Viewing Instructions
This file has been indexed or bookmarked to simplify navigation between documents. If you are unable to view the document index, download the file to your local drive and open it using your PDF reader (e.g. Adobe Reader).
SUPPLEMENT DATED AUGUST 24, 2012 to OFFICIAL STATEMENT DATED AUGUST 14, 2012
Relating to
$251,100,000 $38,265,000 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO GENERAL OBLIGATION BONDS GENERAL OBLIGATION BONDS SERIES 2012D SERIES 2012E
This Supplement, dated August 24, 2012 (the "Supplement"), supplements and amends the Official Statement, dated August 14, 2012 (the "Official Statement"), relating to the above-captioned Bonds, as described below. Capitalized terms used herein shall have the definitions provided in the Official Statement.
The following new paragraph is added following the “Sources and Uses of Funds” table on page 9 of the Official Statement:
In connection with the purchase of the 2012D Bonds, Citigroup Global Markets Inc. (“CGMI”) has advised the City that CGMI acted as agent for its affiliate, Citibank, N.A., as direct purchaser of the 2012D Bonds and that, as agent, CGMI receives no underwriter’s discount or other compensation for such service. Accordingly, CGMI, for its purposes, allocated the full amount of underwriter’s discount to the 2012E Bonds. The City’s policy with respect to a combined sale of different series of Bonds is to allocate costs of issuance of all series of the Bonds on a pro rata basis among the series, and such allocation is reflected in the table above.
NEW ISSUE – BOOK-ENTRY ONLY RATINGS: Moody’s: Aa2 S & P: AA Fitch: AA- (See “Ratings” herein)
Subject to compliance by the City and County of San Francisco with certain covenants, in the separate opinions of Schiff Hardin LLP and Lofton & Jennings, Co-Bond Counsel, under present law, interest on the Bonds is excludable from the gross income of their owners for federal income tax purposes and thus will be exempt from present federal income taxes based upon gross income. Such interest is not included as an item of tax preference in computing the federal alternative minimum tax on individuals and corporations, but will be taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Co-Bond Counsel are further of the opinion that interest on the Bonds is H[HPSWIURPSUHVHQW&DOLIRUQLDSHUVRQDOLQFRPHWD[HVXQGHUSUHVHQW&DOLIRUQLDODZ6HH³7D[0DWWHUV´LQWKLV2I¿FLDO6WDWHPHQWIRUDPRUHFRPSOHWH discussion of these matters.
$251,100,000 $38,265,000 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO GENERAL OBLIGATION BONDS GENERAL OBLIGATION BONDS SERIES 2012D SERIES 2012E
Dated: Date of Delivery Due: June 15, as shown in the inside cover This cover page contains certain information for general reference only. It is not intended to be a summary of the security for or the terms of the %RQGV,QYHVWRUVDUHDGYLVHGWRUHDGWKHHQWLUH2I¿FLDO6WDWHPHQWWRREWDLQLQIRUPDWLRQHVVHQWLDOWRWKHPDNLQJRIDQLQIRUPHGLQYHVWPHQWGHFLVLRQ 7KH&LW\DQG&RXQW\RI6DQ)UDQFLVFR*HQHUDO2EOLJDWLRQ%RQGV6HULHV' WKH³'%RQGV´ DQG6HULHV( WKH³(%RQGV´DQG WRJHWKHUZLWKWKH'%RQGVWKH³%RQGV´ ZLOOEHLVVXHGXQGHUWKH*RYHUQPHQW&RGHRIWKH6WDWHRI&DOLIRUQLDDQGWKH&KDUWHURIWKH&LW\DQG&RXQW\ RI6DQ)UDQFLVFR WKH³&LW\´ 7KHLVVXDQFHRIWKH'%RQGVKDVEHHQDXWKRUL]HGE\5HVROXWLRQ1RDQG5HVROXWLRQ1RDGRSWHG E\WKH%RDUGRI6XSHUYLVRUVRIWKH&LW\ WKH³%RDUGRI6XSHUYLVRUV´ RQ'HFHPEHUDQG-XQHUHVSHFWLYHO\DQGGXO\DSSURYHGE\WKH 0D\RURIWKH&LW\RQ'HFHPEHU DQG-XQHUHVSHFWLYHO\7KHLVVXDQFHRIWKH(%RQGVKDVEHHQDXWKRUL]HGE\5HVROXWLRQ1R DQG5HVROXWLRQ1RDGRSWHGE\WKH%RDUGRI6XSHUYLVRUVRQ1RYHPEHUDQG-XQHUHVSHFWLYHO\DQGGXO\DSSURYHGE\WKH 0D\RURIWKH&LW\RQ1RYHPEHUDQG-XQHUHVSHFWLYHO\6HH³7+(%21'6±$XWKRULW\IRU,VVXDQFH 3XUSRVHV´7KHSURFHHGVRIWKH '%RQGVZLOOEHXVHGWR¿QDQFHWKHEXLOGLQJRUUHEXLOGLQJDQGLPSURYLQJWKHHDUWKTXDNHVDIHW\RIWKH6DQ)UDQFLVFR*HQHUDO+RVSLWDODQG7UDXPD &HQWHUDVGHVFULEHGKHUHLQDQGWRSD\FHUWDLQFRVWVUHODWHGWRWKHLVVXDQFHRIWKH'%RQGV7KHSURFHHGVRIWKH(%RQGVZLOOEHXVHGWR˪¿QDQFH FDSLWDOLPSURYHPHQWVWRWKH&LW\¶VDX[LOLDU\ZDWHUVXSSO\V\VWHPDVGHVFULEHGKHUHLQDQGWRSD\FHUWDLQFRVWVUHODWHGWRWKHLVVXDQFHRIWKH(%RQGV 6HH³6285&(6$1'86(62))81'6´ 7KH%RQGVZLOOEHLVVXHGRQO\LQIXOO\UHJLVWHUHGIRUPZLWKRXWFRXSRQVDQGZKHQLVVXHGZLOOEHUHJLVWHUHGLQWKHQDPHRI&HGH &RDVQRPLQHH RI7KH 'HSRVLWRU\7UXVW &RPSDQ\ 1HZ 7KH%RQGVDUHRIIHUHGZKHQDVDQGLILVVXHGE\WKH&LW\DQGDFFHSWHGE\WKHLQLWLDOSXUFKDVHUVXEMHFWWRWKHDSSURYDORIOHJDOLW\E\6FKLII+DUGLQ//3 6DQ)UDQFLVFR&DOLIRUQLDDQG/RIWRQ -HQQLQJV6DQ)UDQFLVFR&DOLIRUQLD&R%RQG&RXQVHODQGFHUWDLQRWKHUFRQGLWLRQV&HUWDLQOHJDOPDWWHUVZLOO EHSDVVHGXSRQIRUWKH&LW\E\LWV&LW\$WWRUQH\DQGE\+DZNLQV'HOD¿HOG :RRG//36DQ)UDQFLVFR&DOLIRUQLD'LVFORVXUH&RXQVHO,WLVH[SHFWHG WKDWWKH%RQGVLQERRNHQWU\IRUPZLOOEHDYDLODEOHIRUGHOLYHU\WKURXJKWKHIDFLOLWLHVRI'7&LQ1HZ 'DWHG $XJXVW MATURITY SCHEDULES %DVH&86,31XPEHU 2012D BONDS Maturity Maturity 'DWH 3ULQFLSDO Interest &86,3 'DWH 3ULQFLSDO Interest &86,3 -XQH $PRXQW 5DWH 2012E BONDS Maturity Maturity 'DWH 3ULQFLSDO Interest &86,3 'DWH 3ULQFLSDO Interest &86,3 -XQH $PRXQW 5DWH ______ &86,3 LV D UHJLVWHUHG WUDGHPDUN RI WKH $PHULFDQ %DQNHUV $VVRFLDWLRQ &86,3 *OREDO 6HUYLFHV &*6 LV PDQDJHGRQEHKDOIRIWKH$PHULFDQ%DQNHUV$VVRFLDWLRQE\6 3&DSLWDO,4&86,3QXPEHUVDUHSURYLGHGIRU FRQYHQLHQFHRIUHIHUHQFHRQO\1HLWKHUWKH&LW\QRUWKHLQLWLDOSXUFKDVHUWDNHDQ\UHVSRQVLELOLW\IRUWKHDFFXUDF\ of such numbers. 5HRIIHULQJ\LHOGVIXUQLVKHGE\WKHLQLWLDOSXUFKDVHU7KH&LW\WDNHVQRUHVSRQVLELOLW\IRUWKHDFFXUDF\WKHUHRI The information set forth herein other than that provided by the City, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither 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 City since the date hereof. The City maintains a website. The information presented on such website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds. Various other websites referred to in this Official Statement also are not incorporated herein by such references. This Official Statement is not to be construed as a contract with the initial purchaser of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The issuance and sale of the 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. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE INITIAL PURCHASER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. CITY AND COUNTY OF SAN FRANCISCO MAYOR Edwin M. Lee BOARD OF SUPERVISORS David Chiu, Board President, District 3 Eric Mar, District 1 Sean Elsbernd, District 7 Mark Farrell, District 2 Scott Wiener, District 8 Carmen Chu, District 4 David Campos, District 9 Christina Olague, District 5 Malia Cohen, District 10 Jane Kim, District 6 John Avalos, District 11 CITY ATTORNEY Dennis J. Herrera CITY TREASURER José Cisneros OTHER CITY AND COUNTY OFFICIALS Naomi M. Kelly, City Administrator Benjamin Rosenfield, Controller PROFESSIONAL SERVICES Paying Agent and Registrar Treasurer of the City and County of San Francisco Co-Bond Counsel Schiff Hardin LLP Lofton & Jennings San Francisco, California San Francisco, California Co-Financial Advisors Montague DeRose and Associates, LLC Ross Financial Walnut Creek, California San Francisco, California Disclosure Counsel Hawkins Delafield & Wood LLP San Francisco, California TABLE OF CONTENTS INTRODUCTION ...... 3 THE CITY AND COUNTY OF SAN FRANCISCO...... 3 RECENT DEVELOPMENTS ...... 5 THE BONDS...... 5 Authority for Issuance; Purposes...... 5 Form and Registration ...... 6 Payment of Interest and Principal...... 6 Redemption...... 6 SOURCES AND USES OF FUNDS...... 9 Deposit and Investment of Bond Proceeds ...... 9 DEBT SERVICE SCHEDULES ...... 11 SECURITY FOR THE BONDS...... 13 General...... 13 Factors Affecting Property Tax Security for the Bonds...... 13 Seismic Risks...... 14 TAX MATTERS...... 15 Federal Income Tax ...... 15 State and Local Taxes...... 16 Basis of Co-Bond Counsel Opinions ...... 16 Risk of Audit...... 16 Legislation ...... 16 Backup Withholding...... 17 OTHER LEGAL MATTERS ...... 17 PROFESSIONALS INVOLVED IN THE OFFERING...... 18 ABSENCE OF LITIGATION ...... 18 CONTINUING DISCLOSURE...... 18 RATINGS...... 18 SALE OF THE BONDS...... 19 MISCELLANEOUS ...... 19 APPENDICES APPENDIX A – CITY AND COUNTY OF SAN FRANCISCO – ORGANIZATION AND FINANCES APPENDIX B – COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AND COUNTY OF SAN FRANCISCO FOR THE FISCAL YEAR ENDED JUNE 30, 2011 APPENDIX C – CITY AND COUNTY OF SAN FRANCISCO, OFFICE OF THE TREASURER – INVESTMENT POLICY APPENDIX D – FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX E – DTC AND THE BOOK ENTRY ONLY SYSTEM APPENDIX F – PROPOSED FORMS OF OPINIONS OF CO-BOND COUNSEL i OFFICIAL STATEMENT $251,100,000 $38,265,000 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO GENERAL OBLIGATION BONDS GENERAL OBLIGATION BONDS SERIES 2012D SERIES 2012E INTRODUCTION This Official Statement, including the cover page and the appendices hereto, is provided to furnish information in connection with the public offering by the City and County of San Francisco (the "City") of its City and County of San Francisco General Obligation Bonds, Series 2012D (the "2012D Bonds") and Series 2012E (the "2012E Bonds," and together with the 2012D Bonds, the "Bonds"). The Board of Supervisors of the City has the power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property subject to taxation by the City (except certain property which is taxable at limited rates) for the payment of the principal of and interest on the Bonds when due. See "SECURITY FOR THE BONDS" herein. This Official Statement speaks only as of its date, and the information contained herein is subject to change. Except as required by the Continuing Disclosure Certificate to be executed by the City with respect to the Bonds, the City has no obligation to update the information in this Official Statement. See "CONTINUING DISCLOSURE" and APPENDIX D – "FORM OF CONTINUING DISCLOSURE CERTIFICATE" herein. Quotations from and summaries and explanations of the Bonds, the resolutions providing for the issuance and payment of the Bonds, and provisions of the constitution and statutes of the State of California (the "State"), the charter of the City (the "Charter") and City ordinances, and other documents described herein, do not purport to be complete, and reference is made to said laws and documents for the complete provisions thereof. Copies of those documents and information concerning the Bonds are available from the City through the Office of Public Finance, 1 Dr. Carlton B. Goodlett Place, Room 336, San Francisco, California 94102-4682. Reference is made herein to various other documents, reports, websites, etc., which were either prepared by parties other than the City, or were not prepared, reviewed and approved by the City with a view towards making an offering of public securities, and such materials are therefore not incorporated herein by such references nor deemed a part of this Official Statement. THE CITY AND COUNTY OF SAN FRANCISCO The City is the economic and cultural center of the San Francisco Bay Area and northern California. The corporate limits of the City encompass over 93 square miles, of which 49 square miles are land, with the balance consisting of tidelands and a portion of the San Francisco Bay (the "Bay"). The City is located at the northern tip of the San Francisco Peninsula, bounded by the Pacific Ocean to the west, the Bay and the San Francisco-Oakland Bay Bridge to the east, the entrance to the Bay and the Golden Gate Bridge to the north, and San Mateo County to the south. Silicon Valley is about a 40-minute drive to the south, and the wine country is about an hour's drive to the north. The City's most recently completed Comprehensive Annual Financial Report (the "CAFR") for fiscal year 2010-11 estimated the City's fiscal year 2010-11 population at 795,238. See APPENDIX B – "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AND COUNTY OF SAN FRANCISCO FOR THE FISCAL YEAR ENDED JUNE 30, 2011." The San Francisco Bay Area consists of the nine counties contiguous to the Bay: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano and Sonoma Counties (collectively, the "Bay Area"). The economy of the Bay Area includes a wide range of industries, supplying local needs as well 3 as the needs of national and international markets. Major business sectors in the Bay Area include retail, entertainment and the arts, conventions and tourism, service businesses, banking, professional and financial services, corporate headquarters, international and wholesale trade, multimedia and advertising, biotechnology and higher education. The City is a major convention and tourist destination. According to the San Francisco Travel Association, a nonprofit membership organization, during the calendar year 2011, approximately 16.35 million people visited the City and spent an estimated $8.46 billion during their stay. The City is also a leading center for financial activity in the State and is the headquarters of the Twelfth Federal Reserve District and the Eleventh District Federal Home Loan Bank, and has an area office of the Western Region of the Office of Thrift Supervision. The City benefits from a highly skilled, educated and professional labor force. The CAFR estimates that per-capita personal income of the City for fiscal year 2010-11 was $75,372. The San Francisco Unified School District operates 71 elementary and K-8 school sites, 13 middle schools, 17 senior high schools (including two continuation schools and an independent study school), and 36 state-funded preschool sites, and sponsors 9 independent charter schools. Higher education institutions located in the City include the University of San Francisco, California State University – San Francisco, University of California – San Francisco (a medical school and health science campus), the University of California Hastings College of the Law, the University of the Pacific's School of Dentistry, Golden Gate University, City College of San Francisco (a public community college), the Art Institute of California – San Francisco, the San Francisco Conservatory of Music, the California Culinary Academy, and the Academy of Art University. San Francisco International Airport ("SFO"), located 14 miles south of downtown San Francisco in an unincorporated area of San Mateo County and owned and operated by the City, is the principal commercial service airport for the Bay Area and one of the nation's principal gateways for Pacific air traffic. In fiscal year 2010-11, SFO serviced approximately 39.7 million passengers and handled 398,393 metric tons of cargo. The City is also served by the Bay Area Rapid Transit District (electric rail commuter service linking the City with the East Bay and the San Francisco Peninsula, including SFO), Caltrain (a commuter rail line linking the City with the San Francisco Peninsula), and bus and ferry services between the City and residential areas to the north, east and south of the City. San Francisco Municipal Railway, operated by the City, provides bus and streetcar service within the City. The Port of San Francisco (the "Port"), which administers 7.5 miles of Bay waterfront held in "public trust" by the Port on behalf of the people of the State, promotes a balance of maritime-related commerce, fishing, recreational, industrial and commercial activities and natural resource protection. The City is governed by a Board of Supervisors elected from eleven districts to serve four-year terms, and a Mayor who serves as chief executive officer, elected citywide to a four-year term. Edwin M. Lee is the 43rd and current Mayor of the City, having been elected by the voters of the City in November 2011. The City's fiscal year 2011-12 adopted budget includes $6.83 billion of expenditures and reserves, of which $3.26 billion was allocated to the General Fund of the City and $3.57 billion was allocated to all other funds, including enterprise fund departments, such as SFO, the San Francisco Municipal Transportation Agency, and the San Francisco Public Utilities Commission. The CAFR estimates that the City employed approximately 28,000 full-time-equivalent employees at the end of fiscal year 2010-11. According to the Controller of the City (the "Controller"), fiscal year 2011-12 total net assessed valuation of taxable property in the City is approximately $158.65 billion. More detailed information about the City's governance, organization and finances may be found in APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES" and in APPENDIX B – "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AND COUNTY OF SAN FRANCISCO FOR THE FISCAL YEAR ENDED JUNE 30, 2011." 4 RECENT DEVELOPMENTS On August 15, 2012 the Controller of the City certified the assessment rolls for the fiscal year 2012- 13. The total net assessed valuation of taxable property in the City in fiscal year 2012-13 is approximately $165.04 billion. The information above was not included in the preliminary Official Statement for the Bonds dated August 6, 2012. The total net assessed valuation of taxable property in the City in the last fiscal year was approximately $158.65 billion, as is stated later in this Official Statement and in Appendix A. THE BONDS Authority for Issuance; Purposes The Bonds will be issued under the Government Code of the State and the Charter. The City authorized the issuance of the 2012D Bonds by its Resolution No. 528-08, adopted by the Board of Supervisors of the City on December 16, 2008, and duly approved by the Mayor of the City on December 19, 2008, and by its Resolution No. 230-12, adopted by the Board of Supervisors on June 12, 2012, and duly approved by the Mayor on June 18, 2012 (together, the "2012D Resolution"). The City authorized the issuance of the 2012E Bonds by its Resolution No. 516-10, adopted by the Board of Supervisors of the City on November 2, 2010, and duly approved by the Mayor of the City on November 5, 2010, and by its Resolution No. 231-12, adopted by the Board of Supervisors on June 12, 2012, and duly approved by the Mayor on June 18, 2012 (together, the "2012E Resolution," and with the 2012D Resolution, the "Resolutions"). The 2012D Bonds will constitute the third series of bonds to be issued from an aggregate authorized amount of $887,400,000 of City and County of San Francisco General Obligation Bonds (San Francisco General Hospital Improvement Bonds, 2008), duly approved by at least two-thirds of the voters voting on Proposition A at an election held on November 4, 2008 ("Proposition A"), to provide funds to finance the building and/or rebuilding and improving the earthquake safety of the San Francisco General Hospital and Trauma Center (the "Hospital") and to pay related costs necessary or convenient for these purposes. The City previously issued $131,650,000 and $294,695,000 of the bonds authorized by Proposition A on March 18, 2009 and March 24, 2010, respectively. The 2012E Bonds will constitute the third series of bonds to be issued from an aggregate authorized amount of $412,300,000 of City and County of San Francisco General Obligation Bonds (Earthquake Safety and Emergency Response Bonds, 2010), duly approved by at least two-thirds of the voters voting on Proposition B at an election held on June 8, 2010 ("Proposition B"), to provide funds for the purposes authorized in Proposition B, which are summarized as follows: to improve fire, earthquake and emergency response and ensure firefighters a reliable water supply for fires and disasters, through projects including: improving deteriorating pipes, hydrants, reservoirs, water cisterns and pumps built after the 1906 earthquake; improving neighborhood fire stations; replacing the seismically unsafe emergency command center with an earthquake-safe building; and to pay related costs necessary or convenient for these purposes. The City previously issued $79,520,000 and $183,330,000 of the bonds authorized by Proposition B on December 15, 2010 and March 8, 2012, respectively. The Administrative Code of the City (the "Administrative Code") and Propositions A and B provide that, to the extent permitted by law, 0.1% of the gross proceeds of all proposed bonds, including the Bonds, be deposited by the Controller and used to fund the costs of the City's independent citizens' general obligation bond oversight committee. The committee was created by the Administrative Code and is appointed by the Board of Supervisors of the City to inform the public concerning the expenditure of general obligation bond proceeds in accordance with the voter authorization. 5 Form and Registration The Bonds will be issued in the principal amounts set forth on the inside cover hereof, in the denomination of $5,000 each or any integral multiple thereof, and will be dated their date of delivery. The Bonds will be issued in fully registered form, without coupons. The Bonds will be initially registered in the name of Cede & Co. as registered owner and nominee for The Depository Trust Company ("DTC"), New York, New York, which is required to remit payments of principal and interest to the DTC Participants for subsequent disbursement to the beneficial owners of the Bonds. See APPENDIX E – "DTC AND THE BOOK-ENTRY ONLY SYSTEM." Payment of Interest and Principal The City Treasurer will act as paying agent and registrar with respect to the Bonds. Interest on the Bonds will be payable on each June 15 and December 15 to maturity or prior redemption, commencing December 15, 2012, at the interest rates shown on the inside cover hereof. Interest will be calculated on the basis of a 360-day year comprised of twelve 30-day months. The interest on the Bonds will be payable in lawful money of the United States to the person whose name appears on the Bond registration books of the City Treasurer as the owner thereof as of the close of business on the last day of the month immediately preceding an interest payment date (the "Record Date"), whether or not such day is a business day. Each Bond authenticated on or before November 30, 2012 will bear interest from the date of delivery. Every other Bond will bear interest from the interest payment date next preceding its date of authentication unless it is authenticated as of a day during the period from the Record Date next preceding any interest payment date to the interest payment date, inclusive, in which event it will bear interest from such interest payment date; provided, that if, at the time of authentication of any Bond, interest is then in default on the Bonds, such Bond will bear interest from the interest payment date to which interest has previously been paid or made available for payment on the Bonds. The Bonds will mature on the dates shown on the inside cover page hereof. The Bonds will be subject to redemption prior to maturity, as described below. See "– Redemption" below. The principal of the Bonds will be payable in lawful money of the United States to the owner thereof upon the surrender thereof at maturity or earlier redemption at the office of the City Treasurer. The registered owner of an aggregate principal amount of at least $1,000,000 of the Bonds may submit a written request to the City Treasurer on or before a Record Date for payment of interest on the succeeding interest payment date and thereafter by wire transfer to a commercial bank located within the United States of America. For so long as the Bonds are held in book-entry form by a securities depository selected by the City, payment may be made to the registered owner of the Bonds designated by such securities depository by wire transfer of immediately available funds. Redemption Optional Redemption of the Bonds The Bonds maturing on or before June 15, 2022 will not be subject to optional redemption prior to their respective stated maturity dates. The Bonds maturing on or after June 15, 2023 will be subject to optional redemption prior to their respective stated maturity dates, at the option of the City, from any source of available funds, as a whole or in part on any date (with the maturities to be redeemed to be determined by the City and by lot within a maturity), on or after June 15, 2022, at the redemption price equal to the principal amount of the Bonds redeemed, together with accrued interest to the date fixed for redemption (the "Redemption Date"), without premium. 6 Selection of Bonds for Redemption Whenever less than all of the outstanding Bonds are called for redemption on any one date, the City Treasurer will select the maturities of Bonds to be redeemed in the sole discretion of the City Treasurer, and whenever less than all the outstanding Bonds maturing on any one date are called for redemption on any date, the City Treasurer will select the Bonds or portions thereof by lot, in any manner which the City Treasurer deems fair. The Bonds may be redeemed in denominations of $5,000 or any integral multiple thereof. Notice of Redemption The City Treasurer will mail, or cause to be mailed, notice of any redemption of the Bonds, postage prepaid, to the respective registered owners thereof at the addresses appearing on the Bond registration books not less than 20 days and not more than 60 days prior to the Redemption Date. Notice of redemption also will be given, or caused to be given, by the City Treasurer, by (i) registered or certified mail, postage prepaid, (ii) confirmed facsimile transmission, (iii) overnight delivery service, or (iv) to the extent applicable to the intended recipient, email or similar electronic means, to (a) all organizations registered with the Securities and Exchange Commission as securities depositories and (b) such other services or organizations as may be required in accordance with the Continuing Disclosure Certificate. See "CONTINUING DISCLOSURE" and APPENDIX D – "FORM OF CONTINUING DISCLOSURE CERTIFICATE" herein. Each notice of redemption will (a) state the Redemption Date; (b) state the redemption price; (c) state the maturity dates of the Bonds called for redemption, and, if less than all of any such maturity is called for redemption, the distinctive numbers of the Bonds of such maturity to be redeemed, and in the case of a Bond redeemed in part only, the respective portions of the principal amount thereof to be redeemed; (d) state the CUSIP number, if any, of each Bond to be redeemed; (e) require that such Bonds be surrendered by the owners at the office of the City Treasurer or his or her agent; and (f) give notice that interest on such Bonds or portions of such Bonds to be redeemed will cease to accrue after the designated Redemption Date. Any notice of redemption may be conditioned on the receipt of funds or any other event specified in the notice. See "– Conditional Notice; Right to Rescind Notice of Optional Redemption" below. The actual receipt by the owner of any Bond of such notice of redemption will not be a condition precedent to redemption of such Bond, and failure to receive such notice, or any defect in such notice, will not affect the validity of the proceedings for the redemption of such Bond or the cessation of the accrual of interest on such Bond on the Redemption Date. Effect of Notice of Redemption When notice of optional redemption has been given as described above, and when the amount necessary for the redemption of the Bonds called for redemption (principal, premium, if any and accrued interest to the Redemption Date) is set aside for that purpose in the redemption account for the applicable series of Bonds (for each series of Bonds, a "Redemption Account") established under the 2012D Resolution and the 2012E Resolution, as applicable, the Bonds designated for redemption will become due and payable on the Redemption Date, and upon presentation and surrender of said Bonds at the place specified in the notice of redemption, those Bonds will be redeemed and paid at said redemption price out of the applicable Redemption Account. No interest will accrue on such Bonds called for redemption after the Redemption Date and the registered owners of such Bonds will look for payment of such Bonds only to the respective Redemption Account. Moneys held in a Redemption Account will be invested by the City Treasurer pursuant to the City's policies and guidelines for investment of moneys in the General Fund of the City. See APPENDIX C – "CITY AND COUNTY OF SAN FRANCISCO, OFFICE OF THE TREASURER – INVESTMENT POLICY." 7 Conditional Notice; Right to Rescind Notice of Optional Redemption Any notice of optional redemption may provide that such redemption is conditioned upon: (i) deposit of sufficient moneys to redeem the applicable Bonds called for redemption on the anticipated Redemption Date, or (ii) the occurrence of any other event specified in the notice of redemption. In the event that such conditional notice of optional redemption has been given and on the scheduled Redemption Date (i) sufficient moneys to redeem the applicable Bonds have not been deposited or (ii) any other event specified in the notice of redemption did not occur, such Bonds for which notice of conditional optional redemption was given will not be redeemed and will remain Outstanding for all purposes and the redemption not occurring will not constitute a default under the Resolutions. In addition, the City may rescind any optional redemption and notice thereof for any reason on any date prior to any Redemption Date by causing written notice of the rescission to be given to the Registered Owner of all Bonds so called for redemption. Notice of such rescission of redemption will be given in the same manner notice of redemption was originally given. The actual receipt by the Registered Owner of any Bond of notice of such rescission will not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice so mailed will not affect the validity of the rescission. Defeasance Payment of all or any portion of the Bonds may be provided for prior to such Bonds' respective stated maturities by irrevocably depositing with the City Treasurer (or any commercial bank or trust company designated by the City Treasurer to act as escrow agent with respect thereto): (a) an amount of cash equal to the principal amount of all of such Bonds or a portion thereof, and all unpaid interest thereon to maturity, except that in the case of Bonds which are to be redeemed prior to such Bonds' respective stated maturities and in respect of which notice of such redemption will have been given as described above or an irrevocable election to give such notice will have been made by the City, the amount to be deposited will be the principal amount thereof, all unpaid interest thereon to the Redemption Date, and premium, if any, due on such Redemption Date; or (b) Defeasance Securities (as defined below) not subject to call, except as described in the definition below, maturing and paying interest at such times and in such amounts, together with interest earnings and cash, if required, as will, without reinvestment, as certified by an independent certified public accountant, be fully sufficient to pay the principal and all unpaid interest to maturity, or to the Redemption Date, as the case may be, and any premium due on the Bonds to be paid or redeemed, as such principal and interest come due; provided, that, in the case of the Bonds which are to be redeemed prior to maturity, notice of such redemption will be given as described above or an irrevocable election to give such notice will have been made by the City; then, all obligations of the City with respect to said outstanding Bonds will cease and terminate, except only the obligation of the City to pay or cause to be paid from the funds deposited as described in this paragraph, to the owners of said Bonds all sums due with respect thereto, and the tax covenant obligations of the City with respect to such Bonds; provided, that the City will have received an opinion of nationally recognized bond counsel that provision for the payment of said Bonds has been made as required by the Resolutions. As used in this section, the following terms have the meanings given below: "Defeasance Securities" means any of the following which at the time are legal investments under the laws of the State of California for the moneys proposed to be invested therein: (1) United States Obligations (as defined below); and (2) Pre-refunded fixed interest rate municipal obligations meeting the following conditions: (a) the municipal obligations are not subject to redemption prior to maturity, or the trustee or paying agent has been given irrevocable instructions concerning their calling and redemption and the issuer has covenanted not to redeem such obligations other than as set forth in such instructions; (b) the municipal obligations are secured by cash or United States Obligations (as defined below); (c) the principal of and interest on the United States Obligations (plus any cash in the escrow fund or the 2012D Redemption Account) are sufficient to meet the liabilities of the municipal obligations; (d) the United States Obligations serving as 8 security for the municipal obligations are held by an escrow agent or trustee; (e) the United States Obligations are not available to satisfy any other claims, including those against the trustee or escrow agent; and (f) the municipal obligations are rated (without regard to any numerical modifier, plus or minus sign or other modifier), at the time of original deposit to the escrow fund, by any two Rating Agencies (as defined below) not lower than the rating then maintained by the respective Rating Agency on such United States Obligations. "United States Obligations" means (i) direct and general obligations of the United States of America, or obligations that are unconditionally guaranteed as to principal and interest by the United States of America, including without limitation, the interest component of Resolution Funding Corporation (REFCORP) bonds that have been stripped by request to the Federal Reserve Bank of New York in book-entry form, or (ii) any security issued by an agency or instrumentality of the United States of America that is selected by the Director of Public Finance that results in the escrow fund being rated by any two Rating Agencies (as defined below) at the time of the initial deposit to the escrow fund and upon any substitution or subsequent deposit to the escrow fund, no lower than the rating then maintained by the respective Rating Agency on United States Obligations described in (i) herein. "Rating Agencies" means Moody's Investors Service, Inc., Fitch Ratings, and Standard and Poor's Rating Services, a division of The McGraw-Hill Companies, Inc., or any other nationally-recognized bond rating agency that is the successor to any of the foregoing rating agencies or that is otherwise established after the date of adoption of the related Resolution. SOURCES AND USES OF FUNDS The following are the sources and estimated uses of funds in connection with the Bonds: Sources 2012D 2012E Principal Amount of Bonds $251,100,000 $38,265,000 Original Issue Premium 35,187,293 6,213,547 Total Sources of Funds 286,287,293 44,478,547 Uses Deposit to Project Subaccount $249,883,448 $38,076,000 Deposit to Bond Subaccount 35,187,293 6,213,547 Underwriter's Discount 426,870 65,051 Oversight Committee 251,100 38,265 Costs of Issuance* 538,582 85,684 Total Uses of Funds $286,287,293 $44,478,547 ______* Includes fees for services of rating agencies, Co-Financial Advisors, Co-Bond Counsel, Disclosure Counsel, costs of the City, printing, and other miscellaneous costs associated with the issuance of the Bonds. Deposit and Investment of Bond Proceeds 2012D Bond Proceeds Any bid premium received upon the delivery of the 2012D Bonds, and all taxes collected for payment of the 2012D Bonds, will be deposited into a special subaccount established for the payment of the 2012D Bonds. The subaccount was created by the 2012D Resolution specifically for payment of the 2012D Bonds (the "2012D Bond Subaccount"). 9 All remaining proceeds of the sale of the 2012D Bonds are required to be deposited by the City Treasurer into a special subaccount within the project account created by the City to hold proceeds of sale of all of the bonds approved on November 4, 2008 for the Hospital improvement project, which proceeds are required to be applied exclusively to the acquisition, construction or reconstruction of the Hospital improvement project, and to pay costs of issuance of such bonds. The subaccount was created by the 2012D Resolution specifically to hold the proceeds of the 2012D Bonds (the "2012D Project Subaccount"). 2012E Bond Proceeds Any bid premium received upon the delivery of the 2012E Bonds, and all taxes collected for payment of the 2012E Bonds, will be deposited into a special subaccount established for the payment of the 2012E Bonds. The subaccount was created by the 2012E Resolution specifically for payment of the 2012E Bonds (the "2012E Bond Subaccount"). All remaining proceeds of the sale of the 2012E Bonds are required to be deposited by the City Treasurer into a special subaccount within the project account created by the City to hold proceeds of sale of all of the bonds approved on June 8, 2010 for the earthquake safety and emergency response projects, which proceeds are required to be applied exclusively to the purposes approved by the voters in Proposition B, and to pay costs of issuance of such bonds. The subaccount was created by the 2012E Resolution specifically to hold the proceeds of the 2012E Bonds (the "2012E Project Subaccount"). Under the Resolutions, the 2012D Bond Subaccount, the 2012D Project Subaccount, the 2012E Bond Subaccount and the 2012E Project Subaccount may each be invested in any investment of the City in which moneys in the General Fund of the City are invested. The City Treasurer may commingle any of the moneys held in any such account with other City moneys, or deposit amounts credited to such accounts into a separate fund or funds for investment purposes only. All interest earned on any such account will be retained in that account. See APPENDIX C – "CITY AND COUNTY OF SAN FRANCISCO, OFFICE OF THE TREASURER – INVESTMENT POLICY." A portion of the proceeds of the Bonds will be used to pay certain costs related to the issuance of the Bonds. Up to 0.1% of the proceeds of the Bonds are required to be appropriated to fund the Citizens' General Obligation Bond Oversight Committee, created to oversee various general obligation bond programs of the City. See "THE BONDS – Authority for Issuance; Purposes" herein. [Remainder of Page Intentionally Left Blank] 10 DEBT SERVICE SCHEDULES Scheduled debt service payable with respect to the 2012D Bonds is as follows: City and County of San Francisco General Obligation Bonds Series 2012D1 Total Principal Payment Date Principal Interest and Interest Fiscal Year Total December15,2012 $3,464,360 $3,464,360 June15,2013 $39,920,000 5,882,875 45,802,875 $49,267,235 December15,2013 4,884,875 4,884,875 June15,2014 26,800,000 4,884,875 31,684,875 36,569,750 December15,2014 4,214,875 4,214,875 June15,2015 6,625,000 4,214,875 10,839,875 15,054,750 December15,2015 4,049,250 4,049,250 June15,2016 6,955,000 4,049,250 11,004,250 15,053,500 December15,2016 3,875,375 3,875,375 June15,2017 7,305,000 3,875,375 11,180,375 15,055,750 December15,2017 3,692,750 3,692,750 June15,2018 7,670,000 3,692,750 11,362,750 15,055,500 December15,2018 3,501,000 3,501,000 June15,2019 8,055,000 3,501,000 11,556,000 15,057,000 December15,2019 3,299,625 3,299,625 June15,2020 8,455,000 3,299,625 11,754,625 15,054,250 December15,2020 3,088,250 3,088,250 June15,2021 8,880,000 3,088,250 11,968,250 15,056,500 December15,2021 2,866,250 2,866,250 June15,2022 9,320,000 2,866,250 12,186,250 15,052,500 December15,2022 2,633,250 2,633,250 June15,2023 9,790,000 2,633,250 12,423,250 15,056,500 December15,2023 2,388,500 2,388,500 June15,2024 10,280,000 2,388,500 12,668,500 15,057,000 December15,2024 2,131,500 2,131,500 June15,2025 10,790,000 2,131,500 12,921,500 15,053,000 December15,2025 1,861,750 1,861,750 June15,2026 11,330,000 1,861,750 13,191,750 15,053,500 December15,2026 1,578,500 1,578,500 June15,2027 11,900,000 1,578,500 13,478,500 15,057,000 December15,2027 1,340,500 1,340,500 June15,2028 12,375,000 1,340,500 13,715,500 15,056,000 December15,2028 1,093,000 1,093,000 June15,2029 12,870,000 1,093,000 13,963,000 15,056,000 December15,2029 835,600 835,600 June15,2030 13,385,000 835,600 14,220,600 15,056,200 December15,2030 567,900 567,900 June15,2031 13,920,000 567,900 14,487,900 15,055,800 December15,2031 289,500 289,500 June15,2032 14,475,000 289,500 14,764,500 15,054,000 Total $251,100,000 $105,731,735 $356,831,735 $356,831,735 1 A portion of the debt service will be paid from original issue premium deposited in the 2012D Bond Subaccount. See “SOURCES AND USES OF FUNDS.” 11 Scheduled debt service payable with respect to the 2012E Bonds is as follows: City and County of San Francisco General Obligation Bonds Series 2012E1 Total Principal Payment Date Principal Interest and Interest Fiscal Year Total December 15, 2012 $518,723 $518,723 June 15, 2013 $1,255,000 880,850 2,135,850 $2,654,573 December 15, 2013 849,475 849,475 June 15, 2014 1,595,000 849,475 2,444,475 3,293,950 December 15, 2014 809,600 809,600 June 15, 2015 1,275,000 809,600 2,084,600 2,894,200 December 15, 2015 777,725 777,725 June 15, 2016 1,335,000 777,725 2,112,725 2,890,450 December 15, 2016 744,350 744,350 June 15, 2017 1,405,000 744,350 2,149,350 2,893,700 December 15, 2017 709,225 709,225 June 15, 2018 1,475,000 709,225 2,184,225 2,893,450 December 15, 2018 672,350 672,350 June 15, 2019 1,545,000 672,350 2,217,350 2,889,700 December 15, 2019 633,725 633,725 June 15, 2020 1,625,000 633,725 2,258,725 2,892,450 December 15, 2020 593,100 593,100 June 15, 2021 1,705,000 593,100 2,298,100 2,891,200 December 15, 2021 550,475 550,475 June 15, 2022 1,790,000 550,475 2,340,475 2,890,950 December 15, 2022 505,725 505,725 June 15, 2023 1,880,000 505,725 2,385,725 2,891,450 December 15, 2023 458,725 458,725 June 15, 2024 1,975,000 458,725 2,433,725 2,892,450 December 15, 2024 409,350 409,350 June 15, 2025 2,075,000 409,350 2,484,350 2,893,700 December 15, 2025 357,475 357,475 June 15, 2026 2,175,000 357,475 2,532,475 2,889,950 December 15, 2026 303,100 303,100 June 15, 2027 2,285,000 303,100 2,588,100 2,891,200 December 15, 2027 257,400 257,400 June 15, 2028 2,375,000 257,400 2,632,400 2,889,800 December 15, 2028 209,900 209,900 June 15, 2029 2,470,000 209,900 2,679,900 2,889,800 December 15, 2029 160,500 160,500 June 15, 2030 2,570,000 160,500 2,730,500 2,891,000 December 15, 2030 109,100 109,100 June 15, 2031 2,675,000 109,100 2,784,100 2,893,200 December 15, 2031 55,600 55,600 June 15, 2032 2,780,000 55,600 2,835,600 2,891,200 Total $38,265,000 $19,733,373 $57,998,373 $57,998,373 1 A portion of the debt service will be paid from original issue premium deposited in the 2012E Bond Subaccount. See “SOURCES AND USES OF FUNDS.” 12 SECURITY FOR THE BONDS General The Board of Supervisors of the City has the power and is obligated, and under the Resolutions has covenanted, to levy ad valorem taxes without limitation as to rate or amount upon all property subject to taxation by the City (except certain property which is taxable at limited rates) for the payment of the principal of and interest on the Bonds when due. At the option of the Board of Supervisors, other available funds of the City that are not restricted by law to specific uses may be used to pay debt service on the Bonds. Factors Affecting Property Tax Security for the Bonds The annual property tax rate for repayment of the Bonds will be based on the total assessed value of taxable property in the City and the scheduled debt service on the Bonds in each year, less any other lawfully available funds applied by the City for repayment of the Bonds. Fluctuations in the annual debt service on the Bonds, the assessed value of taxable property in the City, and the availability of such other funds in any year, may cause the annual property tax rate applicable to the Bonds to fluctuate. Issuance by the City of additional authorized bonds payable from ad valorem property taxes may cause the City's overall property tax rate to increase. The principal factors that may affect the City's ability to levy and collect sufficient taxes to pay scheduled debt service on the Bonds each year are discussed in detail in APPENDIX A, as referred to below: Total Assessed Value of Taxable Property in the City. The greater the assessed value of taxable property in the City, the lower the tax rate necessary to generate taxes sufficient to pay scheduled debt service on bonds. Total net assessed valuation of taxable property in the City in fiscal year 2011-12 is approximately $158.65 billion. In recent years, declining real estate values, increased foreclosures, and increases in requests submitted to the Assessor and the Assessment Appeals Board for reductions in assessed value have caused a reduction in the assessed value of some properties in the City. See APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES – PROPERTY TAXATION – Assessed Valuations, Tax Rates and Tax Delinquencies." Natural and economic forces can affect the assessed value of taxable property in the City. The City is located in a seismically active region, and damage from an earthquake in or near the City could cause moderate to extensive or total damage to taxable property. See "Seismic Risks" below. Other natural or manmade disasters, such as flood, fire, toxic dumping or acts of terrorism, could also cause a reduction in the assessed value of taxable property within the City. Economic and market forces, such as a downturn in the Bay Area's economy generally, can also affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets. In addition, the total assessed value can be reduced through the reclassification of taxable property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). Concentration of Taxable Property Ownership. The more property (by assessed value) owned by any single assessee, the more exposure of tax collections to weakness in that taxpayer's financial situation and ability or willingness to pay property taxes. In fiscal year 2010-11, no single assessee owned more than 0.57% of the total taxable property in the City. See APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES – PROPERTY TAXATION – Tax Levy and Collection." 13 Property Tax Rates. One factor in the ability of taxpayers to pay additional taxes for general obligation bonds is the cumulative rate of tax. The total tax rate per $100 of assessed value (including the basic countywide 1% rate required by statute) is discussed further in APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES – PROPERTY TAXATION – Assessed Valuations, Tax Rates and Tax Delinquencies." Debt Burden on Owners of Taxable Property in the City. Another measure of the debt burden on local taxpayers is total debt as a percentage of taxable property value. Issuance of general obligation bonds by the City is limited under Section 9.106 of the Charter to 3.00% of the assessed value of all taxable real and personal property located within the City's boundaries. For purposes of this provision of the Charter, the City calculates its debt limit on the basis of total assessed valuation net of non-reimbursable and homeowner exemptions. On this basis, the City's gross general obligation debt limit for fiscal year 2011-12 was approximately $4.76 billion, based on a net assessed valuation of approximately $158.65 billion. As of July 25, 2012, the City had outstanding approximately $1.51 billion in aggregate principal amount of general obligation bonds, which equals approximately 0.95% of the net assessed valuation for fiscal year 2011-12. See APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES – CAPITAL FINANCING AND BONDS." Additional Debt; Authorized but Unissued Bonds. Issuance of additional authorized bonds can cause the overall property tax rate to increase. As of July 25, 2012, the City had voter approval to issue up to $1.08 billion in additional aggregate principal amount of new bonds payable from ad valorem property taxes. See APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO – CAPITAL FINANCING AND BONDS – General Obligation Bonds Authorized but Unissued." In addition, the City expects that it will propose further bond measures to the voters from time to time to help meet its capital needs, quantified in the City's most recent ten-year Capital Plan at $24.8 billion. See APPENDIX A – "CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES – CAPITAL FINANCING AND BONDS – Capital Plan." Seismic Risks The City is located in a seismically active region. Active earthquake faults underlie both the City and the surrounding Bay Area, including the San Andreas Fault, which passes about three miles to the southeast of the City's border, and the Hayward Fault, which runs under Oakland, Berkeley and other cities on the east side of San Francisco Bay, about 10 miles away. Significant recent seismic events include the 1989 Loma Prieta earthquake, centered about 60 miles south of the City, which registered 6.9 on the Richter scale of earthquake intensity. That earthquake caused fires, building collapses, and structural damage to buildings and highways in the City and environs. The San Francisco-Oakland Bay Bridge, the only east-west vehicle access into the City, was closed for a month for repairs, and several highways in the City were permanently closed and eventually removed. In April 2008, the Working Group on California Earthquake Probabilities (a collaborative effort of the U.S. Geological Survey (U.S.G.S.), the California Geological Society, and the Southern California Earthquake Center) reported that there is a 63% chance that one or more quakes of about magnitude 6.7 or larger will occur in the San Francisco Bay Area before the year 2038. Such earthquakes may be very destructive. For example, the U.S.G.S. predicts a magnitude 7 earthquake occurring today on the Hayward Fault would likely cause hundreds of deaths and almost $100 billion of damage. In addition to the potential damage to City- owned buildings and facilities (on which the City does not generally carry earthquake insurance), due to the importance of San Francisco as a tourist destination and regional hub of commercial, retail and entertainment activity, a major earthquake anywhere in the Bay Area may cause significant temporary and possibly longer- term harm to the City's economy, tax receipts, and residential and business real property values. 14 TAX MATTERS Federal Income Tax Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed with them, and certain other matters. The City has covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Subject to the City's compliance with the above-referenced covenants, under present law, in the separate opinions of Co-Bond Counsel, interest on the Bonds is excludable from the gross income of their owners for federal income tax purposes, and thus will be exempt from present Federal income taxes based on gross income. Interest on the Bonds is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. The Internal Revenue Code of 1986, as amended (the "Code"), includes provisions for an alternative minimum tax ("AMT") for corporations in addition to the corporate regular tax in certain cases. The AMT, if any, depends upon the corporation's alternative minimum taxable income ("AMTI"), which is the corporation's taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (excluding S Corporations, Regulated Investment Companies, Real Estate Investment Trusts, REMICS and FASITs) is an amount equal to 75% of the excess of such corporation's "adjusted current earnings" over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). "Adjusted current earnings" would include all tax exempt interest, including interest on the Bonds. Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Co-Bond Counsel will express no opinion with respect to any such collateral consequences with respect to the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors regarding the collateral consequences arising with respect to the Bonds described in this paragraph. If a Bond is purchased at any time for a price that is less than the Bond's stated redemption price at maturity, the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser's election, as it accrues. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. An investor may purchase a Bond for a price in excess of its stated principal amount at maturity. (Such Bond is referred to as a "Premium Bond"). Such excess is characterized for federal income tax purposes as "bond premium" and must be amortized by an investor on a constant yield basis over the remaining term of the Premium Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a Premium Bond. The amortized bond premium is treated as a reduction in the amount of tax-exempt interest received. As bond premium is amortized, it reduces the investor's basis in the Bond. Investors who purchase a Premium Bond should consult their own tax advisors 15 regarding the amortization of bond premium and its effect on the Premium Bond's basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of such Premium Bond. Owners of Bonds who dispose of Bonds prior to their stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from their issue price, or purchase Bonds subsequent to the initial public offering should consult their own tax advisors as to the federal, state or local tax consequences of such dispositions or purchases. State and Local Taxes In the separate opinions of Co-Bond Counsel, interest on the Bonds is exempt from present California personal income taxes under present California law. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Co-Bond Counsel will express no opinion with respect to any such state and local tax consequences with respect to the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors regarding any state and local tax consequences arising with respect to the Bonds. Basis of Co-Bond Counsel Opinions The separate opinions of Co-Bond Counsel to be delivered concurrently with the delivery of the Bonds and the descriptions of the tax law contained in this Official Statement are based on statutes, judicial decisions, regulations, rulings and other official interpretations of law in existence on the date the Bonds are issued. There can be no assurance that such law or those interpretations will not be changed or that new provisions of law will not be enacted or promulgated at any time while the Bonds are outstanding in a manner that would adversely affect the market value or liquidity or the tax treatment of ownership of the Bonds. Co- Bond Counsel have not undertaken to provide advice with respect to any such future changes. Each of the opinions of Co-Bond Counsel expresses the professional judgment of the attorneys rendering the opinion on the legal issues explicitly addressed in the opinion. By rendering a legal opinion, the opinion giver does not undertake to be an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction. Rendering an opinion does not guarantee the outcome of any legal dispute that may arise out of the transaction. In rendering their opinions on tax exemption, Co-Bond Counsel will receive and rely upon certifications and representations of facts, calculations, estimates and expectations furnished by the City and others which Co-Bond Counsel will not have verified independently. Risk of Audit The Internal Revenue Service ("IRS") conducts a program of audits of issues of tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from the gross income of the owners of such obligations for federal income tax purposes. Whether or not the IRS will decide to audit the Bonds cannot be predicted. If the IRS begins an audit of the Bonds, under current IRS procedures, the IRS will treat the City as the taxpayer subject to the audit and the holders of the Bonds may not have the right to participate in the audit proceedings. The fact that an audit of the Bonds is pending could adversely affect the liquidity or market price of the Bonds until the audit is concluded even if the result of the audit is favorable. Legislation From time to time, there are legislative proposals pending in the Congress of the United States that, if enacted, could alter or amend the federal tax matters referred to in this section or adversely affect the market 16 price or liquidity of the Bonds. An example is the American Jobs Act of 2011 (S. 1549), proposed by the President and introduced in the Senate on September 13, 2011. If enacted as introduced, a provision of S. 1549 would limit the amount of exclusions (including tax-exempt interest) and deductions available to certain high income taxpayers for taxable years after 2012, and as a result could affect the market price or marketability of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to Bonds issued prior to enactment. It cannot be predicted whether or in what form any such proposal might be introduced in Congress or enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisers regarding any pending or proposed federal tax legislation. Co-Bond Counsel will express no opinion regarding any pending or proposed federal tax legislation. Backup Withholding Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the Bonds, are in most cases required to be reported to the IRS. Additionally, backup withholding may apply to any such payments to any owner of Bonds who fails to provide an accurate Form W-9 Payers Request for Taxpayer Identification Number, or a substantially identical form, or to any such owner who is notified by the IRS of a failure to report all interest and dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. OTHER LEGAL MATTERS Certain legal matters incident to the authorization, issuance and sale of the Bonds and with regard to the tax status of the interest on the Bonds (see "TAX MATTERS" herein) are subject to the legal opinions of Schiff Hardin LLP, San Francisco, California, and Lofton & Jennings, San Francisco, California, Co-Bond Counsel to the City. The signed legal opinions of Co-Bond Counsel, dated and premised on facts existing and law in effect as of the date of original delivery of the Bonds, will be delivered to the initial purchaser of the Bonds at the time of original delivery of the Bonds. The proposed forms of the legal opinions of Co-Bond Counsel are set forth in APPENDIX F hereto. The legal opinions to be delivered may vary that text if necessary to reflect facts and law on the date of delivery. The opinions will speak only as of their date, and subsequent distributions of them by recirculation of this Official Statement or otherwise will create no implication that Co-Bond Counsel have reviewed or express any opinion concerning any of the matters referred to in the respective opinions subsequent to their date. In rendering their opinions, Co-Bond Counsel will rely upon certificates and representations of facts to be contained in the transcript of proceedings for the Bonds, which Co-Bond Counsel will not have independently verified. Co-Bond Counsel undertake no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the City by the City Attorney and by Hawkins Delafield & Wood LLP, San Francisco, California, Disclosure Counsel. Hawkins Delafield & Wood LLP has served as disclosure counsel to the City and in such capacity has advised the City with respect to applicable securities laws and participated with responsible City officials and staff in conferences and meetings where information contained in this Official Statement was reviewed for accuracy and completeness. Disclosure Counsel is not responsible for the accuracy or completeness of the statements or information presented in this Official Statement and has not undertaken to independently verify any of such statements or information. Rather, the City is solely responsible for the accuracy and completeness of the statements and information contained in this Official Statement. Upon the delivery of the Bonds, Disclosure Counsel will deliver a letter to the City which advises the City, subject to the assumptions, 17 exclusions, qualifications and limitations set forth therein, that no facts came to attention of the attorneys at such firm which caused them to believe that this Official Statement as of its date and as of the date of delivery of the Bonds contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No purchaser or holder of the Bonds, or other person or party other than the City, will be entitled to or may rely on such letter or Hawkins Delafield & Wood LLP's having acted in the role of disclosure counsel to the City. PROFESSIONALS INVOLVED IN THE OFFERING Montague DeRose and Associates, LLC, Walnut Creek, California and Ross Financial, San Francisco, California, have served as Co-Financial Advisors to the City with respect to the sale of the Bonds. The Co- Financial Advisors have assisted the City in the review of this Official Statement and in other matters relating to the planning, structuring, and sale of the Bonds. The Co-Financial Advisors have not independently verified any of the data contained herein nor conducted a detailed investigation of the affairs of the City to determine the accuracy or completeness of this Official Statement and assume no responsibility for the accuracy or completeness of any of the information contained herein. The Co-Financial Advisors, Co-Bond Counsel and Disclosure Counsel will all receive compensation from the City for services rendered in connection with the Bonds contingent upon the sale and delivery of the Bonds. The City Treasurer is acting as paying agent and registrar with respect to the Bonds. ABSENCE OF LITIGATION No litigation is pending or threatened concerning the validity of the Bonds, the ability of the City to levy the ad valorem tax required to pay debt service on the Bonds, the corporate existence of the City, or the entitlement to their respective offices of the officers of the City who will execute and deliver the Bonds and other documents and certificates in connection therewith. The City will furnish to the initial purchaser of the Bonds a certificate of the City as to the foregoing as of the time of the original delivery of the Bonds. CONTINUING DISCLOSURE The City has covenanted for the benefit of the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the City (the "Annual Report") not later than 270 days after the end of the City's fiscal year (which currently ends on June 30), commencing with the report for fiscal year 2011-12, which is due not later than March 27, 2013, and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board ("MSRB"). The notices of enumerated events will be filed by the City with the MSRB. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is summarized in APPENDIX D – "FORM OF CONTINUING DISCLOSURE CERTIFICATE." These covenants have been made in order to assist the Underwriter of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the "Rule"). The City has never failed to comply in all material respects with any previous undertakings with regard to the Rule to provide annual reports or notices of enumerated events. The City may, from time to time, but is not obligated to, post its Comprehensive Annual Financial Report and other financial information on the City Controller's web site at www. sfgov.org/ controller. RATINGS Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services ("S&P"), and Fitch Ratings ("Fitch"), have assigned municipal bond ratings of "Aa2," "AA," and "AA-," respectively, to the 18 Bonds. Certain information not included in this Official Statement was supplied by the City to the rating agencies to be considered in evaluating the Bonds. The ratings reflect only the views of each rating agency, and any explanation of the significance of any rating may be obtained only from the respective credit rating agencies: Moody's, at www.moodys.com; S&P, at www.sandp.com; and Fitch, at www.fitchratings.com. The information presented on the website of each rating agency is not incorporated by reference as part of this Official Statement. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. No assurance can be given that any rating issued by a rating agency will be retained for any given period of time or that the same will not be revised or withdrawn entirely by such rating agency, if in its judgment circumstances so warrant. Any such revision or withdrawal of the ratings obtained may have an adverse effect on the market price or marketability of the Bonds. The City undertakes no responsibility to oppose any such downward revision, suspension or withdrawal. SALE OF THE BONDS The Bonds were sold at competitive bid on August 14, 2012. The Bonds were awarded to Citigroup Global Markets Inc. (the "Purchaser"), which submitted the lowest true interest cost bid, at a purchase price of $330,273,920. Under the terms of its bid, the Purchaser will be obligated to purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to the approval of certain legal matters by Co-Bond Counsel, and certain other conditions to be satisfied by the City. The Purchaser has certified the reoffering prices or yields for the Bonds set forth on the inside cover of this Official Statement, and the City takes no responsibility for the accuracy of those prices or yields. Based on the reoffering prices, the original issue premium on the reoffering of the Bonds is $41,400,840, and the Purchaser's gross compensation (or "spread") is $491,921. The Purchaser may offer and sell Bonds to certain dealers and others at yields that differ from those stated on the inside cover. The offering prices or yields may be changed from time to time by the Purchaser. MISCELLANEOUS Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the initial purchaser or owners and beneficial owners of any of the Bonds. ______ The preparation and distribution of this Official Statement have been duly authorized by the Board of Supervisors of the City. CITY AND COUNTY OF SAN FRANCISCO By: /s/ Benjamin Rosenfield Controller 19 APPENDIX A CITY AND COUNTY OF SAN FRANCISCO ORGANIZATION AND FINANCES This Appendix contains information that is current as of July 25, 2012. This Appendix A to the Official Statement of the City and County of San Francisco (the “City” or “San Francisco”) covers general information about the City’s governance structure, budget processes, property taxation system and other tax and revenue sources, City expenditures, labor relations, employment benefits and retirement costs, and investments, bonds and other long-term obligations. The various reports, documents, websites and other information referred to herein are not incorporated herein by such references. The City has referred to certain specified documents in this Appendix A which are hosted on the City’s website. A wide variety of other information, including financial information, concerning the City is available from the City’s publications, websites and its departments. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded and is not a part of or incorporated into this Appendix A. The information contained in this Official Statement, including this Appendix A, speaks only as of its date, and the information herein is subject to change. Prospective investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. TABLE OF CONTENTS CITY GOVERNMENT AND ORGANIZATION ...... 3 City Charter...... 3 Mayor and Board of Supervisors...... 3 Other Elected and Appointed City Officers ...... 4 CITY BUDGET...... 5 Overview...... 5 Budget Process ...... 5 November 2009 Charter Amendment Instituting Two-Year Budgetary Cycle ...... 6 Role of Controller; Budgetary Analysis and Projections ...... 7 General Fund Results; Audited Financial Statements ...... 7 Five-Year Financial Plan...... 12 Fiscal Year 2011-12 Budget Update ...... 12 City Budget Adopted for Fiscal Years 2012-13 and 2013-14 ...... 12 Impact of the State of California Budget on Local Finances...... 13 Budgetary Reserves and Economic Stabilization...... 14 Rainy Day Reserve...... 14 Budget Stabilization Reserve ...... 15 General Reserve ...... 15 San Francisco Redevelopment Agency Dissolution...... 15 PROPERTY TAXATION ...... 18 Property Taxation System - General ...... 18 Assessed Valuations, Tax Rates and Tax Delinquencies ...... 19 Tax Levy and Collection ...... 21 Taxation of State-Assessed Utility Property ...... 23 OTHER CITY TAX REVENUES...... 23 Business Taxes ...... 23 Transient Occupancy Tax (Hotel Tax)...... 24 Real Property Transfer Tax ...... 25 Sales and Use Tax ...... 26 Utility Users Tax ...... 27 Emergency Response Fee; Access Line Tax...... 27 Parking Tax ...... 28 A-1 INTERGOVERNMENTAL REVENUES ...... 28 1991 Health and Welfare Realignment ...... 28 Public Safety Sales Tax...... 28 Other Intergovernmental Grants and Subventions ...... 28 Charges for Services...... 29 CITY GENERAL FUND PROGRAMS AND EXPENDITURES ...... 29 General Fund Expenditures by Major Service Area...... 29 Baselines ...... 30 Reserves ...... 31 EMPLOYMENT COSTS; POST-RETIREMENT OBLIGATIONS ...... 31 Labor Relations ...... 31 San Francisco Employees’ Retirement System...... 34 Medical Benefits ...... 39 Total City Employee Benefits Costs ...... 43 INVESTMENTS OF CITY FUNDS ...... 44 Investment Pool...... 44 Investment Policy...... 44 Investment Portfolio...... 44 Further Information ...... 46 CAPITAL FINANCING AND BONDS ...... 46 Capital Plan ...... 46 Tax-Supported Debt Service ...... 47 General Obligation Bonds Authorized but Unissued ...... 48 Refunding General Obligation Bonds ...... 49 Lease Payments and Other Long-Term Obligations ...... 49 Commercial Paper Program ...... 52 Board Authorized and Unissued Long-Term Obligations...... 52 Overlapping Debt ...... 53 MAJOR ECONOMIC DEVELOPMENT PROJECTS...... 55 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND EXPENDITURES ...... 58 Article XIII A of the California Constitution ...... 58 Article XIII B of the California Constitution ...... 59 Articles XIII C and XIII D of the California Constitution ...... 59 Statutory Limitations...... 59 Proposition 1A...... 60 Proposition 22 ...... 61 Proposition 26 ...... 61 Future Initiatives ...... 62 LITIGATION AND RISK MANAGEMENT...... 62 Pending Litigation...... 62 Risk Retention Program ...... 62 A-2 CITY GOVERNMENT City Charter San Francisco is governed as a city and county chartered pursuant to Article XI, Sections 3, 4, 5 and 6 of the Constitution of the State of California (the “State”), and is the only consolidated city and county in the State. In addition to its powers under its charter in respect of municipal affairs granted under the State Constitution, San Francisco generally can exercise the powers of both a city and a county under State law. On April 15, 1850, several months before California became a state, the original charter was granted by territorial government to the City. New City charters were adopted by the voters on May 26, 1898, effective January 8, 1900, and on March 26, 1931, effective January 8, 1932. In November 1995, the voters of the City approved the current charter, which went into effect in most respects on July 1, 1996 (the “Charter”). The City is governed by a Board of Supervisors consisting of eleven members elected from supervisorial districts (the “Board of Supervisors”), and a Mayor elected at large who serves as chief executive officer (the “Mayor”). Members of the Board of Supervisors and the Mayor each serve a four-year term. The Mayor and members of the Board of Supervisors are subject to term limits as established by the Charter. Members of the Board of Supervisors may serve no more than two successive four-year terms and may not serve another term until four years have elapsed since the end of the second successive term in office. The Mayor may serve no more than two successive four-year terms, with no limit on the number of non-successive terms of office. The City Attorney, Assessor- Recorder, District Attorney, Treasurer and Tax Collector, Sheriff, and Public Defender are also elected directly by the citizens and may serve unlimited four-year terms. The Charter provides a civil service system for most City employees. School functions are carried out by the San Francisco Unified School District (grades K-12) (“SFUSD”) and the San Francisco Community College District (post-secondary) (“SFCCD”). Each is a separate legal entity with a separately elected governing board. Under its original charter, the City committed itself to a policy of municipal ownership of utilities. The Municipal Railway, when acquired from a private operator in 1912, was the first such city-owned public transit system in the nation. In 1914, the City obtained its municipal water system, including the Hetch Hetchy watershed near Yosemite. In 1927, the City dedicated Mill’s Field Municipal Airport at a site in what is now San Mateo County 14 miles south of downtown San Francisco, which would grow to become today’s San Francisco International Airport (the “Airport”). In 1969, the City acquired the Port of San Francisco (the “Port”) in trust from the State. Substantial expansions and improvements have been made to these enterprises since their original acquisition. The Airport, the Port, the Public Utilities Commission (“Public Utilities Commission”) (which now includes the Water Enterprise, the Wastewater Enterprise and the Hetch Hetchy Water and Power Project), the Municipal Transportation Agency (“MTA”) (which operates the San Francisco Municipal Railway or “Muni” and the Department of Parking and Traffic (“DPT”), including the Parking Authority and its five public parking garages), and the City-owned hospitals (San Francisco General and Laguna Honda), are collectively referred to herein as the “enterprise fund departments,” as they are not integrated into the City’s General Fund operating budget. However, certain of the enterprise fund departments, including San Francisco General Hospital, Laguna Honda Hospital and the MTA receive significant General Fund transfers on an annual basis. The Charter distributes governing authority among the Mayor, the Board of Supervisors, the various other elected officers, the City Controller and other appointed officers, and the boards and commissions that oversee the various City departments. Compared to the governance of the City prior to 1995, the Charter concentrates relatively more power in the Mayor and Board of Supervisors. The Mayor appoints most commissioners subject to a two-thirds vote of the Board of Supervisors, unless otherwise provided in the Charter. The Mayor appoints each department head from among persons nominated to the position by the appropriate commission, and may remove department heads. Mayor and Board of Supervisors Edwin M. Lee is the 43rd and current Mayor of the City. The Mayor is the chief executive officer of the City, with responsibility for general administration and oversight of all departments in the executive branch of the City. Mayor Lee was elected to his current four-year term as Mayor on November 8, 2011. Prior to being elected Mayor, Mayor Lee was appointed by the Board of Supervisors in January 2011 to fill the remaining year of former Mayor Gavin Newsom’s term when Mayor Newsom was sworn in as the State’s Lieutenant Governor. Prior to his appointment, A-3 Mayor Lee served as the City Administrator from 2005 up until his appointment to Mayor. He also was the City’s Director of Public Works. Mayor Lee previously worked as the City’s Director of Purchasing and as the Director of the Human Rights Commission. Mayor Lee has also served as the Deputy Director of the Employee Relations Division and coordinator for the Mayor’s Family Policy Task Force. Table A-1 lists the current members of the Board of Supervisors TABLE A-1 CITY AND COUNTY OF SAN FRANCISCO Board of Supervisors First Elected or Current Name Appointed Term Expires David Chiu, Board President, District 3 2008 2013 Mark Farrell, District 2 2010 2015 John Avalos, District 11 2008 2013 David Campos, District 9 2008 2013 Carmen Chu, District 4 2007 2015 Jane Kim, District 6 2010 2015 Scott Wiener, District 8 2010 2015 Sean Elsbernd, District 7 2004 2013 Eric Mar, District 1 2008 2013 Malia Cohen, District 10 2010 2015 Christina Olague, District 5 2012 2013 Other Elected and Appointed City Officers Dennis J. Herrera was re-elected to his third four-year term as City Attorney in November 2009. The City Attorney represents the City in legal proceedings in which the City has an interest. Mr. Herrera was first elected City Attorney in December 2001. Before becoming City Attorney, Mr. Herrera had been a partner in a private law firm and had served in the Clinton Administration as Chief of Staff of the U.S. Maritime Administration. He also served as president of the San Francisco Police Commission and was a member of the San Francisco Public Transportation Commission. Philip Y. Ting was re-elected to his second four-year term as Assessor-Recorder of the City in November 2010. The Assessor-Recorder administers the property tax assessment system of the City. Mr. Ting was first elected Assessor- Recorder at a special election held on November 8, 2005, after being appointed by then-Mayor Newsom in July 2005, upon the mid-term resignation of his predecessor. Mr. Ting’s professional experience includes positions as senior consultant for Arthur Andersen, Associate Director of Governmental and Community Relations at San Francisco State University, and former Executive Director of the Asian Law Caucus. José Cisneros was re-elected to a four-year term as Treasurer of the City in November 2009. The Treasurer is responsible for the deposit and investment of all City moneys, and also acts as Tax Collector for the City. Mr. Cisneros has served as Treasurer since September 2004, following his appointment by then-Mayor Newsom. Prior to being appointed Treasurer, Mr. Cisneros served as Deputy General Manager, Capital Planning and External Affairs for the MTA. Benjamin Rosenfield was appointed to a ten-year term as Controller of the City by then-Mayor Newsom in March 2008, and was confirmed by the Board of Supervisors in accordance with the Charter. The City Controller is responsible for timely accounting, disbursement, and other disposition of City moneys, certifies the accuracy of budgets, estimates the cost of ballot measures, provides payroll services for the City’s employees, and as the Auditor for the City, directs performance and financial audits of City activities. Before becoming Controller, Mr. Rosenfield served as the Deputy City Administrator under former City Administrator Edwin Lee from 2005 to 2008. He was responsible for the preparation and monitoring of the City’s ten-year capital plan, oversight of a number of internal service offices under the City Administrator, and implementing the City’s 311 non-emergency customer service A-4 center. From 2001 to 2005, Mr. Rosenfield worked as the Budget Director for then-Mayor Willie L. Brown, Jr. and then-Mayor Newsom. As Budget Director, Mr. Rosenfield prepared the City’s proposed budget for each fiscal year and worked on behalf of the Mayor to manage City spending during the course of each year. From 1997 to 2001, Mr. Rosenfield worked as an analyst in the Mayor’s Budget Office and a project manager in the Controller’s Office. Naomi M. Kelly was appointed to a five-year term as City Administrator by Mayor Lee on February 7, 2012. The City Administrator has overall responsibility for the management and implementation of policies, rules and regulations promulgated by the Mayor, the Board of Supervisors and the voters. In January 2012, Mrs. Kelly became Acting City Administrator. From January 2011, she served as Deputy City Administrator where she was responsible for the Office of Contract Administration, Purchasing, Fleet Management and Central Shops. Mrs. Kelly led the effort to successfully roll out the City’s new Local Hire program last year by streamlining rules and regulations, eliminating duplication and creating administrative efficiencies. In 2004, Mrs. Kelly served as the City Purchaser and Director of the Office of Contract Administration. Mrs. Kelly has also served as Special Assistant in the Mayor’s Office of Neighborhood Services, in the Mayor’s Office of Policy and Legislative Affairs and served as the City’s Executive Director of the Taxicab Commission. CITY BUDGET Overview This section discusses the City’s budget procedures, while following sections of this Appendix A describe the City’s various sources of revenues and expenditure obligations. The City manages the operations of its nearly 60 departments, commissions and authorities, including the enterprise fund departments, through its annual budget. For the first time in July 2012 the City adopted a full two-year budget. The City’s fiscal year 2012-13 adopted budget appropriates annual revenues, fund balance, transfers, and reserves of approximately $7.35 billion, of which the City’s General Fund accounts for approximately $3.49 billion. In fiscal year 2013-14 appropriated revenues, fund balance, transfers and reserves total approximately $7.57 billion and $3.60 billion of General Fund budget. For a further discussion of the fiscal years 2012-13 and 2013-14 adopted budgets, see “City Budget Adopted for fiscal years 2012-13 and 2013-14” herein. Each year the Mayor prepares budget legislation for the City departments, which must be approved by the Board of Supervisors. Revenues consist largely of local property taxes, business taxes, sales taxes, other local taxes, and charges for services. A significant portion of the City’s revenues comes in the form of intergovernmental transfers from the State and federal governments. Thus the City’s fiscal situation is affected by the health of the local real estate market, the local business and tourist economy, and on budgetary decisions made by the State and federal governments which depend, in turn, on the health of the larger State and national economies. All of these factors are almost wholly outside the control of the Mayor, the Board of Supervisors, and other City officials. In addition, the State Constitution strictly limits the City’s ability to raise taxes and property-based fees without a two-thirds popular vote. Also, the fact that the City’s annual budget must be adopted before the State and federal budgets, adds uncertainty to the budget process, and necessitates flexibility so that spending decisions can be adjusted during the course of the fiscal year. See “CITY GENERAL FUND PROGRAMS AND EXPENDITURES” herein. Budget Process The City’s fiscal year commences on July 1. The City’s budget process for each fiscal year begins in the middle of the preceding fiscal year as departments prepare their budgets and seek any required approvals from the applicable City board or commission. Departmental budgets are consolidated by the City Controller, and then transmitted to the Mayor no later than the first working day of March. By the first working day of May, the Mayor is required to submit a proposed budget to the Board of Supervisors for certain specified departments, based on criteria set forth in the Administrative Code. On or before the first working day of June, the Mayor is required to submit the complete budget, including all departments, to the Board of Supervisors. Under the Charter, following the submission of the Mayor’s proposed budget, the City Controller must provide an opinion to the Board of Supervisors regarding the accuracy of economic assumptions underlying the revenue estimates and the reasonableness of such estimates and revisions in the proposed budget (the City Controller’s “Revenue Letter”). The City Controller may also recommend reserves that are considered prudent given the A-5 proposed resources and expenditures contained in the Mayor’s proposed budget. The City Controller’s current Revenue Letter can be viewed online at www.sfcontroller.org. The Revenue Letter and other information from the said website are not incorporated herein by reference. The City’s Capital Planning Committee also reviews the proposed budget and provides recommendations based on the budget’s conformance with the City’s adopted ten- year capital plan. For a further discussion of the Capital Planning Committee and the City’s ten-year capital plan, see “CAPITAL FINANCING AND BONDS – Capital Plan” herein. The City is required by the Charter to adopt a budget which is balanced in each fund. During its budget approval process, the Board of Supervisors has the power to reduce or augment any appropriation in the proposed budget, provided the total budgeted appropriation amount in each fund is not greater than the total budgeted appropriation amount for such fund submitted by the Mayor. The Board of Supervisors must approve the budget by adoption of the Annual Appropriation Ordinance (also referred to herein as the “Original Budget”) by no later than August 1 of each year. The Annual Appropriation Ordinance becomes effective with or without the Mayor’s signature after ten days; however, the Mayor has line-item veto authority over specific items in the budget. Additionally, in the event the Mayor were to disapprove the entire ordinance, the Charter directs the Mayor to promptly return the ordinance to the Board of Supervisors, accompanied by a statement indicating the reasons for disapproval and any recommendations which the Mayor may have. Any Annual Appropriation Ordinance so disapproved by the Mayor shall become effective only if, subsequent to its return, it is passed by a two-thirds vote of the Board of Supervisors. Following the adoption and approval of the Annual Appropriation Ordinance, the City makes various revisions throughout the fiscal year (the Original Budget plus any changes made to date are collectively referred to herein as the “Revised Budget”). A “Final Revised Budget” is prepared at the end of the fiscal year reflecting the year-end revenue and expenditure appropriations for that fiscal year. November 2009 Charter Amendment Instituting Two-Year Budgetary Cycle On November 3, 2009, voters approved Proposition A amending the Charter to make changes to the City’s budget and financial processes which are intended to stabilize spending by requiring multi-year budgeting and financial planning. Proposition A requires three significant changes: Specifies a two-year (biennial) budget, replacing the annual budget. Two-year budgets have been prepared for the following four pilot departments in fiscal year 2010-11: the Airport, the Port, the Public Utilities Commission, and MTA. MTA already implemented a two-year budgeting process as a result of the passage of a previous measure, also known as Proposition A, in November 2007. Two-year budgets were prepared for all departments beginning in fiscal year 2012-13. Requires a five-year financial plan, which forecasts revenues and expenses and summarizes expected public service levels and funding requirements for that period. The first five-year financial plan, including a forecast of expenditures and revenues and proposed actions to balance them in light of strategic goals, was adopted by the Board of Supervisors on June 7, 2011, and was updated on March 7, 2012. See “Five Year Financial Plan” below. Standardizes the processes and deadlines for the City to submit labor agreements for all public employee unions by May 15. Charges the Controller’s Office with proposing to the Mayor and Board of Supervisors financial policies addressing reserves, use of volatile revenues, debt, and financial measures in the case of disaster recovery and requires the City to adopt budgets consistent with these policies once approved. The Controller’s Office may recommend additional financial policies or amendments to existing policies no later than October 1 of any subsequent year. On April 13, 2010, the Board of Supervisors unanimously adopted policies to 1) codify the City’s current practice of maintaining an annual General Reserve for current year fiscal pressures not anticipated in the budget and roughly double the size of the General Reserve by fiscal year 2015-16, and 2) create a new Budget Stabilization Reserve funded by excess receipts from volatile revenue streams to augment the existing Rainy Day Reserve to help the City A-6 mitigate the impact of multi-year downturns. On November 8 and 22, 2011, the Board of Supervisors unanimously adopted additional financial policies limiting the future approval of Certificates of Participation and other long-term obligations to 3.25% of discretionary revenue, and specifying that selected nonrecurring revenues may only be spent on nonrecurring expenditures. These policies are described in further detail below. The Controller’s Office may propose additional financial policies by October 1 of any year. Role of Controller; Budgetary Analysis and Projections As Chief Fiscal Officer and City Services Auditor, the City Controller monitors spending for all officers, departments and employees charged with receipt, collection or disbursement of City funds. Under the Charter, no obligation to expend City funds can be incurred without a prior certification by the City Controller that sufficient revenues are or will be available to meet such obligation as it becomes due in the then-current fiscal year, which ends June 30. The City Controller monitors revenues throughout the fiscal year, and if actual revenues are less than estimated, the City Controller may freeze department appropriations or place departments on spending “allotments” which will constrain department expenditures until estimated revenues are realized. If revenues are in excess of what was estimated, or budget surpluses are created, the City Controller can certify these surplus funds as a source for supplemental appropriations that may be adopted throughout the year upon approval of the Mayor and the Board of Supervisors. The City’s annual expenditures are often different from the estimated expenditures in the Annual Appropriation Ordinance due to supplemental appropriations, continuing appropriations of prior years, and unexpended current-year funds. Charter Section 3.105 directs the City Controller to issue periodic or special financial reports during the fiscal year. Each year, the City Controller issues six-month and nine-month budget status reports to apprise the City’s policymakers of the current budgetary status, including projected year-end revenues, expenditures and fund balances. The City Controller issued the most recent of these reports, the fiscal year 2011-12 Nine Month Budget Status Report (the “Nine Month Report”), on May 11, 2012. In addition, under Proposition A of November 2009, the Mayor must submit a Five-Year Financial Plan every two years to the Board of Supervisors which forecasts revenues and expenditures for the next five fiscal years and proposes actions to balance them. The Board of Supervisors approved the City’s first Five-Year Financial Plan on June 7, 2011. On March 7, 2012, an update to the five-year financial plan was released by the Controller’s Office, Mayor’s Office and Board of Supervisors Budget Analyst. See “Five Year Financial Plan” below. Finally, as discussed above, the City Charter directs the Controller to annually report on the accuracy of economic assumptions underlying the revenue estimates in the Mayor’s proposed budget. On June 14, 2012 the Controller released the Annual Revenue Letter (the “Annual Revenue Letter”) reviewing the proposed fiscal year 2012-13 and 2013-14 budget. All of these reports are available from the City Controller’s website: www.sfcontroller.org. The information from the said website is not incorporated herein by reference. General Fund Results; Audited Financial Statements The General Fund portions of the fiscal year 2012-13 and fiscal year 2013-14 Original Budgets total $3.49 billion, and $3.60 billion respectively. This does not include expenditures of other governmental funds and enterprise fund departments such as the Airport, the MTA, the Public Utilities Commission, the Port, and the City-owned hospitals (San Francisco General and Laguna Honda). Table A-2 shows Final Revised Budget revenues and appropriations for the City’s General Fund for fiscal years 2009-10 through 2010-11 and the Original Budgets for fiscal years 2011-12 through 2013-14. See “PROPERTY TAXATION –Tax Levy and Collection,” “OTHER CITY TAX REVENUES” and “CITY GENERAL FUND PROGRAMS AND EXPENDITURES” herein. The City’s most recently completed Comprehensive Annual Financial Report (the “CAFR” which includes the City’s audited financial statements) for fiscal year 2010-11 was issued on November 28, 2011. The fiscal year 2010-11 CAFR reported that as of June 30, 2011, the General Fund available for appropriation in fiscal year 2011- 12 was $168.5 million (see Table A-4), of which $159.4 million was assumed in the fiscal year 2011-12 Original Budget and $9.1 million remains available for future appropriations. This represents a $63.2 million increase in available fund balance over the $105.3 million available as of June 30, 2010 and resulted primarily from savings and greater-than-budgeted additional tax revenue, particularly property tax revenue, in fiscal year 2010-11. In addition to this available year-end General Fund balance, the City’s Rainy Day Reserve Economic Stabilization Account totaled $33.4 million. A-7 TABLE A-2 CITY AND COUNTY OF SAN FRANCISCO Budgeted General Fund Revenues and Appropriations for Fiscal Years 2009-10 through 2013-14 (000s) FY2009-10 FY2010-11 FY2011-12 FY2012-13 FY2013-14 FinalRevised FinalRevised Original Original Original Budget Budget Budget 2 Budget 3 Budget 3 Prior-YearBudgetaryFundBalance&Reserves $390,512 $312,040 $172,142 $120,654 $120,027 Budgeted Revenues PropertyTaxes $1,021,015 $984,843 $1,028,677 $1,078,083 $1,109,675 BusinessTaxes 371,848 342,350 389,878 452,806 488,811 OtherLocalTaxes 456,140 528,470 602,255 733,295 748,852 Licenses,PermitsandFranchises 25,138 23,242 24,337 25,332 25,665 Fines,ForfeituresandPenalties 11,662 3,794 7,710 7,174 7,133 InterestandInvestmentEarnings 10,984 9,547 6,050 6,776 5,798 RentsandConcessions 19,884 22,346 22,895 21,424 20,964 GrantsandSubventions 686,058 681,090 678,378 700,184 721,213 ChargesforServices 146,680 145,443 153,546 166,763 171,774 Other 21,713 30,929 18,254 17,640 19,866 TotalBudgetedRevenues $2,771,122 $2,772,054 $2,931,980 $3,209,477 $3,319,751 BondProceeds&RepaymentofLoans 1,725 785 588 627 2,434 Expenditure Appropriations PublicProtection $954,816 $951,516 $998,237 $1,058,689 $1,087,646 PublicWorks,Transportation&Commerce 44,276 25,763 51,588 67,529 64,921 HumanWelfare&NeighborhoodDevelopment 657,274 650,622 672,834 670,375 679,154 CommunityHealth 481,805 513,625 575,446 609,892 620,199 CultureandRecreation 93,755 100,043 100,740 111,066 113,787 GeneralAdministration&Finance 174,907 178,709 199,011 197,994 207,196 General City Responsibilities1 96,336 88,755 86,225 103,613 111,085 TotalExpenditureAppropriations $2,503,169 $2,509,032 $2,684,081 $2,819,159 $2,883,988 Budgetaryreservesanddesignations,net $16,653 $6,213 $49,500 $51,756 $42,948 TransfersIn $94,678 $119,027 $157,199 $155,950 $155,782 TransfersOut (564,945) (504,740) (528,328) (615,793) (671,058) NetTransfersIn/Out ($470,267) ($385,713) ($371,129) ($459,843) ($515,276) Budgeted Excess (Deficiency) of Sources Over(Under)Uses $173,270 $183,921 $0 $0 $0 VarianceofActualvs.Budget 138,770 243,965 TotalActualBudgetaryFundBalance $312,040 $427,886 $0 $0 $0 1 Over the past five years, the City has consolidated various departmentsto achieve operational efficiencies. Thisresulted in changes in howdepartments were summarized in the service area groupings above for the time periods shown. 2 FY 2011-12 Final Revised Budget available upon release of the FY 2011-12 CAFR. 3 FY 2012-13 and FY2013-14 Original Budget Prior-Year Budgetary Fund Balance & Reserves willbe reconciled withthe previousyear's Final Revised Budget. Total ActualBudgetaryFund Balance available upon release of the FY 2011-12 Final Revised Budget in the CAFR. Source: Office of the Controller, Cityand County of San Francisco. A-8 The City prepares its budget on a modified accrual basis. Accruals for incurred liabilities, such as claims and judgments, workers’ compensation, accrued vacation and sick leave pay are funded only as payments are required to be made. The audited General Fund balance as of June 30, 2011 was $328.0 million (as shown in Table A-4) using Generally Accepted Accounting Principles (“GAAP”), derived from audited revenues of $3.0 billion. Audited General Fund balances are shown in Table A-3 on both a budget basis and a GAAP basis with comparative financial information for the fiscal years ended June 30, 2007 through June 30, 2011. TABLE A-3 CITY AND COUNTY OF SAN FRANCISCO Summary of Audited General Fund Balances Fiscal Year Ended June 30 1 (000s) 2007 2008 2009 2010 2011 Restricted for rainy day (Economic Stabilization account) $117,556 $117,556 $98,297 $39,582 $33,439 2 Restrictedforrainyday(One-timeSpendingaccount) 16,066 236 - - - 2 Committedforbudgetstabilization(citywide) - - - - 27,183 CommittedforRecreation&Parksexpendituresavingsreserve - 3,266 6,575 4,677 6,248 2 Assigned, not available for appropriation Assigned for encumbrances 60,948 63,068 65,902 69,562 57,846 2 Assigned for appropriation carryforward 161,128 99,959 91,075 60,935 73,984 2 Assigned for baseline appropriation funding mandates 2,891 1,491 - - - 2 Assigned for budget savings incentive program (citywide) 10,540 16,181 - - 8,684 2 Assigned for salaries and benefits (MOU) 11,806 12,777 316 4,198 7,151 2 Assignedforlitigation 6,824 2,626 - - - 2 TotalFundBalanceNotAvailableforAppropriation $387,759 $317,160 $262,165 $178,954 $214,535 3 Assigned and unassigned, available for appropriation Assigned for litigation & contingencies $43,794 $38,969 $32,900 $27,758 $44,900 4 Assigned for subsequent year's budget 131,882 105,064 95,447 105,328 159,390 5 Unassigned (available for future appropriation) - - - - 9,061 Total Fund Balance Available for Appropriation $175,676 $144,033 $128,347 $133,086 $213,351 6 Total Fund Balance, Budget Basis $563,435 $461,193 $390,512 $312,040 $427,886 Budget Basis to GAAP Basis Reconciliation TotalFundBalance-BudgetBasis $563,435 $461,193 $390,512 $312,040 $427,886 Unrealizedgainorlossoninvestments (376) (2,629) (1,148) 1,851 1,610 Nonspendable fund balance 12,665 11,358 11,307 14,874 20,501 7 CumulativeExcessPropertyTaxRevenuesRecognizedonBudgetBasis (30,940) (34,629) (56,426) (71,967) (43,072) Cumulative Excess Health, Human Service, Franchise Tax and other Revenues on - (26,071) (37,940) (55,938) (63,898) Budget Basis DeferredAmountsonLoanReceivables (3,323) (3,587) (4,630) (9,082) (13,561) Pre-paid lease revenue - - - - (1,460) Total Fund Balance, GAAP Basis $541,461 $405,635 $301,675 $191,778 $328,006 1 Summary of financial information derived from City CAFRs. GASB Statement 54, issued in March 2009, and implemented in the City's FY 2010-11 CAFR, establishes a new fund balance classification based primarily on the extent to which a government is bound to observe constraints imposed on the use of funds. Subsequent footnotes in this table provide the former descriptive titles for 2011 fund balance amounts. 2 Prior to 2011, each line item was titled "reserved" for the purpose indicated 3 Prior to 2011, titled "Total Reserved Fund Balance" 4 Prior to 2011, titled "Designated for litigation and contingencies" 5 Prior to 2011, titled "Unreserved, undesignated fund balance available for appropriation" 6 Prior to 2011, titled "Total Unreserved Fund Balance" 7 Prior to 2011, titled "Reserved for Assets Not Available for Appropriation" Source: Office of the Controller, City and County of San Francisco. A-9 Table A-4, entitled “Audited Statement of Revenues, Expenditures and Changes in General Fund Balances,” is extracted from information in the City’s CAFR for the five most recent fiscal years. Audited financial statements for the fiscal year ended June 30, 2011 are included herein as Appendix B – “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AND COUNTY OF SAN FRANCISCO FOR THE YEAR ENDED JUNE 30, 2011.” Prior years’ audited financial statements can be obtained from the City Controller’s website. Information from the City Controller’s website is not incorporated herein by reference. Excluded from this statement of General Fund revenues and expenditures in Table A-4 are fiduciary funds, internal service funds, special revenue funds (which relate to proceeds of specific revenue sources which are legally restricted to expenditures for specific purposes) and all of the enterprise fund departments of the City, each of which prepares separate audited financial statements. [Remainder of Page Intentionally Left Blank.] A-10 TABLE A-4 CITY AND COUNTY OF SAN FRANCISCO Audited Statement of Revenues, Expenditures and Changes in General Fund Balances Fiscal Year Ended June 30 1 (000s) 2007 2008 2009 2010 2011 Revenues: Property Taxes $887,690 $939,812 $999,528 $1,044,740 $1,090,776 Business Taxes 336,757 394,267 387,313 353,471 391,057 OtherLocalTaxes 540,695 519,867 479,194 520,733 608,197 Licenses, Permits and Franchises 19,639 23,212 24,750 24,249 25,252 Fines,ForfeituresandPenalties 4,720 8,398 5,618 17,279 6,868 Interest and Investment Income 30,089 15,779 9,193 7,900 5,910 Rents and Concessions 18,449 19,490 19,096 18,733 21,943 Intergovernmental 663,321 649,923 645,365 651,074 657,238 Charges for Services 125,682 135,473 135,926 138,615 146,631 Other 21,697 17,948 11,199 21,856 10,377 Total Revenues $2,648,739 $2,724,169 $2,717,182 $2,798,650 $2,964,249 Expenditures: Public Protection $800,383 $881,009 $889,594 $948,772 $950,548 Public Works, Transportation & Commerce 65,184 69,944 61,812 40,225 25,508 Human Welfare and Neighborhood Development 568,241 613,135 630,112 632,713 610,063 Community Health 410,169 454,935 487,638 473,280 493,939 Culture and Recreation 93,992 105,036 97,415 94,895 99,156 General Administration & Finance 166,673 196,430 170,109 169,980 175,381 General City Responsibilities 56,834 71,885 73,904 87,267 85,422 Total Expenditures $2,161,476 $2,392,374 $2,410,584 $2,447,132 $2,440,017 Excess of Revenues over Expenditures $487,263 $331,795 $306,598 $351,518 $524,232 Other Financing Sources (Uses): Transfers In $71,277 $70,969 $136,195 $94,115 $108,072 Transfers Out (486,600) (543,640) (550,910) (559,263) (502,378) Other Financing Sources 8,245 5,050 4,157 3,733 6,302 Other Financing Uses ----- Total Other Financing Sources (Uses) ($407,078) ($467,621) ($410,558) ($461,415) ($388,004) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses $80,185 ($135,826) ($103,960) ($109,897) $136,228 TotalFundBalanceatBeginningofYear 461,276 $541,461 405,635 $301,675 $191,778 1 Total Fund Balance at End of Year -- GAAP Basis $541,461 $405,635 $301,675 $191,778 $328,006 Assigned for Subsequent Year's Appropriations and Unassigned Fund Balance, Year End [2] -- GAAP Basis $141,037 $77,117 $28,203 ($2,050) $48,070 2 --BudgetBasis $131,882 $105,064 $95,447 $105,328 $168,451 3 1 Summary of financial information derived from City CAFRS. Fund Balances include amounts reserved for Rainy Day (Economic Stabilization and One- time Spending accounts), encumbrances, appropriation carryforwards and other purposes (as required by the Charter or appropriate accounting practices) as well as unreserved designated and undesignated available fund balances (which amounts constitute unrestricted General Fund balances). 2 Prior to adoption of GASB Statement 54 in 2011, titled "Unreserved & Undesignated Balance, Year End" 3 Total for FY 2010-11 amount is comprised of $159.4 million in assigned balance subsequently appropriated for use in FY 2011-12 plus $9.1 million in unassigned balance available for future appropriations. Sources: Comprehensive Annual Financial Report. Office of the Controller, City and County of San Francisco. A-11 Five-Year Financial Plan The Five-Year Financial Plan is required under Proposition A, a Charter amendment approved by voters in November 2009. The Charter requires the plan to forecast expenditures and revenues for the next five-fiscal years, propose actions to balance revenues and expenditures during each year of the plan, and discuss strategic goals and corresponding resources for City departments. The first Five-Year Financial Plan, covering fiscal years 2011-12 through 2015-16, was prepared by the Mayor’s Office and Controller’s Office in collaboration with City departments and adopted by the Board of Supervisors on June 7, 2011. An update to the adopted Five-Year Financial Plan was prepared by the Controller’s Office, Mayor’s Office and Board of Supervisors Budget Analyst on March 7, 2012. The Five Year Financial Plan Update for General Fund Supported Operations for fiscal year 2012- 13 through fiscal year 2015-16 projected budgetary shortfalls of $170 million, $312 million, $492 million and $495 million over the next four fiscal years. The report projects continued recovery in local tax revenues. However, projected increases in employee salary and benefits, citywide operating expenses, and departmental costs are rising faster than projected revenue growth. To the extent budgets are balanced with ongoing savings or revenues, future shortfalls will decrease. The Mayor submitted a balanced two-year budget for fiscal year 2012-13 and fiscal year 2013-14 to the Board of Supervisors on May 31, 2012, closing the $170 million and $312 million budget gaps identified in the Five Year Financial Plan Update. Strategies used to balance the budget are discussed in the budget section below. To the extent that the Mayor’s budget is balanced with ongoing savings or revenues, this will reduce the projected deficits for subsequent fiscal years. Employee pension costs, wages and other benefit growth are the single largest driver of cost growth and the imbalance between revenues and expenditures, growing by $648 million, or 32%, during the five years of the plan. Benefit costs alone are projected to grow 62% by fiscal year 2015-16. In contrast, total General Fund revenues are projected to grow only $416 million over the same period, or 11%. Other costs projected to increase include: Professional & Contractual Services ($127 million, 19%); Aid Assistance and Grants ($56 million, 13%); Materials and Supplies ($49 million, 43%); and Capital and Debt Service ($100 million, 157%). The plan proposes the following strategies to restore fiscal stability: controlling capital spending and debt restructuring; controlling wage and benefit costs; additional tax and fee revenues; adjustments to baselines and revenue allocations; limiting growth in contract and materials costs; reduced reliance on non-recurring revenues and savings; and ongoing departmental revenues and savings initiatives. A new Five-Year Financial Plan, covering fiscal years 2013-14 through 2017-18, is expected to be prepared by the Mayor’s Office and Controller’s Office in collaboration with City departments by February 2013. Fiscal Year 2011-12 Budget Update On May 11, 2012, the Controller’s Office issued the Nine Month Report which projected the General Fund would end fiscal year 2011-12 with a surplus of $172.4 million. The surplus is made up of $9.1 million in better than anticipated starting fund balance, $127.4 million in better than anticipated Citywide revenues, and net departmental operating savings of $37.9 million. The general revenue improvements are driven primarily by recovery in local economic activity resulting in improved outlooks for real property transfer tax, payroll tax, sales tax and hotel tax. City Budget Adopted for Fiscal Years 2012-13 and 2013-14 July 25, 2012, Mayor Lee signed the Consolidated Budget and Annual Appropriation Ordinance (the “Original Budget”) for fiscal years ending June 30, 2013 and June 30, 2014. This is the first two-year budget for the entire City, as directed by the November 2009 voter-approved Charter amendment. The Controller’s Office issued its required Controller’s Discussion of the Mayor’s fiscal year 2012-13 and fiscal year 2013-14 Proposed Budget on June 14, 2012. The Mayor’s budget closed the $170 million and $312 million general fund shortfalls for fiscal year 2012-13 and fiscal year 2013-14 identified in the Five Year Financial Plan Update and accommodated $36 million of additional expenditures increases in each year through a combination of (a) increased sources totaling $90 million and $104 million respectively, made up of improved general fund revenue projections ($44 million and $40 million), additional fiscal year 2010-11 available fund balance ($28 million each year), reallocating more hotel tax revenues to the General Fund ($4 million and $13 million), increased State realignment funds ($10 million each year), and A-12 one-time sources of $5 million and $12 million; plus (b) Citywide and departmental savings totaling $97 million and $206 million respectively, made up of negotiated wage and benefit cost control ($13 million and $55 million), reduced funding for growth in non-personnel expenditures ($22 million and $48 million), deferrals in education enrichment fund allocations to the San Francisco Unified School District and First Five Commission ($18 million each year), reduced State revenue loss allowance funding ($15 million and $30 million), use of budget savings incentive reserve funds derived from Departmental expenditure savings to pay for one-time expenditures ($8 million and $9 million), other citywide savings from reduced capital equipment and information technology spending and from debt restructuring ($21 million and $45 million respectively), and department-specific savings ($53 million and $69 million). On June 29, 2012 the Board of Supervisors Budget and Finance Committee unanimously approved the Mayor’s proposed budget with revisions totaling $17 million in fiscal year 2012-13 and $15 million in fiscal year 2013-14. The revisions were funded by $14 million in Committee reductions to the Mayor’s budget and $18 million of additional sources identified by the Mayor, including $9 million in additional expenditure savings identified from fiscal year 2011-12, $6.1 million in additional fiscal year 2010-11 Property Transfer Tax revenue above the amount required to be deposited in the Budget Stabilization Reserve and to fund baseline transfers, $2.4 million in leftover funds in the budget’s technical adjustment reserve and $1 million from a reduction in a Small Business Revolving Loan fund. The Original Budget for fiscal years 2012-13 and 2013-14 totals $7.35 billion and $7.57 billion respectively, representing increases over prior year of $520 million and $220 million. The General Fund portion of each year’s budget is $3.49 billion in fiscal year 2012-13 and $3.60 billion in fiscal year 2013-14 representing consecutive increases of $290 million and $110 million. There are 26,901 funded positions in the fiscal year 2012-13 Original Budget and 27,124 in the fiscal year 2013-14 Original Budget representing prior year increases of 719 and 223 respectively. In addition to being the first two-year budget, the budget for fiscal years 2012-13 and 2013-14 was the first to adhere to the City’s policy limiting the use of certain nonrecurring revenues to nonrecurring expenses proposed by the Controller’s Office and approved unanimously by the Board of Supervisors on November 22, 2011. The policy was approved by the Mayor on December 1, 2011 and can only be suspended for a given fiscal year by a two-thirds vote of the Board. Specifically, this policy limited the Mayor and Board’s ability to use for operating expenses the following nonrecurring revenues: extraordinary year-end General Fund balance (defined as General Fund prior year unassigned fund balance before deposits to the Rainy Day Reserve or Budget Stabilization Reserve in excess of the average of the previous five years), the General Fund share of revenues from prepayments provided under long-term leases, concessions, or contracts, otherwise unrestricted revenues from legal judgments and settlements, and other unrestricted revenues from the sale of land or other fixed assets. Under the policy, these nonrecurring revenues may only be used for nonrecurring expenditures that do not create liability for or expectation of substantial ongoing costs, including but not limited to: discretionary funding of reserves, acquisition of capital equipment, capital projects included in the City’s capital plans, development of affordable housing, and discretionary payment of pension, debt or other long term obligations. Impact of the State of California Budget on Local Finances The State is slowly recovering from a severe economic recession. Revenues from the State represent approximately 15% of the General Fund revenues appropriated in the fiscal year 2012-13 Original Budget, and thus changes in State revenues could have a significant impact on the City’s finances. In a typical year, the Governor releases two primary proposed budget documents: 1) the Governor’s Proposed Budget required to be submitted in January; and 2) the “May Revise” to the Governor’s Proposed Budget. The Governor’s Proposed Budget is then considered and typically revised by the State Legislature. Following that process, the State Legislature adopts, and the Governor signs, the State budget. City policy makers review and estimate the impact of both the Governor’s Proposed and May Revise Budgets prior to the City adopting its own budget. On June 27, 2012, Governor Brown signed the 2012-13 California State budget into law. The budget closes a $15.7 billion deficit and includes a reserve of $948 million. The budget assumes voter approval of the Governor’s initiative on the November 2012 ballot, which contains five- and seven- year tax increases as well as constitutional guarantees of county funding for the fiscal year 2011-12 realignment of public safety and welfare program A-13 responsibilities and funding formulas. In case the initiative fails, the budget includes nearly $6 billion in trigger cuts (see table below) that would fall mainly on K-14 schools and higher education. The Original Budget for fiscal year 2012-13 budget includes a $15 million allowance for State funding reductions that could be used to offset the impact of cuts in the State budget. The impact of the State budget on San Francisco falls mainly on individuals and families in the City who rely upon State childcare credits, income support and in- home support services. City finances will be impacted to the extent that the Board of Supervisors chooses to backfill programs cut by the State. Budgetary Reserves and Economic Stabilization Under the Charter, the Treasurer, upon recommendation of the City Controller, is authorized to transfer legally available moneys to the City’s operating cash reserve from any unencumbered funds then held in the City’s pooled investment fund. The operating cash reserve is available to cover cash flow deficits in various City funds, including the City’s General Fund. From time to time, the Treasurer has transferred unencumbered moneys in the pooled investment fund to the operating cash reserve to cover temporary cash flow deficits in the General Fund and other City funds. Any such transfers must be repaid within the same fiscal year in which the transfer was made, together with interest at the rate earned on the pooled funds at the time the funds were used. The City has not issued tax and revenue anticipation notes to finance short-term cash flow needs since fiscal year 1996-97. See “INVESTMENT OF CITY FUNDS – Investment Policy” herein. Rainy Day Reserve In November 2003, City voters approved the creation of the City’s Rainy Day Reserve into which the previous Charter-mandated cash reserve was incorporated. Charter Section 9.113.5 requires that if the City Controller projects total General Fund revenues for the upcoming budget year will exceed total General Fund revenues for the current year by more than five percent, then the City’s budget shall allocate the anticipated General Fund revenues in excess of that five percent growth into the following two accounts within the Rainy Day Reserve and for other lawful governmental purposes. 50 percent of the excess revenues to the Rainy Day Economic Stabilization account; 25 percent of the excess revenues to the Rainy Day One-Time or Capital Expenditures account; and 25 percent of the excess revenues to any lawful governmental purpose. Deposits to the Rainy Day Reserve’s Economic Stabilization account are subject to a cap of 10% of actual total General Fund revenues as stated in the City’s most recent independent annual audit. Amounts in excess of that cap in any year will be allocated to capital and other one-time expenditures. Moneys in the Rainy Day Reserve’s Economic Stabilization account are available to provide a budgetary cushion in years when General Fund revenues are projected to decrease from prior-year levels (or, in the case of a multi-year downturn, the highest of any previous year’s total General Fund revenues). Moneys in the Rainy Day Reserve’s One-Time or Capital Expenditures account are available for capital and other one-time spending initiatives. Except for the transfer to SFUSD described below, no draw from the Rainy Day Reserve is budgeted in fiscal years 2012-13 and 2013-14. If the City Controller projects that per-pupil revenues for the SFUSD will be reduced in the upcoming budget year, the Board of Supervisors and Mayor may appropriate funds from the Rainy Day Economic Stabilization account to the SFUSD. This appropriation may not exceed the dollar value of the total decline in school district revenues, or 25% of the account balance, whichever is less. In fiscal year 2011-12, $8.4 million was appropriated to be transferred to the SFUSD to partially offset SFUSD’s planned layoffs and declining per-pupil revenues. The Original Budget for fiscal year 2012-13 and fiscal year 2013-14 appropriates the maximum amounts to the SFUSD in those fiscal years, $6.3 million and $4.7 million respectively. Assuming no other withdrawals or deposits, this would leave a balance remaining in the Rainy Day Reserve at the end of fiscal year 2013-14 of $14.1 million. On April 13, 2010, the Board of Supervisors unanimously approved the City Controller’s proposed financial policies on reserves and the use of certain volatile revenues. The policies were approved by the Mayor on April 30, 2010, and can only be suspended for a given fiscal year by a two-thirds vote of the Board. With these policies the City created two additional types of reserves: General Reserve and the Budget Stabilization Reserve described below. A-14 Budget Stabilization Reserve The Budget Stabilization Reserve augments the existing Rainy Day Reserve and is funded through the dedication of 75% of certain volatile revenues to the new reserve, including Real Property Transfer Tax receipts in excess of the five-year annual average (controlling for the effect of any rate increases approved by voters), funds from the sale of assets, and year-end unassigned General Fund balances beyond the amount assumed as a source in the subsequent year’s budget. The fiscal year 2010-11 ending balance in the reserve was $27.2 million due to a deposit of year-end unassigned General Fund balances from fiscal year 2010-11. Additional deposits from excess Real Property Transfer Tax receipts are anticipated in fiscal years 2011-12 through 2013-14 bringing the balance in the reserve at the end of fiscal year 2013-14 to be $71 million. The maximum combined value of the Rainy Day Reserve and the Budget Stabilization Reserve is 10% of General Fund revenues. No further deposits will be made once this cap is reached, and no deposits are required in years when the City is eligible to withdraw. The Budget Stabilization Reserve has the same withdrawal requirements as the Rainy Day Reserve; however, there is no provision for allocations to the SFUSD. Withdrawals are structured to occur over a period of three years: in the first year of a downturn, a maximum of 30% of the combined value of the Rainy Day Reserve and Budget Stabilization Reserve could be drawn. In the second year, the maximum withdrawal is 50%, and in the third year, the entire remaining balance may be drawn. General Reserve The financial policies passed on April 13, 2010 codified the current practice of maintaining an annual General Reserve to be used for current-year fiscal pressures not anticipated during the budget process. The policy set the reserve equal to $25 million in fiscal year 2011-12, in line with the City’s practice in recent years, and subsequently increased to 2% of General Fund revenues by fiscal year 2016-17 ($59 million at currently budgeted levels). San Francisco Redevelopment Agency Dissolution On February 1, 2012, the SFRDA ceased to exist by operation of law as a result of Assembly Bill No. X1 26 (Chapter 5, Statutes of 2011-12, First Extraordinary Session) (“AB 26”), and a recent California Supreme Court decision described below. AB26 was modified by Assembly Bill No. 1484 (Chapter 26, Statute of 2011-12) (“AB1484” and together with AB26, the “Dissolution Act”). The Dissolution Act provides that all rights, powers, duties and obligations of a redevelopment agency under the Community Redevelopment Law that have not been repealed, restricted or revised pursuant to AB 26 will be vested in the successor agency. The successor agency for each redevelopment agency is generally the county or city that authorized the creation of the redevelopment agency. On January 26, 2012 the City adopted a Board of Supervisors resolution providing for the City to become the successor agency to the SFRDA (the “Successor SFRDA”). The resolution also approved the retention by the City of all the affordable housing assets of the SFRDA (including encumbered funds in the Low and Moderate Income Housing Fund) and authorized the Mayor’s Office of Housing to manage the housing assets and exercise the housing functions that the SFRDA formerly performed. The resolution places most of the non-housing assets of the SFRDA under the jurisdiction of the Director of the Department of Administrative Services. Pursuant to AB 1484, the Successor SFRDA is a separate public agency from the City, and the assets and liabilities of the former SFRDA will not be transferred to the City. The Successor SFRDA will succeed to the organizational status of the former SFRDA, but without any legal authority to participate in redevelopment activities, except in connection with approved enforceable obligations as provided in the Dissolution Act. In general, the debt of the former SFRDA will become the debt of the Successor SFRDA as the SFRDA's successor agency. Such debt will be payable only from the property tax revenues (former tax increment) or other revenue sources that originally secured such debt. The Dissolution Act does not provide for any new sources of revenue, including general fund revenues of the City, for any SFRDA bonds. There are significant uncertainties regarding the meaning of certain provisions of Dissolution Act and the impact of Dissolution Act on the City, including, among other matters, the obligation imposed on the City in performing its A-15 duties as Successor SFRDA, performing the enforceable obligations as Successor SFRDA, paying the debt of the as Successor SFRDA and completing certain projects of the former SFRDA. Future legislation and court decisions may clarify some of these uncertainties. There is also uncertainty about how the City may pursue certain community development goals that the former SFRDA undertook and that are not covered by enforceable obligations, and the City's use of alternative funding sources for projects and programs to pursue such goals. AB26 and Supreme Court Decision On December 29, 2011 the California Supreme Court issued its decision in California Redevelopment Association v. Matosantos (No. S194861) (“Matosantos”) regarding the constitutionality of two budget bills involving redevelopment, AB 26 and ABX1 27 (Chapter 6, Statutes of 2011-12, First Extraordinary Session) (“AB 27”). AB 26 dissolved all redevelopment agencies, and designated “successor agencies” with certain powers and duties. AB 27 would have allowed a redevelopment agency to continue to exist, notwithstanding AB 26, if the city or county that created the redevelopment agency made certain payments for the benefit of the local schools and other taxing entities. In Matosantos the Court upheld AB 26 requiring the dissolution of redevelopment agencies and the transfer of assets and obligations to successor agencies, but invalidated AB 27. The Matosantos decision also modified various deadlines for the implementation of AB 26. As a consequence of the Matosantos decision, all California redevelopment agencies, including the former SFRDA, dissolved by operation of law on February 1, 2012. All property tax revenues that would have been allocated to redevelopment agencies, including the former SFRDA, will be allocated to the applicable Redevelopment Property Tax Trust Fund created by the County Auditor-Controller for the “successor agency.” Such funds are to be used for payments on indebtedness and other “enforceable obligations” (as defined in the Dissolution Act), and to pay certain administrative costs and any amounts in excess of that amount are to be considered property taxes that will be distributed to taxing agencies. The Dissolution Act requires successor agencies, such as the Successor SFRDA, to continue to make payments and perform other obligations required under enforceable obligations for former redevelopment agencies. AB 26 defines “enforceable obligations” to include bonds, loans, legally required payments, judgments or settlements, legally binding and enforceable agreements and certain other obligations. The Dissolution Act generally excludes from the definition of enforceable obligations any loans or agreements solely between a redevelopment agency and the city or county that created the agency. It also excludes any agreements that are void as violating the debt limit or public policy. Payment and performance of enforceable obligations is subject to review by oversight boards and by the State Controller and State Department of Finance. The Dissolution Act expressly limits the liabilities of a successor agency in performing duties under The Dissolution Act to the amount of property tax revenues received by such successor agency under The Dissolution Act (generally equal to the amount of former tax increment received by the former redevelopment agency) and the assets of the former redevelopment agency. The Dissolution Act does not provide for any new sources of revenue, including general fund revenues of the City, for any SFRDA bonds (but as discussed below, the City's costs of performing its obligations under AB 26 and of pursuing the economic development goals of the former SFRDA are uncertain and could be significant). Payment of Enforceable Obligations The tax allocation bonds (“TABs”) issued by the former SFRDA are secured solely by property tax revenues from the designated redevelopment project areas (former increment) formerly payable to the SFRDA (and now available to the Successor SFRDA to pay debt service on the TABs) and from certain funds and accounts established pursuant to the trust agreement relating to each series of the TABs. The City, as Successor SFRDA, is not obligated to pay the principal of, premium, if any, or interest on any TABs, except from property tax revenues from the redevelopment project area allocated to the Successor SFRDA and pledged to repayment of the TABs. The General Fund of the City is not liable for the payment of the principal of, premium, if any, or interest on the TABs. The TABS are not secured by a legal or equitable pledge of, or charge, lien, or encumbrance upon, any property of the City or any of its income or receipts, except the property tax revenues from the redevelopment project area allocated to the Successor SFRDA and pledged to repayment of the TABs or the property or assets that the Successor SFRDA acquired as asuccessor aagency to the former SFRDA under the Dissolution Act and that are pledged for such purposes. A-16 In addition, the hotel tax bonds issued by the SFRDA are secured solely by amounts legally available to be received by or on behalf of the former SFRDA (and now available to the City as Successor Agency to the SFRDA to pay debt service on the hotel tax bonds) from the levy of 12% hotel tax (“Hotel Taxes”) on all hotels within specific redevelopment project areas and from certain funds and accounts established pursuant to the indenture relating to the hotel tax bonds. The City, as Successor SFRDA, is not obligated to pay the principal of, premium, if any, or interest on any hotel tax bonds except from Hotel Taxes allocated to the Successor SFRDA. The hotel tax bonds are not secured by a legal or equitable pledge of, or charge, lien, or encumbrance upon, any property of the City or any of its income or receipts, except the Hotel Taxes allocated to the City or Successor SFRDA. Pursuant to the Dissolution Act, enforceable obligations (which, as mentioned above, include bonds as defined in the act) continue to exist. Nothing in the Dissolution Act is intended to give rise to or cause a default under documents governing enforceable obligations, or absolve a successor agency of payment or other obligations imposed by enforceable obligations. The Dissolution Act provides that pledges of revenues for enforceable obligations are to be honored. Under Dissolution Act, the County Auditor-Controller is required to determine the amount of property taxes that the redevelopment agencies would have received had they not been dissolved pursuant to the Dissolution Act, using assessed values on the last equalized roll on August 20, statutory formulas or contractual agreements with taxing entities, and deposit such amount in the Redevelopment Property Tax Trust Fund. The Redevelopment Property Tax Trust Fund is administered by the County Auditor-Controller for the benefit of the holders of enforceable obligations and the taxing entities that receive pass-through payments and property tax distributions. Oversight Board The Dissolution Act requires successor agencies to create a new Oversight Board to be composed of seven members and to act by majority vote. There are special provisions for appointment of the members for a consolidated city and county, such as the City: three members are appointed by the Mayor of the City and confirmed by the Board of Supervisors, one member by the Superintendent of Schools to represent the schools in the City, one member is appointed by the largest special district (by property tax share) with territory within the territorial jurisdiction of the former redevelopment agency (BART), one member by the Chancellor of the California Community Colleges to represent community college districts in the City, and one member is appointed by the Mayor of the City subject to confirmation by the Board of Supervisors representing employees of the former SFRDA. On January 24, 2012 the Board of Supervisors approved the Mayor's four appointments to the Oversight Board. In accordance with AB 26, the Oversight Board must be established by May 1, 2012. The Oversight Board by Resolution No. 5-2012 and the Department of Finance approved the ROPS FOR January 1, 2012 to June 30, 2012. Additionally, the Oversight Board by Resolution No. 6-2012 and the Department of Finance approved the ROPS for July 2012 to December 31, 2012. Impact of Dissolution Act and Information concerning SFRDA Although provisions have been made under the Dissolution Act to provide funds (i.e. property tax revenues) to continue certain enforceable obligations of the Successor SFRDA, the costs of performing its duties under the Dissolution Act, including performing all enforceable obligations of the former SFRDA, and pursing community development goals that the former SFRDA undertook and that are not covered by enforceable obligations are uncertain, and could impose significant costs on the City's general fund not offset by property tax revenues. The following includes a very brief summary of certain financial and operating information relating to SFRDA. The provisions of Dissolution are unclear as to numerous aspects of the operations and finances of the Sucessor SFRDA, including but not limited to the administration of enforceable obligations (including bonds), the flow and uses of tax increment moneys and the disposition of SFRDA assets. Therefore, there are significant uncertainties regarding the finances and operations of the Successor SFRDA entity and administration of its bonds once the City becomes the successor agency to the SFRDA. Interpretations and clarification of AB 26 are likely to come from future State legislation or administrative guidance and court decisions. At present, the City cannot predict many aspects or the overall outcome of AB 26 on the City's finances and the SFRDA bonds; however it is likely that at least certain aspects of the implementation of AB 26 may materially impact the finances of the City and may materially impact the SFRDA bonds. Further, future redevelopment and housing activities in the City that would have been A-17 undertaken by the SFRDA had it continued in existence will no longer occur if they are not required under preexisting enforceable obligations. Commencing with the fiscal year ending June 30, 2012, the City will include financial information pertaining to the former SFRDA in the City's audited financial statements. The City is the Successor SFRDA as of February 1, 2012. The former SFRDA had total assets of $926,828,322 and total liabilities of $1,252,490,339, including bonds and loans in the amount of $1,131,901,000, as of June 30, 2011 according to its most recent audited financial statement (the “2011 SFRDA CAFR”). The 2011 SFRDA CAFR reports that the SFRDA's fiscal year 2010-11 total revenues were $165.5 million, with property tax increment accounting for more than 60% of such total revenues. The former SFRDA has utilized a considerable portion of its property tax increment to secure borrowings in the capital market. Other major revenue sources in fiscal year 2011 were rental and lease income, federal grants, hotel tax, investment income, berth rent, and other income derived from financing and developer fees, developer reimbursements of former SFRDA expenses, and one-time revenues associated with certain developments and SFRDA requirements. The former SFRDA's total spending for fiscal year ended June 30, 2011 totaled $247 million. The former SFRDA spent most of the funds primarily for activities such as the (1) ongoing creation of low-and-moderate-income housing, (2) continuation of funding for ongoing construction and financing of infrastructure for various project areas including public improvements thereof, (3) ongoing funding for cultural operations in the Yerba Buena area, (4) ongoing operation of South Beach Harbor, (5) job training and business development, and (6) completion of redevelopment programs in the Western Addition and Yerba Buena Center. In fiscal year 2010-11, the former SFRDA spent $64.9 million on its housing program. The former SFRDA had certain investments that were transferred to the Treasurer to hold and invest (use of these funds is subject to various legal restrictions). Such funds will be invested pursuant to the Treasurer's Investment Policy. Except for a small group of unrepresented employees, the former SFRDA employees are in bargaining groups represented by the International Federation of Professional and Technical Employees (IFPTE) Local 21 and Service Employees International Union (SEIU) Local 1021. The collective bargaining agreements between the former SFRDA and with these bargaining groups currently expire on March 31, 2012. The former SFRDA had approximately 100 employees for fiscal year 2012 who became employees of the Successor SFRDA, and the Successor SFRDA must comply with the former SFRDA's collectively bargained agreements applicable to these employees until the expiration of those agreements. Wages and benefits payable to employees under those agreements are to be paid as enforceable obligations from the monies in the Redevelopment Property Tax Trust Fund. Under the former SFRDA collectively bargained agreements, the former SFRDA employees currently participate in the California Public Employees Retirement System (“CalPERS”) for their pension plan and health care plan and the California Employers' Retiree Trust (“CERBT”) Fund to fund other postemployment benefits (“OPEB”). The 2011 SFRDA CAFR reports that unfunded actuarial accrued liability (“UAAL”) of the CalPERS plan for the SFRDA employees was $4,294,409 as of June 30, 2010 and that the UAAL of the OPEB plan was $13,297,000 as of June 30, 2009. PROPERTY TAXATION Property Taxation System - General The City receives approximately one-third of its total General Fund operating revenues from local property taxes. Property tax revenues result from the application of the appropriate tax rate to the total assessed value of taxable property in the City. The City levies property taxes for general operating purposes as well as for the payment of voter-approved bonds. As a county under State law, the City also levies property taxes on behalf of all local agencies with overlapping jurisdiction within the boundaries of the City. Local property taxation is the responsibility of various City officers. The Assessor computes the value of locally assessed taxable property. The City Controller compiles a schedule of tax rates including the 1.0% tax authorized A-18 by Article XIII A of the State Constitution (and mandated by statute), tax surcharges needed to repay City bonds, and tax surcharges imposed by overlapping jurisdictions that have been authorized to levy taxes on property located in the City. The Board of Supervisors approves the schedule of tax rates each year by ordinance adopted no later than the last working day of September. The Treasurer and Tax Collector prepare and mail tax bills to taxpayers and collects the taxes on behalf of the City and other overlapping taxing agencies that levy taxes on taxable property located in the City. The Treasurer holds and invests City tax funds, including taxes collected for payment of general obligation bonds, and is charged with payment of principal and interest on such bonds when due. The State Board of Equalization assesses certain special classes of property, as described below. See “– Taxation of State-Assessed Utility Property” below. Assessed Valuations, Tax Rates and Tax Delinquencies Table A-5 provides a recent history of assessed valuations of taxable property within the City. The property tax rate is composed of two components: 1) the 1.0% countywide portion, and 2) all voter-approved overrides which fund debt service for general obligation bond indebtedness. The total tax rate shown in Table A-5 includes taxes assessed on behalf of the City as well as SFUSD, SFCCD, the Bay Area Air Quality Management District (“BAAQMD”), and the San Francisco Bay Area Rapid Transit District (“BART”), all of which are legal entities separate from the City. See also, Table A-25: “Direct and Overlapping Debt and Long-Term Obligations” below. In addition to ad valorem taxes, voter-approved special assessment taxes or direct charges may also appear on a property tax bill. Additionally, although no additional rate is levied, a portion of property taxes collected within the City is allocated to the Successor Agency to the San Francisco Redevelopment Agency (“SFRDA”). Property tax revenues attributable to the growth in assessed value of taxable property (known as “tax increment”) within the adopted redevelopment project areas may be utilized by the SFRDA to pay for outstanding and enforceable obligations, causing a loss of tax revenues from those parcels located within project areas to the City and other local taxing agencies, including SFUSD and SFCCD. Taxes collected for payment of debt service on general obligation bonds are not affected or diverted. The SFRDA received $110 million of property tax increment in fiscal year 2011-12, diverting about $62 million that would have otherwise been apportioned to the City’s discretionary general fund. Pursuant to a December 29, 2011 California State Supreme Court ruling, the dissolution of all redevelopment agencies was effective February 1, 2012. The City took steps to manage the transition of the former San Francisco Redevelopment Agency’s assets and obligations to the Successor SFRDA. See “San Francisco Redevelopment Agency Dissolution” herein. The percent collected of property tax (current year levies excluding supplementals) has increased slightly from 97.54% for fiscal year 2009-10 to 97.96% for fiscal year 2010-11. Please note that this table has been modified from the corresponding table in previous disclosures in order to make the levy and collection figures consistent with statistical reports provided to the State of California. Foreclosures, defined as the number of trustee deeds recorded by the Assessor-Recorder’s Office, number 827 for fiscal year 2011-12 as of June 1, 2012. This compares to 927 in fiscal year 2010-11, 900 in fiscal year 2009-10, and 630 in fiscal year 2008-09. This represents 0.32%, 0.45%, 0.46%, and 0.41% of total parcels in fiscal years 2008-09, 2009-10, 2010-11, and 2011-12, respectively. [Remainder of Page Intentionally Left Blank.] A-19 TABLE A-5 CITY AND COUNTY OF SAN FRANCISCO Assessed Valuation of Taxable Property FiscalYears 2007-08 through 2011-12 (000s) % Change Total Tax Net Assessed Valuation from Prior Rate per Total Tax % Collected Fiscal Year (NAV)1 Year $1002 Total Tax Levy3 Collected3 June 30 2007-08 $130,004,479 8.5% 1.141 $1,509,697 $1,476,650 97.81% 2008-09 141,274,628 8.7% 1.163 1,702,533 1,661,717 97.60% 2009-10 150,233,436 6.3% 1.159 1,808,505 1,764,100 97.54% 2010-11 157,865,981 5.1% 1.164 1,888,048 1,849,460 97.96% 2011-12 158,649,887 0.5% 1.172 1,859,059 n/a n/a 1 Based on Certificate of Assessed Valuation dated as of August 15 2011. Net Assessed Valuation (NAV) is Total Assessed Values for Secured and Unsecured Rolls, less Non-reimbursable Exemptions and Homeowner Exemptions. 