17312217 City of Santa Cruz Annual Financial Report

3

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,

4

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 finance-related 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 government-wide 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

5

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

6

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 AssetsJune 30, 2004

(amounts expressed in $ millions)

Business-TypeActivities Total

2004 2003 2004 2003 2004 2003Current assets $ 38.9 $ 39.2 $ 59.2 $ 57.4 $ 98.1 $ 96.6 Noncurrent assets 8.8 9.8 20.5 23.0 29.3 32.8 Capital assets 149.4 149.3 245.2 244.2 394.6 393.5

Total assets 197.1 198.3 324.9 324.6 522.0 522.9

Current liabilities 11.2 11.1 10.8 10.5 22.0 21.6 Noncurrent liabilities 25.7 23.8 81.4 82.3 107.1 106.1

Total liabilities 36.9 34.9 92.2 92.8 129.1 127.7

Net assets:Invested in capital assets,

net of related debt 136.6 136.4 174.4 168.9 311.0 305.3 Restricted 11.4 10.4 - - 11.4 10.4 Unrestricted 12.2 16.6 58.3 62.9 70.5 79.5

Total net assets 160.2$ 163.4$ 232.7$ 231.8$ 392.9$ 395.2$

GovernmentalActivities

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.

7

City of Santa Cruz Changes in Net AssetsFiscal Year Ending June 30, 2004

(amounts expressed in $ millions)

Business-TypeActivities Total

2004 2003 2004 2003 2004 2003Revenues:Program revenues:

Charges for services 21.5$ 20.6$ 47.2$ 44.0$ 68.7$ 64.6$ Operating grants and contributions 3.1 4.0 0.1 0.1 3.2 4.1 Capital grants and contributions 4.9 5.8 3.4 2.3 8.3 8.1

Total program revenues 29.5 30.4 50.7 46.4 80.2 76.8 General revenues:

Property taxes 15.8 15.1 - - 15.8 15.1 Sales and use taxes 9.1 8.3 - - 9.1 8.3 Franchise taxes 3.3 3.1 - - 3.3 3.1 Transient occupancy taxes 3.0 2.9 - - 3.0 2.9 Utility users taxes 7.7 7.6 - - 7.7 7.6 Admissions taxes 1.7 1.6 - - 1.7 1.6 Other taxes 2.5 2.0 - - 2.5 2.0

Total taxes 43.1 40.6 - - 43.1 40.6 Unrestricted grants and contributions 2.6 4.5 - - 2.6 4.5 Unrestricted investment earnings 0.4 1.1 0.7 2.4 1.1 3.5 Gain (loss) on sale of assets 0.7 - - 0.1 0.7 0.1 Miscellaneous 0.7 0.7 0.1 0.6 0.8 1.3

Total revenues 77.0 77.3 51.5 49.5 128.5 126.8

Expenses:General government 11.5 10.4 - - 11.5 10.4 Public safety 27.1 23.7 - - 27.1 23.7 Parks and recreation 13.0 12.3 - - 13.0 12.3 Library 8.7 8.4 - - 8.7 8.4 Public works 9.6 9.8 - - 9.6 9.8 Transit 0.6 0.6 - - 0.6 0.6 Community and economic development 7.1 8.3 - - 7.1 8.3 Social services 1.8 2.0 - - 1.8 2.0 Interest and charges on long term debt 1.1 1.0 - - 1.1 1.0 Water - - 13.7 14.0 13.7 14.0 Wastewater - - 15.5 14.8 15.5 14.8 Refuse - - 14.9 14.8 14.9 14.8 Parking - - 2.5 2.2 2.5 2.2 Storm water - - 1.9 2.2 1.9 2.2 Golf course - - 1.8 1.8 1.8 1.8

Total expenses 80.5 76.5 50.3 49.8 130.8 126.3 Increase (decrease) in net assets before

extraordinary items and transfers (3.5) 0.8 1.2 (0.3) (2.3) 0.5 Extraordinary item - insurance proceeds

due to fire loss - 0.5 - - - 0.5 Transfers 0.3 0.1 (0.3) (0.1) - -

Change in net assets (3.2) 1.4 0.9 (0.4) (2.3) 1.0

Net assets, beginning of year 163.5 162.1 231.3 231.7 394.8 393.8 Prior period adjustment (Note 16) (0.1) - 0.5 - 0.4 -

Net assets, beginning of year (as restated) 163.4 162.1 231.8 231.7 395.2 393.8

Net assets - end of year 160.2$ 163.5$ 232.7$ 231.3$ 392.9$ 394.8$

Governmental Activities

8

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 2003Expenses net of program revenues:

General government (7.2)$ (6.4)$ Public safety (23.3) (20.8) Parks and recreation (8.0) (6.9) Library (1.0) (1.4) Public works (2.9) (1.9) Transit - - Community and economic development (5.7) (5.7) Social services (1.8) (2.0) Interest and fiscal charges on long-term debt (1.1) (1.0)

Total expenses net of program revenues - governmental activities (51.0) (46.1)

General revenues, extraordinary items and transfers:General revenues:

Property taxes 15.8 15.1 Sales and use taxes 9.1 8.3 Franchise taxes 3.3 3.1 Transient occupancy taxes 3.0 2.9 Utility users taxes 7.7 7.6 Admission taxes 1.7 1.6 Other taxes 2.5 2.0

Total taxes 43.1 40.6

Unrestricted grants and contributions 2.6 4.5 Unrestricted investment earnings 0.4 1.1 Gain on sale of assets 0.7 - Miscellaneous 0.7 0.7

Extraordinary item - gain on insurance proceeds due to fire loss - 0.5 Transfers 0.3 0.1

Total general revenues, extraordinary itemsand transfers 47.8 47.5

Change in govenmental activities net assets (3.2)$ 1.4$

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

9

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)

$0

$5

$10

$15

$20

$25

$30

GeneralGovernment

Public Safety Parks &Recreation

Library PublicWorks

Transit CommunityDevel.

SocialServices

Interest onLong Term

Debt

Mill

ions

RevenuesExpenses

10

REVENUES BY SOURCE- GOVERNMENTAL ACTIVITIES FISCAL YEAR 2004

Sales & Use Taxes, 12%

Franchise Taxes, 4%

Transient Occupancy Tax, 4%

Utility Users Tax, 10%

Admission Tax, 2%

Other Taxes, 3%

Unrestricted Grants and Contributions, 3%

Other General Revenues, 2%

Capital Grants & Contributions, 6%

Oper.Grants & Contributions, 4%

Charges for Service, 29%

Property Taxes, 21%

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)

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

Water Wastewater Refuse Parking Storm Water Golf Course

Mill

ions

Revenues Expenses

11

REVENUES BY SOURCE- BUSINESS TYPE ACTIVITIES FISCAL YEAR 2004

Charges for Service, 91.6%

Oper. Grants & Contributions, 0.3%

General Revenues, 1.6% Capital Grants &

Contributions, 6.5%

Financial Analysis of Individual Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds - The focus of the City’s governmental funds is to provide information on near-term 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.

12

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.

13

• $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 in-

lieu 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,

14

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 Business-Type Activities

June 30 June 30 Total2004 2003 2004 2003 2004 2003

Land 43.4$ 42.9$ 11.9$ 11.9$ 55.3$ 54.8$ Construction in progress 8.6 9.5 9.0 8.2 17.6 17.7 Land improvements 1.3 1.0 0.8 0.9 2.1 1.9

Infrastructure 67.7 67.5 98.9 95.4 166.6 162.9

Buildings 24.3 23.7 114.2 117.2 138.5 140.9 Machinery and equipment 3.0 3.6 10.0 10.3 13.0 13.9 Lease improvements 0.6 0.6 0.1 0.1 0.7 0.7 Software 0.5 0.4 0.3 0.2 0.8 0.6

Totals 149.4$ 149.2$ 245.2$ 244.2$ 394.6$ 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

15

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 Business-Type ActivitiesJune 30 June 30 Total

2004 2003 2004 2003 2004 2003

Certificates of participation 4.5$ 4.6$ 29.8$ 28.0$ 34.3$ 32.6$ Revenue bonds payable - - 4.8 5.0 4.8 5.0 General obligation bonds 7.2 7.2 - - 7.2 7.2 Notes payable 1.5 1.5 42.6 44.9 44.1 46.4 Notes payable-County-RDA 0.1 - - - 0.1 - Tax allocation bonds payable 2.7 2.9 - - 2.7 2.9 Capital lease obligations 1.7 2.5 4.0 4.6 5.7 7.1 Other long-term liabilities 1.0 1.0 - - 1.0 1.0

Totals 18.7$ 19.7$ 81.2$ 82.5$ 99.9$ 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, 2004June 30 Increase Percent Due in less Due in more

2004 2003 (Decrease) Change than one year than one year

Workers compensation claims payable 8.7$ 5.0$ 3.7$ 74.0% 1.7$ 7.0$ Liability claims payable 1.0 1.4 (0.4) -28.6% 0.3 0.7 Dental and vision insurance claims 0.1 0.1 - 0.0% 0.1 -

Total claims and judgments 9.8 6.5 3.3 50.8% 2.1 7.7 -

Compensated absences 2.9 3.0 (0.1) -3.3% 1.9 1.0 Closure and post closure landfill costs 5.3 5.0 0.3 6.0% - 5.3

Totals 18.0$ 14.5$ 3.5$ 24.1% 4.0$ 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.

16

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.

BASIC FINANCIAL STATEMENTS

17

This page intentionally left blank.

18

GOVERNMENT-WIDE FINANCIAL STATEMENTS

19

City of Santa CruzStatement of Net AssetsJune 30, 2004

Governmental Business-TypeActivities Activities Total

ASSETS

Current assets:Cash and cash equivalents 26,823,795$ 38,411,240$ 65,235,035$ Restricted cash and cash equivalents 1,429,934 9,025,707 10,455,641 Restricted investments 64,492 1,528,191 1,592,683 Interest receivable 455,154 850,969 1,306,123 Taxes receivable 3,288,111 - 3,288,111 Accounts receivable - net 1,793,400 5,392,949 7,186,349 Short-term internal balances (521) 521 - Due from other governments 3,312,703 2,142,780 5,455,483 Notes receivable - due within one year 210,895 472,936 683,831 Loans receivable - due within one year 91,728 - 91,728 Intergovernmental receivable - due within one year - 1,060,118 1,060,118 Prepaid items 142,020 65,013 207,033 Inventories 99,463 228,389 327,852 Deposits 1,188,478 - 1,188,478

Total current assets 38,899,652 59,178,813 98,078,465

Noncurrent assets:Notes receivable - due in more than one year 7,708,815 1,013,736 8,722,551 Loans receivable - due in more than one year 1,060,140 - 1,060,140 Intergovernmental receivable - due in more than one year - 18,370,380 18,370,380 Deferred charges - 1,154,247 1,154,247 Long-term internal balances 34,285 (34,285) - Capital assets:

Land 43,391,660 11,939,799 55,331,459 Land improvements 2,322,108 1,236,496 3,558,604 Infrastructure 160,705,554 164,722,864 325,428,418 Buildings 31,843,990 159,392,371 191,236,361 Machinery and equipment 9,225,617 18,667,397 27,893,014 Lease improvements 724,114 70,000 794,114 Software 1,021,592 418,237 1,439,829 Construction in progress 8,582,123 9,027,793 17,609,916

Total capital assets 257,816,758 365,474,957 623,291,715

Less accumulated depreciation (108,381,923) (120,258,358) (228,640,281)

Total capital assets, net 149,434,835 245,216,599 394,651,434

Total noncurrent assets 158,238,075 265,720,677 423,958,752

Total assets 197,137,727 324,899,490 522,037,217

See accompanying Notes to Basic Financial Statements.

Primary Government

20

City of Santa CruzStatement of Net Assets, ContinuedJune 30, 2004


LIABILITIES

Current liabilities:Accounts payable and other current liabilities 4,442,737$ 3,520,177$ 7,962,914$ Intergovernmental payable 323,072 - 323,072 Interest payable 324,574 1,438,808 1,763,382 Deferred revenue 969,705 50,597 1,020,302 Deposits payable 136,664 29,985 166,649 Claims and judgments payable - due within one year 2,188,200 - 2,188,200 Compensated absences payable - due within one year 1,417,740 522,260 1,940,000 Bonds, notes, loans and leases payable - due within one year 1,415,143 5,268,329 6,683,472

Total current liabilities 11,217,835 10,830,156 22,047,991

Noncurrent liabilities:Claims and judgments payable - due in more than one year 7,644,100 - 7,644,100 Compensated absences payable - due in more than one year 708,869 261,130 969,999 Bonds, notes, loans and leases payable - due in more than one year 17,331,855 75,915,771 93,247,626 Landfill closure costs - 5,230,144 5,230,144

Total noncurrent liabilities 25,684,824 81,407,045 107,091,869

Total liabilities 36,902,659 92,237,201 129,139,860

NET ASSETS

Invested in capital assets, net of related debt 136,556,019 174,395,150 310,951,169 Restricted for:

Capital projects 4,262,875 - 4,262,875 Debt service 4,075,939 - 4,075,939 Public safety 108,835 - 108,835 Parks and recreation 86,623 - 86,623 Community and economic development 2,877,339 - 2,877,339

Unrestricted 12,267,438 58,267,139 70,534,577

160,235,068$ 232,662,289$ 392,897,357$

Assets - Liab.& Net Assets -$ -$ -$

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


Total net assets

Primary Government

21

City of Santa CruzStatement of Activities and Changes in Net AssetsFor the year ended June 30, 2004

Operating CapitalCharges for Grants and Grants and

Functions/Programs Expenses Services Contributions Contributions Total

Primary government:

Governmental activities:General government 11,451,699$ 3,938,389$ 129,711$ 185,000$ 4,253,100$ Public safety 27,054,407 2,760,629 903,233 68,553 3,732,415 Parks and recreation 13,022,089 3,956,257 287,182 795,067 5,038,506 Library 8,697,195 7,672,089 - - 7,672,089 Public works 9,618,748 3,083,205 227,944 3,471,877 6,783,026 Transit 588,183 - 588,183 - 588,183 Community and economic development 7,140,903 110,889 1,029,108 344,260 1,484,257 Social services 1,803,125 - - - - Interest and fiscal charges

on long-term debt 1,126,311 - - - -

Total governmental activities 80,502,660 21,521,458 3,165,361 4,864,757 29,551,576

Business-type activities:Water 13,707,644 15,687,800 1,681 432,223 16,121,704 Wastewater 15,456,161 11,664,391 113,474 892,468 12,670,333 Refuse 14,924,093 14,583,240 23,360 62,721 14,669,321 Parking 2,471,710 2,478,911 - 4,750 2,483,661 Storm water 1,956,563 862,150 - 1,955,711 2,817,861 Golf course 1,811,128 1,933,684 - 43,128 1,976,812

Total business-type activities 50,327,299 47,210,176 138,515 3,391,001 50,739,692

Total primary government 130,829,959$ 68,731,634$ 3,303,876$ 8,255,758$ 80,291,268$

General Revenues:

Taxes:Property taxesSales and use taxesFranchise taxesTransient occupancy taxesUtility users taxesAdmission taxesOther taxes

Total taxesUnrestricted grants and contributionsUnrestricted investment earningsGain (loss) on sale of assetsMiscellaneous

Transfers

Total general revenues and transfers

Change in net assets

Net assets - beginning of year, as restated (Note 16)

Net assets - end of year


Program Revenues

22


(7,198,599)$ -$ (7,198,599)$ (23,321,992) - (23,321,992)

(7,983,583) - (7,983,583) (1,025,106) - (1,025,106) (2,835,722) - (2,835,722)

- - - (5,656,646) - (5,656,646) (1,803,125) - (1,803,125)

(1,126,311) - (1,126,311)

(50,951,084) - (50,951,084)

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

- 412,393 412,393

(50,951,084) 412,393 (50,538,691)

15,792,225 - 15,792,225 9,084,026 - 9,084,026 3,329,454 - 3,329,454 3,016,463 - 3,016,463 7,638,926 - 7,638,926 1,724,330 - 1,724,330 2,480,973 - 2,480,973

43,066,397 - 43,066,397 2,565,897 250 2,566,147

437,672 717,261 1,154,933 716,218 (11,712) 704,506 679,168 108,532 787,700 334,346 (334,346) -

47,799,698 479,985 48,279,683

(3,151,386) 892,378 (2,259,008)

163,386,454 231,769,911 395,156,365

160,235,068$ 232,662,289$ 392,897,357$

and Changes in Net AssetsNet (Expense) Revenue

23


24

FUND FINANCIAL STATEMENTS

25


26

Governmental Fund Financial Statements

General Fund - The General Fund is used to account for sources and uses of financial resources traditionallyassociated 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 theCity of Santa Cruz Redevelopment Agency. This includes the accumulation of resources for and the paymentof interest and principal on debt issued to finance redevelopment activities, and general redevelopmentoperations.

