Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2003 Santa Clara County, California SANTA CLARA VALLEY TRANSPORTATION AUTHORITY San Jose, California Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2003 Prepared by: Fiscal Resources Division TABLE OF CONTENTS INTRODUCTORY SECTION: Title Page Table of Contents GFOA Certificate for Achievement for Excellence in Financial Reporting Letter of Transmittal Organization Charts Principal Officials Service Area Map FINANCIAL SECTION: Independent Auditor's Report Management's Discussion and Analysis (Required Supplementary Information) Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets Government-wide Financial Statements: Statement of Activities Fund Financial Statements (Enterprise Fund): Statement of Fund Net Assets Fund Financial Statements (Enterprise Fund): Statement of Revenues, Expenses and Changes in Fund Net Assets Fund Financial Statements (Enterprise Fund): Statement of Cash Flows Fund Financial Statements (Governmental Funds): Balance Sheet Fund Financial Statements (Governmental Funds): Statement of Revenues Expenditures and Changes in Fund Balances Fund Financial Statements (Fiduciary Funds): Statement of Fiduciary Net Assets Fund Financial Statements (Fiduciary Funds): Statement of Changes in Plan Net Assets-Pension Trust Funds Notes to the Basic Financial Statements Required Supplementary Information (other than MD&A): Schedule of Funding Progress - ATU Pension Plan Schedule of Funding Progress - CalPERS Plan Budgetary Comparison Schedule - Congestion Management Program Special Revenue Fund Note to Required Supplementary Information - Budgetary Basis of Accounting Supplementary Information - Combining and Individual Fund Statements and Schedules: Enterprise Fund: Comparative Statements of Fund Net Assets Enterprise Fund: Comparative Statements of Revenues, Expenses and Changes in Fund Net Assets Enterprise Fund: Comparative Statements of Cash Flows Enterprise Fund: Budgetary Comparison Schedule Enterprise Fund: Schedule of Restricted Assets and Related Liabilities Fiduciary Funds: Combining Statement of Plan Net Assets - Pension Trust Funds Fiduciary Funds: Combining Statement of Changes in Plan Net Assets - Pension Trust Funds Fiduciary Funds: Combining Statement of Fiduciary Assets and Liabilities - Agency Funds Fiduciary Funds: Combining Statement of Changes in Fiduciary Assets and Liabilities - Agency Funds STATISTICAL SECTION (Unaudited): Government-wide Information: Government-wide Expenses by Function Government-wide Information: Government-wide Revenues Fund Information (Financial Ratios): Current Ratios Fund Information (Financial Ratios): Debt and Equity Ratios Fund Information (Financial Ratios): Operating Recovery Ratios Fund Information (Financial Ratios): Times Debt Service Coverage Fund Information (Ten-Year Comparisons): Operating Revenue and Net Operating Expenses Fund Information (Ten-Year Comparisons): Non-Operating Assistance and Interest Income Fund Information (Ten-Year Comparisons): Actual Reserve to Target Reserve Fund Information (Ten-Year Comparisons): Vehicle Revenue Miles Fund Information (Ten-Year Comparisons): Passenger Miles Fund Information (Ten-Year Comparisons): Selected Financial Data Fund Information (Ten-Year Comparisons): Selected Statistical Data Fund Information (Ten-Year Comparisons): Santa Clara County Demographic Data Fund Information (Bus and Rail System Facts): Current Bus System Data Fund Information (Bus and Rail System Facts): Current Rail System Data A picture presents VTA's certificate of achievement for excellence in financial reporting: Certificate of Achievement for Excellence in Financial Reporting presented to Santa Clara Valley Transportation Authority, California For its Comprehensive Annual Financial Report for the Fiscal Report for the Fiscal Year Ended June 30, 2002. A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial report. Signed by the GFOA President and the Executive Director October 31, 2003 Board of Directors Santa Clara Valley Transportation Authority Subject: Comprehensive Annual Financial Report The Santa Clara Valley Transportation Authority (VTA) Comprehensive Annual Financial Report (CAFR) for the year ended June 30, 2003 was prepared in accordance with the guidelines recommended by the Government Finance Officers Association of the United States and Canada (GFOA). Responsibility for the accuracy, completeness, and fairness of the data and the clarity of the presentation, including all disclosures, rests with VTA. To the best of our knowledge, the enclosed data is reported in a manner designed to present fairly, in all material respects, VTA's financial position, changes in financial position, and cash flows in accordance with the requirements of accounting principles generally accepted in the United States of America as promulgated by the Governmental Accounting Standards Board (GASB). We are again pleased that the FY 2002 CAFR earned the recognition of the GFOA with a Certificate of Achievement for Excellence in Financial Reporting. This award reflects the fact that the VTA CAFR complied with the stringent GFOA standards for professional financial reporting. This report is organized into three sections: 1. Introduction Section, including a table of contents, this letter of transmittal, a list of principal officials and organization chart. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. 2. Financial Section, including the Independent Auditor's Report, Management's Discussion and Analysis (MD&A), basic financial statements with accompanying footnotes, required supplementary information, and other supplementary information. 3. Statistical Section, including additional data about VTA over the last 10 years. The independent auditor for fiscal year 2003 was Macias, Gini & Company LLP, which issued an unqualified opinion on the VTA's June 30, 2003 basic financial statements. It is management's intention to submit this and future CAFRs to the Government Finance Officers Association of the United States and Canada to determine its eligibility for another Certificate of Achievement for Excellence under the Financial Reporting Program. We believe the current comprehensive annual financial report satisfies the reporting requirements and continues to meet the program requirements. The basic financial statements are in compliance with the GASB Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. The objective of the GASB is to enhance the understandability and usefulness of the basic external financial reports of state and local governments to the citizenry, legislative and oversight bodies, and investors and creditors. It is important to note that with the implementation of GASB 34, capital contributions (grants) that defray capital acquisition costs and were previously reflected as contributed capital on the balance sheet, are now recognized as revenue on the Statement of Revenues, Expenses and Changes in Fund Net Assets. This change is significant. The corresponding acquisition of capital assets is not recognized on this statement to match the revenue reported; instead, depreciation expense of those assets is recognized periodically over the life of the asset. This represents a significant departure from VTA's budgeting methodology where the resources or grants are recorded in the year they are received and assets are recognized as expenditures in the year they are acquired. PROFILE OF VTA VTA is the result of a 1995 merger between two previously separate entities: the Santa Clara County Transit District and the Congestion Management Agency for Santa Clara County. VTA is also the successor organization to the Santa Clara County Traffic Authority, which terminated at the end of March 1997. VTA is an independent special district responsible for bus and light rail operations, congestion management, specific highway improvement projects, and countywide transportation planning. As such, it is both an accessible transit provider and a multi-modal transportation planning and development organization involved with transit, highways, roadways, bikeways, and pedestrian facilities. Bus Transit Service VTA owns a bus fleet of over 523 diesel-powered coaches, which includes 235 low-floor buses. The average age of these buses is about 5 years and were manufactured at various times, ranging from 1992 to 2002. The service area of approximately 326 square miles contains 69 bus routes. There are approximately 4,700 bus stops, 700 bus shelters and 15 Park & Ride lots - five owned by VTA and ten provided under a lease, permit, or joint use agreement with other agencies. Buses are operated and maintained from three operating divisions and an Overhaul and Repair (O&R) facility: Cerone Operating Division, Don Pedro Chaboya Operating Division, North Operating Division, and Cerone O&R Division. Light Rail Transit (LRT) Service VTA operates a 29.5-mile LRT system connecting the Silicon Valley employment areas of Mountain View, Sunnyvale, Santa Clara, North San Jose and Milpitas to residential areas in South San Jose. The LRT system has a total of 50 stations and 16 park & ride lots. It operates on three routes: service between Santa Teresa and the Baypointe Station in North San Jose, service between Mountain View and the I-880/Milpitas Station in Milpitas, and shuttle service between Almaden and Ohlone-Chynoweth Stations in South San Jose. VTA is purchasing a fleet of 100 new Kinkisharyo low floor light rail vehicles. Forty-five were in revenue service at the end of FY03. The remainder will arrive in the next fiscal year. VTA will deploy a mixed fleet of Kinkisharyo low floor and UTDC (Urban Transportation Development Corporation) high floor light rail vehicles on the Guadalupe line for part of 2003 until adequate numbers of the Kinkisharyo vehicles are commissioned and the interim platform retrofit project is complete. All 95 (45 Kinkisharyo and 50 UTDC) light rail vehicles are stored and maintained at the Guadalupe Operating Division near downtown San Jose. Currently there are three historic trolleys that VTA periodically operates from the Civic Center Station to the Convention Center Station. Construction of the Tasman East and Capitol Lines continues and are scheduled for completion in 2004. The Vasona Line is estimated to begin operation in 2006. Paratransit Services The Americans with Disabilities Act (ADA) was signed into law on July 26, 1990. VTA has implemented the ADA requirements and is in compliance with regulations issued by the U.S. Department of Transportation (DOT) and the Architectural and Transportation Barriers Compliance Board. In 1992, VTA established a paratransit system that operates throughout Santa Clara County. VTA contracts with Outreach and Escort, Inc., to serve as a broker and to provide service through contracts with vendors. Eligible riders call Outreach to schedule their trips, which are then assigned based on the most efficient mode of transportation that can meet the riders' needs: taxi, accessible van or transfer to or from fixed-route. Since 1997, VTA has been in full compliance with the ADA provisions. In January 1999, VTA began offering Same-Day paratransit service, which allows qualified individuals to arrange and take trips on the day of the request to provide for their urgent or unplanned transportation needs. ADA compliance has and will continue to have significant operational and financial impacts on VTA. In 2002, VTA began the development of the Paratransit Business Practices Improvement Plan. This four-phased plan is designed to control increasing costs through a variety of methodologies, which will improve productivity, decrease vendor and broker costs, and increase revenue. The desired results will be achieved by consolidating vendor operations, renegotiating vendor contracts, improving the eligibility certification process, and better aligning the paratransit services with ADA requirements. Phases I and II have been implemented. Phase III is scheduled for implementation in October 2003, and Phase IV may be implemented later in the year. Contracted, Interagency and Other Transit Services Caltrain Peninsula Corridor Joint Powers Board (PCJPB) Caltrain is the commuter rail service provided by PCJPB, which is governed by representatives from San Francisco, San Mateo, and Santa Clara Counties. There are 34 stations along the line; 16 are located in Santa Clara County. Seventy-six diesel-powered locomotives operate between San Jose Diridon Station and San Francisco each weekday, with 67 continuing south to the Tamien Station in San Jose. Eight peak-hour weekday trains extend Caltrain from the Tamien station to Gilroy. VTA LRT transfers can be made at both the Tamien and Mountain View Caltrain Stations The share of the operating costs apportioned to each member agency is based upon morning peak period boardings in each county. Altamont Commuter Express Rail Service The Altamont Commuter Express service (ACE) provides peak hour, weekday commuter rail service from the Central Valley to Santa Clara County (three morning and three afternoon trains). VTA, the San Joaquin Regional Rail Commission (SJRRC), and the Alameda County Congestion Management Agency (ACCMA) administered the service under a Joint Exercise of Powers Agreement until June 30,2003. The 85-mile rail line includes ten stations located in Stockton, Lathrop, Tracy, Livermore (two), Pleasanton, Fremont, Santa Clara (two), and San Jose. VTA provides free shuttles to transport ACE riders between the Great America and Diridion stations and nearby employment sites. The share of the operating costs apportioned to each participating county is based upon the proportional share of total daily boardings and alightings that occur in each county. Effective July 1, 2003, VTA funding of ACE is covered under a Cooperative Service Agreement with the SJRRC and ACCMA. On June 24, 2003, VTA entered into the agreement for continued VTA funding of Altamont Commuter Express (ACE) commuter rail service in the amount of $3,960,000 in fiscal year 2004 and $4,034,000 in fiscal year 2005. The cooperative agreement replaced the ACE Joint Powers Agreement (JPA) which was executed on May 15, 1997 by three ACE member agencies - VTA, SJRRC and ACCMA. Capitol Corridor Intercity Rail The Capitol Corridor Intercity Rail Service began in December 1991 and is a 170-mile train corridor from Auburn and Sacramento to San Jose, through the counties of Placer, Sacramento, Yolo, Solano, Contra Costa, Alameda and Santa Clara. Operating on the Union Pacific railroad tracks, Capital Corridor service consists of four daily round trips from Sacramento to San Jose and seven daily round trips from Sacramento to Oakland with connecting bus service to and from San Jose. One round trip per day extends beyond Sacramento to Auburn. The train service parallels the Interstate 80 corridor between Sacramento and Oakland, and Interstate 880 between Oakland and San Jose. Service includes stops in Roseville, Sacramento, Davis, Suisun/Fairfield, Martinez, Richmond, Berkeley, Emeryville, Oakland, Hayward, Fremont, Santa Clara at Great America, and San Jose Diridon Station. On July 1, 1998, the Capitol Corridor Joint Powers Authority (CCJPA), which is comprised of representatives from the eight counties served by the corridor, assumed responsibility for the service. Under contract with the CCJPA, the Bay Area Rapid Transit District (BART) manages the service and Amtrak operates the service on tracks owned by Union Pacific Railroad. Funding is provided to CCJPA by the State of California. Inter-County Bus Service VTA co-sponsors two inter-county bus services through cooperative arrangements with other transit systems. The Dumbarton Express is a transbay express bus route between the Union City BART Station and the Stanford Research Park in Palo Alto. It provides the only regularly scheduled public transit service over the Dumbarton Bridge. A consortium comprised of representatives from the Alameda-Contra Costa Transit District (AC Transit), San Francisco Bay Area Rapid Transit District (BART), City of Union City, San Mateo County Transit District (SamTrans), and VTA underwrite the net operating costs of the service. The service is contracted out to a private transit provider. SamTrans and VTA are responsible for 50% of the net operating costs and the other East Bay transit operators are responsible for the rest. The remaining 50% of the operating cots is apportioned based upon total daily boardings in Santa Clara and San Mateo Counties. Express Service over Highway 17 between Santa Cruz and downtown San Jose is funded and operated through an agreement between the Santa Cruz Metropolitan Transit District and VTA. Santa Cruz Metro operates the service. The two agencies share the net operating costs equally. Shuttle Program Light Rail Shuttle Under this program, VTA offers financial assistance to employers that wish to operate shuttle bus service between light rail stations and nearby employment centers. The service is operated by private contractors provided by VTA or the employer. Shuttles operate trips carrying employees from light rail to work and back. Funding to operate this program is provided by the employers (minimum of 25%), VTA, and grants from the Transportation Fund for Clean Air Act (AB434). Downtown & HP Pavillion Shuttles VTA operates a Downtown Area Shuttle (DASH) on weekdays between the downtown San Jose Transit Mall, San Jose State University, and San Jose Diridion Train Station. VTA, the Transportation Fund for Clean Air Act, City of San Jose, and the San Jose Downtown Association provide funding for the service. In addition, VTA operates a free shuttle service from the downtown San Jose Transit Mall to all public events held in the HP Pavilion. Recently, VTA staff met with the City of San Jose, San Jose Arena Authority, San Jose Arena Management and San Jose Downtown Association to develop a new funding scheme for this shuttle. All parties agree that the Sharks game service is worth continuing and funding is being pursued. VTA has requested that the other parties fund 50% of the costs. If funding partners at this 50% level cannot be secured, this service will be discontinued. On May 9, 2003, service for other events was discontinued due to low ridership and existing parallel bus service. San Jose Airport Flyer VTA, in partnership with the City of San Jose, provides free Airport Flyer bus service connecting the Norman Y. Mineta San Jose International Airport terminals and airport parking lots with VTA's Metro/Airport Light Rail Station and the Santa Clara Caltrain Station. The City of San Jose and VTA equally share the operating costs for this service. Congestion Management In January 1995, VTA was designated as the Congestion Management Agency and changed from being exclusively a transit provider to an organization responsible for countywide transportation planning, funding, and congestion management within the County. VTA, as the Congestion Management Agency for Santa Clara County, is responsible for coordinating and prioritizing projects for state and federal transportation funds, administering the Transportation Fund for Clean Air Program, and coordinating land use and other transportation planning. Adoption of a Congestion Management Program (CMP) is necessary to qualify for certain transportation funds made available through the state gas tax increase authorized in 1990. FACTORS AFFECTING FINANCIAL CONDITION Local Economy Although we continue to experience tighter economic conditions, Santa Clara County has the largest employment base of any county in Northern California. Many high technology, computer manufacturing, and electronics companies are located within the County. In the last year we continued to post job losses. In comparison with the State's June 2003 preliminary average (6.7 percent), the Santa Clara County has a higher unemployment rate (8.5 percent). Employers have eliminated over 200,000 jobs since December 2000. The County's population has increased substantially over the last fifty years. In recent years, the percentage rise has been much smaller, but the population continues to increase. As the population grows, so does the need for housing. With home mortgage rates at all-time lows within the last year and the average price down slightly, home sales got a jumpstart despite the recession. Sales increased 11% over the last fiscal year and the real estate market in Santa Clara County appears to be stable as this time. The County is an important barometer of commercial activity. Taxable sales activity at businesses, personal services outlets, and other non-retail commercial establishments are a significant component of the County's commercial activity. Sales Tax Sales tax is the primary source of funds for VTA's operations, maintenance, and capital needs. Local sales tax is derived from a one-half cent sales tax restricted for transit purposes, levied within Santa Clara County. VTA also receives State of California Transportation Development Act (TDA) funds, which are derived from a one-quarter cent sales tax levied by the State of California and allocated on a "return to source" basis for transportation use. These two sales taxes account for approximately 64% of the total revenue (less capital contributions) for the year ended June 30, 2003. FY03 was the second consecutive year that VTA has experienced negative sales tax performance. Due to the heavy dependence on the high-tech industry, Santa Clara County's economy has been volatile, resulting in correspondingly volatile sales tax receipts. The adopted budget estimated to receive $147.1 million in sales tax revenue in FY02/03. The revised estimate was $133 million and the actual result was $132.7 million. The current estimate for FY03/04 half-cent sales tax revenue is $135 million, which is a 1.7% increase compared to FY02/03 receipts. Although there appears to be a minimal gain anticipated in the next fiscal year, any growth is expected to be very slow in materializing. Ridership & Farebox Revenue Due to the decline in economic activity and service reductions introduced in July 2002, ridership continued to decline. VTA directly-operated systemwide ridership decreased compared to FY02's figure by 14.2% as 45.2 million passengers boarded Bus and Light Rail during FY03. Light Rail system ridership was 6.1 million, a decrease of 22.3% compared to the same period last year. Bus ridership for FY03 totaled 39.2 million passengers, a decrease of 12.8% compared to FY02. Contracted and Inter-agency ridership numbers also declined with the exception of Dumbarton and Santa Clara County Caltrain Shuttles, which increased ridership by 3.7% and 6.5% respectively. Paratransit ridership increased 1.7% over the prior year's figures. Although posting an increase in ridership, Paratransit operating expenses have declined due to cost saving measures enacted in FY03. Overall system-wide cost cutting strategies applied at the start of the year have helped to reduce Paratransit expenses by 12.3% compared to the same period last year. Unemployment has a direct impact on VTA ridership. As Santa Clara County employment levels decline, ridership decreases. In order to compensate for declining sales tax revenue receipts and to alleviate our operating deficits, VTA implemented fare increases during both July 1, 2002 and August 2003, with the goal of increasing the percentage of operating costs paid by patrons and the average fare revenue per boarding. At the end of the fiscal year, the average fare paid by each transit passenger was $0.68. VTA's operating cost recovery ratio was 13 % in FY03 compared to 13.5% in FY02. Federal Section 5307 Urbanized Formula Program Federal Section 5307 allows eligible recipients (such as VTA) to claim capital grant funds for maintenance costs and other projects such as routine bus replacement. Grant applicants may apply for FTA grants in an amount up to 80 percent of annual vehicle maintenance costs. VTA has incorporated this policy in its grant application strategies. The funds are reflected in the financial statements as Federal Operating Assistance. VTA's request for the existing Section 5307 grant was approved in September 2002. Although the Section 5307 grant program is intended to primarily fund capital acquisitions, funds awarded for preventive maintenance support the maintenance portion of the operating budget and can be converted to operating assistance. VTA requested the shift of $9.8 million from replacement buses to preventive maintenance, increasing the Preventative Maintenance and making the funds available in FY03 for operations. The $9.8 million of Federal Preventative Maintenance (i.e., federal operating assistance) was recognized in VTA's audited financial statements in FY 2001-02, but received in FY 2002-03. 