2 Annual tax rate for unsecured property is the same rate as the previous year's secured tax rate. 3 The total tax levy through FY 2010-11 and Total Tax Collected is based on year-end current year secured and unsecured levies as adjusted through roll corrections, excluding supplemental assessments, as reported on Treasurer/Tax Collector Report 100 and reported to the State of California (available on the website of the California State Controller's Office). Tax Levy for FY 11-12 based on Certificate of Assessed Valuation. Note: This table has been modifed from the corresponding table in previous bond disclosures to make levy and collection figures consistent with statistical reports provided to the State of California. Source: Office of the Controller, City and County of San Francisco. For fiscal year 2011-12, the total net assessed valuation of taxable property within the City is $158.65 billion. Of this total, $149.40 billion (94.2%) represents secured valuations and $9.25 billion (5.8%) represents unsecured valuations. (See “–Tax Levy and Collection” below, for a further discussion of secured and unsecured property valuations.) Proposition 13 limits to 2% per year any increase in the assessed value of property, unless it is sold or the structure is improved. The total net assessed valuation of taxable property therefore does not generally reflect the current market value of taxable property within the City and is in the aggregate substantially less than current market value. For this same reason, the total net assessed valuation of taxable property lags behind changes in market value and may continue to increase even without an increase in aggregate property values. Under Article XIIIA of the State Constitution added by Proposition 13 in 1978, property sold after March 1, 1975 must be reassessed to full cash value at the time of sale. Every year, some taxpayers appeal the Assessor’s determination of their properties’ assessed value, and some of the appeals may be retroactive and for multiple years. The State prescribes the assessment valuation methodologies and the adjudication process that counties must employ in connection with counties’ property assessments. With respect to the fiscal year 2011-12 levy, property owners representing approximately 19.9% of the total assessed valuation in the City filed appeals for a reduction of their assessed value. The City typically experiences increases in assessment appeals activity during economic downturns and decreases in appeals as the economy rebounds. Historically, during severe economic downturns, partial reductions of up to approximately 30% of the assessed valuations appealed have been granted. Assessment appeals granted typically result in revenue refunds, and the level of refund activity depends on the unique economic circumstances of each fiscal year. Other taxing agencies such as SFUSD, SFCCD, BAAQMD, and BART share proportionately in any refunds paid as a result of successful appeals. To mitigate the financial risk of potential assessment appeal refunds, the City funds appeal reserves for its share of estimated property tax revenues for each fiscal year. In addition, appeals activity is reviewed each year and incorporated into the current and subsequent years’ budget projections of property tax revenues. Refunds of prior years’ property taxes from the discretionary general fund appeal reserve fund for fiscal years 2006-07 through 2010-11 are listed in Table A-6 below. A-20 TABLE A-6 CITYANDCOUNTYOFSANFRANCISCO Refunds of Prior Years' Property Taxes General Fund AAB Reserve (0 0 0s ) Amount Refunded from Ye ar E nded Discretionary General Fund June30,2007 17,636 June30,2008 20,914 June30,2009 7,288 June30,2010 14,015 June30,2011 41,730 Source: Office of the Controller,Cityand County of SanFrancisco. In Spring 2011, the Assessor granted 18,841 temporary reductions in residential property assessed value worth a total of $2.35 billion (equating to a reduction of $13.3 million in discretionary general fund taxes), compared to 18,110 temporary reductions with a value of $1.96 billion (equating to a reduction of $11.1 million in discretionary general fund taxes) granted in Spring 2010. The fiscal year 2011-12 $2.35 billion temporary reduction total represented 1.48% of the fiscal year 2011-12 Net Assessed Valuation of $158.65 billion shown in Table A-5. The average temporary reduction in assessed value granted, excluding timeshare properties, increased from $147,136 in 2010 to $171,266 in 2011. All of the temporary reductions granted are subject to review in the following year. Property owners who are not satisfied with the valuation shown on a Notice of Assessed Value may have a right to file an appeal with the Assessment Appeals Board (AAB) within a certain period of time. For regular, annual secured property tax assessments, the time period for property owners to file an appeal typically falls between July 2nd and September 15th. As of June 30, 2012, the total number of open appeals before the Assessment Appeals Board (AAB) was 7,729, compared to 7,068 open AAB appeals as of June 30, 2011, including 6,399 filed since July 1, 2011 with the balance pending from prior fiscal years. The difference between the current assessed value and the taxpayers’ opinions of values for the open AAB appeals is $31.7 billion. Assuming the City did not contest any taxpayer appeals and the Board upheld all of the taxpayers’ requests, this represents a negative potential property tax impact on the discretionary general fund of $179.4 million. The volume of appeals is not necessarily an indication of how many appeals will be granted, nor of the magnitude of the reduction in assessed valuation that the Assessor may ultimately grant. City revenue estimates take into account projected losses from pending and future assessment appeals. Tax Levy and Collection As the local tax-levying agency under State law, the City levies property taxes on all taxable property within the City’s boundaries for the benefit of all overlapping local agencies, including SFUSD, SFCCD, the Bay Area Air Quality Management District, and BART. The total tax levy for all taxing entities in fiscal year 2011-12 is estimated to produce $1.86 billion, not including supplemental and escape assessments that may be assessed during the year. Of this amount, the City has budgeted to receive $1.0 billion into the General Fund and $115.0 million into special revenue funds designated for children’s programs, libraries and open space. The Nine Month Report projected property tax revenues into the General Fund to be $9.3 million above budget. SFUSD and SFCCD are estimated to receive $106.3 million and $19.9 million, respectively, and the local ERAF is estimated to receive $349.7 million (before adjusting for the State’s Triple Flip sales tax and vehicle license fees (“VLF”) backfill shifts). The SFRA received $110.0 million. The remaining portion is allocated to various other governmental bodies, various special funds, general obligation bond debt service funds, and other taxing entities. Taxes levied to pay debt service for general obligation bonds issued by the City, SFUSD, SFCCD, and BART may only be applied for that purpose. The City’s General Fund is allocated about 57% of total property tax revenue before adjusting for the State’s Triple Flip (whereby Proposition 57 dedicated 0.25% of local sales taxes, which were subsequently backfilled by a decrease to the amount of property taxes shifted to ERAF from local governments, thereby leaving the State to fund a like amount from the State’s General Fund to meet Proposition 98 funding requirements for schools) and VLF backfill shifts. A-21 Generally, property taxes levied by the City on real property become a lien on that property by operation of law. A tax levied on personal property does not automatically become a lien against real property without an affirmative act of the City taxing authority. Real property tax liens have priority over all other liens against the same property regardless of the time of their creation by virtue of express provision of law. Property subject to ad valorem taxes is entered as secured or unsecured on the assessment roll maintained by the Assessor-Recorder. The secured roll is that part of the assessment roll containing State-assessed property and property (real or personal) on which liens are sufficient, in the opinion of the Assessor-Recorder, to secure payment of the taxes owed. Other property is placed on the “unsecured roll.” The method of collecting delinquent taxes is substantially different for the two classifications of property. The City has four ways of collecting unsecured personal property taxes: 1) pursuing civil action against the taxpayer; 2) filing a certificate in the Office of the Clerk of the Court specifying certain facts, including the date of mailing a copy thereof to the affected taxpayer, in order to obtain a judgment against the taxpayer; 3) filing a certificate of delinquency for recording in the Assessor-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 taxpayer. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes. Proceeds of the sale are used to pay the costs of sale and the amount of delinquent taxes. A 10% penalty is added to delinquent taxes that have been levied on property on the secured roll. In addition, property on the secured roll with respect to which taxes are delinquent is declared “tax defaulted” and subject to eventual sale by the Treasurer and Tax Collector of the City. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 1.5% per month, which begins to accrue on such taxes beginning July 1 following the date on which the property becomes tax-defaulted. In October 1993, the Board of Supervisors passed a resolution that adopted the Alternative Method of Tax Apportionment (the “Teeter Plan”). This resolution changed the method by which the City apportions property taxes among itself and other taxing agencies. This apportionment method authorizes the City Controller to allocate to the City’s taxing agencies 100% of the secured property taxes billed but not yet collected. In return, as the delinquent property taxes and associated penalties and interest are collected, the City’s General Fund retains such amounts. Prior to adoption of the Teeter Plan, the City could only allocate secured property taxes actually collected (property taxes billed minus delinquent taxes). Delinquent taxes, penalties and interest were allocated to the City and other taxing agencies only when they were collected. The City has funded payment of accrued and current delinquencies through authorized internal borrowing. The City also maintains a Tax Loss Reserve for the Teeter Plan as shown on Table A-6. TABLE A-7 CITY AND COUNTY OF SAN FRANCISCO Teeter Plan Tax Loss Reserve Fund Balance (000s) Year Ended Amount Funded June 30, 2007 13,180 June 30, 2008 14,330 June 30, 2009 16,220 June 30, 2010 17,507 June 30, 2011 17,302 Source: Office of the Controller, City and County of San Francisco. Assessed valuations of the aggregate ten largest assessment parcels in the City for the fiscal year ended June 30, 2012 are shown in Table A-8. The City cannot determine from its assessment records whether individual persons, A-22 corporations or other organizations are liable for tax payments with respect to multiple properties held in various names that in aggregate may be larger than is suggested by the table. TABLE A-8 CITY AND COUNTY OF SAN FRANCISCO Top 10 Parcels Total Assessed Value Fiscal Year 2011-12 (000s) Assessee Location ParcelNumber Type TotalAssessedValue 1 % of Basis of Levy HWA555OwnersLLC 555CaliforniaSt 0259026 CommercialOffice $904,469 0.57% ParamountGroupRealEstateFund 1MarketSt 3713007 CommercialOffice 740,958 0.47% EmporiumMallLLC 845MarketSt 3705056 CommercialRetail 472,558 0.30% 333MarketStreetLLC 333MarketSt 3710020 CommercialOffice 386,927 0.24% FourEmbarcaderoCenterVenture 4TheEmbarcadero 0233044 CommercialOffice 383,331 0.24% Post-MontgomeryAssociates 165SutterSt 0292015 CommercialRetail 372,229 0.23% SFHiltonInc 1HiltonSquare 0325031 CommercialHotel 369,887 0.23% SHRStFrancisLLC 301-345PowellSt 0307001 CommercialHotel 361,132 0.23% PPFOffOneMaritimePlazaLP 300ClaySt 0204021 CommercialOffice 353,118 0.22% OneEmbarcaderoCenterVenture 1TheEmbarcadero 0230028 CommercialOffice 330,566 0.21% $4,675,175 2.93% 1 - Representsthe Total Assessed Valuation(TAV) as of the Basis of Levy,which excludes assessments processed during the fiscal year. TAV includes land & improvements, personal property, and fixtures. Source: Office of the Assessor -Recorder, City and County of San Francisco. Taxation of State-Assessed Utility Property A portion of the City’s total net assessed valuation consists of utility property subject to assessment by the State Board of Equalization. State-assessed property, or “unitary property,” is property of a utility system with components located in many taxing jurisdictions assessed as part of a “going concern” rather than as individual parcels of real or personal property. Unitary and certain other State-assessed property values are allocated to the counties by the State Board of Equalization, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the City itself) according to statutory formulae generally based on the distribution of taxes in the prior year. The fiscal year 2011-12 valuation of property assessed by the State Board of Equalization is $2.44 billion, as recorded on the fiscal year 2011-12 certificate of assessed valuation. OTHER CITY TAX REVENUES In addition to the property tax, the City has several other major tax revenue sources, as described below. For a discussion of State constitutional and statutory limitations on taxes that may be imposed by the City, including a discussion of Proposition 62 and Proposition 218, see “CONSTITUTIONAL AND STATUTORY TAX LIMITATIONS ON TAXES AND EXPENDITURES” herein. The following section contains a brief description of other major City-imposed taxes as well as taxes that are collected by the State and shared with the City. Business Taxes Businesses in the City may be subject to two types of taxes. The first is a payroll expense tax, assessed at a rate of 1.5% on gross payroll expense attributable to all work performed or services rendered within the City. The tax is authorized by Article 12-A of the San Francisco Business and Tax Regulation Code. Recent changes to the tax exempted small businesses with annual payroll of less than $250,000 and subjected partnership profit distributions to the tax. The net effect of these provisions was estimated to be approximately $10.5 million in new revenues beginning in fiscal year 2009-10. The City also levies a registration tax on businesses, which varies from $25 to $500 per year per subject business based on the prior year computed payroll tax liability. Business taxes are budgeted projected to be worth $427.2 million in fiscal year 2011-12 representing an increase of $36.6 million (9.4%) over fiscal year 2011-12 budget. Fiscal year 2012-13 and 2013-14 business tax budgeted amounts are $453.8 million and $492.3 million respectively, representing increases of $26.6 (6.2%) million and $36.0 (7.9%) million over prior year levels. Business Total business tax revenues include $446.6 million and $483.3 A-23 million in payroll taxes during fiscal year 2012-13 and fiscal year 2013-14, respectively, and $8.7 million in business license registration fees during fiscal year 2012-13 and $9.0 million during fiscal year 2013-14. The projection for fiscal year 2013-14 payroll tax includes $5.6 million in additional one time revenue resulting from the America’s Cup yachting event. TABLE A-9 CITYANDCOUNTYOFSANFRANCISCO Payroll Tax Revenues Fiscal Years 2007-08 through 2013-14 All Funds (00 0s) FiscalYear Revenue C han ge 2007-08 $396,025 $58,433 17.3% 2008-09 388,654 (7,371) -1.9% 2009-10 354,020 (34,634) -8.9% 2010-11 391,779 37,759 10.7% 2011-12budgeted 390,613 (1,166) -0.3% 2012-13budgeted 453,806 26,573 6.2% 2013-14budgeted 489,811 36,005 7.9% Includes both Payroll Tax and Business Registration Tax.Figures for FY 2007-08 through FY 2010-11 are taken from CAFRs.Figures for FY 2011-12 include both the Original Budget andyear-end projections from the Nine-Month Report. FY 2012-13 and13-14 figures are based on the Mayor's June 1,2012 Proposed Budget. Includesportion allocated to special revenue funds. Source: Office of the Controller, City andCounty of San Francisco. In April 2011, the Board of Supervisors adopted Ordinance 68-11 that established a payroll expense tax exclusion for certain business located in the Central Market and Tenderloin Area. The Ordinance expires according to its terms in 2019. The Controller projects the loss to the City in payroll expense tax revenue due to Ordinance 68-11 to be approximately $4.2 million. Additionally, fiscal year 2011-12 payroll tax projections include a $3.5 million General Fund loss from a requirement pursuant to Business and Tax Regulations Code Section 906E, that $500 credits be provided to Payroll Tax payers if prior year Payroll Tax revenues grew more than 7.5% from the year before. Fiscal year 2011-12 payroll tax revenues are currently projected to be approximately 10% higher than fiscal year 2010-11. Transient Occupancy Tax (Hotel Tax) Pursuant to the San Francisco Business and Tax Regulation Code, a 14.0% transient occupancy tax is imposed on occupants of hotel rooms and is remitted by hotel operators monthly. A quarterly tax-filing requirement is also imposed. Hotel tax revenue growth is a function of changes in occupancy, average daily room rates (ADR) and room supply. Revenue per available room (RevPAR), the combined effect of occupancy and ADR, reached a record high of nearly $160 through March of fiscal year 2011-12 (year-to-date), a 9% increase from the previous peak in fiscal year 2007-08. Double-digit increases in RevPAR during the first calendar quarter of 2012 are expected to continue albeit at a slower pace through fiscal year 2013-14. Total hotel tax revenue for fiscal year 2011-12 is projected to be $235.4 million in the Nine Month Report and budgeted to be $253.5 million and $275.6 million in fiscal years 2012-13 and 2013-14 respectively. Additional one- time revenue from the America’s Cup yacht racing event contributes $8.4 million of growth in fiscal year 2013-14. Because the allocation of hotel tax revenues is set by the Mayor and Board of Supervisors as described in the Administrative Provisions of the Annual Appropriation Ordinance, all of the gain or loss in revenue from budgeted A-24 levels falls to the General Fund, contributing to the large variances from prior periods. Table A-10 sets forth a history of transient occupancy tax receipts for fiscal years 2007-08 through 2013-14 budget. TABLE A -10 CITY AND COUNTY OF SAN FRANCISCO Transient Occupancy Tax Receipts Fiscal Years 2007-08 through 2013-14 All Funds (000s) Fiscal Year Tax Rate Revenue Change 2007-08 14.00% $224,814 $25,046 12.5% 2008-09 14.00% 219,777 (5,037) -2.2% 2009-10 14.00% 192,082 (27,695) -12.6% 2010-11 14.00% 215,512 23,430 12.2% 2011-12 budgeted 14.00% 220,040 4,528 2.1% 2011-12 Nine Month Report projection14.00% 235,359 15,319 7.0% 2012-13 budgeted 14.00% 253,529 18,171 7.7% 2013-14 budgeted 14.00% 275,557 22,028 8.7% Revenues reflect the underlying occupancy and room rate activity by fiscal year. Figures for FY 2007-08 through FY 2010-11 are taken from CAFRs. Figures for FY 2011-12 include both the Original Budget and year-end projections from the Nine-Month Report. FY 2012-13 and 13-14 figures are based on the Mayor's June 1, 2012 Proposed Budget. Includes portion allocated to special revenue funds. Source: Office of the Controller, City and County of San Francisco. Real Property Transfer Tax A tax is imposed on all real estate transfers recorded in the City. Transfer tax revenue is more susceptible to economic and real estate cycles than most other City revenue sources. Rates as of July 1, 2010 were $5.00 per $1,000 of the sale price of the property being transferred for properties valued at $250,000 or less; $6.80 per $1,000 for properties valued more than $250,000 and less than $999,999; $7.50 per $1,000 for properties valued at $1.0 million to $5.0 million; and $15.00 per $1,000 for properties valued over $5.0 million or more. On November 2, 2010, voters approved Proposition N, which increased the tax rate for properties valued at $5.0 million or more from $15.00 per $1,000 to $20 per $1,000, and increased the tax rate for properties valued at $10.0 million or more from $15.00 per $1,000 to $25 per $1,000. Real property transfer tax revenue in fiscal year 2011-12 is projected to be $221.8 in the Annual Revenue Letter, approximately $102.9 million (86.6%) more than budgeted for fiscal year 2011-12 due to increased real property sales. Fiscal year 2012-13 and 2013-14 budget for real property transfer tax revenues is $203.5 and $183.1 million respectively, reflecting projected strong market conditions, but reduced from the expected peak of sales activity that occurred in fiscal year 2011-12. Table A-11 sets forth a history of real property transfer tax receipts for fiscal years 2007-08 through 2010-11, projected receipts for fiscal year 2011-12, and budgeted receipts for fiscal years 2012-13 through 2013-14. A-25 TABLE A-11 CITY AND COUNTY OF SAN FRANCISCO RealProperty Transfer Tax Receipts Fiscal Years 2007-08 through 2013-14 (000s) Fiscal Year Revenue Change 2007-08 $86,219 ($57,757) -40.1% 2008-09 48,957 (37,262) -43.2% 2009-10 83,694 34,737 71.0% 2010-11 135,184 51,489 61.5% 2011-12 budgeted 118,824 (16,360) -12.1% 2012-13 budgeted 203,470 (18,295) -8.2% 2013-14 budgeted 183,123 (20,347) -10.0% Figures for FY 2007-08 through FY 2010-11 are audited actuals. Figures for FY 2011-12 include both the Original Budget and year-end projections from a June 27, 2012 revenue update. FY 2012-13 and 13-14 figuresare based on the Mayor's June 1, 2012 Proposed Budget. Source: Office of the Controller, City and County of San Francisco. Sales and Use Tax The State collects the City’s local sales tax on retail transactions along with State and special district sales taxes, and then remits the local sales tax collections to the City. The rate of tax is one percent; however, the State takes one- quarter of this, and replaces the lost revenue with a shift of local property taxes to the City from local school district funding. The local sales tax revenue is deposited in the City’s General Fund. The fiscal year 2011-12 Original Budget included $106.6 million in local sales tax revenue, an increase of $0.3 million, or 0.2% from actual fiscal year 2010-11 revenues. The Nine Month Report projected growth of 5.0% and 4.5% in the third and fourth quarters of fiscal year 2011-12 over the same quarters in the prior year, resulting in annual revenues exceeding Original Budget by $7.7 million (7.3%). Local sales tax in fiscal year 2012-13 is budgeted at $121.7 million, an increase of $15.2 million (14.2%) from the fiscal year 2011-12 Original Budget and $7.4 million (6.5%) more than the fiscal year 2011-12 Nine Month Report projections. Continued growth is expected during fiscal year 2013-14 as revenues are expected to reach $130.0 million, 6.8% more than fiscal year 2012-13. The fiscal year 2013-14 projection includes $2.2 million in additional one-time revenue from the America’s Cup yacht racing event. Historically, sales tax revenues have been highly correlated to growth in tourism, business activity and population. This revenue is significantly affected by changes in the economy. Table A-12 reflects the City’s actual sales and use tax receipts for fiscal years 2007-08 through 2010-11, projected receipts for fiscal year 2011-12, and budgeted receipts for fiscal years 2012-13 through 2013-14, as well as the imputed impact of the property tax shift made in compensation for the one-quarter of the sales tax revenue taken by the State. A-26 TABLE A-12 CITY AND COUNTY OF SAN FRANCISCO Sales and Use Tax Receipts Fiscal Years 2007-08 through 2013-14 (000s) FiscalYear TaxRate CityShare Revenue Change 2007-08 8.50% 0.75% $111,410 $3,597 3.3% 2007-08adj.* 8.50% 1.00% 148,729 5,276 3.7% 2008-09 9.50% 0.75% 101,662 (9,749) -8.8% 2008-09adj.* 9.50% 1.00% 137,415 (11,314) -7.6% 2009-10 9.50% 0.75% 96,605 (5,057) -5.0% 2009-10adj.* 9.50% 1.00% 128,286 (9,129) -6.6% 2010-11** 9.50% 0.75% 106,302 9,698 10.0% 2010-11adj.* 9.50% 1.00% 140,924 12,639 9.9% 2011-12 budgeted 8.50% 0.75% 106,566 264 0.2% 2011-12 adj.* budgeted 8.50% 1.00% 141,636 712 0.5% 2011-12 projected 8.50% 0.75% 114,306 7,740 7.3% 2011-12 adj.* projected 8.50% 1.00% 152,231 10,595 7.5% 2012-13 adj.* budgeted 8.50% 1.00% 160,798 8,567 5.6% 2013-14 budgeted 8.50% 0.75% 130,023 8,287 6.8% 2013-14 adj.* budgeted 8.50% 1.00% 170,453 9,655 6.0% *Adjusted figures represent the value of the entire 1.00% local sales tax, which was reduced by 0.25% beginning in fiscal year 2004-05 in order to repay the State's Economic Recovery Bonds as authorized under Proposition 57 in March 2004. This 0.25% reduction is backfilled by the State. **Effective July 1, 2011, the State General Fund rate decreased from 6% to 5%. The City share did not change. Figures for FY 2007-08 through FY 2010-11 are audited actuals.Figures for FY 2011-12 include both the Original Budget and year-end projections from the Nine-Month Report. FY 2012-13 and 13-14 figures are based on the Mayor's June 1, 2012 Proposed Budget. Source: Office of the Controller, City and County of San Francisco. Utility Users Tax The City imposes a 7.5% tax on non-residential users of gas, electricity, water, steam and telephone services. The Telephone Users Tax (“TUT”) applies to charges for all telephone communications service in the City to the extent permitted by Federal and State law, including intrastate, interstate, and international telephone services, cellular telephone services, and voice over internet protocol (VOIP). Telephone communications service does not include Internet access, which is exempt from taxation under the Internet Tax Freedom Act. Utility User Tax revenues are projected in the Nine Month Report to be $6.4 million under budget, or 2.7% below prior year actual revenues and $0.6 million reduced from the Six-Month Report projection. Utility user tax revenue is budgeted at $91.9 million in fiscal year 2012-13; represent $2.7 million (3%) growth from the fiscal year 2011-12 Nine Month Report projection. Telephone user taxes, water user tax revenues, and gas and electric user taxes are budgeted to grow by 3% over fiscal year 2011-12 projected actual revenues, reflecting growth in private employment and CPI anticipated during fiscal year 2012-13. In fiscal year 2013-14, Utility user tax is budgeted at $93.73 million, which is $1.8 million, or 2%, over the fiscal year 2012-13 budgeted amount. Emergency Response Fee; Access Line Tax The City imposes an Access Line Tax (“ALT”) on every person who subscribes to telephone communications services in the City. The ALT replaced the Emergency Response Fee (“ERF”) in 2009. It applies to each telephone A-27 line in the City and is collected from telephone communications service subscribers by the telephone service supplier. The tax does not apply to wireless telephone communications services. Access Line Tax revenues are projected in the Nine Month Report to be $41.7 million, $0.6 million more than Original Budget. ALT revenues are budgeted at $43.0 million in fiscal year 2012-13 an increase of $1.3 million (3.0%) from the fiscal year 2011-12 Nine Month Report projection. The budget reflects a proposed inflationary increase to the Access Line Tax rate of 2.9% as required under Business and Tax Regulations Code Section 784. Access Line Tax revenues are budgeted at $44.3 million in fiscal year 2013-14, a 3.0% ($1.3 million) increase from fiscal year 2012-13. Parking Tax A 25% tax is imposed on the charge for off-street parking spaces. The tax is authorized by the San Francisco Business and Tax Regulation Code. The tax is paid by the occupants of the spaces, and then remitted monthly to the City by the operators of the parking facilities. Fiscal year 2011-12 parking tax is projected at $74.3 million in the Nine Month Report, $2.3 million over original; budget. The recovery in business activity and employment as reflected in increases to payroll and sales tax projections is driving increases in parking tax revenues. Fiscal Year 2012-13 budgeted parking tax revenues is $76.5 million, an increase of $4.6 million (6.3%) compared to the fiscal year 2011-12 budget, and a $2.2 million increase from the fiscal year 2011-12 projection in the Nine Month Report. Parking tax revenues are correlated with business activity, employment, and rate increases. In fiscal year 2013-14, parking tax is projected at $78.8 million, a 3.0% increase ($2.3 million) from fiscal year 2012-13. Parking tax revenues are deposited into the General Fund, from which an amount equivalent to 80% is transferred to the MTA for public transit as mandated by Charter Section 16.110. INTERGOVERNMENTAL REVENUES 1991 Health and Welfare Realignment In fiscal year 1991-92, the State transferred to counties the responsibility for determining service levels and administering most mental health, public health and some social service programs, thereby reducing the State’s obligations. The State also increased its share of certain welfare costs formerly borne by counties. In order to meet these obligations, counties share in the proceeds of a 0.5% statewide sales tax and a portion of vehicle license fees (“VLF”). These sources are projected in the Nine Month Report to provide $146.5 million to the General Fund and budgeted to provide $150.9 million to the General Fund in the Original Budget for fiscal year 2012-13 and $155.2 million to the General Fund in fiscal year 2013-14, which constitute increases of $7.2 million (5.0%) and $4.3 million (2.9%) respectively. Public Safety Sales Tax State Proposition 172, passed by California voters in November 1993, provided for the continuation of a one-half percent sales tax for public safety expenditures. This revenue is a function of the City’s proportionate share of statewide sales activity. Revenue from this source was projected to be $74.9 million in the Nine Month Report. Budgeted revenue from this source is $79.0 million in fiscal year 2012-13, and $81.7 in fiscal year 2013-14. In fiscal year 2012-13 revenue from this subvention is expected to increase $9.9 million (14.3%) from the fiscal year 2011-12 budget and $4.1 million (5.4%) from Nine Month Report projections; fiscal year 2013-14 revenue is projected to increase 3.5% ($2.7 million) from the fiscal year 2012-13 budget. Other Intergovernmental Grants and Subventions In addition to those categories listed above, $679.8 million was projected in the Nine Month Report from grants and subventions from State and federal governments to fund public health, social services, and other programs. The City’s Original Budget for fiscal years 2012-13 and 2013-14 includes for the General Fund $705.2 million and $721.2 respectively taking into account the $15.0 million allowance for unspecified funding reductions in fiscal year 2012-13. The fiscal year 2012-13 represents a $25.3 million (3.7%) increase from fiscal year 2011-12 Original Budget revenues. A-28 Charges for Services Charges for services in the General Fund are in fiscal year 2011-12 are projected to be $139.1 million in the Nine Month Report and budgeted at $155.5 million for fiscal year 2012-13 and $160.5 million for fiscal year 2013-14, representing growth of $12.2 million (8.5%) and $5.0 million (3.2%) respectively from prior year budget. The fiscal year 2012-13 budget assumes Fire Department ambulance billing recoveries increase by $7.7 million over fiscal year 2011-12 actual revenues and increase $5.9 million in fiscal year 2013-14 above fiscal year 2012-13 budget, due to AB 678 - Medi-Cal: Ground Emergency Medical Transport, passed by the State legislature in 2011. CITY GENERAL FUND PROGRAMS AND EXPENDITURES Unique among California cities, San Francisco as a charter city and county must provide the services of both a city and a county. Public services include police, fire and public safety; public health, mental health and other social services; courts, jails, and juvenile justice; public works, streets, and transportation, including port and airport; construction and maintenance of all public buildings and facilities; water, sewer, and power services; parks and recreation; libraries and cultural facilities and events; zoning and planning, and many others. Employment costs are relatively fixed by labor and retirement agreements, and account for upwards of 50% of all City expenditures. In addition, the Charter imposes certain baselines, mandates, and property tax set-asides, which dictate expenditure or service levels for certain programs, and allocate specific revenues or specific proportions thereof to other programs, including MTA, children’s services and public education, and libraries. Budgeted baseline and mandated funding in fiscal year 2011-12 is $614.5 million. The Nine Month Report projected that improved general revenues result in these baseline and mandated funding transfers to be increased by $15.6 million compared to budget in fiscal year 2011-12. Budgeted baseline and mandated funding in fiscal years 2012-13 and 2013-14 is $661.6 million and $697.7 million respectively. General Fund Expenditures by Major Service Area San Francisco is a consolidated city and county, and budgets General Fund expenditures for both city and county functions in seven major service areas described in table A-13: TABLE A-13 CITYANDCOUNTYOF SANFRANCISCO Expenditures by Major ServiceArea FiscalYears 2008-09through 2011-12 (000s) FY2008-09 FY2009-10 FY2010-11 FY2011-12 FY2012-13 FY2013-14 Major Service Areas Original Budget Original Budget Original Budget OriginalBudget Original Budget Original Budget Public Protection $899,378 $955,519 $947,327 $998,237 $1,058,689 $1,087,646 Human Welfare &Neighborhood Development 654,162 642,810 655,026 672,834 670,375 679,154 CommunityHealth 513,858 488,330 519,319 575,446 609,892 620,199 General Administration &Finance 182,139 177,892 169,526 199,011 197,994 207,130 Culture and Recreation 104,232 95,114 97,510 100,740 111,066 113,787 General City Responsibilities 78,524 104,476 103,128 110,725 145,560 144,714 Public Works, Transportation &Commerce 53,143 33,414 26,989 51,588 67,529 64,921 Total $2,485,436 $2,497,555 $2,518,824 $2,708,581 $2,861,106 $2,917,551 Source: Officeof the Controller, City andCountyof San Francisco. Public Protection includes the Police Department, the Fire Department, and the Sheriff’s Office. These departments are budgeted to receive $373.3 million, $215.1 million and $137.1 million of General Fund support respectively in fiscal year 2012-13 and $390.3 million, $216.4 million, and $140.0 million respectively in fiscal year 2013-14. Within Human Welfare & Neighborhood Development, the Department of Human Services, which includes aid assistance and aid payments and City grant programs, is budgeted to receive $231.0 million of General Fund support A-29 in the fiscal year 2012-13 and $236.1 million in fiscal year 2013-14. The Public Health Department is budgeted to receive $446.6 million in General Fund support for public health programs and the operation of San Francisco General Hospital and Laguna Honda Hospital in fiscal year 2012-13 and $511.7 million in fiscal year 2013-14. For budgetary purposes, enterprise funds are characterized as either self-supported funds or General Fund-supported funds. General Fund-supported funds include the Convention Facility Fund, the Cultural and Recreation Film Fund the Gas Tax Fund, the Golf Fund, the Grants Fund, the General Hospital Fund, and the Laguna Honda Hospital Fund. The MTA is classified as a self-supported fund, although it is budgeted pursuant to a formula under the Charter to receive a $213.1 million General Fund transfer in the fiscal year 2012-13 Original Budget. Baselines The Charter requires funding for baselines and other mandated funding requirements. The chart below identifies the required and budgeted levels of appropriation funding for key baselines and mandated funding requirements. Revenue-driven baselines are based on the projected aggregate City discretionary revenues, whereas expenditure- driven baselines are typically a function of total spending. TABLE A-14 CITYANDCOUNTYOFSANFRANCISCO Baselines & Set-Asides Fiscal Years 2012-13 & 2013-14 (M illi ons) FY2012-13 FY2012-13 FY2013-14 FY2013-14 Req uir ed O riginal R eq uire d Or iginal B aseline Bu dget B ase lin e B u dg et B aselin es & S et-Asides MunicipalTransportationAuthority $154.86 $154.86 $160.63 $160.63 ParkingandTrafficCommission 58.07 58.07 60.23 60.23 Children'sServices 115.21 127.21 119.49 126.76 LibraryPreservation 52.95 52.95 54.92 54.92 Public Education Enrichment Funding UnifiedSchoolDistrict 32.68 32.68 33.92 33.92 FirstFiveCommission 17.71 17.71 18.38 18.38 CityServicesAuditor 12.18 12.18 12.45 12.45 HumanServicesHomelessCareFund 13.71 13.71 13.71 13.71 Property Tax Related Set-Asides MunicipalSymphony 2.03 2.03 2.12 2.12 Children'sFundSet-Aside 44.72 44.72 46.03 46.03 LibraryPreservationSet-Aside 37.27 37.27 35.36 35.36 OpenSpaceSet-Aside 37.27 37.27 35.36 35.36 Staffing and Service-Driven Police Minimum Staffing Requirement potentially notmet during Requirement potentially notmet course of budget year during course of budget year Fire Neighborhood Firehouse Funding Requirementmet Requirementmet Treatment on Demand Requirementnotmet Requirementnotmet TotalBaselineSpending $585.35 $597.36 $599.55 $606.82 Source: Office of the Controller, City and County of San Francisco. With respect to Police Department staffing, the Charter mandates a police staffing baseline of not less than 1,971 full-duty officers. The Charter-mandated baseline staffing level may be reduced in cases where civilian hires result in the return of a full-duty officer to active police work. The Charter also provides that the Mayor and Board of Supervisors may convert a position from a sworn officer to a civilian through the budget process. With respect to the Fire Department, the Charter mandates baseline 24-hour staffing of 42 firehouses, the Arson and Fire Investigation Unit, no fewer than four ambulances, and four Rescue Captains (medical supervisors). A-30 Reserves The City’s budget includes reserves that are available for appropriation to City departments by action of the Board of Supervisors. These include the Budget Stabilization Reserve ($17.8 million), the General Reserve ($32.2 million), the Salaries and Benefit Reserve ($13.1 million), and the Litigation Reserve ($11.0 million), all in the fiscal year 2012-13 Original Budget. These are the fiscal year 2012-13 appropriations to the reserves and do not include carry-forward of prior year balances. The Charter requires some set-asides of departmental expenditure savings in the form of a Citywide Budget Savings Incentive Reserve and a Recreation and Park Budget Savings Incentive Reserve. See “Budgetary Reserves and Economic Stabilization and Limitations on Use of Selected Nonrecurring Revenues.” EMPLOYMENT COSTS; POST-RETIREMENT OBLIGATIONS The cost of salaries and benefits for City employees represents approximately 50% of the City’s expenditures, totaling $3.5 billion in the FY 2011-12 original budget (all-funds), and $3.8 billion and $4.0 billion in the FY 2012- 13 and FY 2013-14 budgets. Looking only at the General Fund, the combined salary and benefits budget was $1.7 billion in the FY 2011-12 original budget and $1.8 billion per year in the FY 2012-13 and FY 2013-14 budgets. This section discusses the organization of City workers into bargaining units, the status of employment contracts, and City expenditures on employee-related costs including salaries, wages, medical benefits, retirement benefits and the City’s retirement system, and post-retirement health and medical benefits. Employees of SFUSD, SFCCD and the San Francisco Superior Court are not City employees. Labor Relations The City’s budget for fiscal years 2012-2013 and 2013-2014 includes 31,407 and 32,659 budgeted City positions, respectively. City workers are represented by 37 different labor unions. The largest unions in the City are the Service Employees International Union (“SEIU”), Local 1021; the International Federation of Professional and Technical Engineers (the “IFPTE”), Local 21; and the unions representing police, fire, deputy sheriffs and transit workers. The wages, hours and working conditions of City employees are determined by collective bargaining pursuant to State law (California Government Code Sections 3500-3511, the “Meyers-Milias-Brown Act”) and the Charter. Except for nurses and a few hundred unrepresented employees, the Charter requires that bargaining impasses be resolved through final and binding interest arbitration conducted by a panel of three arbitrators. The award of the arbitration panel is final and binding unless legally challenged. Wages, hours and working conditions of nurses are not subject to interest arbitration, but are subject to Charter-mandated economic limits. In addition, in November 2010, the voters in the City approved Proposition G, which requires that disputes regarding the wages, hours and 1______The City’s labor contracts with the Police Officers’ Association, Firefighters’ union and their related management classes, represented by the Municipal Executives’ Association, will not expire until June 30, 2015. The City negotiated a 3 year agreement with the Supervising Nurses (July 1, 2012 through June 30, 2015). A-31 working conditions of transit operators be resolved through a final and binding interest arbitration proceeding. Strikes by City employees are prohibited by the Charter. Since 1976, no City employees have participated in a union-authorized strike. The City’s employee selection procedures are established and maintained through a civil service system. In general, selection procedures and other “merit system” issues are not subject to arbitration. However, disciplinary actions are generally subject to grievance arbitration, with the exception of police and fire employees. In May 2012, the City negotiated two-year agreements (for fiscal years 2012-13 and 2013-14) with most of its labor unions. In general, the parties agreed to: 1) reforms and/or elimination of certain pay premiums; and 2) some structural reforms of the City’s healthcare benefit and cost-sharing structures by having employees contribute more toward the cost of enrolling in “employee only” health benefits during the term of the 2 year contract. SEIU “miscellaneous” employees and staff nurses agreed to healthcare benefit reforms that will take place beyond the term of the July 1, 2012 through June 30, 2014 contract. City employees, who are in non-Police, Fire and Nurse classifications will receive a base wage increase for the first time since 2008, as follows: 1% on July 1, 2013; 1% on January 4, 2014 and 1% on March 29, 2014. The two SEIU-represented units’ wage increases differ, as follows: SEIU “miscellaneous” employees will receive 2% on January 4, 2014 and 1% on March 29, 2014 and the SEIU Staff Nurses will receive 3% on March 29, 2014. On February 1, 2012, the City became the successor agency to the dissolved San Francisco Redevelopment Agency. As a successor agency, the City acquired approximately 100 former Redevelopment Agency employees, who are covered by various Memoranda of Agreement. On March 29th, 2012, the Successor Agency and the unions representing former San Francisco Redevelopment Agency employees signed a Letter of Agreement facilitating continuing staffing arrangements for active projects. Approximately half of the former RDA employees were retained and transferred to the Successor Agency. Negotiations for successor agreements on remaining terms are continuing and expected to be completed in 2012. See “City Budget – San Francisco Redevelopment Agency Dissolution” above. Pursuant to Charter Section 8A.104, the MTA is responsible for negotiating contracts for the transit operators and employees in service-critical bargaining units. These contracts are subject to approval by the MTA Board. The MTA and the union representing the transit operators (TWU, Local 250-A) agreed to a three-year successor agreement that expires on June 30, 2014. The concessions are valued at $41.1 million dollars over the life of the agreement. Table A-14 shows the membership of each operating employee bargaining unit and the date the current labor contract expires. [Remainder of Page Intentionally Left Blank.] A-32 TABLE A-15 CITY AND COUNTY OF SAN FRANCISCO (All Funds) Employee Organizations as of July 1, 2012 Budgeted Expiration Date of Organization Positions MOU AutomotiveMachinists,Local1414 400 June30,2014 Bricklayers,Local3/HodCarriers,Local36 18 June30,2014 BuildingInspectorsAssociation 77 June30,2014 Carpenters,Local22 110 June30,2014 Carpet,Linoleum&SoftTile 2 June30,2014 CIR(Interns&Residents) 230 June30,2014 CementMasons,Local580 33 June30,2014 DeputySheriffsAssociation 865 June30,2014 DistrictAttorneyInvestigatorsAssociation 39 June30,2014 ElectricalWorkers,Local6 817 June30,2014 Glaziers,Local718 10 June30,2014 InternationalAllianceofTheatricalStageEmployees,Local16 18 June30,2014 Ironworkers,Local377 15 June30,2014 LaborersInternationalUnion,Local261 1007 June30,2014 MunicipalAttorneys'Association 432 June30,2014 MunicipalExecutivesAssociation 1068 June30,2014 MEA-PoliceManagement 2 June30,2015 MEA-FireManagement 9 June30,2015 OperatingEngineers,Local3 57 June30,2014 Painters 121 June30,2014 PileDrivers,Local34 18 June30,2014 Plumbers,Local38 340 June30,2014 ProbationOfficersAssociation 159 June30,2014 Professional&TechnicalEngineers,Local21 4733 June30,2014 Roofers,Local40 11 June30,2014 S.F.InstitutionalPoliceOfficersAssociation 2 June30,2014 S.F.Firefighters,Local798 1729 June30,2015 S.F.PoliceOfficersAssociation 2421 June30,2015 SEIU,Local1021 10992 June30,2014 SEIU,Local1021Staff&PerDiemNurses 1514 June30,2014 SEIU,Local1021H-1RescueParamedics 12 June30,2013 SheetMetalWorkers,Local104 47 June30,2014 StationaryEngineers,Local39 662 June30,2014 SupervisingProbationOfficers,OperatingEngineers,Local3 23 June30,2014 Teamsters,Local853 158 June30,2014 Teamsters,Local856(Multi-Unit) 103 June30,2014 Teamsters,Local856(SupervisingNurses) 119 June30,2015 TWU,Local200(SEAMmulti-unit&claims) 316 June30,2014 TWU,Local250-AAutoServiceWorkers 193 June30,2014 TWU-250-AMiscellaneous 94 June30,2014 TWU-250-ATransitOperators 2103 June30,2014 UnionofAmericanPhysicians&Dentists 190 June30,2015 UnrepresentedEmployees 138 June30,2013 Total 31,407 1 1 Budgeted positions do not include SFUSD, SFCCD, or Superior Court Personnel. Source: Department of Human Resources -Employee Relations Division, City and County of San Francisco. A-33 San Francisco Employees’ Retirement System (“SFERS” or “Retirement System”) History and Administration SFERS is charged with administering a defined-benefit pension plan (the “Retirement System”) that covers substantially all City employees and certain other employees. The Retirement System was initially established November 4, 1924 and is currently codified in the City Charter. The Charter provisions governing the Retirement System may be revised only by a Charter amendment, which requires an affirmative public vote at a duly called election. The Retirement System is administered by the Retirement Board consisting of seven members, three appointed by the Mayor, three elected from among the members of the Retirement System, at least two of whom must be actively employed, and a member of the Board of Supervisors appointed by the President of the Board of Supervisors. To aid in the administration of the Retirement System, the Retirement Board appoints an Executive Director and an Actuary. The Executive Director serves as chief executive officer, with responsibility extending to all divisions of the Retirement System. The Actuary’s responsibilities include the production of data and a summary of plan provisions for the independent consulting actuarial firm retained by the Retirement Board to prepare an annual valuation report and other analyses as described below. The independent consulting actuarial firm is currently Cheiron, Inc., a nationally recognized firm selected by the Retirement Board pursuant to a competitive process. In 2010, the Retirement System filed an application with the Internal Revenue Service (“IRS”) for a Determination Letter. In March 2012, the IRS issued a favorable Determination Letter for SFERS. Issuance of a Determination Letter constitutes a finding by the IRS that operation of the defined benefit plan in accordance with the plan provisions and documents disclosed in the application qualifies the plan for federal tax exempt status. A tax qualified plan also provides tax advantages to the City and to members of the Retirement System. The favorable Determination Letter included IRS review of all SFERS provisions, including the new provisions of Proposition C approved by the City voters in November 2011. Membership The Retirement System estimates that the total active membership as of July 1, 2011 (the date of most recent valuation report) was 33,475, compared to 33,715 members a year earlier. Active membership includes 4,499 vested members and 1,021 reciprocal members. Vested members are individuals who (i) have separated from City service, (ii) have worked for the City for five or more years, and (iii) have elected to receive a deferred vested pension in the future. Reciprocal members are individuals who have established membership in a reciprocal pension plan such as CalPERS and may be eligible to receive a reciprocal pension from the Retirement System in the future. The total new enrollees in the Retirement System were 1,599 in fiscal year 2009-10 and 1,099 in fiscal year 2010-11. Retirement allowances are paid to approximately 24,000 retired members and beneficiaries monthly. Benefit recipients include retired members, vested members receiving a vesting allowance, and qualified survivors. Beginning July 1, 2008, the Retirement System had a Deferred Retirement Option Program (DROP) program for Police Plan members who were eligible and elected participation. The program “sunset” on June 30, 2011. A total of 354 eligible Police Plan members elected to participate in DROP during the three-year enrollment window. As of June 30, 2012, approximately 184 police officers are enrolled in the program and all will retire over the next two fiscal years. [Page Intentionally Left Blank.] A-34 Table A-16 shows total Retirement System participation for fiscal years 2006-07 through 2010-11. TABLE A-16 CITY AND COUNTY OF SAN FRANCISCO Employees' Retirement System Fiscal Years 2006 - 07 through 2010 - 11 As of Active Vested Reciprocal Total Retirees/ Active to 1-Jul Members Members Members Non-Retired Continuants Retiree Ratio 2007 30,190 3,051 774 34,015 21,116 1.430 2008 30,650 3,877 869 35,396 21,514 1.425 2009 29,919 4,096 890 34,905 22,294 1.342 2010 28,222 4,515 978 33,715 23,500 1.201 2011 27,955 4,499 1,021 33,475 24,292 1.151 Sources: SFERS’ Actuarial Valuation reports as of July 1, 2011, July 1, 2010, July 1, 2009, July 1, 2008, and July 1, 2007. Funding Practices The annual actuarial valuation of the Retirement System is a joint effort of the Retirement System and its independent consulting actuarial firm. The City Charter proscribes certain actuarial methods and amortization periods to be used by the Retirement System in preparing the actuarial valuation. Before the valuation is conducted, the consulting actuarial firm recommends three long-term economic assumptions: a long-term investment earnings assumption, a long-term wage/inflation assumption and a long-term consumer price index assumption. At its December 2011 meeting, after review of the analysis and recommendation prepared by the consulting actuarial firm, the Retirement Board voted to phase in reductions to the Retirement System’s long-term investment earnings assumption, long-term wage/inflation assumption and long-term consumer price index assumption over a three-year period as follows: long-term investment earnings assumption from 7.75% to 7.50% (fiscal year 2011-12 to 7.66%; fiscal year 2012-13 to 7.58%; fiscal year 2013-14 to 7.50%); long-term wage inflation assumption from 4.00% to 3.75% (fiscal year 2011-12 to 3.91%; fiscal year 2012-13 to 3.83%; fiscal year 2013-14 to 3.75%); and long-term consumer price index assumption from 3.50% to 3.25% (fiscal year 2011-12 to 3.41%; fiscal year 2012- 13 to 3.33%; fiscal year 2013-14 to 3.25%). These economic assumptions together with demographic assumptions based on periodic demographic studies are utilized to prepare the actuarial valuation of the Retirement System each year. Upon receipt of the consulting actuarial firm’s valuation report, Retirement System staff provides a recommendation to the Retirement Board for their acceptance of the consulting actuary’s valuation report. In connection with such acceptance, the Retirement Board acts to set the annual employer contribution rates required by the Retirement System as determined by the consulting actuarial firm and approved by the Retirement Board. The consulting actuarial firm and the Retirement Board set the actuarially required employer contribution rate using three related calculations: First, the normal cost is established for the Retirement System. The normal cost of the Retirement System represents the portion of the actuarial present value of benefits that SFERS will be expected to fund that is attributable to a current year’s employment. The Retirement System uses the entry age normal cost method, which is an actuarial method of calculating the anticipated cost of pension liabilities, designed to fund promised benefits over the average future life of the Retirement System members. Second, the contribution calculation takes account of the amortization of a portion of the amount by which the actuarial value of Retirement System liabilities exceeds the actuarial value of Retirement System assets, such amount being known as an “unfunded accrued actuarial liability” or “UAAL.” The UAAL is the difference between estimated liabilities and the value of smoothed plan assets and can be thought of as a snapshot of the funding of benefits as of the valuation date. There are a number of assumptions and calculation methods that bear on each side of this asset-liability comparison. On the asset side, the actuarial value of Retirement System assets is calculated using a five-year smoothing technique, so that gains or losses in asset value are recognized over that longer period rather than in the immediate time period such gain or loss is identified. As A-35 for calculating the pension benefit liability, certain assumptions must be made about future costs of pension benefits to generate an overall liability amount. If the Retirement System’s results are better or worse than the estimated UAAL, the result is called an actuarial gain or loss, respectively, and under the Retirement Board’s Actuarial Methods Policy any such gain or loss is amortized over a 15-year period. Similarly, if the estimated liabilities change due to changes in the aforementioned assumptions, the effect of such changes is also amortized over a 15- year period. Third, after calculating the normal cost and the adjustment for UAAL, the consulting actuarial firm amortizes supplemental costs associated with the various SFERS benefit plans. Supplemental costs are additional costs resulting from the past service component of SFERS benefit increases. In other words, when the Charter is amended to extend additional benefits to some or all beneficiaries of the Retirement System, the Retirement System’s payment liability is increased by the amount of the new benefit earned in connection with the service time already accrued by the then-current beneficiaries. These supplemental costs for each beneficiary are amortized over no more than 20 years. The consulting actuarial firm combines the three calculations described above to arrive at a total contribution requirement for funding the Retirement System in that fiscal year. This total contribution amount is satisfied from a combination of employer and employee contributions. Sources of payment of employee contributions (i.e. City or employee) may be the subject of collective bargaining agreements with each union or bargaining unit. The employer contribution rate is established by Retirement Board action each year and is expressed as a percentage of salary applied to all wages covered under the Retirement System. The most recent voter-approved retirement changes are described below. Prospective purchasers of the City’s bonds should carefully review and assess the assumptions regarding the performance of the Retirement System. There is a risk that actual results will differ significantly from assumptions. In addition, prospective purchasers of the City’s bonds are cautioned that the information and assumptions speak only as of the respective dates contained in the underlying source documents, and are therefore subject to change. Recent Voter Approved Changes to the Retirement Plan The levels of SFERS plan benefits are established under the Charter and approved directly by the voters, rather than through the collective bargaining process. Changes to retirement benefits require a voter-approved Charter amendment. Recent changes to SFERS plan benefits have been intended to reduce pension costs associated with future City employees. For example, in November 2011, the voters of San Francisco approved Proposition C, which a) created new SFERS benefit plans for Miscellaneous and Safety employees commencing employment on or after January 7, 2010, which raise the minimum service retirement age for Miscellaneous members from 50 to 53; limit covered compensation to 85% of the IRC §401(a)(17) limits for Miscellaneous members and 75% of the IRC §401(a)(17) limits for Safety members; calculate final compensation using highest three- year average compensation; and decrease vesting allowances for Miscellaneous members by lowering the City’s funding for a portion of the vesting allowance from 100% to 50%; b) provided that employees commencing employment on or after January 7, 2012 -otherwise eligible for membership in CalPERS may become members of SFERS; c) effective July 1, 2012, provides for an increase or decrease of employee contributions to SFERS for certain SFERS members based on the employer contribution rate set by the Retirement Board for that year. (For example, Miscellaneous employees who earn less than $50,000 per year would pay the minimum Charter- mandated employee contribution rate; Miscellaneous employees who earn between $50,000 and $100,000 per year would pay a fluctuating contribution rate in the range of +4% to -4% of the Charter-mandated employee contribution rate; and Miscellaneous employees who earn $100,000 or more per year would pay a fluctuating contribution rate in the range of +5% to -5% of the Charter-mandated employee contribution rate. Similar fluctuating employee contributions are required from Safety employees also); and d) provides that, effective July 1, 2012, no Supplemental COLA will paid unless SFERS is fully funded on a market value of assets basis and, for employees hired on or after January 7, 2012, Supplemental COLA benefits will not be permanent adjustments to retirement benefits - in any year when a Supplemental COLA is not paid, all previously paid Supplemental COLAs will expire. A-36 The impact of Proposition C will be incorporated in the actuarial valuations beginning with the July 1, 2012 Actuarial Valuation report. Since 2008, the voters of San Francisco have approved three other retirement plan amendments: Proposition D enacted in June 2010, which enacted new SFERS retirement plans for Miscellaneous and Safety employees commencing on or after July 1, 2010, which changed average final compensation used in the benefit formula from highest one-year average compensation to highest two-year average compensation, increased the employee contribution rate for City safety and CalPERS members hired on or after July 1, 2010 from 7.5% of covered pay to 9.0%, and provides that, in years when the City’s required contribution to SFERS is less than the employer normal cost as described above, the amount saved would be deposited into the Retiree Health Care Trust Fund. The enactment of DROP, a Deferred Retirement Option Program available to certain police members effective July 1, 2008, authorized by City voters’ approval on an initiative proposition in the February 2008 election. In June 2011, the Board of Supervisors voted to allow the program to sunset on June 30, 2011 Proposition B enacted in June 2008 which increased the years of service required for City employees hired after January 10, 2009 to qualify for employer-funded retiree health benefits, established a separate Retiree Health Care Trust Fund to fund retiree health costs, and increased retirement benefits and retirement cost- of-living adjustments for “miscellaneous” employees (i.e., those covered under Charter Section A8.409). SFERS Recent Funding Performance and City Employer Contribution History From fiscal year 1996-97 through fiscal year 2003-04, the City’s contribution to the Retirement System was zero as determined by the consulting actuarial firm of the Retirement System and adopted by the Retirement Board. The zero percent employer funding requirements for this period was due primarily to higher-than-projected investment earnings and lower-than-projected wage increases. Beginning in fiscal year 2004-05, the Retirement Board reinstated required employer contributions based on the funding requirements as determined by the consulting actuarial firm in the manner described above in “Funding Practices.” In fiscal year 2010-11, total City employer contributions to the Retirement System were $288 million, which was 13.56% of that portion of members’ earned wages that are includable for calculation and contribution purposes (“Pensionable Salary”). This amount includes $129 million from the City General Fund. For the fiscal year 2011-12 total City employer contributions to the Retirement System are budgeted at $375 million, which is 18.09% of Pensionable Salary. This amount includes $185 million from the General Fund. The latest actuarial report as of July 1, 2011 provides that future employer contribution rates are projected to increase to 27% for fiscal year 2014-2015 as the Retirement System recognizes the 2011 economic assumption changes and the losses incurred by the Retirement System in fiscal years 2007-2008 and 2008-2009. Table A-17 shows Retirement System contributions for fiscal years 2006-07 through 2010-11. “Market Value of Assets” reflects the fair market value of assets held in trust for payment of pension benefits. “Actuarial Value of Assets” refers to the value of assets held in trust adjusted according to the Retirement System’s actuarial methods as summarized above. “Pension Benefit Obligation” reflects the accrued actuarial liability of the Retirement System. The “Market Funded” column is determined by dividing the market value of assets by the Pension Benefit Obligations. The “Actuarial Funded” column is determined by dividing the actuarial value of assets by the Pension Benefit Obligations. “Employer and Employee Contributions” reflects the total of mandated employee contributions and employer Actuarial Retirement Contributions received by the Retirement System for fiscal years 2006-07 through 2010-11. A-37 TABLE A-17 CITY AND COUNTY OF SAN FRANCISCO Employee Retirement System ( in $000s) Fiscal Years 2006-07 through 2010-11 Employee & Employer As of Market Value Actuarial Value Pension Benefit Percent Employer Contribution 1-Jul of Assets of Assets Obligation Funded Contribution Rates[1] 2007 16,952,044 14,929,287 13,541,388 110.0 308,348 6.24% 2008 15,832,521 15,941,390 15,358,824 103.8 319,183 5.91% 2009 11,886,729 16,004,730 16,498,649 97.0 312,715 4.99% 2010 13,136,786 16,069,100 17,643,400 91.1 413,562 9.49% 2011 15,598,839 16,313,100 18,598,700 87.7 490,578 13.56% [1] Employer contribution rates for fiscal years 2011-2012 and 2012-2013 are 18.09% and 20.71% respectively. Sources: SFERS' audited financial statements and supplemental schedules June 30, 2011, 2010, 2009, 2008, and 2007. SFERS’ Actuarial Valuation report as of July 1, 2011, July 1, 2010, July 1, 2009, July 1, 2008, and July 1, 2007. Table A-17 reflects that the Percent Funded ratio (that is, the Actuarial Value of Assets divided by the Pension Benefit Obligation) decreased to 87.7%, corresponding to an unfunded actuarial liability (UAAL) of approximately $2.3 billion. The UAAL is the difference between the Actuarial Value of Assets and the total Pension Benefit Obligation. This means that as of June 30, 2011, for every dollar of pension benefits the City is obligated to pay, it had approximately $0.88 in assets available for payment. Asset Management and Actuarial Valuation The assets of the Fund are invested in a broadly diversified manner across the institutional global capital markets. In addition to U.S. equities and fixed income securities, the Fund holds international equities, global sovereign and corporate debt, global public and private real estate and an array of alternative investments including private equity and venture capital limited partnerships. See page 68 of the CAFR, attached as Appendix B to this Official Statement, for a breakdown of the asset allocation as of June 30, 2011. The Fund does not hold hedge funds. The investments, their allocation, transactions and proxy votes are regularly reviewed by the Retirement Board and monitored by an internal staff of investment professionals who in turn are advised by external consultants who are specialists in the areas of investments detailed above. A description of the Retirement System’s investment policy, a description of asset allocation targets and current investments, and the Annual Report of the Retirement System are available upon request from the Retirement System by writing to the San Francisco Retirement System, 30 Van Ness Avenue, Suite 3000, San Francisco, California 94102, or by calling (415) 487-7020. Certain documents are available at the Retirement System website at www.sfers.org. The information available on the Retirement System’s website is not incorporated herein by reference. Recent Changes in the Economic Environment and the Impact on the Retirement System As of June 30, 2012, the Retirement System estimated that the market value of its assets was approximately $15.3 billion. The estimated market value represents, as of the date specified, the estimated value of the Retirement System’s portfolio if it were liquidated on that date. The Retirement System cannot be certain of the value of certain of its portfolio assets and, accordingly, the market value of the portfolio could be more or less. Moreover, appraisals for classes of assets that are not publicly traded are based on estimates which typically lag changes in actual market value by three to six months. Representations of market valuations are not subject to audit (other than at year end). The Retirement System investment portfolio is structured for long-term performance. The Retirement System continually reviews investment and asset allocation policies as part of its regular operations and continues to rely on an investment policy which is consistent with the principles of diversification and the search for long-term value. Market fluctuations are an expected investment risk for any long-term strategy. Significant market fluctuations are expected to have significant impact on the value of the Retirement System investment portfolio. A decline in the value of SFERS Trust assets over time, without a commensurate decline in the pension liabilities, will result in an increase in the contribution rate for the City. No assurance can be provided by the City that A-38 contribution rates will not increase in the future, and that the impact of such increases will not have a material impact on City finances. Other Employee Retirement Benefits As noted above, various City employees are members of CalPERS, an agent multiple-employer public employee defined benefit plan for safety members and a cost-sharing multiple-employer plan for miscellaneous members. The City makes certain payments to CalPERS in respect of such members, at rates determined by the CalPERS board. Such payment from the General Fund equaled $18.1 million in fiscal year 2009-10 and $17.6 million in fiscal year 2010-11. For fiscal year 2011-12, the City prepaid its annual CalPERS obligation at a level of $23.4 million. Further discussion of the City’s CalPERS plan obligations are summarized in Note 9 to the City’s CAFR, as of June 30, 2011, attached to this Official Statement as Appendix B. A discussion of other post-employment benefits, including retiree medical benefits, is provided below under “Medical Benefits – Post-Employment Health Care Benefits and GASB 45.” Medical Benefits Administration through Health Service System; Audited System Financial Statements Medical benefits for eligible active City employees and eligible dependents, for retired City employees and eligible dependents, and for surviving spouses and domestic partners of covered City employees (the “City Beneficiaries”) are administered by the City’s Health Service System (the “Health Service System”) pursuant to City Charter Sections 12.200 et seq. and A8.420 et seq. Pursuant to such Charter Sections, the Health Service System also administers medical benefits to active and retired employees of SFUSD, SFCCD, and the San Francisco Superior Court (collectively the “System’s Other Beneficiaries”). However, the City is not required to fund medical benefits for the System’s Other Beneficiaries and therefore this section focuses on the funding by the City of medical benefits for City Beneficiaries. With the transition of the San Francisco Redevelopment Agency employees to the city budget, it is currently planned that benefits for these employees will continue to be provided by CalPERS. The Health Service System is overseen by the City’s Health Service Board (the “Health Service Board”). The seven member Health Service Board is composed of members including a seated member of the City’s Board of Supervisors, appointed by the Board President; an individual who regularly consults in the health care field, appointed by the Mayor; a doctor of medicine, appointed by the Mayor; and four members of the Health Service System, active or retired, elected from among their members. (See Proposition C (2011) section below for new Board composition and voting changes). The plans (the “HSS Medical Plans”) for providing medical care to the City Beneficiaries and the System’s Other Beneficiaries (collectively, the “HSS Beneficiaries”) are determined annually by the Health Service Board and approved by the Board of Supervisors pursuant to Charter Section A8.422. The Health Service System oversees a trust fund (the “Health Service Trust Fund”) established pursuant to Charter Sections 12.203 and A8.428 through which medical benefits for the HSS Beneficiaries are funded. The Health Service System issues annually a publicly available, independently audited financial report that includes financial statements for the Health Service Trust Fund. This report may be obtained by writing to the San Francisco Health Service System, 1145 Market Street, Second Floor, San Francisco, California 94103, or by calling (415) 554-1727. Audited annual financial statements for several years are also posted in the Health Service System website: www.myhss.org/finance. The information available on such website is not incorporated in this Official Statement by reference. As presently structured under the City Charter, the Health Service Trust Fund is not a fund through which assets are accumulated to finance post-employment healthcare benefits (an “OPEB trust fund”). Thus, the Health Service Trust Fund is not currently affected by Governmental Accounting Standards Board (“GASB”) Statement Number 45, Financial Reporting for Postemployment Benefit Plans Other Than Pensions (“GASB 45”), which applies to OPEB trust funds. A-39 Determination of Employer and Employee Contributions for Medical Benefits Contributions by the participating employers and HSS Beneficiaries to HSS Medical Plans are determined according to applicable provisions of the Charter. To the extent annual medical premiums exceed the contributions made by employers and HSS Beneficiaries as required by the Charter, such excess must be paid by HSS Beneficiaries or, if elected by the Health Service Board, from net assets held in the Health Service Trust Fund. All City Beneficiaries receive a base contribution from the City toward the monthly cost of their medical benefits calculated pursuant to Charter Section A8.423. Under that section, the Health Service System conducts a survey annually of the 10 most populous counties in California (other than the City) to determine “the average contribution made by each such County toward the providing of health care plans, exclusive of dental or optical care, for each employee of such County.” Under City Charter Section A8.428, the City is required to contribute to the Health Service Trust Fund an amount equal to such “average contribution” for each City Beneficiary. In addition to the average contribution described above, the City makes additional medical and other benefit contributions on behalf of City Beneficiaries who are active employees as negotiated and agreed to by such employees’ applicable collective bargaining units. City bargaining units have negotiated additional City contributions for enhanced single medical coverage, dependent medical coverage and for additional benefits such as dental care for the members of such bargaining units. These contribution amounts are also paid by the City into the Health Service Trust Fund. Medical benefits for City Beneficiaries who are retired or otherwise not employed by the City (e.g., surviving spouses and surviving domestic partners of City retirees) (“Nonemployee City Beneficiaries”) are funded through contributions from such Nonemployee City Beneficiaries and the City as determined pursuant to Charter Section A8.428. The Health Service System medical benefit eligibility requirements for Nonemployee City Beneficiaries are described below under “– Post-Employment Health Care Benefits and GASB 45.” Contributions relating to Nonemployee City Beneficiaries include the City contribution of the “average contribution” corresponding to such Nonemployee City Beneficiaries as described in Charter Section A8.423 along with the following: Monthly contributions from Nonemployee City Beneficiaries in amounts equal to the monthly contributions required from active employees excluding health coverage or subsidies for health coverage paid for active employees as a result of collective bargaining. However, such monthly contributions from Nonemployee City Beneficiaries covered under Medicare are reduced by an amount equal to the amount contributed monthly by such persons to Medicare. In addition to the average contribution described in the second paragraph of this subsection, the City contributes additional amounts in respect of the Nonemployee City Beneficiaries sufficient to defray the difference in cost to the Health Service System in providing the same health coverage to Nonemployee City Beneficiaries as is provided for active employee City Beneficiaries, excluding health coverage or subsidies for health coverage paid for active employees as a result of collective bargaining. After application of the calculations described above, the City contributes 50% of ’monthly contributions required for the retired city participant and the first dependent. The Health Service System is in the process of shifting from a fiscal year plan year to a calendar year plan (See Proposition C (2011) section below), with a one-time six month benefit period from July 1, 2012 to December 31, 2012. The first calendar plan year will commence on January 1, 2013. The Health Service System negotiated rates with only a 2.93% increase to the City’s cost for the six month benefit period that saved $17 million ($10.4 million for the city and $6.6 for employees and retirees) over six months. Health Care Reform On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (Public Law 111-114), and on March 30, 2010 signed the Health Care and Education Reconciliation of 2010 (collectively, the “Health Care Reform Law”). The Health Care Reform Law is intended to extend health insurance to over 32 A-40 million uninsured Americans by 2019, and includes other significant changes with respect to the obligation to carry health insurance by individuals and the provision of health care by private and public employers, such as the City. Due to the complexity of the Health Care Reform Law it is likely that additional legislation will be considered and enacted in future years. The Health Care Reform Law is designed to be implemented in phases from 2010 to 2018. The provisions of the Health Care Reform Law to be implemented in future years include, the expansion of Medicaid, subsidies for health insurance for certain individuals, mandates that require most Americans obtain health insurance, and incentives for employers with over 50 employees to provide health insurance for their employees or pay a fine. Many aspects of the law have yet to be clarified and will require substantial regulation or subsequent legislative action. On June 28, 2012 the U.S. Supreme Court ruled to uphold the employer mandate, the individual mandate and the state Medicaid expansion requirements. Provisions of Health Care Reform already implemented by HSS include, discontinued eligibility for non- prescription drugs reimbursement through FSAs in 2011, eliminated copayments for wellness visits, eliminated life- time caps on coverage, and expanded eligibility to cover member dependent children up to age 26 in 2011, eliminated copayments for women’s preventative health including contraception in 2012 and W-2 reporting on total healthcare premium costs for 2012 plan year. In 2013, Healthcare flexible spending accounts (FSAs) will be limited to $2500 annually. Local Elections: Proposition C (2011) On November 8, 2011, the San Francisco voters approved Proposition C, a charter amendment that will change the way the City and current and future employees share in funding SFERS pension and health benefits. With regard to health benefits, elected officials and employees hired on or before January 9, 2009, contribute up to 1% of compensation toward their retiree health care, with matching contribution by the City. For employees or elected officials who left the City workforce before June 30, 2001, and retire after January 6, 2012, Proposition C requires that the City contributions toward retiree health benefits remain at the same levels they were when the employee left the City workforce. Proposition C changes the Health Service System and Health Service Board (HSB) including the following: 1) replace one elected member of the HSB with a member nominated by the City Controller and approved by HSB; 2) change HSB’s voting requirement for approving member health plans from two-third to a simple majority; 3) remove the requirement for a plan permitting the member to choose any licensed medical provider; 4) allow for the option to change to a calendar year plan year; and 5) allow HSB to spend money on ways to limit health care costs. Factors that could cause additional medical costs or savings include: 1) Projected City savings might be reduced if future labor negotiations or arbitration awards result in any salary increases to offset higher employee retirement contributions. 2) To the extent that changes to pension formulas in this measure cause employees to delay or speed up retirement dates, this could provide additional City savings or costs related to retiree pension and health insurance subsidies. 3) To the extent that changes in the composition of the Health Service Board result in changes to approved health benefit programs, costs could be higher or lower. 4) To the extent that changes in the composition of the Health Service Board result in changes to approved health benefit programs, costs could be higher or lower. Changing to a calendar plan year allows HSS to convert our City Plan retiree pharmacy benefit to a higher discounted federal program called Employer Group Waiver Plan (EGWP) as of 2013. This will save an estimated $2.3 million annually, will lower the City’s retiree pharmacy expenditures by $8.5 million annually, and will lower the City’s GASB 45 liability. Employer Contributions for Health Service System Benefits For fiscal year 2010-11, the Health Service System received approximately $583.3 million from participating employers for Health Service System benefit costs. Of this total, the City contributed approximately $486.1 million; approximately $145.0 million of this $486.1 million amount was for health care benefits for approximately 25,400 retired City employees and their eligible dependents and approximately $341.1 million was for benefits for approximately 59,900 active City employees and their eligible dependents. For fiscal year 2011-12, the Health Service System has budgeted to receive approximately $615 million from participating employers for Health Service System benefit costs. For the one-time six month plan year, from July 1, 2012 to December 31, 2012, the Health Service System has budgeted to receive an aggregate amount of $241.8 million from the City for active and retired healthcare costs. A-41 For the one-time six-month plan year, from July to December 31, 2012, the Health Service System has budgeted to receive an aggregate amount of $241.8 million from the City for active and retired healthcare costs. This is a 2.93% increase in aggregate plan costs for the City. The 2013 aggregate plan costs for the city will increase by only 1.4%. This flattening of the healthcare cost curve is due to a number of factors including lower use of healthcare during recessions, aggressive contracting by HSS, encouraging competition among our vendors, and changing our Blue Shield plan from a fully-funded to a flex-funded product. Flex-funding allows lower premiums to be set by our actuarial consultant, AON-Hewitt, without the typical margins added by Blue Shield; however, more risk is assumed by the City and reserves are required to protect against this risk. The HSB also subsidized dependent coverage in the Blue Shield plan to stabilize the risk pools and minimize migration between Blue Shield and Kaiser which contributed to the lower 2013 increase. Post-Employment Health Care Benefits and GASB 45 Eligibility of former City employees for retiree health care benefits is governed by the Charter. In general, employees hired before January 10, 2009 and a spouse or dependent are potentially eligible for health benefits following retirement at age 50 and completion of five years of City service. Proposition B, passed by San Francisco voters on June 3, 2008, tightened post-retirement health benefit eligibility rules for employees hired on or after January 10, 2009, and generally requires payments by the City and these employees equal to three percent of salary into a new retiree health trust fund. GASB 45 Reporting Requirements. The City was required to begin reporting the liability and related information for unfunded post-retirement medical and other benefits (“OPEBs”) in the City’s financial statements for the fiscal year ending June 30, 2008. This reporting requirement is defined under Governmental Accounting Standards Board Statement 45 (“GASB 45”). GASB 45 does not require that the affected government agencies, including the City, actually fund any portion of this post-retirement health benefit liability – rather, GASB 45 requires government agencies to determine on an actuarial basis the amount of its total OPEB liability and the annual contributions estimated to fund such liability over 30 years. Any underfunding in a year is recognized as a liability on the government agency’s balance sheet. The City has not established an OPEB trust fund and the City pays OPEB on a pay-as-you-go basis. City’s Estimated Liability. The City is required by GASB 45 to prepare a new actuarial study of its post-retirement benefits obligation every two years. In its December 13, 2010 report, Mercer Consulting estimated that the City’s unfunded liability had increased 4% on an annualized, non-inflation adjusted basis to approximately $4.36 billion (as of July 1, 2008). This estimate assumed a 4.25% return on investments and had an ARC for fiscal year 2009-10 of $369 million and an ARC for fiscal year 2010-11 of approximately $384 million. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost of each year and any unfunded actuarial liabilities (or funding excesses) amortized over thirty years. The ARC was determined based on the July 1, 2008 actuarial valuation. The covered payroll (annual payroll of active employees covered by the plan) was $2.3 billion and the ratio of the unfunded actuarial accrued liability to the covered payroll was 191.3%. The difference between the estimated ARC and the amount expended on post-retirement medical benefits in any year is the amount by which the City’s overall liability for such benefits increases in that year. The City’s most recent CAFR estimated that the 2010-11 annual OPEB cost was $392.2 million, of which the City funded $145.8 million which caused, among other factors, the City’s long-term liability to increase by $246.4 million (as shown on the City’s balance sheet and below). The annual OPEB cost consists of the ARC, one year of interest on the net OPEB obligation, and recognition of one year of amortization of the net OPEB obligation. While GASB 45 does not require funding of the annual OPEB cost, any differences between the amount funded in a year and the annual OPEB cost is recorded as an increase or decrease in the net OPEB obligation. See Note 9(c) and (d) to the City’s CAFR, as of June 30, 2011, included as Appendix B to this Official Statement. Three-year trend information is as follows (dollars in thousands): A-42 TABLE A-18 CITYANDCOUNTYOFSANFRANCISCO Three-year Trend (0 00 s) Percentage of Annual OPEB Net O PE B A n n ual OP EB Cost Contributed al Y ear E nd ed O b lig ationFisc 6/30/2009 $430,924 27.8 % $605 ,397 6/30/2010 374,214 33.9 % 852 ,782 6/30/2011 392,151 37.2 % 1 ,099 ,177 Source: Comprehensive Annual Financial Report. Office of the Controller, City and County of San Francisco. The December 2010 Mercer report estimates that the total long-term actuarial liability will reach $9.7 billion by 2033. The calculations in the Mercer Report are sensitive to a number of critical assumptions, including, but not limited to, the projected rate of increase in health plan costs. Actuarial projections of the City’s OPEB liability will be affected by Proposition B as well as by changes in the other factors affecting that calculation. For example, the City’s actuarial analysis shows that by 2031, Proposition B’s three-percent of salary funding requirement will be sufficient to cover the cost of retiree health benefits for employees hired after January 10, 2009. See “Retirement System – Recent Voter Approved Changes to the Retirement Plan” above. As of June 30, 2011, the fund balance in the Retiree Health Care Trust Fund established by Proposition B stood at $17 million. Future projections of the City’s GASB 45 liability will be lowered by the HSS implementation of the Employer Group Waiver Plan (EGWP) prescription benefit program for City Plan retirees. (See Local Elections: Prop C for more detail) Total City Employee Benefits Costs The City continued to budget only for current-year benefits expenditures, without any set-aside for accrued or future liabilities, in the fiscal year 2011-12 Original Budget. To begin to address the issue of accrued liabilities for future retiree health costs, the City created a new Post Employment Benefits Fund in fiscal year 2007-08. The actual fund balance as of January 31, 2012 is approximately $13.3 million. The costs were funded in part by employees and in part by the City. The City will continue to monitor and update its actuarial valuations of liability as required under GASB 45. Table A-18 provides a five-year history for all health benefits costs paid including pension, health, dental and other miscellaneous benefits. For all fiscal years shown, a “pay-as-you-go” approach was used by the City for health care benefits. The proposed budgets for 2012-13 and 2013-14 displayed in Table A-18 do not yet reflect the lower cost projections for the short plan year (July to December 2012) and the 2013 plan year. Table A-18 below provides a summary of the City’s employee benefit actual and budgeted costs from fiscal years 2007-08 to fiscal year 2013-14. TABLE A-19 CITY AND COUNTY OF SAN FRANCISCO Employee Benefit Costs, All Funds Fiscal Years 2007-08 through 2013-14 (000s) FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 actual actual actual actual budget Proposed Budget Proposed Budget SFERS andPERS Retirement Contributions $206,563 $197,614 $294,088 $368,185 $416,591 $438,888 $519,615 Social Security &Medicare 143,656 147,576 145,969 140,828 142,204 153,408 156,056 1 Health - Medical + Dental, active employees 281,894 304,714 313,862 326,666 328,057 361,370 381,703 Health - Retiree Medical 1 110,634 116,894 126,829 145,756 160,598 173,306 189,370 Other Benefits 2 21,007 18,857 17,797 24,358 20,182 18,783 15,911 Total Benefit Costs $763,754 $785,656 $898,545 $1,005,793 $1,067,631 $1,145,754 $1,262,654 FY2007-08 through FY2010-11 figures are audited actuals. FY 2011-12 is originalbudget, FY2012-13 and FY 2013-14 are the Mayor's proposed budget. 1 Doesnot includeHealth Service System administrative costs. Does include flexible benefits that may be used for health insurance 2 "Other Benefits" includes unemployment insurance premiums, life insurance, and other miscellaneous employee benefits Source:Office of the Controller, Cityand County of SanFrancisco. A-43 INVESTMENTS OF CITY FUNDS Investment Pool The Treasurer of the City and County of San Francisco (the “Treasurer”) is authorized by Charter Section 6.106 to invest funds available under California Government Code Title 5, Division 2, Part 1, Chapter 4. In addition to the funds of the City, the funds of various City departments and local agencies located within the boundaries of the City, including the school and community college districts, airport and public hospitals, are deposited into the City and County’s Pooled Investment Fund (the “Pool”). The funds are commingled for investment purposes. Investment Policy The management of the Pool is governed by the Investment Policy administered by the Office of the Treasurer and Tax Collector in accordance with California Government Code Sections 27000, 53601, 53635, et. al. In order of priority, the objectives of this Investment Policy are safety, liquidity, and return on investments. Safety of principal is the foremost objective of the investment program. The investment portfolio maintains sufficient liquidity to meet all expected expenditures for at least the next six months. The Office of the Treasurer and Tax Collector also attempts to generate a market rate of return, without undue compromise of the first two objectives. The Investment Policy is reviewed and monitored annually by a Treasury Oversight Committee established by the Board of Supervisors. The Treasury Oversight Committee meets quarterly and is comprised of members drawn from (a) the Treasurer; (b) the Controller; (c) a representative appointed by the Board of Supervisors; (d) the County Superintendent of Schools or his/her designee; (e) the Chancellor of the Community College District or his/her designee; and (f) Members of the general public. See “APPENDIX C – City and County of San Francisco Office of the Treasurer – Investment Policy” for a complete copy of the Treasurer’s Investment Policy, dated October 2011. The Investment Policy is also posted at the Treasurer’s website: www.sftreasurer.org. The information available on such website is not incorporated herein by reference. Investment Portfolio As of May 31, 2012, the City’s surplus investment fund consisted of the investments classified in Table A-20, and had the investment maturity distribution presented in Table A-21. [Remainder of Page Intentionally Left Blank.] A-44 TABLE A-20 City and County of San Francisco Investment Portfolio Pooled Funds As ofMay 31, 2012 Type of Investment Par Value Book Value Market Value U.S.Treasuries 700,000,000$ 705,114,500$ 717,545,000$ FederalAgencies 3,557,485,000 3,568,822,229 3,606,733,038 TemporaryLiquidityGuaranteeProgram 300,000,000 305,746,500 300,980,469 State and Local Obligations 27,820,000 28,800,004 28,582,535 Public Time Deposits 970,000 970,000 970,000 Negotiable Certificates of Deposit 352,176,000 352,214,610 351,421,061 Banker'sAcceptances - - - CommercialPaper 30,000,000 29,865,500 29,859,475 MediumTermNotes 129,552,000 132,935,706 130,619,853 MoneyMarketFunds - - - Total 5,098,003,000$ 5,124,469,049$ 5,166,711,431$ May 2012 Earned Income Yield: 1.72% Sources: Office of the Treasurer & Tax Collector, City and County of San Francisco From Citibank-Custodial Safekeeping, SunGard Systems-Inventory Control Program. TABLE A-21 City and County of San Francisco Investment Maturity Distribution Pooled Funds As of May31, 2012 MaturityinMonths ParValue Percentage 0to1 237,176,000$ 4.65% 1to2 100,000,000 1.96% 2to3 78,387,000 1.54% 3to4 100,000,000 1.96% 4to5 14,615,000 0.29% 5to6 100,000,000 1.96% 6 to 12 610,920,000 11.98% 12 to 24 474,320,000 9.30% 24 to 36 1,152,800,000 22.61% 36 to 48 738,200,000 14.48% 48 to 60 1,491,585,000 29.26% 5,098,003,000$ 100.00% Weighted Average Maturity: 944 Days Sources: Office of the Treasurer & Tax Collector, City and County of San Francisco From Citibank-Custodial Safekeeping, SunGard Systems-Inventory Control Program. A-45 Further Information A report detailing the investment portfolio and investment activity, including the market value of the portfolio, is submitted to the Mayor and the Board of Supervisors monthly. The monthly reports and annual reports are available on the Treasurer’s web page: www.sftreasurer.org. The monthly reports and annual reports are not incorporated by reference herein. Additional information on the City’s investments, investment policies, and risk exposure as of June 30, 2011 are described in Appendix B: “COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AND COUNTY OF SAN FRANCISCO FOR THE FISCAL YEAR ENDED JUNE 30, 2011,” Notes 2(d) and 5. CAPITAL FINANCING AND BONDS Capital Plan In October 2005, the Board of Supervisors adopted, and the Mayor approved, Ordinance No. 216-05, which established a new capital planning process for the City. The City Administrator, in conjunction with a capital planning committee composed of other City finance and capital project officials (the “Capital Planning Committee”), is directed to develop and submit an annual ten-year capital plan (the “Capital Plan”) each fiscal year for approval by the Board of Supervisors. The Capital Plan provides an assessment of the City's infrastructure needs over such period, investments required to meet the needs identified and a plan of finance to fund these investments. Although the Capital Plan provides cost estimates and proposes methods to finance such costs, the document does not reflect any commitment by the Board of Supervisors to expend such amounts or to adopt any specific financing method. The Capital Plan is required to be updated and adopted annually in advance of the budget process. The Capital Planning Committee is also charged with reviewing the annual capital budget submission and all long-term financing proposals, and providing recommendations to the Board of Supervisors relating to the compliance of any such proposal or submission with the adopted Capital Plan. The Capital Plan is required to be submitted to the Mayor and the Board of Supervisors by each March 1 and adopted by the Board of Supervisors and the Mayor on or before each May 1. The fiscal year 2012-2021 Capital Plan (the “Plan”) was approved by the Capital Planning Committee on March 7, 2011 and adopted by the Board of Supervisors on March 29, 2011. The Plan contains $24.8 billion in capital investments over the coming decade for all City departments, including $4.9 billion in projects for General Fund-supported departments. The Plan proposes $77.0 million for General Fund pay-as-you-go capital projects in fiscal year 2011-12. The amount for General Fund pay-as-you-go capital projects is assumed to grow to $123 million in fiscal year 2020-21. The Plan is not incorporated by reference herein but may be found at www.sfgov.org/cpp. Capital projects for General Fund-supported departments included in the Plan consist of upgrades to public health, police, fire and park facilities; replacement of the Hall of Justice; seismic upgrades the Veteran’s Memorial Building, repairs to the high-pressure fire hydrant system; repaving of streets; and removal of barriers to accessibility, among other capital projects. Approximately $2.4 billion of the capital projects of General Fund supported departments are financed with general obligation bonds and other long-term obligations. The balance is expected to be funded by federal and State funds, General Fund, and other sources. In addition to the City General Fund-supported capital spending, the Plan recommends $11.4 billion in enterprise fund department projects to continue major transit, water and wastewater projects such as the Central Subway, Wastewater Master Plan and the Water System Improvement Program (WSIP), among others. Approximately $5.53 billion of enterprise fund department capital projects is financed with voter-approved revenue bonds and other long- term obligations. The balance is expected to be funded by federal and State funds, user/operator fees, General Fund, and other sources. Failure to make the capital improvements and repairs recommended in the Plan may have the following impacts: (i) failing to meet federal, state, or local legal mandates; (ii) failing to provide for the imminent life, health, safety and security of occupants and the public; (iii) failing to prevent the loss of use of the asset; (iv) impairing the value of the City's assets; and (v) increasing future repair and replacement costs. A-46 Tax-Supported Debt Service Under the State Constitution and the Charter, City bonds secured by ad valorem property taxes (“general obligation bonds”) can only be authorized with a two-thirds approval of the voters. As of June 30, 2012, the City had approximately $1.51 billion aggregate principal amount of general obligation bonds outstanding. Table A-22 shows the annual amount of debt service payable on the City’s outstanding general obligation bonds. TABLE A-22 CITY AND COUNTY OF SAN FRANCISCO General Obligation Bonds Debt Service As of June 30, 2012 1 2 Fiscal Annual Year Principal Interest Debt Service 2013 97,386,718 72,997,418 170,384,136 2014 93,474,486 68,178,555 161,653,041 2015 88,089,884 63,505,382 151,595,266 2016 92,163,046 59,040,395 151,203,441 2017 83,494,110 54,468,756 137,962,866 2018 83,598,225 50,304,583 133,902,808 2019 81,420,545 46,137,513 127,558,058 2020 78,161,232 41,870,326 120,031,558 2021 72,680,457 37,802,863 110,483,320 2022 77,903,401 34,129,400 112,032,801 2023 79,185,251 30,244,252 109,429,503 2024 79,286,206 26,563,701 105,849,907 2025 77,476,476 22,834,733 100,311,209 2026 70,266,279 19,204,053 89,470,332 2027 73,165,840 15,917,724 89,083,564 2028 75,704,035 12,484,735 88,188,770 2029 73,211,751 8,937,006 82,148,757 2030 66,680,095 5,495,680 72,175,775 2031 23,561,950 2,358,490 25,920,440 2032 24,180,000 1,571,038 25,751,038 2033 4,835,000 762,000 5,597,000 2034 5,075,000 520,250 5,595,250 2035 5,330,000 266,501 5,596,501 3 TOTAL $1,506,329,987 $675,595,354 $2,181,925,341 1 This table does not reflect any debt other than City direct tax-supported debt, such as any assessment district indebtedness or any redevelopment agency indebtedness. 2 Totals reflect rounding to nearest dollar. 3 Section 9.106 of the City Charter limits issuance of general obligation bonds of the City to 3% of the assessed value of all real and personal assessment district indebtedness or any redevelopment agency agency indebtedness. Source: Office of Public Finance, City and County of San Francisco. A-47 General Obligation Bonds Authorized but Unissued Certain general obligation bonds authorized by the City’s voters as discussed below have not yet been issued. Such bonds may be issued at any time by action of the Board of Supervisors, without further approval by the voters. In November 1992, voters approved Proposition A, which authorized the issuance of up to $350.0 million in general obligation bonds to provide moneys to fund the City’s Seismic Safety Loan Program (the “Loan Program”). The purpose of the Loan Program is to provide loans for the seismic strengthening of privately-owned unreinforced masonry buildings in San Francisco for affordable housing and market-rate residential, commercial and institutional purposes. In April 1994, the City issued $35.0 million in taxable general obligation bonds to fund the Loan Program and in October 2002, the City redeemed all outstanding bonds remaining from such issuance. In February 2007 the Board of Supervisors approved the issuance of additional indebtedness under this authorization in an amount not to exceed $35.0 million. Such issuance would be achieved pursuant to the terms of a Credit Agreement with Bank of America, N.A. (the “Credit Bank”), under which the Credit Bank agreed to fund one or more loans to the City from time to time as evidenced by the City’s issuance to the Credit Bank of the Taxable General Obligation Bond (Seismic Safety Loan Program), Series 2007A. The funding by the Credit Bank of the loans at the City’s request and the terms of repayment of such loans are governed by the terms of the Credit Agreement. Loan funds received by the City from the Credit Bank are in turn used to finance loans to Seismic Safety Loan Program borrowers. In March 2007 the City initiated an initial borrowing of $2.0 million, and in October 2007, the City borrowed approximately $3.8 million from the Credit Bank. In January 2008, the City borrowed approximately $3.9 million and in November 2008, the City borrowed $1.3 million from the Credit Bank. Further borrowings under the Credit Agreement with the Credit Bank (up to the $35.0 million not-to-exceed amount) are expected as additional loans to Seismic Safety Loan Program borrowers are approved. In February 2008, voters approved Proposition A, which authorized the issuance of up to $185.0 million in general obligation bonds for the construction, reconstruction, purchase, and/or improvement of park and recreation facilities located in the City and under the jurisdiction of the Recreation and Parks Commission or under the jurisdiction of the Port Commission. The City issued the first series of bonds under Proposition A in the amount of approximately $42.5 million in August 2008. The City issued the second series in the amount of approximately $60.4 million in March 2010 and the third series in the amount of approximately $73.4 million in March 2012. In November 2008, voters approved Proposition A, which authorized the issuance of up to $887.4 million in general obligation bonds to provide funds to finance the building or rebuilding and improving the earthquake safety of the San Francisco General Hospital and Trauma Center. The City issued the first series of bonds under Proposition A in the amount of approximately $131.7 million in March 2009. The City issued the second series in the amount of approximately $294.6 million in March 2010. The City plans to issue its third series in the amount of approximately $250 million in August 2012. In June 2010, voters approved Proposition B, which authorized the issuance of up to $412.3 million in general obligation bonds to provide funds to finance the construction, acquisition, improvement, and retrofitting of neighborhood fire and police stations, the auxiliary water supply system, a public safety building, and other critical infrastructure and facilities for earthquake safety and related costs. The City issued the first series of bonds under Proposition B in the amount of $79.5 million in December 2010 and the second series of bonds in the amount of $183.3 million in March 2012. The City plans to issue its third series in the amount of approximately $38.4 million in August 2012. In November 2011, voters approved Proposition B, which authorized the issuance of up to $248.0 million in general obligation bonds to provide funds to repair and repave City streets and remove potholes; strengthen and seismically upgrade street structures; redesign street corridors by adding or improving pedestrian signals, lighting, sidewalk extensions, bicycle lanes, trees and landscaping; construct and renovate curb ramps and sidewalks to increase accessibility and safety for everyone, including persons with disabilities; and add and upgrade traffic signals to improve MUNI service and traffic flow. The City issued the first series of bonds under Proposition B in the amount of approximately $74.3 million in March 2012. A-48 Refunding General Obligation Bonds The Board of Supervisors adopted Resolution No. 272-04 on May 11, 2004 (the “2004 Resolution”). The Mayor approved the 2004 Resolution on May 13, 2004. The 2004 Resolution authorized the issuance of not to exceed $800.0 million aggregate principal amount of its General Obligation Refunding Bonds from time to time in one or more series for the purpose of refunding all or a portion of the City’s then outstanding General Obligation Bonds. On November 1, 2011, the Board of Supervisors adopted, and the Mayor approved, Resolution No. 448-11 (the “2011 Resolution,” and together with the 2004 Resolution, the “Refunding Resolutions”). The 2011 Resolution authorized the issuance of not to exceed $1,355,991,219 aggregate principal amount of the City's General Obligation Refunding Bonds from time to time in one or more series for the purpose of refunding certain outstanding General Obligation Bonds of the City. Table A-23 below lists for each of the City’s voter-authorized general obligation bond programs the amount originally authorized, the amount issued and outstanding, and the amount of remaining authorization for which bonds have not yet been issued. Series are grouped by program authorization in chronological order. The authorized and unissued column refers to total program authorization that can still be issued, and does not refer to any particular series. As of June 30, 2012, the City had authorized and unissued general obligation bond authority of approximately $1.08 billion. TABLE A-23 CITY AND COUNTY OF SAN FRANCISCO General Obligation Bonds (as of June 30, 2012) Authorized Description of Issue (Date of Authorization) Series Issued Outstanding 1 & Unissued SeismicSafetyLoanProgram(11/3/92) 2007A $30,315,450 $27,399,987 $284,684,550 BranchLibraryFacilitiesImprovement(11/7/00) 2008A 31,065,000 26,690,000 Clean & Safe Neighborhood Parks (2/5/08) 2008B 42,520,000 36,800,000 2010B 24,785,000 15,995,000 2010D 35,645,000 35,645,000 2012B 73,355,000 62,465,000 8,695,000 SanFranciscoGeneralHospitalandTraumaCenter(11/4/08) 2009A 131,650,000 107,810,000 2010A 120,890,000 78,005,000 2010C 173,805,000 173,805,000 461,055,000 Earthquake Safety and Emergency Response Bond (6/8/10) 2010E 79,520,000 76,080,000 2012A 183,330,000 155,650,000 149,450,000 Road Repaving & Street Safety (2011) 2012C 74,295,000 63,940,000 173,705,000 SUB TOTALS $1,001,175,450 $860,284,987 $1,077,589,550 General Obligation Refunding Bonds: Series 2006-R1 issued 10/31/06 90,690,000 62,165,000 Series 2006-R2 issued 12/18/06 66,565,000 34,785,000 Series2008-R1issued5/29/08 232,075,000 70,875,000 Series2008-R2issued5/29/08 39,320,000 27,865,000 Series2008-R3issued7/30/08 118,130,000 118,130,000 Series2011-R1issued11/9/2011 339,475,000 332,225,000 SUB TOTALS 886,255,000 646,045,000 TOTALS $1,887,430,450 $1,506,329,987 $1,077,589,550 1 Section 9.106 of the City Charter limits issuance of general obligation bonds of the City to 3% of the personal assessment assessed value of all real and district indebtedness or any redevelopment agency indebtedness. 2 Of the $35,000,000 authorized by the Board of Supervisors in February 2007, $30,315,450 has been drawn upon to date pursuant to the Credit Agreement described under "General Obligation Bonds Authorized but Unissued." Source: Office of Public Finance, City and County of San Francisco. Lease Payments and Other Long-Term Obligations The Charter requires that any lease-financing agreements with a nonprofit corporation or another public agency must be approved by a majority vote of the City’s electorate, except (i) leases approved prior to April 1, 1977, (ii) A-49 refunding lease financing expected to result in net savings, and (iii) certain lease financing for capital equipment. The Charter does not require voter approval of lease financing agreements with for-profit corporations or entities. Table A-24 sets forth the aggregate annual lease payment obligations supported by the City’s General Fund with respect to outstanding lease revenue bonds and certificates of participation as of June 30, 2012. Note that the annual payment obligations reflected in Table A-23 include the fully accreted value of any capital appreciation obligations that will accrue as of the final payment dates. [Remainder of Page Intentionally Left Blank.] A-50 TABLE A-24 CITY AND COUNTY OF SAN FRANCISCO Lease Revenue Bonds and Certificates of Participation As ofJune 30,2012 Fiscal Annual Payment Year Principal Interest Obligation 2013 45,446,157 60,581,619 106,027,776 2014 50,946,550 59,460,147 110,406,697 2015 55,235,751 52,859,075 108,094,826 2016 54,910,000 45,362,197 100,272,197 2017 52,825,000 43,070,852 95,895,852 2018 51,905,000 40,746,447 92,651,447 2019 49,100,000 38,542,640 87,642,640 2020 41,180,000 36,547,926 77,727,926 2021 41,900,000 34,725,672 76,625,672 2022 42,950,000 32,899,862 75,849,862 2023 44,805,000 31,012,370 75,817,370 2024 46,870,000 29,015,730 75,885,730 2025 46,450,000 26,882,584 73,332,584 2026 46,145,000 24,816,396 70,961,396 2027 48,310,000 22,643,511 70,953,511 2028 48,770,000 20,377,467 69,147,467 2029 51,000,000 18,058,628 69,058,628 2030 50,510,000 15,658,861 66,168,861 2031 41,785,000 13,372,303 55,157,303 2032 31,000,000 11,238,623 42,238,623 2033 30,010,000 9,703,868 39,713,868 2034 31,445,000 8,111,955 39,556,955 2035 18,870,000 6,676,999 25,546,999 2036 17,065,000 5,674,407 22,739,407 2037 15,030,000 4,752,794 19,782,794 2038 15,690,000 3,902,287 19,592,287 2039 16,375,000 3,014,711 19,389,711 2040 17,095,000 2,088,419 19,183,419 2041 17,845,000 1,121,651 18,966,651 2042 9,680,000 313,971 9,993,971 TOTAL 1 $1,131,148,458 $703,233,972 2 3 $1,834,382,430 1 Totals reflect rounding to nearest dollar. 2 For purposes of this table, the interest rate on the Lease Revenue Bonds Series 2008-1, and 2008-2 (Moscone Center Expansion Project) is assumed to be 3.25%. These bonds are in variable rate mode. Source: Office of Public Finance, City and County of San Francisco. The City electorate has approved several lease revenue bond propositions, some of which have authorized but unissued bonds. The following lease programs have remaining authorization: In 1987, voters approved Proposition B, which authorizes the City to lease finance (without limitation as to maximum aggregate par amount) the construction of new parking facilities, including garages and surface lots, in eight of the City’s neighborhoods. In July 2000, the City issued $8.2 million in lease revenue bonds to finance the A-51 construction of the North Beach Parking Garage, which was opened in February 2002. There is no current plan to issue any more bonds under Proposition B. In 1990, voters approved Proposition C, which amended the Charter to authorize the City to lease-purchase equipment through a nonprofit corporation without additional voter approval but with certain restrictions. The City and County of San Francisco Finance Corporation (the “Corporation”) was incorporated for that purpose. Proposition C provides that the outstanding aggregate principal amount of obligations with respect to lease financings may not exceed $20.0 million, such amount increasing by five percent each fiscal year. As of June 30, 2012, the total authorized amount for such financings was $58.5 million. The total principal amount outstanding as of June 30, 2012 was $33.5 million. In 1994, voters approved Proposition B, which authorized the issuance of up to $60.0 million in lease revenue bonds for the acquisition and construction of a combined dispatch center for the City’s emergency 911 communication system and for the emergency information and communications equipment for the center. In 1997 and 1998, the Corporation issued $22.6 million and $23.3 million of Proposition B lease revenue bonds, respectively, leaving $14.0 million in remaining authorization. There is no current plan to issue additional series of bonds under Proposition B. In June 1997, voters approved Proposition D, which authorized the issuance of up to $100.0 million in lease revenue bonds for the construction of a new football stadium at Candlestick Park, the home of the San Francisco 49ers football team. If issued, the $100.0 million of lease revenue bonds would be the City’s contribution toward the total cost of the stadium project and the 49ers would be responsible for paying the remaining cost of the stadium construction project. The City has no current timetable for issuance of the Proposition D bonds. On March 7, 2000, voters approved Proposition C, which extended a two and one half cent per $100.0 in assessed valuation property tax set-aside for the benefit of the Recreation and Park Department (the “Open Space Fund”). Proposition C also authorizes the issuance of lease revenue bonds or other forms of indebtedness payable from the Open Space Fund. The City issued approximately $27.0 million and $42.4 million of such Open Space Fund lease revenue bonds in October 2006 and October 2007, respectively. In November 2007, voters approved Proposition D, which amended the Charter and renewed the Library Preservation Fund. Proposition D continues the two and one half cent per $100.0 in assessed valuation property tax set-aside and establishes a minimum level of City appropriations, moneys that are maintained in the Library Preservation Fund. Proposition D also authorizes the issuance of revenue bonds or other evidences of indebtedness. The City issued the first series of lease revenue bonds in the amount of approximately $34.3 million in March 2009. Commercial Paper Program The Board authorized on March 17, 2009 and the Mayor approved on March 24, 2009 the establishment of a not-to- exceed $150.0 million Lease Revenue Commercial Paper Certificates of Participation Program (the “CP Program”). Under the proposed CP Program, Commercial Paper Notes (the “CP Notes”) will be issued from time to time to pay approved project costs in connection with the acquisition, improvement, renovation, and construction of real property and the acquisition of capital equipment and vehicles in anticipation of long-term financing to be issued when market conditions are favorable. Projects will be eligible to access the CP Program once the Board and the Mayor have approved the project and the long-term, permanent financing for the project. In June 2010, the City obtained letters of credit securing the CP Notes issued by J.P. Morgan Chase Bank, N.A. with a maximum principal amount of $50 million and by U.S. Bank, N.A. with a maximum principal amount of $50 million. The letters of credit expires June 2013. As of June 30, 2012, the outstanding principal amount of CP Notes is $46.8 million. The weighted average interest rate for the CP Notes is 0.17%. Board Authorized and Unissued Long-Term Obligations The Board of Supervisors authorized on December 16, 2008 and the Mayor approved on December 19, 2008, the issuance of not to exceed $45.0 million of City and County of San Francisco Certificates of Participation (Moscone Center Improvement Project), Series 2010B to finance improvements to the Moscone Convention Center. The A-52 proceeds from the sale of the Certificates will be used to provide funding for various improvements to the City’s convention facilities known as Moscone South, Moscone North, and Moscone West. The City anticipates issuing the certificates in the Fall of 2012. The Board of Supervisors authorized on October 26, 2010 and the Mayor approved on November 5, 2010, the issuance of not to exceed $38,000,000 in City and County of San Francisco certificates of participation to partially finance the rebuilding of severely distressed public housing sites, while increasing affordable housing and ownership opportunities and improving the quality of life for existing residents and the surrounding communities (the HOPE SF Project). The City anticipates issuing the certificates in the Winter of 2012. The Board of Supervisors authorized on July 26, 2011 and the Mayor approved on August 1, 2011, the issuance of not to exceed $170,000,000 in City and County of San Francisco certificates of participation to finance the construction and installation of certain improvements in connection with the renovation of the San Francisco War Memorial Veterans Building. The City anticipates issuing the certificates in the Winter of 2012. The Board of Supervisors authorized on May 1, 2012 and the Mayor approved on May 8, 2012 the issuance of not to exceed $45,000,000 in City and County of San Francisco certificates of participation to finance the design, acquisition, construction, reconstruction, expansion, improvement, equipping, renewal, restoration, and/or replacement of certain capital improvements to properties of the Port Commission. The City anticipates issuing the certificates in the Winter of 2012. Overlapping Debt Table A-25 shows bonded debt and long-term obligations as of June 30, 2012 sold in the public capital markets by the City and those public agencies whose boundaries overlap the boundaries of the City in whole or in part. Long- term obligations of non-City agencies generally are not payable from revenues of the City. In many cases long-term obligations issued by a public agency are payable only from the General Fund or other revenues of such public agency. In the table, lease obligations of the City which support indebtedness incurred by others are included. As noted below, the Charter limits the City’s outstanding general obligation bond debt to 3% of the total assessed valuation of all taxable real and personal property within the City. [Remainder of Page Intentionally Left Blank.] A-53 TABLE A-25 CITY AND COUNTY OF SAN FRANCISCO Statement of Direct and Overlapping Debt and Long-Term Obligations 2011-2012 Assessed Valuation (net of non-reimbursable & homeowner exemptions): $158,649,887,998 Outstanding DIRECT GENERAL OBLIGATION BOND DEBT 6/30/2012 GeneralCityPurposesCarriedontheTaxRoll $1,506,329,987 GROSS DIRECT DEBT $1,506,329,987 DIRECT LEASE PAYMENT AND LONG-TERM OBLIGATIONS San Francisco COPs, Series 2001A & Taxable Series 2001B (30 Van Ness Ave. Property) 29,825,000 San Francisco COPs, Series 2003 (Juvenile Hall Replacement Project) 35,870,000 San Francisco Finance Corporation, Equipment LRBs Series 2007A, 2008A, 2010A, 2011A, and 2012A 33,470,000 San Francisco Finance Corporation Emergency Communication Refunding Series, 2010-R1 18,655,000 San Francisco Finance Corporation Moscone Expansion Center, Series, 2008-1, 2008-2 129,000,000 San Francisco Finance Corporation LRBs Open Space Fund (Various Park Projects) Series 2006, 2007 58,095,000 SanFranciscoFinanceCorporationLRBsLibraryPreservationFundSeries,2009A 31,755,000 San Francisco Redevelopment Agency Moscone Convention Center 1992 7,478,458 1 San Francisco Refunding Certificates of Participation, Series 2004-R1(San Francisco Courthouse Project) 21,950,000 SanFrancisco COPs, Series 2007AandTaxable Series 2007B (CityOfficeBuildings-MultipleProperties) 145,105,000 San Francisco COPs, Series 2009A Multiple Capital Improvement Projects (Laguna Honda Hospital) 153,650,000 San Francisco COPs, Series 2009B Multiple Capital Improvement Projects (Street Improvement Project) 36,120,000 San Francisco COPs, Series 2009C Office Project (525 Golden Gate Avenue) Tax Exempt 38,120,000 San Francisco COPs, Series 2009D Office Project (525 Golden Gate Avenue) Taxable BABs 129,550,000 San Francisco Refunding Certificates of Participation, Series 2010A 133,190,000 San Francisco COPs, Refunding Series 2011AB (Moscone) 86,480,000 San Francisco COPs, Series 2012A Multiple Capital Improvement Projects (Street Improvement Project) 42,835,000 LONG-TERM OBLIGATIONS $1,131,148,458 GROSS DIRECT DEBT & LONG-TERM OBLIGATIONS $2,637,478,445 OVERLAPPING DEBT & LONG-TERM OBLIGATIONS BayshoreHesterAssessmentDistrict $710,000 San Francisco Bay Area Rapid Transit District (33%) Sales Tax Revenue Bonds 100,051,667 San Francisco Bay Area Rapid Transit District (29%) General Obligation Bonds, Series 2005A, 2007B 107,869,850 SanFranciscoCommunityCollegeDistrictGeneralObligationBonds-Electionof2001,2005 358,270,000 San Francisco Redevelopment Agency Hotel Tax Revenue Bonds - 2011 42,930,000 San Francisco Redevelopment Agency Obligations (Property Tax Increment) 931,966,209 San Francisco Redevelopment Agency Obligations (Special Tax Bonds) 220,405,000 Association of Bay Area Governments Obligations (Special Tax Bonds) 44,765,938 San Francisco Unified School District General Obligation Bonds, Series Election of 2003, 2006, and 2011 817,470,000 SanFranciscoUnifiedSchoolDistrictCOPs-1996Refunding,1998&1999 11,285,000 TOTAL OVERLAPPING DEBT & LONG-TERM OBLIGATIONS $2,635,723,664 GROSS COMBINED TOTAL OBLIGATIONS $5,273,202,109 2 Ratios to Assessed Valuation: Actual Ratio Charter Req. Gross Direct Debt (General Obligation Bonds) 0.95% < 3.00% 3 Gross Direct Debt & Long-Term Obligations 1.66% n/a Gross Combined Total Obligations 3.32% n/a 1 The accreted value as of July 1, 2011 is $42,403,326 2 Excludes revenue and mortgage revenue bonds and non-bonded third party financing lease obligations. Also excludes tax allocation bonds sold in August, 2009. 