Other Governmental Funds - Other Governmental funds is the aggregate of all the non-major governmentalfunds.

27

City of Santa CruzBalance SheetGovernmental FundsJune 30, 2004

Other Total General Redevelopment Governmental Governmental

Fund Agency Funds Funds

ASSETS

Cash and cash equivalents 12,932,034$ 7,286,389$ 4,922,952$ 25,141,375$ Restricted cash and cash equivalents - 491,033 878,415 1,369,448 Restricted investments - 64,492 - 64,492 Interest receivable 78,486 72,225 286,028 436,739 Taxes receivable 2,518,907 251,767 517,437 3,288,111 Accounts receivable - net 745,175 24,941 235,112 1,005,228 Due from other governments 443,292 - 2,869,411 3,312,703 Due from other funds 73,315 - 7 73,322 Prepaid items 134,852 - 2,398 137,250 Deposits 200,973 - - 200,973 Notes receivable - net 2,658,942 4,064,512 1,196,256 7,919,710 Loans receivable - net - - 1,151,868 1,151,868 Advances to other funds 1,539,131 194,565 - 1,733,696

Total assets 21,325,107$ 12,449,924$ 12,059,884$ 45,834,915$

LIABILITIES AND FUND BALANCES

Liabilities:Accounts payable and other current liabilities 2,587,366$ 327,948$ 1,233,981$ 4,149,295$ Due to other funds 187,109 - 24,630 211,739 Intergovernmental payable - - 323,072 323,072 Deferred revenue 462,614 24,941 1,426,591 1,914,146 Deposits payable 97,064 39,600 - 136,664 Advances from other funds - 1,046,611 652,800 1,699,411

Total liabilities 3,334,153 1,439,100 3,661,074 8,434,327

Fund Balances:Reserved 4,388,586 7,023,267 6,668,015 18,079,868 Unreserved, designated, reported in:

General fund 7,638,171 - - 7,638,171 Redevelopment Agency fund 3,987,557 - 3,987,557 Special revenue funds - - 509,404 509,404 Debt service funds - - 457,945 457,945

Unreserved, undesignated, reported in:General fund 5,964,197 - - 5,964,197 Special revenue funds - - 2,207,906 2,207,906 Capital projects funds - - (1,444,460) (1,444,460)

Total fund balances 17,990,954 11,010,824 8,398,810 37,400,588

Total liabilities and fund balances 21,325,107$ 12,449,924$ 12,059,884$ 45,834,915$


Major Funds

28

City of Santa CruzReconciliation of the Governmental Funds Balance Sheet

to the Government-Wide Statement of Net AssetsJune 30, 2004

Total Fund Balances - All Governmental Funds 37,400,588$

Capital assets used in governmental activities are not current financialresources. Therefore, they are not reported in the Governmental FundsBalance Sheet. Except for the internal service funds reported below, thecapital assets were adjusted as follows:

Government-Wide Statement

of Net AssetsInternal Service

Funds

Non-depreciable 51,973,783$ -$ 51,973,783 Depreciable, net 97,461,052 (342,194) 97,118,858

Total capital assets 149,434,835$ (342,194)$ 149,092,641

Interest payable on long-term debt does not require current financialresources. Therefore, interest payable is not reported as a liability in theGovernmental Funds Balance Sheet. (324,574)

Internal Service Funds are used by management to charge the costs of certainactivities, such as insurance and equipment management, to individualfunds. The assets and liabilities of the Internal Service Funds are included ingovernmental activities in the Government-Wide Statement of Net Assets.

Equipment Operations Fund 251,201 Stores Services Fund 175,682 Telecommunications Fund 414,031 Risk Management Fund (6,919,775)

Total internal service funds (6,078,861)

Other long-term assets are not available to pay for current-periodexpenditures and, therefore, are deferred in the funds. 944,441

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 liabilitieswere adjusted as follows.

Government-Wide Statement

of Net AssetsInternal Service

Funds

Compensated absences payable - due within one year (1,417,740)$ 23,651$ (1,394,089) Compensated absences payable - due in more than one year (708,869) 11,825 (697,044) Bonds, notes, loans and leases payable - due within one year (1,415,143) 25,663 (1,389,480) Bonds, notes, loans and leases payable - due in more than one year (17,331,855) 13,301 (17,318,554)

Total long-term liabilities (20,873,607)$ 74,440$ (20,799,167)

Net Assets of Governmental Activities 160,235,068$


Amounts reported for Governmental Activities in the Statement of Net Assetswere different because:

29

City of Santa CruzStatement of Revenues, Expenditures and Changes in Fund BalancesGovernmental FundsFor the year ended June 30, 2004

Other Total General Redevelopment Governmental Governmental

Fund Agency Funds Funds

REVENUES:

Taxes 31,696,322$ 8,008,622$ 2,824,812$ 42,529,756$ Licenses and permits 529,649 - - 529,649 Intergovernmental 3,745,601 - 6,512,513 10,258,114 Charges for services 16,865,754 - 325,619 17,191,373 Fines and forfeitures 1,799,557 - 6,177 1,805,734 Use of money and property 2,086,163 207,607 51,937 2,345,707 Other revenues 418,764 94,314 78,934 592,012

Total revenues 57,141,810 8,310,543 9,799,992 75,252,345

EXPENDITURES:

General government 8,967,025 - - 8,967,025 Public safety 24,647,937 - 195,826 24,843,763 Parks and recreation 9,721,229 - - 9,721,229 Library 8,528,577 - - 8,528,577 Public works 3,989,048 - 550,144 4,539,192 Transit - - 588,183 588,183 Community and economic development 71,949 5,449,617 810,590 6,332,156 Social services 1,656,875 - 146,250 1,803,125 Capital outlay 1,251,162 53,495 8,248,516 9,553,173 Debt service:

Principal 295,835 832,589 590,513 1,718,937 Interest and fiscal charges 68,575 290,773 492,373 851,721

Total expenditures 59,198,212 6,626,474 11,622,395 77,447,081

REVENUES OVER (UNDER) EXPENDITURES (2,056,402) 1,684,069 (1,822,403) (2,194,736)

OTHER FINANCING SOURCES (USES):

Proceeds from asset disposition 756,823 - - 756,823 Transfers in 1,687,534 100,000 1,456,812 3,244,346 Transfers out (602,164) - (1,537,590) (2,139,754)

Total other financing sources (uses) 1,842,193 100,000 (80,778) 1,861,415

Net change in fund balances (214,209) 1,784,069 (1,903,181) (333,321)

FUND BALANCES:

Beginning of year 15,966,948 9,226,755 10,297,895 35,491,598 Prior period adjustment (Note 16) 2,238,215 - 4,096 2,242,311

Beginning of the year, as restated 18,205,163 9,226,755 10,301,991 37,733,909

End of year 17,990,954$ 11,010,824$ 8,398,810$ 37,400,588$


Major Funds

30

City of Santa CruzReconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes

in Fund Balances to the Government-Wide Statement of Activities and Changes in Net AssetsFor the year ended June 30, 2004

Net Change in Fund Balances - All Governmental Funds (333,321)$

Governmental funds reported capital outlay as expenditures. However, in the Government-Wide Statement ofActivities and Changes in Net Assets, the cost of those assets is allocated over their estimated useful lives asdepreciation expense. This was the amount of capital assets recorded in the current period. 7,410,171

Depreciation expense on capital assets was reported in the Government-Wide Statement of Activities andChanges in Net Assets, but they did not require the use of current financial resources. Therefore, depreciationexpense was not reported as expenditures in governmental funds, except for the internal service fundsamount of $164,049 which are reported below. (6,262,588)

The net effect of transactions involving the deletions to capital assets is to decrease net assets. (834,878)

Revenues in the statement of activities that do not provide current financial resources are not reported asrevenues in the funds. 944,441

Some expenses reported in the Government-Wide Statement of Activities do not require the use of currentfinancial resources and, therefore, are not reported as expenditures in governmental funds. 151,178

Repayment of principal was an expenditure in governmental funds, but the repayment reduced long-termliabilities in the Government-Wide Statement of Net Assets.

Long-term debt repayments 1,225,690

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. 493,247

Debt service principal payments were reclassified as "Community and economic development" expense in the Government-Wide Statement of Activities and Changes in Net Assets. (493,247)

Accrued but unpaid and accreted interest on long-term debt was reported in the Government-Wide Statementof Activities and Changes in Net Assets, but did not require the use of current financial resources. Therefore, itwas not reported as an expenditure in the governmental funds. The following amount represents the changein accrued interest from the prior year. (271,807)

Internal service funds were used by management to charge the costs of certain activities, such as insurance andequipment management, to individual funds. The net revenue of the internal service funds was reported withgovernmental activities. (5,180,272)

Change in Net Assets of Governmental Activities (3,151,386)$


Amounts reported for governmental activities in the Statement of Activities and Changes in Net Assets weredifferent because:

31


32

Proprietary Fund Financial Statements

Water - Accounts for the activities of the City's water utility, which provides water delivery services to theresidents of the City and some residents of the County.

Wastewater - Accounts for the activities of the City's wastewater utility, which provides wastewatercollection 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 inthe downtown area.

Storm Water - Accounts for storm water utility fees on properties within the City limits. These fees providefunding for flood control improvements associated with the U.S. Army Corps of Engineers San Lorenzo RiverFlood 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 facilitiesto the public.

Internal Service Funds - These funds are used to provide goods and services by one department or agency toother departments or agencies of the City on a cost reimbursement basis.

33

City of Santa CruzStatement of Net AssetsProprietary FundsJune 30, 2004

Water Wastewater Refuse Parking

ASSETS

Current assets:Cash and cash equivalents 20,423,310$ 7,654,663$ 6,236,451$ 2,176,297$ Restricted cash and cash equivalents 82,352 504,357 4,879,053 199 Restricted investments - - 347,295 519,452 Interest receivable 165,811 555,943 64,265 28,825 Accounts receivable - net 3,441,800 887,655 908,564 21,418 Due from other governments 33,764 733,632 - - Notes receivable - due within one year 362,500 110,436 - - Intergovernmental receivable - due within one year - 1,060,118 - - Due from other funds - 521 - - Prepaid items 20,946 14,743 22,827 2,917 Inventories 228,389 - - - Deposits - - - -

Total current assets 24,758,872 11,522,068 12,458,455 2,749,108

Noncurrent assets:Notes receivable - due in more than one year 793,158 220,578 - - Intergovernmental receivable - due in more than one year - 18,370,380 - - Advances to other funds 37,480 122,800 - - Deferred charges - 97,642 403,509 232,059 Capital assets:

Land 3,658,840 1,331,330 98,575 4,979,102 Land improvements 71,900 808,396 - 266,200 Infrastructure 46,149,261 49,980,385 18,938,549 1,189,967 Buildings 4,811,278 130,676,321 2,506,636 20,398,375 Machinery and equipment 5,630,172 2,779,124 9,613,282 123,698 Lease improvements - 70,000 - - Software 183,106 125,861 99,336 9,934 Construction in progress 6,129,851 907,896 162,965 47,122

Total capital assets 66,634,408 186,679,313 31,419,343 27,014,398 Less accumulated depreciation (28,031,142) (60,400,302) (15,485,402) (6,049,939)

Total capital assets, net 38,603,266 126,279,011 15,933,941 20,964,459

Total noncurrent assets 39,433,904 145,090,411 16,337,450 21,196,518

Total assets 64,192,776 156,612,479 28,795,905 23,945,626


Major Funds

34

GovernmentalActivitiesInternal

Storm Water Golf Course Total Service Funds

1,462,453$ 458,066$ 38,411,240$ 1,682,420$ 136 3,559,610 9,025,707 60,486

500,763 160,681 1,528,191 - 25,170 10,955 850,969 18,415 37,720 95,792 5,392,949 788,172

1,375,384 - 2,142,780 - - - 472,936 - - - 1,060,118 - - - 521 187,102

184 3,396 65,013 4,770 - - 228,389 99,463 - - - 987,505

3,401,810 4,288,500 59,178,813 3,828,333

- - 1,013,736 - - - 18,370,380 - - - 160,280 -

258,954 162,083 1,154,247 -

8,822 1,863,130 11,939,799 - - 90,000 1,236,496 -

48,464,702 - 164,722,864 - - 999,761 159,392,371 - - 521,121 18,667,397 1,010,887 - - 70,000 - - - 418,237 336,296

1,478,876 301,083 9,027,793 - 49,952,400 3,775,095 365,474,957 1,347,183 (9,120,950) (1,170,623) (120,258,358) (1,004,989) 40,831,450 2,604,472 245,216,599 342,194

41,090,404 2,766,555 265,915,242 342,194

44,492,214 7,055,055 325,094,055 4,170,527

(Continued)

Major Funds

35

City of Santa CruzStatement of Net Assets, ContinuedProprietary FundsJune 30, 2004


LIABILITIES

Current liabilities:Accounts payable and other current liabilities 1,633,152$ 1,180,506$ 351,064$ 115,574$ Due to other funds - - - - Interest payable 8,658 1,106,349 165,458 52,808 Deferred revenue 29,500 - 21,097 - Deposits payable 10,605 - - 19,380 Claims and judgments payable - due within one year - - - - Compensated absences payable - due within one year 209,002 128,379 141,615 22,138 Bonds, notes, loans and leases payable -

due within one year 152,820 2,476,752 2,183,851 178,060

Total current liabilities 2,043,737 4,891,986 2,863,085 387,960

Noncurrent liabilities:Advances from other funds - - - 194,565 Claims and judgments payable - due in more than one year - - - - Compensated absences payable - due in more than one year 104,501 64,190 70,807 11,069 Bonds, notes, loans and leases payable -

due in more than one year 919,165 43,758,928 14,205,570 6,534,227 Landfill closure costs - - 5,230,144 -

Total noncurrent liabilities 1,023,666 43,823,118 19,506,521 6,739,861

Total liabilities 3,067,403 48,715,104 22,369,606 7,127,821

NET ASSETS

Invested in capital assets, net of related debt 37,531,281 80,545,701 4,659,125 14,785,279 Restricted for:

Debt service - - - - Unrestricted 23,594,092 27,351,674 1,767,174 2,032,526

Total net assets 61,125,373$ 107,897,375$ 6,426,299$ 16,817,805$


Major Funds

36

GovernmentalActivitiesInternal


63,496$ 176,385$ 3,520,177$ 293,442$ - - - 49,206

84,850 20,685 1,438,808 - - - 50,597 - - - 29,985 - - - - 2,188,200

3,365 17,761 522,260 23,651

120,238 156,608 5,268,329 25,663

271,949 371,439 10,830,156 2,580,162

- - 194,565 - - - - 7,644,100

1,683 8,880 261,130 11,825

6,090,123 4,407,758 75,915,771 13,301 - - 5,230,144 -

6,091,806 4,416,638 81,601,610 7,669,226

6,363,755 4,788,077 92,431,766 10,249,388

35,117,128 1,756,636 174,395,150 303,230

- - - 60,486 3,011,331 510,342 58,267,139 (6,442,577)

38,128,459$ 2,266,978$ 232,662,289$ (6,078,861)$

(Concluded)

