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Summary
Read the report at California State Auditor ↗
December 1997
97001
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State of
California:
Financial Report
Year Ended June 30, 1997
The first printed copy of each California State Auditor report is free.
Additional copies are $3 each.
Printed copies of this report can be obtained by contacting:
California State Auditor
Bureau of State Audits
660 J Street, Suite 300
Sacramento, California 95814
(916)445-0255 or TDD (916)445-0255 x 248
Permission is granted to reproduce reports.
C S A
ALIFORNIA TATE UDITOR
KURT R. SJOBERG MARIANNE P. EVASHENK
STATE AUDITOR CHIEF DEPUTY STATE AUDITOR
December 30, 1997 97001
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
The Bureau of State Audits presents its Independent Auditors(cid:146) Report on the State of California(cid:146)s
general purpose financial statements for the year ended June 30, 1997. These financial
statements are presented on a basis in conformity with generally accepted accounting principles
(GAAP). The financial statements show that the State(cid:146)s General Fund spent approximately
$1.7 billion more than it generated in revenues for fiscal year ended June 30, 1997. The General
Fund ended the fiscal year with a fund deficit of nearly $2.5 billion. The GAAP basis statements
include all liabilities owed by the State while the budgetary basis statements that are used to
report on the State(cid:146)s budget do not reflect all liabilities.
We conducted the audit to comply with the California Government Code, Section 8546.4.
Respectfully submitted,
KURT R. SJOBERG
State Auditor
BUREAU OF STATE AUDITS
660 J Street, Suite 300, Sacramento, California 95814 Telephone: (916) 445-0255 Fax: (916) 327-0019
Table of Contents
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C S A
ALIFORNIA TATE UDITOR
KURT R. SJOBERG MARIANNE P. EVASHENK
STATE AUDITOR CHIEF DEPUTY STATE AUDITOR
Independent Auditors’ Report
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BUREAU OF STATE AUDITS
660JStreet,Suite300,Sacramento,California95814 Telephone:(916)445-0255Fax:(916)327-0019
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General Purpose
Financial Statements
State of California
Combined Balance Sheet
All Fund Types, Account Groups, and
Discretely Presented Component Units
June 30, 1997
(Amounts in thousands)
Governmental Fund Types Proprietary Fund Types
Special Capital Internal
General Revenue Projects Enterprise Service
ASSETS
Cash and pooled investments (Note 3)................................... $ 163,092 $ 4,254,631 $ 245,585 $ 2,830,585 $ 203,187
Investments (Note 3)................................................................... –– –– 2,897 3,715,285 ––
Amount on deposit with U.S. Treasury.................................... –– –– –– –– ––
Receivables (net)................................................................ 155,963 335,222 1,149 98,996 1,949
Due from other funds (Note 4)............................................ 4,544,474 2,930,126 40,888 260,513 265,218
Due from primary government............................................ –– –– –– –– ––
Due from other governments.............................................. 365,379 5,118,031 21 58,416 2,725
Prepaid items...................................................................... –– –– –– 22,723 16,050
Food stamps (Note 1D)....................................................... –– 506,956 –– –– ––
Inventories, at cost.............................................................. –– –– –– 20,614 64,440
Net investment in direct financing leases (Note 6).............. –– –– –– 4,269,352 ––
Advances and loans receivable.......................................... 670,060 1,325,726 –– 2,768,321 ––
Deferred charges................................................................ –– –– –– 1,118,511 ––
Fixed assets (Note 7).......................................................... –– –– –– 5,431,398 247,206
Other assets........................................................................ 1,552 23,781 147 52,653 5,669
Amount to be provided for retirement
of long-term obligations.................................................... –– –– –– –– ––
Total Assets............................................................. $ 5,900,520 $14,494,473 $ 290,687 $20,647,367 $ 806,444
6 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Fiduciary Total Total
Fund Type Primary Component Units Reporting
Trust General General Government University Special Entity
and Fixed Long-Term (Memorandum of Purpose (Memorandum
Agency Assets Obligations Only) California Authorities Only)
$ 17,358,948 $ –– $ –– $ 25,056,028 $ 77,547 $ 765,859 $ 25,899,434
222,177,295 –– –– 225,895,477 46,565,585 6,914,554 279,375,616
3,667,095 –– –– 3,667,095 –– –– 3,667,095
10,192,878 –– 10,786,157 1,532,614 218,268 12,537,039
7,983,173 –– –– 16,024,392 152,378 549 16,177,319
–– –– –– –– 127,880 3,454 131,334
892,216 –– –– 6,436,788 127,808 –– 6,564,596
9,270 –– –– 48,043 –– 229 48,272
–– –– –– 506,956 –– –– 506,956
–– –– –– 85,054 97,097 –– 182,151
–– –– –– 4,269,352 –– –– 4,269,352
1,583,611 –– –– 6,347,718 –– 4,360,172 10,707,890
–– –– –– 1,118,511 37,777 42,579 1,198,867
–– 15,955,293 –– 21,633,897 14,306,614 574,226 36,514,737
83,204 –– –– 167,006 1,241 766,415 934,662
–– –– 21,366,388 21,366,388 –– –– 21,366,388
$ 263,947,690 $ 15,955,293 $ 21,366,388 $ 343,408,862 $ 63,026,541 $ 13,646,305 $ 420,081,708
(Continued)
The notes to the financial statements are an integral part of this statement. 7
State of California
Combined Balance Sheet
All Fund Types, Account Groups, and
Discretely Presented Component Units
June 30, 1997
(Amounts in thousands) Governmental Fund Types Proprietary Fund Types
Special Capital Internal
General Revenue Projects Enterprise Service
LIABILITIES
Accounts payable................................................................... $ 937,487 $ 1,167,345 $ 31,967 $ 183,302 $ 96,230
Due to other funds (Note 4).................................................... 4,530,496 4,399,187 34,867 337,775 109,273
Due to component units (Note 4)........................................... 163,040 154,561 –– 2,579 20,112
Due to other governments...................................................... 2,035,709 1,904,701 3,515 121,654 573
Dividends payable.................................................................. –– –– –– –– ––
Deferred revenue (Note 1D)................................................... –– 506,956 –– –– ––
Advances from other funds.................................................... 544,371 61,428 –– 122,964 94,591
Tax overpayments.................................................................. –– 6,259 –– –– ––
Benefits payable..................................................................... –– –– –– 69,985 ––
Deposits................................................................................. 5 15,392 –– 6,332 1,400
Contracts and notes payable................................................. –– –– –– 947 44,963
Lottery prizes and annuities................................................... –– –– –– 2,758,046 ––
Compensated absences payable (Note 9)............................. 114,791 –– –– 25,807 36,655
Certificates of participation, commercial paper,
and other borrowings (Notes 10, 11).................................. –– –– –– 59,810 ––
Capital lease obligations (Note 12)........................................ –– –– –– –– 30,262
Advance collections............................................................... 18,279 299,362 1,581 330,287 122,677
General obligation bonds payable (Note 14).......................... –– –– –– 3,745,595 ––
Revenue bonds payable (Note 15)........................................ –– –– –– 8,547,038 ––
Interest payable...................................................................... 2,532 –– 20,909 180,954 ––
Securities lending obligation.................................................. –– –– –– –– ––
Other liabilities........................................................................ 30,701 106,526 –– 12,354 3,218
Total Liabilities........................................................... 8,377,411 8,621,717 92,839 16,505,429 559,954
FUND EQUITY AND OTHER CREDITS
Contributed capital (Notes 1K, 17B)....................................... –– –– –– 216,247 112,326
Investment in general fixed assets (Notes 1K, 7)................... –– –– –– –– ––
Retained earnings
Reserved for regulatory requirements (Note 1K)................ –– –– –– 266,271 ––
Unreserved (Note 1K)......................................................... –– –– –– 3,659,420 134,164
Total Retained Earnings............................................ –– –– –– 3,925,691 134,164
Fund balances
Reserved for
Encumbrances (Note 1K)................................................ 442,479 2,046,373 177,018 –– ––
Advances and loans (Note 1K)........................................ 670,060 1,325,726 –– –– ––
Employees’ pension benefits (Note 1K)........................... –– –– –– –– ––
Continuing appropriations (Note 1K)............................... 68,081 2,300,139 37,965 –– ––
Other specific purposes (Notes 1K)................................. –– –– –– –– ––
Total Reserved............................................................ 1,180,620 5,672,238 214,983 –– ––
Unreserved
Undesignated (Deficit) (Note 1K).................................. (3,657,511) 200,518 (17,135) –– ––
Total Fund Equity and Other Credits (Deficit)
(Notes 1K, 17).......................................................... (2,476,891) 5,872,756 197,848 4,141,938 246,490
Total Liabilities, Fund Equity, and Other Credits.... $ 5,900,520 $14,494,473 $ 290,687 $20,647,367 $ 806,444
8 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Fiduciary Total Total
Fund Type Primary Component Units Reporting
Trust General General Government University Special Entity
and Fixed Long-Term (Memorandum of Purpose (Memorandum
Agency Assets Obligations Only) California Authorities Only)
$ 6,628,284 $ –– $ –– $ 9,044,615 $ 1,375,840 $ 22,461 $ 10,442,916
6,613,343 –– –– 16,024,941 152,378 –– 16,177,319
2,431 –– –– 342,723 –– –– 342,723
14,200,250 –– –– 18,266,402 –– 8,408 18,274,810
–– –– –– –– –– 49,700 49,700
–– –– –– 506,956 –– –– 506,956
534,071 –– –– 1,357,425 –– –– 1,357,425
1,558,710 –– –– 1,564,969 –– –– 1,564,969
908,027 –– –– 978,012 –– 4,521,682 5,499,694
4,002,414 –– –– 4,025,543 631,737 88,421 4,745,701
–– –– –– 45,910 –– 3,928 49,838
–– –– –– 2,758,046 –– –– 2,758,046
–– –– 1,066,491 1,243,744 286,548 25,759 1,556,051
–– –– 903,750 963,560 1,145,211 –– 2,108,771
–– –– 2,964,285 2,994,547 1,229,333 –– 4,223,880
47,910 –– –– 820,096 –– 211,370 1,031,466
–– –– 14,208,431 17,954,026 –– –– 17,954,026
–– –– 569,525 9,116,563 2,187,675 5,168,007 16,472,245
–– –– –– 204,395 –– 131,801 336,196
25,122,038 –– –– 25,122,038 5,443,624 –– 30,565,662
1,534,098 –– 1,653,906 3,340,803 –– 826,835 4,167,638
61,151,576 –– 21,366,388 116,675,314 12,452,346 11,058,372 140,186,032
–– –– –– 328,573 –– 99 328,672
–– 15,955,293 –– 15,955,293 10,239,924 –– 26,195,217
–– –– –– 266,271 –– 564,546 830,817
–– –– –– 3,793,584 –– 2,023,288 5,816,872
–– –– –– 4,059,855 –– 2,587,834 6,647,689
–– –– –– 2,665,870 –– –– 2,665,870
592,850 –– –– 2,588,636 –– –– 2,588,636
196,071,010 –– –– 196,071,010 33,707,965 –– 229,778,975
–– –– –– 2,406,185 –– –– 2,406,185
6,132,254 –– –– 6,132,254 3,715,854 –– 9,848,108
202,796,114 –– –– 209,863,955 37,423,819 –– 247,287,774
–– –– –– (3,474,128) 2,910,452 –– (563,676)
202,796,114 15,955,293 –– 226,733,548 50,574,195 2,587,933 279,895,676
$ 263,947,690 $ 15,955,293 $ 21,366,388 $ 343,408,862 $ 63,026,541 $ 13,646,305 $ 420,081,708
(Concluded)
The notes to the financial statements are an integral part of this statement. 9
State of California
Combined Statement of Revenues, Expenditures,
and Changes in Fund Balances
All Governmental Fund Types and Expendable Trust Funds
Year Ended June 30, 1997 Fiduciary Total
(Amounts in thousands) Governmental Fund Types Fund Types Primary
Government
Special Capital Expendable (Memorandum
General Revenue Projects Trust Only)
REVENUES
Taxes.................................................................... $ 47,824,724 $ 4,322,587 $ –– $ 4,696,608 $ 56,843,919
Intergovernmental................................................. –– 26,397,371 –– 451,973 26,849,344
Licenses and permits............................................ 96,358 2,920,849 –– –– 3,017,207
Natural resources................................................. 90,667 2,664 –– –– 93,331
Insurance premiums............................................. –– –– –– 800,620 800,620
Charges for services............................................. 132,465 277,323 –– 11,084 420,872
Fees...................................................................... 422,772 1,310,260 –– 487,378 2,220,410
Penalties............................................................... 11,730 283,998 –– 23,574 319,302
Interest.................................................................. 280,732 211,968 12,234 360,651 865,585
Escheat................................................................. –– –– –– 310,649 310,649
Other..................................................................... 130,661 211,828 4,012 478,807 825,308
Total Revenues............................................. 48,990,109 35,938,848 16,246 7,621,344 92,566,547
EXPENDITURES
Current
General government.......................................... 2,390,172 2,049,162 252 1,088,026 5,527,612
Education.......................................................... 23,790,214 3,867,688 3,178 1,299,041 28,960,121
Health and welfare............................................ 14,653,577 23,502,592 –– 4,643,162 42,799,331
Resources......................................................... 550,571 1,357,876 3,209 27,158 1,938,814
State and consumer services............................ 365,829 346,055 18,099 100,088 830,071
Business and transportation.............................. 47,492 5,762,122 19 18,291 5,827,924
Correctional programs....................................... 3,568,739 282,216 –– –– 3,850,955
Property tax relief.............................................. 618,447 12,510 –– –– 630,957
Capital outlay........................................................ 96,261 253,793 319,068 –– 669,122
Debt service
Principal retirement........................................... 1,040,181 2,500 16,475 –– 1,059,156
Interest and fiscal charges................................ 1,007,913 54,509 29,464 –– 1,091,886
Total Expenditures....................................... 48,129,396 37,491,023 389,764 7,175,766 93,185,949
Excess (Deficiency) of Revenues
Over (Under) Expenditures...................... 860,713 (1,552,175) (373,518) 445,578 (619,402)
OTHER FINANCING SOURCES (USES)
Proceeds from general obligation bonds,
commercial paper, and capital leases............... 96,261 2,264,807 260,022 –– 2,621,090
Proceeds from refunding cert. of participation...... 22,198 –– –– –– 22,198
Proceeds from revenue bonds............................. –– –– 330,507 –– 330,507
Operating transfers in........................................... 196,129 2,259,854 65,683 451,704 2,973,370
Operating transfers out......................................... (725,782) (1,901,052) (6,959) (302,380) (2,936,173)
Transfers out - component unit............................. (2,135,432) (76,260) (23,422) –– (2,235,114)
Payment to refunding escrow agent..................... (22,198) –– –– –– (22,198)
Payment to refund commercial paper................... –– (727,605) (105,075) –– (832,680)
Total Other Financing Sources (Uses)....... (2,568,824) 1,819,744 520,756 149,324 (79,000)
Excess of Revenues and Other Financing
Sources Over (Under) Expenditures and
Other Financing Uses......................................... (1,708,111) 267,569 147,238 594,902 (698,402)
Fund Balances (Deficit), July 1, 1996................... (768,780) 5,605,187 50,610 6,130,202 * 11,017,219
Fund Balances (Deficit), June 30, 1997................ $ (2,476,891) $ 5,872,756 $ 197,848 $ 6,725,104 $ 10,318,817
*Restated (see Note 1L)
10 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Combined Statement of Revenues,
Expenditures, and Changes in Fund Balances
Budgetary Basis - Budget and Actual
All Governmental Fund Types
Year Ended June 30, 1997
(Amounts in thousands)
General Special Revenue
Variance Variance
Budget Favorable Budget Favorable
(Note 2A) Actual (Unfavorable) (Note 2A) Actual (Unfavorable)
REVENUES
Taxes................................................ –– $ 47,898,822 –– –– $ 159,218 ––
Intergovernmental............................. –– –– –– –– 23,640,339 ––
Licenses and permits........................ –– 92,761 –– –– 2,917,345 ––
Natural resources.............................. –– 90,627 –– –– 65 ––
Charges for services......................... –– 47,665 –– –– 277,322 ––
Fees.................................................. –– 417,687 –– –– 1,296,530 ––
Penalties........................................... –– 20,082 –– –– 284,005 ––
Interest.............................................. –– 278,573 –– –– 211,637 ––
Other................................................. –– 315,135 –– –– 1,530,904 ––
Total Revenues...................... –– 49,161,352 –– –– 30,317,365 ––
EXPENDITURES
Current
General government...................... $ 1,776,889 1,711,596 $ 65,293 $ 2,143,559 2,050,927 $ 92,632
Education....................................... 25,795,334 25,768,100 27,234 4,102,671 3,963,245 139,426
Health and welfare......................... 15,222,210 14,892,531 329,679 21,750,107 20,511,597 1,238,510
Resources...................................... 626,876 592,172 34,704 1,563,236 1,416,551 146,685
State and consumer services......... 371,024 367,111 3,913 386,080 346,047 40,033
Business and transportation.......... 57,125 56,887 238 6,087,999 5,476,843 611,156
Correctional programs................... 3,728,964 3,588,286 140,678 286,526 282,649 3,877
Property tax relief........................... 629,830 613,991 15,839 –– 12,510 (12,510)
Capital outlay.................................... –– –– –– 243,122 236,143 6,979
Debt service
Principal retirement........................ 1,263,505 1,263,505 –– 109,006 109,006 ––
Interest and fiscal charges............. 806,994 784,601 22,393 850,074 849,943 131
Total Expenditures................ $ 50,278,751 49,638,780 $ 639,971 $ 37,522,380 35,255,461 $ 2,266,919
OTHER FINANCING SOURCES
(USES)
Operating transfers in........................ –– 230,804 –– –– 13,579,067 ––
Operating transfers out..................... –– (217,262) –– –– (9,643,047) ––
Bonds authorized.............................. –– –– –– –– 995,000 ––
Net Other Financing
Sources (Uses).................... –– 13,542 –– –– 4,931,020 ––
Excess of Revenues and Other
Financing Sources (Under)
Expenditures and Other
Financing Uses................................ –– (463,886) –– –– (7,076) ––
Fund Balances, July 1, 1996.............. –– 1,103,729 * –– –– 10,078,292 * ––
Fund Balances, June 30, 1997.......... –– $ 639,843 –– –– $ 10,071,216 ––
* Restated (see Note 2B) (Continued)
The notes to the financial statements are an integral part of this statement. 11
State of California
Combined Statement of Revenues,
Expenditures, and Changes in Fund Balances
Budgetary Basis - Budget and Actual
All Governmental Fund Types
Year Ended June 30, 1997
(Amounts in thousands) Capital Projects
Variance
Budget Favorable
(Note 2A) Actual (Unfavorable)
REVENUES
Interest........................................................................................................................ –– $ 9,913 ––
Other........................................................................................................................... –– 29,500 ––
Total Revenues............................................................................................... –– 39,413 ––
EXPENDITURES
Current
Education................................................................................................................ $ 3,765 3,155 $ 610
Resources............................................................................................................... 4,384 3,209 1,175
State and consumer services.................................................................................. 9,029 (8,982) 18,011
Capital outlay.............................................................................................................. 266,550 206,837 59,713
Debt service
Principal retirement................................................................................................. 6,050 6,050 ––
Interest and fiscal charges...................................................................................... 3,844 3,844 ––
Total Expenditures.......................................................................................... $ 293,622 214,113 $ 79,509
OTHER FINANCING SOURCES (USES)
Operating transfers in................................................................................................. –– 110,346 ––
Operating transfers out............................................................................................... –– (91,199) ––
Net Other Financing Sources (Uses)............................................................ –– 19,147 ––
Excess of Revenues and Other Financing Sources (Under)
Expenditures and Other Financing Uses............................................................... –– (155,553) ––
Fund Balances, July 1, 1996....................................................................................... –– 1,591,766 * ––
Fund Balances, June 30, 1997.................................................................................... –– $ 1,436,213 ––
*Restated (see Note 2B) (Concluded)
12 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Combined Statement of Revenues, Expenses, and
Changes in Retained Earnings
All Proprietary Fund Types and Discretely Presented Component Units –
Special Purpose Authorities
Year Ended June 30, 1997
(Amounts in thousands)
Total Component Total
Primary Units Reporting
Proprietary Fund Types Government Special Entity
Internal (Memorandum Purpose (Memorandum
Enterprise Service Only) Authorities Only)
OPERATING REVENUES
Lottery ticket sales................................................... $ 2,063,135 $ –– $ 2,063,135 $ –– $ 2,063,135
Service and sales.................................................... 1,058,714 1,297,597 2,356,311 144,760 2,501,071
Earned premiums (net)........................................... 429 –– 429 992,197 992,626
Investment and interest........................................... 271,167 –– 271,167 308,106 579,273
Contributions........................................................... –– –– –– 2,439 2,439
Rent......................................................................... 356,090 –– 356,090 19,035 375,125
Other....................................................................... 3,416 –– 3,416 7,277 10,693
Total Operating Revenues................................. 3,752,951 1,297,597 5,050,548 1,473,814 6,524,362
OPERATING EXPENSES
Lottery prizes........................................................... 1,030,536 –– 1,030,536 –– 1,030,536
Personal services.................................................... 286,949 310,274 597,223 133,515 730,738
Supplies................................................................... 68,033 20,020 88,053 6 88,059
Services and charges.............................................. 660,649 905,864 1,566,513 218,062 1,784,575
Depreciation............................................................ 86,646 44,993 131,639 15,250 146,889
Benefit payments..................................................... –– –– –– 1,088,349 1,088,349
Interest expense...................................................... 527,180 7,948 535,128 309,485 844,613
Amortization (recovery) of deferred charges........... 68,766 –– 68,766 1,707 70,473
Total Operating Expenses................................. 2,728,759 1,289,099 4,017,858 1,766,374 5,784,232
Operating Income (Loss)................................... 1,024,192 8,498 1,032,690 (292,560) 740,130
NONOPERATING REVENUES (EXPENSES)
Grants received....................................................... 389 –– 389 72,832 73,221
Grants provided....................................................... (34,444) –– (34,444) (72,832) (107,276)
Interest revenue...................................................... 224,302 2,746 227,048 553,525 780,573
Interest expense and fiscal charges........................ (207,053) (119) (207,172) (2,705) (209,877)
Dividends paid......................................................... –– –– –– (117,069) (117,069)
Lottery payments for education............................... (727,626) –– (727,626) –– (727,626)
Other....................................................................... (16,981) (1,110) (18,091) (2,477) (20,568)
Total Nonoperating Revenues (Expenses)...... (761,413) 1,517 (759,896) 431,274 (328,622)
Income (Loss) Before Operating Transfers..... 262,779 10,015 272,794 138,714 411,508
OPERATING TRANSFERS
Operating transfers in.............................................. 603,348 8,848 612,196 –– 612,196
Operating transfers out........................................... (649,393) –– (649,393) –– (649,393)
Total Operating Transfers................................. (46,045) 8,848 (37,197) –– (37,197)
Net Income............................................................... 216,734 18,863 235,597 138,714 374,311
Retained Earnings, July 1, 1996.............................. 3,708,957 * 115,301 3,824,258 2,449,120 6,273,378
Retained Earnings, June 30, 1997........................... $ 3,925,691 $ 134,164 $ 4,059,855 $ 2,587,834 $ 6,647,689
*Restated (see Note 1L)
The notes to the financial statements are an integral part of this statement. 13
State of California
Combined Statement of Cash Flows
All Proprietary Fund Types and Discretely Presented Component Units –
Special Purpose Authorities
Year Ended June 30, 1997
Component
(Amounts in thousands) Proprietary Fund Types Units
Internal Special Purpose
Enterprise Service (1) Authorities
CASH FLOWS FROM OPERATING ACTIVITIES
Operating income (loss).......................................................................................... $ 1,024,192 $ 8,498 $ (292,560)
ADJUSTMENTS TO RECONCILE OPERATING INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATIONS
Interest expense on operating debt......................................................................... 24,126 7,948 309,485
Depreciation............................................................................................................ 86,646 44,993 15,250
Accretion of capital appreciation bonds................................................................... 10,510 –– 9,562
Provisions and allowances...................................................................................... (1,796) –– 921
Accrual of deferred charges.................................................................................... (854) –– 6
Amortization of deferred credits.............................................................................. (3,460) –– (3,910)
Amortization of discounts........................................................................................ 2,120 –– 5,512
Amortization (recovery) of deferred charges........................................................... 65,103 –– ––
Purchase of program loans..................................................................................... (149) –– (849,199)
Collection of principal from program loans.............................................................. 139,348 –– 220,725
Other....................................................................................................................... 2,497 162 2,705
Change in assets and liabilities
Receivables.......................................................................................................... 648 350 (1,079)
Due from other funds........................................................................................... (18,622) (4,300) 170
Due from primary government............................................................................. –– –– 9,866
Due from other governments............................................................................... 7,932 14,297 ––
Prepaid items....................................................................................................... 3,303 (2,670) 15
Inventories............................................................................................................ 1,857 15,227 ––
Net investment in direct financing leases............................................................. (94,722) –– ––
Advances and loans receivable........................................................................... (1,336) –– ––
Other assets......................................................................................................... 6,865 454 5,719
Accounts payable................................................................................................. (35,629) 5,592 2,081
Interest payable.................................................................................................... (6,265) –– ––
Due to other funds................................................................................................ 9,923 (8,494) (743)
Due to component units....................................................................................... –– 1,228 ––
Due to other governments.................................................................................... (7,411) 522 ––
Benefits payable................................................................................................... (13,074) –– (98,120)
Deposits............................................................................................................... (106) (396) 3,479
Lottery prizes and annuities................................................................................. 66,791 –– ––
Contract and notes payable................................................................................. 294 –– ––
Compensated absences payable......................................................................... (6,641) (38) 1,200
Capital lease obligation........................................................................................ (313) –– ––
Advance collections............................................................................................. 8,547 (21,546) (15,017)
Other liabilities...................................................................................................... (2,397) (1,772) 509
Total Adjustments....................................................................................... 243,735 51,557 (380,863)
Net Cash Provided by (Used In) Operating Activities.............................. 1,267,927 60,055 (673,423)
(Continued)
(1) Internal service funds made nonÐcash transactions for installment purchases totaling $9 million
to acquire equipment. Noncash transactions are those portions of investing and financing activities
that affected assets and liabilities but did not result in cash receipts or payments during the period.