3 Section 9.106 of the City Charter limits issuance of general obligation bonds of the City to 3% of the assessed value of all real and personal property within the City's boundaries that is subject to Source: Office of Public Finance, City and County of San Francisco. A-54 On November 4, 2003, voters approved Proposition A. Proposition A of 2003 authorized the SFUSD to issue up to $295.0 million of general obligation bonds to repair and rehabilitate school facilities, and various other improvements. The SFUSD issued $58.0 million of such authorization in October 2004, $130.0 million in October 2005 and $92.0 million in October 2006, leaving $15.0 million authorized but unissued. In March 2012, the SFUSD issued $116.1 million in refunding general obligation bonds that refunded $137.4 million in general obligation bonds authorized under Proposition A of 2003. On November 2, 2004, voters approved Proposition AA. Proposition AA authorized the San Francisco BART to issue general obligation bonds in one or more series over time in an aggregate principal amount not to exceed $980.0 million to strengthen tunnels, bridges, overhead tracks and the underwater Transbay Tube for BART facilities in Alameda and Contra Costa counties and the City. Of the $980.0 million, the portion payable from the levy of ad valorem taxes on property within the City is approximately 29.0% or $282.0 million. Of such authorization, BART issued $100.0 million in May 2005 and $400.0 million in July 2007, of which the allocable City portion is approximately $29.0 million and $116.0 million, respectively. On November 8, 2005, voters approved the issuance of up to $246.3 million in general obligation bonds to improve, construct and equip existing and new facilities of the SFCCD. SFCCD issued an aggregate principal amount of $90.0 million of the November 2005 authorization in June 2006. In December 2007, SFCCD issued an additional $110.0 million of such authorization. SFCCD issued the remaining authorization of $46.3 million in spring 2010. On November 7, 2006, voters approved Proposition A. Proposition A of 2006 authorized the SFUSD to issue an aggregate principal amount not to exceed $450.0 million of general obligation bonds to modernize and repair up to 64 additional school facilities and various other improvements. The SFUSD issued the first series in the aggregate principal amount of $100 million under the Proposition A authorization in February 2007. The SFUSD issued the second series in the aggregate principal amount of $150.0 million under the Proposition A authorization in January 2009. The SFUSD issued the third series in the aggregate principal amount of $185.0 million under the Proposition A authorization in May 2010. On November 8, 2011, voters approved Proposition A. Proposition A of 2011 authorized the SFUSD to issue an aggregate principal amount not to exceed $531.0 million of general obligation bonds to repair and rehabilitate school facilities to current accessibility, health, safety, and instructional standards, and where applicable, replace worn-out plumbing, electrical and other major building systems, replace aging heating, ventilation and air handling systems, renovate outdated classrooms and training facilities, construct facilities to replace aging modular classrooms. The SFUSD issued the first series in the aggregate principal amount of $115.0 million under the Proposition A of 2011 authorization in March 2012. MAJOR ECONOMIC DEVELOPMENT PROJECTS Numerous development and construction projects are in progress throughout the City at any given time. This section describes several of the most significant privately owned and managed real estate developments currently under way in the City. The information in this section has been prepared by the City based on City-approved plans as well as unofficial plans and representations of the developer in each case, and includes forward-looking statements. These forward-looking statements consist of expressions of opinion, estimates, predictions, projections, plans and the like; such forward-looking statements in this section are those of the developers and not of the City. The City makes no prediction, representation or assurance that the plans and projects described will actually be accomplished, or the time frame in which the developments will be completed, or as to the financial impact on City real estate taxes, developer fees, other tax and fee income, employment, retail or real estate activity, or other consequences that might be expected or projected to result from the successful completion of each development project. Completion of development in each case may depend on the local economy, the real estate market, the financial health of the developer and others involved in the project, specific features of each development and its attractiveness to buyers, tenants, and others, as well as the financial health of such buyers, tenants, and others. Further, the recent legislation to end redevelopment agencies as part of the State’s fiscal year 2011-12 budget may have an adverse impact on the projects described below and many other development projects in the City. See “San Francisco Redevelopment Agency Dissolution” above. Completion and success of each development will also likely depend on other factors unknown to the City. A-55 Hunters Point Shipyard (Phase 1 and 2) and Candlestick Point The first phase of development on Parcel A, which was conveyed from the Navy in 2005, is currently underway and includes up to 1,600 homes, 27% to 40% of which will be affordable, and 26 acres of parks and open space. Nearly all of the horizontal construction for Phase 1 is complete and the developer is preparing to commence vertical development on the first four blocks of homes in 2012. In August 2010, the development of the balance of the Shipyard and Candlestick Point received its final approvals from the Board of Supervisors. This includes (i) approximately 10,500 residential housing units across the project site, approximately 32% of which will be offered at below-market rates in a mix of both rental and for-sale housing; (ii) the complete rebuilding of the Alice Griffith Public Housing Development, also known as Double Rock; (iii) approximately 2.5 million square feet of “green” office, research and development uses on the Shipyard; (iv) approximately 150,000 square feet of green office, research and development or other commercial space on Candlestick Point; (v) more than 300 acres of new and restored parks and open space, which includes neighborhood parks, new waterfront parks around the entire perimeter of the Shipyard, connecting to the region’s Bay Trail, and a major renovation of the Candlestick Point State Recreation Area into a “Crissy Field” of the southeast, with restored habitat areas and public access to the water; (vi) approximately 635,000 square feet of regional and neighborhood retail on Candlestick Point; (vii) space for a 10,000-seat performance venue on Candlestick Point; and (viii) space for a new 69,000-seat, world-class football stadium for the San Francisco 49ers football team. The Project is estimated to create thousands of ongoing construction opportunities during the 20- to 30-year construction period, and 10,000 permanent jobs at full build- out. In August 2011, the U.S. Department of Housing and Urban Development (HUD) selected the Alice Griffith Public Housing Development and the surrounding Bayview neighborhood as a recipient of the $30.5 million Choice Neighborhoods Implementation Grant. The Alice Griffith Plan was one of six finalists submitted by communities nationwide competing for HUD Choice Neighborhoods funding. Treasure Island Former Naval Station Treasure Island, which ceased operations in 1997, consists of approximately 405 acres on Treasure Island and 90 acres on adjoining Yerba Buena Island, located in San Francisco Bay, and connected to the City by the San Francisco-Oakland Bay Bridge. The development plans for Treasure Island include up to 8,000 new homes, up to 25% of which will be offered at below-market rates; up to 500 hotel rooms; a 400-slip marina; restaurants; retail and entertainment venues; and a brand-new, world-class 300-acre parks and open space system. The compact mixed-use transit-oriented development is clustered around a new ferry terminal and is designed to prioritize walking, biking and public transit. The development plans include cutting-edge green office building standards and best practices in low-impact development. In August 2010, then-Mayor Gavin Newsom, U.S. House of Representatives Speaker Nancy Pelosi, and U.S. Secretary of the Navy Ray Mabus signed the terms for the conveyance of former Naval Station Treasure Island from the Navy to the City, representing another major step towards realizing an environmentally sustainable new community on Treasure Island and the thousands of construction and permanent jobs it will bring. In April 2011, the Treasure Island Development Authority (TIDA) Board of Directors and the Planning Commission certified the project’s Environmental Impact Report, as well as approved numerous project documents. In June 2011, the Board of Supervisors unanimously upheld the certification of the Environmental Impact Report, as well as approved numerous project documents, including a Disposition and Development Agreement, Development Agreement, Interagency Cooperation Agreement and Treasure Island Homeless Development Initiative (TIHDI) Agreement. Together, these agreements form the comprehensive vision for the future of the former military base and represent a significant milestone in moving the project closer towards implementation. The first phase of construction could begin as early as Fall 2012 and would consist primarily of horizontal infrastructure improvements to enable subsequent phases of vertical construction. The complete build-out of the project is anticipated to occur over fifteen to twenty years. Transbay The Transbay Transit Center broke ground on August 11, 2010, and is scheduled to open in August 2017. Demolition of existing structures on the site was completed in August 2011. The Transbay Transit Center Project will replace the outdated Transbay Terminal at First and Mission Streets with a modern transit hub, extend the Caltrain commuter rail line underground 1.3 miles into the Financial District, and redevelop the area surrounding the Transbay Transit Center with 4,500 new homes 1,200 to be “affordable” below-market homes), a 1.6 million square- foot tower, parks and a retail main street. The Pelli Clarke Pelli Architects-designed Center will serve more than 100,000 people per day through nine transportation systems, including the proposed California High Speed Rail, A-56 which will be designed to connect San Francisco to Los Angeles in less than 2-1/2 hours. The Center is designed to embrace the goals of green architecture and sustainability. The heart of the Center, “City Park,” a 5.4-acre public park that will sit atop the facility, will be a living green roof for the transit facility. The Center will have a LEED rating of Silver. The project is estimated to create more than 48,000 jobs in its first phase of construction, which will last seven years. The $4.2 billion Transbay Transit Center Project is funded by various public and private funding partners, including the federal government, the State, the Metropolitan Transportation Commission, the San Francisco County and San Mateo County Transportation Authorities, and AC Transit, among others. The first phase of the program, which includes constructing the new transit center, is fully funded. Mission Bay The development plans for Mission Bay include a new University of California-San Francisco (UCSF) research campus containing 2.65 million square feet of building space on 43 acres donated by Catellus and the City; UCSF’s 289-bed women’s, children’s and cancer hospital; 4.4 million square feet of biotech, ‘cleantech’ and health care office space; 6,000 housing units, with 1,800 (30%) affordable to moderate-, low-, and very low-income households; 800,000 square feet of retail space; a 500-room hotel with up to 50,000 square feet of retail entertainment uses; 41 acres of public open space, including parks along Mission Creek and San Francisco Bay, plus eight acres of open space within the UCSF campus; a new 500-student public school; and a new fire and police station. Mission Bay is approximately 50% complete. Cruise Terminal The Port of San Francisco intends to develop a primary cruise terminal at Pier 27 to replace the existing facility at Pier 35. Pier 35 has neither the sufficient capacity to allow for the increasing length and passenger capacity of new cruise ships nor the amenities needed for an international cruise terminal. Pier 27 is currently used as a back-up berth, but does not have any amenities within its maritime shed. The proposed plan calls for the demolition of the existing Pier 27 maritime shed which opens up the site for new construction of an approximately 88,000 square foot, two-level cruise terminal with an open space, including the 2.5 acre Northeast Wharf Plaza, and ground transportation area capability. The proposed size of the terminal was defined as optimal to serve current and anticipated ship berthing requirements and associated passenger flows. The level of improvements and equipment proposed in the Pier 27 cruise terminal would be designed to optimally to handle carrying 2,600 passengers and will have the capacity to serve vessels carrying up to 4,000 passengers, totaling 40-80 cruise calls a year. The facility would continue to be used for maritime events, such as Fleet Week, foreign naval diplomatic calls, Tall Ship festivals and visits by oceanic research vessels. When there are no cruise calls, the design of the cruise terminal will provide approximately 60,000 square feet of designated space for shared uses, including meetings and special events. It is conceivable that a user could rent the ground transportation area and the provisioning area either in conjunction with the rental of the interior terminal spaces or as a stand-alone event space. Subject to completion and certification of a Final EIR for this project and other regulatory approvals, demolition of the Pier 27 maritime shed (and a portion of the Pier 29 shed) and new construction of a core and shell building would commence in early 2012 and be completed approximately in a one year period to allow Pier 27 to be used on a temporary basis to the America's Cup Event Authority commencing in early 2013, as stipulated in the Host and Venue Agreement for the 34th America's Cup. After the 2013 racing events, the Port would build-out the remaining portions of the cruise terminal building (e.g., the Customs and Border Protection area), install maritime equipment, complete an operations area within a portion of Pier 29, and complete improvements to the ground transportation area and Northeast Wharf Plaza. The goal is to substantially complete this project to allow for cruise terminal operations to commence late 2014. Bay Area Economics was commissioned to provide an economic impact study for the Pier 27 project. The study projects that the project could create approximately $29.4 million annually in direct economic activity; $42.2 million in total impacts, and generate approximately 408 jobs within San Francisco. In addition, the Bay Area Economics study projects that the project could generate approximately $900,000 annually in direct tax revenues that accrue to the City's General Fund. Regionally, Bay Area Economics estimated $43.4 million in direct impacts and $66.9 million in total impacts, and approximately 470 jobs in the Bay Area. A-57 America’s Cup On December 31, 2010, the City was selected to host the 34th America’s Cup World Series in the summer of 2012 and the America’s Cup Challenger Series and Finals in the summer of 2013. To accommodate the events, the Port will invest in a series of Waterfront improvements along the central and northeast waterfront, primarily on Piers 27- 29 for the America’s Cup Village and at Piers 30-32 for team bases. In time for the Challenger Series and Match events, the City will complete the Brannan Street Wharf project and construct core and shell of the Pier 27 James R. Herman Cruise Terminal building. After the conclusion of the events, the City will complete the James R. Herman Cruise Ship Terminal and Northeast Wharf Plaza. The City cannot predict the precise economic effects of hosting the event, but the City expects that sales tax and transient occupancy tax revenues will be positively impacted. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND EXPENDITURES Several constitutional and statutory limitations on taxes, revenues and expenditures exist under State law which limits the ability of the City to impose and increase taxes and other revenue sources and to spend such revenues, and which, under certain circumstances, would permit existing revenue sources of the City to be reduced by vote of the City electorate. These constitutional and statutory limitations, and future limitations, if enacted, could potentially have an adverse impact on the City’s general finances and its ability to raise revenue, or maintain existing revenue sources, in the future. However, ad valorem property taxes required to be levied to pay debt service on general obligation bonds was authorized and approved in accordance with all applicable constitutional limitations. A summary of the currently effective limitations is set forth below. Article XIII A of the California Constitution Article XIII A of the California Constitution, known as “Proposition 13,” was approved by the California voters in June of 1978. It limits the amount of ad valorem tax on real property to 1% of “full cash value,” as determined by the county assessor. Article XIII A defines “full cash 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 when “purchased, newly constructed or a change in ownership has occurred” (as such terms are used in Article XIII A) after the 1975 assessment. Furthermore, all real property valuation may be increased or decreased to reflect the inflation rate, as shown by the consumer price index or comparable data, in an amount not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors. Article XIII A provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on 1) indebtedness approved by the voters prior to July 1, 1978, 2) any 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, or 3) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district voting on the proposition, but only if certain accountability measures are included in the proposition. The California 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 or lower than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. The California courts have upheld the constitutionality of this procedure. Since its adoption, Article XIII A has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be assessed when purchased, newly constructed or a change in ownership has occurred. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate persons with disabilities and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the City. Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIII A. A-58 Article XIII B of the California Constitution Article XIII B was enacted by California voters as an initiative constitutional amendment in November 1979. Article XIII B limits the annual appropriations from the proceeds of taxes 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 for changes in the cost of living, population, and services rendered by the governmental entity. However, no limit is imposed on the appropriation of local revenues and taxes to pay debt service on bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters. Article XIII B includes a requirement that if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax or fee schedules over the next two years. Articles XIII C and XIII D of the California Constitution Proposition 218, an initiative constitutional amendment, approved by the voters of the State in 1996, added Articles XIII C and XIII D to the State Constitution, which affect the ability of local governments, including charter cities such as the City, to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218 does not affect the levy and collection of taxes for voter-approved debt. However, Proposition 218 affects the City’s finances in other ways. Article XIII C requires that all new local taxes be submitted to the electorate for approval before such taxes become effective. Under Proposition 218, the City can only continue to collect taxes that were imposed after January 1, 1995 if voters subsequently approved such taxes by November 6, 1998. All of the City’s local taxes subject to such approval have been either reauthorized in accordance with Proposition 218 or discontinued. The voter approval requirements of Article XIII C reduce the City’s flexibility to manage fiscal problems through new, extended or increased taxes. No assurance can be given that the City will be able to raise taxes in the future to meet increased expenditure requirements. In addition, Article XIII C addresses the initiative power in matters of local taxes, assessments, fees and charges. Pursuant to Article XIII C, the voters of the City could, by initiative, repeal, reduce or limit any existing or future local tax, assessment, fee or charge, subject to certain limitations imposed by the courts and additional limitations with respect to taxes levied to repay bonds. The City raises a substantial portion of its revenues from various local taxes which are not levied to repay bonded indebtedness and which could be reduced by initiative under Article XIII C. No assurance can be given that the voters of the City will disapprove initiatives that repeal, reduce or prohibit the imposition or increase of local taxes, assessments, fees or charges. See “OTHER CITY TAX REVENUES” herein, for a discussion of other City taxes that could be affected by Proposition 218. With respect to the City’s general obligation bonds (City bonds secured by ad valorem property taxes), the State Constitution and the laws of the State impose a duty on the Board of Supervisors to levy a property tax sufficient to pay debt service coming due in each year. The initiative power cannot be used to reduce or repeal the authority and obligation to levy such taxes which are pledged as security for payment of the City’s general obligation bonds or to otherwise interfere with performance of the duty of the City with respect to such taxes which are pledged as security for payment of those bonds. Article XIII D contains several provisions making it generally more difficult for local agencies, such as the City, to levy and maintain “assessments” (as defined in Article XIII D) for local services and programs. The City has created a number of special assessment districts both for neighborhood business improvement purposes and community benefit purposes, and has caused limited obligation bonds to be issued in 1996 to finance construction of a new public right of way. The City cannot predict the future impact of Proposition 218 on the finances of the City, and no assurance can be given that Proposition 218 will not have a material adverse impact on the City’s revenues. Statutory Limitations On November 4, 1986, California voters adopted Proposition 62, an initiative statute that, among other things, requires (i) that any new or increased general purpose tax be approved by a two-thirds vote of the local governmental entity’s legislative body and by a majority vote of the voters, and (ii) that any new or increased special purpose tax be approved by a two-thirds vote of the voters. In Santa Clara County Local Transportation Authority v. Guardino, 11 Cal. 4th 220 (1995) (the “Santa Clara decision”), the California Supreme Court upheld a Court of Appeal decision invalidating a one-half cent countywide A-59 sales tax for transportation purposes levied by a local transportation authority. The California Supreme Court based its decision on the failure of the authority to obtain a two-thirds vote for the levy of a “special tax” as required by Proposition 62. The Santa Clara decision did not address the question of whether it should be applied retroactively. In McBrearty v. City of Brawley, 59 Cal. App. 4th 1441 (1997), the Court of Appeal, Fourth District, concluded that the Santa Clara decision is to be applied retroactively to require voter approval of taxes enacted after the adoption of Proposition 62 but before the Santa Clara decision. The Santa Clara decision also did not decide, and the California Supreme Court has not otherwise decided, whether Proposition 62 applies to charter cities. The City is a charter city. Cases decided by the California Courts of Appeal have held that the voter approval requirements of Proposition 62 do not apply to certain taxes imposed by charter cities. See Fielder v. City of Los Angeles, 14 Cal. App. 4th 137 (1993) and Fisher v. County of Alameda, 20 Cal. App. 4th 120 (1993). Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative, but is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State’s electorate. Since it is a statute, it is subordinate to the authority of charter cities to impose taxes derived from the State Constitution. Proposition 218 (discussed above), however, incorporates the voter approval requirements initially imposed by Proposition 62 into the State Constitution. Even if a court were to conclude that Proposition 62 applies to charter cities, the City’s exposure would be insignificant. The effective date of Proposition 62 was November 1986. Proposition 62 contains provisions that apply to taxes imposed on or after August 1, 1985. Since August 1, 1985, the City has collected taxes on businesses, hotel occupancy, utility use, parking, property transfer, stadium admissions and vehicle rentals. See “OTHER CITY TAX REVENUES” herein. Only the hotel and stadium admissions taxes have been increased since that date. The increases in these taxes were ratified by the voters on November 3, 1998 pursuant to the requirements of Proposition 218. With the exception of the vehicle rental tax, the City continues to collect all of the taxes listed above. Since these remaining taxes were adopted prior to August 1, 1985, and have not been increased, these taxes would not be subject to Proposition 62 even if Proposition 62 applied to a charter city. Proposition 1A Proposition 1A, a constitutional amendment proposed by the State Legislature and approved by the voters in November 2004, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate, or change the allocation of local sales tax revenues, subject to certain exceptions. As set forth under the laws in effect as of November 3, 2004, Proposition 1A generally prohibits the State from shifting any share of property tax revenues allocated to local governments for any fiscal year to schools or community colleges. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the Legislature. Proposition 1A provides, however, that beginning in fiscal year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the annual vehicle license fee rate below 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates. Proposition 1A may result in increased and more stable City revenues. The magnitude of such increase and stability is unknown and would depend on future actions by the State. However, Proposition 1A could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, decreasing aid to cities and spending on other State programs, or other actions, some of which could be adverse to the City. A-60 Proposition 22 Proposition 22 (“Proposition 22”) which was approved by California voters in November 2010, prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash-flow or budget balancing purposes to the State General Fund or any other State fund. In addition, Proposition 22 generally eliminates the State’s authority to temporarily shift property taxes from cities, counties, and special districts to schools, temporarily increase a school and community college district’s share of property tax revenues, prohibits the State from borrowing or redirecting redevelopment property tax revenues or requiring increased pass-through payments thereof, and prohibits the State from reallocating vehicle license fee revenues to pay for State-imposed mandates. In addition, Proposition 22 requires a two-thirds vote of each house of the State Legislature and a public hearing process to be conducted in order to change the amount of fuel excise tax revenues shared with cities and counties. Proposition 22 prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies (but see “San Francisco Redevelopment Agency Dissolution” above). While Proposition 22 will not change overall State and local government costs or revenues by the express terms thereof, it will cause the State to adopt alternative actions to address its fiscal and policy objectives. Due to the prohibition with respect to the State’s ability to take, reallocate, and borrow money raised by local governments for local purposes, Proposition 22 supersedes certain provisions of Proposition 1A (2004). However, borrowings and reallocations from local governments during 2009 are not subject to Proposition 22 prohibitions. In addition, Proposition 22 supersedes Proposition 1A of 2006. Accordingly, the State is prohibited from borrowing sales taxes or excise taxes on motor vehicle fuels or changing the allocations of those taxes among local governments except pursuant to specified procedures involving public notices and hearings. Proposition 26 On November 2, 2010, the voters approved Proposition 26 (“Proposition 26”), revising certain provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 re-categorizes many State and local fees as taxes, requires local governments to obtain two-thirds voter approval for taxes levied by local governments, and requires the State to obtain the approval of two-thirds of both houses of the State Legislature to approve State laws that increase taxes. Furthermore, pursuant to Proposition 26, any increase in a fee beyond the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require a two-thirds vote. In addition, for State-imposed charges, any tax or fee adopted after January 1, 2010 with a majority vote which would have required a two-thirds vote if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote. Proposition 26 amends Article XIII C of the State Constitution to state that a “tax” means a levy, charge or exaction of any kind imposed by a local government, except (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property or the purchase rental or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law, including late payment fees, fees imposed under administrative citation ordinances, parking violations, etc.; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Proposition 218. Fees, charges and payments that are made pursuant to a voluntary contract that are not “imposed by a local government” are not considered taxes and are not covered by Proposition 26. Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies. A-61 If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two-thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a fifty percent voter requirement. Proposed local government fees that are not subject to Proposition26 are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of property owners. Future Initiatives The laws and Constitutional provisions described above 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, further affecting revenues of the City or the City’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the City. LITIGATION AND RISK MANAGEMENT Pending Litigation There are a number of lawsuits and claims routinely pending against the City, including those summarized in Note 16 to the City’s CAFR as of June 30, 2011, attached as Appendix B to this Official Statement. Included among these are a number of actions which if successful would be payable from the City’s General Fund. In the opinion of the City Attorney, such suits and claims presently pending will not impair the ability of the City to make debt service payments or otherwise meet its General Fund lease or debt obligations, nor materially impair the City’s ability to fund current operations. Risk Retention Program Citywide risk management is coordinated by the Office of Risk Management Division within the City’s General Services Agency, which is under the supervision of the City Administrator. With certain exceptions, it is the general policy of the City not to purchase commercial insurance for the risks of losses to which it is exposed but rather to first evaluate self-insurance for such risks. The City’s policy in this regard is based on its analysis that it is more economical to manage its risks internally and administer, adjust, settle, defend, and pay claims from budgeted resources (i.e., “self-insurance”). The City obtains commercial insurance in certain circumstances, including when required by bond or lease financing covenants and for other limited purposes. The City actuarially determines liability and workers’ compensation risk exposures as permitted under State law. The City does not maintain commercial earthquake coverage, with certain minor exceptions. The City’s property risk management approach varies depending on various factors including whether the facility is currently under construction or if the property is owned by a self-supporting enterprise fund department. For new construction projects, the City has utilized traditional insurance, owner-controlled insurance programs or contractor- controlled insurance programs. Under the latter two approaches, the insurance program provides coverage for the entire construction project. When a traditional insurance program is used, the City requires each contractor to provide its own insurance, while ensuring that the full scope of work be covered with satisfactory levels to limit the City’s risk exposure. The majority of the City’s commercial insurance coverage is purchased for enterprise fund departments and other similar revenue-generating departments (the Airport, MTA, the SF Public Utilities Commission, the Port and Convention Facilities, etc.). The remainder of the commercial insurance coverage is for General Fund departments that are required to provide coverage for bond-financed facilities, coverage for collections at City-owned museums and to meet statutory requirements for bonding of various public officials, and other limited purposes where required by contract or other agreement. Through coordination with the City Controller and the City Attorney’s Office, the City’s general liability risk exposure is actuarially determined and is addressed through appropriations in the City’s budget and also reflected in the CAFR. The appropriations are sized based on actuarially determined anticipated claim payments and the projected timing of disbursement. The City actuarially estimates future workers’ compensation costs to the City according to a formula based on the following: (i) the dollar amount of claims; (ii) yearly projections of payments based on historical experience; and A-62 (iii) the size of the department’s payroll. The administration of workers’ compensation claims and payouts are handled by the Workers’ Compensation Division of the City’s Department of Human Resources. The Workers’ Compensation Division determines and allocates workers’ compensation costs to departments based upon actual payments and costs associated with a department’s injured workers’ claims. Statewide workers’ compensation reforms have resulted in City budgetary savings in recent years. The City continues to develop and implement programs to lower or mitigate workers’ compensation costs. These programs focus on accident prevention, transitional return to work for injured workers, improved efficiencies in claims handling and maximum utilization of medical cost containment strategies. The City’s estimated liability and workers’ compensation risk exposures are summarized in Note 16 to the City’s CAFR, attached to this Official Statement as Appendix B. A-63 APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY AND COUNTY OF SAN FRANCISCO FOR THE FISCAL YEAR ENDED JUNE 30, 2011 The Comprehensive Annual Financial Report may be viewed online or downloaded from the City Controller's website at http://www.sfgov.org/controller. ______ This page has been intentionally left blank. CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Comprehensive Annual Financial Report Comprehensive Annual Financial Report Year ended June 30, 2011 Year ended June 30, 2011 TABLE OF CONTENTS TABLE OF CONTENTS (Continued) Page Page INTRODUCTORY SECTION (12) San Francisco Redevelopment Agency ...... 139 Controller’s Letter of Transmittal ...... i (13) Treasure Island Development Authority ...... 143 Certificate of Achievement – Government Finance Officers Association ...... x (14) Interfund Receivables, Payables, and Transfers ...... 144 City and County of San Francisco Organization Chart ...... xi (15) Commitments and Contingent Liabilities ...... 146 List of Principal Officials ...... xii (16) Risk Management ...... 149 (17) Subsequent Events...... 152 FINANCIAL SECTION Required Supplementary Information: Independent Auditor’s Report ...... 1 Schedules of Funding Progress: Management’s Discussion and Analysis (Required Supplementary Information) ...... 3 Pension Plans ...... 156 Basic Financial Statements: Other Postemployment Health Care Benefits...... 157 Government-wide Financial Statements: Combining Financial Statements and Schedules: Statement of Net Assets ...... 22 Nonmajor Governmental Funds ...... 158 Statement of Activities...... 24 Combining Balance Sheet – Nonmajor Governmental Funds ...... 161 Fund Financial Statements: Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – Balance Sheet – Governmental Funds ...... 25 Nonmajor Governmental Funds ...... 162 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Combining Balance Sheet – Nonmajor Governmental Funds – Special Revenue Funds ...... 163 Net Assets ...... 26 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – Statement of Revenues, Expenditures, and Changes in Fund Balances – Nonmajor Governmental Funds – Special Revenue Funds ...... 166 Governmental Funds ...... 27 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances – Reconciliation of the Statement of Revenues, Expenditures, and Changes in Budget and Actual – Budget Basis – Special Revenue Funds ...... 169 Fund Balances of Governmental Funds to the Statement of Activities ...... 28 Schedule of Expenditures by Department – Budget and Actual – Budget Basis – Budgetary Comparison Statement – General Fund ...... 29 Special Revenue Funds ...... 180 Statement of Net Assets – Proprietary Funds...... 32 Combining Balance Sheet – Nonmajor Governmental Funds – Debt Service Funds ...... 185 Statement of Revenues, Expenses, and Changes in Fund Net Assets – Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – Proprietary Funds ...... 34 Nonmajor Governmental Funds – Debt Service Funds ...... 186 Statement of Cash Flows – Proprietary Funds ...... 35 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Statement of Fiduciary Net Assets – Fiduciary Funds ...... 37 Actual – Budget Basis – Debt Service Fund ...... 187 Statement of Changes in Fiduciary Net Assets – Fiduciary Funds ...... 38 Combining Balance Sheet – Nonmajor Governmental Funds – Capital Projects Funds ...... 188 Notes to Basic Financial Statements: Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – (1) The Financial Reporting Entity ...... 39 Nonmajor Governmental Funds – Capital Projects Funds ...... 190 (2) Summary of Significant Accounting Policies...... 41 Internal Service Funds ...... 192 (3) Reconciliation of Government-wide and Fund Financial Statements ...... 55 Combining Statement of Net Assets – Internal Service Funds ...... 193 (4) Budgetary Results Reconciled to Results in Accordance with Generally Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets Accepted Accounting Principles ...... 60 – Internal Service Funds ...... 194 (5) Deposits and Investments ...... 61 Combining Statement of Cash Flows – Internal Service Funds ...... 195 (6) Property Taxes ...... 75 Fiduciary Funds...... 196 (7) Capital Assets ...... 76 Combining Statement of Fiduciary Net Assets – Fiduciary Funds ...... 197 (8) Bonds, Loans, Capital Leases and Other Payables ...... 83 Combining Statement of Changes in Fiduciary Net Assets – Fiduciary Funds ...... 198 (9) Employee Benefit Programs ...... 111 Combining Statement of Changes in Assets and Liabilities – Agency Funds ...... 199 (10) San Francisco County Transportation Authority ...... 118 (11) Detailed Information for Enterprise Funds ...... 119 CITY AND COUNTY OF SAN FRANCISCO Comprehensive Annual Financial Report Year ended June 30, 2011 TABLE OF CONTENTS (Continued) Page STATISTICAL SECTION Net Assets by Component – Last Ten Fiscal Years ...... 203 Changes in Net Assets – Last Ten Fiscal Years ...... 204 Fund Balances of Governmental Funds – Last Ten Fiscal Years ...... 206 Changes in Fund Balances of Governmental Funds – Last Ten Fiscal Years ...... 207 Assessed Value of Taxable Property – Last Ten Fiscal Years ...... 209 Direct and Overlapping Property Tax Rates – Last Ten Fiscal Years ...... 210 Principal Property Assessees – Current Fiscal Year and Nine Fiscal Years Ago ...... 211 Property Tax Levies and Collections – Last Ten Fiscal Years ...... 212 Ratios of Outstanding Debt by Type – Last Ten Fiscal Years ...... 213 Ratios of General Bonded Debt Outstanding – Last Ten Fiscal Years ...... 214 Legal Debt Margin Information – Last Ten Fiscal Years ...... 215 Direct and Overlapping Debt ...... 216 Pledged-Revenue Coverage – Last Ten Fiscal Years ...... 217 Demographic and Economic Statistics – Last Ten Fiscal Years ...... 219 Principal Employers – Current Year and Nine Years Ago ...... 220 Full-Time Equivalent City Government Employees by Function – Last Ten Fiscal Years ...... 221 Operating Indicators by Function – Last Ten Fiscal Years ...... 222 Capital Asset Statistics by Function – Last Ten Fiscal Years ...... 223 ______ This page has been intentionally left blank. Photo by Jan Lundberg ■ ■ ■ ■ Section Introductory List ofPrincipalOfficials City andCountyofSanFranciscoOrganization Chart FinanceOfficersCertificate ofAchievement–Government Association Controller’s Letter ofTransmittal The economy, majorinitiatives,statusofCityservices, andcashmanagement. The KEY FINANCIALREPORTSECTIONS: Statements and ispresented aftertheindependent auditor’s report. section ofthe CAFR.The MD&Aprovides anarrative overviewandanalysis oftheBasic Financial This letter of transmittal is designed tocomplement the Management’s Discussion and Analysis (MD&A) System, andtheSanFrancisco Redevelopment Agency. of SanFranciscoHealth Service System, theSanFrancisco CityandCounty Employees’ Retirement Francisco Finance Corporation, theSanFrancisco County Transportation County Authority, theCityand Port ofSanFrancisco, theCityofSanFrancisco Market Corporation, the City andCounty ofSan Water and Power, theMunicipal Transportation Agency, theSan Francisco Wastewater Enterprise, the statements for SanFrancisco International Airport, theSanFranciscoWater Enterprise, HetchHetchy Macias Gini & O’Connell LLP and are presented in thisCAFR. TheCAFR also incorporates financial The City’s Charter requires anannual audit oftheController’s records.The records have been auditedby financial affairs. funds. Iamconfidentthat the included disclosures the provide reader with an understanding oftheCity’s financial position andchanges initsfinancial position asmeasuredof itsvarious bythefinancialactivity that thereported dataisaccurateinallmaterialrespectsand thatitspresentation fairlydepicts theCity’s rather thanabsolute, assurance thatthe financial statements are freeofmaterialmisstatements. Ibelieve cost of internal control should notexceed theanticipated benefits,the objective istoprovide reasonable, reasonable assurance that thefinancial statements are free of any material misstatements. Because the presentation. Theexisting comprehensive structure of internal accounting controls in the City provides The Cityis responsible fortheaccuracy ofthedata andfor the completeness and fairness of its Accounting Standards Board(GASB). in conformance withtheprinciples and standardsforfinancialreporting setforthbytheGovernmental California Government Code Sections 25250 and 25253. TheOfficeoftheController prepared theCAFR auditor’s report. The report issubmitted incompliance with City Charter sections 2.115 and 3.105,and San Francisco, California (the City)for thefiscalyear ended June30,2011, withtheindependent I ampleased topresent theComprehensive Annual Financial Report (CAFR) of theCityand Countyof Ladies and Gentlemen: San Francisco, California Citizens ofthe CityandCounty ofSanFrancisco The Honorable Members of theBoardofSupervisors The Honorable MayorEdwin Lee November 28, 2011 OFFICEOFTHECONTROLLER CITY ANDCOUNTYOFSANFRANCISCO Francisco CountyTransportation Authority, theSanFrancisco FinanceCorporation, andthe San included inthis CAFR. Somecomponent units’financials are blended withthe City’s, such as: theSan The financial statements of severalenterprise activities and ofall component unitsofgovernment are Basic Financial Statementsisalsoincluded. financial statements that present information forallCityfunds. The independent auditor’s report onthe government-wide financial statements that report on allCityfinancial operations, and also include fund Statements, andrequired supplementary information. TheBasic Financial Statementsinclude the Introductory Section Financial Section includes theMD&A,BasicFinancial Statements,notes totheBasic Financial includes information about theorganizational structure oftheCity, theCity’s i CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER Francisco Parking Authority. The reason for this is that the primary government is financially accountable Significant Economic Outcomes for the operations of these agencies. In other instances, namely, for the San Francisco Redevelopment Agency and the Treasure Island Development Authority, financial reporting is shown separately. Several aspects of San Francisco’s recent economic performance over the past several years are Supplemental combining statements and schedules for nonmajor governmental funds, internal service discussed in more detail in the following section. funds and fiduciary funds are also presented in the financial section. The Statistical Section includes up to ten years of historical financial data and miscellaneous social and Population decline from the prior year economic information that conforms to GASB standards for reporting—Statement No. 44. This section may be of special interest to prospective investors in our bonds. In 2010, the U.S. Census Bureau conducted its decennial census of the population. According to the Census Bureau, San Francisco had 805,235 residents as of April 1, 2010, a 1.2% decline from the July 1, 2009 Census estimate. This is compared to a smaller decline of 0.8% in California as estimated by the SAN FRANCISCO’S ECONOMY: Census. The California Department of Finance (DOF) has also released different estimates of San Francisco’s population, based on the 2010 decennial census. The DOF reported San Francisco’s population as 818,163, a 0.4% decrease from the population in 2009. In comparison, the DOF reported Overview of Recent Trends that California’s population increased by 1.2%. This past fiscal year saw the first sign of improvement in San Francisco's economy since the recession Total employment stabilized, but with limited growth struck the state and nation in late 2007. While unemployment rates in the previous fiscal year remained stagnant, fiscal year 2010-11 showed some signs of economic recovery. Average unemployment for fiscal year 2010-11 was 9.2%, down 0.3% from the previous level of 9.5% for fiscal year 2009-10. According to the California Employment Development Department, the wage and salaried employment Unemployment began the fiscal year in July 2010 at 9.5%, and closed the fiscal year in June 2011 at base of San Francisco grew by 1.4% between December of 2009 and December of 2010, the most recent 9.0%. month available. Compared with a 5.9% drop in employment between December of 2008 and 2009, this suggests that San Francisco's employment picture has stabilized, but not fully recovered during 2010. Since the 1970s, San Francisco has shown a pattern of entering and recovering from recessions later During the recent recession, San Francisco saw its employment fall by nearly 6%, making it a relatively than the rest of the state and the nation. This recession has been no exception. The national recession, mild recession. The City lost over 15% of its employment during the early 2000’s recession, and over 7% which started in December 2007, did not notably affect the San Francisco job market until October 2008. of its employment during the early 1990’s recession. The very high levels of unemployment witnessed in By June 2009, the U.S. recession ended and by the summer of 2010 the economy began to see private San Francisco, which exceed the level of unemployment in either past recession, may have more to do sector job growth. However, the San Francisco Metropolitan Division, of which San Francisco is the with the lack of opportunities elsewhere in the state than direct job losses in the City. largest jurisdiction, saw a job decline of 0.3% between July 2010 and July 2011. Taxable sales growth above pre-recession levels Other local economic indicators were mixed in fiscal year 2010-11. Housing prices and industry employment remained significantly below their pre-recession peaks, while residential and commercial Unlike the job market, San Francisco's taxable sales have begun to grow rapidly, with fiscal year 2010-11 rent, hotel revenues, and retail sales showed significant signs of recovery. sales tax revenue up 10.1% over fiscal year 2009-10. The fiscal year 2010-11 total is the highest on record, indicating that sales tax revenues have fully recovered from the recession. Despite the length and severity of the recession, San Francisco has continued to fare better than the rest of California. Throughout fiscal year 2010-11, San Francisco's unemployment rate ranked between the 4th th Since San Francisco entered the recession after most of California, the City's taxable sales base grew and 6 lowest of California's 58 counties. The state's unemployment rate averaged 12.2% during fiscal through most of 2008. However, as of the second quarter of fiscal year 2008-09, the City saw annual year 2010-11 while San Francisco's average unemployment rate was 9.2%. California was one of the declines in taxable sales and its associated sales tax revenue. Taxable sales declined significantly until states hardest hit by the recession, largely because of the breadth of its housing bubble and subsequent the second half of fiscal year 2009-10 before stabilizing and steadily rising over the last four quarters. high level of home foreclosure. San Francisco's recovery has been largely conditioned by improvements in the broader regional and state economies. Improvement in commercial property market, but a continuing slide in the residential market In the past, San Francisco has been slow to add employment after recessions. In the recession of the early 1990s, the City lost private sector employment for four consecutive years. During the early 2000s, Key indicators of the City’s real estate market were mixed during fiscal year 2010-11. Commercial and employment also declined for four consecutive years. Nevertheless, San Francisco’s long-term economic residential rents showed signs of recovery, while median home prices fell. The average residential rental fundamentals – the education and creativity of its workforce, its environment, technological base, and asking price in fiscal year 2010-11 increased by 13.7% from $1,820 in fiscal year 2009-10 to $2,070. cultural amenities – remain among the strongest of any major city in the United States. These competitive Commercial rents saw a 9.4% increase in asking price in fiscal year 2010-11 versus fiscal year 2009-10. advantages are likely to secure the City’s continued prosperity after the current recession ends. However, average median home prices fell by an additional 1.7% in fiscal year 2010-11 versus the prior year. Tourism sector sees significant growth The hotel sector, which is a key barometer of San Francisco travel and tourism industry, saw significant growth in fiscal year 2010-11 versus the previous year. Hotel room average occupancy rose to 81.1% for the fiscal year, a significant increase from the prior year, approaching a historical high. Average daily room rates grew significantly in fiscal year 2010-11, jumping 10.7% from $157 per room-night in fiscal year 2009-10 to $173 per room-night. ii iii CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER SAN FRANCISCO GOVERNMENT: Cash Management Profile of San Francisco Government The City’s pooled deposits and investments are invested pursuant to policy established by the Treasurer working with the City’s Treasury Oversight Committee. The City’s investment policy seeks the The City and County of San Francisco was established by Charter in 1850, and is the only legal preservation of capital, liquidity and a market rate of return, in that order. The policy addresses the subdivision of the State of California with the governmental powers of both a city and a county. The City’s safekeeping and custody practices with financial institutions in which the City deposits funds, types of legislative power is exercised through a Board of Supervisors, while its executive power is vested upon a investments permitted, and the percentage of the portfolio which may be invested in certain instruments Mayor and other appointed and elected officials. Key public services provided by the City include public with longer terms to maturity. The earned income yield of fiscal year 2010-11 was 1.24%. The Employees’ safety and protection, public transportation, water and sewer, parks and recreation, public health, social Retirement System and the Redevelopment Agency deposits and investments are maintained outside the services and land-use and planning regulation. The heads of most of these departments are appointed by City Treasury and follow policies established by their respective governing boards. the Mayor and advised by commissions and boards appointed by City elected officials. Risk Management Elected officials include the Mayor, Members of the Board of Supervisors, Assessor-Recorder, City Attorney, District Attorney, Public Defender, Sheriff, Superior Court Judges, and Treasurer. Since With certain exceptions, it is the policy of the City not to purchase commercial insurance against property November 2000, the eleven-member Board of Supervisors has been elected through district elections. or liability risk. Instead, the City believes it is more economical to manage its risks internally and set aside The eleven district elections are staggered for five and six seats at a time, and held in even-numbered funds as needed for estimated current claim settlements and unfavorable judgments through annual and years. Board members serve four-year terms and vacancies are filled by Mayoral appointment. supplemental appropriations. The City maintains limited coverage for certain facilities, primarily property of San Francisco International Airport, Port of San Francisco, Municipal Transportation Agency, Hetch San Francisco’s Budgetary Process Hetchy, Water Department, and art at City-owned museums. Additionally, various types of liability insurance are maintained by the City for the Port and the Airport. Claims payment history (experience) and payroll costs (exposure) are considered when calculating the claims liabilities and workers’ The City annually adopts budgets for all governmental funds and typically adopts project-length budgets compensation outstanding liabilities for each department. The City’s insurance/self-insurance program is for capital projects and certain debt service funds. The budget is adopted at the character level of reviewed annually in the budget process. The claims liabilities and workers’ compensation liabilities are expenditure within each department, and the department level and fund is the legal level of budgetary reported on the financial statements. They have been actuarially determined and include an estimate of control. Note 2(c) to the Basic Financial Statements summarizes the budgetary roles of City officials and incurred but not reported losses. the timetable for their various budgetary actions according to the City Charter. The voters adopted amendments to the Charter in November 2009 designed to further strengthen the Pension Trust Fund Operations City’s long-range financial planning. These changes include a required shift to the annual adoption of two- st The City has a defined benefit retirement plan in which a substantial majority of full-time employees year budgets for all departments and funds by August 1 , 2012, with an option to shift to a fixed two-year st budget cycle in future years. As further required by these amendments, the Board of Supervisors and participate. The plan’s most recent actuarial calculations, as of July 1 , 2010, estimate the plan is 91% Mayor approved a City five-year financial plan during this past fiscal year, and the City is required to funded. The required employer contribution rate was 13.56% of pensionable salary costs in fiscal year update this document every two years going forward. Lastly, these Charter changes provided a 2010-11 and is 18.09% in fiscal year 2011-12. mechanism for the Controller to propose, and the Board to adopt, various binding financial policies which can only be suspended by a supermajority of the Board. The Board approved a set of policies governing Key Government Initiatives the City’s budget reserve practices in 2010 and the use of non-recurring revenues and General Fund- backed debt in 2011. San Francisco’s economy depends on investments in infrastructure that benefit City residents, workers, visitors, and businesses. These economic foundations range from housing and commercial development, to transportation infrastructure, investments in health and human services, and the City’s quality of life. Internal and Budgetary Controls The City is taking steps to strengthen this infrastructure, to support San Francisco’s economic recovery and long-term prosperity. Some important initiatives are described below. In developing and evaluating the City’s accounting system, consideration is given the adequacy of internal accounting controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from unauthorized use or Housing and Commercial Development disposition, and (2) the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that: (1) the cost of a control San Francisco’s recovery and future economic growth depends on meeting the demand for new should not exceed the benefits likely to be derived, and (2) the evaluation of costs and benefits requires residential and commercial space. Despite the recession, the City has continued to make progress on estimates and judgments by management. All internal control evaluations occur within the above these objectives. After years of planning, three significant, large-scale redevelopment projects received framework. We believe that the City’s internal accounting controls adequately safeguard assets and final approvals in fiscal year 2010-11. Upon full build-out and occupancy, these developments are provide reasonable assurance of proper recording of financial transactions. planned to add more than 24,000 housing units to the City’s inventory, accommodating an estimated 55,000 new residents. Combined, the non-residential uses within these mixed-use developments are The City maintains budgetary controls to ensure that legal provisions of the annual budget are in anticipated to accommodate up to 16,000 jobs at build-out. compliance and expenditures do not exceed budgeted amounts. Controls are exercised by integrating the budgetary accounts in fund ledgers for all budgeted funds. An encumbrance system is also used to Hunters Point Shipyard Redevelopment account for purchase orders and other contractual commitments. Encumbered balances of appropriations The redevelopment project for the Hunters Point Shipyard, a former naval base, includes plans for a at year-end are reported as assigned fund balance and are not reappropriated in the following year’s master-planned community totaling approximately 500 acres, located along the southeastern waterfront budget. of San Francisco. The redevelopment plan amendments for the Shipyard and Bayview Hunters Point were approved by the Board in August 2010 along with other necessary land use, financing and land iv v CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER transfer legislation to provide for the integrated planning and development of the Shipyard and the The City has begun preliminary construction work on the Central Subway project, the second phase of a Candlestick Point (approximately 280 acres) consistent with Proposition G approved by the voters in program designed to create a light-rail line running from Chinatown, under the heart of downtown, and 2008. Development of the Shipyard is a public-private partnership between the City, the Redevelopment connecting to the most-recent extension of the light-rail system to the Southeast portion of the City. The Agency and a private development team. subway will connect to Bay Area Rapid Transit (BART) and Caltrain, the region’s two largest regional commuter rail services. The Central Subway project, with an estimated budget of $1.6 billion and a The first phase of the Shipyard’s development is already underway and includes up to 1,600 homes, 27% targeted completion date of 2018, is estimated to provide approximately 35,000 daily boardings at four to 40% of which will be affordable, and 26 acres of open space. The balance of the Shipyard stations along the new 1.7 mile line. Once completed, the project will reduce travel times and congestion development will be built in conjunction with Candlestick Point as one development project. This second along some of the most congested vehicular and public transit routes in California. phase of the program provides for an additional 10,500 new housing units, 32% of which will be affordable, including the rebuilding of the Alice Griffith public housing development. The second phase The City completed the renovation of Terminal 2 at San Francisco International Airport (SFO) during this also includes up to three million square feet of research and development space centered around a clean past fiscal year. This $383 million project, featured on the cover of this report, provides a state-of-the-art tech business incubator and the headquarters for the United Nations Global Compact Sustainability domestic terminal at the airport. The terminal expands the number of gates available at SFO by 17%, and Center, which will be located in the project area. The redevelopment plan also includes over 300 acres of is now home to both American Airlines and Virgin America. The project was necessitated by the parks and open space, including a complete renovation of the Candlestick Point State Recreation area, continued growth in passenger volumes at SFO, which accounts for 96% of international air travel and and a potential stadium site. Development will be phased over approximately 20 years, and upon 69% of all air travel into the Bay Area. completion is anticipated to house approximately 25,000 residents and support more than 12,000 permanent jobs within the planned commercial space. Strengthening the Region’s Water and Sewer Infrastructure Treasure Island Redevelopment The City is half-way complete with a $4.6 billion program to upgrade the City’s local and regional water system, known as the Water System Improvement Program (WSIP). The WSIP delivers capital After a 15-year planning and entitlement process the Board of Supervisors granted final approval for the improvements that enhance the system’s ability to provide reliable, affordable, high-quality drinking water redevelopment of Treasure Island in June 2011, a plan that will convert the former Navy base into one of to the system’s wholesale and regional retail customers in Alameda, Santa Clara and San Mateo the most environmentally sustainable developments in U.S. history. The City, acting by and through the counties, collectively serving some 1.7 million people outside of San Francisco, as well as another Treasure Island Development Authority (TIDA) as the local reuse authority, is responsible for the long- 800,000 retail customers in San Francisco. The program is structured to cost effectively meet water term redevelopment of Treasure Island. Over the past decade, the City has crafted redevelopment plans quality requirements, improve seismic and delivery reliability, and meet long-term water supply objectives. for what has been widely heralded as one of the most environmentally sustainable developments in U.S. The WSIP is projected to be fully completed by the middle of 2016. history. Planning work is underway for a needed upgrade to the City’s wastewater system, a system These plans include a mixed-use development containing a new commercial town center and residential predominantly built out over the past century. Although significant investment occurred in the mid 1970s neighborhood with up to 8,000 new homes (30% of which will be below market rate homes including for through the mid 1990s to comply with the Clean Water Act, today many of the existing facilities are in hundreds of formerly homeless through the nationally-recognized Treasure Island Homeless need of upgrade and major improvement to prepare San Francisco for the future. The sewer system Development Initiative), two hotels, and hundreds of acres of parks and open space. The project will includes nearly 1,000 miles of collection and transmission mains, four treatment plants, a solids handling generate thousands of construction jobs annually for the 10-20 year life of the project. Once realized, system, and major force mains and interceptors. The total cost of the sewer system improvement Treasure Island will generate over 3,000 permanent jobs. program is projected to be between $6 to $7 billion over a period of up to 30 years, including an estimated $4 billion during the coming ten years. Planning, design, and environmental work will progress during the Park Merced Complex coming two fiscal years. A public-private redevelopment plan for the Park Merced complex in the City’s southwest corner, was approved in May 2011. The redevelopment of the existing 3,200-unit 1950’s-era Park Merced is expected Rebuilding the City’s Public Hospitals to occur in phases and is projected to add 5,600 net new residential units and 300,000 square feet of new neighborhood-serving retail and office uses. Additionally, the plan anticipates the extension of a light rail The City is in the process of replacing and modernizing both of its public hospitals, Laguna Honda Rehabilitation Center and San Francisco General Hospital. line into the heart of a new transit-oriented neighborhood. When completed, the project plans to house 12,300 new residents and create 1,600 new full-time jobs. The replacement of Laguna Honda Hospital was largely completed in fiscal year 2009-10. The $585 million project has been funded with a mix of General Obligation bonds, tobacco settlement Improving the City’s Public Transportation Systems revenues, and certificates of participation. Three new seismically-safe buildings, home to 780 residents, were occupied in December 2010. San Francisco is ideally situated to serve the Bay Area’s need to rapidly bring a large numbers of workers into a transit-accessible employment center, and efficiently navigate the dense City on foot, mass transit, The voters approved a General Obligation bond measure to fund the replacement of San Francisco taxi or bicycle. General Hospital in November 2008. This $887 million project is required given changes to state law governing seismic requirements for hospitals. It will replace the existing facility with a new nine-story Plans for a multi-modal transit hub located in the City’s core – the Transbay Transit Center – are targeted building on the existing hospital campus. The hospital is the only trauma center in San Francisco, and to meet this regional need. The center is designed to provide expanded bus, commuter train, and also acts as the safety net hospital for our residents. Construction of the project has begun, with ultimately high-speed rail connections into the City from within the region and state, and to provide completion expected in fiscal year 2014-15. pedestrian connections to nearby intracity subway, surface rail, and bus services within the City. The former terminal at the site has been demolished with completion of the new center targeted for fiscal year 2016-17. The $1.6 billion transit center is funded through a host of revenue sources, including federal stimulus funding, tax increment and other revenues generated from planned dense, mixed-use development adjacent to the site. vi vii CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE CONTROLLER Expanding Access to Healthcare Acknowledgements Public health and human services are important to the long-term health and well-being of City residents, I would like to express my appreciation to the entire staff of the Controller’s Office whose professionalism, and to the overall productivity of the City’s workforce. The City offers a host of health and safety net dedication, and efficiency are responsible for the preparation of this report. I would also like to thank services, including operation of two public hospitals, the administration of federal, state, and local Macias Gini & O’Connell LLP for their invaluable professional support in the preparation of the CAFR. entitlement programs, and a vast array of community-based health and human services. Finally, I want to thank the Mayor and the Board of Supervisors for their interest and support in planning and conducting the City’s financial operations. The City launched the Healthy San Francisco program in 2007 with the goal of increasing access to healthcare for San Francisco residents. The program creates a mandate for many businesses in San Respectfully submitted, Francisco to either provide employer-paid health insurance for their employees or to pay into an expansion of the City’s public health network. The program is funded with a mix of local and federal funding, employer-paid contributions, and participant fees. During this past fiscal year, the City’s Department of Public Health has focused on expanding enrollment Ben Rosenfield and broadening the medical provider network participating in the program. The provider network now Controller includes 36 public and private medical facilities. By the end of fiscal year 2010-11, over 54,000 uninsured adult residents had enrolled in the program, or approximately 85% of the City’s estimated adult uninsured population. Modernizing the City’s Parks and Libraries San Francisco voters have approved a number of bond measures to fund capital improvements to the City’s parks and libraries during the past decade, including the most recent approval of a $185 million general obligation bond for improvements to neighborhood parks in February 2008. This most-recent parks improvement measure includes funds for seismic improvement, disability access, and facility renovation at key facilities and parks throughout the City. Design or construction work is now underway on the majority of the planned program, and is scheduled for completion by fiscal year 2013-2014. A comprehensive capital improvement program intended to renovate the City’s branch library system is proceeding, with planned improvements in 22 of the 24 branch libraries included within the capital program now complete. The $187 million program, funded with a mix of general obligation and lease- revenue bonds, focuses on seismic safety, accessibility, and modernization of facilities for current uses. Final completion of the improvement program is scheduled by fiscal year 2013-14. Other Information Independent Audit The City’s Charter requires an annual audit of the Controller’s records. These records, represented in the Comprehensive Annual Financial Report (CAFR) have been audited by the nationally recognized certified public accounting firm, Macias Gini & O’Connell LLP. The various enterprise funds, the Health Service System, the Employees’ Retirement System, the San Francisco County Transportation Authority, and the Redevelopment Agency have been separately audited. The Independent Auditors’ Report on our current year’s financial statements is presented in the Financial Section. Award for Financial Reporting 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, 2010. This was the 29th consecutive year, beginning with the fiscal year ending June 30, 1982, that the City has achieved this prestigious award. A Certificate of Achievement is valid for a period of one year only. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized CAFR. The CAFR must satisfy both Generally Accepted Accounting Principles (GAAP) and applicable legal requirements. viii ix ______ This page has been intentionally left blank. ______ This page has been intentionally left blank. CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO List of Principal Officials List of Principal Officials As of June 30, 2011 As of June 30, 2011 ELECTED OFFICIALS DEPARTMENT DIRECTORS/ADMINISTRATORS (Continued) Mayor ...... Edwin M. Lee General Services Agency Board of Supervisors: Animal Care and Control ...... Rebecca Katz President...... David Chiu Convention Facilities Management ...... John Noguchi Supervisor ...... Eric L. Mar County Clerk ...... Karen Hong Yee Supervisor ...... Mark Farrell Medical Examiner ...... Amy P. Hart, M.D. Supervisor ...... Carmen Chu Public Works ...... Ed Reiskin Supervisor ...... Ross Mirkarimi Purchaser/Contract Administration ...... Jaci Fong (Acting) Supervisor ...... Jane Kim Real Estate ...... John Updike (Acting) Supervisor ...... Sean Elsbernd Department of Technology ...... Jon Walton (Acting) Supervisor ...... Scott Wiener Health Service System ...... Catherine Dodd Supervisor ...... David Campos Human Resources ...... Micki Callahan Supervisor ...... Malia Cohen Human Rights ...... Theresa Sparks Supervisor ...... John Avalos Human Services ...... Trent Rhorer Assessor/Recorder ...... Phil Ting Aging and Adult Services ...... Anne Hinton City Attorney ...... Dennis J. Herrera Juvenile Probation ...... William P. Siffermann District Attorney ...... George Gascón Law Library Board of Trustees ...... Marcia Bell Public Defender ...... Jeff Adachi Library ...... Luis Herrera Sheriff ...... Michael Hennessey Municipal Transportation Agency ...... Nathaniel P. Ford, Sr. Superior Courts Planning ...... John Rahaim Presiding Judge ...... Judge Katherine Feinstein Police ...... Greg Suhr Treasurer/Tax Collector ...... José Cisneros Office of Citizen Complaints ...... Joyce M. Hicks Port ...... Monique Moyer APPOINTED OFFICIALS Public Health ...... Barbara A. Garcia Public Utilities ...... Edward Harrington City Administrator ...... Amy L. Brown (Acting) Recreation and Park ...... Phil Ginsburg Controller ...... Benjamin Rosenfield Residential Rent Board ...... Delene Wolf Retirement System ...... Gary A. Amelio DEPARTMENT DIRECTORS/ADMINISTRATORS Small Business...... Regina Dick-Endrizzi Status of Women ...... Emily Murase Airport...... John L. Martin Superior Court ...... T. Michael Yuen Appeals Board ...... Cynthia Goldstein Adult Probation ...... Wendy S. Still Arts Commission ...... Luis Cancel War Memorial ...... Elizabeth Murray Asian Art Museum ...... Jay Xu Board of Supervisors ...... Angela Calvillo DISCRETELY PRESENTED COMPONENT UNITS Assessment Appeals Board ...... Dawn Duran County Transportation Authority ...... José Luis Moscovich Redevelopment Agency...... Fred Blackwell Building Inspection ...... Vivian Day Treasure Island Development Authority ...... Mirian Saez California Academy of Sciences ...... Gregory C. Farrington, Ph.D. Child Support Services ...... Karen M. Roye Children, Youth and Their Families ...... Maria Su Civil Service ...... Anita Sanchez Economic and Workforce Development...... Jennifer Matz Elections ...... John Arntz Emergency Management ...... Anne Kronenberg Entertainment ...... Jocelyn Kane Environment ...... Melanie Nutter Ethics...... John St. Croix Fine Arts Museums ...... John E. Buchanan, Jr. Fire ...... Joanne Hayes-White xii xiii Financial Section ■ Independent Auditor’s Report ■ Management’s Discussion and Analysis ■ Basic Financial Statements ■ Notes to the Financial Statements ■ Required Supplementary Information Photo by Joseph Driste ______ This page has been intentionally left blank. As discussed in Notes 2(k) and 2(r) to the basic financial statements, effective July 1, 2009, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The Honorable Mayor Edwin Lee The financial statements include partial or summarized prior year comparative information. Such prior The Honorable Members of the Board of Supervisors year information does not include all of the information required to constitute a presentation in conformity City and County of San Francisco, California with accounting principles general accepted in the United States of America. Accordingly, such information should be read in conjunction with the City’s basic financial statements for the year ended Independent Auditor’s Report June 30, 2010, from which such partial or summarized information was derived. We have audited the accompanying financial statements of the governmental activities, the business-type Accounting principles generally accepted in the United States of America require that the management’s activities, the aggregate discretely presented component units, each major fund, and the aggregate discussion and analysis and the schedules of funding progress as listed in the table of contents be remaining fund information of the City and County of San Francisco (City), as of and for the year ended presented to supplement the basic financial statements. Such information, although not a part of the basic June 30, 2011, which collectively comprise the City’s basic financial statements as listed in the table of financial statements, is required by the Governmental Accounting Standards Board, who considers it to contents. These financial statements are the responsibility of the City’s management. Our responsibility is be an essential part of financial reporting for placing the basic financial statements in an appropriate to express opinions on these financial statements based on our audit. We did not audit the financial operational, economic, or historical context. We have applied certain limited procedures to the required statements of the San Francisco International Airport, San Francisco Water Enterprise, Hetch Hetchy supplementary information in accordance with auditing standards generally accepted in the United States Water and Power, San Francisco Municipal Transportation Agency, San Francisco Wastewater of America, which consisted of inquiries of management about the methods of preparing the information Enterprise, San Francisco Market Corporation, and the Health Service System, which collectively and comparing the information for consistency with management’s responses to our inquiries, the basic represent the following percentages of assets and deferred outflows, net assets/fund balances and financial statements, and other knowledge we obtained during our audit of the basic financial statements. revenues/additions as of and for the year ended June 30, 2011. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Assets and Net Assets/ Deferred Fund Revenues/ Our audit was conducted for the purpose of forming opinions on the financial statements that collectively Opinion Unit Outflows Balances Additions comprise the City’s financial statements as a whole. The introductory section, combining fund financial Business-type activities 92% 84% 72% statements and schedules, and statistical section are presented for purposes of additional analysis and Aggregate remaining fund information 1% - 9% are not a required part of the financial statements. The combining fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the Those financial statements were audited by other auditors whose reports thereon have been furnished to underlying accounting and other records used to prepare the financial statements. The information has us, and our opinions, insofar as they relate to the amounts included for those entities, are based solely on been subjected to the auditing procedures applied in the audit of the financial statements and certain the reports of the other auditors. The prior year partial and summarized comparative information has been additional procedures, including comparing and reconciling such information directly to the underlying derived from the City’s 2010 basic financial statements and, in our report dated January 28, 2011, we accounting and other records used to prepare the financial statements or to the financial statements expressed unqualified opinions, based on our audit and the reports of other auditors, on the respective themselves, and other additional procedures in accordance with auditing standards generally accepted in financial statements of the governmental activities, the business-type activities, the aggregate discretely the United States of America. In our opinion, the information is fairly stated in all material respects in presented component units, each major fund, and the aggregate remaining fund information. relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, We conducted our audit in accordance with auditing standards generally accepted in the United States of accordingly, we do not express an opinion or provide any assurance on them. America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s Walnut Creek, California internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes November 28, 2011 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and the reports of the other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports of the 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, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of June 30, 2011, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. 1 2 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Unaudited) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 This section of the City and County of San Francisco’s (the City) Comprehensive Annual Financial Report OVERVIEW OF THE FINANCIAL STATEMENTS (CAFR) presents a narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here in conjunction This discussion and analysis are intended to serve as an introduction to the City’s basic financial with additional information in our transmittal letter. Certain amounts presented as fiscal year 2009-10 statements. The City’s basic financial statements comprise three components: (1) Government-wide summarized comparative financial information in the basic financial statements have been reclassified to financial statements, (2) Fund financial statements, and (3) Notes to the financial statements. This report conform to the presentation in the fiscal year 2010-11 basic financial statements. also contains other supplementary information in addition to the basic financial statements themselves. These various elements of the Comprehensive Annual Financial Report are related as shown in the FINANCIAL HIGHLIGHTS graphic below. The assets of the City exceeded its liabilities at the end of the fiscal year by approximately $6.30 billion (net assets). Of this balance, $5.99 billion represents the City’s investment in capital assets net of related Organization of City and County of San Francisco Comprehensive Annual Financial Report debt and $669.3 million represents restricted net assets. This is offset by a deficit in unrestricted net assets of $360.5 million. The City’s total net assets increased by $333.9 million or 5.6 percent over the Introductory INTRODUCTORY SECTION previous fiscal year. Of this amount, total net assets invested in capital assets net of related debt, Section restricted assets and unrestricted net assets increased by $258.0 million or 4.5 percent, $21.4 million or + 3.3 percent and $54.4 million or 13.1 percent, respectively. Management’s Discussion and Analysis The City’s governmental funds reported total revenues of $4.10 billion, a $312.6 million or 8.3 percent Government- increase over the prior year. Within this, revenues from intergovernmental grants, other local taxes, wide Financial Fund Financial Statements property taxes, business taxes, hotel room tax and sales and use tax grew by approximately $88.9 Statements million, $57.2 million, $48.4 million, $37.8 million, $23.1 million and $16.7 million, respectively. At the same time, there was a decline in revenues from fines, forfeitures and penalties, interest and investment Governmental Proprietary Fiduciary income and utility users taxes for a total of $23.3 million. Governmental funds expenditures totaled $3.78 Funds Funds Funds billion for this period, a $7.7 million or 0.2 percent increase, reflecting increases in $32.3 million in capital Statement of Statement of net outlay and $6.0 million in debt service payments which were partly offset by a decline in governmental net assets Balance Sheet Statement of assets services expenditures for $30.6 million. fiduciary Statement of Statement of net assets revenues, revenues, At the end of the fiscal year, total fund balances for the governmental funds amounted to $1.13 billion, an Financial expenditures, and expenses, and increase of $128.5 million or 12.9 percent from prior year. This increase was due to improvements in the Section General Fund by $136.2 million from a strong growth in most revenues over a moderate increase of CAFR changes in fund changes in fund Statement of expenditure and other financing uses this year over last year. Statement of balances net assets changes in activities Budgetary fiduciary Statement of The City’s total long-term debt, including all bonds, loans, commercial paper and capital leases increased comparison net assets cash flows by $866.2 million during this fiscal year. The City issued a total of $1.54 billion in debt this year. Of this statement amount, $79.5 million in general obligation bonds were issued for improvements for earthquake safety and emergency response projects and an additional drawdown of $15 million of general obligation bonds Notes to the Financial Statements for the seismic safety loan program for privately-owned buildings within the City. The City also issued Required Supplementary Information Other Than MD&A $14.7 million in equipment lease revenues bonds and $138.4 million refunding certificates of participation as well as $22.3 million refunding lease revenue bonds to take advantage of the lower interest rates. The Information on individual nonmajor funds and other San Francisco International Airport issued a total of $283.8 million revenue bonds and refunding revenue supplementary information that is not required bonds to retire outstanding commercial paper notes and certain outstanding fixed rate bonds. The San Francisco Water Enterprise issued a total of $979.3 million in revenue bonds to provide new money for + capital projects of the Water System Improvement Program and to advance refund a portion of the Statistical STATISTICAL SECTION outstanding water revenue bonds and related financing costs. The balance of commercial paper issued to Section fund new capital projects or to refinance matured commercial paper also increased by $33.8 million this fiscal year. Of this increase, $12.5 million was for governmental activities and $21.3 million was for business-type activities. 3 4 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 The following figure summarizes the major features of the financial statements. The overview section and recreation, general administration and finance, and general City responsibilities. The business-type below also describes the structure and contents of each of the statements in more detail. activities of the City include an airport, port, public transportation systems (including parking), water and power operations, an acute care hospital, a long-term care hospital, sewer operations, and a produce Government- Fund Financial Statements market. wide Statements Governmental Proprietary Fiduciary The government-wide financial statements include not only the City itself (known as the primary Scope Entire entity The day-to-day operating The day-to-day Instances in which government), but also a legally separate redevelopment agency, the San Francisco Redevelopment (except fiduciary activities of the City for operating the City administers Agency, and a legally separate development authority, the Treasure Island Development Authority funds) basic governmental activities of the resources on behalf (TIDA), for which the City is financially accountable. Financial information for these component units is services City for of others, such as reported separately from the financial information presented for the primary government. Included within business-type employee benefits the governmental activities of the government-wide financial statements are the San Francisco County enterprises Transportation Authority and San Francisco Finance Corporation. Included within the business-type activities of the government-wide financial statements is the operation of the San Francisco Parking Accounting Accrual Modified accrual Accrual Accrual accounting Authority. Although legally separate from the City, these component units are blended with the primary basis and accounting and accounting and current accounting and and economic government because of their governance or financial relationships to the City. measurement economic financial resources focus economic resources focus; focus resources focus resources focus except agency Fund Financial Statements funds do not have measurement focus The fund financial statements are designed to report information about groupings of related accounts that Type of asset All assets and Current assets and All assets and All assets held in a are used to maintain control over resources that have been segregated for specific activities or objectives. and liability liabilities, both liabilities that come due liabilities, both trustee or agency The City, like other state and local governments, uses fund accounting to ensure and demonstrate information financial and during the year or soon financial and capacity for others compliance with finance-related legal requirements. All of the funds of the City can be divided into the capital, short-term thereafter capital, short- following three categories: governmental funds, proprietary funds, and fiduciary funds. and long-term term and long- term Governmental funds. Governmental funds are used to account for essentially the same functions Type of inflow All revenues and Revenues for which cash All revenues All additions and reported as governmental activities in the government-wide financial statements – i.e. most of the City’s and outflow expenses during is received during the and expenses deductions during basic services are reported in governmental funds. These statements, however, focus on (1) how cash information year, regardless year or soon thereafter; during year, the year, regardless and other financial assets can readily be converted to available resources and (2) the balances left at of when cash is expenditures when regardless of of when cash is year-end that are available for spending. Such information may be useful in determining what financial received or paid goods or services have when cash is received or paid resources are available in the near future to finance the City’s programs. been received and the received or paid related liability is due and Because the focus of governmental funds is narrower than that of the government-wide financial payable statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing Government-wide Financial Statements so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of The government-wide financial statements are designed to provide readers with a broad overview of the revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this City’s finances, in a manner similar to a private-sector business. comparison between governmental funds and governmental activities. The statement of net assets presents information on all of the City’s assets and liabilities, with the The City maintains several individual governmental funds organized according to their type (special difference between the two reported as net assets. Over time, increases or decreases in net assets may revenue, debt service, capital projects, and permanent funds). Information is presented separately in the serve as a useful indicator of whether or not the financial position of the City is improving or deteriorating. governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the General Fund, which is considered to be a major fund. Data from The statement of activities presents information showing how the City’s net assets changed during the the remaining governmental funds are combined into a single, aggregated presentation. Individual fund most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise data for each of the nonmajor governmental funds is provided in the form of combining statements to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are elsewhere in this report. reported in this statement for some items that will only result in cash flows in future fiscal periods, such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick The City adopts an annually appropriated budget for its General Fund. A budgetary comparison leave. statement has been provided for the General Fund to demonstrate compliance with this budget. Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business- type activities). The governmental activities of the City include public protection, public works, transportation and commerce, human welfare and neighborhood development, community health, culture 5 6 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 Proprietary funds. Proprietary funds are generally used to account for services for which the City GOVERNMENT-WIDE FINANCIAL ANALYSIS charges customers – either outside customers, or internal units or departments of the City. Proprietary funds provide the same type of information as shown in the government-wide financial statements, only in Net Assets more detail. The City maintains the following two types of proprietary funds: June 30, 2011 (in thousands) Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for the operations of Governmental Business-type the San Francisco International Airport (SFO or Airport), Port of San Francisco (Port), San Francisco activities activities Total Water Enterprise (Water), Hetch Hetchy Water and Power (Hetch Hetchy), Municipal Transportation 2011 2010 2011 2010 2011 2010 Agency (MTA), Laguna Honda Hospital, San Francisco General Hospital Medical Center, and the Assets and deferred outflows: San Francisco Wastewater Enterprise (Wastewater), all of which are considered to be major funds of Current and other assets...... $ 2,288,417 $ 2,165,396 $3,968,358 $ 3,638,011$ 6,256,775 $5,803,407 the City. Capital assets...... 3,314,450 3,177,822 10,936,266 10,056,170 14,250,716 13,233,992 Deferred outflows...... -- 63,382 89,505 63,382 89,505 Internal Service funds are used to report activities that provide supplies and services for certain City Total assets and deferred outflows...... 5,602,867 5,343,218 14,968,006 13,783,686 20,570,873 19,126,904 programs and activities. The City uses internal service funds to account for its fleet of vehicles, management information services, printing and mail services, and for lease-purchases of equipment Liabilities: 2,222,478 2,227,036 1,150,610 1,139,045 by the San Francisco Finance Corporation. Because these services predominantly benefit Current liabilities...... 1,071,868 1,087,991 10,930,989 7,828,747 12,045,642 Noncurrent liabilities ...... 3,220,720 3,102,242 8,824,922 governmental rather than business-type functions, they have been included within governmental 14,268,120 13,158,025 9,975,532 8,967,792 activities in the government-wide financial statements. The internal service funds are combined into a Total liabilities...... 4,292,588 4,190,233 single, aggregated presentation in the proprietary fund financial statements. Individual fund data for Net assets: the internal service funds is provided in the form of combining statements elsewhere in this report. Invested in capital assets, net of related debt *...... Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside . 1,910,341 1,833,733 4,481,404 4,277,799 5,993,892 5,735,844 the City. The City employees’ pension and health plans, the external portion of the Treasurer’s Office Restricted *...... 446,799 382,070 242,742 278,562 669,340 647,938 investment pool, and the agency funds are reported under the fiduciary funds. Since the resources of Unrestricted (deficit) *...... (1,046,861) (1,062,818) 268,328 259,533 (360,479) (414,903) these funds are not available to support the City’s own programs, they are not reflected in the Total net assets...... $ 1,310,279 $ 1,152,985 $ 4,992,474$ 4,815,894$ 6,302,753 $ 5,968,879 government-wide financial statements. The accounting used for fiduciary funds is much like that used for *See note 2(k) proprietary funds. Analysis of Net Assets Notes to the Basic Financial Statements Net assets may serve as a useful indicator of the government’s financial position. As noted earlier, at the The notes to the basic financial statements provide additional information that is essential to a full end of fiscal year 2010-11, the City’s total net assets exceeded liabilities by $6.30 billion. understanding of the data provided in the government-wide and fund financial statements. The largest portion of the net assets reflects the City’s $5.99 billion investment in capital assets (e.g. land, Required Supplementary Information buildings, and equipment) less any outstanding debt related to the acquisition of these assets. This is 95.1 percent of the City’s total net assets, a 4.5 percent increase over the prior year that is largely due to In addition to the basic financial statements and accompanying notes, this report presents certain growth in net capital assets in the governmental activities and business-type activities, particularly Water, required supplementary information concerning the City’s progress in funding its obligation to provide Wastewater, Hetch Hetchy, Airport and MTA. Port has a slight decrease in this net asset component. pension and other postemployment benefits to its employees. Since the government uses capital assets to provide services, these assets are not available for future spending. Further, the resources required to pay these debt must come from other sources since the Combining Statements and Schedules capital assets themselves cannot be liquidated to pay that liability. The combining statements and schedules referred to earlier in connection with nonmajor governmental Another portion of the City’s net assets, $669.3 million (10.6 percent) represents restricted resources that funds, internal service funds, and fiduciary funds are presented immediately following the required are subject to external limitations regarding their use. The governmental activities have a $1.05 billion supplementary information on pensions and other postemployment benefits. deficit in the unrestricted net assets, due largely to transfers to business-type activities and the recognition of other postemployment benefit expense. This deficit also included $418.1 million of long- term bonds issued to fund the Laguna Honda Hospital rebuilt project, certain park facilities projects at the Port and improvement projects for reliable emergency water supply for the Water Enterprise (see note 2(k)). The business-type activities reported positive balances in all categories of net assets at the end of this fiscal year. 7 8 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 Changes in Net Assets use tax, capital grants and contributions and other revenues also had a combined growth of $51.3 million. Year Ended June 30, 2011 These improvements were partly offset by a decline in other revenue sources, including a $10.2 million (in thousands) decrease in interest and investment income, a $4.5 million drop in property taxes and a reduction of $2.9 million in utility user taxes. The City’s governmental activities expenses reported a slight increase of Governmental Business-type $12.7 million or 0.4 percent this fiscal year. The net transfer to business-type activities decreased by activities activities Total $98.7 million. A discussion of these and other changes is presented in the governmental activities and 2011 2010 2011 2010 2011 2010 business-type activities sections that follow. Revenues Program revenues: Charges for services...... $ 428,443 $ 376,688 $ 2,399,552 $ 2,167,539 $ 2,827,995 $ 2,544,227 Operating grants and contributions...... 1,040,116 997,091 204,153 182,572 1,244,269 1,179,663 Expenses and Program Revenues - Governmental Activities Capital grants and contributions...... 57,719 50,349 213,364 180,253 271,083 230,602 General revenues: $1,200 Property taxes...... 1,340,590 1,345,040 - - 1,340,590 1,345,040 Expenses Business taxes...... 391,779 354,019 - - 391,779 354,019 Program Revenues Sales and use tax...... 181,474 164,769 - - 181,474 164,769 $1,000 Hotel room tax...... 209,962 186,849 - - 209,962 186,849 Utility users tax...... 91,683 94,537 - - 91,683 94,537 Other local taxes...... 251,285 194,070 - - 251,285 194,070 $800 Interest and investment income...... 17,645 27,877 42,299 44,471 59,944 72,348 Other...... 58,524 54,410 214,993 176,064 273,517 230,474 Total revenues...... 4,069,220 3,845,699 3,074,361 2,750,899 7,143,581 6,596,598 $600 Expenses Public protection...... 1,099,791 1,089,309 - - 1,099,791 1,089,309 Millions) (In $400 Public works, transportation and commerce...... 239,230 225,589 - - 239,230 225,589 Human welfare and $200 neighborhood development...... 885,194 933,039 - - 885,194 933,039 Community health...... 613,883 599,741 - - 613,883 599,741 Culture and recreation...... 318,083 310,063 - - 318,083 310,063 General administration and finance...... 224,027 221,471 - - 224,027 221,471 $0 Public protection Public works, Human welfare Community Culture and General General City Interest on long- General City responsibilities...... 84,444 80,246 - - 84,444 80,246 transportation and health recreation administration responsibilities term debt Unallocated Interest on long-term debt...... 110,142 102,635 - - 110,142 102,635 and commerce neighborhood and finance development Airport...... …... - - 690,875 662,347 690,875 662,347 Transportation...... - - 905,218 905,694 905,218 905,694 Port...... - - 68,661 73,573 68,661 73,573 Revenues By Source - Governmental Activities Water...... - - 362,802 325,242 362,802 325,242 Other local taxes Power...... - - 119,282 119,109 119,282 119,109 Interest and 6.2% Hospitals...... … - - 885,294 842,488 885,294 842,488 investment income Sewer...... ….... - - 201,629 201,403 201,629 201,403 Utility users tax 0.4% Market...... -- 1,152 1,119 1,152 1,119 2.3% Total expenses...... 3,574,794 3,562,093 3,234,913 3,130,975 6,809,707 6,693,068 Other Charges for services Increase/(decrease) in net assets Hotel room tax 1.4% 10.5% before transfers...... 494,426 283,606 (160,552) (380,076) 333,874 (96,470) 5.2% Transfers...... (337,132) (435,824) 337,132 435,824 - - Change in net assets...... 157,294 (152,218) 176,580 55,748 333,874 (96,470) Sales and use tax Net assets at beginning of year...... 1,152,985 1,305,203 4,815,894 4,760,146 5,968,879 6,065,349 4.5% Net assets at end of year...... $ 1,310,279 $ 1,152,985 $ 4,992,474 $ 4,815,894 $ 6,302,753 $ 5,968,879 Business taxes Analysis of Changes in Net Assets 9.6% Operating grants and The City’s total net assets increased by $333.9 million during fiscal year 2010-11, an improvement after contributions three consecutive years of decline. The governmental activities net assets increased $157.3 million and 25.6% the business-type activities increased $176.6 million. With the exception of the Water Enterprise and the Property taxes Capital grants and General Hospital, all of the City’s business-type activities contributed to this growth. These two 32.9% contributions enterprises saw decreases in net assets totaling $48.4 million while the remaining enterprises reported a 1.4% total growth of $225.0 million in net assets. The City’s governmental activities experienced a $223.5 million or 5.8 percent growth in total revenues. This included $57.2 million in other local taxes, $51.8 million in charges for services, $43.0 million in operating grants and contributions, and a $37.8 million in business taxes. Hotel room taxes, sales and 9 10 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 Governmental activities. Governmental activities increased the City’s total net assets by approximately other programs. Laguna Honda Hospital project reimbursements from the other governmental funds were $157.3 million. Key factors contributing to this change are discussed below. $37.6 million less than prior year as project expenditures were reduced as the project neared completion. Laguna Honda Hospital also transferred $10.4 million in tobacco settlement revenues to the General Overall, total revenues from governmental activities were $4.07 billion, a $223.5 million or 5.8 percent Obligation Bond Fund for payment on its debt. The hospitals’ net reductions in transfers were partly offset increase over the prior year. For the same period, expenses totaled $3.57 billion before transfers of by an $18.0 million increase to the General Fund’s operating subsidy to MTA and a one-time General $337.1 million, resulting in a total net assets increase of $157.3 million by June 30, 2011. Fund $20.1 million transfer of capital and other assets to the Water Enterprise. Property tax revenues decreased slightly by $4.5 million or 0.3 percent. Other local tax revenues grew by The moderate increase of total governmental expenses of $12.7 million or 0.4 percent was primarily due $57.2 million. Of this, $51.5 million was from Property Transfer Tax. This growth was due in large part to to increases in demand for the government’s services in almost all functional areas by $53.0 million, recent tax rate increases. Proposition N, passed in November 2008, increased the transfer tax rate from which was partly offset by the decrease of expenses in human welfare and neighborhood service 0.75 percent to 1.5 percent for all transactions valued over $5 million. A second Proposition N, passed in functions by $47.8 million. The reduction in aid payments and assistance, unfilled positions and other November 2010, increased the rate from 1.5 percent to 2.0 percent for transactions valued between $5 non-profit organization services contributed to this decrease. In addition, interest expense increased by million and $10 million, and from 1.5 percent to 2.5 percent for transactions valued over $10 million. This $7.5 million. rate increase coupled with a rise in the number of commercial transactions over $5 million, significantly contributed to the revenue growth. An increase in parking tax revenue by approximately $6.3 million The charts on page 10 illustrate expenses and program revenues by functional areas and revenues by made up the remaining growth in the other local taxes. source. As shown, public protection is the largest functional area (30.8 percent), followed by human welfare and neighborhood development (24.8 percent) and community health (17.2 percent). General Revenues from business, hotel, and sales taxes totaled approximately $783.2 million, a growth of revenues are not shown by program or function because they are used to support activities citywide. The $77.6 million over the prior year. Business taxes grew by $37.8 million due to an increase in average distribution of these revenues shows property tax (32.9 percent) as the single largest funding source, weekly wages in San Francisco, stronger growth in non-exempt business and improved taxpayer followed by operating grants and contributions (25.6 percent), charges for services (10.5 percent), and compliance with the implementation of online filing and payment. Hotel Room Tax increased by business taxes (9.6 percent). This relative ranking is equivalent to the prior fiscal year and the actual $23.1 million due to increased occupancy, and a rise in average daily room rates from $157 per room- percentage distributions showed only small differences. night to $173 per room-night. Sales and Use Tax also increased by $16.7 million which reflected increases in third-party vehicle sales, collections from internet retail, strong tourism, and convention food Expenses and Program Revenues - Business-Type Activities $1,000 service during the fiscal year. Expenses $900 Operating and capital grants and contributions reported a growth of $50.4 million. This was largely due to Program Revenues the increases from state sources, including $27.4 million for public works and $14.0 million for public $800 protection. The growth in community health, culture and recreation, and general administration, and other $700 programs were partly offset by the decrease in human welfare programs to a combined net increase of $9.0 million. $600 $500 Total charges for services and other revenues increased $55.9 million, or 13.0 percent. Most service areas experienced an increase this year. This included solid waste impound fees, public safety service $400 (In Millions) charges, correction service charges, planning and engineering services and development impact fees $300 that totaled a net growth of $10.5 million. Affordable Housing program loan repayments increased by $19.0 million. Housing inclusionary fees were also higher this year due to a one-time refund of $200 $11.4 million last fiscal year. In addition, the San Francisco County Transportation Authority received $100 $26.6 million in repayments of prior-year expenditures from project sponsors returning Proposition K $0 funds that were no longer needed to fund the projects. These increases were partially offset by a drop of Airport Transportation Port Water Power Hospitals Wastewater Market $10.5 million in fines, forfeitures, and penalties this year. This decrease was caused by a one-time settlement payment received by the City last year. Revenues By Source - Business-type Activities Interest and investment income revenue continued to fall this year, declining by $10.2 million, or Charges for services 70.3% 36.7 percent, primarily due to a drop in interest rates on the City’s pooled investments. Those rates Other dropped from an estimated gross 1.38 percent to 1.24 percent over the year. As of June 30, 2011, 72.2 6.3% percent of the pooled investments will mature within 1 to 5 years compared to 80.5 percent last fiscal Net transfers year. At the end of this fiscal year, deposits and investments with the City Treasury grew moderately by 9.9% $329.8 million, or 7.75 percent. The majority of this increase was unspent revenue bond proceeds issued during the fiscal year to fund capital improvement projects in the Water Enterprise. Interest and Net transfers from governmental activities to business-type activities were $337.1 million, a 22.6 percent investment income 1.2% or $98.7 million decrease from the prior fiscal year. The decrease was mainly from the two hospitals. General Hospital’s transfer in was less due to a smaller General Fund subsidy of $60.0 million, made Capital grants and possible by additional American Recovery and Reinvestment Act grants and other federal and state funds contributions Operating grants and for health care initiatives. The General Hospital, on the other hand, increased its transfer to the General 6.3% contributions 6.0% Fund by $25.2 million as its share of support for increased payments to the State for hospital fees and 11 12 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 Responsible for a seven and one-half mile stretch of waterfront land, the Port Commission’s (Port) net Business-type activities increased the City’s net assets by $176.6 million. Key factors contributing to this assets increased by $8.3 million, or 2.8 percent, yielding total net assets of $309.5 million at the end increase are: of fiscal year 2010-11. Revenue is derived primarily from property rentals to commercial and industrial enterprises and a diverse mix of maritime operations. The Port’s increase in net assets during the MTA had net assets of $1.96 billion at the end of the fiscal year. This total reflects an increase of current year was mainly due to $5.7 million of net operating income and $3.0 million of capital $127.4 million, or 7.0 percent attributable to improvements in all revenue categories. Increased contributions offset by a $0.4 million net nonoperating loss. revenues account for $122.8 million of the $127.4 million, and operating expense savings contributed $0.5 million. The largest portion of the MTA’s net assets reflects its investment in capital assets, net The Airport’s net assets increased by $2.4 million or 0.9 percent during the current year to a total of of related debt which totaled $1.98 billion. The remainder of the MTA’s net assets is comprised of $291 million. Aviation revenues, concession revenues, parking revenues, and net sales and service restricted net assets including deposits and investments with the City and receivables. The MTA’s revenues increased by $29.3 million from the prior year due to improved passenger traffic and was deficit unrestricted net asset balance, which improved by $64.3 million, is $41.3 million. offset by increased operating expenses of $19.4 million for a net increase in $9.9 million in operating revenues. Interest expense of $195.9 million and $1.9 million in write-offs, loss on disposal, and other Laguna Honda Hospital, the City’s skilled nursing care hospital, increased net assets by $10.9 million offset by $94.5 million of passenger facility charges and investment income resulted in a net decrease or 2.1 percent this year. The increase is primarily related to $68.5 million of transfers from nonmajor from nonoperating activities of $103.4 million. Further reduction to net assets was the result of $30.6 governmental funds for the hospital’s capital activities, which are supported by general obligation million in transfers to the City, offset by $24.0 million of capital contributions. bonds and certificates of participation. The $68.5 million transfer in is partially offset by a transfer of $15.4 million from Laguna Honda Hospital to the General Fund to reimburse the General Fund for certain hospital capital outlay. Laguna Honda Hospital also received $15.0 million of capital FINANCIAL ANALYSIS OF THE CITY’S FUNDS contributions from Tobacco Settlement Funds to pay for construction. This net increase of $68.1 million was offset by $57.2 million in losses this year as compared to $61.4 million in losses in As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance- the prior year. Losses from operations were $58.4 million compared to $64.4 million in fiscal year related legal requirements. 2009-10. Governmental Funds General Hospital, the City’s acute care hospital, ended the fiscal year with a net asset deficit of The focus of the City’s governmental funds statements is to provide information on near-term inflows, $70.9 million compared to a deficit of $41.9 million the prior year. Contributing to the General outflows, and balances of resources available for future spending. Such information is useful in assessing Hospital’s decrease in net assets of $28.9 million or 69.0 percent was an overall increase in operating the City’s financing requirements. Unassigned and assigned fund balance may serve as a useful measure revenues of approximately $100 million or 21 percent, primarily attributable to increased gross patient of a government’s net resources available for spending at the end of the fiscal year. Types of service revenue and revenues from two new programs (Delivery Service Reform Incentive Pool and governmental funds reported by the City include the General Fund, Special Revenue Funds, Debt Service the provider fee program under AB 1383); exceeded by rising operating expenses of $28.5 million Funds, Capital Project Funds, and the Permanent Fund. due primarily to increases in costs for contractual services; and decreases in net transfers in of $74.3 million. Transfers in and out will vary from year to year based upon the City’s budget. At the end of the current fiscal year, the City governmental funds reported combined fund balances of Hetch Hetchy, which is composed of two segments: Hetch Hetchy Water upcountry operations and $1.13 billion, an increase of $128.5 million or 12.9 percent over the prior year. Of the total fund balance, water system and Hetch Hetchy Power, had net assets at fiscal year end of $495.9 million, an $268.3 million is assigned and a negative $59.5 million is unassigned. This totaled to $208.8 million or increase of $39.5 million, or 8.7 percent over the prior year. Hetch Hetchy Water’s net assets 18.5 percent and constituted the fund balance that is accessible to meet the City’s needs. Within these increased by $12.9 million from the prior year, while Hetch Hetchy Power’s net assets increased by fund balance classifications, the General Fund had an assigned fund balance of $240.6 million. The $26.6 million from the prior year. Hetch Hetchy Water’s increase of net assets of $12.9 million was remainder of the governmental funds fund balance includes $20.7 million “not in spendable form” for due to a transfer in of $13.6 million from the Public Utility Commission’s Water Enterprise to finance items that are not expected to be converted to cash such as inventories and long-term loans, $864.7 improvements of certain upcountry water storage and transmission facilities offset by a loss of $1.0 million restricted for programs at various levels and $33.4 million committed for other reserves. million from operations, net of $0.3 million of nonoperating net revenue. Hetch Hetchy Power’s total revenue increased by $12.0 million over the prior year, primarily due to higher electricity sales of The General Fund is the chief operating fund of the City. As of end of the fiscal year, assigned fund $7.8 million. balance was $240.6 million while total fund balance reached $328.0 million. As a measure of liquidity, both assigned fund balance and total fund balance can be compared to total fund expenditures. Assigned The City’s Water Enterprise is the third largest municipal water agency in California. For the fiscal fund balance represents 9.8 percent of total expenditures, while total fund balance represents 13.4 year 2010-11, it reported net assets of $396.3 million, a decrease of $19.4 million, or 4.7 percent from percent of the same amount. For the year, the General Fund’s total revenues exceeded expenditures by the prior year. While the Water Enterprise had $26.5 million of net operating income for the year, the $524.2 million, before transfers and other items of $388.0 million, resulting in total fund balance primary reason for the decrease was interest expense of $100.9 million, which increased increasing by $136.2 million. Overall, the significant growth in revenues, particularly in real estate $53.6 million as a result of the issuance of revenue bonds and commercial paper. Aside from property transfer taxes, property tax, business taxes and hotel room tax coupled with the slight decrease transfers to the City of $18.3 million, other activities, including net nonoperating revenues of in expenditures due to savings and management controls on spending resulted in the substantial fund $29.4 million, investment income of $17.3 million, and capital contributions of $18.3 mitigated the balance improvement this fiscal year. effect of the large increase in interest expense. The City’s Wastewater Enterprise had total net assets of $1.06 billion at June 30, 2011. This increased from the prior year by $35.9 million or 3.5 percent. This was primarily due to current year net operating income of $50.1 million. Other activities included net nonoperating revenues of $6.5 million, investment income of $1.9 million, less interest expense of $22.5 million and transfers to the City of $0.1 million. 13 14 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 Proprietary Funds Differences between the final budget and the actual (budgetary basis) expenditures resulted in $83.7 million in expenditure savings. Major factors include: The City’s proprietary fund statements provide the same type of information found in the business-type activities section of the government-wide financial statements, but in more detail. $39.2 million savings in the Human Services Agency due largely to lower than budgeted client assistance, aid payments, non-profit organization services, non-personnel services and personnel At the end of the current fiscal year, the total unrestricted net assets for the Airport was $188.5 million, the costs from unfilled positions. Water Enterprise was $12.9 million, Hetch Hetchy Water and Power was $202.3 million, the Wastewater Enterprise was $42.0 million, the Port was $42.9 million and the Market Corporation was $4.7 million. In addition, the MTA, the San Francisco General Hospital and Laguna Honda Hospital had deficits in $19.7 million in savings in the Department of Public Health mainly in professional services unrestricted net assets of $41.3 million, $123.5 million, and $60.2 million, respectively. expenditures and other savings that helped meet mid-year savings targets. The following table shows actual revenues, expenses and results of operations for the current fiscal year $6.2 million in savings due to close-out of unspent General Reserve not used for supplemental in the City’s proprietary funds (in thousands). As seen here, the total net assets for these funds increased appropriation or other contingencies during fiscal year 2010-11. by approximately $176.6 million due to current year operations. Reasons for this change are discussed in the previous section on the City’s business-type activities. $6.1 million savings mainly in Fire, Police, Sheriff and other departments in the public protection services for non-personnel services, contingency expenditures and services from other departments. Non- Operating Operating Capital Interfund Change The remaining lower than budgeted expenditures are savings from general administration and Operating Operating Income Revenues Contributions Transfers, In Net finance, other City responsibilities and transfers to other funds. Revenues Expenses (Loss) (Expense) and Others Net Assets Airport...... $ 607,323 $ 494,940 $ 112,383 $ (103,370) $ 24,033 $ (30,608) $ 2,438 The net effect of substantial revenue increases, savings in expenditures and reduction in reserve Water...... 288,395 261,927 26,468 (54,214) 18,257 (9,937) (19,426) balances was a budgetary fund balance available for subsequent year appropriation of $168.5 million at Hetch Hetchy...... 140,035 118,720 21,315 4,769 - 13,454 39,538 the end of fiscal year 2010-11. The City’s fiscal year 2011-12 Adopted Original Budget assumed an Municipal Transportation Agency...... 334,140 902,671 (568,531) 238,340 164,759 292,871 127,439 General Hospital...... 582,408 682,357 (99,949) 64,286 - 6,726 (28,937) available balance of $159.4 million, and $9.1 million remains available. (See note 4 to the Basic Financial Wastewater Enterprise...... 229,216 179,084 50,132 (14,077) - (110) 35,945 Statements for additional fund balance details). Port...... 72,266 66,483 5,783 (426) 3,027 (82) 8,302 Laguna Honda Hospital...... 144,114 202,486 (58,372) 1,165 15,036 53,070 10,899 Capital Assets and Debt Administration Market Corporation...... 1,655 1,152 503 (121) -- 382 Total...... $2,399,552 $ 2,909,820 $ (510,268) $ 136,352 $ 225,112 $ 325,384 $ 176,580 Capital Assets Fiduciary Funds The City’s capital assets for its governmental and business-type activities as of June 30, 2011 increased by $1.02 billion, 7.7 percent, to $14.25 billion (net of accumulated depreciation). Capital assets include The City maintains fiduciary funds for the assets of the San Francisco Employees’ Retirement System, land, buildings and improvements, machinery and equipment, park facilities, roads, streets, bridges and Health Service System and Retiree Health Care Trust, and manages the investment of monies held in intangible assets. Governmental activities contributed $136.6 million or 13.4 percent of the increase and trust to benefit public service employees. At the end of the current fiscal year, the net assets of the business-type activities contributed the remaining $880.1 million or 86.6 percent increase. Details are Retirement System, Health Services System and Retiree Health Care Trust combined totaled shown in the table below. $15.63 billion, representing a $2.48 billion increase over the prior year, a 18.9 percent change. This increase is primarily a result of market increases and the net difference between contributions received by Capital Assets, Net of Accumulated Depreciation the funds and benefit payments made from the funds. The Investment Trust Fund’s net assets were (in thousands) $448.4 million at year’s end, compared to $582.6 million at the end of the previous fiscal year. This 23.0 percent decrease represents the increase in withdrawals over additions or distributions to external Business-type participants of the funds in the current year. Governmental Activities Activities Total 2011 2010 2011 2010 2011 2010 General Fund Budgetary Highlights Land...... $ 157,308 $ 155,512 $ 181,013 $ 179,652 $ 338,321 $ 335,164 Construction in progress...... 365,241 313,127 1,805,866 1,953,226 2,171,107 2,266,353 The City’s final budget differs from the original budget in that it contains carry-forward appropriations for Facilities and Improvement...... 2,341,201 2,324,634 7,272,410 6,249,690 9,613,611 8,574,324 various programs and projects and supplemental appropriations approved during the fiscal year for Machinery and equipment...... 53,187 52,504 801,021 809,949 854,208 862,453 changes in revenue estimates. Infrastructure...... 369,919 315,906 783,857 770,195 1,153,776 1,086,101 Property held under lease...... - - 15 24 15 24 During the year, actual revenues and other resources were $160.3 million higher than budgeted. The City Intangible assets...... 27,594 16,139 92,084 93,434 119,678 109,573 realized $77.0 million, $68.1 million and $48.7 million more revenue than budgeted in property taxes, real Total...... $ 3,314,450 $ 3,177,822 $ 10,936,266 $10,056,170 $ 14,250,716 $ 13,233,992 property transfer tax and business tax, respectively. These increases were partly offset by shortfalls in other financing sources and other resources. In addition, total state subvention revenues were $3.4 million better than budgeted. This $3.4 million consisted of a $39.5 million shortfall in health and mental health program revenue and a $42.9 million more revenue than budgeted in other state programs. 