statements, Continued Long-Term Internal Balances At June 30, 2004, the City had the following long-term internal balances:
Internal Balances Payable Business-Type Activities Internal Balances Receivable Governmental Activities $ 34,285

Transfers At June 30, 2004, the City had the following transfers:
Transfers In Governmental Activities Transfers Out Business-Type Activities $ 334,346

B. Funds Financial Statements Due to/from Other Funds The City had the following due to/from other funds as of June 30, 2004:
Due from other funds Due to other funds Non-major General Fund General Fund Non-major Governmental Funds Internal Service Funds Total $ $ 24,109 49,206 73,315 $ $ Governmental Funds 7 7 $ $ Wastewater Enterprise Fund 521 521 $ $ Internal Service Funds 187,102 187,102 $ $ Total 187,109 24,630 49,206 260,945

67

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

4. INTERFUND BALANCES AND TRANSACTIONS, Continued B. Funds Financial Statements, Continued Long-Term Advances The City had the following long-term advances as of June 30, 2004:

Advances from Other Funds

Advances to Other Funds General Fund Redevelopment Agency Fund Non-Major Governmental Funds Parking Enterprise Fund Total $ $ 1,009,131 530,000 1,539,131 $ $ Redevelopment Agency Fund 194,565 194,565 $ $ Water Enterprise Fund 37,480 37,480 $ $ Wastewater Enterprise Fund 122,800 122,800 $ $ Total 1,046,611 652,800 194,565 1,893,976

Transfers In/Out The City had the following transfers as of June 30, 2004:

Transfers In Redevelopment General Fund General Fund Transfers Out Non-major Governmental Funds Enterprise Funds: Water Wastewater Refuse Parking Stormwater Golf Course Internal Service Funds Total $ 11,723 24,833 8,833 1,333 20,000 500 770,246 1,687,534 $ 100,000 100,000 $ 86,728 6,383 47,646 6,383 6,383 13,601 1,456,812 $ 98,451 31,216 56,479 7,716 126,383 14,101 770,246 3,244,346 $ 850,066 $ Agency Fund $ Non-Major Governmental Funds 602,164 687,524 $ Total 602,164 1,537,590

68

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

5. CAPITAL ASSETS A. Government-Wide Financial Statements At June 30, 2004, the City’s capital assets consisted of the following:
Governmental Activities Capital Assets: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Total capital assets, being depreciated Total capital assets Less accumulated depreciation: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Total accumulated depreciation Total capital assets, net $ (993,164) (92,937,238) (7,517,899) (6,257,745) (149,085) (526,792) (108,381,923) 149,434,835 $ (439,457) (65,769,464) (45,247,608) (8,676,030) (5,834) (119,965) (120,258,358) 245,216,599 $ (1,432,621) (158,706,702) (52,765,507) (14,933,775) (154,919) (646,757) (228,640,281) 394,651,434 2,322,108 160,705,554 31,843,990 9,225,617 724,114 1,021,592 205,842,975 257,816,758 1,236,496 164,722,864 159,392,371 18,667,397 70,000 418,237 344,507,365 365,474,957 3,558,604 325,428,418 191,236,361 27,893,014 794,114 1,439,829 550,350,340 623,291,715 $ 43,391,660 8,582,123 51,973,783 $ 11,939,799 9,027,793 20,967,592 $ 55,331,459 17,609,916 72,941,375 Business-Type Activities Total

69

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

5. CAPITAL ASSETS A. Government-Wide Financial Statements, Continued The following is a summary of capital assets for governmental activities:
Prior Period Balance July 1, 2003 Governmental Activities: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Total capital assets, being depreciated Total capital assets Less accumulated depreciation: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Total accumulated depreciation Total capital assets, net $ (915,262) (88,634,963) (6,845,091) (5,781,832) (69,992) (336,982) (102,584,122) 149,248,369 $ (115,712) (4,610,590) (683,328) (748,104) (79,093) (189,810) (6,426,637) 7,314,815 $ 308,315 10,520 272,191 591,026 (7,166,159) $ 37,810 37,810 37,810 $ (993,164) (92,937,238) (7,517,899) (6,257,745) (149,085) (526,792) (108,381,923) 149,434,835 1,910,787 156,088,484 30,521,860 9,370,286 724,114 746,230 199,361,761 251,832,491 411,321 4,942,042 1,334,130 136,979 275,362 7,099,834 13,741,452 (324,972) (12,000) (281,648) (618,620) (7,757,185) 2,322,108 160,705,554 31,843,990 9,225,617 724,114 1,021,592 205,842,975 257,816,758 $ 42,973,291 9,497,439 52,470,730 $ 431,380 6,210,238 6,641,618 $ (13,011) (7,125,554) (7,138,565) $ $ 43,391,660 8,582,123 51,973,783 Additions Deletions Adjustments (Note 16) Balance June 30, 2004

70

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

5. CAPITAL ASSETS A. Government-Wide Financial Statements, Continued Depreciation expense of the governmental activities for the year ended June 30, 2004 was $6,426,637 and was distributed among City departments as follows.
General government: City Council City Clerk Human Resources Finance Non-Departmental Internal service funds Total general government Public safety: Police Fire Total public safety Parks and Recreation Library Public Works Planning and Community Development Redevelopment Total depreciation expense $ 7,346 19,018 2,588 205,696 109,335 164,049 508,032 396,827 218,651 615,478 1,951,867 26,800 3,229,173 18,684 76,603 6,426,637

$

The following is a summary of capital assets for business-type activities:
Balance July 1, 2003 Business-type Activities: Capital assets, not being depreciated: Land Construction in process Total capital assets, not being depreciated Capital assets, being depreciated: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Total capital assets, being depreciated Total capital assets Less accumulated depreciation: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software Total accumulated depreciation Total capital assets, net $ 11,933,799 8,247,585 20,181,384 1,236,496 156,919,354 158,974,375 17,717,515 70,000 263,064 335,180,804 355,362,188 (381,534) (61,547,469) (41,768,887) (7,419,199) (2,801) (44,077) (111,163,967) $ 244,198,221 $ $ 6,000 5,562,459 5,568,459 8,326,382 434,196 1,433,143 155,173 10,348,894 15,917,353 (57,923) (4,501,647) (3,486,632) (1,723,313) (3,033) (75,888) (9,848,436) 6,068,917 $ $ (4,782,251) (4,782,251) (522,872) (16,200) (483,261) (1,022,333) (5,804,584) 279,652 7,911 466,482 754,045 (5,050,539) $ 11,939,799 9,027,793 20,967,592 1,236,496 164,722,864 159,392,371 18,667,397 70,000 418,237 344,507,365 365,474,957 (439,457) (65,769,464) (45,247,608) (8,676,030) (5,834) (119,965) (120,258,358) $ 245,216,599 Additions Deletions Balance June 30, 2004

71

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

5. CAPITAL ASSETS A. Government-Wide Financial Statements, Continued Business-type activities depreciation expense for the year ended June 30, 2004 is as follows:
Water Wastewater Refuse Parking Storm Water Golf Course Total depreciation expense $ $ 1,400,848 4,150,247 2,533,292 503,693 1,212,486 47,870 9,848,436

B. Funds Financial Statements The funds financial statements do not present general government capital assets but they are shown in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets. 6. LONG-TERM DEBT A. Governmental Activities Long-Term Debt
Classification Amount Balance July 1, 2003 Compensated absences Claims and judgments Certificates of participation General obligation bonds Notes payable Notes payable-County-RDA Tax allocation bonds payable Capital lease obligations Other long-term liabilities Total $ 2,282,504 6,463,469 4,642,350 7,260,759 1,500,000 2,880,000 2,450,555 985,663 $ 28,465,300 $ $ Accreted Interest 125,189 125,189 $ $ Additions 3,799,125 249,412 521,176 4,569,713 Retirements $ (155,895) (430,294) (128,689) (157,796) (124,706) (185,000) (685,339) (586,576) $ (2,454,295) Balance June 30, 2004 $ 2,126,609 9,832,300 4,513,661 7,228,152 1,500,000 124,706 2,695,000 1,765,216 920,263 $ 30,705,907 $ $ Due Within One Year 1,417,740 2,188,200 136,553 168,798 166,200 124,706 190,000 561,076 67,810 5,021,083 $ Amount Due in More Than One Year $ 708,869 7,644,100 4,377,108 7,059,354 1,333,800 2,505,000 1,204,140 852,453 25,684,824

Compensated absences and Claims and judgments As shown in the table above, the total amount outstanding at June 30, 2004 was $2,126,609 for compensated absences and $9,832,300 for claims and judgments. In prior years, compensated absences have been liquidated by the general fund. Claims and judgments are paid by the separate internal service funds for each liability.
72

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued Certificates of Participation Certificates of Participation payable at June 30, 2004, are comprised of the following individual issues: Redevelopment Agency certificates of participation are part of the $2,080,000 Golf and Redevelopment Agency Certificates described under enterprise debt below. The outstanding balance relating to the Agency at June 30, 2004 was $333,661. City of Santa Cruz issued certificates in April 2001, in the amount of $4,415,000, to be used for the Civic Center Improvement Project. The certificates provide funds to finance the acquisition, construction and improvement of the project. The obligation of the City to make the lease payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State or any political subdivision thereof is obligated to levy or pledge any form of taxation. Annual payments are $75,000 - $270,000. The certificates bear interest at 4.6% - 5% and are payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2001. Principal is payable annually on April 1 through the year 2031. The balance outstanding at June 30, 2004 was $4,180,000. The annual debt service requirements on the certificates of participation at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 2030-2031 Total $ $ Principal 85,000 85,000 90,000 95,000 95,000 550,000 685,000 865,000 1,105,000 525,000 4,180,000 $ $ Interest 203,135 199,225 195,315 191,175 186,805 863,875 725,085 541,500 302,500 39,750 3,448,365 $ $ Total 288,135 284,225 285,315 286,175 281,805 1,413,875 1,410,085 1,406,500 1,407,500 564,750 7,628,365

General Obligation Bonds In March 1999, the City issued $6,998,473 in general obligation bonds. The proceeds were used to upgrade fire stations, acquire open space property, and construct a community park and a fire administration facility. Annual payments ranging from $142,625 to $354,010 began September 1, 2000, and continue through September 1, 2029; interest ranges from 3.5% to 8.0%. The bonds are subject to early redemption at the option of the City beginning in 2008.
73

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued The bonds are secured by and will be paid with annual ad valorem tax levies on all property subject to taxation within the City. The bonds were issued in two series. Series A consisted of $4,500,000 of general obligation bonds, and Series B consisted of $2,498,473 of general obligation bonds - capital appreciation bonds. During fiscal year ended June 30, 2004, $157,796 principal payments were made on the bonds. The carrying value of the Series B bonds was increased to $2,943,153 in order to reflect the accreted interest due at June 30, 2004. The balance outstanding at June 30, 2004 was $7,228,152. The annual debt service requirements on the general obligation bonds at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 2030 Sub-total Accreted Interest Total $ $ Principal 168,797 177,616 185,577 193,004 199,781 1,070,025 1,199,094 1,375,032 1,612,285 354,009 6,535,219 692,933 7,228,152 $ $ Interest 227,352 227,434 229,873 233,546 237,617 1,248,475 1,354,851 1,451,254 1,497,966 307,991 7,016,360 7,016,360 $ $ Total 396,149 405,050 415,450 426,550 437,398 2,318,500 2,553,945 2,826,287 3,110,251 662,000 13,551,579 692,933 14,244,512

Notes Payable In July 2001, the Redevelopment Agency received HELP Loan funds, from the State of California, to be used to finance the acquisition, development, demolition of existing structures, and the construction of a multifamily rental apartment complex in the Beach Target Area. The proceeds for the note are to be repaid by July 2011 with an interest rate of 3%. The balance outstanding at June 30, 2004, was $1,500,000. In June 2004, the County entered into an agreement with RDA regarding pass-through on supplemental property taxes. The agreement states that RDA will pay the County $124,706 before June 30, 2004 and another $124,706 before June 2005. The County will in turn pay the RDA $24,941 for the Low/Mod Fund within 15 days of the receipt of each payment.

