NEW ISSUES — FULL BOOK-ENTRY RATINGS: (See “RATINGS”) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2008E Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and interest on the Series 2008E/F Bonds is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2008E Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Series 2008F Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2008E/F Bonds. See “TAX MATTERS.” $3,405,000 $21,410,000 FRESNO JOINT POWERS FINANCING AUTHORITY FRESNO JOINT POWERS FINANCING AUTHORITY LEASE REVENUE BONDS LEASE REVENUE BONDS (MASTER LEASE PROJECTS) (MASTER LEASE PROJECTS) SERIES 2008E SERIES 2008F (FEDERALLY TAXABLE) Dated: Date of Delivery Due: April 1, as shown on inside cover The Fresno Joint Powers Financing Authority (the “Authority”) is issuing $3,405,000 principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008E (the “Series 2008E Bonds”) and $21,410,000 principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable) (the “Series 2008F Bonds” and together with the Series 2008E Bonds, the “Series 2008E/F Bonds”) to: (i) establish an irrevocable escrow to refund a portion of the outstanding principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Convention Center Improvement Projects), Series 2006A; (ii) finance various capital projects; (iii) fund a deposit into the Reserve Account as additional security for the Series 2008E/F Bonds; and (iv) pay certain costs associated with the issuance of the Series 2008E/F Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.” The Series 2008E/F Bonds are being issued pursuant to a Master Trust Agreement dated as of April 1, 2008 (the “Master Trust Agreement”), as amended and supplemented by a First Supplemental Trust Agreement, dated as of May 1, 2008, and as further amended and supplemented by the Second Supplemental Trust Agreement, dated as of August 1, 2008 (the “Second Supplemental Trust Agreement”), each by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Master Trust Agreement as previously amended and supplemented and as further amended and supplemented by the Second Supplemental Trust Agreement is referred to as the “Trust Agreement.” The Series 2008E/F Bonds will each be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to ultimate purchasers (“Beneficial Owners”) in denominations of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are, or act through, DTC participants. Beneficial Owners will not be entitled to receive delivery of the Series 2008E/F Bonds. Interest on the Series 2008E/F Bonds is payable on April 1 and October 1 of each year, commencing on October 1, 2008. Principal on the Series 2008E/F Bonds is payable on April 1 of each year as set forth on the inside cover. Payments of principal, interest and premium, if any, on the Series 2008E/F Bonds will be payable by the Trustee to DTC or its nominee, so long as DTC or its nominee remains the registered owner of the Series 2008E/F Bonds, disbursement of such payments to DTC participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC participants. See APPENDIX F–“DTC AND THE BOOK-ENTRY ONLY SYSTEM.” The Series 2008E/F Bonds are subject to redemption by the Authority prior to maturity as described herein. See “THE SERIES 2008E/F BONDS–Series 2008E Bonds Redemption Provisions,” “–Series 2008F Bonds Redemption Provisions” and “–Redemption Provisions Applicable to Both Series of Bonds.” The Series 2008E/F Bonds and the interest thereon are payable from, and secured by a pledge of, and charge and lien upon Revenues consisting primarily of Base Rental Payments to be paid by the City of Fresno (the “City”) to the Authority pursuant to a Master Facilities Sublease, dated as of April 1, 2008, as amended and supplemented by a First Amendment to Master Facilities Lease, dated as of May 1, 2008, and as further amended and supplemented by a Second Amendment to Master Facilities Sublease, dated as of August 1, 2008, each by and between the Authority and the City, for beneficial use and occupancy of certain real property improvements (collectively, the “Facilities”). See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Base Rental Payments” and “THE FACILITIES.” The Authority previously issued its Series 2008A/B Bonds and Series 2008C/D Bonds, each as defined herein, that are payable on a parity with the Series 2008E/F Bonds and intends to issue Additional Bonds secured on a parity basis with the Series 2008E/F Bonds. The Series 2008A/B Bonds, the Series 2008C/D Bonds and the Series 2008E/F Bonds and all Additional Bonds are referred to herein as the “Bonds.” The Series 2008E/F Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Revenues. Neither the full faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof is pledged for the payment of the principal of or premium, if any, or interest on the Series 2008E/F Bonds. The obligation of the City to make Base Rental Payments under the Master Sublease does not constitute a debt, liability or obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The Authority has no taxing power. This cover contains certain information for general reference only. It is not a summary of this issue. Investors are strongly advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision, including “CERTAIN BONDOWNERS’RISKS.” The scheduled payment of principal of and interest on the Series 2008E/F Bonds when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Series 2008E/F Bonds by Assured Guaranty Corp. See “FINANCIAL GUARANTY INSURANCE.”

The Series 2008E/F Bonds are offered when, as and if issued by the Authority and received by the Underwriter, subject to the approval of validity by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, and to certain other conditions. Certain matters will be passed upon for the Authority and the City by the City Attorney of the City of Fresno and for the Authority, the City and the Underwriter by Lofton & Jennings, San Francisco, California, Disclosure Counsel. It is expected that the Series 2008E/F Bonds in book-entry form will be available for delivery through the facilities of DTC in New York, New York, on or about August 14, 2008.

Dated: August 7, 2008 MATURITY SCHEDULE

$3,405,000 CITY OF FRESNO LEASE REVENUE BONDS (MASTER LEASE PROJECTS) SERIES 2008E

Maturity Principal Interest Price or CUSIP No.† (April 1) Amount Rate Yield (358184) 2023 $950,000 4.500% 4.680% LQ0 2024 2,455,000 4.600 4.740 LR8

$21,410,000 CITY OF FRESNO LEASE REVENUE BONDS (MASTER LEASE PROJECTS) SERIES 2008F (Federally Taxable)

$4,680,000 Serial Bonds

Maturity Principal Interest Price CUSIP No.† (April 1) Amount Rate (358184) 2010 $1,100,000 3.883% 100% LS6 2011 1,140,000 4.361 100 LT4 2012 1,190,000 4.911 100 LU1 2013 1,250,000 5.211 100 LV9

$5,775,000 6.300% Term Bonds Due April 1, 2017 – Yield: 6.444%– CUSIP No.†: 358184LW7 $10,955,000 6.700% Term Bonds Due April 1, 2023 – Yield: 6.794% – CUSIP No.†: 358184LX5

______† Copyright 2008, American Bankers Association. CUSIP data herein is provided by Standard and Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for convenience of reference only. Neither of the City nor the Underwriter takes any responsibility for the accuracy of such CUSIP numbers. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2008E/F Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity.

No dealer, broker, salesperson or other person has been authorized by the Fresno Joint Powers Financing Authority (the “Authority”) or City of Fresno (the “City”) to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2008E/F Bonds by a person in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. This Official Statement is not to be construed as a contract or agreement between the Authority, the City and the purchasers or any of the owners of Series 2008E/F Bonds. Any statement made in this Official Statement involving forecasts or matter of estimates or opinion, whether or not expressly so stated, are intended solely as such and not as representations of fact. The information set forth herein has been furnished by the Authority and the City and obtained from other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as representations by the Underwriter. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority or the City since the date hereof. This Official Statement is submitted in connection with the sale of the Series 2008E/F Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the Authority and the City. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. All capitalized terms used herein, unless noted otherwise, shall have the meanings prescribed in the Trust Agreement and the Second Supplemental Trust Agreement. In connection with the offering of the Series 2008E/F Bonds, the underwriter may overallot or effect transactions that stabilize or maintain the market price of the Series 2008E/F Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The underwriter may offer and sell the Series 2008E Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. This Official Statement contains forecasts, projections, estimates and other forward-looking statements that are based on current expectations. The words “expects,” “forecasts,” “projects,” “intends,” “anticipates,” “estimates,” “budget” “assumes” and analogous expressions are intended to identify forward-looking statements. Such forecasts, projections and estimates are not intended as representations of fact or guarantees of results. Any such forward-looking statements inherently are subject to a variety of risks and uncertainties that could cause actual results or performance to differ materially from those that have been forecast, estimated or projected. Such risks and uncertainties include, among others, changes social and economic conditions, federal, state and local statutory and regulatory initiatives, litigation, population changes, seismic events and various other events, conditions and circumstances, many of which are beyond the control of the Authority or the City. These forward-looking statements speak only as of the date of this Official Statement. The Authority and the City disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any changes in the expectations of the Authority and the City with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The issuance and sale of the Series 2008E/F Bonds have not been registered under the Securities Act of 1933 in reliance upon the exemption provided thereunder by Section 3(a)2 for the issuance and sale of municipal securities. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Series 2008E/F Bonds by any person in any jurisdiction in which it is unlawful for such persons to make such offer, solicitation or sale. Assured Guaranty Corp. makes no representation regarding the Series 2008E/F Bonds or the advisability of investing in the Series 2008E/F Bonds. In addition, Assured Guaranty Corp. has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty Corp. supplied by Assured Guaranty Corp. and presented under the heading “FINANCIAL GUARANTY INSURANCE” and APPENDIX G–“SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY.”

i FRESNO JOINT POWERS FINANCING AUTHORITY

GOVERNING BOARD

Blong Xiong, Chair Alan Autry, Member Larry Westerlund, Member

CITY OF FRESNO

MAYOR AND CHIEF EXECUTIVE OFFICER

Alan Autry

CITY COUNCIL

Blong Xiong, President District 1 Brian Calhoun, Ph.D., District 2 Cynthia Sterling, Acting President, District 3 Paul Capriogolio, District 4 Mike Dages, District 5 Jerry Duncan, District 6 Henry T. Perea, District 7

CHIEF CITY ADMINISTRATIVE PERSONNEL

Andrew T. Souza, City Manager Bruce A. Rudd, Assistant City Manager James C. Sanchez, City Attorney Karen M. Bradley, Interim City Controller/Finance Director Ken Nerland, Director, General Services

SPECIAL SERVICES

Orrick, Herrington & Sutcliffe LLP Lofton & Jennings San Francisco, California San Francisco, California Bond Counsel Disclosure Counsel The Bank of New York Mellon Trust Company, N.A. KNN Public Finance, Los Angeles, California A Division of Zions First National Bank Trustee Oakland, California Financial Advisor

Grant Thornton LLP Minneapolis, Minnesota Verification Agent

ii TABLE OF CONTENTS Page Page INTRODUCTION...... 1 Insurance...... 28 General...... 1 Limitation on Remedies...... 28 Authority; Purpose...... 1 Loss of Tax Exemption...... 29 The Authority ...... 1 Risk of Tax Audit ...... 29 Security and Sources of Payment for the Reliance on State Budget...... 29 Bonds...... 2 Changes in Law ...... 30 Reserve Account...... 3 Secondary Markets and Prices...... 30 Financial Guaranty Insurance ...... 3 CONSTITUTIONAL AND STATUTORY Risks to Bondowners ...... 3 LIMITATIONS ON TAXES AND References to Underlying Documents ...... 3 APPROPRIATIONS ...... 30 PLAN OF FINANCE ...... 4 Article XIII A of the California Constitution...... 30 General...... 4 Article XIII B of the California Constitution...... 31 Series 2008E/F Project ...... 4 Proposition 218...... 32 Refunding ...... 4 Proposition 1A...... 34 THE SERIES 2008E/F BONDS...... 6 Future Initiatives...... 35 General...... 6 THE AUTHORITY ...... 35 Series 2008E Bonds Redemption Provisions...... 6 THE CITY...... 35 Series 2008F Bonds Redemption Provisions...... 6 CITY FINANCIAL INFORMATION...... 36 Redemption Provisions Applicable to Both Budget Process...... 36 Series of Bonds...... 8 Recent City General Fund Budgets...... 36 Redemption Procedures ...... 8 State Budgets ...... 37 DEBT SERVICE REQUIREMENTS ...... 10 Financial Statements...... 39 ESTIMATED SOURCES AND USES OF Management Discussion of Projected FUNDS...... 12 Financial Performance...... 42 SECURITY AND SOURCES OF PAYMENT Principal Sources of General Fund Revenues.....42 FOR THE BONDS ...... 12 Sales Tax...... 42 Pledge of Revenues...... 12 Assessed Valuation...... 43 Base Rental Payments...... 13 Ad Valorem Property Taxation...... 44 Covenant to Budget and Appropriate ...... 13 Motor Vehicle in Lieu Fees ...... 46 Option to Purchase...... 13 Investment Policy ...... 48 Insurance...... 14 Risk Management ...... 51 Reserve Account...... 15 Workers’ Compensation Costs ...... 52 Additional Bonds...... 15 Employer-Employee Relations ...... 53 Addition, Substitution, Release of Property...... 16 City Health and Welfare Trust Self Insurance FINANCIAL GUARANTY INSURANCE...... 17 Program ...... 53 The Insurance Policy ...... 17 City Retirement Systems ...... 54 The Insurer...... 18 Post Retirement Supplemental Benefit THE FACILITIES ...... 20 Program ...... 61 Selland Arena ...... 20 GASB 45...... 63 Woodward Park ...... 20 Environmental Matters ...... 65 Municipal Services Center...... 21 Long Term Obligations...... 67 Fresno Memorial Auditorium ...... 22 Direct and Overlapping Debt...... 70 Downtown Parking Garages ...... 22 Future Financings ...... 71 Summary of the Facilities; Terms under the NO LITIGATION...... 71 Master Sublease; Valuations...... 23 TAX MATTERS ...... 71 Agreements Affecting the Auditorium ...... 23 Circular 230 ...... 73 Seismicity ...... 23 CERTAIN LEGAL MATTERS ...... 73 CERTAIN BONDOWNERS’ RISKS ...... 24 RATINGS...... 73 Limited Obligation...... 24 VERIFICATION OF MATHEMATICAL Base Rental Payments Not a Debt of the City ....24 COMPUTATIONS...... 74 Financial Guaranty Insurance on the Series UNDERWRITING ...... 74 2008E/F Bonds ...... 25 Series 2008E Bonds...... 74 Limited Recourse on Default...... 26 Series 2008F Bonds ...... 75 Abatement...... 27 FINANCIAL ADVISOR...... 75 Earthquake Risk and Other Disasters ...... 27 CONTINUING DISCLOSURE...... 75 Hazardous Substances ...... 28 MISCELLANEOUS...... 76 iii MAPS AND TABLES

Page

Table 1 – Refunded 2006 Bonds ...... 5 Table 2 – Debt Service Schedule ...... 10 Table 3 – Estimated Sources and Uses of Funds...... 12 Table 4 – Summary of the Facilities ...... 23 Table 5 – General Fund Revenues and Expenditures and Changes in Fund Balances...... 41 Table 6 – Taxable Retail Sales Data ...... 43 Table 7 – Assessed Value of Taxable Property...... 44 Table 8 – Property Tax Levies and Collections ...... 45 Table 9 – Principal Secured Taxable Property Owners by Valuation...... 46 Table 10 – Motor Vehicle in Lieu Fees...... 47 Table 11 – Investment Limits by Type ...... 49 Table 12 – Portfolio Summary ...... 50 Table 13 – Employee Contracts ...... 53 Table 14 – Schedule of Net Employer Contribution Rates to the Retirement Systems ...... 55 Table 15A – Fire and Police Retirement System Member Population ...... 55 Table 15B – Employee Retirement System Member Population ...... 55 Table 16A – Fire and Police Retirement System Schedule of Funding Progress ...... 56 Table 16B – Employee Retirement System Schedule of Funding Progress ...... 57 Table 17A – Fire and Police Retirement System Schedule of Revenue, Net Assets and Return on Market Value...... 58 Table 17B – Employee Retirement System Schedule of Revenue, Net Assets and Return on Market Value...... 59 Table 18 – Retirement Systems Summary of Current Investments ...... 61 Table 19 – Post Retirement Supplemental Benefit Program...... 62 Table 20 – Post Employment Benefits Summary ...... 64 Table 21 – Post Employment Benefit Cost Summary...... 65 Table 22 – Long-Term General Fund Obligations...... 69 Table 23 – Direct and Overlapping Debt Statement ...... 70

APPENDICES

APPENDIX A – General, Economic and Demographic Information Relating to the City of Fresno ....A-1 APPENDIX B – City of Fresno, California, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2007 ...... B-1 APPENDIX C – Summary of Certain Provisions of the Principal Legal Documents...... C-1 APPENDIX D – Proposed Form of Opinion of Bond Counsel ...... D-1 APPENDIX E – Form of Continuing Disclosure Certificate ...... E-1 APPENDIX F – DTC and the Book-Entry Only System...... F-1 APPENDIX G – Specimen Financial Guaranty Insurance Policy ...... G-1

iv OFFICIAL STATEMENT

$3,405,000 $21,410,000 FRESNO JOINT POWERS FINANCING FRESNO JOINT POWERS FINANCING AUTHORITY AUTHORITY LEASE REVENUE BONDS LEASE REVENUE BONDS (MASTER LEASE PROJECTS) (MASTER LEASE PROJECTS) SERIES 2008E SERIES 2008F (FEDERALLY TAXABLE)

INTRODUCTION

General

The purpose of this Official Statement (which includes the cover, inside cover and appendices attached hereto) is to provide information in connection with the sale and delivery by the Fresno Joint Powers Financing Authority (the “Authority”) of $3,405,000 aggregate principal amount of its Lease Revenue Bonds (Master Lease Projects), Series 2008E (the “Series 2008E Bonds”) and $21,410,000 principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable) (the “Series 2008F Bonds” and together with the Series 2008E Bonds, the “Series 2008E/F Bonds”).

Authority; Purpose

The Series 2008E/F Bonds are being issued pursuant to the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State (the “Act”), and a Master Trust Agreement, dated as of April 1, 2008 (the “Master Trust Agreement”), as amended and supplemented by a First Supplemental Trust Agreement, dated as of May 1, 2008, and as further amended and supplemented by the Second Supplemental Trust Agreement, dated as of August 1, 2008 (the “Second Supplemental Trust Agreement”), each between the Authority and The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, as trustee (the “Trustee”). The Master Trust Agreement as previously amended and supplemented and as further amended and supplemented by the Second Supplemental Trust Agreement is referred to as the “Trust Agreement.”

The proceeds of the sale of the Series 2008E/F Bonds will be used to: (i) establish an irrevocable escrow to refund a portion of the outstanding Fresno Joint Powers Financing Authority Lease Revenue Bonds (Convention Center Improvement Projects), Series 2006A (the “2006A Refunded Bonds”); (ii) finance various capital projects; (iii) fund a deposit into the Reserve Account as additional security for the Series 2008E Bonds; and (iv) pay certain costs associated with the issuance of the Series 2008E/F Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.”

The Authority

The Authority is a joint exercise of powers agency organized under the laws of the State of California (the “State”) and composed of the City of Fresno, California (the “City”) and the Redevelopment Agency of the City of Fresno (the “Agency”). The Authority was formed pursuant to a Joint Exercise of Powers Agreement, dated October 25, 1988, as amended, by and between the City and the Agency to assist in the financing of public capital improvements.

Security and Sources of Payment for the Bonds

General. The Series 2008E/F Bonds are payable from, and secured by a pledge of, and charge and lien upon, certain rental payments received by the Authority from the City (the “Base Rental Payments”) pursuant to a Master Facilities Sublease, dated as of April 1, 2008, as amended and supplemented by a First Amendment to Master Facilities Sublease, dated as of May 1, 2008, and as further amended and supplemented by the Second Amendment to Master Facilities Sublease, dated as of August 1, 2008 (the “Second Amendment to Master Sublease”), each by and between the Authority and the City, and from certain interest and other income derived from certain funds and accounts held under the Trust Agreement. The Master Sublease as previously amended and supplemented and as further amended and supplemented by the Second Amendment to Master Sublease is referred to as the “Master Sublease.” The City is obligated to pay all Base Rental Payments under the Master Sublease from the City’s General Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Base Rental Payments.”

The City owns certain real property improvements (each a “Facility,” and collectively, the “Facilities”), that the City has leased to the Authority pursuant to a Master Facilities Lease, dated as of April 1, 2008, as amended and supplemented by a First Amendment to Master Facilities Lease, dated as of May 1, 2008, and as further amended and supplemented by the Second Amendment to Master Facilities Lease, dated as of August 1, 2008 (the “Second Amendment to Facilities Lease”). The Master Facilities Lease, as previously amended and supplemented and further amended and supplemented by the Second Amendment to Facilities Lease is referred to as the “Master Lease.” The City has leased, or will lease, the Facilities back from the Authority pursuant to the Master Sublease. For a description and location of the Facilities, see “THE FACILITIES.”

The Series 2008E/F Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Revenues. Neither the full faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof is pledged for the payment of the principal of or premium, if any, or interest on the Series 2008E/F Bonds. The obligation of the City to make Base Rental Payments under the Master Sublease does not constitute a debt, liability or obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The Authority has no taxing power.

Outstanding Bonds. On April 29, 2008, the Authority issued, and there are currently outstanding, $38,550,000 aggregate principal amount of its Lease Revenue Bonds (Master Lease Projects), Series 2008A (the “Series 2008A Bonds”) and $2,405,000 aggregate principal amount of its Lease Revenue Bonds (Master Lease Projects), Series 2008B (Federally Taxable) (the “Series 2008B Bonds” and together with the Series 2008A Bonds, the “Series 2008A/B Bonds”), and on June 12, 2008 the Authority issued, and there are currently outstanding, $36,050,000 principal amount of its Lease Revenue Bonds (Master Lease Projects), Series 2008C (the “Series 2008C Bonds”) and $1,635,000 principal amount of its Lease Revenue Bonds (Master Lease Projects), Series 2008D (Federally Taxable) (the “Series 2008D Bonds” and together with the Series 2008C Bonds, the “Series 2008C/D Bonds”), all which are secured by Base Rental Payments on a parity with the Series 2008E/F Bonds. See “PLAN OF FINANCE” and “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

The Authority may issue future Additional Bonds secured on a parity basis with the Series 2008A/B Bonds, the Series 2008C/D Bonds and the Series 2008E/F Bonds. The Series 2008E/F Bonds, together with the Series 2008A/B Bonds, the Series 2008C/D Bonds and any future Additional Bonds issued pursuant to the Trust Agreement, are referred to herein as the “Bonds.”

2 Reserve Account

Upon the issuance of the Series 2008E/F Bonds, proceeds in the amount of $1,694,674.45 will be deposited into the Reserve Account to bring the amount on deposit therein equal to the Reserve Account Requirement for the Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Reserve Account.” The Reserve Account Requirement is defined in the Trust Agreement as the lesser of: (i) 10% of the original issue price of the Bonds, (ii) 125% of the average annual debt service on all Outstanding Bonds, or (iii) maximum annual debt service on all Outstanding Bonds.

Financial Guaranty Insurance

The scheduled payment of principal of and interest on the Series 2008E/F Bonds when due will be guaranteed under a financial guaranty insurance policy to be issued concurrently with the delivery of the Series 2008E/F Bonds by Assured Guaranty Corp. (“Assured Guaranty” or the “Insurer”). See “FINANCIAL GUARANTY INSURANCE” and APPENDIX G–“SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY.”

Risks to Bondowners

An investment in the Series 2008E/F Bonds involves risk. Investors are advised to read the entire Official Statement to obtain information essential to making an informed decision to invest in the Series 2008E/F Bonds. For a discussion of certain investment considerations and risk factors that should be considered by prospective purchasers of the Series 2008E/F Bonds, in addition to the other matters presented in this Official Statement, see “CERTAIN BONDOWNERS’ RISKS.”

References to Underlying Documents

Brief descriptions of the Series 2008E/F Bonds, the Trust Agreement, the Second Supplemental Trust Agreement, the Master Lease, the Second Amendment to Master Lease, the Master Sublease, the Second Amendment to Master Sublease, the Authority and the Facilities are included in this Official Statement. The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to such document, statute, report or instrument, copies of which are available for inspection at the City of Fresno, Finance Department, 2600 Fresno Street, Fresno, California 93721-3603. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto as set forth in APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–CERTAIN DEFINITIONS.”

(Remainder of this Page Intentionally Left Blank)

3 PLAN OF FINANCE

General

The Series 2008E/F Bonds are issued under the City’s Master Lease Program. The Master Trust Agreement, the Master Lease and the Master Sublease (the “Master Lease Program Documents”) are designed by the Authority and the City to provide the Authority’s primary vehicle for assisting the City in financing capital improvements through lease financings. Pursuant to the Master Sublease, the City makes Base Rental Payments for the beneficial use and occupancy of each Facility identified therein, which Base Rental Payments, in the aggregate, are calculated to be sufficient to pay debt service on the Authority’s Outstanding Bonds issued under the Master Lease Program. Base Rental Payments on each Facility are available to pay debt service on all Bonds, without preference or priority among Series. The Projects financed from any Series of Bonds are not security for the Bonds, unless any such Project is added to the Master Sublease as a Facility, in which case Base Rental Payments with respect thereto are available to pay debt service on the Bonds.

The Authority instituted its Master Lease Program with the issuance of the Authority’s Series 2008A Bonds and Series 2008B Bonds. In connection with the issuance of the Series 2008E/F Bonds, the City and the Authority are amending the Master Lease Program Documents by adding Selland Arena as one of the Facilities. See “THE FACILITIES.”

Series 2008E/F Project

A portion of the proceeds of the Series 2008E/F Bonds in the amount of $13,000,000 will be used to finance the design, construction, installation and rehabilitation of certain public capital improvements within the City, including, but not limited to the acquisition and installation of improvements and equipment to one or more of the buildings comprising the Fresno Convention and Entertainment Center (the “Fresno Convention Center”) and replacement of a chiller in City Hall.

The Fresno Convention Center is comprised of five separate buildings: a Conference Center, an Exhibit Hall, the William Saroyan Theater, Selland Arena and the Ernest E. Valdez Hall, and is located approximately eight blocks southeast of City Hall. The Fresno Convention Center has been managed and operated by SMG, a venue management, marketing and development company, since January 2004.

Refunding

The Authority will use a portion of the proceeds of the Series 2008F Bonds to establish an irrevocable escrow to refund $8,600,000 outstanding principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Convention Center Improvement Projects), Series 2006A (the “Refunded 2006A Bonds”). The proceeds of the Series 2008E/F Bonds will be deposited into an escrow fund (the “Escrow Fund”) established pursuant to an Escrow Agreement, dated as of August 1, 2008 (the “Escrow Agreement”) between the Authority and Wells Fargo Bank, National Association as escrow agent, (the “Escrow Agent”). Following the refunding and defeasance of the Refunded 2006A Bonds, $6,820,000 principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Convention Center Improvement Projects), Series 2006A will remain Outstanding.

4 The Refunded 2006A Bonds are expected to consist of the following:

TABLE 1 $8,600,000 Fresno Joint Powers Financing Authority Lease Revenue Bonds (Convention Center Improvement Projects) Series 2006A Dated Date: June 28, 2006

† Redemption Maturity Date Interest CUSIP No. Date Redemption (October 1) Amount* Rate (358184) (October 1) Price 2011 $230,000 4.250% HX0 2011 100% 2012 405,000 4.250 HY8 2012 100 2013 420,000 4.250 HZ5 2013 100 2014 440,000 4.250 JA8 2014 100 2015 455,000 4.250 JB6 2015 100 2016 475,000 4.250 JC4 2016 100 2017 490,000 4.000 JD2 2016 100 2018 515,000 4.000 JE0 2016 100 2019 545,000 4.125 JF7 2016 100 2020 565,000 4.125 JG5 2016 100 2021 595,000 4.250 JH3 2016 100 2022 625,000 4.250 JJ9 2016 100 2023 655,000 4.300 JK6 2016 100 2024 695,000 4.375 JL4 2016 100 2025 725,000 4.375 JM2 2016 100 2026 765,000 4.500 JN0 2016 100 ______† Copyright, American Bankers Association. CUSIP data herein is provided by Standard and Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. CUSIP numbers are provided for reference only. None of the City, the Authority, the Underwriter or the Financial Advisor takes any responsibility for the accuracy of such numbers.

The amounts deposited with the Escrow Agent pursuant to the Escrow Agreement will be held by the Escrow Agent and invested in noncallable direct obligations of the United States of America, and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America to which the direct obligation or guarantee the full faith and credit of the United States of America has been pledged (collectively, the “Government Securities”) that are irrevocably pledged solely to the payment of the interest components becoming due with respect to the Refunded 2006A Bonds. The principal of and interest on such Government Securities, when received, will be sufficient to pay the principal of and interest on the Refunded 2006A Bonds. See also, “VERIFICATION OF MATHEMATICAL COMPUTATIONS.”

5 THE SERIES 2008E/F BONDS

General

The Series 2008E Bonds will be issued in the principal amount of $3,405,000 and the Series 2008F Bonds will be issued in the principal amount of $21,410,000, each as one fully registered Series 2008E/F Bond for each maturity of each Series, in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), as registered owner of all Series 2008E/F Bonds. See APPENDIX F–“DTC AND THE BOOK-ENTRY ONLY SYSTEM.” The Series 2008E/F Bonds will each be dated from the date of original delivery, bear interest at the rates per annum set forth on the inside cover, payable semiannually on April 1 and October 1 (each, an “Interest Payment Date”), commencing October 1, 2008, and mature on April 1 in the years and in the principal amounts set forth on the inside cover.

Series 2008E Bonds Redemption Provisions

Optional Redemption. The Series 2008E Bonds are subject to redemption prior to their respective stated maturities at the written direction of the Authority (delivered to the Trustee no later than 45 days prior to the redemption date), from any moneys deposited by the Authority or the City, as a whole or in part on any date (in such maturities as are designated in writing by the Authority to the Trustee) on or after April 1, 2018, at the redemption price of 100% of the principal amount thereof, together with accrued interest to the date fixed for redemption.

Series 2008F Bonds Redemption Provisions

Optional Redemption. The Series 2008F Bonds will be subject to optional redemption prior to their maturity at the option of the City, in whole or in part (and if in part, pro rata as described below) on any date, at a redemption price equal to the greater of:

• 100% of the principal amount of the Series 2008F Bonds to be redeemed; or

• the sum of the present values of the remaining scheduled payments of principal and interest on the Series 2008F Bonds to be redeemed (exclusive of interest accrued to the date fixed for redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (defined below) plus 12.5 basis points, plus in each case, accrued and unpaid interest on the Series 2008F Bonds being redeemed to the date fixed for redemption.

“Comparable Treasury Issue” means the United States Treasury security or securities selected by the Designated Investment Banker which has an actual or interpolated maturity comparable to the remaining average life of the Series 2008F Bonds to be redeemed, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of such Series 2008F Bonds.

“Comparable Treasury Price” means, with respect to any redemption date, (i) if the Designated Investment Banker receives at least four Reference Treasury Dealer Quotations, the average of such quotations for such redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (ii) if the Designated Investment Banker obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.

6 “Designated Investment Banker” means one of the Reference Treasury Dealers appointed by the City.

“Reference Treasury Dealer” means an investment banking institution of national standing, specified by the City from time to time, that is a primary U.S. Government securities dealer in the City of New York (each a “Primary Treasury Dealer”); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the City will substitute another Primary Treasury Dealer.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day preceding such redemption date.

“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price.

Mandatory Sinking Fund Redemption. The Series 2008F Bonds maturing on April 1, 2017, are subject to mandatory sinking fund redemption prior to maturity, in part on April 1 of each year on and after April 1, 2014, by lot, from and in the amount of the Mandatory Sinking Account Payments, at a redemption price equal to the sum of the principal amount thereof plus accrued interest thereon to the redemption date, without premium.

2017 Series 2008F Term Bonds Mandatory Sinking Account Payment Date (April 1) Principal Amount 2014 $1,315,000 2015 1,395,000 2016 1,485,000 2017† 1,580,000 ______† Maturity.

7 The Series 2008F Bonds maturing on April 1, 2023, are subject to mandatory sinking fund redemption prior to maturity, in part on April 1 of each year on and after April 1, 2018, by lot, from and in the amount of the Mandatory Sinking Account Payments, at a redemption price equal to the sum of the principal amount thereof plus accrued interest thereon to the redemption date, without premium.

2023 Series 2008F Term Bonds Mandatory Sinking Account Payment Date (April 1) Principal Amount 2018 $1,675,000 2019 1,790,000 2020 1,910,000 2021 2,035,000 2022 2,175,000 2023† 1,370,000 ______† Maturity.

Redemption Provisions Applicable to Both Series of Bonds

Extraordinary Redemption. The Bonds are subject to redemption by the Authority on any date prior to their respective stated maturities, upon notice as provided in the Trust Agreement, in whole, or in part by lot within each stated maturity in integral multiples of $5,000 from the proceeds of insurance received for damage to or destruction of the Facilities or portions thereof, if not used to repair, reconstruct or replace the Facilities; and from insurance, eminent domain or title insurance proceeds received by the City in connection with all or any portion of the Facilities under the circumstances described in the Trust Agreement and the Master Sublease, at a redemption price equal to the principal amount of the Bonds to be redeemed, without premium, plus accrued interest thereon to the redemption date. Whenever less than all of the outstanding Bonds are to be redeemed, on any one date, the Trustee is required to select the Bonds to be redeemed in part from the outstanding Bonds among Series and from such maturities selected by the Authority, provided that the aggregate annual debt service on Bonds which will be payable after such redemption date is as nearly proportional as practicable to the aggregate annual debt service on the Bonds Outstanding prior to such redemption date. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Insurance.”

Redemption Procedures

Selection of Series 2008E/F Bonds for Redemption. If less than all Outstanding Series of Series 2008E/F Bonds maturing by their terms on any one date are to be redeemed at any one time, the Trustee shall select such Series 2008E/F Bonds of such maturity date to be redeemed in any manner that it deems appropriate and fair and shall promptly notify the Authority in writing of the numbers of the Series 2008E/F Bonds so selected for redemption. For purposes of such selection, Series 2008E/F Bonds shall be deemed to be composed of $5,000 multiples of principal, and any such multiple may be separately redeemed.

Notice of Redemption. Notice of redemption of any Series 2008E/F Bond is required to be mailed by the Trustee, not less than 30 nor more than 60 days prior to the redemption date, to (i) the respective Holders of the Series 2008E/F Bonds designated for redemption at their addresses appearing on the registration books of the Trustee; (ii) the Municipal Securities Rulemaking Board; (iii) the Securities Depositories; and (iv) one or more Information Services. Notice of redemption is required to be given by registered mail, electronic mail, overnight delivery or facsimile transmission. Failure to receive such notice shall not invalidate any of the proceedings taken in connection with such redemption. 8 At the Written Direction of the City, any notice of redemption with respect to an optional redemption of the Series 2008F Bonds may provide that such redemption is conditional upon receipt by the Trustee of sufficient moneys to redeem the Series 2008E/F Bonds or portion thereof, including moneys to pay any redemption premium (a “Conditional Redemption”). The Trustee is required to rescind any Conditional Redemption if sufficient moneys have not been deposited with the Trustee on or before the redemption date. The optional redemption of the Series 2008E/F Bonds is required to be canceled once the Trustee has given notice of rescission. Any portion of the Series 2008E/F Bonds subject to Conditional Redemption where such redemption has been rescinded will remain Outstanding, and neither the rescission nor the failure of funds being made available in part or in whole on or before the redemption date will constitute an Event of Default under the Trust Agreement.

Effect of Redemption. If notice of redemption has been duly given as provided in the Trust Agreement and money for the payment of the redemption price of the Series 2008E/F Bonds called for redemption is held by the Trustee, then on the date fixed for redemption designated in such notice, the Series 2008E/F Bonds so called for redemption will become due and payable, and from and after the date so designated for redemption, the interest on such Series 2008E/F Bonds will cease to accrue. Holders of such Series 2008E/F Bonds will then have no rights in respect thereof except to receive payment of the redemption price thereof.

Purchase in Lieu of Redemption. At any time prior to giving notice of redemption of Term Bonds, the Trustee is required to apply moneys in the Sinking Account to the purchase of Term Bonds of such maturity and Series at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as may be directed by the City, except that the purchase price (excluding accrued interest) may not exceed the redemption price that would be payable for such Series of Bonds upon redemption by application of such Mandatory Sinking Account Payment.

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9

DEBT SERVICE REQUIREMENTS

The amounts required to be set aside each April 1 and October 1 for principal, sinking account payments and interest relating to the Bonds are as follows: TABLE 2 DEBT SERVICE SCHEDULE

Total Fiscal Year Series 2008 Series 2008E Bonds Series 2008F Bonds Combined Date A/B/C/D Bonds Principal Interest Total Principal Interest Total Debt Service October 1, 2008 $1,303,038.48 – $20,324.89 $20,324.89 – $171,526.08 $171,526.08 – April 1, 2009 4,960,253.25 – 77,840.00 77,840.00 – 656,908.40 656,908.40 $7,189,891.10 October 1, 2009 1,725,687.25 – 77,840.00 77,840.00 – 656,908.40 656,908.40 – April 1, 2010 5,095,687.25 – 77,840.00 77,840.00 $1,100,000 656,908.40 1,756,908.40 9,390,871.30 October 1, 2010 1,653,558.75 – 77,840.00 77,840.00 – 635,551.90 635,551.90 – April 1, 2011 5,033,558.75 – 77,840.00 77,840.00 1,140,000 635,551.90 1,775,551.90 9,253,901.30 October 1, 2011 1,576,575.00 – 77,840.00 77,840.00 – 610,694.20 610,694.20 – April 1, 2012 5,111,575.00 – 77,840.00 77,840.00 1,190,000 610,694.20 1,800,694.20 9,255,218.40 October 1, 2012 1,508,687.50 – 77,840.00 77,840.00 – 581,473.76 581,473.76 – April 1, 2013 5,178,687.50 – 77,840.00 77,840.00 1,250,000 581,473.76 1,831,473.76 9,256,002.52

10 October 1, 2013 1,435,093.75 – 77,840.00 77,840.00 – 548,905.00 548,905.00 – April 1, 2014 4,430,093.75 – 77,840.00 77,840.00 1,315,000 548,905.00 1,863,905.00 8,433,677.50 October 1, 2014 1,373,156.25 – 77,840.00 77,840.00 – 507,482.50 507,482.50 – April 1, 2015 4,493,156.25 – 77,840.00 77,840.00 1,395,000 507,482.50 1,902,482.50 8,431,957.50 October 1, 2015 1,315,193.75 – 77,840.00 77,840.00 – 463,540.00 463,540.00 – April 1, 2016 4,545,193.75 – 77,840.00 77,840.00 1,485,000 463,540.00 1,948,540.00 8,428,147.50 October 1, 2016 1,236,818.75 – 77,840.00 77,840.00 – 416,762.50 416,762.50 – April 1, 2017 4,626,818.75 – 77,840.00 77,840.00 1,580,000 416,762.50 1,996,762.50 8,432,842.50 October 1, 2017 1,154,506.25 – 77,840.00 77,840.00 – 366,992.50 366,992.50 – April 1, 2018 4,704,506.25 – 77,840.00 77,840.00 1,675,000 366,992.50 2,041,992.50 8,423,677.50 October 1, 2018 1,067,068.75 – 77,840.00 77,840.00 – 310,880.00 310,880.00 – April 1, 2019 4,797,068.75 – 77,840.00 77,840.00 1,790,000 310,880.00 2,100,880.00 8,431,577.50 October 1, 2019 975,156.25 – 77,840.00 77,840.00 – 250,915.00 250,915.00 – April 1, 2020 4,890,156.25 – 77,840.00 77,840.00 1,910,000 250,915.00 2,160,915.00 8,432,822.50 October 1, 2020 882,281.25 – 77,840.00 77,840.00 – 186,930.00 186,930.00 – April 1, 2021 4,977,281.25 – 77,840.00 77,840.00 2,035,000 186,930.00 2,221,930.00 8,424,102.50 October 1, 2021 795,909.38 – 77,840.00 77,840.00 – 118,757.50 118,757.50 – April 1, 2022 5,065,909.38 – 77,840.00 77,840.00 2,175,000 118,757.50 2,293,757.50 8,430,013.76 October 1, 2022 693,209.38 – 77,840.00 77,840.00 – 45,895.00 45,895.00 –

TABLE 2 DEBT SERVICE SCHEDULE (Continued)

Total Fiscal Year Series 2008 Series 2008E Bonds Series 2008F Bonds Combined Date A/BC/D Bonds Principal Interest Total Principal Interest Total Debt Service April 1, 2023 $5,168,209.38 $950,000 $77,840.00 $1,027,840.00 $1,370,000 $45,895.00 $1,415,895.00 $8,428,888.76 October 1, 2023 586,959.38 – 56,465.00 56,465.00 – – – – April 1, 2024 1,761,959.38 2,455,000 56,465.00 2,511,465.00 – – – 4,916,848.76 October 1, 2024 559,709.38 – – – – – – – April 1, 2025 1,789,709.38 – – – – – – 2,349,418.76 October 1, 2025 532,034.38 – – – – – – – April 1, 2026 1,817,034.38 – – – – – – 2,349,068.76 October 1, 2026 503,121.88 – – – – – – – April 1, 2027 1,843,121.88 – – – – – – 2,346,243.76 October 1, 2027 472,134.38 – – – – – – – April 1, 2028 1,877,134.38 – – – – – – 2,349,268.76 October 1, 2028 439,643.75 – – – – – – – April 1, 2029 1,909,643.75 – – – – – – 2,349,287.50 October 1, 2029 404,462.50 – – – – – – – 11 April 1, 2030 1,944,462.50 – – – – – – 2,348,925.00 October 1, 2030 367,606.25 – – – – – – – April 1, 2031 1,982,606.25 – – – – – – 2,350,212.50 11 October 1, 2031 328,956.25 – – – – – – – April 1, 2032 2,018,956.25 – – – – – – 2,347,912.50 October 1, 2032 288,512.50 – – – – – – – April 1, 2033 2,058,512.50 – – – – – – 2,347,025.00 October 1, 2033 246,150.00 – – – – – – – April 1, 2034 2,101,150.00 – – – – – – 2,347,300.00 October 1, 2034 201,450.00 – – – – – – – April 1, 2035 2,146,450.00 – – – – – – 2,347,900.00 October 1, 2035 154,581.25 – – – – – – – April 1, 2036 2,194,581.25 – – – – – – 2,349,162.50 October 1, 2036 105,425.00 – – – – – – – April 1, 2037 2,240,425.00 – – – – – – 2,345,850.00 October 1, 2037 53,975.00 – – – – – – – April 1, 2038 2,293,975.00 – – – – – – 2,347,950.00 TOTAL $126,998,540.05 $3,405,000 $2,390,614.89 $5,795,614.89 $21,410,000 $12,231,811.00 $33,641,811.00 $166,435,965.94

ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds received from the sale of the Series 2008E/F Bonds are set forth below:

TABLE 3 ESTIMATED SOURCES AND USES OF FUNDS

Series Series 2008E Bonds 2008F Bonds Total SOURCES: Principal of Series 2008E/F Bonds $3,405,000.00 $21,410,000.00 $24,815,000.00 Less Original Issue Discount (55,803.95) (150,724.70) (206,528.65) TOTAL ESTIMATED SOURCES $3,349,196.05 $21,259,275.30 $24,608,471.35 USES: Deposit to Acquisition and Construction Fund(1) $3,000,000.00 $10,000,000.00 $13,000,000.00 Deposit to Escrow Fund(1) – 9,097,711.73 9,097,711.73 Deposit to Reserve Account(2) 232,535.42 1,462,139.03 1,694,674.45 Costs of Issuance(3) 116,660.63 699,424.54 816,085.17 TOTAL ESTIMATED USES $3,349,196.05 $21,259,275.30 $24,608,471.35 ______(1) See “PLAN OF FINANCE” (2) See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Reserve Account.” (3) Includes fees and expenses of Bond Counsel, Disclosure Counsel, the Trustee, the Verification Agent and the Financial Advisor, Underwriter’s discount, financial guaranty insurance premium, rating agency fees, printing costs and all other miscellaneous costs of issuance. See also, “UNDERWRITING” for a description of the Underwriter’s discount.

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

Pledge of Revenues

The Trust Agreement provides that the Bonds and the interest thereon are payable solely from, and are secured by a pledge of and charge and lien upon, (i) all Base Rental Payments and certain other payments paid by the City and received by the Trustee, as assignee of the Authority pursuant to the Master Sublease (but not Additional Payments) and (ii) all interest or other income from any investment of any money in any fund or account established pursuant to the Trust Agreement (other than the Rebate Fund) (collectively, the “Revenues”), all under the terms and conditions set forth in the Trust Agreement. To the extent set forth in the Trust Agreement, all the Revenues are irrevocably pledged to the payment of the interest and premium, if any, on and principal of the Bonds.

The Series 2008E/F Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Revenues. Neither the full faith and credit nor the taxing power of the City, the State of California or any political subdivision thereof is pledged for the payment of the principal of or premium, if any, or interest on the Bonds. The obligation of the City to make Base Rental Payments under the Master Sublease does not constitute a debt, liability or obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The Authority has no taxing power.

12 Base Rental Payments

Base Rental Payments are calculated on an annual basis. Each Base Rental Payment installment is payable 10 days in advance of its due date.

The City is obligated to pay all Base Rental Payments under the Master Sublease for beneficial use and occupancy of the Facilities from any lawfully available funds of the City. The Trust Agreement requires that the Base Rental Payments be deposited in the Revenue Fund maintained by the Trustee. Pursuant to the Trust Agreement, on April 1 and October 1 of each year, the Trustee will apply such amounts in the Revenue Fund as are necessary to make principal and interest payments with respect to the Bonds as the same shall become due and payable. See also “CERTAIN BONDOWNERS’ RISKS– Abatement.”

The obligation of the City to make Base Rental Payments is an obligation payable from amounts in the general fund of the City, and does not constitute a debt of the City, the Authority or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction or an obligation for which the City must levy or pledge, or has levied or pledged, any form of taxation.

Covenant to Budget and Appropriate

Pursuant to the Master Sublease, the City covenants to take such action as may be necessary to include all such Base Rental Payments and Additional Payments due under the Master Sublease in its annual budgets and to make necessary annual appropriations for all such payments. Such covenants are deemed to be duties imposed by law, and it is the duty of the public officials of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform such covenants. A court, however, in its discretion may decline to enforce such covenants. Upon issuance of the Series 2008E/F Bonds, Bond Counsel will render its opinion (substantially in the form of APPENDIX D–“PROPOSED FORM OF OPINION OF BOND COUNSEL”) to the effect that, subject to the limitations and qualifications described therein, the Master Sublease constitutes a valid and binding obligation of the City. For a description of the practical realization of remedies upon default under the Master Sublease by the City, see “CERTAIN BONDOWNERS’ RISKS– Limitation on Remedies” and APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–FACILITIES SUBLEASE–Default and Remedies.”

Option to Purchase

Pursuant to the Master Sublease, the City has the option to purchase the Authority’s interest in any part of the Facilities upon payment of an option price consisting of moneys or securities satisfying the requirements specified in the Trust Agreement (and which are not callable by the issuer thereof prior to maturity) in an amount sufficient (together with the earnings and interest on such securities) to provide funds to pay the redemption price of a portion of the Series 2008E/F Bonds attributable to such part of the Facilities (determined by reference to the proportion which the acquisition, design and construction cost of such part of the Facilities bears to the acquisition, design and construction cost of all of the Facilities).

The option price payment is required to be made to the Trustee and will be treated as rental payments and shall be applied by the Trustee to pay the principal of and interest on the Series 2008E/F Bonds and to redeem Series 2008E/F Bonds if such Series 2008E/F Bonds are subject to redemption pursuant to the terms of the Trust Agreement. See APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–FACILITIES SUBLEASE–Option to Purchase; Sale of Personal Property.”

13 Insurance

Fire and Extended Coverage Insurance. The Master Sublease requires the City to procure or cause to be procured and maintained, throughout the term of the Master Sublease, insurance against loss or damage to any structures constituting any part of the Facilities by fire and lightning, with extended coverage insurance, vandalism and malicious mischief insurance and sprinkler system leakage insurance. Such extended coverage insurance is required, as nearly as practicable, to cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance is required to be in an amount equal to the replacement cost (without deduction for depreciation) of all structures constituting any part of the Facilities, excluding the cost of excavations, of grading and filling, and of the land (except that such insurance may be subject to deductible clauses for any one loss of not to exceed $250,000). Such insurance may be part of a joint- purchase insurance program.

If the Facilities are damaged or destroyed due to an event for which federal or State disaster aid is available, the Authority and/or the City covenant to promptly apply for such disaster aid. Any proceeds so received are required to be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Facilities, or, at the option of the City and the Authority, to redeem Outstanding Bonds if permitted under such disaster aid program.

As an alternative to providing the fire and extended coverage insurance, or any portion thereof, required by the Master Sublease, the City may provide a self-insurance method or plan of protection if and to the extent such self-insurance method or plan of protection will afford reasonable coverage for the risks required to be insured against, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by public entities in the State other than the City. So long as such method or plan is being provided to satisfy the requirements of the Master Sublease, there will be filed with the Trustee a statement of an actuary, insurance consultant or other qualified person (who may be a City employee), stating that, in the opinion of the signer, the substitute method or plan of protection is in accordance with the requirements of the Master Sublease and, when effective, would afford reasonable coverage for the risks required to be insured against. The City is also required to file a certificate setting forth the details of such substitute method or plan. In the event of loss covered by any such self-insurance method, the liability of the City with respect to the damaged portion of the Facilities will be limited to the amounts in the self-insurance reserve fund or funds created under such method. See also “CITY FINANCIAL INFORMATION–Risk Management.”

Rental Interruption or Use and Occupancy Insurance. The Master Sublease requires the City to procure or cause to be procured and maintain or cause to be maintained throughout the term of the Master Sublease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the rental income from or the use of the Facilities as the result of any of the hazards covered by the fire and extended coverage insurance required by the Master Sublease described in the preceding paragraphs, in an amount sufficient to pay the maximum annual Base Rental Payments due under the Master Sublease for any two year period, except that such insurance may be subject to a deductible clause of not to exceed $50,000 and may be part of a joint-purchase program. The provider of such insurance is required to be rated at least “A-” by A.M. Best & Company and the Trustee is required to be the beneficiary of such insurance. Any proceeds of such insurance as provided in the Trust Agreement will be payable to and used by the Trustee to pay principal of and interest on the Bonds for a period of time during which the payment of rental under a Master Sublease is abated, and any proceeds of such insurance not so used will be applied to pay Additional Payments.

The Woodward Park Facility (see “THE FACILITIES–Woodward Park”) consists of park land without significant physical structures and rental interruption insurance is not maintained for this Facility.

14 Title Insurance. The City is also required under the Master Sublease to obtain a leasehold owner’s policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing policy or policies resulting in title insurance with respect to the Facilities in an amount at least equal to the principal amount of the Bonds. Such insurance instrument, when issued, is required to name the Trustee as the insured, and insure the leasehold estate of the Authority subject only to such exceptions as do not substantially interfere with the City’s right to use and occupy the property and as will not result in an abatement of Base Rental Payments payable by the City under the Master Sublease.

Worker’s Compensation Insurance. The City is required to maintain worker’s compensation insurance issued by a responsible carrier authorized under the laws of the State to insure its employees against liability for compensation under the Worker’s Compensation Insurance and Safety Act now in force in the State, or any act hereafter enacted as an amendment or supplement thereto. As an alternative, such insurance may be maintained as part of or in conjunction with any other insurance carried by the City or such insurance may be maintained by the City in the form of self-insurance.

Reserve Account

General. The Reserve Account is established by the Trust Agreement and is required to be maintained in the amount as calculated by the Authority as the lesser of: (i) 10% of the original issue price of the Bonds, (ii) 125% of the average annual debt service on all Outstanding Bonds, or (iii) maximum annual debt service on all Outstanding Bonds (collectively, the “Reserve Account Requirement”). Upon the issuance of the Series 2008E/F Bonds, proceeds in the amount of $1,694,674.45 will be deposited into the Reserve Account bringing the balance on deposit therein to $7,021,297.90 which is equal to the Reserve Account Requirement for the Bonds.

After making the required transfers to the Interest Account and the Principal Account, amounts in the Revenue Fund will be deposited in the Reserve Account to bring the amount on deposit therein equal to the Reserve Account Requirement, provided that if there has been a draw upon any Reserve Facility used to provide all or a portion of the Reserve Account Requirement, amounts remaining in the Revenue Fund after making the required transfers to the Interest Account and the Principal Account will be applied to reimburse the Credit Facility Provider.

Moneys available in the Reserve Account will be used and withdrawn by the Trustee for the purpose of replenishing the Interest Account or the Principal Account established under the Trust Agreement, in that order, in the event of any deficiency at any time in either of such accounts. The Authority may satisfy the Reserve Account Requirement at any time by the deposit with the Trustee of a surety bond, an insurance policy or letter of credit meeting certain ratings requirements. See also APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–TRUST AGREEMENT–Creation of Funds and Accounts–Reserve Account.”

Additional Bonds

The Authority may at any time issue Additional Bonds pursuant to a Supplemental Trust Agreement, payable from the Revenues and secured by a pledge of and charge and lien upon the Revenues equal to the pledge, charge and lien securing the Outstanding Bonds theretofore issued under the Trust Agreement (including the Series 2008E/F Bonds, the Series 2008A/B Bonds and the Series 2008 C/D Bonds), subject to certain conditions precedent, including the requirement of adding additional Facilities, as necessary. See also “CITY FINANCIAL INFORMATION–Future Financings” and APPENDIX C– “SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–TRUST AGREEMENT– Additional Bonds.”

15 The Authority will not, so long as any of the Series 2008E/F Bonds are Outstanding, issue any obligations or securities, however denominated, payable in whole or in part from Revenues except Additional Bonds or obligations to a Reserve Facility Provider (as defined in the Trust Agreement) which are junior and subordinate to the payment of the principal, premium and interest on the Bonds.

The Authority anticipates the issuance of approximately $55 million aggregate principal amount of Additional Bonds, or other lease revenue bonds payable on a parity basis with the Bonds from the City’s General Fund, by the end of calendar year 2008.

Addition, Substitution, Release of Property

The City and the Authority may add, substitute or release real property and the improvements, buildings, fixtures and equipment thereon, for all or part of the Facilities for purposes of the Master Lease and the Master Sublease provided the City has filed with the Authority and the Trustee the following:

(i) Executed copies of the Master Lease and Master Sublease or amendments thereto containing the amended description of the Facilities, including the legal description of the Facilities as modified;

(ii) A Written Certificate of the City evidencing that the annual fair rental value (which may be based on, but not limited to, the construction or acquisition costs or replacement cost of such facility to the City) of the Facilities that will constitute the Facilities after such addition, substitution or withdrawal will be at least equal to 100% of the maximum amount of Base Rental Payments becoming due in the then current fiscal year or in any subsequent year (at the sole discretion of the City, in the alternative, in the event of a substitution only, the Written Certificate of the City will evidence that the annual fair rental value of the new Facility is at least equal to that of the substituted Facility);

(iii) With respect to an addition or substitution, a leasehold owner’s title insurance policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing policy or policies resulting in title insurance with respect to the Facilities after such substitution in an amount at least equal to the aggregate principal amount of Bonds Outstanding, each such insurance instrument, when issued, is required to name the Trustee as the insured, and insure the leasehold estate of the Authority in such property subject only to such exceptions as do not substantially interfere with the City’s right to use and occupy such property and as will not result in an abatement of Base Rental Payments payable by the City under such Master Sublease;

(iv) A Written Certificate of the City stating that such addition, substitution or withdrawal, as applicable, does not adversely affect beneficial use and occupancy of the Facilities by the City;

(v) With respect to the substitution of property, a Written Certificate of the City stating that the useful life of the property to be substituted is at least equal to the useful life of the property being released; and

(vi) An Opinion of Counsel (as such term is defined in the Trust Agreement) stating that such amendment or modification (a) is authorized or permitted under the Sublease; (b) will, upon the execution and delivery thereof, be valid and binding upon the Authority and the City; and (c) will not cause the interest on the Tax-Exempt Bonds to be included in gross income for federal income tax purposes.

16 FINANCIAL GUARANTY INSURANCE

The following information is not complete and reference is made to Appendix G for a specimen of the financial guaranty insurance policy (the “Policy”) of Assured Guaranty Corp. (“Assured Guaranty” or the “Insurer”). No representation is made by the Authority, the City or the Underwriter as to the accuracy or completeness of this information.

The Insurance Policy

Assured Guaranty has made a commitment to issue the Policy relating to the Series 2008E/F Bonds, effective as of the date of issuance of such Series 2008E/F Bonds. Under the terms of the Policy, Assured Guaranty will unconditionally and irrevocably guarantee to pay that portion of principal of and interest on the Series 2008E/F Bonds that becomes Due for Payment but shall be unpaid by reason of Nonpayment (the “Insured Payments”). Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. The Policy is non-cancelable for any reason, including without limitation the non-payment of premium.

“Due for Payment” means, when referring to the principal of the Series 2008E/F Bonds, the stated maturity date thereof, or the date on which such Series 2008E/F Bonds shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and, when referring to interest on such Series 2008E/F Bonds, means the stated dates for payment of interest.

“Nonpayment” means the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on the Series 2008E/F Bonds. It is further understood that the term Nonpayment in respect of a Series 2008E/F Bond also includes any amount previously distributed to the Holder (as such term is defined in the Policy) of such Series 2008E/F Bond in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. Nonpayment does not include nonpayment of principal or interest caused by the failure of the Trustee or the Paying Agent to pay such amount when due and payable.

Assured Guaranty will pay each portion of an Insured Payment that is Due for Payment and unpaid by reason of Nonpayment, on the later to occur of (i) the date such principal or interest becomes Due for Payment, or (ii) the business day next following the day on which Assured Guaranty shall have received a completed notice of Nonpayment therefor in accordance with the terms of the Policy.

Assured Guaranty shall be fully subrogated to the rights of the Holders of the Series 2008E/F Bonds to receive payments in respect of the Insured Payments to the extent of any payment by Assured Guaranty under the Policy.

The Policy is not covered by any insurance or guaranty fund established under New York, California, Connecticut or Florida insurance law.

17 The Insurer

Assured Guaranty Corp. (“Assured Guaranty”) is a Maryland-domiciled insurance company regulated by the Maryland Insurance Administration and licensed to conduct financial guaranty insurance business in all fifty states of the United States, the District of Columbia and Puerto Rico. Assured Guaranty commenced operations in 1988. Assured Guaranty is a wholly owned, indirect subsidiary of Assured Guaranty Ltd. (“AGL”), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol “AGO.” AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, structured finance and mortgage markets. Neither AGL nor any of its shareholders is obligated to pay any debts of Assured Guaranty or any claims under any insurance policy issued by Assured Guaranty.

Assured Guaranty is subject to insurance laws and regulations in Maryland and in New York (and in other jurisdictions in which it is licensed) that, among other things, (i) limit Assured Guaranty’s business to financial guaranty insurance and related lines, (ii) prescribe minimum solvency requirements, including capital and surplus requirements, (iii) limit classes and concentrations of investments, (iv) regulate the amount of both the aggregate and individual risks that may be insured, (v) limit the payment of dividends by Assured Guaranty, (vi) require the maintenance of contingency reserves, and (vii) govern changes in control and transactions among affiliates. Certain state laws to which Assured Guaranty is subject also require the approval of policy rates and forms.

Assured Guaranty’s financial strength is rated “AAA” by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”), “AAA” by Fitch, Inc. (“Fitch”) and “Aaa” by Moody’s Investors Service, Inc. (“Moody’s”). Each rating of Assured Guaranty should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of any security guaranteed by Assured Guaranty. Assured Guaranty does not guaranty the market price of the securities it guarantees, nor does it guaranty that the ratings on such securities will not be revised or withdrawn.

Recent Developments. For recent developments regarding Assured Guaranty’s insurance financial strength ratings, see AGL’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 (which was filed by AGL with the SEC (as defined below) on August 8, 2008).

Capitalization of Assured Guaranty Corp. As of June 30, 2008, Assured Guaranty had total admitted assets of $1,798,738,388 (unaudited), total liabilities of $1,339,900,327 (unaudited), total surplus of $458,838,061 (unaudited) and total statutory capital (surplus plus contingency reserves) of $1,109,675,386 (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of December 31, 2007, Assured Guaranty had total admitted assets of $1,361,538,502 (audited), total liabilities of $961,967,238 (audited), total surplus of $399,571,264 (audited) and total statutory capital (surplus plus contingency reserves) of $982,045,695 (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The Maryland Insurance Administration recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Maryland Insurance Code, and for determining whether its financial condition warrants the payment of a dividend to its stockholders. No consideration is given by the Maryland Insurance Administration to financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) in making such determinations.

18 Incorporation of Certain Documents by Reference. The portions of the following documents relating to Assured Guaranty are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof:

• The Annual Report on Form 10-K of AGL for the fiscal year ended December 31, 2007 (which was filed by AGL with the Securities and Exchange Commission (the “SEC”) on February 29, 2008);

• The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 (which was filed by AGL with the SEC on May 9, 2008); and

• The Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 (which was filed by AGL with the SEC on August 8, 2008); and

• The Current Reports on Form 8-K filed by AGL with the SEC, as they relate to Assured Guaranty.

All consolidated financial statements of Assured Guaranty and all other information relating to Assured Guaranty included in documents filed by AGL with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date of this Official Statement and prior to the termination of the offering of the Series 2008E/F Bonds shall be deemed to be incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such consolidated financial statements.

Any statement contained in a document incorporated herein by reference or contained herein under the heading “FINANCIAL GUARANTY INSURANCE–The Insurer” shall be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any subsequently filed document which is incorporated by reference herein also modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement.

Copies of the consolidated financial statements of Assured Guaranty incorporated by reference herein and of the statutory financial statements filed by Assured Guaranty with the Maryland Insurance Administration are available upon request by contacting Assured Guaranty at 1325 Avenue of the Americas, New York, New York 10019 or by calling Assured Guaranty at (212) 974-0100. In addition, the information regarding Assured Guaranty that is incorporated by reference in this Official Statement that has been filed by AGL with the SEC is available to the public over the Internet at the SEC’s web site at http://www.sec.gov and at AGL’s web site at http://www.assuredguaranty.com, from the SEC’s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the office of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.

Assured Guaranty makes no representation regarding the Series 2008E/F Bonds or the advisability of investing in the Series 2008E/F Bonds. In addition, Assured Guaranty has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding Assured Guaranty supplied by Assured Guaranty and presented under the heading “FINANCIAL GUARANTY INSURANCE.”

19 THE FACILITIES

The City will lease each of the Facilities described below to the Authority pursuant to the Master Lease, and the Authority will lease the Facilities back to the City pursuant to the Master Sublease. The City has covenanted in the Master Lease that it will use, or cause the Facilities to be used for public purposes and for the purposes for which the Facilities are customarily used.

The Facilities consist of (i) Selland Arena; (ii) a portion of Woodward Park; (iii) a portion of the City Municipal Services Center, excluding those buildings and facilities used by Fresno Area Express (“FAX”); (iv) the Fresno Memorial Auditorium; and (v) two parking garages located in the downtown area of the City each of which is owned by the City, as further described below. The Facilities include site development, landscaping, utilities, equipment, furnishings, improvements and appurtenant and related facilities located thereon as described below.

The facilities described below constitute all of the Facilities, the Base Rental Payments by the City for which secure repayment of the Bonds. Under the Master Sublease the City may substitute real property as part of the Facilities from time to time. In addition, the City and the Authority may be required to add additional Facilities in connection with the issuance of Additional Bonds. See also “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Addition, Substitution and Release of Property.” Selland Arena is being added as a Facility to the Master Lease and the Master Sublease in connection with the issuance of the Series 2008E/F Bonds. See “PLAN OF FINANCE.”

The respective terms under the Master Sublease with respect to all Facilities, other than Woodward Park, terminates prior to the final maturity of the Series 2008E/F Bonds. See “–Summary of the Facilities; Terms Under the Master Sublease; Valuations–Table 4–Summary of the Facilities.”

Selland Arena

Selland Arena is an approximately 27,000 square foot facility originally constructed in 1966 with a seating capacity of 6,500. Selland Arena is located on an approximately three acre site at 848 M Street, was expanded in 1981 to its current maximum seating capacity of 11,300 and was remodeled in 2006. Selland Arena features a programmable scoreboard, two television platforms, press facilities, five dressing rooms with showers, a sound system, and can be equipped for ice skating events. Selland Arena is home to the Central Valley Coyotes arena football team and the Fresno Falcons of the ECHL, a professional ice hockey league.

A portion of the proceeds of the Series 2008E/F Bonds in the amount of $6,100,000 will be used to finance certain improvements to Selland Arena, including the acquisition and installation of a jumbotron scoreboard, a sound system, hockey equipment, an ice floor, replacement of VIP seating, and the construction and installation of a new roofing system.

Woodward Park

Woodward Park is an approximately 300-acre regional park and bird sanctuary located at 7775 Friant Road on the southern bank of the San Joaquin River. The portion of Woodward Park subject to the Master Lease and the Master Sublease comprises 112 acres of the Park, which acreage does not include any substantial structures or improvements although there are picnic shelters on the leased site, valued at approximately $100,000 each. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS– Insurance.” Woodward Park is a “Restricted Facility” and as such, only limited remedies are available with respect thereto in the event of default by the City under the Master Sublease. See “CERTAIN BONDOWNERS’ RISKS–Limited Recourse on Default.”

20 Municipal Services Center

The Municipal Services Center is located on an approximately 39.8 acre site at 2101 G Street, is bordered by G Street to the east, El Dorado Street to the south, State Highway 99 to the west and State Highway 180 to the north and is eight blocks north of City Hall.

The portion of the Municipal Services Center subject to the Master Lease and the Master Sublease (the “MSC”), comprises 16 separate structures, representing an aggregate of approximately 126,859 square feet, and 10 canopy structures, representing approximately 86,340 square feet, on approximately 27 acres that are almost completely paved and surrounded with fencing and some perimeter landscaping. The buildings are used for administrative, maintenance and storage purposes and most have central air conditioning, heating and fire suppression systems, and the canopy structures serve as electrified vehicle ports for various City vehicles.

The oldest of the buildings, a facilities warehouse, was originally constructed in the 1950’s and expanded in the 1960’s; and the majority of the buildings (representing approximately 179,568 aggregate square feet) were constructed during the mid 1970’s. The buildings range in size from approximately 523 to 41,250 square feet. A general description of these buildings comprising the MSC is set forth below:

Administrative Buildings. There are eight administrative buildings, comprising an aggregate of approximately 28,098 square feet within the MSC that are used as office space. All of the buildings, with the exception of one, are one-story and constructed of poured-in-place concrete. That one building is constructed of metal and serves as an office for the City’s Solid Waste Administration. The two-story structure, consisting of approximately 9,532 square feet, is the main administrative building on the site and contains the purchasing and facility management functions of the City. A second building consisting of approximately 2,006 square feet is a specialized office building with electric equipment to manage the traffic control operations of the City.

Maintenance Buildings. The eight maintenance buildings, comprising an aggregate of approximately 98,761 square feet, are used for vehicle maintenance for garbage trucks, street sweepers, police cars and other City-owned vehicles, and also includes a gas station, the underground tanks of which were replaced in 1994, shop space and employee shower and locker facilities. In addition, the gas station and underground fuel tanks were upgraded in 2004 to comply with State environmental requirements, and at that site the City has installed a liquefied natural gas facility. Many of the buildings are constructed of poured-in-place concrete or concrete block and some are constructed of metal.

The largest of these buildings, comprising approximately 41,251 square feet, is used for fleet maintenance of the City-owned vehicles. This building includes a clear height of approximately 24 to 26 feet, 26 roll-up doors, and drive-through bays. This building also includes approximately 3,196 square feet of mezzanine office space.

Canopy Structures. The 10 canopy structures cover an aggregate area of 86,340 square feet and are concrete post, steel frame and truss structures that are completely fire sprinklered and electrified and range in size from approximately 2,580 square feet to approximately 15,360 square feet. In 2004, the City installed 4,500 solar panels on the structures. These solar panels generate enough power to provide approximately 50% of the annual electric consumption of the MSC.

21 Fresno Memorial Auditorium

The Fresno Memorial Auditorium (the “Auditorium”) was constructed in 1937 and is located on an approximately 2.9 acre site at 1050 O Street, two blocks northwest of City Hall. The Auditorium is an approximately 72,522 square foot, four-story, steel frame and concrete exterior structure, with a seating capacity of 503, and is listed in the National Register of Historic Places. The main level houses the auditorium (including an orchestra pit and stage), the Legion of Valor Museum, restrooms and office facilities. Dressing and storage rooms are located on the lower level of the Auditorium.

The Auditorium is subject to various unrecorded agreements that affect access, availability, and use. All of these unrecorded agreements have been subordinated to the encumbrances of the Master Lease and the Master Sublease.

Downtown Parking Garages

Parking Garage No. 4. This Facility consists of a 313-space, 99,774 square foot, three-story concrete public parking garage located at 1885 Tulare Street, approximately five blocks from City Hall and adjacent to the Fresno Stadium. This garage was constructed in the 1980s on an approximately 0.8 acre site.

Parking Garage No. 8. This Facility consists of a 968-space, 373,800 square foot, three-level, underground, concrete public parking garage located at 1077 Van Ness Avenue, approximately four blocks west of City Hall and at the intersections of Tulare and Van Ness Streets. This garage was constructed in the 1980s on an approximately 1.3 acre site.

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22 Summary of the Facilities; Terms under the Master Sublease; Valuations

The following table sets forth certain details of the Facilities, including, among other things, terms under the Master Sublease and valuations.

TABLE 4 SUMMARY OF THE FACILITIES

Approx. Approx. Building Term Under Original Acreage Square the Master Estimated Facility Address Completion Date of Site Footage Sublease Market Value Selland Arena 848 M Street 1966 3.0 27,000 4/1/2024 $21,300,000(1) Woodward Park 7775 Friant Road 1968 112.9 N/A 4/1/2038 37,800,000(2) Parking Garage No. 8 1077 Van Ness Avenue 1980s 1.3 373,800 4/1/2023 18,900,000(3) Municipal Service Center 2101 G Street 1950s – 1970s 27.0 126,859 4/1/2023 14,100,000(4) Fresno Memorial Auditorium 1050 O Street 1937 2.9 72,522 4/1/2023 6,270,000(45 Parking Garage No. 4 1885 Tulare Street 1980s 0.8 99,774 4/1/2013 5,300,000(3) TOTAL $103,670,000 ______(1) City estimate based upon an appraisal of $13,200,000 completed in May 2006 and the value of improvements completed in 2006 in the amount of $8,100,000. A portion of the proceeds from the issuance of the Series 2008F Bonds will be used to finance additional improvements to Selland Arena which, upon completion, will add improvements valued at $5,500,000. See “–Selland Arena.” (2) City estimate based upon an appraisal of replacement cost by Hamilton Associates dated March 4, 2008 and updated by letter dated May 12, 2008. (3) Based upon an appraisal by CB Richard Ellis dated March 24, 2008. (4) Based upon an appraisal by CB Richard Ellis dated March 17, 2008. (5) Based upon an appraisal by CB Richard Ellis dated March 17, 2008. Source: City of Fresno.

Debt service payments on each Series of Bonds outstanding under the Master Trust Agreement are set forth in the table under the caption “DEBT SERVICE REQUIREMENTS.” Each Base Rental Payment installment is payable 10 days in advance of the related debt service payment date on the Bonds.

Agreements Affecting the Auditorium

The Auditorium is subject to various unrecorded agreements that affect access, availability, and use. All of these unrecorded agreements have been subordinated to the lien of the Facilities Lease and the Facilities Sublease.

Seismicity

Generally, within the State, some level of seismic activity occurs on a regular basis. Periodically, the magnitude of a single seismic event can cause significant ground shaking and potential for damage to the property located at or near the center of such seismic activity. Each of the Facilities was designed to the seismic standards existing at the later of the time of original construction or renovation. The Master Sublease does not require the City to obtain earthquake insurance with respect to the Facilities. See also “CERTAIN BONDOWNERS’ RISKS–Abatement” and “–Earthquake Risk and Other Disasters.”

23 CERTAIN BONDOWNERS’ RISKS

This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investment in the Series 2008E/F Bonds. This section is not meant to be a comprehensive or definitive discussion of the risks associated with an investment in the Series 2008E/F Bonds, and the order in which this information is presented does not necessarily reflect the relative importance of various risks. Potential investors in the Series 2008E/F Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an informed investment decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market value and/or in the marketability of the Series 2008E/F Bonds. There can be no assurance that other risk factors not discussed herein will not become material in the future.

Limited Obligation

The Series 2008E/F Bonds are not City debt and are limited obligations of the Authority. Neither the full faith and credit of the Authority nor the City is pledged for the payment of the interest on or principal of the Series 2008E/F Bonds nor for the payment of Base Rental Payments. The Authority has no taxing power. The obligation of the City to pay Base Rental Payments when due is an obligation payable from amounts in the General Fund of the City. The obligation of the City to make Base Rental Payments under the Master Sublease does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Series 2008E/F Bonds nor the obligation of the City to make Base Rental Payments under the Master Sublease constitute a debt or indebtedness of the Authority, the City, the State or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restrictions.

Although the Master Sublease does not create a pledge, lien or encumbrance upon the funds of the City, the City covenants under the Master Sublease to make necessary annual appropriations for all Base Rental Payments in its annual budgets from any source of legally available funds and General Fund revenues. In the event that the City were to realize income and revenues for any Fiscal Year in an amount less than its aggregate obligations coming due and payable in such Fiscal Year (including its annual Base Rental Payment obligations), the City could have insufficient funds to pay the Base Rental Payments in full during such Fiscal Year.

Base Rental Payments Not a Debt of the City

The City is currently liable on other obligations payable from its General Fund revenues. The City has the capability to enter into other obligations which may constitute additional charges against its General Fund revenues. To the extent that additional obligations are incurred by the City, funds available to make Base Rental Payments may be decreased, and there can be no assurance that available funds will be sufficient to make Base Rental Payments.

The obligation of the City under the Master Sublease to pay Base Rental Payments is in consideration for the beneficial use and possession of the Facilities.

Failure by the City to observe and perform its covenants and agreements under the Master Sublease for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, may become an event of default under the Master Sublease and would permit the Authority to pursue remedies at law or in equity to enforce such covenants and agreements. See “CITY FINANCIAL INFORMATION–Long Term Obligations–Lease Obligations.”

24 Financial Guaranty Insurance on the Series 2008E/F Bonds

Payments under the Policy. If the Authority fails to pay the principal of and/or interest on the Series 2008E/F Bonds when due and payable, the Trustee, on behalf of the registered owners of such Series 2008E/F Bonds, will have a claim on the Policy for such payments. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed under the Policy will be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration). The Policy does not insure the payment of any redemption premium payable upon the prepayment of the Series 2008E/F Bonds.

Under no circumstances can the maturities of the Series 2008E/F Bonds be accelerated without the consent of Assured Guaranty, so long as Assured Guaranty performs its obligations under the Policy. Furthermore, so long as Assured Guaranty performs its obligations under the Policy, Assured Guaranty may direct, and must consent to, any remedies that the Trustee exercises under the Trust Agreement and Assured Guaranty’s consent may be required in connection with amendments to the Trust Agreement in addition to the consent of any owners of the Series 2008E/F Bonds.

In the event that Assured Guaranty is unable to make payments of principal of and interest on the Bonds as such payments become due, the Series 2008E/F Bonds are payable solely from moneys received by the Trustee pursuant to the Trust Agreement.

In the event that Assured Guaranty is required to pay principal of or interest with respect to the Series 2008E/F Bonds, no representation or assurance is given or can be made that such event will not adversely affect the market price for or marketability of the Series 2008E/F Bonds.

Credit Worthiness of Assured Guaranty. As described under the caption “RATINGS” the Rating Agencies have, in recent months, downgraded the claims-paying ability and financial strength ratings of a number of the nation’s monoline bond insurance companies. It is possible that the Rating Agencies could issue additional statements leading to a change in rating outlook, a review for downgrade or downgrades or further downgrades of the bond insurers that have already been downgraded or of other bond insurers or credit enhancers. The exposure of the City to the credit of downgraded bond insurers or credit enhancers could have negative effects on the debt portfolio. Such downgrades, particularly downgrades to below investment grade could lead to termination events or other negative effects under related agreements including, but not limited to, swap agreements and liquidity facilities, letters of credit and/or reserve fund surety policies. Payments required under these agreements in the event of any termination could be substantial and could have a negative impact on Revenues and/or the liquidity position of the City.

The insured ratings on the Series 2008E/F Bonds are dependent, in part, on the claims paying ability or financial strength ratings, as applicable, of Assured Guaranty. Assured Guaranty’s current claims paying ability or financial strength ratings are predicated upon a number of factors which could change over time and could result in downgrading of the ratings on the Series 2008E/F Bonds insured by Assured Guaranty. Such a downgrade could adversely affect the market price for, and marketability of, the Series 2008E/F Bonds. Assured Guaranty is not contractually bound to maintain its present claims paying ability or financial strength ratings in the future.

A default by Assured Guaranty may result in insufficient funds being available to pay the principal of and interest on the Series 2008E/F Bonds. In such event, the remedies available to the applicable Trustee may be limited by, among other things, certain risks related to bankruptcy proceedings, and may also have been altered prior to a default by Assured Guaranty, which has the right, acting with the Trustee, and without Bondowner consent, to amend the applicable provisions of the Trust Agreement 25 governing defaults and remedies and to direct the Trustee to direct remedies with respect to such Obligation. The Policy does not insure the payment of redemption premiums.

Limited Recourse on Default

General. The enforcement of remedies provided in the Master Sublease and the Trust Agreement could be both expensive and time consuming. Upon the occurrence of one of the “events of default” described below, the City will be deemed to be in default under the Master Sublease and the Authority may exercise any and all remedies available pursuant to law or granted pursuant to the Master Sublease. Upon any such default, including a failure to pay Base Rental Payments, the Authority may either (1) terminate such Master Sublease and seek to recover certain damages or (2) without terminating such Master Sublease, (i) continue to collect rent from the City on an annual basis by seeking a separate judgment each year for that year’s defaulted Base Rental Payments and/or (ii) re-enter the Leased Premises and re-let them. In the event of default, there is no right to accelerate the total Base Rental Payments due over the term of such Master Sublease, and the Trustee has no possessory interest in the Facilities and is not empowered to sell such Facilities. In addition, in the event the City adds Restricted Properties (as defined in the Master Sublease) to the Facilities, the remedies with respect to such properties would not include re-entering and re-letting. See APPENDIX C–“SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–FACILITIES SUBLEASE–Defaults and Remedies.”

Events of default under the Master Sublease include: (i) the failure of the City to make any Base Rental Payment when the same become due and payable; (ii) the failure of the City to keep, observe or perform any other term, covenant or condition of the Master Sublease to be kept, observed or performed by the City for a period of 30 days after notice of the same has been given to the City by the Authority or the Trustee, or for such additional time as is reasonably required, in the sole discretion of the Trustee, to correct the same, but not to exceed 60 days; (iii) the City assigns or transfers its interest in the Master Sublease, either voluntarily or by operation of law or otherwise, without the written consent of the Authority; (iv) the filing of any petition or institution of any proceeding under any act or acts, State or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt, an insolvent, or a debtor, or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or all of its debts or obligations, or offers to its creditors to effect a composition or extension of time to pay its debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of its debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the City, or if a receiver of the business or of the property or assets of the City is appointed by any court, except a receiver appointed at the instance or request of the Authority, or if the City makes a general or any assignment for the benefit of the creditors of the City, or (v) the City abandons or vacates the Facilities.

Upon a default, the Trustee may elect to proceed against the City to recover damages pursuant to such Master Sublease. Any suit for money damages would be subject to statutory and judicial limitations on lessors’ remedies under real property leases, other terms of such Master Sublease and limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest.

Limited Remedies for Restricted Properties. Woodward Park is a Restricted Facility and Facilities added to the Master Sublease in the future could be Restricted Facilities. Notwithstanding anything to the contrary in the Facilities Sublease, neither the Authority, the Trustee, nor the Owners of Bonds are permitted to use, maintain, operate, occupy, lease, hypothecate, encumber or sell any Facilities which are Restricted Properties. In the event of a default by the City under the Master Sublease, available remedies with respect to Restricted Properties will be limited to collection of each installment of Base Rental Payments as such shall become due and such other remedies under the Facilities Sublease which are not inconsistent with the limitations of the preceding sentence. APPENDIX C–“SUMMARY OF CERTAIN 26 PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS–FACILITIES SUBLEASE–Limited Remedies for Restricted Properties.”

Abatement

The Base Rental Payments will be abated under the Master Sublease during any period in which due to damage or destruction (other than by condemnation) there is substantial interference with the City’s use and occupancy of the Facilities. The amount of such abatement will be such that the resulting Base Rental Payments do not exceed the lesser of (i) the amount necessary to pay the originally scheduled principal and interest components of the Base Rental Payments remaining unpaid and (ii) the fair rental value for the use and possession of the Facilities not so damaged or destroyed. Abatement will continue for the period commencing with the date of such damage or destruction and ending with the substantial completion of the repair or replacement of the Facilities so damaged or destroyed.

If a Facility or less than the whole of a Facility is taken under the power or threat of eminent domain and the remainder is usable for the purposes for which it was used by the City at the time of such taking, the rent due under the Master Sublease will be abated in an amount equivalent to the amount by which the annual payments of principal of and interest on the Bonds then Outstanding will be reduced by the application of the award in eminent domain to the redemption of Outstanding Bonds.

Notwithstanding any provisions of the Master Sublease and the Trust Agreement specifying the extent of abatement in the event of eminent domain proceedings, such provisions may be superseded by operation of law, and in such event, the resulting Base Rental Payments of the City may not be sufficient to pay all of that portion of the remaining principal of and interest on the Series 2008E/F Bonds. In the event of any abatement, the City will have no obligation to pay abated Base Rental Payments from general fund revenues or any other revenues of the City, and there is no remedy available to Bondowners arising from such abatement.

It is not possible to predict the circumstances under which such an abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Facilities is substantially higher or lower than its value at the time of the execution and delivery of the Series 2008E/F Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Series 2008E/F Bonds.

Earthquake Risk and Other Disasters

Earthquake. There are several active geological faults in the State that have potential to cause serious earthquakes that could result in damage within the City and to the Facilities, buildings, roads, bridges, and other property.

While the City is not located in any existing Alquist-Priolo special study zone delineated by the State Division of Mines and Geology as an area of known active faults, it is possible that new geological faults could be discovered in the area and that an earthquake occurring on such faults could result in damage of varying degrees of seriousness to property and infrastructure in the City, including the Facilities.

Any natural disaster or other physical calamity, including earthquake, may have the effect of damaging the Facilities and/or adversely impacting the economy of the City and the surrounding area. There is no requirement under the Master Sublease that earthquake insurance with respect to the Facilities be obtained. See “THE FACILITIES–Seismicity” and “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Insurance.”

27 Flooding. In 2004 the U.S. Army Corps of Engineers (the “Corps of Engineers”) released and the Federal Emergency Management Agency, which administers the federal government’s flood insurance programs, approved a revised floodplain map indicating that while portions of the County are located within a 100-year floodplain (an area expected to be inundated during a flood event of the magnitude for which there is a 1% (or 1-in-100) probability of occurrence in any year), the City is not. The floodplain maps are updated periodically and while the City is not currently located within a floodplain, the City can make no representation that future maps will not be revised to include the City within an area deemed subject to flooding.

Hazardous Substances

In general, the owners and operators of real property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) of the property is obligated to remedy a hazardous substance condition whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the finances of the City.

Further, it is possible that liabilities may arise in the future resulting from the existence, currently, on City owned property of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it.

Although the City handles, uses and stores and will handle, use and store certain hazardous substances, including but not limited to, solvents, paints, certain other chemicals on or near the Facilities, the City knows of no existing hazardous substances which require remedial action on or near the Facilities. However, it is possible that such substances do currently or potentially exist and that the City is not aware of them.

Insurance

The Master Sublease obligates the City to obtain and keep in force various forms of insurance or self insurance, subject to deductibles, for repair or replacement of the Facilities in the event of damage or destruction. The City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Master Sublease and no assurance can be given as to the adequacy of any such insurance to fund necessary repairs or replacements or to pay principal of and interest on the Series 2008E/F Bonds when due. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Insurance.”

Limitation on Remedies

The enforcement of any remedies provided in the Master Sublease and Trust Agreement could prove both expensive and time consuming. In addition to the limitations on remedies set forth in the Master Sublease and the Trust Agreement, the enforceability of the rights and remedies of the owners of the Series 2008E/F Bonds, and the obligations incurred by the Authority under the Series 2008E/F Bonds, are subject to limitations on legal remedies against municipalities in the State, including applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect and to the application of general 28 principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the Series 2008E/F Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights.

Under the Chapter 9 of the Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Series 2008E/F Bonds, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Master Sublease and from taking any steps to collect amounts due from the City under the Master Sublease. Accordingly, in addition to the limitations on remedies set forth in the Master Sublease and in the Trust Agreement, the rights and remedies provided for in those agreements may be limited by and are subject to the provisions of the Federal Bankruptcy Code, as it may be in effect as of the date hereof, or as hereafter amended, and to other laws or equitable principles that may affect creditors’ rights generally. In connection with any bankruptcy filing of the City, the City could request that its obligations under such Master Sublease be set aside.

All legal opinions with respect to the enforcement of the Master Lease, the Master Sublease and the Trust Agreement will be expressly subject to a qualification that such agreements may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors’ rights generally and by applicable principles of equity if equitable remedies are sought.

Loss of Tax Exemption

As discussed under the caption “TAX MATTERS,” interest on the Series 2008E Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Series 2008E Bonds were issued, as a result of future acts or omissions of the Authority or the City in violation of their covenants in the Trust Agreement and the Master Sublease, respectively. Should such an event of taxability occur, the Series 2008E Bonds are not subject to special redemption and will remain outstanding until maturity or until redeemed under other provisions set forth in the Trust Agreement.

Risk of Tax Audit

In December 1999, as a part of a larger reorganization of the Internal Revenue Service (the “IRS”), the IRS commenced operation of its Tax Exempt and Government Entities Division (the “TE/GE Division”), as the successor to its Employee Plans and Exempt Organizations division. The TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations (which would include securities such as the Series 2008E/F Bonds) is expected to increase significantly under the TE/GE Division. There is no assurance that if an IRS examination of the Series 2008E/F Bonds was undertaken that it would not adversely affect the market value of the Series 2008E/F Bonds. See “TAX MATTERS.”

Neither the Authority nor the City is currently the subject of any ongoing audit nor has either been notified by the IRS regarding the possibility of any such audit.

Reliance on State Budget

Approximately 72% of the City’s General Fund revenues for Fiscal Year 2008-09 are expected to consist of payments collected by the State and passed-through to local governments or collected by the County and allocated to local governments by State law. There can be no assurance that current or future

29 State budget difficulties will not adversely affect the City’s revenues or its ability to make payments under the Master Sublease. See “CITY FINANCIAL INFORMATION–Revenues.”

Changes in Law

There can be no assurance that the electorate of the State will not at some future time adopt additional initiatives or that the Legislature will not enact legislation that will amend the laws or the Constitution of the State resulting in a reduction of the general fund revenues of the City and consequently, having an adverse effect on the security for the Series 2008E/F Bonds.

Secondary Markets and Prices

The Underwriter will not be obligated to repurchase any of the Series 2008E/F Bonds, and no representation is made concerning the existence of any secondary market for the Series 2008E/F Bonds. No assurance can be given that any secondary market will develop following the completion of the offering of the Series 2008E/F Bonds, and no assurance can be given that the initial offering prices for the Series 2008E/F Bonds will continue for any period of time.

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS

Article XIII A of the California Constitution

On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIII A to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition.

Legislation enacted by the California Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value.

Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) is allocated on the basis of “sites” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation the following year. The City is unable to predict the nature or magnitude of future revenue sources, which may be provided by the State to replace lost property tax revenues. Article XIII A effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above.

30 The voters of the State subsequently approved various measures which further amended Article XIII A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the Full Cash Value of other real property between parents and children, do not constitute a “purchase” or “change of ownership” triggering reappraisal under Article XIII A. Other amendments permitted the State Legislature to allow persons over the age of 55 who meet certain criteria or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence’s assessed value to the new residence. Other amendments permit the State Legislature to allow persons who are either 55 years of age or older, or who are “severely disabled,” to transfer the old residence’s assessed value to their new residence located in either the same or a different county and acquired or newly constructed within two years of the sale of their old residence.

In the November 1990 election, the voters approved an amendment of Article XIII A to permit the State Legislature to exclude from the definition of “new construction” certain additions and improvements, including seismic retrofitting improvements and improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990.

Article XIII A has also been amended to provide that there would be no increase in the Full Cash Value base in the event of reconstruction of the property damaged or destroyed in a disaster.

Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. The constitutionality of this process was challenged in a lawsuit filed in the Orange County Superior Court and in similar lawsuits brought in other counties on the basis that the decrease in assessed value creates a new “base year value” for purposes of Article XIII A and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIII A. In March 2004, the Court of Appeal held that the trial court erred in ruling that assessed value determinations are always limited to no more than 2% of the previous year’s assessed value and reversed the judgment of the trial court. The ruling of the Court of Appeal was appealed to the State Supreme Court which denied the appeal for review in August 2004.

Section 4 of Article XIII A also provides that cities, counties and special districts cannot, without a two-thirds vote of the qualified electors, impose special taxes, which has been interpreted to include special fees in excess of the cost of providing the services or facility for which the fee is charged, or fees levied for general revenue purposes.

Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIII A.

Article XIII B of the California Constitution

On November 6, 1979, California voters approved Proposition 4, the Gann Initiative, which added Article XIII B to the California Constitution. In June 1990, Article XIII B was amended by the voters through their approval of Proposition 111. Article XIII B of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The “base year” for establishing such appropriation limit is fiscal year 1978-79. Increases in appropriations by a governmental entity are also permitted (1) if financial responsibility for providing services is transferred to the governmental entity, or (2) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. 31 Decreases are required where responsibility for providing services is transferred from the government entity.

Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to any entity of government from (1) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (2) the investment of tax revenues and (3) certain State subventions received by local governments. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate “proceeds of taxes” received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years.

As amended in June 1990, the appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the City’s option, either (1) the percentage change in California per capita personal income, or (2) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college (“K-14”) districts.

Article XIII B permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter- approved change can only be effective for a maximum of four years.

The City’s appropriations limit for Fiscal Year 2007-08 was $388,984,476, and the amount shown in such budget as the appropriations subject to limitation was $251,080,000. The City’s appropriations limit for Fiscal Year 2008-09 is $414,618,125, and the amount shown in its budget for that year as the appropriations subject to limitation is $253,433,300.

Proposition 218

General. On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIII C and XIII D to the California Constitution, which contain a number of provisions affecting the ability of cities and counties to levy and collect both existing and future taxes, assessments, fees and charges.

Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s general fund, require a two-thirds vote. The voter approval requirements of Proposition 218 reduce the flexibility of the City Council to raise revenues for the general fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure requirements. In addition, Article XIII D contains new provisions relating to how local agencies may levy and maintain “assessments” for municipal

32 services and programs. “Assessment” is defined to mean any levy or charge upon real property for a special benefit conferred upon the real property.

Article XIII D also contains several provisions affecting “fees” and “charges,” defined for purposes of Article XIII D to mean “any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service.” All new and existing property related fees and charges must conform to requirements prohibiting, among other things, fees and charges which (i) generate revenues exceeding the funds required to provide the property related service, (ii) are used for any purpose other than those for which the fees and charges are imposed, (iii) are for a service not actually used by, or immediately available to, the owner of the property in question, or (iv) are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Further, before any property related fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The City must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the City may not impose or increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse collection services, or fees for electrical and gas service, which are not treated as “property related” for purposes of Article XIII D, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area.

In addition to the provisions described above, Article XIII C removed many of the limitations on the initiative power in matters of reducing or repealing any local tax, assessment, fee or charge. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s general fund. “Assessment,” “fee” and “charge” are not defined in Article XIII C, and it is not clear whether the definitions of these terms in Article XIII D (which are generally property related as described above) would be applied to Article XIII C. If the Article XIII D definitions are not held to apply to Article XIII C, the initiative power could potentially apply to revenue sources which currently constitute a substantial portion of general fund revenues. No assurance can be given that the voters of the City will not, in the future, approve initiatives which repeal, reduce or prohibit the future imposition or increase of local taxes, assessments, fees or charges.

In addition, Proposition 218 added several requirements making it generally more difficult for counties and other local agencies to levy and maintain assessments for municipal services and programs.

Finally, Proposition 218 requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general government purposes of the City require a majority vote and taxes for specific purposes require a two-thirds vote. The voter approval requirements reduce the flexibility of the City Council to deal with fiscal problems by raising revenue and no assurance can be given that the City will be able to raise taxes in the future to meet increased expenditure requirements.

Resolution of Enterprise In-Lieu Litigation. The City was sued by the Howard Jarvis Taxpayers Association and other plaintiffs alleging that the City’s “In-Lieu” utility rate fee (the “Enterprise In-Lieu Fee”) was in violation of the provisions of Proposition 218. The trial court and the Fifth District Court of Appeal upheld the plaintiff’s summary judgment motion declaring the fee invalid, and the California Supreme Court denied the City’s petition for review. As a result, the City experienced an $8.5 million reduction to the General Fund Revenues in Fiscal Year 2005-06, the equivalent of 4% of appropriations for such Fiscal Year. The City implemented contingency plans it had developed to address this revenue shortfall while maintaining essential services. Rather than discontinue vital services, in Fiscal Year

33 2006-07, the City evaluated and completed in-depth rate studies to determine if rates being charged to end-users were sufficient to cover all costs associated with providing those services.

In November 2006, the study indicated that rates in three of the four utilities: water, wastewater/sewer and solid waste; required rate increases. Upon completion of the Proposition 218 process, rates increases as proposed by the study, and to the extent permitted by applicable law were adopted effective April 1, 2007 and on each September 1, thereafter through September 1, 2010 to cover costs associated with General Fund departments providing the expected services.

Proposition 1A

The California Constitution and existing statutes give the legislature authority over property taxes, sales taxes and the VLF. The legislature has authority to change tax rates, the items subject to taxation and the distribution of tax revenues among local governments, schools, and community college districts. The State has used this authority for many purposes, including increasing funding for local services, reducing State costs, reducing taxation, addressing concerns regarding funding for particular local governments, and restructuring local finance.

The California Constitution generally requires the State to reimburse the local governments when the State “mandates” a new local program or higher level of service. Due to the ongoing financial difficulties of the State, it has not provided in recent years reimbursements for many mandated costs. In other cases, the State has “suspended” mandates, eliminating both responsibility of the local governments for complying with the mandate and the need for State reimbursements.

On November 3, 2004, the voters of the State approved Proposition 1A that amended the California Constitution to, among other things, reduce the State Legislature’s authority over local government revenue sources by placing restrictions on the State’s access to local government’s property, sales and vehicle license fee revenues.

Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to a county for any fiscal year under the laws in effect as of November 3, 2004. The measure also specifies that any change in how property tax revenues are shared among local governments within a county must be approved by two-thirds of both houses of the Legislature (instead of by majority vote). Finally, the measure prohibits the State from reducing the property tax revenues provided to a county as replacement for the local sales tax revenues redirected to the State and pledged to pay debt service on State deficit-related bonds approved by voters in March 2004.

If the State reduces the VLF rate below its current level of 0.65% of the vehicle value, Proposition 1A requires the State to provide local governments with equal replacement revenues. Proposition 1A provides two significant exceptions to the above restrictions regarding sales and property taxes. First, beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues if: the Governor proclaims that the shift is needed due to a severe State financial hardship, the legislature approves the shift with a two-thirds vote of both houses and certain other conditions are met. The State must repay local governments for their property tax losses, with interest, within three years. Second, Proposition 1A allows the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county.

Proposition 1A amends the California Constitution to require the State to suspend certain State laws creating mandates in any year that the State does not fully reimburse local governments for their costs to comply with the mandates. Beginning in Fiscal Year 2005-06, if the State does not provide funding for the activity that has been determined to be mandated, the requirement on cities, counties or special districts to abide by the mandate would be suspended. In addition, Proposition 1A expands the definition of what constitutes a mandate to encompass State action that transfers to cities, counties and 34 special districts financial responsibility for a required program for which the State previously had complete or partial financial responsibility. This provision does not apply to mandates relating to schools or community colleges, or to those mandates relating to employee rights.

Proposition 1A restricts the State’s authority to reallocate local tax revenues to address concerns regarding funding for specific local governments or to restructure local government finance. For example, the State could not enact measures that changed how local sales tax revenues are allocated to cities and counties. In addition, measures that reallocated property taxes among local governments in a county would require approval by two-thirds of the members of each house of the legislature (rather than a majority vote). As a result, Proposition 1A could result in fewer changes to local government revenues than otherwise would have been the case.

Future Initiatives

Article XIII A, Article XIII B, Proposition 218 and Proposition 1A were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the City or local districts to increase revenues or to increase appropriations which may affect the City’s revenues or its ability to expend its revenues.

THE AUTHORITY

The Authority was formed pursuant to the provisions of Article 1 and Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State (the “Act”) and a Joint Exercise of Powers Agreement, dated October 25, 1988, as amended (the “Joint Powers Agreement”), by and between the City and the Agency. For additional information concerning the City, see APPENDIX A–“GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY OF FRESNO.” The Authority was formed to assist the City and the Agency in the financing of public capital improvements.