14 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Component
Proprietary Fund Types Units
Internal Special Purpose
Enterprise Service (1) Authorities
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Dividends paid............................................................................................................ –– –– (127,369)
Advances from other funds......................................................................................... –– –– 938
Return of advances from other funds......................................................................... (52,000) ––
Proceeds from revenue bonds................................................................................... –– –– 1,101,467
Retirement of general obligation bonds...................................................................... (200,045) –– ––
Retirement of revenue bonds..................................................................................... (47,395) –– (361,187)
Interest paid on operating debt................................................................................... (653) –– (293,719)
Operating transfers in................................................................................................. 60,339 8,848 2,380
Operating transfers out............................................................................................... (159,736) –– ––
Grants provided.......................................................................................................... (34,444) –– (72,832)
Lottery payments for education.................................................................................. (767,488) –– ––
Net Cash Provided by (Used In) Non-capital Financing Activities.............. (1,201,422) 8,848 249,678
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Unamortized water project costs................................................................................ (17,528) –– ––
Acquisition of intangible assets.................................................................................. –– (1,905) ––
Acquisition of fixed assets.......................................................................................... (639,049) (43,981) (58,026)
Proceeds from sale of fixed assets............................................................................. 850 15,331 792
Advances from other funds......................................................................................... 368,404 –– ––
Return of advances from other funds......................................................................... (393,573) (296) ––
Proceeds from notes payable and commercial paper................................................ 149,000 –– ––
Principal paid on notes payable and commercial paper............................................. (110,190) (24,329) (44,925)
Payment of capital lease obligations.......................................................................... –– (2,072) ––
Retirement of general obligation bonds...................................................................... (36,645) –– ––
Proceeds from revenue bonds................................................................................... 1,379,331 –– 77,804
Retirement of revenue bonds..................................................................................... (1,247,282) –– ––
Interest paid................................................................................................................ (211,601) (8,067) (1,474)
Contributed capital...................................................................................................... –– 403 99
Grants received.......................................................................................................... 389 –– 72,832
Operating transfers in................................................................................................. 54,041 –– ––
Net Cash Provided by (Used In) Capital and
Related Financing Activities............................................................................ (703,853) (64,916) 47,102
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments............................................................................................ (333,433) –– (340,768)
Advances and loans provided.................................................................................... (85,692) –– (3,527)
Collection of advances and loans............................................................................... 38,929 15,400 ––
Proceeds from maturity and sale of investments........................................................ 491,274 –– 318,266
Interest on investments.............................................................................................. 208,496 2,375 554,417
Net Cash Provided by Investing Activities..................................................... 319,574 17,775 528,388
Net Increase (Decrease) in Cash and Pooled Investments...................................... (317,774) 21,762 151,745
Cash and Pooled Investments at July 1, 1996.......................................................... 3,148,359 181,425 614,114
Cash and Pooled Investments at June 30, 1997....................................................... $ 2,830,585 $ 203,187 $ 765,859
(Concluded)
The notes to the financial statements are an integral part of this statement. 15
State of California
Combined Statement of Changes in Plan Net Assets
Pension Trust Funds and Discretely Presented Component Unit –
University of California
Year Ended June 30, 1997
Component
(Amounts in thousands)
Unit
University
Primary of California
Government Retirement
Pension System
Trust Funds Funds
ADDITIONS
Contributions
Employer................................................................................................................................ $ 4,170,325 $ 358
Plan member.......................................................................................................................... 2,589,005 346,197
Total Contributions......................................................................................................... 6,759,330 346,555
Investment income
Net appreciation in fair value of investments.......................................................................... 24,170,031 5,578,814
Interest, dividends, and other investment income.................................................................. 9,277,450 1,280,463
Less: Investment expense..................................................................................................... (1,953,417) (200,738)
Net Investment Income................................................................................................... 31,494,064 6,658,539
Other......................................................................................................................................... 2,613 63,169
Total Additions................................................................................................................ 38,256,007 7,068,263
DEDUCTIONS
Benefits..................................................................................................................................... 7,090,095 850,334
Refunds of contributions............................................................................................................ 220,714 ––
Administrative expense............................................................................................................. 146,405 18,497
Total Deductions............................................................................................................. 7,457,214 868,831
Net Increase in Fund Balance Reserved for Employees’ Pension Benefits......................... 30,798,793 6,199,432
Fund Balance Reserved for Employees’ Pension Benefits, July 1, 1996.............................. 165,272,217 27,508,533 *
Fund Balance Reserved for Employees’ Pension Benefits, June 30, 1997.......................... $ 196,071,010 $ 33,707,965
*Restated (see Note 1L)
16 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Combined Balance Sheet –
Discretely Presented Component Unit –
University of California
June 30, 1997
(Amounts in thousands)
Endowment Retirement Total
Current Loan and Similar Plant System (Memorandum
Funds Funds Funds Funds Funds Only)
ASSETS
Cash............................................................. $ 75,107 $ –– $ –– $ 2,440 $ –– $ 77,547
Investments.................................................. 3,904,867 62,456 3,822,418 1,379,543 37,396,301 46,565,585
Receivables (net)......................................... 911,780 261,233 9,752 14,113 335,736 1,532,614
Due from other funds................................... 9,409 –– 16,763 1,533 124,673 152,378
Due from primary government..................... 127,880 –– –– –– –– 127,880
Due from other governments....................... 126,423 1,385 –– –– –– 127,808
Inventories, at cost....................................... 97,097 –– –– –– –– 97,097
Deferred charges......................................... 37,777 –– –– –– –– 37,777
Fixed assets................................................. –– –– –– 14,306,614 –– 14,306,614
Other assets................................................. –– –– –– 1,241 –– 1,241
Total Assets...................................... $ 5,290,340 $ 325,074 $ 3,848,933 $ 15,705,484 $ 37,856,710 $ 63,026,541
LIABILITIES AND FUND EQUITY
Liabilities
Accounts payable..................................... $ 1,301,566 $ –– $ 3,130 $ 43,344 $ 27,800 $ 1,375,840
Due to other funds.................................... 124,673 2,000 9,284 16,421 –– 152,378
Deposits.................................................... 246,922 –– 384,815 –– –– 631,737
Compensated absences........................... 286,548 –– –– –– –– 286,548
Commercial paper and other borrowings.. 61,680 –– –– 1,083,531 –– 1,145,211
Capital lease obligations........................... –– –– –– 1,229,333 –– 1,229,333
Revenue bonds payable........................... –– 12,845 –– 2,174,830 –– 2,187,675
Securities lending obligation..................... 806,744 13,460 282,287 220,188 4,120,945 5,443,624
Total Liabilities................................. 2,828,133 28,305 679,516 4,767,647 4,148,745 12,452,346
Fund Equity
Investment in general fixed assets........... –– –– –– 10,239,924 –– 10,239,924
Fund balances
Employees’ pension benefits................. –– –– –– –– 33,707,965 33,707,965
Reserved for other specific purposes.... 667,017 267,926 2,435,620 345,291 –– 3,715,854
Undesignated........................................ 1,795,190 28,843 733,797 352,622 –– 2,910,452
Total Fund Equity............................. 2,462,207 296,769 3,169,417 10,937,837 33,707,965 50,574,195
Total Liabilities and Fund Equity.... $ 5,290,340 $ 325,074 $ 3,848,933 $ 15,705,484 $ 37,856,710 $ 63,026,541
The notes to the financial statements are an integral part of this statement. 17
State of California
Combined Statement of Changes in Fund Balances –
Discretely Presented Component Unit –
University of California
Year Ended June 30, 1997
Endowment
(Amounts in thousands)
Current Loan and Similar Plant
Funds Funds Funds Funds
REVENUES AND OTHER ADDITIONS
Student tuition and fees........................................................................ $ 1,009,443 $ –– $ –– $ 14,657
U.S. Government.................................................................................. 3,945,070 2,126 –– 20,877
Local Government................................................................................. 92,502 –– –– ––
Sales and services
Educational activities......................................................................... 707,396 –– –– ––
Medical centers.................................................................................. 2,130,508 –– –– ––
Auxiliary enterprises.......................................................................... 570,280 –– –– ––
Private gifts, grants, and contracts........................................................ 581,946 262 27,129 84,788
Investment income
Endowment activities......................................................................... 106,435 –– 788 ––
Securities lending.............................................................................. 66,205 706 –– 5,958
Other.................................................................................................. 162,531 8,269 –– 48,817
Net appreciation (depreciation) in fair value of investments ................ (26,837) (501) 527,506 (5,879)
Expended for plant facilities.................................................................. –– –– –– 603,438
Retirement of indebtedness.................................................................. –– –– –– 159,986
Other revenues..................................................................................... 243,989 –– –– ––
Transfers in - primary government........................................................ 2,200,513 –– –– 34,601
Other additions...................................................................................... 60,892 2,910 1,281 1,600
Total Revenues and Other Additions...................................... 11,850,873 13,772 556,704 968,843
EXPENDITURES AND OTHER DEDUCTIONS
Current fund expenditures
Educational and general.................................................................... 5,952,995 –– –– ––
Medical centers.................................................................................. 1,958,461 –– –– ––
Auxiliary enterprises.......................................................................... 475,053 –– –– ––
Department of Energy Laboratories................................................... 2,537,056 –– –– ––
Securities lending fees and rebates................................................... 63,998 682 –– 5,759
Plant fund expenditures........................................................................ –– –– –– 173,218
Debt service
Principal retirement............................................................................ –– –– –– 159,986
Interest............................................................................................... –– –– –– 209,330
Disposal of plant assets........................................................................ –– –– –– 237,946
Debt extinguishment............................................................................. –– –– –– 13,670
Other..................................................................................................... 50,259 5,956 21,451 4,039
Total Expenditures and Other Deductions............................. 11,037,822 6,638 21,451 803,948
TRANSFERS AMONG FUNDS
Mandatory contractual arrangements
Loan funds matching grants.............................................................. (1,106) 1,106 –– ––
Principal and interest......................................................................... (268,129) –– –– 268,129
Nonmandatory (discretionary allocations)............................................. (94,902) 11 27,239 67,652
Total Transfers Among Funds................................................. (364,137) 1,117 27,239 335,781
Net Increase in Fund Balances................................................. 448,914 8,251 562,492 500,676
Fund Balances, July 1, 1996.................................................................. 2,013,293 * 288,518 * 2,606,925 * 10,437,161 *
Fund Balances, June 30, 1997.............................................................. $ 2,462,207 $ 296,769 $ 3,169,417 $10,937,837
* Restated (see Note 1L)
18 The notes to the financial statements are an integral part of this statement.
General Purpose Financial Statements
Combined Statement of Current Funds Revenues,
Expenditures, and Other Changes – Discretely
Presented Component Unit – University of California
Total
Year Ended June 30, 1997
Current Funds (Memorandum
(Amounts in thousands)
Unrestricted Restricted Only)
REVENUES
Student tuition and fees.............................................................................................. $ 1,009,443 $ –– $ 1,009,443
U.S. Government appropriations, grants and contracts............................................. 266,250 1,105,744 1,371,994
Local government grants and contracts..................................................................... 1,367 101,018 102,385
Sales and services
Education activities.................................................................................................. 707,396 –– 707,396
Medical centers....................................................................................................... 2,130,508 –– 2,130,508
Auxiliary enterprises................................................................................................ 570,280 –– 570,280
Private gifts, grants and contracts.............................................................................. 54,187 460,786 514,973
Investment income
Endowment and similar funds................................................................................. 24,226 64,348 88,574
Securities lending.................................................................................................... 43,662 21,791 65,453
Other....................................................................................................................... 131,024 –– 131,024
Net appreciation (depreciation) in fair value of investments....................................... (23,480) –– (23,480)
Department of Energy Laboratories........................................................................... 29,167 2,537,056 2,566,223
Other revenues........................................................................................................... 243,989 –– 243,989
Transfers in - primary government............................................................................. 1,884,515 225,154 2,109,669
Total Revenues............................................................................................... 7,072,534 4,515,897 11,588,431
EXPENDITURES AND MANDATORY TRANSFERS
Educational and general
Instructional............................................................................................................. 1,810,391 120,845 1,931,236
Research................................................................................................................. 262,193 1,324,340 1,586,533
Public service.......................................................................................................... 98,068 108,761 206,829
Academic support.................................................................................................... 715,377 103,917 819,294
Student services...................................................................................................... 248,600 9,289 257,889
Institutional support................................................................................................. 420,879 21,354 442,233
Operation and maintenance of plant....................................................................... 285,386 1,447 286,833
Student financial aid................................................................................................ 165,005 257,143 422,148
Total Educational and General...................................................................... 4,005,899 1,947,096 5,952,995
Mandatory transfers
Loan fund matching grant........................................................................................ 467 639 1,106
Debt service............................................................................................................ 85,052 93,500 178,552
Total Mandatory Transfers............................................................................. 85,519 94,139 179,658
Medical Centers
Expenditures........................................................................................................... 1,955,583 2,878 1,958,461
Mandatory transfers................................................................................................ 18,803 –– 18,803
Total Medical centers..................................................................................... 1,974,386 2,878 1,977,264
Auxiliary enterprises
Expenditures........................................................................................................... 467,977 7,076 475,053
Mandatory transfers................................................................................................ 70,774 –– 70,774
Total Auxiliary Enterprises............................................................................ 538,751 7,076 545,827
Department of Energy Laboratories........................................................................... –– 2,537,056 2,537,056
Securities lending fees and rebates........................................................................... 42,207 21,791 63,998
Total Expenditures and Mandatory Transfers.............................................. 6,646,762 4,610,036 11,256,798
OTHER TRANSFERS AND ADDITIONS (DEDUCTIONS)
Restricted receipts in excess of restricted expenditures............................................ –– 201,550 201,550
Nonmandatory transfers............................................................................................. (47,361) (47,541) (94,902)
Other........................................................................................................................... 7,504 3,129 10,633
Total Other Transfers and Additions (Deductions)..................................... (39,857) 157,138 117,281
Net Increase in Fund Balances................................................................................... $ 385,915 $ 62,999 $ 448,914
The notes to the financial statements are an integral part of this statement. 19
Blank page inserted for reproduction purposes only
Notes to the Financial Statements – Index
Note 1. Summary of Significant Accounting Policies
A. Reporting Entity............................................................................................. 23
B. Fund Accounting............................................................................................ 26
C. Measurement Focus and Basis of Accounting................................................. 28
D. Food Stamps.................................................................................................. 29
E. Inventories..................................................................................................... 29
F. Net Investment in Direct Financing Leases..................................................... 29
G. Deferred Charges............................................................................................ 30
H. Fixed Assets................................................................................................... 30
I. Long-Term Obligations................................................................................... 30
J. Compensated Absences.................................................................................. 31
K. Fund Equity................................................................................................... 31
L. Restatement of Beginning Fund Equity........................................................... 33
M. Guaranty Deposits......................................................................................... 33
N. Memorandum Only Total Columns................................................................. 33
Note 2. Budgetary and Legal Compliance
A. Budgeting and Budgetary Control................................................................... 33
B. Legal Compliance........................................................................................... 34
C. Reconciliation of Budgetary Basis with GAAP Basis........................................ 35
Note 3. Deposits and Investments.............................................................................. 37
Note 4. Due from Other Funds, Due to Other Funds, Advances and
Loans Receivable, Advances from Other Funds, Due from
Primary Government, and Due to Component Units....................................... 44
Note 5. Restricted Assets............................................................................................ 47
Note 6. Net Investment in Direct Financing Leases..................................................... 47
Note 7. Fixed Assets................................................................................................... 48
Note 8. Long-Term Obligations................................................................................... 49
Note 9. Compensated Absences.................................................................................. 50
Note10. Certificates of Participation............................................................................. 50
Note11. Commercial Paper and Other Borrowings....................................................... 51
Note12. Leases............................................................................................................ 52
Note13. Commitments................................................................................................. 54
21
State of California
Note14. General Obligation Bonds............................................................................... 55
Note15. Revenue Bonds.............................................................................................. 56
Note16. Major Tax Revenues....................................................................................... 60
Note17. Fund Equity
A. Fund Deficits.................................................................................................. 60
B. Changes to Contributed Capital...................................................................... 60
Note18. Risk Management........................................................................................... 61
Note19. Segment Information...................................................................................... 62
Note20. Condensed Financial Statements Ð Discretely Presented Component Units..... 64
Note 21. No Commitment Debt..................................................................................... 66
Note22. Contingent Liabilities
A. Litigation....................................................................................................... 67
B. Federal Audit Exceptions................................................................................ 70
Note23. Deferred Compensation Plans......................................................................... 70
Note24. Pension Trusts............................................................................................... 71
A. Public EmployeesÕ Retirement Fund................................................................ 73
1. Fund Information....................................................................................... 73
2. EmployersÕ Information.............................................................................. 73
B. JudgesÕ Retirement Fund................................................................................ 75
C. JudgesÕ Retirement Fund II............................................................................ 76
D. LegislatorsÕ Retirement Fund.......................................................................... 77
E. Volunteer FirefightersÕ Length of Service Award Fund..................................... 78
F. TeachersÕ Retirement Fund............................................................................. 78
G. Cash Balance Fund........................................................................................ 79
H. University of California Ð Discretely Presented Component Unit...................... 80
Note25. Post-Retirement Health Care Benefits............................................................. 83
Note26. Subsequent Events......................................................................................... 84
22
Notes to the Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements present information on the
financial activities of the State of California over which the
Governor, the Legislature, and other elected officials have direct or
indirect governing and fiscal control. These financial statements
have been prepared in conformity with generally accepted
accounting principles (GAAP). The provisions of Governmental
Accounting Standards Board (GASB) Statement No. 27, Accounting
for Pensions by State and Local Government Employers, GASB
Statement No. 28, Accounting and Financial Reporting for
Securities Lending Transactions, and GASB Statement No. 30, Risk
Financing Omnibus - an amendment of GASB Statement No. 10
have been implemented in this report. The University of California, a
discretely presented component unit, has also implemented GASB
Statement No. 31, Accounting and Financial Reporting for Certain
Investments and for External Investment Pools, even though the
implementation is not required until next year.
