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HomeMy WebLinkAbout11/06/2006 B A K E R S F I E L D Mike Maggard, Chair Irma Carson Harold Hanson Staff: John W. Stinson MEETING NOTICE BUDGET AND FINANCE COMMITTEE of the City Council - City of Bakersfield Monday, November 6, 2006- 10:00 a.m. City Manager's Conference Room, Suite 201 Second Floor- City Hall, 1501 Truxtun Avenue, Bakersfield, CA AGENDA 1. ROLL CALL 2. ADOPT OCTOBER 2, 2006 AGENDA SUMMARY REPORT 3. PUBLIC STATEMENTS 4. DEFERRED BUSINESS A. Discussion and Committee recommendation regarding WiFi (wireless Internet service) - Stinson/Trammell 5. NEW BUSINESS A. Staff report and Committee recommendation on the Independent Auditor's Report on Transportation Development Act Funds for Fiscal Years Ended June 30, 2005 and 2004 - Rojas/Lorenzi B. Staff report and Committee recommendation on the Independent Auditor's Report of Rabobank Arena, Theater, Convention Center and The Bakersfield Ice Sports Center for fiscal year ending June 30, 2006 - Smith 6~ COMMITTEE COMMENTS 7. ADJOURNMENT B A K E R S F I E L D ~ Mike Maggard, Chair /~- John Stinson, Assistant City Manager Irma Carson / For: Alan Tandy, City Manager Harold Hanson AGENDA SUMMARy REPORT BUDGET AND FINANCE COMMITTEE MEETING Monday, October 2, 2006 - 10:00 a.m. City Manager's Conference Room - Suite 201 City Hall, 1501 Truxtun Avenue, Bakersfieldl CA 1. . ROLL CALL The meeting was Called to Order at 10:10 a.m. Present: Councilmembers Mike Maggard, Chair; Irma Carson and Harold Hanson 2. ADOPT AUGUST 28, 2006 AGENDA SUMMARY REPORT Adopted as submitted. 3. PUBLIC STATEMENTS 4. DEFERRED BUSINESS A. Discussion and Committee recommendation regarding WiFi (wireless .Internet service) Assistant City Manager John Stinson stated the representatives from MetroFi notified the City on Friday they were not going to be available to attend today's. meeting due to scheduling. 'Staff recommended this item be deferred to the next meeting. Committee Chair Mike Maggard asked staff to let MetroFi know their attendance is necessary if they want to proceed with their proposal for an agreement with the City to supply WiFi Intemet. Staff will notify MetroFi in writing and give considerable notice of the next meeting. DeVictor King Mason, KCPA-TV, spoke in support of the WiFi propoSal before the Committee to supply free Internet service and requested the Committee not to let pornography issues, which you have with all Internet providers, hold up getting free Internet service for City residents. AGENDA SUMMARY REPORT Page 2 BUDGET AND FINANCE COMMITTEE MEETING Monday, October 2, 2006 r-.~.~ ~ ~, ,=,,=~= ~Marvin Dean spoke in support of the proposal before the Committee and about the need for free Internet service in Iow-income areas. A' program is being promoted through the schools to provide free computers to Iow-income families and free Intemet is vital for the success of this program. Committee Member Irma Carson spoke about the need for a hearing to allow for public input if the Committee moves forward on the WiFi proposal. Committee Member Harold Hanson made a motion to reserve a slot for a hearing at the December City Council meeting and to continue this item t° the next Committee meeting on November 6th. The Committee unanimously approved the motion. B. Discussion and Committee recommendation regarding PG&E SmartMeter Project use of City light poles Public Works Director Raul Rojas provided an overview of the' request from PG&E regarding their SmartMeter ProJect to place data collection transmission units on City streetlight poles to transmit data from natural gas meters to PG&E. Over the next couple of years, this technology will replace traditional meter readers. The original request was for 30 streetlight pole locations; however, PG&E has found locations on their own electric poles and properties for all but four of the data collection transmission units. PG&E's request is for one location in Ward Six, one. location in Ward Three, and two locations in Ward Four. Staff recommended entering into a contract with PG&E for use of the City's streetlight poles at an annual charge of $36 per pole. Southern California Gas Company services about half of the City's residents with natural gas, so in the near future the City may.get a similar request for use of streetlight poles from Southern California .Gas Company. Scott Loveless, Pacific Gas and Electric Company Project Manager, explained their project. Besides the data collection transmission program to read gas meters, PG&E will also be using similar technology to read electric meters, but will be using their own electric lines and poles for transmitting data from electric meters. PG&E has a licensed frequency for the SmartMeter ProJect, which will not interfere with other transmission signals, such as cell phones. City Manager Alan Tandy explained to move this forward a contract should be prepared to establish the fee, indemnify, the City, and allow for some flexibility when the City grows to add the use of streetlight poles as needed. Committee Member Harold Hanson made a motion the Committee recommend to the Council that the City enter into a contract with PG&E as outlined by staff. The Committee unanimously approved the motion. Staff will forward the Committee's recommendation and the contract to the City Council. AGENDA SUMMARY REPORT Page 3 BUDGET AND FINANCE COMMITTEE MEETING Monday, October 2, 2006 ~~FT 5. NEW BUSINESS A. Discussion and Committe® recommendation regarding Business Licensing for Real Estate Firms Finance Director Nelson Smith gave 'an overview. As a routine review of various groups or individuals that may be conducting business in the City without a business tax certificate, approximately 120 letters were sent out in late August informing real estate brokers that anyone conducting business 'within the City must possess a business tax certificate (business license). Councilmember Harold Hanson having been contacted by realtors, requested staff to provide an explanatory memorandum and referred the issue to the Budget and Finance Committee. Finance staff was invited by the Bakersfield Association of Realtors to attend a meeting held on September 13th. Finance Director Nelson Smith and City Treasurer Cheryl Perkins attended. From the questions, it became apparent there were different interpretations in the real estate community on how the code applied to real estate agents and brokers, and some felt realtors were being singled out. Some agents and brokers were under the impression they were working on the real estate firm's business license and some real estate businesses(brokers) were paying on all gross receipts (commissions) instead of the agents and brokers working there each paying on their own gross receipts. The cost for a Business Tax Certificate (business license) is $30 ($25 plus a $5 processing fee) with a percentage charged on gross receipts above $38,462. Finance Director Nelson Smith explained anyone doing business in Bakersfield Should be paying an annual tax based on their gross receipts in order to obtain an annual business tax certificate (business license). Evidence of "conducting business" would be the receipt of an IRS Form 1099 instead of a W-2 form, and being required to file a business tax return, such as an IRS Schedule "C" (Income or Loss from Business).' After the meeting with the Association of Realtors and learning of the confusing interpretations of the Municipal Code, staff recommended the following plan of action to avoid trying to sort out who paid for what for those agencies that have already paid their business tax: · · Finance staff will continue to work with the Association of Realtors to educate their members about the business tax process. AGENDA SUMMARY REPORT Page 4 BUDGET AND FINANCE COMMITTEE MEETING Monday, October 2, 2006 ~AFT · Effective July 1, 2007, each broker and agent will be required to obtain their own Business Tax CertifiCate and pay their own taxes on an annual basis as required by the Bakersfield Municipal Code. · This process will be enforced by City staff effective with the July 1, 2007 business tax cycle, and each broker and agent will be required to pay the appropriate tax on or before July 31, 2007 to' avoid incurring Penalties or interest for the new tax year. · For those who comply, the City will not require payment of back taxes and penalties or interest for pdor years. · For those with a broker's license who are retired or not currently selling and will have no receipts for the year, a form will be available certifying they are not doing business in Bakersfield. Don Cohen, President of~ the Bakersfield Association of Realtors, thanked Finance staff for coming to their meeting and working toward a solution with no back penalties as many in the real estate community were not aware of this ordinance. He expressed this is an educational issue and the Association of Realtors are willing to work with the City, but as some brokers felt realtors were being singled out, he wanted to be able to ensure their members that the Municipal Code is implemented the same way for all types of businesses for which this section applies. A