74

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued Tax Allocation Bonds In September 1996, the Redevelopment Agency issued $3,755,000 in tax allocation bonds. The proceeds were used to refinance a 1989 tax allocation bond issue and a 1990 certificate of participation issue. Both issues were used for projects within the River/Mall Project Area. Annual payments of $65,000 - $310,000 will be made through October 2014; interest ranges from 3.6% to 5.5%. The bonds are subject to early redemption at the option of the Agency beginning in 2005. The bonds are secured by and will be paid with future property tax increment revenues of the River/Mall Project Area. The balance outstanding at June 30, 2004 was $2,695,000. The annual debt service requirements on the tax allocation bonds at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015 Total $ $ Principal 190,000 200,000 210,000 220,000 230,000 1,335,000 310,000 2,695,000 $ $ Interest 134,305 125,185 115,290 104,645 93,395 270,978 8,525 852,323 $ $ Total 324,305 325,185 325,290 324,645 323,395 1,605,978 318,525 3,547,323

Lease Obligations In December 1998, the City acquired a new telecommunications system under a capital lease agreement payable in semi-annual installments of $87,706 through December 2005. The interest rate is 4.85%. This lease has been allocated to the General Fund, all enterprise funds, the Equipment Services Internal Service Fund, and the Agency. The balance outstanding at June 30, 2004 was $250,570. In August 1999, the City acquired a new information technology system under a capital lease agreement payable in semi-annual installments of $138,444 through August 2004 with an interest rate of 5%. The lease has been allocated to the General Fund, the Water, Wastewater, and Refuse enterprise funds, and the Agency. The balance outstanding at June 30, 2004 was $119,669. In March 2000, the City acquired a new lift truck under a capital lease agreement payable in semi-annual installments of $9,098 through March 2005 with an interest rate of 5.45%. The balance outstanding at June 30, 2004 was $17,478. In August 2001, the City acquired miscellaneous vehicles, equipment and computer software under a capital lease agreement payable in semi-annual installments of $331,597 though August 2006, with an interest rate of 4.46%. This lease has been allocated to the General Fund, the Water, Wastewater, Refuse and Parking enterprise funds, and the Agency. The balance outstanding at June 30, 2004 was $679,459.
75

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued In June 2002, the City acquired land under a capital lease agreement with Zion’s First National Bank in the amount of $765,000. The agreement is payable in semi-annual installments of $61,362 through 2021, with a 4.88% interest rate through January 2007 and a variable interest rate thereafter. From January 2007 through January 2021, the interest is to be recomputed, for each interest period, based on 90% of the current Index Rate. The balance outstanding at June 30, 2004 was $698,040. The annual debt service requirements on the capital leases at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2021 Total $

Principal 578,552 402,600 171,978 31,492 33,029 190,654 242,017 114,894 1,765,216 $

Interest 77,210 51,552 34,901 29,871 19,448 124,741 64,489 8,432 410,644 $

Total 655,762 454,152 206,879 61,363 52,477 315,395 306,506 123,326 2,175,860

$

$

$

Other Long-Term Liabilities The Redevelopment Agency is obligated under three separate Owner Participation Agreements (OPA) for various portions of the $1,250,000 Chestnut Street Special Assessment District Debt. Under the first OPA the Agency owes $334,224 as of June 30, 2004. Under the second OPA, the Agency owes $39,839. Under a third OPA the Agency assumed responsibility for an additional 37.27% of the Special Assessment Debt contingent upon the availability of tax increment. The Agency is liable for principal in the amount of $546,200 and interest, currently estimated at $109,577. All amounts will be paid with annual installments through 2011. B. Proprietary Fund Obligations A summary of long-term debt transactions of the City for the enterprise funds for the year ended June 30, 2004, is as follows:
Balance July 1, 2003 Compensated absences Landfill closure costs Certificates of participation Revenue bonds payable Notes payable Lease obligations Total $ 723,597 5,013,899 28,047,650 4,955,000 44,883,261 4,624,099 $ Balance June 30, 2004 $ 783,390 5,230,144 29,831,339 4,820,000 42,593,574 3,939,187 Classification Amount Amount Due Within Due in More One Year Than One Year $ 522,260 1,168,447 140,000 2,353,105 1,606,777 5,790,589 $ 261,130 5,230,144 28,662,892 4,680,000 40,240,469 2,332,410

Additions 74,323 216,245 5,290,000 815,137 6,395,705

Retirements $ (14,530) (3,506,311) (135,000) (2,289,687) (1,500,049)

$ 88,247,506

$

$ (7,445,577)

$ 87,197,634

$

$ 81,407,045

76

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Compensated absences As shown in the table above, the total amount outstanding at June 30, 2004 was $783,390 for compensated absences. In prior years, compensated absences have been liquidated primarily by enterprise funds. Landfill closure costs As shown in the table above, the total amount outstanding at June 30, 2004 was $5,230,144 for landfill closure costs. Refer to Note 8 for landfill closure details. Certificates of Participation Certificates of Participation payable at June 30, 2004, are comprised of the following individual issues: Santa Cruz Landfill Certificates issued in 1993, in the amount of $5,535,000, had an outstanding balance of $1,975,000 that was prepaid when the City issued 2004 Certificates of Participation on May 1, 2004, in the amount of $5,290,000 to finance the acquisition and construction of improvements to the DeLaveaga Golf Course and refinance and prepay $1,975,000 outstanding balance of Santa Cruz Landfill 1993 Certificates. Thus, the balance outstanding at June 30, 2004, was $0 for Santa Cruz Landfill Certificates. Santa Cruz Golf and Redevelopment Agency Certificates, issued in November, 1998, in the amount of $2,080,000, was used to refinance an issue used for improvements to the City's golf course and projects within the City's redevelopment plan areas. Annual payments of $125,000 to $215,000 will be made through May 2010; interest ranges from 3.5% to 4.25%. Annual debt service is covered by lease payments made by the City and secured by covenants made by the City in a lease with the Corporation. The balance outstanding relating to the Golf Course fund at June 30, 2004, was $831,339. Santa Cruz Parking Certificates issued in November 1998, in the amount of $7,955,000, were used for the construction of a second parking structure in the downtown area. The certificates are a liability of the Parking Enterprise Fund. Annual payments are $155,000 - $445,000. The certificates bear interest at 3.5% to 4.9%. Interest is payable semi-annually on May 1 and November 1 and principal is payable annually on May 1 through the year 2019. The balance outstanding at June 30, 2004, was $6,705,000. Santa Cruz Storm Water Certificates, issued in October 1999, in the amount of $6,665,000, was issued to finance the City’s share of the San Lorenzo River Flood Control and Beautification Project and to repay the Wastewater Enterprise Fund for earlier loans to rehabilitate and retrofit bridges across the San Lorenzo River. Annual payments of $105,000 to $250,000 will be made through October 2019; interest ranges from 4.0% to 5.6%. The balance outstanding at June 30, 2004, was $6,210,000. Santa Cruz Refuse Certificates, issued in October 1999, in amount of $4,345,000, were issued to repay the Wastewater Enterprise Fund for earlier loans to construct a tunnel at the City’s landfill and a leachate line from the landfill to the City’s sewer treatment plant. Annual payments of $100,000 to $245,000 will be made through October 2020; interest ranges from 4.0% to 5.625%. The balance outstanding at June 30, 2004, was $3,930,000.
77

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Santa Cruz Refuse Certificates issued in March 2001, in the amount of $7,500,000, were used in the purchase of certain property and improvements, and to finance the acquisition, construction and improvement of the project. The installment payments are payable solely from and secured by a first pledge of certain revenues of the City’s Refuse Enterprise Fund. Annual payments are $45,000 to $720,000. The certificates bear interest at 3.5% to 4.875%. Interest represented by the certificates will be payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2001. Principal is payable annually on October 1 through the year 2021. The certificates are subject to optional and mandatory prepayment. The balance outstanding at June 30, 2004, was $6,865,000. City of Santa Cruz certificates were issued in June 2004, in the amount of $5,290,000. Proceeds of these certificates provide funds to finance the acquisition, construction and improvement of new cart paths, three new greens, 18 tee complexes, two restrooms, parking lot renovations, driving range improvements and expansion of the barbecue area at the Santa Cruz Municipal Golf Course, as well as to prepay 1993 Santa Cruz Landfill Certificates (see “Defeased Debt”). Annual payments are $275,000. The certificates bear interest at 4.0% - 5.375% and are payable semi-annually on May 1 and November 1 of each year, commencing November 1, 2004. Principal is payable annually on May 1 through the year 2029. The City is obligated, subject to abatement, under the Lease Agreement to pay the lease payments from any source of legally available funds. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the lease payments. The balance outstanding at June 30, 2004 was $5,290,000. The annual debt service requirements on the certificates of participation at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 2025-2029 2030 Total $ $ Principal 1,168,447 1,782,015 1,862,015 1,934,151 1,446,288 4,493,423 5,455,000 6,285,000 4,970,000 435,000 29,831,339 $ $ Interest 1,431,640 1,360,400 1,287,024 1,209,845 1,132,970 5,024,113 3,850,616 2,290,911 964,983 6,253 18,558,755 $ $ Total 2,600,087 3,142,415 3,149,039 3,143,996 2,579,258 9,517,536 9,305,616 8,575,911 5,934,983 441,253 48,390,094

Annual principal and interest requirements for the certificates of participation are apportioned to the various funds based on the percentage share of certificate proceeds.
78

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Revenue Bonds Payable Revenue Bonds payable at June 30, 2004, is comprised of a $5,660,000 1994 Series B Sewer Revenue Bond payable in annual installments of $105,000 to $380,000 through November 2023; interest ranges from 5.0% to 5.7%. Annual debt service is payable solely from and secured by a lien on net revenues of the City's sewer system. The City has formally agreed to raise sufficient net revenues to provide at least a 125% coverage of the annual debt service of this issue. The balance outstanding at June 30, 2004, was $4,820,000. The annual debt service requirements on the revenue bonds at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015-2019 2020-2024 Total $ $ Principal 140,000 150,000 155,000 165,000 175,000 1,005,000 1,315,000 1,715,000 4,820,000 $ $ Interest 264,732 257,483 249,780 241,537 232,610 1,006,943 682,146 254,933 3,190,163 $ $ Total 404,732 407,483 404,780 406,537 407,610 2,011,943 1,997,146 1,969,933 8,010,163

Under conditions of the various revenue bond covenants, the Wastewater Enterprise Fund is required to provide adequate cash and maintain adequate revenues to cover future bond payments. Cash and investments set aside for this purpose is shown in the financial statements as restricted cash and investments. Notes Payable State of California loans for the construction of a water main line north of the City. Proceeds for the note were received in September 1995, to be repaid in semi-annual installments of $46,679, including interest at 2.973%, through April 2016. This debt is recorded in the Water Enterprise Fund. The balance outstanding at June 30, 2004, was $903,765. State of California loans for the construction of secondary treatment improvements at the City's wastewater treatment plant. Loan proceeds were received as the City incurred project expenditures. Repayment began August 1999. Annual payments of $3,417,099, including interest at 2.8%, will be made through August 2018. This debt is recorded in the Wastewater Enterprise Fund. The balance outstanding at June 30, 2004, was $41,289,810.
79

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued State of California loans for the construction of certain solid waste facilities to achieve or improve compliance with state minimum standards. Proceeds were received in March 2001, and the loan is to be repaid in $33,333 annual payments of principal through 2016. No interest is due on the principal balance of the loan outstanding. This debt is recorded in the Refuse Enterprise Fund. The balance outstanding at June 30, 2004, was $399,999. The annual debt service requirements on the notes at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 2010-2014 2015-2019 Total $ $ Principal 2,353,105 2,418,132 2,485,043 2,553,788 2,624,582 14,254,910 15,904,014 42,593,574 $ $ Interest 1,182,437 1,117,407 1,050,498 981,752 910,958 3,422,796 1,347,244 10,013,092 $ $ Total 3,535,542 3,535,539 3,535,541 3,535,540 3,535,540 17,677,706 17,251,258 52,606,666

Lease Obligations The City leases equipment in the Refuse, Water, Wastewater, Parking, and Golf Course funds under various capital lease agreements payable in semi-annual and annual installments through August 2006 with interest rates ranging from 4.5% to 5.9%. In December 2003, the City entered into an equipment lease agreement in the amount of $656,182 payable in sixty months. The payments are due in ten consecutive semi-annual payments, and each payment includes 3.13% interest per year on the unpaid principal. In November 2002, the City entered into another equipment lease in the amount of $1,038,840 payable in sixty months. The payments are due in ten consecutive semi-annual payments, and each payment includes 3.26% interest per year on the unpaid balance. The combined Refuse, Water, Wastewater, Parking, and Golf Course funds balance outstanding at June 30, 2004, was $3,033,737. In December 1998, the City acquired a new telecommunications system under a capital lease agreement payable in semi-annual installments of $87,706 through December 2005 with an interest rate of 4.85%. This lease has been allocated to the General Fund, all enterprise funds, the Equipment Operations internal service fund, and the Agency. The balance outstanding at June 30, 2004, was $54,568. In August 1999, the City acquired a new information technology system under a capital lease agreement payable in semi-annual installments of $114,770 through August 2004 with an interest rate of 5%. The lease has been allocated to the General Fund, the Water, Wastewater, and Refuse enterprise funds, and the Agency. The balance outstanding at June 30, 2004, was $35,745.
80

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued In January 2004, The City acquired four refuse trucks under a capital lease agreement payable in semiannual installments of $88,482 through February 2009 with an annual interest rate of 3.04%. This lease has been allocated to the Refuse fund. The balance outstanding at June 30, 2004, was $815,137. The annual debt service requirements on the lease obligations at June 30, 2004, were as follows:
For the Year Ending June 30, 2005 2006 2007 2008 2009 Total $ $ Principal 1,606,777 951,068 384,300 181,903 815,139 3,939,187 $ $ Interest 117,108 52,606 18,093 2,919 69,687 260,413 $ $ Total 1,723,885 1,003,674 402,393 184,822 884,826 4,199,600

C. Defeased Debt On June 3, 2004, the City issued $5,290,000 in Certificates of Participation. $1,590,000 (par value) of these certificates, with an interest rate of 4%, were used to advance refund $1,975,000 of outstanding 1993 Santa Cruz Landfill Certificates with an average interest rate of 5.64%. The net proceeds of $1,558,702 (after payment of $61,340 in underwriting fees and other issuance costs), plus an additional $435,462 of 1993 Santa Cruz Landfill Certificates Reserve Fund monies were deposited in an irrevocable trust with an agent and invested in a federal money market fund to provide for debt service payments on the 1993 certificates, which were called on July 1, 2004. As a result, the 1993 Santa Cruz Landfill Certificates of Participation are considered to be defeased and the liability for those certificates has been removed from the Refuse enterprise fund statement of net assets. The City completed the advance refunding to reduce its total debt service payments by $24,163, which resulted in an economic gain (difference between present values of the old and new debt service payments) of $6,654. 7. RISK MANAGEMENT AND SELF-INSURANCE The City has an established Risk Management Fund (an internal service fund) to account for a self-insurance program. Under this program, the City is completely self-insured for unemployment insurance, vision, and dental insurance claims. For the period ending June 30, 2004, the City was self-insured for workers' compensation up to $1,000,000 per occurrence and for general liability up to $1,000,000 per occurrence. Claims in excess of these amounts are insured. The City has contracted with outside administrators to administer the programs. There were no significant reductions in insurance coverage. Settlements have not exceeded insurance coverage in any of the past three fiscal years.
81