15 16 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 Major capital asset events during the current fiscal year included the following: Hetch Hetchy net capital assets increased $17.7 million or 6.2 percent during the year, resulting from increased construction activities. The enterprise saw increased construction in progress of Under governmental activities, net capital assets increased by $136.6 million mainly due to the $24.3 million offset by decreases of $6.3 million in facilities, improvements, machinery and increase in construction in progress and completed assets at various branch libraries, park and equipment, and $0.4 million in intangible assets, net of depreciation. Included in the increased in recreational sites, various street and building improvement projects. Among the various city-wide Hetch Hetchy’s construction in progress is its share of construction costs for the office building parks, libraries, public works and traffic signal and building improvement projects, the General located at 525 Golden Gate Avenue as discussed earlier. Hospital Rebuild Project which is recorded in governmental activities grew by $92.4 million during the fiscal year. $166.5 million in construction in progress was substantially completed and capitalized as The Airport’s net capital assets increased $102.5 million or 2.8 percent largely due to major capital facilities and improvement and infrastructure during the fiscal year. Of the completed projects, additions including Terminal 2 Boarding Area Renovations, Central Plant High Temperature Water $43.4 million is for public library improvements and $40.0 million is for public works and traffic signal System Improvements, Runway 28R-10L Overlay and Reconstruction, and Taxiways “A” and “B” projects, and $23.7 million is for various parks and recreation centers such as the Palace of Fine Arts, Reconstruction. Strybing Arboretum and other park and recreation improvement projects located throughout the City. Other completed projects include public works and traffic signal projects. Growth in construction-in- The Port’s net capital assets increased by $2.8 million or 1.1 percent primarily in facilities and progress projects included park facilities, earthquake safety improvements, Moscone Center improvements that included installation of the Pier 27 Shore Power Facility, Pier 19 Roof expansion, library renovations and other public works projects. Replacement, Pier 45 drainage improvements and Hyde Street Harbor Fuel Dock, as well as sidewalk, and pier substructure improvements. The Water Enterprise’s net capital assets increased by $615.5 million or 33.0 percent. Construction in progress on the enterprise’s ten-year capital plan, including the Water System Improvement Program At the end of the year, the City’s business-type activities had approximately $1.5 billion in commitments (WSIP), increased by $441.2 million or 56.0 percent. Major additions to construction work included for various capital projects. Of this amount, the Water Enterprise had an estimated $1.2 billion, MTA had the Bay Division Pipeline Reliability Upgrade, Irvington Tunnel alternatives, the new 525 Golden Gate $175.5 million, Wastewater had $82.9 million, Airport had $29.8 million, Hetch Hetchy had $26.9 million, Headquarters, the Bay Division Pipeline Reliability Upgrade, and other WSIP projects. The total Port had $16.5 million, Laguna Honda Hospital had $29.7 million, and the General Hospital had estimated cost for the WSIP is $4.6 billion, including $4.1 billion for capital projects and $0.5 billion for $1.0 million. In addition, there was approximately $87.4 million reserved for encumbrances in capital net financing costs. The program is on target to meet an overall completion date of December 2015. project funds for the general government projects. During the fiscal year, there was an increase of $173.2 million or 16.4 percent in structures, buildings, equipment and intangible assets, and an increase of $1.1 million for the purchase of land. The Water For government-wide financial statement presentation, all depreciable capital assets were depreciated Enterprise has incurred $80.9 million in construction costs for an office building located at 525 Golden from the acquisition date to the end of the current fiscal year. Governmental fund financial statements Gate Avenue. The building is intended to consolidate divisions of the San Francisco Public Utilities record capital asset purchases as expenditures. Commission that are currently renting space at multiple locations in the Civic Center. Construction started in January 2010 with an expected completion date of June 2012. Additional information about the City’s capital assets can be found in Note 7 to the Basic Financial Statements. MTA’s net capital assets increased $60.1 million or 3.1 percent, compared to the previous year, which was attributed to an increase in construction work for new and existing projects, such as phase II of Debt Administration the Third Street Light Rail Project, the rail replacement project, farebox collection modernization, with a corresponding increase in depreciation expense for existing assets. Construction costs of $10.6 At the end of the current fiscal year, the City had total long-term and commercial paper debt outstanding million were incurred in fiscal year 2011 for the maintenance facility project at Islais Creek and of $10.97 billion. Of the total amount, $1.36 billion is general obligation bonds backed by the full faith and Central Control and Communications Project. credit of the City and $9.61 billion is revenue bonds, loans, certificates of participation, capital leases, and other debts of the City secured solely by specified revenue sources. Laguna Honda Hospital’s net capital assets increased $31.8 million or 6.2 percent due primarily to additional construction-in-progress on the capital project to rebuild the hospital. This work is As noted previously, the City’s total long-term debt including all bonds, loans, commercial paper notes principally funded by the Laguna Honda General Obligation Bonds and the Certificates of and capital leases increased by $866.2 million or 8.6 percent during the fiscal year. The net increase in Participation issued by the City. During the fiscal year ended June 30, 2011, $530.3 million of obligations in the business-type activities was $913.7 million due to issuance of revenue bonds and construction in progress was placed into service. commercial paper by the Water Enterprise to fund various capital improvement projects. This net increase was partly offset by the decline of long-term debt in the governmental activities by $47.5 million. General Hospital’s net capital assets increased $6.4 million or 12.2 percent, primarily due to increases in construction in progress on the capital project to rebuild the hospital. The hospital rebuild The business-type activities issued a combined total of $1.26 billion revenue bonds, of which project was managed and financed by governmental activities. The total amount approved by the $155.4 million was for refunding and restructuring a portion of the Airport’s long term debt, retiring its voters for the rebuild project is $887.4 million and total issued amount as of June 30, 2011 remained outstanding commercial paper notes and for cash flow savings. The Airport also issued $128.5 million of unchanged from the prior year at $426.3 million. revenue bonds to retire commercial paper notes that had been issued to finance the Airport’s capital projects. The San Francisco Water enterprise also issued a total of $979.4 million of revenue bonds to The Wastewater Enterprise’s net capital assets increased $42.9 million or 3.1 percent mainly in advance refund $35.1 million outstanding revenue bonds and to provide new money for the WSIP capital construction activities. These include the Sunnydale Sewer Improvements, Sewer Spot projects. Replacements and other capital projects throughout the system. The Wastewater Enterprise also has incurred $15.4 million in its share of construction costs for the office building located at 525 Golden The City issued a total of $94.5 million in general obligation bonds, of which $79.5 million are to fund the Gate Avenue as discussed earlier. improvement works for earthquake safety and emergency response and $15 million are for a loan program for seismic strengthening of privately-owned masonry buildings within the City. Lease revenue 17 18 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Management’s Discussion and Analysis (Continued) Management’s Discussion and Analysis (Continued) Year ended June 30, 2011 Year ended June 30, 2011 bonds for $14.7 million were issued through the City and County of San Francisco Finance Corporation to Economic factors and next year’s budget and rates finance equipment purchase and $22.3 million to refund the emergency communication system bonds for savings in future debt services. The City also issued $138.4 million of refunding certificates of Despite the length and severity of the recession that struck the state and the nation in late 2007, San participation to take advantage of favorable interest rates to reduce debt payments. Francisco continued to fare better than the rest of California and saw the first sign of improvement in the economy. The following economic factors were considered in the City’s fiscal year 2011-12 budget. The City’s Charter imposes a limit on the amount of general obligation bonds the City can have outstanding at any given time. That limit is three percent of the taxable assessed value of property in the Average unemployment for fiscal year 2010-11 was 9.2 percent down 0.3 percent from the fiscal year City – approximately $159.5 billion in value as of the close of the fiscal year. As of June 30, 2011, the City 2009-10. However, the San Francisco Metropolitan Division saw a job decline of 0.3 percent between had $1.36 billion in authorized, outstanding property tax-supported general obligation bonds at par, which July 2010 and July 2011. is equal to approximately 0.81 percent of gross (0.85 percent of net) taxable assessed value of property. As of June 30, 2011, there were an additional $1.16 billion in bonds that were authorized but unissued. If Housing prices and industry employment remained significantly below their pre-recession peaks, all of these general obligation bonds were issued and outstanding in full, the total debt burden would be while residential and commercial rent, hotel revenues, and retail sales showed significant signs of approximately 1.51 percent of gross (1.58 percent of net) taxable assessed value of property. recovery. The City’s underlying ratings on general obligation bonds as of June 30, 2011 were: The wage and salary employment base of San Francisco grew by 1.4 percent between December 2009 and December 2010. This growth compares with a 5.9 percent drop in employment between Moody’s Investors Service, Inc. Aa2 December 2008 and 2009, and suggests that San Francisco’s employment picture has stabilized, but Standard & Poor’s AA not fully recovered during 2010. Fitch Ratings AA- The hotel sector saw significant growth in fiscal year 2010-11. Hotel room average occupancy rose During the fiscal year, Moody’s Investors Service (Moody’s) and Fitch Ratings downgraded the City’s remarkably to 81.1 percent. Average daily room rates grew substantially by 10.7 percent to $173 per ratings from “Aa1” and “AA” to “Aa2” and “AA-“ respectively, and revised the outlook from negative to room-night. stable. Standard & Poor’s affirmed its ratings and revised the outlook from stable to negative for all the City’s outstanding bonds. The City’s taxable sales have begun to grow rapidly, with fiscal year 2010-11 sales tax revenue was up 10.1 percent over fiscal year 2009-10. Both residential and commercial rents asking price rose in The City’s enterprise activities maintained their underlying debt ratings this fiscal year. Standard and fiscal year 2010-11. However, average median home prices fell by an additional 1.7 percent in fiscal Poor’s affirmed the Airport’s underlying credit ratings and subsequently upgraded the Airport from “A” to year 2010-11 versus the prior year. “A+” with a Stable Rating Outlook on June 30, 2011. Moody’s and Fitch also affirmed their existing credit In April 2011, the Controller's Office, Mayor's Budget Office, and Board of Supervisors projected a ratings of the Airport of “A1” and “A+” with Stable Rating Outlooks, respectively. The San Francisco Water $306 million General Fund shortfall. This projection assumed current service and staffing levels, and Enterprise carried underlying ratings of “Aa2” and “AA” from Moody’s and Standard & Poor’s, was primarily driven by the loss of one-time revenue included in the FY 2010-11 budget coupled with respectively. The San Francisco Wastewater Enterprise carried underlying ratings of “Aa3” from Moody’s expected increases in employee benefit and other costs. and “AA-” from Standard & Poor’s. The Mayor and Board of Supervisors approved a final FY 2011-12 budget in July 2011 which bridges Subsequent to June 30, 2011, Moody’s lowered its municipal bond rating on all outstanding Water this General Fund shortfall with a host of departmental expenditure reductions, deferral of projected Revenue Bonds. Additional information can be found in Note 17 to the Basic Financial Statements. increased funding for capital and other needs, improved revenue forecasts, the use of a higher than previously projected balance available from the prior year, and other actions. Additional information in the City's long-term debt can be found in Note 8 to the Basic Financial Statements. 19 20 CITY AND COUNTY OF SAN FRANCISCO REQUESTS FOR INFORMATION This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. Below are the contacts for questions about this report or requests for additional financial information. City and County of San Francisco Office of the Controller 1 Dr. Carlton B. Goodlett Place, Room 316 San Francisco, CA 94102-4694 Individual Department Financial Statements San Francisco International Airport Port of San Francisco Office of the Airport Deputy Director Public Information Officer Business and Finance Division Pier 1, The Embarcadero PO Box 8097 San Francisco, CA 94111 San Francisco, CA 94128 San Francisco Water Enterprise Laguna Honda Hospital Hetch Hetchy Water and Power Chief Financial Officer San Francisco Wastewater Enterprise 375 Laguna Honda Blvd. Chief Financial Officer San Francisco, CA 94116 1155 Market Street, 11th Floor San Francisco, CA 94103 Municipal Transportation Agency Health Service System SFMTA Finance and Information Technology Services Executive Director 1 South Van Ness Avenue, 8th Floor 1145 Market Street, Suite 200 San Francisco, CA 94103 San Francisco, CA 94103 San Francisco General Hospital Medical Center San Francisco Employees’ Retirement System Chief Financial Officer Executive Director 1001 Potrero Avenue, Suite 2A7 30 Van Ness Avenue, Suite 3000 San Francisco, CA 94110 San Francisco, CA 94102 Component Unit Financial Statement San Francisco Redevelopment Agency One South Van Ness Avenue, 5th Floor San Francisco, CA 94103 Blended Component Units Financial Statements San Francisco County Transportation Authority San Francisco Finance Corporation Deputy Director for Administration and Finance Office of Public Finance 100 Van Ness Avenue, 26th Floor 1 Dr. Carlton B. Goodlett Place, Room 336 San Francisco, CA 94102 San Francisco, CA 94102 ______WWW.SFGOV.ORG This page has been intentionally left blank. 21 CITY AND COUNTY OF SAN FRANCISCO Statement of Net Assets June 30, 2011 (In Thousands) Primary Government Component Units Treasure Busine ss- Sa n Fra ncisco Isla nd Governmental Type Redevelopment Development Activities Activities Total Agency Authority ASSETS AND DEFERRED OUTFLOWS Assets: Current assets: Deposits and investments with City Treasury...... $ 1,353,449 $ 1,114,318 $ 2,467,767 $ - $ 2,648 Deposits and investments outside City Treasury...... 117,177 9,387 126,564 258,689 - Receivables (net of allowance for uncollectible amounts of $126,939 for the primary government): Property taxes and penalties...... 53,221 - 53,221 9,582 - Other local taxes...... 201,006 - 201,006 - - Federal and state grants and subventions...... 294,330 78,080 372,410 - - Charges for services...... 52,832 233,294 286,126 - 2,192 Interest and other...... 5,864 70,663 76,527 3,572 - Capital lease receivable from primary government...... - - - 16,085 - Due from component unit ...... 3,164 58 3,222 - - Inventories...... - 75,570 75,570 - - Deferred charges and other assets...... 11,284 10,451 21,735 120 - Restricted assets: Deposits and investments with City Treasury...... - 147,470 147,470 - - Deposits and investments outside City Treasury...... - 129,156 129,156 179,094 - Grants and other receivables...... - 12,303 12,303 3,393 - Total current assets...... 2,092,327 1,880,750 3,973,077 470,535 4,840 Noncurrent assets: Loans receivable (net of allowance for uncollectible amounts of $530,590 and $336,502 for the primary government and component unit, respectively)………… 71,346 - 71,346 4,569 - Advance to component units...... 24,502 4,027 28,529 - - Capital lease receivable from primary government...... - - - 124,033 - Deferred charges and other assets...... 22,737 69,396 92,133 16,307 - Restricted assets: Deposits and investments with City Treasury...... - 1,328,362 1,328,362 - - Deposits and investments outside City Treasury...... 77,505 666,179 743,684 - - Grants and other receivables...... - 19,644 19,644 - - Property held for resale ...... ---6,081 - Capital assets: Land and other assets not being depreciated...... 548,024 1,992,041 2,540,065 154,829 - Facilities, infrastructure, and equipment, net of depreciation...... 2,766,426 8,944,225 11,710,651 150,474 - Total capital assets...... 3,314,450 10,936,266 14,250,716 305,303 - Total noncurrent assets...... 3,510,540 13,023,874 16,534,414 456,293 - Total assets...... 5,602,867 14,904,624 20,507,491 926,828 4,840 Deferred outflows on derivative instruments………………… - 63,382 63,382 - - Total assets and deferred outflows…………………………… $ 5,602,867 $ 14,968,006 $20,570,873 $ 926,828 $ 4,840 Basic Financial Statements The notes to the financial statements are an integral part of this statement. 22 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Statement of Net Assets (continued) Statement of Activities June 30, 2011 Year Ended June 30, 2011 (In Thousands) (In Thousands) Primary Government Component Units Net (Expense) Revenue and Treasure Changes in Net Assets Busine ss- Sa n Fra ncisco Isla nd Component Units Program Revenues Primary Government San Francisco Treasure Governmental Type Redevelopment Development Charges Operating Capital Govern- Business- Redevelop- Island Activities Activities Total Agency Authority for Grants and Grants and mental Type ment Development LIABILITIES Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Agency Authority Current liabilities: Primary government: Governmental activities: Accounts payable...... $ 211,057 $ 167,102 $ 378,159 $ 10,766 $ 434 Public protection...... $1,099,791 $ 62,105 $ 138,068 $ - $ (899,618) $ - $ (899,618) $ - $ - Accrued payroll...... 102,912 81,024 183,936 169 - Public works, transportation Accrued vacation and sick leave pay...... 71,916 49,624 121,540 1,240 - and commerce...... 239,230 101,846 79,913 49,496 (7,975) - (7,975) - - Accrued workers' compensation...... 39,662 24,547 64,209 - - Human welfare and Estimated claims payable...... 34,889 36,972 71,861 - - neighborhood development... 885,194 56,628 521,029 - (307,537) - (307,537) - - Community health...... 613,883 64,419 277,484 917 (271,063) - (271,063) - - Bonds, loans, capital leases, and other payables...... … 306,767 342,627 649,394 49,483 - Culture and recreation...... 318,083 76,528 2,915 7,306 (231,334) - (231,334) - - Capital lease payable to component unit...... 16,085 - 16,085 - . General administration and Accrued interest payable...... 11,954 37,205 49,159 36,188 - finance...... 224,027 37,601 5,187 - (181,239) - (181,239) - - Unearned grant and subvention revenues...... 13,350 - 13,350 - - General City responsibilities.. 84,444 29,316 15,520 - (39,608) - (39,608) - - Due to primary government...... - - - 3,188 34 Unallocated interest on Internal balances...... …. 12,517 (12,517) - - - long-term debt...... 110,142 - - - (110,142) - (110,142) - - Total governmental Deferred credits and other liabilities...... 250,759 225,845 476,604 3,049 621 activities...... 3,574,794 428,443 1,040,116 57,719 (2,048,516) - (2,048,516) - - Liabilities payable from restricted assets: Business-type activities: Bonds, loans, capital leases, and other payables...... … - 24,348 24,348 - - Airport...... 690,875 607,323 - 24,033 - (59,519) (59,519) - - Accrued interest payable...... - 30,191 30,191 - - Transportation...... 905,218 334,140 129,166 164,759 - (277,153) (277,153) - - Other...... - 143,642 143,642 - - Port...... 68,661 72,266 557 3,027 - 7,189 7,189 - - Total current liabilities...... 1,071,868 1,150,610 2,222,478 104,083 1,089 Water...... 362,802 288,395 1,810 6,509 - (66,088) (66,088) - - Power...... 119,282 140,035 4,730 - - 25,483 25,483 - - Noncurrent liabilities: Hospitals...... 885,294 726,522 67,408 15,036 - (76,328) (76,328) - - Accrued vacation and sick leave pay...... 68,705 40,939 109,644 1,210 - Sewer...... 201,629 229,216 482 - - 28,069 28,069 - - Accrued workers' compensation...... 183,166 123,639 306,805 - - Market...... 1,152 1,655 - - - 503 503 - - Other postemployment benefits obligation...... 615,227 448,966 1,064,193 470 - Total business-type Estimated claims payable...... 91,155 61,465 152,620 - - activities...... 3,234,913 2,399,552 204,153 213,364 - (417,844) (417,844) - - Bonds, loans, capital leases, and other payables...... … 2,136,658 8,014,877 10,151,535 1,082,453 - Total primary government...... $6,809,707 $ 2,827,995 $ 1,244,269 $ 271,083 (2,048,516) (417,844) (2,466,360) - - Advance from primary government...... - - - 15,334 13,195 Component units: Capital lease payable to component unit...... 124,033 - 124,033 - - San Francisco Redevelopment Accrued interest payable...... - - - 45,334 - Agency...... $ 246,956 $ 25,029 $ 13,135 $ 3,729 (205,063) - Deferred credits and other liabilities...... 1,776 66,732 68,508 3,606 - Treasure Island Development Derivative instruments liabilities...... - 68,304 68,304 - - Authority...... 12,072 8,563 - - - (3,509) Total noncurrent liabilities...... 3,220,720 8,824,922 12,045,642 1,148,407 13,195 Total component units...... $ 259,028 $ 33,592 $ 13,135 $ 3,729 (205,063) (3,509) Total liabilities...... 4,292,588 9,975,532 14,268,120 1,252,490 14,284 General Revenues: Taxes: NET ASSETS Property taxes...... 1,340,590 - 1,340,590 110,166 - Invested in capital assets, net of related debt, Note 2(k).... 1,910,341 4,481,404 5,993,892 176,464 - Business taxes...... 391,779 - 391,779 - - Restricted for: Sales and use tax...... 181,474 - 181,474 - - Reserve for rainy day...... 33,439 - 33,439 - - Hotel room tax...... 209,962 - 209,962 5,550 - Utility users tax...... 91,683 - 91,683 - - Debt service...... 36,805 62,421 99,226 61,507 - Other local taxes...... 251,285 - 251,285 - - Capital projects, Note 2(k)...... 82,315 161,580 223,694 - - Interest and investment income...... 17,645 42,299 59,944 1,369 34 Community development...... 59,763 - 59,763 - - Other...... 58,524 214,993 273,517 6,489 3,670 Transportation Authority activities...... 1,386 - 1,386 - - Transfers - internal activities of primary government...... (337,132) 337,132 - - - Building inspection programs...... 32,112 - 32,112 - - Total general revenues and transfers...... 2,205,810 594,424 2,800,234 123,574 3,704 Change in net assets...... 157,294 176,580 333,874 (81,489) 195 Children and families ...... 45,827 - 45,827 - - Net assets (deficit) - beginning...... 1,152,985 4,815,894 5,968,879 (244,173) (9,639) Grants and other purposes...... 155,152 18,741 173,893 - - Net assets (deficit) - ending...... $ 1,310,279 $ 4,992,474 $ 6,302,753 $ (325,662) $ (9,444) Unrestricted (deficit), Note 2(k)...... (1,046,861) 268,328 (360,479) (563,633) (9,444) Total net assets (deficit)...... $ 1,310,279 $ 4,992,474 $ 6,302,753 $ (325,662) $ (9,444) 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. 23 24 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Balance Sheet – Governmental Funds Reconciliation of the Governmental Funds Balance Sheet June 30, 2011 to the Statement of Net Assets (with comparative total financial information as of June 30, 2010) June 30, 2011 (In Thousands) (In Thousands) Other Total General Governmental Governmental Fund balances – total governmental funds $ 1,127,566 Fund Funds Funds 2011 2010 2011 2010 2011 2010 Amounts reported for governmental activities in the statement of net assets are ASSETS Deposits and investments with City Treasury...... $ 386,246 $ 237,888 $ 938,304 $ 920,171 $ 1,324,550 $ 1,158,059 different because: Deposits and investments outside City Treasury...... 860 203 116,317 144,786 117,177 144,989 Receivables (net of allowance for uncollectible Capital assets used in governmental activities are not financial resources and, amounts of $95,441 in 2011; $77,793 in 2010): therefore, are not reported in the funds. 3,308,318 Property taxes and penalties...... 45,278 57,785 7,943 8,539 53,221 66,324 Other local taxes...... 186,137 171,464 14,869 13,123 201,006 184,587 Federal and state grants and subventions...... 162,130 132,112 132,200 147,855 294,330 279,967 Bond issue costs are not financial resources and, therefore, are not reported Charges for services...... 39,884 36,099 12,814 12,216 52,698 48,315 in the funds. 17,712 Interest and other...... 805 28,313 4,358 4,277 5,163 32,590 Due from other funds ...... 27,833 36,930 8,753 11,410 36,586 48,340 Long-term liabilities, including bonds payable, are not due and payable in the Due from / advance to component unit ...... 16,253 13,486 11,413 10,201 27,666 23,687 current period and therefore are not reported in the funds. (3,223,191) Loans receivable (net of allowance for uncollectible amounts of $530,590 in 2011; $519,720 in 2010).... - - 71,346 72,294 71,346 72,294 Deferred charges and other assets...... 6,520 5,437 4,348 3,983 10,868 9,420 Interest on long-term debt is not accrued in the funds, but rather is Total assets...... $ 871,946 $ 719,717 $ 1,322,665 $ 1,348,855 $ 2,194,611 $ 2,068,572 recognized as an expenditure when due. (10,190) LIABILITIES AND FUND BALANCES Because the focus of governmental funds is on short-term financing, some Liabilities: assets will not be available to pay for current period expenditures. Those Accounts payable...... $ 89,882 $ 117,339 $ 115,476 $ 132,449 $ 205,358 $ 249,788 assets are offset by deferred revenue in the funds. 287,469 Accrued payroll...... 81,547 75,254 19,400 18,785 100,947 94,039 Deferred tax, grant and subvention revenues...... 116,330 117,925 66,184 70,043 182,514 187,968 Due to other funds...... 750 881 41,550 46,897 42,300 47,778 Internal service funds are used by management to charge the costs of capital Deferred credits and other liabilities...... 255,431 216,540 112,976 118,339 368,407 334,879 lease financing, fleet management, printing and mailing services, and Bonds, loans, capital leases, and other payables.... - - 167,519 155,035 167,519 155,035 information systems to individual funds. The assets and liabilities of Total liabilities...... 543,940 527,939 523,105 541,548 1,067,045 1,069,487 internal service funds are included in governmental activities in the statement of net assets. (197,405) Fund balances: Nonspendable…………………………………………… 20,501 14,874 192 192 20,693 15,066 Restricted………………………………………………… 33,439 39,582 831,269 861,188 864,708 900,770 Net assets of governmental activities $ 1,310,279 Committed……………………………………………… 33,431 4,677 - - 33,431 4,677 Assigned………………………………………………… 240,635 132,645 27,622 27,493 268,257 160,138 Unassigned……………………………………………… -- (59,523) (81,566) (59,523) (81,566) Total fund balances...... 328,006 191,778 799,560 807,307 1,127,566 999,085 Total liabilities and fund balances...... $ 871,946 $ 719,717 $ 1,322,665 $ 1,348,855 $ 2,194,611 $ 2,068,572 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. 25 26 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Statement of Revenues, Expenditures, and Changes in Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2011 Year Ended June 30, 2011 (with comparative total financial information for the year ended June 30, 2010) (In Thousands) (In Thousands) Net change in fund balances – total governmental funds $ 128,481 Other Total General Governmental Governmental Amounts reported for governmental activities in the statement of activities are different because: Fund Funds Funds Governmental funds report capital outlays as expenditures. However, in the statement 2011 2010 2011 2010 2011 2010 Revenues: of activities the cost of those assets is allocated over their estimated useful lives and Property taxes...... $ 1,090,776 $ 1,044,740 $ 289,580 $ 287,217 $ 1,380,356 $ 1,331,957 reported as depreciation expense. This is the amount by which capital outlays Business taxes...... 391,057 353,471 722 548 391,779 354,019 exceeded depreciation and loss on disposal of capital assets in the current period. 136,021 Sales and use tax...... 106,302 96,605 75,172 68,164 181,474 164,769 Hotel room tax...... 158,927 135,521 51,035 51,328 209,962 186,849 Some expenses reported in the statement of activities do not require the use of current Utility users tax...... 91,683 94,537 - - 91,683 94,537 financial resources and therefore are not reported as expenditures in governmental Other local taxes...... 251,285 194,070 - - 251,285 194,070 funds. This is the amount by which the increase in certain liabilities reported in the Licenses, permits and franchises...... 25,252 24,249 10,725 9,376 35,977 33,625 statement of net assets of the previous year exceeded expenses reported in the Fines, forfeitures and penalties...... 6,868 17,279 4,902 4,976 11,770 22,255 statement of activities that do not require the use of current financial resources. (125,799) Interest and investment income...... 5,910 7,900 11,131 19,138 17,041 27,038 Rents and concessions...... 21,943 18,733 57,052 59,794 78,995 78,527 Property tax revenues recognized under the full accrual method of accounting were Intergovernmental: less because deferred revenues in the prior year exceeded current year deferrals Federal...... 218,394 211,017 266,310 237,873 484,704 448,890 under the 60-day rule. (39,766) State...... 438,815 440,021 142,304 112,620 581,119 552,641 Other...... 29 36 31,988 7,361 32,017 7,397 Some other revenues that do not provide current financial resources are not reported Charges for services...... 146,631 138,615 111,384 104,513 258,015 243,128 as revenues in the governmental funds but are recognized in the statement of Other ...... 10,377 21,856 86,817 29,167 97,194 51,023 activities. 5,341 Total revenues...... 2,964,249 2,798,650 1,139,122 992,075 4,103,371 3,790,725 Expenditures: Governmental funds report expenditures pertaining to the establishment of certain Current: deferred credits related to long-term loans made. These deferred credits are not Public protection...... 950,548 948,772 80,633 72,733 1,031,181 1,021,505 reported on the statement of net assets and, therefore, the corresponding expense Public works, transportation and commerce...... 25,508 40,225 201,412 203,229 226,920 243,454 is not reported on the statement of activities. (946) Human welfare and neighborhood development...... 610,063 632,713 260,028 285,588 870,091 918,301 Community health...... 493,939 473,280 101,283 108,112 595,222 581,392 Lease payments on the Moscone Convention Center (including both principal and Culture and recreation...... 99,156 94,895 211,236 208,239 310,392 303,134 interest) are reported as expenditures in the governmental funds when paid. For the General administration and finance...... 175,381 169,980 16,260 17,241 191,641 187,221 City as a whole, however, the principal portion of the payments serves to reduce the General City responsibilities...... 85,329 86,256 134 242 85,463 86,498 liability in the statement of net assets. This is the amount of property rent payments Debt service: expended in the governmental funds that were reclassified as capital lease principal Principal retirement...... - 979 148,231 153,072 148,231 154,051 and interest payments in the current period. 19,660 Interest and fiscal charges...... 93 32 101,623 89,914 101,716 89,946 Bond issuance costs...... - - 2,161 2,145 2,161 2,145 Bond issue costs are reported in the governmental funds when paid, and are Capital outlay...... - - 214,817 182,448 214,817 182,448 capitalized and amortized in the statement of activities. This is the amount by which Total expenditures...... 2,440,017 2,447,132 1,337,818 1,322,963 3,777,835 3,770,095 current year bond issue costs exceed amortization expense in the current period. 941 Excess (deficiency) of revenues over (under) expenditures.. 524,232 351,518 (198,696) (330,888) 325,536 20,630 Other financing sources (uses): The issuance of long-term debt and capital leases provides current financial resources Transfers in...... 108,072 94,115 196,610 208,675 304,682 302,790 to governmental funds, while the repayment of the principal of long-term debt and Transfers out...... (502,378) (559,263) (128,247) (181,086) (630,625) (740,349) capital leases consume the current financial resources of governmental funds. Issuance of bonds and loans: These transactions, however, have no effect on net assets. This is the amount by Face value of bonds issued...... - - 232,965 393,010 232,965 393,010 Face value of loans issued...... - - 1,813 599 1,813 599 which principal retirement exceeded bond and other debt proceeds in the current Premium on issuance of bonds...... - - 16,799 16,647 16,799 16,647 period. 55,911 Payment to refunded bond escrow agent ...... - -(142,458) - (142,458) - Bond premiums are reported in the governmental funds when the bonds are issued, Other financing sources-capital leases...... 6,302 3,733 13,467 17,013 19,769 20,746 and are capitalized and amortized in the statement of net assets. This is the amount Total other financing sources (uses)...... (388,004) (461,415) 190,949 454,858 (197,055) (6,557) Net change in fund balances...... 136,228 (109,897) (7,747) 123,970 128,481 14,073 of bond premiums capitalized during the current period. (16,799) Fund balances at beginning of year...... 191,778 301,675 807,307 683,337 999,085 985,012 Interest expense in the statement of activities differs from the amount reported in the Fund balances at end of year...... $ 328,006 $ 191,778 $ 799,560 $ 807,307 $ 1,127,566 $ 999,085 governmental funds because of additional accrued and accreted interest; amortization of bond discounts, premiums and refunding losses; and change in the accrual of arbitrage liabilities. (2,367) The net revenues of certain activities of internal service funds are reported with governmental activities. (3,384) Change in net assets of governmental activities $ 157,294 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. 27 28 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Budgetary Comparison Statement – General Fund Budgetary Comparison Statement – General Fund (continued) Year Ended June 30, 2011 Year Ended June 30, 2011 (In Thousands) (In Thousands) Actual Variance Actual Variance Original Final Budgetary Positive Original Final Budgetary Positive Budget Budget Basis (Negative) Budget Budget Basis (Negative) Charges to Appropriations (Outflows): Budgetary Fund Balance, July 1 $ 99,552 $ 312,040 $ 312,040 $ - Public Protection Re source s (Inflow s): Adult Probation...... $ 11,011 $ 11,155 $ 10,855 $ 300 Property taxes...... 984,843 984,843 1,061,882 77,039 District Attorney...... 32,443 31,989 31,897 92 Business taxes...... 342,350 342,350 391,057 48,707 Emergency Communications...... 38,580 39,651 39,042 609 Other local taxes: Fire Department...... 257,705 262,955 261,647 1,308 Sales tax...... 98,029 98,029 106,302 8,273 Juvenile Probation...... 31,705 28,863 28,137 726 Hotel room tax...... 157,222 157,222 158,927 1,705 Utility users tax...... 97,476 97,476 91,683 (5,793) Police Department...... 381,997 387,544 386,311 1,233 Parking tax...... 65,256 65,256 72,739 7,483 Public Defender...... 25,078 25,264 24,670 594 Real property transfer tax...... 110,487 110,487 178,546 68,059 Sheriff...... 135,182 131,484 130,226 1,258 Licenses, permits, and franchises: Superior Court...... 32,439 32,611 32,609 2 Licenses and permits...... 8,649 8,649 9,441 792 Subtotal - Public Protection 946,140 951,516 945,394 6,122 Franchise tax...... 14,593 14,593 15,811 1,218 Fines, forfeitures, and penalties...... 3,794 3,794 6,868 3,074 Public Works, Transportation and Commerce Interest and investment income...... 9,540 9,547 8,169 (1,378) Board of Appeals...... 932 960 839 121 Rents and concessions: Business and Economic Development...... 7,363 8,088 8,011 77 Garages - Recreation and Park...... 11,020 11,020 12,361 1,341 General Services Agency - Public Works...... 18,694 16,715 16,294 421 Rents and concessions - Recreation and Park...... 9,564 9,564 8,846 (718) Subtotal - Public Works, Transportation and Commerce 26,989 25,763 25,144 619 Other rents and concessions...... 1,763 1,763 2,196 433 Intergovernmental: Human Welfare and Neighborhood Development Federal grants and subventions……………………………………………………… 236,610 227,983 211,276 (16,707) Children, Youth and Their Families…...... 28,517 26,575 25,652 923 State subventions: Commission on the Status of Women...... 3,288 3,280 3,220 60 Social service subventions...... 102,133 102,018 113,790 11,772 County Education Office...... 78 78 78 - Health / mental health subventions………………………………………….. 139,204 139,027 99,528 (39,499) Environment...... 1,254 1,896 1,811 85 Health and welfare realignment……………………………………………….. 138,150 138,150 143,225 5,075 Human Rights Commission...... 403 471 273 198 Public safety sales tax...... 63,834 63,834 68,381 4,547 Human Services...... 621,487 614,649 575,439 39,210 Motor vehicle in-lieu - county…………………………………………………… 1,711 1,711 5,328 3,617 Mayor - Housing/Neighborhoods...... 1,527 3,673 3,590 83 Other grants and subventions...... 4,489 8,367 26,220 17,853 Subtotal - Human Welfare and Neighborhood Development 656,554 650,622 610,063 40,559 Allowance for state revenue reduction…………………………………………… (14,594) - - - Charges for services: Community Health General government service charges...... 45,402 45,402 45,579 177 Public Health...... 519,319 513,625 493,939 19,686 Public safety service charges...... 21,291 21,381 22,657 1,276 Recreation charges - Recreation and Park...... 10,983 10,983 12,564 1,581 Culture and Recreation MediCal, MediCare and health service charges...... 68,406 67,677 63,275 (4,402) Academy of Sciences...... 4,238 4,238 4,016 222 Other financing sources: Art Commission...... 7,587 8,123 8,063 60 Transfers from other funds...... 114,157 119,027 107,068 (11,959) Asian Art Museum...... 7,103 7,116 6,677 439 Repayment of loan from Component Unit...... 785 785 - (785) Fine Arts Museum...... 11,052 11,448 11,428 20 Other resources (inflows)...... 20,677 30,929 8,459 (22,470) Law Library...... 731 737 588 149 Subtotal - Resources (Inflows) 2,867,824 2,891,867 3,052,178 160,311 Recreation and Park Commission...... 66,799 68,381 67,911 470 Total amounts available for appropriation...... 2,967,376 3,203,907 3,364,218 160,311 Subtotal - Culture and Recreation 97,510 100,043 98,683 1,360 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. 29 30 CITY AND COUNTY OF SAN FRANCISCO Budgetary Comparison Statement – General Fund (continued) Year Ended June 30, 2011 (In Thousands) Actual Variance Original Final Budgetary Positive Budget Budget Basis (Negative) General Administration and Finance Assessor/Recorder...... $ 16,759 $ 15,864 $ 15,667 $ 197 Board of Supervisors...... 10,288 10,248 10,195 53 City Attorney...... 7,311 9,047 8,883 164 City Planning...... 19,583 20,285 20,285 - Civil Service...... 495 514 514 - Controller...... 11,792 19,669 18,756 913 CITY AND COUNTY OF SAN FRANCISCO Elections...... 8,617 9,760 9,760 - Statement of Net Assets – Proprietary Funds Ethics Commission...... 4,685 5,879 5,801 78 June 30, 2011 General Services Agency - Administrative Services...... 52,155 48,282 48,246 36 (with comparative total financial information as of June 30, 2010) (In Thousands) General Services Agency - Telecomm. and Info. Services ...... 1,338 1,958 1,857 101 Human Resources...... 9,255 11,707 10,654 1,053 Business-type Activities - Enterprise Funds Other Mayor...... 4,041 4,273 4,189 84 Major Funds Fund Retirement Services...... 580 542 541 1 San Hetch San Francisco San Hetchy General Francisco San Governmental Treasurer/Tax Collector...... 21,100 20,681 19,721 960 Interna- Francisco Water Municipal Hospital Waste- Port of Laguna Francisco Activities-Internal Subtotal - General Administration and Finance 167,999 178,709 175,069 3,640 tional Water and Transportation Medical water San Honda Market Total Service Funds Airport Enterprise Power Agency Center Enterprise Francisco Hospital Corporation 2011 2010 2011 2010 ASSETS AND DEFERRED OUTFLOWS General City Responsibilities Assets: General City Responsibilities...... 80,424 88,662 86,477 2,185 Current Assets: Deposits and investments with City Treasur y...... $ 336,063 83,410$ $194,996 $ 286,640 $ 44,161 $ 70,143 $ 98,905 $ - $ - $ 1,114,318 $ 1,042,117 $ 28,899 29,655$ Other financing uses: Deposits and investments outside City Treasury.... 10 253 10 3,945 10 - 5 1 5,153 9,387 9,247 - - Debt Service...... 1,187 93 93 - Receivables (net of allowance for uncollectible amounts of $31,498 and Transfers to other funds...... 423,550 504,740 501,470 3,270 $27,041 in 2011 and 2010, respectively): Budgetary reserves and designations...... 47,704 6,213 - 6,213 Federal and state grants and subventions...... - 626 636 75,361 309 245 903 - - 78,080 56,398 - - Charges for services...... 35,542 79,336 11,654 5,218 39,183 33,737 2,978 25,636 10 233,294 232,656 134 67 Total charges to appropriations...... 2,967,376 3,019,986 2,936,332 83,654 Interest and other...... 903 4,694 206 2,116 62,593 36 115 - - 70,663 48,914 701 931 Loans receivable...... ------18,984 19,455 Total Sources less Current Year Uses $ - $ 183,921 $ 427,886 $ 243,965 Due from other funds...... - 6,122 26,879 11,332 119 61 - 5,170 - 49,683 40,140 - - Due from component uni t...... - - - 58 - - - - - 58 - - - Inventories...... 117 7,949 326 55,179 6,519 3,269 1,083 1,128 - 75,570 65,522 - - Budgetary fund balance, June 30 before reserves and designations $ 427,886 Deferred charges and other assets...... 2,031 - 3,262 2,710 - - 2,418 - 30 10,451 8,278 - - Restricted assets: Reserves and designations made from budgetary fund balance, June 30 259,435 Deposits and investments with City Treasury...... 40,939 - - - - - 46,164 60,367 - 147,470 170,352 - - Net Available Budgetary Fund Balance, June 30 $ 168,451 Deposits and investments outside City Treasury. 53,081 72,797 - - - - 3,264 - 14 129,156 113,186 - - Grants and other receivables ...... 12,303 ------12,303 9,175 - - Total current assets...... 480,989 255,187 237,969 442,559 152,894 107,491 155,835 92,302 5,207 1,930,433 1,795,985 48,718 50,108 Explanation of differences between budgetary inflows and outflows, and GAAP revenues and expenditures: Noncurrent assets: Deferred charges and other assets...... 38,070 22,581 192 1,817 - 5,082 1,654 - - 69,396 63,389 4,789 4,199 Sources/inflows of resources Capital leases receivable...... ------261,683 265,321 Actual amounts (budgetary basis) "available for appropriation" ...... $ 3,364,218 Advance to component unit ...... - - 4,027 ------4,027 4,227 - - Difference - budget to GAAP: Restricted assets: Deposits and investments with City Treasury...... 135,103 1,093,431 - 6,372 - 93,456 - - - 1,328,362 1,123,195 - - The fund balance at the beginning of the year is a budgetary resource but is not Deposits and investments outside City Treasury. 297,582 285,366 12,192 10,895 17,074 41,554 - 1,223 293 666,179 661,888 77,505 89,553 a current year revenue for financial reporting purposes...... (312,040) Grants and other receivables ...... 6,020 4,671 - 3,797 - 5,153 - 3 - 19,644 29,467 - - Property tax revenue - Teeter Plan net change from prior year...... 28,894 Capital assets: Land and other assets not being depreciated...... 86,617 1,248,065 65,862 313,033 25,599 131,432 118,326 914 2,193 1,992,041 2,136,147 - 88 Change in unrealized gain/(loss) on investments...... (242) Facilities, infrastructure, and Interest earnings / charges from other funds assigned to General Fund as interest adjustment...... (2,017) equipment, net of depreciation ...... 3, 727,647 1,231,823 237,556 1,716,045 33,138 1,309,035 145,508 539,842 3,631 8,944,225 7,920,023 6,132 5,437 Total capital assets...... 3,814,264 2,479,888 303,418 2,029,078 58,737 1,440,467 263,834 540,756 5,824 10,936,266 10,056,170 6,132 5,525 Interest earnings from other funds assigned to General Fund as other revenues...... 1,920 Total noncurrent assets ...... 4,291,039 3,885,937 319,829 2,051,959 75,811 1,585,712 265,488 541,982 6,117 13,023,874 11,938,336 350,109 364,598 Grants, subventions and other receivables received after 120-day recognition period ...... (7,956) Total assets...... 4, 772,028 4,141,124 557,798 2,494,518 228,705 1,693,203 421,323 634,284 11,324 14,954,307 13,734,321 398,827 414,706 Pre-paid Lease Revenue, Civic Center Garage…………………………………………………………………… (1,460) Deferred outflows on derivative instruments………… … 63,382 ------63,382 89,505 - - Total assets and deferred outflows…………………… … 4,835,410 4,141,124 557,798 2,494,518 228,705 1,693,203 421,323 634,284 11,324 15,017,689 13,823,826 398,827 414,706 Transfers from other funds are inflows of budgetary resources but are not revenues for financial reporting purposes...... (107,068) The notes to the financial statements are an integral part of this statement. Total revenues as reported on the statement of revenues, expenditures, and changes 32 in fund balance - General Fund...... $ 2,964,249 Uses/outflows of resources Actual amounts (budgetary basis) "total charges to appropriations" ...... $ 2,936,332 Difference - budget to GAAP: Capital asset purchases funded under capital leases with Finance Corporation and other vendors…………………………...... 6,304 Recognition of expenditures for advances and imprest cash…………………………………………………… (1,149) Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes...... (501,470) Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances - General Fund...... $ 2,440,017 The notes to the financial statements are an integral part of this statement. 31 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Statement of Net Assets – Proprietary Funds (continued) Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds June 30, 2011 Year ended June 30, 2011 (with comparative total financial information as of June 30, 2010) (with comparative total financial information for the year ended June 30, 2010) (In Thousands) (In Thousands) Business-type Activities - Enterprise Funds Business-type Activities - Enterprise Funds Other Other Major Funds Fund Major Funds Fund San Hetch San San Hetch San Francisco San Hetchy General Francisco San Governmental Francisco San Hetchy General Francisco San Governmental Interna- Francisco Water Municipal Hospital Waste- Port of Laguna Francisco Activities-Internal Interna- Francisco Water Municipal Hospital Waste- Port of Laguna Francisco Activities-Internal tional Water and Transportation Medical water San Honda Market Total Service Funds tional Water and Transportation Medical water San Honda Market Total Service Funds Airport Enterprise Power Agency Center Enterprise Francisco Hospital Corporation 2011 2010 2011 2010 Airport Enterprise Power Agency Center Enterprise Francisco Hospital Corporation 2011 2010 2011 2010 Operating revenues: LIABILITIES Aviation...... $ 340,812 $ - -$ $ - -$ $ - -$ -$ $ - $ 340,812 $ 330,846 $ - -$ Current liabilities: Water and power service...... - 271,387 139,780 ------411,167 376,714 - - Accounts payable...... $ 22,725 $ 12,641 $ 13,629 $ 66,326 $ 28,406 $ 9,814 3,350$ $ 9,883 $ 328 $ 167,102 $ 167,718 $ 5,699 10,481$ Passenger fees...... - - - 190,181 - - - - - 190,181 185,953 - - Accrued payroll...... 10,743 7,678 2,252 27,327 18,986 4,634 1,723 7,681 - 81,024 75,003 1,965 1,907 Net patient service revenue...... - - - - 571,365 - - 143,502 - 714,867 595,385 - - Accrued vacation and sick leave pay...... 7,490 5,764 1,452 15,585 10,364 2,730 1,138 5,101 - 49,624 52,177 1,485 1,675 Sewer service...... - - - - - 220,586 - - - 220,586 202,363 - - Rents and concessions...... 109,574 9,388 255 6,060 2,708 - 55,056 - - 183,041 173,190 - - Accrued workers' compensation...... 942 1,324 358 14,998 3,740 645 374 2,166 - 24,547 25,533 156 160 Parking and transportation...... 91,633 - - 103,475 - - 15,105 - - 210,213 196,683 - - Estimated claims payable...... 4,379 8,603 418 20,393 - 2,203 976 - - 36,972 42,243 - - Other charges for services...... - - - 2,688 - - - - 1,655 4,343 4,616 101,398 111,612 Due to other funds...... - 13,638 3,250 1,768 1,670 3,564 511 12,765 - 37,166 31,037 6,803 9,665 Other revenues...... 65,304 7,620 - 31,736 8,335 8,630 2,105 612 - 124,342 101,789 - - Deferred credits and other liabilities...... 61,232 8,525 1,055 70,202 71,782 1,279 11,006 703 61 225,845 214,922 73,632 82,861 Total operating revenues...... 607,323 288,395 140,035 334,140 582,408 229,216 72,266 144,114 1,655 2,399,552 2,167,539 101,398 111,612 Accrued interest payable...... - 28,747 164 110 - 7,343 841 - - 37,205 22,982 1,764 1,935 Operating expenses: Bonds, loans, capital leases, and other payables.... 111,412 194,050 422 3,405 942 31,604 775 17 - 342,627 220,030 17,545 17,580 Personal services...... 210,243 111,363 39,801 566,951 399,742 73,630 30,092 164,003 216 1,596,041 1,557,374 42,182 44,904 Liabilities payable from restricted assets: Contractual services...... 51,856 15,586 7,171 63,727 171,648 12,577 4,761 5,082 635 333,043 300,058 31,123 30,838 Bonds, loans, capital leases, and other payables. 24,348 ------24,348 159,877 - - Light, heat and power...... 19,522 - 19,269 - - - 1,769 - - 40,560 36,851 - - Accrued interest payable...... 30,191 ------30,191 29,406 - - Materials and supplies...... 12,416 13,839 2,707 73,254 69,907 8,338 1,463 18,124 4 200,052 174,607 13,920 16,761 Other...... 24,264 105,398 669 1,166 - 11,312 - 833 - 143,642 138,257 - - Depreciation and amortization...... 160,050 58,752 13,707 116,587 5,405 42,217 14,695 7,373 285 419,071 408,122 1,970 1,920 General and administrative...... 4,522 6,311 14,155 36,523 731 507 3,636 - 9 66,394 97,166 398 456 Total current liabilities...... 297,726 386,368 23,669 221,280 135,890 75,128 20,694 39,149 389 1,200,293 1,179,185 109,049 126,264 Services provided by other Noncurrent liabilities: departments...... 11,818 46,308 5,425 51,306 34,924 32,689 14,412 7,904 - 204,786 210,988 5,777 5,706 Accrued vacation and sick leave pay...... 7,148 5,811 1,138 11,496 7,728 2,466 1,008 4,144 - 40,939 38,473 1,559 1,531 Other...... 24,513 9,768 16,485 (5,677) - 9,126 (4,345) - 3 49,873 91,018 4,916 4,282 Accrued workers' compensation...... 4,024 6,351 1,705 78,023 18,470 2,964 2,422 9,680 - 123,639 122,747 718 804 Total operating expenses...... 494,940 261,927 118,720 902,671 682,357 179,084 66,483 202,486 1,152 2,909,820 2,876,184 100,286 104,867 Other postemployment benefits obligation...... 60,537 60,314 11,221 126,459 115,232 20,873 10,706 43,624 - 448,966 348,287 12,906 10,614 Operating income (loss)...... 112,383 26,468 21,315 (568,531) (99,949) 50,132 5,783 (58,372) 503 (510,268) (708,645) 1,112 6,745 Estimated claims payable...... 7,178 18,387 1,712 27,609 - 6,229 350 - - 61,465 58,491 - - Nonoperating revenues (expenses): Deferred credits and other liabilities...... - 517 1,340 25,334 - 725 38,682 - 134 66,732 77,683 - - Operating grants: Bonds, loans, capital leases, and other payables.... 4,099,523 3,267,118 21,105 43,397 22,236 523,537 37,954 7 - 8,014,877 7,088,228 264,988 267,980 Federal...... - 1,810 4,730 17,436 - 482 557 3,019 - 28,034 44,451 - - Derivative instruments liabilities...... 68,304 ------68,304 94,838 - - State / other...... - - - 111,730 64,389 - - - - 176,119 138,121 - - Total noncurrent liabilities...... 4,246,714 3,358,498 38,221 312,318 163,666 556,794 91,122 57,455 134 8,824,922 7,828,747 280,171 280,929 Interest and investment income...... 15,386 17,283 2,185 3,080 26 1,927 1,508 898 6 42,299 44,471 6,482 7,315 Total liabilities...... 4,544,440 3,744,866 61,890 533,598 299,556 631,922 111,816 96,604 523 10,025,215 9,007,932 389,220 407,193 Interest expense...... (195,935) (100,875) (562) (2,547) (129) (22,545) (2,178) (322) - (325,093) (254,791) (6,059) (6,838) Other, net...... 77,179 27,568 (1,584) 108,641 - 6,059 (313) (2,430) (127) 214,993 176,064 - - NET ASSETS Total nonoperating revenues Invested in capital assets, net of related debt...... 18,280 333,386 293,600 1,982,276 52,611 1,000,242 254,453 540,732 5,824 4,481,404 4,277,799 4,873 5,051 (expenses)...... (103,370) (54,214) 4,769 238,340 64,286 (14,077) (426) 1,165 (121) 136,352 148,316 423 477 Restricted: Income (loss)before capital Debt service...... 27,226 30,840 - 3,420 - 935 - - - 62,421 71,128 - - contributions and transfers...... 9,013 (27,746) 26,084 (330,191) (35,663) 36,055 5,357 (57,207) 382 (373,916) (560,329) 1,535 7,222 Capital projects...... 56,981 19,163 - - - 18,081 12,177 55,178 - 161,580 188,580 - - Capital contributions...... 24,033 18,257 - 164,759 - - 3,027 15,036 - 225,112 180,253 - - Other purposes...... - - - 16,478 - - - 1,956 307 18,741 18,854 - - Transfers in...... - 8,397 13,638 298,329 73,876 - - 68,492 - 462,732 525,120 1,018 1,900 Unrestricted (deficit)...... 188,483 12,869 202,308 (41,254) (123,462) 42,023 42,877 (60,186) 4,670 268,328 259,533 4,734 2,462 Transfers out...... (30,608) (18,334) (184) (5,458) (67,150) (110) (82) (15,422) - (137,348) (89,296) (459) (165) Total net assets (deficit)...... $ 290,970 $ 396,258 $ 495,908 $ 1,960,920 $ (70,851) $ 1,061,281 $ 309,507 $ 537,680 $ 10,801 $ 4,992,474 $ 4,815,894 $ 9,607 $ 7,513 Change in net assets...... 2,438 (19,426) 39,538 127,439 (28,937) 35,945 8,302 10,899 382 176,580 55,748 2,094 8,957 Net assets (deficit) at beginning of year...... 288,532 415,684 456,370 1,833,481 (41,914) 1,025,336 301,205 526,781 10,419 4,815,894 4,760,146 7,513 (1,444) Net assets (deficit) at end of year...... $ 290,970 $ 396,258 $ 495,908 $ 1,960,920 $ (70,851) $ 1,061,281 $ 309,507 $ 537,680 $ 10,801 $ 4,992,474 $ 4,815,894 $ 9,607 $ 7,513 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. 33 34 CITY AND COUNTY OF SAN FRANCISCO Statement of Cash Flows – Proprietary Funds Year ended June 30, 2011 (with comparative total financial information for the year ended June 30, 2010) (In Thousands) Business-type Activities - Enterprise Funds Other Major Funds Fund San Hetch San Francisco San Hetchy General Francisco San Governmental Interna- Francisco Water Municipal Hospital Waste- Port of Laguna Francisco Activities-Internal tional Water and Transportation Medical water San Honda Market Total Service Funds Airport Enterprise Power Agency Center Enterprise Francisco Hospital Corporation 2011 2010 2011 2010 Cash flows from operating activities: Cash received from customers, including cash deposits...... $ 618,003 $ 279,558 $ 140,683 $ 474,375 576,651$ $ 226,854 11,921$ $ 146,836 1,653$ $ 2,476,534 $ 2,226,599 $ 122,115 $ 134,361 Cash received from tenants for rent...... - 8,853 255 - 2,708 755 60,889 - - 73,460 67,563 - - Cash paid to employees for services...... (194,424) (94,332) (36,061) (538,524) (373,178) (66,721) (27,408) (153,190) (260) (1,484,098) (1,445,369) (40,082) (42,412) Cash paid to suppliers for goods and services...... (137,885) (64,874) (61,124) (241,924) (278,963) (53,310) (29,033) (32,185) (500) (899,798) (877,247) (84,083) (71,046) Cash paid for judgments and claims...... - (15,183) (2,480) (10,196) - (6,053) - - - (33,912) (35,512) - - Net cash provided by (used in) operating activities...... 285,694 114,022 41,273 (316,269) (72,782) 101,525 16,369 (38,539) 893 132,186 (63,966) (2,050) 20,903 Cash flows from noncapital financing activities: Operating grants...... - 3,280 4,264 134,656 64,081 338 490 3,076 - 210,185 183,307 - - Transfers in...... - - - 264,107 73,876 - - 37,445 - 375,428 436,290 1,018 1,900 Transfers out...... (30,608) (17,834) (184) (5,458) (67,150) (110) (82) (5,053) - (126,479) (88,821) (459) (165) Transit Impact Development fees received...... - - - 321 - - - - - 321 484 - - Other noncapital financing increases...... 2,102 - 9,224 2,905 258 - - - - 14,489 26,278 - - Other noncapital financing decreases...... - - (4,470) (8,350) - - (2,212) (3,867) - (18,899) (11,196) - - Net cash provided by (used in) noncapital financing activities...... (28,506) (14,554) 8,834 388,181 71,065 228 (1,804) 31,601 - 455,045 546,342 559 1,735 Cash flows from capital and related financing activities: Capital grants and other taxes restricted for capital purposes..... 38,838 - - 124,704 - - 6,796 15,036 - 185,374 160,461 - - Transfers in ...... - 8,397 - 34,222 - - - 31,047 - 73,666 88,830 - - Transfers out ...... - (500) - - - - - (10,369) - (10,869) - - - Bond sale proceeds and loans received...... - 1,002,870 - - 40 - - 19 - 1,002,929 2,330,203 38,351 10,629 Proceeds from sale/transfer of capital assets...... - 39 29 1,655 - - 6 - 2 1,731 807 - - Proceeds from commercial paper borrowings...... 6,650 150,000 ------156,650 709,920 - - Proceeds from passenger facility charges...... 76,543 ------76,543 73,196 - - Acquisition of capital assets...... (281,567) (581,973) (36,692) (179,464) (11,813) (78,220) (16,024) (39,709) (885) (1,226,347) (896,699) (918) (721) Retirement of capital leases, bonds and loans...... (134,800) (59,365) (422) (3,260) (792) (40,968) (760) (32) - (240,399) (221,935) (42,429) (19,127) Retirement of commercial paper borrowings...... ------(993,100) - - Bond issue costs paid...... - (6,202) - - - (110) - - - (6,312) (16,389) (616) (211) Interest paid on debt...... (215,452) (146,156) (984) (2,378) (200) (26,180) (2,508) (322) - (394,180) (295,094) (6,171) (6,942) Other capital financing increases...... - 21,882 284 18 71 3,596 - 2,821 - 28,672 2,906 426 - Other capital financing decreases...... ------(2,032) - (53) (2,085) (10,903) (6) - Net cash provided by (used in) capital and related financing activities...... (509,788) 388,992 (37,785) (24,503) (12,694) (141,882) (14,522) (1,509) (936) (354,627) 932,203 (11,363) (16,372) Cash flows from investing activities: Purchases of investments with trustees...... (2,682,281) (667,310) (27,863) - - (145,021) - - (377) (3,522,852) (2,915,876) (43,199) (34,098) Proceeds from sale of investments with trustees...... 2,693,188 527,561 22,444 - - 122,384 - - 377 3,365,954 2,745,528 47,289 44,499 Interest and investment income...... 18,683 17,608 2,288 3,150 26 2,035 1,593 610 6 45,999 45,875 110 634 Other investing activities...... ------1,596 (60) (50) Net cash provided by (used in) investing activities...... 29,590 (122,141) (3,131) 3,150 26 (20,602) 1,593 610 6 (110,899) (122,877) 4,140 10,985 Net increase (decrease) in cash and cash equivalents...... (223,010) 366,319 9,191 50,559 (14,385) (60,731) 1,636 (7,837) (37) 121,705 1,291,702 (8,714) 17,251 Cash and cash equivalents-beginning of year...... 733,919 900,584 192,588 257,293 75,630 234,884 146,287 68,205 5,190 2,614,580 1,322,878 90,920 73,669 Cash and cash equivalents-end of year...... $ 510,909 $ 1,266,903 $ 201,779 $ 307,852 $ 61,245 $ 174,153 $ 147,923 $ 60,368 $ 5,153 $ 2,736,285 $ 2,614,580 $ 82,206 $ 90,920 The notes to the financial statements are an integral part of this statement. 35 ______ This page has been intentionally left blank. CITY AND COUNTY OF SAN FRANCISCO Statement of Fiduciary Net Assets – Fiduciary Funds June 30, 2011 (In Thousands) Pension, Other Employee and Other Post- Employment Investment Benefit Trust Trust Agency Funds Fund Funds ASSETS Deposits and investments with City Treasury...... $ 86,572 $ 448,385 $ 103,745 Deposits and investments outside City Treasury: CITY AND COUNTY OF SAN FRANCISCO Cash and deposits...... 38,894 105 402 Statement of Cash Flows – Proprietary Funds (continued) Short-term investments...... 726,811 - - Year ended June 30, 2011 Alternative investments...... 1,977,187 - - (with comparative total financial information for the year ended June 30, 2010) Debt securities...... 4,268,998 - - (In Thousands) Equity securities...... 7,366,821 - - Business-type Activities - Enterprise Funds Other Real estate...... 1,266,863 - - Major Funds Fund San Hetch San Foreign currency contracts, net...... (16,046) - - Francisco San Hetchy General Francisco San Governmental Receivables: Interna- Francisco Water Municipal Hospital Waste- Port of Laguna Francisco Activities-Internal tional Water and Transportation Medical water San Honda Market Total Service Funds Employer and employee contributions...... 45,221 - 52,716 Airport Enterprise Power Agency Center Enterprise Francisco Hospital Corporation 2011 2010 2011 2010 Reconciliation of operating income (loss) to Brokers, general partners and others...... 60,566 - - net cash provided by (used in) operating activities: Operating income (loss)...... $ 112,383 $ 26,468 $ 21,315 $ (568,531) $ (99,949) $ 50,132 $ 5,783 $ (58,372) $ 503 $ (510,268) $ (708,645) $ 1,112 $ 6,745 Interest and other...... 49,121 - 152,043 Adjustments for non-cash and other activities: Depreciation and amortization ...... 160,050 58,752 13,707 116,587 5,405 42,217 14,695 7,373 285 419,071 408,122 1,970 1,920 Invested in securities lending collateral...... 892,579 - - Provision for uncollectibles...... 155 744 - (7) - 102 601 - - 1,595 2,801 - - Write-off of capital assets...... - 1,123 2,137 - - 1,913 - - - 5,173 30,288 - - Deferred charges and other assets...... - - 31,690 Other...... 3,490 - 197 109,806 - - - 65 - 113,558 112,169 - - Changes in assets/liabilities: Total assets...... 16,763,587 448,490 $ 340,596 Receivables, net...... (5, 588) (2,629) (189) (4,018) (16,276) (2,028) (233) 2,765 (2) (28,198) (33,049) 15,422 18,708 Due from other funds...... - 13,614 659 - (119) (25) - (38) - 14,091 950 - - Inventories...... (31) 355 (39) (3,508) (318) (23) (70) 99 - (3,535) (1,753) - - LIABILITIES Deferred charges and other assets...... (2, 346) - (612) (277) - 751 (420) - - (2,904) (6,029) - - Accounts payable...... 1,927 2,480 (646) 4,681 (1,435) 5,902 (941) (1,136) 107 10,939 13,344 (5,159) 1,841 Accounts payable...... 41,098 92 $ 75,758 Accrued payroll ...... 1,327 118 178 2,187 609 859 246 664 - 6,188 5,945 58 3 Accrued vacation and sick leave pay...... 310 (252) 11 (1,249) 214 137 185 557 - (87) 550 (162) (177) Estimated claims payable...... 8,706 - - Accrued workers' compensation...... (73) (419) (5) 1,024 136 (537) (159) (61) - (94) 2,269 (90) (63) Other postemployment benefits obligation...... 14,256 14,716 2,749 26,466 25,606 4,795 2,438 9,653 - 100,679 100,640 2,292 2,729 Agency obligations...... - - 264,838 Estimated claims payable...... - (2,750) 259 1,081 - (2,677) 246 - - (3,841) 12,051 - - Due to other funds...... - - - (535) - (120) (124) - - (779) (438) (104) (131) Payable to brokers...... 126,903 - - Deferred credits and other liabilities...... ( 166) 1,702 1,552 24 13,345 127 (5,878) (108) - 10,598 (3,181) (17,389) (10,672) Deferred Retirement Option Program liabilities...... 17,641 - - Total adjustments...... 173,311 87,554 19,958 252,262 27,167 51,393 10,586 19,833 390 642,454 644,679 (3,162) 14,158 Net cash provided by (used in) operating Payable to borrowers of securities...... 893,457 - - activities...... $ 285,694 $ 114,022 $ 41,273 $ (316,269) $ (72,782) $ 101,525 $ 16,369 $ (38,539) $ 893 $ 132,186 $ (63,966) $ (2,050) $ 20,903 Reconciliation of cash and cash equivalents Deferred credits and other liabilities...... 40,895 - - to the statement of net assets: Deposits and investments with City Treasury: Total liabilities...... 1,128,700 92 $ 340,596 Unrestricted...... $ 336,063 $ 83,410 $ 194,996 $ 286,640 $ 44,161 $ 70,143 $ 98,905 $ - $ - $ 1,114,318 $ 1,042,117 $ 28,899 $ 29,655 Restricted...... 176,042 1,093,431 - 6,372 - 93,456 46,164 60,367 - 1,475,832 1,293,547 - - Deposits and investments outside of City Treasury: NET ASSETS Unrestricted...... 10 253 10 3,945 10 - 5 1 5,153 9,387 9,247 - - Restricted...... 350,663 358,163 12,192 10,895 17,074 41,554 3,264 1,223 307 795,335 775,074 77,505 89,553 Held in trust for pension and other employee benefits and external pool participants... $ 15,634,887 $ 448,398 Total deposits and investments...... 862,778 1,535,257 207,198 307,852 61,245 205,153 148,338 61,591 5,460 3,394,872 3,119,985 106,404 119,208 Less: Investments outside of City Treasury not meeting the definition of cash equivalents...... ( 351,869) (268,354) (5,419) - - (31,000) (415) (1,223) (307) (658,587) (505,405) (24,198) (28,288) Cash and cash equivalents at end of year on statement of cash flows...... $ 510,909 $ 1,266,903 $ 201,779 $ 307,852 $ 61,245 $ 174,153 $ 147,923 $ 60,368 $ 5,153 $ 2,736,285 $ 2,614,580 $ 82,206 $ 90,920 Non-cash capital and related financing activities: Acquisition of capital assets on accounts payable and capital lease… ……………………………………………… … $ 22,466 $ 105,398 $ 3,617 $ - $ - $ 11,312 1,005$ $ 8,335 95$ $ 152,228 $ 160,419 $ 8,244 $ 9,715 Tenant improvements financed by rent credits …………………… … ------2,015 - - Net capitalized interest……………………………………………… 19,238 50,901 422 - - 5,348 171 - - 76,080 57,593 - - Improvements acquired from early termination of lease………… … ------924 - - Bond refunding ……………………………………………………… … 470,740 ------470,740 1,283,685 - - Interfund loan…… …………………………………………………… … - - 3,250 - - 2,872 - - - 6,122 10,347 - - Donated inventory …………………………………………………… … - - - - 1,863 - - - - 1,863 1,594 - - Capital contributions and other noncash capital items ………… … - 18,257 - - - - 198 - - 18,455 - - - The notes to the financial statements are an integral part of this statement. 36 The notes to the financial statements are an integral part of this statement. 37 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Statement of Changes in Fiduciary Net Assets – Fiduciary Funds Notes to Basic Financial Statements Year ended June 30, 2011 June 30, 2011 (In Thousands) (Dollars in Thousands) Pension, Other (1) THE FINANCIAL REPORTING ENTITY Employee and Other Post- San Francisco is a city and county chartered by the State of California and as such can exercise the employment Investment powers as both a city and a county under state law. As required by generally accepted accounting Benefit Trust Trust principles, the accompanying financial statements present the City and County of San Francisco (the Funds Fund City or primary government) and its component units. The component units discussed below are Additions: included in the City’s reporting entity because of the significance of their operations or financial Employees' contributions...... $ 308,279 $ - relationships with the City. Employer contributions...... 894,996 - Contributions to pooled investments...... - 2,371,629 As a government agency, the City is exempt from both federal income taxes and California State Total contributions...... 1,203,275 2,371,629 franchise taxes. Investment income/loss: Interest...... 208,968 5,351 Blended Component Units Dividends...... 159,671 - Following is a description of those legally separate component units for which the City is financially Net appreciation in fair value of investments...... 2,557,865 - accountable that are blended with the primary government because of their individual governance or Securities lending income...... 5,697 - financial relationships to the City. Total investment income...... 2,932,201 5,351 Less investment expenses: San Francisco County Transportation Authority (SFCTA) – The voters of the City created SFCTA in Securities lending borrower rebates and expenses...... 436 - 1989 to impose a voter-approved sales and use tax of one-half of one percent, for a period not to Other investment expenses...... (44,579) - exceed 20 years, to fund essential traffic and transportation projects. In 2003, the voters approved Total investment expenses...... (44,143) - Proposition K, extending the city-wide one-half of one percent sales tax with a new 30 year plan. A Total additions, net...... 4,091,333 2,376,980 board consisting of the eleven members of the City’s Board of Supervisors serving ex officio governs the SFCTA. The SFCTA is reported in a special revenue fund in the City’s basic financial statements. Deductions: Financial statements for the SFCTA can be obtained from their finance and administrative offices at Benefit payments...... 1,581,102 - 100 Van Ness Avenue, 26th Floor, San Francisco, CA 94102. Refunds of contributions...... 11,548 - Distribution from pooled investments...... - 2,511,187 San Francisco City and County Finance Corporation (The Finance Corporation) – The Finance Administrative expenses...... 14,808 - Corporation was created in 1990 by a vote of the electorate to allow the City to lease-purchase Total deductions...... 1,607,458 2,511,187 $20 million (plus 5% per year growth) of equipment using tax-exempt obligations. Although legally Change in net assets...... 2,483,875 (134,207) separate from the City, the Finance Corporation is reported as if it were part of the primary Net assets at beginning of year...... 13,151,012 582,605 government because its sole purpose is to provide lease financing to the City. The Finance Net assets at end of year...... $ 15,634,887 $ 448,398 Corporation is governed by a three-member board of directors approved by the Mayor and the Board of Supervisors. The Finance Corporation is reported as an internal service fund. Financial statements for the Finance Corporation can be obtained from their administrative offices at City Hall, Room 336, 1 Dr. Carlton B. Goodlett Place, San Francisco, CA 94102. San Francisco Parking Authority (The Parking Authority) – The Parking Authority was created in October 1949 to provide services exclusively to the City. In accordance with Proposition D authorized by the City’s electorate in November 1988, a City Charter amendment created the Parking and Traffic Commission (PTC). The PTC consists of five commissioners appointed by the mayor. Upon creation of the PTC, the responsibility to oversee the City’s off-street parking operations was transferred from the Parking Authority to the PTC. The staff and fiscal operations of the Parking Authority were also incorporated into the PTC. Beginning on July 1, 2002, the responsibility for overseeing the operations of the PTC became the responsibility of the Municipal Transportation Agency (MTA) pursuant to Proposition E which was passed by the voters in November 1999. Separate financial statements are not prepared for the Parking Authority. Further information about the Parking Authority can be obtained from the MTA administrative offices at 1 South Van Ness Avenue, 7th Floor, San Francisco, CA 94102. The notes to the financial statements are an integral part of this statement. 38 39 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Discretely Presented Component Units (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES San Francisco Redevelopment Agency (The Agency) – The Agency is a public body, corporate and (a) Government-wide and fund financial statements politic, organized and existing under the Community Redevelopment Law of the State of California. Seven commissioners who are appointed by the Mayor, subject to confirmation by the City’s Board of The government-wide financial statements (i.e., the statement of net assets and the statement of Supervisors, govern it. The Agency has adopted as its mission the creation of affordable housing and changes in net assets) report information on all of the non-fiduciary activities of the primary economic development opportunities Citywide. Included in its financial data are the accounts of the government and its component units. Governmental activities, which normally are supported by taxes San Francisco Redevelopment Financing Authority (SFRFA), a blended component unit of the and intergovernmental revenues, are reported separately from business-type activities which rely, to Agency. The SFRFA is a separate joint-powers authority formed between the Agency and the City to a significant extent, on fees and charges for support. Likewise, the primary government is reported facilitate the long-term financing of Agency activities. The Agency’s governing commission serves as separately from certain legally separate component units for which the primary government is the Board of Directors of the SFRFA. financially accountable. In May 2002, the Public Initiatives Development Corporation (PIDC) was formed to develop affordable The statement of activities demonstrates the degree to which the direct expenses of a given function housing on the Agency’s behalf. The PIDC is reported as a blended component unit of the Agency, or segment are offset by program revenues. Direct expenses are those that are clearly identifiable due to the Board of the PIDC being comprised of management of the Agency and other appointed with a specific function or segment. Program revenues include (1) charges to customers or applicants individuals. Future funding will be dependent on the Agency. who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and (2) grants and contributions that are restricted to meeting the operational or capital The Agency’s governing body is not substantively the same as that of the City, and the Agency does requirements of a particular function or segment. Taxes and other items not properly included among not provide services entirely or almost entirely to the City. The Agency is reported in a separate program revenues are reported instead as general revenues. column to emphasize that it is legally separate from the City. The City is financially accountable for the Agency through the appointment of the Agency’s Board and the ability of the City to approve the Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary Agency’s budget. Disclosures related to the Agency, where significant, are identified separately funds, even though the latter are excluded from the government-wide financial statements. Major throughout these notes. Complete financial statements can be obtained from the Agency’s finance individual governmental funds and major individual enterprise funds are reported as separate department at 1 South Van Ness Avenue, 5th Floor, San Francisco, CA 94103. columns in the fund financial statements. Treasure Island Development Authority (TIDA) – The TIDA is a nonprofit public benefit corporation. The basic financial statements include certain prior year summarized comparative information. This The TIDA was authorized in accordance with the Treasure Island Conversion Act of 1997 and information is presented only to facilitate financial analysis. designated as a redevelopment agency pursuant to Community Redevelopment Law of the State of California. Seven commissioners who are appointed by the Mayor, subject to confirmation by the (b) Measurement focus, basis of accounting, and financial statement presentation City’s Board of Supervisors, govern the TIDA. The specific purpose of the TIDA is to promote the The government-wide financial statements are reported using the economic resources measurement planning, redevelopment, reconstruction, rehabilitation, reuse, and conversion of the property known focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial as Naval Station Treasure Island for the public interest, convenience, welfare, and common benefit of statements. Agency funds, however, report only assets and liabilities and cannot be said to have a the inhabitants of the City. The TIDA has adopted as its mission the creation of affordable housing measurement focus. Revenues are recorded when earned and expenses are recorded when a and economic development opportunities on Treasure Island. 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 The TIDA’s governing body is not substantively the same as that of the City and does not provide soon as all eligibility requirements have been met. services entirely or almost entirely to the City. The TIDA is reported in a separate column to emphasize that it is legally separate from the City. The City is financially accountable for the TIDA Governmental fund financial statements are reported using the current financial resources through the appointment of the TIDA’s Board and the ability of the City to approve the TIDA’s budget. measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon Disclosures related to the TIDA, where significant, are separately identified throughout these notes. as they are both measurable and available. Revenues are considered to be available when they are Separate financial statements are not prepared for TIDA. Further information about TIDA can be collectible within the current period or soon enough thereafter to pay liabilities of the current period. obtained from their administrative offices at 410 Palm Avenue, Building 1, Room 223, Treasure The City considers property tax revenues to be available if they are collected within 60 days of the Island, San Francisco, CA 94130. end of the current fiscal period. All other revenues are considered to be available if they are generally collected within 120 days of the end of the current fiscal period. It is the City’s policy to submit Non-Disclosed Organizations reimbursement and claim requests for federal and state grant revenues within 30 days of the end of There are other governmental agencies that provide services within the City. These entities have the program cycle and payment is generally received within the first or second quarter of the following independent governing boards and the City is not financially accountable for them. The City’s basic fiscal year. Expenditures generally are recorded when a liability is incurred, as under accrual financial statements, except for certain cash held by the City as an agent, do not reflect operations of accounting. However, debt service expenditures, as well as expenditures related to vacation, sick the San Francisco Airport Improvement Corporation, San Francisco Health Authority, San Francisco leave, claims and judgments, are recorded only when payment is due. Housing Authority, San Francisco Unified School District and San Francisco Community College District. The City is represented in two regional agencies, the Bay Area Rapid Transit District and the Property taxes, other local taxes, grants and subventions, licenses, and interest associated with the Bay Area Air Quality Management District, both of which are also excluded from the City’s reporting current fiscal period are all considered susceptible to accrual and so have been recognized as entity. revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives cash. 40 41 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The City reports the following major governmental fund: The Internal Service Funds account for the financing of goods or services provided by one City department to another City department on a cost-reimbursement basis. Internal Service Funds The General Fund is the City’s primary operating fund. It accounts for all financial resources of account for the activities of the equipment maintenance services, centralized printing and mailing the City except those required to be accounted for in another fund. services, centralized telecommunications and information services, and lease financing through the Finance Corporation. The City reports the following major proprietary (enterprise) funds: The Pension, Other Employee and Other Post-Employment Benefit Trust Funds reflect the The San Francisco International Airport Fund accounts for the activities of the City-owned activities of the Employees’ Retirement System, the Health Service System and the Retiree commercial service airport in the San Francisco Bay Area. Health Care Trust Fund. The Retirement System accounts for employee contributions, City contributions, and the earnings and profits from investments. It also accounts for the The San Francisco Water Enterprise Fund accounts for the activities of the San Francisco disbursements made for employee retirement benefits, withdrawals, disability and death benefits Water Enterprise (Water Enterprise). The Water Enterprise is engaged in the distribution of water as well as administrative expenses. The Health Service System accounts for contributions from to the City and certain suburban areas. active and retired employees and surviving spouses, City contributions, and the earnings and profits from investments. It also accounts for the disbursements to various health plans and The Hetch Hetchy Water and Power Enterprise Fund accounts for the activities of Hetch health care providers for the medical expenses of beneficiaries. The Retiree Health Care Trust Hetchy Water and Power Department (Hetch Hetchy). The department is engaged in the Fund currently accounts for employee contributions from active employees hired after collection and conveyance of approximately 85% of the City’s water supply and in the generation January 9, 2009, related City contributions, and the earnings and profits from investments. No and transmission of electricity. disbursements, other than to defray reasonable expenses of administering the trust, will be made before January 2015. The Municipal Transportation Agency Fund accounts for the activities of the Municipal Transportation Agency (MTA). The MTA was established by Proposition E, passed by the City’s The Investment Trust Fund accounts for the external portion of the Treasurer’s Office voters in November 1999. The MTA includes the San Francisco Municipal Railway (MUNI), San investment pool. The funds of the San Francisco Community College District, San Francisco Francisco Municipal Railway Improvement Corporation (SFMRIC), and the operations of the Unified School District, the Trial Courts of the State of California and the Transbay Joint Powers Sustainable Streets (previously named as Department of Parking and Traffic), which includes the Authority are accounted for within the Investment Trust Fund. Parking Authority. MUNI was established in 1912 and is responsible for the operations of the City’s public transportation system. SFMRIC is a nonprofit corporation established to provide The Agency Funds account for the resources held by the City in a custodial capacity on behalf capital financial assistance for the modernization of MUNI by acquiring, constructing, and of: the State of California, human welfare, community health, and transportation programs. financing improvements to the City’s public transportation system. Sustainable Streets is responsible for proposing and implementing street and traffic changes and oversees the City’s Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, off-street parking operations. Sustainable Streets is a separate department of the MTA. The generally are followed in both the government-wide and proprietary fund financial statements to the parking garages fund accounts for the activities of various non-profit corporations formed by the extent that those standards do not conflict with or contradict guidance of the Governmental Parking Authority to provide financial and other assistance to the City to acquire land, construct Accounting Standards Board (GASB). Governments also have the option of following subsequent facilities, and manage various parking facilities. 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-sector guidance. The San Francisco General Hospital Medical Center Fund accounts for the activities of the San Francisco General Hospital Medical Center (SFGH), a City-owned acute care hospital. In general, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this rule are charges to other City departments from the General Fund, The San Francisco Wastewater Enterprise Fund was created after the San Francisco voters Water Enterprise and Hetch Hetchy. These charges have not been eliminated because elimination approved a proposition in 1976, authorizing the City to issue $240 million in bonds for the would distort the direct costs and program revenues reported in the statement of activities. purpose of acquiring, construction, improving, and financing improvements to the City municipal sewage treatment and disposal system. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with the fund’s The Port of San Francisco Fund accounts for the operation, development, and maintenance of principal ongoing operations. The principal operating revenues of the City’s enterprise and internal seven and one-half miles of waterfront property of the Port of San Francisco (Port). This was service funds are charges for customer services including: water, sewer and power charges, public established in 1969 after the San Francisco voters approved a proposition to accept the transfer transportation fees, airline fees and charges, parking fees, hospital patient service fees, commercial of the Harbor of San Francisco from the State of California. and industrial rents, printing services, vehicle maintenance fees, and telecommunication and information system support charges. Operating expenses for enterprise funds and internal service The Laguna Honda Hospital Fund accounts for the activities of Laguna Honda Hospital, the funds include the cost of services, administrative expenses, and depreciation on capital assets. All City-owned skilled nursing facility which specializes in serving elderly and disabled residents. revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Additionally, the City reports the following fund types: The Permanent Fund accounts for resources that are legally restricted to the extent that only When both restricted and unrestricted resources are available for use, it is the City’s policy to use earnings, not principal, may be used for purposes that support specific programs. restricted resources first, then unrestricted resources as they are needed. 42 43 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (c) Budgetary Data (2) Appropriations may be adjusted during the year with the approval of the Mayor and the Board of Supervisors, e.g. supplemental appropriations. Additionally, the Controller is authorized to make The City adopts annual budgets for all governmental funds on a substantially modified accrual basis certain transfers of surplus appropriations within a department. Such adjustments are reflected in of accounting except for capital project funds and certificates of participation and other debt service the final budgetary data. funds, which substantially adopt project length budgets. The Annual Appropriation Ordinance adopts the budget at the character level of expenditure The budget of the City is a detailed operating plan, which identifies estimated costs and results in within departments. As described above, the Controller is authorized to make certain transfers of relation to estimated revenues. The budget includes (1) the programs, projects, services, and appropriations within departments. Accordingly, the legal level of budgetary control by the Board activities to be provided during the fiscal year, (2) the estimated resources (inflows) available for of Supervisors is the department level. appropriation, and (3) the estimated charges to appropriations. The budget represents a process Budgetary data, as revised, is presented in the basic financial statements for the General Fund. through which policy decisions are deliberated, implemented, and controlled. The City Charter Final budgetary data excludes the amount reserved for encumbrances for appropriate prohibits expending funds for which there is no legal appropriation. comparison to actual expenditures. The Administrative Code Chapter 3 outlines the City’s general budgetary procedures, with Section 3.3 (d) Deposits and Investments detailing the budget timeline. A summary of the key budgetary steps are summarized as follows: Investment in the Treasurer’s Pool Original Budget The Treasurer invests on behalf of most funds of the City and external participants in accordance with (1) Departments and Commissions conduct hearings to obtain public comment on their proposed the City’s investment policy and the California State Government Code. The City Treasurer who annual budgets beginning in December and submit their budget proposals to the Controller’s reports on a monthly basis to the Board of Supervisors manages the Treasurer’s pool. In addition, the Office no later than February 21. function of the County Treasury Oversight Committee is to review and monitor the City’s investment policy and to monitor compliance with the investment policy and reporting provisions of the law (2) The Controller’s Office consolidates the budget estimates and transmits them to the Mayor’s through an annual audit. Office no later than the first working day of March. Staff of the Mayor’s Office analyze, review and refine the budget estimates before transmitting the Mayor’s Proposed Budget to the Board of The Treasurer’s investment pool consists of two components: 1) pooled deposits and investments Supervisors. and 2) dedicated investment funds. The dedicated investment funds represent restricted funds and (3) By the first working day of May, the Mayor submits the Proposed Budget for selected relate to bond issues of the Enterprise Funds and the General Fund’s cash reserve requirement. In departments to the Board of Supervisors. The selected departments are determined by the addition to the Treasurer’s investment pool, the City has other funds that are held by trustees. These Controller in consultation with the Board President and the Mayor’s Budget Director. Criteria for funds are related to the issuance of bonds and certain loan programs of the City. The investments of selecting the departments include (1) that they are not supported by the City’s General Fund or the Employees’ Retirement System and deposits and investments of the Redevelopment Agency are (2) that they do not rely on the State’s budget submission in May for their revenue sources. held by trustees (Note 5). (4) By the first working day of June, the Mayor submits the complete Proposed Budget to the Board The San Francisco Unified School District (School District), San Francisco Community College of Supervisors along with a draft of the Annual Appropriation Ordinance prepared by the District (Community College District), and the City are involuntary participants in the City’s investment Controller’s Office. pool. As of June 30, 2011, involuntary participants accounted for approximately 97.9% of the pool. (5) Within five working days of the Mayor’s proposed budget transmission to the Board of Voluntary participants accounted for 2.1% of the pool. Further, the School District, Community Supervisors, the Controller reviews the estimated revenues and assumptions in the Mayor’s College District, the Trial Courts of the State of California and the Transbay Joint Powers Authority Proposed Budget and provides an opinion as to their accuracy and reasonableness. The are external participants of the City’s pool. At June 30, 2011, $448.4 million was held on behalf of Controller also may make a recommendation regarding prudent reserves given the Mayor’s these external participants. The total percentage share of the City’s pool that relates to these four proposed resources and expenditures. external participants is 9.8%. Internal participants accounted for 90.2% of the pool. (6) The designated Committee (usually the Budget Committee) of the Board of Supervisors conducts For reports on the external investment pool, contact the Office of the Treasurer, Room 140, City Hall, hearings, hears public comment, and reviews the Mayor’s Proposed Budget. The Committee 1 Dr. Carlton B. Goodlett Place, San Francisco, CA 94102. recommends an interim budget reflecting the Mayor’s budget transmittal and, by June 30, the Board of Supervisors passes an interim appropriation and salary ordinances. Investment Valuation (7) Not later than the last working day of July, the Board of Supervisors adopts the budget through Investments are carried at fair value, except for certain non-negotiable investments that are reported passage of the Annual Appropriation Ordinance, the legal authority for enactment of the budget. at cost because they are not transferable and have terms that are not affected by changes in market interest rates, such as collateralized certificates of deposits and public time deposits. The fair value of Final Budget investments is determined monthly and is based on current market prices. The fair value of The final budgetary data presented in the basic financial statements reflects the following changes to participants’ position in the pool approximates the value of the pool shares. The method used to the original budget: determine the value of participants’ equity is based on the book value of the participants’ percentage participation. In the event that a certain fund overdraws its share of pooled cash, the overdraft is (1) Certain annual appropriations are budgeted on a project or program basis. If such projects or covered by the General Fund and a payable to the General Fund is established in the City’s basic programs are not completed at the end of the fiscal year, unexpended appropriations, including financial statements. 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. Appropriations carried forward from the prior year are included in the final budgetary data. 44 45 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Employees’ Retirement System (Retirement System) – Investments are reported at fair value. Other funds – Non-pooled investments are also generally carried at fair value. However, money Securities traded on national or international exchanges are valued at the last reported sales price at market investments (such as short-term, highly liquid debt instruments including commercial paper, current exchange rates. Investments that do not have an established market are reported at bankers’ acceptances, and U.S. Treasury and agency obligations) that have a remaining maturity at estimated fair value derived from third-party pricing services. Purchases and sales of investments are the time of purchase of one year or less and participating interest-earning investment contracts (such recorded on a trade date basis. as negotiable certificates of deposit, repurchase agreements and guaranteed or bank investment contracts) are carried at amortized cost, which approximates fair value. The fair value of non-pooled The fair values of the Retirement System’s real estate investments are based on net asset values investments is determined annually and is based on current market prices. The fair value of provided by the investment managers. Partnership financial statements are audited annually as of investments in open-end mutual funds is determined based on the fund’s current share price. December 31 and net asset values are adjusted monthly or quarterly for cash flows to/from the Retirement System, investment earnings and expenses, and changes in fair value. The Retirement Component Unit – San Francisco Redevelopment Agency (Agency) – The Agency pools deposits and System has established leverage limits for each investment style based on the risk/return profile of investments, except for certain investments restricted for developers’ deposits and pledged assets the underlying investments. The leverage limits for core and value-added real estate investments are relating to specific projects. The Agency’s investments are stated at fair value. Fair value has been 40% and 65%, respectively. The leverage limits for high return real estate investments depend on obtained by using market quotes as of June 30, 2011. Money market investments (such as short- each specific offering. Outstanding mortgages for the Retirement System’s real estate investments term, highly liquid debt instruments including commercial paper, bankers’ acceptances, and U.S. were $987.2 million including $104.5 million in recourse debt at June 30, 2011. The underlying real Treasury and Agency obligations that have a remaining maturity of less than one year at the date of estate holdings are valued periodically based on appraisals performed by independent appraisers in purchase) and participating interest-earning investment contracts (such as negotiable certificates of accordance with Uniform Standards of Professional Appraisal Practice (USPAP). Such fair value deposit, repurchase agreements and guaranteed or bank investment contracts) are valued at the estimates involve subjective judgments of unrealized gains and losses, and the actual market price of amortized cost, which approximates fair value as of June 30, 2011. the real estate can only be determined by negotiation between independent third-parties in a purchase and sale transaction. Investment Income Income from pooled investments is allocated at month-end to the individual funds or external Alternative investments represent the Retirement System’s interest in limited partnerships. The fair participants based on the fund or participant’s average daily cash balance in relation to total pooled values of alternative investments are based on net asset values provided by the general partners. investments. City management has determined that the investment income related to certain funds Partnership financial statements are audited annually as of December 31 and net asset values are should be allocated to the General Fund. On a budget basis, the interest income is recorded in the adjusted monthly or quarterly for cash flows to/from the Retirement System, investment earnings and General Fund. On a generally accepted accounting principles (GAAP) basis, the income is reported in changes in fair value. Such fair value estimates involve subjective judgments of unrealized gains and the fund where the related investments reside. A transfer is then recorded to transfer an amount losses, and the actual market price of the investments can only be determined by negotiation equal to the interest earnings to the General Fund. This is the case for certain other governmental between independent third-parties in a sales transaction. funds, Internal Service, Investment Trust and Agency Funds. The Charter and Retirement Board policies permit the Retirement System to use investments to enter It is the City’s policy to charge interest at month-end to those funds that have a negative average into securities lending transactions – loans of securities to broker-dealers and other entities for daily cash balance. In certain instances, City management has determined that the interest expense collateral with a simultaneous agreement to return the collateral for the same securities in the future. related to the fund should be allocated to the General Fund. On a budget basis, the interest expense The collateral may consist of cash or non-cash; non-cash collateral is generally U.S. Treasuries or is recorded in the General Fund. On a GAAP basis, the interest expense is recorded in the fund and other U.S. government obligations. The Retirement System’s securities custodian is the agent in then a transfer from the General Fund for an amount equal to the interest expense is made to the lending the domestic securities for collateral of 102% and international securities for collateral of fund. This is the case for certain other funds, MTA, Laguna Honda Hospital, General Hospital Medical 105%. Contracts with the lending agent require them to indemnify the Retirement System if the Center, and the Internal Service Funds. borrowers fail to return the securities (and if the collateral were inadequate to replace the securities lent) or fail to pay the Retirement System for income distributions by the securities’ issuers while the Income from non-pooled investments is recorded based on the specific investments held by the fund. securities are on loan. Non-cash collateral cannot be pledged or sold unless the borrower defaults. The interest income is recorded in the fund that earned the interest. All securities loans can be terminated on demand by either the Retirement System or the borrower, (e) Loans Receivable although the average term of the loans as of June 30, 2011 was 87 days. For fiscal year 2011 all cash collateral received was invested in a separately managed account by the lending agent using The Mayor’s Office of Housing (MOH) and the Mayor’s Office of Community Development (MOCD) investment guidelines developed and approved by the Retirement System. As of June 30, 2011, the administer several housing and small business subsidy programs and issue loans to qualified weighted average maturity of the reinvested cash collateral account was 26 days. The term to applicants. In addition, the Department of Building Inspection manages other receivables from maturity of the loaned securities is generally not matched with the term to maturity of the investment organizations. Management has determined through policy that many of these loans may be forgiven of the related collateral. Cash collateral may also be invested separately in term loans, in which case or renegotiated and extended long into the future if certain terms and conditions of the loans are met. the maturity of the loaned securities matches the term of the loan. At June 30, 2011, it was determined that $530.6 million of the $601.9 million loan portfolio is not expected to be ultimately collected. Cash collateral invested in the separate account managed by the lending agent is reported at fair value. Payable to borrowers of securities in the statement of fiduciary net assets represents the cash For the purposes of the fund financial statements, the governmental funds expenditures relating to collateral received from borrowers. Additionally, the income and costs of securities lending long-term loans arising from loan subsidy programs are charged to operations upon funding and the transactions, such as borrower rebates and fees, are recorded respectively as revenues and loans are recorded, net of an estimated allowance for potentially uncollectible loans, with an offset to expenses in the statement of changes in fiduciary net assets. a deferred credit account. For purposes of the government-wide financial statements, long-term loans are not offset by deferred credit accounts. 46 47 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (f) Inventory (j) Bond Issuance Costs, Premiums, Discounts and Interest Accretion Inventory recorded in the proprietary funds primarily consists of construction materials and In the government-wide financial statements and in the proprietary fund type financial statements, maintenance supplies, as well as pharmaceutical supplies maintained by the hospitals. Generally, long-term debt and other long-term obligations are reported as liabilities in the applicable proprietary funds value inventory at cost or average cost and expense supply inventory as it is governmental activities, business-type activities, or proprietary fund statement of net assets. San consumed. This is referred to as the consumption method of inventory accounting. The governmental Francisco International Airport’s bond premiums and discounts, as well as issuance costs, are fund types use the purchase method to account for supply inventories, which are not material. This deferred and amortized over the life of the bonds using the effective interest method. The remaining method records items as expenditures when they are acquired. bond premiums, discounts, and issuance costs are calculated using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are (g) Redevelopment Agency Property Held for Resale reported as deferred charges and amortized over the term of the related debt. Property held for resale are both residential and commercial and are recorded as an asset at the In the fund financial statements, governmental funds recognize bond premiums and discounts as lower of estimated cost or estimated conveyance value. Estimated conveyance value is other financing sources and uses, respectively, and bond issuance costs as debt service management’s estimate of net realizable value of each property parcel based on its current intended expenditures. Issuance costs, whether or not withheld from the actual debt proceeds received are use. Property held for sale may, during the period it is held by the Agency, generate rental income, reported as debt service expenditures. which is recognized as it becomes due and is considered collectible. Interest accreted on capital appreciation bonds is reported as accrued interest payable in the (h) Capital Assets government-wide and proprietary fund financial statements. Capital assets, which include land, facilities and improvements, machinery and equipment, infrastructure assets, and intangible assets, are reported in the applicable governmental or business- (k) Fund Equity type activities columns in the government-wide financial statements. Capital assets, except for Governmental Fund Balance intangible assets, are defined as assets with an initial individual cost of more than $5 and an estimated useful life in excess of one year. Intangible assets have a capitalization threshold of $100. As prescribed by Statement No. 54, Fund Balance Reporting and Governmental Fund Type Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Definitions, governmental funds report fund balance in one of five classifications that comprise a Donated capital assets are recorded at estimated fair value at the date of donation. Capital outlay is hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific recorded as expenditures of the General Fund and other governmental funds and as assets in the purposes for which amounts in the funds can be spent. The five fund balance classifications are as government-wide financial statements to the extent the City’s capitalization threshold is met. Interest follows: incurred during the construction phase of the capital assets of business-type activities is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds of tax- Nonspendable – includes amounts that cannot be spent because they are either not in spendable exempt debt over the same period. Amortization of assets acquired under capital leases is included in form or legally or contractually required to be maintained intact. The not in spendable form depreciation and amortization. Facilities and improvements, infrastructure, machinery and equipment, criterion includes items that are not expected to be converted to cash, such as prepaid amounts, easements, and intangible assets of the primary government, as well as the component units, are as well as certain long-term receivables that would otherwise be classified as unassigned. depreciated using the straight-line method over the following estimated useful lives: Assets Years Restricted – includes amounts that can only be used for specific purposes due to constraints Facilities and improvements 15 to 175 imposed by external resource providers, by the City’s Charter, or by enabling legislation. Infrastructure 15 to 70 Restrictions may effectively be changed or lifted only with the consent of resource providers. Machinery and equipment 2 to 75 Committed – includes amounts that can only be used for specific purposes pursuant to a formal Intangible assets Varies with type action of the City’s highest level of decision-making authority, legislation passed by the Board of Works of art, historical treasures and zoological animals held for public exhibition, education, or Supervisors and signed by the Mayor. Commitments may be changed or lifted only by the City research in furtherance of public service, rather than financial gain, are not capitalized. These items taking the same formal action that imposed the constraint originally. are protected, kept unencumbered, cared for, and preserved by the City. It is the City’s policy to Assigned – includes amounts that are not classified as nonspendable, restricted, or committed, utilize proceeds from the sale of these items for the acquisition of other items for collection and but are intended to be used by the City for specific purposes. Intent is expressed by legislation or display. by action of a body or official to which legislation has delegated the authority to assign amounts to be used for specific purposes. (i) Accrued Vacation and Sick Leave Pay Unassigned – is the residual classification for the General Fund and includes all amounts not Vacation pay, which may be accumulated up to ten weeks depending on an employee’s length of contained in the other classifications. Unassigned amounts are technically available for any service, is payable upon termination. Sick leave may be accumulated up to six months, except for purpose. Other governmental funds may only report a negative unassigned balance that was Local 21 members, who are all entitled to accumulate all unused sick leave. Unused amounts created after classification in one of the other four fund balance categories. accumulated prior to December 6, 1978 are vested and payable upon termination of employment by retirement or disability caused by industrial accident or death. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, The City accrues for all salary-related items in the government-wide and proprietary fund financial committed, assigned, and unassigned. statements for which they are liable to make a payment directly and incrementally associated with payments made for compensated absences on termination. The City includes its share of social security and Medicare payments made on behalf of the employees in the accrual for vacation and sick leave pay. 48 49 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Fund balances for all the major and nonmajor governmental funds as of June 30, 2011, were General Fund Stabilization and Other Reserves distributed as follows: Rainy Day Reserve – The City maintains a "Rainy Day" or economic stabilization reserve under Nonmajor Total Charter Section 9.113.5. In any year when the City projects that total General Fund revenues for the General Governmental Governmetnal upcoming budget year are going to be more than 5 percent higher than the General Fund revenues Fund Funds Funds for the current year, the City automatically deposits one-half of the "excess revenues," in the Rainy Nonspendable Day Reserve. The total amount of money in the Rainy Day Reserve may not exceed 10 percent of the Advances and Long Term Receivables…………… $ 20,501 $ - $ 20,501 City's actual total General Fund revenues. The City may spend money from the Rainy Day Reserve for any lawful governmental purpose, but only in years when the City projects that total General Fund Gift Fund Principal…………………………………… - 192 192 revenues for the upcoming year will be less than the current year's total General Fund revenues, i.e., Total Nonspendable………………………………… 20,501 192 20,693 years when the City expects to take in less money than it had taken in for the current year. In those years, the City may spend up to half the money in the Rainy Day Reserve, but no more than is Restricted necessary to bring the City's total available General Fund revenues up to the level of the current year. Rainy Day……………………………………………… 33,439 - 33,439 The City may also spend up to 25 percent of the balance of the Rainy Day Reserve to help the San Public Works, Transportation & Commerce………… - 48,170 48,170 Francisco Unified School District in years when certain conditions are met. The City does not expect Human Welfare & Neighborhood Development…… - 130,499 130,499 to routinely spend money from the Rainy Day Reserve after evaluating its recent General Fund Community Health…………………………………… - 31,914 31,914 revenues trends and its Five-Year Financial Plan covering fiscal years 2011-12 through 2015-16. Culture & Recreation………………………………… - 96,437 96,437 General Administration & Finance…………………… - 18,494 18,494 Budget Stabilization Reserve – The City sets aside as an additional reserve seventy-five percent of (1) real estate transfer taxes in excess of the average collected over the previous five years, General City Responsibilities………………………… - 767 767 (2) proceeds from the sale of land and capital assets, and (3) ending unassigned General Fund Capital Projects………………………………………… - 432,619 432,619 balances. The City will be able to spend those funds in years in which revenues decline or grow by Debt Service…………………………………………… - 72,369 72,369 less than two percent, after using the amount legally available from the Rainy Day Reserve. The City, Total Restricted……………………………………… 33,439 831,269 864,708 by a resolution of the Board of Supervisors adopted by a two-thirds' vote, may temporarily suspend these provisions following a natural disaster that has caused the Mayor or the Governor to declare an Committed emergency, or for any other purpose. The City does not expect to routinely spend money from the Budget Stabilization…………………………………… 27,183 - 27,183 Budget Stabilization Reserve after evaluating its recent General Fund revenues trends and its Five- Recreation and Parks Expenditure Savings………… 6,248 - 6,248 Year Financial Plan covering fiscal years 2011-12 through 2015-16. Total Committed…………………………………… 33,431 - 33,431 Recreation and Parks Expenditure Savings Reserve – The City maintains a Recreation and Park Assigned Expenditure Savings Reserve under Charter Section 16.107, which set aside and maintain such an Public Protection……………………………………… 13,172 - 13,172 amount, together with any interest earned thereon, in the reserve account, and any amount unspent Public Works, Transportation & Commerce………… 7,943 14,143 22,086 or uncommitted at the end of the fiscal year shall be carried forward to the next fiscal year and, Human Welfare & Neighborhood Development…… 27,213 3,232 30,445 subject to the budgetary and fiscal limitations of this Charter, shall be appropriated then or thereafter Community Health…………………………………… 26,015 - 26,015 for capital and/or facility maintenance improvements to park and recreation facilities and other one- time expenditures of the Park and Recreation Department. Culture & Recreation………………………………… 2,443 4,673 7,116 General Administration & Finance…………………… 24,603 5,574 30,177 Encumbrances General City Responsibilities………………………… 23,234 - 23,234 The City establishes encumbrances to record the amount of purchase orders, contracts, and other Capital Projects………………………………………… 23,042 - 23,042 obligations, which have not yet been fulfilled, cancelled, or discharged. Encumbrances outstanding at Litigation and Contingencies………………………… 44,900 - 44,900 year-end are recorded as part of restricted or assigned fund balance. At June 30, 2011, Subsequent Year's Budget…………………………… 48,070 - 48,070 encumbrances recorded in the General Fund and nonmajor governmental funds were $57.8 million and $257.4 million, respectively. Total Assigned……………………………………… 240,635 27,622 268,257 Unassigned……………………………………………… - (59,523) (59,523) Restricted Net Assets Total……………………………………………………… $ 328,006 $ 799,560 $ 1,127,566 The government-wide and proprietary fund financial statements utilize a net assets presentation. Net assets are categorized as invested in capital assets (net of related debt), restricted, and unrestricted. Invested in Capital Assets, Net of Related Debt – This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of these assets reduce the balance in this category. Restricted Net Assets – This category represents net assets that have external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. At June 30, 2011, the government-wide statement of net assets reported restricted assets of 50 51 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) $446.8 million in governmental activities and $242.7 million in business-type activities. For governmental activities, they are deferred and amortized into expense if they occurred subsequent to governmental activities, $1.4 million is restricted by enabling legislation. June 30, 2000. Unrestricted Net Assets – This category represents net assets of the City, not restricted for any (n) Pollution Remediation Obligations project or other purpose. Pollution remediation obligations are measured at their current value using a cost-accumulation The City issued general obligation bonds and certificates of participation for the purpose of rebuilding approach, based on the pollution remediation outlays expected to be incurred to settle those and improving Laguna Honda Hospital. General obligation bonds were also issued for the purpose of obligations. Each obligation or obligating event is measured as the sum of probability-weighted reconstructing and improving waterfront parks and facilities on Port property and for the retrofit and amounts in a range of possible estimated amounts. Some estimates of ranges of possible cash flows improvement work to ensure a reliable water supply (managed by the Water Enterprise) in an may be limited to a few discrete scenarios or a single scenario, such as the amount specified in a emergency or disaster. These capital assets are reported in the City’s business-type activities. contract for pollution remediation services. However, the debt service will be paid with governmental revenues and as such these general obligation bonds and certificates of participation are reported with unrestricted net assets in the City’s (o) Cash Flows governmental activities. In accordance with GASB guidance, the City reclassified $418.1 million of Statements of cash flows are presented for proprietary fund types. Cash and cash equivalents include unrestricted net assets of governmental activities, of which $397.9 million reduced net assets all unrestricted and restricted highly liquid investments with original purchase maturities of three invested in capital assets, net of related debt and $20.2 million reduced net assets restricted for months or less. Pooled cash and investments in the City’s Treasury represent monies in a cash capital projects to reflect the total column of the primary government as a whole perspective. management pool and such accounts are similar in nature to demand deposits. Deficit Net Assets/Fund Balances (p) Estimates The Environmental Protection Fund, Public Protection Fund and Senior Citizens’ Program Fund had The preparation of financial statements in conformity with generally accepted accounting principles deficits of $0.2 million, $0.7 million and $1.6 million, respectively, as of June 30, 2011. The deficits requires management to make estimates and assumptions that affect certain reported amounts and relate to increases of deferred tax, grant and subvention revenues on various programs, which are disclosures. Accordingly, actual results could differ from those estimates. expected to be collected beyond 120 days of the end of fiscal year 2011. In addition, the Court’s Fund had deficits of $0.9 million as of June 30, 2011, which are expected to be covered with future charges (q) Reclassifications for services. Certain amounts presented as 2009-10 Summarized Comparative Financial Information in the basic The San Francisco County Transportation Authority Fund had a $34.1 million deficit as of financial statements have been reclassified for comparative purposes to conform to the presentation June 30, 2011. This condition exists because the SFCTA uses short-term debt financing to accelerate in the 2010-11 basic financial statements. In addition, the fund balances of governmental funds have the delivery of sales tax funded projects that are owned and operated by other agencies. The also been reclassified to conform to the presentation in effect after the implementation of GASB negative fund balance will be covered as future sales tax revenues are realized. Statement No. 54. The Moscone Convention Center Fund had a $20.6 million deficit as of June 30, 2011. The deficit will (r) Effects of New Pronouncements be covered as hotel tax revenues are realized and when long-term debt is issued to refinance the During fiscal year 2011, the City implemented the following accounting standards: short-term commercial paper obligation. GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions in The Central Shops Internal Service Fund had deficits in total net assets of $2.5 million as of March 2009. The objective of this Statement is to enhance the usefulness of fund balance information June 30, 2011 mainly due to the other postemployment benefits liability accrued as per GASB by providing clearer fund balance classifications that can be more consistently applied and by Statement 45. The deficits are expected to be reduced in future years through anticipated rate clarifying the existing governmental fund type definitions. This Statement establishes fund balance increases or reductions in the operating expenses. The rates are reviewed and updated annually. classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. (l) Interfund Transfers Additional disclosure concerning the implementation of GASB Statement No. 54 is above in note 2(k). Interfund transfers are generally recorded as transfers in (out) except for certain types of transactions that are described below. GASB issued Statement No. 59, Financial Instruments Omnibus in June 2010. This Statement updates and improves existing standards regarding financial reporting of certain financial instruments Charges for services are recorded as revenues of the performing fund and expenditures of the and external investment pools. Application of this Statement is effective for the City’s fiscal year requesting fund. Unbilled costs are recognized as an asset of the performing fund and a liability of ended June 30, 2011. This standard did not have any effect on the City’s financial statements. the requesting fund at the end of the fiscal year. The City is currently analyzing its accounting practices to determine the potential impact on the Reimbursements for expenditures, initially made by one fund, which are properly applicable to financial statements for the following GASB Statements: another fund, are recorded as expenditures in the reimbursing fund and as a reduction of expenditures in the fund that is reimbursed. GASB issued Statement No. 57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans in December 2009. This Statement addresses issues related to the use of the (m) Refunding of Debt alternative measurement method and the frequency and timing of measurements by employers that participate in agent multiple-employer other postemployment benefit (OPEB) plans (that is, agent Gains or losses occurring from advance refundings, completed subsequent to June 30, 1993, are employers). Beginning June 30, 2012, the SFCTA will comply with GASB Statement No. 57 reporting deferred and amortized into expense for both business-type activities and proprietary funds. For requirements and perform OPEB actuarial valuations based on a common date. 52 53 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) In November 2010, GASB issued Statement No. 60, Accounting and Financial Reporting for Service (3) RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Concession Arrangements. This Statement addresses how to account for and report service concession arrangements (SCAs), a type of public-private or public-public partnership that state and (a) Explanation of certain differences between the governmental funds balance sheet and the local governments are increasingly entering into. Common examples of SCAs include long-term government-wide statement of net assets arrangements between a transferor (a government) and an operator (governmental or nongovernmental entity) in which the transferor conveys to an operator the right and related Total fund balances of the City’s governmental funds, $1,127,566, differs from net assets of obligation to provide services through the use of infrastructure or another public asset in exchange for governmental activities, $1,310,279, reported in the statement of net assets. The difference primarily significant consideration and the operator collects and is compensated by fees from third parties. results from the long-term economic focus in the statement of net assets versus the current financial Application of this Statement is effective for the City’s fiscal year ending June 30, 2013. resources focus in the governmental funds balance sheets. In November 2010, GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus. GASB Total Long-term Internal Reclassi- Statementof Governmental Assets, Service fications and Net Assets Statement No. 61 is designed to improve financial reporting for governmental entities by amending (1) (2) the requirements of GASB Statement No. 14, The Financial Reporting Entity, and GASB Statement Funds Liabilities Funds Eliminations Total Assets No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Deposits and investments with City Treasury…………… $ 1,324,550 $ - $ 28,899 $ - $ 1,353,449 Governments, to better meet the needs of users and address reporting entity issues that have come Deposits and investments outside City Treasury………… 117,177 - 77,505 - 194,682 to light since these statements were issued in 1991 and 1999, respectively. GASB Statement No. 61 Receivables, net: improves the information presented about the financial reporting entity, which is comprised of a Property taxes and penalties…………………………… 53,221 - - - 53,221 Other local taxes…………………………………………… 201,006 - - - 201,006 primary government and related entities (component units) and amends the criteria for blending – Federal and state grants and subventions……………… 294,330 - - - 294,330 reporting component units as if they were part of the primary government – in certain circumstances. Charges for services……………………………………… 52,698 - 134 - 52,832 Application of this Statement is effective for the City’s fiscal year ending June 30, 2013. Interest and other………………………………………… 5,163 - 701 - 5,864 Due from other funds ……………………………………… 36,586 - - (36,586) - In December 2010, GASB issued Statement No. 62, Codification of Accounting and Financial Due from/advances to component unit …………………… 27,666 - - - 27,666 Loans receivable, net………………………………………… 71,346 - - - 71,346 Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Capital assets, net…………………………………………… - 3,308,318 6,132 - 3,314,450 objective of this Statement is to incorporate into the GASB’s authoritative literature certain accounting Deferred charges and other assets………………………… 10,868 17,712 5,441 - 34,021 and financial reporting guidance that is included in the following pronouncements issued on or before Total assets……………………………………………… $ 2,194,611 $ 3,326,030 $ 118,812 $ (36,586) $ 5,602,867 November 30, 1989, which does not conflict with or contradict GASB pronouncements. This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Liabilities Funds and Other Governmental Entities That Use Proprietary Fund Accounting. The requirements of Accounts payable…………………………………………… $ 205,358 $ - $ 5,699 $ - $ 211,057 this Statement are effective for the City’s fiscal year ending June 30, 2013. Accrued payroll……………………………………………… 100,947 - 1,965 - 102,912 Accrued vacation and sick leave pay……………………… - 137,577 3,044 - 140,621 Accrued workers' compensation…………………………… - 221,954 874 - 222,828 In June 2011, GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of Other postemployment benefits obligation………………… - 602,321 12,906 - 615,227 Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial Estimated claims payable…………………………………… - 126,044 - - 126,044 reporting guidance for deferred outflows of resources and deferred inflows of resources. This Accrued interest payable…………………………………… - 10,190 1,764 - 11,954 Statement also amends the net asset reporting requirements in Statement No. 34, Basic Financial Deferred tax, grant and subvention revenues…………… 182,514 (169,164) - - 13,350 Due to other funds/internal balances……………………… 42,300 - 6,803 (36,586) 12,517 Statements—and Management’s Discussion and Analysis—for State and Local Governments, and Deferred credits and other liabilities……………………… 368,407 (116,501) 629 - 252,535 other pronouncements by incorporating deferred outflows of resources and deferred inflows of Bonds, loans, capital leases, and other payables………… 167,519 2,133,491 282,533 - 2,583,543 resources into the definitions of the required components of the residual measure and by renaming Total liabilities……………………………………………… 1,067,045 2,945,912 316,217 (36,586) 4,292,588 that measure as net position, rather than net assets. The requirements of this Statement are effective for the City’s fiscal year ending June 30, 2013. Fund balances/net assets Total fund balances/net assets……………………………… 1,127,566 380,118 (197,405) - 1,310,279 In June 2011, GASB issued Statement No. 64, Derivatives Instruments: Application of Hedge Total liabilities and fund balances/net assets………… $ 2,194,611 $ 3,326,030 $ 118,812 $ (36,586) $ 5,602,867 Accounting Termination Provisions – an amendment of GASB Statement No. 53. The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty’s credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. The requirements of this Statement are effective for the City’s fiscal year ending June 30, 2012. (s) Restricted Assets Certain proceeds of the City’s enterprise and internal service fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the statement of net assets because the use of the proceeds is limited by applicable bond covenants and resolutions. Restricted assets account for the principal and interest amounts accumulated to pay debt service, unspent bond proceeds, and amounts restricted for future capital projects. 54 55 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (1) When capital assets (land, infrastructure, buildings, equipment, and intangible (b) Explanation of certain differences between the governmental funds statement of revenues, assets) that are to be used in governmental activities are purchased or expenditures, and changes in fund balances and the government-wide statement of constructed, the costs of those assets are reported as expenditures in activities governmental funds. However, the statement of net assets includes those capital assets, net of accumulated depreciation, among the assets of the City as a whole. The net change in fund balances for governmental funds, $128,481, differs from the change in net assets for governmental activities, $157,294, reported in the statement of activities. The differences Cost of capital assets ...... $ 4,357,901 arise primarily from the long-term economic focus in the statement of activities versus the current Accumulated depreciation ...... (1,049,583) financial resources focus in the governmental funds. The effect of the differences is illustrated below. $ 3,308,318 Statement of Revenues, Expenditures, and Changes in Fund Balances/Statement of Activities Bond issuance costs are expended in governmental funds when paid and are Governmental Long-term Capital- Internal Long-term Statement of capitalized and amortized over the life of the corresponding bonds for purposes Funds Revenues/ related Service Debt Activities of the statement of net assets...... $ 17,712 Totals Expenses(3) Items (4) Funds (5) Transactions(6) Totals Revenues Long-term liabilities applicable to the City’s governmental activities are not due Property taxes…………………………………………… $ 1,380,356 $ (39,766) $ - $ - $ - $ 1,340,590 and payable in the current period and accordingly are not reported as fund Business taxes…………………………………………… 391,779 - - - - 391,779 Sales and use tax………………………………………… 181,474 - - - - 181,474 liabilities. All liabilities, both current and long-term, are reported in the statement Hotel room tax…………………………………………… 209,962 - - - - 209,962 of net assets. Utility users tax…………………………………………… 91,683 - - - - 91,683 Other local taxes………………………………………… 251,285 - - - - 251,285 Accrued vacation and sick leave pay ...... $ (137,577) Licenses, permits and franchises……………………… 35,977 136 - - - 36,113 Fines, forfeitures and penalties………………………… 11,770 109 - - - 11,879 Accrued workers’ compensation...... (221,954) Interest and investment income………………………… 17,041 330 - 274 - 17,645 Other postemployment benefits obligation ...... (602,321) Rents and concessions………………………………… 78,995 4,479 - - - 83,474 Estimated claims payable ...... (126,044) Intergovernmental: Bonds, loans, capital leases, and other payables ...... (2,133,491) Federal………………………………………………… 484,704 (7,488) - - - 477,216 State…………………………………………………… 581,119 8,725 - - - 589,844 Deferred credits and other liabilities ...... (1,804) Other…………………………………………………… 32,017 (199) - - - 31,818 $ (3,223,191) Charges for services…………………………………… 258,015 (263) - - - 257,752 Other revenues…………………………………………… 97,194 (488) - - - 96,706 Interest on long-term debt is not accrued in governmental funds, but rather is Total revenues……………………………………… 4,103,371 (34,425) - 274 - 4,069,220 recognized as an expenditure when paid. $ (10,190) Expenditures/Expenses Expenditures: Because the focus of governmental funds is on short-term financing, some Public protection……………………………………… 1,031,181 58,248 14,068 (3,706) - 1,099,791 assets will not be available to pay for current period expenditures. Those assets Public works, transportation and commerce……… 226,920 11,988 1,915 (1,593) - 239,230 (for example, receivables) are offset by deferred revenues in the governmental Human welfare and neighborhood development…… 870,091 14,629 474 - - 885,194 Community health……………………………………… 595,222 17,751 910 - - 613,883 funds and thus are not included in fund balance. Culture and recreation………………………………… 310,392 11,070 31,486 (15,205) (19,660) 318,083 General administration and finance………………… 191,641 13,017 18,195 1,174 - 224,027 Deferred tax, grant and subvention revenues ...... $ 169,164 General City responsibilities………………………… 85,463 42 - (2,281) 1,220 84,444 Deferred credits and other liabilities ...... 