Costo de Materiales Concepto Costo

If the capital assets constructed with these borrowings are included in this classifica- tion of net assets, then the related debt should also be included in the same classifi- cation. This is what the title of this net-asset-section-line-item is describing and the contents of that line item should properly reflect the name.

Substance Over Form

Further, it is the opinion of the City of Beverly Hills Management, that to remove interfund borrowings from this Invested-in-Capital-Assets-Net-of-Related-Debt equation is misleading to financial statement users. The IASB (International Ac- counting Standards Board) Framework says that, “to be reliable, information must represent faithfully the transactions and other events it either purports to represent or could reasonably be expected to represent. Further, to be representationally faith- ful, accounting measures or descriptions must reflect economic phenomena – eco- nomic resources and obligations and the transactions that change them – and not simply accounting notions.” The IASB Framework also includes the concept of “Substance over form” among the sub-qualities of reliability.

The substance of an interfund borrowing is a loan to one fund from another fund. The “internal balances” would be the simple accounting notion in this situation, which does not reflect the economic phenomena described in the name “Invested-in- Capital-Assets-Net-of-Related-Debt”. The interfund borrowing is a real debt trans- action.

Not only does the answer given in Question 7.23.11 cause Invested-in-Capital- Assets-Net-of-Related-Debt to be misleading, it also causes the Unrestricted Net Assets line item to be misleading as well. It does not make logical sense for net assets to have a negative value.

Remedy

To avoid confusion, users of the financial statements should be aware of the Parking Enterprise Fund’s sufficient resources to pay its debts within its operations and its overall net assets, but the negative unrestricted net assets that show on the face of the Parking Enterprise Fund financial statements is misleading.

Please see the table below for a reconciliation of the Parking Enterprise Fund’s Net Assets Balance Sheet Section, which is reconciled from the implemented GASB ruling to the traditional method, where the traditional method values substance over form.

As reported GASB Required Calculation

City Preferred Method Recognizing Advances from Other Funds is Related Debt As of June 30, 2009:

Total Capital Assets, Net $ 106,836,374 106,836,374 Less:

Current portion of bond payable: (2,491,845) (2,491,845) Long term liabilities: (102,000,532) (102,000,532) Advances From Other Funds: 62,962,048

Subtotal: (41,530,329) (104,492,377) Add:

Cash Held by Fiscal Agent 4,324,698 4,324,698 Amounts held in reserve accounts (1,631,703) (1,631,703) Subtotal: 2,692,995 2,692,995 Net Assets:

Total invested in capital assets, net of related debt 67,999,040 5,036,992 Restricted for:

Debt service 1,631,703 1,631,703 Pension contribution 84,258 84,258 Unrestricted (41,002,261) 21,959,787 Total Net Assets: $ 28,712,740 28,712,740

Parking Enterprise Fund

CITY OF BEVERLY HILLS, CALIFORNIA

Notes to Basic Financial Statements For the year ended June 30, 2009

87 (15) FUND BALANCE

In order to comply with the Governmental Accounting Standard Board’s (GASB) Statement No. 54, Fund Balance Reporting and Government Fund Type Definitions, the fund balance section of the balance sheets of the governmental funds has been modified. The change has been made in order for the City’s new fund balance com- ponents to focus on “the extent to which the government is bound to honor con- straints on the specific purposes for which amounts in the fund can be spent” (GASB Statement No. 54, paragraph 54). Previously, the fund balance section fo- cused on whether these resources were available for appropriation. It also distin- guished the unreserved fund balance from the reserved fund balance. In order to show compliance with GASB Statement No. 54, however, the components of the new fund balance include the following line items: a) the nonspendable fund bal- ance, b) restricted fund balance, c) committed fund balance, d) assigned fund bal- ance and e) unassigned fund balance. The implementation of these new components is intended to decrease confusion and help serve the needs of the financial statement users.

For further explanation of each fund balance component, please see the following. a) Nonspendable fund balance (inherently nonspendable) include the :

• Portion of net resources that cannot be spent because of their form, and • Portion of net resources that cannot be spent because they must be

maintained intact

b) Restricted fund balance (externally enforceable limitations on use) in- clude amounts subject to:

• Limitations imposed by creditors, grantors, contributors, or laws and regulations of other government

• Limitations imposed by law through constitutional provision or enabl- ing legislation

c) Committed fund balance (self imposed limitation set in place prior to the end of the period):

• Limitation imposed at the highest level of decision making that requires formal action at the same level to remove. For the City, the City Coun- cil is the highest level of decision making.

d) Assigned fund balance (limitation resulting from intended use)consists of amounts where the:

• Intended use is established by the body designated for that purpose (City Council),

• Intended use is established by official designated for that purpose. For the City, the City Manager is the designated official

e) Unassigned fund balance (residual net resources) is the:

• Total fund balance in the general fund in excess of nonspendable, re- stricted, committed, and assigned fund balance

• Excess of nonspendable, restricted, and committed fund balance over to- tal fund balance

If there is an expenditure incurred for purposes for which both restricted and unre- stricted fund balance is available, the City will consider restricted fund balance to have been spent before unrestricted fund balance. Further, if there is an expenditure incurred for purposes for which committed, assigned, or unassigned fund balance classifications could be used, then the City will consider committed fund balance to be spent before assigned fund balance, and consider assigned fund balance to be spent before unassigned fund balance.

