$56,300,000 City of Fresno 2010-2011 Tax and Revenue Anticipation Notes Interest Rate: 2.00% Priced to Yield: 0.70% Cusip No.: 358082Ke4†

NEW ISSUE - BOOK ENTRY ONLY Ratings: Moody’s: MIG-1 S&P: SP-1+

In the opinion of Orrick, Herrington & Sutcliffe llp, Note Counsel to the City of Fresno, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. The amount treated as interest on the Notes and excluded from gross income may depend upon the taxpayer’s election under Internal Revenue Notice 94-84. In the further opinion of Note Counsel, interest on the Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. Note Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on the Notes. See “Tax Matters” herein. $56,300,000 CITY OF FRESNO 2010-2011 TAX AND REVENUE ANTICIPATION NOTES INTEREST RATE: 2.00% PRICED TO YIELD: 0.70% CUSIP NO.: 358082KE4†

Dated: Date of Delivery Due: June 30, 2011

The City of Fresno (the “City”) 2010-2011 Tax and Revenue Anticipation Notes (the “Notes”) are being issued to finance the seasonal cash flow requirements of the City during the fiscal year ending June 30, 2011. The Notes will be issued as fixed-rate notes in fully registered form. The Notes, when issued, will be registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”), New York, New York, which will act as securities depository for the Notes. Purchases of the Notes will be made only through DTC Participants under the book-entry system maintained by DTC in denominations of $5,000 or any integral multiple thereof. Purchaser(s) will not receive certificates representing their ownership interest in the Notes purchased.

The Notes will be dated the date of delivery thereof and will not be subject to redemption prior to maturity. The Notes will bear interest at a fixed rate per annum from their dated date. Interest on the Notes is payable at maturity. Principal of the Notes will be payable at maturity. The City will make payments of principal of, and interest on, the Notes directly to DTC.

In accordance with California law, the Notes are general obligations of the City, but are payable only out of the taxes, income, revenue, cash receipts and other moneys received by the City for its general fund attributable to Fiscal Year 2010-11 and legally available for payment thereof. The Notes are equally and ratably secured by a pledge of such taxes, income, revenue, cash receipts and other moneys. The City is not authorized to levy or collect any tax for the repayment of the Notes. See “The Notes–Security for the Notes.”

This cover page contains certain information for quick reference only and is not a summary of the transaction. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

The Notes are offered when, as and if issued by the City and received by the Underwriters, subject to the approval of validity by Orrick, Herrington & Sutcliffe llp, San Francisco, California, Note Counsel to the City. Certain other legal matters will be passed upon for the City by the City Attorney and by Lofton & Jennings, San Francisco, California, Disclosure Counsel and for the Underwriters by Quint & Thimmig LLP, San Francisco, California, Underwriters’ Counsel. It is anticipated that the Notes in book-entry form, will be available for delivery through the facilities of DTC in New York, New York on or about July 15, 2010.

Date of Official Statement: June 30, 2010

† Copyright 2010, American Bankers Association. CUSIP data herein is provided by Standard and Poor’s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. The CUSIP number is provided for convenience of reference only. The City takes no responsibility for the accuracy of such CUSIP number. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriters to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Notes by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Notes. 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 fact. The information and expressions of opinions 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 Authority or the City, since the date hereof. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Electronic Municipal Market Access site maintained by the Municipal Securities Rulemaking Board

The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Notes at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Notes to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriters.

The issuance and sale of the Notes have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, and the Resolution has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities.

The City maintains a website. Unless specifically indicated otherwise, the information presented on that 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 Notes.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT

Certain statements contained in this Official Statement reflect not historical facts but forecasts and “forward-looking statements.” In this respect, the words “estimate,” “project,” “anticipate,” expect,” “intend,” “believe,” “plan,” “budget,” and similar expressions are intended to identify forward-looking statements. Projections, forecasts, assumptions, expressions of opinions, estimates and other forward statements are not to be construed as representations of fact and are qualified in their entirety by the cautionary statements set forth in this Official Statement.

The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur or do not occur.

TABLE OF CONTENTS

Page Page

INTRODUCTION ...... 1 CONSTITUTIONAL AND STATUTORY THE NOTES ...... 1 LIMITATIONS ON TAXES, Authority for Issuance ...... 1 REVENUES AND Purpose of Issue ...... 1 APPROPRIATIONS ...... 14 Description of the Notes ...... 1 Article XIII A of the California Security for the Notes ...... 2 Constitution ...... 14 Available Sources of Payment ...... 2 Legislation Implementing Article XIII A ..... 15 Limitation of Issue Size ...... 3 Article XIII B of the California CITY FINANCIAL INFORMATION ...... 3 Constitution ...... 15 Fiscal Years 2009-10 and 2010-2011 Article XIII C and Article XIII D of the Budgets ...... 3 California Constitution ...... 16 Actual and Projected Cash Flows ...... 4 Proposition 62 ...... 16 Financial Statements ...... 9 Proposition 1A ...... 17 Recent Developments ...... 10 CITY INFORMATION ...... 19 CERTAIN RISK FACTORS ...... 11 TAX MATTERS ...... 19 City Financial Stress ...... 11 LEGAL MATTERS ...... 21 IRS Audit ...... 11 LEGALITY FOR INVESTMENT IN Risk of State or Local Legislation ...... 12 CALIFORNIA ...... 21 Assessment Appeals and Reductions in FINANCIAL ADVISOR ...... 21 Assessed Valuation ...... 12 RATINGS ...... 21 Security ...... 12 NO MATERIAL LITIGATION...... 22 Obligations of the City ...... 13 UNDERWRITING ...... 22 Investment of Funds ...... 13 CONTINUING DISCLOSURE ...... 22 Natural Disasters ...... 13 ADDITIONAL INFORMATION ...... 23 Bankruptcy ...... 13

APPENDIX A – ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION REGARDING THE CITY OF FRESNO ...... A-1 APPENDIX B – CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009 ...... B-1 APPENDIX C – PROPOSED FORM OF OPINION OF NOTE COUNSEL ...... C-1 APPENDIX D – FORM OF CONTINUING DISCLOSURE CERTIFICATE ...... D-1 APPENDIX E – DTC AND THE BOOK-ENTRY ONLY SYSTEM ...... E-1

CITY OF FRESNO

MAYOR

Ashley Swearengin

CITY COUNCIL

Larry Westerlund, President, District 4 Lee Brand, Acting President, District 6 Blong Xiong, District 1 Andreas Borgeas, District 2 Cynthia Sterling, District 3 Mike Dages, District 5 Henry T. Perea, District 7

CHIEF CITY ADMINISTRATIVE PERSONNEL

Mark Scott, City Manager Bruce A. Rudd, Assistant City Manager Joe Gray, City Controller/Finance Director James C. Sanchez, City Attorney

SPECIAL SERVICES

Orrick, Herrington & Sutcliffe LLP Lofton & Jennings San Francisco, California San Francisco, California Note Counsel Disclosure Counsel

KNN Public Finance, City of Fresno A Division of Zions First National Bank Fresno, California Oakland, California Paying Agent Financial Advisor

$56,300,000 CITY OF FRESNO 2010-2011 TAX AND REVENUE ANTICIPATION NOTES

INTRODUCTION

This Official Statement, including this Introduction and the Appendices, is provided to furnish information in connection with the sale of the Notes by the City in the principal amount of $56,300,000. The Notes are issued in full conformity with the Constitution and laws of the State of California and under such statutes are general obligations of the City but are payable solely from taxes, income, revenues, cash receipts and other moneys of the City, received by the City for its General Fund, attributable to the Fiscal Year 2010-2011 and legally available therefor. The Notes are authorized by a resolution of the City Council of the City of Fresno (the “Council”). Proceeds from the sale of the Notes will be used for current expenditures from the City’s General Fund. The City may, under existing law, issue the Notes only if the principal of and interest on the Notes will not exceed 85% of the estimated moneys which will be legally available for the payment of the Notes including the interest thereon. In addition, under the City Charter, the aggregate amount of temporary loans, including the Notes, may not exceed 25% of the receipt from taxes in the preceding fiscal year.

Pursuant to the Constitution and laws of the State of California, specifically Section 53850 et seq. of the California Government Code, the City has pledged for the payment of the Notes and the interest thereon certain unrestricted moneys to be received by the City in the months of February, May and June 2011.

THE NOTES

Authority for Issuance

The Notes are issued under the authority of Article 7.6, Chapter 4, Part 1, Division 2, Title 5 (commencing with Section 53850) of the California Government Code and pursuant to a resolution adopted by the Council on June 10, 2010 (the “Resolution”).

Purpose of Issue

Issuance of the Notes will provide moneys to meet the City’s fiscal year 2010-2011 expenditures from the City’s General Fund.

Description of the Notes

The Notes will be issued in the aggregate principal amount of $56,300,000 and will be issued in denominations of $5,000 or integral multiples thereof. The Notes will be dated the date of delivery thereof and will mature on June 30, 2011. The Notes will not be subject to redemption prior to maturity. Interest on the Notes will be computed on a 360-day year basis, and paid at maturity.

The City will issue and the Underwriters will offer the Notes in registered form, registered in the name of Cede & Co. (“Cede”), as nominee of The Depository Trust Company, New York, New York (“DTC”), with the maturity date and interest rate shown on the cover page hereof. As long as the Notes are held by DTC or a successor securities depository, ownership of the Notes will be evidenced by book- entry as described in APPENDIX E hereto.

Security for the Notes

In accordance with California law, the Notes are general obligations of the City; however, the Constitution of the State of California substantially limits the City’s ability to levy ad valorem taxes. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS.” The principal amount of the Notes, together with the interest thereon, shall be payable from taxes, income, revenue, cash receipts and other lawfully available moneys which are received by the City for the General Fund, for fiscal year 2010-2011. As security for the payment of the principal of and interest on the Notes, the City has pledged specific “unrestricted moneys” (the “Pledged Revenues”) received during the periods described below (each a “Pledged Period”). The Notes are secured by a pledge of (i) $15,000,000 of unrestricted moneys to be received by the City in the period beginning February 1 and ending February 15, 2011; (ii) $22,000,000 of unrestricted moneys to be received by the City in the period beginning May 1, 2011 and ending May 15, 2011; and (iii) $19,300,000, plus an amount equal to the interest payable on the Notes at maturity, of unrestricted moneys to be received by the City in the period beginning June 1, 2011 and ending on June 15, 2011.

On or before the last business day of each respective Pledge Period, the Pledged Revenues shall be deposited by the City in the City of Fresno 2010-2011 Tax and Revenue Anticipation Notes Repayment Account (the “Repayment Fund”) for the payment of the principal of and interest on the Notes on June 30, 2011. Amounts deposited in the Repayment Fund shall be applied solely for the purpose of paying the principal of and interest on the Notes and may not be withdrawn for any other purposes, although such amounts may be invested in investments permitted by the laws of the State of California and the investment policy of the City pending disbursement, except that no such investment shall have a maturity date later than the maturity date of the Notes. In the event there are insufficient unrestricted moneys received by the City to permit the deposit into the Repayment Fund of the full amount of the Pledged Revenues to be deposited into such Repayment Fund by the last business day of each Pledged Period, then the amount of any deficiency will be satisfied and made up from any other moneys of the City lawfully available for the repayment of the Notes and interest thereon. The principal of the Notes and interest thereon shall constitute a first lien and charge against, and shall be payable from, the Repayment Fund.

Available Sources of Payment

The City may, under existing law, issue the Notes only if the principal of and interest on the Notes will not exceed 85% of the estimated amount of uncollected moneys legally available for the payment of the Notes including the interest thereon. The amount needed to repay the Notes and the interest thereon is $57,379,083.33. The City estimates that funds available for payment of the Notes will be in excess of $309 million as indicated in Table 1:

Table 1 City of Fresno Estimated Unrestricted Revenues Available for Payment of Notes

Revenues Amount Cash Balances, June 30, 2010 $12,654,409 Property Tax 121,614,800 Sales Tax 46,218,400 Other Revenue 72,675,000 Note Proceeds 56,800,710 TOTAL $309,963,319 ______Source: City of Fresno.

Limitation of Issue Size

Section 1210 of the Charter of the City limits the aggregate amount of temporary loans, which includes the Notes, at any time outstanding to no more than 25% of the receipts from taxes (not limited to those which are deposited in the General Fund) during the preceding fiscal year. For purposes of the Section 1210 limitation, the taxes that will be collected during the 2009-2010 fiscal year are estimated to be $225,200,000, which results in a borrowing limit of $56,300,000, the principal amount of the Notes.

The limitation on the issue size described in the preceding paragraph does not limit the sources of repayment of the Notes.

CITY FINANCIAL INFORMATION

Certain information with respect to the City’s general fund budget and cash flow is summarized below. Additional information is set forth in Appendix A–“ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION RELATING TO THE CITY OF FRESNO.” See also APPENDIX B–“CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009.”

Fiscal Years 2009-10 and 2010-2011 Budgets

Table 2 sets forth the City’s budget for the 2009-2010 fiscal year and the budget for fiscal year 2010-2011.

Table 2 City of Fresno General Fund Budget for Fiscal Year 2009-2010 and Adopted Budget for Fiscal Year 2010-2011†

Adopted 2009-2010 2010-2011 Budget Budget RESOURCES AVAILABLE FROM PRIOR YEARS $5,684,000 $11,950,000 Tax Revenues 215,124,000 205,510,000 Charges for Services and Facilities 15,132,000 12,319,000 lntergovernmental Revenues 4,902,000 5,640,000 lntragovernmental Revenues 5,852,000 6,994,000 Other Revenues 6,858,000 8,923,000 TOTAL RESOURCES $253,552,000 $251,336,000

Employee Services $174,681,000 $173,008,000 Operations and Maintenance 19,052,000 15,295,000 Interdepartmental Charges 29,406,000 25,703,000 Transfers, Loans and Contingencies 16,168,000 23,159,000 Other Expenditures 2,295,000 2,006,000 TOTAL OPERATING EXPENDITURES $241,602,000 $239,171,000 ______† The budgets summarized here address the general purpose operating funds within the City’s General Fund. The cash flows in Tables 3 and 4 below are prepared utilizing the Government Accounting Standards Board approach used for the City Comprehensive Annual Financial Report, which includes certain special revenue and other funds in the General Fund for accounting purposes. As a result the budgets summarized here will not match the fiscal year-end totals in Tables 3 and 4. Source: City of Fresno.

Actual and Projected Cash Flows

Cash flows are computed using the monthly anticipated cash needs and beginning fund cash balances. Since cash outflows are relatively even, on a month-to-month basis, and taxes and revenues, while predictable are not as consistent, short-term cash shortfalls occur which are funded from Note proceeds.

The City has prepared the accompanying monthly cash flow statements covering the 2009-2010 fiscal year (Table 3) and the 2010-2011 projected fiscal year (Table 4). The projected fiscal year 2010-2011 cash flow assumes the receipt of Note proceeds. Based upon these cash flow projections, without Note proceeds, the General Fund would have a maximum negative cash balance of approximately $64,893,874 during the month of December 2010. The anticipated deficit occurs due to the daily timing of expenditures occurring prior to the receipt of revenues for the month. Sizing of the Notes is governed by Section 1210 of the Charter, which results in a smaller borrowing than the maximum cashflow deficit.

The estimates of amounts and timing of the receipts and disbursements in Table 4 are based on certain assumptions and should not be construed as statements of fact. The assumptions are based upon currently available information and are believed to be reasonable. The actual outcome of the assumptions may be affected by numerous factors and there can be no assurance that such estimates will be achieved.

For additional information regarding the City, see APPENDIX A–“ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION RELATING TO THE CITY OF FRESNO.”

Table 3 City of Fresno General and Unrestricted Cash Flow Summary 2009-10

2009 July August September October November December Beginning Balance 10,314,446 32,545,249 28,861,210 9,997,589 (449,901) (14,934,640)

Revenue Categories Sales Tax 3,271,488 4,445,352 4,129,502 3,439,888 3,875,506 4,233,552 Property Tax 0 2,017,039 0 6,380 58,740 0 Licenses and Permits 173,082 134,660 147,075 167,375 149,230 422,103 Franchise Tax 752,409 59,820 0 738,955 69,424 0 Other Taxes(1) 3,335,939 3,117,840 1,095,846 2,071,147 2,570,532 315,384 Other Charges for Services 861,595 704,988 986,213 738,146 395,159 648,214 Intergovernmental 695,136 133,516 610,107 165,623 81,720 213,685 Intragovernmental 10,765,644 3,436,229 574,072 496,460 578,596 457,174 Other Revenues(2) 1,475,064 135,457 1,162,462 440,001 515,461 3,405,705 TOTAL REVENUES 21,330,357 14,184,901 8,705,277 8,263,975 8,294,368 9,695,817

Tax and Anticipation Note Proceeds 56,300,000 0 0 0 0 0 5 Total Receipts 77,630,357 14,184,901 8,705,277 8,263,975 8,294,368 9,695,817

Expense Categories Salaries and Benefits 19,465,092 13,503,254 14,121,773 13,252,072 13,141,569 17,126,377 Administrative and Gen. Exps. 2,662,741 1,649,393 1,370,649 2,045,575 1,130,567 1,500,487 Travel and Growth 92,676 127,363 42,161 52,117 38,912 50,019 I.D. Charges 1,190,664 494,668 4,373,656 2,950,099 2,829,498 1,771,677 Transfers, Loans and Contingencies 905,677 1,837,867 2,384,942 0 1,165,877 3,569 Capital Outlays(3) 15,306,682 256,395 5,275,717 411,602 30,216 148,684 Pension Obligation Bonds(4) 15,776,022 0 0 0 4,442,468 (2,036,062) Tax Anticipation Note Interest 0 0 0 0 0 0 TOTAL EXPENSES 55,399,554 17,868,940 27,568,898 18,711,465 22,779,107 18,564,751

Note Repayment Fund Transfers 0 0 0 0 0 0

Total Disbursements 55,399,554 17,868,940 27,568,898 18,711,465 22,779,107 18,564,751

Ending Balance 32,545,249 28,861,210 9,997,589 (449,901) (14,934,640) (23,803,574)

Pooled Investment Balance 313,380,916 287,594,947 274,564,861 262,663,153 245,133,418 217,827,842

Table 3 City of Fresno General and Unrestricted Cash Flow Summary 2009-10 (Continued)

2010 May June January February March April Estimate Estimate Total Beginning Balance (23,803,574) (34,801,140) (14,757,115) (25,256,351) (31,370,418) (43,630,213) 10,314,446

Revenue Categories Sales Tax 3,328,580 4,446,732 4,162,789 2,978,533 2,935,389 2,935,389 44,182,700 Property Tax 29,492,703 27,758,793 171,106 0 31,152,719 31,152,720 121,810,200 Licenses and Permits 206,646 158,809 199,075 160,403 355,171 355,171 2,628,800 Franchise Tax 0 815,089 0 3,352,832 331,235 331,236 6,451,000 Other Taxes(1) 1,529,110 1,150,594 2,714,110 2,086,702 2,741,398 2,741,398 25,470,000 Other Charges for Services 858,587 1,347,351 886,439 1,044,809 1,592,800 1,592,799 11,657,100 Intergovernmental 245,775 220,689 231,841 388,078 907,515 907,515 4,801,200 Intragovernmental 157,737 267,175 277,960 218,197 3,885,560 3,885,560 25,000,364 Other Revenues(2) 484,466 837,773 2,757,327 288,757 990,182 19,023,645 31,516,300 TOTAL REVENUES 36,303,604 37,003,005 11,400,647 10,518,311 44,891,969 62,925,433 273,517,664

Tax and Anticipation Note Proceeds 0 0 0 0 0 0 56,300,000

6 6 Total Receipts 36,303,604 37,003,005 11,400,647 10,518,311 44,891,969 62,925,433 329,817,664

Expense Categories Salaries and Benefits 13,236,205 12,958,269 12,066,542 11,632,176 11,481,785 11,481,786 163,466,900 Administrative and Gen. Exps. 1,592,554 775,525 738,579 1,493,830 1,436,727 1,436,727 17,833,354 Travel and Growth 137,988 39,656 50,063 26,049 29,798 29,798 716,600 I.D. Charges 2,492,929 2,543,519 2,736,373 2,566,750 2,424,333 2,424,334 28,798,500 Transfers, Loans and Contingencies 1,072,932 412,669 6,027,534 799,692 4,964,420 4,964,421 24,539,600 Capital Outlays(3) 57,126 229,342 280,792 113,881 43,705 43,705 22,197,847 Pension Obligation Bonds(4) 0 0 0 0 8,059,532 (13,739,960) 12,502,000 Tax Anticipation Note Interest 561,436 0 0 0 561,464 0 1,122,900 TOTAL EXPENSES 19,151,170 16,958,980 21,899,883 16,632,378 29,001,764 6,640,811 271,177,701

Note Repayment Fund Transfers 28,150,000 0 0 0 28,150,000 0 56,300,000

Total Disbursements 47,301,170 16,958,980 21,899,883 16,632,378 57,151,764 6,640,811 327,477,701

Ending Balance (34,801,140) (14,757,115) (25,256,351) (31,370,418) (43,630,213) 12,654,409 12,654,409

Pooled Investment Balance 242,485,619 310,976,492 267,146,309 285,944,853 ______(1) Business license, transient occupancy and real estate transfer taxes. (2) Approximately $2 million in revenues in March are proceeds of new market tax credit transaction in connection with the Metropolitan Museum. Approximately $18 million of revenues in June represent the proceeds of a long-term refinancing of the Metropolitan Museum and Granite Park. See “Capital Outlays,” below. (3) July expenditure includes $15,111,940 for the acquisition of the Fresno Metropolitan Museum building; the September expenditure includes $5,105,271 payment for acquisition of Granite Park recreational facilities. Both acquisitions were the consequences of City loan guarantees. (4) Payment and receipts in July, December and June relate to a forward purchase agreement in connection with the City's 1994 pension obligation bonds, which has since been refunded. The November and May payments represent debt service on the refunding bonds.

Table 4 City of Fresno General and Unrestricted Cash Flow Summary 2010-11

2010 July August September October November December Beginning Balance 12,654,409 41,077,626 36,518,412 23,737,708 14,417,966 650,639

Revenue Categories Sales Tax 3,422,220 4,650,170 4,319,767 3,598,379 4,054,068 4,428,611 Property Tax 0 2,013,803 0 6,370 58,646 0 Licenses and Permits 172,674 134,342 146,728 166,980 148,878 421,107 Franchise Tax 1,043,995 83,002 0 1,025,327 96,328 0 Other Taxes(1) 3,418,846 3,195,327 1,123,081 2,122,621 2,634,417 323,222 Other Charges for Services 910,488 744,994 1,042,177 780,033 417,583 684,998 Intergovernmental 816,508 156,828 716,633 194,541 95,988 250,995 Intragovernmental 128,132 1,657,453 276,902 239,466 279,084 220,516 Other Revenues 1,137,376 104,447 896,339 339,271 397,456 2,626,034

7 TOTAL REVENUES 11,050,239 12,740,366 8,521,627 8,472,988 8,182,448 8,955,483

Tax and Anticipation Note Proceeds 56,800,710 0 0 0 0 0

Total Receipts 67,850,949 12,740,366 8,521,627 8,472,988 8,182,448 8,955,483

Expense Categories Salaries and Benefits 18,850,383 13,076,820 13,675,806 12,833,570 12,726,557 16,585,524 Administrative and Gen. Exps. 2,283,778 1,414,650 1,175,577 1,754,447 969,664 1,286,937 Travel and Growth 269,544 370,430 122,623 151,580 113,174 145,478 ID Charges 1,062,690 441,500 3,903,570 2,633,019 2,525,380 1,581,255 Transfers, Loans and Contingencies 854,731 1,734,483 2,250,784 0 1,100,294 3,368 Capital Outlays 183,575 261,697 173,971 420,114 30,841 151,759 Pension Obligation Bonds(2) 15,923,031 0 0 0 4,483,865 (2,055,035) Tax Anticipation Note Interest 0 0 0 0 0 0 TOTAL EXPENSES 39,427,732 17,299,580 21,302,331 17,792,730 21,949,775 17,699,286

Note Repayment Fund Transfers 0 0 0 0 0 0

Total Disbursements 39,427,732 17,299,580 21,302,331 17,792,730 21,949,775 17,699,286

Ending Balance 41,077,626 36,518,412 23,737,708 14,417,966 650,639 (8,093,164)

Pooled Investment Balance

Table 4 City of Fresno General and Unrestricted Cash Flow Summary 2010-11 (Continued)

2011 January February March April May June Total Beginning Balance (8,093,164) 10,371,775 16,440,908 6,533,835 2,704,566 2,929,549 12,654,409

Revenue Categories Sales Tax 3,481,943 4,651,613 4,354,588 3,115,768 3,070,636 3,070,637 46,218,400 Property Tax 29,445,393 27,714,264 170,832 0 37,602,746 24,602,746 121,614,800 Licenses and Permits 206,159 158,434 198,605 160,025 354,334 354,334 2,622,600 Franchise Tax 0 1,130,966 0 4,652,178 459,602 459,602 8,951,000 Other Taxes(1) 1,567,113 1,179,189 2,781,563 2,138,562 2,809,529 2,809,530 26,103,000 Other Charges for Services 907,309 1,423,808 936,741 1,104,098 1,683,186 1,683,185 12,318,600 Intergovernmental 288,688 259,222 272,321 455,837 1,065,969 1,065,970 5,639,500 Intragovernmental 76,084 128,871 134,073 105,247 1,874,186 1,874,186 6,994,200 Other Revenues 373,557 645,981 2,126,090 222,652 771,069 405,828 10,046,100 TOTAL REVENUES 36,346,246 37,292,348 10,974,813 11,954,367 49,691,257 36,326,018 240,508,200

8 Tax and Anticipation Note Proceeds 0 0 0 0 0 0 56,800,710

Total Receipts 36,346,246 37,292,348 10,974,813 11,954,367 49,691,257 36,326,018 297,308,910

8 Expense Categories Salaries and Benefits 12,818,204 12,549,046 11,685,479 11,264,831 11,119,189 11,119,191 158,304,600 Administrative and Gen. Exps. 1,365,901 665,152 633,464 1,281,227 1,232,251 1,232,252 15,295,300 Travel and Growth 401,332 115,338 145,606 75,762 86,666 86,667 2,084,200 ID Charges 2,224,986 2,270,138 2,442,264 2,290,872 2,163,763 2,163,763 25,703,200 Transfers, Loans and Contingencies 1,012,577 389,456 5,688,474 754,708 4,685,162 4,685,163 23,159,200 Capital Outlays 58,307 234,085 286,599 116,236 44,608 44,608 2,006,400 Pension Obligation Bonds(2) 0 0 0 0 8,134,635 (13,867,996) 12,618,500 Tax Anticipation Note Interest 0 0 0 0 0 1,079,083 1,079,083 TOTAL EXPENSES 17,881,307 16,223,215 20,881,886 15,783,636 27,466,274 6,542,731 240,250,483

Note Repayment Fund Transfers 0 15,000,000 0 0 22,000,000 19,300,000 56,300,000

Total Disbursements 17,881,307 31,223,215 20,881,886 15,783,636 49,466,274 25,842,731 296,550,483

Ending Balance 10,371,775 16,440,908 6,533,835 2,704,566 2,929,549 13,412,836 13,412,836

Pooled Investment Balance ______(1) Business license, transient occupancy and real estate transfer taxes. (2) Payment and receipts in July, December and June relate to a forward purchase agreement in connection with the City’s 1994 pension obligation bonds, which has since been refunded. The November and May payments represent debt service on the refunding bonds.

Financial Statements

The City’s comprehensive annual financial report for the fiscal year ended June 30, 2009 are set forth in APPENDIX B. The government-wide financial statements (i.e. the statement of net assets and the statement of changes in net assets) report information on all of the non-fiduciary activities of the primary government and its component units. Governmental activities, which are normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support.

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

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

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

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with the fund’s principal ongoing operations. The principal operating revenues of the City’s enterprise and internal service funds are charges for customer services for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. See APPENDIX B–“CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009.”

The financial statements for the City, including the General Fund, which are included in APPENDIX B, have been audited by Macias, Gini & O’Connell LLP, Certified Public Accountants, which has offices throughout California (the “Independent Accountants”), whose report thereon appears in such Appendix. The report by the Independent Accountants makes reference to other auditors who have audited amounts included in the City’s financial statements for the City’s redevelopment agency and the City of Fresno’s employees and fire and police retirement systems. The Independent Accountants have consented to the inclusion of their report in APPENDIX B, but has not undertaken to update its report or take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement and no opinion is expressed by the Independent Accountants with respect to any event subsequent to the date of its report. The audited basic financial

statements of the City are also available upon request directed to the City Clerk’s Office, 2600 Fresno Street, Fresno, California 93721-3603 and may also be viewed online or downloaded at http://www.ci.fresno.ca.us/adminservices/finance/default.asp.

Macias, Gini & O’Connell LLP was retained to audit the City’s financial statements for the Fiscal Year 2008-09 as well as Fiscal Year 2007-08. Prior fiscal year financial statements were audited by different firms and Macias, Gini & O’Connell LLP takes no responsibility therefore. The City’s practice is to select auditors every few years pursuant to a request for proposal process.

Recent Developments

City Financial Stress

Since the start of 2008, the City has been experiencing the worst economic downturn and financial pressure since the Great Depression of the 1930s. As a result of continuing weakness in the economy, City tax revenues have declined, resulting in budget shortfalls. The City began addressing the budget shortfalls by reducing its general fund expenditures with mid-year adjustments in Fiscal Year 2008-09 and has continued to cut general fund expenses through the Fiscal Year 2009-10 annual budget process and mid-year adjustments in such Fiscal Year. From mid-Fiscal Year 2008-09 through mid-Fiscal Year 2009-10, the City has had to adjust for a $36.9 million general fund shortfall. The Fiscal Year 2010-11 budget addresses an additional $30.6 million shortfall for a combined total of $67.5 million general fund shortfall from mid-Fiscal Year 2008-09 through Fiscal Year 2010-11.

To address these shortfalls, the Fiscal Year 2010-11 general fund budget includes deep cuts, including major cuts in the Parks, After School, Recreation and Community Services Department ($2.1 million reduction from the amended 2010 budget) and Public Works Department ($8.1 million reduction from the amended 2010 budget). These proposed savings come from reducing maintenance costs and eliminating positions primarily in the Public Works Department. In addition, the Fiscal Year 2010-11 budget proposes to use $6.3 million of the City’s emergency reserve while keeping the five percent general fund emergency reserve as required by City policy.

State Budget

The State has faced and is continuing to face budget challenges caused in large part by the nationwide economic slowdown. Approximately 75% of the City’s Fiscal Year 2009-10 General Fund Budget consists of payments collected by the State and passed-through to local governments or collected by the County and allocated to local governments by State law. The financial condition of the State has an impact on the level of these revenues. In past years the State has reduced revenues to cities and counties to help solve the State’s budget problems. The level of intergovernmental revenues that the City will receive from the State in Fiscal Year 2009-10 and in subsequent fiscal years will be affected by the financial condition of the State.

The Fiscal Year 2010-11 May Revision, released on May 14, 2010 (the “2010 May Revision”), addresses a remaining General Fund budget gap of $19.1 billion, $7.7 billion for Fiscal Year 2009-10, $10.2 billion for Fiscal Year 2010-11, and a modest reserve of $1.2 billion by proposing deep reductions and program eliminations.

Overall, the 2010 May Revision proposes State General Fund expenditures for Fiscal Year 2010-11 are approximately $0.5 billion above those proposed in the 2010-11 Governor’s Budget, and State General Fund revenues that are $2.1 billion greater than projections in the Fiscal Year 2010-11

Governor’s Budget. The 2010 May Revision reflects $1.637 billion in proposed loans and transfers from state special funds. With these additional resources, Fiscal Year 2010-11 revenues total $91.451 billion.

The May Revision proposes additional solutions to close the budget gap. Various fund shifts, alternative funding, and other revenues, including a $650 million loan of excise taxes on gasoline, account for $3.4 billion. Spending reductions account for $12.4 billion in solutions.

Recently Issued City Obligations

On June 4, 2010, the City entered into a private placement lease financing arrangement with Bank of America in the amount of $46,495,000 for the purpose, among others, of reimbursing itself for certain payments described below. The aggregate financing matures no later than August 1, 2030 with a true interest cost not to exceed 5.99%. The payments being refinanced by the private placement financing relate to two loan guaranties which were described as contingent obligations in the 2008-09 financial statements. See APPENDIX B–“CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009–Note 17–Subsequent Events.”

In addition to reimbursing the City for the $20.2 million paid under the loan guaranties, the private placement refinanced certain outstanding City Hall lease obligations and provided new money for repairs to both City Hall and the Spiral Parking Garage (Garage 7).

CERTAIN RISK FACTORS

Described below are certain factors which could impact the ability of the City to pay debt service on the Notes. See also APPENDIX A–“ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION REGARDING THE CITY OF FRESNO” for certain financial and other information concerning the City. The following information does not purport to be an exhaustive listing of the risks and other considerations which may be relevant to an investment in the Notes and the order in which they are presented is not intended to reflect the relative important of such risks. There can be no assurance made that other risk factors will not become relevant in the future.

City Financial Stress

A variety of circumstances affecting the City (and other cities in the State) have resulted in significant financial stress on the City over the last few years. These circumstances include (i) the financial condition of the State, which resulted in decreased revenues from the State to the City; (ii) increases in labor costs, including amounts required to be paid by the City to fund current and future retirement benefits, resulting from the negotiation of labor agreements and enhancement of retirement benefits and the resulting impact on the required annual General Fund contribution to its employee pension plans; and (iii) increases in employee and retiree health care costs paid by the City.

IRS Audit

The IRS has an ongoing program of examining tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from gross income for federal income tax purposes, and it is possible that the Notes may be selected for examination under such program. There is no assurance that an IRS examination of the Notes will not adversely affect the market value of the Notes. See “TAX MATTERS.”

Risk of State or Local Legislation

The City relies on a number of revenue sources that could be borrowed, reduced or eliminated by State or local legislation, including, among others, property taxes, sales taxes and use taxes, license and permit fees and fines and penalties. There can be no assurance that the State or local government will not adopt legislation to borrow, reduce or eliminate one or more of these revenue sources. See APPENDIX A– “ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION REGARDING THE CITY OF FRESNO– FINANCIAL OPERATIONS–State Budgets.”

In addition, a number of statutes and constitutional amendments have been adopted as measures that qualified for the ballot through California’s initiative process as described under “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” There can be no assurance that other initiative measures will not be adopted affecting the revenues of the City.

Assessment Appeals and Reductions in Assessed Valuation

Pursuant to California law, a property owner may apply for a reduction of the property tax assessment for such owner’s property by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county assessment appeals board (a “Proposition 8” appeal). In addition to reductions in assessed value resulting from Proposition 8 appeals, Proposition 8 also allows assessors to reduce assessed value unilaterally to reflect reductions in market value.

Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which written application is filed. The assessed value increases to its pre-reduction level for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of comparable values that the property continues to be overvalued (known as “ongoing hardship”), a county assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year as well. In a similar manner, a county assessor may reassert the pre-appeal level of assessed value depending on the county assessor’s determination of current value.

In addition to reductions in assessed value resulting from Proposition 8 appeals, California law also allows assessors to reduce assessed value unilaterally based on a general decline in market value of an area. Although Proposition 8 reductions are temporary only for those properties that are not sold to new owners, and are otherwise expected to be eliminated under Proposition 13 if and when market conditions improve, no assurance is given that such reductions will be eliminated.

Property tax revenues, which comprise approximately 29% of the revenues of the City, have been and are expected to be significantly affected by a reduction in taxable property assessed values due to successful property owner appeals and/or unilateral reductions by the County Assessor. See APPENDIX A–“ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION REGARDING THE CITY OF FRESNO– FINANCIAL OPERATIONS–Major General Fund Revenue Sources–Pending Assessment Appeals.”

Security

Military conflicts and terrorist activities may adversely impact the operation of the City. In addition, the City may experience a decrease with respect to its revenues because of any change in economic circumstances as a result of future military conflicts or terrorist activities. Such a reduction in revenues may include, but is not limited to, a decline in transient occupancy tax, parking tax, business tax and sales tax revenues.

The City is subject to safety and security measures and inspections on a continuing basis. The City does not represent that any existing or additional safety and security measures will be adequate in the event that terrorist activities are directed against the City or that costs of security measures will not be greater than presently anticipated.

Obligations of the City

The City has a significant amount of obligations payable from the same revenues of the City that are sources to fund the Repayment Fund, including but not limited to labor contracts, debt obligations, pension obligations and other obligations related to post employment retirement benefits as well as certain other liabilities. See APPENDIX A–“ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION REGARDING THE CITY OF FRESNO–FINANCIAL OPERATIONS–Pension Plans” and “–Other Post Employment Benefits.”

Investment of Funds

All investments, including the Permitted Investments and other investments made by the City, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, loss of market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held by the City could have a material adverse effect on the security of the Notes.

Natural Disasters

The occurrence of any natural disaster in the City, including, without limitation, earthquake or flood (discussed below), could have an adverse material impact on the economy within the City and the amounts available for the payment of the Notes.

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

Flooding. In 2009 the U.S. Army Corps of Engineers (the “Corps of Engineers”) released and the Federal Emergency Management Agency, which administers the federal government’s flood insurance programs, approved a revised floodplain map indicating that while portions of Fresno County are located within a 100-year floodplain (an area expected to be inundated during a flood event of the magnitude for which there is a 1% (or 1-in-100) probability of occurrence in any year), the City is not. The floodplain maps are updated periodically and while the City is not currently located within a floodplain, the City can make no representation that future maps will not be revised to include the City within an area deemed subject to flooding.

Bankruptcy

The rights of the Owners of the Notes are subject to certain limitations in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the Owners of the Notes, and the obligations incurred by the City, respectively, may become subject to the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditor’s rights generally, now or hereafter in effect, equity principles which may limit

the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the Constitution, and the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the Notes to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights.

On January 24, 1996, the United States Bankruptcy Court for the Central District of California held in the case of County of Orange v. Merrill Lynch that a State statute providing for a priority of distribution of property held in trust conflicted with, and was preempted by, federal bankruptcy law. In that case, the court addressed the priority of the disposition of moneys held in a county investment pool upon bankruptcy of the county, but was not required to directly address the State statute that provides for the lien in favor of holders of tax and revenue anticipation notes. The City is in possession of all of the taxes and other revenues that will be set aside and pledged to repay the Note evidenced by the Notes, and these funds and other funds held by the Paying Agent may be invested in various commingled investment pools or other instruments. In the event of a petition for the adjustment of debts of the City under Chapter 9 of the federal bankruptcy code, a court might hold that the Owners of the Notes do not have a valid and/or prior lien on the Pledged Revenues where such amounts are deposited in a commingled investment pool.

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS

Article XIII A of the California Constitution

In 1978, California voters approved Proposition 13, adding Article XIII A to the California Constitution. Article XIII A was subsequently amended on several occasions in various respects. Article XIII A limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 and on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters voting on such indebtedness and or bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities approved by 55% of the voters voting on the proposition. 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” or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.

Article XIII A has been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster or in the event of certain transfers to children or spouses or of the elderly or disabled to new residences.

Legislation Implementing Article XIII A

Legislation has been enacted and amended a number of times since 1978 to implement Article XIII A. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the City and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

Article XIII B of the California Constitution

On October 6, 1979, California voters approved Proposition 4, known as the Gann Initiative, which added Article XIII B to the California Constitution. Propositions 98 and 111, approved by the California voters in 1988 and 1990, respectively, substantially modified Article XIII B. The principal effect of Article XIII B is to limit the annual appropriations of the State and any city, county, school district, authority, or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living and population. The initial version of Article XIII B provided that the “base year” for establishing an appropriations limit was the 1978-79 fiscal year, which was then adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Proposition 111 revised the method for making annual adjustments to the appropriations limit by redefining changes in the cost of living and in population. It also required that beginning in Fiscal Year 1990-91 each appropriations limit must be recalculated using the actual 1986-87 appropriations limit and making the applicable annual adjustments as if the provisions of Proposition 111 had been in effect.

Appropriations subject to limitations of a local government under Article XIII B include generally any authorization to expend during a fiscal year the proceeds of taxes levied by or for that entity and the proceeds of certain State subventions to that entity, exclusive of refunds of taxes. Proceeds of taxes include, but are not limited to all tax revenues plus the proceeds to an entity of government from (1) regulatory licenses, user charges and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), (2) the investment of tax revenues, and (3) certain subventions received from the State. Article XIII B permits any government entity to change the appropriations limit by a vote of the electors in conformity with statutory and constitutional voting effective for a maximum of four years.

As amended by Proposition 111, Article XIII B provides for testing of appropriations limits over consecutive two-year periods. If an entity’s revenues in any two-year period exceed the amounts permitted to be spent over such period, the excess has to be returned by revising tax rates or fee schedules over the subsequent two years. As amended by Proposition 98, Article XIII B provides for the payment of a portion of any excess revenues to a fund established to assist in financing certain school needs. Appropriations for “qualified capital outlays” are excluded from the limits of Proposition 111.

For Fiscal Year 2009-10, the City’s Article XIII B limit is $421,994,473 and budgeted appropriations subject to limitation are $226,733,800. For Fiscal Year 2010-11, the City’s Article XIII B limit is estimated to be $419,023,446 and budgeted appropriations subject to limitation are estimated to be $213,189,400. The City has never exceeded its Article XIII B appropriations limit and does not anticipate having any difficulty in operating within the appropriations limit.

Article XIII C and Article XIII D of the California Constitution

On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIII C and XIII D to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. The interpretation and application of Proposition 218 likely will be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination.

Article XIII C requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. Further, any general purpose tax which the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election which must be held within two years of November 5, 1996. The City believes that no existing City-imposed taxes deposited into its General Fund will be affected by the voter approval requirements of Proposition 218, although as indicated below certain tax levies may be affected by Proposition 62. The voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs.

Article XIII D also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIII D, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. The City estimates that in Fiscal Year 2009-10 it will collect no such fees and assessments. Article XIII C also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s ability to repay the Notes could be adversely affected.

Proposition 62

Proposition 62, a statutory initiative that was adopted by the voters voting in the State at the November 4, 1986 general election, (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities be approved by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A of the California Constitution, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, (f) required that any tax imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority

vote of the voters voting in an election on the tax within two years of November 5, 1986 or be terminated by November 15, 1988 (a requirement that was subsequently declared unconstitutional, as described below) and (g) requires a reduction of ad valorem property taxes allocable to the jurisdiction imposing a tax not in compliance with its provisions equal to one dollar for each dollar of revenue attributable to the invalid tax, for each year that the tax is collected.

Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. For example, in City of Woodlake v. Logan, 230 Cal.App.3d 1058 (1991) (the “Woodlake Case”), the Court of Appeal held portions of Proposition 62 unconstitutional as a referendum on taxes prohibited by the California Constitution. In reliance on the Woodlake Case, numerous taxes were imposed or increased after the adoption of Proposition 62 without satisfying the voter approval requirements of Proposition 62.

On September 28, 1995, the California Supreme Court, in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal. 4th 220 (1995) (the “Santa Clara Case”), upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax, and, by implication, upheld a parallel provision requiring a majority vote in order for a local government or district to impose any general tax. In deciding the Santa Clara Case on Proposition 62 grounds, the Court disapproved the decision in the Woodlake Case.

The decision in the Santa Clara Case did not address the question of whether it should be applied retroactively. On June 4, 2001, the California Supreme Court released Howard Jarvis Taxpayers Association v. City of La Habra, et al. (“La Habra”). In this decision, the court held that a public agency’s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought.

Proposition 1A

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

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

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

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

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

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

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

The 2009 State Budget Act authorized the State to exercise its Proposition 1A borrowing authority and created a securitization mechanism for local governments to sell their right to receive the state’s payment obligations to a local government-operated joint powers agency. This joint powers agency sold bonds in a principal amount of $1.895 billion in November 2009 to pay the participating local governments their full property tax allocations when they normally would receive such allocations. Pursuant to Proposition 1A of 2004, the State is required to repay the local government borrowing (which in turn will be used to repay the bonds of the joint powers agency) no later than June 30, 2013. The State may not undertake other Proposition 1A Borrowing until it repays this borrowing.

CITY INFORMATION

For a discussion of the economic and demographic profile of the City, see APPENDIX A– “ECONOMIC, DEMOGRAPHIC AND FINANCIAL INFORMATION REGARDING THE CITY OF FRESNO” and APPENDIX B–“CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009.”

TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP (“Note Counsel”), Note Counsel to the City, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. The amount treated as interest on the Notes and excluded from gross income may depend upon the taxpayer’s election under Internal Revenue Notice 94-84. In the further opinion of Note Counsel, interest on the Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of the opinion of Note Counsel is set forth in APPENDIX C–“PROPOSED FORM OF OPINION OF NOTE COUNSEL” hereto.

Notice 94-84, 1994-2 C.B. 559, states that the Internal Revenue Service (the “IRS”) is studying whether the amount of the payment at maturity on debt obligations such as the Notes that is excluded from gross income for federal income tax purposes is (i) the stated interest payable at maturity, or (ii) the difference between the issue price of the Notes and the aggregate amount to be paid at maturity of the Notes (the “original issue discount”). For this purpose, the issue price of the Notes is the first price at which a substantial amount of the Notes is sold to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). Until the IRS provides further guidance, taxpayers may treat either the stated interest payable at maturity or the original issue discount as interest that is excluded from gross income for federal income tax purposes. However, taxpayers must treat the amount to be paid at maturity on all tax exempt debt obligations with a term that is not more than one year from the date of issue in a consistent manner. Taxpayers should consult their own tax advisors with respect to the tax consequences of ownership of the Notes if original issue discount treatment is elected.

Notes purchased, whether at original issuance or otherwise, for an amount higher than the principal amount payable at maturity (“Premium Notes”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of obligations, like the Premium Notes, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Noteholder’s basis in a Premium Note, will be reduced by the amount of amortizable bond premium properly allocable to such Noteholder. Holders of Premium Notes should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Notes. The City has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Notes will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Notes being included in gross income for federal income tax purposes, possibly from the date of original

issuance of the Notes. The opinion of Note Counsel assumes the accuracy of these representations and compliance with these covenants. Note Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Note Counsel’s attention after the date of issuance of the Notes may adversely affect the value of, or the tax status of interest on, the Notes. Accordingly, the opinion of Note Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

One of the covenants of the City referred to above requires the City to reasonably and prudently calculate the amount, if any, of excess investment earnings on the proceeds of the Notes which must be rebated to the United States, to set aside from lawfully available sources sufficient moneys to pay such amounts and to otherwise do all things necessary and within its power and authority to ensure that interest on the Notes is excluded from gross income for federal income tax purposes. Under the Code, if the City spends 100% of the proceeds of the Notes within six months after issuance, there is no requirement that there be a rebate of investment profits in order for interest on the Notes to be excluded from gross income for federal income tax purposes. The Code also provides that such proceeds are not deemed spent until all other available moneys (less a reasonable working capital reserve) are spent. The City expects to satisfy this expenditure test or, if it fails to do so, to make any required rebate payments from moneys received or accrued during the 2010-11 Fiscal Year. To the extent that any rebate cannot be paid from such moneys, California law is unclear as to whether such covenant would require the City to pay any such rebate. This would be an issue only if it were determined that the City’s calculation of expenditures of Notes proceeds or of rebatable arbitrage profits, if any, was incorrect.

Although Note Counsel is of the opinion that interest on the Notes is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Notes may otherwise affect a Noteholder’s federal, state or local tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Noteholder or the Noteholder’s other items of income or deduction. Note Counsel expresses no opinion regarding any such other tax consequences.

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

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

Note Counsel’s engagement with respect to the Notes ends with the issuance of the Notes, and, unless separately engaged, Note Counsel is not obligated to defend the City or the Noteholders regarding the tax-exempt status of the Notes in the event of an audit examination by the IRS. Under current procedures, parties other than the City and its appointed counsel, including the Noteholders, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial

review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of the IRS’s positions with which the City legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Notes for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Notes, and may cause the City or the Noteholders to incur significant expense.

LEGAL MATTERS

Note Counsel’s engagement is limited to a review of the legal proceedings required for the authorization of the Notes and to rendering the opinion set forth in APPENDIX C hereto. Note Counsel takes 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 Lofton & Jennings, San Francisco, California, Disclosure Counsel and for the Underwriters by Quint & Thimmig LLP, San Francisco, California, Underwriters’ Counsel.

Compensation paid to Note Counsel and Disclosure Counsel is contingent on the sale and delivery of the Notes.

LEGALITY FOR INVESTMENT IN CALIFORNIA

Under provisions of the California Financial Code, the Notes are legal investments for commercial banks in the State to the extent that the Notes, in the informed opinion of the investor bank, are prudent for the investment of funds of its depositors and, under provisions of the California Government Code, are eligible to secure deposits of public moneys in the State.

FINANCIAL ADVISOR

The City has retained KNN Public Finance, Oakland, California, as Financial Advisor for the sale of the Notes. KNN Public Finance is an independent public financial advisor and is not engaged in the business of underwriting, trading or distributing municipal or other financial securities. KNN Public Finance takes no responsibility for the accuracy, completeness or fairness of this Official Statement. Compensation paid to the Financial Advisor is contingent on the sale and delivery of the Notes.

RATINGS

The City has received ratings of “MIG-1” and “SP-1+,” respectively, from Moody’s Investor Service (“Moody’s”) and Standard & Poor’s Ratings Services, a Division of the McGraw Hill Companies, Inc. (“S&P”) on the Notes. Certain information was supplied by the City to Moody’s and S&P to be considered in evaluating the Notes. The ratings issued reflect only the views of Moody’s and S&P and are not a recommendation to buy, sell or hold the Notes. Any explanation of the significance of such ratings may be obtained from Moody’s Investors Service at 7 World Trade Center, at 250 Greenwich Street, New York, New York 10007; and Standard & Poor’s, 55 Water Street, New York, New York 10041. There is no assurance that a rating will be retained for any given period of time or that the same will not be revised downward or withdrawn if, in the judgment of the agency providing such rating, circumstances so warrant. Other than as provided in the Continuing Disclosure Certificate, the City undertakes no responsibility either to bring to the attention of the owners of any Notes any downward revision or withdrawal of any rating obtained or to oppose any such revision or withdrawal. Any such

downward revision or withdrawal of the ratings obtained may have an adverse effect on the market price of the Notes.

NO MATERIAL LITIGATION

No material litigation is pending or threatened against the City concerning the validity of the Notes, and a certificate to that effect will be furnished to the purchaser(s) at the time of the original delivery of the Notes. The City is not aware of any litigation pending or threatened against the City questioning the political existence of the City or contesting the City’s ability to levy and collect ad valorem taxes or contesting the City’s ability to issue and repay the Notes.

There are a number of lawsuits and claims pending against the City. The aggregate amount of the uninsured liabilities of the City and the timing of any anticipated payments of judgments which may result from suits and claims will not, in the opinion of the City, materially affect the City’s finances or impair its ability to repay the Notes.

UNDERWRITING

Pursuant to the terms of a Note Purchase Agreement dated June 30, 2010 (the “Purchase Agreement”), between the City and Wedbush Securities Inc. and J.P. Morgan Securities Inc. (the “Underwriters”), the Underwriters will purchase all of the Notes, if any are purchased. The Underwriters purchased the Notes, at a price of $56,940,710.22 (representing the principal amount of the Notes, plus a net original issue premium in the amount of $696,431.00, less an Underwriters’ discount in the amount of $55,720.78). The obligation of the Underwriters to make such purchase is subject to certain terms and conditions set forth in the Purchase Agreement.

J.P. Morgan Securities Inc. (“JPMSI”) has entered into a negotiated dealer agreement with each of UBS Financial Services Inc. (“UBSFS”) and Charles Schwab & Co., Inc. (“CS&CO.”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to its dealer agreement, UBSFS or CS&CO. will purchase securities from JPMSI at the original issue price less a negotiated portion of the selling concession applicable to any Notes that such firms sells. UBSFS and CS&CO. will not be entitled to any compensation from the City in excess of the takedown offered on the bonds for which they submit orders through JPMSI.

CONTINUING DISCLOSURE

Pursuant to the Continuing Disclosure Certificate, the City has agreed to give, or cause to be given, to the Municipal Securities Rulemaking Board (the “MSRB”) through its Electronic Municipal Market Access (“EMMA”), notices, during the time the Notes are outstanding, of the occurrence of certain enumerated events, if material, in accordance with the continuing disclosure certificate to be executed by the City upon delivery of the Notes to enable the Underwriters to comply with Rule 15c2-12 of the Securities and Exchange Commission (the “Rule”). The specific nature of the notices of material events and certain other terms of the continuing disclosure obligation are described in APPENDIX D– “FORM OF CONTINUING DISCLOSURE CERTIFICATE.”

The City has not failed in the last five years to comply in any material respect with any of its prior undertakings to provide continuing disclosure.

ADDITIONAL INFORMATION

The purpose of this Official Statement is to supply information to prospective purchaser(s) of the Notes. Summaries and explanations of the Notes, the Resolution, and statutes and documents contained herein do not purport to be complete, and reference is made to said documents and statutes for a full and complete statement of their provisions. This Official Statement is not to be construed as a contract between the City and any purchaser(s) or owners of the Notes.

The City regularly prepares a variety of reports, including audits, budgets and related documents, as well as certain monthly activity reports. Any owner of a Note may obtain a copy of any such report, as available, from the City by writing to the City Controller/Finance Director, City of Fresno, 2600 Fresno Street, Suite 2156, Fresno California 93726.

This Official Statement and its distribution have been duly authorized and approved by the City Council of the City.

CITY OF FRESNO

By: /s/ Ashley Swearengin Mayor

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APPENDIX A

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

Overview

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

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

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

City Government

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

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The current Mayor and City Council members are set forth in the table immediately below.

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

Member Position Term Expires Ashley Swearingen Mayor January 2013 Blong Xiong, District 1 Councilmember January 2011 Andreas Borgeas, District 2 Councilmember January 2013 Cynthia Sterling, District 3 Councilmember January 2011 Larry Westerlund, District 4 President January 2013 Mike Dages, District 5 Councilmember January 2011 Lee Brand, District 6 Acting President January 2013 Henry T. Perea, District 7 Councilmember January 2011

TABLE A-2 CITY OF FRESNO Key Administrative Personnel

Member Position Mark Scott City Manager Bruce A. Rudd Assistant City Manager James C. Sanchez City Attorney Joe Gray City Controller/Finance Director Rebecca E. Klisch City Clerk

Budgeted City full-time employees number 4,141.63 for Fiscal Year 2009-10.

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Population

Between January 1, 2006 and January 1, 2010, the City’s population increased approximately 6.8% compared to an approximately 6.3% increase and an approximately 4.2% increase for the County and the State of California (the “State”) for the same period. A summary population for the City, the County and the State for 2000 and 2006 through 2010 is shown in Table A-3:

TABLE A-3 CITY, COUNTY AND STATE POPULATION 2000 and 2006 through 2010 (As of January 1)

Year City County State 2000 426,900 797,900 33,753,000 2006 470,342 897,242 37,086,191 2007 478,102 912,725 37,472,074 2008 485,335 928,066 37,883,992 2009 495,231 941,006 38,255,508 2010 502,303 953,761 38,648,090 ______Sources: U.S. Census Bureau for the decennial census. California State Department of Finance, E-4: Population Estimates for Cities, Counties and State, 2001-2009 with 2000 DRU Benchmark and E-1: Population Estimates for Cities, Counties and State with Annual Percentage Change, January 1, 2009 and 2010.

Recent Economic Conditions

The State of California, as the rest of the nation, is in a severe economic recession, since the beginning of 2008 experiencing the most significant economic downturn and financial pressure since the Great Depression of the 1930’s. Personal income fell in the state in the fourth quarter of 2008 and the first quarter of 2009. The rate of contraction was lower in the more recent quarter. In the first quarter of 2009, personal income was down 0.2 percent from a year ago. The only other time personal income declined on a year-over-year basis was in the third quarter of 1949.

The economy of the City and the surrounding community has been affected by the recession. Agricultural unemployment in the region has reached approximately 40% in recent months. Certain tables in this Appendix A reflect the most recent data available and may not fully reflect the impact of the recession.

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Employment

Table A-4 summarizes the average labor patterns in the City, the County, the State and the United States from 2005 through 2009.

TABLE A-4 ESTIMATES OF CIVILIAN LABOR FORCE, EMPLOYMENT, and UNEMPLOYMENT Annual Average for Calendar Years 2005 through 2009†

Unemployment Year and Area Labor Force Employment Unemployment Rate 2005 City 217,300 199,000 18,300 8.4% County 412,100 375,000 37,100 9.0 State 17,740,400 16,782,300 958,100 5.4 United States 149,321,000 141,730,000 7,591,000 5.1 2006 City 217,300 199,000 18,300 7.5 County 414,800 381,400 33,400 8.0 State 17,901,900 17,029,300 872,600 4.9 United States 151,428,000 144,427,000 7,001,000 4.6 2007 City 225,800 207,600 18,200 8.0 County 428,000 391,200 36,800 8.6 State 18,188,100 17,208,900 974,200 5.4 United States 153,124,000 146,047,000 7,078,000 4.6 2008† City 229,200 206,600 22,700 9.9 County 435,200 389,200 46,000 10.6 State 18,391,800 17,059,600 1,332,300 7.2 United States 154,287,000 145,362,000 8,924,000 5.8 2009† City 230,300 197,700 32,700 14.2 County 438,700 372,500 66,200 15.1 State 18,250,200 16,163,900 2,086,200 11.4 United States 154,142,000 139,877,000 14,265,000 9.3 ______† Preliminary. Data is not seasonally adjusted. The unemployment data for the County and State is calculated using unrounded data. Sources: State Employment Development Department, Labor Market Information Division, Labor Force Data for Sub-County Areas and U.S. Department of Labor, Bureau of Labor Statistics.

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Principal Employers

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

Table A-5 below lists the principal employers within the City and their estimated number of full-time employees for calendar year 2009.

TABLE A-5 CITY OF FRESNO Principal Employers

Estimated Full-Time Employer Industry/Service Employees Fresno County County Government 10,400 Community Medical Centers Healthcare 7,000 City of Fresno City Government 4,008 Zacky Farms, LLC Poultry Processing 3,000 Saint Agnes Medical Center Healthcare 2,900 Kaiser Permanente Healthcare 2,506 California State University, Fresno Public University 2,500 Foster Farms Poultry Processing 1,800 Cargill Meat Solutions Meat Products 1,500 State Center Community College District Education 1,155 Casino College Casinos 1,100 AT&T Communications 1,000 ______TM Source: infoUSA.com a service of infoGROUP .

Personal Income

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

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

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Table A-6 below presents the latest available annual personal income data for the County, the State and the nation for the calendar years 2005 through 2009.

TABLE A-6 COUNTY OF FRESNO Personal Income Calendar Years 2005 through 2009†

Per Capita Personal Income Personal Income Year and Area (millions of dollars) (dollars) 2005 County $24,078 $27,758 State 1,387,682 38,767 United States 10,476,669 35,424 2006 County 25,730 29,305 State 1,495,560 41,567 United States 11,256,516 37,698 2007 County 27,117 30,472 State 1,572,271 43,402 United States 11,879,836 39,392 2008 County 27,994 30,997 State 1,604,113 43,852 United States 12,225,589 40,166 2009† County N/A N/A State 1,564,839 39,138 United States 12,015,535 42,525 ______† Preliminary. Most recent annual data. Source: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System, April 2010.

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Construction Activity

In Fiscal Year 2008-09, the City issued construction permits valued in excess of $354 million. Of the total dollar volume in Fiscal Year 2009-10, approximately 54% were issued in connection with residential projects. Building permit valuations for the last 10 Fiscal Years is summarized in Table A-7.

TABLE A-7 CITY OF FRESNO Property Value and Construction Fiscal Years 1999-00 through 2008-09

Construction Permits Issued Commercial Residential Fiscal Assessed Number of Number of Year Value(1) Permits(2) Value(1) Permits(2) Value(1) 1999-00 $15,315,251 1,720 $244,368 4,260 $209,258 2000-01 16,040,139 1,279 297,836 4,831 241,607 2001-02 16,907,355 1,358 150,604 4,815 198,631 2002-03 17,668,086 1,524 259,533 6,201 275,223 2003-04 18,911,068 1,530 233,198 7,024 420,284 2004-05 21,051,751 1,498 173,950 7,526 484,182 2005-06 23,102,301 1,498 196,179 7,987 529,889 2006-07 26,362,095 1,647 255,044 6,669 407,679 2007-08 29,972,516 1,180 209,606 5,880 395,073 2008-09 30,250,400 1,186 162,351 3,494 192,551 ______(1) Amounts expressed in thousands. (2) Includes individual units and structures as appropriate-a composite of new construction, repairs and relocations. Sources: County of Fresno Assessor’s Office for Assessed Value and the City of Fresno Development Department for all other information.

Foreclosure Activity

During, calendar year 2009, mortgage holders had sent 7,558 notices of default with respect to properties located within the City compared to 6,333 during calendar year 2008, and 3,537trustee deeds had been recorded in calendar year 2009 (indicating that the property has been lost to foreclosure), compared to 4,071 during calendar year 2008. During the first quarter (January through March) of calendar year 2010, mortgage holders sent 1,254 notices of default and recorded 879 trustee deeds compared to 2,312 notices of default sent and 697 trustee deeds recorded during the first quarter of calendar year 2009. These events are related to declines in the real estate market in general and the collapse of the subprime sector of the mortgage market that is impacting certain homeowners nationwide. In California, the greatest impacts to date are in regions of the Central Valley and the Inland Empire in the southern part of the State, due to the relative affordability of housing in these areas.

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A summary of the notices of default sent and trustee deeds recorded for the City and the County during calendar years 2007 through 2009 and for the first quarter of calendar years 2009 and 2010 is summarized in Table A-8.

TABLE A-8 CITY OF FRESNO AND FRESNO COUNTY Summary of Foreclosure Activity Calendar Years 2007 through 2009 and First Quarter of Calendar Years 2009 and 2010

Notices of Default Trustee Deeds (Foreclosures) First Quarter First Quarter January through March January through March 2007 2008 2009 2009 2010 2007 2008 2009 2009 2010 City 4,191 6,333 7,558 2,312 1,254 1,347 4,071 3,537 697 879 % Change – 51.1% 19.4% – (45.8%) – 202.2% (13.1%) – 26.1%

County 6,314 9,355 11,484 3,460 1,989 1,914 5,708 5,197 1,026 1,305 % Change – 48.2% 22.8% – (42.5%) – 198.2% (8.9%) – 27.2% ______Source: MDA DataQuick Information.

Commercial Activity

The City is located in the center of a California market of more than 35 million people. The City serves as the retail, financial and service center for the San Joaquin Valley. The City’s economy, stemming from its location in the nation’s number one agricultural producing county, is expanding to a broader base, including increased investment, development and employment in the industrial and commercial sectors.

Transportation

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

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

Airports. The Fresno Yosemite International Airport (the “Airport”) is located approximately 7.5 miles northeast of the downtown area on approximately 1.728 acres. The Airport, which includes an approximately 178,000 square foot terminal complex, is the regional airport for the Central San Joaquin Valley. The Airport is served by most major carriers as well as commuter carriers. In Fiscal Year 2008-09 the Airport had more than 1,116,400, enplaned and deplaned passengers and handled approximately 17,188,700 pounds of enplaned and deplaned cargo. Non-stop service is available to nine cities in the United States and one in Mexico. Cargo carried by freight forwarders and consolidators is located on an approximately 87 acre “Air Cargo Park” on the north side of the Airport, and includes an approximately 15.5 acre aircraft ramp and cargo processing area, ground service equipment storage, truck loading and unloading areas, administrative support spaces and storage and maintenance facilities.

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

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

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

Education and Community Services

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

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

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

Culture and Recreation

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

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

The Save Mart Arena opened at Fresno State in 2003. This 450,000 square foot facility is the home of the Fresno State Bulldog basketball team, as well as serving as the premier location for major concerts and other performance events in the area, and seats between 15,000 to 18,000, depending on the

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seating configuration. The Save Mart Arena was privately financed and is operated by SMG, the same company with whom the City has contracted to manage the Fresno Convention and Entertainment Center.

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

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

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

Investment Policy

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

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

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

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TABLE A-9 CITY OF FRESNO Investment Limits by Type

Maximum Maximum Maximum Maximum Percentage Limit Percentage Limit Maximum Percentage Percentage of Portfolio of Portfolio Percentage of Single Quality Limit of Limit of Per Single Issuer Per Single Issuer Issuer’s Debt Authorized Investments Maturity Rating State Fresno State Fresno State/Fresno City of Fresno Debt 5 Years N/A 100% 100% 100% 100% 100% U.S. Treasuries 5 Years N/A 100 100 100 100 100 California Debt 5 Years N/A 100 100 100 100 100 Cal Local Agency Debt 5 Years N/A 100 100 100 100 100 GSE Agencies 5 Years N/A 100 70 100 50 100 Banker’s Acceptances 180 Days N/A 40 40 30 30 100 Commercial Paper 270 Days A-1/P-1 25 25 25 10 10 Negotiable CDs 5 Years N/A 30 30 30 30 Shareholders Equity Time Deposits 5 Years Collateral 100 100 100 100 Shareholders Equity A-11 Government Code Until Section 53601.8 CDs 1/1/2012 Insured 30 30 30 30 Shareholders Equity Repurchase Agreements(1) 1 Year Collateral 100 100 100 100 100 Reverse Repurchase Agreements(2) 92 Days N/A 20 20 N/A N/A 100 Securities Lending Agreements(2) 92 Days N/A 20 20 N/A N/A 100 Medium-Term Notes 5 Years A 30 30 30 20 100 Mutual Funds N/A AAA 20 20 10 10 100 Money Market Funds N/A AAA 20 20 20 20 100 Mortgage/Asset Backed Debt 5 Years AA 20 20 20 20 100 LAIF N/A N/A 100 100 100 100 100 ______(1) Investments in repurchase agreements may not exceed one year and the market value of the underlying securities must maintain a value of 102% or greater of the funds borrowed against those securities. (2) Investments in reverse repurchase agreements and security lending agreements require that the securities to be sold or lent must have been owned for a minimum of 30 days prior to the transaction, the total amount of securities may not exceed 20% of the portfolio, the agreement may not exceed a term of 92 days unless there is a guaranteed spread for the entire period, the borrowed funds may not be invested for more than 92 days, unless there is a guaranteed spread for the entire period and such agreements are entered into with the prior approval of the City Council.

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

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

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

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

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

Summary of Current Investments. The following Table A-10 summarizes the type of investments and other information on the portfolio as of May 31, 2010. As of such date, the portfolio had a weighted average maturity of 2.35 years and a current market yield of 1.70% for the previous 12 months.

TABLE A-10 CITY OF FRESNO Portfolio Summary As of May 31, 2010

Par Value and Amortized Market Par Accumulated Investment Cost Percent Value Value Future Earnings Federal Agency Notes $96,808,304 57.55% $97,557,904 $96,825,000 $109,251,326 Local Agency Investment Fund† 50,000,000 29.72 50,000,000 50,000,000 50,000,000 Time Deposits 11,416,237 6.79 11,416,237 11,416,237 11,416,237 Mutual Funds† 10,003,288 5.95 10,003,288 10,003,288 10,003,288 Cash – – 105,929,184 – – TOTAL INVESTMENTS $168,227,829 100.00% $274,906,613 $168,244,525 $180,670,851 ______† Future earnings estimate. Source: City of Fresno Finance Department.

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City Retirement Systems

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

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

Funding Policy. The contribution requirement for members of the Retirement Systems and the City is established by the City Municipal Code and is administered by the Retirement Boards. The contribution rates, which are based upon calculations of the independent actuary of the Retirement Systems and adopted by the respective Retirement Boards, are presented as a percentage of the annual covered salary/payroll. The current contribution rates for Fiscal Year 2009-10 are as follows: Employees Retirement System - 10.62%; Fire and Police Retirement System Inc. - Tier 1: 26.38% and Tier 2: 18.49%.

Proceeds of pension obligation bonds, originally issued in 1994, and subsequently refunded, were used by the City to fund its obligations to the Retirement Systems, including the City’s unfunded liability and the unpaid balance of the City’s normal costs for the then-current year contribution to the Retirement Systems in Fiscal Year 1993-94. As a result of investment earnings outperforming actuarial assumptions, each Retirement System generated an actuarial surplus (a “prefunded actuarial liability” or a “PAAL”). In addition, proceeds from forward purchase investment agreements were invested as prepaid contributions by the City to the Retirement Systems. A portion of the PAAL, together with prepaid City contributions and earnings thereon in excess of the actuarial assumptions are used to off-set the required City contribution amount in each Fiscal Year. The City was not required to make any contributions to the Fire and Police Retirement System or to the Employees Retirement System between Fiscal Year 1995-96 and Fiscal Year 2005-06 due to excess earnings and use of pre-funded contributions. For Fiscal Year 2007-08 and Fiscal Year 2008-09 the City was not required to make a contribution to the Employees Retirement System but made contributions to the Fire and Police Retirement System of $1,851,376 and $5,720,438; and $1,695,726 and $5,583,336 for Fiscal Years 2007-08 and 2008-09, respectively for Tier 1 and Tier 2.

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

TABLE A-11 SCHEDULE OF NET EMPLOYER Net Contribution Rates to the Retirement Systems

Fiscal Year Ended Retirement Systems (June 30) Fire and Police(1) Employees 2005 0.00% 0.00% 2006 0.00 0.00 2007 5.38(2) 0.00 2008 8.01(3) 0.00 2009 7.32(4) 0.00 2010 11.74(5) 0.00

______(1) Represents the combined net Employer Normal Costs for Tier 1 and Tier 2 employees. (2) Represents the rate adopted by the Fire and Police Retirement Board effective July 1, 2006. (3) Represents the rate adopted by the Fire and Police Retirement Board effective July 1, 2007. (4) Represents the rate adopted by the Fire and Police Retirement Board effective July 1, 2008. (5) Represents the rate adopted by the Fire and Police Retirement Board effective July 1, 2009. Sources: Annual Actuarial Valuations as of June 30, 2005 through June 30, 2010.

TABLE A-12 FIRE AND POLICE RETIREMENT SYSTEM Member Population (As of through June 30)

2005 2006 2007 2008 2009 Active Members(1) 1,065 1,097 1,130 1,182 1,164 Vested Terminated Members(2) 31 44 69 73 76 Retired Members and Beneficiaries(3) 797 819 847 856 865 TOTAL 1,8930 1,960 2,046 2,111 2,105 Ratio of Non Active to Active Members 0.78:1 0.79:1 0.81:1 0.79:1 0.81:1 ______(1) Currently receiving benefits. (2) Also includes deferred vested members who have terminated their employment with the City and are entitled to benefits but are not yet receiving them. Sources: Comprehensive Annual Financial Reports, for the Fiscal Years ended June 30, 2005 through 2009.

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TABLE A-13 EMPLOYEES RETIREMENT SYSTEM Member Population (As of June 30)

2005 2006 2007 2008 2009 Active Members 2,286 2,319 2,422 2,509 2,490 Vested Terminated Members† 127 172 190 195 188 Retired Members and Beneficiaries 1,202 1,256 1,306 1,358 1,400 TOTAL 3,615 3,747 3,918 4,062 4,078 Ratio of Non Active to Active Members 0.58:1 0.62:1 0.62:1 0.62:1 0.64:1 ______† Also includes deferred vested members who have terminated their employment with the City and are entitled to benefits but are not yet receiving them. Sources: Comprehensive Annual Financial Reports, for the Fiscal Years ended June 30, 2005 through 2009.

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

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

Article XIIIA of the State Constitution provides for levying ad valorem taxes to pay for debts approved by the voters prior to July 1, 1978. In the case of Carmen v. Alvord, the Supreme Court of California held that such indebtedness included obligations incurred by cities in connection with the institution of pension plans for their employees under specific taxing authority provided by the voters before July 1, 1978. In 1984, the City Council approved a levy of one-seventh of the amount of the City’s share of pension plan contribution for General Fund employees. Shortly thereafter, the State imposed a freeze on taxes provided for under the Carmen decision, which prohibited the City from increasing the tax rate imposed in 1984. The rate is $0.032438 per $100 of assessed valuations to fund pension obligations. This tax override generated $9.8 million in tax revenues to the General Fund in Fiscal Year 2008-09.

Recent Market Events

Following June 30, 2008, the global investment markets began experiencing unprecedented turmoil related directly to the restricted availability of capital, the continued write-down of mortgage related assets led initially by defaults in the sub-prime mortgages and the continued sharp decline in the global housing markets.

In the U.S. these events resulted in federal intervention due to the bankruptcy declared by Lehman Brothers and the near failure of several large domestic financial institutions. However, despite federal intervention the markets continue to suffer significant losses stemming from a general uncertainty about how best to address the expanded global credit crisis and losses that these financial institutions are facing.