The Authority functions as an independent entity and its policies are determined by a three-member Board appointed by the City Manager of the City, who serve at the pleasure of the City Manager until replaced. The Board elects the Chairperson from its membership. The Controller of the City presently serves as Treasurer and Controller of the Authority. Pursuant to the Joint Powers Agreement, a Secretary of the Authority is appointed by resolution. The Authority has no employees and the City staff or consultants perform all staff work.

Under the Joint Powers Agreement, the Authority is empowered to assist in the financing of public capital improvements, through the issuance of revenue bonds in accordance with the Act. To exercise these powers, the Authority is authorized, in its own name, to do all necessary acts including but not limited to any or all of the following: make and enter into contracts; employ agents and employees; and sue or be sued in its own name.

THE CITY

The City, the county seat of Fresno County (the “County”), was incorporated in 1885. The City covers approximately 111 square miles, is located in central California approximately 184 miles southeast of the City of San Francisco and approximately 219 miles north of the City of Los Angeles.

For general information concerning the City, see APPENDIX A–“GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY OF FRESNO.”

35 CITY FINANCIAL INFORMATION

Budget Process

The Fiscal Year of the City begins on the first day of July each year and ends on the thirtieth day of June of the following year.

To develop the annual budget, each department head must furnish the Mayor an estimate of revenues and expenditures for such department for the coming Fiscal Year. In preparing the proposed budget, the Mayor reviews the estimates, holds conferences with the respective department heads, and revises the estimates as he deems advisable.

At least thirty days prior to the beginning of each Fiscal Year, the Mayor submits to the Council the proposed budget. The Council establishes a calendar for holding the first public hearing. Notice of the public hearing is published at least ten days prior to the hearing date. Copies of the proposed budget are available for inspection by the public in the office of the City Clerk at least 10 days before the hearing.

At the conclusion of the public hearing process, the Council further considers the proposed budget and makes any revisions it deems advisable. On or before June 30 of each year, the Council adopts the budget with revisions, if any, by resolution passed by four of its seven members.

The Mayor has power of veto in all actions of Council relating to the budget, including line item budgetary veto authority over all programs and budgetary units. This authority includes the ability to reduce or eliminate the Fiscal Year funding to any program or budget unit.

The Council may reconsider any action subject to the Mayor’s veto. If five members of the Council vote in favor of passage it becomes effective notwithstanding the Mayor’s veto.

From the effective date of the budget, the amounts stated as proposed expenditures become appropriated to the departments, offices and agencies for the objects and purposes specified. All appropriations lapse at the end of the Fiscal Year to the extent that they have not been expended or lawfully encumbered.

At any public meeting after adoption of the budget, the Council may amend or supplement the budget by motion adopted by the affirmative vote of at least five members of the seven-member Council. Again the Mayor retains veto authority over such actions and if so exercised the Council may override the Mayor’s veto with five affirmative votes.

Recent City General Fund Budgets

Fiscal Year 2007-08. The Fiscal Year 2007-08 Adopted Budget was prepared in accordance with the City’s five guiding principles: (i) maintaining essential services; (ii) investing in economic development; (iii) continuing implementation of the General Plan, which was designed to stop urban sprawl and improve City infrastructure and neighborhoods; (iv) improving educational programs; and (v) protecting the Emergency Reserve Fund. The Fiscal Year 2007-08 Adopted Budget reflected an increase in resources of 11.15%, including one-time revenues in the amount of $16.044 million of an estimated carryover from the Amended Fiscal Year 2006-07 Budget. Operating revenues were anticipated to increase approximately 6.9% during Fiscal Year 2007-08, including approximately $83.7 million in sales tax revenue (an increase of approximately 7% compared to the prior Fiscal Year, although the actual sales tax growth in Fiscal Year 2006-07 was approximately 8.2%); an approximately 5% increase in property taxes, which is approximately 49% less than the average annual growth in property tax over the last five Fiscal Years, based on assumed reductions in the number home sales, increases in 36 foreclosures and anticipated reductions in supplemental tax apportionment; and an approximately 4.6% increase in VLF revenues. Operating Expenses were approximately $20.2 million higher, representing a 9% increase, compared to the Fiscal Year 2006-07, primarily due to approximately $16 million in increased employee costs as a result of negotiated MOUs, including an increase in the contribution to the Fire and Police Retirement System (see “–City Retirement Systems”); an approximately $1.1 million increase in the City’s contribution to the Health and Welfare Trust Self Insurance Program; increased fuel costs and increased Fire Department costs.

The Fiscal Year 2007-08 Adopted Budget was balanced with a Fiscal Year 2008-09 Budget Protection Plan contingency of $5 million. The Fiscal Year 2008-09 Budget Protection Plan is a prudent approach in addressing future obligations without impacting essential core services and maintaining the Emergency Reserve for its intended purpose. One-time resources for Fiscal Year 2007-08 consisted of an estimated carryover of approximately $16.1 million from Fiscal Year 2006-07, which was approximately 6.5% percent of the General Fund, a portion of which will be used in Fiscal Year 2007-08. The Fiscal Year 2007-08 Adopted Budget proposed to hold $5 million of the one-time funds in a contingency reserve account to be used for currently established services in Fiscal Year 2008-09 in order to mitigate a structural imbalance of over $8 million as early as Fiscal Year 2008-09.

The Emergency Reserves were expected to be increased by $680,000 to build a total reserve of $16.4 million at the close of Fiscal Year 2007-08, representing approximately 6.5% of General Fund appropriations, which is 1.5% higher than the level required by City policy.

Fiscal Year 2008-09. The Fiscal Year 2008-09 Adopted Budget was prepared in accordance with the City’s five guiding principles described above. The Fiscal Year 2008-09 Adopted Budget reflected a decrease in resources of 1.1%, including revenues in the amount of $8.3 million of an estimated carryover from Fiscal Year 2007-08 Budget. The Fiscal Year 2008-09 Adopted Budget maintains the General Fund reserve with a deposit in the amount of $1.1 million to the Emergency Reserve Fund, bringing the balance on deposit therein to $17.5 million, or 2% above the amount required to satisfy the 5% requirement. An additional $500,000 has been set-aside for unanticipated events in Fiscal Year 2008-09. The Operating Expenditures remained relatively flat. The Operating Expenditures Appropriation in Fiscal Year 2007-08 included $6.0 million in a Budget Protection Plan (BPP) contingency that was intended to be expended in Fiscal Year 2008-09. See also “–Budget Process.”

State Budgets

Approximately 75% of the City’s Fiscal Year 2008-09 General Fund Budget consists of payments collected by the State and passed-through to local governments or collected by the County and allocated to local governments by State law. The financial condition of the State has an impact on the level of these revenues. In past years the State has reduced revenues to cities and counties to help solve the State’s budget problems.

The level of intergovernmental revenues that the City will receive from the State in Fiscal Year 2008-09 and in subsequent fiscal years will be affected by the financial condition of the State.

The following information concerning the 2008-09 Governor’s Budget has been obtained from publicly available information on the State Department of Finance, the State Treasurer and the California Legislative Analyst Office websites. The estimates and projections provided below are based upon various assumptions as updated in the 2008-09 Governor’s Budget, which may be affected by numerous factors, including future economic conditions in the State and the nation, and there can be no assurance that the estimates will be achieved. For further information and discussion of factors underlying the State’s projections, see the aforementioned websites. The City believes such information to be reliable, however, the City takes no responsibility as to the accuracy or completeness thereof and has not independently verified such information.

37 Fiscal Year 2008-09 Governor’s Budget. The 2008-09 Governor’s Budget (the “2008 Governor’s Budget”), released on January 10, 2008, estimated that unless action was taken to close a projected $3.3 billion budget deficit for Fiscal Year 2007-08, the State faces a projected deficit that will grow to $14.5 billion by the end of Fiscal Year 2008-09. The 2008 Governor’s Budget projects that State General Fund revenues for Fiscal Year 2007-08 and Fiscal Year 2008-09 would be lower than originally projected in connection with the adoption of the State 2007 Budget Act, primarily due to a deepening housing slump, a breakdown in mortgage markets, tighter credit, more volatile financial markets, natural disasters and rising energy prices.

The 2008 Governor’s Budget included 10% across-the board reductions to all State General Fund departments and programs, Boards, Commissions and elected offices, including the legislative and judicial branches, except where such a reduction conflicts with the State Constitution (e.g. reductions in Proposition 42 and contributions to public retirement systems) or is impractical (e.g. reductions in debt service payments or departments that generate significant revenue). In addition, the 2008 Governor’s Budget included numerous measures to restore the State’s rainy day reserve and secure adequate cash flow, including the sale of approximately $3.3 billion in Economic Recovery Bonds by the end of February 2008, transfer of approximately $1.5 billion from the Budget Stabilization Account to the State General Fund in the Fiscal Year 2007-08 and elimination of a $1.5 billion transfer to the Budget Stabilization Account in Fiscal Year 2008-09, and delays in payments to counties for the administration of certain human services and mental health programs. State General Fund revenues and transfers for Fiscal Year 2008-09 were projected at $104.6 billion and expenditures are projected at $100.9 billion.

The 2008 Governor’s Budget contains several proposals of concern for the City, including, a one- to-two month delay in making first quarterly payments to counties for Medi-Cal administration, a two- month delay in the quarterly advance to counties for the Early and Periodic Screening, Diagnosis and Treatment Program, a two-month delay in disbursements for programs in the Department of Social Services, and a one-to-five month delay in gas tax disbursements for local streets and roads.

Pursuant to Proposition 58 (known as the California Balanced Budget Act) the Governor also called a fiscal emergency, with the goal of starting many of the reductions proposed in the 2008 Governor’s Budget immediately to address the projected $3.3 billion deficit in Fiscal Year 2007-08. Under Proposition 58 the Governor has authority to declare a fiscal emergency if he determines that the State faces substantial revenue shortfalls or expenditure increases. The Governor is then required to call a special session of the State Legislature and to propose legislation to address the fiscal emergency. If the State Legislature does not approve and send legislation to the Governor to address the fiscal emergency within 45 days, the State Legislature is prohibited from acting on any other bills or adjourning in joint recess until such legislation is passed.

The 2008 Governor’s Budget, if adopted by the State Legislature in its current form, is not expected to have a material adverse effect on the ability of the City to make required lease payments with respect to the Certificates.

On February 20, 2008, the State Legislative Analyst’s Office (the “LAO”) released its annual report entitled “The 2008-09 Budget: Perspectives and Issues” (the “Report”). In its overview of the State’s fiscal picture, the Report states in analyzing the fiscal picture of the State that:

A declining economic outlook, sagging revenues, and rising costs have created bleak prospects for the State’s budget. Over the current and budget years 2007-08 and 2008-09, the Governor identified a gap of $14.5 billion between revenues and expenditures and proposes more than $17 billion in solutions to bring the state’s budget back into balance. These budget-balancing actions include the issuance of additional deficit-financing bonds, higher revenue accruals, and budget reductions across most state programs.

38 The Report concludes that, primarily due to the continued deterioration of the State’s revenue outlook, the LAO projects that the State’s budget shortfall (prior to any corrective actions) has increased to about $16 billion, that as a consequence, the reserve at the end of Fiscal Year 2008-09 under the Governor’s budget policies would be $1.1 billion, which is $1.6 billion less than forecasted by the administration.

The Report also includes an alternative budget approach to assist the Legislature in developing a more balanced and targeted method in addressing the State’s budget shortfall as compared to the reliance of the 2007 Governor’s Budget primarily on budget cuts. The Report and other reports by the LAO (which are not incorporated into this Official Statement) may be reviewed on the LAO’s website at www.lao.ca.gov.

On May 14, 2008, the Governor released the May revision of the State budget for 2008-09 (the “May Revision”). The May Revision projects a budget deficit of approximately $17.2 billion, an increase of approximately $2.75 billion over the deficit projected in January 2008. Left unaddressed, the deficit is projected to grow to $24.3 billion based on updated revenue projections, revised caseload estimates and higher costs. The May Revision proposes a combination of spending and revenue solutions to address the budget deficit and provide a reserve of $2 billion.

In the May Revision, the Governor proposes enactment of a constitutional amendment, the Budget Stabilization Act, to prevent spending temporary increases in revenues on ongoing programs and provide the State with mechanisms to avoid future budget crises; creation of a Revenue Stabilization Fund (the “RSF”), only available for transfers to the General Fund to bring revenues up to the long-term average in years with below average revenue growth, capitalization of the RSF in Fiscal Year 2008-09 to provide $5.1 billion for transfer to the State General Fund; and establishment of a bipartisan Tax Modernization Commission to recommend ways to stabilizes the State’s revenues, bring the tax system into better alignment with the economy and improve the State’s economic competitiveness. In addition, the May Revision proposes improving the performance of the State’s lottery by providing operational flexibility, securitizing future lottery revenues resulting from the improved performance to fund the RSF, and implementing a fail-safe mechanism, similar to that established by Chapter 10, Statutes of 1983, to ensure that the RSF has a sufficient balance for transfer to the State General Fund. In the event the RSF balance is insufficient, the fail-safe mechanism would trigger a one cent sales tax increase until the RSF reaches the targeted fund balance of 15% of State General Fund tax revenues or June 30, 2011, whichever occurs first.

The City cannot predict the extent of the budgetary problems the State will encounter in this or in any future Fiscal Year, and, it is not clear what measures would eventually be taken by the State to balance its budget, as required by law. Accordingly, the City cannot predict the final form of the State budget or the impact that such budgets will have on its finances and operations or the actions to be taken in the future

Financial Statements

The government-wide financial statements (i.e. the statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support.

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and trust fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the 39 year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. Agency funds, being custodial in nature, however, are unlike all other types of funds, reporting only assets and liabilities. As such, they cannot be said to have a measurement focus. Agency funds do however use the accrual basis of accounting to recognize receivables and payables.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers property tax revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to vacation, sick leave, claims and judgments, are recorded only when payment is due.

Property taxes, other local taxes, licenses, and interest associated with the current fiscal period are all considered susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives cash.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with the fund’s principal ongoing operations. The principal operating revenues of the City’s enterprise and internal service funds are charges for customer services for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. See APPENDIX B–“CITY OF FRESNO, CALIFORNIA, COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2007.”

The financial statements for the City, including the General Fund, which are included in APPENDIX B, have been audited by McGladrey & Pullen, LLP, Certified Public Accountants, Riverside, California, whose report thereon appears in such Appendix. The report by McGladrey & Pullen, LLP makes reference to other auditors who have audited amounts included in the City’s financial statements for the City’s redevelopment agency and the City of Fresno’s employees and fire and police retirement systems. McGladrey & Pullen, LLP has consented to the inclusion of its report in Appendix B, but has not undertaken to update its report or take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement and no opinion is expressed by McGladrey & Pullen, LLP with respect to any event subsequent to the date of its report. The audited basic financial statements of the City are also available upon request directed to the City Clerk’s Office, 2600 Fresno Street, Fresno, California 93721-3603 and may also be viewed online or downloaded at http://www.ci.fresno.ca.us/ adminservices/finance/default.asp.

40 Table 5 summarizes the City’s actual General Fund resources and expenditures for Fiscal Years 2005-06 through 2006-07 and the Adopted Budgets for Fiscal Years 2007-08 and 2008-09.

TABLE 5 CITY OF FRESNO General Fund Revenues and Expenditures and Changes in Fund Balances For Fiscal Years 2005-06 through 2006-07 and Adopted Budgets for Fiscal Year 2007-08 and 2008-09 ($ in 000’s)

Adopted Adopted Budget Budget 2005-06 2006-07 2007-08 2008-09 REVENUES: Taxes $193,853 $209,484 $182,794 $180,254 Licenses and Permits 306 352 269 276 Intergovernmental 5,585 6,580 38,277 45,118 Charges for Services 16,420 16,060 19,665 18,364 Fines and Forfeitures, Penalties 3,005 3,767 3,504 7,855 Use of Money and Property 2,736 2,583 947 635 Interdepartmental Charges for Services – – – – Miscellaneous 7,100 9,241 9,325 14,140 Prior Year Resources – – – 8,282

TOTAL REVENUES $229,006 $248,067 $254,781 $274,924 EXPENDITURES: General Government $5,786 $8,178 $26,842 $22,669 Public Protection 147,363 164,203 178,949 184,260 Public Ways and Facilities 10,613 9,513 16,393 15,531 Culture and Recreation 20,807 21,404 22,213 23,230 Community Development 1,054 2,020 2,578 4,447 Capital Outlay 1,183 1,015 2,270 1,356 Debt Service: Principal 1,326 1,643 1,415 1,390 Interest 1,638 1,710 420 275

TOTAL EXPENDITURES $189,771 $209,687 $251,080 $253,158 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 39,235 38,380 3,701 21,766

OTHER FINANCING SOURCES (USES) Transfers In $1,939 $2,851 $0 $0 Transfers Out (34,298) (37,527) (19,745) (21,766) Proceeds for Capital Lease Obligations 2,366 (2,016) – – Proceeds for Note Obligation – 48 – – FAA Settlement – (5,847) – –

TOTAL OTHER FINANCING SOURCES (USES): (29,993) (38,458) (19,745) (21,766) Net Change in Fund Balances $9,242 (78) Excess (Deficiency) of Revenues and Other Sources Over (Under) Expenditures and Other Uses – – FUND BALANCES - BEGINNING 50,375 59,617 Prior Period Adjustment – – Cumulative Effect of Change in Accounting Principles – – FUND BALANCES (RESTATED) – –

FUND BALANCES - ENDING $59,617 $59,538 ______Source: City of Fresno Finance Department.

41 Management Discussion of Projected Financial Performance

The budget outlook for Fiscal Year 2007-08 reflected an economy that is stabilizing after several years of growth. The most significant indicator of this situation is the downturn in the City’s sales tax revenue and residential inspection fees. These reductions are mitigated this year by property tax and VLF revenues that are expected to be higher than the amounts budgeted. Since the enactment of the Fiscal Year 2007-08 Adopted Budget, the economy has shown continuing signs of weakness, particularly with the depressed real estate market and the continued high gasoline prices. However, the property tax revenue impacts will not be realized this Fiscal Year 2007-08 due to the approximately 18 months of delay in time from when property tax is assessed and collected to when it is allocated. The current property tax revenue stream is based on the January 2007 assessments before the local real estate market began to decline. Thus, the City is expected to experience the impact of the property tax declines commencing in Fiscal Year 2008-09. The VLF is part of the “Triple Flip” agreement with the State that calculates the allocation on the prior year growth in assessed values which were 13.94% greater than the prior Fiscal Year.

To address the continuing revenue downturns, General Fund departments have been directed to identify 1.5% savings in their current year budget allocations and to redirect the savings into the Budget Protection Plan. These funds are in addition to the anticipated surplus of $6.2 million. Departments have also been instructed that the savings are not to impact key public safety initiatives. As a general course of business, Departments typically have some level of savings at the end of each fiscal year.

Unlike other cities in the State, that are already facing deficits in their current year budgets, the City expects to end the year in the black. The implementation of the 1.5% savings plan, combined with previous actions taken earlier in Fiscal Year 2007-08, will assure that the $12.7 million cost of living funding gap projected for next year does not increase. It is anticipated that the revenue stream in the General Fund will remain unchanged for Fiscal Year 2008-09. Therefore, the Fiscal Year 2008-09 General Fund budget is expected to be approximately the same amount as the Fiscal Year 2007-08 General Fund Budget of $254 million. See also “–Recent City General Fund Budgets–Fiscal Year 2008-09.”

Principal Sources of General Fund Revenues

Sales tax revenues are the single largest revenue source to the General Fund, representing approximately 29.0% of Fiscal Year 2008-09 operating revenues; followed by property taxes representing approximately 27.2%; and Motor Vehicle in Lieu Fees (the “VLF”), representing approximately 15.7%. These three sources represent an aggregate of approximately 71.9% of the General Fund Revenues for Fiscal Year 2008-09 Adopted Budget, and represented an aggregate of approximately 72.8% of General Fund revenues in Fiscal Year 2007-08. For a discussion of potential State Budget impacts on General Fund Revenues, see “–State Budgets.” For a discussion of sales tax revenues and property taxes, see “– Sales Tax.” and “–Ad Valorem Property Taxation.” For a discussion of the VLF, see “–Motor Vehicle in Lieu Fees” and “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS– Proposition 1A.”

Sales Tax

A sales tax is imposed on retail sales or consumption of personal property. Sales tax revenues are determined by the total taxable transactions within a jurisdiction and distributed by the State Board of Equalization to the jurisdiction where the sale took place. Sales taxes collected from merchants with no permanent place of business (i.e., manufacturers, construction contractors, etc.) are accumulated to a countywide or State-wide (out-of-state businesses) pool and distributed to cities and counties in proportion to their collections from all sales taxpayers.

42 Prior to 1955, the City imposed its own local sales tax. In 1955, the Legislature enacted the Bradley Burns Act which established a statewide rate for sales tax, allowed counties to enact sales taxes, capped cities’ taxes at 1% and provided for collection by the State Board of Equalization. The City’s 1% sales tax has historically been an important local revenue source.

The value and volume of these taxable transactions are in turn dependent on economic and other factors which will influence the City. Such factors include the level of inflation affecting the price of goods and services subject to the sales tax, the rate of population growth in the general area, the characteristics of retail developments, including the relative size of market service areas, the sensitivity of the types of businesses within the City to changes in the economy, and competing retail establishments outside the City. A deterioration of economic and other factors influencing taxable sales generated in the City, would reduce the level of taxable sales generated in the City, thereby reducing sales tax revenues. Table 6 shows historical retail sales for certain businesses.

TABLE 6 CITY OF FRESNO Taxable Retail Sales Data for Calendar Years 2002 through 2006 ($ in 000’s)

2002 2003 2004 2005 2006† RETAIL STORES Apparel Stores $181,405 $192,248 $231,108 $252,666 $280,119 General Merchandise 774,967 845,139 904,112 961,296 990,836 Food Stores 289,186 311,783 324,347 341,315 363,934 Eating & Drinking Places 484,295 512,796 552,473 593,847 637,685 Home Furnishings and Appliances 202,084 221,776 236,070 258,904 261,887 Building Materials and Farm Implements 372,596 443,107 527,691 594,555 605,544 Auto Dealers and Auto Supplies 920,064 955,653 1,025,185 1,115,571 1,111,883 Service Stations 247,802 289,650 324,584 392,978 454,752 Other Retail Stores 685,947 730,782 794,912 900,150 936,998 TOTAL RETAIL STORES 4,158,346 4,502,934 4,920,482 5,411,282 5,643,638 All Other Outlets 1,149,004 1,211,987 1,356,274 1,504,970 1,610,830 TOTAL ALL OUTLETS $5,307,350 $5,714,921 $6,276,756 $6,916,252 $7,254,468 ______† Most recent annual data available. Source: State Board of Equalization.

In August 2003, the State adopted legislation which cut the sales tax revenue to cities by half and redirected those revenues to repay State bonds issued to fund the State deficit (the “Triple Flip”) (AB 7X, Revenue and Taxation Code §§7203, 6051.5). The legislation includes a requirement to repay the lost sales tax revenue with subsequent payments from local property taxes taken to establish the ERAF.

Assessed Valuation

The assessed valuation of property in the City is established by the County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full cash value of the property, as defined in Article XIII A of the California Constitution.

The California State Legislature adopted in 1969 the Homeowners Property Tax Relief Program. The State reimbursed redemption currently provides a credit of $7,000 of the full value of the owner- occupied dwelling for which application has been made to the County Assessor. The revenue estimated to be lost to local taxing agencies due to the exemption is reimbursed from State sources. Reimbursement

43 is based upon total taxes due on such exempt value and is not reduced by an amount for estimated or actual delinquencies.

Certain classes of property such as churches, colleges, not-for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. Total assessed valuation of City property for the past 10 years is set forth in Table 7.

TABLE 7 CITY OF FRESNO Assessed Value of Taxable Property† Last 10 Fiscal Years

Fiscal Year Assessed Valuation 1998-99 $14,777,884,670 1999-00 15,315,251,226 2000-01 16,040,139,117 2001-02 16,907,355,176 2002-03 17,668,086,326 2003-04 18,911,067,637 2004-05 21,051,751,380 2005-06 23,102,300,498 2006-07 26,362,095,349 2007-08 29,972,515,865 ______† Includes secured and unsecured property. Source: City of Fresno Finance Department.

In 1978, the voters of the State passed Proposition 8, a constitutional amendment to Article XIII A that allows a temporary reduction in assessed value when real property suffers a decline in value. A decline in value occurs when the current market value of real property is less than the current assessed (taxable) factored base year value as of the lien date, January 1.

The County Assessor has informed the City that it would evaluate approximately 15% of the property within the City to determine if Proposition 8 temporary reassessments are warranted. In the Fiscal Year 2008-09 General Fund Adopted Budget, the City assumed that assessed value would increase with respect to 85% of the property within the City at a rate equal to 1% over the Fiscal Year 2007-08 assessed value. See also “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Article XIII A of the California Constitution.”

Ad Valorem Property Taxation

Overview. Taxes are levied by the County for each Fiscal Year on taxable roll and personal property which is situated in the City as of the preceding January 1. Effective July 1, 1983, real property that changes ownership or is newly constructed is revalued at the time the change in ownership occurs or the new construction is completed. The current year property tax rate will be applied to the reassessment, and the taxes will then be adjusted by a proration factor to reflect the portion of the remaining tax year for which taxes are due.

For assessment and collection purposes, property is classified either as “secured” or “unsecured.” Property assessed as “secured” is listed accordingly on separate parts of the assessment roll containing State-assessed property and property the taxes on which are a lien on real property sufficient, in the

44 opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”

Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each Fiscal Year, and if unpaid become delinquent on December 10 and April 10, respectively, subject to a penalty of 10%. Property on the secured roll with respect to which taxes are delinquent becomes tax defaulted on or about June 30 of the Fiscal Year. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Tax Collector.

Property taxes on the unsecured roll are due as of the January 1 lien date and, in general, become delinquent on August 31, subject to a 10% penalty. If unsecured taxes are unpaid on October 31, an additional penalty of 1.5 percent attaches to them on the first day of each month until paid. The City has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee.

Table 8 below sets forth the levies, collections and percent of collections and levies for property taxes in the City for the last 10 Fiscal Years.

TABLE 8 CITY OF FRESNO Property Tax Levies and Collections Last 10 Fiscal Years

Total Fiscal Collections Year Percent of Delinquent Total As Percent Ending Net Total Current Tax Levy Tax Tax of Current June 30 Tax Levy(1) Collections Collected Collections Collections Levy 1998 $36,532,509 $36,414,189 99.68% $1,198,167 $37,612,356 102.96% 1999 37,923,092 37,511,803 98.92 665,173 38,176,976 100.67 2000 39,248,393 38,641,638 98.45 1,419,692 40,061,330 102.07 2001 40,376,898 39,847,334 98.69 775,322 40,622,656 100.61 2002 41,466,342 40,714,792 98.19 1,141,457 41,856,249 100.94 2003 42,693,647 41,140,273 96.36 784,581 41,924,854 98.20 2004 45,316,812 43,981,854 97.05 2,012,461 45,994,315 101.50 2005 45,141,756 44,752,794 99.14 1,769,044 46,521,838 103.06 2006 50,645,808 54,159,317 106.94 1,786,932 55,946,249 110.47 2007 93,710,698(3) 96,159,317 102.62 2,213,392 98,377,149(3) 104.98 ______(1) Net tax levy includes revenue from supplemental taxes and revenue from public safety pension override. (2) The amount collected in Fiscal Year 2006-07 exceeds the net total tax levy due to payment of prior Fiscal Year delinquent taxes and supplemental assessments collected in the aggregate amount of $4.1 million. Under Chapter 3.5 of Part 0.5 of Division 1 of the State Revenue and Taxation Code, supplemental assessments are added to a supplemental roll whenever new construction is completed and there is a change in ownership. (3) Prior to Fiscal Year 2006-07, the County calculated the tax levy net of the VLF backfill payments. Commencing in Fiscal Year 2006-07, the VLF amounts are included in the tax levy amount. Source: City of Fresno Finance Department.

45 While the County has adopted the Alternative Method of Distribution of Tax levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as provided for in Section 4701 et. seq. of the State and Taxation Code, the City is not currently a participant in the Teeter Plan.

Effect of Foreclosures on Property Tax Collections. As described above under “–Overview,” once an installment of property tax becomes delinquent, penalties are assessed commencing on the applicable delinquency date until the delinquent installment(s) and all assessed penalties are paid. In the event of foreclosure and sale of property by a mortgage holder, all past due property taxes, penalties and interest is required to be paid before the property can be transferred to a new owner.

During, calendar year 2007, mortgage holders had sent 4,097 notices of default with respect to properties located within the City compared to 1,681 during calendar year 2006, and 1,322 trustee deeds had been recorded in calendar year 2007 (indicating that the property has been lost to foreclosure), compared to 171 during calendar year 2006. During the first half (January through June) of calendar year 2008, 3,582 notices of default had been sent and 1,794 trustee deeds recorded compared to 1,668 notices of default sent and 463 trustee deeds recorded during the first half of calendar year 2007. These events are related to declines in the real estate market in general and the collapse of the subprime sector of the mortgage market that is impacting certain homeowners nationwide. In California, the greatest impacts to date are in regions of the Central Valley and the Inland Empire in the southern part of the State, due to the relative affordability of housing in these areas.

Table 9 sets forth the City’s principal secured taxable property owners by valuation for Fiscal Year 2007-08.

TABLE 9 CITY OF FRESNO Principal Secured Taxable Property Owners by Valuation

2007-08 Secured % of Total City Taxpayer Type of Business Assessed Value Assessed Value† The Gap Inc. Truck Terminals $152,447,794 0.55% Macerich Fresno Limited Partnership Real Estate 120,068,200 0.43 DS Fig Garden LLC Real Estate Ownership 106,090,837 0.38 Gallo E & J Winery Winery 75,947,352 0.27 Capri Sun Inc. Beverages 64,985,045 0.23 Hub Acquisition Trust Real Estate Investment 64,861,239 0.23 NGP Fresno LLC Commercial Real Estate 63,240,000 0.23 Fresno Heart Hospital Hospital 62,224,400 0.22 NMSBPCSLDHB Real Estate Investment 52,787,275 0.20 Lennar Fresno Inc. Real Estate Developer 52,410,112 0.19 SUBTOTAL PRINCIPAL TAXPAYERS 817,053,254 2.92 All Others Various 27,120,816,181 97.08 TOTAL $27,937,869,435 100.00% ______Source: KNN Public Finance and Urbics.com.

Motor Vehicle in Lieu Fees

Vehicle license fees are assessed in the amount of 2% of a vehicle’s depreciation market value for the privilege of operating a vehicle on California’s public highways. A program to offset (or reduce) a portion of the vehicle license fees (“VLF”) paid by vehicle owners was established by Chapter 322, Statutes of 1998. Beginning January 1, 1999, a permanent offset of 25% of the VLF paid by vehicle owners became operative. Various pieces of legislation increased the amount of the offset in subsequent years to the existing statutory level of 67.5% of 2% (resulting in the current effective rate of 0.65%). This 46 level of offset was estimated to provide tax relief of $3.95 billion in the Fiscal Year 2003-04. Beginning in Fiscal Year 2004-05, the State-local agencies agreement will permanently reduce the VLF rate to 0.65% and eliminate the General Fund offset program.

In connection with the offset of the VLF, the Legislature authorized appropriations from the State General Fund to “backfill” the offset so that the local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient General Fund moneys to fully “backfill” the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be disadvantaged. In June 2003, the Director of Finance under the Davis Administration ordered the suspension of VLF offsets due to a determination that insufficient General Fund moneys would be available for this purpose, and, beginning in October 2003, VLF paid by vehicle owners were restored to the 1998 level. However, the offset suspension was rescinded by Governor Schwarzenegger on November 17, 2003, and offset payments to local governments resumed. Local governments received “backfill” payments totaling $3.80 billion in Fiscal Year 2002-03. “Backfill” payments totaling $2.65 billion were paid to local governments in Fiscal Year 2003-04. The State-local agreement also provided for the repayment in August 2006 of approximately $1.2 billion that was not received by local governments during the time period between the suspension of the offsets and the implementation of higher fees. This repayment obligation was codified by Proposition 1A, which was approved by the voters in the November 2004 General Election and was repaid early by the State in August 2005. For a description of Proposition 1A, see “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS–Proposition 1A.”

Table 10 sets forth the Motor Vehicle in Lieu Fees received by the City for the last 10 Fiscal Years and budgeted for Fiscal Year 2008-09.

TABLE 10 CITY OF FRESNO Motor Vehicle in Lieu Fees Fiscal Years 1998-99 through 2008-09†

Total Motor Vehicle Motor Vehicle Fiscal Year In Lieu Fee VLF Backfill In Lieu Fee 1998-99 $18,104 – $18,104 1999-00 20,289 – 20,289 2000-01 22,248 – 22,248 2001-02 24,352 – 24,352 2002-03 25,917 – 25,917 2003-04 26,585(1) – 26,585(1) 2004-05 4,856(2) – 29,197(2) 2005-06 10,367(3) $29,926 40,293 2006-07 2,774 32,189 34,963(3) 2007-08 2,059 36,552 38,611 2008-09† 2,224 39,669 41,893† ______† Budgeted. (1) Subsequent to adoption by the City Council of the City’s Fiscal Year 2003-04 Budget, the State adopted the 2003 Budget Act which included deferral of three months of VLF backfill payments to local governments, resulting in a reduction to the City of $8.1 million in VLF payments for Fiscal Year 2003-04. (2) The amount received for Fiscal Year 2004-05 reflects the implementation of Proposition 1A. The total amount of VLF and property taxes received by the City for Fiscal Year 2004-05 was $29,197,267. “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 1A.” (3) Includes repayment of the Fiscal Year 2003-04 VLF deferral. Source: City of Fresno.

47 Investment Policy

Highlights of Investment Policy. The City maintains a written policy for investing public funds, which is approved annually by the City Council. The primary objectives of which, in order of importance, are: (i) complying with all State and City legal directives to conform with GAAP. GASB and guidance furnished by other governmental and industry professional organizations, (ii) ensuring the safety of funds invested, (iii) providing liquidity sufficient to meet all cash needs of the City as they become due; (iv) optimizing the rate of return on investments within the constraints of safety and liquidity; and (v) promoting local economic development.

Safety. Safety of principal is the foremost objective of the investment program. Investments of the City are undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To obtain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. Thus, the standard of prudence used by investment officials of the City is the “prudent person” standard and is applied in the context of managing an overall portfolio.

Authorized Investments. The City is empowered by State law to invest in certain “eligible securities” as defined in the California Government Code Sections 53601 et seq. and 53635 et seq. Authorized investments also include, in accordance with California Government Code Section 16429.1, investments in the State Local Agency Investment Fund (“LAIF”). Authorization for specific instruments with these general categories, as well as narrower portfolio limitations, including maximum security type concentration, remaining security maturity, minimum credit quality rating, and maximum issuer concentration, are established to include the following:

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48 TABLE 11 CITY OF FRESNO Investment Limits by Type

Maximum Maximum Maximum Maximum Percentage Limit Percentage Limit Maximum Percentage Percentage of Portfolio of Portfolio Percentage of Single Quality Limit of Limit of Per Single Issuer Per Single Issuer Issuer’s Debt Authorized Investments Maturity Rating State Fresno State Fresno State/Fresno City of Fresno Debt 5 Years N/A 100% 100% 100% 100% 100% U.S. Treasuries 5 Years N/A 100 100 100 100 100 California Debt 5 Years N/A 100 100 100 100 100 Cal Local Agency Debt 5 Years N/A 100 100 100 100 100 GSE Agencies 5 Years N/A 100 70 100 50 100 Banker’s Acceptances 180 Days N/A 40 40 30 30 100 Commercial Paper 270 Days A-1/P-1 25 25 25 25 10 Negotiable CDs 5 Years N/A 30 30 30 30 Shareholders Equity

49 Time Deposits 5 Years Collateral 100 100 100 100 Shareholders Equity Government Code Until Section 53601.8 CDs 1/1/2012 Insured 30 30 30 30 Shareholders Equity Repurchase Agreements(1) 1 Year Collateral 100 100 100 100 100 Reverse Repurchase Agreements(2) 92 Days N/A 20 20 N/A N/A 100 Securities Lending Agreements(2) 92 Days N/A 20 20 N/A N/A 100 Medium-Term Notes 5 Years A 30 30 30 20 100 Mutual Funds N/A AAA 20 20 10 10 100 Money Market Funds N/A AAA 20 20 20 20 100 Mortgage/Asset Backed Debt 5 Years AA 20 20 20 20 100 LAIF N/A N/A 100 100 100 100 100 ______(1) Investments in repurchase agreements may not exceed one year and the market value of the underlying securities must maintain a value of 102% or greater of the funds borrowed against those securities. (2) Investments in reverse repurchase agreements and security lending agreements require that the securities to be sold or lent must have been owned for a minimum of 30 days prior to the transaction, the total amount of securities may not exceed 20% of the portfolio, the agreement may not exceed a term of 92 days unless there is a guaranteed spread for the entire period, the borrowed funds may not be invested for more than 92 days, unless there is a guaranteed spread for the entire period and such agreements are entered into with the prior approval of the City Council.

The City does not hold any collateralized investments other than certificates of deposits with banking institutions as permitted under the California Government Code.

Prohibited Investments. No investments may be made in inverse floaters, range notes, or mortgage-derived, interest only strips.

Performance Evaluation and Reporting. Investment performance is continually monitored and evaluated by the City Treasurer and Treasury staff. Management responsibility for the investment program is delegated to the Controller of the City. The Controller is responsible for establishing written procedures for the operation of the investment program consistent with the investment policy, all transactions undertaken, and establishing a system of controls to regulate the activities of subordinate officials.

The Treasurer is required to prepare and submit monthly and quarterly summary reports for review by the Mayor, City Manager, City Council and an internal auditor and a report at least each quarter. The reports are required to list the types of investments showing the par value, book value and fair market value, unrealized gains and losses and the purchase and maturity dates for each security. Such reports are also required to include a summary of total amounts invested by category, with total par value, book value, and fair market values presented; the rate of return on the portfolio, both month or quarter, as applicable, to date and for the previous rolling 12 months; and the total earned interest on the portfolio, both month to date, quarter to date, as applicable, and year to date. A graphic analysis is also required to be prepared showing the asset allocation, the asset allocation compared to Policy limits, the maturity schedule, and a yield comparison among the Portfolio, LAIF and the one year Treasury rate.

Investment Policy Adoption. The City’s investment policy is adopted annually by a resolution of the City Council. Any modifications made thereto must be approved by the City Council.

Summary of Current Investments. As of June 30, 2008, the portfolio had a weighted average maturity of 2.43 years and a current market yield of 5.05%. The following Table 12 summarizes the type of investments and other information on the portfolio as of June 30, 2008.

TABLE 12 CITY OF FRESNO Portfolio Summary As of June 30, 2008

Par Value and Amortized Market Par Accumulated Investment Cost Percent Value Value Future Earnings Federal Agency Notes $253,316,056 78.34% $253,172,283 $253,300,000 $288,561,917 Local Agency Investment Fund† 40,000,000 12.37 40,000,000 40,000,000 40,000,000 Time Deposits 2,800,000 0.87 2,800,000 2,800,000 2,800,000 Mutual Funds† 27,254,705 8.43 27,254,705 27,254,705 27,254,705 TOTAL INVESTMENTS $323,370,761 100.00% $323,226,988 $323,354,705 $358,616,622 ______† Future earnings indeterminate. Source: City of Fresno Finance Department.

50 Risk Management

The City is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. Within certain exceptions, it is City policy to use a combination of self-insurance and purchased commercial insurance against property or liability risks. The City accounts for risks from insurance or self-insurance programs in the Risk Management Internal Service Fund. This fund is used to account for the City’s workers’ compensation, general liability, property and unemployment insurance.

The City maintains General Liability Insurance, with limits of liability of $10 million. There is a $2.5 million self-insured retention. The City also maintains Airport Owners and Operators General Liability Insurance and Aviation (Airport Liability) Insurance, with limits of liability of $60 million per occurrence and $20 million per occurrence, respectively. There is no deductible or self-insured retention. Furthermore, the City maintains Property Insurance and Boiler and Machinery Insurance, with total insured values of $963,168,436 and limits of liability of $1 billion and $100 million per occurrence, respectively, with a $25,000 deductible. Finally, the City maintains Aviation (Aircraft Hull) Insurance for its two helicopters and one airplane, with limits of liability of $1.4 million for each helicopter and $167,508 for the airplane. There is a $35,000 in-motion deductible and $1,000 not in-motion deductible for the helicopters and a $500 in-motion deductible and $100 not in motion deductible for the airplane.

The City’s Workers’ Compensation Program consists of a $2 million self-insured retention with purchased excess insurance layered up to the statutory limits.

Charges to other City funds by the Risk Management Fund are based on historical cost information and are adjusted over a reasonable period of time so that Internal Service Fund revenues and expenses are approximately equal. Reserves for self-insurance for these programs include estimated liability amounts for claims filed against the City for their programs as well as the estimated amount of claims incurred but not reported.

The estimated liabilities of the Risk Management Internal Service Fund as of June 30, 2007, are determined by the City based on recommendations from an independent actuarial evaluation. The liabilities are based on estimates of the ultimate cost of claims (including future claim adjustments expenses) that have been reported but not settled and claims that have been incurred but not reported (IBNR). The claims liability of $64,986,894 reported in Risk Management Internal Service Fund at June 30, 2007, was based on the requirement that claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

The recorded liabilities for each program at June 30, 2007 were as follows:

Workers’ Compensation† $47,943,512 Liability and Property Damage† 17,043,382 TOTAL $64,986,894 ______† The liability for workers’ compensation and general liability are presented at present value, using a discount rate of 3%.

For additional information with respect to the City’s Risk Management Internal Service Fund, see APPENDIX B–“CITY OF FRESNO, CALIFORNIA, COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2007.”

51 Workers’ Compensation Costs

The City has been self-insured for its Workers’ Compensation exposure since August 1973. The administration of claims is handled by an outside third party administrator which is monitored by the City’s Risk Management Division. In addition, the City provides enhanced benefits to certain employees pursuant to the various Memoranda of Understanding with its bargaining units. The City currently pays safety services employees an amount equivalent to 85% of their full salary for injury pay. This amount is in contrast to the 66.66% mandated by the State. All other employee bargaining units agreed to a reduced benefit equal to 76% of full salary.

In April 2004 the State Legislature enacted a number of reforms which significantly changed Workers’ Compensation law. These changes favored employers and have had a positive influence on the City’s exposure.

Claims frequency continued to decline during Fiscal Year 2005-06. Claims frequency dropped from a high of 941 filed claims in Fiscal Year 2002-03 to 786 filed claims for Fiscal Year 2006-07, representing a 16.5% decrease in the number of claims filed over the last five Fiscal Years.

Medical costs declined from $4.6 million in Fiscal Year 2004-05 to $3.85 million in Fiscal Year 2005-06, but have since risen to $4.4 million in Fiscal Year 2006-07.

Assembly Bill 749 (“AB 749”), which became effective on January 1, 2003, provides for, among other things, increased temporary disability benefits from a maximum of $490 per week to $602 per week, with annual increases thereafter which are based on the State Average Weekly Wage. AB 749 also increased permanent partial disability and death benefits, and additional increases will be phased in over several years. AB 749 also revised the computation of the permanent disability benefit by increasing the number of weeks for injuries occurring on or after January 1, 2004.

Due to benefit increases, the total paid claims cost rose from $8,706,044 in Fiscal Year 2003-04 to a projected $9,061,900 in Fiscal Year 2007-08. Temporary Disability mandated benefit levels rose to $840 per week in January 2005, representing a 71% increase in benefits since AB 749 went into effect in January 2003, and a 15% percent increase over calendar year 2004 benefits. This rate remained unchanged for calendar year 2006, but adjusts annually to 2/3 of the State Average Weekly Wage (as defined in AB 749) in each subsequent calendar year. The current temporary disability indemnity rate, as of January 1, 2008 is $916.33, a 52% increase in five years.

The Risk Management Division of the City has developed a proactive plan to address cost containment. The plan includes: (i) performance of a minimum of ergonometric inspections and evaluations in order to identify and correct potential unsafe conditions and acts; (ii) increased training for staff and supervisors aimed at identifying and reducing causes of workplace accidents and providing information on current safety and workers’ compensation issues and developments; (iii) containment of medical costs by emphasizing greater use of preferred medical providers and nurse case managers and greater review of medical bills and utilization of care; (iv) implementation of a “light duty program” which assigns injured employees to “light duty” assignments in order to minimize time away from work and reduce injury pay; (v) implementation of an incentive reward program to reduce employee injuries and lost time; (vi) recommendation to the City Manager that employee safety and injury reduction become a criteria for performance evaluations; (vii) recommendation that City departments consider implementing a disciplinary action policy regarding violation of safety regulations, policies or practices; and (viii) implementation of a Citywide Safety Committee that analyzes the City’s loss experience and recommends corrective measures. As of January 1, 2008, items (i) through (iv) and (viii) have been implemented and are producing positive results. Efforts are still under way to implement the remaining items of this plan.

52 Employer-Employee Relations

City employees are represented by various unions and associations, and labor relations have been generally amicable. Currently, 95% of City employees are represented by a union or association. Table 13 summarizes the names of the unions or associations, the length of and expiration dates for the contracts. The City expects that any contracts that have expired will be replaced with new contracts.

TABLE 13 CITY OF FRESNO Employee Contracts

Length of Contract Union/Association (Years) Expires International Association of Fire Fighters, Local 753/Unit 10 2 June 30, 2007† Fresno City Employee Association/Unit 03 3 June 30, 2008† International Association of Firefighters, Local 753/Units 05 3 June 30, 2008† Amalgamated Transit Union, Division 1027/Unit 06 3 June 30, 2009† City of Fresno Professional Employees Association/Unit 13 3 June 30, 2009 Fresno Airport Public Safety Supervisors/Unit 15 3 June 30, 2009 Fresno Police Officers Association/Unit 04 3 June 30, 2009 Fresno Police Officers Association Police Management/Unit 09 3 June 30, 2010 City of Fresno Management Employees Association/Unit 14 3 June 30, 2010 I.U.O.E. Stationary Engineers, Local 39/Unit 01 4 June 30, 2011 IBEW, Local Union 100/Unit 07 4 June 30, 2011 ______† Negotiations are currently in process. Source: City of Fresno Labor Relations Division.

City Health and Welfare Trust Self Insurance Program

The City created the Fresno City Employees Health and Welfare Trust Fund (the “Trust Fund”) in 1972 to provide and maintain a health and welfare plan for eligible City employees. At the present time the Trust Fund covers represented employees (those employees represented by a Union and for whom payments into the Trust Fund are being made under a Memorandum of Understanding) and unrepresented employees (those employees not represented by a Union or not covered by a Memorandum of Understanding for whom payments into the Trust Fund are being made). In addition to represented and unrepresented employees, the employees of the Redevelopment Agency were added to the Trust Fund in 2002.

The following unions are covered by the Fresno City Employees Health and Welfare Trust Plan: International Brotherhood of Electrical Workers Local 100 (IBEW), Fresno Firefighters Local 753 (FFA), Fresno Police Officers Association (FPOA), Amalgamated Transit Union (ATU), Fresno City Employees Association (FCEA), City of Fresno Professional Employees Association (CFPEA), Fresno Airport Public Safety Supervisors (FAPSS), City of Fresno Management Employees Association (CFMEA) and Stationary Engineers Local 39 Blue Collar employees not covered by the Local 39 ATPA or another non- City Benefit Plan.

53 Pursuant to the Trust Agreement with respect to the Trust Fund, the City is not liable to make payments into the Trust Fund and is not under any other liability to the Trust Fund with respect to the Health and Welfare Plan, other than as required by a Memorandum of Understanding. The City is not liable or responsible for any debts, liabilities or obligations of the Trust Fund or its Board of Trustees. The City’s only liability to the Trust Fund is to provide the contribution defined in each unit’s Memorandum of Understanding.

Currently the City is making a contribution of $657.60 per month for each eligible employee, as defined by each unit’s Memorandum of Understanding.

The City maintains a preferred provider organization (PPO) health plan covering all permanent full-time and permanent part-time employees. The plan requires employees to pay the first 20% of the first $5,000 of medical expenditures and has a $200 individual deductible with a maximum deductible per family of $600 per Fiscal Year. The plan also covers dental, chiropractic, vision and pharmacy services.

City Retirement Systems

Overview. The City currently maintains two retirement systems for its employees, pursuant to Article XI of the City’s Charter and governed by Articles 3.4 and 5 of Chapter 3 of the City of Fresno Municipal Code. A two tiered system covers all full-time fire fighters and police officers (the “Fire and Police Retirement System”), with Tier 1 covering all fire fighters and police officers hired between October 27, 1927 and August 26, 1990; and Tier 2 covering all fire fighters and police officers hired after August 27, 1990. A separate system covers all other permanent full-time employees (the “Employees Retirement System”) and together with the Fire and Police Retirement System, the “Retirement Systems.”

The Retirement Systems are single-employer defined benefit pension plans administered by the City of Fresno Fire and Police Retirement Board with respect to the Fire and Police Retirement System and the City of Fresno Employee’s Retirement Board with respect to the Employees Retirement System (collectively, the “Retirement Boards”). The Retirement Systems provide retirement, disability and death benefits to their respective plan members and beneficiaries. The Retirement Boards each consist of five members, selected as follows: two members elected by and from City employees affected, two members from management appointed by the Mayor with approval of the City Council, and the fifth member chosen by the previously designated four members.

Funding Policy. The contribution requirement for members of the Retirement Systems and the City is established by the City Municipal Code and is administered by the Retirement Boards. The contribution rates, which are based upon calculations of the independent actuary of the Retirement Systems and adopted by the respective Retirement Boards, are presented as a percentage of the annual covered salary/payroll.

Proceeds of pension obligation bonds, originally issued in 1994, and subsequently refunded, were used by the City to fund its obligations to the Retirement Systems, including the City’s unfunded liability and the unpaid balance of the City’s normal costs for the then-current year contribution to the Retirement Systems in Fiscal Year 1993-94. See “–Long Term Obligations–Pension Obligation Bonds.” As a result of investment earnings outperforming actuarial assumptions, each Retirement System generated an actuarial surplus (a “prefunded actuarial liability” or a “PAAL”). In addition, proceeds from forward purchase investment agreements were invested as prepaid contributions by the City to the Retirement Systems. A portion of the PAAL, together with prepaid City contributions and earnings thereon in excess of the actuarial assumptions are used to off-set the required City contribution amount in each Fiscal Year. The City was not required to make any contributions to the Fire and Police Retirement System or to the Employees Retirement System between Fiscal Year 1995-96 and Fiscal Year 2005-06 due to excess earnings and use of pre-funded contributions.

54 Set forth below is the schedule of net Employers contribution rates for the Retirement Systems.

TABLE 14 SCHEDULE OF NET EMPLOYER CONTRIBUTION RATES TO THE RETIREMENT SYSTEMS

Fiscal Year Ended Retirement Systems (June 30) Fire and Police(1) Employees 2002 0.00% 0.00% 2003 0.00 0.00 2004 0.00 0.00 2005 0.00 0.00 2006 0.00 0.00 2007 5.38(2) 0.00 2008 8.01(3) 0.00

______(1) Represents the combined net Employer Normal Costs for Tier 1 and Tier 2 employees. (2) Represents the rate adopted by the Fire and Police Retirement Board effective July 1, 2006. (3) Represents the rate adopted by the Fire and Police Retirement Board effective July 1, 2007. Source: Annual Actuarial Valuations as of June 30, 2003 through June 30, 2007.

TABLE 15A FIRE AND POLICE RETIREMENT SYSTEM Member Population (As of through June 30)

2003 2004 2005 2006 2007 Active Members(1) 980 1,017 1,065 1,097 1,130 Vested Terminated Members(2) 24 21 31 44 69 Retired Members and Beneficiaries(3) 734 771 797 819 847 TOTAL 1,738 1,809 1,8930 1,960 2,046 Ratio of Non Active to Active Members 0.77:1 0.78:1 0.78:1 0.79:1 0.81:1 ______(1) Currently receiving benefits. (2) Also includes deferred vested members who have terminated their employment with the City and are entitled to benefits but are not yet receiving them. Sources: Comprehensive Annual Financial Reports, for the Fiscal Years ended June 30, 2003 through 2007.

TABLE 15B EMPLOYEES RETIREMENT SYSTEM Member Population (As of June 30)

2003 2004 2005 2006 2007 Active Members 2,254 2,260 2,286 2,319 2,422 Vested Terminated Members† 114 113 127 172 190 Retired Members and Beneficiaries 1,107 1,161 1,202 1,256 1,306 TOTAL 3,475 3,534 3,615 3,747 3,918 Ratio of Non Active to Active Members 0.54:1 0.56:1 0.58:1 0.62:1 0.62:1 ______† Also includes deferred vested members who have terminated their employment with the City and are entitled to benefits but are not yet receiving them. Sources: Comprehensive Annual Financial Reports, for the Fiscal Years ended June 30, 2003 through 2007.

55 The Retirement Systems issue publicly available financial reports that include financial statements and required supplementary information. Copies of the reports may be obtained by writing the City of Fresno Fire and Police Retirement Office and the City of Fresno Employees Retirement Office, 2828 Fresno Street, Suite 201, Fresno, California 93721 or by accessing the website for the Retirement Systems at www.cfrs-ca.org.

Defined benefit retirement plans have the potential of developing unfunded liabilities. New unfunded liabilities may arise if, among other things, the investments in the Retirement Systems’ funds under-realize their assumed rates of return, if the City adopts retroactive benefit increases or the City’s compensation rates exceed actuarial projections.

Article XIIIA of the State Constitution provides for levying ad valorem taxes to pay for debts approved by the voters prior to July 1, 1978. In the case of Carmen v. Alvord, the Supreme Court of California held that such indebtedness included obligations incurred by cities in connection with the institution of pension plans for their employees under specific taxing authority provided by the voters before July 1, 1978. In 1984, the City Council approved a levy of one-seventh of the amount of the City’s share of pension plan contribution for General Fund employees. Shortly thereafter, the State imposed a freeze on taxes provided for under the Carmen decision, which prohibited the City from increasing the tax rate imposed in 1984. The rate is $0.032438 per $100 of assessed valuations to fund pension obligations. This tax override generated $9.22 million in tax revenues to the General Fund in Fiscal Year 2006-07.

Set forth below is five-year historical trend information about the Retirement Systems. The values reported below represent actuarial values; note that these values differ from the market values:

TABLE 16A FIRE AND POLICE RETIREMENT SYSTEM Schedule of Funding Progress ($ in 000’s)

Unfunded Actuarial AAL Accrued (UAAL)(2)/ PAAL as a Actuarial Liability (Prefunded) Percentage Actuarial Value of (AAL)(1) AAL Funded Covered of Covered Valuation Assets Entry Age (PAAL)(3) Ratio Payroll Payroll Date (a) (b) (b–a) (a/b) (c) ((b-a)/c) 6/30/2003 $749,505 $617,879 ($131,626) 121.3% $65,247 (202.0%) 6/30/2004 793,059 642,194 (150,865) 123.5 68,483 (220.0) 6/30/2005 846,718 670,101 (176,617) 126.4 73,422 (241.0) 6/30/2006 906,223 722,722 (183,501) 125.4 82,493 (222.4) 6/30/2007 1,000,961 773,236 (227,725) 129.5 89,516 (254.4) ______(1) Actuarial Accrued Liability. (2) Unfunded Actuarial Accrued Liability. (3) Prefunded Actuarial Accrued Liability. Sources: Annual Actuarial Valuation and Reports prepared by the Actuary to the City of Fresno Fire and Police Retirement Board.

56 TABLE 16B EMPLOYEES RETIREMENT SYSTEM Schedule of Funding Progress ($ in 000’s)

Unfunded Actuarial AAL (UAAL)/ PAAL as a Actuarial Accrued (Prefunded) Percentage Actuarial Value of Liability AAL Funded Covered of Covered Valuation Assets (AAL)-PUC(3) (PAAL)(4) Ratio Payroll Payroll Date (a) (b) (b–a) (a/b) (c) ((b-a)/c) 6/30/2003 $698,885 $545,687 ($153,198) 128.1% $97,349 (157.0%) 6/30/2004 741,766 554,366 (187,400) 133.8 99,745 (188.0) 6/30/2005 790,858 565,550 (225,308) 139.8 101,558 (220.0) 6/30/2006 847,516 613,913 (233,603) 138.1 111,379 (209.7) 6/30/2007 926,525 631,305 (295,220) 146.8 114,233 (241.5) ______(1) Actuarial Accrued Liability. (2) Unfunded Actuarial Accrued Liability. (3) Projected Unit Credit Method. (4) Prefunded Actuarial Accrued Liability. Sources: Annual Actuarial Valuation Reports, prepared by the Actuary to the City of Fresno Employee’s Retirement Board.

Analysis of the dollar amounts of assets available for benefits, accrued liability and unfunded accrued liability in isolation can be misleading. Expressing net assets available for benefits as a percentage of the pension plan provides one indication of the System’s funding status. Analysis of this percentage over time indicates whether the Retirement Systems are becoming financially stronger or weaker. Generally, the greater this percentage, the stronger the system. Trends in unfunded accrued liability and annual covered payroll are both affected by inflation. Expressing the prefunded actuarial accrued liability as a percentage of annual covered payroll approximately adjusts for the effects of inflation and aids analysis of the Retirement Systems’ progress made in accumulating sufficient assets to pay benefits when due. Generally, the smaller the percentage, the stronger the system.

An unfunded actuarial accrued liability is the present value of accrued plan benefits determined under the actuarial funding method used by the Retirement Systems to determine contributions. An unfunded actuarial accrued liability takes into account a member’s service rendered to the calculation date and it includes the effect of projected salary increases. An unfunded actuarial accrued liability is the difference between the actuarial accrued liability and assets available to pay for the liability. The (prefunded) actuarial accrued liability has been calculated on a basis consistent with the funding method used by the respective Systems to calculate City contributions to the Retirement Systems.

Significant assumptions used in the actuarial valuation of each System include (a) rate of return on the investment of present and future assets of 8.25% per year compounded annually, (b) projected salary increases of 4.25% per year attributable to inflation and varying percentages (based on employee age and other factors) attributable to merit increases, each compounded annually and (c) pre-retirement demographic assumptions based on experience analysis. Another important assumption is post-retirement mortality.

57 As a result of funding the City’s unfunded liability to the Systems with proceeds of pension obligation bonds issued in 1994, which were subsequently refunded, the Systems’ percentage of income attributable to investment earnings has substantially increased and the funding status of the Systems which has reduced the normal contribution rate to the City. Because the factors affecting the amount of City contributions, including that the investment performance of the Systems are not constant, no prediction can be made whether the surplus funding status and earnings of the Retirement Systems will continue to reduce the City’s required normal contributions.

As discussed above, excess earnings, if any, on prepaid contributions made by the City to the Retirement Systems and surplus earnings of each Retirement System are used to off-set or reduce the City contribution amounts due in each Fiscal Year. The amounts shown below for Fiscal Years 2002-03 through 2006-07 under the column “Net City Contributions” were paid from such excess earnings. As of June 30, 2007, the amount remaining on deposit for prepaid employer contributions to the Fire and Police Retirement System was $2,542,961 and the amount remaining on deposit for prepaid employer contributions to the Employee Retirement System was $4,123,947. The employee and City contributions to the Employee Retirement System, net assets at the end of the year and the total return on market value for the five Fiscal Years ending June 30, 2007 is set forth below:

TABLE 17A FIRE AND POLICE RETIREMENT SYSTEM Schedule of Revenues Net Assets and Return on Market Value Fiscal Years 2002-03 through 2006-07

Source of Revenues Net Assets Withdrawals At Market Total Fiscal from City Investment Value Return Year Employee Prepaid Net City Income/ End of on Market (June 30) Contributions Contributions Contributions (Loss)(1) Year(2) Value(3) 2003 $4,080,572 $0 $0 $27,759,239 $786,679,810 4.31% 2004 4,408,868 728,399 0 134,286,789 889,966,606 17.70 2005 4,963,353 8,806,044 0 91,761,097 957,987,582 10.94 2006 5,335,793 6,885,866 2,000,000 110,590,200 1,044,738,026 12.12 2007 5,393,526 5,646,501 5,160,290 173,484,408 1,193,398,333 17.36 ______(1) Net of Investment Expenses. (2) Net of benefits paid, administrative costs, refund of contributions and other deductions. (3) Before deduction of administrative fees and investments costs. Sources: The City of Fresno Fire and Police Retirement System Comprehensive Annual Financial Reports for the years Ended June 30, 2003 through 2007.

58 TABLE 17B EMPLOYEES RETIREMENT SYSTEM Schedule of Revenues Net Assets and Return on Market Value Fiscal Years 2002-03 through 2006-07

Source of Revenues Net Assets Withdrawals At Market Total Fiscal from City Investment Value Return Year Employee Prepaid Net City Income/ End of on Market (June 30) Contributions Contributions Contributions (Loss)(1) Year(2) Value(3) 2003 $4,482,742 $0 $0 $25,645,283 $714,891,703 4.31% 2004 4,680,446 0 0 120,678,900 812,456,929 17.70 2005 4,749,521 0 0 83,471,311 872,565,085 10.94 2006 4,643,173 0 0 99,672,562 945,868,848 12.12 2007 5,094,188 1,566,215 0 156,600,084 1,078,859,346 17.36 ______(1) Net of Investment Expenses. (2) Net of benefits paid, administrative costs, refund of contributions and other deductions. (3) Before deduction of administrative fees and investments costs. Sources: City of Fresno Employees Retirement System Comprehensive Annual Financial Reports for the years Ended June 30, 2003 through 2007.

For additional information on the Retirement Systems see Note 3–“Cash and Investments–City of Fresno Retirement Systems” and Note 11–“Employee Benefit Programs” in APPENDIX B–“CITY OF FRESNO, CALIFORNIA, COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2007.”

The Retirement Systems issue publicly available financial reports that include financial statements and required supplementary information. Copies of the reports may be obtained by writing the City of Fresno Fire and Police Retirement Office and the City of Fresno Employees Retirement Office, 2828 Fresno Street, Suite 201, Fresno, California 93721 or by accessing the website for the Retirement Systems at www.cfrs-ca.org.

Investment Policy.

Objectives. The Retirement Boards maintain a written policy with respect to the Investment Objectives and Policy Statement (the “Investment Policy”) of all funds under the direct authority of the Retirement Boards. The current Investment Policy was adopted July 20, 2007. The basic objectives of the Investment Policy are: (i) safety of funds invested, (ii) liquidity sufficient to meet all cash needs of the Retirement Systems, and (iii) attaining investment performance that is competitive in the current market environment once the first two objectives have been satisfied.

The overall investment objectives of the Investment Policy are as follows: At a minimum, to achieve an overall nominal return equivalent to the actuarial interest rate of the Retirement Systems; earn a total return on all assets of the Retirement Systems that averages four to six percent in excess of the rate on inflation; exceed the return of the passive, market-based, investment benchmarks of the Retirement Systems; achieve a total fund return ranking above the median of other public sector retirement funds; and Risk-adjusted performance is expected to also be above that of the median pension fund. Allocations to specific asset classes are based on the Retirement Systems’ asset mix, which in turn is based on the Retirement Systems’ asset allocation study as updated. The current asset allocation study was most recently updated on June 17, 2004.

59 Responsibilities of the Retirement Boards. The Retirement Boards hold the fiduciary responsibility for the Retirement Systems and for establishing written procedures for the operation of the investment program consistent with the Investment Policy. The primary determinant of the Retirement Systems’ investment performance is the total funds asset allocation. The Retirement Boards set a reasonably diversified overall asset allocation target (including minimum and maximum allocations), which are expected to appropriately fund the Retirement Systems’ liabilities and meet the Retirement Boards’ basic investment objectives.

The funds are invested in a manner consistent with applicable laws governing public pension systems. Although not governed by the Employee Retirement Income Security Act (ERISA), it is also objective of the Retirement Boards to manage the pension funds using the standards established by ERISA. The Retirement Boards are expected to act in a prudent manner and their investment managers are expected to act as prudent experts in managing the investment portfolios of the Retirement Systems.

Diversification. The Retirement Boards have adopted a policy to invest in several institutionally acceptable asset classes. These classes are domestic equity (large and small capitalization); international equity-developed and emerging markets; domestic real estate (institutional quality properties held in either closed-end or open-end commingled funds); (real estate investment trusts (REITS); domestic fixed income; and short-term investments (primarily due to the transactional nature of most managers’ portfolios).

Asset Allocation Plan and Target Asset Mix. Based on the Retirement Systems’ asset allocation study and acceptance of the proposed target mix (most recently updated on June 17, 2004), the following is the target asset mix and allocation ranges for the Retirement Systems:

Allocation Ranges Minimum Target Maximum

TOTAL DOMESTIC EQUITY 35.00% 40.00% 44.00% Large Cap 27.00 30.00 33.00 Small Cap 8.00 10.00 12.00

TOTAL INTERNATIONAL EQUITY 14.00 20.00 25.00 International Equity 14.00 17.00 20.00 Emerging Market Equity 0.00 3.00 5.00

TOTAL DOMESTIC FIXED INCOME 20.00 30.00 38.00 Domestic Fixed Income 20.00 25.00 30.00 High Yield Bonds 0.00 5.00 8.00

DOMESTIC REAL ESTATE 8.00 10.00 12.00

SHORT-TERM INVESTMENTS 0.00 0.00 2.00 TOTAL 100.00%

Prohibited Investments. Short selling, use of leverage or margin and investments in commodities are prohibited.

Delegation of Authority and Reporting. The investment managers hired by the Retirement Boards are required to be registered investment advisors with the Securities and Exchange Commission, or trust companies that are regulated by State and federal banking authorities.

60 The investment managers are required to prepare and submit to the Retirement Boards at least each quarter, portfolio reports regarding the following: investment objectives, investment strategy and decision making processes; performance before and after investment management fees; asset mix and asset growth; allocations according to characteristics and other classifications; reconciliation to the custodial bank; positions and transactions; derivatives report; and investment guidelines.

Investment Policy Adoption. The Investment Policy is reviewed biennially to ensure the compliance by the Employees Retirement System with the overall objectives of safety, liquidity and investment performance, and current laws and financial trends. Any modifications made thereto are prepared by the Investment Committees of the Retirement Boards (with assistance from Retirement Office staff of and the investment consultant to the Employees Retirement System) and after approval by the Investment Committee, must be approved by the Retirement Boards.

Summary of Current Investments. The following table shows the type of investments held in the Retirement Systems portfolio as of January 31, 2008.

TABLE 18 RETIREMENT SYSTEMS Summary of Current Investments As of January 31, 2008 ($ in 000’s)

Market Investment Percent† Value Domestic Equity Large Cap 24.6% $633,894,890 Small Cap 7.2 186,096,445 International Equity 17.7 455,915,669 Developed Market Equity 14.8 380,742,109 Emerging Market Equity 2.9 75,173,560 Domestic Fixed income 24.4 628,042,110 Real Estate 8.4 216,637,322 Cash 0.1 2,584,384 TOTAL INVESTMENTS 100.0% $2,579,086,489 ______† Column does not total due to rounding. Source: City of Fresno Fire and Police Retirement Board and the City of Fresno Employee’s Retirement Board.

Post Retirement Supplemental Benefit Program

The Post-Retirement Supplemental Benefit (the “PRSB”) Program was created effective January 1, 1999 to provide assistance to eligible retirees to pay for various post-retirement expenses which in most cases consists of premiums for health insurance or medications. Each Retirement Board annually reviews their actuarial valuation report and declares an actuarial surplus, if available, in accordance with the procedures set forth in the City Municipal Code. The PRSB is distributed to eligible retirees if and only if a distributable actuarial surplus is available or if a balance exists in the PRSB reserve to provide for the payment of the post-retirement expenses.

If an actuarial surplus is declared in either of the Retirement Systems, the surplus is allocated to the respective Retirement System into two components: the first component is composed of two-thirds of the declared surplus which is used to reduce or eliminate the City’s pension contributions, with any unused portion deposited in the City Surplus Reserve for offset of required City contributions in subsequent years. The second component, representing the remaining one-third of the declared surplus, is distributed among eligible post-retirement supplemental benefit recipients in accordance with procedures 61 set forth in the City Municipal Code, with any unused portion deposited in the PRSB Reserve and available for use in subsequent years if needed.

A summary of PRSB distributions, pension contribution offsets and reserve balances is set forth in the table below.

TABLE 19 POST RETIREMENT SUPPLEMENTAL BENEFIT PROGRAM

Offset Offset Fiscal Amount of Amount of Amount of Amount of City Year PRSB Required City City Surplus PRSB PRSB Required Surplus PRSB Ended Benefits Pension Reserve Reserve Benefits City Pension Reserve Reserve June 30 Distributed Contribution Balance Balance Distributed Contribution Balance Balance 2003 $5,631,660 $11,462,692 $13,689,406 $2,101,184 $5,165,171 $12,479,125 0 $8,419,701 2004 2,429,902 11,652,135 7,151,000 325,000 5,169,376 11,915,333 0 3,822,890 2005 1,157,062 11,281,398 3,365,000 946,000 3,859,816 13,878,454 0 1,716,000 2006 2,148,543 11,095,490 967,446 1,781,602(1) 2,548,218 6,478,119 0 2,100,217 2007 2,966,913 6,896,643 0 1,963,083(2) 2,872,008 6,628,084 0 2,226,021 ______(1) Approximately $1,624,808 of this amount is committed for PRSB distribution during July through December 2007. (2) Approximately $1,342,245 of this amount is committed for PRSB distribution during July through December 2006.

Compensated Absences. Employees may accumulate up to 600 hours of vacation pay depending on an employee’s bargaining group and length of service, which is payable upon termination. Sick leave, which may be accumulated up to 12 hours per month, has no maximum. Several bargaining groups have payoff provisions at retirement based on formulas specific to the groups. The majority of employees however, do not have sick leave payoff provisions in their bargaining group’s contract. Annual leave, which may be accumulated up to 800 to 1,000 hours depending upon the employee group, is payable upon termination or retirement. Beginning July 1, 2006, the ceiling increased from 1,000 to 1,200 hours. Holiday leave may be accumulated indefinitely depending upon the bargaining groups and is payable for active employees as well as at termination or retirement. Annual leave allows for the cashing out of 25% of the accumulated balance up to and including 48 hours once per fiscal year.

Supplemental sick leave is awarded to unrepresented management, middle management, professionals and to white collar employees at the rate of 40 hours at the beginning of each Fiscal Year. The balance can only be used after other leave balances are exhausted, or for other specific reasons outlined in the various MOU’s or salary resolutions. The balance is payable at termination or retirement.

Starting in Fiscal Year 2005-06, some bargaining units are permitted to transfer some or all of their sick leave and supplemental sick leave balances to a Health Reimbursement Arrangement (HRA). The cash value of these balances is placed into a separate account (by employee), administered by HealthComp, earns interest, and is used to pay health premiums for the employee, their spouse and dependents, until their balance is exhausted.

The portion of the City’s obligation relating to employees’ rights to receive compensation for future absences, that is attributable to services already rendered, is accrued when incurred in the government-wide, proprietary and fiduciary fund financial statements. In Fiscal Year 2006-07, payments for compensated absences on termination were budgeted and paid from the department incurring the liability.

The Accrued Employee Leave balances payable from the General Fund as of June 30, 2007 was $14,283,954 of which the current portion was $3,742,596.

62 Deferred Compensation Plan. The City offers its employees a deferred compensation plan (the “Deferred Compensation Plan”) administered by a Deferred Compensation Board in accordance with Internal Revenue Code Section 457. This plan, which is available to all permanent full-time and part-time employees and Council Members, permits deferral of a portion of the employee’s salary into a tax- deferred program. The deferred compensation is not available to employees or other beneficiaries for withdrawal until termination, retirement, death, or unforeseeable emergency. Upon separation from employment with the City, the individual may roll over its deferred account into another Section 457 plan, or upon receipt, the distribution will become taxable.

The Deferred Compensation Board contracted with Fidelity Management Trust Company (“Fidelity”) to serve as the trustee and plan administrator. The City, pursuant to a contract with the Retirement Systems, pays the Retirement Systems to assist Fidelity in the administration of the Deferred Compensation Plan. Additionally, City staff in the Payroll section of the Finance Department, the City Attorney’s Office, and Information Services Division all assist in the administration of the Deferred Compensation Plan. The City has no fiduciary accountability for the Deferred Compensation Plan and, accordingly, the assets and related liabilities to plan participants in the Deferred Compensation Plan are not included in the basic financial statements of the City.

Health Benefit Plan. The City offers its employees participation in the Fresno City Employees Health and Welfare Trust Plan (the “Trust”). The Trust offers a self-insured medical plan for full-time and permanent part-time employees and their dependents. The medical plan is a PPO plan with a $200 individual annual deductible and a $600 annual family maximum. The Trust also provides dental, vision, pharmacy and chiropractic coverage. Employees have the opportunity, on an annual basis, to elect a reduced benefit level in which the plan pays 60% of covered medical charges and the employee pays 40%, or employees may elect a higher benefit level in which the plan pays 80% of covered charges and the employee pays 20%. Employees electing the lower benefit level pay nothing for their coverage. Employees electing the higher benefit level pay 20% of the monthly premium through payroll deductions.

The recorded liability for the Health and Welfare Trust at June 30, 2007 is $3,150,000. Changes in the funds claims liability amount for the last three fiscal years are as follows:

Beginning of Current Year Fiscal Year Fiscal Year Provision for End of Fiscal Year Ended June 30 Liability Claims Claims Payments Liability 2005 $2,200,000 $21,088,624 $20,513,624 $2,775,000 2006 2,775,000 24,407,167 24,582,167 2,600,000 2007 2,600,000 27,415,933 26,865,933 3,150,000

GASB 45

In August 2004, the Governmental Accounting Standards Board (“GASB”) issued Statement No. 45 (“GASB 45”), “Accounting and Financial Reporting by Employers for Post-Employment Benefits Other than Pensions” which addresses how state and local governments should account for and report the annual cost. GASB 45 generally requires that employers account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB cost for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due. The provisions of GASB 45 may be applied prospectively and do not require governments to fund their OPEB plans. An employer may establish its OPEB liability at zero as of the beginning of the initial year of implementation; however, the unfunded actuarial liability is required to be amortized over future periods on the income statement. The City is required to implement GASB 45 for the Fiscal Year ending June 30, 2008.

63 The City engaged the services of an actuary to determine the Actuarial Accrued Liability (the “AAL”) as of June 30, 2007, which is equal to that portion of the Actuarial Present Value of Benefits deemed to have been earned to date. The AAL was calculated using the Projected Unit Credit actuarial cost method. For employees who have not yet attained full eligibility for postretirement benefits, this method assigns a proration based on service to date compared with service at the earliest date of full eligibility for benefits. For the amortizations of Unfunded AAL and Net OPEB Obligation, the “level dollar” method was used over a rolling 30 years. The AAL which results, is contingent upon a variety of assumptions about future events which includes demographic assumptions such as mortality, turnover, disability and retirement, economic assumptions such as rates of discount and compensation; per-capita cost assumptions and retiree self-pay assumptions. Actuarial Valuation as of June 30, 2007 under GASB 43/45 is shown below:

TABLE 20 POST-EMPLOYMENT BENEFIT SUMMARY Based Upon a 4.5% Discount Rate As of June 30, 2007

General Safety Safety Participant Count Employees Tier 1 Tier 2 Blue Collar Total Current Retirees & surviving spouses 238 301 20 59 618 Other eligible participants 338 169 16 111 634 Other participants not yet eligible 1,392 123 773 505 2,793 TOTAL 1,968 593 809 675 4,045

ACTUARIAL PRESENT VALUE OF BENEFITS (APVB) AT JUNE 30, 2007 Current Retirees & surviving spouses $4,164,900 $16,428,800 $4,397,400 ($86,400) $24,904,700 Other Eligible participants 1,968,200 11,421,600 991,900 123,400 14,505,100 Other participants not yet eligible 14,010,800 10,591,600 65,508,400 1,021,000 91,131,800 TOTAL APVB $20,143,900 $38,442,000 $70,897,700 $1,058,000 $130,541,600

ACTUARIAL ACCRUED LIABILITY (AAL) AT JUNE 30, 2007 Current Retirees & surviving spouses $4,164,900 $16,428,800 $4,397,400 ($86,400) $24,904,700 Other eligible participants 1,968,200 11,421,600 991,900 123,400 14,505,100 Other participants not yet eligible 7,108,300 9,334,300 26,454,200 575,300 43,472,100 TOTAL AAL $13,241,400 $37,184,700 $31,843,500 $612,300 $82,881,900

FUNDED STATUS AT JUNE 30, 2007 Actuarial Value of Assets $0 $0 $0 $0 $0 Unfunded Actuarial Accrued Liability $13,241,400 $37,184,700 $31,843,500 $621,300 $82,881,900 Funded Ratio 0% 0% 0% 0% 0% Covered Payroll $82,133,200 $24,179,000 $58,313,900 $29,245,100 $193,871,200 UAAL as a % of Covered Payroll 16% 154% 55% 2% 43%

______Source: Actuarial Valuation of Postretirement Welfare Benefits Under GASB 43/45 as of June 30, 2007 prepared by Rael & Letson Consultants and Actuaries.

GASB 45 also requires the calculation of an Annual Required Contribution (the “ARC”) which consists of the normal cost and a not greater than 30 year amortization of the unfunded actuarial accrued liability (the “UAAL”) for the post-retirement medical and dental benefit. However, there is no requirement under GASB 45 that the ARC actually be funded. This UAAL is calculated as the APBO less any assets held for the plan.

64 For fiscal years beginning after December 15, 2006, GASB 45 requires that post-retirement medical plan liabilities be recognized on an accounting basis, if there are no dedicated assets or funding arrangements.

The table below shows the ARC and annual OPEB cost for Fiscal Year 2007-08.

TABLE 21 POST-EMPLOYMENT BENEFIT COST SUMMARY

General Safety Safety Employees Tier 1 Tier 2 Blue Collar Total ANNUAL REQUIRED CONTRIBUTION (ARC) AND ANNUAL OPEB COST (AOC) FOR 2007-08 Normal Cost for 2007/2008 $838,300 $382,400 $3,736,100 $53,700 $5,010,500 Amortization of UAAL as of June 2007/2008 795,200 2,233,100 1,912,400 36,800 4,977,500 TOTAL ACR FOR 2007-08 $1,633,500 $2,615,500 $5,648,500 $90,500 $9,988,000 ______Source: Actuarial Valuation of Postretirement Welfare Benefits Under GASB 43/45 as of June 30, 2007 prepared by Rael & Letson Consultants and Actuaries.

The City is not currently contemplating making contributions to fund its OPEB liability based on the AAL.

Environmental Matters

The Fresno Sanitary Landfill. In July of 1989 the Environmental Protection Agency (the “EPA”) placed the Fresno Sanitary Landfill (the “Landfill”) on the National Priorities List, thus making it a Superfund site. The Landfill is owned by the City and located on an approximately a 145-acre site on Jensen and West Avenues, four miles southwest of City limits in the unincorporated area of the County. The EPA identified the City, in its capacity as the owner/operator of the Landfill, as the only responsible party. The Landfill ceased receiving solid waste in 1987. The EPA determined that surrounding air, groundwater and soils had all been impacted by the release of contaminants from the Landfill. The EPA entered a Record of Decision dated September 30, 1993 (the “1993 Record of Decision”) with respect to the releases of landfill gasses and a second and final Record of Decision dated September 30, 1996 (the “1996 Record of Decision”) with respect to the groundwater contamination. A Record of Decision is a public document, approved by the EPA that selects the cleanup alternatives to be used at the site.

The 1993 Record of Decision concluded that with respect to remediation of releases of landfill gasses, the appropriate action was source control (source control is the process of eliminating any further environmental impact from the Landfill). Pursuant to the 1993 Record of Decision, the City agreed to pay $30 million of the remediation cost, which included construction and installation of a landscaped cover and development of a regional park and sports complex on and adjacent to the closed Landfill.

The 1996 Record of Decision concluded that with respect to the groundwater contamination, the remedy to be implemented was monitoring, containment and restoration of the aquifer.

The City continues to monitor the Landfill as part of the EPA Superfund program. Management estimates the remaining monitoring costs as of June 30, 2007, to be $8,625,188 and has recorded this liability in the Solid Waste Enterprise Fund. It is anticipated that $300,000 in monitoring costs will be paid in Fiscal Year 2007-08. The Landfill site has not received solid waste since 1987 and was redesigned as part of a 350-acre environmentally conscious facility to integrate the Landfill site into a championship caliber sports complex/regional park. The estimated total remaining costs as of June 30, 2007 to complete the closure of the Landfill are based on the equipment, facilities, and services required to complete the closure and to monitor and maintain the Landfill. Actual post closure costs may be higher due to inflation, changes in technology or changes in landfill laws and regulations. 65 Additionally, because the EPA reviews and approves the City’s plans for closing the Landfill, the City may be required to undertake procedures that could substantially increase the closure costs, however no estimates of such additional costs, if any, can be made at this time.

In the opinion of the City Attorney, portions of the amounts paid by the City for remediation may be recovered from Landfill users in the form of increased rates. It is unclear at this time, and the City Attorney takes no position on, whether any increase in these fees would be subject to Proposition 218, codified as Articles XIII C and XIII D of the State Constitution. See also “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Proposition 218.”

During Fiscal Year 1991-92, in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation” (the “Statement”) the City recorded a receivable from rate payers approximately equal to the original estimated liability for clean up of the Landfill. The Statement provides for the recording of the receivable because the City Council is empowered by statute, subject to Proposition 218, to establish rates and the rate increase was designed to recover only costs incurred related to the closure of the Landfill, rather than to provide for similar future costs. The amount recorded as a receivable as of June 30, 2007 was $4,578,697 and is paid through utility fees.

The Fresno Air Terminal. Contamination (primarily TCE, a common solvent) was discovered and identified in 1989 in soils and groundwater beneath property currently owned by the City. The site known as Old Hammer Field, a prior Army military base, is the subject of investigation and clean up efforts jointly funded by Boeing, the US Army Corps of Engineers and the City. The area had been used for the repair, overhaul, maintenance, refurbishing and construction of aircraft during and after World War II. The California Department of Toxic Substances Control (the “DTSC”) is the lead regulatory agency-overseeing site clean up. All contaminants were discharged by other parties, not by the City. As a non-contributory, overlaying landowner, the City has limited fiscal liability for clean up efforts. The DTSC issued a preliminary nonbinding allocation of responsibility (an “NBAR”) on December 22, 2003 placing the City’s share at 5%, which is consistent with independent analysis commissioned by the City. The Final Remedial Action Plan has been approved by the DTSC and capital construction of the remedial systems is underway. The United States of America (“USA”), the United States Army Corps of Engineers (“USACE”), the United States National Guard Bureau (“NGB”) and the Boeing Company (“Boeing”) are all subject to the NBAR; however the City has paid a significantly disproportionate share of the costs despite its role as the nonpolluting landowner. On August 7, 2006, the City informed that DTSC that because of the failure of ongoing funding from all of the other named parties, and the fact that there were no remaining funds to continue implementation of the Remedial Action Plan (“RAP”), the remediation systems would be shut down as of August 11, 2006. After being informed of the funding impasse, on September 19, 2006, the State issued separate letters to all parties directing each party of start up of the required activities pursuant to the RAP. The City, unlike Boeing and the United States entities, continued to fund a major component of the RAP. On October 4, 2006, the City provided proper notice to the USA, USACE, NGB and Boeing that based upon their actions they are in violation of numerous permits, standards, regulations, conditions, etc., and that the City was giving consideration to commencing a civil action and citizen suit on its behalf against the named parties including but not limited to requesting preliminary and final injunctive relief for the City’s costs of litigation, including reasonable attorney fees, and expert witness fees and other relief.

On October 20, 2006, the Regional Water Quality Board (“RWQCB”) issued its “Monitoring and Reporting Program Order” (“MRP”) to require the parities to initiate monitoring and reporting according to the schedules set forth in the MRP. On October 31, 2006, based on the failure of the USA, USACE, NGB and Boeing to continue funding the RAP, the DTSC issued both an Amendment to the Boeing Order and an Imminent or Substantial Engagement Determination and Order and Remedial Action Order against the United States parties and the City requiring all parties unilaterally, jointly and severally to

66 immediately ensure that all required activities under the RAP move forward in accordance with the enforceable schedule.

The City, on November 2, 2006 filed a lawsuit seeking fair and equitable compensation from the United States parties and Boeing for their respective shares of the clean up costs of Old Hammer Field. The goal of the City is to obtain a global resolution with respect to each party’s fair and equitable percentage share of the contamination clean up costs and to ensure the ongoing implementation of State- approved clean up activities. In order to continue to protect the health and safety of the public while the City seeks to force the United States and Boeing to pay their fair share of the clean up, the City has and is committed to maintaining the most vital component of the clean up and investigation efforts that began over 15 years ago. It does this by continuing to pump, operate and treat Well Number 70, even with the City bearing the entire cost and expense to do so.

Ground Water Contamination. The widespread occurrence of 1,2-dibromo-3-chloropropane (“DBCP”), an agricultural pesticide in certain groundwater has been identified throughout the Fresno Metropolitan Area. At various City well sites DBCP exceeds drinking water limits and is removed by Granular Activated Carbon treatment. The City fronted the costs of clean up with respect to the known wells and reimbursed itself from a DBCP Recovery Fund, which was established with proceeds from a litigation settlement in an original amount of approximately $21 million. Ten million dollars was stipulated to be used toward past costs, and $11 million was to be applied toward the installation of carbon filtration treatment units, all of which have been completed. Subject to numerical limits, the settlement arrangement also provides for the City to be reimbursed for the capital costs of the installation of granular activated carbon treatments (GAC) at wells exceeding maximum contaminant levels with reimbursements ranging from $337,500 to $540,000 depending on well site. Funding also is provided for the on going operation and maintenance clean up costs of approximately $27,900 to $31,000 per contaminated well (depending on type), adjusted for inflation, with such payment obligations ending on June 26, 2035. The City is not responsible for “cleanup” in the context common to hazardous material remediation.

The City can elect to treat wells or simply shut them down. Future costs to clean up and monitor new discoveries of contamination at existing sites or additional sites that may be identified are being budgeted as a contingency of approximately $500,000 per year and are eligible for reimbursement under the settlement agreement through June 26, 2035.

Long Term Obligations

The City has never defaulted on the payment of principal of or interest on any of its indebtedness. Following is a brief summary of the lease obligations and direct and overlapping debt of the City. The City has no outstanding general obligation debt.

Pension Obligation Bonds. In 2002, the City issued pension obligation bonds to refund debentures issued to evidence its statutory obligation to make payments with respect to its unfunded actuarial accrued liability to City members of the City Retirement Systems.

For Fiscal Year 2008-09, the total debt service for the Pension Obligation Bonds is $16,191,896.50, excluding offsets payable by City departments in an aggregate amount equal to approximately 24% of the total debt service. Such debt service is payable primarily from amounts of an ad valorem imposed in 1984. See also “–City Retirement Systems–Funding Policy.”

67 Judgment Obligation Bonds. In 2002, the City issued $5,370,000 original principal amount of its Judgment Obligation Refunding Bonds, Series 2002 to refund previous judgment obligation bonds.

For Fiscal Year 2008-09, the total debt service for the Judgment Obligation Refunding Bonds payable from the General Fund is $536,995.00.

Lease Obligations. The City has made use of various lease arrangements with private and public financing entities, nonprofit corporations and authorities for the use and acquisition of capital assets.

For Fiscal Year 2008-09, the aggregate annual debt service on all of the City’s outstanding long- term lease obligations payable from the General Fund, excluding the Series 2008E/F Bonds, is $22.5 million, excluding any reimbursements or payments received from other sources.

Table 22 summarizes the long-term General Fund obligations of the City as of July 1, 2008. Certain of these Lease obligations of the City reflect annual payments made for debt service on lease revenue bonds and certificates of participation or for which the General Fund is obligated as a secondary or tertiary source to make payments for debt service issued to finance capital projects.

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68 TABLE 22 CITY OF FRESNO Long-Term General Fund Obligations (As of July 1, 2008)

Original Outstanding Principal Principal Issue Dated Date Amount Amount Maturity Date

Certificates of Participation (Conference Center Refinancing Project) Series 1996(1) March 5, 1996 $11,990,000 $4,550,000 April 1, 2013

Lease Revenue Bonds (Exhibit Hall Expansion Project) Series of 1998(1) October 1, 1998 32,609,535 27,785,937 September 1, 2028

Refunding Lease Revenue Bonds (Fresno City Hall) Series 2000 November 1, 2000 42,035,000 30,150,000 August 1, 2019

Lease Revenue Bonds (Multi Purpose Stadium) Series 2001A and Series 2001B (Federally Taxable) June 12, 2001 45,850,000 41,900,000 June 1, 2031

Taxable Pension Obligation Bonds Refunding Series 2002(2) February 21, 2002 205,335,000 182,785,000 June 1, 2029

Judgment Obligation Bonds, Series 2002 May 23, 2002 $5,370,000 4,355,000 August 15, 2017

69 Lease Revenue Bonds (Street Light Acquisition Project) 2002 Series A May 23, 2002 7,895,000 5,035,000 October 1, 2015

Lease Revenue Bonds (Various Capital Projects) Series 2004A (Federally Taxable) April 14, 2004 15,810,000 15,605,000 October 1, 2034

Lease Revenue Bonds (Various Capital Projects) Series 2004B April 14, 2004 8,100,000 6,745,000 October 1, 2014

Lease Revenue Bonds (Various Capital Projects) Series 2004C (Federally Taxable) April 14, 2004 28,870,000 24,405,000 October 1, 2029

Lease Revenue Bonds (Convention Center Improvement Project) Series 2006A(1)(3) June 28, 2006 15,420,000 15,420,000 October 1, 2026

Lease Revenue Bonds (Convention Center Improvement Project) Series 2006B (Taxable)(1) June 28, 2006 3,305,000 2,015,000 October 1, 2010

Lease Revenue Refunding Bonds (Master Lease Projects), Series 2008A April 29, 2008 38,550,000 38,550,000 April 1, 2023

Lease Revenue Refunding Bonds (Master Lease Projects), Series 2008B (Federally Taxable) April 29, 2008 2,405,000 2,405,000 April 1, 2009

Lease Revenue Refunding Bonds (Master Lease Projects), Series 2008C June 12, 2008 36,050,000 36,050,000 April 1, 2038

Lease Revenue Refunding Bonds (Master Lease Projects), Series 2008D (Federally Taxable) June 12, 2008 1,635,000 1,635,000 April 1, 2011 ______(1) Convention center revenues are reported in the Fresno Convention Center Enterprise Fund. Debt service on these bonds is payable from the General Fund. (2) The primary source for repayment of these bonds is an ad valorem tax imposed in 1984. See “–City Retirement Systems.” (3) A portion of these Bonds will be refunded and defeased with a portion of the proceeds of the Series 2008E/F Bonds. See “PLAN OF FINANCE–Refunding.” Source: City of Fresno, Finance Department.

Direct and Overlapping Debt

Table 23 below sets forth a statement of direct and overlapping debt (the “Debt Report”) within the City as of August 1, 2008. The Debt Report was prepared by California Municipal Statistics, Inc. and includes only such information as has been reported to California Municipal Statistics, Inc. by the issuers of the debt described therein and by others. The Debt Report is included for general information purposes only. The City takes no responsibility for its completeness or accuracy. Any questions concerning the scope and methodology of procedures carried out to compile the information presented should be directed to California Municipal Statistics, Inc., San Francisco, California.

TABLE 23 CITY OF FRESNO Direct and Overlapping Debt Statement

2007-08 Assessed Valuation: $29,972,515,865 Redevelopment Incremental Valuation: 2,022,514,945 Adjusted Assessed Valuation: $27,950,000,920

OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 8/1/08 State Center Community College District 45.370% $ 42,910,946 Central Unified School District 79.924 39,700,110 Clovis Unified School District 50.852 143,223,099 Fowler Unified School District 4.652 569,015 Fresno Unified School District 82.944 215,985,133 Fresno Unified School District Lease Tax Obligations 82.944 32,978,534 Sanger Unified School District 18.089 8,747,747 Washington Union High School District 28.443 429,489 West Fresno School District 95.795 2,509,829 City of Fresno Community Facilities District No. 4 100. 1,700,000 City of Fresno Community Facilities District No. 5 100. 1,290,000 City of Fresno Community Facilities District No. 7 100. 1,925,000 City of Fresno 1915 Act Bonds 100. 2,410,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $494,378,902

DIRECT AND OVERLAPPING GENERAL FUND DEBT: Fresno County General Fund Obligations 50.096% $ 45,031,294 Fresno County Pension Obligations 50.096 263,401,136 Central Unified School District Certificates of Participation 79.924 26,350,943 Clovis Unified School District Certificates of Participation 50.852 19,275,451 Fresno Unified School District Certificates of Participation 82.944 27,035,597 Sanger Unified School District Certificates of Participation 18.089 1,149,556 City of Fresno General Fund Obligations 100. 247,969,535 (1) City of Fresno Judgment Obligations 100. 4,355,000 City of Fresno Pension Obligations 100. 182,785,000 TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $817,353,512

COMBINED TOTAL DEBT $1,311,732,414 (2)

(1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

Ratios to 2007-08 Assessed Valuation: Total Overlapping Tax and Assessment Debt...... 1.65%

Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($435,109,535) ...... 1.56% Combined Total Debt...... 4.69%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $13 ______Source: California Municipal Statistics, Inc.

70 Future Financings

The City expects to issue approximately $55 million aggregate principal amount of Additional Bonds by the end of the 2008 calendar year for various capital projects, including fire and police facilities. “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Additional Bonds.”

NO LITIGATION

There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the execution and delivery of the Series 2008E/F Bonds or the Leases or in any way contesting or affecting the validity of the Series 2008E/F Bonds or any proceedings of the Authority or the City taken with respect to the issuance thereof.

In addition, there is no litigation pending or threatened against the Authority or the City which, in the opinion of the City Attorney, would materially affect the validity of the Trust Agreement, the Master Sublease or the Master Lease.

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the Authority (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2008E Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and interest on the Series 2008E/F Bonds is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2008E Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that interest on the Series 2008E Bonds is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Series 2008F Bonds is not excluded from gross income for federal income tax purposes under the Code. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D hereto.

To the extent the issue price of any maturity of the Series 2008E Bonds is less than the amount to be paid at maturity of such Series 2008E Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2008E Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2008E Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2008E Bonds is the first price at which a substantial amount of such maturity of the Series 2008E Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2008E Bonds accrues daily over the term to maturity of such Series 2008E Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2008E Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2008E Bonds. Beneficial Owners of the Series 2008E Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2008E Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2008E Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2008E Bonds is sold to the public.

71 Series 2008E Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2008E Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2008E Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2008E Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2008E Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Series 2008E Bonds may adversely affect the value of, or the tax status of interest on, the Series 2008E Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the Series 2008E Bonds is excluded from gross income for federal income tax purposes and that interest on the Series 2008E/F Bonds is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Series 2008E Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2008E Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or may otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may affect the market price for, or marketability of, the Series 2008E Bonds. Prospective purchasers of the Series 2008E Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2008E Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority has covenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the Series 2008E/F Bonds ends with the issuance of the Series 2008E/F Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the Beneficial Owners regarding the tax-exempt status of the Series 2008E Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority and

72 their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority or the Borrower legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2008E Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2008E Bonds, and may cause the Authority or the Beneficial Owners to incur significant expense.

Circular 230

Under 31 C.F.R. part 10, the regulations governing practice before the Internal Revenue Service (Circular 230), the Authority and our tax advisors are (or may be) required to inform you that:

• Any advice contained herein, including any opinions of counsel referred to herein, is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer;

• Any such advice is written to support the promotion or marketing of the Series 2008F Bond and the transactions described herein (or in such opinion or other advice); and

• Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

CERTAIN LEGAL MATTERS

The validity of the Series 2008E/F Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is attached hereto as APPENDIX D. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the Authority and the City by the City Attorney of the City of Fresno and for the City, the Authority and the Underwriter by Lofton & Jennings, San Francisco, California, Disclosure Counsel. Payment of the fees of Bond Counsel and Disclosure Counsel is contingent upon sale and delivery of the Series 2008E/F Bonds.

RATINGS

Moody’s Investors Service (“Moody’s”), Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc. (“S&P”) and Fitch Inc. (“Fitch”) have assigned municipal bond ratings of “Aaa,” “AAA” and “AAA,” respectively, with the understanding that upon delivery of the Bonds, the Policy will be delivered by Assured Guaranty. See “FINANCIAL GUARANTY INSURANCE” and APPENDIX G–“SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY.” Moody’s, S&P and Fitch have assigned uninsured ratings of “A3,” “AA-” and “A+,” respectively, to the Series 2008E/F Bonds. Such ratings were based in part upon information provided by the Authority and the City. The ratings reflect only the respective views of such organizations and an explanation of the significance of such ratings may be obtained from Moody’s Investors Service, 7 World Trade Center at 250 Greenwich Street, 23rd Floor, New York, New York 10007, 212-553-0470; Standard & Poor’s Ratings Services, 25 Broadway, New York, New York 10004, 212-208-8000; and Fitch Inc., One State Street Plaza, New York, New York 10004, 212-908-0500. There is no assurance that such ratings will continue for any given period or that such ratings will not be revised downward or withdrawn entirely by such rating agencies, if, in the

73 judgment of either such rating agency, circumstances so warrant. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2008E/F Bonds.