A. Reporting Entity As required by GAAP, these financial statements present the
primary government of the State and its component units. The
primary government consists of all funds, account groups,
organizations, institutions, agencies, departments, and offices that
are not legally separate from the State. Component units are
organizations which are legally separate from the State but for
which the State is financially accountable, or for which the nature
and significance of their relationship with the State is such that
exclusion would cause the StateÕs financial statements to be
misleading or incomplete. The decision to include a potential
component unit in the StateÕs reporting entity is based on several
criteria including legal standing, fiscal dependency, and financial
accountability. Following is information on blended and discretely
presented component units for the State.
Blended component units, although legally separate entities, are
in substance part of the primary governmentÕs operations.
Therefore, data from these blended component units are blended
into the appropriate funds for reporting purposes.
Building authorities are blended component units because they
have been created through the use of Joint Exercise of Powers
Agreements with various cities to finance the construction of state
buildings. The building authorities are reported as capital projects
funds. As a result, the capital lease arrangements between the
23
State of California
building authorities and the State of $312 million have been
eliminated from the combined balance sheet. Instead, only the
underlying fixed assets and the debt used to acquire them are
reported in the appropriate account groups. Copies of the financial
statements of the building authorities may be obtained from the
State ControllerÕs Office, Division of Accounting and Reporting, P.O.
Box 942850, Sacramento, California 94250-5876.
Discretely presented component units are reported in separate
columns in the combined financial statements. Discretely presented
component units are legally separate from the primary government,
and mostly provide services to entities and individuals outside the
State. For ease of presentation, discretely presented component
units, other than the University of California, are included in the
statements under the heading of special purpose authorities.
The University of California was founded in 1868 as a public, state-
supported, land grant institution. It was written into the State
Constitution of 1879 as a public trust to be administered by a
governing board, the Regents of the University of California. The
University of California is a component unit of the State because the
State appoints a voting majority of the Regents of the University of
California, and expenditures for the support of various University of
California programs and capital outlay are appropriated by the
annual Budget Act. Copies of the University of CaliforniaÕs
separately issued financial statements may be obtained from the
University of California, Business and Finance, 21st Floor, 300
Lakeside Drive, Oakland, California 94612-3550.
Special purpose authorities are presented in three separate
categories for condensed financial statement reporting purposes:
State Compensation Insurance Fund (SCIF), California Housing
Finance Agency (CHFA), and Non-Major Component Units. SCIF and
CHFA are considered major component units while all other
component units are shown as Non-Major Component Units.
The SCIF is a self-supporting enterprise created to offer insurance
protection to employers at the lowest possible cost. It operates in
competition with other insurance carriers to provide services to the
State, counties, cities, school districts, or other public corporations.
It is a component unit of the State because the State appoints all
five voting members of the SCIFÕs governing board and has the
authority to approve or modify the SCIFÕs budget. Copies of the
SCIFÕs financial statements for the year ended December 31, 1996,
may be obtained from the State Compensation Insurance Fund,
1275 Market Street, San Francisco, California 94103.
The CHFA was created by the Zenovich-Moscone Chacon Housing
and Home Finance Act, as amended. The CHFAÕs purpose is to meet
the housing needs of persons and families of low and moderate
income. It is a component unit of the State because the State
appoints a voting majority of the CHFAÕs governing board and has
the authority to approve or modify its budget. Copies of the CHFAÕs
24
Notes to the Financial Statements
financial statements may be obtained from the California Housing
Finance Agency, 1121 L Street, Sacramento, California 95814.
State legislation created various other Non-Major Component Units
to provide certain services outside the primary government and to
provide certain private and public entities with a low-cost source of
financing for programs deemed to be in the public interest. These
entities are considered component units because the majority of
governing board members are appointed by, or are members of, the
primary government. Copies of the financial statements of these
component units may be obtained from the Office of the State
Controller, Division of Accounting and Reporting, P.O. Box 942850,
Sacramento, California 94250Ð5876. The Non-Major Component
Units are:
The California Alternative Energy and Advanced Transportation
Financing Authority, which provides financing for the alternative
energy and advanced transportation technologies;
The California Pollution Control Financing Authority, which
provides financing for pollution control facilities;
The California Health Facilities Financing Authority, which
provides financing for the construction, equipping, or acquiring of
health facilities;
The California Educational Facilities Authority, which issues
revenue bonds to assist private educational institutions of higher
learning in the expansion and construction of educational
facilities;
The California School Finance Authority, which provides loans to
school and community college districts to assist in obtaining
equipment and facilities;
The California Economic Development Financing Authority,
which issues revenue and general obligation bonds to finance
business development and public infrastructure projects;
The District Agricultural Associations, which exhibit all of the
industries, industrial enterprises, resources, and products of the
State; and
The San Joaquin River Conservancy, which was created to
acquire and manage public lands within the San Joaquin River
Parkway.
A joint venture is an entity, resulting from a contractual
arrangement, that is owned, operated, or governed by two or more
participants as a separate and specific activity subject to joint
control. In such an arrangement, the participants retain an ongoing
financial interest or an ongoing financial responsibility in the entity.
These entities are not part of the primary government or a
component unit.
25
State of California
The State participates in only one joint venture with the Capitol
Area Development Authority (CADA). The CADA was created in 1978
by the Joint Exercise of Powers Agreement between the primary
government and the City of Sacramento for the location of state
buildings and other improvements. The CADA is a public entity
separate from the primary government and the City, and is
administered by a board of five members: two appointed by the
primary government, two appointed by the City, and one appointed
by the affirmative vote of at least three of the other four members of
the board. The primary government designates the chairperson of
the board. Although the primary government does not have an
equity interest in the CADA, it does have an ongoing financial
interest. Based upon the appointment authority, the primary
government has the ability to indirectly influence the CADA to
undertake special projects for the citizenry of the participants. The
primary government subsidizes the CADAÕs operations by leasing
land to the CADA without consideration; however, the primary
government is not obligated to do so. Since the primary government
does not have an equity interest in the CADA, the CADAÕs financial
information is not included in the financial statements of this
report. Separately issued financial statements can be obtained from
the Capitol Area Development Authority, 1530 Capitol Avenue,
Sacramento, California 95814.
B. Fund Accounting The financial statements of the State are organized and operated on
the basis of funds, account groups, and component units. A fund is
an independent fiscal and accounting entity with a self-balancing
set of accounts. Fund accounting segregates funds according to
their intended purpose and is used to aid management in
demonstrating compliance with finance-related legal and
contractual provisions. The minimum number of funds are
maintained consistent with legal and managerial requirements.
Account groups are a reporting device to account for certain assets
and liabilities of the governmental funds that are not recorded
directly in those funds. A component unit is an organization which
is legally separate from the State but for which the State is
financially accountable or for which the nature and significance of
their relationship with the State is such that exclusion would cause
the StateÕs financial statements to be misleading or incomplete.
The financial activities of the State accounted for in the
accompanying financial statements are classified as follows.
Governmental Fund Types are used primarily to account for
services provided to the general public without charging directly for
those services. The State has three governmental fund types.
The General Fund is the main operating fund of the State. It
accounts for transactions related to resources obtained and used for
those services that do not need to be accounted for in another fund.
26
Notes to the Financial Statements
Special Revenue Funds account for transactions related to
resources obtained from specific revenue sources (other than
expendable trusts or major capital projects) that are legally
restricted to expenditures for specified purposes.
Capital Projects Funds account for transactions related to resources
obtained and used to acquire or construct major capital facilities.
Proprietary Fund Types present financial data on activities that
are similar to those found in the private sector. Users are charged
for the goods or services provided. Pursuant to GASB Statement No.
20, the State applies all applicable GASB pronouncements as well
as all applicable Financial Accounting Standards Board (FASB)
Statements and Interpretations issued on or before November 30,
1989, unless the FASB Statements and Interpretations conflict with
or contradict GASB pronouncements for its proprietary funds.
However, the State has elected not to apply FASB Statements and
Interpretations issued after November 30, 1989, with one exception.
The exception is Prison Industries, an internal service fund, which
has elected to follow FASB pronouncements issued after November
30, 1989, unless they conflict with or contradict GASB
pronouncements. The State has two proprietary fund types.
Enterprise Funds account for goods or services provided to the
general public on a continuing basis when (1) the State intends that
all or most of the cost involved is to be financed by user charges, or
(2) periodic measurement of the results of operations is appropriate
for management control, accountability, capital maintenance, public
policy, or other purposes.
Internal Service Funds account for goods or services provided to
other agencies, departments, or governments on a cost-
reimbursement basis.
Fiduciary Fund Types are used to account for assets held by the
State. The State acts as a trustee or as an agent for individuals,
private organizations, other governments, or other funds. The State
has three fiduciary fund types.
Expendable Trust Funds account for assets held in a trustee
capacity when both principal, income, and earnings on principal,
may be expended in the course of a fundÕs designated operations.
Pension Trust Funds account for transactions, assets, liabilities,
and net assets available for plan benefits of the retirement systems.
Agency Funds account for assets held by the State, which acts as
an agent for individuals, private organizations, other governments,
or other funds. They are custodial in nature and do not measure the
results of operations.
27
State of California
Account Groups are used to establish control over and
accountability for the governmentÕs general fixed assets and general
long-term obligations. The State has two account groups.
The General Fixed Assets Account Group accounts for governmental
fixed assets not reported in a proprietary fund or a trust fund.
The General Long-Term Obligations Account Group accounts for
unmatured general obligation bonds and other long-term
obligations generally expected to be financed from governmental
funds.
Discretely Presented Component Units are reported in separate
columns in the combined financial statements to emphasize that
they are legally separate from the primary government. The
discretely presented component units are classified as the
University of California and as special purpose authorities. The
University of CaliforniaÕs financial statements are prepared in
conformity with GAAP using the American Institute of Certified
Public Accountants College Guide Model. As a result, the University
of CaliforniaÕs activities are accounted for in the following funds:
Current Funds; Loan Funds; Endowment and Similar Funds; Plant
Funds; and Retirement System Funds. Special purpose authorities
account for their activities as enterprise funds.
C. Measurement Focus Governmental Fund Types and Expendable Trust Funds are
and Basis of presented using the flow of current financial resources
Accounting measurement focus. With this measurement focus, operating
statements present increases and decreases in net current assets;
the unreserved fund balance is a measure of available spendable
resources.
The accounts of the governmental fund types and expendable trust
funds are reported using the modified accrual basis of accounting.
Under the modified accrual basis, revenues are recorded as they
become measurable and available, and expenditures are recorded at
the time the liabilities are incurred. Principal tax revenues
susceptible to accrual are recorded as taxpayers earn income
(personal income and bank and corporation taxes), as sales are
made (consumption and use taxes), and as the taxable event occurs
(miscellaneous taxes), net of estimated tax overpayments. Other
revenue sources are recorded when they are earned or when they
are due, provided they are measurable and available within the
ensuing 12 months.
Compensated absences are accounted for on a modified accrual
basis of accounting. Except for expenditures in the General Fund
for earned leave of academic-year faculty, compensated absences
expenditures are not accrued since it is not anticipated that
compensated absences will be used in excess of a normal yearÕs
accumulation.
28
Notes to the Financial Statements
Agency Funds are custodial in nature and do not measure the
results of operations. Assets and liabilities are recorded using the
modified accrual basis of accounting.
Proprietary Fund Types and Pension Trust Funds are accounted
for on the flow of economic resources measurement focus.
The accounts of the proprietary fund types and pension trust funds
are reported using the accrual basis of accounting. Under the
accrual basis, revenues are recognized when they are earned, and
expenses are recognized when they are incurred.
Lottery revenue and the related prize expense are recognized when
sales are made. Certain prizes are payable in deferred installments.
Such liabilities are recorded at the present value of amounts
payable in the future.
For purposes of the statement of cash flows, all cash and pooled
investments in the State TreasurerÕs Office pooled investment
program, are considered to be cash and cash equivalents.
Discretely Presented Component Units, which are classified as
the University of California and special purpose authorities, are
accounted for on the flow of current resources and flow of economic
resources measurement focus, respectively. All use the full accrual
basis of accounting except for the SCIF. The SCIF prepares its
financial statements in conformity with practices prescribed by the
StateÕs Department of Insurance, which is primarily in accordance
with generally accepted accounting principles.
D. Food Stamps The distribution of food stamp benefits is recognized as revenue and
expenditures in a special revenue fund, as required by GAAP.
Revenue and expenditures are recognized when the benefits are
distributed to the recipients. Food stamp balances held by the
counties are reported as an asset and offset by deferred revenue.
Revenues, expenditures, and balances of food stamp benefits are
measured based on face value.
E. Inventories Inventories are primarily stated at either the lower of average cost or
market, or at cost utilizing the weighted average valuation method.
In governmental fund types, inventories are recorded as
expenditures when purchased. In proprietary fund types,
inventories are expensed when consumed.
The discretely presented component units have inventory policies
similar to the primary governmentÕs.
F. Net Investment in The State Public Works Board, an agency that accounts for its
Direct Financing activities as an enterprise fund, has entered into lease-purchase
Leases agreements with various other primary government agencies, the
University of California, and certain local agencies. The payments
from these leases will be used to satisfy the principal and interest
requirements of revenue bonds issued by the State Public Works
29
State of California
Board to finance the construction of facilities and energy efficiency
projects. Upon expiration of these leases, jurisdiction of the facilities
and projects will be with the primary government agency, University
of California, or local agency. The State Public Works Board records
the net investment in direct financing leases at the net present
value of the minimum lease payments.
G. Deferred Charges The deferred charges account in the enterprise fund type primarily
represents operating and maintenance costs and unrecovered
capital costs that will be recognized as expenses over the remaining
life of long-term state water supply contracts. These costs are
billable in future years. In addition, the account includes unbilled
interest earnings on unrecovered capital costs that are recorded as
deferred charges. These charges are recognized when billed in
future years under the terms of water supply contracts.
H. Fixed Assets The General Fixed Assets Account Group includes capital assets
that are not assets of any specific fund, but rather of the primary
government as a whole. Most of these assets arise from the
expenditure of the financial resources of governmental funds and
expendable trust funds used to acquire or construct them. The
General Fixed Assets Account Group does not include fixed assets
of proprietary funds or pension trust funds. These fixed assets are
accounted for in their respective funds.
The General Fixed Assets Account Group is presented in the
financial statements at cost or estimated historical cost. Donated
fixed assets are stated at fair market value at the time of donation.
Interest during construction has not been capitalized. Also, public
domain or ÒinfrastructureÓ fixed assets are not capitalized.
Accumulated depreciation is not recorded in the General Fixed
Assets Account Group. Purchased fixed assets are stated at
historical cost. Tangible and intangible property are capitalized if
the property has a normal useful life of at least one year and an
acquisition cost of at least $5,000.
Proprietary Fund Type fixed assets, consisting of property, plant,
and equipment, are stated at cost at the date of acquisition, less
accumulated depreciation. They are depreciated over their estimated
useful or service lives, ranging from three to 100Êyears using the
straight-line method of depreciation. Dormitory facilities, which
represent 13.2%Êof the fixed assets of the enterprise funds, are not
depreciated.
The fixed assets of the discretely presented component units are
stated at cost at the date of acquisition, or fair market value at the
date of donation in the case of gifts. Depreciation on the majority of
the fixed assets of the discretely presented component units is not
recorded, which is consistent with GAAP.
I. Long-Term The primary government reports long-term obligations of
Obligations governmental funds in the General Long-Term Obligations Account
Group. Long-term obligations consist of unmatured general
30
Notes to the Financial Statements
obligation bonds, certain unmatured revenue bonds, capital lease
obligations, certificates of participation, commercial paper, the net
pension obligation of the pension trust funds, the liability for
employeesÕ compensated absences and workersÕ compensation
claims, amounts owed for lawsuits, and the primary governmentÕs
share of the University of California pension liability.
With approval in advance from the Legislature, certain authorities
and state agencies may issue revenue bonds. Principal and interest
on revenue bonds are payable from the pledged revenues of the
respective funds, the building authorities, and agencies. The
General Fund has no legal liability for payment of principal and
interest on revenue bonds. With the exception of the building
authorities, which are included in capital projects funds, the
liability for revenue bonds is recorded in the respective fund.
J. Compensated In the governmental funds, only the amounts of compensated
Absences absences that normally would be liquidated with expendable
available financial resources are accrued at year end, such as costs
of academic year faculty. The costs of the academic-year faculty
represent services rendered over a ten-month period that are paid
over a 12-month period. The balance of the amounts owed for
services rendered are reported as a current liability in the General
Fund. Unless it is anticipated that compensated absences will be
used in excess of a normal yearÕs accumulation, no additional
liabilities are accrued. As a result, the unpaid liability for
governmental funds is recorded in the General Long-Term
Obligations Account Group. Accumulated sick-leave balances are
not included in the compensated absences because they do not vest
to employees. However, unused sick-leave balances convert to
service credits upon retirement.
The amounts of vested unpaid vacation and annual leave
accumulated by state employees are accrued when incurred in
proprietary funds. In the discretely presented component units, the
compensated absences are accounted for in a similar manner as the
proprietary funds in the primary government.
K. Fund Equity Fund equity accounts present the difference between assets and
liabilities of a fund. The fund equity accounts consist of contributed
capital and retained earnings for proprietary funds and certain
component units, investment in general fixed assets for the General
Fixed Assets Account Group and certain component units, and
fund balance for governmental funds, trust funds, and certain
component units.
Contributed capital is the permanent fund capital of a proprietary
fund. Contributed capital is created when a residual equity transfer
is received by a proprietary fund, when a general fixed asset is
ÒtransferredÓ to a proprietary fund, or when a grant is received that
is externally restricted to capital acquisition or construction.
31
State of California
Retained earnings is divided into two sections: reserved for
regulatory requirements and unreserved. The reserved for regulatory
requirements represent a segregation of the retained earnings in
enterprise funds and certain component units for amounts which
are unavailable for general use as a result of specific legal
requirements. Unreserved retained earnings represent the
accumulated earnings of proprietary funds and certain component
units that are not reserved for any specific purpose.
The fund balances for governmental funds and trust funds are
divided into two sections: reserved and unreserved-undesignated.
Part or all of the total fund balance may be reserved as a result of
law or generally accepted accounting principles. Reserves represent
those portions of the fund balances that are legally segregated for
specific uses. The reserves of the fund balance for governmental
funds, trust funds, and component units are as follows:
Reserved for encumbrances represents goods and services that are
ordered, but not received, by the end of the year.
Reserved for advances and loans receivable represents advances to
other funds and the non-current portion of loans receivable that do
not represent expendable available financial resources.
Reserved for employeesÕ pension benefits represents reserves of the
pension trust funds and the University of California, a discretely
presented component unit. These reserves include accumulated
contributions made by employees and employers, and undistributed
interest and investment earnings.
Reserved for continuing appropriations represents the
unencumbered balance of all appropriations for which the period of
availability extends beyond the period covered by this report. These
appropriations are legally segregated for a specific future use.
Reserved for other specific purposes includes trust and agency fund
amounts of the Unemployment Fund, other expendable trust funds,
and the University of California, a discretely presented component
unit, that are not available for future appropriations other than
those for which the funds were established.
The unreserved-undesignated amounts represent the net of total
fund balance, less reserves, for governmental funds and certain
component units.
Investment in general fixed assets represents the fixed assets of the
governmental funds and expendable trust funds reported in the
General Fixed Assets Account Group and the fixed assets of the
University of California, a discretely presented component unit, that
are restricted for specific purposes.
32
Notes to the Financial Statements
L. Restatement of The beginning retained earnings in the enterprise funds have been
Beginning Fund reduced by $490 million to correct prior year depreciation,
Equity amortization, deferred charges, and lease revenue accruals.
The beginning fund balance in the expendable trust funds has been
reduced by $19 million to recognize a liability for future policy
benefits that was not recorded during the year ended June 30,
1996.
The beginning fund balances of the University of California, a
discretely presented component unit, have been increased by $28.8
billion as a result of the implementation of GASB Statement No. 25,
Financial Reporting for Defined Benefit Pension Plans and Note
Disclosures for Defined Contribution Plans, and GASB Statement
No. 31, Accounting and Financial Reporting for Certain Investments
and for External Investment Pools.
M. Guaranty Deposits The State is custodian of guaranty deposits held to protect
consumers, to secure the StateÕs deposits in financial institutions,
and to ensure payment of taxes and fulfillment of obligations to the
State. Guaranty deposits of securities and other properties are not
shown on the financial statements.
N. Memorandum Only Total columns captioned Òmemorandum onlyÓ do not represent
Total Columns consolidated financial information and are presented only to
facilitate financial analysis. The columns do not present information
that reflects financial position, results of operations, or cash flows
in accordance with generally accepted accounting principles.
Interfund eliminations have not been made in the aggregation of
this data.
NOTE 2. BUDGETARY AND LEGAL COMPLIANCE
A. Budgeting and The StateÕs annual budget is prepared primarily on a modified
Budgetary Control accrual basis for governmental funds. The Governor recommends a
budget for approval by the Legislature each year. This recommended
budget includes estimated revenues; however, revenues are not
included in the budget adopted by the Legislature. Under state law,
the State cannot adopt a spending plan that exceeds estimated
revenues.
Under the State Constitution, money may be drawn from the
treasury only through a legal appropriation. The appropriations
contained in the Budget Act, as approved by the Legislature and
signed by the Governor, are the primary sources of annual
expenditure authorizations and establish the legal level of control at
the appropriation level for the annual operating budget. The budget
can be amended throughout the year by special legislative action,
budget revisions by the Department of Finance, or executive orders
by the Governor.
33
State of California
Amendments to the initial budget for the year ended June 30 were
legally made, and are included in the budget data in the financial
statements. The amendments had the effect of increasing spending
authority and expenditures for the year.
