City of Culver City, California
Agenda Item Report
Meeting Date: 01/10/2011 Item Number: C-5
CITY COUNCIL AGENDA ITEM: Receive and File Audited Financial Statements for
Fiscal Year Ending June 30, 2010.
Contact Person/Dept.:
Jeff S. Muir/Finance
Phone Number: 310/253-5865
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No []
Public Hearing: [] Action Item: [] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (E-Mail) Meetings and Agendas – City Council (01/05/11); (E-Mail)
Ongoing Topic – Fiscal and Budget Issues (01/05/11)
Department Approval:
Jeff Muir (01/04/11)
City Attorney Approval:
Carol Schwab (by H. Baker) (01/04/11)
Chief Financial Officer Approval:
Jeff Muir (01/04/11)
City Manager Approval:
John M. Nachbar (01/05/11)
RECOMMENDATION:
Staff recommends that the City Council receive and file the audited financial
statements for the Fiscal Year ending June 30, 2010.
BACKGROUND:
The City Charter requires an annual audit of the financial statements of the City by
an independent certified public accountant. The accounting firm of Mayer Hoffman
McCann, P.C. (MHM), performed this audit. This was the final year of a three year
agreement with MHM. In addition to meeting the requirements set forth in the City
Charter, the audit was also designed to meet the requirements set forth in state
statutes and the Federal Single Audit Act Amendment of 1996 and U.S. Office of
Management and Budget Circular A-133. The auditor’s reports related specifically to
the single audit, including the schedule of expenditures of federal awards, auditor’s
report on the internal control structure, and compliance with applicable laws and
regulations, are also included as an attachment.
DISCUSSION:
The Comprehensive Annual Financial Report (CAFR) of the City of Culver City for
the Fiscal Year ended June 30, 2010, is attached. Responsibility for both the
accuracy of the data and the completeness and fairness of the presentation,
including all disclosures, rests with the City and in particular with the Finance
Department. To the best of our knowledge and belief, the enclosed data is accurate City of Culver City, California
Agenda Item Report
in all material respects and is reported in a manner designed to present fairly the
financial position and results of operation of the various City funds. All disclosures
necessary to enable the reader to gain an understanding of the City’s financial
activities have been included.
The auditors have rendered an unqualified opinion (clean opinion) on the financial
statements. This can be viewed on the attached Independent Auditor’s Report.
Additionally, the auditors issued a letter with regards to internal control over financial
reporting. The auditors did not identify any deficiencies in the City’s internal control
to be material weaknesses, according to the definitions provided in their letter.
There was one recommendation for improvement to current internal controls related
to receivables in the General Fund. Staff provided a written response to this
recommendation, which is attached, that provides some context as well as a
commitment to address the recommendation in the current fiscal year.
Pursuant to Statement on Auditing Standards No. 114, The Auditor's Communication
With Those Charged With Governance, the auditors have also provided a letter
communicating certain other information related to the audit process. This letter
indicates the auditors encountered no significant difficulties in performing and
completing the audit, that there were no material misstatements detected as a result
of the audit process, and that there were no disagreements with management that
could be significant to the financial statements or the auditor’s report.
The Single Audit contained one finding relative to a waiver of formal bidding
procedures that was applied to the contract to complete the construction of the
Police Department Firing Range. This can be viewed on Page 9 of the Single Audit
document. Also available is the response from management provided to the
auditors.
Finally, the auditor’s provided a letter related to the Independent Accountants’
Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets. As
part of the annual budget process, pursuant to Article XIIIB of the California
Constitution, the City is responsible for calculating an annual appropriations limit.
The auditors reviewed these worksheets and found no exceptions.
The City was awarded the Certificate of Achievement for Excellence in Financial
Reporting for the year ending June 30, 2009 by the Government Finance Officers
Association of United States and Canada.
The Comprehensive Annual Financial report for the City of Culver City for the fiscal
year ended June 30, 2010 has been submitted to the Government Finance Officers
Association (GFOA) of United States & Canada for its review and eligibility for a
Certificate of Achievement for Excellence in Financial Reporting for this year. If
chosen, this will be the twenty sixth (26
th
) consecutive year for our CAFR and the
City to receive this award. City of Culver City, California
Agenda Item Report
The reports and associated attachments are as follows:
• Comprehensive Annual Financial Report
• Municipal Bus Lines Report
• Single Audit Report on Federal Awards
• Independent Auditor’s Report
• Letter from Auditor’s on Internal Control over Financial Reporting
• Culver City Management Response to Internal Control Recommendation
• The Auditor's Communication With Those Charged With Governance
• Independent Accountants’ Report on Agreed-Upon Procedures Applied to
Appropriations Limit Worksheets
The City has routinely posted financial information on the City’s website
(www.culvercity.org – click on Government – then Finance – then Financial
Reports). This includes 10 years of Comprehensive Annual Financial Reports.
Should the City Council. Upon receipt and filing of this report by the City Council,
staff will add this information to the historical data already available online.
FISCAL ANALYSIS:
There is no fiscal impact from receiving and filing these reports. The financial results
of the Fiscal Year ended June 30, 2010 were discussed in detail at the City Council
meeting of November 8, 2010.
ATTACHMENTS:
1. Comprehensive Annual Financial Report
2. Municipal Bus Lines Report
3. Single Audit Report on Federal Awards
4. Independent Auditor’s Report
5. Letter from Auditor’s on Internal Control over Financial Reporting
6. Culver City Management Response to Internal Control Recommendation
7. The Auditor's Communication With Those Charged With Governance
8. Independent Accountants’ Report on Agreed-Upon Procedures Applied to
Appropriations Limit Worksheets
MOTION:
That the City Council:
Receive and file the audited financial statements for the Fiscal Year ending June
30, 2010.
MEETING DATE: 01/10/11
AGENDA ITEM: Receive and File Audited Financial Statements for Fiscal Year
Ending June 30, 2010
ATTACHMENTS
Pages
Attachments:
1. Comprehensive Annual Financial Report 1 – 168
2. Municipal Bus Lines Report 169 - 190
3. Single Audit Report on Federal Awards 191-202
4. Independent Auditor’s Report 203-204
5. Letter from Auditor’s on Internal Control over Financial Reporting 205
6. Culver City Management Response to Internal Control Recommendations 206-208
7. The Auditor’s Communication With Those Charged With Governance 209
8. Independent Accountant’s Report on Agreed-Upon Procedures Applied
To Appropriations Limit Worksheets 210
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED
JUNE 30, 2010
CITY OF CULVER CITY,
CALIFORNIA
PREPARED BY THE
FINANCE DEPARTMENT
123456
Introductory Section
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December 7, 2010
Honorable Mayor, Members of the City Council, and the citizens of Culver City:
It is our pleasure to submit the Comprehensive Annual Financial Report (CAFR) of the City of
Culver City for the fiscal year ended June 30, 2010. Responsibility for the accuracy of the
presented data and the completeness and fairness of the presentation, including all disclosures,
rests with the City. In our opinion, the data is accurate in all material aspects, is presented in a
manner designed to fairly set forth the financial position and results of operations of the City, and
contains all disclosures necessary to enable the reader to gain an understanding of the City's
financial affairs.
The financial statements are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) as promulgated by the Government Accounting Standards Board (GASB). This
report consists of management's representations concerning the finances of the City of Culver
City, California. Consequently, management assumes full responsibility for the completeness and
reliability of all of the information presented in this report. To provide a reasonable basis for
making these representations, management of the City has established a comprehensive internal
control framework that is designed both to protect the City's assets from loss, theft or misuse and
to compile sufficient reliable information for the preparation of the City's financial statements in
conformity with GAAP. Because the cost of internal controls should not outweigh their benefits,
the City's comprehensive framework of internal controls have been designed to provide
reasonable rather than absolute assurance that the financial statements will be free from material
misstatement. As management, we assert that, to the best of our knowledge and belief, this
financial report is complete and reliable in all material respects.
The City's financial statements have been audited by Mayer Hoffman McCann P.C., a public
accounting firm fully licensed and qualified to perform audits of the State and local governments
within the State of California. The goal of the independent audit was to provide reasonable
assurance that the financial statements of the City of Culver City, California for the fiscal year
ended June 30, 2010, are free of material misstatement. The independent audit involved
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements; assessing the accounting principles used and significant estimates made by
management; and evaluating the overall financial statement presentation. The independent
auditors concluded, based upon the audit, that there was a reasonable basis for rendering an
unqualified opinion that the City of Culver City, California's financial statements for the fiscal year
ended June 30, 2010, are fairly presented in conformity with GAAP. The independent auditors'
report is presented as the first component of the financial section of this report.
This CAFR is legally required by the City Charter, various bond covenants, and a number of
granting agencies. The independent audit of the financial statements of the City was part of a
broader, federally mandated "Single Audit" designed to meet the special needs of the Federal
grantor agencies. The standards governing Single Audit engagements require the independent
auditor to report not only on the fair presentation of the financial statements, but also on the
audited government's internal controls and compliance with legal requirements, with special
emphasis on internal controls and legal requirements involving the administration of Federal
awards. These reports are available in the City's separately issued Single Audit Report.