1996 Measure B Transportation Improvement Program In November 1996, voters in Santa Clara County overwhelmingly approved Measure A, an advisory measure listing an ambitious program of transportation improvements for Santa Clara County. Also approved on the same ballot, Measure B authorized the Santa Clara County Board of Supervisors to collect a nine-year half-cent sales tax for general county purposes. Subsequently, the County Board of Supervisors adopted a resolution dedicating the tax for Measure A projects. Collection of the tax began in April 1997; however, use of the revenue was delayed pending the outcome of litigation challenging the legality of the sales tax. In August 1998, the California courts upheld the tax allowing the implementation of the 1996 Measure A transportation projects to move forward. In February 2000, the VTA Board of Directors approved a Master Agreement formalizing VTA's partnership with the County of Santa Clara to implement the 1996 Measure B Transportation Improvement Program (MBTIP). With this partnership in place, the County and VTA are now delivering a transportation program valued at over $1.8 billion. VTA agreed to secure Federal or State grant funds for certain 1996 MBTIP projects and to release MBTIP funds to fund other local projects. Currently, fund transfers have been performed on the Tasman East, Vasona, and Capitol Light Rail Projects. The 1996 MBTIP and other sources provide funds to local jurisdictions for street repair and other transportation projects. Administration and distribution of these funds is managed by the 1996 Measure B Ancillary Program. Over the life of the 1996 Measure B sales tax, local jurisdictions will receive a combined total of $448 million countywide. After approval of a ten-year expenditure plan by VTA and the County Board of Supervisors, VTA's Board of Directors adopted the 20-year Countywide Bicycle Plan. The 20-year plan includes three prioritized tiers of capital bicycle projects. The ten-year Bicycle Expenditure Program included in the Countywide Bicycle Plan is the funding mechanism for the Tier 1 projects. This program administers and distributes funds to Member Agencies to implement and construct the projects. In 2001, the VTA Board of Directors requested that the VTA Advisory Committee structure be modified to focus more directly on pedestrian issues. In response, staff recommended that the existing Bicycle Advisory Committee be re-established as the Bicycle and Pedestrian Advisory Committee (BPAC), and that its duties be augmented to focus on pedestrian-related issues. The Board also requested that staff develop a VTA Pedestrian Program that delineates the agency's pedestrian-related activities. VTA is responsible for project management of the following transit and highway projects as well as the administration of the pavement management and bicycle elements of the 1996 MBTIP program under the master agreement with the County of Santa Clara. The Transit Projects, estimated at a cost of $928.2 million, include: 1. Tasman East Light Rail Project - extending the current Light Rail system from Milpitas to Northeast San Jose 2. Vasona Light Rail Extension Project - constructing the Vasona Light Rail line from downtown San Jose to Winchester, utilizing the Union Pacific Vasona rail corridor 3. Capitol Light Rail Extension Project - building the Capitol Light Rail line from northeast San Jose (connecting to the Tasman line) down Capitol Avenue through east San Jose to the Alum Rock area, with eventual service to Eastridge 4. 30 low-floor light rail vehicles (LFV's) 5. Fremont/South Bay Corridor Service - interim improvements service connecting BART in Alameda County with San Jose (bus and possible ACE and Capitol Corridor improvements) 6. Caltrain Service Improvements - improving Caltrain commuter rail service by adding trains and improvements between Gilroy and Palo Alto The Highway Projects, estimated at a cost of $463.5 million include: 1. Interstate 880 widening from four to six lanes from Montague Expressway to U.S. 101, and an auxiliary lane on Southbound I-880 from U.S. 101 to the North First Street exit ramp 2. Routes 85/87 direct connector ramps for the southbound 85 to northbound 87 and southbound 87 to northbound 85, plus addition of a HOV lane in each direction of Route 87 3. U.S. 101 widening from four to six lanes, plus two HOV lanes between Metcalf Road in San Jose and Burnett Road in Morgan Hill 4. Route 85/U.S.101 interchange in Mountain View, including HOV Direct Connector 5. Routes 237/880 HOV direct connector ramps for southbound I-880 to westbound 237 and eastbound 237 to northbound I-880, and a southbound braided exit ramp from I-880 to Tasman Drive interchange 6. Route 87 HOV lane projects between I-280 and Julian Street as well as between Branham lane and I-280 7. Route 17 improvements between Lark Avenue in the Town of Los Gatos and I-280 in San Jose 8. Routes 85/101 interchange in South San Jose - complete the existing interchange by adding two direct connectors, a branch connector, and widening of U.S. 101 to eight lanes between Bernal Road and Metcalf Road 9. Route 152 safety improvements - safety and operation improvements between U.S. 101 and Route 156 10. Route 85 Noise Mitigation between U.S. 101 and Route 87 The 1996 Measure B Ancillary Program, estimated at a cost of $447.7 million includes: 1. Pavement Management Program - provides $90 million to local jurisdictions for street maintenance and repairs 2. Bicycle Program - provides $12 million for the development of a Countywide Bicycle Plan and the implementation of a series of bicycle projects 3. Level of Service Intersection Improvement Program - provides $11.3 million for the improvement of several critical expressway intersections 4. Expressway Signal Synchronization Program - provides $24.1 million to improve expressway capacity and operations 5. Fund Swap Projects - provides $310.3 million; through a series of actions taken by VTA's Board of Directors, federal, state, and local funds were programmed to the Tasman East Light Rail, Vasona Light Rail and Capitol Light Rail Extensions, to release local 1996 Measure B funds to other transportation projects. These projects include the I-680 HOV Lanes, U.S. 101/Bailey Road Interchange, Gateway studies, Montague Expressway Project, U.S. 101/Route-85 HOV Direct Connectors, Local Program Reserve, the purchase of 70 new light rail vehicles, and the Vasona Winchester extension. Financial Status - Enterprise Fund The Statement of Revenues, Expenses and Changes in Fund Net Assets states that VTA had a net operating loss of approximately $301.4 million. Even with net non-operating revenues of $223.3 million, there still was a $78.1 million decrease in net assets. During FY03, VTA acquired capital assets and completed construction in progress (CIP) projects of approximately $553 million. VTA started the year with $177.6 million in budgetary reserves (net working capital) and by the end of FY03, the balance was $114.9 million. The $62.7 million decrease in budgetary reserves was due to the operating loss of $36.6 million (exclusive of depreciation), as well as the acquisition and development of capital assets amounting to $26.1 million. The $26.1 million in capital assets came as the result of an offset of $36 million due to cancelled, closed, or scaled back projects that were previously approved and earmarked for reserves as of June 30, 2002. Table 1.1 presents restricted and unrestricted budgetary reserves as of June 30, 2003: The Restricted Budgetary Operating Reserves is $46.8 million The Restricted Budgetary Reserves Local Share of Approved Capital is $62.5 million The Restricted Budgetary Reserves Operating Encumbrance is $.9 million The Total Restricted Budgetary Reserves is $110.2 million The Unrestricted Budgetary Reserves is $4.7 million The Total Budgetary Reserves is $114.9 million END OF TABLE In accordance with the Board policy, 15% of the subsequent year operating budget is restricted to meet emergency needs that cannot be funded from any other source. This is meant to ensure that some funds are available in the event of unanticipated revenue shortfalls or if unavoidable expenditures may be required. Local share of approved capital represents the amount of revenue that VTA must provide towards Board approved capital projects. There was a decrease during FY03 of $72.2 million due to deferred and cancelled capital projects. The Capital Improvement Program Oversight Committee (CIPOC), which is composed of senior management and supporting staff from all five divisions within VTA, conducts thorough reviews of the entire capital program. The process examines every capital project as to its criticality to VTA's operations, strategic plan, and goals. Consequently, 46 projects were closed, cancelled, scaled back, or budgets reduced, returning over $36 million to reserves to help offset operating deficits. One example of a major project realizing savings from this review was the Guadalupe Corridor Platform Retrofit. Retrofits of platforms in the Downtown and Southline segments have been deferred. Operating encumbrances are for one-time non-recurring programs or projects, which are not expended during the fiscal year, and carryover to the successive fiscal years until the programs or projects are completed or terminated. All other operating appropriations lapse at year-end. Future Long-Term Financial Planning During FY02, a Benchmark analysis was completed to evaluate VTA's performance in comparison with other transit agencies. The results of this lead to the development of the recommendations of the Business Review Team and subsequent consideration by the Ad-Hoc Committee. VTA plans to implement the recommendations received. FY2003/2004 Goals, Projects and Major Efforts Business Review Team Recommendations: 1. VTA should establish a multi-year strategy to increase its farebox recovery ratio and average fare per boarding. This will require a program of regular fare increases and reductions in fare discounts. Assuming a $300 million budget for directly-operated service, each 5% improvement in farebox recovery ratio would generate $15 million in additional revenue. 2. To address the increasing costs in health benefits, VTA should consider cost containment opportunities, including employee cost sharing which is a standard practice in the private sector. These changes could result in estimated savings of as much as $2.5 million to $3.8 million annually. 3. To address the rising costs of its ADA Paratransit Program, VTA should consider modifying its existing service to reduce premium services, modify the eligibility verification process, and provide, as close as possible, only the level of service that is actually required by the ADA. Further, the Team concurred with the cost containment strategies VTA has set forth in their Paratransit Business Practice Improvement Plan. These changes could result in estimated savings of between $2.3 million and $3.5 million, depending on which options the Board approves. 4. VTA must continue to increase its marketing efforts to increase its market share and constantly evaluate services, making necessary modifications to assure efficiency and effectiveness. Each 1% increase in VTA ridership would generate approximately 465,000 more boardings and approximately $280,000 in additional revenue. 5. For Joint Power Authorities, VTA's Board of Directors should be involved in the approval of the operating and the annual incremental capital budget, and further should approve in concept the next five years of operating, maintenance, and capital funding requirements. 6. The VTA Board adopt and adhere to a structured Fare Policy and Program that establishes "fair fares", encourages and sustains ridership growth and incorporates ongoing assessments of business efficiency as part of VTA business practices. Ad Hoc Financial Stability Committee Recommendations: CONCLUSIONS In response to a dramatic and unprecedented decline in sales tax revenue to VTA, the Board and staff have made substantial in-roads toward the reduction of the near-term operating deficit by reducing expenses and improving productivity and efficiency. However, in spite of these efforts, VTA is still facing annual operating deficits averaging between $40-50 million beyond FY04-05. As a consequence, VTA must urgently address the need to enhance revenues and reduce expenses in the very near term. Additional delay in addressing this structural problem would simply exacerbate the problem. The Ad Hoc Committee has adopted the following recommendations. Adoption, in the whole or in part, by VTA's Board of Directors is pending. Adopted Board Actions 1. Adopt the proposed 21 percent service reductions, but defer implementation until January 2004. (On September 24, 2003, a Superior Court ruling allowed Measure A funds to be used for operational expenses, thereby making the Board Action inapplicable). 2. Direct staff to explore the feasibility of the limited, temporary use of future Measure A revenues to fund most, if not all of the bus and light rail service reductions contained in the Fiscal Year 2003-2004 and Fiscal Year 2004-2005 proposed budget. 3. Defer the door-to-door paratransit per trip service surcharge of $1.50 for one Fiscal Year and until current paratransit customers have been evaluated for their medical need for the service and their ability to pay. 4. Adopt all of the recommendations of the Ad-Hoc Financial Stability Committee, recognizing that all recommendations related to employee working conditions and benefits are subject to meet-and-confer requirements. 5. Conduct a Board Workshop in October 2003 to determine Board consensus on a new local revenue source to present to the voters for consideration in 2004. Adopt the consensus local revenue alternative at the Board's November 2003 Meeting. 6. Waive the three-quarter mile residency rule on paratransit service for one year in South Santa Clara County south of Cochran Road pending the pursuit of additional funds to continue to provide paratransit service throughout that extended rural area with the clarification that if funds for the one-year period are identified, the position would be reconsidered. 7. Adopt Phase III of the Paratransit Service Business Practices Improvement Plan, which includes modifications to the minimum account balance policy, implementation of the Americans with Disabilities Act (ADA) defined service area and hours, a modified door-to-door/curb-to-curb program, and premium service pricing. 8. Approve $14,105,000 and $14,387,000 for Fiscal Year 2003-04 and Fiscal Year 2004-05 to provide Santa Clara Valley Transportation Authority's share of Caltrain operating support; and further approve in concept VTA's use of $1,486,000 Federal Section 5309 funds in lieu of the local match requirement for FY 2003-04 capital support. 9. Authorize the General Manager to execute a Cooperative Service Agreement with the San Joaquin Regional Rail Commission and the Alameda County Congestion Management Agency for continued VTA funding of Altamont Commuter Express (ACE) commuter rail service in the amount of $3,960,000 in Fiscal Year 2003-04 and $4,034,000 in Fiscal Year 2004-05. 10. Adopt a finding that a fare increase is necessary to meet operating expenses and to fund capital projects necessary to maintain service within the existing service area, while maintaining minimum required financial reserves. 11. Approve the Fiscal Year 2003-04 and Fiscal Year 2004-05 Recommended Biennial Budget. Operations Division OPERATIONS ADMINISTRATION: Protective Services Continue the expansion of the On Board Closed Circuit Television (CCTV) including the completion of the Remote Viewing Demonstration Project by establishing CCTV data viewing at the Eastridge Transit Center and the Chynoweth Light Rail Station. Service Planning Transition from current manual passenger data collection to an automated system using Automatic Passenger Counters (APC's). This new technology works in concert with the Advanced Communications System (ACS) on both bus and light rail vehicles. Operations Planning Work with VTA's service partners, such as Caltrain, ACE, Highway 17 Express and Dumbarton Express to develop service and operating plans that meet passenger needs, while reflecting VTA's financial condition. Accessible Services Contain paratransit program costs and overall utilization through a 20% reduction in enrollment rate. Further contain paratransit program costs through the development and implementation of Phase II of the Paratransit Business Practices Improvement Plan. September 1, 2003 - modify minimum account balance policy October 13, 2003 - implement ADA service area October 13, 2003 - implement curb-to-curb service TRANSPORTATION: Meet or exceed the goal of providing 99.25 percent of scheduled service for bus and 99.9 percent for rail. Desired outcome is 99.25 percent or greater for bus and 99.9 percent for light rail. Plan and coordinate all Operations Division programs to effect the activation of the Tasman East/Capitol light rail extension. Desired outcome is to successfully complete timeline goals in preparation for planned revenue service in Summer 2004. MAINTENANCE: Continue the implementation of VTA's Clean Fuel Strategy. This includes working with the California Air Resources Board on emissions reductions by developing and implementing a program for bus engine overhaul to ensure compliance with emission regulations, demonstrating and testing technology that has the potential to reduce NOx (nitrogen oxide) emissions by 70% or more on three buses operating in revenue service over a three-year period, the Zero Emission Bus Demonstration Project and continued participation in the California Fuel Cell Partnership. As a part of VTA's Clean Fuel Strategy, manage the contract for the purchase of three Zero Emission Buses (hydrogen fuel cell) and complete the installation of the hydrogen fueling station at the Cerone Division. In addition, coordinate maintenance procedures and training development to support the Zero Emission Bus Demonstration Project and coordinate the delivery of Zero Emission Bus vendor training. Continue to manage the contract for the construction and commissioning of 100 low floor light rail vehicles from Kinkisharyo and place into revenue service 48 of these low floor light rail vehicles. In addition, complete the decommissioning of the 39 UTDC light rail vehicles, which includes schedule preventive maintenance, exterior rust removal and body repair if needed. Provide support and conduct system integration testing in preparation for the opening of the Tasman East and Capitol Light Rail Corridors in early June 2004. At this time, the Way, Power & Signal section of the Maintenance Department will assume maintenance responsibility for this light rail extension. Additional responsibilities will include the maintenance of eight light rail stations, five substations, five Park & Ride Lots and 12.6 miles of track and overhead catenary. Administrative Services Division Continue to reduce overall IT costs through the complete knowledge transfer from consultants to VTA employees and development of IT Strategic Plan. Successfully negotiate equitable labor agreements with the Transportation Authority Engineers and Architects' Association; Service Workers Local 715 Service Employees International Union; AFL-CIO, Santa Clara Valley Transportation Authority Chapter; and the County Employees Management Association, Santa Clara Valley Transportation Authority Chapter. Construction Division CAPITAL IMPROVEMENTS: Transit Operations Complete construction of projects in the Facilities Improvement Program including North and the Cerone O&R Division Improvements Project, and the Cerone ZEB Demonstration Project. Complete construction of north line Guadalupe platform modifications to accommodate low floor light rail vehicles. 