Major Funds

37

City of Santa CruzStatement of Revenues, Expenses and Changes in Net AssetsProprietary FundsFor the year ended June 30, 2004


OPERATING REVENUES:

Charges for services 15,515,274$ 11,664,382$ 14,583,240$ 2,294,075$

Use of property 6,750 - - 141,675

Other revenues 195,490 9,625 64,580 46,851

Total operating revenues 15,717,514 11,674,007 14,647,820 2,482,601

OPERATING EXPENSES:

Personnel services 5,944,645 4,289,870 5,177,126 906,656

Services, supplies, and other charges 6,324,098 5,565,502 6,381,588 723,476

Depreciation and amortization 1,400,848 4,150,247 2,533,292 503,693

Total operating expenses 13,669,591 14,005,619 14,092,006 2,133,825

Operating income (loss) 2,047,923 (2,331,612) 555,814 348,776

NONOPERATING REVENUES (EXPENSES):

Intergovernmental 221,157 1,005,866 23,360 249 Investment earnings 106,578 556,212 72,639 23,816 Interest expense and fiscal charges (38,053) (1,445,492) (806,780) (327,975) Debt issuance costs - (5,050) (25,307) (9,910)

Gain (loss) on sale of capital assets (23,582) - 47,000 -

Total nonoperating revenues (expenses) 266,100 111,536 (689,088) (313,820)

Income (loss) before contributions and transfers 2,314,023 (2,220,076) (133,274) 34,956

Capital contributions 212,633 - - - Transfers out (98,451) (31,216) (56,479) (7,716)

Total contributions and transfers 114,182 (31,216) (56,479) (7,716)

Change in net assets 2,428,205 (2,251,292) (189,753) 27,240

NET ASSETS:

Beginning of year 58,296,110 110,148,667 6,616,052 16,790,565

Prior period adjustments (Note 16) 401,058 - - -

Beginning of the year, as restated 58,697,168 110,148,667 6,616,052 16,790,565

End of year 61,125,373$ 107,897,375$ 6,426,299$ 16,817,805$


Major Funds

38

Governmental

Activities

Internal


862,107$ 1,738,820$ 46,657,898$ 7,318,370$

- 2,040 150,465 -

144 193,657 510,347 499,225

862,251 1,934,517 47,318,710 7,817,595

143,820 753,650 17,215,767 1,453,630

246,052 949,290 20,190,006 10,623,546

1,212,486 47,870 9,848,436 164,049

1,602,358 1,750,810 47,254,209 12,241,225

(740,107) 183,707 64,501 (4,423,630)

1,950,502 41,672 3,242,806 - 27,146 5,195 791,586 10,887

(343,949) (55,342) (3,017,591) (2,783) (10,256) (4,976) (55,499) -

- (35,130) (11,712) 5,500

1,623,443 (48,581) 949,590 13,604

883,336 135,126 1,014,091 (4,410,026)

- - 212,633 - (126,383) (14,101) (334,346) (770,246)

(126,383) (14,101) (121,713) (770,246)

756,953 121,025 892,378 (5,180,272)

37,371,506 2,145,953 231,368,853 (875,697)

- - 401,058 (22,892)

37,371,506 2,145,953 231,769,911 (898,589)

38,128,459$ 2,266,978$ 232,662,289$ (6,078,861)$

Major Funds

39

City of Santa CruzStatements of Cash FlowsProprietary FundsFor the year ended June 30, 2004


CASH FLOWS FROM OPERATING ACTIVITIES:

Cash received from customers and users 13,732,414$ 11,802,401$ 14,595,028$ 2,287,992$

Cash received from interfund services provided 415,366 31,692 5,706 792

Cash payments to suppliers for goods and services (3,895,944) (3,636,552) (2,137,758) (535,402)

Cash payments to employees for services (5,941,509) (4,285,772) (5,214,484) (888,209)

Cash payments for interfund services used (1,800,716) (1,543,476) (3,944,205) (126,256)

Cash payments to other governments (113,388) (92,125) (122,507) (24,695)

Cash received from (payments to) others (5,597) 9,625 64,580 188,526

Net cash provided (used) by operating activities 2,390,626 2,285,793 3,246,360 902,748

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:

Transfers out (98,451) (31,216) (56,479) (7,716)

Advances from other funds - - - (35,303)

Receipts from other governments 297,633 2,550,060 15,529 249

Net cash provided (used) by noncapital financing activities 199,182 2,518,844 (40,950) (42,770)

CASH FLOWS FROM CAPITAL AND

RELATED FINANCING ACTIVITIES:

Proceeds from capital debt - - 2,405,137 -

Capital contributions 22,361 - - -

Purchase and construction of capital assets (6,488,941) (1,771,365) (212,638) (86,008)

Principal paid on capital debt (163,490) (2,415,224) (4,410,325) (177,925)

Interest paid on capital debt (39,747) (1,504,242) (866,267) (329,104)

Proceeds from sales of capital assets - - - -

Net cash provided (used) by capital and

related financing activities (6,669,817) (5,690,831) (3,084,093) (593,037)

CASH FLOWS FROM INVESTING ACTIVITIES:

Receipts from collections of loans - 31,372 - -

Receipts from collections of interfund advances 7,778 - - -

Advances to other funds - (122,800) - -

Proceeds from sales and maturities of investments - - 565,000 -

Investment income received 128,860 67,502 119,167 49,757

Net cash provided (used) by investing activities 136,638 (23,926) 684,167 49,757

Net increase (decrease) in cash and cash equivalents (3,943,371) (910,120) 805,484 316,698

CASH AND CASH EQUIVALENTS:

Beginning of year 24,449,033 9,069,140 10,310,020 1,859,798

End of year 20,505,662$ 8,159,020$ 11,115,504$ 2,176,496$


Major Funds

40

Governmental

Activities

Internal


854,841$ 1,756,283$ 45,028,959$ 118,778$

768 - 454,324 6,955,116

(147,758) (731,239) (11,084,653) (7,334,039)

(140,132) (750,881) (17,220,987) (1,458,347)

(74,594) (135,633) (7,624,880) (313,538)

(7,965) (2,249) (362,929) -

144 195,697 452,975 499,225

485,304 331,978 9,642,809 (1,532,805)

(126,383) (14,101) (334,346) (770,246)

- - (35,303) -

1,936,513 36,889 4,836,873 -

1,810,130 22,788 4,467,224 (770,246)

- 3,700,000 6,105,137 -

- - 22,361 -

(1,469,552) (248,227) (10,276,731) -

(115,226) (148,857) (7,431,047) (24,463)

(345,099) (176,127) (3,260,586) (2,783)

- 1,972 1,972 5,500

(1,929,877) 3,128,761 (14,838,894) (21,746)

- - 31,372 -

- - 7,778 -

- - (122,800) -

- - 565,000 -

52,060 10,644 427,990 10,499

52,060 10,644 909,340 10,499

417,617 3,494,171 180,479 (2,314,298)

1,044,972 523,505 47,256,468 4,057,204

1,462,589$ 4,017,676$ 47,436,947$ 1,742,906$

(Continued)

Major Funds

41

City of Santa CruzStatements of Cash Flows, ContinuedProprietary FundsFor the year ended June 30, 2004


RECONCILIATION OF OPERATING INCOME TO NET

CASH PROVIDED BY OPERATING ACTIVITIES:

Operating income (loss) 2,047,923$ (2,331,612)$ 555,814$ 348,776$

Adjustments to reconcile operating income (loss) to net

cash provided (used) by operating activities:

Depreciation and amortization 1,400,848 4,150,247 2,533,292 503,693

Estimated closure/postclosure costs - - 216,245 -

Changes in assets and liabilities:

Accounts receivable (228,906) 395,211 17,494 (5,291)

Prepaid items (20,946) (14,743) (22,827) (2,917)

Inventories (29,149) - - -

Deposits - - - -

Notes and loans receivable (754,600) (225,500) - -

Accounts payable and other current liabilities 335,362 293,349 (39,127) 39,243

Due to other funds - - - -

Deferred revenue (382,738) - - -

Deposits payable (1,250) - - (2,120)

Claims and judgments payable - - - -

Compensated absences payable 24,082 18,841 (14,531) 21,364

Total adjustments 342,703 4,617,405 2,690,546 553,972

Net cash provided (used) by operating activities 2,390,626$ 2,285,793$ 3,246,360$ 902,748$


Major Funds

42

Governmental

Activities

Internal


(740,107)$ 183,707$ 64,501$ (4,423,630)$

1,212,486 47,870 9,848,436 164,049

- - 216,245 -

(6,498) 17,463 189,473 473,699

(184) (3,396) (65,013) (4,770)

- - (29,149) 20,507

- - - 18,789

- - (980,100) -

15,735 80,169 724,731 (427,388)

- - - (718,175)

- - (382,738) -

- - (3,370) -

- - - 3,368,831

3,872 6,165 59,793 (4,717)

1,225,411 148,271 9,578,308 2,890,825

485,304$ 331,978$ 9,642,809$ (1,532,805)$

Major Funds

43


44

Private - Purpose Trust Funds:

Private-purpose trust funds are used to report the trust arrangements under which the principal andincome 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 fundsaccount for the receipt, temporary investment, and remittance of fiduciary resources to individuals,private organizations, or other governments.

Fiduciary Fund Financial Statements

45

City of Santa CruzStatement of Fiduciary Net AssetsFiduciary FundsJune 30, 2004

Private-Purpose Agency

Trust Funds Funds

ASSETS

Cash and cash equivalents 517,541$ 1,026,227$ Investments - 100,000 Receivables:

Interest receivable 3,837 6,458 Taxes receivable - 533,783 Accounts receivable - 611,522

Due from other governments - 1,999 Prepaid items - 136

Total assets 521,378$ 2,280,125$

LIABILITIES

Accounts payable and other current liabilities -$ 943,651$ Due to other governments - 679,339 Deferred revenue - 38,826 Deposits payable - 354,406 Payable to bondholders - 263,903

Total liabilities - 2,280,125$

NET ASSETS

Held in trust for library programs 521,378$


46

City of Santa CruzStatement of Changes in Fiduciary Net AssetsFiduciary FundsFor the year ended June 30, 2004

Private-Purpose

Trust Funds

ADDITIONS:

Investment earnings 2,438$

Total additions 2,438

DEDUCTIONS:

Library programs 10,001

Total deductions 10,001

Change in net assets (7,563)

NET ASSETS:

Beginning of year 528,941

End of year 521,378$


47


48

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

49

Note 1 - Summary of Significant Accounting Policies ..................................................................................52

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

Note 2 - Cash Deposits and Investments .........................................................................................................60

A. Cash Deposits..................................................................................................................................60 B. Investments .....................................................................................................................................61 C. Derivatives.......................................................................................................................................63 D. 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

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

50

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

51

NOTES TO BASIC FINANCIAL STATEMENTS

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

52

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.

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

53

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 business-type 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 business-type activities have not been eliminated. The following interfund activities have been eliminated:

Due to/from other funds Advances to/from other funds Transfers in/out

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.


54


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.


55


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.


56

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 state-

chartered 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 long-term 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.


57

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 25,000$ Buildings and lease improvements 10,000 Machinery and equipment 5,000 Software (if qualified) 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 business-type 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.


58


I. Capital Assets, Continued Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows:

Land improvements 20 yearsBuildings and lease improvements 15-50 yearsWater tanks and water mains 30-50 yearsUnderground sewer lines 50 yearsOther infrastructure 5-100 yearsMachinery and equipment 5-20 yearsSoftware(if qualified) 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


59


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.”


60


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.


61

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 2,092,190$ 851

U.S. Agencies 33,957,943 484

U.S. Treasury Money Market Mutual Funds 2,841,390 1

Local Agency Investment Fund 37,770,183 196

Total 76,661,706$

Portfolio Weighted Average Maturity (Days) 334

Portfolio Weighted Average Maturity (Years) 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.


62

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:

StandardMoody's & Poor's

U.S. Agencies

Federal Farm Credit Bank Aaa AAAFederal Home Loan Bank Aaa AAAFederal Home Loan Mortgage Corporation Aaa AAAFederal National Mortgage Association Aaa AAAStudent Loan Marketing Association Aaa Not Rated

U.S. Treasury Money Market Mutual Funds

Blackrock Provident - Treasury Trust Fund Not Rated AAAm-GGoldman Sachs - Treasury Only Aaa AAAm-GWells Fargo Treasury Plus Aaa AAA-m

External Pool

State of California - Local Agency Investment Fund Not Rated Not Rated

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 Amount Invested Investments

Federal Farm Credit Bank 5,022,190$ 6.55%Federal Home Loan Bank 11,520,453 15.03%Federal Home Loan Mortgage Corporation 7,336,665 9.57%Federal National Mortgage Association 8,068,015 10.52%

Total 31,947,323$ 41.67%


63

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 Percentage of

Mutual Funds Amount Invested Investments

Blackrock Provident - Treasury Trust Fund 947,306$ 1.24%

Goldman Sachs - Treasury Only 945,558 1.23%

Wells Fargo Treasury Plus 948,526 1.24%

Total 2,841,390$ 3.71%

C. Derivatives During the year, the City held structured notes. Structured notes are debt securities (other than asset-backed 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. Asset-backed 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.


64

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 1,412,836$ Other deposits and cash held by city 33,771 Cash held by fiscal agents available for debt service 6 Money market mutual funds available for debt service 1,365 Federal securities 34,357,450 State local agency investment fund 30,973,375

Total cash and cash equivalents 66,778,803

Restricted cash and cash equivalents: Pooled cash deposits 715,760 Other cash deposits 103,048 Money market mutual funds held by fiscal agents 2,840,025 State local agency investment fund 6,796,808

Total restricted cash and cash equivalents 10,455,641

Investments: Federal securities 100,000 Federal securities held by fiscal agents 1,592,683

Total investments 1,692,683

Total cash, cash equivalents, and investments 78,927,127$

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 Statement of

Governmental Business-Type FiduciaryActivities Activities Total Net Assets Total

Current Assets

Unrestricted assets: Cash and cash equivalents 26,823,795$ 38,411,240$ 65,235,035$ 1,543,768$ 66,778,803$ Investments - - - 100,000 100,000

Total unrestricted assets 26,823,795 38,411,240 65,235,035 1,643,768 66,878,803

Restricted assets: Cash and cash equivalents 1,429,934 9,025,707 10,455,641 - 10,455,641 Investments with fiscal agents 64,492 1,528,191 1,592,683 - 1,592,683

Total restricted assets 1,494,426 10,553,898 12,048,324 - 12,048,324

Grand Total 28,318,221$ 48,965,138$ 77,283,359$ 1,643,768$ 78,927,127$


65

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 Statement of Governmental Business-Type Fiduciary

Activities Activities Total Net Assets Total

Interest receivable 455,154$ 850,969$ 1,306,123$ 10,295$ 1,316,418$ Taxes receivable 3,288,111 - 3,288,111 533,783 3,821,894 Accounts receivable, net 1,793,400 5,392,949 7,186,349 611,522 7,797,871 Due from other governments 3,312,703 2,142,780 5,455,483 1,999 5,457,482 Notes receivable 7,919,710 1,486,672 9,406,382 - 9,406,382 Loans receivable 1,151,868 - 1,151,868 - 1,151,868 Intergovernmental receivable - 19,430,498 19,430,498 - 19,430,498

Total 17,920,946$ 29,303,868$ 47,224,814$ 1,157,599$ 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


66

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


Internal Balances Receivable

Business-Type Activities 521$


67

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


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:

Non-major Wastewater InternalGeneral Governmental Enterprise Service

Fund Funds Fund Funds Total

General Fund -$ 7$ -$ 187,102$ 187,109$

Non-major Governmental Funds 24,109 - 521 - 24,630

49,206 - - - 49,206

Total 73,315$ 7$ 521$ 187,102$ 260,945$

Due from other funds

Due

to o

ther

fund

s

Internal Service Funds


68

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 to Other Funds

Redevelopment Water WastewaterGeneral Agency Enterprise Enterprise

Fund Fund Fund Fund Total

Redevelopment Agency Fund 1,009,131$ -$ 37,480$ -$ 1,046,611$

Non-Major Governmental Funds 530,000 - - 122,800 652,800

Parking Enterprise Fund - 194,565 - - 194,565

Total 1,539,131$ 194,565$ 37,480$ 122,800$ 1,893,976$ Adv

ance

s fr

om O

ther

Fun

ds

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

Transfers In

Redevelopment Non-MajorGeneral Agency Governmental

Fund Fund Funds Total

General Fund -$ -$ 602,164$ 602,164$ 850,066 - 687,524 1,537,590

Enterprise Funds:Water 11,723 - 86,728 98,451 Wastewater 24,833 - 6,383 31,216 Refuse 8,833 - 47,646 56,479 Parking 1,333 - 6,383 7,716 Stormwater 20,000 100,000 6,383 126,383 Golf Course 500 - 13,601 14,101

Internal Service Funds 770,246 - - 770,246

Total 1,687,534$ 100,000$ 1,456,812$ 3,244,346$

Tran

sfer

s O

ut Non-major Governmental Funds


69

5. CAPITAL ASSETS A. Government-Wide Financial Statements

At June 30, 2004, the City’s capital assets consisted of the following:


Capital Assets:Capital assets, not being depreciated:

Land 43,391,660$ 11,939,799$ 55,331,459$ Construction in progress 8,582,123 9,027,793 17,609,916

Total capital assets, not being depreciated 51,973,783 20,967,592 72,941,375 Capital assets, being depreciated:

Land improvements 2,322,108 1,236,496 3,558,604 Infrastructure 160,705,554 164,722,864 325,428,418 Buildings 31,843,990 159,392,371 191,236,361 Machinery and equipment 9,225,617 18,667,397 27,893,014 Lease improvements 724,114 70,000 794,114 Software 1,021,592 418,237 1,439,829

Total capital assets, being depreciated 205,842,975 344,507,365 550,350,340 Total capital assets 257,816,758 365,474,957 623,291,715

Less accumulated depreciation:Land improvements (993,164) (439,457) (1,432,621) Infrastructure (92,937,238) (65,769,464) (158,706,702) Buildings (7,517,899) (45,247,608) (52,765,507) Machinery and equipment (6,257,745) (8,676,030) (14,933,775) Lease improvements (149,085) (5,834) (154,919) Software (526,792) (119,965) (646,757)

Total accumulated depreciation (108,381,923) (120,258,358) (228,640,281)

Total capital assets, net 149,434,835$ 245,216,599$ 394,651,434$


70

5. CAPITAL ASSETS A. Government-Wide Financial Statements, Continued

The following is a summary of capital assets for governmental activities:

Prior PeriodBalance Adjustments Balance

July 1, 2003 Additions Deletions (Note 16) June 30, 2004Governmental Activities:

Capital assets, not being depreciated:Land 42,973,291$ 431,380$ (13,011)$ -$ 43,391,660$ Construction in progress 9,497,439 6,210,238 (7,125,554) - 8,582,123

Total capital assets, not being depreciated 52,470,730 6,641,618 (7,138,565) - 51,973,783 Capital assets, being depreciated:

Land improvements 1,910,787 411,321 - - 2,322,108 Infrastructure 156,088,484 4,942,042 (324,972) - 160,705,554 Buildings 30,521,860 1,334,130 (12,000) - 31,843,990 Machinery and equipment 9,370,286 136,979 (281,648) - 9,225,617 Lease improvements 724,114 - - - 724,114 Software 746,230 275,362 - - 1,021,592

Total capital assets, being depreciated 199,361,761 7,099,834 (618,620) - 205,842,975 Total capital assets 251,832,491 13,741,452 (7,757,185) - 257,816,758

Less accumulated depreciation:Land improvements (915,262) (115,712) - 37,810 (993,164) Infrastructure (88,634,963) (4,610,590) 308,315 - (92,937,238) Buildings (6,845,091) (683,328) 10,520 - (7,517,899) Machinery and equipment (5,781,832) (748,104) 272,191 - (6,257,745) Lease improvements (69,992) (79,093) - - (149,085) Software (336,982) (189,810) - - (526,792)

Total accumulated depreciation (102,584,122) (6,426,637) 591,026 37,810 (108,381,923)

Total capital assets, net 149,248,369$ 7,314,815$ (7,166,159)$ 37,810$ 149,434,835$


71


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 7,346$ City Clerk 19,018 Human Resources 2,588 Finance 205,696 Non-Departmental 109,335 Internal service funds 164,049

Total general government 508,032

Public safety:Police 396,827 Fire 218,651

Total public safety 615,478

Parks and Recreation 1,951,867 Library 26,800 Public Works 3,229,173 Planning and Community Development 18,684 Redevelopment 76,603

Total depreciation expense 6,426,637$

The following is a summary of capital assets for business-type activities:

Balance BalanceJuly 1, 2003 Additions Deletions June 30, 2004

Business-type Activities:

Capital assets, not being depreciated:Land 11,933,799$ 6,000$ -$ 11,939,799$ Construction in process 8,247,585 5,562,459 (4,782,251) 9,027,793

Total capital assets, not being depreciated 20,181,384 5,568,459 (4,782,251) 20,967,592 Capital assets, being depreciated:

Land improvements 1,236,496 - - 1,236,496 Infrastructure 156,919,354 8,326,382 (522,872) 164,722,864 Buildings 158,974,375 434,196 (16,200) 159,392,371 Machinery and equipment 17,717,515 1,433,143 (483,261) 18,667,397 Lease improvements 70,000 - - 70,000 Software 263,064 155,173 - 418,237

Total capital assets, being depreciated 335,180,804 10,348,894 (1,022,333) 344,507,365 Total capital assets 355,362,188 15,917,353 (5,804,584) 365,474,957

Less accumulated depreciation:Land improvements (381,534) (57,923) - (439,457) Infrastructure (61,547,469) (4,501,647) 279,652 (65,769,464) Buildings (41,768,887) (3,486,632) 7,911 (45,247,608) Machinery and equipment (7,419,199) (1,723,313) 466,482 (8,676,030) Lease improvements (2,801) (3,033) - (5,834) Software (44,077) (75,888) - (119,965)

Total accumulated depreciation (111,163,967) (9,848,436) 754,045 (120,258,358)

Total capital assets, net 244,198,221$ 6,068,917$ (5,050,539)$ 245,216,599$


72


Business-type activities depreciation expense for the year ended June 30, 2004 is as follows:

Water 1,400,848$ Wastewater 4,150,247 Refuse 2,533,292 Parking 503,693 Storm Water 1,212,486 Golf Course 47,870

Total depreciation expense 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

Amount Amount

Balance Accreted Balance Due Within Due in More

July 1, 2003 Interest Additions Retirements June 30, 2004 One Year Than One Year

Compensated absences 2,282,504$ -$ -$ (155,895)$ 2,126,609$ 1,417,740$ 708,869$

Claims and judgments 6,463,469 - 3,799,125 (430,294) 9,832,300 2,188,200 7,644,100

Certificates of participation 4,642,350 - - (128,689) 4,513,661 136,553 4,377,108

General obligation bonds 7,260,759 125,189 - (157,796) 7,228,152 168,798 7,059,354

Notes payable 1,500,000 - - - 1,500,000 166,200 1,333,800

Notes payable-County-RDA - - 249,412 (124,706) 124,706 124,706 -

Tax allocation bonds payable 2,880,000 - - (185,000) 2,695,000 190,000 2,505,000

Capital lease obligations 2,450,555 - - (685,339) 1,765,216 561,076 1,204,140

Other long-term liabilities 985,663 - 521,176 (586,576) 920,263 67,810 852,453

Total 28,465,300$ 125,189$ 4,569,713$ (2,454,295)$ 30,705,907$ 5,021,083$ 25,684,824$

Classification

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.


73

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 YearEndingJune 30, Principal Interest Total

2005 85,000$ 203,135$ 288,135$ 2006 85,000 199,225 284,225 2007 90,000 195,315 285,315 2008 95,000 191,175 286,175 2009 95,000 186,805 281,805

2010-2014 550,000 863,875 1,413,875 2015-2019 685,000 725,085 1,410,085 2020-2024 865,000 541,500 1,406,500 2025-2029 1,105,000 302,500 1,407,500 2030-2031 525,000 39,750 564,750

Total 4,180,000$ 3,448,365$ 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.


74

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:


2005 168,797$ 227,352$ 396,149$ 2006 177,616 227,434 405,050 2007 185,577 229,873 415,450 2008 193,004 233,546 426,550 2009 199,781 237,617 437,398

2010-2014 1,070,025 1,248,475 2,318,500 2015-2019 1,199,094 1,354,851 2,553,945 2020-2024 1,375,032 1,451,254 2,826,287 2025-2029 1,612,285 1,497,966 3,110,251

2030 354,009 307,991 662,000

Sub-total 6,535,219 7,016,360 13,551,579

Accreted Interest 692,933 - 692,933

Total 7,228,152$ 7,016,360$ 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.


75

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:


2005 190,000$ 134,305$ 324,305$ 2006 200,000 125,185 325,185 2007 210,000 115,290 325,290 2008 220,000 104,645 324,645 2009 230,000 93,395 323,395

2010-2014 1,335,000 270,978 1,605,978 2015 310,000 8,525 318,525

Total 2,695,000$ 852,323$ 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.


76


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:


2005 578,552$ 77,210$ 655,762$ 2006 402,600 51,552 454,152 2007 171,978 34,901 206,879 2008 31,492 29,871 61,363 2009 33,029 19,448 52,477

2010-2014 190,654 124,741 315,395 2015-2019 242,017 64,489 306,506 2020-2021 114,894 8,432 123,326

Total 1,765,216$ 410,644$ 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:

Amount AmountBalance Balance Due Within Due in More

July 1, 2003 Additions Retirements June 30, 2004 One Year Than One Year

Compensated absences 723,597$ 74,323$ (14,530)$ 783,390$ 522,260$ 261,130$ Landfill closure costs 5,013,899 216,245 - 5,230,144 - 5,230,144 Certificates of participation 28,047,650 5,290,000 (3,506,311) 29,831,339 1,168,447 28,662,892 Revenue bonds payable 4,955,000 - (135,000) 4,820,000 140,000 4,680,000 Notes payable 44,883,261 - (2,289,687) 42,593,574 2,353,105 40,240,469 Lease obligations 4,624,099 815,137 (1,500,049) 3,939,187 1,606,777 2,332,410

Total 88,247,506$ 6,395,705$ (7,445,577)$ 87,197,634$ 5,790,589$ 81,407,045$

Classification


77


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.


78

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, Principal Interest Total

2005 1,168,447$ 1,431,640$ 2,600,087$

2006 1,782,015 1,360,400 3,142,415

2007 1,862,015 1,287,024 3,149,039

2008 1,934,151 1,209,845 3,143,996

2009 1,446,288 1,132,970 2,579,258

2010-2014 4,493,423 5,024,113 9,517,536

2015-2019 5,455,000 3,850,616 9,305,616

2020-2024 6,285,000 2,290,911 8,575,911

2025-2029 4,970,000 964,983 5,934,983

2030 435,000 6,253 441,253

Total 29,831,339$ 18,558,755$ 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.


79

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:


2005 140,000$ 264,732$ 404,732$ 2006 150,000 257,483 407,483 2007 155,000 249,780 404,780 2008 165,000 241,537 406,537 2009 175,000 232,610 407,610

2010-2014 1,005,000 1,006,943 2,011,943 2015-2019 1,315,000 682,146 1,997,146 2020-2024 1,715,000 254,933 1,969,933

Total 4,820,000$ 3,190,163$ 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.


80


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:


2005 2,353,105$ 1,182,437$ 3,535,542$ 2006 2,418,132 1,117,407 3,535,539 2007 2,485,043 1,050,498 3,535,541 2008 2,553,788 981,752 3,535,540 2009 2,624,582 910,958 3,535,540

2010-2014 14,254,910 3,422,796 17,677,706 2015-2019 15,904,014 1,347,244 17,251,258

Total 42,593,574$ 10,013,092$ 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.


81


B. Proprietary Fund Obligations, Continued In January 2004, The City acquired four refuse trucks under a capital lease agreement payable in semi-annual 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:


2005 1,606,777$ 117,108$ 1,723,885$ 2006 951,068 52,606 1,003,674 2007 384,300 18,093 402,393 2008 181,903 2,919 184,822 2009 815,139 69,687 884,826

Total 3,939,187$ 260,413$ 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.


82

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 medium-sized 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. From 1998 to 2003, ACCEL was commercially insured. For the fiscal year 2003-2004, the deposit rate was $0.60 per one-hundred dollars of payroll. ACCEL self-funded $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.


83

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 18,526,012$ Other assets 353,086

Total assets 18,879,098$

Liabilities and Net Assets

Unpaid claims liability 2,359,272$ Retrospectively rated refunds liability 16,260,573 Other liabilities 143,382

Total liabilities 18,763,227

Net assets 115,871

Total liabilities and net assets 18,879,098$

Revenues

Premiums earned 4,382,170$ Investment income 207,187 Administrative fees 330,500

Total revenues 4,919,857

Expenses

Loss provision and premiums paid 4,637,163 General and administrative 232,677

Total expenses 4,869,840

Net income 50,017

Net assets, beginning of year 65,854

Net assets, end of year 115,871$

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


84

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:

Beginning Claims EndingBalance Incurred Payments Balance

June 30, 2002 6,142,259$ 2,667,515$ (2,424,753)$ 6,385,021$ June 30, 2003 6,385,021 2,672,607 (2,594,159) 6,463,469 June 30, 2004 6,463,469 7,217,089 (3,848,258) 9,832,300

CLAIMS PAYABLE

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 4,186,403$ Total estimated postclosure costs 8,121,986

Total estimated closure and postclosure costs 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 12,308,389$

Percent of used capacity to total capacity 42.49%

5,229,834

Miscellaneous adjustments 310

Estimated total closure and postclosure costs liability 5,230,144

Previous closure costs accrued 5,013,899

2003-2004 expense for closure and postclosure costs 216,245$


85

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 1,233,317$ Postclosure 1,445,126

Total 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


86

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 Annual Percentage NetYear Pension of APC Pension

Ended Cost (APC) Contributed Obligation

June 30, 2002 1,615,243$ 100% -$ June 30, 2003 1,774,677 100% - June 30, 2004 4,729,159 100% -

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.