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GAAP requires that management provide a narrative introduction, overview and analysis to
accompany the basic financial statements in the form of Management's Discussion and Analysis
(MD&A). This letter of transmittal is designed to compliment MD&A and should be read in
conjunction with it. The City's MD&A can be found immediately following the report of the
independent auditors in the financial section of the CAFR.
Profile of the City of Culver City
The City of Culver City, located on the Westside of Los Angeles County, California, was
incorporated in 1917. The City Charter, which was adopted in 1947, establishes the form of
government, states the powers and duties of the City Council, and establishes various City
offices. The City operates under a Mayor/City Council-City Manager form of government. Under
this system, the people elect a City Council of five citizens who serve a term of four years and
who, in turn, elect the Mayor from among themselves. The City Council appoints the City
Manager, City Attorney, Police Chief and Fire Chief. Other department heads are appointed by
the City Manager.
Culver City is a full-service City, serving a resident population of 40,000 and a daytime population
of approximately 60,000|1010|. Services provided include police, fire, general maintenance, public
improvements, planning and zoning, refuse collection, municipal bus lines, park, recreation and
community services, and general administrative services.
The annual budget serves as the foundation for the City financial planning and control. The City
Council is required to adopt an annual budget resolution by July 1 of each fiscal year for the
General Fund, Special Revenue Funds, and Debt Service Fund. It also adopts a project life
budget for Capital Projects Funds and an operating plan for Proprietary Funds. These budgets
are adopted and presented for reporting purposes on a basis consistent with generally accepted
accounting principles.
The City of Culver City is also financially accountable for the legally separate Culver City
Redevelopment Agency and the Culver City Redevelopment Financing Authority, which are
blended into the City’s financial statements. Additional information on all three of these entities
can be found in Note 1 of the Notes to the Financial Statements.
The level of appropriated budgetary control is the total adopted budget, which is defined as the
total budget for all funds and divisions and includes all revisions and amendments approved by
the City Council subsequent to the initial budget adoption. The City Manager may authorize
transfers of appropriations within the adopted budget. Supplemental appropriations during the
year must be approved by the City Council, with certain exceptions delegated to the City Manager
in the Budget Resolution adopted annually by City Council. Unexpended or unencumbered
appropriations lapse at the end of the fiscal year. Encumbered appropriations are reappropriated
in the ensuing year's budget. The City utilizes an encumbrance accounting system, whereby
commitments such as purchase orders and unperformed contracts are recorded as reserved fund
balances at year-end.
|1010| Population estimates from the U.S. Census Bureau; Census 2000 PHC-T-40; “Estimated
Daytime Population and Employment-Residence Ratios: 2000”
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History of Culver City
Native Americans of Shoshonean origins were the first known inhabitants of the area which
became Culver City. Although Cabrillo anchored his small ship in the port of San Diego in 1542, it
was not until the threat of aggression by other countries, that King Carlos III of Spain mandated
colonization in 1769. Franciscan Father Junípero Serra began to establish the missions from San
Diego northward. The natives became known as the "Gabrielino Indians", due to their proximity to
the San Gabriel Mission (est. 1771). In 1781, the "Pueblo de Nuestra Señora la Reina de Los
Angeles" was established by eleven families and an escort of Spanish soldiers. On a later
expedition that year, a young soldado, José Manuel Machado arrived in California with his wife.
Machado was destined to complete his military duty and retire with his family to the pueblo in
1797. After Machado's death in 1810, two of his sons, José Agustín and José Ygnacio joined
Felipe Talamantes and his son Tomás to graze cattle to the west, where they claimed the 14,000
acre Rancho La Ballona. By 1865, when Agustín Machado, (the most prominent owner), died,
Rancho La Ballona had functioned under three governments: Spain, Mexico and the United
States.
The Gold Rush and the Railroad moved people west. Abbot Kinney bought the land to develop
his "Venice of America" in 1904. A young man from Nebraska, named Harry H. Culver arrived in
California in 1910 and went to work in real estate for I. N. Van Nuys. Culver studied the area and
in 1913 announced his plans for a city halfway between the pueblo of Los Angeles and Kinney's
resort of Venice. Culver envisioned a balanced community with a residential/commercial mix.
Culver, who was already enamored by the movie industry, saw Thomas Ince making a movie with
"painted Indians" in canoes on La Ballona Creek. He convinced the moviemakers to move from
"Inceville" north of Santa Monica to property on Washington Boulevard. This first major movie
studio became a "city within a city", eventually six lots, covering more than 180 acres. What
began as Ince/Triangle Studios became Goldwyn, then successively Metro Goldwyn Mayer,
Lorimar and Columbia Pictures. In 1989, electronics and information technology giant Sony
Corporation purchased Columbia Pictures and the site is now the global headquarters for Sony
Pictures Entertainment.
Ince had moved east on Washington Boulevard to establish his second studio in 1919. After he
died in 1924, this studio prospered as De Mille Studios, Selznick Studios, R.K.O., Pathe, R.K.O.-
Pathe, Desilu, Culver Studios, Laird International, and most currently, The Culver Studios. It was
on this studio's back lot that Atlanta was burned for "Gone with the Wind". The third major studio
was Hal Roach Studios, which existed from 1919 through 1963. It was known as the "Laugh
Factory of the World", where the Our Gang Comedies and Laurel and Hardy were filmed. Hence,
the "Heart of Screenland" appears on our City Seal.
The first City offices where the early "Board of Trustees" met were located on the second floor of
the local theater, which Harry Culver moved to build his six-story Hunt Hotel in 1924. "City Hall"
relocated to Van Buren Place until 1928 when the New City Hall was dedicated at 9770 Culver
Boulevard. That structure has made way for another New City Hall that was completed in 1995.
Through a series of more than 40 annexations over the years, Culver City grew from 1.2 to 5.13
square miles.
In the twenties, Culver City was known for its nightspots like Fatty Arbuckle's Plantation Cafe and
Frank Sebastian's Cotton Club. Western Stove on Hays (National) marked the beginning of
industry in 1922. Despite the Depression, building continued with endeavors like Helms Bakery
which supplied foodstuffs for the 1932 Olympics in Los Angeles. The first Industrial tract, the
Hayden Tract, became a reality in the forties. In the late forties, Culver City became a Charter
City with a Unified School District. Our Junior and Senior High Schools were built to complement
what eventually numbered eight elementary schools (presently there are five.) Hughes Aircraft
located nearby and became a major employer of Culver City residents, like Helms and the
studios. In 1950, the Veterans' Memorial Building was completed, Culver Center was built, car
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dealerships lined Washington Boulevard and the Fiesta La Ballona celebrated the Spanish
heritage of the area beginning in 1951. In the fall of 1975, Fox Hills Mall was completed as the
first major Redevelopment project. The Filmland Corporate Center, Meralta Plaza and the
beginnings of Corporate Pointe were projects of the 80's.
Redevelopment efforts continue in Downtown Culver City. With the redevelopment of the Helms
and Beacon Laundry buildings into the Helms Furniture District, new theatres in the center of the
City including the redevelopment of the Culver Theatre into the Kirk Douglas Theatre, the 12
screen Pacific Theater complex and the Actor’s Gang at the Ivy Substation, a number of highly
rated new restaurants, a thriving arts district on the eastside and redevelopment of the western
portion of the City, Culver City continues to move forward.
Factors Affecting Financial Condition
The information presented in the financial statements is perhaps best understood when it is
considered from the broader perspective of the specific environment within which the City of
Culver City operates.
The National Bureau of Economic Research, which is the non-profit agency responsible for
defining economic cycles, declared June 2009 to be the official end of the recession that began in
December 2007. Statistically, the recession that plagued the U.S. economy for the last two years
is over (i.e. the economy has stopped contracting and has sustained a few consecutive quarters
of growth); However, as a practical matter, the U.S. economy is still very much in a recession as
foreclosures remain near record highs, credit continues to be very tight, the stock market has
been extremely volatile, and unemployment remains uncomfortably high.
Local economy. Culver City has a diverse and strong economy. The City's business community
is comprised of a diverse collection of businesses ranging from traditional retailers to a major film
studio. Mainstay firms such as Costco, Westfield-Culver City Mall and Sony Pictures
Entertainment occupy a traditional niche as large institutional property owners, sales tax
producers and employers.
During the fiscal year, construction was completed on the expansion and remodel of Westfield–
Culver City Mall. The expansion and remodel added approximately 165,000 square feet of retail
space for new anchors Target, Best Buy, and Forever 21 and gave the Mall a much needed face
lift.
A number of major mixed use office/retail/residential projects continue to be delayed as
developers have been unable to secure construction financing. Although there are signs that
point to a possible economic recovery in the coming months, construction financing is still difficult
to obtain. Consequently, receipts from many of the development related revenues that the City is
expecting will be delayed until the credit markets loosen and development resumes.
Construction is nearing completion related to the newest extension in the existing 62 station
Metro light rail system, with the latest phase of 8.5 miles terminating in the Washington/National
area in Culver City. Construction of this phase, including the elevated train station in Culver City,
is expected to be completed in 2011.
As part of the ongoing project, the City has been working diligently to create a top notch transit
oriented development at the aerial station to be located at the intersection of
Washington/National. The proposed transit oriented development is currently in the planning
stages and the City and Redevelopment Agency will be working towards selecting a developer to
work with to construct this project over the next fiscal year.