118,305 Debt service: Principal retirement…………………………………… 148,231 - - - (148,231) - $ 287,469 Interest and fiscal charges…………………………… 101,716 - - 6,059 2,367 110,142 Bond issuance costs………………………………… 2,161 - - - (2,161) - (2) Internal service funds are used by management to charge the costs of certain Capital outlay……………………………………………… 214,817 - (214,817) - - - activities, such as capital lease financing, fleet management, printing and mailing Total expenditures/expenses……………………… 3,777,835 126,745 (147,769) (15,552) (166,465) 3,574,794 services, and information systems, to individual funds. The assets and liabilities of certain internal service funds are included in governmental activities in the Other financing sources (uses)/changes in net assets statement of net assets. Net transfers (to)/from other funds…………………… (325,943) - (11,748) 559 - (337,132) Issuance of bonds and loans: Net assets before adjustments ...... $ 9,607 Face value of bonds issued………………………… 232,965 - - - (232,965) - Face value of loans issued…………………………… 1,813 - - - (1,813) - Adjustments for internal balances with the San Francisco Finance Corporation: Premium on issuance of bonds ……………………… 16,799 - - - (16,799) - Capital lease receivables from other governmental and enterprise funds ...... (280,667) Payment to escrow for refunded debt…………………… (142,458) - - - 142,458 - Deferred charges and other assets ...... 652 Other financing sources - capital leases……………… 19,769 - - (19,769) - - Deferred credits and other liabilities ...... 73,003 Total other financing sources (uses)/changes $ (197,405) in net assets………………………………………… (197,055) - (11,748) (19,210) (109,119) (337,132) Net change for the year………………………………… $ 128,481 $ (161,170) $ 136,021 $ (3,384) $ 57,346 $ 157,294 In addition, intrafund receivables and payables among various internal service funds of $0.08 million are eliminated. 56 57 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (3) Property tax revenues must be collected within 60 days to be recognized as Bond issuance costs are expended in governmental funds when paid, and are current economic resources. These cash collections were greater than the capitalized and amortized over the life of the corresponding bonds for purposes property tax revenues recognized under the full accrual method of accounting of the statement of activities. because prior year deferred revenues exceeded current year deferrals under the Bond issuance costs ...... $ 2,161 60-day rule. $ (39,766) Amortization of bond issuance costs ...... (1,220) Difference ...... $ 941 Certain other revenues that do not provide current financial resources are not reported as revenues in the governmental funds but are recognized in the Bond premiums are reported in the governmental funds when the bonds are statement of activities. 5,341 issued, and are capitalized in the statement of net assets. This is the amount of $ (34,425) premiums capitalized during the current period...... $ (16,799) Some expenses reported in the statement of activities do not require the use of Repayment of bond principal is reported as expenditures in governmental funds current financial resources and therefore are not reported as expenditures in and, thus, have the effect of reducing fund balance because current financial governmental funds. Certain long-term liabilities reported in the prior year resources have been used. For the City as a whole however, the principal statement of net assets were paid during the current period resulting in payments and payment to escrow for refunded debt reduce the liabilities in the expenditures in the governmental funds. This is the amount by which the statement of net assets and do not result in expenses in the statement of increase in long-term liabilities exceeded expenditures in funds that do not activities. The City’s bonded debt was reduced because principal payments were require the use of current financial resources. $ (125,799) made to bond holders and debt was refunded. Some expenditures reported in the governmental funds pertain to the Principal payments made ...... $ 148,231 establishment of deferred credits on long-term loans since the loans are not Payment to escrow for refunded debt ...... 142,458 considered "available" to pay current period expenditures. The deferred credits 290,689 are not reported in the statement of net assets and, therefore, the related expenditures are not reported in the statement of activities. (946) Bond and loan proceeds and capital leases are reported as other financing $ (126,745) sources in governmental funds and thus contribute to the change in fund balance. (4) When capital assets that are to be used in governmental activities are purchased In the government-wide statements, however, issuing debt increases long-term or constructed, the resources expended for those assets are reported as liabilities in the statement of net assets and do not affect the statement of expenditures in governmental funds. However, in the statement of activities, the activities. Proceeds were received from: cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of General obligation bonds ...... (94,520) financial resources expended, whereas net assets decrease by the amount of Certificates of participation refunding ...... (138,445) depreciation expense charged for the year and the loss on disposal of capital Loans ...... (1,813) assets. (234,778) Capital expenditures ...... $ 244,663 $ 55,911 Depreciation expense...... (89,628) Loss on disposal of capital assets ...... (2,804) Interest expense in the statement of activities differs from the amount reported in Transfer of asset to enterprise fund ...... (11,748) governmental funds because (1) additional accrued and accreted interest was Write off construction of progress...... (4,462) calculated for bonds, notes payable and capital leases, (2) amortization of bond Difference ...... $ 136,021 discounts, premiums and refunding losses are not expended within the fund statements, and (3) additional interest expense was recognized on the accrual of (5) Internal service funds are used by management to charge the costs of certain an arbitrage rebate liability which will not be recognized in the governmental activities, such as capital lease financing, equipment maintenance, printing and funds until the liability is due and payable. mailing services, and telecommunications, to individual funds. The adjustments for internal service funds “close” those funds by charging additional amounts to Decrease in accrued interest...... $ 555 participating governmental activities to completely cover the internal service Interest payment on capital lease obligations on the funds’ costs for the year. $ (3,384) Moscone Convention Center ...... (7,979) Amortization of bond premiums, discounts and refunding losses ...... 3,576 (6) Lease payments on the Moscone Convention Center (Note 8) are reported as a Decrease in arbitrage rebate liability ...... 1,481 culture and recreation expenditure in the governmental funds and, thus, have the $ (2,367) effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the liability in the statement of net assets and do not result in an expense in the statement of activities. The City’s capital lease obligation was reduced because principal payments were made to lessee. Total property rent payments ...... $ 19,660 58 59 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (4) BUDGETARY RESULTS RECONCILED TO RESULTS IN ACCORDANCE WITH GENERALLY ACCEPTED (5) DEPOSITS AND INVESTMENTS ACCOUNTING PRINCIPLES (a) Cash, Deposits and Investments Presentation Budgetary Results Reconciliation Total City cash, deposits and investments, at fair value, are as follows: The budgetary process is based upon accounting for certain transactions on a basis other than Component generally accepted accounting principles (GAAP). The results of operations are presented in the Primary Government Units budget-to-actual comparison statement in accordance with the budgetary process (Budget basis) to Governmental Business-type Fiduciary provide a meaningful comparison with the budget. Activities Activities Funds Total Deposits and investments with City Treasury...... $ 1,353,449$ 1,114,318$ 638,702$ 3,106,469 $ 2,648 The major differences between the Budget basis “actual” and GAAP basis are timing differences. Deposits and investments outside Timing differences represent transactions that are accounted for in different periods for Budget basis City Treasury...... 117,177 9,387 15,630,035 15,756,599 258,689 and GAAP basis reporting. Certain revenues accrued on a Budget basis have been deferred for Restricted assets: GAAP reporting. These primarily relate to the accounting for property tax revenues under the Teeter Deposits and investments with Plan (Note 6), revenues not meeting the 120-day availability period and other assets not available for City Treasury...... - 1,475,832 - 1,475,832 - budgetary appropriation. Deposits and investments outside City Treasury...... 77,505 795,335 - 872,840 179,094 The fund balance of the General Fund as of June 30, 2011 on a Budget basis is reconciled to the Invested securities lending collateral...... - - 892,579 892,579 - fund balance on a GAAP basis as follows: Total deposits & investments $ 1,548,131$ 3,394,872 $ 17,161,316 $ 22,104,319 $ 440,431 Fund Balance - Budget Basis………………………………………………………………… $ 427,886 Cash and deposits...... $ 588,641$ 46,269 Investments...... 21,515,678 394,162 Unrealized Gains/ (Losses) on Investments………………………………………………… 1,610 Total deposits and investments $ 22,104,319 $ 440,431 Cumulative Excess Property Tax Revenues Recognized on a Budget Basis…………… (43,072) Cumulative Excess Health, Human Services, Franchise and Other Revenues Recognized on a Budget Basis………………………………………………………… (63,898) Custodial Credit Risk – Deposits Deferred amounts on loan receivables……………………………………………………… (13,561) Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial Pre-paid lease revenue………………………………………………………………………… (1,460) institution, the City will not be able to recover its deposits or will not be able to recover collateral Nonspendable Fund Balance (Assets Reserved for Not Available for Appropriation)…… 20,501 securities that are in the possession of an outside party. The California Government Code, the City’s Fund Balance - GAAP basis…………………………………………………………… $ 328,006 investment policy and the Retirement System’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the following provision. The California Government Code requires that a financial institution secure General Fund budget basis fund balance as of June 30, 2011 is composed of the following: deposits made by state or local governmental units not covered by Federal Deposit Insurance Not available for appropriations: Corporation insurance by pledging government securities as collateral. The fair value of pledged Restricted Fund Balance: securities must equal at least 110% of the type of collateral authorized in California Government Rainy Day - Economic Stabilization Reserve……………………… $ 33,439 Code, Section 53651 (a) through (i) of the City’s deposits. The collateral must be held at the pledging Committed Fund Balance: bank’s trust department or another bank, acting as the pledging bank’s agent, in the City’s name. Budget Stabilization Reserve……………………………………… 27,183 Recreation and Parks Expenditure Saving Reserve …………… 6,248 (b) Investment Policies Assigned for Encumbrances…………………………………………… 57,846 Assigned for Appropriation Carryforward……………………………… 73,984 Treasurer’s Pool Assigned for Subsequent Years' Budgets: The City’s investment policy addresses the Treasurer’s safekeeping and custody practices with Budget Savings Incentive Program City-wide……………………… 8,684 financial institutions in which the City deposits funds, types of permitted investment instruments, and Salaries and benefits costs (MOU)………………………………… 7,151 the percentage of the portfolio which may be invested in certain instruments with longer terms to Subtotal……………………………………………………………… $ 214,535 maturity. The objectives of the policy, in order of priority, are safety, liquidity, and earning a market rate of return on investments. The City has established a Treasury Oversight Committee (Oversight Available for appropriations: Committee) as defined in the City Administrative Code section 10.80-3, comprised of various City Assigned for Litigation and Contingences……………………………… 44,900 officials, representatives of agencies with large cash balances, and members of the public, to monitor Assigned balance subsequently appropriated as part of and review the management of public funds maintained in the investment pool in accordance with the General Fund budget for use in fiscal year 2011-12…………… 159,390 Sections 27130 to 27137 of the California Government Code. The Treasurer prepares and submits an Unassigned - Available for future appropriations……………………… 9,061 investment report to the Mayor, the Board of Supervisors, members of the Oversight Committee and Subtotal……………………………………………………………… 213,351 the investment pool participants every month. The report covers the type of investments in the pool, maturity dates, par value, actual cost, and fair value. Fund Balance, June 30, 2011 - Budget basis……………………… $ 427,886 Although the California Government Code does not limit the amount of City funds that may be invested in federal agency instruments, the City’s investment policy requires that investments in federal agencies should not exceed 70 percent of the total portfolio at the time of purchase. The 60 61 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) investment policy also places maturity limits based on the type of security. Investments held by the Treasurer during the year did not include repurchase agreements or reverse repurchase agreements. If the Airport's needs so dictate, the Airport may sell the securities at any time prior to their maturities in the open market and use the proceeds of such sale for the permitted purposes of the applicable The table below identifies the investment types that are authorized by the City’s investment policy fund. The securities are recorded at their fair value as of June 30, 2011 and not at the guaranteed dated January 2011. The table also identifies certain provisions of the City’s investment policy that interest rate that the Airport will receive upon maturity. As of June 30, 2011, the accrued interest was address interest rate risk and concentration of credit risk. recorded in the interest receivable account. Maximum Maximum Employees’ Retirement System Maximum Percentage Investment in The Retirement System’s investments are invested pursuant to investment policy guidelines as Authorized Investment Type Maturity of Portolio One Issuer established by the Retirement Board. The objective of the policy is to maximize the expected return of U.S. Treasuries 5 years 100% 100% the fund at an acceptable level of risk. The Retirement Board has established percentage guidelines for types of investments to ensure the portfolio is diversified. Federal Agencies 5 years 70% * 30% Temporary Liquidity Guarantee Program (TLGP) 5 years 30% None Investment managers are required to diversify by issue, maturity, sector, coupon, and geography. State and Local Government Agency Obligations 5 years 20% 5% * Investment managers retained by the Retirement System follow specific investment guidelines and Public Time Deposits 13 months * None None are evaluated against specific market benchmarks that represent their investment style. Any Negotiable Certificates of Deposit None 30% None exemption from general guidelines requires approval from the Retirement Board. The Retirement System invests in securities with contractual cash flows, such as asset backed securities, commercial Bankers Acceptances 180 days 40% None mortgage backed securities and collateralized mortgage obligations. The value, liquidity and related Commercial Paper 270 days 25% 10% * income of these securities are sensitive to changes in economic conditions, including real estate Medium Term Notes 13 months * 15% 10% values, delinquencies or defaults, or both, and may be affected by shifts in the market’s perception of Repurchase Agreements 30 days * None None the issuers and changes in interest rates. Reverse Repurchase Agreements / Securities Lending45 days * None $75 million The investment policy permits investments in domestic and international debt and equity securities; Money Market Funds N/A None N/A real estate; securities lending; foreign currency contracts, derivative instruments, and alternative State of California Local Agency Investment Fund (LAIF)N/A Statutory None investments, which include investments in a variety of commingled partnership vehicles. * Represents restriction on which the City’s investment policy is more restrictive than the California Government Code. The Retirement System is not directly involved in repurchase or reverse repurchase agreements. The Treasurer also holds for safekeeping bequests, trust funds, and lease deposits for other City However, external investment managers retained by the Retirement System may employ repurchase departments. The bequests and trust funds consist of stocks and debentures. Those instruments are arrangements if the securities purchased or sold comply with the manager’s investment guidelines. valued at par, cost, or fair value at the time of donation. The Retirement System monitors the investment activity of its investment managers to ensure compliance with guidelines. In addition, the Retirement System’s securities lending cash collateral Other Funds separate account is authorized to use repurchase arrangements. As of June 30, 2011, $255 million (or 28.6% of cash collateral) consisted of such agreements. Other funds consist primarily of deposits and investments with trustees related to the issuance of bonds and to certain loan programs operated by the City. These funds are invested either in San Francisco Redevelopment Agency accordance with bond covenants and are pledged for payment of principal, interest, and specified capital improvements or in accordance with grant agreements and may be restricted for the issuance The investment policy of the Redevelopment Agency is governed by Article 2 of the California of loans. Government Code (Code). Investment of bond proceeds is limited to those investments permitted in the bond document or provided in the Code. The Agency’s Investment Policy is more restrictive than Airport’s Forward Purchase and Sale Agreements - Objective and Terms - The Airport's the California Government Code in the following areas: 1) reverse repurchase agreements, which independent Trustee invests a portion of the Airport's debt service fund deposits and debt service requires the specific approval of the Agency Commission; 2) commercial paper, which the maximum reserve funds according to three Forward Purchase and Sale Agreements (FPSAs), which lock in a maturity is 180 days; and 3) investment in corporate notes may not exceed 15% of the Agency’s guaranteed earnings rate on these investments of 3.450% - 4.329%. portfolio. All investments under the FPSAs are made with the intention that securities will be held to maturity, Certain investments of the Agency are in the Local Agency Investment Fund (LAIF). LAIF is and all are invested only in eligible securities pursuant to the California Government Code and as sponsored by the State Treasurer and prepares its market value report detailing the carrying cost and defined by the Airport’s 1991 Master Bond Resolution. The securities under the FPSAs always the estimated fair value for the entire pool. The Agency has used a multiplier provided by LAIF to mature in an amount equal to the par amount of Airport funds initially invested, plus accrued interest determine estimated fair values. In addition, the Agency has investments with trustees. These at the agreed upon guaranteed interest rate. These investments are scheduled to mature upon each investments are restricted by various bond covenants and are pledged for payment of principal, scheduled debt service payment date on the associated bonds. interest and specified capital improvements. The Trustee holds the securities on behalf of the Airport and the FPSAs have absolutely no rights, title or interest in the securities being sold to the Airport. Therefore, the Airport bears no counterparty risk associated with the investment provider. In the unlikely event the provider of the FPSAs would no longer exist or fail to perform, the Airport will have preserved its principal and can invest in alternative investments available at that time. 62 63 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (c) Investment Risks On August 5, 2011, Standard & Poor's ratings service downgraded the United States' long-term rating from AAA to AA+. As a consequence, Standard & Poor's subsequently downgraded all Standard & Interest Rate Risk Poor's-rated securities backed by the full faith and credit of the United States government, its Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of agencies and instrumentalities from AAA to AA+. As of June 30, 2011, the investments in the City an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair Treasury had a weighted average maturity of 843 days. value to changes in market interest rates. Information about the sensitivity to the fair values of the City’s investments to market interest rate fluctuations is provided by the following tables, which shows As a means of limiting its exposure to fair value losses arising from rising interest rates, the Agency’s the distribution of the City’s investments by maturity. The Employees’ Retirement System’s interest investment policy limits investments to securities with short maturities, such as the following: rate risk information is discussed in section (e) of this note. Investment Maturities The maximum maturity of commercial paper is 180 days. Investment in commercial paper will Less than 1 to 5 comprise not more than 25% of the Agency’s portfolio. S & P Rating Fair Value 1 year years 5 to 10 years Primary Government: The maximum maturity of bankers’ acceptance is 180 days. Investments in City Treasury: The maximum maturity of corporate notes is five years. Investment in corporate notes may U.S. Treasury Notes AAA $ 452,805 $ 150,390 $ 302,415 $ - not exceed 15% of the Agency’s portfolio. U.S. Agencies - Coupon AAA 2,653,328 167,938 2,485,390 - Temporary Liquidity Guarantee Program AAA 731,651 604,194 127,457 - Negotiable certificates of deposits A-1/A+ 175,176 150,078 25,098 - Credit Risk Commercial paper A-1 49,978 49,978 - - Public time deposits n/a 10,100 10,100 - - Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the Money Market Mutual funds AAAm 2,283 2,283 - - investment. This is measured by the assignment of a rating by a nationally recognized statistical Less: Treasure Island Development Authority - rating organization. The Standard & Poor’s rating for each of the investment types are shown in the Investments with City Treasury n/a (2,648) (2,648) - - table above. Subtotal investments in City Treasur y 4,072,673 $ 1,132,313 $ 2,940,360 $ - As a means of limiting its exposure to credit risk, the Agency’s investment policy limits investments to Investments Outside City Treasury: high-quality securities with an investment grade of A-1/P-1 or better for commercial paper and AAAm (Governmental and Business - Type) for money market mutual funds, as well as maintaining a portfolio diversified by type and issuer. U.S. Treasury Notes AAA 120,193 $ 71,622 $ 19,936 $ 28,635 U.S. Agencies - Coupon AAA 56,485 25,573 30,912 - Custodial Credit Risk for Investments U.S. Agencies - Discount AAA 542,329 413,231 129,098 - Corporate notes AAA 21,322 21,322 - - Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a Money Market Mutual funds AAAm 190,083 190,083 - - Guranteed Investment Contract A+ 15,958 - 15,958 - transaction, the City will not be able to recover the value of its investment or collateral securities that Commercial Paper A-1 13,239 13,239 - - are in the possession of another party. The California Government Code and the City’s investment Certificate of Deposit n/a 183 183 - - policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk Subtotal investments outside City Treasury 959,792 $ 735,253 $ 195,904 $ 28,635 for investments; however, it is the practice of the City Treasurer that all investments are insured, registered or held by the Treasurer’s custodial agent in the City’s name. Employees' Retirement System investments 16,483,213 Total Primary Government 21,515,678 Concentration of Credit Risk The City’s investment policy contains no limitations on the amount that can be invested in any one Component Units: Redevelopment Agency: issuer beyond that stipulated by the California Government Code and/or its investment policy. U.S. U.S. Treasury Bills N/A 54,992 $ 54,992 $ -$ - Treasury and agency securities explicitly guaranteed by the U.S. government are not subject to single U.S. Agencies - Discount AAA 61,698 61,698 - - issuer limitation. Commercial paper A-1 50,965 50,965 - - State Local Agency Investment Fund n/a 10,507 10,507 - - Money market mutual funds AAAm 213,352 213,352 - - As of June 30, 2011, the City Treasurer has investments in U.S. Agencies that represent 5% or more of the total Pool in the following: Subtotal with Redevelopment Agency 391,514 $ 391,514 $ - $ - Treasure Island Development Authority: Federal Home Loan Bank 19.6% Investments with City Treasury n/a 2,648 $ 2,648 $ - $ - Federal National Mortgage Association 18.5% Subtotal Treasure Island Development Authorit Federal Farm Credit Bank 13.3% y 2,648 $ 2,648 $ - $ - Federal Home Loan Mortgage Corporation 11.2% Total Components Units 394,162 General Electric Capital Corp. (TLGP) 5.2% Total Investments $ 21,909,840 In addition, the following major funds hold investments with trustees that represent 5% or more of the funds’ investments outside City Treasury as of June 30, 2011: Airport: Federal Home Loan Mortgage Corporation 56.4% Federal Home Loan Bank 30.4% Federal National Mortgage Association 13.2% 64 65 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Water Enterprise: (e) Retirement System Investments Federal Home Loan Mortgage Corporation 27.4% The Retirement System’s investments as of June 30, 2011 are summarized as follows: Federal National Mortgage Association 11.1% Fixed Income Investments: Hetch Hetchy: Short-term bills and notes $ 726,811 Federal National Mortgage Association 30.4% Federal Home Loan Bank 10.5% Debt securities: Federal Home Loan Mortgage Corporation 8.2% U.S. Government and agencies 1,050,322 Other debt securities 3,218,676 San Francisco General Hospital: Subtotal debt securities 4,268,998 Federal Home Loan Bank 20.5% Total fixed income investments 4,995,809 Wastewater Enterprise: Equity securities: Federal Home Loan Mortgage Corporation 42.9% Domestic 4,009,762 International 3,357,059 Federal National Mortgage Association 17.4% Federal Home Loan Bank 6.0% Total equity securities 7,366,821 Alternative investments 1,977,187 Redevelopment Agency: Real estate holdings 1,266,863 Federal Home Loan Bank 14.9% Foreign currency contracts, net (16,046) Federal Home Loan Mortgage Corporation 14.1% Investment in lending agent's short-term investment pool 892,579 General Electric Capital Corporation 9.4% Archer Daniels Midland 9.4% Total Retirement System Investments $ 16,483,213 Colgate-Palmolive Company 5.2% Interest Rate Risk (d) Treasurer’s Pool The Retirement System does not have a specific policy to manage interest rate risk. The following represents a condensed statement of net assets and changes in net assets for the Treasurer’s Pool as of June 30, 2011: Below is a table depicting the segmented time distribution for fixed income investments based upon Statement of Net Assets the expected maturity (in years) as of June 30, 2011: Net assets held in trust for all pool participants ……… $ 4,584,949 Less than 1 Investment Type Fair Value year 1-5 years 6-10 years 10+ years Equity of internal pool participants …………………… 4,136,551 Asset Backed Securities $ 144,025 $ - $ 27,794 $ 7,512 $ 108,719 Equity of external pool participants …………………… 448,398 Bank Loans 53,162 - 22,652 30,181 329 Total equity …………………………………………… $ 4,584,949 Collateralized Bonds 13,654 - - 676 12,978 Commercial Mortgage-Backed 593,184 26,063 100,307 34,929 431,885 Statement of Changes in Net Assets Commingled and other fixed income funds 284,805 284,805 - - - Net assets at July 1, 2010 ……………………………… $ 4,255,195 Corporate Bonds 1,552,314 614,940 381,071 433,703 122,600 Corporate Convertible Bonds 219,394 7,895 120,499 21,673 69,327 Net change in investments by pool participants ……… 329,754 Government Agencies 1,062,740 57,959 631,438 116,353 256,990 Net assets at June 30, 2011 ……………………… $ 4,584,949 Government Bonds 102,322 30,709 28,441 14,362 28,810 Government Mortgage-Backed Securities 6,198 - - 2,844 3,354 The following provides a summary of key investment information for the Treasurer’s Pool as of Index Linked Government Bonds 16,983 - - 5,662 11,321 June 30, 2011: Invested Cash 473,110 473,110 - - - Type of Investment Rates Maturities Par Value Value Mortgages 93 -93 -- U.S. government securities …………………… 0.42% - 2.00% 08/31/11 - 11/30/15450,000 $ $ 452,805 Municipal/Provincial Bonds 6,878 - 3,801 3,077 - Non-Government Backed Collateralized Federal agencies …………………………………0.25% - 2.53% 08/25/11 - 06/06/16 2,632,445 2,653,328 Mortgage Obligations 211,525 - 2,742 5,198 203,585 Temporary Liquidity Guarantee Program ………0.24% - 2.07% 07/15/11 - 12/21/12 721,000 731,651 Options (1,419) (225) (1,410) 216 - Negotiable certificates of deposits ………………0.25% - 0.75% 09/06/11 - 09/04/12 175,000 175,176 Other Fixed Income 6,562 (34) 19 - 6,577 Commercial paper ……………………………… 0.49% 09/19/11 50,000 49,978 Short Term Bills and Notes 38,887 38,887 - - - Public time deposits …………………………… 0.70% - 0.75% 07/31/11 - 05/18/12 10,100 100 10, Short Term Investment Funds 214,813 214,813 - - - Money market mutual funds………………… … 0.12% 07/01/11 2,283 2,283 Swaps (3,421) (5) (1,887) (749) (780) $ 4,040,828 4,075,321 Total $ 4,995,809 $ 1,748,917 $ 1,315,560 $ 675,637 $ 1,255,695 Carrying amount of deposits in Treasurer's Pool …………………………………………………………………509,628 Total cash and investments in Treasurer's Pool ……………………………………………………………………$ 4,584,949 66 67 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Credit Risk Foreign Currency Risk Fixed income investment managers typically are limited within their portfolios to no more than 5% The Retirement System’s exposure to foreign currency risk derives from its positions in foreign exposure in any single security, with the exception of United States Treasury and government agency currency denominated cash, equities, fixed income, alternative investments, real estate, and foreign securities. The Retirement System’s credit risk policy is embedded in the individual investment currency contracts. The Retirement System’s investment policy allows international managers to manager agreements as prescribed and approved by the Retirement Board. enter into foreign exchange contracts, which are limited to hedging currency exposure existing in the portfolio. Investments are classified and rated using the lower of (1) Standard & Poor’s (S&P) rating or (2) Moody’s Investors Service (Moody’s) rating corresponding to the equivalent S&P rating. If only a The Retirement System’s net exposure to foreign currency risk as of June 30, 2011 is as follows: Moody’s rating is available, the rating equivalent to S&P is used for the purpose of this disclosure. Foreign The following table illustrates the Retirement System’s exposure to credit risk as of June 30, 2011. Fixed Alternative Currency Investments issued or explicitly guaranteed by the U.S. government of $774.7 million as of Currency Cash Equities Income Investments Real Estate Contracts Total June 30, 2011 are not considered to have credit risk and are excluded from the table below. Argentine peso $ - $ - $ - $ - $ - $ 9,146 $ 9,146 Australian dollar (227) 102,352 23,699 5,834 - 32,067 163,725 Brazilian real 2 54,276 30,020 - - 123,802 208,100 Fair Value as a (45,149) 406,921 British pound sterling 3,200 448,242 - 628 - Credit Rating Fair Value Percentage of Total (100,423) (4,548) Canadian dollar 401 71,601 23,873 - - AAA $ 346,110 8.2% 71,778 71,778 Chilean peso - - - - - 46,027 46,027 AA 192,376 4.6% Chinese yuan renminbi - - - - - 6,527 6,527 A 266,317 6.3% Colombian peso - - - - - (91,329) (89,504) Czech koruna - 1,825 - - - BBB 522,638 12.4% (3,540) 26,345 Danish krone 183 29,702 - - - BB 192,110 4.6% (184,386) 797,269 Euro 17,945 715,752 (1,340) 249,298 - 918 233,071 B 289,149 6.9% Hong Kong dollar 2,997 229,156 - - - 41,364 45,363 CCC 154,317 3.7% Hungarian forint - 3,999 - - - - 153,851 153,851 CC 12,983 0.3% Indian rupee - - - - Indonesian rupiah 2,187 15,713 - - - 59,951 77,851 C 7,920 0.2% Japanese yen 1,740 379,369 - - 66,776 (242,410) 205,475 D 6,406 0.2% Kazakhstan tenge - - - - - 5,622 5,622 Not Rated 2,230,769 52.6% Malaysian ringgit 75 14,255 - - - 3,072 17,402 Mexican peso 6,927 12,454 28,105 - - 21,303 68,789 Total $ 4,221,095 100.0% New Israeli shekel 23 3,390 - - - 4,206 7,619 N ew Romanian Leu 2,322 - 690 - - 8,230 11,242 New Taiwan dollar 1,039 37,857 - - - (50,743) (11,847) The securities listed as “Not Rated” include short-term investment funds, U.S. government agency New Zealand dollar - - 5,656 - - 31,496 37,152 securities, and investments that invest primarily in rated securities, such as comingled funds and Norwegian krone 199 13,468 - - - 123,927 137,594 money market funds, but do not themselves have a specific credit rating. Excluding these securities, Peruvian nuevo sol - - - - - 45,720 45,720 the “Not Rated” component of credit would be approximately 9.8% for 2011. Philippine peso - 114 - - - 7,838 7,952 Polish zloty - 6,224 14,404 - - 9,038 29,666 Concentration of Credit Risk Russian ruble (new) - - - - - 1,864 1,864 Singapore dollar 203 37,706 - - - 23,363 61,272 Concentration of credit risk is the risk of loss attributed to the magnitude of the Retirement System’s South African rand - 35,173 - - - 84,860 120,033 investment in a single issuer. Guidelines for investment managers typically restrict a position to South Korean won 439 121,111 - - - 87,413 208,963 become no more than 5% (at fair value) of the investment manager’s portfolio. Securities issued or Swedish krona (328) 46,352 - - - 133,558 179,582 explicitly guaranteed by the U.S. government or its agencies are exempt from this limit. Swiss franc (428) 159,775 - - - (126,488) 32,859 Thai baht 633 20,990 - - - 1,277 22,900 Turkish lira - 10,685 8,097 - - 5,278 24,060 As of June 30, 2011, the Retirement System had no investments of a single issuer that equal or United Arab exceeded 5% of total Retirement System net assets. Emirates dirham 80 - 4,018 - - - 4,098 Total $ 39,612 $ 2,571,541 $ 137,222 $ 255,760$ 66,776 $ 299,028 $ 3,369,939 Custodial Credit Risk The Retirement System does not have a specific policy addressing custodial credit risk for investments, but investments are generally insured, registered, or held by the Retirement System or its agent in the Retirement System’s name. As of June 30, 2011, $77.1 million of the Retirement System’s investments were exposed to custodial credit risk because they were not insured or registered in the name of the Retirement System, and were held by the counterparty’s trust department or agent but not in the Retirement System’s name. Cash received as securities lending collateral is invested in a separately managed account using investment guidelines approved by the Retirement System and held with the System’s custodial bank. Securities in this separately managed account are not exposed to custodial credit risk. 68 69 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Derivative Instruments Counterparty Credit Risk As of June 30, 2011, the derivative instruments held by the Retirement System are considered The Retirement System is exposed to credit risk on derivative instruments that are in asset positions. investments and not hedges for accounting purposes. The gains and losses arising from this activity are recognized as incurred in the statement of changes in fiduciary net assets. All investment Custodial Credit Risk derivatives discussed below are included within the investment risk schedules, which precede this The custodial credit risk disclosure for exchange traded derivative instruments is made in accordance subsection. Investment derivative instruments are disclosed separately to provide a comprehensive with the custodial credit risk disclosure requirements of GASB Statement No. 40. At June 30, 2011, and distinct view of this activity and its impact on the overall investment portfolio. all of the Retirement System’s investments in derivative instruments are held in the Retirement System’s name and are not exposed to custodial credit risk. The fair value of the exchange traded derivative instruments, such as futures, options, rights and warrants are based on quoted market prices. The fair values of forward foreign currency contracts are Interest Rate Risk determined using a pricing service, which uses published foreign exchange rates as the primary source. The fair values of swaps are determined by the Retirement System’s investment managers The table below describes the maturity periods of the derivative instruments exposed to interest rate based on quoted market prices of the underlying investment instruments. risk at June 30, 2011. Less than 6-10 10+ The table below presents the notional amounts, the fair value amounts, and the related net Derivative Type / Contracts Fair Value 1 year 1-5 years years years appreciation (depreciation) in the fair value of derivative instruments that were outstanding at Options June 30, 2011: Interest Rate Contracts $ (193) $ (193) $ - $ - $ - Other Contracts (1,336) (32) (1,520) 216 - Net Appreciation Swaps Notional (Depreciation) in Credit Contracts (2,148) - (1,886) (602) 340 Derivative Type / Contracts Amount Fair Value Fair Value Interest Rate Contracts (1,267) - - (147) (1,120) Forwards Other Contracts (5) (5) - - - Foreign Exchange Contracts $ - $ (16,042)$ (16,042) Total $ (4,949) $ (230) $ (3,406) $ (533) $ (780) Other Contracts - 214 214 Futures The following table details the reference rate, notional amount, and fair value of interest rate swaps at Equity Contracts 1 - - June 30, 2011 that are highly sensitive to changes in interest rates: Interest Rate Contracts (1) - - Options Notional Foreign Exchange Contracts 2,837 110 (301) Investment Type Reference Rate Value Fair Value Interest Rate Contracts (1) (193) 99 Interest Rate Swaps Receiving variable 3 month LIBOR, paying fixed (3.6%) $ 3,100 $ (147) Interest Rate Swaps Receiving variable 3 month LIBOR, paying fixed (4.3%) 12,820 (1,120) Other Contracts (40,080) (1,336) 62 $ 15,920 $ (1,267) Swaps Total Credit Contracts 130,028 (2,148) 220 Interest Rate Contracts 15,920 (1,267) (1,267) Other Contracts 6 (5) 21 Rights/Warrants Equity Contracts 877 shares 4,238 (731) Total $ (16,429) $ (17,725) All investment derivatives are reported as investments at fair value in the statement of fiduciary net assets. Rights and warrants are reported in equity securities. Foreign exchange contracts are reported in foreign currency contracts, which also include spot contracts that are not derivatives. All other derivative contracts are reported in debt securities. All changes in fair value are reported as net appreciation (depreciation) in fair value of investments in the statements of changes in fiduciary net assets. 70 71 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Foreign Currency Risk Currency Management Program At June 30, 2011, the Retirement System is exposed to foreign currency risk on its investments in The Retirement System’s currency management program is managed by three investment managers. forwards and swaps denominated in foreign currencies. Below is the derivative instruments foreign The objective of the currency management program is to produce a risk-adjusted return of currency risk analysis as of June 30, 2011: approximately 100 basis points. The Retirement System’s international equity managers do not actively manage the underlying currency risk. Currency risk can be reduced through an active Currency Forwards Swaps Total currency management program. Argentine peso $ (3) - $ (3) Australian dollar (3,466) - (3,466) Each currency manager manages currency risk through foreign exchange spot and forward contracts, Brazilian real (5,687) - (5,687) and currency options. Only international equities are subject to the currency management program. British pound sterling 2,152 - 2,152 The Retirement System’s international fixed income currency exposure is actively managed by four Canadian dollar (2,111) - (2,111) developed market bond managers and two emerging market bond managers. All four developed Chilean peso (445) - (445) bond managers have discretion to invest in U.S. or international developed markets. Chinese yuan renminbi (101) - (101) As of June 30, 2011, the Retirement System’s allocation to assets managed by international equities Colombian peso (2,342) - (2,342) managers was primarily denominated in foreign currencies and totaled $3.6 billion, which represented Czech koruna (2,664) - (2,664) 23.3% of the Retirement System’s fiduciary net assets. For the year ended June 30, 2011, the Danish krone (28) - (28) currency overlay program lost $1.7 million or 0.05% of the international equity portfolio (including Euro (7,914) (1,340) (9,254) cash and other assets) and 0.01% of the Retirement System’s average total portfolio value. Hungarian forint (1,895) - (1,895) Indian rupee (748) - (748) Securities Lending Indonesian rupiah 26 - 26 The Retirement System lends U.S. government obligations, domestic and international bonds, and Japanese yen (9,612) - (9,612) equities to various brokers with a simultaneous agreement to return collateral for the same securities Malaysian ringgit (440) - (440) plus a fee in the future. The securities lending agent manages the securities lending program and Mexican peso (1,020) - (1,020) receives securities and cash as collateral. Cash and non-cash collateral is pledged at 102% and New Israeli shekel (1,348) - (1,348) securities at 105% of the fair value of domestic securities and international securities lent, New Romanian leu (16) - (16) respectively. There are no restrictions on the amount of securities that can be lent at one time. New Zealand dollar (7,645) - (7,645) However, starting in the year ended June 30, 2009, the Retirement System engaged in a systematic reduction of the value of securities on loan with a target of no more than ten percent (10%) of total Norwegian krone (2,870) - (2,870) fund assets on loan at anytime. The term to maturity of the loaned securities is generally not matched Peruvian nuevo sol (1,666) - (1,666) with the term to maturity of the investment of the corresponding collateral. Philippine peso 112 - 112 Polish zloty (1,258) - (1,258) The Retirement System does not have the ability to pledge or sell collateral securities unless a Russian ruble (new) (1,112) - (1,112) borrower defaults. The securities collateral is not reported on the statement of fiduciary net assets. As Singapore dollar (966) - (966) of June 30, 2011, the Retirement System has no credit risk exposure to borrowers because the South African rand (3,331) - (3,331) amounts the Retirement System owes them exceed the amounts they owe the Retirement System. South Korean won (983) - (983) As with other extensions of credit, the Retirement System may bear the risk of delay in recovery or of Swedish krona (601) - (601) rights in the collateral should the borrower of securities fail financially. In addition, the lending agent indemnifies the Retirement System against all borrower defaults. Swiss franc (11,817) - (11,817) Taiwan dollar (1,110) - (1,110) As of June 30, 2011, the Retirement System lent $1.18 billion in securities and received collateral of Thai baht (10) - (10) $0.89 billion and $0.33 billion in cash and securities, respectively, from borrowers. The cash collateral Turkish lira 1,945 - 1,945 is invested in a separately managed account by the lending agent using investment guidelines Total (68,974)$ $ (1,340) $ (70,314) approved by the Retirement System. Due to the decline in the fair value of assets held in the separately managed account, the Retirement System’s invested cash collateral was valued at $0.89 billion. The net unrealized loss of $0.9 million is presented as part of the net depreciation in fair value Contingent Features of investments in the statement of changes in the fiduciary net assets. The Retirement System is At June 30, 2011, the Retirement System held no positions in derivatives containing contingent exposed to investment risk including the possible loss of principal value in the separately managed features. securities lending account due to the fluctuation in the fair value of assets held by the account. 72 73 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The Retirement System’s securities lending transactions as of June 30, 2011, are summarized in the Investments in Real Estate Holdings following table: Real estate investments represent the Retirement System’s interests in real estate limited Fair Value of Fair Value of partnerships. The changes in these investments during the year ended June 30, 2011 are Loaned Cash Securities summarized as follows: Security Type Securities Collateral Collateral Securities Loaned for Cash Collateral: Investments: International Equities $ 106,502 $ 111,137 $ - Beginning of the year $ 1,009,001 International Corporate Fixed Income 1,114 1,179 - Capital investments 108,461 International Government Fixed Income 2,801 3,041 - Equity in net earnings 66,243 U.S. Government Agencies 3,961 4,050 - Net appreciation in fair value 144,335 U.S. Corporate Fixed Income 202,818 206,814 - U.S. Equities 410,492 418,153 - Capital distributions (61,177) U.S. Government Fixed Income 146,004 149,083 - End of the year $ 1,266,863 Securities Loaned with Non-Cash Collateral: (6) PROPERTY TAXES International Equities 264,002 - 286,243 International Government Fixed Income 9,174 - 9,762 The City is responsible for assessing, collecting, and distributing property taxes in accordance with enabling state law. Property taxes are levied on both real and personal property. Liens for secured U.S. Corporate Fixed Income 1,328 - 1,352 st U.S. Equities 687 - 698 property taxes attach on January 1 preceding the fiscal year for which taxes are levied. Secured U.S. Government Fixed Income 27,040 - 27,615 property taxes are levied on the first business day of September and are payable in two equal installments: the first is due on November 1st and delinquent with penalties after December 10th; the Total $ 1,175,923 $ 893,457 $ 325,670 second is due February 1st and delinquent with penalties after April 10th. Secured property taxes that are delinquent and unpaid as of June 30th are subject to redemption penalties, costs, and interest when paid. If not paid at the end of five years, the secured property may be sold at public auction and The following table presents the segmented time distribution for the reinvested cash collateral account the proceeds used to pay delinquent amounts due. Any excess is remitted, if claimed, to the taxpayer. based upon the expected maturity (in years) as of June 30, 2011. Unsecured personal property taxes do not represent a lien on real property. Those taxes are levied on January 1st and become delinquent with penalties after August 31st. Supplemental property tax Le ss tha n 1 assessments associated with changes in the assessed valuation due to transfer of ownership in Investment Type Fair Value year 1 - 5 years property or upon completion of new construction are levied in two equal installments and have Asset Backed Securities $ 43,777 $ 25,566 $ 18,211 variable due dates based on the date the bill is mailed. Commercial Paper 4,999 4,999 - Floating Rate Notes 39,257 39,257 - Since the passage of California’s Proposition 13, beginning with fiscal year 1978-1979, general Government Agencies 89,606 78,737 10,869 property taxes are based either on a flat 1% rate applied to the adjusted 1975-1976 value of the Negotiable Certificates of Deposits 292,043 292,043 - property and new construction value added after the 1975-1976 valuation or on a flat 1% rate of the Repurchase Agreements 255,000 255,000 - sales price of the property for changes in ownership. Taxable values on properties (exclusive of Short Term Investment Funds 167,897 167,897 - increases related to sales and construction) can rise or be adjusted at the lesser of 2% per year or Total $ 892,579 $ 863,499 $ 29,080 the inflation rate as determined by the Board of Equalization’s California Consumer Price Index. The Retirement System’s exposure to credit risk in its reinvested cash collateral account as of The Proposition 13 limitations on general property taxes do not limit taxes levied to pay the interest June 30, 2011 is as follows: and redemption charges on any indebtedness approved by the voters prior to June 6, 1978 (the date Fair Value as a of passage of Proposition 13). Proposition 13 was amended in 1986 to allow property taxes in excess Credit Rating Fair Value Percentage of Total of the 1% tax rate limit to fund general obligation bond debt service when such bonds are approved by two-thirds of the local voters. In 2000, California voters approved Proposition 39, which set the AAA $ 123,060 13.8% approval threshold at 55% for school facilities-related bonds. These “override” taxes for debt service AA 131,095 14.7% amounted to approximately $172.9 million for the year ended June 30, 2011. A 389,921 43.7% BBB 10,583 1.2% Taxable valuation for the year ended June 30, 2011 (net of non-reimbursable exemptions, BB 6,581 0.7% reimbursable exemptions, and tax increment allocations to the Redevelopment Agency) was B 6,632 0.7% approximately $147 billion, a decrease of 3%. The secured tax rate was $1.164 per $100 of assessed CCC 1,810 0.2% valuation. After adjusting for a State mandated property tax shift to schools, the tax rate is comprised Not Rated 222,897 25.0% of: $0.65 for general government, $0.35 for other taxing entities including the San Francisco Unified School District, San Francisco Community College District, the Bay Area Air Quality Management Total $ 892,579 100.0% District and the Bay Area Rapid Transit District, and also $0.164 for bond debt service. Delinquencies in the current year on secured taxes and unsecured taxes amounted to 1.95% and 9.83%, respectively, of the current year tax levy, for an average delinquency rate of 2.46% of the current year tax levy. 74 75 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) As established by the Teeter Plan, the Controller allocates to the City and other agencies 100% of the Business-type Activities: secured property taxes billed but not yet collected by the City; in return, as the delinquent property taxes and associated penalties and interest are collected, the City retains such tax amounts in the Capital asset activity of the business enterprises for the year ended June 30, 2011, was as follows: Agency Fund. To the extent the Agency Fund balances are higher than required; transfers may be made to benefit the City’s General Fund on a budgetary basis. The balance of the tax loss reserve as San Francisco International Airport Balance Balance of June 30, 2011 was $17.3 million, which is included in the Agency Fund for reporting purposes. The July 1, June 30, City has funded payment of accrued and current delinquencies, together with the required reserve, 2010 Increases Decreases 2011 from interfund borrowing. Capital assets, not being depreciated: Land...... …………… $ 2,787 $ - $ - $ 2,787 V During fiscal year 2009 10, the California state legislature passed Proposition 1A that allows the State Construction in progress...... 333,312 261,784 (511,266) 83,830 of California to borrow 8% of the amount of fiscal year 2008-09 local property tax revenue, including Total capital assets, not being depreciated...... 336,099 261,784 (511,266) 86,617 those property taxes associated with the inVlieu motor vehicle license fee, the triple flip in lieu sales tax, and supplemental property tax, apportioned to cities, counties and special districts (excluding Capital assets, being depreciated: redevelopment agencies). The state is required to repay this borrowing plus interest by June 30, Facilities and improvements...... 5,142,832 498,580 (1,034) 5,640,378 2013. After repayment of this initial borrowing, the California legislature may consider only one Machinery and equipment...... 85,970 13,486 (1,883) 97,573 additional borrowing within a tenVyear period. Intangible assets...... 141,086 - - 141,086 Total capital assets, being depreciated...... 5,369,888 512,066 (2,917) 5,879,037 As authorized, the Proposition 1A Securitization Program was instituted by the California Statewide Communities Development Authority (“California Communities”), a joint powers authority sponsored Less accumulated depreciation for: by the California State Association of Counties and the League of California Cities, to enable local Facilities and improvements...... 1,850,880 147,757 (985) 1,997,652 governments to sell their Proposition 1A receivables to California Communities. The City participated Machinery and equipment...... 55,229 5,218 (1,871) 58,576 in the securitization program. The receivable sale proceeds and the amount of borrowing pertaining to Intangible assets...... 88,087 7,075 - 95,162 the City was $89.2 million. Total accumulated depreciation...... 1,994,196 160,050 (2,856) 2,151,390 Total capital assets, being depreciated, net...... 3,375,692 352,016 (61) 3,727,647 (7) CAPITAL ASSETS Capital assets, net…………………………………… $ 3,711,791 $ 613,800 $ (511,327)$ 3,814,264 Primary Government San Francisco Water Enterprise Capital asset activity of the primary government for the year ended June 30, 2011 was as follows: Balance Balance Governmental Activities: July 1, June 30, Balance Balance 2010 Increases Decreases 2011 July 1, June 30, Capital assets, not being depreciated: 2010 Increases * Decreases * 2011 Land...... …………… $ 17,707 $ 1,105 $ - $ 18,812 Capital assets, not being depreciated: Intangible assets ...... 679 - - 679 Land...... ……………$ 155,512$ 1,800 $ (4)$ 157,308 Construction in progress...... 787,367 659,087 (217,880) 1,228,574 Intangible assets…………………………………………… 16,047 11,379 (1,951) 25,475 Total capital assets, not being depreciated...... 805,753 660,192 (217,880) 1,248,065 Construction in progress...... 313,127 221,201 (169,087) 365,241 Capital assets, being depreciated: Total capital assets, not being depreciated…………… 484,686 234,380 (171,042) 548,024 Facilities and improvements...... 1,548,575 196,524 - 1,745,099 Machinery and equipment...... 195,639 29,939 (5,658) 219,920 Capital assets, being depreciated: Intangible assets ...... 3,973 5,512 - 9,485 Facilities and improvements...... 3,003,204 78,471 (4,957) 3,076,718 Total capital assets, being depreciated...... 1,748,187 231,975 (5,658) 1,974,504 Machinery and equipment...... 331,024 20,191 (2,927) 348,288 Infrastructure...... ……………...... ……… 363,323 78,165 (13,238) 428,250 Less accumulated depreciation for: Intangible assets…………………………………………… 104 2,217 - 2,321 Facilities and improvements...... 584,860 46,552 - 631,412 Total capital assets, being depreciated……………… 3,697,655 179,044 (21,122) 3,855,577 Machinery and equipment...... 104,727 11,227 (5,658) 110,296 Intangible assets ...... -973 -973 Less accumulated depreciation for: Total accumulated depreciation...... 689,587 58,752 (5,658) 742,681 Facilities and improvements...... 678,570 59,112 (2,165) 735,517 Total capital assets, being depreciated, net...... 1,058,600 173,223 - 1,231,823 Machinery and equipment...... 278,520 19,497 (2,916) 295,101 Capital assets, net…………………………………… $ 1,864,353 $ 833,415 $ (217,880)$ 2,479,888 Infrastructure...... ……… 47,417 12,424 (1,510) 58,331 Intangible assets…………………………………………… 12 190 - 202 Total accumulated depreciation………………………… 1,004,519 91,223 (6,591) 1,089,151 Total capital assets, being depreciated, net………… 2,693,136 87,821 (14,531) 2,766,426 Governmental activities capital assets, net……………$ 3,177,822 $ 322,201 $ (185,573)$ 3,314,450 * The increases and decrease include transfers of categories of capital assets from construction in progress to depreciable categories. 76 77 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Hetch Hetchy Water and Power San Francisco General Hospital Medical Center Balance Balance Balance Balance July 1, June 30, July 1, June 30, 2010 Increases Decreases 2011 2010 Increases Decreases 2011 Capital assets, not being depreciated: Capital assets, not being depreciated: Land...... …………… $ 4,665 $ - $ - $ 4,665 Land...... …………… $ 542 $ - $ - $ 542 Intangible assets...... 1,437 - - 1,437 Construction in progress...... 16,632 9,104 (679) 25,057 Construction in progress...... 35,425 32,932 (8,597) 59,760 Total capital assets, not being depreciated...... 17,174 9,104 (679) 25,599 Total capital assets, not being depreciated...... 41,527 32,932 (8,597) 65,862 Capital assets, being depreciated: Capital assets, being depreciated: Facilities and improvements...... 136,871 1,467 - 138,338 Facilities and improvements...... 455,676 4,001 (1,541) 458,136 Machinery and equipment...... 58,196 1,921 - 60,117 Machinery and equipment...... 69,930 6,688 (2,293) 74,325 Total capital assets, being depreciated...... 195,067 3,388 - 198,455 Intangible assets ...... 45,604 111 - 45,715 Total capital assets, being depreciated...... 571,210 10,800 (3,834) 578,176 Less accumulated depreciation for: Facilities and improvements...... 107,914 3,406 - 111,320 Machinery and equipment...... 51,998 1,999 - 53,997 Less accumulated depreciation for: Total accumulated depreciation...... Facilities and improvements...... 275,640 9,578 - 285,218 . 159,912 5,405 - 165,317 Machinery and equipment...... 34,287 3,669 (54) 37,902 Total capital assets, being depreciated, net...... 35,155 (2,017) - 33,138 Intangible assets ...... 17,040 460 - 17,500 Capital assets, net…………………………………… $ 52,329 $ 7,087 $ (679) $ 58,737 Total accumulated depreciation...... 326,967 13,707 (54) 340,620 Total capital assets, being depreciated, net...... 244,243 (2,907) (3,780) 237,556 Capital assets, net…………………………………… $ 285,770 $ 30,025 $ (12,377) $ 303,418 San Francisco Wastewater Enterprise Balance Balance July 1, June 30, Municipal Transportation Agency 2010 Increases Decreases 2011 Balance Balance Capital assets, not being depreciated: July 1, June 30, Land...... …………… $ 21,210 $ - $ - $ 21,210 2010 Increases Decreases 2011 Intangible assets ...... 1,153 1,893 - 3,046 Capital assets, not being depreciated: Construction in progress...... 78,473 84,611 (55,908) 107,176 Land...... …………… $ 26,245 $ 256 $ - $ 26,501 Total capital assets, not being depreciated...... 100,836 86,504 (55,908) 131,432 Construction in progress...... 181,306 175,378 (70,152) 286,532 Total capital assets, not being depreciated...... 207,551 175,634 (70,152) 313,033 Capital assets, being depreciated: Facilities and improvements...... 2,143,113 49,085 - 2,192,198 Capital assets, being depreciated: Machinery and equipment...... 57,876 5,391 (23) 63,244 Intangible assets ...... Facilities and improvements...... 605,761 10,260 (258) 615,763 . 3,434 - - 3,434 Machinery and equipment...... 1,193,521 14,171 (2,464) 1,205,228 Total capital assets, being depreciated...... 2,204,423 54,476 (23) 2,258,876 Infrastructure...... 1,117,666 47,469 - 1,165,135 Total capital assets, being depreciated...... 2,916,948 71,900 (2,722) 2,986,126 Less accumulated depreciation for: Facilities and improvements...... 879,091 38,599 - 917,690 Less accumulated depreciation for: Machinery and equipment...... 28,556 2,931 (23) 31,464 Facilities and improvements...... 200,850 13,571 (2) 214,419 Intangible assets ...... - 687 - 687 Machinery and equipment...... 582,485 70,569 (2,046) 651,008 Total accumulated depreciation...... 907,647 42,217 (23) 949,841 Infrastructure...... 372,207 32,447 - 404,654 Total accumulated depreciation...... Total capital assets, being depreciated, net...... 1,296,776 12,259 - 1,309,035 . 1,155,542 116,587 (2,048) 1,270,081 Capital assets, net…………………………………… $ 1,397,612 $ 98,763 $ (55,908) $ 1,440,467 Total capital assets, being depreciated, net...... 1,761,406 (44,687) (674) 1,716,045 Capital assets, net…………………………………… $ 1,968,957 $ 130,947 $ (70,826) $ 2,029,078 78 79 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Port of San Francisco Other Fund - San Francisco Market Corporation Balance Balance Balance Balance July 1, June 30, July 1, June 30, 2010 Increases Decreases 2011 2010 Increases Decreases 2011 Capital assets, not being depreciated: Capital assets, not being depreciated: Land...... …………… $ 105,582 $ - $ - $ 105,582 Construction in progress...... $ 1,439 $ 828 $ (74) $ 2,193 Construction in progress...... 14,102 13,912 (15,270) 12,744 Total capital assets, not being depreciated...... 1,439 828 (74) 2,193 Total capital assets, not being depreciated...... 119,684 13,912 (15,270) 118,326 Capital assets, being depreciated: Capital assets, being depreciated: Facilities and improvements...... 9,725 14 - 9,739 Facilities and improvements...... 333,731 17,301 (3,143) 347,889 Machinery and equipment...... 52 12 (4) 60 Machinery and equipment...... 16,183 1,547 (1,369) 16,361 Total capital assets, being depreciated...... 9,777 26 (4) 9,799 Infrastructure...... 27,912 - - 27,912 Intangible assets...... 2,779 968 - 3,747 Less accumulated depreciation for: Total capital assets, being depreciated...... 380,605 19,816 (4,512) 395,909 Facilities and improvements...... 5,870 274 - 6,144 Machinery and equipment...... 14 11 (1) 24 Total accumulated depreciation...... Less accumulated depreciation for: . 5,884 285 (1) 6,168 Facilities and improvements...... 223,457 12,038 (3,143) 232,352 Total capital assets, being depreciated, net...... 3,893 (259) (3) 3,631 Machinery and equipment...... 11,033 428 (401) 11,060 Capital assets, net…………………………………… $ 5,332 $ 569 $ (77) $ 5,824 Infrastructure...... 3,176 1,360 -4,536 Intangible assets...... 1,584 869 - 2,453 Total accumulated depreciation...... 239,250 14,695 (3,544) 250,401 Total Business-type Activities Total capital assets, being depreciated, net...... 141,355 5,121 (968) 145,508 Balance Balance Capital assets, net…………………………………… $ 261,039 $ 19,033 $ (16,238) $ 263,834 July 1, June 30, 2010 Increases * Decreases * 2011 Capital assets, not being depreciated: Laguna Honda Hospital Land...... …………… $ 179,652 $ 1,361 $ - $ 181,013 Balance Balance Intangible assets...... 3,269 1,893 - 5,162 July 1, June 30, Construction in progress...... 1,953,226 1,271,179 (1,418,539) 1,805,866 2010 Increases Decreases 2011 Total capital assets, not being depreciated...... 2,136,147 1,274,433 (1,418,539) 1,992,041 Capital assets, not being depreciated: Land...... …………… $ 914 $ - $ - $ 914 Capital assets, being depreciated: Construction in progress...... 505,170 33,543 (538,713) - Facilities and improvements...... 10,398,244 1,302,053 (5,976) 11,694,321 Total capital assets, not being depreciated...... 506,084 33,543 (538,713) 914 Machinery and equipment...... 1,691,191 92,390 (16,282) 1,767,299 Infrastructure...... 1,145,578 47,469 - 1,193,047 Capital assets, being depreciated: Property held under lease...... 771 - - 771 Facilities and improvements...... 21,960 524,821 - 546,781 Intangible assets...... 196,876 6,847 - 203,723 Machinery and equipment...... 13,824 19,235 (2,588) 30,471 Total capital assets, being depreciated...... 13,432,660 1,448,759 (22,258) 14,859,161 Property held under lease...... 771 - - 771 Intangible assets……...... …………………… - 256 - 256 Less accumulated depreciation for: Total capital assets, being depreciated...... 36,555 544,312 (2,588) 578,279 Facilities and improvements...... 4,148,554 277,487 (4,130) 4,421,911 Machinery and equipment...... 881,242 97,678 (12,642) 966,278 Less accumulated depreciation for: Infrastructure...... 375,383 33,807 - 409,190 Facilities and improvements...... 19,992 5,712 - 25,704 Property held under lease...... 747 9 - 756 Machinery and equipment...... 12,913 1,626 (2,588) 11,951 Intangible assets...... 106,711 10,090 - 116,801 Property held under lease...... 747 9 - 756 Total accumulated depreciation...... 5,512,637 419,071 (16,772) 5,914,936 Intangible assets……...... …………………… -26 -26 Total capital assets, being depreciated, net...... 7,920,023 1,029,688 (5,486) 8,944,225 Total accumulated depreciation...... 33,652 7,373 (2,588) 38,437 Capital assets, net…………………………………… $ 10,056,170 $ 2,304,121 $ (1,424,025) $ 10,936,266 Total capital assets, being depreciated, net...... 2,903 536,939 - 539,842 Capital assets, net…………………………………… $ 508,987 $ 570,482 $ (538,713) $ 540,756 * The increases and decreases include transfers of categories of capital assets from construction in progress to depreciable categories and transfers for intangible assets. 80 81 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Depreciation expense was charged to functions/programs of the primary government as follows: Component Unit –Redevelopment Agency Governmental activities: Capital asset activity of the Redevelopment Agency for the year ended June 30, 2011 was as follows: Public protection ...... $ 15,177 Balance Balance Public works transportation and commerce ...... 14,378 July 1, June 30, Human welfare and neighborhood development...... 466 2010 Increases Decreases 2011 Community health ...... 1,252 Capital assets, not being depreciated: Culture and recreation ...... 37,275 Property held under lease...... $ 142,580 $ 12,249 $ - $ 154,829 General administration and finance ...... 21,080 Construction in progress...... 23,608 16 (23,624) - Capital assets held by the City’s internal service funds Total capital assets, not being depreciated 166,188 12,265 (23,624) 154,829 charged to the various functions on a prorated basis ...... 1,595 Total depreciation expense – governmental activities ...... $ 91,223 Capital assets, being depreciated: Facilities and improvements...... 177,647 23,624 - 201,271 Business-type activities: Machinery and equipment...... 8,120 25 - 8,145 Airport ...... $ 160,050 Leasehold improvements...... 22,202 - - 22,202 Water ...... 58,752 Total capital assets, being depreciated……………... 207,969 23,649 - 231,618 Hetch Hetchy Water and Power ...... 13,707 Transportation ...... 116,587 Less accumulated depreciation for: Hospitals ...... 12,778 Facilities and improvements...... 57,676 5,031 - 62,707 Sewer ...... 42,217 Machinery and equipment...... 7,958 41 - 7,999 Port ...... 14,695 Leasehold improvements...... 9,994 444 - 10,438 Market ...... 285 Total depreciation expense – business-type activities ...... $ 419,071 Total accumulated depreciation...... 75,628 5,516 - 81,144 Total capital assets, being depreciated, net...... 132,341 18,133 - 150,474 Equipment is generally estimated to have useful lives of 2 to 40 years, except for certain Redevelopment Agency capital asssets, net...... $ 298,529 $ 30,398 $ (23,624) $ 305,303 equipment of the Water Enterprise that has an estimated useful life of up to 75 years. Facilities and improvements are generally estimated to have useful lives from 15 to 50 years, except for utility type assets of the Water Enterprise, Hetch Hetchy, the Wastewater Enterprise, the MTA, and Port that have estimated useful lives from 51 to 175 years. These long-lived assets include (8) BONDS,LOANS,CAPITAL LEASES AND OTHER PAYABLES reservoirs, aqueducts, pumping stations of Hetch Hetchy, Cable Car Barn facilities and structures Changes in Short-Term Obligations of MTA, and pier substructures of the Port, which totaled $1.7 billion as of June 30, 2011. Hetch Hetchy had intangible assets of water rights having estimated useful lives from 51 to 100 years, The changes in short-term obligations for governmental and business-type activities for the year which totaled $45.6 million as of June 30, 2011. In addition, the Water Enterprise had utility type ended June 30, 2011, are as follows: assets with useful lives over 100 years, which totaled $6.8 million as of June 30, 2011. July 1, Additional Current June 30, Type of Obligation 2010 Obligation Maturities 2011 During the fiscal year ended June 30, 2011, the City’s enterprise funds incurred total interest Governmental activities: expense and interest income of approximately $325.1 million and $42.3 million, respectively. Commercial paper These amounts are net of capitalization of the interest expense in the amount of approximately San Francisco County Transportation Authority…… $ 150,000 $ - $ - $ 150,000 $77.5 million and interest income of $1.4 million. Multiple Capital Projects……………………………… 5,035 31,875 (19,391) 17,519 Government activities short-term obligations..…… $ 155,035 $ 31,875 $ (19,391) $ 167,519 During fiscal year ended June 30, 2011, the Water Enterprise, Hetch Hetchy, Wastewater Business-type activities: Enterprise and Laguna Honda Hospital expensed $1.1 million, $1.9 million, $1.9 million, and Commercial paper $2.5 million, respectively, related to capitalized design and planning costs on certain projects that San Francisco International Airport………………… $ 128,660 $ 11,335 $ (139,995) $ - were discontinued. The amounts of the write-off were recognized as other operating expenses in San Francisco Water Enterprise……………….…… - 150,000 - 150,000 the accompanying financial statements. Business-type activities short-term obligations…… $ 128,660 $ 161,335 $ (139,995) $ 150,000 82 83 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) San Francisco County Transportation Authority The CP note issued for the Depfa swap termination was retired with Airport operating funds on March 28, 2011. All other CP issued or outstanding during the fiscal year was retired with proceeds of In April 2004, the San Francisco County Transportation Authority (SFCTA) issued an initial tranche of the Series 2010F/G Bonds in August 2010, and the Series 2011A/B Bonds in February 2011. For $50 million and in September 2004 the SFCTA issued the second tranche of $100 million of a fiscal year 2011, the interest rates on the taxable CP ranged from 0.25% to 0.30%, the interest rates programmed $200 million aggregate principal amount of commercial paper notes (Limited Tax on private activity CP (AMT) ranged from 0.28% to 0.33%, and the interest rates on tax-exempt Bonds), Series A and B. The commercial paper notes are issued to provide a source of financing for governmental purpose CP (non-AMT) ranged from 0.26% to 0.30%. the SFCTA’s voter-approved Proposition K Expenditure Plan. Under this program, the SFCTA is able to issue commercial paper notes at prevailing interest rates not to exceed 12% per annum. The San Francisco Water Enterprise maximum maturity of the notes is 270 days. The principal amount of the commercial paper notes plus interest thereon is backed as to credit and liquidity by an irrevocable line of credit (LOC) issued by The Commission and Board of Supervisors have authorized the issuance of up to $250 million in Landesbank Baden–Württemberg, New York Branch in the amount up to $217.8 million. commercial paper pursuant to the voter-approved 2002 Proposition E. As of June 30, 2011, On July 12, 2005, the expiration date of the irrevocable LOC was extended from April 14, 2007 to $150 million in short-term commercial paper was outstanding. The short-term commercial paper December 29, 2015 and on April 13, 2010, increased the LOC fees from 14 basis points to 90 basis interest rate ranged from 0.2% to 0.4%. With maturities up to 270 days, the Water Enterprise intends points based on the SFCTA’s AA credit rating. The commercial paper notes are secured by a first lien to maintain the program by remarketing the commercial paper upon maturity over the next five years, gross pledge of the SFCTA’s Sales Tax. The principal and interest on the commercial paper notes is at which time outstanding commercial paper will be refunded with long-term revenue bonds. This is payable at each maturity. being done to take advantage of the continued low interest rate environment. If the commercial paper interest rates rise to a level that exceeds these benefits, the Water Enterprise will refinance the As of June 30, 2011, $150 million in commercial paper notes were outstanding and maturing within commercial paper with long-term fixed rate debts. 6 to 69 days after year-end with interest rates ranging from 0.16% to 0.28%. For the year ended June 30, 2011, the SFCTA paid $2.0 million in LOC fees to Landesbank Baden-Württemberg. San Francisco Wastewater Enterprise City and County of San Francisco Lease Revenue Commercial Paper Certificates of Participation The Commission and Board of Supervisors have authorized the issuance of up to $150 million in commercial paper pursuant to the voter-approved 2002 Proposition E for the purpose of In March 2009, the Board of Supervisors authorized the issuance of tax-exempt and taxable lease reconstructing, expanding, repairing or improving the Wastewater Enterprise facilities. The revenue commercial paper certificates of participation (CP) in an aggregate principal amount not to Wastewater Enterprise has no commercial paper outstanding at June 30, 2011 and did not have any exceed $150 million to provide short term financing to 1) pay for acquisition, construction and commercial paper related activities during fiscal year 2011. rehabilitation of certain capital improvements within the City and the financing of vehicles and equipment; 2) fund capitalized interest with respect to the CP; 3) fund capitalized fees and expenses as defined in the trust agreement; and 4) pay for cost incurred in connection with the sale and delivery of the CP. In June 2010, the City obtained irrevocable lines of credit (LOC) issued by JP Morgan Chase Bank, National Association, with a maximum available amount of $50.0 million and U.S. Bank, National Association, with a maximum available amount of $50.0 million. Both LOCs expire on June 10, 2013. For the year ended June 30, 2011, the City issued four commercial paper notes totaling $31.9 million to provide interim financing for three capital projects and capital equipment acquisitions approved by the Board of Supervisors and retired three commercial paper notes totaling $19.4 million. At June 30, 2011, the outstanding principal amount of tax exempt commercial paper notes was $16.5 million with interest rate of 0.31% and maturity date of August 8, 2011 and the taxable commercial paper notes was $1.0 million with interest rate of 0.22% and maturity date of September 26, 2011. San Francisco International Airport In 1997, the Airport authorized the issuance of subordinate commercial paper notes (CP) in an aggregate principal amount not to exceed the lesser of $400 million or the stated amount of the letter of credit securing the CP. In anticipation of the expiration on May 9, 2011, of the $200 million letter of credit from State Street Bank and Trust Company securing the Airport’s subordinate commercial paper notes, the Airport obtained two new $100 million direct-pay letters of credit from State Street Bank and from Barclays Bank PLC. Each of the new letters of credit supports separate subseries of commercial paper notes, expires on May 2, 2014, and permits the Airport to issue CP up to a combined maximum principal amount of $200 million. The Airport had $128.66 million of CP outstanding as of July 1, 2010, and none at fiscal year-end. During the fiscal year 2011, the Airport issued additional CP notes to fund $4.7 million of additional capitalized interest on the Series 2009E Bonds issued for the Terminal 2 project, and to fund the $6.65 million Series 2010A-3 swap termination payment to Depfa Bank, PLC and related fees. 84 85 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Long-Term Obligations BUSINESS-TYPE ACTIVITIES The following is a summary of long-term obligations of the City as of June 30, 2011: Final Maturity Remaining GOVERNMENTAL ACTIVITIES Entity and Type of Obligation Date Interest Rate Amount Final San Francisco International Airport: Revenue bonds *…………………………………………………… 2040 1.15% -6.00% $ 4,215,230 Maturity Remaining Revenue notes ……………………………………………………. 2019 6.50% -6.75% 25,460 Type of Obligation and Purpose Date Interest Rate Amount San Francisco Water Enterprise: GENERAL OBLIGATION BONDS(a): Revenue bonds …………………………………………………… 2050 2.00% - 6.90% 3,113,080 Affordable housing ……………………………………………… 2014 6.75% $ 3,515 Certificates of Participation ……………………………………… 2041 2.00% - 6.49% 119,717 California Academy of Sciences ……………………………… 2025 3.50% -5.25% 67,980 Accreted interest …………………………………………………… 2019 - 4,155 Earthquake Safety and Emergency Response …………… 2035 4.00% - 5.00% 77,845 Hetch Hetchy Water and Power: Laguna Honda Hospital ……………………………………… 2030 4.00% - 5.00% 145,025 Energy bonds ** …………………………………………………… 2022 - 5,059 Branch libraries ………………………………………………… 2028 3.20% -5.00% 69,120 Certificates of Participation ……………………………………… 2042 2.00% - 6.49% 16,298 Parks and playgrounds ………………………………………… 2030 3.10% -6.26% 157,090 Municipal Transportation Agency: Schools ………………………………………………………… 2023 3.10% - 4.25% 19,970 Parking and Traffic San Francisco General Hospital …………………………… … 2030 4.00% -6.26% 373,345 Revenue bonds ………………………………………………… 2020 4.45% - 5.00% 14,385 Seismic safety loan program ………………………………… 2030 4.35% - 5.83% 24,107 Lease revenue bonds …………………………………………… 2022 4.80% -5.50% 5,455 Steinhart Aquarium …………………………………………… 2025 4.125% - 5.00% 22,840 Downtown Parking - parking revenue refunding bonds ……… 2018 4.45% - 5.75% 6,955 Zoo facilities …………………………………………………… 2025 3.20% - 5.00% 9,795 Ellis-O'Farrell - parking revenue refunding bonds ……...……… 2017 3.50% -4.70% 2,980 Refunding ……………………………………………………… 2030 2.85% - 5.00% 385,360 Uptown Parking - revenue bonds …….. ………………………… 2031 4.50% -6.00% 16,320 General Obligation Bonds - governmental activities …… 1,355,992 San Francisco General Hospital Medical Center: LEASE REVENUE BONDS: Certificates of Participation ……………………………………… 2026 5.55% 22,550 San Francisco Finance Corporation(b), (e) & (f) ………………… 2034 2.00% -5.75%* 280,750 Capital leases …………………………………………………….. 2015 3.61% - 4.48% 628 Lease Revenue Bonds - governmental activities ………… 280,750 San Francisco Wastewater Enterprise: OTHER LONG-TERM OBLIGATIONS: Revenue bonds …………………………………………………… 2040 3.00% - 5.82% 468,775 Certificates of participation(c) & (d) …………………………… 2041 3.00% -5.25% 574,210 Certificates of Participation ……………………………………… 2042 2.00% - 6.49% 31,655 Loans (c), (d) & (f) …………………………………………………… 2026 2.00% -5.74% 10,072 State of California - revolving funds loans ……………………… 2021 2.80% -3.50% 46,492 Capital leases payable(c) & (f) ………………………………… 2025 3.17% -7.05% 141,377 Port of San Francisco: (d) & (f) Revenue bonds …………………………………………………… 2040 3.59% - 7.41% 36,165 Accrued vacation and sick leave ……………………… 140,621 Notes, loans and other payables ………………………………… 2029 4.50% 2,819 Accrued workers' compensation(d) & (f) ……………………… 222,828 Laguna Honda Hospital: (d) & (f) 126,044 Estimated claims payable ……………………………… Capital leases …………………………………………………….. 2013 3.00% - 4.00% 24 Other postemployment benefits obligation ………………… 615,227 Other long-term obligations - governmental activities… … 1,830,379 Accrued vacation and sick leave …………………………………… 90,563 DEFERRED AMOUNTS: Accrued workers' compensation …………………………………… 148,186 Bond issuance premiums ……………………………………… 72,950 Estimated claims payable …………………………………………… 98,437 Bond issuance discounts ……………………………………… (1,857) Other postemployment benefits obligation ………………………… 448,966 Bond refunding ………………………………………………… (17,470) Deferred Amounts: Deferred amounts …………………………………………… 53,623 Bond issuance premiums ………………………………………… 214,240 Governmental activities total long-term obligations… … $ 3,520,744 Bond issuance discounts ………………………………………… (4,661) Bond refunding …………………………………………………… (131,929) Debt service payments are made from the following sources: (a) Property tax recorded in the Debt Service Fund. Business-type activities total long-term obligations ………… $ 9,018,004 (b) Lease revenues from participating departments in the General, Special Revenue and Enterprise Funds. (c) Revenues recorded in the Special Revenue Funds. * Includes Second Series Revenue Bonds Issue 36 A / B, 36 C / D, 37 C / D and 2010A, which were initially issued as (d) Revenues recorded in the General Fund. variable rate bonds in a weekly mode. For the fiscal year ended June 30, 2011, the average interest rate on Issue 36A (e) Hotel taxes and other revenues recorded in the General and Special Revenue Funds. and B was 0.22% and 0.23%, respectively; for Issue 36C and D was 0.50% and 0.50%, respectively; for Issue 37C and D (f) User-charge reimbursements from the General, Special Revenue and Enterprise Funds. was 0.52% and 0.52%, respectively; and for Issue 2010A-1, 2 & 3 was 0.24%, 0.24% & 0.23%, respectively. Internal Service Funds serve primarily the governmental funds. Accordingly, long-term liabilities for the Internal ** The Clean Renewable Energy Bonds issued to fund solar photovoltaic projects carry no interest cost since the effective Service Funds are included in the above amounts. equivalent of interest on the bonds is paid in the form of federal tax credits in lieu of interest paid by the issuer. * Includes the Moscone Center West Expansion Project Refunding Bonds Series 2008-1 & 2, both of which Sources of funds to meet debt service requirements are revenues derived from user fees and were financed with variable rate bonds that reset weekly. The rate at June 30, 2011 for Series 2008-1 & 2 was 0.045%. charges for services recorded in the respective enterprise funds. 86 87 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) COMPONENT UNIT reported in deferred credits and other liabilities in the governmental activities of the statement of net Final assets. The Finance Corporation has evaluated its lease revenue bonds and no liability was reported Maturity Remaining in the deferred credits and other liabilities in the Internal Service Fund as of June 30, 2011. Each Entity and Type of Obligation Date Interest Rate Amount enterprise fund has performed a similar analysis of its debt, which is subject to arbitrage rebate San Francisco Redevelopment Agency requirements. Any material arbitrage liability related to the debt of the enterprise funds has been and Financing Authority: recorded as a liability in the respective fund. In addition, the Redevelopment Agency records any Lease Revenue Bonds: arbitrage liability in deferred credits and other liabilities. (a) Moscone Convention Center ……………………………… 2025 3.50% -7.05% $ 106,434 Assessment District Hotel tax revenue bonds(b) ……………………………………… 2026 2.00% -5.00% 43,780 During June 1996, the City issued $1 million of Limited Obligation Improvement Bonds for the Financing Authority Bonds: (c) Bayshore Hester Assessment District No. 95-1. These bonds were issued pursuant to the Tax allocation revenue bonds ……………………………… 2042 2.38% -9.00% 968,694 Improvement Bond Act of 1915. The proceeds were used to finance the construction of a new public South Beach Harbor Variable Rate right-of-way. The bonds began to mature during the fiscal year ended June 30, 1999 and continue Refunding bonds(d) …………………………………………… 2017 Variable 6,300 through 2026 bearing interest from 6.0% to 6.85%. These bonds do not represent obligations of the (3.34% at 6/30/11) City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the Less deferred amounts: bonds. Accordingly, the debt has not been included in the basic financial statements. Assessments Bond issuance premiums …………………………………… 9,148 collected for repayment of this debt are received in the Tax Collection Agency Fund. Unpaid Bond issuance discounts ……………………………………… (5,716) assessments constitute fixed liens on the lots and parcels assessed within the Bayshore-Hester Refunding loss ………………………………………………… (4,412) Assessment District and do not constitute a personal indebtedness of the respective owners of such Subtotal ……………………………………………………… 1,124,228 lots and parcels. California Department of Boating and Mortgage Revenue Bonds Waterways Loan(e) …………………………………………… 2037 4.50% 7,673 Loans payable …………………………………………………… 35 In order to facilitate affordable housing, the City issues mortgage revenue bonds for the financing of Accreted interest payable ………………………………………… 57,681 multifamily rental housing and for below-market rate mortgage financing for first time homebuyers. Accrued vacation and sick leave ………………………………… 2,450 These obligations are secured by the related mortgage indebtedness and are not obligations of the City. As of June 30, 2011, the aggregate outstanding obligation of such bonds was $142.5 million. Other postemployment benefits obligation …………………… 470 Component unit total long-term obligations ……………… $ 1,192,537 Changes in Long-Term Obligations The changes in long-term obligations for governmental activities for the year ended June 30, 2011, Debt service payments are made from the following sources: are as follows: (a) Hotel taxes and operating revenues recorded in the Convention Facilities Special Revenue Fund and Additional Current existing debt service/escrow trust funds. Obligations, Maturities Interest Retirements, Amounts (b) Hotel taxes from the occupancy of guest rooms in the hotels located in the Redevelopment Project Areas. (c) July 1, Accretion and and Net June 30, Due Within Property taxes allocated to the Redevelopment Agency based on increased assessed valuations in project 2010 Net Increases Decreases 2011 One Year areas (note 12) and existing debt service/escrow trust funds. Governmental activities: (d) South Beach Harbor Project cash reserves, property tax increments and project revenues. Bonds payable: (e) South Beach Harbor Project revenues (subordinated to Refunding Bonds). General obligation bonds…………………………………… $ 1,386,640 $ 94,520 $ (125,168) $ 1,355,992 $ 100,236 Lease revenue bonds………………………………………… 285,675 37,005 (41,930) 280,750 17,105 Debt Compliance Certificates of participation………………………………… 591,815 138,445 (156,050) 574,210 18,500 Settlement obligation bonds………………………………… 7,040 - (7,040) - - There are a number of limitations and restrictions contained in the various bond indentures. The City Less deferred amounts: believes it is in compliance with all significant limitations and restrictions. For issuance premiums………………………………… 60,535 18,399 (5,984) 72,950 - For issuance discounts…………………………………… (3,886) - 2,029 (1,857) - Legal Debt Limit and Legal Debt Margin On refunding……………………………………………… (14,707) (5,404) 2,641 (17,470) - Total bonds payable…………………………………… 2,313,112 282,965 (331,502) 2,264,575 135,841 As of June 30, 2011, the City’s debt limit (3% of valuation subject to taxation) was $4.79 billion. The Loans…………………………………………………………… 10,607 1,813 (2,348) 10,072 2,967 total amount of debt applicable to the debt limit was $1.36 billion. The resulting legal debt margin was Capital leases…………………………………………………… 152,273 4,683 (15,579) 141,377 16,525 $3.43 billion. Accrued vacation and sick leave pay………………………… 142,704 83,391 (85,474) 140,621 71,916 Accrued workers' compensation……………………………… 216,699 46,909 (40,780) 222,828 39,662 Arbitrage Estimated claims payable……………………………………… 139,845 15,550 (29,351) 126,044 34,889 Other postemployment benefits obligation…………………… 477,633 218,173 (80,579) 615,227 - Under U.S. Treasury Department regulations, all governmental tax-exempt debt issued after Governmental activities long-term obligations………… $ 3,452,873 $ 653,484 $ (585,613) $ 3,520,744 $ 301,800 August 31, 1986 is subject to arbitrage rebate requirements. The requirements stipulate, in general, that the earnings from the investment of tax exempt bond proceeds, which exceed related interest expenditures on the bonds, must be remitted to the Federal government on every fifth anniversary of each bond issue. The City has evaluated each general obligation bond and certificates of participation and has recognized an arbitrage liability of $0.03 million as of June 30, 2011. This arbitrage liability is 88 89 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Internal Service Funds serve primarily the governmental funds, the long-term liabilities of which are The changes in long-term obligations for each enterprise fund for the year ended June 30, 2011 are included as part of the above totals for governmental activities. Also, for the governmental activities, as follows (continued): claims and judgments and compensated absences are generally liquidated by the General Fund. Additional The changes in long-term obligations for each enterprise fund for the year ended June 30, 2011, are Obligations, Current as follows: Interest Maturities, Amounts Additional Accretion Retirements, Due Obligations, Current July 1, and Net and Net June 30, Within Interest Maturities, Amounts 2010 Increases Decreases 2011 One Year Accretion Retirements, Due Municipal Transportation Agency July 1, and Net and Net June 30, Within Bonds payable: 2010 Increases Decreases 2011 One Year Revenue bonds ...... $ 43,535 $ -$ (2,895)$ 40,640 $ 3,025 San Francisco International Airport Lease revenue bonds ...... 5,820 - (365) 5,455 380 Bonds payable: Less deferred amounts: Revenue bonds ...... $ 4,180,365 $ 283,810 $ (248,945) $ 4,215,230 $ 133,425 For issuance premiums ...... 753 - (46) 707 - Revenue notes …………………………………… 66,525 - (41,065) 25,460 2,335 Total bonds payable ...... 50,108 - (3,306) 46,802 3,405 Less deferred amounts: For issuance premiums ...... 109,718 8,664 (14,392) 103,990 - Accrued vacation and sick leave pay...... 28,330 19,134 (20,383) 27,081 15,585 For issuance discounts ...... (4,151) (314) 216 (4,249) - Accrued workers' compensation...... 91,997 19,816 (18,792) 93,021 14,998 On refunding...... (116,429) (4,047) 15,328 (105,148) - Estimated claims payable...... 46,921 11,922 (10,841) 48,002 20,393 Total bonds payable ...... 4,236,028 288,113 (288,858) 4,235,283 135,760 Other postemployment benefits obligation………… 99,993 51,364 (24,898) 126,459 - Accrued vacation and sick leave pay……………… 14,328 9,943 (9,633) 14,638 7,490 Long-term obligations...... $ 317,349 $ 102,236$ (78,220)$ 341,365 $ 54,381 Accrued workers' compensation ...... 5,039 1,708 (1,781) 4,966 942 Estimated claims payable ...... 10,013 2,030 (486) 11,557 4,379 San Francisco General Hospital Medical Center Other postemployment benefits obligation……… 46,281 14,256 - 60,537 - Bonds payable: Long-term obligations...... $ 4,311,689 $ 316,050 $ (300,758) $ 4,326,981 $ 148,571 Certificates of Participation…………………………$ 22,550 $ -$ -$ 22,550 $ 543 Capital Leases………………………………………… 1,380 40 (792) 628 399 San Francisco Water Enterprise Accrued vacation and sick leave pay...... 17,878 12,590 (12,376) 18,092 10,364 Accrued workers' compensation...... 22,074 5,431 (5,295) 22,210 3,740 Bonds payable: Revenue bonds ...... $ 2,193,090 $ 979,355 $ 9,365) (5 $ 3,113,080 $ 44,050 Other postemployment benefits obligation……….… 89,626 25,606 - 115,232 - Certificates of Participation……………………… 119,717 - - 119,717 - Long-term obligations...... $ 153,508 $ 43,667$ (18,463)$ 178,712 $ 15,046 Less deferred amounts: For issuance premiums ...... 66,894 26,920 (6,006) 87,808 - San Francisco Wastewater Enterprise On refunding...... (11,904) (3,405) 1,717 (13,592) - Bonds payable: Total bonds payable ...... 2,367,797 1,002,870 (63,654) 3,307,013 44,050 Revenue bonds ...... $ 495,095 $ -$ (26,320)$ 468,775 $ 22,010 Accreted interest payable…………………………… 3,878 277 - 4,155 - Certificates of participation………………………… 31,655 - - 31,655 - Accrued vacation and sick leave pay...... 11,827 7,269 (7,521) 11,575 5,764 Less deferred amounts: Accrued workers' compensation...... 8,094 2,030 (2,449) 7,675 1,324 For issuance premiums ...... 23,282 - (1,874) 21,408 - Estimated claims payable...... 29,740 6,815 (9,565) 26,990 8,603 On refunding...... (14,764) - 1,575 (13,189) - Other postemployment benefits obligation……… 45,598 19,930 (5,214) 60,314 - Total bonds payable ...... 535,268 - (26,619) 508,649 22,010 Long-term obligations...... $ 2,466,934 $ 1,039,191(88,403) $ $ 3,417,722 $ 59,741 State of California -evolving R fund loans...... 61,140 - (14,648) 46,492 9,594 Accrued vacation and sick leave pay...... 5,059 2,703 (2,566) 5,196 2,730 Accrued workers' compensation...... 4,146 581 (1,118) 3,609 645 Hetch Hetchy Water and Power Estimated claims payable...... Bonds payable: . 11,109 - (2,677) 8,432 2,203 Clean Renewable Energy Bonds…………………$ 5,481 $ - $ (422) $ 5,059 $ 422 Other postemployment benefits obligation………… 16,078 7,215 (2,420) 20,873 - Certificates of Participation……………………… 16,298 - - 16,298 - Long-term obligations...... $ 632,800 $ 10,499$ (50,048)$ 593,251 $ 37,182 Less deferred amounts: For issuance premiums ...... 378 - (51) 327 - For issuance discounts ...... (171) - 14 (157) - Total bonds payable ...... 21,986 - (459) 21,527 422 Accrued vacation and sick leave pay……………… 2,579 1,383 (1,372) 2,590 1,452 Accrued workers' compensation...... 2,068 801 (806) 2,063 358 Estimated claims payable...... 1,871 1,623 (1,364) 2,130 418 Other postemployment benefits obligation……… 8,472 4,184 (1,435) 11,221 - Long-term obligations...... $ 36,976 $ 7,991 $ (5,436) $ 39,531 $ 2,650 90 91 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The changes in long-term obligations for each enterprise fund for the year ended June 30, 2011, are The changes in long term obligations for the component unit for the year ended June 30, 2011, are as as follows (continued): follows: Additional Additional Obligations, Current Obligations, Current Interest Maturities, Amounts Interest Maturities, Amounts Accretion Retirements, Due Accretion Retirements, Due July 1, and Net and Net June 30, Within July 1, and Net and Net June 30, Within 2010 Increases Decreases 2011 One Year 2010 Increases Decreases 2011 One Year Port of San Francisco Component unit: Bonds payable: San Francisco Redevelopment Agency Revenue bonds ...... $ 36,650 $ - $ (485) $ 36,165 $ 670 Bonds payable: Less deferred amounts: Revenue bonds ...... …………. $ 1,019,256 $ 195,500 $ (95,848) $ 1,118,908 $ 43,148 For issuance discounts ...... (265) - 10 (255) - Refunding bonds…………………………….…… 6,300 - - 6,300 6,300 Total bonds payable ...... 36,385 - (475) 35,910 670 Less deferred amounts: Notes, loans, and other payables...... 2,919 - (100) 2,819 105 For issuance premiums ...... 8,894 1,196 (942) 9,148 - Accrued vacation and sick leave pay...... 1,961 1,161 (976) 2,146 1,138 For issuance discounts ...... (3,703) (2,224) 211 (5,716) - Accrued workers' compensation...... 2,955 575 (734) 2,796 374 Estimated claims payable...... 1,080 300 (54) 1,326 976 On refunding……………………………………… (4,081) (767) 436 (4,412) - Other postemployment benefits obligation..…… … 8,268 3,694 (1,256) 10,706 - Total bonds payable ...... 1,026,666 193,705 (96,143) 1,124,228 49,448 (1) Long-term obligations...... $ 53,568 $ 5,730 $ (3,595) $ 55,703 $ 3,263 Accreted interest payable…………………………… 62,723 7,534 (12,576) 57,681 12,347 Notes, loans, and other payables...... … 10,814 39 (3,145) 7,708 35 Laguna Honda Hospital Accrued vacation and sick leave pay……………… 2,253 1,436 (1,239) 2,450 1,240 Capital leases ...... $ 36 $ 19 $ (31) $ 24 $ 17 Other postemployment benefits obligation………… 643 1,346 (1,519) 470 - Accrued vacation and sick leave pay...... 8,688 6,183 (5,626) 9,245 5,101 Component unit - long term obligations……… $ 1,103,099 $ 204,060 $ (114,622) $ 1,192,537 $ 63,070 Accrued workers' compensation...... 11,907 3,351 (3,412) 11,846 2,166 Other postemployment benefits obligation……… . 33,971 9,653 - 43,624 - (1) Long-term obligations...... $ 54,602 $ 19,206 $ (9,069) $ 64,739 $ 7,284 This amount is included in accrued interest payable in the statement of net assets. Total Business-type Activities: Annual debt service requirements to maturity for all bonds and loans outstanding as of June 30, 2011, Bonds payable: for governmental activities are as follows: Revenue bonds ...... $ 6,948,735 $ 1,263,165 $ (338,010) $ 7,873,890 $ 203,180 (2) (3) Revenue notes …………………………………… … 66,525 - (41,065) 25,460 2,335 Governmental Activities Clean renewable energy bonds………………… … 5,481 - (422) 5,059 422 Fiscal Year General Obligation Lease Revenue Other Long-Term Certificates of Participation ...... 190,220 - - 190,220 543 Ending Bonds Bonds Obligations Total (4) (5) (5) Lease revenue bonds ...... 5,820 - (365) 5,455 380 June 30 Principal Interest Principal Interest Principal Interest Principal Interest Less deferred amounts: 2012...... $ 100,236 $ 64,716 $ 17,105 $ 6,940 $ 28,528 $ 40,896 $ 145,869 $ 112,552 For issuance premiums ...... 201,025 35,584 (22,369) 214,240 - 2013...... 91,091 60,633 17,630 6,567 25,940 40,206 134,661 107,406 For issuance discounts ...... (4,587) (314) 240 (4,661) - 2014...... 86,618 56,312 16,760 6,115 26,487 39,484 129,865 101,911 On refunding……………………………………… (143,097) (7,452) 18,620 (131,929) - 2015...... 80,577 52,320 14,410 5,646 61,303 33,773 156,290 91,739 Total bonds payable ...... 7,270,122 1,290,983 (383,371) 8,177,734 206,860 2016...... 84,289 48,557 13,755 5,251 38,303 27,062 136,347 80,870 Accreted interest payable………………………… … 3,878 277 - 4,155 - 2017-2021...... 352,746 190,048 61,385 21,497 159,578 110,339 573,709 321,884 State of California - Revolving fund loans...... 61,140 - (14,648) 46,492 9,594 2022-2026...... 316,920 110,882 70,275 13,769 127,841 77,846 515,036 202,497 Notes, loans, and other payables...... 2,919 - (100) 2,819 105 2027-2031……. 223,670 34,727 62,795 5,338 143,645 46,026 430,110 86,091 Capital leases ...... 1,416 59 (823) 652 416 2032-2036…… 19,845 2,541 6,635 777 74,750 16,292 101,230 19,610 Accrued vacation and sick leave pay…………… … 90,650 60,366 (60,453) 90,563 49,624 2037-2041…… - - - - 39,284 4,576 39,284 4,576 Accrued workers' compensation………………… … 148,280 34,293 (34,387) 148,186 24,547 Total...... $ 1,355,992 $ 620,736 $ 280,750 $ 71,900 $ 725,659 $ 436,500 $ 2,362,401 $ 1,129,136 Estimated claims payable………………………… … 100,734 22,690 (24,987) 98,437 36,972 Other postemployment benefits obligation…….. … 348,287 135,902 (35,223) 448,966 - (2) Long-term obligations…………………………… $ 8,027,426 $ 1,544,570 $ (553,992) $ 9,018,004 $ 328,118 The specific year for payment of estimated claims payable, accrued vacation and sick leave pay, accrued workers’ compensation and other postemployment benefits obligation is not practicable to determine. (3) Includes the Moscone Center Expansion Project Lease Revenue Refunding Bonds Series 2008-1 & 2, which bears interest at a weekly rate. An assumed rate of 0.045%, together with liquidity fee of 0.710% and remarketing fee of 0.0725%, were used to project the interest payment in this table. (4) The interest is before the Federal interest subsidy for the Series 2010 C and Series 2010 D General Obligation Bonds. The Federal interest subsidy on the Series 2010 C and Series 2010 D General Obligation Bonds is approximately $49.6 million and $10.2 million, respectively, through the year ending 2030. (5) Includes approximately $176.0 million in lease payments to the Agency for the Moscone Convention Center through July 1, 2024. 92 93 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The annual debt service requirement to maturity for all bonds and loans outstanding as of The annual debt service requirement to maturity for all bonds and loans outstanding as of June 30, 2011 for each enterprise fund is as follows: June 30, 2011 for each enterprise fund is as follows (continued): (1) (1) San Francisco Water Enterprise San Francisco International Airport Fiscal Year Revenue Other Long-Term Fiscal Year Revenue Other Long-Term Ending Bonds Obligations Total Ending Bonds Obligations Total June 30 Principal Interest (2) Principal Interest (3) Principal Interest June 30 Principal Interest Principal Interest Principal Interest 2012...... $ 44,050 $ 164,100 $ - $ 7,231 $ 44,050 $ 171,331 2012...... $ 133,425 $ 196,490 $ 2,335 $ 1,655 $ 135,760 $ 198,145 2013...... 45,965 162,039 1,971 7,199 47,936 169,238 2013...... 148,285 192,052 2,245 1,503 150,530 193,555 2014...... 48,130 159,887 2,035 7,132 50,165 167,019 2014...... 161,445 187,095 2,945 1,357 164,390 188,452 2015...... 50,485 157,583 2,106 7,060 52,591 164,643 2015...... 177,012 180,488 3,090 1,166 180,102 181,654 2016...... 62,940 154,839 2,199 6,968 65,139 161,807 2016...... 183,784 171,967 3,190 965 186,974 172,932 2017-2021...... 383,200 723,772 12,813 33,028 396,013 756,800 2017-2021...... 1,093,881 718,134 11,655 1,531 1,105,536 719,665 2022-2026…… 493,195 618,737 16,308 29,192 509,503 647,929 2022-2026…… 1,201,973 436,186 - - 1,201,973 436,186 2027-2031…… 619,255 478,532 20,099 23,497 639,354 502,029 2027-2031…… 752,440 189,740 - - 752,440 189,740 2032-2036…… 613,615 312,093 24,751 16,291 638,366 328,384 2032-2036…… 206,615 78,461 - - 206,615 78,461 2037-2041…. 537,475 145,771 30,524 7,358 567,999 153,129 2037-2040…. 156,370 19,442 - - 156,370 19,442 2042-2046…. 95,305 58,671 6,911 224 102,216 58,895 Total...... $ 4,215,230 $ 2,370,055 $ 25,460 $ 8,177 $ 4,240,690 $ 2,378,232 2047-2051…. 119,465 21,507 - - 119,465 21,507 Total...... $ 3,113,080 $ 3,157,531 $ 119,717 $ 145,180 $ 3,232,797 $ 3,302,711 (1) The specific year for payment of estimated claims payable, accrued vacation and sick leave pay, accrued workers’ (1) compensation and other postemployment benefits obligation is not practicable to determine. The specific year for payment of estimated claims payable, accrued vacation and sick leave pay, accrued workers’ compensation and other postemployment benefits obligation is not practicable to determine. (2) Revenue bond debt service if (i) the credit and liquidity facilities (letter of credits or standby purchase The interest is before the Federal interest subsidy for the Water Enterprise Fund’s Revenue Bonds 2001 Series A, 2002 agreements) securing the Airport’s outstanding variable rate bonds had to be drawn upon to pay such Series A, 2002 Refunding Series B, 2006 Series A, 2006 Refunding Series B and C, 2009 Series A and B and 2010 Series ABC, 2010 Series DE, and 2010 Series FG. The Federal interest subsidy amounts represent 35% of the interest bonds and the amount drawn had to be repaid by the Airport pursuant to the terms of the related for the revenue bonds 2010 Sub-Series B, Sub-Series E and Sub-Series G. The Federal interest subsidy on the Water agreements with the banks providing such credit and liquidity facilities, and (ii) the Airport’s Enterprise Fund Revenue Bonds is approximately $589.5 million through the year ending 2051. (3) outstanding fixed rate bonds scheduled to be come due (via mandatory tender by bondholders for The interest is before the Water Enterprise Fund’s portion of the Federal interest subsidy for the Certificates of purchase by the Airport) are not remarketed as or refunded with long-term fixed rate bonds, are as Participation Series D (Taxable) which amounts to approximately $47.6 million through the year ending 2042. follows: Fiscal Year Revenue Ending Bonds June 30 Principal Interest 2012...... $ 133,425 $ 196,490 2013...... 604,695 189,339 2014...... 236,660 170,995 2015...... 265,295 161,491 2016...... 181,240 148,810 2017-2021...... 935,785 613,163 2022-2026…… 957,120 368,213 2027-2031…… 538,025 171,676 2032-2036…… 206,615 78,461 2037-2040…. 156,370 19,442 Total...... $ 4,215,230 $ 2,118,080 94 95 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The annual debt service requirement to maturity for all bonds and loans outstanding as of The annual debt service requirement to maturity for all bonds and loans outstanding as of June 30, 2011 for each enterprise fund is as follows (continued): June 30, 2011 for each enterprise fund is as follows (continued): Hetch Hetchy Water and Power (1) San Francisco General Hospital (1) Fiscal Year Revenue Other Long-Term Fiscal Year Revenue Other Long-Term Ending Bonds Obligations Total Ending Bonds Obligations Total June 30 Principal Interest (2) Principal Interest (3) Principal Interest June 30 Principal Interest Principal Interest Principal Interest 2012...... $ 422 $ - $ - $ 984 $ 422 984 2012...... $ - $ - $ 942 $ 1,284 $ 942 $ 1,284 2013...... 422 - 268 980 690 980 2013...... - - 1,343 1,218 1,343 1,218 2014...... 422 - 277 970 699 970 2014...... - - 1,208 1,143 1,208 1,143 2015...... 422 - 287 961 709 961 2015...... - - 1,269 1,075 1,269 1,075 2016...... 422 - 299 948 721 948 2016...... - - 1,334 1,004 1,334 1,004 2017-2021...... 2,110 - 1,744 4,497 3,854 4,497 2017-2021...... - - 7,884 3,805 7,884 3,805 2022-2126 …… 839 - 2,221 3,974 3,060 3,974 2022-2026…… - - 9,198 1,323 9,198 1,323 2027-2031……… - - 2,736 3,199 2,736 3,199 Total...... $ - $ - $ 23,178 $ 10,852 $ 23,178 $ 10,852 2032-2036……. - - 3,370 2,218 3,370 2,218 2037-2041……… - - 4,155 1,002 4,155 1,002 (1) 2042-2046……… - - 941 31 941 31 San Francisco Wastewater Enterprise Fiscal Year Revenue Other Long-Term Total...... $ 5,059 $ - $ 16,298 $ 19,764 $ 21,357 $ 19,764 Ending Bonds Obligations Total June 30 Principal Interest (2) Principal Interest (3) Principal Interest (1) Municipal Transportation Agency 2012...... $ 22,010 $ 23,920 $ 9,594 $ 3,301 $ 31,604 $ 27,221 Fiscal Year Revenue/ Lease Revenue Other Long-Term 2013...... 23,095 22,902 8,843 3,003 31,938 25,905 Ending Bonds Obligations Total 2014...... 24,395 21,716 8,730 2,734 33,125 24,450 June 30 Principal Interest Principal Interest Principal Interest 2015...... 25,790 20,428 6,243 2,469 32,033 22,897 2012...... $ 3,405 $ 2,426 $ - $ - $ 3,405 $ 2,426 2016...... 27,325 19,034 5,418 2,274 32,743 21,308 2013...... 3,575 2,267 - - 3,575 2,267 2017-2021...... 105,120 79,336 13,249 9,496 118,369 88,832 2014...... 3,750 2,097 - - 3,750 2,097 2022-2026……… 79,055 53,839 4,313 7,718 83,368 61,557 2015...... 3,930 1,917 - - 3,930 1,917 2027-2031……… 44,390 40,292 5,315 6,213 49,705 46,505 2016...... 3,442 1,724 - - 3,442 1,724 2032-2036……. 53,280 26,604 6,544 4,308 59,824 30,912 2017-2021...... 16,438 5,525 - - 16,438 5,525 2037-2041……… 64,315 9,641 8,071 1,946 72,386 11,587 2022-2026…… 4,750 2,722 - - 4,750 2,722 2042………….. - - 1,827 59 1,827 59 2027-2031…… 5,500 1,255 - - 5,500 1,255 Total...... $ 468,775 $ 317,712 $ 78,147 $ 43,521 $ 546,922 $ 361,233 2032-2036…… 1,305 39 - - 1,305 39 Total...... $ 46,095 $ 19,972 $ - $ - $ 46,095 $ 19,972 (1) The specific year for payment of estimated claims payable, accrued vacation and sick leave pay, accrued workers’ compensation and other postemployment benefits obligation is not practicable to determine. (1) (2) The specific year for payment of estimated claims payable, accrued vacation and sick leave pay, accrued workers’ The interest is before the Federal interest subsidy for the Wastewater Enterprise Fund Revenue Bonds 2003 Refunding compensation and other postemployment benefits obligation is not practicable to determine. Series A, 2010 Series A and 2010 Series B. In addition, the Federal interest subsidy amounts represent 35% of the (2) Interest payments are not required, since the effective equivalent of interest on the bonds is paid in the form of Federal tax interest for the Revenue Bonds 2010 Series B. The Federal interest subsidy on the Wastewater Enterprise Fund Revenue credits in lieu of interest paid by the issuer. Bonds is approximately $81.9 million through the year ending 2041. (3) (3) The interest is before the Wastewater Enterprise Fund’s portion of the Federal interest subsidy for the Certificates of The interest is before the Hetch Hetchy Water and Power Enterprise Fund’s portion of the Federal interest subsidy for the Participation Series D (Taxable) which amounts to approximately $12.6 million through the year ending 2042. Certificates of Participation Series D (Taxable) which amounts to approximately $6.5 million through the year ending 2042. 96 97 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The annual debt service requirement to maturity for all bonds and loans outstanding as of The annual debt service requirements to maturity for all bonds and loans outstanding as of June 30, 2011 for each enterprise fund is as follows (continued): June 30, 2011, for the component unit are as follows: (1) Port of San Francisco (1) Component Unit: San Francisco Redevelopment Agency Fiscal Year Lease Revenue Tax Revenue Other Long-Term Fiscal Year Revenue Other Long-Term Ending Bonds Bonds Obligations Total Ending Bonds Obligations Total June 30 Principal Interest (2) Principal Interest (2) Principal Interest (3) Principal Interest June 30 Principal Interest Principal Interest Principal Interest 2012...... $ 4,881 $ 13,992 $ 37,417 $ 54,659 $ 7,185 $ 2,545 $ 49,483 $ 71,196 2013...... 4,791 14,155 41,298 53,474 1,371 2,337 47,460 69,966 2012...... $ 670 $ 2,175 $ 105 $ 127 $ 775 $ 2,302 2014...... 4,732 14,296 43,621 51,588 1,314 2,306 49,667 68,190 2013...... 695 2,151 110 122 805 2,273 2015...... 9,511 9,474 47,435 48,446 3,373 2,263 60,319 60,183 2014...... 725 2,122 115 117 840 2,239 2016...... 15,205 3,730 48,845 44,716 3,428 2,127 67,478 50,573 2017-2021...... 55,500 8,138 237,109 190,972 19,274 8,194 311,883 207,304 2015...... 755 2,088 120 112 875 2,200 2022-2026...... 11,814 1,256 128,512 190,851 17,780 3,225 158,106 195,332 2016...... 795 2,051 125 107 920 2,158 2027-2031…… - - 123,337 126,669 1,932 748 125,269 127,417 2017-2021...... 4,710 9,513 715 443 5,425 9,956 2032-2036……… - - 131,044 88,595 2,108 272 133,152 88,867 2037-2041……… - - 111,626 29,731 23 1 111,649 29,732 2022-2026……… 6,495 7,729 892 267 7,387 7,996 2042-2046……… - - 18,450 663 - - 18,450 663 2027-2031……… 8,225 5,006 637 58 8,862 5,064 Total...... $ 106,434 $ 65,041 $ 968,694 $ 880,364 $ 57,788 $ 24,018 $ 1,132,916 $ 969,423 2032-2036……. 6,545 2,719 - - 6,545 2,719 2037-2041……… 6,550 861 - - 6,550 861 (1) The specific year for payment of accrued vacation and sick leave is not practicable to determine. Total...... $ 36,165 $ 36,415 $ 2,819 $ 1,353 $ 38,984 $ 37,768 (2) Includes payment of accreted interest. (3) Variable interest on the refunding bond 1986 Issue A is estimated using interest rate at June 30, 2011 of 3.34%. Laguna Honda Hospital (1) Fiscal Year Revenue Other Long-Term Governmental Activities Long-term Liabilities Ending Bonds Obligations Total June 30 Principal Interest Principal Interest Principal Interest General Obligation Bonds 2012...... $ - $ - $ 17 $ 6 $ 17 $ 6 The City issues general obligation bonds to provide funds for the acquisition or improvement of real 2013...... - - 7 5 7 5 property and construction of affordable housing. General obligation bonds have been issued for both Total...... $ - $ - $ 24 $ 11 $ 24 $ 11 governmental and business-type activities. The net authorized and unissued governmental activities general obligation bonds for the fiscal year ended June 30, 2011, are as follows: Total Business-type Activities (1) Governmental Activities - General Obligation Bonds Fiscal Year Revenue/Lease Revenue Other Long-Term Ending Bonds Obligations Total Authorized and unissued as of June 2010 ………………………………………… $ 847,110 June 30 Principal Interest Principal Interest Principal Interest Increase in authorization in June 2010: 2012...... $ 203,982 $ 389,111 $ 12,993 $ 14,588 $ 216,975 $ 403,699 Earthquake Safety and Emergency Response Bonds …………………………… 412,300 2013...... 222,037 381,411 14,787 14,030 236,824 395,441 Bonds issued: 2014...... 238,867 372,917 15,310 13,453 254,177 386,370 2015...... 258,394 362,504 13,115 12,843 271,509 375,347 Seismic and Safety Loan Program (5th draw) …………………………………… (15,000) 2016...... 278,708 349,615 12,565 12,266 291,273 361,881 Earthquake Safety and Emergency Response Bonds Series 2010E ………… (79,520) 2017-2021...... 1,605,459 1,536,280 48,060 52,800 1,653,519 1,589,080 Net authorized and unissued as of June 30, 2011 ………………………………… $ 1,164,890 2022-2026...... 1,786,307 1,119,213 32,932 42,474 1,819,239 1,161,687 2027-2031………… 1,429,810 714,825 28,787 32,967 1,458,597 747,792 The increase in authorized amount of $412.3 million of General Obligation Bonds 2010 Earthquake 2032-2036………… 881,360 419,916 34,665 22,817 916,025 442,733 Safety and Emergency Response Bonds was approved by at least two-third votes voting on 2037-2041………… 764,710 175,715 42,750 10,306 807,460 186,021 Proposition B at an election held on June 8, 2010. The bonds will be issued to provide funds to 2042-2046………… 95,305 58,971 9,679 314 104,984 59,285 improve fire, earthquake and emergency response and ensure firefighters a reliable water supply for 2047-2051………… 119,465 21,507 - - 119,465 21,507 fires and disasters, through projects including: improving deteriorating pipes, hydrants, reservoirs, Total...... $ 7,884,404 $ 5,901,985 $ 265,643 $ 228,858 $ 8,150,047 $ 6,130,843 water cisterns and pumps built after the 1906 earthquake; improving the neighborhood fire stations; replacing the seismically unsafe emergency command center with an earthquake-safe building; and (1) The specific year for payment of estimated claims payable, accrued vacation and sick leave pay, accrued workers’ pay related costs necessary or convenient for these purposes. compensation and other postemployment benefits obligation is not practicable to determine. In December 2010, the City issued General Obligation Bonds, Earthquake Safety and Emergency Response Bonds, Series 2010E in the amount of $79.5 million. Interest rates range from 3.0% to 5.0%. The bonds mature from June 2011 through June 2035. The bonds were issued to provide funds to finance the improvement, retrofitting, rehabilitation and completion of earthquake safety and emergency responsiveness facilities and infrastructure, and to pay certain costs related to the issuance of the bonds. The debt service payments are funded through ad valorem taxes on property. 98 99 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Seismic Safety Loan Program Government Obligation Bonds At June 30, 2011, the City has a total of $574.2 million of certificates of participation payable by pledged revenues from the base rental payments payable by the City. Total debt service payments The Seismic Safety Loan Program was approved by the voters of the City and County of San remaining on the certificates of participation are $942.6 million payable through September 1, 2040. Francisco by Proposition A in November 1992 which authorized the issuance of up to a total of For the fiscal year ended June 30, 2011, principal and interest paid by the City totaled $156.1 million $350 million aggregate principal amount of government obligation bonds to provide funds for loans for and $27.5 million, respectively. Of the $156.1 million of principal paid, $142.4 million was related to the seismic strengthening of privately-owned unreinforced masonry buildings within the City for the refunding of the prior certificates of participation. affordable housing and market-rate residential, commercial and institutional purposes and for related administrative costs. Approximately 2,200 privately-owned unreinforced masonry buildings were Lease Revenue Bonds identified by the City. These buildings are located throughout San Francisco, but are concentrated in Chinatown, the Tenderloin and south of Market Street. In July 1992, the Board of Supervisors passed The changes in governmental activities – lease revenue bonds for the year ended June 30, 2011 legislation mandating that these buildings be seismically strengthened within specified periods of were as follows: time. Most of the buildings have now been seismically retrofitted. The owners of the existing Governmental Activities - Lease Revenue Bonds unreinforced masonry buildings are eligible to apply for loans under the Loan Program to finance the 142,099 required seismic strengthening work and certain other legally-required work. Authorized and unissued as of June 30, 2010 ……………………………………………… $ Increases in authorization this fiscal year 2,527 Current year annual increase in Finance Corporation's equipment program ………… In February 2007, the Board of Supervisors approved Resolution No. 65-07 which authorized the 7,085 issuance of indebtedness under Proposition A in the amount not to exceed $35 million. Such Current year maturities in Finance Corporation's equipment program ……………...… issuance was achieved pursuant to the terms of a credit agreement with Bank of America, N.A. In Bond Issued: (14,725) March 2007, the City made the first draw under the Credit Agreement (Seismic Safety Loan Program, Series 2011A, San Francisco Finance Corporation……………………………...……… 1992) Series 2007A in the amount of $2 million. The first borrowing bears an interest rate of 5.69% $ 136,986 Net authorized and unissued as of June 30, 2011 ……………………………...………… with principal amortizing from June 2007 through June 2026. Within the first loan account are two loan sub-accounts, the market rate loan account and the below market rate loan account. Finance Corporation In October 2007 and January 2008, the City made the second and third draws in the amount of The purpose of the Finance Corporation is to provide a means to publicly finance, through lease $3.8 million and $3.9 million, respectively. The second borrowing bears an interest rate of 5.83% with financings, the acquisition, construction and installation of facilities, equipment and other tangible real principal amortizing from June 2008 through June 2027. The third borrowing bears interest rate of and personal property for the City’s general governmental purposes. 5.09% with principal amortizing from June 2008 through June 2027. Both borrowings are for below The Finance Corporation uses lease revenue bonds to finance the purchase or construction of market rate loan accounts. property and equipment, which are in turn leased to the City under the terms of an Indenture and Equipment Lease Agreement. These assets are then recorded in the basic financial statements of the In November 2008, the City made the fourth borrowing in the amount of $1.3 million. This draw bears City. Since the sole purpose of the bond proceeds is to provide lease financing to the City, any an interest rate of 4.35% with principal amortizing from June 2009 through June 2028 and for below amounts that are not applied towards the acquisition or construction of real and personal property market rate loan account. such as unapplied acquisition funds, bond issue costs, amounts withheld pursuant to reserve fund requirements, and amounts designated for capitalized interest are recorded as deferred credits until In November 2010, the City made the fifth borrowing under the Credit Agreement (Seismic Safety such time as they are used for their intended purposes. Loan Program, 1992) Series 2007A in the amount of $15 million. The fifth borrowing bears an interest rate of 4.91% with principal amortizing from June 2011 through June 2030. The fifth borrowing is for The lease revenue bonds are payable by pledged revenues from the base rental payments payable below market rate loans. by the City, pursuant to a Master Lease Agreement between the City and the San Francisco Finance Corporation for the use of equipment and facilities acquired, constructed and improved by the Debt service payments of the Seismic Safety Loan Program Government Obligation Bonds are Finance Corporation. The total debt service requirement remaining on the lease revenue bonds is funded through ad valorem taxes on property and principal repayments from borrowers of the loan $352.7 million payable through June 2034. For the fiscal year ended June 30, 2011, principal and program. interest paid by the Corporation and the total lease payments made by the City totaled $15.1 million and $6.2 million, respectively. Certificates of Participation (a) Equipment Lease Program In September 2010, the City issued City and County of San Francisco Refunding Certificates of In the June 5, 1990 election, the voters of the City approved Proposition C, which amended the City Participation, Series 2010A for $138.4 million (the Refunding Certificates) to refund the City’s Charter to allow the City to lease-purchase up to $20 million of equipment through a non-profit Certificates of Participation (2789 25th Street), Series 1997; (555 7th Street Property), Series 1999; corporation using tax-exempt obligations. San Bruno Jail Replacement Project, Series 2000; and 25 Van Ness Avenue Project, Series 2001-1 (collectively the Prior Certificates) with an outstanding amount of $142.4 million. A portion of the Beginning July 1, 1991, the Finance Corporation was authorized to issue lease revenue bonds up to proceeds of the Refunding Bonds was also used to pay the costs incurred in connection with $20 million in aggregate principal amount outstanding plus 5% annual adjustment each July 1. As of issuance of the Refunding Certificates. The Series 2010A certificates mature from October 2011 June 30, 2011, the total authorized amount is $53.0 million. The total accumulated annual through October 2033 with interest rates ranging from 3.0% to 5.0%. authorization since 1990 is $33.0 million of which $2.5 million is new annual authorization for the fiscal year ended June 30, 2011. Although the refunding resulted in the recognition of a deferred accounting loss of $5.0 million, the City in effect reduced its aggregate debt service payments by approximately $15.3 million over the The equipment lease program functions as a revolving bond authorization fund. That is, for each next 22 years and obtained an economic gain (difference between present value of the old and new dollar in bond principal that is repaid, a new dollar can be issued. The Finance Corporation has debt service payment) of $21.1 million. issued $172.3 million in equipment lease revenue bonds since 1991. As of June 30, 2011, 100 101 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) $142.1 million has been repaid leaving $30.2 million in equipment lease revenue bonds outstanding Owners of the Bonds may elect to have their Bonds, or portions of their Bonds, purchased at a and $22.8 million available for new issuance. purchase price equal to the principal amount of such Bonds (or portions thereof), plus accrued interest, if any, payable in immediately available funds, upon not less than seven (7) calendar days’ In May 2011, the Finance Corporation issued its eighteenth series of equipment lease revenue irrevocable written notice. E.J. De La Rosa & Co., Inc. is the exclusive remarketing agent for the bonds, Series 2011A in the amount of $14.7 million with interest rates ranging from 2.0% to 5.0%. 