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

7. RISK MANAGEMENT AND SELF-INSURANCE, Continued In January 1997, the City joined the Authority for California Cities Excess Liability (ACCEL). The Authority for California Cities Excess Liability (ACCEL) is a joint powers authority organized under the provisions of Section 6500 et. seq. of the California Government code. ACCEL was founded in 1986 to provide mediumsized California cities self-funding for catastrophic losses. There are currently 12 members. ACCEL operates a liability program which is subject to an annual independent financial audit and biennial actuarial study. ACCEL is governed by a twelve member Board of Directors. Each member agency appoints a representative to the Board of Directors. Each member of the Board of Directors has a single vote for policy and charter changes. At inception, ACCEL self-funded $9,000,000 excess of a $1,000,000 member self-insured retention. 1998 to 2003, ACCEL was commercially insured. From

For the fiscal year 2003-2004, the deposit rate was $0.60 per one-hundred dollars of payroll. ACCEL selffunded $1,000,000 excess of a $1,000,000 member self-insured retention, and purchased a $20,000,000 commercial excess insurance policy, providing a total limit of $22,000,000 per occurrence. Members also had the option of paying their administrative costs out of the $0.60 rate. The City of Santa Cruz elected this option. ACCEL’s day-to-day operations are administered by Driver Alliant Insurance Services contracted by ACCEL to provide accounting, risk consulting, insurance brokerage, and program administration services. Driver’s responsibility also includes the administration of policies as set forth by the ACCEL Joint Powers Authority Agreement, By-laws, and by the Board of Directors. ACCEL provides coverage above each member’s self-insured retention (SIR), subject to aggregate limit. Historically, nine members (including the City of Santa Cruz) have $500,000 SIR and two members have $1,000,000 SIR. As of July 1, 2003, all members have SIR of $1,000,000. ACCEL provided an optional coverage of $500,000 excess of $500,000 per occurrence through 1989-90. This coverage is no longer available. Prior to July 1, 1990, ACCEL pooled losses incurred by its members up to $10,000,000. Effective July 1, 1990, ACCEL created a reinsurance pool within the $9,000,000 excess of $1,000,000 layer by purchasing $5,000,000 excess of $5,000,000 coverage. On July 1, 1997, ACCEL further reduced its exposure and purchased coverage of $17,000,000 excess of $3,000,000 coverage. Due to favorable market conditions, ACCEL purchased coverage of $19,000,000 excess of $1,000,000 effective July 1, 1998. Six members with SIR of $500,000 purchased additional coverage of $500,000 excess of $500,000 (including the City of Santa Cruz). As of July 1, 2000, nine members purchased insurance of $19,500,000 excess of $1,000,000. ACCEL is fully insured through June 30, 2003. As of July 1, 2003, ACCEL purchased a reinsurance covering $20,000,000 excess of $2,000,000 and pooled losses in the layer $1,000,000 excess of $1,000,000. All members have SIR of $1,000,000.

82

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

7. RISK MANAGEMENT AND SELF-INSURANCE, Continued ACCEL has a retrospective rating plan whereby all premiums collected, together with related investment income earned, in excess of pooled losses and loss expenses for each program year will be returned to members beginning five years after the end of the program year. Losses and loss expenses are allocated to each member based on a weighted actual loss formula. Prior to 1999, ACCEL coverage was limited to $9,000,000 ultimate net loss for each occurrence, in excess of the retained limit, and $27,000,000 ultimate net loss in the aggregate for each member. Effective July 1, 1999, through June 30, 2003, ACCEL purchased excess insurance up to $19,000,000 for losses in excess of $1,000,000 per occurrence ($500,000 depending on the member city). For the period July 1, 1999, through June 30, 2003, no risk was transferred to the pool. Summary audited financial information for ACCEL as of and for the year ended June 30, 2004, is as follows:
Assets Cash and investments Other assets Total assets Liabilities and Net Assets Unpaid claims liability Retrospectively rated refunds liability Other liabilities Total liabilities Net assets Total liabilities and net assets Revenues Premiums earned Investment income Administrative fees Total revenues Expenses Loss provision and premiums paid General and administrative Total expenses Net income Net assets, beginning of year Net assets, end of year $ 4,637,163 232,677 4,869,840 50,017 65,854 115,871 $ 4,382,170 207,187 330,500 4,919,857 $ $ 2,359,272 16,260,573 143,382 18,763,227 115,871 18,879,098 $ $ 18,526,012 353,086 18,879,098

Complete financial statements for ACCEL can be obtained from Driver Alliant Insurance Services, 600 Montgomery Street, 9th Floor, San Francisco, CA 94111.
83

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

7. RISK MANAGEMENT AND SELF-INSURANCE, Continued Risk Management Fund revenues are primarily premium charges received from other funds and are planned to match expenses of insurance premiums for coverage in excess of self-insured amounts, estimated payments resulting from self-insurance programs, and operating expenses. Department charges are based on historical experience. Claims known to be payable and the estimated liability for the balance, based on a case-by-case review of all claims is recorded as claims payable. An additional estimate of the amount to be paid for claims incurred, but not reported, is also recorded as claims payable. Changes in the Risk Management Fund's claims liability amount for the years ended June 30, 2002 through 2004 are as follows:
CLAIMS PAYABLE Beginning Balance June 30, 2002 June 30, 2003 June 30, 2004 $ 6,142,259 6,385,021 6,463,469 $ Claims Incurred 2,667,515 2,672,607 7,217,089 $ Payments (2,424,753) (2,594,159) (3,848,258) $ Ending Balance 6,385,021 6,463,469 9,832,300

The General Fund and Redevelopment Agency Fund typically have been used in prior years to liquidate the liability for claims and judgments. 8. LANDFILL CLOSURE AND POSTCLOSURE COSTS In accordance with requirements established by the California Integrated Waste Management Board, the City has recognized a portion of the landfill's closure and postclosure care (closure) costs. These cost estimates are based on the amount of landfill used to date. The total estimated costs are as follows:
Total estimated closure costs Total estimated postclosure costs Total estimated closure and postclosure costs $ $ 4,186,403 8,121,986 12,308,389

The City has increased the landfill’s capacity through excavations and plans to continue excavating in future years to increase capacity. This effort has also increased the estimates of the closure and postclosure costs. At June 30, 2004, the estimated landfill closure cost liabilities of $5,230,144 and estimated annual landfill closure cost of $216,245 were calculated as follows:
Total estimated closure and postclosure costs Percent of used capacity to total capacity Miscellaneous adjustments Estimated total closure and postclosure costs liability Previous closure costs accrued 2003-2004 expense for closure and postclosure costs $ 216,245 $ 12,308,389 42.49% 5,229,834 310 5,230,144 5,013,899

84

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

8. LANDFILL CLOSURE AND POSTCLOSURE COSTS, Continued The landfill has an estimated remaining capacity of 6,029,272 cubic yards and has a current projected closure date of January 2038. Based upon the requirements of the California Integrated Waste Management Board, the City set aside $165,951 to fund future closure and post closure costs for the year ended June 30, 2004 All cash is invested. During the year, $16,714 was withdrawn from the post closure fund to provide for partial closure costs. The market value of the invested cash at June 30, 2004 was $2,678,443, and is available to provide for closure and postclosure costs. Total funds accumulated as of June 30, 2004, are comprised as follows:
Closure Postclosure Total $ $ 1,233,317 1,445,126 2,678,443

The estimated closure costs are current estimates based on data provided by an independent consultant and are subject to changes in inflation, technological advancements, or regulatory changes. 9. RETIREMENT PLANS A. Pension Plan Plan Description The City contributes to the California Public Employees' Retirement System (PERS); an agent multiple-employer defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of PERS’ annual financial report may be obtained from their Executive Office located at 400 P Street, Sacramento, CA 95814. Funding Policy City employees are required to contribute 9% for safety employees and 7% for all other employees of their annual covered salary. The City employer is required to contribute at an actuarially determined rate; the fiscal year 2004 rate is 5.020% for miscellaneous employees, 27.027% for police safety employees, and 32.956% for fire safety employees of annual covered payroll. The contribution requirements of City employees and the City employer are established and may be amended by PERS. Annual Pension Cost For fiscal year 2004, the City’s annual pension cost of $4,729,159 for PERS was equal to the City’s required and actual contributions. The required contribution was determined as part of the June 30, 2003, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions
85

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

9. RETIREMENT PLANS, Continued A. Pension Plan, Continued included (a) 7.75% investment rate of return (net of administrative expenses); (b) projected salary increases ranging from 3.25% to 14.45% depending on age, service, and type of employment, and (c) 2% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 3.0%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a three-year period. PERS unfunded actuarial accrued liability (or surplus) is being amortized as a level percentage of projected payroll on a closed basis. The amortization period at June 30, 2003 was 17 years for public safety police employees, 17 years for public safety fire employees, and 17 years for miscellaneous employees for prior and current service unfunded liability.
Fiscal Year Ended June 30, 2002 June 30, 2003 June 30, 2004 $ Annual Pension Cost (APC) 1,615,243 1,774,677 4,729,159 Percentage of APC Contributed 100% 100% 100% $ Net Pension Obligation -

10. POST-EMPLOYMENT RETIREMENT BENEFITS The City pays a portion of its retiree’s health insurance premium. All part-time and full-time regular employees that meet certain requirements (continuous service with the City and minimum age) are eligible. As of June 30, 2004, there were 123 employees eligible. The benefit will be provided until the retiree becomes eligible for Medicare. The benefit is provided through the memorandum of understanding (MOU) the City has entered into with each bargaining unit. The retirees are paid monthly by the City per the amount specified in each MOU. The City paid $84,689 in post-employment retirement benefits to 58 participants for the year ended June 30, 2004.

11. COMMITMENTS AND CONTINGENCIES The City participates in a number of Federal assisted grant programs, of which the principal grants are the Disaster Assistance Program, Community Development Block Grant, HOME grant program, various Department of Justice and Department of Transportation grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The amount, if any, of expenditures, which may be disallowed by the granting agencies upon audit, cannot be determined at this time although the City expects such amounts to be immaterial. There are a number of lawsuits presently against the City. While the ultimate outcome of these lawsuits is not determinable, in the opinion of the City Attorney and City management, recovery from the City, if any, would not have a material effect on the accompanying financial statements.
86

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

11. COMMITMENTS AND CONTINGENCIES, Continued The California Legislature granted tidal and submerged lands in trust to the City to be used for a number of statewide purposes in furtherance of navigation, commerce and fisheries. In accordance with this legislation, revenues derived from the Wharf are required to be used for purposes permitted under the grant statute. The following schedule summarizes the major contractual commitments of the City as of June 30, 2004:
Major Commitments and Contracts for Professional Services: Bridge seismic retrofits Water quality and treatment master plan North coast water system rehabilitation preliminary engineering Integrated water plan New water supply facility preliminary engineering Habitat conservation plan and Endangered Species Act permit Design services for DeLaveaga Golf Course renovation Total Major Professional Services Major Commitments and Contracts for Capital Projects: Ocean View Park improvements South of Laurel Park improvements City initiated water main replacements Recycling trucks Depot Park construction Felton Booster Pump Station Rehabilitation County of Santa Cruz work related water system relocations Water treatment, remote facilities control system modernization Total Major Capital Projects Total Other Commitments Total Commitments and Contracts 306,830 243,740 394,653 815,136 2,412,951 3,328,938 109,410 1,104,958 8,716,616 4,139,054 $ 14,726,221 $ 224,872 172,045 852,884 139,449 129,215 238,400 113,686 1,870,551

87

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

12. OPERATING LEASES The City is obligated under various operating leases for the use of land, buildings, office space and equipment. Lease expenditures, primarily for governmental funds, for the year ended June 30, 2004 were $99,876. Future minimum lease payments required by lease agreements that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 2004 are as follows:

Year Ending June 30 2005 2006 2007 2008 2009 2010-2014 $

Balance 93,966 60,246 44,256 44,256 44,256 5,348 292,328

Total future minimum lease payments $

The City leases (as lessor) office facilities, buildings, and wharf facilities under operating leases to various entities and individuals. Total revenues from these leases for the year ending June 30, 2004 were $902,649. The total cost of leased assets as of June 30, 2004 was $11,812,312, and the accumulated depreciation of those assets that are depreciable amounted to $1,278,295. Future estimated revenues from these leases are as follows:

Year Ending June 30 2004 2005 2006 2007 2008 Future years $

Amount 902,649 884,113 845,973 755,752 549,428 4,206,611

88

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

13. RESERVED AND DESIGNATED FUND BALANCES Fund balances at June 30, 2004, have been reserved and designated for the following purposes:
Redevelopment General Fund Reserved for: Encumbrances Noncurrent receivables and advances Prepaid items Debt service Capital projects Low and moderate income housing Total reserved Designated for: Accrued compensated absences Debt service Capital projects City public trust Unemployment insurance Housing in-lieu program Parks and recreation programs Kiosk maintenance Museum building Street trees Equipment maintenance Youth/teen programs CPVAW Police programs Housing Public works programs Rental maintenance Total designated Unreserved, Undesignated Total fund balances $ 1,390,405 5,591,485 36,263 455,884 18,303 19,420 27,412 21,367 41,795 25,842 1,700 8,295 7,638,171 5,964,197 17,990,954 $ 2,754,631 1,232,926 3,987,557 11,010,824 $ 3,683 92,499 405,505 7,717 509,404 2,207,706 5,015,410 $ 457,945 457,945 457,945 $ (1,444,460) 2,925,255 $ 1,394,088 3,212,576 1,232,926 5,591,485 36,263 455,884 18,303 19,420 27,412 21,367 41,795 25,842 1,700 92,499 405,505 8,295 7,717 12,593,077 6,727,443 37,400,388 $ 449,427 3,755,252 134,852 49,055 4,388,586 $ 327,208 4,234,136 392,744 307 2,068,872 7,023,267 $ 459,478 1,836,424 2,398 2,298,300 $ $ 3,921,143 290,822 157,750 4,369,715 $ 5,157,256 9,825,812 137,250 683,566 207,112 2,068,872 18,079,868 Agency Fund Special Revenue Funds Debt Service Fund Capital Projects Funds Total