Appropriations are generally available for expenditure or
encumbrance either in the year appropriated or for a period of three
years if the legislation does not specify a period of availability. At the
end of the availability period, the encumbering authority for the
unencumbered balance lapses. Some appropriations continue
indefinitely while others are available until fully spent. Generally,
encumbrances must be liquidated within two years from the end of
the period when the appropriation is available. If the encumbrances
are not liquidated within this additional two-year period, the
spending authority for these encumbrances lapses.
Legislative appropriations are based on when commitments for
goods and services are incurred. However, for financial reporting
purposes, the State reports expenditures based on the year goods
and services are received. The budgets reported in the Statements of
Revenues, Expenditures, and Changes in Fund Balances Budgetary
Basis-Budget and Actual, have been adjusted to reflect the
differences between the financial reporting methodology and
legislative appropriations to correctly state the budget variance.
These statements include all the expenditures of the governmental
funds and their related appropriations that are authorized annually,
continually, or by project. Governmental funds that are budgeted
annually include the General Fund, special revenue funds, and
capital projects funds.
B. Legal Compliance State agencies are responsible for exercising basic budgetary control
and ensuring that appropriations are not overspent. The State
ControllerÕs Office is responsible for overall appropriation control
and does not allow expenditures in excess of authorized
appropriations.
A prior year revenue adjustment occurs when the actual amount
received in the current year differs from the prior year accrual of
revenues. A prior year expenditure adjustment results when the
actual amount paid in the current year differs from the prior year
accrual, for appropriations whose ability to encumber funds has
lapsed in previous periods. The effect of prior year expenditure
adjustments is not included in the budget figures shown for the
special revenue and capital projects funds on the budgetary basis.
However, the actual figures for those funds on the budgetary basis
include prior year expenditure and revenue adjustments. Since
these adjustments can be either positive or negative, the budget to
actual statement may show unfavorable balances for special
revenue and capital projects funds, even though the appropriation
has not been overexpended.
34
Notes to the Financial Statements
In contrast, prior year expenditure and revenue adjustments are not
included in the actual figures for the General Fund on the
budgetary basis. Rather, the beginning fund balance of the General
Fund on a budgetary basis was increased by $30 million. This
adjustment reflects the total of the General Fund prior year
adjustments for expenditures and revenues. The beginning fund
balance on the GAAP basis is not affected by these adjustments.
A fund was reclassified from capital projects to special revenue. The
reclassification resulted in no change to the beginning fund balance
of the financial statements prepared in accordance with generally
accepted accounting principles. However, the beginning budgetary
basis fund balance of the special revenue funds was increased by
$2 billion and the beginning balance of the capital projects funds
was decreased by $2 billion to reflect the reclassification of the
fundsÕ budgetary basis fund balance.
Financial activities are mainly controlled at the appropriation level
but can vary depending on the presentation and wording contained
in the Budget Act. Certain items which are established at the
category, program, component, or element levels can be adjusted by
the Department of Finance. While the financial activities are
controlled at various levels, the legal level of budgetary control has
been established in the Budget Act at the appropriation level for the
annual operating budget.
The Combined Statement of Revenues, Expenditures, and Changes
in Fund Balances Budgetary Basis-Budget and Actual, and the
related combining level and individual fund presentations are not
presented in this document at the legal level of budgetary control,
as such a presentation would be extremely lengthy and
cumbersome. The State of California prepares a separate report, the
Budgetary/Legal Basis Annual Report Supplement, which includes a
statement that demonstrates compliance with the legal level of
budgetary control, in accordance with GASBÕs Codification of
Governmental Accounting and Financial Reporting Standards
Section 2400.112. This statement, the Statement of Appropriations,
Expenditures, and Balances does not include all of the expenditures
and appropriations of the governmental funds. However, it does
include the comparison of the annual appropriated budget for
governmental funds with expenditures at the legal level of control. A
copy of this report is available from the State ControllerÕs Office,
Division of Accounting and Reporting, P.O. Box 942850,
Sacramento, California 94250-5876.
C. Reconciliation of The State annually reports its financial condition based on GAAP
Budgetary Basis with (GAAP basis) and on the StateÕs budgetary provisions (budgetary
GAAP Basis basis). The Statements of Revenues, Expenditures, and Changes in
Fund Balances Budgetary Basis-Budget and Actual are compiled on
the budgetary basis for the governmental funds. The differences
between budgetary basis fund balances and the fund balances
prepared in accordance with GAAP are explained and reconciled in
the following paragraphs and Table 1.
35
State of California
Advances and Loans Receivable: Loans made to other funds or to
other governments are normally recorded as expenditures on the
budgetary basis. However, in accordance with GAAP, these loans
are recorded as assets.
The General Fund had education loans outstanding as of June 30,
1997, of $885 million that will be forgiven and charged to
expenditures in the year of appropriation on a budgetary basis. On
a GAAP basis, these education loans were charged to expenditures
for the year ended June 30, 1996, which was the year that the
agreement was made to forgive the loans.
The adjustments related to advances and loans caused a decrease
to the fund balance of $790 million in the General Fund and an
increase to the fund balance of $1.3 billion in special revenue funds.
Escheat Property: Liability for the estimated amount of escheat
property ultimately expected to be reclaimed and paid is required to
be reported. This adjustment caused a $436 million decrease to the
General Fund balance.
Liabilities Exceeding Available Appropriations: The primary
government does not, on a budgetary basis, accrue liabilities for
which there is no existing appropriation or no currently available
appropriation. The adjustments made to this account for these
liabilities in accordance with GAAP caused a net decrease to the
General Fund balance of $1.6 billion. This amount is comprised of
accrued employer contributions of $1.5 billion to the Public
EmployeesÕ Retirement Fund for the years ending June 30, 1996
and 1997, and $55 million expenditure used for support of the
University of California.
Authorized and Unissued Bonds: General obligation bonds that are
not self-liquidating are recorded as additions to the fund balance for
the special revenue and capital projects funds on the budgetary
basis when voters authorize the sale of bonds. However, in
accordance with GAAP, only the bonds issued during the year are
recorded as bond proceeds. The adjustments related to authorized
and unissued bonds caused a decrease to fund balance of $5.3
billion in special revenue funds and $1.4 billion in capital projects
funds.
Encumbrances: The State does not record certain encumbrances on
a budgetary basis that are recorded on a GAAP basis. The
adjustments related to encumbrances caused an increase to the
fund balance of $401 million in special revenue funds.
Other: Certain other adjustments and reclassifications are
necessary to present the financial statements in accordance with
GAAP. The other adjustments caused a decrease in fund balance of
$295 million in the General Fund, $638 million in special revenue
funds, and an increase in fund balance of $120 million in capital
projects funds.
36
Notes to the Financial Statements
Table 1
Reconciliation of Budgetary Basis and GAAP Basis Fund Balances
June 30, 1997
(Amounts in thousands)
Special Capital
General Revenue Projects
Reconciliation Items Fund Funds Funds
Budgetary Basis............................................ $ 639,843 $ 10,071,216 $ 1,436,213
Advances and loans receivable....................... (789,631) 1,325,726 ––
Escheat property............................................. (435,546) –– ––
Liabilities exceeding available appropriations. (1,596,879) –– ––
Authorized and unissued bonds...................... –– (5,288,005) (1,358,069)
Encumbrances................................................ –– 401,347 ––
Other............................................................... (294,678) (637,528) 119,704
GAAP Basis (Deficit)..................................... $ (2,476,891) $ 5,872,756 $ 197,848
NOTE 3. DEPOSITS AND INVESTMENTS
State statutes, bond resolutions, and investment policy resolutions
allow the primary government to have investments in United States
government securities, certificates of deposit, bankersÕ acceptances,
commercial paper, corporate bonds, bank notes, mortgage loans
and notes, other debt securities, repurchase agreements, reverse
repurchase agreements, equity securities, real estate, mutual funds,
and other investments.
As of June 30, the State, including discretely presented component
units, had investments in securities lending agreements, real estate,
investment contracts, mutual funds, and other investments totaling
$48.4 billion. These investments are not subject to classification. All
remaining investments reported as of JuneÊ30, are categorized in
three categories of credit risk:
1. Insured or registered, or securities held by the State or its
agent in the StateÕs name.
2. Uninsured and unregistered, with securities held by the
counterpartyÕs trust department or by an agent in the StateÕs
name.
3. Uninsured and unregistered, with securities held by the
counterparty or by its trust department or by an agent but
not in the StateÕs name.
The types of investments reported at year end are representative of
the types of investments made during the year. Furthermore, the
credit risk associated with the investments reported at year end is
representative of the credit risk associated with investments made
during the year.
37
State of California
The State TreasurerÕs Office administers a pooled investment
program for the primary government and for certain special purpose
authorities. As of June 30, the special purpose authoritiesÕ cash and
pooled investments were approximately 3% of the State TreasurerÕs
Office pooled investment portfolio. This program enables the State
TreasurerÕs Office to combine available cash from all funds and to
invest cash that exceeds current needs. Enterprise funds, trust and
agency funds, and a building authority in the capital projects funds
also make separate investments.
As of JuneÊ30, the average remaining life of the securities in the
pooled money investment account administered by the State
TreasurerÕs Office was approximately 232 days.
The State TreasurerÕs Office also has agreements with certain banks
to maintain cash on deposit that does not earn interest income.
Income earned on these deposits compensates the banks for
services and uncleared checks that are deposited in the pooled
investment programÕs accounts.
All demand and time deposits, totaling approximately $664Êmillion,
which were held by financial institutions as of June 30, were
insured by federal depository insurance or by collateral held by the
State TreasurerÕs Office or by an agent of the State TreasurerÕs
Office in the StateÕs name. The California Government Code requires
collateral pledged for demand and time deposits to be deposited
with the State Treasurer.
As of JuneÊ30, the State TreasurerÕs Office had amounts on deposit
with fiscal agents totaling approximately $10Êmillion. These deposits
are related to primary government investment activities and to
principal and interest payments due to bondholders. These deposits
are insured by federal depository insurance or by collateral held by
an agent of the State TreasurerÕs Office in the StateÕs name.
The investments of pension trust funds are reported at fair value.
Investments of the Deferred Compensation Plan Fund, an agency
fund, are reported at market value. All other investments are
reported at cost or amortized cost. For these investments, no loss is
recorded when market values decline below cost, as such declines
are considered temporary.
As of June 30, floating rate notes and mortgage-backed assets
comprised less than 5% of the pooled investments. For the floating
rate notes in the portfolio, the interest received by the State
TreasurerÕs Office pooled investment program will rise or fall as the
underlying index rate rises or falls. The structure of the floating rate
notes in the State TreasurerÕs Office pooled investment program
portfolio is such that it hedges the portfolio against the risk of
increasing interest rates. The mortgage-backed securities are called
real estate mortgage investment conduits (REMICs). A REMIC is a
security backed by a pool of mortgages. The REMICs in the StateÕs
portfolio have a fixed principal payment schedule.
38
Notes to the Financial Statements
The California Government Code allows the State TreasurerÕs Office
to enter into reverse repurchase agreements, as part of its pooled
investment program. A reverse repurchase agreement is a sale of
securities with a simultaneous agreement to repurchase them in the
future at the same price plus a contract rate of interest. The market
value of the securities underlying reverse repurchase agreements
normally exceeds the cash received, providing the dealers a margin
against a decline in market value of the securities. If the dealers
default on their obligations to resell these securities to the State
TreasurerÕs Office or provide securities or cash of equal value, the
State TreasurerÕs Office pooled investment program will suffer an
economic loss equal to the difference between the market value plus
the accrued interest of the underlying securities and the agreement
obligation, including accrued interest. During the year ended June
30, the State TreasurerÕs Office entered into 28 reverse repurchase
agreements by temporarily selling investments with a carrying value
of approximately $4.4Êbillion. The maturities of investments made
with the proceeds from reverse repurchase agreements were
matched to the maturities of the agreements. As of JuneÊ30, the
State TreasurerÕs Office did not have any reverse repurchase
agreements outstanding.
State statutes and agency policies permit CalPERS and STRS to
lend its securities to broker-dealers and other entities with a
simultaneous agreement to return the collateral for the same
securities in the future. Third party securities lending agents have
been contracted to lend domestic and international equity and debt
securities. All securities loans can be terminated on demand by the
lender or the borrower. Collateral in the form of cash or other
securities is required at 102% and 105% of the fair value of
domestic and international securities loaned, respectively. As of
June 30, 1997, there was no credit risk of exposure to borrowers
because the amount of collateral held exceeded the amounts owed
to the borrowers. The cash received as collateral is invested in
accordance with investment guidelines. The weighted-average
maturity of all investments of the cash collateral was less than 90
days as of June 30. Collateral securities received are not permitted
to be pledged or sold unless the borrower defaults. The contracts
with the security lending agents require them to indemnify CalPERS
and STRS if the borrowers fail to return the securities (or if the
collateral is not sufficient to replace the securities lent) or if the
borrower fails to pay for income distributions by the securitiesÕ
issuers while the securities are on loan.
In accordance with statutes authorizing CalPERS investments,
CalPERS, through its outside investment managers, holds
investments in futures and options and enters into forward foreign
currency exchange contracts. Futures and options of approximately
$92 million are held for investment purposes as of June 30, 1997.
Gains and losses on futures and options are determined based upon
quoted market values and recorded in the statement of changes in
net assets. Forward foreign currency exchange contracts are used
primarily to hedge against changes in exchange rates related to
39
State of California
foreign securities. As of June 30, 1997, CalPERS had approximately
$91 million net exposure to loss from forward foreign currency
exchange transactions related to the $26.9 billion international debt
and equity portfolios. CalPERS could be exposed to risk if the
counterparties to the contracts are unable to meet the terms of the
contracts. CalPERS investment managers seek to control this risk
through counterparty credit evaluations and approvals,
counterparty credit limits, and exposure monitoring procedures.
CalPERS anticipates that the counterparties will be able to satisfy
their obligations under the contracts.
Table 2 presents the carrying value and market value of the
investments that were reported by the primary government as of
JuneÊ30.
40
Notes to the Financial Statements
Table 2
Schedule of Investments - Primary Government
June 30, 1997
(Amounts in thousands)
Category
Carrying Market
1 2 3 Value Value
Pooled Investments *
U.S. Government securities....................................... $ 8,745,859 $ –– $ –– $ 8,745,859 $ 8,745,635
Deposits..................................................................... 6,832,540 –– –– 6,832,540 6,831,485
Bankers’ acceptances................................................ 870,395 –– –– 870,395 871,718
Commercial paper...................................................... 6,782,756 –– –– 6,782,756 6,785,493
Corporate bonds........................................................ 1,569,890 –– –– 1,569,890 1,567,125
Bank notes................................................................. 949,074 –– –– 949,074 948,889
Other.......................................................................... 29,495 –– –– 29,495 29,495
Total Pooled Investments........................................ 25,780,009 –– –– 25,780,009 25,779,840
Separately Invested Funds Subject
to Categorization
U.S. Government securities....................................... 8,991,927 134,512 –– 9,126,439 9,341,905
Commercial paper...................................................... 2,334,124 –– –– 2,334,124 2,334,124
Corporate bonds........................................................ 6,303,615 764 –– 6,304,379 6,303,781
Mortgage loans.......................................................... 13,244,530 –– –– 13,244,530 13,244,530
Debt securities – STRS.............................................. 14,131,637 –– –– 14,131,637 14,131,637
Equity securities......................................................... 110,530,849 –– –– 110,530,849 110,530,849
Securities lending collateral....................................... 25,122,038 –– –– 25,122,038 25,122,038
Other investments...................................................... 4,418,027 –– –– 4,418,027 4,418,028
Total Separately Invested Funds Subject
To Categorization................................................ 185,076,747 135,276 –– 185,212,023 185,426,892
Separately Invested Funds Not Subject
to Categorization
Real estate............................................................................................................................................. 8,384,488 8,384,488
Venture capital and private equity funds................................................................................................ 2,722,170 2,722,170
Investment contracts.............................................................................................................................. 2,045,877 2,045,877
Mutual funds........................................................................................................................................... 1,758,886 1,760,248
Investments held by broker-dealers under securities
loans with cash collateral................................................................................................................... 24,378,763 24,378,763
Other...................................................................................................................................................... 1,393,270 1,393,270
Total Separately Invested Funds Not Subject
to Categorization............................................................................................................................. 40,683,454 40,684,816
Total Investments..................................................... $ 210,856,756 $ 135,276 $ –– $ 251,675,486 $ 251,891,548
* Approximately 3% of the pooled investments are investments of special purpose authorities which are discretely presented component units.
For special purpose authorities’ separately invested funds, see Table 4.
The investments of the University of California, a discretely
presented component unit, are stated at fair value. All of the
UniversityÕs investments recorded in each fund group are associated
with the University of California Retirement System (UCRS), General
Endowment Pool (GEP), High Income Pool (HIP), Short Term
Investment Pool (STIP) or are separately invested. Investments
authorized by the Regents for the UCRS, GEP, HIP, and other
separate investments include equities and fixed income securities.
The equity portion of the investment portfolio may include common
stocks, preferred stocks, venture capital partnerships, and emerging
market funds. Where donor agreements place constraints on
41
State of California
allowable investments, assets associated with endowment and
similar funds are invested in accordance with the terms of the
agreements. Investments authorized by the Regents for the STIP
include fixed income securities with a maximum maturity of five
years. In addition, the Regents have also authorized loans to faculty
members under the University of CaliforniaÕs Mortgage Origination
Program with terms up to 30 years.
The GEP and HIP are balanced portfolios in which a large number of
individual endowment funds participate in order to benefit from
diversification and economies of scale. The net assets of the
endowment and similar funds group are invested in either the GEP,
HIP, STIP or are separately invested. The separately invested funds
cannot be pooled due to investment restrictions or income
requirements. All of the University of CaliforniaÕs fund groups
participate in the STIP. Current funds to provide for the payroll,
operating expenses, and construction expenditures of all campuses
and medical centers are invested in the STIP until expended.
UCRS contains funds associated with the University of CaliforniaÕs
defined benefit and defined contribution plans.
The University of California participates in a securities lending
program as a means to augment income. Securities are lent to select
brokerage firms for which collateral is received in excess of the fair
value of such investments during the period of the loan. Collateral
may be cash or securities issued by the U. S. Government or its
agencies, or the sovereign or provincial debt of foreign countries.
Any collateral securities cannot be pledged or sold by the University
unless the borrower defaults. Loans of domestic equities and all
fixed income securities are initially collateralized at 102 percent of
the fair value of securities lent. Loans of foreign equities are initially
collateralized at 105 percent. All borrowers are required to provide
additional collateral by the next business day if the value falls to
less than 100 percent of the fair value of securities lent. The
University receives interest and dividends during the loan period as
well as a fee from the brokerage firm. Securities on loan for cash
collateral are not considered to be categorized. As of June 30, the
University had no credit risk exposure to borrowers because the
amounts the University owes the borrowers exceed the amounts the
borrowers owe the University. The University is fully indemnified by
its custodial bank against any losses incurred as a result of
borrower default.
Securities loans immediately terminate upon notice by either the
University or the borrower, although generally the average term of
these loans is six days. Cash collateral is invested by the
UniversityÕs lending agent, as an agent for the University, in a short
term investment pool in the UniversityÕs name, with guidelines
approved by the Treasurer of the Regents. As of June 30, the
securities in this pool had a weighted average maturity of 47 days.
Table 3 presents the carrying and market value of the investments
that were reported by the University of California as of June 30.
42
Notes to the Financial Statements
Table 3
Schedule of Investments Ð University of California Ð Discretely Presented Component Unit
June 30, 1997
(Amounts in thousands)
Category
Carrying Market
1 2 3 Value Value
Separately Invested Funds Subject to Categorization
U.S. Government securities.............................................. $ 2,030,089 $ –– $ –– $ 2,030,089 $ 2,030,089
Corporate bonds............................................................... 4,253,439 –– –– 4,253,439 4,253,439
Equity securities................................................................ 23,429,103 –– –– 23,429,103 23,429,103
Securities lending collateral.............................................. 5,450,981 –– –– 5,450,981 5,450,981
Other investments............................................................. 4,584,034 –– –– 4,584,034 4,584,034
Total Separately Invested Funds
Subject to Categorization.......................................... 39,747,646 –– –– 39,747,646 39,747,646
Separately Invested Funds Not Subject
to Categorization
Venture capital and private equity funds.................................................................................................... 966,561 966,561
Mortgage loans.......................................................................................................................................... 208,035 208,035
Insurance contracts.................................................................................................................................... 277,763 277,763
Investments held by broker-dealers under
securities loans with cash collateral...................................................................................................... 5,323,888 5,323,888
Other investments...................................................................................................................................... 41,692 41,692
Total Separately Invested Funds Not Subject
to Categorization................................................................................................................................. 6,817,939 6,817,939
Total Investments............................................................ $ 39,747,646 $ –– $ –– $ 46,565,585 $ 46,565,585
The cash and pooled investments of the special purpose authorities,
which are discretely presented component units, are primarily
invested in the State TreasurerÕs Office pooled investment program.
Additionally, state law, bond resolutions, and investment policy
resolutions allow the authorities to invest in United States
government securities, state and municipal securities, commercial
paper, corporate bonds, investment agreements, and other
investments.
Table 4 presents the carrying value and market value of the
investments outside of the State TreasurerÕs Office pooled
investment program of the special purpose authorities as of June
30, 1997, with the exception of the SCIF. Included in the
investments of the special purpose authorities are the investments
of the SCIF as of December 31, 1996. The SCIF represents 82% of
the carrying value and 82% of the market value of the authoritiesÕ
investments.