1996 MEASURE B TRANSPORTATION IMPROVEMENT PROGRAM: Transit Program Continue construction of the Vasona Light Rail Project as scheduled and budgeted. Complete the Tasman East and Capitol Light Rail Projects for revenue service by July 2004. Construction completed on the double track from Tamien Station to Lick for the Caltrain Service Improvements Project. Complete construction on Caltrain Improvement Program projects to include: Lawrence Bus/Shuttle & Parking Expansion; Palo Alto Transit Center Improvements and Santa Clara Parking & Bus Expansion. Highway Program Complete construction on the following contracts: I-880 Widening in San Jose; Route 152 Improvements Phase A2 in Gilroy. Continued construction on the following contracts: Route 85/101 (North) Interchange in Mountain View; Route 85/101 (South) Interchange in San Jose; Route 237/880 Interchange Stage C Phase 2; Consolidated Biological Mitigation in San Jose. Begin construction on the following contracts: Route 87 (S) HOV lanes in San Jose; Route 87 (N) HOV lanes in San Jose; Replacement planting/landscaping for I-880 Widening. HIGHWAY PROJECT DEVELOPMENT & ADMINISTRATION Award construction contracts for 152-B, I-880/Coleman Avenue Interchange, Route 87 S, Route 97 N, and the River Oaks Bicycle/Pedestrian Bridge. Complete design of 87N, 87S, I-880/Coleman Avenue Interchange, Route 87 N, and Route 87 S. Begin design of Route 85 Noise Mitigation Project. Commence preliminary engineering/environmental approval activities for highway projects selected by the VTA Board in implementation of VTP 2020. Develop the 10-year project list for local streets and roads program. OTHER PROJECTS Continue construction of the U.S. 101/Bailey Avenue Interchange project for the City of San Jose. Begin interchange construction work for the I-880/Coleman Avenue Interchange project for the City of San Jose. Begin construction of the River Oaks Bicycle/Pedestrian Bridge I San Jose and Santa Clara. Development & Congestion Management Division CONGESTION MANAGEMENT PROGRAM Develop the 2003 Congestion Management Program. Update Valley Transportation Plan 2020 (VTP 2020), the comprehensive multimodal transportation plan for Santa Clara County. Continue and expand the outreach and education for the Community Design and Transportation program, to ensure that all cities adopt the guidelines. Develop the Capital Improvement Program (CIP) element of the 2003 Congestion Management Program (CMP). TRANSIT PLANNING & DEVELOPMENT Complete Conceptual Engineering and Final EIR/EIS for the SVRTC (BART Extension) Project. Complete Conceptual Engineering and Final EIR/EIS for the Downtown East Valley (Capitol Expressway segment) Project. Complete and release Draft EIR/EIS for the Downtown East Valley (Santa Clara/Alum Rock segment) Project. MARKETING & CUSTOMER SERVICE Coordinate design, fabrication, and installation of more than 40 CODE projects within 1996 Measure B light rail and highway projects. Implement and evaluate comprehensive strategic marketing plan in accordance with VTA's financial condition and service levels. Fiscal Resources Division Complete a subleasing transaction involving VTA's Light Rail vehicles to Salt Lake City and Sacramento Regional Transit District. Complete a series of two lease to service contracts financial transaction for Low Floor Light Rail Vehicles. Complete lease to service contract financial transaction on buses. Complete refinancing of Measure A repayment obligation 2000 Measure A Transportation Improvement Program and VTP 2020 In August 2000, the VTA Board of Directors approved placing a measure on the November 7, 2000 General Election ballot which would approve a 30 year half-cent sales tax to take effect in the county after the 1996 Measure B Sales Tax expires (March 31, 2006). More than 70% of voters approved the 2000 Measure A. The tax cannot be extended past March 31, 2036 without the vote and approval of the residents of Santa Clara County. It is estimated that over $6 billion (FY 2000 constant dollars) will be collected. The revenue from this Measure will be collected by the State and sent to VTA. The funds may be used to finance the transit projects and operations specified in 2000 Measure A and listed in VTA's Valley Transportation Plan and Expenditure Program (VTP 2020). The activities specified in 2000 Measure A include: Connect BART to Milpitas, San Jose, and Santa Clara; Build a rail connection from the Norman Y. Mineta San Jose International Airport to BART, Caltrain, light rail; Purchase vehicles for disabled access, senior safety, clean air buses; Provide light rail throughout San Jose through the Downtown East Valley Transit Improvement Plan; Expand and electrify Caltrain; Increase rail and bus services; and Provide for related operating expenses. Staff is currently developing the implementation details of the program for adoption by the VTA Board of Directors. VTP 2020 provides for a balanced transportation system consisting of transit, roadway, bicycle and pedestrian improvements. It is a twenty-year multi-modal transportation plan that guides overall planning and programming efforts within Santa Clara County. It deals with many transportation issues including decision-making on land use, maintenance and upgrades to the infrastructure, and environmental preservation. VTP 2020 will establish the capital improvement project selection process and establish a ten-year implementation schedule for the first phase of the Capital Improvement Program (CIP). The Best Practices Land Use Program will also be incorporated into the Implementation Program. The Implementation Plan will be updated every other year to reflect the VTP 2020 update. TransLink Demonstration Project In 1998, VTA agreed to participate in a demonstration of "TransLink," an innovative regional fare collection program sponsored by MTC. This demonstration commenced in early 2002 and includes BART, Caltrain, AC Transit, San Francisco MUNI, and Golden Gate Transit in addition to VTA. TransLink will utilize "smart cards" for fare collection. The card will allow riders to store value on the card after money was loaded electronically at sales outlets, vending machines, or by other sales channels. Once the card has a balance, the value would be deducted from the card each time it is used for travel. It offers several potential advantages to VTA and customers, including convenience, security, simplified transfers, and reduced handling of coins and bills. A regional clearinghouse was established to track all card loading and fare payment transactions, and to "settle" funds among all the participating transit operators. An evaluation of the first six months of the Demonstration concluded that the system worked and that customers wanted to see it extended region wide. During 2003, MTC and the transit operators have been working to resolve governance, financial, and design issues with the intent of enabling a full region wide implementation of TransLink over the next two to three years. Cash & Investment Management Policies and Practices VTA's cash and investments are managed in accordance with California Government Code Section 53601 and other applicable state law. The Restricted and Unrestricted Investment Policy is periodically reviewed and approved by the Board of Directors. The Investment Policy defines permitted investments and prescribes investment strategies. The investment strategies are expressed through asset allocation ranges and targets. Risk tolerance and performance expectations are defined by benchmark indexes. Restricted investments are for all non-retirement assets. Restricted assets consist of monies and other resources that are either Board designated or legally restricted for the following purposes: Capital and Operating General Liability Insurance Workers' Compensation Long-term Accrued Vacation and Debt Service Sick Leave Benefits Retiree Healthcare VTA changed its investment strategy to safeguard principal and mitigate possible losses by shifting the unrestricted funds earmarked to underwrite operating deficits and local share of capital projects using a new benchmark, the table money market index which has much shorter duration. The taxable money market index is the benchmark for short-term funds, and the Lehman Brothers U.S. Government Intermediate Index is the benchmark for Intermediate Term Funds. All securities are "marked-to-market" at month-end. VTA's investment program is actively managed by professional money managers whose performance is overseen by VTA. The Restricted/Unrestricted Investment Policy includes three asset allocation and accompanying benchmarks as shown below. In accordance with California Government Code Section 53620 - 53622, the assets of the Retiree Health Care Program funds may be invested in a manner similar to those made by pension funds. Operating/Non-Retirement: Benchmark- US Government Intermediate Fixed Income: Target Ranges N/A, Target Asset Allocation 54%, and the Actual was 51% Operating/Non-Retirement: Benchmark- Institutional Money Market: Target Ranges N/A, Target Asset Allocation 46%, and the Actual was 43% Operating/Non-Retirement: Benchmark- Cash/Commingled Investments: Target Ranges N/A, Target Asset Allocation none, and the Actual was 6% Retiree Health: Benchmark- Lehman Aggregate (Fixed Income): Target Ranges 30-70%, Target Asset Allocation 48%, and the Actual was 40% Retiree Health: Benchmark- S&P 500 Index (Equity): Target Ranges 25-60%, Target Asset Allocation 50%, and the Actual was 40% Retiree Health: Benchmark- Cash/Commingled Investments: Target Ranges 0-5%, Target Asset Allocation 2%, and the Actual was 20% The ATU/VTA Pension Plan Investment Policy functions like the Restricted/Unrestricted Investment Policy, with the notable exception that Pension Plan Trustees review and approve the policy, (pursuant to California State Proposition 162 enacted in November 1992). The Pension Plan is a defined benefit plan and its financial position and changes in financial position are reported in separately issued stand-alone financial statements. A table presenting VTA/ATU Pension Plan benchmark and asset allocation range as of June 30, 2003: ATU Pension Plan: Benchmark - Lehman Brother Aggregate (Fixed Income) - Target Ranges 35-45%, Target Asset Allocation is 39%, and the Actual is 41% ATU Pension Plan: Benchmark - S&P/Barra Value (Large Cap Equity) - Target Ranges 15-25%, Target Asset Allocation is 20%, and the Actual is 19% ATU Pension Plan: Benchmark - Russell 2000 Value (Small Cap Equity) - Target Ranges 5-15%, Target Asset Allocation is 10%, and the Actual is 11% ATU Pension Plan: Benchmark - S&P 500 (Large Cap Equity Index) - Target Ranges 10-20%, Target Asset Allocation is 15%, and the Actual is 14% ATU Pension Plan: Benchmark - MSCI EAFE (International Equity Index) - Target Ranges10-20%, Target Asset Allocation is 15%, and the Actual is14% ATU Pension Plan: Benchmark - Cash/Commingled Investments Target Ranges 0-5%, Target Asset Allocation is 1%, and the Actual is 1% END OF TABLE An addition to the management of this investment fund is the rebalancing of the allocations. The Plan's asset allocation will be reviewed relative to the targets on a monthly basis and action will be taken to re-balance to within the target ranges by means of asset transfers among categories. When necessary and/or available, cash inflows/outflows will be deployed in a manner consistent with the strategic asset allocation on the system. With respect to assets still held by the County, the investment policies of the commingled pool conform to State statutes. In addition, VTA has an adopted policy regarding the types of investments which may be made and the maximum amounts which may be invested in any one financial institution or amounts which may be invested in long-term instruments. Investment earnings, recognized on the Statement of Revenues, Expenses and Changes in Fund Net Assets - Enterprise Fund (Business-Type Activity), amounted to $14.3 million during FY03. $7.5 million in net investment earnings is reported on the Statement of Changes in Plan Net Assets - Pension Trust Funds. Funds invested for restricted assets include workers' compensation, general liability, and retiree medical activities. The expense for these activities is recognized in the Enterprise Fund for contribution payments that is net of expected earnings. The contribution amounts are based on actuarial studies. The increase in investment assets is recognized as an increase in cash and increase in other accrued liabilities. Approximately $7.6 million in restricted investment earnings are accounted for in this manner. Table 1.2 reads: The Enterprise Fund Earnings for FY2003 were $14,425 million, The Special Revenue and Capital Projects Fund Earnings were $99 million The Pension Trust Fund was $7,523 million Income Recognized was $21,867 million The Earnings for Discounted Liabilities was $7,556 million The Total Investment Earnings were $29,423 million END OF TABLE Risk Management For the year ended June 30, 2003, VTA self-insured the first $3 million of all public liability claims and all worker's compensation claims. Based on annual independent actuarial studies, the claims program funds are adjusted annually to maintain a projected financial position at an estimated 75% confidence level. Risk Management Department Claims Staff oversee third party administrators for the adjustment and payment of claims from both self-insurance funds. The Risk Manager obtains excess casualty and property insurance coverage for operations and also manages the Owner-Controlled Insurance Programs (OCIP) for major transit and highway construction projects. The OCIP is a fully insured program providing general liability coverage, and statutory worker's compensation coverage for construction contractors, at a reduced premium cost to VTA. Internal Controls To reasonably assure compliance with established policies and procedures, and to protect assets, VTA has established a system of internal controls, including budget guidelines. The Internal Audit Department reviews internal controls, conducts performance audits, and then issues reports on its findings, which include recommendations for improvement. Internal Audit reports to the Chief Financial Officer. There are inherent limitations that should be recognized in considering the potential effectiveness of any system of internal control. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived therefrom, and that the evaluation of those factors requires estimates and judgments made by management. We believe VTA's internal controls adequately safeguard assets against loss from unauthorized use or disposition, and provides reasonable assurance of adherence to prescribed managerial policies as well as proper recording of financial transactions in the financial statements. Major subjects reported on during FY03 by the Internal Audit Department are: Operational review to improve process effectiveness and efficiency; Assessment of internal controls; Compliance audit on contractors/vendors (pre-award and incurred cost audits); Analyses of contractors' proposed costs; and Follow up of recommendations issued by Internal Audit Department and external regulatory agencies. Pension and Other Post-employment Benefits There are two specific pension plans offered by the VTA. All ATU employees are covered under the Santa Clara Valley Transportation Authority Amalgamated Transit Union Pension Plan. The plan provides retirement, disability, and death benefits based on the employees' years of service, age, and final compensation. The second pension plan is the State's Public Employees Retirement System (CalPERS) for non-ATU employees. Further information on the two plans can be obtained in footnotes 11 and 12 of the Notes to the Basic Financial Statements, starting on pages 2-48 and 2-50 respectively. Additionally, there are Schedules of Funding Progress for the two plans within the Required Supplementary Information on pages 2-60 through 2-61. There are three health benefits programs for employees who retire directly from VTA. First, for ATU employees, there is an ATU Medical Trust which includes a Spousal Medical Trust and Retiree Vision and Dental Trust. Secondly, there is the ATU Retiree Health Care Program. Finally, there is the non-ATU Retiree Health Care Program. Additional information can be found in footnotes 13 and 14, pages 2-51 through 2-52. Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to Santa Clara Valley Transportation Authority (VTA) for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2002. This was the 7th consecutive year that VTA has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government agency must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both accounting principles generally accepted in the United States of America and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to GFOA to determine its eligibility for another certificate. The preparation of this Comprehensive Annual Financial Report required a concerted team effort throughout VTA, including team members from Financial Accounting, Disbursements, Revenue Services, Contracts and Purchasing, Risk Management, Budget and Analysis, Investments, Service and Operations Planning, and the Debt Administration/Business Analysis Departments. The team members demonstrated a commendable degree of personal dedication and determination in producing this document. In addition, special thanks to Macias, Gini & Company LLP for their contribution, as well as all other VTA staff for responding positively and promptly to the request for information that occurs with each annual audit. The Copy Center and the Marketing and Customer Service Departments also made significant contributions to the form, content, and production of the report. October 31, 2003 Signed by the General Manager (Peter M. Cipolla) and Chief Financial Officer (Scott Buhrer) 2003 VTA Board of Directors The table reads: VTA is an independent special district governed by its own Board of Directors. The Board consists of 12 elected city and county officials, appointed by the jurisdictions they represent. Board membership is based on population as follows: 1. Five city council members from the City of San Jose. 2. Three city council members from among the Cities of Los Altos, Los Altos Hills, Mountain View, Palo Alto, Santa Clara, and Sunnyvale. 3. One city council member from among the Cities of Campbell, Cupertino, Los Gatos, Monte Sereno, and Saratoga. 4. One city council member from among the Cities of Gilroy, Milpitas and Morgan Hill. 5. Two members from the Santa Clara County Board of Supervisors. 6. Ex-Officio, Santa Clara County's two representatives to the Metropolitan Transportation Commission (MTC). Each grouping has one alternate. The Board of Directors meets at 6 p.m. on the first Thursday of each month. Jane P. Kennedy, Chairperson Don Gage, Vice-Chairperson Group 1 consists of the City of San Jose - represented by Cindy Chavez, David Cortese, Pat Dando, Ron Gonzales, Forrest Williams, and Ken Yeager, Alternate. Group 2 consists of the City of Los Altos, represented by Francis La Poll, Alternate; Town of Los Altos - no representative; City of Mountain View - no representative; City of Palo Alto - represented by Dena Mossar; City of Santa Clara - represented by John McLemore; and City of Sunnyvale - represented by Manuel Valerio. Group 3 consists of the City of Campbell - represented by Jane P. Kennedy; City of Cupertino - no representative; Town of Los Gatos - represented by Joe Pirzynski, Alternate; City of Monte Sereno - no representative; and City of Saratoga - no representative. Group 4 consists of City of Gilroy, represented by Thomas Springer; City of Milpitas, represented by Patricia Dixon, Alternate; and City of Morgan Hill - no representative. Group 5 consists of the County of Santa Clara - represented by Blanca Alvarado, Don Gage, and Pete McHugh, Alternate. Group 6 is Ex-Officio, Santa Clara County's two representatives to the Metropolitan Transportation Commission represented by Jim Beall, Jr. The Board of Directors established three policy committees and six advisory committees. The policy committees advise on policy matters and provide in-depth review of individual issues before the Board of Directors take final action. The committees include: 1. Administrative and Finance Committee (A&F) 2. Congestion Management Program and Planning Committee (CMPP) 3. Transit Planning and Operations Committee (TP & O) The advisory committees review policies under development to ensure that they meet the needs of constituents, customers, elected officials, the business community and others. The committees include: 1. Committee for Transit Accessibility (CTA) 2. Citizens Advisory Committee (CAC) 3. Bicycle and Pedestrian Advisory Committee (BPAC) 4. Technical Advisory Committee (TAC) 5. Policy Advisory Committee (PAC) 6. Transportation Corridor Policy Advisory Boards (PABS) END OF TABLE A pie shows the number of employee positions in each organizational unit: Operations has 1,850 employee positions, or 77.2 % of the VTA workforce. Development & Congestion Management has 125 employee positions, or 5.2% of the VTA workforce. Fiscal Resources has 122 employee positions, or 5.1% of the VTA workforce. Construction has 130 employee positions, or 5.4% of the VTA workforce. Administrative Services has 126 employee positions, or 5.3% of the VTA workforce. General Counsel has 8 employee positions, or 0.3% of the VTA workforce. The General Manager's office has 37 employee positions, or 1.5% of the VTA workforce. END OF CHART An organizational chart depicts the following: The Organizational Chart above shows that the General Counsel and General Manager report to the Board of Directors. The Board Secretary reports to the General Manager. The Board Assistant and Records Management Document Control report to the Board Secretary. The Chief of Staff reports to the General Manager. Government Relations Transportation Policy report to the Chief of Staff. The Chief Financial Officer in Fiscal Resources reports to the General Manager. Fiscal Resources functions include Budget, Disbursements/Payroll, Financial Accounting, Investment Services, Revenue Services, Contracts & Materials Management and Internal Audit. The Chief Operating Officer in Operations reports to the General Manager. Operations' functions include Transportation, Maintenance, Service Planning, Rail Activation, Protective Services, and Operator Training. The Chief Construction Officer in Construction reports to the General Manager. Construction functions include Rail Construction, Facilities Construction, Highway Construction, Capital Project Construction, and BART Construction. The Chief Development Officer in Development & Congestion Management reports to the General Manager. The Director of Planning reports to the Chief Development Officer. Planning functions include Planning & Programming, Environmental Analysis, Real Estate, Congestion Management Program, and Highway Administration. The Director of Marketing & Customer Service reports to the Chief Development Officer. Marketing & Customer Service functions include Customer Service, Market Development, Community Outreach, and Public Information. The Chief Administrative Officer in Administrative Services reports to the General Manager. Administrative Services functions include Human Resources, Information Systems, and Risk Management. END OF CHART Principal Officials as of June 30, 2003 The General Manager is Peter M. Cipolla The General Counsel is Suzanne Gifford The Board Secretary is Sandra Weymouth The Chief of Staff is Denise Daly The Chief Administrative Officer is Kay Evleth The Chief Construction Officer is Jack Collins The Chief Development Officer is Michael P. Evanhoe The Chief Financial Officer is Scott Buhrer The Chief Technology Officer is George Barlow The Chief Operating Officer is Frank T. Martin The Director of Marketing and Customer Service is Anne-Catherine Vinickas The Director of Planning & Development is James Pierson The Director of Transportation & Maintenance is Matthew Tucker The Controller is Gerald Rosenquist The Deputy Director of Highways is Jeff Funk The Deputy Director Rail Design & Construction is Les Miller The Deputy Director, Congestion Management Program is Carolyn Gonot The Deputy Director, Program & Highway Administration is John Ristow The Deputy Director, Service & Operations Planning is Mike Aro The Government Affairs Manager is Kurt Evans The Transportation Policy & Program Manager is Frank Sharpless A Santa Clara County Bus and Rail Transit Service Area map shows that Caltrain runs from San Francisco to Gilroy down the middle of Santa Clara County. The Existing Light Rail - Tasman West runs from Shoreline Boulevard going east to Tasman Drive and First Street. Tasman East runs from Tasman Drive going east and ends right before Interstate 880. The Guadalupe Corridor runs south from Tasman Drive and First Street through Downtown San Jose to Santa Teresa Boulevard, and a small portion of the line runs to Almaden Valley. It shows Existing Intermodal Stations at Shoreline Boulevard and at Great America on the Tasman West corridor and one at the Tamien Station on the Guadalupe Corridor. END OF MAP The letter below is the Independent Auditor's Report: The Board of Directors Santa Clara Valley Transportation Authority San Jose, California INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the business-type activity, the governmental activity, each major fund, and the aggregate remaining fund information of the Santa Clara Valley Transportation Authority (VTA), as of and for the year ended June 30, 2003, which collectively comprise VTA's basic financial statements as listed in the table of contents. These financial statements are the responsibility of VTA's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statement referred to above present fairly, in all material respects, the respective financial position of the business-type activity, the governmental activity, each major fund, and the aggregate remaining fund information of VTA, as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 7(f) to the basic financial statements, VTA adopted the provisions of Governmental Accounting Standards Board (GASB) Technical Bulletin No. 2003-1, Disclosure Requirements for Derivatives Not Reported at Fair Value on the Statement of Net Assets, as of July 1, 2002. In accordance with Government Auditing Standards, we have also issued our report dated October 31, 2003, on our consideration of VTA's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The management's discussion and analysis, schedules of funding progress and the budgetary comparison schedule, as listed in the table of contents, are not a required part of the basic financial statements but are supplementary information required by the GASB. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise VTA's basic financial statements. The introductory section, combining and individual fund financial statements and schedules section, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund statements and schedules section has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the audition procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. Singed by Macias, Gini & Company LLP Certified Public Accountants Walnut Creek, California October 31, 2003, except for Note 21, as to which the date is November 20, 2003 END OF LETTER Management's Discussion and Analysis The purpose of the information presented in the discussion and analysis portion of this report is to provide an overview of the Santa Clara Valley Transportation Authority's (VTA) financial condition as of June 30, 2003. This discussion and analysis should be read in conjunction with the transmittal letter starting on page 1-7, and VTA's financial statements, which begin on page 2-15. Financial Highlights As of June 30, 2003, VTA's assets exceeded liabilities by almost $1.9 billion. Business-type activity (Transit Operations) and Governmental activity (Congestion Management) net assets were $1.85 billion and $1.3 million, respectively. Of the $1.9 billion in net assets, approximately $1.7 billion was invested in capital assets net of related debt which was associated with our capital expansion program. As of June 30, 2003, VTA had issued bonds in the amount of $417.5 million compared to the $343.3 million the previous fiscal year. The increase was due to the issuance of the 2002 Grant and Bond Anticipation Note of $82 million. The Statement of Revenues, Expenses and Changes in Fund Net Assets reports that VTA had a net operating loss of $301.4 million. Even with an addition of $223.2 million in non-operating revenues, there still was a $78.1 million dollar decrease in net assets before Capital contributions of $317 million. Net Assets increased by $239 million. This can be seen on the Statement of Revenues, Expenses and Changes in Fund Net Assets, page 2-19. Sales tax revenue continued to decrease significantly during FY03, declining over $11.5 million (8%) compared to last fiscal year. There was a $287.7 thousand decrease in net assets for Congestion Management due primarily to an increase in operations and operating project expenses. Overview of the Financial Statements VTA's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. In addition to the basic financial statements, this report also contains required and other supplementary information. Government-wide financial statements. The government-wide financial statements provide a top-level view of VTA's financial picture in a format resembling that of a private-sector company. The statement of net assets presents information on all of VTA's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of VTA is improving or deteriorating. The statement of activities presents information showing how VTA's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both activities of the government-wide statements distinguish functions of VTA that are principally supported by sales tax and intergovernmental revenues. Although the transit operation's primary function is intended to recover its costs through charges for services (business-type activities), the recovery is not significant. The governmental activity of VTA is congestion management, which includes planning, programming, and construction of highway projects. The business-type activity of VTA is transit, which includes bus and light rail operations and capital project activity. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. VTA, like local and state governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of VTA can be divided into three categories: governmental funds, proprietary funds (i.e. the enterprise fund), and fiduciary funds. The fund financial statements can be found on pages 2-15 to 2-25 of this report. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financial requirements. VTA maintains four individual governmental funds and uses the governmental funds to account for the Congestion Management Program, the Traffic Authority, the Congestion Management Highway and the1996 Measure B Highway Capital Project programs. Information, on miscellaneous funds, is presented in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances. Proprietary (Enterprise) Funds. VTA maintains one type of proprietary fund: an enterprise fund. The enterprise fund is used to report the same function presented as "business-type activity" in the government-wide financial statements. VTA uses the enterprise fund to account for its transit operation and capital activities, 1996 Measure B Transit projects and 2000 Measure A transit and operating activities. The enterprise fund provides the same type of information as the government-wide financial statements, only in more detail. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside VTA. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support VTA's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The activities of the Amalgamated Transit Union (ATU) Pension Plan, the ATU Spousal Medical Trust, and the Retiree Vision and Dental Trust are accounted for in pension trust funds. Pension trust funds are used to account for assets held by VTA as a trustee for individuals and other organizations, such as ATU. The Bay Area Air Quality Management District (BAAQMD) program and the 1996 Measure B Ancillary Programs, which includes the Pavement Management and Bicycle Programs, are accounted for in an agency fund. Agency funds are used to account for assets held solely in a custodial capacity. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 2-26 to 2-59 of this report. Other information. In addition to the basic financial statements and notes, required supplementary information is also being presented. The required supplementary information shows VTA's progress in funding its obligation to provide employees with pension benefits and it also shows the Congestion Management Program Budgetary Schedule. These schedules can be found on pages 2-60 to 2-63. There is also a section including other supplementary information such as combining statements and other individual schedules found immediately following the required supplementary information. The supplementary data presents individual fund statements and schedules for the Enterprise and Fiduciary Funds. Government-wide Financial Analysis The Statement of Net Assets and the Statement of Activities report a total increase in net assets of $238.6 million, resulting primarily from a net loss of $78.1 million and capital contributions of $317 million. The inclusion of $317 million in capital contributions (revenue) has no corresponding expenses associated with it within the statements which is likely to be misconstrued. During FY03, VTA acquired capital assets and completed construction in progress (CIP) projects of approximately $553 million. These capital assets were funded by the capital contributions as well as existing budgetary reserves. The operating loss was covered by budgetary reserves as well. A table shows VTA's Condensed Statement of Net Assets: Current and other assets for Business-type activity was $389,726,000 in 2003 and $424,209,000 in 2002 Current and other assets for Governmental activity was $82,819,000 in 2003 and $40,082,000 in 2002 Current and other assets Total for both activity types was $472,545,000 in 2003 and $464,291,000 in 2002. Capital assets, net for Business-type activity was $2,126,091,000 in 2003, and $1,740,912,000 in 2002 Capital assets, net for Governmental activity was $0 in 2003 and 2002 Capital assets, net Total for both activity types $2,126,091,000 in 2003 and $1,740,912,000 in 2002 Total Assets for Business-type activity was $2,515,817,000 in 2003 and $2,165,121,000 in 2002 Total Assets for Governmental activity was $82,819,000 in 2003 and $40,082,000 in 2002 Total Assets for Total for both activity types was $2,598,636,000 in 2003 and $2,205,203,000 in 2002 Current Liabilities for Business-type activity was $249,390,000 in 2003 and $105,776,000 in 2002 Current Liabilities for Governmental activity was $81,217,000 in 2003 and $38,251,000 in 2002 Current Liabilities for both activity types was $330,607,000 in 2003 and $144,027,000 in 2002 Long term liabilities outstanding for Business-type activity was $417,470,000 in 2003 and $449,245,000 in 2002 Long term liabilities outstanding for Governmental activity was $266,000 in 2003 and $207,000 in 2002 Long term liabilities outstanding for both activity types was $417,736,000 in 2003 and $449,452,000 in 2002 Total Liabilities for Business-type activity was $666,860,000 for 2003 and $555,021,000 in 2002 Total Liabilities for Governmental activity was $81,483,000 for 2003 and $38,458,000 in 2002 Total Liabilities for both activity types was $748,343,000 in 2003 and $593,479,000 in 2002 Net assets Invested in capital assets, net of related debt for Business-type activity was $1,686,313,000 in 2003 and $1,367,401,000 in 2002 Net assets Invested in capital assets, net of related debt for Governmental activity was $0 in 2003 and 2002 Net assets Invested in capital assets, net of related debt for both activity types was $1,686,313,000 in 2003 and $1,367,401,000 in 2002 Unrestricted Net assets for Business-type activity was $162,644,000 in 2003 and $242,699,000 in 2002 Unrestricted Net assets for Governmental-type activity was $1,336,000 in 2003 and $1,624,000 in 2002 Unrestricted Net assets for both activity types was $163,980,000 in 2003 and $244,323,000 in 2002 Total Net Assets for Business-type activity was $1,848,957,000 for 2003 and $1,610,100,000 in 2002 Total Net Assets for Governmental activity was $1,336,000 for 2003 and $1,624,000 in 2002 Total Net Assets for both activity types was $1,850,293,000 in 2003 and $1,611,724,000 in 2002 END OF TABLE By far the largest portion of the VTA's net assets (approximately 91.2%) reflects its investment in capital assets (e.g., land, buildings, infrastructure, machinery and equipment), less any related outstanding debt used to acquire those assets. VTA uses these capital assets to provide services to customers. Consequently, these assets are not available for future spending. Although VTA's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves cannot reasonably be used to liquidate these liabilities. The reduction in unrestricted net assets resulted primarily to the increase in investments in capital assets, which led VTA to utilize other unrestricted sources of funds to meet its obligations. A table shows VTA's Statement of Activities: Operations and operating projects expenses for Business-type activity were $335,760,000 in 2003 and $340,885,000 in 2002; Operations and operating projects expenses for Governmental activity were $3,582,000 in 2003 and $2,740,000 in 2002; Total Operations and operating projects expenses for both activity types were $339,342,000 in 2003 and $343,625,000 in 2002. Caltrain subsidy and capital contribution expenses for Business-type activity were $22,298,000 in 2003 and $25,315,000 in 2002; Caltrain subsidy and capital contribution expenses for Governmental activity were $0 in 2003 and 2002; Total Caltrain subsidy and capital contribution expenses for both activity types were $22,298,000 in 2003 and $25,315,000 in 2002; Altamont commuter express subsidy expenses for Business-type activity were $2,715,000 in 2003 and $1,740,000 in 2002; Altamont commuter express subsidy expenses for Governmental activity were $0 in 2003 and 2002; Total Altamont commuter express subsidy expenses for both type activities were $2,715,000 in 2003 and $1,740,000 in 2002; Interest expenses for Business-type activity were $14,222,000 in 2003 and $14,717,000 in 2002; Interest expenses for Governmental activity were $0 in 2003 and $0 in 2002; Total Interest expenses for both-type activities were $14,222,000 in 2003 and $14,717,000 in 2002. Other non-operating expenses for Business-type activity were $4,858,000 in 2003 and $3,163,000 in 2002; Other non-operating expenses for Governmental activity were $0 in 2003 and 2002; Total Other non-operating expenses for both-type activities were $4,858,000 in 2003 and $3,163,000 in 2002. Capital projects for the benefit of other agencies expenses for Business-type activity were $0 in 2003 and 2002; Capital projects for the benefit of other agencies expenses for Governmental activity were $141,271,000 in 2003 and $112,697,000 in 2002; Total Capital projects for the benefit of other agencies expenses for both type activities were $141,271,000 in 2003 and $112,697,000 in 2002. Total expenses for Business-type activity were $379,853,000 in 2003 and $385,820,000 in 2002; Total expenses for Governmental activity were $144,853,000 in 2003 and $115,437,000 in 2002; Total expenses for both activity types were $524,706,000 in 2003 and $501,257,000 in 2002. Charges for services program revenues for Business-type activity were $34,376,000 in 2003 and $37,122,000 in 2002; Charges for services program revenues for Governmental activity were $2,177,000 in 2003 and $1,686,000 in 2002; Total Charges for services program revenues for both activity types were $36,563,000 in 2003 and $38,808,000 in 2002. Operating grants program revenues for Business-type activity were $104,132,000 in 2003 and $127,373,000 in 2002; Operating grants program revenues for Governmental activity were $852,000 in 2003 and $2,405,000 in 2002; Total Operating grants program revenues for both activity types were $104,984,000 in 2003 and $129,778,000 in 2002. Capital grants program revenues for Business-type activity were $316,997,000 in 2003 and $226,125,000 in 2002; Capital grants program revenues for Governmental activity were $141,364,000 in 2003 and $112,668,000 in 2002; Total Capital grants program revenues for both activity types were $458,361,000 in 2003 and $338,793,000 in 2002. Total program revenues for Business-type activity were $455,505,000 in 2003 and $390,620,000 in 2002; Total program revenues for Governmental activity were $144,393,000 in 2003 and $116,759,000 in 2002; Total program revenues for both activity types were $599,898,000 in 2003 and $507,379,000 in 2002. Net program revenues less expense for Business-type activity were $75,652,000 in 2003 and $4,800,000 in 2002; Net program revenues less expense for Governmental activity were $(460,000) in 2003 and $1,322,000 in 2002; Total Net program revenues less expense for both activity types were $75,192,000 in 2003 and $6,122,000 in 2002. Sales tax general revenue for Business-type activity was $132,632,000 in 2003 and $144,218,000 in 2002; Sales tax general revenue for Governmental activity was $61,000 in 2003 and $0 in 2002; Total Sales tax general revenue for both activity types were $132,693,000 in 2003 and $144,218,000 in 2002. Investment income for general revenues for Business-type activity was $14,245,000 in 2003 and $24,512,000 in 2002; Investment income for general revenues for Governmental activity was $99,000 in 2003 and $30,000 in 2002; Total Investment income for general revenues for both activity types was $14,344,000 in 2003 and $24,542,000 in 2002. Other income for general revenues for Business-type activity was $4,104,000 in 2003 and $2,883,000 in 2002; Other income for general revenues for Governmental activity was $12,000 in 2003 and $8,000 in 2002; TotalOther income for general revenues for both activities was $4,116,000 in 2003 and $2,891,000 in 2002. Total general revenues for Business type activity were $150,981,000 in 2003 and $171,613,000 in 2002; Total general revenues for Governmental activity were $172,000 in 2003 and $38,000 in 2002; Total general revenues for both activity types was $151,153,000 in 2003 and $171,651,000 in 2002. Special item - gain on sale of land for Business-type activity was $12,224,000 in 2003. Change in net assets for Business-type activity was $238,857 in 2003 and $176,413,000 in 2002; Change in net assets for Governmental activity was $(288,000) in 2003 and $1,360,000 in 2002; Total Change in net assets for both activity types was $238,569,000 in 2003 and $177,774,000 in 2002 Net assets, beginning of year for Business-type activity was $1,610,100,000 in 2003 and $1,433,685,000 in 2002; Net assets, beginning of year for Governmental activity was $1,624,000 in 2003 and $264,000 in 2002; Total Net assets, beginning of year for both activity types was $1,611,724,000 in 2003 and $1,433,949,000 in 2002. Net assets, end of year for Business-type activity was $1,848,957,000 in 2003 and $1,610,100,000 in 2002 Net assets, end of year for Governmental activity was 1,336,000 in 2003 and $1,624,000 in 2002; Total Net assets, end of year for both activity types was $1,850,293,000 in 2003 and $1,611,724,000 in 2002. END OF TABLE Business-type activity. In FY 03, expenses decreased by 1.5% compared to FY 02. Although the Statement of Activities reports VTA's Business-type activity having increased by $238.9 million, VTA had a $78.1 million decrease in net assets before capital contributions. Business-type activity (Transit Operations) net assets were $1.85 billion. Approximately $1.7 billion of the net assets is invested in capital assets net of related debt. Capital grants increased by $90.9 million (40.2%) compared to FY 02. This increase is a result of VTA's aggressive capital projects funding program. Federal grant project revenue was $94.1 million, State capital grants were $32 million, 1996 Measure B funding consisted of $122 million in revenue, and Local contributions totaled $68.9 million. Sales tax revenue decreased by $11.5 million or (8%) in FY03. This is the second continuous year VTA experienced a lag in sales tax dollars compared to the prior year due to the significant decline in taxable sales within the County (primarily business-to-business transactions). The decrease in sales tax is a contributing factor to VTA's continuous reevaluation of operations. Investment income decreased by $10.3 million, or (41.9%), due to a reduction in investment principal. Funds earmarked to underwrite operating deficits were withdrawn in FY03 and used for operations and local capital projects. There was also a decrease due to the continuous decline in interest rates. Special items amounting to $12.2 million resulted from the gain on the sale of three land parcels: the Guadalupe Corridor Parcel, the North Yard Parcel, and the Evans Lane Parcel. A pie chart shows Revenues By Source - Business-type Activity: Capital Grants made up 51.24% of Business-type activity revenues Sales tax made up 21.44% of Business type activity revenues Operating grants made up 16.83% of Business type activity revenues Charges for services made up 5.56% of Business-type activity revenues Investment income made up 2.30% of Business-type activity revenues Special item - sale of land made up 2.30% of Business-type activity revenues Other income made up 0.29% of Business-type activity revenues END OF CHART A table sows the comparison of Business-Type Activity Revenue for Fiscal Years 2003 and 2002: Charges for service revenue was $34,376,000 in 2003 and $37,122,000 in 2002, a change of $(2,746,000), (7.4) percent. Operating grants revenue was $104,132,000 in 2003 and $127,373,000 in 2002, a change of $(23,241,000), (18.2) percent. Capital grants revenue was $316,997,000 in 2003 and $226,125,000 in 2002, a change of $90,872,000, 40.2 percent. Sales tax revenue was $132,632,000 in 2003 and $144,218,000 in 2002, a change of $(11,586,000), (8.0) percent. Investment income was $14,245,000 in 2003 and $24,512,000 in 2002, a change of $(10,267,000), (41.9) percent. Other income including special item revenue was $16,328,000 in 2002 and $2,883,000 in 2002, a change of $13,445,000, 466.4 percent. Total Business-type activity revenue was $618,710,000 in 2003 and $562,233,000 in 2002, a change of $56,477,000, 10.0 percent. END OF TABLE Charges for services