discussion followed and other realtors made comments and asked questions of the staff. City Attorney Ginny Gennaro provided an opinion that staff is following the Municipal Code as it is written and unless the Committee wants to recommend changes to the ordinance, no formal action is required. Committee Member Harold Hanson expressed concerns with staff, spending time 'collecting $30 and burdening small independent agents with this tax. If there were a legal way other than changing the Municipal Code, he would have preferred to have only businesses pay the tax. Committee Chair Mike Maggard indicated he did not like this tax on small individual real estate agents but as it would affect all business licenses, he did not want to recommend changing the Municipal Code. Committee Member Carson agreed with the Committee Chair, but expressed she understands the reality if you are self-employed doing business in the City, a business license is required. She spoke in favor of staff moving forward with an educational effort. Committee Chair Mike Maggard thanked the realtors for attending' the Budget and Finance Committee meeting. The Committee took no further action. AGENDA SUMMARY REPORT Page 5 BUDGET AND FINANCE COMMITTEE MEETING Monday, October 2, 2006 ~';~ ~'~ ~= 6. COMMITTEE COMMENTS 7. ADJOURNMENT The meeting adjourned at 11:45 a.m. Attendance: Staff: City Manager Alan Tandy; Assistant City Manager John W. Stinson; City Attorney Ginny Gennaro; Finance Director Nelson Smith; Deputy City Attorney Robed Sherry; Public Works Director Raul Rojas; Assistant City Attorney Janice Scanlan; City Treasurer Cheryl Perkins; Public Works Operations Manager Brad Underwood; General Services Superintendent Steve Hollingsworth; and IT Director Bob Trammell Others: Ray Karpe, Karpe Real Estate Center; Linda Vernon, CEO, Bakersfield Board of Realtors; Don Cohen, President, Bakersfield Board of Realtors; Jeanne Radsick, Bakersfield Board of Realtors; Scott Loveless, Pacific Gas and Electric; DeVictor King Mason, KCPA-TV; Marvin Dean; David Burger, reporter, The Bakersfield Californian; and John Philips, KBAK TV-29 cc: Honorable Mayor and City Council S:~JOHN\Council Committees\06 Budget&Finance~bf06 oct 02summary.doc BAKERSFIELD Alan Tandy · City Manager October 9, 2006 Ben Zifrony ~ MetroFi 516 Clyde Ave Mountain View, CA 94043 Dear Mr. Zifrony: I would like to take this opportunity to invite you to the next meeting of the City of Bakersfield's Budget and Finance Committee to discuss your proposal to provide WiFi service in our city. The members of the Committee feel it is extremely important that a representative of your company be present in order for them to consider your proposal any. further. The meeting will be held on November 6, 2006 at 10:00 a.m. in the City Manager's Office at 1501 Truxtun Avenue, Second FlOor. Additionally, a tentative date of December 13, 2006 has been set for a Public Headng to allow you to present your proposal for consideration to the entire City Council and the Public. This headng would be held dudng our regular City Council Meeting at 6:30 p.m. in the City Council Chambers at 1501 Truxtun Avenue, 'First Floor.' ~ Sincerely, ,John W: Stinson Assistant City Manager City of Bakersfield · City Manager's Office · 1 $01 Truxtun Avenue Bakersfield, California · 93301 (661) 326-3751 · Fax (661) 324-1850 · ADMINISTRATIVE REPORT MEETING DATE: July 19, 2006 I AGENDA SE.C. ,TION: Consent Calendar ITEM: ~ ~ ~.~. TO: Honorable Mayor and City Council . , .APPROVED FROM: Raul M. Rojas, Public Works Director DEPARTMENT HEAD.//.~- DATE: June 14, 2006 CITY ATTORNEY ' CITY MANAGER ~ / SUBJECT: Acceptance of 2004-05 Transportation Development Act Funds Financial Stateme~hts. RECOMMENDATION: Staff recommends referral to Budget and Finance Committee. BACKGROUND: In compliance with the Kern Council of Governments Rules and Regulations, the California Public Utilities Code Section 99245, and the California Code of Regulations section 6664, the attached financial statements for the Transportation Development Act Funds were prepared for the fiscal year ending June 30, 2005. The financial statement summarizes fiscal activity for the Bikeway and Pedestrian Fund, and the Public Transit Fund. The accuracy and the fairness of the presentation is the responsibility of the City. The audit firm of Macias, Gini & Company has issued an unqualified opinion. No other reports were issued by the accounting firm in regards to the above audit report. June 14, 2006, 1:54PM G:\GROUPDA'I'~d3MIN~00~07-19\Tm~p Dev Act Funds Financial Stm.doc cITy OF BAKERSFIELD Transportation Development Act Funds Independent Auditor's Reports, Fund Financial Statements and Supplementary Information For the ~:iscal Years Ended June 30, 2005 and 2004 MAClAS GINI ~ COMPANY,,. CERTIFIED PUBLIC ACCOUNTANTS ~, MANAGEMENT CONSULTANTS CITY OF BAKERSFIELD Transportation Development Act Funds For the Fiscal Years'Ended June 30, 2005 and 2004 TABLE OF CONTENTS Page(s) Independent Auditor's Report ................................................................................................................ 1-2 Fund Financial Statements: Balance Sheets - Bikeway and Pedestrian Special Revenue Fund ............................................................ 3 Balance Sheets - Amtrak Operations Special Revenue Fund .................................................................... 4 Statements of Revenues, Expenditures and Changes in Fund Balance (Deficit) - Bikeway and Pedestrian Special Revenue Fund ...................................................................................... 5 Statements of Revenues, Expenditures and Changes in Fund Balance- Amtrak Operations Special Revenue Fund .............................................................................................. 6 Notes to the Fund Financial Statements ................................................................................... : .............. 7-9 SuPplementary Information: Budgetary Comparison Schedule - Bikeway and Pedestrian Special Revenue Fund .............................. 10 Budgetary Comparison Schedule ~ Amtrak Operations Special Revenue Fund ...................................... 11 Note to Supplementary Information ......................................................................................................... 12 Other Report: .... h~dependent Auditor's Report on Internal Control Over Financial Repolaing and on Compliance and Other Matters Based on an Audit of Financial Statements Perforn~ed in Accordance with Government ,. A~tditing Standards and the Transportation Development Act .......................................................... 13-14 MACIAS GINI ~ CompaNy.,,, 515 S. FIgueroa Street, Ste. 325 Los Angeles. California 9007~ 213.286.6400 PHONE 213.286.6426 FAX To the Board of Directors Kern Council of Govermnents Bakersfield, California To the City Council City of Bakersfield Bakersfield, California INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund of the City of Bakersfield, California (City), as of and for the fiscal years ended June 30, 2005 and 2004, as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Compn:911er General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the :" .'. amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement ~ presentation. We believe that our audits provide a reasonable basis for our opinions. As discussed in Note 1, the financial statements present only the Bikeway and Pedestrian Special Revenue Fund and the _Arntrak Operations Special Revenue Fund of the City and are not intended to present fairly the financial position of the City and changes in its financial position in conforn-fity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the [ financial position of the Bikeway and Pedestrian Special Revenue Fund 'and the Amtrak Operations Special Revenue Fund of the City as of June 30, 2005 and 2004, and the respective changes in financial I position thereof for the fiscal years then ended in confonrdty with accounting principles generally ' accepted in the United States of Ad~uerica. I I I WWW,rnacJa~;~jnj.~-nm CERTIFIED PUBLIC ACCOUNTANTS ~ MANAGEMENT CONSULTANTS In accordance with Government Auditing Standards, we have also issued our report dated January 30, 2006 on our consideration of the City's internal control over financial reporting as it relates to the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund and on our tests of its compliance with certain provisions of laws, regulations, contracts and ~ant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over fina.ncial reporting or on compliance. That report is an inte~al part of an audit performed in accordance with Government Audi(ing Standards and should be considered in assessing the results of our audit. Our audit was made for the purpose of forming opinions on the financial statements of the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund taken as a whole. The supplementary information as listed in the table of contents is presemed for pUrposes of additional analysis and is not a required part of the financial statements of the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund. Such information has been subjected to the auditing procedures applied in the audit of the fund financial statements and, in our opinion, is fairly stated in all matehal respects in relation to the fund financial statements taken as whole. Certified Public Accountants Los Angeles, California January 30, 2006 2 CITY OF BAKERSFIELD Bikeway and Pedestrian Special Revenue Fund Balance Sheets June 30, 2005 and 2004 2005 2004 ASSETS Current assets: Due. from other governments $ 50,813 28,167 Total assets $ 50,813 $ 28,167 LIABILITIES AND FUND BALANCE (DEFICIT) Current liabilities: Due to City's General fund $ 50,813 31,795 Total current liabilities 50,813 31,795 Fund balance (deficit) (Note 4) - (3,628) Total liabilities and fund balance (deficit) $ 50,813 $ 28,167 The notes to the financial statements are an integral part of these statements. 