89

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

14. DEFICIT NET ASSETS The Risk Management internal service fund had deficit net assets of $6,919,775 as of June 30, 2004. This deficit is due to estimated workers’ compensation claims liabilities in excess of cash and other assets available in the fund. It is anticipated that this deficit will be made up in future years by increased contributions from other City funds. The City is working to establish an actuarially approved plan to fund the increased liability over a number of years. Net assets in the fund are designated for the following insurance activities:
Net Assets Workers' compensation insurance Liability insurance Group health insurance Total net assets $ $ (7,418,337) 276,086 222,476 (6,919,775)

15. PRIOR PERIOD ADJUSTMENTS A. Government-Wide Financial Statements The City recorded the following prior period adjustments in the Government-Wide Financial Statements. Adjustments to the Governmental Activities include a correction to accumulated depreciation and an adjustment to prior year property tax revenues, due to an overpayment. The adjustment to the BusinessType Activities is to recognize revenue earned but unavailable, which was previously deferred. Accordingly, the net assets as of July 1, 2003, have been restated as follows:
Net Assets, as Previously Government-Wide Financial Statements Governmental Activities: Net assets Total governmental activities Business-Type Activities: Net assets Total business-type activities Total government-wide $ 231,368,853 231,368,853 394,842,203 $ 401,058 401,058 401,058 $ 37,810 $ (124,706) $ 231,769,911 231,769,911 395,156,365 $ 163,473,350 163,473,350 $ $ 37,810 37,810 $ (124,706) (124,706) $ 163,386,454 163,386,454 Reported Deferred Revenue Prior Period Adjustments Accumulated Depreciation Prior Year Tax Overpayment Net Assets, As Restated

90

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

15. PRIOR PERIOD ADJUSTMENTS, Continued B. Funds Financial Statements The City made an adjustment to the Water enterprise fund to recognize revenue earned but unavailable, which was previously deferred.
Prior Period Net Assets, as Previously Reported Major Enterprise Funds: Water fund Internal Service Funds: Risk management fund $ $ 58,296,110 (875,697) $ $ 401,058 (22,892) $ $ 58,697,168 (898,589) Adjustments Deferred Revenue Net Assets, As Restated

The City recorded the following prior period adjustments to eliminate accumulated accrued compensated absences liabilities from governmental funds, in accordance with GASB Interpretation No. 6.
Prior Period Fund Balances, as Previously Reported Major Fund: General fund Non-Major Governmental Funds: State Highway fund Total $ 10,297,895 26,264,843 $ 4,096 2,242,311 $ 10,301,991 28,507,154 $ 15,966,948 $ 2,238,215 $ 18,205,163 Adjustments Compensated Absences Fund Balances, As Restated

16. SUBSEQUENT EVENTS The Redevelopment Agency of the City of Santa Cruz issued Merged Earthquake Recovery and Reconstruction Project Area 2004 Tax Allocation Bonds after the fiscal year end. On October 1, 2004, bonds in amount of $5,245,000 were issued. The Tax Allocation Bonds were issued by the Agency to refund Tax Allocation Refunding Bonds, Series 1996 in the amount of $2,571,680 and raise additional funds for programs, projects and activities relating to Earthquake Recovery and Reconstruction Project, a designated redevelopment project in the City. Annual principal payments of $120,000 - $305,000 will be made through October 1, 2031; the interest rate ranges from 2.50% - 4.625%. The 2004 Tax Allocation Bonds will be secured by a pledge of and first lien of the tax increment revenues derived from the Redevelopment Project, net of certain amounts which are payable to other taxing agencies.
91

City of Santa Cruz
Notes to Basic Financial Statements, Continued For the year ended June 30, 2004

16. SUBSEQUENT EVENTS, Continued This Bond is not a debt of the City of Santa Cruz. The Official Statements contain more information regarding 2004 Tax Allocation Bonds. On July 28th, 2004 the City entered into a five year capital lease agreement to obtain financing in the amount of $580,000 for the purchase of a seventy-five foot aerial fire truck to replace a 1979 Crown Telesquirt unit. The first interest payment of $9,657 is due in February, 2005, with annual installment payments of $125,781 beginning in August of 2005 and ending in August of 2009. Interest is at the rate of 3.33% and the payments will be made from the General Fund.

92

REQUIRED SUPPLEMENTARY INFORMATION

93

City of Santa Cruz
Required Supplementary Information For the year ended June 30, 2004

1. BUDGETARY INFORMATION An annual budget is adopted by the City Council no later than the first regular meeting in July for the fiscal year beginning July first. As part of the budget process, all City departments submit budget requests for the next fiscal year. These requests are reviewed, and a final City Manager recommended budget showing estimated revenues and expenditures of the City is prepared. This proposed budget is transmitted to the City Council and made available to the public for review. Study sessions and a public hearing are conducted before final adoption of the budget by the City Council. The City Manager is authorized to approve appropriation transfers within any department up to a specified amount; however, any new appropriation or appropriation transfer between departments requires approval by the City Council. Several supplemental appropriations were necessary during the year and are reflected in the budget amounts in the financial statements. Expenditures may not legally exceed appropriations at the department level. Under the City Charter, all unexpended appropriations shall lapse at the end of the fiscal year unless they are lawfully committed, or are required by law to be continuously appropriated from year to year. Lawfully committed amounts include amounts legally encumbered at year end. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the governmental fund types. Encumbrances outstanding at year-end are reported as reservation of fund balances since they do not constitute expenditures or liabilities, and re-appropriations in the subsequent year provide authority to complete these transactions as expenditures. In addition, project-length (or non-lapsing) budgets are adopted for capital improvement and other projects, and grant-funded projects or programs that may not be completed within the fiscal year during which the budget appropriation for the project or program originates. Under these circumstances, the appropriation continues until project or program completion, or unless the appropriation is subsequently amended or rescinded by the City Council. In the Budgetary Comparison Schedules, the “Original Budget” column includes the final adopted budget amounts, re-appropriations for prior year encumbrances, and continuing appropriations for project-length budgets automatically carried over from prior years. The City Charter requires the City Council, upon recommendation of the City Manager and after providing sufficient funds to meet debt service and operating needs, to annually set aside in the enterprise funds an amount to be used for the acquisition and betterment of plant facilities. Such amounts, if any, would be shown in the financial statements as cash and investments held for betterment of plant facilities. No such funds were set aside during the year ended June 30, 2004.

94

City of Santa Cruz
Required Supplementary Information, Continued For the year ended June 30, 2004

1. BUDGETARY INFORMATION, Continued Budgets are adopted each year for all general, special revenue, debt service, and capital projects funds. These governmental fund budgets are prepared on a basis consistent with generally accepted accounting principles (GAAP), except in the following areas: Budgetary basis revenues include repayments of loan principal. Budgetary basis expenditures include loans made. On a GAAP basis both of these are considered as reclassifications of fund balance (between reserved and unreserved fund balance). GAAP basis revenues include the fair value adjustment to investment earnings, which are not included in the budgetary basis. A reconciliation of differences between budgetary and GAAP revenues and expenditures follows the budget comparison schedules.

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96

BUDGETARY SCHEDULES

97

City of Santa Cruz
Required Supplementary Information, Continued For the year ended June 30, 2004
Budgetary Comparison Schedule, General Fund

Budgeted Amounts Original REVENUES: Taxes Licenses and permits Intergovernmental Charges for services: External Internal Interagency Subtotal charges for services Fines and forfeitures Use of money and property Other revenues Total revenues EXPENDITURES:
Current: General government Public safety Parks and recreation Library Public works Community and economic development Social services Capital outlay Debt service: Principal Interest and fiscal charges

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

Final

$

31,022,052 518,000 4,072,820 6,119,700 3,083,364 8,325,209 17,528,273 1,527,800 2,356,929 181,798 57,207,672

$

31,052,552 518,000 4,386,640 6,656,511 3,282,839 8,130,551 18,069,901 1,586,124 2,428,929 222,298 58,264,444

$

31,696,322 529,649 3,745,601 6,495,280 3,236,648 7,865,015 17,596,943 1,799,557 2,292,772 354,708 58,015,552

$

(731,189) (731,189) (206,609) 64,056 (873,742)

$

31,696,322 529,649 3,745,601
6,495,280

3,236,648 7,133,826 16,865,754 1,799,557 2,086,163 418,764
57,141,810

9,567,557 25,584,933 10,738,683 8,984,021 4,523,945 1,026,753 1,806,950 637,810 295,841 68,581 63,235,074 (6,027,402)

9,723,835 25,642,920 10,364,822 8,789,363 4,494,845 1,026,753 1,659,513 708,935 295,841 68,581 62,775,408 (4,510,964)

8,973,688 24,647,937 9,721,229 8,528,577 3,989,048 803,138 1,656,875 506,267 295,835 68,575 59,191,169 (1,175,617)

(6,663) (731,189) 744,895 7,043 (880,785)

8,967,025 24,647,937 9,721,229 8,528,577 3,989,048 71,949 1,656,875 1,251,162 295,835 68,575
59,198,212 (2,056,402)

Total expenditures REVENUES OVER (UNDER) EXPENDITURES

OTHER FINANCING SOURCES (USES):
Proceeds from asset disposition Loan principal receipts Advances to other funds Transfers in Transfers out Total other financing sources (uses) Net change in fund balances 825,000 472,422 (400,000) 1,714,665 (1,416,348) 1,195,739 (4,831,663) 825,000 442,422 (930,000) 1,744,665 (1,755,555) 326,532 (4,184,432) 771,823 455,427 (530,000) 1,687,534 (602,164) 1,782,620 607,003 (15,000) (455,427) 530,000 59,573 (821,212)

756,823 1,687,534 (602,164)
1,842,193 (214,209)

FUND BALANCES:
Beginning of the year, as restated End of year $ 11,948,404 7,116,741 $ 11,902,648 7,718,216 $ 11,902,648 12,509,651 $ 6,302,515 5,481,303 $ 18,205,163 17,990,954

98

City of Santa Cruz
Required Supplementary Information, Continued For the year ended June 30, 2004

General Fund Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis: Net Change in Fund Balances - Budgetary Basis The amount reported in the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances was different because: Interagency charges for personnel services provided to the redevelopment agency are a revenue and expenditure on a budgetary basis, but are eliminated in the Statement of Revenues, Expenditures and Changes in Fund Balances because the redevelopment agency is part of the reporting entity. Unrealized gains and losses on investments, which are considered a component of investment income in the Statement of Revenues, Expenditures and Changes in Fund Balances, are not included as revenue on a budgetary basis. Costs for a City Hall fire restoration project recorded on the fund statements were recorded in another fund for budgetary purposes. The City budgets for loans and advance disbursements which will not be repaid within the current year. Although these amounts are recorded as long-term receivables on the Governmental Funds Balance Sheet, they are not available for appropriation. Accrual basis insurance proceeds are unavailable for appropriation in the general fund. On a budgetary basis, the City records loan principal receipts as revenue, but on a GAAP basis, the receipts reduce receivables. Net Change in Fund Balances - Statement of Revenues, Expenditures and Changes in Fund Balances $ (731,189) 731,189 $ 607,003

(206,609)

(767,232)

559,000 49,056

(455,427) (214,209)

Reconciliation of Fund Balances - Budgetary to GAAP Basis: Fund Balances - Ending - Budgetary Basis Cumulative effect of unrealized gains and losses on investments Reserved and designated balances unavailable for appropriation
Designated for noncurrent component of compensated absences

$

12,509,651 (49,235) 4,140,133
1,390,405

Fund Balances - Ending - GAAP Basis

$

17,990,954

Ending budgetary fund balance includes the following amounts: Committed for re-appropriation in the following year Restricted or designated for special purposes $ 1,974,184

4,630,258

99

City of Santa Cruz
Required Supplementary Information, continued For the year ended June 30, 2004

Budgetary Comparison Schedule, Redevelopment Agency
Budgeted Amounts Original REVENUES: Tax increment Use of money and property Other revenues Total revenues EXPENDITURES:
Current: Community and economic development Capital outlay Debt service: Principal Interest and fiscal charges

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

Final

$

7,470,900 129,317 78,000 7,678,217

$

7,766,455 129,317 78,000 7,973,772

$

8,008,622 337,704 94,314 8,440,640

$

(130,097) (130,097)

$

8,008,622 207,607 94,314 8,310,543

7,509,408 605,650 976,598 283,861 9,375,517 (1,697,300)

8,283,980 933,943 1,606,364 295,411 11,119,698 (3,145,926)

5,449,617 53,495 1,898,818 279,288 7,681,218 759,422

(1,066,229) 11,485 (1,054,744) 924,647

5,449,617 53,495 832,589 290,773 6,626,474 1,684,069

Total expenditures REVENUES OVER (UNDER) EXPENDITURES

OTHER FINANCING SOURCES (USES): Loan proceeds (short term) Long term advance proceeds Loan principal receipts Transfers in
Total other financing sources (uses) Net change in fund balances 1,750,000 400,000 29,303 2,179,303 482,003 2,135,000 400,000 54,244 100,000 2,689,244 (456,682) 735,000 85,303 100,000 920,303 1,679,725 (735,000) (85,303) (820,303) 104,344 100,000 100,000 1,784,069

FUND BALANCES:
Beginning of the year End of year $ 5,787,284 6,269,287 $ 5,787,284 5,330,602 $ 5,787,284 7,467,009 $ 3,439,471 3,543,815 $

9,226,755
11,010,824

100

City of Santa Cruz
Required Supplementary Information, Continued For the year ended June 30, 2004

Redevelopment Agency Fund Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis: Net Change in Fund Balances - Budgetary Basis The amount reported in the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances was different because: Unrealized gains and losses on investments, which are considered a component of investment income in the Statement of Revenues, Expenditures and Changes in Fund Balances, are not included as revenue on a budgetary basis. On a budgetary basis, the Agency records loan principal receipts as revenue, but on a GAAP basis, these receipts reduce receivables. Proceeds of both short term loans and long term advances from the City are considered budgetary resources, but are not revenues on a GAAP basis. The Agency budgets for both short term and long term loan and advance principal repayments to the City, but these payments are not considered expenditures on a GAAP basis. Net Change in Fund Balances - Statement of Revenues, Expenditures and Changes in Fund Balances $ $ 1,679,725

(141,582)

(85,303)

(735,000)

1,066,229 1,784,069

Reconciliation of Fund Balances - Budgetary to GAAP Basis: Fund Balances - Ending - Budgetary Basis Cumulative effect of unrealized gains and losses on investments Reserved balances unavailable for appropriation Fund Balances - Ending - GAAP Basis
$

$

7,467,009 (38,132) 3,581,947
11,010,824

All funds are reserved or designated for debt service, capital projects, or low and moderate income housing.