43
State of California
Table 4
Schedule of Investments - Special Purpose Authorities Ð Discretely Presented Component Units *
June 30, 1997
(Amounts in thousands)
Category
Carrying Market
1 2 3 Value Value
Separately Invested Funds Subject to Categorization
U.S. Government securities.......................................................... $ 2,447,441 $ –– $ –– $ 2,447,441 $ 2,636,046
Investment agreements................................................................. 29,707 240,739 –– 270,446 270,446
Commercial paper........................................................................ 57,813 –– –– 57,813 57,666
Mortgage loans and notes............................................................. 1,189,324 –– –– 1,189,324 1,199,310
Corporate bonds.......................................................................... 1,995,000 –– –– 1,995,000 2,022,122
Other investments......................................................................... 60,815 –– –– 60,815 61,847
Total Separately Invested Funds Subject to Categorization... 5,780,100 240,739 –– 6,020,839 6,247,437
Separately Invested Funds Not Subject to Categorization
Mutual funds...................................................................................................................................................... 66,032 66,032
Investment agreements..................................................................................................................................... 827,683 827,683
Total Separately Invested Funds
Not Subject to Categorization.................................................................................................................... 893,715 893,715
Total Investments.........................................................................$ 5,780,100 $ 240,739 $ –– $ 6,914,554 $ 7,141,152
* For special purpose authorities’ pooled investments, see Table 2.
DUE FROM OTHER FUNDS, DUE TO OTHER FUNDS,
ADVANCES AND LOANS RECEIVABLE, ADVANCES FROM
OTHER FUNDS, DUE FROM PRIMARY GOVERNMENT,
NOTE 4. AND DUE TO COMPONENT UNITS
The balances of Due from Other Funds, Due to Other Funds,
Advances and Loans Receivable, Advances from Other Funds, Due
from Primary Government, and Due to Component Units are shown
in Table 5.
The total Advances and Loans Receivable is $9.4 billion more than
the total Advances from Other Funds, because loans to other
governmental entities and individuals are included in the loans
receivable amounts. The total Due to Component Units is $211
million more than the total Due from Primary Government because
of accounting practices of the SCIF, a discretely presented
component unit. The SCIF has not recorded $211 million as Due
from Primary Government for reimbursement of the amount of
claims received as of June 30 and expected to be paid in the
following year.
44
Notes to the Financial Statements
Table 5
Schedule of Due from Other Funds, Due to Other Funds, Advances and Loans Receivable, Advances
from Other Funds, Due from Primary Government, and Due to Component Units
June 30, 1997 (Amounts in thousands)
Due from Due to Advances Advances Due from Due to
Other Other and Loans from Other Primary Component
Funds Funds Receivable Funds Government Units
General Fund........................................... $ 4,544,474 $ 4,530,496 $ 670,060 $ 544,371 $ –– $ 163,040
Special Revenue
Federal................................................... 112,264 3,536,460 32,918 –– –– 5,563
Transportation Construction................... 1,556,351 326,482 114,985 –– –– 22,204
Transportation Safety............................. 58,195 138,558 –– –– –– 207
Business and Professions
Regulatory and Licensing................... 87,178 57,206 1,533 14,673 –– 31,083
Environmental and
Natural Resources............................. 199,667 89,858 1,130,343 35,107 –– 208
Financing to Local Governments........... 11,728 4,952 –– –– –– ––
Cigarette and Tobacco Tax.................... 166,280 110,829 –– –– –– 85,269
Local Revenue....................................... 204,991 15,081 –– –– –– ––
Unemployment Programs...................... 372,073 44,420 –– –– –– 3,384
Financing to the Public........................... 472 398 41,209 –– –– ––
Other Special Revenue.......................... 160,927 74,943 4,738 11,648 –– 6,643
Total Special Revenue..................... 2,930,126 4,399,187 1,325,726 61,428 –– 154,561
Capital Projects
Special Account for Capital Outlay......... 300 1,456 –– –– –– ––
Prison Construction................................ 939 1,486 –– –– –– ––
Higher Education Construction.............. 1,849 7,885 –– –– –– ––
Natural Resources Acquisition and
Enhancement..................................... 7,926 1,848 –– –– –– ––
Building Authorities................................ 28,511 21,468 –– –– –– ––
Other Capital Projects............................ 1,363 724 –– –– –– ––
Total Capital Projects....................... 40,888 34,867 –– –– –– ––
Enterprise
Housing Loan......................................... 5,395 2,390 2,215,650 84,260 –– ––
Water Resources................................... 72,147 34,612 76,558 25,143 –– ––
School Building Aid................................ –– 56,128 237,140 –– –– 1,556
Toll Facilities.......................................... 8,842 21,391 5,759 6,160 –– ––
California State University...................... 13,010 15,464 3,243 2,663 –– ––
Leasing of Public Assets........................ 138,751 16,557 –– –– –– 1,023
State Lottery........................................... 8,118 179,120 –– –– –– ––
Harbors and Watercraft.......................... 3,230 9,081 200,757 –– –– ––
Health Facilities Construction
Loan Insurance.................................. 3,849 933 –– –– –– ––
Other Enterprise..................................... 7,171 2,099 29,214 4,738 –– ––
Total Enterprise................................ 260,513 337,775 2,768,321 122,964 –– 2,579
*
Internal Service
Architecture Revolving........................... 76,556 2,361 –– –– –– 812
Service Revolving.................................. 79,324 93,546 –– –– –– 11,630
Prison Industries.................................... 18,323 4,185 –– 1,181 –– 6,100
Stephen P. Teale Data Center............... 10,370 394 –– –– –– 634
Health and Welfare Agency
Data Center........................................ 8,761 2,478 –– –– –– ––
Water Resources................................... 61,832 13 –– 91,877 –– 936
Other Internal Service............................ 10,052 6,296 –– 1,533 –– ––
Total Internal Service....................... 265,218 109,273 –– 94,591 –– 20,112
(Continued)
45
State of California
Table 5 (continued)
Schedule of Due from Other Funds, Due to Other Funds, Advances and Loans Receivable, Advances
from Other Funds, Due From Primary Government, and Due to Component Units
June 30, 1997 (Amounts in thousands)
Due from Due to Advances Advances Due from Due to
Other Other and Loans from Other Primary Component
Funds Funds Receivable Funds Government Units
Expendable Trust
Unemployment....................................... 18,793 108,742 –– –– –– ––
School Employees................................. 2,080 4,676 –– –– –– ––
Unemployment Compensation
Disability............................................. 71,129 19,214 –– –– –– ––
California State University and
Colleges Trust.................................... 57,386 10,827 –– –– –– ––
State Guaranteed Loan Reserve........... 5,113 850 –– –– –– ––
Housing Loan......................................... 3,768 890 592,850 –– –– ––
Unclaimed Property Fund...................... –– –– 435,546 –– –– ––
Public Employees Health Care.............. 5,934 786 –– –– –– ––
Other Expendable Trust......................... 75,938 11,942 –– –– –– ––
Total Expendable Trust.................... 240,141 157,927 1,028,396 –– –– ––
Pension Trust
Public Employees’ Retirement............... 1,538,429 –– –– –– –– ––
Judges’ Retirement................................ –– 781 –– –– –– ––
Judges’ Retirement II............................. 753 –– –– –– –– ––
Legislators’ Retirement.......................... –– 198 –– –– –– ––
Volunteer Firefighters’ Length
of Service........................................... –– 10 –– –– –– ––
Total Pension Trust.......................... 1,539,182 989 –– –– –– ––
Agency
Local Agency Investment....................... 154,831 111,798 –– –– –– ––
Revenue Collecting and
Disbursing.......................................... 5,803,490 5,520,207 534,071 534,071 –– ––
Deposit................................................... 21,433 495,443 21,144 –– –– ––
Deferred Compensation Plan................. 209 158 –– –– –– ––
Departmental Trust................................ 4,273 680 –– –– –– ––
Other Agency......................................... 219,614 326,141 –– –– –– 2,431
Total Agency..................................... 6,203,850 6,454,427 555,215 534,071 –– 2,431
University of California
Current Funds........................................ 9,409 124,673 –– –– 127,880 ––
Loan Funds............................................ –– 2,000 –– –– –– ––
Endowment and Similar Funds.............. 16,763 9,284 –– –– –– ––
Plant Funds............................................ 1,533 16,421 –– –– –– ––
Retirement System Funds...................... 124,673 –– –– –– –– ––
Total University of California.......... 152,378 152,378 –– –– 127,880 ––
Special Purpose Authorities
Housing Finance Agency....................... –– –– 4,360,172 –– –– ––
Pollution Control..................................... –– –– –– –– 2,707 ––
Health Facilities...................................... –– –– –– –– 589 ––
Educational Facilities............................. –– –– –– –– 145 ––
Economic Development......................... –– –– –– –– 13 ––
District Agricultural Associations............ 549 –– –– –– –– ––
Total Special Purpose Authorities.. 549 –– 4,360,172 –– 3,454 ––
Total.......................................................... $ 16,177,319 $ 16,177,319 $ 10,707,890 $ 1,357,425 $ 131,334 $ 342,723
(Concluded)
46
Notes to the Financial Statements
NOTE 5. RESTRICTED ASSETS
Table 6 presents a summary of the legal restrictions on assets as of
June 30. The restricted assets of the primary government are in the
enterprise funds except for $700,000 that are in the internal service
funds.
Table 6
Schedule of Restricted Assets
June 30, 1997
(Amounts in thousands)
Cash Due From
and Pooled Other Other
Investments Investments Funds Assets
Primary Government
Debt service........................................................................................... $ 561,274 $ 98,113 $ 159 $ 1,464
Construction........................................................................................... 654,052 –– 8,257 776
Deposits................................................................................................. 6,332 –– –– ––
Equipment repair and replacement........................................................ 57,896 –– 637 92
Operations.............................................................................................. 12,644 –– –– ––
Other...................................................................................................... 18,067 –– –– ––
Total Primary Government.................................................................. 1,310,265 98,113 9,053 2,332
Discretely Presented Component Units
University of California
Risk insurance................................................................................... –– 251,446 –– ––
Debt service requirements................................................................ –– 193,218 –– ––
Plant acquisition, construction, and renovation................................. –– 146,487 –– ––
Plant renewal and replacement......................................................... –– 453 –– ––
Special Purpose Authorities
Debt service...................................................................................... 337,633 1,183,475 –– ––
Total Discretely Presented Component Units................................... 337,633 1,775,079 –– ––
Total All Restricted Assets.................................................................. $ 1,647,898 $ 1,873,192 $ 9,053 $ 2,332
NOTE 6. NET INVESTMENT IN DIRECT FINANCING LEASES
The State Public Works Board, an agency that accounts for its
activities as an enterprise fund, has entered into lease-purchase
agreements with various other primary government agencies, the
University of California, and certain local agencies. Payments from
these leases will be used to satisfy the principal and interest
requirements of revenue bonds issued by the State Public Works
Board.
The minimum lease payments to be received by the State Public
Works Board for the primary government are summarized in
TableÊ7.
47
State of California
Table 7
Schedule of Minimum Lease Payments to be Received by the
State Public Works Board for the Primary Government
(Amounts in thousands)
Year Primary University
Ending Government of Local
June 30 Agencies California Agencies Total
1998.............................. $ 322,306 $ 98,590 $ 57,837 $ 478,733
1999.............................. 313,634 99,773 61,010 474,417
2000.............................. 312,316 100,042 61,038 473,396
2001.............................. 299,735 96,839 59,635 456,209
2002.............................. 296,498 92,888 55,588 444,974
Thereafter........................ 3,631,802 1,350,919 702,366 5,685,087
Total Minimum Lease
Payments........................ 5,176,291 1,839,051 997,474 8,012,816
Less unearned income......... 2,347,345 909,052 487,067 3,743,464
Net Investment in Direct
Financing Leases.......... $ 2,828,946 $ 929,999 $ 510,407 $ 4,269,352
NOTE 7. FIXED ASSETS
Table 8 is a summary of changes in the General Fixed Assets
Account Group for the year ended June 30.
Table 8
Schedule of Changes in General Fixed Assets
(Amounts in thousands)
Balance Balance
July 1, 1996 Additions Deductions June 30, 1997
Land................................. $ 1,957,254 $ 85,758 $ 70,258 $ 1,972,754
Structures and
improvements................ 10,063,599 1,089,713 496,274 10,657,038
Equipment........................ 2,232,731 429,891 444,387 2,218,235
Construction in progress.. 774,374 729,764 396,872 1,107,266
Total................................. $ 15,027,958 $ 2,335,126 $ 1,407,791 $ 15,955,293
Table 9 summarizes the proprietary fund fixed assets of enterprise
funds and internal service funds, and the fixed assets of the
discretely presented component units as of JuneÊ30.
48
Notes to the Financial Statements
Table 9
Schedule of Fixed Assets for Proprietary Funds and Discretely
Presented Component Units
June 30, 1997
(Amounts in thousands)
Internal
Primary Government Enterprise Service
State water projects.................................................................... $ 3,500,468 $ ––
Toll facilities................................................................................ 1,017,909 ––
Other land, improvements, buildings and equipment................. 1,002,513 552,087
Construction in progress............................................................. 1,702,632 1,938
Total Primary Government Fixed Assets............................... 7,223,522 554,025
Less: accumulated depreciation................................................. 1,792,124 306,819
Net Primary Government Fixed Assets.................................. $ 5,431,398 $ 247,206
University Special
of Purpose
Discretely Presented Component Units California Authorities
Real estate
Buildings and improvements.................................................. $ 7,742,946 $ 537,424
Land....................................................................................... 260,564 46,265
Furniture and equipment............................................................. 3,264,012 104,299
Libraries and collections............................................................. 2,125,812 ––
Construction in progress............................................................. 913,280 310
Total Discretely Presented Component Unit Fixed Assets.. 14,306,614 688,298
Less: accumulated depreciation................................................. –– (114,072)
Net Discretely Presented Component Unit Fixed Assets..... $ 14,306,614 $ 574,226
NOTE 8. LONG-TERM OBLIGATIONS
As of June 30, the primary government had long-term obligations
totaling $21.4 billion. These obligations are not expected to be
financed from current resources in the governmental funds. Long-
term obligations consist of the liability for employeesÕ compensated
absences, certificates of participation and commercial paper, long-
term capital lease obligations, unmatured general obligation bonds,
unmatured revenue bonds, and other liabilities. These other
liabilities consist of the liability for workersÕ compensation claims of
$672 million, the liability for net pension obligations of $556
million, amounts owed for lawsuits of $320 million, and the
University of California pension liability of $106 million. These other
liabilities do not have any required payment schedules, or will be
paid when funds are appropriated. Of the total long-term obligations
outstanding, 93% will be paid by the General Fund and 7% by
special revenue funds. The changes in the General Long-Term
Obligations Account Group during the year ended June 30, 1997,
are summarized in Table 10.
49
State of California
Table 10
Schedule of Changes in General LongÐTerm Obligations
(Amounts in thousands)
Balance Balance
July 1, 1996 Additions Deductions June 30, 1997
Compensated absences
payable........................... $ 1,156,073 $ 590,661 $ 680,243 $ 1,066,491
Certificates of participation
and commercial paper.... 260,395 1,505,480 862,125 903,750
Capital lease obligations..... 2,993,592 113,089 142,396 2,964,285
General obligation
bonds payable................ 14,224,172 1,026,144 1,041,885 14,208,431
Revenue bonds payable..... 239,395 340,555 10,425 569,525
Other liabilities..................... 1,597,566 851,954 795,614 1,653,906
Totals............................. $ 20,471,193 $ 4,427,883 $ 3,532,688 $ 21,366,388
NOTE 9. COMPENSATED ABSENCES
As of June 30, the estimated liability for compensated absences
related to accumulated vacation and annual leave totaled
approximately $1.6 billion. Of this amount, $1.1 billion is reported
in the General Long-Term Obligations Account Group, $62 million is
reported in the proprietary fund types, $115 million is reported in
the General Fund, and $312 million is reported for the discretely
presented component units.
NOTE 10. CERTIFICATES OF PARTICIPATION
Debt service requirements for certificates of participation, which are
financed by lease payments from the General Fund, are shown in
Table 11.
Table 11
Schedule of Debt Service Requirements for Certificates of
Participation Ð Primary Government
(Amounts in thousands)
Year Ending
June 30 Principal Interest Total
1998.................................................................. $ 9,090 $ 5,187 $ 14,277
1999.................................................................. 7,453 6,814 14,267
2000.................................................................. 7,315 7,248 14,563
2001.................................................................. 7,434 6,779 14,213
2002................................................................. 7,180 7,023 14,203
Thereafter............................................................ 84,458 75,077 159,535
Total......................................................................... $ 122,930 $ 108,128 $ 231,058
50
Notes to the Financial Statements
Debt service requirements for certificates of participation for the
University of California, a discretely presented component unit, are
shown in Table 12.
Table 12
Schedule of Debt Service Requirements for Certificates of
Participation Ð University of California Ð Discretely Presented
Component Unit
(Amounts in thousands)
Year Ending
June 30 Principal Interest Total
1998.................................................................. $ 7,605 $ 13,953 $ 21,558
1999.................................................................. 8,125 13,435 21,560
2000.................................................................. 8,615 12,804 21,419
2001.................................................................. 9,310 12,234 21,544
2002................................................................. 7,645 11,806 19,451
Thereafter............................................................ 206,590 122,485 329,075
Total......................................................................... $ 247,890 $ 186,717 $ 434,607
Current Year Defeasance: On March 26, 1997, Refunding
Certificates (the Refunding 1997 Certificates) of approximately $22
million were executed and delivered pursuant to a Trust Agreement
among the Department of General Services, the Franchise Tax
Board, and the Bank of New York Western Trust Company of
California. The Refunding 1997 Certificates were issued to advance
refund approximately $21 million of outstanding 1989 Certificates.
The net proceeds of approximately $22 million (after payment of
approximately $318,000 in underwriting fees and other issuance
costs) together with other available funds of approximately
$700,000 were deposited in an escrow fund and held by the Bank of
New York Western Trust Company of California to provide for all
future debt service payments on the refunded certificates. As a
result, the refunded 1989 Certificates are considered to be defeased
and the liability for those certificates has been removed from the
financial statements, as well as the related investments. The
Department of General Services advance refunded the 1989
Certificates to reduce its total debt service payments over the next
10 years by approximately $1 million and to obtain an economic
gain (the difference between the present values of the debt service
payments of the old and new debt) of approximately $853,000.
NOTE 11. COMMERCIAL PAPER AND OTHER BORROWINGS
The primary government has two commercial paper borrowing
programs: a general obligation commercial paper program of up to
$1.0 billion and an enterprise fund commercial paper program for
the Department of Water Resources of up to $150 million. The
general obligation commercial paper program was increased to $1.8
billion on July 15, 1997. Under these programs, commercial paper
51
State of California
may be issued at prevailing interest rates for periods of not more
than 270 days from the date of issuance. To provide liquidity for the
programs, a revolving credit agreement has been entered into with
commercial banks equal to the authorized amount of commercial
paper. As of June 30, 1997, there were borrowings of approximately
$781 million of general obligation commercial paper and $60 million
of enterprise fund commercial paper outstanding. The proceeds
from the issuance of commercial paper are restricted primarily to
the construction costs of general obligation bond program projects
and of certain water projects. Because the general obligation
commercial paper is retired by long-term general obligation debt, it
is recorded in the General Long-Term Obligations Account Group.
The University of California, a discretely presented component unit,
has mortgages and other borrowings, consisting of contractual
obligations resulting from the acquisition of land or buildings and
the construction and renovation of certain facilities. The mortgages
are secured by real property. Included in mortgages and other
borrowings, which total approximately $347 million, are various
unsecured financing agreements with commercial banks that total
approximately $164 million.
In October 1996, the University of California established a $550
million commercial paper program with tax-exempt and taxable
components. The program is supported by a revolving line of credit
and term loan agreement with a syndicate of banking institutions.
Commercial paper has been issued to provide for interim financing
of construction and related equipment and medical center working
capital requirements. Commercial paper is not secured by any
encumbrance, mortgage, or other pledge of property and does not
constitute a general obligation of the University of California
Regents. At June 30, 1997, outstanding tax-exempt and taxable
commercial paper was $340 million and $210 million, respectively.
Approximately $111 million of the proceeds were applied to repay
outstanding bank loans.
NOTE 12. LEASES
The aggregate amount of lease commitments for facilities and
equipment of the primary government in effect as of JuneÊ30, is
approximately $6.2Êbillion. This amount does not include any future
escalation charges for real estate taxes and operating expenses.
Most primary government leases are classified as operating leases,
in accordance with the applicable standards, and contain clauses
providing for termination. It is expected that in the normal course of
business most of these operating leases will be replaced by similar
leases.
The total present value of minimum lease payments for the primary
government is composed of approximately $3.0 billion in the
General Long-Term Obligations Account Group and $30 million in
internal service funds. Lease expenditures for the year ended
JuneÊ30 amounted to approximately $580 million.
52
Notes to the Financial Statements
Included in the capital lease commitments are lease-purchase
agreements that certain state agencies have entered into with the
State Public Works Board, an enterprise fund agency, amounting to
a present value of net minimum lease payments of $2.8Êbillion. This
amount represents 95% of the total present value of minimum lease
payments of the primary government. Also included in the capital
lease commitments are some lease-purchase agreements to acquire
electronic data processing and other equipment.
The capital lease commitments do not include $312 million of lease-
purchase agreements with building authorities that are blended
component units. These building authorities acquire or develop
office buildings and then lease the facilities to state agencies. Upon
expiration of the leases, title will pass to the primary government.
The costs of the buildings are reported in the General Fixed Assets
Account Group and the revenue bonds and certificates of
participation outstanding associated with the buildings are reported
in the General Long-Term Obligations Account Group. Accordingly,
the lease receivables or capital lease obligations associated with
these buildings are not included in the financial statements
pursuant to GASB Statement No. 14.
Future minimum lease commitments of the primary government are
summarized in Table 13.