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While it is the opinion of the management of the Systems and the System’s actuary that the Systems remain strong, well funded and well positioned to serve their members, the value of the System’s assets have been affected by this turbulent global market environment. However, the Systems incurred an investment loss of -20.12 percent in fiscal year 2009, and an investment gain of approximately 24.50 percent fiscal year to date for 2010 that will be recognize in their June 30, 2010 Comprehensive Annual Financial Reports. Market fluctuations are a normal investment risk for a pension fund and the Systems are long-term investors.

Negative returns on the Plan’s assets through June 30, 2009, will affect the funded status of the System. However, the ultimate impact on the funded status will be determined based on market conditions in effect when the actuarial annual valuation for the fiscal year ended June 30, 2010 is performed.

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

TABLE A-14 FIRE AND POLICE RETIREMENT SYSTEM Schedule of Funding Progress ($ in 000’s)

Unfunded Actuarial AAL Accrued (UAAL)(2)/ PAAL as a Actuarial Liability (Prefunded) Percentage Actuarial Value of (AAL)(1) AAL Funded Covered of Covered Valuation Assets Entry Age (PAAL)(3) Ratio Payroll Payroll Date (a) (b) (b–a) (a/b) (c) ((b-a)/c) 6/30/2004 $793,059 $642,194 ($150,865) 123.5% $68,483 (220.3%) 6/30/2005 846,718 670,101 (176,617) 126.4 73,422 (240.6) 6/30/2006 906,223 722,722 (183,501) 125.4 82,493 (222.4) 6/30/2007 1,000,961 773,236 (227,725) 129.5 89,516 (254.4) 6/30/2008 1,066,778 830,036 (236,742) 128.5 98,913 (239.3) 6/30/2009 1,045,774 874,355 (171,419) 119.6 102,355 (167.5) ______(1) Actuarial Accrued Liability. (2) Unfunded Actuarial Accrued Liability. (3) Prefunded Actuarial Accrued Liability. Sources: Annual Actuarial Valuation and Reports prepared by the Actuary to the Retirement Boards.

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TABLE A-15 EMPLOYEES RETIREMENT SYSTEM Schedule of Funding Progress ($ in 000’s)

Unfunded Actuarial AAL (UAAL)/ PAAL as a Actuarial Accrued (Prefunded) Percentage Actuarial Value of Liability AAL Funded Covered of Covered Valuation Assets (AAL)-PUC(3) (PAAL)(4) Ratio Payroll Payroll Date (a) (b) (b–a) (a/b) (c) ((b-a)/c) 6/30/2004 $741,766 $554,366 ($187,400) 133.8% $99,745 (187.9%) 6/30/2005 790,858 565,550 (225,308) 139.8 102,558 (219.7) 6/30/2006 847,516 613,913 (233,603) 138.1 111,379 (209.7) 6/30/2007 926,525 631,305 (295,220) 146.8 122,232 (241.5) 6/30/2008 980,961 689,833 (291,128) 142.2 138,110 (218.7) 6/30/2009 958,032 715,250 (242,782) 113.9 139,274 (174.3) ______(1) Actuarial Accrued Liability. (2) Unfunded Actuarial Accrued Liability. (3) Projected Unit Credit Method. (4) Prefunded Actuarial Accrued Liability. Sources: Annual Actuarial Valuation Reports, prepared by the Actuary to the Retirement Boards.

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

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

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

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In 1994, the City issued pension obligation bonds to fund its unfunded liability to the System. As a result, investment earnings have substantially increased, which has reduced the normal contribution rate to the City. Because the factors affecting the amount of City contributions, including that the investment performance of the Systems are not constant, no prediction can be made whether the earnings of the Retirement Systems will continue to reduce the City’s required normal contributions.

As discussed above, excess earnings, if any, on prepaid contributions made by the City to the Retirement Systems and surplus earnings of each Retirement System are used to off-set or reduce the City contribution amounts due in each Fiscal Year. The amounts shown below for Fiscal Years 2004-05 through 2008-09 under the column “Net City Contributions” were paid from such excess earnings. As of June 30, 2009, the amount remaining on deposit for prepaid employer contributions to the Fire and Police Retirement System was $0 and the amount remaining on deposit for prepaid employer contributions to the Employee Retirement System was $3,088,481. The employee and City contributions to each Retirement System, net assets at the end of the year and the total investment return of each system value for the past five Fiscal Years ending June 30, 2009 is set forth in Tables A-16A and A-16B below:

TABLE A-16A FIRE AND POLICE RETIREMENT SYSTEM Schedule of Revenues Net Assets and Return on Market Value Fiscal Years 2004-05 through 2008-09

Source of Revenues Net Assets Withdrawals at Market Fiscal from City Investment Value Total Year Employee Prepaid Net City Income/ End of System (June 30) Contributions Contributions Contributions (Loss)(1) Year(2) Return(3) 2005 $4,963,353 $8,806,044 $0 $91,761,097 $957,987,582 10.94% 2006 5,335,793 6,885,866 2,000,000 110,590,200 1,044,738,026 12.12 2007 5,393,526 5,646,501 5,160,290 172,876,811 1,193,398,333 17.36 2008 6,788,227 1,194,252 7,571,814 (76,495,192) 1,088,054,423 (6.05) 2009 7,172,358 1,659,426 7,279,062 (224,035,998) 832,727,773 (20.12) ______(1) Net of Investment Expenses. (2) Net of benefits paid, administrative costs, refund of contributions and other deductions. (3) Before deduction of administrative fees and investments costs. Sources: The City of Fresno Fire and Police Retirement System Comprehensive Annual Financial Reports for the Fiscal Years Ended June 30, 2005 through 2009.

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TABLE A-16B EMPLOYEES RETIREMENT SYSTEM Schedule of Revenues Net Assets and Return on Market Value Fiscal Years 2003-04 through 2008-09

Source of Revenues Net Assets Withdrawals at Market Fiscal from City Investment Value Total Year Employee Prepaid Net City Income/ End of System (June 30) Contributions Contributions Contributions (Loss)(1) Year(2) Return(3) 2005 $4,749,521 $0 $0 $83,471,311 $872,565,085 10.94% 2006 4,643,173 0 0 99,672,562 945,868,848 12.12 2007 5,094,188 1,566,215 0 156,545,863 1,078,859,346 17.36 2008 5,665,627 354,894 0 (69,498,414) 969,030,584 (6.05) 2009 5,845,044 1,345,274 0 (200,504,487) 735,578,804 (20.12) ______(1) Net of Investment Expenses. (2) Net of benefits paid, administrative costs, refund of contributions and other deductions. (3) Before deduction of administrative fees and investments costs. Sources: City of Fresno Employees Retirement System Comprehensive Annual Financial Reports for the Fiscal Years Ended June 30, 2005 through 2009.

Investment Policy.

Objectives. The Retirement Boards maintain a written policy with respect to the Investment Objectives and Policy Statement (the “Investment Policy”) of all funds under the direct authority of the Retirement Boards. The current Investment Policy was adopted February 10, 2010. The basic objectives of the Investment Policy are: (i) safety of funds invested, (ii) liquidity sufficient to meet all cash needs of the Retirement Systems, and (iii) attaining investment performance that is competitive in the current market environment once the first two objectives have been satisfied.

The overall investment objectives of the Investment Policy are as follows: At a minimum, to achieve an overall nominal return equivalent to the actuarial interest rate of the Retirement Systems; earn a total return on all assets of the Retirement Systems that averages four to six percent in excess of the rate on inflation; exceed the return of the passive, market-based, investment benchmarks of the Retirement Systems; achieve a total fund return ranking above the median of other public sector retirement funds; and Risk-adjusted performance is expected to also be above that of the median pension fund. Allocations to specific asset classes are based on the Retirement Systems’ asset mix, which in turn is based on the Retirement Systems’ asset allocation study as updated. The current asset allocation study was most recently updated on July 16, 2008.

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

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

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

Asset Allocation Plan and Target Asset Mix. Based on the Retirement Systems’ asset allocation study and acceptance of the proposed target mix (most recently updated on July 16, 2008), the following is the target asset mix and allocation ranges for the Retirement Systems:

Allocation Ranges Minimum Target Maximum

TOTAL DOMESTIC EQUITY 25.00% 30.00% 35.00% Large Cap 18.50 22.50 26.50 Small Cap 4.50 7.50 10.50

TOTAL INTERNATIONAL EQUITY 25.00 30.00 35.00 International Equity 21.00 25.00 29.00 Emerging Market Equity 0.00 5.00 7.00

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

DOMESTIC REAL ESTATE 8.00 10.00 12.00

SHORT-TERM INVESTMENTS 0.00 0.00 2.00 TOTAL 100.00%

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

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

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

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

Summary of Current Investments. The following table shows the type of investments held in the Retirement Systems portfolio as of March 31, 2010.

TABLE A-17 RETIREMENT SYSTEMS Summary of Current Investments As of March 31, 2010 ($ in 000’s)

Market Investment Percent Value Domestic Equity Large Cap 22.4% $414,808,473 Small Cap 8.5 157,655,494 International Equity Developed Market Equity 25.7 476,306,614 Emerging Market Equity 5.0 93,019,792 Domestic Fixed Income 29.9 553,159,349 Real Estate 8.3 154,133,401 Cash 0.2 2,419,100 TOTAL INVESTMENTS 100.00%† $1,851,502,223 ______† The actual sum of the entries may differ due to independent rounding. Source: Northern Trust reports for the Retirement Systems.

Post Retirement Supplemental Benefit Program

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

If an actuarial surplus is declared in either of the Retirement Systems, the surplus is allocated to the respective Retirement System into two components: the first component is composed of two-thirds of the declared surplus which is used to reduce or eliminate the City’s pension contributions, with any

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unused portion deposited in the City Surplus Reserve for offset of required City contributions in subsequent years. The second component, representing the remaining one-third of the declared surplus, is distributed among eligible post-retirement supplemental benefit recipients in accordance with procedures set forth in the City Municipal Code, with any unused portion deposited in the PRSB Reserve and available for use in subsequent years if needed.

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

TABLE A-18A FIRE AND POLICE RETIREMENT SYSTEM Post Retirement Supplemental Benefit Program

Amount Offset Amount of of PRSB Benefits Required City Fiscal Year Distributed to Pension City Surplus PRSB Reserve Ended June 30 Retirees Contribution Reserve Balance Balance 2004 $5,169,376 $11,915,333 $0 $3,822,890 2005 3,859,816 13,878,454 0 1,716,000 2006 2,548,218 6,478,119 0 2,100,217 2007 2,872,008 6,628,084 0 2,226,021 2008 3,455,951 9,588,184 0 3,195,524 2009 4,660,788 9,300,335 0 3,572,344(1)

TABLE A-18B EMPLOYEES RETIREMENT SYSTEM Post Retirement Supplemental Benefit Program

Amount Offset Amount of of PRSB Benefits Required City Fiscal Year Distributed to Pension City Surplus PRSB Reserve Ended June 30 Retirees Contribution Reserve Balance Balance 2004 $2,429,902 $11,652,135 $7,151,000 $325,000 2005 1,157,062 11,281,398 3,365,000 946,000 2006 2,148,543 11,095,490 967,446 1,781,602 2007 2,966,913 6,896,643 0 1,963,083 2008 4,071,510 9,994,568 0 3,255,415 2009 5,084,478 9,027,898 0 3,052,799(2) ______(1) Approximately $2,296,618 of this amount is committed for PRSB distribution during July through December 2009. (2) Approximately $2,580,234 of this amount is committed for PRSB distribution during July through December 2009.

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

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active employees as well as at termination or retirement. Annual leave allows for the cashing out of 25% of the accumulated balance up to and including 48 hours once per fiscal year.

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

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

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

The Accrued Employee Leave balances payable from the General Fund as of June 30, 2009 was $23,122,028 of which the current portion was $4,928,427.

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

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

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

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The recorded liability for the Health and Welfare Trust at June 30, 2009 is $3,400,000. Changes in the funds claims liability amount for the last three fiscal years are as follows:

Beginning of Current Year End of Fiscal Year Fiscal Year Provision for Fiscal Year Ended June 30 Liability Claims Claims Payments Liability 2007 $2,600,000 $27,415,933 $26,865,993 $3,150,000 2008 3,150,000 29,101,554 28,301,554 3,950,000 2009† 3,950,000 27,101,978 27,651,978 3,400,000 ______† Most recent data available.

GASB 45

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

The City engaged the services of an actuary to determine the Actuarial Accrued Liability (the “AAL”) as of June 30, 2008, which is equal to that portion of the Actuarial Present Value of Benefits deemed to have been earned to date. The AAL was calculated using the Projected Unit Credit actuarial cost method. For employees who have not yet attained full eligibility for postretirement benefits, this method assigns a proration based on service to date compared with service at the earliest date of full eligibility for benefits. For the amortizations of Unfunded AAL and Net OPEB Obligation, the “level dollar” method was used over a rolling 30 years. The AAL which results, is contingent upon a variety of assumptions about future events which includes demographic assumptions such as mortality, turnover, disability and retirement, economic assumptions such as rates of discount and compensation; per-capita cost assumptions and retiree self-pay assumptions. Actuarial Valuation as of June 30, 2008 under GASB 43/45 is shown on the following page:

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TABLE A-19 POST-EMPLOYMENT BENEFIT SUMMARY Based Upon a 4.5% Discount Rate As of June 30, 2008†

General Safety Safety Blue Participant Count Employees Tier 1 Tier 2 Collar Total Current Retirees & surviving spouses 239 310 18 56 623 Other eligible participants 394 160 27 148 729 Other participants not yet eligible 1,481 82 903 529 2,995 TOTAL 2,114 552 948 733 4,347

ACTUARIAL PRESENT VALUE OF BENEFITS (APVB) AT JUNE 30, 2008 Current Retirees & surviving spouses $7,037,800 $24,691,200 $3,514,600 ($314,100) $34,929,500 Other Eligible participants 4,712,800 18,708,700 2,657,500 58,700 26,137,700 Other participants not yet eligible 23,651,200 11,610,100 118,979,600 143,200 154,384,100 TOTAL APVB $35,401,800 $55,010,000 $125,151,700 ($112,200) $215,451,300

ACTUARIAL ACCRUED LIABILITY (AAL) AT JUNE 30, 2008 Current Retirees & surviving spouses $7,037,800 $24,691,200 $3,514,600 ($314,100) $34,929,500 Other eligible participants 4,712,800 18,708,700 2,657,500 58,700 26,137,700 Other participants not yet eligible 11,192,300 10,332,200 46,156,800 76,100 67,757,400 TOTAL AAL $22,942,900 $53,732,100 $52,328,900 ($179,300) $128,824,600

FUNDED STATUS AT JUNE 30, 2008 Actuarial Value of Assets $0 $0 $0 $0 $0 Unfunded Actuarial Accrued Liability $22,942,900 $53,732,100 $52,328,900 ($179,300) $128,824,600 Funded Ratio 0% 0% 0% 0% 0% Covered Payroll $91,602,100 $24,273,200 $67,033,300 $33,074,500 $215,983,100 UAAL as a % of Covered Payroll 25% 221% 78% (1%) 60% ______† Most recent data available. Source: Actuarial Valuation of Postretirement Welfare Benefits Under GASB 43/45 as of June 30, 2008 prepared by Rael & Letson Consultants and Actuaries.

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

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

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The table below shows the ARC and annual OPEB cost for Fiscal Year 2008-09.

TABLE A-20 POST-EMPLOYMENT BENEFIT COST SUMMARY

General Safety Safety Employees Tier 1 Tier 2 Blue Collar Total † ANNUAL REQUIRED CONTRIBUTION (ARC) AND ANNUAL OPEB COST (AOC) FOR 2008-09 Normal Cost for 2008/2009 $1,596,500 $426,700 $7,098,800 $8,700 $9,130,700 Amortization of UAAL as of June 30, 2009 1,377,800 3,226,900 3,142,600 (10,800) 7,736,500 TOTAL ARC FOR 2008-09 $2,974,300 $3,653,600 $10,241,400 ($2,100) $16,867,200 ______† Most recent data available. Source: Actuarial Valuation of Postretirement Welfare Benefits Under GASB 43/45 as of June 30, 2008 prepared by Rael & Letson Consultants and Actuaries.

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

Principal Sources of General Fund Revenues

Sales tax revenues are the single largest revenue source to the General Fund, representing approximately 28.0% of Fiscal Year 2008-09 operating revenues; followed by property taxes representing approximately 27.2%; and Motor Vehicle in Lieu Fees (the “VLF”), representing approximately 15.7%. These three sources represent an aggregate of approximately 72.9% of the General Fund Revenues for Fiscal Year 2008-09 Adopted Budget, and represented an aggregate of approximately 72.8% of General Fund revenues in Fiscal Year 2007-08. For a discussion of potential State Budget impacts on General Fund Revenues, see “–State Budgets.” For a discussion of sales tax revenues and property taxes, see “–Sales Tax.” and “–Ad Valorem Property Taxation.” For a discussion of the VLF, see “–Motor Vehicle in Lieu Fees” and “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS– Proposition 1A.”

Sales Tax

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

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

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

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City, would reduce the level of taxable sales generated in the City, thereby reducing sales tax revenues. Table A-12 shows historical retail sales for certain businesses.

TABLE A-21 CITY OF FRESNO Taxable Retail Sales Data for Calendar Years 2004 through 2008 ($ in 000’s)

2004 2005 2006 2007 2008† RETAIL STORES Apparel Stores $231,108 $252,666 $280,119 $290,946 $283,133 General Merchandise 904,112 961,296 990,836 988,682 944,584 Food Stores 324,347 341,315 363,934 362,766 337,074 Eating & Drinking Places 552,473 593,847 637,685 655,557 660,571 Home Furnishings and Appliances 236,070 258,904 261,887 242,624 241,818 Building Materials and Farm Implements 527,691 594,555 605,544 464,636 352,932 Auto Dealers and Auto Supplies 1,025,185 1,115,571 1,111,883 1,105,091 844,893 Service Stations 324,584 392,978 454,752 515,226 568,358 Other Retail Stores 794,912 900,150 936,998 870,453 717,065 TOTAL RETAIL STORES 4,920,482 5,411,282 5,643,638 5,495,981 4,950,427 All Other Outlets 1,356,274 1,504,970 1,610,830 1,626,195 1,640,707 TOTAL ALL OUTLETS $6,276,756 $6,916,252 $7,254,468 $7,122,176 $6,591,134 ______† Most recent annual data available. Source: State Board of Equalization.

Assessed Valuation

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

The California State Legislature adopted in 1969 the Homeowners Property Tax Relief Program. The State reimbursed redemption currently provides a credit of $7,000 of the full value of the owner- occupied dwelling for which application has been made to the County Assessor. The revenue estimated to be lost to local taxing agencies due to the exemption is reimbursed from State sources. Reimbursement is based upon total taxes due on such exempt value and is not reduced by an amount for estimated or actual delinquencies.

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Certain classes of property such as churches, colleges, not-for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. Total assessed valuation of City property for the past 10 years is set forth in Table A-22.

TABLE A-22 CITY OF FRESNO Assessed Value of Taxable Property† Last 10 Fiscal Years

Fiscal Year Assessed Valuation 1999-00 $15,315,251,226 2000-01 16,040,139,117 2001-02 16,907,355,176 2002-03 17,668,086,326 2003-04 18,911,067,637 2004-05 21,051,751,380 2005-06 23,102,300,498 2006-07 26,362,095,349 2007-08 29,972,515,865 2008-09 30,250,399,854 2009-10 28,552,848,563 ______† Includes secured and unsecured property. Source: City of Fresno Finance Department.

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

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

Ad Valorem Property Taxation

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

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

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

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

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

Table A-23 below sets forth the levies, collections and percent of collections and levies for property taxes in the City for the last 10 Fiscal Years.

TABLE A-23 CITY OF FRESNO Property Tax Levies and Collections Last 10 Fiscal Years

Total Fiscal Collections Year Total Percent of Delinquent Total As Percent Ending Net Current Tax Levy Tax Tax of Current June 30 Tax Levy(1) Collections Collected Collections Collections Levy(2) 2000 $39,248,393 $38,641,638 98.45% $1,419,692 $40,061,330 102.07% 2001 40,376,898 39,847,334 98.69 775,322 40,622,656 100.61 2002 41,466,342 40,714,792 98.19 1,141,457 41,856,249 100.94 2003 42,693,647 41,140,273 96.36 784,581 41,924,854 98.20 2004 45,316,812 43,981,854 97.05 2,012,461 45,994,315 101.50 2005 45,141,756 44,752,794 99.14 1,769,044 46,521,838 103.06 2006 50,645,808 54,159,317 106.94 1,786,932 55,946,249 110.47 2007 93,710,698(3) 96,159,317 102.62 2,213,392 98,377,149(3) 104.98 2008 105,918,031 106,410,341 100.46 1,809,904 108,220,245 102.17 2009 106,013,645 106,562,128 100.52 10,721,793 117,283,921 110.63 ______(1) Net tax levy includes revenue from supplemental taxes and revenue from public safety pension override. (2) The amount collected in certain Fiscal Years exceeds the net total tax levy due to payment of prior Fiscal Year delinquent taxes and interest and penalties thereon and supplemental assessments. Under Chapter 3.5 of Part 0.5 of Division 1 of the State Revenue and Taxation Code, supplemental assessments are added to a supplemental roll whenever new construction is completed and there is a change in ownership. (3) Prior to Fiscal Year 2006-07, the County calculated the tax levy net of the VLF backfill payments. Commencing in Fiscal Year 2006-07, the VLF amounts are included in the tax levy amount. Source: City of Fresno Finance Department.

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

Table A-24 sets forth the City’s principal secured taxable property owners by valuation for Fiscal Year 2009-10.

TABLE A-24 CITY OF FRESNO Principal Secured Taxable Property Owners by Valuation (Fiscal Year 2009-10)

2009-10 Secured % of Total City Taxpayer Type of Business Assessed Value Assessed Value† The Gap Inc. Freight Truck Terminal/Warehouse $151,289,545 0.57% Macerich Fresno Limited Partnership Shopping Center 123,266,999 0.47 Gallo E & J Winery Winery 99,320,353 0.38 Donahue Schriber Realty Group Shopping Center 78,897,632 0.30 Hub Acquisition Trust General Office 67,486,632 0.26 NMSBPCSLDHB Shopping Center 61,815,093 0.23 Capri Sun Inc. Light Industrial: Warehouse 58,216,243 0.22 Fresno Supreme Inc. Building Contractors 54,893,879 0.21 M L Street Properties General Office 54,427,767 0.21 River Park Properties Shopping Center 49,209,529 0.19 SUBTOTAL PRINCIPAL TAXPAYERS $798,823,672 0.30 All Others Various 25,565,981,281 96.97 TOTAL $26,364,804,953 100.00% ______Source: KNN Public Finance and Urbics.com.

Motor Vehicle in Lieu Fees

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

In connection with the offset of the VLF, the Legislature authorized appropriations from the State General Fund to “backfill” the offset so that the local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient General Fund moneys to fully “backfill” the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be disadvantaged. In June 2003, the Director of Finance under the Davis Administration ordered the suspension of VLF offsets due to a determination that insufficient General Fund moneys would be available for this purpose, and, beginning in October 2003, VLF paid by vehicle owners were restored to the 1998 level. However, the offset

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suspension was rescinded by Governor Schwarzenegger on November 17, 2003, and offset payments to local governments resumed. Local governments received “backfill” payments totaling $3.80 billion in Fiscal Year 2002-03. “Backfill” payments totaling $2.65 billion were paid to local governments in Fiscal Year 2003-04. The State-local agreement also provided for the repayment in August 2006 of approximately $1.2 billion that was not received by local governments during the time period between the suspension of the offsets and the implementation of higher fees. This repayment obligation was codified by Proposition 1A, which was approved by the voters in the November 2004 General Election and was repaid early by the State in August 2005. For a description of Proposition 1A, see “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS–Proposition 1A.”

Table A-25 sets forth the Motor Vehicle in Lieu Fees received by the City for the last 10 Fiscal Years and budgeted for Fiscal Year 2008-09.

TABLE A-25 CITY OF FRESNO Motor Vehicle in Lieu Fees Fiscal Years 1999-00 through 2008-09†

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

Risk Management

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

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The City maintains General Liability Insurance, with limits of liability of $25 million. There is a $3.0 million self-insured retention. The City also maintains Airport Owners and Operators General Liability Insurance and Aviation (Airport Liability) Insurance, with limits of liability of $60 million per occurrence and $25 million per occurrence, respectively. There is no deductible or self-insured retention. Furthermore, the City maintains Property Insurance and Boiler and Machinery Insurance, with total insured values of $1,054,380,689 and limits of liability of $1 billion and $100 million per occurrence, respectively, with a $25,000 deductible. Finally, the City maintains Aviation (Aircraft Hull) Insurance for its two helicopters and one airplane, with limits of liability of $1.5 million for each helicopter and $180,500 for the airplane. There is a $30,000 in-motion deductible and $500 not in-motion deductible for the helicopters and there is no physical damage deductible for the airplane.

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

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

The estimated liabilities of the Risk Management Internal Service Fund as of June 30, 2009, are determined by the City based on recommendations from an independent actuarial evaluation. The liabilities are based on estimates of the ultimate cost of claims (including future claim adjustments expenses) that have been reported but not settled and claims that have been incurred but not reported (IBNR). The claims liability of $74,618,774 reported in Risk Management Internal Service Fund at June 30, 2008, was based on the requirement that claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

The recorded liabilities for each program at June 30, 2009 were as follows:

Workers’ Compensation† $54,714,798 Liability and Property Damage† 19,903,976 TOTAL $74,618,774 ______† The liability for workers’ compensation and general liability are presented at present value, using a discount rate of 3%.

For additional information with respect to the City’s Risk Management Internal Service Fund, see APPENDIX B–“CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009.”

Workers’ Compensation Costs

The City has been self-insured for its Workers’ Compensation exposure since August 1973. The administration of claims is handled by an outside third party administrator which is monitored by the City’s Risk Management Division. In addition, the City provides enhanced benefits to certain employees pursuant to the various Memoranda of Understanding with its bargaining units. The City pays “Injury Pay” to its permanent, full-time employees for a maximum of one year with sworn safety services employees receiving an amount equivalent to 85% of their full salary. This amount is in contrast to the 66.66% mandated by the State. All other employee bargaining units agreed to receive Injury Pay equal to 76% of full salary. As of January 1, 2010, the City became subject to the provisions of Labor Code

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Section 4850 which mandates that sworn safety service employees receive 100% of full salary for up to one year. This new mandate applies to claims filed on or after January 1, 2010. The Injury Pay benefit will continue to apply to claims older than that date.

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

Claims frequency dropped from a high of 941 filed claims in Fiscal Year 2002-03 to 786 filed claims for Fiscal Year 2006-07. This trend reversed in Fiscal Year 2007-08, jumping to 896 claims filed. Police and Fire Departments accounted for 87 of the additional 110 claims. Total claims filed in Fiscal Year 2009-10 are projected at 864.

Medical costs declined from $4.6 million in Fiscal Year 2004-05 to $3.85 million in Fiscal Year 2005-06, but have since risen to a projected $5.7 million in Fiscal Year 2000-10. This increase reflects a Statewide trend of rising medical costs.

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

Due to benefit increases and increased medical costs, the total paid claims cost rose from $8,706,044 in Fiscal Year 2003-04 to a projected $9,639,200 in Fiscal Year 2009-10. Temporary Disability mandated benefit levels rose to $840 per week in January 2005, representing a 71% increase in benefits since AB 749 went into effect in January 2003, and a 15% percent increase over calendar year 2004 benefits. This rate remained unchanged for calendar year 2006, but adjusts annually to 2/3 of the State Average Weekly Wage (as defined in AB 749) in each subsequent calendar year. The current temporary disability indemnity rate, as of January 1, 2010 is $986.69, a 64% increase in eight years.

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

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Employer-Employee Relations

City employees are represented by various unions and associations, and labor relations have been generally amicable. Currently, 95% of City employees are represented by a union or association. Table A-26 summarizes the names of the unions or associations, the length of and expiration dates for the contracts. The City expects that any contracts that have expired will be replaced with new contracts.

TABLE A-26 CITY OF FRESNO Employee Contracts

Length of Contract Union/Association (Years) Expires International Association of Fire Fighters, Local 753/Unit 10 3 June 30, 2010 Fresno City Employee Association/Unit 03 2 June 30, 2011 International Association of Firefighters, Local 753/Units 05 3 June 30, 2012 Amalgamated Transit Union, Division 1027/Unit 06 1 June 30, 2011 City of Fresno Professional Employees Association/Unit 13 2 June 30, 2011 Fresno Airport Public Safety Supervisors/Unit 15 3 June 30, 2012 Fresno Police Officers Association/Unit 04 4 June 30, 2012 Fresno Police Officers Association Police Management/Unit 09 4 June 30, 2012 City of Fresno Management Employees Association/Unit 14 4 June 30, 2010 I.U.O.E. Stationary Engineers, Local 39/Unit 01 2 June 30, 2012 IBEW, Local Union 100/Unit 07 4 June 30, 2011 ______Source: City of Fresno Labor Relations Division.

City Health and Welfare Trust Self Insurance Program

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

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

A-34

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

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

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

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APPENDIX B

CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2009

[THIS PAGE INTENTIONALLY LEFT BLANK] CELEBRATING 50YEARS

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2009

City of Fresno, California – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

Prepared by The City of Fresno Finance Department Joe Gray, Finance Director, City Controller Financial Reporting Staff Karen M. Bradley, CPA, Assistant Controller S. Kim Jackson, Management Analyst III Margaret Bell, CPA, Principal Accountant Mike Getty, CPA, Principal Accountant Anita Villarreal, Management Analyst II Gilbert Elizondo, Senior Accountant-Auditor John Simpson, Accountant-Auditor II Jane Mouanoutoua, Accountant-Auditor II Gregg Kurisu, Accountant-Auditor II Greg Wiles, CPA, Treasury Officer Phillip Hardcastle, Principal Accountant Frank H. Balekian, Jr., Accountant-Auditor II Nid Phanucharas, Accountant-Auditor II Martin Hinojosa, Accountant-Auditor II Corrina Barbarite, Senior Accountant-Auditor Terri Saldivar, Executive Assistant to the Department Director Special Thanks to Mike Lima, Airports Finance Manager Lisa Harwood, Airports Finance Officer Yvonne Dedmore, Accountant-Auditor Rosie Rivera, Accountant-Auditor Evelyn Parangalan, Sr. Accountant-Auditor Mary Boyajian, Accountant-Auditor

“Effective and Responsive Government” City of Fresno – www.fresno.gov

City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

INTRODUCTORY SECTION

“Effective and Responsive Government” City of Fresno – www.fresno.gov

City of Fresno, California – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

TABLE OF CONTENTS

PAGE

INTRODUCTORY SECTION

Controller’s Transmittal Letter ...... I Organization Chart ...... XXXV City Operating Fund Structure ...... XXXVI Directory of City Officials ...... XXXVII Certificate of Achievement – Government Finance Officers Association ...... XXXVIII

FINANCIAL SECTION

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

BASIC FINANCIAL STATEMENTS

Government-wide Financial Statements:

Statement of Net Assets ...... 57 Statement of Activities ...... 58

Fund Financial Statements:

Balance Sheet – Governmental Funds ...... 62 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ...... 63 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds..... 64 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...... 65 Statement of Net Assets – Proprietary Funds...... 66 Statement of Revenues, Expenses and Changes in Fund Net Assets – Proprietary Funds ...... 70 Statement of Cash Flows – Proprietary Funds ...... 72 Statement of Fiduciary Net Assets – Fiduciary Funds – Trust and Agency Funds ...... 76 Statement of Changes in Fiduciary Net Assets – Fiduciary Funds – Trust Funds ...... 77

Notes to Financial Statements ...... 80

“Effective and Responsive Government”

City of Fresno – www.fresno.gov City of Fresno, California – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

TABLE OF CONTENTS – continued

PAGE

REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Revenues and Expenditures – Budget and Actual (Non GAAP Budgetary Basis) with Budget to GAAP Reconcilliation: General Fund ...... 176 Grants Special Revenue Fund ...... 178 Notes to the Required Supplementary Information ...... 180 Schedules of Funding Progress ...... 182

OTHER SUPPLEMENTARY INFORMATION:

COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES:

Nonmajor Governmental Funds:

Combining Balance Sheet – Nonmajor Governmental Funds ...... 184 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds ...... 186 Schedule of Revenues and Expenditures – Budget and Actual (Non-GAAP Budgetary Basis) with Budget to GAAP Reconcilliation: Special Gas Tax...... 188 Measure C ...... 189 Community Services ...... 190 City Combined ...... 191 UGM Impact Fees ...... 192 Special Assessments ...... 193

Proprietary Fund Types:

Nonmajor Enterprise Funds: Combining Statement of Net Assets ...... 196 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ...... 197 Combining Statement of Cash Flows ...... 198

“Effective and Responsive Government” City of Fresno – www.fresno.gov City of Fresno, California – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

TABLE OF CONTENTS - continued

PAGE Internal Service Funds: Combining Statement of Net Assets ...... 202 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets ...... 204 Combining Statement of Cash Flows ...... 206

Fiduciary Funds: Combining Statement of Fiduciary Net Assets – Fiduciary Funds –Trust Funds ...... 212 Combining Statement of Changes in Fiduciary Net Assets – Fiduciary Funds –Trust Funds ...... 213 Combining Statement of Changes in Assets and Liabilities – Agency Funds ...... 214

STATISTICAL SECTION

Net Assets by Component – Last Eight Fiscal Years ...... 219 Change in Net Assets – Last Eight Fiscal Years ...... 220 Fund Balance, Governmental Funds – Last Eight Fiscal Years ...... 222 Changes in Fund Balances, Governmental Funds – Last Eight Fiscal Years ...... 223 Gross Assessed Value and Estimated Actual Value of Taxable Property – Last Ten Fiscal Years ..... 224 Direct and Overlapping Property Tax Rates – Last Ten Fiscal Years ...... 225 Principal Property Taxpayers – Current Year and Nine Years Ago ...... 226 Property Tax Levies and Collections – Last Ten Fiscal Years ...... 227 Ratios of Outstanding Debt by Type – Last Eight Fiscal Years...... 228 Ratios of General Bonded Debt Outstanding – Last Ten Fiscal Years ...... 230 Direct and Overlapping Governmental Activities Debt – As of October 1, 2008 ...... 231 Pledged Revenue Coverage – Last Eight Fiscal Years ...... 232 Legal Debt Margin Information – Last Ten Fiscal Years ...... 234 Demographic and Economic Statistics – Last Ten Calendar Years ...... 235 Principal Employers – Current Year and Eight Years Ago ...... 236 Full Time Equivalent City Government Employees by Function/Program – Last Eight Fiscal Years .. 237 Operating Indicators by Function/Program – Last Eight Fiscal Years ...... 238 Capital Asset Statistics by Function/Program – Last Eight Fiscal Years ...... 240

“Effective and Responsive Government” City of Fresno – www.fresno.gov

City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

CONTROLLER’S TRANSMITTAL LETTER

“Effective and Responsive Government” City of Fresno – www.fresno.gov

City of Fresno, California FINANCE DEPARTMENT

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

February 25, 2010

The Honorable Mayor Ashley Swearengin The Honorable Members of the City Council Distinguished Citizens of the City of Fresno Fresno, California

THE 50 T H COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY OF FRESNO

We are pleased to present the 50th Comprehensive Annual Financial Report (CAFR) of the City of Fresno, California for the fiscal year ended June 30, 2009, with the Independent Auditors’ Report, submitted in compliance with City Charter Section 804(c). The CAFR has been prepared by the Controller’s Office, in conformance with the principles and standards for financial reporting set forth by the Governmental Accounting Standards Board (GASB). Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. We believe that the data, as presented, is accurate in all material respects, that its presentation fairly shows the financial position and the results of the City’s operations as measured by the financial activity of its various funds and, that the included disclosures will provide the reader with an understanding of the City’s financial affairs.

FINANCIAL REPORTING AND FORMATS

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

I City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Our CAFR is divided into the following sections:

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

The Financial Section is prepared in accordance with GASB 34 requirements by including the MD&A, the Basic Financial Statements including notes, and the Required Supplementary Information. Also included in this section is the Independent Auditors’ Report on the Basic Financial Statements and schedules.

The Statistical Section includes tables containing historical financial data, debt statistics, and miscellaneous social and economic data of the City that is of interest to potential bond investors and other readers.

In addition to this report, the City is required to undergo an annual “Single Audit” in conformity with the provisions of the Federal Single Audit Act of 1996 and the U.S. Office of Management and Budget Circular A-133, Audits of State and Local Governments and Non-Profit Organizations and Government Auditing Standards, issued by the Comptroller General of the United States. Information related to the Single Audit is included in a separate report.

THE REPORTING ENTITY AND ITS SERVICES

The City of Fresno (City) was incorporated in 1885, and is located in the Central San Joaquin Valley of California. The City’s powers are exercised under the strong- Mayor form of government. Under this system, the Mayor serves as the City’s Chief Executive Officer, and is responsible for appointing and overseeing the City Manager, recommending legislation, and presenting the annual budget to the City Council. The Mayor does not participate in Council deliberations, except by exercising veto power. The City Council serves as the legislative authority, and the Mayor and other independent elected officials serve as the executive authority. The City Council is represented by seven elected council members, one of whom is elected President by the Council for a term of one year. The President is the presiding officer of the Council and will fill any vacancy in the Office of the Mayor. The services provided by the City are the full range of services contemplated in the City Charter. These include public protection (police and fire), construction and maintenance of all public facilities (public works), parks and recreation, public health systems (water, sewer, community sanitation and solid waste utilities), development and planning, tax collection, transportation, and many others.

II City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

This CAFR includes the financial activities of the primary government, which encompasses several enterprise activities, as well as all of its component units. Component units include legally separate entities for which the primary government is financially accountable and that have substantially the same governing board as the City or provide services entirely to the City. For reporting purposes, the operations of the Redevelopment Agency of the City of Fresno, and the Joint Powers Financing Authority are blended with the City.

FRESNO’S GOVERNMENT, ECONOMY AND OUTLOOK

Fresno is the county seat of Fresno County and is the economic and cultural hub of the fertile Central San Joaquin Valley, a metropolitan region with more than 495,913 residents in the City proper, and over 942,298 in Fresno County. Named after the Fresno Creek, “Fresno” in Spanish signifies “ash tree” and it was because of the abundance of mountain ash or ash trees in the county that it received its name. The first European settlers in the early 1800’s found the Yokuts tribe living on the valley floor and in the foothills along the major rivers of the area, the San Joaquin and the Kings Rivers. The Monache Tribe lived further up the rivers. After the initial Spanish explorers came, others began to arrive including trappers and hunters. The county was part of the mining boom of California from its early years until the mid 1860’s. Once gold fever subsided, the county experienced substantial growth in livestock raising and general farming and from there it made the transition to orchards and vineyards. Fresno began as a station for the Central Pacific Railroad in 1872 and was made the county seat in 1874.

Fresno County is the fifth largest county in the State of California and is situated approximately in the geographic center of the state. The economic base of Fresno County is predominantly agriculturally oriented since Fresno County is the number one agriculture-producing county in the United States. Grapes, cotton, cattle and calves, milk, tomatoes, plums, turkeys, oranges, peaches and nectarines, and alfalfa hay are among the largest income-producers and helped produce a gross farm income of $5.6 billion in 2008. Industry related to agriculture, wholesale distribution, recreation, and tourism are the other components of the stable Fresno economy. Industries related to agriculture include processing of fresh fruit, nuts and citrus. Farm machinery products, implements, and irrigation pumps are manufactured, along with wine, fertilizers, insecticides, sheet and bottle glass.

The City of Fresno is the thirty-sixth largest city in the United States and the fifth largest in California, with Fresno County encompassing approximately 6,017 square miles. The population of the County has grown by approximately 16% in the past ten years, and boasts more than 90 different nationalities. Over half of all county residents live in the City of Fresno, making it the largest city in the county. The 2000 Federal census showed that racial and ethnic

III City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 diversity continues to be robust in the City, with all minority groups combined representing nearly a majority of the City’s population. The City currently has a land area of 111.78 square miles and has the power by State statute to extend its corporate limits by annexation, which is done periodically when deemed appropriate by the Council.

Fresno serves as the economic hub of Fresno County and California’s Central Valley. While the unincorporated area and rural cities surrounding Fresno remain predominantly tied to large- scale agricultural production; Fresno is unique in that it is home to many business incubators that serve as a resource hub for business entrepreneurs and new companies. Some of these incubators are found at California State University, Fresno. Many of the businesses formed at the incubators have gone on to become internationally known in the business world. Some of the business involved range from environmental engineering to fashion designers. Urban/suburban Fresno has undergone significant economic transformation in recent years.

Fresno County’s current economy is led by Fresno’s position as the hub for education, healthcare, government and professional services for the Central Valley. Construction employment rapidly expanded as well until the recent downturn in the housing market and the economy. Food processing has led the manufacturing sector with such notable companies as Sun-Maid, David Sunflower Seeds, Kraft Foods, Foster Farms Dairy, and Foster Farms Poultry Company. Distribution has many centers in the city, led by the 80 acre site of the Gap Pacific Distribution Center. Companies specializing in machinery manufacturing, medical devices and water technology are also present. Public sector employment is also a major contribution to the City’s economy.

Fresno’s location, very near the geographical centre of California, places the city a comfortable distance from several major recreation areas and urban centers in the state. Fresno is approximately 200 miles north of Los Angeles and 170 miles south of the state capitol, Sacramento. Fresno is just 60 miles south of Yosemite National Park, and is the nearest major city to the park. Likewise, Kings Canyon National Park is 60 miles and Sequoia National Park is just 75 miles away.

State Highway 99 is a north-south freeway providing vehicular highway routes to the inland valley towns. This freeway carries large volumes of private and public commercial traffic. Railroad transportation within Fresno County consists of both the Union Pacific Railroad and the Burlington Northern – Santa Fe Railroad. These railroads provide freight service to northern and southern California. Amtrak provides passenger service from Fresno to Los Angeles and the San Francisco Bay area as well as Sacramento. Commercial air transportation files out of Fresno Yosemite International Air Terminal. Several large carriers, as well a several small commuter airlines provide service. These airlines provide both passenger and freight service.

IV City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

The climate in the Fresno area is considered to be mild, ranging from a yearly average minimum of 49.9 degrees to an average maximum of 76.2 degrees, with an average annual precipitation of 9.86 inches, which comes principally in the months of November through April. Fresno has relatively mild winters and hot dry summers, somewhat like a Mediterranean Climate but more like a semi-arid climate. Low elevations are hot but dry with little humidity in the summer and in the winter; the temperatures are moderate with relatively light precipitation. Winters are generally mild with prevailing sunny weather. Summers are hot with maximum temperatures ranging between 80 degrees and 110 degrees. Yearly annual rainfall is approximately 12 inches. Snow is a rarity; the heaviest snowfall was 2.2 inches on January 21, 1962.

ELECTION OF NEW MAYOR

Since taking Office in January 2009, Mayor Ashley Swearengin has been dealing with one of the most challenging financial environments that the City has faced in decades. Current economic conditions indicate that General Fund revenues will continue to decline into 2010 while expenses will continue to increase. Moving forward cautiously with the City’s important goals has been the focus of Mayor Swearengin and requires balancing fiscal responsibility with excellence in the delivery of core services to the City’s residents.

Under the eight year leadership of Mayor Alan Autry, the City focused on fulfilling the commitment he made during his first campaign, which was to change the history of Fresno from “A Tale of Two Cities” into “A Story of One Community.” In 2001, he set out to increase the City’s investment in youth activities so as to provide an alternative to keep our young people off the streets and out of trouble. He also prioritized improving our children’s educational opportunities, downtown revitalization and the rebuilding of older neighborhoods while maintaining high levels of public safety services.

Mayor Swearengin has picked up where Mayor Autry left off and in spite of the many challenges being faced by the City, believes that it is more critical than ever to stay focused on what is important to the people of Fresno. As the new Mayor, she is committed to leading the City forward and achieving great success in what she defines as the “Key Priorities” of her administration.

Ensuring the public’s safety; Revitalizing Fresno’s urban core and supporting economic growth; Streamlining City services; and Protecting our natural resources.

V City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

For 2010 Mayor Swearengin had to make the difficult but fiscally prudent decisions necessary to provide adequate resources for core services in the short term, while preserving the City’s reserves to weather uncertain financial times in the coming years. The budget for 2010 was developed with transparency, thoughtfulness and realism. The Mayor focused on living within our means while not retreating from excellence in the quality and reliability of the services that we provide to the public.

The economic downturn of 2009 forced many difficult choices and necessitated thorough operational review across the entire organization. Programs and projects were evaluated to determine their level of contribution to core services delivery. Some were reduced and others were eliminated. Even others were restricted to capture previously unidentified efficiencies and cost savings. Throughout the process, the effort was undertaken to promote the ongoing commitment to a culture of excellence.

Due to prudent fiscal policies and strategic decisions, the financial position of the city of Fresno at the end of fiscal year 2009 compared favorably with many of our peer cities in California. Unfortunately, the depth and the duration of the national recession and particularly the budget crisis at the state level eclipsed the steps previously taken by the City. As a result of the struggling economy, municipal revenues plummeted. Combined with rising expenses related to contractual obligations and growing debt service, the City was required to identify $26.8 million is savings over the FY 2010 and FY 2011 fiscal years to ensure balanced budgets. Difficult spending choices were made and strategic realignments were employed to avoid huge operating shortfalls. These critical decisions were what laid the groundwork to move toward maintaining core services in FY 2010 and beyond.

This was not an easy task by any measure. The prior years’ economic conditions and particularly those of the past few months, combined with other factors, have made the retention of a strong fiscal base most difficult.

FOUR CORNERSTONES

The Mayor in developing her first annual budget for 2009/2010 prioritized the City’s goals for the new year but also worked toward advancing a broader vision for our entire community. Mayor Swearengin is dedicated to ensuring a vibrant and thriving future for Fresno – with strong neighborhoods, attractive amenities, rich cultural experiences and a powerful entrepreneurial spirit. The foundation for her vision is set firmly upon four Cornerstone Commitments, which provide an essential framework for decision-making and strategic planning. They are:

Safe, quality neighborhoods Jobs and education

VI City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Effective and responsive government Regional leadership

Budget Overview for Fiscal Year 2009/2010

Preparing a balanced budget that protects core services for the people of Fresno, enables the City to advance on key goals and safeguard emergency reserves for unforeseen crises is difficult to do during times of economic growth, and is extremely difficult to do during times of economic decline and recession. However after careful and thoughtful deliberation, analysis and effort by all City Staff and Administration, the budget for FY 2009/2010 was constructed to advance our community despite the economic climate. The 2009/2010 budget was constructed reflective of the revenue declines already realized in the first six months of 2009 and maintained conservative assumptions as to when the economic downturn would level off. The depth and duration of the current recession most certainly has and will continue to have significant impacts on many City revenue streams. When the budget was adopted, overall the General Fund’s operating revenue was estimated to decline by $5.8 million or 2.2 percent of the 2008/2009 budget estimates. This was a decline from the FY Adopted Budget of $18.8 million or 7.1 percent. At mid-year 2009, the City took action and made adjustments to appropriations that were projected to realize $5.7 million of General Fund carryover to help to mitigate significant reductions in revenues. The reductions in revenue were directly linked to the downturn in the Federal, State and Local economy. At the end of fiscal year 2009, due to continuing eroding economic conditions nationwide, the actual carryover for 2009 was $3.8 million. This was the result primarily due to ongoing declines in both sales and property taxes.

In addition, there are other budgetary adjustments for 2010 related to Internal Service Funds. Internal Service Fund (ISF) Departments provide services to other City departments which are then billed for the services provided. There is a certain level of fund balance which is maintained for unanticipated expenses. Since the City is realizing a contraction in several major revenue sources, it was anticipated that service demands in the ISF’s will decline as well. As a result, most of the ISF charges for 2010 have been reduced between 2 to 19 percent on a citywide basis as compared to FY 2009. Two exceptions are the Worker’s Compensation Fund and the City’s Unemployment Funds, both of which are expected to increase in FY 2010.

To realize other savings, the City temporarily discontinued funding the General Fund portion of the vehicle replacement program and deferred its desktop PC replacement program for one year. In

VII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 addition, fuel prices were budgeted at the current market rate in affect in mid-year 2009 however the Fleet Operating Fund is maintaining a $1.3 million reserve to be able to respond to potential spikes in fuel costs.

Enterprise Funds represent departments which operate as if they were private sector entities. The revenues for these departments are typically derived from charges to customers, Federal and State grants, leases and investment earnings. The revenues are estimated based upon market trends and known contractual obligations. The Enterprise funds have also been impacted by the downturn in the economy. Residential construction spending, housing starts and nonresidential construction have continued to be weak. Real consumer spending through the middle of 2009 continued to be weak. The Enterprise funds all made adjustments to their spending plans to align their expenses with anticipated continuing revenue declines.

Proposition 1A

At the time the 2010 budget was adopted, the City most certainly accepted the obligation to control expenses by aligning them to actual revenues; it could not however, with any degree of accuracy, evaluate the risk from the deteriorating condition of California’s budget picture. The legislative Analyst had stated that the State’s revenue collapse was so dramatic and that the underlying economic factors were so onerous, that huge budget shortfalls were being projected through 2013-2014 absent significant corrective action on the part of the Legislature. At June 30, 2009, while the “Prop 1A trigger” had not been pulled, it was widely believed that the State would invoke Prop 1A. For the City of Fresno this would mean that the State would borrow City of Fresno Property Tax revenue in the amount of approximately $9.4 million. Although the State would be required to pay back the loan with interest within 3 years, the City would be required to obtain short-term financing to bridge the resulting revenue gap to mitigate additional service impacts. For 2010, the General Fund budget included a $600,000 contingency for financing expenses related to this potential transaction.

As feared, on July 28, 2009 Governor Arnold Schwarzenegger signed the 2009-2010 California State Budget which required cities, counties, and special districts (“local governments”) to lend property tax revenues to the State, with the promise of repayment in three years. Agencies would receive their “deferred” property tax allocations from the State in 2013 (or earlier at the State’s discretion) at a rate of interest of 2%.

The State Budget package however, also provided the opportunity for local governments to receive the monies being borrowed by the State upfront through a securitization financing offered by California Statewide Communities Development Authority (CSCDA).

VIII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

California Communities would issue bonds securitizing the future payments by the State and remit the proceeds of the bonds to the local governments who opt to participate in the securitization. The State would then repay the bondholders, all of the principal outstanding including interest costs.

Features of the Securitization program were as follows:

The Proposition 1A Securitization Program would provide all program participants 100% of their reduced property tax allocations for the 2009-2010 Fiscal Year. Once bonds were sold, local agencies would have no ongoing obligations with regards to use of proceeds or repayment of the bonds (and therefore no credit exposure to the State).

The Proposition 1A Receivables Program financing closed on November 19, 2009 and wrapped up with a pricing of $1.895 billion of Revenue Bonds. The City of Fresno was one of 1,270 local agencies which participated in the program. The proceeds of the Bonds will be deposited into LAIF for distribution to the participating local agencies on January 15 and May 3 consistent with normal Property Tax payments. For the City of Fresno this represents $9,408,487 in property tax revenues that would have otherwise been deferred until 2013.

Budget Impacts to Employees

Human capital is the most valuable asset to any organization. The City of Fresno’s employees are dedicated, productive and professional individuals. The diversity and excellent results of the services provided to our community is the direct result of our employees and their ongoing initiative. Employee Service costs for the City of Fresno were approximately $396.6 million for Fiscal Year 2009. Total Employee Service costs account for 76 percent of total General Fund expenses in Fiscal Year 2009. As a result, the material declines in revenue cannot be absorbed without impacts to employees. The impacts have been addressed through several resourcefull options that resulted in focusing on our commitment to excellence in core services. Supplemental programs were eliminated or deferred. The City is taking full advantage of grant funding to serve the community and to save jobs. The City reorganized departments and the way we provided services which in some cases results in some transfers between departments for some staff. Positions were held vacant to provide openings for individuals whose position had to be eliminated. These combined efforts minimized the number of employees that were initally impacted and/or had to leave the organization.

These efforts however were not sufficient for the City to continue to live within its means. To lessen the impact on employee layoffs throughout the organization, the Employee Service costs were calculated Citywide with the following assumptions: 1)

IX City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 unrepresented management salaries were frozen and would not increase in Fiscal Year 2010; 2) open contracts with FCEA, IAFF Non-Management, ATU and CFPEA assumed no salary increase in Fiscal Year 2010; 3) Employee Services costing for all units assumed various levels of concessions related to salaries, payoff deferrals, furloughs or other options which were finalized through negotiation.

Fiscal Stabilization Efforts

When the 2009/2010 budget was built in May of 2009, it was built keeping in mind that the key role of government is to provide for a stable economic environment in which people and businesses can plan for the future, and in which growth and employment can prosper. The framework for the 2010 budget laid the foundation for the City’s fiscal stability particularly in this unpredictable economic environment and it did so through several specific actions.

The first action was to build a budget that intended to help the City live within its means. This required making numerous reductions where necessary to ensure that we were living within our available resources.

Second, decisions were made to maintain the City’s Emergency Reserve so that the City would have the ability to respond to unforeseen crises and/or future declines in the nation’s financial system.

Third, decisions were made based upon a two-year budgetary window. The City Charter requires that the City adopt an annual budget, however, with the current economic difficulties being faced at not only the local level but at the State and Federal level as well, the time had come for the City to expand its in-depth forward looking analysis and to provide transparency and provide for reporting the General Fund planning strategy over a two year period. The budget was built knowing that the estimates used were baseline projections which would provide a meaningful starting point for ongoing deliberations that would be a part of our ever evolving budget. It was well recognized that the ongoing analysis and the taking of immediate action throughout the coming year and beyond would be needed to avoid catastrophic measures in the long term.

The fourth action taken as part of the 2010 budget process was to illustrate more clearly the debt service impacts on the General Fund. The payment of debt service takes priority above all other General Fund expenditures. The nine percent (9%) anticipated decline in revenues in fiscal year 2010 necessitated that adjustments be made to operating expenditures in order that debt service could be maintained and all other expenditures could be aligned with the anticipated revenue stream. Fiscal prudence dictated that the General Fund reserve fund be maintained intact given that the depth and duration of the current recession is unknown.

X City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

The focus for the 2010 Budget was to live within our means, maintain our Reserve for Economic Uncertainty, analyze our revenues with a minimum of a two year outlook, and strategically plan for our future so as to position our City to remain fiscally viable in this challenging era.

Reserve Policy Analysis

A city’s cash reserve and its economic trends represent its continued ability to meet its obligations and facilitate the requirement for a balanced budget. Mayor Autry recognized the need for cash reserves and on January 9, 2004 by Executive Order No. 03-01 he established the Reserve for Economic Uncertainty. Under the Order, the reserve may only be used when the Mayor declares a fiscal emergency that is ratified by the City Council. The Order defines a fiscal emergency as:

1. Natural catastrophe; 2. An immediate threat to health and public safety; or 3. A significant decline in General Fund revenues which, in the opinion of the City Manager, impairs his/her ability to administer the Council adopted budget.

In preparation for the Fiscal Year 2010 budget deliberations, Mayor Swearengin directed budget staff to compare the City’s General Fund Emergency Reserve level and policy to that of our peer cities. While the adequacy of an unreserved fund balance in the General Fund should be assessed based upon a government’s own specific circumstances, the Government Finance Officers Association (GFOA) recommends, at a minimum, that general-purpose governments, regardless of size, maintain unreserved fund balance in their general fund of no less than five to 15 percent of regular general fund operating revenues, or no less than one to two months of regular general fund operating expenditures.

The City of Fresno’s General Fund Emergency Reserve balance was $17 million, or 7.5 percent of anticipated expenditures going into fiscal year 2010. This amount is less than one month of regular general fund operating expenditures.

Budget Priorities and Highlights

Ensuring Public Safety

Despite the unavoidable reduction in the budgets for both the Police and Fire Departments for fiscal year 2010, public safety was not something that Mayor Swearengin would compromise on. The operational imperative for these departments continues to be to preserve current response times for emergency calls and continued excellence in core service delivery. Both the Police and Fire Chiefs reorganized their departments to enhance staff efficiencies, maximize operational oversight, and minimize disruptions to employees as much as possible.

XI City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

The Police Department Budget was reduced by $12.6 million from the final fiscal year 2009 amended budget. In order to meet these budget reductions, 55 sworn and 58 civilian positions were shifted to various grants. In addition, MOU concessions, operational savings as well as staff reductions were required. Despite these reductions in appropriations, they are partially offset by a 4.42 percent pension rate increase totaling $1.9 million that was fully funded in the budget.

The Department applied for several Federal grant programs to provide funding for critical sworn and non-sworn positions that would otherwise be unsustainable under existing budgetary conditions. The budget was built to fund positions until the anticipated award of these various grants. It was well understood at the time the budget for fiscal year 2010 was adopted that if grant awards were not fully realized at the budgeted levels, additional staffing reductions would be necessary.

The Fire Department focused on protecting response times for emergency service calls and maintaining core services. Effective enforcement and engineering are both critical to meeting these objectives. In fiscal year 2010, the Department is implementing a new learning management system to deliver training more efficiently. Historically, it has been necessary to take fire companies out of service in order to allow staff to complete certain mandated training programs. Taking companies out of service reduces the number of resources available to the Department’s response matrix, while re-calling staff for mandated training on off-duty days incurring overtime costs. The Department has identified a program currently utilized in the City which can provide online training courses to include content specific to the fire service. Delivery of training in this method allows more personnel to remain at their stations, in service and available to respond to calls. Administrative recordkeeping requirements related to mandated training are also being automated, thus allowing existing staff to further streamline other training functions, develop additional curriculum and maintain their focus on delivery of core services in support of emergency response efforts.

As part of the Fire deployment strategy, the Fire Chief recommended two existing truck companies be taken out of service and the fourth firefighter on four existing companies be moved to the relief pool. This has the potential to provide up to ten additional personnel per day to fill vacancies that occur due to illness, vacation, holiday, special assignments, etc. The Department expended considerable effort in analyzing call volume, the potential impact on response times and company workloads, firefighter safety and equipment requirements in determining the deployment of resources to maintain the service level objectives. This exercise while difficult was necessary under the current fiscal situation.

XII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Revitalizing the Urban Core and Supporting Economic Growth

Every department in the City has a role to play in revitalizing the urban core and supporting economic growth. The Department of Downtown & Community Revitalization (DCR) and the Planning & Development Department are particularly involved in the day-to-day efforts to rebuild Fresno’s inner city and combat concentrated poverty.

Among these efforts, the Planning and Development Department is taking the lead in administering several grants to support special initiatives including:

A $3 million Lead Based Paint Hazard Control (LHC) grant from the Department of Housing and Urban Development. This is a three year grant with $1 million in annual allocations. A $3.1 million Homelessness Prevention and Rapid Re-Housing Program grant, funded under the American Recovery and Reinvestment Act (ARRA). A $360,800 Emergency Shelter grant, which will be used to provide urgent services to homeless individuals within the City.

In 2009 – 2010, the Department of Downtown and Community Revitalization (DCR) will work in partnership with the Redevelopment Agency and other City departments as well as the private sector to advance a multi-pronged approach to transform Downtown Fresno into a vibrant activity center for the Central San Joaquin Valley. In addition, the DCR will be focused on revitalization in the neighborhoods that surround the Downtown Area, supporting the growth of local companies and other burgeoning industries. The Department’s goals are:

Downtown Revitalization Neighborhood Revitalization Local Business Initiatives

Although the impact of the weak economy resulted in a decrease of approximately $5.6 million in Public Works funding going into fiscal year 2010, which included a 24 percent decrease in General Fund resources, the Department derives revenue from several funding streams and is the recipient of Federal stimulus dollars that will allow for the continuation of priority capital programs. This will support the economic growth of the City in a variety of ways from construction contracts awarded to local and regional companies to the vital infrastructure improvements that result from the Department’s work program.

XIII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

While the Engineering Division has seen a significant drop in residential subdivision activity, resulting in decreased revenues for development entitlement review, private development plan checks, and real estate services, the Division has reallocated staff from General Fund programs to capital funded programs. These include Bicycle, Trail and Official Plan Line projects. The reallocation of staff takes advantage of the slowdown in the economy to plan ahead for roadway and bicycle projects and streamlines the process for the next wave of development as recovery takes hold.

The department will continue with the citywide Americans with Disabilities Act (ADA) Coordination Program. This includes the Disability Advisory Commission established last year to provide input to the Mayor, Council and staff on disability issues and the allocation of budgeted ADA funds.

The Department will complete work on the City’s Bicycle Master Plan project in fiscal year 2010, providing the framework to increase capacities for non-automobile travel by expanding bicycle trails and bike lane routes. As the Master Plan is implemented with Measure C and grant funding over the next 20 years, these facilities will improve the overall quality of life in the metropolitan area while helping to clean our Valley air.

The Department’s Intelligent Transportation Systems (ITS) is contributing to improvements in quality of life, mobility, and the environment through better coordination of the valley’s transportation systems. During fiscal years 2009 – 2012, additional air quality and traffic synchronization grants will provide over $13 million for ITS capital projects for an additional 32 miles of infrastructure. The construction of these corridors is expected to yield the same improvements in travel time, fuel savings and emissions found in the previously synchronized corridors, assisting in the effort to clean the air and improve the overall quality of life for the citizens of the region.

Streamlining City Services

Delivering reliable, efficient and cost-effective services to City constituents, whether citizens, business interests, partner organizations, or others, is an essential responsibility of local governments. In fiscal year 2010, the City will pursue this key deliverable in a variety of ways. The overall goal is to position Fresno as a business friendly and attractive place to invest and develop. This is a citywide effort and will build upon input from internal and external stakeholders.

XIV City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Protecting Natural Resources

The American Recovery and Reinvestment Act (ARRA) of 2009 appropriated $3.2 billion for the Energy Efficiency and Conservation Block Grant (EECBG) Program. The program provides Federal grants to units of local government to reduce energy use and fossil fuel emissions, and for improvements in energy efficiency. The City of Fresno will receive $4.6 million over the next three years in EECBG funding and has developed a comprehensive implementation strategy through the leadership of the Planning and Development Department. The Department has established the Sustainable Fresno Division, which is designed to address the critical environmental and resource needs for the City of Fresno and San Joaquin Valley in terms of energy, water, air quality and economic vitality.

The City’s vital water supply is managed by the Department of Public Utilities (DPU), which is also responsible for reducing the waste stream via wastewater treatment, solid waste management, and increased participation in recycling efforts.

Major projects in FY 2010 included:

Enhancing the Water Conservation Program’s ability to meet the goal of reducing water usage and waste and deal with added demands of the forecasted on-going drought conditions; Awarding a Water Meter Retrofit contract to bring water meter installation to more than 110,000 single family residents; Installing 26,000 residential water meters by June 30, 2010; Engineering and design of SE Fresno Surface Water Treatment Plant to meet future water supply demands; Obtain bond financing for various water projects including the Residential Water Meter Retrofit, SE Fresno Surface Water Treatment Plant and Tank Construction.

Mid-Year Budget Updates

On November 19, 2009, citing the need to address immediate short-term budget challenges, as well as long-term structural imbalances, Mayor Swearengin revisited the 2010 budget and presented to the City Council a mid-year budget revision calling for a total of $27.8 million in reductions over the next 18 months.

XV City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

As a result of the ongoing financial depression at the Federal, State and local levels, the Mayor noted that the major factors driving the need for the reductions were an $18.2 million decrease in actual projected revenue and an $8.6 million increase in expenses projected through 2011, primarily in retirement costs. The $18.2 million decline in revenues was the result of the actual carryover from fiscal year 2009 being lower than what was budgeted and the dramatic decline in revenue from sales tax, business licenses and room tax as a result of the economic depression which is expected to continue through fiscal year 2011.

The Mayor also cautioned that an additional $4 million to $9 million in cuts may be required in fiscal year 2011 to balance the fiscal year 2012 budget. It was also noted that the City’s budget deficit could reach $28 million in fiscal year 2011 and could be as high as $87 million in the next five years given the current economic situation. The Mayor’s proposed plan also included staff reductions of 125 positions, a mandatory citywide 40-hour furlough for eligible employees and reductions in non-essential services.

Mayor Swearengin emphasized that her priorities in preparing the mid-year plan were to protect core services to the greatest extent possible, minimize impact to employees to the greatest extent possible and immediately begin to develop a plan to address escalating retirement costs.

Inevitable actions that will be taken by the State are unknown and cannot be determined. The proposed mid-year budget reduction did not take into consideration the impact of the State potentially taking local revenues to balance its fiscal year 2010 and 2011 budgets.

On November 30, 2009, in divided votes, the Council passed legislative actions stating that three areas of the Mayor’s planned budget reductions were major and required the approval of Council. Those areas included the closure of four neighborhood centers and reduced operating hours at seven neighborhood centers; the defunding of 145 civilian positions in the Police Department, 41 of which were vacant; and the closure of two fire stations and an 84- hour furlough for sworn fire employees. On December 2, the Mayor vetoed each council action with the exception of the closure of the two fire stations. On December 10, 2009 Council failed to override the Mayor’s veto but made it clear that during the first half of 2010, when the Mayor’s budget balancing plan generates a track record that will allow for review and in-depth analysis, the Council will reevaluate the budget-fixing options.

XVI City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Budget Conclusion

Mayor Swearengin made difficult but fiscally prudent decisions in the 2010 budget and again on November 19, in order to provide adequate resources for core services in the short term, while preserving the reserves in order that the City could weather uncertain financial times in the coming years. The budget was developed and continues to evolve with transparency, thoughtfulness and realism. It was and continues to be crafted under the parameters of “living within our means” while not retreating from excellence in the quality and reliability of the services provided to the public.

GRAPHIC OVERVIEW

The next several pages provide a graphic illustration of the City of Fresno’s regional perspective, economic overview, recent economic developments, the 2009 fiscal year budget, historical reserves, and fund balances as well as the pension funding status for the City’s Fire and Police Retirement System and Employees Retirement System. Additional financial graphic illustrations can be found in the Management Discussion & Analysis section immediately following the report of the independent auditors.

XVII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Regional Perspective Economic Overview

City serves as the economic and cultural center for the San Joaquin Valley

• The City of Fresno is strategically located in the center of California with nearly half a million residents (495,913) as Fresno is at the Center of California of January 1, 2009 • While agriculture remains the primary industry (13.95% of jobs), Fresno’s economy continues to diversify, reflecting its advantageous location and attractive cost of living • City has land area of 111.78 square miles • Fresno is the 5th largest city in California by population and 36th largest in the nation • Fresno is approximately 200 miles north of Los Angeles and 170 miles south of the state capital, Sacramento and is the second largest metropolitan area in the Central Valley after Sacramento • Home to many internationally known business incubators • Approximately 60 miles south of Yosemite National Park, Fresno also serves as gateway to Sequoia National Park (75 miles), Sierra National Forest (40 miles) and Kings Canyon National Park (75 miles)

1990 vs. 2009 Estimated Number of Workers by Industry

Leisure & Hospitality 6% Agriculture Leisure & Agriculture 19% Hospitality 14% Transportation & 8% Government Public Utilities 3% 18% Government 20% Transportation & Public Utilities 3%

Finance, Insurance Manufacturing & Real Estate Manufacturing 8% 5% 9% Finance, Insurance & Real Estate 4% Retail Trade Mining & Mining & Construction 10% Construction 6% Retail Trade 5% 10% Service Wholesale Trade Service 20% 4% 24% Wholesale Trade 4%

______Source: CA Employment Development Department

XVIII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

City Economic Overview Economic Overview

City is poised for steady, manageable long-term growth

Population Growth Principal Employers (Private Sector)

Population in Thousands 600 Employer Industry Employees 496 471 479 485 500 449 456 465 Community Medical Centers Healthcare 5,327 428 436 442 Kaiser Permanente Healthcare 2,542 400 Pelco Manuf Video Sec Sys 2,200

300 Saint Agnes Medical Center Healthcare 2,192 Beverly Health Care Nursing Homes 2,000 200 Ruiz Food Products Manuf Frozen Foods 1,900 Children’s Hospital Healthcare 1,797 100 Chukchansi Gold Resort/Casino Resort & Casino 1,385 0 Tachi Palace Hotel & Casino Hotel & Casino 1,200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 AT&T Phone & Internet Serv 1,000

Diversified AgriculturalAgricultural Base Summary

• AgAgriculturalricultura is the one of the backbones of the Fresno aarearea and remainsre robust; Fresno County produces mmoreore tthanhan 350 commercial crops providing gross pproductionroduction of $5.66 million in 2008; California pproducesroduces mmost of the grapes grown in the United States; MManya specialty crops are almost solely pproducedroduced ini California – almonds, kiwifruit, nectarines, ooliveslives and pistachios; Growers continue to expand into mmoreore lucrlucrativea products

• MMajorajor privatepriv and public investment in downtown FFresnoresno

• FFresnoresno hahass been tapped as an ideal location for mmanufacturinganufactu and distribution due to strategic llocation,ocation, lowlo business costs and affordable housing – WWithinithin one day’s drive of nearly 39 million people; exexpectationpec of continued commercial and iindustrialndust development over the long-term

• GovernmeGGovernment, services and trade are also iimportantmportant economic sectors

XIX City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Recent Economic Developments

City continues to expand and develop, attracting corporate and government investment

Major Construction Boom in Downtown Fresno Economic Overview

5 More that $1 billion has been invested in the redevelopment of downtown during the past few years. Another $600 million in new development is currently in progress or will begin within the next 2 years.

5 In the City of Fresno, at the geographic heart of California, an urban revitalization effort is currently underway – bringing old buildings back to life, sometimes with new uses.

5 Completed in 2008, the $2.5 million Hobbs-Parsons building project in downtown Fresno serves as a model of redevelopment that preserves the past while helping a community prepare for the future. Downtown Fresno Located across the street from Chukchansi Park, home to the Triple-A Baseball Grizzlies, the structure built in 1903, served as a produce warehouse up through the 1990s. The City of Fresno worked with a local developer to breath life into the old building. The renovation included visible wooden roof trusses and high brick archways, a partial second floor, complete with fire pole. Approximately 3,000 sq feet of the 27,000 usable sq feet were partitioned off for a fire museum.

5 A Fresh & Easy store in Fresno, Calif., will be the chain’s first to include design elements borrowed from the local community and neighborhood. Located on Tulare Street, the Fresh & Easy store is the former site of a famous restaurant. The new store will incorporate various localized design elements such as a clock tower, masonry façade and murals. The Fresh & Easy new store’s design will be “singularly unique compared to the 63 small-format grocery stores the grocery chain has Hobbs-Parsons / Fire Headquarters opened thus far.” The main difference is that the retailer is taking local community or neighborhood elements and rolling them into the store design, rather than relying on “cookie-cutter” designs as it did for previous stores. In order to be a good neighbor, Fresh & Easy has made it a priority to reduce its impact on the environment and better each community in which they join. From a 500,000 square foot solar panel on its distribution center, to using low emissions delivery vehicles and significantly reducing each store energy use, Fresh & Easy is doing everything they can to be environmentally responsible in all facilities and operations. Fresh & Easy announced its first 12 locations in the Fresno area and plans to have six stores open by the end of February 2010, including a highly anticipated location in downtown Fresno.

5 The proposed Downtown Fresno Property-Based Business Improvement District (PBID) will be a special benefit assessment district that conveys special benefits to the properties located within the district boundaries. As described in the plan, it is proposed that the PBID will provide economic development and environmental enhancement programs, above and beyond those provided by the City of Fresno. This approach has been used successfully in downtowns throughout California and the nation, helping to improve sales, occupancies and values.