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102

City of Santa Cruz
Required Supplementary Information, Continued For the year ended June 30, 2004

PUBLIC EMPLOYEE RETIREMENT SYSTEM (PERS) SCHEDULE OF FUNDING PROGRESS Miscellaneous Employees
Unfunded (Overfunded) Unfunded Entry Age Actuarial Valuation Date June 30, 2001 June 30, 2002 June 30, 2003 $ Actuarial Value of Assets 133,168,501 126,284,083 129,704,897 $ Actuarial Accrued Liability 118,812,672 132,266,944 150,709,327 $ (Overfunded) Actuarial Accrued Liability (14,355,829) 5,982,861 21,004,430 Funded Ratio 112.1% 95.5% 86.1% $ Covered Payroll 32,933,995 36,176,758 35,526,589 Actuarial Liability as Percentage of Covered Payroll (43.6)% 16.5% 59.1%

Police Safety Employees
Unfunded (Overfunded) Unfunded Entry Age Actuarial Valuation Date June 30, 2001 June 30, 2002 June 30, 2003 $ Actuarial Value of Assets 37,447,028 36,269,237 37,575,286 $ Actuarial Accrued Liability 38,460,123 47,708,054 51,345,793 $ (Overfunded) Actuarial Accrued Liability 1,013,095 11,438,817 13,770,507 Funded Ratio 97.4% 76.0% 73.2% $ Covered Payroll 5,876,326 5,989,547 6,864,482 Actuarial Liability as Percentage of Covered Payroll 17.2% 191.0% 200.6%

Fire Safety Employees
Unfunded (Overfunded) Unfunded Entry Age Actuarial Valuation Date June 30, 2001 June 30, 2002 June 30, 2003 $ Actuarial Value of Assets 25,085,532 23,762,235 24,552,182 $ Actuarial Accrued Liability 26,575,658 33,592,121 35,788,814 $ (Overfunded) Actuarial Accrued Liability 1,490,126 9,829,886 11,236,632 Funded Ratio 94.4% 70.7% 68.6% $ Covered Payroll 3,526,056 3,904,140 4,190,556 Actuarial Liability as Percentage of Covered Payroll 42.3% 251.8% 268.1%

103

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104

SUPPLEMENTARY INFORMATION

105

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106

Non-Major Governmental Funds
Special Revenue Funds: Police - Accounts for state and federal grants and other revenues restricted to be used for police programs. State Highway Funds - This fund is used to account for the City's apportionment of the State excise tax on gasoline and other related grants or receipts that are restricted for the planning, construction and maintenance of streets and roads. It is also used to account for a subvention of the State sales tax on gasoline (Traffic Congestion Relief Funds) that are restricted for street and highway maintenance, and rehabilitation and reconstruction of necessary associated facilities such as drainage and traffic control devices. Parks and Recreation - Accounts for tax and fee revenues restricted for parks and recreation use. Housing and Community Development - Accounts for receipts and expenditures under the Housing and Community Development Act, which includes Community Development Block Grant funds and HOME program funds. It also is used to account for Red Cross housing reconstruction loan repayments and income and related expenditures for a City-owned rental property. Transportation Development Act Fund - This fund is used to account for receipts of State Transportation Development Act (TDA) funds restricted to be used for specialized or unmet transit needs. Acting as the public agency sponsor, the City contracts with non-profit agencies to meet these obligations. Debt Service Fund: General Obligation Bonds - This fund accounts for the debt service for a $7 million general obligation bond issue approved by voters in November 1998. Funds for payment of principal and interest on the bonds are generated by a property tax override assessment of $9.00 per $100,000 of assessed value. Capital Projects Fund: General Capital Improvement - This fund is used to account for capital improvements for which special projects funds have not been established. A portion of the City's transient occupancy tax receipts, combined with other funding sources, such as grants, provides funding for capital projects of general benefit, such as storm drain improvements, or improvements to public buildings.

107

City of Santa Cruz
Combining Balance Sheet Non-Major Governmental Funds June 30, 2004

Special Revenue Housing and State Police ASSETS Cash and cash equivalents Cash and cash equivalents Interest receivable Taxes receivable Accounts receivable - net Due from other governments Due from other funds Prepaid items Notes receivable - net Loans receivable - net Total assets LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Due to other funds Intergovernmental payable Deferred revenue Advances from other funds Total liabilities Fund Balances: Reserved Unreserved, designated Unreserved, undesignated, reported in: Special revenue funds Capital projects funds Total fund balances Total liabilities and fund balances $ 9,807 108,835 255,247 $ 888,460 1,192,828 1,808,015 $ 1,284,775 1,284,775 1,796,790 $ 24,864 2,429,172 3,594,161 $ 6,529 92,499 300,685 3,683 1,991,086 413,222 $ 3,492 142,920 146,412 $ 392,013 223,174 615,187 $ 315 511,700 512,015 $ 31,069 11,236 291,203 301,481 530,000 1,164,989 $ $ $ 250,792 1,864 2,323 268 255,247 $ $ 543,101 115,943 3,124 105,525 1,039,590 732 1,808,015 $ $ 1,273,935 11,148 7 511,700 1,796,790 $ $ 1,319,778 248,982 7,210 180,369 1,398 684,556 1,151,868 3,594,161 $ $ Highway Parks and Recreation Community Development Transportation Development Act

108

Debt Service

Capital Projects General Total Other Governmental Funds

General Obligation Bond

Capital Improvement

$

433,367 3,176 21,402 -

$

1,101,979 762,472 17,734 496,035 120,054 1,649,452 -

$

4,922,952 878,415 286,028 517,437 235,112 2,869,411 7 2,398 1,196,256 1,151,868

$

457,945

$

4,147,726

$

12,059,884

$

-

$

807,407 13,079 31,869 247,316 122,800 1,222,471

$

1,233,981 24,630 323,072 1,426,591 652,800 3,661,074

457,945 457,945 $ 457,945 $

4,369,715 (1,444,460) 2,925,255 4,147,726 $

6,668,015 967,349 2,207,906 (1,444,460) 8,398,810 12,059,884

109

City of Santa Cruz
Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-Major Governmental Funds For the year ended June 30, 2004

Special Revenue Housing and State Police REVENUES: Taxes Intergovernmental Charges for services Fines and forfeitures Use of money and property Other revenues Total revenues EXPENDITURES: Current: Public safety Public works Transit Community and economic development Social services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of year Prior period adjustment (Note 16) Beginning of the year, as restated End of year $ 146,779 146,779 108,835 $ 945,108 4,096 949,204 1,192,828 $ 1,558,299 1,558,299 1,284,775 $ 2,677,771 2,677,771 2,429,172 $ (412) (412) (37,944) 11,750 11,750 243,624 (678,963) (678,963) (273,524) 292,000 292,000 (248,599) (37,532) 231,874 405,439 (540,599) 278,324 16,563 1,633 2,307,628 12,860 1,834,780 588,183 195,826 82,498 550,144 1,739,288 810,590 146,250 865,080 588,183 $ 177,896 57,990 6,177 (1,271) 240,792 $ 2,536,105 1,457 1,940 2,539,502 $ 357,305 37,623 10,511 405,439 $ 1,223,418 55,350 15,413 1,294,181 $ 588,183 588,183 Highway Parks and Recreation Community Development Transportation Development Act

110

Debt Service

Capital Projects General Total Other Governmental Funds

General Obligation Bond

Capital Improvement

$

456,532 1,712 458,244

$

2,010,975 1,986,911 228,549 (16,305) 63,521 4,273,651

$

2,824,812 6,512,513 325,619 6,177 51,937 78,934 9,799,992

157,796 231,687 389,483

5,561,650 416,154 246,193 6,223,997

195,826 550,144 588,183 810,590 146,250 8,248,516 590,513 492,373 11,622,395

68,761

(1,950,346)

(1,822,403)

68,761

1,153,062 (858,215) 294,847 (1,655,499)

1,456,812 (1,537,590) (80,778) (1,903,181)

389,184 389,184 $ 457,945 $

4,580,754 4,580,754 2,925,255 $

10,297,895 4,096 10,301,991 8,398,810

111

City of Santa Cruz
Schedule of Budget and Actual Revenues General Fund For the year ended June 30, 2004

Variance with Final Budget Original Budget REVENUES: Taxes: Property Sales and use Business license Franchise Transient occupancy Parking Utility users Admission Property transfer Business improvement Other taxes Total taxes Licenses and permits: Construction permits Other licenses and permits Total licenses and permits Intergovernmental revenues: Federal State Local Other agencies Total intergovernmental revenues Charges for services: General government: Legislative Management and support Planning and zoning Other general government Public safety: Police Fire Protective inspection Parks and recreation: Parks Recreation Other parks and recreation Subtotal of charges for services 37,000 2,510,200 4,000 5,268,800 37,000 2,510,200 4,000 5,805,111 43,209 2,508,180 5,653,352 6,209 (2,020) (4,000) (151,759) 891,950 326,000 301,000 891,950 337,000 301,000 1,130,311 300,281 275,166 238,361 (36,719) (25,834) 1,100 600,000 593,350 4,200 1,100 547,291 1,168,781 6,789 1,328 538,262 845,459 11,156 228 (9,029) (323,322) 4,367 193,194 3,850,026 29,600 4,072,820 383,423 3,955,117 48,100 4,386,640 219,270 3,499,251 26,964 116 3,745,601 (164,153) (455,866) (21,136) 116 (641,039) 506,500 11,500 518,000 506,500 11,500 518,000 509,841 19,808 529,649 3,341 8,308 11,649 $ 7,350,000 8,910,000 835,000 3,279,680 1,000,000 200,000 7,300,000 1,650,000 200,000 180,000 117,372 31,022,052 $ 7,350,000 8,910,000 835,000 3,279,680 1,000,000 200,000 7,330,500 1,650,000 200,000 180,000 117,372 31,052,552 $ 7,327,071 9,084,026 792,893 3,329,454 1,005,487 221,133 7,638,926 1,724,330 276,466 179,163 117,373 31,696,322 $ (22,929) 174,026 (42,107) 49,774 5,487 21,133 308,426 74,330 76,466 (837) 1 643,770 Final Budget Actual Amounts (Budgetary Basis) Positive (Negative)

112

City of Santa Cruz
Schedule of Budget and Actual Revenues, Continued General Fund For the year ended June 30, 2004

Variance with Final Budget Original Budget Charges for services, Continued: Subtotal from previous page Public works: Engineering Transportation Community and economic development: Other community and economic development Internal charges for services provided Interagency personnel services charges: Library Redevelopment Agency Subtotal interagency charges Total charges for services Fines and forfeitures: Court and traffic fines Other fines and forfeitures Total fines and forfeitures Use of money and property: Investment income Rents and royalties Total use of money and property Other revenues: Contributions and donations Other miscellaneous revenues Total other revenues Total revenues OTHER FINANCING SOURCES: Proceeds from asset dispositions Loan and advance principal receipts Transfers in Total other financing sources Total revenues and other financing sources $ 61,798 120,000 181,798 57,207,672 102,298 120,000 222,298 58,264,444 258,797 95,911 354,708 58,015,552 156,499 (24,089) 132,410 (248,892) 644,029 1,712,900 2,356,929 644,029 1,784,900 2,428,929 511,520 1,781,252 2,292,772 (132,509) (3,648) (136,157) 1,376,000 151,800 1,527,800 1,397,500 188,624 1,586,124 1,468,292 331,265 1,799,557 70,792 142,641 213,433 7,589,270 735,939 8,325,209 17,528,273 7,394,612 735,939 8,130,551 18,069,901 7,133,826 731,189 7,865,015 17,596,943 (260,786) (4,750) (265,536) (472,958) 7,900 3,083,364 7,900 3,282,839 7,960 3,236,648 60 (46,191) 22,000 821,000 22,500 821,000 56,080 777,888 33,580 (43,112) $ 5,268,800 $ 5,805,111 $ 5,653,352 $ (151,759) Final Budget Actual Amounts (Budgetary Basis) Positive (Negative)

825,000 472,422 1,714,665
3,012,087 60,219,759 $

825,000 442,422 1,744,665
3,012,087 61,276,531 $

771,823 455,427 1,687,534
2,914,784 60,930,336 $

(53,177) 13,005 (57,131)
(97,303) (346,195)

113

City of Santa Cruz
Schedule of Budget and Actual Expenditures and Other Financing Uses For Legally Adopted Appropriations by Department - General Fund For the year ended June 30, 2004

Actual Services, Supplies Personnel Services City Council City Clerk City Manager City Attorney Human Resources Finance Police Fire Parks and Recreation Library Public Works Planning and Community Development Redevelopment Administration Non-Departmental Debt service Capital projects Total expenditures Advances to other funds Transfers out Total expenditures and other financing uses $ 43,561,364 $ 14,759,126 $ 364,411 $ 506,268 $ 60,323,333 $ 168,633 435,504 523,762 11,025 510,842 2,334,970 12,384,024 7,120,933 7,084,130 7,133,826 3,000,222 2,108,002 731,189 14,302 43,561,364 $ and Other Charges 147,978 118,754 139,681 530,891 315,138 720,027 3,397,524 709,479 3,111,752 1,394,751 974,525 376,011 132 2,822,483 14,759,126 $ Debt Service 25,107 77,743 43,812 11,107 206,642 364,411 $ Capital Outlay 44,056 67,958 51,402 113,355 85,885 48,184 746 94,682 506,268 Actual Amounts (Budgetary Basis) $ 316,611 579,365 663,443 541,916 870,036 3,122,955 15,832,950 8,021,510 10,281,767 8,528,577 4,066,743 2,495,866 731,321 2,836,785 206,642 94,682 59,191,169 530,000 602,164

Budget to GAAP Differences: See reconciliation in Required Supplementary Information Note 1.