Although there is some development activity in Culver City, the City is by no means immune to
the impacts from the national recession.
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There are still significant pressures on the economy that will continue to dampen any chance for a
sustained recovery and, worst case, have the potential to cause a second recession. Chief
among these pressures is a record unemployment rate that continues to be uncomfortably high,
both nationally and statewide. In September, the national unemployment rate was 9.6% while the
state’s unemployment rate in August was 12.4%|1010|. There are also legitimate concerns about: 1)
hyper-inflation due to the massive government spending over the last few year|1010|, 2) continuing
defaults on residential and commercial property loans, and 3) historically low consumer
confidence.
Additionally, California is experiencing an ongoing budget crisis and has had to shift billions of
dollars away from local agencies to try to balance the budget over the last few years. During
Fiscal Year 2009-2010, the State of California took $10.9 million from the Culver City
Redevelopment Agency. We expect a second payment of over $2 million in Fiscal Year 2010-
2011. Funding for schools and social programs has been cut statewide and it is evident that
further cuts will be necessary over the next few years or the State will not have the funds operate.
Consequently, the dire long range budgetary problems of the State have caused uncertainty in
terms of local programs and revenue streams.
Despite Culver City’s relative financial strength and economic diversity, the City was forced to
make some very significant decisions, including eliminating 60 positions in FY 2010-11, in order
to maintain that condition. Even with this significant cut, the City’s current level of expenditures
cannot be sustained. Under the direction and leadership of the City Manager, the City is
continuing the process of re-aligning expenditures to conform to “new normal” revenue
projections that are expected going forward.
Major Initiatives and Improvements for Fiscal Year 2010-11
The budget contains major work plans for each department and a citywide capital project plan to
address the highest priorities of the community and the goals of the City Council. Although the
City is experiencing budget problems, following is a sample of major work programs and
community reinvestment projects that received funding in fiscal year 2010-11 adopted budget:
1. Community Service Improvements
a. Complete field leveling and lighting project at Bill Botts field;
b. Enhance the City’s emergency preparedness program and continue to build
on the City’s ability to deal with emergency situations, such as natural
disasters and/or pandemic outbreaks; and
c. Begin needed renovations at aging City facilities, including Fire Station Nos.
1 & 2
2. Community Reinvestment
a. Complete various playground improvement projects;
b. Complete a number of street resurfacing and streetscape improvement
projects throughout the City; and
c. Complete various improvements to the City’s sewer conveyance system;
3. Internal Operational Improvements
a. Continue to review organizational efficiency and develop a succession
planning program; and
|1010| State unemployment data lags national unemployment data by 2-3 weeks. As of the writing of
this transmittal letter, State unemployment data for September was unavailable. |1010| Although inflation fears have subsided with the Federal Reserve Board’s recent statements that
it will take a more aggressive approach to monetary policy due to reduced inflationary pressures,
inflation is still potentially a significant pressure on the economy.
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b. Begin the process of replacing the City’s aging financial system with a more
efficient and intuitive system.
c. Reduce overall operating costs through negotiations with employee
bargaining groups.
All of the City’s operations, including the community service improvements, community
reinvestment, and internal operational improvements identified above, are funded by various
taxes, fees and fines levied on consumers, residents, businesses, and developers operating
within the City. A brief historical discussion of the City’s major revenues is contained in the
following section.
Revenues
Major sources of General Fund revenue for the City include Sales Tax, Business Tax, Utility User
Tax (UUT), Property Tax and Transient Occupancy Tax (TOT).
Sales Tax
Sales Tax is Culver City’s single
largest revenue source. Sales tax
revenue is a volatile revenue
source and even though Culver
City has a diverse economic base,
the City has seen large revenue
swings in the past. The increase
in the late 1990’s is a combination
of the robust economy of the
period and the opening of major
retailers (Costco, BestBuy, and
Miller Honda). The terrorist
events in September 2001
spurred a sharp drop in sales tax
and took until 2002-03 and 2003-04 to fully recover. The current economy and closing of some
major sales tax generators caused sales tax receipts to decline dramatically in fiscal 2008-09 and
2009-10.
Sales tax revenues were only $14.3 million in fiscal year 2009-10, which was approximately a
10.6% decrease from fiscal year 2008-09 results and 20.1% decrease from fiscal year 2007-08.
The budget for fiscal 2009-10 was adjusted down at mid-year by a little over $1.6 million to reflect
a more realistic projection for the year and to correct the sales tax in-lieu estimate per information
from the California Department of Finance which adjusted this category significantly downward.
Even with the adjustment, actual receipts did not hit the target amount and were off about 1.7%,
or $250,000. The interim budget for fiscal 2010-11 was conservatively forecast, and most likely
will be revised at mid-year using information received over the past couple of months, which
shows further drops in retail sales activity. This new forecast will put sales tax at levels last seen
in fiscal 2002-03.
Business Tax
Business Tax accounts for
approximately 12% to 14% of the
General Fund revenues. All entities
conducting business in Culver City
are required to pay a Business Tax
annually. This tax has experienced
relatively stable growth over the past
several years, a testament to the
growing economic base in the City.
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Business Tax is based on a businesses’ gross receipts, which is a measure of the amount of
business they do in the City. Recognizing that significant portions of business tax revenues are
based on gross receipts, we can see how downward trends in the economy impact city revenues.
Fiscal year 2009-10 Business Tax receipts, including penalties, were $9.65 million, an 8.1%
decrease from fiscal year 2008-09 results. In fiscal 2008-09 the City began conducting a more in-
depth Business Tax Audit, initially focused on identifying businesses that operate in the City
without paying the tax, and then focusing on audits of actual returns.
Utility User Tax
Utility User Tax receipts make up
approximately 17.5% of the
General Fund revenues. The City
charges Utility User Tax (UUT) on
electricity, water, telephone,
cable, and natural gas utilities.
The current UUT percentage rate
is 11%. Fortunately, UUT revenue
is much more stable than other
major revenues. Economic
fluctuations have less impact on
UUTs because residents still
need electricity, natural gas,
water, etc. Over the last ten
years, UUT revenues have grown at an average annual rate of approximately 3%.
UUT receipts for fiscal year 2009-10 are $14.14 million, which is a 1.4% decrease from fiscal year
2008-09. Weather played a bit of a factor during fiscal 2009-10, and kept electricity receipts
lower than anticipated. The fiscal 2010-11 budget allows for modest increases on average of
1.5%. As the economy recovers, UUT revenues are expected to return to a normal annual
average increase of 3.0%.
Transient Occupancy Tax
Transient Occupancy Tax (TOT) is
levied on occupied hotel/motel
rooms and is currently 12% of the
room rate. Over the last five
years, TOT revenues have been
highly volatile. There was a 22%
drop in TOT revenue between
2000-01 and 2001-02, followed by
a 30% increase in revenues the
following year, followed by another
decline of 16% between 2002-03
and 2003-04. Events such as
September 11th or large hotel
closures have an adverse impact
on TOT revenues. The spike in
fiscal year 2006-07 was the result of a payment for back owed taxes due to a bankruptcy
settlement.
Fiscal year 2009-10 TOT revenues were $2.96 million, and exceeded the prior year by less than
1%. Receipts stayed relatively steady throughout the year, even with continued high vacancy
rates and low room rates. Spring saw steady activity, which helped this category end the year
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strong. All of the City’s larger hotels were also fully operational, which was not the case in prior
years.
Fiscal year 2010-11 receipts were budgeted conservatively, and it is expected that revised
projections will be met. Vacancy rates have lowered somewhat and travel activity has picked up
slightly.
Property Tax
Culver City is a “low property tax”
city and only receives 10.5% of
the 1% property tax rate paid by
property owners, which equates
to only about 3.5% to 4.5% of
General Fund revenues, on
average. Fortunately, Culver City
has not seen a significant drop in
this category the last few years,
and has not experienced the
severe mortgage and foreclosure
meltdowns felt by other locales.
Culver City’s property tax revenue
has grown relatively consistently
over the past five years,
averaging an annual growth rate of approximately 8%. Given the current downturn in the housing
market, these increases will not continue over the next several years. The downturn in fiscal
2004-05 and 2005-06 is the recording of the State ERAF shift of approximately $971,000 each
year.
Property Tax receipts ended fiscal year 2009-10 at $3.53 million, which is 7.3% ahead of fiscal
year 2008-09. Reduced property prices and slow sales have attributed to the conservative
projection in fiscal 2010-11. The growth in revenue is expected to be flat.
Total Tax Revenues
From the chart, it is clear to see a
correlation between these taxes as
the years move forward. The
terrorist events of September 2001
are clearly indicated in the sharp
decline of four of the taxes, with
only property taxes remaining
relatively steady. All four of these
taxes rebounded in fiscal 2002-03
and have increased steadily until
fiscal 2007-08 when sales tax
showed the first decline in years.
Without the one-time payment from a bankruptcy settlement in fiscal year 2006-07 for TOT, the
recurring receipts would have showed a decrease over the prior year. Fiscal 2008-09 and 2009-
10 show an even steeper decline in sales tax, and recovery is not expected in the near future.