87

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 224,872$ Water quality and treatment master plan 172,045

North coast water system rehabilitation preliminary engineering 852,884 Integrated water plan 139,449 New water supply facility preliminary engineering 129,215 Habitat conservation plan and Endangered Species Act permit 238,400 Design services for DeLaveaga Golf Course renovation 113,686

Total Major Professional Services 1,870,551

Major Commitments and Contracts for Capital Projects:

Ocean View Park improvements 306,830 South of Laurel Park improvements 243,740 City initiated water main replacements 394,653 Recycling trucks 815,136 Depot Park construction 2,412,951 Felton Booster Pump Station Rehabilitation 3,328,938 County of Santa Cruz work related water system relocations 109,410 Water treatment, remote facilities control system modernization 1,104,958

Total Major Capital Projects 8,716,616

Total Other Commitments 4,139,054

Total Commitments and Contracts 14,726,221$


88

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 non-cancelable lease terms in excess of one year as of June 30, 2004 are as follows:

Year Ending June 30 Balance

2005 $ 93,966 2006 60,246 2007 44,256 2008 44,256 2009 44,256 2010-2014 5,348

Total future minimum lease payments $ 292,328

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 Amount

2004 $ 902,649 2005 884,113 2006 845,973 2007 755,752 2008 549,428 Future years 4,206,611


89

13. RESERVED AND DESIGNATED FUND BALANCES Fund balances at June 30, 2004, have been reserved and designated for the following purposes:

Redevelopment Special Debt Capital General Agency Revenue Service Projects

Fund Fund Funds Fund Funds Total

Reserved for:Encumbrances 449,427$ 327,208$ 459,478$ -$ 3,921,143$ 5,157,256$ Noncurrent receivables and advances 3,755,252 4,234,136 1,836,424 - - 9,825,812 Prepaid items 134,852 - 2,398 - - 137,250 Debt service - 392,744 - - 290,822 683,566 Capital projects 49,055 307 - - 157,750 207,112 Low and moderate income housing - 2,068,872 - - - 2,068,872

Total reserved 4,388,586 7,023,267 2,298,300 - 4,369,715 18,079,868

Designated for:Accrued compensated absences 1,390,405 - 3,683 - - 1,394,088 Debt service - 2,754,631 - 457,945 - 3,212,576 Capital projects - 1,232,926 - - - 1,232,926 City public trust 5,591,485 - - - - 5,591,485 Unemployment insurance 36,263 - - - - 36,263 Housing in-lieu program 455,884 - - - - 455,884 Parks and recreation programs 18,303 - - - - 18,303 Kiosk maintenance 19,420 - - - - 19,420 Museum building 27,412 - - - - 27,412 Street trees 21,367 - - - - 21,367 Equipment maintenance 41,795 - - - - 41,795 Youth/teen programs 25,842 - - - - 25,842 CPVAW 1,700 - - - - 1,700 Police programs - - 92,499 - - 92,499 Housing - - 405,505 - - 405,505 Public works programs 8,295 - - - - 8,295 Rental maintenance - - 7,717 - - 7,717

Total designated 7,638,171 3,987,557 509,404 457,945 - 12,593,077

Unreserved, Undesignated 5,964,197 - 2,207,706 - (1,444,460) 6,727,443

Total fund balances 17,990,954$ 11,010,824$ 5,015,410$ 457,945$ 2,925,255$ 37,400,388$


90

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 (7,418,337)$ Liability insurance 276,086 Group health insurance 222,476

Total net assets (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 Business-Type 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, Prior Period Adjustmentsas Previously Deferred Accumulated Prior Year Tax Net Assets,

Government-Wide Financial Statements Reported Revenue Depreciation Overpayment As Restated

Governmental Activities:Net assets 163,473,350$ -$ 37,810$ (124,706)$ 163,386,454$

Total governmental activities 163,473,350 - 37,810 (124,706) 163,386,454

Business-Type Activities:Net assets 231,368,853 401,058 - - 231,769,911

Total business-type activities 231,368,853 401,058 - - 231,769,911

Total government-wide 394,842,203$ 401,058$ 37,810$ (124,706)$ 395,156,365$


91

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, Adjustments

as Previously Deferred Net Assets,

Reported Revenue As Restated

Major Enterprise Funds:Water fund 58,296,110$ 401,058$ 58,697,168$

Internal Service Funds:Risk management fund (875,697)$ (22,892)$ (898,589)$

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 PeriodFund Balances, Adjustmentsas Previously Compensated Fund Balances,

Reported Absences As Restated

Major Fund:General fund 15,966,948$ 2,238,215$ 18,205,163$

Non-Major Governmental Funds:State Highway fund 10,297,895 4,096 10,301,991

Total 26,264,843$ 2,242,311$ 28,507,154$

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.


92

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.

93

REQUIRED SUPPLEMENTARY INFORMATION

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

94

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.

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

95

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.

96


BUDGETARY SCHEDULES

97

City of Santa CruzRequired Supplementary Information, ContinuedFor the year ended June 30, 2004

Budgetary Comparison Schedule, General Fund

Budgeted Amounts Actual Amounts Budget to GAAP Actual AmountsOriginal Final (Budgetary Basis) Differences (GAAP Basis)

REVENUES:

Taxes 31,022,052$ 31,052,552$ 31,696,322$ -$ 31,696,322$ Licenses and permits 518,000 518,000 529,649 - 529,649 Intergovernmental 4,072,820 4,386,640 3,745,601 - 3,745,601 Charges for services:

External 6,119,700 6,656,511 6,495,280 - 6,495,280

Internal 3,083,364 3,282,839 3,236,648 - 3,236,648 Interagency 8,325,209 8,130,551 7,865,015 (731,189) 7,133,826

Subtotal charges for services 17,528,273 18,069,901 17,596,943 (731,189) 16,865,754

Fines and forfeitures 1,527,800 1,586,124 1,799,557 - 1,799,557 Use of money and property 2,356,929 2,428,929 2,292,772 (206,609) 2,086,163 Other revenues 181,798 222,298 354,708 64,056 418,764

Total revenues 57,207,672 58,264,444 58,015,552 (873,742) 57,141,810

EXPENDITURES:Current:

General government 9,567,557 9,723,835 8,973,688 (6,663) 8,967,025 Public safety 25,584,933 25,642,920 24,647,937 - 24,647,937 Parks and recreation 10,738,683 10,364,822 9,721,229 - 9,721,229 Library 8,984,021 8,789,363 8,528,577 - 8,528,577 Public works 4,523,945 4,494,845 3,989,048 - 3,989,048 Community and economic development 1,026,753 1,026,753 803,138 (731,189) 71,949 Social services 1,806,950 1,659,513 1,656,875 - 1,656,875

Capital outlay 637,810 708,935 506,267 744,895 1,251,162 Debt service:

Principal 295,841 295,841 295,835 - 295,835 Interest and fiscal charges 68,581 68,581 68,575 - 68,575

Total expenditures 63,235,074 62,775,408 59,191,169 7,043 59,198,212

REVENUES OVER (UNDER) EXPENDITURES (6,027,402) (4,510,964) (1,175,617) (880,785) (2,056,402)

OTHER FINANCING SOURCES (USES):Proceeds from asset disposition 825,000 825,000 771,823 (15,000) 756,823 Loan principal receipts 472,422 442,422 455,427 (455,427) - Advances to other funds (400,000) (930,000) (530,000) 530,000 - Transfers in 1,714,665 1,744,665 1,687,534 - 1,687,534

Transfers out (1,416,348) (1,755,555) (602,164) - (602,164)

Total other financing sources (uses) 1,195,739 326,532 1,782,620 59,573 1,842,193

Net change in fund balances (4,831,663) (4,184,432) 607,003 (821,212) (214,209)

FUND BALANCES:

Beginning of the year, as restated 11,948,404 11,902,648 11,902,648 6,302,515 18,205,163

End of year 7,116,741$ 7,718,216$ 12,509,651$ 5,481,303$ 17,990,954$

98


General Fund

Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis:Net Change in Fund Balances - Budgetary Basis 607,003$

(731,189) 731,189

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. (206,609)

Costs for a City Hall fire restoration project recorded on the fund statements were recorded in another fund for budgetary purposes. (767,232)

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. 559,000

Accrual basis insurance proceeds are unavailable for appropriation in the general fund. 49,056

On a budgetary basis, the City records loan principal receipts as revenue, but on a GAAP basis, the receipts reduce receivables. (455,427)

Net Change in Fund Balances - Statement of Revenues, Expenditures and Changes in Fund Balances (214,209)$

Reconciliation of Fund Balances - Budgetary to GAAP Basis:Fund Balances - Ending - Budgetary Basis 12,509,651$

Cumulative effect of unrealized gains and losses on investments (49,235) Reserved and designated balances unavailable for appropriation 4,140,133 Designated for noncurrent component of compensated absences 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 1,974,184$

Restricted or designated for special purposes 4,630,258

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.

99

City of Santa CruzRequired Supplementary Information, continuedFor the year ended June 30, 2004

Budgetary Comparison Schedule, Redevelopment Agency


REVENUES:

Tax increment 7,470,900$ 7,766,455$ 8,008,622$ -$ 8,008,622$

Use of money and property 129,317 129,317 337,704 (130,097) 207,607

Other revenues 78,000 78,000 94,314 - 94,314

Total revenues 7,678,217 7,973,772 8,440,640 (130,097) 8,310,543

EXPENDITURES:Current:

Community and economic development 7,509,408 8,283,980 5,449,617 - 5,449,617 Capital outlay 605,650 933,943 53,495 - 53,495 Debt service:

Principal 976,598 1,606,364 1,898,818 (1,066,229) 832,589 Interest and fiscal charges 283,861 295,411 279,288 11,485 290,773

Total expenditures 9,375,517 11,119,698 7,681,218 (1,054,744) 6,626,474

REVENUES OVER (UNDER) EXPENDITURES (1,697,300) (3,145,926) 759,422 924,647 1,684,069

OTHER FINANCING SOURCES (USES):Loan proceeds (short term) 1,750,000 2,135,000 735,000 (735,000) - Long term advance proceeds 400,000 400,000 - - - Loan principal receipts 29,303 54,244 85,303 (85,303) -

Transfers in - 100,000 100,000 - 100,000

Total other financing sources (uses) 2,179,303 2,689,244 920,303 (820,303) 100,000

Net change in fund balances 482,003 (456,682) 1,679,725 104,344 1,784,069

FUND BALANCES:

Beginning of the year 5,787,284 5,787,284 5,787,284 3,439,471 9,226,755

End of year 6,269,287$ 5,330,602$ 7,467,009$ 3,543,815$ 11,010,824$

100


Redevelopment

Agency Fund

Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis:Net Change in Fund Balances - Budgetary Basis 1,679,725$


On a budgetary basis, the Agency records loan principal receipts as revenue, but on a GAAP basis, these receipts reduce receivables. (85,303)

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. (735,000)

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. 1,066,229

Net Change in Fund Balances - Statement of Revenues, Expenditures and Changes in Fund Balances 1,784,069$


Cumulative effect of unrealized gains and losses on investments (38,132) Reserved balances unavailable for appropriation 3,581,947


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


101


102

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

103

PUBLIC EMPLOYEE RETIREMENT SYSTEM (PERS) SCHEDULE OF FUNDING PROGRESS

Miscellaneous Employees

Unfunded(Overfunded)

Unfunded Actuarial Entry Age (Overfunded) Liability as

Actuarial Actuarial Actuarial Actuarial Percentage of Valuation Value of Accrued Accrued Funded Covered Covered

Date Assets Liability Liability Ratio Payroll Payroll

June 30, 2001 133,168,501$ 118,812,672$ (14,355,829)$ 112.1% 32,933,995$ (43.6)% June 30, 2002 126,284,083 132,266,944 5,982,861 95.5% 36,176,758 16.5% June 30, 2003 129,704,897 150,709,327 21,004,430 86.1% 35,526,589 59.1%

Police Safety Employees

Unfunded

(Overfunded)Unfunded Actuarial

Entry Age (Overfunded) Liability as Actuarial Actuarial Actuarial Actuarial Percentage of Valuation Value of Accrued Accrued Funded Covered Covered


June 30, 2001 37,447,028$ 38,460,123$ 1,013,095$ 97.4% 5,876,326$ 17.2% June 30, 2002 36,269,237 47,708,054 11,438,817 76.0% 5,989,547 191.0% June 30, 2003 37,575,286 51,345,793 13,770,507 73.2% 6,864,482 200.6%

Fire Safety Employees

Unfunded(Overfunded)

Unfunded Actuarial Entry Age (Overfunded) Liability as

Actuarial Actuarial Actuarial Actuarial Percentage of Valuation Value of Accrued Accrued Funded Covered Covered


June 30, 2001 25,085,532$ 26,575,658$ 1,490,126$ 94.4% 3,526,056$ 42.3% June 30, 2002 23,762,235 33,592,121 9,829,886 70.7% 3,904,140 251.8% June 30, 2003 24,552,182 35,788,814 11,236,632 68.6% 4,190,556 268.1%

104

This page intentionally blank

SUPPLEMENTARY INFORMATION

105


106

Police - Accounts for state and federal grants and other revenues restricted to be used for policeprograms.

State Highway Funds - This fund is used to account for the City's apportionment of the State excise taxon gasoline and other related grants or receipts that are restricted for the planning, construction andmaintenance of streets and roads. It is also used to account for a subvention of the State sales tax ongasoline (Traffic Congestion Relief Funds) that are restricted for street and highway maintenance, andrehabilitation and reconstruction of necessary associated facilities such as drainage and traffic controldevices.

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 andCommunity Development Act, which includes Community Development Block Grant funds and HOMEprogram funds. It also is used to account for Red Cross housing reconstruction loan repayments andincome and related expenditures for a City-owned rental property.

Transportation Development Act Fund - This fund is used to account for receipts of State TransportationDevelopment Act (TDA) funds restricted to be used for specialized or unmet transit needs. Acting as thepublic agency sponsor, the City contracts with non-profit agencies to meet these obligations.

General Obligation Bonds - This fund accounts for the debt service for a $7 million general obligationbond issue approved by voters in November 1998. Funds for payment of principal and interest on thebonds are generated by a property tax override assessment of $9.00 per $100,000 of assessed value.

General Capital Improvement - This fund is used to account for capital improvements for which specialprojects 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 generalbenefit, such as storm drain improvements, or improvements to public buildings.

Non-Major Governmental Funds

Special Revenue Funds:

Debt Service Fund:

Capital Projects Fund:

107

City of Santa CruzCombining Balance SheetNon-Major Governmental Funds June 30, 2004

Housing and Transportation

State Parks and Community Development

Police Highway Recreation Development Act

ASSETS

Cash and cash equivalents 250,792$ 543,101$ 1,273,935$ 1,319,778$ -$

Cash and cash equivalents - 115,943 - - -

Interest receivable 1,864 3,124 11,148 248,982 -

Taxes receivable - - - - -

Accounts receivable - net 2,323 105,525 - 7,210 -

Due from other governments - 1,039,590 - 180,369 -

Due from other funds - - 7 - -

Prepaid items 268 732 - 1,398 -

Notes receivable - net - - 511,700 684,556 -

Loans receivable - net - - - 1,151,868 -

Total assets 255,247$ 1,808,015$ 1,796,790$ 3,594,161$ -$

LIABILITIES AND FUND BALANCES

Liabilities:

Accounts payable and other current liabilities 3,492$ 392,013$ -$ 31,069$ -$

Due to other funds - - 315 11,236 -

Intergovernmental payable - - - 291,203 -

Deferred revenue 142,920 223,174 511,700 301,481 -

Advances from other funds - - - 530,000 -

Total liabilities 146,412 615,187 512,015 1,164,989 -

Fund Balances:

Reserved 6,529 300,685 - 1,991,086 -

Unreserved, designated 92,499 3,683 - 413,222 -

Unreserved, undesignated, reported in:

Special revenue funds 9,807 888,460 1,284,775 24,864 -

Capital projects funds - - - - -

Total fund balances 108,835 1,192,828 1,284,775 2,429,172 -

Total liabilities and fund balances 255,247$ 1,808,015$ 1,796,790$ 3,594,161$ -$

Special Revenue

108

Debt Service Capital Projects

General Total Other

General Capital Governmental

Obligation Bond Improvement Funds

433,367$ 1,101,979$ 4,922,952$

- 762,472 878,415

3,176 17,734 286,028

21,402 496,035 517,437

- 120,054 235,112

- 1,649,452 2,869,411

- - 7

- - 2,398

- - 1,196,256

- - 1,151,868

457,945$ 4,147,726$ 12,059,884$

-$ 807,407$ 1,233,981$

- 13,079 24,630

- 31,869 323,072

- 247,316 1,426,591

- 122,800 652,800

- 1,222,471 3,661,074

- 4,369,715 6,668,015

457,945 - 967,349

- - 2,207,906

- (1,444,460) (1,444,460)

457,945 2,925,255 8,398,810

457,945$ 4,147,726$ 12,059,884$

109

City of Santa CruzCombining Statement of Revenues, Expenditures and Changes in Fund BalancesNon-Major Governmental FundsFor the year ended June 30, 2004

Housing and Transportation

State Parks and Community Development

Police Highway Recreation Development Act

REVENUES:

Taxes -$ -$ 357,305$ -$ -$

Intergovernmental 177,896 2,536,105 - 1,223,418 588,183

Charges for services 57,990 1,457 37,623 - -

Fines and forfeitures 6,177 - - - -

Use of money and property (1,271) 1,940 10,511 55,350 -

Other revenues - - - 15,413 -

Total revenues 240,792 2,539,502 405,439 1,294,181 588,183

EXPENDITURES:

Current:

Public safety 195,826 - - - -

Public works - 550,144 - - -

Transit - - - - 588,183

Community and economic development - - - 810,590 -

Social services - - - 146,250 -

Capital outlay 82,498 1,739,288 - 865,080 -

Debt service:

Principal - 16,563 - - -

Interest and fiscal charges - 1,633 - 12,860 -

Total expenditures 278,324 2,307,628 - 1,834,780 588,183

REVENUES OVER (UNDER) EXPENDITURES (37,532) 231,874 405,439 (540,599) -


Transfers in - 11,750 - 292,000 -

Transfers out (412) - (678,963) - -

Total other financing sources (uses) (412) 11,750 (678,963) 292,000 -

Net change in fund balances (37,944) 243,624 (273,524) (248,599) -

FUND BALANCES:

Beginning of year 146,779 945,108 1,558,299 2,677,771 -

Prior period adjustment (Note 16) - 4,096 - - -

Beginning of the year, as restated 146,779 949,204 1,558,299 2,677,771 -

End of year 108,835$ 1,192,828$ 1,284,775$ 2,429,172$ -$

Special Revenue

110

Debt Service Capital Projects

General Total Other

General Capital Governmental

Obligation Bond Improvement Funds

456,532$ 2,010,975$ 2,824,812$

- 1,986,911 6,512,513

- 228,549 325,619

- - 6,177

1,712 (16,305) 51,937

- 63,521 78,934

458,244 4,273,651 9,799,992

- - 195,826

- - 550,144

- - 588,183

- - 810,590

- - 146,250

- 5,561,650 8,248,516

157,796 416,154 590,513

231,687 246,193 492,373

389,483 6,223,997 11,622,395

68,761 (1,950,346) (1,822,403)

- 1,153,062 1,456,812

- (858,215) (1,537,590)

- 294,847 (80,778)

68,761 (1,655,499) (1,903,181)

389,184 4,580,754 10,297,895

- - 4,096

389,184 4,580,754 10,301,991

457,945$ 2,925,255$ 8,398,810$

111

City of Santa CruzSchedule of Budget and Actual RevenuesGeneral FundFor the year ended June 30, 2004

Variance withFinal Budget

Original Final Actual Amounts PositiveBudget Budget (Budgetary Basis) (Negative)

REVENUES:

Taxes:

Property 7,350,000$ 7,350,000$ 7,327,071$ (22,929)$

Sales and use 8,910,000 8,910,000 9,084,026 174,026

Business license 835,000 835,000 792,893 (42,107)

Franchise 3,279,680 3,279,680 3,329,454 49,774

Transient occupancy 1,000,000 1,000,000 1,005,487 5,487

Parking 200,000 200,000 221,133 21,133

Utility users 7,300,000 7,330,500 7,638,926 308,426

Admission 1,650,000 1,650,000 1,724,330 74,330

Property transfer 200,000 200,000 276,466 76,466

Business improvement 180,000 180,000 179,163 (837)

Other taxes 117,372 117,372 117,373 1

Total taxes 31,022,052 31,052,552 31,696,322 643,770

Licenses and permits:

Construction permits 506,500 506,500 509,841 3,341 Other licenses and permits 11,500 11,500 19,808 8,308

Total licenses and permits 518,000 518,000 529,649 11,649

Intergovernmental revenues:

Federal 193,194 383,423 219,270 (164,153) State 3,850,026 3,955,117 3,499,251 (455,866) Local 29,600 48,100 26,964 (21,136) Other agencies - - 116 116

Total intergovernmental revenues 4,072,820 4,386,640 3,745,601 (641,039)

Charges for services:

General government:Legislative 1,100 1,100 1,328 228 Management and support 600,000 547,291 538,262 (9,029) Planning and zoning 593,350 1,168,781 845,459 (323,322) Other general government 4,200 6,789 11,156 4,367

Public safety:Police 891,950 891,950 1,130,311 238,361 Fire 326,000 337,000 300,281 (36,719) Protective inspection 301,000 301,000 275,166 (25,834)

Parks and recreation:Parks 37,000 37,000 43,209 6,209 Recreation 2,510,200 2,510,200 2,508,180 (2,020) Other parks and recreation 4,000 4,000 - (4,000)

Subtotal of charges for services 5,268,800 5,805,111 5,653,352 (151,759)

112

City of Santa CruzSchedule of Budget and Actual Revenues, ContinuedGeneral FundFor the year ended June 30, 2004

Variance withFinal Budget

Original Final Actual Amounts PositiveBudget Budget (Budgetary Basis) (Negative)

Charges for services, Continued:

Subtotal from previous page 5,268,800$ 5,805,111$ 5,653,352$ (151,759)$

Public works:Engineering 22,000 22,500 56,080 33,580 Transportation 821,000 821,000 777,888 (43,112)

Community and economic development:Other community and economic development 7,900 7,900 7,960 60

Internal charges for services provided 3,083,364 3,282,839 3,236,648 (46,191) Interagency personnel services charges:

Library 7,589,270 7,394,612 7,133,826 (260,786) Redevelopment Agency 735,939 735,939 731,189 (4,750)

Subtotal interagency charges 8,325,209 8,130,551 7,865,015 (265,536)

Total charges for services 17,528,273 18,069,901 17,596,943 (472,958)

Fines and forfeitures:

Court and traffic fines 1,376,000 1,397,500 1,468,292 70,792

Other fines and forfeitures 151,800 188,624 331,265 142,641

Total fines and forfeitures 1,527,800 1,586,124 1,799,557 213,433

Use of money and property:

Investment income 644,029 644,029 511,520 (132,509)

Rents and royalties 1,712,900 1,784,900 1,781,252 (3,648)

Total use of money and property 2,356,929 2,428,929 2,292,772 (136,157)

Other revenues:

Contributions and donations 61,798 102,298 258,797 156,499

Other miscellaneous revenues 120,000 120,000 95,911 (24,089)

Total other revenues 181,798 222,298 354,708 132,410

Total revenues 57,207,672 58,264,444 58,015,552 (248,892)

OTHER FINANCING SOURCES:

Proceeds from asset dispositions 825,000 825,000 771,823 (53,177) Loan and advance principal receipts 472,422 442,422 455,427 13,005 Transfers in 1,714,665 1,744,665 1,687,534 (57,131)

Total other financing sources 3,012,087 3,012,087 2,914,784 (97,303)

Total revenues and other financing sources 60,219,759$ 61,276,531$ 60,930,336$ (346,195)$

113

City of Santa CruzSchedule of Budget and Actual Expenditures and Other Financing Uses For Legally Adopted

Appropriations by Department - General FundFor the year ended June 30, 2004

Services, SuppliesPersonnel and Other Debt Capital Actual AmountsServices Charges Service Outlay (Budgetary Basis)

City Council 168,633$ 147,978$ -$ -$ 316,611$ City Clerk 435,504 118,754 25,107 - 579,365 City Manager 523,762 139,681 - - 663,443 City Attorney 11,025 530,891 - - 541,916 Human Resources 510,842 315,138 - 44,056 870,036 Finance 2,334,970 720,027 - 67,958 3,122,955 Police 12,384,024 3,397,524 - 51,402 15,832,950 Fire 7,120,933 709,479 77,743 113,355 8,021,510 Parks and Recreation 7,084,130 3,111,752 - 85,885 10,281,767 Library 7,133,826 1,394,751 - - 8,528,577 Public Works 3,000,222 974,525 43,812 48,184 4,066,743 Planning and Community Development 2,108,002 376,011 11,107 746 2,495,866 Redevelopment Administration 731,189 132 - - 731,321 Non-Departmental 14,302 2,822,483 - - 2,836,785 Debt service - - 206,642 - 206,642 Capital projects - - - 94,682 94,682

Total expenditures 43,561,364 14,759,126 364,411 506,268 59,191,169

Advances to other funds - - - - 530,000 Transfers out - - - - 602,164

Total expenditures and otherfinancing uses 43,561,364$ 14,759,126$ 364,411$ 506,268$ 60,323,333$

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

Actual

114

Variance withFinal Budget -

Final Positive Budget to GAAP Actual AmountsBudget (Negative) Differences (GAAP Basis)

517,814$ 201,203$ (29,000)$ 287,611$ 628,550 49,185 - 579,365 703,398 39,955 - 663,443 546,027 4,111 - 541,916 995,817 125,781 767,232 1,637,268

3,237,700 114,745 - 3,122,955 16,754,725 921,775 - 15,832,950

8,060,466 38,956 - 8,021,510 10,982,640 700,873 - 10,281,767

8,789,363 260,786 - 8,528,577 4,597,459 530,716 - 4,066,743 2,956,002 460,136 - 2,495,866

736,039 4,718 (731,189) 132 2,870,625 33,840 - 2,836,785

206,645 3 - 206,642 192,138 97,456 - 94,682

62,775,408 3,584,239 7,043 59,198,212

930,000 400,000 (530,000) - 1,755,555 1,153,391 - 602,164

65,460,963$ 5,137,630$ (522,957)$ 59,800,376$

115

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualPolice Special Revenue FundFor the year ended June 30, 2004


REVENUES:

Intergovernmental 99,106$ 175,344$ 177,896$ -$ 177,896$ Charges for services 70,000 70,000 57,990 - 57,990 Fines and forfeitures - - 6,177 - 6,177 Use of money and property 15,401 15,401 6,560 (7,831) (1,271)

Total revenues 184,507 260,745 248,623 (7,831) 240,792

EXPENDITURES:

Current:Public safety:

Police 209,448 209,448 195,826 - 195,826 Capital outlay 15,170 93,327 82,498 - 82,498

Total expenditures 224,618 302,775 278,324 - 278,324

REVENUES OVER (UNDER) EXPENDITURES (40,111) (42,030) (29,701) (7,831) (37,532)


Transfers out (500) (500) (412) - (412)

Total other financing sources (uses) (500) (500) (412) - (412)

Net change in fund balances (40,611) (42,530) (30,113) (7,831) (37,944)

FUND BALANCES:

Beginning of the year 140,273 140,273 140,273 6,506 146,779

End of year 99,662$ 97,743$ 110,160$ (1,325)$ 108,835$

Ending budgetary fund balance committed for re-appropriation in the following year 1,920$

116

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualState Highway Special Revenue FundFor the year ended June 30, 2004


REVENUES:

Intergovernmental 5,747,999$ 5,831,999$ 2,536,105$ -$ 2,536,105$ Charges for services - - 1,457 - 1,457 Use of money and property - 20,000 5,246 (3,306) 1,940

Total revenues 5,747,999 5,851,999 2,542,808 (3,306) 2,539,502

EXPENDITURES:

Current:Public works:

Transportation 612,363 612,363 550,144 - 550,144 Capital outlay 5,992,767 6,010,817 1,739,288 - 1,739,288 Debt service:


Total expenditures 6,623,328 6,641,378 2,307,628 - 2,307,628

REVENUES OVER (UNDER) EXPENDITURES (875,329) (789,379) 235,180 (3,306) 231,874


Proceeds from asset disposition 300,000 300,000 - - - Transfers in - 11,750 11,750 - 11,750

Total other financing sources (uses) 300,000 311,750 11,750 - 11,750

Net change in fund balances (575,329) (477,629) 246,930 (3,306) 243,624

FUND BALANCES:

Beginning of the year, as restated 944,345 943,392 943,392 5,812 949,204

End of year 369,016$ 465,763$ 1,190,322$ 2,506$ 1,192,828$


117

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualParks and Recreation FundFor the year ended June 30, 2004


REVENUES:

Taxes 400,000$ 400,000$ 357,305$ -$ 357,305$ Charges for services - - 37,623 - 37,623 Use of money and property 33,000 33,000 39,503 (28,992) 10,511

Total revenues 433,000 433,000 434,431 (28,992) 405,439


Transfers out (1,309,374) (1,318,950) (678,963) - (678,963)

Total other financing sources (uses) (1,309,374) (1,318,950) (678,963) - (678,963)

Net change in fund balances (876,374) (885,950) (244,532) (28,992) (273,524)

FUND BALANCES:

Beginning of the year 1,537,112 1,537,112 1,537,112 21,187 1,558,299

End of year 660,738$ 651,162$ 1,292,580$ (7,805)$ 1,284,775$


118

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualHousing and Community Development FundFor the year ended June 30, 2004


REVENUES:

Intergovernmental 1,951,719$ 1,951,719$ 1,223,418$ -$ 1,223,418$ Use of money and property 51,868 51,868 72,976 (17,626) 55,350 Other revenues - - 15,413 - 15,413

Total revenues 2,003,587 2,003,587 1,311,807 (17,626) 1,294,181

EXPENDITURES:

Current:Community and economic development:

Housing and community development 1,382,334 1,391,807 809,209 - 809,209 Redevelopment 2,200 2,200 1,381 - 1,381

Social services:CDBG social services 146,358 146,358 146,250 - 146,250

Capital outlay 1,756,477 1,750,380 865,080 - 865,080 Debt service:

Principal - 1,426 - - - Interest and fiscal charges - 198 12,860 - 12,860


REVENUES OVER (UNDER) EXPENDITURES (1,283,782) (1,288,782) (522,973) (17,626) (540,599)


Loan principal receipts 120,010 120,010 393,214 (377,801) - Proceeds from long-term debt - 1,530,000 530,000 (530,000) - Transfers in - 292,000 292,000 - 292,000

Total other financing sources (uses) 120,010 1,942,010 1,215,214 (907,801) 292,000

Net change in fund balances (1,163,772) 653,228 692,241 (925,427) (248,599)

FUND BALANCES:

Beginning of the year 434,132 434,132 434,132 2,243,639 2,677,771

End of year (729,640)$ 1,087,360$ 1,126,373$ 1,318,212$ 2,429,172$


119

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualTransportation Development ActFor the year ended June 30, 2004


REVENUES:

Intergovernmental 592,903$ 593,603$ 588,183$ -$ 588,183$

Total revenues 592,903 593,603 588,183 - 588,183

EXPENDITURES:

Current:Transit 592,903 593,603 588,183 - 588,183


REVENUES OVER (UNDER) EXPENDITURES - - - - -

FUND BALANCES:

Beginning of the year - - - - -

End of year -$ -$ -$ -$ -$

120

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualGeneral Obligation BondFor the year ended June 30, 2004


REVENUES:

Taxes 428,915$ 428,915$ 456,532$ -$ 456,532$ Use of money and property 8,500 8,500 5,699 (3,987) 1,712

Total revenues 437,415 437,415 462,231 (3,987) 458,244

EXPENDITURES:

Debt service:Principal 157,797 157,797 157,796 - 157,796 Interest and fiscal charges 234,305 234,305 231,687 - 231,687


REVENUES OVER (UNDER) EXPENDITURES 45,313 45,313 72,748 (3,987) 68,761

FUND BALANCES:

Beginning of the year 386,412 386,412 386,412 2,772 389,184

End of year 431,725$ 431,725$ 459,160$ (1,215)$ 457,945$

121

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualGeneral Capital Improvement ProjectsFor the year ended June 30, 2004


REVENUES:

Taxes 2,000,000$ 2,000,000$ 2,010,975$ -$ 2,010,975$ Intergovernmental 7,333,860 7,619,857 1,986,911 - 1,986,911 Charges for services 220,000 220,000 228,549 - 228,549 Use of money and property 25,000 25,000 23,674 (39,979) (16,305) Other revenues 86,600 86,600 63,521 - 63,521

Total revenues 9,665,460 9,951,457 4,313,630 (39,979) 4,273,651

EXPENDITURES:

Capital outlay 14,917,933 15,342,329 5,561,650 - 5,561,650 Debt service:



REVENUES OVER (UNDER) EXPENDITURES (5,917,170) (6,055,569) (1,910,367) (39,979) (1,950,346)


Proceeds from asset disposition 66,667 66,667 - - - Proceeds from long-term debt - 122,800 122,800 (122,800) - Transfers in 2,884,094 2,959,747 1,153,062 - 1,153,062 Transfers out (825,000) (846,750) (858,215) - (858,215)

Total other financing sources (uses) 2,125,761 2,302,464 417,647 (122,800) 294,847

Net change in fund balances (3,791,409) (3,753,105) (1,492,720) (162,779) (1,655,499)

FUND BALANCES:

Beginning of the year 4,257,800 4,258,400 4,258,400 322,354 4,580,754

End of year 466,391$ 505,295$ 2,765,680$ 159,575$ 2,925,255$

Ending budgetary fund balance committed for re-appropriation in the following year 2,222,949$

122

City of Santa CruzSchedule of Revenues, Expenditures and Changes in Fund Balances - Budget and ActualNon-Major Governmental FundsFor the year ended June 30, 2004

OtherGovernmental

Funds

Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis:Net Change in Fund Balances - Budgetary Basis (755,446)$


Proceeds of long term advances from other funds are considered budgetary resources, but are not revenueson a GAAP basis. (652,800)

On a budgetary basis, the City records loan principal receipts as revenue, but on a GAAP basis, these receipts reduce receivables. (393,214)

Net Change in Fund Balances - Statement of Revenues, Expenditures and Changes in Fund Balances (1,903,181)$


Cumulative effect of unrealized gains and losses on investments (23,177) Noncurrent advances payable (652,800) Reserved balances unavailable for appropriation 2,126,829 Designated for noncurrent component of compensated absences 3,683



123


124

INTERNAL SERVICE FUNDS

Equipment Operations - This fund is used to account for the expenses related to city-wide fleet operationsand 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 departmentsand 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 ofcommunications equipment and ongoing maintenance of the telephone network including the maintelephone switch, voice mail system, pagers, cell phones, and fax machines. Internal contributions to supportthis fund are based on cost recovery through user departments and funds. These charges do not include thecost of equipment replacement.