Each of Moody’s, Standard & Poor’s and Fitch (collectively, the “Rating Agencies”) has released statements on the potential effects of downturns in the market for structured finance instruments, including collateralized debt obligations and residential mortgage backed securities, on the claims-paying ability of the bond insurance companies, including Assured Guaranty. On July 21 2008, Moody’s issued a press release stating that it has placed the “Aaa” insurance financial strength ratings of Assured Guaranty under review for possible downgrade, citing concerns about the firm’s portfolio risk profile, material shifts in the demand function for financial guarantees and potential sensitivity of its financial flexibility if losses continue to rise. See “FINANCIAL GUARANTY INSURANCE–The Insurer–Recent Developments.” In various releases, the Rating Agencies have each outlined the processes that they intend to follow in evaluating the effect of this risk on their respective ratings of financial guarantors. For some financial guarantors, the result of such evaluations could be a ratings affirmation, a change in rating outlook, a review for downgrade, or a downgrade. Potential investors are directed to the Rating Agencies for additional information on their respective evaluations of the financial guaranty industry and individual financial guarantors.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

Upon delivery of the Series 2008E/F Bonds the arithmetical accuracy of certain computations included in the schedules provided by the Underwriter on behalf of the Authority relating to the adequacy of forecasted receipts of principal and interest on the noncallable securities and cash to be held pursuant to the Escrow Agreement will be verified by Grant Thornton LLP, independent certified public accountants (the “Verification Agent”). Such verification shall be based solely upon information and assumptions supplied to the Verification Agent by the Underwriter. The Verification Agent has not made a study or evaluation of the information and assumptions on which such computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions or the achievability of the forecasted outcome.

UNDERWRITING

E. J. De La Rosa & Co., Inc., the underwriter (the “Underwriter”) may offer and sell Series 2008E Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriter. The Bond Purchase Contract relating to the Series 2008E/F Bonds provides that the Underwriter will purchase all of the Series 2008E/F Bonds if any are purchased. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions.

Series 2008E Bonds

The Series 2008E Bonds are being purchased by the Underwriter at a purchase price equal to $3,327,824.77 representing the principal amount of the Series 2008E Bonds, less a net original issue discount in the amount of $55,803.95 and less an Underwriter’s discount in the amount of $21,371.28.

74 Series 2008F Bonds

The Series 2008F Bonds are being purchased by the Underwriter at a purchase price equal to $21,133,357.25 representing the principal amount of the Series 2008F Bonds, less a net original issue discount in the amount of $150,724.70 and less an Underwriter’s discount in the amount of $125,918.05.

FINANCIAL ADVISOR

KNN Public Finance, A Division of Zions First National Bank, Oakland, California, has served as Financial Advisor to the Authority and the City with respect to the issuance and sale of the Series 2008E/F Bonds. The Financial Advisor has assisted the Authority and the City in the review of this Official Statement and in other matters relating to the planning, structuring, execution and delivery of the Series 2008E/F Bonds. The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the Authority or the City to determine the accuracy or completeness of this Official Statement. Due to its limited participation, the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. The Financial Advisor will receive compensation from the Authority contingent upon the sale and delivery of the Series 2008E/F Bonds.

CONTINUING DISCLOSURE

In order to permit the underwriter(s) to meet the requirements of Rule 15c2-12 promulgated by the Securities and Exchange Commission regarding continuing disclosure for the benefit of the holders of the Series 2008E/F Bonds, the City, on behalf of the Authority, has entered into a Continuing Disclosure Certificate agreeing to provide certain financial information and notices of the occurrence of certain material events. See APPENDIX E–“FORM OF CONTINUING DISCLOSURE CERTIFICATE.”

The City has never failed to comply in any material respect with any previous undertakings in accordance with Rule 15c2-12 to provide annual disclosure reports or notices of material events.

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75 MISCELLANEOUS

Brief descriptions of the Series 2008E/F Bonds, the Trust Agreement, the Second Supplemental Trust Agreement, the Master Sublease, the Second Amendment to Master Facilities Sublease, the Master Lease, the Second Amendment to Master Lease, the Facilities, the Authority and the City are included in this Official Statement. The summaries of and references to all documents, entities, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary and reference is qualified in its entirety by reference to such document, statute, report or instrument, copies of which are available for inspection at the administrative offices of the City.

All data contained herein have been taken or constructed from City records and other sources. Appropriate City officials, acting in their official capacity, have reviewed this Official Statement and have determined that as of the date hereof the information contained herein is, to the best of their knowledge and belief, true and correct in all material respects and does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in the light of the circumstances under which they are made, not misleading. Authorized officers of the Authority and the City will execute certificates to this effect upon delivery of the Series 2008E/F Bonds. This Official Statement and its distribution have been duly authorized and approved by the Authority.

FRESNO JOINT POWERS FINANCING AUTHORITY

By: /s/ Blong Xiong Chair

76 APPENDIX A

GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY OF FRESNO

Overview

The City of Fresno (the “City”), the county seat of Fresno County (the “County”), was incorporated in 1885. The City covers approximately 111 square miles, is located in central California approximately 184 miles southeast of the City of San Francisco and approximately 219 miles north of the City of Los Angeles.

In addition to traditional general government functions of police and fire services, the City operates as enterprises 122,000 active water, sewer and solid waste utility accounts, two airports, a major convention center facility and a multipurpose stadium. The City also provides the downtown area with 5,892 parking stalls, and 2,100 parking meters. An additional 3,661 parking spaces are provided within four City-owned parking structures.

The City also provides street maintenance and other public works functions to its residents in addition to operating 1,520 acres of regional neighborhood and pocket parks, 16 neighborhood and community centers and nine public pools.

City Government

The City is a charter city. On January 7, 1997, the City began operating under a system of government wherein the Mayor has executive powers, sometimes known as a “strong mayor” form of government. Under the strong mayor form of government, the Mayor serves as the City’s chief executive officer, appointing and overseeing the City Manager who is also the Chief Administrative Officer, recommending legislation and presenting the annual budget to the City Council. The Mayor does not participate in City Council deliberations, except by exercising veto power. The Mayor, members of the City Council and key administrative personnel of the City are listed in Table A-1 and Table A-2, respectively:

TABLE A-1 CITY OF FRESNO Mayor and City Council Members

Member Position Term Expires Alan Autry Mayor January 2009 Blong Xiong, District 1 President January 2011 Brian Calhoun, Ph.D., District 2 Councilmember January 2009 Cynthia Sterling, District 3 Acting President January 2011 Paul Capriogolio, District 4 Councilmember January 2009 Mike Dages, District 5 Councilmember January 2011 Jerry Duncan, District 6 Councilmember January 2009 Henry T. Perea, District 7 Councilmember January 2011

A-1 TABLE A-2 CITY OF FRESNO Key Administrative Personnel

Member Position Andrew T. Souza City Manager Bruce A. Rudd Assistant City Manager James C. Sanchez City Attorney Karen M. Bradley Interim City Controller/Finance Director Ken Nerland Director, General Services Rebecca E. Klisch City Clerk

Budgeted City full-time employees number 4,159.63 for Fiscal Year 2008-09, of which 1,308.8 are assigned to the Police Department and 453 to the Fire Department. Fire protection service is provided by the City, which has 18 stations within its borders.

Population

Between January 1, 2004 and January 1, 2008, the City’s population increased approximately 6.6% compared to an approximately 7.9% increase and an approximately 5.3% increase for the County and the State of California (the “State”) for the same period. A summary population for the City, the County and the State for 2000 and 2004 through 2008 is shown in Table A-3:

TABLE A-3 CITY, COUNTY AND STATE POPULATION 2000 and 2004 through 2008† (As of January 1)

Year City County State 2000 426,900 797,900 33,753,000 2004 456,100 862,600 36,144,000 2005 464,784 883,650 36,810,358 2006 471,479 899,514 37,172,015 2007 478,808 914,893 37,559,440 2008† 486,116 931,098 38,049,462 ______† Preliminary. Sources: State of California, Department of Finance, 2004 through 2008; U.S. Census, 2000.

A-2 Employment

Table A-4 summarizes the average labor patterns in the City, the County, the State and the United States from 2003 through 2007.

TABLE A-4 ESTIMATES OF CIVILIAN LABOR FORCE, EMPLOYMENT, and UNEMPLOYMENT Annual Average for Calendar Years 2003 through 2007†

Unemployment Year and Area Labor Force Employment Unemployment Rate 2003 City 214,400 191,800 23,600 11.0% County 407,400 359,500 47,900 11.7 State 17,418,700 16,227,000 1,191,700 6.8 United States 146,510,000 137,736,000 8,774,000 6.0 2004 City 215,800 194,600 21,200 9.8 County 408,200 365,500 42,700 10.5 State 17,538,800 16,444,500 1,094,300 6.2 United States 147,401,000 139,252,000 8,149,000 5.5 2005 City 217,300 199,000 18,300 8.4 County 412,100 375,000 37,100 9.0 State 17,740,400 16,782,300 958,100 5.4 United States 149,321,000 141,730,000 7,591,000 5.1 2006 City 217,300 199,000 18,300 7.5 County 414,800 381,400 33,400 8.0 State 17,901,900 17,029,300 872,600 4.9 United States 151,428,000 144,427,000 7,001,000 4.6 2007† City 225,800 207,600 18,200 8.0 County 428,000 391,200 36,800 8.6 State 18,188,100 17,208,900 974,200 5.4 United States 153,124,000 146,047,000 7,078,000 4.6 ______† Most recent annual data available Sources: State Employment Development Department, Labor Market Information Division, Labor Force Data for Sub-County Areas and U.S. Department of Labor, Bureau of Labor Statistics.

A-3 Principal Employers

Increasing numbers of industrial, manufacturing and service industries are moving their operations to the Fresno Standard Metropolitan Statistical Area (“SMSA”). According to the California Department of Commerce, one of the largest increases in California manufacturing employment in recent years has been in the Fresno SMSA.

Table A-5 below lists the major private sector employers within the City and their estimated number of full-time employees.

TABLE A-5 CITY OF FRESNO Principal Private Sector Employers 2007

Estimated Full-Time Employer Industry/Service Employees Community Medical Centers Healthcare 4,592 Saint Agnes Medical Center Healthcare 2,075 Beverly Health Care Healthcare 2,000 Kaiser Permanente Healthcare 2,000 Pelco Manufacturing 1,965 Children’s Hospital Central California Healthcare 1,754 Quinn Group, Inc. Manufacturing 1,178 Gottschalks Retail Sales 1,095 AT&T Communications 1,000 Zacky Farms, LLC Poultry Processing 915 The Nelson Group Auto sales, construction 617 Sun-Maid Growers of California Raisins, dried fruit processing 600 The Fresno Bee Newspaper 580 Guarantee Real Estate Real Estate Brokerage 519 London Properties Real Estate Brokerage 500 Sunrise Medical Wheelchair Manufacturer 450 Geil Enterprises, Inc. Janitorial Services 440 Producers Dairy Foods, Inc. Dairy Processing 340 Educational Employees Credit Union Financial Services 318 Securitas Security Services USA, Inc. Security Systems 300 Turner Security Systems Security Systems 300 Grundfos Pumps Manufacturing Corporation Wholesale machinery equipment and supplies 280 Guardian Industries Corp. Manufacturing 280 Quest Diagnostics Clinical Laboratory Testing 254 Wawona Frozen Foods Frozen Fruit Processing 225 Duncan Enterprises Manufacturing 200 ______Source: The Business Journal, 2007 Book of Lists.

A-4 Agriculture

The City’s economy is based largely in agriculture, and the County for many years has led the nation in the value of annual agricultural production. Agriculture continues as the leading industry in the County and, through its multiplier effect, had a total economic impact in excess of $3.2 billion each year since 2000. In addition, the City is the major agribusiness, crop processing and shipping center for the eight-county San Joaquin Valley which routinely accounts for about one-half of California’s total agricultural production. Table A-6 lists the top leading agricultural crops within the County for the most recent five years for which data is available.

TABLE A-6 COUNTY OF FRESNO Ten Leading Crops for Years 2002 to 2006(1) ($ in 000’s)

2002 2003 2004 2005 2006(1) Grapes-table/raisins/wine $400,255 $400,842 $592,099 $554,561 $562,751 Cotton 345,189 341,666 418,726 284,854 245,271 Tomatoes 265,887 384,290 408,030 328,077 402,141 Almonds 196,565(2) 201,596 388,725 469,820 494,500 Milk 199,937 221,199 317,618 334,383 296,715 Cattle and Calves 177,445(2) 263,510 311,164 319,686 317,074 Poultry 270,851 246,520 270,169 280,060 389,147 Onions – 164,766 219,244 – 233,877 Oranges 138,654 215,349 190,512 157,239 – Peaches – 158,470 177,703 183,678 192,309 Garlic 131,004 – – – – Plums 111,500 – – – – Nectarines – – – 173,946 171,872 TOTAL TEN LEADING CROPS $2,237,287 $2,598,208 $3,293,990 3,086,294 3,305,657 Other Crops 1,203,640 1,475,131 1,309,946 1,554,900 1,540,080 TOTAL $3,440,927(2) $4,073,339(2) $4,603,936(2) $4,641,194(2) $4,845,737

Percent Change – 18.4% 13.0% 0.8% 4.4% ______(1) Preliminary. Most recent annual data available. (2) Revised. Source: Fresno County Department of Agriculture.

Personal Income

The United State Department of Commerce, Bureau of Economic Analysis (the “BEA”) produces economic accounts statistics that enable government and business decision-makers, researchers, and the public to follow and understand the performance of the national economy.

The BEA defines “personal income” as income received by persons from all sources, including income received from participation in production as well as from government and business transfer payments. Personal income represents the sum of compensation of employees (received), supplements to wages and salaries, proprietors’ income with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Per capita personal income is calculated as the personal income divided by the resident population based upon the Census Bureau’s annual midyear population estimates.

A-5 Table A-7 below presents the latest available personal income data for the County, the State and the nation for the calendar years 2002 through 2006.

TABLE A-7 COUNTY OF FRESNO Personal Income Calendar Years 2002 through 2006†

Per Capita Personal Income Personal Income Year and Area (thousands of dollars) (dollars) 2002 County $19,690,862 $23,655 State 1,147,715,704 32,769 United States 8,872,871,000 30,795 2003 County 20,698,515 24,399 State 1,187,040,144 33,554 United States 9,150,320,000 31,504 2004 County 21,744,916 25,224 State 1,265,970,355 35,440 United States 9,716,363,000 33,123 2005 County 22,752,460 26,052 State 1,348,255,191 37,462 United States 10,284,356,000 34,757 2006 † County 23,980,463 27,081 State 1,436,445,919 39,626 United States 10,968,393,000 36,714 ______† Preliminary. Most recent annual data. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

A-6 Construction Activity

In Fiscal Year 2006-07, the City issued construction permits valued in excess of $662 million. Of the total dollar volume in Fiscal Year 2006-07, approximately 62% were issued in connection with residential projects. Building permit valuations for the last 10 Fiscal Years is summarized in Table A-8.

TABLE A-8 CITY OF FRESNO Property Value and Construction Fiscal Years 1997-98 through 2006-07

Construction Permits Issued Commercial Residential Fiscal Assessed Number of Number of Year Value(1) Units(2) Value(1) Units(2) Value(1) 1997-98 $14,757,565 2,259 $159,209 3,558 $205,012 1998-99 14,777,885 2,315 146,236 3,524 197,437 1999-00 15,315,251 1,720 244,368 4,260 209,258 2000-01 16,040,139 1,279 297,836 4,831 241,607 2001-02 16,907,355 1,358 150,604 4,815 198,631 2002-03 17,668,086 1,524 259,533 6,201 275,223 2003-04 18,911,068 1,530 233,198 7,024 420,284 2004-05 21,051,751 1,498 173,950 7,526 484,182 2005-06 23,102,301 1,498 196,179 7,987 529,889 2006-07 26,362,095 1,647 255,044 6,669 407,679 ______(1) Amounts expressed in thousands. (2) Includes individual units and structures as appropriate-a composite of new construction, repairs and relocations. Sources: County of Fresno Assessors Office for Assessed Value and the City of Fresno Development Department for all other information.

Commercial Activity

The City is located in the center of a California market of more than 35 million people. The City serves as the retail, financial and service center for the San Joaquin Valley. The City’s economy, stemming from its location in the nation’s number one agricultural producing county, is expanding to a broader base, including increased investment, development and employment in the industrial and commercial sectors. For information regarding taxable retail sales within the City, see “City Financial Information–Sales Tax–Table 6–Taxable Retail Sales Data for Calendar Year 2002 through 2006.”

A-7 Transportation

Highways. The City has a well-developed transportation network which includes road, rail, and bus services. State Highway 99 intersects the City. Interstate 5, the principal north-south artery in the State is located approximately 40 miles west of the City. The City is also served by State Highways 180, 168 and 41.

Railroads. Amtrak railroad crosses the County with its main line generally paralleling State Highway 99, with trunk lines running into adjoining counties. Freight transportation is also provided by several intra-state and transcontinental trucking firms.

Airports. The Fresno Yosemite International Airport (the “Airport”) is located approximately 7.5 miles northeast of the downtown area on approximately 1.728 acres. The Airport, which includes an approximately 63,000 square foot terminal and an approximately 88,000 square foot two-level concourse terminal building, is the regional airport for the Central San Joaquin Valley. The Airport is served by most major carriers as well as commuter carriers. In Fiscal Year 2006-07 the Airport had more than 1,304,000, enplaned and deplaned passengers and handled approximately 10,797,000 pounds of enplaned cargo. Service is available to more than 25 cities in the United States. Cargo carried by freight forwarders and consolidators is located on an approximately 87 acre “Air Cargo Park” on the north side of the Airport, and includes an approximately 15.5 acre aircraft ramp and cargo processing area, ground service equipment storage, truck loading and unloading areas, administrative support spaces and storage and maintenance facilities.

There are four military operation areas located at the Airport: the California Air National Guard, which operates from two areas, the California Army National Guard and the U.S. Marine Corps Reserve.

The Fresno Chandler Executive Airport (“Chandler”), located on approximately 140 acres approximately 1.5 miles south of the downtown area, is also owned and operated by the City. Since 1948, when airline operations were transferred to the Airport (then called Fresno Air Terminal at Hammer Field), the role of Chandler has been to serve regional aviation needs. During the early 1970’s the FAA designated Chandler as a reliever airport to the Airport as part of the National Airspace System Plan. Chandler is designed to handle 95% of all general aviation aircraft weighing less than 12,500 pounds.

Bus Service. The City operates the Fresno Area Express (“FAX”) bus system serving the greater Fresno Metropolitan Area with 18 fixed-route bus lines and paratransit service.

Education and Community Services

Public school education is provided by the Fresno Unified School District’s 63 elementary schools, 18 middle schools, nine senior high schools, three community day schools; three alternative education programs and adult and other special programs. With more than 81,000 students, the Fresno Unified School District is the fourth largest in the State.

Fresno City Community College (“Fresno City College”), a two year college within the State Center Community College District (the “College District”), was the first community college in the State. Fresno City College is located in the central part of the City on McKinley Avenue and has an enrollment of 22,700 full-time and part time-students. The College District is headquartered in the City, adjacent to the campus.

The 327-acre California State University, Fresno (“Fresno State”) main campus and the 1,083-acre University Farm are located in the northeast portion of the City. Fresno State is one of the 23 campuses of the California State University System and has an enrollment of more than 20,000 students. A-8 Culture and Recreation

Cultural facilities in the City and surrounding area include the Fresno Convention and Entertainment Center which is owned by the City and consists of five separate facilities: the Selland Arena, with a seating capacity of 9,500; the Robert A. Schoettler Conference Center, a 13,129 square foot ballroom; the William Saroyan Theatre, with a seating capacity of 2,353, the Ernest Valdez Exhibit Hall, a 32,000 square foot multi-purpose facility; and a 67,000 square foot exhibit hall with an additional 10,000 square feet of exhibit space in the first and second floor lobbies, 12 meeting rooms located across the street from the other facilities comprising the Convention Center Complex.

Cultural facilities also include the Fresno Metropolitan Museum of Art, History and Science, the Meux Home Museum, the Legion of Valor Museum, Arte Americas and the African American Museum. The Fresno Philharmonic Orchestra, the largest professional orchestra in the Central Valley and the Fresno Grand Opera, which produces internationally acclaimed operas and concerts, both perform at the William Saroyan Theater. In addition, ballet productions are staged at the William Saroyan Theater by the Lively Arts Foundation and the Valley Performing Arts Council.

The Save Mart Arena opened at Fresno State in 2003. This 450,000 square foot facility is the home of the Fresno State Bulldog basketball team, as well as serving as the premier location for major concerts and other performance events in the area, and seats between 15,000 to 18,000, depending on the seating configuration. The Save Mart Arena was privately financed and is operated by SMG, the same company with whom the City has contracted to manage the Fresno Convention and Entertainment Center.

The 12,500 seat Fresno Stadium, the home of the Grizzles, the triple-A affiliate of the San Francisco Giants, is located in downtown Fresno.

The City Parks, Recreation and Community Services Department maintains approximately 1,520 acres of parkland, including 57 regional, neighborhood and pocket parks, and the sports complex/regional park that was constructed on a former landfill site; nine public swimming pools; 42 tennis courts; and three municipal 18-hole golf courses. The City-owned Chaffee Zoological Gardens located in Roeding Park, is the third largest zoo in the State. A variety of recreational facilities are available within the City park system, including a senior citizens center, a 26,000 square foot skate park, a youth center, a gymnasium and a facility for large meetings and activities. In addition, the City is located approximately a half hour drive from each of Yosemite, Kings Canyon and Sequoia National Parks.

Local newspaper coverage is provided by the Fresno Bee which is published seven days a week.

A-9

(This Page Intentionally Left Blank) APPENDIX B

CITY OF FRESNO, CALIFORNIA, COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2007

B-1

(This Page Intentionally Left Blank)

Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

Prepared by The City of Fresno Finance Department

Karen M. Bradley, CPA, Interim Finance Director/City Controller

Financial Reporting Staff S. Kim Jackson, Management Analyst III Mike Getty, CPA, Principal Accountant Margaret Bell, CPA, Senior Accountant-Auditor Kevin Vogt, CPA, Senior Accountant-Auditor Anita Villarreal , Management Analyst II John Simpson, Accountant-Auditor Gilbert Elizondo, Accountant-Auditor Jane Mouanoutoua, Accountant-Auditor Greg Wiles, CPA, Treasury Officer Phillip H ard castl e, P r inc ipa l Accoun tan t Frank H. Balekian, Jr., Accountant Auditor II Nid Phanucharas, Accountant Auditor II Martin Hinojosa, Accountant-Auditor Ashley Aouate, Accounting Technician Maria Cano, Service Aide Special Thanks to Mike Lima, Airports Finance Manager Lisa Harwood, Airports Finance Officer Kate Tuckness, Sr. Accountant-Auditor Yvonne Dedmore, Accountant-Auditor Rosie Rivera, Accountant-Auditor Evelyn Parangalan, Sr. Accountant -Auditor

City of Fresno - www.fresno.gov Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

INTRODUCTORY SECTION

City of Fresno - www.fresno.gov Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

TABLE OF CONTENTS

PAGE INTRODUCTORY SECTION

Controller’s Transmittal Letter I Organization Chart XXX Directory of City Officials XXXI Certificate of Achievement - Government Finance Officers Association XXXIII

FINANCIAL SECTION

Independent Auditor’s Report 1 Management’s Discussion and Analysis 4

BASIC FINANCIAL STATEMENTS:

Government-wide Financial Statements:

Statement of Net Assets 65 Statement of Activities 66

Fund Financial Statements: Balance Sheet - Governmental Funds 70 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 71 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 72 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 73 Statement of Net Assets - Proprietary Funds 74 Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds 78 Statement of Cash Flows - Proprietary Funds 80 Statement of Fiduciary Net Assets - Fiduciary Funds - Trust and Agency 84 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds - Trust Funds 85

Notes to the Financial Statements 88

City of Fresno – www.fresno.gov Investing today for the City of tomorrow Investing today for the City of tomorrow 48th Comprehensive Annual 48th Comprehensive Annual Financial Report Financial Report Fiscal Year Ended June 30, 2007 Fiscal Year Ended June 30, 2007

TABLE OF CONTENTS – continued TABLE OF CONTENTS – continued

PAGE PAGE REQUIRED SUPPLEMENTARY INFORMATION: Fiduciary Funds: Schedule of Revenues, Expenditures - Budget and Actual Combining Statement of Fiduciary Net Assets – Fiduciary Funds – Pension Trust Funds 202 (Non-GAAP Budgetary Basis) with Budget to GAAP Reconciliation: Combining Statement of Changes in Fiduciary Net Assets – Fiduciary Funds – Pension Trust Funds 203 General Fund 170 Combining Statement of Fiduciary Net Assets – Fiduciary Funds – Health and Welfare Trust Funds 204 Grants Fund 172 Combining Statement of Changes in Fiduciary Net Assets – Fiduciary Funds – Health and Welfare Notes to the Required Supplementary Information 174 Trust Funds 205 Combining Statement of Changes in Assets and Liabilities - Agency Funds 206 OTHER SUPPLEMENTARY INFORMATION: C COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES: APIT AL A ComparativeSSE Schedule by Source 210 TS U Nonmajor Governmental Funds: Schedule by FunctionSED and Activity 211 IN T Schedule of Changes byH FunctionE O and Activity 212 PER Combining Balance Sheet - Nonmajor Governmental Funds 178 ATIO NS O Combining Statement of Revenues, Expenditures and Changes in Fund Balances - F G STATISTICAL SECTION OV Nonmajor Governmental Funds 180 ERN ME Schedule of Revenues, Expenditures - Budget and Actual NTA Net Assets by Component - Last Six Fiscal YearsL FU 215 (Non-GAAP Budgetary Basis) with Budget to GAAP Reconciliation: NDS Change in Net Assets - Last Six Fiscal Years: 216 Special Gas Tax 182 Fund Balance, Governmental Funds - Last Six Fiscal Years 218 Measure C 183 Changes in Fund Balances , Governmental Funds - Last Six Fiscal Years 219 Community Services 184 Gross Assessed Value and Estimated Actual Value of Taxable Property - Last Ten Fiscal Years 220 City Combined 185 Direct and Overlapping Property Tax Rates - Last Ten Fiscal Years 221 Urban Growth Management Impact Fees 186 Principal Property Taxpayers - Current Year and Nine Years Ago 222 Special Assessments 187 Property Tax Levies and Collections - Last Ten Fiscal Years 223 Proprietary Fund Types: Ratios of Outstanding Debt by Type - Last Six Fiscal Years 224 Ratio of General Bonded Debt Outstanding - Last Ten Fiscal Years 226 Nonmajor Enterprise Funds: Direct and Overlapping Governmental Activities Debt - As of June 1, 2007 227 Legal Debt Margin Information - Last Ten Fiscal Years 228 Combining Statement of Net Assets 190 Pledged Revenue Coverage - Last Six Fiscal Years 229 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets 191 Demographic and Economic Statistics - Last Ten Calendar Years 230 Combining Statement of Cash Flows 192 Principal Employers - Current Year and Five Years Ago 231 Full Time Equivalent City Government Employees by Function/Program - Last Six Years 232 Internal Service Funds: Operating Indicators by Function/Program - Last Six Years 233 Combining Statement of Net Assets 196 Capital Asset Statistics by Function/Program - Last Six Fiscal Years 234 Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets 197 Combining Statement of Cash Flows 198 City of Fresno – www.fresno.gov

City of Fresno – www.fresno.gov Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

CONTROLLER’ S TRANSMITTAL LETTER

City of Fresno - www.fresno.gov City of FRESNO

FINANCE DEPARTMENT investing today - for the city of tomorrow

2600 Fresno Street, Suite 2156 • (559) 621-7001 - FAX (559) 488-4636 Fresno, California 93721-3622 www.fresno.gov

January 31, 2008

The Honorable Mayor Alan Autry The Honorable Members of the City Council Distinguished Citizens of the City of Fresno Fresno, California THE 48TH COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF FRESNO

Investing today – for the City of tomorrow I am pleased to present the 48th Comprehensive Annual Financial Report (CAFR) of the City of Fresno, California for the fiscal year ended June 30, 2007, with the Independent Auditors’ Report, submitted in compliance with City Charter Section 804(c). The CAFR has been prepared by the Controller’s Office, in conformance with the principles and standards for financial reporting set forth by the CAFR – 48th Comprehensive Governmental Accounting Standards Board (GASB). Responsibility for both the Annual Financial Report City of Fresno, California accuracy of the data and the completeness and fairness of the presentation, For the fiscal year ended June 30, 2007 including all disclosures, rests with the City. I believe that the data, as presented, is accurate in all material respects, that its presentation fairly shows the financial position and the results of the City’s operations as measured by the financial activity of its various funds and, that the included disclosures will provide the reader with an understanding of the City’s financial affairs. FINANCIAL REPORTING AND FORMATS

The City has prepared its CAFR using GASB Statement No. 34, Basic Financial Statements - Management’s Discussion and Analysis - for State and Local Governments (GASB 34). This GASB Statement requires that Management provide a narrative introduction, overview, and analysis to accompany the Basic Financial Statements in the form of a Management’s Discussion & Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the report of the independent auditors.

Our CAFR is divided into the following sections:

The Introductory Section includes information about the organizational structure of the City, the City’s economy, major initiatives, status of City services, and cash management.

The Financial Section is prepared in accordance with GASB 34 requirements by including the MD&A, the Basic Financial Statements including notes, and the Required Supplementary Information. Also

I City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007 included in this section is the Independent Auditors’ Report on the Basic Financial Statements and schedules. FRESNO’S GOVERNMENT, ECONOMY AND OUTLOOK

The Statistical Section includes tables containing historical financial data, debt statistics, and miscellaneous social and economic data of the City that is of interest to potential bond investors Fresno is the county seat of Fresno County and is the economic and cultural hub of the fertile and other readers. Central San Joaquin Valley, a metropolitan region with more than 481,035 residents in the City proper, and over 917,515 in Fresno County. Named after the Fresno Creek, “Fresno” in Spanish InGovernment addition to Auditingthis report, Standards, the City is required to undergo an annual “Single Audit” in conformity with signifies “ash tree” and it was because of the abundance of mountain ash or ash trees in the county the provisions of the Federal Single Audit Act of 1996 and the U.S. Office of Management and that it received its name. The first European settlers in the early 1800’s found the Yokuts tribe living in Budget Circular A-133, Audits of State and Local Governments and Non-Profit Organizations and the valley floor and in the foothills along the major rivers of the area, the San Joaquin and the Kings issued by the Comptroller General of the United States. Information Rivers. The Monache Tribe lived further up the rivers. After the initial Spanish explorers came, others related to this Single Audit is included in a separate report. began to arrive including trappers and hunters. The county was part of the mining boom of California from its early years until the mid 1860’s. Once gold fever subsided, the county experienced substantial growth in livestock raising and general farming and from there it made the THE REPORTING ENTITY AND ITS SERVICES transition to orchards and vineyards. Fresno began as a station for the Central Pacific Railroad in 1872 and was made the county seat in 1874.

The City of Fresno (City) was incorporated in 1885, and is located in the Central San Joaquin Valley The City of Fresno is the thirty-sixth largest city in the United States and the sixth of California. The City’s powers are exercised under the strong-Mayor form of government. Under this largest in California, with Fresno County encompassing approximately 6,000 system, the Mayor serves as the City’s Chief Executive Officer, and is square miles. The population of the County has grown by approximately 20% in responsible for appointing and overseeing the City Manager, the past ten years, and boasts more than 90 different nationalities. Over half of all recommending legislation, and presenting the annual budget to the City county residents live in the City of Fresno, making it the largest city in the county. Council. The Mayor does not participate in Council deliberations, except by The 2000 Federal census showed that racial and ethnic diversity continues to be exercising veto power. The City Council serves as the legislative authority, robust in the City, with all minority groups combined representing nearly a majority and the Mayor and other independent elected officials serve as the of the City’s population. The City currently has a land area of 104.4 square miles executive authority. The City Council is represented by seven elected and has the power by State statute to extend its corporate limits by annexation, council members, one of whom is elected President by the Council for a term of one year. The which is done periodically when deemed appropriate by the Council. President is the presiding officer of the Council and will fill any vacancy in the Office of the Mayor. The services provided by the City are the full range of services contemplated in the City Charter. Fresno serves as the economic hub of Fresno County and Fresno’s Central Valley. While the These include public protection (police and fire), construction and maintenance of all public unincorporated area and rural cities surrounding Fresno remain predominantly tired to large-scale facilities (public works), parks and recreation, public health systems (water, sewer, community agricultural productions, urban/suburban Fresno has undergone significant economic transformation sanitation and solid waste utilities), development and planning, tax collection, transportation, and in recent years. While Fresno continues as a leading agribusiness center, with approximately 250 many others. different crops produced by nearly 7,500 farmers on 1.9 million irrigated acres, worth about $4 billion a year, its decreasing role in the urban economy is reflected in the decreasing reliance on This CAFR includes the financial activities of the primary government, which agricultural employment. Just 13.4% of employment results from agriculture, a significant decrease encompasses several enterprise activities, as well as all of its component units. from just 20 years ago. Component units include legally separate entities for which the primary government is financially accountable and that have substantially the same Fresno County’s top agricultural products are grapes, cotton, tomatoes, governing board as the City or provide services entirely to the City. For reporting cattle and calves, and turkeys; however, its current economy is led by purposes, the operations of the Redevelopment Agency of the City of Fresno, and Fresno’s position as the hub for education, healthcare, government and the Joint Powers Financing Authority are blended with the City. professional services for the Central Valley. Construction employment has rapidly expanded as well. Food processing has led the manufacturing sector with such notable companies as Sun-Maid, David Sunflower Seeds, Kraft Foods, Foster Farms Dairy, and Foster Farms Poultry Company. Distribution has many centers in the city, led by the 80 acre site of the Gap Pacific Distribution Center. Companies specializing in machinery manufacturing, medical devices and water

II III City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007 technology are also present. Public sector employment is also a major contribution to the city’s create a positive atmosphere for economic development, and provide flexibility on budgetary economy. issues.

Fresno’s location, very near the geographical centre of California, places the city a comfortable Mayor Alan Autry and his administration are convinced that the City is better than ever equipped to distance from several major recreation areas and urban centers in the state. Just 60 miles south of over come the challenges that arise in managing a large city. Despite the downturn in the Yosemite National Park, it is the nearest major city to the park. Likewise, Kings Canyon National Park is economy and the annual loss of $8.5 million to the General Fund, due to the loss of the In-Lieu fee 60 miles and Sequoia National Park is just 75 miles away. ruling, the Mayor has not let conditions dictate his vision. Through strong leadership and use of Fresno County is subject to a Mediterranean climate. Low elevations are hot but dry with little available tools, the proper balance between enhancing services, keeping pace with growth in the humidity in the summer and in the winter; the temperatures are moderate with relatively light community and choosing between necessities and issues while addressing future needs the Mayor precipitation. Yearly annual rainfall is approximately 12 inches. pursues his unyielding adherence to the priorities that comprise the foundation of his Key Result Areas. Under the leadership of Mayor Alan Autry over the past seven years, the City continues to focus on the basis tenets of his Administration and the covenant he made to the citizens of the City of Fresno, Budget Overview for Fiscal Year 2007/2008 to be a good steward of their hard earned tax dollars. His philosophy and that of all City employees, is driven by prudence, accountability and common sense and is focused on Within the 2007/2008 budget, the essential services provided by all departments are preserved. The three outcomes: (1) to return most of the tax dollars in essential services so as to budget was prepared under the principles of the NEW NORMAL, which utilizes teamwork and focuses deliver a high quality of life; (2) to invest in the future and (3) to maintain a rainy all of the City’s actions towards a specific outcome. The budget focuses on the City’s vision of a day fund so as to save for unforeseen events. This philosophy has been highly “Culture of Excellence Where People Get the Best Every Day”. The budget aligns the goals of the effective in the past seven years. The City of Fresno’s strategic planning process City’s Key Result Areas and balances the Key Objectives of Customer Satisfaction, Employee began with an examination of the organizational Mission, Vision, Key Objectives, Satisfaction and Prudent Financial Management. It also addressed the Mayor’s key priorities of Values and Key Result Areas (KRA’s) and ended with the development of a course public safety, maintaining essential services, economic development, education, job creation, of action that translated these concepts into actions that aligned with the investment in our neighborhoods, and protecting the reserve. organizational philosophy. The Mission of the City of Fresno is to build and preserve a city that creates and protects equal access to opportunities, education and quality of life The FY 2008 operating budget totaled $534 million, representing a 7.6 % increase from the FY 2007 for every fresnan in every neighborhood. The “NEW NORMAL” is an internal cornerstone for that amended budget. foundation that has allowed the City to fulfill many of the Mayor’s goals while still providing stability for continued momentum. M aint ain Esse FO A critical componentntia of a healthy community is its citizens feeling safe in areas UR C l Se OR where they live, workrvi cand shop. The City of Fresno has taken a proactive NER es The City of FresnoSTO has not wavered from the long ranged planning it implemented in 2001, which approach to building safe neighborhoods by addressing not only crime but also NES has served as the basis for the Key Result Areas within the “NEW NORMAL”. The four cornerstones conditions such as housing, physical appearance and economic vitality that have allowed the City to not only weather the many economic challenges that faced the City and impact the safety of a neighborhood. City service providers utilize a holistic State, but to also continue to move the City forward. approach to neighborhoods and an emphasis on educating, engaging, and empowering residents to become active partners in building a safer, more That emphasis has always been and continues to be: beautiful city. A particular emphasis has been placed upon the Mayor’s commitment to public safety. 9 Public Safety 9 Economic Development Public Safety: 9 Smart Growth 9 Education Reform The City of Fresno’s vision of “A Culture of Excellence Where People Get the Best Every Day”, includes providing exceptional protection, emergency response and service in a manner that builds public In addition and all the while, deliberately building and protecting the Reserve. confidence.

Over the years, through sound fiscal management and prudent policies, Fresno has cultivated the financial strength to weather economic downturns,

IV V City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

Police Department Existing staff and equipment for Fire Stations 16 and 18 will transfer to the new facilities once The Mayor’s Gang Prevention Initiative (MGPI) is achieving the attention of completed. New staffing will be necessary in FY 2009 to open Fire Station 19 and the State and Federal lawmakers as well as other municipalities who are building Broadway/Elizabeth station. The new buildings should experience energy efficiencies and a minimal their own programs utilizing the City of Fresno’s Model. Continued funding of need for repairs that will greatly contribute to lowering operational and maintenance expenses. In $1.1 million assures that the City will continue to reach greater populations of addition, the stations will be able to accommodate future staffing growth. at-risk youth and adults who are involved in the gang lifestyle. The current Fire Department Headquarters is located in a redevelopment area and the building is A Financial Crimes Unit has been established in the Police Department. Three scheduled for demolition by the end of 2007. Until such time as the permanent Public Safety additional Detectives and two Financial Criminal Advocates were included in the Department’s Administrative Headquarters, housing both Police and Fire Administration, is completed, Fire will incur budget to staff the unit. The Department anticipates 1,000 more cases can be assigned for follow- lease costs for temporary headquarters. The cost for FY 2008 is estimated at $280,000. The up investigation in a given year with the additional Detectives. With 1,000 more cases assigned, this department is also estimating an additional one-time funding of $140,000 in logistical moving, will translate into a 23% increase in total cases handled by the Unit which should contribute to information systems and communication setup costs. increasing the number of prosections. The Fire Department’s overtime budget was increased by $400,000 in order to address overtime and The Advocates will assist Detectives in contacting victims and providing shift replacement needs associated with an increase in Fire required minimum staffing. information to them on how to move their case forward in the judicial system – civil or criminal. In addition they will help the Detectives in collecting information In November 2006, the City of Fresno participated in the “Golden Guardian” and documents needed from the victims for prosecution on cases that are disaster exercise, sponsored by the State of California to improve the moved forward. The Advocates will provide critical information to victims on how effectiveness of Fresno’s emergency response. Golden Guardian evaluators to minimize further damage. Prior to the additional staff, the vast majority of cited technical support improvements and Emergency Operations Center staff victims experienced limited contact with the Department. These new positions will training as areas for improvement. In order to address these concerns, the City is drastically increase the service to the public in this area. investing $89,500 in equipment and training of key staff throughout the City in FY 2008. Expansion of the highly successful Stamping Out Graffiti Program requires additional staff, materials, and equipment. The increases are expected to double the program’s services as well as increase The Fire Department in conjunction with the Police Department continues to move forward with plans the success rate by removing reported graffiti within 24-hours. In calendar year 2006, 2,500,000 to build a fire and law enforcement Public Safety Complex and Joint Dispatch Communications million square feet of graffiti was painted over by the abatement crew (up from 1,900,000 million Center in downtown Fresno. The Fire Department is coordinating with the Public Works Department, square feet in calendar year 2005), The graffiti team will maximize equipment production to double General Services Department, and the Police Department to develop the spatial requirements and the services of the program without doubling the cost. design criteria. Impact fees and General Fund match will be the ultimate funding mechanism for this project. The project, upon completion, will reduce redundant infrastructure, space, and General Funds of $2.0 million have been set aside for the Pubic Safety Capital Match. The Safety equipment requirements for related functions, while enhancing safety services. Also, included in Impact Fees of $1.9 million as well as a match will be leveraged to bond for safety related capital UGM safety capital planning is the design of a Police Training Village, five new or expanded District projects such as a Southeast and a Central Police Substations, as well as a Joint Public Safety Policing stations, Fire Station No. 18, and the Fire Training, Fire Repair and Maintenance Facility. The Headquarters Facility. 2008 Budget also includes construction of Fire Stations Nos. 16 and 19 with the assumption that impact fees will be sufficiently realized. Finally the Fire Department will order three fire engines. Two Fire Department will be placed in future stations (Station No. 19 and the Broadway and Elizabeth station in downtown Fresno), and one will replace Apparatus No. 25. The acquisition of these three engines had no fiscal Consistent with the mid-year plan approved by the Council, the Fire impact in fiscal year 2007 as lease payments will not become due until fiscal year 2008. These Department’s FY 2008 capital budget included projects related to the design projects are being phased in and will come on line as impact fees grow. and construction of two new Fire Stations, the design of permanent Fire Station 18, a Regional Training Facility, Repair and Maintenance Facility, Parks, Recreation & Community Services renovations to an old fire station building (Broadway/Elizabeth) and land acquisition costs for four future fire stations. Dollars budgeted in FY 2008 for Providing a quality of life that enhances our community and neighborhoods will be realized as these projects primarily correspond to funding project management, Fresno expands and constructs Parks and Recreation areas across the City. Working in concert with requests for proposals, permits, and architectural design costs. the Parks Commission Report, and being very aware of the pressing need for green spaces and

VI VII City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

recreational facilities in the community, the City is proposing to issue bonds in FY In January 2006, the Municipal Restoration Zone (MRZ) was introduced to provide 2008 that will be supported by Parks Impact Fees. The total bond issue is another level of incentives to attract and retain businesses in the core downtown expected to be $34.6 million and will be spent over the course of the next two to area. The Economic Development Department will continue promoting the Zone three years. and assisting businesses with its benefits, as well as the marketing of Fresno in a proactive manner to a wider audience of prospective businesses. $500,000 was As part of an effort to address the need for ongoing maintenance and identified for potential incentives as well as an additional $500,000 of downtown enhancement of park, playgrounds, and other facilities, the Parks, Recreation & housing fee reduction programs to stimulate revitalization in this area. Community Services Department (PR&CS) will complete over $900,000 worth of critical projects. These projects will range from replacements and repairs at Holmes playground to Over $15 million in improvements and upgrades at the City’s Convention Center repainting exteriors and refinishing gym floors at Ted C. Wills. Quimby fees will fund these complex were completed in FY 2007. Phase I of the project included various improvements to the improvements. Saroyan Theatre, Selland Arena and Valdez Hall including a new fire alarm system, new seating, stairs, restrooms, lounge, back stage areas, and landscaping. An additional $2.5 million in Phase II PR&CS is proposing to add four Parks Maintenance Leadworkers to allow special work forces (Adult will go toward repairs to the roof and cooling system to continue restoration of the facility. Offenders and Inmate Labor) to be used in the ongoing maintenance of the park system. Each of these Leadworkers will supervise a crew of nine individuals on a daily basis. This will result in four new Smart Growth: 10-person work crews in the parks doing maintenance and ensuring the cleanliness of both neighborhood and regional parks. As the City continues to expand, it is vital that infrastructure requirements that are a natural result of economic growth be addressed. The FY 2008 budget focused Economic Development: on strengthening neighborhoods and ensuring a high quality of life across the entire City. Many programs were included in the FY 2008 budget to assure that The City of Fresno must continue to focus on Job Creation to succeed as a this goal is being met. vital growing metropolitan region. The focus will continue to be on revitalization, redevelopment and reinvention of the urban core. Business The Planning and Development Department continues with its multi-year task of development, retention and attraction will continue to be a high priority of implementing the General Plan. Among the tasks outlined are a comprehensive our economic development strategy. The solution to this problem demands zoning ordinance update and planning related to the Southeast Growth Area. more than a simplistic statement that we need more business; it demands a broad perspective and a long-term strategy. Planning continues to enhance the Application Assistance Center (AAC) which serves as a One-Stop location where City processing experts are available to help applicants resolve issues that could The City of Fresno continues its support of the Regional Jobs Initiative, the City Stewards Program and prevent timely processing of their applications. Inclusive in this effort is the “Hot the Mayor’s Jobs Initiative with funds specifically earmarked for job creation efforts. The Regional Spot” Business Assistance Center, a service created for streamlining applications Jobs Initiative funding includes $175,000 designated for the RJI, $100,000 for the Social Compact submitted to the Planning & Development Department. As part of AAC’s and Human Investment Initiative (HII). The Social Compact and HII will require continuing efforts to streamline permit processing and support economic matching funds from the community. The Social Economic/Human development, the Department will again fund staffing in the Public Works and Investment Initiative is an effort spearheaded by the Empowerment Zone Public Utilities Departments. In addition, funding is also being provided for one Executive Board and the Economic Development Department, which is position each in the Police and Fire Departments to fully staff the AAC. Each of partnering with the Fresno West Coalition in conjunction with the RJI, to these departments will dedicate one full-time person to plan review and ultimately provide a market analysis of the economy in the underserved approval. communities in West and Southwest Fresno. Currently, there are very few banking, grocery store, retail and other such services available to residents in their communities. The Median Island maintenance funding was increased to ensure that median Social Compact, a national non-profit entity that works with local businesses and governments, will islands throughout the City remain on a scheduled maintenance plan and conduct a market analysis of the underserved areas. The expected outcome is to identify an are free of weeds, trash and other debris. underserved economy in the community, support the businesses identified and ultimately, the report will then be used to market the areas to banks, grocery stores, pharmacies, etc., and will provide The Public Works Department enhanced its tree trimming program, adding that the dollars exist in the community to support businesses. nine geo bases and increasing frequencies from 15-year cycles to 12-year cycles. Additionally, 300 to 350 trees will be planted along right of way

VIII IX City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007 areas throughout Fresno to increase City beautification and improve air quality by way of natural to pro-actively address sub-standard housing conditions in rental apartment complexes, multi- enhancement. residential and single family rental units. The program will be increased to expand the number of annual inspections, along with implementing the recommendations of the 10 X 10 Blue Ribbon The Mayor strongly believes that the pride of home ownership should be available to everyone. With Commission. This includes ensuring 300 safe housing units annually, resolution of 500 substandard this in mind, the City continues to focus on programs such as Down Payment Assistance and First housing cases annually, assist in community outreach and education for community engaged Time Homebuyer Counseling to assist families in achieving the American Dream. HOME and Rental Code Enforcement programs. Additionally, the Housing Earmark Trust funding of $500,000 has been Rehabilitation Project (RRP) funds included in the FY 2008 Budget total $13,250,000. These funds will re-budgeted for use in FY 2008. be used in the following areas: “No Neighborhood Left Behind” (NNLB) is a six-year, $45 million investment in the physical infrastructure of 71 neighborhoods. It is the largest undertaking of its kind in the history of Fresno and is a giant leap forward in ending the Tale of Two Cities by providing equal access to neighborhood quality of life for all citizens. NNLB is funded at over $21.8 million to complete the original Homebuyer Assistance: neighborhoods already planned for in year three as well as projects scheduled in FY 2009. Thirty- Homebuyer Assistance Program $ 2,000,000 three neighborhoods are scheduled for completion in FY 2008. The majority of NNLB projects are composed primarily of street repair and pavement replacement. The work will be completed in a Rehabilitation: joint effort between the Public Works Department and private contractors. City Owner-Occupied Rehabilitation Program $ 700,000 City Rental Rehabilitation Program 700,000 The NNLB initiative is not just about building infrastructure in the urban core, but ensuring that no Energy Efficient Upgrade Program 600,000 Total City Rehabilitation Programs $ 2,000,000 neighborhood – north, south, east or west – is left behind. To follow-up on this commitment, the Street Division crews continue to provide maintenance in ADA Grant Retrofit for Seniors & Disabled $ 250,000 those neighborhoods that are not part of the 71 NNLB neighborhoods.

New Construction/Development: Neighborhood projects are funded at $28.6 million, this compares to last Oak Park Senior Villas $ 3,000,000 year at $18.6 million. This year’s $50.5 million investment in neighborhoods, Transit Oriented Development $ 1,000,000 including NNLB, brings the total investment to over $200 million during Mayor th Ventura & 7 – residential mixed use $ 600,000 Autry’s Administration. Parc Grove $ 1,400,000 Sierra Pointe (Hope VI) $ 1,300,000 Additionally the Pinedale Infrastructure Improvement Project will bring what is known as the “Pinedale Downtown Housing $ 700,000 Housing for Homeless $ 1,000,000 Neighborhood” up to the City’s current subdivision requirements. These basic infrastructure Total New Construction/Development 9,000,000 improvements will provide the neighborhood with the opportunity to become a thriving and aesthetically pleasing residential area. The $3 million project will be phased in over the next four $ 13,250,000 years with a current year investment of $350,000 to initiate the environmental and design work.

Education Reform:

In FY 2008, the City will again apply for a State housing grant of $1 million. This grant provides down Children and seniors are the most precious and the most vulnerable citizens in payment and closing cost assistance to low and moderate income persons Citywide. In addition, a our community. Through innovative after-school programs, community federal grant in the amount of $1 million will be applied for to increase homebuyer assistance. programs, and other initiatives, the City will continue to support, assist and strengthen the well being of our seniors and our youth. In FY 2008, $7.1 million will be allocated in Section 108 loan proceeds for land acquisition in the downtown area. Of that amount $2 million was earmarked for homeless The After School Education and Enrichment programs will maintain their vital housing. role in the community. On average, 2,650 youths attend these successful programs on a daily basis. These programs include Literacy and Employment New positions to address sub-standard housing conditions are included in Readiness (BEST Program), Therapeutic Recreation, Academic Game Plan, Community Science this year’s General Plan. Three Neighborhood Services Specialists will enable program, Fresno Connect, and the Reduce Substance Abuse Educational Initiative. the Housing Division of Planning and Development to enhance the initiative

X XI City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

Program/Initiative General Fund CDBG Total Reserve to 6.5% of the General Fund. This exceeds the 5% of General Fund appropriations amount BEST program $ 49,300 $ 217,900 $ 267,200 required by City policy. Therapeutic Recreation 120,600 - 120,600 Academic Game Plan - 25,000 25,000 The Emergency Reserve can only be used upon declaration of a fiscal emergency declared by the Community Science 345,800 - 345,800 Mayor and ratified by the Council. A fiscal emergency is defined as: Reduce Substance Abuse - 8,000 8,000 Fresno Connect 223,500 - 223,500 After School Recreation Programs 1,796,000 - 1,796,000 Natural catastrophe Total $ 2,535,200 $ 250,900 $ 2,786,100 Public Safety emergency brought on by such events as riots or terrorism Precipitous decline in General Fund revenues The Fresno Connect initiative seeks to provide technology access, computer skills and educational opportunities to the community. The programs are geared for Except for these circumstances, the General Fund Emergency Reserve will remain intact, providing students of all ages and vary in scope from mere technological access to higher protection from unforeseen future events. level learning and workforce development. Since the inception of the original Roosevelt Lab, nine additional Fresno Connect labs have been built and three more Due to practical financial management of our City’s retirement system and a are planned for completion in FY 2008, bringing the total to 182 computers at 8 full- healthy return on investment, the City has enjoyed a fully funded retirement sized labs, 7 homework centers, and two mobile computer labs. The vision of the system without making contributions since 1997. Unfortunately the surplus was project is to create a variety of neighborhood technology centers that build a fully utilized at the end of FY 2006 for the Pension Plan for Safety employees. community bridge to opportunity. This required that the City of Fresno start making contributions to the retirement system starting in FY 2007. Fortunately, the Pension Plan for General Employees Protecting the Reserves: is fully funded without a contribution until at least FY 2010. The Pension Plan for Safety employees will require a City contribution of $6.9 million in the FY 2007 – 2008 budget. As Managing the City’s financial resources effectively provides the community with the best services at long as the market remains stable or improves this level of contribution is expected to be the peak the lowest possible cost. Making sound investments in technology to facilitate improvements in amount for the next few years. service delivery and employee productivity facilitate this focus area. It also enhances employee satisfaction by ensuring a financially stable organization that offers a viable retirement system. This OTHER KEY ISSUES improves the City’s ability to recruit and retain a skilled and diverse workforce.

The General Fund revenue is depicted in two main categories: 1) one-time Se nior resources and; 2) operating revenue. One-time resources for FY 2008 Init iativ consisted of an estimated $16.1 million carryover from FY 2007. In previous In addition toe thes four cornerstones, there are several key initiatives in the 2008 years, the entire amount of the carryover has been utilized to fund ongoing budget crucial to the City’s success. Senior initiatives continue to be a priority. operational services. The budget for FY 2007 – 2008 included what is being Included in the budget is over $1.8 million in ongoing senior programs. called the FY 2009 Budget Protection Plan, which places $5 million of the carryover into a contingency reserve account to address future obligations Ongoing Senior Initiatives: without impacting essential core services. This investment in our future mitigates concerns that the City of Fresno will find itself in a budget situation of having to reduce or Description FY 2007 FY 2008 eliminate services in future years due to reliance on one-time revenues to pay for ongoing services. In order to return most of the tax dollars in high quality essential services the FY 2007 – 2008 Budget Senior Hot Meals & Activity Programs $ 591,600 $ 659,900 proposed to hold $5 million of the one-time funds in a contingency reserve account to be used for Therapeutic Recreation Program 171,100 120,000 currently established service in FY 2009. This approach allows the City to Senior Paint Initiative 200,000 200,000 Senior Emergency Repair Grant 25,000 25,000 maintain existing services, grow in priority services and maintain the Fresno Madera Agency on Aging 47,800 47,800 Emergency Reserve for its intended purpose, all the while protecting essential Senior Discounts on Utilities 227,900 731,900 services into the future. Senior Sundays (FAX) 7,500 7,500 Retired Senior Volunteer Program (RSVP) 19,400 19,400 The Emergency Reserves will be increased by $680,000 to build a total Manchester Lease for Senior Center 35,000 35,000 reserve of $16.4 million at the close of FY 2008. This grows the Emergency Total $1,325,300 $1,847,100

XII XIII City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

Fres Meeting the needs of the American with Disabilities Act (ADA) community will improve with the no G ree addition of an ADA Outreach Coordinator responsible for coordinating Citywide ADA activities. Curb Although then City of Fresno has led the nation in projects and initiatives to help clean the air and Cuts are planned to meet or exceed 600 in FY 2008. As noted in the HOME program table, the City conserve precious resources, the “Fresno Green” plan will be the blue print that ensures Fresno will is implementing a pilot Housing Retrofit Match Program for seniors and disabled homeowners. continue to lead the way to protect our environment in the new millennium.

H ome By providing a rebate program to new users of solar energy, the City seeks to encourage further use less Init of solar energy as an alternative source of power, thereby reducing the use of As an effort iatoti vassist those of Fresno’s citizens struggling with homelessness, the Planning & es traditional power production methods. This benefits the City of Fresno and the Development Division will dedicate HOME funds through the Community Housing Central Valley region by promoting renewable energy use. Residents who qualify Development Organization (CHDO) program, to the Spirit of Woman Vision 2010 may receive a rebate of up to ten percent of the total purchase price of the solar Project. This project calls for acquisition and rehabilitation or reconstruction of the system, including installation, after all applicable Federal, State and energy 41-unit facility the agency currently leases and acquisition of an additional acre company rebates have been applied to the total purchase price. The maximum of land. Spirit of Woman assists 70 women and their children that are homeless or rebate allowable shall be $2,000 per each qualified solar system installed. In threatened with homelessness. In addition to housing, the program also seeks to addition, residents who qualify may receive a loan for up to 75% of the total assist these individuals in overcoming substance abuse and other challenges in a purchase price of the solar system, including installation, after all applicable holistic treatment approach. The expansion of the facility will allow services to be Federal, State and energy company rebates have been applied to the total purchase price. The provided to 23 additional homeless women and their children. loan must be repaid in monthly installments over a five year period.

Homeless Initiatives are funded in excess of $4.9 million dollars. B udg et C Marjaree Mason Center $ 80,000 onc lus While the City continues to build its Budget on what is considered to be City Stewards Program $ 100,000 ion Community Sanitation Clean-up & Storage $ 100,000 conservative estimates, it is not possible to predict the impact that unforeseen Safe Place Partnership $ 150,000 events or economic circumstances out of our control will have on the costs of the Various ESG programs $ 345,200 City’s daily operations. The possibility remains that adjustments to the City’s Land Acquisition HOME & Section 108 $ 3,000,000 budget will be required. However, the plans implemented by Mayor Autry’s Fresno Madera Continuum of Care FMCoC $ 58,000 Administration will ensure that the City not only weathers challenges, but also Warming and Cooling Centers $ 100,000 emerges as a stronger and more progressive City. As we look to the future, we will Spirit of Woman CHDO $ 1,000,000 continue to focus on making Fresno a better place to live, work and play.

H olis tic L GRAPHIC OVERVIEW ifelin Like citizens acrosse In the nation, we all have to absorb numerous increases in the cost of living over the itiat last 12 months. Increasesive in fuel, utilities and other goods and services have placed additional burdens on already strained budgets. To help relieve this burden, the City is The next several pages provide a graphic illustration of the City of Fresno’s introducing a Holistic Lifeline that combines energy efficiency upgrades, a regional perspective, economic overview, recent economic developments, Nutritional Assistance program and continued Senior Utility discounts. The the 2008 fiscal year budget, historical reserves and fund balances as well as Energy Efficiency Upgrades will designate $600,000 of the HOME funding the pension funding status for the City’s Fire and Police Retirement System and $100,000 of CDBG funding for rehabilitation of owner-occupied and and Employee’s Retirement System. Additional financial graphic illustrations rental properties to make each property more energy efficient. There is can be found in the Management Discussion & Analysis section immediately another $100,000 of CDBG funds dedicated for the Nutritional Assistance following the report of the independent auditors. Program. The program will provide meal options to seniors such as take home meals in the summer months and a farmer’s market voucher program that includes transportation to the Farmer’s Markets. Additionally, utility senior discounts will continue and are expected to save qualified residents over $700,000 next year.

XIV XV City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

Regional Perspective City Economic Overview Economic Overview Economic Overview City serves as the economic and cultural center for the San Joaquin Valley City is poised for steady, manageable long-term growth

Fresno is at the Center of California Population Growth Principal Employers (Private Sector) • City is at the heart of a growing metropolitan area strategically located in the center of California with nearly 1 million residents City of Fresno • While agriculture remains the primary industry Employer Industry Employees (13.4% of jobs), Fresno’s economy continues to Community Medical Centers Healthcare 4,592 diversify, reflecting advantageous location and Saint Agnes Medical Center Healthcare 2,075 attractive cost of living Beverly Health Care Healthcare 2,000 • City has land area of 110.72 square miles San Francisco Kaiser Permanente Healthcare 2,000 Pelco Manuf Video Sec Sys 1,965 • Fresno is the 6th largest city in California by Ruiz Good Products Manuf Froz Foods 1,900 population Children’s Hospital Healthcare 1,754 nd • Metropolitan region is the 2 fastest growing for Chukchansi Gold Resort/Casino Entertainment 1,400 th new jobs in the State, 8 in the nation The Palace Indian Gaming Entertainment 1,350 • Regional Jobs Initiative has added 12,100 new Quinn Group, Inc. Manufacturing 1,178 jobs since 2004 • Approximately 60 miles south of Yosemite Los Angeles National Park, also serves as gateway to Sequoia and Kings Canyon National Parks Diversified Agricultural Base Summary 1990 vs. 2006 Estimated Number of Workers by Industry

• City’s economy continues to grow at a steady pace • Agricultural base remains robust; growers continue to expand into more lucrative products • Major private and public investment in downtown Fresno • Strategic location, low business costs and affordable housing appeals to investors from major metropolitan areas – Expectation of continued commercial and industrial development over the long-term

______Source: CA Employment Development Department

XVI XVII City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

Recent Economic Developments City’s 2007-08 Budget Financial Operations City continues to expand and develop, attracting Highly focused and pro-active budget strategy corporate and government investment

• Major Construction Boom in Downtown Fresno Balanced General Fund Sources & Uses Structure – New ballpark opened in 2002 • Mayoral budget priorities – $250 million Fresno Regional Medical Center – Public Safety – $120 million Federal Courthouse Economic Overview – State Fifth District Court of Appeals – Economic Development – $18 million renovation of Guarantee Building for IRS & INS –Smart Growth – $48 million, privately funded 11-story office building & parking for IRS & Caltrans – Education Reform – $26 million Convention Center 1,564 space downtown parking – Building and Protecting the Reserve garage and $15 million in complex upgrades • Key issues: – $35 million, 6-story office building and parking garage for IRS – $30 million Civic Center Square – 80,000 sq ft project privately – Gang Prevention Initiative financed and constructed – Stamping Out Graffiti – $6 million mixed use, live-work downtown “Vagabond” project – Officer Safety Mayor Alan Autry • Roeding Business Park –Job Creation – $450,000 in Federal funding – Business Attraction – $4.5 million low interest loan from the CIEDB – Growth inward, upward & mixed – $1.5 million in funding as part of current bond issue – Reinvestment in Central Core Federal Courthouse Saroyan Theatre • Regional Jobs Initiative – No Neighborhood Left Behind – Focuses on 8 different industry clusters – Homebuyer Assistance – Created 12,100 net new jobs since 2004 – Homeless Initiative – Working with City and County officials to improve government process for business and business expansion – After School Recreation and Education – Fresno Green • Fresno Yosemite International Airport — expansion – Contingency Plans for uncertainties Sources completed – 2007 best year for passenger totals in airport’s history – 1,282,428 passengers – Airports sold $22 million in bonds in June 2007 to finance construction of consolidated rental car facility – First full year of direct international passenger service – Mexicana Airlines – Fresno to Guadalajara

• Save Mart Arena at CSU offers a state of the art Baseball Stadium Fresno Regional performance venue – 450,000 sq. ft. facility with luxury suites Medical Center – Privately financed and privately operated • Redevelopment of Santa Fe Railroad Depot – $7.35 million project created multi-model transportation hub for downtown – Links downtown restaurants and businesses with buses, taxis & AMTRAK – Included 775 parking stalls to accommodate more downtown business

Uses Santa Fe Railroad Vagabond Lofts Depot

XVIII XIX City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

Historical Reserves & Fund Balances Pension Funding Status Financial Operations Financial Operations City’s Cash Balances have continued to grow City’s Pension Systems are Well-Funded Historical General Fund Cash Balances 30 Systems’ Funding History $ in millions $27.149 • City maintains two retirement systems for its employees which are administered by the City 25 $22.051 of Fresno Retirement Boards – Fire & Police Retirement System 20 (“FPRS”) has 2,046 members (2 tiers) $15.673 – Employees Retirement System has 15 $13.365 3,918 members $11.468 $12.088 • City issued POBs in 1993-94, which were 10 restructured in 2002 – No contributions required since FY 1996 5 $2.526 $2.824 $2.802 due to surplus earnings $0.944 $0.000 • City levies taxes in the amount of $0.032438 0 per $100 of assessed valuation to fund pension 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 obligations – Tax override validated in 1983 & meets requirement of Huntington Beach Historical Unreserved Fund Balances (1) decision ______*(Pension System Assets minus POBs)

18% 15.8% 16% 15.0% 14% 13.0% 11.4% 12% 10.5% 10.8% Fire and Police Retirement System Employees Retirement System 10% 8.7% 8.9% 8.1% 7.9% 7.2% 8% (Prefunded) Actuarial Actuarial Value of Actuarial Accrued Unfunded Actuarial Value of Actuarial Accrued Unfunded Valuation Assets Liability AAL ActuarialFunded Valuation Ratio Assets Liability (Prefunded) Funded Ratio 6% Date (a) Entry Age (b) (b–a) Date (a/b) (a) (b) (b–a) (a/b) 6/30/1999 $779,518 $501,273 ($278,245) 6/30/1999 155.5% $702,481 $426,538 ($275,943) 164.7% 4%

2% 6/30/2000 852,444 522,798 (329,646) 6/30/2000 163.1 770,649 471,207 (299,442) 163.5 0% 6/30/2001 859,123 562,131 (296,992) 6/30/2001 152.8 781,831 500,586 (281,245) 156.2 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 6/30/2002 814,680 590,900 (223,825) 6/30/2002 137.9 748,762 529,805 (218,957) 141.3 6/30/2003 749,505 617,879 (131,626) 121.3 6/30/2003 698,885 545,687 (153,198) 128.1 ______6/30/2004 741,766 554,366 (187,400) 133,8 1. As a % of General Fund Expenditures & Transfers Out. 6/30/2004 793,059 642,194 (150,865) 123.5 6/30/2005 846,718 670,101 (176,617) 126.4 6/30/2005 790,858 565,550 (225,308) 139.8

6/30/2006 906,223 722,722 (183,501) 125.4 6/30/2006 847,516 613,913 (233,603) 138.1

6/30/2007 1,000,961 773,236 (227,725) 129.5 6/30/2007 926,525 631,913 (295,220) 146.8 ______Source: Actuarial Valuation Reports dated June 30, 2007 prepared by The Segal Company.

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XX XXI City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

B usin ess Ret MAJOR INITIATIVES AND ACHIEVEMENTS enti The Economic Developmenton & Department led the process that resulted in Exp a new 15-year State of aCalifornians Enterprise Zone designation for Fresno. ion A number of significant initiatives, outlined below, are underway in Fresno. These will have a positive An Enterprise Zone is a specific geographic area targeted for economic effect on the City’s economic health and its services to residents and businesses. revitalization. Enterprise Zones encourage economic growth and investment in distressed areas by offering tax advantages and incentives C to businesses locating within the zone boundaries. The Department also lean Air launched Fresnostartup.com which provides access to the resources of nearly 50 local organizations Init iativ that provide economic development services. This innovative new website provides 24/7 access to es Through the leadership of Mayor Alan Autry and the City Council, the City adopted the 2025 Fresno General Plan in November 2002. This plan the essential information entrepreneurs and experienced business need to be successful in Fresno. dramatically changed the patterns of growth in Fresno, Focusing In just the first nine months of FY 2007, the site has been visited by nearly 6,000 visitors. development “in-and-up” rather than continuing an outward expansion Department staff worked with community partners and chambers of commerce to develop and beyond the City’s urban boundary. Then General Plan substantially implement a business certification process. These certified businesses will then participate in a enhances the established community’s physical and social environment business matchmaking event that the Department is sponsoring in early FY 2008. The purpose of this through revitalization of Fresno’s existing urban core. The plan promotes program is to encourage local businesses to do business with one another rather than out-of-the- conservation of significant natural, physical, historical and cultural resources. The General Plan is area businesses. The program will grow the local economy, stimulating investment and job creation. working, as evidenced by growth-patterns over the past five years. The Department also launched the Municipal Restoration Zone (MRZ) to provide assistance and incentives to businesses located or locating in Fresno’s most financially challenged neighborhoods. The next step is the progression of Fresno into a sustainable City, a community that meets the needs In just the first three months, Fresno businesses pre-qualified for over $125,000 in incentives. of the present without compromising the ability of future generations to meet their own needs. The foundation of sustainability is good stewardship of the earth’s natural The Department hired the City’s first Film and Entertainment Commissioner in resources. Clear views of the Sierra Nevada, extensive open space and January 2007. This position will bring additional film and television production pathways, encouragement of local agricultural producers, innovative solar to the Fresno area which will create jobs, stimulate growth of the City’s technology, a healthy urban forest, and zero landfill waste are all indicators creative economy and bring positive attention to the quality of life in Fresno. of a sustainable community. Sustainable development balances The Film Commission has developed the City’s first film permitting policy and economic development and environmental stewardship with innovative J implemented the new film application permit and has made it available one business enterprises that focus on the “Triple Bottom Line” of providing s an online on its newly completed website, www.fresnofilm.com. The d th economic, environmental and social benefits. Department alsoe K started a new monthly on-line newsletter entitled EnVision, with a circulation of more ingd than 1,500 copies pero monthm including site selectors, brokers and realtors. of t Clear progress has already been made, as the City’s vehicle and bus fleets are converting to clear he C rys fuels, land use policies encourage walk-able mixed used neighborhoods, and solar panels are Recently Steven Spielberg filmed tina l SFresno for the first time. His long, kull sprouting off the tops of both residential and commercial buildings as well as at the Municipal statewide search for a small but pivotal key location ended in Fresno with the Service Center and Fresno Yosemite International Airport. The City’s Team vintage control tower at Chandler Executive Airport. The airport was chosen Clean Air Initiative is a progressive program to reduce air polluting emissions for inclusion in the fourth installment of the "Indy" franchise titled I ndia through City operations, and Operation Clean Air, initiated by Mayor Autry, is . na a regional collaborative focused on improving air quality. Director Spielberg was joined by writer/producer George Lucas to personally The Public Utilities Department has been honored nationally for energy oversee the filming of the sequences. Both the Fresno Film Commission and conservation and the Public Works Department is completing a significant theactors Fresno instead County of stars, Film but Commission Chandler had been working on the project for portion of a city-wide traffic synchronization project that will reduce vehicle emissions. The Parks, months, Originally Chandler was to be a small, second unit shot with stand-in Recreation and Community Services Department continues to partner with the San Joaquin River turned into two locations and Eagle Field and Conservation Trust to develop a 23-mile, 6,000 acre green belt with trails. in Firebaugh was perfect for a third. At that point it became a full fledged production with Steven and a cast and crew of 300. The Fresno Film & Entertainment Commission (FFEC) worked closely with the Production Supervisor to promote and

XXII XXIII City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007 secure the locations. Chandler came very close to matching the description of the needed statements and maintaining accountability for assets. The concept of location and the classic architecture of the terminal and surrounding area which helped make the reasonable assurance recognizes that: (1) the cost of a control should not 70+ year-old airport the final choice. Additionally, Fresno offered all that the production company exceed the benefits likely to be derived; and, (2) the evaluation of costs and required to get the job done quickly and efficiently. benefits requires estimates and judgments by management. All internal control While the local media and fans were focused on catching a glimpse of Harrison Ford, Spielberg or evaluations occur within the above framework. We believe that the City’s internal Shia LaBeouf, for the FFEC it's all about economic development. It is estimated that the Indy film accounting controls adequately safeguard assets and provide reasonable generated between $185,000 and $200,000 of local revenue to the greater Fresno area. assurance of the proper recording of financial transactions.

Bu Sys dge tem tar s A y Pr ppl The City’s budget is a detailed operatingoce plan which identifies estimated costs and results in relation The Informationica tServices Department (ISD) in conjunction with the Utilities Billings and Collections ss ions Division of the Finance Department and the Planning and Development Department, implemented to estimated revenues. The budget includes: (1) the programs, projects, services, and activities to be an Interactive Voice Response System for payment of utility bills and scheduling of building carried out during the fiscal year; (2) the estimated revenue available to inspections. An interactive voice response system provides voice prompts that supply information to finance the operating plan; and, (3) the estimated spending requirements of a user, request data from the user, and present the user with a plurality of selectable options. The the operating plan. The budget is the result of a process wherein policy user can first select one or more options by providing one or more letters of the alphabet or numbers decisions by the Mayor, City Manager, and Council members are made, on the phone corresponding to one or more of the selectable options. If the letter, letters or numbers implemented, and controlled. The City maintains budgetary controls to that are provided correspond to more than one selectable option, the user further selects one of the ensure compliance with legal provisions embodied in the annual options from among the selectable choices. appropriated budget approved by the Council. Activities of the General Fund, special revenue funds, and certain debt service funds are included in ISD also installed a kiosk at Manchester Center for convenient access to e-Government services. the annual appropriated budget. The level of budgetary controls (the level at which expenditures Additional kiosks were also installed at Fashion Fair Mall, City Hall and the Frank H. Ball Community cannot legally exceed the appropriated amount) is maintained or centralized at the department Center. level. The City also uses encumbrance accounting as another technique to accomplish budgetary control for all fund types. This consists of a commitment for expenditures that are earmarked for a C particular purpose and are spent when funds become available. Appropriations that are not ity o encumbered lapse at the end of the fiscal year. Certain year-end encumbrances that fulfill a f Fre sno The City continues We to upgrade and enhance its website. A website redesign was spending commitment are carried forward and become part of the following year’s budget. Open bsit introduced to the publice in September 2006 offering new navigational features, encumbrances at June 30, 2007, are reported as reservations of fund balances. a friendlier user theme and a host of additional improvements. The site is better organized and provides the foundation for future online services. In addition, the The City continues to meet its responsibilities in making sound financial management decisions, as redesign provided Departments the ability to regularly update their web content demonstrated by the statements and schedules included in the financial section of this report. which provides more current data for the end user. 2007 brought the creation of Pe a page for public access to current GIS data layers. 2008 will continue to bring nsio n Tru additional features and functionally as more “e-government” features are st F und The City maintains two retirement systems for its employees. One covers all added. The City’s website can be found at http://www.fresno.gov. Op firefightersera and police officers (Fire and Police System), while the other covers all tion remainings permanent employees (Employees’ System). The systems are single- OTHER FINANCIAL INFORMATION employer defined benefit pension plans administered by the City of Fresno Retirement Boards. The net increase in assets for the Fire and Police System for fiscal year 2007 was $148.7 million ($1,044.7 million to $1,193.4 million) as Int compared to $86.8 million ($957.9 million to $1,044.7 million) in 2006. The erna l Co Employees’ System increased by approximately $123 million ($945.9 million to ntro In developing ls and evaluating the City’s accounting system, consideration was given to the $1,068.9 million) in 2007, as compared to $73.4 million ($872.5 million to $945.9 million) in fiscal adequacy of internal accounting controls. Internal accounting controls were designed to provide year 2006. These increases continue to be primarily the result of recovery and growth in the reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from investment markets. unauthorized use or disposition; and, (2) the reliability of financial records for preparing financial

XXIV XXV City of Fresno, California City of Fresno, California Controller’s Transmittal Letter Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007 For the Fiscal year Ended June 30, 2007

For CAFR purposes, the actuarial assumptions used to compute contribution requirements and to determine funding status are always based upon the prior year’s valuation, which for the fiscal year However, as time passes and market conditions change, opportunities often arise in which funds can 2007 is the actuarial valuation performed as of June 30, 2006. Plan Trustees have also requested a be repositioned into other assets offering even greater advantages to the portfolio. In these preliminary evaluation as of June 30, 2007. This evaluation estimates that the plans as of June 30, circumstances, one investment may be sold or swapped for another. Occasionally this may result in 2007 are 129.5% funded for the Police and Fire System and 146.8% funded for the Employees’ a capital gain from the sale and at other times it may result in a loss. In all cases however, the gains System or losses combined with returns from the newly acquired investment result, in a net added return to the portfolio. The Pension Trust Retirement System and the Redevelopment Agency deposits and No cash contributions were required for the Employees Retirement System for the fiscal year ended investments are maintained outside the City Treasury and follow policies established by their June 30, 2007. Employer contributions came from prepaid contributions of $1,566,215 on deposit respective governing boards. with the System and the prefunded actuarial accrued liability of the System. Cash contributions of $5,160,290 were made by the City to the Fire and Police Retirement System. This was in addition to The City has adopted a comprehensive Investment Policy which encompasses and incorporates $5,393,526 from prepaid contributions on deposit with the System. The remaining employer deposit and investment polices meant to minimize credit risk, concentration risk, interest rate risk and contributions were offset by the prefunded actuarial liability of the System. The funded ratios foreign currency risk in compliance with GASB No. 40, Deposit and Investment Risk Disclosures. The however decreased for 2007 based on the 2006 valuation to 125.4% from 126.4% for Police and investment Policy under GASB No. 40 does not substantially deviate from the City’s prior policy; it Fire and to 138.1 from 139.8% for Employees’. does however provide more in-depth and comprehensive discussion and disclosure of the City’s Policy. Ca sh M an Ris age k M The City’s pooledme temporary idle funds and deposits are invested pursuant to the ana nt gem City’s Investment Policy (the Policy) and the California Government Code (GC) by ent With certain exceptions, it is the policy of the City to use a combination of the City Treasurer. The Policy seeks the preservation of capital, safety, liquidity self-insurance and purchased commercial insurance against property or and yield, in that order of priority. The Policy addresses soundness of financial liability risks. The City believes it is more economically able to manage its institutions holding our assets and the types of investments permitted by the GC. risks internally and set aside funds as needed for estimated current claim The City seeks to minimize credit and market risk while maintaining a competitive settlements and unfavorable judgments through annual appropriations and yield on its portfolio. Accordingly, the Policy permits investments in certificates of supplemental appropriations. The City maintains limited coverage for certain deposit, obligations of the U.S. Treasury and U.S. Government sponsored risks that cannot be eliminated. At this time, the City is engaged in an corporations and agencies, commercial paper, corporate bonds, medium-term Owner-Controlled Insurance Program covering the wastewater treatment expansion. The Risk notes, banker’s acceptances, repurchase and reverse repurchase agreements, Management Division investigates and manages all liability claims and property losses, evaluates risk mutual funds invested in U.S. Government and Treasury obligations, and the State exposure and insurance needs, protects against contractual loss by reviewing and preparing Treasurer’s Investment Pool. The earned yield for fiscal year 2007 was 4.84% as insurance and indemnification portions of construction contracts, leases and agreements, compared to fiscal year 2006 which was 3.63%. emphasizes ongoing operational loss control, and purchases all insurance coverage for the City.

The City invests in no derivatives other than structured (step-up) notes, and floored The City maintains general liability insurance with limits of liability of $10 million. floater notes, which guarantee coupon payments. These are minimal risk There is $2.5 million self-insurance retention (SIR). The City also maintains airport instruments. All of the City’s investments, which are categorized according to owners and operators’ general liability insurance and aviation (Aircraft Liability) credit risk as defined by the Governmental Accounting Standards Board, are insurance, with limits of liability of $60 million and $20 million per occurrence, classified in the category of lowest risk. All categorized investments are held by a third-party respectively. There is no deductible or self-insured retention. custodian in the City’s name. Furthermore, the City maintains property insurance and boiler and machinery With regard to investment style, the City employs a semi-active strategy in insurance, with total insured values of $963,168,436 and limits of liability of $1 managing the portfolio. First, all prospective investments are reviewed from billion and $100 million per occurrence, respectively. There is a $25,000 deductible. Finally, the City the standpoint of the risk of loss of principal. Once safety concerns have maintains Aviation (Aircraft Hull) insurance for its two helicopters and one airplane, with limits of liability been addressed, all investments are purchased with the intention of holding of $1.4 million for each helicopter and $167,508 for the airplane. There is a $35,000 in-motion them until maturity. They are purchased at a point in time and with a deductible and $1,000 not in-motion deductible for the helicopters and $500 in-motion deductible particular maturity date judged to be the most advantageous in terms of and $100 not in-motion deductible for the airplane. meeting the City’s liquidity needs and maximizing the return on the portfolio.

XXVI XXVII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2007

The City’s Workers Compensation Program consists of $2 million self-insured retention with purchased excess insurance layers up to the statutory limits.

The claims and workers’ compensation liabilities reported on the balance sheet have been actuarially determined and include an estimate of incurred but not reported losses. INDEPENDENT AUDIT

The City’s Charter Section 1216 requires an annual audit of the City’s financial records, transactions and reports by an Independent Certified Public Accounting (CPA) firm. These records, summarized in the Comprehensive Annual Financial Report, have been audited by a nationally recognized CPA firm, McGladrey & Pullen, LLP. Various other component units of the City of Fresno, consisting of the Pension Trust Fund and the Redevelopment Agency, have been separately audited by other CPA firms. The Independent Auditor’s Report on our current financial statements is presented in the Financial Section. CERTIFICATE OF ACHIEVEMENT

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report (CAFR) for the Fiscal Year ended June 30, 2006. This was the fourteenth consecutive year that the City has achieved this prestigious national award. The Certificate of Achievement is the highest form of recognition in the area of governmental accounting and financial reporting. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized CAFR whose contents conform to program standards. The CAFR must satisfy both Generally Accepted Accounting Principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

The GFOA has also presented a Distinguished Budget Presentation Award to the City of Fresno for its annual budget for the fiscal year beginning July 1, 2006 through June 30, 2007. This award is also valid for a period of one year only. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, as an operations guide, as a financial plan, and as a communications device. This is the fourth

XXVIII City of Fresno Organizational Chart CITY OF FRESNO DIRECTORY OF CITY OFFICIALS

CITIZENS OF Member Term Expires FRESNO

MAYOR MAYOR CITY COUNCIL ALAN AUTRY Council Assistants Alan Autry January 2009

Redevelopment COUNCIL MEMBERS Agency City Attorney City Clerk City Manager Executive Director Blong Xiong, MBA, District 1 January 2011 Litigation Secretary to: City Departments Legal Advisor City Council Support Services for Mayor Economic Redevelopment Agency and Council Brian Calhoun, Ph.D. District 2 January 2009 Development/RDA Records Management Citywide Project Mgmt Administration Administration Public Relations Cynthia Sterling, District 3 January 2011 Education Liaison Larry Westerlund, District 4 January 2009

Transportation Parks, Recreation & Convention Information Mike Dages , District 5 January 2011 Airports (FAX) Community Services Center Services Jerry Duncan, District 6 January 2009 Computer Services Bus Service Park Maintenance Recreation Managed by SMG as of FYI Operations Systems & Network Security Henry T. Perea, District 7 January 2011 Bus Repair/Maintenance Community Ctrs Jan. 2004 Planning Airport Projects Management Help Desk After School Programs Sporting Events Airport Security & Safety Systems & Applications Administration Senior Programs Conventions Chandler Downtown Airport Programming Paratransit Mayor’s Job Initiative Concerts Administration Communication Services

Personnel Planning & Finance Fire Police Services Development

Patrol & Crime Suppression Recruitment & Exam Planning Fire Suppression & Budget Development & Investigative Services Job & Salary Analysis Building & Safety Emergency Response Administration/CDBG Mayor’s Gang Prevention CITY OFFICIALS Civil Service Board Development Review HazMat Financial Reporting/Grants Initiative Risk Management Application Assistance Center Prevention & Investigation Accounting Graffiti Abatement Training Housing & Community Dev. Training & Support Internal Audit Special Operations Labor Relations Code Enforcement Administration Utility Billing & Collection Administration Employee Benefits HOME Program Business Tax/Permits Andrew T. Souza, City Manager

Economic General City General Public Utilities Public Works Jon Ruiz, Assistant City Manager Development Purpose Services Bruce Rudd, Assistant City Manager Water Production, Quality & Retirement Office Engineering Services Retention & Expansion Fleet Management: Delivery Street Maintenance James C. Sanchez, City Attorney Incentive Zone Management Redevelopment Services Acquisition & Maintenance Solid Waste Services Capital Project Management Key Project Coordination Support Purchasing Recycling Program Intergovernmental Relations Traffic Operations Center Research & Demographics DBE Program Rebecca E. Klisch, City Clerk Wastewater & Sewer Parking Services Site Selection Assistance Facilities Management Management ADA Citywide Program Application Assistance Center Central Printing Community Sanitation Traffic Signals & Streetlights Karen M. Bradley, CPA, Interim Finance Director/City Controller Operation Clean-Up Administration Administration

Redevelopment Agency Staff

Located in the General City Purpose Department Budget City Staff who work for the RDA Costs Fully Reimbursed by the RDA Elected officials as of the date of this report.

XXX XXXI Certificate of Achievement for Excellence tn0 }{'. 1nanc1a I 1 Reporting Presented to City of Fresno California

For its Gomprchctlslvo Annual l?imlnciul Report fbr the Fiscal Year Ended June 30,2006

A Ce rtlfl~n!e qf Mhl~v~me •l l for l;xeeHcncc In Flmliiclnl Reportlnsl• prc•CiliQd by ihc GovomfncmFhilliiCii Offi~oili As~ilCIDtlon Of the Unlhid StuiCI filltl Cunudu lo i10V¢1'11lnillif uliiiBillid publio employee rctlr~ment I)'&IMils whoHII cOmprehenKive annunl tlnnnelnl reports (CAFRs) nchleve the hlghel!t stnndnrd• In gover11mcnt nceountl.n¥ gnrl nnoociR! rejil}rlifi¥·

~~.Gx. President ~/.~ Execullvo Dlroclor Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

FINANCIAL SECTION

City of Fresno - www.fresno.gov Independent Auditor's Report

To the Honorable Mayor and Members of the City Council City of Fresno, California

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fresno, California (the City), as of and for the year ended June 30, 2007, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the Redevelopment Agency of the City of Fresno (the Agency), a blended component unit of the City which represents approximately 5.4%, -10.0% and 7.0%, respectively, of the assets, net assets and revenues of the governmental activities, and we did not audit the financial statements of the City of Fresno Employees Retirement System and the City of Fresno Fire and Police Retirement System (collectively, the Retirement Systems), blended component units of the City which represent 90.5%, 94.1% and 61.7% respectively, of the assets, net assets and revenues of the City’s aggregate remaining fund information. The financial statements of the Agency and the Retirement Systems were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Agency and the Retirement Systems of the City, is based on the reports of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2007, and the respective changes in financial position and the cash flows, where applicable, thereof, for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated January 31, 2008 on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that

McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. Independent Auditor’s Report Page 2 Investing today for the City of tomorrow th testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is 48 Comprehensive Annual an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Financial Report The Management's Discussion and Analysis, and budgetary comparison and the notes to required supplementary information, as listed in the table of contents, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. Fiscal Year Ended June 30, 2007 We and the other auditors have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual non-major fund financial statements and other schedules, listed in the table of contents as other supplementary information, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, in our opinion, based on our audit and the reports of the other auditors, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. MANAGEMENT’S

The accompanying introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has not been DISCUSSION AND subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, accordingly, we express no opinion on it. ANALYSIS

Riverside, California January 31, 2008

City of Fresno - www.fresno.gov City of Fresno Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007

TH expenditures or legally segregated for a specific future use. An additional $14,658,751 as 48 COMPREHENSIVE of June 30, 2007, as compared to $10,488,418 at the end of June 2006 were designated by management as an Emergency Reserve (Reserve for Economic Uncertainty). A shortfall of ($56,261,620) and ($42,054,699) as of June 30, 2007 and 2006, respectively, made up the balance in the unreserved/undesignated fund balance.

ANNUAL FINANCIAL REPORT 9 The Redevelopment Agency Debt Service Fund with a deficit of ($76,486,619) in 2007 as compared to ($77,367,122 in 2006 made up approximately 136% and 184% of the shortfall at the end of MANAGEMENT’S DISCUSSION AND ANALYSIS each of the two fiscal years. When the Redevelopment Debt Service Fund is removed from the governmental funds, reported unreserved/undesignated fund balance is a positive $20,224,999 and $35,312,423 in 2007 CITY OF FRESNO, CALIFORNIA and 2006 respectively.

9 At the close of the 2002 fiscal year, $10 million was set aside and designated for purposes We, the management of the City of Fresno, offer readers of the City’s of meeting unforeseen budgetary requirements of the City as defined by the Controller, Investing today – for the City of tomorrow financial statement this narrative overview and analysis of the financial City Manager, and Mayor with approval by a vote of the City Council. The unreserved activities of the City for the fiscal year ended June 30, 2007. We and undesignated fund balance for the General Fund at June 30, 2003, was $9,062,120. encourage readers to consider the information presented here in This $9,062,120 was in addition to the Reserve for Economic Uncertainty, which by June conjunction with the City’s financial statements, which follow this section, 30, 2003 had grown to $10,172,256. Council then earmarked $1.5 million of the reserve and the additional information that we have furnished in our letter of for specific economic development opportunities in the 2004 fiscal year. On January 27, CAFR – 48th Comprehensive transmittal at the front of this report. This is the sixth year since the City 2004, Council took action to execute the Mayor’s executive order to establish and Annual Financial Report City of Fresno, California implemented the provisions of Governmental Accounting Standards Board maintain a 5 percent General Fund Emergency Reserve, providing some protection from For the fiscal year ended June 30, 2007 (GASB) Statement No. 34. This discussion and analysis provides State grabs, which at that time, were certain to rob California’s local governments. The comparisons primarily with the previous two years, but in many cases includes even more Emergency Reserve can only be used based upon declaration of a fiscal emergency extensive comparisons. declared by the Mayor and ratified by the Council. A fiscal emergency is defined as:

x Natural catastrophe FINANCIAL HIGHLIGHTS x Public Safety emergency precipitated by such events as riots or terrorism x Precipitous decline in General Fund revenues

9 The assets of the City of Fresno exceeded its liabilities at the close of the most recent fiscal To implement this directive, a reserve amount is determined based on year by $1,349,285,077 (reported as net assets). Of this amount, the City has a deficit of related debt 5% of the Adopted General Fund appropriations at the beginning of ($66,253,178) (unrestricted net assets) shortfall with respect to meeting the government’s each fiscal year. Additional funds are added to the fund as necessary ongoing obligations to its citizens and creditors. This deficit is mitigated by the fact that the to ensure that the reserve is equal or greater than 5% of the Adopted City has $1,235,440,918 in net assets invested in capital assets net General Fund appropriations. The City is currently exceeding the 5% . The total net assets include all major infrastructure threshold. At June 30, 2004, the General Fund Emergency Reserve networks. totaled $8,918,592, by June 30, 2006 it had grown to $10,488,418 and at the end of June 30, 2007 it stands at $14,658,751. 9 As of June 30, 2007 and 2006, respectively, the City’s governmental funds reported combined ending fund balances of $167,173,491 9 The combined total General Fund unreserved fund balance was $35,483,454 or 19% of and $169,066,044. Of these amounts for each respective year, total General Fund expenditures of $189,779,998 at June 30, 2006 and by June 30, 2007 $30,125,496 and $23,976,931 were reserved for encumbrances, the combined General Fund unreserved fund balance stands at $33,448,831 or 16% of and $178,650,864 and $176,655,394 were reserved and unavailable for appropriation for total General Fund expenditures of $209,687,179.

4 5 City of Fresno City of Fresno Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

x The City’s total Governmental long-term liabilities decreased by $15,523,255 (4%) in 2007 and decreased by $8,520,621 (2.1%) in 2006. A large decrease occurred in 2002 when OVERVIEW OF FINANCIAL STATEMENTS there was a restructuring of the Pension Obligation Debt which resulted in $12.2 million in savings. This reduced cost enabled and continues to enable the General Fund to absorb unanticipated revenue shortfalls yet continue to maintain budgeted service levels. This discussion and analysis are intended to serve as an introduction to the City’s basic financial statements, which consist of three components: (1) Government-wide financial statements, (2) Fund financial statements, and (3) Notes to the financial statements. This report also contains x The national economic recession over the past several years and its impact on the State of California has had, and will continue to have an ongoing impact on other Supplementary Information in addition to the basic financial the City of Fresno and its budget. When the State experienced an statements. For the sixth consecutive year, this report includes government- unprecedented fiscal crisis it caused the City to plan for uncertainties wide financial statements as required by GASB No. 34. that continue to result in negative impacts to the City including a loss of General Fund resources. As a result of the historic agreement between x Government-wide financial statements are designed to provide both long- the Governor and local governments to help the State out of its budget term and short-term information about the City’s overall financial status, in a crisis, Prop 1A, it was projected that $4.7 million of Property Tax revenue manner similar to a private-sector business. would be reallocated to Education Revenue Augmentation Fund (ERAF) in fiscal years 2005 and 2006. This revenue source returned to our local x Fund financial statements focus on individual parts of the City government, treasury starting in fiscal year 2007. reporting the City’s operations in more detail than the government-wide statements. They are used to maintain control over resources that have been segregated for specific activities or x Prudent actions of the administration and proactive financial management, which took objectives and to ensure and demonstrate compliance with finance-related legal advantage of historically low interest rates to refinance the City’s Pension Obligation Bonds, requirements. They can be divided into three categories: resulted in available resources to establish the $10 million Reserve for Economic Uncertainty in 2002. Now, designated the General Fund Emergency Reserve, this reserve 9 Governmental funds statements tell how general government services such as police, stands at $14.7 million at June 30, 2007 and continues to be attentively protected. fire and public works were financed in the short term as well as what remains for future spending. x Fortunately, despite the national and State economic recession, the City of Fresno experienced revenue growth reflecting an emerging economy. The 9 Proprietary fund statements offer short-and long-term financial information about the three revenue sources that best reflect the City’s economic status, Sales activities the City operates like businesses, such as utility services. Tax, Property Tax and Motor Vehicle In-Lieu, grew by over $18.6 million, representing an 11.3 percent growth from fiscal year 2006 to fiscal year 9 Fiduciary fund statements provide information about the financial relationships – such 2007. as the retirement plan for the City’s employees – in which the City acts solely Investing today for the City of tomorrow 48th Comprehensive as trustee or agent for the benefit of others, to whom the resources belong. Annual Financial Report F iscal Year Ended June 30, 2 007 x Mayor Alan Autry’s plan for the City continues to conservatively yet These financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. NOTES TO FINANCIAL steadily move Fresno forward, and to continue to follow along with the STATEMENTS four cornerstones of the City’s budget that he established when first The Pension Plans’ Schedule of Funding Progress is included in the Notes to taking office: the Financial Statements. In addition to these vital elements, are combining statements that provide details about non-major governmental x Public Safety funds, non-major enterprise funds, internal service funds and agency funds, City of Fr esno - www.fr esno.go v x Economic Development each of which is presented in a column in the basic financial statements. x Smart Growth x Education Reform

6 7 City of Fresno City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

The following table summarizes the major features of the financial statements. The overview ORGANIZATION OF CITY OF FRESNO COMPREHENSIVE ANNUAL FINANCIAL REPORT section below also describes the structure and contents of each of the statements in more Introductory INTRODUCTORY SECTION detail. Section

Management's Discussion and Analysis Government- Government-wide wide Statement FUND FINANCIAL STATEMENTS Financial Fund Financial Statements Statements Governmental Proprietary Fiduciary Scope Entire entity The day-to-day operating activities of The day-to-day Instances in which the (except fiduciary the City for basic governmental services operating activities of City administers funds) the City for business- resources on behalf of GOVERNMENTAL PROPRIETARY FIDUCIARY type enterprises others, such as employee benefits Statement of Net FUNDS FUNDS FUNDS Accounting Accrual accounting Modified accrual accounting and current Accrual accounting Accrual accounting Assets basis and and economic financial resources measurement focus and economic and economic resources focus resources focus resources focus; measurement focus except agency funds do not have Balance Statement of measurements focus Sheet Net Assets Type of asset All assets and Current assets and liabilities that come All assets and All assets held in a Statement of and liability liabilities, both due during the year or soon thereafter liabilities, both trustee or agency Fiduciary information financial and financial and capital, capacity for others Net assets capital, short-term short-term and long- and all liabilities and long-term term Statement of Statement of Financial Revenues, Revenues, Type of inflow All revenues and Revenues for which cash is received All revenues and All additions and CAFR and outflow expenses during during the year or soon thereafter; expenses during year, deductions during the Section Expenditures and Expenses and information year, regardless of expenditures when goods or services regardless of when year, regardless of Changes in Changes in when cash is have been received and the related cash is received or when cash is received Fund Balances Fund Net Assets received or paid liability is due and payable paid or paid

Statement of Statement of Changes in Fiduciary Activities Net Assets Statement of Cash Flows

NOTES TO THE FINANCIAL STATEMENTS

REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MD&A

OTHER SUPPLEMENTARY INFORMATION

Statistical STATISTICAL SECTION Section

8 9 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Government-Wide Statements (Reporting the City as a Whole) governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. A fund is a fiscal and accounting entity with a self-balancing set of The Government-Wide Statements report information about the City as a whole using accounts that the City uses to keep track of specific resources of funding and spending for a accounting methods similar to those used by private-sector companies. The Statement of Net particular purpose. All of the funds of the City can be divided into the following three Assets includes all City assets and liabilities. The Statement of Activities reports all of the current categories: Governmental Funds, Proprietary Funds, and Fiduciary Funds. year’s revenues and expenses regardless of when the cash is received or paid. These Financial Statements report information about the City, as a whole, and about its activities that x Governmental Funds: Governmental Funds are used to account for essentially the same should help to answer the question, “Is the City, as a whole, better or worse off as a result of this functions reported as governmental activities in the Government-Wide Financial Statements year’s activities?” (i.e., most of the City’s basic services are reported in Governmental Funds). These statements, however, focus on (1) how cash and other financial assets can be readily Investing today for the City of tomorrow 48th Comprehensive The two Government-Wide Statements report the City’s net assets and how converted to available resources, and (2) the balances left at the year-end that are Annual Financial Report F iscal Year Ended June 30, 2 007 they have changed during the fiscal year. Over time, increases or available for spending. Such information may be useful in determining what financial

GOVERNMENT - WIDE decreases in the City’s net assets can be one indicator of whether its resources are available in the near future to finance the City’s programs. FINANCIAL STATEMENTS financial health is improving or deteriorating. Because the focus of Governmental Funds is narrower than that of the Government-Wide Both of the Government-Wide Financial Statements distinguish functions of Financial Statements, it is helpful to compare the information presented for Governmental the City that are principally supported by taxes and inter-governmental Funds with similar information presented for governmental activities in the Government- City of Fr esno - www.fr esno.go v revenues (governmental activities) from other functions that are intended to Wide Financial Statements. By doing so, readers may better understand the long-term recover all or a significant portion of their costs through user fees and impact of the government’s near-term financing decisions. Both the Governmental Fund charges (business-type activities). The governmental activities of the City include public Balance Sheet and Governmental Fund Statement of Revenues, Expenditures, and protection, public works, human welfare and neighborhood development, community health, Changes in the Fund Balance provide a reconciliation to facilitate this comparison culture and recreation, general administration and finance, and general city responsibilities. between Governmental Funds and governmental activities. The business-type activities of the City include two airports, public transportation system, water and sanitation operations, convention center, stadium, numerous parks, development The City maintains several individual Governmental Funds organized according to their department, and various parking facilities. type: special revenue, debt service, and capital projects. Information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund The Government-Wide Financial Statements include not only the City itself, but also legally Statement of Revenues, Expenditures, and Changes in Fund Balances for the General separate component units; the Redevelopment Agency of the City of Fresno, and the Fresno Fund, Grants Fund, and Redevelopment Agency Debt Service Fund (which are considered Joint Powers Financing Authority. The component units, while legally separate from the City, to be major funds). Data from the remaining Governmental Funds are combined into a provide services entirely or almost exclusively for the benefit of the City even though they do single, aggregated presentation. Individual fund data for each of the Non-major not provide services directly to the City. Although legally separate from the City, these Governmental Funds is provided in the form of combining statements elsewhere in this component units are blended with the City government because of their exercise of authority report. These Funds are reported using modified accrual accounting, which measures and their financial relationships with the City. cash and all other financial assets that can readily be converted to cash.

Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report The Government-Wide Financial Statements can be found on pages 65-67 Fiscal Year Ended June 30, 2007 The City adopts an annual appropriated budget. The City’s budget of this report, identified as the statement of net assets and statement of reflects its priorities and tells the taxpayers and ratepayers what is being FUND FINANCIAL activities. STATEMENTS done with their money. The budget was built on four cornerstones:

Fund Financial Statements 9 Public Safety. 9 Economic Development. City of Fr esno - www.fr esno.go v 9 Smart Growth. The Fund Financial Statements are designed to report information about 9 Education Reform. groupings of related accounts, which are used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local Budgetary comparison statements have been provided in the required

10 11 System Pension Trust Fund

City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

supplementary information for the General and other major governmental funds to pension benefit payments to qualified Fire and Police retirees. The Employee Retirement demonstrate compliance with the budget. Budgetary comparison statements for the other accounts for the accumulation of resources for pension benefit Non-major Governmental Funds are provided in the combining statements. payments to qualified General Service retirees.

Investing today for the City of tomorrow x Proprietary Funds: Proprietary Funds are generally used to account 48th Comprehensive Employee Health and Welfare Trusts account for the accumulation of resources used for Annual Financial Report for services for which the City charges customers (either outside F iscal Year Ended June 30, 2 007 health and welfare claims payments on behalf of qualified active and retired employees. customers, or internal units or departments of the City). Proprietary FUND FINANCIAL Funds provide the same type of information as shown in the STATEMENTS The Agency Funds consist of City Departmental and Special Purpose Funds and account Government-Wide Financial Statements, only in more detail. for City-related trust activity, such as payroll withholding and bid deposits. In addition, Proprietary Funds (Enterprise and Internal Service) utilize the same Agency Funds include Special Assessment Funds that account for receipts and method used by the private sector businesses, or accrual disbursements for the debt service activity of the special assessment districts within the City. accounting. The City maintains the following two types of Proprietary City of Fr esno - www.fr esno.go v Since the resources of Fiduciary Funds are not available to support the City’s own Funds: programs, they are not reflected in the Government-Wide Financial Investing today for the City of tomorrow Statements. The accounting used for Fiduciary Funds is much like that 48th Comprehensive Annual Financial Report ¾ Enterprise Funds are used to report the same functions as business-type activities in used for Proprietary Funds. The basic financial statements can be found F iscal Year Ended June 30, 2 007

the Government-Wide Financial Statements. The City uses Enterprise Funds to on pages 65-168 of this report. NOTES TO FINANCIAL account for the operations of the Public Utilities [WWater System, Sewer System, Solid STATEMENTS Waste Management], Fresno Area Express [TTransit], Fresno International Airport (FYI) Notes to the Financial Statements and the Fresno Chandler Downtown Airport (FCH) [AAirports], Fresno Convention Center, Grizzlies Stadium [SStadium], all of which are considered to be major Funds The Notes to the Financial Statements provide additional information that is of the City. Community Sanitation,PParking,PParks and Recreation and Development essential to the full understanding of the data provided in the Government- City of Fr esno - www.fr esno.go v Services are considered to be Non-major Enterprise Funds of the City. Wide and Fund Financial Statements. The Notes to the Financial Statements can be found on pages 88-168 of this report. ¾ Internal Service Funds are used to report activities that provide supplies and services

for certain city programs and activities. The City uses Internal Service Funds to Investing today for the City of tomorrow Required Supplementary Information 48th Comprehensive Annual Financial Report account for its fleet of vehicles, management information systems, printing and F iscal Year Ended June 30, 2 007 mail services, property maintenance and electronics and communication support In addition to the basic financial statements and accompanying notes, this REQUIRED (GGeneral Services), self-insurance (RRisk Management) and billing, collecting, and SUPPLEMENTARY report presents certain required supplementary information including INFORMATION servicing activities for the Water, Sewer, Solid Waste and Community Sanitation budgetary comparison statements for major governmental funds. Required Funds (BBilling and Collection). Because Risk Management and General Services Supplementary Information and accompanying notes can be found on predominantly benefit governmental rather than business-type functions, they have pages 170 - 175 of this report.

been included within governmental activities in the Government-Wide Financial City of Fr esno - www.fr esno.gov

Investing today for the City of tomorrow Combining Statements Statements and Billing and Collection is included in the business- 48th Comprehensive Police Retirement System Pension Trust Funds Annual Financial Report type activities in the Government-Wide Financial Statements. The Fiscal Year Ended June 30, 2007 Internal Service Funds are combined into a single, aggregated The combining statements referred to earlier in connection with non-major governmental FIDUCIARY presentation in the Proprietary Fund Financial Statements. FUNDS funds, internal service funds and fiduciary funds are presented immediately following the Individual Fund data for the Internal Service Funds is provided in appropriately labeled tabs. Combining and individual fund statements and schedules can be the form of combining statements elsewhere in this report. found on pages 178 - 187 of this report. x Fiduciary Funds: Fiduciary funds are used to account for resources held City of Fr esno - ww w.fr esno. gov for the benefit of parties outside The City.

Pension Trust Funds consist of funds for Fire & Police and other Employees. The Fire and account for the accumulation of resources for

12 13 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Net Assets – Government-Wide GOVERNMENT-WIDE FINANCIAL ANALYSIS June 30, 2006

Governmental Business-type Activities Activities Total This is the sixth year that the City has presented its Financial Statements Investing today for the City of tomorrow 48th Comprehensive Assets: under the new reporting model required by the Governmental Accounting Annual Financial Report Fiscal Year Ended June 30, 2007 Current and other assets Standards Board Statement No. 34 (GASB 34), Basic Financial Statements – $272,393,470 $395,481,691 $667,875,161 Capital assets: and Management’s Discussion and Analysis (MD&A) – for State and Local GOVERNMENT - WIDE FINANCIAL STATEMENTS Land and other assets not being depreciated 260,290,956 166,501,191 426,792,147 Governments. The current year’s analysis compares this year’s data primarily Facilities, infrastructure and equipment, net of to the prior year. However in other instances additional prior-year’s Depreciation 528,909,825 738,191,546 1,267,101,371 information is provided. Total capital assets 789,200,781 904,692,737 1,693,893,518 Total assets City of Fr esno - www.fr esno.go v 1,061,594,251 1,300,174,428 2,361,768,679 Liabilities: Net Assets – Government-Wide Long-term liabilities outstanding 453,145,745 471,469,661 924,615,406 June 30, 2007 Other liabilities 26,511,208 124,286,892 150,798,100 Total liabilities 479,656,953 595,756,553 1,075,413,506 Governmental Business-type Net Assets: Activities Activities Total Invested in capital assets, net of related debt 662,072,601 509,975,085 1,172,047,686 Assets: Restricted 145,580,871 28,752,118 174,332,989 Current and other assets $265,148,745 $411,790,276 $676,939,021 Unrestricted (225,716,174) 165,690,672 (60,025,502) Capital assets: Total net assets $581,937,298 $704,417,875 $1,286,355,173 Land and other assets not being depreciated 289,732,134 119,022,600 408,754,734 Facilities, infrastructure and equipment, net of Depreciation 531,469,265 817,752,101 1,349,221,366 Total capital assets 821,201,399 936,774,701 1,757,976,100 Net Assets – Government-Wide Total assets 1,086,350,144 1,348,564,977 2,434,915,121 June 30, 2005 Liabilities: Long-term liabilities outstanding 440,770,154 479,217,718 919,987,872 Governmental Business-type Other liabilities 31,543,579 134,098,593 165,642,172 Activities Activities Total Total liabilities 472,313,733 613,316,311 1,085,630,044 Assets: Net Assets: Current and other assets $258,270,886 $383,102,897 $641,373,783 Invested in capital assets, net of related debt 697,544,023 537,896,895 1,235,440,918 Capital assets: Restricted 148,392,176 31,705,161 180,097,337 Land and other assets not being depreciated 281,068,662 170,089,433 451,158,095 Unrestricted (231,899,788) 165,646,610 (66,253,178) Facilities, infrastructure and equipment, net of Total net assets $614,036,411 $735,248,666 $1,349,285,077 Depreciation 507,238,584 705,494,112 1,212,732,696 Total capital assets 788,307,246 875,583,545 1,663,890,791 Total assets 1,046,578,132 1,258,686,442 2,305,264,574 Liabilities: Long-term liabilities outstanding 460,139,233 465,512,678 925,651,911 Other liabilities 25,066,112 140,473,545 165,539,657 Total liabilities 485,205,345 605,986,223 1,091,191,568 Net Assets: Invested in capital assets, net of related debt 658,781,233 483,361,640 1,142,142,873 Restricted 136,784,905 29,920,599 166,705,504 Unrestricted (234,193,351) 139,417,980 (94,775,371) Total net assets $561,372,787 $652,700,219 $1,214,073,006

14 15 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Analysis of Net Assets Changes in Net Assets – Government-Wide For the Year Ended June 30, 2007

As noted earlier, net assets may serve as a useful indicator of a Governmental Business Type Total government’s financial position. For the City, assets exceed liabilities by Activities Activities $1,349,285,077 at the close of the current fiscal year and by Revenues $1,286,355,173 at June 30, 2006. This is an increase of $70,849,689 Program revenues: between 2006 and 2007; and $72,282,167 between 2005 and 2006 in the Charge for services $32,641,145 200,419,209 $233,060,354 City’s net assets. Operating grants and contributions 51,657,470 31,256,246 82,913,716 Capital grants and contributions 39,975,940 40,125,735 80,101,675 The largest portion of the City’s net assets (91%) reflects its investment of General revenues: $1,235,440,918 in capital assets (e.g., land, buildings, and equipment), less Property taxes 119,320,016 - 119,320,016 Business taxes 16,509,849 - 16,509,849 any related outstanding debt used to acquire the assets at June 30, 2007. These same figures Sales tax 59,881,119 - 59,881,119 for June 30, 2006 were (91%) with $1,172,047,686 in capital assets, net of debt. The City uses Other local taxes 40,153,078 - 40,153,078 capital assets to provide services to citizens; consequently, these assets are not available for Interest and investment income 12,314,222 11,808,567 24,122,789 future spending. Although the City’s investment in its capital assets is reported net of related Revenue restricted for infrastructure maintenance 1,627,444 - 1,627,444 debt, it should be noted that the resources needed to repay this debt must be provided from Passenger and Customer Facility Charges - 3,686,458 3,686,458 other sources, since the capital assets themselves cannot be liquidated for these liabilities. FAA Audit Compliance Settlement - 6,478,711 6,478,711 Gain on sale of capital assets 81,817 291,256 373,073 At the end of the current fiscal year and the prior fiscal year, Fresno was Total revenues 374,162,100 294,066,182 668,228,282 able to report positive balances in two categories of net assets for the government as a whole; net assets invested in capital assets and restricted Expenses net assets, as well as for all three categories of business-type activities. For Public protection 183,973,705 - 183,973,705 Public ways and facilities 56,235,647 - 56,235,647 the governmental activities, unrestricted net assets had a deficit of Community development and Redevelopment 22,148,795 - 22,148,795 ($231,899,788) and ($225,716,174) in 2007 and 2006 respectively, related Culture and recreation 25,118,951 - 25,118,951 primarily to debt associated with the Redevelopment Agency. While the General Government 23,841,982 - 23,841,982 Agency has numerous projects in the works, many are in the early stages of Interest on long-term debt 23,969,934 - 23,969,934 development and have yet to generate tax increment revenue sufficient to Airport - 21,311,072 21,311,072 fund the related debt. Transit - 43,012,048 43,012,048 Sewer, water and garbage - 156,948,721 156,948,721 Convention Center - 10,592,878 10,592,878 Parking - 7,568,078 7,568,078 Parks and Recreation - 1,453,699 1,453,699 Development Services - 17,433,801 17,433,801 Stadium - 3,769,282 3,769,282 Total expenses 335,289,014 262.089.579 597,378,593 Increase (decrease) in net assets before transfers 38,873,086 31,976,603 70,849,689 Transfers 1,145,812 (1,145,812) - Increase (decrease) in net assets 40,018,898 30,830,791 70,849,689 Net assets at the beginning of the fiscal year, as previously reported 581,937,298 704,417,875 1,286,355,173 Cumulative effect of adoption of GASB 43 (Note 11d.) 7,919,785 - 7,919,785 Net assets at beginning of fiscal year, Restated 589,857,083 704,417,875 1,294,274,958 Net assets at the end of the fiscal year $614,036,411 $735,248,666 $1,349,285,077

16 17 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Changes in Net Assets – Government-Wide, Changes in Net Assets – Government-Wide For the Year Ended June 30, 2006 For the Year Ended June 30, 2005 Governmental Business Type Total Governmental Business Type Total Activities Activities Activities Activities Revenues Revenues Program revenues: Program revenues: Charge for services $38,122,827 $185,997,569 224,120,396 Charge for services $29,553,327 $188,659,781 218,213,108 Operating grants and contributions 41,498,370 21,920,833 63,419,203 Operating grants and contributions 30,485,721 20,815,414 51,301,135 Capital grants and contributions 22,734,279 59,861,818 82,596,097 Capital grants and contributions 29,961,702 39,287,674 69,249,376 General revenues: General revenues: Property taxes 69,250,181 - 69,250,181 Property taxes 58,577,225 - 58,577,225 Property taxes/In Lieu VLF 29,925,628 - 29,925,628 Business taxes 15,130,296 - 15,130,296 Business taxes 18,014,539 - 18,014,539 Sales tax 52,986,011 - 52,986,011 Sales tax 60,524,755 - 60,524,755 In Lieu Sales tax 17,123,453 - 17,123,453 In Lieu Sales tax 19,546,076 - 19,546,076 In Lieu VLF 24,340,837 - 24,340,837 Other local taxes 21,664,926 - 21,664,926 Other local taxes 17,934,141 - 17,934,141 Interest and investment income 8,984,454 4,748,334 13,732,788 Interest and investment income 5,573,365 6,372,385 11,945,750 Revenue restricted for infrastructure maintenance 1,460,641 - 1,460,641 Revenue restricted for infrastructure maintenance 1,595,820 - 1,595,820 Grants and contributions not restricted/specific prog 3,836,999 - 3,836,999 Grants and contributions not restricted/specific prog 13,220,807 - 13,220,807 Passenger and Customer Facility Charges - 4,003,400 4,003,400 Gain on sale of capital assets 709,485 188,465 897,950 Gain on sale of capital assets 983,009 472 983,481 Total revenues 297,192,190 255,323,719 552,515,909 Total revenues 336,546,684 276,532,426 613,079,110

Expenses Expenses Public protection 144,932,482 - 144,932,482 Public protection 163,607,290 - 163,607,290 Public ways and facilities 49,127,618 - 49,127,618 Public ways and facilities 52,823,742 - 52,823,742 Community development and Redevelopment 15,664,944 - 15,664,944 Community development and Redevelopment 20,261,234 - 20,261,234 Culture and recreation 20,787,219 - 20,787,219 Culture and recreation 24,714,412 - 24,714,412 General Government 24,108,395 - 24,108,395 General Government 23,637,368 - 23,637,368 Interest on long-term debt 23,387,704 - 23,387,704 Interest on long-term debt 24,360,860 - 24,360,860 Airport - 21,514,693 21,514,693 Airport - 23,318,580 23,318,580 Transit - 35,007,084 35,007,084 Transit - 39,749,223 39,749,223 Sewer, water and garbage - 120,610,866 120,610,866 Sewer, water and garbage - 133,013,634 133,013,634 Convention Center - 9,961,227 9,961,227 Convention Center - 9,756,277 9,756,277 Parking - 5,444,243 5,444,243 Parking - 5,707,029 5,707,029 Parks and Recreation - 2,557,156 2,557,156 Parks and Recreation - 1,687,782 1,687,782 Development Services - 11,131,668 11,131,668 Development Services - 14,343,927 14,343,927 Stadium - 3,808,022 3,808,022 Stadium - 3,815,585 3,815,585 Total expenses 278,008,362 210,034,959 488,043,321 Total expenses 309,404,906 231,392,037 540,796,943 Increase in net assets before transfers 19,183,828 45,288,760 64,472,588 Increase in net assets before transfers 27,141,778 45,140,389 72,282,167 Transfers 56,260,283 (56,260,283) - Transfers (6,577,267) 6,577,267 - Increase (decrease) in net assets 75,444,111 (10,971,523) 64,472,588 Increase in net assets 20,564,511 51,717,656 72,282,167 Net assets at the beginning of the fiscal year 485,928,676 663,671,742 1,149,600,418 Net assets at the beginning of the fiscal year 561,372,787 652,700,219 1,214,073,006 Net assets at the end of the fiscal year $561,372,787 $652,700,219 $1,214,073,006 Net assets at the end of the fiscal year $581,937,298 $704,417,875 $1,286,355,173

18 19 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Analysis of Changes in Net Assets x In January 2003, the Mayor’s Task Force on City Efficiencies and Revenue (the “Task Force”) completed and published a study and analysis that compared Fresno to ten The City’s net assets, overall, increased by $70,849,689 during the current California cities that it most resembled. The purpose was to benchmark the revenues fiscal year. For the fiscal year ended June 30, 2006, net assets overall and expenditures of Fresno with similar cities. The study found that Fresno is primarily increased by $72,282,167. These increases in 2007 are explained in the dependent on three revenue sources: property taxes, sales taxes and other local and government and business-type activities below, and are primarily the result business taxes. The Task Force found that Fresno relies on property taxes more than any of the City actively pursuing Operating and Capital Grants; on going of its peer cities as well as it relies more on sales taxes than any of its peer cities, except impact of the City increasing various fees; and an emerging economy. In one, Bakersfield, California and it also relies more on business and other taxes than any addition, the Utility Enterprises continue to find efficiencies in operations, of its peer cities, except one, Oakland, California. Fresno collects fewer revenues from and a substantial reduction in interest payments as a result of the fees, licenses and permits than any of its peer cities and does not collect a utility tax, as restructuring of the Pension Obligation Debt ($12.2 million savings) in 2002, do more than 150 California cities, collectively representing a majority of the State’s which continues to reap benefits to the City. population. For those cities that do collect them, utility taxes provide an average of 15% of general revenues, and often as much as 22%. These continue to be items that Governmental Activities are being investigated further by the City’s management in an effort to generate additional revenues needed to continue to assist Fresno in growing and prospering. Governmental activities for the current fiscal year increased net assets by $40,018,898. In 2006 net assets increased by $20,564,511, thereby accounting for an approximate 7% and For the most part, increases in expenses continue to parallel increases in the cost of living in 4% increase in 2007 and 2006 respectively in governmental net assets of the City. Total the Fresno Area and growth in the demand for government services. One notable exception, revenue from governmental activities was $374,162,100 and $336,546,684 however, is Public Protection. Fresno spends significantly less than its peer cities in most respectively for each year. functions with the exception of Police.

x Property tax revenues in 2007 and 2006 comprised 32% and 21% of In 2007, Public Protection (police and fire) made up (55%) of the expenditures for revenue from governmental activities, with business taxes and sales governmental activities. The balance consists of Public Ways and Facilities (17%), Human tax making up 4% and 16% in 2007 and 6% and 18% in 2006. Welfare and Neighborhood Development, including Redevelopment (7%), Culture and Recreation (7%), General Government consisting of the City Clerk’s Office, the Mayor and City x Other local taxes including hotel and utility user taxes made up 6% of Council Offices and the City Manager’s Office (7%) with Interest on long-term debt at (7%). total governmental revenue in 2007 and 6% in 2006. Governmental activities in 2007 and 2006 also included In-Lieu Sales Tax which were In 2006, Public Protection (police and fire) made up (53%) of the expenditures for 5% and 6%; in 2007 and 2006 respectively. 2006 also included In-Lieu VLF of 9% of governmental activities. The balance consists of Public Ways and Facilities (17%), Human revenues. Welfare and Neighborhood Development, including Redevelopment (6%), Culture and Recreation (8%), General Government consisting of the City Clerk’s Office, the Mayor and City x Interest and investment income made up 3% of total governmental revenues in 2007 Council Offices and the City Manager’s Office (8%) with Interest on long- and 2% in 2006. term debt at (8%). Governmental Activities – Charts and Graphs x Grant revenue from state and federal sources, consisting of operating grants and contributions (14%), capital grants and contributions (10.5%), and charges for services (9%) made up the balance in 2007. The charts and graphs which follow on the next few pages illustrate the City’s governmental revenues by source, and its expenses and revenues by function. As can been seen, Public Protection is by far the largest function x Grant revenue from state and federal sources, consisting of operating grants and contributions (12%), capital grants and contributions (7%), reflecting the City’s greatest overall expenses. unrestricted grants and contributions (1%) and charges for services (11%) make up the balance in 2006.

20 21 City of Fresno, California City of Fresno, California Management’s Discussion and analysis Management’s Discussion and analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007     Revenues by Source - Governmental Activities - 2007 Revenues by Source - Governmental Activities - 2006

Interestandinvestment income Gainorloss,Restricted Interestandinvestment Otherlocaltaxes Otherlocaltaxes 2% revenueandOther Operatinggrants income Chargesforservices 6% 6% 1% Chargesforservices andcontributions 3% 9% Property taxes 11% 12% Operatinggrants  Propertytaxes 21% andcontributions 32% 14% Propertytaxes/ InͲlieuVLF 9%

Capital grants and Revenuerestrictedfor Capitalgrantsand    contributions infrastructure contributions Grantsandcontributions maintenance 10.5% 7% notrestricted Businesstaxes 1% .5% InͲlieusalestax Businesstaxes InͲlieusalestax Salestax Salestax 6% 5% 4% 6% 18% 16%  

Program Revenues and Expenses - Government Activities - 2007 Program Revenues and Expenses - Government Activities - 2006

$200,000 $180,000 $180,000 $160,000 $160,000 $140,000 $140,000 $120,000 $120,000 $100,000 $100,000 $80,000 $80,000 $60,000 $60,000 $40,000 $40,000 $20,000 $20,000 $0 $0 PublicProtection PublicWaysand Community Cultureand General InterestonLongͲ PublicProtection PublicWaysand Community Cultureand General InterestonLongͲ Facilities Developmentand Recreation Government termDebt Facilities Developmentand Recreation Government termDebt Redevelopment Redevelopment

Program Revenues Expenses Program Revenues Expenses  

22 23   City of Fresno, California City of Fresno, California Management’s Discussion and analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007   Revenues by Source - Governmental Activities - 2005 Expenses By Type - Governmental Activities 2007

Interest and Long-term Grantsand debt Interestandinvestment Gainorloss,Restricted contributions,not Chargesforservices 7% income revenueandOther restricted General Government 10% 7% Otherlocaltaxes 2% 1% 4% 6% Culture and Operatinggrants recreation andcontributions 7% Propertytaxes 10% 20% InͲlieuVLF 8%

Commmunity development and Public protection Businesstaxes redevelopment 55% 5% Public ways and Capitalgrantsand 7% facilities contributions 17% 10% InͲlieusalestax Salestax 6% 18%   Expenses By Type - Governmental Activities 2006 Program Revenues and Expenses - Government Activities - 2005

Interest and Long-term debt 8% $160,000 General Government 8% $140,000 Culture and recreation $120,000 8%

$100,000

$80,000

$60,000

$40,000

$20,000

$0 Public protection Community 53% PublicProtection PublicWaysand Community Cultureand General InterestonLongͲ development and Facilities Developmentand Recreation Government termDebt redevelopment Public ways and Redevelopment 6% facilities 17%  Program Revenues Expenses 

24 25   City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

The Department has employed a consultant to develop and commence the implementation Expenses By Type - Governmental Activities 2005 of a water metering retro-fit program as required. The retro-fit program is expected to begin in 2008. The Water Division also completed a 30 million gallon per day (MGD) surface water treatment plant with support facilities. This project is a key element in balancing the City’s water budget, meeting water demands, and reversing a 70-year decline in groundwater Interest and Long-term debt elevations. The plant also provides the water system infrastructure necessary for economic 8% development. An average of 17 million gallons of treated water is provided, per day, to General Government 9% Northeast Fresno. This project was financed via a Water Revenue Bond issued in 1998. Culture and recreation The citizens of Fresno have had to absorb numerous increases in the cost of living during fiscal 7% years 2006 and 2007. Increases in fuel, utilities, and other goods and services have placed additional burdens on already strained budgets. The City of Fresno has also been forced to contend with large, unplanned increases in fuel, utilities, and other commodities. In an effort to minimize the impact of these factors on the citizens of Fresno, City Departments have made extraordinary efforts to contain costs and manage the effect of these increases. While the 2007 Budget proposed no Utility rate increases, escalating costs dictated otherwise.

In an effort to minimize the impact of these factors on our citizens, City Departments have made extraordinary efforts to contain costs and Public protection Community 52% manage the effect of these increases responsibly. In May 2006, Fresno development and Mayor Alan Autry voiced concerns about how the increasing costs for redevelopment gasoline, electricity and public utilities would continue to impact citizens 6% Public ways and facilities in the community. With Council’s approval, an independent Utility 18% Commission comprised of community representatives was formed and  charged with the challenging task of developing an understanding of Utility matters adequate to enable them to objectively analyze the current and future revenue needs of the Utility in Business-Type Activities concert with Utility staff, Administration representatives, and outside consultants. The Commission’s Charter laid out a set of principles to guide the Commission’s deliberations and Business-type activities increased the City’s net assets in 2007 by $30,830,791 and increased their recommendations to the City Manager, the Council and the Mayor. The Commission’s net assets by $51,717,656 in 2006, accounting for an 4% growth in 2007 and an 8% growth in recommendations were based upon the following principles: 2006 in total net assets. Key factors related to these changes are as follows: x The long-term health of all utility funds x Public Utilities is the second largest department in the City. During fiscal years 2007 and Protection of the community’s investment in current infrastructure 2006, respectively, net assets increased by $32,762,473 and $43,353,424 x primarily due to its continuing leadership role in the State in providing cost- x Adequate funding for future infrastructure for planned growth to effective services. The Water Division continually strives to improve and support the 2026 General Plan pursue the best possible practices in each utility. As a result, the City of x Completion of required water meter installation by 2013 Fresno continues to have one of the lowest, overall average monthly residential utilities bills of any city in the State and Central Valley. It is critical On November 1, 2006, the Commission issued its report in which it found that the City maintain a balanced groundwater supply by increasing the the need and justification for rate increases in three of the four utilities – Water, acre feet recharge from 60,000 to 80,000 feet by 2010. Millerton Lake Wastewater/Sewer and Solid Waste. The report was formally presented to Council on water is used to balance groundwater usage and to supply the Surface November 14, and on motion of Council it was resolved that the recommendations of the Water Treatment Plant. Utility Commission, including the Five Year Rate Plan be adopted. In addition staff was requested to return to Council with the appropriate documents to implement the Commission’s recommendations and to begin the Proposition 218 process. Utility staff x The City renewed its CVP (Central Valley Project) water delivery contract with the U.S. Bureau of Reclamation (USBR) with Council approving the renewal in July 2005. The new 40 year contract specific requirement to complete the installation of residential meters by 2013. 27 26  City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 coordinated department-wide efforts to gather and provide all necessary information to A complete copy of the document can be obtained by calling the Department of Public facilitate and support communication efforts with customers and other stakeholders about the Utilities – Administration at (559) 621-8600 or by via email at: need for utility rate increases and gained approval of a multi-year utility rate plan to adequately fund the utility’s future needs, while ensuring compliance with Proposition 218 http://www.fresno.gov/Government/DepartmentDirectory/PublicUtilities/ContactPublicUtilities/C requirements. x The Water Division successfully completed the Groundwater Management Plan which Under Proposition 218, a California constitutional initiative approved by was adopted by Council and will provide cohesive multi-jurisdiction management and the State’s voters in November 1996, when a rate increase is being significantly increase the City’s eligibility for Sate water grant funding. The Water Division proposed, local governments must mail information regarding the also awarded and began work with HDR Engineering, Inc. to conduct the Residential Meter proposed fee to every property owner. Within 45 days of the mailing, Program/Residential Meter System Evaluation and the Water Rate Study. These will provide the government must hold a public hearing. If the majority of property plans for the implementation of the retrofit meter program and the owners reject the proposed fee through written protests the rates transition of single family residences from a flat rate to a metered cannot be increased. rate.

The Commission found that there was a need for two relatively large increases in April and x In the Solid Waste Division, of Public Utilities, the Construction & September of 2007, followed by more moderate increases in subsequent years. The new Demolition (C&D) Ordinance was fully implemented with an monthly rates that were ultimately approved were as follows: estimated 50,000 tons of additional landfill diversion going to six certified C&D Recycling Facilities. The Division also continued Adopted Monthly Residential Utility Rates transitioning all service trucks powered by diesel to Liquid Natural Gas Current April 1, Sept 1, Sept 1, Sept 1, Sept 1, (LNG). The Division has a total of 68 LNG vehicles or 54 percent in a fleet of 124. The fleet Total Rate 2007 2007 2008 2009 2010 Total should be completely converted to LNG by 2010. The Division has increased Commercial All $ Rate $52.37 60.63 66.62 77.86 82.94 84.58 Recycling by 56 percent to 13,000 tons in calendar year 2006. Green waste diversion from Divisions $ Incr. 8.26 5.99 11.24 5.08 1.64 $32.21 residents increased by 8,500 tons, for a 19 percent increase. % Incr. 15.8% 9.9% 16.9% 6.5% 2.0% 6 1.5% x The Wastewater (Sewer) Division received national recognition as Included in the Commission’s Charter was a directive to make a recommendation regarding the first place winner of the 2006 Environmental Protection Agency an alternative form of governance for oversight of the Utility. The City retained Navigant (EPA) Clean Water Act Recognition Award for Pretreatment Program Consulting, Inc. (NCI) to perform a high-level evaluation of utility structure options to provide Excellence. This award recognized the Fresno/Clovis Regional utility services provided by the Utility and assess each structure’s ability to meet stated Wastewater Reclamation Facility (RWRF) for an innovative, objectives. NCI was asked to evaluate the following three utility structures: proactive, cost effective and outstanding customer-focused program that has reduced the introduction of pollutants into the sewer system through industrial partnerships, public education and effective pollution prevention measures. x Department of the City of Fresno (Status Quo) x Special District (such as a Municipal Utility District (MUD) or The Sewer Maintenance Division installed the Hansen Infrastructure Management Municipal Water District (MWD)) x System which is used to track and manage the Division’s assets, work x Privatization or Public-Private Partnership orders and repairs, record inspection results and customer service requests. The program is designed to ensure all preventative In late October 2007 the Plan of Service was submitted to Council for a maintenance is scheduled and accomplished to reduce Down-Time vote as to whether or not to continue on with the process. Council found for Repairs (DFR) and increase efficiencies. Since implementation, the document to be incomplete and non-responsive to specific significant questions. Council the Division has generated over 25,000 work orders and 300 service directed staff to return at a later date with comprehensive answers to their questions and requests in the system. The Division is also engaged in a critical concerns. A new Utility Advisory Committee has been formed to continue the evaluation of a capital improvement program to rehabilitate structurally insufficient MUD and to develop responses to Councils’ questions. concrete sewer mainlines over the next five years. Rehabilitation or

28 29 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

“trenchless” technology is 30 to 40 percent less expensive than the traditional “remove & funding mechanism in place. In the November 2006 elections, Fresno County voters replace” method and causes little traffic disruption. passed the extension of Measure C for another two decades. The passage provides long-term funding for increased transportation service and capital projects x The Community Sanitation Division replaced a diesel refuse truck, in the litter control operations, with a “first of its kind” Liquid Natural Gas and “Plug-in electric hybrid truck, x In FY 2008, the Department will receive approximately $8.7 million in Measure C thereby reducing total emission into the air. revenues, a $6.2 million increase from FY 2007.

x The Department of Transportation (FAX) is committed to providing the community with a x $2.1 million will be used to continue supporting Night Service and the Commuter world class, multi-modal transportation system that is affordable to all, convenient to use, Vanpool Program. and provides connectivity locally, regionally, nationally, and globally. The Department hosted the 2007 Division of Mass Transportation – Federal Transit Grants Workshop in x $1.6 million in new services are proposed for FY 2008. Included are services on January 2007. holidays, extended weekday service, extended Saturday service, comparable extended Paratransit HandyRide service, and increased graffiti abatement. x In order to maintain service that is clean, safe and reliable, Transportation (Transit) in conjunction with the Mayor’s Office has been successful in pursuing new sources of x $1.5 million is proposed to leverage against $12.4 million in grant funded projects. revenues that have been used to purchase new Citywide buses. In FY 2007, 15 These projects include the purchase of 19 Compressed Natural Gas (CNG) buses, a compressed natural gas (CNG) buses and 12 new paratransit downtown transportation system, the Kings Canyon Intermodal facility, Phase I of a Bus buses were delivered and put into service. Rapid Transit (BRT) study and passenger amenities, including shelters, benches and on- street signs. x The Department continues to lead the Downtown Transportation Infrastructure Study (DTIS). The study focused on a x $1.1 million is proposed for minor, one-time capital projects, including Paratransit downtown transportation plan that optimizes all modes of travel, HandyRide buses, vehicles for FAX police officers, passenger facility and signage including pedestrian, bicycle, transit and auto improvements and a transit facility study. travel modes. The study also evaluated possible locations for an intermodal and high speed rail x $2.4 million in Measure C funds will remain in reserves. station, intersection and interchange improvements, in conjunction with policies that These funds will be used to support future year’s costs of support a vibrant and multimodal downtown circulation system. increased frequency routes once grant funding for these services has expired. Congestion Mitigation Air Quality (CMAQ) x The Department anticipates beginning construction in FY 2008 on funding for these routes will begin to expire in FY 2009, and fully an Intermodal Facility, to be located at Kings Canyon and expire by FY 2011. By retaining funds in reserve, the Department Chestnut. The Facility will be part of a partnership with Planning will be able to continue funding popular increased frequency and Development to create a Transit Oriented Development routes. (TOD) which will consist of market value housing and transit facilities in a park-like setting. The Intermodal Facility will include a x Fresno Yosemite International Airport (FYI) set another passenger record in Fiscal Year park-and-ride, pedestrian and cyclist amenities, bus transfer 2007 with 1,282,428 passengers using the facilities, a 3.64% increase over the previous areas, and a park adjacent to the housing that will be a part of record of 1,237,329 set in FY 06. This increase occurred even with the TOD, This project is funded through CMAQ and Federal Transit the departure of Frontier Airlines and their twice-a-day service to Administration (FTA) grants. Denver on June 10, 2007. Frontier’s departure was easily offset by gains made from airlines that continue to provide service to the In November 1986, the Fresno County voters passed a ½ cent Fresno market. In addition to those existing airlines, a new service, sales tax increase (Measure C) by 57.5%. Measure C’s title and ExpressJet, began serving the Fresno market in FY 07. ExpressJet purpose as presented to the voters was improving roads and transportation in Fresno County. The existing measure was set to began twice-a-day direct service to San Diego on May 15, sunset (expire) in 2007, unless local voters authorized keeping the 2007. The service to San Diego was particularly well received

30 31 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

as it is one of the most frequently requested routes from FYI’s customers. Through the end with operating expenses of approximately $19.2 and $19.1, million respectively. For the of the Fiscal Year, ExpressJet was reporting solid passenger numbers on both the Ontario current fiscal year, in all but one of these did revenues exceed expenses prior to transfers. For and San Diego routes. all business-type activities in 2007, except Transit, fees provide the largest share of revenues [68%] followed by operating and capital grants and contributions [25%], which are primarily x While FYI’s passenger embraced new service, they continued to show that there received by Transit and interest and other income [4%]. In addition, Airport Passenger and is a strong international air service market here in Fresno. In its first full year of operation Customer Facility Charges made up 1% of revenues with an FAA Audit Compliance Settlement (4/1/06 to 3/31/07) Mexicana Airlines provided air service from Fresno to Guadalajara making up 2% of business-type revenues. The same holds true for all business-type activities in Mexico to 47,488 passengers. The five-day-a-week service was so successful that 2006, except Transit, fees provide the largest share of revenues [69%] followed by operating Mexicana provided daily service through December 2006. Mexicana officials have and capital grants and contributions [29%], which are primarily received by Transit and interest indicated that they plan to provide the same daily service in December 2007 and January and other income [2%]. 2008. Business - Type Activities – Charts and Graphs x The passenger growth spurred similar growth in FYI’s revenues. Fiscal Year 2007 revenues (Including Passenger The charts and graphs which follow on the next few pages illustrate the City’s business – Facility Charge and Customer Facility Charge revenue) of type/enterprise revenues by source, and its expenses and revenues by function. As can be $20,491,454 were 9.74% higher than that of FY 06. seen on the following pages, Sewer, Water and Solid Waste is by far the largest business-type Substantial growth was seen in parking and concession activity (function) reflecting the City’s greatest overall expenses. revenues. Concession revenue was strongly impacted by the opening of a Starbucks inside the terminal on September 5, 2006. What makes this growth truly remarkable is that the growth was passenger driven, as there were no increases in landing fees, terminal rent or in the parking rate. Airport management believes that revenue growth will remain strong in FY 08 due to new revenues from renegotiated leases, the expiration of new airline service incentive programs for Mexicana and ExpressJet airlines and the opening of a new fixed based operator facility – Scott Aviation.

x Airports sold $22 million of bonds in June 2007. Proceeds from these bonds will be used to finance construction of a consolidated rental car facility on six acres west of the terminal. The bonds are backed by a consolidated facility charge of $10/transaction as authorized under State of California Civil Code. The facility is anticipated to be operational by November 2008.

x Airports entered into an agreement with WorldWater & Solar Technologies to build a solar power generation facility on 40 acres of department-owned farmland southeast of FYI. Once operational in FY 08, the facility will supply approximately 40% of the airport’s energy. The price for this energy is fixed for the entire 25 year contract. Airport management estimates that FYI will save approximately $13 million in energy costs over the live of the contract.

As shown in the charts on the adjacent pages, the largest of Fresno’s business-type activities, the utilities – Sewer, Solid Waste Management and Water, followed by Transit (FAX), each had expenses in excess of $40 million in FY 2007 and $35 million in FY 2006, followed by Airports

32 33 City of Fresno, California City of Fresno, California Management’s Discussion and analysis Management’s Discussion and analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007     Revenues by Source - Business Type Activities - 2007 Revenues by Source - Business Type Activities - 2006

Passengerand Interestandinvestment Capitalgrantsand customerfees income Gain or loss, Restricted contributions 1% 4%     Capitalgrantsand Interestandinvestment 14% revenueandOther contributions income 0% 21% 2% FAAAuditCompliance Settlement 2%

Operating grants  Operatinggrants and contributions  andcontributions Chargesforservices Charges for services 11% 8%   68% 69%

 

Program Revenues and Expenses - Business Type Activities - 2007 Program Revenues and Expenses - Business Type Activities - 2006

$200,000 $180,000 $180,000 $160,000 $160,000 $140,000 $140,000 $120,000 $120,000 $100,000 $100,000 $80,000 $80,000 $60,000 $60,000 $40,000 $40,000 $20,000 $20,000 $0 $0 Airport Transit Sewer,water Convention Parking Parksand Development Stadium Airport Transit Sewer,water Convention Parking Parksand Development Stadium andsolid Center Recreation Services andsolid Center Recreation Services waste waste

Program Revenues Expenses Program Revenues Expenses  

34 35   City of Fresno, California City of Fresno, California Management’s Discussion and analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007   Revenues by Source - Business Type Activities - 2005 Expenses By Type - Business-type Activities 2007

Parks and Recreation Airport Interest and investment Stadium Capitalgrantsand    1% 8% contributions income Gainorloss,Restricted Development 1% 15% 3% RevenueandOther Parking 7% Operatinggrants 0% 3% Transit andcontributions 16% 8% Convention Center 4%

Sewer, water and Chargesforservices solid waste 74% 60%   Expenses By Type - Business-type Activities 2006 Program Revenues and Expenses - Business Type Activities - 2005

Parks and Stadium Recreation Development 2% $160,000 1% Airport Transit Parking 6% 10% 17% 2% $140,000  Convention Center $120,000 4% $100,000

$80,000

$60,000

$40,000

$20,000

$0 Airport Transit Sewer,water Convention Parking Parksand Development Stadium andsolid Center Recreation Services Sewer, water and waste solid waste 58%

 Program Revenues Expenses 

36 37   City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 unreserved, undesignated fund balance. Of this amount, a deficit ($76,486,619) is related to the Redevelopment Agency Debt Service Fund, a positive $18,790,080 (exclusive of the Expenses By Type - Business-type Activities 2005 $14,658,751 designated for economic uncertainty) relates to the General Fund, and a deficit Parks and ($11,175,235) and an excess $12,610,154 respectively, relate to Special Revenue Funds and Recreation 1% Stadium Airport Capital Project Funds. The remainder of the fund balance is reserved to indicate that it is not Development 2% 10% available for new spending because it has already been committed, (1) to liquidate existing Parking 5% contracts and purchase orders [$30,125,496], (2) to fund continued programs or projects in 3% Transit future fiscal periods [$99,170,074], (3) for debt services [$46,382,348], and (4) for property held Convention 17% for resale [$33,098,442]. Center 5% At the end of 2006, the City’s governmental funds reported combined ending fund balances of $169,066,044. A deficit ($42,054,699) of this total amount constitutes unreserved, undesignated fund balance. Of this amount, a deficit ($77,367,122) is related to the Redevelopment Agency Debt Service Fund, a positive $24,995,036 (exclusive of the $10,488,418 designated for economic uncertainty) relates to the General Fund, and a deficit ($4,332,080) and an excess $14,649,467 respectively, relate to Special Revenue Funds and Capital Project Funds. The remainder of the fund balance is reserved to indicate that it is not available for new spending Sewer, water and because it has already been committed, (1) to liquidate existing contracts and purchase solid waste 57% orders [$23,976,931], (2) to fund continued programs or projects in future fiscal periods [$92,762,785], (3) for debt services [$56,667,635], and (4) for property held for resale  [$27,224,974].  Revenues for governmental functions overall totaled $348,955,503 in the fiscal year ended June 30, 2007. Expenditures for governmental functions FINANCIAL ANALYSIS OF THE CITY’S FUNDS totaled $349,623,825 for the same period. In the fiscal year ended June 30, 2007, expenses for governmental functions exceeded revenues by ($668,322), or less than 1% prior to other funding sources. Other, funding As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with sources reduced revenue by $(1,224,231) resulting in additional net uses, an finance-related legal requirements. overall decrease in fund balance of $1,892,553. Prior to other funding sources, the General Fund provided revenues in excess of expenditures in Governmental Funds the amount of $38,379,998, the Grants Fund had excess expenses over revenues of ($1,263,919), the Redevelopment Agency Debt Service Fund had an excess of The focus of the City’s governmental funds is to provide information on revenues over expenditures totaling $8,861,616 before transfers out and all Other near-term inflows, outflows, and balances of resources that are available Governmental Funds had a deficiency of revenues over expenditures totaling ($46,646,017) for spending. Such information is useful in assessing the City’s financing before other financing sources/uses. requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at Revenues for governmental functions overall totaled $315,645,175 in the fiscal year ended the end of the fiscal year. Types of Governmental funds reported by the June 30, 2006. Expenditures for governmental functions totaled $312,730,677 for the same City include the General Fund, Special Revenue Funds, Capital Project period. In the fiscal year ended June 30, 2006, revenues for governmental functions Funds, and Debt Service Funds. exceeded expenses by $2,914,498, or slightly less than 1% prior to other funding sources. At the end of the current fiscal year, the City’s governmental funds reported combined ending Other funding sources reduced revenue by $(2,067,501) resulting in additional net uses, an overall increase in fund balance of $846,997. Prior to other funding sources, the General Fund fund balances of $167,173,491. A deficit ($56,261,620) of this total amount constitutes

39 38  City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 provided revenues in excess of expenditures in the amount of $39,234,605, the Grants Fund revenue that was not included in the FY 2006-07 budget projections. The total amount of had excess expenses over revenues of ($6,354,669), the unallocated General Fund revenue available for FY 2006-07 was $10.7 million. This revenue Redevelopment Agency Debt Service Fund had an excess of revenues consisted of $5.8 million of one-time funds and $4.9 million of increased ongoing revenues. over expenditures totaling $4,928,351 before transfers out and all Other Governmental Funds had a deficiency of revenues over expenditures The City prudently planned for future obligations and addressed totaling ($34,893,789) before other financing sources/uses. unfunded needs with these resources. The adopted plan recognized General Fund revenues of $10.7 million. An increase of $3.5 million in The General Fund is the chief operating fund of the City. At the end of the appropriations was identified to address the Fire Department capital current fiscal year, the unreserved, undesignated fund balance of the needs identified in the Public Safety Commission Report as well as General Fund was $18,790,080, while total fund balance was $59,538,279. adding 24 firefighting positions and acquiring a ladder truck; 2) a Of that, $14,658,751 has been designated by management as the General Housing Trust Fund was established with a $500,000 earmark for Fund Emergency Reserve. As a measure of the General Fund’s liquidity, it affordable housing; 3) Storyland/Playland received $100,000; and 4) $830,000 was identified may be useful to compare both unreserved fund balance and total fund to repair the roof at the Memorial Auditorium and to complete the Roeding Park restroom balance to total fund expenditures. Unreserved fund balance, including the renovations. The City also utilized one-time funds of $2.3 million to pay down the outstanding Emergency Reserve, represents 16% of total General Fund expenditures of Blosser Judgment Obligation Bond Debt. Upon the ultimate sale of the Blosser Property, $209,687,179, while total fund balance represents 28.4% of that same $606,000 of annual debt service will become available for other ongoing operations. The amount. General Fund Emergency reserve was increased by $3.5 million with the one-time money to position the City to address future commitments or to mitigate unforeseen adversity. This At the end of fiscal year 2006, the unreserved, undesignated fund balance of the General investment brought the balance of the Emergency Reserve to $14.7 million (6.6%) by the end Fund was $24,995,036, while total fund balance was $59,616,708. Of that, $10,488,418 has of the 2007 fiscal year. been designated by management as the General Fund Emergency Reserve. As a measure of the General Fund’s liquidity, it may be useful to compare both unreserved fund balance Other Governmental Funds reflect a marked decrease in fund balances in FY 2007, primarily and total fund balance to total fund expenditures. Unreserved fund balance, including the Financing Authorities and Corporations due to no proceeds from bond issuances being Emergency Reserve, represents 18.7% of total General Fund expenditures of $189,770,998, received in FY 2007 as was the case in FY 2005. The bond proceeds from the Lease Revenue while total fund balance represents 31.4% of that same amount. Bonds, Series A & B – No Neighborhood Left Behind, were part of the Mayor’s six-year initiative, $45 million dollar investment in the physical infrastructure of 71 neighborhoods throughout The major revenue sources for the City of Fresno, the General Fund in Fresno. What is reflected in the FY 2006 Fund Balance is the transfer out of particular, are Sales Tax, Property Tax and Motor Vehicle In-Lieu (MVLF). these monies to the Funds coordinating these capital projects.

Property Tax 24.3% Sales Tax Sales Tax grew by $5.9 million for an 8.17 percent increase over the 30.9%

Business Tax prior year actual revenue. Motor Vehicle License Fee (MVLF) ongoing 6.1% Proprietary Funds Intergovernmental 1.1%

Franchise Tax 2.4% Motor Vehicle In-Lieu 13.5% Prior Year Carryover revenue increased $2.3 million or 6.9 percent over the prior year. In FY 5.9% Room Tax 4.0% Charges For Services 7.2% All Other 2006 the City realized the early repayment of the fiscal year 2004 first 4.6% The City’s proprietary funds provide the same type of information found in quarter deferral of the Vehicle License Fee from the State. The early the Government-Wide Financial Statements, but with greater detail. repayment of $7.6 million is not included in the comparison of ongoing MVLF revenue. However it should be noted that the early repayment of the $7.1 million net of $5.1 million debt At the end of the current fiscal year, the unrestricted net assets for Water, Sewer, and Solid repayment was carried into FY 2007 to address one-time expenditures. Property Tax revenue Waste were $42,510,715, $109,964,997, and $9,243,312 respectively. The unrestricted net increased by $18.0 million or 34.6 percent over the prior year. Home sales in 2007 in the assets for Airports and Development Services were $15,256,866 and $8,828,875. Transit had Fresno market resulted in increased assessed valuations impacting supplemental property tax an unrestricted net deficit of $(3,599,947) as did Parking, Parks and Recreation and the in the short term as well as current secured taxes on an ongoing basis. The County of Fresno Convention Center with deficits in unrestricted net assets of ($5,861,589),($1,913,252) and also allocated two years of delinquent property tax revenue in one year bringing the ($604,877) respectively. The Stadium and Community Sanitation both reflected unrestricted allocations current, resulting in a one-time revenue spike of $5.8 million. net assets of $361,982 and $360,969 respectively.

The General Fund carryover into FY 2006-07 was $6.6 million greater than estimated. At the end of the fiscal year 2006, the unrestricted net assets for Water, Sewer, and Solid Waste Additionally, subsequent to year-end, the City also received $4.1 million of property tax were $28,510,838, $114,464,789, and $10,804,531 respectively. The unrestricted net assets

40 41 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 for Airports and Development Services were $14,182,249 and $10,470,286. Transit had an to amend the resolution and affirmative votes of at least five Council members. The City’s unrestricted net deficit of $(4,507,265) as did Parking, and Parks and Recreation, with deficits in Amended Budget differs from the Adopted Budget in that it contains carry-forward unrestricted net assets of ($3,445,984) and ($2,359,729) respectively. appropriations for various programs and projects, and supplemental revenues and The Stadium, Fresno Convention Center and Community Sanitation all appropriations received and approved by Council during the fiscal year. In fiscal year 2007, reflected unrestricted net assets of $503,942, $1,399,647 and approximately 1.8 percent in additional appropriations were approved in the General Fund. $1,014,510 respectively. The appropriations were primarily established for overtime pay related to expansion of the Fire Department; temporary employee salaries for the expansion of after-school programs; At June 30, 2007, Internal Service Funds, which include General operating costs related to the Fire fleet acquisition; various social service programs in the Parks, Services and Billing and Collection, had unrestricted net assets of Recreation and Community Services Department; replacement of streetlight copper wire; and $23,111,847 and $566,271 and the Risk Management Fund had a deficit in unrestricted net the re-appropriation of Council capital infrastructure funds. assets of ($58,110,103). At June 30, 2006, Internal Service Funds, which include General Services and Billing and Collection, had unrestricted net assets of $22,231,175 and $974,892 The Mayor through his budget has never wavered from the long range planning he and the Risk Management Fund had a deficit in unrestricted net assets of ($43,266,559). implemented in 2001 that continues to be the basis for the Key Result Areas within the NEW NORMAL. That emphasis continues to be built on: Fiduciary Funds 9 Public Safety. The City maintains Fiduciary Funds for the assets of the Employee’s Retirement 9 Economic Development. System, Health and Welfare Trusts, Special Assessment Funds and City 9 Smart Growth. Department and Special Purposes monies. These are all monies or assets 9 Education Reform. held by the City in a trustee capacity or as an agent for other governmental 9 Protecting the Reserves units, private organizations or individuals. At the end of fiscal year 2007, the net assets of the Retirement System totaled $1,193,398,333 for Fire and Capital Assets and Debt Administration Police and $1,068,859,346 for all others, representing an increase of $148,660,307 and $122,990,498 in total assets since June 30, 2006, C api respectively. The change is primarily related to continuing recoveries in the tal A sset market value of the respective Retirement System’s investments. The Health and Welfare Trusts, The City’s capitals assets for its governmental and business type activities as of June 30, 2007, previously reflected as part of the Internal Service Funds prior to the implementation of GASB amount to $1,757,976,100 (net of accumulated depreciation). Capital No. 43, reflects net assets of $11,257,735 at June 30, 2007. assets include land, buildings and improvements, machinery and equipment, park facilities, roads, streets, traffic signals, streetlights, and At the end of fiscal year 2006, the net assets of the Retirement System totaled $1,044,738,026 bridges. The net increase in the City’s capital assets for the current fiscal year for Fire and Police and $945,868,848 for all others, representing an increase of $86,750,444 was approximately 3.8% (a .4% increase for governmental activities and a and $73,303,763 in total assets since June 30, 2005, respectively. The change is primarily 3.5% increase for business-type activities) as shown in the table on the related to continuing recoveries in the market value of the respective Retirement System’s following pages. Capital assets for June 30, 2006 amounted to investments. $1,693,893,518 net of accumulated depreciation. The net increase, for 2006 was approximately 1.8% (a 1.1% increase for governmental activities The City Departmental and Special Purpose Funds account for City-related trust activity such as and a 3.3% decrease for business-type activities). payroll withholding and bid deposits and receipts and disbursements for the debt service activity of the special assessments districts.

General Fund Budgetary Highlights

The City Budget for the fiscal year ending June 30, is adopted by resolution by the City Council. Adjustments in the amount appropriated at the department/fund level are made throughout the fiscal year upon a motion

42 43 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Changes in Capital Assets, Net of Depreciation x RWRF Organic Upgrade

Governmental Activities Business-type Activities Total The Wastewater Reclamation Facility has experienced a sharp increase in the loadings entering the facility. The primary causes for this increase 2007 2006 2007 2006 2007 2006 are industrial growth and changes to industrial processes related to

changed regulatory requirements. As a result, the facility has reached or exceeds the design treatment capacity for loadings. This increase in Land $196,804,586 $195,381,731 $43,234,396 $43,008,618 $240,038,982 $238,390,349 loading has also resulted in the facility exceeding discharge limitations. Buildings and Improvements 97,305,920 100,748,302 627,818,950 598,553,186 725,124,870 699,301,488 Additional treatment units are being constructed to treat the increased Machinery and equipment 9,904,392 8,890,248 54,772,321 56,510,828 64,676,713 65,401,076 loadings. Upon completion the 30 month project, is expected to cost in the neighborhood of Infrastructure 396,767,758 389,714,438 162,652,025 112,684,369 559,419,783 502,398,807 $150 million. This project is being conducted under a partnering arrangement, whereby all Construction in progress 92,716,255 64,697,932 75,999,497 123,703,866 168,715,752 188,401,798 interested parties meet periodically to resolve issues before they have an opportunity to Total $793,498,911 $759,432,651 $964,477,189 $934,460,867 $1,757,976,100 $1,693,893,518 escalate into a dispute. The project is approximately 50% complete, on-time, under budget Reclass of Internal Service Funds 27,702,488 29,768,130 (27,702,488) (29,768,130) - - with no disputes. $821,201,399 $789,200,781 $936,774,701 $904,692,737 $1,757,976,100 $1,693,893,518 Major capital asset events during the fiscal year ended June 30, 2006, many of which were in progress during the fiscal year ended June 30, 2005 included the following: Major capital asset events during the fiscal year ended June 30, 2007, many of which were in progress during the fiscal year ended June 30, 2006 included the following: x Convention Center Parking Garage

x Fresno Convention Center Improvements The new Convention Center Parking Structure features five levels and 1,565 parking spaces, including eight motorcycle spaces and 26 Improvements to the Saroyan Theater, Selland Arena and Ernest Valdez disabled parking spaces. The facility supports the Federal Courthouse, Hall continued into 2007 and included chiller replacements, fire alarms, the Saroyan Theater, Selland Arena, the Fresno Convention Center, and seating and restroom enhancements, lounge and staircase enrichments various downtown businesses in the area. Primary users such as the and back stage and landscaping modernization. Phase II of the Federal Courthouse employees will have access to monthly parking improvements will include a new boiler system, a roof for the Selland permits. Federal Jurors will also be able to use the structure and receive

3 Arena, new stage rigging for the Saroyan Theater and other roofing and validation for their parking through the Courthouse. The Convention Center Parking Garage HVAC improvements. Phase II is expected to cost approximately $7 was completed at a cost of $23,769,840. million. x CNG Fueling Station x Friant/Kern Canal Pipeline The City of Fresno Transportation Department (FAX) completed construction of a new The 5.1 mile pipeline from the Friant/Kern Canal to the Surface Water compressed natural gas (CNG) fueling facility which is the largest of its kind in the San Joaquin Treatment Facility in Northwest Fresno, when completed in FY 2010, is Valley. This facility allows the department to fully utilize all CNG vehicles, contributing to further estimated to cost $13.5 million. The first one mile of pipeline was reductions in harmful emissions. By fueling at our own facility, the Department can now save constructed in FY 2007 utilizing a cooperative reimbursement 60 percent on CNG fuel. This facility was completed at a cost of $2,389,214. agreement with the State Center Community College District to take advantage of their construction activities and to avoid campus x FYI Federal Inspection Station disruptions and costly street improvement removal and replacement had the pipeline been construction at a later date. The new pipeline The Fresno Yosemite International Airport (FYI) completed the replaces the unlined Enterprise Canal as the primary source of raw water for treatment at the construction of the first Federal Inspection Station (FIS) built in the United SWTF and allows for the continuous cost-efficient operation of the facility. States since 9/11. The seven month design/construction period for the building was uniquely remarkable especially considering it incorporated

44 45 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 new Federal design requirements and stringent agricultural infestation prevention measures. Additional information about the City’s capital assets can be found in Note 6, pages 123-126 Fresno’s FIS is already being identified as a model facility for smaller airports across the nation to the financial statements. by the United States Customs and Border Protection Service. The facility was completed at a cost of $3,077,821. Deb t Ad min x Rental Car Facility Project at FYI At the end ofist rthea current fiscal year, the City had total long-term debt obligations outstanding tion of $752.4 million. Of this amount, $191.7 million is general obligation bonds backed by the full Fresno Yosemite International Airport initiated preliminary site assessment faith and credit of the City (Pension and Judgment Obligation Bonds) and another $419.9 and design for its Rental Car Facility project which was approved at the million is revenue bonds of the City’s business enterprises. The remainder includes lease end of 2006. The project involves the construction of a multi-purpose revenue bonds, certificates of participation, and tax allocation bonds for general rental car facility designed to centralize the rental car location and to governmental projects. provide easy access to passengers. In addition to design work, the Department focused on land acquisition and the construction of a “blast” wall to be located between the current baggage claim facility During fiscal year 2007, the City’s total bonded debt decreased by approximately $9.3 million. and the proposed rental car site. A consolidated Facility Charge was This decrease included the issuance of a new Airport Revenue Bond for $22 million to fund the implemented in fiscal year 2006 which will serve to offset these costs. The project is due for construction of a new consolidated rental car facility and $31.3 million in payments of existing completion in fiscal year 2008. debt service.

During fiscal year 2006, the City’s total bonded debt decreased by x Fire Station Construction approximately $14.6 million. This decrease included the issuance of a new The 2025 Public Safety Report identified the need for nine additional fire Lease Revenue Bond for $18.7 million to fund the improvements to the stations to be constructed and staffed over the next 20 years. Construction City’s Convention Center facilities and 23.4 million in payments of existing costs to build a permanent Fire Station 16 and design costs for a permanent debt service. Station 18 were included in the fiscal year 2007 capital budget. The two new stations will replace temporary facilities in northwest Fresno. In addition, costs The ratio of net general obligation bonded debt to taxable valuation and for the construction of a new fire facility, Fire Station 19 were also included in the amount of bonded debt per capita are useful indicators of the City’s the Adopted Budget. Fire Station 19 will facilitate future growth in the southwest area. Staffing debt position to management, citizens and investors. A comparison of these indicators and operational costs will need to be identified, in future fiscal years for Station 19. follows:

FY 2007 FY 2006 FY 2005 x Fresno Convention Center Improvements General Bonded debt $191,690,000 $196,020,000 $200,150,000 General Bonded debt per capita $398.49 $415.76 $430.68 In June 2006, the Fresno Joint Powers Financing Authority issued 2006 Debt service tax rate per $100 taxable $0.73 $0.85 $0.95 Lease Revenue Bonds, the proceeds of which were used to beautify and modernize several of the original Convention Center facilities. Although the City’s Charter imposes a limit on the amount of general obligation bonds that the Improvements to the Saroyan Theater, Selland Arena and Ernest Valdez City can have outstanding at any given time to 20% of assessed value of property in the City, Hall include chiller replacements, fire alarms, seating and restroom the City recognizes that debt of that magnitude cannot be supported with it’s current tax base enhancements, lounge and staircase enrichments and back stage and and as such is very cautious about issuing general obligation debt. landscaping modernization. The bonds will be repaid over 20 years and have an annual net debt service of approximately $1.4 million. The bonds are reported in the The City’s ratings on uninsured general obligation bonds as of June 30, 2007 were : Convention Center Fund and are supported by transfers from the General Fund. Moody’s Investors Service, Inc. A1 For government-wide financial statement presentation, all depreciable capital assets were Standard and Poor’s Corporation AA- depreciated from the first full month subsequent to the acquisition date to the end of the Fitch RatingsAA- current fiscal year. Fund financial statements record capital asset purchases as expenditures.

46 47 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

In April 2004, the City’s general obligation bond rating was reviewed by the three major rating and lease revenue bond issues subject to the arbitrage rebate requirements and has deferred companies and each determined that the City’s rating should be upgraded, citing Fresno’s credits and other liabilities in the governmental funds. Each Enterprise Fund has performed a stable economy and strong financial results, as characterized by prudent management similar analysis of the debt the respective enterprises have issued which is subject to arbitrage practices and above – average reserves. rebate requirements. Any material arbitrage liability related to the debt of the Enterprise Funds has been recorded as a liability in the respective Fund. In addition, the Redevelopment In January 2005, the City’s general obligation bond rating was reviewed Agency records any arbitrage liability in deferred credits and other liabilities. again by the three major rating companies and each determined that the City’s rating should be maintained, once again citing Fresno’s S pec stable economy and strong financial results, as characterized by ial D istric prudent management practices and above – average reserves. The City is nott obligatedDe in any manner for the Special District debt, but is acting as an agent bt for property owners in collecting the assessments and forwarding the collections to the trustee In October 2006, Standard & Poor’s Ratings Services issued a “stable” outlook and affirmed its or paying agent, and initiating foreclosure proceedings, if appropriate. Special District debt ‘BBB’ underlying rating (SPUR) on the City’s airport revenue bonds, issued by the Fresno Yosemite payable to bondholders was $9,060,000 at June 30, 2007 as compared to $12,835,000 at International Airport. The rating reflects the small size of the airport and the competitive threats June 30, 2006. from airports in the San Francisco, Los Angeles, and Sacramento areas. The stable outlook reflects Standard & Poor’s expectation that demand will continue to remain solid, debt service So lid coverage will not erode significantly, and the cost structure will remain reasonable. Additional Was te M debt to be issued in the near future could have a rating impact but that impact is unknown at The City has issuedan its Solid Waste Management Enterprise Revenue Bonds, age income and r 2000 Series A, in accordanceme with an Indenture that sets forth various this time and will be determined as the financial plan is solidified. nt E covenants designed to providenter security to bond holders, including a rate prise Since the close of the 2007 fiscal year, the City has issued no additional debt. covenant requiring that the City fix, Rprescribeev and collect rates, fees and enu charges that will yield Net Revenues equal eto B at least 110% of estimated ond s, 2 Deb debt service. This disclosure is intended to assist in reconciling000 the analysis t Co Se mp of this covenant with the financial data that appearsries in the lian A There are a numberce of limitations, restrictions and covenants contained in the various bond Comprehensive Annual Financial Report (the “CAFR”). indentures. The City believes it is in compliance with all significant limitations, restrictions and Waste Management Enterprise or arising from the Solid Waste Management Enterprise, less the Maintenance and covenants. The definition of “Net Revenues” per the Bond Indenture is as follows: Operation Costs during such fiscal year or period.” from the Solid Waste Management Enterprise as determined in accordance with Generally Accepted Accounting “Net Revenues means, for any fiscal year or other period, all rates, fees and charges re for, and all other Principles, including all rates, fees and charges received by the City for the Solid Wastec eManagementiv Service, all Leg re derived by the City from, the operation of the Solid Waste Managemente dEnterprise or arising al proceeds ofc insuranceei covering business interruption loss relating to the Solid Waste Management Enterprise, Deb pts t Lim investment earnings on amounts held in the Revenue Fund, the Reserve Fund and the Rate Stabilization Fund As of June 30,i t 2007,an the City’s debt limit (20% of valuation subject to taxation) was $5.27 d L established under the Indenture a billion. This is in comparisonega with debt limits of $4.62 billion in 2006. The total amount of debt l De applicable to the debt limit in b2007t M was $191.7 million as compared to $196.0 million in 2006. a and by the City from the operation of the Solid The resulting margin was $5.08 billionrg asin compared to $4.01 in 2006. al l oth er m one y ho Arb wso itra eve ge A portion of the revenue received by the City is allocatedr de to landfill closure, and not reported rive Under U.S. Treasury Department regulations, all governmental tax- as operating revenue of the Solid Waste Management dEnterprise Fund. Based upon the exempt debt issued after August 31, 1986, is subject to arbitrage rebate interpretation of the above definition of “Net Revenue”, the revenue received from the requirements. The requirements stipulate, in general, that the earnings operation of the Solid Waste Management Enterprise, although subsequently transferred out to from the investment of tax-exempt bond proceeds that exceed related the Landfill Closure, must be added back to CAFR Revenue for purposes of the Solid Waste interest expenditures on the bonds must be remitted to the Federal coverage test. No revenue was transferred to the Landfill Closure for fiscal year 2007. government on every fifth anniversary of each bond issue. The City has evaluated each general obligation bond, certificates of participation,

48 49 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Theby theIndenture City in definesconnection Net Revenueswith the Solid as currentWaste Management revenues from Enterprise.” the operation of the Solid Waste This disclosure relates only to those differences between financial information presented on the Management Enterprise, net of Maintenance and Operation Expenses. As is customary, this CAFR as compared to financial data specified and used in the calculation of the Rate definition of expenses excludes depreciation expense. To clarify the definition relative to the Coverage Test on the Solid Waste Revenue Bonds, 2000 Series A. Each bond indenture must operations of the City, which manages its vehicles as part of a fleet operation, the definition of be referred to independently, in order to determine the specific covenants related to that depreciation was expanded to include “depreciation expense with respect to all vehicles used debt.

Additional information on the City of Fresno’s long-term obligations can be found in Note 7, Depreciation expense related to vehicles used by the City in connection with the Solid Waste pages 127 -137 of this report. Management Enterprise is not stated separately from “Maintenance and Operation Costs” in the City’s CAFR. For Rate Coverage Test purposes, depreciation expense in connection with ECONOMIC BUDGET FACTORS the Solid Waste Management Enterprise vehicles for fiscal year 2007 was $3,439,096.

The Interest Income for Solid Waste on the CAFR includes all interest income received, not only x General Fund Revenues include categories such as Sales Tax, Property Tax, Motor Vehicle interest income derived exclusively from the operations of the Solid License Fees (MVLF), Business License, Room Tax (Transient Occupancy Tax or TOT) and Waste Enterprise. Interpretation of the above definition for “Net charges for services. The top three single revenues generated in the General Fund are Sales Revenue” requires that the interest income received which is related to Tax, Property Tax and MVLF. They represent 73 percent of operating revenue. operations, specifically to Bond Construction, Principal, and Interest funds, be excluded from the total interest figure on the CAFR. The x Sales Tax is the largest single revenue source of the City. The FY 2008 Adopted Budget interest income received and included in the CAFR for the Bond estimate Sales Tax revenue to be $83.7 million in FY 2008 a growth of 7.0 percent over FY 2007 Construction, Principal, and Interest Funds for fiscal year 2007 was actual revenue. The increase for FY 2008 is less than prior years due to economic trends in the $93,046. auto and construction industries that reflect the decline in the spending for these categories. These two categories make up approximately 27 percent of the total sales tax revenue for the The following reconciles financial data as reported in the combining statements with the City of Fresno. Other categories have yet to follow this recent decline. However, projection additional data supplied above for purposes of performing an analysis of the City’s updates through November are estimating that Sales tax will be $5.5 million less than originally compliance with its rate covenant. anticipated in the Adopted Budget. The City’s most recent projection for Sales Tax is $78.2 million for FY 2008. The first five months of the fiscal year reflects stagnant growth primarily Operating Revenues as reported $43,250,635 attributed to the downturn in the housing market and increases in fuel prices leaving less Adjustment for landfill closure revenues 190,510 disposable income. Additionally, the State’s change in the true-up calculation necessitated Reported interest earnings 948,783 an adjustment in the City’s expected receipts of $2.3 million. These Adjustment for interest attributable to bond funds (93,046) current projections have been compared to the estimates provided by Adjusted revenues 44,296,882 Muni Services and are consistent with their most likely scenario. Total Operating Expenses net of reported Depreciation, Amortization and Interest 42,221,728 Adjustment for depreciation for vehicles (3,439,096) x The second largest single revenue source in the General Fund is 38,782,632 property tax and property tax in-lieu. Property Taxes have grown an average of 9.7 percent annually over the last five years. However, the Adjusted Net Revenues $ 5,514,250 FY 2008 revenue projections reflect a modest 4.7 percent increase after adjustment for one- Interest Expense $691,222 time revenues received in FY 2007. This conservative increase is based upon the reduction in Principal (Repayment of Bonds from Statement of Cash Flows) 1,155,000 home sales, the increase in foreclosures and anticipated reduction in supplemental tax Total Debt Service 1,846,222 apportionment. The revenue projection does assume that current home values will not be significantly adjusted. The Budget Update Analysis through November 2007 is reflecting that Debt Service Coverage 298.6 Property Tax revenue impacts are not being realized this fiscal year due to the approximately 18 months of lag in time from when Property Tax is assessed and collected to when it is allocated. The current Property Tax revenue stream is based on the January 2007 assessments

50 51 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 before our local real estate market started declining. The current projections estimate thate Property Taxes will be $70.1 million or $4.3 GRAPHIC DEPICTION OF MAJOR REVENUE SOURCES million greater than the FY 2008 Adopted Budget. Unfortunately, our City is expected to feel the impact of the Property Tax decline starting in FY 2009. The following pages graphically depict major revenue sources and the trends in those revenues as well as mitigating factors impacting changes in those sources, and estimated figures used for the fiscal year 2008 budget. x In both FY 2005 and FY 2006, the State shifted approximately $4.7 The percentage reflected on each graph, reflects the growth over the prior million in Property Tax revenue to the Education Revenue Augmentation Fund (ERFA). This shift year. sunset in FY 2007 per the Prop 1A agreement. As a result, the City realized $4.7 million of additional Property Tax Revenue in FY 2007. This is a permanent shift back in to our local Sales Tax: coffers. x Local spending trends; a slowing of the economy particularly in the x The third largest single revenue source for the General Fund is the Motor Vehicle In-Lieu. The construction and auto sales categories. New auto sales, miscellaneous vehicles, and VLF is an annual fee on the ownership of a registered vehicle in California, in place of taxing construction make up approximately 27 percent of the total sales tax revenue. vehicles as personal property. The VLF is paid to the Department of Motor Vehicles (DMV) at the time of annual vehicle registration. The fee is charged in addition to other fees, such as the vehicle x Economic environment mitigated by mixed economic indicators. registration fee, air quality fees, and commercial vehicle weight fees. In 1998, the Legislature began a series of reductions in the VLF. The x FY 2002 includes a one-time $750,000 or 1.4 percent negative adjustment. fee was reduced from a level of 2% down to an effective rate of 0.65%—a 67.5% decline. The Legislature has reduced the VLF Property Tax: through a series of decisions associated with the annual budget agreements. The first VLF reduction began on January 1, 1999, as part of the 1998-99 budget x In FY 2004, County Assessor made significant progress in reassessing Prop. 8 properties, agreement. The fee was permanently reduced by 25% with the possibility of reductions includes a one-time adjustment of $1.7 million. increasing to 67.5% based on state revenue growth. A series of statutory triggers was constructed to determine future reductions by comparing General Fund revenue levels to the x FY 2005 Property Tax received includes a one-time catch up of Department of Finance's 1998-99 May Revision forecasted amounts. The maximum delinquencies of $1.5 million. percentage reductions as outlined in the legislation were an increase to 35% in 2001, 46.5% in 2002, and 67.5% in 2003 and thereafter. The tax reduction level in place for 2004 would x FY 2006 Property Tax allocation includes amounts realized as a remain permanently. Motor Vehicle License Fees are projected in the FY 2008 Adopted result of the County Assessor updating the rolls resulting in Budget to be $36.6 million or growing by 3.9% in FY 2008. MVLF growth is now linked to increased Assessed Valuations of Property (AV) and increased Property Tax Growth and is actually backfilled with Property Tax revenues. As Assessed tax revenue of $3.1 million. Additionally, the County caught up on two years of Valuation increases or slows in growth the MVLF will also grow or decline. Additionally, the delinquent property tax apportionments resulting in $765,000 of revenues. MVLF is now subject to County Property Tax administrative fees that were no previously charged on MVLF. After the FY 2008 budget was adopted, the City was informed that the x FY 2007 reflects the sunset of the ERAF shift per Prop 1A thus returning $4.7 million that assessed valuations in property tax grew by 13.94%. The MVLF for this year is also benefiting was transferred in FY 2005 and FY 2006. from the lag time, although MVLF is also expected to decline in future years. The City of Fresno has increased its MVLF revenue projection to $39.1 million, or $2.5 million more than x Unprecedented home sales and prices in Fresno, AV grew by almost 14 percent in FY the FY 2008 Adopted Budget, to reflect the known increase in assessed valuations. 2007.

x FY 2008 Property Tax adjusted $3.9 million for one-time revenues received in FY 2007. Growth of five percent is projected as the local economy is showing a decline in home starts and real estate transactions.

52 53 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

$90 Motor Vehicle License Fees: $80 Sales Tax x The revenue is a component of the triple flip making it subject (% Shown = Growth Over the Prior Year) 5.1% to growth in AV rather than auto sales. The AV’s are expected $70 7-Year Average Growth Rate = 7.0% to stabilize resulting in revenue growth at a slower pace than 9.9% realized in the last three years. $60 5.5% 11.1%

x FY 2006 reflects the State's early repayment of monies taken in $50 8.1% FY 2004, net of debt repayment, resulting in $2.9 million of 8.2% one-time revenue. $40 0.8% Millions Business Tax: $30

x Growth in FY 2004 and FY 2005 due to compliance initiatives. $20

$10 x Compliance efforts expected to continue, and will be enhanced in FY 2008 with new technology expected to provide improved information for billings and collection $0 opportunities. FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Actual FY2007 Actual FY2008 Adopted Mitigating Factors: - Improving economic environment mitigated by mixed economic indicators. Room Tax: - Stable local spending trends continue. - FY 2002 includes a one-time $750,000 or 1.4% negative adjustment.

x Increase in local conventions and events are reflected in additional room bookings. $70 Market demand driving room rates slightly higher. Property Tax x (% Shown = Growth Over the Prior Year) $60 7-Year Average Growth Rate = (2.6)% Franchise Tax: 77%(3.7)% 9.4% 30.1%

$50 x Unstable revenue source as it is based on a regulated commodity. Energy costs 15.3% expected to continue at an all time high through 2008. $40

1.9% 3.3% $30 Millions

$20

$10

$0 FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Actual FY2007 Actual FY2008 Adopted Mitigating Factors: - Unprecedented home sales and prices in Fresno. - In FY 2004, County Assessor made significant progress in reassessing Prop. 8 properties, includes a one-time adjustment of $1.7 million. - FY 2005 Property Tax received includes a one-time catch up of delinquencies of $1.5 million. - FY 2007 reflects the sunset of the ERAF shift per Prop 1A thus returning $4.7 million that was transferred in FY 2005 and FY 2006.

54 55 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

$40 Motor Vehicle License Fees (% Shown = Growth Over the Prior Years) $36 $12 Room Tax 7-Year Average Growth Rate = 7.6% 3.9% (% Shown = Growth Over the Prior Year) $32 12.0% 7.6% One Time Deferral 7-Year Average Growth Rate = 5.6% 3.9% $10 $28 4.9% 5.8% 8.9% 10.7% $24 9.5% $8 6.4% 8.7% 2.5% 4.2% $20 3.4%

$16 $6 Millions

$12 Millions $4 $8

$4 $2

$0 FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Actual FY2007 Actual FY2008 Adopted Mitigating Factors: $0 - Improving economic environment mitigated by mixed economic indicators. FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Actual FY2007 Actual FY2008 Adopted - FY 2006 reflects the State's early repayment of monies taken in FY 2004, net of debt repayment, resulting in $2.9 million of one- Mitigating Factors: time revenue. - Improving economic environment mitgated by mixed economic indicators. - Growth FY 2003 due to compliance initiatives; compliance efforts expected to continue at a steady pace.

$7 $18 Franchise Tax Business Tax (% Shown = Growth Over the Prior Year) (% Shown = Growth Over the Prior Year) $6 7.8% $15 7-Year Average Growth Rate = 7.1% 7-Year Average Growth Rate = 4.9% 2.5% 3.3 2.8% 6.1% 4.4% 5.3% 8.7% $5 4.6% $13 27.3 8.8% 10.4% 2.1% (10.0 )% $10 $4

$8 Millions $3 Millions

$5 $2

$3 $1

$0 FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Actual FY2007 Actual FY2008 Adopted $0 FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Actual FY2007 Actual FY2008 Adopted Mitigating Factors: - Improving economic environment mitigated by mixed economic indicators. Mitigating Factors: - Growth in FY 2003 through FY 2005 due to compliance initiatives. - Unstable revenue source as it is based on a regulated commodity. - Compliance efforts expected to continue, but will not have the same impact on an on-going basis. - FY 2002 growth a clear anomaly due to unprecedented energy costs.

56 57 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

2008 Budget Overview Budgeted General Fund Operating Expenses have been increased $20.2 million or 9% in FY 2008 as compared to FY 2007 Amended appropriations. The primary factors driving these The 2008 Budget reflects an economy that started to stabilize. The City of increases are: Fresno has been reaping the rewards of the hard work performed by the Mayor, City Council and staff during the last six years. The local economy x Employee service cost increases of $16.1 million as a result from negotiated MOU’s benefited from a real-estate boom increasing assessed property values and step increases, as well as staff growth to meet the increasing demands of service. resulting in an increase in base for ongoing property tax revenue. Additionally, revenue collections of Sales Tax and MVLF significantly x The City’s contribution to the Safety Retirement system of $6.8 million which is an outperformed the Amended Budget in FY 2007. Prudent fiscal planning increase of $2.8 million. A $1.1 increase in the contribution to the Health and Welfare and control have allowed the City to maintain and grow services even in insurance program. the face of unprecedented State budget crises that resulted in lost revenues, and the loss of the Enterprise In-Lieu revenues. However, the local economy is x Fuel increases are projected at $700,000. starting to exhibit signs of slowing down. The three revenues that best reflect the City’s economic status (Sales Tax, Property Tax and Motor Vehicle In-Lieu) continue to grow but all x The City is continuing the implementation process to move three are linked to consumer cycles that are trending downward. While these revenues are from Novell GroupWise and Netware environment to the more projected to have continued growth, they are unstable and subject to decline. The City faces advanced Microsoft Exchange Platform. The General Fund’s challenges in achieving an on going balance between revenues and expenditures as well as portion of this cost is $1 million. planning for future obligations. Additionally, the budget is balanced using one-time revenues. While the fiscal outlook is somewhat unstable, it is expected to continue to grow modestly. However, the risk has been mitigated with the strategic plan to set aside $5 million to maintain However, the City still faces the challenges in achieving an ongoing balance between structural balance into FY 2009. revenue and expenditures into future years. Even assuming conservative economic growth, we have: 1) contractual labor commitments; 2) potential increases in personnel costs related The City’s bond ratings are evidence of its financial strength. Fresno’s general obligation bonds to the results of the Citywide Classification & Compensation study; 3) increasing pension are currently rated A+ by Moody’s Investor Service and AA- by Standard & Poor’s and Fitch contribution requirements and; 4) major capital projects that require local match. Beyond this, Rating. Such ratings indicate that the City’s bonds are considered to be of excellent an economic downturn or even a sharp slowdown in the next several years may lead to investment quality, meaning lower interest rates on bonds with corresponding lower interest significant shortfalls if ongoing expenses are increased to mirror the current pace. payments. Having solid financial policies and strong financial reserves are principle reasons for these excellent bond ratings. While the FY 2008 budget is projected to generate revenues in excess of expenditures; the future year’s forecast is reflecting revenues growing at a much slower rate than ongoing costs. Along with the rest of the nation, the City of Fresno has been coping This is due primarily to the slumping real estate market and significant increases in fuel costs, with higher fuel costs. The FY 2007 Amended Budget included an both of which will fully impact the local coffers beginning in FY 2009. At the time the FY 2008 increase for fuel. The budget layered an additional increase for fuel budget was enacted the forecasts predicted a shortfall gap of approximately $5 million in FY consistent with the current rates. This adjustment should be sufficient 2009. As a result the FY 2008 budget included setting aside $5 million to cover the cost of fuel in 2008. However, future price spikes will likely to help mitigate this shortfall. However, the updated projections are require additional appropriations prior to year end and may require estimating that the FY 2009 gap will be $12.7 million higher than adjustments in various rates. The City will closely monitor this situation originally anticipated. The projections have been refined to consider a as the market fluctuates and address the impact if they become realized. downturn in the economy and the increase in ongoing expenses and legal obligations based on current service levels and policies. It is In fiscal year 2004 the Mayor issued an executive order which was subsequently approved by important to note that this analysis was conducted early in the budget the Council to establish an Emergency Reserve Fund with a minimum five percent balance. cycle and are estimates and not predictions of the economy or the impacts that the State The 2008 budget adds $680,000 to the Emergency Reserve which brings the expected year budget polices may have on local governments. Rather, the estimates are intended to be a end balance to $16.4 million which is 6.5 percent and in excess of the amount required to reasonable baseline projection of what would happen if current policies are allowed to maintain the five percent balance. operate in the future. In this regard, the forecast provides a meaningful starting point for

58 59 City of Fresno, California City of Fresno, California Management’s Discussion and Analysis Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 deliberations involving the budget so the corrective actions can be taken to ensure that the City’s positive fiscal condition is safeguarded.