Vision To be an effective force by creating a unique and vibrant destination in the heart of the City. Fresh and Easy

XX City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

City’s 2009-10 Budget Financial Operations Highly focused and pro-active budget strategy

• Mayoral budget priorities: – Ensuring Public Safety Preserving Response Times Mayor Ashley Swearengin Proactive Crime Prevention – Revitalizing the Urban Core Balanced General Fund Sources & Uses Structure Supporting Economic Growth More Jobs Stronger Economic Base PY Carryover – Streamlining City Services 2% Intragovt. Franchise All Other Remove Bottlenecks Charges For 2% 2% Services 6% Well Served Customers 8% – Protecting Natural Resources Property Tax Sustainable Fresno 26% Long-term Land Use Planning Transient Water and Energy Conservation Occupancy Tax • Vision for Fresno 4% – Safe Quality Neighborhoods – Jobs and Education – Business Tax Effective and Responsive Government 6% – Regional Leadership

Motor Vehicle In- Lieu Fee Sources Citywide Contractual 15% Sales Tax General Government 28% Obligations Economic 1.4% Public Safety D/S & 4% Development Matches .6% 5%

General Fund Transfers 6%

Police Parks & Rec 51% 8%

Uses Fire 17% Public Works 6%

XXI City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Historical Reserves & Fund Balances

Financial Operations City’s Cash Balances have continued to grow

Historical General Fund Cash Balances

$ in millions 30 $27.149

25 $22.051 $22.473 20 $15.673 $13.365 15 $11.468 $12.088 $10.314 10 5 $2.526 $2.824 $2.802 $0.000 $0.944 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Historical Unreserved Fund Balances (1)

20% 15.8% 15.0% 15% 13.5% 11.4% 11.7% 10.5% 10.8% 8.7% 8.9% 10% 8.1% 7.9% 7.2%

0.2% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

______1. As a % of General Fund Expenditures & Transfers Out.

XXII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Pension Funding Status Financial Operations City’s Pension Systems are Well-Funded • City maintains two retirement systems for its employees which are administered by the City of Fresno Retirement Boards Systems’ Funding History – Fire & Police Retirement System (“FPRS”) has 2,104 members (2 tiers) $MM – 700 Employees Retirement System has 4,083 600 members 500 • City issued POBs in 1993-94, which were 400 300 restructured in 2002 200 – City cash contribution of $7,279,062 and 100 $1,659,426 from prepaid contributions for 0 Fire & Police Retirement System -100 -200 – No contributions required since FY 1996 -300 for Employees Retirement System due to -400 surplus earnings 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 • City levies taxes in the amount of $0.032438 per FPRS UAAL Liability/Surplus ERS UAAL Liability/Surplus $100 of assessed valuation to fund pension obligations – Tax override validated in 1983 & meets requirement of Huntington Beach decision ______*(Pension System Assets minus POBs)

Fire and Police Retirement System Employees Retirement System

Actuarial Value of Actuarial Accrued (Prefunded) Unfunded Actuarial Value of Actuarial Accrued Unfunded Actuarial Valuation Assets Liability AAL Funded Ratio Actuarial Valuation Assets Liability (Prefunded) Funded Ratio Date (a) Entry Age (b) (b–a) (a/b) Date (a) (b) (b–a) (a/b) 6/30/2001 859,123 562,131 (296,992) 152.8 6/30/2001 781,831 500,586 (281,245) 156.2 6/30/2002 814,680 590,900 (223,825) 137.9 6/30/2002 748,762 529,805 (218,957) 141.3 6/30/2003 749,505 617,879 (131,626) 121.3 6/30/2003 698,885 545,687 (153,198) 128.1 6/30/2004 793,059 642,194 (150,865) 123.5 6/30/2004 741,766 554,366 (187,400) 133.8 6/30/2005 846,718 670,101 (176,617) 126.4 6/30/2005 790,858 565,550 (225,308) 139.8 6/30/2006 906,223 722,722 (183,501) 125.4 6/30/2006 847,516 613,913 (233,603) 138.1 6/30/2007 1,000,961 773,236 (227,725) 129.5 6/30/2007 926,525 631,913 (295,220) 146.8 6/30/2008 1,066,778 830,036 (236,742) 128.5 6/30/2008 980,961 689,883 (291,128) 142.2 6/30/2009 1,045,774 874,355 (171,419) 119.6 6/30/2009 958,032 712,250 (242,782) 133.9 ______* Source: Actuarial Valuation Reports dated June 30, 2009 prepared by The Segal* Company. *For CAFR purposes, the actuarial assumption used to compute contribution requirements and to determine funding status are based upon the prior year’s valuation (2008). The table above includes the most current evaluation (2009), which has not yet been formally adopted by the City, and is presented for management comparative purposes only.

XXIII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

ECONOMIC STIMULUS

On February 17, 2009 President Barack Obama signed into law the American Recovery and Reinvestment Act (ARRA) of 2009. The ARRA funds investments in many programs, including health care, energy, infrastructure, education, and public safety. The total cost of the package is $787 billion and consists of nearly $355 billion for upgrades to: transportation, infrastructure, construction, health care programs, education, housing assistance, and energy efficiency projects; $144 billion in state and local fiscal relief, and $288 billion in personal and business credits.

The City of Fresno has taken a proactive, aggressive approach to securing stimulus funding for the local economy through programs that fund projects for: Community, Economic and Housing Development Environment and Energy Health and Human Services Infrastructure Public Safety/Homeland Security Transportation Workforce Development

Total ARRA Dollars Awarded

Community Workforce Development & Development Housing Environment & 0% 11% Energy 4% Health & Human Transportation Services 30% 7%

Infrastructure 20% Public Safety 28%

Data as of September 30, 2009

XXIV City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

The table below lists the funding obtained by the City;

Funding Agency Project Total Grant Funding Community Development & Housing Lowell Community Rehabilitation Program $647,341 Community Development & Housing Park Community Facility Improvements 500,000 Community Development & Housing Community Street Improvements 900,000 Community Development & Housing Lead Hazard Control 3,000,000 Environment & Energy Herndon Town Water 825,000 Environment & Energy Herndon Town Sewer System 729,968 Environment & Energy Cortland/Sewer System 269,500 Health & Human Services Homeless Prevention and Rapid Rehousing 3,130,746 Health & Human Services Senior Hot Meals 7,321 Infrastructure Traffic Signal at Maple & Behymer 360,000 Infrastructure Traffic Signal at Maple & Teague 400,000 Infrastructure Traffic Signal at Maple & Perrin 300,000 Infrastructure Clovis Avenue Resurfacing – McKinley to Kings Canyon 1,295,000 Infrastructure Divisadero Resurfacing – H to Clark Streets 700,000 Infrastructure Shaw Ave Resurfacing – Marks to Plythe 938,849 Infrastructure Traffic Signal at Millbrook & Shepherd 370,000 Infrastructure Blackstone Ave Resurfacing – Shaw to Minarets 1,700,000 Infrastructure Traffic Signal at Marks & Emerson 500,000 Infrastructure Friant Road Reconstruction/Resurfacing State Route 41 2,186,552 Public Safety 2009 Justice Assistance Grant (JAG) 2,333,675 Public Safety COPs Hiring Recover Program (CHRP) 10,235,445 Transportation Rehabilitate Taxiways B10, C10 and Demolition of Taxiway 89 - Fresno Yosemite International Airport 2,750,000 Transportation Regional Automated Farebox System 2,300,000 Transportation CNG Replacement Buses 1,000,000 Transportation Fleet-wide Automated Passenger Counters 1,000,000 Transportation Transit Enhancements 3,550,000 Transportation Vehicle Purchase 800,000 Transportation Purchase CNG Compressors 250,000 Transportation Purchase Support Vehicles 112,685 Transportation Preventive Maintenance 1,850,000 Workforce Development ARRA Summer Youth Program 18,000

OTHER FINANCIAL INFORMATION

Internal Controls

In developing and evaluating the City’s accounting system, consideration was given to the adequacy of internal accounting controls. Internal accounting controls were designed to provide reasonable, but not absolute, assurance regarding: (1) the safeguarding of assets against loss from unauthorized use or 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

XXV City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 control should not exceed the benefits likely to be derived; and, (2) the evaluation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that the City’s internal accounting controls adequately safeguard assets and provide reasonable assurance of the proper recording of financial transactions.

Budgetary Process/Control

The City operates under the strong-Mayor form of government. Under the strong-Mayor form of government, the Mayor serves as the City’s Chief Executive Officer, appointing and overseeing the City Manager, recommending legislation, and presenting the annual budget to the City Council.

The budget of the City of Fresno, within the meaning and context of Section No. 1205 of the City’s Charter, must be adopted by resolution by the City Council by June 30th of a given year. As provided by Section 1206 of the Charter, any adjustments in the amounts appropriated for the purposes indicated at the department/fund level shall be made only upon a motion to amend the resolution adopted by the affirmative votes of at least five Council members.

Administrative changes within the department/fund level may be made without approval of Council within written guidelines established by the City Manager. For accounting and auditing convenience, accounts may be established to receive transfers of appropriations from department appropriations for capital improvements in two or more different funds for the same capital project. Department appropriations in Internal Service Funds (ISF) may be administratively adjusted, provided no amendment to the resolution is required to adjust the appropriation in the department receiving the service from the ISF.

The funds allocated to the respective accounting object classes comprising the total appropriation for each division or department, are for purposes of budgeting consideration and are not intended to constitute separate appropriations. Funds allocated to an object class may be expended for the purpose of any other object class if such expenditures are within the written guidelines established by the City Manager.

XXVI City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 expenditures cannot legally exceed the appropriated amount) is maintained at the department level by major expenditure category through an encumbrance system prior to the release of purchase orders to vendors. Purchase orders that result in an overrun of department-level balances by object are not released until additional appropriations are made available. A budget is in balance when the amount of budgeted expenditures is equal to the amount of budgeted revenues plus other available resources.

Fund Structure

The City, like other state and local governments, uses fund accounting to ensure that various revenue sources are used for the purpose for which they were intended. The budget document is organized to reflect this fund structure of the City’s finances. Fund revenues and expenditures are rolled up to the various object levels by division and department for presentation of information to the public. Budget adoption and subsequent administration is carried out on a fund basis.

Budget Development

The Operating Budget, Cornerstones/Objectives and Capital Improvement Plan are developed through a multi-step information gathering and priority setting process to create a financial plan for the operations of the government for the fiscal year. The City Charter defines much of the process. The Mayor, City Manager, Budget, Departments, Council and citizens committees are key participants to the process.

The preparation of the FY 2010 budget document was the result of a citywide effort. Each department was presented with an operating base budget that was used as the foundation for building their requests for the operations of their organizations. All one-time expenditure increases were removed, except for those that were demonstrable and mandatory. Employee services were calculated and special projects and contingencies were excluded from the base unless mandated or other special circumstances applied. Inter-departmental charges, lease purchase, and debt service are loaded centrally by the Budget & Management Studies Division (BMSD).

A five-year capital budget is required from all departments who work on capital projects. The purpose is to give the Mayor and Council a tool to plan for the future, as well as to more realistically reflect the timing of many capital projects that take more than one year to complete. All capital budgets are built in compliance with the City’s decision to use Project Costing to track the cost of doing business and associated revenues in either more detail, or in different categories than what a General

XXVII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Ledger-only accounting system would provide. Project Costing uses structural elements that focus on activities including project types, activity types, and resource types. Project costing is available to track cost and revenue detail by Business Unit defined activities and categories, and augments and expands General Ledger information; however it does not replace it. Appropriation controls remain at the fund/organization level. The information provided by Project Costing is intended as a management tool to provide more timely, detailed, and accurate information to the Mayor, City Manager, Council, and the public.

Departments submit their requests to the City’s Budget Office to be analyzed and reviewed. Requests are evaluated based on Department specific activities, City funding resources, and the goals/strategies identified by each Department related to the impact on their respective performance measures.

Decision support information is compiled and presented to the Mayor and City Manager in a series of review meetings comprised of the Mayor, Mayor’s Chief of Staff, City Manager, Assistant City Manager, Budget Director and Department Directors. Upon final decisions of format and content, the Mayor’s Proposed Budget Document is printed and presented to Council for deliberation and adoption. The Adopted Budget Document is prepared to include all the various changes approved by the Council.

Budget Administration

The City’s budget establishes appropriations and expenditure levels. Expenditures may be below budgeted amounts at year end, due to unanticipated savings realized from Department operations. The existence of a particular appropriation in the budget does not automatically mean funds are expended. Due to the time span between preparing the budget, subsequent adoption by the governing body, as well as rapidly changing economic factors, all expenditures are reviewed prior to any disbursement. These expenditure review procedures assure compliance with City requirements, and provide some degree of flexibility for modifying programs to meet the changing needs and priorities of the public. Therefore, Fresno City’s FY 2010 budget is a forward-looking policy document which reflects a snapshot in time of the City’s strategies to best serve the public.

XXVIII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Amending the Budget Budget Development The Annual Appropriation FY 2010 BUDGET CALENDAR Resolution (AAR) adopted each Internal Service Fund Charges October/November year by Council is the legal Development document that establishes spending authority to each City Year to date revenue and expense November/December analysis. Update short-term and long- Department within funds. During range forecasts. the fiscal year, numerous circumstances arise which make Strategic Planning with Executive Staff - December adjusting the adopted budget Mayor, City Manger & Budget Cabinet desirable or necessary. This can Mid Year Review and Contingency January arise when the Mayor or Council Planning establishes new policy or revises Base Budgets Developed January an old one, when a new source of funding for a project is Base Budget Rollout to Departments February obtained, when a department Department Budget Request Submissions March finds a need for something not included in the adopted Budget Cabinet Meetings March budget, or some other event is Mayor & City Manager Review Meetings April planned for. In general, an AAR amendment is required when an Mayor’s Proposed Budget Presented to May Council, Departments, & Public appropriation in any line of the AAR needs to be changed. Council/Public Hearings May/June

Budget Adopted No later than June 30 Council approval (five affirmative votes) is required for the following Budget Load and Reconciliation to July proposed amendments to the Financial System. Year End Close and AAR: 1) Transfer of an Analysis of Performance to Budget appropriation from one fund to Preparation of Adopted Budget August/September another fund; 2) Increases or Documents and GFOA Submission decreases in appropriations Amended Budget Requires Council Approval within a Department; or 3) Any through the year new appropriation. Monitoring and Administration of Ongoing through the year Revenues and Expenditures, Performance Certain year-end encumbrances Outcomes and Strategic Operating and that fulfill a spending commit- Capital Planning ment are carried forward and become part of the following year’s budget. Open encumbrances at June 30, 2009, are reported as reservations of fund balances.

The City continues to meet its responsibilities in making sound financial management decisions, as demonstrated by the statements and schedules included in the financial section of this report.

XXIX City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009

Pension Trust Fund Operations

The City maintains two retirement systems for its employees. One covers all firefighters and police officers (Fire and Police System), while the other covers all remaining permanent employees (Employees’ System). The systems are single-employer defined benefit pension plans administered by the City of Fresno Retirement Boards. The net decrease in assets for the Fire and Police System for fiscal year 2009 was $255.3 million ($1,088.1 million to $832.7 million) as compared to a decrease of $105.3 million ($1,193.4 million to $1,088.1 million) in 2008. The net decrease in assets for the Employees’ System was approximately $233.5 million ($969 million to $735.6 million) in 2008, as compared to a decrease of $99.8 million ($1,068.9 million to $969 million) in fiscal year 2008. These decreases were primarily the result of the performance of the investment markets.

For CAFR purposes, the actuarial assumptions used to compute contribution requirements and to determine funding status are always based upon the prior year’s valuation, which for the fiscal year 2009 is the actuarial valuation performed as of June 30, 2008. Plan Trustees have also requested a preliminary evaluation as of June 30, 2009. This evaluation estimates that the plans as of June 30, 2009 are 119.6% funded for the Police and Fire System and 133.9% funded for the Employees’ System

No cash contributions were required for the Employees Retirement System for the fiscal year ended June 30, 2009. Employer contributions came from prepaid contributions of $1,345,274 on deposit with the System and the prefunded actuarial accrued liability of the System. Cash contributions of $7,279,062 were made by the City to the Fire and Police Retirement System. This was in addition to $1,659,426 from prepaid contributions on deposit with the System. The remaining employer contributions were offset by the prefunded actuarial liability of the System. The funded ratios however decreased based on the 2008 actuarial valuation to 128.5% from 129.5% for Police and Fire and to 142.2% from 146.8% for Employees’.

Cash Management

The City’s pooled temporary idle funds and deposits are invested pursuant to the City’s Investment Policy (the Policy) and the California Government Code (GC) by the City Treasurer. The Policy seeks the preservation of capital, safety, liquidity and yield, in that order of priority. The Policy addresses soundness of financial institutions holding our assets and the types of investments permitted by the GC. The City seeks to minimize credit and market risk while maintaining a competitive yield on its portfolio. Accordingly, the Policy permits investments in certificates of

XXX City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 deposit, obligations of the U.S. Treasury and U.S. Government sponsored corporations and agencies, commercial paper, corporate bonds, medium-term notes, banker’s acceptances, repurchase and reverse repurchase agreements, mutual funds invested in U.S. Government and Treasury obligations, and the State Treasurer’s Investment Pool. The earned yield for fiscal year 2009 was 2.89% as compared to fiscal year 2008 which was 4.71%.

The City invests in no derivatives other than structured (step-up) notes, which guarantee coupon payments. These are minimal risk instruments. All of the City’s investments, which are categorized according to risk as defined by the Governmental Accounting Standards Board, are classified in the category of lowest risk. All categorized investments are held by a third-party custodian in the City’s name.

With regard to investment style, the City employs a semi-active strategy in managing the portfolio. First, all prospective investments are reviewed from the standpoint of the risk of loss of principal. Once safety concerns have been addressed, all investments are purchased with the intention of holding them until maturity. They are purchased at a point in time and with a particular maturity date judged to be the most advantageous in terms of meeting the City’s liquidity needs and maximizing the return on the portfolio.

However, as time passes and market conditions change, opportunities often arise in which funds can be repositioned into other assets offering even greater advantages to the portfolio. In these circumstances, one investment may be sold or swapped for another. Occasionally this may result in a capital gain from the sale and at other times it may result in a loss. In all cases however, the gains or losses combined with returns from the newly acquired investment, result in a net added return to the portfolio. The Pension Trust Retirement System and the Redevelopment Agency deposits and investments are maintained outside the City Treasury and follow policies established by their respective governing boards.

The City has adopted a comprehensive Investment Policy which encompasses and incorporates deposit and investment polices meant to minimize credit risk, concentration risk, interest rate risk, and foreign currency risk in compliance with GASB No. 40, Deposit and Investment Risk Disclosures.

Risk Management

With certain exceptions, it is the policy of the City to use a combination of self-insurance and purchased commercial insurance against property or liability risks. The City believes it is more economically able to manage its risks internally and set aside funds as needed for estimated current claim settlements and

XXXI City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 unfavorable judgments through annual appropriations and supplemental appropriations. The City maintains limited coverage for certain risks that cannot be eliminated. At this time, the City is engaged in an Owner-Controlled Insurance Program covering the wastewater treatment expansion. The Risk Management Division investigates and manages all liability claims and property losses, evaluates risk exposure and insurance needs, protects against contractual loss by reviewing and preparing insurance and indemnification portions of construction contracts, leases and agreements, emphasizes ongoing operational loss control, and purchases all insurance coverage for the City.

The City maintains general liability insurance with limits of liability of $25 million. There is $2.5 million self-insurance retention (SIR). The City also maintains airport owners and operators’ general liability insurance and aviation (Aircraft Liability) insurance, with limits of liability of $60 million and $25 million per occurrence, respectively. There is no deductible or self-insured retention.

Furthermore, the City maintains property insurance and boiler and machinery insurance, with total insured values of $1,030,521,659 and limits of liability of $1 billion and $100 million per occurrence, respectively. There is a $25,000 deductible. Finally, the City maintains Aviation (Aircraft Hull) insurance for its two helicopters and one airplane, with limits of liability of $1.5 million for each helicopter and $180,500 for the airplane. There is a $30,000 in- motion deductible and $500 not in-motion deductible for the helicopters. There are no physical damage deductibles for the airplane.

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

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

INDEPENDENT AUDIT

The City’s Charter Section 1216 requires an annual audit of the City’s financial records, transactions and reports by an Independent Certified Public Accounting (CPA) firm. These records, summarized in the Comprehensive Annual Financial Report, have been audited by a nationally recognized CPA firm, Macias Gini & O’Connell, LLP. Various other component units of the City of Fresno, consisting of the Pension Trust Fund and the Redevelopment Agency, have been separately audited by other CPA

XXXII City of Fresno, California Controller’s Transmittal Letter For the Fiscal year Ended June 30, 2009 firms. The Independent Auditor’s Report on our current financial statements is presented in the Financial Section.

CERTIFICATE OF ACHIEVEMENT

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report (CAFR) for the Fiscal Year ended June 30, 2008. This was the sixteenth consecutive year that the City has achieved this prestigious national award. The Certificate of Achievement is the highest form of recognition in the area of governmental accounting and financial reporting. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized CAFR whose contents conform to program standards. The CAFR must satisfy both Generally Accepted Accounting Principles and applicable legal requirements.

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

The GFOA has also presented a Distinguished Budget Presentation Award to the City of Fresno for its annual budget for the fiscal year beginning July 1, 2008 through June 30, 2009. This award is also valid for a period of one year only. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as a policy document, operations guide, financial plan, and as a communications device. This is the sixth consecutive year that the City’s Budget has received this award. The City of Fresno continues to prepare its budgets in conformity to program requirements, and submitted its budget for 2009-2010 to GFOA to determine eligibility for another award.

ACKNOWLEDGMENTS

This 2009 Comprehensive Annual Financial Statement presents the City’s subdued but certainly stable financial condition as of June 30, 2009 despite the State and Federal financial crisis. This stable condition was made possible by our sound fiscal financial plan. It is adherence to our continuing prudent fiscal policies that has helped the City maintain its service commitment to our citizens and to the programs and policies established by the Mayor and City Council. We continue to be resolute in our financial discipline that has allowed us to manage through

XXXIII the current economic challenges. This continued course of action and the City's managerial leadership will continue to guide us through the challenges that lie ahead.

We would like to express our appreciation to the entire staff of the Finance Department, but especially the CAFR staff and their families for their months of concerted team effort, and whose professionalism, dedication and efficiency are responsible for the preparation of this report. Thank you to: Margaret Bell, Elena Bowen, Gilbert Elizondo, Mike Getty, Greg Wiles, Philip Hardcastle, Martin Hinojosa, Kim Jackson. Gregg Kurisu. Corrina Barbarite. Jane Mouanoutoua, John Simpson. Anita VIllarreal, and of course to Frank Balekian. Jr. and Nid Phanucharas. After more than 65 combined years of service Frank and Nid are enjoying well deserved retirements. We would Ctryof Ftemo- w~~ be amiss if we. did not also thank the CAFR contacts in each department for working with us and whose Invaluable contributions made the preparation of this report possible.

We wish to also extend our sincere thanks to the staff in all City departments for their cooperative efforts in responding to the many questions and requests for detailed information that accompanies each annual audit. In addition. we would like to acknowledge the role of Macias Ginl & O'ConnelL LLP, for their professional support in the p reparation of the CAFR. Finally, we want to thank the Mayor, the City Council members, and the City Manager for their continued leadership and support in planning and conducting the City's financial operations.

Respectfully submitted,

Kare . Bradley. CPA ~ctor/~oller Assistant Controller

XXX IV

City Organizational Chart CITIZENS OF FRESNO

MAYOR Council CITY COUNCIL Assistants ASHLEY SWEARENGIN

Redevelopment Agency City Attorney City Clerk City Manager Executive Director

Litigation Secretary to: City Departments Legal Advisor City Council Support Services forMayor and Economic Redevelopment Agency Council Development/RDA Records Management Citywide Project Mgmt Administration Administration Public Relations Office of Independent Review

Parks, After School, Transportation Convention Information Recreation & Airports (FAX) Center Services Community Services

Bus Service Park Maintenance Managed by SMG as of FYI Operations Computer Services Bus Repair/Maintenance Recreation Jan. 2004 Airport Projects Management Systems & Network Security Planning Community Centers Sporting Events Airport Security & Safety Help Desk Administration After School Programs Conventions Chandler Downtown Airport Systems & Applications Paratransit Senior Programs Concerts Administration Programming Communication Services

Personnel Planning & Finance Fire Police Services Development

Patrol & Crime Suppression Recruitment & Exam Budget Development & Planning, Building & Safety Fire Suppression & Emergency Investigative Services Job & Salary Analysis Administration/CDBG Development Review Response Mayor’s Gang Prevention Civil Service Board Financial Reporting/Grants Development Partnership Center HazMat Initiative Risk Management Accounting Sustainability Fresno Prevention & Investigation Graffiti Abatement Training Internal Audit Housing & Community Dev. Training & Support Special Operations Labor Relations Utility Billing & Collection Code Enforcement Administration Administration Employee Benefits Business Tax/Permits HOME Program

Downtown & General Community Public Utilities General City Purpose Public Works Services Revitalization

Downtown Revitalization Water Production, Quality & Retirement Office Engineering Services Fleet Management: Local Business Initiatives Delivery Redevelopment Services Support Street Maintenance Acquisition & Maintenance Neighborhood Revitalization Solid Waste Services Intergovernmental Relations Capital Project Management Purchasing Film & Entertainment Recycling Program Traffic Operations Center DBE Program Incentive Zone Wastewater & Sewer Parking Services Facilities Management Management ADA Citywide Program Central Printing Community Sanitation Traffic Signals & Streetlights Administration Operation Clean-Up

XXXV

City Operating Fund Structure

City of Fresno

Internal Service Enterprise Funds General Fund Funds The General Fund is used to account for unrestricted Proprietary Fund Types operate as if revenues. Revenues received by the City that have no they were private businesses. One Proprietary Fund Types operate as if they legal or contractual restriction are placed in the various type are enterprise funds. These were private businesses. Another type General Funds. Appropriations may be made from the funds provide services to other of Proprietary fund are the internal General Fund for any legal City activity. Revenues such as governmental and non- service funds that provide services to sales tax, property tax, and business tax are a few governmental entities, including departments within the City. examples of General Fund revenues. individuals and businesses.

Airports Mayor City Council City Attorney

Convention Center City Manager City Clerk Finance

Downtown & Planning & Community Fire General Services Development Revitalization

General City Public Utilities PARCS Information Services Purpose

Transportation Police Public Works Personnel Services

XXXVI

CITY OF FRESNO DIRECTORY OF CITY OFFICIALS

Member T erm Expires

MAYOR

Ashley Swearengen January 2013

COUNCIL MEMBERS

Blong Xiong, MBA, District 1 January 2011 Andreas Borgeas. District 2 January 2013 Cynthia Sterling, District 3 January 2011 Larry Westerlund, District 4 January 2013 Mike Dages , District 5 January 2011 Lee Brand, District 6 January 2013 Henry T. Perea, District 7 January 2011

CITY OFFICIALS

Andrew T. Souza, City Manager (Resigned December 9, 2009) Bruce Rudd, Assistant City Manager James C. Sanchez, City Attorney Rebecca E. Klisch, City Clerk Joe Gray, City Controller/Finance Director Karen M. Bradley, CPA, Assistant City Controller/Assistant Finance Director

Elected officials as of the date of this report.

XXXVII

Certificate of Achievement for Excellence in Financial Reporting Presented to City of Fresno California

For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008

A Certificate of Achievement for Excellence in Financial Reporting is presented by the Govemment Finance Officers Association of the United States and Canada to govenun::nt units a.nd public employee retirement systems whose comprehensive annual fmancial reports (CAl'Ks) achieve the highest standards in government accounting and financial reporting.

President

Executive Director

City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

FINANCIAL SECTION

“Effective and Responsive Government” City of Fresno – www.fresno.gov

The Honorable City Council of the City of Fresno, California

Independent Auditor’s Report

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Fresno, California, (the City) as of and for the year ended June 30, 2009, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of City’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Redevelopment Agency Debt Service Fund, a major fund. Also, we did not audit the financial statements of, the Redevelopment Agency nonmajor governmental fund, and the City of Fresno Employees Retirement System and the City of Fresno Fire and Police Retirement System pension trust funds, which represent the following percentages of assets, net assets/fund balances and revenues as of and for the fiscal year ended June 30, 2009:

Net Opinion Unit Assets assets/fund Revenues balances Governmental Activities 5.2% -5.9% 6.2% Aggregate Remaining Fund Information 87.6 93.0 220.3

Those financial statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based on reports of the other auditors

We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City of Fresno’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinions.

1 In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2009, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated February 24, 2010, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and important for assessing the results of our audit.

The management’s discussion and analysis and other required supplementary information listed in the accompanying table of contents are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules have been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, in our opinion, based on our audit and the reports of other auditors, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements and, accordingly, we express no opinion on them.

Certified Public Accountants Newport Beach, California

February 24, 2010

2 City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

MANAGEMENT’S DISCUSSION AND ANALYSIS

“Effective and Responsive Government” City of Fresno – www.fresno.gov 50 t h Comprehensive Annual Financial Report MANAGEMENT’S DISCUSSION AND ANALYSIS

CITY OF FRESNO, CALIFORNIA

We, the management of the City of Fresno, offer readers of the City’s financial statement this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2009. We encourage readers to consider the information presented here, in conjunction with the City’s financial statements, which follow this section, and the additional information that we have furnished in our letter of transmittal at the front of this report. This is the eighth year since the City implemented the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34. This discussion and analysis provides comparisons primarily for the previous two years, but in many cases includes even more extensive comparisons.

FINANCIAL HIGHLIGHTS

The assets of the City of Fresno exceeded its liabilities at the close of the most recent fiscal year by $1,523,246,709 (reported as net assets). Of this amount, the City has a deficit ($155,093,925) (unrestricted net assets) shortfall with respect to meeting the government’s ongoing obligations to its citizens and creditors. This deficit is mitigated by the fact that the City has $1,415,525,995 in net assets invested in capital assets net of related debt. The total net assets include all major infrastructure networks.

As of June 30, 2009 and 2008 respectively, the City’s governmental funds reported combined ending fund balances of $206,239,984 and $209,559,147. Of these amounts for each respective year, $40,478,396 and $29,915,177 were reserved for encumbrances, and $188,780,188 and $160,551,988 were reserved and unavailable for appropriation for expenditures or legally segregated for a specific future use. Of the reserved and unavailable amounts, $16,851,097, as of June 30, 2009, as compared to $16,047,075, at the end of June 2008 were legally restricted by management as an Emergency Reserve (Reserve for Economic Uncertainty). A deficit of ($23,018,600) and a surplus of $3,044,907 as of June 30, 2009 and 2008, respectively, made up the balance in the unreserved/undesignated fund balance.

4 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

The Redevelopment Agency Debt Service Fund with a deficit of ($76,916,143) in 2009 as compared to ($77,916,546) in 2008 made up approximately (334%) and (2,559%) of the surplus/shortfall at the end of each of the two fiscal, years. When the Redevelopment Debt Service Fund is removed from the governmental funds, reported unreserved and undesignated fund balance is a positive $53,897,543 and $80,961,453 in 2009 and 2008 respectively.

At the close of the 2002 fiscal year, $10 million was set aside and designated for purposes of meeting unforeseen budgetary requirements of the City as defined by the Controller, City Manager, and Mayor with approval by a vote of the City Council. The Reserve for Economic Uncertainty, by June 30, 2003 had grown to $10,172,256. Council then earmarked $1.5 million of the reserve for specific economic development opportunities in the 2004 fiscal year. On January 27, 2004, Council took action to execute the Mayor’s executive order to establish and maintain a five percent General Fund Emergency Reserve, providing some protection from State grabs, which at that time, were certain to rob California’s local governments. The Emergency Reserve can only be used based upon declaration of a fiscal emergency declared by the Mayor and ratified by the Council. A fiscal emergency is defined as:

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

To implement this directive, a reserve amount is determined based on 5% of the Adopted General Fund appropriations at the beginning of each fiscal year. Additional funds are added to the fund as necessary to ensure that the reserve is equal or greater than 5% of the Adopted General Fund appropriations. The City is currently exceeding the 5% threshold. At June 30, 2006, the General Fund Emergency Reserve totaled $10,488,418. By June 30, 2008, it had grown to $16,047,075 and at the end of June 2009 it stands at $16,851,097.

The combined total General Fund unreserved fund balance was $30,636,201 or 13% of total General Fund expenditures of $235,396,057 at June 30, 2008 and by June 30, 2009 the combined General Fund unreserved fund balance stands at $474,491 or 0.1918% of total General Fund expenditures of $247,333,114.

5 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Subsequent to year-end, two loan guarantees made by the City on behalf of two development projects were called by their respective banks as a result of defaults on the part of the borrowers. The impact to the City amounted to $20,217,211 in cash outflows subsequent to June 30, 2009. The loan guarantees were secured by real property. While the loans were paid off, title to the properties did not immediately confer to the City as each had various issues that needed to be addressed prior to the transfer. As a result, at June 30, 2009 the General Fund recognized an increase in accrued liabilities and a capital outlay in the amount of $20,217,211. Note 17 - Subsequent Events provides further discussion related to these transactions.

The City’s total Governmental long-term liabilities increased by $49,397,126 (12%) in 2008 and increased by $46,258,238 (9.43%) in 2009, net of a change in application of accounting principles (See Note 12) which decreased the 2009 beginning balance of total governmental liabilities by $2,141,046. A large decrease occurred in 2002 when there was a restructuring of the Pension Obligation Debt which resulted in $12.2 million in savings. This reduced cost enabled and continues to enable the General Fund to absorb unanticipated revenue shortfalls yet continue to maintain budgeted service levels.

Prudent actions of the administration and proactive financial management, which took advantage of historically low interest rates to refinance the City’s Pension Obligation Bonds, resulted in available resources to establish the $10 million Reserve for Economic Uncertainty in 2002. Now the legally restricted General Fund Emergency Reserve, stands at approximately $16.9 million at June 30, 2009 and continues to be attentively protected.

When the 2010 Budget was built in early 2009, it was structured to keep the City moving forward during the most challenging financial environment we have faced in decades. Economic conditions made the budget process particularly challenging. It was expected that the General Fund revenues would decline significantly while expenses would continue to increase. The Mayor’s goals required balancing fiscal responsibility with excellence in the delivery of core services to our residents. The results of FY 2009 up to that point were closely evaluated and the most current economic information available at that time was carefully considered in making revenue projections for FY 2010 and 2011.

The national economic recession over the past several years and its impact on the State of California has and will continue to have an ongoing impact on the City of Fresno and its budget. When the State previously experienced an unprecedented fiscal crisis, it caused the City to plan for uncertainties. The current fiscal crisis, once again results in negative impacts to the City including a loss of General Fund resources.

6 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Although the FY 2010 Adopted Budget is on pace to end its fiscal year in balance, the 2009 year end results as well as new forecasts require that the City make material expenditure reductions over the next 18 months to align expenses with revenues to keep the General Fund in balance through FY 2011. The results for 2009 are more fully discussed later in the MD&A as well as their impact on the budgets for 2010 and 2011. The Mayor in building her budgets, recognizes that the unstable economy requires more than ever the careful monitoring of revenues and expenses and that adjustments to expenses will be an ongoing process. The Mayor’s focus however will be to continue to protect critical services – most notably Public Safety services. All departments continue to work to identify more areas of savings, efficiencies, reorganizations and, in some cases, program reductions that will minimize the overall impact on City services and employees.

In the face of these challenges, it is more critical than ever to stay focused on what is most important to the People of Fresno. In FY 2010 and well beyond, the Mayor is committed to leading the City forward and achieve great success in our key priority areas:

Ensuring the public’s safety – An uncompromising commitment to the public’s safety, preserving response times for emergency calls and services, and proactive efforts aimed at crime prevention; Revitalizing the Urban Core and Supporting Economic Growth – A focus on much needed revitalization efforts for downtown and Fresno’s oldest neighborhoods that will lead to more jobs and a stronger economic base for the City; Streamlining City Services – Removing bottlenecks at City Hall to ensure customers are well served; and Protecting Natural Resources – Launching “Sustainable Fresno,” a multi-year effort to improve long-term land use planning and water and energy conservation in Fresno and the region.

The City of Fresno is facing a momentous opportunity to define our future. As we experience short-term contraction in resources, we must not lose sight of the fact that the majority of our programs and funding remain intact. There are a great many programs and projects that continue to move our City forward despite these challenging times. Mayor Swearengin’s plan is to continue funding to address the City’s essential needs; to protect resources devoted to core services, particularly public safety. She intends to act in the best interest of the community overall, while living within the City’s means. The City will continue to advance and expand our infrastructure with funds specifically designated for this purpose.

7 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

The City is positioning itself to effect greater accomplishments and unprecedented results when market conditions improve:

Safe, quality neighborhoods Jobs and Education Effective and responsive government Regional leadership

The Mayor has established as her Guiding Principles for her Vision;

Collaboration – The Mayor, Council and City employees working well together and across departmental lines to solve problems and do what is best for the City; the City of Fresno working effectively with the County of Fresno and other cities in our county; and Fresno leading the way to pull the entire San Joaquin Valley together to address issues of regional concern, such as water, air quality and regional transportation.

Putting Community Interests First – Gathering all stakeholders together to obtain input from all community voices.

Practicing Fiscal Discipline – The City will be efficient and prudent with the money entrusted to City Hall by our citizens and if at all possible find ways to accomplish more with less.

Get Results – The stage has been set to make lasting progress on jobs, public safety and neighborhood revitalization, responsive government and major regional issues and it has taken the hard work of many people. It will take the continuing hard work of everyone in the community, coming together, to get things done.

8 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

OVERVIEW OF FINANCIAL STATEMENTS

This discussion and analysis are intended to serve as an introduction to the City’s basic financial statements, which consist of three components: (1) Government-wide financial statements, (2) Fund financial statements and (3) Notes to the financial statements. This report also contains other Supplementary Information in addition to the basic financial statements. For the eighth consecutive year, this report includes government-wide financial statements as required by GASB No. 34.

Government-wide financial statements are designed to provide both long-term and short-term information about the City’s overall financial status in a manner similar to a private-sector business.

Fund financial statements focus on individual parts of the City government, reporting the City’s operations in more detail than the government-wide statements. They are used to maintain control over resources that have been segregated for specific activities or objectives and to ensure and demonstrate compliance with finance-related legal requirements. They can be divided into three categories:

Governmental funds statements tell how general government services such as police, fire, and public works were financed in the short term as well as what remains for future spending.

Proprietary fund statements offer short-and long-term financial information about the activities the City operates like businesses, such as utility services.

Fiduciary fund statements provide information about the financial relationships – such as the retirement plan for the City’s employees – in which the City acts solely as trustee or agent for the benefit of others, to whom the resources belong.

These financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The Pension Plans’ Schedules of Funding Progress are included in the Notes to the Financial Statements. In addition to these vital elements are combining statements that provide details about non-major governmental funds, nonmajor enterprise funds, internal service funds and agency funds, each of which is presented in a column in the basic financial statements.

9 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

The following table summarizes the major features of the financial statements. The overview section below also describes the structure and contents of each of the statements in more detail.

Government- FUND FINANCIAL STATEMENTS wide Statement

Governmental Proprietary Fiduciary Scope Entire entity The day-to-day operating activities of The day-to-day Instances in which the (except fiduciary the City for basic governmental services operating activities of City administers funds) the City for business- resources on behalf of type enterprises others, such as employee benefits Accounting Accrual accounting Modified accrual accounting and current Accrual accounting Accrual accounting basis and and economic financial resources measurement focus and economic and economic measurement resources focus resources focus resources focus; focus except agency funds do not have measurements focus Type of asset All assets and Current assets and liabilities that come All assets and All assets held in a and liability liabilities, both due during the year or soon thereafter liabilities, both trustee or agency information financial and financial and capital, capacity for others capital, short-term short-term and long- and all liabilities and long-term term Type of inflow All revenues and Revenues for which cash is received All revenues and All additions and and outflow expenses during during the year or soon thereafter; expenses during year, deductions during the information year, regardless of expenditures when goods or services regardless of when year, regardless of when cash is have been received and the related cash is received or when cash is received received or paid liability is due and payable paid or paid

10 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

ORGANIZATION OF CITY OF FRESNO COMPREHENSIVE ANNUAL FINANCIAL REPORT Introductory INTRODUCTORY SECTION Section

Management's Discussion and Analysis Government-wide Financial Fund Financial Statements Statements

GOVERNMENTAL PROPRIETARY FIDUCIARY Statement of Net FUNDS FUNDS FUNDS Assets

Balance Statement of Sheet Net Assets Statement of Fiduciary Net Assets Statement of Statement of Financial Revenues, Revenues, CAFR

Section Expenditures and Expenses and Changes in Changes in Fund Balances Fund Net Assets

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

NOTES TO THE FINANCIAL STATEMENTS

REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MD&A

OTHER SUPPLEMENTARY INFORMATION

Statistical STATISTICAL SECTION Section

11 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Government-Wide Statements (Reporting the City as a Whole)

The Government-Wide Statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Assets includes all City assets and liabilities. The Statement of Activities reports all of the current year’s revenues and expenses regardless of when the cash is received or paid. These Financial Statements report information about the City, as a whole, and about its activities that should help to answer the question, “Is the City, as a whole, better or worse off as a result of this year’s activities?”

The two Government-Wide Statements report the City’s net assets and how they have changed during the fiscal year. Over time, increases or decreases in the City’s net assets can be one indicator of whether its financial health is improving or deteriorating.

Both of the Government-Wide Financial Statements distinguish functions of the City that are principally supported by taxes and inter-governmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public protection, public ways and facilities, culture and recreation, and community development. The business-type activities of the City include two airports, public transportation system, water, sewer, solid waste, community sanitation, convention center, stadium, numerous parks, development department, and various parking facilities.

The Government-Wide Financial Statements include not only the City itself, but also legally separate component units; the Redevelopment Agency of the City of Fresno, and the Fresno Joint Powers Financing Authority. The component units have been “blended” into the City’s financial statements because the governing boards are substantially the same as the City or they provide services entirely or almost exclusively for the benefit of the City even though they do not provide services directly to the City. Although legally separate from the City, these component units are blended with the City government because of their exercise of authority and their financial relationships with the City.

The Government-Wide Financial Statements can be found on pages 57-59 of this report, identified as the statement of net assets and statement of activities.

Fund Financial Statements

The Fund Financial Statements are designed to report information about groupings of related accounts, which are used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. A fund is a fiscal and accounting entity with a self-balancing set of accounts that the City uses to keep track of specific resources of funding and spending for a

12 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

particular purpose. All of the funds of the City can be divided into the following three categories: Governmental Funds, Proprietary Funds, and Fiduciary Funds.

Governmental Funds: Governmental Funds are used to account for essentially the same functions reported as governmental activities in the Government-Wide Financial Statements (i.e., most of the City’s basic services are reported in Governmental Funds). These statements, however, focus on (1) how cash and other financial assets can be readily converted to available resources, and (2) the balances left at the year-end that are available for spending. Such information may be useful in determining what financial resources are available in the near future to finance the City’s programs.

Because the focus of Governmental Funds is narrower than that of the Government-Wide Financial Statements, it is helpful to compare the information presented for Governmental Funds with similar information presented for governmental activities in the Government- Wide Financial Statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the Governmental Fund Balance Sheet and Governmental Fund Statement of Revenues, Expenditures, and Changes in the Fund Balance provide a reconciliation to facilitate this comparison between Governmental Funds and governmental activities.

The City maintains several individual Governmental Funds organized according to their type: special revenue, debt service, and capital projects. Information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund, Grants Fund, and Redevelopment Agency Debt Service Fund (which are considered to be major funds). Data from the remaining Governmental Funds are combined into a single, aggregated presentation. Individual fund data for each of the Non-major Governmental Funds is provided in the form of combining statements elsewhere in this report. These Funds are reported using modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash.

The City adopts an annual appropriated budget. The City’s budget reflects its priorities and tells the taxpayers and ratepayers what is being done with their money. The budget was built on four Key Priorities:

Ensuring the public’s safety, Revitalizing Fresno’s urban core and supporting economic growth, Streamlining City services; and Protecting our natural resources.

13 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Budgetary comparison statements have been provided in the required supplementary information for the General Fund and the Grants Special Revenue Fund to demonstrate compliance with the budget. Budgetary comparison statements for the other Non-major Governmental Funds are provided in the combining statements.

Proprietary Funds: Proprietary Funds are generally used to account for services for which the City 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 more detail. Proprietary Funds (Enterprise and Internal Service) utilize the same method used by the private sector businesses, or accrual accounting. The City maintains the following two types of Proprietary Funds:

Z Enterprise Funds are used to report the same functions as business-type activities in the Government-Wide Financial Statements. The City uses Enterprise Funds to account for the operations of the Public Utilities [Water System, Sewer System, Solid Waste Management], Fresno Area Express [TTransit], Fresno International Airport (FYI) and the Fresno Chandler Downtown Airport (FCH) [Airports], Fresno Convention Center, Chukchansi Park Stadium [SStadium], all of which are considered to be major Funds of the City. Community Sanitation, Parking, Parks and Recreation and Development Services are considered to be Non-major Enterprise Funds of the City.

Z Internal Service Funds are used to report activities that provide supplies and services for certain city programs and activities. The City uses Internal Service Funds to account for its fleet of vehicles, management information systems, printing and mail services, property maintenance and electronics and communication support (GGeneral Services), self- insurance (RRisk Management) and billing, collecting, and servicing activities for the Water, Sewer, Solid Waste and Community Sanitation Funds (BBilling and Collection) and healthcare plans (EEmployees Healthcare Plan) (RRetirees Healthcare Plan), (BBlue Collar Employees Healthcare Plan) and (BBlue Collar Retirees Healthcare Plan). Because Risk Management, General Services and the healthcare plans predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the Government-Wide Financial Statements, whereas Billing and Collection is included in the business-type activities in the Government- Wide Financial Statements. The Internal Service Funds are combined into a single, aggregated presentation in the Proprietary Fund Financial Statements. Individual Fund data for the Internal Service Funds is provided in the form of combining statements elsewhere in this report.

14 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Fiduciary Funds: Fiduciary funds are used to account for resources held for the benefit of parties outside The City.

Z Pension Trust Funds consist of funds for Fire & Police and other Employees. The Fire and Police Retirement System Pension Trust Funds account for the accumulation of resources for pension benefit payments to qualified Fire and Police retirees. The Employee Retirement System Pension Trust Fund accounts for the accumulation of resources for pension benefit payments to qualified General Service retirees. Z The Agency Funds consist of City Departmental and Special Purpose Funds and account for City-related trust activity, such as payroll withholding and bid deposits. In addition, Agency Funds include Special Assessment Funds that account for receipts and disbursements for the debt service activity of the special assessment districts within the City.

Since the resources of Fiduciary Funds are not available to support the City’s own programs, they are not reflected in the Government-Wide Financial Statements. The accounting used for Fiduciary Funds is much like that used for Proprietary Funds. The basic financial statements can be found on pages 57-174 of this report.

Notes to the Financial Statements

The Notes to the Financial Statements provide additional information that is essential to the full understanding of the data provided in the Government-Wide and Fund Financial Statements. The Notes to the Financial Statements can be found on pages 80-174 of this report.

Required Supplementary Information

In addition to the basic financial statements and accompanying notes, this report presents certain required supplementary information including budgetary comparison statements for major governmental funds. Required Supplementary Information and accompanying notes can be found on pages 176-182 of this report.

Combining Statements

The combining statements referred to earlier in connection with non-major governmental funds, non-major enterprise funds, internal service funds and fiduciary funds are presented immediately following the appropriately labeled tabs. Combining and individual fund statements and schedules can be found on pages 184-215 of this report.

15 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

GOVERNMENT-WIDE FINANCIAL ANALYSIS

The City presents its Financial Statements under the reporting model required by the Governmental Accounting Standards Board Statement No. 34 (GASB 34), Basic Financial Statements – and Management’s Discussion and Analysis (MD&A) – for State and Local Governments. The current year’s analysis compares this year’s data primarily to the prior year. However in other instances additional prior-year’s information is provided.

Net Assets – Government-Wide June 30, 2009

Governmental Business-type Activities Activities Total

Assets: Current and Other Assets $367,056,779 $410,064,233 $777,121,012 Capital Assets: Land and Construction in Progress Not Being Depreciated 271,906,082 232,184,444 504,090,526 Facilities, Infrastructure and Equipment, Net of Depreciation 641,354,518 858,962,854 1,500,317,372 Total Capital Assets 913,260,600 1,091,147,298 2,004,407,898 Total assets 1,280,317,379 1,501,211,531 2,781,528,910 Liabilities: Long-term Liabilities Outstanding 536,425,518 542,150,691 1,078,576,209 Other Liabilities 55,088,181 124,617,811 179,705,992 Total Liabilities 591,513,699 666,768,502 1,258,282,201 Net Assets: Invested in Capital Assets, Net of Related Debt 736,409,959 679,116,036 1,415,525,995 Restricted 219,892,387 42,922,252 262,814,639 Unrestricted (267,498,666) 112,404,741 (155,093,925) Total Net Assets $688,803,680 $834,443,029 $1,523,246,709

16 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Net Assets – Government-Wide June 30, 2008

Governmental Business-type Activities Activities Total

Assets: Current and Other Assets $337,220,004 $370,680,353 $707,900,357 Capital Assets: Land and Construction in Progress Not Being Depreciated 261,127,390 190,294,816 451,422,206 Facilities, Infrastructure and Equipment, Net of Depreciation 617,897,171 828,680,125 1,446,577,296 Total Capital Assets 879,024,561 1,018,974,941 1,897,999,502 Total Assets 1,216,244,565 1,389,655,294 2,605,899,859 Liabilities: Long-term Liabilities Outstanding 490,167,280 468,417,776 958,585,056 Other Liabilities 39,525,667 136,248,687 175,774,354 Total Liabilities 529,692,947 604,666,463 1,134,359,410 Net Assets: Invested in Capital Assets, Net of Related Debt 732,834,761 622,599,691 1,355,434,452 Restricted 181,206,717 31,222,394 212,429,111 Unrestricted (227,489,860) 131,166,746 (96,323,114) Total Net Assets $686,551,618 $784,988,831 $1,471,540,449

Net Assets – Government-Wide June 30, 2007

Governmental Business-type Activities Activities Total

Assets: Current and Other assets $265,148,745 $411,790,276 $676,939,021 Capital Assets: Land and Construction in Progress Not Being Depreciated 289,732,134 119,022,600 408,754,734 Facilities, Infrastructure and Equipment, Net of Depreciation 531,469,265 817,752,101 1,349,221,366 Total Capital Assets 821,201,399 936,774,701 1,757,976,100 Total assets 1,086,350,144 1,348,564,977 2,434,915,121 Liabilities: Long-term Liabilities Outstanding 440,770,154 479,217,718 919,987,872 Other Liabilities 31,543,579 134,098,593 165,642,172 Total Liabilities 472,313,733 613,316,311 1,085,630,044 Net Assets: Invested in Capital Assets, Net of Related Debt 697,544,023 537,896,895 1,235,440,918 Restricted 148,392,176 31,705,161 180,097,337 Unrestricted (231,899,788) 165,646,610 (66,253,178) Total Net Assets $614,036,411 $735,248,666 $1,349,285,077

17 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Analysis of Net Assets

As noted earlier, net assets may serve as a useful indicator of a government’s financial position. For the City, assets exceed liabilities by $1,523,246,709 at the close of the current fiscal year and by $1,471,540,449 at June, 30, 2008. This is an increase of $51,706,260 between 2008 and 2009; and $122,255,372 between 2007 and 2008 in the City’s net assets.

The largest portion of the City’s net assets (93%) reflects its investment of $1,415,525,995 in capital assets (e.g., land, buildings, and equipment), less any related outstanding debt used to acquire the assets at June 30, 2009. These same figures for June 30, 2008 were (92%) with $1,355,434,452 in capital assets, net of debt. The City uses capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be liquidated for these liabilities.

At the end of the current fiscal year and the prior fiscal year, Fresno was able to report positive balances in two categories of net assets for the government as a whole; net assets invested in capital assets and restricted net assets, as well as for all three categories of business-type activities. For the governmental activities, unrestricted net assets had a deficit of ($267,498,666) and ($227,489,860) in 2009 and 2008 respectively, related primarily to debt associated with the Redevelopment Agency. While the Agency has numerous projects in the works, many are in the early stages of development and have yet to generate tax increment revenue sufficient to fund the related debt.

18 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Changes in Net Assets – Government-Wide For the Year Ended June 30, 2009

Governmental Business Type Total Activities Activities

Revenues Program Revenues: Charges for Services $42,618,898 $240,290,614 $282,909,512 Operating Grants and Contributions 40,480,170 35,958,611 76,438,781 Capital Grants and Contributions 57,260,935 33,761,833 91,022,768 General Revenues: Property Taxes 135,353,462 - 135,353,462 Business Tax 14,611,162 - 14,611,162 Sales Taxes 50,331,671 - 50,331,671 Other Local Taxes 37,293,877 - 37,293,877 Interest and Investment Income 8,475,993 7,808,998 16,284,991 Revenue restricted for infrastructure maintenance 294,606 - 294,606 Gain on sale of capital assets 484,660 52,406 537,066 Total Revenues 387,205,434 317,872,462 705,077,896

Expenses Public Protection 204,013,036 - 204,013,036 Public Ways and Facilities 66,052,684 - 66,052,684 Community Development and Redevelopment 32,410,249 - 32,410,249 Culture and Recreation 27,496,696 - 27,496,696 General Government 30,592,499 - 30,592,499 Interest on Long-term Debt 24,811,425 - 24,811,425 Airports - 26,728,205 26,728,205 Transit - 47,528,535 47,528,535 Sewer, Water and Solid Waste - 145,908,295 145,908,295 Fresno Convention Center - 11,675,892 11,675,892 Community Sanitation - 9,682,699 9,682,699 Parking - 6,909,088 6,909,088 Parks and Recreation - 2,042,548 2,042,548 Development Services - 13,543,214 13,543,214 Stadium - 3,976,571 3,976,571 Total Expenses 385,376,589 267,995,047 653,371,636 Increase (Decrease) in Net Assets Before Transfers 1,828,845 49,877,415 51,706,260 Transfers (1,718,189) 1,718,189 - Increase (Decrease) in Net Assets 110,656 51,595,604 51,706,260 Net Assets, Beginning of Year 686,551,618 784,988,831 1,471,540,449 Change in Application of Accounting Principle (Note 12) 2,141,406 (2,141,406) - Net Assets, Beginning of Year, Restated 688,693,024 782,847,425 1,471,540,449 Net Assets, End of Year $688,803,680 $834,443,029 $1,523,246,709

19 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Changes in Net Assets – Government-Wide For the Year Ended June 30, 2008

Governmental Business Type Total Activities Activities

Revenues Program Revenues: Charges for Services $47,726,175 $228,632,836 $276,359,011 Operating Grants and Contributions 60,551,904 38,059,328 98,611,232 Capital Grants and Contributions 62,660,613 36,306,082 98,966,695 General Revenues: Property Taxes 134,265,818 - 134,265,818 Business Tax 17,613,960 - 17,613,960 Sales Taxes 57,237,736 - 57,237,736 Other Local Taxes 39,339,017 - 39,339,017 Interest and Investment Income 11,445,501 12,185,325 23,630,826 Revenue Restricted for Infrastructure Maintenance 395,283 - 395,283 Gain on Sale of Capital Assets 980,905 49,613 1,030,518 Total Revenues 432,216,912 315,233,184 747,450,096

Expenses Public Protection 205,713,916 - 205,713,916 Public Ways and Facilities 56,961,034 - 56,961,034 Community Development and Redevelopment 24,803,247 - 24,803,247 Culture and Recreation 28,689,008 - 28,689,008 General Government 30,022,589 - 30,022,589 Interest on Long-term Debt 24,445,052 - 24,445,052 Airports - 24,861,432 24,861,432 Transit - 47,737,452 47,737,452 Sewer, Water and Solid Waste - 142,308,266 142,308,266 Convention Center - 11,375,652 11,375,652 Community Sanitation - 10,114,027 10,114,027 Parking - 6,518,364 6,518,364 Parks and Recreation - 1,141,525 1,141,525 Development Services - 18,226,975 18,226,975 Stadium - 3,729,365 3,729,365 Total Expenses 370,634,846 266,013,058 636,647,904 Increase (Decrease) in Net Assets Before Transfers 61,582,066 49,220,126 110,802,192 Transfers (520,039) 520,039 - Increase (Decrease) in Net Assets 61,062,027 49,740,165 110,802,192 Net Assets, Beginning of Year 614,036,411 735,248,666 1,349,285,077 Change in Application of Accounting Principle (Note 12) 11,453,180 - 11,453,180 Net Assets Beginning of Year Restated 625,489,591 735,248,666 1,360,738,257 Net Assets, End of Year $686,551,618 $784,988,831 $1,471,540,449

20 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

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

Governmental Business Type Total Activities Activities

Revenues Program revenues: Charge for services $32,641,145 $204,105,667 $236,746,812 Operating Grants and Contributions 51,657,470 31,256,246 82,913,716 Capital Grants and Contributions 39,975,940 40,125,735 80,101,675 General Revenues: Property Taxes 119,320,016 - 119,320,016 Business Tax 16,509,849 - 16,509,849 Sales Taxes 59,881,119 - 59,881,119 Other Local Taxes 40,153,078 - 40,153,078 Interest and Investment Income 12,314,222 11,808,567 24,122,789 Revenue Restricted for Infrastructure Maintenance 1,627,444 - 1,627,444 FAA Audit Compliance Settlement - 6,478,711 6,478,711 Gain on Sale of Capital Assets 81,817 291,256 373,073 Total Revenues 374,162,100 294,066,182 668,228,282

Expenses Public Protection 183,973,705 - 183,973,705 Public Ways and Facilities 56,235,647 - 56,235,647 Community Development and Redevelopment 22,148,795 - 22,148,795 Culture and Recreation 25,118,951 - 25,118,951 General Government 23,841,982 - 23,841,982 Interest on Long-term Debt 23,969,934 - 23,969,934 Airports - 21,311,072 21,311,072 Transit - 43,012,048 43,012,048 Sewer, Water and Solid Waste - 146,354,329 146,354,329 Convention Center - 10,592,878 10,592,878 Community Sanitation - 10,594,392 10,594,392 Parking - 7,568,078 7,568,078 Parks and Recreation - 1,453,699 1,453,699 Development Services - 17,433,801 17,433,801 Stadium - 3,769,282 3,769,282 Total expenses 335,289,014 262.089.579 597,378,593 Increase (Decrease) in Net Assets Before Transfers 38,873,086 31,976,603 70,849,689 Transfers 1,145,812 (1,145,812) - Increase (Decrease) in Net Assets 40,018,898 30,830,791 70,849,689 Net assets, Beginning of Year 581,937,298 704,417,875 1,286,355,173 Cumulative Effect of Adoption of GASB 43 (7,919,785) - (7,919,785) Net Assets, Beginning of Year, Restated 574,017,513 704,417,875 1,278,435,388 Net Assets, End of Year $614,036,411 $735,248,666 $1,349,285,077

21 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Analysis of Changes in Net Assets

The City’s net assets, overall, increased by $51,706,260 during the current fiscal year. For the fiscal year ended June 30, 2008, net assets overall increased by $110,802,192. Although the results for 2009 was an overall increase, the City is experiencing the negative impacts of the general economy which resulted in loss of Sales Tax, Business Taxes, Other local taxes (which includes Room Tax and Franchise Taxes) and a substantial reduction in Grants. Despite the declining economy, Property Taxes continued to increase slightly.

Governmental Activities

Governmental activities for the current fiscal year increased net assets by $110,656. In 2008, net assets increased by $61,062,027, thereby accounting for an approximate .0161% and 10% increase in 2009 and 2008 respectively. Total revenue from governmental activities was $387,205,434 and $432,216,912 respectively for each year.

Property tax revenues in 2009 and 2008 comprised 35% and 31% of revenue from governmental activities, with business taxes and sales tax making up 4% and 13% in 2009 and in 2008 respectively.

Other local taxes including hotel and utility user taxes made up 6.5% of total governmental revenue in 2009 and in 2008. Governmental activities in 2009 and 2008 also included In-Lieu Sales Tax which were 4%; in both 2009 and 2008 respectively.

Interest and investment income made up 2% of total governmental revenues in 2009 and in 2008.

Grant revenue from state and federal sources, consisting of operating grants and contributions (10.5%), capital grants and contributions (14%), and charges for services (11%) made up the balance in 2009.

Grant revenue from state and federal sources, consisting of operating grants and contributions (14%), capital grants and contributions (14%), and charges for services (11%) make up the balance in 2008.

22 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

For the most part, increases in expenses continue to parallel increases in the cost of living in the Fresno Area and growth in the demand for government services. One notable exception, however, is Public Protection. Fresno spends significantly less than its peer cities in most functions with the exception of Police.

In 2009, Public Protection (police and fire) made up (53%) of the expenditures for governmental activities. The balance consists of Public Ways and Facilities (17%); Human Welfare, Neighborhood Development, and Redevelopment (8%); Culture and Recreation (7%); General Government consisting of the City Clerk’s Office, the Mayor, City Council Offices, and the City Manager’s Office (8%); with Interest on long-term debt at (7%).

In 2008, Public Protection (police and fire) made up (55%) of the expenditures for governmental activities. The balance consists of Public Ways and Facilities (16%); Human Welfare, Neighborhood Development, and Redevelopment (7%); Culture and Recreation (7%); General Government consisting of the City Clerk’s Office, the Mayor, City Council Offices, and the City Manager’s Office (8%); with Interest on long-term debt at (7%).

Governmental Activities – Charts and Graphs

The charts and graphs which follow on the next few pages illustrate the City’s governmental revenues by source, and its expenses and revenues by function. As can be seen, Public Protection is by far the largest function reflecting the City’s greatest overall expenses.

23 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Revenues by Source - Governmental Activities - 2009 Interest and investment Gain or loss, Restricted Other local taxes income revenue and Other 6.5% 2% 0% Charges for services 11% Property taxes Operating grants 35% and contributions 10.5%

Capital grants and Revenue restricted for contributions infrastructure maintenance 14% 0% In-lieu sales tax Sales tax Business taxes 4% 13% 4%

Program Revenues and Expenses - Government Activities - 2009

$250,000

$200,000

$150,000

$100,000

$50,000

$0 Public Public Ways and Community Culture and General Interest on Protection Facilities Development Recreation Government Long-term Debt and Redevelopment

Program Revenues Expenses

24 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Revenues by Source - Governmental Activities - 2008 Interest and investment Gain or loss, Restricted Other local taxes income revenue and Other 6.5% 2% 0% Charges for services 11% Property taxes Operating grants 31% and contributions 14%

Revenue restricted for infrastructure maintenance .5% Capital grants and In-lieu sales tax contributions 4% Sales tax Business taxes 14% 13% 4%

Program Revenues and Expenses - Government Activities - 2008

$250,000

$200,000

$150,000

$100,000

$50,000

$0 Public Public Ways and Community Culture and General Interest on Protection Facilities Development Recreation Government Long-term Debt and Redevelopment

Program Revenues Expenses

25 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Revenues by Source - Governmental Activities - 2007

Interest and investment Other local taxes Charges for services 6% income 3% 9% Operating grants Property taxes and contributions 32% 14%

Capital grants and Revenue restricted for contributions infrastructure maintenance 10.5% .5% In-lieu sales tax Sales tax Business taxes 5% 16% 4%

Program Revenues and Expenses - Government Activities - 2007

$200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Public Protection Public Ways and Community Culture and General Interest on Long- Facilities Development and Recreation Government term Debt Redevelopment Program Revenues Expenses

26 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Expenses By Type - Governmental Activities 2009

Interest and Long-term debt General Government 7% 8% Culture and recreation 7%

Community development Public protection and redevelopment 53% 8% Public ways and facilities 17%

Expenses By Type - Governmental Activities 2008

Interest and Long-term debt General Government 7% 8% Culture and recreation 7%

Community development and redevelopment Public protection 7% 55% Public ways and facilities 16%

27 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Expenses By Type - Governmental Activities 2007

Interest and Long-term debt General Government 7% 7% Culture and recreation 7%

Community development Public protection and redevelopment 55% 7% Public ways and facilities 17%

Business-Type Activities

Business-type activities increased the City’s net assets in 2009 by $51,595,604, excluding change in application of accounting principles and increased net assets by $49,740,165 in 2008, accounting for a 6% growth in 2009 and a 6% growth in 2008 in total net assets. Key factors related to these changes are as follows:

Public Utilities

Public Utilities, consisting of Water, Sewer, Solid Waste and Community Sanitation is the second largest department in the City. During fiscal years 2009 and 2008, respectively, net assets increased by $62,138,797, excluding change in application of accounting principles (Water, Sewer and Solid Waste Management), and $63,022,537 primarily due to its continuing leadership role in the State in providing cost-effective services. Public Utilities continues moving forward with its American Public Works Association (APWA) Accreditation self assessment process. This is the first step in obtaining accreditation which will provide the Department with a nationally recognized method of demonstrating that their operations are well managed, in compliance with recommended industry practices, and are dedicated to continuous improvement of its public works/utilities management practices. The Water Division delivered more than 54 billion gallons of water through approximately 1,700 miles of water mains that met mandated State and Federal drinking water standards. This consisted of 48.5 billion

28 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

gallons of groundwater pumped from over 260 wells and 6.3 billion gallons from the Surface Water Treatment Facility (SWTF). Future water supply is assured through the purchase and recharge of surface water entitlements from the U.S. Bureau of Reclamation (USBR) at Friant Dam and the Fresno Irrigation District from the Kings River and an active conservation program. To meet Assembly Bill 514 mandates and the contractual obligation with the USBR, the City is currently in the process of installing 113,000 single- family water meters along with an automated meter reading (AMR) system.

The Utilities Enterprise Funds are primarily funded through residential (single family and multi residential), municipal, school, commercial, and industrial service charges/user fees. On February 27, 2007, a five year rate plan was adopted by the City Council to fund operating and capital expenditures. The adopted rate plan presented below was established to offset the operating, debt service and capital expenditures appropriated in the Operating Funds for each Division. These rates also took into consideration the debt service on bonds that would be issued in early 2010 related in part to the water meter installation program. Other sources of revenues include anticipated grant and low interest awards; interest earnings; reimbursements from capital and other divisions; charges for various facilities; revenue transfers, including one-time transfers from the Rate Stabilization fund to fully fund capital expenditures; and other miscellaneous revenue.

Adopted Monthly Residential Utility Rates Prior April 1, Sept 1, Sept 1, Sept 1, Sept 1, Total Rate 2007 2007 2008 2009 2010 Total All $ Rate $52.37 60.63 66.62 77.86 82.94 84.58 Divisions $ Incr. 8.26 5.99 11.24 5.08 1.64 $32.21 % Incr. 15.8% 9.9% 16.9% 6.5% 2.0% 61.5%

There will be no Water Enterprise customer user fee increase in FY 2010 however after undergoing a Proposition 218 process, a residential metered rate structure was adopted and will be initiated in January 2010 to transition from a flat to volumetric billing, while minimizing the impacts to rates and customers. The volumetric-based rates will be revenue neutral, implying no adjustment or change in overall rate (revenue) levels. The consumption-based rates were designed to collect approximately the same level of revenue currently collected by the City for the residential flat rate customers. Early FY 2010 will also see the receipt of bond sales proceeds.

Under AB 514, all single-family residential water services in the City of Fresno must be metered by 2010, and all customers with a meter installed are required to be billed a metered rate as of 2010.

29 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Solid Waste Management

The Solid Waste Management Division collects municipal solid waste, recyclable, and green waste from more than 113 residential and commercial customers per week who produce approximately 1,300 tons of material each collection day. Solid Waste invests in the most efficient methods, green solutions and innovative ways to service, dispose and manage all collections for a cleaner Fresno. The Division has provided funding in its FY 2010 Budget for the hiring of a consultant to provide technical assistance in the development of a Request for Proposal (RFP) in anticipation of the expiration of the Division’s current green waste processing contracts in 2010. Industry expertise in the area of state and local facility permitting and processing of restaurant, retail and home food waste as well as the diversion of home and commercial organics waste will be required for drafting the new RFP.

In line with the approved five-year rate plan, adopted on February 27, 2007, the Solid Waste Division realized a 4.4 percent increase in residential rates on September 1, 2009 to offset operating costs, debt service and capital expenditures.

Wastewater Management

The Wastewater Management Division treats and reclaims approximately 70 million gallons a day of wastewater generated by residential, commercial and industrial sewer customers in the Fresno- Clovis Metropolitan area. The Division is also responsible for providing recycled water for landscape irrigation in northeast Fresno at Copper River Golf Course, as well as rehabilitation and construction of infrastructure for the sewer collection system and the treatment facilities to ensure adequate sewer and treatment capacity for existing customers and future growth needs according to the 2025 General Plan. A new North Fresno Wastewater Reclamation Facility (NFWRF) became operational during fiscal year 2009. In 2010, the budget for Wasterwater includes appropriations for uninterruptible power supply units to replace old and obsolete units and for the purchase of Storage Area Network (SAN) equipment. This system minimizes down time and provides redundancy as well as provides energy efficiencies and increased speed associated with backups and the restoration of data.

Transportation/(FAX)

During fiscal years 2009 and 2008, respectively, net assets decreased by ($4,388,034), excluding change in application of accounting principles and ($202,253) primarily due to declining revenues in the area of grants and increasing operating costs particularly in labor, expanded routes, fuel and depreciation. Depreciation has increased as the result of the department updating their fleet with new “Green” CNG (compressed natural gas) vehicles, including buses so as to contribute to reductions in harmful emissions.

30 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

The Department of Transportation (FAX) provides over 16.9 million passenger trips a year with fixed-route and para-transit demand-response service provided 365 days a year throughout the City of Fresno and in some areas of Clovis and the County. Currently FAX operates 19 fixed routes, seven days a week using a fleet of 120 buses. Fuel prices have been budgeted at a current market rate which is $1.4 million dollars below the FY 2009 Amended Budget, substantially reducing Fleet Services charges Citywide. The Fleet Operating Fund is however, maintaining a reserve of $1.3 million to be able to respond to fuel spikes.

The Department is modifying bus service for Route 12 which primarily serves senior citizens at the Senior Citizen Village. The current productivity for Route 12 is 5.53 passengers per service hour and 0.44 passengers per revenue mile, well below the system average of 35.06 passengers per service hour and 3.32 passengers per revenue mile. The Department will purchase a van and the Senior Citizen Village will provide the van operators and operating costs.

The Department is primarily funded through State Transportation Development ACT (TDA) allocations, Federal Transit Administration (FTA) grants which include Congestion Mitigation and Air Quality (CMAQ) grants, Measure C funds and passenger fares. TDA revenue is comprised of Local Transit Funds (LTF) and State Transit Assistance/Proposition 42 (STA) and received through the State of California based on gas tax revenue and population allocation. LTF funds are budgeted at $15.3 million, which is $1.0 million less than the FY 2009 Amended Budget. The State of California has chosen not to release STA funds as a mitigating option to balance the State budget, resulting in a $4.7 million decrease. STA/Prop 42 funds are used to match operating and capital federal grants.

The capital budget for the Department includes a transit passenger facility and park, improvement and expansion of existing transit facilities, Bus Rapid Transit (BRT) route, and a Downtown Streetcar. Facility improvement for FAX’s paratransit and main facilities are also proposed. The aging facilities are in need of repair and the Department has experienced significant growth since the facilities were first acquired. Improvements to the main facility are not expected to impact the Department’s operating budget. However, improvements to the paratransit facility will be more extensive and will require additional property, security, custodial, and related costs.

The Department is anticipating the development of Bus Rapid Transit (BRT), and has taken the first steps in collaboration and partnership with the Council of Fresno County Governments (COG), the City of Clovis, and CalTrans. A BRT is expected to improve efficiency, speed, and

31 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

service. The transit service can attract new ridership, improve customer satisfaction, and benefit the broader community by providing a quality of service similar to the light rail service, through the use of bus technology. The impact to the Department’s operating budget is expected to be minimal, as the BRT route will replace an existing bus route.

Airports

For the first time in five fiscal years, the number of passengers utilizing the Fresno Yosemite International Airport (FYI) decreased from the previous fiscal year. In FY 2009, 1,179,754 passengers used FYI, an 11.29% decrease from the previous fiscal year’s record of 1,329,953 passengers. The downturn in the economy played a role in the smaller passenger count. However, the largest factor in the decrease was the nationwide cessation of service by ExpressJet on September 2, 2008. During the previous fiscal year, 102,174 passengers had used ExpressJet both into and out of FYI. Due to the specialized markets that ExpressJet served, most of those passengers did not transition to other airlines when ExpressJet ceased operating.

Despite the decrease in passengers, the Airports Department managed to show growth in its revenues over the previous fiscal year. FY 2009 revenues (excluding Passenger Facility Charges and Customer Facility Charges) were up $361,578 or 2.2% over FY 2008 revenues. The growth was primarily driven by increase in rental revenues. In a conscious effort to move away from “boom-and-bust” cycles that are associated with a passenger-driven revenue model, Airports management decided about five years ago to move to a revenue model using more stable rent payments as the primary revenue stream. This strategic decision paid off as the nationwide economic downturn took hold. Thus, while passenger driven revenues fell in proportion to the passenger decline, overall revenues remained strong since there was no decline in rental revenue.

While revenues rose in FY 2009, expenses also increased. FY 2009 operating expenses (Cost of Services and Administration) increased by $707,996 over FY 2008 operating expenses. Most of this increase is due to the increased Customs and Border Protection Agency (CBP) costs associated with providing customs and agricultural inspections service at FYI’s Federal Inspection Station (FIS). The increased CBP costs area associated with three additional CBP agents that were added to the FIS staffing levels in order to meet the processing demands created when Mexicana Airlines went to daily air service out of FYI. While the staffing levels are not expected to decrease in FY 2010, Airports management recently enacted an agreement with the CBP, wherein the CBP agreed to assume the cost of five of the ten CBP agents currently assigned to FYI. With reduced costs from CBP and other cost cutting measures that were undertaken at the beginning of FY 2010, Airports management anticipates that expenses will decline in FY 2010.