Risk Management - Accounts for the expenses of the City's insurance program, including costs related toclaims, administration, legal defense, and insurance premiums. Internal contributions to support this fund arebased on cost recovery through charges to departments and funds. The following insurance activities areprovided for in this fund:

Workers' Compensation InsuranceLiability InsuranceGroup Health Insurance

125

City of Santa CruzCombining Statement of Net AssetsAll Internal Service FundsJune 30, 2004

Equipment Stores Telecommun- RiskOperations Services ications Management Total

ASSETS

Current assets:Cash and cash equivalents 308,391$ 83,261$ 82,736$ 1,208,032$ 1,682,420$ Restricted cash and cash equivalents - - 60,486 - 60,486 Interest receivable 2,811 497 823 14,284 18,415 Accounts receivable - net 57,349 - 730,823 788,172 Due from other funds 632 - 324 186,146 187,102 Prepaid items 2,879 - 136 1,755 4,770 Inventories - 99,463 - - 99,463 Deposits - - - 987,505 987,505

Total current assets 372,062 183,221 144,505 3,128,545 3,828,333

Noncurrent assets:Capital assets:

Machinery and equipment 256,150 - 746,577 8,160 1,010,887 Software - - 336,296 - 336,296

Total capital assets 256,150 - 1,082,873 8,160 1,347,183 Less accumulated depreciation (236,632) - (766,589) (1,768) (1,004,989)

Total capital assets, net 19,518 - 316,284 6,392 342,194

Total noncurrent assets 19,518 - 316,284 6,392 342,194

Total assets 391,580 183,221 460,789 3,134,937 4,170,527

LIABILITIES

Current liabilities:Accounts payable and other current liabilities 100,993 7,389 11,704 173,356 293,442 Due to other funds - 150 - 49,056 49,206 Claims and judgments payable - due within one year - - - 2,188,200 2,188,200 Compensated absences payable - due within one year 23,651 - - - 23,651 Bonds, notes, loans and leases payable -

due within one year 2,575 - 23,088 - 25,663

Total current liabilities 127,219 7,539 34,792 2,410,612 2,580,162

Noncurrent liabilities:Claims and judgments payable - due in more than one year - - - 7,644,100 7,644,100 Compensated absences payable - due in more than one year 11,825 - - - 11,825 Bonds, notes, loans and leases payable -

due in more than one year 1,335 - 11,966 - 13,301

Total noncurrent liabilities 13,160 - 11,966 7,644,100 7,669,226

Total liabilities 140,379 7,539 46,758 10,054,712 10,249,388

NET ASSETS

Invested in capital assets, net of related debt 15,608 - 281,230 6,392 303,230 Restricted for:

Debt service - - 60,486 - 60,486 Unrestricted 235,593 175,682 72,315 (6,926,167) (6,442,577)

Total net assets 251,201$ 175,682$ 414,031$ (6,919,775)$ (6,078,861)$

126

City of Santa CruzCombining Statement of Revenues, Expenses and Changes in Net AssetsAll Internal Service FundsFor the year ended June 30, 2004

Equipment Stores Telecommun- Risk

Operations Services ications Management Total

OPERATING REVENUES:

Charges for services - internal 2,143,660$ 183,494$ 186,384$ 4,640,357$ 7,153,895$

Charges for services - external 95,650 - 51,300 17,525 164,475

Other revenues 2,665 94 - 496,466 499,225

Total operating revenues 2,241,975 183,588 237,684 5,154,348 7,817,595

OPERATING EXPENSES:

Personnel services 960,094 - 82,490 411,046 1,453,630

Services, supplies, and other charges 1,370,196 170,882 124,516 8,957,952 10,623,546

Depreciation and amortization 4,811 - 157,606 1,632 164,049

Total operating expenses 2,335,101 170,882 364,612 9,370,630 12,241,225

Operating income (loss) (93,126) 12,706 (126,928) (4,216,282) (4,423,630)

NONOPERATING REVENUES (EXPENSES):

Investment earnings 2,043 1,118 1,087 6,639 10,887

Interest expense and fiscal charges (279) - (2,504) - (2,783)

Gain (loss) on sale of capital assets 5,500 - - - 5,500

Total nonoperating revenues (expenses) 7,264 1,118 (1,417) 6,639 13,604

Income (loss) before transfers (85,862) 13,824 (128,345) (4,209,643) (4,410,026)

Transfers out (12,975) (1,976) (1,562) (753,733) (770,246)

Change in net assets (98,837) 11,848 (129,907) (4,963,376) (5,180,272)

NET ASSETS:

Beginning of year 350,038 163,834 543,938 (1,933,507) (875,697)

Prior period adjustment (Note 16) - - - (22,892) (22,892)

Beginning of the year, as restated 350,038 163,834 543,938 (1,956,399) (898,589)

End of year 251,201$ 175,682$ 414,031$ (6,919,775)$ (6,078,861)$

127

City of Santa CruzCombining Statement of Cash FlowsAll Internal Service FundsFor the year ended June 30, 2004

Equipment Stores Telecommun- RiskOperations Services ications Management Total

CASH FLOWS FROM OPERATING ACTIVITIES:Cash received from customers and users 49,953$ -$ 51,300$ 17,525$ 118,778$ Cash received from interfund services provided 2,143,660 183,494 186,384 4,441,578 6,955,116 Cash payments to suppliers for goods and services (1,060,839) (174,735) (122,919) (5,975,546) (7,334,039) Cash payments to employees for services (964,811) - (82,490) (411,046) (1,458,347) Cash payments for interfund services used (313,514) - (18) (6) (313,538) Cash received from (payments to) others 2,665 94 - 496,466 499,225

Net cash provided (used) by operating activities (142,886) 8,853 32,257 (1,431,029) (1,532,805)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:

Transfers out (12,975) (1,976) (1,562) (753,733) (770,246)

Net cash provided (used) by noncapital financing activities (12,975) (1,976) (1,562) (753,733) (770,246)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Purchase and construction of capital assets - - - - - Principal paid on capital debt (2,455) - (22,008) - (24,463) Interest paid on capital debt (279) - (2,504) - (2,783) Proceeds from sales of capital assets 5,500 - - - 5,500

Net cash provided (used) by capitaland related financing activities 2,766 - (24,512) - (21,746)

CASH FLOWS FROM INVESTING ACTIVITIES:Investment income received 2,044 1,119 697 6,639 10,499

Net cash provided (used) by investing activities 2,044 1,119 697 6,639 10,499

Net increase (decrease) in cash and cash equivalents (151,051) 7,996 6,880 (2,178,123) (2,314,298)

CASH AND CASH EQUIVALENTS:Beginning of year 459,442 75,265 136,342 3,386,155 4,057,204

End of year 308,391$ 83,261$ 143,222$ 1,208,032$ 1,742,906$

RECONCILIATION OF OPERATING INCOME (LOSS) TONET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:

Operating income (loss) (93,126)$ 12,706$ (126,928)$ (4,216,282)$ (4,423,630)$ Adjustments to reconcile operating income (loss) to net cash

provided (used) by operating activities:Depreciation and amortization 4,811 - 157,606 1,632 164,049 Changes in current assets and liabilities:

Accounts receivable (45,697) - - 519,396 473,699 Prepaid items (2,879) - (136) (1,755) (4,770) Inventories - 20,507 - - 20,507 Deposits - - - 18,789 18,789 Accounts payable and other current liabilities (1,278) (24,360) 1,715 (403,465) (427,388) Due to other funds - - - (718,175) (718,175) Claims and judgments payable - - - 3,368,831 3,368,831 Compensated absences payable (4,717) - - - (4,717)

Total adjustments (49,760) (3,853) 159,185 2,785,253 2,890,825

Net cash provided (used) by operating activities (142,886)$ 8,853$ 32,257$ (1,431,029)$ (1,532,805)$

128

Private-Purpose Trust Funds

McCaskill Trust - Local History - is restricted in purpose to promulgate local history. The principal andincome benefit the Library Joint Powers Authority,

McCaskill Trust - Visually Impaired - is restricted in purpose to providing library materials for the visuallyimpaired. 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 andincome benefit the Library Joint Powers Authority.

129

City of Santa CruzCombining Statement of Fiduciary Net AssetsPrivate-Purpose Trust FundsJune 30, 2004

McCaskill McCaskill TotalTrust - Local Trust - Visually Finkeldey Private-Purpose

History Impaired Trust Trust Funds

ASSETS

Cash and cash equivalents 257,443$ 248,063$ 12,035$ 517,541$ Receivables:

Interest receivable 1,901 1,841 95 3,837

Total assets 259,344 249,904 12,130 521,378

NET ASSETS

Held in trust for library programs 259,344$ 249,904$ 12,130$ 521,378$

130

City of Santa CruzCombining Statement of Changes in Fiduciary Net AssetsPrivate-Purpose Trust FundsFor the year ended June 30, 2004

TotalMcCaskill McCaskill Private-

Trust - Local Trust - Visually Finkeldey PurposeHistory Impaired Trust Trust Funds

ADDITIONS:

Investment earnings 1,346$ 1,017$ 75$ 2,438$

Total additions 1,346 1,017 75 2,438

DEDUCTIONS:

Library programs 3,357 5,889 755 10,001

Total deductions 3,357 5,889 755 10,001

Change in net assets (2,011) (4,872) (680) (7,563)

NET ASSETS:

Beginning of year 261,355 254,776 12,810 528,941

End of year 259,344$ 249,904$ 12,130$ 521,378$

131


132

Agency Funds

Library Joint Powers Authority - Used to account for funds held by the City in an agency capacityfor the Library Joint Powers Authority, which was established to finance the operations of the formerCity/County library system.

Trust Deposit Holding - This fund is used to hold cash deposits received from outside parties on atemporary basis.

Payroll Payables - Used to account for cash transferred from various funds to pay for payrollliabilities, which are paid out of this fund.

Special Assessments - Accounts for assets held by the City in an agency capacity for specialassessment districts. The City acts as agent for collection of principal and interest payments from theproperty owners and remits these monies to the bondholders. If funds are not available, the City isunder no obligation to make bond payments from its own funds.

133

City of Santa CruzCombining Statement of Fiduciary Net AssetsAgency FundsJune 30, 2004

Library Trust Total

Joint Powers Deposit Payroll Special Agency

Authority Holding Payables Assessments Funds

ASSETS

Cash and cash equivalents -$ 359,668$ 517,714$ 148,845$ 1,026,227$

Investments - - - 100,000 100,000

Receivables:

Interest receivable 846 724 - 4,888 6,458

Taxes receivable 523,613 - - 10,170 533,783

Accounts receivable 611,522 - - - 611,522

Due from other governments 1,999 - - - 1,999

Prepaid Items 136 - - - 136

Total assets 1,138,116$ 360,392$ 517,714$ 263,903$ 2,280,125$

LIABILITIES

Accounts payable and

other current liabilities 421,392$ 4,545$ 517,714$ -$ 943,651$

Due to other governments 679,339 - - - 679,339

Deferred revenue 37,385 1,441 - - 38,826

Deposits payable - 354,406 - - 354,406

Payable to bondholders - - - 263,903 263,903

Total liabilities 1,138,116$ 360,392$ 517,714$ 263,903$ 2,280,125$

134

STATISTICAL SECTION(Unaudited)

135

City of Santa CruzGeneral Government Expenditures by FunctionLast Ten Fiscal Years

Community &Fiscal General Public Parks and Public Economic SocialYear Government Safety Recreation Library Works Development Services

1995 6,157,369$ 12,435,182$ 6,445,713$ 4,301,057$ 4,048,288$ -$ 1,040,356$ 1996 6,451,398 13,263,127 6,884,301 4,352,862 3,641,572 - 1,130,750 1997 6,801,244 15,178,609 7,082,558 4,615,242 3,748,918 - 1,164,564 1998 7,243,351 16,537,380 7,466,564 1,508,087 3,735,292 - 1,301,223 1999 8,307,129 17,583,619 7,680,937 1,435,457 4,449,857 - 1,355,280 2000 8,658,374 18,175,374 7,998,743 1,404,622 4,893,280 - 1,568,533 2001 9,453,886 19,590,258 8,649,498 1,423,006 4,930,360 107,797 1,797,776 2002 10,015,075 21,316,301 9,816,703 1,410,148 5,047,532 90,532 2,147,331 2003 9,673,413 22,599,713 9,773,346 8,412,201 5,016,269 450,594 1,826,306 2004 8,967,025 24,647,937 9,721,229 8,528,577 3,989,048 71,949 1,656,875

Notes: This table includes expenditures of the General Fund.

Source: City of Santa Cruz Finance Department

Beginning in fiscal year 2003, the cost of personnel services provided to the Library Joint Powers Authority wasincluded in General Fund expenditures, as well as the cost of interfund personnel services provided.

136

Table 1

Earthquake Capital DebtDamage Outlay Service Total

1,519,780$ 1,423,141$ -$ 37,370,886$ 391,281 881,480 - 36,996,771

2,606,019 1,680,249 - 42,877,403 5,019,412 842,588 - 43,653,897

- 2,118,540 - 42,930,819 - 1,999,097 134,935 44,832,958 - 2,427,838 152,364 48,532,783 - 2,916,470 300,520 53,060,612 - 957,058 320,598 59,029,498 - 1,251,162 364,410 59,198,212

137

City of Santa CruzGeneral Government Revenues by Source Last Ten Fiscal Years

Charges Fines Use of MoneyFiscal Licenses and Inter- for and and OtherYear Taxes Permits Governmental Services Forfeitures Property Revenues

1995 23,041,822$ 1,259,334$ 2,205,598$ 7,928,477$ 1,130,147$ 3,114,865$ 244,273$ 1996 24,378,881 1,197,717 2,580,270 8,190,361 1,288,803 3,821,101 172,287 1997 25,857,144 1,335,623 3,296,590 8,450,778 1,169,823 4,057,707 219,250 1998 23,292,917 1,366,948 3,410,230 6,290,188 1,064,554 3,623,968 280,513 1999 24,918,906 1,397,862 4,170,892 6,729,820 1,397,833 3,794,000 213,496 2000 27,646,368 1,595,964 4,732,311 6,566,033 1,347,496 3,574,121 324,802 2001 30,258,503 1,342,471 5,281,661 7,009,901 1,286,990 4,152,368 327,692 2002 29,238,472 1,267,939 5,339,612 7,151,012 1,282,697 3,577,774 397,896 2003 30,027,154 614,012 4,788,035 16,693,936 1,555,481 2,252,373 308,104 2004 31,696,322 529,649 3,745,601 16,865,754 1,799,557 2,086,163 418,764

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 wereincluded in General Fund charges for services, as well as charges for interfund personnel services provided.Also, priorto fiscal year 2003, business license taxes were shown in licenses and permits.