EXPENDITURES
The following chart examines the city’s expenditures over the past several years. (Note: A point
of clarification for readers of this letter. The previous revenue graphs do not represent total City
General Fund revenues for the periods evaluated. As noted, they represent only the City’s major
General Fund tax revenue sources. The graph for Expenditures also only includes operating
expenses for the General Fund, and does not include transfers-out to other funds.)
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Over 80% of the City’s General Fund is personnel related costs, and Police and Fire makeup over
50% of the overall General Fund expenditures. The City has struggled with rising medical,
retirement, fuel, and workers’ compensation costs on an annual basis.
In Fiscal 2003-04, several
positions were eliminated from
the entire City budget, with 19.5
positions being from the General
Fund. Major increases in
CalPERS retirement costs for
public safety, stagnant revenues,
rising costs, and state takeaway
of property tax initiated these
severe actions during this budget
cycle. The City did recover,
though, but again faces potential
reductions due to the severe
economic times facing us.
CalPERS will also be
implementing higher rates, which are expected to begin in fiscal 2011-12.
The City adopted a budget for fiscal 2010-11, which includes taking approximately $2 million from
reserves and the reduction of 60 positions. This budget was introduced as the first of a two-
phase approach to eliminate the City’s General Fund structural deficit. All Funds will be reviewed
closely during the year and any recommended adjustments will be given to the City Council in a
timely manner.
General Fund Reserve Percentage
Perhaps the best measure of the City’s effectiveness in weathering an economic downturn and
building sustained growth for the future is its ability to build a fund reserve. It is a goal of the City
to maintain a general operating reserve of, at a minimum, 25% of projected General Fund
operating expenditures for each fiscal year and an additional 5% for emergency situations
(excluding debt service, fund transfers, and encumbered funds). These reserves are designed to
be used in the event of a significant financial emergency.
The City has been able to
maintain a relatively healthy
reserve in large part to revenues
from major developments
occurring within the city the past
several years, and conservative
budgeting practices by City
Council and staff.
Monies in the reserve are used
to fund one-time projects and
programs, and are most often
transferred to the City’s capital
improvement fund to fund capital
projects.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
87/88
88/89
89/90
90/91
91/92
92/93
93/94
94/95
95/96
96/97
97/98
98/99
99/00
00/01
01/02
02/03
03/04
04/05
05/06
06/07
07/08
08/09
Ratio of General Fund
Reserves to Expenditures
16
XIV
Long Term Financial Planning
In fiscal year 2006-07, the City developed a long term Comprehensive Financial Master Plan to
forecast revenues and expenditures over a 5- to 15-year period. In addition to providing a long
term forecast for each major fund, the plan identifies long term issues facing the City, including
increases in medical and retirement costs, the impact of development on revenues, and the
impact of deferred maintenance on the state of the City’s infrastructure. The Comprehensive
Financial Master Plan is a valuable financial management tool, especially in challenging financial
times, to assist the City Council in setting priorities and educate the community on the long term
state of the City’s finances.
Cash management policies and practices. Under the direction of the Chief Financial Officer,
cash temporarily idle during the year was invested in demand deposits, the State Treasurer’s
investment pool, money market mutual funds, obligations of the U.S. Treasury, Federal Agency
issues and medium-term notes of major U. S. corporations. The average yield on investments for
the fiscal year was 3.46 for the general portfolio.
The City Council annually adopts, by resolution, a statement of investment policy for the City's
funds. The policy defines the objectives and priorities of the investment program, stressing safety
and liquidity of funds as the highest priority. The third priority stated by the policy is the
achievement of the maximum yield possible within the constraints of the primary objectives.
Accordingly, deposits and investments were either insured by federal depository insurance or
collateralized. Based on uncertainty from the State budget situation and significant potential
takeaways, as well as a deteriorating interest rate environment, the decision was made to hold
significant funds liquid during many months of the fiscal year.
The Chief Financial Officer is charged with the responsibility of custody and investment of surplus
City funds and is required to submit a quarterly investment report to the City Council that provides
a summary of the status of the current investment portfolio and material transactions entered into
during the quarter. In addition, the Chief Financial Officer is charged with the investment of
proceeds from bonds issued by the City and the Redevelopment Agency.
Risk Management. The City is self-insured for comprehensive general liability claims up to $1
million. The City is a member of a Joint Powers Authority called Independent Cities Risk
Management Authority (ICRMA) to better manage its risk exposure and provide more stable and
predictable costs. The City participates in the ICRMA’s liability program, which pools members’
assets to provide insurance coverage for liability claims between $1 million and $2 million per
occurrence and purchase excess liability insurance up to $20 million per occurrence.
The City is also self-insured for Workers' Compensation up to $1 million per claim. The City
participates in the ICRMA’s Workers’ Compensation Program, which pools members’ assets to
provide insurance coverage for workers’ compensation claims between $1 million and $5 million
per occurrence and purchase excess workers’ compensation insurance to statutory limits.
The City also maintains a Risk Management Division to effectively continue to address existing
and potential risk factors that affect the City and its employees. Risk Management staff reviews
funding levels annually to ensure that the internal service charges are adequate to address
claims costs while attempting to minimize significant impacts to department budgets in future
years.
Internal service charges for the Self Insurance Fund, which are used to pay Risk Management
administrative costs, salary continuance for injured employees, workers’ compensation and
liability claims costs, and insurance premiums, are set annually based upon a five year average
experience rating for each department. Special focus has been placed on analyzing the impacts
of the self-insurance program on the City’s annual budget. Significant progress has been made
17
XV
over the last few fiscal years and loss trends are steadily being reduced as old claims have been
settled and cost savings have been realized.
Employee Health and Retirement Benefits: Active Employees. The cost of health insurance
continues to climb and is expected to increase steadily in the future. In March 2010, President
Obama‘s administration was successful in getting health care reform legislation passed in an
attempt to institute some changes in health care and insurance costs. At this time, it is too early
to gauge the potential for success of his reform legislation, or estimate the long-term impact that
reform may have on health care and insurance costs.
Retirement costs are forecasted to rise sharply in the coming years due to the investment losses
sustained by CalPERS. Rates for Fiscal Year 2010-11 for Miscellaneous and Safety are 26.5%
and 12.2%, respectively. The City recently received the June 30, 2009 actuarial report from
CalPERS, which indicates rates will climb to 32.5% and 15.8% for Safety and Miscellaneous
employees in Fiscal Year 2011-2012. CalPERS also included projections reflecting these rates
rising to 40.2% and 18.5% for Safety and Miscellaneous employees by Fiscal Year 2013-2014,
an increase of slightly over 50% compared to the current year. These rising costs will continue to
put pressure on the City’s budget, even if economic recovery begins.
Pension and Other Post-employment Benefits: Retirees. The City provides full-time and
certain part-time employees, and their beneficiaries, retirement and disability benefits through
three defined benefit pension plans, one for fire safety employees, one for police safety
employees, and one for miscellaneous employees. These plans are part of the California Public
Employees' Retirement System (CalPERS). The City makes contributions to the plans based on
amounts determined by CalPERS actuaries. The City contributes the employees' required
contributions or a portion thereof on their behalf as negotiated by MOU.
The City also provides post-retirement health benefits to its employees in accordance with
agreements reached with the various employee bargaining groups. In the last round of MOU
negotiations, these agreements were adjusted to provide cost sharing with retirees who have left
City service since January 2007. The City pays for retirees' health care premiums in these plans
up to limits established in the agreements with the bargaining units. These payments are financed
on a pay-as-you-go basis. As of June 30, 2010, the City was providing benefits to 483
participants. The City’s latest actuarial report has the City’s total liability for this benefit (Present
Value of Benefits) at $213 million using a 4% discount rate. The 4% discount rate represents the
fact that the City currently funds the benefit on a pay-as-you-go basis. The City is working
towards solutions that will decrease this liability in the future and also to create budgetary
capacity to begin pre-funding.
Awards and Acknowledgements
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 of Culver City for its
comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2009. This was
the twenty-fifth consecutive year that the City has received this prestigious award. In order to be
awarded a Certificate of Achievement, a government must publish an easily readable and
efficiently organized comprehensive annual financial report. This report must satisfy both
generally accepted accounting principles and applicable legal requirements.
The Certificate of Achievement is valid for a period of one year only. We believe that our current
comprehensive annual financial 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.
18
XVI
This report was made possible by the talented and highly dedicated services of the staff of the
Finance Department. Each member of the department has our sincere appreciation for the
contribution made in the preparation of this report. In particular, special thanks are given to Iris
Kym, Accounting Division Manager and the staff of the Accounting Division, as well as the Budget
staff. This report was only possible through perseverance and teamwork.
In closing, without the leadership and guidance of the City Council, the preparation of this report
would not have been possible.