114

Variance with Final Budget Final Budget $ 517,814 628,550 703,398 546,027 995,817 3,237,700 16,754,725 8,060,466 10,982,640 8,789,363 4,597,459 2,956,002 736,039 2,870,625 206,645 192,138 62,775,408 930,000 1,755,555 $ Positive (Negative) 201,203 49,185 39,955 4,111 125,781 114,745 921,775 38,956 700,873 260,786 530,716 460,136 4,718 33,840 3 97,456 3,584,239 400,000 1,153,391 $ Budget to GAAP Differences (29,000) 767,232 (731,189) 7,043 (530,000) $ Actual Amounts (GAAP Basis) 287,611 579,365 663,443 541,916 1,637,268 3,122,955 15,832,950 8,021,510 10,281,767 8,528,577 4,066,743 2,495,866 132 2,836,785 206,642 94,682 59,198,212 602,164

$

65,460,963

$

5,137,630

$

(522,957)

$

59,800,376

115

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Police Special Revenue Fund For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Intergovernmental Charges for services Fines and forfeitures Use of money and property Total revenues EXPENDITURES: Current: Public safety: Police Capital outlay Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of the year End of year $ 140,273 99,662 $ 140,273 97,743 (500) (500) (40,611) (500) (500) (42,530) (40,111) (42,030) $ 99,106 70,000 15,401 184,507 $ 175,344 70,000 15,401 260,745 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

177,896 57,990 6,177 6,560 248,623

$

(7,831) (7,831)

$

177,896 57,990 6,177 (1,271) 240,792

209,448 15,170 224,618

209,448 93,327 302,775

195,826 82,498 278,324

-

195,826 82,498 278,324

(29,701)

(7,831)

(37,532)

(412) (412) (30,113)

(7,831)

(412) (412) (37,944)

140,273 $ 110,160 $

6,506 (1,325) $

146,779 108,835

Ending budgetary fund balance committed for re-appropriation in the following year

$

1,920

116

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual State Highway Special Revenue Fund For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Intergovernmental Charges for services Use of money and property Total revenues EXPENDITURES: Current: Public works: Transportation Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Proceeds from asset disposition Transfers in Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of the year, as restated End of year $ 944,345 369,016 $ 943,392 465,763 300,000 300,000 (575,329) 300,000 11,750 311,750 (477,629) (875,329) (789,379) $ 5,747,999 5,747,999 $ 5,831,999 20,000 5,851,999 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

2,536,105 1,457 5,246 2,542,808

$

(3,306) (3,306)

$

2,536,105 1,457 1,940 2,539,502

612,363 5,992,767 16,564 1,634 6,623,328

612,363 6,010,817 16,564 1,634 6,641,378

550,144 1,739,288 16,563 1,633 2,307,628

-

550,144 1,739,288 16,563 1,633 2,307,628

235,180

(3,306)

231,874

11,750 11,750 246,930

(3,306)

11,750 11,750 243,624

943,392 $ 1,190,322 $

5,812 2,506 $

949,204 1,192,828

Ending budgetary fund balance committed for re-appropriation in the following year

$

659,970

117

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Parks and Recreation Fund For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Taxes Charges for services Use of money and property Total revenues OTHER FINANCING SOURCES (USES): Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of the year End of year $ 1,537,112 660,738 $ 1,537,112 651,162 (1,309,374) (1,309,374) (876,374) (1,318,950) (1,318,950) (885,950) $ 400,000 33,000 433,000 $ 400,000 33,000 433,000 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

357,305 37,623 39,503 434,431

$

(28,992) (28,992)

$

357,305 37,623 10,511 405,439

(678,963) (678,963) (244,532)

(28,992)

(678,963) (678,963) (273,524)

1,537,112 $ 1,292,580 $

21,187 (7,805) $

1,558,299 1,284,775

Ending budgetary fund balance committed for re-appropriation in the following year

$

638,146

118

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Housing and Community Development Fund For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Intergovernmental Use of money and property Other revenues Total revenues EXPENDITURES: Current: Community and economic development: Housing and community development Redevelopment Social services: CDBG social services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Loan principal receipts Proceeds from long-term debt Transfers in Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of the year End of year $ 434,132 (729,640) $ 434,132 1,087,360 120,010 120,010 (1,163,772) 120,010 1,530,000 292,000 1,942,010 653,228 (1,283,782) (1,288,782) $ 1,951,719 51,868 2,003,587 $ 1,951,719 51,868 2,003,587 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

1,223,418 72,976 15,413 1,311,807

$

(17,626) (17,626)

$

1,223,418 55,350 15,413 1,294,181

1,382,334 2,200 146,358 1,756,477 3,287,369

1,391,807 2,200 146,358 1,750,380 1,426 198 3,292,369

809,209 1,381 146,250 865,080 12,860 1,834,780

-

809,209 1,381 146,250 865,080 12,860 1,834,780

(522,973)

(17,626)

(540,599)

393,214 530,000 292,000 1,215,214 692,241

(377,801) (530,000) (907,801) (925,427)

292,000 292,000 (248,599)

434,132 $ 1,126,373 $

2,243,639 1,318,212 $

2,677,771 2,429,172

Ending budgetary fund balance committed for re-appropriation in the following year

$

10,509

119

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Transportation Development Act For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Intergovernmental Total revenues EXPENDITURES: Current: Transit Total expenditures REVENUES OVER (UNDER) EXPENDITURES FUND BALANCES: Beginning of the year End of year $ $ 592,903 592,903 593,603 593,603 $ 592,903 592,903 $ 593,603 593,603 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

588,183 588,183

$

-

$

588,183 588,183

588,183 588,183

-

588,183 588,183

-

-

-

$ $

$

-

120

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual General Obligation Bond For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Taxes Use of money and property Total revenues EXPENDITURES: Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES FUND BALANCES: Beginning of the year End of year $ 386,412 431,725 $ 386,412 431,725 45,313 45,313 157,797 234,305 392,102 157,797 234,305 392,102 $ 428,915 8,500 437,415 $ 428,915 8,500 437,415 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

456,532 5,699 462,231

$

(3,987) (3,987)

$

456,532 1,712 458,244

157,796 231,687 389,483

-

157,796 231,687 389,483

72,748

(3,987)

68,761

386,412 $ 459,160 $

2,772 (1,215) $

389,184 457,945

121

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual General Capital Improvement Projects For the year ended June 30, 2004

Budgeted Amounts Original REVENUES: Taxes Intergovernmental Charges for services Use of money and property Other revenues Total revenues EXPENDITURES: Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Proceeds from asset disposition Proceeds from long-term debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balances FUND BALANCES: Beginning of the year End of year $ 4,257,800 466,391 $ 4,258,400 505,295 66,667 2,884,094 (825,000) 2,125,761 (3,791,409) 66,667 122,800 2,959,747 (846,750) 2,302,464 (3,753,105) (5,917,170) (6,055,569) 14,917,933 416,156 248,541 15,582,630 15,342,329 416,156 248,541 16,007,026 $ 2,000,000 7,333,860 220,000 25,000 86,600 9,665,460 $ 2,000,000 7,619,857 220,000 25,000 86,600 9,951,457 Final

Actual Amounts (Budgetary Basis)

Budget to GAAP Differences

Actual Amounts (GAAP Basis)

$

2,010,975 1,986,911 228,549 23,674 63,521 4,313,630

$

(39,979) (39,979)

$

2,010,975 1,986,911 228,549 (16,305) 63,521 4,273,651

5,561,650 416,154 246,193 6,223,997

-

5,561,650 416,154 246,193 6,223,997

(1,910,367)

(39,979)

(1,950,346)

122,800 1,153,062 (858,215) 417,647 (1,492,720)

(122,800) (122,800) (162,779)

1,153,062 (858,215) 294,847 (1,655,499)

4,258,400 $ 2,765,680 $

322,354 159,575 $

4,580,754 2,925,255

Ending budgetary fund balance committed for re-appropriation in the following year

$

2,222,949

122

City of Santa Cruz
Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Non-Major Governmental Funds For the year ended June 30, 2004

Other Governmental Funds Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis: Net Change in Fund Balances - Budgetary Basis The amount reported in the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances was different because: Unrealized gains and losses on investments, which are considered a component of investment income in the Statement of Revenues, Expenditures and Changes in Fund Balances, are not included as revenue on a budgetary basis. Proceeds of long term advances from other funds are considered budgetary resources, but are not revenues on a GAAP basis. On a budgetary basis, the City records loan principal receipts as revenue, but on a GAAP basis, these receipts reduce receivables. Net Change in Fund Balances - Statement of Revenues, Expenditures and Changes in Fund Balances $ $ (755,446)

(101,721) (652,800) (393,214) (1,903,181)

Reconciliation of Fund Balances - Budgetary to GAAP Basis: Fund Balances - Ending - Budgetary Basis Cumulative effect of unrealized gains and losses on investments Noncurrent advances payable Reserved balances unavailable for appropriation Designated for noncurrent component of compensated absences Fund Balances - Ending - GAAP Basis $ $ 6,944,275 (23,177) (652,800) 2,126,829 3,683 8,398,810

123

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124

INTERNAL SERVICE FUNDS
Equipment Operations - This fund is used to account for the expenses related to city-wide fleet operations and maintenance activities, including vehicles, communications equipment, and other pooled equipment. Internal contributions to support this fund are based on cost recovery through charges to user departments and funds. These charges do not include the cost of equipment replacement. Stores Services - Accounts for the costs of operating a centralized warehouse used by the City. Telecommunications - This fund is used to account for the expenses related to the acquisition of communications equipment and ongoing maintenance of the telephone network including the main telephone switch, voice mail system, pagers, cell phones, and fax machines. Internal contributions to support this fund are based on cost recovery through user departments and funds. These charges do not include the cost of equipment replacement. Risk Management - Accounts for the expenses of the City's insurance program, including costs related to claims, administration, legal defense, and insurance premiums. Internal contributions to support this fund are based on cost recovery through charges to departments and funds. The following insurance activities are provided for in this fund: Workers' Compensation Insurance Liability Insurance Group Health Insurance

125

City of Santa Cruz
Combining Statement of Net Assets All Internal Service Funds June 30, 2004

Equipment Operations ASSETS Current assets: Cash and cash equivalents Restricted cash and cash equivalents Interest receivable Accounts receivable - net Due from other funds $ 308,391 2,811 57,349 632 2,879 372,062 $

Stores Services

Telecommunications

Risk Management Total

83,261 497 99,463 183,221

$

82,736 60,486 823 324 136 144,505

$

1,208,032 14,284 730,823 186,146 1,755 987,505 3,128,545

$

1,682,420 60,486 18,415 788,172 187,102 4,770 99,463 987,505 3,828,333

Prepaid items Inventories
Deposits Total current assets Noncurrent assets: Capital assets: Machinery and equipment Software Total capital assets Less accumulated depreciation Total capital assets, net Total noncurrent assets Total assets LIABILITIES Current liabilities: Accounts payable and other current liabilities Due to other funds Claims and judgments payable - due within one year Compensated absences payable - due within one year Bonds, notes, loans and leases payable due within one year Total current liabilities Noncurrent liabilities: Claims and judgments payable - due in more than one year Compensated absences payable - due in more than one year Bonds, notes, loans and leases payable due in more than one year Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Debt service Unrestricted Total net assets $

256,150 256,150 (236,632) 19,518 19,518 391,580

183,221

746,577 336,296 1,082,873 (766,589) 316,284 316,284 460,789

8,160 8,160 (1,768) 6,392 6,392 3,134,937

1,010,887 336,296 1,347,183 (1,004,989) 342,194 342,194 4,170,527

100,993 23,651 2,575 127,219 11,825 1,335 13,160 140,379

7,389 150 7,539 7,539

11,704 23,088 34,792 11,966 11,966 46,758

173,356 49,056 2,188,200 2,410,612 7,644,100 7,644,100 10,054,712

293,442 49,206 2,188,200 23,651 25,663 2,580,162 7,644,100 11,825 13,301 7,669,226 10,249,388

15,608 235,593 251,201 $

175,682 175,682 $

281,230 60,486 72,315 414,031 $

6,392 (6,926,167) (6,919,775) $

303,230 60,486 (6,442,577) (6,078,861)

126

City of Santa Cruz
Combining Statement of Revenues, Expenses and Changes in Net Assets All Internal Service Funds For the year ended June 30, 2004

Equipment Operations OPERATING REVENUES: Charges for services - internal Charges for services - external Other revenues Total operating revenues OPERATING EXPENSES: Personnel services Services, supplies, and other charges Depreciation and amortization Total operating expenses Operating income (loss) NONOPERATING REVENUES (EXPENSES): Investment earnings Interest expense and fiscal charges 2,043 (279) 5,500 7,264 (85,862) (12,975) (98,837) 960,094 1,370,196 4,811 2,335,101 (93,126) $ 2,143,660 95,650 2,665 2,241,975 $