3 .' CITY OF BAKERSFIELD Amtrak Operations Special Revenue Fund Balance Sheets June 30, 2005 and 2004 2005 2004 ASSETS Current assets: Cash and investments (Note 2) $ 141,922 $ 153,665 Accrued interest receivable 1,586 904 Total assets $ 143,508 $ 154,569 LIABILITIES Current liabilities:' Accounts payable $ 18,305 $ 13,341 Defen'ed revenue (Note 3) 125,203 141,228 t Total liabilities . $ 143,508 $ 154,569 I I ! -I ~ The notes to the financial statements are an integral part of these statements. Ii 4 CITY OF BAKERSFIELD Bikeway and Pedestrian Special Revenue Fund Statements of Revenues, Expenditures and Changes in Fund Balance (Deficit) For the Fiscal Years Ended June 30, 2005 and 2004 2005 2004 REVENUES Local transportation fund $ 50,813 $ 28,167 EXPENDITURES Bikeway and pedestrian 47,185 31,795 Change in fund balance 3,628 (3,628) Fund balance (deficit), beginning (3,628) Fund balance (deficit), ending $ $ (3,628) The notes to the financial statements are an integral part of these statements. CITY OF BAKERSFIELD Amtrak Operations Special Revenue Fund Statements of Revenues, Expenditures and Changes in Fund Balance For the Fiscal Years Ended June 30, 2005 and 2004 2005 2004 REVENUES Local transportation fund $ 209,856 $ 196,371 h~terest and other 5,263 1,769 TOtal revenues . . - 215,119 198,140 EXPENDITURES Public transit 215,119 198,140 Change in fund balance _ Fund balance, beginning . Fund balance, ending $ $ _ The notes to the financial statements are an integral part of these statements. 6 CITY OF BAKERSFIELD Transportation Development Act Funds Notes to the Fund Financial Statements For the Fiscal Years Ended June 30, 2005 and 2004 NOTE 1 - SUMiVIARY OF SIGNIFICANT ACCOUNTING pOLICIES The financial statements of the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund (collectively the Transportation Development Act (TDA) Funds) of the City of Bakersfield (City) have been prepared in conformity with accounting principles generally accepted in the United States of AmeriCa as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the City's accounting policies are described below. Reporting Entity The TDA provides funding of public transportation through regional planning and progranuning agencies. Funds are allocated to the City through the' county transportation planning agency, Kern Council of Govermnents (KCOG). The TDA Funds account for the City's share of the TDA allocations, which are legally restricted for specific purposes as detailed in applicable sections of the Public Utilities' Code. The TDA Funds 'of the City are the Streets and Roads Special Revenue Fund (no activity in recent years), Amtrak Operations Special Revenue Fund and the. Bikeway and Pedestrian Special. Revenue Fund, and are included in the basic financial statements of the City. The TDA Funds are presented combined as a nom~ajor governmental fund (State (TDA) Transportation Special Revenue Fund in the City's basic financial statements. The accompanying financial statements present only the TDA Funds of the City and are not intended to present fairlY the financial position and changes in financial position of the City in conformity with accounting principles generally accepted in the United States of.tunerica. Fund Accountine The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund is accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The Bikeway and Pedestrian Fund and the Amtrak Operations Fund are governmental funds specifically categorized as a special revenue funds. Special revenue funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. Measurement Focus and Basis of Accountino~ The Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operati'ons Special Revenue Fund are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Local Transportation Fund revenue is recognized when all eligibility requirements imposed by the provider CITY OF BAKERSFIELD Transportation Development Act Funds Notes to the Fund Financial Statements (Continued) For the Fiscal Year Ended June 30, 2005 and 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus and Basis of Accounting (Continued) have been met. Revenues are accrued when their receipt occurs within sixty days after the accounting period so as to be both measurable and available. Expenditures are generally recorded when a liability is incurred, as under accrual accounting. Revenues that are susceptible to accrual include local transportation fund allocations and interest income. When both restricted and mtrestricted resources are available for u.se, it is the City's policy to use restricted resources first, and then unrestricted resources as they are needed. Deferred Revenue TheAmtrak Operations Special Revenue Fund reports deferred revenue on their balance sheet. Deferred revenue for this fund arises when potential revenue does not meet both the "measurable" and "available" criteria for reco~fition in the current period or when funds have been received prior to eligibility requirements being met. In subsequent periods, when both revenue recognition criteria are met, or when the City has a legal claim to the resources, the liability for deferred revenue is removed from the balance sheet and revenue is recobonized. Interfund Transactions The City's General Fund allocates payroll and payroll related expenditures incun'ed to the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations, Special Revenue Fund. Amounts allocated to the Bikeway and Pedestrian Special Revenue Fund for fiscal years ended June 30, 2005 and 2004 were 550,813 and $31,795, respectively. Amounts allocated to the Amtrak Operations Special Revenue Fund for fiscal years ended June 30, 2005 and 2004 were $21,684 and $11,358, respectively. In addition, 'premiums paid for various risk management programs to the Self Insurance Internal Service Fund by the Amtrak Operations Special Revenue Fund for the fiscal years ended June 30, 2005 and 2004 were $11,345 and $11,354, respectively. Risk Management The City administers vai'ious risk management pro.~ams, some of which relate to the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund. The Finance Department transfers funds from the Amtrak Operations Fund to the Self Insurance Fund for the purchase of proPerty insurance for the Amtrak Station per direction from the City's Risk Manager. The City's risk management programs are reported in the governmental activities and internal service funds in the City's basic financial statements. CITY OF BAKERSFIELD Transportation Development Act Funds Notes to the Fund Financial Statements (Continued) For the Fiscal Year Ended June 30, 2005 and 2004 NOTE 2 - CASH AND INVESTMENTS Cash balances of the TDA funds are pooled with those of other funds of the City. Investment income resulting from this pooling is allocated among the funds based upon each respective fund's average cash balance in relation to the aggregate investment balance. Cash and investments for the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund include a fair value adjustment for the fiscal years ended June 30, 2005 and 2004 of $0 and $0, and $419 and $1,495, respectively..Further information regarding the City's cash and investment pool may be found in the City's basic financial statements. NOTE 3 - DEFERRED REVENUE The Local Transportation Fund (LTF) and State Transit Assistance Fund (STA) are administered by the Kern Council of Governments, which allocates funds to the City to fund its TDA operations. The TDA requires that any funds not used may be returned to their source. LTF and STA allocations are considered earned ;;,hen they are properly spent for eligible projects. Allocations received but not earned are recorded as deferred revenue. Changes in the deferred revenue account for the fiscal years ended June 30, 2005 and 2004 are surmnarized as follow.s: Amtrak Operations Special Revenue Fund 2005 2004 Deferred revenue, July 1 $ 141,228 $ 64,902 '"' TDA Allocations received 193,831 272,697 TDA Allocations earned (209,856) (196,371) .. Deferred revenue, June 30 $ 125,203 $ 141,228 NOTE 4 - DEFICIT FUND BALANCE Bikeway and Pedestrian Special Revenue Fund For fiscal year ended June 30, 2004, the Bikeway and Pedestrian Special Revenue Fund reported a deficit fund balance due to the fact that it spent in excess .of the TDA revenues allocated related to the Bike Lanes Paladino Extension. The excess was funded by borrowing funds from the City's General Fund. The deficit was eliminated during the year ended June 30, 2005. 