Respectfully,
Jeff S. Muir John Nachbar
Chief Financial Officer City Manager
19XVII
CITY OF CULVER CITY
June 30, 2010
CITY OFFICIALS
Elected Officials
Mayor
Christopher Armenta
Vice Mayor
Micheál O'Leary
Members of the City Council
Jeffrey Cooper
D. Scott Malsin
Andrew Weissman
Administrative Officials
John Nachbar City Manager
Martin Cole Assistant City Manager
Sol Blumenfeld Community Redevelopment Director
Charles Herbertson Public Works Director
Art Ida Transportation Director
Jeff Muir Chief Financial Officer
Donald Pederson Police Chief
John Richo Information Technology Director
Pam Robinson Interim Parks, Recreation & Community Services
Director
Carol Schwab City Attorney
Christopher Sellers Fire Chief
Serena Wright Human Resources Director
20CITY COUNCIL
CITY MANAGER
CITY MANAGER’S
OFFICE
CULVER CITY OVERVIEW ORGANIZATIONAL CHART
FISCAL YEAR 2009-2010
ASSISTANT CITY MANAGER
FINANCE
DEPARTMENT
INFORMATION
TECHNOLOGY
DEPARTMENT
HUMAN
RESOURCES
DEPARTMENT
COMMUNITY
DEVELOPMENT
DEPARTMENT
PARKS,
RECREATION &
COMMUNITY
SERVICES
DEPARTMENT
PUBLIC WORKS
DEPARTMENT
TRANSPORTATION
DEPARTMENT
CITY ATTORNEY’S
OFFICE
POLICE
DEPARTMENT
FIRE
DEPARTMENT
XVIII
21XIX
22 XX
(This page intentionally left blank)
23
Financial Section
24
Independent Auditor’s Report
252627
Management’s Discussion & Analysis
28
3
CITY OF CULVER CITY
Management's Discussion and Analysis
As management of the City of Culver City (City), we offer readers of the City's financial statements this
narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30,
2010. We encourage readers to consider the information presented here in conjunction with additional
information that we have furnished in our letter of transmittal, which can be found on page V of this report.
Financial Highlights
• The assets of the City exceeded its liabilities at the close of the most recent fiscal year by $204.3
million. Of this amount, $48.5 million in unrestricted net assets may be used to meet the City's
ongoing obligations.
• City total net assets decreased by $8.6 million during the current fiscal year, indicating a weakened
financial condition with revenues of $139.0 million and expenses of $147.6 million. In the prior year,
revenues of $159.5 million exceeded expenses of $132.6 million by $26.9 million.
• Significant changes in the City financial position include a decrease in unrestricted cash and
investments of $7.6 million, a decrease in accounts payable of $2.7 million, a decrease in deposits
payable of $1 million, an increase in unearned revenue of $1.2 million and an increase in noncurrent
liabilities (due in more than one year) of $1.9 million. These items contributed the most to the
decrease in net assets of $8.6 million.
• Bonded indebtedness and other long-term liabilities were increased by $1.2 million during the year
to a total of $219.5 million.
• At the close of the year, the City's governmental funds had combined balances of $164.7 million, a
decrease of $6 million from the prior year. Of the combined totals, $57 million or approximately
34.6% of total fund balances are unreserved and available for spending at the City's discretion. Of
this $57 million, $20.5 million is held in Capital Project funds and $5.3 million in Special Revenue
funds.
• The Culver City Redevelopment Agency had unreserved year-end fund balances of $19 million, or
11.5% of total governmental fund balances.
• The net change in the General Fund balance was a decrease of $1.6 million, driven by decreased
revenues.
• The year-end unreserved General Fund balance was $31.2 million or 43.6% of total General Fund
expenditures. City financial policies require a minimum of 25% of projected General Fund
expenditures with corrective measures taken whenever reserves fall below 30%.
• The year-end unreserved General Fund balance was 47.2% of General Fund revenues of $66.1
million for the year.
Overview of the Financial Statements
This discussion and analysis are intended to serve as an introduction to the City's basic financial
statements. The City's basic financial statements comprise three components: 1) Government-wide
Financial Statements, 2) Fund Financial Statements, and 3) Notes to Basic Financial Statements. This
report also contains supplementary information in addition to the basic financial statements.
29City of Culver City
Management's Discussion and Analysis (Continued)
4
Government-wide Financial Statements
The Government-wide Financial Statements are designed to provide readers with a broad overview of the
City's finances, in a manner similar to a private-sector business.
The Statement of Net Assets presents information on all of the City's assets and liabilities, with the
difference between the two reported as net assets. Over time, increases or decreases in net assets may
serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
The Statement of Activities presents information showing how the City's net assets changed during the
most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise
to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are
reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g.,
uncollected taxes and earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions of the City that are principally
supported by taxes and intergovernmental revenues (governmental activities). The governmental
activities of the City include general government, public safety, community development, public works,
parks, recreation and cultural services, and interest on long-term debt. The business-type activities of the
City include operations of the Culver City Bus Lines and its refuse and sewer utilities.
The government-wide financial statements can be found on pages 17 through 19 of this report.
Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control
over resources that have been segregated for specific activities or objectives. The City, like other state
and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related
legal requirements. All of the funds of the City can be divided into two categories: governmental funds
and proprietary funds.
Governmental Funds
Governmental funds are used to account for essentially the same functions reported as governmental
activities in the government-wide financial statements. However, unlike the government-wide financial
statements, governmental fund financial statements focus on near-term inflows and outflows of spendable
resources, as well as on balances of spendable resources available at the end of the fiscal year. Such
information may be useful in evaluating the City's near-term financial requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial
statements, it is useful to compare the information presented for governmental funds with similar
information presented for governmental activities in the government-wide financial statements. By doing
so, readers may better understand the long-term impact of the City's near-term financing decisions. Both
the governmental fund balance sheet and the governmental fund statement of revenues, expenditures
and changes in fund balances provide a reconciliation to facilitate this comparison between governmental
funds and governmental activities.
The City maintains 24 individual governmental funds. 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, the Redevelopment Agency Low/Moderate Income
Housing Fund, the Capital Grants Capital Projects Fund, the Redevelopment Agency Capital Projects
Fund, and the Redevelopment Agency Debt Service Fund, all of which are considered to be major funds.
Data from the other 19 non-major governmental funds are combined into a single, aggregated
presentation. Individual fund data for all of these non-major governmental funds are provided in the form
of Combining Statements in the Non-major Governmental Funds section of this report. The Special
Deposits Fiduciary Fund is reported separately.
30City of Culver City
Management's Discussion and Analysis (Continued)
5
The City adopts an annual appropriated budget for its General Fund and Special Revenue Funds. A
budgetary comparison statement is provided for all funds with an annually adopted budget. The
budgetary comparison statement for the General Fund and the Redevelopment Agency Low/Moderate
Income Housing Fund are located in the basic financial statements. The non-major governmental fund
budgetary comparisons are located in the Non-major Governmental Funds section of the report. Project
life budgets rather than annual budgets are adopted for the Capital Projects Funds.
Proprietary Funds
The City maintains two different types of proprietary funds. Enterprise funds are used to report the same
functions presented as business-type activities in the government-wide financial statements. The City
uses enterprise funds to account for the Culver City Bus Line and its refuse and sewer utilities. Internal
service funds are an accounting device used to accumulate and allocate costs internally among the City's
various functions. Because these services predominantly benefit governmental rather than business-type
functions, they have been included within governmental activities in the government-wide financial
statements.
The City uses internal service funds to account for the following activities:
• Self-insurance activities, including:
- General claims liability
- Workers' compensation insurance
- Unemployment benefits
• Vehicle operation and maintenance
• Equipment replacement
• Central stores
Proprietary funds provide the same type of information as the government-wide financial statements, only
in more detail. The proprietary fund financial statements provide separate information for the Culver City
Bus Lines and the refuse and sewer utilities, all of which are considered major funds of the City.
Conversely, 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 in the Additional Financial Information section of this report.
The basic proprietary fund financial statements can be found on pages 29 of this report.
Notes to the Basic Financial Statements
The notes to the basic financial statements provide additional information that is essential to a full
understanding of the data provided in the government-wide and fund financial statements. The notes to
the basic financial statements can be found on page 33 of this report.
Other information
In addition to the basic financial statements and accompanying notes, this report also presents certain
required supplementary information concerning the City's progress in funding its obligation to provide
pension benefits to its employees. Required Supplementary Information can be found on page 75 of this
report.
The statements referred to earlier in connection with non-major governmental funds and internal service
funds, together with information on capital assets used in the operation of governmental funds (those not
included in internal service funds), are presented immediately following the required supplementary
information on pensions. Combining and individual fund statements and schedules can be found on
page 75 of this report.
31City of Culver City
Management's Discussion and Analysis (Continued)
6
Government-wide Financial Analysis
As noted earlier, changes in net assets over time may serve as a useful indicator of the City's financial
position. In the case of the City, assets exceeded liabilities by $204.3 million at the close of the most
recent fiscal year.
$0 $50 $100 $150 $200 $250
Invested in Capital Assets, Net of Related Debt
Unrestricted
Restricted
Total
Invested in Capital Assets,
Net of Related Debt
Unrestricted Restricted Total
2009 37.9 63.8 111.3 213.0
2010 46.4 48.5 109.4 204.3
Net Assets at June 30, 2010
The largest portion of the City's net assets represents resources that are subject to external restrictions
on how they may be used. Of these, restricted net assets are for repayment of long-term debt, or related
to restrictions in the City's special revenue and capital projects funds.
The second largest portion of the City's net assets is unrestricted and may be used to meet the City's
ongoing obligations to citizens and creditors.