2008-1 Bonds. Banc of America Securities LLC is the exclusive remarketing agent for the 2008-2 The bonds mature from October 2012 to April 2017. Bonds. The remarketing agents have agreed to use their best efforts to remarket the Bonds and have agreed to purchase for their own accounts Bonds tendered but not remarketed under certain (b) Emergency Communication System Refinancing conditions specified in remarketing agreements, at a price equal to 100 percent of the principal amount thereof plus accrued interest to the tender date. In 1993, the voters approved the issuance of up to $50 million in lease revenue bonds to finance the acquisition and construction of a citywide emergency radio communication system (800 MHz). The Under irrevocable direct pay letters of credit issued by Bank of America, N.A. for Series 2008-1 and Finance Corporation issued two series in January 1998 and February 1999 for $31.3 million and State Street Bank and Trust Company for Series 2008-2, the trustee is entitled to draw an amount $18.7 million, respectively. Further, in 1994, the voters approved the issuance of up to $60 million in sufficient to pay the purchase price of bonds delivered to it. The letters of credit are effective through lease revenue bonds to finance the acquisition and construction of a combined emergency September 9, 2014 or such later date or dates as may be extended, and to the extent there is a communication center to house the City’s 911-emergency communication system. The Finance unreimbursed draw of the letter(s) of credit, carries a fluctuating rate per annum: (A) for any day prior Corporation issued two series in June 1997 and in July 1998 for $22.6 million and $23.3 million, to the date that is 31 days from and including the date of the draw the higher of (i) the Federal Funds respectively. Rate plus 2% and (ii) the Prime Rate plus 1% (the “Base Rate”), (B) on any day on or after the date that is 31 days from and including the date of the draw and prior to the date that is 61 from and In July 2010, the San Francisco Finance Corporation issued Lease Revenue Refunding Bonds including the date of the draw, a fluctuating rate of interest equal to the Base Rate plus 1%, (C) on (Emergency Communications System Refinancing) Series 2010-R1 in the amount of $22.3 million any day on or after the date that is 61 days from and including the date of the draw, a fluctuating rate (the Refunding Bonds) to refund, on a current basis, the following outstanding bonds of the San of interest equal to the Base Rate plus 2%, and (D) on any day after the maturity date for the draw, a Francisco Finance Corporation: Lease Revenue Bonds, Series 1997 (Combined Emergency fluctuating rate of interest equal to the Base Rate in effect on such date plus 3%. Communications Center), Series 1998 (Combined Emergency Communications System), Series 1998-I (Citywide Emergency Radio System), and Series 1999-I (Citywide Emergency Radio System) If the remarketing agent is unable to resell any Bonds that are “tendered” within the six month with the outstanding amount of $26.8 million; to fund the Reserve Fund established under the Trust anniversary of the “tender” date, the City has a reimbursement agreement with Bank of America, N.A. Agreement and to pay costs of issuance and delivery of the 2010-R1 Bonds. The Refunding Bonds for Series 2008-1 and State Street Bank and Trust Company for Series 2008-2 to convert the bonds begin to mature in April 2011 through April 2024 and interest rates range from 2.0% to 4.0%. The to an installment loan payable in six (6) equal semiannual installments, commencing on the six month refunding resulted in an accounting loss of $0.5 million to the Corporation for the year ended June anniversary of the date of the “tender” date and bearing a fluctuating interest rate equal to the Draw 30, 2011 but in effect achieved $7.7 million in gross debt service savings and net present value Rate. The reimbursement agreement expires September 9, 2014 or such later date or dates as savings of $2.4 million. extended by mutual agreement. If the reimbursement agreement were to be exercised because the entire outstanding balance of $133.4 million of demand bonds were “tendered” and not resold, the (c) Moscone Center West Expansion Project City would be required to pay an amount not to exceed the fair rental value per annum of the leased In 1996, the voters approved the issuance of up to $157.5 million in lease revenue bonds for the asset per year for three (3) years under the reimbursement agreement at a rate per annum equal to purpose of financing a portion of the costs of acquiring, constructing, and improving a free-standing the Draw Rate. expansion to the City’s Moscone Convention Center located on the northwest corner of Howard and Fourth Street in the City. On November 2, 2000, Series 2000-1, 2000-2 and 2000-3 totaling The City is required to pay to Bank of America, N.A. an annual commitment fee for the letter of credit $157.5 million (the “2000 Bonds”) were issued. Each series of the bonds bear interest at a weekly of 0.70 percent per annum of the outstanding principal amount of the Bonds, payable quarterly in rate and may bear interest at a different rate and in a different rate mode from other series of bonds. arrears for Series 2008-1 Bonds and State Street Bank and Trust Company an annual commitment fee for the letter of credit of 0.72 percent per annum of the outstanding principal amount of the Bonds, In September 2008, the San Francisco Finance Corporation issued Lease Revenue Refunding Bonds payable quarterly in arrears for Series 2008-2 Bonds. For fiscal year 2011-12, the City will pay a (Moscone Center Expansion Project) Series S2008-1 and Series S2008-2 for a total of $145.3 million commitment fee of approximately $0.5 million to Bank of America, N.A. for Series 2008-1 Bonds and (the “Refunding Moscone Bonds”) to provide funds, together with other available monies to the refund $0.5 million to State Street Bank and Trust Company for Series 2008-2 Bonds. In addition, the the 2000 Bonds to address the concerns regarding the credit provided by the bond insurer. A portion remarketing agent receives an annual fee of 0.0725 percent of the outstanding principal amount of of the proceeds of the Refunding Bonds were also used to pay the cost of issuing the Bonds. the Bonds, payable quarterly in arrears. For fiscal year 2011-12, the City will pay a remarketing fee of approximately $0.05 each to E.J. De La Rosa & Co., Inc. for Series 2008-1 Bonds and Banc of The Bonds are limited obligations of the Corporation payable from revenues which consist of base America Securities LLC for Series 2008-2 Bonds rental payments to be made by the City, and other amounts held in certain funds and accounts, established under an indenture of trust. The payment of the principal of and interest on each series of The Refunding Moscone Bonds mature from April 2009 to April 2030. As of end of June 30, 2011, the Bonds and the purchase price of each series of the Bonds upon the optional or mandatory tender both series have a combined balance of $133.4 million and bear interest at a weekly rate. Interest thereof will initially be supported by separate irrevocable direct-pay letters of credit issued by Bank of rates as of June 30, 2011 for Series 2008-1 and Series 2008-2 were 0.05% and 0.04%, respectively. America, N.A. for Series 2008-1 and by State Street Bank and Trust Company for Series 2008-2. The Bonds were issued pursuant to Ordinance No. 203-08 adopted by the Board of Supervisors on San Francisco Marina West Harbor Loan August 12, 2008. The proceeds of the Bonds were used to provide funds, together with other City monies, to fully refinance a portion of the costs of acquiring, constructing and improving an expansion In March 2009, the City through the Recreation and Park Department entered into a loan agreement to the City’s George R. Moscone Convention Center. with the Department of Boating and Waterways (Department) of the State of California. Under the Small Craft Harbor Construction Loan agreement, the Department will advance the City a total amount of $16.5 million in four phases of its construction project. Repayment of principal and interest 102 103 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) begins on August 1, immediately after the final loan draw and are annually thereafter until August The Series 2009A/B Bonds were remarketed at par plus accrued interest, with the $175.0 million 2045. Interest shall be compounded continuously at the rate of 4.5% on the unpaid balance. The loan proceeds of the remarketing and the $0.49 million accumulated in the related interest accounts being repayment shall be made from project area gross revenues. Primary collateral for the loan consists of used to pay the purchase price of the bonds on the September 15, 2010 mandatory tender date. a lease/leaseback of the marina between the City and the Department with an assignment of rents When originally issued, each series of the Series 2009A/B Bonds was secured by a separate reserve and leases on marina revenues. In addition, the Department will receive a first lien position on the account. Following the remarketing, the Series 2009A/B Bonds were secured by the Airport’s parity Marina Fund surplus revenues to cover any payment shortfall after construction completion. In reserve (the Issue 1 Reserve Account). Of the $13.9 million released from the separate reserve January 2011, the Department authorized to fund the Phase V on the project for $7 million by an accounts, $12.5 million was deposited into the Issue 1 Reserve Account, $0.5 was used to pay costs amendment to the loan agreement. Under amended agreement, the City shall provide and maintain a of issuance, and $0.9 was used for underwriter compensation. reserve fund that will act as security of the loan. At a minimum, a reserve of two annual payments ($2.9 million) shall be accumulated during the first ten years of the loan repayment terms and Second Series Revenue Refunding Bonds, Series 2011A/B thereafter be maintained at that level. During the year ended June 30, 2011, the City drew down $1.3 million and as of June 30, 2011, the amount of loan outstanding is $2.4 million. In February 2011, the Airport issued its long-term fixed rate Second Series Revenue Refunding Bonds, Series 2011A (AMT/Private Activity) and 2011B (Non-AMT/Governmental Purpose), in the Business-Type Activities Long-Term Liabilities principal amount of $155.4 million to defease and refund $114.1 million of outstanding fixed rate bonds (from Issues 26A, 27A and 27B), retire $11.5 million in outstanding commercial paper notes, The following provides a brief description of the current year additions to the long-term debt of the and defease and refund $41.1 million of Series 2008A-3 Notes in advance of their May 1, 2011 business-type activities. mandatory tender date. The Series 2011A Bonds mature between May 1, 2012 and May 1, 2019 and bear interest at rates between 4.00% and 5.75%. The Series 2011B Bonds mature between San Francisco International Airport May 1, 2012 and May 1, 2021 and bear interest at rates between 4.00% and 5.50%. Second Series Revenue Bonds (Capital Plan Bonds) The net proceeds of $178.6 million (consisting of the par amount of the Series 2011A/B Bonds, plus The Airport has authorized the issuance of up to $718 million of capital plan bonds captioned San original issue premium of $8.7 million, plus $4.6 million accumulated in the Debt Service Fund relating Francisco International Airport Second Series Revenue Bonds for the purposes of financing and to the refunded bonds, plus $10.0 million released from the Series 2008A-3 Reserve Account) were refinancing the construction, acquisition, equipping and development of capital projects undertaken used to pay $0.7 million in underwriters’ discount and $1.2 million in costs of issuance, make a by the Airport, including retiring all or a portion of the Airport’s outstanding subordinate commercial $5.7 million deposit to the Issue 1 Reserve Account, retire $11.5 million of commercial paper notes, paper notes issued for capital projects, funding debt service reserves, and for paying costs of and make a $159.6 million deposit to irrevocable escrow funds with the bond trustee to defease and issuance. As of fiscal year end, $103.7 million of such capital plan bonds remained unissued. refund $155.2 million in revenue bonds and notes described below. Second Series Revenue Bonds, Series 2010F/G (New Issue) Amount Interest Purchase Purchased Rate Price On August 5, 2010, the Airport issued its Second Series Revenue Bonds, Series 2010F (Non- Second Series Revenue Bond: AMT/Private Activity) and 2010F (Non-AMT/Governmental Purpose) in the aggregate principal Issue 26A $ 3,050 5.00% 101% amount of $128.5 million to retire commercial paper notes that had been issued to finance Airport Issue 27A 41,470 5.50% 100% capital projects. The Series 2010F/G Bonds are uninsured fixed rate term bonds due on May 1, 2035 Issue 27B 69,625 5.00%-5.25% 100% and May 1, 2040, with a 5.00% interest rate. 114,145 Series 2008A Notes The net proceeds of $128.2 million (consisting of the principal amount of the Series 2010F/G Bonds, 2008A-3 41,065 6.75% 100% less $0.3 million in net original issue discount and plus $30 of other Airport funds) were used to make Total Refunded $ 155,210 a $4.7 million deposit to the Issue 1 Reserve Account (the Airport’s parity reserve account), pay $0.8 million in costs of issuance, pay $0.7 million in underwriters’ discount and retire the The refunded bonds were redeemed on March 24, 2011 (Issue 26A) and May 1, 2011 (Issue 27A, $121.9 million of outstanding commercial paper notes on August 5, 2010. Issue 27B, Series 2008A-3). Accordingly, the liability for these bonds has been removed from the Second Series Revenue Refunding Bonds accompanying statements of net assets. Pursuant to sale resolutions approved between fiscal years 2005 through 2011, the Airport had The refunding resulted in the recognition of a deferred accounting gain of $0.5 million for fiscal year authorized the issuance of up to $8.4 billion of San Francisco International Airport Second Series ended June 30, 2011. The Airport reduced its aggregate debt service payments by approximately Revenue Refunding Bonds for the purposes of refunding outstanding 1991 Resolution Bonds and $13.0 million over the next ten years and obtained an economic gain (the difference between the outstanding subordinate commercial paper notes, funding debt service reserves, and paying costs of present values of the old debt and the new debt) of $10.9 million. issuance, including any related bond redemption premiums. As of June 30, 2011, net of expired sale authorizations and refunding bonds issued over fiscal year 2011, $2.4 billion of such refunding bonds Second Series Variable Rate Revenue Refunding Bonds, Issue 36B (Remarketing) remained unissued. In May 2011, the Airport remarketed its $40.6 million Second Series Variable Rate Revenue Second Series Revenue Refunding Bonds, Series 2009A/B (Remarketing) Refunding Bonds, Issue 36B (Non-AMT/Private Activity) in connection with a new letter of credit from U.S. Bank National Association. The Issue 36B bonds were originally secured by a letter of credit In September 2010, the Airport remarketed its $175.0 million Second Series Revenue Refunding from Union Bank of California, N.A., which expired on May 6, 2011. The Issue 36B Bonds were Bonds, Series 2009A/B (Non-AMT/Private Activity) as long-term bonds with fixed interest rates to remarketed with original maturity date of May 1, 2026 and no changes to principal amortization. their respective maturity dates. The Series 2009A/B Bonds were originally issued in September 2009 with a May 1, 2029 nominal final maturity date but were scheduled to become due in a single Payment of principal and purchase price of the interest on the Issue 36B Bonds following the “balloon” payment on September 15, 2010. remarketing will be secured by an irrevocable direct-pay letter of credit issued by U.S. Bank National 104 105 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Association. The letter of credit will be in effect from the date of remarketing through May 2, 2014. As of June 30, 2011, the fair value of the Airport’s seven outstanding swaps, which had a total Because the Issue 36B Bonds are secured by a letter of credit they are not secured by a reserve notional amount of $513.4 million are as follows: account. The costs of remarketing are paid by the Airport funds. Interest Rate Swaps Associated Notional Effective Bonds Amount Date Bank Counterparty Objective and Terms – In December 2004, the Airport entered into seven forward starting interest 36AB $ 70,000 2/10/2005 J.P. Morgan Chase Bank N.A. rate swaps (the “2004 swaps”) with an aggregate notational amount of $405.0 million, in connection 36A 69,930 2/10/2005 J.P. Morgan Chase Bank N.A. with the anticipated issuance of Second Series Variable Rate Revenue Refunding Bonds, Issue 36C 30,000 2/10/2005 J.P. Morgan Chase Bank N.A. 32A-E in February 2005, and Second Series Variable Rate Revenue Refunding Bonds, Issue 33 in 36D 29,970 2/10/2005 J.P. Morgan Chase Bank N.A. February 2006. The swap structure was intended as a means to increase the Airport’s debt service 37B (1) 79,684 5/15/2008 Merrill Lynch Capital Services, Inc. savings when compared with fixed rate refunding bonds at the time of issuance. The expiration date 37C 89,856 5/15/2008 J.P. Morgan Chase Bank N.A. of the 2004 swaps is May 1, 2026. In July 2007, the Airport entered into four additional forward 2010A 143,947 2/1/2010 Goldman Sachs Bank USA starting interest rate swaps in connection with the anticipated issuance of its Second Series Variable $ 513,387 Rate Revenue Refunding Bonds, Issue 37B/C, in May 2008 (the “2007 swaps”), and Second Series Variable Rate Revenue Refunding Bonds, Series 2010A, in February 2010 (the “2010 swaps”). The (1) The swap previously associated with Issue 37B is now associated with Series 2010A-3 and a portion of Issue 37D. expiration dates of the 2007 and 2010 swaps are May 1, 2029, and May 1, 2030, respectively. The 2004 swaps hedging the Issue 36A-D Bonds terminate in May 2026, the final maturity date of the In the spring of 2008, the Airport refunded several issues of auction rate and variable rate obligations, Issue 36 Bonds. The following is additional information regarding the 2004 swaps and the including Issue 32 and Issue 33. The 2004 swaps associated with these issues then became counterparty as of June 30, 2011: associated with the Second Series Variable Rate Revenue Refunding Bonds, Issues 36A-D and Issue 37A. Subsequently, in October and December 2008, the Airport refunded Issues 37A and Issue Counterparty credit ratings 37B, respectively. Concurrently with the refunding of Issue 37A, the three associated swaps, with an Initial Fixed rate Fair Notional payable by value to aggregate notional amount of $205.1 million, were terminated. The swap associated with Issue 37B Counterparty/guarantor Amount Airport Moody's S&P Fitch Airport was not terminated concurrently with the refunding of Issue 37B. J.P. Morgan Chase Bank, N.A. $ 70,000 3.4440% Aa1 AA- AA- $ (7,004) J.P. Morgan Chase Bank, N.A. 30,000 3.4440% Aa1 AA- AA- (3,002) In December 2010, the Airport terminated the swap associated with the Series 2010A-3 Bonds, with a J.P. Morgan Chase Bank, N.A. 69,930 3.4400% Aa1 AA- AA- (7,004) notional amount of $72.0 million. The Airport paid a termination amount of $6.7 million to the J.P. Morgan Chase Bank, N.A. 29,970 3.4450% Aa1 AA- AA- (3,002) counterparty, Depfa Bank plc. The payment was funded with taxable commercial paper, which was (Aggregate notional amount) $ 199,900 $ (20,012) subsequently retired with Airport operating funds in March 2011. Following the termination of the Depfa swap, the Series 2010A-3 Bonds are no longer hedged with the interest rate swap. The swap The 2007 swaps hedging the Issue 37B Bonds and the 37C Bonds terminate in May 2029, which is associated with the Issue 37B Bonds, however, is now associated with the Series 2010A-3 Bonds the final maturity date of the Issue 37C Bonds. The following is additional information regarding the and a $7.7 million portion of the previously unhedged Issue 37D Bonds. 2007 swaps and the counterparty as of June 30, 2011: Under the 2004 swaps, the Airport receives a monthly variable rate payment from each counterparty Counterparty credit ratings Initial Fixed rate Fair equal to 63.5% of USD-LIBOR-BBA plus 0.29%. Under the 2007 and 2010 swaps, the Airport Notional payable by value to receives 61.85% of USD-LIBOR-BBA plus 0.34%. These payments are intended to approximate the Counterparty/guarantor Amount Airport Moody's S&P Fitch Airport variable interest rates on the bonds originally hedged by the swaps. The Airport makes a monthly Merrill Lynch Capital Services $ 79,684 3.8980% A2 A A+ $ (12,053) fixed rate payment to the counterparties as set forth below, which commenced on the date of J.P. Morgan Chase Bank, N.A. 89,856 3.8980% Aa1 AA- AA- (13,591) issuance of the related bonds. The objective of the swaps is to achieve a synthetic fixed rate with (Aggregate notional amount) $ 169,540 $ (25,644) respect to the hedged bonds. All of the outstanding interest rate swaps are terminable at their market value at any time solely at the option of the Airport. The swap relating to the 2010A Bonds terminates in May 2030, the final maturity date of the Series 2010A Bonds. The following is additional information regarding the 2010 swap and the counterparty as of June 30, 2011: Counterparty credit ratings Initial Fixed rate Fair Notional payable by value to Counterparty/guarantor Amount Airport Moody's S&P Fitch Airport Goldman Sachs Bank USA $ 143,947 3.9250% Aa3 A A+ $ (22,648) (Aggregate notional amount) $ 143,947 $ (22,648) 106 107 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Fair Value – The fair values take into consideration the prevailing interest rate environment and the The Airport has secured municipal swap insurance for all its regular payments and some termination specific terms and conditions of each swap. All fair values were estimated using the zero-coupon payments due under all its interest rate swaps except the swaps associated with the Series 2010A discounting method. This method calculates the future payments required by the swap, assuming that Bonds, from the following insurers: the current forward rates implied by the yield curve are the market’s best estimate of future spot Insurer interest rates. These payments are then discounted using the spot rates implied by the current yield credit ratings curve for a hypothetical zero-coupon rate bonds due on the date of each future net settlement June 30, 2011 payment on the swaps. Swap Swap Insurer (S&P/Moody's) Basis Risk – The Airport has chosen a variable rate index based on a percentage of LIBOR plus a Issue 36C Assured Guaranty Municipal Corp. AA+/Aa3 spread, which historically has closely approximated the variable rates payable on the related bonds. Issue 36AB (two swaps) FGIC/National Public Finance Guarantee Corporation WD/WD* However, the Airport is subject to the risk that a change in the relationship between the LIBOR-based Issue 36D Assured Guaranty Municipal Corp. AA+/Aa3 swap rate and the variable bond rates would cause a material mismatch between the two rates. Issue 37C Assured Guaranty Municipal Corp. AA+/Aa3 Changes that cause the payments received from the counterparty to be insufficient to make the Series 2009D Assured Guaranty Municipal Corp. AA+/Aa3 payments due on the associated bonds result in an increase in the synthetic interest rate on the Series 2010A None N/A bonds, while changes that cause the counterparty payments to exceed the payments due on the associated bonds result in a decrease in the synthetic interest rate on the bonds. During the fiscal * S&P downgraded FGIC’s credit ratings to “CC” from “CCC” and subsequently withdrew their ratings on FGIC on April 22, year ending June 30, 2011, the Airport received $0.6 million in excess payments from its 2009. Moody’s downgraded FGIC from “Caa3” from “Caa1” and subsequently withdrew their ratings on FGIC on counterparties, resulting in a decrease in the effective synthetic interest rates on the associated March 24, 2009. bonds. Credit Risk – As of June 30, 2011, the Airport is not exposed to credit risk because the swaps have a If the Airport is rated between Baa1/BBB+/BBB+ and Baa3/BBB-/BBB- (Moody’s/S&P/Fitch), and the negative fair value to the Airport. Should long-term interest rates rise and the fair value of the swaps applicable bond insurer is rated below A3/A- (Moody’s/S&P), the counterparties may terminate the becomes positive, the Airport would be exposed to credit risk in the amount of the swaps’ fair value. swaps and require the Airport to pay the termination value, if any, unless the Airport chooses to Under the terms of the swaps, counterparties are required to post collateral consisting of specified provide suitable replacement credit enhancement, assign the Airport's interest in the swaps to a U.S. Treasury and Agency securities in an amount equal to the market value of a swap that exceeds suitable replacement counterparty, or post collateral to secure the swap termination value. If the specified thresholds linked to the counterparty’s credit ratings. Any such collateral will be held by a Airport is rated below Baa3/BBB-/BBB- (Moody’s/S&P/Fitch) or its ratings are withdrawn or custodial bank. suspended, and the applicable bond insurer is rated below A3/A- (Moody’s/S&P), the counterparties may terminate the swaps and require the Airport to pay the termination value, if any. With respect to Counterparty Risk – The Airport is exposed to counterparty risk, which is related to credit and the Series 2010A swaps with no swap insurance, the counterparty termination provisions and the termination risk. While the insolvency or bankruptcy of a counterparty or its failure to perform would Airport rating thresholds are the same as described above. be a default under the applicable swap documents, none of the Airport’s swaps would automatically terminate. Rather, the Airport would have the option to terminate the affected swap at its fair value, Additional Termination Events under the swap documents with respect to the Airport include an which may result in a payment to the counterparty. The Airport may also be exposed to counterparty insurer payment default under the applicable swap insurance policy, and certain insurer rating risk in a high interest rate environment in the event a counterparty is unable to perform its obligations downgrades or specified insurer non-payment defaults combined with a termination event or event of on a swap transaction leaving the Airport exposed to the variable rates on the associated debt. The default on the part of the Airport or a ratings downgrade of the Airport below investment grade. Airport’s swap policy limits counterparty credit risk by limiting exposure to any one counterparty at the Additional Termination Events under the swap documents with respect to a counterparty include a time a swap is executed to not more than 20% of the total portfolio. While the Airport’s exposure to rating downgrade below investment grade followed by a failure of the counterparty to assign its rights J.P. Morgan Chase Bank, N.A. and affiliates complied with the swap policy when the applicable and obligations under the swap documents to another entity acceptable to the applicable insurer swaps were executed, the Airport’s exposure as of June 30, 2011 exceeded this threshold due to within 15 business days. JPMorgan’s acquisition of Bear Stearns Capital Markets, Inc. The swap policy does not require The impact of the interest rate swaps on the financial statements for the year ended June 30, 2011 is remedial action in this case. as follows: Termination Risk – All of the interest rate swaps are terminable at their market value at any time at Deferred the option of the Airport. The Airport has limited termination risk with respect to the interest rate outflows on Derivative swaps. That risk would arise primarily from certain credit-related events or events of default on the derivative instrument part of the Airport, the municipal swap insurer, or the counterparty. instrument liabilities Balance June 30, 2010 $ 89,505 $ 94,838 Change in fair value to year end (26,123) (26,534) Balance June 30, 2011 $ 63,382 $ 68,304 Deferred outflows on derivative instrument of $63.4 million as of June 30, 2011 represented deferred outflows of resources offsetting interest rate swap liabilities in accordance with GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments (GASB 53), in fiscal year 2011. Derivative instrument liabilities of $68.3 million as of June 30, 2011 represented the recording of the fair values of interest rate swap contracts per GASB 53. 108 109 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Variable Rate Demand Bonds money for WSIP projects, with the balance applied to financing costs. The bonds included serial and term bonds with interest rates varying from 3.0% to 6.0%, and mature through November 1, 2040. Included in long-term debt as of June 30, 2011 is $535 million of Second Series Variable Rate Revenue Refunding Bonds, Issues 36A/B/C/D, Issues 37C/D and Series 2010A (collectively, the In December 2010, the Water Enterprise issued revenue bonds 2010 Series FG in the combined “Variable Rate Bonds”) in a weekly variable rate mode that mature on May 1, 2026 (Issues principal amount of $532.4 million. The Sub-Series F bonds were issued as tax-exempt bonds, while 36A/B/C/D), May 1, 2029 (Issues 37C), and May 1, 2030 (Issue 37D and Series 2010A). The Variable the Sub-Series G bonds were issued as Build America Bonds with a Direct Pay Subsidy. The Rate Bonds are long-term tax-exempt bonds that bear interest at a rate that is adjusted weekly, and $181.0 million Sub-Series F bonds provided $149.7 million in new money for WSIP. The that are subject to tender at par at the option of the holder thereof on seven days notice. Any $351.5 million Sub-Series G bonds provided $288.3 million in new money for WSIP projects, with the tendered Variable Rate Bonds are remarketed by the applicable remarketing agent in the secondary balance applied to financing costs. The bonds included serial and term bonds with interest rates market to other investors. The interest rate on the Variable Rate Bonds can be converted to other varying from 3.0% to 6.9%, and mature through November 1, 2050. interest rate modes, including a term rate or a fixed rate to maturity, upon appropriate notice by the Airport. Component Unit Debt – San Francisco Redevelopment Agency The scheduled payment of the principal and purchase price of and interest on the Issues 36A/B and The current year debt activities of the Redevelopment Agency are discussed in Note 12. Series 2010A bonds is secured by three separate irrevocable direct-pay letters of credit issued to the bond trustee for the benefit of the applicable bondholders by the banks identified in the table below. (9) EMPLOYEE BENEFIT PROGRAMS The scheduled payment of principal of and interest on the Issues 36C/D and 37C/D bonds when due (a) Retirement Plan is guaranteed under several bond insurance policies issued by Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.), while the payment of the purchase price of the The City maintains a cost-sharing multiple-employer defined benefit pension plan (the Plan), which Issues 36C/D and 37C/D bonds upon tender for purchase is payable, subject to the satisfaction of covers substantially all of its employees, and certain classified and certified employees of the San certain conditions precedent, from amounts made available pursuant to four standby bond purchase Francisco Community College District and Unified School District, and San Francisco Trial Court agreements with Dexia Crédit Local, acting through its New York Branch. employees other than judges. Due to the relative insignificance of the other employers in the Plan, the City presents disclosure information for the Plan as if it were a single-employer plan. The Plan is Amounts drawn under a standby bond purchase agreement or a letter of credit that are not administered by the San Francisco City and County Employees’ Retirement System (the Retirement reimbursed by the Airport constitute “Repayment Obligations” under the 1991 Master Resolution and System). Some City employees participate in the California Public Employees Retirement System are accorded the status of other outstanding bonds to the extent provided in the Resolution. The (PERS), agent or cost-sharing multiple-employer, public employee pension plans, which cover certain commitment fees for the letters of credit and standby bond purchase agreements range between employees in public safety functions, the Port, the Airport, the San Francisco County Transportation 0.55% and 1.35% per annum. As of June 30, 2011, there were no unreimbursed draws under these Authority and the Redevelopment Agency. facilities. Employees’ Retirement System In May 2011, the Airport remarketed its Second Series Variable Rate Revenue Refunding Bonds, Issue 36B (Non-AMT/Private Activity) with a new three-year letter of credit from U.S. Bank National Plan Description – Substantially all full-time employees of the City participate in the Plan. The Plan Association. The bonds were originally issued with a letter of credit from Union Bank of California, provides basic service retirement, disability and death benefits based on specified percentages of N.A., which expired in May 2011. defined final average monthly salary and provides annual cost-of-living adjustments after retirement. The Plan also provides pension continuation benefits to qualified survivors. The San Francisco City The primary terms of the standby bond purchase agreements and letters of credit are as follows: and County Charter and the Administrative Code are the authority which establishes and amends the benefit provisions and employer obligations of the Plan. The retirement related payroll for employees Issue 36A Issue 36B Issue 36 C/D Issue 37C/D Series 2010A covered by the Retirement System for the year ended June 30, 2011 was approximately $2.4 billion. Principal Amount……… $100,000 $40,620 $68,830 $109,585 $215,970 The Retirement System issues a publicly available financial report that includes financial statements Type…………………… Letter of Credit Letter of Credit Standby Bond Standby Bond Letter of Credit and required supplementary information for the Plan. That report may be obtained by writing to the Purchase Agreement Purchase Agreement San Francisco City and County Employees’ Retirement System, 30 Van Ness Avenue, Suite 3000, Expiration Date………… May 7, 2013 May 2, 2014 May 15, 2013 May 15, 2013 January 31, 2014 San Francisco, CA 94102 or by calling (415) 487-7020. Insurer………………… n/a n/a Assured Guaranty Assured Guaranty n/a Municipal Corp. Municipal Corp. Legislative Changes to the Plan – In June 2010, the voters of the City approved a Charter Credit/Liquidity Wells Fargo Bank, U.S. Bank Dexia Credit Local, Dexia Credit Local, JPMorgan amendment to create new benefit plans for miscellaneous employees and firefighter and police Provider……………… National Association National Association New York Branch New York Branch Chase Bank, N.A. employees who are hired on or after July 1, 2010. The new benefit plan covering miscellaneous employees hired on or after July 1, 2010 provides for a service retirement benefit, which is calculated San Francisco Water Enterprise using the member’s final compensation (highest two-year average monthly compensation) multiplied by the member’s years of credited service times the member’s age factor up to a maximum of 75% of In July 2010, the Water Enterprise issued revenue bonds 2010 Series DE in the combined principal the member’s final compensation. The two new benefit plans covering firefighter and police amount of $446.9 million. The Sub-Series D bonds were issued as tax-exempt bonds, while the Sub- employees hired on or after July 1, 2010 provide for: a) an increase in required employee Series E bonds were issued as Build America Bonds with a Direct Pay Subsidy. The $102.7 million contributions from 7.5% of covered compensation in the previous safety plans to 9% of covered Sub-Series D bonds provided $72.2 million in new money for Water System Improvement Program compensation, and b) a service retirement benefit, which is calculated using the member’s final (WSIP) implementation and also provided $35.1 million to advance refund a portion of the Water compensation (highest two-year average monthly compensation) multiplied by the member’s years of Revenue Bonds, Series 2002 A bonds, as well as providing funds for financing costs. The refunding credited service times the member’s age factor up to a maximum of 90% of the member’s final of Water Revenue Bonds 2002 Series A by Water Revenue Bonds 2010 Sub-Series D resulted in compensation. accounting loss of $3.4 million but achieved net present value debt service savings of $2.7 million of 8.6% of the refunded principal. The $344.2 million Sub-Series E bonds provided $300.0 million in new 110 111 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Membership of the Retirement System consisted of the following as of June 30, 2011: Three-year trend information is as follows: Annual Percentage Net Police Fire Miscellaneous Total Fiscal Year Pension of APC Pension Retirees and beneficiaries currently Ended Cost (APC) Contributed Obligation receiving benefits 2,258 2,081 19,860 24,199 Active members 2,042 1,350 24,708 28,100 6/30/2009 $ 119,750 100% $ - Terminated members entitled to but not 6/30/2010 223,614 100% - yet receiving benefits 121 63 5,266 5,450 6/30/2011 308,823 100% - Total 4,421 3,494 49,834 57,749 Funded Status and Funding Progress – As of July 1, 2010, the most recent actuarial valuation date, Plan member contributions are recognized in the period in which the contributions are due. Benefits the actuarial value of assets was $16.1 billion; the actuarial accrued liability was $17.6 billion; the total and refunds are recognized when due and payable in accordance with the terms of the Plan. unfunded actuarial accrued liability was $1.6 billion; the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio) was 91.1%; the annual covered payroll was $2.4 billion; Deferred Retirement Option Program – In February 2008, the voters of the City and County approved and the ratio of the unfunded actuarial liability to annual covered payroll was 65.6%. The actuarial a Charter amendment to provide a Deferred Retirement Option Program (DROP) for certain Police assumptions used were the same as described in the Annual Pension Cost section above except the members of the Plan to be effective July 1, 2008. An eligible police officer could elect to participate in assumptions for the cost of living adjustments of 2% to 5% and salary merit increase of 5%. The DROP for a specified period of time up to a maximum of three years depending on the rank of the Retirement System’s actuarial accrued deficit from its July 1, 2010 actuarial valuation increased from police officer. While participating in DROP, the police officer continues to work and receive pay as a a deficit of $493.9 million to a deficit of $1.6 billion primarily due to investment experience during the police officer and accrues monthly DROP distributions posted to a nominal account maintained by the year ended June 30, 2009. The actuarial value of assets is “smoothed” in order to mitigate the impact Retirement System. The monthly DROP distribution is equal to the participant’s monthly service of investment performance volatility on employer contribution rates. Because asset valuations are retirement allowance calculated as of the participant’s entry into DROP. Interest at an annual effective smoothed and the full investment losses from the year ended June 30, 2009 have not been rate of 4% and applicable COLAs are posted to the participant’s DROP account during participation in recognized, the contribution rate is expected to increase over the next three years assuming DROP. Upon exiting from DROP, the participant receives a lump sum distribution from his or her investment returns equal the assumed rate and all other actuarial assumptions are met. The schedule DROP account and begins to receive a monthly service retirement allowance calculated using age, of funding progress, presented as required supplementary information (RSI) following the notes to the covered compensation and service frozen as of the date of his or her entry into DROP. DROP expired financial statements, presents multiyear trend information about whether the actuarial values of plan on June 30, 2011. assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Changes in DROP liabilities during the year ended June 30, 2011 are as follows: California Public Employees’ Retirement System Various City public safety, Port, and all Redevelopment Agency and San Francisco County DROP liability, beginning of year $ 8,653 Transportation Authority employees are eligible to participate in PERS. Disclosures for the San Additions 16,088 Francisco County Transportation Authority and Redevelopment Agency are included in the separately Distributions (7,100) issued financial statements. DROP liability, end of year $ 17,641 Plan Description – The City contributes to PERS, an agent multiple-employer public employee defined benefit pension plan for safety members and a cost-sharing multiple-employer plan for Funding Policy – Contributions are made to the basic plan by both the City and the participating miscellaneous members. Effective with the PERS June 30, 2003 actuarial valuation, PERS mandated employees. Employee contributions are mandatory as required by the Charter. Employee contribution that the City’s miscellaneous members plan be included in a cost-sharing multiple-employer plan rates for fiscal year 2010-11 varied from 7% to 9% as a percentage of gross salary. For fiscal year consisting of various government entities with plan memberships of less than 100 active members. ended June 30, 2011, most employee groups agreed through collective bargaining for employees to PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death contribute the full amount of the employee contributions on a pretax basis. The City is required to benefits to plan members and beneficiaries. PERS acts as a common investment and administrative contribute at an actuarially determined rate. Based on the July 1, 2009 actuarial report, the required agent for participating public entities within the State of California. Benefit provisions and all other employer contribution rate for fiscal year 2010-11 was 13.56%. requirements are established by state statute and City ordinance. Copies of PERS’ annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. A separate Employer contributions and employee contributions made by the employer to the Plan are recognized report for the City’s plan within PERS is not available. when due and the employer has made a formal commitment to provide the contributions. Miscellaneous Plan Annual Pension Cost – The annual required contribution for the current year was determined as part Funding Policy – Miscellaneous plan – Participants are required to contribute 7% of their annual of an actuarial valuation performed as of July 1, 2009. The actuarial method used was the entry age covered salary. The City is required to contribute at an actuarially determined rate. For the normal cost method. The significant actuarial assumptions include: (1) annual rate of return on miscellaneous plan, the fiscal year 2010-11 contribution rate is 0% of annual covered payroll. The investments of 7.75%; (2) cost of living adjustments of 2% to 4.5%; and (3) salary merit increases of contribution requirements of plan members and the City are established and may be amended by 4.5%. The actuarial value of Retirement System assets was determined using techniques that smooth PERS. the effects of short-term volatility in the market value of investments over a 5-year period. Unfunded liabilities are amortized using the level percentage of payroll method. Changes in actuarial gains and Annual Pension Cost – Miscellaneous plan – Cost for PERS for fiscal year 2010-11 was equal to the losses assumptions and supplemental COLAs are amortized as a level percentage of pay over an City’s required and actual contributions, which was determined as part of the June 30, 2008 actuarial open 15-year period. Plan amendments and changes in interest crediting rate are amortized over a valuation using the entry age actuarial cost method. closed 20-year period. 112 113 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Three-year payment trend information is as follows: The City has no administrative involvement and does not perform the investing function. The City has Annual Percentage Net no fiduciary accountability for the plan and, accordingly, the plan assets and related liabilities to plan Fiscal Year Pension of APC Pension participants are not included in the basic financial statements. Ended Cost (APC) Contributed Obligation (c) Health Service System 6/30/2009 $ - N/A $ - 6/30/2010 - N/A - The Health Service System was established in 1937. Health care benefits of employees, retired 6/30/2011 - N/A - employees and surviving spouses are financed by beneficiaries and by the City through the Health Service System. The employers’ contribution, which includes the San Francisco Community College Safety Plan District, San Francisco Unified School District and the San Francisco Superior Court, amounted to Funding Policy – Safety plan – Participants are required to contribute 9% of their annual covered approximately $583.3 million in fiscal year 2010-11. The employers’ contribution is mandated and salary. The City makes the contributions required of City employees on their behalf and for their determined by Charter provision based on similar contributions made by the ten most populous account. The City is required to contribute at an actuarially determined rate. For the safety plan, the counties in California. Included in this amount is $182.0 million to provide postemployment health fiscal year contribution rate is 18.24%. The contribution requirements of plan members and the City care benefits for 24,182 retired participants, of which $145.0 million related to the City employees. are established and may be amended by PERS. The City’s liability for both current employee and postemployment health care benefits is enumerated below. The City’s contribution is paid out of current available resources and funded on a pay-as-you- Annual Pension Cost – Safety Plan – The cost for PERS for fiscal year 2010-11 was equal to the go basis. The Health Service System issues a publicly available financial report that includes financial City’s required and actual contributions, which was determined as part of the June 30, 2008 actuarial statements. That report may be obtained by writing to the San Francisco Health Service System, valuation using the entry age actuarial cost method. The assumptions included in the June 30, 2008 1145 Market Street, Suite 200, San Francisco, CA 94103 or by calling (800) 541-2266. actuarial valuation were: (a) 7.75% investment rate of return (net of administrative expenses), (b) 3.25% to 13.15% projected annual salary increases that vary by age, service and type of (d) Postemployment Health Care Benefits employment, and (c) 3.25% per year cost-of-living adjustments. The cost-of-living adjustment City (excluding the San Francisco County Transportation Authority and the San Francisco includes an inflation component of 3.00%. The actuarial value of PERS assets was determined using Redevelopment Agency) techniques that smooth the effects of short-term volatility in the market value of investments. Changes in unfunded liability/(excess assets) due to changes in actuarial methods or assumptions or Plan Description – The City maintains a single-employer, defined benefit other postemployment changes in plan benefits are amortized over as a level percentage of pay over a closed 20 year benefits plan, which provides health care benefits to employees, retired employees, and surviving period. spouses, through the City’s Health Service System outlined above. Health care benefits are provided to members of the Health Service System through three plan choices: City Health Plan, Kaiser, and Three-year trend information is as follows: Blue Shield. The City does not issue a separate report on its other postemployment benefit plan. Annual PercentageNet Funding Policy – The contribution requirements of plan members and the City are based on a pay-as- Fiscal Year Pension of APC Pension you-go basis. For fiscal year ended June 30, 2011, the City paid approximately $145.8 million on Ended Cost (APC) Contributed Obligation behalf of its retirees. 6/30/2009 $ 15,926 100% $ - 6/30/2010 15,657 100% - Annual OPEB Cost and Net OPEB Obligation – The City’s annual other postemployment benefits (OPEB) expense is calculated based on the annual required contribution (ARC), an amount 6/30/2011 16,664 100% - actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost of Funded Status and Funding Progress – As of June 30, 2009, the most recent actuarial valuation date, each year and any unfunded actuarial liabilities (or funding excess) amortized over thirty years. The the actuarial value of assets was $707.6 million; the actuarial accrued liability was $758.1 million; the ARC was determined based on the July 1, 2008 actuarial valuation. total unfunded actuarial accrued liability was $50.5 million; the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio) was 93.3%; the annual covered payroll was $101.9 million; and the ratio of the unfunded actuarial liability to annual covered payroll was 49.6%. The net OPEB obligations are reflected in the statements of net assets of the governmental activities, The assumptions included in the June 30, 2009 actuarial valuation were: (a) 7.75% investment rate of business-type activities, and fiduciary funds. The following table shows the components of the City’s return (net of administrative expenses), (b) 3.55% to 13.15% projected annual salary increases that annual OPEB cost for the year, the amount contributed to the plan, and changes in the City’s net vary by age, service and type of employment, and (c) 3.25% per year cost-of-living adjustments. The OPEB obligation: cost-of-living adjustment includes an inflation component of 3.00%. The schedule of funding progress, Annual required contribution $ 384,334 presented as required supplementary information (RSI) following the notes to the financial Interest on Net OPEB obligation 36,243 statements, presents multiyear trend information about whether the actuarial values of plan assets Adjustment to annual required contribution (28,426) are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Annual OPEB cost 392,151 (b) Deferred Compensation Plan Contribution made (145,756) The City offers its employees a deferred compensation plan in accordance with Internal Revenue Increase in net OPEB obligation 246,395 Code (IRC) Section 457. The plan, available to all employees, permits them to defer a portion of their Net OPEB obligation - beginning of year 852,782 salary until future years. The deferred compensation is not available to employees or other Net OPEB obligation - end of year $ 1,099,177 beneficiaries until termination, retirement, death, or unforeseeable emergency. 114 115 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The table below shows how the total net OPEB obligation as of June 30, 2011, is distributed. San Francisco County Transportation Authority Governmental activities $ 615,227 The San Francisco County Transportation Authority (SFCTA) maintains a separate single-employer Business-type activities 448,966 defined benefit OPEB plan and reported a net OPEB obligation of $0 as of June 30, 2011. SFCTA’s Fiduciary funds 34,984 most recent actuarial valuation was performed as of January 1, 2010, covering the fiscal years ended June 30, 2010 and June 30, 2011. SFCTA’s OPEB plan was for retiree healthcare benefits and was Net OPEB obligation - end of year $ 1,099,177 46.3% funded and the unfunded actuarial accrued liability was $0.2 million. Details of SFCTA’s OPEB plan may be found in its financial statements for the fiscal year ended June 30, 2011. Financial Eligible fiduciary funds' employees are City employees and thereby eligible for postemployment statements for SFCTA can be obtained from their finance and administrative offices at 100 Van Ness health benefits. These obligations are reported as other liabilities in the City's fiduciary funds financial th Avenue, 26 Floor, San Francisco, CA 94102. statements. As of June 30, 2011, the SFCTA’s annual OPEB expense of $113 was equal to the ARC. Three-year Three-year trend information is as follows: trend information is as follows: Percentage of Percentage of Fiscal Year Annual Annual OPEB Net OPEB Fiscal Year Annual Annual OPEB Net OPEB Ended OPEB Cost Cost Contributed Obligation Ended OPEB Cost Cost Contributed Obligation 6/30/2009 $ 430,924 27.8% $ 605,397 6/30/2009 $ 86 100% $ - 6/30/2010 374,214 33.9% 852,782 6/30/2010 110 100% - 6/30/2011 392,151 37.2% 1,099,177 6/30/2011 113 100% - San Francisco Redevelopment Agency Funded Status and Funding Progress – The unfunded actuarial accrued liability is being amortized as a level percentage of expected payroll over an open thirty year period. As of July 1, 2008, the most The San Francisco Redevelopment Agency (the Agency) maintains a separate OPEB single- recent actuarial valuation date, the funded status of the Retiree Health Care Benefits was 0%. The employer defined benefit plan and reported a net OPEB obligation of $0.5 million as of June 30, 2011. actuarial accrued liability for benefits was $4.4 billion, and the actuarial value of assets was $0, The Agency’s most recent actuarial valuation was performed as of June 30, 2009, and was the basis resulting in an unfunded actuarial accrued liability (UAAL) of $4.4 billion. For the year ended for the ARC for the fiscal year ended June 30, 2011. The Agency’s OPEB plan was for retiree June 30, 2011, the estimated covered payroll (annual payroll of active employees covered by the healthcare benefits and was 3.6% funded and the unfunded actuarial accrued liability was plan) was $2.5 billion and the ratio of the UAAL to the covered payroll was 176.0%. $13.3 million. Details of the Agency’s OPEB plan may be found in its financial statements for the fiscal year ended June 30, 2011. Financial statements for the Agency can be obtained from their Actuarial Methods and Assumptions – Actuarial valuations of an ongoing plan involve estimates of the finance and administrative offices at 1 South Van Ness Avenue, 5th Floor, San Francisco, CA 94102. value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost The following table shows the components of the Agency’s annual OPEB cost for the year, the trend. Amounts determined regarding the funded status of the plan and the annual required amount contributed to the plan, and changes in its net OPEB obligation: contribution of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, Annual required contribution $ 1,359 presented as required supplementary information following the notes to the financial statements, Interest on Net OPEB obligation 49 presents multi-year trend information about whether the actuarial value of plan assets is increasing or Adjustment to annual required contribution (62) decreasing over time relative to the actuarial accrued liabilities for benefits. Annual OPEB cost 1,346 Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as Contribution made (1,519) understood by the employer and plan members) and include the types of benefits provided at the time Increase in net OPEB obligation (173) of each valuation and the historical pattern of sharing of benefit costs between the employer and plan Net OPEB obligation - beginning of year 643 members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of Net OPEB obligation - end of year $ 470 assets, consistent with the long-term perspective of the calculations. Three-year trend information is as follows: In the actuarial valuation as of July 1, 2008, the entry age normal cost method was used. Under this Percentage of method, the actuarial present value of the projected benefits of each individual included in the Fiscal Year Annual Annual OPEB Net OPEB valuation is allocated as a level percent of expected salary for each year of employment between Ended OPEB Cost Cost Contributed Obligation entry age (age at hire) and assumed exit (maximum retirement age). Unfunded liabilities are amortized using the level percentage of expected payroll over an open 30-year period. The actuarial 6/30/2009 $ 1,298 95% $ 552 assumptions included a 4.25% investment rate of return on investment; 4.25% payroll growth; annual 6/30/2010 1,296 93% 643 healthcare and vision cost trend rates using the actual rates for fiscal year ended June 30, 2010 and 6/30/2011 1,346 113% 470 3% per year thereafter, and an annual blended healthcare cost trend rate of 9% in the fiscal year ended June 30, 2011, reduced by 0.5% each year to an ultimate rate of 5% in the eighth year and beyond. 116 117 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Proposition B – A City Charter Amendment Changing Qualifications for Retiree Health and Congestion Management Agency Programs. In November 1990, the SFCTA was designated Pension Benefits and Establishing a Retiree Health Care Trust Fund under State law as the Congestion Management Agency (CMA) for the City. Responsibilities resulting from this designation include developing a Congestion Management Program, which provides Proposition B was passed by voters on June 3, 2008, and increased the years of service required to evidence of the integration of land use, transportation programming and air quality goals; preparing a qualify for employer-funded retiree health benefits for City employees and certain employees of the long-range countywide transportation plan to guide the City’s future transportation investment San Francisco Unified School District, San Francisco Community College District, and the San decisions; monitoring and measuring traffic congestion levels in the City; measuring the performance Francisco Superior Court who retire under the San Francisco Employees Retirement System and of all modes of transportation; and developing a computerized travel demand forecasting model and were hired on or after January 10, 2009. Employees hired before January 10, 2009, became eligible supporting databases. As the CMA, the SFCTA is responsible for establishing the City’s priorities for to participate in the retirement health care system after 5 years of service and the employer paid state and federal transportation funds and works with the Metropolitan Transportation Commission 100% of the contribution. Now it states that between 5-10 years of service, there is no employer (MTC) to program those funds to San Francisco projects. contribution, at 10-15 years there is a 50% contribution, between 15-20 years there is 75% contribution and only after 20 years of service will the employer pay 100% of the contribution. Transportation Fund for Clean Air (TFCA) Program. On June 15, 2002, the SFCTA was designated to act as the overall program manager for the local guarantee (40%) share of Proposition B also stated that a separate Retiree Health Care Trust Fund would be created to pay for transportation funds available through the Transportation Fund for Clean Air (TFCA) program. Funds the City’s future costs related to retiree health care. This trust fund will be funded by employer and from this program, administered by the Bay Area Air Quality Management District (BAAQMD) come employee contributions for employees hired on or after January 10, 2009. These new employees from a $4 vehicle registration fee on automobiles registered in the Bay Area. Through this program, would contribute up to 2% of their pre-tax pay and employers would contribute 1%. The San the SFCTA recommends projects that benefit air quality by reducing motor vehicle emissions. Francisco Community College District and San Francisco Unified School District have the option to participate in and contribute to this trust fund if approved by their governing boards. Prop AA Program. On November 2, 2010, San Francisco voters approved Prop AA amending the City’s Business and Tax Regulations Code to add $10 to the existing annual registration fee for The City established the Retiree Health Care Trust Fund to receive contributions for the purpose of vehicles registered in San Francisco to fund transportation projects. This increase applies to vehicle providing a funding source for certain post-employment benefits other than pension in fiscal year registrations and renewals beginning May 2, 2011. Under the SFCTA’s Prop AA Expenditure Plan, 2011. The Retiree Health Care Trust Fund is administered by a Retiree Health Care Board of proceeds from the fee would be spent on projects in the following categories: (1) Street Repairs and Administration governed by five trustees, one selected by the City Controller, one by the City Reconstruction (50% of fee revenue); (2) Pedestrian Safety (25% of fee revenue); and (3) Transit Treasurer, one by the Executive Director of the San Francisco Employees’ Retirement System, and Reliability Improvements (25% of fee revenue). In addition, the SFCTA would determine the specific two elected by the active and retired members of the City’s Health Service System. projects and could use up to 5% of the funds for administrative costs. (10) SAN FRANCISCO COUNTY TRANSPORTATION AUTHORITY (11) DETAILED INFORMATION FOR ENTERPRISE FUNDS The San Francisco County Transportation Authority (SFCTA) was created in 1989 by a vote of the (a) San Francisco International Airport San Francisco electorate. The vote approved Proposition B, which imposed a sales tax of one-half of one percent (0.5%), for a period not to exceed 20 years, to fund essential transportation projects. The San Francisco International Airport (Airport), which is owned and operated by the City, is the principal types of projects to be funded with the proceeds from the sales tax are set forth in the San Francisco commercial service airport for the San Francisco Bay Area. A five-member Commission is County Transportation Expenditure Plan (the Plan), which was approved as part of Proposition B. The responsible for the operation and management of the Airport. The Airport is located 14 miles south of SFCTA was organized pursuant to Sections 131000 et seq. of the Public Utilities Code. Collection of downtown San Francisco in an unincorporated area of San Mateo County between the Bayshore the voter-approved sales tax began on April 1, 1990. The Expenditure Plan includes investments in Freeway (U.S. Highway 101) and the San Francisco Bay. According to final data for calendar year four major categories: 1) Transit; 2) Streets and Traffic Safety (including street resurfacing, and 2010 from the Airports Council International (ACI), the Airport is one of the largest airports in the bicycle and pedestrian improvements); 3) Paratransit services for seniors and disabled people; and 4) United States both in terms of passengers (9th) and air cargo (13th). The Airport is also a major origin Transportation System Management/Strategic Initiatives (including funds for neighborhood parking and destination point and one of the nation’s principal gateways for Pacific traffic. management, transportation/land use coordination, and travel demand management efforts). Major capital projects to be funded by the Proposition K Expenditure Plan include: A) development of the Pledged Revenues under the 1991 Master Resolution – Under the terms of the 1991 Master Bond Bus Rapid Transit and MUNI Metro Network; B) construction of the MUNI Central Subway (Third Resolution, for a Series of Second Series Revenue Bonds to be secured by the Airport’s parity Street Light Rail Project–Phase 2); C) construction of the Caltrain Downtown Extension to a rebuilt common account (the Issue 1 Reserve Account), the Airport is required to deposit with the trustee an Transbay Terminal; and D) South Approach to the Golden Gate Bridge: Doyle Drive Replacement amount equal to the maximum debt service accruing in any year during the life of all Second Series Project (re-envisioned as the Presidio Parkway). Within 20 years of the effective date of the adoption Revenue Bonds secured by the Issue 1 Reserve Account or substitute a credit facility meeting those of the Proposition K Expenditure Plan, the SFCTA may modify the Expenditure Plan with voter requirements. Alternatively, the Airport may establish a separate reserve account with a different approval. Pursuant to the provisions of Division 12.5 of the California Public Utilities Code, the reserve requirement to secure an individual series of bonds. While revenue bonds are outstanding, SFCTA Board may adopt an updated Expenditure Plan anytime after 20 years from the effective date the Airport may not create liens on its property essential to operations, may not dispose of any of adoption of the Proposition K Expenditure Plan but no later than the last general election in which property essential to maintaining revenues or operating the Airport, and must maintain specified the Proposition K Expenditure Plan is in effect. The Sales Tax would continue as long as a new or insurance. modified plan is in effect. Under Proposition K legislation, the SFCTA directs the use of the Sales Tax and may spend up to $485.2 million per year and may issue up to $1.88 billion in bonds secured by Under the terms of the 1991 Master Bond Resolution, the Airport has covenanted that it will establish the Sales Tax. In addition to the sales tax program, the SFCTA also administers the following and at all times maintain rentals, rates, fees, and charges for the use of the Airport and for services programs: rendered by the Airport so that: (a) Net revenues (as defined in the bond resolutions) in each fiscal year will be at least sufficient (i) to make all required debt service payments and deposits in such fiscal year with respect to the 118 119 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) bonds, any subordinate bonds, and any general obligation bonds issued by the City for the (b) Port of San Francisco benefit of the Airport and (ii) to make all payments required to be made to the City and A five-member Port Commission is responsible for the operation, development, and maintenance (b) Net revenues, together with any transfer from the contingency account to the revenue account activities of the Port of San Francisco (Port). In February 1969, the Port was transferred in trust to the (both held by the City Treasurer), in each fiscal year will be at least equal to 125% of aggregate City under the terms and conditions of State legislation (“Burton Act”) ratified by the electorate of the annual debt service with respect to the bonds for such fiscal year. City. Prior to 1969, the Port was owned and operated by the State of California. The State retains the right to amend, modify or revoke the transfer of lands in trust provided that it assumes all lawful The methods required by the 1991 Master Bond Resolution for calculating debt service coverage obligations related to such lands. differs from the U.S. generally accepted accounting principles used to determine amounts reported in the Airport’s financial statements. 34th America’s Cup – San Francisco was selected on December 31, 2010 to host the 34th America’s Cup and related events (Event) under terms set forth in the Host and Venue Agreement (HVA) Passenger Facility Charges – The Airport, as authorized by the Federal Aviation Administration between the City and the America’s Cup Event Authority, LLC (Event Authority) approved by the (FAA) pursuant to the Aviation Safety and Capacity Expansion Act of 1990 (the Act), as amended, Board of Supervisors. The HVA is subject to completion of environmental review of the Event under imposes a Passenger Facility Charge (PFC) of $4.50 for each enplaning passenger at the Airport. the California Environmental Quality Act (CEQA). The HVA contractually obligates the City to perform Under the Act, air carriers are responsible for the collection of PFC charges and are required to remit certain planning and analysis (including CEQA review) of the proposed Event, but the City cannot PFC revenues to the Airport in the following month after they are recorded by the air carrier. The commit to holding the Event until a final environmental impact report has been certified and the City Airport’s most recent application amendment of $609.1 million was approved by the FAA in has approved the project. Assuming project approval after CEQA review, the HVA contemplates that September 2006. The current authority to impose PFCs is estimated to end January 1, 2017. For the the America’s Cup Event Authority would complete approximately $55 million in substructure and year ended June 30, 2011, the Airport reported approximately $77.0 million of PFC revenue, which is infrastructure repairs and improvements to certain Port facilities in exchange for certain long-term included in other nonoperating revenues in the accompanying basic financial statements. development rights. The City, through the Port, would also provide rent-free use of these and other facilities for short-term race activities occurring in 2012 and 2013. The HVA would also require the Commitments and Contingencies – In addition to the long-term obligations discussed in Note 8, Port to incur a number of one-time costs to prepare the facilities, including the relocation or removal there was $95.1 million of Special Facilities Lease Revenue Bonds outstanding as of June 30, 2011, of tenants from affected facilities. Hosting of the Event is anticipated to generate significant economic which financed improvements to the Airport’s aviation fuel storage and delivery system that is leased benefits to the San Francisco region and increased tax revenues to the City. The City and Port have to SFO Fuel Company LLC (SFO Fuel). SFO Fuel agreed to pay facilities rent to the Airport in an agreed on certain strategies to finance the costs of the Event and to mitigate some of the fiscal and amount equal to debt service payments and required bond reserve account deposits on the bonds. operational impacts to the Port. In April 2011, the City and the Port entered into a memorandum of The principal and interest on the bonds will be paid solely from the facilities rent payable by SFO Fuel understanding (MOU) for payments in-lieu of rent, to reimburse the Port certain race-induced lost to the Airport. The Airport assigned its right to receive the facilities rent to the bond trustee to pay and revenues as defined by the MOU. The MOU expires on June 30, 2014. While this MOU defines secure the payment of the bonds. Neither the Airport nor the City is obligated in any manner for the certain obligations of the City and Port in planning for the Event, should CEQA be approved, repayment of these obligations, and as such, they are not reported in the accompanying financial execution of the MOU does not approve or finalize any material terms and conditions of the Event. statements. Pledged Revenues – The Port’s revenues, derived primarily from property rentals to commercial and Purchase commitments for construction, material and services as of June 30, 2011 are as follows: industrial enterprises and from maritime operations which include cargo, ship repair, fishing, harbor services, cruise and other maritime activities, are held in a separate enterprise fund and appropriated Construction ...... $ 29,782 for expenditure pursuant to the budget and fiscal provisions of the City Charter, consistent with trust Operating ...... 7,048 requirements. Under public trust doctrine, the Burton Act, and the transfer agreement between the Total ...... $ 36,830 City and the State, Port revenues may be spent only for uses and purposes of the public trust. Transactions with Other Funds and Business Concentrations – Pursuant to the Lease and Use The Port pledged future net revenues to repay $36.7 million in Revenue Bonds issued in 2010. Agreement between the Airport and most of the airlines operating at the Airport, the Airport makes an Annual principal and interest payments through 2040 are expected to require less than 16% of net annual service payment to the City’s General Fund equal to 15% of concession revenue, but not less pledged revenues as calculated in accordance with the bond indenture. The total principal and than $5 million per fiscal year, in order to compensate the City for all indirect services provided to the interest remaining to be paid on the bonds is $72.6 million. The first debt service payments of Airport. The annual service payment for the year ended June 30, 2011 was $30.2 million and was $2.8 million on the Revenue Bonds were made in 2011 and pledged revenues (total net revenues recorded as a transfer. In addition, the Airport compensates the City’s General Fund for the cost of calculated in accordance with the bond indenture) for the year ended June 30, 2011 were certain direct services provided by the City to the Airport, including those provided by the Police $18.1 million. Department, the Fire Department, the City Attorney, the City Treasurer, the City Controller, the City Purchasing Agent and other City departments. The cost of direct services paid for by the Airport for The Port has entered into a loan agreement with the California Department of Boating and the year ended June 30, 2011 was $ 111.9 million. Waterways for $3.5 million to finance certain Hyde Street Harbor improvements. The loan is subordinate to all bonds payable by the Port and is secured by gross revenues as defined in the loan In addition to the Lease and Use Agreements with the airlines, the Airport leases facilities to other agreement. Total principal and interest remaining to be paid on this loan is $4.2 million. Annual businesses to operate concessions at the Airport. During the year ended June 30, 2011, revenues principal and interest payments were $0.2 million in 2011 and pledged harbor revenues were realized from the following the Airport tenants exceeded five percent of the Airport’s total operating $0.1 million for the year ended June 30, 2011. revenues: United Airlines ...... 21.6% Parking Revenues / New South Parking ...... 14.2% 120 121 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Commitments and Contingencies – The Port is presently planning various development and capital Port lands are subject to environmental risk elements typical of sites with a mix of light industrial projects that involve a commitment to expend significant funds. The development plan for the Pier 70 activities dominated by transportation, transportation-related and warehousing activities. Due to the area in particular will require complex financing strategies including an array of public and private historical placement of fill of varying quality, and widespread use of aboveground and underground financing mechanisms in order to accomplish the Pier 70 Master Plan objectives, which include tanks and pipelines containing and transporting fuel, elevated levels of petroleum hydrocarbons and environmental remediation, preservation and adaptive reuse of historic buildings, construction of new lead are commonly found on Port properties. Consequently, any significant construction, excavation infrastructure and public open spaces. The Port has pursued State legislative changes to increase or other activity that disturbs soil or fill material may encounter hazardous materials and/or generate funding options to address future capital requirements. In 2005, Senate Bill No. 1085 amended the hazardous waste. California Government Code to enable the City and the Port to form, in the Port area, infrastructure financing districts (“IFD”) pursuant to Section 53395 et seq. Among other things, this legislation The Port undertook a public planning process to produce a preferred master plan for an underutilized enumerated additional infrastructure improvements that qualify for infrastructure financing districts, 65-acre area commonly known as “Pier 70”. A long history of heavy industrial use has turned this including seismic upgrades, historic renovation, environmental remediation, utility improvements, and area into a “brownfield” – an underutilized property area where reuse is hindered by actual or structural repair or construction of seawalls, piers and wharves. The most recent approved and suspected contamination. The 65-acre site has been used for over 150 years for iron and steel works, authorized City parks and open space general obligation bond, 2008 Clean and Safe Neighborhood ship building and repair, and other heavy industrial operations. Much of the site was owned and/or Parks, included $33.5 million for parks and open space projects on Port property. occupied by the U.S. Navy or its contractors for at least 60 years. Fifteen acres remain occupied by an on-going ship repair facility. Environmental conditions exist that require investigation and Under an agreement with the San Francisco Bay Conservation and Development Commission remediation prior to any rehabilitation or development for adaptive reuse. The lack of adequate (BCDC), the Port is committed to fund and expend up to $30 million over a 20-year period for pier information about environmental conditions has hindered previous development proposals for Pier 70. removal, parks and plazas, and other public access improvements. As of June 30, 2011, $21.5 million of Port funds have been appropriated and $6.1 million has been expended for projects under the Since early 2007, the Port has been engaged in a community-based master planning process to agreement. In 2011, the Port and the United States Army Corps of Engineers entered into a produce a plan to rehabilitate and reuse many of the historic buildings, enable new development, cooperative agreement for a federal contract to cover the removal of Pier 36 in support of the create parks, open space and other public amenities, complete environmental remediation where Brannan Street Wharf project. This cost-sharing arrangement for pier removal is supported by a required, and preserve existing ship repair facilities. In 2007, the Port completed a site investigation of $4.8 million federal appropriation. An additional $6.1 million has been identified for appropriation and a small portion of Pier 70: an approximately 17-acre area along the northeast shoreline. This expenditure on Plan projects subsequent to June 30, 2011. investigation found that soil and sediment are contaminated with metals, petroleum hydrocarbons and PCBs at concentrations that do not pose a hazard to human health or the environment under existing As of June 30, 2011, the Port had purchase commitments for construction-related services, materials conditions, but will require removal or capping of surface soil before development of the area for and supplies, and other services were $16.5 million for capital projects and $2.1 million for general public access and recreation. operations. With funding from a federal grant, the Port proceeded in fiscal year 2008-09 with a contract to In November 2002, a maritime vessel known as Drydock #1 broke free from its moorings at Pier 70 investigate soil and groundwater conditions throughout the site, including the fifteen-acre portion and went adrift in very high winds, finally running aground on Yerba Buena Island. The recovered leased to the Port’s ship repair tenant and in fiscal year 2010-11 the Port proceeded with a contract to drydock is currently moored at a safer harbor location. The Port continues to evaluate options for the survey many of the historic buildings for hazardous building materials, such as lead and asbestos. final disposition of this surplus vessel. Engineering consultants have assessed requirements for Findings to date, including data from previous investigations, indicate that soil throughout the Pier 70 hazardous materials abatement, including potential remediation of lead-based paints, heavy-metal site contains metals, naturally-occurring asbestos, and petroleum hydrocarbons at concentrations that contaminated sediments, and asbestos. The consulting engineers also performed a preliminary do not require imminent remediation, but will require removal or capping of surface soil in connection structural assessment and condition survey to assess the viability of towing the vessel from its with development of the area for public access and recreation. The investigation also found oily present location to a location for ultimate disposal. Due to its poor condition, the drydock is most likely residue in soil and groundwater beneath by the ship repair tenant’s leasehold area and contamination only salvageable for scrap metal. Based on the information from various consultants and internal from the adjacent former manufactured gas plant site that has migrated beneath a small area in the engineering estimates, $2.8 million was accrued in 2008 for the drydock’s final disposition, including southeast portion of Pier 70. The current environmental investigation work scope included a human the remediation of identified hazardous materials. Disposition options and related cost estimates were health risk assessment and an ecological assessment to evaluate potential risks associated with re-assessed in 2010 and the total accrued liability as of June 30, 2011 remains at $5.0 million. The contaminants at the site. The risk assessment found that site user contact with the soil could pose a Port is also pursuing federal financial assistance towards the final disposition cost of Drydock #1. This potential health risk under certain exposure scenarios. The risk assessment did not find significant accrual is included in other noncurrent liabilities. risk associated with current site uses. The site investigation and risk assessment do not indicate any immediate need for soil or groundwater remediation, although further evaluation of measures that Pollution Remediation Obligations – The Port’s financial statements include liabilities, established would reduce or eliminate potential risks associated with contaminants under anticipated future uses and adjusted periodically, based on new information, in accordance with applicable generally is warranted. The final report of the findings of the site investigation and risk assessment was issued accepted accounting principles in the United States of America, for the estimated costs of compliance in January 2011. with environmental laws and regulations and remediation of known contamination. As future development planning is undertaken, the Port evaluates its overall provisions for environmental liabilities in conjunction with the nature of future activities contemplated for each site and accrues a liability, if necessary. It is, therefore, reasonably possible that in future reporting periods current estimates of environmental liabilities could materially change. 122 123 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The grant-funded environmental investigation work also includes preparation of a feasibility study to (c) San Francisco Water Enterprise evaluate potential remedial action; a remedial action plan, which will establish institutional controls The San Francisco Water Enterprise (Water Enterprise) was established in 1930. The Water (e.g. use restrictions, health and safety plans) and engineering controls (e.g. capping contaminated Enterprise, which consists of a system of reservoirs, storage tanks, water treatment plants, pump soil) to protect current and future users and prevent adverse impacts to the environment. Future stations, and pipelines, is engaged in the collection, transmission and distribution of water to the City development will likely cover existing site soil with buildings, streets, plazas, hardscape or new and certain suburban areas. The Water Enterprise delivers water, approximately 78,016 million landscaping, thereby minimizing or eliminating exposure to contaminants in soil. The contractor gallons annually, to a total population of approximately 2.5 million people who reside primarily in four prepared an earlier report in 2009 describing potential remediation scenarios for Pier 70 site and Bay Area counties (San Francisco, San Mateo, Santa Clara and Alameda). probability of certain contamination being encountered in soil, soil vapor or groundwater, and various degrees of remediation that would be required. The model calculation estimated that soil, The San Francisco Public Utilities Commission (the Commission), established in 1932, provides the groundwater, and soil vapor remediation and/or management (excluding hazardous building materials operational oversight for the Water Enterprise, Hetch Hetchy Water and Power (Hetch Hetchy), and such as asbestos or lead-based paint) would cost between $15.0 million and $50.0 million, with a the San Francisco Wastewater Enterprise. Under Proposition E, the City’s Charter Amendment most likely probability-weighted estimated cost of $27.5 million. Port management adopted the approved by the voters in June 2008, the Mayor nominates candidates subject to qualification environmental consultant’s model calculation is as reasonable estimate of an existing brownfield requirements to the Commission and the Board of Supervisors votes to approve the nominees by a pollution remediation obligation and recorded the $27.5 million as a noncurrent pollution remediation majority (at least 6 members). obligation as of July 1, 2008. The investigation work completed in 2011 reduces the uncertainty regarding the nature and extent of contamination, potential need for remediation, and costs Pledged Revenues – The Water Enterprise has pledged future revenues to repay various bonds. associated with implementation of a risk management plan. Based on preliminary information Proceeds from the revenue bonds provided financing for various capital construction projects and to received from its consultant, Port management has updated the estimate of the likely total refund previously issued bonds. These bonds are payable solely from revenues of the Water remediation cost as of June 30, 2011 to $21.6 million. The revised estimate is the sum of probability- Enterprise and are payable through the year ending 2051. weighted amounts assigned by management to five discrete remedial action scenarios contained in the consultant’s draft report. Among other things, the draft report and selection of remedial actions The original amount of revenue bonds issued, total principal and interest remaining, principal and are subject to stakeholder and regulatory review. interest paid during 2011 and applicable revenues for 2011 are as follows: Previous investigation of the northeast shoreline of Pier 70, in an area slated in the Master Plan for Bonds issued with revenue pledge $ 3,400,560 development as the future “Crane Cove Park”, found that near-shore sediment is contaminated with Principal and interest remaining due at the end of the year 6,270,611 metals, petroleum hydrocarbons and polychlorinated biphenyls (PCBs) at concentrations that pose a Principal and interest paid during the year 118,124 potential risk to human health or the environment, and will likely require removal or capping of Net revenue for the year ended June 30, 2011 125,747 sediment before development of the area for public access and recreation. The Port is initiating Funds available for revenue bond debt service 169,877 additional study of sediment contamination in the Crane Cove Park area during the latter part of 2011, which will enable determination of scope sediment contamination and preliminary cost estimation. During fiscal year 2010-11, the wholesale revenue requirement, net of adjustments, charged to suburban resale customers was $142.2 million. Such amounts are subject to final review by Hazardous building materials, such as lead-based paint, asbestos, and mercury and/or PCBs in wholesale customers, along with a trailing wholesale balancing account compliance audit of the certain electrical equipment, will have to be abated during the course of rehabilitation of any historic wholesale revenue requirement calculation. As of June 30, 2011, the suburban resale customers building. Hazardous building materials abatement is very roughly estimated to be 20% of the total owed the Water Enterprise approximately $41.0 million under the Water Supply Agreement. construction cost of building rehabilitation. In an effort to reduce the development uncertainties, the Port will use a portion of the federal grant for an assessment (identification and quantification) of Commitments and Contingencies – As of June 30, 2011, the Water Enterprise had outstanding hazardous building materials to enable rehabilitation or demolition of buildings and other structures commitments with third parties of $1.2 billion for various capital projects and for materials and within the site. supplies. In addition to the Pier 70 issue, the Port has identified and accrued certain environmental issues Transactions with Other Funds – The Water Enterprise purchases water from Hetch Hetchy Water related to Port property, including fuel tank removal and oil contamination in the amount of and electricity from Hetch Hetchy Power at market rates. These amounts, totaling approximately $0.2 million at June 30, 2011. The Port may be required to perform certain clean-up work if it intends $29.7 million and $6.6 million, respectively, for the year ended June 30, 2011, are included in the to develop or lease the property, or at such time as required by the City or State. There are sites charges for services provided by other departments in the Water Enterprise’s financial statements. where groundwater contamination may be later identified, where the Port has primary or secondary responsibility. The potential liability for such risk cannot be reasonably made at this time. A variety of other City departments provide services such as engineering, purchasing, legal, data processing, telecommunications, and human resources to the Water Enterprise and charge amounts A summary of environmental liabilities, included in noncurrent liabilities, at June 30 2011, is as designed to recover those departments’ costs. These charges total approximately $10.0 million for follows: the year ended June 30, 2011 and have been included in services provided by other departments. Environmental Monitoring and Remediation Compliance Total Environmental liabilities at July 1, 2010 $ 27,500 $ 98 $ 27,598 Current year claims and changes in estimates (5,850) 102 (5,748) Vendor payments - (66) (66) Environmental liabilities at June 30, 2011 $ 21,650 $ 134 $ 21,784 124 125 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (d) Hetch Hetchy Water and Power Enterprise Segment Information – Hetch Hetchy issued debt to finance its improvements. Both the Water Enterprise and the Power Enterprise are reported for in a single fund (i.e., Hetch Hetchy Water and Hetch Hetchy was established as a result of the Raker Act of 1913, which granted water and power Power Enterprise). However investors in the debt rely solely on the revenue generated by the resources rights-of-way on the Tuolumne River in Yosemite National Park and Stanislaus National individual activities for repayment. Summary financial information for Hetch Hetchy is presented Forest to the City. Hetch Hetchy is a stand-alone enterprise comprised of two funds, Hetch Hetchy below: Power (AKA the Power Enterprise) and Hetch Hetchy Water, a portion of the Water Enterprise’s operations, specifically the upcountry water supply and transmission service for the latter. Hetch Hetchy accounts for the activities of the Hetch Hetchy Water and Power and is engaged in the Condensed Statement of Net Assets Hetch Hetchy Hetch Hetchy collection and conveyance of approximately 85% of the City’s water supply and in the generation and Water Power Total transmission of electricity from that resource. Assets: Current assets……………………………………………… $ 35,732 $ 175,358 $ 211,090 Approximately 65% of the electricity generated by Hetch Hetchy Power is used to provide electric Receivables from other funds and component units…… 13,638 17,268 30,906 service to the City’s municipal customers (including the San Francisco Municipal Transportation Restricted cash and investments………………………… - 12,192 12,192 Agency, Recreation and Parks Department, the Port of San Francisco, the San Francisco Other noncurrent assets…………………………...……… - 192 192 International Airport and its tenants, San Francisco General Hospital, streetlights, Moscone Capital assets……………………………………………… 85,508 217,910 303,418 Convention Center, and the Water and Wastewater Enterprises). The balance of electricity is sold to Total assets……………………………………………… 134,878 422,920 557,798 other utility districts, such as Turlock and Modesto Irrigation Districts. As a result of the 1913 Raker Act, energy produced above the City’s Municipal Load is sold first to Modesto and Turlock Irrigation Liabilities: Districts (the Districts) to cover their pumping and municipal load needs and any remaining energy Current liabilities…………………………………………… 2,926 20,743 23,669 either sold to other Municipalities and/or Government Agencies (not for resale) or deposited into an Noncurrent liabilities………………………………………… 5,858 32,363 38,221 energy bank account under the City’s agreement with Pacific Gas and Electric (PG&E). Hetch Hetchy Total liabilities…………………………………………… 8,784 53,106 61,890 consists of a system of reservoirs, hydroelectric power plants, aqueducts, pipelines, and transmission lines. This system carries water and power more than 165 miles from the Sierra Nevada Mountains to Net assets: customers in the City and portions of the surrounding San Francisco Bay Area. Invested in capital assets, net of related debt…………… 85,508 208,092 293,600 Unrestricted net assets…………………………………… 40,586 161,722 202,308 Hetch Hetchy also purchases wholesale electric power from various energy providers that are used in Total net assets………………………………………….$ 126,094$ 369,814 $ 495,908 conjunction with owned hydro resources to meet the power requirements of its customers. Operations and business decisions can be greatly influenced by market conditions, state and federal power Condensed Statement of Revenues, Expenses, andHetch Hetchy Hetch Hetchy matters before the California Public Utilities Commission (CPUC), the California Independent System Operator (CAISO) and the Federal Energy Regulatory Commission (FERC). Therefore, Hetch Hetchy Changes in Net Assets Water Power Total serves as the City’s representative at CPUC, CAISO and FERC forums and continues to monitor Operating revenues……………………………………………$ 31,441 $ 108,594 $ 140,035 regulatory proceedings. Depreciation expense………………………………………… (4,125) (9,582) (13,707) Other operating expenses…………………………………… (28,354) (76,659) (105,013) Net operating income (loss)……………………………… (1,038) 22,353 21,315 Nonoperating revenues (expenses): Federal grants……………………………………………… - 4,730 4,730 Interest and investment income…………………………… 220 1,965 2,185 Interest expense…………………………………………… - (562) (562) Other nonoperating revenues (expenses)……………… 125 (1,709) (1,584) Transfers in (out), net………………………………………… 13,638 (184) 13,454 Change in net assets………………………………………… 12,945 26,593 39,538 Net assets at beginning of year…………………………….. 113,149 343,221 456,370 Net assets at end of year……………………………………$ 126,094 $ 369,814 $ 495,908 Condensed Statement of Cash Flows Hetch Hetchy Hetch Hetchy Water Power Total Net cash provided by (used in): Operating activities……………………………….……………$ 4,144 $ 37,129 $ 41,273 Noncapital financing activities……………………………… (40) 8,874 8,834 Capital and related financing activities……………………… (3,207) (34,578) (37,785) Investing activities………………………………………….… 245 (3,376) (3,131) Change in net assets………………………………………… 1,142 8,049 9,191 Cash and cash equivalents at beginning of year…………… 33,988 158,600 192,588 Cash and cash equivalents at end of year………………… $ 35,130 $ 166,649 $ 201,779 126 127 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Pledged Revenues – Hetch Hetchy Power has pledged future power revenues to repay Clean Hetch Hetchy is exposed to risks that could negatively impact its ability to generate net revenues to Renewable Energy Bonds, which were issued in fiscal year 2009. Proceeds from the bonds provided fund operating and capital investment activities. Hydroelectric generation facilities in the Sierra financing for various capital construction projects. These bonds are payable solely from net power Nevada are the primary source of electricity for Hetch Hetchy. For this reason, the financial results of revenues of Hetch Hetchy Power and are payable through the year ending 2022. Hetch Hetchy are sensitive to variability in watershed hydrology and market prices for energy. The original amount of revenue bonds issued, total principal and interest remaining, principal and Transactions with Other Funds – Charges for services for the year ended June 30, 2011 include interest paid during 2011 and applicable revenues for 2011 are as follows: $62.3 million in sales of power by Hetch Hetchy Power to other City Departments. Income from Hetch Hetchy is available for certain operations of the City. Bonds issued with revenue pledge $ 6,325 Principal and interest remaining due at the end of the year 5,059 The Water Enterprise purchases water from Hetch Hetchy Water and power from Hetch Hetchy Principal and interest paid during the year 422 Power. Included in the operating revenues are the water assessment fees totaling $29.7 million and Net revenue for the year ended June 30, 2011 41,773 purchased electricity for $6.6 million for the year ended June 30, 2011. In addition, the Wastewater Enterprise purchases power from Hetch Hetchy Power totaling $9.0 million for the year ended June 30, 2011. Commitments and Contingencies – As of June 30, 2011, Hetch Hetchy had outstanding commitments with third parties of $26.9 million for various capital projects and other purchase A variety of other City departments provide services such as engineering, purchasing, legal, data agreements for materials and services. processing, telecommunications, and human resources to the Water Enterprise and charge amounts designed to recover those departments’ costs. These charges total approximately $5.4 million for the To meet certain requirements of the Don Pedro Reservoir operating license, the City entered into an year ended June 30, 2011 and have been included in services provided by other departments. agreement with the Modesto and Turlock Irrigation Districts (the Districts) in which they would be responsible for an increase in water flow releases from the reservoir in exchange for annual (e) Municipal Transportation Agency payments from the City. Total payments were $4.5 million in fiscal year 2011. The payments are to be made for the duration of the license, but may be terminated with one year’s prior written notice after The San Francisco Municipal Transportation Agency (SFMTA) is governed by the SFMTA Board of 2001. The City and the Districts have also agreed to monitor the fisheries in the lower Tuolumne Directors. It is composed of the San Francisco Municipal Railway (MUNI), the San Francisco River for the duration of the license. A maximum monitoring expense of $1.4 million is to be shared Municipal Railway Improvement Corporation (SFMRIC), the SFMTA’s Sustainable Streets and Taxi between the City and the Districts over the term of the license. The City’s share of the monitoring Regulatory Services, and five nonprofit parking garage corporations operated by separate nonprofit costs is 52% and the Districts are responsible for 48% of the costs. corporations, whose operations are interrelated. Proposition E passed by the San Francisco voters in November 1999 amended the City Charter, calling for the creation of the SFMTA by consolidating In April 1988, Hetch Hetchy entered into a long-term power sales agreement (the Agreement) with the MUNI and Department of Parking and Traffic (now named as Sustainable Streets) by July 1, 2002. Districts. In June 2003, Hetch Hetchy amended the terms of the Agreement with the Modesto The incorporations are intended to support the City’s TransitFirst Policy. MUNI is one of America’s Irrigation District (MID). Under the terms of the amended and restated long-term power sales oldest public transit agencies, the largest in the Bay Area and seventh largest system in the United agreement, which became effective on January 1, 2003, the expiration date was shortened to States. It currently carries more than 200 million riders annually. Operating historic streetcars, modern December 31, 2007. The renegotiated agreement with MID became effective January 1, 2008, light rail vehicles, diesel buses, alternative fuel vehicles, electric trolley coaches and the world famous removed Hetch Hetchy’s obligation to provide firm power, and eliminated MID’s rights to excess cable cars, MUNI’s fleet is among the most diverse in the world. The SFMTA’s Sustainable Streets energy from the Project. This agreement expires June 30, 2015. In April 2005, Hetch Hetchy manages 40 City-owned garages and metered parking lots. It also manages all traffic engineering amended the terms of the agreement with Turlock Irrigation District (TID). The settlement agreement functions within San Francisco, including the placement of signs, signals, traffic striping, curb between Hetch Hetchy and TID restates and amends the power sales agreement and terminates markings, and parking meters. It also promotes the safe and efficient movement of people and goods Hetch Hetchy’s obligation to provide firm power at below market costs to TID to the end of the throughout the City. In March 2009, the former Taxi Commission was merged with the SFMTA and agreements term on June 30, 2015. Hetch Hetchy will continue to comply with the Raker Act by has assumed responsibility for taxi regulation to advance reforms as well as upgrading conditions for making water system generated hydropower available at cost to MID and TID for its agricultural drivers. SFMTA has regulatory power over the taxi industry and other motor vehicles for hire in San pumping and municipal loads as energy is available. For fiscal year 2011, energy sales to the Francisco. SFMRIC is a nonprofit corporation whose sole purpose is to provide capital financial Districts totaled 459,320 MWh or $10.8 million. assistance on behalf of MUNI by purchasing equipment and improving facilities. SFMRIC has no employees. The parking garages accounted for the activities of various non-profit corporations to Effective September 2007, the City renegotiated the Interconnection Agreement (agreement) with provide financial and other assistance to the City to acquire land, construct facilities, and manage PG&E to provide transmission and distribution services on PG&E’s system where needed to deliver various facilities. the Hetch Hetchy’s power to its customers. In addition, the PG&E agreement provides supplemental power and energy banking and other support services to Hetch Hetchy Power. The PG&E agreement provides audit rights to allows PG&E to review past billings paid by Hetch Hetchy Power and to retroactively (up to two years) adjust these payments as determined necessary. During fiscal year 2011, Hetch Hetchy purchased $13.7 million of transmission, distribution services, and other support services from PG&E under the terms of the agreement. The City’s Interconnection Agreement with PG&E contains a contractual provision allowing it to bank excess power produced, with a maximum of 110,000 of Megawatt hours (MWh). During fiscal year 2011, Hetch Hetchy Power generated 1,985,079 MWh of power, banked (deposited) in Deferred Delivery Account (DDA) 87,299 MWH and used (withdrew) 99,826 MWH. At June 30, 2011, the balance in the bank was 80,327 MWh or $2.2 million. 128 129 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The tables below reflect the financial information of MUNI, the Sustainable Streets, Taxi Regulatory The data below reflect the operations of the parking garages operated by separate nonprofit Services and the non-profit parking garages that are reported within the SFMTA, net of eliminations corporations managed by SFMTA. Information about these nonprofit corporations for the year ended $205.1 million inter-agency transfers. June 30, 2011 is as follows: Japan Ellis - Portsmouth Sustainable Parking Downtown Uptown Center O'Farrell Plaza MUNI Streets/Taxi Garages Eliminations Total Parking Parking Garage Parking Parking Total Assets Current assets………………………………$ 368,333 $ 70,389 $ 3,837 $ - $ 442,559 Operating revenues ………………$ 15,375 $ 16,552 $ 3,642 $ 6,029 $ 3,692 $ 45,290 Noncurrent assets………………………… 1,939,727 39,241 72,991 - 2,051,959 Depreciation ……………………… 681 1,027 173 361 137 2,379 Total assets……………………………… 2,308,060 109,630 76,828 - 2,494,518 Operating income ……………… 10,318 10,970 981 1, 2,056 1,572 26,897 Interest and other Liabilities non-operating Current liabilities…………………………… 192,051 21,358 6,705 - 220,114 revenues (expenses) ………… (395) (4,186) - (165) (1,853) (6,599) Current liabilities payable Change in net assets …………… 253 (580) 403 117 (281) (88) from restricted assets…………………… 1,166 - - - 1,166 Capital assets, additions ………… 26 9 256 - 23 314 Noncurrent liabilities……………………… 233,170 53,899 25,249 - 312,318 Capital assets, deletions ……… - (28) (256) - - (284) Total liabilities…………………………… 426,387 75,257 31,954 - 533,598 Net working capital (deficit) ……… (1,427) (2,701) 1,257 (851) 854 (2,868) Total assets ……………………… 20,794 37,876 3,089 11,864 3,205 76,828 Net assets Invested in capital assets, Total liabilities …………………… 7,973 19,439 258 3,508 776 31,954 net of related debt………………………… 1,929,559 18,495 34,222 - 1,982,276 Net assets ………………………… 12,821 18,437 2,831 8,356 2,429 44,874 Restricted net assets……………………… 9,003 682 10,213 - 19,898 Total debt outstanding ………… 7,076 16,879 - 2,983 - 26,938 Unrestricted net assets (deficits)………… (56,889) 15,196 439 - (41,254) Total net assets (deficits)……………… $ 1,881,673 $ 34,373 $ 44,874 $ - $ 1,960,920 Operating and Capital Grants and Subsidies – The City’s Annual Appropriation Ordinance Sustainable Parking Eliminations/ provides funds to subsidize the operating deficits of MUNI and Sustainable Streets determined by the MUNI Streets/Taxi Garages Reclassifications Total City’s budgetary accounting procedures, subject to the appropriation process. The amount of General Fund subsidy to the SFMTA was $254.9 million in fiscal year 2011. Operating revenues…………………………$ 209,378 $ 79,472 $ 45,290 $ - $ 334,140 Operating expenses………………………… 766,911 117,367 18,393 - 902,671 The SFMTA receives capital grants from various federal, state, and local agencies to finance transit- Net operating income (loss)……………… (557,533) (37,895) 26,897 - (568,531) related property and equipment purchases. As of June 30, 2011, MUNI had approved capital grants Nonoperating income (loss)……………… 128,721 116,218 (6,599) - 238,340 with unused balances amounting to $574.0 million. Capital grants receivable as of June 30, 2011 Capital contributions………………………… 151,996 12,763 - - 164,759 totaled $73.8 million. Transfers in………………………………… 397,668 105,806 - (205,145) 298,329 Transfers out………………………………… (32,940) (157,277) (20,386) 205,145 (5,458) The SFMTA also receives operating assistance from various federal, state, and local sources, Change in net assets……………………… 87,912 39,615 (88) - 127,439 including Transit Development Act funds and sales tax allocations. As of June 30, 2011, SFMTA had Net assets (deficits), beginning of year…… 1,793,761 (5,242) 44,962 - 1,833,481 various operating grants receivable of $12.9 million. In fiscal year 2011, the SFMTA’s operating Net assets (deficits), end of year………… $ 1,881,673 $ 34,373 $ 44,874 $ - $ 1,960,920 assistance also includes BART American Disability Act (ADA) revenues of $1.1 million and other federal, state and local grants of $19.4 million to fund project expenses that are operating in nature. The capital grants and operating assistance identified above include funds received and due from the San Francisco County Transportation Authority (SFCTA). During the fiscal year 2011, the SFCTA approved $43 million in new capital grants and $14.7 million in new operating grants for SFMTA. During the same period, the SFMTA received total payments of $32.4 million for capital grants and $11.1 million in operating grants from the SFCTA. As of June 30, 2011, the SFMTA had $8.8 million due from the SFCTA for capital grants and $2.5 million due from the SFCTA for operating grants reported in due from other funds. Proposition 1B is a ten-year $20 billion transportation infrastructure bond that was approved by voters in November 2006. The bond measure was composed of several funding programs including the Public Transportation Modernization, Improvement and Service Enhancement Account program (PTMISEA) that is funding solely for public transit projects. SFMTA received $24 million in fiscal year 2011 for different projects. Proposition 1B funds do not require matching funds. These funds must be obligated within three years. The eligibility requirements for the PTMISEA program include rehabilitation of infrastructure, procurement of equipment and rolling stock, and investment in 130 131 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) expansion projects. During fiscal year 2011, $25 million drawdowns were made from these funds for roles as debt payment undertaker guarantor or surety may not be practicable, MUNI could become the various eligible project costs. liable to pay termination costs as provided in certain schedules of the SILO transaction documents. These early termination costs are in the nature of liquidated damages. The scheduled termination The State Public Utilities Code requires that fare revenues must equal or exceed 33% of operating costs as of June 30, 2011 after giving effect to the market value of the securities in the escrow costs in order to qualify for an allocation of certain sales tax revenues available for public transit. accounts would approximate $109.2 million. The scheduled termination costs increase over the next Transit operators may add local support to fare revenues in order to calculate the fare recovery ratio. several years. The City provides significant local support to SFMTA from parking revenues and the General Fund. The escrows were invested in U.S. agency securities with maturity dates that correspond to the Commitments and Contingencies – The SFMTA has outstanding contract commitments of purchase option dates in each sublease. approximately $175.5 million with third parties for various capital projects. Grant funding is available for a majority of this amount. The SFMTA also has outstanding commitments of approximately Although these escrows do not represent a legal defeasance of MUNI’s obligations under the $31.9 million with third parties for non-capital expenditures. Various local funding sources are used to sublease, management believes that these transactions are structured in such a way that it is not finance these expenditures. The SFMTA is also committed to numerous capital projects for which it probable that MUNI will need to access other monies to make sublease payments. Therefore, the anticipates that federal and state grants will be the primary source of funding. The SFMRIC board of assets and the sublease obligations are not recorded on the financial statements of the SFMTA as of directors has authorized SFMRIC to extend financial guarantees to the SFMTA for certain projects June 30, 2011. totaling $1.1 million. As a result of the cash transactions above, MUNI recorded deferred revenue of $35.5 million and SFMRIC is authorized to issue debt to fund each of its programs under separate indentures. Transit $4.4 million in fiscal year 2002 and 2003 respectively, for the difference between the amounts Equipment Progress bonds totaling $51.5 million have been authorized, of which $30.5 million is received of $388.2 million and $72.6 million, respectively, and the amounts paid to the escrows and available for issuance and none are outstanding. Transit Improvement Program (TIP) bonds the debt payment undertaker of $352.7 million and $67.5 million. The deferred revenue will be amounting to $44.0 million have been authorized, of which $7.8 million is available for issuance. As of amortized over the life of the sublease. The deferred revenue amortized amounts were $1.3 million June 30, 2011, no bonds were outstanding under TIP. and $0.2 million in fiscal year 2011. Leveraged Lease-Leaseback of BREDA Vehicles – Tranches 1 and 2 As of June 30, 2011, the outstanding payments to be made on the sublease through the end of the In April 2002 and in September 2003, following the approval of the Federal Transit Administration, sublease term are $27.6 million and $7.2 million for Tranche 1 and Tranche 2, respectively, and the SFMTA Board of Directors, and the City’s Board of Supervisors, MUNI entered into the leveraged payments to be made on the purchase option, if exercised, would be $680.8 million and lease leaseback transactions for over 118 and 21 respectively, Breda light rail vehicles (the Tranche 1 $154.2 million. These payments are to be funded from the amounts in escrow and by the payment and Tranche 2 Equipment). Each transaction also referred to as “sale in lease out” or “SILO”, was undertaker. If MUNI does not exercise the purchase option, MUNI would be required to either: 1) pay structured as a head lease of the Equipment to separate special purpose trusts and a sublease of the service and maintenance costs related to the continued operation and use of the vehicles beyond the Equipment back from such trusts. Under the respective sublease, MUNI may exercise an option to term of the sublease; or 2) arrange for another party to be the “service recipient,” under a “service purchase the Tranche 1 Equipment on specified dates between November 2026 through contract,” and to perhaps guarantee the obligations of that party under the service contract if the January 2030 and Tranche 2 Equipment in January 2030, in each case, following the scheduled replacement service recipient does not meet specified credit or net worth criteria. sublease expiration dates. During the terms of the subleases, MUNI maintains custody of the Tranche 1 Equipment and Tranche 2 Equipment and is obligated to insure and maintain the Tranche 1 and (f) Laguna Honda Hospital Tranche 2 Equipment throughout the life of the sublease. General Fund Subsidy – The Laguna Honda Hospital (LHH) is a skilled nursing facility which specializes in serving elderly and disabled residents. The operations of LHH are subsidized by the MUNI received an aggregate of $388.2 million and $72.6 million, respectively in 2002 and 2003, from City’s General Fund. It is the City’s policy to fund operating deficits of the enterprise on a budgetary the equity investors in full prepayment of the head lease. MUNI deposited a portion of the prepaid basis; however, the amount of operating subsidy provided is limited to the amount budgeted by the head lease payments into an escrow and deposited a portion with a debt payment undertaker whose City. Any amount not required for the purpose of meeting an enterprise fund deficit shall be repayment obligations are guaranteed by Assured Guaranty Municipal Corp. (AGM) as successor to transferred back to the General Fund at the end of each fiscal year, unless otherwise approved by the Financial Security Assurance (FSA), a bond insurance company that is currently rated “AA+” by Board of Supervisors. For the year ended June 30, 2011, the subsidy for LHH was approximately Standard & Poor’s (“S&P”) and “Aa3” by Moody’s Investor Services (“Moody’s”). The terms of the $37.4 million. SILO documents require the MUNI to replace AGM, as successor to FSA, as guarantor of debt payment undertaker if its ratings are downgraded below BBB+/Baa1 by S&P and Moody’s, Net Patient Services Revenue – Net patient services revenues are recorded at the estimated net respectively. AGM’s current ratings satisfy this requirement. In addition, FSA provided a surety policy realizable amounts from patients, third-party payors and others for services rendered, including a with respect to each SILO to guarantee potential payments in the event such transaction is provision for doubtful accounts and estimated retroactive adjustments under reimbursement terminated in whole or in part prior to the sublease expiration date. The terms of the SILO documents agreements with federal and state government programs and other third-party payors. Retroactive require MUNI to replace AGM, as successor to FSA, as surety provider, if AGM’s ratings are adjustments are accrued on an estimated basis in the period the related services are rendered and downgraded below “AA-/Aa3” by S&P and Moody’s, respectively. AGM’s current ratings satisfy this adjusted in future periods, as final settlements are determined. requirement. Both S&P and Moody’s have “Negative” outlooks on AGM. On August 25, 2011, S&P published a rating criteria article, Bond Insurance Rating Methodology and Assumptions, in which it Patient accounts receivable are recorded net of estimated allowances, which include allowances for noted that the new bond insurance rating criteria could result in the lowering of the financial strength contractuals and bad debt. These allowances are based on current payment rates, including per ratings of investment grade bond insurers by one or more rating categories and that any such rating diems, DRG amounts and payment received as a percentage of gross charges. changes would occur after its review of third quarter 2011 financial statements but no later than November 30, 2011. It is not known whether or to what level downgrades, if any, may occur. Failure Third-party Payor Agreements – LHH has agreements with third-party payors that provide for of MUNI to replace AGM following a downgrade within a specified period of time could allow the reimbursement to LHH at amounts different from its established rates. Contractual adjustments under investors, in effect, to issue a default notice to MUNI. Because replacement of AGM in either of its third-party reimbursement programs represent the difference between the hospital’s established rate 132 133 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) for services and amounts reimbursed by third-party payors. Medicare and Medi-Cal are the major (g) San Francisco General Hospital Medical Center third-party payors with whom such agreements have been established. Laws and regulations General Fund Subsidy – San Francisco General Hospital Medical Center (SFGH) is an acute care governing the Medicare and Medi-Cal programs are complex and subject to interpretation. LHH hospital. The operations of SFGH are subsidized by the City’s General Fund. It is the City’s policy to believes that it is in compliance with all applicable laws and regulations and is not aware of any fully fund enterprise operations on a budgetary basis; however, the amount of operating subsidy pending or threatened investigations involving allegations of potential wrongdoing. While no such provided is limited to the amount budgeted by the City. Any amount not required for the purpose of regulatory inquiries have been made, compliance with such laws and regulations can be subject to meeting an enterprise fund deficit shall be transferred back to the General Fund at the end of each future government review and interpretation as well as significant regulatory action including fines, fiscal year, unless otherwise approved by the Board of Supervisors. For the year ended penalties and exclusion from the Medicare and Medi-Cal programs. June 30, 2011, the subsidy for SFGH was $68.9 million. During the fiscal year ended June 30, 2011, LHH’s patient receivables and charges for services were Net Patient Services Revenue – Net patient services revenues are recorded at the estimated net as follows: realizable amounts from patients, third-party payors and others for services rendered, including a Patient Receviables, net Medi-Cal Medicare Other Total provision for doubtful accounts and estimated retroactive adjustments under reimbursement agreements with federal and state government programs and other third-party payors. Retroactive Gross accounts receivable………………….. 38,074$ $ 1,468 $ 236 $ 39,778 adjustments are accrued on an estimated basis in the period the related services are rendered and Less: adjusted in future periods, as final settlements are determined. Contractual Allowances……………………. (13,536) (522) (84) (14, 142) Total, net………………………………… … $ 24,538 $ 946 $ 152 $ 25,636 Patient accounts receivable are recorded net of estimated allowances, which include allowances for contractuals, bad debt, and administrative write-offs. These allowances are based on current Net Patient Service Revenue payment rates, including per diems, DRG amounts and payment received as a percentage of gross Medi-Cal Medicare Other Total charges. Gross revenue………………………………. $ 233,992 14,174$ $ 2,276 $ 250,442 Third-party Payor Agreements – SFGH has agreements with third-party payors that provide for Less: reimbursement to SFGH at amounts different from its established rates. Contractual adjustments Contractual allowances………………… … (98,505) (7,437) (998) (106,940) under third-party reimbursement programs represent the difference between SFGH’s established Total, net………………………………… $ 135,487 6,737$ $ 1,278 $ 143,502 rates and amounts reimbursed by third-party payors. Major third-party payors with whom such agreements have been established are Medicare, Medi-Cal, and the State of California through the Because Medi-Cal reimbursement rates are less that LHH’s established charges rates, LHH is eligible Medi-Cal Hospital/Uninsured Care Demonstration Project and Short-Doyle mental health programs. to receive supplemental federal funding. For the year ended June 30, 2011, LHH accrued and Laws and regulations governing the Medicare and Medi-Cal programs are complex and subject to recognized $15.4 million of revenue as a result of matching federal funds to local funds. In addition, interpretation. SFGH believes that it is in compliance with all applicable laws and regulations and is during the year ended June 30, 2011, LHH recognized $15.0 million in tobacco settlement revenues not aware of any pending or threatened investigations involving allegations of potential wrongdoing. as capital contributions in accordance with Proposition A as further described in the Replacement While no such regulatory inquiries have been made, compliance with such laws and regulations can Project section below. be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medi-Cal programs. Deferred Credits and Other Liabilities – As of June 30, 2011, LHH recorded approximately $0.7 million in other liabilities for third-party payor settlements payable. During the fiscal year ended June 30, 2011, SFGH’s patient receivables and charges for services Replacement Project – The California Hospital Facilities Safety Act (SB 1953) specifies certain were as follows: requirements that must be met at various dates in order to increase the probability that LHH could maintain uninterrupted operations following major earthquakes. By January 1, 2008, all general acute Patient Receviables, net care buildings must be life safe. By January 1, 2030, all general acute care inpatient buildings must Medi-Cal Medicare Other Total be able to be operational after an earthquake. In December 2001, LHH finalized and submitted a plan Gross accounts receivable………………… $ 176,326 59,710$ $ 83,598 $ 319,634 to the State of California indicating that the Laguna Honda Hospital Replacement Project will be fully Less: operational by 2013 and thereby in full compliance with the 2030 requirements. The new Laguna Contractual allowances………………… … (148,155) (51,051) (66,949) (266,155) Honda opened in December 2010 and is comprised of three new buildings housing 780 people. Bad debt…………………………………… - - (14,296) (14,296) Total, net………………………………… 28,171$ $ 8,659 $ 2,353 $ 39,183 In November 1999, San Francisco voters approved Proposition A, a ballot measure authorizing the City to issue general obligation bonds to finance the acquisition, improvement, construction and/or Net Patient Service Revenue reconstruction of a new health care, assisted living and/or other type of continuing care facility or Medi-Cal Medicare Other Total facilities to replace Laguna Honda Hospital (the Replacement Project). Proposition A requires an increase in property taxes to pay for the bonds. In addition, Proposition A stipulates that $100 million Gross revenue……………………………… . $ 796,448 $ 363,892 $ 904,039 $ 2,064,379 of tobacco settlement funds received by the City, excluding $1 million set aside each year for smoking Less: education and prevention programs, may be used to pay for some construction of the Replacement Contractual allowances………………… … (753,973) (234,703) (447,645) (1,436,321) Project, as well as to offset the cost to property owners of repaying the bonds. As of June 30, 2011, Bad debt…………………………………… - - (56,693) (56,693) general obligation bonds in the amount of $299 million have been sold to fund the Replacement Total, net………………………………… $ 42,475 $ 129,189 $ 399,701 $ 571,365 Project and are reported as a governmental activity. As of June 30, 2011, LHH has entered into various purchase contracts totaling approximately $29.7 million that are related to future construction for the Replacement Project. 134 135 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) California’s Medi-cal Hospital/Uninsured Care Demonstration Project (Demonstration) is the current Contract with the University of California San Francisco – The City contracts on a year-to-year system for paying selected hospitals for hospital care provided to Medi-cal and uninsured patients basis on behalf of SFGH with the University of California (UC). Under the contract, SFGH serves as a and replaces funding previously provided through California State Senate Bills 855 and 1255. The teaching facility for UC professional staff, medical students, residents, and interns who, in return, Demonstration was negotiated between the State of California’s Department of Health Services and provide medical and surgical specialty services to SFGH’s patients. The total amount for services the Federal Centers for Medicare and Medicaid Services, and covers the period from July 1, 2005 to rendered under the contract for the year ended June 30, 2011, was approximately $114.8 million. June 30, 2010 and was extended to October 31, 2010. Under the Demonstration, payments for public hospitals are comprised of: 1) fee-for-service cost-based reimbursement for inpatient hospital SFGH Rebuild – In 1996, California passed Senate Bill 1953, mandating that all California acute care services; 2) Disproportionate Share Hospital payments; and 3) distribution from a pool of federal hospitals meet new seismic safety standards by 2013. In January 2001, the San Francisco Health funding for uninsured care, known as the Safety Net Care Pool (SNCP). The nonfederal share of Commission approved a resolution to support a rebuild effort for the hospitals, and the Department of these three payments will be provided by the public hospitals, primarily through certified public Public Health conducted a series of planning meetings to review its options. It became evident that expenditures, whereby the hospital would expend its local funding for services to draw down the rebuilding rather than retrofitting was required, and that rebuilding SFGH presented a unique federal financial participation. Revenues recognized under the Demonstration approximated opportunity for the Department of Public Health to make system-wide as well as structural $164.4 million for the year ended June 30, 2011. Beginning in fiscal year 2008, the State created the improvements in its delivery of care for patients in 2013 and beyond. Health Care Coverage Initiative (HCCI), allowable under the Demonstration, to expand healthcare coverage for eligible low-income, uninsured individuals using an annual allotment of federal funds In October 2005, the San Francisco Health Commission accepted the Mayor’s Blue Ribbon from the SNCP. On September 1, 2007, the City entered in to a contract with the State to participate Committee recommendation to rebuild the hospital at its current Potrero Avenue location. A site in HCCI and was allocated $73.1 million over 3 years. Through the year ended June 30, 2011, SFGH feasibility study was concluded in September 2006 and showed a compliant hospital can be built on has accrued and recognized a total of $70.0 million. The HCCI covers a subset of the Healthy San the west lawn without demolishing the historic buildings or other buildings. An institutional master Francisco population, primarily those individuals at or below 200% of the federal poverty level and plan, a hazardous materials assessment, a geotechnical analysis and rebuild space program have all who meet citizenship requirements as further discussed in the Healthy San Francisco Program been completed in fiscal year 2007. Schematic design of the new building is complete and the project section below. cost is estimated at $887.4 million. The California Hospital Fee Program AB1383 (Program) was signed into law by the Governor of Majority of the funding will be through issuance of bonds. In November 2008, San Francisco voters California effective January 1, 2010. The period covered by the Program was April 2009 through approved Proposition A, a ballot measure that authorized the City to issue general obligation bonds December 2010. CMS approved the State Plan Amendment and Waiver allowing the State to for the rebuild of the hospital. As of June 30, 2011, General Obligation Bonds, in the amount of implement the Program. The Program contains two components: 1) The Quality Assurance Fee Act, $426.3 million have been sold to fund the hospital rebuild. The General Obligation Bonds are which governs the hospital fee paid by participating hospitals (public hospitals are exempt from this accounted for as a governmental activity and transactions are accounted for in the City’s requirement) and 2) the Medi-Cal Hospital Provider Stabilization Act, which governs supplemental Governmental Capital Projects Funds. Upon completion of the new facility, it will be contributed to the Medi-Cal payments made to providers. For the year ended June 30, 2011, SFGH received SFGH enterprise fund. $30.4 million of supplemental Medi-Cal payments under the Program. Healthy San Francisco Program – In July 2007, the City’s Department of Public Health In addition, SFGH was reimbursed by the State of California, under the Short-Doyle Program, for implemented Healthy San Francisco (HSF). HSF is a program to provide health care for the mental health services provided to qualifying residents based on an established rate per unit of uninsured residents using a medical home model, with an emphasis on wellness and preventive care. service not to exceed an annual negotiated contract amount. During the year ended June 30, 2011, Persons between the ages of 18-64 are eligible and persons whose income is at or below 500% of reimbursement under the Short-Doyle Program amounted to approximately $5.4 million and is the federal poverty level are eligible for a subsidy. included in other operating revenue. As of June 30, 2011, over 54,348 uninsured adult residents were enrolled in HSF - this represented a Deferred Credits and Other Liabilities – As of June 30, 2011, SFGH recorded approximately 2% increase compared to enrollment at the end of fiscal year 2010. With 54,348 participants, HSF $71.8 million in deferred credits and other liabilities, which was comprised of $49.7 million in deferred provided care to 85% of the estimated 64,000 uninsured adult residents. In addition to increasing credits related to receipts under the periodic interim payment system and $22.1 million in third-party access by serving more uninsured adults, the program also expanded access by increasing the payor settlements payable. number of primary care medical homes that participate in the program. HSF ended the fiscal year 2010-11 with 36 medical homes - a 33% increase from fiscal year 2008 (the program's first year). Charity Care – SFGH provides care without charge or at amounts less than its established rates to patients who meet certain criteria under its charity care policy. Charges foregone based on Effective July 1, 2011, over 10,000 HSF participants were transitioned to a new program called San established rates were $159.1 million and estimated costs and expenses to provide charity care were Francisco Provides Access to Healthcare (SF PATH). SF PATH is a new federally-supported health $67.4 million in fiscal year 2011. access program that provides affordable health care services for some low income people living in San Francisco. The program was created in preparation for the implementation of federal health Other Nonoperating Revenues – The State of California provides support to SFGH through a reform. The HSF Program starting July 23, 2011 and going forward will reflect this 10,000 reduction in realignment of funding provided from vehicle license fees and sales tax allocated to California’s enrollment. New enrollment in HSF has not ceased, but total HSF enrollment has decreased as a counties. For the year ended June 30, 2011, SFGH recognized $50.3 million as other nonoperating result of the transfer of over 10,000 former HSF participants into SF PATH. revenue for realignment funding. Commitments and Contingencies – At the end of the year, SFGH has approximately $1.0 million in commitments for various capital projects. 136 137 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (h) San Francisco Wastewater Enterprise The City’s Department of Public Works provides certain engineering and other services to the Wastewater Enterprise and charges amounts designed to recover its costs. These services are The San Francisco Wastewater Enterprise (Wastewater Enterprise), formerly known as the San primarily related to street cleaning, engineering, building repair, and sewer repair. This amount Francisco Clean Water Program, was established in 1977 following the transfer of all sewage-system- totaling approximately $15.1 million for the year ended June 30, 2011 and has been included in related assets and liabilities of the City to the Wastewater Enterprise pursuant to bond resolution to services provided by other departments. account for the City’s municipal sewage treatment and disposal system. A variety of other City departments provide services such as purchasing, legal, data processing, The Wastewater Enterprise collects, transmits, treats, and discharges sanitary and stormwater flows telecommunications, and human resources to the Wastewater Enterprise and charge amounts generated within the City for the protection of public health and environmental safety. In addition, the designed to recover those departments’ costs. These charges totaling approximately $8.6 million for Wastewater Enterprise serves on a contractual basis certain municipal customers located outside of the year ended June 30, 2011 and have been included in services provided by other departments. the City limits, including the North San Mateo County Sanitation District No. 3, Bayshore Sanitary District, and the City of Brisbane. The Wastewater Enterprise recovers cost of service through user SFPUC entered into a seventy-five year lease agreement with the San Francisco Recreation and fees based on the volume and strength of sanitary flow. The Wastewater Enterprise serves Park Commission for the use of parking spaces at the parking garage located at 355 McAllister Street approximately 146,890 residential accounts, which discharge about 18.4 million units of sanitary flow beneath Civic Center Plaza which is in closer proximity to SFPUC’s new headquarters at 525 Golden per year (measured in hundreds of cubic feet, or ccf) and approximately 16,160 non-residential Gate Avenue. The term of the agreement commenced on February 1, 2011, with 40 parking spaces accounts, which discharge about 8.7 million units of sanitary flow per year. allocated to SFPUC. On or about April 1, 2012, SFPUC will have the right to an additional 20 parking spaces. The total payment under this agreement is $6.3 million and the first payment in the amount of Pledged Revenues – Wastewater Enterprise’s revenues, which consists mainly of sewer service $1.5 million was made in the fiscal year 2011. Of this $1.5 million, SFPUC recognized $0.04 million charges, is pledged for the payment of principal and interest on various revenue bonds. Proceeds as expenses for the 40 parking spaces rented between February and June, 2011 at $0.008 per from the bonds provided financing for various capital construction projects and to refund previously month. The remaining $1.46 million was recorded as prepaid. The expenses and prepayment were issued bonds. These bonds are payable solely from net power revenues of Wastewater Enterprise prorated and allocated among the three SFPUC Enterprises based on the use of parking spaces. The and are payable through fiscal year ending 2041. remaining payments will be made as follows: The original amount of revenue bonds issued, total principal and interest remaining, principal and Fiscal years interest paid during 2011 and applicable revenues for 2011 are as follows: ending June 30: Amount Bonds issued with revenue pledge $ 635,835 2012 $ 1,500 Principal and interest remaining due at the end of the year 786,487 2013 1,500 Principal and interest paid during the year 44,883 2014 1,500 Net revenue for the year ended June 30, 2011 85,529 2015 274 Funds available for bond debt service 108,298 Total $ 4,774 Commitments and Contingencies – As of June 30, 2011, Wastewater Enterprise had outstanding commitments with third parties for capital projects and for materials and services totaling In fiscal year 2011, the Wastewater Enterprise’s allocable share of the expenses and prepayment $82.9 million. was $1 and $37, respectively. Pollution Remediation Obligations – The City and the Wastewater Enterprise have been listed as (i) San Francisco Market Corporation potentially responsible parties in the clean-up effort of Yosemite Creek due to the Wastewater The San Francisco Market Corporation is a non-profit corporation organized to acquire, construct, Enterprise’s role in conveying contaminated flows to the receiving waters through the sewerage finance, and operate a produce market. The information about this non-profit corporation is presented system. Yosemite Creek has been identified as having toxic sediments, primarily polychlorinated in the financial statements of the proprietary funds as a non-major fund. biphenyls. The U.S. Environmental Protection Agency is moving forward with a clean-up plan for these sediments. Contaminated flows emanating from a local industrial discharger in the drainage (12) SAN FRANCISCO REDEVELOPMENT AGENCY areas to Yosemite Creek is the likely responsible source of the contamination. As of June 30, 2011, the pollution remediation obligation reported in the accompanying statements of net assets is $375 for The Redevelopment Agency of the City and County of San Francisco (the Agency) is a public body, the Yosemite Creek project, based on estimated contractual costs. corporate and politic, organized and existing under the Community Redevelopment Law of the State of California. Since the organization of the Agency in 1948, the Agency has completed four The City and County of San Francisco and the Wastewater Enterprise has identified pollution redevelopment project areas and twelve redevelopment areas are now underway. In addition, the remediation obligation for the Sunnydale Auxiliary Sewer project. The remediation is for the removal, Agency has completed a feasibility study on the Mid Market Survey Area and the redevelopment plan transportation, and disposal of Class I hazardous material consisting of lead and oil contamination has been submitted to the Board of Supervisors for review. Feasibility studies are underway for deposited inside the Sunnydale box sewer. As of June 30, 2011, the pollution remediation obligation Bayview Hunters Point Survey Areas designated by the Board of Supervisors. reported in the accompanying statements is $350 for the Sunnydale Auxiliary Sewer project, based on estimated contractual costs. The Agency has no direct taxing power and does not have the power to pledge the general credit or taxing power of the City, the State of California or any political subdivision thereof. However, Transactions with Other Funds – The Wastewater Enterprise purchases electricity from Hetch California’s Health and Safety Code allows redevelopment agencies with appropriate approvals of the Hetchy at market rates. The amount was $9.0 million for the year ended June 30, 2011, and has been local legislative bodies to recover costs of financing public improvements from increased tax included in services provided by other departments. revenues (tax increment) associated with increased property values of individual project areas. During the year, the Agency’s revenue from property tax increment was $110.2 million. 