In anticipation of what may occur as we move forward with preparing the FY 2009 budget, the REQUESTS FOR INFORMATION City Manager has directed General Fund and Internal Service Fund Departments to work the the Budget KRA Cabinet to develop 2.5 percent, 5.0 percent and 7.5 percent reduction This financial report is designed to provide our citizens, taxpayers, customers, investors and contingency plans. These plans were presented to the City Manager at the end of calendar creditors with a general overview of the City’s finances and to demonstrate the City’s year 2007. Departments have also been directed to immediately implements steps that accountability for the money it receives. Below is the contact for questions about this report or could be used to reduce FY 2008 expenses without negatively impacting the delivery of requests for additional financial information. essential services or programs. Each month provides additional information that is useful in balancing the fiscal reality with the essential services provided to our community. Therefore, this information will continue to be monitored very closely with any material changes reported to Council in a timely manner. City of Fresno

Office of the Controller/Finance Department 2600 Fresno Street, Room 2156 Fresno, California 93721-3622

Investing today – for the City of tomorrow

CAFR – 48th Comprehensive Annual Financial Report Ci ty of Fresno, California

For the fiscal year ended June 30, 2007

WWW.FRESNO.GOV

60 61 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

GOVERNMENT - WIDE FINANCIAL STATEMENTS

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS JUNE 30, 2007

Governmental Business-Type Activities Activities Total Assets Cash and Investments $ 94,164,551 $ 56,934,622 $ 151,099,173 Receivables, Net 46,323,290 55,307,049 101,630,339 Internal Balances 13,124,414 (13,124,414) - Inventories 1,117,688 3,550,706 4,668,394 Deferred Charges 4,535,423 7,634,819 12,170,242 Net Pension Asset 2,000,000 - 2,000,000 Property Held for Resale 33,098,442 - 33,098,442 Restricted Cash 46,543,537 226,955,142 273,498,679 Restricted Grants and Interest Receivable - 3,029,603 3,029,603 Loans, Notes, Leases and Other Receivables 24,241,400 71,502,749 95,744,149 Capital Assets: Land and Construction in Progress Not Being Depreciated 289,732,134 119,022,600 408,754,734 Facilities Infrastructure and Equipment Net of Depreciation 531,469,265 817,752,101 1,349,221,366

Total Assets 1,086,350,144 1,348,564,977 2,434,915,121

Liabilities Accrued Liabilities 28,371,952 33,195,330 61,567,282 Unearned Revenue 2,735,035 55,369,233 58,104,268 Deposits from Others 436,592 22,679,902 23,116,494 Other Liabilities, Capacity Rights - 22,854,128 22,854,128 Long-term Liabilities: Due Within One Year 36,724,494 17,695,753 54,420,247 Due in more than one year 404,045,660 461,521,965 865,567,625

Total Liabilities 472,313,733 613,316,311 1,085,630,044

Net Assets Invested in Capital Assets, Net of Related Debt 697,544,023 537,896,895 1,235,440,918 Restricted for: Public Protection 20,830,859 - 20,830,859 Public Ways 27,550,490 - 27,550,490 Culture and Recreation 2,687,853 - 2,687,853 Community Development 16,127,116 - 16,127,116 Capital Projects 74,424,849 - 74,424,849 Debt Service 6,771,009 31,705,161 38,476,170 Unrestricted (Deficit) (231,899,788) 165,646,610 (66,253,178)

Total Net Assets $ 614,036,411 $ 735,248,666 $ 1,349,285,077

The notes to the financial statements are an integral part of this statement. 65 CITY OF FRESNO, CALIFORNIA

STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2007

Program Revenue Net (Expense) Revenue and Changes in Net Assets

Operating Capital Charges for Grants and Grants and Governmental Business-type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total

Governmental activities

General Government $ 23,841,982 $ 5,555,342 $ 9,933,001 $ - $ (8,353,639) $ - $ (8,353,639) Public Protection 183,973,705 16,683,895 14,981,087 2,768,587 (149,540,136) - (149,540,136) Public Ways and Facilities 56,235,647 7,926,202 20,469,941 33,897,824 6,058,320 - 6,058,320 Culture and Recreation 25,118,951 1,932,771 1,893,494 3,252,365 (18,040,321) - (18,040,321) Community Development 15,849,024 542,935 4,379,947 50,123 (10,876,019) - (10,876,019) Redevelopment 6,299,771 - - 7,041 (6,292,730) - (6,292,730) Interest on Long-term Debt 23,969,934 - - - (23,969,934) - (23,969,934)

Total Governmental Activities 335,289,014 32,641,145 51,657,470 39,975,940 (211,014,459) - (211,014,459)

Business-type Activities

Water System 47,147,385 45,136,898 - 22,218,850 - 20,208,363 20,208,363 Sewer System 54,145,460 50,362,926 - 9,583,290 - 5,800,756 5,800,756 Solid Waste Management 45,060,944 43,250,635 291,396 - - (1,518,913) (1,518,913) Transit 43,012,048 8,286,235 28,477,537 2,189,244 - (4,059,032) (4,059,032) Airports 21,311,072 15,162,563 2,487,313 6,134,351 - 2,473,155 2,473,155 FCtiCtFresno Convention Center 10,592,87810 592 878 3,042,8123 042 812 - - - (7 (7,550,066) 550 066) (7 (7,550,066) 550 066) Community Sanitation 10,594,932 9,691,586 - - - (903,346) (903,346) Parking 7,568,078 7,765,138 - - - 197,060 197,060 Parks and Recreation 1,453,699 542,231 - - - (911,468) (911,468) Development Services 17,433,801 15,678,185 - - - (1,755,616) (1,755,616) Stadium 3,769,282 1,500,000 - - - (2,269,282) (2,269,282) Total Business-type Activities 262,089,579 200,419,209 31,256,246 40,125,735 - 9,711,611 9,711,611

Total Government $ 597,378,593 $ 233,060,354 $ 82,913,716 $ 80,101,675 $ (211,014,459) $ 9,711,611 $ (201,302,848)

General Revenues: Taxes and Licenses: Property Taxes $ 119,320,016 $ - $ 119,320,016 Sales Taxes 59,881,119 - 59,881,119 In Lieu Sales Tax 19,278,652 - 19,278,652 Franchise Taxes 6,165,853 - 6,165,853 Business Tax 16,509,849 - 16,509,849 Room Tax 10,814,537 - 10,814,537 Other Taxes 3,894,036 - 3,894,036 Revenue restricted for Infrastructure maintenance 1,627,444 - 1,627,444 Investment earnings 12,314,222 11,808,567 24,122,789 Passenger and Customer Facility Charges - 3,686,458 3,686,458 FAA Audit Compliance Settlement - 6,478,711 6,478,711 Gain on sale of capital assets 81,817 291,256 373,073 Transfers: 1,145,812 (1,145,812) - Total general revenues and transfers 251,033,357 21,119,180 272,152,537 Change in net assets 40,018,898 30,830,791 70,849,689 Net Assets, Beginning of Year 581,937,298 704,417,875 1,286,355,173 Cumulative effect of adoption of GASB 43 (7,919,785) (7,919,785) Net Assets, Beginning of Year Restated 574,017,513 704,417,875 1,278,435,388 Net Assets, End of Year $ 614,036,411 $ 735,248,666 $ 1,349,285,077

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 66 67 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

FUND FINANCIAL STATEMENTS

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA

BALANCE SHEET CITY OF FRESNO, CALIFORNIA GOVERNMENTAL FUNDS June 30, 2007 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS Redevelopment Other Total JUNE 30, 2007 General Grants Agency, Debt Governmental Governmental Fund Fund Service Fund Funds Funds Fund Balances – Total Governmental Funds $ 167,173,491

Assets Amounts reported for governmental activities in the statement of net assets are different because: Cash and Investments $ 27,148,608 $ 400 $ 3,768,460 $ 35,918,177 $ 66,835,645 Receivables, Net 14,385,872 120 - 669,241 15,055,233 Capital assets used in governmental activities are not financial resources and, therefore are not Grant Receivable 31,396 7,885,343 - 4,850,142 12,766,881 reported in the funds. Those assets consist of: Intergovernmental Receivables 15,753,892 - - 1,861,736 17,615,628 Due From Other Funds 9,278,632 - 29,467 11,153,910 20,462,009 Land $ 196,804,586 Advances to Other Funds 24,283,482 34,922,759 245,837 18,824,294 78,276,372 Buildings and Improvements, net of $48,846,610 accumulated depreciation 97,305,920 Property Held for Resale - - - 33,098,442 33,098,442 Machinery and Equip, net of $19,108,603 accumulated depreciation 9,904,392 Restricted Cash - 273,533 2,404,561 43,865,443 46,543,537 Infrastructure, net of $578,863,709 accumulated depreciation 396,767,758 Loans, Notes, Leases, Other Receivables - 20,314,865 133,343 3,792,189 24,240,397 Construction in Progress 92,716,255 793,498,911 Total Assets $ 90,881,882 $ 63,397,020 $ 6,581,668 $ 154,033,574 $ 314,894,144 Total Capital Assets

Net Pension Assets applicable to governmental activities are not available for spending in the Liabilities and Fund Balances current period and accordingly are not reported as fund assets. 2,000,000 Liabilities: Accrued Liabilities $ 7,349,723 $ 1,179,927 $ - $ 8,047,974 $ 16,577,624 Some of the City's property taxes ($5,485,456), sales tax ($1,344,262), In Lieu Sales Tax Deferred Revenue 14,699,814 5,430,317 - 4,256,511 24,386,642 ($4,291,333), grant revenue ($8,778,485) and Franchise Fee ($1,752,071) will be collected after Due to Other Funds 768,662 8,017,368 99,522 8,857,324 17,742,876 year-end, but are not available soon enough to pay for the current period's expenditures, and Advances From Other Funds 8,218,076 - 80,408,353 - 88,626,429 therefore are reportedp as deferred revenue in the funds. 21,651,607 Deposits From Others 307,328 418 22,509 56,827 387,082 Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an Total Liabilities 31,343,603 14,628,030 80,530,384 21,218,636 147,720,653 expenditure when due. (3,017,564)

Long-term liabilities applicable to governmental activities are not due and payable in the current Fund (Deficit) Balances: period and accordingly are not reported as fund liabilities. Reserved for: Encumbrances 1,805,966 9,343,158 - 18,976,372 30,125,496 Bonds and Certificates of Participation$ (327,210,000) Non-current Receivables 24,283,482 52,836,767 133,342 21,916,483 99,170,074 Notes Payable (11,409,616) Debt Service - 273,533 2,404,561 43,704,254 46,382,348 Capital Leases (12,428,940) Property Held for Resale - - - 33,098,442 33,098,442 Compensated Absences (15,666,785) Unreserved: Retention Payable (1,420,205) Designated for: Rebatable Arbitrage Payable (235,452) Emergency Reserve 14,658,751 - - - 14,658,751 Total Long Term Liabilities (368,370,998) Unreserved, Undesignated: Reported in: Governmental funds report the effect of issuance costs, premium, original issue discount and General Fund 18,790,080 - - - 18,790,080 refunding charge, when debt is first issued, whereas in the Statement of Activities these amounts Special Revenue Funds - (13,684,468) - 2,509,233 (11,175,235) are amortized to interest and amortization expense over the life of the debt. Debt Service Funds - - (76,486,619) - (76,486,619) Deferred Cost of Issuance $ 4,535,423 Capital Project Funds - - - 12,610,154 12,610,154 Deferred Amount on Refunding 177,159 Unamortized Premium (427,684) Total Fund Balances (Deficit) 59,538,279 48,768,990 (73,948,716) 132,814,938 167,173,491 Unamortized Discount 116,677 Total 4,401,575 Total Liabilities and Fund Balances $ 90,881,882 $ 63,397,020 $ 6,581,668 $ 154,033,574 $ 314,894,144 Internal service funds are used by management to charge the costs of various activities, such as fleet and insurance to individual funds. Assets and liabilities of certain internal service funds are included in governmental activities in the statement of activities. (3,300,611)

Net assets of Governmental activities $ 614,036,411

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 70 71 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES GOVERNMENTAL FUNDS IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Redevelopment Other Total Net change in fund balances - total governmental funds $ (1,892,553) General Grants Agency, Debt Governmental Governmental Fund Fund Service Fund Funds Funds Amounts reported for governmental activities in the statement of activities are different because: Revenues Governmental funds report capital outlays as expenditures. However, in the statement of Taxes $ 209,483,621 $- $ 17,640,490 $ 14,760,173 $ 241,884,284 activities the cost of those assets is allocated over their estimated useful lives and reported Licenses and Permits 352,241 - - - 352,241 as depreciation expense. This is the amount by which capital outlays of $68,760,714 Intergovernmental 6,579,760 30,996,266 - 7,142,334 44,718,360 exceeded depreciation of $34,694,454 in the current period. 34,066,260 Charges for Services 16,060,261 1,866,065 - 13,997,550 31,923,876 Fines 3,766,600 - - - 3,766,600 Some expenses, retention payable and rebatable arbitrage, reported in the statement of activities do not require the use of current financial resources, and therefore are not Use of Money and Property 2,583,122 699,275 706,871 6,293,945 10,283,213 reported as expenditures in governmental funds. (905,152) Miscellaneous 9,241,572 117,960 238,715 6,428,682 16,026,929 Some capital additions were financed through capital leases. In governmental funds, a Total Revenues 248,067,177 33,679,566 18,586,076 48,622,684 348,955,503 capital lease arrangement is considered a source of financing, but in the statement of net assets, the lease obligation is reported as a liability. Expenditures (2,016,552) Current: Some capital additions were financed with a note payable. In the statement of net assets General Government 8,177,966 1,159,838 5,459,225 250,703 15,047,732 acquiring debt increases long-term liabilities and does not affect the state of activities. Public Protection 164,203,086 12,715,165 - 81,569 176,999,820 Additionally, repayment of principal is an expenditure in the governmental funds but Public Ways and Facilities 9,513,574 2,198,787 - 8,555,772 20,268,133 reduces liability in the statement of net assets. Culture and Recreation 21,403,826 1,271,063 - 10,214 22,685,103 Note Payable $ (48,000) Community Development 2,019,621 9,156,663 - 3,991,711 15,167,995 Principal payments to bond, certificate and note holders 19,295,631 Capital Outlay 1,015,178 8,441,969 - 46,674,887 56,132,034 Net adjustment 19,247,631 Debt Service: Principal 1,643,416 - 791,637 16,860,578 19,295,631 Under the modified accrual basis of accounting used in the governmental funds, Interest 1,710,512 - 3,473,598 18,843,267 24,027,377 expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the statement of activities, however, which is presented on Total Expenditures 209,687,179 34,943,485 9,724,460 95,268,701 349,623,825 the accrual basis, expenses and liabilities are reported regardless of when financial Excess (Deficiency) of Revenue resources are available. In addition, interest on long term debt is not recognized under the modified accrual basis of accounting until due, rather than as it accues. Over (Under) Expenditures 38,379,998 (1,263,919) 8,861,616 (46,646,017) (668,322)

Other Financing Sources (Uses) Compensated Absences $ (1,787,601) Transfers In 2,850,937 4,295,985 6,416,674 59,551,105 73,114,701 Amortization of Debt Premium and Discount 79,778 Transfers Out (37,527,205) (1,605,513) (13,404,428) (18,019,627) (70,556,773) Amortization of Debt Issue Costs (453,207) FAA Litigation Settlement (5,846,711) - - - (5,846,711) Accrued Interest on Bonds, Certificates, and Notes 225,150 Proceeds for Note Obligation 48,000 - - - 48,000 Combined adjustment (1,935,880) Proceeds for Capital Lease Obligations 2,016,552 - - - 2,016,552 Total Other Financing Revenues recognized in the statement of activites in previous years were recognized in the fund statements in the current year and do not provide current financial resources. Sources (Uses) (38,458,427) 2,690,472 (6,987,754) 41,531,478 (1,224,231) (1,171,593) Net Change in Fund Balances (78,429) 1,426,553 1,873,862 (5,114,539) (1,892,553) Internal Service Funds are used by management to charge the costs of certain activities, Fund Balances (Deficit) - Beginning 59,616,708 47,342,437 (75,822,578) 137,929,477 169,066,044 such as insurance and fleet, to individual funds. The net expenses of certain activities of internal service funds is reported with governmental activities. (5,373,263) Fund Balances (Deficit) - Ending $ 59,538,279 $ 48,768,990 $ (73,948,716) $ 132,814,938 $ 167,173,491 Change in net assets of governmental activities $ 40,018,898

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 72 73 CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007

Business-Type Activities - Enterprise Funds Business-Type Activities - Enterprise Funds

Governmental Activities Fresno Other Internal Water Sewer Solid Waste Convention Enterprise Service System System Management Transit Airports Center Stadium Funds Total Funds Assets

Current Assets: Cash and Investments $ 11,233,124 $ 33,453,619 $ 119,310 $ 1,200 $ 1,414,077 $ 709,808 $ 168,554 $ 8,500,835 $ 55,600,527 $ 28,663,001 Restricted Cash - Current - - - - 18,644,643 - - - 18,644,643 - Interest Receivable 613,459 723,005 249,462 - 144,171 - 6,540 173,847 1,910,484 787,436 Receivables, Net 6,360,890 7,442,850 6,369,695 221,193 1,215,288 464,859 - 2,408,156 24,482,931 30,814 Grants Receivable - - 43,756 19,649,136 - - - - 19,692,892 - Inventories 1,400,772 1,317,333 - 812,601 20,000 - - - 3,550,706 1,117,688 Intergovernmental Receivables - 994,669 - 8,074,560 - - - 8,688 9,077,917 - Due from Other Funds 4,026,060 10,287,052 29,952 - 664,446 154,795 - 2,328,680 17,490,985 13,096,046

Total Current Assets 23,634,305 54,218,528 6,812,175 28,758,690 22,102,625 1,329,462 175,094 13,420,206 150,451,085 43,694,985

Noncurrent Assets: Restricted: Cash and Investments 37,974,725 122,825,214 16,782,863 3,804,160 13,727,996 8,605,167 1,636,033 6,461 205,362,619 2,947,880 Grants and Interest Receivable 281,282 1,657,652 - 150,000 940,669 - - - 3,029,603 210,123

Total Restricted Assets 38,256,007 124,482,866 16,782,863 3,954,160 14,668,665 8,605,167 1,636,033 6,461 208,392,222 3,158,003

Other Assets: Other Receivables 1,031,179 25,197,560 - 45,483 - - - - 26,274,222 1,003 Other Assets 532,808 2,322,125 242,101 2,193 1,925,947 1,432,755 1,176,890 - 7,634,819 - Unamortized CVP Water Settlement 40,649,830 ------40,649,830 - Accounts Receivable from Solid Waste Rate Payers - - 4,578,697 - - - - - 4,578,697 - Advances to Other Funds 1,909,381 1,208,900 43,659 - 9,107,428 2,123,581 - 241,310 14,634,259 1,502,626

Total Other Assets 44,123,198 28,728,585 4,864,457 47,676 11,033,375 3,556,336 1,176,890 241,310 93,771,827 1,503,629

Capital Assets: Land 5,047,917 14,308,664 1,359,842 13,523 11,334,216 5,222,779 710,000 5,180,767 43,177,708 56,688 Buildings, Systems and Improvements 249,451,636 393,367,447 1,800,495 20,726,246 107,579,534 71,243,211 39,151,537 21,310,863 904,630,969 15,937,481 Machinery & Equipment 2,998,348 8,836,821 13,225,398 47,061,294 5,950,687 1,335,360 1,400,146 323,773 81,131,827 135,195,417 Infrastructure 36,169,496 97,579,596 - - 39,183,951 - - - 172,933,043 - Construction in Progress 8,754,961 35,303,789 - - 14,210,359 16,064,532 - 1,511,251 75,844,892 154,605 Less Accumulated Depreciation (96,784,146) (91,669,938) (10,348,914) (38,006,028) (43,565,589) (37,198,034) (4,766,213) (18,647,284) (340,986,146) (123,599,295)

Total Capital Assets, Net 205,638,212 457,726,379 6,036,821 29,795,035 134,693,158 56,667,848 36,495,470 9,679,370 936,732,293 27,744,896

Total Non-Current Assets 288,017,417 610,937,830 27,684,141 33,796,871 160,395,198 68,829,351 39,308,393 9,927,141 1,238,896,342 32,406,528

Total Assets $ 311,651,722 $ 665,156,358 $ 34,496,316 $ 62,555,561 $ 182,497,823 $ 70,158,813 $ 39,483,487 $ 23,347,347 $ 1,389,347,427 $ 76,101,513

(continued)

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 74 75 CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2007 (continued)

Business-Type Activities - Enterprise Funds Business-Type Activities - Enterprise Funds Governmental Fresno Other Activities Water Sewer Solid Waste Convention Enterprise Internal System System Management Transit Airports Center Stadium Funds Totals Service Funds Liabilities

Current Liabilities: Accrued Liabilities $ 5,264,499 $ 9,727,617 $ 1,715,110 $ 4,607,915 $ 4,463,582 $ 4,937,883 $ 212,905 $ 1,764,511 $ 32,694,022 $ 7,622,415 Accrued Compensated Absences 78,619 150,791 207,357 236,053 146,644 - - 210,552 1,030,016 558,422 Liability for Self Insurance ------16,449,191 Unearned Revenue 16,218,821 28,947,292 2,614,267 6,767,216 - 77,646 - 743,991 55,369,233 - Due to Other Funds - - - 23,350,944 - 2,322,368 777,097 5,842,363 32,292,772 1,013,392 Bonds Payable and Certificates of Participation 1,675,000 7,720,000 1,215,000 - 765,000 2,910,990 860,000 - 15,145,990 - Capital Lease Obligations ------1,710,755 Notes Payable 212,727 ------212,727 -

Total Current Liabilities 23,449,666 46,545,700 5,751,734 34,962,128 5,375,226 10,248,887 1,850,002 8,561,417 136,744,760 27,354,175

Non-current Liabilities: Accrued Compensated Absences 847,089 850,412 581,496 1,398,345 721,383 - - 1,786,163 6,184,888 3,483,022 Capital Lease Obligations ------3,761,800 Liability for Self-Insurance ------48,537,703 Bonds Payable and Certificates of Participation 38,172,361 202,885,888 10,278,123 - 60,920,484 51,718,054 42,005,991 - 405,980,901 - Notes Payable 1,503,143 ------1,503,143 - CVP Litigation Settlement 39,954,937 ------39,954,937 - Other Liabilities - 22,854,128 ------22,854,128 - Accrued Closure Costs - - 8,625,188 - - - - - 8,625,188 - Advances From Other Funds - - 666,519 - 531,089 245,837 - 1,905,074 3,348,519 2,438,309 Deposits Held for Others 1,031,153 17,881,335 - - 52,435 1,078,021 - 320 20,043,264 2,686,148

Total Non-current Liabilities 81,508,683 244,471,763 20,151,326 1,398,345 62,225,391 53,041,912 42,005,991 3,691,557 508,494,968 60,906,982

Total Liabilities 104,958,349 291,017,463 25,903,060 36,360,473 67,600,617 63,290,799 43,855,993 12,252,974 645,239,728 88,261,157

Net Assets Invested in Capital Assets, Net of Related Debt 164,180,071 247,122,750 (2,018,709) 29,795,035 91,652,317 3,814,174 (6,370,521) 9,679,370 537,854,487 22,272,341

Restricted for Debt Service 2,587 17,051,148 1,368,653 - 7,988,023 3,658,717 1,636,033 - 31,705,161 - Unrestricted (Deficit) 42,510,715 109,964,997 9,243,312 (3,599,947) 15,256,866 (604,877) 361,982 1,415,003 174,548,051 (34,431,985)

Total Net Assets (Deficit) $ 206,693,373 $ 374,138,895 $ 8,593,256 $ 26,195,088 $ 114,897,206 $ 6,868,014 $ (4,372,506) $ 11,094,373 $ 744,107,699 $ (12,159,644)

Some amounts reported for Business-type activities in the statement of net assets are different due to certain internal service fund assets and liabilities being included with Business-type activities. (8,859,033)

Net assets of business-type activities $ 735,248,666

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 76 77 CITY OF FRESNO, CALIFORNIA

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2007

Business-Type Activities - Enterprise Funds Business-Type Activities - Enterprise Funds Governmental Fresno Other Activities Water Sewer Solid Waste Convention Enterprise Internal Service System System Management Transit Airports Center Stadium Funds Total Funds Operating Revenues:

Charges for Services $ 45,136,898 $ 50,362,926 $ 43,250,635 $ 8,286,235 $ 15,162,563 $ 3,042,812 $ 1,500,000 $ 33,677,140 $ 200,419,209 $ 98,170,209

Operating Expenses: Cost of Services 29,274,405 21,717,142 24,482,568 28,780,476 7,325,327 4,074,866 - 17,711,997 133,366,781 68,133,503 Administration 7,511,623 18,035,934 17,748,254 8,107,916 6,413,084 1,656,715 4,482 18,033,212 77,511,220 24,015,091 Amortization 58,515 192,389 22,765 - 70,758 57,873 77,366 - 479,666 - Depreciation 8,010,194 12,352,853 883,702 4,159,992 5,346,150 2,721,652 1,066,284 550,901 35,091,728 14,398,002

Total Operating Expenses 44,854,737 52,298,318 43,137,289 41,048,384 19,155,319 8,511,106 1,148,132 36,296,110 246,449,395 106,546,596

Operating Income (Loss) 282,161 (1,935,392) 113,346 (32,762,149) (3,992,756) (5,468,294) 351,868 (2,618,970) (46,030,186) (8,376,387)

Non-operating Revenue (Expenses):

Operating Grants - - 291,396 28,477,537 2,487,313 - - - 31,256,246 - Interest Income 2,202,335 6,521,538 948,783 - 613,180 402,893 137,483 665,122 11,491,334 2,348,242 Interest Expense (2,004,281) (1,369,532) (682,128) (863,535) (2,065,480) (2,081,772) (2,621,150) (236,956) (11,924,834) (247,485) Passenger Facility Charges - - - - 2,459,228 - - - 2,459,228 - Customer Facility Charges - - - - 1,227,230 - - - 1,227,230 - FAA Audit Compliance Settlement - - - - 6,478,711 - - - 6,478,711 - Gain ( Loss) on Sale of Capital Assets (24,678) (40,777) (9,441) (158,721) (69,575) - - 291,256 (11,936) (3,033)

Total Non-operating Revenue (Expenses) 173,376 5,111,229 548,610 27,455,281 11,130,607 (1,678,879) (2,483,667) 719,422 40,975,979 2,097,724

Income (Loss) Before Contributions and Transfers 455,537 3,175,837 661,956 (5,306,868) 7,137,851 (7,147,173) (2,131,799) (1,899,548) (5,054,207) (6,278,663)

Capital Contributions 22,218,850 9,583,290 - 2,189,244 6,134,351 - - - 40,125,735 50,123 Transfer In - - - 2,499,642 - 8,299,932 1,750,500 1,326,182 13,876,256 70,000 Transfer Out (357,679) (1,151,982) (1,184,500) (996,000) (6,553,974) - - (4,295,957) (14,540,092) (2,791,624)

Change in Net Assets 22,316,708 11,607,145 (522,544) (1,613,982) 6,718,228 1,152,759 (381,299) (4,869,323) 34,407,692 (8,950,164)

Total Net Assets (Deficit) - Beginning 184,376,665 362,531,750 9,115,800 27,809,070 108,178,978 5,715,255 (3,991,207) 15,963,696 709,700,007 4,710,305

Cumulative Effect of Adoption of GASB 43 (7,919,785)

Total Net Assets (Deficit) - Beginning Restated 184,376,665 362,531,750 9,115,800 27,809,070 108,178,978 5,715,255 (3,991,207) 15,963,696 709,700,007 (3,209,480)

Total Net Assets (Deficit) - Ending $ 206,693,373 $ 374,138,895 $ 8,593,256 $ 26,195,088 $ 114,897,206 $ 6,868,014 $ (4,372,506) $ 11,094,373 744,107,699 $ (12,159,644)

Some amounts reported for Business-type activities in the statement of activities are different due to the net revenue (expenses) of certain internal service funds being reported with Business-type activities. (3,576,901) Change in Net Assets of business-type activities $ 30,830,791

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 78 79 CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2007 Business-Type Activities - Enterprise Funds Business-Type Activities - Enterprise Funds Governmental Activities Fresno Other Internal Water Sewer Solid Waste Convention Enterprise Service System System Management Transit Airports Center Stadium Funds Total Funds CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ 39,512,621 $ 58,698,998 $ 40,951,524 $ 15,050,675 $ 14,391,051 $ 4,412,986 $ 1,500,000 $ 29,624,100 $ 204,141,955 $ 4,108,509 Cash Received from Interfund Services Provided 1,372,397 43,647 1,479,542 4,000 - - - 1,526,384 4,425,970 89,451,172 Cash Payment to Suppliers for Services (21,827,167) (23,275,198) (12,539,449) (8,654,557) (5,771,879) (705,232) (4,482) (10,046,992) (82,824,956) (40,182,887) Cash Paid for Interfund Services Used (4,626,267) (5,018,629) (15,934,380) (4,787,652) (1,710,347) (117,346) - (6,923,586) (39,118,207) (3,567,807) Cash Payments to Employees for Services (8,719,436) (10,485,571) (14,065,320) (22,103,274) (4,641,689) (2,412,138) - (15,847,212) (78,274,640) (28,986,363) Cash Payment for Claims and Refunds ------(15,627,136)

Net Cash Provided by (Used for) Operating Activities 5,712,148 19,963,247 (108,083) (20,490,808) 2,267,136 1,178,270 1,495,518 (1,667,306) 8,350,122 5,195,488

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital contributions 10,914,218 10,701,354 - 2,189,244 6,260,622 - - - 30,065,438 - Passenger and Customer Facility Charges - - - - 3,686,458 - - - 3,686,458 Interest payments on capital debt (1,797,264) (10,336,554) (687,755) - (2,021,562) (1,772,922) (2,630,862) (124,473) (19,371,392) (887,756) Proceeds from issuance of capital debt - - - - 22,000,000 - - - 22,000,000 - Principal payments on capital debt-bonds (1, 625, 000) (7, 426, 041) (1, 155, 000) - 725 , 000 (3 , 037, 608) (820 , 000) - (13, 338, 649) - Principal payments on capital debt-notes (206,381) ------(206,381) - Principal payment on capital lease obligations ------(1,800,978) Proceeds from sale of capital assets 51,555 17,222 550 7,211 - - - 546,144 622,682 - Acquisition and construction of capital assets (16,279,092) (9,680,577) (1,108,030) (1,804,625) (11,730,250) (12,183,928) - (201,546) (52,988,048) (9,481,119)

Net Cash Provided by (Used for) Capital and Related Financing Activities (8,941,964) (16,724,596) (2,950,235) 391,830 18,920,268 (16,994,458) (3,450,862) 220,125 (29,529,892) (12,169,853)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Operating Grants - - 291,396 17,615,501 - - - - 17,906,897 - Interest Payments, Noncapital - - - (1,123,061) - - - (112,483) (1,235,544) - Borrowings from Other Funds - 2,860,193 2,860,193 FAA Audit Compliance Settlement 6,478,711 6,478,711 Cumulative effect of Adoption of GASB 43 (7,919,785) Transfers In - - - 2,499,642 - 8,299,932 1,750,500 1,326,182 13,876,256 70,000 Transfers Out (357,679) (1,151,983) (1,184,500) (996,000) (6,553,974) - - (4,295,957) (14,540,093) (2,791,624)

Net Cash Provided by (Used for) Non-capital Financing Activities (357,679) (1,151,983) (893,104) 20,856,275 (75,263) 8,299,932 1,750,500 (3,082,258) 25,346,420 (10,641,409)

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends on Investments 2,115,048 6,180,801 954,029 - 593,376 402,893 134,575 669,416 11,050,138 2,380,510

Net cash provided by investing activities 2,115,048 6,180,801 954,029 - 593,376 402,893 134,575 669,416 11,050,138 2,380,510 Net increase (decrease) in cash and cash equivalents (1,472,447) 8,267,469 (2,997,393) 757,297 21,705,517 (7,113,363) (70,269) (3,860,023) 15,216,788 (15,235,264) Cash and cash equivalents, beginning of year 50,680,296 132,387,432 18,569,692 3,048,063 9,068,539 12,974,215 1,874,856 12,367,319 240,970,412 46,846,145

Cash and cash equivalents, end of year $ 49,207,849 $ 140,654,901 $ 15,572,299 $ 3,805,360 $ 30,774,056 $ 5,860,852 $ 1,804,587 $ 8,507,296 $ 256,187,200 $ 31,610,881 (Continued)

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 80 81 CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOW PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2007 (Continued) Business-Type Activities - Enterprise Funds Business-Type Activities - Enterprise Funds Governmental Activities- Fresno Other Internal Water Sewer Solid Waste Convention Enterprise Service System System Management Transit Airports Center Stadium Funds Total Funds Reconciliation of operating income (loss) to net cash provided by (used for) operating activities:

Operating income (loss) $ 282,161 $ (1,935,392) $ 113,346 $ (32,762,148) $ (3,992,756) $ (5,468,294) $ 351,868 $ (2,618,970) $ (46,030,185) $ (8,376,387) Adjustment to reconcile operating income to net cash Provided by (used for) operating activities:

Depreciation expense 8,010,194 12,352,853 883,702 4,159,992 5,346,150 2,721,652 1,066,284 550,901 35,091,728 14,398,002 Amortization expense 58,515 192,389 22,765 - 70,758 57,873 77,366 - 479,666 -

Change in assets and liabilities: Decrease (increase) in accounts receivable (1,614,856) (1,897,285) (1,305,052) 24,880 12,463 3,044 - (1,561,509) (6,338,315) 848,902 Decrease (increase) in other receivables (61,233) 825,516 192,124 44,931 943,278 - 64,614 2,009,230 798 Decrease (increase) in due from other funds (3,993,245) 10,139,000 405 172,758 (614,986) 1,079,596 - (1,037,026) 5,746,502 (5,448,208) Decrease (increase) in due from other governments - (213,161) (43,756) - 35,424 - - - (221,493) - Decrease (increase) in material and supplies inventory (186,847) 48,651 - 46,594 - - - - (91,602) (511,643) Decrease ()pp(increase) in prepaid items - - - - - 46,726, - - 46,726, - Decrease (increase) in advances to other funds (71,704) (474,351) - - (989,017) 571,014 - (198,366) (1,162,424) 143,600 (Decrease) increase in accrued liabilities 1,895,901 1,477,176 (308,327) 1,296,314 1,237,001 1,711,732 - 653,825 7,963,622 4,498,930 (Decrease) increase in due to other funds - - - - - 738,408 - 2,463,570 3,201,978 (202,885) (Decrease) increase in other liabilities - (785,576) ------(785,576) - (Decrease) increase in CIP Retention payable (95,896) 233,427 - - 377,494 - - - 515,025 - (Decrease) increase in unearned revenue 1,489,158 - 336,710 6,525,871 (158,673) 34,909 - 15,655 8,243,630 - (Decrease) increase in restricted deposits - - - - - (318,390) - - (318,390) (155,621)

Net cash provided by (used for) operating activities $ 5,712,148 $ 19,963,247 $ (108,083) $ (20,490,808) $ 2,267,136 $ 1,178,270 $ 1,495,518 $ (1,667,306) $ 8,350,122 $ 5,195,488

Reconciliation of cash and cash equivalents to the balance sheet: Cash and Investments: Unrestricted 11,233,124 33,453,619 119,310 1,200 1,414,077 709,808 168,554 8,500,835 55,600,527 28,663,001 Restricted 37,974,725 122,825,214 16,782,863 3,804,160 32,372,639 8,605,167 1,636,033 6,461 224,007,262 2,947,880 Total cash and investments 49,207,849 156,278,833 16,902,173 3,805,360 33,786,716 9,314,975 1,804,587 8,507,296 279,607,789 31,610,881 Less: Non-cash equivalents - (15,623,932) (1,329,874) - (3,012,660) (3,454,123) - - (23,420,589) - Cash and cash equivalents at end of year on statement of cash flows $ 49,207,849 $ 140,654,901 $ 15,572,299 $ 3,805,360 $ 30,774,056 $ 5,860,852 $ 1,804,587 $ 8,507,296 $ 256,187,200 $ 31,610,881

Noncash investing, capital, and financing activities: Borrowing under capital lease ------2,878,762 Decrease in fair value of cash & investments 169,332 480,150 53,570 - 88,965 - - 29,333 821,350 101,751 Amortization of bond premium, discount and loss on refunding 214,419 200,510 3,467 - 3,258 49,070 (6,310) - 464,414 - Loss on abandonment of capital assets ------Acquisition and construction of capital assets in accounts payable 217,786 3,564,995 7,505 204,295 631,055 670,860 - - 5,296,496 697,982

The notes to the financial statements are an integral part of this statement. The notes to the financial statements are an integral part of this statement. 82 83 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - TRUST FUNDS FIDUCIARY FUNDS - TRUST AND AGENCY FUNDS YEAR ENDED JUNE 30, 2007 JUNE 30, 2007 Total Total Health and Pension Trust Health and Welfare Pension Trust Welfare Funds Trust Funds Agency Funds ADDITIONS Funds Trust Funds Assets Contributions: Cash and Investments $ 3,751,743 $ 14,022,839 $ 20,309,292 Employer $ 12,373,007 $ 22,954,937 Cash and Investments Held by Fiscal Agent - 1,654,969 System Members 10,487,714 8,591,706

Total Cash and Investments 3,751,743 14,022,839 21,964,261 Total Contributions 22,860,721 31,546,643

Receivables Investment Income: Receivables for Investments Sold 22,627,200 - Net appreciation in Value of Investments 285,792,386 Interest and Dividends Receivable 8,269,542 650,051 160,927 Interest 31,854,801 625,662 Dividends 24,237,671 Other Receivables 3,751,914 - Refunds 2,550,289 Due From Other Governments - 77,021 Other Investment Related 223,625 3,769 Due From Other Funds - - Total Investment Income 342,108,483 3,179,720 Less Investment Expense (13,231,590) Total Receivables 34,648,656 650,051 237,948 Total Net Investment Income 328,876,893 3,179,720 Investments, at fair value: Short Term Investments 52,541,977 - Securities Lending Income: Domestic Equity 912,374,345 - Securities Lendings Earnings 21,421,301 Corporate Bonds 287,353,304 - Less Securities Lending Expense (20,267,925) International Equity 427,466,325 - Emerging Market Equity 74,054,373 - Net Securities Lending Income 1,153,376 - Government Bonds 311,515,391 - Real Estate 218,098,785 - Total Additions 352,890,990 34,726,363

DEDUCTIONS Total Investments 2,283,404,500 - -

Benefit Payments 77,631,165 27,663,431 Collateral Held for Securities Lent 434,117,077 - Refund of Contributions 1,804,543 Capital Assets, net of Accumulated Depreciation 134,628 - Administrative Expenses 1,804,477 3,724,982 Prepaid Expense 184,230 - Total Deductions 81,240,185 31,388,413 Total Assets 2,756,240,834 14,672,890 $ 22,202,209 Net Increase 271,650,805 3,337,950 Liabilities Net Assets Available for Benefits Beginning 1,990,606,874 7,919,785 Accrued Liabilities 53,199,171 3,415,155 607,144 Collateral Held for Securities Lent 434,117,077 - Net Assets Ending $ 2,262,257,679 $ 11,257,735 Unearned Revenue 6,666,907 - Prepayment of Special Assessment - 87,707 Deposits Held for Others - 21,507,358

Total Liabilities 493,983,155 3,415,155 $ 22,202,209

Net Assets

Net Assets Held in Trust for Benefits $ 2,262,257,679 $ 11,257,735

84 85 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

NOTES TO FINANCIAL STATEMENTS

City of Fresno - www.fresno.gov City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

prepared for the RDA and may be obtained from the Redevelopment Agency Office at 2344 Tulare Street, Suite 200, Fresno, CA 93721-3604. Note 1. DEFINITION OF REPORTING ENTITY Fres : An independent public entity created in 1988. The no AuthorityJ oacquiredin telecommunications equipment, office furniture, streetlights, and constructed t Po The City of Fresno (City) is a political subdivision chartered by the State of Investing today – for the City of tomorrow facilities and streetw improvements through the issuance of limited obligation bonds, certificates of ers California and, as such, can exercise the powers specified by the Constitution participation and revenueFina bonds. The Authority currently is leasing these assets ncin and laws of the State of California. The City operates under its Charter and is to the City. On June 28, 2006 gthe JPA issued $18,725,000 (aggregate principal Auth governed by a directly elected strong Mayor and a seven-member City amount) of Fresno Joint Powers Financingority Authority Lease Revenue Bonds to Council. The City Manager serves as the head of the administrative branch of finance improvements to Fresno’s Convention Center Complex. These include the City and is appointed by the Mayor. the renovation of Selland Arena, Valdez Exhibit Hall, Saroyan Theatre, and the CAFR – 48th Comprehensive Annual Financial Report purchase of land within the Complex area. The Authority’s governing board City of Fresno, California As required by generally accepted accounting principles (GAAP), these basic For the fiscal year ended June 30, 2007 consists of three board members appointed by the chief administrative officer financial statements present the financial status of the City and its component (the City Manager) and is responsible for its fiscal and administrative decisions. units, entities for which the City is considered to be financially accountable. Blended component The financial activity for the street improvements is included in the Special Gas units, although legally separate entities, are, in substance, part of the City's operations, and so data Tax Special Revenue Fund. The financial activity for the office furniture and from these units are combined with data of the primary government. street lights are included as part of a debt service fund entitled Financing Authorities and Corporations. The financial activity for projects related to the Lease Revenue Bond is included in the These basic financial statements present the financial status of the City and its component units, General Fund. All lease obligations between the Authority and the City have been eliminated in the which are included in the City's reporting entity because of the significance of their operational or financial statements. financial relationships with the City. C : The System was established on July 1, 1955, to ity o As a government agency, the City is exempt from both federal income taxes and California State providef F rebenefits to the safety employees and retirees of the City of Fresno. The System is sno franchise taxes. maintained and Fire governed by Articles 17 and 17A of Chapter 2 of the Fresno Municipal Code. The an System’s responsibilitiesd P include:o Administration of the trust fund, delivery of retirement and death lice benefits to eligible members, administrationRe of programs, and general assistance in retirement and Blended Component Units tirem related benefits. The governing boarde nist made up of two members appointed by the mayor, an Syst elected police member, an elected fire memberem and a Board appointed member. The activity for Although the following component units are legally separate from the City (the Primary the System is reflected within Fiduciary Funds. Separate financial statements are prepared for the Government), the component units have been "blended" into the City's combined financial Fire and Police Retirement System and may be obtained from the Retirement Office at 2828 Fresno statements for financial reporting purposes because they provide services entirely, or almost Street, Fresno, CA 93721-3604. exclusively, for the benefit of the City even though they do not provide services directly to the City. The City is financially accountable for these units that are blended with the Primary Government City : The System was established on June 1, 1939, to because of their individual governance or financial relationships to the City. of provideF benefitsres to the employees and retirees of the City of Fresno. The System is governed by no Emp Article 18 of Chapter 2 of the City of Fresno Municipal Code. The System’s All potential component units were evaluated, resulting in inclusion in the combined financial loye responsibilitieses R include Administration of the trust fund, delivery of retirement, statements. etire disability mande death benefits to eligible members, administration of nt S programs, and generalyste assistance in retirement and related benefits. The Re : An independent public entity responsible for the m dev governing board is made up of two mayor appointed members; two developmentelop and implementation of housing and redevelopment programs and activities for the me elected members and one board appointed member. The activity for the nt A City of Fresno. The Redevelopment Agency of the City of Fresno (RDA) gen System is reflected within Fiduciary Funds. Separate financial statements cy owas created in 1956. The City Council serves as the governing board f th are prepared for the Employees Retirement System and may be obtained of thee C RDA and is responsible for its fiscal and administrative activities. ity from the Retirement Office at 2828 Fresno Street, Fresno, CA 93721-3604. The financialof F activity of the RDA is included in the City's financial resn statements as theo RDA Debt Service and RDA Capital Projects funds. All City : City of Fresno employees not represented by the lease obligations between the City and the RDA have been eliminated of StationaryFre Engineerss Local are covered by the Fresno City Employees Health and Welfare Trusts in the financial statements. Separate financial statements are no which is are self-insuredHea trusts administered by an outside third party administrator. The activity for lth the Trusts is reflected withinand Fiduciary Funds. Separate financial statements are prepared for the We 88 lfar 89 e Tr usts City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Health and Welfare Trust and may be obtained from the Finance Department at 2600 Fresno financial statements. Revenues are recorded when earned and expenses are recorded when a Street, Fresno, CA 93721-3604. liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. Agency funds however, are unlike all other Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES types of funds, reporting only assets and liabilities. As such, they cannot be said to have a measurement focus. They do however use the accrual basis of accounting to recognize receivables and payables. The financial statements of the City have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to governmental agencies. The Governmental fund financial statements are reported using the current Governmental Accounting Standards Board is the accepted standard-setting body for establishing financial resources measurement focus and the modified accrual basis of governmental accounting and financial reporting principles. The more significant accounting accounting. Revenues are recognized as soon as they are both policies of the City are described below. measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough (a) Government-wide and Fund Financial Statements thereafter to pay liabilities of the current period. The City considers property tax revenues to be available if they are collected within 60 days of the end

Investing today for the City of tomorrow The government-wide financial statements (i.e., the statement of net assets of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as 48th Comprehensive Annual Financial Report under accrual accounting. However, debt service expenditures, as well as expenditures related to Fiscal Year Ended June 30, 2 007 and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. For vacation, sick leave, claims and judgments, are recorded only when payment is due. GOVERNMENT - WIDE FINANCIAL STATEMENTS the most part, the effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes Property taxes, other local taxes, licenses, and interest associated with the current fiscal period are and intergovernmental revenues, are reported separately from business-type all considered susceptible to accrual and so have been recognized as revenues of the current activities, which rely, to a significant extent, on fees and charges for support. fiscal period. All other revenue items are considered to be measurable and available only when

City of Fr esno - www.fr esno.go v the City receives cash. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those The City reports the following major governmental funds: that are clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or The General Fund is the City’s primary operating fund. It accounts for all financial resources privileges provided by a given function or segment and (2) grants and contributions that are of the City except those required to be accounted for in another fund. Investing today for the City of tomor row 48th Comprehensive restricted to meeting the operational or capital requirements of a particular function or segment. Annual Financial Report Taxes and other items not properly included among program revenues are reported instead as The Grants Fund accounts for grants received from federal, state, and F iscal Year Ended June 30, 2 007 general revenues. other agencies, which are to be used for various purposes identified within FUND FINANCIAL the confines of the individual grant. STATEMENTS The accounts of the City are organized on the basis of funds. A fund is a separate accounting entity with a self-balancing set of accounts. Each fund was established for the The Redevelopment Agency Debt Service Fund is used to account for the Investing today for the City of tomor row purpose of accounting for specific activities in accordance with applicable 48th Comprehensive debt service activity of those projects that have been earmarked for Annual Financial Report City of Fr esno - www. fr esno.go v regulations, restrictions or limitations. Separate financial statements are F iscal Year Ended June 30, 2 007 redevelopment. The projects are financed with property tax increments provided for governmental funds, proprietary funds, and fiduciary funds, even FUND FINANCIAL and bond proceeds. though the latter are excluded from the government-wide financial STATEMENTS statements. Major individual governmental funds and major individual The City reports the following major proprietary (enterprise) funds: enterprise funds are reported as separate columns in the fund financial statements. The basic financial statements include certain prior-year Water System Fund accounts for the construction, operation and maintenance of the City's City of Fr esno - www. fr esno.go v summarized comparative information. This information is presented only to water distribution system. Revenues are derived from water service fees and various facilitate financial analysis. installation charges.

(b) Measurement Focus, Basis of Accounting, and Financial Statement Presentation Sewer System Fund accounts for the construction, operation and maintenance of the City's sewer system. Revenues are derived from sewer service fees and various installation The government-wide financial statements are reported using the economic resources charges. measurement focus and the accrual basis of accounting, as are the proprietary fund and trust fund 90 91 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Solid Waste Management Fund accounts for the operations of the City's solid waste disposal Private-sector standards of accounting and financial reporting issued prior to December 1, service. Revenues are primarily derived from solid waste service fees. 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of Transit Fund accounts for the operation and maintenance of the City's mass transportation the Governmental Accounting Standards Board. Governments also have the option of service. Primary revenue sources are rider fares and Federal and State operating grants. following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private- Airports Fund accounts for the City's two airport operations. Revenues are primarily derived sector guidance. from fees for airline operations out of the terminal. Proprietary funds distinguish operating revenues and expenses from non-operating items. Fresno Convention Center Fund accounts for the operation and maintenance of the City's Operating revenues and expenses generally result from providing services in connection convention center. Revenues are primarily derived from fees charged for using the facilities. with the fund’s principal ongoing operations. The principal operating revenues of the City’s enterprise and internal service funds are charges for customer services for sales and Stadium Fund accounts for the construction, operation and maintenance of the City’s services. Operating expenses for enterprise funds and internal service funds include the cost baseball stadium. Revenues are derived from the leasing of the facilities and General Fund of services, administrative expenses, and depreciation on capital assets. All revenues and support. expenses not meeting this definition are reported as non-operating revenues and expenses.

Additionally, the City reports the following fund types: Fiduciary Funds

Investing today for the City of tomor row Governmental Funds Fiduciary funds are used to account for resources held for the benefit of 48th Comprehensive Annual Financial Report parties outside the government. Fiduciary funds are not reflected in the F iscal Year Ended June 30, 2 007

Special Revenue Funds are used to account for the proceeds of specific revenue sources government-wide financial statements because the resources of those FIDUCIARY (other than expendable trusts or for major capital projects) that are legally restricted to funds are not available to support the City of Fresno’s own programs. FUNDS expenditures for specific purposes. The accounting used for fiduciary funds is much like that used for proprietary funds. Capital Projects Funds are used to account for the financial resources to be used for the City of Fr esno - www.fr esno.gov acquisition or construction of major capital facilities other than those financed by proprietary TheP ension Trust Funds account for the assets held on behalf of the City funds and trust funds. of Fresno Employees’ Retirement System for pension benefit payments to qualified employees and retirees. There is one trust fund for Fire and Police and another for Debt Service Funds are used to account for the accumulation of resources for and General Service employees. payment of, principal and interest on the City's bonded debt and other long-term obligations. The Health and Welfare Trust Funds account for the assets held on behalf of the City of Fresno Employees’ Health and Welfare Trusts for claim payments on behalf of qualified Proprietary Funds employees and retirees. There are two trust funds; one for the active employees and one for the retirees. Enterprise Funds account for operations that are financed and operated in a manner similar Management Fund to private business enterprises. Costs are financed or recovered primarily through user Agency funds are unlike all other types of funds, reporting only assets and liabilities. Agency charges. funds therefore cannot be said to have a measurement focus (i.e., since they do not report equity they cannot present an operating statement reporting changes in equity). Internal Service Funds account for the financing of goods or services provided by one City Investing today for the City of tomor row 48th Comprehensive department to another City department on a cost reimbursement basis. Investing today for the City of tomor row Annual Financial Report They do, however, use the accrual basis of accounting to recognize 48th Comprehensive F iscal Year Ended June 30, 2 007 The General Services Fund accounts for the activities of the equipment Annual Financial Report receivables and payables. Agency Funds account for assets held by F iscal Year Ended June 30, 2 007 maintenance services, centralized printing and mailing services, and FIDUCIARY the City in a custodial capacity on behalf of individuals or other FUNDS INTERNAL SERVICE centralized telecommunications and information services. The Risk FUNDS governmental units. accounts for the City’s self-insurance, including provision for losses on property, liability, workers’ compensation, and The City Departmental and Special Purpose Fund accounts for City- unemployment compensation. The Billing and Collection Fund accounts related trust activity, such as payroll withholding and bid deposits. The City of Fr esno - www.fr esno.gov

for the billing, collecting and servicing activities for the Water, Sewer, City of Fr esno - www.fr esno.gov Special Assessment Funds account for the receipts and disbursements Solid Waste, and Community Sanitation funds. for the debt service activity of bonded assessment districts within the City. Pension Trust 92 93 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Funds are accounted for in essentially the same manner as the proprietary funds. Agency reported as reservations of fund balance in the Comprehensive Annual Financial Report (CAFR). Funds, being custodial in nature (assets equal liabilities), do not involve the measure of results of operations. F und Stru ctur When both restricted and unrestricted resources are available for use, it is the City’s policy to use The budget documente is organized to reflect the fund structure of the City’s finances. Fund restricted resources first, then unrestricted resources as they are needed. revenues and expenditures are rolled up to the various object levels by division and department for presentation of information to the public. Budget adoption and subsequent administration is (c) Budgetary Data carried out on a fund basis.

The City adopts annual budgets for all governmental funds on a Cash basis of accounting plus B asis of encumbrances. The budget of the City is a detailed operating plan, which identifies estimated Acc oun costs and results in relation to estimated revenues. The budget includes (1) the programs, projects, The City adopts tianng annual budget for the General Fund, Special Revenue Funds, and Capital services and activities to be provided during the fiscal year, (2) the estimated resources (inflows) Projects Funds (except Redevelopment Agency Capital Projects). These and amounts available for appropriation and (3) the estimated charges to budgets are adopted on the cash basis. Supplemental appropriations during appropriations. The budget represents a process through which policy decisions the year must be approved by the City Council. Budgeted amounts are are made, implemented, and controlled. The City charter prohibits expending reported as amended. funds for which there is no legal appropriation. Encumbrances, which are commitments related to executory contracts for Bu goods or services, are recorded for budgetary control purposes in the dge t Co Governmental Funds. Encumbrance accounting is utilized for budgetary ntro The City operatesl under the strong-Mayor form of government. Under the control and accountability and to facilitate cash planning and control. strong-Mayor form of government, the Mayor serves as the City’s Chief Executive Encumbrances outstanding at year-end are reported as reservations of fund Officer, appointing and overseeing the City Manager, recommending legislation, and presenting balances, as they do not constitute expenditures or liabilities. the annual budget to the City Council. Each of the funds in the City’s budget has a separate cash balance position. Reserves represent The budget of the City of Fresno, within the meaning and context of Section No. 1206 of the those portions of fund equity not appropriable for expenditure or legally segregated for a specific Charter must be adopted by resolution by the City Council: future use. Designated fund balances represent tentative plans for future use of financial resources. The cash reserve position is a significant factor evaluated by bond rating agencies assessing the 9 As provided by Section 1206 of the Charter, any amendments to the amounts appropriated for financial strength of an organization. Cash reserve amounts and trends, represent the continued the purposes indicated at the department/fund level shall be made only upon a motion to ability of a City to meet its obligations and facilitate the requirements for a balanced budget. amend the resolution adopted by the affirmative votes of at least five Council members. B udg 9 Administrative amendments within the same department/fund level may be made without et D eve approval of Council within written guidelines established by the Chief Administrative Officer. The preparationlop mof the budget document is the result of a Citywide effort. Each department is en presented with an operatingt base budget that is used as the foundation for building their requests 9 For accounting and auditing convenience, appropriations for capital improvements may be for the operations of their organizations. All one-time expenditure increases are established in two or more different funds for the same capital project. removed, except for those demonstrable and mandatory. A five-year capital budget is required from all departments. The purpose is to give the Mayor and The objective of budgetary controls is to ensure compliance with legal provisions embodied in the Council a tool to plan for the future as well as to more realistically reflect the annual appropriated budget approved by the City Council. Activities of the timing of many capital projects that take more than one year to complete. General Fund and Special Revenue Funds are included in the annual appropriated budget. Project-length financial plans are adopted for certain Departments submit their requests to be analyzed and reviewed by the City’s capital project funds. The level of budgetary controls (the level at which Budget and Management Studies Division (BMSD). Requests are evaluated expenditures cannot legally exceed the appropriated amount) is maintained based on individual operations, City funding resources and the goals and at the department level by major expenditure category. Purchase orders that strategies identified by each organization related to the impact on result in an overrun (encumbrance exceeding available appropriations) of performance measures. Recommendations are presented to the Mayor and City Manager in a department-level balances by object are not released until additional review meeting comprised of management representatives from each department and BMSD. appropriations are made available. Open encumbrances at June 30, are Upon final decisions of format and content, the Mayor’s Proposed Budget Document is printed and 94 95 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 presented to Council for deliberation and adoption. The Adopted Budget Document is prepared These expenditure review procedures assure compliance with City requirements and provide some to include all the various changes approved by the Council. degree of flexibility for modifying programs to meet changing needs and priorities.

BUDGET CALENDAR Fina ncia l Sta Base Budgets Developed December/January tem and Analysis – for State and Local The City preparese itsn Comprehensive Annual Financial Report (CAFR) under the provisions of GASB t Pre Base Budget Rollout to Departments January 31 Statementrelatedse Statements No. 34, Basic Financial Statements – and Management’s Discussion Invest ing toda y – for the Cit y of tomorrow n tat ion Department Budget Submissions February 27 . The Government Accounting Standards Board (GASB) is the standard-setting body for establishing GAAP for state and local government City Manager Review Meetings March Governments and all organizations. Mayor’s Proposed Budget Presented to May Council, Departments, and Public CAFR – 48th Comprehensive GASB Statement No. 34 established new requirements and a new reporting Council Public Hearings May/June Annual Financial Report subsequent and Ci ty of Fresno, California

For the fiscal year ended June 30, 2007 model for the annual financial reports of state and local governments. The Budget Adopted No later than June 30 statement assists in making annual reports of state and local governments easier to understand and more useful to the people who use governmental financial information to make decisions. Rev enu e Es The major features of the reporting model are as follows: tima Revenue estimatestion and the methodology for calculating the estimates vary depending on the source of revenue. Considerable weight is given to historical trends. This is important because of Management’s Discussion and Analysis – Financial statements are accompanied by a the uniqueness of the Central Valley and the composition of the Fresno economy, which differs narrative introduction and analytical overview of the City’s financial activities in the form of from the state in general. As an example, the recession, which hit the state in the late 1980’s, did “management’s discussion and analysis” (MD&A). This analysis is similar to the analysis not hit Fresno until the early 1990's and the recovery occurred in the rest of California before it hit provided in the annual reports of private-sector organizations. the Central Valley. Government-Wide Financial Statements – Financial statements are prepared using full In the General Fund, sales tax revenues are the single largest revenue source. Historical trends as accrual accounting for all of the City’s activities. This approach includes not just current well as paying close attention to the local economy are two of the primary keys for projecting this assets and liabilities but also capital and other long-term assets as well as long-term revenue. Historically, sales tax has shown growth every year in the past twenty years except one, liabilities. Accrual accounting also reports all of the revenues and costs of providing services 1992. This stability, while reassuring, can lead to complacency. each year, not just those received or paid in the current year or soon thereafter.

The second largest revenue in the General Fund is property tax. The main source for projecting this Statement of Net Assets – The statement of net assets is designed to display the financial revenue is information received from the county. Again as in all budget revenue projections position of the primary government (governmental and business-type activities). The City internal staff relies heavily on historic trends as well as local developments. reports all capital assets in the government-wide statement of net assets and reports depreciation expense – the cost of “using up” capital assets – in the statement of activities. The third major source of revenue is Motor Vehicle in Lieu fees (VLF). When combined with sales The net assets of the City are broken down into three categories – (1) invested in capital and property taxes, the three equal nearly 53% of the ongoing revenue. assets, net of related debt; (2) restricted; and (3) unrestricted.

B udg Statement of Activities – The government-wide statement of activities reports expenses and et Adm revenues in a format that focuses on the cost of each of the City’s functions. The expense The budget establishesinist appropriation and expenditure levels. Expenditures ratio of individual functions is compared to the revenue generated directly by the function. may be below budgetedn amounts at year-end, due to unanticipated savings in the budget development. The existence of a particular Accordingly, the City has recorded capital and certain other long-term assets and liabilities appropriation in the budget does not automatically mean funds are in the statement of net assets, and has reported all revenues and cost of providing services expended. Because of the time span between preparing the budget, under the accrual basis of accounting in the statement of activities. subsequent adoption by the governing body, as well as rapidly changing economic factors, each expenditure is reviewed prior to any disbursement.

96 97 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Yearemployment Ended June 30,Benefit 2007 Plans other than Pension Plans. For the Fiscal Year Ended June 30, 2007

(d) Implementation of New Accounting Pronouncements obligated if that information is not otherwise identifiable from information displayed on the face of the financial statements), and (i) Governmental Accounting Standards Board Statement No. 43 significant methods and assumptions used to determine termination benefit liabilities. The requirements of this Statement are effective in two In April 2004, the GASB issued Statement No. 43, Financial Reporting for Post parts. For termination benefits provided through an existing defined This Statement requires benefit OPEB plan, the provisions of this Statement should be governments to accrue liabilities of other post employment implemented simultaneously with the requirements of Statement 45. For all other benefits (OPEB) generally over the working career of plan termination benefits, this Statement is effective for financial statements for periods members rather than on a pay-as-you-go basis which is the beginning after June 15, 2005. The City implemented this Statement for the fiscal year current practice for most government sponsored plans. The ended June 30, 2006. The implementation of this Statement had no material impact to requirements of this Statement were effective for financial the City’s financial statements. statements for period beginning after December 15, 2005; as by Employers for Post employment Benefits Other Than Pensions. such the City implemented this Statement for the fiscal year ended June 30, 2007. (e) Pronouncements issued but not yet adopted Previous to the implementation of GASB No. 43, the City reported the Health and Welfare Trusts activity as part of the Internal Service Fund within the Risk Management Fund. As of July 1, 2006, the activity for the Trusts is now reflected as part of Fiduciary (i) Governmental Accounting Standards Board Statement No. 45 Funds. The beginning balance of net assets in the statement of Revenues, Expenses In August 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting and Changes in Fund Net Assets Proprietary Funds, has been restated to reflect the cumulative effects of the adoption of GASB 43 Management’s Discussion and Analysis – for State and Local This Statement generally requires that state and local governmental Restricted by Legislation. employers account for and report the annual cost of OPEB and the (ii) Governmental AccounGovernmentsting Standards Board Statement No. 46 outstanding obligations and commitments related to OPEB in GASB Statement No. 34, Basic Financial Statements – and essentially the same manner as they currently do for pensions. Annual OPEB cost for most employers will be based on actuarially , requires that limitation on the use of assets imposed determined amounts that, if paid on an ongoing basis, generally by enabling legislation be reported as restricted net assets. In would provide sufficient resources to pay benefits as they come December 2004, the GASB issued Statement No. 46, Net Assets due. The provisions of Statement 45 may be applied prospectively This Statement clarifies that a legally and do not require governments to fund their OPEB plans. An employer may establish enforceable enabling legislation restriction is one that a party its OPEB liability at zero as of the beginning of the initial year of implementation; external to a government – such as citizens, public interest groups, or however, the unfunded actuarial liability is required to be amortized over future periods. the judiciary – can compel a government to honor. The Statement states that the legal The City is considered to be a “Phase 1” implementer and as such will be required to enforceability of an enabling legislation restriction should be reevaluated if any of the implement this Statement for the fiscal year ending June 30, 2008. The City engaged resources raised by the enabling legislation are used for a purpose not specified by the the services of an actuary to evaluate the impact on the City’s financial statements. enabling legislation or if a government has other cause for reconsideration. This However, the City has chosen to include Initial disclosures that are reflected in Note 11 – Statement also specifies the accounting and financial reporting requirement if any new Employee Benefit Programs on page 145. The impact of the implementation of this enabling legislation replaces existing enabling legislation of if legal enforceability is Statement to the City’s financial statements, based on the actuarial study, is reevaluated. Finally, this Statement requires governments to disclose the portion of total $82,881,900 in unfunded liabilities and an ARC of $9,988,000 in 2008. net assets that is restricted by enabling legislation. The requirements of this Statement were effective for financial statements for period beginning after June 15, 2005; as such (ii) Governmental Accounting Standards Board Statement No. 48 the City implemented this Statement for the fiscal year ended June 30, 2006. The implementation of this Statement had no material impact to the City’s financial InEntity September Transfers 2006, of Assets the andGovernmental Future Revenues. Accounting Standards Board (GASB) issued statements. Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra- This Statement establishes criteria that (iii) Governmental Accounting Standards Board Statement No. 47 governments will use to ascertain whether certain transactions should be regarded as a sale or a collateralized borrowing. Such transactions are likely to comprise the sale of In July 2004, the GASB issued Statement No. 47, Accounting for Termination Benefits. This delinquent taxes, certain mortgages, or future revenues. This Statement also includes a Statement establishes accounting standards for termination benefits. This Statement provision that stipulates that governments should not revalue assets that are transferred requires employers to disclose a description of the termination benefit arrangement, the between financial reporting entity components. In addition to clarifying guidance on cost of the termination benefits (required in the period in which the employer becomes accounting for sales and pledges of receivables and future revenues, the Statement: 98 99 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

as Investments by Endowments. x Requires enhanced disclosures pertaining to future revenues that have been requirements of Statement 51 are effective for financial statements for periods pledged or sold. beginning after June 15, 2009. The impact of the implementation of this Statement to x Provides guidance on sales of receivables and future revenues within the same the City’s financial statements has not been assessed at this time. financial reporting entity. (vi) Governmental Accounting Standards Board Statement No. 52 x Provides guidance on recognizing other assets and liabilities arising from the sale of specific receivables or future revenues. In November 2007, the GASB issued Statement No. 52, Land and other Real Estate Held This Statement provides quality of financial reporting by Statement 48 is to be implemented beginning with fiscal year ending December 31, requiring endowments to report their land and other real estate investments at fair value, 2006. creating consistency in reporting among similar entities that exist to invest resources for the purpose of generating income. Entities that perform investment functions similar to (iii) Governmental Accounting Standards Board Statement No. 49 endowments – including pension plans, other post employment benefit (OPEB) plans, Obligations. external investment pools, and internal Revenue Code Section 457 deferred On December 1, 2006, the Governmental Accounting Standards Board (GASB) issued compensation plans – have been required to report their land and real estate Statement No. 49, Accounting and Financial Reporting for Pollution Remediation investments at fair value, whereas state and local government endowments have not This Statement identifies the circumstances under which a governmental prior to the issuance of Statement 52. Reporting those investments at fair value provides entity would be required to report a liability related to pollution remediation. According more decision-useful information about their composition, current value and recent to the standard, a government would have to estimate its expected outlays for pollution changes in value. Statement 52 requires governments to report the changes in fair remediation if it knows a site is polluted and if various recognition triggers occur. value as investment income. It also requires them to disclose the methods and Liabilities and expenses would be estimated using an "expected cash flows" significant assumptions employed to determine fair value and to provide other measurement technique, which is used by environmental professionals. Statement 49 information that they currently present for other investments reported at fair value. GASB also will require governments to disclose information about their pollution obligations Statement No. 52 is effective for financial statements for periods beginning after June associated with clean up efforts in the notes to the financial statements. Statement 49 15, 2008. The impact of the implementation of this Statement to the City’s financial will be effective for financial statements for periods beginning after December 15, 2007, statements has not been assessed at this time. but liabilities should be measured at the beginning of that period so that beginning net assets can be restated. The impact of the implementation of this Statement to the City’s Financial Statement Elements financial statements has not been assessed at this time. (f) Deposits and Investments (iv) Governmental Accounting Standards Board Statement No. 50

In May 2007, the GASB issued Statement No. 50, Pension Disclosures which more closely Inv estm aligns current pension disclosure requirements for governments with those that en t in governments are beginning to implement for retiree health insurance and other post- the The City Controller/Treasurer invests on behalf of most funds of the City in Trea employee benefits. The new standard extends the advancements related to disclosure suraccordancee with the City’s investment policy and the California State r’s P standards for retiree health insurance and other non-pension retirements benefits to the Governmentool Code. The City Treasurer, who reports on a monthly basis to reporting of pension benefits. The provisions of Statement 50 generally are effective for the City Council, manages the Treasurer’s Pool. intangible Assets. periods beginning after June 15, 2007. The impact of the implementation of this Statement to the City’s financial statements has not been assessed at this time. The Treasurer’s investment pool consists of two components: 1) pooled deposits and investments and 2) dedicated investment funds. The (v) Governmental Accounting Standards Board Statement No. 51 dedicated investment funds represent restricted funds and relate to bond issuance of Enterprise In July 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Funds. In addition to the Treasurer’s investment pool, the City has other funds that are held by This Statement provides needed guidance regarding how to identify, trustees. These funds are related to the issuance of bonds and certain loan programs of the City. account for, and report intangible assets. The new standard characterizes an and for External Investment Pools. Inv intangible asset as an asset that lacks physical substance, is non-financial in nature, and estm en has an initial useful life extending beyond a single reporting period. Examples of t Va The City reportslu atheirt investments at fair value in accordance with Governmental Accounting intangible assets include easements, computer software. Water rights, timber rights, ion patents, and trademarks. Statement 51 requires that intangible assets to be classified Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments as capital assets (except for those explicitly excluded from the scope of the new In addition, changes in fair value are reflected in the revenue of standard). This standard should lead to greater consistency among governments. The the period in which they occur.

100 101 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Statutes authorize the City to invest in obligations of the U.S. Treasury, agencies and instrumentalities, (i) Redevelopment Agency Property Held for Resale commercial paper, bankers' acceptances, repurchase agreements, money market funds and the State Treasurer’s investment pool. The City's Pension Trust Property of the RDA is held for resale and is recorded as an asset at the lower of Fund is also authorized to invest in corporate bonds rated A or better by a estimated cost or estimated conveyance value. Estimated conveyance value national rating system generally recognized and used by banks and is management’s estimate of net realizable value of a property based on investment brokers in the United States. current intended use. The RDA is a blended component of the City.

Except as noted in the following paragraph, investments are comprised of obligations of the U.S. Treasury, agencies and instrumentalities, cash, time (j) Capital Assets certificates of deposit, mutual funds, bankers' acceptances, money market accounts and deposits in the State of California Local Agency Investment Fund, and are stated at Capital assets, which include land, buildings and improvement, machinery fair value. and equipment, and infrastructure assets, are reported in the applicable governmental or business-type activity columns in the Government-wide Highly liquid money market investments and other investments with maturities of one year or less at Financial Statements. Capital assets are defined as assets with an initial time of purchase are stated at amortized cost. All other investments are stated at fair value. individual cost of more than $5,000 (for land, building improvements and Market value is used as fair value for those securities for which market quotations are readily infrastructure) or $2,000 (for machinery and equipment) including bundled available. purchases, and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or In constructed. Donated capital assets are recorded at estimated fair market ves tme value at the date of donation. Capital outlay is recorded as expenditures of the General, Special nt In Cash balancesco mof each of the City’s funds, except for certain Trust and Agency Funds and other Revenue, and Capital Projects Funds and as assets in the Government-wide Financial Statements e restricted accounts, are pooled and invested by the City. Income from pooled investments is to the extent the City’s capitalization threshold is met. Tax-exempt interest incurred during the allocated to the individual funds based on the fund participant’s average daily cash balance at construction phase of the capital assets of business-type activities is reflected in the capitalized the month end in relation to total pooled investments. The City’s policy is to charge interest to those value of the asset constructed, net of interest earned on the invested proceeds over the same funds that have a negative average daily cash balance at month end. Deficit cash balances are period. Amortization of assets acquired under capital lease is included in depreciation and reclassified as due to other funds and funded by Enterprise Funds or related operating funds. amortization.

(g) Loans Receivable Buildings and improvements, infrastructure, and machinery and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over For the purposes of the Fund Financial Statements, Special Revenue Fund expenditures relating to the following estimated used lives: long-term loans arising from loan subsidy programs are charged to operation upon funding and the loans are recorded, net of an estimated allowance for potentially uncollectible loans. In some Assets Years instances amounts due from external participants are recorded with an offset to a deferred credit account. The balance of long-term loans receivable includes loans that may be forgiven if certain Buildings and Improvements 20 to 50 terms and conditions of the loans are met. For purposes of the Government-wide Financial Infrastructure 15 to 30 Statements, long-term loans are not offset by deferred credit accounts. Machinery and Equipment 3 to 5

(h) Inventories Works of art, historical treasures and zoological animals held for public exhibition, education, or research in furtherance of public service, rather than financial gain, are not capitalized. These items Inventories recorded in the proprietary funds primarily consist of are protected, kept unencumbered, cared for and preserved by the City. It is the City’s policy to construction materials and maintenance supplies. Generally, proprietary utilize proceeds from the sale of these items for the acquisition of other items for collection and funds value inventory at cost or average cost and expense supply display. inventory as it is consumed. This is referred to as the consumption method of inventory accounting. The City uses the purchases method of accounting for inventories in governmental fund types whereby inventory items are considered expenditures when purchased and are not reported in the statement of net assets.

102 103 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Ca (o) Fund Equity pita l Le ase Property, plants and equipment include the following property held under lease obligation: Re serv atio ns Fiscal Year Ended 2007 Governmental of F Reservations of fund balances of the governmental funds represent und Activities Internal Service Equamounts that are not appropriated or are legally segregated for a specific ity purpose. Restrictions of net assets are limited to outside third parties. Machinery and Equipment $ 15,597,226 $ 10,331,367 Designations of fund balances represent tentative management plans Less: Accumulated Depreciation (9,642,530) (4,534,495) that are subject to change. The following is a brief description of the Net Machinery and Equipment $ 5,954,696 $ 5,796,872 nature of certain reserves.

(k) Bond Issuance Costs and Discounts Reserve for assets not available for appropriation – Certain assets, primarily cash and investments outside City Treasury and deferred charges, do not represent expendable In the Government-wide Financial Statements and the proprietary fund types in available financial resources. Therefore, a portion of fund equity is reserved to offset the the Fund Financial Statements, long-term debt and other long-term obligations balance of these assets. are reported as liabilities in the applicable governmental activities, business- type activities, or proprietary fund statement of net assets. Bond premiums and Reserve for debt service – The fund balance of the debt service funds is reserved for the discounts are deferred and amortized over the life of the bonds using the payment of debt service in the subsequent year. effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred Reserves for encumbrances – Encumbrances are recorded as reservations of fund charges and amortized over the term of the related debt. balances because they do not constitute expenditures or liabilities. In certain special revenue and capital projects funds, this accounting treatment results in a deficit (l) Refunding of Debt unreserved fund balance. This deficiency is carried forward to the next fiscal year where it is applied against estimated revenues in the year the commitments are expended. Gains or losses occurring from advance refunding are deferred and amortized into expense. Re stric (m) Deferred Revenues ted Ass Certain proceedsets of the City’s Enterprise Fund Sewer Bonds, as well as certain resources set aside Deferred revenues in governmental funds arise when potential revenue for their repayment, are classified as restricted assets on the balance sheets because they are does not meet both the “measurable” and “available” criteria for maintained in separate bank accounts or tracked separately in the City Treasury group of recognition in the current period. Deferred revenues also arise when accounts. Use of the proceeds is limited by applicable bond covenants and resolutions. Restricted resources are received by the City before it has a legal claim to them assets account for the principal and interest amounts accumulated to pay debt service, unspent (i.e., the City bills certain fixed rate services in advance; amounts billed bond proceeds and amounts restricted for future capital projects. but not yet earned are deferred and amortized over the service period). D esig (n) Interfund Transfers nat ions Designations ooff Ffund balances indicate the portion of fund equity that is not available for und Interfund transfers are generally recorded as transfers in (out) except for certain types of transactions appropriation based Eonqu management’s plans for future use of the funds. ity that are described below. Following is a brief description of the nature of the designations.

(1) Charges for services are recorded as revenues of the performing fund and Designated for economic uncertainties funds: Due to the national expenditures of the requesting fund. Unbilled costs are recognized as an asset of the economic recession and its impact on the State of California, City performing fund at the end of the fiscal year. Management made proactive financial decisions by taking advantage of historically low interest rates in 2002 and 2003 by setting aside $10 (2) Reimbursements for expenditures, initially made by one fund, which are properly million and designating these monies for purposes of meeting applicable to another fund, are recorded as expenditures in the reimbursing fund unforeseen budgetary requirements of the City as defined by the Controller, City Manager, and as a reduction of expenditures in the fund that is reimbursed. and Mayor. This was approved by a vote of the City Council in 2002. As of June 30, 2003, the balance in this fund was approximately $10.2 million. Council then earmarked $1.5 million for 104 105 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

specific economic development opportunities in the fiscal year 2003. In 2004, management period other than 25 years currently anticipated, the amortization period will also be adjusted. proposed and Council agreed to formally establish a 5% General Fund Emergency Reserve. Water rates were increased on April 1, and September 1, 2007 taking into consideration the CVP To implement this directive, a reserve amount is determined based on 5% of the Adopted Settlement. Rates are to increase again on September 1, 2008, 2009 and 2010. General Fund appropriations at the beginning of each fiscal year. Additional funds are added to the fund as necessary to ensure that the reserve is equal or greater than 5% of the Adopted (s) Estimates General Fund appropriations. The City is currently exceeding the 5% threshold. As of June 30, 2007 the General Fund Emergency Reserve reflects a balance of $14,658,751. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported (p) Net Assets amounts and disclosures. Accordingly, actual results could differ from those estimates.

Net assets represent the difference between assets and liabilities. Net assets invested in capital (t) Reclassifications assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement Certain accounts presented in the 2006 financial statements have been reclassified for of those assets. Net assets invested in capital assets, net of related debt excludes unspent debt comparative purposes to conform to the presentation in the current year financial statements. The proceeds. Net assets are reported as restricted when there are limitations imposed on their use changes in classification have no impact on the reported change in net assets. either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Restricted resources are used first to fund appropriations. The City first applies restricted resources when an expense is incurred for Note 3. CASH AND INVESTMENTS purposes for which both restricted and unrestricted net assets are available.

(q) Cash Flows The City’s cash and investments are invested pursuant to investment policy guidelines established by the City Controller/Treasurer, subject to review by the City Council. The Statements of cash flows are presented for proprietary fund types. Cash and cash equivalents objectives of the investment policy are preservation of capital, liquidity, and include all unrestricted and restricted highly liquid investments with original purchase maturities of yield. The policy addresses the soundness of financial institutions in which three months or less. Pooled cash and investments in the City’s Treasury represent monies in a the City will deposit funds, types of investment instruments as permitted by cash management pool and such accounts are similar in nature to demand deposits. the California Government Code, and the percentage of the portfolio that may be invested in certain instruments with longer terms to maturity. (r) Regulatory Assets and Liabilities The City maintains a cash and investment pool available for use by all At June 30, 2007, the Statement of Net Assets, Business-Type Activities, funds. Each fund type's portion of this pool is displayed on the combined balance sheet as "Cash reflects approximately $40.6 million in regulatory assets related to the CVP and Investments." In addition, certain funds have investments with trustees related to debt issues. Water Settlement, which will continue to have an impact on water rates which are to be charged to customers over the next 25 plus years. The Cash/Deposits settlement negotiated between the City and the United States Bureau of Reclamation (USBR) (Note 13) has been accounted for under the provisions At year-end, the City's bank balance was $35,974,034. The recorded of Financial Accounting Standards Board Statement No. 71 “Accounting for balance reflected in the June 30, 2007 financial statements was the Effects of Certain Types of Regulation”. Under this Statement, regulatory assets represent future $28,790,472. As of June 30, 2007, deposits were not entirely insured or revenue associated with certain costs (CVP Settlement) that will be recovered from customers collateralized with securities held by the City or the City’s agent in the City’s through the ratemaking process. name.

The City anticipates that water rates will be adjusted to allow for the recovery of CVP Settlements costs in general rate increases over the upcoming fiscal year budgetary processes. Additional information related to the Settlement and rate setting can be found in Footnote 13 – Commitments and Contingencies. If all or a portion of the CVP Settlement Liability is reduced due to early payment to the USBR, the corresponding asset will also be evaluated to determine whether the regulatory asset also requires accelerated amortization or write-off. Correspondingly, if the rate recovery is over a 106 107 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Cash and Investments Investments Authorized by the California Government Code and the Entity's Investment Policy

The following is a summary of cash and investments at June 30, 2007: The City maintains a formal, investment policy, which is adopted annually by the City Council. All investments held in the Treasurer's Pool are consistent with the City's investment policy objectives of safety of principal, Government-wide adequacy of liquidity, and achievement of an average market rate of Statement of Net Assets return. The table below identifies the investment types that are authorized Fiduciary Funds Governmental Business-Type Statements of for the Entity by the California Government Code (or the Entity's investment Activities Activities Subtotal Net Assets Totals policy, where more restrictive). The table identifies the investment type, the maximum length of time to maturity for each investment, the maximum percentage of the Cash and Investments $ 66,835,645 $ 84,263,528 $ 151,099,173 $ 38,083,875 $ 189,183,048 portfolio that can be invested in each type of security and the maximum amount of the portfolio Conversion Activity 27,328,906 (27,328,906) - - - that can be invested in any single issuer of investments. The table does not address investments of Cash and Investments 94,164,551 56,934,622 151,099,173 38,083,875 189,183,048 debt proceeds held by bond trustees that are governed by the provisions of debt agreements of the Entity rather than the general provisions of the California Government Code or the Entity's Restricted Cash and Investments 46,543,537 226,955,142 273,498,679 1,654,969 275,153,648 investment policy.

Pension Trust Investments at fair value - - - 2,283,404,500 2,283,404,500 Maximum Maximum % Limit Collateral Held for Securities Lent - - - 434,117,077 434,117,077 % Limit Of Of Portfolio Per Authorized Investments Maturity Portfolio Single Issuer Total $ 140,708,088 $ 283,889,764 $ 424,597,852 $ 2,757,260,421 $ 3,181,858,273 City of Fresno Debt 5 Years 100% 100% U.S. Treasuries 5 Years 100% 100% California Debt 5 Years 100% 100% The California Government Code requires California banks and savings and loan associations to Cal Local Agency Debt 5 Years 100% 100% secure the City’s deposits not covered by Federal depository insurance by pledging government GSE Agencies 5 Years 70% 50% securities as collateral. The fair value of pledged securities must equal at least 110% of the City’s Banker’s Acceptances 180 Days 40% 30% deposits or 150% of mortgage-backed collateral. The collateral pledged Commercial Paper 270 Days 25% 25% to cover the public fund deposits in California is held in the name of the Negotiable CD’s 5 Years 30% 30% California Collateral Pool Administrator and is held in their name by the Time Deposits 5 Years 100% 100% Repurchase Agmnts 1 Year 100% 100% Federal Reserve Bank as custodian. The City had no uncollateralized cash Reverse Repurchase Agmnts 92 Days 20% N/A at June 30, 2007. Securities Lending Agmnts 92 Days 20% N/A Medium-Term Notes 5 Years 30% 20% Cash includes amounts in demand and time deposits. Investments are Mutual Funds N/A 20% 10% reported in the accompanying balance sheet at fair value, except for certain certificates of Money Market Funds N/A 20% 20% deposit and investment contracts that are reported at cost because they are not transferable and Mortgage/Asset Backed Debt 5 Years 20% 20% they have terms that are not affected by changes in market interest rates. LAIF N/A 100% 100%

Changes in fair value that occur during a fiscal year are recognized as income from property and Investments Authorized by Debt Agreements investments reported for that fiscal year. Income from property and investments includes interest earnings; changes in fair value; any gains or losses realized upon the liquidation, maturity, or sales Investment of debt proceeds held by bond trustees is governed by provisions of the debt of investments; property rentals and the sale of City owned property. agreements, rather than the general provisions of the California Government Code or the Entity's investment policy. The table below identifies the investment types that are authorized for The City pools cash and investments of all funds, except for assets held by fiscal agents. Each investments held by bond trustees. The table shows the maximum maturity allowed for debt fund's share in this pool is displayed in the accompanying financial statements as cash and proceeds, the maximum amount of the proceeds which may be invested in any type of investments. Investment income earned by the pooled investments is allocated to the various funds investment, and the maximum amount that can be invested in any particular issuer of investments. on a monthly basis, based on each fund's daily cash balance. Interest payments are paid to the various funds also on a monthly basis. Restricted cash and investments represent amounts that are restricted under the terms of debt agreement.

108 109 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Maximum % Concentration of Credit Risk Limit Of Maximum % Limit Of Portfolio Per Authorized Investments Maturity Portfolio Single Issuer The investment policy of the City contains the following limitations on the U.S. Treasuries 5 Years 100% 100% Banker's Acceptances 180 Days 40% 30% amount that can be invested in any one issuer which is more restrictive than Commercial Paper 270 Days 25% 25% those stipulated by the California Government Code. While the State has no Money Market Funds N/A 20% limit on the percentage of the Portfolio that can be invested in a single 20% Government Sponsored Enterprise Agency, the City’s Investment Policy limits Investments held outside the Treasurer's Pool consist mainly of required reserve funds for various investment in any one issuer to 50% of the Portfolio. Also while the State limits bond issues. They are held by trustees, and are not available for the City's general expenditures. investments to 30% of the Portfolio for any single issuer of Medium Term Notes, the City's Investment Policy limits investments to 20% of the Portfolio invested in As of June 30, 2007 the City had the following cash and investments in its portfolio: any single issuer.

Investments in any one issuer (other than U.S. Treasury securities, money market funds, and external Weighted investment pools) that represent 5% or more of total City’s investments are as follows: Fair Market Average Treasurer’s Pool Investments Value % of Total Maturity U.S. Agencies: Federal Home Loan Bank $ 123,512,734 32.2% 2.03 Federal Loan Mortgage Corporation 43,994,339 14.2% 1.91 Issuer Investment Type Reported Amount Rating Federal National Mortgage Association 54,683,063 11.5% 1.67 Subtotal of U.S. Agencies 222,190,136 57.9% 1.87 Federal Home Loan Bank Agency Note $ 123,512,734 AAA Federal Home Loan Mortgage Corp Agency Note 43,994,339 AAA LAIF 39,981,801 10.4% Federal National Mortgage Association Agency Note 54,683,063 AAA Cash Accounts 35,974,034 9.4% $ 222,190,136 Commercial Paper 9,948,142 2.6% Money Market Funds 75,669,048 19.7% Total Treasurer’s Pool 383,763,161 100.0% Interest Rate Risk

Investments held outside the Treasurer’s Pool Debt Service Funds/Bond Proceeds 77,941,892 Interest rate risk is the risk that changes in market interest rates will adversely Other Deposits 9,815,205 Outstanding Checks (9,920,363) affect the fair value of an investment. Generally, the longer the maturity of an Deposits in Transit 2,736,800 investment, the greater will be the sensitivity of its fair value to changes in Retirement Assets (See Retirement CAFR) 2,717,521,578 market interest rates. One of the ways that the Entity manages its exposure to Total Cash and Investments $ 3,181,858,273 interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the Statement of Net Assets, Primary Government Cash and Investments $ 151,099,173 portfolio is maturing or coming close to maturity evenly over time as necessary Restricted Cash and Investments 273,498,680 to provide the cash flow and liquidity needed for operations. The Entity monitors Total Primary Government 424,597,853 the interest rate risk inherent in its portfolio by measuring the weighted average Statement of Net Assets, Fiduciary Funds maturity of its portfolio. The Investment Policy limits the weighted average maturity of the Portfolio to Cash and Investments 34,332,131 three (3) years. Restricted Cash and Investments 1,654,969 Pension Trust Cash 3,751,743 Pension Trust Investments 2,283,404,500 The City's investments (including investments held by bond trustees) include the following Collateral Held for Securities Lent 434,117,077 investments that are highly sensitive to interest rate fluctuations (to a greater degree than already Total Cash & Investments $ 3,181,858,273 indicated in the information provided above):

Deposit and Investment Risk Maturity Fair Value at Highly Sensitive Investments Date Maturity Value Year End

The risk disclosures below apply to the City's internal investment pool and deposits. Portfolio FHLB – STEP UP NOTE 08/27/2007 $ 10,000,000 $ 9,993,750 investments are exposed to four main types of risk: concentration, interest rate, default and FHLB – STEP UP NOTE 12/28/2009 $ 5,000,000 $ 4,993,750 FNMA – STEP UP NOTE 07/28/2008 $ 3,900,000 $ 3,841,500 custodial risk. Deposits are exposed primarily to custodial credit risk. The debts of most U.S. agencies are not backed by the full faith and credit of the federal government. However, because the agencies are U.S. government-sponsored, they carry AAA credit ratings. The default credit risk of these investments is minimal. 110 111 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Default Credit Risk investment securities. Custodial credit risk is the risk that the City will not be able to recover the value of its investments in the event of a BNY failure. All City investments held in custody and safe-keeping Generally, default credit risk is the risk that an issuer of an investment will not fulfill its obligation to by BNY are held in the name of the City and are segregated from securities owned by the bank. the holder of the investment. This is measured by the assignment of a rating by a nationally This is the lowest level of custodial credit risk exposure. recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the Entity's investment policy, or debt agreements, Investment in State Investment Pool and the actual rating as of year end for each investment type. The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the Rating as of Year End Exempt oversight of the Treasurer of the State of California. The fair value of the Minimum Legal From A-1+ Not City's investment in this pool is reported in the accompanying financial Investment Type Rating Disclosure AAA /P-1 Rated statements at amounts based upon the City's pro-rata share of the fair Federal Agency Notes $ 222,190,136 A X value provided by LAIF for the entire LAIF portfolio ( in relation to the Commercial Paper 9,948,142 X amortized cost of that portfolio). The balance available for withdrawal is State investment pool 39,981,801 X Money Market Funds 75,669,048 X based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Total: $ 347,789,127 Redevelopment Agency Funds Custodial Credit Risk The Redevelopment Agency (RDA), a blended component unit of the City of Fresno, has Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial $7,829,048 of idle funds deposited in a money market fund at Wells Fargo Bank. The fund, known institution, a government will not be able to recover its deposits or will not be as the Cash Investment Money Market I Fund, is part of the bank's "Advantage" money market able to recover collateral securities that are in the possession of an outside funds, designed to work in connection with an institution's demand deposit account. The Fund is party. Deposits or securities can be legally restricted. The City maintains cash unrated, but invests in short-term money market instruments considered to have little risk of credit accounts at Bank of America (BofA). The City maintains separate accounts for default. The RDA does not have a formal investment policy, since aside from these funds, the RDA payment of general accounts payable checks, payroll checks, and utility has only funds deposited in a demand deposit account, subject to the California state refund checks. Amounts in excess of $100,000 are securitized in accordance requirements for collateralizing public funds, and approximately $2.4 million of bond proceeds with California Government Code Section 53652. The California Government governed by bond indentures. These funds, because of their immediate liquidity, are not subject to Code and the Entity's investment policy contain legal or policy requirements any other risks including concentration risk, interest rate risk, and custodial risk. that limit the exposure to custodial credit risk for deposits. The California Government code requires that a financial institution secure deposits made by state or local City of Fresno Retirement Systems governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit.) The market value of the Deposits and Investments pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by The investment guidelines for the City of Fresno’s Retirement Systems (Systems) reflect the duties pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As imposed by an investment standard known as the “prudent expert rule.” of June 30, 2007, the Entity's deposits with institutions in excess of federal depository insurance limits The prudent expert rule establishes a standard for all fiduciaries, which was $35,674,034 held in accounts collateralized in accordance with State law as described includes anyone who has discretionary authority with respect to the above. Systems’ investments.

The custodial credit risk for investments is the risk that, in the event of the Northern Trust serves as custodian of the Systems’ investments. The failure of the counterparty (e.g. broker- dealer) to the transaction, a Systems’ combined asset classes include U.S. Equity, International Equity, government will not be able to recover the value of its investment of Emerging Market Equity, U.S. Fixed Income, International Fixed Income and securities that are in the possession of the counterparty. As of June 30, Real Estate. Any class may be held in direct form, pooled form or both. The Systems have 19 2007, in accordance with the City's investment policy, none of the City's external investment managers, managing 20 individual portfolios. investments were held with a counterparty. All of the City's investments were held with an independent third party custodian bank. The City uses Bank of New York Trust Company (BNY) as a third-party custody and safekeeping service for its

112 113 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Investments at June 30, 2007 and 2006 consist of the following: Credit and Interest Rate Risk

2007 2006 Credit risk associated with the Systems’ debt securities is identified by their ratings in the table below. Investments at Fair Value Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of Short Term Investments $ 52,541,977 $ 35,867,136 an investment. The Systems monitor the interest rate risk inherent in their portfolios by measuring the Domestic Equity 912,374,345 819,800,434 duration of their portfolios. Corporate Bonds 287,353,304 253,138,692 International Equity 427,466,325 332,714,595 Emerging Market Equity 74,054,373 59,880,240 The average duration of the systems’ debt portfolios in years is listed in the table below: Government Bonds 311,515,391 296,402,219 Real Estate 218,098,785 205,284,022 Type of Investment Fair Value Credit Quality Duration Total Investments at Fair Value $ 2,283,404,500 $ 2,003,087,338 Asset Backed Securities $ 13,803,452 AA+ 2.18 Commercial Mortgage-Backed 33,268,251 AA+ 5.10 The Retirement Boards have established policies for investing, specifying the following target Corporate Bonds 191,064,285 BBB 6.88 allocations with a minimum and maximum range for each of these asset classes: Corporate Convertible Bonds 6,778,432 CCC+ 5.75 Convertible Equity 1,868,183 CCC+ 14.68 Preferred Stock 366,299 BB+ 7.20 Government Agencies 25,866,022 AAA 3.76 Asset Class Minimum Target Maximum Government Bonds 91,687,193 AAA 4.89

Government Mrtg Backed Securities 175,447,421 AAA 3.94 Large Cap Equities 27 30 33 Govt Issued Commercial Mrtg-Backed 122,464 AAA 0.43 Small Capital Equities 8 10 12 Municipal/Provincial Bonds 9,292,225 AA+ 5.46 International Equities 14 17 20 Non-Government backed C.M.O’s 49,304,468 AA+ 2.79 Emerging Market Equities 0 3 5 Real Estate 8 10 12 $ 598,868,695 Domestic Fixed Income 20 25 30 High Yield Bonds 0 5 8 Cash & Equivalents 0 0 2 Per section 5.4(6) of the Retirement Systems’ Investment Policy Statement, no 77% 100% 122% more than 5 percent of an investment manager’s fixed income portfolio may be invested in below investment grade rated securities (BB or B rated bonds). No Allowable securities must meet the reporting requirements of the Securities securities rated below single B may be purchased at any time. Therefore, at and Exchange Commission and must meet a “prudent expert” standard least 95 percent of the manager’s fixed income portfolio must be invested in for investing. In no case may either System have 5 percent or more of investment grade securities. Long duration bond portfolios shall maintain an System net assets invested in any one organization. average credit quality of AA- or better. Intermediate Bond portfolios shall maintain an average credit quality of AA or better. The Retirement Boards’ investment policies and guidelines permit investment in numerous specified asset classes to take advantage of the High yield fixed income portfolios, in accordance with section 5.4(7) of the Systems’ Investment non correlated economic behavior of diverse asset classes. The result is a Policy Statement, shall maintain an average credit quality rating of at least B1/B+ at all times. No well-diversified portfolio. The investment portfolio as of June 30, 2007 contained no concentration more than 20 percent of a high yield manager’s portfolio may be invested in bonds rated of investments in any one entity (other than those issued or guaranteed by the U.S. Government) Caa1/CCC+ or lower with non-related bonds being limited to 5 percent of the that represented five percent or more of the total investment portfolio. portfolio credit quality of B1/B+.

Custodial Credit Risk Firms that manage fixed income portfolios will continually monitor the risk associated with their fixed income investments. They will be expected to report The Retirement Systems’ investment securities are not exposed to custodial credit risk since all as a component of their quarterly report, a risk/reward analysis of the securities are registered in the Systems’ name and held by the Systems’ custodial bank. Any cash management decisions relative to their benchmarks. Statistics that relate associated with the Systems’ investment portfolios not invested at the end of a day is temporarily performance variance to effective duration decisions will be included in each swept overnight into Northern Trust Collective Short-Term Investment Fund. That portion of the quarterly report. Systems’ cash held by the City as part of the City’s cash investment pool totaled $3,028,911 at June 30, 2007. Accordingly, the Systems’ Investments in the pool are held in the name of the City and are not specifically identifiable.

114 115 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Concentration Risk Cash and Cash Equivalents: Fair Value in USD

Singapore Dollar 19,220 The Investment portfolio as of June 30, 2007 contained no concentration of investments in any one New Taiwan Dollar 84,788 entity (other than those issued or guaranteed by the U.S. Government) that represented 5 percent or United States Dollar 50,547,748 South African Rand 214,909 more of the total investment portfolio. Total Non-USD Cash (In USD) $ 52,964,741 Foreign Currency Risk

The following positions represent the Systems’ exposure to foreign currency risk as of June 30, 2007. Per section 5.4 (5) of the Systems’ Investment Objectives and Policy Statement, assets in international equity portfolios will be primarily composed of foreign ordinary shares and ADRs. Primarily, large capitalization securities may be held, although investments in small and mid Equities capitalization securities are also allowed. Firms will continually monitor their country, currency, Base Currency: Fair Value in USD sector and security selection risks associated with their international portfolios. All of the risks will be included in the manager’s quarterly reports and performance attribution based on these factors will Australia – AUD $ 26,596,587 also be included. Brazil – BRL 4,194,193 Canada – CAD 284,955 Swiss Franc – CHF 27,165,282 Anyone wishing to review the Systems’ complete Investment Objectives and Policy Statement may Chilean Peso – CLP 1,017,966 Columbian Peso - COP 596,241 contact the Retirement Office at 2828 Fresno Street, Suite 201, Fresno, CA 93721. Denmark – DKK 4,893,924 Egypt – EGP 2,656,917 Derivatives Euro – EUR 171,068,727 Britain – GBP 84,230,039 Hong Kong – HKD 4,557,914 The Retirement Boards have authorized certain investment managers to invest in or otherwise enter Hungary – HUF 2,275,536 into transactions involving derivative financial instruments when, in the judgment of management, Indonesia – IDR 6,378,537 Iceland – ISK 186,204 such transactions are consistent with the investment objectives established for a specific investment Japan – JPY 84,010,077 manager’s assignment. South Korea – KRW 10,675,454 Mexico – MXN 5,627,127 Malaysia – MYR 1,621,532 The acceptable investment purposes for the use of derivatives are as follows: Norway – NOK 5,239,429 New Zealand – NZD 106,697 Philippines – PHP 488,408 x Mitigation of risk (or risk reduction). Sweden – SEK 16,522,378 Singapore – SGD 4,889,933 Thailand – THB 1,496,812 x A useful substitute for an existing, traditional investment. Turkey – TRY 3,161,687 New Taiwan – TWD 3,466,103 x To provide investment value to the portfolio while being consistent with the Systems’ overall and South Africa - ZAR 8,937,755 specific investment policies. Total Non-USD Equities (in USD) $ 482,346,414 x To obtain investment exposure which is appropriate for the manager’s Cash and Cash Equivalents: Fair Value in USD investment strategy and the Systems’ investment guidelines, but which could not be made through traditional investment securities. Argentine Peso $ 10,003 Australian Dollar 127,096 Brazil - Real 272 The Retirement Boards monitor and review each investment manager’s Swiss Franc 366,075 securities and derivative positions as well as the manager’s performance relative Chilean Peso 67,330 Danish Krone 40,746 to established benchmark rates of return and risk measures. In management’s Euro 536,015 opinion, derivative activities must be evaluated within the context of the overall British Pound 421,645 portfolio performance and cannot be evaluated in isolation. Hong Kong Dollar 23,003 Japanese Yen 223,045 South Korean Won 21,636 Norwegian Krone 61,678 New Zealand Dollar 2,800 Swedish Krona 196,732

116 117 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Derivative financial instruments held by the retirement system consist of the following: lending. Detail information with respect to the fair value of loaned securities and the fair value of collateral received for loaned securities can be found at Note 14 to the Financial Statements. x Cash securities containing derivative features, including callable bonds, structured notes and collateralized mortgage obligations (CMO’s). These instruments are generally traded in over- The Systems’ securities lending income is as follows: the-counter bond markets. 2007 2006 x Financial instruments whose value is dependent upon a contractual price or rate relative to one Gross Income $ 21,421,301 $ 15,022,034 or more reference prices or rates, applied to a notional amount, including interest rate futures, Expense: Borrow Rebates (19,883,769) (13,859,691) options, swaps and caps, and foreign currency futures and forward contracts. Some of these Bank Fees (384,156) (290,410) instruments are exchange-traded and others are traded over-the-counter (OTC). (20,267,925) (14,150,101) 1,153,376 871,933 Market Risk. Investments/Policies

Market risk is the risk of change in value of an instrument in response to California statutes and the City's investment policy authorize investments in changes in a market price or index. While all investments are subject to market obligations of the U.S. Treasury, agencies and instrumentalities, bankers’ risk, derivatives often have a higher degree of market risk than other types of acceptances, negotiable certificates of deposit, repurchase agreements and investment instruments. Values of cash securities containing derivative features the State Treasurer's investment fund. The City is also authorized to enter into are often more susceptible to market risk than other types of fixed income reverse repurchase agreements, but did not enter into any reverse repurchase securities, because the amounts and/or timing of their scheduled cash flows agreements transactions during fiscal year 2007. may fluctuate under changing market conditions, according to their City Sponsored Investment Pool contractual terms. For other types of derivatives, amounts of contractual cash flows may be either positive or negative depending upon prevailing market As part of the City’s total cash and investment portfolio, the Treasury Officer manages an investment conditions relative to the reference prices or rates, and thus the values of such instruments may be pool that includes only internal investors. The pool is not registered with the positive or negative, despite the fact that little or no cash is initially exchanged to enter into such Securities and Exchange Commission as an investment company. The Treasury contracts. Officer is granted authority for managing the pool by Fresno Municipal Code Section 4-104. The Treasury Officer reports investment activity monthly to the City Credit Risk Council and annually an investment policy is submitted to the Council for review and approval. Credit risk of cash securities containing derivative features, as explained, is based upon the credit worthiness of the issuers of such securities. The Retirement Boards establish minimum credit The fair value of investments is determined monthly. Participants’ shares are requirements for such securities. The other derivative instruments described above are subject to determined by the daily cash balance deposited in the pool (the value of its credit risk to the extent that their value is a positive market value, and the counterparty to such pool shares). The value of the pool shares is based upon amortized cost in day- contract fails to perform under the terms of the instrument. Exchange traded derivatives are to-day operations but is adjusted to the fair value at year-end. The investments are reported at fair generally considered to be of lower credit risk than OTC derivatives due to the exchanges’ margin value. The value of the shares is supported by the value of the underlying investments. requirements. St ewa The Fair Value of Derivatives Held at June 30, 2007 is $1,000,610. rdsh ip, There have beenCom no material violations of finance-related legal or contractual provisions. plia Securities Lending nce an d A cco The City of Fresno Municipal Code and the Retirement Boards’ policies permit unt abi the Retirement Board of the City of Fresno Fire and Police Retirement System and lity the City of Fresno Employees Retirement System to use investments of both Systems to enter into securities lending transactions, i.e., loans of securities to broker-dealers and other entities for collateral with a simultaneous agreement to return the collateral for the same securities in the future. The Systems have contracted with Northern Trust, their custodian, to manage the securities lending program for the Systems and all securities held in a separately managed account are available for 118 119 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Restricted Assets Note 4. PROPERTY TAXES Restricted assets by fund type are as follows at June 30, 2007: Article XIII of the California Constitution (Proposition 13) limits ad valorem taxes on real property to one percent of value plus taxes necessary to Cash and Interest Grants pay indebtedness approved by voters prior to July 1, 1978. The Article Investments Receivable Receivable Totals also established the 1975/76 assessed valuation as the base and limits Special Revenue: annual increases to the cost of living, not to exceed two percent, for Special Gas Tax $ 981,553 $ - $ - $ 981,553 each year thereafter. Property may also be reassessed to full market Grants Fund 273,533 - - 273,533 value after a sale, transfer of ownership, or completion of new Subtotal 1,255,086 - - 1,255,086 construction. The State is prohibited under the Article from imposing new ad valorem, sales, or

transaction taxes on real property. Local government may impose special taxes (except on real Debt Service: property) with the approval of two-thirds of the qualified electors. Redevelopment Agency 2,404,561 - - 2,404,561 Financing Authorities and Corporations 38,758,762 - - 38,758,762 All property taxes are collected and allocated by the County of Fresno to the various taxing entities. City Debt 727,724 - - 727,724 Property taxes are determined annually as of January 1 and attached as enforceable liens on real Subtotal 41,891,047 - - 41,891,047 property as of July 1. Taxes are due November 1 and February 1 and are delinquent if not paid by Capital Projects: December 10 and April 10, respectively. Secured property taxes become a lien on the property on Redevelopment Agency 3,397,404 - - 3,397404 March 1. Property taxes on the unsecured roll are due on the March 1 lien date and become Enterprise: delinquent if unpaid on August 31. Property tax revenues are recognized in the fiscal period for Water 37,974,725 216,921 64,361 38,256,007 which they are levied and collected, adjusted for any amounts deemed uncollectible and Sewer 122,825,214 1,657,652 - 124,482,866 amounts expected to be collected more than 60 days after the fiscal year. Solid Waste 16,782,863 - - 16,782,863 Community Sanitation 6,461 - - 6,461 Transit 3,804,160 - 150,000 3,954,160 Airports 32,372,640 - 940,669 33,313,309 Convention Center 8,605,167 - - 8,605,167 Stadium 1,636,033 - - 1,636,033 Subtotal 224,007,263 1,874,573 1,155,030 227,036,866

Internal Service: General Services - - 210,123 210,123 Billing and Collection 2,947,880 - - 2,947,880 Subtotal 2,947,880 - 210,123 3,158,003

Fiduciary: Special Assessment Agency 1,207,878 - - 1,207,878 City Departmental 447,091 - - 447,091 Subtotal 1,654,969 - - 1,654,969

Totals $ 275,153,649 $ 1,874,573 $ 1,365,153 $ 278,393,375

Restricted cash includes funds held by trustees relating to bonds payable and those amounts held by each fund for which a specific, non-operating use has been determined. Grants receivable represent amounts due from a granting agency for which the specific, non-operating use has been determined.