The remaining portion of the City's net assets reflects its investment in capital assets (e.g., land,
buildings, utility and general governmental infrastructure, machinery and equipment, etc.) less any related
debt used to acquire those assets that is still outstanding that results in a negative balance in capital
assets. The City uses these 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 used to liquidate these liabilities.
32City of Culver City
Management's Discussion and Analysis (Continued)
7
The table that compares the City’s assets and liabilities from the prior fiscal year to the current fiscal year
is shown below for comparison.
The City of Culver City's Net Assets
For the Years Ended June 30, 2010 and 2009
(In Thousands)
Primary Government ____
Governmental Business-type
__Activities Activities Total
2010 2009 2010 2009 2010 2009
Assets:
Current assets 199,003 $ 206,636 $ 37,741 $ 38,225 $ 236,744 $ 244,861 $
Capital assets, net of
depreciation
140,241 139,055 64,611 66,942 204,852 205,997
Total Assets 339,244 345,691 102,352 105,167 441,596 450,858
Current and other liabilities 16,053 17,727 1,743 1,771 17,796 19,498
Noncurrent liabilities 194,381 192,209 25,112 26,133 219,493 218,342
Total Liabilities 210,434 209,936 26,855 27,904 237,289 237,840
Invested in capital assets, net
of related debt
3,324 (3,740) 43,057 41,687 46,381 37,947
Restricted 109,426 111,257 - - 109,426 111,257
Unrestricted 16,060 28,239 32,440 35,576 48,500 63,815
Total Net Assets 128,810 $ 135,756 $ 75,497 $ 77,263 $ 204,307 $ 213,019 $
Liabilities:
Net Assets:
Analysis of City Operations - Overall, the City's net assets decreased by $8.6 million during the current
fiscal year. This decrease was primarily due to decreases in unrestricted cash and investments of $7.6
million and capital assets of $1.1 million.
33City of Culver City
Management's Discussion and Analysis (Continued)
8
The changes in net assets are reflected in the following table.
The City of Culver City's Changes in Net Assets
For the Years Ended June 30, 2010 and 2009
(In Thousands)
___ _____ Primary Government
Governmental Business-type
Activities Activities Total
2010 2009 2010 2009 2010 2009
Program revenues:
Operating contributions
and grants 5,128 7,338 9,503 16,147 14,631 23,485
Capital contributions 4,317 2,207 53 - 4,370 2,207
and grants
Taxes 68,477 83,350 - - 68,477 83,350
Investment Earnings 3,651 3,503 923 816 4,574 4,319
Other 3,950 6,097 257 168 4,207 6,265
Excess/deficiency before
transfers $104,755 $119,586 $34,227 $39,879 $138,982 $159,465
Transfers (1,715) (372) 1,715 372 - -
Total revenues $103,040 $119,214 $35,942 $40,251 $138,982 $159,465
General government 9,892 7,912 - - 9,892 7,912
Parks, recreation and
community services 7,835 6,741 - - 7,835 6,741
Police 31,670 28,297 - - 31,670 28,297
Fire 18,547 15,575 - - 18,547 15,575
Community development 19,317 17,392 - - 19,317 17,392
Public Works 14,616 14,208 - - 14,616 14,208
Transportation - - - - - -
Interest on long-term debt 8,108 7,935 - - 8,108 7,935
Municipal bus lines - - 18,418 17,876 18,418 17,876
Refuse - - 10,751 10,516 10,751 10,516
Sew er - - 8,401 6,107 8,401 6,107
Total expenses 109,985 98,060 37,570 34,499 147,555 132,559
Increase (decrease)
in net assets (6,945) 21,154 (1,628) 5,752 (8,573) 26,906
135,755 116,404 77,263 71,511 213,018 187,915
- (1,803) (138) - (138) (1,803)
128,810 $ 135,755 $ 75,497 $ 77,263 $ 204,307 $ 213,018 $
$23,491 $42,723 Charges for services $22,748
Restatement of Net Assets
Net assets, June 30
Net assets, July 1
Revenues:
$39,839
Expenses:
$19,232 $17,091
34City of Culver City
Management's Discussion and Analysis (Continued)
9
Governmental Activities
Governmental activities decreased the City's net assets by $7.0 million thereby accounting for 81.0% of
the total $8.6 million decrease in the net assets of the City. Key elements of this decrease are as follows:
• At the government-wide level, total revenues for governmental activities decreased by $16.2 million.
These decreases included $14.9 million in taxes and $2.2 million in operating contributions and
grants. These decreases were offset by an increase in charges for services of $2.1 million and
capital contributions and grants of $2.1 million.
The percentage amount of revenues for governmental activities, by source, is illustrated in the following
chart:
Property tax
25.0%
Sales tax
13.9%
Utility users tax
13.7%
Investment earnings
3.5%
Transient Occupancy
Taxes
2.9%
Revenue from other
agencies
12.5%
Charges for services
18.7%
Business tax
9.4%
Other
0.4%
Revenue Percentages for
Governmental Activities
• Total governmental expenditures increased by $11.9 million. This increase consisted primarily of a
$6.3 million increase in public safety, a $2.0 million increase in general government expenditures, a
35City of Culver City
Management's Discussion and Analysis (Continued)
10
$1.1 million increase in parks, recreation and community services, and a $1.9 million increase
community development.
Expenses and corresponding program revenues (revenues that derive directly from the program itself as
opposed to general revenue such as taxes) for governmental activities are illustrated in the chart below:
|10 10|5,000
10,000
15,000
20,000
25,000
30,000
35,000
General
Government
Parks, Recreation
& Community
Services
Police Fire Community
Development
Public Works
Expenses and Program Revenue
Governmental Activities
June 30, 2010
(in thousands)
Expenses
Revenues
36City of Culver City
Management's Discussion and Analysis (Continued)
11
Business-type Activities
Business-type activities decreased the City's net assets by $1.6 million accounting for 19.0% of the
decrease in the City's net assets, indicating that business-type activities did not have revenues sufficient
to cover operations. Key elements of this increase are as follows:
Enterprise fund grant and fee (charges for service) revenues increased $0.8 million to reach $23.5 million.
The percentage of revenues by source is provided in the following table:
|10 10|2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Municipal Bus Lines Refuse Disposal Sewer Enterprise
Expenses and Program Revenues - Business-Type Activities
June 30, 2010
(in thousands)
Expenses
Revenues
3,257
9,547
11,155|10 10|9,079|10 10|0 2,000 4,000 6,000 8,000 10,000 12,000
Fees
Grants
Fees
Grants
Fees
Grants
Bus Refuse Sewer
Revenues by Source
Business-type
June 30, 2010
(in thousands)
37City of Culver City
Management's Discussion and Analysis (Continued)
12
Financial Analysis of the City Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-
related legal requirements.
Governmental Funds
The focus of the City's governmental funds is to provide information on near-term inflows, outflows and
balances of spendable resources. Such information may be useful in assessing the City's financing
requirements. In particular, the unreserved fund balance may serve as a useful measure of the City's net
resources available for spending at the end of the fiscal year.
As of the end of the current fiscal year, the City's governmental funds reported combined ending fund
balances of $164.7 million. Approximately 34.6% of fund balances or $56.9 million constitutes the
unreserved fund balance, which is available for spending at the City's discretion.
The remainder of the fund balance is reserved to indicate that it is unavailable for new spending due to
prior authorized commitments. These reservations total $107.7 million and are composed of the
following:
1) Land held for resale of $54.7 million primarily in redevelopment project areas.
2) Supplier contracts and purchase orders committed, or encumbrances, of $4.7 million.
3) Long-term notes receivable from local businesses and homeowners of $3.1 million.
4) Other reservations of $45.2 million, including advances for enterprise activities, debt service
reserves and affordable housing.
The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the
unreserved fund balance of the General Fund was $31.2 million, an increase of $1.4 million. The total
General Fund balance was $38.9 million, down from $40.5 million.
The liquidity of the General Fund may be measured by comparing the unreserved fund balance and the
total fund balance to fund expenditures. The unreserved fund balance at year-end of $31.2 million is
43.7% of total General Fund expenditures of $71.4 million up from 41% the prior year. The total fund
balance of $38.9 million is 54.4% of expenditures, down from 56% last year.
The fund balance of the City's governmental funds decreased from $170.7 million to $164.7 million during
the year, or $6 million. In the prior year, the governmental funds increased $9.8 million. The current
year‘s decrease in the fund balance was due to the following:
• Governmental fund revenues decreased $2.3 million primarily due to lower taxes of $2.6 million,
lower licenses and permits of $0.7 million, and lower miscellaneous revenues of $3.1 million, offset by
increases of $0.5 million in fines and forfeitures, $1.9 million in intergovernmental revenues, and $1.8
million in charges for services.
• Total expenditures increased by $12.8 million. This was primarily due to an increase in pass-through
payments of $11.6 million. This primarily represented a payment that was a takeaway from the
Redevelopment Agency by the State of California.
The Redevelopment Agency Capital Projects Fund holds all Agency capital project activity in the four
component areas of the Agency. At the end of the current fiscal year, the unreserved fund balance was
$19.0 million, while the total fund balance was $69.9 million. Reservations of the fund balance consist
primarily of land held for resale of $45.9 million. The unreserved fund balance is 68.8% of total capital
projects fund expenditures of $27.6 million. The total fund balance is 2.5 times as large as fund
expenditures due to the relatively large land holdings.