Stores Services

Telecommunications

Risk Management Total

183,494 94 183,588

$

186,384 51,300 237,684

$

4,640,357 17,525 496,466 5,154,348

$

7,153,895 164,475 499,225 7,817,595

170,882 170,882 12,706

82,490 124,516 157,606 364,612 (126,928)

411,046 8,957,952 1,632 9,370,630 (4,216,282)

1,453,630 10,623,546 164,049 12,241,225 (4,423,630)

1,118 1,118 13,824 (1,976) 11,848

1,087 (2,504) (1,417) (128,345) (1,562) (129,907)

6,639 6,639 (4,209,643) (753,733) (4,963,376)

10,887 (2,783) 5,500 13,604 (4,410,026) (770,246) (5,180,272)

Gain (loss) on sale of capital assets
Total nonoperating revenues (expenses) Income (loss) before transfers Transfers out Change in net assets NET ASSETS: Beginning of year Prior period adjustment (Note 16) Beginning of the year, as restated End of year $

350,038 350,038 251,201 $

163,834 163,834 175,682 $

543,938 543,938 414,031 $

(1,933,507) (22,892) (1,956,399) (6,919,775) $

(875,697) (22,892) (898,589) (6,078,861)

127

City of Santa Cruz
Combining Statement of Cash Flows All Internal Service Funds For the year ended June 30, 2004
Equipment Operations CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and users Cash received from interfund services provided Cash payments to suppliers for goods and services Cash payments to employees for services Cash payments for interfund services used Cash received from (payments to) others Net cash provided (used) by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out Net cash provided (used) by noncapital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase and construction of capital assets Principal paid on capital debt Interest paid on capital debt Proceeds from sales of capital assets Net cash provided (used) by capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES: Investment income received Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents CASH AND CASH EQUIVALENTS: Beginning of year End of year RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Changes in current assets and liabilities: Accounts receivable Prepaid items Inventories Deposits Accounts payable and other current liabilities Due to other funds Claims and judgments payable Compensated absences payable Total adjustments Net cash provided (used) by operating activities $ (45,697) (2,879) (1,278) (4,717) (49,760) (142,886) $ 20,507 (24,360) (3,853) 8,853 $ (136) 1,715 159,185 32,257 $ 519,396 (1,755) 18,789 (403,465) (718,175) 3,368,831 2,785,253 (1,431,029) $ 473,699 (4,770) 20,507 18,789 (427,388) (718,175) 3,368,831 (4,717) 2,890,825 (1,532,805) 4,811 157,606 1,632 164,049 $ (93,126) $ 12,706 $ (126,928) $ (4,216,282) $ (4,423,630) $ 459,442 308,391 $ 75,265 83,261 $ 136,342 143,222 $ 3,386,155 1,208,032 $ 4,057,204 1,742,906 2,044 2,044 (151,051) 1,119 1,119 7,996 697 697 6,880 6,639 6,639 (2,178,123) 10,499 10,499 (2,314,298) 2,766 (24,512) (21,746) (2,455) (279) 5,500 (22,008) (2,504) (24,463) (2,783) 5,500 (12,975) (1,976) (1,562) (753,733) (770,246) (12,975) (1,976) (1,562) (753,733) (770,246) $ 49,953 2,143,660 (1,060,839) (964,811) (313,514) 2,665 (142,886) $ 183,494 (174,735) 94 8,853 $ 51,300 186,384 (122,919) (82,490) (18) 32,257 $ 17,525 4,441,578 (5,975,546) (411,046) (6) 496,466 (1,431,029) $ 118,778 6,955,116 (7,334,039) (1,458,347) (313,538) 499,225 (1,532,805) Stores Services Telecommunications Risk Management Total

128

Private-Purpose Trust Funds
McCaskill Trust - Local History - is restricted in purpose to promulgate local history. The principal and income benefit the Library Joint Powers Authority, McCaskill Trust - Visually Impaired - is restricted in purpose to providing library materials for the visually impaired. The principal and income benefit the Library Joint Powers Authority. The Finkeldey Trust - is restricted in purpose for the acquisition of musical literature. The principal and income benefit the Library Joint Powers Authority.

129

City of Santa Cruz
Combining Statement of Fiduciary Net Assets Private-Purpose Trust Funds June 30, 2004

McCaskill Trust - Local History ASSETS Cash and cash equivalents Receivables: Interest receivable Total assets NET ASSETS Held in trust for library programs $ 259,344 $ 1,901 259,344 $ 257,443 $

McCaskill Trust - Visually Impaired Finkeldey Trust

Total Private-Purpose Trust Funds

248,063 1,841 249,904

$

12,035 95 12,130

$

517,541 3,837 521,378

249,904

$

12,130

$

521,378

130

City of Santa Cruz
Combining Statement of Changes in Fiduciary Net Assets Private-Purpose Trust Funds For the year ended June 30, 2004

Total McCaskill Trust - Local History ADDITIONS: Investment earnings Total additions DEDUCTIONS: Library programs Total deductions Change in net assets NET ASSETS: Beginning of year End of year $ 261,355 259,344 $ 254,776 249,904 $ 12,810 12,130 $ 528,941 521,378 3,357 3,357 (2,011) 5,889 5,889 (4,872) 755 755 (680) 10,001 10,001 (7,563) $ 1,346 1,346 $ 1,017 1,017 $ 75 75 $ 2,438 2,438 McCaskill Trust - Visually Impaired Finkeldey Trust PrivatePurpose Trust Funds

131

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132

Agency Funds
Library Joint Powers Authority - Used to account for funds held by the City in an agency capacity for the Library Joint Powers Authority, which was established to finance the operations of the former City/County library system. Trust Deposit Holding - This fund is used to hold cash deposits received from outside parties on a temporary basis. Payroll Payables - Used to account for cash transferred from various funds to pay for payroll liabilities, which are paid out of this fund. Special Assessments - Accounts for assets held by the City in an agency capacity for special assessment districts. The City acts as agent for collection of principal and interest payments from the property owners and remits these monies to the bondholders. If funds are not available, the City is under no obligation to make bond payments from its own funds.

133

City of Santa Cruz
Combining Statement of Fiduciary Net Assets Agency Funds June 30, 2004

Library Joint Powers Authority ASSETS Cash and cash equivalents Investments Receivables: Interest receivable Taxes receivable Accounts receivable Due from other governments Prepaid Items Total assets LIABILITIES Accounts payable and other current liabilities Due to other governments Deferred revenue Deposits payable Payable to bondholders Total liabilities $ $ 421,392 679,339 37,385 1,138,116 $ $ $ 846 523,613 611,522 1,999 136 1,138,116 $ $ $

Trust Deposit Holding Payroll Payables Special Assessments

Total Agency Funds

359,668 724 360,392

$

517,714 -

$

148,845 100,000 4,888 10,170 -

$

1,026,227 100,000 6,458 533,783 611,522 1,999 136

$

517,714

$

263,903

$

2,280,125

4,545 1,441 354,406 360,392

$

517,714 -

$

263,903

$

943,651 679,339 38,826 354,406 263,903

$

517,714

$

263,903

$

2,280,125

134

STATISTICAL SECTION
(Unaudited)

135

City of Santa Cruz
General Government Expenditures by Function Last Ten Fiscal Years
Community & Economic Development $ 107,797 90,532 450,594 71,949

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

General Government $ 6,157,369 6,451,398 6,801,244 7,243,351 8,307,129 8,658,374 9,453,886 10,015,075 9,673,413 8,967,025

Public Safety $ 12,435,182 13,263,127 15,178,609 16,537,380 17,583,619 18,175,374 19,590,258 21,316,301 22,599,713 24,647,937

Parks and Recreation $ 6,445,713 6,884,301 7,082,558 7,466,564 7,680,937 7,998,743 8,649,498 9,816,703 9,773,346 9,721,229

Library $ 4,301,057 4,352,862 4,615,242 1,508,087 1,435,457 1,404,622 1,423,006 1,410,148 8,412,201 8,528,577

Public Works $ 4,048,288 3,641,572 3,748,918 3,735,292 4,449,857 4,893,280 4,930,360 5,047,532 5,016,269 3,989,048

Social Services $ 1,040,356 1,130,750 1,164,564 1,301,223 1,355,280 1,568,533 1,797,776 2,147,331 1,826,306 1,656,875

Notes: This table includes expenditures of the General Fund. Beginning in fiscal year 2003, the cost of personnel services provided to the Library Joint Powers Authority was included in General Fund expenditures, as well as the cost of interfund personnel services provided.

Source:

City of Santa Cruz Finance Department

136

Table 1

Earthquake Damage $ 1,519,780 391,281 2,606,019 5,019,412 -

Capital Outlay $ 1,423,141 881,480 1,680,249 842,588 2,118,540 1,999,097 2,427,838 2,916,470 957,058 1,251,162 $

Debt Service 134,935 152,364 300,520 320,598 364,410

Total $ 37,370,886 36,996,771 42,877,403 43,653,897 42,930,819 44,832,958 48,532,783 53,060,612 59,029,498 59,198,212

137

City of Santa Cruz
General Government Revenues by Source Last Ten Fiscal Years

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Taxes $ 23,041,822 24,378,881 25,857,144 23,292,917 24,918,906 27,646,368 30,258,503 29,238,472 30,027,154 31,696,322

Licenses and Permits $ 1,259,334 1,197,717 1,335,623 1,366,948 1,397,862 1,595,964 1,342,471 1,267,939 614,012 529,649

InterGovernmental $ 2,205,598 2,580,270 3,296,590 3,410,230 4,170,892 4,732,311 5,281,661 5,339,612 4,788,035 3,745,601

Charges for Services $ 7,928,477 8,190,361 8,450,778 6,290,188 6,729,820 6,566,033 7,009,901 7,151,012 16,693,936 16,865,754

Fines and Forfeitures $ 1,130,147 1,288,803 1,169,823 1,064,554 1,397,833 1,347,496 1,286,990 1,282,697 1,555,481 1,799,557

Use of Money and Property $ 3,114,865 3,821,101 4,057,707 3,623,968 3,794,000 3,574,121 4,152,368 3,577,774 2,252,373 2,086,163 $

Other Revenues 244,273 172,287 219,250 280,513 213,496 324,802 327,692 397,896 308,104 418,764

Notes: This table includes revenue of the General Fund. Beginning in fiscal year 2003, charges for personnel services provided to the Library Joint Powers Authority were included in General Fund charges for services, as well as charges for interfund personnel services provided.Also, prior to fiscal year 2003, business license taxes were shown in licenses and permits.

Source:

City of Santa Cruz Finance Department

138

Table 2

Earthquake Relief $ 4,308,869 75,524 654,926 -

Total $ 43,233,385 41,704,944 45,041,841 39,329,318 42,622,809 45,787,095 49,659,586 48,255,402 56,239,095 57,141,810

139

City of Santa Cruz
Tax Revenues by Source Last Ten Fiscal Years

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $

Property 8,121,277 8,434,673 9,192,280 9,784,131 10,484,409 12,176,209 13,342,450 14,944,971 15,629,920 15,792,225 $

Sales and Use 9,224,700 9,672,987 10,314,425 7,191,934 7,415,341 8,857,748 9,790,693 9,126,341 8,291,244 9,084,026 $

Franchise 1,563,467 1,660,067 1,695,707 1,736,039 2,476,604 2,771,014 2,851,830 2,996,907 3,132,743 3,329,454 $

Transient Occupancy 2,227,849 2,570,636 2,710,994 2,716,397 3,174,694 3,541,396 3,900,905 3,131,378 2,932,256 3,016,463 $

Utility Users 5,810,555 6,022,023 6,338,533 6,557,490 6,912,440 7,149,619 8,246,829 7,627,331 7,592,049 7,638,926 $

Admission 1,282,420 1,528,661 1,511,605 1,539,111 1,502,540 1,583,897 1,611,318 1,612,526 1,664,150 1,724,330

Notes: This table includes all governmental fund types. Fiscal years 1995 through 1997 include half-cent sales tax override (Measure E) for earthquake repairs. The half-cent override ended March 31, 1997. Prior to fiscal year 2003, business license taxes were shown in permits and licenses. Beginning with fiscal year 2003, business improvement taxes include the Co-op Retail Management Business Real Property Improvement District. Source: City of Santa Cruz Finance Department

140

Table 3

Parking $ 141,982 146,426 158,576 147,877 192,352 158,229 178,373 194,646 199,371 221,133

Business Improvement $ 135,724 140,859 168,736 175,114 167,500 170,369 183,711 175,868 273,965 296,536 $

Property Transfer 96,318 115,843 136,174 162,915 186,624 219,132 200,041 194,632 191,042 276,466 $

Business License 784,446 792,893

Park and Recreation Facilities $ 551,514 357,305

141

City of Santa Cruz
Property Tax Levies and Collections Last Ten Fiscal Years

Table 4

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Total Tax Levy $ 7,853,836 8,130,382 8,800,364 9,396,855 10,104,672 11,732,295 12,516,202 14,190,378 14,639,056 15,335,693

Percent Delinquent Current Tax of Levy Tax Collections Collected Collections $ 7,853,836 8,130,382 8,800,364 9,396,855 10,104,672 11,732,295 12,516,202 14,190,378 14,639,056 15,335,693 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ** ** ** ** ** ** ** ** ** **

Outstanding Total Delinquent Total Collections as Outstanding Taxes as Tax as Percent of Delinquent Percent of Collections Current Levy Taxes Current Levy $ 7,853,836 8,130,382 8,800,364 9,396,855 10,104,672 11,732,295 12,516,202 14,190,378 14,639,056 15,335,693 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** ** **

Notes: This table includes levies and collections for the Redevelopment Agency. ** Because it adopted a new method of distributing property taxes (commonly referred to as the "Teeter Plan"), the Count is now responsible for all delinquent secured property taxes. Source: County of Santa Cruz Auditor-Controller's Office

142

City of Santa Cruz
Assessed and Estimated Actual Value of Taxable Property Last Ten Fiscal Years

Table 5

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $

Secured Roll Assessed Value 2,825,998,829 2,902,071,132 3,027,381,953 3,151,981,755 3,297,460,618 3,583,471,174 3,844,483,638 4,217,070,195 4,443,604,163 4,707,428,936 $

Unsecured Roll Assessed Value 177,879,596 185,926,518 176,491,197 176,321,921 186,050,833 198,830,667 207,913,809 237,668,331 237,898,436 225,168,674 $

Total Assessed Value 3,003,878,425 3,087,997,650 3,203,873,150 3,328,303,676 3,483,511,451 3,782,301,841 4,052,397,447 4,454,738,526 4,681,502,599 4,932,597,610

Notes: This table has been adjusted to reflect fiscal year assessed values. With the passage of a constitutional amendment (Proposition 13) and subsequently enacted State legislation, property is assessed according to base year rather than on a percentage of market value. Accordingly, a reliable estimate of actual value a taxable property within the City is not possible.