138 139 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Recent Changes in Legislation Affecting California Redevelopment Agencies - In June 2011, A Bonds). The proceeds for the 2010 Series A Bonds were primarily used to fund various the California legislature adopted Assembly Bill X1 26 (“AB X1 26” or the “Dissolution Bill”) and redevelopment activities, including certain low and moderate income housing developments within Assembly Bill X1 27 (“AB X1 27” or the “Continuation Bill”). The Dissolution Bill immediately suspends the Golden Gateway, Transbay, and Western Addition A-2 project areas. The 2010 Series A Bonds all new redevelopment activities and incurrence of indebtedness, and dissolves redevelopment bear fixed interest rates and have a final maturity date of August 1, 2040. agencies effective October 1, 2011. However, the Continuation Bill allows redevelopment agencies to avoid dissolution by “opting” into an alternative voluntary redevelopment program (“Voluntary On March 21, 2011 , the SFRFA issued $22.4 million in 2011 Series A Taxable Tax Allocation Program”), requiring substantial annual contributions to local school and special districts. Revenue Bonds, $27.3 million in 2011 Series C Tax-Exempt Tax Allocation Revenue Bonds, and $36.5 million in 2011 Series D Tax-Exempt Tax Allocation Revenue Bonds (2011 Series A, C, and D On September 20, 2011, Agency Resolution No. 99-2011 was adopted, indicating that the Agency will Bonds). The proceeds for the 2011 Series A Bonds were used to fund various redevelopment comply with the Voluntary Alternative Redevelopment Program in order to permit the continued activities, including certain low and moderate income housing developments within Bayview Hunters existence and operation of the Agency, in the event AB X1 26 and/or 27 are upheld as constitutional. Point (Area B), Golden Gateway, Hunters Point, South of Market, Transbay, and Western Addition The initial payment by the Agency is estimated to be $14.6 million with one half due on January 15, A-2 project areas. The proceeds for the 2011 Series C Bonds were used to fund redevelopment 2012 and the other half due May 15, 2012. activities and to refund the Community Facilities District No. 4 (Mission Bay North Public Improvements) Variable Rate Revenue Bonds, Series 2001-North (“CFD No.4” Bonds) in the On July 18, 2011, the California Redevelopment Association and the League of California Cities, aggregate principal amount of $16.6 million that was not considered an Agency’s long-term debt. along with certain other petitioners, filed a lawsuit asking the California Supreme Court to overturn AB Proceeds of the refunded CFD No.4 Bonds and the 2011 Series C Bonds were used to finance X1 26 and AB X1 27 as they violate the Constitution of California. The California Supreme Court infrastructure required pursuant to the Mission Bay North Owner Participation Agreement. The announced it would hear the lawsuit and issued a partial stay suspending the effectiveness of AB X1 proceeds from the 2011 Series D Bonds were used to fund the Agency’s obligation to finance certain 26 and AB X1 27 until it can rule on the constitutionality of these two bills. The Court allowed the infrastructure required pursuant to the Mission Bay South Owner Participation Agreement. The 2011 Dissolution Bill to remain in effect insofar as it precludes existing redevelopment agencies from Series A, C and D Bonds bear fixed interest rates and have a final maturity date of August 1, 2041. incurring new indebtedness, transferring assets, acquiring real property, entering into new contracts or modifying existing contracts, entering into new partnerships, adopting or amending redevelopment On April 26, 2011, the SFRFA issued $16.0 million in 2011 Series B Tax-Exempt Tax Allocation plans, etc., but it stayed enforcement of both statutes in all other respects. The Court also states in its Revenue Bonds and $9.5 million in 2011 Series E Taxable Tax Allocation Revenue Bonds (2011 order that “the briefing schedule is designed to facilitate oral argument as early as possible in 2011, Series B and E Bonds). The proceeds for the 2011 Series B Bonds were used to fund certain and a decision before January 15, 2012,” which is the date that the Voluntary Program contributions redevelopment activities within the Bayview Hunters Point (Area B), South of Market, and Transbay are due. At this time, due to the Court’s involvement, redevelopment operations are effectively placed project areas. The proceeds for the 2011 Series E Bonds were used to fund certain redevelopment on hold pending the outcome of the litigation, including whether or not the City will make the activities within the Mission Bay North and Mission Bay South project area. The 2011 Series B and E contribution required under the Voluntary Program. Bonds bear fixed interest rates. 2011 Series B Bonds have a final maturity date of August 1, 2041, while the 2011 Series E Bonds have a final maturity date of August 1, 2031. Public Initiatives Development Corporation (PIDC) was formed in May of 2002 to develop affordable housing on the Agency’s behalf. On November 12, 2004, PIDC and Wincopin Circle, LLLP On March 17, 2011, the Agency issued $43.8 million in Hotel Tax Revenue Refunding Bonds Series formed a limited partnership, Plaza Apartments Associates, L.P. (the Partnership). PIDC is the 2011 (Series 2011 Hotel Tax Bonds). The proceeds were used to fully refund $4.8 million outstanding managing general partner and owns a 0.01% interest in the partnership. Wincopin Circle, LLLP is a principal of the Agency’s Series 1994 Hotel Tax Revenue Bonds and fully refund $46.7 million limited partner and owns a 99.99% interest. Wincopin Circle, LLLP transferred its interest in the outstanding principal of the Agency’s Series 1998 Hotel Tax Revenue Bonds. The proceeds, together Partnership to the Housing Outreach Fund XI Limited Partnership, effective December 24, 2004. The with prior funds from the refunded bonds, were deposited into escrow accounts and used to redeem Partnership completed construction of a 106-unit affordable housing project in the South of Market the refunded bonds on April 15, 2011. Although the refunding resulted in the recognition of a deferred project area in January 2006. As of June 30, 2011, 100% of the units were leased. The Agency accounting loss of $0.8 million, the Agency in effect reduced its aggregate debt service payments by reports the investment in the Partnership under the equity method, based on the value of the assets approximately $2.4 million over the next 15 years and obtained an economic gain (difference between and liabilities transferred to the Partnership. present value of the old and new debt service payment) of $1.5 million. The Series 2011 Hotel Tax Bonds bear fixed interest rates and have a final maturity date of June 1, 2025. Health and Safety Code Section 33334.3 requires the Agency to set aside 20% of the proceeds from its incremental property tax revenues for expenditures for low and moderate income housing. Pledged Revenues for Bonds – The Agency’s Tax Allocation Bonds are equally and ratably secured Related interest earned on these funds must also be set aside for such purposes. The Agency by the pledge and lien of the Agency’s tax increment revenue. These revenues have been pledged established the City-Wide Housing Capital Project Account to account for this commitment and has until the year 2042, the final maturity date of the bonds. The total principal and interest remaining on budgeted $728 million for such expenditures since its inception. The Agency has expended these bonds is approximately $1.8 billion. The tax increment revenue recognized during the year $504 million for low- and moderate-income housing since its inception. ended June 30, 2011 was $110.2 million as against the total debt service payment of $85.5 million. The Agency’s Moscone Convention Center Lease Revenue Bonds are secured by the pledge of the Payment to Supplemental Educational Revenue Augmentation Fund (SERAF) – On capital lease revenue received by the Agency from the City. These revenues have been pledged until July 24, 2009, the State Legislature passed Assembly Bill (AB) 26 4x, which requires redevelopment the year 2025, the final maturity date of the bonds. The total principal and interest remaining on these agencies statewide to deposit a total of $2.05 billion of property tax increment in the county bonds is approximately $171.5 million. The lease payments recognized during the year ended Supplemental Educational Revenue Augmentation Fund (SERAF) to be distributed to meet the June 30, 2011 was $18.8 million as against the total debt service payment of $18.8 million. State’s Proposition 98 obligations to schools. The Agency’s share of this revenue shift was $28.7 million in fiscal year 2009-10 and $5.9 million in fiscal year 2010-11. Payments are to be made The Agency’s Hotel Tax Lease Revenue Bonds are secured by the pledge and lien of the hotel tax by May 10 of each respective fiscal year. During fiscal year 2010-11, the Agency made the second revenue received by the Agency from the City. These revenues have been pledged until the year payment of $5.9 million. 2026, the final maturity date of the bonds. The total principal and interest remaining on these bonds is New Debt Issuances – In September 2010, the San Francisco Redevelopment Financing Authority approximately $62.8 million. The tax revenue recognized during the fiscal year ended June 30, 2011 (SFRFA) issued $40.1 million in 2010 Series A Taxable Tax Allocation Revenue Bonds (2010 Series was $5.6 million as against the total debt service payment of $5.5 million. 140 141 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Variable Rate Demand Refunding Bonds – The interest rate for the South Beach Harbor Variable (13) TREASURE ISLAND DEVELOPMENT AUTHORITY Rate Demand Refunding Bond 1986 Issue A is reset weekly by a remarketing agent. The rate varies The Treasure Island Development Authority (TIDA) is a nonprofit public benefit corporation. TIDA was depending on financial market conditions. In connection with the issuance of the bonds, the Agency authorized in accordance with the Treasure Island Conversion Act of 1997 and designated as a obtained an irrevocable letter of credit as a credit facility with Dexia Credit Local for the bonds. At pursuant to Community Redevelopment Law of the State of California. TIDA is governed by seven June 30, 2011, the letter of credit was set to expire on January 27, 2012. The Agency’s repayment of members of the TIDA Board of Directors who are appointed by the Mayor, subject to confirmation by unreimbursed draws made on the credit facility bear interest at the Default Rate as defined in the the City’s Board of Supervisors. The specific purpose of TIDA is to promote the planning, reimbursement agreement with the principal due at the expiration of the credit facility. At redevelopment, reconstruction, rehabilitation, reuse and conversion of the property known as Naval June 30, 2011, the Agency did not made any draws on the credit facility. The Agency is required to Station Treasure Island for the public interest, convenience, welfare and common benefit of the pay the credit facility providers an annual commitment fee of 0.42% based on the outstanding inhabitants of the City. principal amount of the bonds supported by the credit facility. The services provided by TIDA include negotiating the acquisition of former Naval Station Treasure The Agency does not intend to extend the letter of credit beyond the expiration date of Island with the U.S. Navy and establishing the Treasure Island Development Project; renting January 27, 2012. Upon the expiration of the letter of credit, the bonds will automatically convert to Treasure Island facilities leased from the U.S. Navy to generate revenues sufficient to cover operating fixed rate bonds and bear Mandatory Fixed Rate as defined in the provisions in the bond indenture. costs; maintaining Treasure Island facilities owned by the U.S. Navy which are not leased to TIDA or Debt service requirements to maturity for principal will remain unchanged upon the conversion. the City; providing facilities for special events, film production and other commercial business uses; Bondholders will have the option to retain the converted bonds, and any bonds that are not retained providing approximately 800 housing units; and overseeing the U.S. Navy’s toxic remediation will be considered due and payable by the Agency. At June 30, 2011, the outstanding balance in the activities on the former naval base. amount of $6.3 million of the South Beach Harbor Variable Rate Demand Refunding Bond 1986 Issue A is recorded as current liabilities in the Statement of Net Assets. In early 2000, TIDA initiated a master developer selection process, culminating in the selection of Treasure Island Community Development, LLC (TICD) in March 2003. TIDA and TICD entered into Mortgage Revenue Bonds and Other Conduit Debt – In order to facilitate construction and an Exclusive Negotiating Agreement in 2003, and began work on the Development Plan and Term rehabilitation in the City, various community district facility bonds and mortgage revenue bonds with Sheet for the Redevelopment of Naval Station Treasure Island (Development Plan). The an aggregate outstanding balance of approximately $505 million as of June 30, 2011 have been Development Plan represented the culmination of nearly seven years of extensive public discourse issued by the Agency on behalf of various developers and property owners who retain full about the future of Treasure Island, and was the product of the most extensive public review process responsibility for the repayment of the debt. When these obligations are issued, they are secured by for a large development project in the City’s history. The Development Plan was endorsed by the the related mortgage indebtedness and special assessment taxes, and, in the opinion of TIDA Board and the San Francisco Board of Supervisors in December 2006. In May 2010, the TIDA management, are not considered obligations of the Agency or the City and are therefore not included Board and Board of Supervisors both unanimously endorsed a package of legislation that included an in the accompanying financial statements. Debt service payments will be made by developers or Update to the Development Plan and Term Sheet, terms of an Economic Development Conveyance property owners. Memorandum of Agreement (EDC MOA Term Sheet), and a Term Sheet between TIDA and the Commitments and Contingencies – The Agency had commitments under contracts for capital Treasure Island Homeless Development Initiative (TIHDI). The 2006 endorsement and 2010 update improvements of approximately $161.6 million as of June 30, 2011. of the Development Plan marked two very important milestones in the project, as they very specifically guided the enormous efforts undertaken since then to make the ambitious development The Agency provides standby payment agreements in conjunction with its issuance of Mortgage plans for Treasure Island a reality. Together the updated Development Plan, the EDC MOA Term Revenue Bonds wherein the Department of Housing and Urban Development (HUD) guarantees Sheet and the TIHDI Term Sheet formed the comprehensive vision for the future of the former military Housing Assistance Payments (HAP) subsidized under Section 8 for multifamily residential facilities. base and represented a major milestone in moving the project closer towards implementation. If the HAP contract expires and is not renewed or is substantially reduced, the Agency will be required to pay the difference. The estimated maximum obligation until June 30, 2019 over the terms In April 2011, the TIDA Board and the Planning Commission certified the environmental impact report of all standby payment agreements is $47.7 million. As of June 30, 2011, management has for the project and approved various project entitlements, including amendments to the Planning designated $4.8 million for standby payment agreements. It is management’s intent to designate 10% Code, Zoning Maps and General Plan, as well as a Development Agreement, Disposition and of the estimated maximum obligation. Development Agreement and Interagency Cooperation Agreement. These entitlements include detailed plans regarding land uses, phasing, infrastructure, transportation, sustainability, housing, including affordable housing, jobs and equal opportunity programs, community facilities and project financing, and provide a holistic picture of the future development. In June 2011, the Board of Supervisors unanimously upheld the certification of the project’s environmental impact report as well as approved project entitlements. These project approvals are a key milestone in realizing an environmentally sustainable new community on Treasure Island and the thousands of construction and permanent jobs it will bring. The first phase of construction could begin as soon as fall 2012 and would consist primarily of horizontal infrastructure improvements to enable subsequent phases of vertical construction. The complete build-out of the project is anticipated to occur over fifteen to twenty years. 142 143 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) (14) INTERFUND RECEIVABLES,PAYABLES, AND TRANSFERS Interfund transactions between the primary government and component units: “Due to” and “due from” balances have primarily been recorded when funds overdraw their share of Receivable Entity Payable Entity Amount pooled cash or when there are transactions between entities where one or both entities do not Primary government - governmental fund Component unit - San Francisco Redevelopment Agency $ 18,464 participate in the City’s pooled cash or when there are short-term loans between funds. The composition of interfund balances as of June 30, 2011, is as follows: Municipal Transportation Agency Component unit - San Francisco Redevelopment Agency $ 58 Hetch Hetchy Water and Power Enterprise Component unit - Treasure Island Development Authority $ 4,027 Due to/from other funds: Primary government - governmental fund Component unit - Treasure Island Development Authority$ 9,202 Receivable Fund Payable Fund Amount Transfers In: General Fund Nonmajor Governmental Funds $ 13,055 Transfers Out: Funds Nonmajor Internal MunicipalSan Francisco Laguna Internal Service Funds 245 General Governmental Service Water Hetch Transportation General Honda Municipal Transportation Agency 1,768 Funds Fund Funds Funds Enterprise Hetchy Agency Hospital Hospital Total Laguna Honda Hospital 12,765 General fund...... $ - $ 140,249 $ 1,018 $ - $ - $ 254,890 $ 68,866 $ 37,355 $ 502,378 Nonmajor governmental 27,833 funds...... 9,828 35,536 - 8,397 - 43,439 - 31,047 128,247 Internal Service Funds...... 459 ------459 San Francisco Nonmajor Governmental Funds Nonmajor Governmental Funds 2,325 International Airport...... 30,181 427 ------30,608 Internal Service Funds 6,428 Water Enterprise...... 500 4,196 - - 13,638 - - - 18,334 Hetch Hetchy...... - 184 ------184 8,753 Municipal Transportation Agency...... - 5,458 ------5,458 San Francisco General Hospital...... 67,060 ------90 67,150 General Hospital Medical Center Nonmajor Governmental Funds 119 Wastewater Enterprise...... - 110 ------110 119 Port...... - 82 ------82 Laguna Honda Hospital...... 44 10,368 - - - - 5,010 - 15,422 Total transfers out $ 108,072 $ 196,610 $ 1,018 $ 8,397 $ 13,638 $ 298,329 $ 73,876 $ 68,492 $ 768,432 Laguna Honda Hospital Nonmajor Governmental Funds 5,040 Internal Service Funds 130 5,170 The $502.4 million General Fund transfer out includes a total of $361.1 million in operating subsidies to Municipal Transportation Agency, San Francisco General Hospital (SFGH), and Laguna Honda Water Enterprise Hetch Hetchy 3,250 Hospital (Note 11). The transfer of $140.2 million from the General Fund to the nonmajor Wastewater Enterprise 2,872 governmental funds is to provide support to various City programs such as the Public Library and 6,122 Children and Families Fund, as well as to provide resources for the payment of debt service. The transfers between the nonmajor governmental funds are to provide support for various City programs Hetch Hetchy General Fund 750 and to provide resources for the payment of debt service. Nonmajor Governmental Funds 9,618 Port of San Francisco 511 San Francisco International Airport transferred $30.2 million to the General Fund, representing a General Hospital Medical Center 1,670 portion of concession revenue (Note 11(a)). The General Fund received transfers in of $57.3 million Wastewater Enterprise 692 from SFGH for the Safety Net Care Pool (SNCP) intergovernmental transfers (IGT) matching program Water Enterprise 13,638 reimbursement and $9.8 million for Health Care Coverage Initiative (HCCI) reimbursement for 26,879 Primary Care clinics (Note 11(g)). Municipal Transportation Agency Nonmajor Governmental Funds 11,332 The $43.4 million transferred to the Municipal Transportation Agency (MTA) was for capital and 11,332 operating transfers from the San Francisco County Transportation Authority. The MTA also Wastewater Enterprise Nonmajor Governmental Funds 61 transferred $5.5 million to nonmajor governmental funds to fund various street improvement projects. 61 The $31.0 million transfer from nonmajor governmental funds to the Laguna Honda Hospital (LHH) Total $ 86,269 was for capital projects funded by the Laguna Honda Hospital Certificates of Participation from the City Facilities Improvement nonmajor governmental fund. LHH also transferred $10.4 million of Tobacco Settlement Revenues to nonmajor governmental funds for future debt service payment of In addition to the routine short-term loans, Hetch Hetchy serves as the City’s agency for energy the LHH general obligation bonds and to SFGH the supplemental surplus revenue in the amount of efficiency projects and maintains the Sustainable Energy Account (SEA) fund to sponsor and $5.0 million to fund SFGH’s budgetary cost overruns. financially support such projects at various City departments. In this role Hetch Hetchy may secure low-interest financing to supplement funds available in the SEA fund. At June 30, 2011, Hetch Hetchy The $13.6 million to Hetch Hetchy was transferred in from the Water Enterprise to finance loaned $13,241 to other City funds. Hetch Hetchy is also due $13,638 from the Water Enterprise to improvements of certain upcountry water storage and transmission facilities. finance improvements to certain up-country water storage and transmission facilities. The Water Enterprise also transferred funds $4.2 million to nonmajor governmental funds for At June 30, 2011, the Water Enterprise has receivables in the amount of $6,122 due from landscape and irrigation project performed for the Water Enterprise and for participation in the surety Wastewater Enterprise and Hetch Hetchy for their respective allocable share of costs associated with bond program. the construction of the future SFPUC headquarters building located at 525 Golden Gate Avenue. 144 145 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The City’s Fire Department (governmental activities) contributed the auxiliary water supply system Component Unit – San Francisco Redevelopment Agency (AWSS) with a book value of $11.7 million to Water Enterprise to ensure a reliable water supply for The San Francisco Redevelopment Agency (the Agency) has noncancelable operating leases for fires and disasters. This amount was reported as a capital contribution in the Water Enterprise. In its office sites, which require the following minimum annual payments: return, the General Fund received transfers in from the Water Enterprise for $0.5 million. Nonmajor governmental funds also transferred $8.4 million of bond proceeds to the Water Enterprise to fund Fiscal Fiscal additional improvements on the AWSS. Years Years 2012………………… $ 1,838 2027-2031………..… 4,351 2013………………… 1,822 2032-2036………..… 4,351 (15) COMMITMENTS AND CONTINGENT LIABILITIES 2014………………… 1,822 2037-2041………..… 4,350 (a) Grants and Subventions 2015………..………… 1,822 2042-2046…………. 4,350 2016………..………… 1,822 2047-2051…………… 3,698 Receipts from federal and state grants and other similar programs are subject to audit to determine if 2017-2021…………… 4,747 Total…………….…… $ 39,324 the monies were expended in accordance with appropriate statutes, grant terms and regulations. The City believes that no significant liabilities will result. 2022-2026……….… 4,351 Rent payments totaling $2.0 million are included in the Agency’s financial statements for the year (b) Operating Leases ended June 30, 2011. The City has noncancelable operating leases for certain buildings and data processing equipment, which require the following minimum annual payments: Several City departments lease land and various facilities to tenants and concessionaires who will provide the following minimum annual payments: Primary Government Primary Government Governmental Activities Fiscal Governmental Activities Years Fiscal 2012…………… $ 22,046 Years 2013…………… 16,280 2012………….……… $ 2,558 2014…………… 12,073 2013…………..……… 2,326 2015…………… 10,182 2016…………… 5,442 2014…………..……… 2,045 2017-2021…… 10,691 2015………………… 1,894 Total…………… $ 76,714 2016………………… 1,582 2017-2021…………… 3,056 Operating lease expense incurred for fiscal year 2010-2011 was approximately $21.8 million. 2022-2026……….… 798 Business-type Activities 2027-2031………..… 450 San Francisco Port Municipal Total Total………………. $ 14,709 Fiscal International of San Transportation Business-type Years Airport Francisco Agency (MTA) Activities 2012………… $ 194 $ 2,853 $ 10,387 $ 13,434 2013………… 120 2,853 10,473 13,446 2014………… 118 2,853 10,537 13,508 2015………… 75 2,853 10,773 13,701 2016………… - 2,787 9,312 12,099 2017-2021…… - 13,469 46,017 59,486 2022-2026…… - 13,469 48,721 62,190 2027-2031…… - 13,469 56,492 69,961 2032-2036…… - 13,469 67,832 81,301 2037-2041…… - 13,469 - 13,469 2042-2046…… - 13,469 - 13,469 2047-2050…… - 8,306 - 8,306 Total…………… $ 507 $ 103,319 $ 270,544 $ 374,370 Operating lease expense incurred for the Airport, Port, and MTA for fiscal year 2010-2011 was $0.2 million, $3.0 million, and $12.4 million, respectively. 146 147 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Business-type Activities Component Unit – San Francisco Redevelopment Agency San Francisco The Agency leases various facilities within the Yerba Buena Center, Western Addition. Hunters General San Francisco Port Hospital Municipal Total Point, South of Market, Mission Bay North and South Beach Harbor project areas. The minimum Fiscal International of San Medical Transportation Market Business-type annual payments are as follows: Years Airport Francisco Center Agency Corp Activities Fiscal Years Fiscal Years 2012……………... $ 87,951 $ 33,300 $ 1,123 $ 3,355 $ 1,004 $ 126,733 2012…..…..…..…..… $ 5,031 2047-2051…..…..… $ 4,601 2013……………… 83,074 28,069 1,157 2,709 966 115,975 2013…..…..…..…..… 5,104 2052-2056…..…..… 1,240 2014……………… 76,701 22,628 1,191 2,605 78 103,203 2014…..…..…..…..… 4,887 2057-2061…..…..… 1,027 2015……………… 68,424 20,447 1,227 1,664 - 91,762 2015…..…..…..…..… 4,895 2062-2066…..…..… 858 2016……………… 65,389 18,586 1,264 815 - 86,054 2016…..…..…..…..… 4,839 2067-2071…..…..… 595 2017-2021………… - 78,969 6,911 114 - 85,994 2022-2026………… - 67,314 - - - 67,314 2017-2021…..…..… 22,667 2072-2076…..…..… 375 2027-2031………… - 55,149 - - - 55,149 2022-2026…..…..… 22,139 2077-2081..…..…..… 275 2032-2036………… - 51,360 - - - 51,360 2027-2031…..…..… 23,748 2082-2086…..…..… 225 2037-2041………… - 36,631 - - - 36,631 2032-2036…..…..… 24,098 2087-2091…..…..… 150 2042-2046………… -26,328 - - -26,328 2037-2041…..…..… 21,270 2092-2096…..…..… 150 2047-2051………… -20,098 - - -20,098 2042-2046…..…..… 22,568 2097-2098…..…..… 60 2052-2056………… -11,503 - - -11,503 2057-2061………… -11,149 - - -11,149 Total………………… $ 170,802 2062-2066………… -11,149 - - -11,149 2067-2071………… -5,234 - - -5,234 For the year ended June 30, 2011, operating lease rental income for noncancelable operating 2072-2076………… -4,149 - - -4,149 leases was $11.1 million. Within the operating lease rental income, $6.0 million represents 2077-2081………… -288 - - - 288 contingent rental income received. At June 30, 2011, the leased assets had a net book value Total………………… $ 381,539 $ 502,351 $ 12,873 $ 11,262 $ 2,048 $ 910,073 of $159.5 million. (c) Other Commitments The Airport and Port have certain rental agreements with concessionaires, which specify that The Retirement System has commitments to contribute capital for real estate and alternative rental payments are to be based on a percentage of tenant sales, subject to a minimum amount. investments in the aggregate amount of approximately $1.3 billion at June 30, 2011. Concession percentage rents in excess of minimum guarantees for the Airport and Port were approximately $18.6 million and $12.0 million, respectively, in fiscal year 2010-11. In addition, the The City is a participant in the Peninsula Corridor Joint Powers Board (PCJPB), which was formed in Airport has a car rental agreement that will expire on December 31, 2013 with the option to 1991 to plan, administer, and operate the Peninsula CalTrain rail service. The City, on behalf of MTA, extend for five years. Under this agreement the rental car companies will pay 10% of gross contributes to the net operating costs and administrative expenses of the PCJPB for operating and revenues or a minimum guaranteed rent whichever is higher; also in accordance with the terms of capital needs. During the fiscal year ended June 30, 2011, the City contributed approximately $6.5 their concession agreement, the minimum annual guarantee (MAG) for the rental car operators million to the PCJPB. This is paid by MTA from the subsidy transfer it receives from the City. does not apply if the number of deplaning passengers on all scheduled airlines during one calendar month is less than 70% of the number of deplaning passengers for the same calendar In February 2011, the Asian Art Museum Foundation (Foundation) entered into an agreement with month of the base year (1996). The MAG attributable to the rental car companies was JP Morgan Chase Bank to refinance its obligations of $97.0 million. To facilitate the refinancing, the approximately $40.9 million for fiscal year 2011. City entered into an assurance agreement which, in the event of nonpayment by the Foundation, requires the City to seek an appropriation to make debt payments as they become due. Since the City has not legally guaranteed the debt, and the City believes that the likelihood of nonpayment by the Foundation is remote, no amount is recorded in the City's financial statements related to this agreement. (16) Risk Management Risk Retention Program Description The City is exposed to various risks of losses related to torts, theft of, damage to, and destruction of assets; business interruption; errors and omissions; automobile liability and accident claims (primarily for MUNI); medical malpractice; natural disasters; employee health benefit claim payments for direct provider care (collectively referred to herein as estimated claims payable); and injuries to employees (workers’ compensation). With certain exceptions, it is the policy of the City not to purchase commercial insurance for the risks of losses to which it is exposed. Instead, the City believes it is more economical to manage its risks internally and set aside funds as needed for estimated current claim settlements and unfavorable judgments through annual appropriations and supplemental appropriations. 148 149 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) The Airport carries general liability insurance coverage of $1 billion, subject to a deductible of $10 per Expenditures and liabilities for all workers’ compensation claims and other estimated claims payable single occurrence and commercial property insurance coverage for full replacement value on all are reported when it is probable that a loss has occurred and the amount of that loss can be facilities at SFO owned by the Airport subject to a deductible of $500 per single occurrence. reasonably estimated. These losses include an estimate of claims that have been incurred but not Additionally, tenants and contractors on all contracts are required to carry commercial general liability reported. Because actual claim liabilities depend on such complex factors as inflation, changes in insurance in various amounts naming the Airport as additional insured. The Airport carries public legal doctrines, and damage awards, the process used in computing claim liabilities does not official liability and employment practices liability coverage of $5 million, subject to a deductible of $100 necessarily result in an exact amount. Claim liabilities are re-evaluated periodically to take into per single occurrence for each wrongful act other than employment practices’ violations, and $200 per consideration recently settled claims, the frequency of claims, and other legal and economic factors. each occurrence for employment practices’ violation. The Airport also carries insurance for public The recorded liabilities have not been discounted. employee dishonesty, fine arts, electronic data processing equipment and watercraft liability for Airport fire and rescue vessels. The Airport does not carry insurance for losses due to land movement or Estimated Claims Payable seismic activity and losses for war, terrorism and hijacking. Numerous lawsuits related to the governmental fund types are pending or threatened against the City. The City’s liability as of June 30, 2011 has been actuarially determined and includes an estimate The Port carries the following insurance: 1) marine general liability coverage of $50 million, subject to a of incurred but not reported losses and allocated loss adjustment expenses. deductible of $75 per occurrence; 2) hull and machinery liability coverage of $3.8 million, subject to a deductible of $100 per occurrence; 3) commercial property insurance for losses up to the insured Changes in the reported estimated claims payable since June 30, 2009, resulted from the following appraised value of Port facilities, subject to a maximum of $1 billion and a deductible of $50 per activity: occurrence; and 4) public officials and employee liability coverage of $5 million, subject to a deductible of $50 per occurrence. The Port also carries insurance coverage for employee dishonesty, auto Current liability, property damage for certain high value Port vehicles, water pollution and data processing Beginning Year Claims Ending equipment. The Port does not carry commercial insurance for workers’ compensation, property Fiscal Year and Changes Claim Fiscal Year damage to most Port-owned vehicles, employee health and accident, professional liability and losses Liability in Estimates Payments Liability due to seismic events. In addition to the above, the Port requires its tenants, licensees and contractors 2009-2010 $ 223,749 $ 82,030 $ (65,200) $ 240,579 on all contracts to carry commercial general liability insurance in various amounts naming the Port and the City as additional insurers. Tenants whose operations pose a significant environment risk are also 2010-2011 240,579 38,240 (54,338) 224,481 required to post an environmental oversight deposit and an environmental performance deposit. Breakdown of the estimated claims payable at June 30, 2011 is as follows: The MTA is self-insured up to the first $5 million per accident occurrence, and for over the threshold, MTA has purchased an excess liability insurance policy. Through coordination with the Controller and Governmental activities: City Attorney’s Office, the MTA general liability payments are addressed through pay-as-you-go Current portion of estimated claims payable ……………………………… $ 34,889 funding as part of the budgetary process. Claim liabilities are actuarially-determined anticipated 91,155 claims and projected timing of disbursement, considering recent claim settlement trends, inflation and Long-term portion of estimated claims payable …………………………… other economic social factors. Total ……………………………………………………………….……… $ 126,044 Business-type activities: The MTA purchases property insurance on scheduled facilities and personal property. Also insurance is purchased for scheduled City parking garages covering blanket property and business Current portion of estimated claims payable ……………………………… $ 36,972 interruptions. Damages to facilities and property outside of the specified schedules are self-insured. Long-term portion of estimated claims payable …………………………… 61,465 For MTA contractors, MTA requires each contractor to provide its own insurance, the traditional Total ……………………………………………………………….……… $ 98,437 insurance ensuring that the full scope of work be covered with satisfactory levels to limit the risk exposure to City and MTA’s property. The Retirement System is involved in various other petitions, lawsuits, and threatened lawsuits relating to individuals’ benefits due under the Retirement System, which management does not The San Francisco Redevelopment Agency is a member of the Bay Cities Joint Powers Insurance expect to have a material impact on the net assets available for pension benefits. The results of such Authority (BCJPIA), which provides coverage for its general liability, automobile liability, and public actions are included in the Retirement System’s experience factors used in its actuarial valuations officials’ errors and omissions risks with combined single limit of $34 million and a deductible of $50 and accordingly, are eventually considered in establishing the City and County’s required annual self insurance retention per occurrence. Claims relating to the construction of the Moscone contributions. Convention Center are indemnified by the City under an agreement between the Agency and the City. Workers’ compensation insurance is provided by the State Compensation Insurance Fund up to statutorily determined limits. Settled claims have not exceeded commercial insurance coverage in any of the past three fiscal years. 150 151 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) Workers’ Compensation In July 2011, $720.8 million in Water Revenue Bonds were issued as 2011 Series ABCD. This transaction closed in August 2011. Of this amount, $55.5 million were refunding bonds issued as The City self-insures for workers’ compensation coverage. The City’s liability as of June 30, 2011 has 2011 Sub Series D, which refunded a portion of 2001 Series A and 2002 Series A Water Revenue been actuarially determined and includes an estimate of incurred but not reported losses. The total Bonds. This refunding resulted in $3.3 million or 5.8%, in net present value savings. amount estimated to be payable for claims incurred as of June 30, 2011 was $371.0 million which is reported in the appropriate individual funds in accordance with the City’s accounting policies (Note 2). In July 2011, an additional $24.0 million in taxable commercial paper was issued by the Water Enterprise, in the same month, $61.0 million in taxable commercial paper was issued to refund Changes in the reported accrued workers’ compensation since June 30, 2009, resulted from the $61.0 million of outstanding commercial paper maturing on August 1, 2011 and August 3, 2011. following activity: In August 2011, the City issued $22.5 million in tax-exempt commercial paper to refund $16.5 million of maturing commercial paper and to provide $6.0 million additional interim funding for the Moscone Current Improvement project. The note bears interest at 0.13% and matured on October 5, 2011. Beginning Year Claims Ending Fiscal Year and Changes Claim Fiscal Year In September 2011, the City issued $4.0 million in taxable commercial paper to refund $1 million of Liability in Estimates Payments Liability maturing taxable commercial paper and to provide $3.0 million interim funding for the War Memorial Veterans Building Seismic Retrofit project. The note bears interest at 0.29% and is scheduled to 2009-2010 $ 358,892 $ 73,344 $ (67,257) $ 364,979 mature on January 12, 2012. 2010-2011 364,979 81,202 (75,167) 371,014 Breakdown of the accrued workers’ compensation liability at June 30, 2011 is as follows: In September 2011, the Airport issued $354.6 million of its Second Series Revenue Refunding Bonds, Series 2011F/G/H, to defease and refund portions of the Issue 15A, 15B, 16A, 16B, 17, 18A, 20, 21, Governmental activities: 22, 23A, 27A, 28A, 28B, 28C, 29A, 29B and 30 Bonds for debt service savings, and to refund the Issue 36D and 37D Bonds, which were variable rate bonds, with long-term fixed rate bonds. Current portion of accrued workers' compensation liability ……………… $ 39,662 Proceeds were also used to make a $4.6 million termination payment to JPMorgan Chase Bank N.A. Long-term portion of accrued workers' compensation liability …………… 183,166 to terminate the $30.0 million Issue 36D interest rate swap. The refunded bonds were redeemed on Total ……………………………………………………………….……… $ 222,828 September 23, 2011, with the exception of the Issues 28A/B/C and Issue 30 Bonds, which will be redeemed on May 1, 2012, and the Issue 29A/B Bonds, which will be redeemed on May 1, 2013. Business-type activities: Following this transaction, the Airport has no remaining liquidity facilities with Dexia. With the termination of the swap associated with the Issue 36D Bonds, the Airport reduced the total notional Current portion of accrued workers' compensation liability ……………… $ 24,547 amount of its interest rate swap portfolio from $513.4 million to $483.4 million. Long-term portion of accrued workers' compensation liability …………… 123,639 Total ……………………………………………………………….……… $ 148,186 In October 2011, the City issued $22.6 million and $17.0 million in tax exempt commercial paper to refund $22.5 million in maturing commercial paper and to provide interim financing for the Moscone Center improvement project, vehicle and equipment purchase, street improvements and disability (17) SUBSEQUENT EVENTS access improvement to the Board of Supervisors chambers. Interest rates on these notes are 0.10% (a) Long-term Debt Issuance with maturity date of November 2, 2011 and 0.14% with maturity date of January 9, 2012. In March 2011, the Airport and JPMorgan Chase Bank, National Association agreed to adjust the In November 2011, the City issued $22.4 million in tax exempt commercial paper to refund facility fee on the letter of credit supporting the $216.0 million Series 2010A Bonds from 1.35% to $22.6 million in maturing commercial paper. The note bears interest rate at 0.17% and is scheduled 1.05% per annum and extended the facility termination date from February 8, 2013 to to mature on March 8, 2012. January 31, 2014. The reduction in facility fee commenced on July 1, 2011. In November 2011, the City issued Refunding Certificates of Participation Series 2011A (Moscone In July 2011, the Airport terminated the standby bond purchase agreement with Dexia Crédit Local, Center South Refunding Project) in the amount of $23.1 million and Series 2011B (Moscone Center acting through its New York Branch, relating to the $36.2 million Issue 36C Bonds and remarketed North Refunding Project) in the amount of $63.4 million to refund Lease Revenue Refunding Bonds, them with a new irrevocable direct-pay letter of credit from U.S. Bank National Association with an Series 2004 (Moscone Convention Center South) and Lease Revenue Refunding Bonds, Series 2002 expiration date of July 11, 2014. Following the remarketing, Assured Guaranty no longer insures the (Moscone Convention Center North) (the “Prior Bonds”) previously issued by the Redevelopment payment of principal and interest on the Issue 36C Bonds. Agency to finance the acquisition, construction, improvement, additions, and betterments of the Moscone Convention Center. This refunding resulted in net present value savings of $10.3 million, In July 2011, the Airport also terminated the standby bond purchase agreement with Dexia relating to representing 10.96% savings of refunded bonds, with the average coupon of 4.77%. Series 2011A the $89.9 million Issue 37C Bonds and remarketed them with a new irrevocable direct-pay letter of mature from September 2012 through September 2024 and Series 2011B mature from September credit from Union Bank, N.A. with an expiration date of July 13, 2015. Following the remarketing, 2012 through September 2018. Assured Guaranty no longer insures the payment of principal and interest on the Issue 37C Bonds. In November 2011, the City issued General Obligation Refunding Bonds Series 2011-R1 (Series In July 2011, the Airport issued $350.4 million of its Second Series Revenue Refunding Bonds, Series 2011-R1) in the amount of $339.5 million. The proceeds of the bonds will be used to refund all or a 2011C/D/E, to defease and refund portions of the Issue 15A, 16B, 17, 18A, 20, 21, 22, 23A, 27A, portion of certain outstanding general obligation bonds of the City and to pay certain costs related to 27B, 28A and 30 Bonds for debt service savings, and the remaining Series 2008A-4 Notes. The the issuance of the Series 2011-R1 bonds. This refunding resulted in net present value savings of refunded bonds were redeemed on August 1, 2011, with the exception of the Issue 28A and 30 $36.8 million, representing 9.79% savings of refunded bonds, with average coupon of 4.86%. The Bonds and the Series 2008A-4 Notes, which will be redeemed on May 1, 2012. Following this bonds mature from June 2012 through June 2030. transaction, the Airport has no Series 2008A Notes outstanding. 152 153 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Notes to Basic Financial Statements (continued) Notes to Basic Financial Statements (continued) June 30, 2011 June 30, 2011 (Dollars in Thousands) (Dollars in Thousands) In November 2011, the City completed its sixth borrowing from the Credit Agreement with Bank of contribution rate is over 12% of City payroll. When the City contribution rate falls below 11%, America, N.A. in the amount of $0.7 million under the Seismic Safety Loan Program. The borrowing employee contributions will be decreased proportionately. Proposition C requires elected officials to was authorized by Resolution No. 65-07 by the Board of Supervisors. The Seismic Safety Loan pay the same contribution rates as City employees, and also requires the City and unions Program was approved by the voters of the City by Proposition A in November 1992, which representing CalPERS members to negotiate terms of employment for employees to share costs or authorized the issuance of $350 million aggregate principal amount of general obligation bonds to received benefits comparable in value to adjustments required for SFERS employee contributions. provide funds for loans to finance the seismic strengthening of unreinforced masonry buildings within the City. The loan bears interest at 3.36% with principal amortizing from June 2012 to June 2031. Proposition C creates new retirement plans for employees hired on or after January 7, 2012 that will: Debt service payments are funded through ad valorem taxes on property. The loan will fund a below 1) For miscellaneous employees, increase the minimum retirement age to 53 with 20 years of service market rate eligible project pursuant to Proposition A. or 65 with 10 years; 2) For safety employees, the minimum retirement age will remain at 50 with five years of service, but the age for maximum benefits will increase to 58; 3) for all employees, limit (b) Elections covered compensation, calculate final compensation from three-year average, and change the On November 8, 2011, the San Francisco voters approved the following propositions that will have a multipliers used to calculate pension benefits, and 4) For miscellaneous employees, raise the age of fiscal impact on the City: eligibility to receive vesting allowance to 53 and reduce by half the City’s contribution to vesting allowances. Proposition C limits cost-of-living adjustments for SFERS retirees. Proposition A – Authorizes the School District to borrow up to $531 million by issuing general obligation bonds. The proceeds will be used to repair and upgrade more than 50 school facilities to: Health Benefits: Elected officials and employees hired on or before January 9, 2009, contribute up to 1) address health and safety risks by fixing damaged items and removing hazardous materials; 2) 1% of compensation toward their retiree health care, with matching contribution by the City. For repair and replace major building systems; 3) improve accessibility for people with disabilities; 4) employees or elected officials who left the City workforce before June 30, 2001, and retire after repair and build playgrounds and fields; 5) make necessary seismic upgrades; 6) repair or replace January 6, 2012, Proposition C requires that the City contributions toward retiree health benefits temporary classroom facilities with permanent structures; 7) repair or replace existing facility with a remain at the same levels they were when the employee left the City workforce. Proposition C new facility; and 8) perform other work necessary to comply with any applicable codes and changes the Health Service System and Health Service Board including the following: 1) replace one regulations. elected member of the HSB with a member nominated by the City Controller and approved by HSB; 2) change HSB’s voting requirement for approving member health plans from two-third to a simple Fiscal Impact: 1) In fiscal year 2012-2013, following the issuance of the first series of bonds, and the majority; 3) remove the requirement for a plan permitting the member to choose any licensed medical year with the lowest tax rate, the estimated annual cost of debt service would be $9.1 million and provider; and 4) allow HSB to spend money on ways to limit health care costs. result in property tax rate of $6.69 per $100 thousand of assessed valuation. 2) In fiscal year 2016- 2017, following the issuance of last series of bonds, the year with the highest tax rate, the estimated Factors that could cause additional costs or savings include: First, to the extent that Retirement annual costs of debt service would be $46.7 million and result in a property tax rate of $29.42 per System investment returns are outside the range assumed in this analysis, both the required $100 thousand of assessed valuation. 3) The best estimate of the average tax rate for these bonds contribution and the range of savings provided by this proposition would be greater or smaller. from fiscal year 2012-2013 through 2035-2036 is $21.39 per $100 thousand of assessed valuation. 4) Second, projected City savings might be reduced if future labor negotiations or arbitration awards Based on these estimates, the highest estimated annual property tax cost for these bonds for the result in any salary increases to offset higher employee retirement contributions. Third, to the extent owner of a home with assessed value of $0.5 million would be approximately $145.00. that changes to pension formulas in this measure cause employees to delay or speed up retirement dates, this could provide additional City savings or costs related to retiree pension and health Proposition B – Authorizes the City to borrow up to $248 million by issuing general obligation insurance subsidies. Fourth, to the extent that changes in the composition of the Health Service bonds to improve and repair streets, sidewalks, and street structures. The proceeds will be Board result in changes to approved health benefit programs, costs could be higher or lower. used to: 1) repair and repave City streets and remove potholes; 2) strengthen and seismically upgrade street structures; 3) redesign street corridors by adding or improving pedestrian signals, (c) Litigation lighting, sidewalk extensions, bicycle lanes, trees, and landscaping; 4) construct and renovate curb In September 2011, the Board of Supervisors authorized the settlement of claims by the Water ramps and sidewalks to increase accessibility and safety for everyone, including persons with Enterprise arising out of nine lawsuits involving Mitchell Engineering, and the issuance of settlement disabilities; and 5) add and upgrade traffic signals to improve MUNI service and traffic flow. bonds of $14.1 million. Fiscal Impact: 1) In fiscal year 2011-12, following the issuance of the first series of bonds, and the (d) Ratings Downgrade year with the lowest tax rate, the estimated annual cost of debt service would be $3.4 million and In July 2011, Moody’s Investors Service, Inc. lowered its municipal bond rating on all outstanding result in property tax rate of $2.14 per $100 thousand of assessed valuation. 2) In fiscal year 2018- Water Revenue Bonds from “Aa2” to “Aa3” with a stable outlook while S&P maintained its rating on all 2019, following the issuance of last series of bonds, and the year with the highest tax rate, the outstanding Water Revenue Bonds at “AA-” with a stable outlook. estimated annual costs of debt service would be $22.8 million and result in a property tax rate of $11.46 per $100 thousand of assessed valuation. 3) The best estimate of the average tax rate for In September 2011, Moody’s downgraded the long-term credit rating of Bank of America Corporation, these bonds from fiscal year 2011-12 through 2034-2035 is $7.46 per $100 thousand of assessed the guarantor of the Airport’s $79.7 million interest rate swap with Merrill Lynch Capital Services, to valuation. 4) Based on these estimates, the highest estimated annual property tax cost for these “Baa1” with a negative outlook. bonds for the owner of a home with assessed value of $0.5 million would be approximately $57.28. (e) Municipal Transportation Agency . Proposition C – Charter amendment that will change the way the City and current and future In October 2011, the Board of Directors of the San Francisco Municipal Railway Improvement employees share in funding SFERS pension and health benefits. Corporation authorized the voluntary dissolution of SFMRIC pursuant to State of California Corporations Code 6610 et seq. and transferred all remaining funds to the San Francisco Municipal Pension benefits: The base employee contribution rate will stay the same at 7.5% for most Transportation Agency. employees when the City contribution rate is between 11% and 12% of City payroll. Employees making at least $50 thousand will pay an additional amount up to 6% of compensation when the City 154 155 Photo by Bruce Damonte Required Supplementary Information Information Required Supplementary mlye’Rtrmn System –PensionPlan Retirement Employees’ position itwillbeintomeetallofitsfutureliabilities. financial health ofthepension or OPEB plans. The closer theplan istoa100% funded status, thebetter ratio. This ratioconveys a plan’s levelofassetsto liabilities,animportantindicatortodeterminethe to meetcurrent andfutureliabilitieswithplanassets.Ofparticular interestmostisthefunded tostatus The schedules offundingprogress presented below provide consolidated snapshots oftheentity’sability (1) California Public Employees’ RetirementSystem –PensionPlan(Safety Members) 06/30/09 auto Asset Valuation auto Asset Valuation cura Actuarial Actuarial cura cura Liabilit Actuarial Actuarial 07/01/10 16,069,058 16,069,058 07/01/10 17,643,394 (1,574,336) 16,004,730 07/01/09 (493,919) 16,498,649 23.7% $ 103.8% 2,457,196 582,566 $ 07/01/08 2,398,823 15,941,390 91.1% $ 15,358,824 $ 2,537,785 97.0% -65.6% -19.5% 63/7$ 2,6 6765$ 489 92 $ 558 -5.6% 85,508 $ 99.2% (4,809) 06/30/08 673,275 627,675685,150 $ (11,875) 622,866 $ 06/30/07 $ 89,009 98.3% -13.3% Date Date Retirement Boardatits November 9,2010Boardmeeting: In theJuly1,2010valuation,resultsincorporate the followingassumption changes approved bythe assumptions approved bytheRetirementBoard. five yearsas well asliability experiencerelated losses tochanges to theeconomic anddemographic reflectsbeing investment experienceduring theyearendedisrecognized June30,2009thatover unfunded liabilityof$1.57billionas July 1,2010.Thisincrease intheunfundedliability primarily unfunded actuarialliabilityincreasedby$1.08billionfrom$493.9millionasofJuly 1,2009toan rate ofreturn is7.75%andunchanged fromtheprevious actuarial The valuationasofJuly1,2009. In themostrecent actuarial valuationas ofJuly 1,2010,theRetirementSystemassumed investment Disability ratesreducedbasedonactual from2004through2009 Planexperience years and 25 or moreyearsofservice based onactual Planexperience from2004 through 2009 less than30 years and 30 ormoreyears ofservice and forSafetymemberswithlessthan 25 Retirement rates increased andseparate assumptions adopted forMiscellaneous members with disabled mortality table latestCalPERS Mortality assumptionupdated toversionsofthe RP2000mortalitytableand actual experience withRetirementSystemsafetymembers Merit increase assumption forpoliceand firemembers increased from1.0%to1.5%based on economic downturn wage growth giventheseverebudget pressures facing thepublic sector followingtherecent Real wage growth assumption reduced from4.5%to4.0%based onlesslikely prospects for real Refund rates decreased based on actual Planexperience from 2004 through 2009 Withdrawal rates increased based onactual Planexperience from2004 through 2009 (2) Value au nr g UA)RtoPyolPayroll Payroll Ratio (UAAL) Age Entry Value 707,615 758,124 (50,509) 93.3% 101,929 -49.6% IYADCUT OFSANFRANCISCO COUNTY CITY AND Schedules ofFunding Progress (Unaudited) Required Supplementary Information– Actuarial nr g OUA)RtoPyolPayroll Payroll Ratio (O/UAAL) Entry Age cre Udr UAAL as (Under) Accrued Actuarial cre (Under) Accrued Liabilit (AAL) (AAL) (Dollars in Thousands) y y June 30, 2011 (1) 156 funded funded A uddCvrdCovered Covered Funded AAL Ove A uddCvrdCovered Covered Funded AAL r O/UAAL as a % of a % of CITY AND COUNTY OF SAN FRANCISCO Required Supplementary Information – Schedules of Funding Progress (Unaudited) June 30, 2011 (Dollars in Thousands) City and County of San Francisco – Other Postemployment Health Care Benefits Combining Financial Actuarial Accrued (Under) UAAL as Statements and Schedules Actuarial Actuarial Liability funded a % of Valuation Asset (AAL) AAL Funded Covered Covered Date (1) Value Entry Age (UAAL) Ratio Payroll Payroll 07/01/06 $ - $ 4,036,324 $ (4,036,324) 0.0% $ 2,066,866 -195.3% (2) 07/01/08 - 4,364,273 (4,364,273) 0.0% 2,296,336 -190.1% San Francisco County Transportation Authority – Other Postemployment Health Care Benefits Actuarial Accrued (Under) UAAL as Actuarial Actuarial Liability funded a % of Valuation Asset (AAL) AAL Funded Covered Covered Date (1) Value Entry Age (UAAL) Ratio Payroll Payroll 01/01/08 $ - $ 182 $ (182) 0.0% $ 1,978 -9.2% (2) 01/01/10 173 374 (201) 46.3% 2,858 -7.0% San Francisco Redevelopment Agency – Other Postemployment Health Care Benefits Actuarial Accrued (Under) UAAL as Actuarial Actuarial Liability funded a % of Valuation Asset (AAL) AAL Funded Covered Covered Date (1) Value Entry Age (UAAL) Ratio Payroll Payroll 06/30/07 $ - $ 13,829 $ (13,829) 0.0% $ 9,634 -143.5% (2) 06/30/09 493 13,790 (13,297) 3.6% 10,515 -126.5% (1) The actuarial valuation report is conducted once every two years. (2) The most recent actuarial valuation available. Photo by Bruce Damonte 157 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO NONMAJOR GOVERNMENTAL FUNDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS SPECIAL REVENUE FUNDS (Continued) Special Revenue Funds are used to account for the proceeds of specific revenue sources that are Open Space and Park Fund – Accounts for property tax revenues designated by Charter provision, restricted or committed to expenditures for specified purposes other than debt service or capital projects. interest earnings and miscellaneous service charges and gifts. Monies in this fund are used as specified in the Charter for acquisition and development of parks and open space parcels, for Building Inspection Fund – Accounts for the revenues and expenditures of the Bureau of Building renovation of existing parks and recreation facilities, for maintenance of properties acquired and for Inspection which provides enforcement and implementation of laws regulating the use, occupancy, after-school recreation programs. location and maintenance of buildings. This fund shall be used by the Department of Building Inspection to defray the costs of the Bureau of Building Inspection in processing and reviewing Public Library Fund – Accounts for property tax revenues and interest earnings designated by Charter permits applications and plans, filed inspections, code enforcement and reproduction of documents. provision. Monies in this fund are to be expended or used exclusively by the library department to provide library services and materials and to operate library facilities. Children and Families Fund – Accounts for property tax revenues, tobacco tax funding from Proposition 10 and interest earnings designated by Charter provision. Monies in this fund are used as Public Protection Fund – Accounts for grants received and revenues and expenditures of 21 special specified in the Charter and Proposition 10 to provide services to children less than eighteen years revenue funds including fingerprinting, vehicle theft crimes, peace officer training and other activities old, and to promote, support and improve the early development of children from the prenatal stage to related to public protection. five years of age. Public Works, Transportation and Commerce Fund – Accounts for the revenues and expenditures of 13 Community/Neighborhood Development Fund – Accounts for various grants primarily from the special revenue funds including construction inspection, engineering inspection and other activities Department of Housing and Urban Development to provide for community development of rundown related to public works projects. In addition, the fund accounts for various grants from federal and areas; to promote new housing, child care centers and public recreation areas; to provide a variety of state agencies expended for specific purposes, activities or facilities related to transportation and social programs for the underprivileged and provide loans for various community development commerce. activities. This fund also includes proceeds from a bond issuance to benefit the Seismic Safety Loan Real Property Fund – Accounts for the lease revenue from real property purchased with the proceeds Program which provides loans for seismic strengthening of privately-owned unreinforced masonry from certificates of participation. The lease revenue is used for operations and to pay for debt service buildings in the City. of the certificates of participation. Sales and disposals of real property are also accounted for in this Community Health Services Fund – Accounts for state and federal grants used to promote public health fund. and mental health programs. San Francisco County Transportation Authority Fund – Accounts for the proceeds of a one-half of one Convention Facilities Fund – Accounts for operating revenues of the convention facilities: Moscone percent increase in local sales tax authorized by the voters for mass transit and other traffic and Center, Brooks Hall and Civic Auditorium. In addition to transfers for lease payments of the Moscone transportation purposes. Center, this fund provides for operating costs of the various convention facilities and the San Senior Citizens’ Program Fund – Accounts for grant revenues from the federal and state government to Francisco Convention and Visitors Bureau. be used to promote the well-being of San Francisco senior citizens. Court’s Fund – Accounts for a portion of revenues from court filing fees that are specifically dedicated for War Memorial Fund – Accounts for the costs of maintaining, operating and caring for the War Memorial Courthouse costs. buildings and grounds. Culture and Recreation Fund – Accounts for revenues received from a variety of cultural and recreational DEBT SERVICE FUNDS funds such as Public Arts, Youth Arts and Yacht Harbor with revenues used for certain specified operating costs. The Debt Service Funds account for the accumulation of property taxes and other revenues for periodic Environmental Protection Fund – Accounts for revenues received from state, federal and other sources payment of interest and principal on general obligation and certain lease revenue bonds and related for the preservation of the environment, recycling, and reduction of toxic waste from the City’s waste authorized costs. stream. General Obligation Bond Fund – Accounts for property taxes and other revenues, (including the tobacco Gasoline Tax Fund – Accounts for the subventions received from state gas taxes under the provision of settlement revenues in excess of the $100 million required to fund the Laguna Honda Hospital the Streets and Highways Code and for operating transfers from other funds which are used for the construction project) for periodic payment of interest and principal of general obligation bonds and same purposes. State subventions are restricted to uses related to local streets and highways, related costs. Provisions are made in the general property tax levy for monies sufficient to meet these acquisitions of real property, construction and improvements, and maintenance and repairs. requirements in accordance with Article XIII of the State Constitution (Proposition 13). General Services Fund – Accounts for the activities of several non-grant activities, generally established Certificates of Participation (COP) Funds – Accounts for Base Rental payments from the various Special by administrative action. Revenue Funds and General Fund which provide for periodic payments of interest and principal. The COPs are being sold to provide funds to finance the acquisition of existing office buildings and certain Gift Fund – Accounts for certain cash gifts which have been accepted by the Board of Supervisors on improvements thereto, or the construction of City buildings such as the Courthouse, to be leased to behalf of the City and the operations of two smaller funds that cannot properly be grouped into the the City for use of certain City departments as office space. Gift Fund because of their specific terms. Disbursements are made by departments, boards and commissions in accordance with the purposes, if any, specified by the donor. Activities are controlled Other Bond Funds – Accounts for funds and debt service for the revolving fund loans operated and by project accounting procedures maintained by the Controller. managed by the Mayor's Office of Community Development to assist with economic development efforts in low income neighborhoods (Facade Improvement Program) and for loans under the U.S. Golf Fund – Accounts for the revenue and expenditures related to the City’s six golf courses. Department of Housing and Urban Development section 108 of the Housing and Community Human Welfare Fund – Accounts for state and federal grants used to promote education and discourage Development Act of 1974 (Fillmore Renaissance Center and Boys and Girls Club Hunters' Point domestic violence. Clubhouse) and the Asphalt Plant Expansion Loan. 158 159 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO NONMAJOR GOVERNMENTAL FUNDS Combining Balance Sheet – Nonmajor Governmental Funds June 30, 2011 CAPITAL PROJECTS FUNDS (In Thousands) Permanent Total Capital Projects Funds are used to account for financial resources that are restricted, committed or Special Debt Capital Fund Nonmajor assigned to expenditures for the acquisition of land or acquisition and construction of major facilities other Revenue Service Projects Bequest Governmental than those financed in the proprietary fund types. Funds Funds Funds Fund Funds ASSETS City Facilities Improvement Fund – Accounts for bond proceeds, capital lease financing, federal and local Deposits and investments with City Treasury...... $ 450,110 $ 55,120 $ 425,336 $ 7,738 $ 938,304 funds and transfers from other funds which are designated for various buildings and general Deposits and investments outside City Treasury...... 32,332 32,603 51,382 - 116,317 improvements. Expenditures for acquisition and construction of public buildings and improvements Receivables: Property taxes and penalties...... 3,379 4,564 - - 7,943 are made in accordance with bond requirements and appropriation ordinances. Other local taxes...... 14,869 - - - 14,869 Earthquake Safety Improvement Fund – Accounts for bond proceeds, Federal/State grants and private Federal and state grants and subventions...... 126,272 - 5,928 - 132,200 Charges for services...... 12,763 - 51 - 12,814 gifts which are designated for earthquake facilities improvements to various City buildings and Interest and other...... 4,113 127 118 - 4,358 facilities. Expenditures for construction are made in accordance with bond requirements and grant Due from other funds...... 1,474 - 7,279 - 8,753 regulations. Due from / advance to component unit...... 10,406 - 1,007 - 11,413 Loans receivable (net of allowance for uncollectibles)...... 71,346 - - - 71,346 Fire Protection Systems Improvement Fund – Accounts for bond proceeds which are designated for Deferred charges and other assets...... 4,312 -36 -4,348 improvements in fire protection facilities. Expenditures for construction are made in accordance with Total assets...... $ 731,376 $ 92,414 $ 491,137 $ 7,738 $ 1,322,665 bond requirements. LIABILITIES AND FUND BALANCES Moscone Convention Center Fund – Accounts for proceeds from Moscone Convention Center Lease Liabilities: Revenue Bonds and transfers from the General Fund and Convention Facilities Special Revenue Accounts payable...... $ 81,623 $ 1 $ 33,817 $ 35 $ 115,476 Fund. Expenditures are for construction of the George R. Moscone Convention Center and for related Accrued payroll...... 16,838 - 2,553 9 19,400 administrative costs. Deferred tax, grant and subvention revenues...... 61,173 4,253 442 316 66,184 Due to other funds...... 26,004 - 15,546 - 41,550 Public Library Improvement Fund – Accounts for bond proceeds and private gifts which are designated Deferred credits and other liabilities...... 84,463 16,100 11,964 449 112,976 for construction of public library facilities. Expenditures for construction are made in accordance with Bonds, loans, capital leases and other payables...... 151,683 - 15,836 - 167,519 bond requirements and private funds agreements. Total liabilities...... 421,784 20,354 80,158 809 523,105 Fund balances: Recreation and Park Projects Fund – Accounts for bond proceeds, Federal and state grants, gifts and Nonspendable……………………………………………………… 192 - - - 192 transfers from other funds which are designated for various recreation and park additions and Restricted…………………………………………………………… 320,738 72,060 431,542 6,929 831,269 development. Expenditures for acquisition and construction of recreation and park facilities are made Committed………………………………………………………… ----- Assigned…………………………………………………………… 27,622 - - - 27,622 in accordance with bond requirements and appropriation ordinances. Unassigned………………………………………………………… (38,960) - (20,563) - (59,523) Street Improvement Fund – Accounts for gas tax subventions, bond fund proceeds and other revenues Total fund balances...... 309,592 72,060 410,979 6,929 799,560 which are designated for general street improvements. Expenditures for land acquisition and Total liabilities and fund balances...... $ 731,376 $ 92,414 $ 491,137 $ 7,738 $ 1,322,665 construction of designated improvements are made in accordance with applicable state codes, City charter provisions and bond requirements. PERMANENT FUND Permanent funds are used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the reporting government’s programs. Bequest Fund – Accounts for income and disbursements of bequests accepted by the City. Disbursements are made in accordance with terms of the bequests. 160 161 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Revenues, Expenditures, and Changes Combining Balance Sheet in Fund Balances – Nonmajor Governmental Funds Nonmajor Governmental Funds – Special Revenue Funds Year ended June 30, 2011 June 30, 2011 (In Thousands) (In Thousands) Children Community/ Community Culture Permanent Total Building and Neighborhood Health Convention and Environmental Special Debt Capital Fund Nonmajor Inspection Families Development Services Facilities Court's Recreation Protection Fund Fund Fund Fund Fund Fund Fund Fund Revenue Service Projects Bequest Governmental ASSETS Funds Funds Funds Fund Funds Deposits and investments with City Treasury...... $ 40,438 $ 61,304 $ 63,484 $ 35,171 $ 25,445 $ - $ 8,780 $ - Revenues: Deposits and investments outside City Property taxes...... $ 116,681 $ 172,899 $ - $ - $ 289,580 Treasury...... 1 - 3,777 - - - 2 - Business taxes...... 722 - - - 722 Receivables: Sales and use tax...... 75,172 - - - 75,172 Property taxes and penalties...... - 1,267 ------Hotel room tax...... 51,035 - - - 51,035 Other local taxes...... ------ Licenses, permits and franchises...... 10,725 - - - 10,725 Federal and state grants and subventions...... - 6,296 11,329 21,157 - - 111 1,722 Charges for services...... 294 - 25 - 2,765 189 330 - Fines, forfeitures and penalties...... 4,902 - - - 4,902 Interest and other...... - - 310 15 - 1 -- Interest and investment income...... 5,811 1,244 4,004 72 11,131 Due from other funds...... ------220 Rents and concessions...... 55,153 790 447 662 57,052 Due from / advance to component unit...... -- 540 - --- - Intergovernmental: Loans receivable (net of allowance for Federal...... 254,374 - 11,936 - 266,310 uncollectibles)...... 324 - 71,022 - - - - - State...... 125,614 762 15,928 - 142,304 Deferred charges and other assets...... -- 446 - - - - - Other...... 27,034 - 4,954 - 31,988 Total assets...... $ 41,057 $ 68,867 $ 150,933 $ 56,343 $ 28,210 $ 190 $ 9,223 $ 1,942 Charges for services...... 111,384 - - - 111,384 Other...... 72,052 4,319 10,431 15 86,817 LIABILITIES AND FUND BALANCES Total revenues...... 910,659 180,014 47,700 749 1,139,122 Liabilities: Accounts payable...... $ 774 $ 12,737 $ 4,973 $ 13,610 $ 1,679 $ - $ 1,570 $ 755 Expenditures: Accrued payroll...... 1,385 767 672 1,712 22 8 229 157 Current: Deferred tax, grant and subvention Public protection...... 80,633 - - - 80,633 revenues...... - 5,236 1,646 8,076 - - 32 875 Public works, transportation and commerce...... 201,412 - - - 201,412 Due to other funds...... - - 437 220 - 1,102 - 247 Human welfare and neighborhood development...... 259,960 - - 68 260,028 Deferred credits and other liabilities...... 6,786 4,300 56,015 811 2,149 - 5 64 Community health...... 101,283 - - - 101,283 Bonds, loans, capital leases and other payables...... - - 1,049 - - - - - Culture and recreation...... 210,038 - - 1,198 211,236 Total liabilities...... 8,945 23,040 64,792 24,429 3,850 1,110 1,836 2,098 General administration and finance...... 16,260 - - - 16,260 Fund balances: General City responsibilities...... 134 - - - 134 Nonspendable…………………………………………… ------Restricted………………………………………………… 32,112 45,827 83,993 31,914 24,360 - 5,632 - Debt service: Committed………………………………………………… ------ Principal retirement...... - 148,231 - - 148,231 Assigned………………………………………………… - - 2,148 - - - 1,755 - Interest and fiscal charges...... 2,753 96,770 2,100 - 101,623 Unassigned……………………………………………… - - - - - (920) - (156) Bond issuance costs...... - 1,521 640 - 2,161 Total fund balances...... 32,112 45,827 86,141 31,914 24,360 (920) 7,387 (156) Capital outlay...... -- 214,817 - 214,817 Total liabilities and fund balances...... $ 41,057 $ 68,867 $ 150,933 $ 56,343 $ 28,210 $ 190 $ 9,223 $ 1,942 Total expenditures...... 872,473 246,522 217,557 1,266 1,337,818 Excess (deficiency) of revenues over (under) expenditures...... 38,186 (66,508) (169,857) (517) (198,696) Other financing sources (uses): Transfers in...... 120,504 62,748 13,358 - 196,610 Transfers out...... (76,668) - (51,570) (9) (128,247) Issuance of bonds and loans: Face value of bonds issued...... 15,000 138,445 79,520 - 232,965 Face value of loans issued...... 1,813 - - - 1,813 Premium on issuance of bonds...... - 11,680 5,119 - 16,799 Payment to refunded bond escrow agent ...... - (142,458) - - (142,458) Other financing sources-capital leases...... 278 - 13,189 - 13,467 Total other financing sources (uses)...... 60,927 70,415 59,616 (9) 190,949 Net change in fund balances...... 99,113 3,907 (110,241) (526) (7,747) Fund balances at beginning of year...... 210,479 68,153 521,220 7,455 807,307 Fund balances at end of year...... $ 309,592 $ 72,060 $ 410,979 $ 6,929 $ 799,560 162 163 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Balance Sheet Combining Balance Sheet Nonmajor Governmental Funds – Special Revenue Funds (continued) Nonmajor Governmental Funds – Special Revenue Funds (continued) June 30, 2011 June 30, 2011 (In Thousands) (In Thousands) Open Public Works, San Francisco Gasoline General Human Space Public Transportation County Senior Tax Services Gift Golf Welfare and Park Library Public and Real Transportation Citizens' War Fund Fund Fund Fund Fund Fund Fund Protection Commerce Property Authority Program Memorial ASSETS Fund Fund Fund Fund Fund Fund Total ASSETS Deposits and investments with City Treasury...... $ 9,286 $ 9,685 $ 8,476 $ 2,180 $ - $ 28,240 $ 33,314 Deposits and investments with City Treasury...... $ - $ 14,439 $ 14,504 $ 83,564 $ - $ 11,800 $ 450,110 Deposits and investments outside City Deposits and investments outside City Treasury...... - - 192 - - - - Treasury...... - 2,517 419 25,424 - - 32,332 Receivables: Receivables: Property taxes and penalties...... - - - - - 1,056 1,056 Property taxes and penalties...... ------3,379 Other local taxes...... - 8 - - - - - Other local taxes...... - - - 14,861 - - 14,869 Federal and state grants and subventions...... 3,732 403 - - 4,196 - - Federal and state grants and subventions...... 31,472 51 - 43,696 2,107 - 126,272 Charges for services...... 156 1,800 - 295 - - 8 Charges for services...... 2,610 4,290 1 - - - 12,763 Interest and other...... - 650 - - 4 - - Interest and other...... 257 6 - 2,870 - - 4,113 Due from other funds...... - - - - 437 - - Due from other funds...... - - 3 814 - - 1,474 Due from / advance to component unit...... ------Due from / advance to component unit...... - 664 - 9,202 - - 10,406 Loans receivable (net of allowance for Loans receivable (net of allowance for uncollectibles)...... ------uncollectibles)...... ------71,346 Deferred charges and other assets...... - 3,866 - - - - 4,312 Deferred charges and other assets...... ------Total assets...... $ 34,339 $ 25,833 $ 14,927 $ 180,431 $ 2,107 $ 11,800 $ 731,376 Total assets...... $ 13,174 $ 12,546 $ 8,668 $ 2,475 $ 4,637 $ 29,296 $ 34,378 LIABILITIES AND FUND BALANCES LIABILITIES AND FUND BALANCES Liabilities: Liabilities: Accounts payable...... $ 4,374 $ 892 $ 1,247 $ 30,852 $ 467 $ 148 $ 81,623 Accounts payable...... $ 1,051 $ 942 $ 256 $ 282 $ 2,666 $ 389 $ 1,959 Accrued payroll...... 1,448 2,797 894 229 - 321 16,838 Accrued payroll...... 1,494 368 15 232 25 1,085 2,978 Deferred tax, grant and subvention Deferred tax, grant and subvention revenues...... 21,027 - - 20,219 1,635 - 61,173 revenues...... - - 147 - 244 985 1,051 Due to other funds...... 8,227 61 - 12,407 1,641 - 26,004 Due to other funds...... - 8 - - 1,654 - - Deferred credits and other liabilities...... 6 5,837 - 843 - 73 84,463 Deferred credits and other liabilities...... 271 128 31 1 - 3,557 3,586 Bonds, loans, capital leases and other payables...... - 634 - 150,000 - - 151,683 Bonds, loans, capital leases and other payables...... ------Total liabilities...... 35,082 10,221 2,141 214,550 3,743 542 421,784 Total liabilities...... 2,816 1,446 449 515 4,589 6,016 9,574 Fund balances: Nonspendable………………………………………………… ------192 Fund balances: Restricted…………………………………………………… - 433 12,786 1,386 - 11,258 320,738 Nonspendable………………………………………………… --192 ---- Committed…………………………………………………… ------Restricted……………………………………………………… 10,358 5,562 8,027 - - 23,280 23,810 Assigned……………………………………………………… - 15,179 - - - - 27,622 Committed…………………………………………………… ------Unassigned…………………………………………………… (743) - - (35,505) (1,636) - (38,960) Assigned……………………………………………………… - 5,538 - 1,960 48 - 994 Total fund balances...... (743) 15,612 12,786 (34,119) (1,636) 11,258 309,592 Unassigned…………………………………………………… ------Total liabilities and fund balances...... $ 34,339 $ 25,833 $ 14,927 $ 180,431 $ 2,107 $ 11,800 $ 731,376 Total fund balances...... 10,358 11,100 8,219 1,960 48 23,280 24,804 Total liabilities and fund balances...... $ 13,174 $ 12,546 $ 8,668 $ 2,475 $ 4,637 $ 29,296 $ 34,378 164 165 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Revenues, Expenditures, Combining Statement of Revenues, Expenditures, and Changes in Fund Balances and Changes in Fund Balances Nonmajor Governmental Funds – Special Revenue Funds Nonmajor Governmental Funds – Special Revenue Funds (continued) Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) ` Children Community/ Community Culture Open Building and Neighborhood Health Convention and Environmental Gasoline General Human Space Public Inspection Families Development Services Facilities Court's Recreation Protection Tax Services Gift Golf Welfare and Park Library Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Revenues: Revenues: Property taxes...... $ - $ 43,755 $ - $ - $ - $ - $ - $ - Property taxes...... $ - $ - $ - $ - $ - $ 36,463 $ 36,463 Business taxes...... --722 ---- - Business taxes...... ------Sales and use tax ...... ------Sales and use tax...... ------Hotel room tax...... - - - - 42,227 - - - Licenses, permits and franchises...... 6,700 - - - - - 253 - Hotel room tax...... ------ Fines, forfeitures and penalties...... 30 44 4 2,369 - 29 5 - Licenses, permits and franchises...... - 2,505 - - 210 - - Interest and investment income...... 320 600 2,067 389 286 - 73 - Fines, forfeitures and penalties...... - - 73 - 4 - 102 Rents and concessions...... - - - - 22,295 - 302 - Interest and investment income...... 66 41 72 11 - 192 262 Intergovernmental: Rents and concessions...... - 603 - 3,017 - - 26 Federal...... - 9,907 39,297 67,440 - - 380 1,083 Intergovernmental: State...... - 14,280 286 44,420 - - 57 6,113 Federal...... - 375 - - 52,154 - 90 Other...... - - 1,479 12 - - - 526 State...... 39,979 - - - 188 170 541 Charges for services...... 40,181 20 5,968 4,424 - 3,196 8,301 1 Other...... ------ Other...... -945 34,681 1,220 2,091 - 796 206 Charges for services...... 662 1,623 17 6,987 166 4 921 Total revenues...... 47,231 69,551 84,504 120,274 66,899 3,225 10,167 7,929 Other...... 10 202 4,463 - 209 - - Expenditures: Total revenues...... 40,717 5,349 4,625 10,015 52,931 36,829 38,405 Current: Expenditures: Public protection...... - - - - - 366 - - Public works, transportation and commerce...... 36,917 - 16,864 1,140 - 20 1,992 - Current: Human welfare and neighborhood Public protection...... - 346 59 - - - - development...... - 113,773 72,878 - 1,833 - - 7,242 Public works, transportation and commerce...... 41,931 6 543 27 - 1,315 2,446 Community health...... - - - 101,283 - - - - Human welfare and neighborhood Culture and recreation...... - - 115 - 56,750 - 10,817 - development...... - - 29 - 45,603 - - General administration and finance...... - - 1,946 53 - - - 7 Community health...... ------General City responsibilities ...... ------8 Culture and recreation...... - 925 3,022 10,072 - 35,894 81,016 Debt service: General administration and finance...... - 2,643 103 - - - - Interest and fiscal charges...... - - 66 - - - 20 - General City responsibilities...... - 126 - - - - - Total expenditures...... 36,917 113,773 91,869 102,476 58,583 386 12,829 7,257 Debt service: Excess (deficiency) of revenues Interest and fiscal charges...... ------over (under) expenditures ...... 10,314 (44,222) (7,365) 17,798 8,316 2,839 (2,662) 672 Total expenditures...... 41,931 4,046 3,756 10,099 45,603 37,209 83,462 Other financing sources (uses): Excess (deficiency) of revenues Transfers in...... - 49,176 - - 6,911 - 455 6 over (under) expenditures...... (1,214) 1,303 869 (84) 7,328 (380) (45,057) Transfers out...... (39) (13) (5, 242) (6) (792) (4,187) (23) (245) Issuance of bonds and loans Other financing sources (uses): Face value of bonds issued...... - - 15,000 - -- - - Transfers in...... 12,678 2,009 - 1,043 2,471 439 45,120 Face value of loans issued...... ------1,813 - Transfers out...... (1,719) - (420) (439) (6,816) - (33) Issuance of bonds and loans Other financing sources-capital leases ...... ------Face value of bonds issued...... ------ Total other financing sources (uses)...... (39) 49,163 9,758 (6) 6,119 (4,187) 2,245 (239) Face value of loans issued...... ------ Net change in fund balances ...... 10,275 4,941 2,393 17,792 14,435 (1,348) (417) 433 Other financing sources-capital leases...... 166 ------Fund balances at beginning of year...... 21,837 40,886 83,748 14,122 9,925 428 7,804 (589) Total other financing sources (uses)...... 11,125 2,009 (420) 604 (4,345) 439 45,087 Fund balances at end of year...... $ 32,112 $ 45,827 $ 86,141 $ 31,914 $ 24,360 $ (920) $ 7,387 $ (156) Net change in fund balances...... 9,911 3,312 449 520 2,983 59 30 Fund balances at beginning of year...... 447 7,788 7,770 1,440 (2,935) 23,221 24,774 Fund balances at end of year...... $ 10,358 $ 11,100 $ 8,219 $ 1,960 $ 48 $ 23,280 $ 24,804 166 167 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Revenues, Expenditures, Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances and Changes in Fund Balances – Nonmajor Governmental Funds – Special Revenue Funds (continued) Budget and Actual – Budget Basis Year ended June 30, 2011 Special Revenue Funds (In Thousands) Year ended June 30, 2011 Public Works, San Francisco (In Thousands) Transportation County Senior Building Inspection Fund Children and Families Fund Public and Real Transportation Citizens' War Variance Variance Protection Commerce Property Authority Program Memorial Fund Fund Fund Fund Fund Fund Total Original Final Positive Original Final Positive Revenues: Budget Budget Actual (Negative) Budget Budget Actual (Negative) Property taxes...... $ - $ - $ - $ - $ - $ - $ 116,681 Revenues: Business taxes...... ------722 Property taxes...... $ - $ - $ - $ - $ 41,083 $ 41,083 $ 43,755 $ 2,672 Sales and use tax...... - - - 75,172 - - 75,172 Business taxes...... ------ Hotel room tax...... - - - - - 8,808 51,035 Sales and use tax...... ------ Licenses, permits and franchises...... 364 - - 693 - - 10,725 Hotel room tax...... ------Fines, forfeitures and penalties...... 2,042 190 - - - 10 4,902 Licenses, permits, and franchises...... 6,099 6,099 6,700 601 - - -- Interest and investment income...... 77 221 - 1,028 - 106 5,811 Fines, forfeitures, and penalties...... ------Rents and concessions...... - 82 26,449 - - 2,379 55,153 Intergovernmental: Interest and investment income...... 317 317 284 (33) 510 510 659 149 Federal...... 53,245 8 - 25,279 5,116 - 254,374 Rents and concessions...... ------ State...... 9,006 12 - 9,926 636 - 125,614 Intergovernmental: Other...... - 1,383 - 23,634 - - 27,034 Federal...... - - - - 10,439 10,901 9,906 (995) Charges for services...... 14,684 23,786 12 - - 431 111,384 State...... - - - - 12,574 18,510 18,004 (506) Other...... 199 412 - 26,617 - 1 72,052 Other...... ------Total revenues...... 79,617 26,094 26,461 162,349 5,752 11,735 910,659 Charges for services...... 37,448 37,448 40,181 2,733 1,150 7 20 13 Expenditures: Other revenues...... - --- - 3,000 945 (2,055) Current: Total revenues...... 43,864 43,864 47,165 3,301 65,756 74,011 73,289 (722) Public protection...... 79,862 - - - - - 80,633 Expenditures: Public works, transportation and commerce...... - 15,475 560 82,033 - 143 201,412 Public protection...... ------Human welfare and neighborhood Public works, transportation and development...... 3,086 9,536 - - 5,980 - 259,960 Community health...... ------101,283 commerce...... 43,864 41,879 36,917 4,962 - - -- Culture and recreation...... - - - - - 11,427 210,038 Human welfare and neighborhood General administration and finance...... 9 114 11,385 - - - 16,260 development...... - - - - 116,335 116,781 113,766 3,015 General City responsibilities...... ------134 Community health...... ------Debt service: Culture and recreation...... ------Interest and fiscal charges...... - 41 - 2,626 - - 2,753 General administration and finance...... ------Total expenditures...... 82,957 25,166 11,945 84,659 5,980 11,570 872,473 Total expenditures...... 43,864 41,879 36,917 4,962 116,335 116,781 113,766 3,015 Excess (deficiency) of revenues Excess (deficiency) of revenues over (under) expenditures...... (3,340) 928 14,516 77,690 (228) 165 38,186 over (under) expenditures...... - 1,985 10,248 8,263 (50,579) (42,770) (40,477) 2,293 Other financing sources (uses): Other financing sources (uses): Transfers in...... 160 - 8 - 28 - 120,504 Transfers in...... - - - - 48,884 49,171 49,171 - Transfers out...... (1,237) (221) (11,691) (43,439) - (106) (76,668) Transfers out...... ------Issuance of bonds and loans Issuance of bonds...... ------Face value of bonds issued...... ------15,000 Issuance of loans...... ------Face value of loans issued...... ------1,813 Issuance of commercial paper...... ------Other financing sources-capital leases...... - 112 - - - - 278 Total other financing sources (uses)...... (1,077) (109) (11,683) (43,439) 28 (106) 60,927 Total other financing sources (uses)...... -- -- 48,884 49,171 49,171 - Net change in fund balances...... (4,417) 819 2,833 34,251 (200) 59 99,113 Net change in fund balances...... - 1,985 10,248 8,263 (1,695) 6,401 8,694 2,293 Fund balances at beginning of year...... 3,674 14,793 9,953 (68,370) (1,436) 11,199 210,479 Budgetary fund balance (deficit), July 1...... - 21,750 21,750 - 1,695 40,761 40,761 - Fund balances at end of year...... $ (743) $ 15,612 $ 12,786 $ (34,119) $ (1,636) $ 11,258 $ 309,592 Budgetary fund balance (deficit), June 30...... $ - $ 23,735 $ 31,998 $ 8,263 $ -$ 47,162 $ 49,455 $ 2,293 168 169 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Schedule of Revenues, Expenditures, Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances – and Changes in Fund Balances – Budget and Actual – Budget Basis (Continued) Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Community/Neighborhood Development Fund Community Health Services Fund Convention Facilities Fund Court's Fund Variance Variance Variance Variance Original Final Positive Original Final Positive Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Revenues: Revenues: Property taxes...... $ - $ - $ - $ - $ - $ - $ - $ - Property taxes...... $ - -$ $ - $ - $ - -$ $ - $ - Business taxes...... 900 900 722 (178) - - -- Business taxes...... ------Sales and use tax...... ------Sales and use tax...... ------Hotel room tax...... ------Hotel room tax...... 42,227 42,227 42,227 - --- - Licenses, permits, and franchises...... ------Licenses, permits, and franchises...... ------Fines, forfeitures, and penalties...... - 4 4 - 2,358 2,358 2,369 11 Fines, forfeitures, and penalties...... - - - - 35 35 33 (2) Interest and investment income...... 110 1,842 2,062 220 10 10 367 357 Interest and investment income...... ------Rents and concessions...... ------Rents and concessions...... 21,581 22,081 22,295 214 - - - - Intergovernmental: Intergovernmental: Federal...... 7,700 39,225 39,225 - 71,566 67,558 67,558 - Federal...... ------State...... 250 580 580 - 34,525 43,642 43,641 (1) State...... ------Other...... - - - - - 29 12 (17) Other...... ------Charges for services...... 5,708 5,708 5,968 260 35 3,694 4,424 730 Charges for services...... 500 - - - 3,500 3,500 3,196 (304) Other revenues...... 322 36,928 34,933 (1,995) 240 1,250 1,250 - Other revenues...... - 2,091 2,091 - --- - Total revenues...... 14,990 85,187 83,494 (1,693) 108,734 118,541 119,621 1,080 Total revenues...... 64,308 66,399 66,613 214 3,535 3,535 3,229 (306) Expenditures: Expenditures: Public protection...... ------Public protection...... - - - - 4,572 385 366 19 Public works, transportation and Public works, transportation and commerce...... 7,716 16,864 16,864 - - 1,140 1,140 - commerce...... --- - -20 20 - Human welfare and neighborhood Human welfare and neighborhood development...... 6,293 73,527 72,878 649 - - -- development...... 500 1,833 1,833 - --- - Community health...... - - - - 108,794 101,283 101,283 - Community health...... ------Culture and recreation...... 400 115 115 - - - -- Culture and recreation...... 58,963 58,839 56,750 2,089 - - - - General administration and finance...... 3,516 1,946 1,946 - - 53 53 - General administration and finance...... ------ Total expenditures...... 17,925 92,452 91,803 649 108,794 102,476 102,476 - Total expenditures...... 59,463 60,672 58,583 2,089 4,572 405 386 19 Excess (deficiency) of revenues Excess (deficiency) of revenues over (under) expenditures...... (2,935) (7,265) (8,309) (1,044) (60) 16,065 17,145 1,080 over (under) expenditures...... 4,845 5,727 8,030 2,303 (1,037) 3,130 2,843 (287) Other financing sources (uses): Other financing sources (uses): Transfers in...... ------Transfers in...... 6,911 6,911 6,911 - --- - Transfers out...... (800) (5,143) (5,143) - - - -- Transfers out...... (11,756) (11,876) - 11,876 - (4,187) (4,187) - Issuance of bonds...... - 15,000 15,000 - - - -- Issuance of bonds...... ------ Issuance of loans...... ------Issuance of loans...... ------ Issuance of commercial paper...... ------Issuance of commercial paper...... ------Total other financing sources (uses)...... (800) 9,857 9,857 - - - - - Total other financing sources (uses)...... (4,845) (4,965) 6,911 11,876 - (4,187) (4,187) - Net change in fund balances...... (3,735) 2,592 1,548 (1,044) (60) 16,065 17,145 1,080 Net change in fund balances...... - 762 14,941 14,179 (1,037) (1,057) (1,344) (287) Budgetary fund balance (deficit), July 1...... 3,735 73,567 73,567 - 60 21,807 21,807 - Budgetary fund balance (deficit),gg July 1...... - 14,182 14,182 - 1,037 434 434 - Budgetary fund balance (deficit), June 30...... $ - $ 76,159 $ 75,115 $ (1,044) $ - $ 37,872 $ 38,952 $ 1,080 Budgetary fund balance (deficit), June 30...... $ - $ 14,944 $ 29,123 $ 14,179 $ - $ (623) $ (910) $ (287) 170 171 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Schedule of Revenues, Expenditures, Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances – and Changes in Fund Balances – Budget and Actual – Budget Basis (Continued) Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Culture and Recreation Fund Environmental Protection Fund Gasoline Tax Fund General Services Fund Variance Variance Variance Variance Original Final Positive Original Final Positive Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Revenues: Revenues: Property taxes...... $ - $ - $ - $ - $ - -$ $ - $ - Property taxes...... $ - -$ $ - $ - $ - -$ $ - $ - Business taxes...... ------Business taxes...... ------Sales and use tax...... ------Sales and use tax...... ------Hotel room tax...... ------Hotel room tax...... ------Licenses, permits, and franchises...... 262 257 253 (4) - - - - Licenses, permits, and franchises...... - - - - 1,749 1,749 2,505 756 Fines, forfeitures, and penalties...... - 5 5 - --- - Fines, forfeitures, and penalties...... ------Interest and investment income...... 53 53 69 16 --- - Interest and investment income...... 42 42 78 36 43 43 43 - Rents and concessions...... 296 296 302 6 --- - Rents and concessions...... - - - - - 603 603 - Intergovernmental: Intergovernmental: Federal...... - 380 380 - - 1,206 1,206 - Federal...... - - - - - 221 221 - State...... - 57 57 - 429 5,979 5,979 - State...... 28,614 39,883 39,980 97 - - - - Other...... - - - - 405 323 326 3 Other...... ------Charges for services...... 6,907 8,547 8,301 (246) - - - - Charges for services...... 800 790 662 (128) 1,525 1,609 1,623 14 Other revenues...... 764 810 796 (14) 954 245 206 (39) Other revenues...... - 10 10 -267 202 202 - Total revenues...... 8,282 10,405 10,163 (242) 1,788 7,753 7,717 (36) Total revenues...... 29,456 40,725 40,730 5 3,584 4,427 5,197 770 Expenditures: Expenditures: Public protection...... ------Public protection...... - - - - 293 346 346 - Public works, transportation and Public works, transportation and commerce...... 544 1,992 1,992 - --- - commerce...... 42,212 42,254 41,766 488 - 6 6 - Human welfare and neighborhood Human welfare and neighborhood development...... - - - - 755 7,242 7,242 - development...... ------Community health...... ------Community health...... ------Culture and recreation...... 8,518 11,040 10,837 203 - - - - Culture and recreation...... - - - - - 925 925 - General administration and finance...... - -- --7 7 - General administration and finance...... - -- - 5,187 2,652 2,643 9 Total expenditures...... 9,062 13,032 12,829 203 755 7,249 7,249 - Total expenditures...... 42,212 42,254 41,766 488 5,480 3,929 3,920 9 Excess (deficiency) of revenues Excess (deficiency) of revenues over (under) expenditures...... (780) (2,627) (2,666) (39) 1,033 504 468 (36) over (under) expenditures...... (12,756) (1,529) (1,036) 493 (1,896) 498 1,277 779 Other financing sources (uses): Other financing sources (uses): Transfers in...... 400 455 455 - --- - Transfers in...... 12,756 12,678 12,678 - 1,883 1,883 1,883 - Transfers out...... - (8) (8) - (1,033) (247) (247) - Transfers out...... - (1,719) (1,719) - --- - Issuance of bonds...... ------Issuance of bonds...... ------Issuance of loans...... - 1,813 1,813 - --- - Issuance of loans...... ------Issuance of commercial paper...... ------Issuance of commercial paper...... ------Total other financing sources (uses)...... 400 2,260 2,260 - (1,033) (247) (247) - Total other financing sources (uses)...... 12,756 10,959 10,959 - 1,883 1,883 1,883 - Net change in fund balances...... (380) (367) (406) (39) - 257 221 (36) Net change in fund balances...... - 9,430 9,923 493 (13) 2,381 3,160 779 Budgetary fund balance (deficit), July 1...... 380 12,656 12,656 -- (257) (257) - Budgetary fund balance (deficit), July 1...... - 413 413 - 13 7,937 7,937 - Budgetary fund balance (deficit), June 30...... $ - $ 12,289 $ 12,250 $(39) $ -$ -$ (36) $ (36) Budgetary fund balance (deficit), June 30...... $ - $ 9,843 $ 10,336 $493 $ -$ 10,318 $ 11,097 $ 779 172 173 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Schedule of Revenues, Expenditures, Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances – and Changes in Fund Balances – Budget and Actual – Budget Basis (Continued) Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Gift Fund Golf Fund Human Welfare Fund Open Space and Park Fund Variance Variance Variance Variance Original Final Positive Original Final Positive Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Revenues: Revenues: Property taxes...... $ - -$ $ - $ - $ - -$ $ - $ - Property taxes...... $ - $ - $ - $ - $ 34,237 $ 34,237 $ 36,463 $ 2,226 Business taxes...... ------Business taxes...... ------Sales and use tax...... ------Sales and use tax...... ------Hotel room tax...... ------Hotel room tax...... ------Licenses, permits, and franchises...... ------Licenses, permits, and franchises...... 210 210 210 - --- - Fines, forfeitures, and penalties...... - 73 73 - - - - - Fines, forfeitures, and penalties...... - 4 4 - --- - Interest and investment income...... - 18 23 5 10 10 13 3 Interest and investment income...... - - - - 452 448 233 (215) Rents and concessions...... - - - - 3,609 3,609 3,017 (592) Rents and concessions...... ------Intergovernmental: Intergovernmental: Federal...... ------Federal...... 16,603 48,996 48,997 1 - - - - State...... ------State...... 55 188 188 - 152 152 170 18 Other...... ------Other...... ------Charges for services...... - 12 17 5 8,328 8,738 6,987 (1,751) Charges for services...... 176 172 166 (6) - 4 4 - Other revenues...... 834 4,145 4,463 318 --- - Other revenues...... 100 209 209 - --- - Total revenues...... 834 4,248 4,576 328 11,947 12,357 10,017 (2,340) Total revenues...... 17,144 49,779 49,774 (5) 34,841 34,841 36,870 2,029 Expenditures: Expenditures: Public protection...... -59 59 ----- Public protection...... ------Public works, transportation and Public works, transportation and commerce...... - 544 544 - - 27 27 - commerce...... - - - - - 1,316 1,316 - Human welfare and neighborhood Human welfare and neighborhood development...... 20 29 29 - --- - development...... 19,715 45,546 45,546 - --- - Community health...... ------Community health...... ------Culture and recreation...... 814 3,022 3,022 - 11,670 11,577 10,072 1,505 Culture and recreation...... - - - - 37,512 36,535 35,894 641 General administration and finance...... - 103 103 - - - - - General administration and finance...... ------Total expenditures...... 834 3,757 3,757 - 11,670 11,604 10,099 1,505 Total expenditures...... 19,715 45,546 45,546 - 37,512 37,851 37,210 641 Excess (deficiency) of revenues Excess (deficiency) of revenues over (under) expenditures...... - 491 819 328 277 753 (82) (835) over (under) expenditures...... (2,571) 4,233 4,228 (5) (2,671) (3,010) (340) 2,670 Other financing sources (uses): Other financing sources (uses): Transfers in...... - - - - 758 1,043 1,043 - Transfers in...... 2,413 2,413 2,413 - 1,035 1,035 439 (596) Transfers out...... - (368) (368) - - (1,035) (439) 596 Transfers out...... (32) (6,848) (6,816) 32 - - - - Issuance of bonds...... ------Issuance of bonds...... ------Issuance of loans...... ------Issuance of loans...... ------Issuance of commercial paper...... ------Issuance of commercial paper...... ------Total other financing sources (uses)...... - (368) (368) - 758 8 604 596 Total other financing sources (uses)...... 2,381 (4,435) (4,403) 32 1,035 1,035 439 (596) Net change in fund balances...... - 123 451 328 1,035 761 522 (239) Net change in fund balances...... (190) (202) (175) 27 (1,636) (1,975) 99 2,074 Budgetary fund balance (deficit), July 1...... - 7,756 7,756 - - 1,435 1,435 - Budgetary fund balance (deficit), July 1...... 190 306 306 - 1,636 23,104 23,104 - Budgetary fund balance (deficit), June 30...... $ - $ 7,879 $ 8,207 $ 328 $ 1,035 $ 2,196 $ 1,957 $ (239) Budgetary fund balance (deficit), June 30...... $ -$ 104 $ 131 $ 27 $ -$ 21,129 $ 23,203 $ 2,074 174 175 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Schedule of Revenues, Expenditures, Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances – and Changes in Fund Balances – Budget and Actual – Budget Basis (Continued) Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Public Library Fund Public Protection Fund Public Works, Transportation and Variance Variance Commerce Fund Real Property Fund Original Final Positive Original Final Positive Variance Variance Budget Budget Actual (Negative) Budget Budget Actual (Negative) Original Final Positive Original Final Positive Revenues: Budget Budget Actual (Negative) Budget Budget Actual (Negative) Property taxes...... $ 34,237 $ 34,237 $ 36,463 $ 2,226 $ - $ - $ - $ - Revenues: Business taxes...... ------Property taxes...... $ - $ - $ - $ - $ - $ - $ - $ - Sales and use tax...... ------Business taxes...... ------Hotel room tax...... ------Sales and use tax...... ------Licenses, permits, and franchises...... - - - - 489 489 364 (125) Hotel room tax...... ------Fines, forfeitures, and penalties...... - 102 102 - 1,596 2,051 2,042 (9) Licenses, permits, and franchises...... ------Interest and investment income...... 222 222 260 38 51 115 96 (19) Fines, forfeitures, and penalties...... - 39 190 151 - - - - Rents and concessions...... 38 38 26 (12) - - - - Interest and investment income...... ------Intergovernmental: Rents and concessions...... - 82 82 - 1,289 25,655 26,449 794 Federal...... - 90 90 - 7,120 58,759 58,759 - Intergovernmental: State...... 574 519 541 22 8,828 9,007 9,007 - Federal...... - 8 8 - - - - - Other...... ------State...... - 12 12 - - - - - Charges for services...... 710 608 921 313 3,994 4,057 14,782 10,725 Other...... - 1,385 1,385 - - - - - Other revenues...... - - - - - 199 199 - Charges for services...... 10,194 19,187 23,787 4,600 - 12 12 - Total revenues...... 35,781 35,816 38,403 2,587 22,078 74,677 85,249 10,572 Other revenues...... - 882 412 (470) -- - - Total revenues...... 10,194 21,595 25,876 4,281 1,289 25,667 26,461 794 Expenditures: Public protection...... - - - - 21,589 79,934 79,702 232 Expenditures: Public works, transportation and Public protection...... ------commerce...... - 2,446 2,446 - --- - Public works, transportation and Human welfare and neighborhood commerce...... - 14,682 15,363 (681) - 560 560 - development...... - - - - 2,578 3,086 3,086 - Human welfare and neighborhood Community health...... ------development...... 10,194 10,149 9,536 613 - - - - Culture and recreation...... 82,967 83,507 81,016 2,491 - - - - Community health...... ------General administration and finance...... - - - - - 9 9 - Culture and recreation...... ------Total expenditures...... 82,967 85,953 83,462 2,491 24,167 83,029 82,797 232 General administration and finance...... - 114 114 - 1,289 11,377 11,377 - Total expenditures...... 10,194 24,945 25,013 (68) 1,289 11,937 11,937 - Excess (deficiency) of revenues over (under) expenditures...... (47,186) (50,137) (45,059) 5,078 (2,089) (8,352) 2,452 10,804 Excess (deficiency) of revenues over (under) expenditures...... - (3,350) 863 4,213 - 13,730 14,524 794 Other financing sources (uses): Transfers in...... 43,514 48,390 45,120 (3,270) - - - - Other financing sources (uses): Transfers out...... - - - - - (1,237) (1,237) - Transfers in...... ------ Issuance of bonds...... ------Transfers out...... - - - - - (11,691) (11,691) - Issuance of loans...... ------Issuance of bonds...... ------ Issuance of commercial paper...... ------Issuance of loans...... ------Issuance of commercial paper...... ------Total other financing sources (uses)...... 43,514 48,390 45,120 (3,270) - (1,237) (1,237) - Total other financing sources (uses)...... --- - - (11,691) (11,691) - Net change in fund balances...... (3,672) (1,747) 61 1,808 (2,089) (9,589) 1,215 10,804 Net change in fund balances...... - (3,350) 863 4,213 - 2,039 2,833 794 Budgetary fund balance (deficit), July 1...... 3,672 24,663 24,663 - 2,089 15,801 15,801 - Budgetary fund balance (deficit), July 1...... - 13,672 13,672 - - 9,957 9,957 - Budgetary fund balance (deficit), June 30...... $ - $ 22,916 $ 24,724 $ 1,808 $ - $ 6,212 $ 17,016 $ 10,804 Budgetary fund balance (deficit), June 30...... $ - $ 10,322 $ 14,535 $ 4,213 $ -$ 11,996 $ 12,790 $ 794 176 177 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Schedule of Revenues, Expenditures, Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances – and Changes in Fund Balances – Budget and Actual – Budget Basis (Continued) Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) San Francisco County War Memorial Fund TOTAL Transportation Authority Fund Senior Citizens' Program Fund Variance Variance Variance Variance Original Final Positive Original Final Positive Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Budget Budget Actual (Negative) Revenues: Revenues: Property taxes...... $ - $ - $ - $ - $ 109,557 $ 109,557 $ 116,681 $ 7,124 Property taxes...... $ - $ - $ - $ - $ - $ - $ - $ - Business taxes...... - - - - 900 900 722 (178) Business taxes...... ------Sales and use tax...... - - - - 68,717 68,717 75,172 6,455 Sales and use tax...... 68,717 68,717 75,172 6,455 - - - - Hotel room tax...... 8,808 8,808 8,808 - 51,035 51,035 51,035 - Hotel room tax...... ------Licenses, permits, and franchises...... - - - - 8,809 9,488 10,724 1,236 Licenses, permits, and franchises...... - 684 692 8 --- - Fines, forfeitures, and penalties...... - 10 10 - 3,989 4,681 4,832 151 Fines, forfeitures, and penalties...... ------Interest and investment income...... - - - - 3,423 5,233 5,216 (17) Interest and investment income...... 1,603 1,603 1,029 (574) - - - - Rents and concessions...... 1,723 2,094 2,378 284 28,536 54,458 55,152 694 Rents and concessions...... ------Intergovernmental: Intergovernmental: Federal...... - - - - 128,882 245,021 256,779 11,758 Federal...... 10,292 12,527 25,279 12,752 5,162 5,150 5,150 - State...... - - - - 131,463 156,756 128,900 (27,856) State...... 44,683 37,412 9,926 (27,486) 779 815 815 - Other...... - - - - 4,305 3,007 25,357 22,350 Other...... 3,900 1,270 23,634 22,364 - - - - Charges for services...... 299 366 431 65 81,274 94,459 111,482 17,023 Charges for services...... ------Other revenues...... - - - - 3,481 73,463 72,333 (1,130) Other revenues...... - 23,492 26,617 3,125 -- - - Total revenues...... 10,830 11,278 11,627 349 624,371 876,775 914,385 37,610 Total revenues...... 129,195 145,705 162,349 16,644 5,941 5,965 5,965 - Expenditures: Expenditures: Public protection...... - - - - 26,454 80,724 80,473 251 Public protection...... ------Public works, transportation and Public works, transportation and commerce...... - 143 143 - 281,568 261,937 249,199 12,738 commerce...... 187,232 138,064 130,095 7,969 - - - - Human welfare and neighborhood Human welfare and neighborhood development...... - - - - 162,331 264,144 259,867 4,277 development...... - - - - 5,941 5,951 5,951 - Community health...... - - - - 108,794 101,283 101,283 - Community health...... ------Culture and recreation...... 11,889 12,218 11,427 791 212,733 217,778 210,058 7,720 Culture and recreation...... ------General administration and finance...... - - - - 9,992 16,261 16,252 9 General administration and finance...... ------Total expenditures...... 11,889 12,361 11,570 791 801,872 942,127 917,132 24,995 Total expenditures...... 187,232 138,064 130,095 7,969 5,941 5,951 5,951 - Excess (deficiency) of revenues Excess (deficiency) of revenues over (under) expenditures...... (58,037) 7,641 32,254 24,613 - 14 14 - over (under) expenditures...... (1,059) (1,083) 57 1,140 (177,501) (65,352) (2,747) 62,605 Other financing sources (uses): Other financing sources (uses): Transfers in...... ------Transfers in...... - - - - 118,554 123,979 120,113 (3,866) Transfers out...... ------Transfers out...... - - - - (13,621) (44,359) (31,855) 12,504 Issuance of bonds...... ------Issuance of bonds...... - - - - - 15,000 15,000 - Issuance of loans...... ------Issuance of loans...... - - - - - 1,813 1,813 - Issuance of commercial paper...... 152,788 ------Issuance of commercial paper...... - --- 152,788 - - - Total other financing sources (uses)...... 152,788 ------Total other financing sources (uses)...... ---- 257,721 96,433 105,071 8,638 Net change in fund balances...... 94,751 7,641 32,254 24,613 - 14 14 - Net change in fund balances...... (1,059) (1,083) 57 1,140 80,220 31,081 102,324 71,243 Budgetary fund balance (deficit), July 1...... 803 86,217 86,217 - - (12) (12) - Budgetary fund balance (deficit), July 1...... 1,059 11,164 11,164 - 16,369 387,313 387,313 - Budgetary fund balance (deficit), June 30...... $ 95,554 $ 93,858 $ 118,471 $ 24,613 $ - $ 2 $ 2 $ - Budgetary fund balance (deficit), June 30...... $ - $ 10,081 $ 11,221 $ 1,140 $ 96,589 $ 418,394 $ 489,637 $ 71,243 178 179 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Schedule of Expenditures by Department Schedule of Expenditures by Department Budget and Actual – Budget Basis Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Variance Variance Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative) BUILDING INSPECTION FUND COURT'S FUND Public Works, Transportation and Commerce Public Protection Building Inspection...... $ 43,864 $ 41,867 $ 36,905 $ 4,962 Trial Courts...... $ 4,572 $ 385 $ 366 $ 19 Public Works...... - 12 12 - Public Works, Transportation and Commerce Total Building Inspection Fund...... 43,864 41,879 36,917 4,962 Public Works...... - 20 20 - Total Court's Fund...... 4,572 405 386 19 CHILDREN AND FAMILIES FUND CULTURE AND RECREATION FUND Human Welfare and Neighborhood Development Child Support Services...... 14,491 14,472 12,987 1,485 Public Works, Transportation and Commerce Children and Families Commission...... 22,515 23,303 23,303 - Mayor's Office...... 544 217 217 - Mayor's Office...... 79,329 79,006 77,476 1,530 Public Works...... - 1, 775 1,775 - Total Children and Families Fund...... 116,335 116,781 113,766 3,015 544 1,992 1,992 - Culture and Recreation COMMUNITY/NEIGHBORHOOD DEVELOPMENT FUND Arts Commission...... 1,366 3,082 3,082 - Public Works, Transportation and Commerce Asian Art Museum...... 904 394 394 - Business and Economic Development...... 6,499 14,549 14,549 - Fine Arts Museums...... 3,517 4,483 4,483 - Municipal Transportation Agency...... - 2 2 - Recreation and Park Commission...... 2,731 3,081 2,878 203 Public Works...... 1,217 2,313 2,313 - 8,518 11,040 10,837 203 7,716 16,864 16,864 - Total Culture and Recreation Fund...... 9,062 13,032 12,829 203 Human Welfare and Neighborhood Development ENVIRONMENTAL PROTECTION FUND Mayor's Office...... 868 68,067 68,067 - Human Welfare and Neighborhood Development Rent Arbitration Board...... 5,425 5,460 4,811 649 Mayor's Office...... 755 7,242 7,242 - 6,293 73,527 72,878 649 General Administration and Finance Culture and Recreation City Planning...... - 7 7 - Recreation and Park Commission...... 400 115 115 - Total Environmental Protection Fund...... 755 7,249 7,249 - General Administration and Finance Administrative Services...... 1,183 960 960 - GASOLINE TAX FUND City Planning...... 2,333 986 986 - Public Works, Transportation and Commerce 3,516 1,946 1,946 - Municipal Transportation Agency...... - 705 705 - Public Utilities Commission...... - 990 990 - Total Community/Neighborhood Development Fund...... 17,925 92,452 91,803 649 Public Works...... 42,212 40, 559 40,071 488 COMMUNITY HEALTH SERVICES FUND Total Gasoline Tax Fund...... 42,212 42,254 41,766 488 Public Works, Transportation and Commerce GENERAL SERVICES FUND Public Works...... - 1,140 1,140 - Public Protection Community Health Mayor's Office...... -20 20 - Trial Courts...... 293 326 326 - Community Health Network...... 108,794 101,283 101,283 - 293 346 346 - General Administration and Finance Public Works, Transportation and Commerce Administrative Services...... - 53 53 - Public Works...... - 6 6 - Total Community Health Services Fund...... 108,794 102,476 102,476 - Culture and Recreation Fine Arts Museum...... - 925 925 - CONVENTION FACILITIES FUND General Administration and Finance Human Welfare and Neighborhood Development Assessor/Recorder...... 1,075 940 940 - Mayor's Office...... 500 1,833 1,833 - Board of Supervisors...... -41 41 - Culture and Recreation Telecommunications and Information Services...... 3,845 1,469 1,461 8 Arts Commission...... - 5 5 - Treasurer/Tax Collector...... 267 202 201 1 Administrative Services...... 58,963 58,834 56,745 2,089 5,187 2,652 2,643 9 58,963 58,839 56,750 2,089 Total General Services Fund...... 5,480 3,929 3,920 9 Total Convention Facilities Fund...... 59,463 60,672 58,583 2,089 180 181 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Schedule of Expenditures by Department Schedule of Expenditures by Department Budget and Actual – Budget Basis (Continued) Budget and Actual – Budget Basis (Continued) Special Revenue Funds Special Revenue Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Variance Variance Original Final Positive Original Final Positive Budget Budget Actual (Negative) Budget Budget Actual (Negative) GIFT FUND OPEN SPACE AND PARK FUND Public Protection Public Works, Transportation and Commerce Fire Department...... $ - $ 10 $ 10 $ - Municipal Transportation Agency...... $ - $ 16 $ 16 $ - Police Department...... - 49 49 - Public Works...... … - 1,300 1,300 - -5 959 - - 1,316 1,316 - Public Works, Transportation and Commerce Culture and Recreation Public Works...... - 544 544 - Recreation and Park Commission...... 37,512 36,535 35,894 641 Human Welfare and Neighborhood Development Total Open Space and Park Fund...... 37,512 37,851 37,210 641 Mayor's Office...... -12 12 - PUBLIC LIBRARY FUND Social Services...... 20 12 12 - Commission on Status of Women...... -5 5 - Public Works, Transportation and Commerce Public Works...... - 2,446 2,446 - 20 29 29 - - 2,446 2,446 - Culture and Recreation Culture and Recreation Arts Commission...... -16 16 - Arts Commission...... -52 52 - Fine Arts Museums...... - 1,835 1,835 - Public Library...... 82,967 83,455 80,964 2,491 Public Library...... - 705 705 - 82,967 83,507 81,016 2,491 Recreation and Park Commission...... 814 383 383 - War Memorial...... - 83 83 - Total Public Library Fund...... 82,967 85,953 83,462 2,491 814 3,022 3,022 - PUBLIC PROTECTION FUND General Administration and Finance Public Protection Administrative Services...... - 103 103 - District Attorney...... 5,527 6,110 6,110 - Total Gift Fund...... 834 3,757 3,757 - Emergency Communications Department...... 911 47,284 47,052 232 GOLF FUND Fire Department...... 1,132 637 637 - Mayor's Office...... - 248 248 - Public Works, Transportation and Commerce Police Commission...... 8,465 20,491 20,491 - Public Works...... - 27 27 - Public Defender...... 230 298 298 - Culture and Recreation Sheriff...... 2,807 2,357 2,357 - Recreation and Park Commission...... 11,670 11,577 10,072 1,505 Trial Courts...... 2,517 2,509 2,509 - Total Golf Fund...... 11,670 11,604 10,099 1,505 21,589 79,934 79,702 232 HUMAN WELFARE FUND Human Welfare and Neighborhood Development Human Welfare and Neighborhood Development Mayor's Office...... 2,578 3,086 3,086 - Commission on Status of Women...... 368 403 403 - General City Responsibilities Social Services...... 19,347 45,143 45,143 - Administrative Services ...... - 9 9 - 19,715 45,546 45,546 - Total Public Protection Fund...... 24,167 83,029 82,797 232 Total Human Welfare Fund...... 19,715 45,546 45,546 - 182 183 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Schedule of Expenditures by Department Combining Balance Sheet Budget and Actual – Budget Basis (Continued) Nonmajor Governmental Funds – Debt Service Funds Special Revenue Funds June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Variance General Certificates Other Original Final Positive Obligation of Bond Bond Participation Funds Total Budget Budget Actual (Negative) ASSETS PUBLIC WORKS, TRANSPORTATION AND COMMERCE FUND Deposits and investments with City Treasury...... $ 55,120 $ - $ -$ 55,120 Public Works, Transportation and Commerce Deposits and investments outside City Treasury...... - 32,603 - 32,603 Public Works...... $ - $ 14,682 $ 15,363 $ (681) Receivables: Human Welfare and Neighborhood Development Property taxes and penalties...... 4,564 - - 4,564 Mayor's Office...... 10,194 10,149 9,536 613 Interest and other...... - 127 - 127 General Administration and Finance Total assets...... $ 59,684 $$32,730 - $ 92,414 City Planning...... - 114 114 - Total Public Works, Transportation and Commerce Fund.. 10,194 24,945 25,013 (68) LIABILITIES AND FUND BALANCES REAL PROPERTY FUND Liabilities: Public Works, Transportation and Commerce Accounts payable...... $ 1 $ - $ -$ 1 Public Works...... - 560 560 - Deferred tax, grant and subvention revenues...... 4,253 - - 4,253 General Administration and Finance Deferred credits and other liabilities...... 16,100 -- 16,100 Administrative Services ...... 1,289 11,377 11,377 - Total Real Property Fund...... 1,289 11,937 11,937 - Total liabilities...... 20,354 - - 20,354 SAN FRANCISCO COUNTY TRANSPORTATION Fund balances: AUTHORITY FUND Restricted………………………………………………………… 39,330 32,730 - 72,060 Public Works, Transportation and Commerce Total fund balances...... 39,330 32,730 - 72,060 Board of Supervisors...... 187,232 138,064 130,095 7,969 Total liabilities and fund balances...... $ 59,684 $$32,730 - $ 92,414 Total SF County Transportation Authority Fund...... 187,232 138,064 130,095 7,969 SENIOR CITIZENS' PROGRAM FUND Human Welfare and Neighborhood Development Social Services Department...... 5,941 5,951 5,951 - Total Senior Citizens' Program Fund...... 5,941 5,951 5,951 - WAR MEMORIAL FUND Public Works, Transportation and Commerce Public Works...... - 143 143 - Culture and Recreation War Memorial...... 11,889 12,218 11,427 791 Total War Memorial Fund...... 11,889 12,361 11,570 791 Total Special Revenue Funds With Legally Adopted Budgets...... $ 801,872 $ 942,127 $ 917,132 $ 24,995 184 185 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Revenues, Expenditures, Schedule of Revenues, Expenditures, and Changes in Fund Balances and Changes in Fund Balances Nonmajor Governmental Funds – Debt Service Funds Budget and Actual – Budget Basis Year ended June 30, 2011 Debt Service Fund (In Thousands) Year ended June 30, 2011 (In Thousands) General Certificates Other General Obligation Bond Fund Obligation of Bond Variance Bond Participation Funds Total Revenues: Original Final Positive Property taxes...... $ 172,899 $ - $ - $ 172,899 Budget Budget Actual (Negative) Interest and investment income...... 915 329 - 1,244 Revenues: Rents and concessions...... - 790 - 790 Property taxes...... $ 195,598 $ 195,598 $ 172,899 $ (22,699) Intergovernmental: Interest and investment income...... - - 998 998 State...... 762 - - 762 Intergovernmental: Other...... 3,994 325 - 4,319 State...... 750 750 762 12 Total revenues...... 178,570 1,444 - 180,014 Other revenues...... - 3,994 3,994 - Expenditures: Total revenues...... 196,348 200,342 178,653 (21,689) Current: Debt service: Expenditures: Principal retirement...... 125,168 13,675 9,388 148,231 Debt service: Interest and fiscal charges...... 68,263 27,833 674 96,770 Principal retirement...... 196,348 125,168 125,168 - Bond issuance costs...... - 1,521 - 1,521 Interest and fiscal charges...... - 68,263 68,263 - Total expenditures...... 193,431 43,029 10,062 246,522 Total expenditures...... 196,348 193,431 193,431 - Deficiency of revenues Excess (deficiency) of revenues over under expenditures...... (14,861) (41,585) (10,062) (66,508) (under) expenditures...... - 6,911 (14,778) (21,689) Other financing sources (uses): Other financing sources: Transfers in...... 17,290 35,396 10,062 62,748 Transfers in...... - 17,290 17,290 - Face value of bonds issued...... - 138,445 - 138,445 Net change in fund balances...... - 24,201 2,512 (21,689) Premium on issuance of bonds...... - 11,680 - 11,680 Budgetary fund balance, July 1...... - 44,370 44,370 - Payment to refunded bond escrow agent ...... - (142,458) - (142,458) Budgetary fund balance, June 30...... $ -$ 68,571 $ 46,882 $ (21,689) Total other financing sources, net...... 17,290 43,063 10,062 70,415 Net change in fund balances...... 2,429 1,478 - 3,907 Fund balances at beginning of year...... 36,901 31,252 - 68,153 Fund balances at end of year...... $ 39,330 $ 32,730 $- $ 72,060 186 187 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Balance Sheet Combining Balance Sheet Nonmajor Governmental Funds – Capital Projects Funds Nonmajor Governmental Funds – Capital Projects Funds (continued) June 30, 2011 June 30, 2011 (In Thousands) (In Thousands) Fire Public Recreation City Earthquake Protection Moscone Library and Park Street Facilities Safety Systems Convention Improvement Projects Improvement Total Improvement Improvement Improvement Center ASSETS ASSETS Deposits and investments with City Treasury...... $ 6,569 $ 87,153 $ 16,327 $ 425,336 Deposits and investments with City Treasury...... $ 306,439 $ 562 $ 8,286 $ - Deposits and investments outside City Treasury...... - - 18,356 51,382 Deposits and investments outside City Treasury...... 31,196 - - 1,830 Receivables: Receivables: Federal and state grants and subventions...... - 1,045 4,883 5,928 Federal and state grants and subventions...... - - - - Charges for services...... - - 51 51 Charges for services...... - - - - Interest and other...... - - - 118 Interest and other...... 1 - - 117 Due from other funds...... 4,886 1,538 855 7,279 Due from other funds...... - - - - Due from / advance to component unit...... - - 1,007 1,007 Due from / advance to component unit...... ---- Deferred charges and other assets...... ---36 Deferred charges and other assets...... ---36 Total assets...... $ 11,455 $ 89,736 $ 41,479 $ 491,137 Total assets...... $ 337,636 $ 562 $ 8,286 $ 1,983 LIABILITIES AND FUND BALANCES Liabilities: LIABILITIES AND FUND BALANCES Accounts payable...... $ 2,333 $ 4,307 $ 5,279 $ 33,817 Liabilities: Accrued payroll...... 125 419 1,470 2,553 Accounts payable...... $ 18,692 $ 87 $ 25 $ 3,094 Deferred tax, grant and subvention revenues...... - 442 - 442 Accrued payroll...... 431 87 1 20 Due to other funds...... - - 815 15,546 Deferred tax, grant and subvention revenues...... - - - - Deferred credits and other liabilities...... 178 94 11,403 11,964 Due to other funds...... 5,040 - - 9,691 Bonds, loans, capital leases and other payables..... - - 6,095 15,836 Deferred credits and other liabilities...... 282 1 6 - Total liabilities...... 2,636 5,262 25,062 80,158 Bonds, loans, capital leases and other payables..... - - - 9,741 Fund balances: Total liabilities...... 24,445 175 32 22,546 Restricted………………………………………………… 8,819 84,474 16,417 431,542 Fund balances: Unassigned……………………………………………… --- (20,563) Restricted………………………………………………… 313,191 387 8,254 - Total fund balances...... 8,819 84,474 16,417 410,979 Unassigned……………………………………………… --- (20,563) Total liabilities and fund balances...... $ 11,455 $ 89,736 $ 41,479 $ 491,137 Total fund balances...... 313,191 387 8,254 (20,563) Total liabilities and fund balances...... $ 337,636 $ 562 $ 8,286 $ 1,983 188 189 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Revenues, Expenditures, Combining Statement of Revenues, Expenditures, and Changes in Fund Balances and Changes in Fund Balances Nonmajor Governmental Funds – Capital Projects Funds Nonmajor Governmental Funds – Capital Projects Funds (continued) Year Ended June 30, 2011 Year Ended June 30, 2011 (In Thousands) (In Thousands) Fire Public Recreation City Earthquake Protection Library and Park Street Facilities Safety Systems Moscone Improvement Projects Improvement Total Improve- Improve- Improve- Convention Revenues: ment ment ment Center Interest and investment income...... $ 60 $ 773 $ 58 $ 4,004 Revenues: Rents and concessions...... - - 447 447 Interest and investment income...... $ 3,013 $ 6 $ 74 $ 20 Intergovernmental: Rents and concessions...... - - - - Federal...... - - 11,936 11,936 Intergovernmental: State...... 971 6,335 8,622 15,928 Federal...... - - - - Other...... - - 4,954 4,954 State...... - - - - Other...... - 1,396 9,035 10,431 Other...... - - - - Total revenues...... 1,031 8,504 35,052 47,700 Other...... - - - - Expenditures: Total revenues...... 3,013 6 74 20 Debt service: Expenditures: Interest and fiscal charges...... - - 385 2,100 Debt service: Bond issuance costs...... - - - 640 Interest and fiscal charges...... 1,210 - - 505 Capital outlay...... 18,409 29,194 49,510 214,817 Bond issuance costs...... 640 - - - Total expenditures...... 18,409 29,194 49,895 217,557 Capital outlay...... 109,681 557 83 7,383 Excess (deficiency) of revenues Total expenditures...... 111,531 557 83 7,888 over (under) expenditures...... (17,378) (20,690) (14,843) (169,857) Excess (deficiency) of revenues Other financing sources (uses): over (under) expenditures...... (108,518) (551) (9) (7,868) Transfers in...... - 5,757 6,782 13,358 Other financing sources (uses): Transfers out...... - (77) - (51,570) Transfers in...... 313 - - 506 Issuance of bonds and loans Transfers out...... (44,563) - - (6,930) Face value of bonds issued...... - - - 79,520 Issuance of bonds and loans Premium on issuance of bonds...... - - - 5,119 Face value of bonds issued...... 79,520 - - - Other financing sources-capital leases...... 9,643 3,546 - 13,189 Premium on issuance of bonds...... 5,119 - - - Total other financing sources, net...... 9,643 9,226 6,782 59,616 Other financing sources-capital leases...... ---- Net change in fund balances...... (7,735) (11,464) (8,061) (110,241) Total other financing sources, net...... 40,389 - - (6,424) Fund balances at beginning of year...... 16,554 95,938 24,478 521,220 Net change in fund balances...... (68,129) (551) (9) (14,292) Fund balances at end of year...... $ 8,819 $ 84,474 $$ 16,417 410,979 Fund balances at beginning of year...... 381,320 938 8,263 (6,271) Fund balances at end of year...... $ 313,191 $ 387 $ 8,254 $ (20,563) 190 191 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO INTERNAL SERVICE FUNDS Combining Statement of Net Assets – Internal Service Funds June 30, 2011 (In Thousands) Internal Service Funds are used to account for the financing of goods and services provided by one department or agency to other departments or agencies on a cost reimbursement basis. Telecom- Central munication s Central Shops Fund – Accounts for Central Shops equipment (primarily vehicle) maintenance service Shops Finance Reproduction & Information charges and the related billings to various departments. Fund Corporation Fund Fund Total Assets Finance Corporation – Accounts for the lease financing services provided by the Finance Corporation to Current assets: Deposits and investments with City Treasury...... $ 2,446 $ 320 $ 516 $ 25,617 $ 28,899 City departments. On July 1, 2001 the City established the Finance Corporation Internal Service fund Receivables: because its sole purpose is to provide lease financing to the City. Previously, the activities of the Charges for services...... 134 - - - 134 Finance Corporation were reported within governmental funds. Interest and other...... - 166 61 474 701 Due from other funds ...... - 80 - - 80 (1) Reproduction Fund – Accounts for printing, design and mail services required by various City Capital leases receivable...... - 18,984 - - 18,984 departments and agencies. Total current assets...... 2,580 19,550 577 26,091 48,798 Telecommunications and Information Fund – Accounts for centralized telecommunications activities in the Noncurrent assets: City’s Wide Area Network, radio communication and telephone systems. In addition, it accounts for Restricted assets: application support provided to many department-specific and citywide systems, management of the Deposits and investments outside City Treasury...... - 77,505 - - 77,505 Capital leases receivable...... - 261,683 - - 261,683 City’s Web site, operations of the City’s mainframe computers and technology training provided to city Capital assets: personnel. It also accounts for the related billings to various departments for specific services Facilities and equipment, net of depreciation...... 488 - 433 5,211 6,132 performed and operating support from the General Fund. Deferred charges and other assets...... - 4,789 - - 4,789 Total noncurrent assets...... 488 343,977 433 5,211 350,109 Total assets...... 3,068 363,527 1,010 31,302 398,907 Liabilities Current liabilities: Accounts payable...... 1,373 603 41 3,682 5,699 Accrued payroll ...... 551 - 62 1,352 1,965 Accrued vacation and sick leave pay ...... 421 - - 1,064 1,485 Accrued workers' compensation...... - - - 156 156 Bonds, loans, capital leases, and other payables ...... - 17,105 127 313 17,545 Accrued interest payable ...... - 1,764 - - 1,764 Due to other funds...... 16 6,803 - 64 6,883 (1) Deferred credits and other liab ilities...... - 73,083 - 549 73,632 Total current liabilities...... 2,361 99,358 230 7,180 109,129 Noncurrent liabilities: Accrued vacation and sick leave pay ...... 413 - - 1,146 1,559 Accrued workers' compensation...... - - - 718 718 Other postemployment benefits obligation...... 2,837 - - 10,069 12,906 Bonds, loans, capital leases, and other payables ...... - 264,169 162 657 264,988 Total noncurrent liabilities ...... 