32 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

As the increase in revenues was greater than the increase in operating expenses, it is no surprise that unrestricted cash increased as well. Unrestricted current cash for the Airports increased by 6.3% or $91,056 from FY 2008 levels. The cash position was also helped by a stronger emphasis on accounts receivable management. The fund’s current Net Receivables decreased by 15.5% or $62,811 from FY 2008 levels. Additional, other receivables were also reduced from FY 2008 levels. Current Intergovernmental Receivables decreased by 15.5% or $21,999, while Noncurrent Grants Receivable decreased by 71.4% or $1,069,007.

The cash improvement is even more impressive given the decrease in liabilities in the fund’s FY 2009 numbers. As the economic downturn manifested, Airports management focused on paying down obligations in order to position the organization to withstand the downturn. As a result of this direction, current accrued liabilities decreased by $658,388 or 11.6%. The department also made scheduled bond payments, thereby reducing the outstanding amount of debt to be paid in future years.

The Series 2007 bonds were issued to finance the construction of a consolidated rental car facility (CRCF) at FYI. Construction of the CRCF was completed during FY 2009 and is currently being utilized by the six rental car companies who have operations at FYI. The CRCF was capitalized at a value of approximately $22.8 million. Other assets capitalized during FY 2009 included the “Sense of Place” project ($1,109,148), hangers at Fresno Chandler Airport turned over to the fund by private owners at the end of their lease agreement ($471,582) and rehabilitation work performed on Taxiways B6-2 and B6-3 ($2,430,846).

Due to the large amounts that were capitalized during FY 2009, it is logical that Construction-in-Progress (CIP) decreased by over $6.7 million. However there are still several large projects in the FY 2009 ending CIP figures. The largest single project is the FYI Terminal Remodel Project ($11. 3 million in CIP). Other noteworthy projects include the Taxiway B Rehabilitation ($1.08 million in CIP) and FYI Terminal Checkpoint Project ($179,259 in CIP). All three of these projects are anticipated to be capitalized in FY 2010. Another project that will be capitalized in FY 2010 is the Taxiway B10/C10 Project. This project is being funded through the American Recovery and Reinvestment Act of 2009 (ARRA). Work on this $2.8 million project was completed in October 2009.

33 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

As shown in the charts on the adjacent pages, the largest of Fresno’s business-type activities, the utilities – Sewer, Solid Waste Management and Water, followed by Transit (FAX), each had expenses in excess of $42 million in both FY 2009 and FY 2008, followed by Airports with operating expenses of approximately $22.8 and $21.4 million, respectively. For the current fiscal year, in all but two of these did revenues exceed expenses prior to contributions and transfers. For all business-type activities in 2009, except Transit, fees provide the largest share of revenues [75%] followed by operating and capital grants and contributions [24%], which are primarily received by Transit and interest and other income [3%].

The same holds true for all business-type activities in 2008, except Transit, fees provide the largest share of revenues [72%] followed by operating grants and capital contributions [24%], which are primarily received by Transit and interest and other income [3%].

Business - Type Activities – Charts and Graphs

The charts and graphs which follow on the next few pages illustrate the City’s business – type/enterprise revenues by source, and its expenses and revenues by function. As can be seen on the following pages, Sewer, Water and Solid Waste is by far the largest business-type activity (function) reflecting the City’s greatest overall expenses.

34 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Revenues by Source - Business Type Activities - 2009

Interest and Investment Gain/Loss on Sale of Capital Income Capital grants and Assets 2% contributions 0% 11%

Operating grants and contributions 12%

Charges for services 75%

Program Revenues and Expenses - Business Type Activities - 2009

$250,000

$200,000

$150,000

$100,000

$50,000

$0 Airport Transit Sewer, water Convention Parking Parks and Development Stadium and solid Center Recreation Services waste Program Revenues Expenses

35 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Revenues by Source - Business Type Activities - 2008

Interest and Investment Gain/Loss on Sale of Capital grants and Income Capital Assets contributions 3% 0% 12% Operating grants and contributions 12%

Charges for services 73%

Program Revenues and Expenses - Business Type Activities - 2008

$250,000

$200,000

$150,000

$100,000

$50,000

$0 Airport Transit Sewer, water Convention Parking Parks and Development Stadium and solid Center Recreation Services waste

Program Revenues Expenses

36 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Revenues by Source - Business Type Activities - 2007

Interest and Investment Capital grants and Gain or loss, Restricted Income revenue and Other contributions 4% 14% 0% FAA Audit Compliance Settlement 2%

Operating grants and contributions 11% Charges for services 69%

Program Revenues and Expenses - Business Type Activities - 2007

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

Program Revenues Expenses

37 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Expenses By Type - Business-type Activities 2009 Parks and Recreation .5% Stadium Airport Development 1% 10% Parking 6.5% 2% Transit Convention 18% Center 4%

Sewer, water and solid waste 58%

Expenses By Type - Business-type Activities 2008 Parks and Recreation Stadium Airport .5% Development 1% 9% Parking 6.5% 2% Transit Convention 18% Center 4%

Sewer, water and solid waste 59%

38 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Expenses By Type - Business-type Activities 2007 Parks and Recreation Stadium Airport 1% 8% Development 1% Parking 7% Transit 3% 16% Convention Center 4%

Sewer, water and solid waste 60%

FINANCIAL ANALYSIS OF THE CITY ’S FUNDS

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental Funds

The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources that are available for spending. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. Types of Governmental funds reported by the City include the General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds.

At the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $206,239,984. A deficit ($23,018,600) of this total amount constitutes unreserved, undesignated fund balance. Of this amount, a deficit ($76,916,143) is related to the Redevelopment Agency Debt Service Fund, a negative ($16,376,606) relates to the General Fund, and a deficit ($1,791,597) and an excess $19,332,795 respectively, relate to Special Revenue Funds and Capital Project Funds. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been

39 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

committed, (1) to liquidate existing contracts and purchase orders [$40,478,396], (2) for noncurrent receivables in future fiscal periods [$118,898,657], (3) for debt services [$19,396,935], (4) for property held for resale [$33,633,499], and (5) for the emergency reserve [$16,851,097].

At the end of 2008, the City’s governmental funds reported combined ending fund balances of $209,559,147. A surplus $3,044,907 of this total amount constitutes unreserved, undesignated fund balance. Of this amount, a deficit ($77,916,546) is related to the Redevelopment Agency Debt Service Fund, a positive $14,589,126 relates to the General Fund, and a surplus $3,064,050 and an excess $18,538,849 respectively, relate to Special Revenue Funds and Capital Project Funds. The remainder of the fund balance is reserved to indicate that it is not available for new spending because it has already been committed, (1) to liquidate existing contracts and purchase orders [$29,915,177], (2) to fund continued programs or projects in future fiscal periods [$115,190,424], (3) for debt services [$12,384,408], and (4) for property held for resale [$32,977,156].

Revenues for governmental functions overall totaled $346,726,941 in the fiscal year ended June 30, 2009. Expenditures for governmental functions totaled $397,376,769 for the same period. In the fiscal year ended June 30, 2009, expenditures for governmental functions exceeded revenues by ($50,649,828), or more than 12% prior to other funding sources. Other, funding sources increased revenue by $47,330,665 resulting in additional net sources for an overall decrease in fund balance of ($3,319,163). Prior to other funding sources, the General Fund provided revenues less than expenditures in the amount of ($1,929,840), the Grants Fund had excess expenditures over revenues of ($1,955,433), the Redevelopment Agency Debt Service Fund had an excess of revenues over expenditures totaling $14,674,171 before transfers out and all Other Governmental Funds had a deficiency of revenues over expenditures totaling ($61,438,726) before other financing sources/uses.

Revenues for governmental functions overall totaled $371,753,654 in the fiscal year ended June 30, 2008. Expenditures for governmental functions totaled $374,316,828 for the same period. In the fiscal year ended June 30, 2008, expenses for governmental functions exceeded revenues by ($2,563,174), or less than 0.6% prior to other funding sources. Other, funding sources increased revenue by $44,948,830 resulting in additional net resources, an overall increase in fund balance of $42,385,656. Prior to other funding sources, the General Fund provided revenues in excess of expenditures in the amount of $19,384,969, the Grants Fund had excess revenues over expenses of $18,534,540, the Redevelopment Agency Debt Service Fund had an excess of revenues over expenditures totaling $13,355,210 before transfers out and all Other Governmental Funds had a deficiency of revenues over expenditures totaling ($53,837,893) before other financing sources/uses.

40 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unreserved, undesignated fund balance/deficit of the General Fund was $(16,376,606), while total fund balance was $28,770,962. Of that, $16,851,097 has been legally restricted by management as the General Fund Emergency Reserve. Unreserved fund balance, represents 0.19% of total General Fund expenditures of $247,333,114, while total fund balance represents 11.63% of that same amount.

At the end of fiscal year 2008, the unreserved, undesignated fund balance of the General Fund was $14,589,126, while total fund balance was $58,099,033. Of that, $16,047,075 has been legally restricted by management as the General Fund Emergency Reserve. Unreserved fund balance, including the Emergency Reserve, represents 13% of total General Fund expenditures of $235,396,057, while total fund balance represents 24.7% of that same amount.

Proprietary Funds

The City’s proprietary funds provide the same type of information found in the Government- Wide Financial Statements, but with greater detail.

At the end of the current fiscal year, the unrestricted net assets for Water, Sewer, and Solid Waste were $57,431,596, $59,426,138, and $16,145,183 respectively. The unrestricted net assets for Airports was $16,024,042. Transit had an unrestricted net deficit of ($2,367,746) as did Parking, Parks and Recreation, the Convention Center and Development Services with deficits in unrestricted net assets of ($12,418,934), ($1,270,343), ($5,303,941), and ($1,320,434) respectively. The Stadium and Community Sanitation reflected unrestricted net assets of $253,757 and $433,023 respectively.

At the end of the fiscal year 2008, the unrestricted net assets for Water, Sewer, and Solid Waste were $51,784,671, $78,566,929, and $11,607,609 respectively. The unrestricted net assets for Airports and Development Services were $13,821,303 and $3,315,955. Transit had an unrestricted net deficit of ($591,656) as did Parking, Parks and Recreation and the Convention Center with deficits in unrestricted net assets of ($9,290,299), ($2,066,463) and ($4,842,312) respectively. The Stadium and Community Sanitation both reflected unrestricted net assets of $253,462 and $156,708 respectively.

At June 30, 2009, Internal Service Funds, which includes Billing and Collection, General Services, Employees Healthcare Plan and Blue Collar Employees Healthcare Plan had unrestricted net assets of $158,311, $22,808,685, $16,237,789 and $244,315. The Risk Management Fund had a deficit in unrestricted net assets of ($71,787,164). At June 30, 2008, Internal Service Funds, which include Billing and Collection, General Services, Employees Healthcare Plan and Blue Collar Employees Healthcare Plan had unrestricted net assets of $677,282,

41 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

$24,392,023, $14,171,158 and $425,372, respectively. The Risk Management Fund, Retirees Healthcare Plan, and Blue Collar Retirees Healthcare Plan had a deficit in unrestricted net assets of ($65,986,837), ($7,985,700) and ($74,800), respectively.

Fiduciary Funds

The City maintains Fiduciary Funds for the assets of the Employee’s Retirement System, Special Assessment Funds and City Department and Special Purposes monies. These are all monies or assets held by the City in a trustee capacity or as an agent for other governmental units, private organizations or individuals. At the end of fiscal year 2009, the net assets of the Retirement System totaled $832,727,773 for Fire and Police and $735,578,804 for all others, representing a decrease of ($255,326,650) and ($233,451,781) in total assets since June 30, 2008, respectively. The change is primarily related to the continuing collapse in the investment markets and the decrease in market value of the respective Retirement System’s investments.

At the end of fiscal year 2008, the net assets of the Retirement System totaled $1,088,054,423 for Fire and Police and $969,030,585 for all others, representing a decrease of ($105,343,910) and ($99,828,761) in total assets since June 30, 2008, respectively. The change is primarily related to the continuing collapse in the investment markets and the decrease in market value of the respective Retirement System’s investments.

The City Departmental and Special Purpose Funds account for City-related trust activity such as payroll withholding, bid deposits, receipts and disbursements for the debt service activity of the special assessments districts.

Capital Assets and Debt Administration

Capital Assets

The City’s capital assets for its governmental and business type activities as of June 30, 2009, amount to $2,004,407,898 (net of accumulated depreciation). Capital assets include land, buildings and improvements, machinery and equipment, park facilities, roads, streets, traffic signals, streetlights, and bridges. The net increase in the City’s capital assets for the current fiscal year was approximately 5% (a 3.8% increase for governmental activities and a 7% increase for business-type activities) as shown in the table below. Capital assets for June 30, 2008 amounted to $1,897,999,502 net of accumulated depreciation. The net increase, for 2008, was approximately 7% (a 7% increase for governmental activities and a 7% increase for business-type activities).

42 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Changes in Capital Assets, Net of Depreciation

Governmental Activities Business-type Activities Total

2009 2008 2009 2008 2009 2008

Land $199,828,806 $198,810,950 $49,350,353 $43,234,883 $249,179,159 $242,045,833 Buildings and Improvements 129,893,359 133,089,288 645,485,319 620,110,370 775,378,678 753,199,658 Machinery and equipment 33,703,581 36,846,109 28,609,732 28,444,026 62,313,313 65,290,135 Infrastructure 477,757,578 447,961,774 184,867,803 180,125,729 662,625,381 628,087,503 Construction in progress 72,077,276 62,316,440 182,834,091 147,059,933 254,911,367 209,376,373 Total $913,260,600 $879,024,561 1,091,147,298 $1,018,974,941 $2,004,407,898 $1,897,999,502

Major capital asset events during the fiscal year ended June 30, 2009, many of which were in progress during the fiscal year ended June 30, 2008 included the following:

Fresno Convention Center Improvements

Previously Phase I renovations were completed with $18.1 million in funding for projects which included a new roof for the Saroyan Theater, remodel of the Theater lobby, restroom and back of house dressing rooms; remodel of the Theater Plaza and replacement of the complex chiller. In 2008, Selland Arena improvements were made which included new seating, back of house dressing rooms, lockers and media room.

Phase II improvements related to much needed replacements, renovations, and upgrades to major components of the Convention Center. The Saroyan Theater stage rigging was refurbished and a new roof was placed on the Selland Arena. Other project elements included replacement of the facility boilers which provide heating to the Center as well as the Valdez Hall and replacement of the Arena concourse HVAC units. The domestic hot water system was also replaced.

Phase III improvements related specifically to the return of the Falcons hockey team to Selland Arena. The renovations included replacement of the ice floor and associated machinery. Purchase of hockey equipment included an ice resurfacer (Zamboni). In addition, a new scoreboard/jumbotron and sound system were added. Finally, new VIP seating was installed with a point of a sale food and beverage service which allowed patrons to order concessions from their seats. This Phase was capitalized in FY 2009 at approximately $4.5 million.

Subsequent to FY 2008, on December 22, 2008, the management of the Fresno Falcons ice hockey team suddenly announced that it would cease operations at 5 p.m. as of close of business on the 22nd. The Managing General Partner in a statement released by the team, cited the economy, and the resulting decrease in revenue from season

43 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

tickets, corporate sponsorships and overall attendance, which created a situation that impacted the sustainability of operations. The team had been a staple of downtown sporting events and had played in the Selland Arena since 1968, with the exception of the brief period that it relocated to the Save Mart Center for five years. The City had just completed approximately $4.5 million in improvements to the Selland Arena, intended largely for the Falcons in connection with the 20-year lease it entered into with the City to return to the Selland Arena. A replacement team was established, the Fresno Monsters, which opened their first hockey season in September 2009.

Fresno/Clovis Regional Water Reclamation Facility

The City recently began construction on the expansion and organic upgrade to its existing 80 million gallons per day (mgd) Fresno/Clovis Regional Water Reclamation Facility. The plant not only supplies reclaimed water to farmers for irrigation, but it uses biosolids to produce fertilizer. On a typical day, this plant treats nearly 70 million gallons of wastewater.

The project includes extensive upgrades and additions including new aeration basins, secondary sedimentation basins, a RAS/WAS pump station, digester complex, new blowers, and conversion of the plant’s gravity thickener to dissolved air flotation thickeners (DAFTs). The estimated project cost is $104.9 million.

RFRW Organic Upgrade

The City recently began construction on the expansion and organic upgrade to the existing 80 million gallons per day (mgd) Fresno/Clovis Regional Water Reclamation Facility. The plant not only supplies reclaimed water to farmers for irrigation, but it uses biosolids to produce fertilizer. On a typical day, this plant treats nearly 70 million gallons of wastewater.

Consolidated Rental Car Facility at FYI

In 2007, Airports issued bonds to finance the construction of a consolidated rental car facility (CRCF) at Fresno Yosemite International Airport. Construction of the CRCG was completed during FY09 and the facility is currently being utilized by the six rental car companies who have operations at FYI. The CRCF was capitalized at approximately $22.8 million. The capitalized amount was distributed

44 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

among several capital asset categories, with the most value being allocated to buildings. Other assets capitalized during FY09 included the “Sense of Place” project (terminal lobby ambiance - $1.1 million) and rehabilitation work on Taxiways B6-2 and B6-3 ($2.4 million).

There are still several large projects in FY09 CIP with the largest single project being the FYI Terminal Remodel Project ($11.3 million). Other projects include Taxiway B Rehabilitation $1.1 million and the FYI Terminal Checkpoint Project $179,000. All three of these are anticipated to be completed in FY 2010.

No Neighborhood Left Behind

“No Neighborhood Left Behind” is in the final stages of a six-year $45 million investment in the physical infrastructure of 71 neighborhoods. It was the largest undertaking of its kind in the history of Fresno and was a giant leap forward in providing equal access to neighborhood quality of life. The majority of NNLB projects were composed primarily of street repair and pavement replacement. In FY 2009, approximately $3.25 million in construction costs were capitalized with over $9.9 million in project costs nearing completion and being accumulated in CIP

Various Other Projects

CIP at June 30, 2009 includes other projects in various stages of completion. The Fire Department is renovating/rehabilitating numerous older fire stations; the Police Department is constructing a regional training facility that is anticipated to enhance external revenue sources through rental of the facility to other regional law enforcement agencies; and Parks, Recreation & Community Services is expanding green spaces and recreation facilities by constructing new or rehabilitating existing parks facilities through the use of bond proceeds which are supported by Parks Impact Fees.

Fund financial statements record capital asset purchases as expenditures. Additional information about the City’s capital assets can be found in Note 6, pages 114-117 to the financial statements.

Debt Administration

At the end of the current fiscal year, the City had total long-term debt obligations outstanding of $853.3 million. Of this amount, $182.3 million is general obligation bonds, backed by the full faith and credit of the City (Pension and Judgment Obligation Bonds), and another $465.5 million is revenue bonds of the City’s business enterprises. The remainder includes lease revenue bonds, certificates of participation, and tax allocation bonds for general governmental projects.

45 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

During fiscal year 2009, the City’s total bonded debt increased by an approximate net $86.5 million. This increase included the issuance of three new bond transactions. The first was an issuance that included approximately $59 million in new money and refunding of the 2000 Sewer Variable Rate Demand Option Bonds and a majority of the 1995 Sewer System Revenue Bonds.

In July 2008, the City issued $159,845,000 in Sewer System Revenue Bonds 2008 Series A. Proceeds were used to current-refund the following: (1) $30.06 million of the City of Fresno Sewer System Revenue Refunding Bonds 2005 Series A; (2) $74 million of the City of Fresno Sewer System Subordinated Lien Variable Rate Revenue Refunding Bonds 2000 Series A and; (3) provide $59 million in new proceeds for the purpose of constructing a new lab at the Regional Wastewater Treatment Facility.

The second was a new lease revenue bond with a par of $24.8 million to fund improvements to the City’s Convention Center Complex, purchase a new Chiller unit for City Hall and to remediate a tax issue relating to entering into a long-term agreement with the Fresno Falcons hockey team for use of Selland Arena. The remediation included a partial refunding of the 2006 Lease Revenue Bonds. The third financing was issued at a par of $43.3 million to renovate several of the City’s fire stations and to construct a new regional training facility for the Police Department.

The ratio of net general obligation bonded debt to taxable valuation and the amount of bonded debt per capita are useful indicators of the City’s debt position to management, citizens and investors. A comparison of these indicators follows:

FY 2009 FY 2008 FY 2007 General Bonded debt $182,345,000 $187,140,000 $191,690,00 General Bonded debt per capita $367.7 $384.93 $398.49 Debt service tax rate per $100 $0.60 $0.62 $0.73

Although the City’s Charter imposes a limit on the amount of general obligation bonds that the City can have outstanding at any given time to 20% of assessed value of property in the City, the City recognizes that debt of that magnitude cannot be supported with it’s current tax base and as such is very cautious about issuing general obligation debt.

The City’s ratings on uninsured general obligation bonds as of June 30, 2009 were :

Moody’s Investors Service, Inc. A1 Standard and Poor’s Corporation AA- Fitch Ratings AA-

46 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

In April 2004, the City’s general obligation bond rating was reviewed by the three major rating companies. Each determined that the City’s rating should be upgraded, citing Fresno’s stable economy and strong financial results, as characterized by prudent management practices and above average reserves.

In January 2005, the City’s general obligation bond rating was reviewed again by the three major rating companies. Again, each determined that the City’s rating should be maintained, citing Fresno’s stable economy and strong financial results, as characterized by prudent management practices and above average reserves.

In October 2006, Standard & Poor’s Ratings Services issued a “stable” outlook and affirmed its ‘BBB’ underlying rating (SPUR) on the City’s airport revenue bonds, issued by the Fresno Yosemite International Airport. The rating reflects the small size of the airport and the competitive threats from airports in the San Francisco, Los Angeles, and Sacramento areas. The stable outlook reflects Standard & Poor’s expectation that demand will continue to remain solid, debt service coverage will not erode significantly and the cost structure will remain reasonable. Additional debt to be issued in the near future could have a rating impact but that impact is unknown at this time and will be determined as the financial plan is solidified.

Since the close of the 2009 fiscal year, the City issued additional debt. In July 2009, the City continued participation in the California Statewide Communities Development Authority (CSCDA) in order to be included in their Tax and Revenue Anticipation Notes program. The CSCDA authorized the issuance of Tax and Revenue Anticipation Notes, Series A-2, at a coupon rate of 2.0% and a net interest cost of 0.44%. The principal amount of the bonds was $56,300,000, which was used to fund uneven cash flows in the General Fund due to timing differences between revenues and expenditures.

Debt Compliance

There are a number of limitations, restrictions and covenants contained in the various bond indentures. The City believes it is in compliance with all significant limitations, restrictions, and covenants.

Legal Debt Limit and Legal Debt Margin

As of June 30, 2009, the City’s debt limit (20% of valuation subject to taxation) was $6.05 billion. This is in comparison with debt limits of $5.99 billion in 2008. The total amount of debt applicable to the debt limit in 2009 was $182.3 million as compared to $187.1 million in 2008. The resulting margin was $5.87 billion as compared to $5.81 in 2008.

47 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Arbitrage

Under U.S. Treasury Department regulations, all governmental tax- exempt debt issued after 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 that 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, certificates of participation, and lease revenue bond issues subject to the arbitrage rebate requirements and has deferred credits and other liabilities in the governmental funds. Each Enterprise Fund has performed a similar analysis of the debt the respective enterprises have issued which is subject to arbitrage rebate requirements. Any material arbitrage liability related to the debt of the Enterprise Funds has been recorded as a liability in the respective Fund. In addition, the Redevelopment Agency records any arbitrage liability in deferred credits and other liabilities.

Special District Debt

The City is not obligated in any manner for the Special District debt, but is acting as an agent for property owners in collecting the assessments and forwarding the collections to the trustee or paying agent, and initiating foreclosure proceedings, if appropriate. Special District debt payable to bondholders was $5,415,824 at June 30, 2009 as compared to $6,474,783 at June 30, 2008.

Additional information on the City of Fresno’s long-term obligations can be found in Note 7, pages 118-134 of this report.

General Fund Budgetary Highlights

There were no significant amendments from the City’s original budget to the final General Fund budget of $384.6 million. During the year actual revenues were $15.5 million less than budgeted primarily due to lower than anticipated revenues from sales tax, state revenues, and fines and violations. Actual revenues from Property taxes were higher than budgeted.

Sales Tax

The major revenue sources for the City of Fresno, and the General Fund in particular, are Sales Tax, Property Tax and VLF Swap Property Tax which is budgeted as Motor Vehicle In-Lieu (MVLF). The Sales Tax revenue adopted for FY 2009 was $77.7 million. During FY 2009, sales tax revenues were significantly impacted due to the declining economy. Unfortunately, May and June of FY 2009 saw an even further erosion in sales tax revenue which resulted in realized revenue of $70.3 million which was $7.4 million less than budgeted.

48 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

The first quarter of FY 2010 continued to see sales tax receipts decline even steeper than anticipated. The first quarter of FY 2010 declined 14.3 percent as compared to the first quarter of FY 2009. In December 2009, the sales tax revenue forecast for FY 2010 and 2011 was adjusted to reflect these existing trends. The adjustments result in a reduction of $6.9 million and $5.1 million for 2010 and 2011, respectively. Current economic indicators and estimates reflect that sales tax is not expected to rebound until late spring 2010 and the rebound will be slow.

Property Tax

Property Tax revenue for FY 2009 was budgeted at $72.4 million. The actual amount realized was $80.8 million, not including $36.8 million of VLF Swap Property Tax budgeted as Motor Vehicle In-Lieu. This however, includes $3.1 million of Property Tax Supplemental adjustment by the County that was received in June rather than July as expected. Net of this timing difference the Property Taxes were $5.3 million better than anticipated. No new information has come to light that would indicate that Property Tax projections for FY 2010 and 2011 should be adjusted. Of course, the early payment increases carryover in FY 2009 and decreases the incoming revenue for FY 2010.

Other Revenues

Business License and Room Tax/Transient Occupancy Tax (TOT) also experienced significant declines in May and June. They ended FY 2009 at $933,000 and $745,000 less than anticipated, respectively. This decline naturally impacted the anticipated carryover into FY 2010. There continues to be no indication that these revenues are improving and therefore the forecasts for FY 2010 and 2011 have been adjusted to reflect these declines.

While revenues related to vehicle release, inspections, participant fees and interest earning declined by about $709,000 these were offset by other revenues that realized a better than anticipated outcome of $433,000. Furthermore, there was $2.0 million related to traffic school fee citation revenue due from the County that was expected to be received in FY 2009 that has been deferred to sometime in FY 2010. These outcomes are not considered material or indicative of trends that necessitate budgetary projection adjustments.

Expenditures

The City approved $1.3 million of increases in General Fund appropriations in the final budget versus the original budget. The net increase in appropriations consisted of a $1 million decrease in community development, a $1 million increase in transfers out and various other small increases and decreases to arrive at a final budget of $392 million. However, despite the budgeted increase to appropriations, because actual General Fund revenues of $369 million were $15.5 million less than budgeted, the City responded by requiring spending cuts in all departments. The result was that expenditures in all departments were below appropriations, and total expenditures of $376 million were $15.3 million below appropriations. Spending in

49 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

Public Ways (Public Works) was 10% below appropriations for a saving of $1.7 million, Police Department spending was $3.3% or $4.5 million below appropriations, and Fire Department spending was $1.4 million or 3.0% below appropriations.

Conclusion

While our local economy continues to experience issues with a decline in sales tax and property valuations, the City of Fresno has made and will continue to make adjustments based on these trends in order to maintain a balanced budget. It is the City’s intent to smooth these adjustments over the next 18 months. These ongoing actions are expected to require significant contraction within the organization which will result in reductions in services to the community. However, excellence in providing core services will continue to be the priority despite the economic climate. Even though many difficult decisions lie ahead, the City of Fresno will emerge from these difficult economic times as a stronger, leaner and more effective municipal government. The State’s ongoing dire fiscal situation will however result in impacts to our local revenue streams, the impact of which cannot be determined until the State takes action.

The City of Fresno is in a better relative position to weather this continuing slow-down than many of our peer cities in California. Many cities have been dipping into reserves, eliminating services, and raising fees for several years now. As a result they have very few options left to mitigate impacts of the economy and potential State actions. During this same period of time, the City of Fresno created a surplus to assist us in getting through FY 2009 and beyond. Furthermore, the City’s fiscal condition is constantly being monitored with on-going adjustments and contingency plans implemented when deemed necessary. The FY 2011 budget build is currently underway and includes thorough analysis of revenues, contractual obligations, operational imperatives and capital improvement plans. Difficult but fiscally prudent decisions will continue to be made in order to provide adequate resources and reserves to weather these uncertain financial times. The City will live within its means but not retreat from excellence in the quality and reliability of the services it provides to the public.

GRAPHIC DEPICTION OF MAJOR REVENUE SOURCES

The following pages graphically depict major revenue sources and the trends in those revenues as well as changes in those sources, and estimated figures used for the fiscal year 2010 budget. The percentage reflected on each graph, reflects the growth over the prior year.

50 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

51 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

52 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

53 City of Fresno, California Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2009

REQUESTS FOR INFORMATION

This financial report is designed to provide our citizens, taxpayers, customers, 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 is the contact for questions about this report or requests for additional financial information.

City of Fresno

1910 1959 2009

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

Or contact us at

WWW.FRESNO.GOV

54 City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

GOVERNMENT-WIDE FINANCIAL STATEMENTS

“Effective and Responsive Government” City of Fresno – www.fresno.gov

CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS JUNE 30, 2009

Governmental Business-Type Activities Activities Total Assets Cash and Investments $ 116,257,417 $ 57,509,109 $ 173,766,526 Receivables, Net 31,032,336 59,679,858 90,712,194 Internal Balances 42,029,690 (42,029,690) - Inventories 896,353 3,951,748 4,848,101 Deferred Charges 6,018,032 8,274,110 14,292,142 Net Pension Asset 1,808,481 1,280,000 3,088,481 Property Held for Resale 33,633,499 - 33,633,499 Deposits with Others 20,217,211 - 20,217,211 Restricted Cash 70,548,879 237,182,329 307,731,208 Restricted Grants and Interest Receivable 8,968,711 1,352,149 10,320,860 Loans, Notes, Leases and Other Receivables 35,646,170 82,864,620 118,510,790 Capital Assets: Land and Construction in Progress Not Being Depreciated 271,906,082 232,184,444 504,090,526 Facilities Infrastructure and Equipment Net of Depreciation 641,354,518 858,962,854 1,500,317,372

Total Assets 1,280,317,379 1,501,211,531 2,781,528,910

Liabilities Accrued Liabilities 51,560,747 29,784,312 81,345,059 Unearned Revenue 3,104,915 49,952,656 53,057,571 Deposits from Others 422,519 23,911,784 24,334,303 Other Liabilities, Capacity Rights - 20,969,059 20,969,059 Long-term Liabilities: Due Within One Year 44,407,470 21,352,098 65,759,568 Due in more than one year 492,018,048 520,798,593 1,012,816,641

Total Liabilities 591,513,699 666,768,502 1,258,282,201

Net Assets Invested in Capital Assets, Net of Related Debt 736,409,959 679,116,036 1,415,525,995 Restricted for: Public Protection 24,186,070 - 24,186,070 Public Ways 50,163,701 - 50,163,701 Culture and Recreation 3,583,122 - 3,583,122 Community Development 11,645,145 - 11,645,145 Capital Projects 91,434,380 - 91,434,380 Debt Service 22,028,872 42,922,252 64,951,124 Emergency Reserve 16,851,097 - 16,851,097 Unrestricted (Deficit) (267,498,666) 112,404,741 (155,093,925)

Total Net Assets $ 688,803,680 $ 834,443,029 $ 1,523,246,709

The notes to the financial statements are an integral part of this statement. 57 CITY OF FRESNO, CALIFORNIA

STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2009

Program Revenue

Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions

Governmental activities

General Government $ 30,592,499 $ 17,431,908 $ 8,317,424 $ - Public Protection 204,013,036 19,628,479 6,003,044 2,071,359 Public Ways and Facilities 66,052,684 3,583,068 22,273,260 53,112,134 Culture and Recreation 27,496,696 1,837,118 230,959 2,077,442 Community Development 20,330,782 138,325 3,655,483 - Redevelopment 12,079,467 - - - Interest on Long-term Debt 24,811,425 - - -

Total Governmental Activities 385,376,589 42,618,898 40,480,170 57,260,935

Business-type Activities

Water System 52,370,091 65,596,663 - 5,434,322 Sewer System 49,867,066 62,521,061 - 18,749,097 Solid Waste Management 43,671,138 49,848,807 508,362 - Transit 47,528,535 10,280,033 33,017,426 493,715 Airports 26,728,205 19,768,368 2,432,823 9,084,699 Fresno Convention Center 11,675,892 3,130,426 - - Community Sanitation 9,682,699 10,074,908 - - Parking 6,909,088 7,129,016 - - Parks and Recreation 2,042,548 489,826 - - Development Services 13,543,214 9,951,506 - - Stadium 3,976,571 1,500,000 - -

Total Business-type Activities 267,995,047 240,290,614 35,958,611 33,761,833

Total Government $ 653,371,636 $ 282,909,512 $ 76,438,781 $ 91,022,768

General Revenues: Taxes and Licenses: Property Taxes Sales Taxes In Lieu Sales Tax Franchise Taxes Business Tax Room Tax Other Taxes Revenue restricted for Infrastructure maintenance Investment earnings Gain on sale of capital assets Transfers: Total general revenues and transfers Change in net assets Net Assets, Beginning of Year Change in Application of Accounting Principles Net Assets, Beginning of Year Restated Net Assets, End of Year

The notes to the financial statements are an integral part of this statement. 58 Net (Expense) Revenue and Changes in Net Assets

Governmental Business-type Activities Activities Total

$ (4,843,167) $ - $ (4,843,167) (176,310,154) - (176,310,154) 12,915,778 - 12,915,778 (23,351,177) - (23,351,177) (16,536,974) - (16,536,974) (12,079,467) - (12,079,467) (24,811,425) - (24,811,425)

(245,016,586) - (245,016,586)

- 18,660,894 18,660,894 - 31,403,092 31,403,092 - 6,686,031 6,686,031 - (3,737,361) (3,737,361) - 4,557,685 4,557,685 - (8,545,466) (8,545,466) - 392,209 392,209 - 219,928 219,928 - (1,552,722) (1,552,722) - (3,591,708) (3,591,708) - (2,476,571) (2,476,571)

- 42,016,011 42,016,011

(245,016,586) 42,016,011 (203,000,575)

135,353,462 - 135,353,462 50,331,671 - 50,331,671 16,273,793 - 16,273,793 7,376,097 - 7,376,097 14,611,162 - 14,611,162 9,927,326 - 9,927,326 3,716,661 - 3,716,661 294,606 - 294,606 8,475,993 7,808,998 16,284,991 484,660 52,406 537,066 (1,718,189) 1,718,189 - 245,127,242 9,579,593 254,706,835 110,656 51,595,604 51,706,260 686,551,618 784,988,831 1,471,540,449 2,141,406 (2,141,406) - 688,693,024 782,847,425 1,471,540,449 $ 688,803,680 $ 834,443,029 $ 1,523,246,709

The notes to the financial statements are an integral part of this statement. 59

City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

FUND FINANCIAL STATEMENTS

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2009

Grants Redevelopment Other Total General Special Revenue Agency, Debt Governmental Governmental Fund Fund Service Fund Funds Funds

Assets Cash and Investments $ 10,314,446 $ 600 $ 7,413,921 $ 62,602,372 $ 80,331,339 Receivables, Net 6,717,329 120 - 489,254 7,206,703 Grants Receivable 50,304 4,841,695 - 4,076,712 8,968,711 Intergovernmental Receivables 19,864,300 - - 2,752,833 22,617,133 Due From Other Funds 11,542,980 - 24,048 6,143,437 17,710,465 Advances to Other Funds 27,644,968 36,809,661 245,837 18,797,958 83,498,424 Property Held for Resale - - - 33,633,499 33,633,499 Restricted Cash - 283 2,598,237 67,950,359 70,548,879 Loans, Notes, Leases, Other Receivables - 33,061,699 56,395 2,528,076 35,646,170

Total Assets $ 76,134,327 $ 74,714,058 $ 10,338,438 $ 198,974,500 $ 360,161,323

Liabilities and Fund Balances Liabilities: Accrued Liabilities $ 29,416,269 $ 2,468,728 $ - $ 5,861,990 $ 37,746,987 Deferred Revenue 12,431,837 2,944,990 - 4,074,894 19,451,721 Due to Other Funds 717,515 4,035,991 - 1,242,562 5,996,068 Advances From Other Funds 4,531,511 - 85,822,043 - 90,353,554 Deposits From Others 266,233 - 11,009 95,767 373,009

Total Liabilities 47,363,365 9,449,709 85,833,052 11,275,213 153,921,339

Fund Balances (Deficit): Reserved for: Encumbrances 651,503 10,205,017 - 29,621,876 40,478,396 Non-current Receivables 27,644,968 69,871,360 56,295 21,326,034 118,898,657 Debt Service - 283 1,365,234 18,031,418 19,396,935 Property Held for Resale - - - 33,633,499 33,633,499 Emergency 16,851,097 - - - 16,851,097 Unreserved, Undesignated reported in: General Fund (16,376,606) - - - (16,376,606) Special Revenue Funds - (14,812,311) - 13,020,714 (1,791,597) Debt Service Funds - - (76,916,143) 52,732,951 (24,183,192) Capital Project Funds - - - 19,332,795 19,332,795

Total Fund Balances (Deficit) 28,770,962 65,264,349 (75,494,614) 187,699,287 206,239,984

Total Liabilities and Fund Balances $ 76,134,327 $ 74,714,058 $ 10,338,438 $ 198,974,500 $ 360,161,323

The notes to the financial statements are an integral part of this statement.

62 CITY OF FRESNO, CALIFORNIA

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2009

Fund balances – total governmental funds $ 206,239,984

Amounts reported for governmental activities in the statement of net assets are different because:

Capital assets used in governmental activities are not financial resources and, therefore are not reported in the funds. Those assets consist of:

Land $ 199,772,118 Buildings and Improvements, net of $58,231,288 accumulated depreciation 126,336,241 Machinery and Equipment, net of $23,142,532 accumulated depreciation 10,213,383 Infrastructure, net of $640,941,478 accumulated depreciation 477,757,578 Construction in Progress 70,967,256 Total Capital Assets 885,046,576

Net Pension Assets applicable to govenmental activities are not available for spending in the current period and accordingly are not reported as fund assets. 1,408,481

An amount reported as Capital Outlay in the funds is reported as Deposits with Others until the City takes title to the Capital Asset. 20,217,211

Some of the City's property taxes ($6,290,788), sales tax ($112,450), In Lieu Sales Tax ($2,390,514), Highway Users ($588,092), grant revenue ($6,431,792) and Franchise Fee ($1,816,963) will be collected after year-end, but are not available soon enough to pay for the current period's expenditures, and therefore are reported as deferred revenue in the funds. 17,630,599

Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. (4,117,412)

Long-term liabilities applicable to governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities.

Bonds and Certificates of Participation $ (387,812,000) Notes Payable (10,876,388) Capital Leases (11,771,798) Compensated Absences (24,501,925) Net OPEB Obligation (14,382,780) Retention Payable (2,313,842) Rebatable Arbitrage Payable (16,418) Settlement - Fresno County (450,000) Total Long Term Liabilities (452,125,151)

Governmental funds report the effect of issuance costs, premium, original issue discount and refunding charge, when debt is first issued, whereas in the statement of activities these amounts are amortized to interest and amortization expense over the life of the debt.

Deferred Cost of Issuance $ 6,018,032 Deferred Amount on Refunding 744,561 Unamortized Premium (2,027,994) Unamortized Discount 1,369,615 Total 6,104,214

Internal service funds are used by management to charge the costs of various activities, such as fleet and insurance to individual funds. Assets and liabilities of certain internal service funds are included in governmental activities in the statement of net assets. 8,399,178

Net assets of Governmental activities $ 688,803,680

The notes to the financial statements are an integral part of this statement.

63 CITY OF FRESNO, CALIFORNIA

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2009

Grants Redevelopment Other Total General Special Revenue Agency, Debt Governmental Governmental Fund Fund Service Fund Funds Funds Revenues

Taxes $ 218,780,758 $ - $ 22,243,941 $ 17,815,712 $ 258,840,411 Licenses and Permits 316,575 - - - 316,575 Intergovernmental 4,123,508 24,692,315 72,100 7,619,774 36,507,697 Charges for Services 13,072,767 2,119,500 - 10,708,790 25,901,057 Fines 3,249,757 - - - 3,249,757 Use of Money and Property 2,233,231 1,005,980 567,026 3,167,255 6,973,492 Miscellaneous 3,626,678 39,586 - 11,271,688 14,937,952

Total Revenues 245,403,274 27,857,381 22,883,067 50,583,219 346,726,941

Expenditures Current: General Government 8,754,520 978,004 4,709,062 2,332,559 16,774,145 Public Protection 180,082,354 6,988,544 - 4,013 187,074,911 Public Ways and Facilities 9,338,270 4,941,078 - 4,730,461 19,009,809 Culture and Recreation 22,417,405 1,173,324 - 5,590 23,596,319 Community Development 2,221,539 6,565,313 - 11,439,747 20,226,599 Capital Outlay 21,363,383 9,166,551 - 61,177,801 91,707,735 Debt Service: Principal 1,575,034 - 867,613 12,798,583 15,241,230 Interest 1,580,609 - 2,632,221 19,533,191 23,746,021

Total Expenditures 247,333,114 29,812,814 8,208,896 112,021,945 397,376,769 Excess (Deficiency) of Revenue Over (Under) Expenditures (1,929,840) (1,955,433) 14,674,171 (61,438,726) (50,649,828)

Other Financing Sources (Uses) Transfers In 3,569,244 322,959 - 88,030,613 91,922,816 Transfers Out (31,359,729) (1,046,650) (14,172,928) (44,925,458) (91,504,765) Discount on Debt Issued - - - (869,640) (869,640) Long Term Debt Issued - - - 46,790,000 46,790,000 Proceeds for Note Obligation - - - 600,000 600,000 Proceeds for Capital Lease Obligations 392,254 - - - 392,254 Total Other Financing Sources (Uses) (27,398,231) (723,691) (14,172,928) 89,625,515 47,330,665

Net Change in Fund Balances (29,328,071) (2,679,124) 501,243 28,186,789 (3,319,163)

Fund Balances (Deficit) - Beginning 58,099,033 67,943,473 (75,995,857) 159,512,498 209,559,147

Fund Balances (Deficit) - Ending $ 28,770,962 $ 65,264,349 $ (75,494,614) $ 187,699,287 $ 206,239,984

The notes to the financial statements are an integral part of this statement.

64 CITY OF FRESNO, CALIFORNIA

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2009

Net change in fund balances - total governmental funds $ (3,319,163)

Amounts reported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays of $49,825,792 and infrastructure contributions of $33,173,165 exceeded depreciation of $41,206,574 and disposals of $7,589,916 in the current period. 34,202,467

An amount reported as Capital Outlay in the funds is reported as Deposits with Others until the City takes title to the Capital Asset. 20,217,211

Some expenses, retention payable, rebatable arbitrage, and Net OPEB Obligation reported in the statement of activities do not require the use of current financial resources, and therefore are not reported as expenditures in governmental funds. (9,512,277)

Prepaid expenses, Net Pension Asset, recognized in the funds in prior years are reported as expenditures in the statement of activities when used. (142,106)

Some capital additions were financed through capital leases. In governmental funds, a capital lease arrangement is considered a source of financing, but in the statement of net assets, the lease obligation is reported as a liability. (392,254)

In the statement of net assets acquiring debt increases long-term liabilities and does not affect the statement of activities. Additionally, repayment of principal is an expenditure in the governmental funds but reduces liability in the statement of net assets.

Bonds and Refunding Bonds Payable $ (46,790,000) Note Payable (600,000) Principal payments to bond, certificate and note holders 15,466,230 Net adjustment (31,923,770)

Under the modified accrual basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the statement of activities, however, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. In addition, interest on long term debt is not recognized under the modified accrual basis of accounting until due, rather than as it accrues.

Compensated Absences $ (1,516,486) Additions and amortization of Debt Premium, Discount, and Refunding Charge 993,948 Additions and amortization of Debt Issue Costs 226,438 Accrued Interest on Bonds, Certificates, and Notes (886,613) Combined adjustment (1,182,713)

Revenues recognized in the statement of activites in previous years and recognized in the fund statements in the current year were greater than revenues recognized in the statement of activities in the current year but not reported in the funds as they do not provide current financial resources. (6,414,159)

Internal Service Funds are used by management to charge the costs of certain activities, such as insurance and fleet, to individual funds. The net expenses of certain activities of internal service funds is reported with governmental activities in the statement of activities. (1,422,580)

Change in net assets of governmental activities $ 110,656 The notes to the financial statements are an integral part of this statement. 65 CITY OF FRESNO, CALIFORNIA Run: 01/12/2010 at 01:43:27 PM STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2009 Business-Type Activities - Enterprise Funds

Water Sewer Solid Waste System System Management Transit Assets

Current Assets: Cash and Investments $ 25,591,990 $ 21,135,332 $ 6,422,473 $ 1,200 Restricted Cash - Current - - - - Interest Receivable 401,252 162,699 142,092 - Accounts Receivables, Net 10,002,695 8,427,026 6,857,772 438,475 Grants Receivable - - 109,520 9,091,107 Inventories 1,430,343 1,639,044 - 818,284 Intergovernmental Receivables - 1,255,817 - 17,309,476 Due from Other Funds 92,351 8,396 102,940 25,267

Total Current Assets 37,518,631 32,628,314 13,634,797 27,683,809

Noncurrent Assets: Restricted: Cash and Investments 38,234,469 140,563,150 15,851,938 14,431,580 Grants and Interest Receivable 389,128 534,430 - -

Total Restricted Assets 38,623,597 141,097,580 15,851,938 14,431,580

Other Assets: Other Receivables 1,037,998 23,300,823 - - Other Assets 420,809 3,392,031 202,125 - Net Pension Asset 200,000 200,000 350,000 450,000 Unamortized CVP Water Settlement 38,989,041 - - - Accounts Receivable from Solid Waste Rate Payers - - 19,536,758 - Advances to Other Funds 1,041,172 1,269,744 43,659 -

Total Other Assets 41,689,020 28,162,598 20,132,542 450,000

Capital Assets: Land 9,496,472 17,074,548 849,137 13,523 Buildings, Systems and Improvements 260,237,628 407,699,563 2,311,200 20,834,948 Machinery & Equipment 3,692,985 11,600,418 15,230,428 47,884,983 Infrastructure 51,763,405 105,273,222 - - Construction in Progress 15,877,385 144,733,598 204,014 - Less Accumulated Depreciation (114,168,514) (117,049,335) (11,372,185) (45,603,654)

Total Capital Assets, Net 226,899,361 569,332,014 7,222,594 23,129,800

Total Non-Current Assets 307,211,978 738,592,192 43,207,074 38,011,380

Total Assets $ 344,730,609 $ 771,220,506 $ 56,841,871 $ 65,695,189

The notes to the financial statements are an integral part of this statement.

66 Business-Type Activities - Enterprise Funds

Fresno Other Convention Enterprise Internal Service Airports Center Stadium Funds Total Funds

$ 1,513,733 $ 325,639 $ 147,886 $ 1,329,055 $ 56,467,308 $ 36,967,879 - 765,981 - - 765,981 - 64,373 - 2,288 9,708 782,412 579,857 637,816 604,924 50,000 3,882,652 30,901,360 712,553 - - - - 9,200,627 - 20,000 44,077 - - 3,951,748 896,353 120,025 - - 26,231 18,711,549 - 1,120,470 - - 4,110 1,353,534 25,440,168

3,476,417 1,740,621 200,174 5,251,756 122,134,519 64,596,810

14,452,620 7,445,553 1,633,525 19,057 232,631,892 3,784,456 428,591 - - - 1,352,149 -

14,881,211 7,445,553 1,633,525 19,057 233,984,041 3,784,456

- - - - 24,338,821 - 1,703,429 1,452,009 1,025,675 78,032 8,274,110 - 80,000 - - - 1,280,000 400,000 - - - - 38,989,041 -

- - - - 19,536,758 - 8,913,311 523,280 - 258,086 12,049,252 828,093

10,696,740 1,975,289 1,025,675 336,118 104,467,982 1,228,093

10,803,127 5,222,779 710,000 5,180,767 49,350,353 56,688 130,782,622 93,759,837 39,151,537 21,485,588 976,262,923 16,425,301 6,229,364 1,417,982 1,400,146 527,962 87,984,268 145,133,632 49,116,180 - - - 206,152,807 - 15,763,277 2,763,455 - 3,492,362 182,834,091 1,110,020 (53,344,190) (43,331,850) (6,898,780) (19,707,521) (411,476,029) (134,472,732)

159,350,380 59,832,203 34,362,903 10,979,158 1,091,108,413 28,252,909

184,928,331 69,253,045 37,022,103 11,334,333 1,429,560,436 33,265,458

$ 188,404,748 $ 70,993,666 $ 37,222,277 $ 16,586,089 $ 1,551,694,955 $ 97,862,268

(continued)

The notes to the financial statements are an integral part of this statement.

67 CITY OF FRESNO, CALIFORNIA

STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2009 (continued) Business-Type Activities - Enterprise Funds

Water Sewer Solid Waste System System Management Transit Liabilities

Current Liabilities: Accrued Liabilities $ 4,112,505 $ 10,498,292 $ 2,052,036 $ 2,621,910 Accrued Compensated Absences 137,987 156,706 216,479 318,848 Liability for Self Insurance - - - - Unearned Revenue 15,423,922 15,829,019 2,985,606 14,799,999 Due to Other Funds - 119,887 1,118 23,206,762 Bonds Payable and Certificates of Participation 1,805,000 8,555,000 1,330,000 - Capital Lease Obligations - - - - Notes Payable 226,190 - - -

Total Current Liabilities 21,705,604 35,158,904 6,585,239 40,947,519

Non-current Liabilities: Accrued Compensated Absences 950,471 989,535 565,557 1,602,939 Capital Lease Obligations - - - - Liability for Self-Insurance - - - - Bonds Payable and Certificates of Participation 35,043,354 245,310,784 7,689,212 - Notes Payable 1,057,518 - - - CVP Litigation Settlement 38,294,148 - - - Other Liabilities - 20,969,059 - - Accrued Closure Costs - - 22,500,000 - Advances From Other Funds - - 666,519 - Net OPEB Obligation 450,202 540,730 458,874 2,382,677 Deposits Held for Others 1,030,417 18,759,069 - -

Total Non-current Liabilities 76,826,110 286,569,177 31,880,162 3,985,616

Total Liabilities 98,531,714 321,728,081 38,465,401 44,933,135

Net Assets Invested in Capital Assets, Net of Related Debt 188,767,299 360,472,745 901,028 23,129,800 Restricted for Debt Service - 29,593,542 1,330,259 - Unrestricted (Deficit) 57,431,596 59,426,138 16,145,183 (2,367,746)

Total Net Assets (Deficit) $ 246,198,895 $ 449,492,425 $ 18,376,470 $ 20,762,054

The notes to the financial statements are an integral part of this statement.

68 Business-Type Activities - Enterprise Funds

Fresno Other Convention Enterprise Internal Service Airports Center Stadium Funds Totals Funds

$ 4,900,849 $ 2,945,299 $ 205,616 $ 1,761,063 $ 29,097,570 $ 8,052,830 107,205 55,940 - 278,812 1,271,977 579,494 - - - - - 20,272,189 36,054 106,372 - 771,684 49,952,656 1,283,793 1,473 1,803,760 - 12,183,706 37,316,706 1,191,393 845,000 4,221,400 950,000 45,000 17,751,400 ------1,592,270 - 62,958 - - 289,148 -

5,890,581 9,195,729 1,155,616 15,040,265 135,679,457 32,971,969

907,676 - - 2,108,351 7,124,529 4,335,669 - - - - - 764,048 - - - - - 57,746,585 59,276,830 56,814,765 40,138,658 2,365,450 446,639,053 - - 687,752 - - 1,745,270 - - - - - 38,294,148 - - - - - 20,969,059 - - - - - 22,500,000 - - 245,837 766,476 1,905,074 3,583,906 2,438,309 338,638 6,677 - 1,174,609 5,352,407 2,609,313 56,391 929,185 - 320 20,775,382 3,185,912

60,579,535 58,684,216 40,905,134 7,553,804 566,983,754 71,079,836

66,470,116 67,879,945 42,060,750 22,594,069 702,663,211 104,051,805

99,228,550 4,734,776 (6,725,755) 8,568,708 679,077,151 26,148,527 6,682,040 3,682,886 1,633,525 - 42,922,252 - 16,024,042 (5,303,941) 253,757 (14,576,688) 127,032,341 (32,338,064)

$ 121,934,632 $ 3,113,721 $ (4,838,473) $ (6,007,980) $ 849,031,744 $ (6,189,537)

Some amounts reported for Business-type activities in the statement of net assets are different due to certain internal service fund assets and liabilities being included with Business-type activities. (14,588,715)

Net assets of business-type activities $ 834,443,029

The notes to the financial statements are an integral part of this statement.

69 CITY OF FRESNO, CALIFORNIA

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2009 Business-Type Activities - Enterprise Funds

Water Sewer Solid Waste System System Management Transit Operating Revenues:

Charges for Services $ 65,596,663 $ 62,521,061 $ 49,848,807 $ 10,280,033

Operating Expenses: Cost of Services 29,735,516 22,240,181 23,770,970 33,664,148 Administration 11,993,154 9,406,287 18,034,474 9,179,017 Amortization 55,029 167,565 19,018 - Depreciation 8,917,749 13,047,880 907,042 3,948,787

Total Operating Expenses 50,701,448 44,861,913 42,731,504 46,791,952

Operating Income (Loss) 14,895,215 17,659,148 7,117,303 (36,511,919)

Non-operating Revenue (Expenses):

Operating Grants - - 508,362 33,017,426 Interest Income 1,409,468 4,511,947 506,016 - Interest Expense (1,517,398) (4,860,300) (569,843) (480,955) Passenger Facility Charges - - - - Customer Facility Charges - - - - Gain ( Loss) on Disposal of Capital Assets 46,053 6,353 (1,981) -

Total Non-operating Revenue (Expenses) (61,877) (342,000) 442,554 32,536,471

Income (Loss) Before Contributions and Transfers 14,833,338 17,317,148 7,559,857 (3,975,448)

Capital Contributions 5,444,822 18,749,097 - 493,715 Transfer In - - - 159,381 Transfer Out (293,801) (293,075) (1,178,589) (1,065,682)

Change in Net Assets 19,984,359 35,773,170 6,381,268 (4,388,034)

Total Net Assets (Deficit) - Beginning 226,368,034 413,908,150 12,171,877 25,992,835

Change in Application of Accounting Principle (153,498) (188,895) (176,675) (842,747)

Total Net Assets (Deficit) - Beginning Restated 226,214,536 413,719,255 11,995,202 25,150,088

Total Net Assets (Deficit) - Ending $ 246,198,895 $ 449,492,425 $ 18,376,470 $ 20,762,054

The notes to the financial statements are an integral part of this statement.

70 Business-Type Activities - Enterprise Funds Fresno Other Convention Enterprise Internal Service Airports Center Stadium Funds Total Funds

$ 16,498,367 $ 3,130,426 $ 1,500,000 $ 27,645,256 $ 237,020,613 $ 140,362,112

8,043,694 2,366,014 - 17,881,276 137,701,799 103,043,105 8,336,666 2,707,007 301,893 13,419,291 73,377,789 27,370,138 102,662 138,532 74,982 3,368 561,156 - 6,300,013 3,405,976 1,066,284 462,365 38,056,096 11,688,768

22,783,035 8,617,529 1,443,159 31,766,300 249,696,840 142,102,011

(6,284,668) (5,487,103) 56,841 (4,121,044) (12,676,227) (1,739,899)

2,432,823 - - - 35,958,611 - 673,989 286,066 64,152 89,024 7,540,662 1,792,165 (3,067,232) (3,058,363) (2,533,412) (234,080) (16,321,583) (303,099) 2,270,981 - - - 2,270,981 - 999,020 - - - 999,020 - (821,132) - - - (770,707) (105,826)

2,488,449 (2,772,297) (2,469,260) (145,056) 29,676,984 1,383,240

(3,796,219) (8,259,400) (2,412,419) (4,266,100) 17,000,757 (356,659)

9,084,699 - - - 33,772,333 174,644 - 8,151,444 2,257,607 1,294,952 11,863,384 1,186,282 (181,596) (1,755,042) - (4,902,745) (9,670,530) (3,797,187)

5,106,884 (1,862,998) (154,812) (7,873,893) 52,965,944 (2,792,920)

116,951,964 4,978,213 (4,683,661) 2,323,377 798,010,789 (10,510,534)

(124,216) (1,494) - (457,464) (1,944,989) 7,113,917

116,827,748 4,976,719 (4,683,661) 1,865,913 796,065,800 (3,396,617)

$ 121,934,632 $ 3,113,721 $ (4,838,473) $ (6,007,980) 849,031,744 $ (6,189,537)

Some amounts reported for Business-type activities in the statement of activities are different due to the net revenue (expenses) of certain internal service funds being reported with Business-type activities. (1,370,340) Change in Net Assets of business-type activities $ 51,595,604

The notes to the financial statements are an integral part of this statement.

71 CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2009 Business-Type Activities - Enterprise Funds

Water Sewer Solid Waste System System Management Transit CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ 64,164,476 $ 61,607,021 $ 33,653,590 $ 13,084,894 Cash Received from Interfund Services Provided - 1,147 539,782 - Cash Payment to Suppliers for Services (25,935,423) (11,088,778) 5,097,816 (14,351,519) Cash Paid for Interfund Services Used (6,106,362) (5,593,734) (17,613,047) (5,281,431) Cash Payments to Employees for Services (9,731,868) (10,868,775) (14,325,022) (23,885,701) Cash Payment for Claims and Refunds - - - -

Net Cash Provided by (Used for) Operating Activities 22,390,823 34,056,881 7,353,119 (30,433,757)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital contributions 1,008,284 5,464,091 - 493,716 Passenger and Customer Facility Charges - - - - Interest payments on capital debt (1,320,591) (11,211,010) (580,326) - Proceeds from issuance of capital debt - 164,193,724 - - Principal payments on capital debt-bonds (1,740,000) (112,185,000) (1,466,119) - Principal payments on capital debt-notes (219,436) - - - Principal payment on capital lease obligations - - - - Proceeds from sale of capital assets 46,053 6,353 - - Acquisition and construction of capital assets (18,968,043) (53,322,589) (1,542,357) (494,096)

Net Cash Provided by (Used for) Capital and Related Financing Activities (21,193,733) (7,054,431) (3,588,802) (380)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Operating Grants - - 508,362 28,754,596 Interest Payments, Noncapital - - - (480,955) Borrowing from (Repayment to) Other Funds - - - 11,783,456 Transfers In - - - 159,381 Transfers Out (293,801) (293,075) (1,178,589) (1,065,682)

Net Cash Provided by (Used for) Non-capital Financing Activities (293,801) (293,075) (670,227) 39,150,796

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends on Investments 1,738,229 747,935 603,387 - (Purchase) Proceeds of investments securities with trustees - (42,359,178) 1,329,874 -

Net Cash Provided by (Used for) Investing Activities 1,738,229 (41,611,243) 1,933,261 - Net Increase (Decrease) in Cash and Cash Equivalents 2,641,518 (14,901,868) 5,027,351 8,716,659 Cash and Cash Equivalents, Beginning of Year 61,184,941 117,849,053 17,247,060 5,716,121

Cash and Cash Equivalents, End of Year $ 63,826,459 $ 102,947,185 $ 22,274,411 $ 14,432,780

The notes to the financial statements are an integral part of this statement.

72 Business-Type Activities - Enterprise Funds

Fresno Other Convention Enterprise Internal Service Airports Center Stadium Funds Total Funds

$ 16,333,225 $ 2,755,943 $ 1,275,000 $ 27,699,960 $ 220,574,109 $ 14,003,018 - - - 669,982 1,210,911 117,501,887 (10,516,669) (5,432,749) (4,501) (10,106,173) (72,337,996) (40,561,081) (1,432,794) (66,922) - (6,546,513) (42,640,803) (6,519,875) (5,023,724) (805,015) - (14,960,230) (79,600,335) (32,812,400) - - - - - (48,751,449)

(639,962) (3,548,743) 1,270,499 (3,242,974) 27,205,886 2,860,100

10,153,706 - - - 17,119,797 366,607 3,308,636 - - - 3,308,636 - (3,467,795) (2,910,590) (2,543,387) (146,462) (22,180,161) (1,590,465) - 21,259,275 - - 185,452,999 - (805,000) (11,627,095) (905,000) (40,000) (128,768,214) - - (30,290) - - (249,726) ------(1,876,319) 1,886 - - - 54,292 - (21,203,714) (5,483,132) - (65,135) (101,079,066) (10,548,890)

(12,012,281) 1,208,168 (3,448,387) (251,597) (46,341,443) (13,649,067)

2,454,822 - - 14,526 31,732,306 - - - - (229,330) (710,285) - - (1,376,825) - 2,616,225 13,022,856 - - 8,151,444 2,257,607 1,294,951 11,863,383 1,186,282 (181,596) (1,755,042) - (4,902,745) (9,670,530) (3,797,187)

2,273,226 5,019,577 2,257,607 (1,206,373) 46,237,730 (2,610,905)

704,467 104,091 66,909 172,841 4,137,859 2,084,679

3,012,660 - - - (38,016,644) -

3,717,127 104,091 66,909 172,841 (33,878,785) 2,084,679

(6,661,890) 2,783,093 146,628 (4,528,103) (6,776,612) (11,315,193) 22,628,243 2,299,957 1,634,783 5,876,215 234,436,373 52,067,528

$ 15,966,353 $ 5,083,050 $ 1,781,411 $ 1,348,112 $ 227,659,761 $ 40,752,335 (Continued)

The notes to the financial statements are an integral part of this statement.

73 CITY OF FRESNO, CALIFORNIA

STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED JUNE 30, 2009 (Continued) Business-Type Activities - Enterprise Funds

Water Sewer Solid Waste System System Management Transit

Reconciliation of Operating Income (Loss) to Net Cash Provided by (Used for) Operating Activities:

Operating income (loss) $ 14,895,215 $ 17,659,148 $ 7,117,303 $ (36,511,919) Adjustment to reconcile operating income (loss) to net cash Provided by (used for) operating activities:

Depreciation expense 8,917,749 13,047,880 907,042 3,948,787 Amortization expense 55,029 167,565 19,018 -

Change in assets and liabilities: Decrease (increase) in accounts receivable (2,888,613) (1,408,822) (802,173) (203,651) Decrease (increase) in other receivables (174,148) 913,120 (15,150,478) 29,955 Decrease (increase) in interest receivable - restricted - - - - Decrease (increase) in due from other funds (9,505) 3,108 19,560 (25,267) Decrease (increase) in due from other governments - (396,693) 29,244 - Decrease (increase) in material and supplies inventory (109,756) (164,720) - 458,767 Decrease (increase) in prepaid items - - - - Decrease (increase) in net pension asset (200,000) (200,000) (350,000) (450,000) Decrease (increase) in advances to other funds 771,515 (23,605) - - (Decrease) increase in accrued liabilities (134,971) 2,567,054 (63,703) (2,224,183) (Decrease) increase in due to other funds - (24,738) 1,119 - (Decrease) increase in other liabilities - 1,565,749 15,047,385 - (Decrease) increase in CIP Retention payable 103,040 - 48,191 - (Decrease) increase in accrued closure costs - - - - (Decrease) increase in unearned revenue 868,564 - 248,412 3,003,824 (Decrease) increase in liability for self-insurance - - - - (Decrease) increase in deposits - - - - (Decrease) increase in OPEB obligation 296,704 351,835 282,199 1,539,930

Net Cash Provided by (Used For) Operating Activities $ 22,390,823 $ 34,056,881 $ 7,353,119 $ (30,433,757)

Reconciliation of Cash and Cash Equivalents to the Statement of Net Assets: Cash and Investments: Unrestricted 25,591,990 21,135,332 6,422,473 1,200 Restricted 38,234,469 140,563,150 15,851,938 14,431,580 Total cash and investments 63,826,459 161,698,482 22,274,411 14,432,780 Less: Non-cash equivalents - (58,751,297) - - Cash and Cash Equivalents at End of Year on Statement of Cash Flows $ 63,826,459 $ 102,947,185 $ 22,274,411 $ 14,432,780

Noncash Investing, Capital, and Financing Activities: Borrowing under capital lease - - - - Decrease/(increase) in fair value of cash & investments 21,713 29,604 7,103 - Amortization of bond discount, premium and refunding 205,460 76,882 2,896 - Developer Capital Contributions 2,347,488 8,236,965 - - Acquisition and construction of capital assets in accounts payable 171,794 2,858,255 204,014 176,884 The notes to the financial statements are an integral part of this statement.

74 Business-Type Activities - Enterprise Funds

Fresno Other Convention Enterprise Internal Service Airports Center Stadium Funds Total Funds

$ (6,284,668) $ (5,487,103) $ 56,841 $ (4,121,044) $ (12,676,227) $ (1,739,899)

6,300,013 3,405,976 1,066,284 462,366 38,056,097 11,688,768 102,662 138,532 74,982 3,368 561,156 -

62,811 (207,002) 75,000 (872,054) (6,244,504) 234,711 - 151 - (10,282) (14,391,682) ------(263,126) 72,090 - 1,601,710 1,398,570 (10,705,347) - - - - (367,449) - - 5,985 - - 190,276 188,602 ------(80,000) - - - (1,280,000) (400,000) (8,282) - - (8,388) 731,240 539,433 (540,674) (1,329,467) - (1,325,727) (3,051,671) (4,336,237) 1,473 - (2,608) 296,233 271,479 751,018 - - - - 16,613,134 - (188,048) - - - (36,817) ------36,054 44,062 - 13,699 4,214,615 529,488 - - - - - 3,909,437 7,401 (197,150) - - (189,749) 537,398 214,422 5,183 - 717,145 3,407,418 1,662,728

$ (639,962) $ (3,548,743) $ 1,270,499 $ (3,242,974) $ 27,205,886 $ 2,860,100

1,513,733 325,639 147,886 1,329,055 56,467,308 36,967,879 14,452,620 8,211,534 1,633,525 19,057 233,397,873 3,784,456 15,966,353 8,537,173 1,781,411 1,348,112 289,865,181 40,752,335 - (3,454,123) - - (62,205,420) -

$ 15,966,353 $ 5,083,050 $ 1,781,411 $ 1,348,112 $ 227,659,761 $ 40,752,335

- - - - - 1,174,764 3,158 - 50 454 62,082 7,125 3,145 80,992 (6,116) 1,275 364,534 - - - - - 10,584,453 - 361,593 66,207 - - 3,838,747 1,038,697 The notes to the financial statements are an integral part of this statement.

75 CITY OF FRESNO, CALIFORNIA

STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - TRUST AND AGENCY FUNDS JUNE 30, 2009

Pension Trust Funds Agency Funds Assets

Cash and Investments $ 1,736,233 $ 8,637,915 Cash and Investments Held by Fiscal Agent - 1,043,365

Total Cash and Investments 1,736,233 9,681,280

Receivables: Receivables for Investments Sold 17,477,709 - Interest and Dividends Receivable 7,455,063 71,976 Other Receivables 11,245,852 - Due from Other Governments - 402,895

Total Receivables 36,178,624 474,871

Investments, at fair value: Short Term Investments 34,494,273 - Domestic Equity 410,804,401 - Corporate Bonds 270,337,403 - International Equity 391,955,693 - Emerging Market Equity 74,487,326 - Government Bonds 241,515,717 - Real Estate 155,265,797 -

Total Investments 1,578,860,610 -

Collateral Held for Securities Lent 228,618,278 - Capital Assets, net of Accumulated Depreciation 121,064 - Prepaid Expense 220,759 -

Total Assets 1,845,735,568 $ 10,156,151

Liabilities

Accrued Liabilities 39,837,780 170,705 Collateral Held for Securities Lent 228,618,278 - Unearned Revenue 3,088,481 - Prepayment of Special Assessment - 37,698 Deposits Held for Others - 9,947,748 Other Liabilities 5,884,452 -

Total Liabilities 277,428,991 $ 10,156,151

Net Assets

Net Assets Held in Trust for Benefits $ 1,568,306,577

The notes to the financial statements are an integral part of this statement.

76 CITY OF FRESNO, CALIFORNIA

STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS - TRUST FUNDS YEAR ENDED JUNE 30, 2009

Pension Trust Additions Funds

Contributions: Employer $ 10,283,762 System Members 13,017,402

Total Contributions 23,301,164

Investment Income: Net Appreciation (Depreciation) in Value of Investments (472,830,219) Interest 35,429,651 Dividends 22,501,843 Other Investment Related 132,618 Total Investment Income (414,766,107) Less Investment Expense (9,774,378)

Total Net Investment Income (Loss) (424,540,485)

Securities Lending Income: Securities Lendings Earnings 3,684,887 Less Securities Lending Expense (1,961,375)

Net Securities Lending Income 1,723,512

Total Additions (Declines) (399,515,809)

Deductions

Benefit Payments 86,055,862 Refund of Contributions 1,360,388 Administrative Expenses 1,846,371

Total Deductions 89,262,621

Net Decrease (488,778,430)

Net Assets Beginning 2,057,085,007

Net Assets Ending $ 1,568,306,577

The notes to the financial statements are an integral part of this statement.

City of Fresno – 50TH CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

NOTES TO FINANCIAL STATEMENTS

“Effective and Responsive Government” City of Fresno – www.fresno.gov City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Note 1. DEFINITION OF REPORTING ENTITY

The City of Fresno (City) is a political subdivision chartered by the State of California and, as such, can exercise the powers specified by the Constitution and laws of the State of California. The City operates under its Charter and is governed by a directly elected strong Mayor and a seven- member City Council. The City Manager serves as the head of the administrative branch of the City and is appointed by the Mayor.

As required by generally accepted accounting principles (GAAP), these basic financial statements present the financial status of the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City's operations, and so data from these units are combined with data of the primary government.

These basic financial statements present the financial status of the City and its component units, which are included in the City's reporting entity because of the significance of their operational or financial relationships with the City.

As a government agency, the City is exempt from both federal income taxes and California State franchise taxes.

Blended Component Units

Although the following component units are legally separate from the City (the Primary Government), the component units have been "blended" into the City's basic financial statements for financial reporting purposes because the governing boards are substantially the same as the City, or because they provide services exclusively or almost exclusively for the benefit of the City even though they do not provide services directly to the City. The City is financially accountable for these units that are blended with the Primary Government because of their individual governance or financial relationships to the City.

All potential component units were evaluated, resulting in inclusion in the basic financial statements.

Redevelopment Agency of the City of Fresno: An independent public entity responsible for the development and implementation of housing and redevelopment programs and activities for the City of Fresno. The Redevelopment Agency of the City of Fresno (RDA) was created in 1956. The City Council serves as the governing board of the RDA and is responsible for its fiscal and administrative activities. The financial activity of the RDA is included in the City's financial statements as the RDA Debt Service and RDA Capital Projects funds. All lease obligations between the City and the RDA have been eliminated in the financial statements. Separate financial statements are prepared for the RDA and may be obtained from the Redevelopment Agency Office at 2344 Tulare Street, Suite 200, Fresno, CA 93721-3604. 80

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Fresno Joint Powers Financing Authority: An independent public entity created in 1988. The Authority acquires telecommunications equipment, office furniture, streetlights, and constructs facilities and street improvements through the issuance of limited obligation bonds, certificates of participation and revenue bonds. The Authority currently is leasing these assets to the City. The Authority’s governing board consists of three board members appointed by the chief administrative officer (the City Manager) and is responsible for its fiscal and administrative decisions. The financial activity for the street improvements is included in the Special Gas Tax Special Revenue Fund. The financial activity for the office furniture and street lights are included as part of a debt service fund entitled Financing Authorities and Corporations Debt Service Fund. The financial activity for projects related to the Lease Revenue Bonds is also included in the Financing Authorities and Corporations Debt Service Fund. All lease obligations between the Authority and the City have been eliminated in the financial statements. The Authority does not issue separate financial statements

City of Fresno Fire and Police Retirement System: The System was established on July 1, 1955, to provide benefits to the safety employees and retirees of the City of Fresno. The System is maintained and governed by Articles 3 and 4 of Chapter 3 of the Fresno Municipal Code. The System’s responsibilities include: Administration of the trust fund, delivery of retirement, death and disability benefits to eligible members, administration of programs, and general assistance in retirement and related benefits. The governing board is made up of two members appointed by the mayor, an elected police member, an elected fire member and a Board appointed member. The activity for the System is reflected within Fiduciary Funds. Separate financial statements are prepared for the Fire and Police Retirement System and may be obtained from the Retirement Office at 2828 Fresno Street, Fresno, CA 93721-3604.