9 sUPPLEMENTARY 'INFORMATION CITY OF BAKERSFIELD Bikeway and Pedestrian Special Revenue Fund Budgetary Comparison Schedule For the Fiscal Year Ended June 30, 2005 Variance Original Final Positive Budget Budget Actual (Negative) REVENUES Localtransportation fund $ 235,605 $ 235,605 $ 50,813 $ (184,792) EXPENDITURES Bikeway and pedestrian 235,605 235,605 47,185 · 188,420 Change in fund balance $ $ 3,628 $ 3,628 Fund deficit, begi~ming (3,628) Fund balance, ending $ See note to supplementary information. CITY OF BAKERSFIELD Amtrak Operations Special Revenue Fund Budgetary Comparison Schedule For the Fiscal Year Ended June 30, 2005 Variance Original Final Positive Budget Budget Actual (Negative) REVENUES Localtransportationfund $ 344,976 $344,976 $ 209,856 $ (135,120) Interest income 3,000 3,000 5,263 2,263 Total revenues 347,976 347,976 215,119 (132,857) EXPENDITURES Public transit 347,976 347,976 215,119 132,857 Change in fund balance $ - $ · $ Fund balance, begi~ming Fund balance, ending $ See note to supplementary information. CITY OF BAKERSFIELD Transportation Development Act Funds Note to Supplementary Information For the Fiscal Years Ended June 30, 2005 and 2004 NOTE 1 - BUDGETARY INFORMATION Ammal budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations SPecial Revenue Fund. The City Manager is authorized to transfer budgeted amounts between depamnents within any fund and approve reductions of budgeted amounts. Since expenditures may not exceed budgeted appropriations at the fund level, any decisions that alter the total appropriations of any fund are to be approved by City Council. Projects budgeted within the fiscal year but not yet completed can be reappropriated the following fiscal year with City Manager approval. Ail other unencumbered appropriations lapse at year-end. Encumbered amounts are reappropriated in the ensuing fiscal year budget. I I I i I ! OTHER REPORT I I I ! ! I i ! I I f I i MAClAS GINI ~ COMPANYLLP 515 S. FIgueroa Street. Ste. 325 Los Angeles. Calil'ornla 9007 I 213.286.6400 PHONE 213.286.6426 FAX To the Board of Directors Kern Council of Governments Bakersfield, California .To the. City Council City of Bakersfield Bakersfield, California INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMNED IN ACCORDANCE ~VITH GOVERNMENT AUDITING STANDARDS AND THE TRANSPORTATION DEVELOPMENT ACT We have audited the accompanying financial statements of the BikeWay and pedestrian Special Revenue Fund and the gantrak Operations Special Revenue Fund of the City of Bakersfield, California (City), as of and for the fiscal year ended June 30, 2005, and have issued our report thereon dated January 30, 2006, which included an ...e..xplanatory paragraph describing that the. financial statements only present the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations Special Revenue Fund. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. ": '~ Internal Control Over Financial Rejgorting In planrfing and perfom'fing our audit, we considered the internal control over the City's financial reporting as it relates to tile Bikeway and Pedestrian Special Revenue Fund and the Pantrak Operations Special Revenue Fund in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial I reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weaka~ess is a I reportable condition in which the design or operation of one or more of the imernal control components does not' reduce to a relatively 10w level the risk that misstatements caused by eh'or or fi'aud in amounts ! that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of perfornfing their assigned functions. We noted no matters involving tile internal control over financial reporting and its operation that we consider to be material weaknesses. I ! Compliance and Other Matters As part of obtaining reasonable assurance about whether the Bikeway and Pedestrian Special Revenue Fund and the Amtrak Operations' Special Revenue Fund financial statemefits are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts and ~ant a~eements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Our audit was further made to determine that Transportation Development Act (TDA) funds allocated to and received by the CitY were expended in conformance with 'applicable statutes, rules and regulations of the TDA and the allocation instructions and resolutions of:Kern Council of Governments as required by Section 6666 and 6667 of Title 21 of the California Code of Re~o'ulations. However, providing an opilfion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opirdon. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and the Transportation Development Act. This report is intended solely for the infom~ation and use of the Kern Council of Governments, City management, City Council, and the State Controller's Office, and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants Los Angeles, California January 30, 2006 ... 14 Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center Consolidated Financial Statements Year Ended June 30, 2006 0 Lon_gcrier Hoo..per &King_ .CONTENTS Page(si Independent Auditors' Report On The Consolidated Financial Statements 1 Management's Discussion and Analysis (Required Supplementary Information) 2 - 7 Consolidated Financial Statements Consolidated statement of net assets 8 Consolidated statement of revenues, expenses and changes in net assets 9 Consolidated statement of cash flows 10 Notes to consolidated Financial Statements 11 - 22. Independent Auditors' Report on the Supplementary Information '23 Supplementary Information Consolidated schedule of operating expenses 24 Independent Auditors' Report On Compliance And On Internal Control Over Financial Reporting Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards 25 O ._ngxier Accountancy Corporation Independent Auditors' Report SMG Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center Bakersfield, Caiifomia We have audited the consolidated statement of net assets of Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center as of June 30, 2006, and the related consolidated statements of revenues, expenses and changes in net assets, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the City of Bakersfield's facility management company, SMG. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted Our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance.about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evalUating the overall financial statement presentation. We believe that our audit provides a reasonable basis.for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RabobankArena, Theater, Convention Center & The Bakersfield Ice Sports Center as of June 30, 2006, and the results of its operations and changes in net assets, and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. 5001 £. Commercenter Drive, Suite 350 100 Cross Street 1010 S. Broadway P.O. Box 11171 Suite 103 Suite I Bakerstield, CA 93389 San Luis Obtspo, CA 93401 Santa Maria, CA 95454 Phone: 661.631.1171 Phone: 805.541.2500 Phone: 805.349.7705 Fax: 661.631.0244 Fax: 805.541.4024 ~ax: 805.349.7702 The Required Supplementary Information, as listed in the foregoing table of contents, is not a required' part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. The required supplementary information is the responsibility of the City's facility management company, SMG. This required supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects when considered in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated September 8, 2006 on our consideration of SMG's internal control over financial reporting and our assessment of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Bakersfield, California September 8, 2006 JULY 2005 TO JUNE 2006 RABOBANK ARENA, THEATER, CONVENTION CENTER AND THE BAKERSFIELD ICE SPORTS CENTER MANAGEMENT DISCUSSION AND ANALYSIS This section of Rabobank Arena, Theater, Convention Center and the Bakersfield Ice Sports Center's annual financial report presents our discussion and analysis of the complex's financial performance during the fiscal year ended June 30, 2006. Please read it in conjunction with the arena's financial statements, which follow this section. FINANCIAL HIGHLIGHTS · The 2005'2006 hockey seaSon was the best year the Condors have had. They played a total of seven playoff games, making this the furthest the team has gone in franchise history. With the on-ice success, it helped increase Arena revenues for the season by almost $87,000. · The California State CIF Wrestling ToUrnament returned for the third of a three year deal and proved that the first two year's success was no fluke aS they were in our top five grossing events for the 05-06 fiscal year. The contract waS up and was awarded to Rabobank Arena again for another three year nm in Bakersfield. · The suCCessful Broadway in Bakersfield theater series brought to Rabobank Theater by Jam Theatrical had a great first season here. The net profit from the series was above $134,000. With the success of the first year, they have just launched the second season. · The Arena had nine concerts and the Convention Center had one in this fiscal year for a combined net profit of over $377,000. In the 2006-2007 fiscal year we are expecting to have more concerts in the Arena and also in the Convention Center for an even greater success story. OVERVIEW OF THE FINANCIAL STATEMENTS The annual report includes this management's discussion and analysis report, the independent auditor's report and the baSic financial statements of the arena. -2- REQUIRED FINANCIAL STATEMENTS The basic financial statements include a Statement of Net Assets, a Statement of Revenue, Expenses and Changes in Net Assets, and a Statement of Cash Flows. FINANCIAL ANALYSIS OF THE ARENA Below is a summary of the Arena's Statements of Net Assets, Table A-l: Table A-'I Statements of Net Assets June 30, , June 30, $ % 2005 2008 Change Change ASSETS. Cash $ 2,101,835 $ 2,136,428 $ 34,593 A/R Other 62,588 377.413 314.825 503% A/R Trade 690.818. 