Table 13
Schedule of Future Minimum Lease Commitments Ð Primary Government
(Amounts in thousands)
Capital Leases
General Internal
Year Ending Operating Long–Term Service
June 30 Leases Obligations Funds Total
1998............................................................................................... $ 205,174 $ 341,382 $ 4,547 $ 551,103
1999............................................................................................... 157,312 332,370 4,549 494,231
2000............................................................................................... 94,450 330,716 4,547 429,713
2001............................................................................................... 63,515 316,207 4,547 384,269
2002............................................................................................... 44,908 311,937 4,576 361,421
Thereafter......................................................................................... 63,680 3,858,966 16,243 3,938,889
Total Minimum Lease Payments........................................................$ 629,039 5,491,578 39,009 $ 6,159,626
Less amount representing interest.................................................................................. 2,527,293 8,747
Present Value of Net Minimum Lease Payments....................................................... $ 2,964,285 $ 30,262
The aggregate amount of discretely presented component units lease
commitments for land, facilities, and equipment in effect as of June
30, 1997, is approximately $2.3 billion. Table 14 presents the future
minimum lease commitments for the University of California and
the special purpose authorities, as of June 30. Operating lease
expenditures for the year ended June 30 amounted to
approximately $118.3 million for discretely presented component
units.
53
State of California
Table 14
Schedule of Future Minimum Lease Commitments Ð Discretely Presented Component Units
(Amounts in thousands)
University of Special Purpose
Year Ending California Authorities
June 30 Capital Operating Operating Total
1998.......................................................................................... $ 200,062 $ 54,126 $ 16,450 $ 270,638
1999.......................................................................................... 113,190 37,165 12,439 162,794
2000.......................................................................................... 105,079 28,728 8,717 142,524
2001.......................................................................................... 99,860 23,577 6,716 130,153
2002.......................................................................................... 94,484 17,449 3,019 114,952
Thereafter.................................................................................... 1,416,552 84,871 2,783 1,504,206
Total Minimum Lease Payments................................................... 2,029,227 $ 245,916 $ 50,124 $ 2,325,267
Less amount representing interest................................................... 799,894
Present Value of Net Minimum Lease Payments........................ $ 1,229,333
NOTE 13. COMMITMENTS
The primary government has made commitments of $2.8 billion for
certain highway construction projects. These commitments are not
included in the reserve for encumbrances in the special revenue
funds because the future expenditures related to these
commitments are expected to be reimbursed from local governments
and proceeds of approved federal grants. The ultimate liability will
not accrue to the State.
As of JuneÊ30, the primary government had other commitments
totaling $2.5 billion that are not included as a liability on the
balance sheet. These commitments, which included loan and grant
programs for housing, school building aid, rail system, and county
jail construction, total approximately $1.4Ê billion. The total
commitments also include approximately $29Ê million for the
rehabilitation of toll bridge facilities, approximately $835Êmillion for
the construction of water projects and the purchase of power, and
up to $204Êmillion for the operation and maintenance of the
lotteryÕs automated gaming system. The commitments are expected
to be funded from existing program resources and from the
proceeds of revenue and general obligation bonds to be issued.
As of June 30, the University of California, a discretely presented
component unit, had authorized construction projects totaling $977
million. Special purpose authorities, which are discretely presented
component units, had outstanding commitments to provide $384
million for loans under various housing revenue bond programs.
54
Notes to the Financial Statements
NOTE 14. GENERAL OBLIGATION BONDS
The State Constitution permits the primary government to issue
general obligation bonds for specific purposes and in such amounts
as approved by a two-thirds majority of both houses of the
Legislature and by a majority of voters in a general or direct primary
election. The debt service for general obligation bonds is
appropriated from the General Fund. Under the State Constitution,
the General Fund is used, first, to support the public school system
and public institutions of higher education. The General Fund can
then be used to service the debt on outstanding general obligation
bonds. Enterprise funds and certain other funds reimburse the
General Fund for any debt service provided on their behalf.
General obligation bonds that are directly related to, and expected
to be paid from, the resources of enterprise funds are included
within the accounts of such funds in the financial statements.
However, the General Fund may be liable for the payment of any
principal and interest on these bonds that is not met from the
resources of such funds.
As of June 30, $7.5 billion of general obligation bonds had been
authorized but not issued. This amount includes $3.6 billion that
has been authorized by the applicable finance committee for future
issuance in the form of commercial paper notes. The $7.5 billion
excludes $781 million in general obligation indebtedness that has
been issued in the form of commercial paper notes, but has not yet
been retired by long-term bonds.
Table 15 summarizes the changes in general obligation bond debt
for the year ended JuneÊ30.
Table 15
Schedule of Changes in General Obligation Bond Debt
(Amounts in thousands)
General
Long-Term Enterprise
Obligations Funds Total
Balance July 1, 1996.................................. $ 14,224,172 $ 3,982,285 $ 18,206,457
Additions.................................................... 1,026,144 –– 1,026,144
Deductions................................................. (1,041,885) (236,690) (1,278,575)
Balance June 30, 1997............................. $ 14,208,431 $ 3,745,595 $ 17,954,026
Table 16 shows the debt service requirements for all general
obligation bonds, including interest of $10.5Êbillion, as of JuneÊ30,
1997.
55
State of California
Table 16
Schedule of General Obligation Bonds Debt Service Requirements
(Amounts in thousands)
Year General
Ending Long-Term Enterprise
June 30 Obligations Funds
1998............................................................................... $ 1,852,935 $ 447,482
1999............................................................................... 1,769,051 431,790
2000............................................................................... 1,698,051 436,017
2001............................................................................... 1,638,071 430,803
2002............................................................................... 1,592,105 441,802
Thereafter......................................................................... 13,729,903 4,020,411
Total...................................................................................... $ 22,280,116 $ 6,208,305
Current Year Defeasances: The primary government did not have
refundings of general obligation bonds for the year ended June 30,
1997.
Prior Year Defeasances: In prior years, the primary government
has defeased certain bonds by placing the proceeds of new bonds in
irrevocable escrow in a special trust account with the State
Treasury to provide for all future debt service payments on the old
bonds. Accordingly, the assets of the trust accounts and the liability
for the defeased bonds are not included in the StateÕs financial
statements. At June 30, 1997, approximately $269 million of
general obligation bonds outstanding are considered defeased.
NOTE 15. REVENUE BONDS
Revenue bonds that are directly related to and expected to be paid
from the resources of enterprise funds are included within the
accounts of such funds. Principal and interest on revenue bonds are
payable from the pledged revenues of the respective funds of the
authorities and agencies listed in the next section of this note. The
General Fund has no legal liability for payment of principal and
interest on revenue bonds.
Revenue bonds to acquire, construct, or renovate state facilities or
to refund outstanding revenue bonds in advance are issued for
Water Resources, Toll Facilities, California State University, and
Leasing of Public Assets. Revenue bonds are also issued to make
loans to finance the acquisition of farms and homes by California
veterans. When the farm and home loans financed by the revenue
bonds are fully paid, the farms and homes become the property of
private individuals.
Certain building authorities, under state law, may issue revenue
bonds. These revenue bonds are included in the General Long-Term
Obligations Account Group. These bonds are issued for the purpose
56
Notes to the Financial Statements
of acquiring and constructing buildings for public education
purposes and for the purpose of constructing state office buildings.
Leases with state agencies pay the principal and interest on the
revenue bonds issued by the building authorities. The primary
government has no legal liability for the payment of principal and
interest on these revenue bonds.
The University of California, a discretely presented component unit,
issues revenue bonds to finance the construction, renovation, and
acquisition of certain facilities and equipment.
Under state law, a special purpose authority, which is a discretely
presented component unit, issues revenue bonds to make loans to
finance housing developments and to finance the acquisition of
homes by low to moderate income families. When the housing
developments and home loans are fully paid, the housing
developments and homes become the property of private individuals
or entities.
Table 17 shows revenue bonds outstanding as of June 30.
Table 17
Schedule of Revenue Bonds Outstanding
June 30, 1997
(Amounts in thousands)
Primary Government
Enterprise Funds
Housing Loan................................................................................................ $ 327,580
Water Resources........................................................................................... 2,329,379
Toll Facilities.................................................................................................. 50,405
California State University............................................................................. 485,703
Leasing of Public Assets............................................................................... 5,353,971
Total Enterprise Funds............................................................................... 8,547,038
General Long-Term Obligations
Building Authorities........................................................................................ 569,525
Total General Long–Term Obligations...................................................... 569,525
Total Primary Government......................................................................... 9,116,563
Discretely Presented Component Units
University of California.................................................................................. 2,187,675
Special Purpose Authorities.......................................................................... 5,168,007
Total Discretely Presented Component Units.......................................... 7,355,682
Total.............................................................................................................. $ 16,472,245
Table 18 shows the debt service requirements as of June 30, 1997.
The debt service requirements primarily represent bond principal
payments. Table 18 also includes certain unamortized refunding
costs, premiums, discounts, and other costs not included in
TableÊ17.
57
State of California
Table 18
Schedule of Revenue Bond Debt Service Requirements
(Amounts in thousands)
Primary Government Discretely
Year General Presented
Ending Long-Term Enterprise Component
June 30 Obligations Funds Units
1998................................................ $ 40,560 $ 298,069 $ 233,806
1999................................................ 40,582 332,208 254,811
2000................................................ 48,470 342,869 264,646
2001................................................ 48,479 359,654 275,515
2002................................................ 48,100 342,635 281,456
Thereafter........................................... 731,469 7,226,638 7,917,894
Total....................................................... $ 957,660 $ 8,902,073 $ 9,228,128
Current Year Defeasances: In November 1996, the primary
government issued approximately $267 million in Central Valley
Project (CVP) revenue bonds, a portion of which was used to
advance refund approximately $102 million of outstanding revenue
bonds. In March 1997, the primary government issued
approximately $21 million CVP revenue bonds to advance refund
approximately $18 million of outstanding revenue bonds. The net
proceeds of approximately $127 million (after payment of
approximately $1 million in underwriting fees, insurance, and other
issuance costs) were used to purchase securities that were
deposited in an irrevocable trust with the State Treasurer to provide
for all future debt service payments on the refunded bonds. As a
result, the refunded bonds are considered defeased and the liability
for those bonds and the related investments have been removed
from the financial statements. The primary government advance
refunded the bonds to reduce its total debt service payments over
the next 30 years by approximately $12 million and to obtain an
economic gain (the difference between the present values of the debt
service payments on the old and new debt) of approximately $5
million.
On December 1, 1996, the primary government issued
approximately $10 million in California State University Fullerton
Student Union Revenue Bonds to advance refund approximately $9
million of outstanding Fullerton Student Union Series B bonds. The
net proceeds of approximately $9 million (after payment of
approximately $94,000 in underwriting fees, insurance, and other
issuance costs) were used to purchase U.S. Government securities
that were deposited in an irrevocable trust with the State Treasurer
to provide for all future debt service payments on the refunded
bonds. As a result, the Series B bonds are considered to be defeased
and the liability for those bonds and the related investments have
been removed from the financial statements. The primary
government advance refunded the Series B bonds to reduce its total
debt service payments over the next 24 years by approximately
58
Notes to the Financial Statements
$819,000 and to obtain an economic gain (the difference between
the present values of the debt service payments on the old and new
debt) of approximately $409,000.
For the year ended June 30, 1997, the primary government issued
approximately $819 million in revenue bonds for Leasing of Public
Assets to advance refund approximately $740 million of various
outstanding revenue bonds. The net proceeds of approximately
$794 million (after payment of approximately $25 million in
underwriting fees, insurance, and other issuance costs) together
with other available monies of $10 million were deposited in an
irrevocable trust with the State Treasurer to provide for all future
debt service payments on the various refunded bonds. As a result,
the refunded bonds are considered to be defeased and the liability
for those bonds and the related investments have been removed
from the financial statements. The primary government advance
refunded the various bonds to reduce its total debt service
payments over the next 22 years by approximately $47 million and
to obtain an economic gain (the difference between the present
value of the debt service payments on the old and new debt) of
approximately $27 million.
Prior Year Defeasances: In prior years, the primary government
defeased certain bonds by placing the proceeds of new bonds in an
irrevocable trust account to provide for all future debt service
payments on the old bonds. Accordingly, the assets and liabilities
for the defeased bonds are not included in the financial statements.
As of June 30, 1997, $1.4 billion of revenue bonds outstanding are
considered defeased.
In prior years, the University of California and the special purpose
authorities, which are discretely presented component units,
defeased certain bonds. As of June 30, 1997, $722 million of
University of California revenue bonds outstanding are considered
defeased. The special purpose authorities did not have any revenue
bonds outstanding that are considered defeased.
59
State of California
NOTE 16. MAJOR TAX REVENUES
Tax revenues for the year ended JuneÊ30, are presented in Table 19.
Table 19
Schedule of Major Tax Revenues
Year Ended June 30, 1997
(Amounts in thousands)
Special Expendable
General Revenue Trust
Fund Funds Funds
Personal income............................................ $ 23,176,711 $ –– $ ––
Sales and use................................................ 16,566,172 3,600,499 ––
Bank and corporation.................................... 5,674,049 –– ––
Unemployment insurance.............................. –– –– 3,264,671
Disability insurance....................................... –– –– 1,391,939
Insurance....................................................... 1,210,438 –– ––
Inheritance, estate, and gift........................... 724,762 –– ––
Cigarette and tobacco................................... 168,288 498,163 ––
Other............................................................. 304,304 223,925 39,998
Total.............................................................. $ 47,824,724 $ 4,322,587 $ 4,696,608
NOTE 17. FUND EQUITY
A. Fund Deficits The following funds had deficits at June 30, as shown in Table 20.
Table 20
Schedule of Fund Deficits - Primary Government
June 30, 1997
(Amounts in thousands)
Special Capital Internal
General Revenue Projects Service
Fund Funds Funds Funds
Financing to Locals........................... $ –– $ 17,214 $ –– $ ––
Higher Education Construction......... –– –– 7,954 ––
Other Capital Projects...................... –– –– 684 ––
Water Resources Revolving............. –– –– –– 11,942
Architecture Revolving...................... –– –– –– 7,445
Total................................................. $ \2,476,891 $ 17,214 $ 8,638 $ 19,387
B. Changes to The changes in the StateÕs contributed capital accounts for its
Contributed Capital proprietary funds are shown in Table 21.
60
Notes to the Financial Statements
Table 21
Schedule of Changes in Contributed Capital
(Amounts in thousands)
Internal
Sources Enterprise Service Total
Balance, July 1, 1996............................................... $ 216,247 $ 112,239 $ 328,486
Government contributions........................................ –– 87 87
Balance, June 30, 1997.......................................... $ 216,247 $ 112,326 $ 328,573
NOTE 18. RISK MANAGEMENT
The primary government has elected, with a few exceptions, to be
self-insured against loss or liability. Generally, the exceptions are
when a bond resolution or a contract requires the primary
government to purchase commercial insurance for coverage against
property loss or liability. There have been no significant reductions
in insurance coverage from the prior year. In addition, there has
been no insurance settlement in the last three years that has
exceeded insurance coverage. The primary government generally
does not maintain reserves. Losses are covered by appropriations
from each fund responsible for payment in the year in which the
payment occurs. All claim payments are on a Òpay as you goÓ basis.
The potential amount of loss arising from risks other than workersÕ
compensation benefits are not considered material in relation to the
primary governmentÕs financial position.
WorkersÕ compensation benefits for self-insured agencies are
initially paid by the SCIF. The liability for future workersÕ
compensation claims against the primary governmentÕs self-insured
agencies is estimated to be approximately $869 million as of June
30. The liability represents the estimated total cost of all open and
known disability claims as of June 30 including claims incurred but
not reported. The estimates are based on established claims criteria
such as age of the injured, occupation, and type of injury. Of the
total, $106Êmillion is included in the General Fund, $69Êmillion in
the special revenue fund type, $22 million in the proprietary fund
types, and $672 million in the General Long-Term Obligations
Account Group. Changes in the claims liabilities during year ended
June 30 are shown in Table 22.
The University of California, a discretely presented component unit,
is self-insured for medical malpractice, workersÕ compensation,
employee health care, and general liability claims. These risks are
subject to various claim and aggregate limits, with excess liability
coverage provided by an independent insurer. Liabilities are
recorded when it is probable a loss has occurred and the amount of
the loss can be reasonably estimated. These losses include an
estimate for claims that have been incurred but not reported. The
estimated liabilities are based upon an independent actuarial
61
State of California
determination of the anticipated future payments discounted at
rates ranging from 6.5 percent to 8.0 percent. The special purpose
authorities, which are discretely presented component units, do not
have any significant liabilities related to self insurance.
Table 22
Schedule of Changes in the Self Insurance Claims
Years Ended June 30
(Amounts in thousands)
University of California –
Primary Discretely Presented
Government Component Unit
1997 1996 1997 1996
Unpaid claims, beginning............. $ 733,000 $ 753,000 $ 368,000 $ 358,800
Incurred claims............................. 341,000 170,000 127,900 200,300
Claim payments............................ (205,000) (190,000) (171,100) (191,100)
Unpaid claims, ending............... $ 869,000 $ 733,000 $ 324,800 $ 368,000
NOTE 19. SEGMENT INFORMATION
Selected financial information by enterprise fund activity for major
segments is shown in Table 23. The primary sources of enterprise
fund revenues are as follows.
Housing Loan: Interest charged on contracts of sale of properties
to California veterans and to California National Guard members;
loan origination fees; and interest on investments.
Water Resources: Charges to local water districts, sale of excess
power to public utilities, and interest earned on investments.
School Building Aid: Interest charged on loans to school districts
for acquisition, construction, or rehabilitation of classroom
facilities; and income from the rental of portable classrooms to
school districts.
Toll Facilities: Toll fees and interest earned on investments.
California State University: Charges to students for housing
and parking; student fees for campus unions, health centers, and
self-supporting educational programs; and interest earned on
investments.
Leasing of Public Assets: Rental charges from the lease of public
assets and interest earned on investments.
State Lottery: Sale of lottery tickets.
Harbors and Watercraft: Fees related to boating activities.
Health Facilities Construction Loan Insurance: Construction
project fees and income from operations or proceeds of sales of
property acquired by default of borrowers.
Other Enterprise: Canteen revenues and fees charged by various
other departments.
62
63
Notes
to
the
Financial
Statements
Table 23
Schedule of Enterprise Fund Activity by Separate Major Segments
As of and for the Year Ended June 30, 1997
(Amounts in thousands)
Health
Facilities
School California Leasing Harbors Construction
Housing Water Building Toll State of Public State and Loan Other
Loan Resources Aid Facilities University Assets Lottery Watercraft Insurance Enterprise
Operating revenue............. $ 234,441 $ 561,578 $ 24,432 $ 143,557 $ 257,815 $ 373,823 $ 2,063,135 $ 6,716 $ 8,814 $ 78,640
Depreciation....................... 716 58,733 3,720 13,867 –– –– 9,597 –– –– 13
Amortization of deferred ––
charges –– 61,360 –– 430 –– 5,173 1,803 –– –– ––
Operating income (loss)..... (20,952) 180,492 14,761 86,299 67,603 34,912 711,901 (28,804) (26,635) 4,615
Operating transfers in........ 12,299 –– –– 6 8,708 543,162 –– 31,574 –– 7,599
Operating transfers out...... 10,857 –– 57,517 2,995 33,137 543,310 –– –– –– 1,577
Net income (loss)............... (17,491) 18,460 49,461 81,948 40,142 34,764 –– 16,318 (18,887) 12,019
Grants received................. –– –– –– –– 389 –– –– –– –– ––
Grants provided................. –– –– –– 34,444 –– –– –– –– –– ––
Property, plant,
and equipment
Additions....................... 113 174,714 –– 51,209 40,651 371,103 1,234 25 –– ––
Deductions.................... 716 58,733 3,720 13,867 –– –– 9,627 –– –– 833
Net working capital............ 1,155,609 78,126 15,733 710,553 458,359 490,874 2,705,737 21,134 125,518 62,148
Total assets...................... 3,468,309 5,026,980 383,285 1,281,238 1,258,836 5,656,761 2,971,494 313,424 136,260 150,780
Bonds and other
long term liabilities......... 3,112,968 3,427,201 7,500 56,565 495,842 5,353,971 2,762,065 388 190 52,745
Total equity....................... 272,438 1,110,830 317,692 1,197,504 680,025 150,148 –– 222,377 125,336 65,588
State of California
CONDENSED FINANCIAL STATEMENTS -
NOTE 20. DISCRETELY PRESENTED COMPONENT UNITS
Tables 24 and 25 present summary financial statements of the
special purpose authorities which are the SCIF, the CHFA, and Non-
Major Component Units. The financial statements of the University
of California, a discretely presented component unit, are presented
separately in the combined statements of this report.
The SCIF is a component unit created to offer insurance protection
to employers at the lowest possible cost. This information is as of
and for the year ended December 31, 1996. The CHFA was created
for the purpose of meeting the housing needs of persons and
families of low and moderate income. The Non-Major Component
Units provide certain services that are not part of the primary
government and also provide certain private and public entities with
a low-cost source of financing for activities that are deemed to be in
the public interest.