120 121 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Note 5. RECEIVABLES Note 6. PROPERTY, PLANT AND EQUIPMENT – CAPITAL ASSETS

Receivables as of June 30, 2007, were as follows: The following is a summary of capital assets as of June 30, 2007: Governmental Business-Type Grant Property Notes, Loans, Activities Activities Total Interest Accounts Receivables Taxes Intergovernmental Other Total Capital Assets Not Being Depreciated: Governmental Activities: Land $ 196,804,586 $ 43,234,396 $ 240,038,982

General Fund $ 585,557 $ 7,215,247 $ 31,396 $ 6,585,068 $ 15,753,892 $ - $ 30,171,160 Construction in Progress 92,716,255 75,999,497 168,715,752 Grants Fund - 120 7,885,343 - - 20,314,865 28,200,328 Redevelopment Agency, Debt Service Fund - - - - - 133,343 133,343 Total Capital Assets Not Being Depreciated 289,520,841 119,233,893 408,754,734 Other Governmental Funds 665,509 3,732 4,850,142 - 1,861,736 3,792,189 11,173,308 Capital Assets Being Depreciated: Internal Service Funds 644,611 30,814 210,123 - - 1,003 886,551 Buildings and Improvements 146,152,530 920,568,450 1,066,720,980

Total $ 1,895,677 $ 7,249,913 $ 12,977,004 $ 6,585,068 $ 17,615,628 $ 24,241,400 $ 70,564,690 Machinery and Equipment 29,012,995 216,327,244 245,340,239 Infrastructure: Accounts Not Scheduled for Collection During the Roadways and Bridges 730,415,441 - 730,415,441 Subsequent Year $ - $ - $ - $ - $ - $ 21,840,543 $ 21,840,543 Traffic Signals 82,541,775 - 82,541,775 Streetlights 125,177,958 - 125,177,958

Business-Type Activities: Park Improvements 37,496,293 - 37,496,293 Water Systems - 36,169,496 36,169,496 Water Fund $ 613,459 $ 6,360,890 $ - $ - $ - $ 41,681,009 $ 48,655,358 Sewer Systems - 97,579,596 97,579,596 Sewer Fund 723,005 7,442,850 - - 994,669 25,197,560 34,358,084 Solid Waste Fund 249,461 6,369,695 43,756 - - 4,578,697 11,241,609 Airport Systems - 39,183,951 39,183,951 Transit Fund - 221,193 19,649,136 - 8,074,560 45,483 27,990,372 Airports Fund 144,171 1,215,288 - - - - 1,359,459 Convention Center Fund - 464,859 - - - - 464,859 Total Capital Assets Being Depreciated 1,150,796,992 1,309,828,737 2,460,625,729 Stadium Fund 6,540 - - - - - 6,540 Other Enterprise Funds 173,848 2,408,156 - - 8,688 - 2,590,692 Internal Service Funds 142,825 - - - - - 142,825 Less: Accumulated Depreciation for: Buildings and Improvements (48,846,610) (292,749,500) (341,596,110) Total $ 2,053,309 $ 24,482,931 $19,692,892 $ - $ 9,077,917 $ 71,502,749 $126,809,798 Machinery and Equipment (19,108,603) (161,554,923) (180,663,526)

Infrastructure: Roadways and Bridges (437,827,023) - (437,827,023) Receivables are presented on the statement of net assets as follows: Traffic Signals (58,695,960) - (58,695,960) Governmental Business-Type Streetlights (64,134,093) - (64,134,093) Activities: Activities: Total Park Improvements (18,206,633) - (18,206,633) Receivables, Net $ 46,323,290 $ 55,307,049 $ 101,630,339 Water Systems - (2,315,022) (2,315,022) Sewer Systems - (4,477,492) (4,477,492) Loans, Notes, Leases and Other Receivables 24,241,400 71,502,749 95,744,149 Airport Systems - (3,488,504) (3,488,504)

Total $ 70,564,690 $ 126,809,798 $ 197,374,488 Total Accumulated Depreciation (646,818,922) (464,585,441) (1,111,404,363)

Total Capital Assets Being Depreciated, Net 503,978,070 845,243,296 1,349,221,366

Total Capital Assets, Net 793,498,911 964,477,189 $ 1,757,976,100

Reclassification of Internal Service Fund Assets 27,702,488 (27,702,488)

Total $ 821,201,399 $ 936,774,701

122 123 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

B Governmental usin ess– Type Capital asset activity Ac related to business-type activities for the year ended June 30, 2007, was as follows: Capital asset activity related to governmental activities for the year ended June 30, 2007, was as follows: tiviti es Ending Business–Type Activities Beginning Balance Increases Decreases Balance Beginning Ending Governmental Activities Balance Increases Decreases Balance Capital Assets Not Being Depreciated: Capital Assets Not Being Depreciated: Land $ 43,008,618 $ 1,746,198 $ (1,520,420) $ 43,234,396 Land $ 195,381,731 $ 1,422,855 $ - $ 196,804,586 Construction in Progress 123,703,866 58,404,428 (106,108,797) 75,999,497 Construction in Progress 64,697,932 42,463,472 (14,445,149) 92,716,255 Total Capital Assets Not Being Depreciated 166,712,484 60,150,626 (107,629,217) 119,233,893

Total Capital Assets Not Being Depreciated 260,079,663 43,886,327 (14,445,149) 289,520,841 Capital Assets Being Depreciated: Buildings and Improvements 866,142,233 55,865,925 (1,439,708) 920,568,450 Capital Assets Being Depreciated: Machinery and Equipment 210,503,630 17,348,892 (11,525,278) 216,327,244 Buildings and Improvements 145,711,545 440,985 - 146,152,530 Infrastructure: Machinery and Equipment 26,471,688 3,984,861 (1,443,554) 29,012,995 Water Systems 27,231,931 8,937,565 - 36,169,496 Infrastructure: Sewer Systems 52,224,814 46,010,012 (655,230) 97,579,596 Roadways and Bridges 709,548,371 20,867,070 - 730,415,441 Airport Systems 39,143,718 40,233 - 39,183,951 Traffic Signals 77,011,878 5,529,897 - 82,541,775 Streetlights 116,688,375 8,489,583 - 125,177,958 Park Improvements 37,493,696 2,597 - 37,496,293 Total Capital Assets Being Depreciated 1,195,246,326 128,202,627 (13,620,216) 1,309,828,737

Total Capital Assets Being Depreciated 1,112,925,553 39,314,993 (1,443,554) 1,150,796,992 Less: Accumulated Depreciation For: Buildings and Improvements (267,589,047) (25,918,862) 758,409 (292,749,500) Machinery and Equipment (153,992,802) (19,055,126) 11,493,005 (161,554,923) Less: Accumulated Depreciation For: Infrastructure: Buildings and Improvements (44,963,243) (3,883,660) 293 (48,846,610) Water Systems (1,223,777) (1,091,245) - (2,315,022) Machinery and Equipment (17,581,440) (2,962,618) 1,435,455 (19,108,603) Sewer Systems (2,778,881) (1,849,429) 150,818 (4,477,492) Infrastructure: Airport Systems (1,913,436) (1,575,068) - (3,488,504) Roadways and Bridges (417,247,776) (20,591,596) 12,349 (437,827,023) Traffic Signals (56,628,201) (2,067,759) - (58,695,960) Streetlights (59,622,245) (4,511,848) - (64,134,093) Total Accumulated Depreciation (427,497,943) (49,489,730) 12,402,232 (464,585,441)

Park Improvements (17,529,660) (676,973) - (18,206,633) Total Capital Assets Being Depreciated, Net 767,748,383 78,712,897 (1,217,984) 845,243,296

Total Accumulated Depreciation (613,572,565) (34,694,454) 1,448,097 (646,818,922) Total Capital Assets, Net $ 934,460,867 $ 138,863,523 $ (108,847,201) $ 964,477,189

Total Capital Assets Being Depreciated, Net 499,352,988 4,620,539 4,543 503,978,070 Depreciation Was Charged To Functions As Follows: Water System $ 8,010,194 Total Capital Assets, Net $ 759,432,651 $ 48,506,866 $ (14,440,606) $ 793,498,911 Sewer System 12,352,853 Solid Waste Management 883,702

Community Sanitation 4,771 Depreciation Was Charged To Functions As Follows: Airports 5,346,150 General Government $ 691,129 Fresno Convention Center 2,721,652 Public Protection 3,236,470 Transit 4,159,992 Public Ways and Facilities 28,751,219 Parking 265,071 Culture and Recreation 1,873,437 Parks and Recreation 279,885 Redevelopment 141,741 Development Services 1,173 Community Development 458 Stadium 1,066,284

General Services 14,375,439 Total Governmental Activities Depreciation Expense $ 34,694,454 Billing and Collection 22,563

Total Business - Type Activities Depreciation Expense $ 49,489,730

124 125 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

At June 30, 2007 construction in Progress consisted of the following:

Construction Costs Note 7. LONG-TERM LIABILITIES Project Title To Date

The following is a summary of long-term liabilities. Balances are reported as of June 30, 2007 for Governmental: the City:

Bike Lanes $ 598,687 SUMMARY OF LONG-TERM LIABILITIES Neighborhood Improvements 3,537,605 Governmental Business-Type Total Railroad Related Projects 3,994,630 Activities Activities Government Enterprise Zone Relief 240,922 Long-term Debt General Street Projects 29,324,079

Traffic Signal Projects 3,905,945 Revenue and Other Bonds $ 310,795,000 $ 419,911,927 $ 730,706,927 Calcot Project 3,140,949 Tax Allocation Bonds 12,360,000 - 12,360,000 Regional Park Improvements 7,681,730 Certificates of Participation 4,055,000 5,335,000 9,390,000 MSC Solar Project 4,125,547 Deferred Charges 133,848 (4,120,036) (3,986,188) No Neighborhood Left Behind 13,286,293 Notes Payable 11,409,616 1,715,870 13,125,486 Capital Lease Obligations 12,428,940 5,472,555 17,901,495 Safety Facility Capital 4,471,492

Other Miscellaneous Projects 18,408,376 Total 351,182,404 428,315,316 779,497,720

Total Governmental $ 92,716,255 Other Long-term Liabilities

Compensated Absences 15,666,785 11,256,348 26,923,133 Liabilities for Self Insurance - 64,986,894 64,986,894 Construction Costs Project Title CVP Litigation Settlement - 39,954,937 39,954,937 To Date Accrued Closure Cost - 8,625,188 8,625,188

Proprietary: Total 15,666,785 124,823,367 140,490,152

Water Well Constructions 8,754,961 Total Long-Term Liabilities 366,849,189 553,138,683 919,987,872 Sewer Main Rehab 35,303,789 Consolidated Rental Car Facility 3,146,091 Conversion of Internal Service Activity Liability for Self-Insurance and Comp Airport Runway/Taxiway Projects 3,042,674 Absence 73,920,965 (73,920,965) - Airport Building Improvements 8,021,595

Golf Course Improvements 1,511,250 Total Long-Term Liabilities Government- Convention Center Improvements 16,064,532 Wide Statement $ 440,770,154 $ 479,217,718 $ 919,987,872 Other Miscellaneous Projects 154,605

Total Proprietary $ 75,999,497 Due Within One Year $ 18,068,146 $ 36,352,101 $ 54,420,247 Total Construction in Progress $ 168,715,752 Conversion of Internal Service Activity Liability for Self-Insurance and Comp Absence 18,656,348 (18,656,348) -

Due Within One Year 36,724,494 17,695,753 54,420,247 Due Within More Than One Year 404,045,660 461,521,965 865,567,625

Total Long-Term Liabilities Government- Wide Statement $ 440,770,154 $ 479,217,718 $ 919,987,872 126 127 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Beginning Ending Due Within Activity of Long Term Liabilities Balance Additions Reductions Balance One Year Beginning Ending Due Within

Balance Additions Reductions Balance One Year Governmental Activities: Business-type Activities:

Bonds Payable (Revenue and Other Bonds): Bonds Payable (Revenue and Other Bonds): Lease Revenue Refunding Bonds 2002 A, Street Light Water System Revenue Refunding Bonds 1998 A $ 30,175,000 $ - $ 870,000 $ 29,305,000 $ 905,000 Acquisition Project $ 6,050,000 $ - $ 500,000 $ 5,550,000 $ 515,000 Water System Revenue Refunding Bonds 2003 13,715,000 - 755,000 12,960,000 770,000 Lease Revenue Refunding Bonds 2000, City Hall Sewer System Revenue Bonds 1993 A 103,115,000 - 5,225,000 97,890,000 5,475,000 Refinancing Project 33,710,000 - 1,740,000 31,970,000 1,820,000 Sewer System Revenue Bonds 1995 A 41,995,000 - 2,115,000 39,880,000 2,245,000 Lease Revenue Bonds, Series 2004 51,615,000 - 6,730,000 44,885,000 1,570,000 Sewer System Subordinate Lien Variable Rate Lease Revenue Bonds, Series 2005 NNLB 38,610,000 - 1,910,000 36,700,000 1,955,000 Revenue Refunding Bonds 2000A 74,000,000 - - 74,000,000 - Taxable Pension Obligation Bonds 2002 A 190,980,000 - 3,990,000 186,990,000 4,205,000 Solid Waste Management Enterprise Revenue Judgment Obligation Refunding Bonds 2002 5,040,000 - 340,000 4,700,000 345,000 Bonds 2000 A 12,685,000 - 1,155,000 11,530,000 1,215,000 Lease Revenue Bonds 1998, Exhibit Hall Expansion Total Revenue and Other Bonds 326,005,000 - 15,210,000 310,795,000 10,410,000 Project 30,019,535 - 1,117,608 28,901,927 1,115,990 Airport Revenue Bonds 2000 40,460,000 - 725,000 39,735,000 765,000 Tax Allocation Bonds: Lease Revenue Bonds 2001 A and B, Stadium 43,590,000 - 820,000 42,770,000 860,000 Lease Revenue Bonds 2005 – NNLB Arena 3,390,000 - 440,000 2,950,000 455,000 2001 Redevelopment Agency Merger 1 8,300,000 - 510,000 7,790,000 530,000 Lease Revenue Bonds 2006 – Convention Center 18,725,000 - 735,000 17,990,000 555,000 Series 2003, Mariposa Project Area 4,755,000 - 185,000 4,570,000 193,000 Airport Revenue Bonds 2007 – Cons. Rental Car - 22,000,000 - 22,000,000 -

Total Tax Allocation Bonds 13,055,000 - 695,000 12,360,000 723,000 Total Revenue and Other Bonds 411,869,535 22,000,000 13,957,608 419,911,927 14,360,990

Certificates of Participation: Certificates of Participation: 1991 Street Improvement Project 4,725,000 - 670,000 4,055,000 705,000 1996 Conference Center Refinancing Project 6,080,000 - 745,000 5,335,000 785,000

Total Certificates of Participation 4,725,000 - 670,000 4,055,000 705,000 Total Certificates of Participation 6,080,000 - 745,000 5,335,000 785,000

Less Deferred Amounts: Less Deferred Amounts: For Issuance (Discounts)/Premiums 408,816 - 97,809 311,007 - For Issuance (Discounts)/Premiums (1,626,597) - (190,131) (1,436,466) - On Refunding (195,190) - (18,031) (177,159) - On Refunding (2,957,853) - (274,283) (2,683,570) - Total Deferred Amounts 213,626 - 79,778 133,848 - Total Deferred Amounts (4,584,450) - (464,414) (4,120,036) - Notes Payable: California Infrastructure Bank - City 2,391,427 - 51,426 2,340,001 53,242 Notes Payable: California Energy Commissions 2,545,485 - 191,152 2,354,333 196,488 Agricultural Drainage Water Management Loan 896,607 - 117,373 779,234 121,012 California Infrastructure Bank - RDA 2,074,902 - 44,620 2,030,282 46,195 Ground Water Recharge Construction Loan 1,025,645 - 89,009 936,636 91,715 HUD Sec 108 Note Reg. Med Center 1997-A 2,275,000 - 125,000 2,150,000 135,000 HUD Sec 108 Note FMAAA 1,220,000 - 55,000 1,165,000 60,000 Total Notes Payable 1,922,252 - 206,382 1,715,870 212,727 HUD Sec 108 Note Neighborhood Streets/Parks 1,380,000 - 46,000 1,334,000 49,000 Rancho Rivington – Fig Garden Park 500,000 - 500,000 - - Capital Leases: 5,062,343 2,878,762 2,468,550 5,472,555 1,710,755 Hupp, Harold E & Marjory S (Fire Station #21) – City - 48,000 12,000 36,000 12,000 Total Long-term Liabilities 420,349,680 24,878,762 16,913,126 428,315,316 17,069,472 Total Notes Payable 12,386,814 48,000 1,025,198 11,409,616 551,925 Other Long-term Liabilities: Capital Leases 12,107,819 2,016,552 1,695,431 12,428,940 1,573,304 Compensated Absences 9,666,369 3,197,115 1,607,136 11,256,348 1,588,438 Total Long-Term Liabilities 368,493,259 2,064,552 19,375,407 351,182,404 13,963,229 Liability for Self Insurance-Risk Management 60,103,071 17,024,268 12,140,445 64,986,894 16,449,191 CVP Litigation Settlement 40,898,654 - 943,717 39,954,937 945,000 Accrued Closure Cost 8,625,188 - - 8,625,188 300,000 Other Liabilities: Compensated Absences 13,879,185 6,413,280 4,625,680 15,666,785 4,104,917 Business-type Long-term Liabilities Total 539,642,962 45,100,145 31,604,424 553,138,683 36,352,101 Governmental Long-term Liabilities Total $ 382,372,444 $ 8,477,832 $ 24,001,087 $ 366,849,189 $ 18,068,146 Total Long-term Liabilities $ 922,015,406 $ 53,577,977 $ 55,605,511 $ 919,987,872 $ 54,420,247

129 128 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

The following is a description of long-term liabilities at June 30, 2007: Year Ended bonds is funded from the General Fund. The principal amount due is June 30, 2007 Year Ended reported net of a deferred charge of $30,258. June 30, 2007 f. City of Fresno Judgment Obligation Bonds, Series 2002 4,669,742 (a) Revenue And Other Bonds 2002 Judgment Obligation Bonds issued May 23, 2002; interest is at 3.25% to 4.70%. Principal due in annual installments of $345,000 to $525,000 Governmental Activities through August 15, 2017; interest due semiannually. Repayment of the a. Fresno Joint Powers Financing Authority: 2002 Series A (Street Light Acquisition Project) $5,629,017 Business-type Activities 2002 Series A Street Light Acquisition Project bonds issued May 1, 2002, interest is at 3.25% to 5.0% on bonds outstanding. Annual principal a. Water: Water System Revenue Refunding Bonds 1998 Series A 27,810,221 installments ranging from $515,000 to $735,000 through October 1, 2015. Repayment of the bonds is funded from revenues of the Financing from revenues of the Water Fund. The principal amount due is reported net 1998 Water System Revenue Refunding Bonds; interest rates range from Authorities and Corporations’ Debt Service Fund. The principal amount due of a deferred charge of $318,907 and a refunding charge of $1,175,872. 4.4% to 5.125% on bonds outstanding. Principal due in annual installments is reported net of deferred premium of ($79,017). of $905,000 to $3,625,000 commencing in June 2005 and running through June 2024; interest due semiannually. Repayment of the bonds is funded b. Fresno Joint Powers Financing Authority: Refunding Lease Revenue Bonds, Series 2000 31,930,779

2000 Lease Revenue Bonds, issued Nov 1, 2000. Interest is at 4.3% to net of a deferred charge of $39,221. b. Water: Water System Revenue Refunding Bonds 2003 12,037,140 5.25% on bonds outstanding. Principal due in annual installments of $1,820,000 to $3,275,000 through August 1, 2019; interest due from revenues of the Water Fund. The principal amount due is reported net pledged by the City to the Authority 2003 Water System Revenue Refunding Bonds; interest rates range from semiannually. Repayment of the bonds is financed from Lease Revenue of a deferred premium of ($497,055) and a refunding charge of 2.25% to 6% on bonds outstanding. Principal due in annual installments of . The principal amount due is reported $1,419,915. $770,000 to $1,310,000 commencing in June 2003 and running through June 2020; interest due semiannually. Repayment of the bonds is funded c. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2004 44,988,134

bonds is funded from revenues of the Sewer System. The principal amount 2004reported Lease net Revenue of a deferred Bonds, premiumSeries 2004A of ($103,134).($15,810,000) 2004B ($8,100,000) and 2004C ($28,870,000), issued April 14, 2004 for various capital projects. due is reported net of a deferred charge of $179,037. c. Sewer: Sewer System Revenue Bonds (1993 Series A) 97,710.963 Interest is at 2.25% to 5.9% on bonds outstanding. Principal due in annual Revenue pledged by the City to the Authority installments of $1,140,000 to $2,815,000 through August 1, 2035; interest 1993 Sewer System Revenue Bonds, Series A; interest rates range from 4.5% due semi-annually. Repayment of the bonds is financed from Lease to 6.25%. Principal due in annual installments of $45,000 to $10,090,000 . The principal amount due is through September 1, 2023; interest due semiannually. Repayment of the

d. Fresnothe Joint bonds Powers is financed Financing from Authority: Lease Lease Revenue Revenue pledged Bonds, by Seriesthe City 2005 to Athe & B 36,830,961 - No Neighborhood Left Behind Authority pursuant to a Facilities Lease and from certain interest and other d. Sewer: Sewer System Revenue Bonds (1995 Series A) 38,894,925 principal amount due is reported net of a deferred premium of ($130,961). income derived by funds and accounts held under a Trust Agreement 2005 Lease Revenue Bonds, Series 2005 A ($9,845,000 – fixed rate) 2005 B 1995 Sewer System Revenue Bonds, Series A; interest rates range from $30,625,000 - ARCs), issued February 15, 2005 for various capital 4.75% to 6%. Principal due in annual installments of $385,000 to improvement projects. Interest is at 2.625% to 5.0% on fixed rate bonds and $3,615,000 through September 1, 2026; interest due semiannually. varies on the ARC bonds. Principal due in annual installments of $1,955,000 Repayment of the bonds is funded from revenues of to $3,000,000 through April 1, 2022; interest due semiannually. Repayment of principal amount due is reported net of a deferred charge of $985,075.

e. Sewer: Sewer System Subordinate Lien Variable Rate Revenue Refunding Bonds . The (2000 Series A) 74,000,000 is funded from various funds. 2000subordinate Sewer System lien net Subordinate revenues. Lien Variable Rate (1) Revenue Refunding e. Taxable Pension Obligation Bonds Refunding Series 2002 186,990,000 the Sewer System. The Bonds, Series A is due in annual installments of $1,400,000 to $15,700,000 through 2025. Initially the bonds will bear interest in the weekly Rate Model. 2002 Pension Obligation Bonds issued February 21, 2002; interest is at Under the Liquidity Facility, the maximum interest rate is 12%. The interest 5.48% to 6.55% on bonds outstanding. Annual principal installments of rate at June 30, 2007 was 3.57%. Bonds are payable solely from $4,205,000 to $15,195,000 through June 1, 2029. Repayment of the bonds

130 131 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Year Ended Year Ended June 30, 2007 June 30, 2007 the bonds is funded from revenues of the Solid Waste Management f. Solid Waste: Solid Waste Management Enterprise Revenue Bonds (Fresno Sanitary k. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2006 A & B LandfillSystem. Closure The Project principal and amount Acquisition due of is Solidreported Waste net Bins) of a (2000 deferred charge of Convention Center Improvement Projects 17,979,852 Series A)$36,877. 11,493,123 2006 Lease Revenue Bonds, Series 2006 A ($15,420,000 – Tax-exempt) and 2000 Solid Waste Management Enterprise Revenue Bonds Series A are due 2006 B $3,305,000 - Taxable), issued June 28, 2006 for Convention Center in annual installments of $220,000 to $1,330,000 through May 1, 2030; improvement projects. Interest is at 4.0% to 4.5% on tax-exempt bonds and interest rates range from 4.85% to 6% on outstanding bonds. Repayment of 5.5% on the taxable bonds. Principal due in annual installments of $555,000 to $1,340,000 through October 1, 2026; interest due semiannually. Repayment of the bonds is financed from Lease Revenue pledged by the City to the Authority pursuant to a Facilities Lease and from certain interest discountand other of $10,148.income derived by funds and accounts held under a Trust g. Convention Center: Fresno Joint Powers Financing Authority: 1998 Exhibit Hall Agreement. The principal amount due is reported net of a deferred Expansion Project 28,442,279

1998 Exhibit Hall Expansion Project Bonds issued September 1, 1998; interest l. Airports: Airport Revenue Bonds 22,000,000 is at 4.25% to 5% on outstanding bonds. Annual principal installments range from $1,115,990 to $1,737,405 through September 1, 2028. revenues of the Airport. Repayment of the bonds is funded from revenues of the Convention City of Fresno Airport Revenue Bonds, Taxable Series 2007, issued May 31, Center.principal The amount principal due amount is reported due net is reported of a deferred net of charge a deferred of $49,516. charge of 2007 for construction of a consolidated rental car facility; interest is at 5.833% on outstanding bonds. Annual principal installments range from $15,000 to $459,648. $2,265,000 through July 1, 2037. Repayment of the bonds is funded from h. Airports: Airport Revenue Bonds 39,685,484

City of Fresno Airport Revenue Bonds, Series 2000A and Series 2000B, issued Net Revenue and Other Bonds 726,870,415 July 12, 2000; interest is at 5% to 6% on outstanding bonds. Annual Net Deferred Charges 3,836,512 principal installments range from $765,000 to $5,695,000 through July 1, Total Revenue And Other Bonds $730,706,927 2030. Repayment of the bonds is funded from revenues of the Airport. The (b) Tax Allocation Bonds of the bonds is funded from lease revenue pledged by the City to the Repayment of the bonds is financed from Pledged Tax Revenues derived i. Fresno Joint Powers Financing Authority: Lease Revenue Bonds Series 2001A, Authority Governmentalfrom Activities the Redevelopment Agency's Merger No. 2 Project Area. The Series 2001B, Multi-purpose Stadium 42,865,991 principal amount due is reported net of a deferred premium of ($114,572). 2001 Multi-Purpose Stadium Lease Revenue Bonds issued May 15, 2001. a. Fresno Joint Powers Financing Authority: Tax Allocation Revenue Bonds, Series 2001 $7,904,572 Interest is at 4% to 7.03% on bonds outstanding; interest through May 1, 2003, paid from capitalized interest. Annual principal installments range 2001 Tax Allocation Revenue Bonds, issued March 1, 2001. Interest is at from $860,000 to $3,250,000 from June 1, 2004 through 2031. Repayment 4% to 5.25% on bonds outstanding. Principal due in annual installments of $530,000 to $825,000 through August 1, 2018; interest due semiannually. of ($95,991).. The principal amount due is reported net of a deferred premium

j. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2005A – No Neighborhood Left Behind - Refunding of Arena 1994 Capital Improvement Debt. 2,911,804 due is reported net of a deferred charge of $34,787 and a refunding charge b. 2003 Tax Allocation Refunding Bonds, Series 2003: Mariposa Project Area 4,358,054 of $177,159. Repayment of the bond is funded from revenues of the 2005 Lease Revenue Bonds, Series 2005 A ($4,365,000 – fixed rate), issued Redevelopment Agency's Debt Service Fund. February 15, 2005 to refinance Selland Arena. Interest is at 2.625% to 5% 2003 Tax Allocation Refunding Bonds, Series 2003 (Mariposa Project Area) on fixed rate bonds and varies on the ACR bonds. Principal due in annual issued August 22, 2003; interest is at 3.625% to 5.625% on bonds installmentspledged by of the $455,000 City to the to Authority $535,000 pursuant through to April a Facilities 1, 2013; Lease interest and duefrom outstanding. Principal due in annual installments of $193,000 to $418,000 semiannually. Repayment of the bonds is financed from Lease Revenue through February 1, 2018; interest also due annually. The principal amount deferredcertain interestpremium and of other($49,587) income and deriveda refunding by fundscharge and of $87,783.accounts held under a Trust Agreement . The principal amount due is reported net of a

Net Tax Allocation Bonds 12,262,626 Net Deferred Charges 97,374 Total Tax Allocation Bonds $12,360,000

132 133 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Year Ended Year Ended June 30, 2007 June 30, 2007

(c) Certificates of Participation c. Redevelopment Agency: California Infrastructure and Economic Development Bank Loan 2,030,282

Governmental Activities Thirty year tax allocation loan from the California Infrastructure and Economic Development Bank in the amount of $2,118,000 proceeds of which were a. Fresno Joint Powers Financing Authority: 1991 Street Improvement Project $4,042,589 used to complete the Roeding Business Park. Due in annual installments of $46,195 to $113,845 through August 1, 2033, interest due semi-annually. 1991 Street Improvement Project Bonds issued December 1, 1991. Interest Secured by pledge of and first lien on all Tax Revenue in project area. is at 6.625% on bonds outstanding. Annual principal installments ranging d. City Debt: Regional Medical Center Section 108 Note 2,150,000 fromFinancing $705,000 Authorities to $920,000 and Corporations' through December Debt Service 1, 2011; Fund. interestThe principal due semiannually. Repayment of the bonds is funded from revenues of the amount due is reported net of a deferred charge of $12,411. Regional Medical Center Section 108 Notes with interest at 6.61% to 7.13% to be paid semi-annually. Principal payments are due annually ranging from $135,000 to $270,000 through August 1, 2017. Business-type Activities e. City Debt: Fresno Madera Area Agency on Aging Section 108 Note 1,165,000 a. Convention Center: Conference Center/Refinancing Project 1996 5,295,109 Fresno Madera Area Agency on Aging Section 108 Notes with interest at Conventionis funded from Center Convention Certificates Center of Participation revenues. The issued principal February amount 22, 1996. due is 7.21% to 7.958% to be paid semi-annually. Principal payments are due Interestreported is at net 5% of toa deferred5.1% on charge certificates of $39,891. outstanding. Annual principal annually ranging from $60,000 to $135,000 through August 1, 2019. installments ranging from $785,000 to $1,000,000 through April 1, 2013; interest due semiannually; guaranteed by a financial guarantee insurance f. City Debt: Neighborhood Streets/Parks Improvement Project Section 108 Note 1,334,000 policy purchased through a private insurer. Repayment of the certificates Neighborhood Streets/Parks Improvement Project Section 108 Note with interest at 4.16% to 6.12% to be paid semi-annually. Principal payments are due annually ranging from $49,000 to $130,000 through August 1, 2022. Net Certificates of Participation 9,337,698 Net Deferred Charges 52,302 g. City Debt: Hupp, Harold E & Marjory S 36,000 Total Certificates of Participation $9,390,000 Hupp Note for purchase of land on which Fire Station #21 was constructed. Interest payments are made annually at a rate equal to the City’s pooled rate. Principal payments are due annually for $12,000 through April 1, 2010. (d) Notes Payable Business-type Activities Governmental Activities a. Water: Agricultural Drainage Water Management Loan 779,234 a. City of Fresno: California Infrastructure and Economic Development Bank Loan $2,340,001 Agricultural Drainage Water Management Loan Program under the Water Thirty year loan from the California Infrastructure and Economic Conservation and Water Quality Bond Law of 1986. Contract between the Development Bank in the amount of $2,441,100, proceeds of which were State of California Department of Water Resources and the City for an used to complete the Roeding Business Park. Due in annual installments of agricultural drainage water management project loan under the Water of the Water Fund and any net proceeds received from any settlement or $53,242 to $131,212 through August 1, 2033, interest due semiannually. Conservation and Water Quality Bond Law of 1986, interest at 3.1%. Principal Secured by Facility Lease on City Hall Annex between the City and the “I- duejudgment. in annual installments of $121,012 to $135,481 through October 16, Bank” with reciprocal Site Lease between the “I-Bank” and the City 2012, interest due annually. Repayment of the note is funded from revenues the note is funded from actual savings in energy costs resulting from the b. City Debt: Energy Usage Conservation Loan Program 2,354,333 project or other available Division funds.

California Energy Commission Loan Program under the California Public b. Water: Ground Water Recharge Construction Loan 936,637 Resources Code. Contract between the State of California, California Energy Commission and the City to be used for solar energy enhancements at the Ground Water Recharge Construction Loan under the Water Conservation Municipal Service Yard. Principle and interest at 3.95% due in 24 semi- Bond Law of 1988. Contract between the State of California Department of annual installments of $143,946 through December 2015. Repayment of Water Resources and the City for a ground water recharge construction loan underWater the Fund. Water Conservation Bond Law of 1988, interest at 3.08%. Principal due in annual installments of $91,715 to $117,531 through April 1, 2016, interest due annually. Repayment of the note is funded from revenues of the

134 135 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Year Ended (f) Capital Lease Obligations June 30, 2007

Total Notes Payable $13,125,487 The City has entered into a long-term master lease agreement with All Points Capital Corp. for the purpose of financing the acquisition of equipment and furniture related primarily to Police and Fire operations (1) The 2000 Sewer Bonds bear interest at a “Weekly Rate” established by the Remarketing Agent having due regard for the prevailing financial market and General Services. These lease agreements qualify as capital leases condition. The interest rate for such period is the lesser of (A) the Maximum for accounting purposes and, therefore, have been recorded at the Interest Rate (12%) or (B) 110% of the Tax Exempt Commercial Paper Rate as present value of their future minimum lease payments as of the published in the Bond Buyer or any successor publication. inception date. Other existing lease agreements with balances are with Stone and Youngberg, Pitney Bowes Credit Corporation and Koch Financial Corporation. Balances are included in the (e) Debt Service Requirements Summary of Long-Term Liabilities.

The annual debt service requirements excluding capital lease obligations for City of Fresno long-term Debt service requirements are presented below. Interest rates range from 3.320% to 5.170%. debt outstanding as of June 30, 2007, are as follows: Governmental Business-type Governmental Business-type Activities Activities Activities Activities Year Ending Year Ending June 30 Principal Interest Principal Interest June 30 Principal Interest Principal Interest 2008 $ 1,573,304 624,312 1,710,755 175,819 2008 $ 12,389,925 $ 18,766,843 $ 15,358,717 $ 20,984,230 2009 1,395,751 552,788 1,927,546 134,402 2009 12,986,516 18,167,913 16,051,531 20,849,508 2010 1,241,656 490,835 1,281,490 56,978 2010 13,624,312 17,538,349 16,792,590 20,064,837 2011 1,299,407 433,084 393,802 18,137 2011 14,261,558 16,828,986 16,469,407 19,183,383 2012 1,355,684 372,554 112,074 5,604 2012 14,956,126 16,118,129 17,356,988 18,291,167 2013-2017 3,987,878 1,073,702 46,888 2,145 2013-2017 78,761,043 69,026,817 94,182,327 77,078,817 2018-2022 787,827 516,641 - - 2018-2022 79,399,800 47,578,322 112,065,869 52,454,493 2023-2027 787,433 125,694 - - 2023-2027 68,370,765 26,586,077 91,967,039 25,742,525 2028-Thereafter - - - - 2028-2032 37,937,812 5,492,944 35,603,330 9,294,715 2033-2037 5,931,759 434,653 8,850,000 2,040,384 Total $ 12,428,940 $ 4,189,610 $ 5,472,555 $ 393,085 2038-Thereafter - - 2,265,000 66,059 (g) General Fund Obligations – Short-Term Borrowing Subtotal 338,619,616 236,539,033 426,962,798 266,050,118 Deferred Charges The City participated in the California Statewide Communities (on issuance) 133,848 - (4,120,036) - Development Authority’s (CSCDA) issuance of Tax and Revenue

Anticipation Bonds (TRABS) for the fifth year in a row. The CSCDA authorized Total $ 338,753,464 $ 236,539,033 $ 422,842,762 $ 266,050,118 the issuance of the Tax and Revenue Anticipation Bonds, Series A-2, at a Deferred Charges - coupon rate of 4.5% and a net interest cost of 3.57%. The aggregate Due within one year $ (67,422) $ 397,496 principal amount of the bonds was $597,530,000 which was shared between 33 participants, including the City of Fresno. The City’s net proceeds of $35.665 million were used to fund uneven cash flows in the General Fund due to timing Debt Compliance differences between revenues and expenditures. TRABS were issued on July 1, 2006, and matured on June 29, 2007. These bonds were collateralized by unrestricted revenues. There are a number of limitations, restrictions and covenants contained in the various loan, note and bond indentures. The City believes it is in compliance with all significant limitations, restrictions and (h) Accrued Liabilities and other short-term obligations covenants. Accrued Liabilities at June 30, 2007, include accounts payable, retentions payable, salaries and benefits payable, accrued interest and various other current obligations. All short-term obligations are expected to be substantially paid within the next twelve-month fiscal-year operating cycle.

136 137 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Receivable Fund Payable Fund Amount Note 8. INTERFUND ACTIVITY Internal Service Funds Transit 13,096,046

(a) Due to/from Other Funds Total Due to/from Other Funds $ 51,049,040

Due to Other Funds represent short-term borrowings resulting from funds (b) Advances temporary need for additional cash. Primarily, these amounts have been recorded when funds overdraw their share of Advances represent long-term borrowing between funds. Interest is pooled cash. These balances are expected to be repaid within the next twelve- calculated at the current rate on advances between the City and the month fiscal operating cycle. The composition of interfund balances at June 30, Redevelopment Agency. These amounts are not expected to be repaid 2007, is as follows: within the next twelve-month fiscal operating cycle. The composition of interfund balances (advances from/to other funds) as of June 30, 2007, is as follows: Receivable Fund Payable Fund Amount Receivable Fund Payable Fund Amount General Fund Grants $ 8,017,368 Redevelopment Agency, Debt Service General Fund Internal Service Funds $ 2,394,650 Fund 99,522 Nonmajor Enterprise Funds 1,743,500 Stadium 757,054 Redevelopment Agency, Debt Internal Service Funds 404,688 Service Fund 20,145,332 9,278,632 24,283,482 Redevelopment Agency, Debt Service Fund General Fund 29,467 Grants Fund Redevelopment Agency, Debt Service Fund 34,922,759 Nonmajor Governmental Funds Nonmajor Governmental Funds 8,777,278 Stadium 20,043 Redevelopment Agency, Debt Nonmajor Enterprise Funds 1,844,881 Service Fund Fresno Convention Center 245,837 Internal Service Funds 511,708 11,153,910 Nonmajor Governmental Funds Redevelopment Agency, Debt Service Fund 18,824,294 Water System Nonmajor Enterprise Funds 3,997,482 Internal Service Funds 28,578 Water System Redevelopment Agency, Debt 4,026,060 Service Fund 1,171,869 Airports 531,089 Sewer System Transit 10,254,898 General Fund 206,423 Internal Service Funds 32,154 1,909,381 10,287,052 Sewer System Redevelopment Agency, Debt Solid Waste Management Internal Service Funds 29,952 Service Fund 770,900 General Fund 438,000 Airports General Fund 584,400 1,208,900 Nonmajor Governmental Funds 80,046 664,446 Solid Waste Management Internal Service Funds 43,659

Fresno Convention Center General Fund 154,795 Airports Redevelopment Agency, Debt Service Fund 3,845,117 Nonmajor Enterprise Funds Fresno Convention Center 2,322,368 General Fund 5,262,311 Internal Service Funds 6,312 9,107,428 2,328,680

138 139 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Receivable Fund Payable Fund Amount Receiving Fund Paying Fund Amount Nonmajor Enterprise Funds 3,508,857 Fresno Convention Center General Fund 1,636,809 Internal Service Funds 2,763,224 Redevelopment Agency, Debt 59,551,105 Service Fund 486,772 2,123,581 Transit Nonmajor Governmental Funds 2,340,642 Nonmajor Enterprise Funds 159,000 Nonmajor Enterprise Funds Redevelopment Agency, Debt 2,499,642 Service Fund 241,310 Fresno Convention Center

General Fund 8,299,932 Internal Service Funds Solid Waste Management 666,519 Nonmajor Enterprise Funds 161,574 Stadium General Fund 930,000 General Fund 674,533 Nonmajor Governmental Funds 200,000 1,502,626 Nonmajor Enterprise Funds 620,500 1,750,500 Total Advances $ 94,413,257 Nonmajor Enterprise Funds General Fund 1,200,000 (c) Transfers Grants Fund 75,000 Nonmajor Governmental Funds 42,652 Transfers represent subsidies by one fund to another in accordance with the Water System 5,687 Sewer System 2,843 budget and provide support for various City programs and provide resources 1,326,182 for the payment of debt service. The following is a summary of Interfund transfers as of June 30, 2007. Internal Service Funds General Fund 700 Grants Fund 4,100 Nonmajor Governmental Funds 1,900 Water System 2,400 Receiving Fund Paying Fund Amount Sewer System 4,800 Solid Waste Management 6,700 General Fund Nonmajor Governmental Funds $ 1,803,037 Transit 8,100 Solid Waste Management 726,000 Airports 5,300 Transit 321,900 Nonmajor Enterprise Funds 7,600 2,850,937 Internal Service Funds 28,400 70,000 Grants Fund General Fund 3,041,400 Nonmajor Governmental Funds 1,254,585 Government-Wide Sewer System 827,532 4,295,985 Total Transfers $ 87,888,489 Redevelopment Agency Debt Service Funds Airports 6,416,674 The General Fund transferred $24 million to Nonmajor Governmental funds to provide support for 6,416,674 debt service payments and capital projects; $8.3 million to the Convention Center for debt service as well as general operating support; $3.0 million to the Grants Fund for grant match on public Nonmajor Governmental Funds General Fund 24,055,173 protection grants; and $0.9 million to the Stadium Fund for debt service payments. Grants Fund 1,526,413 Redevelopment Agency, Debt Service Service 13,404,428 Transfers of $13.4 million from the Redevelopment Agency Debt Service provided support for Nonmajor Governmental Funds 12,376,811 construction purposes to Nonmajor Governmental Funds. Airports transferred $6.4 million to Water System 349,592 Redevelopment Agency, Debt Service for debt forgiveness. Nonmajor Governmental Funds Sewer System 316,807 transferred $2.3 million Measure C revenue to Transit for operating support; and $12.4 million Solid Waste Management 451,800 drawdowns of bond proceeds to other Nonmajor Governmental Funds for construction purposes. Transit 666,000 Airports 132,000

140 141 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 d) Recap of Interfund Activity Note 9. DEFEASANCE AND REFUNDING OF LONG-TERM DEBT The following schedule recaps Interfund Activity at June 30, 2007. (a) Current-Year Refundings

Advances Advances The City did not defease any debt in fiscal year 2007. Due from Due to to Other From Other Other Funds Other Funds Funds Funds Transfers In Transfers Out (b) Prior-Year Defeasances Governmental Funds: May 3, 2000: The City defeased the Airport Revenue Refunding Bonds Series 1995 by placing General Fund $ 9,278,632 $ 768,662 $ 24,283,482 $ 8,218,076 $ 2,850,937 $ 37,527,205 monies in Escrow for the purpose of paying debt service on the bonds through July 1, Grants Fund - 8,017,368 34,922,759 - 4,295,985 1,605,513 2007, at which time all remaining bonds outstanding would be prepaid. At June 30, Redevelopment Agency 29,467 99,522 245,837 80,408,353 6,416,674 13,404,428 2007, $125,000 of these bonds outstanding is considered defeased. Nonmajor Governmental 11,153,910 8,857,324 18,824,294 - 59,551,105 18,019,627 July 13, 2000: The City defeased the Pension Obligation Bonds Series 1994 by placing monies in Total Governmental Funds 20,462,009 17,742,876 78,276,372 88,626,429 73,114,701 70,556,773 Escrow for the purpose of paying debt service on the bonds through June 1, 2014, at Proprietary Funds: which time all remaining bonds outstanding would be prepaid. At June 30, 2007, $92.135 million of these bonds outstanding are considered defeased. Water System 4,026,060 - 1,909,381 - - 357,679 Sewer System 10,287,052 - 1,208,900 - - 1,151,982 Note: Liabilities for defeased bonds are not included in the City’s financial statements. Solid Waste Management 29,952 - 43,659 666,519 - 1,184,500 Airports 664,446 - 9,107,428 531,089 - 6,553,974 Fresno Convention Center 154,795 2,322,368 2.123,581 245,837 8,299,932 - Transit - 23,350,944 - - 2,499,642 996,000 Note 10. RISK MANAGEMENT FUND Stadium - 777,097 - - 1,750,500 - Nonmajor Enterprise Funds 2,328,680 5,842,363 241,310 1,905,074 1,326,182 4,295,957 Within certain exceptions, it is the policy of the City to use a combination of self- Internal Service Funds 13,096,046 1,013,392 1,502,626 2,438,309 70,000 2,791,624 insurance and purchased commercial insurance against property or liability risks. The City believes it is more economically set to manage its risks internally and set Agency Funds ------aside funds as needed for estimated current claim settlements and unfavorable Government-Wide Transfer - - - - 827,532 - judgements through annual appropriations and supplemental appropriations. The City maintains limited coverage for certain risks that cannot be eliminated. At this Total $ 51,049,040 $ 51,049,040 $ 94,413,257 $ 94,413,257 $ 87,888,489 $ 87,888,489 time, the City is engaged in an Owner-Controlled Insurance Program covering the wastewater treatment expansion. The Risk Management Division investigates and manages all liability claims and property losses, evaluates risk exposure and insurance needs, protects against contractual loss by reviewing and preparing insurance and indemnification portions of consturction contracts, leases and agreeements, emphasizes ongoing operational loss control, and purchases all insurance coverage for the City.

The City maintains General Liability insurance, with limits of liability of $10,000,000. There is a $2,500,000 self-insured retention (SIR). The City also maintains Airport Owners and Operators General Liability insurance and Aviation (Aircraft Liability) insurance, with limits of liability of $60,000,000 and $20,000,000 per occurrence, respectively. There is no deductible or self-insured retention (SIR).

Furthermore, the City maintains Property insurance and Boiler and Machinery insurance, with total insured values of $963,168,436 and limits of liability of 1 billion and 100,000,000 per occurrence, respectively. There is a $25,000 deductible. Finally, the City maintains Aviation (Aircraft Hull) insurance for its two helicopters and one airplane, with limits of liability of $1,400,000 for each helicopter and

142 143 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

$167,508 for the airplane. There is a $35,000 in-motion deductible and $1,000 not in-motion Note 11. EMPLOYEE BENEFIT PROGRAMS deductible for the helicopters and $500 in-motion deductible and $100 not in-motion deductible for the airplane. (a) Retirement Plans The City’s Workers Compensation Program consists of $2,000,000 self-insured retention with purchased excess insurance layers up to the statutory limits. The Employees Retirement System and the Fire and Police Retirement System (the Systems) are single-employer defined benefit pension plans The claims liabilities and worker’s compensation liabilities reported on the balance sheet have been administered by two individual Retirement Boards. The Systems provide actuarially determined and include an estimate of incurred but not reported losses. retirement, disability, and death benefits to plan members and beneficiaries. Cost-of-living adjustments are provided to members and beneficiaries as Charges to other City funds by the Risk Management Fund are based on historical cost information provided for in the City of Fresno's Municipal Code. Articles 18, 17, and 17A and are adjusted over a reasonable period of time so that Internal Service Fund revenues and of the Municipal Code of the City of Fresno assign authority to administer the expenses are approximately equal. Reserves for self-insurance for these programs include estimated retirement systems to the respective Retirement Boards. The Systems issue publicly available financial liability amounts for claims filed against the City for their programs as well as the estimated amount reports that include financial statements and required supplementary information for the Employees of claims incurred but not reported. Retirement System and the Fire and Police Retirement System. The reports may be obtained by writing the City of Fresno Retirement Office, 2828 Fresno Street, Suite 201, Fresno, California, 93721. The estimated liabilities of the Risk Management Internal Service Fund as of June 30, 2007, are determined by the City based on recommendations from an Permanent full-time employees of the City of Fresno are eligible to participate in the respective independent actuarial evaluation. The liabilities are based on estimates of the Employees Retirement or Fire and Police Retirement Systems. Employees working in limited, interim, ultimate cost of claims (including future claim adjustments expenses) that have provisional, temporary, seasonal, or part-time positions are not eligible to participate in the Systems. been reported but not settled, and claims that have been incurred but not Participation is mandatory if an employee is eligible except in the case of the City Manager, City reported (IBNR). The claims liability of $64,986,894 reported in the Risk Attorney, City Clerk, Department Heads and Council Assistants as provided in the Fresno Municipal Management Internal Service Fund at June 30, 2007, is based on the Code (FMC) Section 2-1813. The City Manager, City Clerk, City Attorney, Department Heads or requirement that claims be reported if information prior to the issuance of the Council Assistants, who are not already a member, may negotiate other retirement benefits if such financial statements indicates it is probable that a liability has been incurred at an agreement is established by resolution of the Council. the date of the financial statements and the amount of loss can be reasonably estimated. B asis of A cco The recorded liabilities for each program at June 30, 2007, are as follows: unt The Systems use the accrual basis of accounting. Investment income is ing recognized when it is earned and expenses are recognized when they are Workers' Compensation * $ 47,943,512 incurred. Contributions are recognized when due. Benefits and refunds are Liability and Property Damage * 17,043,382 recognized when due and payable under the terms of the Systems per Sections Total $ 64,986,894 2-1717, 2-1817 and 2-1718, 2-1821 of the Municipal Code.

* The liabilities for workers' compensation and general liability are presented at present value, using a Securities lending transactions are accounted for in accordance with GASB discount rate of 3%. Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions, which establishes reporting standards for securities lending Changes in the funds claims liability amount for the last three fiscal years are as follows: transactions. In accordance with Statement No. 28, cash received as collateral on securities lending transactions and investments made with that cash are reported as assets and liabilities resulting from Fiscal Year Beginning of Current Year Claims End of Fiscal these transactions and are both reported in the Statement of Plan Net Assets. In addition, the costs Ended Fiscal Year Provision for Payments Year Liability June 30 Liability Claims of securities lending transactions are reported as an expense in the Statement of Changes in Plan Net Assets. 2005 61,846,833 9,283,586 10,777,868 60,352,551 2006 60,352,551 11,761,208 12,010,688 60,103,071 Va luat 2007 60,103,071 17,024,268 12,140,445 64,986,894 ion of In System investmentsves are reported at fair value, calculated as cost plus unrealized gains or losses. tme Short-term investmentsn tares reported at cost, which approximates fair value. Securities traded on a

144 145 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 national or international exchange are valued at the last reported sales price at Thre e-Ye current exchange rates. Investments in both bonds and mortgage-backed pass- ar Tren through certificates are carried at fair value. The City of Fresnod Icontributedn 100% of its annual pension costs and had no outstanding net pension form obligations for fiscal yearsat 2005, 2006 and 2007. Actual employer contributions were not required ion Cost values are derived from Master Custodial Transaction Records. The fair due to the prefunded actuarial liability of the system. value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated EMPLOYEES RETIREMENT SYSTEM fair values. Fiscal Year Annual Percentage Funding Pension of APC Net Pension Fun June 30 Cost [APC] Contributed Obligation din (1) g Po 2005 11,281,398 100 0 licy 2006 11,095,490(1) 100 0 The contribution requirement of System members and the City of Fresno is established by Municipal 2007 8,462,858(1) 100 0 Code and administered by the Retirement Boards. Contribution rates, which are based on the calculations of the Systems' independent actuary and adopted by the Boards, are presented as a FIRE AND POLICE RETIREMENT SYSTEM percentage of annual covered salary/payroll. Currently, the employer’s normal contribution rate for Fiscal Year Annual Percentage the Employees System is 10.51%. For the Fire and Police System Tier I, the rate is 25.71% for the fiscal Funding Pension of APC Net Pension year ended 2007 for Tier I, and for Tier II, the rate is 17.43%. However, the rate for the Employees June 30 Cost [APC] Contributed Obligation (1) System is currently offset by the pre-funded actuarial accrued liability resulting in a net zero 2005 13,878,454 100 0 (1) contribution from the City. For the Police and Fire System an employer contribution of $1,469,549 2006 15,363,954 100 0 2007 17,548,859(1) 100 0 was made in fiscal year 2007 for Tier I and $3,690,741 for Tier II in fiscal year 2007. (1) Employer contributions are reported net of prepayment credits associated with the sale of Pension Obligation Bonds.

Employees Fire & Police I Fire & Police II Scheduling of Funding Progress

Members' Average Rate 5.06% * 9.00% EMPLOYEES RETIREMENT SYSTEM Employer's Gross Rate 10.93 % 25.66% 16.28% Schedule of Funding Progress Prefunded Pct. Accrued (Dollars in Millions) (10.93)% (25.66)% (16.28)% Liability Offset (1) (2) (3) (4) (5) (6) (Prefunded)/ Net Employer’s Rate 0 0 0 Actuarial Unfunded AAL (Prefunded)/ Actuarial Actuarial Accrued Percentage Annual Percentage of *The employee contribution rates are dependent upon entry age with rates for ages 25, Unfunded AAL Valuation Value Liability Funded Covered Covered Payroll 35, and 45 being 4.99%, 6.36% and 6.68% respectively. (2) - (1) Date of Assets (AAL) (1) / (2) Payroll (4) / (5)

2004 742 554 133.8% (187) 100 (187.9%) Ann ual 2005 791 566 139.8% (225) 103 (219.7%) Pen sion 2006 848 614 138.1% (234) 111 (209.7%) The annual required Co contribution for the current year was determined as st a part of the June 30, 2006,nd actuarial valuation using the entry age actuarial Net cost method for the Fire and PolicePen System and the projected unit credit sion actuarial cost method for the Em Oployeesb System. The actuarial liga assumptions included (a) 8.25% investmenttion rate of return, and (b) projected annual salary increases were assumed to be 4.25% plus merit and longevity increases based on completed years of service for both Systems. Both (a) and (b) included an inflation component of 4.25%. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a period of three years. The Systems do not have unfunded actuarial liabilities.

146 147 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Pos FIRE AND POLICE RETIREMENT SYSTEM t Re tirem Schedule of Funding Progress The Post-Retirementent Supplemental Benefit ("PRSB") Program was created to provide assistance to (Dollars in Millions) Sup eligible retirees to payple form various post-retirement expenses which in most cases consist of premiums ent (1) (2) (3) (4) (5) (6) for health insurance or medications.Ben Each Retirement Board will annually review the actuarial efit (Prefunded)/ valuation report and declare an actuarialProg surplus, if available, in accordance with the procedures in ram Actuarial Unfunded AAL Municipal Code Sections 2-1853, 2-1745. Actuarial Actuarial Accrued Percentage (Prefunded)/ Annual Percentage of Valuation Value Liability Funded Unfunded AAL Covered Covered Payroll Date of Assets (AAL) (1) / (2) (2) - (1) Payroll (4) / (5) If an actuarial surplus is declared, the surplus is allocated into two components. One component composed of two-thirds of the declared surplus shall be used to reduce or offset the City's pension 2004 793 642 123.5% (151) 69 (220.3%) required contributions. Any unused portion shall be reserved in the City Surplus Reserve and drawn 2005 847 670 126.4% (177) 73 (240.6%) upon in subsequent years if needed. The remaining one-third component shall be distributed among 2006 906 723 125.4% (184) 83 (222.4%) eligible post-retirement supplemental benefit recipients in accordance with procedures in Municipal Code Sections 2-1853(f)(4) and 2-1745(f)(4). Any unused portion shall be reserved in the PRSB Reserve and drawn upon in subsequent years if needed. The information presented was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation follows: For the fiscal year ended June 30, 2007 the System distributed PRSB benefits for eligible retirees in Employee Fire & Police Employees Retirement System in the amount of $2,966,913 and offset the required City pension Valuation Date 6/30/06 6/30/06 contributions by $6,896,643 with the declared actuarial surplus. As of June 30, 2007, the City Surplus Actuarial Cost Method Projected Unit Credit Entry Age Normal Cost Reserve balance was $0 and the PRSB Reserve balance was approximately $1,963,083 of which Amortization Method Level Percentage Open Level Percentage Open $1,624,808 is committed for PRSB distribution for the months of July through December 2007. For the Remaining Amortization Period 15 Years 15 Years fiscal year ended June 30, 2007 the System distributed benefits for eligible retirees in the Fire and Asset Valuation Method 5-year Smoothed Market 5-year Smoothed Market Police Retirement System in the amount of $2,872,008 and offset contributions by $6,628,084. As of Actuarial Assumptions: June 30, 2007, the City Surplus Reserve balance was $0 and the PRSB Reserve balance was Investment Rate of Return 8.25% 8.25% $2,226,021. For the fiscal year ended June 30, 2006, the System distributed PRSB benefits for Projected Salary Increases 4.25% + merit & longevity 4.25% + merit & longevity eligible retirees in the Employees Retirement System in the amount of $2,148,543 and $2,548,218 for Includes Inflation At 4.25% 4.25% the Fire and Police Retirement System. The City offset required pension contributions for the Cost-of-Living Adjustments 4.25% per year 1-5%** increase maximum of 5% Employees System in the amount of $11,095,490 and $6,478,119 for the Fire and Police System. As ** 1st Tier of June 30, 2006 the City Surplus Reserve balance was $967,446 for the Employees Retirement Rank-Average Option: Increases are determined by the increases attached to ranks of active safety employees. 3- System and the PRSB Reserve balance was approximately $1,781,602. With respect to Fire and Year Average Option: Cost-of-living is based on the percentage of change in the weighted mean average monthly compensation attached to all ranks of members, as compared with the prior fiscal year and limited to a maximum of Police System, the City Surplus Reserve balance was $0 for 2006, and the PSRB Reserve balance was 5% per year. $2,100,217, as of June 30, 2006.

** 2nd Tier - CPI increase, maximum of 3%. (b) Compensated Absences Ad min Vacation pay, which may be accumulated up to 600 hours depending on an employee’s istra tive bargaining group and length of service, is payable upon termination. Sick leave, which may be Exp Section 2-1824, Section 2-1719 of the Fresno Municipal Code provides that en accumulated up to 12 hours per month, has no maximum. Several bargaining sesall administrative costs of the system shall be a charge against the assets of groups have payoff provisions at retirement based on formulas specific to the the Employees Retirement System and Fire and Police Retirement System, groups. The majority of employees however, do not have sick leave payoff respectively. provisions in their bargaining group’s contract. Annual leave, which may be accumulated up to 800 – 1,000 hours (depending upon the employee group), is payable upon termination or retirement. Beginning July 1, 2006, the ceiling increased from 1,000 to 1,200 hours. Holiday leave may be accumulated indefinitely depending upon the bargaining groups and is payable for active employees as well as at termination or retirement. Annual leave allows for the cashing out of 25% of the accumulated balance up to and including 48 hours once per fiscal year.

148 149 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Supplemental sick is awarded to unrepresented management, middle management, professionals Accrued employee leave balances related to governmental activities are recorded in the and to white collar employees at the rate of 40 hours at the beginning of each fiscal year. The Government-Wide financial statements only. balance can only be used after other leave balances are exhausted, or for other specific reasons outlined in the various MOU’s or Salary Resolutions. The balance is payable at termination or (c) Deferred Compensation Plan retirement. The City offers its employees a deferred compensation plan in Starting in FY2006, some bargaining units can transfer some or all of their accordance with Internal Revenue Code (IRC) Section 457. The plan, sick leave and supplemental sick leave balances to a Health available to all permanent full-time and part-time employees and Reimbursement Arrangement (HRA). The cash value of these balances is Council Members, permits deferral of a portion of the employee’s salary placed into a separate account (by employee), administered by into a tax-deferred program. The deferred compensation is not available to employees or other HealthComp, earns interest, and is used to pay health premiums for the beneficiaries for withdrawal until termination, retirement, death, or unforeseeable emergency. Upon employee, their spouse and dependents – until their individual balance is separation from employment with the City, an individual may roll over their deferred account into exhausted. another 457 Plan or upon receipt, the distribution will become taxable. The portion of the City's obligation relating to employees' rights to receive compensation for future absences, that is attributable to services already rendered, is accrued when incurred in the The Deferred Compensation Board contracted with Fidelity Management Trust Company as the government-wide, proprietary and fiduciary fund financial statements. In fiscal year 2007, payments trustee and plan administrator. The City, under contract with the City Retirement Systems, pays the for compensated absences on termination have been budgeted and paid from the department Retirement Systems to assist Fidelity in the administration of the Deferred Compensation Plan. incurring the liability. Additionally, City staff in the Payroll section of the Finance Department, the City Attorney’s Office and Information Services Department all assist in the administration of the Plan. The City has no fiduciary Accrued Employee Leave balances as of June 30, 2007, are as follows: accountability for the plan and, accordingly, the plan assets and related liabilities to plan participants are not included in the basic financial statements.

Accrued Department/Activity Vacation and Current Portion (d) Health Benefit Plan Sick Leave Pay Governmental Activities: The City offers its employees participation in the Fresno City Employees Health and Welfare Trust Plan General Fund $ 14,283,954 $ 3,742,596 (Trust). The Trust offers a self-insured medical plan for full-time and permanent part-time employees Grants Fund 1,051,809 275,589 and their dependents. The medical plan is a PPO plan and a $200 Special Gas Tax 271,276 71,078 Community Services 35.786 9,376 individual annual deductible and a $600 annual family maximum. The Trust Special Assessment 23,960 6,278 alsoEmployment provides Benefitdental, Plans vision, Other pharmacy Than Pension and Planschiropractic coverage. Total Governmental Activities 15,666,785 4,104,917 Employees have the opportunity, on an annual basis, to elect a reduced benefit level in whichFinancial the plan Reportingpays 60% ofby covered Employers medical for Post charges Employment and Benefits Other than the employee pays 40%, or they may elect a higher benefit level in which Accrued Pensions Department/Activity Vacation and Current Portion the plan pay 80% of covered charges and the employee pays 20%. Sick Leave Pay Employees electing the lower benefit level pay nothing for their coverage. Employees electing the Business-type Activities: higher benefit level pay 20% of the monthly premium through payroll deductions. Water System 925,708 78,619 Sewer System 1,001,203 150,791 In April 2004 and in August 2004, the GASB issued Statement No. 43, Financial Reporting for Post Solid Waste Management 788,853 207,357 Transit 1,634,398 236,053 , and Statement No. 45, Accounting and Airports 868,027 146,644 Community Sanitation 432,464 49,682 . Statement No. 45 requires that the City account for and report the Parking 106,908 14,364 annual cost of OPEB and the outstanding obligations and commitments related Development Services 1,457,343 146,506 General Services 3,343,754 483,715 to OPEB on the accrual basis, in essentially the same manner as it does for Risk Management 117,762 12,687 pensions. Under GASB 45, the annual OPEB will be based upon actuarially Billing and Collection 579,928 62,020 determined amounts, which if paid on an ongoing basis, generally would Total Business-type Activities 11,256,348 1,588,438 provide sufficient resources to pay benefits as they come due.

Total $ 26,923,133 $5,693,355

150 151 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

The City engaged the services of an actuary in order to determine the Actuarial Accrued Liability General Safety Tier 1 Safety Tier 2 Blue Collar Total Employees (AAL) as of June 30, 2007, which is equal to that portion of the Actuarial Present Value of Benefits deemed to have been earned to date. The AAL was calculated using the Projected Unit Credit Estimated Benefit Payments paid ($665,600) ($1,457,000) ($108,200) ($15,700) ($2,246,500) actuarial cost method. For employees who have not yet attained full eligibility for postretirement outside of a trust 2007/2008 Estimated Contributions to a Trust 0 0 0 0 0 benefits, this method assigns a proration based on service to date compared with service at the Annual OPEB Cost (AOC) 2007/2008 1,633,500 2,615,500 5,648,500 90,500 9,988,000 earliest date of full eligibility for benefits. For the amortizations of Unfunded AAL and Net OPEB Estimated NOO at June 30, 2008 $967,900 $1,158,500 $5,540,300 $74,800 $7,741,500 Obligation, the “level dollar” method was used over a rolling 30 years. The AAL which results, is contingent upon a variety of assumptions about future events which includes demographic While the City is not required to adopt GASB No. 45 until fiscal year ending June 30, 2008, the City’s assumptions such as mortality, turnover, disability and retirement; economic assumptions such as Health and Welfare Trust was required to adopt GASB No. 43 as of June 30, 2007. Previous to the rates of discount and compensation; per-capita cost assumptions and retiree self-pay assumptions. adoption of GASB 43, the Health and Welfare Trust was accounted for as an Internal Service Fund Actuarial Valuation as of June 30, 2007 under GASB 43/45 is as follows: within the Risk Management Fund. With the implementation of GASB No. 43, the Trust is now reflected within Fiduciary Funds. The beginning net assets for the Risk Management Fund have been Summary of Valuation Results (based on 4.5% discount rate) restated to reflect the cumulative effect of the adoption of GASB No. 43 and the new presentation of the Health and Welfare Trust as a part of the Fiduciary Funds. General Safety Tier 1 Safety Tier 2 Blue Collar Total Employees Participant Count At this time the City is not contemplating making contributions to fund the plan based on the Current Retirees & surviving spouses 238 301 20 59 618 actuarial accrued liability (AAL). Other eligible participants 338 169 16 111 634 Other participants not yet eligible 1,392 123 773 505 2,793 The recorded liability for the Health and Welfare Trust at June 30, 2007 is $3,150,000 Total Count 1,968 593 809 675 4,045

Actuarial Present Value of Benefits (APVB) at June 30, 2007 Changes in the funds claims liability amount for the last three fiscal years are as follows: Current Retirees & surviving spouses $ 4,164,900 $16,428,800 $ 4,397,400 ($86,400) $24,904,700 Fiscal Year Beginning of Current Year Other eligible participants 1,968,200 11,421,600 991,900 123,400 14,505,100 Claims End of Fiscal Other participants not yet eligible 14,010,800 10,591,600 65,508,400 1,021,000 91,131,800 Ended Fiscal Year Provision for Payments Year Liability Total APVB $20,143,900 $38,442,000 $70,897,700 $1,058,000 $130,541,600 June 30 Liability Claims

Actuarial Accrued Liability (AAL) at June 30, 2007 2005 2,200,000 21,088,624 20,513,624 2,775,000 Current Retirees & surviving spouses $4,164,900 $16,428,800 $4,397,400 ($86,400) $24,904,700 2006 2,775,000 24,407,167 24,582,167 2,600,000 Other eligible participants 1,968,200 11,421,600 991,900 123,400 14,505,100 2007 2,600,000 27,415,933 26,865,933 3,150,000 Other participants not yet eligible 7,108,300 9,334,300 26,454,200 575,300 43,472,100 Total AAL $13,241,400 $37,184,700 $31,843,500 $612,300 $82,881,900

Funded Status at June 30, 2007 Note 12. NO-COMMITMENT DEBT Actuarial Value of Assets $0 $0 $0 $0 $0 Unfunded Actuarial Accrued Liability $13,241,400 $37,184,700 $31,843,500 $621,300 $82,881,900 Funded Ratio 0% 0% 0% 0% 0% The City is not liable for repayment of any of the following bonds, and Covered Payroll $82,133,200 $24,179,000 $58,313,900 $29,245,100 $193,871,200 UAAL as a % of Covered Payroll 16% 154% 55% 2% 43% accordingly, they are not reflected in the accompanying basic financial statements. Annual Required Contribution (ARC) and Annual OPEB Cost (AOC) for 2007/2008 Normal Cost for 2007/2008 $838,300 $382,400 $3,736,100 $53,700 $5,010,500 (a) Health Facilities Bonds Amortization of UAAL as of June 795,200 2,233,100 1,912,400 36,800 4,977,500 2007/2008 Total ACR for 2007/2008 $1,633,500 $2,615,500 $5,648,500 $90,500 $9,988,000 The City has remaining health facilities bonds totaling $118.4 million. These bonds were issued to provide administrative and service facilities for St. Agnes Net OPEB Obligation (NOO) Medical Center. NOO at June 30, 2006 N/A N/A N/A N/A N/A (Benefits paid outside of a trust) N/A N/A N/A N/A N/A (Contributions to a trust) N/A N/A N/A N/A N/A Annual OPEB Cost (AOC) N/A N/A N/A N/A N/A NOO at June 30, 2007 $0 $0 $0 $0 $0

152 153 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 b) Industrial Development Bonds incurred related to the landfill site closure, rather than provide for similar future costs. The amount receivable at June 30, 2007, is $4,578,697 and is paid through Utility fees. The City has only one issue of industrial development bonds totaling $1.26 million. These bonds were issued to purchase land and construct a health equipment manufacturing plant within the City’s (b) CVP Water Contract Enterprise Zone. The City obtains a portion of its water supplies (approximately 40% of the City’s (c) Multifamily Housing Revenue Bonds States) overall water supply) through the Central Valley Project ("CVP") pursuant to a contract (the "CVP Contract") with the United States Bureau of Reclamation The City has issued multifamily housing revenue bonds totaling $58.5 million. The bonds were issued ("USBR"). Under the CVP Contract, the City is entitled to receive from the CVP a to provide funds for the purchase and/or construction of multifamily housing facilities to provide low- maximum of 60,000 acre-feet per year of water from the Bureau’s San Joaquin income housing to Fresno residents. River Supply.

(d) Special District Debt In fiscal year 2005, the USBR and the City completed the renewal of its long-term (40 year) contract (the “CVP Renewal Contract”). Included as a part of the The City is not obligated in any manner for the Special Assessment debt, but is acting as an agent for renewal process, the City resolved through settlement, prior litigation (City of Fresno et al. v. United property owners in collecting the assessments and forwarding the collections to the trustee, and involving claims for past due payments required under the City’s prior CVP Contract. As a initiating foreclosure proceedings, if appropriate. Special Assessment debt payable to bond holders part of the settlement and the CVP Renewal Contract, the City agreed to pay the Bureau was $9,060,000 at June 30, 2007 as compared to $12,835,000 at June 30, 2006. approximately $41.6 million in agreed upon past fees. In particular, the City must pay off the agreed upon debt over time, with the final balance due no later than 2030. Note 13. COMMITMENTS AND CONTINGENCIES The initial agreed upon present value of the “past” amount to be paid, $41.6 million, has been capitalized in accordance with Financial Accounting Standards Board Statement No. 71 “Accounting for the Effects of Certain Types of Regulation” in the Water System Proprietary Fund and (a) Closure and Postclosure Care Cost will be amortized against expected future revenues generated through increased rates to finance the settlement. In accordance with FAS 71, the amount capitalized is reflected in the City’s Water The City continues to monitor a former landfill site as part of the Environmental Protection Agency's Fund under the caption “CVP Water Settlement” with the related liability reported as “CVP Water (EPA) Superfund program. Management estimates the remaining monitoring costs as of June 30, Settlement Liability”. 2007, to be $8,625,188 and has recorded this liability in the Solid Waste Enterprise Fund. It is anticipated that $300,000 in monitoring costs will be paid in fiscal year 2008. The former landfill site The City has begun paying down the $41.6 million debt and at June 30, 2007 the obligation stands has not received solid waste since 1987 and was redesigned as part of a 350-acre environmentally at $39,954,937. The City continues to evaluate the potential of pursuing conscious facility to integrate the former landfill site into a championship alternative debt financing or refinancing the current water bond obligations, caliber sports complex/regional park. The estimated total remaining costs adding in the CVP debt. In addition, recent water rate studies took into as of June 30, 2007 to complete the landfill closure are based on the consideration these additional costs as did the Utility Commission equipment, facilities, and services required completing the closure and deliberations. monitoring and maintaining the landfill. The CVP Renewal Contract also includes the requirement that the City The Sports Complex includes: four championship lighted tournament comply with "best management practices", including charging all City customers based upon the softball fields and two lighted tournament/practice softball fields; seven tournament soccer fields; actual amount of water delivered to each customer, i.e. the metering of all water service picnic shelters; five playgrounds; restrooms with concession booths and showers; hiking trails and connections. Metering of all City water service connections will require the retrofit of some City arboretum; hilltop overlook; and lake and waterfowl habitat island. service connections. The CVP Renewal Contract requires that the City complete the metering program by January 1, 2013. The City may or may not incur additional capital costs related to the During fiscal year 1992, in accordance with Financial Accounting Standards Board (FASB) Statement installation of the meters depending on whether they are phased in and made the responsibility of of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," the residential owners ($0 cost to the City), or installed and paid for by the City (approximately $40 the City recorded a receivable from rate payers approximately equal to the original estimated million). The City has the option to pursue bond financing related to the cost of installing the meters liability for clean up and monitoring of the site. The statement provides for the recording of the thereby affording the City the opportunity to spread the cost of installation over an extended period receivable because the City Council is empowered by statute, subject to Proposition 218, to of time, an option that is under consideration. establish rates that bind customers, and the rate increase was designed to recover only costs

154 155 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

(c) FAA Audit of the Fresno Yosemite International Airport O ther Litig atio In early calendar year 2006, the Airports Compliance Division of the U.S. There are variousn other lawsuits and claims pending against the City. Although the outcome of these Department of Transportation, Federal Aviation Administration, (FAA) claims and lawsuits is not presently determinable, management, after consultation with legal performed an on-site review of the Fresno Yosemite International Airport counsel, is of the opinion that these matters will not have a material adverse effect on the financial (Airport). In August 2006 the review report was issued and several corrective condition of the City at June 30, 2007. actions were suggested which the FAA believed to be necessary in order for the City of Fresno to avoid adverse impact on the availability of future (d) Commitments and Contingent Liabilities airport improvement grants and approval of new Passenger Facility G Charges. ran t Pro gra The City participatesm in many federal and state assisted grant programs, which are subject to Com In August, 2006, the FAA submitted an audit letter outlining certain program compliancep lauditsia by the grantors or their representatives. Some audits of these programs nce conditions they believe the City should comply with as a consequence of a at June 30, 2007, have not yet been conducted or concluded. Accordingly, the City's compliance transfer of airport property in the late 1990’s. The FAA believed, based upon with applicable grant requirements will be established at some future date. The amounts, if any, of their understanding of the facts, that the City’s General Fund should transfer expenditures which may be disallowed by the grantors cannot be determined at this time although certain sums to the Airport enterprise fund for past financial and real estate the City expects such amounts, if any, to be immaterial to its financial statements. transactions. The City negotiated with the FAA and in May 2007 a tentative agreement was reached which was subsequently approved in concept by Loa the City Council on July 24, 2007. n G uara nte Granite Park es Part of the settlement agreement consisted of acknowledgment between the City and the FAA that various capital projects were constructed that benefited the Airport area and as such the value was In February 2005, the City of Fresno entered into a Contingent Debt Purchase Agreement between recognized as offsets against amounts that the FAA initially believed the City owed the Airport from its the City of Fresno and Bank of the West, effectively guaranteeing the Bank’s loan to “The Granite Park sale of the airport land for a nominal sales price. Kids’ Foundation” a California nonprofit corporation developing a 20-acre sports-related complex along with office and commercial retail amenities. The athletic fields have been improved with In addition, the Airport has loaned monies to the Fresno RDA for two redevelopment project areas soccer fields and goals, baseball and softball diamonds, as well as other sports related amenities. In that impact the Airport, the Fresno Air Terminal Redevelopment Area (FATRA) and the Airport exchange for the “guaranteed purchase”, the City benefits from specific public use of the 20 acres Revitalization Redevelopment Project (Airport Revitalization Area). The Airport has of sports fields. The City’s assistance with this project is in accordance with loaned over $6 million of its funds to the FATRA. The City demonstrated that all of its Economic Development Policy and was viewed as fostering economic the revenue or loan proceeds were invested back into the above stability and growth in an economically challenged area of the City, while redevelopment areas. providing specific public use benefits to the City. In addition, the project was viewed as serving a positive public purpose in that it will help to serve in The agreement reached with the FAA consists of the City (General Fund) promoting economic development through job creation and the repaying the Airport Enterprise Fund approximately $5.8 million plus interest of generation of additional tax-related revenues. approximately $1.2 million over a period of ten years. The first payment was made in mid-November 2007 with each subsequent payment to be made on Through the Contingent Purchase Agreement the City provides the Bank a promise to pay in the November 1 of each subsequent year. event of a Developer default. Upon execution of the “guarantee”, the City became obligated to buy the Bank’s first trust deed position on the developed back 20 acres of the Project by paying off The FAA and the City also agreed that the loans made to the RDA are not required to be repaid to the Bank loan. The City would then take the Bank’s first position on the deed the Airport due to the nature and extent of the reinvestment of those proceeds into the Airport area. of trust and other available collateral. The loan amount was $5,200,000, The City was able to demonstrate that the RDA loan proceeds were effectively reinvested back into which included a $500,000 debt service reserve. The term of both the loan the Airport area. As a result, RDA notes receivable and related accrued interest totaling $6,416,674 and the Bank guarantee is five years. Annual debt service approximates have been removed from both the Airport and RDA funds. $440,000. The collateral for the loan is primarily the approximately 20 acres of developed park athletic fields referred to as the “back fields”. Additionally, the project’s income and operating agreements have been

156 157 Reporting Program Order” (MRP) City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007 assigned as a secondary form of collateral. These agreements provide for approximately $300,000 requesting preliminary and final injunctive relief for the City’s costs of litigation, including reasonable in annual revenue and are “performance” based. The City further required a not-to-exceed loan to attorney fees, and expert witness fees and other relief. value ratio of 65%. On October 20, 2006, the Regional Water Quality Control Board (RWQCB) issued its “Monitoring and On November 27, 2007 Council approved the sale of 10.05 acres of the project property at the to require the parties to initiate monitoring and reporting according developer’s request in exchange for a pay down of the loan to $2.6 million. Upon the sale of the to the schedules set forth in the MRP. On October 31, 2006, based on the failure of the USA, USACE, property and the pay down on the loan, the City will be released from all but $2.6 million of the NGB and Boeing to continue funding the RAP, the DTSC issued both an contingent debt purchase agreement. The remaining 8.3 acres of the softball complex will continue Amendment to the Boeing Order and an Imminent or Substantial Engagement to be pledged as collateral on the remainder of the outstanding debt. As of December 31, 2007, Determination and Order and Remedial Action Order against the United States the balance outstanding on the Granite Park loan was $4,993,645. Parties and the City requiring all parties unilaterally, jointly and severally to immediately ensure that all required activities under the RAP move forward in (e) Toxics Mitigation accordance with the enforceable schedule.

Hammer Field The City, on November 2, 2006 filed a law suit seeking fair and equitable compensation from the United States parties and Boeing for their responsible shares of the clean up Contamination (primarily from the common solvent trichloroethylene, “TCE” was discovered and costs of Old Hammer Field. The goal of the City is to obtain a global identified in 1989, in soils and groundwater beneath property currently owned by the City. The site resolution with respect to each party’s fair and equitable percentage share known as Old Hammer Field, a prior Army military base in the 1940’s, is the subject of investigation of the contamination clean up costs and to ensure the ongoing and clean up efforts which had previously been jointly funded by Boeing, the U.S. Army Corps of implementation of State-approved clean up activities. In order to continue Engineers and the City of Fresno. The area had been used for the repair, overhaul, maintenance, to protect the health and safety of the public while the City seeks to force refurbishing and construction of aircraft during and after World War II. The the United States and Boeing to pay their fair share of the clean up, the City California Department of Toxic Substances Control (DTSC) is the lead has and is committed to maintaining the most vital component of the regulatory agency-overseeing site clean up. All contaminants were clean up and investigation efforts that began over fifteen years ago. It does this by continuing to discharged by other parties, not by the City. As a non-contributory, pump, operate and treat Well Number 70, even with the City bearing the entire cost and expense to overlaying landowner, the City has limited fiscal liability for clean up efforts. do so. DTSC issued a preliminary nonbinding allocation of responsibility (NBAR) on December 23, 2003 placing the City’s share at five percent, which is DBPC Groundwater Contamination consistent with independent analysis commissioned by the City. The Final Remedial Action Plan was approved by the DTSC, and capital construction of the remedial systems is underway. It has been The widespread occurrence of DBCP, an agricultural pesticide in certain groundwater has been estimated that clean up efforts could last between 20 to 50 years, with total remaining clean up identified throughout the Fresno Metropolitan Area. At various City well sites DBCP exceeds drinking costs estimated to be between $13 to $17 million (net present value of capital and water limits and is removed by Granular Activated Carbon treatment. The City fronted the costs of operations/maintenance) of which the City’s share is estimated to equal 5% or $650,000 to clean up with respect to the known wells and reimbursed itself from a DBCP Recovery Fund, which $859,000. was established with proceeds from a litigation settlement in an original amount of approximately $21 million. $10 million was stipulated to be used toward past costs, and $11 million was to be The United States of America (USA), the United States Army Corps of Engineers (USACE), the United applied toward the installation of carbon filtration treatment units, all of which have been States National Guard Bureau (NGB) and the Boeing Company (Boeing) are all subject to the NBAR; completed. Subject to numerical limits, the settlement arrangement also provides for the City to be however the City has paid a significantly disproportionate share of the costs despite its role as the reimbursed for the capital costs of the installation of granular activated carbon treatments (GAC) at nonpolluting landowner. On August 7, 2006, the City informed DTSC that because of the failure of wells exceeding maximum contaminant levels with reimbursements ranging from $337,500 to ongoing funding from all of the other named parties, and the fact that there were no remaining $540,000 depending on the well site. Funding also is provided for the on going operation and funds to continue implementation of the Remedial Action Plan (RAP), the remediation systems would maintenance clean up costs of approximately $27,900 to $31,000 per contaminated well be shut down as of August 11, 2006. After being informed of the funding impasse, on September (depending on type), adjusted for inflation, with such payment obligations ending on June 26, 2035. 19, 2006, the State issued separate letters to all parties directing each party of start up the required The City is not responsible for “cleanup” in the context common to hazardous material remediation. activities pursuant to the RAP. The City, unlike Boeing and the United States entities, continued to fund a major component of the RAP. On October 4, 2006, the City provided proper notice to the The City can elect to treat wells or simply shut them down. Future costs to clean up and monitor new USA, USACE, NGB and Boeing that based upon their actions they are in violation of numerous permits, discoveries of contamination at existing sites or additional sites that may be identified are being standards, regulations, conditions, etc.., and that the City was giving consideration to commencing budgeted as a contingency of approximately $500,000 per year and are eligible for reimbursement a civil action and citizen suit on its behalf against the named parties including but not limited to under the settlement agreement through June 26, 2035.

158 159 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

(f) Measure Z The City retains ownership of the land, buildings, structures, permanent fixtures, and improvements in existence at the commencement date of the lease and the FCZC is the owner of all buildings, Mea structures and improvements constructed thereafter until the end of the lease term. As of June 30, sure 2007 only those zoo assets still held by the City remain on the books and records. Z, Z oo As a result of a ballotAcc initiative on November 2, 2004, with 73% of the vote, Fresno County voters red approved Measure Z whichitati added one penny for every $10 spent on taxable goods for a period of The Financing Agreement conveyed the Zoo animals and Zoo personal property to the Corporation on, ten years. The tax increase whichFres went into effect in April 2005 provides funding for the Fresno along with all obligations the City had with respect to the animals exhibited, housed or otherwise kept no Chaffee Zoo to make the much neededCh repairsa and address other problems or cared for at the Zoo during the term of the lease. At the termination of the Lease or the end of the ffee that have threatened the kind of animals the zooZoo is qualified to keep. The Lease Term, should the City decide not to continue operations of the Zoo, the Corporation has the Co American Zoo and Aquarium Association (AZA) whichrp osets standards for right to sell or dispose of the Zoo Animals and keep the proceeds of any sale or disposition at their rat animal care, safety, staffing and facilities at zoos acrossion the country sole cost or expense. The Corporation also has the authority to acquire, sell or dispose of Zoo animals postponed their decision in 2005 to renew the City of Fresno’s zoo in the course of the lease so long as the compliment of animals at all times is similar in type and accreditation to see whether Measure Z would pass. The extension gave the proportion to the Zoo animals on hand upon commencement of the lease. zoo until March 2006 to fix its immediate problems. The extension was granted to allow for the Chaffee Zoo to comply with the accreditation rules. The Association inspected the Under the Financing Agreement, the City contributed $1.2 million for the first Zoo facilities in December 2005 and tabled their accreditation decision for an additional year to year; however, this amount is reduced by 20% per year thereafter. The March of 2007 to afford the Zoo additional time to continue resolving various issues and problems. lease agreement has been negotiated for a thirty year period with a 25 year On March 26, 2007 the AZA granted the Chaffee Zoo its accreditation after undergoing rigorous renewal of the term if the Zoo Tax is reinstated after it’s initial 10 year term or inspection of its operations and programs including animal care, education, conservation and two additional ten year renewal options if the tax in not renewed. The lease safety. rate is at $1.00 per year.

The AZA endorsement provides resources, credibility and professional The FCZC must maintain AZA accreditation of the Chaffee Zoo and is required to maintain an animal support that will assist the Zoo in continuing to provide fun, unique and up- collection of similar type and ratio that previously existed at the Zoo at the time of transition. If close experiences that strengthens the bond between people and wildlife. Measure Z is renewed at the ten year mark, or another tax measure is passed, the term of the lease AZA is the national leader in establishing and maintaining standards for zoos will automatically renew for 25 years. and aquariums through the accreditation process. Fewer than 10% of the approximately 2,400 animal exhibits licensed by the United Department of Under the Financing Agreement, the City has a decreasing subsidy to the Zoo over the next several Agriculture have achieved AZA accreditation. In order to retain years, as called for in the Measure Z ballot language. The following table reflects the subsidy the City membership and remain accredited, zoos and aquariums undergo the complete accreditation will be providing to the Zoo on a calendar year basis. process every five years. Calendar Year Operating Subsidy As a result of the passage of Measure Z, and in accordance with an agreement between the City of Year Two – 2007 $ 960,000 Fresno and the Fresno Chaffee Zoo Corporation, a California benefit corporation, a non-profit board Year Three – 2008 $ 720,000 operates the zoo. The Fresno Zoological Society appointed three of the board members. The City Year Four – 2009 $ 480,000 Year Five - 2010 $ 240,000 and Fresno County appointed the six other board members – three each. The non-profit board runs all zoo operations with unpaid board members. The City and the Fresno Chaffee Zoo Corporation (g) F.O.R.C.E. (Active and Retired City Employees) v. City of Fresno Retirement Board (FCZC) negotiated a lease and a financing arrangement, both of which were approved by Council on November 29, 2005. Retirees and active members of the City of Fresno Employees Retirement System and an organization representing retirees of the System, initiated The lease agreement set forth the terms and conditions between the City litigation against the System claiming that certain items of pay not and FCZC with respect to the approximate 18 acres of Zoo premises and previously included in pensionable compensation should have been any expansion that might occur related to the approximate 21 acres of included in pensionable compensation. The litigation was settled and in potential future expansion area. The City is responsible for all maintenance April 2007, the System made a one-time settlement payment to and operation costs in the expansion area until such time as the Corporation individuals who were retirees of the System as of December 31, 2005 in takes possession of the expansion area by exercising its rights in accordance the amount of $5.7 million including interest. Those individuals that received the one-time payment with lease provisions. The Corporation officially took over operations on will not receive any increase in their monthly pension benefits relative to the litigation. January 1, 2006.

160 161 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Members of the System who retire after December 31, 2005 will have certain items of compensation Construction and Other Significant Commitments included in their final compensation calculated in accordance with the settlement agreement. The Board’s actuary has estimated the past service costs for these individuals to be approximately At June 30, 2007, the City had commitments for the following major construction projects: $6.1 million and the City’s normal pension rate should increase by approximately .41 percent beginning July 1, 2008. The Board’s actuary will be including these past service costs and normal rate increases in the June 30, 2007 Annual Valuation Study. Remaining Construction (h) Leases Operating Project Title Committed Governmental: The City has operating leases for certain buildings, parking areas, ponding basins, hanger space and No Neighborhood Left Behind $ 3,608,002 storage areas which require the following minimum annual payments. Total Governmental 3,608,002 Governmental Activities

Police Fire Public Total Remaining Fiscal Years Works Construction Project Title Committed 2008 $ 327,964 $ 10,000 $ 231,156 $ 569,120 2009 324,964 10,000 237,456 572,420 Proprietary: 2010 324,964 10,000 215,118 550,082 Youth Center Construction 3,692,221 2011 324,964 10,000 205,380 540,344 2012 324,964 10,000 205,380 540,344 Dewatering Facility 95,536,933 2013 - 2024 1,706,061 120,000 320,670 2,146,731 Water Tank Project 6,163,437 Total Proprietary 105,392,591 Total $ 3,333,881 $ 170,000 $ 1,415,160 4,919,041

Business – type Activities Total Major Construction Projects $ 109,000,593

Fiscal Years Airports Transit Other Total Depts. Note 14. SECURITIES LENDING 2008 $ 208,819 $ 45,644 $ 103,648 $ 358,111 2009 211,694 32,596 151,228 395,518 2010 216,694 21,731 129,216 367,641 The City of Fresno Municipal Code and the Retirement Boards’ policies permit the Retirement Board 2011 145,000 - 118,902 263,902 of the City of Fresno Fire and Police Retirement System and the City of Fresno Employees Retirement 2012 150,000 - 84,000 234,000 System to use investments of both Systems to enter into securities lending transactions, i.e., loans of 2013 - 2,269,000 - - 2,269,000 2024 securities to broker-dealers and other entities for collateral with a simultaneous agreement to return the collateral for the same securities in the future. The Total $ 3,201,207 $ 99,971 $ 586,994 $ 3,888,172 Systems have contracted with Northern Trust, their custodian, to manage the securities lending program for the Systems and all securities held in a separately The City has various other operating leases (both Governmental and Business – type) that have either managed account are available for lending. As securities lending agent, expired and are now functioning on a month-to-month basis, or were written on a month-to-month or Northern Trust calculates collateral margins and accepts collateral in the form of some other basis, or which state no specified expiration date. These leases combined require cash or marketable securities and irrevocable bank letters of credit for all securities annual lease payments totaling $406,779 per year. The City also leases property to others outside of lending transactions. Transactions are collateralized at 102 percent of market the City. All of these leases generally operate on a month to month basis. The combined current value (contract value) for domestic securities and 105 percent of market value (contract value) for annual income from these leases total approximately $6.2 million. international securities. Collateral is marked to market daily. When a loan is secured by cash, a rebate is negotiated and the cash collateral is invested according to the guidelines in the collateral pool.

162 163 City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

As designated by the Boards, cash collateral is invested in Northern Trust’s Core U.S.A. Collateral Fire and Police System Section (short-term investment pool), which, as of June 30, 2007 had a weighted average duration of 39 days and an average yield of 5.33 percent. The relationship between the maturities of the Fair Value of Loaned Securities as of June 30, 2007 investment pool and the System’s loans is affected by the maturities of the security loans made by other entities that use the Northern Trust Core U.S.A. Collateral Section and a definitive statement of Collateralized by Cash Securities Totals that relationship cannot be formulated by the System. There are no credit risks related to the securities lending transactions as of June 30, 2007. U.S. Government and Agency $ 51,655,555 $ 1,673,526 $ 53,329,081 Domestic Equities 112,976,616 227,763 113,204,379 Domestic Fixed Equities 22,117,474 982,853 23,100,327 Northern Trust will ensure that, in any agreement with a borrower, it retains its absolute right to International Equities 32,405,690 638,752 33,044,442 terminate the agreement without cause, upon short notice and without any penalty. The System cannot pledge or sell collateral securities received unless the borrower defaults. In the event of a $ 219,155,335 $ 3,522,894 $ 222,678,228 borrower default, Northern Trust indemnifies the System against losses and will replace or reimburse the System for any borrowed securities not replaced. In general, the average term of all System Fire and Police System loans is overnight or “on demand”. All securities loans can be terminated on demand by either the lender or the borrower, although the average term of the System’ s loans was approximately 81 days Fair Value of Collateral Received for Loaned Securities as of June 30, 2007 as of June 30, 2007.

Collateralized by Cash Securities Totals Due to the nature of the securities lending program and Northern Trust’s collateralization of loans at 102% and 105% plus accrued interest for fixed income securities, we believe that there is no credit U.S. Government and Agency $ 52,672,003 $ 1,708,796 $ 54,380,799 risk as defined in GASB Statement No. 28 and GASB Statement No. 40. Domestic Equities 115,716,533 252,116 115,968,649 Domestic Fixed Equities 22,604,440 978,250 23,582,690 Employees Retirement System International Equities 34,092,848 667,397 34,760,245 $ 225,085,824 $ 3,606,559 $ 228,692,383 Fair Value of Loaned Securities as of June 30, 2007

Collateralized by Cash Securities Totals

U.S. Government and Agency $ 46,400,001 $ 1,503,257 $ 47,903,258 Note 15. SUBSEQUENT EVENTS Domestic Equities 101,482,115 204,590 101,686,705 Domestic Fixed Equities 19,867,191 882,856 20,750,047 International Fixed Equities 29,108,661 576.764 29,685,425 Ta x an d R $ 196,857,968 $ 3,167,467 $ 200,025,435 eve In July 2007, thenue City continued participation in the California Statewide An Communities Developmentticip Authority (CSCDA) in order to be included in atio their Tax and Revenue Anticipationn Bo Bonds program. The CSCDA Employees Retirement System nds authorized the issuance of Tax and Revenue Anticipation Bonds, Series A- Fair Value of Collateral Received for Loaned Securities as of June 30, 2007 2, at a coupon rate of 4.5% and a net interest cost of 3.62%. The principal amount of the bonds was $41,365,000, which was used to fund uneven cash flows in the General Fund due to timing differences between revenues and expenditures. Collateralized by Cash Securities Totals

U.S. Government and Agency $ 47,313,032 $ 1,534,939 $ 48,847,971 Con ting Domestic Equities 103,943,267 226,465 104,169,732 ent Domestic Fixed Equities 20,304,613 878,721 21,183,334 Deb In July 2007, thet CityPu Council of the City of Fresno adopted a Resolution approving the clarification International Equities 30,624,163 599,494 31,223,657 rch of the primary terms of aas eproposed interim, commercial, draw loan between United Security Bank Ag and the Fresno Metropolitan Museumree of Art and Science that included a Contingent Debt Purchase $ 202,185,075 $ 3,239,619 $ 205,424,694 me Agreement (Guaranty) on the part ofn thet – City of Fresno. Fre sno Me trop olit an Mus eum 164 165 of Art a nd Scie nce City of Fresno, California City of Fresno, California Notes to the Basic Financial Statements Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

The final approved documents include (1) a short-term commercial draw loan for up to $15,000,000 Note 16. OTHER INFORMATION between the Bank and the Met; (2) a Performance Guarantee between the City and the Met secured by a Deed of Trust on all land owned by the Met and (3) certain loan documents between the Bank and the Met including without limitation, a note, an assignment of pledged goods, a loan (a) Collateral Held agreement and other related documentation. The City obtains various forms of collateral with respect to the numerous contracts that it enters into. The primary purpose of the loan is for the Met to restart and to complete The collateral may take the form of performance bonds, payment bonds, renovation to its 1922 historically registered, former Fresno Bee building. The surety bonds, certificates of deposit, escrow agreements, etc. The purpose renovations that are to be completed among other things, are necessary to of the collateral is to protect the City from loss in case the terms of a meet fire, safety, seismic and environmental building standards. Work on contract are not filled or complied with. The City may not convert the the property had been suspended and without the loan would not collateral to its use unless a breach of contract occurs; therefore this recommence and would delay the project while the Met raised the collateral is not recorded on the City’s books as an asset. At June 30, 2007, necessary funds or obtained other funding for the project. the City held approximately $341,311,838 in performance collateral. Of that amount, $9,815,204 in the form of certificates of deposit and time deposits are reflected as The Council determined that assisting the Met was in the City’s best interests and essential to the Cash and Investments in Agency Funds with a corresponding Liability in Deposits Held for Others. quality of life for its residents. It was deemed that assisting the Met would encourage and support local art, culture, science and education that is accessible to all members of the community. It was (b) Construction Retainage Escrow Accounts also viewed as encouraging and supportive of downtown revitalization efforts. The City enters into construction contracts with various outside third-party The Contingent Debt Purchase Agreement was a condition precedent to the Bank’s loan contractors with respect to major capital projects. As the construction commitment to the Met for the loan and set forth the terms and conditions under which the Bank progresses, progress payments are made to the contractors. Portions of the may demand that the City purchase the Loan Package. It was also precedent to the City entering payments, retention payments, are paid into an escrow account. While these into the Purchase Agreement that the Met enter into the Met Guaranty, secured by a title company funds are earned by the contractors, generally 5% to 10% of the contract Deed of Trust that gave the City a first priority lien on the Met’s real property and amount, they are not released out of the escrow account to the contractor other real property. In addition, the lien priority included priority over all until some agreed upon date, usually the completion of the job. These mechanics’ or materialmen’s liens. amounts are retained for a variety of reasons; as an incentive to complete the job in a timely manner, or as a fund for the benefit of suppliers and The loan is evidenced by the Commercial Promissory Note dated September subcontractors. The City may not convert the funds in these escrow accounts 13, 2007. The loan is secured by a (1) security agreement; (2) an assignment for its use unless a breach of contract occurs. At June 30, 2007, the City had made payments into of existing and future pledges and (3) interests in the Collateral perfected with various contract escrow accounts in the amount of approximately $3.91 million dollars. UCC-1 filings of first priority. (c) Fund Equity The Bank agreed to fund and disburse (a) a sum sufficient to pay all title and escrow costs incurred in connection with the loan; (b) a sum sufficient to pay of the Met’s loan with Bank of American in an The Redevelopment Agency, Debt Service Fund, the Stadium Fund, the Parking Fund - Enterprise approximate sum of $3 million; (c) sums to pay outstanding obligations due contractors as the Funds, Risk Management Fund, and Internal Service Fund all had deficit fund balances at June 30, signing of the note; (d) sums to pay, on a periodic basis, monies due and 2007. The deficit in the Redevelopment Debt Service Fund ($73,948,716) is primarily the result of payable to pre-approved contractors, vendors, and other recipients in timing differences. The RDA obtains advances from the City to fund current redevelopment projects. furtherance of the Project; and (e) to pay as needed the accrued monthly The advances will ultimately be reimbursed through the RDA’s receipt of tax increment which results interest on the loan. once redevelopment projects are completed and placed on tax rolls. The deficit in the Stadium Fund ($4,372,506) is primarily the result of the cost of operations, which includes non-cash The agreement includes an interest reserve funded at $917,000 with is depreciation, outpacing City sponsored event revenues. The City has engaged the services of a available only for monthly interest payment draws. third party Management Company to assist with Stadium (and Convention Center) operations. The deficit in the Parking Fund ($2,061,389) is the result primarily of the cost of operations which includes The maximum principal amount of the Loan is $15 million and is payable in full no later than June 30, depreciation, outpacing usage and the collection of user fees. The City is investigating the reduction 2008. The outstanding principal balance of the Loan bears interest at a rate not exceeding the of costs and enhanced revenue generation. The deficit in Risk Management ($58,110,103) is Bank’s reference rate, minus 0.5 percent, indexed daily. The Rate at July 1, 2007 was 7.75 percent. primarily due to increases in the cost of services. The City intends to fund each of these deficits As of December 20, 2007, the Met has drawn $7,536,914 in disbursement requests. through future-year operations.