3,250 264,169 162 12,590 280,171 Total liabilities...... 5,611 363,527 392 19,770 389,300 Net Assets Invested in capital assets, net of related debt...... 488 - 144 4,241 4,873 Unrestricted (deficit)...... (3, 031) - 474 7,291 4,734 Total net assets (deficit)...... $ (2,543) $ -$ 618 $ 11,532 $ 9,607 (1) Intra-entity due to and due from eliminated for presentation in the Statement of Net Assets - Proprietary Funds on page 33. 192 193 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Revenues, Expenses, and Combining Statement of Cash Flows – Internal Service Funds Changes in Net Assets – Internal Service Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Telecom- Telecom- Central munications Shops Finance Reproduction & Information Central munications Fund Corporation Fund Fund Total Shops Finance Reproduction & Information Cash flows from operating activities: Fund Corporation Fund Fund Total Cash received from customers...... $ 24,579 $ 20,585 $ 6,204 $ 70,747 $ 122,115 Operating revenues: Cash paid to employees for services...... (11,601) - (1,315) (27,166) (40,082) Charges for services...... $ 24,647 $ - $ 6,172 $ 70,579 $ 101,398 Cash paid to suppliers for goods and services...... (13,411) (22,685) (4,769) (43,218) (84,083) Operating expenses: Net cash provided by (used in) operating activities...... (433) (2,100) 120 363 (2,050) Personal services...... 12,176 - 1,318 28,688 42,182 Cash flows from noncapital financing activities: Transfers in...... 787 - 3 228 1,018 Contractual services...... 1,862 - 3,319 25,942 31,123 Transfers out...... - - - (459) (459) Materials and supplies...... 10,082 - 271 3,567 13,920 Net cash provided by (used in) noncapital financing activities...... 787 - 3 (231) 559 Depreciation and amortization...... 322 375 167 1,106 1,970 Cash flows from capital and related financing activities: General and administrative...... 126 - 1 271 398 Bond sale proceeds...... - 38,351 - - 38,351 Services provided by other departments...... 1,348 - 461 3,968 5,777 Acquisition of capital assets...... (242) - - (676) (918) Other...... 57 - 487 4,372 4,916 Retirement of capital lease obligation...... - (15,095) (185) (314) (15,594) Total operating expenses...... 25,973 375 6,024 67,914 100,286 Refunding of long-term debt...... - (26,835) - - (26,835) Bond issue costs paid...... - (616) - - (616) Operating income (loss)...... (1,326) (375) 148 2,665 1,112 Interest paid on long-term debt...... - (6,171) - - (6,171) Nonoperating revenues (expenses): Other capital financing increases...... - 426 - - 426 Interest and investment income...... - 6,374 - 108 6,482 Other capital financing decreases...... - (6) - - (6) Interest expense...... (57) (5,999) (3) - (6,059) Net cash (used in) capital financing activities...... (242) (9,946) (185) (990) (11,363) Total nonoperating revenues (expenses)..... (57) 375 (3) 108 423 Cash flows from investing activities: Purchases of investments with trustees...... - (43,199) - - (43,199) Income (loss) before transfers...... (1,383) - 145 2,773 1,535 Proceeds from sale of investments with trustees...... - 47,289 - - 47,289 Transfers in...... 787 - 3 228 1,018 Interest income received...... -2 -108 110 Transfers out...... - - - (459) (459) Other investing activities...... (57) - (3) - (60) Net cash provided by (used in) investing activities...... (57) 4,092 (3) 108 4,140 Change in net assets...... (596) - 148 2,542 2,094 Increase (decrease) in cash and cash equivalents...... 55 (7,954) (65) (750) (8,714) Total net assets (deficit) - beginning...... (1,947) - 470 8,990 7,513 Cash and cash equivalents - beginning of year...... 2,391 61,581 581 26,367 90,920 Total net assets (deficit) - ending...... $ (2,543) $ -$ 618 $ 11,532 $ 9,607 Cash and cash equivalents - end of year...... $ 2,446 $ 53,627 $ 516 $ 25,617 $ 82,206 Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss)...... $ (1,326) $ (375) $ 148 $ 2,665 $ 1,112 Adjustments for non-cash activities: Depreciation and amortization...... 322 375 167 1,106 1,970 Changes in assets/liabilities: Receivables, net...... (67) 15,095 32 362 15,422 Accounts payable...... 96 - (229) (5,026) (5,159) Accrued payroll...... 10 - 2 46 58 Accrued vacation and sick leave pay...... (67) - - (95) (162) Accrued workers' compensation...... - - - (90) (90) Other postemployment benefits obligation...... 632 - - 1,660 2,292 Due to other funds...... (33) - - (71) (104) Deferred credits and other liabilities...... - (17,195) - (194) (17,389) Total adjustments...... 893 (1,725) (28) (2,302) (3,162) Net cash provided by (used in) operating activities...... $ (433) $ (2,100) $ 120 $ 363 $ (2,050) Reconciliation of cash and cash equivalents to the combining statement of net assets: Deposits and investments with City Treasury: Unrestricted...... $ 2,446 $ 320 $ 516 $ 25,617 $ 28,899 Deposits and investments outside City Treasury: Restricted...... - 77,505 - - 77,505 Total deposits and investments...... 2,446 77,825 516 25,617 106,404 Less: Investments outside of City Treasury not meeting the definition of cash equivalents...... - (24,198) - - (24,198) Cash and cash equivalents at end of year on combining statement of cash flows...... $ 2,446 $ 53,627 $ 516 $ 25,617 $ 82,206 Non-cash capital and related financing activities: Acquisition of capital assets on accounts payable and capital lease…………………………………………………………… $ - $ 6,960 $ - $ 1,284 $ 8,244 194 195 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO FIDUCIARY FUNDS Combining Statement of Net Assets – Fiduciary Funds Pension and Other Employee Trust Funds June 30, 2011 Fiduciary Funds include all Trust and Agency Funds which account for assets held by the City as a (In Thousands) trustee or as an agent for individuals or other governmental units. Other Other Trust Funds Pension Employee Post-employment Trust Benefit Benefit Employees’ Retirement System – Accounts for the contributions from employees, City contributions and Fund Trust Fund Trust fund the earnings and profits from investments of monies. Disbursements are made for retirements, Employees' Health Retiree Retirement Service Health withdrawal, disability, and death benefits of the employees as well as administrative expenses. System System Care Total Health Service System – Accounts for the contributions from active and retired employees, and surviving ASSETS spouses, City contributions and the earnings and profits from investment of monies. Disbursements Deposits and investments with City Treasury...... $ 5,087 $ 73,311 $ 8,174 $ 86,572 Deposits and investments outside City Treasury: are made for medical expenses and to various health plans of the beneficiaries. Cash and deposits...... 38,894 - - 38,894 Retiree Health Care Trust - Accounts for the contributions from employees, City contributions and the Short term investments...... 726,811 - - 726,811 Alternative investments...... 1,977,187 - - 1,977,187 earnings and profits from investment of monies. Disbursements are to be made for benefits, Debt securities...... 4,268,998 - - 4,268,998 expenses and other charges properly allocable to the trust fund. Equity securities...... 7,366,821 - - 7,366,821 Real estate...... 1,266,863 - - 1,266,863 Foreign currency contracts, net...... (16,046) - - (16,046) Agency Funds Receivables: Employer and employee contributions...... 25,039 19,789 393 45,221 Agency Funds are custodial in nature and do not involve measurement of results of operations. Such Brokers, general partners and others...... 60,566 - - 60,566 funds have no equity accounts since all assets are due to individuals or entities at some future time. Interest and other...... 39,104 10,017 - 49,121 Invested in securities lending collateral...... 892,579 - - 892,579 Assistance Program Fund – Accounts for collections and advances received as an agent under various Total assets...... 16,651,903 103,117 8,567 16,763,587 human welfare and community health programs. Monies are disbursed in accordance with legal Liabilities requirements and program regulations. Accounts payable...... 15,063 26,035 - 41,098 Deposits Fund – Accounts for all deposits under the control of the City departments. Dispositions of the Estimated claims payable...... - 8,706 - 8,706 Payable to brokers...... 126,903 - - 126,903 deposits are governed by the terms of the statutes and ordinances establishing the deposit Deferred Retirement Option Program liabilities...... 17,641 - - 17,641 requirement. Payable to borrowers of securities...... 893,457 - - 893,457 Deferred credits and other liabilities...... - 40,890 5 40,895 Payroll Deduction Fund – Accounts for monies held for payroll charges including federal, state and other Total liabilities...... 1,053,064 75,631 5 1,128,700 payroll related deductions. Net Assets State Revenue Collection Fund – Accounts for various fees, fines and penalties collected by City Held in trust for pension benefits and other purposes...... $ 15,598,839 $ 27,486 $ 8,562 $ 15,634,887 departments for the State of California which are passed through to the State. Tax Collection Fund – Accounts for monies received for current and delinquent taxes which must be held pending authority for distribution. Included are prepaid taxes, disputed taxes, duplicate payment of taxes, etc. This fund also accounts for monies deposited by third parties pending settlement of litigation and claims. Upon final settlement, monies are disbursed as directed by the courts or by parties to the dispute. Transit Fund – Accounts for the quarter of one percent sales tax collected by the State Board of Equalization and deposited with the County of origin for local transportation support. The Metropolitan Transportation Commission, the regional agency responsible for administration of these monies, directs their use and distribution. Other Agency Funds – Accounts for monies held as agent for a variety of purposes. 196 197 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Changes in Fiduciary Net Assets – Fiduciary Funds Combining Statement of Changes in Assets and Liabilities – Agency Funds Pension and Other Employee Trust Funds Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Balance Balance July 1, June 30, Other Other 2010 Additions Deductions 2011 Pension Employee Post-employment Trust Benefit Benefit Assistance Program Fund Fund Trust Fund Trust fund Employees' Health Retiree ASSETS Retirement Service Health Deposits and investments with City Treasury...... $ 28,409 $ 7,625 $ 7,034 $ 29,000 Syste m Syste m Ca re Tota l Receivables: Additions: Employees' contributions...... $ 181,755 $ 120,888 $ 5,636 $ 308,279 Interest and other...... 18 303 321 - Employer contributions...... 308,823 583,341 2,832 894,996 Total assets...... $ 28,427 $ 7,928 $ 7,355 $ 29,000 Total contributions...... 490,578 704,229 8,468 1,203,275 Investment income/loss: Interest...... 208,400 474 94 208,968 LIABILITIES Dividends...... ….. 159,671 - - 159,671 Accounts payable...... $ 94 $ 1,692 $ 1,665 $ 121 Net appreciation in fair value of investments...... 2,557,950 (85) - 2,557,865 Agency obligations...... 28,333 8,509 7,963 28,879 Securities lending income...... 5,697 - - 5,697 Total investment income...... …...... 2,931,718 389 94 2,932,201 Total liabilities...... $ 28,427 $ 10,201 $ 9,628 $ 29,000 Less investment expenses: Securities lending borrower rebates and expenses...... 436 - - 436 Other investment expenses...... (44,579) - - (44,579) Total investment expenses...... (44,143) - - (44,143) Deposits Fund Total additions, net...... 3,378,153 704,618 8,562 4,091,333 ASSETS Deductions: Benefit payments...... 889,744 691,358 - 1,581,102 Deposits and investments with City Treasury...... $ 17,875 $ 42,328 $ 44,131 $ 16,072 Refunds of contributions...... 11,548 - - 11,548 Receivables: Administrative expenses...... 14,808 - - 14,808 Interest and other...... 46 61 60 47 Total deductions...... 916,100 691,358 - 1,607,458 Deferred charges and other assets...... 28,424 5,975 2,709 31,690 Change in net assets...... 2,462,053 13,260 8,562 2,483,875 Net assets at beginning of year...... 13,136,786 14,226 - 13,151,012 Total assets...... $ 46,345 $ 48,364 $ 46,900 $ 47,809 Net assets at end of year...... $ 15,598,839 $ 27,486 $ 8,562 $ 15,634,887 LIABILITIES Accounts payable...... $ 951 $ 18,640 $ 18,211 $ 1,380 Agency obligations...... 45,394 38,802 37,767 46,429 Total liabilities...... $ 46,345 $ 57,442 $ 55,978 $ 47,809 Payroll Deduction Fund ASSETS Deposits and investments with City Treasury...... $ 12,194 $ 1,864 $ - $ 14,058 Receivables: Employer and employee contributions...... 51,604 1,112 - 52,716 Total assets...... $ 63,798 $ 2,976 $ -$ 66,774 LIABILITIES Accounts payable...... $ 49,722 $ 9,751 $ - $ 59,473 Agency obligations...... 14,076 1,694 8,469 7,301 Total liabilities...... $ 63,798 $ 11,445 $ 8,469 $ 66,774 198 199 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Combining Statement of Changes in Assets and Liabilities – Combining Statement of Changes in Assets and Liabilities – Agency Funds (continued) Agency Funds (continued) Year ended June 30, 2011 Year ended June 30, 2011 (In Thousands) (In Thousands) Balance Balance Balance Balance July 1, June 30, July 1, June 30, 2010 Additions Deductions 2011 2010 Additions Deductions 2011 State Revenue Collection Fund Other Agency Funds ASSETS ASSETS Deposits and investments with City Treasury...... $ 867 $ 3,746 $ 3,862 $ 751 Deposits and investments with City Treasury...... $ 15,083 $ 192,960 $ 185,573 $ 22,470 Total assets...... $ 867 $ 3,746 $ 3,862 $ 751 Receivables: Interest and other...... 531 435 567 399 LIABILITIES Total assets...... $ 15,614 $ 193,395 $ 186,140 $ 22,869 Accounts payable...... $ 286 $ 3,772 $ 3,840 $ 218 Agency obligations...... 581 3,746 3,794 533 LIABILITIES Total liabilities...... $ 867 $ 7,518 $ 7,634 $ 751 Accounts payable...... $ 845 $ 172,676 $ 160,106 $ 13,415 Agency obligations...... 14,769 175,183 180,498 9,454 Total liabilities...... $ 15,614 $ 347,859 $ 340,604 $ 22,869 Tax Collection Fund ASSETS Total Agency Funds Deposits and investments with City Treasury...... $ - $ 2,860,130 $ 2,841,203 $ 18,927 Deposits and investments outside City Treasury...... - 402 - 402 ASSETS Receivables: Deposits and investments with City Treasury...... $ 76,162 $ 3,158,627 $ 3,131,044 $ 103,745 Interest and other...... 194,745 151,598 194,746 151,597 Deposits and investments outside City Treasury...... - 402 - 402 Total assets...... $ 194,745 $ 3,012,130 $ 3,035,949 $ 170,926 Receivables: Employer and employee contributions...... 51,604 1,112 - 52,716 LIABILITIES Interest and other...... 195,340 152,423 195,720 152,043 Accounts payable...... $ 26,072 $ 59,380 $ 84,618 $ 834 Deferred charges and other assets...... 28,424 5,975 2,709 31,690 Agency obligations...... 168,673 2,064,244 2,062,825 170,092 Total assets...... $ 351,530 $ 3,318,539 $ 3,329,473 $ 340,596 Total liabilities...... $ 194,745 $ 2,123,624 $ 2,147,443 $ 170,926 LIABILITIES Accounts payable...... $ 78,230 $ 281,661 $ 284,133 $ 75,758 Transit Fund Agency obligations...... 273,300 2,327,818 2,336,280 264,838 Total liabilities...... $ 351,530 $ 2,609,479 $ 2,620,413 $ 340,596 ASSETS Deposits and investments with City Treasury...... $ 1,734 $ 49,974 $ 49,241 $ 2,467 Receivables: Interest and other...... - 26 26 - Total assets...... $ 1,734 $ 50,000 $ 49,267 $ 2,467 LIABILITIES Accounts payable...... $ 260 $ 15,750 $ 15,693 $ 317 Agency obligations...... 1,474 35,640 34,964 2,150 Total liabilities...... $ 1,734 $ 51,390 $ 50,657 $ 2,467 200 201 Photo by Joseph Driste Statistical Section Operating Information Demographic andEconomic Information Debt Capacity Revenue Capacity Financial Trends supplementary information says abouttheCity’soverallfinancialhealth. context for understanding what theinformation inthe financial statements, note disclosures, and required This section oftheCity’s comprehensive annual financial report presents detailed information as a activities itperforms. understand how theCity’sfinancialinformation relatestotheservices theCityprovidesand These schedules contain information about theCity’s operations and resources tohelpthe reader environment within whichtheCity’sfinancialactivitiestakeplace. These schedules offerdemographic and economic indicatorstohelpthereader understand the levels ofoutstanding debtand theCity’s toissue ability additional debt inthefuture. These schedules present information tohelpthe reader assess theaffordabilityofCity’s current revenue sources, theproperty tax. These schedules contain information tohelpthereader assessmostsignificant theCity’s local performance and well-being havechanged overtime. These schedules contain trend information tohelp thereader understand how the City’s financial relevant year. Unless otherwise noted,theinformationinthese derivedfromthecomprehensiveschedules is annualfinancialreportsforthe Sources: CITY ANDCOUNTYOFSANFRANCISCO STATISTICAL SECTION 202 CITY AND COUNTY OF SAN FRANCISCO Net Assets by Component – Last Ten Fiscal Years (Accrual basis of accounting) (In Thousands) Fiscal Year 2002 (1) 2003 (2) 2004 2005 2006 2007 2008 2009 2010 2011 Governmental activities Invested in capital assets, net of related debt…………$ 887,667 $ 983,834 $ 1,096,834 $ 1,159,696 $ 1,438,010 $ 1,454,614 $ 1,436,842 $ 1,725,203 $ 1,833,733 $ 1,910,341 Restricted for: Cash and emergencies requirements by Charter (3)……………………………………………… 93,293 59,337 55,139 ------Reserve for rainy day…………………………………… - - - 48,139 121,976 133,622 117,792 98,297 39,582 33,439 Debt service…………...………………………………… 12,135 7,795 9,996 46,575 53,076 28,310 23,130 30,724 34,308 36,805 Capital projects……………….………………………… 115,052 86,912 48,313 25,101 10,589 19,128 - - 63,323 82,315 Community development……………………………… 135,308 158,591 163,875 208,532 71,207 63,043 95,136 64,031 66,251 59,763 Transportation Authority activities……………………… 142,740 149,070 135,466 75,282 23,727 10,390 1,693 2,515 1,966 1,386 Building inspection programs...... 20,601 24,353 25,284 22,066 20,691 17,213 16,475 13,959 21,837 32,112 Children and families ...... 41,668 40,444 33,655 40,090 42,849 45,531 43,666 46,273 40,886 45,827 Other purposes………………………………………… 157,082 68,436 63,326 76,068 84,531 113,606 112,219 116,032 113,917 155,152 Unrestricted (deficit) (130,525) (265,950) (325,147) (200,467) (72,038) (14,446) (261,897) (791,831) (1,062,818) (1,046,861) Total governmental activities net assets………… $ 1,475,021 $ 1,312,822 $ 1,306,741 $ 1,501,082 $ 1,794,618 $ 1,871,011 $ 1,585,056 $ 1,305,203 $ 1,152,985 $ 1,310,279 Business-type activities Invested in capital assets, net of related debt…………$ 3,115,392 $ 3,273,449 $ 3,416,154 $ 3,391,450 $ 3,438,397 $ 3,795,006 $ 3,935,008 $ 4,204,644 $ 4,277,799 $ 4,481,404 Restricted for: Debt service……………………………………………… 334,747 273,242 242,537 202,006 256,055 249,656 282,187 58,716 71,128 62,421 Capital projects………………………………………… 141,154 147,693 128,387 161,231 148,957 75,771 111,463 140,932 188,580 161,580 Other purposes………………………………………… 70,118 61,616 61,241 66,753 32,354 23,709 28,254 31,459 18,854 18,741 Unrestricted 568,599 542,813 464,658 446,039 536,670 567,122 491,437 324,395 259,533 268,328 Total business-type activities net assets………… $ 4,230,010 $ 4,298,813 $ 4,312,977 $ 4,267,479 $ 4,412,433 $ 4,711,264 $ 4,848,349 $ 4,760,146 $ 4,815,894 $ 4,992,474 Primary government Invested in capital assets, net of related debt ………… $ 4,003,059 $ 4,257,283 $ 4,512,988 $ 4,551,146 $ 4,876,407 $ 5,249,620 $ 5,371,850 $ 5,630,550 $ 5,735,844 $ 5,993,892 Restricted for: Cash and emergencies requirements by Charter………………………………………………… 93,293 59,337 55,139 ------Reserve for rainy day…………………………………… - - - 48,139 121,976 133,622 117,792 98,297 39,582 33,439 Debt service……………………………………………… 346,882 281,037 252,533 248,581 309,131 277,966 305,317 89,440 105,436 99,226 Capital projects ………………………………………… 256,206 234,605 176,700 186,332 159,546 94,899 111,463 140,932 239,209 223,694 Community development……………………………… 135,308 158,591 163,875 208,532 71,207 63,043 95,136 64,031 66,251 59,763 Transportation Authority activities……………………… 142,740 149,070 135,466 75,282 23,727 10,390 1,693 2,515 1,966 1,386 Building inspection programs...... 20,601 24,353 25,284 22,066 20,691 17,213 16,475 13,959 21,837 32,112 Children and families ...... 41,668 40,444 33,655 40,090 42,849 45,531 43,666 46,273 40,886 45,827 Other purposes………………………………………… 227,200 130,052 124,567 142,821 116,885 137,315 140,473 147,491 132,771 173,893 Unrestricted 438,074 276,863 139,511 245,572 464,632 552,676 229,540 (168,139) (414,903) (360,479) Total primary activities net assets………………… $ 5,705,031 $ 5,611,635 $ 5,619,718 $ 5,768,561 $ 6,207,051 $ 6,582,275 $ 6,433,405 $ 6,065,349 $ 5,968,879 $ 6,302,753 Notes: (1) Beginning fiscal year 2001-2002, the City established the San Francisco Finance Corporation Internal Service Fund to report the activities of the Finance Corporation because its sole purpose is to provide lease financing to the City. Previously, the operations of the Finance Corporation were accounted for in the debt service and capital projects funds. (2) In fiscal year 2002-2003, in accordance with a Charter amendment, the City transferred its Parking and Traffic Department from governmental to business-type activities. (3) The City’s Charter was amended in November 2003 and replaced the reserve for cash and emergencies requirements by Charter with the reserve for rainy day. 203 ______ This page has been intentionally left blank. CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Changes in Net Assets – Last Ten Fiscal Years Changes in Net Assets – Last Ten Fiscal Years (continued) (Accrual basis of accounting) (Accrual basis of accounting) (In Thousands) (In Thousands) Fiscal Year Fiscal Year 2002 (1) 2003 (2) 2004 2005 2006 2007 2008 2009 (3) 2010 2011 2002 (1) 2003 (2) 2004 2005 2006 2007 2008 2009 (3) 2010 2011 Expenses Governmental activities: Net (expenses)/revenue Public protection……………………………………………………… $ 717,552 $ 778,710 $ 727,580 $ 738,688 $ 780,642 $ 861,689 $ 1,020,457 $ 1,109,311 $ 1,089,309 $ 1,099,791 Governmental activities………………………………………………… $ (1,462,591) $ (1,620,222) $ (1,434,236) $ (1,391,864) $ (1,438,656) $ (1,725,123) $ (2,130,989) $ (2,259,910) $ (2,137,965) $ (2,048,516) Business-type activities………………………………………………… (170,047) (381,849) (502,330) (511,110) (511,076) (473,602) (599,691) (669,886) (600,611) (417,844) Public works, transportation and commerce……………………… 317,778 287,910 169,179 213,335 272,397 309,095 342,411 254,955 225,589 239,230 Human welfare and neighborhood development…………………… 586,188 626,306 651,250 619,753 858,396 751,034 848,195 908,449 933,039 885,194 Total primary government net expenses…………………………… $ (1,632,638) $ (2,002,071) $ (1,936,566) $ (1,902,974) $ (1,949,732) $ (2,198,725) $ (2,730,680) $ (2,929,796) $ (2,738,576) $ (2,466,360) Community health…………………………………………………… 493,856 542,480 517,066 503,259 478,844 516,321 567,410 608,733 599,741 613,883 Culture and recreation………………………………………………… 246,620 242,398 232,187 256,336 244,423 290,547 347,433 319,994 310,063 318,083 General Revenues and Other Changes in Net Assets Governmental activities: General administration and finance………………………………… 156,770 186,144 183,258 152,850 167,490 194,653 250,295 238,601 221,471 224,027 Taxes General City responsibilities………………………………………… 55,551 53,026 73,530 59,024 49,054 67,948 80,887 72,634 80,246 84,444 Property taxes……………………………………………………… $ 697,703 $ 686,858 $ 723,786 $ 920,314 $ 1,016,220 $ 1,126,992 $ 1,189,511 $ 1,302,071 $ 1,345,040 $ 1,340,590 Unallocated Interest on long-term debt……………………………… 77,335 77,827 86,131 89,690 94,923 94,060 97,694 93,387 102,635 110,142 Business taxes……………………………………………………… 274,848 276,651 264,832 292,763 323,153 337,592 396,025 388,653 354,019 391,779 Total governmental activities expenses………………………… 2,651,650 2,794,801 2,640,181 2,632,935 2,946,169 3,085,347 3,554,782 3,606,064 3,562,093 3,574,794 Sales and use tax...... 174,154 172,396 182,567 161,451 175,138 184,723 190,967 172,794 164,769 181,474 Hotel room tax...... 119,658 122,853 142,437 151,993 173,923 194,290 219,089 214,460 186,849 209,962 Business-type activities: Utility users tax...... 70,779 71,378 70,938 72,574 76,444 78,729 86,964 89,801 94,537 91,683 Airport…………………………………………………………………… 599,335 641,036 618,301 628,445 633,102 624,832 651,581 683,335 662,347 690,875 Other local taxes…………………………………………………… 79,999 84,050 113,513 152,067 170,159 211,082 155,951 126,017 194,070 251,285 Transportation………………………………………………………… 528,725 628,180 660,650 711,733 695,593 726,053 830,411 863,218 905,694 905,218 Interest and investment income……………………………………… 70,597 26,332 11,856 29,490 71,129 86,233 57,929 35,434 27,877 17,645 Port……………………………………………………………………… 58,694 61,074 61,185 54,897 55,329 61,937 67,495 71,778 73,573 68,661 Other…………………………………………………………………… 115,943 196,496 170,163 47,153 56,022 33,046 25,939 44,086 54,410 58,524 Water…………………………………………………………………… 165,362 186,579 206,211 197,848 213,584 236,824 252,802 277,162 325,242 362,802 Transfers - internal activities of primary government……………… (124,399) (178,991) (251,937) (241,600) (329,996) (451,171) (477,341) (393,259) (435,824) (337,132) Power…………………………………………………………………… 113,754 95,427 121,629 116,683 119,146 95,020 109,436 96,228 119,109 119,282 Total governmental activities……………………………………… 1,479,282 1,458,023 1,428,155 1,586,205 1,732,192 1,801,516 1,845,034 1,980,057 1,985,747 2,205,810 Hospitals……………………………………………………………… 525,045 561,673 562,188 598,160 646,149 714,349 812,399 820,236 842,488 885,294 Business-type activities: Sewer…………………………………………………………………… 159,896 153,845 150,586 160,650 160,701 168,954 182,712 184,977 201,403 201,629 Interest and investment income……………………………………… 63,530 50,215 17,620 33,268 53,161 85,692 67,217 49,691 44,471 42,299 Garages………………………………………………………………… 32,274 ------Other…………………………………………………………………… 85,425 188,446 237,692 237,102 272,873 218,184 233,244 181,759 176,064 214,993 Market………...……………………………………………………… - 894 949 1,055 1,035 1,061 1,052 1,144 1,119 1,152 Special item…………………………………………………………… - 33,000 9,245 (46,358) - 17,386 (41,026) - - - Transfers - internal activities of primary government……………… 124,399 178,991 251,937 241,600 329,996 451,171 477,341 393,259 435,824 337,132 Total business-type activities expenses………………………… 2,183,085 2,328,708 2,381,699 2,469,471 2,524,639 2,629,030 2,907,888 2,998,078 3,130,975 3,234,913 Total business-type activities……………………………………… 273,354 450,652 516,494 465,612 656,030 772,433 736,776 624,709 656,359 594,424 Total primary government expenses……………………………… $ 4,834,735 $ 5,123,509 $ 5,021,880 $ 5,102,406 $ 5,470,808 $ 5,714,377 $ 6,462,670 $ 6,604,142 $ 6,693,068 $ 6,809,707 Total primary government………………………………………… $ 1,752,636 $ 1,908,675 $ 1,944,649 $ 2,051,817 $ 2,388,222 $ 2,573,949 $ 2,581,810 $ 2,604,766 $ 2,642,106 $ 2,800,234 Program Revenues Change in Net Assets Governmental activities: Governmental activities………………………………………………… $ 16,691 $ (162,199) $ (6,081) $ 194,341 $ 293,536 $ 76,393 $ (285,955) $ (279,853) $ (152,218) $ 157,294 Charges for services: Business-type activities………………………………………………… 103,307 68,803 14,164 (45,498) 144,954 298,831 137,085 (45,177) 55,748 176,580 Public protection…………………………………………………… $ 42,254 $ 44,291 $ 40,349 $ 54,805 $ 51,874 $ 58,979 $ 66,343 $ 90,044 $ 58,980 $ 62,105 Total primary government…………………………………………… $ 119,998 $ (93,396) $ 8,083 $ 148,843 $ 438,490 $ 375,224 $ (148,870) $ (325,030) $ (96,470) $ 333,874 Public works, transportation and commerce…………………… 102,576 84,057 83,176 95,081 113,861 111,364 115,939 72,287 71,288 101,846 Human welfare and neighborhood development………………… 20,292 26,349 23,931 21,375 29,181 56,367 108,956 33,988 25,813 56,628 Changes in Net Assets Community health………………………………………………… 36,176 41,906 38,933 44,850 52,183 50,266 52,455 60,708 65,756 64,419 $400,000 Culture and recreation……………………………………………… 47,116 44,629 53,369 64,614 64,720 65,407 70,576 74,477 81,855 76,528 $300,000 General administration and finance……………………………… 53,434 36,525 43,585 41,348 55,799 10,502 20,376 33,530 35,190 37,601 Change in Net Assets Business-type General City responsibilities……………………………………… 47,050 41,123 59,609 28,956 31,647 29,604 26,980 27,377 37,806 29,316 $200,000 Activities Operating Grants and Contributions………………………………… 781,767 809,670 823,784 834,607 859,919 927,256 926,089 909,695 997,091 1,040,116 Capital Grants and Contributions…………………………………… 58,394 46,029 39,209 55,435 248,329 50,479 36,079 44,048 50,349 57,719 $100,000 Total Governmental activities program revenues………………… 1,189,059 1,174,579 1,205,945 1,241,071 1,507,513 1,360,224 1,423,793 1,346,154 1,424,128 1,526,278 $0 Change in Net Assets Governmental Business-type activities: -$100,000 Activities Charges for services: (In Thousands) (In Airport………………………………………………………………… 465,176 500,116 486,132 477,314 455,342 503,914 535,771 551,283 578,041 607,323 -$200,000 Transportation……………………………………………………… 107,455 155,656 186,390 187,913 210,692 222,115 257,341 257,083 311,311 334,140 -$300,000 Port…………………………………………………………………… 50,494 54,467 56,702 57,519 58,588 61,193 64,498 66,438 66,579 72,266 Water………………………………………………………………… 147,216 170,253 168,260 184,835 201,833 216,531 234,216 265,781 265,218 288,395 -$400,000 Power………………………………………………………………… 125,777 132,190 124,474 132,303 149,500 108,224 119,855 115,274 128,590 140,035 Hospitals…………………………………………………………… 412,874 429,128 453,607 493,596 472,327 515,092 558,167 568,210 606,276 726,522 ______Sewer………………………………………………………………… 134,595 134,745 137,806 148,888 164,703 193,411 202,549 208,654 209,843 229,216 Notes: (1) Garages……………………………………………………………… 35,645 ------Beginning fiscal year 2001-02, the City established the San Francisco Finance Corporation Internal Service Fund to report the activities of the Finance Corporation because its sole purpose is to provide lease Market……………….……………………………………………… - 1,296 1,413 1,462 1,503 1,567 1,564 1,546 1,681 1,655 financing to the City. Previously, the operations of the Finance Corporation were accounted for in the debt service and capital project funds. Operating Grants and Contributions………………………………… 282,059 164,257 169,767 180,807 188,672 183,301 181,725 186,805 182,572 204,153 (2) Capital Grants and Contributions…………………………………… 251,747 204,751 94,818 93,724 110,403 150,080 152,511 107,118 180,253 213,364 In fiscal year 2002-03, in accordance with a Charter amendment, the City transferred its Parking and Traffic Department from governmental to business-type activities. (3) Total business-type activities program revenues………………. 2,013,038 1,946,859 1,879,369 1,958,361 2,013,563 2,155,428 2,308,197 2,328,192 2,530,364 2,817,069 In fiscal year 2008-09, the City transferred its Emergency Communications Department and General Service Agency - Technology's function from Public Works, Transportation and Commerce to Public Protection Total primary government program revenues…………………… $ 3,202,097 $ 3,121,438 $ 3,085,314 $ 3,199,432 $ 3,521,076 $ 3,515,652 $ 3,731,990 $ 3,674,346 $ 3,954,492 $ 4,343,347 and General Administration and Finance. 204 205 CITY AND COUNTY OF SAN FRANCISCO Fund Balances of Governmental Funds – Last Ten Fiscal Years (Modified accrual basis of accounting) (In Thousands) Fiscal Year 2002 (1) 2003 (2) 2004 (3) 2005 2006 2007 2008 2009 (4) General Fund Reserved by charter for cash and emergency requirements…$ 97,491 $ 59,337 $ - $ - $ - $ - $ - $ - Reserved for rainy day…………………………………………… . - - 55,139 48,139 121,976 133,622 117,792 98,297 Reserved for assets not available for appropriation…………… 6,406 6,768 7,142 9,031 10,710 12,665 11,358 11,307 Reserved for encumbrances…………………………………… … 52,735 43,195 42,501 57,762 38,159 60,948 63,068 65,902 Reserved for appropriation carryforward……………………… … 61,716 26,880 35,754 36,198 124,009 161,127 99,959 91,075 Reserved for subsequent years' budgets……………...……… … 25,379 15,414 6,242 22,351 27,451 32,062 36,341 6,891 Unreserved………………………………………………………… 136,664 44,718 63,657 134,199 138,971 141,037 77,117 28,203 Total general fund………………………………………… … $ 380,391 $ 196,312 $ 210,435 $ 307,680 $ 461,276 $ 541,461 $ 405,635 $ 301,675 All other governmental funds Reserved for assets not available for appropriation……………$ 41,233 $ 25,906 $ 17,443 $ 17,683 $ 20,202 $ 19,413 $ 19,814 $ 19,781 Reserved for debt service………………………………………… 36,548 33,866 18,800 45,540 57,429 51,299 47,334 75,886 Reserved for encumbrances…………………………………… … 340,591 278,656 142,784 97,920 423,120 288,948 193,461 167,169 Reserved for appropriation carryforward……………………… … 285,508 227,818 287,690 549,571 294,340 292,234 314,051 501,006 Reserved for subsequent years' budgets……………………… … 18,604 8,004 8,005 8,004 8,004 8,004 13,504 11,245 Unreserved reported in: Special revenue funds……………………………………….. 97,167 67,988 19,043 30,809 35,243 47,445 (27,758) (69,468) Capital projects funds……………………………………….. . 44,487 40,561 10,048 7,193 13,662 (373) 2,126 (26,153) Permanent fund...……………………………………………. . 4,433 4,227 3,326 3,856 2,308 3,508 3,502 3,871 Total other governmental funds……………………………$ 868,571 $ 687,026 $ 507,139 $ 760,576 $ 854,308 $ 710,478 $ 566,034 $ 683,337 2010 (5) 2011 (5) General Fund Nonspendable…………………………………………………… … $ 14,874 $ 20,501 Restricted………………………………………………………… … 39,582 33,439 Committed………………………………………………………… … 4,677 33,431 Assigned………………………………………………………… … 132,645 240,635 Total general fund………………………………………… … $ 191,778 $ 328,006 All other governmental funds Nonspendable…………………………………………………… … $ 192 $ 192 Restricted………………………………………………………… … 861,188 831,269 Assigned………………………………………………………… … 27,493 27,622 Unassigned……………………………………………………… … (81,566) (59,523) Total other governmental funds…………………………… $ 807,307 $ 799,560 ____ Notes: (1) Beginning fiscal year 2001-02, the City established the San Francisco Finance Corporation Internal Service Fund to report the activities of the Finance Corporation because its sole purpose is to provide lease financing to the City. Previously, the operations of the Finance Corporation were accounted for in the debt service and capital project funds. (2) In fiscal year 2002-03, in accordance with a Charter amendment, the City transferred its Parking and Traffic Department from governmental to business-type activities. (3) The City’s Charter was amended in November 2003 and replaced the requirements for a cash requirement reserve and an emergency reserve with the rainy day reserve. (4) The change in reserved and unreserved fund balance in fiscal year 2009-10 is explained in Management’s Discussion and Analysis. (5) The City implemented GASB Statement No. 54 in fiscal year 2010-2011 and restated the presentation for fiscal year 2010. 206 ______ This page has been intentionally left blank. CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Changes in Fund Balances of Governmental Funds – Last Ten Fiscal Years Changes in Fund Balances of Governmental Funds – Last Ten Fiscal Years (Continued) (Modified accrual basis of accounting) (Modified accrual basis of accounting) (In Thousands) (In Thousands) Fiscal Year Fiscal Year 2002 (1) 2003 (2) 2004 2005 (3) 2006 2007 2008 (4) 2009 (4) 2010 2011 2002 (1) 2003 (2) 2004 2005 (3) 2006 2007 2008 (4) 2009 (4) 2010 2011 Revenues: Property taxes……………………………………………$ 687,150 $ 686,154 $ 721,437 $ 918,645 $ 1,008,151 $ 1,107,864 $ 1,179,688 $ 1,272,385 $ 1,331,957 $ 1,380,356 Other financing sources (uses): Business taxes………………………………………… 274,848 276,651 264,832 292,763 323,153 337,592 396,025 388,653 354,019 391,779 Transfer in……………………………………………… 267,107 226,520 204,660 271,553 224,523 217,298 244,770 352,693 302,790 304,682 Sales and use tax...... 174,154 172,396 182,567 161,451 175,138 184,723 190,967 172,794 164,769 181,474 Transfer out…………………………………………… (536,680) (423,936) (456,852) (513,423) (555,155) (668,847) (724,172) (746,178) (740,349) (630,625) Hotel room tax...... 119,658 122,853 142,437 151,993 173,923 194,290 219,089 214,460 186,849 209,962 Issuance of bonds and loans: Utility users tax...... 70,779 71,378 70,938 72,574 76,444 78,729 86,964 89,801 94,537 91,683 Face value of bonds issued……………………… 249,995 71,310 116,645 346,225 219,120 312,955 310,155 456,935 393,010 232,965 Other local taxes...... 79,999 84,050 113,513 152,067 170,159 211,082 155,951 126,017 194,070 251,285 Face value of loans issued………………………… 3,095 323 2,156 500 5,359 141 1,829 - 599 1,813 Licenses, permits and franchises……………………… 25,762 21,648 23,788 25,942 27,662 27,428 30,943 32,153 33,625 35,977 Premium on issuance of bonds…………………… - - 1,411 11,989 10,233 3,521 13,071 12,875 16,647 16,799 Fines, forfeitures and penalties………………………… 12,045 9,000 25,183 12,509 14,449 8,871 13,217 9,694 22,255 11,770 Discount on issuance of bonds…………………… (238) - - - - (1,856) - - - - Interest and investment income………………………… 65,597 25,570 11,630 28,268 70,046 83,846 54,256 33,547 27,038 17,041 Payment to refunded bond escrow agent………… (136,230) - (65,802) (38,913) - (159,610) (283,494) (120,000) - (142,458) Rent and concessions………………………………… 63,623 55,369 58,979 49,450 52,426 52,493 70,160 77,014 78,527 78,995 Other financing sources - capital leases…………… 92,373 33,520 6,165 4,542 6,882 12,789 24,254 24,881 20,746 19,769 Intergovernmental: Total other financing sources (uses)……………… (60,578) (92,263) (191,617) 82,473 (89,038) (283,609) (413,587) (18,794) (6,557) (197,055) Federal………………………………………………… 307,943 320,254 344,155 348,764 350,985 381,688 328,315 362,582 448,890 484,704 Net change in fund balances………………………… $ (243,755) $ (365,624) $ (165,764) $ 350,682 $ 247,328 $ (63,645) $ (280,270) $ 13,343 $ 14,073 $ 128,481 State…………………………………………………… 608,804 690,271 630,953 522,937 565,989 582,666 561,095 575,774 552,641 581,119 Other…………………………………………………… 33,924 24,623 18,259 25,783 23,500 15,689 15,907 15,186 7,397 32,017 Debt service as a percentage of Charges for services…………………………………… 225,547 221,883 217,647 241,750 263,994 273,057 288,689 280,407 243,128 258,015 noncapital expenditures…...………………………… 5.12% 5.84% 5.25% 5.31% 5.71% 5.51% 5.34% 5.79% 6.90% 7.07% Other……………………………………………………… 26,405 27,092 57,144 57,487 61,565 44,084 81,321 30,318 51,023 97,194 Debt service as a percentage of Total revenues………………………………………… 2,776,238 2,809,192 2,883,462 3,062,383 3,357,584 3,584,102 3,672,587 3,680,785 3,790,725 4,103,371 total expenditures…………………………………… 4.65% 5.36% 4.92% 5.08% 5.39% 5.04% 5.15% 5.51% 6.47% 6.62% ___ Expenditures Notes: Public protection………………………………………… 690,050 734,811 706,758 738,494 787,398 865,556 1,018,212 999,518 1,021,505 1,031,181 (1) Beginning fiscal year 2001-02, the City established the San Francisco Finance Corporation Internal Service Fund to report the activities of the Finance Corporation because its sole purpose Public works, transportation and commerce………… 296,411 267,034 165,555 195,896 274,669 280,907 236,569 248,161 243,454 226,920 is to provide lease financing to the City. Previously, the operations of the Finance Corporation were accounted for in the debt service and capital project funds. (2) Human welfare and neighborhood development……… 613,133 670,670 662,948 644,899 697,102 740,171 828,903 886,686 918,301 870,091 For General Obligation Bonds authorized and issued prior to the passage of Proposition 39 in 2003, transfer of the proceeds to San Francisco Community College District and San Community health……………………………………… 484,826 524,771 512,914 501,050 471,741 509,844 543,046 578,828 581,392 595,222 Francisco Unified School District was included as Human Welfare & Neighborhood Development expenditures. (3) Culture and recreation…………………………………… 238,326 252,477 273,163 239,022 256,979 286,135 309,612 313,442 303,134 310,392 Prior to fiscal year 2004-05, transfers of base rental payments from various Certificate of Participation Special Revenue Funds which provide for debt service payments were recorded as General administration and finance…………………… 164,745 163,748 153,709 135,118 161,195 167,505 215,054 190,680 187,221 191,641 current expenditures in paying departments/funds and rental income in debt service funds. Beginning fiscal year 2004-05, they were recorded as transfers. (4) General City responsibilities …………………………… 54,628 53,323 74,623 62,799 53,763 57,532 71,205 73,147 86,498 85,463 In fiscal year 2008-09, the City transferred its Emergency Communications Department and General Service Agency - Technology’s function from Public Works, Transportation and Commerce to Public Protection and General Administration and Finance. Debt service: Principal retirement…………………………………… 69,536 100,902 78,831 80,306 86,970 98,169 106,580 126,501 154,051 148,231 Interest and fiscal charges…………………………… 68,111 64,243 61,886 61,524 75,975 71,266 75,844 74,466 89,946 101,716 Bond issuance costs………………………………… 2,987 1,646 1,350 4,842 1,933 3,683 1,090 4,746 2,145 2,161 Capital outlay…………………………………………… 276,662 248,928 165,872 130,224 153,493 283,370 133,155 152,473 182,448 214,817 Total expenditures……………………………………… 2,959,415 3,082,553 2,857,609 2,794,174 3,021,218 3,364,138 3,539,270 3,648,648 3,770,095 3,777,835 Excess (deficiency) of revenues over expenditures… (183,177) (273,361) 25,853 268,209 336,366 219,964 133,317 32,137 20,630 325,536 207 208 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Assessed Value of Taxable Property (1)(3)(4) – Last Ten Fiscal Years Direct and Overlapping Property Tax Rates – Last Ten Fiscal Years (In Thousands) (Rate per $1,000 of Assessed Value) Assessed Value Exemptions (2) Total Taxable Total Overlapping Rates Fiscal Real Personal Non-reim- Reim- Redevelopment Assessed Direct Year (4) Property Property Total bursable bursable Tax Increments Value Tax Rate San Francisco San Francisco Bay Area 2002……. $ 88,866,299 $ 4,686,951 $ 93,553,250 $ 3,129,961 $ 665,145 $ 5,291,437 $ 84,466,707 1.00% City and County Debt Service 2003……. 93,467,166 4,639,579 98,106,745 3,407,736 671,640 3,777,328 90,250,041 1.00% Fiscal Unified School Community Rapid Transit (1) (2) 2004……. 99,878,960 3,848,851 103,727,811 3,706,357 689,558 3,892,143 95,439,753 1.00% Year Direct Rate Fund District College District District Total 2005……. 106,805,910 3,736,998 110,542,908 4,017,052 678,120 5,199,856 100,647,880 1.00% 2006……. 114,767,252 3,465,752 118,233,004 4,246,112 657,834 6,453,299 106,875,759 1.00% 2002$ 1.00000000 $ 0.12359506 $ 0.00040494 $ - -$ $ 1.1240 2007……. 126,074,101 3,524,897 129,598,998 4,617,851 657,144 7,333,916 116,990,087 1.00% 2003 1.00000000 0.11671113 0.00028887 - - 1.1170 2008……. 136,887,654 3,807,362 140,695,016 5,687,576 652,034 10,134,313 124,221,093 1.00% 2004 1.00000000 0.10682335 0.00017665 - - 1.1070 2009……. 152,150,004 3,943,357 156,093,361 6,193,368 657,320 8,860,502 140,382,171 1.00% 2005 1.00000000 0.12838968 0.00393518 0.01167514 - 1.1440 2010……. 164,449,745 4,093,813 168,543,558 6,751,558 660,435 9,289,538 151,842,027 1.00% 2006 1.00000000 0.12012547 0.01092226 0.00415227 0.00480000 1.1400 2011……. 162,347,329 4,066,754 166,414,083 6,910,812 663,664 11,540,067 147,299,540 1.00% 2007 1.00000000 0.09657879 0.01532351 0.01809770 0.00500000 1.1350 2008 1.00000000 0.10365766 0.01666683 0.01307551 0.00760000 1.1410 ____ 2009 1.00000000 0.10532566 0.02737873 0.02129561 0.00900000 1.1630 Source: Controller, City and County of San Francisco 2010 1.00000000 0.10839903 0.02336031 0.02154066 0.00570000 1.1590 Notes: (1) 2011 1.00000000 0.11210000 0.03020000 0.01860000 0.00310000 1.1640 Assessed value of taxable property represents all property within the City. The maximum tax rate is 1% of the full cash value or $1/$100 of the assessed value, excluding the tax rate for debt service. (2) Exemptions are summarized as follows: (a) Non-reimbursable exemptions are revenues lost to the City because of provisions of California Constitution, Article XIII(3). (b) Reimbursable exemptions arise from Article XII(25) which reimburses local governments for revenues lost through the homeowners’ Property Tax Rates exemption in Article XIII(3) (k). 1.20 (c) Tax increments are allocations made to the San Francisco Redevelopment Agency under authority of California Constitution, Article Bay Area Rapid Transit District XVI and Section 33675 of the California Health & Safety Code. Actual allocations are limited under an indebtedness agreement between the City and the Redevelopment Agency. (3) 1.15 Based on certified assessed values. (4) San Francisco Community College District Based on year end actual assessed values. 1.10 San Francisco Unified School District 1.05 1.00 Debt Service Fund (2) Property TaxRate 0.95 City and County Direct Rate (1) 0.90 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Fiscal Year _____ Notes: (1) Proposition 13 allows each county to levy a maximum tax of $1 per $100 of full cash value. Full cash value is equivalent to assessed value pursuant to Statutes of 1978, Senate Bill 1656. (2) On June 6, 1978, California voters approved a constitutional amendment to Article XIIIA of the California Constitution, commonly known as Proposition 13, that limits the taxing power of California public agencies. Legislation enacted to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that notwithstanding any other law, local agencies may not levy property taxes except to pay debt service on indebtedness approved by voters prior to July 1, 1978 or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the voting public. 209 210 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Principal Property Assessees – Current Fiscal Year and Nine Fiscal Years Ago Property Tax Levies and Collections (1)(2) – Last Ten Fiscal Years (Dollar in Thousands) (Dollar In Thousands) Fiscal Year 2011 Fiscal Year 2002 Percentage Percentage of of Total Collected within the Fiscal Year Taxable Total Taxable Taxable Taxable Asse sse d Asse sse d Asse sse d Asse sse d of the Levy Total Collections to Date (1) (2) Total Collections in Asse sse e Type of Business Value Rank Value Value Rank Value Fiscal Adjusted Percentage of Subsequent Percentage of HWA 555 Owners LLC Office, Commercial $ 904,469 1 0.57% $ - - YearLevy Amount Original LevyYears (3) Amount Adjusted Levy Paramount Group Real Estate Fund Office, Commercial 740,958 2 0.47 - - Emporium Mall LLC Retail, Commercial 472,558 3 0.30 - - 2002$ 1,010,960 $ 985,838 97.52%$ 7,366 $ 993,204 98.24% HD333 LLC Office, Commercial 386,927 4 0.24 - - SHC Embarcadero LLC Office, Commercial 383,331 5 0.24 307,562 6 0.35% 2003 1,051,921 1,028,649 97.79 5,766 1,034,415 98.34 Post-Montgomery Associates Office, Commercial 372,229 6 0.23 - - 2004 1,100,951 1,079,354 98.04 9,092 1,088,446 98.86 SF Hilton Inc Hotel 369,887 7 0.23 - - 2005 1,208,044 1,179,959 97.68 18,010 1,197,969 99.17 SHR St. Francis LLC Hotel 361,132 8 0.23 - - PPF Off One Maritime Plaza LP Office, Commercial 353,118 9 0.22 - - 2006 1,291,491 1,263,396 97.82 17,524 1,280,920 99.18 One Embarcadero Center Venture Office, Commercial 330,566 10 0.21 - - 2007 1,411,316 1,372,174 97.23 5,959 1,378,133 97.65 Embarcadero Center Associates Office, Commercial - - 1,330,244 1 1.51 555 California Street Partners Office, Commercial - - 873,194 2 0.99 2008 1,530,484 1,487,715 97.21 20,781 1,508,496 98.56 Pacific Gas & Electric Company Utilities - - 776,849 3 0.88 2009 1,731,668 1,658,599 95.78 21,463 1,680,062 97.02 Pacific Bell Utilities, Communications - - 602,740 4 0.69 2010 1,868,098 1,787,809 95.70 40,111 1,827,920 97.85 YBG Associates LLC Hotel - - 364,753 5 0.42 Knickerbocker Properties Office - - 304,688 7 0.35 2011 1,849,132 1,799,523 97.32 45,787 1,845,310 99.79 China Basin Ballpark Company LLC Possessory Interest-Stadium - - 285,347 8 0.32 ZML One Market Ltd Partnership Office, Commercial - - 275,337 9 0.31 101 California Venture Office - - 260,913 10 0.30 Property Tax Levies and Collections Total $ 4,675,175 2.94% $ 5,381,627 6.12% $2,000,000 _____ Total A djus ted Levy Source: Assessor, City and County of San Francisco $1,500,000 Notes: (1) Data for fiscal year 2010-11 updated as of July 1, 2010. (2) $1,000,000 Assessed values for fiscal years 2010-11 and 2001-02 are from the tax rolls of calendar years 2010 and 2011, respectively. Amount Collected to $500,000 Date $- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 _____ Source: Controller, City and County of San Francisco Notes: (1) Includes San Francisco Unified School District, San Francisco Community College District, Bay Area Rapid Transit District, Bay Area Air Quality Management District and San Francisco Redevelopment Agency. (2) Does not include SB-813 supplemental property taxes. (3) Collections in subsequent years reflect assessment appeals reduction. 211 212 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Ratios of Outstanding Debt by Type – Last Ten Fiscal Years Ratios of General Bonded Debt Outstanding – Last Ten Fiscal Years (In Thousands, except Per Capita Amounts) (In Thousands, except Per Capita Amounts) Governmental Activities (1) General Lease Certificates Commercial Fiscal Obligation Revenue of Capital Paper & General Less: Amounts Percentage of Year Bonds Bonds Participations Loans Leases Others (3) Subtotal Obligation Restricted for Per Taxable Assessed 2002……$ 915,122 $ 293,881 $ 255,682 $ 13,007 226,541$ $ 54,820 $ 1,759,053 Fiscal 2003…… 857,983 252,148 292,702 9,278 212,649 49,470 1,674,230 Year Bonds (1) Debt Service (1) Total Capita (2) Value (3) 2004…… 843,499 245,826 287,483 9,515 194,815 94,196 1,675,334 2005…… 1,097,050 230,738 280,561 7,961 198,703 188,602 2,003,615 2006…… 1,252,217 231,497 273,522 12,377 190,279 182,899 2,142,791 2007…… 1,172,363 250,095 416,258 11,640 185,736 177,062 2,213,154 2002$ 915,122 $ 20,395 $ 894,727 $ 1,148 0.99% 2008…… 1,120,688 283,469 408,020 12,495 174,149 170,577 2,169,398 2009…… 1,193,927 293,326 564,110 11,329 164,383 163,905 2,390,980 2003 857,983 13,304 844,679 1,090 0.89 2010…… 1,429,899 285,085 591,049 10,607 152,273 162,114 2,631,027 2004 843,499 1,533 841,966 1,089 0.84 2011…… 1,401,080 281,274 582,221 10,072 141,377 167,519 2,583,543 2005 1,097,050 33,774 1,063,276 1,367 1.00 Business-Type Activities (1) (2) Total Primary Government 2006 1,252,217 46,929 1,205,288 1,533 1.06 State of Notes, General California - Certificates Loans and Total Percentage 2007 1,172,363 35,249 1,137,114 1,423 0.91 Fiscal Revenue Obligation Revolving of Commercial Other Capital Primary of Personal Per Year Bonds Bonds Fund Loans Participations Paper Payables Leases Subtotal Government Income (5) Capita (5) 2008 1,120,688 31,883 1,088,805 1,348 0.81 2002……$ 5,104,133 2,000$ $ 179,591 $ - $ 90,000 $ 4,076 $ 1,342 $ 5,381,142 $ 7,140,195 16.76%$ 9,163 2009 1,193,927 40,907 1,153,020 1,414 0.77 2003…… 5,230,828 800 165,125 - - 33,388 4,210 5,434,351 7,108,581 16.86 9,172 2010 1,429,898 36,901 1,392,997 1,730 0.86 2004…… 5,105,883 400 150,196 - 25,000 30,995 4,891 5,317,365 6,992,699 15.60 9,043 2005…… 5,017,292 - 134,783 - 80,000 27,278 4,754 5,264,107 7,267,722 14.81 9,346 2011 1,401,080 39,330 1,361,750 1,712 0.85 2006…… 5,450,963 - 118,868 - - 22,962 5,522 5,598,315 7,741,106 14.36 9,847 2007…… 5,321,564 - 102,438 - 50,000 18,447 4,499 5,496,948 7,710,102 13.69 9,648 2008…… 5,239,031 - 89,101 - 68,000 13,749 3,843 5,413,724 7,583,122 13.03 9,385 2009…… 4,803,640 - 75,339 - 435,880 324,042 2,635 5,641,536 8,032,516 14.33 9,852 _____ 2010…… 7,009,485 - 61,140 194,112 (4) 128,660 73,322 1,416 7,468,135 10,099,162 17.82 12,542 Notes: 2011…… 7,959,399 - 46,492 193,579 150,000 31,730 652 8,381,852 10,965,395 18.29 13,789 (1) Details regarding the City's outstanding debt can be found in the notes to the financial statements. The amounts of general obligation bonds include unamortized bond discounts, bond premiums, and bond refunding loss Fiscal Year 2011 Governmental Activities Outstanding Debt Fiscal Year 2011 Business-Type Activities Outstanding Debt (2) Percentage Breakdown Percentage Breakdown Due to the revision of the population data for fiscal year 2001-02 through fiscal year 2009-10, the per capita amounts have Revenue been adjusted for fiscal year 2002 through fiscal year 2010. Population data can be found in Demographic and Economic Commercial Bonds Statistics. Capital Leases Paper & Others 94.96% 5.47% (3) (3) 6.48% Taxable property data can be found in Assessed Value of Taxable Property. Loans State of California 0.39% Revolving Fund Loans General 0.55% Obligation Bonds Capital Leases Certificates 54.23% of 0.01% Participations 22.54% Notes, Loans and Certificates Commercial Paper Lease Revenue Other Payables of 1.79% Bonds 0.38% Participations 10.89% 2.31% _____ Notes: (1) The amount of obligations for the governmental and business-type activities include unamortized bond discount, bond premium and bond refunding loss. The amount of obligations for both activities from fiscal years 2001 through 2009 have been adjusted accordingly. (2) In fiscal year 2002-03, in accordance with a Charter amendment, the City transferred its Parking and Traffic Department from governmental to business activities. (3) Includes commercial paper issued by San Francisco County Transportation Authority and the City for multiple capital projects. The amount for fiscal year 2004 to fiscal year 2010 includes obligation on 2003 Refunding Settlement Obligation Bonds S2003- R1 which finally matured on March 15, 2011. (4) Includes $22,550 in Certificates of Participation which was presented in fiscal year 2009-10 in Capital Leases. (5) See Demographic and Economic Statistics, for personal income and population data. 213 214 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Legal Debt Margin Information – Last Ten Fiscal Years Direct and Overlapping Debt (In Thousands) June 30, 2011 Fiscal Year 2002 2003 2004 2005 2006 Estimated Percentage Debt limit $ 2,712,699 $ 2,840,970 $ 3,000,644 $ 3,195,776 $ 3,419,607 Total General Applicable to City Estimated Share of District Debt Outstanding and County (1) Overlapping Debt Total net debt applicable to limit (1) 917,220 859,625 844,350 1,086,355 1,232,205 Bay Area Rapid Transit District……………………………………$ 413,865,000 32.00%$ 132,436,800 Legal debt margin$ 1,795,479 $ 1,981,345 $ 2,156,294 $ 2,109,421 $ 2,187,402 San Francisco Unified School District…………………………. 617,790,000 100.00 617,790,000 Total net debt applicable to the limit San Francisco Community College District…………………...… 372,240,000 100.00 372,240,000 as a percentage of debt limit 33.81% 30.26% 28.14% 33.99% 36.03% Subtotal, overlapping debt…………………………………………………………………………………………… 1,122,466,800 (1) City and County of San Francisco direct debt ………………………………………………………………… 1,355,991,219 Total net direct and overlapping debt………………………………………………………………………………… $ 2,478,458,019 Fiscal Year (2) Population - 2011 ...... 795,238 2007 2008 2009 2010 2011 Estimated direct and overlapping debt per capita…………….………………….……………………………..….$ 3,116.63 Debt limit $ 3,749,434 $ 4,050,223 $ 4,497,000 $ 4,853,760 $ 4,785,098 Total net debt applicable to limit (1) 1,155,944 1,098,913 1,165,141 1,386,640 1,355,992 _____ Note: Overlapping districts are those that coincide, at least in part, with the geographic boundaries of the City. This schedule estimates the portion of the outstanding debt of those overlapping districts that is borne by the residents and businesses of Legal debt margin$ 2,593,490 $ 2,951,310 $ 3,331,859 $ 3,467,120 $ 3,429,106 the City. This process recognizes that, when considering the district’s ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. Total net debt applicable to the limit (1) as a percentage of debt limit 30.83% 27.13% 25.91% 28.57% 28.34% The percentage of overlapping debt applicable is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the City’s taxable assessed value that is within the district’s boundaries and dividing it by the City’s total taxable assessed value. (2) Legal Debt Margin Calculation for Fiscal Year 2011 Source: US Census Bureau. Total assessed value $ 166,414,083 Less: non-reimbursable exemptions (2) 6,910,812 Assessed value (2) $ 159,503,271 Debt limit (three percent of valuation subject to taxation (3)) $ 4,785,098 Debt applicable to limit - general obligation bonds 1,355,992 Legal debt margin $ 3,429,106 _____ Notes: (1) Per outstanding bonds, net of unamortized bond discount, bond premium and bond refunding loss. (2) Source: Assessor, City and County of San Francisco (3) City's Administrative Code Section 2.60 Limitations on Bonded Indebtedness. "There shall be a limit on outstanding general obligation bond indebtedness of three percent of the assessed value of all taxable real and personal property, located within the City and County." 215 216 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Pledged-Revenue Coverage – Last Ten Fiscal Years Pledged-Revenue Coverage – Last Ten Fiscal Years (Continued) (In Thousands) (In Thousands) (1) San Francisco International Airport (12) Le ss: Net San Francisco Wastewater Enterprise Fiscal Operating Operating Available Debt Service Less: Net Fiscal Gross Operating Available Debt Service Year Revenues (2) Expenses (3) Revenue Principal Interest Total Coverage Year Revenues (13) Expenses (14) Adjustme nts (15) Revenue (16) Principal Interest (16) Total (16) Coverage (16) 2002 $ 496,688 $ 266,299 $ 230,389 $ 27,290 213,663$ 240,953$ 0.96 2003 533,253 295,672 237,581 52,260 224,364 276,624 0.86 2002 $ 134,595 $ 90,642 $ - $ 43,953 $ 66,006 30,604$ $ 96,610 0.45 2004 493,682 235,765 257,917 70,630 221,208 291,838 0.88 2003 134,745 90,808 - 43,937 69,871 15,820 85,691 0.51 2005 496,485 253,931 242,554 78,555 207,430 285,985 0.85 2004 138,842 129,916 57,461 66,387 - 20,233 20,233 3.28 2006 480,673 267,387 213,286 79,125 199,419 278,544 0.77 2005 151,981 139,290 36,700 49,391 - 17,219 17,219 2.87 2007 540,186 284,692 255,494 79,415 192,746 272,161 0.94 2006 170,517 140,954 35,788 65,351 - 17,219 17,219 3.80 2008 565,139 295,849 269,290 75,510 214,839 290,349 0.93 2007 199,160 151,600 49,600 97,160 33,445 16,718 50,163 1.94 2009 574,088 315,823 258,265 88,205 178,372 266,577 0.97 2008 206,648 165,245 66,109 107,512 34,500 15,698 50,198 2.14 2010 597,429 305,995 291,434 97,715 190,490 288,205 1.01 2009 210,646 169,300 77,800 119,146 35,665 14,646 50,311 2.37 2011 622,709 331,399 291,310 134,800 177,581 312,381 0.93 2010 211,899 185,512 86,880 113,267 37,130 13,183 50,313 2.25 2011 231,143 179,084 56,239 108,298 26,320 18,563 44,883 2.41 (1) The pledged-revenue coverage calculations presented in this schedule conform to the requirements of GASB Statement No. 44 and as such differs significantly from those calculated in accordance with the Airport Commission’s 1991 Master Resolution which authorized the sale and issuance of these bonds. (12) The pledged-revenue coverage calculations presented in this schedule conform to the requirements of GASB Statement No. 44 and as (2) Operating revenues consist of Airport operating revenues and interest and investment income. such differ significantly from those calculated in accordance with the bond indenture. (3) In accordance with GASB Statement No. 44, Airport operating expenses related to the pledged revenues exclude interest, (13) Gross revenue consists of charges for services, rental income and other income. depreciation and amortization. (14) In accordance with GASB Statement No. 44, Wastewater Enterprise operating expenses related to the pledged revenues exclude interest. (4) San Francisco Water Enterprise (15) Adjustments includes Depreciation and Non-Cash Expense, Changes, in Working Capital, Investment Income, SRF Loan Payments, Less: Net Other available Funds that are printed in published Annual Disclosure Reports. Fiscal Gross Operating Available Debt Service (16) Restated to agree to the published Annual Disclosure Reports for FY 2004, 2005, 2007, 2008, 2009. Year Revenues (5) Expenses (6) Adjustments(8) Revenue Principal Interest Total Coverage Port of San Francisco (17) 2002$ 156,110 $ 148,430 $ 104,662 $ 112,342 $ 7,350 $ 18,686 $ 26,036 4.31 Total Less: Net 2003 181,275 167,523 89,747 103,499 11,789 21,655 33,444 3.09 Fiscal Operating Operating Available Debt Service 2004 174,528 187,378 122,180 109,330 13,345 24,537 37,882 2.89 Year Revenues (18) Expenses (19) Revenue Principal Interest Total Coverage 2005 189,928 176,453 83,078 96,553 14,055 23,939 37,994 2.54 2006 213,499 186,934 110,638 137,203 14,790 20,585 35,375 3.88 2002 $ 53,740 $ 47,759 $ 5,981 $ 3,235 2,156$ 5,391$ 1.11 2007 241,078 202,498 112,101 150,681 16,160 48,955 65,115 2.31 2003 56,241 50,103 6,138 3,405 1,976 5,381 1.14 2008 246,885 223,052 134,215 158,048 19,170 45,023 64,193 2.46 2004 57,782 49,707 8,075 3,595 1,719 5,314 1.52 2009 272,869 248,315 125,203 149,757 25,520 44,065 69,585 2.15 2005 59,217 43,786 15,431 3,920 1,012 4,932 3.13 2010 275,041 277,970 141,615 138,686 26,605 42,990 (7) 69,595 1.99 2006 61,581 44,893 16,688 3,390 554 3,944 4.23 2011 305,678 261,927 126,126 169,877 59,365 58,759 (7) 118,124 1.44 2007 65,416 50,887 14,529 3,975 453 4,428 3.28 2008 68,111 56,406 11,705 4,070 348 4,418 2.65 2009 68,722 57,574 11,148 4,185 222 4,407 2.53 (4) The pledged-revenue coverage calculations presented in this schedule conform to the requirements of GASB Statement 2010 68,892 58,756 10,136 4,320 75 4,395 2.31 No. 44 and as such differ significantly from those calculated in accordance with the bond indenture. 2011 73,774 51,788 21,986 485 2,358 2,843 7.73 (5) Gross Revenue consists of charges for services, rental income and other income, investing activities and capacity fees. (6) In accordance with GASB Statement No. 44, Water Department operating expenses related to the pledged revenues exclude (17) The pledged-revenue coverage calculations presented in this schedule conform to the requirements of GASB Statement No. 44 and as interest. such differ significantly from those calculated in accordance with the bond indenture. (7) Interest payment was restated to exclude capitalized interest in fiscal year 2009-10. Fiscal year 2010-11 interest payment also (18) Total revenues consist of operating revenues and interest and investment income. excluded capitalized interest. (19) In accordance with GASB Statement No. 44, operating expenses related to the pledged-revenue stream exclude interest, depreciation (8) Adjustments column included adjustment to investing activities, depreciation & non-cash expenses, changes in working capital and amortization. Details regarding outstanding debt can be found in the notes to the financial statements. Operating expenses, as and other available funds presented in the published Annual Disclosure Reports. defined by the bond indenture, also excludes amortized dredging costs. (20) (21) Municipal Transportation Agency Hetch Hetchy Water and Power Less: Net Base Rental Fiscal Gross Operating Available Debt Service Payment and (22) (23) (24) Gross Me te r Le ss: Net Year Revenues Expenses Adjustme nts Revenue Principal Interest Total Coverage Fiscal Revenue Operating Available Debt Service 2002$ - $ - $ - $ - -$ -$ $ - - Year Charges (9) Expenses (10)(11) Revenue Principal Interest Total Coverage 2003 ------2002$ 13,354 $ 5,351 $ 8,003 $ 1,440 $ 1,437 2,877$ 2.78 2004 ------2003 15,633 6,227 9,406 3,274 2,312 5,586 1.68 2005 ------2004 25,604 10,430 15,174 4,943 2,854 7,797 1.95 2006 ------2005 25,623 14,071 11,552 5,193 2,573 7,766 1.49 2007 ------2006 31,116 14,960 16,156 5,471 2,317 7,788 2.07 2008 ------2007 31,801 16,907 14,894 5,734 1,989 7,723 1.93 2009 97,671 49,337 4,907 53,241 422 - 422 126.16 2008 33,091 18,038 15,053 6,017 1,747 7,764 1.94 2010 105,711 86,334 14,521 33,898 422 - 422 80.33 2009 33,970 18,879 15,091 5,165 1,395 6,560 2.30 2011 113,253 86,266 14,786 41,773 422 - 422 98.99 2010 39,538 19,018 20,520 2,680 1,149 3,829 5.36 2011 41,204 21,077 20,127 1,615 1,068 2,683 7.50 (20) The pledged-revenue coverage calculations presented in this schedule conform to the requirements of GASB Statement No. 44 and as such differ significantly from those calculated in accordance with the bond indenture. (9) The Parking Authority leased North Beach, Moscone, and San Francisco General Hospital garages to the City. In return, the (21) There were no Hetch Hetchy bonds from 2000 to 2008. City pledged to pay off the debt service with its base (lease) rental payment. Gross Meter Revenue consists of revenues from (22) Gross Revenue consists of charges for power services, rental income and other income. all meters in San Francisco except the meters on Port and Airport properties. (23) Operating Expenses only include power operating expense. (10) The annual budget for the Parking Program includes the Parking Authority that manages garages and the Parking Meter (24) Adjustments include adjustments to investment income, depreciation, non-cash items and changes to working capital. Program that maintains meters. The operating expense is the year-end total expenditures net of all debt service payments. (11) Details regarding the City’s outstanding debt can be found in the notes to the financial statements. Operating expenses related to the pledged revenue stream do not include interest, depreciation and amortization expenses. 217 218 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Demographic and Economic Statistics – Last Ten Fiscal Years Principal Employers – Current Year and Nine Years Ago (1) Per Capita Average Year 2010 Year 2001 Personal Income Personal Median Public School Unemployment Fiscal Percentage Percentage Year Population (1) (In Thousands) (2) Income (3) Age (4) Enrollment (5) Rate (6) of Total City of Total City 2002 779,281 $42,590,545 $54,654 38.3 59,521 6.5% Employer Employees Rank Employment Employees Rank Employment 2003 775,046 42,174,150 54,415 38.3 59,015 7.0% 2004 773,284 44,820,235 57,961 39.2 58,323 6.3% City and County of San Francisco.....… 25,488 1 5.59% 29,610 1 5.85% 2005 777,660 49,085,123 63,119 39.4 57,276 5.4% University of California, San Francisco… 11,639 2 2.55 13,835 2 2.95 2006 786,149 53,902,906 68,566 39.4 56,459 4.6% Wells Fargo & Co………………………… 9,089 3 1.99 6,366 5 1.36 2007 799,185 56,306,703 70,455 40.0 55,590 4.1% California Pacific Medical Center……… 6,600 4 1.45 - - - 2008 808,001 58,199,006 72,028 40.4 56,315 4.6% State of California………………………… 5,465 5 1.20 11,296 3 2.41 2009 815,358 56,037,063 68,727 38.5 56,454 7.4% United States Postal Service………….. 4,369 6 0.96 4,500 10 0.96 (7) (8) (9) (10) 2010 805,235 56,665,228 70,371 38.5 56,299 9.7% PG&E Corporation………………………… 4,080 7 0.90 5,000 8 1.07 (7) (8) (9) (10) 2011 795,238 59,938,859 75,372 38.5 56,758 9.2% Gap, Inc…………………………………… 3,783 8 0.83 - - - Kaiser Permanente……………………… 3,490 9 0.77 - - - Per Capita Personal Incom e Population San Francisco State University……….. 3,243 10 0.71 - - - Charles Schwab & Co. Inc……………… - - - 9,873 4 2.10 $80,000 800,000820,000 San Francisco Unified School District… - - - 5,579 6 1.19 $60,000 800,000 AT&T……………………………………… - - - 5,200 7 1.11 Pacific Bell/SBC Communications……… - - - 4,600 9 0.98 $40,000 780,000780,000 Total………………………………………… 77,246 16.95% 95,859 19.98% $20,000 760,000 _____ $0 760,000740,000 Source: Total City and County of San Francisco employee count is obtained from the State of California Employee Development Department. All other data is obtained from the San Francisco Business Times Book of Lists. Public School Enrollment Average Unemployment Rate Note: (1) The latest data as of calendar year-end 2010 is presented. 60,00060,000 12.0% 8.0% 10.0% 58,00058,000 6.0%8.0% 56,00056,000 6.0% 4.0% 4.0% 54,00054,000 2.0% 2.0% 52,00052,000 0.0%0.0% _____ Source: (1) US Census Bureau released on March 2010. Fiscal years 2002 – 2008 are updated from last year’s CAFR with newly available data. (2) US Bureau of Economic Analysis. Fiscal years 2002 - 2009 is updated from last year's CAFR with newly available data. (3) US Bureau of Economic Analysis. Fiscal years 2002 - 2009 is updated from last year's CAFR with newly available data. (4) US Census Bureau, American Community Survey (5) California Department of Education (6) California Employment Development Department. Notes: (7) 2010 is updated from last year's CAFR with newly available data. 2011 population was estimated by multiplying the 2010 population by the 2009 - 2010 population growth rate. (8) Personal income was estimated by assuming that its percentage of state personal income in 2010 and 2011 remained at the 2009 level of 3.6 percent. (9) Per capita personal income for 2010 and 2011 was estimated by dividing the estimated personal income for 2010 and 2011 by the reported and estimated population in 2010 and 2011, respectively. (10) Median age in 2011 was estimated by averaging the median age in 2009 and 2010. 2010 is updated from last year's CAFR with newly available data. 219 220 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO Full-Time Equivalent City Government Employees by Function (1) Operating Indicators by Function – Last Ten Fiscal Years – Last Ten Fiscal Years Fiscal Year Fiscal Year Function 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Function 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Public Protection Fire and Emergency Communications Total response time of first unit to highest priority incidents requiring Public Protection possible medical care, 90th percentile ...……………….….……..…… N/A N/A 8:09 7:59 8:01 8:04 7:36 7:06 7:10 7:19 Fire Department……………………………………...……………1,909 1,899 1,835 1,752 1,706 1,665 1,726 1,602 1,532 1,512 Police……………………………………………………………… 2,748 2,688 2,669 2,616 2,664 2,765 2,870 2,949 2,757 2,681 Police Sheriff……………………………………………………………… 921 920 937 929 944 939 951 1,016 1,048 953 Average time from dispatch to arrival on scene for highest priority (1) Other……………………………………………………………… 998 982 954 930 958 978 1,019 996 981 969 calls ………………………………..…….……………………………… 2:36 2:45 2:58 3:07 3:09 3:15 4:08 3:49 3:33 4:07 (2) Total Public Protection………………………………………… 6,576 6,489 6,395 6,227 6,272 6,347 6,566 6,563 6,318 6,115 Number of homicides per 100,000 population ………………………… N/A N/A 10.8 9.8 12.8 9.6 11.8 8.2 5.3 6.3 Percentage of San Franciscans who report feeling safe or very safe Public Works, Transportation and Commerce crossing the street (3)……………………………………………………. 42% 45% 45% 51% N/A 48% N/A 56% N/A N/A Municipal Transportation Agency……………………………… 4,629 4,569 4,518 4,386 4,232 4,374 4,358 4,528 4,358 4,160 Airport Commission……………………………………………… 1,537 1,306 1,214 1,203 1,248 1,220 1,228 1,248 1,233 1,294 Public Works, Transportation, and Commerce Department of Public Works…………………………………… 1,081 1,077 1,053 1,059 1,035 1,040 1,060 1,030 822 791 General Services Agency - Public Works Percentage of San Franciscans who rate cleanliness of neighborhood Public Utilities Commission…………………………………… 1,411 1,513 1,589 1,513 1,573 1,596 1,609 1,580 1,549 1,584 streets as good or very good (4)………………………………………… 45% N/A 52% 49% N/A 49% N/A 50% N/A 52% Other……………………………………………………………… 569 546 507 505 532 538 543 565 490 508 Number of blocks of City streets repaved………………………………… 324 292 154 186 267 243 334 310 312 427 Total Public Works, Transportation and Commerce……… 9,227 9,011 8,881 8,666 8,620 8,768 8,798 8,951 8,452 8,337 Municipal Transportation Agency Community Health Average rating of Muni's timeliness and reliability by residents of San Public Health……………………………………………………… 6,192 6,309 6,093 5,928 5,956 5,988 6,196 6,023 5,838 5,696 Francisco (1=very poor, 5=very good) (3)………………………………… 2.92 3.21 3.20 3.13 N/A 2.84 N/A 2.98 N/A 3.55 Total Community Health……………………………………… 6,192 6,309 6,093 5,928 5,956 5,988 6,196 6,023 5,838 5,696 Percentage of vehicles that run on time according to published schedules (no more than 4 minutes late or 1 minute early) (5) Human Welfare and Neighborhood Development measured at terminals and established intermediate points ……… 69.9% 70.4% 68.8% 71.0% 69.2% 70.8% 70.6% 74.4% 73.5% 72.9% Human Services………………………………………………… 1,724 1,744 1,735 1,697 1,663 1,745 1,812 1,810 1,662 1,685 Percentage of scheduled service hours delivered (6)……………………… 96.3% 96.5% 97.2% 95.3% 94.2% 94.3% 95.9% 96.9% 96.6% 96.2% Other……………………………………………………………… 305 316 317 312 306 313 312 309 296 284 Airport Total Human Welfare and Neighborhood Development…… 2,029 2,060 2,052 2,009 1,969 2,058 2,124 2,119 1,958 1,969 Percent change in air passenger volume…………………………………… -20.1% -5.9% 5.3% 5.5% 1.5% 2.8% 8.4% -0.8% 4.8% 5.3% Culture and Recreation Human Welfare and Neighborhood Development Recreation and Park Commission……………………………… 1,014 976 1,001 954 916 922 942 919 898 851 Environment Percentage of total solid waste materials diverted in a calendar year… 46% 52% 63% 67% 67% 69% 70% 72% 77% 78% Public Library……………………………………………………… 612 613 617 616 606 631 641 649 649 645 War Memorial…………………………………………………… 94 95 95 96 95 96 96 97 63 63 Culture and Recreation Other……………………………………………………………… 130 149 156 149 200 199 204 203 199 201 Recreation and Park Total Culture and Recreation………………………………… 1,850 1,833 1,869 1,815 1,817 1,848 1,883 1,868 1,809 1,760 Percentage of San Franciscans who rate the quality of the City's (3) park grounds (landscaping) as good or very good ………………… 64% 67% 67% 60% N/A 57% N/A 65% N/A N/A General Administration and Finance Citywide percentage of park maintenance standards met for all parks Administrative Services………………………………………… 420 401 405 383 378 438 505 539 647 616 inspected…………………………………………………………………… N/A N/A N/A N/A 83% 86% 88% 89% 91% 90% City Attorney……………………………………………………… 329 321 319 308 321 324 327 318 306 300 Public Library Telecommunications and Information Services……………… 333 324 313 276 261 270 307 265 252 210 Percentage of San Franciscans who rate the quality of library staff Controller………………………………………………………… 156 155 141 170 179 184 188 198 180 194 assistance as good or very good………………………………………. 77% 79% 81% 76% N/A 75% N/A 79% N/A 79% Human Resources……………………………………………… 215 213 188 172 151 156 155 144 138 119 Circulation of materials at San Francisco libraries……………………… 6,259,092 6,793,335 6,755,843 7,279,926 7,459,821 7,685,892 8,334,391 9,638,160 10,849,582 10,679,061 Treasurer/Tax Collector………………………………………… 184 185 192 197 199 208 208 212 220 211 Mayor……………………………………………………………… 75 72 56 51 48 51 57 55 49 42 Asian and Fine Arts Museums (7) Other……………………………………………………………… 470 466 466 454 491 520 571 547 554 540 Number of visitors to City-owned art museums ...……………………… 453,117 727,437 763,242 696,271 1,546,617 1,879,868 1,739,096 2,693,469 2,599,322 2,426,861 Total General Administration and Finance………………… 2,182 2,137 2,080 2,011 2,028 2,151 2,318 2,278 2,346 2,232 Source: Controller, City and County of San Francisco General City Responsibility……………………………………… 3 4 4 4 3 - - - - - (1) Subtotal annually funded positions………………………… 28,059 27,843 27,374 26,660 26,665 27,160 27,885 27,802 26,721 26,109 Measure changed from median time to average time in FY 2008. Values for FY 2001 through FY 2007 reflect median time, FY 2008 reflects average time. Capital project funded positions………..………………………… 1,857 1,875 1,567 1,597 1,588 1,628 1,750 1,519 1,928 1,885 (2) Total annually funded positions……………………………………29,916 29,718 28,941 28,257 28,253 28,788 29,635 29,321 28,649 27,994 Value for FY 2009 is based on a different source for population data than prior fiscal years. (3) Value for FY 2005 has been restated to be consistent with City Survey data. (4) Value for FY 2002 has been restated to be consistent with City Survey data. (5) Source: Controller, City and County San Francisco Values for FY 2002 through FY 2005 have been restated to be consistent as annual average for fiscal year from the MTA service (1) standards reports. (6) Data represent budgeted and funded full-time equivalent positions. Values for FY 2002 and FY 2006 have been restated to be consistent as annual average for fiscal year from the MTA service standards reports. (7) The California Academy of Sciences opened on September 27, 2008. N/A = Information is not available. Note that in most cases this is due to the fact that the City Survey, which was administered annually until 2005, then biennially afterwards, is the data source. 221 222 CITY AND COUNTY OF SAN FRANCISCO Capital Asset Statistics by Function – Last Ten Fiscal Years Fiscal Year Function 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Police protection (1) Number of stations………………… 11 11 10 10 10 10 10 10 10 10 Number of police officers………… 2,449 2,388 2,170 2,180 2,070 2,304 2,455 2,356 2,261 2,288 Fire protection (2) Number of stations………………… 45 45 45 45 48 42 42 42 42 46 Number of firefighters……………… 1,800 1,795 1,690 1,675 1,333 1,012 978 809 768 778 Public works Mile of street (3)…………………… 1,044 1,252 1,050 1,050 1,051 1,051 1,291 1,318 1,317 1,317 Number of streetlights (4)………… 42,363 41,042 41,031 41,431 41,571 42,029 42,957 43,492 43,973 44,530 Water (4) Number of services…………………168,905 169,251 169,689 169,975 170,471 170,873 172,471 172,885 172,680 173,033 Average daily consumption (million gallons)… 245.9 243.2 257.2 239.7 236.3 247.1 247.5 236.6 219.9 213.6 Mile of water mains……………… 1,450 1,450 1,450 1,453 1,457 1,457 1,457 1,465 1,465 1,473 Sewers (4) Mile of collecting sewers………… 993 993 993 993 993 993 993 993 993 993 Mile of transport/storage sewers… 15 15 15 15 15 15 17 17 17 17 Recreation and cultures Number of parks (5)……………… 230 230 209 210 220 209 222 222 220 220 Number of libraries (6)…………… 27 27 27 27 27 28 28 28 28 28 Number of library volumes (million) (6)…………… 2.2 2.3 2.1 2.4 2.6 2.7 2.8 2.9 3.3 3.5 Public school education (7) Attendance centers……………… 113 118 118 119 117 112 112 112 115 115 Number of classrooms…………… 3,428 3,418 3,439 3,434 3,390 3,256 3,269 2,723 2,779 2,797 Number of teachers, full-time equivalent……………… 3,272 3,362 3,138 3,171 3,103 3,103 3,113 3,167 3,312 3,132 Number of students……………… 60,421 59,521 57,805 57,144 56,236 55,497 56,259 55,272 55,779 55,571 _____ Sources: (1) Police Commission, City and County of San Francisco (2) Fire Commission, City and County of San Francisco (3) Department of Public Works, City and County of San Francisco (4) Public Utilities Commission, City and County of San Francisco (5) Parks and Recreation Commission, City and County of San Francisco (6) Library Commission, City and County of San Francisco (7) San Francisco Unified School District 223 APPENDIX C CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE TREASURER INVESTMENT POLICY CITY AND COUNTY OF SAN FRANCISCO OFFICE OF THE TREASURER & TAX COLLECTOR INVESTMENT POLICY Effective October 2011 1.0 Policy It is the policy of the Office of the Treasurer & Tax Collector of the City and County of San Francisco (Treasurer’s Office) to invest public funds in a manner which will preserve capital, meet the daily cash flow demands of the City, and provide a market rate of return while conforming to all state and local statutes governing the investment of public funds. 2.0 Scope This investment policy applies to all funds over which the Treasurer’s Office has been granted fiduciary responsibility and direct control for their management. 3.0 Prudence The standard of prudence to be used by the Treasurer’s Office shall be the Prudent Investor Standard as set forth by California Government Code, Section 53600.3 and 27000.3. The Section reads as follows: The Prudent Investor Standard states that when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the Treasurer’s Office, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Treasurer’s Office. This standard of prudence shall be applied in the context of managing those investments that fall under the Treasurer’s direct control. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 4.0 Objective The primary objectives, in priority order, of the Treasurer’s Office’s investment activities shall be: 4.1 Safety: Safety of principal is the foremost objective of the investment program. Investments of the Treasurer’s Office shall be undertaken in a manner that seeks to ensure the preservation of capital. To attain this objective, the Treasurer’s Office will diversify its investments. 4.2 Liquidity: The Treasurer’s Office investment portfolio will remain sufficiently liquid to enable the Treasurer’s Office to meet cash flow needs which might be reasonably anticipated. October 2011 4.3 Return on Investments: The portfolio shall be designed with the objective of generating a market rate of return without undue compromise of the first two objectives. 5.0 Delegation of Authority The Treasurer of the City and County of San Francisco (Treasurer) is authorized by Charter Section 6.106 to invest funds available under California Government Code Title 5, Division 2, Part 1, Chapter 4, Article 1. Any modification made by the Treasurer to this Investment Policy shall be ratified by the County Treasury Oversight Committee within five working days to stay in effect. 6.0 Authorized Broker/Dealer Firms The City seeks to employ a fair and unbiased broker-dealer selection process, which culminates in an array of medium to large-sized firms that provide the best investment opportunities and service to the City. The Treasurer’s Office will evaluate and classify broker-dealers based on the qualifications of the firm and firm’s assigned individual. Approved broker-dealers will be evaluated and may be classified into one of the following categories: FULL ACCESS – Broker-dealers will have significant opportunity to present investment ideas to the investment team. LIMITED ACCESS – Broker-dealers will have limited opportunity to present investment ideas to the investment team. All others may apply for Provisional status appointment. Provisional appointments will be made for: (1) Applicants who have changed firms; (2) Applicants (firm and individual) who were not approved by the Treasurer’s Office in the past year; and (3) Broker-dealers who have been classified as Limited Access, but are seeking Full Access status. Broker-dealers, who are granted Provisional status, will be treated as Full Access firms for a limited time period of up to six months. During the Provisional status period, the investment team will evaluate the applicant and provide a determination of status (Full Access, Limited Access or Not Approved). Broker- dealers may reapply for Provisional status every two years. A limited number of broker-dealers will be granted Provisional status concurrently. All broker-dealers are encouraged to apply for consideration. All applicants will be evaluated and classified based on the qualifications of the firm and the firm’s assigned individual. A score will be assigned to each applicant and will serve as the sole determinant for Full Access, Limited Access, or Not- Approved status. October 2011 All approved broker-dealers will be re-assessed annually. During the reassessment period, broker-dealers will be sent the City’s most recent Investment Policy and are expected to respond with a policy acknowledgement letter, updated profile information and a completed questionnaire. All securities shall be purchased and sold in a competitive environment. The Treasurer’s Office will not do business with a firm which has, within any consecutive 48-month period following January 1, 1996, made a political contribution in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board, to the Treasurer, any member of the Board of Supervisors, or any candidate for those offices. 7.0 Authorized & Suitable Investments Investments will be made pursuant to the California Government Code (including Section 53601 et seq.) and this investment policy to ensure sufficient liquidity to meet all anticipated disbursements. Unless otherwise noted, the maximum maturity from the trade settlement date can be no longer than five years. Types of investment vehicles not authorized by this investment policy are prohibited. In an effort to limit credit exposure, the Treasurer’s Office will maintain Eligible Issuer, Eligible Counterparty and Eligible Money Market lists for security types where appropriate. These lists are intended to guide investment decisions. Investments, at time of purchase, are limited solely to issuers, counterparties and money market funds listed; however, investment staff may choose to implement further restrictions at any time. In addition, the Treasurer’s Office shall conduct an independent credit review, or shall cause an independent credit review to be conducted, of the collateralized CD issuers to determine the creditworthiness of the financial institution. The credit review shall include an evaluation of the issuer’s financial strength, experience, and capitalization, including, but not limited to leverage and capital ratios relative to benchmark and regulatory standards (See Section 7.5). The following policy shall govern unless a variance is specifically authorized by the Treasurer and ratified by the Treasury Oversight Committee pursuant to Section 5.0. October 2011 7.1 U.S. Treasuries United States Treasury notes, bonds, bills or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. Allocation Issuer Limit Issue Limit Maximum Maturity/Term Maximum Maximum Maximum 100% of the 100% 100% 5 years portfolio value 7.2 Federal Agencies Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. Allocation Issuer Limit Maturity/Term Issue Limit Maximum Maximum Maximum Maximum 70% of the 30% 100% 5 years portfolio value 7.3 TLGP (Temporary Liquidity Guarantee Program) TLGP bonds, which are backed by the FDIC with a final maturity of less than 5 years, shall be limited to 30% of the portfolio. Allocation Issuer Limit Maturity/Term Issue Limit Maximum Maximum Maximum Maximum 30% of the portfolio No Limit No Limit 5 years value October 2011 7.4 State and Local Government Agency Obligations The Treasurer’s Office may purchase bonds, notes, warrants, or other evidences of indebtedness of any local or State agency within the 50 United States, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency or State, or by a department, board, agency, or authority of the local agency or State. Allocation Issuer Limit Maturity/Term Issue Limit Maximum Maximum Maximum Maximum 20% of the 5% No Limit 5 years portfolio value Issuer Minimum Credit Rating: Issuers must possess a long-term credit rating of the second highest ranking or better (irrespective of +/-) from two NRSROs. This limitation applies to all local and State agencies within the 50 United States with the exception of the State of California. 7.5 Public Time Deposits (Term Certificates Of Deposit) The Treasurer’s Office may invest in non-negotiable time deposits (CDs) that are FDIC insured or fully collateralized in approved financial institutions. The Treasurer’s Office will invest in FDIC-insured CDs only with those firms having at least one branch office within the boundaries of the City and County of San Francisco. Collateralized CDs are required to be fully collateralized with 110% of the type of collateral authorized in California Government Code, Section 53651 (a) through (i). The Treasurer’s Office, at its discretion, may waive the collateralization requirements for any portion that is covered by federal deposit insurance. The Treasurer’s Office shall have a signed agreement with any depository accepting City funds per Government Code Section 53649. Allocation Issuer Limit Issue Limit Maturity/Term Maximum Maximum Maximum Maximum No Limit None N/A 13 months Issuer Minimum Credit Rating (applies to collateralized CDs only): Maintenance of the minimum standards for “well-capitalized” status as established by the Federal Reserve Board. The current standards are as follows: • Tier 1 risk-based capital ratio of 8% or greater • Combined Tier 1 and Tier 2 capital ratio of 10% or greater • Leverage ratio of 5% or greater Failure to maintain minimum standards may result in early termination, subject to the discretion of the Treasurer’s Office. October 2011 7.6 Negotiable Certificates Of Deposit / Yankee Certificates Of Deposit Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a state-licensed branch of a foreign bank. Yankee certificates of deposit are negotiable instruments that are issued by a branch of a foreign bank. Allocation Issuer Limit Maturity/Term Issue Limit Maximum Maximum Maximum Maximum 30% of the No Limit N/A 5 years portfolio value Issuer Minimum Credit Rating: Issuers must possess a long-term credit rating of the second highest ranking or better (irrespective of +/-) from two NRSROs. 7.7 Bankers Acceptances Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers' acceptances. Allocation Issuer Limit Issue Limit Maximum Maturity/Term Maximum Maximum Maximum 40% of the No Limit No Limit 180 days portfolio value Issuer Minimum Credit Rating: None 7.8 Commercial Paper Obligations issued by a corporation or bank to finance short-term credit needs, such as accounts receivable and inventory, which may be unsecured or secured by pledged assets. Issuer Limit Issue Limit Maturity/Term Allocation Maximum Maximum Maximum Maximum 25% of the portfolio 10% None 270 days value Issuer Minimum Credit Rating: Issuers must possess a short-term credit rating of the second highest ranking or better (irrespective of +/-) from two NRSROs. October 2011 7.9 Medium Term Notes Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the U.S. or any state, and operating within the U.S. Issuer Limit Issue Limit Maturity/Term Allocation Maximum Maximum Maximum Maximum 15% of the portfolio 10% 5% 13 months value Issuer Minimum Credit Rating: Issuers must possess a long-term credit rating of the second highest ranking or better (irrespective of +/-) from two NRSROs. 7.10 Repurchase Agreements The Treasurer’s Office shall selectively utilize this investment vehicle with terms not to exceed 30 days, secured solely by government securities and said collateral will be delivered to a third party, so that recognition of ownership of the City and County of San Francisco is perfected. 7.11 Reverse Repurchase and Securities Lending Agreements This procedure shall be limited to occasions when the cost effectiveness dictates execution, specifically to satisfy cash flow needs or when the collateral will secure a special rate. A reverse repurchase agreement shall not exceed 45 days; the amount of the agreement shall not exceed $75MM; and the offsetting purchase shall have a maturity not to exceed the term of the repo. 7.12 Money Market Funds Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). Allocation Issuer Limit Percentage of Fund’s Maturity/Term Maximum Maximum Net Assets Maximum Maximum No Limit N/A 5% N/A Issuer Minimum Credit Rating: Fund rating must be rated in at least the second highest rating category from two NRSRO or independent investment research firms (e.g. Morningstar or Lipper). October 2011 7.13 Local Agency Investment Fund (LAIF) Investments in LAIF, a California state investment fund available to California municipalities, are authorized. 8.0 Interest and Expense Allocations The costs of managing the investment portfolio, including but not limited to: investment management; accounting for the investment activity; custody of the assets, managing and accounting for the banking; receiving and remitting deposits; oversight controls; and indirect and overhead expenses are charged to the investment earnings based upon actual labor hours worked in respective areas. Costs of these respective areas are accumulated and charged to the Pooled Investment Fund on a quarterly basis, with the exception of San Francisco International Airport costs which are charged directly through a work order. The San Francisco Controller allocates the net interest earnings of the Pooled Investment Fund. The earnings are allocated monthly based on average balances. 9.0 Safekeeping and Custody All security transactions, including collateral for repurchase agreements, entered into by the Treasurer’s Office shall be conducted on a delivery-versus-payment (DVP) basis pursuant to approved custodial safekeeping agreements. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. 10.0 Deposit and Withdrawal of Funds California Government Code Section 53684 et seq. provides criteria for outside local agencies, where the Treasurer does not serve as the agency’s treasurer, to invest in the County’s Pooled Investment Fund, subject to the consent of the Treasurer. Currently, no government agency outside the geographical boundaries of the City and County of San Francisco shall have money invested in City pooled funds. The Treasurer will honor all requests to withdraw funds for normal cash flow purposes that are approved by the San Francisco Controller. Any requests to withdraw funds for purposes other than cash flow, such as for external investing, shall be subject to the consent of the Treasurer. In accordance with California Government Code Sections 27136 et seq. and 27133(h) et seq., such requests for withdrawals must first be made in writing to the Treasurer. These requests are subject to the Treasurer’s consideration for the stability and predictability of the Pooled Investment Fund, or the adverse effect on the interests of the other depositors in the Pooled Investment Fund. Any withdrawal for such purposes shall be at the value shown on the Controller’s books as of the date of withdrawal. October 2011 11.0 Limits on Receipt of Honoraria. Gifts and Gratuities In accordance with California Government Code Section 27133(d) et seq., this Investment Policy hereby establishes limits for the Treasurer, individuals responsible for management of the portfolios, and members of the Treasury Oversight Committee on the receipt of honoraria, gifts and gratuities from advisors, brokers, dealers, bankers or others persons with whom the Treasurer conducts business. Any individual who receives an aggregate total of gifts, honoraria and gratuities in excess of those limits must report the gifts, dates and firms to the Treasurer and complete the appropriate State disclosure. These limits may be in addition to the limits set by a committee member’s own agency, by state law, or by the California Fair Political Practices Commission. Members of the Treasury Oversight Committee also must abide by the following sections of the Treasurer’s Office Statement of Incompatible Activities: Section III(A)(l)(a), (b) and (c) entitled “Activities that Conflict with Official Duties,” and Section III(C) entitled “Advance Written Determination”. 12.0 Reporting In accordance with the provisions of California Government Code Section 53646, which states that the Treasurer may render a quarterly report or a monthly report on the status of the investment portfolio to the Board of Supervisors, Controller and Mayor, the Treasurer regularly submits a monthly report. The report includes the investment types, issuer, maturity date, par value, and dollar amount invested; market value as of the date of the report and the source of the valuation; a statement of compliance with the investment policy or an explanation for non-compliance; and a statement of the ability or inability to meet expenditure requirements for six months, as well as an explanation of why moneys will not be available if that is the case. 13.0 Social Responsibility In addition to and subordinate to the objectives set forth in Section 4.0 herein, investment of funds should be guided by the following socially responsible investment goals when investing in corporate securities and depository institutions. Investments shall be made in compliance with the forgoing socially responsible investment goals to the extent that such investments achieve substantially equivalent safety, liquidity and yield compared to investments permitted by state law. 13.1 Social and Environmental Concerns Investments are encouraged in entities that support community well-being through safe and environmentally sound practices and fair labor practices. Investments are encouraged in entities that support equality of rights regardless of sex, race, age, disability or sexual orientation. Investments are discouraged in entities that manufacture tobacco products, firearms, or nuclear weapons. In addition, investments are encouraged in entities that offer banking products to serve all members of the local community, and investments are discouraged in entities that finance high-cost check-cashing and deferred deposit (payday-lending) businesses. Prior to making investments, the Treasurer’s Office will verify an entity’s support of the socially responsible goals listed above through direct contact or through the use of a third party such as the Investors Responsibility Research Center, or a similar ratings service. The entity will be evaluated at the time of purchase of the securities. October 2011 13.2 Community Investments Investments are encouraged in entities that promote community economic development. Investments are encouraged in entities that have a demonstrated involvement in the development or rehabilitation of low income affordable housing, and have a demonstrated commitment to reducing predatory mortgage lending and increasing the responsible servicing of mortgage loans. Securities investments are encouraged in financial institutions that have a Community Reinvestment Act (CRA) rating of either Satisfactory or Outstanding, as well as financial institutions that are designated as a Community Development Financial Institution (CDFI) by the United States Treasury Department, or otherwise demonstrate commitment to community economic development. 13.3 City Ordinances All depository institutions are to be advised of applicable City contracting ordinances, and shall certify their compliance therewith, if required. 14.0 Treasury Oversight Committee A Treasury Oversight Committee was established by the San Francisco Board of Supervisors in Ordinance No. 316-00. The duties of the Committee shall be the following: (a) Review and monitor the investment policy described in California Government Code Section 27133 and prepared annually by the Treasurer. (b) Cause an annual audit to be conducted to determine the Treasurer’s compliance with California Government Code Article 6 including Sections 27130 through 27137 and City Administrative Code Section 10.80-1. The audit may examine the structure of the investment portfolio and risk. This audit may be a part of the County Controller’s usual audit of the Treasurer’s Office by internal audit staff or the outside audit firm reviewing the Controller’s Annual Report. (c) Nothing herein shall be construed to allow the Committee to direct individual decisions, select individual investment advisors, brokers, or dealers, or impinge on the day-to-day operations of the Treasurer. (See California Government Code, Section 27137.) October 2011 APPENDIX I Glossary AGENCIES: Federal agency securities and/or Government-sponsored enterprises. ASK/OFFER: The price at which securities are offered. BANKERS’ ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio’s investments. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a Certificate. Large-denomination CD’s are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The CAFR is the City’s official annual financial report. It consists of three major sections: introductory, financial, and statistical. The introductory section furnishes general information on the City’s structure, services, and environment. The financial section contains all basic financial statements and required supplementary information, as well as information on all individual funds and discretely presented component units not reported separately in the basic financial statements. The financial section may also include supplementary information not required by GAAP. The statistical section provides trend data and nonfinancial data useful in interpreting the basic financial statements and is especially important for evaluating economic condition. COUPON: (a) The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DEPOSITORY INSTITUTIONS: These institutions hold City and County moneys in the forms of certificates of deposit (negotiable or term), public time deposits and public demand accounts. October 2011 DERIVATIVES: (l) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FDIC DEPOSIT INSURANCE COVERAGE: The FDIC is an independent agency of the United States government that protects against the loss of insured deposits if an FDIC-insured bank or savings association fails. Deposit insurance is backed by the full faith and credit of the United States government. Since the FDIC was established, no depositor has ever lost a single penny of FDIC-insured funds. FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance also covers the Treasury Liquidity Guarantee Program (TLGP). FDIC insurance does not, however, cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities. There is no need for depositors to apply for FDIC insurance or even to request it. Coverage is automatic. To ensure funds are fully protected, depositors should understand their deposit insurance coverage limits. The FDIC provides separate insurance coverage for deposits held in different ownership categories such as single accounts, joint accounts, Individual Retirement Accounts (IRAs) and trust accounts. Basic FDIC Deposit Insurance Coverage Limits* Single Accounts (owned by one person) $250,000 per owner Joint Accounts (two or more persons) $250,000 per co-owner IRAs and certain other retirement accounts $250,000 per owner Trust Accounts $250,000 per owner per beneficiary subject to specific limitations and requirements** *The financial reform bill, officially named the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, made the $250,000 FDIC coverage limit permanent. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L’s, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL FUNDS RATE: The rate of interest that depository institutions lend monies overnight to other depository institutions. Also referred to as the overnight lending rate.This rate is currently pegged by the Federal Reserve through open-market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks), which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. October 2011 FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation’s purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): Freddie Mac’s mission is to provide liquidity, stability and affordability to the housing market. Congress defined this mission in (their) 1970 charter. Freddie Mac buys mortgage loans from banks, thrifts and other financial intermediaries, and re-sells these loans to investors, or keeps them for their own portfolio, profiting from the difference between their funding costs and the yield generated by the mortgages. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FmHA mortgages. The term “pass-throughs” is often used to describe Ginnie Maes. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase—reverse repurchase agreements that establishes each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. October 2011 MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve’s most important and most flexible monetary policy tool. PAR VALUE: The principal amount of a bond returned by the maturity date. PORTFOLIO: Collection of securities held by an investor. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)- registered securities broker-dealers, banks, and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state—the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. PUBLIC TIME DEPOSITS (Term Certificates Of Deposit): Time deposits are issued by depository institutions against funds deposited for a specified length of time. Time deposits include instruments such as deposit notes. They are distinct from certificates of deposit (CDs) in that interest payments on time deposits are calculated in a manner similar to that of corporate bonds whereas interest payments on CDs are calculated similar to that of money market instruments. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security “buyer” in effect lends the “seller” money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is, increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection. October 2011 SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE l5(C))3-1: See Uniform Net Capital Rule. STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve. TLGP: Treasury Liquidity Guarantee Program. The FDIC has created the Treasury Liquidity Guaranty Program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies. The TLGP is expected to end on June 30, 2012. TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. October 2011 APPENDIX D FORM OF CONTINUING DISCLOSURE CERTIFICATE $251,100,000 $38,265,000 CITY AND COUNTY OF SAN FRANCISCO CITY AND COUNTY OF SAN FRANCISCO GENERAL OBLIGATION BONDS GENERAL OBLIGATION BONDS SERIES 2012D SERIES 2012E This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City and County of San Francisco (the "City") in connection with the issuance of the bonds captioned above (the "Bonds"). The 2012D Bonds are issued pursuant to Resolution No. 528-08 and Resolution No. 230-12, adopted by the Board of Supervisors of the City on December 16, 2008 and June 12, 2012, respectively, and duly approved by the Mayor of the City on December 19, 2008 and June 18, 2012, respectively (together, the "2012D Resolution"). The 2012E Bonds are issued pursuant to Resolution No. 516-10 and Resolution No. 231-12, adopted by the Board of Supervisors of the City on November 2, 2010 and June 12, 2012, respectively, and duly approved by the Mayor of the City on November 5, 2010 and June 18, 2012, respectively (together, the "2012E Resolution," and with the 2012D Resolution, the "Resolutions"). 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 and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). SECTION 2. Definitions. 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 or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries) including, but not limited to, the power to vote or consent with respect to any Bonds or to dispose of ownership of any Bonds; or (b) is treated as the owner of any Bonds for federal income tax purposes. "Dissemination Agent" shall mean the City, acting in its capacity as Dissemination Agent under this Disclosure Certificate, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Holder" shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in such depository system. "Listed Events" shall mean any of the events listed in Section 5(a) and 5(b) of this Disclosure Certificate. "MSRB" shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to D-1 be made through the Electronic Municipal Market Access (EMMA) website of the MSRB currently located at http://emma.msrb.org. "Participating Underwriter" shall mean any of the original underwriters or purchasers of the Bonds required to comply with the Rule in connection with offering of the Bonds. "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. SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than 270 days after the end of the City's fiscal year (which is June 30), commencing with the report for the 2011-12 Fiscal Year (which is due not later than March 27, 2013), provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. If the Dissemination Agent is not the City, the City shall provide the Annual Report to the Dissemination Agent not later than 15 days prior to said date. The Annual Report must be submitted in electronic format and accompanied by such identifying information as is prescribed by the MSRB, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, that if the audited financial statements of the City are not available by the date required above for the filing of the Annual Report, the City shall submit unaudited financial statements and submit the audited financial statements as soon as they are available. If the City's Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(e). (b) If the City is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the City shall send a notice to the MSRB in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall (if the Dissemination Agent is other than the City), file a report with the City certifying the date that the Annual Report was provided to the MSRB pursuant to this Disclosure Certificate. SECTION 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following information, as required by the Rule: (a) the audited general purpose financial statements of the City prepared in accordance with generally accepted accounting principles applicable to governmental entities; (b) a summary of budgeted general fund revenues and appropriations; (c) a summary of the assessed valuation of taxable property in the City; (d) a summary of the ad valorem property tax levy and delinquency rate; (e) a schedule of aggregate annual debt service on tax-supported indebtedness of the City; and (f) summary of outstanding and authorized but unissued tax-supported indebtedness of the City. Any or all of the items listed above may be set forth in a document or set of documents, or may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB website. If the document included by reference is a final official statement, it must be available from the MSRB. The City shall clearly identify each such other document so included by reference. D-2 SECTION 5. Reporting of Significant Events. (a) The City shall give, or cause to be given, notice of the occurrence of any of the following events numbered 1-9 with respect to the Bonds not later than ten business days after the occurrence of the event: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB) or adverse tax opinions; 6. Tender offers; 7. Defeasances; 8. Rating changes; or 9. Bankruptcy, insolvency, receivership or similar event of the obligated person. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under State or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) The City shall give, or cause to be given, notice of the occurrence of any of the following events numbered 10-16 with respect to the Bonds not later than ten business days after the occurrence of the event, if material: 10. Unless described in paragraph 5(a)(5), other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 11. Modifications to rights of Bond holders; 12. Unscheduled or contingent Bond calls; 13. Release, substitution, or sale of property securing repayment of the Bonds; 14. Non-payment related defaults; 15. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or 16. Appointment of a successor or additional trustee or the change of name of a trustee. (c) The City shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 3, as provided in Section 3(b). D-3 (d) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws. (e) If the City learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsection 5(b)(12) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Resolutions. SECTION 6. Termination of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(e). 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 shall have only such duties as are specifically set forth in this Disclosure Certificate. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend or waive this Disclosure Certificate or any provision of this Disclosure Certificate, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 3(b), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of the City Attorney or nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the 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 owners of a majority in aggregate principal amount of the Bonds or (ii) does not, in the opinion of the City Attorney or nationally recognized bond counsel, materially impair the interests of the Holders. 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 or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements: (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5; and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. 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 D-4 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. Remedies. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Participating Underwriter, Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate to cause the City to comply with its obligations under this Disclosure Certificate; provided that any such action may be instituted only in a federal or state court located in the City and County of San Francisco, State of California, and that 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. SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: August 29, 2012. CITY AND COUNTY OF SAN FRANCISCO Benjamin Rosenfield Controller Approved as to form: DENNIS J. HERRERA CITY ATTORNEY By: Deputy City Attorney D-5 CONTINUING DISCLOSURE CERTIFICATE EXHIBIT A FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of City: CITY AND COUNTY OF SAN FRANCISCO Name of Bond Issue: CITY AND COUNTY OF SAN FRANCISCO GENERAL OBLIGATION BONDS, SERIES 2012D AND SERIES 2012E Date of Issuance: August 29, 2012 NOTICE IS HEREBY GIVEN to the Municipal Securities Rulemaking Board that the City has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate of the City and County of San Francisco, dated August 29, 2012. The City anticipates that the Annual Report will be filed by ______. Dated:______ CITY AND COUNTY OF SAN FRANCISCO By: [to be signed only if filed] Title: D-6 APPENDIX E DTC AND THE BOOK ENTRY ONLY SYSTEM The information in numbered paragraphs 1-10 of this Appendix E, concerning The Depository Trust Company, New York, New York ("DTC") and DTC's book-entry system, has been furnished by DTC for use in official statements and the City takes no responsibility for the completeness or accuracy thereof. The City cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest or principal with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 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. As used in this appendix, "Securities" means the Bonds, "Issuer" means the City, and "Agent" means the Paying Agent. Information Furnished by DTC Regarding its Book-Entry Only System 1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the securities (the "Securities"). The Securities 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 Security certificate will be issued for the Securities, in the aggregate principal amount of such issue, and will be deposited with DTC. 2. DTC, the world's largest securities 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. DTCC is owned by the 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 a Standard & Poor's rating of AA+. 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. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("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 Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial E-1 Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities 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 Securities 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 Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities 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. 5. 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. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Redemption proceeds, distributions, and dividend payments on the Securities 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 Issuer or Agent, 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, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, 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. 9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. 10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. By written notice of the Trustee, DTC will modify its practice and observe a pro rata reduction of principal with respect to the Bonds. E-2 Discontinuation of Book-Entry Only System; Payment to Beneficial Owners In the event that the book-entry system described above is no longer used with respect to the Bonds, the following provisions will govern the registration, transfer and exchange of the Bonds. Payment of the interest on any Bond shall be made by check mailed on the interest payment date to the owner at the owner's address at it appears on the registration books described below as of the Record Date (as defined herein). The City Treasurer will keep or cause to be kept, at the office of the City Treasurer, or at the designated office of any registrar appointed by the City Treasurer, sufficient books for the registration and transfer of the Bonds, which shall at all times be open to inspection, and, upon presentation for such purpose, the City Treasurer shall, under such reasonable regulations as he or she may prescribe, register or transfer or cause to be registered or transferred, on said books, Bonds as hereinbefore provided. Any Bond may, in accordance with its terms, be transferred, upon the registration books described above, by the person in whose name it is registered, in person or by the duly authorized attorney of such person, upon surrender of such Bond for cancellation, accompanied by delivery of a duly executed written instrument of transfer in a form approved by the City Treasurer. Any Bonds may be exchanged at the office of the City Treasurer for a like aggregate principal amount of other authorized denominations of the same interest rate and maturity. Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the designated City officials shall execute and the City Treasurer shall authenticate and deliver a new Bond or Bonds of the same series, interest rate and maturity, for a like aggregate principal amount. The City Treasurer shall require the payment by any Bond owner requesting any such transfer of any tax or other governmental charge required to be paid with respect to such transfer or exchange. No transfer or exchange of Bonds shall be required to be made by the City Treasurer during the period from the Record Date (as defined in this Official Statement) next preceding each interest payment date to such interest payment date or after a notice of redemption shall have been mailed with respect to such Bond. E-3 APPENDIX F PROPOSED FORMS OF OPINIONS OF CO-BOND COUNSEL [Closing Date] City and County of San Francisco 1 Dr. Carlton B. Goodlett Place San Francisco, California 94102 Citigroup Global Markets Inc. 390 Greenwich Street New York, New York 10013 We have acted as co-bond counsel in connection with the issuance and delivery by the City and County of San Francisco (the “City”) of $251,100,000 aggregate original principal amount of its General Obligation Bonds, Series 2012D (the “Series 2012D Bonds”). In that regard, we examined a certified copy of the record of proceedings of the City, together with various accompanying certificates, pertaining to the authorization and issuance of the Series 2012D Bonds. The record of proceedings includes (i) proceedings relating to calling and holding a special election on November 4, 2008 to authorize $887,400,000 general obligation bonds of the City (the “Bonds”) for building and/or rebuilding and improving the earthquake safety of San Francisco General Hospital and Trauma Center, including among other things Ordinance No. 123-08 duly adopted by the Board of Supervisors (the “Board of Supervisors”) of the City on July 22, 2008 and approved by the Mayor on July 24, 2008 calling and providing for the November 4, 2008 special election on the Bonds and Resolution No. 503-08 duly adopted by the Board of Supervisors on December 9, 2008 and approved by the Mayor on December 11, 2008, declaring the results of the special election on the Bonds; (ii) Resolution No. 528-08 duly adopted by the Board of Supervisors on December 16, 2008 and approved by the Mayor on December 19, 2008 providing for the issuance of the Bonds from time to time; (iii) Resolution 230-12 duly adopted by the Board of Supervisors on June 12, 2012 and approved by the Mayor on June 18, 2012, providing for the sale of the Series 2012D Bonds (together with Resolution 528-08, the “Resolutions”); (iv) the Certificate Awarding the Bonds with respect to the Series 2012D Bonds executed by the Controller of the City on August 14, 2012 pursuant to the Resolutions (the “Certificate of Award”); and (v) certificates of officers of the City, the City’s co-financial advisors and the purchaser of the Series 2012D Bonds as to various factual matters. The Series 2012D Bonds are dated the date of this opinion, mature on June 15 of each of the years 2013 to 2032, inclusive, in the amounts for each year provided in the Certificate of Award, and will bear interest from their date, payable semiannually on June 15th and December 15th of each year commencing on December 15, 2012, at the interest rate for each maturity provided in the Certificate of Award. The Series 2012D Bonds are subject to optional redemption in advance of their maturity upon the terms provided in the Certificate of Award. Based upon this examination, we are of the opinion that: 1. The proceedings described above show lawful authority for the issuance and sale of the Series 2012D Bonds pursuant to the Constitution and laws of the State of California and the City Charter, including a proposition approved by not less than a two-thirds vote of the qualified electors of the City voting at a special election held in the City on November 4, 2008, and the Resolutions. F-1 2. The Series 2012D Bonds have been duly and validly authorized and issued in accordance with the Constitution and laws of the State of California, the City Charter and the Resolutions and are valid and legally binding general obligations of the City in accordance with their tenor and terms, payable from ad valorem taxes levied against all of the taxable property in the City without limitation as to rate or amount (except for certain personal property which is taxable at limited rates). The Board of Supervisors has the authority and is obligated to levy such taxes for payment of the principal of and interest on the Series 2012D Bonds. 3. Interest on the Series 2012D Bonds under present law is not included in “gross income” for federal income tax purposes and thus is exempt from federal income taxes based on gross income. This opinion is subject to compliance by the City with its covenant to comply with all requirements which must be met in order for interest on the Series 2012D Bonds not to be included in gross income for federal income tax purposes under present law. The City has the power to comply with its covenant. If the City were to fail to comply with these requirements, interest on the Series 2012D Bonds could be included in gross income for federal income tax purposes retroactive to the date the Series 2012D Bonds are issued. Interest on the Series 2012D Bonds is not an item of tax preference for calculation of an alternative minimum tax for individuals or corporations under present law. Interest on the Series 2012D Bonds will be taken into account, however, in computing an adjustment used in determining the alternative minimum tax for certain corporations. Ownership of the Series 2012D Bonds may result in other federal tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Series 2012D Bonds. 4. Interest on the Series 2012D Bonds is exempt from present California personal income taxes under present California law. Ownership of the Series 2012D Bonds may result in other state and local tax consequences to certain taxpayers and we express no opinion with respect to any such state and local tax consequences with respect to the Series 2012D Bonds. The rights of registered owners of the Series 2012D Bonds, the obligations of the City and the enforceability of the Series 2012D Bonds and the Resolutions may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights. Enforcement of provisions of the Series 2012D Bonds and the Resolutions by equitable or similar remedies may be subject to general principles of law or equity governing such remedies, including the exercise of judicial discretion whether to grant any particular form of relief. Enforcement of provisions of the Series 2012D Bonds and the Resolutions is also subject to statutes, public policy considerations and court decisions that may limit legal remedies imposed in actions against governmental entities in the State of California. This opinion is based upon facts known or certified to us and laws in effect on its date and speaks as of that date. The opinions stated in this letter are expressions of professional judgment based upon such facts and law and are not a guaranty of a result if the validity or tax-exempt status of the Series 2012D Bonds are challenged. We have not undertaken any obligation to revise or supplement this opinion to reflect any facts or circumstances that may come to our attention after the date of this opinion or any changes in law that may occur after that date. In addition, we have not undertaken any obligation to assist the City in complying with those requirements described in paragraph 3 above which the City must meet after the date of this opinion in order for interest on the Series 2012D Bonds not to be included in gross income for federal income tax purposes under present law. Respectfully submitted, F-2 [Closing Date] City and County of San Francisco 1 Dr. Carlton B. Goodlett Place San Francisco, California 94102 Citigroup Global Markets Inc. 390 Greenwich Street New York, New York 10013 We have acted as co-bond counsel in connection with the issuance and delivery by the City and County of San Francisco (the “City”) of $38,265,000 aggregate original principal amount of its General Obligation Bonds, Series 2012E (the “Series 2012E Bonds”). In that regard, we examined a certified copy of the record of proceedings of the City, together with various accompanying certificates, pertaining to the authorization and issuance of the Series 2012E Bonds. The record of proceedings includes (i) proceedings relating to calling and holding a special election on June 10, 2010 to authorize $412,300,000 general obligation bonds of the City (the “Bonds”) for the construction, acquisition, improvement, retrofitting, rehabilitation and completion of earthquake safety and emergency responsiveness facilities and infrastructure, including among other things Ordinance No. 40-10 duly adopted by the Board of Supervisors (the “Board of Supervisors”) of the City on February 22, 2010 and approved by the Mayor on February 26, 2010 calling and providing for the June 8, 2010 special election on the Bonds and Resolution No. 286-10 duly adopted by the Board of Supervisors on June 29, 2010 and approved by the Mayor on July 1, 2010, declaring the results of the special election on the Bonds; (ii) Resolution No. 516-10 duly adopted by the Board of Supervisors on November 2, 2010 and approved by the Mayor on November 5, 2010 providing for the issuance of the Bonds from time to time; (iii) Resolution 231-12 duly adopted by the Board of Supervisors on June 12, 2012 and approved by the Mayor on June 18, 2012, providing for the sale of the Series 2012E Bonds (together with Resolution 516-10, the “Resolutions”); (iv) the Certificate Awarding the Bonds with respect to the Series 2012E Bonds executed by the Controller of the City on August 14, 2012 pursuant to the Resolutions (the “Certificate of Award”); and (v) certificates of officers of the City, the City’s co-financial advisors and the purchaser of the Series 2012E Bonds as to various factual matters. The Series 2012E Bonds are dated the date of this opinion, mature on June 15 of each of the years 2013 to 2032, inclusive, in the amounts for each year provided in the Certificate of Award, and will bear interest from their date, payable semiannually on June 15th and December 15th of each year commencing on December 15, 2012, at the interest rate for each maturity provided in the Certificate of Award. The Series 2012E Bonds are subject to optional redemption in advance of their maturity upon the terms provided in the Certificate of Award. Based upon this examination, we are of the opinion that: 1. The proceedings described above show lawful authority for the issuance and sale of the Series 2012E Bonds pursuant to the Constitution and laws of the State of California and the City Charter, including a proposition approved by not less than a two-thirds vote of the qualified electors of the City voting at a special election held in the City on June 8, 2010, and the Resolutions. 2. The Series 2012E Bonds have been duly and validly authorized and issued in accordance with the Constitution and laws of the State of California, the City Charter and the Resolutions and are valid and legally binding general obligations of the City in accordance with their tenor and terms, payable from ad F-3 valorem taxes levied against all of the taxable property in the City without limitation as to rate or amount (except for certain personal property which is taxable at limited rates). The Board of Supervisors has the authority and is obligated to levy such taxes for payment of the principal of and interest on the Series 2012E Bonds. 3. Interest on the Series 2012E Bonds under present law is not included in “gross income” for federal income tax purposes and thus is exempt from federal income taxes based on gross income. This opinion is subject to compliance by the City with its covenant to comply with all requirements which must be met in order for interest on the Series 2012E Bonds not to be included in gross income for federal income tax purposes under present law. The City has the power to comply with its covenant. If the City were to fail to comply with these requirements, interest on the Series 2012E Bonds could be included in gross income for federal income tax purposes retroactive to the date the Series 2012E Bonds are issued. Interest on the Series 2012E Bonds is not an item of tax preference for calculation of an alternative minimum tax for individuals or corporations under present law. Interest on the Series 2012E Bonds will be taken into account, however, in computing an adjustment used in determining the alternative minimum tax for certain corporations. Ownership of the Series 2012E Bonds may result in other federal tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Series 2012E Bonds. 4. Interest on the Series 2012E Bonds is exempt from present California personal income taxes under present California law. Ownership of the Series 2012E Bonds may result in other state and local tax consequences to certain taxpayers and we express no opinion with respect to any such state and local tax consequences with respect to the Series 2012E Bonds. The rights of registered owners of the Series 2012E Bonds, the obligations of the City and the enforceability of the Series 2012E Bonds and the Resolutions may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights. Enforcement of provisions of the Series 2012E Bonds and the Resolutions by equitable or similar remedies may be subject to general principles of law or equity governing such remedies, including the exercise of judicial discretion whether to grant any particular form of relief. Enforcement of provisions of the Series 2012E Bonds and the Resolutions is also subject to statutes, public policy considerations and court decisions that may limit legal remedies imposed in actions against governmental entities in the State of California. This opinion is based upon facts known or certified to us and laws in effect on its date and speaks as of that date. The opinions stated in this letter are expressions of professional judgment based upon such facts and law and are not a guaranty of a result if the validity or tax-exempt status of the Series 2012E Bonds are challenged. We have not undertaken any obligation to revise or supplement this opinion to reflect any facts or circumstances that may come to our attention after the date of this opinion or any changes in law that may occur after that date. In addition, we have not undertaken any obligation to assist the City in complying with those requirements described in paragraph 3 above which the City must meet after the date of this opinion in order for interest on the Series 2012E Bonds not to be included in gross income for federal income tax purposes under present law. Respectfully submitted, F-4 FOR ADDITIONAL BOOKS: ELABRA.COM OR (888) 935-2272