The Redevelopment Agency Capital Projects Fund decreased by $4.5 million primarily due to the large
increase in pass-through payments of $11.6 million.
38City of Culver City
Management's Discussion and Analysis (Continued)
13
Proprietary Funds
The City's proprietary funds provide the same type of information found in the government-wide financial
statements, but in more detail.
Enterprise Funds
As of June 30, 2010, the unrestricted net assets of the enterprise funds totaled $32.4 million down from
$35.6 million last year for a $3.2 million decrease. Other factors concerning the finances of these funds
have already been addressed in the discussion of the City's business-type activities.
The Municipal Bus Lines fund holds the City’s bus lines enterprise. At the end of the fiscal year, the
unrestricted net assets were $5.5 million, while total net assets were $31.5 million. The unrestricted net
assets were 30.4% of total Municipal Bus Lines Fund expenses of $18.1 million, while total net assets
were 174% of that same amount. Total net assets declined by $3.4 million due to non-operating
revenues and transfers of $11.5 million not covering the operating loss of $14.9 million.
The Refuse Disposal Fund contains the City's refuse collection and disposal enterprise. At year-end, the
unrestricted net assets had a deficit of $0.7 million, while total net assets were $0.7 million. The
unrestricted net assets represent a deficit of 6.6%, while total net assets represent 6.2% of Refuse
Collection and Disposal Fund expenses of $10.6 million. The net increase in the total fund balance for
the year was $0.4 million, the same as the prior year.
The Sewer Fund holds the City's sewer system enterprise. At the end of the fiscal year, the unrestricted
net assets were $27.7 million, while total net assets were $43.3 million. The unrestricted net assets and
total net assets were 3.8 and 6 times as large as Sewer Fund expenses of $7.2 million.
The net assets of the Sewer Fund increased by $1.4 million during the fiscal year, with operating income
of $1.8 million and non-operating expenses of $0.4 million.
Internal Service Funds
The City's internal service funds are an accounting device used to accumulate and allocate costs
internally among the City's various functions. The City uses internal service funds to account for its self-
insurance activities, including liability insurance, and workers' compensation insurance, vehicle operations
and maintenance, and central stores. As of June 30, 2010, unrestricted net assets of the internal service
funds had a deficit balance of $1.4 million, a decrease of $1.6 million from the past year balance of $0.2
million. This was primarily due to a decrease in operating revenues of $3.3 million, and an increase in
estimated claims and judgments of $6.8 million.
Because these services predominately benefit governmental rather than business-type functions, they
have been included within governmental activities in the government-wide financial statements.
Other factors concerning the finances of the internal service funds have already been addressed in the
discussion of the City's governmental activities.
General Fund Budgetary Highlights
The City adopts a one year budget, annually appropriates the operating budgets for its governmental
funds (General Fund and Special Revenue Funds) and reports the results of operations on a budget
comparison basis.
In preparing its budgets, the City attempts to estimate its revenues using realistic, but conservative,
methods so as to budget its expenditure appropriations and activities in a prudent manner. As a result,
the City Council adopts budget adjustments during the course of the fiscal year to reflect both changed
priorities and availability of additional revenues to allow for expansion of existing programs, or
alternatively the reduction of available revenues and necessary program reductions. During the course of
the year, the City Council amended the originally adopted budget to re-appropriate prior year approved
projects and expenditures, as well as approving many other adjustments for the current year.
39City of Culver City
Management's Discussion and Analysis (Continued)
14
The General Fund had a favorable budget variance of $2.3 million due to a mid-year reduction in
estimated revenues resulting in actual revenues exceeding the final budget by $0.2 million along with
expenditures savings of $2.1 million. The largest reduction to budgeted revenues was a $3.1 million
reduction to taxes due to the economic downturn. Actual revenues for the year of $66.1 million were $5
million lower than the previous year, primarily due to decreases in taxes and miscellaneous revenues.
Expenditures savings were achieved primarily through position vacancies achieved by a hiring freeze and
a conscious effort to reduce operating expenditures.
Capital Asset and Debt Administration
Capital Assets
The City's investment in capital assets for its governmental and business-type activities amounts to
$204.8 million net of accumulated depreciation as of June 30, 2010. This investment in capital assets
includes land, buildings, improvements other than buildings, infrastructure (roads, sidewalks, land held
under easement, streetlights, etc.), machinery and equipment, and construction in progress.
The increase in governmental activities capital assets primarily reflects an increase in improvements while
the decrease in business-type capital assets primarily reflects depreciation of existing assets.
The City of Culver City's Capital Assets, Net of Accumulated Depreciation
As of June 30, 2010 and 2009
(in thousands)
Primary Government
Governmental Business-type
Activities Activities Total
Additional information on the City's capital assets can be found in Note 5 to the Basic Financial
Statements on page 50 of this report.
Debt Administration
At the end of the current fiscal year, the City had long-term debt of $219.4 million outstanding. This
included bonded debt of $170.3 million, including the current portion of $7.2 million. The bonded debt
amount consists of $150.2 million in tax allocation bonds issued for redevelopment projects and payable
from property tax increment revenues; and $20.1 million issued for various wastewater projects and
payable from sewer enterprise fund revenues.
Non-bonded outstanding debt includes certificates of participation of $4.0 million for bus line projects,
secured debts on Agency land of $0.8 million, a loan used to construct the City senior center reimbursed
by HUD funds through the County of Los Angeles of $0.7 million, a net OPEB liability of $15.4 million,
claims and judgments of $17.6 million and employee compensated absences of 10.7 million. The net
decrease in long-term debt is $1.2 million.
2010 2009 2010 2009 2010 2009
Land 19,248 $ 19,248 $ 1,681 $ 1,681 $ 20,929 $ 20,929 $
Construction in Progress 519 944 - - 519 944
Buildings 62,249 61,922 21,100 21,659 83,349 83,581
Improvements other than buildings 9,531 7,893 9,314 8,257 18,845 16,150
Equipment 11,929 12,134 9,424 11,273 21,353 23,407
Hyperion rights - - 14,930 15,617 14,930 15,617
Infrastructure 36,765 36,915 8,162 8,454 44,927 45,369
Total capital assets, net $ 140,241 $ 139,056 $ 64,611 $ 66,941 $ 204,852 $ 205,997 $
40City of Culver City
Management's Discussion and Analysis (Continued)
15
The City of Culver City's Outstanding Long-Term Debt
As of June 30, 2010 and 2009
(in thousands)
Primary Government
Governmental Business-type
Activities Activities Total
2010 2009 2010 2009 2010 2009
Revenue bonds 150,255 $ 156,450 $ 20,085 $ 20,720 $ 170,340 $ 177,170 $
Certificates of participation - - 3,990 4,535 3,990 $ 4,535 $
Developer loan payable 751 851 - - 751 $ 851 $
Real estate loan payable - 1,550 - - - $ 1,550 $
Section 108 loans 670 805 - - 670 $ 805 $
Claims and judgments 17,610 15,450 - - 17,610 $ 15,450 $
Net OPEB liability 15,448 7,426 - - 15,448 $ 7,426 $
Capital leases - - - - - $ - $
Compensated absences 9,647 9,677 1,037 878 10,684 $ 10,555 $
Total debt 194,381 $ 192,209 $ 25,112 $ 26,133 $ 219,493 $ 218,342 $
Ratings on outstanding debt are provided below. The ratings below are from Moody's Investor Services,
Standard and Poor's, and Fitch, Inc. Prior to the collapse of the bond insurance market which started in
2009, the City’s debt ratings were all “Aaa” or “AAA” based on insured ratings. However, many of these
issues were done with insured-only ratings. As the bond insurance firms were downgraded the rating
agencies have often withdrawn their ratings on the bond insurers, which also means that the ratings on
City bonds were withdrawn. The following table represents the current debt ratings of the City’s
outstanding bonds:
The City's Debt Ratings
Debt Description Moody’s S&P Fitch
Credit
Enhancement
1996 Certificates of Participation Aa3 NR WD Ambac
1993 Tax Allocation Bonds WD WD WD Ambac
1999A Tax Allocation Bonds Aa3 AA+ NR AGM
2002A Tax Allocation Bonds Baa1 A WD NPFG
2004A Tax Allocation Bonds WD A- WD Ambac
2005A Tax Allocation Bonds WD A- WD Ambac
2009A Wastewater Revenue Bonds NR AA NR N/A
Note: WD = Withdrawn; NR = No Rating
Additional information on the City's long-term debt can be found in Note 6 of this report.
Economic Factors and Next Year's Budget
Revenues
The City adopted its 2010/11 budget projecting a $2.0 million decrease in General Fund revenues for a
total of approximately $80.6 million, or -2.5%. This is on top of a $4.7 million decrease during the year
before. The City’s adopted budget assumes reduced fee and other revenue receipts due to the continued
decline in economic and development activity.