478.780 (212.038) -31% Prepaid Exparmes 65.596 3.853 (61.745) -95% Equipment 65.269 96.265 9.997 12% Accumuleted Depreciation- Equip (70~337) (83r194) (12~857) 19% TOTAL A~SETS $ 2.938.771 $ 3.011~546 $ 72.?78 3% UABILmE$ & NET ASSETS A/P Other $ 33.338 $ 128.847 j $ 95.509 287% A/P Trade 124.213 95.024 (29.189). -24% Accrued Expanses 99.293 178.154 78.861 80% Deferred Revenue 2.698.453 2.298.932 (399.521) -15% Advance from Client 2.950.939 3.467.241 516.302 18% TOTAL EABILmE$ 5~906~236 6~168~198 2.617962 NET ASSETS (2.967,465) (3,156,652) (189.i87) TOTAL LIABILITIES & NET ASSET~ $ 2.938.'r/1 $ .3.011.546 $ 72.775 3% -3- Upon first glance at the net assets for the fiscal year ended June 30, 2006 an increase of $72,775 versus the previous year is seen. Typically, and this year was no exception, the level of cash is determined mostly by the nUmber of events on-sale at any given time. Accounts receivable, other, which includes receivables from both TicketMaster and Aramark, as well as the Theater Season Renewal of season ticket holders, was up $314,825 which is, for the most part, a timing issue. Accounts receivable, trade decreased by $212,038 overall and is due to the timing of receipts paid to the Arena. $350,000 of accounts receivable, trade is made up of suite billings for the 06-07 suite year, which were' technically due on the last. day of the fiscal year. :Prepaid expenses show a big decrease in its account balance, this is caused by our theater season that produced prepaid expenditures last year that have not bccurred this year. On the liability side of the Statement of Net Assets it is business as usual with the normal timing fluctuations in the accounts payable, trade account. The increase in accounts payable, other is made of up the incentive fee calculation for the management fee. With the suCcessful year of both buildings, the incentive is much greater this year. -4- Table A-2 8tstements of Revenues, Expenses and Changes in Net Assets Year ended June 30, 2005 2006 $ Chenlip % Chan~e Revenue Rent $1,197.339 $1,452,484 $ 255,145 22% Reimburead Expenses 828,670 1,220,756 392,086 48% Suits Revenue 926,425 1,066,084 137,659 15% Food & Beverage Commlealon 442,997 644,166 201,169 46% · Signsge Revenue 464,170 626,661 162,491 35% Parking Revenue 154.895 197.062 42,167 28% Ticket Rebate 126,287 232,493 106,206 84% Novelty Commission 34,496 54,540 20,044 59% Ice 8ports Center, general admissions 104,174 202,506 98,332 95% Ice 8ports Cent. er, other revenue 522,533 500,487 -22~046 -5% Total Revenue 4,803,986 6,!97,239 1,393,253 29% Event Expenses Event Labor 866,652 1,055,900 192,248 23% Advertising Expense 147,600 297,676 150,078 102% Direct Event Expenses 144r732 270r450 125~718 87% · Total Event Expenses 17156,984 1,627,028 456~044 41% Total G&A Expenses 4,195~252 4,755,842 573,590 14% · Interest Income 4.372 9,444 5~072 116% Change In Net Assets $~S4S,878~ SI189,t87)' $ 355,89t -88% Overall, revenue is up from the previous year. This is the third year for the Ice Sports Center and they have been continually growing each year and have had a very positive effect on the financials. The increase in the suite revenue is due to the higher rate on the suite renewal, .unfortunately, this is the last series of renewals at the higher rates. This was the first full year of income on the naming fights deal, which had the positive effect on the signag~revenue. All ancillaries are up from the previous year due to the significant increase in events. The direct event expenses were up due to the Theater Season. The increase is reflected in the increase in the reimbursed expenses. -5- The 2005/2006 fiscal year was a very successful year for both buildings. There was a significant turn around in the bottom line between the two years. The $545,878 loss in the 2004/2005 year was our second worst year to date, and the current year was our most successful year to date in the history of the building. Table A-3 change in Net Assets Actual to Budget Year ended June 30, 2008 Overl(Under) Actual Bud~let Budget. % of Budget Revenue ' ; Rent 1.452.464 1.286.268 166.216 113% Reimbursed Expenses 1.220.756 759.570 461.186 161% Suite Revenue 1.066.084 1.035.623 30.461 103% Food & Beverage Commission 644.166 487.730 156.436 132% $1gnage Revenue 626.661 560.244 66.417 112% Perking Revenue 197.062 212.750 (15.688) 93% Ticket Rebate 232.493 182.500 49.993 128% Novelty Commission 54.540 27.500 26.940 198% Ice 8ports Center. general admleaions 202.506 193.000 9.506 105% Ice Spo~ Center. other revenue 500.467 629.450 (128,963) 80% Total Revenue 67197.239 5r374.735 822.504 116% Event Expenses Event Labor 1.058.900 1.227.128 (168.228) 87% Advertising Expense 297,678 39,000 258,678 754% Direct Event Expenses 270,450 23.800 2467650 1137% Total Event Expenses 1,627,028 · 1,28%628 3371100 127% Total G&A Expenea~ 4,768~542 4~260~551 508~291 112% Interest Income 9~444 500 8,844 1574% Change in Net Aeam $ (189,187~ $ !175~,1441 $114~,043~ t08% This year we were very close to meeting budget. The'only revenue accounts that missed budget were parking and Ice Sports Center, other revenue. The revenue was up 27% for the year for parking but was over estimated on the budget. Direct Event Expenses were over budget due to the Theater Season. -6- ECONOMIC FACTORS AND NEXT YEARS BUDGET AND RATES Several key factors affect next Year for the arena: · We have added an additional primary tenant for the 06/07 year. The Bakersfield Sam, an NBA D-League team, will play at least 24 home games in the Arena this year with possible playoff games during post season. · The City has provided the Arena with a $1.3 million ad ribbon. The addition of the state of the art ribbon will have a positive effect on the elements available and rates charged to the advertisers. · The concert calendar is looking positive this year; we currently have 14 concerts on the books in the first half of the 06/07 year. · With an increase of about 10% in the number of events for the 06/07 year, available dates are becoming hard to find for any new shows that are looking to book the Arena between October and April. · On September 13t~, 2006, a law was passed that will increase minimum wage from $6.75 to $7.50 on January 1, 2007. This will have a great impact on direct event labor because most of the jobs in that category are paid at minimum or close to minimum wage. It will be possible to see an increase anywhere from $100,000 to $150,000, a portion of the increase may be able to be offset with increased billable rates. · As usual in this type of induStry, the Arena is always subject to the desire of . events touring and the publics' taste in entertainment. CONTACTING RABOBANK ARENA This financial report is designed to providea general overview of the finances and accountability of Rabobank Arena, Theater, Convention Center and the Bakersfield Ice Sports Center. If you have questions about this report contact Rabobank Arena, Theater, Convention Center and the Bakersfield Ice Sports Center, 1001 Truxtun Avenue, Bakersfield, California 93301, Attention Director of Finance. -7- Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center Consolidated Statement of Net Assets June 30, 2006 ASSE TS Current Assets Cash $ 2,136,428 Accounts receivable, trade 478,780 Accounts receivable, other 377,413 Prepaid expenses 3,853 2,996,474 Property and Equipment, at cost 98,266 Less aCcumulated depreciation (83,194) 15,072 LIABILITIES AND NET ASSETS Current Liabilities Accounts payable, trade $ 95,024 Accounts payable, other 128,847 Accrued expenses 178,154 Deferred revenue 2,298,932 Advance from City of Bakersfield 3.467,241 6,168,198 Commitments Net Assets Invested ~in capital assets 15,072 Unrestricted (3,171,724) (3,156,652) $ 3,011,546 See Notes to Consolidated Financial Statements. Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center Consolidated Statement of Revenues, Expenses and Changes in Net/lssets For the Year Ended June 30, 2006 Net revenues: Facilities rent $ 1,452,484 Event expense reimbursements 1,220,756 Suite and premium seats 1,066,084 Concession commission 644,166 Signage and advertising 626,661 .Parking 197,062 Ticketing fees 232,493 Merchandise 54,540 Ice Sports Center, general admissions 202,506 Ice Sports Center, other revenue 500,487 6.197.239 Direct event expenses: Event labor 1,058,900 Event advertising 297,678 Other direct event expenses 270,450 1,627,028 Gross profit 4,570,211 Operating expenses 4.768.842 Operating loss (198,631) Nonoperating income: Interest income 9,444 Change in net assets (189,187) Total net aSsets, beginning (2,967,465} Total net aSsets, ending $ (3.156,652) See Notes to Consolidated Financial Statements. -9- Rabobank Arena, Theater, Convention Center. & The Bakersfield Ice Sports Center Consolidated Statement of Cash Flows For the Year Ended June 30, 2006 Cash flows from operating activities: Cash received from customers $ 2,224,284 Cash received from contracts for services 3,522,867 Cash payments to suppliers for goods & services (3,194,155) Cash payments to employees for services (3.034.152) Net cash used in operating activities (481,156) Cash flows from capital and related financing activities: Acquisition of capital assets (9,997) · Net increase in advances from the City of Bakersfield 516,302 Net cash provided by Capital and related financing activities 506.305 Cash flows from investing activities: Interest income 9,444 Net increase in cash and cash equivalents 34,593 Cash and cash equivalents, beginning 2,101,835 Cash and cash equivalents, ending $ 2,136,428 See Notes to Financial Consolidated Statements. Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (198,631) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 12,857 Increase in accounts receivable (102,787) DeCrease in prepaid expenses 61,745 Increase in accounts payable 66,320 Increase in accrued expenses 78,861 Decrease in deferred revenue {399,521) Net cash used in operating activities $ (481,156) -10- Rabobank Arena, Theaters Convention Center & The Bakersfield Ice Sports Center Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies Nature of Business: The City of Bakersfield (the City) owns the Rabobank Arena, Theater and COnvention Center (the Facilities). The Facilities were previously known as the Bakersfield Centennial Garden and Convention Center. The Rabobank Arena was built by the City, and began operations in October 1998. It is the only building of its kind in the Bakersfield area. On AugUst 6, 1997, the City issued a request for prOPosals for services prior to the opening of the Rabobank Arena and the operation and management of the Facilities thereafter. In an agreement dated January 28, 1998, the City Contracted with Ogden .Entertainment, Inc. (Ogden) for these services for an initial period of five years. The contract term was subsequently extended for an additional five-year term and the agreement is effective thrOugh June 30, 2008. Ogden worked during the January 14, 1998 through June 30, 1998 pre-opening phase and assumed management responsibilities of the Facilities on July 1, 1998. Ogden was hired by the City for its expertise in the management, operation and marketing' of public assembly facilities.. Ogden sold its entertainment business division to ARAMARK Corporation effective June 2, 2000. The operation of the Facilities are still being conducted under Ogden's name. All contracts' and leases, with the exception of the administrative services agreement with the City, are transferable to ARA_MARK Corporation... The City approved the transfer of the administrative services agreement to ARAMARK Corporation. On September 13, 2000, ARAMARK sold and assigned all of its rights, obligations, liabilities and indemnities as manager of the Facilities to SMG (the Company) for $10. SMG is owned by a partnership that includes ARAMARK and Hyatt. Ail contracts and leases, with the exception of the administrative service agreement with the City, are transferable to the Company. The City has approved 'the transfer of the · administrative services agreements to the Company. See Note 4 for terms of the administrative service agreement. -11- Notes to Consolidated Financial Statements In December 2004, the City opened the Bakersfield Ice Sports Center (Ice Center). The Ice Center is used for public skating, hockey leagues, figure skating, and other community events. In an agreement dated November 5, 2003, the City contracted with the Company for the management, concession and catering services for the Ice Center through June 30, 2008. The activities of the Facilities and the Ice Center are recorded in a special revenue fund of the City's accounting records. The City owns all the assets of the Facilities and the Ice Center and accordingly,' all amounts related to the operation of the Facilities and the Ice Center belong to the City. The Company has a fiduciary responsibility under the management agreement to maintain and operate the Facilities and the Ice Center in the best interests of the City and the community. Fund accounting: The focus of proprietary fund measurement is upon determination of operating income, change in net assets, financial position, and cash flows. The U.S. generally accepted accounting principles applicable are those similar to businesses in the private sector. Enterprise funds are required to be used to account for operations for which a fee is charged to external users for goods or services and the activity (a) is financed with debt that is solely secured by a pledge of the net revenues, Co) has third party requirements that the cost of providing services, including capital costs, be recovered with fees and charges or (c) establishes fees and charges based on a pricing policy designed to recover similar costs. Operating income reported in proprietary fund financial statements includes revenues and expenses related to the primary, continuing operations of the fund. Principal operating revenues for proprietary funds are charges to customers for sales or services. Principal operating expenses are the costs of providing goods or services and include administrative expenses and depreciation of capital assets. Other revenues and expenses are classified as nonoperating in the financial statements. -12- Notes to Consolidated Financial Statements Revenue recognition: . Suite and premium seat contracts Revenues fi.om suite and premium seat contracts are recognized over the contract period per the contract terms. Contracts are billed twice a year with the entire contract mount payable prior to the contract period. The suite and premium seat payments are recorded as deferred revenue until earned and recognized over the contract period. Naming rights, signage and advertising contracts Revenues fi.omnaming rights, signage and advertising contracts are recognized over the contract period per the contract terms. Contracts are billed according to the contract terms. Payments are recorded as deferred revenue until earned and recognized over the contract period. Ticket sales The Facilities, through its contract with Ticketmaster, sells tickets to events (at the Facilities) as an agent of the event holder at the on site box office location and through telephone, interact and outlet locations. All revenues from the Sale of tickets belong to the event holder. The ticket sales are recorded as deferred revenue when sold. After the event has occurred, settlement with the event holder takes place. The net of total ticket sales less event expenses such as facility rent and reimbursement of direct event expenses is then paid to or received fi.om the event holder. The event ticket revenues are removed from the deferred revenue account at the time of settlement. The Facilities earn a ticketing fee on the sale of event tickets that take place through telephone, interact and outlet locations. Revenues from these'fees are recorded as deferred revenue at the time of sale and are recognized at the time of event settlement. Event revenues Revenues fi.om the Facilities' events such as facilities rent, direct event expense reimbursements, concession commissions, parking and merchandise are recognized at · the time of event settlement. - 13- Notes to Consolidated Financial Statements Basis of accounting: The accompanying financial statements have been prepared on the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are ree0gnized when incurred. Financial reporting: On July I, 2002, the Facilities adopted the provisions of Governmental Accounting Standards Board Statement No. 34, "Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments." Statement No. 34 established standards for external financial reporting for all state and local governmental entities, which includes a statement of net assets, a statement of · activities and changes in net assets, and a statement of cash flows. It requires the classification of net assets into three components - invested in capital assets, net of related debt; restricted; and unrestricted. These classifications are defined as follows: Invested in capital.assets, net of related debt -. This component of net assets consists of capital assets, including restricted capital assets, net of accumulated depreCiation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt is included in the same net assets component