Page 442 of the Council adopted City Operating Budget for Fiscal Year 2009-2010 exhibits the City’s contingency reserve policy. The policy states, “It is the goal of the City to obtain and maintain a general operating reserve in the form of cash, of at least 40% of operating revenues. The first 25% shall be considered a contingency reserve to cover normal seasonal cash flow variations, as well as unforeseen emer- gency or catastrophic impacts upon the City. Funds in excess of 25% may be used for economic investment in the community when justified by projected financial return to the City and specifically authorized by the City Council.” This policy was adopted with City Council Resolution No. 09-R-12679. Please refer to the section of the City’s operating budget which presents the City Council Resolutions as well as the Council’s adopted financial policies for further detail on authorization given to assign amounts to a specific purpose as well as detail on reserve policies.

Further, municipal code Title 2, Chapter 4, Section 102 defines an emergency as, “The actual or threatened existence of conditions of disaster or of extreme peril to the safety of persons and property within the city caused by such conditions as air pollution, fire, flood, storm, epidemic, riot, drought, sudden and severe energy shortage, or earthquake, or other conditions, including conditions resulting from war or imminent threat of war, but other than conditions resulting from a labor contro- versy, which conditions are or are likely to be beyond the control of the services, personnel, equipment, and facilities of the city, requiring the combined forces of other political subdivisions to combat.”

Please see the following table for detail regarding the fund balance categories and classifications for the governmental funds which shows components of nonspenda- ble fund balance, as well as the purposes for restricted, committed, and assigned fund balance. The unassigned fund balance is also shown.

For the year ended June 30, 2009

88 (15) FUND BALANCE, CONTINUED

Infrastructure

Capital Other General Projects Governmental

Fund Fund Funds Total

Fund Balances: Nonspendable:

Prepaid expenses $ 97,628 - - 97,628 Long-term accounts receivables 4,615,463 - - 4,615,463 Long-term advance to other funds 20,207,320 - 8,110,471 28,317,791 Permanent fund principal - - 81,381 81,381 Total Nonspendable: 24,920,411 - 8,191,852 33,112,263 Restricted for:

Debt covenants 32,000,000 18,863,534 2,740,806 53,604,340 Streets and highways - - 2,929,512 2,929,512 Community development - - 34,762 34,762 Transit - - 4,099,022 4,099,022 Law enforcement grants - - 43,316 43,316 Other purposes - - 775,330 775,330 Total Restricted for: 32,000,000 18,863,534 10,622,748 61,486,282 Committed to:

Contingency reserve 16,211,374 - - 16,211,374 Police services 2,915 - - 2,915 Fire control 3,430 - - 3,430 Building and safety 2,958 - - 2,958 Streets and subdrains 7,409 - - 7,409 Planning services 14,556 - - 14,556 Parking - - 1,562,068 1,562,068 Recreation and parks - - 11,053,746 11,053,746 Fine Art - - 529,085 529,085 Library 17,657 - - 17,657 Education 104,203 - 20,179 124,382 Total Committed to: 16,364,502 - 13,165,078 29,529,580 Assigned to: Debt service - - 1,588,368 1,588,368 Police services 18,947 - - 18,947 Fire control 8,672 - - 8,672 Planning services 165,446 - - 165,446 Education 764,170 - - 764,170 Total Assigned to: 957,235 - 1,588,368 2,545,603 Unassigned: 19,006,156 - - 19,006,156 Total fund balances 93,248,304 18,863,534 33,568,046 145,679,884

CITY OF BEVERLY HILLS, CALIFORNIA

Required Supplementary Information – Schedule of Funding Progress For the year ended June 30, 2009

89 DEFINED BENEFIT PENSION PLAN

The schedules of funding progress below show the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the un- funded actuarial accrued liability (UAAL) to payroll for the City’s two defined benefit pension plans.

Entry Age Unfunded

Normal Actuarial Liability Annual UAAL as a

Valuation Date Accrued Value of (Excess Assets) Funded Covered Percentage

(June 30) Liability Assets (UAAL) Status Payroll of Payroll

2008 $ 283,865,366 247,229,502 36,635,864 87.094% $ 24,275,683 150.916% 2007 268,616,838 233,375,264 35,241,574 86.880 23,956,680 147.105 2006 239,094,559 216,036,771 23,057,788 90.356 20,563,834 112.128 2005 226,086,680 202,219,706 23,866,974 89.443 20,459,675 116.654 2004 209,598,010 185,609,157 23,988,853 88.555 18,806,176 127.558 2003 200,439,820 177,378,413 23,061,407 88.495 18,146,974 127.081 2002 194,082,159 176,672,000 17,410,159 91.029 17,572,021 99.079 2001 183,111,282 190,157,538 (7,046,256) 103.848 16,896,486 (41.702) 2000 173,426,238 186,336,129 (12,909,891) 107.444 16,512,226 (78.184) 1999 144,228,835 163,584,943 (19,356,108) 113.420 15,665,935 (123.555)

Entry Age Unfunded

Normal Actuarial Liability Annual UAAL as a

Valuation Date Accrued Value of (Excess Assets) Funded Covered Percentage

(June 30) Liability Assets (UAAL) Status Payroll of Payroll

2008 $ 201,089,428 192,007,584 9,081,844 95.484% $ 36,293,844 25.023% 2007 186,538,708 180,145,063 6,393,645 96.572 32,577,886 19.626 2006 173,498,788 166,786,538 6,712,250 96.131 31,065,754 21.607 2005 160,678,895 156,120,317 4,558,578 97.163 30,467,728 14.962 2004 145,826,663 135,044,808 10,781,855 92.606 30,169,690 35.737 2003 137,232,316 130,907,323 6,324,993 95.391 29,760,662 21.253 2002 116,880,116 132,048,639 (15,168,523) 112.978 28,134,395 (53.915) 2001 109,287,931 143,257,149 (33,969,218) 131.082 27,210,550 (124.838) 2000 102,414,098 141,380,981 (38,966,883) 138.048 25,832,054 (150.847) 1999 87,642,035 124,387,791 (36,745,756) 141.927 24,319,472 (151.096)