are derived from the sale of monthly passes (including Eco Pass), tokens, bus fare box receipts, light rail ticket vending machine receipts and the sale of advertising space. Operating grants include the one-quarter of one percent California Transportation Development Act (TDA), State Transit Assistance (STA) funding, Federal grants converted to operating assistance under the Federal Transit Administration Preventative Maintenance Program, State license fees (AB434), investment and interest, and federal planning grants. Sales tax revenue is the one-half of one percent local sales tax. There was a total increase in revenues of 10% over FY02. The half-cent local sales tax and the quarter-cent state sales tax (TDA) are driven by the local economy and are the two most important income sources to VTA for funding operations. During FY03, half-cent sales tax revenue decreased by 8%, primarily as a result of declined business-to-business transactions. Fortunately, the negative growth in sales tax revenue is not expected to carry through FY04, but VTA is only projecting a 1.7% increase in the revenue source during the next fiscal year. TDA funds dropped by $36.5 million (38.3%) to $58.9 million in FY03. Due to the fact that TDA funds are derived from the same tax base as the half-cent sales tax, VTA experienced a decline in these funds as well. In addition, VTA received TDA funds in FY02 that pertained to FY03. These funds are projected to make a small gain in FY04 to $63.4 million. In addition, STA funds decreased by over $600 thousand (8.2%). Fifty percent of STA apportionments to regional planning agencies are distributed on a basis proportional to operator revenues in the region for the prior year. MTC's most recent estimate predicts STA funds to only reach $4.3 million in FY04. A decrease in ridership and the decline in advertising revenue contributed to the cumulative drop in operating revenue. Other income increased substantially (466.4%), due primarily to the gain from the sale of three land parcels totaling $12.2 million (special items): Evans Lane $7.4 million; North Yard portion $4.2 million; and Guadalupe Corridor $.6 million. A table sows the comparison of Business-Type Activity Expenses for Fiscal Years 2003 and 2002: Operations and operating projects expenses were $335,760,000 in 2003 and $340,885,000 in 2002, a change of $(5,125,000), (1.5) percent. Caltrain subsidy and capital contribution expenses were $22,298,000 in 2003 and $25,315,000 in 2002, a change of $(3,017,000), (11.9) percent. Altamount Commuter Express subsidy expenses were $2,715,000 in 2003 and $1,740,000 in 2002, a $975,000 change, 56.0 percent. Interest expense was $14,222,000 in 2003 and $14,717,000 in 2002, a change of $(495,000), (3.4) percent. Other non-operating expenses were $4,858,000 in 2003 and $3,163,000 in 2002, a change of $1,695,000, 53.6 percent. Total Business-Type Activity Expenses were $379,853,000 in 2003 and $385,820,000 in 2002, a change of negative $5,967,000, negative 1.5 percent. END OF TABLE Operations and operating projects expenses are incurred for personnel, support services, contracted services, insurance, purchased transportation and other overhead costs related to bus and light rail operations, services, and support programs. The implementation of the goals of VTA's Strategic Plan is set forth in the Short-Range Transit Plan (SRTP). The SRTP adopted by VTA outlined a number of transit service reliability and headway improvements, network expansion, and the expansion of the light rail system. The resulting expenses for the year are representative of the implementation efforts throughout the organization. Total expenses remained fairly constant with a minimal decline of 1.5% in comparison to FY02. The decrease was due to many factors. Purchased Transportation costs decreased compared to last year's figures. Paratransit ridership continues to increase, but the growth in program costs have slowed significantly. Costs fell by 12.3% primarily as a result of the implementation of the Paratransit Service Business Practices Improvement Plan aimed at increasing operational improvements and efficiencies. The change in the casualty and liability costs is attributed to an increase in the provision of claims and claims adjustment expense for workers' compensation. Although there was an increase in fringe benefits due to the rising cost of employee health care premiums, labor costs decreased by $2.7 million due in part to VTA reorganization and streamlining during the year. Traction power expense decreased due to light rail service reduction. There was a $20.2 million dollar reduction in operating costs due to labor, indirect costs, and internal charges which were allocated to capital and other programs. VTA also benefited from sizable savings in professional and special services with the transition away from the prior level of consultant services. Governmental activity. The governmental activity net assets were reduced by $287.7 thousand in FY03, leaving it with a net asset balance of $1.3 million. Elements of this decrease are as follows: There was an increase in the Congestion Management Program's salaries and benefits expense during FY03 of approximately $1.2 million or 87.6%. This contributed to the decrease in governmental activity net assets. Although total grants received increased by 23.6% compared to FY02, the increase in capital grants was not enough to offset both the corresponding amount in capital projects expense for the benefit of other agencies and the operations and operating projects. Operating grants decreased by $1.6 million (64.6%) during the year. The large variation is primarily due to a one-time contribution of the 1996 Measure B Ancillary Program received in FY02. A chart shows Governmental Activity Expenses and Program Revenues: Expenses in the Special Revenue Funds were $3,403,000; Revenues in the Special Revenue Funds were $3,115,000; Expenses in the Capital Project Funds were $141,424,000; Revenues in the Capital Project Funds were $141,424,000. END OF CHART A pie chart shows Revenues by Source - Governmental Activity: Capital grant revenues were 97.79%; Sales tax revenues were 0.04% Investment income revenue was 0.07%; Operating grant revenues were 0.59%; Charges for services revenues were 1.51% Other income was 0.01% END OF CHART Financial Analysis of VTA's Funds VTA uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Proprietary Fund. VTA's Proprietary Fund (Enterprise Fund) is used to account for activities for which a fee is charged to external users for goods or services (a) where the activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity; or (b) where laws or regulations require that the activity's costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues; or (c) where the pricing policies of the activity establish fees and charges designated to recover its costs, including capital costs (such as depreciation or debt service). Governmental funds. The focus of VTA's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the VTA's financing requirements. In particular, unreserved fund balance may serve as a useful measure of VTA's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, VTA's governmental funds reported a decrease of approximately $288 thousand. Capital Assets and Debt Administration Capital assets. VTA's investment in capital assets for its business-type activity as of June 30, 2003, amounts to $2.1 billion net of accumulated depreciation. VTA has no capital assets invested in the governmental activities. This investment in capital assets includes: Land and Right-of-way, Buildings, Improvements, Equipment & Furniture, Vehicles, the Caltrain-Gilroy Extension, Light Rail Tracks/Electrification, and Other Operating Equipment. The total net increase in VTA's investment in capital assets for the current fiscal year was 22.1%. Some of the significant changes in the capital assets during FY03 are as follows: Receipt of 34 light rail vehicles (28 of which are in revenue service) Acquisition of 106 new buses Increases in Construction In Progress for the Tasman East, Capitol, and Vasona light rail extensions Acquisition of 64 non-revenue vehicles The remainder of the changes in capital assets can be attributed to capital improvements and construction projects. A table compares Capital Assets for Businesss-type activity (net of depreciation) for 2003 and 2002: Capital assets (net of depreciation) in Land and Right of Way were $570,715,000 in 2003 and $572,665,000 in 2002; Capital assets (net of depreciation) in Construction in Progress were $923,872,000 in 2003 and $608,403,000 in 2002; Capital assets (net of depreciation) in Buildings and Improvements - Equipment and Furniture were $132,931,000 in 2003 and $133,282,000 in 2002; Capital assets (net of depreciation) in Vehicles were $218,239,000 in 2003 and $137,211,000 in 2002; Capital assets (net of depreciation) in Caltrain-Gilroy Extension were $43,284,000 in 2003 and $43,806,000 in 2002; Capital assets (net of depreciation) in Light Rail Tracks/Electrification were $219,609,000 in 2003 and 226,142,000 in 2002; Capital assets (net of depreciation) in Other Operating Equipment were $17,441,000 in 2003 and $19,403,000 in 2002; Total Capital assets (net of depreciation) were $2,126,091,000 in 2003 and $1,740,912,000 in 2002. END OF TABLE A table shows VTA's Outstanding Capital Commitments as of June 30, 2003: Capital commitments for Vasona Corridor Projects were $60,922,000; Capital commitments for Tasman Corridor Project Extensions - West, were $557,000; Capital commitments for Tasman Corridor Project Extensions - East, were $26,200,000; Capital commitments for Facilities Modifications were $24,859,000; Capital commitments for New Rail Vehicles were $90,256,000 Capital commitments for Capitol Corridor Projects were $25,635,000; Capital commitments for Guadalupe Corridor were $2,213,000; Capital commitments for Software Development, were$110,000; Capital commitments for Silicon Valley Rapid Transit Corridor were $10,665,000; Capital commitments for Study Projects were $1,969,000; Capital commitments for Coach & Vehicles Replacement were $8,049,000; Capital commitments for Caltrain Service Improvements were $9,433,000; Total Outstanding Capital Commitments were $260,888,000. END OF TABLE Additional information on VTA's capital assets can be found in Note 6 on page 2-37 of this report. Long-term debt. At the end of the current fiscal year, the Authority had total bonded debt outstanding of $417,469,961. Of this amount, $417,433,077 represents bonds secured solely by sales tax revenues and $36,884 is a special assessment relating to Improvement District 78-153SJ River Oaks Bond Series 22R and Maintenance District 6 River Oaks Landscape Maintenance. In FY03 VTA issued the 2002 Bond and Grant Anticipation Notes of $81,500,000, which will mature December 4, 2003. The notes were issued to finance the purchase of BART to San Jose right-of way from Union Pacific Railroad. The source of funds for the new debt will be the 2000 Measure A sales tax. A table shows Outstanding Debt in Business-type activity: Jr. Lien Sales Tax Revenue Bonds were $84,635,000 in 2003 and $86,795,000 in 2002; Sr. Lien Sales Tax Revenue Bonds were $221,048,000 in 2003 and $226,775,000 in 2002; 2002 Grant and Bond Anticipation Note were $82,090,000 in 2003 and $0 in 2002; Equipment Trust Certificates were $29,660,000 in 2003 and $29,660,000 in 2002; Special Assessment with Governmental Commitment were $37,000 in 2003 and $71,000 in 2002; Total Outstanding Debt was $417,470,000 in 2003 and $343,301,000 in 2002. END OF TABLE The Santa Clara Valley Transportation Authority maintains an "AA" rating from Standard & Poor's and an "Aa3" rating from Moody's for its Sr. Lien Sales Revenue Bonds. On September 3, 2003, Fitch Ratings downgraded VTA's outstanding 2001 series A and 1997 series A sales tax revenue bonds to 'A+' from their prior 'AA' rating. The Equipment Trust Certificates have a rating of Aaa/VMIG-1 from Moody's and AAA from Standard & Poor's. The 2002 Bond and Grant Anticipation Notes are rated M IG-1 by Moody's and SP1+ by Standard & Poor's. Additional information on the VTA's long-term debt can be found in note 7 starting on page 2-39 of this report. Economic Factors and Next Year's Budgets and Rates The following factors were considered in preparing VTA's budget for the 2004 fiscal year: Additional staffing eliminations Increased costs for benefits of over $1 million due to an increase in health care costs for employees and retires, as well as increased pension plan contribution costs A 1.5% inflation rate Minimal half-cent sales tax growth of 1.7% A fare increase in August 2003 A ridership loss of 5.8% due to the fare increase. A high level of scrutiny was paid to requests for new projects and augmentations to existing projects in fiscal year 2003-04. As a result, the budget proposes the smallest locally funded VTA Capital Program in eight years. The budget also initiates twelve new projects and augmented two previously approved projects, for an additional new commitment of $4,717,000. There are 71 active projects, excluding the 1996 Measure B Program, being carried forward from prior capital budgets. The following are major capital programs: Information Technology Infrastructure Replacement Information Technology Disaster Recovery Site Infrastructure Non-Revenue Vehicle Procurement Facilities and Equipment Emergency Repair Allowance Maintenance Equipment Replacement Program Cerone Complex Safety, Communication & Security Equipment Pavement Management Program Painting Management Program Roofing Management Program Bus Stop Improvement Program Palo Alto Depot Station Renovation Light Rail T-Signal Retrofit. Requests for Information Please address all questions or requests for additional information to Financial Accounting Department, Office of the Fiscal Resources Manager, Santa Clara Valley Transportation Authority, 3331 North First Street Building C, Second Floor, San Jose, CA 95134-1906. Statement of Net Assets, June 30, 2003: Assets - Cash and investments for Business-type activity was $26,322,203 and for Governmental Activity was $2,2924,798 for a total of $29,247,001 Assets - Receivables, net for Business-Type Activity was $2,388,261 and for Governmental Activity was $0 for a total of $2,388,261. Assets - Due from other governmental agencies for Business-Type Activity was $35,124,025 and for Governmental Activity was $222,956 for a total of $35,346,981. Assets - Inventories for Business-Type Activity was $21,950,963 and for Governmental Activity was $0 for a total of $21,950,963. Assets - Other Current Assets for Business-Type Activity was $10,240,169 and for Governmental Activity was $0 for a total of $10,240,169. Assets - Restricted Assets - Cash and Investments for Business-Type Activity was $264,147,676 and for Governmental Activity was $40,880,288 for a total of $305,027,964. Assets - Restricted Assets - Receivables, net for Business-Type Activity was $704,929 and for Governmental Activity was $0 for a total of $704,929. Assets - Restricted Assets - Internal Balances for Business-Type Activity was $(8,063,015) and for Governmental Activity was $8,063,015 for a total of $0. Assets - Restricted Assets - Due from other Governmental Agencies for Business-Type Activity was $35,068,354 and for Governmental Activity was $30,728,254 for a total of $65,796,608. Assets - Deferred Bond Issuance costs for Business-Type Activity was $1,841,885 and for Governmental Activity was $0 for a total of $1,841,885. Assets - Capital Assets - Nondepreciable for Business-Type Activity was $1,494,586,976 and for Governmental Activity was $0 for a total of $1,494,586,976. Assets - Capital Assets - Depreciable, net of accumulated depreciation for Business-Type Activity was $631,504,170 and for Governmental Activity was $0 for a total of $631,504,170. Assets - Total Assets for Business-Type Activity was $2,518,816,596 and for Governmental Activity was $82,819,311 for a total of $2,598,635,907. Liabilities - Accounts Payable for Business-Type Activity was $21,787,661 and for Governmental Activity was $57,487 for a total of $21,845,148. Liabilities - Other accrued liabilities for Business-Type Activity was $9,180,738 and for Governmental Activity was $80,302 for a total of $9,261,040. Liabilities - Due to other governmental agencies for Business-Type Activity was $4,307,280 and for Governmental Activity was $1,408,016 for a total of $5,715,296. Liabilities - Liabilities payable from restricted assets - Accounts Payable for Business-Type Activity was $35,677,503 and for Governmental Activity was $24,791,460 for a total of $60,468,963. Liabilities - Liabilities payable from restricted assets - Other accrued liabilities for Business-Type Activity was $136,947,764 and for Governmental Activity was $0 for a total of $136,947,764. Liabilities - Liabilities payable from restricted assets - Due to other governmental agencies for Business-Type Activity was $41,488,686 and for Governmental Activity was $54,880,097 for a total of $96,368,783. Liabilities - Long-term liabilities - Due within one year for Business-Type Activity was $8,541,884 and for Governmental Activity was $3,972 for a total of $8,545,856. Liabilities - Long-term liabilities - Due in more than one year for Business-Type Activity was $408,928,077 and for Governmental Activity was $261,823 for a total of $409,189,900. Liabilities - Total Liabilities for Business-Type Activity was $666,859,593 and for Governmental Activity was $81,483,157 for a total of $748,342,750. Net Assets - Invested in capital assets, net of related debt for Business-Type Activity was $1,686,312,966 and for Governmental Activity was $0 for a total of $1,686,312,966. Net Assets - Unrestricted for Business-Type Activity was $162,644,037 and for Governmental Activity was $1,336,154 for a total of $1,850,293,157. END OF STATEMENT Statement of Activities, For the Year Ended June 30, 2003 Expenses - Operations and operating projects for Business-type activity in Transit was $335,760,206 and for Governmental Activity in Congestion Management was $3,581,701 for a total of $339,341,907 Expenses - Caltrain subsidy & capital contribution for Business-type activity in Transit was $22,297,937 and for Governmental Activity in Congestion Management was $0 for a total of $22,297,937 Expenses - Altamont Commuter Express subsidy for Business-type activity in Transit was $2,715,183 and for Governmental Activity in Congestion Management was $0 for a total of $2,715,183 Expenses - Interest expense for Business-type activity in Transit was $14,222,072 and for Governmental Activity in Congestion Management was $0 for a total of $14,222,072 Expenses - Other non-operating expenses for Business-type activity in Transit was $4,857,574 and for Governmental Activity in Congestion Management was $0 for a total of $4,857,574 Expenses - Capital projects for the benefit of other agencies for Business-type activity in Transit was $0 and for Governmental Activity in Congestion Management was $141,271,006 for a total of $141,271,006 Expenses - Total Expenses for Business-type activity in Transit was $379,852,972 and for Governmental Activity in Congestion Management was $144,852,707 for a total of $524,705,679 Program revenues - Charges for services for Business-type activity in Transit was $34,375,744 and for Governmental Activity in Congestion Management was $2,176,935 for a total of $36,552,679 Program revenues - Operating grants for Business-type activity in Transit was $104,132,239 and for Governmental Activity in Congestion Management was $852,451 for a total of $104,984,690 Program revenues - Capital grants for Business-type activity in Transit was $316,996,725 and for Governmental Activity in Congestion Management was $141,363,650 for a total of $458,360,375 Program revenues - Total Program Revenues for Business-type activity in Transit was $455,504,708 and for Governmental Activity in Congestion Management was $144,393,036 for a total of $599,897,744 Program revenues - Net Program Revenues for Business-type activity in Transit was $75,651,736 and for Governmental Activity in Congestion Management was $(459,671) for a total of $75,192,065 General revenues - Sales tax revenue for Business-type activity in Transit was $132,632,377 and for Governmental Activity in Congestion Management was $60,424 for a total of $132,692,801 General revenues - Investment income for Business-type activity in Transit was $14,244,891 and for Governmental Activity in Congestion Management was $99,268 for a total of $14,344,159 General revenues - Other income for Business-type activity in Transit was $4,103,722 and for Governmental Activity in Congestion Management was $12,276 for a total of $4,115,998 General revenues - Total general revenues for Business-type activity in Transit was $150,980,990 and for Governmental Activity in Congestion Management was $171,968 for a total of $151,152,958 Special item - Gain on sale of land for Business-type activity in Transit was $12,224,277 and for Governmental Activity in Congestion Management was $0 for a total of $12,224,277 Change in Net Assets for Business-type activity in Transit was $238,857,003 and for Governmental Activity in Congestion Management was $(287,703) for a total of $238,569,300 Net assets, beginning of year for Business-type activity in Transit was $1,610,100,000 and for Governmental Activity in Congestion Management was $1,623,857 for a total of $1,611,723,857 Net assets, end of year for Business-type activity in Transit was $1,848,957,003 and for Governmental Activity in Congestion Management was $1,336,154 for a total of $1,850,293,157 END OF STATMENT Statement of Fund Net Assets, Enterprise Fund (Business-type Activity) June 30, 2003 Assets - Current Assets - Cash and cash equivalents is $1,168,034 Assets - Current Assets - Investments is $25,154,169 Assets - Current Assets - Receivables, net is $2,388,261 Assets - Current Assets - Due from other governmental agencies is $35,124,025 Assets - Current Assets - Inventories is $21,950,963 Assets - Current Assets - Other current assets were $10,240,169 Assets - Total Current Assets is $96,025,621 Assets - Restricted Assets - Cash and cash equivalents is $45,938,808 Assets - Restricted Assets - Cash and investments with fiscal agent is $31,406,103 Assets - Restricted Assets - Investments is $186,802,765 Assets - Restricted Assets - Receivables, net is $704,929 Assets - Restricted Assets - Due from other funds is $117,082 Assets - Restricted Assets - Due from other governmental agencies is $35,068,354 Assets - Total Restricted Assets were $300,038,041 Assets - Noncurrent Assets - Deferred bond issuance costs is $1,841,885 Assets - Noncurrent Assets - Capital Assets - Non-depreciable - Land and right of way is $570,714,935 Assets - Noncurrent Assets - Capital Assets - Non-depreciable - Construction in progress is $923,872,041 Assets - Noncurrent Assets - Capital Assets - Depreciable - CalTrain-Gilroy extension is $48,962,184 Assets - Noncurrent Assets - Capital Assets - Depreciable - Buildings, improvements, furniture, and fixtures is $237,238,946 Assets - Noncurrent Assets - Capital Assets - Depreciable - Vehicles is $306,338,319 Assets - Noncurrent Assets - Capital Assets - Depreciable - Light-rail tracks and electrification is $281,182,310 Capital Assets - Assets - Noncurrent Assets - Capital Assets - Depreciable - Less accumulated depreciation is $(270,293,736) Assets - Noncurrent Assets - Capital Assets - Net capital assets is $2,126,091,146 Assets - Total Assets is $2,523,996,693 Liabilities - Current Liabilities - Current portion of long-term debt is $8,541,884 Liabilities - Current Liabilities - Accounts payable is $21,787,661 Liabilities - Current Liabilities - Other accrued liabilities is $9,147,902 Liabilities - Current Liabilities - Due to other governmental agencies is $4,307,280 Liabilities - Total Current Liabilities is $43,784,727 Liabilities - Liabilities payable from restricted assets - Accounts payable is $35,677,503 Liabilities - Liabilities payable from restricted assets - Other accrued liabilities-current is $7,874,533 Liabilities - Liabilities payable from restricted assets - Due to other funds is $8,180,097 Liabilities - Liabilities payable from restricted assets - Due to other governmental agencies is $41,488,686 Liabilities - Liabilities payable from restricted assets - Long-term debt, excluding current portion is $15,079,901 Liabilities - Liabilities payable from restricted assets - Other accrued liabilities - non-current is $129,073,231 Liabilities - Total Liabilities payable from restricted assets is $237,373,951 Liabilities - Non-current liabilities - Long-term debt, excluding current portion and amounts payable from restricted assets is $393,848,176 Liabilities - Non-current liabilities - Other accrued liabilities is $32,836 Liabilities - Total non-current liabilities is $393,881,012 Total Liabilities is $675,039,690 NET ASSETS - Invested in capital assets, net of related debt is $1,686,312,966 NET ASSETS - Unrestricted is $162,644,037 Total net assets is $1,848,957,003 END OF STATEMENT Statement of Revenues, Expenses and Changes in Fund Net Assets, Enterprise Fund (Business-type Activity), For the Year Ended June 30, 2003 Operating revenues - Passenger fares is $30,959,394 Operating revenues - Advertising and other is $3,416,350 Total operating revenues is $34,375,744 Operating expenses - Labor is $134,524,401 Operating expenses - Fringe benefits is $92,001,274 Operating expenses - Materials and supplies is $20,698,044 Operating expenses - Services is $22,055,307 Operating expenses - Utilities is $5,734,599 Operating expenses - Casualty and liability is $4,118,733 Operating expenses - Purchased transportation is $31,553,403 Operating expenses - Leases and rentals is $605,447 Operating expenses - Miscellaneous is $3,154,396 Operating expenses - Depreciation expense is $41,516,009 Operating expenses - Costs allocated to capital and other programs is $(20,201,407) Total operating expenses is $335,760,206 Operating loss is $(301,384,462) Non-operating revenues (expenses) - Sales tax revenue is $132,632,377 Non-operating revenues (expenses) - Federal operating assistance grants is $33,176,056 Non-operating revenues (expenses) - State and local operating assistance grants is $70,956,183 Non-operating revenues (expenses) - CalTrain subsidy is $(14,104,840) Non-operating revenues (expenses) - CalTrain capital contribution is $(8,193,097) Non-operating revenues (expenses) - Altamont Commuter Express subsidy is $(2,715,183) Non-operating revenues (expenses) - Investment earnings are $14,244,891 Non-operating revenues (expenses) - Interest expense is $(14,222,072) Non-operating revenues (expenses) - Other income is $4,103,722 Non-operating revenues (expenses) - Other expense is $(4,857,574) Non-operating revenues net is $211,020,463 Change in net assets before capital contributions and special item is $(90,363,999) Capital contributions is $316,996,725 Special item - gain on sale of land is $12,224,277 Change in net assets is $238,857,003 Net assets, beginning of year is $1,610,100,000 Net assets, end of year is $1,848,957,003 END OF STATEMENT Statement of Cash Flows - Enterprise fund (Business-type activity), For the Year Ended June 30,2003 Cash flows from operating activities - Cash received from passenger fares was $30,856,421 Cash flows from operating activities - Cash received from advertising is $3,416,350 Cash flows from operating activities - Cash paid to employees is $(196,728,258) Cash flows from operating activities - Cash paid to suppliers is $(61,877,582) Cash flows from operating activities - Cash paid for purchased transportation is $(31,553,403) Cash flows from operating activities - Net cash used in operating activities is $(255,886,472) Cash flows from noncapital financing activities - Operating grants received is $125,088,506 Cash flows from noncapital financing activities - Sales tax received is $132,596,836 Cash flows from noncapital financing activities - Caltrain subsidy is $(14,104,840) Cash flows from noncapital financing activities -Altamont Commuter Express subsidy ($2,715,183) Cash flows from noncapital financing activities -Other noncapital receipts is $15,956,496 Cash flows from noncapital financing activities - Other noncapital payments is $(1,168,192) Cash flows from noncapital financing activities - Net cash provided by noncapital financing activities is $255,653,623 Cash flows from capital and related financing activities - Payment of long-term debt is $(8,159,007) Cash flows from capital and related financing activities - Proceeds from Bond and Grant Application Notes is $82,090,346 Cash flows from capital and related financing activities - Interest paid on long-term debt is $(13,866,495) Cash flows from capital and related financing activities - Cost of bond issuance is $(206,117) Cash flows from capital and related financing activities - Acquisition and construction of capital assets is $(441,043,932) Cash flows from capital and related financing activities - Capital contribution from other governments is $316,996,725 Cash flows from capital and related financing activities - Proceeds from sale of capital assets is $14,847,164 Cash flows from capital and related financing activities - Net cash used in capital and related financing activities is $(49,341,316) Cash flows from investing activities - Proceeds from sale of investments is $1,647,021,434 Cash flows from investing activities - Purchases in investments is $(1,623,409,418) Cash flows from investing activities - Interest income received is $16,150,943) Cash flows from investing activities - Net cash provided by investing activities is $39,762,959 NET DECREASE IN CASH AND CASH EQUIVALENTS is $(9,811,206) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR is $88,324,151 CASH AND CASH EQUIVALENTS, END OF YEAR is $78,512,945 Reconciliation of operating loss to net cash used in operating activities - Operating loss is $(301,384,462) Reconciliation of operating loss to net cash used in operating activities - Adjustments to reconcile operating loss to net cash used in operating activities - Depreciation is $41,516,009 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Receivables is $(168,807) Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Due from other governmental agencies is $65,834 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Inventories is $(1,712,024) Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Accounts payable is $(11,774,761) Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Other current liabilities is $17,576,868 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Non-current - other accrued liabilities is $(5,129) Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Net cash used in operating activities is $(255,886,472). Supplemental disclosure of cash flow information - cash and cash equivalents, end of year - Unrestricted is $1,168,034 Supplemental disclosure of cash flow information - cash and cash equivalents, end of year - Restricted is $77,344,911 Supplemental disclosure of cash flow information - cash and cash equivalents, end of year - Total is $78,512,945 Noncash investing activities - Decrease in fair value of investments is $1,236,100. END OF STATEMENT Balance Sheet for Governmental Funds, June 30, 2003: ASSETS - Cash and cash equivalents for Special Revenue Funds in the Congestion Management Program are $228, and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $0, for Congestion Management & Highway Program are $0. The total for both funds is $228. ASSETS - Investments for Special Revenue Funds in the Congestion Management Program are $2,831,689 and in Nonmajor Traffic Authority are $92,881 for Capital Projects Funds in the Measure B Highway Program are $0, for Congestion Management & Highway Program are $0. The total for both funds is $2,924,570. ASSETS - Due from other governmental agencies for Special Revenue Funds in the Congestion Management Program are $222,956 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $0, for Congestion Management & Highway Program are $0. The total for both funds is $222,956. ASSETS - Restricted assets - Cash and cash equivalents for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $20,403,120 for Congestion Management & Highway Program are $15,030,693. The total for both funds is $35,433,813. ASSETS - Restricted assets - Cash and investments with fiscal agents for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $5,446,475 for Congestion Management & Highway Program are $0. The total for both funds is $5,446,475. ASSETS - Restricted assets - Due from other funds for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $8,180,097 for Congestion Management & Highway Program are $0. The total for both funds is $8,180,097. ASSETS - Restricted assets - Due from other governmental agencies for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $26,732,878 for Congestion Management & Highway Program are $3,995,376. The total for both funds is $30,728,254. Total Assets for Special Revenue Funds in the Congestion Management Program are $3,054,873 and in Nonmajor Traffic Authority are $92,881 for Capital Projects Funds in the Measure B Highway Program are $60,762,570 for Congestion Management & Highway Program are $19,026,069. The total for both funds is$82,936,393. LIABILITIES AND FUND BALANCES LIABILITIES - Accounts payable for Special Revenue Funds in the Congestion Management Program are $51,727 and in Nonmajor Traffic Authority are $5,760; for Capital Projects Funds in the Measure B Highway Program are $0 for Congestion Management & Highway Program are $0. The total for both funds is $57,487. LIABILITIES AND FUND BALANCES LIABILITIES - Other accrued liabilities for Special Revenue Funds in the Congestion Management Program are $80,302 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $0 for Congestion Management & Highway Program are $0. The total for both funds is $80,302. LIABILITIES AND FUND BALANCES LIABILITIES - Due to other governmental agencies for Special Revenue Funds in the Congestion Management Program are $1,408,016 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $0 for Congestion Management & Highway Program are $0. The total for both funds is $1,408,016. LIABILITIES AND FUND BALANCES LIABILITIES - Liabilities payable from restricted assets: Accounts payable for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $21,829,088 for Congestion Management & Highway Program are $2,962,372. The total for both funds is $24,791,460. LIABILITIES AND FUND BALANCES LIABILITIES - Liabilities payable from restricted assets: Due to other funds for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $0 for Congestion Management & Highway Program are $117.082. The total for both funds is $117,082. LIABILITIES AND FUND BALANCES LIABILITIES - Liabilities payable from restricted assets: Due to other governmental agencies for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Measure B Highway Program are $38,933,482 for Congestion Management & Highway Program are $15,946,615. The total for both funds is $54,880,097. LIABILITIES AND FUND BALANCES LIABILITIES - Total liabilities for Special Revenue Funds in the Congestion Management Program are $1,540,045 and in Nonmajor Traffic Authority are $5,760 for Capital Projects Funds in the Measure B Highway Program are $60,762,570 for Congestion Management & Highway Program are $19,026,069. The total for both funds is $81,334,444. FUND BALANCES - Unreserved - for Special Revenue Funds in the Congestion Management Program are $1,514,828 and in Nonmajor Traffic Authority are $87,121; for Capital Projects Funds in the Measure B Highway Program are $0 for Congestion Management & Highway Program are $0. The total for both funds is $1,601,949. Total liabilities and fund balances for Special Revenue Funds in the Congestion Management Program are $3,054,873 and in Nonmajor Traffic Authority are $92,881; for Capital Projects Funds in the Measure B Highway Program are $60,762,570 for Congestion Management & Highway Program are $19,026,069. Amounts reported for governmental activity in the statement of net assets are different because: Compensated absences are not due and payable in the current period and therefore are not reported in the funds in the amount of $(265,795). Net assets of governmental activity (page 2-15) is $1,336,154. END OF STATEMENT Statement of Revenues, Expenditures and Changes in Fund Balances for Governmental Funds, For the Year Ended June 30, 2003 REVENUES: Member agency assessment revenue for Special Revenue Funds in the Congestion Management Program are $2,031,608 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $2,031,608. REVENUES: Federal technical studies operating assistance grants for Special Revenue Funds in the Congestion Management Program are $452,451 and in Nonmajor Traffic Authority are $0 for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $452,451. REVENUES: Sales tax for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $60,424; for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $60,424. REVENUES: Administrative fees for Special Revenue Funds in the Congestion Management Program are $145,327 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $145,327. REVENUES: State operating assistance grants for Special Revenue Funds in the Congestion Management Program are $400,000 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $400,000. REVENUES: Local grant revenue for Special Revenue Funds in the Congestion Management Program are $0 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Congestion Management & Highway Program are $10,053,680 for Measure B Highway Program are $131,309,970. The total for both funds is $141,363,650. REVENUES: Other revenues for Special Revenue Funds in the Congestion Management Program are $11,475 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $801. The total for both funds is $12,276. REVENUES: Investment earnings for Special Revenue Funds in the Congestion Management Program are $34,534 and in Nonmajor Traffic Authority are $4,599; for Capital Projects Funds in the Congestion Management & Highway Program are $60,135 for Measure B Highway Program are $0. The total for both funds is $99,268. REVENUES: Total revenues for Special Revenue Funds in the Congestion Management Program are $3,075,395 and in Nonmajor Traffic Authority are $65,023; for Capital Projects Funds in the Congestion Management & Highway Program are $10,113,815 for Measure B Highway Program are $131,310,771. The total for both funds is $144,565,004. EXPENDITURES: Current: Congestion Management: Salaries and benefits for Special Revenue Funds in the Congestion Management Program are $2,265,119 and in Nonmajor Traffic Authority are $0; for Capital Projects Funds in the Congestion Management & Highway Program are $338,474 for Measure B Highway Program are $0. The total for both funds is $2,603,593. EXPENDITURES: Current: Congestion Management: Services for Special Revenue Funds in the Congestion Management Program are $892,395 and in Nonmajor Traffic Authority are $26,669; for Capital Projects Funds in the Congestion Management & Highway Program are $6; for Measure B Highways are $0. The total for both funds is $919,070. EXPENDITURES: Capital outlay: Capital improvement projects for Special Revenue Funds in the Congestion Management Program are $179,139 and in Nonmajor Traffic Authority are $5,761; for Capital Projects Funds in the Congestion Management & Highway Program are $9,775,335 for Measure B Highways are $131,310,771. The total for both funds is $141,271,006. EXPENDITURES: Total expenditures for Special Revenue Funds in the Congestion Management Program are $3,336,653 and in Nonmajor Traffic Authority are $32,430; for Capital Projects Funds in the Congestion Management & Highway Program are $10,113,815 for Measure B Highways are $131,310,771. The total for both funds is $144,793,669. NET CHANGE IN FUND BALANCES for Special Revenue Funds in the Congestion Management Program are $(261,258) and in Nonmajor Traffic Authority are $32,593; for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $(228,665). FUND BALANCES, BEGINNING OF YEAR for Special Revenue Funds in the Congestion Management Program are $1,776,086 and in Nonmajor Traffic Authority are $54,528 for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $1,830,614. FUND BALANCES, END OF YEAR for Special Revenue Funds in the Congestion Management Program are $1,514,828 and in Nonmajor Traffic Authority are $87,121 for Capital Projects Funds in the Congestion Management & Highway Program are $0, for Measure B Highway Program are $0. The total for both funds is $1,601,949. Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities: Amounts reported for governmental activity in the statement of activities are different because: Net change in fund balances - total governmental funds is $(228,665). Change in accrued compensated absences reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds is $(59,038). Change in net assets of governmental activity (page 2-16) is $(287,703). END OF STATEMENT Statement of Fiduciary Net Assets, Fiduciary Funds, June 30, 2003 ASSETS - Restricted assets: Cash and cash equivalents in Pension Trust Funds was $0 and $5,776,140 in Agency Funds. ASSETS - Restricted assets: Investments: Equity securities in Pension Trust Funds was $64,097,892 and $0 in Agency Funds. ASSETS - Restricted assets: Investments: Corporate bonds in Pension Trust Funds was $36,277,386 and $0 in Agency Funds. ASSETS - Restricted assets: Investments: Treasury and agency notes in Pension Trust Funds was $49,718,121 and $0 in Agency Funds. ASSETS - Restricted assets: Investments: Mutual funds in Pension Trust Funds was $69,717,624 and $0 in Agency Funds. ASSETS - Restricted assets: Investments: Pooled investments in Pension Trust Funds was $10,628,078 and $83,161,360 in Agency Funds. ASSETS - Restricted assets: Total Investments in Pension Trust Funds was $230,439,101 and $83,161,360 in Agency Funds. ASSETS - Receivables: Investment earnings in Pension Trust Funds were $988,443 and $0 in Agency Funds. ASSETS - Receivables: ATU clerical employee unfounded portion in Pension Trust Funds were $113,507 and $0 in Agency Funds. ASSETS - Receivables: Total receivables in Pension Trust Funds were $1,101,950 and $0 in Agency Funds. ASSETS - Total assets in Pension Trust Funds were $231,541,051 and $88,937,500 in Agency Funds. LIABILITIES - Liabilities payable from restricted assets: Other accrued liabilities in Pension Trust Funds were $0 and $84,413 in Agency Funds. LIABILITIES - Liabilities payable from restricted assets: Accounts payable in Pension Trust Funds were $3,452 and $4,156,909 in Agency Funds. LIABILITIES - Liabilities payable from restricted assets: Due to other governmental agencies in Pension Trust Funds were $0 and $84,696,178 in Agency Funds. LIABILITIES - Total liabilities in Pension Trust Funds were $3,452 and $88,937,500 in Agency Funds. NET ASSETS - Net assets held in trust for: Pension benefits were $222,437,919 in Pension Trust Funds. NET ASSETS - Net assets held in trust for: Spousal medical benefits were $7,661,381 in Pension Trust Funds. NET ASSETS - Net assets held in trust for: Retiree dental and vision benefits were $1,438,299 in Pension Trust Funds. NET ASSETS - Total net assets were $231,537,599 in Pension Trust Funds. END OF STATEMENT Statement of Changes in Plan Net Assets, Pension Trust Funds, For the Year Ended June 30, 2003 ADDITIONS - Contributions - were $13,544,731. ADDITIONS - Investment earnings: Investment income was $3,253,683. ADDITIONS - Investment earnings: Net appreciation in the fair value of investments was $5,103,755. ADDITIONS - Investment earnings: Investment income was $3,253,683. ADDITIONS - Investment earnings: Investment expense was $(834,046). ADDITIONS - Net investment income was $7,523,392. ADDITIONS - Total additions was $21,068,123. DEDUCTIONS - Benefit payments were $9,324,914. DEDUCTIONS - Other benefits paid to participants was $113,719. DEDUCTIONS - Total deductions were $9,438,633. DEDUCTIONS - Net increase was $11,629,490 NET ASSETS HELD IN TRUST - Beginning of year was $219,908,109. NET ASSETS HELD IN TRUST - End of year was $231,537,599. END OF STATEMENT NOTE 1 - THE FINANCIAL REPORTING ENTITY The Santa Clara Valley Transportation Authority (VTA), which was established in 1972, develops, maintains, and operates a public mass transit system for the benefit of the residents of the County of Santa Clara (County), California (State). VTA's governing board consists of two members of the County Board of Supervisors, five City Council members from the City of San Jose, and five City Council members selected from among the remaining incorporated cities in the County. The accompanying basic financial statements also include the financial activities of the Santa Clara Valley Transportation Authority Amalgamated Transit Union (ATU) Pension Plan (Plan) in the Pension Trust Fund (Note 11). The financial activities of the Plan are blended in the basic financial statements because the Plan exclusively serves the employees of VTA. Due to the fact that the ATU Pension Plan is fiscally dependent on VTA, it is considered a component unit of the enterprise fund. The Santa Clara County Traffic Authority (Traffic Authority) was created in November 1984, upon the approval of a one-half cent sales and use tax in the County by the County's voters. The tax, known as Measure A, commenced April 1, 1985, and expired on March 31, 1995. The proceeds of the tax are principally reserved for highway improvements in the County. The Measure A improvement projects mainly consist of improvements on Routes 85, 