as the unspent proceeds. Restricted net assets - This component of net assets consists of constraints placed on net asset use through external constraints imposed bY creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted net assets - This component of net assets consists of net assets that do not meet the definition of"restriCted net assets" or "invested in capital assets, net of related debt." The adoption of Statement No. 34 affected the classification of net assets in accordance with the statement and the presentation of capital contributions as a change in net assets. - 14- Notes to Consolidated Financial Statements Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ froTM those estimates. Cash and cash equivalents: For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts deposited with banks. Categories of deposit risk: In accordance with the Governmental Accounting Standard Board Statement No. 40, the City's deposits at June 30, 2006 are described as follows: Carrying Market ' I/alue g'alue Cash and cash equivalents ~ $ 2.136.428 At June 30, 2006, the carrying amount of f'mancial institution deposits was $2,136,428 and the bank balance was $2,335,734 of which only $100,000 is covered by federal. depository insurance. Concentration of credit risk: Credit is extended, in the form of accounts receivable, to customers located primarily in California. Advertising: The Company expenses advertising costs as they are incurrcd. Advertising expense was $297,678 at june 30, 2006. -15- Notes to Consolidated Financial Statements Trade accounts receivable: Trade accounts receivable are stated at the amount management expects, to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to valuation allowance based on its assessments of the current status of individual accounts. Balances that are still· outstanding after management has used reasonable collection efforts are written off through a charge to the~valuation allowance and a credit to trade accounts receivable. Changes in the valuation allowance have not been material to the financial statements. ' Property and equipment: Property and equipment are recorded at cost. Depreciation is comPuted using the straight line method over estimated useful lives of 3 - 5 years. Maintenance and repairs of property and.equipment are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are' eliminated from the accounts and gain or loss is included in the statement of. revenues and expenses. Note 2. Deferred Revenue Deferred revenue at June 30, 2006 consists of the following: Suite Contracts $ 928,122 .. Advertising contracts 484,787 Ticket sales, future events 811,497 Event deposits 55,910 Ticket rebates 9,662 Ice Sports Center 8,954 Notes to Consoh'dated'Financial Statements Note 3. ·Advance From City of Bakersfield During the normal course of business, the City pays expenses that are allocated to the operation of the Facilities. These expenses include payroll and related expenses for the City employees and rent and utilities for the office space used by the Company~ The amount of the advance fluctuates throughout the year depending on allocated monthly expenses and additional Cash flow needs. The advance is an inter-company account that is eliminated in the consolidation for the preparation of the City's financial statements. The amount due at June 30, 2006 was $3,467,241. Note 4. Administrative Services Agreement The Company provides administrative services for the City for the Facilities under an original five-year agreement, which was subsequently extended for an additional five- year period. Compensation for these services is a base fee of $150,000 for the first year, paid in equal monthly installments. The base fee increases by 3% Per year and each year thereafter until the agreement has terminated. In addition to the base fee, the Company receives an incentive relative to the amount of the reduction, if any, in net operating loss for each fiscal year. The incentive is calculated based upon the net operating income or loss after the base fee. The Company receives an incentive of: 1) 10% of the first $350,000 in net operating loss reduced; 2) 20% of the next $500,000 in net operating loss reduced; 3) 30% of any net operating surplus in any one fiscal year. All of the incentive calculations are based upon a projected annual net operating loss of $850,000. Beginning July 1, 2003, in addition to the above amounts, the Company will receive an incentive amount of $25,000 for every year the net operating loss before incentive is below $300,000. If. the net operating surplus in any fiscal year reaches $350,000, then the incentive fee will cease. The Company provides administrative, concession and catering services for the City · for the Ice Center under an original agreement effective December 13, 2003 through June 30, 2008. The annual management fee is $48,000, plus 20% net operating income of the Ice Center over $100,000, of which the Company receives 50%. Iceoplex, the ice rink operations co-manager, receives the other 50%. For the year ended June 30, 2006, the Company received $366,881 in management and incentive fees. -17- Notes to Consolidated Financial Statements The computation of the incentive fee is based upon the books and records of the Facilities maintained by the Company. The accounting records for the Facilities must be maintained in accordance with U.S. generally accepted accounting principl~s and industry standards. The Company is required under the agreement with the City to have an annual audit at the end of the fiscal year. under the management agreement with the City, the Company has the right to operate or contract with others to operate concession and catering services for the Facilities during the initial five-year term of the contract, effective through June 30, 2003. The City is eun'ently operating under a contract with AR.a. MARK to operate these services, effective through June 30, 2008. The Facility (Rabobank Arena) is entitled to receive 35% of the first $600,000 in gross concession receipts fi.om the Rabobank Arena and 40% of receipts in excess of $600,000 and 15% of gross concession receipts to the suites. For the year ended June 30, 2006, the Facility received $641,818 in gross concession and catering receipts fi.om the Food and Beverage division of the Rabobank Arena. The Facility is entitled to receive 75% of the net novelty receipts of the Rabobank Arena and the Company receives the remaining 25%. For the year ended June 30, 2006 the Facility received $53,167 and the Company received $17,722 in net novelty receipts fi.om the Food and Beverage division of the Rabobank Arena. As of July 21, 2004, an amended agreement was made between the City and ARAMARK to transfer concession and alcohol responsibilities to ARAMARK for the Rabobank Convention Center, in addition to the Rabobank Arena. The division of the net novelty receipts remains the same under the new agreements (75%. to the Facilities, 25% to the Company). For concession sales, the Facility is entitled to receive 30% of the gross concession receipts in the Convention Center and ARAMARK receives 70%. The same division of gross concession receipts applies to the alcohol sales in the Convention Center. The Company does not receive a percentage of food, beverage or alcohol sales. The Company also pays the City for equipment rentals. At ~Iune 30, 2006, the Company paid $186,895 for equipment rentals. -18- Notes to Consolidated Financial Statements Note $. Commitments The Facilities have entered into various long-term cOntracts and leases. At June 30, 2006, outstanding commitments consist of the following: Ticket sales The Facilities have entered into a licensed user agreement with Ticketmaster to be the exclusive provider for ticket sales for any event presented at the Facilities. Under the agreement, Ticketmaster has the authority to act as an agent for the Facilities for ticket sales to the general public by any and all means including telephone, internet, and outlet locations. Ticketmaster earns fees from the ticket sales such as inside ticket charges, customer conveni. 'ence charges, credit card charges, handling charges and ticket sale royalties. 