City of Fresno Employees Retirement System: The System was established on June 1, 1939, to provide benefits to the employees and retirees of the City of Fresno. The System is governed by Article 5 of Chapter 3 of the City of Fresno Municipal Code. The System’s responsibilities include Administration of the trust fund, delivery of retirement, disability and death benefits to eligible members, administration of programs, and general assistance in retirement and related benefits. The governing board is made up of two mayor appointed members; two elected members and one board appointed member. The activity for the System is reflected within Fiduciary Funds. Separate financial statements are prepared for the Employees Retirement System and may be obtained from the Retirement Office at 2828 Fresno Street, Fresno, CA 93721-3604.

City of Fresno Employee Health Care Plan: City of Fresno employees not represented by the Stationary Engineers Local are covered by the Fresno City Employees Health and Welfare Trusts which are self-insured trusts administered by an outside third party administrator. The activity for the Trusts is reflected within Internal Service Funds. Separate financial statements are prepared for the Health and Welfare Trust and may be obtained from the Finance Department at 2600 Fresno Street, Fresno, CA 93721-3604.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the City have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to governmental agencies. The Governmental Accounting Standards Board is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant accounting policies of the City are described below.

(a) Government-wide and Fund Financial Statements

The government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the non-fiduciary activities of the primary government and its component units. For the most part, the effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items, not properly included among program revenues, are reported instead as general revenues.

The accounts of the City are organized on the basis of funds. A fund is a separate accounting entity with a self-balancing set of accounts. Each fund was established for the purpose of accounting for specific activities in accordance with applicable regulations, restrictions or limitations. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

(b) Measurement Focus, Basis of Accounting, and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and trust fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. Agency funds however, are unlike all other types of funds, reporting only assets and liabilities. As such, they

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 cannot be said to have a measurement focus. They do however use the accrual basis of accounting to recognize receivables and payables.

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

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

The City reports the following major governmental funds:

The General Fund is the City’s primary operating fund. It accounts for all financial resources of the City except those required to be accounted for in another fund.

The Grants Special Revenue Fund accounts for grants received from federal, state, and other agencies, which are to be used for various purposes identified within the confines of the individual grant.

The Redevelopment Agency Debt Service Fund is used to account for the debt service activity of those projects that have been earmarked for redevelopment. The projects are financed with property tax increments and bond proceeds.

The City reports the following major proprietary (enterprise) funds:

Water System Fund accounts for the construction, operation and maintenance of the City's water distribution system. Revenues are derived from water service fees and various installation charges.

Sewer System Fund accounts for the construction, operation and maintenance of the City's sewer system. Revenues are derived from sewer service fees and various installation charges.

Solid Waste Management Fund accounts for the operations of the City's solid waste disposal service. Revenues are primarily derived from solid waste service fees.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Transit Fund accounts for the operation and maintenance of the City's mass transportation service. Primary revenue sources are rider fares and Federal and State operating grants.

Airports Fund accounts for the City's two airport operations. Revenues are primarily derived from fees for airline operations out of the terminal.

Fresno Convention Center Fund accounts for the operation and maintenance of the City's convention center. Revenues are primarily derived from fees charged for using the facilities.

Stadium Fund accounts for the construction, operation and maintenance of the City’s baseball stadium. Revenues are derived from the leasing of the facilities and General Fund support.

Additionally, the City reports the following fund types:

Governmental Funds

Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than for major capital projects) that are legally restricted to expenditures for specific purposes.

Capital Projects Funds are used to account for the financial resources to be used for the acquisition or construction of major capital facilities other than those financed by proprietary funds and trust funds.

Debt Service Funds are used to account for the accumulation of resources for and payment of, principal and interest on the City's bonded debt and other long-term obligations.

Proprietary Funds

Enterprise Funds account for operations that are financed and operated in a manner similar to private business enterprises. Costs are financed or recovered primarily through user charges.

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. The General Services Fund accounts for the activities of the equipment maintenance services, centralized printing and mailing services, and centralized telecommunications and information services. The Risk Management Fund accounts for the City’s self-insurance, including provision for losses on property, liability, workers’ compensation, and unemployment compensation. The Billing and Collection Fund accounts for the billing, collecting and servicing activities for the Water, Sewer, Solid Waste, and Community Sanitation funds.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The Employees Healthcare Plan accounts for the assets held on behalf of the City of Fresno Employees’ Healthcare Plan for claim payments on behalf of qualified employees and retirees. There is one plan; however, there is separate accounting for active employees and retirees.

The Blue Collar Employees Healthcare Plan accounts for the healthcare payments on behalf of qualified employees and retirees of Local 39. There is one plan; however, there is separate accounting for active employees and retirees.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the business-type activities and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance.

Fiduciary Funds

Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fresno’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.

The Pension Trust Funds account for the assets held on behalf of the City of Fresno Fire and Police Retirement System and the City of Fresno Employees’ Retirement System for pension benefit payments to qualified employees and retirees. Pension Trust Funds are accounted for in essentially the same manner as the proprietary funds.

Agency funds account for assets held by the City in a custodial capacity on behalf of individuals or other governmental units.

The City Departmental and Special Purpose Fund accounts for City-related trust activity, such as payroll withholding and bid deposits. The Special Assessment Funds account for the receipts and disbursements for the debt service activity of bonded assessment

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

districts within the City. Agency Funds, being custodial in nature (assets equal liabilities), do not involve the measure of results of operations.

When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed.

The budget of the City is a detailed operating plan, which identifies estimated costs and results in relation to estimated revenues. The budget includes (1) the programs, projects, services and activities to be provided during the fiscal year, (2) the estimated resources (inflows) and amounts available for appropriation and (3) the estimated charges to appropriations. The budget represents a process through which policy decisions are made, implemented, and controlled. The City charter prohibits expending funds for which there is no legal appropriation.

Budget Control

The budget of the City of Fresno, within the meaning and context of Section No. 1206 of the Charter must be adopted by resolution by the City Council:

As provided by Section 1206 of the Charter, any amendments to the amounts appropriated for the purposes indicated at the department/fund level shall be made only upon a motion to amend the resolution adopted by the affirmative votes of at least five Council members.

Administrative amendments within the same department/fund level may be made without approval of Council within written guidelines established by the Chief Administrative Officer.

For accounting and auditing convenience, appropriations for capital improvements may be established in two or more different funds for the same capital project.

The objective of budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of the General Fund and Special Revenue Funds are included in the annual appropriated budget. Project-length financial plans are adopted for certain capital project funds. The level of budgetary controls (the level at which expenditures cannot legally exceed the appropriated amount) is maintained at the department level by major expenditure category. Purchase orders that result in an overrun (encumbrance exceeding available appropriations) of department-level balances by object are not released until additional appropriations are made available. Open encumbrances at June 30, are reported as reservations of fund balance in the governmental funds balance sheet. 86

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Fund Structure

The budget document is organized to reflect the fund structure of the City’s finances. Fund revenues and expenditures are rolled up to the various object levels by division and department for presentation of information to the public. Budget adoption and subsequent administration is carried out on a fund basis.

Basis of Accounting

The City adopts an annual budget for the General Fund, Special Revenue Funds, and Capital Projects Funds (except Redevelopment Agency Capital Projects). These budgets are adopted on the cash basis. Supplemental appropriations during the year must be approved by the City Council. Budgeted amounts are reported as amended.

Encumbrances, which are commitments related to executory contracts for goods or services, are recorded for budgetary control purposes in the Governmental Funds. Encumbrance accounting is utilized for budgetary control and accountability and to facilitate cash planning and control. Encumbrances outstanding at year- end are reported as reservations of fund balances, as they do not constitute expenditures or liabilities.

Each of the funds in the City’s budget has a separate cash balance position. Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. Designated fund balances represent tentative plans for future use of financial resources. The cash reserve position is a significant factor evaluated by bond rating agencies assessing the financial strength of an organization. Cash reserve amounts and trends, represent the continued ability of a City to meet its obligations and facilitate the requirements for a balanced budget.

Revenue Estimation

Revenue estimates and the methodology for calculating the estimates vary depending on the source of revenue. Considerable weight is given to historical trends. This is important because of the uniqueness of the Central Valley and the composition of the Fresno economy, which differs from the state in general. As an example, the recession, which hit the state in the late 1980’s, did not hit Fresno until the early 1990's and the recovery occurred in the rest of California before it hit the Central Valley. The same holds true for the current economic crisis. The City of Fresno is just now feeling the impacts of the current state and national financial down turn and less so than many other communities.

In the General Fund, sales tax revenues are the single largest revenue source. Historical trends as well as paying close attention to the local economy are two of the primary keys for projecting this revenue. Historically, sales tax has shown growth every year in the past twenty years except one, 1992. This stability, while reassuring, can lead to complacency.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The second largest revenue in the General Fund is property tax. The main source for projecting this revenue is information received from the County. Again as in all budget revenue projections internal staff relies heavily on historic trends as well as local developments.

The third major source of revenue is Motor Vehicle in Lieu fees (VLF). When combined with sales and property taxes, the three equal nearly 53% of the ongoing revenue.

Budget Administration

The budget establishes appropriation and expenditure levels. Expenditures may be below budgeted amounts at year-end, due to unanticipated savings in the budget development. The existence of a particular appropriation in the budget does not automatically mean funds are expended. Because of the time span between preparing the budget, subsequent adoption by the governing body, as well as rapidly changing economic factors, each expenditure is reviewed prior to any disbursement. These expenditure review procedures assure compliance with City requirements and provide some degree of flexibility for modifying programs to meet changing needs and priorities.

(d) Implementation of New Accounting Pronouncements

(i) Governmental Accounting Standards Board Statement No. 49

On December 1, 2006, the Governmental Accounting Standards Board (GASB) issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations. This Statement identifies the circumstances under which a governmental entity would be required to report a liability related to pollution remediation. According to the standard, a government would have to estimate its expected outlays for pollution remediation if it knows a site is polluted and if various recognition triggers occur. Liabilities and expenses would be estimated using an "expected cash flows" measurement technique, which is used by environmental professionals. Statement 49 also requires governments to disclose information about their pollution obligations associated with clean up efforts in the notes to the financial statements. Statement 49 was effective for financial statements for periods beginning after December 15, 2007, but liabilities were to be measured at the beginning of that period so that beginning net assets could be restated. The implementation of this Statement had no material impact on the City’s financial statements.

(ii) Governmental Accounting Standards Board Statement No. 52

In November 2007, the GASB issued Statement No. 52, Land and other Real Estate Held as Investments by Endowments. This Statement provides quality of financial reporting by requiring endowments to report their land and other real estate investments at fair value, creating consistency in reporting among similar entities that exist to invest resources for the purpose of generating income. Entities that perform 88

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

investment functions similar to endowments – including pension plans, other post employment benefit (OPEB) plans, external investment pools, and Internal Revenue Code Section 457 deferred compensation plans – have been required to report their land and real estate investments at fair value, whereas state and local government endowments have not prior to the issuance of Statement 52. Reporting those investments at fair value provides more decision-useful information about their composition, current value and recent changes in value. Statement 52 requires governments to report the changes in fair value as investment income. It also requires them to disclose the methods and significant assumptions employed to determine fair value and to provide other information that they currently present for other investments reported at fair value. GASB Statement No. 52 was effective for financial statements for periods beginning after June 15, 2008. The implementation of this Statement had no material impact on to the City’s financial statements.

(e) Pronouncements issued but not yet adopted

(i) Governmental Accounting Standards Board Statement No. 51

In July 2007, the GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets. This Statement provides needed guidance regarding how to identify, account for, and report intangible assets. The new standard characterizes an intangible asset as an asset that lacks physical substance, is non-financial in nature, and has an initial useful life extending beyond a single reporting period. Examples of intangible assets include easements, computer software, water rights, timber rights, patents, and trademarks. Statement 51 requires that intangible assets be classified as capital assets (except for those explicitly excluded from the scope of the new standard). This standard should lead to greater consistency among governments. The requirements of Statement 51 are effective for financial statements for periods beginning after June 15, 2009. The impact of the implementation of this Statement to the City’s financial statements is not expected to have a material impact on the City’s financial statements.

(ii) Governmental Accounting Standards Board Statement No. 53

In June 2007, the GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. This Statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. Derivative instruments are often complex financial arrangements used by governments to manage specific risks or to make investments. By entering into these arrangements, governments receive and make payments based on market prices without actually entering into the related financial or 89

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

commodity transactions. Derivative instruments associated with changing financial and commodity prices result in changing cash flows and fair values that can be used as effective risk management or investment tools. Derivative instruments, however, also can expose governments to significant risks and liabilities. Common types of derivative instruments used by governments include interest rate and commodity swaps, interest rate locks, options (caps, floors, and collars), swaptions, forward contracts, and futures contracts.

The disclosures required by Technical Bulletin No. 2003-1, Disclosure Requirements for Derivatives Not Reported at Fair Value on the Statement of Net Assets, have been incorporated into this Statement. The objectives, terms, and risks of hedging derivative instruments are required disclosures. Disclosures also include a summary of derivative instrument activity that provides an indication of the location of fair value amounts reported on the financial statements. The disclosures for investment derivative instruments are similar to the disclosures of other investments.

The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2009. The impact of this Statement has not been assessed at this time.

(iii) Governmental Accounting Standards Board Statement No. 54

On March 11, 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The objective of this Statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This Statement establishes fund balance 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. This statement provides for identifying non-spendable amounts, such as fund balance associated with inventories and provides for additional classifications such as restricted, committed, assigned, and unassigned based on the relative strength of the constraints that control how amounts can be spent.

Governments are also required to classify and report amounts in the appropriate fund balance classification by applying their accounting policies that determine whether restricted, committed, assigned, and unassigned amounts are considered to have been spent. This Statement also provides guidance for classifying stabilization amounts on the face of the balance sheet and requires disclosure of certain information about stabilization arrangements in the notes to the financial statements. The requirements of this Statement are effective for financial statements beginning after June 15, 2010. Fund balance reclassifications to conform to the 90

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

provisions of this Statement will be applied retroactively by restating fund balances for all prior periods presented. The impact of this Statement has not been assessed at this time.

Financial Statement Elements

(f) Deposits and Investments

Investment in the Treasurer’s Pool

The City Controller/Treasurer invests on behalf of most funds of the City in accordance with the City’s investment policy and the California State Government Code. The City Treasurer, who reports on a monthly basis to the City Council, manages the Treasurer’s Pool.

The Treasurer’s investment pool consists of two components: 1) pooled deposits and investments and 2) dedicated investment funds. The dedicated investment funds represent restricted funds and relate to bond issuance of Enterprise Funds. In addition to the Treasurer’s investment pool, the City has other funds that are held by trustees. These funds are related to the issuance of bonds and certain loan programs of the City.

Investment Valuation

The City reports their investments at fair value in accordance with Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. In addition, changes in fair value are reflected in the revenue of the period in which they occur.

Statutes authorize the City to invest in obligations of the U.S. Treasury, agencies and instrumentalities, commercial paper, bankers' acceptances, repurchase agreements, money market funds and the State Treasurer’s investment pool. The City's Pension Trust Funds are authorized to invest in every kind of property or investment which persons of prudence, discretion and intelligence acquire for their own account.

Except as noted in the following paragraph, investments are comprised of obligations of the U.S. Treasury, agencies and instrumentalities, cash, time certificates of deposit, mutual funds, bankers' acceptances, money market accounts and deposits in the State of California Local Agency Investment Fund, and are stated at fair value. The Pension Trust Funds have real estate and other investments as well.

Highly liquid money market investments, guaranteed investment contracts, and other investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair values. 91

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Investment Income

Cash balances of each of the City’s funds, except for certain Trust and Agency Funds and other restricted accounts, are pooled and invested by the City. Income from pooled investments is allocated to the individual funds based on the fund participant’s average daily cash balance at the month end in relation to total pooled investments. The City’s policy is to charge interest to those funds that have a negative average daily cash balance at month end. Deficit cash balances are reclassified as due to other funds and funded by Enterprise Funds or related operating funds.

(g) Loans Receivable

For the purposes of the Fund Financial Statements, Special Revenue Fund expenditures relating to long-term loans arising from loan subsidy programs are recorded as loans receivable net of an estimated allowance for potentially uncollectible loans. In some instances amounts due from external participants are recorded with an offset to a deferred credit account. The balance of long-term loans receivable includes loans that may be forgiven if certain terms and conditions of the loans are met. For purposes of the Government-wide Financial Statements, long-term loans are not offset by deferred credit accounts.

(h) Inventories

Inventories recorded in the proprietary funds primarily consist of construction materials and maintenance supplies. Generally, proprietary funds value inventory at cost or average cost and expense supply inventory as it is consumed. This is referred to as the consumption method of inventory accounting. The City uses the purchases method of accounting for inventories in governmental fund types whereby inventory items are considered expenditures when purchased and are not reported in the Statement of Net Assets.

(i) Redevelopment Agency Property Held for Resale

Property of the RDA is held for resale and is recorded as an asset at the lower of estimated cost or estimated conveyance value. Estimated conveyance value is management’s estimate of net realizable value of a property based on current intended use.

(j) Restricted Assets

Restricted cash from the City’s bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the Statement of Net Assets because they are maintained in separate bank accounts or tracked separately in the City Treasury group of accounts. 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. Restricted grants and interest receivable represent cash and receivables contributed for capital projects and the associated interest. 92

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

(k) Capital Assets

Capital assets, which include land, buildings and improvement, machinery and equipment, and infrastructure assets, are reported in the applicable governmental or business-type activity columns in the Government-wide Financial Statements. Capital assets are defined as assets with an initial individual cost of more than $5,000 (for land, building improvements and infrastructure) or $2,000 (for machinery and equipment) including bundled purchases, and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Capital outlay is recorded as expenditures of the General, Special Revenue, and Capital Projects Funds and as assets in the Government-wide Financial Statements to the extent the City’s capitalization threshold is met. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Capitalized interest totaled $9,533,027 in fiscal year 2009. Amortization of assets acquired under capital lease is included in depreciation and amortization.

Buildings and improvements, infrastructure, and machinery and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over the following estimated used lives:

Assets Years Buildings and Improvements 20 to 50 Infrastructure 15 to 30 Machinery and Equipment 3 to 5

Works of art, historical treasures and zoological animals held for public exhibition, education, or research in furtherance of public service, rather than financial gain, are not capitalized. These items are protected, kept unencumbered, cared for and preserved by the City. It is the City’s policy to utilize proceeds from the sale of these items for the acquisition of other items for collection and display.

Capital Leases

Property, plant and equipment include the following property held under lease obligation at June 30, 2009:

Governmental Activities

Machinery and Equipment $ 22,156,627 Less: Accumulated Depreciation (16,131,959) Net Machinery and Equipment $ 6,024,668

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

(l) Bond Issuance Costs and Discounts

In the Government-wide Financial Statements and the proprietary fund types in the Fund Financial Statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business- type activities, or proprietary fund Statement of Net Assets. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt.

(m) Refunding of Debt

Gains or losses occurring from advance refunding are deferred and amortized into expense.

(n) Deferred and Unearned Revenues

Deferred and unearned revenues arise when resources are received by the City before it has a legal claim to them (i.e., the City bills certain fixed rate services in advance; amounts billed but not yet earned are deferred and amortized over the service period). Deferred revenues also arise in governmental funds when potential revenue does not meet both the “measurable” and “available” criteria for recognition in the current period.

(o) Interfund Transfers

Interfund transfers are generally recorded as transfers in (out) except for certain types of transactions that are described below.

(1) Charges for services are recorded as revenues of the performing fund and expenditures of the requesting fund. Unbilled costs are recognized as an asset of the performing fund at the end of the fiscal year.

(2) Reimbursements for expenditures, initially made by one fund, which are properly applicable to another fund, are recorded as expenditures in the reimbursing fund and as a reduction of expenditures in the fund that is reimbursed.

(p) Fund Equity

Reservations of Fund Equity

Reservations of fund balances of the governmental funds represent amounts that are not appropriated or are legally segregated for a specific purpose. Designations of fund balances represent tentative management plans that are subject to change. The following is a brief description of the nature of certain reserves.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Reserve for Non-current Receivables – Non-current receivables do not represent expendable available financial resources. Therefore, a portion of fund equity is reserved to offset the balance of these assets.

Reserve for debt service – Certain amounts in the debt service funds, as well as amounts in Other Governmental Funds are reserved for the payment of debt service or held in compliance with debt covenants and are not available for appropriation.

Reserves for encumbrances – Encumbrances are recorded as reservations of fund balances because they do not constitute expenditures or liabilities. In certain special revenue and capital projects funds, this accounting treatment results in a deficit unreserved fund balance. This deficiency is carried forward to the next fiscal year where it is applied against estimated revenues in the year the commitments are expended.

Reserve for property held for resale – The reserve for property held for resale represents a segregation of a portion of fund balance to indicate that property held for resale does not represent expendable available financial resources.

Reserve for emergency: Due to the national economic recession and its impact on the State of California, City Management made proactive financial decisions by taking advantage of historically low interest rates in 2002 and 2003 by setting aside $10 million for purposes of meeting unforeseen budgetary requirements of the City as defined by the Controller, City Manager, and Mayor. This was approved by a vote of the City Council in 2002. As of June 30, 2003, the balance in this fund was approximately $10.2 million. Council then earmarked $1.5 million for specific economic development opportunities in the fiscal year 2003. In 2004, management proposed and Council agreed to formally establish a 5% General Fund Emergency Reserve. To implement this directive, a reserve amount is determined based on 5% of the Adopted General Fund appropriations at the beginning of each fiscal year. Additional funds are added to the fund as necessary to ensure that the reserve is equal or greater than 5% of the Adopted General Fund appropriations. The City is currently exceeding the 5% threshold. As of June 30, 2009, the legally restricted General Fund Emergency Reserve reflects a balance of $16,851,097.

(q) Net Assets

Net assets represent the difference between assets and liabilities in the government-wide and proprietary fund statement of net assets. Net assets invested in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Restricted resources

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

are used first to fund appropriations. Unrestricted net asset represent net assets which are not restricted.

(r) Cash Flows

Statements of cash flows are presented for proprietary fund types. Cash and cash equivalents include all unrestricted and restricted highly liquid investments with original purchase maturities of three months or less. Pooled cash and investments in the City’s Treasury represent monies in a cash management pool and such accounts are similar in nature to demand deposits.

(s) Regulatory Assets and Liabilities

At June 30, 2009, the Statement of Net Assets, Business-Type Activities, reflects approximately $39.0 million in regulatory assets related to the CVP Water Settlement, which will continue to have an impact on water rates which are to be charged to customers over the next 25 plus years. The settlement for past deficiencies was negotiated between the City and the United States Bureau of Reclamation (USBR). Under FAS 71, regulatory assets represent future revenue associated with certain costs (CVP Settlement) that will be recovered from customers through the ratemaking process.

Additional information related to the Settlement and rate setting can be found in Footnote 14 – Commitments and Contingencies. If all or a portion of the CVP Settlement Liability is reduced due to early payment to the USBR, the corresponding asset will also be evaluated to determine whether the regulatory asset also requires accelerated amortization or write-off. Correspondingly, if the rate recovery is over a period other than 25 years currently anticipated, the amortization period will also be adjusted. Water rates were increased on April 1, and September 1, 2007, and on September 1, 2008 and 2009 taking into consideration the CVP Settlement. Rates are to increase again on September 1, 2010.

(t) Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Note 3. CASH AND INVESTMENTS

The City’s cash and investments are invested pursuant to investment policy guidelines established by the City Controller/Treasurer, subject to review by the City Council. The objectives of the investment policy are preservation of capital, liquidity, and yield. The policy addresses the soundness of financial institutions in which the City will deposit funds, types of investment instruments as permitted by the California Government Code, and the percentage of the portfolio that may be invested in certain instruments with longer terms to maturity.

The City maintains a cash and investment pool available for use by all funds. Each fund type's portion of this pool is displayed on the financial statements as "Cash and Investments." In addition, certain funds have investments with trustees related to debt issues.

The following is a summary of cash, deposits and investments at June 30, 2009.

Government- wide Statement of Net Assets Fiduciary Funds Governmental Business- Type Statements of Activities Activities Subtotal Net Assets Totals

Cash and Investments $ 116,257,417 $ 57,509,109 $ 173,766,526 $ 10,374,148 $ 184,140,674

Restricted Cash and Investments 70,548,879 237,182,329 307,731,208 1,043,365 308,774,573

Pension Trust Investments at fair value -- - 1,578,860,610 1,578,860,610

Collateral Held for Securities Lent --- 228,618,278 228,618,278

Total $ 186,806,296 $ 294,691,438 $ 481,497,734 $ 1,818,896,401 $ 2,300,394,135

Cash and Deposits

At year-end, the City's bank balance was $10,500,916. The recorded balance reflected in the June 30, 2009 financial statements was $5,562,428. As of June 30, 2009, deposits were not entirely insured or collateralized with securities held by the City or the City’s agent in the City’s name.

Cash, Deposits and Investments

Cash includes amounts in demand and time deposits. Investments are reported in the accompanying financial statements at fair value, except for certain certificates of deposit and investment contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Changes in fair value that occur during a fiscal year are recognized as income from property and investments reported for that fiscal year. Income from property and investments includes interest earnings; changes in fair value; any gains or losses realized upon the liquidation, maturity, or sales of investments; property rentals and the sale of City owned property.

The City pools cash and investments of all funds, except for assets held by fiscal agents. Each fund's share in this pool is displayed in the accompanying financial statements as cash and investments. Investment income earned by the pooled investments is allocated to the various funds on a monthly basis, based on each fund's daily cash balance. Interest payments are paid to the various funds also on a monthly basis. Restricted cash and investments represent amounts that are restricted under the terms of debt agreement.

Investments Authorized by the California Government Code and the City’s Investment Policy

The City maintains a formal, investment policy, which is adopted annually by the City Council. All investments held in the Treasurer's Pool are consistent with the City's investment policy objectives of safety of principal, adequacy of liquidity, and achievement of an average market rate of return. The table below identifies the investment types that are authorized for the City by the California Government Code or the City’s investment policy, where more restrictive. The City’s maximum percent limit of portfolio for government sponsored enterprises agency notes is 70 percent versus 100% for California Government Code. The table identifies the investment type, the maximum length of time to maturity for each investment, the maximum percentage of the portfolio that can be invested in each type of security and the maximum amount of the portfolio that can be invested in any single issuer of investments. The table does not address investments of debt proceeds held by bond trustees that are governed by the provisions of debt agreements of the City rather than the general provisions of the California Government Code or the City’s investment policy.

Maximum Maximum % Limit % Limit Of Of Portfolio Per Authorized Investments Maturity Portfolio Single Issuer City of Fresno Debt 5 Years 100% 100% U.S. Treasuries 5 Years 100% 100% California Debt 5 Years 100% 100% Cal Local Agency Debt 5 Years 100% 100% Government Sponsored Enterprises Agency Notes 5 Years 70% 50% Banker’s Acceptances 180 Days 40% 30% Commercial Paper 270 Days 25% 10% Negotiable CD’s 5 Years 30% 30% Time Deposits 5 Years 100% 100% GC 53601.8 CD’s Until 1/1/2012 30% 30% Repurchase Agmnts 1 Year 100% 100% Reverse Repurchase Agmnts 92 Days 20% N/A Securities Lending Agmnts 92 Days 20% N/A Medium-Term Notes 5 Years 30% 20% Mutual Funds N/A 20% 10% Money Market Funds N/A 20% 20% Mortgage/Asset Backed Debt 5 Years 20% 20% State Local Agency Investment Fund N/A 100% 100%

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Investments Authorized by Debt Agreements

Investment of debt proceeds held by bond trustees is governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s investment policy. Investments held outside the Treasurer's Pool consist mainly of required reserve funds for various bond issues. They are held by trustees, and are not available for the City's general expenditures.

Investment agreements are used for the investments of bond proceeds in accordance with the permitted investment provisions of the specific bond indentures which are prepared in accordance with numerous safeguards to reduce the risk associated with a provider’s ability to meet its contractual obligations.

Investment Risk

As discussed under interest rate risk on page 101, this is the risk that changes in market interest rates will adversely affect the fair value of an investment in the market in which it is traded. Interest rate risk for the Treasurer’s Pool and for investments with trustees is disclosed in the following table in the column for weighted average maturity. The larger this number is, the greater the interest rate risk for the type of investment.

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

As of June 30, 2009, the City had the following cash and investments in its portfolio:

Weighted Average Fair Market Maturity Treasurer’ s Pool Inv estments Value % o f T o t a l In Years U.S. Agencies: Federal Farm Credit Bank $ 7,019,688 2.00% 3.93 Federal Home Loan Bank 9,987,500 3.00% 4.93 Federal Home Loan Mortgage Corporation 105,079,587 32.00% 2.89 Federal National Mortgage Association 70,347,062 21.00% 2.98 Subtotal of U.S. Agencies 192,433,837 58.00% 3.07

State Local Agency Investment Fund 40,054,568 12.00% 0.64 Cash Accounts 10,500,916 3.00% - Time Deposits 20,000,000 6.00% 0.13 Money Market Funds 71,415,902 21.00% 0.14 Total Treasurer’ s Pool 334,405,223 100.00% 1.97

Inv estments Held Outside the Treasurer’ s Pool Debt Service Funds/ Bond Proceeds: Guaranteed Investment Contracts $ 63,306,388 39.00% 10.63 Money Market Mutual Funds 86,135,536 53.00% 0.13 Repurchase Agreement 899,228 1.00% 0.06 U.S. Treasury Bonds 12,145,702 7.00% 1.53 100.00% 3.09 Other Deposits 961,658 Outstanding Checks (5,172,485) Deposits in Transit 233,997 Retirement Assets (See Retirement CAFR) 1,807,478,888

Total Cash and Inv estments $ 2,300,394,135

Statement of Net Assets, Primary Gov ernment Cash and Investments $ 173,766,526 Restricted Cash and Investments 307,731,208 Total Primary Gov ernment 481,497,734

Statement of Net Assets, Fiduc iary Funds Cash and Investments 8,637,915 Restricted Cash and Investments 1,043,365 Pension Trust Cash 1,736,233 Pension Trust Investments 1,578,860,610 Collateral Held for Securities Lent 228,618,278

Total Cash & Inv estments $ 2,300,394,135

Deposit and Investment Risk

The risk disclosures below apply to the City's internal investment pool and deposits as well as investments held by trustees for debt service funds or bond proceeds. Portfolio investments are exposed to four main types of risk: concentration, interest rate, default and custodial risk. Deposits are exposed primarily to custodial credit risk.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Concentration of Credit Risk

The investment policy of the City contains the following limitations on the amount that can be invested in any one issuer which is more restrictive than those stipulated by the California Government Code. While the State has no limit on the percentage of the Portfolio that can be invested in a single Government Sponsored Enterprise Agency, the City’s Investment Policy limits investment in any one issuer to 50% of the Portfolio. Also while the State limits investments to 30% of the Portfolio for any single issuer of Medium Term Notes, the City's Investment Policy limits investments to 20% of the Portfolio invested in any single issuer.

Investments in any one issuer (other than U.S. Treasury securities, money market funds, and external investment pools) that represent 5% or more of the total Treasurer’s Pool investments or investments with trustees are as follows:

Treasurer's Pool Investments

Issuer Investment Type Reported Amount

Federal Farm Credit Bank Agency Note $ 7,019,688 Federal Home Loan Bank Agency Note 9,987,500 Federal Home Loan Mortgage Corporation (FHLMC) Agency Note 105,079,587 Federal National Mortgage Association (FNMA) Agency Note 70,347,062 $ 192,433,837

Investments with Trustees

AEGON Instutional Markets Guaranteed Investment Contract $ 45,003,953 FSA Capital Management Services, LLC Guaranteed Investment Contract 13,747,362 $ 58,751,315

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater will be the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The City monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The Investment Policy limits the weighted average maturity of the Portfolio to three (3) years, except for debt agreements held by trustees which are governed by the indentures and may be longer.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The City's investments (including investments held by bond trustees) include the following investments that are highly sensitive to interest rate fluctuations (to a greater degree than already indicated in the information provided above):

Fair Value at Highly Sensitive Investments Maturity Date Maturity Value Year End

FNMA – STEP UP NOTE 03/19/2012 $ 15,000,000 $ 15,093,750 FHLMC – STEP UP NOTE 09/12/2012 15,000,000 15,130,800 FNMA – STEP UP NOTE 02/12/2014 15,000,000 15,075,000 FHLMC – STEP UP NOTE 03/10/2014 15,000,000 15,115,500 FHLMC – STEP UP NOTE 03/18/2014 15,000,000 15,032,813 FNMA – STEP UP NOTE 03/18/2014 15,000,000 14,995,313 FHLB – STEP UP NOTE 06/30/2014 10,000,000 9,987,500

Default Credit Risk

Generally, default credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City’s investment policy, or debt agreements, and the actual rating as of year-end for each investment type.

Rating at Year End Minimum Not Treasurer's Pool Investments Legal Rating AAA Rated

Federal Agency Notes $ 192,433,837 AX Time Deposits 20,000,000 X State investment pool 40,054,568 X Money Market Funds 71,415,902 X

Total: $ 323,904,307

Investments with Trustees

Guaranteed Investment Contracts $ 63,306,388 X Money Market Funds 86,135,536 X Repurchase Agreement 899,228 X U.S. Treasury Bonds 12,145,702 X

Total: $ 162,486,854

In 2008-2009, the U.S. Treasury bought shares in both the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, converting the Federal Government’s implicit guarantee of these firms into an explicit guarantee. The Federal Government continued its oversight of the Farm Credit Administration, which continued to be rated as an AAA government-sponsored enterprise. The Treasury Department of the Federal Government continued its supervisory and regulatory role of the Federal Home Loan Bank system, and debt issued by the system continued to be rated AAA.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. Deposits or securities can be legally restricted. The City maintains cash accounts at Bank of America (BofA). The City maintains separate accounts for payment of general accounts payable checks, payroll checks, and utility refund checks. Amounts in excess of $250,000 are securitized in accordance with California Government Code Section 53652. The California Government Code and the City’s investment policy contain legal or policy requirements that limit the exposure to custodial credit risk for deposits. The California Government code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit.) The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. The collateral pledged to cover the public fund deposits in California is held in the name of the California Collateral Pool Administrator and is held in their name by the Federal Reserve Bank as custodian. The City had no uncollateralized cash at June 30, 2009. As of June 30, 2009, the City’s deposits with institutions in excess of federal depository insurance limits, was $10,250,916 held in accounts collateralized in accordance with State law as described above.

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g. broker- dealer) to the transaction, a government will not be able to recover the value of its investment of securities that are in the possession of the counterparty. As of June 30, 2009, in accordance with the City's investment policy, none of the City's investments were held with a counterparty. All of the City's investments were held with an independent third party custodian bank. The City uses Bank of New York Trust Company (BNY) as a third-party custody and safekeeping service for its investment securities. Custodial credit risk is the risk that the City will not be able to recover the value of its investments in the event of a BNY failure. All City investments held in custody and safe-keeping by BNY are held in the name of the City and are segregated from securities owned by the bank. This is the lowest level of custodial credit risk exposure.

Investment in State Investment Pool

The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio ( in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. 103

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

LAIF management has indicated that as of June 30, 2009, the amortized cost of the pool was $50,784,427,116 and the estimated fair value of the pool was $50,850,687,766. Included in the LAIF’s investment portfolio are certain derivative securities or similar products in the form of structured notes, totaling $5,169,332 million and asset backed securities totaling $2,296,565 million.

Redevelopment Agency Funds

The Redevelopment Agency (RDA), a blended component unit of the City of Fresno, has $22,115,902 of idle funds deposited in a money market fund at Wells Fargo Bank. The fund, known as the Cash Investment Money Market I Fund, is part of the bank's "Advantage" money market funds, designed to work in connection with an institution's demand deposit account. The Fund is unrated, but invests in short-term money market instruments considered to have little risk of credit default. The RDA does not have a formal investment policy, since aside from these funds, the RDA has only funds deposited in a demand deposit account, subject to the California state requirements for collateralizing public funds, and approximately $2.5 million of bond proceeds governed by bond indentures. These funds, because of their immediate liquidity, are not subject to any other risks including concentration risk, interest rate risk, and custodial risk.

City of Fresno Retirement Systems

Deposits and Investments

The investment guidelines for the City of Fresno’s Retirement Systems (Systems) reflect the duties imposed by an investment standard known as the “prudent expert rule.” The prudent expert rule establishes a standard for all fiduciaries, which includes anyone who has discretionary authority with respect to the Systems’ investments.

Northern Trust serves as custodian of the Systems’ investments. The Systems’ asset classes include Domestic Equity, International Equity, Emerging Market Equity, Short Term Investments, Corporate Bonds, Government Bonds and Real Estate. Any class may be held in direct form, pooled form or both. The Systems have 18 external investment managers, managing 20 individual portfolios. Investments at June 30, 2009, consist of the following:

Investments at Fair Value 2009

Short Term Investments $ 34,494,273 Domestic Equity 410,804,401 Corporate Bonds 270,337,403 International Equity 391,955,693 Emerging Market Equity 74,487,326 Government Bonds 241,515,717 Real Estate 155,265,797

Total Investments at Fair Value $ 1,578,860,610

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The Retirement Boards have established policies for investing, specifying the following target allocations with a minimum and maximum range for each of these asset classes:

A sset Class Minimum Target Max imum

Large Capital Equities 18.5% 22.5% 26.5% Small Capital Equities 4.5% 7.5% 10.5% International Equities 21.0% 25.0% 29.0% Emerging Market Equities 0.0% 5.0% 7.0% Real Estate 8.0% 10.0% 12.0% Domestic Fixed Income 20.0% 25.0% 30.0% High Yield Bonds 0.0% 5.0% 8.0% Cash & Equivalents1 0.0% 0.0% 2.0%

Allowable securities must meet the reporting requirements of the Securities and Exchange Commission and must meet a “prudent expert” standard for investing. In no case may either System have 5 percent or more of System net assets invested in any one organization.

The Retirement Boards’ investment policies and guidelines permit investment in numerous specified asset classes to take advantage of the non correlated economic behavior of diverse asset classes. The result is a well-diversified portfolio.

Custodial Credit Risk

The Retirement Systems’ investment securities are not exposed to custodial credit risk since all securities are registered in the Systems’ name and held by the Systems’ custodial bank. Any cash associated with the Systems’ investment portfolios not invested at the end of a day is temporarily swept overnight into Northern Trust Collective Short-Term Investment Fund. That portion of the Systems’ cash held by the City as part of the City’s cash investment pool totaled $896,073 at June 30, 2009. Accordingly, the Systems’ Investments in the pool are held in the name of the City and are not specifically identifiable.

Credit and Interest Rate Risk

Credit risk associated with the Systems’ debt securities is identified by their ratings in the table below. Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. The System has no general policy on credit and interest rate risk. The System limits its investments in below investment grade bonds and monitors the interest rate risk inherent in its portfolio by measuring the duration of its portfolio.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The average duration of the systems’ debt portfolios in years is listed in the table below:

Type of Inv estment Fair Value Credit Quality Duration

Asset Backed Securities $ 9,031,222 A1.21 Commercial Mortgage-Backed 21,191,830 AA+ 4.96 Corporate Bonds 218,615,009 BBB- 5.59 Corporate Convertible Bonds 7,281,369 CCC- 3.70 Convertible Equity 746,676 B- 10.80 Guaranteed Fixed Income 1,717,995 AAA 2.44 Government Agencies 15,762,688 AAA 4.37 Government Bonds 55,004,053 AAA 5.05 Government Mortgage Backed Securities 153,716,402 AAA 3.57 Index Linked Government Bonds 178,563 BB- 1.08 Municipal/ Provincial Bonds 8,542,660 A+ 7.74 Non-Government backed C.M.O’s 19,710,036 BBB 1.54 Other Fixed Income 71,526 NR 0.00 Preferred Stock 283,091 CC 0.00

1 $ 511,853,120

Per section 5.4(6) of the Retirement Systems’ Investment Policy Statement, no more than 5 percent of an investment manager’s fixed income portfolio may be invested in below investment grade rated securities (BB or B rated bonds). No securities rated below single B may be purchased at any time. Therefore, at least 95 percent of the manager’s fixed income portfolio must be invested in investment grade securities. Long duration bond portfolios shall maintain an average credit quality of AA- or better. Intermediate Bond portfolios shall maintain an average credit quality of AA or better.

High yield fixed income portfolios, in accordance with section 5.4(7) of the Systems’ Investment Policy Statement, shall maintain an average credit quality rating of at least B1/B+ at all times. No more than 20 percent of a high yield manager’s portfolio may be invested in bonds rated Caa1/CCC+ or lower with non-rated bonds being limited to 5 percent of the portfolio with both limits subject to maintaining the average portfolio credit quality of B1/B+.

Firms that manage fixed income portfolios will continually monitor the risk associated with their fixed income investments. They will be expected to report as a component of their quarterly report, a risk/reward analysis of the management decisions relative to their benchmarks. Statistics that relate performance variance to effective duration decisions will be included in each quarterly report.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Concentration Risk The Investment portfolio as of June 30, 2009 contained no concentration of investments in any one entity (other than those issued or guaranteed by the U.S. Government) that represented 5 percent or more of the total investment portfolio.

Foreign Currency Risk

The following positions represent the Systems’ exposure to foreign currency risk as of June 30, 2009:

E quities

Base Currency: Fair Value in USD

Australia – AUD $ 25,939,400 Brazil – BRL 5,621,456 Canada – CAD 9,469,363 Swiss Franc – CHF 22,456,264 Columbian Peso - COP 240,597 Denmark – DKK 5,946,362 Egypt – EGP 1,105,279 Euro – EUR 107,045,162 Britain – GBP 66,951,683 Hong Kong – HKD 27,076,737 Hungary – HUF 420,966 Indonesia – IDR 1,300,636 New Israeli Shekel - ILS 167,137 India - INR 2,693,491 Japan – JPY 79,451,394 South Korea – KRW 10,190,048 Mexico – MXN 719,632 Malaysia – MYR 611,054 Norway – NOK 5,618,524 New Zealand - NZD 864,370 Sweden – SEK 7,972,442 Singapore – SGD 11,102,023 Thailand – THB 1,186,225 Turkey – TRY 2,829,206 New Taiwan – TWD 6,362,532 South Africa - ZAR 7,648,761

Total Non-USD Equities (in USD) $ 410,990,744

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Cash and Cash Equivalents: Fair Value in USD

Australian Dollar $ 770 Canadian Dollar 37,705 Swiss Franc 181,413 Danish Krone 6,101 Euro 522,830 British Pound 110,735 Hong Kong Dollar 142,185 Indonesian Rupiah 2,281 Iceland Krona 8,634 Japanese Yen 421,821 Malaysian Ringgit 309 Norwegian Krone 197,263 New Zealand Dollar 20,118 Swedish Krona 142,878 Singapore Dollar 123,131 South African Rand 17,635

Total Non-USD Cash (In USD) $ 1,935,809

Per section 5.4 (5) of the Systems’ Investment Objectives and Policy Statement, assets in international equity portfolios will be primarily composed of foreign ordinary shares and ADRs. Primarily, large capitalization securities may be held, although investments in small and mid capitalization securities are also allowed. Firms will continually monitor their country, currency, sector and security selection risks associated with their international portfolios. All of the risks will be included in the manager’s quarterly reports and performance attribution based on these factors will also be included.

The System’s complete Investment Objectives and Policy Statement can be found on the System’s website at www.CFRS-CA.org or by contacting the Retirement Office at 2828 Fresno Street Suite 201, Fresno, CA 93721

Derivatives

The Retirement Boards have authorized certain investment managers to invest in or otherwise enter into transactions involving derivative financial instruments when, in the judgment of management, such transactions are consistent with the investment objectives established for a specific investment manager’s assignment.

The acceptable investment purposes for the use of derivatives are as follows:

Mitigation of risk (or risk reduction).

A useful substitute for an existing, traditional investment.

To provide investment value to the portfolio while being consistent with the Systems’ overall and specific investment policies.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

To obtain investment exposure which is appropriate for the manager’s investment strategy and the Systems’ investment guidelines, but which could not be made through traditional investment securities.

The Retirement Boards monitor and review each investment manager’s securities and derivative positions as well as the manager’s performance relative to established benchmark rates of return and risk measures. In management’s opinion, derivative activities must be evaluated within the context of the overall portfolio performance and cannot be evaluated in isolation.

Derivative financial instruments held by the retirement system consist of the following:

Cash securities containing derivative features, including callable bonds, structured notes and collateralized mortgage obligations (CMO’s). These instruments are generally traded in over-the-counter bond markets.

Financial instruments whose value is dependent upon a contractual price or rate relative to one or more reference prices or rates, applied to a notional amount, including interest rate futures, options, swaps and caps, and foreign currency futures and forward contracts. Some of these instruments are exchange-traded and others are traded over-the-counter (OTC).

Market Risk

Market risk is the risk of change in value of an instrument in response to changes in a market price or index. While all investments are subject to market risk, derivatives often have a higher degree of market risk than other types of investment instruments. Values of cash securities containing derivative features are often more susceptible to market risk than other types of fixed income securities, because the amounts and/or timing of their scheduled cash flows may fluctuate under changing market conditions, according to their contractual terms. For other types of derivatives, amounts of contractual cash flows may be either positive or negative depending upon prevailing market conditions relative to the reference prices or rates, and thus the values of such instruments may be positive or negative, despite the fact that little or no cash is initially exchanged to enter into such contracts.

Credit Risk

Credit risk of cash securities containing derivative features, as explained, is based upon the credit worthiness of the issuers of such securities. The Retirement Boards establish minimum credit requirements for such securities. The other derivative instruments described above are subject to credit risk to the extent that their value is a positive market value, and the counterparty to such contract fails to perform under the terms of the instrument. Exchange traded derivatives are generally considered to be of lower credit risk than OTC derivatives due to the exchanges’ margin requirements. 109

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The Fair Value of Derivatives Held at June 30, 2009 is $958,859.

Securities Lending

The Systems’ securities lending income is as follows:

2009

Gross Income $ 3,684,887 Expense: Borrow Rebates 1,604,415 Bank Fees 356,960 Total Expenses 1,961,375

Net Income from Securities Lending $ 1,723,512

Investments/Policies

California statutes and the City's investment policy authorize investments in obligations of the U.S. Treasury, agencies and instrumentalities, bankers’, acceptances, negotiable certificates of deposit, GC53601.8 CD’s, repurchase agreements and the State Treasurer's investment fund. The City is also authorized to enter into reverse repurchase agreements, but did not enter into any reverse repurchase agreements transactions during fiscal year 2009.

City Sponsored Investment Pool

As part of the City’s total cash and investment portfolio, the Treasury Officer manages an investment pool that includes only internal investors. The pool is not registered with the Securities and Exchange Commission as an investment company. The Treasury Officer is granted authority for managing the pool by Fresno Municipal Code Section 4-104. The Treasury Officer reports investment activity monthly to the City Council and annually an investment policy is submitted to the Council for review 110

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 and approval. The fair value of investments is determined monthly. Participants’ shares are determined by the daily cash balance deposited in the pool (the value of its pool shares). The value of the pool shares is based upon amortized cost in day-to-day operations but is adjusted to the fair value at year-end. The investments are reported at fair value. The value of the shares is supported by the value of the underlying investments.

Stewardship, Compliance and Accountability

There have been no material violations of finance-related legal or contractual provisions.

Restricted Assets

Restricted assets by fund type are as follows at June 30, 2009:

Cash and Investments Current and Interest Grants Noncurrent Receivable Receivable Totals

Governmental Funds: General Fund $ - $ - $ 50,304 $ 50,304 Grants Special Revenue Fund 283 - 4,841,695 4,841,978 Redevelopment Agency, Debt Service 2,598,237 - - 2,598,237 Nonmajor Governmental Funds 67,950,359 - 4,076,712 72,027,071 Subtotal 70,548,879 - 8,968,711 79,517,590

E nterprise Funds: Water 38,234,469 108,813 280,315 38,623,597 Sewer 140,563,150 534,430 - 141,097,580 Solid Waste 15,851,938 - - 15,851,938 Transit 14,431,580 - - 14,431,580 Airports 14,452,620 - 428,591 14,881,211 Convention Center 8,211,534 - - 8,211,534 Stadium 1,633,525 - - 1,633,525 Nonmajor Enterprise Funds 19,057 - - 19,057 Internal Service Fund 3,784,456 - - 3,784,456 Subtotal 237,182,329 643,243 708,906 238,534,478

Fiduciary: Agency Funds 1,043,365 - - 1,043,365

Totals $ 308,774,573 $ 643,243 $ 9,677,617 $ 319,095,433

Restricted cash includes funds held by trustees relating to bonds payable and those amounts held by each fund for which a specific, non-operating use has been determined. Grants receivable represent amounts due from a granting agency for which the specific, non- operating use has been determined. Restricted interest receivable represents interest associated with restricted cash.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Note 4. PROPERTY TAXES

Article XIII of the California Constitution (Proposition 13) limits ad valorem taxes on real property to one percent of value plus taxes necessary to pay indebtedness approved by voters prior to July 1, 1978. The Article also established the 1975/76 assessed valuation as the base and limits annual increases to the cost of living, not to exceed two percent, for each year thereafter. Property may also be reassessed to full market value after a sale, transfer of ownership, or completion of new construction. The State is prohibited under the Article from imposing new ad valorem, sales, or transaction taxes on real property. Local government may impose special taxes (except on real property) with the approval of two-thirds of the qualified electors.

All property taxes are collected and allocated by the County of Fresno to the various taxing entities. Property taxes are determined annually as of January 1 and attached as enforceable liens on real property as of July 1. Taxes are due November 1 and February 1 and are delinquent if not paid by December 10 and April 10, respectively. Secured property taxes become a lien on the property on January 1. Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent if unpaid on August 31. Property tax revenues are recognized in the fiscal period for which they are levied and collected, adjusted for any amounts deemed uncollectible and amounts expected to be collected more than 60 days after the fiscal year.

Note 5. RECEIVABLES

Receivables are presented in the financial statements net of the allowance for uncollectible accounts. The uncollectible accounts related to accounts receivable at June 30, 2009 are $47,862 for the General Fund, $992,249 for Water System, $1,186,660 for Sewer System, $989,514 for Solid Waste Management, $14,466 for Airports, $3,048,607 for Other Enterprise Funds, and $85,876 for Internal Service Funds. The uncollectible accounts related to notes receivable at December 31, 2009 are $13,786,584 for Grants Special Revenue Fund. Accounts not scheduled for collection during the subsequent year are $34,329,097 for governmental notes and loans and $66,334,971 for business-type notes and loans.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Receivables, net of uncollectible, as of June 30, 2009, were as follows:

Grant P roperty Inter- Notes, Interest Accounts Receivables Tax es governmental L oans, Other Total

Governmental A ctivities:

General Fund $ 275,957 $ 6,441,372 $ 50,304 $ 8,398,741 $ 11,465,559 $ - $ 26,631,933 Grants Special Revenue Fund - 120 4,841,695 - - 33,061,699 37,903,514 Redevelopment Agency, Debt Service Fund - - - - - 56,395 56,395 Other Governmental Funds 326,766 162,488 4,076,712 - 2,752,833 2,528,076 9,846,875 Internal Service Funds 495,947 712,553 - - - - 1,208,500

Total $ 1,098,670 $ 7,316,533 $ 8,968,711 $ 8,398,741 $ 14,218,392 $ 35,646,170 $ 75,647,217

Business- Type A ctivities:

Water System $ 510,065 $ 10,002,695 $ 280,315 $ - $ - $ 40,027,039 $ 50,820,114 Sewer System 697,129 8,427,026 - - 1,255,817 23,300,823 33,680,795 Solid Waste Management 142,092 6,857,772 109,520 - - 19,536,758 26,646,142 Transit - 438,475 9,091,107 - 17,309,476 - 26,839,058 Airports 64,373 637,816 428,591 - 120,025 - 1,250,805 Fresno Convention Center - 604,924 - - - - 604,924 Stadium 2,288 50,000 - - - - 52,288 Other Enterprise Funds 9,708 3,882,652 - - 26,231 - 3,918,591 Internal Service Funds 83,910 - - - - - 83,910

Total $ 1,509,565 $ 30,901,360 $ 9,909,533 $ - $ 18,711,549 $ 82,864,620 $ 143,896,627

Receivables are presented on the Statement of Net Assets as follows:

Governmental Business- Type A ctivities: A ctivities: Total

Receivables, Net$ 40,001,047 $$61,032,007 101,033,054

Loans, Notes, Leases and Other Receivables 35,646,17082,864,620 118,510,790

$ 75,647,217 $ 143,896,627 $ 219,543,844

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Note 6. PROPERTY, PLANT AND EQUIPMENT–CAPITAL ASSETS

The following is a summary of capital assets as of June 30, 2009:

Governmental Business- Type Activities Activities Total

Capital Assets Not Being Depreciated: Land $ 199,828,806 $ 49,350,353 $ 249,179,159 Construction in Progress 72,077,276 182,834,091 254,911,367

Total Capital Assets Not Being Depreciated 271,906,082 232,184,444 504,090,526

Capital Assets Being Depreciated: Buildings and Improvements 200,942,830 976,312,923 1,177,255,753 Machinery and Equipment 177,919,341 88,554,474 266,473,815 Infrastructure: Roadways and Bridges 857,318,278 - 857,318,278 Traffic Signals 89,926,877 - 89,926,877 Streetlights 127,403,963 - 127,403,963 Park Improvements 44,049,938 - 44,049,938 Water Systems - 51,763,405 51,763,405 Sewer Systems - 105,273,222 105,273,222 Airport Systems - 49,116,180 49,116,180

Total Capital Assets Being Depreciated 1,497,561,227 1,271,020,204 2,768,581,431

L ess: A ccumulated Depreciation for: Buildings and Improvements (71,049,471) (330,827,604) (401,877,075) Machinery and Equipment (144,215,760) (59,944,742) (204,160,502) Infrastructure: Roadways and Bridges (484,842,027) - (484,842,027) Traffic Signals (63,398,999) - (63,398,999) Streetlights (72,525,302) - (72,525,302) Park Improvements (20,175,150) - (20,175,150) Water Systems - (5,331,635) (5,331,635) Sewer Systems - (8,818,659) (8,818,659) Airport Systems - (7,134,710) (7,134,710)

Total Accumulated Depreciation (856,206,709) (412,057,350) (1,268,264,059)

Total Capital Assets Being Depreciated, Net 641,354,518 858,962,854 1,500,317,372

Total Capital Assets, Net $ 913,260,600 $ 1,091,147,298 $ 2,004,407,898

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Governmental

Capital asset activity related to governmental activities for the year ended June 30, 2009, was as follows:

Beginnin g Ending Governmental Activities Balance Increases Decreases Balance

Capital Assets Not Being Depreciated: Land $ 198,810,950 $ 1,616,349 $ (598,493) $ 199,828,806 Construction in Progress 62,316,440 73,198,192 (63,437,356) 72,077,276

Total Capital Assets Not Being Depreciated 261,127,390 74,814,541 (64,035,849) 271,906,082

Capital Assets Being Depreciated: Buildings and Improvements 198,527,635 8,899,344 (6,484,149) 200,942,830 Machinery and Equipment 170,894,612 12,314,851 (5,290,122) 177,919,341 Infrastructure: Roadways and Bridges 803,640,350 53,705,946 (28,018) 857,318,278 Traffic Signals 88,732,203 1,194,674 - 89,926,877 Streetlights 125,177,958 2,226,005 - 127,403,963 Park Improvements 39,055,280 4,994,658 - 44,049,938

Total Capital Assets Being Depreciated 1,426,028,038 83,335,478 (11,802,289) 1,497,561,227

Less: Accumulated Depreciation For: Buildings and Improvements (65,438,347) (5,728,109) 116,985 (71,049,471) Machinery and Equipment (134,048,503) (14,862,069) 4,694,812 (144,215,760) Infrastructure: Roadways and Bridges (460,190,538) (24,651,582) 93 (484,842,027) Traffic Signals (60,923,671) (2,475,328) - (63,398,999) Streetlights (68,358,696) (4,166,606) - (72,525,302) Park Improvements (19,171,112) (1,004,038) - (20,175,150)

Total Accumulated Depreciation (808,130,867) (52,887,732) 4,811,890 (856,206,709)

Total Capital Assets Being Depreciated, Net 617,897,171 30,447,746 (6,990,399) 641,354,518

Total Capital Assets, Net $ 879,024,561 $ 105,262,287 $ (71,026,248) $ 913,260,600

Depreciation Was Charged To Functions As Follows: General Government $ 12,611,958 Public Protection 3,656,484 Public Ways and Facilities 34,225,946 Culture and Recreation 2,211,065 Redevelopment 174,934 Community Development 7,345

Total Governmental Activities Depreciation Expense $ 52,887,732 111

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Business–Type Activities

Capital asset activity related to business-type activities for the year ended June 30, 2009, was as follows:

Beginnin g Ending Business–Type Activities Balance Increases Decreases Balance

Capital Assets Not Being Depreciated: Land $ 43,234,883 $ 7,462,136 $ (1,346,666) $ 49,350,353 Construction in Progress 147,059,933 93,350,977 (57,576,819) 182,834,091

Total Capital Assets Not Being Depreciated 190,294,816 100,813,113 (58,923,485) 232,184,444

Capital Assets Being Depreciated: Buildings and Improvements 925,834,155 55,344,314 (4,865,546) 976,312,923 Machinery and Equipment 84,034,128 5,725,491 (1,205,145) 88,554,474 Infrastructure: Water Systems 45,787,864 5,975,541 - 51,763,405 Sewer Systems 104,223,383 1,778,413 (728,574) 105,273,222 Airport Systems 45,664,415 3,451,765 - 49,116,180

Total Capital Assets Being Depreciated 1,205,543,945 72,275,524 (6,799,265) 1,271,020,204

Less: Accumulated Depreciation For: Buildings and Improvements (305,723,785) (26,828,742) 1,724,923 (330,827,604) Machinery and Equipment (55,590,102) (5,499,893) 1,145,253 (59,944,742) Infrastructure: Water Systems (3,713,410) (1,618,225) - (5,331,635) Sewer Systems (6,609,824) (2,208,835) - (8,818,659) Airport Systems (5,226,699) (1,908,011) - (7,134,710)

Total Accumulated Depreciation (376,863,820) (38,063,706) 2,870,176 (412,057,350)

Total Capital Assets Being Depreciated, Net 828,680,125 34,211,818 (3,929,089) 858,962,854

Total Capital Assets, Net $ 1,018,974,941 $ 135,024,931 $ (62,852,574) $ 1,091,147,298

Depreciation Was Charged To Functions As Follows: Water System $ 8,917,749 Sewer System 13,047,880 Solid Waste Management 907,042 Transit 3,948,787 Airports 6,300,013 Fresno Convention Center 3,405,976 Stadium 1,066,284 Other Enterprise Funds 462,365 Business-type - Internal Service 7,610

Total Business - Type Activities Depreciation Expense $ 38,063,706

116

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

At June 30, 2009 Construction in Progress consisted of the following: 111

Construction Costs Project Title To Date

Governmental:

Bike Lanes/Trail Projects $ 360,706 Bridge Projects 155,468 Fire Station Renovations 17,029,859 Railroad Related Projects 129,955 General Street Projects 8,845,918 Traffic Signal Projects 4,015,879 Regional Park Improvements 24,123,424 No Neighborhood Left Behind 10,067,453 Police Capital Projects 2,419,719 UGM/Special District Projects 1,502,618 Other Miscellaneous Projects 3,426,277

Total Governmental $ 72,077,276

Construction Costs Project Title To Date

Business-Type:

Water Well Constructions $ 15,877,385 Sewer Line Capital 1,036,483 Wastewater Plant Capital 143,697,116 Airport Runway/Taxiway Projects 4,369,378 Airport Building Improvements 11,393,898 Golf Course Improvements 2,722,757 Parks Capital Improvements 769,605 Convention Center Improvements 2,763,454 Other Miscellaneous Improvements 204,015 Total Business-Type $ 182,834,091

Total Construction in Progress $ 254,911,367

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 7. LONG-TERM LIABILITIES

The following is a summary of long-term liabilities. Balances are reported as of June 30, 2009 for the City:

SUMMARY OF LONG-TERM LIABILITIES

Governmental Business-Type Total Activities Activities Government

Long-term Debt

Revenue and Other Bonds $ 374,340,000 $ 461,793,842 $ 836,133,842 Tax Allocation Bonds 10,882,000 - 10,882,000 Certificates of Participation 2,590,000 3,725,000 6,315,000 Deferred Amounts (86,182) (1,128,389) (1,214,571) Notes Payable 10,876,388 2,034,418 12,910,806 Capital Lease Obligations 14,128,116 - 14,128,116

Total 412,730,322 466,424,871 879,155,193

Other Long-term Liabilities

Fresno County - Elkhorn Settlement 450,000 - 450,000 Compensated Absences 28,784,819 9,028,775 37,813,594 Net OPEB Obligation 16,441,603 5,902,897 22,344,500 Liabilities for Self Insurance 78,018,774 - 78,018,774 CVP Litigation Settlement - 38,294,148 38,294,148 Accrued Closure Cost - 22,500,000 22,500,000

Total 123,695,196 75,725,820 199,421,016

Total L ong- Term L iabilities Government- Wide Statement $ 536,425,518 $ 542,150,691 $ 1,078,576,209

Due Within One Year 44,407,470 21,352,098 65,759,568 Due Within More Than One Year 492,018,048 520,798,593 1,012,816,641

Total L ong- Term L iabilities Government- Wide Statement $ 536,425,518 $ 542,150,691 $ 1,078,576,209 1

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Activity of Long Term Liabilities Beginning Ending Due Within Balance* Additions Reductions Balance One Year Governmental Activities: Bonds Payable (Revenue and Other Bonds): Lease Revenue Refunding Bonds 2002 A, Street Light Acquisition Project $ 5,035,000 $ - $ 525,000 $ 4,510,000 $ 560,000 Lease Revenue Refunding Bonds 2000, City Hall Refinancing Project 30,150,000 - 1,900,000 28,250,000 1,985,000 Lease Revenue Bonds, Series 2004 43,315,000 - 1,645,000 41,670,000 1,720,000 Lease Revenue Bonds, Series 2008A NNLB 38,210,000 - 2,155,000 36,055,000 2,165,000 Lease Revenue Bonds, Series 2008 C & D Parks Projects 35,205,000 - 485,000 34,720,000 640,000 Lease Revenue Bonds, Series 2008E, City Hall - 3,405,000 - 3,405,000 - Lease Revenue Bonds, Series 2009A, Police and Fire/Public Safety - 43,385,000 - 43,385,000 665,000 Taxable Pension Obligation Bonds Refunding Series 2002 182,785,000 - 4,435,000 178,350,000 4,685,000 Judgment Obligation Refunding Bonds 2002 4,355,000 - 360,000 3,995,000 375,000

Total Revenue and Other Bonds 339,055,000 46,790,000 11,505,000 374,340,000 12,795,000

Tax Allocation Bonds: 2001 Redevelopment Agency Merger 1 7,260,000 - 555,000 6,705,000 575,000 Series 2003, Mariposa Project Area 4,377,000 - 200,000 4,177,000 207,000

Total Tax Allocation Bonds 11,637,000 - 755,000 10,882,000 782,000

Certificates of Participation: 1991 Street Improvement Project 3,350,000 - 760,000 2,590,000 810,000

Less Deferred Amounts: For Issuance (Discounts)/Premiums 1,739,643 (869,640) 211,624 658,379 - On Refunding (831,877) - (87,316) (744,561) -

Total Deferred Amounts 907,766 (869,640) 124,308 (86,182) -

Notes Payable: California Infrastructure Bank - City 2,286,759 - 55,121 2,231,638 57,067 California Energy Commissions 2,157,950 - 204,462 1,953,488 212,617 California Infrastructure Bank - RDA 1,984,087 - 47,825 1,936,262 49,514 HUD Sec 108 Note Reg. Med Center 1997-A 2,015,000 - 145,000 1,870,000 155,000 HUD Sec 108 Note FMAAA 1,105,000 - 65,000 1,040,000 70,000 HUD Sec 108 Note Neighborhood Streets/Parks 1,285,000 - 52,000 1,233,000 56,000 Hupp, Harold E & Marjory S (Fire Station #21) – City 24,000 - 12,000 12,000 12,000 Community Hospital, BNSF Quiet Zone - 600,000 - 600,000 150,000

Total Notes Payable 10,857,796 600,000 581,408 10,876,388 762,198

Capital Leases 17,364,605 392,251 3,628,740 14,128,116 3,052,989

Total Long-term Debt 383,172,167 46,912,611 17,354,456 412,730,322 18,202,187

Other Liabilities: Fresno County - Elkhorn Settlement 675,000 - 225,000 450,000 225,000 Compensated Absences 27,550,276 7,154,404 5,919,861 28,784,819 5,708,094 Net OPEB Obligation* 5,919,094 10,522,509 - 16,441,603 - Liability for Self Insurance (Note 10 and Note 11) 70,709,337 52,430,566 45,121,129 78,018,774 20,272,189

Total Other Liabilities 104,853,707 70,107,479 51,265,990 123,695,196 26,205,283 Governmental Long-term Liabilities Total $ 488,025,874 $ 117,020,090 $ 68,620,446 $ 536,425,518 $ 44,407,470

*Beginning balance of Net OPEB Obligation has been restated for Change in Application of Accounting Principle. See Note 12.

119

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Beginning Ending Due Within Balance* Additions Reductions Balance One Year

Business-type Activities:

Bonds Payable (Revenue and Other Bonds): Water System Revenue Refunding Bonds 1998 A $ 28,400,000 $ - $ 950,000 $ 27,450,000 $ 985,000 Water System Revenue Refunding Bonds 2003 12,190,000 - 790,000 11,400,000 820,000 Sewer System Revenue Bonds 1993 A 92,415,000 - 5,745,000 86,670,000 6,030,000 Sewer System Revenue Bonds 1995 A 37,635,000 - 32,440,000 5,195,000 2,525,000 Sewer System Subordinate Lien Variable Rate 74,000,000 - 74,000,000 - - Sewer System Revenue Bonds 2008 A - 159,845,000 - 159,845,000 - Solid Waste Management Enterprise Revenue Bonds 2000 A 10,315,000 - 1,265,000 9,050,000 1,330,000 Lease Revenue Bonds 1998, Exhibit Hall Expansion Project 27,785,937 - 1,117,095 26,668,842 1,116,400 Airport Revenue Bonds 2000 38,970,000 - 805,000 38,165,000 845,000 Lease Revenue Bonds 2001 A and B, Stadium Project 41,910,000 - 905,000 41,005,000 950,000 Lease Revenue Bonds 2008 – NNLB Arena 2,745,000 - 500,000 2,245,000 520,000 Lease Revenue Bonds 2006 – Convention Center 17,435,000 - 9,185,000 8,250,000 620,000 Airport Revenue Bonds 2007 – Cons. Rental Car 22,000,000 - - 22,000,000 - Lease Revenue Bonds 2008 - Riverside Golf Course 2,480,000 - 40,000 2,440,000 45,000 Lease Revenue Bonds 2008 - Convention Center - 21,410,000 - 21,410,000 1,100,000

Total Revenue and Other Bonds 408,280,937 181,255,000 127,742,095 461,793,842 16,886,400

Certificates of Participation: 1996 Conference Center Refinancing Project 4,550,000 - 825,000 3,725,000 865,000

Total Certificates of P articipation 4,550,000 - 825,000 3,725,000 865,000

Less Deferred Amounts: For Issuance (Discounts)/Premiums (1,228,163) 4,197,999 (605,829) 3,575,665 - On Refunding (2,438,123) (2,648,154) (382,223) (4,704,054) -

Total Deferred Amounts (3,666,286) 1,549,845 (988,052) (1,128,389) -

Notes Payable: Agricultural Drainage Water Management Loan 658,222 - 124,763 533,459 128,631 Ground Water Recharge Construction Loan 844,922 - 94,673 750,249 97,559 Convention Center: Employee Benefits Cost Reimbursement Settlement - 781,000 30,290 750,710 62,958

Total Notes P ayable 1,503,144 781,000 249,726 2,034,418 289,148

Total L ong- term Debt 410,667,795 183,585,845 127,828,769 466,424,871 18,040,548

Other Long-term Liabilities: Compensated Absences 10,852,152 254,137 2,077,514 9,028,775 1,311,550 Net OPEB Obligation 2,141,406 3,761,491 - 5,902,897 - CVP Litigation Settlement 39,445,214 - 1,151,066 38,294,148 1,200,000 Accrued Closure Cost 7,452,615 15,969,151 921,766 22,500,000 800,000

Total Other L ong- Term L iabilities 59,891,387 19,984,779 4,150,346 75,725,820 3,311,550 Business- type L ong- term L iabilities Total $ 470,559,182 $ 203,570,624 $ 131,979,115 $ 542,150,691 $ 21,352,098

*Beginning balance of Net OPEB Obligation has been retated for Change in Application of Accounting Principle. See Note 12.

120

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The following is a description of long-term liabilities at June 30, 2009:

Year Ended June 30, 2009 (a) Revenue And Other Bonds

Governmental Activities

a. Fresno Joint Powers Financing Authority: Lease Revenue Refunding Bonds 2002 Series A (Street Light Acquisition) $4,558,706

2002 Series A Street Light Acquisition Project bonds issued May 1, 2002. Proceeds were used to refund the Lease Revenue Bonds 1992 Series A Street Light Acquisition Project. Interest is at 4.25% to 5.00% on bonds outstanding. Annual principal installments ranging from $560,000 to $735,000 through October 1, 2015; interest due semiannually. The principal amount due is reported net of deferred premium of ($48,706).

Repayment of the bonds is payable solely by revenues pledged in the lease agreement consisting primarily of Base Rental Payments to be received by the Authority from the City. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues pledged for a total debt service is $5,269,269, until the year 2016. During fiscal year 2009, $750,513 lease revenue was recognized, while the 2009 debt service was $750,513.

b. Fresno Joint Powers Financing Authority: Refunding Lease Revenue Bonds, Series 2000 (City Hall Refinancing Project) 28,220,828

2000 Lease Revenue Bonds, issued Nov 1, 2000. Proceeds were used to refund the 1991 Certificates of Participation used to refund the 1986 Certificates of Participation used to finance the construction of a new City Hall. Interest is at 4.40% to 5.25% on bonds outstanding. Principal due in annual installments of $1,985,000 to $3,275,000 through August 1, 2019; interest due semiannually. The principal amount due is reported net of a deferred discount of $29,172.

Repayment of the bonds is payable solely by revenues pledged as Lease Payments to be received by the Authority from the City pursuant to a lease of the facility. The City’s obligation to make Lease Payments is payable from any legally available funds of the City. The total debt service is $36,974,521, until the year 2020. During fiscal year 2009, $3,362,375 revenues were recognized as lease payments, while the 2009 debt service was $3,362,375.

c. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2004 41,758,480

2004 Lease Revenue Bonds, Series 2004A ($15,810,000) 2004B ($8,100,000) and 2004C ($28,870,000), issued April 14, 2004. Proceeds were used to fund the Calcot Project, Fire Department Projects, Downtown Parking Projects, Santa Fe Depot Project, Roeding Business Park Project Area and other capital projects. Interest is at 3.00% to 5.90% on bonds outstanding. Principal due in annual installments of $1,140,000 to $2,155,000 through August 1, 2035; interest due semi-annually. The principal amount due is reported net of a deferred premium of ($88,480).

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues are pledged for a total debt service of $74,458,698 until the year 2035. During fiscal year 2009, $4,557,507 lease revenue was recognized, while the 2009 debt service was $4,557,507.

d. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2008A - No Neighborhood Left Behind 37,261,327

2008 Lease Revenue Bonds, Series 2008A ($38,210,000), issued April 29, 2008. Proceeds were used to refund the 2005 Series A Bond used for No Neighborhood Left Behind Capital Improvements Projects. Interest is at 3.25% to 5.25% on fixed rate bonds. Principal due in annual installments of $2,110,000 to $3,350,000 through April 1, 2023; interest due semiannually. The principal amount due is reported net of a deferred premium of ($1,808,358) and a refunding charge of $602,031.

Repayment of the bonds is payable solely by revenues pledged in the trust agreement consisting primarily of Base Rental Payments to be received by the Authority from the City pursuant to a Master Facilities Sublease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues are pledged for a total debt service of $50,126,572 until the year 2023. During fiscal year 2009, $3,778,194 revenue was recognized, while the 2009 debt service was $3,778,194.

e. Parks: Lease Revenue Bonds Series 2008 C & D (Various Parks Improvements) 34,300,677

Fresno Joint Powers Financing Authority Lease Revenue Bonds Series C ($33,675,000 tax-exempt) and Series D ($1,530,000 taxable), issued June 12, 2008. Proceeds were used to provide funds to finance various capital projects for improvements to various parks and community centers. Interest is 3.00% to 5.00% on outstanding bonds. Annual principal installments range from $640,000 to $2,090,000 through April 1, 2038; interest due semiannually. The principal amount due is reported net of a deferred discount of $419,323.