41City of Culver City
Management's Discussion and Analysis (Continued)
16
Expenditures
The City's General Fund operating budget for FY 2010/11 reflects a decrease of less than 1% in
expenditures to approximately $82.6 million. This amount reflects the reduction of approximately 49
General Fund positions, decreases in operating and maintenance line items, no increases in COLA, and
only a $325,000 reduction for excess appropriations
Economic Factors
The Los Angeles area Consumer Price Index decreased 0.4% for the year ended September 2010 largely
due to the continued poor economic activity. The County of Los Angeles and State of California
unemployment rates were both 12.4%, as of September 2010.
In this coming fiscal year, the City's budget continues to be impacted by the depth of the recession, the
competition among cities for the same businesses and the slowing – or non-existence - of development.
Sales tax revenues continue to show signs of weakness, but with the renovation of the Westfield
Shopping Mall, including a new Target and Best Buy, it is expected that this source of revenue may show
slight improvement over the prior year. This will also be the first full year the Mall will be open after its
renovation. Additionally, the City continues a hiring freeze and is cutting back on non-critical expenses in
order to maintain services.
Requests for Information
This financial report is designed to provide a general overview of the City's finances for readers of the
financial statements. Questions concerning any of the information in this report or request for additional
financial information should be addressed to the City of Culver City, Finance Department, 9770 Culver
Boulevard, Culver City, CA 90232.
42GOVERNMENT -WIDE FINANCIAL STATEMENTS
Basic Financial Statements
4344454647FUND FINANCIAL STATEMENTS
Basic Financial Statements
48495051525354555657585960NOTES TO THE BASIC FINANCIAL STATEMENTS
Basic Financial Statements
616263646566676869707172737475767778798081828384858687888990919293949596979899
Required Supplementary Information
100101102103104
Non-Major Funds /
Other Financial Information
105106107108109110111112113114115116117118119120121122123124125126127128129130131132133134135136137138139140141142143144145
Statistical Section
146147148CITY OF CULVER CITY
DEMOGRAPHIC AND ECONOMIC STATISTICS
Last Ten Calendar Years
Personal Per
Income Capita
Calendar (thousands Personal Unemployment
Year Population of dollars) Income Rate
1,159,789
2000 39,335 1,149,605 29,226 3.6%
2001 39,856 1,214,731 30,478 3.8%
2002 40,268 1,239,811 30,789 4.6%
2003 40,569 1,274,516 31,416 4.7%
2004 40,735 1,344,581 33,008 4.4%
2005 40,723 1,401,930 34,426 3.6%
2006 40,792 1,404,305 34,426 3.2%
2007 40,564 1,396,456 34,426 3.2%
2008 40,694 1,400,932 34,426 3.2%
2009 * 38,580 1,468,471 38,063 8.0%
2010 ** 40,507 1,479,760 36,531 12.2%
Sources:
Population * U.S. Census Bureau, Population Finder Data Set as of July 1, 2008
** California state Departament of Finance For CY 2009 per HDL Report dated 8/16/2010
Personal Income ** For CY 2009 per HDL Report dated 8/16/2010
Per Capital Personal Income * U.S. Census Bureau, 2006-08 American Community Survey 3 Year Estimates
** For CY 2009 per HDL Report dated 8/16/2010
Unemployment Rate * California Employment Development Department For CY 2009 per HDL Report dated 8/16/2010 Unemployment Rate * California Employment Development Department For CY 2009 per HDL Report dated 8/16/2010
** U.S. Department of Labor, Bureau of Labor Statistics for the Los Angeles-Long Beach-Glendale areas of CA as
of June 2010
132
164169170171172173174175176177178179180181182183184185186187188189190191192193194195196197198199200201202203204205
FINANCE DEPARTMENT
CITY OF CULVER CITY
9770 CULVER BOULEVARD, CULVER CITY, CALIFORNIA 90232-0507
(310) 253-5865
•
FAX (310) 253-5880
JEFF S. MUIR
Chief Financial Officer
____________________________
Culver City Employees take pride in effectively providing the highest levels of service to enrich the quality of life for the community by building on our
tradition of more than seventy-five years of public service, by our present commitment, and by our dedication to meet the challenges of the future.
PRINTED ON RECYCLED PAPER
December 23, 2010
Jennifer Farr, CPA
Mayer Hoffman McCann P.C.
2301 Dupont Drive, Suite 200
Irvine, CA 92612
Dear Jennifer,
The purpose of this letter is to provide a response from management as to the recommendation for
improvement to internal controls. I wanted to communicate what we have done and will be doing as it
relates to this. As you are aware, for the fiscal year ended June 30, 2009, you provided us with three
recommendations. During the course of the year, we were able to address two of the
recommendations. For the financial statements for the fiscal year ended June 30, 2010, you provided us
with one recommendation related to receivables, the same comment from the previous year:
Write off Stale Receivable Balances
The General Fund of the City has an account with approximately $700,000 of accounts
receivable that are several years old. The City was unable to provide the auditors with
information by specific payer. Additionally, the Redevelopment Agency has
approximately $2.7 million recorded as an Allowance for Uncollectible Notes Receivable.
This account has not been reviewed since January 2008. It is possible that there are
additional notes receivable that are no longer collectible.
As you might recall, I left the City in November of 2009 and returned in May of 2010. During the period
of time I was gone, the City Manager was also acting in the capacity of Chief Financial Officer. He
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subsequently left the City sometime in March of 2010, at which point an interim City Manager was
appointed. During the time I was away, the primary objective of staff in the Finance Department was to
ensure the day-to-day operations continued. There was little time to devote to the recommendations
received from you in 2009. After my return, we were able to get the anti-fraud and ethics policies
adopted by City Council.
This left the comment regarding receivables for the City and Agency. It is true that when you initially
requested a breakdown of the accounts receivable in the General Fund, we were unable to provide you
a report that supported the amount on the General Ledger. Our current financial system includes a
module for Accounts Receivable. Historically this has been used to bill for things like false alarms,
damage to City property, fire inspections, and other miscellaneous items. While we are able to run
reports from the Accounts Receivable module, we found that the reports had a material variance from
the balance of the General Ledger. Upon my return I asked the Sr. Enterprise Systems Analyst in my
department to begin looking into this. Some progress was made, but we found a number of invoices in
the Accounts Receivable module reports did not properly reflect the fund they were attributed to. Over
the past week, we have made further progress on this. According to our General Ledger at June 30,
2010, there was $713,019.49 reflected in the General Fund Invoices Receivable account. I am attaching
a report from our Accounts Receivable module that provides a breakdown by customer of a balance of
$757,714.52 for the General Fund. This is a variance of $44,695.03 between the General Ledger and
Accounts Receivable module. While this falls below our materiality threshold, we are in the process of
actively reconciling the General Ledger amount to the amount on this report. Two immediate
explanations that I think are likely to account for most of the variance are items that were billed through
the Accounts Receivable module but were not properly credited to the outstanding invoice when
payment was received, and manual entries posted to the General Ledger that would not reflect in the
Accounts Receivable module.
I would also like to point out that we already identified an amount of approximately $236,000 (from
2007) that was billed to the Redevelopment Agency and recorded in the Invoices Receivable account.
Research indicated that this amount was paid, but staff at the time did not properly reduce the
receivable amount. This correction has already been posted to Fiscal Year 2010-2011.
The proposed steps for future action are as follows:
1. Staff will perform a complete reconciliation of the General Ledger to the Accounts Receivable
module, and determine write-offs or adjustments that are required to be made.
2. The Chief Financial Officer will draft a written policy for receivables management (including
write-off authority) and submit to the City Council for input and adoption. This report will also
include the necessary recommendation to remove aged and uncollectible receivables.
3. The City will perform regular reconciliation of this account each year moving forward so that it is
supported by a matching subsidiary ledger.
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4. The City is also in the process of procuring a new financial system. It is our hope and intent that
the new system will have a better integration between the general ledger and the accounts
receivable module, as well as improved reporting capabilities.
With regards to the recommendation related to the Redevelopment Agency, it is true that the Agency
has carried an approximate balance of $2.7 million in the Allowance for Uncollectible Notes Receivable
line item for several years. This amount is directly related to various loan agreements the Agency
provided through the Low and Moderate Income Housing Fund to create or maintain the stock of low
and moderate income housing in Culver City. Specifically, there are five agreements for which the
Agency provided approximately $2.7 million in project assistance. These agreements include covenants
with the benefitting party to create or maintain low and moderate income housing during the term of
the agreement. These agreements are still in effect. However, if these parties meet the obligations of
the agreement through their term, they will not be required to pay these amounts back. It is only in the
case of default that the Agency would pursue collection. These loans are included in the Loans
Receivable account of the Low/Moderate Income Housing Fund, with a corresponding Allowance for
Uncollectibility. The net effect of these loan agreements is zero. It has been the intention and practice
of the Agency to continue reflecting these agreements in both accounts to acknowledge the fact that
the agreements are still active. As the agreements reach their term, the Receivable and Allowance for
Uncollectible amounts would be removed from the Agency’s balance sheet. We are open to discussion
for the June 30, 2011 financial statements if there is a preferred practice to accounting for these items.
Additionally, we have reviewed the remaining loans and notes receivable to the Agency and believe
them to be collectible.
If you have questions or would like additional information, please let me know. Thank you for the hard
work your group has put into Culver City, and enjoy the holiday season.
Sincerely,
Jeff S. Muir
Attachment: Report of Invoices Receivable at June 30, 2010 (General Fund)
208209210211212