64
Notes to the Financial Statements
Table 24
Condensed Balance Sheet Ð Special Purpose AuthoritiesÐ
Discretely Presented Component Units
June 30, 1997
(Amounts in thousands)
California
State Housing Non-Major
Compensation Finance Component
Insurance Agency Units Total
Assets
Due from primary
government........................ $ –– $ –– $ 3,454 $ 3,454
Due from other funds.............. –– –– 549 549
Other current assets................ 1,275,326 372,156 145,868 1,793,350
Investments............................. 5,673,333 1,200,611 40,610 6,914,554
Advances and loans
receivable.......................... –– 4,360,172 –– 4,360,172
Fixed assets............................ 232,127 –– 342,099 574,226
Total Assets........................... $ 7,180,786 $ 5,932,939 $ 532,580 $ 13,646,305
Liabilities
Other current liabilities............ $ 1,015,911 $ 323,945 $ 24,899 $ 1,364,755
Benefits payable...................... 4,521,682 –– –– 4,521,682
Revenue bonds payable......... –– 5,089,304 78,703 5,168,007
Contracts and notes payable.. –– –– 3,928 3,928
Total Liabilities...................... 5,537,593 5,413,249 107,530 11,058,372
Fund Equity
Contributed capital.................. –– –– 99 99
Retained earnings
Reserved for regulatory
requirements..................... 100,000 464,546 –– 564,546
Unreserved......................... 1,543,193 55,144 424,951 2,023,288
Total Fund Equity.................. 1,643,193 519,690 425,050 2,587,933
Total Liabilities and
Fund Equity....................... $ 7,180,786 $ 5,932,939 $ 532,580 $ 13,646,305
65
State of California
Table 25
Condensed Statement of Revenues, Expenses, and Changes in
Retained Earnings Ð Special Purpose Authorities Ð
Discretely Presented Component Units
Year Ended June 30, 1997
(Amounts in thousands)
California
State Housing Non-Major
Compensation Finance Component
Insurance Agency Units Total
Operating Revenues
Earned premiums (net).............. $ 992,197 $ –– $ –– $ 992,197
Other revenue............................ –– 331,153 150,464 481,617
Total Operating Revenues...... 992,197 331,153 150,464 1,473,814
Operating Expenses
Depreciation.............................. 11,424 356 3,470 15,250
Benefit payments....................... 1,088,349 –– –– 1,088,349
Interest expense........................ –– 309,485 –– 309,485
Amortization of deferred
charges................................. –– 1,707 –– 1,707
Other operating expenses.......... 197,121 42,604 111,858 351,583
Total Operating Expenses....... 1,296,894 354,152 115,328 1,766,374
Operating Income (Loss)......... (304,697) (22,999) 35,136 (292,560)
Nonoperating Revenues
(Expenses)
Interest revenue......................... 470,703 81,202 1,620 553,525
Dividends paid........................... (117,069) –– –– (117,069)
Other nonoperating
revenues (expenses)............. –– –– (5,182) (5,182)
Net Nonoperating
Revenues (Expenses)......... 353,634 81,202 (3,562) 431,274
Net Income................................ 48,937 58,203 31,574 138,714
Retained Earnings,
July 1, 1996.......................... 1,594,256 461,487 393,377 2,449,120
Retained Earnings,
June 30, 1997....................... $ 1,643,193 $ 519,690 $ 424,951 $ 2,587,834
NOTE 21. NO COMMITMENT DEBT
Certain debt of the special purpose authorities, which are discretely
presented component units, is collateralized solely by the credit of
private and public entities and is administered by trustees
independent of the State or by the State TreasurerÕs Office. As of
June 30, the special purpose authorities had $10.7 billion of debt
outstanding, which is not debt of the State.
66
Notes to the Financial Statements
NOTE 22. CONTINGENT LIABILITIES
A. Litigation The primary government is a party to numerous legal proceedings,
many of which normally occur in governmental operations. The
following were accrued as a liability in the financial statements:
legal proceedings that were decided against the primary government
before June 30, 1997; legal proceedings that were in progress as of
June 30, 1997, and were settled or decided against the primary
government as of November 21, 1997; and legal proceedings having
a high probability of resulting in a decision against the primary
government as of November 21,1997, and for which amounts could
be estimated. For governmental fund types and expendable trust
funds, the portion of the liability that is expected to be paid within
the next 12 months is recorded as a liability of the fund from which
payment will be made; the remainder is shown as a liability of the
General Long-Term Obligations Account Group. For other fund
types, the entire liability is recorded in the fund involved. In
addition, the primary government is involved in certain other legal
proceedings that, if decided against the primary government, may
require the primary government to make significant future
expenditures or may impair future revenue sources. Because of the
prospective nature of these proceedings, no provision for this
potential liability has been made in the financial statements.
Following are the more significant lawsuits pending against the
primary government:
Northern California 1997 Flood Litigation: In January of 1997,
California experienced major flooding in six different areas with
current estimates of property damage to be approximately $1.6 to
$2 billion. To date, one lawsuit has been filed by 500 homeowners,
but more lawsuits are expected. Exposure from all of the anticipated
cases arising from these floods could total approximately $2 billion.
The primary government is a defendant in several related cases,
mainly California Ambulance Association v. Shalala et al., in which
the plaintiffs are seeking action to compel the Department of Health
Services to pay Part B ambulance and physician services co-
payments under the Medicare and Medicaid Acts. Should the
plaintiffs prevail, the liability for retroactive payments is estimated
to be $490 million, and the liability for future payments can be in
excess of $130 million annually. The General Fund and the federal
government will share the liability equally.
The primary government is a defendant in Ceridian Corporation v.
Franchise Tax Board, a suit which challenges the validity of two
sections of the California Tax laws. The first relates to deduction
from corporate taxes for dividends received from insurance
companies to the extent the insurance companies have California
activities. The second relates to corporate deduction of dividends to
the extent the earnings of the dividend paying corporation have
67
State of California
already been included in the measure of their California tax. If both
sections of the California Tax law are invalidated, and all dividends
become deductible, then the General fund can become liable for
approximately $200-$250 million annually.
The primary government is involved in a lawsuit, Thomas Hayes v.
Commission on State Mandates, related to state-mandated costs.
The action involves an appeal by the Director of Finance from a
1984 decision by the State Board of Control (now succeeded by the
Commission on State Mandates (COSM)). The Board of Control
decided in favor of local school districtsÕ claims for reimbursement
for special education programs for handicapped students. The case
was then brought to the trial court by the primary government and
later remanded to the COSM for redetermination. The COSM has
since expanded the claim to include supplemental claims filed by
seven other educational institutions; the issuance of a final
consolidated decision is anticipated sometime in early 1998. To
date, the Legislature has not appropriated funds. The liability to the
primary government, if all potentially eligible school districts pursue
timely claims, has been estimated by the Department of Finance at
more than $1 billion.
The primary government is involved in a lawsuit related to
contamination at the Stringfellow toxic waste site. In United States,
People of the State of California v. J. B. Stringfellow, Jr., et al., the
primary government is seeking recovery for past costs of cleanup of
the site, a declaration that the defendants are jointly and severally
liable for future costs, and an injunction ordering completion of the
cleanup. However, the defendants have filed a counterclaim against
the primary government for alleged negligent acts. Because the
primary government is the present owner of the site, the primary
government may be found liable. Present estimates of the cleanup
range from $300 million to $800 million.
The primary government is a defendant in a coordinated action
involving 3,000 plaintiffs seeking recovery for damages caused by
the Yuba River flood of February 1986. The trial court has found
liability in inverse condemnation and awarded damages of $500,000
to a sample of plaintiffs. The primary governmentÕs potential liability
to the remaining plaintiffs ranges from $800 million to $1.5 billion.
An appeal has been filed.
The primary government is a defendant in California State
Employees Association v. Wilson, where the petitioners are
challenging several budget appropriations in the 1994 and 1995
Budget Acts. The appropriations mandate the transfer of funds from
the State Highway Account, within the special revenue funds, to the
General Fund to reimburse the General Fund for debt service costs
on two rail bond measures. The petitioners contend that the
transfers violate the bond acts themselves and are requesting the
monies be returned. The loss to the primary governmentÕs General
Fund could be up to $227 million.
68
Notes to the Financial Statements
In a similar case, Professional Engineers in California Government v.
Wilson, the petitioners are challenging several appropriations in the
1993, 1994, and 1995 Budget Acts. The appropriations mandate the
transfer of approximately $262 million from the State Highway
Account, within the special revenue funds, and $113 million from
the Motor Vehicle Account, within the special revenue funds, to the
General Fund and appropriate approximately $6 million from the
State Highway Account to fund a highway-grade crossing program
administered by the Public Utilities Commission. Petitioners
contend that the transfers violate several constitutional provisions
and request that the moneys be returned to the State Highway
Account and Motor Vehicle Account.
The primary government is a defendant in Just Say No To Tobacco
Dough Campaign v. State of California, where the petitioners
challenge the appropriation of approximately $166 million of
Proposition 99 funds in the Cigarette and Tobacco Products Surtax
Fund for years ended June 30, 1990, through June 30, 1995, for
programs which were allegedly not health education or tobacco-
related disease research. If the primary government loses, the
General Fund and funds from other sources would be used to
reimburse the Cigarette and Tobacco Products Surtax Fund, an
agency fund, for approximately $166 million.
The primary government is a defendant in the case of Kurt
Hathaway, et al. v. Wilson, et al., where the plaintiffs are
challenging the legality of various budget action transfers and
appropriations from particular special funds for years ended June
30, 1995, and June 30, 1996. The plaintiffs allege that the transfers
and appropriations are contrary to the substantive law establishing
the funds and providing for interest accruals to the fund, violate the
single subject requirement of the State Constitution, and is an
invalid Òspecial lawÓ. Plaintiffs seek to have monies totaling
approximately $335 million returned to the special funds.
The primary government is a defendant in two related cases, Beno
vs. Sullivan (Beno) and Welch vs. Anderson (Welch), concerning
reductions in Aid to Families with Dependent Children (AFDC) grant
payments. In the Beno case, plaintiffs seek to invalidate AFDC grant
reductions, and in the Welch case plaintiffs contend that AFDC
grant reductions are not authorized by state law. The Beno case
concerns the total grant reductions while the Welch case concerns
the period of time the State did not have a waiver for those
reductions. The primary governmentÕs potential liability for
retroactive AFDC grant reductions is estimated at $831 million if
the plaintiffs are awarded the full amount in both cases.
The University of California and the special purpose authorities,
which are discretely presented component units, are contingently
liable in connection with claims and contracts, including those
currently in litigation, arising in the normal course of their
activities. The outcome of such matters are not expected to have a
material effect on the financial statements.
69
State of California
B. Federal Audit The primary government receives substantial funding from the
Exceptions federal government in the form of grants and contracts. The primary
government is entitled to these resources only if it complies with the
terms and conditions of the grants and contracts and with the
applicable federal laws and regulations; the primary government
may spend these resources only for eligible purposes. If audits
disclose exceptions, the primary government may incur a liability to
the federal government.
NOTE 23. DEFERRED COMPENSATION PLANS
The primary government administers a long-term tax deferred
savings program designed to supplement the retirement income of
employees of the primary government, certain special purpose
authorities, which are discretely presented component units, and
local school districts. The special purpose authorities do not have a
significant number of employees enrolled in the program. The
program is comprised of a deferred compensation plan (457), a thrift
plan (401(k)), and a tax sheltered annuity plan for teachers (403(b)),
in accordance with Sections 457, 401(k), and 403(b) of the Internal
Revenue Code. In addition, the program includes a mandatory
retirement plan for employees covered by neither the California
Public Employees' Retirement System (CalPERS) nor Social
Security, called the Part-Time, Seasonal and Temporary Plan (PST).
The 457 and 401(k) plans are optional plans for eligible employees.
Under these plans, employees defer a portion of their salary on a
pre-tax basis. The deferred salary amounts as well as any earnings
gained are not taxable to the employees until funds are withdrawn
from the plans and received by the employees. Participant
withdrawals are subject to various conditions set forth in plan
documents. Generally, funds may not be withdrawn, except in
cases of emergency, until the participant has retired or separated
from civil service, or has reached the required age. Participants of
the 457 and 401(k) plans direct the primary government to invest
the deferred amounts among various investment options. The
primary government makes no contribution to any of these plans
and the cost of the program is paid through administrative fees by
the program participants. The assets of the 401(k) plan are held for
the participants in a trust.
On August 20, 1996, the Small Business Job Protection Act of 1996
was signed into law. Under the new law, assets of the 457 plan are
protected from the claims of the employerÕs creditors. In order to
comply with the new law, changes must be implemented to its plan
document prior to January 1, 1999. Until such time, the assets held
in the 457 plan remain the property of the primary government and
continue to be subject to its general creditors.
The 403(b) plan is administered through a third party
administrator, State Street Bank. The 403(b) plan is a tax sheltered
annuity plan and is open to any employee who is eligible to
70
Notes to the Financial Statements
participate. Contributions to the plan are voluntary and require no
minimum limitations. However, the Internal Revenue Code does
impose a maximum amount that can be contributed annually. At
June 30, 1997, the 403(b) plan had approximately 301 participating
employers (school districts) and 1,010 plan members. The 403(b)
plan is accounted for as an agency fund.
The PST is a mandatory plan for employees who are not members of
the primary governmentÕs retirement system and who are not
covered by social security. The primary government invests PST
participantsÕ deferred amounts into an investment option of the
primary governmentÕs choosing. The employer makes no
contribution to the PST, but the administrative costs to run the PST
are paid by the primary government.
The primary government has no liability for losses under the plans
but does have the responsibility to administer the plans in good
faith. As of June 30, the market value of the four plans was
approximately $2.9 billion for the 457, $452 million for the 401(k),
$19 million for the 403(b) plan, and $54 million for the PST. The
plans are accounted for as agency funds.
The University of California, a discretely presented component unit,
has established a tax deferred savings plan in accordance with
Section 403(b) of the Internal Revenue Code (UC403(b)). The
UC403(b) plan provides savings incentives and additional retirement
security for all eligible University employees. There are no employer
contributions to the UC403(b) plan. Participants in the UC403(b)
plan may direct their elective and nonelective contributions to
investment funds managed by the Treasurer of the Regents of the
University of California. They may also invest contributions in, and
transfer plan accumulations to, certain external mutual funds on a
custodial plan basis. The UC403(b) plan after-tax options are
generally available to all University employees. During the year
ended June 30, participants contributed $200 million into the
UC403(b) plan. The UC403(b) plan is accounted within the
University of California Retirement System.
NOTE 24. PENSION TRUSTS
Two retirement systems, the California Public EmployeesÕ
Retirement System (CalPERS) and the State TeachersÕ Retirement
System (STRS), are included in the primary government. One
retirement system, the University of California Retirement System
(UCRS), is included in the discretely presented component units.
The pension liability, at transition, for all pension trust funds was
determined in accordance with GASB Statement No. 27, Accounting
for Pensions by State and Local Government Employers. The
amounts of the pension liability at transition for all pension trust
funds are presented on Tables 27 and 28 as the net pension
obligation (NPO) as of June 30, 1997. These amounts also
represent the differences between pension liability at transition and
71
State of California
the previously reported liability, since no liability was previously
reported.
CalPERS administers four defined benefit retirement plans: the
Public EmployeesÕ Retirement Fund (PERF), the JudgesÕ Retirement
Fund (JRF), the JudgesÕ Retirement Fund II (JRF II), and the
LegislatorsÕ Retirement Fund (LRF). CalPERS also administers one
defined benefit award plan, the Volunteer FirefightersÕ Length of
Service Award Fund (VFF). CalPERS issues a publicly available
financial report that includes financial statements and ten years of
required supplementary information for these five plans. This report
may be obtained by writing to the California Public EmployeesÕ
Retirement System, Central Supply, P.O. Box 942715, Sacramento,
California 94229-2715.
The State TeachersÕ Retirement System (STRS) administers two
defined benefit retirement plans: TeachersÕ Retirement Fund (TRF)
and the Cash Balance Plan (CBPlan). STRS issues a publicly
available financial report that includes financial statements and ten
years of required supplementary information. This report may be
obtained from the State TeachersÕ Retirement System, Accounting
Division, 7667 Folsom Blvd., 2nd Floor, Sacramento, California
95826.
Summary of Significant Accounting Policies-CalPERS:
Basis of Accounting: CalPERS uses the accrual basis of accounting.
Contributions are recorded when due. Investment income is
recognized when earned, and expenditures are recorded when
incurred.
Investments: CalPERS investments are presented at fair value.
Statutes authorize CalPERS to invest in stocks, bonds, mortgages,
real estate, and other investments. CalPERS maintains certain
deposits, cash equivalents, and other investments with financial
institutions.
The fair value of investments in securities is generally based on
published market prices and quotations from major investment
firms. Many factors are considered in arriving at that fair value. In
general, however, corporate bonds are valued based on yields
currently available on comparable securities of issuers with similar
credit ratings. Investments in certain restricted common stocks are
valued at the quoted market price of the issuerÕs unrestricted
common stock, less an appropriate discount.
Mortgages are valued on the basis of their future principal and
interest payments discounted at prevailing interest rates for similar
instruments. The fair value of real estate investments, principally
rental property subject to long-term net leases, is estimated based
on independent appraisals. Short-term investments are reported at
market value, when published market prices and quotations are
available, or at cost plus accrued interest, which approximates
market value. For investments where no readily ascertainable
72
Notes to the Financial Statements
market value exists, management, in consultation with their
investment advisors, has determined the fair values for the
individual investments.
Summary of Significant Accounting Policies-STRS:
Basis of Accounting: STRS uses the accrual basis of accounting.
Contributions are recognized in the period in which the
contributions are due. Income is recognized when earned and
expenditures are recorded when incurred.
Investments: The majority of the securities held in the STRS
investment portfolio as of June 30, 1997, are in the custody of, or
controlled by, the State Street Bank & Trust Company, the master
custodian of the STRS. The investments of the STRS consist of
government, corporate, and international bonds, domestic and
international equities, mutual funds, limited partnership holdings,
real estate, mortgages, and other investments.
All investments are recorded at fair value. The fair value of
investments is generally based on published market prices and
quotations from major investment firms. In the case of debt
securities acquired through private placements, fair value is
computed by management based on market yields and average
maturity dates of comparable quoted securities. Mortgages are
valued on the basis of future principal and interest payments, and
are discounted at prevailing interest rates for similar instruments.
Real estate equity investment fair values represent the most recent
appraisals. Short-term investments are reported at cost, which
approximates fair value.
Purchases and sales of debt securities, equity securities, and short
term investments are recorded on the trade date. Real estate equity
transactions are recorded on the settlement date. Upon sale of
investments, the difference between sales proceeds and historical
cost is reflected in the statement of changes in plan net assets.
Debt discounts are accreted to the bond maturity date and
premiums are amortized to the earliest call date using an
approximation of the interest method. Mortgage loan discounts are
accreted over a 20-year period using the pay down method.
A. Public EmployeesÕ
Retirement Fund
1. Fund Information Plan Description: CalPERS administers the PERF, which is an agent
multiple-employer retirement system. Employers participating in the
PERF include the primary government and certain special purpose
authorities, which are discretely presented component units, 61
school employers, and 1,293 public agencies as of June 30.
Unfunded Actuarial Accrued Liability: The unfunded actuarial
accrued liability of PERF was $2.6 billion at June 30, 1996. This is
a result of the difference between the actuarial value of assets of
73
State of California
$94.2 billion and the actuarial accrued liability of $96.8 billion.
Contributions are actuarially determined.
2. EmployersÕ Plan Description: The primary government and certain special
Information purpose authorities contribute to the PERF. The fund acts as a
common investment and administrative agent of the primary
government and the other member agencies. The special purpose
authoritiesÕ participation in PERF is not a material portion of the
program. The primary government has six pension plans within the
PERF: first tier miscellaneous, second tier miscellaneous, industrial,
California Highway Patrol, police officers and firefighters, and other
safety members. The payroll for employees covered by the PERF in
the year ended June 30, 1997, was approximately $9.1 billion.
All employees who work on a half-time or more basis are eligible to
participate in the PERS. The PERS administers several different
plans, each providing a monthly allowance based on age, years of
credited service, benefit formulas, and highest final compensation
averaged over 12 or 36 consecutive months. Vesting occurs after five
or ten years, depending on the plan. All plans provide death and
disability benefits. The benefit provisions are established by statute.
Funding policy: Benefits are funded by contributions from members
and employers and earnings from investments. Member and
employer contributions are a percentage of applicable member
compensation. Member rates are defined by law and based on
actuarial valuation. Employer contribution rates are determined by
periodic actuarial valuations or by state statute.
Employees, with the exception of employees in the second tier plan,
are required to contribute to the fund. The contribution rates of
active plan members are based on a percentage of salary over a
monthly base compensation amount of $238 to $863. With the
exception of employees in the second-tier plan, employeesÕ required
contributions vary from 5% to 8% of their salary over their base
compensation amount.
The required employer contribution rates for the primary
government are shown in Table 26.
74
Notes to the Financial Statements
Table 26
Schedule of Required Employer Contribution Rates for the Primary
Government by Member Category
Year Ending June 30, 1997
Normal Unfunded Total
Cost Liability Rate
Miscellaneous members
First tier........................................................... 9.78 % 3.33 % 13.11 %
Second tier...................................................... 6.61 2.73 9.34
Industrial.............................................................. 10.18 (0.92) 9.26
California Highway Patrol.................................... 14.83 1.02 15.85
Police officers and firefighters............................. 15.37 0.03 15.40
Other safety members......................................... 14.23 0.43 14.66
For the year ended June 30, 1997, the annual pension cost (APC)
and the amount of contributions made for the primary government
was approximately $1.3 and $1.6 billion respectively. The APC and
the percentage of APC contributed for the last three years are shown
in Table 27. Actuarial valuations of the PERF are performed
annually. Information from the last valuation, which was performed
as of June 30, 1996, is also shown in Table 27.
B. JudgesÕ Retirement Plan Description: CalPERS administers the JRF, which is an agent
Fund multiple-employer defined benefit retirement plan. The JRF
membership includes justices of the Supreme Court and courts of
appeal, as well as judges of superior courts, municipal courts, and
justice courts appointed or elected prior to November 9, 1994. There
are 59 employers participating in the JRF for the fiscal year ended
June 30, 1997. The payroll for employees covered by the JRF for the
fiscal year ended June 30, 1997, was approximately $148 million.
The primary government pays the employer contributions for all
employees covered by the JRF.
All justices and judges appointed or elected prior to November 9,
1994, are required to participate in the JRF. The JRF provides a
monthly allowance based on age, years of credited service, benefit
formula, and highest average compensation over an established
period of time of one year. Vesting occurs after five years. The JRF
provides death and disability benefits. Benefits for the JRF are
established by the JudgesÕ Retirement Law.
Funding Policy: The required contribution rates of active plan
members are based on a percentage of salary over a base
compensation amount. For the year ended June 30, 1997, the
required contribution rate for the JRF was 8.0%.
The contributions of the JRF are not actuarially determined.
Contributions are pursuant to state statute. Employer contributions
are required to be 8.0% of applicable member compensation. The
75
State of California
other funding to meet benefit payment requirements of the JRF is
currently provided from the following sources: filing fees, which
require varying amounts, depending on fee rate and number of
filings; investments, which earn the current yield on short term
investments; and the primary governmentÕs balancing
contributions, as required by the JudgesÕ Retirement Law. The
balancing contributions are equal to an amount at least equal to the
estimated benefits payable during the ensuing fiscal year less the
sum of the estimated member contributions during the ensuing
fiscal year, and net assets available for benefits at the beginning of
the fiscal year (Òpay as you goÓ basis).