Repayment of the bonds is payable from a pledge of Revenues consisting primarily of Base Rental Payments to be paid by the City of Fresno to the Authority pursuant to a Master Facilities Sublease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues are pledged for a total debt service of $63,553,249 until the year 2038. During fiscal year 2009, $1,740,449 lease revenue was recognized, while the 2009 debt service was $1,740,449.

f. Lease Revenue Bonds, Series 2008E – City Hall Chiller Project 3,351,488

2008 Lease Revenue Bonds, Series E ($3,405,000 – Tax-exempt), issued August 14, 2008. Proceeds were used to provide funds to finance the City Hall Chiller capital project. Interest is at 4.50% to 4.60% on bonds outstanding. Principal due in annual installments of $950,000 to $2,455,000 through April 1, 2024; interest due semiannually. The principal amount due is reported net of a deferred discount of $53,512.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 to make Base Rental Payments is payable from any lawfully available funds of the City. The total debt service is $5,697,450, until the year 2024. During fiscal year 2009, $98,165 lease revenues were recognized, while the 2009 debt service was $98,165.

g. Lease Revenue Bonds, Series 2009A – Police & Fire Master Lease Projects 42,571,164

2009 Lease Revenue Bonds, Series A ($43,385,000 – Tax exempt), issued April 3, 2009. Proceeds were used to provide funds to finance the construction, acquisition and installation of various police and fire capital improvements projects. Interest is at 2.50% to 6.375% on bonds outstanding. Principal due in annual installments of $650,000 to $2,765,000 through April 1, 2039; interest due semiannually. The principal amount due is reported net of a deferred discount of $813,836.

Repayment of the bonds is payable from a pledge of Revenues consisting primarily of Base Rental Payments to be paid by the City of Fresno to the Authority pursuant to a Master Facilities Sublease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. The total debt service is $92,608,585, until the year 2039. Lease payments will commence in fiscal year 2010, debt service payments were not due in fiscal year 2009.

h. Taxable Pension Obligation Bonds Refunding Series 2002 178,350,000

2002 Pension Obligation Bonds issued February 21, 2002. Proceeds were used to refund the Refunding Series of 2000 Taxable Pension Obligation Bonds. Interest is at 5.86% to 6.55% on bonds outstanding. Annual principal installments of $4,685,000 to $15,195,000 through June 1, 2029; interest due semiannually.

Payment of principal and interest on the Bonds is not limited to any special source of funds of the City. Assets of the Systems, however, are not available for payment of the Bonds. The total debt service is $323,802,918, until the year 2029. During fiscal year 2009, $245,403,274 General Fund revenues were recognized, while the 2009 debt service was $16,191,897.

i. City of Fresno Judgment Obligation Refunding Bonds, Series 2002 3,973,863

2002 Judgment Obligation Bonds issued May 23, 2002. Proceeds were used to refund a portion of the Judgment Obligation Bonds Series 1994, and the Judgment Obligation Refunding Bonds Series 1998. Interest is at 3.75% to 4.70%. Principal due in annual installments of $375,000 to $525,000 through August 15, 2017; interest due semiannually. The principal amount due is reported net of a deferred discount of $21,137.

The City’s obligation to repay the bonds is not limited to any special source of funds of the City. No assurance can be given as to the amount and source of money available to the City Treasurer for such transfer at any particular time. The total debt service is $4,842,945, until the year 2018. During fiscal year 2009, $245,403,274 General Fund revenues were recognized, while the 2009 debt service was $536,995.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 Business-type Activities

a. Water: Water System Revenue Refunding Bonds 1998 Series A 26,148,637

1998 Water System Revenue Refunding Bonds issued June 1, 1998. Proceeds were used to refund a portion of the Water System 1995 Series A bonds and to finance a portion of the cost of the surface water treatment plant. Interest rates range from 4.50% to 5.125% on bonds outstanding. Principal due in annual installments of $985,000 to $3,625,000 through June 2024; interest due semiannually. The principal amount due is reported net of a deferred discount of $263,829 and a refunding charge of $1,037,534.

Repayment of the bonds is payable solely from revenues derived from the operation of the City Water System. All revenues of the City Water System are pledged with the exception of connection fees and charges, refundable deposits, and capital contributions. Revenues are pledged in parity with the pledge securing the 2003 Bonds and the State loans, for a total debt service of $41,159,622, until the year 2024. During fiscal year 2009, $67,006,131 Water System revenue was recognized, while the 2009 debt service was $2,361,122.

b. Water: Water System Revenue Refunding Bonds 2003 10,699,717

2003 Water System Revenue Refunding Bonds issued April 23, 2003. Proceeds were used to refund all of the 1993 Series A bonds and to finance certain capital improvements to the Water System. Interest rates range from 3.00% to 6.00% on bonds outstanding. Principal due in annual installments of $820,000 to $1,310,000 commencing in June 2003 and running through June 2020; interest due semiannually. The principal amount due is reported net of a deferred premium of ($377,175) and a refunding charge of $1,077,458.

Repayment of the bonds is payable solely from revenues derived from the operation of the City Water System. All revenues of the City Water System are pledged with the exception of connection fees and charges, refundable deposits, and capital contributions. Revenues are pledged in parity with the pledge securing the 1998 Bonds and the State loans, for a total debt service of $15,154,425, until the year 2020. During fiscal year 2009, $67,006,131 Water System revenue was recognized, while the 2009 debt service was $1,375,100.

c. Sewer: Sewer System Revenue Bonds (1993 Series A) 86,539,352

1993 Sewer System Revenue Bonds, Series A issued September 1, 1993. Proceeds were used to provide funds for the rehabilitation and expansion of the City’s Wastewater Treatment Facility. Interest rates range from 4.50% to 6.25%. Principal due in annual installments of $45,000 to $10,090,000 through September 1, 2022; interest due semiannually. The principal amount due is reported net of a deferred discount of $130,648.

Repayment of the bonds is payable solely from the operation of the City Sewer System. All revenues of the City Sewer System are pledged with the exception of connection fees and charges, refundable deposits, and capital contributions. Revenues are pledged in parity with the pledge to secure 1995 and 2008 Bonds, for a total debt service of $114,766,444,

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 until the year 2023. During fiscal year 2009, $62,521,061 Sewer System revenue was recognized, while the 2009 debt service was $10,809,288.

d. Sewer: Sewer System Revenue Bonds (1995 Series A) 5,049,963

1995 Sewer System Revenue Bonds, Series A issued December 1, 1995. Proceeds were used to provide funds to finance a portion of the costs for the expansion of the City’s Wastewater Reclamation Facility and other various Sewer projects. Interest is at 6.00%. Principal is due in annual installments of $2,525,000 to $2,670,000 through September 1, 2010; interest due semiannually. The principal amount due is reported net of a deferred discount of $145,037.

Repayment of the bonds is payable solely from the operation of the City Sewer System. All revenues of the City Sewer System are pledged with the exception of connection fees and charges, refundable deposits, and capital contributions. Revenues are pledged in parity with the pledge to secure 1993 and 2008 Bonds, for a total debt service of $5,511,050, until the year 2011. During fiscal year 2009, $62,521,061 Sewer System revenue was recognized, while the 2009 debt service was $4,240,088.

e. Sewer: Sewer System Revenue Bonds 2008 Series A 162,276,469

2008 Sewer System Revenue Bonds, Series A issued July 24, 2008. Proceeds were used to provide funds to improve the City’s Wastewater Reclamation Facility and to refund the Sewer System 2000A bonds and a portion of the Sewer System 1995 Series A bonds. Interest rates range from 4.625% to 5.00%. Principal due in annual installments off $5,410,000 to $13,090,000 through September 1, 2037; interest due semiannually. The principal amount due is reported net of a deferred premium of ($4,229,000) and a refunding charge of $1,797,532.

Repayment of the bonds is payable solely from the operation of the City Sewer System. All revenues of the City Sewer System are pledged with the exception of the connection fees and charges, refundable deposits, and capital contributions. Revenues are pledged in parity with the pledge to secure 1993 and 1995 Bonds, for a total debt service of $329,091,291, until the year 2038. During fiscal year 2009, $62,521,061 Sewer System revenue was recognized, while the 2009 debt service was $4,791,386.

f. Solid Waste: Solid Waste Management Enterprise Revenue Bonds (Fresno Sanitary Landfill Closure Project and Acquisition of Solid Waste Bins) (2000 Series A) 9,019,212

2000 Solid Waste Management Enterprise Revenue Bonds Series A issued May 25, 2000. Proceeds were used to finance the closure of the City’s Sanitary Waste Landfill Facility and to purchase solid waste bins. Interest rates range from 5.00% to 6.00% on outstanding bonds. Principal due in annual installments of $220,000 to $1,330,000 through May 1, 2030; interest due semiannually. The principal amount due is reported net of a deferred discount of $30,788.

Repayment of the bonds is payable solely from the operation of the City Solid Waste Management System. All revenues of the City Solid Waste Management System are pledged. Revenues are pledged for a total debt service of $15,187,241, until the year 2030. During fiscal year 2009,

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 $49,848,807 Solid Waste System revenue was recognized, while the 2009 debt service was $1,842,431.

g. Convention Center: Fresno Joint Powers Financing Authority: 1998 Exhibit Hall Expansion Project 26,259,975

1998 Exhibit Hall Expansion Project Bonds issued September 1, 1998. Proceeds were used to provide funds for the construction of an exhibit hall expansion to the City of Fresno’s Convention Center. Interest is at 4.25% to 5.00% on outstanding bonds. Annual principal installments range from $1,116,400 to $1,737,405 through September 1, 2028; interest due semiannually. The principal amount due is reported net of a deferred discount of $408,867.

Repayment of the bonds is payable solely by revenues pledged in the trust agreement consisting of primarily of Base Rental Payments to be received by the Authority from the City pursuant to a facility lease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues are pledged for a total debt service of $15,187,241, until the year 2030. During fiscal year 2009, $1,842,431 revenues were recognized as lease payments, while the 2009 debt service was $1,842,431.

h. Airports: Airport Revenue Bonds 2000 38,121,830

City of Fresno Airport Revenue Bonds, Series 2000A and Series 2000B, issued July 12, 2000. Proceeds were used to provide funds to finance a portion of the cost of certain capital improvements at Fresno Yosemite International Airport. Interest is at 5.00% to 6.00% on outstanding bonds. Annual principal installments range from $845,000 to $5,695,000 through July 1, 2030; interest due semiannually. The principal amount due is reported net of a deferred discount of $43,170.

Repayment of the bonds is payable solely from the operation of the City Airport System. All revenues of the City Airport System are pledged with the exception of grant monies, loan or bond proceeds, lease rentals, insurance proceeds, payments received pursuant to a Swap Agreement, amounts deposited into the Construction fund prior to the date of beneficial occupancy, proceeds from sale or disposal of City Airports property, and revenues derived from FYI Airport properties which are required to be deposited to the Airways Golf Course Capital fund. Revenues are pledged in parity with the pledge to secure 2007 Bonds, for a total debt service of $68,153,645, until the year 2031. During fiscal year 2009, $16,498,367 Airport System revenue was recognized, while the 2009 debt service was $2,989,535.

i. Fresno Joint Powers Financing Authority: Lease Revenue Bonds Series 2001A, Series 2001B, Multi-purpose Stadium 41,088,658

2001 Multi-Purpose Stadium Lease Revenue Bonds issued May 15, 2001. Proceeds were used to provide funds to acquire and construct a multipurpose outdoor stadium. Interest is at 4.75% to 7.03% on bonds outstanding; interest through May 1, 2003, paid from capitalized interest. Annual principal installments range from $950,000 to $3,250,000 from June 1, 2004 through 2031; interest due semiannually. The principal amount due is reported net of a deferred premium of ($83,658).

126

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 Repayment of the bonds is payable solely by revenues pledged in the trust agreement consisting primarily of Base Rental Payments to be received by the Authority from the City pursuant to a facility lease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. The total debt service is $75,796,177, until the year 2031. During fiscal year 2009, $3,488,386 revenues were recognized as lease payments, while the 2009 debt service was $3,488,386.

j. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2008 A & B – No Neighborhood Left Behind - Refunding of Arena 1994 Capital Improvement Debt. 2,286,504

2008 Lease Revenue Bonds, Series 2008A ($340,000 – tax exempt) and Series 2008B ($2,405,000 - taxable), issued April 29, 2008 to refinance Selland Arena. Proceeds were used to refund Series 2005A Revenue bonds and finance various capital projects. Interest is at 4.00% to 5.00% on fixed rate bonds and varies on the ACR bonds. Principal due in annual installments of $520,000 to $600,000 through April 1, 2013; interest due semiannually. The principal amount due is reported net of a deferred premium of $(102,009) and a refunding charge of $60,505.

Repayment of the bonds Is payable solely by revenues pledged in the trust agreement consisting primarily of Base Rental Payments to be received by the Authority from the City pursuant to a facility lease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. The total debt service is $2,515,000, until the year 2013. During fiscal year 2009, $613,987 revenues were recognized as Base Rental Payments, while the 2009 debt service was $613,987.

k. Fresno Joint Powers Financing Authority: Lease Revenue Bonds, Series 2006 A & B Convention Center Improvement Projects 8,245,804

2006 Lease Revenue Bonds, Series 2006A ($15,420,000 – Tax-exempt) and 2006B $3,305,000 - Taxable), issued June 28, 2006. Proceeds were used to finance the construction and acquisition of convention center improvements. Interest is at 4.125% to 5.50% on tax-exempt bonds and 5.5% on the taxable bonds. Principal due in annual installments of $320,000 to $655,000 through October 1, 2026; interest due semiannually. The principal amount due is reported net of a deferred discount of $4,196.

Repayment of the bonds Is payable solely by revenues pledged in the trust agreement consisting primarily of Base Rental Payments to be received by the Authority from the City pursuant to the Facilities Sublease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues are pledged for a total debt service of $24,208,907 until the year 2026. During fiscal year 2009, $1,335,136 lease revenue was recognized, while the 2009 debt service was $1,335,136.

l. Airports: Airport Revenue Bonds 2007 22,000,000

City of Fresno Airport Revenue Bonds, Taxable Series 2007 issued May 31, 2007. Proceeds were used to construct a consolidated rental car facility and related improvements at the Fresno Yosemite Airport. Interest is at 5.833% on outstanding bonds. Annual principal installments range from $15,000 to $2,265,000 through July 1, 2037; interest due semiannually.

127

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009

Repayment of the bonds is payable solely from the operation of the City Airport System. All revenues of the City Airport System are pledged with the exception of grant monies, PFC Revenues, loan or bond proceeds, lease rentals, insurance proceeds, payments received pursuant to a Swap Agreement, amounts deposited into the Construction fund prior to the date of beneficial occupancy, proceeds from sale or disposal of City Airports property, and revenues derived from FYI Airport properties which are required to be deposited to the Airways Golf Course Capital fund. Revenues are pledged in parity with the pledge to secure 2000 Bonds, for a total debt service of $49,922,575, until the year 2038. During fiscal year 2009, $16,498,367 Airport System revenue was recognized, while the 2009 debt service was $1,283,260.

m. Parks: Lease Revenue Bonds Series 2008 C & D (Riverside Golf Course) 2,410,450

Fresno Joint Powers Financing Authority Lease Revenue Bonds Series C ($2,375,000 tax-exempt) and Series D ($105,000 taxable), issued June 12, 2008. Proceeds were used to finance Riverside Golf Course capital projects. Interest is 3.00% to 5.00% on outstanding bonds. Annual principal installments range from $45,000 to $150,000 through April 1, 2038; interest due semiannually. The principal amount due is reported net of a deferred discount of $29,550.

Repayment of the bonds is payable from a pledge of Revenues consisting primarily of Base Rental Payments to be paid by the City of Fresno to the Authority pursuant to a Master Facilities Sublease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. The total debt service is $4,540,488 until the year 2038. During fiscal year 2009, $130,662 revenues were recognized as Base Rental Payments, while the 2009 debt service was $130,662.

n. Lease Revenue Bonds, Series 2008 F – Convention Center Improvement Project 20,538,458

2008 Lease Revenue Bonds, Series F ($21,410,000 – Taxable), issued August 14, 2008. Proceeds were used to refund a portion of the 2006 Convention Center Bonds and to finance various Convention Center projects. Interest is at 3.883% to 6.70% on bonds outstanding. Principal due in annual installments of $1,100,000 to $2,175,000 through April 1, 2023; interest due semiannually. The principal amount due is reported net of a deferred discount of $140,516 and a refunding charge of $731,026.

Repayment of the bonds is payable from a pledge of Revenues consisting primarily of Base Rental Payments to be paid by the City of Fresno to the Authority pursuant to a Master Facilities Sublease. The City’s obligation to make Base Rental Payments is payable from any lawfully available funds of the City. Revenues are pledged for a total debt service of $32,813,377, until the year 2023. During fiscal year 2009, $828,434 revenues were recognized as Base Rental Payments, while the 2009 debt service was $828,434.

Net Revenue and Other Bonds 835,031,562 Net Deferred Charges 1,102,280 Total Revenue And Other Bonds $836,133,842

128

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 (b) Tax Allocation Bonds

Governmental Activities

a. Fresno Joint Powers Financing Authority: Tax Allocation Revenue Bonds, Series 2001 $6,787,450

2001 Tax Allocation Revenue Bonds, issued March 1, 2001. Proceeds were used for redevelopment purposes within the Agency’s Merger No. 2 Project Area and to repay a loan from the City of Fresno. Interest is at 4.00% to 5.50% on bonds outstanding. Principal due in annual installments of $535,000 to $825,000 through August 1, 2018; interest due semiannually. The principal amount due is reported net of a deferred premium of ($82,450).

Repayment of the bonds is payable solely from tax increment revenues allocated to the Redevelopment Agency’s Merger No. 2 Project Area. All of the above revenues are pledged with the exception of the 20% dedicated Housing Allocation. Revenues are pledged until the year 2018 for a total debt service of $8,463,584. During fiscal year 2009, $4,029,616 Merger No. 2 Project Area tax increment revenue was recognized, while the 2009 debt service was $886,728.

b. 2003 Tax Allocation Refunding Bonds, Series 2003: Mariposa Project Area 4,006,483

2003 Tax Allocation Refunding Bonds, Series 2003 (Mariposa Project Area) was issued August 22, 2003. Proceeds were used to refund the Agency’s 1993 Tax Allocation Bonds, Series A (Mariposa Redevelopment Project). Interest is at 4.25% to 5.625% on bonds outstanding. Principal due in annual installments of $207,000 to $418,000 through February 1, 2023; interest due annually. The principal amount due is reported net of a deferred discount of $27,987 and a refunding charge of $142,530.

Repayment of the bonds is payable solely from tax increment revenues allocated to the Redevelopment Agency’s Mariposa Project Area. All of the above revenues are pledged with the exception of the 20% dedicated Housing Allocation. Revenues are pledged until the year 2023 for a total debt service of $6,072,593. During fiscal year 2009, $1,280,591 Mariposa Project Area tax increment revenue was recognized, while the 2009 debt service was $426,754.

Net Tax Allocation Bonds 10,793,933 Net Deferred Charges 88,067 Total Tax Allocation Bonds $10,882,000

Governmental Activities

a. Fresno Joint Powers Financing Authority: 1991 Street Improvement Project $2,585,352

1991 Street Improvement Project Bonds issued December 1, 1991. Proceeds were used to provide funds to acquire and construct street improvements. Interest is at 6.625% on bonds outstanding. Annual

129

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 principal installments ranging from $810,000 to $920,000 through December 1, 2011; interest due semiannually. The principal amount due is reported net of a deferred discount of $4,648.

Repayment of the certificates is payable solely by revenues pledged in installment sale agreement. Installment Sale Payments are payable by the City solely from Gas Tax Revenues to be received by the Authority from the City pursuant to a facility lease. The total debt service is $2,854,669 until the year 2013. During fiscal year 2009, $11,065,148 Gas Tax revenues were recognized as installment sale payments, while the 2009 debt service was $956,763.

Business-type Activities

a. Convention Center: Conference Center/Refinancing Project 1996 3,705,424

Convention Center Certificates of Participation issued February 22, 1996. Proceeds were used to refund the 1986 Bond. The 1986 Bond was used to finance the construction of certain conference center facilities within the City (the “Conference Center”). Interest is at 5.00% on certificates outstanding. Annual principal installments ranging from $865,000 to $1,000,000 through April 1, 2013; interest due semiannually; guaranteed by a financial guarantee insurance policy purchased through a private insurer. The principal amount due is reported net of a deferred discount of $19,576.

Repayment of the certificates is payable from lease payments to be made by the City of Fresno to the Redevelopment Agency of the City of Fresno under the Lease Agreement. Lease Payments made by the City to the Agency are payable from any revenues lawfully available to the City except certain special fund revenues which are legally restricted as to use. Revenues are pledged for a total debt service of $4,202,000, until the year 2013. During fiscal year 2009, $1,052,500 lease revenue was recognized, while the 2009 debt service was $1,052,500.

Net Certificates of Participation 6,290,776 Net Deferred Charges 24,224 Total Certificates of Participation $6,315,000

(d) Notes Payable

Governmental Activities

a. City of Fresno: California Infrastructure and Economic Development Bank Loan $2,231,638

Thirty year loan dated March 18, 2004 from the California Infrastructure and Economic Development Bank in the amount of $2,441,100, proceeds of which were used to complete the Roeding Business Park. Due in annual installments of $57,067 to $131,212 through August 1, 2033; 3.530% interest due semiannually. Secured by Facility Lease on City Hall Annex between the City and the “I-Bank” with reciprocal Site Lease between the “I-Bank” and the City.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 b. City Debt: Energy Usage Conservation Loan Program 1,953,488

California Energy Commission Loan Program under the California Public Resources Code dated July 12, 2004. Contract between the State of California, California Energy Commission and the City to be used for solar energy enhancements at the Municipal Service Yard. Principal and interest at 3.920% to 3.950% due in 24 semi-annual installments of $212,617 to $274,956 through December 2017. Repayment of the note is funded from actual savings in energy costs resulting from the project or other available Division funds.

c. Redevelopment Agency: California Infrastructure and Economic Development Bank Loan 1,936,262

Thirty year tax allocation loan dated March 18, 2004 from the California Infrastructure and Economic Development Bank in the amount of $2,118,000 proceeds of which were used to complete the Roeding Business Park. Due in annual installments of $49,514 to $113,845 through August 1, 2033; 3.530% interest due semi-annually.

Repayment of the loan is payable solely from tax increment revenues allocated to the Redevelopment Agency’s Roeding Project Area. All the above revenues are pledged with the exception of the 20% dedicated Housing Allocation. Revenues are pledged until the year 2033 for a total debt service of $2,912,416. During fiscal year 2009, $1,058,460 Roeding Project Area tax increment revenue was recognized, while the 2009 debt service was $117,020.

d. City Debt: Regional Medical Center Section 108 Note 1,870,000

Regional Medical Center Section 108 Notes dated October 28, 1997 with interest at 5.87% to 7.13% to be paid semi-annually. Principal payments are due annually ranging from $155,000 to $270,000 through August 1, 2017.

e. City Debt: Fresno Madera Area Agency on Aging Section 108 Note 1,040,000

Fresno Madera Area Agency on Aging Section 108 Notes dated June 14, 2000 with interest at 6.56% to 7.958% to be paid semi-annually. Principal payments are due annually ranging from $70,000 to $135,000 through August 1, 2019.

f. City Debt: Neighborhood Streets/Parks Improvement Project Section 108 Note 1,233,000

Neighborhood Streets/Parks Improvement Project Section 108 Note dated August 8, 2002 with interest at 1.75% to 6.120% to be paid semi-annually. Principal payments are due annually ranging from $56,000 to $130,000 through August 1, 2022.

g. City Debt: Hupp, Harold E & Marjory S 12,000

Hupp Note dated April 4, 2000 for purchase of land on which Fire Station #21 was constructed. Interest payments are made annually at a rate equal to the City’s pooled rate. Principal payments are due annually for 5.50% at $12,000 through April 1, 2010.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Year Ended June 30, 2009 h. City Debt: Community Medical Center 600,000

Loan dated May 18, 2009 to assist City with expediting BNSF Quiet Zone in the Downtown Area 0% interest for four years with payments annually beginning in Fiscal Year 2010.

Business-type Activities

a. Water: Agricultural Drainage Water Management Loan 533,459

Agricultural Drainage Water Management Loan Program under the Water Conservation and Water Quality Bond Law of 1986 dated March 1, 1992. Contract between the State of California Department of Water Resources and the City for an agricultural drainage water management project loan under the Water Conservation and Water Quality Bond Law of 1986, interest at 3.1%. Principal due in annual installments of $128,631 to $136,729 through October 16, 2012; interest due annually. Repayment of the note is funded from revenues of the Water Fund and any net proceeds received from any settlement or judgment.

b. Water: Ground Water Recharge Construction Loan 750,249

Ground Water Recharge Construction Loan under the Water Conservation Bond Law of 1988 dated February 22, 1993. Contract between the State of California Department of Water Resources and the City for a ground water recharge construction loan under the Water Conservation Bond Law of 1988, interest at 3.08%. Principal due in annual installments of $97,559 to $117,531 through April 1, 2016; interest due annually. Repayment of the note is funded from revenues of the Water Fund.

c. Convention Center: Employee Benefits Cost Reimbursement Settlement 750,710

Management Agreement between the City of Fresno and SMG dated January 1, 2009, to settle a conflict with Employee Benefits Costs incurred by SMG. Interest is imputed at 5.12974068%. Principal and interest due in monthly installments of $8,333.33 through December 31, 2018. Repayment of the note is funded from revenues of the Convention Center Operating Fund.

Total Notes Payable $12,910,806

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

(e) Debt Service Requirements

The annual debt service requirements excluding capital lease obligations for City of Fresno long-term debt outstanding as of June 30, 2009, are as follows:

Governmental Business-type Activities Activities Year Ending June 30 Principal Interest Principal Interest 2010 $ 15,149,198 $ 22,374,697 $ 18,040,546 $ 24,704,020 2011 15,546,442 21,686,196 17,770,670 23,767,849 2012 16,816,004 20,893,077 15,661,732 22,883,489 2013 16,661,354 20,090,800 16,323,440 22,050,663 2014 17,306,066 19,257,351 15,411,806 21,170,364 2015-2019 91,063,497 81,933,882 90,603,188 92,273,311 2020-2024 89,769,030 56,550,438 85,735,047 69,169,052 2025-2029 88,092,268 30,390,980 79,016,831 47,427,783 2030-2034 26,304,529 10,408,518 71,585,000 23,173,609 2035-2039 21,980,000 3,450,913 57,405,000 5,994,724

Subtotal 398,688,388 287,036,852 467,553,260 352,614,864 Deferred Charges (on issuance) (86,182) - (1,128,389) -

Total $ 398,602,206 $ 287,036,852 $ 466,424,871 $ 352,614,864

Debt Compliance

There are a number of limitations, restrictions and covenants contained in the various loan, note and bond indentures. The City believes it is in compliance with all significant limitations, restrictions and covenants.

(f) Capital Lease Obligations

The City has entered into a long-term master lease agreement with De Lage Landen for the purpose of financing the acquisition of equipment and furniture related primarily to Police and Fire operations and General Services. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date. Other existing lease agreements with balances are with Stone and Youngberg, Pitney Bowes Credit Corporation and Koch Financial Corporation. Balances are included in the Summary of Long-Term Liabilities. In 2009, the City acquired $392,251 of furniture and equipment under Capital Leases.

Debt service requirements are presented below. Interest rates range from 2.140% to 8.500%.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Governmental Activities Year Ending June 30 Principal Interest 2010 $ 3,052,989 $ 620,751 2011 2,179,336 519,055 2012 1,744,023 433,588 2013 1,657,387 358,214 2014 1,382,522 288,419 2015-2019 2,903,401 801,482 2020-2024 981,243 323,226 2025-2029 227,215 9,692

Total $ 14,128,116 $ 3,354,427 1

(g) Fresno County – Elkhorn Settlement

The City entered into a compromise settlement agreement in January of 2007 with Fresno County in which the City agreed to pay $900,000 over a four year period due in four equal annual installments of $225,000 each with no interest accruing for the Elkhorn Boot camp Facility. The second of four payments was made on July 22, 2008 and the third of four payments was made on August 28, 2009, with the fourth and final payment due in fiscal year 2010.

(h) General Fund Obligations – Short-Term Borrowing

The City participated in the California Statewide Communities Development Authority’s (CSCDA) issuance of Tax and Revenue Anticipation Notes (TRANS) for the sixth year in a row. The CSCDA authorized the issuance of the Tax and Revenue Anticipation Notes, Series A-2, at a coupon rate of 3.0% and a net interest cost of 1.64%. The aggregate principal amount of the bonds was $854,070,000 which was shared between 29 participants, including the City of Fresno. The City’s net proceeds of $55.9 million were used to fund uneven cash flows in the General Fund due to timing differences between revenues and expenditures. TRANS were issued on July 2, 2008, and matured on June 30, 2009. These notes were collateralized by unrestricted revenues.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 8. INTERFUND ACTIVITY

(a) Due to/from Other Funds

Due to Other Funds represent short-term borrowings resulting from funds temporary need for additional cash. Primarily, these amounts have been recorded when funds overdraw their share of pooled cash. These balances are expected to be repaid within the next twelve-month fiscal operating cycle. The composition of interfund balances at June 30, 2009, is as follows:

Receivable Fund Payable Fund Amount

General Fund Nonmajor Enterprise Funds $ 10,604,104 Internal Service Funds 938,876 11,542,980

Redevelopment Agency, Debt Service Fund General Fund 24,048

Nonmajor Governmental Funds Grants Special Revenue Fund 4,035,991 Nonmajor Governmental Funds 815,559 Nonmajor Enterprise Funds 1,283,369 Internal Service Funds 8,518 6,143,437

Water System Sewer System 3,599 Solid Waste Management 1,118 Internal Service Funds 87,634 92,351

Sewer System Internal Service Funds 8,396

Solid Waste Management Internal Service Funds 102,940

Transit Internal Service Funds 25,267

Airports General Fund 693,467 Nonmajor Governmental Funds 427,003 1 1,120,470

135

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Receivable Fund Payable Fund Amount 6,234,670 Nonmajor Enterprise Funds Sewer System 2,050 Internal Service Funds 2,060 4,110

Internal Service Funds Sewer System 114,238 Transit 23,206,762 Airports 1,473 Fresno Convention Center 1,803,760 Nonmajor Enterprise Funds 296,233 Internal Service Funds 17,702 25,440,168

Total Due to/from Other Funds $ 44,504,167 1

(b) Advances

Advances represent long-term borrowing between funds.

Advances between the City and the Redevelopment Agency are payable on demand and secured by and payable from the incremental property tax revenues of the redeveloped properties. Interest rates vary between 5% and 9%. Payments on the advances and related interest are based on budgetary priority as approved by the Redevelopment Agency. Incremental property tax revenues will continue to be received during the period the debt remains outstanding.

Periodically, the City evaluates the collectability of all of its receivables. Given that the City has a new Controller (as of October 30, 2009) and will have a new City Manager within the next month or two, an in-depth analysis will be performed over the next several months, once again validating the collectability or lack thereof, of advances to the Redevelopment Agency, as well as all other advances due to and from the City’s various funds.

Interest for the advance between the Sewer System and General Fund is equal to two percent (2%) above the City’s monthly Pooled Investment Rate. The first interest only payment was due July 31st, 2008. Principal, at not less than 1/29th of the original principal, and interest payments are due annually thereafter.

Annual principal payments of $584,400 plus interest at rates between 3.79% and 4.75% are due annually on the advance between the Airports Fund and the General Fund. The remaining advances are interest free and payable on demand. The amounts are not expected to be repaid within the next twelve-month fiscal operating cycle. The composition of interfund balances (advances from/to other funds) as of June 30, 2009 is as follows:

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Receivable Fund Payable Fund Amount

General Fund Redevelopment Agency, Debt Service Fund $ 22,757,812 Stadium 749,006 Nonmajor Enterprise Funds 1,743,500 Internal Service Funds 2,394,650 27,644,968

Grants Special Revenue Fund Redevelopment Agency, Debt Service Fund 36,809,661

Redevelopment Agency, Debt Service Fund Fresno Convention Center 245,837

Nonmajor Governmental Funds Redevelopment Agency, Debt Service Fund 18,780,488 Stadium 17,470 18,797,958

Water System Redevelopment Agency, Debt Service Fund 1,041,172

Sewer System General Fund 438,000 Redevelopment Agency, Debt Service Fund 831,744 1,269,744

Solid Waste Management Internal Service Funds 43,659

Airports General Fund 4,093,511 Redevelopment Agency, Debt Service Fund 4,819,800 8,913,311

Fresno Convention Center Redevelopment Agency, Debt Service Fund 523,280

Nonmajor Enterprise Funds Redevelopment Agency, Debt Service Fund 258,086

Internal Service Funds Solid Waste Management 666,519 Nonmajor Enterprise Funds 161,574 828,093

Total Advances $ 96,375,769

137

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Advances between the City and the Redevelopment Agency provided funds to eliminate blight and to develop, reconstruct, rehab and revitalize Fresno’s inner city neighborhoods, downtown and industrial areas. The advance between the Airports Fund and the General Fund originated with a transfer of Airport property. The Sewer System sold land to the General Fund for the purpose of constructing a regional public safety training facility. The advance between the General Fund and Nonmajor Enterprise Funds originated from a 1989 loan of $1,743,000 to the Parking Core Fund. In the years 1990 through 1993 the General Fund indirectly made debt service payments for the Municipal Service Center resulting in the advance between the General Fund and Internal Service Funds for $2,394,650. Advances between Internal Service Funds and Solid Waste Management for $666,519 and Nonmajor Enterprise Funds for $161,574 resulted from 1995 equipment billings.

Transfers represent subsidies by one fund to another in accordance with the budget and provide support for various City programs and provide resources for the payment of debt service. The following is a summary of Interfund transfers for the year ended June 30, 2009.

Receiving Fund Paying Fund Amount

General Fund Grants Special Revenue Fund $ 3,030 Nonmajor Governmental Funds 1,285,276 Solid Waste Management 726,000 Transit 321,900 Nonmajor Enterprise Funds 210,459 Internal Service Funds 1,022,579 3,569,244

Grants Special Revenue Fund General Fund 62,380 Nonmajor Governmental Funds 257,778 Internal Service Funds 2,801 322,959

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Receiving Fund Paying Fund Amount

Nonmajor Governmental Funds General Fund 19,380,398 Grants Special Revenue Fund 965,020 Redevelopment Agency Debt Service Fund 14,172,928 Nonmajor Governmental Funds 43,160,607 Water System 290,846 Sewer System 288,075 Solid Waste Management 445,589 Transit 735,982 Airports 176,896 Fresno Convention Center 1,755,042 Nonmajor Enterprise Funds 3,905,886 Internal Service Funds 2,753,344 88,030,613

Transit Nonmajor Enterprise Funds 159,000 Internal Service Funds 381 159,381

Fresno Convention Center General Fund 8,151,444

Stadium General Fund 1,437,107 Nonmajor Governmental Funds 200,000 Nonmajor Enterprise Funds 620,500 2,257,607

Nonmajor Enterprise Funds General Fund 1,200,000 Grants Special Revenue Fund 75,000 Nonmajor Governmental Funds 19,597 Water System 355 1,294,952

Internal Service Funds General Fund 1,128,400 Grants Special Revenue Fund 3,600 Nonmajor Governmental Funds 2,200 Water System 2,600 Sewer System 5,000 Solid Waste Management 7,000 Transit 7,800 Airports 4,700 Nonmajor Enterprise Funds 6,900 Internal Service Funds 18,082 1,186,282

Total Transfers $ 104,972,482 1 139

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The General Fund transferred $19.4 million to Nonmajor Governmental funds to provide support for debt service payments and capital projects; $8.2 million to the Convention Center for debt service as well as general operating support; and $1.4 million to the Stadium Fund for debt service payments, and $1.2 million to Nonmajor Enterprise Funds for Zoo support.

Transfers of $14.2 million from the Redevelopment Agency Debt Service provided support for construction purposes to Nonmajor Governmental Funds. Nonmajor Governmental Funds transferred $32.7 million drawdowns of bond proceeds to other Nonmajor Governmental Funds for construction purposes, $3.9 million to provide support for debt service payments and $6.6 million for miscellaneous purposes. Nonmajor Enterprise Funds transferred $3.9 million to Nonmajor Governmental Funds to provide support for debt service payments.

d) Recap of Interfund Activity

The following schedule recaps Interfund Activity at June 30, 2009:

Advances Due from Due to Advances From Other Other to Other Other Transfers Funds Funds Funds Funds Transfers In Out Governmental Funds:

General Fund $ 11,542,980 $ 717,515 $ 27,644,968 $ 4,531,511 $ 3,569,244 $ 31,359,729 Grants Special Revenue Fund - 4,035,991 36,809,661 - 322,959 1,046,650 Redevelopment Agency Debt Service Fund 24,048 - 245,837 85,822,043 - 14,172,928 Nonmajor Governmental Funds 6,143,437 1,242,562 18,797,958 - 88,030,613 44,925,458

Total Governmental Funds 17,710,465 5,996,068 83,498,424 90,353,554 91,922,816 91,504,765

Proprietary Funds:

Water System 92,351 - 1,041,172 - - 293,801 Sewer System 8,396 119,887 1,269,744 - - 293,075 Solid Waste Management 102,940 1,118 43,659 666,519 - 1,178,589 Transit 25,267 23,206,762 - - 159,381 1,065,682 Airports 1,120,470 1,473 8,913,311 - - 181,596 Fresno Convention Center - 1,803,760 523,280 245,837 8,151,444 1,755,042 Stadium - - - 766,476 2,257,607 - Nonmajor Enterprise Funds 4,110 12,183,706 258,086 1,905,074 1,294,952 4,902,745 Internal Service Funds 25,440,168 1,191,393 828,093 2,438,309 1,186,282 3,797,187

Total $ 44,504,167 $ 44,504,167 $ 96,375,769 $ 96,375,769 $ 104,972,482 $ 104,972,482

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 9. DEFEASANCE AND REFUNDING OF LONG-TERM DEBT

(a) Current-Year Defeasances

The City of Fresno defeased all of the Sewer 2000 Variable Rate Demand Option Bonds and $24.9 million of the Sewer 1995 Bonds through the issuance of $159.845 million Par Bonds on July 15, 2008. The defeasance resulted in an economic gain of over $11 million. Because the City replaced variable rate bonds with fixed rate bonds, cash flow savings are not determinable.

The Fresno Joint Powers Financing Authority defeased $8.6 million of the 2006 Lease Revenue Bonds (Convention Center Projects) through the issuance of $24.815 million Par Lease Revenue Bonds on August 14, 2008 in order to remediate a tax issue created by entering into a private-activity lease arrangement at the City of Fresno’s Selland Arena (reflected as Business-Type Activities under Note 7 of the CAFR Footnotes). The defeasance resulted in an economic loss of just under $3 million.

(b) Prior-Year Defeasances

The Fresno Joint Powers Financing Authority defeased the remaining $37.24 million of its 2005 Lease Revenue Bonds on April 29,2008 through a refunding. $30.625 million were auction rate securities that were being impacted by turmoil in the marketplace. The refunding fixed the rates on the new bonds to get the Fresno Joint Powers Financing Authority out of the auction rate market and remove interest rate risk from its portfolio. The remaining $6.615 million were fixed rate bonds that were advance-refunded to free up assets securing the old debt so they could be used to secure the new debt, and to remediate a tax issue related to entering into a private-activity lease arrangement at the City of Fresno’s Selland Arena (reflected as Business- Type Activities under Note 7 of the CAFR Footnotes). The new bonds are Fresno Joint Powers Financing Authority Lease Revenue Bonds Series A and Series B. The City issued fixed-rate bonds to refund variable-rate bonds and refunding bonds with a Reserve Fund surety with new bonds having a fully-funded Reserve Fund which resulted in an economic loss on the advance- refunding of $59,570. At June 30, 2009, $2,030,000 of these bonds outstanding is considered defeased.

Note: Liabilities for defeased bonds are not included in the City’s financial statements.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 10. RISK MANAGEMENT FUND

Within certain exceptions, it is the policy of the City to use a combination of self-insurance and purchased commercial insurance against property or liability risks. The City believes it is more economically set to manage its risks internally and set aside funds as needed for estimated current claim settlements and unfavorable judgements through annual appropriations and supplemental appropriations. The City maintains limited coverage for certain risks that cannot be eliminated. At this time, the City is engaged in an Owner-Controlled Insurance Program covering the wastewater treatment expansion. The Risk Management Division investigates and manages all liability claims and property losses, evaluates risk exposure and insurance needs, protects against contractual loss by reviewing and preparing insurance and indemnification portions of construction contracts, leases and agreements, emphasizes ongoing operational loss control, and purchases all insurance coverage for the City.

The City maintains General Liability insurance, with limits of liability of $25,000,000. There is a $2,500,000 self-insured retention (SIR). The City also maintains Airport Owners and Operators General Liability insurance and Aviation (Aircraft Liability) insurance, with limits of liability of $60,000,000 and $25,000,000 per occurrence, respectively. There is no deductible or self- insured retention (SIR).

Furthermore, the City maintains Property insurance and Boiler and Machinery insurance, with total insured values of $1,030,521,659 and limits of liability of $1 billion and $100,000,000 per occurrence, respectively. There is a $25,000 deductible. Finally, the City maintains Aviation (Aircraft Hull) insurance for its two helicopters and one airplane, with limits of liability of $1,500,000 for each helicopter and $180,500 for the airplane. There is a $30,000 in-motion deductible and $500 not in-motion deductible for the helicopters. There are no physical damage deductibles for the airplane.

The City’s Workers Compensation Program consists of $2,000,000 self-insured retention with purchased excess insurance layers up to the statutory limits.

The claims liabilities and worker’s compensation liabilities reported on the Statement of Net Assets have been actuarially determined and include an estimate of incurred but not reported losses.

142

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The estimated liabilities of the Risk Management Internal Service Fund as of June 30, 2009, are determined by the City based on recommendations from an independent actuarial evaluation. The liabilities are based on estimates of the ultimate cost of claims (including future claim adjustments expenses) that have been reported but not settled, and claims that have been incurred but not reported (IBNR). The claims liability of $74,618,774 reported in the Risk Management Internal Service Fund at June 30, 2009, is based on the requirement that claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

The recorded liabilities for each program at June 30, 2009, are as follows:

Workers' Compensation * $ 54,714,798 Liability and Property Damage * 19,903,976 Total $ 74,618,774

* The liabilities for workers' compensation and general liability are presented at present value, using a discount rate of 3%.

Changes in the funds claims liability amount for the last three fiscal years are as follows:

Fiscal Year Beginning of Current Year Ended Fiscal Year Provision for Claims End of Fiscal June 30 Liability Claims Payments Year Liability 2007$ 60,103,071 $ 17,024,268 $ 12,140,445 $ 64,986,894 2008 64,986,894 21,656,389 15,933,946 70,709,337 2009 70,709,337 21,378,588 17,469,151 74,618,774 1

Note 11. EMPLOYEE BENEFIT PROGRAMS

(a) Retirement Plans

The Employees Retirement System and the Fire and Police Retirement System (the Systems) are single-employer defined benefit pension plans administered by two individual Retirement Boards. The Systems provide retirement, disability, and death benefits to plan members and beneficiaries. Cost-of-living adjustments are provided to members and beneficiaries as provided for in the City of Fresno's Municipal Code. Articles 3, 4 and 5 of the Municipal Code of the City of Fresno assign authority to administer the retirement systems to the respective Retirement Boards. The Systems issue publicly available financial reports that include financial statements and required supplementary 143

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 information for the Employees Retirement System and the Fire and Police Retirement System. The reports may be obtained by writing the City of Fresno Retirement Office, 2828 Fresno Street, Suite 201, Fresno, California, 93721.

Permanent full-time employees of the City of Fresno are eligible to participate in the respective Employees Retirement or Fire and Police Retirement Systems. Employees working in limited, interim, provisional, temporary, seasonal, or part-time positions are not eligible to participate in the Systems. Participation is mandatory if an employee is eligible except in the case of the City Manager, City Attorney, City Clerk, Department Heads and Council Assistants as provided in the Fresno Municipal Code (FMC) Section 5-318. The City Manager, City Clerk, City Attorney, Department Heads or Council Assistants, who are not already a member, may negotiate other retirement benefits if such an agreement is established by resolution of the Council.

Basis of Accounting

The Systems use the accrual basis of accounting. Investment income is recognized when it is earned and expenses are recognized when they are incurred. Contributions are recognized when due. Benefits and refunds are recognized when due and payable under the terms of the Systems per Sections 3-523, 3-529 and 3-322, 3-324 of the Municipal Code.

Securities lending transactions are accounted for in accordance with GASB Statement No. 28, Accounting and Financial Reporting for Securities Lending Transactions, which establishes reporting standards for securities lending transactions. In accordance with Statement No. 28, cash received as collateral on securities lending transactions and investments made with that cash are reported as assets and liabilities resulting from these transactions and are both reported in the Statement of Fiduciary Net Assets. In addition, the costs of securities lending transactions are reported as an expense in the Statement of Changes in Fiduciary Net Assets.

Valuation of Investments

System investments are reported at fair value, calculated as cost plus unrealized gains or losses. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Investments in both bonds and mortgage-backed pass-through certificates are carried at fair value.

Cost values are derived from Master Custodial Transaction Records. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair values.

144

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Funding Policy

The contribution requirement of System members and the City of Fresno is established by Municipal Code and administered by the Retirement Boards. Contribution rates, which are based on the calculations of the Systems' independent actuary and adopted by the Boards, are presented as a percentage of annual covered salary/payroll. Currently, the employer’s normal contribution rate for the Employees System is 10.56%. However, no cash contributions were required from the City as the employer contribution came from prepaid contributions used of $1,345,274 on deposit with the system and the prefunded actuarial accrued liability. For the Fire and Police System Tier I, the rate is 25.25% for the fiscal year ended 2009, and for Tier II, the rate is 17.34%. However, a cash contribution of only $1,695,726 for Tier I, and $5,583,336 for Tier II, was required from the City as the additional employer contribution came from prepaid contributions used of $1,659,426 on deposit with the system and the prefunded actuarial accrued liability.

Employees Fire & Police I Fire & Police II

Members' Average Rate 5.04% * 9.00% Employer's Gross Rate 10.62 % 26.38% 18.49% Prefunded Pct. Accrued (10.62)% (14.64)% (6.75)% Liability Offset

Net Employer’s Rate 0 11.74% 11.74%

*The employee contribution rates are dependent upon entry age with rates for ages 25, 35, and 45 being 4.88%, 6.29% and 6.67% respectively.

Annual Pension Cost and Net Pension Obligation

The annual required contribution for the current year was determined as part of the June 30, 2008, actuarial valuation. The City's annual pension cost and net pension obligation (asset) for the Employees Retirement System and the Fire & Police Retirement System for the fiscal year ended June 30, 2009 were as follows:

Employees Fire & Police Retirement Retirement System System Annual required contribution (ARC) $ 1,345,274 $ 8,938,488 Interest charged (earned) on net pension ogligation (326,828) (108,839) Adjustment to annual required contribution 1,345,274 1,659,426 Annual pension cost 2,363,720 10,489,075 Contributions made (1,345,274) (8,938,488) Increase in net pension obligation 1,018,446 1,550,587 Net pension obligation (asset) beginning of year (4,106,927) (1,550,587) Net pension obligation (asset) end of year $ (3,088,481) $ 0

145

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Three-Year Trend Information

The City of Fresno contributed 100% of its annual pension cost (APC) and had an outstanding net pension asset for fiscal year 2009. Actual employer contributions were not required in the Employees Retirement System due to the prefunded actuarial liability of the system.

EMPLOYEES RETIREMENT SYSTEM

Fiscal Year Annual Percentage Funding Pension of APC Net Pension June 30 Cost [APC] Contributed Asset 2007 $ 2,715,180 57.68% (4,123,947) 2008 371,914 95.42% (4,106,927) 2009 2,363,720 56.92% (3,088,481)

FIRE AND POLICE RETIREMENT SYSTEM

Fiscal Year Annual Percentage Funding Pension of APC Net Pension June 30 Cost [APC] Contributed Asset 2007 $ 15,948,835 67.76% (2,542,961) 2008 9,758,440 89.83% (1,550,587) 2009 10,489,075 85.22% 0

The Schedules of Funding Progress, presented as RSI following the Notes to the Financial Statements, present multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Schedules of Funding Progress

EMPLOYEES RETIREMENT SYSTEM Schedule of Funding Progress (Dollars in Millions)

(1) (2) (3) (4) (5) (6) (Prefunded)/

Actuarial Unfunded AAL (Prefunded)/ Actuarial Actuarial Accrued Percentage Annual Percentage of Unfunded AAL Valuation Value Liability Funded Covered Covered Payroll (2) - (1) Date of Assets (AAL) (1) / (2) Payroll (4) / (5)

2008 $ 981 $ 690 142.2% $ (291) $ 133 (218.7%)

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

FIRE AND POLICE RETIREMENT SYSTEM Schedule of Funding Progress (Dollars in Millions)

(1) (2) (3) (4) (5) (6) (Prefunded)/

2008 $ 1,067 $ 830 128.5% $ (237) $ 99 (239.3%)

Actuarial Assumptions

The actuarial assumptions used to compute contribution requirements and to determine funding status are always based upon the prior year’s valuation, which for fiscal year 2009 is the actuarial valuation performed as of June 30, 2008. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a period of five years. The Systems do not have unfunded actuarial liabilities. Additional information in the actuarial valuation follows:

Employee Fire & Police Valuation Date 6/30/08 6/30/08 Actuarial Cost Method Projected Unit Credit Entry Age Normal Cost Amortization Method Level Percentage Open Level Percentage Open Remaining Amortization Period 15 Years 15 Years Asset Valuation Method 5-year Smoothed Market 5-year Smoothed Market

Actuarial Assumptions: Investment Rate of Return 8.25% 8.25% Projected Salary Increases 4.0% + merit & longevity 4.00% + merit & longevity Includes Inflation At 3.75% 3.75% Cost-of-Living Adjustments 3.75% per year 1-5%** increase maximum of 5%

** 1st Tier Rank-Average Option: Increases are determined by the increases attached to ranks of active safety employees. 3-Year Average Option: Cost-of-living is based on the percentage of change in the weighted mean average monthly compensation attached to all ranks of members, as compared with the prior fiscal year and limited to a maximum of 5% per year. ** 2nd Tier - CPI increase, maximum of 3%.

Administrative Expenses

Section 3-532, Section 3-325 of the Fresno Municipal Code provides that all administrative costs of the system shall be a charge against the assets of the Employees Retirement System and Fire and Police Retirement System, respectively.

147

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Post Retirement Supplement Benefit Program

The Post-Retirement Supplemental Benefit ("PRSB") Program was created to provide assistance to eligible retirees to pay for various post-retirement expenses which in most cases consist of premiums for health insurance or medications. Each Retirement Board will annually review the actuarial valuation report and declare an actuarial surplus, if available, in accordance with the procedures in Municipal Code Sections 3-567, 3-354.

If an actuarial surplus is declared, the surplus is allocated into two components. One component composed of two-thirds of the declared surplus shall be used to reduce or offset the City's pension required contributions. Any unused portion shall be reserved in the City Surplus Reserve and drawn upon in subsequent years if needed. The remaining one-third component shall be distributed among eligible post-retirement supplemental benefit recipients in accordance with procedures in Municipal Code Sections 3-567(f)(4) and 3-354(f)(4). Any unused portion shall be reserved in the PRSB Reserve and drawn upon in subsequent years if needed.

For the fiscal year ended June 30, 2009 the System distributed PRSB benefits for eligible retirees in Employees Retirement System in the amount of $5,084,478 and offset the required City pension contributions by $12,599,444 with the declared actuarial surplus. As of June 30, 2009, the City Surplus Reserve balance was $0 and the PRSB Reserve balance was approximately $3,052,799 of which $2,580,234 is committed for PRSB distribution for the months of July through December 2009. For the fiscal year ended June 30, 2009 the System distributed benefits for eligible retirees in the Fire and Police Retirement System in the amount of $4,660,788 and offset contributions by $9,300,355. As of June 30, 2009, the City Surplus Reserve balance was ($618,063) and the PRSB Reserve balance was $3,572,344. For the fiscal year ended June 30, 2008, the System distributed PRSB benefits for eligible retirees in the Employees Retirement System in the amount of $4,071,510 and $4,208,320 for the Fire and Police Retirement System. The City offset required pension contributions for the Employees System in the amount of $9,994,568 and $9,098,521 for the Fire and Police System. As of June 30, 2008 the City Surplus Reserve balance was $0 for the Employees Retirement System and the PRSB Reserve balance was approximately $3,255,415. With respect to Fire and Police System, the City Surplus Reserve balance was $0 for 2008, and the PSRB Reserve balance was $3,195,524, as of June 30, 2008.

(b) Deferred Compensation Plan

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

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

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

Vacation pay, which may be accumulated up to 600 hours depending on an employee’s bargaining group and length of service, is payable upon termination. Sick leave, which may be accumulated up to 12 hours per month, has no maximum. Several bargaining groups have payoff provisions at retirement based on formulas specific to the groups. The majority of employees however, do not have sick leave payoff provisions in their bargaining group’s contract. Annual leave, which may be accumulated up to 800 – 1,000 hours (depending upon the employee group), is payable upon termination or retirement. Beginning July 1, 2006, the ceiling increased from 1,000 to 1,200 hours. Holiday leave may be accumulated indefinitely depending upon the bargaining groups and is payable for active employees as well as at termination or retirement. Annual leave allows for the cashing out of 25% of the accumulated balance up to and including 48 hours once per fiscal year. Supplemental sick leave is awarded to unrepresented management, middle management, professionals and to white collar employees at the rate of 40 hours at the beginning of each fiscal year. The balance can only be used after other leave balances are exhausted, or for other specific reasons outlined in the various MOU’s or Salary Resolutions. The balance is payable at termination or retirement.

Starting in FY 2006, some bargaining units can transfer some or all of their sick leave and supplemental sick leave balances to a Health Reimbursement Arrangement (HRA). The cash value of these balances is placed into a separate account (by employee), administered by HealthComp, earns interest, and is used to pay health premiums for the employee, their spouse and dependents – until their individual balance is exhausted. The portion of the City's obligation relating to employees' rights to receive compensation for future absences, that is attributable to services already rendered, is accrued when incurred in the government-wide, proprietary and fiduciary fund financial statements. In fiscal year 2009, payments for compensated absences on termination have been budgeted and paid from the department incurring the liability.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Accrued Employee Leave balances as of June 30, 2009, are as follows:

Accrued Department/Activity Vacation and Current Portion Sick Leave Pay Governmental Activities: General Fund $ 23,122,028 $ 4,928,427 Grants Special Revenue Fund 916,541 167,852 Special Gas Tax 307,086 14,641 Measure C 75,733 21,565 Community Services 25,395 25,395 City Combined 11,344 2,005 Special Assessment 43,798 8,288 General Services 4,134,386 517,023 Risk 148,508 22,898 Total Governmental Activities 28,784,819 5,708,094

Accrued Department/Activity Vacation and Current Portion Sick Leave Pay Business-type Activities: Water System 1,088,458 137,987 Sewer System 1,146,241 156,706 Solid Waste Management 782,036 216,479 Transit 1,921,787 318,848 Airports 1,014,881 107,205 Convention Center 55,940 55,940 Community Sanitation 525,672 43,404 Parking 121,862 15,670 Development Services 1,739,629 219,738 Billing and Collection 632,269 39,573 Total Business-type Activities 9,028,775 1,311,550

Total $ 37,813,594 $ 7,019,644

Accrued employee leave balances related to governmental activities are recorded in the Government-Wide financial statements.

(d) Health Benefit Plan

The City offers its employees participation in the Fresno City Employees Health and Welfare Trust Plan. The Trust offers a self-insured medical plan for full-time and permanent part-time employees and their dependents. The medical plan is a PPO plan and a $200 individual annual deductible and a $600 annual family maximum. The Trust also provides dental, vision, pharmacy and chiropractic coverage. Employees have the opportunity, on an annual basis, to elect a reduced benefit level in which the plan pays 60% of covered medical charges and the employee pays 40%, or they may elect a higher benefit level in which the plan pays 80% of covered charges and the employee pays 20%. Employees electing the lower benefit level pay nothing for their coverage. Employees electing the higher benefit level pay 20% of the monthly premium through payroll deductions. City of Fresno retirees are also eligible for participation in the plan by paying the full premium cost. 150

City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Other Post Employment Benefits

In August 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions (OPEB). GASB 45 requires that the City measure and disclose annual other post employment benefit (OPEB) costs on the accrual basis of accounting, disclose the actuarial accrued liability (AAL) for promised benefits for past service, disclose the annual required contribution (ARC), and disclose to what extent benefits have been funded. Under GASB 45, the ARC will be based upon actuarially determined amounts, which if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due.

The City of Fresno Retirees Healthcare Plan is a single-employer defined benefit medical plan administered by Healthcomp and funded through the City of Fresno Health and Welfare Trust. It is reported as an Internal Service Fund of the City and provides OPEB to eligible retirees and his/her dependents, spouse or domestic partner. OPEB includes the authorization for retirees to purchase health insurance through the plan at current employee rates. The establishment and amendments of benefit provisions are negotiated between the employee bargaining units and the City of Fresno, and are approved by the City Manager and the City Council. The City of Fresno Health and Welfare Trust issues separate financial statements publicly available at: City of Fresno, Finance Department, 2600 Fresno Street, Suite 2156, Fresno, California 93721.

The City of Fresno Blue Collar Retirees Healthcare Plan is an agent multi- employer plan administered by Associated Third Party Administrators (ATPA) and funded through Stationary Engineers Local 39 Health & Welfare Trust. It is reported as an Internal Service Fund of the City and provides OPEB to eligible retirees of Local 39 and his/her dependents, spouse or domestic partner. OPEB includes the authorization for retirees to purchase health insurance through the plan at current employee rates. The establishment and amendments of benefit provisions are negotiated between Local 39 bargaining unit and the City of Fresno, and are approved by the City Manager and the City Council. Publicly available financial statements are not issued separately.

Although participant retirees pay 100% of their premium costs, because retirees are allowed to purchase insurance at blended premium rates, the City’s contribution is deemed to be that portion of retiree claims costs over premiums required to be contributed by retirees. In fiscal year 2009 the City’s contribution, or implicit rate subsidy, was deemed to be $2,609,313.

Actuarial Methods and Assumptions

The actuarial valuation date was June 30, 2008. The actuarial cost method used for determining benefit obligations was the Projected Unit Credit. For the amortization of the Unfunded AAL and the Net OPEB Obligation the level dollar method over a rolling 30 years was used. The investment rate of return was 4.5%. Trend rates for medical and prescription drug begin at between 9% and 11% then grade down to rates between 5% and 6%. Under age 65 retirees are assumed to elect coverage at 35% for general, 70% for safety and 35% for Local 39. 80% of general and safety males, 90% of Blue Collar males, and 25% of females were

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 assumed to retire with a covered spouse. Male retirees were assumed to be three years older than their spouses, while female retirees were assumed to be two years younger than their spouses. All age 65 or over retirees were assumed to be Medicare-eligible.

Actuarial Valuation as of June 30, 2008 under GASB 45 is as follows:

Summary of Valuation Results (based on 4.5% discount rate)

Retirees Healthcare Plan Blue Collar General Retirees Employees Safety Tier 1 Safety Tier 2 Healthcare Plan Total Participant Count Current Retirees & surviving spouses 239 310 18 56 623 Other eligible participants 394 160 27 148 729 Other participants not yet eligible 1,481 82 903 529 2995 Total Count 2,114 552 948 733 4,347

Actuarial Present Value of Benefits (APVB) at June 30, 2008 Current Retirees & surviving spouses $7,037,800 $24,691,200 $3,514,600 ($314,100) $34,929,500 Other eligible participants 4,712,800 18,708,700 2,657,500 58,700 26,137,700 Other participants not yet eligible 23,651,200 11,610,100 118,979,600 143,200 154,384,100 Total APVB $35,401,800 $55,010,000 $125,151,700 ($112,200) $215,451,300

Actuarial Accrued Liability (AAL) at June 30, 2008 Current Retirees & surviving spouses $7,037,800 $24,691,200 $3,514,600 ($314,100) $34,929,500 Other eligible participants 4,712,800 18,708,700 2,657,500 58,700 26,137,700 Other participants not yet eligible 11,192,300 10,332,200 46,156,800 76,100 67,757,400 Total AAL $22,942,900 $53,732,100 $52,328,900 ($179,300) $128,824,600

Funded Status at June 30, 2008 Actuarial Value of Assets $0 $0 $0 $0 $0 Unfunded Actuarial Accrued Liability $22,942,900 $53,732,100 $52,328,900 ($179,300) $128,824,600 Funded Ratio 0% 0% 0% 0% 0% Covered Payroll $91,602,100 $24,273,200 $67,033,300 $33,074,500 $215,983,100 1 UAAL as a % of Covered Payroll 25% 221% 78% -1% 60% #

Annual Required Contribution (ARC) 1 Normal Cost for 2008/2009 $1,596,500 $426,700 $7,098,800 $8,700 $9,130,700 Amortization of UAAL as of June 30, 2009 1,377,800 3,226,900 3,142,600 (10,800) 7,736,500 Total ARC for 2008/2009 $2,974,300 $3,653,600 $10,241,400 ($2,100) $16,867,200

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The annual required contribution for the current year was determined as part of the June 30, 2008, actuarial valuation. The City's annual pension cost and net pension obligation for the Retirees Healthcare Plan and the Blue Collar Retirees Healthcare Plan for the fiscal year ended June 30, 2009 were as follows:

Retirees Healthcare Plan Blue Collar Retirees General Healthcare Employees Safety Tier 1 Safety Tier 2 Plan Total Annual required contribution (ARC) $ 2,974,300 $ 3,653,600 $ 10,241,400 $ (2,100) $ 16,867,200 Interest charged on net OPEB obligation 47,836 61,502 249,996 3,366 362,700 Adjustment to annual required contribution (63,836) (82,102) (333,696) (4,466) (484,100) Annual OPEB cost 2,958,300 3,633,000 10,157,700 (3,200) 16,745,800 Contributions made (729,900) (1,597,600) (118,600) (15,700) (2,461,800) Increase in net OPEB obligation 2,228,400 2,035,400 10,039,100 (18,900) 14,284,000 Net OPEB obligation beginning of year 1,063,100 1,366,800 5,555,800 74,800 8,060,500 Net OPEB obligation end of year $ 3,291,500 $ 3,402,200 $ 15,594,900 $ 55,900 $ 22,344,500

At this time the City is not contemplating making contributions to fund the plan based on the actuarial accrued liability (AAL).

The recorded liability for the Employees Healthcare Plan at June 30, 2009, for employee health benefit claim payments for direct provider care is $3,400,000.

Changes in the funds claims liability amount for the last three fiscal years are as follows:

Fiscal Year Beginning of Current Year Ended Fiscal Year Provision for Claims End of Fiscal June 30 Liability Claims Payments Year Liability

2007$ 2,600,000 $ 27,415,933 $ 26,865,933 $ 3,150,000 2008 3,150,000 29,101,554 28,301,554 3,950,000 2009 3,950,000 27,101,978 27,651,978 3,400,000

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 12. RESTATEMENT OF NET ASSETS

In fiscal year 2009, the net assets of the Retirees Healthcare Plan and Blue Collar Retirees Healthcare Plan, Internal Service Funds, were restated by $7,985,700 and $74,800 respectively and the net assets of various Proprietary Funds, Water System, Sewer System, Solid Waste Management, Transit, Airports, Fresno Convention Center, Community Sanitation, Parking, Development Services, Billing and Collection, General Services and Risk Management were restated by ($153,498), ($188,895), ($176,675), ($842,747), ($124,216), ($1,494), ($47,690), ($66,161), ($343,613), ($196,417), ($712,722) and ($37,444) respectively. With the adoption of GASB 45 in fiscal year 2008, the Net Other Post Employment Benefit (OPEB) Obligation, for both Governmental and Proprietary funds was accrued in the above Healthcare Plans, but Net OPEB Obligation amounts were not accrued in individual funds. In order to facilitate GASB 45 reporting, a change in application of accounting principle has been made. Beginning in fiscal year 2009, the Net OPEB Obligation has been accrued in the proprietary funds which contribute to the Healthcare Plans, and it has not been accrued in the Healthcare Plans directly. The 2008 Net OPEB Obligation amounts represent the restated amounts. As in fiscal year 2008, the full Net OPEB Obligation of both governmental and business-type funds is reported in the Government-Wide financial statements. The beginning net assets of the Statement of Revenues, Expenses and Changes in Fund Net Assets – Proprietary Funds; the Statement of Revenues, Expenses and Changes in Fund Net Assets – Nonmajor Enterprise Funds; the Statement of Revenues, Expenses and Changes in Fund Net Assets – Internal Service Funds; and the Statement of Activities were restated to give effect to the change in application of accounting principle. In the Statement of Activities, change in application of accounting principle was $2,141,406 and ($2,141,406) for governmental activities and business-type activities respectively.

Note 13. NO-COMMITMENT DEBT

The City is not liable for repayment of any of the following bonds, and accordingly, they are not reflected in the accompanying basic financial statements.

(a) Health Facilities Bonds

The City has remaining health facilities bonds totaling $116.9 million. These bonds were issued to provide administrative and service facilities for St. Agnes Medical Center. b) Industrial Development Bonds

The City has only one issue of industrial development bonds totaling $1.08 million. These bonds were issued to purchase land and construct a health equipment manufacturing plant within the City’s Enterprise Zone.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The City has issued multifamily housing revenue bonds totaling $42.34 million. The bonds were issued to provide funds for the purchase and/or construction of multifamily housing facilities to provide low-income housing to Fresno residents.

(d) Special District Debt

The City is not obligated in any manner for the Special District debt, but is acting as an agent for property owners in collecting the taxes and assessments and forwarding the collections to the trustee/paying agent, and initiating foreclosure proceedings, if appropriate. Special District debt payable to bond holders was $5,415,824 at June 30, 2009 as compared to $6,474,783 at June 30, 2008.

Note 14. COMMITMENTS AND CONTINGENCIES

(a) Closure and Postclosure Care Cost

The City continues to monitor a former landfill site as part of the Environmental Protection Agency's (EPA) Superfund program. Management estimates the remaining monitoring costs as of June 30, 2009, to be $22,500,000 and has recorded this liability in the Solid Waste Enterprise Fund. It is anticipated that $800,000 in monitoring costs will be paid in fiscal year 2010. The former landfill site has not received solid waste since 1987 and was redesigned as part of a 350-acre environmentally conscious facility to integrate the former landfill site into a championship caliber sports complex/regional park. The estimated total remaining costs as of June 30, 2009 to complete the landfill closure are based on the equipment, facilities, and services required for completing the closure and monitoring and maintaining the landfill.

The Sports Complex includes: four championship lighted tournament softball fields and two lighted tournament/practice softball fields; seven tournament soccer fields; picnic shelters; five playgrounds; restrooms with concession booths and showers; hiking trails and arboretum; hilltop overlook; and lake and waterfowl habitat island.

During fiscal year 1992, in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," the City recorded a receivable from rate payers approximately equal to the original estimated liability for clean up and monitoring of the site. The statement provides for the recording of the receivable because the City Council is empowered by statute, subject to Proposition 218, to establish rates that bind customers, and the rate increase was designed to recover only costs incurred related to the landfill site closure, rather than provide for similar future costs. The amount receivable at June 30, 2009, is $19,536,758 and is paid through utility fees.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

(b) CVP Water Contract

The City obtains a portion of its water supplies (approximately 40% of the City’s overall water supply) through the Central Valley Project ("CVP") pursuant to a contract (the "CVP Contract") with the United States Bureau of Reclamation ("USBR"). Under the CVP Contract, the City is entitled to receive from the CVP a maximum of 60,000 acre-feet per year of water from the Bureau’s San Joaquin River Supply.

In fiscal year 2005, the USBR and the City completed the renewal of its long-term (40 year) contract (the “CVP Renewal Contract”). Included as a part of the renewal process, the City resolved claims for past deficiencies under the City’s prior CVP Contract. As a part of the resolution and the CVP Renewal Contract, the City agreed to pay the Bureau approximately $41.6 million in agreed upon past fees. In particular, the City must pay off the agreed upon debt over time, with the final balance due no later than 2030.

The initial agreed upon present value of the “past” amount to be paid, $41.6 million, has been capitalized in accordance with Financial Accounting Standards Board Statement No. 71 “Accounting for the Effects of Certain Types of Regulation” in the Water System Proprietary Fund and is being amortized against expected future revenues generated through increased rates to finance the resolution. In accordance with FAS 71, the amount capitalized is reflected in the City’s Water Fund under the caption “CVP Water Settlement” with the related liability reported as “CVP Water Settlement Liability”.

The City has been paying down the $41.6 million debt and at June 30, 2009 the obligation stands at $38,294,148. The City is evaluating the potential of pursuing alternative debt financing or refinancing the current water bond obligations, adding in the CVP debt. In addition, recent water rate studies took into consideration these additional costs as did the Utility Commission deliberations.

The CVP Renewal Contract also included the requirement that the City comply with "best management practices", including charging all City customers based upon the actual amount of water delivered to each customer, i.e. the metering of all water service connections. Metering of all City water service connections requires the retrofit of some City service connections. The CVP Renewal Contract requires that the City complete the metering program by January 1, 2013. The City is moving forward with the water meter retrofit and conducted a pilot program to test potential equipment and associated vendors. On January 14, 2010, the Fresno City Council awarded a requirements contract in the approximate amount of $22.3 million to Badger Meter, Inc. for the Fixed Network AMR and Metering System. The award of this contact enables the city to purchase the required water meters and AMR billing system to be installed by the City on all single family residential water customers of the City of Fresno. The City is on track to complete the metering project prior to the January 1, 2013 deadline. The actual award of the meter contract is subject to the issuance of Revenue Bonds by the City of Fresno. On January 21, 2010, the City sold $158.15 million in Water System Revenue Bonds which includes the funding for the water meter project. The bonds were funded on February 3, 2010 and have a final maturity June 1, 2040.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The five year rate structure adopted by council in 2007 which encompasses fiscal year 2010, anticipated the issuance of bonds and the need to provide for debt service payments. At this time, the estimated cost of meter installation is projected to be approximately $75 million.

The City adopted uniform residential metered rates on November 5, 2009 subsequent to a Proposition 218 process. The metered rates will take effect March 1, 2010 and will begin being charged on March 1, 2010. The rates were structured to be revenue neutral, meaning that the City will continue to collect, in total revenue, no more or less than what was currently being collected based on the flat rate structure.

In early calendar year 2006, the Airports Compliance Division of the U.S. Department of Transportation, Federal Aviation Administration, (FAA) performed an on-site review of the Fresno Yosemite International Airport (Airport). In August 2006 the review report was issued and several corrective actions were suggested by the FAA including certain conditions they believe the City should comply with as a consequence of a transfer of airport property in the late 1990’s. The FAA believed, based upon their understanding of the facts, that the City’s General Fund should transfer certain sums to the Airport enterprise fund for past financial and real estate transactions. The City negotiated with the FAA and reached an agreement which was subsequently approved by the City Council on July 24, 2007.

The agreement reached with the FAA consisted of the City (General Fund) repaying the Airport Enterprise Fund approximately $5.8 million plus interest of approximately $1.2 million over a period of ten years. The balance is reported in the General Fund as advances to other funds. The first payment was made in mid-November 2007 with each subsequent payment to be made on November 1 of each year. The payment/transfer for calendar year 2009 is $748,000.

Other Litigation

There are various other lawsuits and claims pending against the City. Although the outcome of these claims and lawsuits is not presently determinable, management, after consultation with legal counsel, is of the opinion that a majority of these matters will not have a material adverse effect on the financial condition of the City at June 30, 2009, with the exception of those cases that involve constitutional violations whereby even a minimal verdict may result in an award of attorney’s fees.

(d) Commitments and Contingent Liabilities

Grant Program Compliance

The City participates in many federal and state assisted grant programs, which are subject to program compliance audits by the grantors or their representatives. Some audits of these programs at June 30, 2009, have not yet been conducted or concluded. Accordingly, the City's compliance with applicable grant requirements will be established at some future date. The amounts, if any, of expenditures which may be disallowed by the grantors cannot be

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

determined at this time although the City expects such amounts, if any, to be immaterial to its financial statements.