138

Table 2

EarthquakeRelief Total

4,308,869$ 43,233,385$ 75,524 41,704,944

654,926 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 CruzTax Revenues by SourceLast Ten Fiscal Years

Fiscal Sales Transient UtilityYear Property and Use Franchise Occupancy Users Admission

1995 8,121,277$ 9,224,700$ 1,563,467$ 2,227,849$ 5,810,555$ 1,282,420$ 1996 8,434,673 9,672,987 1,660,067 2,570,636 6,022,023 1,528,661 1997 9,192,280 10,314,425 1,695,707 2,710,994 6,338,533 1,511,605 1998 9,784,131 7,191,934 1,736,039 2,716,397 6,557,490 1,539,111 1999 10,484,409 7,415,341 2,476,604 3,174,694 6,912,440 1,502,540 2000 12,176,209 8,857,748 2,771,014 3,541,396 7,149,619 1,583,897 2001 13,342,450 9,790,693 2,851,830 3,900,905 8,246,829 1,611,318 2002 14,944,971 9,126,341 2,996,907 3,131,378 7,627,331 1,612,526 2003 15,629,920 8,291,244 3,132,743 2,932,256 7,592,049 1,664,150 2004 15,792,225 9,084,026 3,329,454 3,016,463 7,638,926 1,724,330

Notes:

This table includes all governmental fund types.

Prior to fiscal year 2003, business license taxes were shown in permits and licenses.


Fiscal years 1995 through 1997 include half-cent sales tax override (Measure E) for earthquake repairs. The half-centoverride ended March 31, 1997.

Beginning with fiscal year 2003, business improvement taxes include the Co-op Retail Management Business RealProperty Improvement District.

140

Table 3

Park andBusiness Property Business Recreation

Parking Improvement Transfer License Facilities

141,982$ 135,724$ 96,318$ -$ -$ 146,426 140,859 115,843 - - 158,576 168,736 136,174 - - 147,877 175,114 162,915 - - 192,352 167,500 186,624 - - 158,229 170,369 219,132 - - 178,373 183,711 200,041 - - 194,646 175,868 194,632 - - 199,371 273,965 191,042 784,446 551,514 221,133 296,536 276,466 792,893 357,305

141

City of Santa Cruz Table 4

Property Tax Levies and CollectionsLast Ten Fiscal Years

OutstandingTotal Delinquent

Percent Delinquent Total Collections as Outstanding Taxes asTotal Tax Current Tax of Levy Tax Tax as Percent of Delinquent Percent of

Fiscal Year Levy Collections Collected Collections Collections Current Levy Taxes Current Levy

1995 7,853,836$ 7,853,836$ 100.0% ** 7,853,836$ 100.0% ** **1996 8,130,382 8,130,382 100.0% ** 8,130,382 100.0% ** **1997 8,800,364 8,800,364 100.0% ** 8,800,364 100.0% ** **1998 9,396,855 9,396,855 100.0% ** 9,396,855 100.0% ** **1999 10,104,672 10,104,672 100.0% ** 10,104,672 100.0% ** **2000 11,732,295 11,732,295 100.0% ** 11,732,295 100.0% ** **2001 12,516,202 12,516,202 100.0% ** 12,516,202 100.0% ** **2002 14,190,378 14,190,378 100.0% ** 14,190,378 100.0% ** **2003 14,639,056 14,639,056 100.0% ** 14,639,056 100.0% ** **2004 15,335,693 15,335,693 100.0% ** 15,335,693 100.0% ** **

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


Assessed and Estimated Actual Value of Taxable PropertyLast Ten Fiscal Years

Secured Roll Unsecured Roll TotalFiscal Year Assessed Value Assessed Value Assessed Value

1995 2,825,998,829$ 177,879,596$ 3,003,878,425$ 1996 2,902,071,132 185,926,518 3,087,997,650 1997 3,027,381,953 176,491,197 3,203,873,150 1998 3,151,981,755 176,321,921 3,328,303,676 1999 3,297,460,618 186,050,833 3,483,511,451 2000 3,583,471,174 198,830,667 3,782,301,841 2001 3,844,483,638 207,913,809 4,052,397,447 2002 4,217,070,195 237,668,331 4,454,738,526 2003 4,443,604,163 237,898,436 4,681,502,599 2004 4,707,428,936 225,168,674 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 reliableestimate of actual value a taxable property within the City is not possible.

143


Property Tax Rates and Tax Levies - Direct and Overlapping GovernmentsLast Ten Fiscal Years

Fiscal Year City School District County Totals

1995 0.000 0.000 1.000 1.0001996 0.000 0.000 1.000 1.0001997 0.000 0.000 1.000 1.0001998 0.000 0.000 1.000 1.0001999 0.000 0.000 1.000 1.0002000 0.009 0.039 1.000 1.0482001 0.009 0.034 1.000 1.0432002 0.009 0.034 1.000 1.0432003 0.009 0.038 1.000 1.0472004 0.009 0.037 1.000 1.046

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

Tax Rates

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 Countyand apportioned to local agencies according to a formula perscribed by the California legislature.

Source: Santa Cruz County Auditor - Controller

Tax Levies

144


Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per CapitaLast Ten Fiscal Years

Gross Debt Ratio of Net Net BondedAssessed Bonded Service Monies Net Bonded Bonded Debt to Debt per

Fiscal Year Population Value Debt Available Debt Assessed Value Capita

1995 52,677 3,003,878,425$ -$ -$ -$ - -$ 1996 52,731 3,087,997,650 - - - - - 1997 53,172 3,203,873,150 - - - - - 1998 53,172 3,328,303,676 - - - - - 1999 54,575 3,483,511,451 6,998,473 12 6,998,461 0.00201 128.242000 56,046 3,782,301,841 7,176,298 125,218 7,051,080 0.00186 125.812001 55,028 4,052,397,447 7,299,481 277,763 7,021,718 0.00173 127.602002 55,085 4,454,738,526 7,286,115 324,117 6,961,998 0.00156 126.392003 55,633 4,681,502,599 7,260,759 389,184 6,871,575 0.00147 123.522004 56,289 4,932,597,610 7,228,153 457,945 6,770,208 0.00137 120.28

Notes:

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


Computation of Legal Debt MarginJune 30, 2004

Total assessed value 4,932,597,610$

Legal debt limit - 15% of total assessed valuation 739,889,642

Amount of debt applicable to debt limit:

Total bonded debt, general obligation 7,228,153$

Less:Assets in debt service fund 457,945

Total amount of debt applicable to debt limit 6,770,208

Legal debt margin 733,119,434$

Notes:


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

146


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

Ratio ofTotal Debt Service

Total Current to GeneralFiscal Year Principal Interest Debt Service Expenditures Expenditures

1995 -$ -$ -$ 38,060,836$ 0.00%1996 - - - 40,103,360 0.00%1997 - - - 45,714,494 0.00%1998 - - - 45,367,901 0.00%1999 - - - 45,668,003 0.00%2000 - 207,854 207,854 42,698,926 0.49%2001 10,000 226,350 236,350 45,952,581 0.51%2002 142,624 230,726 373,350 49,843,622 0.75%2003 152,834 230,116 382,950 57,751,842 0.66%2004 157,796 229,554 387,350 57,582,640 0.67%

Notes:This table includes the General Fund.


Beginning in fiscal year 2003, the cost of personnel services provided to the Library Joint Powers Authority was included inGeneral Fund expenditures, as well as the cost of interfund personnel services provided.

General Obligation bonds were issued in fiscal year 1999, however no debt service payments were made. Debt servicepayments began in fiscal year 2000.

147


Computation of Direct and Overlapping DebtJune 30, 2004

2003-2004 Assessed Valuation 4,932,597,610$ Redevelopment Incremental Valuation: 769,034,401 Adjusted Assessed Valuation: 4,163,563,209$

Net General Percentage AmountObligation Debt Applicable Applicable

Outstanding to City to CityDIRECT:City of Santa Cruz 7,228,153$ 100.000% 7,228,153$

Total direct 7,228,153$ 7,228,153$ (1)

OVERLAPPING:Cabrillo Joint Community College District 27,561,421$ 20.219% 5,572,644$ Santa Cruz High School District 29,048,066 53.668% 15,589,516 Santa Cruz Elementary School District 24,978,980 95.142% 23,765,501 Live Oak School District 597,519 4.556% 27,223 Scott's Valley Unified School District 2,721 0.013% - City of Santa Cruz 1915 Act Bonds 1,955,000 100.000% 1,955,000 Santa Cruz County Certificates of Participation 15,504,598 20.495% 3,177,667 Cabrillo Joint Community College District Certificates of Participation 663,183 20.219% 134,089 Scotts Valley Unified School District Certificates of Participation 546 0.013% - Santa Cruz City Schools Certificates of Participation 3,179,829 53.668% 1,706,551 Live Oak School District Certificates of Participation 182,240 4.556% 8,303 City of Santa Cruz General Fund Obligations 9,470,000 100.000% 9,470,000 (2)

Santa Cruz Consolidated Emergency Communication Center 1,058,418 100.000% 1,058,418 City of Santa Cruz Port District Certificates of Participation 22,714 71.766% 16,301 Monterey Bay Unified Air Pollution Control District Authority 281,492 7.227% 20,343

Total overlapping 114,506,727$ 62,501,556$ (3)

Combined Total Debt 121,734,880$ 69,729,709$

(1) Direct debt is reported at the accreted value(2)(2)

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) 0.15%Total Overlapping Tax and Assessment Debt 1.85%

Ratios to Adjusted Assessed Valuation:Combined Direct Debt ($17,756,571) 0.43%Combined Total Overlapping Tax and Assessment Debt 2.92%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/04: $0

Source: California Municipal Statistics, Inc.

Excludes issues self-supporting from enterprise revenues ($7,870,000)Includes $5,290,000 for Certificates of Participation that are primarily supported by enterprise revenue, however

148


Revenue Bond CoverageLast Ten Fiscal Years

Net RevenueAvailable

Gross forFiscal Year Revenue Expenses* Debt Service Principal Interest Total Coverage

1995 9,529,175$ 5,460,460$ 4,068,715$ 360,000$ 1,353,835$ 1,713,835$ 2.41996 10,129,068 5,599,960 4,529,108 380,000 1,332,735 1,712,735 2.61997 10,579,889 5,984,051 4,595,838 405,000 1,309,565 1,714,565 2.71998 10,730,501 6,054,987 4,675,514 725,000 1,274,454 1,999,454 2.31999 12,179,844 7,379,231 4,800,613 765,000 1,227,031 1,992,031 2.42000 12,846,315 7,856,133 4,990,182 115,000 296,608 411,608 12.12001 11,585,518 7,275,278 4,310,240 120,000 290,733 410,733 10.52002 12,146,047 8,929,861 3,216,186 125,000 284,608 409,608 7.92003 12,306,445 9,415,409 2,891,036 130,000 278,233 408,233 7.12004 12,230,219 9,855,372 2,374,847 135,000 271,608 406,608 5.8

* Total expenses exclusive of depreciation and bond interest.


Debt Service Requirements

149


Demographic StatisticsLast Ten Fiscal Years

Per Capita

Fiscal Year Population Taxable Sales* Taxable Sales

1995 52,677 445,385,000$ 8,455$ 1996 52,731 499,232,000 9,468 1997 53,172 550,962,000 10,362 1998 53,172 680,283,000 12,794 1999 54,575 634,138,000 11,620 2000 56,046 725,287,000 12,941 2001 55,028 828,500,000 15,056 2002 55,085 809,628,000 14,698 2003 55,633 761,208,000 13,683 2004 56,289 761,986,000 13,537

* Calendar year ended during the fiscal year.

Source: State Board of Equalization

150


Principal TaxpayersJune 30, 2004

Percentage2004 of Total

Assessed AssessedTaxpayer Type of Business Valuation Valuation

Santa Cruz Seaside Co Entertainment 40,544,468$ 0.822%Silicon Systems Inc Electronics 38,286,914 0.776%Sequoia Equities-Cyress Point Etal Apartments 33,642,885 0.682%Santa Cruz Hotel LLC Hotel 22,077,476 0.448%Frederick Electronics Corp. Electronics 18,019,165 0.365%Cooper House LLC Commercial Rentals 17,530,609 0.355%Canfield Laurel & Pacific Ltd Partn Commercial Rentals 16,911,811 0.343%The Price Company Commercial Rentals 15,186,194 0.308%Scholz Management L P Apartments 14,525,619 0.294%Encinal Partnership No 1 Commercial Rentals 13,663,777 0.277%

Totals 230,388,918$ 4.671%

Total assessed value 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


Property Value and ConstructionLast Ten Fiscal Years

Property Value (2)

Number Number Total AssessedFiscal Year of Units Value of Units Value Value

1995 9 5,339,000$ 88 10,762,000$ 3,003,878,425$ 1996 5 3,332,000 93 13,428,000 3,087,997,650 1997 12 2,509,000 286 24,265,000 3,203,873,150 1998 27 26,685,000 85 12,183,000 3,328,303,676 1999 17 32,368,157 99 11,521,642 3,483,511,451 2000 12 2,916,634 46 9,168,875 3,782,301,841 2001 18 1,482,082 107 12,434,980 4,052,397,447 2002 7 4,299,498 79 12,376,653 4,454,738,526 2003 10 1,598,069 622 60,192,772 4,681,502,599 2004 11 3,348,691 94 13,046,637 4,932,597,610

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

Commercial ResidentialConstruction (1) Construction (1)

152


Miscellaneous Statistical DataJune 30, 2004

Form of Government: Parks and Recreation: (continued)

Council/City Manager Special Facilities: Archery Range City incorporated March 31, 1866 Civic Auditorium Present charter adopted March 12, 1948 Louden Nelson Community Center

Museum of Natural History Lighthouse Museum

Number of Budgeted City Employees: Neary Lagoon Wildlife Habitat (Regular positions only) Senior Center Classified service 703 Teen Center Exempt 122 Total Full Time Equivalent Positions 825 Libraries - (City-County):

Number of budgeted positions 116 Number of libraries:

Fire: Central Library 1 Number of budgeted positions 54 Branch libraries within city 2 Number of stations 3 Branch libraries in county 7

Bookmobile 1Police: Number of budgeted positions 128 Streets: Vehicular patrol units 43 Miles of paved streets 136

Miles of alleys 13Public Parking: Street lights 2,893 Number of lots 20 Number of spaces 5,124 Sewers: Number of parking meters* 1,714 Miles of sanitary sewers 151

Miles of storm drains 50Parks and Recreation: Number of budgeted positions 101 Water: Number of parks 30 Meters in service 23,724 Total acreage 1,970 Gallons - Average daily consumption (MGD) 10 Playgrounds in city parks 17 Miles of water mains 300 Public swimming pool 1 Fire hydrants 2,019 Tennis courts 7 Golf course 1


153


Insurance in ForceJune 30 2004

Amount ofType Insurer Property Covered Coverage

Liability (1) ACCEL Risk Pool, the All City operations 20,000,000$ Insurance Company of the State (per occurrence) of Pennsylvania, and LexingtonInsurance Company

Property (2) Various Insurance Companies Real Property and 750,000,000 Equipment

Loss of Income Various Insurance Companies City Hall and other 5,000,000 named locations

Boiler and Machinery Various Insurance Companies Machinery 100,000,000

Excess Workers' Compensation (3) California Public Entity N/A 45,000,000 Insurance Authority

Crime and Employee Hartford Fire Insurance Cash and Valuables 500,000 Dishonesty (2)

Notary Errors and Omissions 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

154

17312217 City of Santa Cruz Annual Financial Report

Documents

political

basic financial

wide financial

fund financial

wells fargo

secondary

funds financial

accompanying