'Some fees are subject to increases throughout the contract term. Ticketmaster collects these fees as tickets are sold and the net amount is remitted to the Facilities weekly. The initial term of the agreement is for five years and the .agreement is effective through August 31, 2009. The contract automatically renews for one two-' year period unless terminated in accordance with the provisions of the contract. Hockey lease The City has entered into a lease agreement, which has been assigned to Flying Puck, Inc. for exclusive use of the Facilities for East Coast Hockey League (ECHL) games. Flying Puck, Inc. has agreed to pay a minimum of $160,000 per season for use of the Facilities. As of June 30, 2006, the $160,000 consists of lease fees of$6,150 per game played plus 7.5% of ticket sales above certain levels per year, which increase Over the contract term. The lease fees are subject to increase beginning in the third year of the contract and every two years thereafter based upon the Consumer Price Index adjustments. Flying Puck, Inc. receives $5,000 for each suite leased for hockey tickets. For the year ended June 30, 2006, Flying Puck, Inc. received $142,000 for the twenty-four suites leased. The agreement is effective through June 30, 2011 or ten days following the date the last ECHL playoffgame of2011 is played, whichever occurs fu'st unless terminated earlier in accordance with the provisions of the agreement. The contract has one option for a renewal term of seven years. -19- Notes to Consolidated Financial Statements Basketball lease The Facilities have entered into a lease agreement with the Cal State University Bakersfield Foundation (Cai State) for exclusive use of the Facilities for Cai State ~ University Bakersfield men's and women's basketball games. As of June 30, 2006, a lease fee of $4,120 per game plus 7.5% of ticket sales above certain levels is charged for use of the Facilities. Cai State receives $2,500 for each suite leased that includes basketball tickets. For the year ended June 30, 2006, Ca] State received $60,000 for suite ticket options. Cai State exercised its option to renew the lease agreement on February 8, 2006 for five years through June 30, 2011. · Arena Football lease On November 9, 2005 the Facilities entered into a new lease agreement with Bakersfield Arena Football, LLC (BakerSfield Blitz) for exclusive use of the Facilities for Bakersfield Blitz arena football games. For the season operating during April 2006 through June 2006, the Blitz paid $3,500 per game plus 10% of concessions. Bakersfield Blitz receives 10% of gross concession sales, excluding suite and catering sales, when actual drop count is 3,500 or more. For the year ended June 30, 2006, Bakersfield Blitz received $41,165 for Concession sales. Bakersfield Blitz is also entitled to all revenue generated fi.om advertising sales within the Arena, including: dasherboards, program sales, and temporary signage. Bakersfield Blitz is responsible for selling 100% of video advertising for the scoreboard. The Facilities will receive 10 video spots to use on event day. The agreement is effective through the last game of the 2008 Arena Football season, and shall be for all regular season professional indoor football home games each year plus playoff and tournament games and practice time. - 20- Notes to Consolidated Financial Statements Professional Basketball On January 29, 2006 the Facilities entered into a lease agreement with Bakersfield Professional SPorts, LLC for exclusive use of the Facilities for the BakerSfield Jam Professional Basketball team. The Bakersfield Jam will pay $4,750 per game plus 7.5% of gate receipts net of applicable taxes above $46,000. The $46,000 shall increase by $2,000 every other year starting in July 2007. The minimum payment per season is $108,000. Bakersfield Jam is also entitled to all revenue generated fi'om advertising sales within the court, including program sales, on the basketball court and hoops, and temporary concourse signage. The Bakersfield Jam may also Use video advertising on the Scoreboard, so long as advertising does not conflict with the Facilities exclusive advertisers. The Facilities will receive 10 video spots to use on event daY. This agreement is effective through June 30, 2011, and shall be for all preseason and regular season professional basketball home games each year plus playoff and practice time. Ice Sports Center As a result of the Ice Sports Center opening, the Company along with the City, entered into various contracts. At June 30, 2006 outstanding commitments consist of the following: Pro ShOp agreement The City and the Company have entered into a license agreement with Action Sports which grants Action Sports sole and exClusive right to operate the retail business at the Ice Center. Action Sports has the exclusive right to display and sell sporting goods, apparel and products, including but not limited to hockey goods and apparel, swimming goods and apparel and sports Performance and nutritional supplements. For the use of the premises, Action Sports is to pay according to a fixed rental schedule which began January 15, 2004. The annual rent is based on $.85 per square foot for years one and two, and $.90 per square foot for year three. For years one and two annual rent is $9,894 ($824.50/month) and for year three $10,476 ($873/month). The agreement is effective through June 30, 2006. On August 31, 2006 the City and the Company renewed their contract through August 31, 2009. Action Sports may exercise two options to renew for terms of three years each at a square foot increase. rate not to exceed $0.5 per square foot per year. -21 - Notes to Consolidated Financial Statements Concession and catering services The City and Company have entered into an agreement with ESC Enterprises (ESC) to provide concession and catering services for the Ice Center. According to the agreement, the Company shall receive 15% of gross concession receipts in year one and 20% of gross concession receipts in years two through five. The Company shall also receive 10% of sales on all vending machines. The agreement is effective through June 30, 2008, and can be renewed for one additional term of five years, upon terms satisfactory to the Company, the City and ESC. For the year ended June 30, 2006, the City received $26,154 in concession commissions from ESC. - 22 - O · ooper &K g Accountancy Corporalion Independent ~4 uditors ' Report on the Supplemental_ Information SMG Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center Bakersfield, California For the year ended June 30, 2006, the accompanying information shown on page 24 is presented only for purposes of additional analysis and is not a required part of the basic financial statements. Our audit of the basic financial statements was made for the purpose of forming an opinion on those statements taken as a whole. The accompanying information has been subjected to the procedures applied in the audit of the basic financial statements. In our opinion, the accompanying information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ' Bakersfield, California September 8, 2006 - 23 - 5001 E. Commercenter Drive, Suite 350 100 Cross street 1010 S. Broadway P.O. Box 11171 Suite 105 Suite I Bakersfield, CA 93389 San Luis Obispo, CA 93401 Santa Maria, CA 93454 Phone: 661.631.1171 Phone: 805.541.2500 Phone: 805.349.7705 Fax: 661.631.0244 'Fax: 805.541.4024 Fax: 805.549.7702 Rabobank,drena, Theater, Convention Center & The Bakersfield Ice Sports Center Consolidated Schedule of Operating Expenses For the Year Ended June 30, 2006 Full time staff $ 1,772,868 Utilities' 969,285 Insurance 541,002 Management fees 359,328 Part time staff 202,385 Equipment rental 186,895 Supplies 179,479 Hockey premium 142,000 Credit card fees 88,762 Security 60,904 Marketing 57,581 Professional fees 44,022 Telephone 31,811 Repairs and maintenance 30,894 Travel 30,298 Office supplies 20,635 Depreciation 12,857 Bad debt expense 9,527 Postage 8,150 Miscellaneous 5,154 Printing 3,848 Employment ad fees 3,844 Uniforms 3,839 Dues and subscriptions 3,474 $ 4,768,842 - 24 - 6) &mng Ao~unmcy Corporation Independent Auditors' Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Per_formed in Accordance with Government Auditing Standards SMG . Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center Bakersfield, California We have audited the consolidated financial statements of Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center as of and for the year ended June 30, 2006, and have issued our report thereon dated September 8, 2006. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Compliance . Compliance with laws, regulations, contracts and grants applicable to Rabobank Arena, Theater, Convention Center & The Bakersfield Ice Sports Center is the responsibility of the City's facility management company, SMG. As part of our audit, we assessed the risk that noncompliance with certain provisions of laws, regulations, contracts and grants could cause the financial statements to be materially misstated. We concluded that the risk of such material misstatement was sufficiently low and that it was not necessary to perform tests of SMG's compliance with such provisions of. laws, regulations, contracts and grants. 5001 ~. Gommercenter Drive, Suite 350 100 Gross Street 1010 $. Broadvay P.O. Box 11171 Suite 103 'Suite 1 Bakersfield, CA 93389 San Lul$ Obispo, CA 93401 Santa Maria, CA 93454 Phone: 661.631.1171 Phone: 805.541.2500 Phone: 805.349.7705 Fax: 661.631.0244 lax: 805.541.4024 Fax: 805.349.7702 Internal Control Over'Financial Reporting In planning and performing our audit, we considered SMG's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting Would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in mounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to ibe material weaknesses. This report :is intended solely for the information and use of management, others within the organization and the City of Bakersfield and is not intended to be and should not be used by anyone other than these specified parties. Bakersfield, California September 8, 2006 - 25 o