(e) Toxics Mitigation

Hammer Field

Contamination (primarily from the common solvent trichloroethylene, “TCE”) was discovered and identified in 1989, in soils and groundwater beneath property currently owned by the City. The site known as Old Hammer Field, a prior Army military base in the 1940’s, continues to be the subject of investigation and clean-up efforts which had previously been jointly funded by Boeing, the U.S. Army Corps of Engineers and the City of Fresno. The area had been used for the repair, overhaul, maintenance, refurbishing and construction of aircraft during and after World War II. The California Department of Toxic Substances Control (DTSC) is the lead regulatory agency- overseeing site clean-up. The City maintains that all contaminants were discharged by other parties, not by the City. As a non-contributory, overlaying landowner, the City has limited fiscal liability for clean-up efforts. DTSC issued a preliminary nonbinding allocation of responsibility (NBAR) placing the City’s share at five percent. The Final Remedial Action Plan was approved by the DTSC, and capital construction of the remedial systems is underway. It has been estimated that clean-up efforts could last at least another 30 years, however total remaining clean up costs of TCE cannot be estimated.

Although the United States of America (USA), the United States Army Corps of Engineers (USACE), the United States National Guard Bureau (NGB) and The Boeing Company (Boeing) are potentially responsible parties (PRPs) for the clean-up efforts as entities who conducted the activities that contributed to the contamination, the City has paid a significantly disproportionate share of the costs despite its role as the nonpolluting landowner.

The City, on November 2, 2006, filed a law suit seeking fair and equitable compensation from the United States parties and Boeing for their responsible shares of the clean-up costs of Old Hammer Field. The goal of the City is to obtain a global resolution with respect to each party’s fair and equitable percentage share of the contamination clean up costs and to ensure the ongoing implementation of State-approved clean-up activities.

The monies at issue in the litigation relate to the total cost of remediation associated with the cleanup of Old Hammer Field (“OHF”) and the downgradient plume of contamination associated with historical activities at OHF. To date, the parties have spent or been billed approximately $17,000,000 on cleanup activities, including state oversight costs. The current estimate for future costs cannot be determined at this time. To date, the City has spent approximately $3.6 million dollars for clean up (approximately 21% of the past costs). The final percentage amount that will be allocated to the City, if any (either through litigation or settlement), is unknown at this time, unless a settlement can be reached.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Although the parties were discussing potential settlement options, in early 2009 the State moved forward in efforts to regulate 1,2,3-trichloropropane (“TCP”), and because TCP has appeared in wells along with TCE, which could result in additional cleanup costs, the amount of which cannot be determined, the settlement discussions were interrupted. Consequently, the parties have been unable to reach a settlement. The City has asserted in the ongoing litigation that the United States and Boeing are responsible for the TCP cleanup costs, as well.

Trial has been set for July 7, 2010 before Judge Oliver Wanger of the Eastern District of California.

Although GASB Statement No. 49 requires the accrual of anticipated pollution remediation outlays, the City cannot at this time reasonably estimate the expected outlays. The City intends to aggressively defend its position that it has no obligation as the non-contributory, overlaying landowner.

DBCP, EDB and TCE Groundwater Contamination

The widespread occurrence of DBCP, an agricultural pesticide in certain groundwater has been identified throughout the Fresno Metropolitan Area. At various City well sites DBCP exceeds drinking water limits and is removed by Granular Activated Carbon treatment. The City fronted the costs of clean up with respect to the known wells and reimbursed itself from a litigation settlement in an original amount of approximately $21 million. $10 million was stipulated to be used toward past costs, and $11 million was to be applied toward the installation of carbon filtration treatment units, all of which have been completed. Subject to numerical limits, the settlement arrangement also provides for the City to be reimbursed for the capital costs of the installation of granular activated carbon treatments (GAC) at wells exceeding maximum contaminant levels with reimbursements ranging from $337,500 to $540,000 depending on the well site. Funding also is provided for the on-going operation and maintenance clean up costs of approximately $27,900 to $31,000 per contaminated well (depending on type), adjusted for inflation, with such payment obligations ending on June 26, 2035. The City is not responsible for “cleanup” in the context common to hazardous material remediation.

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

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Pollution Remediation

Although the Redevelopment Agency (RDA) is generally not involved with operations that pose a higher risk for environmental liabilities, properties acquired for redevelopment purposes could be contaminated or may contain lead and/or asbestos. The RDA’s property acquisition policies require that the RDA obtain a Phase I environmental report on property before it is acquired from a private owner and Phase II reports when necessary. In the event of an acquisition leading to demolition, the RDA obtains a Phase I and/or Phase II report and, if necessary, remediates the property according to state and federal laws prior to demolition.

The RDA currently has three active cases: 317 W. California, currently undergoing remediation through an EPA Brownfields grant; a former gas station site acquired from the City in February 2009; and 450 “M” Street, currently owned by the City but the potential site for the relocation of the Old Armenian Town historic homes owned by the RDA.

317 W. California - The RDA, in partnership with the Housing Authorities of the City and County of Fresno (HACCF), applied for and received a $200,000 Environmental Protection Agency (EPA) hazardous substance cleanup grant to fund the cleanup of the Brownfields located at 317 West California, the site of a former auto dismantling yard. This two-acre Brownfields site contains lead contaminants on the ground surface. Cleanup of the site consists of obtaining the services of an environmental consultant to implement the cleanup work plan and the services of an environmental contractor to execute the Brownfields cleanup. The $200,000 grant requires an RDA match of 20% ($40,000). The total cost of the cleanup work is estimated at $285,000, of which $85,000 will be funded by the RDA. The cleanup work of this Brownfields site is estimated to be completed by March 2010. The pollution remediation liability identified had no material impact on the City’s financial statements.

The RDA acquired a former gas station site in the Chinatown project area from the City of Fresno in February 2009. The site consists of three parcels. One parcel has been cleared of any existing pollution problems and needs no further remediation. Of the other two parcels; one needs some additional testing to be cleared by the California Department of Toxic Substances Control (DTSC), while the second is in need of further testing and remediation. Updated Phase I environmental reports are needed and a bid package to provide environmental consultant services is being prepared for this parcel. Testing results are anticipated to be received by July 2010. Although GASB Statement No. 49 requires the accrual of anticipated pollution remediation outlays, the City cannot at this time reasonably estimate the expected outlays, as such no accrual has been made as of June 30, 2009.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

450 “M” Street - Relocation of the City of Fresno Fire Department Headquarters, located at 450 “M” Street, was a condition of the Disposition and Development Agreement (DDA) with the Old Armenian Town Master Developer for land assembly in Phase 1B. In April 2008, the Fresno Fire Department (FFD) moved its administrative and training center offices into the newly renovated Hobbs-Parsons Building located at 911 “H” Street. Site clearance of the 0.6 acre City owned parcel of the former FFD headquarters was completed by the RDA in December 2008. To comply with the terms of the DDA and the California 3rd District Court of Appeal ruling, the City of Fresno will transfer title of the property to the RDA. In preparation of the title transfer, a Phase I environmental report was conducted. The report indicated an existing open Underground Storage Tank (UST) case relating to an underground storage tank used for dispensing gasoline fuel at the site. Records indicated that the tank had been removed from the site in 1988 and reported to the Fresno County Community Health Dept (FCCHD). In April 2009, the California Regional Water Quality Control Board notified the City of Fresno (COF) that an assessment for the presence of petroleum hydrocarbons in soil beneath the former tank’s location was required to complete the tank extraction project and close the existing case. In June 2009, on behalf of the property owner (COF), the RDA contracted with a consultant for necessary environmental testing and preparation of a work plan for contamination remediation and/or removal. Current status reports of the testing have been provided by the consultant and final action by the State is expected in 2010. Preliminary feedback indicates the State will enter a judgment of “No further action needed”. No accrual for pollution remediation is considered necessary.

(f) Measure Z

Measure Z, Zoo Accreditation, Fresno Chaffee Zoo Corporation

As a result of a ballot initiative, Fresno County voters approved Measure Z which added one penny for every $10 spent on taxable goods for a period of ten years. The tax increase provides funding for the Fresno Chaffee Zoo to make the much needed repairs and address other problems that have threatened the kind of animals the zoo is qualified to keep. The American Zoo and Aquarium Association (AZA) which sets standards for animal care, safety, staffing and facilities at zoos across the country granted the Chaffee Zoo its accreditation after undergoing rigorous inspection of its operations and programs including animal care, education, conservation and safety on March 26, 2007. In order to retain membership and remain accredited, zoos and aquariums undergo the complete accreditation process every five years.

As a result of the passage of Measure Z, and in accordance with an agreement between the City of Fresno and the Fresno Chaffee Zoo Corporation, a California benefit corporation, a non-profit board operates the zoo. The City and the Fresno Chaffee Zoo Corporation (FCZC) negotiated a lease and a financing arrangement, both of which were approved by Council on November 29, 2005.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The lease agreement set forth the terms and conditions between the City and FCZC with respect to the approximate 18 acres of Zoo premises and any expansion that might occur related to the approximate 21 acres of potential future expansion area. The City is responsible for all maintenance and operation costs in the expansion area until such time as the Corporation takes possession of the expansion area by exercising its rights in accordance with lease provisions. The Corporation officially took over operations on January 1, 2006.

The City retains ownership of the land, buildings, structures, permanent fixtures, and improvements in existence at the commencement date of the lease and the FCZC is the owner of all buildings, structures and improvements constructed thereafter until the end of the lease term.

The Financing Agreement conveyed the Zoo animals and Zoo personal property to the Corporation along with all obligations the City had with respect to the animals exhibited, housed or otherwise kept or cared for at the Zoo during the term of the lease. At the termination of the Lease or the end of the Lease Term, should the City decide not to continue operations of the Zoo, the Corporation has the right to sell or dispose of the Zoo Animals and keep the proceeds of any sale or disposition at their sole cost or expense. The Corporation also has the authority to acquire, sell or dispose of Zoo animals in the course of the lease so long as the compliment of animals at all times is similar in type and proportion to the Zoo animals on hand upon commencement of the lease.

Under the Financing Agreement, the City contributed $1.2 million for the first year; however, this amount is reduced by 20% per year thereafter. The lease agreement has been negotiated for a thirty year period with a 25 year renewal of the term if the Zoo Tax is reinstated after its initial 10 year term or two additional ten year renewal options if the tax in not renewed. The lease rate is at $1.00 per year.

The FCZC must maintain AZA accreditation of the Chaffee Zoo and is required to maintain an animal collection of similar type and ratio that previously existed at the Zoo at the time of transition. If Measure Z is renewed at the ten year mark, or another tax measure is passed, the term of the lease will automatically renew for 25 years.

Under the Financing Agreement, the City has a decreasing subsidy to the Zoo over the next several years, as called for in the Measure Z ballot language. The following table reflects the subsidy the City will be providing to the Zoo on a calendar year basis.

Calendar Year Operating Subsidy Year Three – 2008 $ 720,000 Year Four – 2009 $ 480,000 Year Five - 2010 $ 240,000

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

(g) Leases Operating

The City has operating leases for certain buildings, parking areas, ponding basins, hanger space and storage areas which require the following minimum annual payments.

Governmental Activities

Public Fiscal Years Police Fire Works Total

2009 $ 1,380,338 $ 586,940 $ 253,373 $ 2,220,651 2010 687,795 575,625 221,078 1,484,498 2011 600,730 574,420 205,219 1,380,369 2012 500,427 581,320 211,703 1,293,450 2013 500,427 588,910 211,893 1,301,230 2014 - 2018 2,268,735 551,400 218,388 3,038,523 2019 - 2023 - 50,000 - 50,000 2024 - 2028 - 10,000 - 10,000

Total $ 5,938,452 $ 3,518,615 $ 1,321,654 $ 10,778,721

Business – type Activities

Other Fiscal Years Airports Transit Depts. Total

2009 $ 250,829 $ 116,753 $ 418,524 $ 786,106 2010 216,694 23,672 358,204 598,570 2011 145,000 - 362,984 507,984 2012 150,000 - 315,788 465,788 2013 156,000 - 230,800 386,800 2014 - 2018 780,000 - 1,728,929 2,508,929 2019 - 2023 780,000 - 691,571 1,471,571 2024 - 2028 156,000 - - 156,000

Total $ 2,634,523 $ 140,425 $ 4,106,800 $ 6,881,748

The City has various other operating leases (both Governmental and Business – type) that have either expired and are now functioning on a month-to-month basis, or were written on a month- to-month or some other basis, or which state no specified expiration date. These leases combined require annual lease payments totaling $606,251 per year. The City also leases property to others outside of the City. All of these leases generally operate on a month to month basis. The combined current annual income from these leases total approximately $9.6 million.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Construction and Other Significant Commitments

At June 30, 2009, the City had commitments for the following major construction projects:

Remaining Construction Project Title Committed

Governmental: Regional Public Training Facility $ 11,742,220 Total Governmental 11,742,220

Remaining Construction Project Title Committed

Proprietary: Airport Taxiway 9,058,122 Water Meter box installation 10,273,923 Dewatering Facility 5,904,527 Water Tank Project 5,254,537 Total Proprietary 30,491,109

Total Major Construction Projects $ 42,233,329

Note 15. SECURITIES LENDING

The City of Fresno Municipal Code and the Retirement Boards’ policies permit the Retirement Board of the City of Fresno Fire and Police Retirement System and the City of Fresno Employees Retirement System to use investments of both Systems to enter into securities lending transactions, i.e., loans of securities to broker-dealers and other entities for collateral with a simultaneous agreement to return the collateral for the same securities in the future. The Systems have contracted with Northern Trust, their custodian, to manage the securities lending program for the Systems and all securities held in a separately managed account are available for lending. As securities lending agent, Northern Trust calculates collateral margins and accepts collateral in the form of cash or marketable securities and irrevocable bank letters of credit for all securities lending transactions. Transactions are collateralized at 102 percent of market value (contract value) for domestic securities and 105 percent of market value (contract value) for international securities. Collateral is marked to market daily. When a loan is secured by cash, a rebate is negotiated and the cash collateral is invested according to the guidelines in the collateral pool.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

As designated by the Boards, cash collateral is invested in Northern Trust’s Core U.S.A. Collateral Section (short-term investment pool), which, as of June 30, 2009 had a weighted average duration of 15 days and an average monthly yield of 0.622 percent. The relationship between the maturities of the investment pool and the System’s loans is affected by the maturities of the security loans made by other entities that use the Northern Trust Core U.S.A. Collateral Section and a definitive statement of that relationship cannot be formulated by the System. There are no credit risks related to the securities lending transactions as of June 30, 2009.

Northern Trust will ensure that, in any agreement with a borrower, it retains its absolute right to terminate the agreement without cause, upon short notice and without any penalty. The System cannot pledge or sell collateral securities received unless the borrower defaults. In the event of a borrower default, Northern Trust indemnifies the System against losses and will replace or reimburse the System for any borrowed securities not replaced. In general, the average term of all System loans is overnight or “on demand”. All securities loans can be terminated on demand by either the lender or the borrower, although the average term of the System’ s loans was approximately 59 days as of June 30, 2009.

Prior to June 30, 2008, due to the nature of the securities lending program and Northern Trust’s collateralization of loans at 102% and 105% plus accrued interest for fixed income securities, we believed that there were no material credit risks to the Systems as defined in GASB Statement No. 28 and GASB Statement No. 40 by our participation in the securities lending program. However, with the short-term illiquid and volatile environment for fixed income markets, we believe that there is more risk in the credit quality of the collateral pool than previously anticipated. Reduced demand in securities lending given recent brokerage firm failures is an indication of the overall increasing risks associated with securities lending.

Employees Retirement System

Fair Value of Collateral Received for Loan Securities as of June 30, 2009

Collateralized by Cash Securities Totals

U.S. Government and Agency $ 23,670,677 $ 320,357 $ 23,991,034 Domestic Equities 49,252,792 (65,624) 49,187,168 Domestic Fixed Equities 10,535,107 (194,420) 10,340,687 International Fixed Equities 23,688,201 248,530 23,936,731

Total $ 107,146,777 $ 308,843 $ 107,455,620

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Employees Retirement System

Fair Value of Loaned Securities as of June 30, 2009

Collateralized by Cash Securities Totals

U.S. Government and Agency $ 23,133,141 $ 312,160 $ 23,445,301 Domestic Equities 47,805,525 (65,229) 47,740,296 Domestic Fixed Equities 10,260,084 (190,972) 10,069,112 International Equities 22,326,896 234,490 22,561,386

Total $ 103,525,646 $ 290,449 $ 103,816,095

Fire and Police System

Fair Value of Collateral Received for Loan Securities as of June 30, 2009

Collateralized by Cash Securities Totals

U.S. Government and Agency $ 26,690,108 $ 361,223 $ 27,051,331 Domestic Equities 55,535,477 (73,995) 55,461,482 Domestic Fixed Equities 11,878,965 (219,220) 11,659,745 International Equities 26,709,868 280,232 26,990,100

Total $ 120,814,418 $ 348,240 $ 121,162,658

Fire and Police System

Fair Value of Loaned Securities as of June 30, 2009

Collateralized by Cash Securities Totals

U.S. Government and Agency $ 26,084,005 $ 351,979 $ 26,435,984 Domestic Equities 53,903,597 (73,550) 53,830,047 Domestic Fixed Equities 11,568,860 (215,332) 11,353,528 International Equities 25,174,915 264,402 25,439,317

Total $ 116,731,377 $ 327,499 $ 117,058,876

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 16. OTHER INFORMATION

(a) Construction Retainage Escrow Accounts

The City enters into construction contracts with various outside third-party contractors with respect to major capital projects. As the construction progresses, progress payments are made to the contractors. Portions of the payments, retention payments, are paid into an escrow account. While these funds are earned by the contractors, generally 5% to 10% of the contract amount, they are not released out of the escrow account to the contractor until some agreed upon date, usually the completion of the job. These amounts are retained for a variety of reasons; as an incentive to complete the job in a timely manner, or as a fund for the benefit of suppliers and subcontractors. The City may not convert the funds in these escrow accounts for its use unless a breach of contract occurs. At June 30, 2009, the City had made payments into various contract escrow accounts in the amount of approximately $2.97 million dollars.

(b) Fund Equity

The Redevelopment Agency, Debt Service Fund, the Stadium Fund, and the Parking Fund - Enterprise Funds, and the Risk Management Internal Service Fund all had deficit fund balances at June 30, 2009. The deficit in the Redevelopment Debt Service Fund ($75,494,614) is primarily the result of timing differences. The RDA obtains advances from the City to fund current redevelopment projects. The advances will ultimately be reimbursed through the RDA’s receipt of tax increment which results once redevelopment projects are completed and placed on tax rolls. The deficit in the Stadium Fund ($4,838,473) is primarily the result of the cost of operations, which includes non-cash depreciation, outpacing City sponsored event revenues. The City has engaged the services of a third party Management Company to assist with Stadium (and Convention Center) operations. The deficit in the Parking Fund ($9,086,151) is the result primarily of the cost of operations which includes depreciation, outpacing usage and the collection of user fees. The City is investigating the reduction of costs and enhanced revenue generation. The deficit in Risk Management ($71,784,576) is primarily due to increases in the cost of services. The city continues to look for ways to reduce employee and litigation related losses and costs as well as pursuing cost recovery efforts where possible.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009 Note 17. SUBSEQUENT EVENTS

Tax and Revenue Anticipation Bonds

In July 2009, the City continued participation in the California Statewide Communities Development Authority (CSCDA) in order to be included in their Tax and Revenue Anticipation Notes program. The CSCDA authorized the issuance of Tax and Revenue Anticipation Notes, Series A-2, at a coupon rate of 2.0% and a net interest cost of 0.44%. The principal amount of the bonds was $56,300,000, which was used to fund uneven cash flows in the General Fund due to timing differences between revenues and expenditures.

Loan Guarantees/Subsequent Events

Granite Park

In early 2005, the City of Fresno entered into a Contingent Debt Purchase Agreement between the City of Fresno (“City”) and Bank of the West (“Bank”), effectively guaranteeing the Bank’s up to $5.2 million loan made pursuant to a Credit Agreement (“Loan”) to “The Granite Park Kids’ Foundation” a California nonprofit corporation (“Borrower”) regarding developing a 20-acre sports-related complex, (“Project”) adjacent to office and commercial retail amenities. The City’s assistance with this Project was in accordance with its 2004 Economic Development Agreement and Economic Development Policy and was viewed as fostering economic stability and growth in an economically challenged area of the City.

Through the Contingent Debt Purchase Agreement the City provided the Bank a promise to pay in the event of Borrower’s default on the Loan. Upon execution of this “guarantee”, the City became obligated to buy the Bank’s Loan including its insured first trust deed position on the Project property. The City would then own the Loan and assume the Bank’s insured first position deed of trust, and other non-real property collateral.

On October 28, 2008, an amendment to the Contingent Debt Purchase Agreement between the City and the Bank was approved, which allowed the Bank to default the Borrower on the Loan and commence non-judicial foreclosure and related collection proceedings. The amendment also reserved the City’s rights to concurrently pursue a cross-default against the parties to the 2004 Economic Development Agreement.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

On April 6, 2009, the Bank informed the Borrower that they were in default of the Loan per Section 7.1 of the Credit Agreement (failure to pay the principal amount of the obligations when due and failure to pay the interest on the obligations within five days of when due). The Bank also declared all of the Borrower’s Loan obligations owing to the Bank under the Credit Agreement immediately due and payable. At that time the amount due was $4,992,670 in principal and interest of $475,967 as well as late fees in the amount of $41,855 for a total of $5,510,492.

On June 23, 2009, the Bank made a formal demand on the City to purchase the Loan Package (as defined in the Agreement). The demand, pursuant to the Contingent Debt Purchase Agreement, called for a “Purchase Price” of $4,992,670 in outstanding principal, accrued and unpaid interest at a pre-default rate for three months in the amount of $107,518 plus $5,000 in attorney’s fees and other costs and expenses incurred by the Bank. On September 17, 2009, the City deposited $5,105,271 in a Loan purchase escrow with First American Title Company. The City utilized funds from its cash pool with the intention of ultimately issuing long term bonds to finance the acquisition over 30 years, consistent with a previously approved bond reimbursement resolution. The Loan purchase escrow remained open until December 31, 2009 at which time the City purchased the Loan and assumed the first position insured trust deed lien along with other non-real property collateral and personal guarantees. Additionally, the City received $4,430 in net interest earnings refunded to it as part of the escrow close.

As part of the Loan purchase, the City and the Bank each reserved certain rights and remedies, and the City received the benefit of certain indemnities, regarding a pending Complaint for Injunctive Relief to Foreclose Mechanic’s Lien and Damages filed in the Superior Court of California by Shady Tree Farms, a landscape firm. The Complaint variously asserts a later in time site improvement lien against the Project property, and names the Borrower, Bank, and City, among others. The City and the Bank are being defended in the litigation by insurance defense counsel pursuant to the trust deed lender’s policy, at no cost to the City or the Bank. In January of 2010, the Fresno City Council approved a non-judicial foreclosure sale of the Project property. The City has instructed the trustee on the trust deed to proceed with the public foreclosure sale. The City is allowed to participate in the sale, including by credit bid. It is anticipated that the sale will be scheduled to occur in March of 2010.

As of the date of the audit opinion the City is in the preliminary stages of assembling a bond package but anticipates the sale and issuance of the Bonds in late April to early May 2010. Until such time as bonds are issued the City recorded at June 30, 2009 an accrued liability of $5,105,271 and a capital outlay of $5,105,271. As it relates to the Government-Wide Financial Statements the impact has been to reflect an accrued liability and a deposit also in the amount of $5,105,271.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

Fresno Metropolitan Museum of Art and Science

In July 2007, the City Council of the City of Fresno adopted Resolution No. 2007-264 approving a Contingent Debt Purchase Agreement (Guaranty) on the part of the City of Fresno, of a proposed interim, commercial, draw loan in the principal amount of up to $15 million (“Loan”) between United Security Bank (“Bank”) and the Fresno Metropolitan Museum of Art and Science (“Met”).

The final approved documents included (1) a short-term commercial draw Loan for up to $15,000,000 between the Bank and the Met; (2) a Performance Guarantee between the City and the Met secured by a Deed of Trust on all land owned by the Met and (3) certain Loan documents between the Bank and the Met including without limitation, a Deed Trust Note, an assignment of pledged goods, a Loan agreement and other related documentation.

The primary purpose of the Loan was for the Met to restart and to complete renovation to its 1922 historically registered, former Fresno Bee building. The renovations that needed to be completed, among other things, were necessary to meet fire, safety, seismic and environmental building standards. Work on the property had been suspended and without the Loan would not recommence and would delay the project while the Met raised the necessary funds or obtained other funding for the project.

The Contingent Debt Purchase Agreement was a condition precedent to the Bank’s Loan commitment to the Met for the Loan and set forth the terms and conditions under which the Bank could demand that the City purchase the Loan. It was also a condition precedent to the City entering into the Purchase Agreement that the Met enter into the Met Guaranty, secured by a Deed of Trust that gave the City a lien on the Met’s real property and other real property.

In mid-spring 2008 the Met was actively seeking to secure tax-exempt permanent financing. It was working closely with a public development authority and intended to issue sufficient bonds to retire the line of credit with United Security Bank and completely release the City of Fresno from the Contingent Debt Purchase Agreement.

The maximum principal amount of the Loan with United Security Bank was $15 million and initially was payable in full no later than June 30, 2008. The Bank and the City agreed to extend the Loan to September 30, 2008 and then again to January 30, 2009. On January 29th, the City Council approved the third and final extension to the Loan guarantee between the City and United Security Bank.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

The outstanding principal balance of the Loan initially bore interest at a rate not exceeding the Bank’s reference rate, minus 0.5 percent, indexed daily. The Rate at July 1, 2008 was 4.5 percent. With the final extension, the loan interest rate applicable became 50 basis points less than the Bank’s Prime rate, adjusted daily, but not less than 5.25 percent per annum. During the extension period, the Met continued to seek permanent financing. The Met found that as a result of economic conditions, part of any proposed variable rate debt package was requiring the continuing guarantee of the City. The tax-exempt financing market was heavily impacted by the fall-out of the subprime market.

On May 13, 2009 the Met Museum and the City of Fresno received a letter from United Security Bank stating that it was exercising its right to immediately accelerate the obligations under the Loan Documents and declare the full-unpaid balance of the Note all due and payable. As of May 13, 2009 the amount due and owing was $14,884,860, inclusive of principal, interest and costs, but not inclusive of attorneys fees incurred. The Bank identified the letter as being the 15-day notice of “right to cure”. The right to cure was a prerequisite to the loan purchase triggering events contained in the Contingent Debt Purchase Agreement requiring the City to purchase the United Security Bank Loan Documents. A letter dated May 28, 2009 from Powell/Pool, legal counsel for United Security Bank sent to the Met and the City made a formal demand that the City purchase the Bank’s loan documents no later than 30 calendar days from the date of the letter.

The City, the Met and the Bank continued discussions and on June 23rd, Council made a motion authorizing the $15.5 million transfer of cash adding that the off-setting revenue line item as loan proceeds either from internal borrowing or proceeds that would be negotiated from other sources in the course of the coming year.

The City worked closely with United Security Bank and on June 8, 2009 obtained the concession to allow the City to pay the loan in full on July 15, 2009. A Modification Agreement was taken to Council on June 23th and approved.

The City and the Met discussed Deal Points which included the Met placing deeds on the Met real property into escrow. The Met would be held fully responsible for any liabilities for any parcel until the City formally accepted the conveyance. The Met represented that there were no known environmental contamination issues on any of the Met parcels, except potential on the “Ace Garage” parcel and the removal of underground storage tanks from the parcel at the corner of Van Ness and Stanislaus. The City could take title to the property and would be free to sell or develop the parcels not representing the museum building footprint as the City deemed appropriate. The Met could reserve a right of first refusal to repurchase the museum building and two southerly parcels fronting Van Ness.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

On July 14, 2009 a Memorandum of Understanding between the Met and the City of Fresno which included lease provisions which would allow the Met to lease the museum building from the City was approved by Council. The lease was to be negotiated with an initial 3-year term with an option to extend provided that Met financial performance goals were met and the Met was not in material default for up to ten years initially. Lease payments would be deferred for a period of three years with only agreed upon payments due during the time as long as the Met performed as agreed and remained a tenant in the building.

Base rent for the first year was to be $1,000 per month; $5,000 per month in the second year; and $10,000 per month in the third year. Parking would be negotiated separately. The difference between the negotiated base rent and the actual City carrying costs would be deferred. The MOU went on to describe various other provisions including specific performance standards. The MOU was signed by the Met on July 14, 2009 and the City on July 24th.

On July 14, 2009, the City of Fresno wired $15,111,940 to Bank of America in the name of Chicago Title Company to pay off the United Security Bank loan for the Met Museum. While the City obtained the deeds, it did not record them as there is concern that taking title would destroy a defense available in a mechanics lien action. The City is however in physical possession of the deeds executed by the Met.

On September 10, 2009 Council approved a Resolution in which the City declared its official intent to reimburse certain expenditures from proceeds of indebtedness for expenses incurred related to the acquisition of the Met loan. The City intends to issue bonds or obtain a short term loan until such time as bonds can be issued and intends to do so prior to June 30, 2010. The City is working closely with various agencies to pursue temporary and/or permanent financing.

On September 17, 2009, in a joint meeting of the Fresno City Council with the Redevelopment Agency, the Redevelopment Agency and City staff were directed to draft a joint Request for Proposal (RFP) to solicit development proposals for the Fresno Metropolitan Museum block and the parcel across the street.

The City utilized funds from its cash pool to fund the pay off of the United Security Bank loan with the intention of ultimately issuing long term bonds to finance the acquisition over 30 years. As of the date of the audit opinion, the City is in the preliminary stages of assembling a bond package but anticipates issuance of the Bonds in late to early April/May 2010.

On November 17, 2009, the City took title to eight of the nine museum parcels, all but the Ace Garage. Until such time as bonds are issued the City has recorded at June 30, 2009 an accrued liability of $15,111,940. As it relates to the Government-Wide Financial Statements the impact has been to reflect an accrued liability and a deposit also in the amount of $15,111,940.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

On January 5, 2010 the President of the Board of Directors for the Met announced that the museum was closing its doors permanently due to unsustainable financial losses. The City intends to seek interested parties, including other not-for-profit organizations that would have a desire to lease space in the existing museum facility. The Met has until January 31, 2010 to vacate the building but may store items in the basement through April 30.

Radisson Hotel Ground Lease Sale and Subsequent Convention Center Bond Defeasance

On October 1, 2009, the City Council/Agency Board approved an amendment to the Ground Lease Agreement and a Purchase and Sale Agreement between the Fresno Redevelopment Agency and Uniwell Fresno Hotel, LLC for the sale of the underlying fee interest in the land under the Radisson Hotel on Ventura Street for $2.9 million. In conjunction with this action, a new 2009 Reimbursement Agreement was approved between the Fresno Redevelopment Agency and the City of Fresno related to the Convention Center Project Area.

The 2009 Reimbursement Agreement includes payment by the Agency to the City of the net proceeds from the sale, recalculation and reduction of the principal balance of the Convention Center Project Area notes between the City and the Agency, application of prior balances against the debt, and consolidation of the remaining note balances.

In conjunction with the above agreement, council, also on October 1, authorized City staff to defease and prepay the 1996 Series A Conference Center Improvement Project Certificates of Participation (Bonds) which will result in a reduction of annual debt service of approximately $1.05 million in both 2011 and 2012.

State Legislation Affecting the Fresno Redevelopment Agency

In July 2009, trailer bill ABX4-26 was passed as part of the FY 2009-2010 state budget requiring redevelopment agencies to pay the State of California a statewide total of $2.05 billion; $1.7 billion in FY 2009-2010 and $350 million in FY 2010-2011, to a Supplemental Education Revenue Augmentation Fund (SERAF) deposited with the County. On October 20, 2009, the California Redevelopment Association (CRA) filed a second lawsuit against the state to prevent ABX4-26 from going into effect. Should the state prevail in the lawsuit, the Agency’s share of the SERAF take is $6,736,202. The Agency has until May 10, 2010 to submit the SERAF payment to the County of Fresno.

Pursuant to the passing of the state budget in September 2008, trailer bill AB 1389 was signed by the Governor requiring redevelopment agencies in California to make a one year payment to the Education Revenue Augmentation Fund (ERAF) of $350 million for FY 2008-2009. The Agency’s share of the ERAF take was to be $1,385,523 in FY 2008-2009. In December 2008, the California Redevelopment Association (CRA) sued the State of California and in April 2009, Sacramento Superior Court Judge Lloyd Connelly ruled in favor of redevelopment agencies and invalidated the 2008 legislation. The state appealed the decision but subsequently dropped the appeal in September 2009, eliminating the ERAF obligation for FY 2008-2009.

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City of Fresno, California Notes to the Basic Financial Statements For the Fiscal Year Ended June 30, 2009

In addition, AB 1389 was amended on September 15, 2008 to require that by October 1 for each project area (a) adopted on or after January 1, 1994, (b) amended to add area on or after January 1, 1994, or (c) amended on or after January 1, 1994 to extend time limits on the life of the plan or for incurring new indebtedness, or to increase the tax increment limit cap, each agency shall submit a report to the county auditor and each affected taxing entity describing each project area including its location, purpose, date established, date or dates amended, and statutory and contractual pass-through requirements. The new reporting requirement is in response to the State’s concerns that pass-through payments have not been properly calculated. In Fresno County, the County Auditor-Controller’s Office calculates the pass through payments the Agency is required to make from the gross tax increment receipts. In the process of reviewing the new reports, the County will verify its prior calculations to determine whether pass through payments could potentially be due to taxing entities in the various project areas.

174

City of Fresno – 50th CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

REQUIRED SUPPLEMENTARY INFORMATION

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - GENERAL FUND YEAR ENDED June, 30, 2009

Actual Variance with Amounts Final Budget Budgeted Amounts Budgetary Over Original Final Basis (Under)

Resources (inflows): Taxes: Property Taxes $ 72,426,500 $ 72,426,500 $ 117,613,827 $ 45,187,327 Sales Taxes 77,658,400 77,658,400 70,297,688 (7,360,712) Other Taxes 36,620,000 36,620,000 34,603,952 (2,016,048) Licenses and Permits 276,400 276,400 316,575 40,175 Intergovernmental: State Motor Vehicle In-Lieu 41,893,000 41,893,000 1,817,646 (40,075,354) Other State Revenue 393,500 393,500 1,392,255 998,755 Other Intergovernmental 2,461,000 2,496,800 1,280,386 (1,216,414) Charges for Services: Charges for Services 15,383,900 15,373,600 13,072,767 (2,300,833) Fines and Violations 7,855,500 7,855,500 3,733,771 (4,121,729) Use of Money and Property 754,600 754,600 (231,633) (986,233) Miscellaneous 13,864,800 14,515,700 11,107,593 (3,408,107) Other Financing Sources: Transfers from Other Funds 58,343,600 58,343,600 58,178,507 (165,093) Loan Proceeds 56,000,000 56,000,000 55,885,050 (114,950)

Total Available for Appropriations 383,931,200 384,607,600 369,068,384 (15,539,216)

Charges to Appropriations (outflows): General Government: Finance Department 15,215,500 15,215,500 14,635,599 (579,901) Mayor and City Council 3,848,400 4,152,800 3,632,612 (520,188) Other General Government 4,299,200 5,099,200 4,926,742 (172,458) Public Protection: Police Department 139,957,500 139,537,200 134,990,983 (4,546,217) Fire Department 45,601,800 45,588,100 44,206,978 (1,381,122) Public Ways & Facilities 16,572,800 16,917,200 15,241,622 (1,675,578) Culture and Recreation 23,277,800 23,612,100 22,773,658 (838,442) Community Development 4,047,900 3,047,800 2,285,380 (762,420) Capital Outlay 3,388,800 3,345,200 2,876,377 (468,823) Debt Service 56,000,000 56,000,000 55,205,000 (795,000) Other Financing Uses: Transfers to Other Funds 78,714,400 79,714,500 76,151,248 (3,563,252)

Total Charges to Appropriations 390,924,100 392,229,600 376,926,199 (15,303,401)

Excess (Deficit) Resources Over Appropriations $ (6,992,900) $ (7,622,000) $ (7,857,815) $ (235,815)

See accompanying notes to the required supplementary information.

176 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - GENERAL FUND YEAR ENDED June, 30, 2009

Explanation of differences between budgetary inflows and outflows and GAAP Revenues and Expenditures:

Sources/inflow of Resources: Actual amounts (budgetary basis) available for appropriation from the Budget to Actual Comparison schedule. $ 369,068,384

Differences - Budget to GAAP The city budgets for taxes, intergovernmental and Charges for Services on the (4,689,360) cash basis, rather than on modified accrual basis.

Interfund reimbursements are not revenue and are expenditures for financial reporting (5,725,507)

Unrealized Gain on Cash Valuation is not budgeted as an inflow of resources 27,839

Accrued interest on interfund advances is not budgeted as an inflow of resources. 785,475

Transfers from other funds are inflows of budgetary resources but are not revenues for financial reporting purposes. (58,178,507)

The proceeds from loans are inflows of budgetary resources but are not revenues for financial reporting purposes. (55,885,050)

Total revenues as reported on the statement of Revenues, Expenditures, and Changes in Fund Balance-Governmental Funds. $ 245,403,274

Uses/Outflows of Resources

Actual amounts (budgetary basis) "total charges to appropriations" from the Budget to Actual Comparison schedule. $ 376,926,199

Differences--budget to GAAP: The city budgets for expenditures on the cash basis, rather rather than on the modified accrual basis. 9,063,720

Interfund reimbursements are a reduction of expenditures for financial reporting 5,725,507

Pension Obligation bond debt payments recognized as transfers out to other funds (12,508,591)

The issuance of interfund loans are outflows of budgetary resources but are not expendittures for financial reporting purposes. (517,473)

Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (76,151,248)

The repayment of loans are outflows of budgetary resources but are not expenditures for financial reporting purposes. (55,205,000)

Total expenditures as reported on the statement of Revenues, Expenditures, and Changes in Fund Balance-Governemental Funds. $ 247,333,114

177 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - GRANTS SPECIAL REVENUE FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Amounts Final Budget Budgeted Amounts Budgetary Over Original Final Basis (Under)

Resources (inflows):

Intergovernmental: Federal Grants $ 34,187,100 $ 50,948,900 $ 20,317,227 $ (30,631,673) State Grants 21,199,600 26,790,400 4,384,054 (22,406,346) Local Support 1,297,600 1,386,000 110,601 (1,275,399) Charges for Services 2,551,300 2,551,300 2,205,090 (346,210) Use of Money and Property (8,500) (8,500) 60,513 69,013 Miscellaneous 11,293,600 11,293,600 807,819 (10,485,781) Other Financing Sources: Transfers from Other Funds 1,433,500 1,433,500 687,354 (746,146)

Total Available for Appropriations 71,954,200 94,395,200 28,572,658 (65,822,542)

Charges to Appropriations (outflows):

General Government 1,507,000 1,938,400 1,225,112 (713,288) Public Protection 6,166,200 9,656,500 7,055,176 (2,601,324) Public Ways & Facilities 8,407,700 9,987,800 4,765,275 (5,222,525) Culture and Recreation 991,600 1,217,500 1,194,199 (23,301) Community Development 28,036,000 28,036,000 8,205,921 (19,830,079) Capital Outlay 31,126,200 49,205,300 9,539,881 (39,665,419) Other Financing Uses: Transfers to Other Funds 375,000 375,000 452,364 77,364

Total Charges to Appropriations 76,609,700 100,416,500 32,437,928 (67,978,572)

Excess (Deficit) Resources Over Appropriations $ (4,655,500) $ (6,021,300) $ (3,865,270) $ 2,156,030

See accompanying notes to the required supplementary information.

178 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - GRANTS SPECIAL REVENUE FUND YEAR ENDED JUNE 30, 2009

Explanation of differences between budgetary inflows and outflows and GAAP Revenues and Expenditures:

Sources/inflow of Resources: Actual amounts (budgetary basis) available for appropriation from the Budget to Actual Comparison schedule. $ 28,572,658

Differences - Budget to GAAP Grant reimbursements are budgeted on the cash basis rather than on the modified accrual basis. (205,157)

Accrued interest on interfund advances is not budgeted as an inflow of resources. 945,467

Transfers from other funds are inflows of budgetary resources but are not (687,354) revenues for financial reporting purposes.

The receipt of loan payments are inflows of budgetary resources but are not revenues for financial reporting purposes. (768,233)

Total revenues as reported on the statement of Revenues, Expenditures, and Changes in Fund Balance-Governmental Funds. $ 27,857,381

Uses/Outflows of Resources

Actual amounts (budgetary basis) "total charges to appropriations" from the Budget to Actual Comparison schedule. $ 32,437,928

Differences--budget to GAAP: The city budgets for expenditures on the cash basis, rather rather than on the modified accrual basis. (1,075,495)

Decrease in allowance for doubtful accounts 942,984

Pension Obligation bond debt payments recognized as transfers out to other funds (170,296)

Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes. (452,364)

The issuance of notes receivable are outflows of budgetary resources but are not expendittures for financial reporting purposes. (1,869,943)

Total expenditures as reported on the statement of Revenues, Expenditures, and Changes in Fund Balance-Governemental Funds. $ 29,812,814

See accompanying notes to the required supplementary information.

179 City of Fresno, California Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2009

Budgetary Data

The City adopts annual budgets for all governmental funds on the cash basis of accounting plus encumbrances. The budget includes: (1) the programs, projects, services, and activities to be provided during the fiscal year, (2) the estimated resources (inflows) and amounts available for appropriation, and (3) the estimated charges to appropriations. The budget represents a process through which policy decisions are made, implemented, and controlled. The City Charter prohibits expending funds for which there is no legal appropriation.

The following procedures are used in establishing the budgetary data reflected in the budgetary comparison schedules.

Original Budget

(1) Prior to June 1, the Mayor submits to the City Council a proposed detailed operating budget for the fiscal year commencing July 1. The operating budget includes proposed expenditures and the means of financing them.

(2) Public hearings are conducted to obtain taxpayer comment on the proposed annual budget. The Mayor and his staff analyze, review and refine the budget submittals.

(3) Prior to July 1, the budget is legally enacted through adoption of a resolution by the City Council.

Final Budget

(1) Certain annual appropriations are budgeted on a project or program basis. If such projects or programs are not completed at the end of the fiscal year, unexpended appropriations, including encumbered funds, are carried forward to the following year. In certain circumstances, other programs and regular annual appropriations may be carried forward after appropriate approval. Annually appropriated funds, not authorized to be carried forward, lapse at the end of the fiscal year. Appropriations carried forward from the prior year are included in the final budgetary data.

(2) The City Manager is authorized to transfer funds already appropriated within a department's budget within a fund. However, any revisions that alter the total appropriation of a department within a fund must be approved by the City Council. Expenditures may not legally exceed budgeted appropriations at the department level within a fund.

(3) The City adopts an annual budget for the General Fund, Special Revenue Funds and Capital Projects Funds. No budgets are legally adopted for Debt Service Funds, the Redevelopment Agency and Financing Authorities & Corporations.

180 City of Fresno, California Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2009

Budgets are adopted on the cash basis. Budgeted amounts are reported as amended. During the year, several supplementary appropriations were necessary but were not material in relation to the original appropriations. Supplemental appropriations during the year must be approved by the City Council.

Budget Development

The preparation of the budget document is the result of a Citywide effort. Each department is presented with an operating base budget that is used as the foundation for building their requests for the operations of their organizations. All one-time expenditure increases are removed, except for those demonstrable and mandatory. A five-year capital budget is required from all departments. The purpose is to give the Mayor and Council a tool to plan for the future as well as to more realistically reflect the timing of many capital projects that take more than one year to complete.

Departments submit their requests to be analyzed and reviewed by the City’s Budget and Management Studies Division (BMSD). Requests are evaluated based on individual operations, City funding resources and the goals and strategies identified by each organization related to the impact on performance measures. Recommendations are presented to the Mayor and City Manager in a review meeting comprised of management representatives from each department and BMSD. Upon final decisions of format and content, the Mayor’s Proposed Budget Document is printed and presented to Council for deliberation and adoption. The Adopted Budget Document is prepared to include all the various changes approved by the Council.

Budgetary Results Reconciliation

(a) Basis Differences

The City’s budgetary process is based upon accounting on a basis other than generally accepted accounting principles (GAAP). The results of operations (actual) are presented in the budget and actual comparison schedule in accordance with the budgetary process (Budget basis) to provide a meaningful comparison with the budget, while the financial statements are presented using the GAAP basis. Loan proceeds, loan repayments, transfers and interfund reimbursements primarily relate to basis differences.

(b) Timing Differences

One of the major differences between the Budget basis and GAAP basis are timing differences. Timing differences represent transactions which are accounted for in different periods using Budget basis versus GAAP basis reporting. Revenues such as property tax, sales tax and grant revenues recognized on a cash basis have been deferred for GAAP reporting, while various expenditures not recognized on the cash basis have been accrued for GAAP reporting.

181 City of Fresno, California Required Supplementary Information For the Fiscal Year Ended June 30, 2009

Schedules of Funding Progress

EMPLOYEES RETIREMENT SYSTEM Schedule of Funding Progress (Dollars in Millions)

(1) (2) (3) (4) (5) (6) (Prefunded)/

2006 $ 848 $ 614 138.1% $ (234) $ 111 (209.7%) 2007 927 631 146.8% (295) 122 (241.5%) 2008 981 690 142.2% (291) 133 (218.7%)

FIRE AND POLICE RETIREMENT SYSTEM Schedule of Funding Progress (Dollars in Millions)

(1) (2) (3) (4) (5) (6) (Prefunded)/

2006 $ 906 $ 723 125.4% $ (184) $ 83 (222.4%) 2007 1,001 773 129.5% (228) 90 (254.4%) 2008 1,067 830 128.5% (237) 99 (239.3%)

RETIREES HEALTHCARE PLAN Schedule of Funding Progress

Retirees Healthcare Plan Blue Collar Retirees General Healthcare Employees Safety Tier 1 Safety Tier 2 Plan Total June 30, June 30, June 30, June 30, Actuarial Valuation Date 2008 2008 2008 2008 n/a Actuarial Value of Assets $0 $0 $0 $0 $0 Unfunded Actuarial Accrued Liability $22,942,900 $53,732,100 $52,328,900$ (179,300) $ 128,824,600 Funded Ratio 0% 0% 0% 0% 0% Covered Payroll$ 91,602,100 $ 24,273,200 $ 67,033,300 $ 33,074,500 $ 215,983,100 UAAL Percentage of Covered Payroll 25% 221% 78% -1% 60%

182 City of Fresno – 50th CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

NONMAJOR GOVERNMENTAL FUNDS

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS JUNE 30, 2009

Special Revenue Debt Service Financing Authorities Special Community and Gas Tax Measure C Services City Debt Corporations

Assets

Cash and Investments $ - $ 6,007,370 $ 13,581,224 $ 1,902,838 $ 959,129 Receivables, Net - 40,667 268,562 14,177 7,463 Grants Receivable 4,055,949 - 20,763 - - Intergovernmental Receivables 588,092 758,726 1,342,551 - - Due From Other Funds - 2,770 2,963 - - Advances to Other Funds 3,258,209 257,225 - - - Property Held for Resale - - - - - Restricted Cash 981,160 - - 724,291 66,176,128 Loans, Notes, Leases, Other Receivables - - - - -

Total Assets $ 8,883,410 $ 7,066,758 $ 15,216,063 $ 2,641,306 $ 67,142,720

Liabilities and Fund Balances Liabilities: Accrued Liabilities $ 505,206 $ 660,751 $ 401,985 $ - $ 817 Deferred Revenue 4,074,894 - - - - Due to Other Funds 815,559 - - - - Deposits From Others - - 95,767 - -

Total Liabilities 5,395,659 660,751 497,752 - 817

Fund (Deficit) Balances: Reserved for: Encumbrances 878,127 4,121,250 2,095,384 - - Non-current Receivables 3,258,209 257,225 - - - Debt Service 981,160 - - 201 17,050,057 Property Held for Resale - - - - - Unreserved, Undesignated (Deficit) (1,629,745) 2,027,532 12,622,927 2,641,105 50,091,846

Total Fund Balances 3,487,751 6,406,007 14,718,311 2,641,306 67,141,903

Total Liabilities and Fund Balances $ 8,883,410 $ 7,066,758 $ 15,216,063 $ 2,641,306 $ 67,142,720

184 Capital Projects Total Nonmajor City UGM Redevelopment Special Governmental Combined Impact Fees Agency Assessments Funds

$ 4,046,566 $ 12,238,967 $ 17,995,050 $ 5,871,228 $ 62,602,372 11,430 99,337 - 47,618 489,254 - - - - 4,076,712 - - - 63,464 2,752,833 818,344 4,035,991 - 1,283,369 6,143,437 15,282,524 - - - 18,797,958 - - 33,633,499 - 33,633,499 - - 68,780 - 67,950,359 - - 2,528,076 - 2,528,076

$ 20,158,864 $ 16,374,295 $ 54,225,405 $ 7,265,679 $ 198,974,500

$ 3,050,411 $ 683,789 $ 117,175 $ 441,856 $ 5,861,990 - - - - 4,074,894 - - 427,003 - 1,242,562 - - - - 95,767

3,050,411 683,789 544,178 441,856 11,275,213

15,750,338 4,260,440 2,400,003 116,334 29,621,876 15,282,524 - 2,528,076 - 21,326,034 - - - - 18,031,418 - - 33,633,499 - 33,633,499 (13,924,409) 11,430,066 15,119,649 6,707,489 85,086,460

17,108,453 15,690,506 53,681,227 6,823,823 187,699,287

$ 20,158,864 $ 16,374,295 $ 54,225,405 $ 7,265,679 $ 198,974,500

185 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2009

Special Revenue Debt Service Financing Authorities Special Community and Gas Tax Measure C Services City Debt Corporations Revenues

Taxes $ 9,651,705 $ 7,404,177 $ 759,830 $ - $ - Intergovernmental 1,413,443 - 5,997,642 - - Charges for Services - - 3,198,777 - - Use of Money and Property 164,841 126,410 442,233 69,762 863,182 Miscellaneous 339,711 2,862 5,586,954 - -

Total Revenues 11,569,700 7,533,449 15,985,436 69,762 863,182

Expenditures Current: General Government - - 1,279,527 18,006 1,035,026 Public Protection - - 4,013 - - Public Ways and Facilities 4,725,371 - 5,090 - - Culture and Recreation - - 5,590 - - Community Development - - 11,439,747 - - Capital Outlay 1,785,577 5,469,257 446,110 - - Debt Service: Principal 760,000 - - 5,316,583 6,710,000 Interest 248,422 - - 12,384,905 6,898,986

Total Expenditures 7,519,370 5,469,257 13,180,077 17,719,494 14,644,012

Excess (Deficiency) of Revenue Over (Under) Expenditures 4,050,330 2,064,192 2,805,359 (17,649,732) (13,780,830)

Other Financing Sources (Uses) Transfers In 1,629,469 40,596 664,191 17,701,901 16,222,499 Transfers Out (2,438,209) (829,835) (1,238,757) - (32,977,711) Discount on Debt Issued - - - - (869,640) Long Term Debt Issued - - - - 46,790,000 Proceeds for Note Obligation - - - - -

Total Other Financing Sources (Uses) (808,740) (789,239) (574,566) 17,701,901 29,165,148

Net Change in Fund Balances 3,241,590 1,274,953 2,230,793 52,169 15,384,318

Fund Balances - Beginning 246,161 5,131,054 12,487,518 2,589,137 51,757,585

Fund Balances - Ending $ 3,487,751 $ 6,406,007 $ 14,718,311 $ 2,641,306 $ 67,141,903

186 Capital Projects Total Nonmajor City UGM Redevelopment Special Governmental Combined Impact Fees Agency Assessments Funds

$ - $ - $ - $ - $ 17,815,712 208,689 - - - 7,619,774 - 7,510,013 - - 10,708,790 540,538 353,498 444,427 162,364 3,167,255 637,718 64,656 421,857 4,217,930 11,271,688

1,386,945 7,928,167 866,284 4,380,294 50,583,219

- - - - 2,332,559 - - - - 4,013 - - - - 4,730,461 - - - - 5,590 - - - - 11,439,747 25,279,528 13,128,043 11,273,163 3,796,123 61,177,801

- 12,000 - - 12,798,583 - 878 - - 19,533,191

25,279,528 13,140,921 11,273,163 3,796,123 112,021,945

(23,892,583) (5,212,754) (10,406,879) 584,171 (61,438,726)

27,000,418 10,598,611 14,172,928 - 88,030,613 (2,661,353) (4,427,094) (200,000) (152,499) (44,925,458) - - - - (869,640) - - - - 46,790,000 600,000 - - - 600,000

24,939,065 6,171,517 13,972,928 (152,499) 89,625,515

1,046,482 958,763 3,566,049 431,672 28,186,789

16,061,971 14,731,743 50,115,178 6,392,151 159,512,498

$ 17,108,453 $ 15,690,506 $ 53,681,227 $ 6,823,823 $ 187,699,287

187 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - SPECIAL GAS TAX - SPECIAL REVENUE FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Actual Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis

Resources (inflows):

Taxes $ 8,301,800 $ 8,301,800 $ 9,651,705 $ 1,349,905 $ - $ 9,651,705 Intergovernmental 6,500,000 6,500,000 1,990,219 (4,509,781) (576,776) 1,413,443 Use of Money and Property (263,000) (263,000) (51,659) 211,341 216,500 164,841 Miscellaneous - - 339,711 339,711 - 339,711 Other Financing Sources: Transfers from Other Funds - - 87,127 87,127 1,542,342 1,629,469

Total Available for Appropriations 14,538,800 14,538,800 12,017,103 (2,521,697) 1,182,066 13,199,169

Charges to Appropriations (outflows):

Public Ways and Facilities 5,356,100 5,355,300 4,767,023 (588,277) (41,652) 4,725,371 Capital Outlay 1,876,900 1,942,900 2,184,524 241,624 (398,947) 1,785,577 Debt Service: Principal - - - - 760,000 760,000 Interest - - - - 248,422 248,422 Other Financing Uses: Transfers to Other Funds 2,029,600 2,029,600 2,376,944 347,344 61,265 2,438,209

Total Charges to Appropriations 9,262,600 9,327,800 9,328,491 691 629,088 9,957,579

Excess (Deficit) Resources Over Appropriations $ 5,276,200 $ 5,211,000 $ 2,688,612 $ (2,522,388) $ 552,978 $ 3,241,590

188 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - MEASURE C - SPECIAL REVENUE FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Actual Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis

Resources (inflows):

Taxes $ 8,914,600 $ 8,914,600 $ 8,374,345 $ (540,255) $ (970,168) $ 7,404,177 Use of Money and Property 54,000 54,000 113,760 59,760 12,650 126,410 Miscellaneous 200 200 2,863 2,663 (1) 2,862 Other Financing Sources: Transfers from Other Funds 300,000 300,000 340,892 40,892 (300,296) 40,596

Total Available For Appropriations 9,268,800 9,268,800 8,831,860 (436,940) (1,257,815) 7,574,045

Charges to Appropriations (outflows):

Public Ways and Facilities 6,770,200 9,019,200 - (9,019,200) - - Capital Outlay 3,318,300 5,219,800 5,482,793 262,993 (13,536) 5,469,257 Other Financing Uses: Transfers to Other Funds 600,400 600,400 1,074,831 474,431 (244,996) 829,835

Total Charges to Appropriations 10,688,900 14,839,400 6,557,624 (8,281,776) (258,532) 6,299,092

Excess (Deficit) Resources Over Appropriations $ (1,420,100) $ (5,570,600) $ 2,274,236 $ 7,844,836 $ (999,283) $ 1,274,953

189 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - COMMUNITY SERVICES FUND - SPECIAL REVENUE FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Actual Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis

Resources (inflows):

Taxes $ - $ - $ 597,384 $ 597,384 $ 162,446 $ 759,830 Intergovernmental 5,681,900 5,681,900 4,634,680 (1,047,220) 1,362,962 5,997,642 Charges for Services 2,320,000 2,701,400 3,198,777 497,377 - 3,198,777 Use of Money and Property 356,300 356,300 423,576 67,276 18,657 442,233 Miscellaneous 5,547,600 5,547,600 4,867,113 (680,487) 719,841 5,586,954 Other Financing Sources: Transfers from Other Funds 250,000 250,000 832,195 582,195 (168,004) 664,191

Total Available For Appropriations 14,155,800 14,537,200 14,553,725 16,525 2,095,902 16,649,627

Charges to Appropriations (outflows):

General Government 1,443,200 1,580,300 1,316,642 (263,658) (37,115) 1,279,527 Public Protection - - - - 4,013 4,013 Public Ways and Facilities - - - - 5,090 5,090 Culture and Recreation - - - - 5,590 5,590 Community Development 13,869,700 16,300,200 11,380,762 (4,919,438) 58,985 11,439,747 Capital Outlay 4,460,900 4,393,400 785,168 (3,608,232) (339,058) 446,110 Other Financing Uses: - Transfers to Other Funds - - 356,176 356,176 882,581 1,238,757

Total Charges to Appropriations 19,773,800 22,273,900 13,838,748 (8,435,152) 580,086 14,418,834

Excess (Deficit) Resources Over Appropriations $ (5,618,000) $ (7,736,700) $ 714,977 $ 8,451,677 $ 1,515,816 $ 2,230,793

190 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - CITY COMBINED - CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Actual Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis

Resources (inflows):

Intergovernmental $ - $ - $ 208,689 $ 208,689 $ - $ 208,689 Use of Money and Property 98,100 98,100 62,700 (35,400) 477,838 540,538 Miscellaneous 293,000 584,500 1,235,358 650,858 (597,640) 637,718 Other Financing Sources: Transfers Budgeted as Bond Proceeds: 505,800 505,800 3,400,316 2,894,516 23,600,102 27,000,418

Total Available for Appropriations 896,900 1,188,400 4,907,063 3,718,663 23,480,300 28,387,363

Charges to Appropriations (outflows):

Capital Outlay 36,281,800 58,690,400 25,002,550 (33,687,850) 276,978 25,279,528 Other Financing Uses: Transfers to Other Funds 720,000 720,000 2,180,239 1,460,239 481,114 2,661,353 Proceeds for Note Obligation - - - - (600,000) (600,000)

Total Charges to Appropriations 37,001,800 59,410,400 27,182,789 (32,227,611) 158,092 27,340,881

Excess (Deficit) Resources Over Appropriations $ (36,104,900) $ (58,222,000) $ (22,275,726) $ 35,946,274 $ 23,322,208 $ 1,046,482

191 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - UGM IMPACT FEES - CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Actual Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis

Resources (inflows):

Charges for Services $ 4,537,700 $ 4,537,700 $ 7,510,013 $ 2,972,313 $ - $ 7,510,013 Use of Money and Property 758,000 758,000 337,491 (420,509) 16,007 353,498 Miscellaneous 1,015,600 1,015,600 1,421,238 405,638 (1,356,582) 64,656 Other Financing Sources: Transfers from Other Funds 720,000 720,000 2,838,704 2,118,704 7,759,907 10,598,611

Total Available for Appropriations 7,031,300 7,031,300 12,107,446 5,076,146 6,419,332 18,526,778

Charges to Appropriations (outflows):

Public Ways and Facilities 2,135,600 3,913,100 - (3,913,100) - - Capital Outlay 8,944,500 9,386,100 12,933,295 3,547,195 194,748 13,128,043 Debt Service: Principal - - - - 12,000 12,000 Interest - - - - 878 878 Other Financing Uses: Transfers to Other Funds 3,368,300 3,368,300 4,799,049 1,430,749 (371,955) 4,427,094

Total Charges to Appropriations 14,448,400 16,667,500 17,732,344 1,064,844 (164,329) 17,568,015

Excess (Deficit) Resources Over Appropriations $ (7,417,100) $ (9,636,200) $ (5,624,898) $ 4,011,302 $ 6,583,661 $ 958,763

192 CITY OF FRESNO, CALIFORNIA

SCHEDULE OF REVENUES AND EXPENDITURES - BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) - SPECIAL ASSESSMENTS - CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2009

Actual Variance with Actual Amounts Final Budget Budget Amounts Budgeted Amounts Budgetary Over To GAAP GAAP Original Final Basis (Under) Reconciliation Basis

Resources (inflows):

Use of Money and Property $ 311,500 $ 311,500 $ 153,408 $ (158,092) $ 8,956 $ 162,364 Miscellaneous 3,725,900 4,046,500 4,217,930 171,430 - 4,217,930

Transfers from Other Funds ------Total Available 4,037,400 4,358,000 4,371,338 13,338 8,956 4,380,294 for Appropriations

Charges to Appropriations (outflows): Public Ways & Facilities 4,698,200 5,937,300 - (5,937,300) - - Capital Outlay - - 3,773,336 3,773,336 22,787 3,796,123 Other Financing Uses: Transfers to Other Funds - - 129,800 129,800 22,699 152,499

Total Charges to Appropriations 4,698,200 5,937,300 3,903,136 (2,034,164) 45,486 3,948,622

Excess (Deficit) Resources Over Appropriations $ (660,800) $ (1,579,300) $ 468,202 $ 2,047,502 $ (36,530) $ 431,672

193

City of Fresno – 50th CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

NONMAJOR ENTERPRISE FUNDS

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF NET ASSETS NONMAJOR ENTERPRISE FUNDS JUNE 30, 2009

Business - Type Activities - Enterprise Funds Parks Total Community And Development Nonmajor Sanitation Parking Recreation Services Enterprise Funds Assets Current Assets: Cash and Investments $ 1,327,855 $ - $ 250 $ 950 $ 1,329,055 Interest Receivable 5,428 - - 4,280 9,708 Accounts Receivable, Net 1,028,066 713,473 935 2,140,178 3,882,652 Intergovernmental Receivable - - - 26,231 26,231 Due from Other Funds 2,060 - - 2,050 4,110 Total Current Assets 2,363,409 713,473 1,185 2,173,689 5,251,756

Noncurrent Assets: Restricted Cash 7,049 - 12,008 - 19,057

Total Restricted Assets 7,049 - 12,008 - 19,057

Other Assets: Other Assets - - 78,032 - 78,032 Advances to Other Funds - 258,086 - - 258,086

Total Other Assets - 258,086 78,032 - 336,118

Capital Assets: Land - 2,853,434 11,508 2,315,825 5,180,767 Buildings, System and Improvements - 11,335,335 10,150,253 - 21,485,588 Machinery & Equipment 252,656 148,830 53,423 73,053 527,962 Construction in Progress - - 3,492,362 - 3,492,362 Less Accumulated Depreciation (136,121) (11,004,816) (8,503,080) (63,504) (19,707,521)

Total Capital Assets, Net 116,535 3,332,783 5,204,466 2,325,374 10,979,158

Total Noncurrent Assets 123,584 3,590,869 5,294,506 2,325,374 11,334,333

Total Assets 2,486,993 4,304,342 5,295,691 4,499,063 16,586,089

Liabilities Current Liabilities: Accrued Liabilities 362,684 731,540 78,114 588,725 1,761,063 Accrued Compensated Absences 43,404 15,670 - 219,738 278,812 Unearned Revenue 771,684 - - - 771,684 Due to Other Funds - 10,604,104 1,283,369 296,233 12,183,706 Bonds Payable and Certificate of Participation - - 45,000 - 45,000

Total Current Liabilities 1,177,772 11,351,314 1,406,483 1,104,696 15,040,265

Noncurrent Liabilities: Accrued Compensated Absences 482,268 106,192 - 1,519,891 2,108,351 Bonds Payable and Certificate of Participation - - 2,365,450 - 2,365,450 Advances From Other Funds 161,574 1,743,500 - - 1,905,074 Net OPEB Obligation 115,821 189,487 85 869,216 1,174,609 Deposits Held for Others - - - 320 320

Total Noncurrent Liabilities 759,663 2,039,179 2,365,535 2,389,427 7,553,804

Total Liabilities 1,937,435 13,390,493 3,772,018 3,494,123 22,594,069

Net Assets

Invested in Capital Assets, Net of Related Debt 116,535 3,332,783 2,794,016 2,325,374 8,568,708 Unrestricted (Deficit) 433,023 (12,418,934) (1,270,343) (1,320,434) (14,576,688)

Total Net Assets (Deficits) $ 549,558 $ (9,086,151) $ 1,523,673 $ 1,004,940 $ (6,007,980)

196 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS NONMAJOR ENTERPRISE FUNDS YEAR ENDED JUNE 30, 2009

Businness - Type Activities - Enterprise Funds Parks Total Community And Development Nonmajor Sanitation Parking Recreation Services Enterprise Funds Operating Revenues:

Charges for Services $ 10,074,908 $ 7,129,016 $ 489,826 $ 9,951,506 $ 27,645,256

Operating Expenses: Cost of Services 5,817,285 2,168,491 1,278,745 8,616,755 17,881,276 Administration 3,759,375 4,243,164 576,789 4,839,963 13,419,291 Amortization - - 3,368 - 3,368 Depreciation 14,079 268,103 178,896 1,287 462,365

Total Operating Expenses 9,590,739 6,679,758 2,037,798 13,458,005 31,766,300

Operating Income (Loss) 484,169 449,258 (1,547,972) (3,506,499) (4,121,044)

Non-operating Revenue (Expenses): Interest Income 16,789 8,388 14,549 49,298 89,024 Interest Expense - (229,330) (4,750) - (234,080)

Total Non-operating Revenue (Expense) 16,789 (220,942) 9,799 49,298 (145,056)

Income (Loss) Before Transfers 500,958 228,316 (1,538,173) (3,457,201) (4,266,100)

Transfer In - - 1,200,000 94,952 1,294,952 Transfer Out (125,897) (3,495,437) (349,596) (931,815) (4,902,745)

Change in Net Assets 375,061 (3,267,121) (687,769) (4,294,064) (7,873,893)

Total Net Assets (Deficit) - Beginning 222,187 (5,752,869) 2,211,442 5,642,617 2,323,377

Change in Application of Accounting Principle (47,690) (66,161) - (343,613) (457,464)

Total Net Assets (Deficit) - Beginning Restated 174,497 (5,819,030) 2,211,442 5,299,004 1,865,913

Total Net Assets (Deficit) - Ending $ 549,558 $ (9,086,151) $ 1,523,673 $ 1,004,940 $ (6,007,980)

197 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF CASH FLOWS NONMAJOR ENTERPRISE FUNDS YEAR ENDED JUNE 30, 2009

Business-Type Activities - NonMajor Enterprise Funds

Community Sanitation Parking

CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ 9,989,958 $ 7,000,339 Cash Received from Interfund Services Provided - 84,600 Cash Payments to Suppliers for Services (1,509,141) (4,062,294) Cash Paid for Interfund Services Used (3,058,191) (769,239) Cash Payments to Employees for Services (5,037,488) (1,451,093)

Net Cash Provided by (Used for) Operating Activities 385,138 802,313

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Interest payments on capital debt - - Repayment of Bonds - - Acquisition and construction of capital assets (65,135) -

Net Cash Provided by (Used for) Capital and Related Financing Activities (65,135) -

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES: Operating Grants - - Interest Payments, Noncapital - (229,330) Borrowing from (Repayment to) Other Funds - 2,914,067 Transfers In - - Transfers Out (125,897) (3,495,437)

Net Cash Provided by (Used for) Non-Capital Financing Activities (125,897) (810,700)

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends on investments 26,548 8,387

Net Cash Provided by Investing Activities 26,548 8,387

Net Increase (Decrease) in Cash and Cash Equivalents 220,654 -

Cash and Cash Equivalents, Beginning of Year 1,114,250 -

Cash and Cash Equivalents, End of Year $ 1,334,904 $ -

198 Business - Type Activieties - NonMajor Enterprise Funds Parks And Recreation Development Services Total

$ 489,827 $ 10,219,836 $ 27,699,960 - 585,382 669,982 (2,362,808) (2,171,930) (10,106,173) (3,000) (2,716,083) (6,546,513) (1,212) (8,470,437) (14,960,230)

(1,877,193) (2,553,232) (3,242,974)

(146,462) - (146,462) (40,000) - (40,000) - - (65,135)

(186,462) - (251,597)

- 14,526 14,526 - - (229,330) (297,842) - 2,616,225 1,200,000 94,951 1,294,951 (349,596) (931,815) (4,902,745)

552,562 (822,338) (1,206,373)

14,549 123,357 172,841

(1,496,544) (3,252,213) (4,528,103)

1,508,802 3,253,163 5,876,215

$ 12,258 $ 950 $ 1,348,112 (Continued)

199 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF CASH FLOWS NONMAJOR ENTERPRISE FUNDS YEAR ENDED JUNE 30, 2009 (Continued)

Business-Type Activities - NonMajor Enterprise Funds Parks Community And Development Sanitation Parking Recreation Services Total Reconciliation of Operating Income (Loss) to Net Cash Provided by (Used for) Operating Activities:

Operating income (loss) $ 484,169 $ 449,258 $ (1,547,972) $ (3,506,499) $ (4,121,044)

Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities:

Depreciation expense 14,079 268,103 178,896 1,288 462,366 Amortization expense - - 3,368 - 3,368

Decrease (Increase) in accounts receivable (96,590) (46,601) - (728,863) (872,054) Decrease (Increase) in other receivables - - - (10,282) (10,282) Decrease (Increase) in due from other funds (2,060) 10,914 - 1,592,856 1,601,710 Decrease (Increase) in advances to other funds - (8,388) - - (8,388) (Decrease) Increase in accrued liabilities (96,290) 5,701 (511,570) (723,568) (1,325,727) (Decrease) Increase in due to other funds - - - 296,233 296,233 (Decrease) Increase in unearned revenue 13,699 - - - 13,699 (Decrease) Increase in Net OPEB Obligations 68,131 123,326 85 525,603 717,145

Net Cash Provided by (Used for) Operating Activities $ 385,138 $ 802,313 $ (1,877,193) $ (2,553,232) $ (3,242,974)

Reconciliation of Cash and Cash Equivalents to the Statement of Net Assets: Cash and Investments: Unrestricted 1,327,855 - 250 950 1,329,055 Restricted 7,049 - 12,008 - 19,057 Total cash and investments $ 1,334,904 $ - $ 12,258 $ 950 $ 1,348,112

Noncash Investing, Capital, and Financing Activities: Decrease in fair value of cash & investments 454 - - - 454 Amortization of bond discount, premium and refunding - - 1,275 - 1,275

200 City of Fresno – 50th CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

INTERNAL SERVICE FUNDS

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS June 30, 2009 Billing and General Risk Collection Services Management Assets Current Assets: Cash and Investments $ 1,041,801 $ 13,952,960 $ 2,424,895 Interest Receivable 83,910 282,641 46,924 Accounts Receivable - 162,668 - Inventories - 896,353 - Due from Other Funds 297,706 23,321,000 1,803,760

Total Current Assets 1,423,417 38,615,622 4,275,579 Noncurrent Assets: Restricted: Cash and Investments 3,784,456 - -

Total Restricted Assets 3,784,456 - -

Other Assets: Net Pension Asset - 400,000 - Advances to Other Funds - 828,093 -

Total Other Assets - 1,228,093 - Capital Assets: Land - 56,688 - Buildings, Systems and Improvements 50,000 16,375,301 - Machinery & Equipment 570,206 144,540,199 23,227 Construction in Progress - 1,110,020 - Less Accumulated Depreciation (581,321) (133,870,772) (20,639)

Total Capital Assets 38,885 28,211,436 2,588

Total Noncurrent Assets 3,823,341 29,439,529 2,588

Total Assets 5,246,758 68,055,151 4,278,167 Liabilities Current Liabilities Accrued Liabilities 686,742 5,792,807 1,180,303 Accrued Compensated Absences 39,573 517,023 22,898 Liability for Self Insurance - - 16,872,189 Unearned Revenue - 1,283,793 - Due to Other Funds - 1,173,691 10,592 Capital Lease Obligations - 1,592,270 -

Total Current Liabilities 726,315 10,359,584 18,085,982 Noncurrent Liabilities: Accrued Compensated Absences 592,696 3,617,363 125,610 Capital Lease Obligations - 764,048 - Liability for Self-Insurance - - 57,746,585 Advances From Other Funds 43,659 2,394,650 - Net OPEB Obligation 550,490 1,954,257 104,566 Deposits Held for Others 3,136,402 49,510 -

Total Noncurrent Liabilities 4,323,247 8,779,828 57,976,761

Total Liabilities 5,049,562 19,139,412 76,062,743 Net Assets Invested in Capital Assets, Net of Related Debt 38,885 26,107,054 2,588 Unrestricted (Deficit) 158,311 22,808,685 (71,787,164)

Total Net Assets (Deficit) $ 197,196 $ 48,915,739 $ (71,784,576)

202 Employees Retirees Blue Collar Blue Collar Healthcare Healthcare Employees Retirees Plan Plan Healthcare Plan Healthcare Plan Totals