166 167 Investing today for the City of tomorrow 48th Comprehensive Annu al Financial Report Fiscal Year Ended June 30, 2007

REQUIRED SUPPLEMENTARY INFORMATION

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - GENERAL FUND (NON-GAAP BUDGETARY BASIS) - GENERAL FUND YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Actual Variance with Explanation of differences between budgetary inflows and outflows Amounts Final Budget and GAAP Revenues and Expenditures: Budgeted Amounts Budgetary Over Original Final Basis (Under) Sources/inflow of Resources: Actual amounts (budgetary basis) available for appropriation from Resources (inflows): the Budget to Actual Comparison schedule. $ 357,018,348 Taxes: Property Taxes $ 55,284,600 $ 59,384,600 $ 69,963,531 $ 10,578,931 Differences - Budget to GAAP Sales Taxes 77,853,200 77,853,200 80,467,797 2,614,597 The city budgets for taxes, intergovernmental and Charges for Services on the (29,932,208) Other Taxes 34,542,100 34,629,100 36,265,594 1,636,494 cash basis, rather than on modified accrual basis. Licenses and Permits 288,400 288,400 352,451 64,051 Intergovernmental: The fund balance at the beginning of the year is a budgeting resource but is not a State Motor Vehicle In-Lieu 33,862,500 33,862,500 2,773,997 (31,088,503) current year revenue for financial reporting purposes. (2,842,444) Other State Revenue 830,000 1,199,600 36,340,979 35,141,379 Charges for Services: Unrealized Loss on Investment (109,539) General Government Service 6,107,200 6,119,200 7,080,174 960,974 Public Safety Service Charges 9,454,800 9,597,400 8,964,158 (633,242) Accrued interest on interfund advances is not budgeted as an inflow of resources. 765,655 Fines and Violations 3,501,200 3,518,100 3,745,268 227,168 Use of Money and Property 181,200 899,300 129,751 (769,549) Transfers from other funds are inflows of budgetary resources but are not Miscellaneous 29,356,500 37,719,400 34,102,013 (3,617,387) revenues for financial reporting purposes. (40,899,405) Other Financing Sources: Transfers from Other Funds 37,419,000 41,056,000 40,899,405 (156,595) The proceeds from loans are inflows of budgetary resources but are not revenues Loan Proceeds 36,000,000 36,000,000 35,933,230 (66,770) for financial reporting purposes. (35,933,230)

Total Available Total revenues as reported on the statement of Revenues, Expenditures, and for Appropriations 324,680,700 342,126,800 357,018,348 14,891,548 Changes in Fund Balance-Governmental Funds. $ 248,067,177

Charges to Appropriations (outflows): Uses/Outflows of Resources General Government: Finance Department 14,684,100 14,684,100 14,487,837 (196,263) Actual amounts (budgetary basis) "total charges to appropriations" Mayor and City Council 3,511,800 4,017,200 3,486,366 (530,834) from the Budget to Actual Comparison schedule. $ 323,492,494 Other General Government 3,732,100 3,757,100 3,549,708 (207,392) Public Protection: Differences--budget to GAAP: Police Department 122,019,400 123,113,900 123,279,961 166,061 The city budgets for expenditures on the cash basis, rather Fire Department 38,132,100 40,642,600 40,645,543 2,943 rather than on the modified accrual basis. (560,463) Public Ways & Facilities 21,354,600 21,670,100 21,186,938 (483,162) Culture and Recreation 3,345,500 2,403,400 2,219,885 (183,515) Capital asset purchases funded under capital leases agreements (2,016,552) Community Development 14,395,800 14,602,800 13,293,845 (1,308,955) Capital Outlay 4,385,600 4,289,800 3,163,948 (1,125,852) Pension Obligation bond debt payments recognized as transfers Debt Service 35,665,000 35,665,000 35,607,879 (57,121) out to other funds (12,534,600) Other Financing Uses: Transfers to Other Funds 52,952,500 62,827,100 62,570,584 (256,516) The issuance of interfund loans are outflows of budgetary resources but are not expendittures for financial reporting purposes. (515,237) Total Charges to Appropriations 314,178,500 327,673,100 323,492,494 (4,180,606)

Excess (Deficit) Resources Transfers to other funds are outflows of budgetary resources but are Over Appropriations $ 10,502,200 $ 14,453,700 $ 33,525,854 $ 19,072,154 not expenditures for financial reporting purposes. (62,570,584)

The repayment ofloans are outflows ofbudgetary resources but are not expenditures for financial reporting purposes. (35,607,879)

Total expenditures as reported on the statement of Revenues, Expenditures, and Changes in Fund Balance-Governemental Funds. $ 209,687,179

170 171 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - GRANTS FUND (NON-GAAP BUDGETARY BASIS) - GRANTS FUND YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Actual Variance with Explanation of differences between budgetary inflows and outflows Amounts Final Budget and GAAP Revenues and Expenditures: Budgeted Amounts Budgetary Over Original Final Basis (Under) Sources/inflow of Resources: Actual amounts (budgetary basis) available for appropriation from Resources (inflows): the Budget to Actual Comparison schedule. $ 23,010,988

Intergovernmental: Differences - Budget to GAAP Federal Grants $ 28,240,900 $ 29,876,900 $ 16,321,174 $ (13,555,726) Grant reimbursements are budgeted on the cash basis rather than on the State Grants 15,422,200 24,197,100 13,257,432 (10,939,668) modified accrual basis. 9,017,245 Charges for Services 4,906,400 5,031,400 4,951,581 (79,819) Use of Money and Property 66,200 72,200 (250,496) (322,696) Transfers from other funds are inflows of budgetary resources but are not Miscellaneous 9,444,700 9,709,300 (11,632,706) (21,342,006) revenues for financial reporting purposes. 4,295,985 Other Financing Sources: Transfers from Other Funds 1,000,000 1,000,000 364,003 (635,997) Unrealized loss on pooled cash and HUD Section 108 cash with trustee (1,397)

Total Available Accrued interest on interfund advances is not budgeted as an inflow of resources. 122,263 for Appropriations 59,080,400 69,886,900 23,010,988 (46,875,912) Transfers from other funds are inflows of budgetary resources but are not Charges to Appropriations (outflows): revenues for financial reporting purposes. (364,003)

General Government 222,000 222,000 216,012 (5,988) The receipt of loan payments are inflows of budgetary resources Public Protection 3,278,600 3,714,800 1,804,010 (1,910,790) but are not revenues for financial reporting purposes. (2,401,515) Culture and Recreation 13,313,600 13,464,300 1,998,856 (11,465,444) Community Development 32,634,400 35,003,601 26,730,038 (8,273,563) Total revenues as reported on the statement of Revenues, Expenditures, and Public Ways & Facilities 503,200 998,000 935,927 (62,073) Changes in Fund Balance-Governmental Funds. $ 33,679,566 Capital Outlay 7,620,300 15,312,400 8,229,675 (7,082,725) Other Financing Uses: Uses/Outflows of Resources Transfers to Other Funds 1,075,000 1,075,000 280,374 (794,626) Actual amounts (budgetary basis) "total charges to appropriations" Total Charges to Appropriations 58,647,100 69,790,101 40,194,892 (29,595,209) from the Budget to Actual Comparison schedule. $ 40,194,892

Excess (Deficit) Resources Differences--budget to GAAP: Over Appropriations $ 433,300 $ 96,799 $ (17,183,904) $ (17,280,703) The city budgets for expenditures on the cash basis, rather rather than on the modified accrual basis. (2,786,229)

Decrease in allowance for doubtful accounts (224,946)

Pension Obligation bond debt payments recognized as transfers out to other funds 312,000

Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (280,374)

The issuance of notes receivable are outflows of budgetary resources but are not expendittures for financial reporting purposes. (2,271,858)

Total expenditures as reported on the statement of Revenues, Expenditures, and Changes in Fund Balance-Governemental Funds. $ 34,943,485

172 173 City of Fresno, California City of Fresno, California Notes to the required supplementary information Notes to the required supplementary information For the Fiscal Year Ended June 30, 2007 For the Fiscal Year Ended June 30, 2007

Budgetary Data Budgetary Results Reconciliation

The City adopts annual budgets for all governmental funds on the cash basis of accounting plus encumbrances. The budget includes: (1) the programs, projects, services, and activities to be The budgetary process is based upon accounting for certain transactions on a basis other than provided during the fiscal year, (2) the estimated resources (inflows) and amounts available for the GAAP basis. The results of operations are presented in the budget-to-actual comparison appropriation, and (3) the estimated charges to appropriations. The budget represents a process statement in accordance with the budgetary process (Budget basis) to provide a meaningful through which policy decisions are made, implemented, and controlled. The City Charter comparison with the budget. prohibits expending funds for which there is no legal appropriation. (a)) Ba sis The following procedures are used in establishing the budgetary data reflected in the financial Diff eren statements. Certain accruals force sestimated claims payable are excluded from the Budget basis financial statement because such amounts are budgeted on a cash basis. Ori gina l Bu (b) Tim dge ing (1) Prior to Junet 1, the Mayor submits to the City Council a proposed detailed operating budget Diff eren for the fiscal year commencing July 1. The operating budget includes proposed expenditures Timing differences representces transactions that are accounted for in different periods for Budget and the means of financing them. basis and GAAP basis reporting. Certain revenues accrued on a Budget basis have been deferred for GAAP reporting. This primarily relates to the accounting for property tax, sales tax (2) Public hearings are conducted to obtain taxpayer comment on the proposed annual budget. and grant revenues. The Mayor and his staff analyze, review and refine the budget submittals. The fund balances as of June 30, 2007, on a Budget basis have been reconciled to the fund (3) Prior to July 1, the budget is legally enacted through adoption of a resolution by the City balances on a GAAP basis. Council.

Fina l Bu dge (1) Certaint annual appropriations are budgeted on a project or program Invest ing toda y – for the Cit y of tomorrow basis. If such projects or programs are not completed at the end of the fiscal year, unexpended appropriations, including encumbered funds, are carried forward to the following year. In certain circumstances, other programs and regular annual appropriations may be carried forward after appropriate approval. Annually appropriated funds, not authorized to be carried forward, lapse at the end of the fiscal year. CAFR – 48th Comprehensive Appropriations carried forward from the prior year are included in the Annual Financial Report Ci ty of Fresno, California final budgetary data. For the fiscal year ended June 30, 2007

(2) The City Manager is authorized to transfer funds already appropriated within a department's budget within a fund. However, any revisions that alter the total appropriation of a department within a fund must be approved by the City Council. Expenditures may not legally exceed budgeted appropriations at the department level within a fund.

(3) The City adopts an annual budget for the General Fund, Special Revenue Funds and Capital Projects Funds. No budgets are legally adopted for Debt Service Funds, the Redevelopment Agency and Financing Authorities & Corporations. Budgets are adopted on the cash basis. (See Note 2 for a reconciliation of the cash basis budget to the modified accrual basis presentation of operating income.) Budgeted amounts are reported as amended. During the year, several supplementary appropriations were necessary but were not material in relation to the original appropriations. Supplemental appropriations during the year must be approved by the City Council.

174 175 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

NONMAJOR GOVERNMENTAL FUNDS

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA

COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS June 30, 2007

Special Revenue Debt Service Capital Projects Financing Total Authorities Nonmajor Special Community and City UGM Redevelopment Special Governmental Gas Tax Measure C Services City Debt Corporations Combined Impact Fees Agency Assessments Funds

Assets

Cash and Investments $ - $ 2,348,704 $ 8,182,287 $ 2,322,627 $ 892,060 $- $ 14,811,771 $ 3,174,111 $ 4,186,617 $ 35,918,177 Receivables, Net - 38,969 224,917 18,615 5,663 - 298,355 - 82,722 669,241 Grant Receivable 4,759,879 - 11,054 - - - - 79,209 - 4,850,142 Intergovernmental Receivables 747,460 1,095,586 ------18,690 1,861,736 Due From Other Funds 5,476 11,959 4,531,015 - - 302,608 4,128,318 329,653 1,844,881 11,153,910 Advances to Other Funds 3,843,286 227,292 - - - 14,753,716 - - - 18,824,294 Property Held for Resale ------33,098,442 - 33,098,442 Restricted Cash 981,553 - - 727,724 38,758,762 - - 3,397,404 - 43,865,443 Loans, Notes, Leases, Other Receivables - - - - - 700,000 - 3,092,189 - 3,792,189

Total Assets $ 10,337,654 $ 3,722,510 $ 12,949,273 $ 3,068,966 $ 39,656,485 $ 15,756,324 $ 19,238,444 $ 43,171,008 $ 6,132,910 $ 154,033,574

Liabilities and Fund Balances Liabilities: Accrued Liabilities $ 2,200,229 $ 758,059 $ 984,014 $ 675 $ 2,075 $ 2,597,298 $ 838,657 $ 403,997 $ 262,970 $ 8,047,974 Deferred Revenue 3,261,770 - 1,447 - - 700,000 - 293,294 - 4,256,511 Due to Other Funds 4,511,854 - 115,568 - - 4,149,856 - 80,046 - 8,857,324 Deposits From Others - - 56,827 ------56,827

Total Liabilities 9,973,853 758,059 1,157,856 675 2,075 7,447,154 838,657 777,337 262,970 21,218,636

Fund (Deficit) Balances: Reserved for: Encumbrances 6,276,816 1,194,800 86,689 - - 6,219,804 4,088,521 1,109,742 - 18,976,372 Non-current Receivables 3,843,286 227,292 - - - 14,753,716 - 3,092,189 - 21,916,483 Debt Service 981,553 - - 3,068,291 39,654,410 - - - - 43,704,254 Property Held for Resale ------33,098,442 - 33,098,442 Unreserved, Undesignated (Deficit) (10,737,854) 1,542,359 11,704,728 - - (12,664,350) 14,311,266 5,093,298 5,869,940 15,119,387

Total Fund Balances 363,801 2,964,451 11,791,417 3,068,291 39,654,410 8,309,170 18,399,787 42,393,671 5,869,940 132,814,938

Total Liabilities and Fund Balances $ 10,337,654 $ 3,722,510 $ 12,949,273 $ 3,068,966 $ 39,656,485 $ 15,756,324 $ 19,238,444 $ 43,171,008 $ 6,132,910 $ 154,033,574

178 179 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2007

Special Revenue Debt Service Capital Projects Total Financing Nonmajor Special Gas Community Authorities and UGM Redevelopment Special Governmental Tax Measure C Services City Debt Corporations City Combined R Impact Fees Agency Assessments Funds Revenues

Taxes $ 8,255,106 $ 6,505,067 $ - $ - $ - $- - $ - $ - $ 14,760,173 Intergovernmental 6,593,269 - 488,599 - - 60,466 - - - 7,142,334 Charges for Services - - 3,563,291 - - - 10,434,259 - - 13,997,550 Use of Money and Property 54,070 141,494 734,351 62,517 3,307,155 363,670 844,167 537,282 249,239 6,293,945 Miscellaneous 66,566 13,634 355,830 - - 2,302,765 2,042 521,710 3,166,135 6,428,682

Total Revenues 14,969,011 6,660,195 5,142,071 62,517 3,307,155 2,726,901 11,280,468 1,058,992 3,415,374 48,622,684

Expenditures Current: General Government 151 - 93,560 18,330 138,662 - - - - 250,703 Public Protection - - 81,569 ------81,569 Public Ways and Facilities 8,549,289 - 6,483 ------8,555,772 Culture and Recreation - - 10,214 ------10,214 Community Development - - 3,991,711 ------3,991,711 Capital Outlay 8,318,895 4,839,941 1,363,107 - - 16,046,730 5,960,853 8,227,554 1,917,807 46,674,887 Debt Service: Principal 670,000 - - 4,798,578 10,880,000 - 512,000 - - 16,860,578 Interest 290,838 - - 12,896,059 5,630,304 - 26,066 - - 18,843,267

Total Expenditures 17,829,173 4,839,941 5,546,644 17,712,967 16,648,966 16,046,730 6,498,919 8,227,554 1,917,807 95,268,701

Excess (Deficiency) of Revenue Over (Under) Expenditures (2,860,162) 1,820,254 (404,573) (17,650,450) (13,341,811) (13,319,829) 4,781,549 (7,168,562) 1,497,567 (46,646,017)

Other Financing Sources (Uses) Transfers In 650,000 - 1,108,962 19,998,337 12,399,046 11,885,109 82,899 13,404,428 22,324 59,551,105 Transfers Out (1,294,459) (2,340,842) (338,663) - (12,402,379) (214,883) (701,145) (668,156) (59,100) (18,019,627) Total Other Financing Sources (Uses) (644,459) (2,340,842) 770,299 19,998,337 (3,333) 11,670,226 (618,246) 12,736,272 (36,776) 41,531,478

Net Change in Fund Balances (3,504,621) (520,588) 365,726 2,347,887 (13,345,144) (1,649,603) 4,163,303 5,567,710 1,460,791 (5,114,539)

Fund Balances (Deficit) - Beginning 3,868,422 3,485,039 11,425,691 720,404 52,999,554 9,958,773 14,236,484 36,825,961 4,409,149 137,929,477

Fund Balances (Deficit) - Ending $ 363,801 $ 2,964,451 $ 11,791,417 $ 3,068,291 $ 39,654,410 $ 8,309,170 18,399,787 $ 42,393,671 $ 5,869,940 $ 132,814,938

180 181 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - SPECIAL GAS TAX (NON-GAAP BUDGETARY BASIS) - MEASURE C YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Actual Variance with Actual Actual Variance with Actual Amounts Final Budget Budget Amounts Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis Original Final Basis (Under) Reconciliation Basis

Resources (inflows): Resources (inflows):

Taxes $ 10,991,300 $ 10,991,300 $ 8,244,123 $ (2,747,177) $ 10,983 $ 8,255,106 Taxes $ 4,445,000 $ 5,022,600 $ 4,651,384 $ (371,216) $ 1,853,683 $ 6,505,067 Intergovernmental 35,448,100 36,994,100 5,095,160 (31,898,940) 1,498,109 6,593,269 Use of Money and Property 57,600 57,600 120,809 63,209 20,685 141,494 Use of Money and Property 10,000 10,000 (151,138) (161,138) 205,208 54,070 Miscellaneous 840,000 942,800 1,111,752 168,952 (1,098,118) 13,634 Miscellaneous (10,037,700) (7,672,900) (7,481,154) 191,746 7,547,720 66,566 Other Financing Sources: Other Financing Sources: Transfers from Other Funds ------Transfers from Other Funds - 650,000 685,971 35,971 (35,971) 650,000 Total Available Total Available For Appropriations 5,342,600 6,023,000 5,883,945 (139,055) 776,250 6,660,195 for Appropriations 36,411,700 40,972,500 6,392,962 (34,579,538) 9,226,049 15,619,011

Charges to Appropriations Charges to Appropriations (outflows): (outflows):

General Government 158,200 3,270 (154,930) (3,119) 151 Public Ways and Facilities 4,694,700 4,316,500 4,164,552 (151,948) (4,164,552) - Public Ways and Facilities 13,405,600 14,811,300 9,497,207 (5,314,093) (947,918) 8,549,289 Capital Outlay 647,900 1,706,500 551,353 (1,155,147) 4,288,588 4,839,941 Capital Outlay 31,243,200 34,240,100 6,808,119 (27,431,981) 1,510,776 8,318,895 Other Financing Uses: Debt Service: Transfers to Other Funds - - - - 2,340,842 2,340,842 Principal - - - - 670,000 670,000 Interest - - - - 290,838 290,838 Total Charges Other Financing Uses: to Appropriations 5,342,600 6,023,000 4,715,905 (1,307,095) 2,464,878 7,180,783 Transfers to Other Funds 2,010,300 2,010,300 2,052,306 42,006 (757,847) 1,294,459 Excess (Deficit) Resources Total Charges Over Appropriations $- $ - $ 1,168,040 $ 1,168,040 $ (1,688,628) $ (520,588) to Appropriations 46,659,100 51,219,900 18,360,902 (32,858,998) 762,730 19,123,632

Excess (Deficit) Resources Over Appropriations $ (10,247,400) $ (10,247,400) $ (11,967,940) $ (1,720,540) $ 8,463,319 $ (3,504,621)

182 183 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - COMMUNITY SERVICES FUND (NON-GAAP BUDGETARY BASIS) - CITY COMBINED YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Actual Variance with Actual Actual Variance with Actual Amounts Final Budget Budget Amounts Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis Original Final Basis (Under) Reconciliation Basis

Resources (inflows): Resources (inflows):

Intergovernmental $ - $ - $ - $- $ 60,466 $ 60,466 Intergovernmental $ 7,275,000 $ 5,634,600 $ 4,419,410 $ (1,215,190) $ (3,930,811) $ 488,599 Use of Money and Property 45,000 45,000 (110,734) (155,734) 474,404 363,670 Charges for Services 748,300 935,900 3,563,291 2,627,394 - 3,563,291 Miscellaneous 45,473,000 46,184,000 4,749,447 (41,434,553) (2,446,682) 2,302,765 734,351 Use of Money and Property 112,300 112,300 696,300 584,000 38,051 Other Financing Sources: Miscellaneous 6,095,300 6,095,300 7,955,525 1,860,225 (7,599,695) 355,830 Transfers Budgeted as - 1,467,000 1,606,277 139,277 10,278,832 11,885,109 Other Financing Sources: Bond Proceeds: ------Transfers from Other Funds - 500,000 499,291 (709) 609,671 1,108,962 Total Available for Appropriations 45,518,000 47,696,000 6,244,990 (41,451,010) 8,367,020 14,612,010 Total Available Charges to Appropriations For Appropriations 14,230,900 13,278,100 17,133,817 3,855,717 (10,882,784) 6,251,033 (outflows): Charges to Appropriations (outflows): General Government 4,203,400 3,803,400 - (3,803,400) - - Public Ways and Facilities 5,714,500 5,958,100 6,823,796 865,696 (6,823,796) - General Government - - - - 93,560 93,560 Capital Outlay 34,614,200 36,948,600 9,187,147 (27,761,453) 6,859,583 16,046,730 Public Protection 1,092,400 1,368,800 498,429 (870,371) (416,860) 81,569 Other Financing Uses: Transfers to Other Funds - - - - 214,883 214,883 Public Ways and Facilities 1,983,500 3,356,200 1,580,306 (1,775,894) (1,573,823) 6,483 Community Development 1,048,400 2,525,800 1,880,005 (645,795) (1,869,791) 10,214 Total Charges 3,991,711 Culture and Recreation 60,700 67,500 121,788 54,288 3,869,923 to Appropriations 44,532,100 46,710,100 16,010,944 (30,699,156) 250,669 16,261,613 Capital Outlay 8,070,800 3,984,700 1,442,957 (2,541,743) (79,850) 1,363,107 Other Financing Uses: Excess (Deficit) Resources Transfers to Other Funds - - 35,614 35,614 303,049 338,663 Over Appropriations $ 985,900 $ 985,900 $ (9,765,954) $ (10,751,854) $ 8,116,351 $ (1,649,603)

Total Charges to Appropriations 12,255,800 11,303,000 5,559,099 (5,743,901) 326,208 5,885,307

Excess (Deficit) Resources Over Appropriations $ 1,975,100 $ 1,975,100 $ 11,574,718 $ 9,599,618 $ (11,208,992) $ 365,726

184 185 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE (NON-GAAP BUDGETARY BASIS) - URBAN GROWTH MANAGEMENT IMPACT FEES BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - SPECIAL ASSESSMENTS YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Actual Variance with Actual Actual Variance with Actual Amounts Final Budget Budget Amounts Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis Original Final Basis (Under) Reconciliation Basis

Resources (inflows): Resources (inflows):

Charges for Services $ 8,128,900 $ 8,599,200 $ 10,345,144 $ 1,745,944 $ 89,115 $ 10,434,259 Use of Money and Property $ 62,000 $ 62,900 $ 221,755 $ 158,855 $ 27,484 $ 249,239 Use of Money and Property 45,300 45,300 783,559 738,259 60,608 844,167 Miscellaneous 5,777,800 5,869,000 7,635,577 1,766,577 (4,469,442) 3,166,135 Miscellaneous 14,981,600 19,019,000 13,712,854 (5,306,146) (13,710,812) 2,042 Other Financing Sources: Total Available Transfers from Other Funds 769,700 769,700 446,430 (323,270) (363,531) 82,899 for Appropriations - - - - 22,324 22,324 5,839,800 5,931,900 7,857,332 1,925,432 (4,419,634) 3,437,698 Total Available Charges to Appropriations for Appropriations 23,925,500 28,433,200 25,287,987 (3,145,213) (13,924,620) 11,363,367 (outflows):

Charges to Appropriations Public Ways & Facilities 1,883,000 2,457,100 1,945,499 (511,601) (1,945,499) - (outflows): Capital Outlay 162,500 162,500 - (162,500) 1,917,807 1,917,807 Other Financing Uses: Public Protection 1,255,800 1,215,700 737,745 (477,955) (737,745) - Transfers to Other Funds - - - - 59,100 59,100 Public Ways and Facilities 6,151,100 8,008,900 4,564,304 (3,444,596) (4,564,304) - Culture and Recreation 7,000 7,000 10,099 3,099 (10,099) - Total Charges Capital Outlay 11,959,300 13,760,600 1,984,796 (11,775,804) 3,976,057 5,960,853 to Appropriations 2,045,500 2,619,600 1,945,499 (674,101) 31,408 1,976,907 Debt Service Principal - - - - 512,000 512,000 Excess (Deficit) Resources Interest - - - - 26,066 26,066 Over Appropriations $ 3,794,300 $ 3,312,300 $ 5,911,833 $ 2,599,533 $ (4,451,042) $ 1,460,791 Other Financing Uses: Transfers to Other Funds 2,117,800 2,767,800 1,061,181 (1,706,619) (360,036) 701,145

Total Charges to Appropriations 21,491,000 25,760,000 8,358,125 (17,401,875) (1,158,061) 7,200,064

Excess (Deficit) Resources Over Appropriations $ 2,434,500 $ 2,673,200 $ 16,929,862 $ 14,256,662 $ (12,766,559) $ 4,163,303

186 187 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

NONMAJOR ENTERPRISE FUNDS

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS COMBINING STATEMENT OF NET ASSETS NONMAJOR ENTERPRISE FUNDS NONMAJOR ENTERPRISE FUNDS YEAR ENDED JUNE 30, 2007 JUNE 30, 2007

Business - Type Activities - Enterprise Funds Businness - Type Activities - Enterprise Funds Total Parks Total Parks Nonmajor Community And Development Nonmajor Community And Development Enterprise Sanitation Parking Recreation Services Funds Sanitation Parking Recreation Services Enterprise Funds Assets Operating Revenues: Current Assets: Charges for Services $ 9,691,586 $ 7,765,138 $ 542,231 $ 15,678,185 $ 33,677,140 Cash and Investments $ 1,103,408 $ - $ 800 $ 7,396,627 $ 8,500,835 Interest Receivable 14,203 - - 159,644 173,847 Operating Expenses: Accounts Receivable, Net 968,368 335,081 1,011 1,103,696 2,408,156 Cost of Services 5,812,705 1,822,511 231,267 9,845,514 17,711,997 Intergovernmental - - - 8,688 8,688 Administration 4,447,856 5,356,023 830,063 7,399,270 18,033,212 Due from Other Funds 6,312 - - 2,322,368 2,328,680 Depreciation 4,771 265,071 279,886 1,173 550,901 Total Current Assets 2,092,291 335,081 1,811 10,991,023 13,420,206 Total Operating Expenses 10,265,332 7,443,605 1,341,216 17,245,957 36,296,110 Noncurrent Assets:

Restricted Cash 6,461 - - - 6,461 Operating Income (Loss) (573,746) 321,533 (798,985) (1,567,772) (2,618,970) Advances to Other Funds - 241,310 - - 241,310 Non-operating Revenue (Expenses): 6,461 241,310 - - 247,771 Interest Income 63,610 - - 601,512 665,122

Capital Assets: Interest Expense - (124,473) (112,483) - (236,956) Land - 2,853,434 11,508 2,315,825 5,180,767 Gain ( Loss) on Sale of Capital Assets - 291,256 - - 291,256 Buildings, System and Improvements - 11,335,335 9,975,528 - 21,310,863 Total Non-operating Revenue Machinery & Equipment 58,134 136,076 53,423 76,140 323,773 (Expenses) 63,610 166,783 (112,483) 601,512 719,422 Construction in Progress - - 1,511,251 - 1,511,251 Less Accumulated Depreciation (13,274) (10,524,645) (8,045,349) (64,016) (18,647,284) Income (Loss) Before Transfers (510,136) 488,316 (911,468) (966,260) (1,899,548)

Total Capital Assets, Net 44,860 3,800,200 3,506,361 2,327,949 9,679,370 Transfer In - - 1,200,000 126,182 1,326,182 Total Noncurrent Assets 51,321 4,041,510 3,506,361 2,327,949 9,927,141 Transfer Out (128,700) (3,371,619) - (795,638) (4,295,957)

Total Assets 2,143,612 4,376,591 3,508,172 13,318,972 23,347,347 Change in Net Assets (638,836) (2,883,303) 288,532 (1,635,716) (4,869,323) Liabilities Current Liabilities: Accrued Liabilities 399,754 590,090 70,182 704,485 1,764,511 Total Net Assets (Deficit) - Beginning 1,044,665 821,914 1,304,577 12,792,540 15,963,696 Accrued Compensated Absences 49,682 14,364 - 146,506 210,552 Unearned Revenue 743,991 - - - 743,991 Total Net Assets (Deficit) - Ending $ 405,829 $ (2,061,389) $ 1,593,109 $ 11,156,824 $ 11,094,373 Due to Other Funds - 3,997,482 1,844,881 - 5,842,363

Total Current Liabilities 1,193,427 4,601,936 1,915,063 850,991 8,561,417 Noncurrent Liabilities: Accrued Compensated Absences 382,782 92,544 - 1,310,837 1,786,163 Advances From Other Funds 161,574 1,743,500 - - 1,905,074 Deposits Held for Others - - - 320 320

Total Noncurrent Liabilities 544,356 1,836,044 - 1,311,157 3,691,557

Total Liabilities 1,737,783 6,437,980 1,915,063 2,162,148 12,252,974

Net Assets

Invested in Capital Assets, Net of Related Debt 44,860 3,800,200 3,506,361 2,327,949 9,679,370 Unrestricted (Deficit) 360,969 (5,861,589) (1,913,252) 8,828,875 1,415,003

Total Net Assets $ 405,829 $ (2,061,389) $ 1,593,109 $ 11,156,824 $ 11,094,373

191 190 CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOWS NONMAJOR ENTERPRISE FUNDS YEAR ENDED JUNE 30, 2007

Business-Type Activities - NonMajor Enterprise Funds Business - Type Activieties - NonMajor Enterprise Funds

Parks Community Sanitation Parking And Recreation Development Services Total

CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ 8,577,776 $ 7,344,548 $ 542,231 $ 13,159,545 $ 29,624,100 Cash Received from Interfund Services Provided 988,115 84,400 - 453,869 1,526,384 Cash Payments to Suppliers for Services (1,716,717) (2,579,797) (1,407,677) (4,342,801) (10,046,992) Cash Paid for Interfund Services Used (3,299,950) (548,285) (24,052) (3,051,299) (6,923,586) Cash Payments to Employees for Services (4,961,239) (1,297,657) (76,078) (9,512,238) (15,847,212)

Net Cash Provided by Operating Activities (412,015) 3,003,209 (965,576) (3,292,924) (1,667,306)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Interest payments on capital debt - (124,473) - (124,473) Proceeds from sale of capital assets - 546,144 - - 546,144 Acquisition and construction of capital assets (19,476) (53,261) (121,941) (6,868) (201,546)

Net Cash (Used for) Capital and Related Financing Activities (19,476) 368,410 (121,941) (6,868) 220,125

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES: Interest Payments, Noncapital - - (112,483) (112,483) Transfers In - - 1,200,000 126,182 1,326,182 Transfers Out (128,700) (3,371,619) - (795,638) (4,295,957)

Net Cash (Used for) Non-Capital Financing Activities (128,700) (3,371,619) 1,087,517 (669,456) (3,082,258)

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends on investments 64,235 - - 605,181 669,416

Net cash provided by investing activities 64,235 - - 605,181 669,416

Net increase (decrease) in cash and cash equivalents (495,956) - - (3,364,067) (3,860,023)

Cash and cash equivalents, beginning of year 1,605,825 - 800 10,760,694 12,367,319

Cash and cash equivalents, end of year $ 1,109,869 $ - $ 800 $ 7,396,627 $ 8,507,296 (Continued)

192 193 CITY OF FRESNO, CALIFORNIA Investing today for the City of tomorrow STATEMENT OF CASH FLOWS th NONMAJOR ENTERPRISE FUNDS 48 Comprehensive Annual YEAR ENDED JUNE 30, 2006 (Continued)

Business-Type Activities - NonMajor Enterprise Funds Financial Report Parks Community And Development Sanitation Parking Recreation Services Total Fiscal Year Ended June 30, 2007 Reconciliation of operating income (loss) to net cash provided by (used for) operating activities:

Operating income (loss) $ (573,746) $ 321,533 $ (798,985) $ (1,567,772) $ (2,618,970)

Adjustments to reconcile operating income to net cash provided by (used for) operating activities:

Depreciation expense 4,771 265,071 279,886 1,173 550,901 Decrease (Increase) in accounts receivable (141,633) (327,801) - (1,092,075) (1,561,509) INTERNAL SERVICE Decrease (Increase) in other receivables - - - 64,614 64,614 Decrease (Increase) in due from other funds 284 - - (1,037,310) (1,037,026) Decrease (Increase) in advances to other funds - (8,388) (189,978) - (198,366) FUNDS (Decrease) Increase in accrued liabilities 282,654 40,370 (7,645) 338,446 653,825 (Decrease) Increase in due to other funds - 2,712,424 (248,854) - 2,463,570 (Decrease) Increase in unearned revenue 15,655 - - - 15,655

Net cash provided by operating activities $ (412,015) $ 3,003,209 $ (965,576) $ (3,292,924) $ (1,667,306)

Reconciliation of cash and cash equivalents to the balance sheet: Cash and Investments: Unrestricted 1,103,408 - 800 7,396,627 8,500,835 Restricted 6,461 - - - 6,461 Cash and cash equivalents at end of year on statement of cash flows $ 1,109,869 $- $ 800 $ 7,396,627 $ 8,507,296

Noncash investing, capital, and financing activities: Decrease in fair value of cash & investments 3,827 - - 25,506 29,333

City of Fresno - www.fresno.gov

194 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF NET ASSETS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS INTERNAL SERVICES FUNDS JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

Billing Billing General Risk and General Risk and Services Management Collection Totals Services Management Collection Totals Assets Operating Revenues: Current Assets: Cash and Investments $ 25,232,347 $ 2,096,559 $ 1,334,095 $ 28,663,001 Interest Receivable 505,045 139,566 142,825 787,436 Charges for Services $ 74,571,152 $ 17,741,010 $ 5,858,047 $ 98,170,209 Receivables, Net 30,764 50 - 30,814 Inventories 1,117,688 - - 1,117,688 Operating Expenses: Due from Other Funds 8,096,046 5,000,000 - 13,096,046

Total Current Assets 34,981,890 7,236,175 1,476,920 43,694,985 Cost of Services 45,206,797 18,811,266 4,115,440 68,133,503 Noncurrent Assets: Administration 15,729,951 6,298,616 1,986,524 24,015,091 Restricted: Depreciation 14,375,439 - 22,563 14,398,002 Cash and Investments - - 2,947,880 2,947,880 Grants and Interest Receivable 210,123 - - 210,123 Total Operating Expenses 75,312,187 25,109,882 6,124,527 106,546,596 Total Restricted Assets 210,123 - 2,947,880 3,158,003 Operating Income (Loss) (741,035) (7,368,872) (266,480) (8,376,387) Other Assets: Other Receivables 1,003 - - 1,003 Advances to Other Funds 828,093 674,533 - 1,502,626 Nonoperating Revenues (Expenses):

Total Other Assets 829,096 674,533 - 1,503,629 Interest Income 1,562,856 468,153 317,233 2,348,242 Capital Assets: Land 56,688 - - 56,688 Interest Expense (247,485) - - (247,485) Buildings, Systems and Improvements 15,887,481 - 50,000 15,937,481 Gain (Loss) on Sale of Capital Assets (3,033) - - (3,033) Machinery & Equipment 134,585,614 21,299 588,504 135,195,417 Construction in Progress 154,605 - - 154,605 Total Nonoperating Revenues 1,312,338 468,153 317,233 2,097,724 Accumulated Depreciation (122,981,900) (21,299) (596,096) (123,599,295)

Total Capital Assets 27,702,488 - 42,408 27,744,896 Income Before Contributions and Transfers 571,303 (6,900,719) 50,753 (6,278,663) Total Noncurrent Assets 28,741,707 674,533 2,990,288 32,406,528 Capital Contributions 50,123 - - 50,123 Total Assets 63,723,597 7,910,708 4,467,208 76,101,513 Transfer In 13,700 56,300 - 70,000 Liabilities Transfer Out (2,230,308) (79,340) (481,976) (2,791,624) Current Liabilities Accrued Liabilities 6,204,952 916,155 501,308 7,622,415 Change in Net Assets (1,595,182) (6,923,759) (431,223) (8,950,164) Compensated Absences 483,715 12,687 62,020 558,422 Liability for Self Insurance - 16,449,191 - 16,449,191 Due to Other Funds 916,396 - 96,996 1,013,392 Capital Lease Obligations 1,710,755 - - 1,710,755 Total Net Assets (Deficit) - Beginning 46,936,962 (43,266,559) 1,039,902 4,710,305 Total Current Liabilities 9,315,818 17,378,033 660,324 27,354,175 Cumulative Effect of Adoption of GASB 43 (7,919,785) (7,919,785) Noncurrent Liabilities: Compensated Absences 2,860,039 105,075 517,908 3,483,022 Capital Lease Obligations 3,761,800 - - 3,761,800 Total Net Assets (Deficit) - Beginning Restated 46,936,962 (51,186,344) 1,039,902 (3,209,480) Liability for Self-Insurance - 48,537,703 - 48,537,703 Advances From Other Funds 2,394,650 - 43,659 2,438,309 Deposits Held for Others 49,510 - 2,636,638 2,686,148 Total Net Assets (Deficit) - Ending $ 45,341,780 $ (58,110,103) $ 608,679 $ (12,159,644)

Total Noncurrent Liabilities 9,065,999 48,642,778 3,198,205 60,906,982

Total Liabilities 18,381,817 66,020,811 3,858,529 88,261,157 Net Assets Invested in Capital Assets Net of Related Debt 22,229,933 - 42,408 22,272,341 Unrestricted (Deficit) 23,111,847 (58,110,103) 566,271 (34,431,985)

Total Net Assets (Deficit) $ 45,341,780 $ (58,110,103) $ 608,679 $ (12,159,644)

196 197 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOWS STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS INTERNAL SERVICE FUNDS YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

General Risk Billing & General Risk Billing & Services Management Collection Total Services Management Collection Total provided by (Used for) operating activities: CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ 1,588,776 $ 885,162 $ 1,634,571 $ 4,108,509 Operating income (loss) $ (741,035) $ (7,368,872) $ (266,480) $ (8,376,387) Cash Received from Interfund Services Provided 70,432,172 14,704,223 4,314,777 89,451,172 Cash Payments to Suppliers for Services (34,757,769) (4,805,789) (619,329) (40,182,887) Adjustments to reconcile operating income to net cash Cash Paid for Interfund Services Used (611,297) (1,521,496) (1,435,014) (3,567,807) provided by (used for) operating activities: Cash Payments to Employees for Services (24,448,815) (516,223) (4,021,325) (28,986,363) Cash Payments for Claims and Refunds - (15,627,136) - (15,627,136) Depreciation expense 14,375,439 - 22,563 14,398,002

Net Cash Provided by (Used for) Operating Activities 12,203,067 (6,881,259) (126,320) 5,195,488 Change in assets and liabilities: Decrease (Increase) in accounts receivable (9,060) 611,040 246,922 848,902 CASH FLOWS FROM CAPITAL AND RELATED Decrease (Increase) in other receivables 798 798 FINANCING ACTIVITIES: Decrease (Increase) in due from other funds (2,541,943) (2,906,265) (5,448,208) Capital contributions - - - - Decrease (Increase) in material and supplies inventory (511,643) - - (511,643) Interest payments on capital debt (887,756) - - (887,756) Decrease (Increase) in advances to other funds - 143,600 - 143,600 Principal payment on capital lease obligations (1,800,978) - - (1,800,978) (Decrease) Increase in accrued liabilities 1,827,702 2,639,238 31,990 4,498,930 Acquisition and construction of capital assets (9,481,158) - 39 (9,481,119) (Decrease) Increase in due to other funds (197,191) (5,694) (202,885) (Decrease) Increase in restricted deposits -- (155,621) (155,621) Net Cash (Used for) Capital and Related Financing Activities (12,169,892) - 39 (12,169,853) Net cash provided (Used for) by operating activities $ 12,203,067 $ (6,881,259) $ (126,320) $ 5,195,488

CASH FLOWS FROM NON-CAPITAL FINANCING Reconciliation of cash and cash equivalents ACTIVITIES: to the balance sheet: Cumulative effect of Adoption of GASB 43 (7,919,785) (7,919,785) Cash and Investments: Transfers In 13,700 56,300 - 70,000 Unrestricted 25,232,347 2,096,559 1,334,095 28,663,001 Transfers Out (2,230,308) (79,340) (481,976) (2,791,624) Restricted - - 2,947,880 2,947,880

Net Cash Provided by (Used for) Non-Capital Financing Cash and cash equivalents at end of year on statement Activities (2,216,608) (7,942,825) (481,976) (10,641,409) of cash flows $ 25,232,347 $ 2,096,559 $ 4,281,975 $ 31,610,881

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends on investments 1,464,772 614,653 301,085 2,380,510 Noncash investing, capital, and financing activities: Borrowing under capital lease 2,878,762 - - 2,878,762 Net cash provided by investing activities 1,464,772 614,653 301,085 2,380,510 Decrease in fair value of cash & investments 87,005 - 14,746 101,751 Acquisition and construction of capital assets in accounts payable 697,982 - - 697,982 Net increase in cash and cash equivalents (718,661) (14,209,431) (307,172) (15,235,264)

Cash and cash equivalents, beginning of year 25,951,008 16,305,990 4,589,147 46,846,145

Cash and cash equivalents, end of year $ 25,232,347 $ 2,096,559 $ 4,281,975 $ 31,610,881

Reconciliation of operating income (loss) to cash

198 199 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

FIDUCIARY FUNDS

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - PENSION TRUST FUNDS FIDUCIARY FUNDS - PENSION TRUST FUNDS YEAR ENDED JUNE 30, 2007 JUNE 30, 2007 Pension Trust Funds Pension Trust Funds

Fire And Police Employees Fire And Police Employee Retirement Retirement Retirement Retirement System System Total System System Total ADDITIONS Assets Contributions: Cash and Investments $ 2,699,001 $ 1,052,742 $ 3,751,743 Employer $ 10,806,791 $ 1,566,216 $ 12,373,007 System Members 5,393,526 5,094,188 10,487,714 Receivables Receivables for Investments Sold 12,039,613 10,587,587 22,627,200 Total Contributions 16,200,317 6,660,404 22,860,721 Interest and Dividends Receivable 4,326,118 3,943,424 8,269,542 Other Receivables 2,006,771 1,745,143 3,751,914 Investment Income: Net appreciation in Value of Investments 150,233,782 135,558,604 285,792,386 Total Receivables 18,372,502 16,276,154 34,648,656 Interest 16,766,967 15,087,834 31,854,801 Dividends 12,745,292 11,492,379 24,237,671 Investments, at fair value: Other Investment Related 136,973 86,652 223,625 Total Investment Income 179,883,014 162,225,469 342,108,483 Short Term Investments 27,679,054 24,862,923 52,541,977 Less Investment Expense (7,006,204) (6,225,386) (13,231,590) Domestic Equity 480,637,775 431,736,570 912,374,345 Corporate Bonds 151,377,394 135,975,910 287,353,304 Total Net Investment Income 172,876,810 156,000,083 328,876,893 International Equity 225,187,456 202,278,869 427,466,325 Emerging Market Equity 39,013,071 35,041,302 74,054,373 Securities Lending Income: Government Bonds 164,105,954 147,409,437 311,515,391 Securities Lendings Earnings 11,284,717 10,136,584 21,421,301 Real Estate 114,730,183 103,368,602 218,098,785 Less Securities Lending Expense (10,677,120) (9,590,805) (20,267,925)

Total Investments 1,202,730,887 1,080,673,613 2,283,404,500 Net Securities Lending Income 607,597 545,779 1,153,376

Collateral Held for Securities Lent 228,692,383 205,424,694 434,117,077 Total Additions 189,684,724 163,206,266 352,890,990 Fixed Assets, net of Accumulated Depreciation 67,314 67,314 134,628 DEDUCTIONS Prepaid Expense 97,066 87,164 184,230 Benefit Payments 39,682,514 37,948,651 77,631,165 Total Assets 1,452,659,153 1,303,581,681 2,756,240,834 Refund of Contributions 453,920 1,350,623 1,804,543 Administrative Expenses 887,983 916,494 1,804,477 Liabilities Total Deductions 41,024,417 40,215,768 81,240,185 Accrued Liabilities 28,025,477 25,173,694 53,199,171 Collateral Held for Securities Lent 228,692,383 205,424,694 434,117,077 Net Increase 148,660,307 122,990,498 271,650,805 Unearned Revenue 2,542,960 4,123,947 6,666,907 Net Assets Available for Benefits Beginning 1,044,738,026 945,868,848 1,990,606,874 Total Liabilities 259,260,820 234,722,335 493,983,155 Net Assets Ending $ 1,193,398,333 $ 1,068,859,346 $ 2,262,257,679 Net Assets

Net Assets Held in Trust for Benefits $ 1,193,398,333 $ 1,068,859,346 $ 2,262,257,679

202 203 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - HEALTH AND WELFARE TRUST FUNDS FIDUCIARY FUNDS - HEALTH AND WELFARE TRUST FUNDS YEAR ENDED JUNE 30, 2007 JUNE 30, 2007 Health and Welfare Trust Funds

Health and Welfare Trust Funds Employees Retirees Employees Retirees Healthcare Plan Healthcare Plan Total Healthcare Plan Healthcare Plan Total ADDITIONS Assets Contributions: Employer $ 22,954,937 $ $ 22,954,937 Cash and Investments $ 14,022,839 $ $ 14,022,839 System Members 4,152,851 4,438,855 8,591,706 Total Cash and Investments 14,022,839 - 14,022,839 Total Contributions 27,107,788 4,438,855 31,546,643 Receivables Investment Income: Other Receivables 650,051 650,051 Interest 625,662 625,662 Refunds 2,550,289 2,550,289 Total Receivables 650,051 - 650,051 Other Investment Related 3,769 3,769

Total Net Investment Income 3,179,720 - 3,179,720 Total Assets 14,672,890 - 14,672,890

Liabilities Total Additions 30,287,508 4,438,855 34,726,363

Accrued Liabilities 3,415,155 3,415,155 DEDUCTIONS

Total Liabilities 3,415,155 - 3,415,155 Benefit Payments 23,224,576 4,438,855 27,663,431 Administrative Expenses 3,724,982 3,724,982 Net Assets Total Deductions 26,949,558 4,438,855 31,388,413

Net Assets Held in Trust for Plan Benefits $ 11,257,735 $ - $ 11,257,735 Net Increase 3,337,950 - 3,337,950

Net Assets Available for Plan Benefits Beginning 7,919,785 - 7,919,785

Net Assets Ending $ 11,257,735 $ - $ 11,257,735

204 205 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS AGENCY FUNDS YEAR ENDED JUNE 30, 2007 YEAR ENDED JUNE 30, 2007

CITY DEPARTMENTAL AND SPECIAL PURPOSE FUND Balance Balance TOTAL AGENCY FUNDS July 1, 2006 Additions Deductions June 30, 2007 Balance Balance July 1, 2006 Additions Deductions June 30, 2007 Assets: Assets:

Cash and Investments $ 13,399,132 $ 254,376,222 $ 251,026,302 $ 16,749,052 Cash and Investments $ 17,699,236 $ 257,164,578 $ 254,554,522 $ 20,309,292 Cash and Investments Held by Fiscal Agent 446,647 444 - 447,091 Cash and Investments Held by Fiscal Agent 2,778,785 444 1,124,260 1,654,969 Interest Receivable 83,811 418,386 387,085 115,112 Interest Receivable 126,447 552,335 517,855 160,927 Intergovernmental 13,587 - 13,587 - Due From Other Funds 13,587 - 13,587 - Total Assets $ 13,943,177 $ 254,795,052 $ 251,426,974 $ 17,311,255 Intergovernmental 262,425 - 185,404 77,021

Liabilities: Total Assets $ 20,880,480 $ 257,717,357 $ 256,395,628 $ 22,202,209

Accrued Liabilities $ 680,823 $ 26,806,689 $ 26,880,368 $ 607,144 Deposits Held for Others 13,262,354 7,093,515 3,651,758 16,704,111 Liabilities:

Total Liabilities $ 13,943,177 $ 33,900,204 $ 30,532,126 $ 17,311,255

Accrued Liabilities $ 680,974 $ 26,824,806 $ 26,898,636 $ 607,144 Prepayment of Special Assessments - 87,707 - 87,707 Deposits Held for Others 20,199,506 10,537,462 9,229,610 21,507,358 SPECIAL ASSESSMENTS DISTRICT FUNDS Balance Balance Total Liabilities $ 20,880,480 $ 37,449,975 $ 36,128,246 $ 22,202,209 July 1, 2006 Additions Deductions June 30, 2007

Assets:

Cash and Investments $ 4,300,104 $ 2,788,356 $ 3,528,220 $ 3,560,240 Cash and Investments Held by Fiscal Agent 2,332,138 - 1,124,260 1,207,878 Interest Receivable 42,636 133,949 130,770 45,815 Intergovernmental 262,425 - 185,404 77,021

Total Assets $ 6,937,303 $ 2,922,305 $ 4,968,654 $ 4,890,954

Liabilities:

Accrued Liabilities $ 151 $ 18,117 $ 18,268 $ - Prepayment of Special Assessments - 87,707 - 87,707 Deposits Held for Others 6,937,152 3,443,947 5,577,852 4,803,247

Total Liabilities $ 6,937,303 $ 3,549,771 $ 5,596,120 $ 4,890,954

206 207 Investing today for the City of tomorrow 48th Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2007

CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS

City of Fresno - www.fresno.gov CITY OF FRESNO, CALIFORNIA

CITY OF FRESNO, CALIFORNIA CAPITAL ASSETS USED IN THE OPERATIONS OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY CAPITAL ASSETS USED IN THE OPERATIONS OF GOVERNMENTAL FUNDS JUNE 30, 2007 COMPARATIVE SCHEDULES BY SOURCE JUNE 30, 2007 Building & Machinery & Construction Function and Activity Land Improvements Equipment Infrastructure In Progress Total

General Government: Governmental Funds Capital Assets: 2007 2006

Land $ 196,804,586 $ 195,381,731 Council $ 500 $ 70,908 $ 5,153 $ - $ 4,545,567 $ 4,622,128 Building & Improvements 146,152,530 145,711,545 Manager - - 2,799 - 912,910 915,709 Machinery & Equipment 29,012,995 26,471,688 Clerk - - 4,828 - 0 4,828 Infrastructure 975,631,467 940,742,320 Other (including City Hall Bldg) 337,674 35,746,274 42,215 - 36,126,163 Construction In Progress 92,716,255 64,697,932

Total Governmental Funds Capital Assets $ 1,440,317,833 $ 1,373,005,216 Total General Government 338,174 35,817,182 54,995 - 5,458,477 41,668,828

Public Protection: Police 1,394,632 5,180,164 7,572,959 - 4,031,486 18,179,241 Fire 837,475 13,140,450 18,262,935 - 5,046,024 37,286,884 Investments in Governmental Funds Capital Assets by Source:

General Fund $ 1,192,755,155 $ 1,167,145,452 Total Public Protection 2,232,107 18,320,614 25,835,894 - 9,077,510 55,466,125 Special Revenue Fund 117,601,735 97,448,222 Capital Projects Funds 124,998,535 105,518,658 Parks & Recreation: 10,665,403 30,508,423 1,572,935 37,145,189 13,128,988 93,020,938 Redevelopment Agency 4,962,408 2,892,884

Total Governmental Funds Capital Assets $ 1,440,317,833 $ 1,373,005,216 Redevelopment Agency: - 2,855,000 37,884 - 2,069,524 4,962,408

Public Ways: 183,293,532 58,651,311 1,511,110 938,486,278 58,841,209 1,240,783,440

Community Development: 275,547 - - - 4,140,547 4,416,094

Total Government Funds Capital Assets $ 196,804,763 $ 146,152,530 $ 29,012,818 $ 975,631,467 $ 92,716,255 $ 1,440,317,833

210 211 Investing today for the City of tomorrow CITY OF FRESNO, CALIFORNIA th CAPITAL ASSETS USED IN THE OPERATIONS OF GOVERNMENTAL FUNDS 48 Comprehensive Annual SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY YEAR ENDED JUNE 30, 2007 Financial Report

Governmental Governmental Fiscal Year Ended June 30, 2007 Funds Capital Funds Capital Assets June 30, Assets June 30, Function and Activity 2006 Additions Deductions 2007

General Government:

Council $ 4,554,804 $ 67,324 $ $ 4,622,128 Manager 525,236 390,473 - 915,709 Clerk 4,786 42 4,828 Other (including City Hall Bldg) 36,126,163 - 36,126,163 STATISTICAL SECTION Total General Government 41,210,989 457,839 - 41,668,828

Public Protection:

Police 12,805,875 6,816,921 (1,443,555) 18,179,241 Fire 34,550,206 2,736,874 (195) 37,286,885

Total Public Protection 47,356,081 9,553,795 (1,443,750) 55,466,126

Parks & Recreation: 86,458,099 7,484,970 (922,131) 93,020,938

Redevelopment Agency: 2,892,884 2,069,524 - 4,962,408 .

Public Ways: 1,190,671,069 63,635,192 (13,522,822) 1,240,783,439

Community Development: 4,416,094 - - 4,416,094

Total Government Funds Capital Assets $ 1,373,005,216 $ 83,201,320 $ (15,888,703) $ 1,440,317,833

City of Fresno - www.fresno.gov

212 CITY OF FRESNO, CALIFORNIA

CITY OF FRESNO, CALIFORNIA NET ASSETS BY COMPONENT LAST SIX FISCAL YEARS (accrual basis of accounting) 48th COMPREHENSIVE ANNUAL FINANCIAL REPORT

Fiscal Year Statistical Section 2002 2003 2004 2005 2006 2007 Government activities This section of the City's comprehensive annual financial report presents detailed Invested in Capital Assets, net of related Deb 633,842,381 645,327,945 636,914,428 658,781,233 662,072,601 697,544,023 Restricted 119,201,984 65,072,760 163,823,226 136,784,905 145,580,871 148,392,176 information as a context for understanding what the information in the financial statements, note Unrestricted (271,744,706) (218,280,862) (314,808,978) (234,193,351) (225,716,174) (231,899,788) disclosures, and required supplementary information says about the City's financial health. Total governmental activities net assets 481,299,659 492,119,843 485,928,676 561,372,787 581,937,298 614,036,411

Business-type activities Contents Invested in Capital Assets, net of related Deb 352,535,854 424,989,573 480,152,546 479,670,296 509,975,085 537,896,895 Restricted 40,583,232 35,089,947 30,338,274 29,920,599 28,752,118 31,705,161 Unrestricted 206,118,408 157,125,985 149,331,062 139,417,980 165,690,672 165,646,610 Financial Trends Total business-type activities 599,237,494 617,205,505 659,821,882 649,008,875 704,417,875 735,248,666

These schedules contain trend information to help the reader understand how the City's Primary government financial performance and well-being have changed over time. (Pages 215 to 219) Invested in Capital Assets, net of related Deb 986,378,235 1,070,317,518 1,117,066,974 1,138,451,529 1,172,047,686 1,235,440,918 Restricted 159,785,216 100,162,707 194,161,500 166,705,504 174,332,989 180,097,337 Unrestricted (65,626,298) (61,154,877) (165,477,916) (94,775,371) (60,025,502) (66,253,178) Revenue Capacity Total primary government 1,080,537,153 1,109,325,348 1,145,750,558 1,210,381,662 1,286,355,173 1,349,285,077

These schedules contain information to help the reader assess the City's most significant local revenue sources, the property tax. (Pages 220 to 223) GtAtiitiGovernmentActivities Debt Capacity 800,000,000 600,000,000 InvestedinCapitalAssets,netofrelated These schedules present information to help the reader assess the affordability of the City's  Debt current levels of outstanding debt and the City's ability to issue additional debt in the future. 400,000,000 200,000,000 (Pages 224 to 229)  Restricted Ͳ Demographic and Economic Information (200,000,000) (400,000,000) Unrestricted These schedules offer demographic and economic indicators to help the reader understand the 2002 2003 2004 2005 2006 2007 environment within which the City's financial activities take place. (Pages 230 to 231)

Business-type Activities Operating Information 600,000,000 InvestedinCapitalAssets,netofrelated These schedules contain information about the City's operations and resources to help the 500,000,000 Debt reader understand how the City's financial information relates to the services the City provides 400,000,000 and the activities it performs. (Pages 232 to 234) 300,000,000 Restricted 200,000,000 100,000,000 Unrestricted Ͳ Sources: 2002 2003 2004 2005 2006 2007 Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments in 2002; schedules presenting government-wide data include information beginning in that year.

Source: City of Fresno, Finance Department

Notes: No long term debt issued in FY2003.

215 214 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

CHANGE IN NET ASSETS CHANGE IN NET ASSETS LAST SIX FISCAL YEARS LAST SIX FISCAL YEARS

Fiscal Year Fiscal Year

2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007

Expenses Net (Expense)/Revenue Government activities: Governmental activities (180,553,248) (168,071,321) (195,716,698) (188,007,612) (207,049,430) (211,014,459) General Government 30,785,546 13,262,004 18,866,440 24,108,395 23,637,368 23,841,982 Business-type activities 3,922,208 7,135,673 49,918,125 38,886,426 36,388,183 9,711,611 Public Protection 114,854,959 120,987,011 137,801,994 144,932,482 163,607,290 183,973,705 Total primary government net expense (176,631,040) (160,935,648) (145,798,573) (149,121,186) (170,661,247) (201,302,848) Public Ways and Facilities 51,295,154 41,535,886 62,163,340 49,127,618 52,823,742 56,235,647 General Revenues and other changes in Net Culture and Recreation 17,887,755 21,526,952 21,614,116 20,787,219 24,714,412 25,118,951 Assets Community Development 15,706,951 12,667,757 8,515,537 8,995,543 11,385,201 15,849,024 Government activities: Redevelopment 6,415,275 5,831,184 8,397,885 6,669,401 8,876,033 6,299,771 Taxes and Licenses: Interest on Long-term Debt 14,657,681 21,112,884 20,803,629 23,387,704 24,360,860 23,969,934 Property Taxes 50,840,098 53,832,808 58,449,775 58,577,225 69,250,181 119,320,016 Total government activities 251,603,321 236,923,678 278,162,941 278,008,362 309,404,906 335,289,014 Sales Taxes 54,504,040 59,139,643 64,615,110 52,986,011 60,524,755 59,881,119 In Lieu Sales Tax - 17,123,453 19,546,076 19,278,652 Business-type activities: Franchise Taxes 5,117,002 4,651,588 5,236,928 5,389,161 7,481,650 6,165,853 Water System 39,968,569 34,619,206 35,575,102 37,180,490 42,522,541 47,147,385 Business Taxes 12,054,651 13,116,329 14,255,145 15,130,296 18,014,539 16,509,849 Sewer System 42,773,559 40,721,859 28,254,862 44,540,761 45,852,929 54,145,460 Room Tax 3,981,263 8,552,109 8,711,232 8,980,778 10,065,096 10,814,537 Solid Waste Management 35,641,448 38,245,519 39,116,635 30,469,166 36,522,592 45,060,944 Other Taxes 9,421,951 9,560,606 2,720,252 3,564,202 4,118,180 3,894,036 Revenues Restricted for Infrastructure Transit 31,557,133 30,744,309 34,168,046 35,007,084 39,749,223 43,012,048 Maintenance 943,909 582,035 460,241 1,595,820 1,460,641 1,627,444 Airports 14,031,058 13,723,891 17,558,956 21,356,177 23,318,580 21,311,072 In Lieu VLF - 24,340,837 29,925,628 - Fresno Convention Center 11,802,321 12,067,099 10,323,466 9,961,227 9,756,277 10,592,878 Unrestricted Grants and Contributions 24,434,471 25,977,660 20,716,223 13,220,807 3,836,999 - Community Sanitation 9,243,221 10,162,097 9,184,116 8,420,449 8,115,572 10,594,932 Investment earnings 7,290,288 5,231,678 3,951,663 5,573,365 8,984,454 12,314,222 Parking 3,767,254 4,772,848 4,717,879 5,444,243 5,707,029 7,568,078 Other 244,482 - - - - Parks and Recreation 2,021,571 2,232,681 2,096,388 2,557,156 1,687,782 1,453,699 Gain on sale of capital assets 596,328 (406,310) 877,544 709,485 983,009 81,817 Development Services 8,005,108 8,186,069 9,439,777 11,131,668 14,343,927 17,433,801 Transfers (1,036,744) (1,346,641) 9,531,418 56,260,283 (6,577,267) 1,145,812 Stadium 32,084 3,254,464 3,955,466 3,808,022 3,815,585 3,769,282 Total Government Activities 168,391,739 178,891,505 189,525,531 263,451,723 227,613,941 251,033,357 Total business-type activities 198,843,326 198,730,042 194,390,693 209,876,443 231,392,037 262,089,579 Business-type Activities: Investment earnings 15,290,879 8,949,801 2,229,286 6,372,385 4,748,334 11,808,567 Total Government Expenses 450,446,647 435,653,720 472,553,634 487,884,805 540,796,943 597,378,593 Passenger and Customer Facility Charges - - - - 4,003,400 3,686,458 FAA Audit Compliance Settlement - - - - - 6,478,711 Program Revenues Gain on sale of capital assets (583,425) 535,896 384 188,465 472 291,256 Government activities: Transfers 1,036,744 1,346,641 (9,531,418) (56,260,283) 6,577,267 (1,145,812) Charges for Services: 25,680,501 30,208,235 26,959,817 29,553,327 38,122,827 32,641,145 Total Business-type Activities 15,744,198 10,832,338 (7,301,748) (49,699,433) 15,329,473 21,119,180 Operating Grants and Contributions 25,981,544 11,816,640 28,670,377 30,485,721 41,498,370 51,657,470 Capital Grants and Contributions 19,388,028 26,827,482 26,816,049 29,961,702 22,734,279 39,975,940 Change in Net Assets Total government program revenues 71,050,073 68,852,357 82,446,243 90,000,750 102,355,476 124,274,555 Government Activities (12,161,509) 10,820,184 (6,191,167) 75,444,111 20,564,511 40,018,898 Business Type Activities 19,666,406 17,968,011 42,616,377 (10,813,007) 51,717,656 30,830,791 Business-type activities: Total Primary Government 7,504,897 28,788,195 36,425,210 64,631,104 72,282,167 70,849,689 Charges for Services: Water System 36,702,306 39,702,643 39,956,895 41,602,576 39,254,582 45,136,898 Sewer System 52,961,767 46,502,457 48,247,747 49,359,690 48,403,620 50,362,926 Solid Waste Management 30,411,290 37,300,555 38,613,025 39,302,948 38,820,396 43,250,635 Transit 8,038,171 7,737,653 7,583,048 7,403,827 7,703,735 8,286,235 Airports 9,826,593 12,821,895 13,121,880 16,066,393 14,668,777 15,162,563 Fresno Convention Center 7,645,417 4,441,723 3,497,094 2,917,281 3,267,366 3,042,812 Community Sanitation 9,159,028 9,292,676 8,814,284 9,215,109 9,455,669 9,691,586 Parking 4,458,050 4,764,735 5,285,101 4,983,578 5,719,131 7,765,138 Parks and Recreation 1,676,368 1,803,938 1,924,017 1,929,568 885,212 542,231 Development Services 7,776,457 9,959,909 12,926,188 14,378,811 16,319,081 15,678,185 Stadium 250,000 1,571,101 1,504,707 1,500,000 1,500,000 1,500,000 Operating Grants and Contributions 17,785,629 18,801,202 21,771,772 20,815,414 21,920,833 31,256,246 Capital Grants and Contributions 16,074,458 11,165,228 41,063,060 39,287,674 59,861,818 40,125,735 Source: Source: Department of Finance, City of Fresno Total Business-type program revenues 202,765,534 205,865,715 244,308,818 248,762,869 267,780,220 271,801,190 Total Primary Government program revenues 273,815,607 274,718,072 326,755,061 338,763,619 370,135,696 396,075,745 Notes: Accounting requirements changed in FY 2002 due to GASB Statement 34

216 217 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

FUND BALANCE GOVERNMENTAL FUNDS CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS LAST SIX FISCAL YEARS LAST SIX FISCAL YEARS (modified accrual basis of accounting) Fiscal Year

2002 2003 2004 2005 2006 2007

Revenues Fiscal Year Taxes 132,526,753 147,116,943 160,711,106 170,731,999 225,252,530 241,884,284 Licenses and Permits 239,744 240,538 310,365 321,482 306,544 352,241 2002 2003 2004 2005 2006 2007 Intergovernmental 64,866,827 59,115,556 44,569,104 62,333,383 38,417,132 44,718,360 Charges for Services 17,123,739 22,444,952 16,072,284 18,832,664 30,264,643 31,923,876 General Fund Fines 896,416 701,664 2,322,725 3,126,213 3,005,302 3,766,600 Reserved 14,198,254 15,059,323 17,385,039 21,291,983 24,133,254 26,089,448 Use of Money and Property 7,383,082 5,065,964 4,045,053 4,818,684 7,855,047 10,283,213 Unreserved 18,560,425 19,234,376 20,450,626 29,083,030 35,483,454 33,448,831 Total General Fund 32,758,679 34,293,699 37,835,665 50,375,013 59,616,708 59,538,279 Contributed from Property Owners 1,114,374 1,625,437 93,743 - - - Other Revenue - - 178,144 - - - All other Governmental Funds Miscellaneous 13,692,496 9,592,305 9,504,528 14,888,212 10,543,977 16,026,929 Reserved 130,531,145 132,741,764 179,021,175 200,323,480 176,499,071 182,686,912 Total Revenues 237,843,431 245,903,359 237,807,052 275,052,637 315,645,175 348,955,503 Unreserved, reported in: Special revenue funds 4,212,488 1,580,949 (1,934,786) (7,826,198) (4,332,080) (11,175,235) Expenditures Debt service funds (59,977,601) (64,015,562) (67,356,996) (73,785,999) (77,367,122) (76,486,619) General Government 25,898,527 12,647,542 12,675,920 14,543,360 13,087,882 15,047,732 Capital projects funds (1,354,483) (1,561,020) (4,619,607) (867,249) 14,649,467 12,610,154 Public Protection 108,523,731 117,981,049 133,610,776 147,180,257 161,960,383 176,999,820 Total all other governmental funds 73,411,549 68,746,131 105,109,786 117,844,034 109,449,336 107,635,212 Public Ways and Facilities 25,387,631 29,933,474 21,582,545 19,010,289 19,292,385 20,268,133 Culture and Recreation 16,615,876 19,117,674 19,867,560 20,653,700 23,098,459 22,685,103 Community Development 12,872,186 12,653,784 7,712,893 8,919,317 10,548,104 15,167,995 Capital Outlays 34,693,747 29,403,993 35,840,242 61,662,512 47,785,922 56,132,034 Debt Service: Bond Issuance Cost - - - 738,574 - 120,000,000 Principal 7,466,037 8,504,530 8,630,282 8,895,877 12,795,616 19,295,631 InterestInterest 13 , 444, 555 20, 795, 396 20, 394, 144 22, 990, 724 24 , 161, 926 24, 027, 377 100,000,000 Total Expenditures 244,902,290 251,037,442 260,314,362 304,594,610 312,730,677 349,623,825 80,000,000 Excess (Deficiency) of Revenue Over 60,000,000 (Under) Expenditures (7,058,859) (5,134,083) (22,507,310) (29,541,973) 2,914,498 (668,322) 40,000,000 Other Financing Sources (Uses) 20,000,000 Transfers In 17,321,653 35,481,505 45,071,691 82,416,155 67,678,744 73,114,701 2007 2006 - Transfers Out (18,349,508) (37,017,787) (37,989,653) (78,714,789) (72,112,237) (70,556,773) 2005 2004 Refunding Bond Issues - - 5,005,000 - - - 2003 FAA Litigation Settlement - - - - - (5,846,711) 2002 Payment to Refunding Bonds (215,774,206) - (4,809,222) - - - Total all other governmental funds Total General Fund Bond Proceeds ------Note Proceeds - 1,500,000 - - - 48,000 Gain (Loss) on Investments - - - - - Gain on Sales of Property - (845,377) 440,396 - - - Long Term Debt Issued 218,768,294 - 52,780,000 47,690,100 - - Loan Proceeds ------Debt Forgiveness ------Source: City of Fresno, Finance Department Premium on Debt Issued - - 126,092 300,105 - - Proceeds for Capital Lease Obligations 693,000 2,885,344 1,788,627 3,123,998 2,365,992 2,016,552 Total Other Financing Sources (Uses) 2,659,233 2,003,685 62,412,931 54,815,569 (2,067,501) (1,224,231)

Net Change in Fund Balance (4,399,626) (3,130,398) 39,905,621 25,273,596 846,997 (1,892,553)

Debt Service as a Percentage of Non- capital Expenditures 9.64% 14.09% 12.47% 13.73% 13.43% 13.66%

Source: City of Fresno, Finance Department

Notes: To properly calculate the ratio of total debt service expenditures to noncapital expenditures, only governmental fund expenditures for the acquisition and construction of assets that are classified as capital assets for reporting in the government-wide financial statements have been subtracted from the total governmental fund expenditures. These figures by fiscal year are as follows: (2002) $27,983,591; (2003) $43,053,133; (2004) $27,501,712; (2005) $72,289,487; (2006) $37,560,975 and; (2007) $68,760,714.

218 219 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

GROSS ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY DIRECT AND OVERLAPPING PROPERTY TAX RATES LAST TEN FISCAL YEARS LAST TEN FISCAL YEARS (Percentage per $100 of Assessed Value) Assessed Value as a Secured Unsecured Percent of Total Taxable Total Direct Estimated Fiscal Year Estimated Actual Estimated Actual Assessed Value Tax Rate Actual Value

City of FresnoSchools County-Wide 1998 $ 13,533,827,328 $ 960,677,105 $ 14,494,504,433 1.113548% 100% Total 1999 13,757,060,991 1,020,823,679 14,777,884,670 1.203778% 100% State Center Overlapping 2000 14,274,764,663 1,040,486,563 15,315,251,226 1.135416% 100% Fiscal Debt Service Fresno Unified Community Property Tax Property Tax 2001 14,943,639,660 1,096,499,457 16,040,139,117 1.143887% 100% Year Tax Rate School District College Rate Rate 2002 15,733,109,644 1,174,245,532 16,907,355,176 1.197359% 100% 1998 0.032438 0.081110 0.000000 1.0 1.113548 2003 16,351,150,411 1,316,935,915 17,668,086,326 1.210636% 100% 1999 0.032438 0.171340 0.000000 1.0 1.203778 2004 17,620,912,683 1,290,154,954 18,911,067,637 1.233568% 100% 2000 0.032438 0.135416 0.000000 1.0 1.167854 2005 19,578,018,093 1,473,733,287 21,051,751,380 1.243238% 100% 2001 0.032438 0.111449 0.000000 1.0 1.143887 2006 21,871,531,043 1,230,769,455 23,102,300,498 1.177892% 100% 2002 0.032438 0.164921 0.000000 1.0 1.197359 2007 25,129,666,067 1,232,429,282 26,362,095,349 1.219102% 100% 2003 0.032438 0.178198 0.000000 1.0 1.210636 2004 0.032438 0.185486 0.015644 1.0 1.233568 Estimated Value of Taxable Property 2005 0.032438 0.196428 0.014372 1.0 1.243238     2006 0.032438 0.139568 0.005886 1.0 1.177892 30,000,000,000 2007 0.032438 0.181626 0.005038 1.0 1.219102 25,000 ,000 ,000  -54995442 Source: 20,000,000,000 1.361E+09 County of Fresno 15,000,000,000 Unsecured Notes: On June 6, 1978, California voters approved a constitutional amendment to Article XIIIA 10,000,000,000 Secured of the California Constitution, commonly known as Proposition 13, which limits the taxing power of California public agencies. Legislation enacted by the California Legislature to implement Article XIIIA 5,000,000,000 (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local Ͳ agencies may not levy any property tax except to pay debt service on indebtedness approved by voters 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $1.00 per $100.00 of full cash value. Assessed value is equal to full cash value, pursuant to Senate Bill 1656, Statutes of 1978.

FY2005 overlapping tax rate has been corrected. Incorrect figure (1.210636) previously reported for FY2005. Source: County of Fresno

Notes: Fresno County does not collect Actual Value (Market Value) information on taxable properties Fresno County does not collect Actual Value (Market Value) information on tax exempt properties The estimated actual value of taxable property is the same as the gross assessed value.

220 221 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

1 PRINCIPAL PROPERTY TAX PAYERS PROPERTY TAX LEVIES AND COLLECTIONS CURRENT YEAR AND NINE YEARS AGO LAST TEN FISCAL YEARS

Current Tax Collections 2007 1998 Percent of Fiscal Total Net Tax Percentage of Delinquent Tax Total Tax Collection of Net % of Total % of Total County County Year Levy Amount Collected Tax Levy Collections Collections Tax Levy Taxable Assessed Taxable Assessed Taxpayer Type of Business Assessed Value Rank Value Assessed Value Rank Value 1998 36,532,509 36,414,189 99.68% 1,198,167 37,612,356 102.96% 1999 37,923,092 37,511,803 98.92% 665,173 38,176,976 100.67% Pacific Gas & Electric Company Utility 1,372,380,274 1 0.0247 1,297,508,425 1 0.0404 2000 39,248,393 38,641,638 98.45% 1,419,692 40,061,330 102.07% So. California Edison Co. Utility 377,278,013 2 0.0068 387,148,178 2 0.0120 Chevron USA, Inc. Petroleum 253,791,488 3 0.0046 349,318,026 4 0.0109 2001 40,376,898 39,847,334 98.69% 775,322 40,622,656 100.61% AT&T California (Pacific Bell) Telecommunications 162,650,244 4 0.0029 352,905,144 3 0.0110 2002 41,466,342 40,714,792 98.19% 1,141,457 41,856,249 100.94% Macerich Fresno Limited Partner Real Estate 132,591,812 5 0.0024 84,567,000 7 0.0026 2003 42,693,647 41,140,273 96.36% 784,581 41,924,854 98.20% 2 Atlantic Path 15 Electric Transmission 109,654,392 6 0.0020 2004 45,316,812 43,981,854 97.05% 2,012,461 45,994,315 101.50% DS Fig Garden, LLC Real Estate Ownership 106,090,837 7 0.0019 2005 45,141,756 44,752,794 99.14% 1,769,044 46,521,838 103.06% Fresno Farming, LLC Farm Products 95,415,884 8 0.0017 Centex Homes Real Estate 88,997,666 9 0.0016 2006 50,645,808 54,159,317 106.94% 1,786,932 55,946,249 110.47% AERA Energy, LLC3 Petroleum 86,105,487 10 0.0016 111,092,399 5 0.0035 2007 93,710,698 96,163,757 102.62% 2,213,392 98,377,149 104.98% Nuero Energy Petroleum 108,749,186 6 0.0034 Mendota Biomass Power LTD Land 66,619,959 8 0.0021 Average Collections 102.54% Nissinbo California Agriculture 66,324,581 9 0.0021 McClatchy Newspapers Publishers 61,551,531 10 0.0019 Total 2,784,956,097 0.0502 2,885,784,429 0.0858 Source: County of Fresno

Notes: Amount collected in FY2007 exceeds the Total Net Tax Levy due to Supplemental Assessments. Under Source: County of Fresno Chapter 3.5 of Part 0.5 of Division 1 of the California Revenue and Taxation Code, supplemental

Notes: 1 Information provided for the County of Fresno. A breakdown of property taxpayers for the City of Fresno not available assessments are added to a supplemental roll whenever new construction is completed and 2 Formerly Trans-Elect NTD 15, LLC. and whenever real property changes ownership. 3 Consists of California onshore and offshore exploration and production (E&P) assets previously operated by CalResources LLC

222

223 CITY OF FRESNO, CALIFORNIA

RATIOS OF OUTSTANDING DEBT BY TYPE LAST SIX FISCAL YEARS

Governmental Activities Business Type Activities Business Type Activities

Special Airport Sewer Lease Revenue and Other Certificates of Assessment Capital Revenue Solid Waste Revenue Revenue Certificates of Capital Water Revenue Total Primary Net Debt per Bonds Tax Allocation Bonds Participation Bonds Leases Bonds Revenue Bonds Bonds Bonds Participation Leases Bonds Government Population Capita 2002 259,515,000 14,690,000 7,020,000 - 6,934,176 43,045,000 16,820,000 251,355,000 77,979,535 17,180,000 7,808,709 49,795,000 752,142,420 441,900 1702 2003 253,885,000 14,280,000 6,500,000 - 8,463,013 42,445,000 15,855,000 239,170,000 77,479,535 15,070,000 5,266,940 48,445,000 726,859,488 448,500 1621 2004 300,865,000 14,195,000 5,945,000 - 8,961,628 41,815,000 14,845,000 232,775,000 76,244,535 13,425,000 2,444,512 46,990,000 758,505,675 456,100 1663 2005 335,315,000 13,635,000 5,355,000 - 11,134,434 41,155,000 13,790,000 226,100,000 78,774,535 6,790,000 3,444,245 45,465,000 780,958,214 464,727 1680 2006 326,005,000 13,055,000 4,725,000 - 12,107,819 40,460,000 12,685,000 219,110,000 95,724,535 6,080,000 5,062,343 43,890,000 778,904,697 471,479 1652 2007 310,795,000 12,360,000 4,055,000 - 12,428,940 61,735,000 11,530,000 211,770,000 92,611,927 5,335,000 5,472,555 42,265,000 810,093,422 481,035 1684

Source: Debt Information - City of Fresno, Finance Department Population Information - State of California Department of Finance, Demographic Research Unit

Notes: FY2007 Population as of January 1, 2007.

The City current-refunded the 1994 COP's (Arena Financing Project) by issuing the 2005 Lease Revenue Bonds (No Neighborhood Left Behind Project). Because of this refunding, the balance moved from the COP column to the Revenue and Other Bonds column.

The City is not obligated in any manner for the Special Assessment debt, but is acting as an agent for property owners in collecting the assessments and forwarding the collections to the trustee or paying agent, and initiating foreclosure proceedings, if appropriate.

Personal Income breakdown not available for the City of Fresno

224 225 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

RATIOS OF GENERAL BONDED DEBT OUTSTANDING DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT¹ LAST TEN FISCAL YEARS AS OF JUNE 1, 2007

General Bonded Debt Outstanding

Percent Debt Percent of Actual Applicable Applicable Fiscal General Bonded Redevelopment Taxable Value of Net Debt per January 1, Year Debt Bonds Total Property Population Capita Issue 2007

City of Fresno Community Facilities District No. 4 100.000 %$ 1,875,000 1998 230,590,000 11,050,000 241,640,000 1.667% 411,600 587 City of Fresno Community Facilities District No. 5 100.000 1,340,000 1999 221,105,000 9,825,000 230,930,000 1.563% 415,000 556 City of Fresno Community Facilities District No. 7 100.000 1,995,000 2000 209,455,000 9,410,000 218,865,000 1.429% 420,600 520 State Center Community College District 45.330 16,792,499 2001 209,000,000 6,950,000 215,950,000 1.346% 441,200 489 Clovis Unified School District 51.720 171,262,661 2002 211,615,000 14,690,000 226,305,000 1.339% 441,900 512 Clovis Unified School District Certificates of Participation 51.720 20,737,134 2003 207,895,000 14,280,000 222,175,000 1.257% 448,500 495 Fresno Unified School District 82.616 202,494,907 2004 204,095,000 14,195,000 218,290,000 1.154% 456,100 479 Fresno Unified School District Lease Tax Obligations 82.616 46,533,462 2005 200,150,000 13,635,000 213,785,000 1.016% 464,727 460 Fresno Unified School District Certificates of Participation 82.616 7,931,136 2006 196,020,000 13,055,000 209,075,000 0.905% 471,479 443 Central Unified School District 76.767 29,948,841 2007 191,690,000 12,360,000 204,050,000 0.774% 481,035 424 Central Unified School District Certificates of Participation 76.767 23,732,518 Other School Districts Various 6,974,537 Source: General Bonded Debt Information - City of Fresno Department of Finance Fresno County Pension Obligations 49.868 20,134,205 Population Information - State of California Department of Finance, Demographic Research Unit Fresno County General Fund Obligations 49.868 272,205,849

Total Overlapping Debt $ 823,957,749

Source: California Municipal Statistics, Inc.

Notes: ¹Does not include City Revenue Bonds or Parking District Bonds, which are self-supporting. ²Most current data available as of January 1, 2007.

226 227 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA PLEDGED REVENUE COVERAGE LAST SIX FISCAL YEARS LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (Dollars in Thousands) Water Revenue Bonds Debt Service Legal Debt Limit Calculation for FY 2007 Fiscal Charges for Less: Net Available Year Services Operating Expenses Revenue Principal Interest Coverage Assessed Value 26,362,095 Debt Limit (20% of assessed value, pursuant to City Charter) 5,272,419 2002 36,702,306 32,610,936 4,091,370 1,215,000 2,624,252 1.07 Debt applicable to the limit: 2003 2 39,702,643 28,385,629 11,317,014 17,505,000 2,171,090 0.58 General obligation bonds 191,690 2004 39,956,895 29,139,172 10,817,723 1,455,000 2,282,790 2.89 2005 41,602,576 28,016,826 13,585,750 1,525,000 2,212,440 3.64 Less amount set aside for repayment of GO debt - 2006 39,254,582 33,254,469 6,000,113 1,575,000 2,163,826 1.60 Total net debt applicable to limit 191,690 2007 45,136,898 36,786,028 8,350,870 1,625,000 2,113,540 2.23 Legal debt margin 5,080,729 Sewer Revenue Bonds Debt Service Fiscal Charges for Less: Net Available Year Services Operating Expenses Revenue Principal Interest Coverage

Total net debt 2002 52,961,767 25,885,698 27,076,069 14,555,000 11,158,753 1.05 applicable to the 2003 46,502,457 27,202,509 19,299,948 12,185,000 10,098,473 0.87 limit as a 2004 48,247,747 22,760,763 25,486,984 6,395,000 10,552,427 1.50 Total net debt Legal Debt percentage of 2005 49,359,690 33,397,428 15,962,262 6,675,000 9,700,957 0.97 22,388,968 Debt Limit applicable to limit Margin debt limit 2006 48,403,620 26,014,652 6,990,000 10,191,531 1.30 Fiscal Year 2007 50,362,926 39,753,076 10,609,850 7,340,000 10,336,552 0.60

1998 2,898,901 230,590 2,668,311 7.95% Solid Waste Revenue Bonds 1999 2,955,577 221,105 2,734,472 7.48% Debt Service Fiscal Charges for Less: Net Available 2000 3,063,050 209,455 2,853,595 6.84% Year Services Operating Expenses Revenue Principal Interest Coverage 2001 3,208,028 209,000 2,999,028 6.51% 2002 3,381,471 211,615 3,169,856 6.26% 2002 30,411,290 31,860,175 (1,448,885) 920,000 924,021 (0.79) 2003 37,300,555 34,645,773 2,654,782 965,000 883,591 1.44 2003 3,533,617 207,895 3,325,722 5.88% 2004 38,613,025 35,756,411 2,856,614 1,010,000 839,201 1.54 2004 3,782,213 204,095 3,578,118 5.40% 2005 39,302,948 29,060,871 10,242,077 1,055,000 792,741 5.54 2005 4,210,350,276 200,150,000 4,010,200,276 4.75% 2006 38,820,396 34,661,314 4,159,082 1,105,000 743,156 2.25 2006 4,620,460,100 196,020,000 4,424,440,100 4.24% 2007 43,250,635 42,230,822 1,019,813 1,155,000 691,221 0.55 2007 5,272,419,070 191,690,000 5,080,729,070 3.64% Airport Revenue Bonds Debt Service Fiscal Charges for Less: Net Available Year Services Operating Expenses Revenue Principal Interest Coverage

2002 9,826,593 8,476,173 1,350,420 - 2,412,035 0.56 Source: Assessed Valuation Information - County of Fresno, Tax Rate Book 2003 12,821,895 9,745,773 3,076,122 600,000 2,397,035 1.03 General obligation bond debt information - City of Fresno Finance Department (General obligation bond debt) 2004 13,121,880 11,456,209 1,665,671 630,000 2,366,285 0.56 2005 16,066,393 15,361,031 705,362 660,000 2,334,035 0.24 2006 14,668,777 13,568,542 1,100,235 695,000 2,300,160 0.37 2007 15,162,563 13,738,411 1,424,152 725,000 2,262,848 0.48

Fresno Convention Center Revenue Bonds Debt Service Fiscal Charges for Less: Net Available Year Services Operating Expenses Revenue Principal Interest Coverage

2002 7,645,417 7,163,353 482,064 408,000 1,158,518 0.31 2003 4,441,723 7,231,332 (2,789,609) 500,000 1,140,508 (1.70) 2004 3,497,094 5,474,905 (1,977,811) 515,000 1,121,473 (1.21) 2005 2,917,281 5,700,187 (2,782,906) 515,000 1,121,473 (1.70) 2006 3,267,366 5,371,391 (2,104,025) 990,000 1,308,394 (0.92) 2007 3,042,812 5,731,581 (2,688,769) 2,292,608 1,996,759 (0.63)

Stadium Project Debt Service Fiscal Charges for Less: Operating Net Available Year Services Expenses Revenue Principal Interest Coverage

2002 250,000 32,084 217,916 - 2,642,185 0.08 2003 1,571,101 60,683 1,510,418 - 2,725,463 0.55 2004 1,504,707 85,054 1,419,653 720,000 2,725,763 0.41 2005 1,500,000 7,389 1,492,611 755,000 2,694,203 0.43 2006 1,500,000 5,899 1,494,101 785,000 2,660,674 0.43 2007 1,500,000 4,482 1,495,518 820,000 2,624,302 0.43

Notes: 1 Operating Expenses does not include interest, amortization or depreciation expenses. 2 In FY03 Water System Revenue Refunding Bond 1993 A Principal Balance of $16,535,000 and Interest of $433,519 Paid off. 228 229 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA

DEMOGRAPHIC AND ECONOMIC STATISTICS PRINCIPAL EMPLOYERS LAST TEN CALENDAR YEARS CURRENT YEAR AND FIVE YEARS AGO

2007 1 2002

Percent of Total Percent of Total City Employer Employees Rank City Employment Employees Rank Employment

Per Capita Unemployment Calendar Area Square Community Medical Centers 4,592 1 2.27% 4,818 3 2.54% 1 1 1 2 Year Population Personal Income Personal Income Rate Miles City of Fresno 3,756 2 1.86% 4,000 4 2.11% Saint Agnes Medical Center 2,075 3 1.03% 1,940 6 1.02% 1998 411,600 $15,606,438,000 $20,044 14.300% 102.72 Beverly Health Care 2,000 4 0.99% 1,220 9 0.64% 1999 415,400 $16,338,237,000 $20,697 13.600% 102.11 Kaiser Permanente 2,000 5 0.99% 1,750 7 0.92% 2000 420,600 $17,627,668,000 $21,975 10.400% 104.61 US Postal Service 1,850 6 0.91% - - 2001 441,200 $18,592,571,000 $22,827 10.700% 104.85 California State University, Fresno 1,569 7 0.78% 1,304 8 0.69% 2002 441,900 $19,690,862,000 $23,672 11.600% 105.08 Quinn Group, Inc. 1,178 8 0.58% - - 2003 448,500 $20,636,618,000 $24,267 11.800% 106.04 State Center Community College District 1,122 9 0.55% - - 2004 456,100 $22,136,282,000 $25,573 10.500% 106.77 Gottschalks 1,095 10 0.54% 3 2005 2 464,727 $22,796,108,000 $25,961 9.000% 107.35 County of Fresno - - 6,975 2 3.68% 3 2006 3,4 471,479 $24,173,000,000 $27,107 8.000% 110.10 Central Unified School District - - 1,260 10 0.67% 3 2007 481,035 Not Available Not Available Not Available 110.72 Fresno Unified School District - - 7,931 1 4.19% Fresno Internal Revenue Service3 - - 3,200 5 1.69% Total 21,237 10.49% 19,366 10.22%

Source: Population Information - State of California Department of Finance, Demographic Research Unit Fresno City Employment4 202,400 189,400 Unemployment information - California Employment Development Department, Labor # Market Information # Per Capita Income and Personal Income - Bureau of Economic Analysis (BEA). Notes: 1 Information pertains to Fresno, CA, Metropolitan Statistical Area (MSA). Source: Employer Information - The Business Journal - Book of Lists 2 Personal income and Per Capita Income for 2005 are adjusted per BEA (Figures previously reported were preliminary). Employment Development Department - Labor Market Information, State of California 3 Area square miles estimated. 4 Personal income and Per Capita income for 2006 are preliminary per BEA. Notes: 1Current year employer information available from 2007 Book of Lists and represents the number of 2005 full-time employees. Information prior to 2002 not available. 2 The City of Fresno number of employees derived from City of Fresno Budget Management & Studies Division - Adopted Budgets, Authorized Positions. 3 Figures not available for County of Fresno, Central Unified School District, Fresno Unified School District and Fresno Internal Revenue Service in 2007 Book of Lists. 4 Fresno City Employment as of January 1, 2007.

230 231 CITY OF FRESNO, CALIFORNIA CITY OF FRESNO, CALIFORNIA FULL TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY PROGRAM 1 LAST SIX FISCAL YEARS OPERATING INDICATORS BY FUNCTION / PROGRAM LAST SIX FISCAL YEARS Fiscal Year

Fiscal Year 2002 2 2003 3 2004 4 2005 5 2006 6 2007 7

General Government 2002 2003 2004 2005 2006 2007 Management 76.00 81.00 81.00 79.00 86.00 100.00 Finance 125.65 126.65 126.65 128.65 129.65 130.65 General Government General Services 138.00 139.00 138.00 141.00 129.00 136.00 Building Permits Issued2ԘԘ Other 107.75 108.00 108.80 109.60 120.60 128.00 Commercial 1,358 1,524 1,530 1,498 1,891 1,647 Enterprise Functions Residential 4,815 6,201 7,024 7,526 7,987 6,669 8 Convention Center 42.00 41.00 36.00 - - - Police Transportation Physical Arrests4 40,274 45,128 47,989 52,360 54,250 50,241 Airports Traffic Violations (Citations Issued)3 Not Avail 26,348 63,546 85,937 94,993 90,569 Sworn 15 17.00 17.00 20.00 22.00 5.00 5.00 Calls received for police service9 Civilian 71.00 70.00 70.00 70.00 72.00 74.50 373,214 405,302 413,064 416,390 430,528 606,695 16 Fire FAX Department 333.55 331.80 331.80 330.80 357.80 386.80 Emergency Medical Service Calls 19,607 19,050 19,723 20,577 22,614 19,235 Public Utilities13 535.00 540.00 595.00 623.00 648.00 650.00 Fire Incidents 8,906 10,557 10,286 9,329 10,107 10,976 Economic Growth and Expansion 1 Economic Development - - 6.00 6.00 6.00 9.00 Fire Inspections Not Avail Not Avail Not Avail Not Avail 13,497 19,410 Planning and Development12 92.00 92.00 187.50 204.03 210.03 198.03 Fire Hydrant Inspections 10,955 10,570 11,399 10,564 13,388 22,159 9 Wastewater Treatment Housing, Economic and Community Development 142.20 138.40 - - - - Average Daily Sewage Treatment (Million gallons per day) 69.73 70.31 70.72 70.43 72.00 71.00 Public Works11 240.20 243.20 242.20 325.20 327.60 334.60 Wastewater Treatment Capacity (Million gallons per day) 80 80 80 80 80 80 Culture and Recreation Solid Waste Parks, Recreation and Community Services 208.97 207.97 207.97 184.17 184.16 171.95 Public Protection Refuse collected (tons per day) 1,080 1,106 1,098 1,113 1,124 1,085 Police Recyclables collected (tons per day) 142 155 171 189 201 221 Sworn10 702.00 719.00 778.00 804.00 835.00 835.00 Green waste Collected (tons per day) 273 304 320 339 334 326 18 Other Public Works Civilian 355.00 393.20 388.20 402.20 406.80 444.80 8 Fire Street resurfacing (miles) 17 22 12 12 12 12 Sworn14,17 261.00 273.00 273.00 304.00 305.00 337.00 Sidewalk repair (lineal feet) 3 Civilian 23.75 23.00 20.00 22.00 58.75 67.00 Parking Violations (Citations Issued) Not Avail Not Avail 18,741 51,231 66,796 62,313 Parks and Recreation Total 3,471.07 3,544.22 3,610.12 3,755.65 3,881.39 4,008.33 Athletic Field Permits Issued 4 Not Avail Not Avail Not Avail Not Avail 99 153 Memorial Auditorium User Groups 77 70 49 40 41 36 Source: City of Fresno Budget Management & Studies Division - Adopted Budgets, Authorized Positions Memorial Auditorium, Audience 73,400 54,000 32,700 46,300 34,135 34,487 Information prior to 2002 not comparable Water

1 Number On-Service Accounts 114,209 118,258 120,399 122,732 124,517 127,646 Notes: Figures for FTE's include Permanent, Permanent Part-Time and Permanent Intermittent employees only. 1 2 FY2002 includes mid-year reorganization of the Department of Administrative Services (Other). Main/Service Leaks Repaired Not Avail Not Avail Not Avail Not Avail 251 440 3 FY2003 represents total permanent positions as of July 2002 Avg. daily per capita consumption (gallons) 332 329 335 286 297 299 1 4 FY2004 represents total permanent positions as of July, 2003 Peak daily consumption (Thousands of Gal Per Minute) Not Avail Not Avail Not Avail Not Avail 248 252 5 FY2005 represents total permanent positions as of June 30, 2005. Transportation 6 FY2006 represents total permanent positions as of April, 2006 Airports 7 FY2007 represents total permanent positions as of April, 2006 Number of Commercial Airlines 7 7 7 7 10 10 8The City negotiated a contract with SMG in January 2004 for the operation and marketing of the Fresno Convention Center. Number of Cargo Carriers6 6 6 6 6 5 4 Positions in the Convention Center Administration and Operations Division are shown for a full year, however all positions were 6 authorized until December 31, 2004. Total Number Tenant Aircraft 455 450 439 433 367 377 9 In FY2004 the Housing, Economic and Community Development Department was reorganized. Divisions were moved to the Annual fuel consumption (gallons) 6 11,947,481 11,300,663 12,001,624 11,818,177 11,775,106 10,938,066 Planning and Development Department and Public Utilities and the Economic Development Department was created. Origin and Destination Passengers 10 Recent upswing in sworn police officers can be attributed to the increase in the total number of officers added to the department for the Domestic 940,717 1,028,355 1,086,302 1,155,357 1,225,262 1,236,486 Motorcycle Unit, Neighborhood Traffic Unit and the UHP grant. International - - - - 12,067 45,942 11 Beginning in FY2005, Public Works staff increased to directly support the "No Neighborhood Left Behind" program. New positions were added Origin and Destination Mail (lbs.) 136,799 65,183 49,232 37,875 14,033 9,709 to the Engineering Division due to significant growth in housing development; and as a direct link to increased parking patrol activities associated 6 with geographical expansion. In addition positions responsible for street landscaping maintenance were moved from Parks, Recreation & Origin and Destination Freight (lbs.) 23,844,443 30,104,179 29,349,121 33,335,314 33,040,899 24,116,940 5 Community Service to Public Works. Fresno Area Express (FAX) 12 In FY05 Planning and Development added positions in both the Permits Center and Inspection Services to improve project time lines and inspection Actual Route Miles 4,038,917 4,032,376 3,957,332 4,039,871 4,229,020 4,335,012 efficiencies. Passengers 11,905,195 11,213,019 10,854,998 11,241,649 11,808,729 12,080,346 13 In FY2005 and FY2006 positions were added primarily to the Solid Waste and Wastewater Maintenance Divisions due to a surge in residential customer Mini-Buses - Purchased Transportation 25 25 34 39 38 47 growth, ordinance enforcement and commercial recycling efforts. 14 In FY2005 additional sworn positions were added to the Fire Department in the Fire Suppression & Emergency Response Division to staff a new Source: City of Fresno - Various Departments Fire Station and additional Inspector positions were added to the Fire Prevention & Investigation Division to perform inspections on existing buildings

and new construction. 1 15 Notes: Information not available for all years for all categories. In FY2006 Airport Public Safety positions were transferred to the Police and Fire Departments. 2 16 Building Permits Issued includes individual units and structures as appropriate -- a composite of new construction, additions, alterations, repairs and relocations. In FY2007 Additional positions were added to support 15-minute frequencies on two (2) routes based on Congestion Mitigation Air Quality (CMAQ) grant. 3 17 In FY2007 Due to additional funding (a portion of which was provided by Staffing for Adequate Fire and Emergency Response (SAFER) grant) Parking Violations for FY2004 representative of those citations that remain outstanding. Citations that were paid or dismissed are not included in this number. 4 a 4th firefighter was added to several existing fire companies. Police department figures are based on calendar year and are as of Jan 1 of reported year. 5 18 Increase in Civilian personnel in FY2007 due in large part to additional Police Cadets as well as the transferring of the "Stamp Out" graffiti Fresno Area Express Figures for FY2006 and FY2007 are unaudited figures. 6 program from the Planning and Development department to the police department. Information combined for Fresno Yosemite International (FYI) and Chandler Executive Airport (FCH). 7 International Service to Mexico started in FY2006. 8 Street resurfacing miles for FY2002 through FY2007 are departmental estimates. 9 The California Highway Patrol (CHP) discontinued handling of "911" calls. Those calls are currently routed to the nearest city.