The APC and the dollar amount of contributions made to the JRF
for the year ended June 30, 1997, were $133 million and $51
million, respectively. The net pension obligation (NPO) of the JRF at
June 30, 1997 was $546 million, an increase of $82 million over
last yearÕs balance of $464 million. The APC is comprised of $133
million for the annual required contribution (ARC), $39 million
interest on the NPO, and $39 million for the adjustment to the ARC.
An actuarial valuation of the JRFÕs assets and liabilities is made
annually. The APC, the percentage of APC contributed, and the NPO
for the last three years are shown in Table 27. Information on the
last valuation, which was performed as of June 30, 1996, is also
shown in Table 27.
C. JudgesÕ Retirement Plan Description: CalPERS administers the JRF II, which is an agent
Fund II multiple-employer defined benefit retirement plan. The membership
of the JRF II includes justices of the same courts as covered by JRF
who were appointed or elected subsequent to November 9, 1994.
There are 59 employers participating in the JRF II. The payroll for
employees covered by the JRF II for the fiscal year ending June 30,
1997 was approximately $15.4 million. The primary government
pays the employer contributions for all employees covered by the
JRF II.
All justices and judges appointed or elected on or subsequent to
November 9, 1994 are required to participate in the JRF II. JRF II
provides a monthly allowance based on age, years of credited
service, benefit formula, and highest average compensation over an
established period of time of one year. Vesting occurs after five
years. The JRF II provides death and disability benefits. Benefits for
the JRF II are established by the JudgesÕ Retirement System II Law.
Funding policy: The required contribution rate of active plan
members is based on a percentage of salary over a base
compensation amount. For the year ended June 30, 1997, the
required contribution rate for JRF II is 8.0%. For the year ended
June 30, 1997, the primary governmentÕs contribution rate for the
JRF II was 19.2% of applicable member compensation.
76
Notes to the Financial Statements
Actuarial valuations for the JRF II are required to be carried out
annually. The legislated employer contribution rate will be adjusted
periodically as part of the annual Budget Act in order to maintain or
restore the actuarial soundness of the fund.
For the fiscal year ended June 30, 1997, the annual pension cost
(APC) and the amount of contributions made for the JRF II were
both approximately $3.0 million. The APC and the percentage of
APC contributed for year ended June 30, 1997 is shown in Table
27. An actuarial valuation of JRF IIÕs assets and liabilities is made
every year. Information on the last valuation which was performed
as of June 30, 1996, is also shown in Table 27.
D. LegislatorsÕ Plan Description: CalPERS administers the LRF, which is an agent
Retirement single-employer defined benefit retirement plan. The eligible
Fund membership of the LRF includes state legislators serving in the
legislature prior to November 7, 1991, constitutional officers, and
legislative statutory officers. The payroll for employees covered by
the LRF in 1997 was approximately $3.9 million.
The LRF provides a monthly allowance based on age, years of
credited service, and the highest compensation while in office.
Vesting occurs after five years. The plan provides death and
disability benefits. Benefits for the LRF are established by the
LegislatorsÕ Retirement Law.
The LegislatorsÕ Retirement Fund is currently in transition. The
number of legislators eligible to participate in the LRF is rapidly
declining as incumbent legislators leave office and are replaced by
new legislators who are not eligible to participate in the program.
Eventually, the only active members in the LRF will be
approximately 14 Constitutional Officers (including the Insurance
Commissioner and members of the Board of Equalization) and
approximately four Legislative Statutory Officers. Without statutory
changes regarding the payment of contributions to the LRF, this
transition may significantly impact the financial status of the LRF.
Funding Policy: The contribution requirements of the LRF are based
on actuarially determined rates. An actuarial valuation of the LRFÕs
assets and liabilities is made annually. The last valuation was
performed as of June 30, 1996. For the year ended June 30, 1997,
the actual contributions made by employees were approximately 8%
of covered payroll. For the year ended June 30, 1997, the primary
governmentÕs funding rate was 18.81% of covered payroll and the
actuarially determined rate was 49.01% based on the June 30,
1995, actuarial valuation.
The APC and the dollar amount of contributions made to the LRF
for the year ended June 30, 1997, were $1.9 million and $2.5
million, respectively. The NPO of the LRF at June 30, 1997, was
$10.1 million, which is a decrease of $0.5 million over last yearÕs
balance of $10.6 million. The APC is comprised of $1.9 million for
the ARC, $0.8 million interest on the NPO, and $0.8 million for the
77
State of California
adjustment to the ARC. The APC, the percentage of APC
contributed, and the NPO for the last three years are shown in Table
27. An actuarial valuation of the LRFÕs assets and liabilities is made
annually. Information on the last valuation, which was performed
as of June 30, 1996, is also shown in Table 27.
E. Volunteer Plan Description: CalPERS administers the Volunteer FirefightersÕ
FirefightersÕ Length of Service Award Fund (VFF), an agent multiple-employer
Length of Service public employee defined benefit award plan. It currently has 40
Award Fund participating fire departments.
Unfunded Actuarial Accrued Liability: The unfunded actuarial
accrued liability of VFF was $144,000 at June 30, 1996. This is a
result of the difference between the actuarial value of assets of
$934,000 and the actuarial accrued liability of $1,078,000, which is
a funding ratio of 86.6%.
F. TeachersÕ Retirement Plan Description: STRS administers the TeachersÕ Retirement Fund
Fund (TRF), a cost sharing multiple-employer defined benefit retirement
plan, that provides pension benefits to teachers and certain other
employees of the California public school system. Membership in
the TRF is mandatory for all employees meeting the eligibility
requirements. The TRF provides a monthly benefit based on age,
members final compensation, and years of service. Vesting accrues
after five years. In addition, the retirement plan provides benefits to
members upon disability and to survivors upon the death of eligible
members. The benefits for the TRF are established by the State
TeachersÕ Retirement Law. At June 30, 1997, the TRF had
approximately 1,157 contributing employers, approximately
400,000 plan members, and 155,000 benefit recipients. The
primary government is a nonemployer contributor to the TRF. The
payroll for employees covered by TRF in 1997 was approximately
$12.7 billion.
Funding policy: Benefits are funded by contributions from members,
employers, the primary government, and earnings from
investments. Member and employer contributions are a percentage
of applicable member earnings. Member rates, employer
contribution rates, and primary government contributions are
determined by the State TeachersÕ Retirement Law.
Contribution rates of members are 8% of applicable member earn-
ings. Employer contribution rates are 8.25% of applicable member
earnings. The primary governmentÕs contribution to the system un-
der Education Code Section 22955,ÒElder Full Funding ActÓ, is 4.3%
of the previous calendar yearÕs member payroll. Subsequent to
achieving a fully funded system, the primary government will con-
tribute only the amount necessary to help fund the normal cost of
the current benefit program unless a subsequent unfunded obliga-
tion occurs. Additionally, under certain provisions of the California
Education Code, employers are required to make contributions of
0.415% of the payroll to the primary government. These
contributions are appropriated by the primary government to TRF.
78
Notes to the Financial Statements
Unfunded Actuarial Accrued Liability: The unfunded actuarial
accrued liability of the TRF was $8.2 billion at June 30, 1995. The
Elder Full Funding Act (SB 1370) was enacted beginning July 1,
1991, to achieve full funding of the TRF. Based on the most current
valuation (1995), the estimated amortization period to retire the
actuarial accrued liability is 18 years.
G. Cash Balance Fund Cash Balance Plan Description: STRS administers the CBPlan as a
separate defined benefit plan designed for employees of California
public schools who are hired to perform creditable service for less
than 50% of the full time equivalent for the position. Participation in
the CBPlan is optional to employers. However, if the employer elects
to offer the CBPlan, each eligible employee will automatically be
covered by the CBPlan unless the member elects to participate in
the TRF or an alternative plan provided by the employer within 60
days of hire. At June 30, 1997, the CBPlan had two contributing
school districts and approximately 478 contributing members. For
reporting purposes, the CBPlan is combined with the TRF.
79
State of California
Table 27
Actuarial Information Ð Pension Trusts Ð Primary Government
June 30, 1997
Public
Employees’ Judges’ Judges’ Legislators’ Teachers’
Retirement Retirement Retirement II Retirement Retirement
Last actuarial valuation.............................. June 30, 1996 June 30, 1996 June 30, 1996 June 30, 1996 June 30, 1995
Actuarial cost method................................. Entry Age Entry Age Entry Age Entry Age Entry Age
Normal Normal Normal Normal Normal
Amortization method.................................. Level % of Level Level % of Level Level % of
Payroll, Dollar, Payroll, Dollar, Payroll,
Closed Open Closed Open Open
Remaining amortization period.................. 34 years 30 years 6.5 years 30 years 18 years
Asset valuation method.............................. Smoothed Cost Plus Cost Smoothed Expected
Market Accrued Market Value, 25%
Value Interest Value Adjustment
to Fair Value
Actuarial assumption
Investment rate of return....................... 8.50 % 8.50 % 8.50 % 7.75 % 8.00 %
Projected salary increase...................... 4.5 – 10.0 4.75 5.75 4.50 5.50
Includes inflation at................................ 4.50 4.50 4.50 4.50 4.50
Post retirement benefit
increases............................................... 2 or 3 –– 3.00 4.50 2.00
Annual pension costs (In millions)
Year ended 6/30/95............................... $ 1,085 $ 117 $ 0.1 $ 2.3 $ 1,589
Year ended 6/30/96............................... 1,169 104 1.6 2.3 1,726
Year ended 6/30/97............................... 1,283 133 3.0 1.9 1,835
Percent contribution
Year ended 6/30/95............................... 93 % 43 % 100 % 25 % 100 %
Year ended 6/30/96............................... 93 58 100 25 100
Year ended 6/30/97............................... 124 38 102 130 100
Net pension obligation (In millions)
Year ended 6/30/95............................... $ 115.3 $ 420.7 $ –– $ 8.9 $ ––
Year ended 6/30/96............................... 201.3 464.0 –– 10.6 ––
Year ended 6/30/97............................... –– 546.1 –– 10.1 ––
Funding as of last valuation (In millions)
Actuarial Value – Assets....................... 38,917 13 2.4 94 55,207
Actuarial Accrued
Liabilities (AAL).................................. 41,867 1,460 2.8 105 63,391
Unfunded AAL (UAAL).......................... 2,950 1,447 0.4 11 8,184
Covered Payroll..................................... 8,924 154 8.1 4.8 12,688
Funded Ratio......................................... 93 % 1 % 85 % 90 % 87 %
UAAL as percent of covered payroll...... 33 % 940 % 5 % 229 % 65 %
H. University of The UCRS consists of a single-employer, defined benefit plan funded
California with University and employee contributions, a defined benefit plan
Retirement SystemÐ for University employees who elected early retirement under the
Discretely Presented Public EmployeesÕ Retirement System Voluntary Early Retirement
Component Unit Incentive Program (PERS-VERIP), and a defined contribution plan
with several investment portfolios funded with employee non-
80
Notes to the Financial Statements
elective and elective contributions. Most University career
employees participate in UCRS.
The UCRS provides lifetime retirement income, disability protection
and preretirement survivor benefits to eligible employees of the
University of California and its affiliates. Membership in the
retirement plan is required for all employees appointed to work at
least 50 percent time for a year or more. Generally, five years of
service are required to be entitled to plan benefits. The maximum
monthly benefit is 100 percent of the employeeÕs highest average
compensation over a 36-month period. The amount of the pension
benefit is determined by salary rate, age, and years of service credit
with certain cost-of-living adjustments.
MembersÕ contributions are accounted for separately and accrue
interest at six percent annually. Upon termination, members can
elect a refund of their contributions plus accumulated interest.
Vested terminated members who are eligible to retire can also elect
a lump sum equal to the present value of their accrued benefits.
Both actions thereby forfeit the memberÕs rights to further accrued
benefits.
The annually determined rates for employer contributions as a
percentage of payroll are based on recommendations of the
consulting actuary and appropriations received from the primary
government.
Employee contributions may be required to be made to the
University of California Retirement Plan. The rate of employee
contributions is established annually pursuant to the RegentsÕ
funding policy, as a percentage of covered wages, recommended and
certified by an enrolled, independent actuary and approved by the
Regents, the planÕs trustee. During the year ended June 30, 1997,
employee contributions to the University of California Retirement
Plan were redirected to the University of California Defined
Contribution Plan.
There were no changes in actuarial assumptions or benefit
provisions which significantly affected the actuarial accrued liability
or contribution requirements during the year ended June 30, 1997.
The PERS-VERIP is a defined benefit pension plan providing lifetime
supplemental retirement income and survivor benefits to members
of the University of California CalPERS program (UC-PERS), who
elected early retirement under provisions of the plan. The University
contributed to the CalPERS on behalf of these UC-PERS members.
The cost of contributions made to the plan is borne entirely by the
University and the Federal Department of Energy laboratories. Over
the five-year period ended June 30, 1996, the University and the
Federal Department of Energy laboratories were required to make
contributions to the plan as determined by the planÕs consulting
81
State of California
actuary sufficient to maintain the promised benefits and the
qualified status of the plan.
A defined contribution plan (the DCPlan), which provides savings
incentives and additional retirement security for all eligible
University employees, is maintained by the University. The DCPlan
accepts both after-tax and pretax contributions by employees and
has no employer contributions. Participants in the DCPlan may
direct their contributions to investment funds managed by the
Treasurer of the Regents of the University of California. They may
also invest contributions in, and transfer plan accumulations to,
certain external mutual funds on a custodial plan basis.
The DCPlan pretax contributions are fully vested and are mandatory
for all employees who are members of the University of California
Retirement Plan. Monthly employee contributions range from
approximately 2% to 4% of covered wages depending upon whether
wages are above or below the Social Security wage base. The
DCPlan after-tax options are generally available to all University
employees. During the year ended June 30, participants contributed
$144 million into the DCPlan.
82
Notes to the Financial Statements
Table 28
Actuarial Information Ð University of California Ð
Discretely Presented Component Unit
June 30, 1997
University of Voluntary
California Early Retirement
Retirement Incentive
Plan Plan
Last actuarial valuation........................................... June 30, 1996 June 30, 1996
Actuarial cost method............................................. Entry Age Entry Age
Normal Normal
Amortization method............................................... Level % N/A
of Payroll,
Open Closed
Remaining amortization period............................... 3 years ––
Asset valuation method........................................... Smoothed Smoothed
Fair Fair
Value Value
Actuarial assumption
Investment rate of return.................................... 7.50 % 7.50 %
Projected salary increase................................... 4.5 to 6.5 N/A
Includes inflation at............................................. 4.00 N/A
Annual pension costs (In millions)
Year ended 6/30/97............................................ $ –– $ ––
Percent contribution
Year ended 6/30/97............................................ N/A N/A
Net pension obligation (In millions)
Year ended 6/30/97............................................ $ –– $ ––
Funding as of last valuation (In millions)
Actuarial value – assets..................................... $ 19,736 $ 64
Actuarial accrued
liabilities (AAL)................................................ 17,925 47
Unfunded AAL (UAAL)....................................... –– ––
Covered payroll.................................................. 4,500 N/A
Funded ratio....................................................... 110 % 136 %
NOTE 25. POST-RETIREMENT HEALTH CARE BENEFITS
Health care and dental benefits are provided by the primary
government and certain special purpose authorities, which are
discretely presented component units, to annuitants of retirement
systems to which the primary government contributes as an
employer. The special purpose authoritiesÕ participation in these
benefits are not a material portion of the program. To be eligible for
these benefits, first tier plan annuitants must retire on or after
attaining age 50 with at least five years of service, and second tier
plan annuitants must retire on or after attaining age 55 with at
least 10 years of service. In addition, annuitants must retire within
83
State of California
120 days of separation from employment to be eligible to receive
these benefits. As of JuneÊ30, approximately 95,096 annuitants
were enrolled to receive health benefits and approximately 90,563
annuitants were enrolled to receive dental benefits. In accordance
with the Government Code, the primary government generally pays
100% of the health insurance cost for annuitants plus 90% of the
additional premium required for the enrollment of family members
of annuitants. Although the primary government generally pays
100% of the dental insurance premium for annuitants, the
Government Code does not specify the primary governmentÕs
contribution toward dental insurance costs. The primary
government recognizes the cost of providing health and dental
insurance to annuitants on a pay-as-you-go basis. The cost of these
benefits for the year ended June 30 was approximately
$266Êmillion.
Also, the University of California, a discretely presented component
unit, provides certain health plan benefits to retired employees in
addition to pension benefits. Employees who meet specific
requirements may continue their medical and dental benefits into
retirement and continue to receive University of California
contributions for those benefits. There are approximately 34,000
retirees currently eligible to receive such benefits. The cost of retiree
medical and dental coverage is recognized when paid. The cost of
providing medical and dental benefits for retirees and their families
and survivors in the year ended June 30 was $88 million.
NOTE 26. SUBSEQUENT EVENTS
The following information represents significant events that
occurred subsequent to June 30, 1997, but prior to the date of the
auditorsÕ report.
On September 9, 1997, the primary government issued $3.0 billion
in revenue anticipation notes that will mature on June 30, 1998. On
October 23, 1997, the primary government issued $1.0 billion in
general obligation bonds, $977 million of which were used to retire
previously issued commercial paper. From July 1, 1997, to
November 21, 1997, the primary government issued approximately
$397 million in revenue bonds, $106 million of which were used to
refund existing revenue bonds, and $76 million of which were used
to retire previously issued commercial paper. Additionally, during
the period, $51 million in certificates of participation were issued to
refund existing outstanding certificates of participation.
On September 19, 1997, the Regents of the University of California
authorized the merger of the San Francisco medical center, one of
five medical centers owned by the University of California, a
discretely presented component unit, with Stanford Health Services,
a subsidiary of Stanford University which owns, manages and
operates its medical center.
84
Notes to the Financial Statements
From July 1, 1997, to November 21, 1997, the Regents of the
University of California issued $284 million in revenue bonds.
From July 1, 1997, to November 21, 1997, the special purpose
authorities, which are discretely presented component units, issued
approximately $282 million in revenue bonds.
85
Blank page inserted for reproduction purposes only
Required
Supplementary
Information
State of California
Schedule of Funding Progress
Public Employees’ Retirement Fund
(Amounts in millions)
Actuarial Actuarial Actuarial Unfunded Actuarial UAAL as a
Valuation Value of Accrued Liability Accrued Liability Funded Covered Percentage of
Date Assets –AAL– –UAAL– Ratio Payroll Covered Payroll
(a) (b) (b - a) (a / b) (c) ((b-a)/c)
June 30, 1994 $ 32,294 $ 36,055 $ 3,761 89.6 % $ 8,070 46.6 %
June 30, 1995 34,689 39,218 4,529 88.5 8,659 52.3
June 30, 1996 38,917 41,867 2,950 93.0 8,924 33.1
Judges’ Retirement Fund
(Amounts in millions)
Actuarial Actuarial Actuarial Unfunded Actuarial UAAL as a
Valuation Value of Accrued Liability Accrued Liability Funded Covered Percentage of
Date Assets –AAL– –UAAL– Ratio Payroll Covered Payroll
(a) (b) (b - a) (a / b) (c) ((b-a)/c)
June 30, 1994 $ 15 $ 1,290 $ 1,275 1.2 % $ 150 850.0 %
June 30, 1995 9 1,406 1,397 0.6 157 889.8
June 30, 1996 13 1,460 1,447 0.9 154 939.6
Judges’ Retirement Fund II
(Amounts in thousands)
(Excess as a
(Excess of Assets Percentage of
over AAL) or Covered Payroll) or
Actuarial Actuarial Actuarial Unfunded Actuarial UAAL as
Valuation Value of Accrued Liability Accrued Liability Funded Covered a Percentage of
Date Assets –AAL– –UAAL– Ratio Payroll Covered Payroll
(a) (b) (b - a) (a / b) (c) ((b-a)/c)
June 30, 1995 $ 239 $ 71 $ (168) 336.6 % $ 934 (18.0)%
June 30, 1996 2,388 2,813 425 84.9 8,080 5.3
88
Required Supplementary Information
Schedule of Funding Progress
Legislators’ Retirement Fund
(Amounts in millions)
Actuarial Actuarial Actuarial Unfunded Actuarial UAAL as a
Valuation Value of Accrued Liability Accrued Liability Funded Covered Percentage of
Date Assets –AAL– –UAAL– Ratio Payroll Covered Payroll
(a) (b) (b - a) (a / b) (c) ((b-a)/c)
June 30, 1994 $ 85 $ 100 $ 15 85.0 % $ 5.5 272.7 %
June 30, 1995 89 102 13 87.3 5.0 260.0
June 30, 1996 94 105 11 89.5 4.8 229.2
State Teachers’ Retirement System
(Amounts in millions)
Actuarial Actuarial Actuarial Unfunded Actuarial UAAL as a
Valuation Value of Accrued Liability Accrued Liability Funded Covered Percentage of
Date Assets –AAL– –UAAL– Ratio Payroll Covered Payroll
(a) (b) (b - a) (a / b) (c) ((b-a)/c)
June 30, 1991 $ 36,001 $ 47,100 $ 11,099 76.4 % $ 11,816 93.9 %
June 30, 1993 45,212 53,581 8,369 84.4 11,994 69.8
June 30, 1995 55,207 63,391 8,184 87.1 12,688 64.5
University of California Retirement System
(Amounts in millions)
Actuarial Actuarial Actuarial Excess as a
Valuation Value of Accrued Liability Excess of Assets Funded Covered Percentage of
Date Assets –AAL– Over AAL Ratio Payroll Covered Payroll
(a) (b) (b - a) (a / b) (c) ((b-a)/c)
June 30, 1994 $ 16,513 $ 15,271 $ (1,242) 108.1 % $ 3,888 (31.9)%
June 30, 1995 17,708 16,616 (1,092) 106.6 4,262 (25.6)
June 30, 1996 19,736 17,925 (1,811) 110.1 4,500 (40.2)
89
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