$ 19,082,046 $ - $ 466,177 $ - $ 36,967,879 162,447 - 3,935 - 579,857 549,885 - - - 712,553 - - - - 896,353 17,702 - - - 25,440,168

19,812,080 - 470,112 - 64,596,810

- - - - 3,784,456

- - - - 400,000 - - - - 828,093

- - - - 1,228,093

- - - - 56,688 - - - - 16,425,301 - - - - 145,133,632 - - - - 1,110,020 - - - - (134,472,732)

- - - - 28,252,909

- - - - 33,265,458

19,812,080 - 470,112 - 97,862,268

174,291 - 218,687 - 8,052,830 - - - - 579,494 3,400,000 - - - 20,272,189 - - - - 1,283,793 - - 7,110 - 1,191,393 - - - - 1,592,270

3,574,291 - 225,797 - 32,971,969

- - - - 4,335,669 - - - - 764,048 - - - - 57,746,585 - - - - 2,438,309 - - - - 2,609,313 - - - - 3,185,912

- - - - 71,079,836

3,574,291 - 225,797 - 104,051,805

- - - - 26,148,527 16,237,789 - 244,315 - (32,338,064)

$ 16,237,789 $ - $ 244,315 $ - $ (6,189,537)

203 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS INTERNAL SERVICES FUNDS YEAR ENDED JUNE 30, 2009

Billing and General Risk Collection Services Management Operating Revenues:

Charges for Services $ 6,730,859 $ 74,843,504 $ 18,626,190

Operating Expenses:

Cost of Services 4,603,266 45,070,613 18,292,338 Administration 2,221,668 14,741,993 6,692,529 Depreciation 7,610 11,681,022 136

Total Operating Expenses 6,832,544 71,493,628 24,985,003

Operating Income (Loss) (101,685) 3,349,876 (6,358,813)

Nonoperating Revenues (Expenses):

Interest Income 268,336 882,198 126,780 Interest Expense - (303,099) - Gain (Loss) on Disposal of Capital Assets (910) (104,916) -

Total Nonoperating Revenues 267,426 474,183 126,780

Income Before Contributions and Transfers 165,741 3,824,059 (6,232,033)

Capital Contributions - 174,644 - Transfer In - 882 1,185,400 Transfer Out (485,165) (2,598,360) (713,662)

Change in Net Assets (319,424) 1,401,225 (5,760,295)

Total Net Assets (Deficit) - Beginning 713,037 48,227,236 (65,986,837)

Change in Application of Accounting Principle (196,417) (712,722) (37,444)

Total Net Assets (Deficit)-Beginning Restated 516,620 47,514,514 (66,024,281)

Total Net Assets (Deficit) - Ending $ 197,196 $ 48,915,739 $ (71,784,576)

204 Blue Collar Blue Collar Employees Retirees Employees Retirees Healthcare Plan Healthcare Plan Healthcare Plan Healthcare Plan Totals

$ 26,138,499 $ 6,792,526 $ 6,825,064 $ 405,470 $ 140,362,112

21,438,619 6,213,359 7,019,440 405,470 103,043,105 3,134,781 579,167 - - 27,370,138 - - - - 11,688,768

24,573,400 6,792,526 7,019,440 405,470 142,102,011

1,565,099 - (194,376) - (1,739,899)

501,532 - 13,319 - 1,792,165 - - - - (303,099) - - - - (105,826)

501,532 - 13,319 - 1,383,240

2,066,631 - (181,057) - (356,659)

- - - - 174,644 - - - - 1,186,282 - - - - (3,797,187)

2,066,631 - (181,057) - (2,792,920)

14,171,158 (7,985,700) 425,372 (74,800) (10,510,534)

- 7,985,700 - 74,800 7,113,917

14,171,158 - 425,372 - (3,396,617)

$ 16,237,789 $ - $ 244,315 $ - $ (6,189,537)

205 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS YEAR ENDED JUNE 30, 2009

Billing & General Risk Collection Services Management

CASH FLOWS FROM OPERATING ACTIVITIES: Cash Received from Customers $ 1,177,150 $ 903,906 $ - Cash Received from Interfund Services Provided 5,793,400 62,555,483 20,542,449 Cash Payments to Suppliers for Services (120,593) (29,718,263) (6,669,741) Cash Paid for Interfund Services Used (1,832,258) (2,705,052) (1,982,565) Cash Payments to Employees for Services (4,291,928) (26,545,920) (1,974,552) Cash Payments for Claims and Refunds - - (13,310,029)

Net Cash Provided by (Used for) Operating Activities 725,771 4,490,154 (3,394,438)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital contributions - 366,607 - Interest payments on capital debt - (1,590,465) - Principal payment on capital lease obligations - (1,876,319) - Acquisition and construction of capital assets (11,648) (10,537,242) -

Net Cash (Used for) Capital and Related Financing Activities (11,648) (13,637,419) -

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES: Transfers In - 882 1,185,400 Transfers Out (485,165) (2,598,360) (713,662)

Net Cash Provided by (Used for) Non-Capital Financing Activities (485,165) (2,597,478) 471,738

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends on investments 236,751 1,040,935 210,785

Net Cash Provided by Investing Activities 236,751 1,040,935 210,785

Net Increase (Decrease) in Cash and Cash Equivalents 465,709 (10,703,808) (2,711,915)

Cash and Cash Equivalents, Beginning of Year 4,360,548 24,656,768 5,136,810

Cash and Cash Equivalents, End of Year $ 4,826,257 $ 13,952,960 $ 2,424,895

206 Blue Collar Blue Collar Employees Retirees Employees Retirees Healthcare Healthcare Healthcare Healthcare Plan Plan Plan Plan Total

$ 5,963,828 $ 4,038,410 $ 1,529,954 $ 389,770 $ 14,003,018 20,538,519 2,754,116 5,302,220 15,700 117,501,887 (3,473,317) (579,167) - - (40,561,081) - - - - (6,519,875) - - - - (32,812,400) (21,988,619) (6,213,359) (6,833,972) (405,470) (48,751,449)

1,040,411 - (1,798) - 2,860,100

- - - - 366,607 - - - - (1,590,465) - - - - (1,876,319) - - - - (10,548,890)

- - - - (13,649,067)

- - - - 1,186,282 - - - - (3,797,187)

- - - - (2,610,905)

579,319 - 16,889 - 2,084,679

1,619,730 - 15,091 - (11,315,193)

17,462,316 - 451,086 - 52,067,528

$ 19,082,046 $ - $ 466,177 $ - $ 40,752,335 -

207 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS YEAR ENDED JUNE 30, 2009 (Continued)

Billing & General Risk Collection Services Management

Reconciliation of Operating Income (Loss) to Cash Provided by Operating Activities:

Operating income (loss) $ (101,685) $ 3,349,876 $ (6,358,813)

Adjustments to reconcile operating income to net cash provided by operating activities:

Depreciation expense 7,610 11,681,022 136

Change in assets and liabilities: Decrease (Increase) in accounts receivable - (146,839) - Decrease (Increase) in due from other funds (297,706) (11,766,764) 1,376,825 Decrease (Increase) in material and supplies inventory - 188,602 - Decrease (Increase) in net pension asset - (400,000) - Decrease (Increase) in advances to other funds - - 539,433 (Decrease) Increase in accrued liabilities 226,083 (920,082) (2,939,170) (Decrease) Increase in due to other funds - 733,316 10,592 (Decrease) Increase in unearned revenue - 529,488 - (Decrease) increase in liability for self-insurance - - 3,909,437 (Decrease) Increase in deposits 537,398 - - (Decrease) Increase in net OPEB Obligations 354,071 1,241,535 67,122

Net Cash Provided by Operating Activities $ 725,771 $ 4,490,154 $ (3,394,438)

Reconciliation of Cash and Cash Equivalents to the Statement of Net Assets: Cash and Investments: Unrestricted 1,041,801 13,952,960 2,424,895 Restricted 3,784,456 - -

Cash and Cash Equivalents at End of Year on Statement of Cash Flows $ 4,826,257 $ 13,952,960 $ 2,424,895

Noncash Investing, Capital, and Financing Activities: Borrowing under capital lease - 1,174,764 - Decrease in fair value of cash & investments 1,640 4,660 825 Acquisition and construction of capital assets in accounts payable - 1,038,697 -

208 Blue Collar Blue Collar Employees Retirees Employees Retirees Healthcare Healthcare Healthcare Healthcare Plan Plan Plan Plan Total

$ 1,565,099 $ - $ (194,376) $ - $ (1,739,899)

- - - - 11,688,768

381,550 - - - 234,711 (17,702) - - - (10,705,347) - - - - 188,602 - - - - (400,000) - - - - 539,433 (888,536) - 185,468 - (4,336,237) - - 7,110 - 751,018 - - - - 529,488 - - - - 3,909,437 - - - - - 537,398 - - - - 1,662,728

$ 1,040,411 $ - $ (1,798) $ - $ 2,860,100

19,082,046 - 466,177 - 36,967,879 - - - - 3,784,456

$ 19,082,046 $ - $ 466,177 $ - $ 40,752,335

- - - - 1,174,764 - - - - 7,125 - - - - 1,038,697

209

City of Fresno – 50th CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

FIDUCIARY FUNDS

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS - TRUST FUNDS JUNE 30, 2009

Pension Trust Funds

Fire And Police Employee Retirement Retirement System System Total Assets

Cash and Investments $ 873,933 $ 862,300 $ 1,736,233

Receivables: Receivables for Investments Sold 9,412,412 8,065,297 17,477,709 Interest and Dividends Receivable 3,920,569 3,534,494 7,455,063 Other Receivables 5,989,598 5,256,254 11,245,852

Total Receivables 19,322,579 16,856,045 36,178,624

Investments, at fair value: Short Term Investments 18,281,206 16,213,067 34,494,273 Domestic Equity 217,717,290 193,087,111 410,804,401 Corporate Bonds 143,272,743 127,064,660 270,337,403 International Equity 207,726,613 184,229,080 391,955,693 Emerging Market Equity 39,477,963 35,009,363 74,487,326 Government Bonds 127,998,117 113,517,600 241,515,717 Real Estate 82,120,425 73,145,372 155,265,797

Total Investments 836,594,357 742,266,253 1,578,860,610

Collateral Held for Securities Lent 121,162,658 107,455,620 228,618,278 Capital Assets, net of Accumulated Depreciation 60,532 60,532 121,064 Prepaid Expense 110,992 109,767 220,759

Total Assets 978,125,051 867,610,517 1,845,735,568

Liabilities

Accrued Liabilities 21,113,266 18,724,514 39,837,780 Collateral Held for Securities Lent 121,162,658 107,455,620 228,618,278 Unearned Revenue - 3,088,481 3,088,481 Other Liabilities 3,121,354 2,763,098 5,884,452

Total Liabilities 145,397,278 132,031,713 277,428,991

Net Assets

Net Assets Held in Trust for Benefits $ 832,727,773 $ 735,578,804 $ 1,568,306,577

212 CITY OF FRESNO, CALIFORNIA

COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS - TRUST FUNDS YEAR ENDED JUNE 30, 2009

Pension Trust Funds

Fire And Police Employees Retirement Retirement System System Total Additions

Contributions: Employer $ 8,938,488 $ 1,345,274 $ 10,283,762 System Members 7,172,358 5,845,044 13,017,402

Total Contributions 16,110,846 7,190,318 23,301,164

Investment Income (Loss): Net Appreciation (Depreciation) in Value of Investments (249,708,763) (223,121,456) (472,830,219) Interest 18,757,747 16,671,904 35,429,651 Dividends 11,905,910 10,595,933 22,501,843 Other Investment Related 60,237 72,381 132,618 Total Investment (Loss) (218,984,869) (195,781,238) (414,766,107) Less Investment Expense (5,051,129) (4,723,249) (9,774,378)

Total Net Investment (Loss) (224,035,998) (200,504,487) (424,540,485)

Securities Lending Income: Securities Lendings Earnings 1,952,909 1,731,978 3,684,887 Less Securities Lending Expense (1,039,486) (921,889) (1,961,375)

Net Securities Lending Income 913,423 810,089 1,723,512

Total (Declines) (207,011,729) (192,504,080) (399,515,809)

Deductions

Benefit Payments 47,024,672 39,031,190 86,055,862 Refund of Contributions 338,145 1,022,243 1,360,388 Administrative Expenses 952,104 894,267 1,846,371

Total Deductions 48,314,921 40,947,700 89,262,621

Net Decrease (255,326,650) (233,451,780) (488,778,430)

Net Assets Available for Benefits Beginning 1,088,054,423 969,030,584 2,057,085,007

Net Assets Ending $ 832,727,773 $ 735,578,804 $ 1,568,306,577

213 CITY OF FRESNO, CALIFORNIA 16-Jan-09

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES 4:24 PM AGENCY FUNDS YEAR ENDED JUNE 30, 2009

CITY DEPARTMENTAL AND SPECIAL PURPOSE FUNDS Balance Balance July 1, 2008 Additions Deletions June 30, 2009

Assets Cash and Investments $ 6,808,061 $ 281,340,346 $ 282,041,055 $ 6,107,352 Cash and Investments Held by Fiscal Agent 221,859 - 1,055 220,804 Interest Receivable 100,677 236,102 281,797 54,982

Total Assets $ 7,130,597 $ 281,576,448 $ 282,323,907 $ 6,383,138

Liabilities Accrued Liabilities $ 98,615 $ 25,517,835 $ 25,445,745 $ 170,705 Deposits Held for Others 7,031,982 3,005,130 3,824,679 6,212,433

Total Liabilities $ 7,130,597 $ 28,522,965 $ 29,270,424 $ 6,383,138

SPECIAL ASSESSMENTS DISTRICT FUNDS Balance Balance July 1, 2008 Additions Deletions June 30, 2009

Assets Cash and Investments $ 2,383,575 $ 1,348,880 $ 1,201,892 $ 2,530,563 Cash and Investments Held by Fiscal Agent 339,345 483,216 - 822,561 Interest Receivable 28,794 55,518 67,318 16,994 Due from Other Governments 460,262 - 57,367 402,895

Total Assets $ 3,211,976 $ 1,887,614 $ 1,326,577 $ 3,773,013

Liabilities

Prepayment of Special Assessment $ 84,827 $ - $ 47,129 $ 37,698 Deposits Held for Others 3,127,149 1,195,705 587,539 3,735,315

Total Liabilities $ 3,211,976 $ 1,195,705 $ 634,668 $ 3,773,013

214 CITY OF FRESNO, CALIFORNIA 16-Jan-09

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS YEAR ENDED JUNE 30, 2009

TOTAL AGENCY FUNDS Balance Balance July 1, 2008 Additions Deletions June 30, 2009

Assets Cash and Investments $ 9,191,636 $ 282,689,226 $ 283,242,947 $ 8,637,915 Cash and Investments Held by Fiscal Agent 561,204 483,216 1,055 1,043,365 Interest Receivable 129,471 291,620 349,115 71,976 Due from Other Governments 460,262 - 57,367 402,895

Total Assets $ 10,342,573 $ 283,464,062 $ 283,650,484 $ 10,156,151

Liabilities

Accrued Liabilities $ 98,615 $ 25,517,835 $ 25,445,745 $ 170,705 Prepayment of Special Assessment 84,827 - 47,129 37,698 Deposits Held for Others 10,159,131 4,200,835 4,412,218 9,947,748

Total Liabilities $ 10,342,573 $ 29,718,670 $ 29,905,092 $ 10,156,151

215

City of Fresno – 50th CAFR For the fiscal year ended June 30, 2009 Celebrating 50 Years of Financial Reporting

STATISTICAL SECTION

“Effective and Responsive Government” City of Fresno – www.fresno.gov CITY OF FRESNO, CALIFORNIA

50th COMPREHENSIVE ANNUAL FINANCIAL REPORT

Statistical Section

This section of the City's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's financial health.

Contents

Financial Trends

These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. (Pages 219 to 223)

Revenue Capacity

These schedules contain information to help the reader assess the City's most significant local revenue sources, the property tax. (Pages 224 to 227)

Debt Capacity

These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. (Pages 228 to 234)

Demographic and Economic Information

These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. (Pages 235 to 236)

Operating Information

These schedules contain information about the City's operations and resources to help the reader understand how the City's financial information relates to the services the City provides and the activities it performs. (Pages 237 to 241)

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments in 2002; schedules presenting government-wide data include information beginning in that year.

218 CITY OF FRESNO, CALIFORNIA

NET ASSETS BY COMPONENT LAST EIGHT FISCAL YEARS (accrual basis of accounting) (dollars in thousands)

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

Government activities Invested in Capital Assets, net of related Debt $ 633,842 $ 645,328 $ 636,914 $ 658,781 $ 662,073 $ 697,544 $ 732,835 $ 736,410 Restricted 119,202 65,073 163,823 136,785 145,581 148,392 181,207 219,892 Unrestricted (271,745) (218,281) (314,809) (234,193) (225,716) (231,900) (227,490) (267,498) Total governmental activities net assets $ 481,300 $ 492,120 $ 485,929 $ 561,373 $ 581,937 $ 614,036 $ 686,552 $ 688,804

Business-type Activiites Invested in Capital Assets, net of related Debt $ 352,536 $ 424,990 $ 480,153 $ 479,670 $ 509,975 $ 537,897 $ 622,600 $ 679,116 Restricted 40,583 35,090 30,338 29,921 28,752 31,705 31,222 42,922 Unrestricted 206,118 157,126 149,331 139,418 165,691 165,646 131,167 112,405 Total business-type activities$ 599,237 $ 617,206 $ 659,822 $ 649,009 $ 704,418 $ 735,248 $ 784,989 $ 834,443

Primary government Invested in Capital Assets, net of related Debt $ 986,378 $ 1,070,318 $ 1,117,067 $ 1,138,452 $ 1,172,048 $ 1,235,441 $ 1,355,434 $ 1,415,526 Restricted 159,785 100,163 194,162 166,706 174,333 180,097 212,429 262,815 Unrestricted (65,626) (61,155) (165,478) (94,775) (60,026) (66,253) (96,323) (155,093) Total primary government$ 1,080,537 $ 1,109,325 $ 1,145,751 $ 1,210,382 $ 1,286,355 $ 1,349,285 $ 1,471,540 $ 1,523,247

Source: City of Fresno, Finance Department

Notes: No long term debt issued in FY2003.

Government Activities 800,000,000 Invested in Capital Assets, 600,000,000 net of related Debt 400,000,000 Restricted 200,000,000

(200,000,000) Unrestricted

(400,000,000) 2002 2003 2004 2005 2006 2007 2008 2009

Business-type Activities 800,000,000 Invested in Capital Assets, 600,000,000 net of related Debt

400,000,000 Restricted

200,000,000 Unrestricted -

219 CITY OF FRESNO, CALIFORNIA

CHANGE IN NET ASSETS LAST EIGHT FISCAL YEARS (dollars in thousands) Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

Expenses Government activities: General Government$ 30,786 $ 13,262 $ 18,866 $ 24,108 $ 23,637 $ 23,842 $ 30,023 $ 30,592 Public Protection 114,855 120,987 137,802 144,932 163,607 183,974 205,714 204,013 Public Ways and Facilities 51,295 41,536 62,163 49,128 52,824 56,236 56,961 66,053 Culture and Recreation 17,888 21,527 21,614 20,787 24,714 25,119 28,689 27,497 Community Development 15,707 12,668 8,516 8,996 11,385 15,849 18,767 20,331 Redevelopment 6,415 5,831 8,398 6,669 8,876 6,300 6,036 12,079 Interest on Long-term Debt 14,658 21,113 20,804 23,388 24,361 23,970 24,445 24,811 Total government activities 251,603 236,924 278,163 278,008 309,405 335,289 370,635 385,376

Business-type activities: Water System 39,969 34,619 35,575 37,180 42,523 47,147 50,476 52,370 Sewer System 42,774 40,722 28,255 44,541 45,853 54,145 46,475 49,867 Solid Waste System 35,641 38,246 39,117 30,469 36,523 45,061 45,358 43,671 Transit 31,557 30,744 34,168 35,007 39,749 43,012 47,737 47,529 Airports 14,031 13,724 17,559 21,356 23,319 21,311 24,861 26,728 Fresno Convention Center 11,802 12,067 10,323 9,961 9,756 10,593 11,376 11,676 Community Sanitation 9,243 10,162 9,184 8,420 8,116 10,595 10,114 9,683 Parking 3,767 4,773 4,718 5,444 5,707 7,568 6,518 6,909 Parks and Recreation 2,022 2,233 2,096 2,557 1,688 1,454 1,142 2,043 Development Services 8,005 8,186 9,440 11,132 14,344 17,434 18,227 13,543 Stadium 32 3,254 3,955 3,808 3,816 3,769 3,729 3,977 Total business-type activities 198,843 198,730 194,391 209,876 231,392 262,090 266,013 267,996 Total primary government expenses$ 450,447 $ 435,654 $ 472,554 $ 487,885 $ 540,797 $ 597,379 $ 636,648 $ 653,372

Program Revenues Government activities: Charges for Services: General Government$ 13,770 $ 11,868 $ 9,786 $ 10,464 $ 11,451 $ 5,555 $ 18,798 $ 17,432 Public Protection 2,035 7,128 9,592 12,163 14,355 16,684 22,889 19,628 Public Ways and Facilities 7,218 9,736 6,067 5,357 10,891 7,926 4,150 3,583 Culture and Recreation 1,343 1,211 1,375 1,416 854 1,933 1,763 1,837 Community Development 1,237 265 140 153 572 543 125 138 Other 78 ------Operating Grants and Contributions 25,982 11,817 28,670 30,486 41,498 51,657 60,552 40,480 Capital Grants and Contributions 19,388 26,827 26,816 29,962 22,734 39,976 62,661 57,261 Total government program revenues 71,051 68,852 82,446 90,000 102,356 124,274 170,938 140,359

Business-type activities: Charges for Services: Water System 36,702 39,703 39,957 41,603 39,255 45,137 56,360 65,597 Sewer System 52,962 46,502 48,248 49,360 48,404 50,363 60,799 62,521 Solid Waste Management 30,411 37,301 38,613 39,303 38,820 43,251 47,719 49,849 Transit 8,038 7,738 7,583 7,404 7,704 8,286 9,711 10,280 Airports 9,827 12,822 13,122 16,066 14,669 15,163 16,137 19,768 Fresno Convention Center 7,645 4,442 3,497 2,917 3,267 3,043 3,353 3,130 Community Sanitation 9,159 9,293 8,814 9,215 9,456 9,692 9,702 10,075 Parking 4,458 4,765 5,285 4,984 5,719 7,765 6,346 7,129 Parks and Recreation 1,676 1,804 1,924 1,930 885 542 560 490 Development Services 7,776 9,960 12,926 14,379 16,319 15,678 12,732 9,952 Stadium 250 1,571 1,505 1,500 1,500 1,500 1,508 1,500 Operating Grants and Contributions 17,786 18,801 21,772 20,815 21,921 31,256 38,059 35,959 Capital Grants and Contributions 16,074 11,165 41,063 39,288 59,862 40,126 36,306 33,762 Total business-type program revenues 202,766 205,866 244,309 248,763 267,780 271,801 299,292 310,012 Total primary government program revenues $ 273,816 $ 274,718 $ 326,755 $ 338,764 $ 370,136 $ 396,076 $ 470,230 $ 450,371

220 CITY OF FRESNO, CALIFORNIA

CHANGE IN NET ASSETS LAST EIGHT FISCAL YEARS (dollars in thousands)

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

Net (Expense)/Revenue Governmental activities$ (180,553) $ (168,071) $ (195,717) $ (188,008) $ (207,049) $ (211,014) $ (199,696) $ (245,017) Business-type activities 3,922 7,136 49,918 38,886 36,388 9,712 33,279 42,016 Total primary government net expense$ (176,631) $ (160,936) $ (145,799) $ (149,121) $ (170,661) $ (201,303) $ (166,417) $ (203,001)

General Revenues and other changes in Net Assets Government activities: Property Taxes$ 50,840 $ 53,833 $ 58,450 $ 58,577 $ 69,250 $ 119,320 $ 134,266 $ 135,353 Sales Taxes 54,504 59,140 64,615 52,986 60,525 59,881 57,238 50,332 In Lieu Sales Tax - - - 17,123 19,546 19,279 18,524 16,274 Franchise Taxes 5,117 4,652 5,237 5,389 7,482 6,166 6,552 7,376 Business Taxes 12,055 13,116 14,255 15,130 18,015 16,510 17,614 14,611 Room Tax 3,981 8,552 8,711 8,981 10,065 10,815 10,791 9,927 Other Taxes 9,422 9,561 2,720 3,564 4,118 3,894 3,472 3,717 Revenues Restricted for Infrastructure Maintenance 944 582 460 1,596 1,461 1,627 395 295 In Lieu VLF - - - 24,341 29,926 - - - Unrestricted Grants and Contributions 24,434 25,978 20,716 13,221 3,837 - - - Investment earnings 7,290 5,232 3,952 5,573 8,984 12,314 11,445 8,476 Other 244 ------Gain on sale of capital assets 596 (406) 878 709 983 82 981 485 Transfers (1,037) (1,347) 9,531 56,260 (6,577) 1,146 (520) (1,718) Total government activities 168,392 178,892 189,526 263,452 227,614 251,034 260,758 245,128 Business-type Activities: Investment earnings 15,291 8,950 2,229 6,372 4,749 11,809 12,186 7,809 Passenger and Customer Facility Charges - - - - 4,003 3,686 3,706 - FAA Audit Compliance Settlement - - - - - 6,479 - - Gain on sale of capital assets (583) 536 - 188 - 291 50 52 Transfers 1,037 1,347 (9,531) (56,260) 6,577 (1,146) 520 1,718 Total business-type activities 15,744 10,832 (7,302) (49,699) 15,329 21,119 16,462 9,579 Total primary government$ 184,136 $ 189,724 $ 182,224 $ 213,752 $ 242,943 $ 272,153 $ 277,220 $ 254,707

Change in Net Assets Government activities$ (12,162) $ 10,820 $ (6,191) $ 75,444 $ 20,565 $ 40,019 $ 61,062 $ 111 Business-type activities 19,666 17,968 42,616 (10,813) 51,718 30,831 49,740 51,595 Total primary government$ 7,505 $ 28,788 $ 36,425 $ 64,631 $ 72,282 $ 70,850 $ 110,802 $ 51,706

Source: Source: Department of Finance, City of Fresno

Notes: Accounting requirements changed in FY 2002 due to GASB Statement 34

221 CITY OF FRESNO, CALIFORNIA

FUND BALANCE GOVERNMENTAL FUNDS LAST EIGHT FISCAL YEARS (modified accrual basis of accounting) (dollars in thousands)

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

General Fund Reserved$ 14,198 $ 15,059 $ 17,385 $ 21,292 $ 24,133 $ 26,089 $ 27,463 $ 45,148 Unreserved 18,560 19,234 20,451 29,083 35,483 33,449 30,636 (16,377) Total General Fund$ 32,759 $ 34,294 $ 37,836 $ 50,375 $ 59,617 $ 59,538 $ 58,099 $ 28,771

All other Governmental Funds Reserved$ 130,531 $ 132,742 $ 179,021 $ 200,323 $ 176,499 $ 182,687 $ 163,004 $ 184,111 Unreserved, reported in: Special Revenue Funds 4,212 1,581 (1,935) (7,826) (4,332) (11,175) 3,064 (1,792) Debt service funds (59,978) (64,016) (67,357) (73,786) (77,367) (76,487) (33,147) (24,183)

222 Capital projects funds (1,354) (1,561) (4,620) (867) 14,649 12,610 18,539 19,333 Total all other governmental funds$ 73,412 $ 68,746 $ 105,110 $ 117,844 $ 109,449 $ 107,635 $ 151,460 $ 177,469

180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 2009 20,000,000 2008 - 2007 2006 2005 2004 2003 2002

Total all other governmental funds Total General Fund

Source: City of Fresno, Finance Department CITY OF FRESNO, CALIFORNIA

CHANGES IN FUND BALANCES, GOVERNMENTAL FUNDS LAST EIGHT FISCAL YEARS (dollars in thousands)

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

Revenues Taxes$ 132,527 $147,117 $160,711 $170,732 $225,253 $241,884 $258,186 $ 258,840 Licenses and Permits 240 241 310 321 307 352 357 317 Intergovernmental 64,867 59,116 44,569 62,333 38,417 44,718 56,925 36,508 Charges for Services 17,124 22,445 16,072 18,833 30,265 31,924 28,314 25,901 Fines 896 702 2,323 3,126 3,005 3,767 5,008 3,250 Use of Money and Property 7,383 5,066 4,045 4,819 7,855 10,283 8,746 6,973 Contributed from Property Owners 1,114 1,625 94 - - - - - Other Revenue - - 178 - - - - - Miscellaneous 13,692 9,592 9,505 14,888 10,544 16,027 14,218 14,938 Total Revenues 237,843 245,903 237,807 275,053 315,645 348,956 371,754 346,727

Expenditures General Government 25,899 12,648 12,676 14,543 13,088 15,048 16,965 16,774 Public Protection 108,524 117,981 133,611 147,180 161,960 177,000 191,076 187,075 Public Ways and Facilities 25,388 29,933 21,583 19,010 19,292 20,268 21,500 19,010 Culture and Recreation 16,616 19,118 19,868 20,654 23,098 22,685 23,884 23,596 Community Development 12,872 12,654 7,713 8,919 10,548 15,168 18,347 20,227 Capital Outlays 34,694 29,404 35,840 61,663 47,786 56,132 64,193 91,708 Debt Service: Bond Issuance Cost - - - 739 - - - - Principal 7,466 8,505 8,630 8,896 12,796 19,296 13,999 15,241 Interest 13,445 20,795 20,394 22,991 24,162 24,027 24,353 23,746 Total Expenditures 244,902 251,037 260,314 304,595 312,731 349,624 374,317 397,377

Excess (Deficiency) of Revenue Over (Under) Expenditures (7,059) (5,134) (22,507) (29,542) 2,914 (668) (2,563) (50,650)

Other Financing Sources (Uses) Transfers In 17,322 35,482 45,072 82,416 67,679 73,115 77,395 91,923 Transfers Out (18,350) (37,018) (37,990) (78,715) (72,112) (70,557) (74,898) (91,505) Discount on Debt Issued ------(437) (870) Refunding Bond Issues - - 5,005 - - - 38,210 - FAA Litigation Settlement - - - - - (5,847) - - Payment to Refunding Bonds (215,774) - (4,809) - - - (34,745) - Note Proceeds - 1,500 - - - 48 - - Gain on Sales of Property - (845) 440 - - - - - Long Term Debt Issued 218,768 - 52,780 47,690 - - 35,205 46,790 Premium on Debt Issued - - 126 300 - - 2,019 - Proceeds for Note Obligation ------600 Proceeds for Capital Lease Obligations 693 2,885 1,789 3,124 2,366 2,017 2,200 392 Total Other Financing Sources (Uses) 2,659 2,004 62,413 54,816 (2,068) (1,224) 44,949 47,330

Net Change in Fund Balance $ (4,400) $ (3,130) $ 39,906 $ 25,274 $ 847 $ (1,893) $ 42,386 $ (3,320)

Debt Service as a Percentage of Non- capital Expenditures 9.64% 14.09% 12.47% 13.73% 13.43% 15.42% 11.66% 12.96%

223 CITY OF FRESNO, CALIFORNIA

GROSS ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS

Assessed Value as a Secured Unsecured Percent of Total Taxable Total Direct Estimated Fiscal Year Estimated Actual Estimated Actual Assessed Value Tax Rate Actual Value

2000$ 14,274,764,663 $ 1,040,486,563 $ 15,315,251,226 1.135416% 100% 2001 14,943,639,660 1,096,499,457 16,040,139,117 1.143887% 100% 2002 15,733,109,644 1,174,245,532 16,907,355,176 1.197359% 100% 2003 16,351,150,411 1,316,935,915 17,668,086,326 1.210636% 100% 2004 17,620,912,683 1,290,154,954 18,911,067,637 1.233568% 100% 2005 19,578,018,093 1,473,733,287 21,051,751,380 1.243238% 100% 2006 21,871,531,043 1,230,769,455 23,102,300,498 1.177892% 100% 2007 25,129,666,067 1,232,429,282 26,362,095,349 1.219102% 100% 2008 28,342,504,628 1,630,011,237 29,972,515,865 1.208642% 100% 2009 28,935,909,029 1,314,490,825 30,250,399,854 1.138298% 100%

Estimated Value of Taxable Property $35,000,000,000 $30,000,000,000 $25,000,000,000 -54995442 1.361E+09 $20,000,000,000 Unsecured $15,000,000,000 Secured $10,000,000,000 $5,000,000,000 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: County of Fresno

Notes: Fresno County does not collect Actual Value (Market Value) information on taxable properties Fresno County does not collect Actual Value (Market Value) information on tax exempt properties The estimated actual value of taxable property is the same as the gross assessed value.

224 CITY OF FRESNO, CALIFORNIA

DIRECT AND OVERLAPPING PROPERTY TAX RATES LAST TEN FISCAL YEARS (Percentage per $100 of Assessed Value)

City of FresnoSchools County-Wide

Total Fresno State Center Overlapping Fiscal Debt Service Unified Community Property Tax Property Tax Year Tax Rate School District College Rate Rate

2000 0.032438 0.135416 0.000000 1.0 1.167854 2001 0.032438 0.111449 0.000000 1.0 1.143887 2002 0.032438 0.164921 0.000000 1.0 1.197359 2003 0.032438 0.178198 0.000000 1.0 1.210636 2004 0.032438 0.185486 0.015644 1.0 1.233568 2005 0.032438 0.196428 0.014372 1.0 1.243238 2006 0.032438 0.139568 0.005886 1.0 1.177892 2007 0.032438 0.181626 0.005038 1.0 1.219102 2008 0.032438 0.160586 0.015618 1.0 1.208642 2009 0.032438 0.105266 0.000594 1.0 1.138298

Source: County of Fresno

Notes: On June 6, 1978, California voters approved a constitutional amendment to Article XIIIA of the California Constitution, commonly known as Proposition 13, which limits the taxing power of California public agencies. Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax except to pay debt service on indebtedness approved by voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $1.00 per $100.00 of full cash value. Assessed value is equal to full cash value, pursuant to Senate Bill 1656, Statutes of 1978.

FY2005 overlapping tax rate has been corrected. Incorrect figure (1.210636) previously reported for FY2005.

225 CITY OF FRESNO, CALIFORNIA

PRINCIPAL PROPERTY TAX PAYERS1 CURRENT YEAR AND NINE YEARS AGO

2009 4 2000

% of Total % of Total County County Taxable Assessed Taxable Assessed Taxpayer Type of Business Assessed Value Rank Value Assessed Value Rank Value

Pacific Gas & Electric Company Utility$ 1,448,418,880 1 0.0228$ 1,345,010,822 1 0.0398 So. California Edison Co. Utility 402,910,700 2 0.0063 417,150,802 2 0.0123 Chevron USA, Inc. Petroleum 337,726,282 3 0.0053 196,886,397 4 0.0058 AT&T California (Pacific Bell) Telecommunications 206,956,483 4 0.0033 342,586,245 3 0.0101 AERA Energy, LLC3 Petroleum 140,063,052 5 0.0022 69,530,161 6 0.0021 The Gap Inc Warehousing 153,331,550 6 0.0024 - - Macerich Fresno Limited Partner Real Estate 135,206,512 7 0.0021 87,074,811 5 0.0026 Donahue Schriber Realty Group, LP Real Estate 135,101,549 8 0.0021 - - Atlantic Path 152 Electric Transmission 106,329,242 9 0.0017 - - Pelco Security Systems 98,582,700 10 0.0016 - - Gallo E & J Winery Winery - 0.0000 60,603,904 7 0.0018 Harris Farms Inc. Farm Products - 0.0000 59,761,066 8 0.0018 Riverview Estates Real Estate - 0.0000 53,842,456 9 0.0016 McClatchy Newspapers Publication - 0.0000 51,133,586 10 0.0015 Total$ 3,164,626,950 0.0499$ 2,683,580,250 0.0794

Source: County of Fresno

Notes: 1 Information provided for the County of Fresno. A breakdown of property taxpayers for the City of Fresno not available 2 Formerly Trans-Elect NTD 15, LLC. 3 Consists of California onshore and offshore exploration and production (E&P) assets previously operated by CalResources LLC 4 Taxpayer Info as of 10/23/2008

226 CITY OF FRESNO, CALIFORNIA

PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS

Current Tax Collections

Percent of Percentage of Tax Delinquent Tax Total Tax Collection of Net Fiscal Year Total Net Tax Levy Amount Collected Levy Collections Collections Tax Levy

2000$ 39,248,393 $ 38,641,638 98.45%$ 1,419,692 $ 40,061,330 102.07% 2001 40,376,898 39,847,334 98.69% 775,322 40,622,656 100.61% 2002 41,466,342 40,714,792 98.19% 1,141,457 41,856,249 100.94% 2003 42,693,647 41,140,273 96.36% 784,581 41,924,854 98.20% 2004 45,316,812 43,981,854 97.05% 2,012,461 45,994,315 101.50% 2005 45,141,756 44,752,794 99.14% 1,769,044 46,521,838 103.06% 2006 50,645,808 54,159,317 106.94% 1,786,932 55,946,249 110.47% 2007 93,710,698 96,163,757 102.62% 2,213,392 98,377,149 104.98% 2008 105,918,031 106,410,341 100.46% 1,809,904 108,220,245 102.17% 2009 106,013,645 106,562,128 100.52% 10,721,793 117,283,921 110.63%

Average Collections 103.46%

Source: County of Fresno

Notes: Amount collected in FY2007 exceeds the Total Net Tax Levy due to Supplemental Assessments. Under Chapter 3.5 of Part 0.5 of Division 1 of the California Revenue and Taxation Code, supplemental assessments are added to a supplemental roll whenever new construction is completed and and whenever real property changes ownership.

227 CITY OF FRESNO, CALIFORNIA

RATIOS OF OUTSTANDING DEBT BY TYPE LAST EIGHT FISCAL YEARS (dollars in thousands, except per capita)

Governmental Activities Business Type Activities

Special Airport Solid Waste Revenue and Tax Allocation Certificates of Assessment Capital Revenue Revenue Other Bonds Bonds Participation Bonds Notes Payable Leases Bonds Bonds 2002$ 259,515 $ 14,690 $ 7,020 $ - $ 5,853 $ 6,934 $ 43,045 $ 16,820 2003 253,885 14,280 6,500 - 6,765 8,463 42,445 15,855 2004 300,865 14,195 5,945 - 6,174 8,962 41,815 14,845 2005 335,315 13,635 5,355 - 12,770 11,134 41,155 13,790 2006 326,005 13,055 4,725 - 12,387 12,108 40,460 12,685 2007 310,795 12,360 4,055 - 11,410 12,429 61,735 11,530 2008 339,055 11,637 3,350 - 10,858 17,365 60,970 10,315 2009 374,340 10,882 2,590 - 10,876 14,128 60,165 9,050

Source: Debt Information - City of Fresno, Finance Department Population Information - State of California Department of Finance, Demographic Research Unit

Notes: FY2009 Population as of January 1, 2009.

The City current-refunded the 1994 COP's (Arena Financing Project) by issuing the 2005 Lease Revenue Bonds (No Neighborhood Left Behind Project). Because of this refunding, the balance moved from the COP column to the Revenue and Other Bonds column.

The City is not obligated in any manner for the Special Assessment debt, but is acting as an agent for property owners in collecting the assessments and forwarding the collections to the trustee or paying agent, and initiating foreclosure proceedings, if appropriate.

Personal Income breakdown not available for the City of Fresno

As of FY2008, General Services and Risk Fund Capital Leases previiously reported under Business-Type Activities are now reported under Governmental Activities.

228 Business Type Activities

Sewer Lease Water Revenue Revenue Certificates of Capital Revenue Total Primary Net Debt per Bonds Bonds Participation Notes Payable Leases Bonds Government Population Capita $ 251,355 $ 77,980 $ 17,180 $ 2,688 $ 7,809 $ 49,795 $ 760,684 441,900 $ 1,721 239,170 77,480 15,070 2,704 5,267 48,445 736,329 448,500 1,642 232,775 76,245 13,425 2,438 2,445 46,990 767,119 456,100 1,682 226,100 78,775 6,790 2,163 3,444 45,465 795,891 464,727 1,713 219,110 95,725 6,080 1,922 5,062 43,890 793,214 471,479 1,682 211,770 92,612 5,335 1,716 5,473 42,265 783,485 481,035 1,629 204,050 92,356 4,550 1,503 - 40,590 796,599 486,171 1,639 251,710 102,019 3,725 2,034 - 38,850 880,369 495,913 1,775

229 CITY OF FRESNO, CALIFORNIA

RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS

General Bonded Debt Outstanding

Percent of Actual Fiscal General Bonded Redevelopment Taxable Value of Net Debt per Year Debt Bonds Total Property Population Capita

2000$ 209,455,000 $ 9,410,000 $ 218,865,000 1.429% 420,600 $ 520 2001 209,000,000 6,950,000 215,950,000 1.346% 441,200 489 2002 211,615,000 14,690,000 226,305,000 1.339% 441,900 512 2003 207,895,000 14,280,000 222,175,000 1.257% 448,500 495 2004 204,095,000 14,195,000 218,290,000 1.154% 456,100 479 2005 200,150,000 13,635,000 213,785,000 1.016% 464,727 460 2006 196,020,000 13,055,000 209,075,000 0.905% 471,479 443 2007 191,690,000 12,360,000 204,050,000 0.774% 481,035 424 2008 187,140,000 11,637,000 198,777,000 0.663% 486,171 409 2009 182,345,000 10,882,000 193,227,000 0.639% 495,913 390

Source: General Bonded Debt Information - City of Fresno Department of Finance Population Information - State of California Department of Finance, Demographic Research Unit

230 CITY OF FRESNO, CALIFORNIA

DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT¹ AS OF OCTOBER 1, 2008

Percent Debt Applicable Applicable October 1, Issue 2008 2

City of Fresno Community Facilities District No. 4 100.000 %$ 1,660,000 City of Fresno Community Facilities District No. 5 100.000 1,265,000 City of Fresno Community Facilities District No. 7 100.000 1,885,000 State Center Community College District 44.928 42,492,902 Clovis Unified School District 50.852 176,131,971 Clovis Unified School District Certificates of Participation 50.852 19,275,451 Fresno Unified School District 82.944 215,985,133 Fresno Unified School District Lease Tax Obligations 82.944 32,978,534 Fresno Unified School District Certificates of Participation 82.944 27,035,597 Central Unified School District 79.924 39,700,110 Central Unified School District Certificates of Participation 79.924 26,350,943 Other School Districts Various 13,405,636 Fresno County Pension Obligations 50.096 255,225,468 Fresno County General Fund Obligations 50.096 45,031,294

Total Overlapping Debt $ 898,423,039

Source: California Municipal Statistics, Inc.

Notes: ¹Does not include City Revenue Bonds or Parking District Bonds, which are self-supporting. ²Most current data available as of October 1, 2008.

231 CITY OF FRESNO, CALIFORNIA

PLEDGED REVENUE COVERAGE LAST EIGHT FISCAL YEARS

Water Revenue Bonds Debt Service

Charges for Less: Net Available Fiscal Year Services Operating Expenses1 Revenue Principal Interest Coverage

2002$ 36,702,306 $ 32,610,936 $ 4,091,370 $ 1,215,000 $ 2,624,252 1.07 2003 2 39,702,643 28,385,629 11,317,014 17,505,000 2,171,090 0.58 2004 39,956,895 29,139,172 10,817,723 1,455,000 2,282,790 2.89 2005 41,602,576 28,016,826 13,585,750 1,525,000 2,212,440 3.64 2006 39,254,582 33,254,469 6,000,113 1,575,000 2,163,826 1.60 2007 45,136,898 36,786,028 8,350,870 1,625,000 2,113,540 2.23 2008 56,359,824 39,754,834 16,604,990 1,675,000 2,059,142 4.45 2009 65,596,663 41,728,670 23,867,993 1,740,000 1,996,222 6.39

Sewer Revenue Bonds Debt Service Charges for Less: Net Available Fiscal Year Services Operating Expenses Revenue Principal Interest Coverage

2002$ 52,961,767 $ 25,885,698 $ 27,076,069 $ 14,555,000 $ 11,158,753 1.05 2003 46,502,457 27,202,509 19,299,948 12,185,000 10,098,473 0.87 2004 48,247,747 22,760,763 25,486,984 6,395,000 10,552,427 1.50 2005 49,359,690 33,397,428 15,962,262 6,675,000 9,700,957 0.97 2006 48,403,620 26,014,652 22,388,968 6,990,000 10,191,531 1.30 2007 50,362,926 39,753,076 10,609,850 7,340,000 10,336,552 0.60 2008 60,798,990 31,909,771 28,889,219 7,720,000 10,433,419 1.59 2009 4 62,521,061 31,646,468 30,874,593 112,185,000 12,079,524 0.25

Solid Waste Revenue Bonds Debt Service Charges for Less: Net Available Fiscal Year Services Operating Expenses Revenue Principal Interest Coverage

2002$ 30,411,290 $ 31,860,175 $ (1,448,885) $ 920,000 $ 924,021 (0.79) 2003 37,300,555 34,645,773 2,654,782 965,000 883,591 1.44 2004 38,613,025 35,756,411 2,856,614 1,010,000 839,201 1.54 2005 39,302,948 29,060,871 10,242,077 1,055,000 792,741 5.54 2006 38,820,396 34,661,314 4,159,082 1,105,000 743,156 2.25 2007 43,250,635 42,230,822 1,019,813 1,155,000 691,221 0.55 2008 47,719,291 42,697,351 5,021,940 1,215,000 636,359 2.71 2009 49,848,807 41,805,444 8,043,363 1,265,000 577,431 4.37

Notes: 1 Operating Expenses does not include interest, amortization or depreciation expenses. 2 In FY03 Water System Revenue Refunding Bond 1993 A Principal Balance of $16,535,000 and Interest of $433,519 Paid off. 3 Parks bonds issued 4/1/2008. There were no Principal or Interest payments prior to FY 2009. 4 In FY09 Sewer System Subordinate Lien Variable Rate Revenue Refunding Bonds 2000A Principal balance of $74,000,000 and Interest of $363,762.57 Paid off.

232 CITY OF FRESNO, CALIFORNIA

PLEDGED REVENUE COVERAGE LAST EIGHT FISCAL YEARS

Airport Revenue Bonds Debt Service

Charges for Less: Net Available Fiscal Year Services Operating Expenses1 Revenue Principal Interest Coverage

2002$ 9,826,593 $ 8,476,173 $ 1,350,420 $ - $ 2,412,035 0.56 2003 12,821,895 9,745,773 3,076,122 600,000 2,397,035 1.03 2004 13,121,880 11,456,209 1,665,671 630,000 2,366,285 0.56 2005 16,066,393 15,361,031 705,362 660,000 2,334,035 0.24 2006 14,668,777 13,568,542 1,100,235 695,000 2,300,160 0.37 2007 15,162,563 13,738,411 1,424,152 725,000 2,262,848 0.48 2008 16,136,789 15,672,366 464,423 765,000 2,926,013 0.13 2009 19,768,368 16,380,360 3,388,008 805,000 3,467,795 0.79

Fresno Convention Center Revenue Bonds Debt Service Charges for Less: Net Available Fiscal Year Services Operating Expenses Revenue Principal Interest Coverage

2002$ 7,645,417 $ 7,163,353 $ 482,064 $ 408,000 $ 1,158,518 0.31 2003 4,441,723 7,231,332 (2,789,609) 500,000 1,140,508 (1.70) 2004 3,497,094 5,474,905 (1,977,811) 515,000 1,121,473 (1.21) 2005 2,917,281 5,700,187 (2,782,906) 515,000 1,121,473 (1.70) 2006 3,267,366 5,371,391 (2,104,025) 990,000 1,308,394 (0.92) 2007 3,042,812 5,731,581 (2,688,769) 2,292,608 1,996,759 (0.63) 2008 3,352,662 6,463,610 (3,110,948) 4,620,990 2,163,404 (0.46) 2009 3,130,426 5,073,021 (1,942,595) 10,302,095 2,019,101 (0.16)

Stadium Bonds Debt Service Charges for Less: Operating Net Available Fiscal Year Services Expenses Revenue Principal Interest Coverage

2002$ 250,000 $ 32,084 $ 217,916 $ - $ 2,642,185 0.08 2003 1,571,101 60,683 1,510,418 - 2,725,463 0.55 2004 1,504,707 85,054 1,419,653 720,000 2,725,763 0.41 2005 1,500,000 7,389 1,492,611 755,000 2,694,203 0.43 2006 1,500,000 5,899 1,494,101 785,000 2,660,674 0.43 2007 1,500,000 4,482 1,495,518 820,000 2,624,302 0.43 2008 1,508,013 4,481 1,503,532 860,000 2,585,848 0.44 2009 1,500,000 301,893 1,198,107 905,000 2,543,386 0.35

Parks Bonds Debt Service Charges for Less: Operating Net Available Fiscal YearServices Expenses Revenue Principal Interest Coverage

2009 3 $ 489,826 $ 1,855,534 $ (1,365,708) $ 40,000 $ 90,663 (10.45)

233 CITY OF FRESNO, CALIFORNIA

LEGAL DEBT MARGIN INFORMATION LAST TEN FISCAL YEARS (Dollars in Thousands)

Legal Debt Limit Calculation for FY 2009 Assessed Value $ 30,250,400 Debt Limit (20% of assessed value, pursuant to City Charter) 6,050,080 Debt applicable to the limit: General obligation bonds - Less amount set aside for repayment of GO debt - Total net debt applicable to limit - Legal debt margin $ 6,050,080

Total net debt applicable to the limit as a Total net debt Legal Debt percentage of Fiscal Year Debt Limit applicable to limit Margin debt limit

2000$ 3,063,050 $ 209,455 $ 2,853,595 6.84% 2001 3,208,028 209,000 2,999,028 6.51% 2002 3,381,471 211,615 3,169,856 6.26% 2003 3,533,617 207,895 3,325,722 5.88% 2004 3,782,213 204,095 3,578,118 5.40% 2005 4,210,350 200,150 4,010,200 4.75% 2006 4,620,460 196,020 4,424,440 4.24% 2007 5,272,419 191,690 5,080,729 3.64% 2008 5,994,503 187,140 5,807,363 3.22% 2009 6,050,080 - 6,050,080 0.00%

Source: Assessed Valuation Information - County of Fresno, Tax Rate Book

Processing Note for FY09 - Judgement obligation bonds and Pension Obligation bonds should no longer applicable to the limit. In FY09 this amount should be zero.

234 CITY OF FRESNO, CALIFORNIA

DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN CALENDAR YEARS

Per Capita Calendar Personal Unemployment Area Square 1 1 1 Year Population Personal Income Income Rate Miles

2000 420,600 $ 17,627,668,000 $ 21,975 10.400% 104.61 2001 441,200 18,592,571,000 22,827 10.700% 104.85 2002 441,900 19,690,862,000 23,672 11.600% 105.08 2003 448,500 20,636,618,000 24,267 11.800% 106.04 2004 456,100 22,136,282,000 25,573 10.500% 106.77 2005 464,727 22,796,108,000 25,961 9.000% 107.35 2006 3 471,479 23,980,463,000 27,081 8.000% 110.10 2007 2 481,035 25,214,459,000 28,181 8.600% 110.72 2008 4 486,171 26,015,000,000 28,614 10.600% 111.10 2009 495,913 Not Available Not Available Not Available 111.78

Source: Population Information - State of California Department of Finance, Demographic Research Unit Unemployment information - California Employment Development Department, Labor Market Information Per Capita Income and Personal Income - Bureau of Economic Analysis (BEA). Notes: 1 Information pertains to Fresno, CA, Metropolitan Statistical Area (MSA). 2 Personal income and Per Capita Income for 2007 are adjusted per BEA (Figures previously reported were preliminary). 3 Area square miles estimated. 4 Personal income and Per Capita income for 2008 are preliminary per BEA.

235 CITY OF FRESNO, CALIFORNIA

PRINCIPAL EMPLOYERS CURRENT YEAR AND EIGHT YEARS AGO

2009 1 2002

Percent of Total Percent of Total City Employer Employees Rank City Employment Employees Rank Employment

Community Medical Centers 5,327 1 2.58% 4,818 3 2.54% City of Fresno2 4,142 2 2.00% 4,000 4 2.11% Kaiser Permanente 2,542 3 1.23% 1,750 7 0.92% Saint Agnes Medical Center 2,192 4 1.06% 1,940 6 1.02% Beverly Health Care 2,000 5 0.97% 1,220 9 0.64% California State University, Fresno 1,719 6 0.83% 1,304 8 0.69% State Center Community College District 1,193 7 0.58% - - - Fresno County Economic Opportunities Commission 1,114 8 0.54% - - - AT&T 1,000 9 0.48% - - - Zacky Farms, LLC 1,000 10 0.48% - - - County of Fresno3 - - - 6,975 2 3.68% Central Unified School District3 - - - 1,260 10 0.67% Fresno Unified School District3 - - - 7,931 1 4.19% Fresno Internal Revenue Service3 - - - 3,200 5 1.69% Total 22,229 10.76% 34,398 18.16%

Fresno City Employment4 206,600 189,400

Source: Employer Information - The Business Journal - Book of Lists Employment Development Department - Labor Market Information, State of California

Notes: 1Current year employer information available from 2009 Book of Lists and represents the number of 2007 full-time employees. Information prior to 2002 not available. 2 The City of Fresno number of employees derived from City of Fresno Budget Management & Studies Division - Adopted Budgets, Authorized Positions as of May 2008. 3 Figures not available for County of Fresno, Central Unified School District, Fresno Unified School District and Fresno Internal Revenue Service in 2009 Book of Lists.

236 CITY OF FRESNO, CALIFORNIA

FULL TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY PROGRAM1 LAST EIGHT FISCAL YEARS

Fiscal Year

2002 2 2003 3 2004 3 2005 3 2006 3 2007 3 2008 3 2009 3

General Government Management 76.00 81.00 81.00 79.00 86.00 100.00 102.00 104.00 Finance 125.65 126.65 126.65 128.65 129.65 130.65 130.65 130.65 General Services 138.00 139.00 138.00 141.00 129.00 136.00 137.00 139.00 Other 107.75 108.00 108.80 109.60 120.60 128.00 128.00 129.00 Enterprise Functions Convention Center4 42.00 41.00 36.00 - - - - - Transportation Airports Sworn 11 17.00 17.00 20.00 22.00 5.00 5.00 5.00 5.00 Civilian 71.00 70.00 70.00 70.00 72.00 74.50 75.20 78.00 FAX Department12 333.55 331.80 331.80 330.80 357.80 386.80 420.80 420.80 Public Utilities9 535.00 540.00 595.00 623.00 648.00 650.00 664.00 669.00 Economic Growth and Expansion Downtown & Community Revitalization Department15 ------10.00 Planning and Development8 92.00 92.00 187.50 204.03 210.03 198.03 203.03 203.03 Economic Development - - 6.00 6.00 6.00 9.00 10.00 - Housing, Economic and Community Development5 142.20 138.40 ------Public Works7 240.20 243.20 242.20 325.20 327.60 334.60 337.40 338.40 Culture and Recreation Parks, Recreation and Community Services 208.97 207.97 207.97 184.17 184.16 171.95 170.95 169.95 Public Protection Police Sworn6 702.00 719.00 778.00 804.00 835.00 835.00 843.00 849.00 Civilian14 355.00 393.20 388.20 402.20 406.80 444.80 461.80 470.40 Fire Sworn 10,13 261.00 273.00 273.00 304.00 305.00 337.00 383.00 383.00 Civilian 23.75 23.00 20.00 22.00 58.75 67.00 70.00 59.00 Total 3,471.07 3,544.22 3,610.12 3,755.65 3,881.39 4,008.33 4,141.83 4,158.23

Source: City of Fresno Budget Management & Studies Division - Adopted Budgets, Authorized Positions. Information prior to 2002 not comparable.

Notes: 1 Figures for FTE's include Permanent, Permanent Part-Time and Permanent Intermittent employees only. 2 FY2002 includes mid-year reorganization of the Department of Administrative Services (Other). 3 FY2003 represents total permanent positions as of July 2002; FY2004 represents total permanent positions as of July, 2003; FY2005 represents total permanent positions as of June 30, 2005; FY2006 represents total permanent positions as of April, 2006; FY2007 represents total permanent positions as of April, 2006; FY2008 represents total permanent postions as of May, 2008 4The City contracted with SMG in January 2004 for operations and marketing of the Fresno Convention Center. Convention Center positions were authorized until December 31, 2004, but are shown for a full year. 5 In FY2004 the Housing, Economic and Community Development Department was reorganized. Divisions were moved to Planning and Development; and Public Utilities; and the Economic Development Department was created. 6 Upswing in sworn positions due to UHP grant and increase in officers added to the Motorcycle Unit, Neighborhood Traffic Unit. 7 Beginning in FY2005, Public Works staff increased to directly support the "No Neighborhood Left Behind" program. In addition, positions responsible for street landscaping maintenance were moved from Parks, Recreation & Community Service to Public Works. 8 In FY2005 Planning and Development added positions to improve project time lines and inspection efficiencies. 9 In FY2005 and FY2006 positions were added primarily to the Solid Waste and Wastewater Maintenance Divisions due to a surge in residential customer growth, ordinance enforcement and commercial recycling efforts. 10 In FY2005 additional sworn positions were added in the Fire Suppression & Emergency Response Division to staff a new Fire Station. Inspector positions were added to the Fire Prevention & Investigation Division to perform inspections on existing buildings and new construction. 11 In FY2006 Airport Public Safety positions were transferred to the Police and Fire Departments. 12 In FY2007 Positions added to support 15-minute frequencies on two (2) routes based on Congestion Mitigation Air Quality (CMAQ) grant. 13 In FY2007 Due to additional funding (a portion of which was provided by Staffing for Adequate Fire and Emergency Response (SAFER) grant) a 4th firefighter was added to several existing fire companies. 14 In FY2007 additional Police Cadets added and the Stamp Out graffiti program from Planning and Development to the police department. 15 In FY2009 the Economic Development Department was restructured and renamed the Downtown & Community Revitalization Department to reflect focus on strengthening the local economy through downtown revitalization, improving neighborhoods and supporting locally owned businesses. 237 CITY OF FRESNO, CALIFORNIA

OPERATING INDICATORS BY FUNCTION / PROGRAM LAST EIGHT FISCAL YEARS

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

General Government Building Permits Issued2İİ Commercial 1,358 1,524 1,530 1,498 1,891 1,647 1,546 1,186 Residential 4,815 6,201 7,024 7,526 7,987 6,669 5,514 3,494 Police Physical Arrests4 40,274 45,128 47,989 52,360 54,250 50,241 44,953 47,246 Traffic Violations (citations issued)3 Not Avail 26,348 63,546 85,937 94,993 90,569 85,388 95,354 Calls Received for Police Service9 373,214 405,302 413,064 416,390 430,528 606,695 777,600 775,629 Fire Emergency Medical Service Calls 19,607 19,050 19,723 20,577 22,614 19,235 21,398 22,143 Fire Incidents 8,906 10,557 10,286 9,329 10,107 10,976 11,266 12,063 Fire Inspections1,10 Not Avail Not Avail Not Avail Not Avail 13,497 19,410 19,401 11,210 Fire Hydrant Inspections 10,955 10,570 11,399 10,564 13,388 22,159 25,422 25,594

238 Wastewater Treatment Average Daily Sewage Treatment (million gallons per day) 69.73 70.31 70.72 70.43 72.00 71.00 69.70 69.70 Wastewater Treatment Capacity (million gallons per day) 80 80 80 80 80 80 80 80 Solid Waste Refuse Collected (tons per day) 1,080 1,106 1,098 1,113 1,124 1,085 1,015 961 Recyclables Collected (tons per day) 142 155 171 189 201 221 453 238 Green Waste Collected (tons per day) 273 304 320 339 334 326 193 398 Other Public Works Street Resurfacing (miles)8 17 22 12 12 12 12 161 102 Parking Violations (citations issued)3 Not Avail Not Avail 18,741 51,231 66,796 62,313 67,689 68,736 Parks and Recreation Athletic Field Permits Issued1,11 Not Avail Not Avail Not Avail Not Avail 99 153 147 1,614 Memorial Auditorium User Groups 77 70 49 40 41 36 40 28 Memorial Auditorium, Audience 73,400 54,000 32,700 46,300 34,135 34,487 33,365 22,490 Water Number On-Service Accounts 114,209 118,258 120,399 122,732 124,517 127,646 128,812 130,844 Main/Service Leaks Repaired1 Not Avail Not Avail Not Avail Not Avail 251 440 513 610 Avg. Daily Per Capita Consumption (gallons) 332 329 335 286 297 299 296 298 CITY OF FRESNO, CALIFORNIA

OPERATING INDICATORS BY FUNCTION / PROGRAM LAST EIGHT FISCAL YEARS

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

Water Cont. Peak Daily Consumption (thousands of gal per minute)1 Not Avail Not Avail Not Avail Not Avail 248 252 246 244 Transportation Airports Number of Commercial Airlines 7 7 7 7 10 10 9 8 Number of Cargo Carriers6 6 6 6 6 5 4 4 4 Total Number Tenant Aircraft6 455 450 439 433 367 377 354 354 Annual Fuel Consumption (gallons)6 11,947,481 11,300,663 12,001,624 11,818,177 11,775,106 10,938,066 11,182,606 10,152,820 Origin and Destination Passengers Domestic 940,717 1,028,355 1,086,302 1,155,357 1,225,262 1,236,486 1,272,308 1,116,410 International - - - - 12,067 45,942 57,645 63,344 Origin and Destination Mail (lbs.) 136,799 65,183 49,232 37,875 14,033 9,709 386 45 6 239 Origin and Destination Freight (lbs.) 23,844,443 30,104,179 29,349,121 33,335,314 33,040,899 24,116,940 21,188,608 17,188,695 Fresno Area Express (FAX)5 Actual Route Miles 4,038,917 4,032,376 3,957,332 4,039,871 4,229,020 4,335,012 4,661,278 4,690,193 Passengers 11,905,195 11,213,019 10,854,998 11,241,649 11,808,729 12,080,346 16,925,826 18,049,827 Mini-Buses - Purchased Transportation 25 25 34 39 38 47 57 48

Source: City of Fresno - Various Departments

Notes: 1 Information not available for all years for all categories. 2 Building Permits Issued includes individual units and structures as appropriate -- a composite of new construction, additions, alterations, repairs and relocations. 3 Parking Violations for FY2004 representative of those citations that remain outstanding. Citations that were paid or dismissed are not included in this number. 4 Police department figures are based on calendar year and are as of Jan 1 of reported year. 5 Fresno Area Express Figures for FY2006 and FY2007 are unaudited figures. 6 Information combined for Fresno Yosemite International (FYI) and Chandler Executive Airport (FCH). 7 International Service to Mexico started in FY2006. 8 Street resurfacing miles for FY2002 through FY2007 are departmental estimates. In FY2008, the figures are actual miles based on new asset management system. 9 The California Highway Patrol (CHP) discontinued handling of "911" calls. Those calls are currently routed to the nearest city. 10 Fire inspections figure now reflects only those performed in the City of Fresno and excludes service calls for neighboring fire districts. 11 Parks and Recreation implemented a new software system that allows for more accurate usage totals. CITY OF FRESNO, CALIFORNIA

CAPITAL ASSET STATISTICS BY FUNCTION LAST EIGHT FISCAL YEARS1

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009 Police Department Stations 15555555 Patrol Bureaus 67777777 Vehicular Patrol units 225 229 229 237 237 250 250 252 Helicopters 33322222 Fixed Wing Aircraft - - - 11111 Fire Department Fire Stations 1616161619202020 Engine Companies 16 16 16 16 19 20 20 20 Truck Companies 55555666 Public Works Streets (miles)6 1,583 1,626 1,654 1,800 1,678 1,778 1,700 1,700 Street Lights7 35,902 37,298 38,694 40,485 45,000 46,600 78,020 39,000 Traffic Signals1,7 Not Avail Not Avail Not Avail Not Avail Not Avail Not Avail 430 441

240 Solid Waste Division Collection Trucks 108 108 112 119 115 121 127 129 Water Division Water Mains (miles) 1,700 1,700 1,626 1,638 1,687 1,737 1,758 1,765 Wells 246 248 247 247 250 257 273 280 Fire Hydrants Not Avail Not Avail Not Avail Not Avail 11,820 12,232 12,426 12,769 Sewer Maintenance Division Sewer Mainlines (miles)8 1,343 1,359 1,386 1,411 1,437 1,472 1,486 1,494 Manholes 19,835 20,207 20,706 21,152 21,566 21,062 22,703 22,867 Lift Stations 15 15 15 15 15 15 14 14 Parks Metropolitan Parks (Regional) 23333333 Neighborhood Parks 41 32 32 27 27 29 29 29 Pocket Parks Not Avail Not Avail 21 17 17 18 21 21 Zoo 11111111 Golf Courses 33333222 Community Parks 00000011 Skate Parks 11122555 Tennis Courts 5146464342404040 Acres of Parks Not Avail Not Avail Not Avail Not Avail 1,520 1,523 1,523 1,523 CITY OF FRESNO, CALIFORNIA

CAPITAL ASSET STATISTICS BY FUNCTION LAST EIGHT FISCAL YEARS1

Fiscal Year

2002 2003 2004 2005 2006 2007 2008 2009

Parks cont. Neighborhood Centers 5 5 5 11 11 11 12 12 Community Center 66655555 Swimming Pools 10 11 119991515 Transportation Airports3 22222222 Municipal Airport Total Acreage3,4 2,350 2,350 1,894 1,894 1,899 1,899 1,899 1,899 Length of Longest Runway (surfaced) - Linear FT. 3 12,424 12,424 12,848 12,853 12,853 12,853 12,853 12,853 Number of Runways3,9 44444333 Number of Terminals3 22222222 Terminals (square footage)3 125,195 170,132 170,132 170,132 180,980 180,980 180,980 184,936 Number of Parking Spaces (surface lot) 1,442 2,247 2,247 2,247 2,247 2,769 2,769 2,396 Air Cargo Ramp Spaces2 00099999

241 Air Cargo Ramp (surface square footage)2 0 0 0 806,390 806,390 806,390 806,390 806,390 Number of Hangars3,5 296 400 255 284 301 300 298 302 Buses - Directly Operated 103 103 118 118 114 126 120 125

Source: City of Fresno - Various Departments

Notes: 1 Information not available for all years for all categories. 2 Air Cargo Ramp completed in FY2005 3 Information combined for Fresno Yosemite International (FYI) and Chandler Executive Airport (FCH). 4 In FY2004 parcels of land were sold to Caltrans for easements and wetland mitigation efforts (Airports). 5 In FY2004 Taxiway construction work at both airports necessitated the elimination of some hangars. 6 Street miles in FY2005, FY2006 and FY2007 are estimated. Figure in FY2005 deemed to be an overestimation. In FY2008, new asset management system utilized to calculate actual miles. In FY2008, figure equates to 5,412 lane miles. 7 Number of Street Lights in FY2006, FY2007,2008 are estimated. In FY2008, figure originally deemed as actual was not. FY09 Supported by field survey per Department. 8 Figures for 2002-2006 restated due to decimal point placement correction. 9 One runway at Chandler Executive Airport (FCH) closed. [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX C

PROPOSED FORM OF OPINION OF NOTE COUNSEL

[Closing Date]

City of Fresno Fresno, California

City of Fresno, California 2010-2011 Tax and Revenue Anticipation Notes (Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the City of Fresno (the “City”) in connection with the issuance by the City of $56,300,000 aggregate principal amount of notes, issued pursuant to a resolution of the City Council of the City adopted on June 10, 2010 (the “Resolution”), and designated “City of Fresno, California, 2010-2011 Tax and Revenue Anticipation Notes” (the “Notes”).

In such connection, we have reviewed the Resolution, the Tax Certificate of the City, dated the date hereof (the “Tax Certificate”), an opinion of counsel to the City, certificates of the City and others and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Notes has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Notes to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Notes, the Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities in the State

C-1 City of Fresno [Closing Date] Page 2 of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Resolution or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Notes and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Notes constitute the valid and binding obligations of the City. The principal of and interest on the Notes are payable from the Pledged Revenues (as that term is defined in the Resolution), and to the extent not so paid, are payable from any other moneys of the City lawfully available therefor.

2. Interest on the Notes is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. The amount treated as interest on the Notes and excluded from gross income will depend upon the taxpayer’s election under Internal Revenue Service Notice 94-84. Interest on the Notes is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is such interest included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Notes.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

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APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Fresno, California (the “City”) in connection with the issuance of $56,300,000 2010-2011 Tax and Revenue Anticipation Notes (the “Notes”). The Notes are being issued pursuant to a Resolution of the City dated June 10, 2010 (the “Resolution”). 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 Noteholders and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c242(b)(5).

Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Dissemination Agent” shall mean the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

“Holders” shall mean, while the Notes are registered in the name of The Depository Trust Company, any applicable participant in its depository system, or any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Notes (including persons holding Notes through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Notes for federal income tax purposes.

“Listed Events” shall mean any of the events listed in Section 3(a) of this Disclosure Certificate.

“Participating Underwriter” shall mean any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes.

“Repository” shall mean any Electronic Municipal Market Access site maintained by the Municipal Securities Rulemaking Board at http://emma.msrb.org or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule.

“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. Reporting of Significant Events.

This Section 3 shall govern the giving of notices of the occurrence of any of the following events:

1. Principal and interest payment delinquencies. 2. Non-payment related defaults. 3. Unscheduled draws on debt service reserves reflecting financial difficulties. 4. Unscheduled draws on credit enhancements reflecting financial difficulties. 5. Substitution of credit or liquidity providers, or their failure to perform. 6. Adverse tax opinions or events affecting the tax-exempt status of the security. 7. Modifications to rights of security holders. 8. Bond calls. 9. Defeasances.

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10. Release, substitution, or sale of property securing repayment of the securities. 11. Rating changes.

Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under federal securities laws.

If the City determines that knowledge of the occurrence of a Listed Event would be material, the City shall promptly file a notice of such occurrence with the Repository. Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(8) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Notes pursuant to the Resolution.

Section 4. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in hill of all of the Notes.

Section 5. 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 Dissemination Agent, with or without appointing a successor Dissemination Agent.

Section 6. Amendment. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, only if:

(i) the amendment is 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 the City, or type of business conducted;

(ii) this Disclosure Certificate, as amended, would have complied with the requirements of the Rule at the time of award of the Notes, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and the amendment does not materially impair the interests of Holders of the Notes, as determined by parties unaffiliated with the City (such as, hut without limitation, the City’s bond counsel).

Section 7. 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 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 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 Agreement to update such information or include it in any future notice of occurrence of a Listed Event,

Section 8. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any Holder may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

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Section 9. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes.

Section 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders from time to time of the Notes, and shall create no rights in any other person or entity.

Date: ______, 2010

CITY OF FRESNO

By:______Controller/Finance Director

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APPENDIX E

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The information in this Appendix E concerning The Depository Trust Company, New York, New York (“DTC”) and DTC’s book-entry system has been obtained from DTC 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 Notes, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Notes, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Notes, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Notes. The Notes 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 maturity and CUSIP number of the Notes and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, “NSCC”, “FICC” and “EMCC”, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of the Notes under the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on DTC’s records. The ownership interest of each actual purchaser of each Note (“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 E-1

Notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued.

To facilitate subsequent transfers, all Notes deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Notes 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 Notes; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of the Notes may wish to ascertain that the nominee holding the Notes for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Notes unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal of and interest evidenced by the Notes will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City, 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 (nor its nominee), the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of and interest evidenced by the Notes to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, 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.

AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE NOTES, THE CITY WILL SEND NOTICES TO HOLDERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY PARTICIPANT, OR OF ANY PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO ANY OTHER ACTION PREMISED ON SUCH NOTICE.

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THE CITY HAS NO RESPONSIBILITY OR LIABILITY FOR ANY ASPECT OF THE RECORDS RELATING TO OR PAYMENTS MADE ON ACCOUNT OF BENEFICIAL OWNERSHIP, OR FOR MAINTAINING, SUPERVISING OR REVIEWING ANY RECORDS RELATING TO BENEFICIAL OWNERSHIP OF INTERESTS IN THE NOTES.

THE CITY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE NOTES RECEIVED BY DTC TO DTC PARTICIPANTS OR THAT THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS WITH RESPECT TO THE NOTES RECEIVED TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CITY IS NOT RESPONSIBLE OR LIABLE FOR THE FAILURE OF DTC OR ANY PARTICIPANT TO MAKE ANY PAYMENT WITH RESPECT TO THE NOTES OR AN ERROR OR DELAY RELATING THERETO.

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CITY OF FRESNO • 2010-2011 TAX AND REVENUE ANTICIPATION NOTES