232 233 CITY OF FRESNO, CALIFORNIA

CAPITAL ASSET STATISTICS BY FUNCTION LAST SIX FISCAL YEARS1

Fiscal Year

2002 2003 2004 2005 2006 2007

Police Department Stations 1 5 5 5 5 5 Patrol Bureas 6 7 7 7 7 7 Vehicular Patrol units 225 229 229 237 237 250 Helicopters 3 3 3 2 2 2 Fixed Wing Aircraft - - - 1 1 1 Fire Department Fire Stations 16 16 16 16 19 20 Engine Companies 16 16 16 16 19 20 Truck Companies 5 5 5 5 5 6 Public Works Streets (miles)6 1,583 1,626 1,654 1,800 1,678 1,778 Street Lights7 35,902 37,298 38,694 40,485 45,000 46,600 Solid Waste Division Collection Trucks 108 108 112 119 115 121 Water Division Water Mains (miles) 1,700 1,700 1,626 1,638 1,687 1,737 Wells 246 248 247 247 250 257 Fire Hydrants Not Avail Not Avail Not Avail Not Avail 11,820 12,232 Sewer Maintenance Division Sewer Mainlines (miles)8 1,343 1,359 1,386 1,411 1,437 1,472 Manholes 19,835 20,207 20,706 21,152 21,566 21,062 Lift Stations 15 15 15 15 15 15 Parks Metropolitan Parks (Regional) 2 3 3 3 3 3 Neighborhood Parks 41 32 32 27 27 29 Pocket Parks Not Avail Not Avail 21 17 17 18 Zoo 1 1 1 1 1 1 Golf Courses 3 3 3 3 3 2 Tennis Courts 51 46 46 43 42 40 Acres of Parks Not Avail Not Avail Not Avail Not Avail 1,520 1,523 Neighborhood Centers 5 5 5 11 11 11 Community Center 6 6 6 5 5 5 Swimming Pools 10 11 11 9 9 9 Transportation Airports3 2 2 2 2 2 2 Municipal Airport Total Acreage3,4 2,350 2,350 1,894 1,894 1,899 1,899 Length of Longest Runway (Surfaced) - Linear FT. 3 12,424 12,424 12,848 12,853 12,853 12,853 Number of Runways3 4 4 4 4 4 3 Number of Terminals 3 2 2 2 2 2 2 Terminals (Square Footage) 3 125,195 170,132 170,132 170,132 180,980 180,980 Number of Parking Spaces (surface lot) 1,442 2,247 2,247 2,247 2,247 2,769 Air Cargo Ramp Spaces2 - - - 9 9 9 Air Cargo Ramp (Surface Square Footage) 2 - - - 806,390 806,390 806,390 Number of Hangars3,5 296 400 255 284 301 300 Buses - Directly Operated 103 103 118 118 114 126

Source: City of Fresno - Various Departments

Notes: 1 Information not available for all years for all categories. 2 Air Cargo Ramp completed in FY2005 3 Information combined for Fresno Yosemite International (FYI) and Chandler Executive Airport (FCH). 4 In FY2004 parcels of land were sold to Caltrans for easements and wetland mitigation efforts (Airports). 5 In FY2004 Taxiway construction work at both airports necessitated the elimination of some hangars. 6 Street miles in FY2005, FY2006 and FY2007 are estimated. Figure in FY2005 deemed to be an overestimation. Current average of street miles added due to new subdivisions is estimated to be 20 to 40 miles per year. 7 Number of Street Lights in FY2006 and FY2007 are estimated. 8 Figures for 2002-2006 restated due to decimal point placement correction. 9 One runway at Chandler Executive Airport (FCH) closed.

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(This Page Intentionally Left Blank) APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS

Certain provisions of the Facilities Lease, the Facilities Sublease and the Trust Agreement, not previously discussed in this Official Statement, are summarized below. These summaries do not purport to be complete or definitive and are qualified in their entirety by reference to the full terms of the documents.

CERTAIN DEFINITIONS

The following are definitions of certain of the terms defined in the Facilities Sublease or the Trust Agreement, to which reference is hereby made. The following definitions are equally applicable to both the singular and plural forms of the terms defined herein. Capitalized terms not otherwise defined herein will have the meaning assigned to such term in the Trust Agreement or, if not defined therein, in the Facilities Sublease.

“Act” means the Joint Exercise of Powers Act (being Chapter 5 of Division 7 of Title 1 of the Government Code of the State, as amended) and all laws amendatory thereof or supplemental thereto.

“Additional Bonds” means all bonds of the Authority authorized by and at any time Outstanding pursuant to the Trust Agreement and executed, issued and delivered in accordance with the Trust Agreement.

“Additional Projects” means public capital improvements, including equipment, located within the City and financed in whole or in part with the proceeds of Additional Bonds.

“Additional Payments” means all amounts payable to the Authority or the Trustee or any other person from the City as Additional Payments pursuant to the Facilities Sublease.

“Authority” means the Fresno Joint Powers Financing Authority created pursuant to the Act and its successors and assigns in accordance with the Trust Agreement.

“Base Rental Payments” means all amounts payable to the Authority from the City as Base Rental Payments pursuant to the Facilities Sublease.

“Bond Insurance Policy” means any policy or policies of insurance or financial guaranty bond insuring the scheduled payment of the amounts of principal of and interest on the Bonds and issued by a Bond Insurer.

“Bond Insurer” means any insurance company or companies which has or have issued any Bond Insurance Policy insuring payment of the amounts of principal of and interest on the Bonds or any series or portion thereof, including the Series 2008 E/F Bond Insurer.

“Bonds” means the Series 2008A/B Bonds, Series 2008C/D Bonds, Series 2008E/F and all Additional Bonds.

C-1 “Business Day” means any day other than (i) a Saturday or Sunday or (ii) a day on which commercial banks in New York, New York are authorized or required by law to close or (iii) a day upon which the Trustee is authorized by law to remain closed.

“Certificate of the Authority” means an instrument in writing signed by the Chairperson, Secretary or Treasurer and Controller of the Authority, or by such officer's duly appointed designee, or by any other officer of the Authority duly authorized by the Authority for that purpose.

“Certificate of the City” means an instrument in writing signed by the Mayor, City Manager or Controller of the City, or by such officer's duly appointed designee, or by any other officer of the City duly authorized by the City Council of the City for that purpose.

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City or the Authority and related to the authorization, execution and delivery of the Facilities Lease, the Facilities Sublease, the Trust Agreement and the sale of the Bonds, including, but not limited to, costs of preparation and reproduction of documents, costs of rating agencies and costs to provide information required by rating agencies, filing and recording fees, initial fees and charges of the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, fees and expenses of the underwriter, fees and charges for preparation, execution and safekeeping of the Bonds, fees of the Authority, and any other cost, charge or fee in connection with the original execution and delivery of the Bonds.

“Debt Service” means, for any Fiscal Year or other period, the sum of interest on the Bonds and principal of the Bonds (including mandatory sinking fund redemption payments) due in such Fiscal Year or other period.

“Event of Default” will have the meaning specified in the Trust Agreement. See “Trust Agreement – Defaults and Remedies.”

“Expiry Date” means (i) April 1, 2013 with respect to Parking Garage No. 4; (ii) April 1, 2023 with respect to the Municipal Services Center, Fresno Memorial Auditorium and Parking Garage No. 8; (iii) April 1, 2038 with respect to Woodward Park Facilities; (iv) April 1, 2024 with respect to Selland Arena, or such other date or dates as set forth in an amendment or supplement to the Facilities Sublease.

“Facilities” means the real property and improvements thereon described in the Facilities Sublease, as such may be amended from time to time.

“Facilities Lease” means that certain lease, entitled “Master Facilities Lease” and dated as of April 1, 2008, as amended by the First Amendment to Master Facilities Lease, dated as of May 1, 2008, and as further amended by the Second Amendment to Master Facilities Lease, dated as of August 1, 2008, between the City, as lessor, and the Authority, as lessee, and as it may from time to time be further supplemented, modified or amended pursuant to the provisions thereof and of the Trust Agreement.

“Facilities Sublease” means that certain lease entitled “Master Facilities Sublease” and dated as of April 1, 2008, as amended by the First Amendment to Master Facilities

C-2 Sublease, dated as of May 1, 2008, and as further amended by the Second Amendment to Master Facilities Sublease, dated as of August 1, 2008, between the Authority, as lessor, and the City, as lessee, and as it may from time to time be further supplemented, modified or amended pursuant to the provisions thereof and of the Trust Agreement.

“Fiscal Year” means the twelve month period terminating on June 30 of each year, or any other annual accounting period hereafter selected and designated by the Authority as its Fiscal Year in accordance with applicable law.

“Government Securities” means (a) cash (fully insured by the Federal Deposit Insurance Corporation), (b) direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America (“U.S. Treasury Obligations”), (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (d) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (e) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated.

“Holder” or “Owner” means any person who shall be the registered owner of any Outstanding Bond.

“Interest Payment Date” means a date on which interest is due on the Bonds being, April 1 and October 1 of each year to which reference is made, commencing on October 1, 2008.

“Mandatory Sinking Account Payments” means the payments set forth in the Trust Agreement.

“Moody’s Investors Service” or “Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term “Moody’s Investors Service” shall be deemed to refer to any other nationally recognized securities rating agency selected by the City.

“Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority.

“Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Trust Agreement) all Bonds except

(1) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;

(2) Bonds paid or deemed to have been paid within the meaning of the defeasance section of the Trust Agreement; and

C-3 (3) Bonds in lieu of or in substitution for which other Bonds will have been executed, issued and delivered by the Authority pursuant to the Trust Agreement.

“Permitted Encumbrances” means (1) liens for Federal and State taxes and assessments not yet delinquent; (2) effect of the Facilities Lease and the Facilities Sublease, including any amendments thereto; (3) zoning laws, ordinances and regulations; (4) effect of all deeds and deed limitations described in the Title Policy; (5) easements, encumbrances, rights of way, mineral rights, drilling rights, and other rights, reservations, covenants, conditions or restrictions that exist of record as of the date of recordation of the Facilities Lease in the office of the County Recorder of the County of Fresno; (6) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law; (7) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions that will not materially impair the use of the Facilities; and (8) all matters which would be revealed by an accurate survey of the Facilities.

“Permitted Investments” means any of the following obligations if and to the extent that, at the time of making such investment, they are permitted by applicable law:

1. Government Securities.

2. Federal Housing Administration debentures.

3. The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America:

a) Federal Home Loan Mortgage Corporation (FHLMC) senior debt obligations and Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts)

b) Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) consolidated system-wide bonds and notes

c) Federal Home Loan Banks (FHL Banks) consolidated debt obligations

d) Federal National Mortgage Association (FNMA) senior debt obligations and mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts)

4. Unsecured certificates of deposit, time deposits, and bankers’ acceptances (having maturities of not more than 365 days) of any bank the short-term obligations of which are rated “A-l+” or better by S&P and “Prime-1” by Moody’s.

5. Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation, in banks which have capital and surplus of at least $15 million.

C-4 6. Commercial paper (having original maturities of not more than 270 days) rated “A-1+” by S&P and “Prime-1” by Moody’s.

7. Money market funds rated “Aam” or “AAm-G” by S&P, or better and if rated by Moody’s rated “Aa2” or better.

8. “State Obligations”, which means:

a) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated at least “A3” by Moody’s and at least “A-” by S&P, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated.

b) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (a) above and rated “A-1+” by S&P and “MIG-1” by Moody’s.

c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state or state agency described in (b) above and rated “AA-” or better by S&P and “Aa3” or better by Moody’s.

9. Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by Moody’s meeting the following requirements:

a) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions;

b) the municipal obligations are secured by cash or U.S. Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations;

c) the principal of and interest on the U.S. Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations (“Verification Report”);

d) the cash or U.S. Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;

C-5 e) no substitution of a U.S. Treasury Obligation shall be permitted except with another U.S. Treasury Obligation and upon delivery of a new Verification Report; and

f) the cash or U.S. Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent.

10. Repurchase agreements: with (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least “A-” by S&P and “A3” Moody’s; or (2) any broker-dealer with “retail customers” or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least “A-” by S&P and “A3” by Moody’s, which broker- dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated at least “A-” by S&P and “A3” Moody’s and acceptable to Series 2008 Bond Insurer (each an “Eligible Provider”), provided that:

a) (i) permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers), and (ii) collateral levels must be at least 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA’s and 104% of the total principal when the collateral type is FNMA and FHLMC (“Eligible Collateral”);

b) the trustee or a third party acting solely as agent therefore or for the issuer (the “Custodian”) has possession of the collateral or the collateral has been transferred to the Custodian in accordance with applicable state and federal laws (other than by means of entries on the transferor’s books) and such collateral shall be marked to market;

c) the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the Trustee, the Authority and Series 2008 Bond Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral;

d) the repurchase agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of Series 2008 Bond Insurer;

e) the repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof;

f) the repurchase agreement shall provide that if during its term the provider’s rating by either Moody’s or S&P is withdrawn or

C-6 suspended or falls below “A-” by S&P or “A3 by Moody’s, as appropriate, the provider must, notify the Authority, the Trustee and Series 2008 Bond Insurer within five (5) days of receipt of such notice. Within ten (10) days of receipt of such notice, the provider shall either: (i) provide a written guarantee acceptable to Series 2008 Bond Insurer, (ii) post Eligible Collateral, or (iii) assign the agreement to an Eligible Provider. If the provider does not perform a remedy within ten (10) business days, the provider shall, at the direction of the trustee (who shall give such direction if so directed by Series 2008 Bond Insurer) repurchase all collateral and terminate the repurchase agreement, with no penalty or premium to the Authority or the Trustee.

11. Investment agreements: with a domestic or foreign bank or corporation the long-term debt of which, or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least “AA-” by S&P and “Aa3” by Moody’s, and acceptable to Series 2008 Bond Insurer (each an “Eligible Provider”); provided that:

a) interest payments are to be made to the trustee at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on the Series 2008 Bonds:

b) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven (7) days’ prior notice; the Authority and the Trustee agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid;

c) the provider shall send monthly reports to the Trustee, the Authority and Series 2008 Bond Insurer setting forth the balance the Authority or Trustee has invested with the provider and the amounts and dates of interest accrued and paid by the provider;

d) the investment agreement shall state that is an unconditional and general obligation of the provider, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors;

e) the investment agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of Series 2008 Bond Insurer;

f) the Authority, the Trustee and Series 2008 Bond Insurer shall receive an opinion of domestic counsel to the provider that such

C-7 investment agreement is legal, valid, binding and enforceable against the provider in accordance with its terms; g) the Authority, the Trustee and Series 2008 Bond Insurer shall receive an opinion of foreign counsel to the provider (if applicable) that (i) the investment agreement has been duly authorized, executed and delivered by the provider and constitutes the legal, valid and binding obligation of the provider, enforceable against the provider in accordance with its terms, (b) the choice of law of the state set forth in the investment agreement is valid under that country’s laws and a court in such country would uphold such choice of law, and (c) any judgment rendered by a court in the United States would be recognized and enforceable in such country; h) the investment agreement shall provide that if during its term:

i) the provider’s rating by either S&P or Moody’s falls below “AA “ or “Aa3”, the provider shall, at its option, within ten (10) days of receipt of publication of such downgrade, either (i) provide a written guarantee acceptable to Series 2008 Bond Insurer, (ii) post Eligible Collateral with the Authority, the Trustee or a third party acting solely as agent therefore (the “Custodian”) free and clear of any third party liens or claims, or (iii) assign the agreement to an Eligible Provider, or (iv) repay the principal of and accrued but unpaid interest on the investment;

ii) the provider’s rating by either S&P or Moody’s is withdrawn or suspended or falls below “A-” or “A3”, the provider must, at the direction of the Authority or the Trustee (who shall give such direction if so directed by the Insurer), within ten (10) days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Authority or Trustee. i) in the event the provider is required to collateralize, permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers) and collateral levels must be 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA’s and 104% of the total principal when the collateral type is FNMA and FHLMC (“Eligible Collateral”). In addition, the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the Trustee, the Authority and Series 2008 Bond Insurer setting forth the type of collateral, the collateral percentage required for that collateral type, the market

C-8 value of the collateral on the valuation date and the name of the Custodian holding the collateral;

j) the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof;

k) the investment agreement must provide that if during its term: (i) the provider shall default in its payment obligations, the provider’s obligations under the investment agreement shall, at the direction of the Authority or the Trustee (who shall give such direction if so directed by the Series 2008 Bond Insurer), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or Trustee, as appropriate, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. (“event of insolvency”), the provider’s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or Trustee, as appropriate.

12. Such other investments as are approved in writing by the Series 2008 Bond Insurer.

“Projects” means the Series 2008A/B Project, Series 2008C/D Project, Series 2008E/F Project and all Additional Projects.

“Reserve Account Requirement” means, as of any date of calculation by the Authority, an amount equal to the lesser of (i) ten percent (10%) of the original issue price of the Bonds (ii) one hundred twenty-five percent (125%) of the average annual Debt Service on all Outstanding Bonds, or (iii) maximum annual Debt Service on all Outstanding Bonds.

“Reserve Facility” means a surety bond, insurance policy or letter of credit credited to the Reserve Account and meeting the requirements of the Trust Agreement.

“Reserve Facility Provider” means any provider of a Reserve Facility.

“Restricted Properties” means all City improved and unimproved real property, classified by the Authority and City as Restricted Properties at the time such property is added to the Facilities Sublease, which classification has been based on the following: such property is improved and unimproved real property which was acquired by the City by dedication, gift, bequest, devise, transfer, condemnation, purchase or otherwise and which improved and unimproved real property is: (i) designated by the City, deed restriction, grant restriction, law or otherwise as a park or for park purposes and which improved and unimproved real property is used for park, recreation, public access, open space or similar purpose; (ii) designated by the City, deed restriction, law or otherwise as a historical park or historical site, or (iii) restricted or limited as to use or assignment by deed, recorded covenants, conditions and restrictions, contract, agreement, statutory or constitutional provisions or otherwise.

C-9 “Revenues” means all Base Rental Payments received by the Trustee pursuant to the Facilities Sublease (but not Additional Payments) and all interest or other income from any investment, pursuant to the Trust Agreement, of any money in the funds and accounts established under the Trust Agreement.

“Serial Bonds” means Bonds, maturing in specified years for which no Mandatory Sinking Account Payments are provided.

“Series,” whenever used in the Trust Agreement with respect to Bonds, means all of the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption and other provisions, and any Bonds thereafter authenticated and delivered upon transfer or exchange or in lieu of or in substitution for (but not to refund) such Bonds as provided in the Trust Agreement.

“Series 2008 Bond Insurer” means Assured Guaranty Corp., or any successor thereto or assigns thereof.

“Series 2008A/B Bonds” means the Series 2008A Bonds and Series 2008B Bonds.

“Series 2008C/D Bonds” means the Series 2008C Bonds and Series 2008D Bonds.

“Series 2008E/F Bond Insurance Policy” means that financial guaranty insurance policy issued by the Series 2008E/F Bond Insurer insuring payment when due of the principal of and interest on the Series 2008E/F Bonds.

“Series 2008E/F Bond Insurer” means Assured Guaranty Corp., or any successor thereto or assigns thereof.

“Series 2008E/F Bonds” means the Series 2008E Bonds and the Series 2008F Bonds.

“Series 2008A/B Project” means the capital improvement projects refinanced with the proceeds of the Series 2008A/B Bonds.

“Series 2008C/D Project” means the capital improvement projects financed with the proceeds of the Series 2008C/D Bonds, including but not limited to improvements at various parks and recreational facilities.

“Series 2008E/F Project” means the public capital improvements located throughout the City financed with proceeds of the Series 2008E/F Bonds, including but not limited to improvements at the Convention Center.

“Series 2008E Bonds” means the Authority’s Lease Revenue Bonds (Master Lease Projects), Series 2008E.

“Series 2008F Bonds” means the Authority’s Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable).

C-10 “Standard & Poor’s” or “S&P” means Standard & Poor’s Credit Market Services, a division of The McGraw Hill Companies, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Standard & Poor’s Corporation shall be deemed to refer to any other nationally recognized securities rating agency selected by the City.

“State” means the State of California.

“Supplemental Trust Agreement” means any trust agreement then in full force and effect which has been duly executed and delivered by the Authority and the Trustee amendatory of the Trust Agreement or supplemental to the Trust Agreement; but only if and to the extent that such Supplemental Trust Agreement is specifically authorized under the Trust Agreement.

“Tax-Exempt Bonds” means Bonds the interest on which is excluded from gross income for federal income tax purposes.

“Title Policy” means the title insurance policy or policies delivered to the Trustee in connection with the Bonds.

“Term Bonds” means Bonds payable at or before their specified maturity date or dates from Mandatory Sinking Account Payments established for that purpose and calculated to retire such Bonds on or before their specified maturity date or dates.

“Trust Agreement” means the Master Trust Agreement, dated as of April 1, 2008, as supplemented and amended by the First Supplemental Trust Agreement, dated as of May 1, 2008, and as further supplemented and amended by the Second Supplemental Trust Agreement, dated as of August 1, 2008 between the Authority and the Trustee, and as it may from time to time be further amended or supplemented by all Supplemental Trust Agreements executed pursuant to the provisions thereof.

“Written Request of the Authority” means an instrument in writing signed by the Chairperson, Secretary or Treasurer and Controller of the Authority, or by any such officer’s duly appointed designee, or by any other officer of the Authority duly authorized by the Authority for that purpose.

“Written Request of the City” means an instrument in writing to the Trustee signed by the Mayor, City Manager, Controller or by any such officer's duly appointed designee, or by any other officer of the City duly authorized by the City Council of the City for that purpose.

FACILITIES SUBLEASE

Sublease of Facilities

The Authority subleases to the City and the City subleases from the Authority the Facilities, subject to Permitted Encumbrances. The City agrees and covenants during the term of the Facilities Sublease that, except as provided in the Facilities Sublease, it will use the Facilities for public and City purposes so as to afford the public the benefits contemplated by the Facilities Sublease.

C-11 The Facilities Lease between the City and the Authority shall not effect or result in a merger of the City’s leasehold estate pursuant to the Facilities Sublease and its fee estate as lessor under the Facilities Lease, and the Authority shall continue to have and hold a leasehold estate in said Facilities pursuant to the Facilities Lease throughout the term thereof and the term of the Facilities Sublease. As to said Facilities the Facilities Sublease shall be deemed and constitute a sublease.

Term; Occupancy

The term of the Facilities Sublease shall commence on the date the Facilities Sublease is recorded in the Office of the County Recorder, and shall end on the Expiry Date, unless such term is extended or sooner terminated as provided in the Facilities Sublease. If on the Expiry Date, the Bonds corresponding to the Base Rental Payments attributable to the related Facilities and all other amounts then due under the Facilities Sublease with respect to such Facilities shall not be fully paid, or if the Base Rental Payments under the Facilities Sublease with respect to such Facilities shall have been abated at any time and for any reason, then the term of the Facilities Sublease with respect to such Facilities shall be extended until all Bonds corresponding to the Base Rental Payments attributable to such Facilities and all other amounts then due under the Facilities Sublease with respect to such Facilities shall be fully paid, except that the term of the Facilities Sublease as to the related Facilities shall in no event be extended beyond ten (10) years after such respective Expiry Dates. If prior to such Expiry Date, all Bonds corresponding to the Rental Payments attributable to the related Facilities and all other amounts then due under the Facilities Sublease with respect to such Facilities shall be fully paid, or provision therefor made, the term of the Facilities Sublease with respect to such Facilities shall end ten (10) days thereafter or upon written notice by the City to the Authority, whichever is earlier.

Purpose of Facilities Sublease

The City covenants that during the term of the Facilities Sublease, except as otherwise provided in the Facilities Sublease, (a) it will use, or cause the use of, the Facilities for public purposes and for the purposes for which the Facilities are customarily used, (b) it will not vacate or abandon the Facilities or any part thereof, and (c) it will not make any use of the Facilities which would jeopardize in any way the insurance coverage required to be maintained pursuant to the Facilities Sublease.

Substitution, Release, Addition of Property

The City and the Authority may, with the prior written consent of the Bond Insurer, add, substitute or release real property and the improvements, buildings, fixtures and equipment thereon for all or a part of the Facilities for purposes of the Facilities Sublease and the Facilities Lease, but only after the City shall have filed or caused to be filed with the Authority and the Trustee the following:

(i) Executed copies of the Facilities Lease and the Facilities Sublease or amendments thereto containing the amended description of the Facilities, including the legal description of the Facilities as may be modified, in proper recordable form.

(ii) A Written Certificate of the City, evidencing that the annual fair rental value (which may be based on, but not limited to, the construction or acquisition cost or replacement cost of such facility to the City) of the Facilities that will constitute the Facilities

C-12 after such addition, substitution or withdrawal will be at least equal to 100% of the maximum amount of Base Rental Payments becoming due in the then current fiscal year or in any subsequent fiscal year. At the sole discretion of the City, in the alternative, in the event of a substitution only, the Written Certificate of the City will evidence that the annual fair rental value of the new Facility is at least equal to that of the substituted Facility.

(iii) With respect to an addition or substitution of property, a leasehold owner’s title insurance policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing title insurance policy or policies resulting in title insurance with respect to the Facilities after such addition or substitution in an amount at least equal to the aggregate principal amount of Bonds Outstanding; each such insurance instrument, when issued, shall name the Trustee as the insured, and shall insure the leasehold estate of the Authority in such property subject only to such exceptions as do not substantially interfere with the City’s right to use and occupy such property and as will not result in an abatement of Base Rental Payments payable by the City under the Facilities Sublease.

(iv) A Written Certificate of the City stating that such addition, substitution or withdrawal, as applicable, does not adversely affect the City’s use and occupancy of the Facilities.

(v) With respect to the substitution of property, a Written Certificate of the City stating that the useful life of the property to be substituted is at least equal to the useful life of the property being released.

(vi) An opinion of bond counsel stating that any amendment executed in connection with such addition, substitution or withdrawal, as the case may be, (i) is authorized or permitted under the Facilities Sublease; (ii) will, upon the execution and delivery thereof, be valid and binding upon the Authority and the City; and (iii) will not cause the interest on the Tax-Exempt Bonds to be included in gross income for federal income tax purposes.

Rental Payments

Base Rental Payments. The City agrees to pay to the Trustee, as assignee of the Authority, as Base Rental Payments for the use and occupancy of the Facilities (subject to the provisions of the Facilities Sublease) annual rental payments in accordance with the Base Rental Payment Schedule attached to the Facilities Sublease as Exhibit B and made a part thereof. Base Rental Payments shall be calculated on an annual basis. Each Base Rental Payment installment shall be payable ten (10) days in advance of its due date.

If the term of the Facilities Sublease shall have been extended pursuant to the terms thereof, Base Rental Payment installments shall continue to be due on April 1 and October 1 in each year, continuing to and including the date of termination of the Facilities Sublease, and payable as hereinabove described, in an amount equal to the amount of Base Rental payable for the twelve-month period commencing on the April 2 preceding the Expiry Date.

Additional Payments. The City shall also pay such amounts (the “Additional Payments”) as shall be required by the Authority for the payment of all costs and expenses incurred by the Authority in connection with the execution, performance or enforcement of the Facilities Sublease or any assignment thereof, the Trust Agreement, the Facilities Lease, its interest in the Facilities and the lease of the Facilities to the City, including but not limited to payment of all fees, costs and expenses and all administrative costs of the Authority related to the

C-13 Facilities, including, without limiting the generality of the foregoing, salaries and wages of employees, all expenses, compensation and indemnification of the Trustee payable by the Authority under the Trust Agreement, fees of auditors, accountants, attorneys or architects, and all other necessary administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of the Bonds or of the Trust Agreement or of the Facilities Sublease.

Fair Rental Value

Payments of Base Rental Payments for each rental period during the term of the Facilities Sublease shall constitute the total rental for said rental period and shall be paid by the City in each rental payment period for and in consideration of the right of use and occupancy of, and continued quiet use and enjoyment of, the Facilities during each such period for which said rental is to be paid. The parties to the Facilities Sublease have agreed and determined that such total rental payable for each twelve-month period represents no more than the fair rental value of the Facilities for each such period. In making such determination, consideration has been given to costs of acquisition, design, construction and financing of the Facilities, other obligations of the parties under the Facilities Sublease, the uses and purposes which may be served by the Facilities, and the benefits therefrom which will accrue to the City and the general public.

Rental Abatement

The Base Rental Payments shall be abated during any period in which by reason of any damage or destruction (other than by condemnation as described under “Prepayment” below) there is substantial interference with the use and occupancy of the Facilities by the City. The amount of such abatement will be such that the resulting Base Rental Payments do not exceed the lesser of (i) the amount necessary to pay the originally scheduled Base Rental Payments remaining unpaid and (ii) the fair rental value for the use and possession of the Facilities not so damaged or destroyed. The City shall calculate such abatement and shall provide the Authority and the Trustee with a Certificate of the City setting forth such calculation and the basis therefor. Such abatement shall continue for the period commencing with the date of such damage or destruction and ending with the substantial completion of the work of repair or replacement of the Facilities so damaged or destroyed.

Appropriations Covenant

The City covenants to take such action as may be necessary to include all such Base Rental Payments and Additional Payments due under the Facilities Sublease in its annual budgets, and to make necessary annual appropriations for all such Base Rental Payments and Additional Payments. The City will deliver to the Authority and the Trustee copies of the portion of each annual City budget relating to the payment of Base Rental Payments and Additional Payments under the Facilities Sublease within 30 days after the filing or adoption thereof.

Maintenance and Utilities

During such time as the City is in possession of the Facilities, all maintenance and repair, both ordinary and extraordinary, of the Facilities will be the responsibility of the City, which shall at all times maintain or otherwise arrange for the maintenance of the Facilities in first class condition, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Facilities, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and all other utility

C-14 services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Facilities resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof or any other cause and shall pay for or otherwise arrange for the payment of all insurance policies required to be maintained with respect to the Facilities. In exchange for the rental provided in the Facilities Sublease, the Authority agrees to provide only the Facilities.

Changes to the Facilities

The City shall, at its own expense, have the right to remodel the Facilities or to make additions, modifications and improvements to the Facilities. All such additions, modifications and improvements shall thereafter comprise part of the Facilities and be subject to the provisions of the Facilities Sublease. Such additions, modifications and improvements shall not in any way damage the Facilities or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Facilities, upon completion of any additions, modifications and improvements made pursuant to the Facilities Sublease, shall be of a value which is at least equal to the value of the Facilities immediately prior to the making of such additions, modifications and improvements.

Installation of City’s Equipment

The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed other items of equipment or other personal property in or upon the Facilities. All such items will remain the sole property of such party, in which neither the Authority nor the Trustee will have any interest, and may be modified or removed by such party at any time provided that such party will repair and restore any and all damage to the Facilities resulting from the installation, modification or removal of any such items.

Insurance

The City shall procure or cause to be procured and maintain or cause to be maintained, throughout the term of the Facilities Sublease, insurance against loss or damage to any structures constituting any part of the Facilities by fire and lightning, with extended coverage insurance, vandalism and malicious mischief insurance and sprinkler system leakage insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to the replacement cost (without deduction for depreciation) of all structures constituting any part of the Facilities, excluding the cost of excavations, of grading and filling, and of the land except that such insurance may be subject to deductible clauses for any one loss of not to exceed $250,000. Such insurance may be part of a joint purchase insurance program.

Should the Facilities be damaged or destroyed as a result of an event for which Federal or State disaster aid is available, the Authority and/or the City shall promptly apply for disaster aid. Any disaster aid proceeds received shall be used to repair, reconstruct, restore or replace the damaged or destroyed portions of the Facilities, or, at the option of the City and the Authority, to redeem Outstanding Bonds if permitted under the disaster aid program.

As an alternative to providing the insurance required by the first paragraph of this section, or any portion thereof, the City may, with the prior written consent of the Bond Insurer,

C-15 provide a self-insurance method or plan of protection if and to the extent such self-insurance method or plan of protection shall afford reasonable coverage for the risks required to be insured against, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by public entities in the State other than the City. Before such other method or plan may be provided by the City, and annually thereafter so long as such method or plan is being provided to satisfy the requirements of the Facilities Sublease, there shall be filed with the Trustee a certificate of an actuary, insurance consultant or other qualified person (who may be an employee of the City), stating that, in the opinion of the signer, the substitute method or plan of protection is in accordance with the requirements of this section and, when effective, would afford reasonable coverage for the risks required to be insured against. There shall also be filed a certificate of the City setting forth the details of such substitute method or plan. In the event of loss covered by any such self-insurance method, the liability of the City with respect to the damaged portion of the Facilities shall be limited to the amounts in the self- insurance reserve fund or funds created under such method.

The City shall procure or cause to be procured and maintain or cause to be maintained throughout the term of the Facilities Sublease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the rental income from or the use of the Facilities as the result of any of the hazards covered by the insurance described above, in an amount sufficient to pay the maximum annual Base Rental Payments under the Facilities Sublease for any two year period, except that such insurance may be subject to a deductible clause of not to exceed $50,000. Such insurance may be part of a joint-purchase insurance program. The provider of such insurance shall be rated at least “A-” by A.M. Best & Company and the Trustee shall be the beneficiary of such insurance. Any proceeds of such insurance shall be payable to and used by the Trustee as provided in the Trust Agreement to pay principal of and interest on the Bonds for a period of time during which the payment of rental under the Facilities Sublease is abated, and any proceeds of such insurance not so used shall be applied to the extent required for the payment of Additional Payments.

Notwithstanding the foregoing, rental interruption or use and occupancy insurance shall not be required with respect to Woodward Park or any other park facilities that are added to the Facilities Sublease.

The City shall obtain a leasehold owner’s policy or policies or a commitment for such policy or policies or an amendment or endorsement to an existing policy or policies resulting in title insurance with respect to the Facilities in an amount at least equal to the outstanding principal amount of the Bonds.

Tax Covenants

The City and the Authority will at all times do and perform all acts and things permitted by law which are necessary or desirable in order to assure that the interest on the Tax- Exempt Bonds will not be included in the gross income of the owner thereof for federal income tax purposes and shall take no action that would result in such interest being so included.

Eminent Domain

If the whole of the Facilities or so much thereof as to render the remainder unusable for the purposes for which it was used by the City shall be taken under the power or threat of eminent domain, the term of the Facilities Sublease shall cease as of the day that possession shall be so taken. If less than the whole of the Facilities shall be taken under the

C-16 power or threat of eminent domain and the remainder is usable for the purposes for which it was used by the City at the time of such taking, then the Facilities Sublease shall continue in full force and effect as to such remainder, and the parties waive the benefits of any law to the contrary, and in such event there shall be a partial abatement of the rental due under the Facilities Sublease in an amount equivalent to the amount by which the annual payments of principal of and interest on the Bonds then Outstanding will be reduced by the application of the award in eminent domain to the redemption of Outstanding Bonds. So long as any of the Bonds shall be Outstanding, any award made in eminent domain proceedings for taking the Facilities or any portion thereof shall be paid to the Trustee and applied to the prepayment of the Base Rental Payments as provided in the Facilities Sublease. Any such award made after all of the Base Rental Payments and Additional Payments have been fully paid, or provision therefor made, shall be paid to the City.

Prepayment

If the Facilities are damaged or destroyed by perils covered by insurance, the Authority shall cause the proceeds of such insurance to be utilized for the repair, reconstruction or replacement of the damaged or destroyed portion pursuant to the procedure set forth in the Trust Agreement. Alternatively, the City may elect to prepay on any date from insurance and eminent domain proceeds, and from any proceeds of title insurance obtained in connection with the Facilities, all or any part (in an integral multiple of $5,000) of Base Rental Payments then unpaid so that the aggregate annual debt service on the Bonds which shall be payable after such prepayment date shall be as nearly proportional as practicable to the aggregate annual debt service on the Bonds unpaid prior to the prepayment date, at a prepayment amount equal to the principal of and interest on the Bonds to the date of redemption. The City shall not prepay the Base Rental Payments in part unless the Trustee receives a Certificate of the City and the Authority that the Base Rental Payments on the undamaged portion of the Facilities will be sufficient to pay the initially-scheduled principal and interest on the Bonds remaining unpaid after such redemption.

The City may prepay, from any source of available funds, all or any portion of Base Rental Payments by depositing with the Trustee moneys or securities as provided in the defeasance provisions of the Trust Agreement sufficient to make such Base Rental Payments when due. The City agrees that if following such prepayment the Facilities are damaged or destroyed or taken by eminent domain, it is not entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and shall not be entitled to any reimbursement of such Base Rental Payments.

When (1) there shall have been deposited with the Trustee at or prior to the due dates of the Base Rental Payments or date when the City may exercise its option to purchase the Facilities or any portion or item thereof, in trust for the benefit of the Owners of the Bonds and irrevocably appropriated and set aside to the payment of the Base Rental Payments or option price, sufficient moneys and Government Securities satisfying the requirements of the Trust Agreement, not redeemable prior to maturity, the principal of and interest on which when due will provide money sufficient to pay all principal of and interest on the Bonds to the due date of the Bonds or date when the City may exercise its option to purchase the Facilities, as the case may be; (2) an agreement shall have been entered into with the Trustee for the payment of its fees and expenses so long as any of the Bonds shall remain unpaid; and (3) all other terms and conditions set forth in the Trust Agreement have been satisfied; then and in that event the right, title and interest of the Authority in the Facilities Sublease and the obligations of the City thereunder shall thereupon cease, terminate, become void and be completely discharged and satisfied (except for the right of the Authority and the obligation of the City to have such moneys

C-17 and such Government Securities applied to the payment of the Base Rental Payments or option price) and the Authority’s interest in and title to the Facilities or applicable portion or item thereof shall be transferred and conveyed to the City.

Option to Purchase; Sale of Personal Property

The City shall have the option to purchase the Authority’s interest in any part of the Facilities upon payment of an option price consisting of moneys or securities satisfying the requirements of the Trust Agreement (not callable by the issuer thereof prior to maturity) in an amount sufficient (together with the earnings and interest on such securities) to provide funds to pay the redemption price of a portion of the Bonds attributable to such part of the Facilities (determined by reference to the proportion which the acquisition, design and construction cost of such part of the Facilities bears to the acquisition, design and construction cost of all of the Facilities). The option price payment shall be made to the Trustee and shall be treated as rental payments and shall be applied by the Trustee to pay the principal of and interest on the Bonds and to redeem Bonds if such Bonds are subject to redemption pursuant to the terms of the Trust Agreement. Upon the making of such payment to the Trustee, (a) the Base Rental Payments thereafter payable under the Facilities Sublease shall be reduced by the amount thereof attributable to such part of the Facilities and theretofore paid pursuant to this section, (b) the sections of the Facilities Sublease relating to rental abatement, option to purchase and sale of personal property shall not thereafter be applicable to such part of the Facilities, (c) the fire and extended coverage insurance, title insurance and rental interruption or use and occupancy insurance required by the Facilities Sublease need not be maintained as to such part of the Facilities, and (d) title to such part of the Facilities shall vest in the City and the term of the Facilities Sublease shall end as to such part of the Facilities.

The City, in its discretion, may request the Authority to sell or exchange any personal property, which may at any time constitute a part of the Facilities, and to release said personal property from the Facilities Sublease, if (a) in the opinion of the City the property so sold or exchanged is no longer required or useful in connection with the operation of the Facilities, (b) the consideration to be received from the property is of a value at least equal to the lesser of (i) the value of the property to be released or (ii) the principal amount of Bonds Outstanding, and (c) if the value of any such property shall, in the opinion of the Authority, exceed the amount of $50,000, the Authority shall have been furnished a certificate of an independent engineer or other qualified independent professional consultant (satisfactory to the Authority) certifying the value thereof and further certifying that such property is no longer required or useful in connection with the operation of the Facilities. In the event of any such sale, the full amount of the money or consideration received for the personal property so sold and released shall be paid to the Authority. Any money so paid to the Authority may, so long as the City is not in default under any of the provisions of the Facilities Sublease, be used upon the Written Request of the City to purchase personal property, which property shall become a part of the Facilities leased under the Facilities Sublease. The Authority may require such opinions, certificates and other documents as it may deem necessary before permitting any sale or exchange of personal property subject to the Facilities Sublease or before releasing for the purchase of new personal property money received by it for personal property so sold.

Defaults and Remedies

If the City fails to pay any rental payable under the Facilities Sublease when the same becomes due and payable, time being expressly declared to be of the essence of the Facilities Sublease, or the City fails to keep, observe or perform any other term, covenant or

C-18 condition contained in the Facilities Sublease to be kept or performed by the City for a period of 30 days after notice of the same has been given to the City by the Authority, or the Trustee or for such additional time as is reasonably required, in the sole discretion of the Trustee, to correct the same, but not to exceed 60 days, or upon the happening of any of the events specified in the Facilities Sublease (any such case above being an “Event of Default”), the City will be deemed to be in default under the Facilities Sublease and it will be lawful for the Authority to exercise any and all remedies available pursuant to law and granted pursuant to the Facilities Sublease. Upon any such default, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following:

(1) To terminate the Facilities Sublease in the manner hereinafter provided on account of default by the City, notwithstanding any re-entry or re-letting of the Facilities as hereinafter provided for in subparagraph (2) hereof, and to re-enter the Facilities and remove all persons in possession thereof and all personal property whatsoever situated upon the Facilities and place such personal property in storage in any warehouse or other suitable place located within the City of Fresno, California. In the event of such termination, the City agrees to surrender immediately possession of the Facilities, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of default by the City, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Facilities and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Facilities Sublease. Neither notice to pay rent or to deliver up possession of the Facilities given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re- entry or obtaining possession of the Facilities nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under the Facilities Sublease shall of itself operate to terminate the Facilities Sublease, and no termination of the Facilities Sublease on account of default by the City shall be or become effective by operation of law or acts of the parties to the Facilities Sublease, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate the Facilities Sublease.

(2) Without terminating the Facilities Sublease, (i) to collect each installment of rent as it becomes due and enforce any other terms or provision of the Facilities Sublease to be kept or performed by the City, regardless of whether or not the City has abandoned the Facilities, or (ii) to exercise any and all rights of re-entry upon the Facilities. In the event the Authority does not elect to terminate the Facilities Sublease in the manner provided for in subparagraph (1) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions contained in the Facilities Sublease to be kept or performed by the City and, if the Facilities are not re-let, to pay the full amount of the rent to the end of the term of the Facilities Sublease or, in the event that the Facilities are re-let, to pay any deficiency in rent that results therefrom; and further agrees to pay said rent and/or rent deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of rent under the Facilities Sublease (without acceleration), notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years rental in excess of the rental specified in the Facilities Sublease, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such entry or re-entry or obtaining possession of the Facilities. Should the Authority elect to enter or re-enter as provided in the Facilities Sublease, the City irrevocably appoints the Authority as the agent and attorney-in-fact of the City to re-let the Facilities, or any part thereof, from time to time, either in the Authority’s name or otherwise, upon such terms and conditions and for such

C-19 use and period as the Authority may deem advisable, and to remove all persons in possession thereof and all personal property whatsoever situated upon the Facilities and to place such personal property in storage in any warehouse or other suitable place located in the City of Fresno, California, for the account of and at the expense of the City, and the City exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Facilities and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Facilities Sublease. The City agrees that the terms of the Facilities Sublease constitute full and sufficient notice of the right of the Authority to re-let the Facilities and to do all other acts to maintain or preserve the Facilities as the Authority deems necessary or desirable in the event of such re-entry without effecting a surrender of the Facilities Sublease, and further agrees that no acts of the Authority in effecting such re-letting shall constitute a surrender or termination of the Facilities Sublease irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate the Facilities Sublease shall vest in the Authority to be effected in the sole and exclusive manner provided for in sub-paragraph (1) hereof. The City further waives the right to any rental obtained by the Authority in excess of the rental specified in the Facilities Sublease and conveys and releases such excess to the Authority as compensation to the Authority for its services in re-letting the Facilities or any part thereof.

The City waives any and all claims for damages caused or which may be caused by the Authority in re-entering and taking possession of the Facilities as provided in the Facilities Sublease and all claims for damages that may result from the destruction of the Facilities and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Facilities.

If (1) the City’s interest in the Facilities Sublease or any part thereof is assigned or transferred, either voluntarily or by operation of law or otherwise, without the written consent of the Authority, as provided for in the Facilities Sublease, or (2) the City or any assignee will file any petition or institute any proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adjudicated a bankrupt, or is to be discharged from any or all of the City’s debts or obligations, or offers to the City’s creditors to effect a composition or extension of time to pay the City’s debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of the City’s debts, or for any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character be filed or be instituted or taken against the City, or if a receiver of the business or of the property or assets of the City shall be appointed by any court, except a receiver appointed at the instance or request of the Authority, or if the City shall make a general or any assignment for the benefit of the City’s creditors, or if (3) the City shall abandon or vacate the Facilities, then the City shall be deemed to be in default under the Facilities Sublease.

The Authority will in no event be in default in the performance of any of its obligations under the Facilities Sublease or imposed by any statute or rule of law unless and until the Authority will have failed to perform such obligations within 30 days or such additional time as is reasonably required to correct any such default after notice by the City to the Authority properly specifying wherein the Authority has failed to perform any such obligation. In the event of default by the Authority, the City will be entitled to pursue any remedy provided by law, but in

C-20 no event shall the City have the right to terminate the Facilities Sublease or be excused from performing its obligations under the Facilities Sublease.

In addition to the other remedies set forth in the Facilities Sublease, upon the occurrence of an event of default as described in the Facilities Sublease, the Authority will be entitled to proceed to protect and enforce the rights vested in the Authority by the Facilities Sublease or by law. The provisions of the Facilities Sublease and the duties of the City and of its trustees, officers or employees will be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority will have the right to bring the following actions:

(1) Accounting. An action or suit in equity to require the City and its trustees, officers and employees and its assigns to account as the trustee of an express trust.

(2) Injunction. An action or suit in equity to enjoin any acts or things which may be unlawful or in violation of the rights of the Authority.

(3) Mandamus. A mandamus or other suit, action or proceeding at law or in equity to enforce the Authority’s rights against the City (and its board, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided in the Facilities Sublease.

Excepting as otherwise provided in the Facilities Sublease, each and all of the remedies given to the Authority thereunder or by any law enacted are cumulative and the single or partial exercise of any right, power or privilege under the Facilities Sublease shall not impair the right of the Authority to other or further exercise thereof or the exercise of any or all other rights, powers or privileges. The Authority expressly waives the right to receive any amount from the City pursuant to section 1951.2(a)(3) of the California Civil Code. The term “re-let” or “re-letting” as used in this section shall include, but not be limited to, re-letting by means of the operation by the Authority of the Facilities. If any statute or rule of law validly shall limit the remedies given to the Authority under the Facilities Sublease, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law.

In the event the Authority will prevail in any action brought to enforce any of the terms and provisions of the Facilities Sublease, the City agrees to pay a reasonable amount as and for attorney’s fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority under the Facilities Sublease, whether or not a lawsuit has been filed and whether or not any lawsuit culminates in a judgment.

Limited Remedies for Restricted Properties

The Woodward Park Facilities leased in connection with the 2008 Series C/D Bonds are Restricted Facilities. Notwithstanding anything to the contrary in the Facilities Sublease, neither the Authority, the Trustee, nor the Owners of Bonds shall be permitted to use, maintain, operate, occupy, lease, hypothecate, encumber or sell any Facilities which are Restricted Properties. In the event of a default by the City, available remedies with respect to Restricted Properties will be limited to collection of each installment of base rental payments as such shall become due and such other remedies under the Facilities Sublease which are not inconsistent with the limitations of the preceding sentence.

C-21 FACILITIES LEASE

Facilities

The City leases to the Authority and the Authority hires from the City, on the terms and conditions set forth in the Facilities Lease, the real property and improvements thereon described in Exhibit A attached to the Facilities Lease and made a part thereof, as such real property descriptions may be amended or modified, including removal or substitution or addition of property in accordance with the Facilities Lease, the Facilities Sublease and the Trust Agreement, subject to Permitted Encumbrances (collectively, the “Facilities”).

Purpose

The Authority shall use the Facilities solely for the purpose of subleasing the Facilities to the City pursuant to the Facilities Sublease and for such purposes as may be incidental thereto; provided, that in the event the City defaults under the Facilities Sublease the Authority may exercise the remedies provided in the Facilities Sublease.

Assignments and Sublease

Unless the City shall be in default under the Facilities Sublease, the Authority may not assign its rights under the Facilities Lease (except to the Trustee pursuant to the Trust Agreement) or sublet the Facilities, without the written consent of the City.

Default

If the Authority defaults in the performance of any obligation under the terms of the Facilities Lease, and the default continues for 30 days following the City’s notice and demand for correction thereof to the Authority, the City may exercise any and all remedies granted by law, except that no merger of the Facilities Lease and of the Facilities Sublease shall be deemed to occur as a result thereof; provided, however, that the City shall have no power to terminate the Facilities Lease by reason of any default on the part of the Authority if such termination would affect or impair any assignment or sublease of all or any part of the Facilities then in effect between the Authority and any assignee or subtenant of the Authority (other than the City under the Facilities Sublease). So long as any such assignee or subtenant of the Authority shall duly perform the terms and conditions of the Facilities Lease and of its then existing sublease (if any), such assignee or subtenant shall be deemed to be and shall become the tenant of the City under the Facilities Lease and shall be entitled to all of the rights and privileges granted under any such assignment; provided, further, that so long as any Bonds are outstanding and unpaid in accordance with the terms thereof, the rentals or any part thereof payable to the Trustee shall continue to be paid to the Trustee.

TRUST AGREEMENT

The Trust Agreement provides for, among other things, the issuance, execution and delivery of the Bonds and sets forth the terms thereof, the creation of certain of the funds and accounts described herein, certain covenants of the Authority, defines events of default and remedies therefor, and sets forth the rights and responsibilities of the Trustee.

Certain provisions of the Trust Agreement setting forth the terms of the Series 2008E/F Bonds, the redemption provisions thereof and the use of the proceeds of the

C-22 Series 2008E/F Bonds are set forth elsewhere in this Official Statement. See “THE SERIES 2008E/F BONDS.”

Pledge of Revenues

All Revenues and any other amounts (including proceeds of the sale of the Bonds) held by the Trustee in the Revenue Fund are irrevocably pledged to the payment of the interest and premium, if any, on and principal of the Bonds as provided in the Trust Agreement, and the Revenues will not be used for any other purpose while any of the Bonds remain Outstanding; provided, however, that out of the Revenues and other moneys there may be applied in such sums and for such purposes as are permitted under the Trust Agreement including the replenishment of draws upon the Reserve Account. This pledge will constitute a pledge of and charge and lien upon the Revenues and all other moneys on deposit in the Revenue Fund for the payment of the interest on and principal of the Bonds in accordance with the terms of the Trust Agreement.

The Authority assigns to the Trustee all of its right, title and interest in the Facilities Lease and Facilities Sublease.

Creation of Funds and Accounts

To carry out and effectuate the pledge, assignment, charge and lien contained in the Trust Agreement, the Authority agrees and covenants as follows:

All Revenues are assigned by the Authority to the Trustee for the benefit of the Holders and will be deposited by the Trustee in the Revenue Fund, which fund the Authority agrees and covenants to maintain with the Trustee so long as any Bonds shall be Outstanding under the Trust Agreement. All Revenues will be accounted for through and held in trust in the Revenue Fund, and the Authority will have no beneficial right or interest in any of the Revenues except only as provided in the Trust Agreement. All Revenues, whether received by the Authority in trust or deposited with the Trustee as provided in the Trust Agreement, will nevertheless be allocated, applied and disbursed solely to the purposes and uses set forth in the Trust Agreement, and will be accounted for separately and apart from all other accounts, funds, money or other resources of the Authority.

Revenue Fund. All money in the Revenue Fund will be set aside by the Trustee in the following respective special accounts or funds within the Revenue Fund in the following order of priority:

(a) Interest Account. On or before each April 1 and October 1, commencing on October 1, 2008, the Trustee will set aside from the Revenue Fund and deposit in the Interest Account that amount of money which is equal to the amount of interest coming due and payable on all Outstanding Bonds on such April 1 or October 1, as the case may be. No deposit need be made if the amount contained therein is at least equal to the aggregate amount of interest coming due and payable on all Outstanding Bonds on such Interest Payment Date.

All money in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it will become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity).

C-23 (b) Principal Account. On or before each April 1, the Trustee will set aside from the Revenue Fund and deposit in the Principal Account an amount of money equal to the principal amount (including the payment of principal with respect to any mandatory redemption) of all Outstanding Bonds maturing on such April 1. No deposit need be made in the Principal Account if the amount contained therein is at least equal to the aggregate amount of the principal of all Outstanding Bonds maturing by their terms on such April 1.

All money in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Bonds, as they become due and payable, whether at maturity or redemption.

(c) Reserve Account. Subsequent to the transfers described in (a) and (b), funds in the Revenue Fund shall be deposited in the Reserve Account to the extent that the amount therein is less than the Reserve Account Requirement; provided, that if there has been a draw upon any Reserve Facility used to provide all or a portion of the Reserve Account Requirement, funds in the Revenue Fund subsequent to the transfers described in (a) and (b) shall be applied to reimburse the Reserve Facility Provider. All money in the Reserve Account will be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account or the Principal Account, in that order, in the event of any deficiency in either of such accounts, but solely for the purpose of paying the interest or principal of or redemption premiums, if any, on the Bonds or for the retirement of all the Bonds then Outstanding, except that so long as the Authority is not in default under the Trust Agreement, any cash amounts in the Reserve Account in excess of the Reserve Account Requirement will be withdrawn from the Reserve Account and deposited in the Revenue Fund on each April 1 and October 1. For purposes of determining the amount on deposit in the Reserve Account, the Trustee shall value on the last Business Day of each March and September those amounts invested in Permitted Investments at the market value thereof.

With the prior written consent of the Bond Insurer, the Authority may satisfy the Reserve Account Requirement at any time by the deposit with the Trustee for the credit of the Reserve Account of a surety bond, an insurance policy or letter of credit, or any combination thereof, meeting the requirements of the Trust Agreement. If the Reserve Fund Requirement is satisfied by a Reserve Facility, the Trustee shall draw on such Reserve Facility in accordance with its terms, in a timely manner, to the extent necessary to fund any deficiency in the related Interest Account or Principal Account.

Application of Insurance Proceeds

In the event of any damage to or destruction of any part of the Facilities covered by insurance, the Authority, except as provide in the Trust Agreement, will cause the proceeds of such insurance to be utilized for the repair, reconstruction or replacement of the damaged or destroyed portion of the Facilities, and the Trustee will hold said proceeds in a fund established by the Trustee for such purpose separate and apart from all other funds, to the end that such proceeds will be applied to the repair, reconstruction or replacement of the Facilities to at least the same good order, repair and condition as it was in prior to the damage or destruction, insofar as the same may be accomplished by the use of said proceeds. The Trustee will invest said proceeds in Permitted Investments pursuant to the Written Request of the City, as agent for the Authority under the Facilities Sublease, and withdrawals of said proceeds will be made from time to time upon the filing with the Trustee of a Written Request of the City, stating that the City has expended moneys or incurred liabilities in an amount equal to the amount therein stated for the purpose of the repair, reconstruction or replacement of the Facilities, and specifying the items for

C-24 which such moneys were expended, or such liabilities were incurred, in reasonable detail. The City will file a Written Request with the Trustee stating that sufficient funds from insurance proceeds or from any funds legally available to the City, or from any combination thereof, are available in the event it elects to repair, reconstruct or replace the Facilities. Each such Written Request shall be sufficient evidence to the Trustee of the facts stated therein and the Trustee shall have no duty to confirm the accuracy of such facts. Any balance of such proceeds not required for such repair, reconstruction or replacement and the proceeds of use and occupancy insurance will be paid to the Trustee as Base Rental Payments. Alternatively, the City, at its option, if the proceeds of such insurance together with any other moneys then available for such purpose are sufficient to prepay all, in case of damage or destruction in whole of the Facilities, or that portion, in the case of partial damage or destruction of the Facilities, of the Base Rental Payments and all other amounts relating to the damaged or destroyed portion of the Facilities, may elect not to repair, reconstruct or replace the damaged or destroyed portion of the Facilities and thereupon will cause said proceeds to be used for the redemption of Outstanding Bonds pursuant to the applicable provisions of the Trust Agreement and the corresponding provisions of any Supplemental Trust Agreement. The City will not apply the proceeds of insurance as set forth in the Trust Agreement to redeem the Bonds in part due to damage or destruction of a portion of the Facilities unless the Trustee receives a Certificate of the Authority that the Base Rental Payments on the undamaged portion of the Facilities will be sufficient to pay the initially-scheduled principal and interest on the Bonds remaining unpaid after such redemption.

Investments

All money held by the Trustee in any of the accounts or funds established pursuant to the Trust Agreement shall be invested in Permitted Investments at the Written Request of the Authority. In the absence of a Written Request of investment instructions of the Authority the Trustee is directed to invest available funds in Permitted Investments described in paragraph (7) of the definition thereof. Investments (except investment agreements or repurchase agreements) in Trust Agreement funds and accounts shall be valued at the market value thereof, exclusive of accrued interest. Investments purchased with funds on deposit in the Revenue Fund shall mature not later than the payment date or redemption date, as appropriate, immediately succeeding the investment. Investments purchased with funds on deposit in the Acquisition and Construction Fund shall mature not later than the dates upon which such funds shall need to be expended for such construction (or shall be invested in repurchase agreements or investment agreements described in the definition of Permitted Investments). Investments (except investment agreements or repurchase agreements) purchased with funds on deposit in the Reserve Account shall have a term to maturity not greater than five years. Subject to the Trust Agreement, all interest or profits in any fund or account (other than the Rebate Fund) (i) prior to completion of the Projects shall be deposited in the Acquisition and Construction Fund, and (ii) subsequent to the completion of the Projects shall be deposited first in the Reserve Account, to the extent necessary to make amounts on deposit in the Reserve Account equal to the Reserve Account Requirement, and then in the Revenue Fund. The Trustee shall not be liable for any losses on such investments.

Additional Bonds

The Authority may, with the prior written consent of the Bond Insurer, at any time issue Additional Bonds pursuant to a Supplemental Trust Agreement, payable from the Revenues as provided in the Trust Agreement and secured by a pledge of and charge and lien upon the Revenues as provided in the Trust Agreement equal to the pledge, charge and lien securing the Outstanding Bonds theretofore issued under the Trust Agreement, but only subject to

C-25 the following specific conditions, which are made conditions precedent to the issuance of any such Additional Bonds:

(a) The Authority will be in compliance with all agreements and covenants contained in the Trust Agreement and no Event of Default shall have occurred and be continuing.

(b) The Supplemental Trust Agreement will require that the proceeds of the sale of such Additional Bonds will be applied to finance or refinance the Projects, or for the refunding and repayment of any Bonds then Outstanding, including the payment of costs and expenses of and incident to the authorization and sale of such Additional Bonds. The Supplemental Trust Agreement may also provide that a portion of such proceeds shall be applied to the payment of the interest due or to become due on said Additional Bonds during the estimated period of any construction and for a period of not to exceed twelve months thereafter.

(c) The Supplemental Trust Agreement will provide, if necessary, that from such proceeds or other sources an amount shall be deposited in the Reserve Account so that following such deposit there shall be on deposit in the Reserve Account an amount at least equal to the Reserve Fund Account Requirement.

(d) The aggregate principal amount of Bonds issued and at any time Outstanding under the Trust Agreement will not exceed any limit imposed by law, by the Trust Agreement or by any Supplemental Trust Agreement.

(e) The Facilities Sublease will have been amended, if necessary, so that the Base Rental Payments payable by the City thereunder in each Fiscal Year will at least equal Debt Service, including Debt Service on the Additional Bonds, in each Fiscal Year.

(f) If the additional facilities, if any, to be leased are not situated on property described in the Facilities Lease, the Facilities Lease will have been amended so as to lease to the Authority such additional property.

Limitations on the Issuance of Obligations Payable from Revenues

The Authority will not, so long as any of the Bonds are Outstanding, issue any obligations or securities, however denominated, payable in whole or in part from Revenues except the following:

(a) Bonds of any Series authorized pursuant to the Trust Agreement; or

(b) Obligations to a Reserve Facility Provider which are junior and subordinate to the payment of the principal, premium and interest on the Bonds; or

(c) Obligations which are junior and subordinate to the payment of the principal, premium, interest and reserve fund requirements for the Bonds and which subordinated obligations are payable as to principal, premium, interest and reserve fund requirements, if any, only out of Revenues after the prior payment of all amounts then required to be paid under the Trust Agreement from Revenues for principal, premium, interest and reserve fund requirements for the Bonds, as the same become due and payable and at the times and in the manner as required in the Trust Agreement..

C-26 Covenants of Authority

The Authority covenants it will not make any pledge of or place any charge or lien upon the Revenues except as provided in the Trust Agreement, and will not issue any bonds, notes or obligations payable from the Revenues or secured by a pledge of or charge or lien upon the Revenues except as provided in the Trust Agreement.

The Authority will keep or cause to be kept proper books of record and accounts in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocation and application of the Revenues, and such books shall be available for inspection by the Trustee, at reasonable hours and under reasonable conditions. The Authority shall also keep or cause to be kept such other information as required under the Tax Certificate. The Trustee shall have no duty to review or examine such books or statements.

Whenever and so often as reasonably requested to do so by the Trustee or any Holder, the Authority will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments, and promptly do or cause to be done all such other and further things as may be necessary or reasonably required to further and more fully vest in the Holders all rights, interests, powers, benefits, privileges and advantages conferred or intended to be conferred upon them by the Trust Agreement.

Tax Covenants

The Authority covenants that it shall not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of the interest payable on the Tax-Exempt Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the Authority covenants that it will comply with the requirements of the Tax Certificate. This covenant shall survive payment in full or defeasance of the Tax-Exempt Bonds.

Defaults and Remedies

Events of Default. Events which constitute an “Event of Default” under the Trust Agreement include:

(a) a default made by the Authority in the due and punctual payment of the interest on any Bond when and as the same becomes due and payable;

(b) a default made by the Authority in the due and punctual payment of the principal of or redemption premium, if any, on any Bond when and as the same becomes due and payable, whether at maturity as therein expressed or by proceedings for redemption;

(c) a default made by the Authority in the performance of any of the other agreements or covenants required in the Trust Agreement to be performed by the Authority, and such default continues for a period of 30 days after the Authority has been given notice in writing of such default by the Trustee;

(d) if the Authority files a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction approves a petition filed with or without the consent of the Authority seeking arrangement or reorganization under the

C-27 federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction assumes custody or control of the Authority or of the whole or any substantial part of its property; or

(e) if an Event of Default has occurred under the Facilities Sublease.

Acceleration of Bonds. In each and every case during the continuance of an Event of Default the Trustee may, and upon the written request of the Holders of not less than 51% in aggregate principal amount of the Bonds then Outstanding shall, by notice in writing to the Authority, declare the principal of all Bonds then Outstanding and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same will become due and payable, anything contained in the Trust Agreement or in the Bonds to the contrary notwithstanding. The Trustee will promptly notify all Holders of any such event of default which is continuing.

This provision, however, is subject to the condition that if at any time after the principal of the Bonds then Outstanding will have been so declared due and payable and before any judgment or decree for the payment of the money due will have been obtained or entered the Authority will deposit with the Trustee a sum sufficient to pay all matured interest on all the Bonds and all principal of the Bonds matured prior to such declaration, with interest at the rate borne by such Bonds on such overdue interest and principal, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of interest on and principal of the Bonds due and payable solely by reason of such declaration) will have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate will have been made therefor, then and in every such case the Holders of not less than 51% in aggregate principal of Bonds then Outstanding, by written notice to the Authority and to the Trustee, may on behalf of the Holders of all the Bonds then Outstanding rescind and annul such declaration and its consequences; but no such rescission and annulment will extend to or will affect any subsequent default or will impair or exhaust any right or power consequent thereon.

Anything in the Trust Agreement to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default as defined in the Trust Agreement, the Series 2008E/F Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Holders of the Series 2008E/F Bonds or the Trustee for the benefit of the Holders of the Series 2008E/F Bonds under the Trust Agreement, including, without limitation, (i) the right to accelerate the principal of the Series 2008E/F Bonds as described in the Trust Agreement and (ii) the right to annul any declaration of acceleration. The Series 2008E/F Bond Insurer also shall be entitled to approve all waivers of Events of Default with respect to the Series 2008E/F Bonds.

Application of Funds Upon Acceleration. All moneys in the accounts and funds established with respect to the Bonds held pursuant to the Trust Agreement upon the date of the declaration of acceleration by the Trustee as provided in the Trust Agreement and all Revenues (other than Revenues on deposit in the Rebate Fund) thereafter received by the Authority under the Trust Agreement will be transmitted to the Trustee and will be applied by the Trustee in the following order--

C-28 First, to the payment of fees and expenses of the Trustee (including fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Trust Agreement;

Second, upon presentation of the Bonds, and the stamping thereon of the amount of the payment if only partially paid or upon the surrender thereof if fully paid, to the payment of the whole amount then owing and unpaid upon the Bonds for interest and principal, with (to the extent permitted by law) interest on the overdue interest and principal at the rate borne by such Bonds, and in case such money will be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such interest, principal and (to the extent permitted by law) interest on overdue interest and principal without preference or priority among such interest, principal and interest on overdue interest and principal ratably to the aggregate of such interest, principal and interest on overdue interest and principal; and

Third, to the payment of amounts due to the Bond Insurer not caused by First and Second above.

Limitation on Holders’ Right to Sue. No Holder of any Bond issued under the Trust Agreement will have the right to institute any suit, action or proceeding at law or equity, for any remedy under or upon the Trust Agreement, unless (a) such Holder will have previously given to the Trustee written notice of the occurrence of an event of default as defined in the Trust Agreement; (b) the Holders of at least a majority in aggregate principal amount of the applicable Series of Bonds then Outstanding will have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (c) said Holders will have tendered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee will have refused or omitted to comply with such request for a period of 60 days after such request will have been received by, and said tender of indemnity will have been made to, the Trustee.

Amendment of Documents

Trust Agreement. The Trust Agreement and the rights and obligations of the Authority and of the Holders may be amended at any time by a Supplemental Trust Agreement which will become binding when the written consents of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Trust Agreement, are filed with the Trustee. No such amendment will (1) extend the maturity of or reduce the interest rate on or amount of interest on or principal of or redemption premium, if any, on any Bond without the express written consent of the Holder of such Bond, or (2) permit the creation by the Authority of any pledge of or charge or lien upon the Revenues as provided in the Trust Agreement superior to or on a parity with the pledge, charge and lien created by the Trust Agreement for the benefit of the Bonds, or (3) reduce the percentage of Bonds required for the written consent to any such amendment, or (4) modify any rights or obligations of the Trustee, the Authority, or the City without their prior written assent thereto, respectively.

The Trust Agreement and the rights and obligations of the Authority and of the Holders may also be amended at any time by a Supplemental Trust Agreement which will become binding upon execution and delivery without the consent of any Holders, and only to the extent permitted by law and after receipt of an approving Opinion of Counsel, for any purpose that will not materially adversely affect the interests of the Holders, including (without limitation) for any one or more of the following purposes --

C-29 (a) to add to the agreements and covenants required in the Trust Agreement to be performed by the Authority other agreements and covenants thereafter to be performed by the Authority, or to surrender any right or power reserved in the Trust Agreement to or conferred in the Trust Agreement on the Authority;

(b) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained in the Trust Agreement or in regard to questions arising under the Trust Agreement which the Authority may deem desirable or necessary and not inconsistent therewith;

(c) to provide for the issuance of any Additional Bonds and to provide the terms of such Additional Bonds, subject to the conditions and upon compliance with the procedure set forth in the Trust Agreement (which will be deemed not to adversely affect Holders); or

(d) to add to the agreements and covenants required in the Trust Agreement, such agreements and covenants as may be necessary to qualify the Trust Agreement under the Trust Indenture Act of 1939.

Facilities Lease and Facilities Sublease. The Authority, the Trustee and the City may at any time amend or modify the Facilities Lease or the Facilities Sublease in accordance with their respective terms, but only if (a) except as provided in clause (b) of this sentence, the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding to such amendment or modification, or (b) such amendment or modification is for any one or more of the following purposes, in which case the consent of the Bond Owners shall not be required:

(a) to add to the covenants and agreements of the City contained in the Facilities Lease or the Facilities Sublease, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the City; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provisions contained in the Facilities Lease or the Facilities Sublease or in any other respect whatsoever as the City may deem necessary or desirable, provided that such modifications or amendments shall not materially adversely affect the interests of the Bondholders; or

(c) to amend any provision of the Facilities Lease or the Facilities Sublease relating to the Code, but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on the Bonds, in the opinion of Bond Counsel; or

(d) to amend the Facilities Lease or the Facilities Sublease in connection with any addition, substitution or withdrawal of Facilities in accordance with the Facilities Lease and the Facilities Sublease, including any amendment of the Facilities Lease or the Facilities Sublease in connection with the issuance of Additional Bonds under the Trust Agreement; or

(e) to amend any provision agreed to by the Authority and the Trustee, so long as such amendment does not materially adversely affect the interests of the Bondholders.

C-30 Discharge of Trust Agreement

If the Authority will pay or cause to be paid or there will otherwise be paid to the Holders of all Outstanding Bonds the interest thereon and principal thereof and redemption premiums, if any, thereon at the times and in the manner stipulated in the Trust Agreement and in the Bonds, and all amounts due and owing to the Trustee have been paid in full, then the Holders of such Bonds will cease to be entitled to the pledge of and charge and lien upon the Revenues as provided in the Trust Agreement, and all agreements, covenants and other obligations of the Authority to the Holders of such Bonds under the Trust Agreement will thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee will execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, the Trustee will pay over or deliver to the Authority all money or securities held by it pursuant to the Trust Agreement which are not required for the payment of the interest on and principal of and redemption premiums, if any, on such Bonds.

Any Outstanding Bond or Bonds will prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in the Trust Agreement (1) in case any of such Bond or Bonds are to be redeemed on any date prior to their maturity date, the Authority will have given to the Trustee in form satisfactory to it irrevocable instructions to provide notice in accordance with the Trust Agreement or in the corresponding section of a Supplemental Trust Agreement, (2) there will have been deposited with the Trustee either (A) money in an amount which will be sufficient or (B) Government Securities which are not subject to redemption prior to maturity (including any such Government Securities issued or held in book-entry form on the books of the Treasury of the United States of America), the interest on and principal of which when paid will provide money which, together with the money, if any, deposited with the Trustee at the same time, shall be sufficient, in the opinion of an Independent Certified Public Accountant, to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and redemption premiums, if any, on such Bonds, and (3) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the Authority will have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Holders of such Bonds that the deposit required by clause (2) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with the Trust Agreement and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and redemption premiums, if any, on such Bonds.

The Trustee

The Bank of New York Mellon Trust Company, N.A. will serve as the initial Trustee for the Bonds for the purpose of receiving all money which the Authority is required to deposit with the Trustee under the Trust Agreement and for the purpose of allocating, applying and using such money as provided in the Trust Agreement and for the purpose of paying the interest on and principal of and redemption premiums, if any, on the Bonds presented for payment in Los Angeles, California, or such other place as designated by the Trustee with the rights and obligations provided in the Trust Agreement. The Authority agrees that it will at all times maintain a Trustee having a principal office in San Francisco or Los Angeles, California.

The Authority may at any time, unless there exists any Event of Default as defined in the Trust Agreement, remove the Trustee initially appointed and any successor thereto and may appoint a successor or successors thereto by an instrument in writing; provided, that any

C-31 such successor shall be a bank, banking corporation or trust company, having a combined capital (exclusive of borrowed capital) and surplus of at least $100,000,000 and subject to supervision or examination by federal or state authority. If such bank, banking corporation or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of the Trust Agreement the combined capital and surplus of such bank, banking corporation or trust company will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee may at any time resign by giving written notice of such resignation to the Authority and by mailing by first class mail to the Holders notice of such resignation. Upon receiving such notice of resignation, the Authority will promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of a Trustee and appointment of a successor Trustee will become effective only upon the acceptance of appointment by the successor Trustee. If, within 30 days after notice of the removal or resignation of the Trustee no successor Trustee will have been appointed and will have accepted such appointment, the removed or resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee, which court may thereupon, after such notice, if any, as it may deem proper and prescribe and as may be required by law, appoint a successor Trustee having the qualifications required by the Trust Agreement.

Bond Insurance

Payment Procedure Under the Policy.

1. At least two (2) Business Days prior to each payment date on the Series 2008E/F Bonds, the Trustee will determine whether there will be sufficient funds to pay all principal of and interest on the Series 2008E/F Bonds due on the related payment date and shall immediately notify the Series 2008E/F Bond Insurer or its designee on the same Business Day by telephone or electronic mail, confirmed in writing by registered or certified mail, of the amount of any deficiency. Such notice shall specify the amount of the anticipated deficiency, the Series 2008E/F Bonds to which such deficiency is applicable and whether such Series 2008E/F Bonds will be deficient as to principal or interest or both. If the deficiency is made up in whole or in part prior to or on the payment date, the Trustee shall so notify the Series 2008E/F Bond Insurer or its designee.

2. The Trustee shall, after giving notice to the Series 2008E/F Bond Insurer as provided above, make available to the Series 2008E/F Bond Insurer and, at the Series 2008E/F Bond Insurer’s direction, to any fiscal agent appointed by the Series 2008E/F Bond Insurer, the registration books of the Trustee and all records relating to the funds maintained under the Trust Agreement.

3. The Trustee shall provide the Series 2008E/F Bond Insurer and any fiscal agent appointed by the Series 2008E/F Bond Insurer with a list of registered owners of Series 2008E/F Bonds entitled to receive principal or interest payments from the Series 2008E/F Bond Insurer under the terms of the Series 2008E/F Bond Insurance Policy, and shall make arrangements with the Series 2008E/F Bond Insurer, such fiscal agent or another designee of the Series 2008E/F Bond Insurer to (i) mail checks or drafts to the registered owners of Series 2008E/F Bonds entitled to receive full or partial interest payments from the Series 2008E/F Bond Insurer and (ii) pay principal upon Series 2008E/F Bonds surrendered to the Series 2008E/F Bond Insurer, such fiscal agent or another designee of the Series 2008E/F Bond Insurer by the registered owners of Series 2008E/F Bonds entitled to receive full or partial principal payments from the Series 2008E/F Bond Insurer.

C-32 4. The Trustee shall, at the time it provides notice to the Series 2008E/F Bond Insurer of any deficiency pursuant to paragraph 1 above, notify registered owners of Series 2008E/F Bonds entitled to receive the payment of principal or interest thereon from the Series 2008E/F Bond Insurer (i) as to such deficiency and its entitlement to receive principal or interest, as applicable, (ii) that the Series 2008E/F Bond Insurer will remit to them all or a part of the interest payments due on the related payment date upon proof of its entitlement thereto and delivery to the Series 2008E/F Bond Insurer or any fiscal agent appointed by the Series 2008E/F Bond Insurer, in form satisfactory to the Series 2008E/F Bond Insurer, of an appropriate assignment of the registered owner’s right to payment, (iii) that, if they are entitled to receive partial payment of principal from the Series 2008E/F Bond Insurer, they must surrender the related Series 2008E/F Bonds for payment first to the Trustee, which will note on such Series 2008E/F Bonds the portion of the principal paid by the Trustee and second to the Series 2008E/F Bond Insurer or its designee, together with an appropriate assignment, in form satisfactory to the Series 2008E/F Bond Insurer, to permit ownership of such Series 2008E/F Bonds to be registered in the name of the Series 2008E/F Bond Insurer, which will then pay the unpaid portion of principal, and (iv) that, if they are entitled to receive full payment of principal from the Series 2008E/F Bond Insurer, they must surrender the related Series 2008E/F Bonds for payment to the Series 2008E/F Bond Insurer or its designee, rather than the Trustee, together with the an appropriate assignment, in form satisfactory to the Series 2008E/F Bond Insurer, to permit ownership of such Series 2008E/F Bonds to be registered in the name of the Series 2008E/F Bond Insurer.

5. In addition, if the Trustee has notice that any holder of the Series 2008E/F Bonds has been required to disgorge payments of principal or interest on the Series 2008E/F Bonds previously Due for Payment (as such term is defined in the Series 2008E/F Bond Insurance Policy) pursuant to a final non-appealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such holder within the meaning of any applicable bankruptcy laws, then the Trustee shall notify the Series 2008E/F Bond Insurer or its designee of such fact by telephone or electronic notice, confirmed in writing by registered or certified mail.

6. The Series 2008E/F Bond Insurer shall be entitled to pay principal of or interest on the Series 2008E/F Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment (as such terms are defined in the Series 2008E/F Bond Insurance Policy) and any amounts due on the Series 2008E/F Bonds as a result of acceleration of the maturity thereof in accordance with the Trust Agreement, whether or not the Series 2008E/F Bond Insurer has received a Notice (as defined in the Series 2008E/F Bond Insurance Policy) of Nonpayment or a claim upon the Series 2008E/F Bond Insurance Policy.

7. In addition, the Series 2008E/F Bond Insurer shall, to the extent it makes any payment of principal or interest on the Series 2008E/F Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Series 2008E/F Bond Insurance Policy, and to evidence such subrogation (i) in the case of claims for interest, the Trustee shall note the Series 2008E/F Bond Insurer’s rights as subrogee on the registration books of the Trustee, upon receipt of proof of payment of interest thereon to the registered holders of the Series 2008E/F Bonds, and (ii) in the case of claims for principal, the Trustee, if any, shall note the Series 2008E/F Bond Insurer’s rights as subrogee on the registration books of the Trustee, upon surrender of the Series 2008E/F Bonds together with receipt of proof of payment of principal thereof.

C-33 Control Rights. The Series 2008E/F Bond Insurer shall be deemed to be the Holder of all of the Series 2008E/F Bonds for purposes of (a) exercising all remedies and directing the Trustee to take actions or for any other purposes following an Event of Default under the Facilities Sublease and the Trust Agreement, and (b) granting any consent, direction or approval or taking any action permitted by or required under the Facilities Sublease and the Trust Agreement to be granted or taken by the Holders of the Series 2008E/F Bonds. Without the prior written consent of the Series 2008E/F Bond Insurer, no Series 2008E/F Bonds insured by the Series 2008E/F Bond Insurer shall be purchased by the Authority or the City, in lieu of redemption, unless such Series 2008E/F Bonds are redeemed, defeased or cancelled.

Series 2008E/F Bond Insurer as Owner of Series 2008E/F Bonds. The Series 2008E/F Bond Insurer shall be deemed to be the sole Owner of the Series 2008E/F Bonds insured by it for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the Owners of the Series 2008E/F Bonds insured by it are entitled to take pursuant to the Trust Agreement, Facilities Sublease and the Continuing Disclosure Certificate.

Additional Requirements and Covenants Required by Bond Insurer. The Trust Agreement and Facilities Sublease contain a number of additional requirements, including additional covenants, applicable so long as the Bond Insurance Policy is in full force and effect, which the Bond Insurer required as a condition to the issuance of the Bond Insurance Policy. These provisions impose additional requirements on the Authority which are more restrictive than the requirements and covenants set forth in the Trust Agreement and Facilities Sublease and described herein. Each of such requirements and covenants may be waived or modified by the Bond Insurer in its sole discretion and are not summarized in this Official Statement.

C-34 APPENDIX D

PROPOSED FORM OF OPINION OF BOND COUNSEL

[closing date]

Fresno Joint Powers Financing Authority Fresno, California

Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008E and Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable) (Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the Fresno Joint Powers Financing Authority (the “Authority”) in connection with the issuance by the Authority of $3,405,000 aggregate principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008E (the “Series 2008E Bonds”) and $21,410,000 aggregate principal amount of Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable) (the “Series 2008F Bonds” and collectively with the Series 2008E Bonds, the “Bonds”), issued pursuant to a master trust agreement, dated as of April 1, 2008, as supplemented and amended by a First Supplemental Trust Agreement, dated as of May 1, 2008 and as further supplemented and amended by a Second Supplemental Trust Agreement, dated as of August 1, 2008 (collectively, the “Trust Agreement”), between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Trust Agreement.

In such connection, we have reviewed a Master Facilities Lease, dated as of April 1, 2008, as amended by a First Amendment to Master Facilities Lease, dated as of May 1, 2008 and as further amended by a Second Amendment to Master Facilities Lease, dated as of August 1, 2008 (collectively, the “Facilities Lease”), between the City of Fresno, as lessor (the “City”), and the Authority, as lessee; a Master Facilities Sublease, dated as of April 1, 2008, as amended by a First Amendment to Master Facilities Sublease, dated as of May 1, 2008 and as further amended by a Second Amendment to Master Facilities Sublease, dated as of August 1, 2008 (collectively, the “Facilities Sublease”), between the Authority, as lessor, and the City, as lessee; the Trust Agreement; the Tax Certificate of the Authority, dated the date hereof (the “Tax Certificate”); opinions of counsel to the Authority, the City and the Trustee; certificates of the Authority, the City, the Trustee and others; and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

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The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Facilities Lease, the Facilities Sublease, the Trust Agreement and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Series 2008E Bonds to be included in gross income for federal income tax purposes.

We call attention to the fact that the rights and obligations under the Bonds, the Facilities Lease, the Facilities Sublease, the Trust Agreement and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against joint powers authorities and cities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Facilities Lease, the Facilities Sublease or the Trust Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding limited obligations of the Authority.

2. The Trust Agreement has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. The Trust Agreement creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Revenues and any other amounts held by the Trustee in the Revenue Fund established pursuant to the Trust Agreement, subject to the provisions of the Trust Agreement permitting the application thereof for the purposes and on the terms and conditions set forth in the Trust Agreement.

3. The Facilities Lease and the Facilities Sublease have been duly executed and delivered by, and constitute the valid and binding obligations of, the City and the Authority.

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4. The Bonds are not a lien or charge upon the funds or property of the Authority except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing powers of the City, the State of California or of any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds.

5. Interest on the Series 2008E Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and interest on the Bonds is exempt from State of California personal income taxes. Interest on the Series 2008E Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Series 2008F Bonds is not excluded from gross income for federal income tax purposes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

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APPENDIX E

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Fresno, a municipal corporation and chartered city duly organized and validly existing under the Constitution and the laws of the State of California (the “City”) on behalf of the Fresno Joint Powers Financing Authority (the “Authority”) in connection with the issuance of $3,405,000 Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008E (the “Series 2008E Bonds”) and $21,410,000 Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable) (the “Series 2008F Bonds” and together with the Series 2008E Bonds, the “Series 2008E/F Bonds”). The Series 2008E/F Bonds are being issued pursuant to a Trust Agreement dated as of August 1, 2008 (the “Trust Agreement”) between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Series 2008E/F Bonds are secured by and payable from a pledge, charge and lien upon, certain rental payments received by the Authority from the City (the “Base Rental Payments”) pursuant to a Master Facilities Sublease, dated as of August 1, 2008 (the “Master Sublease”), as amended and supplemented by the Second Amendment to Master Facilities Sublease dated as of August 1, 2008, by and between the Authority and the City. The City covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders of the Series 2008E/F Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2008E/F Bonds (including persons holding Series 2008E/F Bonds through nominees, depositories or other intermediaries).

“Central Post Office” shall mean shall mean the Disclosure USA website maintained by the Texas Municipal Advisory Council (the “MAC”) or any successor thereto, or any other organization or method approved by the staff or members of the Securities and Exchange Commission as an intermediary through which issuers may, in compliance with the Rule, make filings required by this Disclosure Certificate.

“Disclosure Representative” shall mean the Controller of the City or her or his designee, or such other officer or employee as the City shall designate in writing to the Dissemination Agent from time to time.

“Dissemination Agent” shall mean MuniFinancial, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City.

“Holders” shall mean either the registered owners of the Series 2008E/F Bonds, or, if the Series 2008E/F Bonds are registered in the name of Depository Trust Company or another recognized depository, any applicable participant in its depository system.

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“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

“National Repository” shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. A list of the current National Repositories approved by the Securities and Exchange Commission (the “S.E.C.”) may be found at the S.E.C. website:

http://www.sec.gov/info/municipal/nrmsir.htm.

“Participating Underwriter” shall mean E. J. De La Rosa & Co., Inc., as the original underwriter of the Series 2008E/F Bonds, which is required to comply with the Rule in connection with offering of the Series 2008E/F Bonds.

“Repository” shall mean each National Repository and each State Repository.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“State Repository” shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than the March 31 of each year following the end of the City’s Fiscal Year (which currently is June 30), commencing with the report due March 31, 2009, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to said date, the City shall provide the Annual Report to the Dissemination Agent. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. The Dissemination Agent shall have no duty or obligation to review such Annual Report.

(b) If by 15 Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such failure to receive the Annual Report.

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository in substantially the form attached as Exhibit A.

(d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and

(ii) provided it has received the Annual Report from the City pursuant to Section 3(a), file the Annual Report with each Repository by the date required therefore by Section 3(a), and file any notice of a Listed Event, if requested by the City, as soon as practicable following receipt from the City of such notice; and

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(iii) provided it has received the Annual Report from the City pursuant to Section 3(a), file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

(e) Notwithstanding any other provision of this Disclosure Certificate, the City and the Dissemination Agent, if any, may make any filing required under this Disclosure Certificate solely by transmitting such filing to the Central Post Office as provided at http://www.disclosureusa.org unless the SEC has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004.

SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following:

(a) The audited financial statements of the City, presented in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time. If the audited financial statements of the City are not available by the time the Annual Report is required to be filed as described above, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) A maturity schedule for the outstanding Series 2008E/F Bonds.

(c) The balance in each of the following funds established pursuant to the Trust Agreement as of the close of the prior Fiscal Year:

(i) the Acquisition and Construction Fund; and

(ii) the Reserve Account (with a statement of the current Reserve Account Requirement).

(d) A statement of the principal amount of Series 2008E/F Bonds redeemed in the prior fiscal year, provided however, that no such statement in the Annual Report shall be required if the information which would be included therein has been provided in accordance with Section 5 hereof.

(e) An identification of any real property substituted for a Facility under a Master Sublease.

(f) The adopted budget of the City for the then current Fiscal Year.

(g) Information updating Table 5 through Table 10, Table 22, Table 23 and Table A-8 to the Official Statement.

(h) A description of any event of default under the Trust Agreement.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference.

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SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2008E/F Bonds, if material:

(i) principal and interest payment delinquencies.

(ii) non-payment related defaults.

(iii) modifications to rights of Bondholders.

(iv) Bond calls.

(v) defeasances.

(vi) rating changes.

(vii) adverse tax opinions or events adversely affecting the tax-exempt status of the Series 2008E/F Bonds.

(viii) unscheduled draws on the Reserve Fund reflecting financial difficulties.

(ix) unscheduled draws on the credit enhancements reflecting financial difficulties.

(x) substitution of the credit or liquidity providers or their failure to perform.

(xi) initiation of bankruptcy proceedings by the City.

(xii) release, substitution or sale of any property subject to a Master Lease, the Base Rental Payments of which secure repayment of the Series 2008E/F Bonds.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable federal securities laws; provided that any event under subsection (a)(vi) will always be deemed material. The Dissemination Agent shall have no duty or obligation to determine the materiality thereof.

(c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the City shall promptly file or cause the Dissemination Agent to file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository, if any. Notwithstanding the foregoing, notice of, a Listed Event described in subsections (a)(iv) and (a)(v) need not be given under this subsection if notice of the underlying event is given to Holders of affected Series 2008E/F Bonds pursuant to the Trust Agreement.

SECTION 6. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Series 2008E/F Bonds.

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SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign at any time upon delivery of written notice thereof to the City at least 30 days prior to the effective date of such resignation. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The Initial Dissemination Agent is MuniFinancial.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied with respect to such amendment or waiver:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or a change in the nature, identity or status of an obligated person with respect to the Series 2008E/F Bonds or the type of business conducted by such person;

(b) The undertaking in this Disclosure Certificate, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Series 2008E/F Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Holders of the Series 2008E/F Bonds in the same manner as provided in the Trust Agreement for amendments to such Trust Agreement with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Series 2008E/F Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information being presented by the City.

SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Holder or Beneficial Owner of the Series 2008E/F Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

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SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Series 2008E/F Bonds, and shall create no rights in any other person or entity.

Date: August 14, 2008

CITY OF FRESNO

By:______Interim Treasurer and Controller

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Fresno Joint Powers Financing Authority

Name of Bond Issue: Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008E

Fresno Joint Powers Financing Authority Lease Revenue Bonds (Master Lease Projects), Series 2008F (Federally Taxable)

Date of Issuance: August 14, 2008

NOTICE IS HEREBY GIVEN that the City of Fresno (the “City”) has not provided an Annual Report with respect to the above-named Bonds as required by the Disclosure Certificate executed in connection with the issuance of the Series 2008E/F Bonds and Section 8.08 of the Master Sublease dated as of August 1, 2008 between the City and the Fresno Joint Powers Financing Authority. The City anticipates that the Annual Report will be filed by ______.

Dated:______

MUNIFINANCIAL, as Dissemination Agent

By:______Authorized Officer cc: City of Fresno

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APPENDIX F

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The information in this Appendix F concerning The Depository Trust Company, New York, New York (“DTC”) and DTC’s book-entry system has been obtained from DTC and the Authority takes no responsibility for the completeness or accuracy thereof. The Authority cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Series 2008E/F Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Series 2008E/F Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 2008E/F Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2008E/F Bonds. The Series 2008E/F Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2008E/F Bond certificate will be issued for each maturity of the Series 2008E/F Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTTC is owned by users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of the Series 2008E/F Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2008E/F Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2008E/F Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2008E/F Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners F-1

will not receive certificates representing their ownership interests in the Series 2008E/F Bonds, except in the event that use of the book-entry system for the Series 2008E/F Bonds is discontinued.

To facilitate subsequent transfers, all Series 2008E/F Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series 2008E/F Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2008E/F Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2008E/F Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2008E/F Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2008E/F Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Trust Agreement. For example, Beneficial Owners of the Series 2008E/F Bonds may wish to ascertain that the nominee holding the Series 2008E/F Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC, if less than all of the Series 2008E/F Bonds within a maturity are being redeemed. DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in each issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2008E/F Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2008E/F Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal of, premium, if any, and interest on the Series 2008E/F Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest on the Series 2008E/F Bonds to Cede (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

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DTC may discontinue providing its services as depository with respect to the Series 2008E/F Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2008E/F Bond certificates are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2008E/F Bond certificates will be printed and delivered.

The foregoing information concerning DTC concerning and DTC’s book-entry system has been provided by DTC, and neither the Authority nor the Trustee take any responsibility for the accuracy thereof.

NEITHER THE AUTHORITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF SERIES 2008E/F BONDS FOR REDEMPTION.

Neither the Authority nor the Trustee can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal of, premium, if any, and interest on the Series 2008E/F Bonds paid to DTC or its nominee, as the registered Owner, or any redemption or other notice, to the Beneficial Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement.

In the event that the book-entry system is discontinued as described above, the requirements of the Trust Agreement will apply.

The Authority and the Trustee cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium, if any, evidenced by the Series 2008E/F Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the Authority nor the Trustee are responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Series 2008E/F Bonds or an error or delay relating thereto.

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APPENDIX G

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

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(This Page Intentionally Left Blank) Assured Guaranty Corp. 1325 Avenue of the Americas New York, NY 10019 t. 212.974.0100 www.assuredguaranty.com

Financial Guaranty Insurance Policy

Issuer: Policy No.:

Obligations: Premium:

Effective Date:

Assured Guaranty Corp., a Maryland corporation (“AAssured Guaranty”), in consideration of the payment of the Premium and on the terms and subject to the conditions of this Policy (which includes each endorsement hereto), hereby unconditionally and irrevocably agrees to pay to the trustee (the “TTrustee”) or the paying agent (the “PPaying Agent”) for the Obligations (as set forth in the documentation providing for the issuance of and securing the Obligations) for the benefit of the Holders, that portion of the Insured Payments which shall become Due for Payment but shall be unpaid by reason of Nonpayment.

Assured Guaranty will make such Insured Payments to the Trustee or the Paying Agent on the later to occur of (i) the date applicable principal or interest becomes Due for Payment, or (ii) the Business Day next following the day on which Assured Guaranty shall have Received a completed Notice of Nonpayment. If a Notice of Nonpayment by Assured Guaranty is incomplete or does not in any instance conform to the terms and conditions of this Policy, it shall be deemed not Received, and Assured Guaranty shall promptly give notice to the Trustee or the Paying Agent. Upon receipt of such notice, the Trustee or the Paying Agent may submit an amended Notice of Nonpayment. The Trustee or the Paying Agent will disburse the Insured Payments to the Holders only upon receipt by the Trustee or the Paying Agent, in form reasonably satisfactory to it of (i) evidence of the Holder's right to receive such payments, and (ii) evidence, including without limitation any appropriate instruments of assignment, that all of the Holder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Assured Guaranty. Upon and to the extent of such disbursement, Assured Guaranty shall become the Holder of the Obligations, any appurtenant coupon thereto and right to receipt of payment of principal thereof or interest thereon, and shall be fully subrogated to all of the Holder's right, title and interest thereunder, including without limitation the right to receive payments in respect of the Obligations. Payment by Assured Guaranty to the Trustee or the Paying Agent for the benefit of the Holders shall discharge the obligation of Assured Guaranty under this Policy to the extent of such payment.

This Policy is non-cancelable by Assured Guaranty for any reason. The Premium on this Policy is not refundable for any reason. This Policy does not insure against loss of any prepayment premium or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Assured Guaranty, nor against any risk other than Nonpayment.

Except to the extent expressly modified by any endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “AAvoided Payment” means any amount previously distributed to a Holder in respect of any Insured Payment by or on behalf of the Issuer, which amount has been recovered from such Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction that such payment constitutes an avoidable preference with respect to such Holder. “BBusiness Day” means any day other than (i) a Saturday or Sunday, (ii) any day on which the offices of the Trustee, the Paying Agent or Assured Guaranty are closed, or (iii) any day on which banking institutions are authorized or required by law, executive order or governmental decree to be closed in the City of New York or in the State of Maryland. “DDue for Payment” means (i) when referring to the principal of an Obligation, the stated maturity date thereof, or the date on which such Obligation shall have been duly called for mandatory sinking fund redemption, and does not refer to any earlier date on which payment is due by reason of a call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless Assured Guaranty in its sole discretion elects to make any principal payment, in whole or in part, on such earlier date) and (ii) when referring to interest on an Obligation, the stated date for payment of such interest. “HHolder” means, in respect of any Obligation, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Obligation to payment of principal or interest thereunder, except that Holder shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligations. “IInsured Payments” means that portion of the principal of and interest on the Obligations that shall become Due for Payment but shall be unpaid by reason of Nonpayment. Insured Payments shall not include any additional amounts owing by the Issuer solely as a result of the failure by the Trustee or the Paying Agent to pay such amount when due and payable, including without limitation any such additional amounts as may be attributable to penalties or to interest accruing at a default rate, to amounts payable in respect of indemnification, or to any other additional amounts payable by the Trustee or the Paying Agent by reason of such failure. “NNonpayment” means, in respect of an Obligation, the failure of the Issuer to have provided sufficient funds to the Trustee or the Paying Agent for payment in full of all principal and interest Due for Payment on such Obligation. It is further understood that the term "Nonpayment" in respect of an Obligation includes any Avoided Payment. “RReceipt” or “RReceived” means actual receipt or notice of or, if notice is given by overnight or other delivery service, or by certified or registered United States mail, by a delivery receipt signed by a person authorized to accept delivery on behalf of the person to whom the notice was given. Notices to Assured Guaranty may be mailed by registered mail or personally delivered or telecopied to it at 1325 Avenue of the Americas, New York, New York 10019, Telephone Number: (212) 974-0100, Facsimile Number: (212) 581-3268, Attention: Risk Management Department – Public Finance Surveillance, with a copy to the General Counsel, or to such other address as shall be specified by Assured Guaranty to the Trustee

Page 1 of 2 Form NY-FG (05/07) or the Paying Agent in writing. A Notice of Nonpayment will be deemed to be Received by Assured Guaranty on a given Business Day if it is Received prior to 12:00 noon (New York City time) on such Business Day; otherwise it will be deemed Received on the next Business Day. “TTerm” means the period from and including the Effective Date until the earlier of (i) the maturity date for the Obligations, or (ii) the date on which the Issuer has made all payments required to be made on the Obligations. At any time during the Term of this Policy, Assured Guaranty may appoint a fiscal agent (the “FFiscal Agent”) for purposes of this Policy by written notice to the Trustee or the Paying Agent, specifying the name and notice address of such Fiscal Agent. From and after the date of Receipt of such notice by the Trustee or the Paying Agent, copies of all notices and documents required to be delivered to Assured Guaranty pursuant to this Policy shall be delivered simultaneously to the Fiscal Agent and to Assured Guaranty. All payments required to be made by Assured Guaranty under this Policy may be made directly by Assured Guaranty or by the Fiscal Agent on behalf of Assured Guaranty. The Fiscal Agent is the agent of Assured Guaranty only, and the Fiscal Agent shall in no event be liable to the Trustee or the Paying Agent for any acts of the Fiscal Agent or any failure of Assured Guaranty to deposit, or cause to be deposited, sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, Assured Guaranty hereby waives, in each case for the benefit of the Holders only, all rights and defenses of any kind (including, without limitation, the defense of fraud in the inducement or in fact or any other circumstance that would have the effect of discharging a surety, guarantor or any other person in law or in equity) that may be available to Assured Guaranty to deny or avoid payment of its obligations under this Policy in accordance with the express provisions hereof. Nothing in this paragraph will be construed (i) to waive, limit or otherwise impair, and Assured Guaranty expressly reserves, Assured Guaranty’s rights and remedies, including, without limitation: its right to assert any claim or to pursue recoveries (based on contractual rights, securities law violations, fraud or other causes of action) against any person or entity, in each case, whether directly or acquired as a subrogee, assignee or otherwise, subsequent to making any payment to the Trustee or the Paying Agent, in accordance with the express provisions hereof, and/or (ii) to require payment by Assured Guaranty of any amounts that have been previously paid or that are not otherwise due in accordance with the express provisions of this Policy. This Policy (which includes each endorsement hereto) sets forth in full the undertaking of Assured Guaranty with respect to the subject matter hereof, and may not be modified, altered or affected by any other agreement or instrument, including, without limitation, any modification thereto or amendment thereof. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. This Policy will be governed by, and shall be construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, Assured Guaranty has caused this Policy to be affixed with its corporate seal, to be signed by its duly authorized officer, and to become effective and binding upon Assured Guaranty by virtue of such signature.

ASSURED GUARANTY CORP. (SEAL) By:______[Insert Authorized Signatory Name] [Insert Authorized Signatory Title]

Signature attested to by:

______Counsel

Page 2 of 2 Form NY-FG (05/07)