Source: County of Santa Cruz Auditor-Controller's Office

143

City of Santa Cruz
Property Tax Rates and Tax Levies - Direct and Overlapping Governments Last Ten Fiscal Years

Table 6

Fiscal Year

City

School District

County

Totals

Tax Rates 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 0.000 0.000 0.000 0.000 0.000 0.009 0.009 0.009 0.009 0.009 0.000 0.000 0.000 0.000 0.000 0.039 0.034 0.034 0.038 0.037 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.048 1.043 1.043 1.047 1.046

Tax Levies 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $ 291,566 309,453 333,401 352,611 374,721 $ 1,264,689 1,263,453 1,340,963 1,444,739 1,527,983 1,540,518 $ 26,939,307 28,350,522 29,362,800 30,864,164 33,281,294 32,396,229 34,383,654 37,044,583 39,179,039 41,635,632 $ 26,939,307 28,350,522 29,362,800 30,864,164 34,545,983 33,951,248 36,034,070 38,822,723 41,059,633 43,550,871

The passage of a constitutional amendment (Proposition 13) in June 1978 limits the property rate to a base of $1.00 per $100.00 plus the rates necessary to fund voter approved general obligation bonds. The $1.00 rate is levied by the County and apportioned to local agencies according to a formula perscribed by the California legislature. Source: Santa Cruz County Auditor - Controller

144

City of Santa Cruz
Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita Last Ten Fiscal Years

Table 7

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Notes:

Population 52,677 52,731 53,172 53,172 54,575 56,046 55,028 55,085 55,633 56,289

Assessed Value $ 3,003,878,425 3,087,997,650 3,203,873,150 3,328,303,676 3,483,511,451 3,782,301,841 4,052,397,447 4,454,738,526 4,681,502,599 4,932,597,610

Gross Bonded Debt $ 6,998,473 7,176,298 7,299,481 7,286,115 7,260,759 7,228,153

Debt Ratio of Net Service Monies Net Bonded Bonded Debt to Available Debt Assessed Value $ 12 125,218 277,763 324,117 389,184 457,945 $ 6,998,461 7,051,080 7,021,718 6,961,998 6,871,575 6,770,208 0.00201 0.00186 0.00173 0.00156 0.00147 0.00137

Net Bonded Debt per Capita $ 128.24 125.81 127.60 126.39 123.52 120.28

This table has been adjusted to reflect fiscal year assessed values. Source: County of Santa Cruz Auditor-Controller's Office City of Santa Cruz Finance Department

145

City of Santa Cruz
Computation of Legal Debt Margin June 30, 2004

Table 8

Total assessed value Legal debt limit - 15% of total assessed valuation Amount of debt applicable to debt limit: Total bonded debt, general obligation Less: Assets in debt service fund Total amount of debt applicable to debt limit Legal debt margin $ 7,228,153 457,945

$

4,932,597,610 739,889,642

6,770,208 $ 733,119,434

Notes: Section 1418 of the Charter of the City of Santa Cruz limits general obligation bonds indebtedness to 15% of the total assessed valuation of all real personal property within the City.

Source: County of Santa Cruz Auditor-Controller's Office

146

City of Santa Cruz

Table 9

Ratio of Annual Debt Service Expenditures for General Bonded Debt to Current General Expenditures Last Ten Fiscal Years

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $

Principal 10,000 142,624 152,834 157,796 $

Interest 207,854 226,350 230,726 230,116 229,554 $

Total Debt Service 207,854 236,350 373,350 382,950 387,350 $

Total Current Expenditures 38,060,836 40,103,360 45,714,494 45,367,901 45,668,003 42,698,926 45,952,581 49,843,622 57,751,842 57,582,640

Ratio of Debt Service to General Expenditures 0.00% 0.00% 0.00% 0.00% 0.00% 0.49% 0.51% 0.75% 0.66% 0.67%

Notes: This table includes the General Fund. General Obligation bonds were issued in fiscal year 1999, however no debt service payments were made. Debt service payments began in fiscal year 2000. Beginning in fiscal year 2003, the cost of personnel services provided to the Library Joint Powers Authority was included in General Fund expenditures, as well as the cost of interfund personnel services provided. Source: City of Santa Cruz Finance Department

147

City of Santa Cruz
Computation of Direct and Overlapping Debt June 30, 2004

Table 10

2003-2004 Assessed Valuation Redevelopment Incremental Valuation: Adjusted Assessed Valuation:

$ 4,932,597,610 769,034,401 $ 4,163,563,209 Net General Obligation Debt Outstanding Percentage Applicable to City 100.000% $ $ Amount Applicable to City 7,228,153 7,228,153
(1)

DIRECT: City of Santa Cruz Total direct OVERLAPPING: Cabrillo Joint Community College District Santa Cruz High School District Santa Cruz Elementary School District Live Oak School District Scott's Valley Unified School District City of Santa Cruz 1915 Act Bonds Santa Cruz County Certificates of Participation Cabrillo Joint Community College District Certificates of Participation Scotts Valley Unified School District Certificates of Participation Santa Cruz City Schools Certificates of Participation Live Oak School District Certificates of Participation City of Santa Cruz General Fund Obligations Santa Cruz Consolidated Emergency Communication Center City of Santa Cruz Port District Certificates of Participation Monterey Bay Unified Air Pollution Control District Authority Total overlapping Combined Total Debt (1) Direct debt is reported at the accreted value (2) Excludes issues self-supporting from enterprise revenues ($7,870,000) (2) Includes $5,290,000 for Certificates of Participation that are primarily supported by enterprise revenue, however obligated by the General Fund (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue, and tax allocation bonds and non-bonded capital lease obligations Ratios to 2003-04 Assessed Valuation: Direct Debt ($7,228,153) Total Overlapping Tax and Assessment Debt Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($17,756,571) Combined Total Overlapping Tax and Assessment Debt STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/04: Source: California Municipal Statistics, Inc. 148 0.43% 2.92% $0 0.15% 1.85% $ $ $ 27,561,421 29,048,066 24,978,980 597,519 2,721 1,955,000 15,504,598 663,183 546 3,179,829 182,240 9,470,000 1,058,418 22,714 281,492 114,506,727 121,734,880 20.219% 53.668% 95.142% 4.556% 0.013% 100.000% 20.495% 20.219% 0.013% 53.668% 4.556% 100.000% 100.000% 71.766% 7.227% $ $ $ 5,572,644 15,589,516 23,765,501 27,223 1,955,000 3,177,667 134,089 1,706,551 8,303 9,470,000 1,058,418 16,301 20,343 62,501,556 69,729,709
(3) (2)

$ $

7,228,153 7,228,153

City of Santa Cruz
Revenue Bond Coverage Last Ten Fiscal Years

Table 11

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Gross Revenue $ 9,529,175 10,129,068 10,579,889 10,730,501 12,179,844 12,846,315 11,585,518 12,146,047 12,306,445 12,230,219

Expenses* $ 5,460,460 5,599,960 5,984,051 6,054,987 7,379,231 7,856,133 7,275,278 8,929,861 9,415,409 9,855,372

Net Revenue Available for Debt Service $ 4,068,715 4,529,108 4,595,838 4,675,514 4,800,613 4,990,182 4,310,240 3,216,186 2,891,036 2,374,847 $

Debt Service Requirements

Principal 360,000 380,000 405,000 725,000 765,000 115,000 120,000 125,000 130,000 135,000

Interest $ 1,353,835 1,332,735 1,309,565 1,274,454 1,227,031 296,608 290,733 284,608 278,233 271,608

Total $ 1,713,835 1,712,735 1,714,565 1,999,454 1,992,031 411,608 410,733 409,608 408,233 406,608

Coverage 2.4 2.6 2.7 2.3 2.4 12.1 10.5 7.9 7.1 5.8

* Total expenses exclusive of depreciation and bond interest. Source: City of Santa Cruz Finance Department

149

City of Santa Cruz
Demographic Statistics Last Ten Fiscal Years

Table 12

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Population 52,677 52,731 53,172 53,172 54,575 56,046 55,028 55,085 55,633 56,289 $

Taxable Sales* 445,385,000 499,232,000 550,962,000 680,283,000 634,138,000 725,287,000 828,500,000 809,628,000 761,208,000 761,986,000 $

Per Capita Taxable Sales 8,455 9,468 10,362 12,794 11,620 12,941 15,056 14,698 13,683 13,537

* Calendar year ended during the fiscal year. Source: State Board of Equalization

150

City of Santa Cruz
Principal Taxpayers June 30, 2004

Table 13

Taxpayer Santa Cruz Seaside Co Silicon Systems Inc Sequoia Equities-Cyress Point Etal Santa Cruz Hotel LLC Frederick Electronics Corp. Cooper House LLC Canfield Laurel & Pacific Ltd Partn The Price Company Scholz Management L P Encinal Partnership No 1 Totals Total assessed value

Type of Business Entertainment Electronics Apartments Hotel Electronics Commercial Rentals Commercial Rentals Commercial Rentals Apartments Commercial Rentals $

2004 Assessed Valuation 40,544,468 38,286,914 33,642,885 22,077,476 18,019,165 17,530,609 16,911,811 15,186,194 14,525,619 13,663,777 230,388,918

Percentage of Total Assessed Valuation 0.822% 0.776% 0.682% 0.448% 0.365% 0.355% 0.343% 0.308% 0.294% 0.277% 4.671%

$

$ 4,932,597,610

Notes: Taxpayers and values presented in this table reflect the County's 2003-2004 Assessment Roll Reports. The denominator is from Table 5, Total Assessed Value. Source: County of Santa Cruz Assessor's Office

151

City of Santa Cruz
Property Value and Construction Last Ten Fiscal Years

Table 14

Commercial Construction (1)

Residential Construction (1)

Property Value (2)

Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Number of Units 9 5 12 27 17 12 18 7 10 11 $

Value 5,339,000 3,332,000 2,509,000 26,685,000 32,368,157 2,916,634 1,482,082 4,299,498 1,598,069 3,348,691

Number of Units 88 93 286 85 99 46 107 79 622 94 $

Value 10,762,000 13,428,000 24,265,000 12,183,000 11,521,642 9,168,875 12,434,980 12,376,653 60,192,772 13,046,637 $

Total Assessed Value 3,003,878,425 3,087,997,650 3,203,873,150 3,328,303,676 3,483,511,451 3,782,301,841 4,052,397,447 4,454,738,526 4,681,502,599 4,932,597,610

Source: (1) City of Santa Cruz Building Inspector (2) County of Santa Cruz Assessor's Office

152

City of Santa Cruz
Miscellaneous Statistical Data June 30, 2004

Table 15

Form of Government: Council/City Manager City incorporated March 31, 1866 Present charter adopted March 12, 1948

Parks and Recreation: (continued) Special Facilities: Archery Range Civic Auditorium Louden Nelson Community Center Museum of Natural History Lighthouse Museum Neary Lagoon Wildlife Habitat Senior Center Teen Center Libraries - (City-County): Number of budgeted positions Number of libraries: Central Library Branch libraries within city Branch libraries in county Bookmobile Streets: Miles of paved streets Miles of alleys Street lights Sewers: Miles of sanitary sewers Miles of storm drains Water: Meters in service Gallons - Average daily consumption (MGD) Miles of water mains Fire hydrants

Number of Budgeted City Employees: (Regular positions only) Classified service Exempt Total Full Time Equivalent Positions

703 122 825

116 1 2 7 1

Fire: Number of budgeted positions Number of stations Police: Number of budgeted positions Vehicular patrol units Public Parking: Number of lots Number of spaces Number of parking meters* Parks and Recreation: Number of budgeted positions Number of parks Total acreage Playgrounds in city parks Public swimming pool Tennis courts Golf course

54 3

128 43

136 13 2,893

20 5,124 1,714

151 50

101 30 1,970 17 1 7 1

23,724 10 300 2,019

Source: City of Santa Cruz Finance Department

153

City of Santa Cruz
Insurance in Force June 30 2004

Table 16

Type Liability (1)

Insurer ACCEL Risk Pool, the Insurance Company of the State of Pennsylvania, and Lexington Insurance Company

Property Covered All City operations $

Amount of Coverage 20,000,000

(per occurrence)

Property (2)

Various Insurance Companies

Real Property and Equipment City Hall and other named locations Machinery N/A

750,000,000

Loss of Income

Various Insurance Companies

5,000,000

Boiler and Machinery

Various Insurance Companies

100,000,000 45,000,000

Excess Workers' Compensation (3) California Public Entity Insurance Authority Crime and Employee Dishonesty (2) Notary Errors and Omissions Hartford Fire Insurance

Cash and Valuables

500,000

Western Surety Company

N/A

10,000 (per notary)

Notes: (1) Self-insured retention of $1,000,000 per occurrence (2) Subject to various sub-limits and deductibles (3) Self-insured retention of $500,000 per occurrence Source: City of Santa Cruz Risk Manager

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