101, and 237. All improvements funded by Measure A become the property of the State. As of March 31, 1997, the Traffic Authority ceased operations as a separate entity, and effective April 1, 1997, VTA assumed responsibility as successor organization for the purpose of winding up the affairs of the Traffic Authority. The Traffic Authority is included as a nonmajor governmental fund in the accompanying basic financial statements. The Santa Clara Valley Transportation Authority Congestion Management Program (CMP) was created in 1990 in response to Proposition 111. The CMP is not legally separate from VTA. The CMP is responsible for development and implementation of the Valley Transportation Plan 2020 (VTP2020), the long-range transportation and land use plan for the County, and for preparing and implementing the State mandated Congestion Management Program. It is also responsible for the programming and oversight of discretionary federal, State and local funds, and for serving as the program manager for certain county-wide grant funds, including the Transportation Fund for Clean Air (TFCA) and the County's Measure B Transportation Improvement Program's (MBTIP) Ancillary Program. Annual contributions from each member agency are based on a formula adopted by VTA's governing board. The contribution formula considers each member agency's share of Proposition 111, State gas tax monies, as well as employment within the County. The CMP is included as a major governmental fund in the accompanying basic financial statements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation Government-wide Financial Statements The statement of net assets and statement of activities display information about VTA, as a whole. These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. These statements distinguish between the business-type and governmental activities of VTA. Business-type activities, which normally rely to a significant extent on fees charged to external parties, are reported separately from governmental activities, which normally are supported by taxes and inter-governmental revenues. The statement of activities presents a comparison between direct expenses and program revenues for the business-type and governmental activities. Direct expenses are those that are specifically associated with a program or function and; therefore, are clearly identifiable to a particular function. Program revenues include 1) charges paid by the recipients of goods or services offered by the programs and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements The fund financial statements provide information about VTA's funds, including fiduciary funds and the blended component unit. Separate statements for each fund category - proprietary, governmental, and fiduciary - are presented. The emphasis of fund financial statements is on the major governmental and the enterprise funds, each displayed in separate columns. VTA reports the following major funds: The Proprietary Fund (Enterprise Fund) is used to account for activities for which a fee is charged to external users for goods or services (a) where the activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity; or (b) where laws or regulations require that the activity's costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues; or (c) where the pricing policies of the activity establish fees and charges designated to recover its costs, including capital costs (such as depreciation or debt service). VTA's transit operations, the activities of the Measure B Transit Projects and 2000 Measure A operations and transit projects are accounted for in the Enterprise Fund. The Governmental Funds are used to account for VTA's general governmental activities where the proceeds of specific revenue sources are legally restricted to expenditures for specific purposes and for the acquisition of capital assets or construction of major capital projects (other than those financed by the Enterprise Fund). The Congestion Management Program Special Revenue Fund is used to account for the congestion management planning, programming, and development services for Santa Clara County. The Measure B Highway Program Capital Projects Fund is used to account for acquisition of capital assets or construction of Measure B Highway projects. The Congestion Management and Highway Program Capital Projects Fund is used to account for the acquisition of capital assets and construction of highway projects administered on behalf of state and other local governments (other than those accounted for in the Measure B Highway Program Capital Projects Fund). VTA reports the following additional funds: The Non-major Traffic Authority Special Revenue Fund is used to account for activities to wind up the affairs of the 1985 Measure A improvement projects, which become the property of the State. The Fiduciary Funds are used to account for assets held by VTA as a trustee or as an agent for others and which assets cannot be used to support its own programs. VTA's trust and agency funds include the SCVTA/ATU Pension Plan, ATU Medical Trust, the Bay Area Air Quality Management District (BAAQMD) Program, and the Measure B Ancillary Program. The SCVTA/ATU Pension Plan and the ATU Medical Trust are reported as pension (other employees benefit) trust funds. The BAAQMD and the Measure B Ancillary Programs are reported as agency funds. b) Basis of Accounting The government-wide, proprietary fund and fiduciary funds financial statements are reported using the accrual basis of accounting and the economic resources exchange measurement focus (except agency funds since agency funds only report assets and liabilities they cannot be said to have a measurement focus). Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which VTA gives (or receives) value without directly receiving (or giving) equal value in exchange, include sales tax and grants. Revenues from sales tax are recognized when the underlying transactions take place. Therefore, recorded sales taxes include an estimate for amounts collected by merchants at the end of the fiscal year, but not remitted to the State until subsequent to that time. Revenues from grants are recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements for the purchase of right-of-way are considered met once the acquisition has settled. VTA's operating revenues are generated directly from its transit operations and consist principally of passenger fares. Operating expenses for the transit operations included all costs related to providing transit services. These costs include labor, fringe benefits, materials, supplies, services, utilities, leases and rentals, purchased transportation, and depreciation on capital assets. All other revenue and expenses not meeting these definitions are reported as nonoperating revenues and expenses. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Interest, certain state and federal grants and charges for services are accrued if their receipt occurs within sixty days after the end of the accounting period so as to be both measurable and available. Expenditures are generally recorded when a liability is incurred, as under accrual accounting. However, compensated absences are recorded only when payment is due. When both restricted and unrestricted net assets are available, unrestricted resources are used only after the restricted resources are depleted. VTA has elected under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, to apply all applicable GASB pronouncements, as well as any applicable pronouncements of the Financial Accounting Standards Board (FASB), the Accounting Principles Board or any Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards, which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes accounting principles generally accepted in the United States of America (GAAP) for governmental units. VTA has elected not to follow subsequent private-sector guidance of FASB after November 30, 1989. c) Cash and Investments VTA contracts with money management firms to manage its investment portfolio. VTA's investment program manager has oversight responsibility for investments managed by these firms. The securities are held by a third-party custodial bank. Purchases and sales of securities are reflected on the trade date. Investment income is recognized as earned. The remaining cash balances in certain VTA funds are pooled and invested by the State of California and the County Treasury (cash and investments with fiscal agents). Unless there are specific legal or contractual requirements for specific allocations, income earned or losses arising from investments are allocated on a quarterly basis to the appropriate fund(s) based on their average daily balances. Cash and cash equivalents include cash on hand, demand deposits, and short-term investments, which are readily convertible to known amounts of cash. Restricted and unrestricted cash and cash equivalents and cash and investments with fiscal agents are considered to be cash and cash equivalents for purposes of the accompanying statement of cash flows. Access to cash and investments with fiscal agents is similar to that of a demand deposit account and, therefore, investments are considered to be cash equivalents. VTA has reported its investments at fair value based on quoted market information obtained from a pricing service provided by the investment management firms and from its fiscal agents. The corresponding change in fair value of investments is recognized in the year in which the change occurs. The fair value of VTA's investments commingled in County Treasury is based on VTA's cash position with the County as of the end of the fiscal year in proportion to the entire cash held in the commingled pool. The value reported is equal to VTA's share of the commingled pool value. d) Inventories Inventories are stated at average cost/market and are charged to expense at the time individual items are withdrawn from inventory (consumption method). Inventory consists primarily of parts and supplies relating to transportation vehicles and facilities. e) Restricted Assets Restricted assets consist of monies and other resources, the use of which is either Board designated or legally restricted for the following purposes: Capital and operating Workers' compensation insurance Long-term accrued vacation and sick leave benefits General liability insurance Retiree health care Debt service f) Bond Issuance Cost, Discounts and Deferred Amounts on Refundings Bond issuance costs and discounts for the government-wide statement of net assets and the enterprise fund are deferred and amortized over the term of the bonds using a method that approximates the interest method. Government-wide statement and enterprise fund bond discounts and deferred amount on refundings are presented as a reduction of the face amount of bonds payable whereas issuance costs are recorded as a deferred cost. g) Capital Assets It is VTA's policy that assets with a value of $5,000 or more, and a useful life beyond one year are capitalized, included in the capital asset accounting system and depreciated accordingly. Property, facilities, and equipment are stated at historical cost. The cost of normal maintenance and repairs is charged to operations as incurred. Improvements are capitalized and depreciated over the remaining useful lives of the related properties. Depreciation is computed using the straight-line method over estimated useful lives as follows: Buildings, improvements, furniture and fixtures - 5 to 50 years Vehicles (excluding light-rail vehicles) - 5 to 12 years Light-rail tracks, electrification and light-rail vehicles - 25 to 45 years Other operating equipment - 5 to 10 years Depreciation on such assets is included in the accompanying statement of activities and statement of revenues, expenses, and changes in fund net assets. Interest is capitalized on construction in progress. Accordingly, interest capitalized is the total interest cost from the date of the borrowing net of any allowable interest earned on temporary investments of the proceeds of those borrowings until the specified asset is ready for its intended use. In the current year, VTA capitalized a net interest expense relating to the BART Right-of-Way purchase of $712,000. h) Other Accrued Liabilities Other accrued liabilities in the fund financial statements, including those payable from restricted assets, represent accruals for vacation and sick leave benefits, payroll, retiree health care programs, general liability claims, and workers' compensation claims. For government-wide financial statements, all of these liabilities with the exception of payroll, are reported within long-term liabilities and are disaggregated in Note 7. i) Vacation and Sick Leave Benefits It is the policy of VTA to permit employees to accumulate unused vacation and sick leave benefits up to the limit designated in the various collective bargaining agreements. As vacation and sick leave are used during the year, they are reported as an expense. Additionally, there is an amount charged each month to accrue the estimated increase in unused vacation and sick leave. This is adjusted annually to reflect the year-end value of unused vacation and sick leave. For the governmental funds, however, accumulated vacation and sick leave are reported as liabilities when payment is due. j) Self-Insurance VTA is self-insured for general liability and workers' compensation claims. Estimated losses on claims other than workers' compensation claims are charged to expense in the period the loss is determinable. Estimated losses for workers' compensation claims are charged to expense as a percentage of labor in each accounting period. The costs incurred for workers' compensation and general liability (including estimates for claims incurred but not yet reported) are accrued as a liability based on an actuarial determination of the present value of estimated future cash payments (see Note 15). k) Net Assets The government-wide and enterprise fund financial statements utilize a net assets presentation. Net assets are categorized as invested in capital assets (net of related debt) and unrestricted. Invested in Capital Assets, Net of Related Debt - This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce the balance in this category. Unrestricted Net Assets - This category represents net assets of VTA, not restricted for any project or other purpose. l) Estimates VTA's management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues, expenses, expenditures and the disclosure of contingent liabilities to prepare the basic financial statements in conformity with GAAP. Actual results could differ from those estimates. m) Costs Allocated to Capital and Other Programs On the Statement of Revenues, Expenses and Changes in Fund Net Assets, the Enterprise Fund reports $20,201,407 as costs allocated to capital and other programs. This amount represents a credit for direct and indirect labor and associated fringe benefits, reproduction and mileage costs, and other costs that were capitalized as construction in progress. NOTE 3 - CASH AND INVESTMENTS Total cash and investments as of June 30, 2003, are reported in the accompanying basic financial statements as follows: A table presents cash and investments as of June 30, 2003: Unrestricted: Cash and cash equivalents in Business-type Activity in the Enterprise Fund is $1,168,034; Governmental Activity in Governmental Funds is $228; in Pension Trust Funds is $0; in Agency Funds is $0; Total Cash and cash equivalents is $1,168,262. Unrestricted: Investments in Business-type Activity in the Enterprise Fund is $25,154,169; Governmental Activity in Governmental Funds is $2,924,570; in Pension Trust Funds is $0; in Agency Funds is $0; Total Investments is $28,078,739. Unrestricted: Total unrestricted in Business-type Activity in the Enterprise Fund is $26,322,203; Governmental Activity in Governmental Funds is $2,924,798; in Pension Trust Funds is $0; in Agency Funds is $0; Total Unrestricted is $29,247,001. Restricted: Cash and cash equivalents in Business-type Activity in the Enterprise Fund is $45,938,808; Governmental Activity in Governmental Funds is $35,433,813; in Pension Trust Funds is $0; in Agency Funds is $5,776,140; Total Restricted Cash and cash equivalents is $87,148,761. Restricted: Cash and investments with fiscal agents in Business-type Activity in the Enterprise Fund is $31,406,103; Governmental Activity in Governmental Funds is $5,446,475; in Pension Trust Funds is $0; in Agency Funds is $0; Total Restricted Cash and investments with fiscal agents is $36,852,578. Restricted: Investments in Business-type Activity in the Enterprise Fund is $186,802,765; Governmental Activity in Governmental Funds is $0; in Pension Trust Funds is $230,439,101; in Agency Funds is $83,161,360; Total Restricted Investments is $500,403,226. Restricted: Total restricted in Business-type Activity in the Enterprise Fund is $264,147,676; Governmental Activity in Governmental Funds is $40,880,288; in Pension Trust Funds is $230,439,101; in Agency Funds is $88,937,500; Total Restricted is $624,404,565. Total cash and investments in Business-type Activity in the Enterprise Fund is $290,469,879; Governmental Activity in Governmental Funds is $43,805,086; in Pension Trust Funds is $230,439,101; in Agency Funds is $88,937,500; Total d Cash and investments is $653,651,566. As of June 30, 2003, total cash and investments among all funds consisted of the following: Cash and deposit is $88,317,012 and Investments is $565,334,543 for a total of $653,651,566. END OF TABLE Deposits As of June 30, 2003, the carrying amount of VTA's deposit balance, which includes restricted deposits, was $88,317,023 and the bank balance was $113,578,704. The difference between the carrying amount and the bank balance is due to outstanding checks and deposits in transit. $100,000 of the bank balance was covered by federal depository insurance, and $113,478,704 was collateralized in accordance with Section 53652 of the California Government Code. The California Government Code requires California banks and savings and loan associations to secure governmental deposits by pledging government securities as collateral. The market value of pledged securities must equal at least 110% of VTA's deposits, except for repurchase agreements, which should equal 102% of VTA's deposits. The California Government Code also allows financial institutions to secure governmental deposits by pledging first trust deed mortgage notes having a value of 150% of those deposits. Such collateral is held by the pledging financial institutions' trust department or agent in VTA's name. VTA maintains checking accounts for unrestricted operations, the Congestion Management and Highway Programs (CM&HP) and the Measure B Transportation Improvement Program (Measure B account). These checking accounts earn interest based on the bank's monthly sweep average repurchase agreement rate. A table presents the carrying amount of these cash balances at June 30, 2003: Cash balances on Deposits at June 30, 2003 Unrestricted operations account was $1,168,262 CM&HP account was $15,030,693 Measure B account: Business-type Activity (Enterprise Fund) is $45,938,808 Measure B account: Governmental Activity (Capital Project Fund) is $20,403,120 Measure B account: Measure B Ancillary Program Agency Fund I s$5,776,140 Total Measure B account is $72,118,068 Total deposits is $88,317,023 END OF TABLE Investments VTA's investment policies (Unrestricted/Restricted Funds and ATU Pension Plan) conform to State statutes, and provide written investment guidance regarding the types of investments that may be made and amounts which may be invested in any one financial institution or amounts which may be invested in long-term instruments. Permissible investments included deposits with the County Treasurer in a commingled account, obligations of the U.S. Treasury, U.S. government agencies, the State of California Local Agency Investment Fund (LAIF), certain time deposits, certificates of deposit, bankers' acceptances, commercial paper, and repurchase and reverse repurchase agreements. Investments in commercial paper must be rated A-1 by Standard & Poor's Corporation or P-1 by Moody's Commercial Paper Record. Negotiable certificates of deposit are restricted to those rated B or better by the Thompson Bankwatch, Inc. rating service. The County Treasury commingled pool (commingled pool) is subject to the County's Investment Policy and State Law and is reviewed by the County's Investment Committee on which VTA serves as a member. The value of the pool shares in the commingled pool which may be withdrawn is determined on an amortized cost basis, which is different than the fair value of the VTA's position in the pool. The Local Investment Advisory Board (Board) has oversight responsibility for LAIF. The Board consists of five members as designated by State Statute. The value of the pool shares in LAIF which may be withdrawn is determined on an amortized cost basis, which is different than the fair value of the VTA's position in the pool. VTA's portfolio includes structured notes and asset-backed securities, which are invested directly by VTA and indirectly through LAIF. At June 30, 2003, VTA's investment in LAIF is $13,093,646. The total amount invested by all public agencies in LAIF at June 30, 2003, is $55,422,506,000. Of that amount, 2.33% is in structured notes and asset-backed securities. Information is not available on whether the various mutual funds in which the VTA has invested used or held derivative financial products during the year ended June 30, 2003. Investments are categorized below to give an indication of the custodial credit risk assumed by VTA as of June 30, 2003. Category 1 includes investments that are insured or registered or for which the securities are held by VTA or its agent in VTA's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in VTA's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty or by its trust department or agent, but not in VTA's name. A table shows VTA's Investments at June 30, 2003: Pooled investments: Investments subject to categorization: Corporate notes (commercial paper) in Category 1 is $1,398,628; in Category 2 is $0; Fair Value is $1,398,628 Pooled investments: Investments subject to categorization: Corporate bonds in Category 1 is $57,091,260; in Category 2 is $0; Fair Value is $57,091,260 Pooled investments: Investments subject to categorization: U.S. Treasury and government agency notes in Category 1 is $222,953,198; in Category 2 is $0; Fair Value is $222,953,198 Pooled investments: Investments subject to categorization: Repurchase agreements in Category 1 is $0; in Category 2 is $9,314,845; Fair Value is $9,314,845 Subtotal Pooled investments: Investments subject to categorization in Category 1 is $281,443,086; in Category 2 is $9,314,845; Fair Value is $290,757,931 Pooled investments: Uncategorized investments: Investments commingled in County Treasury - Fair Value is $1,837,274 Pooled investments: Uncategorized investments: State of California Local Agency Investment Fund - Fair Value is $13,093,646 Pooled investments: Uncategorized investments: Mutual funds (retention escrow fund) - Fair Value is $17,516,044 Pooled investments: Uncategorized investments: Mutual Funds - Fair Value is $22,318,625 Total Pooled investments - Fair Value is $345,523,520 Pension Plan investments: Investments subject to categorization: Equity Securities in Category 1 is $64,097,892; in Category 2 is $0; Fair Value is $64,097,892 Pension Plan investments: Investments subject to categorization: Corporate bonds in Category 1 is $36,277,386; in Category 2 is $0; Fair Value is $36,277,386 Pension Plan investments: Investments subject to categorization: U.S. Treasury and government agency notes in Category 1 is $49,718,121; in Category 2 is $0; Fair Value is $49,718,121 Pension Plan investments: Subtotal Investments in Category 1 is $150,093,399; in Category 2 is $0; Fair Value is $150,093,399 Pension Plan investments: Uncategorized Investments: Mutual funds Fair Value is $69,717,624 Total Pension Plan investments Fair Value is $219,811,023 Total Investments in Category 1 is $431,536,485; in Category 2 is $9,314,845; Fair Value is $565,334,543 As of June 30, 2003, the Pension Trust Fund's restricted investments consisted of the following: ATU Pension: Pension plan investments Fair Value is $219,811,023 ATU Pension: Pooled investments Fair Value is $1,528,398 ATU Medical: Pooled investments Fair Value is $9,099,680 Total is $230,439,101 END OF TABLE NOTE 4 - INTERFUND TRANSACTIONS A table shows the composition of interfund balances as of June 30, 2003: The Enterprise Fund collects advances from the Santa Clara County of the Measure B Transit Highway Project. The $8,180,097* due to the Measure B Highway Program Capital Projects Fund is the revolving fund to be used for future project expenditures. The Congestion Management & Highway Program owes the Enterprise Fund the sum of $117,082* for labor charges to its projects. * Reported as internal balances in the government-wide financial statements. END OF TABLE NOTE 5 - DUE FROM AND DUE TO OTHER GOVENMENTAL AGENCIES A table show fund due from other governmental agencies as of June 30, 2003: Current: Federal Government Business-type activity in the Enterprise Fund is $16,322,152; in Governmental Activity, in Special Revenue is $118,048 and in Capital Projects is $0; Total Federal Government is $16,440,200. Current: State Government Business-type activity in the Enterprise Fund is $37,180,710; in Governmental Activity, in Special Revenue is $0 and in Capital Projects is $22,667,954; Total State Government is $59,848,664. Current: County of Santa Clara: Court deposits: VTA account in Business-type activity in the Enterprise Fund is $71,100; in Governmental Activity in Special Revenue is $0 and in Capital Projects is $0; Total VTA account is $71,100. Current: County of Santa Clara: Court deposits: Measure B Highway in Business-type activity in the Enterprise Fund is $0; in Governmental Activity in Special Revenue is $0 and in Capital Projects is $4,582,800; Total Measure B Highway is $4,582,800. Current: County of Santa Clara: Court deposits: Measure B Transit in Business-type activity in the Enterprise Fund is $13,525,400; in Governmental Activity, in Special Revenue is $0 and in Capital Projects is $0; Total Measure B Transit is $13,525,400. Current: County of Santa Clara: Court deposits: Total court deposits in Business-type activity in the Enterprise Fund is $13,596,500; in Governmental Activity in Special Revenue is $0 and in Capital Projects is $4,582,800; Total court deposits is $18,179,300. Current: County of Santa Clara: Swap Fund in Business-type activity in the Enterprise Fund is $500,000; in Governmental Activity in Special Revenue is $0 and in Capital Projects is $0; Total Swap Fund is $500,000. Current: County of Santa Clara: Parking citation revenue in Business-type activity in the Enterprise Fund is $20,365; in Governmental Activity, in Special Revenue is $0 and in Capital Projects is $0; Total Parking citation revenue is $20,365. Current: County of Santa Clara: Others in Business-type activity in the Enterprise Fund is $10,392; in Governmental Activity in Special Revenue is $0 and in Capital Projects is $0; Total Others is $10,392. Current: Total County of Santa Clara in Business-type activity in the Enterprise Fund is $14,127,257; in Governmental Activity in Special Revenue is $0 and in Capital Projects is $4,582,800; Total County of Santa Clara is $18,710,057. Others in Business-type activity in the Enterprise Fund is $2,562,260; in Governmental Activity, in Special Revenue is $104,908 and in Capital Projects is $3,477,500; Total Others is $6,144,668. Total in Business-type activity in the Enterprise Fund is $70,192,379; in Governmental Activity in Special Revenue is $222,956 and in Capital Projects is $30,728,254; Total is $101,143,589. END OF TABLE A table shows funds due from other governmental agencies as of June 30, 3003 and reported in the accompanying financial statements: Current in Business-type activity in the Enterprise Fund is $35,124,025; in Governmental Activity in Special Revenue is $222,956; and in Capital Projects is $0. Restricted in Business-type activity in the Enterprise Fund is $35,068,354; in Governmental Activity in Special Revenue is $0; and in Capital Projects is $30,728,254. Total for both in Business-type activity in the Enterprise Fund is $70,192,379; in Governmental Activity in Special Revenue is $222,956; and in Capital Projects is $30,728,254. END TABLE A table shows funds due to other governmental agencies as of June 30, 2003: Federal Transit Administration in Business-type Activity in the Enterprise Fund is $7,098,901; in Governmental Activity in Special Revenue is $0; in Capital Projects is $0; and in Agency is $0. State government in Business-type Activity in the Enterprise Fund is $1,454,849; in Governmental Activity in Special Revenue is $16; in Capital Projects is $77,482; and in Agency is $0. Peninsula Corridor Joint Powers Board in Business-type Activity in the Enterprise Fund is $2,944,387; in Governmental Activity in Special Revenue is $0; in Capital Projects is $0; and in Agency is $0. County of Santa Clara in Business-type Activity in the Enterprise Fund is $33,454,918; in Governmental Activity in Special Revenue is $1,408,000; in Capital Projects is $51,319,922; and in Agency is $84,696,178. City of Campbell in Business-type Activity in the Enterprise Fund is $554,324; in Governmental Activity in Special Revenue is $0; in Capital Projects is $0; and in Agency is $0. San Mateo County Transportation Authority in Business-type Activity in the Enterprise Fund is $224,257; in Governmental Activity in Special Revenue is $0; in Capital Projects is $0; and in Agency is $0. City of San Jose in Business-type Activity in the Enterprise Fund is $64,330; in Governmental Activity in Special Revenue is $0; in Capital Projects is $3,302,146; and in Agency is $0. City of Sunnyvale in Business-type Activity in the Enterprise Fund is $0; in Governmental Activity in Special Revenue is $0; in Capital Projects is $180,547; and in Agency is $0. Total in Business-type Activity in the Enterprise Fund is $45,795,966; in Governmental Activity in Special Revenue is $1,408,016; in Capital Projects is $54,880,097; and in Agency is $84,696,178. END TABLE A table shows funds due to other governmental agencies as of June 30, 2003 and reported in the accompanying basic financial statements: Current liabilities in Business-type Activity in the Enterprise Fund is $4,307,280; in Governmental Activity in Special Revenue is $1,408,016; in Capital Projects is $0; and in Agency is $0. Liabilities payable from restricted assets in Business-type Activity in the Enterprise Fund is $41,488,686; in Governmental Activity in Special Revenue is $0; in Capital Projects is $54,880,097; and in Agency is $84,696,178. Total in Business-type Activity in the Enterprise Fund is $45,795,966; in Governmental Activity in Special Revenue is $1,408,016; in Capital Projects is $54,880,097; and in Agency is $84,696,178. END OF TABLE NOTE 6 - CAPITAL ASSETS A table shows capital asset changes for VTA's business-type activity for the year ended June 30, 2003: Capital assets, not being depreciated: Land and right of way - on July 1, 2002 was $572,664,544 - Additions were $2,440,730 - Retirements were $(4,390,339) - on June 30, 2003 were $570,714,935. Capital assets, not being depreciated: Construction in progress - on July 1, 2002 was $608,403,203 - Additions were $434,368,556 - Retirements were $(118,899,718) - on June 30, 2003 were $923,872,041. Total Capital assets, not being depreciated - on July 1, 2002 was $1,181,067,747 - Additions were $436,809,286 - Retirements were $(123,290,057) - on June 30, 2003 were $1,494,586,976. Capital assets, being depreciated: Buildings, improvements, furniture and fixtures - on July 1, 2002 were $227,826,416 - Additions were $13,658,004 - Retirements were $(4,245,474) - on June 30, 2003 were $237,238,946. Capital assets, being depreciated: Vehicles - on July 1, 2002 were $220,504,063 - Additions were $97,489,578 - Retirements were $(11,655,322) - on June 30, 2003 were $306,338,319. Capital assets, being depreciated: Light-rail tracks and electrification - on July 1, 2002 were $276,398,247 - Additions were $4,784,063 - Retirements were $0 - on June 30, 2003 were $281,182,310. Capital assets, being depreciated: Caltrain - Gilroy extension - on July 1, 2002 were $48,774,692 - Additions were $187,492 - Retirements were $0 - on June 30, 2003 were $48,962,184. Capital assets, being depreciated: Other operating equipment - on July 1, 2002 were $28,336,298 - Additions were $339,849 - Retirements were $0 - on June 30, 2003 were $28,706,147. Total Capital assets, being depreciated - on July 1, 2002 were $801,869,716 - Additions were $116,458,986 - Retirements were $(15,900,796) - on June 30, 2003 were $902,427,906. Less accumulated depreciation for: Buildings, improvements, furniture and fixtures - on July 1, 2002 were $(94,544,377) - Additions were $(10,806,787) - Retirements were $1,043,569 - on June 30, 2003 were $(104,307,595). Less accumulated depreciation for: Vehicles - on July 1, 2002 were $(83,293,516) - Additions were $(16,379,837) - Retirements were $11,574,359 - on June 30, 2003 were $(88,098,994). Less accumulated depreciation for: Light-rail tracks and electrification - on July 1, 2002 were $(50,256,047) - Additions were $(11,317,348) - Retirements were $0 - on June 30, 2003 were $(61,573,395). Less accumulated depreciation for: Caltrain - Gilroy extension - on July 1, 2002 were $(4,968,777) - Additions were $(709,461) - Retirements were $0 - on June 30, 2003 were $(5,678,238). Less accumulated depreciation for: Other operating equipment - on July 1, 2002 were $(8,962,938) - Additions were $(2,302,576) - Retirements were $0 - on June 30, 2003 were $(11,265,514). Total accumulated depreciation - on July 1, 2002 were $(242,025,655) - Additions were $(41,516,009) - Retirements were $12,617,928 - on June 30, 2003 were $(270,923,736). Total capital assets, being depreciated, net -- on July 1, 2002 were $559,844,061 - Additions were $74,942,977 - Retirements were $(3,282,868) - on June 30, 2003 were $631,504,170. Total capital assets, net -- on July 1, 2002 were $1,740,911,808 - Additions were $511,752,263 - Retirements were $(126,572,925) - on June 30, 2003 were $2,126,091,146. END OF TABLE A table show Construction in progress (CIP), including capitalized costs and right-of-way acquisitions associated with the following projects as of June 30, 2003: The Vasona Corridor Project had $207,444,168; Tasman Corridor Project Extensions has $172,337,109; Facilities Modifications had $136,860,459; New Rail Vehicles had $118,319,922; Capitol Corridor Projects had $125,649,947; Guadalupe Corridor had $31,289,795; Software Development had $8,785,496; Silicon Valley Rapid Transit Corridor had $101,573,270; Study Projects had $6,679,830; Coach and Vehicle Replacement had $7,296,353; Caltrain Service Improvements had $17,684,163; VTA Administration Building Improvements had $247,466; Fremont Rail Connection had $3,229,463 Total project costs expended to date were $937,397,441 Less right-of-way acquisitions not yet settled(1) is $(13,525,400) CIP, as reported on the balance sheet at 6/30/03 is $923,872,041 (1)The projects listed above include $13,525,400 paid for right-of-way acquisitions that have not yet settled. During the process of acquiring right-of-way, VTA makes deposits with the County of Santa Clara, which are reported as due from other governments. Upon settlement of the purchase and transfer of title to VTA, these acquisitions will be reported as construction in progress. END OF TABLE A table shows additional information regarding projects in progress as of June 30, 2003: Total Board approved project budget is $1,361,182,151 Expended to date is $(937,397,441) Remaining budget available for CIP is $423,784,710. Anticipated funding sources are as follows: Federal, State and other local assistance (Note 10) is $361,237,706 Local contributions (Note 10) is $62,547,004 Total funding sources is $423,784,710 VTA has outstanding commitments of $260,888,000 as of June 30, 2003 related to the above capital projects. END OF TABLE NOTE 7 - LONG-TERM LIABILITIES A table shows long-term debt as of June 30, 2003: Sales Tax Revenue Bonds: 2002 Bond and Grant Anticipation Note ($81,500,000 plus unamortized premium of $590,346) (a) was $82,090,346 Sales Tax Revenue Bonds: 2001 Series A Senior Lien ($190,385,000, less unamortized discount of $1,562,834) (b) was $188,822,166 Sales Tax Revenue Bonds: 2000 Series A Junior Lien (c) was $38,070,000 Sales Tax Revenue Bonds: 1998 Series A Junior Lien (d) was $46,565,000 Sales Tax Revenue Bonds: 1997 Series A Refunding ($35,270,000, less unamortized discount of $299,262 and unamortized deferred amount on refunding of $2,745,173) (e) was $32,225,565 Series 1985A Equipment: Trust Certificates (f) was $29,660,000 Improvement Bond Series 22R (g) was $36,884 Total long-term debt was $417,469,961 Less current portion of long-term debt was $(8,541,884) Long-term debt, excluding current portion was $408,928,077 Less portion of long-term debt payable from restricted assets was $(15,079,901) Long-term debt, excluding current and restricted portions was $393,848,176 END OF TABLE a) 2002 Bond and Grant Anticipation Note The 2002 Bond and Grant Anticipation Note was issued to finance the purchase of BART to San Jose right-of-way from Union Pacific Railroad. The note, bearing an interest rate of 3% and yield of 1.28% will mature on December 4, 2003. The note will be paid out of the VTA's debt offering plan that would be secured by the 2000 Measure A sales tax (please refer to note 21). The transaction to refinance the note closed on November 20, 2003. b) 2001 Series A Senior Lien Sales Tax Revenue Bonds In June 2001, VTA issued $200,000,000 of 2001 Series A Senior Lien Sales Tax Revenue Bonds (2001 Bonds) to finance portions of the Tasman East, Vasona, and Capitol Corridor Light Rail projects. Issuance costs are being amortized over the term of the debt. The 2001 Bonds are special obligations of VTA, which are payable and secured by sales tax revenues. The 2001 Bonds mature serially, through June 1, 2026. Future annual principal payments range from $3,295,000 to $17,945,000 and bear interest at rates ranging from 4.5% to 5.5%. c) 2000 Series A Junior Lien Sales Tax Revenue Bonds In November 2000, through the California Transit Variable Rate Program of the California Transit Finance Authority (Note 19d), VTA issued $40,000,000 of 2000 Series A Junior Lien Sales Tax Revenue Bonds (2000 Bonds) to finance certain capital expenditures. Issuance costs related to such bonds are being amortized over the term of the debt. The 2000 Bonds are special obligations of VTA, which are payable from and secured by sales tax revenue. The 2000 Bonds mature serially, through October 1, 2027. Future annual principal payments range from $1,265,000 to $2,175,000 and bear a variable rate of interest not to exceed 12%. At June 30, 2003, the variable interest rate was 1.00%, which is determined weekly based on the Bond Buyers Revenue Bond Index plus 50 basis points. d) 1998 Series A Junior Lien Sales Tax Revenue Bonds In March 1998, through the California Transit Variable Rate Program of the California Transit Finance Authority (Note 19d), VTA issued $50,000,000 of 1998 Series A Junior Lien Sales Tax Revenues Bonds (1998 Bonds) to finance certain capital projects. Issuance costs related to such bonds are being amortized over the term of the debt. The 1998 Bonds are special obligations of VTA, which are payable from and secured by sales tax revenues. The 1998 Bonds mature serially, through October 1, 2027. Future annual principal payments on the 1998 Bonds range from $1,045,000 to $2,690,000 and bear a variable rate of interest. At June 30, 2003, the variable interest rate was 1.00%, which is determined weekly based on the Bond Buyers Revenue Bond Index plus 50 basis points. e) 1997 Series A Sales Tax Revenue Refunding Bonds In November 1997, VTA issued $40,570,000 of 1997 Series A Sales Tax Revenue Refunding Bonds (1997 Bonds). The proceeds were used to advance refund $33,270,000 of the outstanding principal amount of its 1991 Series A Bonds, advance refund $4,940,000 of the outstanding principal amount of its Series C Certificates, and to pay for certain capital expenditures of VTA. The 1997 bonds are special obligations of VTA, which are payable from and secured by sales tax revenues. The bonds mature serially, through June 1, 2015. Future annual principal payments on the 1997 Bonds range from $1,195,000 to $2,825,000 and bear interest ranging from 4.3% to 5.0%. f) Series 1985A Equipment Trust Certificates The 1985A Certificates were issued to finance the retirement of the Series 1984A Equipment Trust Certificates, which had been issued to finance the acquisition of light-rail vehicles for the Guadalupe Corridor light-rail project. Proceeds from the sale of the 1985A Certificates were $52,155,000, which was net of issuance costs of $705,000. Issuance costs are being amortized over the term of the debt. In August 1998, VTA executed a Fixed Rate Swap (Swap) for the variable rate 1985A Certificates. Objective of the Interest Rate Swap. In 1998, VTA entered into a variable interest rate to fixed interest rate swap agreement with respect to its 1985A Equipment Trust Certificates (1985 ETC's) to effectively change VTA's variable interest rate on the 1985 ETC's to a synthetic fixed rate of 4.355%. Significant Terms. The 1985 ETC's are subject to mandatory redemption prior to their maturity date on each June 1 on or after June 1, 2007, in part by lot, solely from sinking fund payments and interest earnings deposited in the 1985 ETC Sinking Fund Account. Sinking fund payments are due in 2007 through 2015 and range from $460,000 to $4,800,000. The 1985 ETC's bear interest at a weekly rate, which is determined by the Remarketing Agent to be the rate necessary to remarket the 1985 ETC's at par value. The notional amount of the swap, which was effective September 11, 1998 and terminates June 1, 2015, is $29,660,000 (the amount outstanding on the 1985 ETC's as of the effective date) and, starting with fiscal year 2007, declines concurrently with payments made to the 1985 ETC Sinking Fund Account. Under the swap VTA pays the counterparty an interest payment based on a fixed interest rate of 4.355% every six months and receives a monthly payment equal to the actual variable rate of interest on the 1985 ETC's. Fair Value. Because interest rates have declined since the execution of the swap, the swap had a negative fair value of $4,013,558 as of June 30, 2003. Since the coupons on the 1985 ETC's adjust to changing interest rates, they do not have a corresponding fair value increase. The fair value is the net present value of the swap using market data and the terms of the swap, which include the expectations of the probability of occurrence of certain underlying tax events as defined in the swap documentation. Basis Risk. There is no basis risk to VTA. The counterparty is required to pay VTA the actual variable rate of interest on the 1985 ETC's. Credit Risk. VTA bears the risk that the counterparty will not be able to make its offsetting payments on the 1985 ETC's. To mitigate the potential credit risk, the counterparty is required to post collateral, in the form of government securities, within 10 business days if its credit ratings for long-term unsecured debt obligations fall below "Aa3" by Moody's Investors Service or "AA" by Standard and Poor's. As of June 30, 2003, there were no changes in the Counterparty ratings, which are "AA1" by Moody's Investor Service and "AAA" by Standard and Poor's. Termination Risk. The swap agreement uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The Schedule to the Master Agreement includes an "additional termination event". That is, VTA has the right to terminate the swap if the counterparty 1) fails to post collateral satisfactory to VTA in the event of ratings downgrade below "Aa3" by Moody's Investors Service or "AA" by Standard and Poor's, or, 2) if the counterparty's ratings are downgraded below "Baa3" by Moody's Investors Service or "BBB-" by Standard and Poor's. The counterparty has the right to terminate the swap if the bond insurer's financial strength rating falls below Aa3 by Moody's investors Service, its claims paying ability rating falls below AA- by Standard an Poor's or it fails to maintain a rating of AA- by Fitch Ratings, or, if VTA's long-term debt obligations fall below "Baa2" by Moody's Investors Service, "BBB" by Standard and Poor's or "BBB" by Fitch Ratings. If the swap were terminated, the variable rate ETC's would no longer carry a synthetic fixed interest rate. Also, if at the time of termination the swap has a negative fair value, VTA would be liable to the counterparty for payment equal to the swap's fair value. The ratings of the bond insurer have not changed and are "Aaa" by Moody's Investors Service, "AAA" by Standard and Poor's and "AAA" by Fitch Ratings. Swap payments and associated debt. A table shows the debt service requirements of the variable-rate 1985 ETC's and net swap payments: In 2004, the Principal is $0; Interest* is $354,437; Interest Rate Swap, Net is $937,256; and the Total is $1,291,693 In 2005, the Principal is $0; Interest* is $354,437; Interest Rate Swap, Net is $937,256; and the Total is $1,291,693 In 2006, the Principal is $0; Interest* is $354,437; Interest Rate Swap, Net is $937,256; and the Total is $1,291,693 In 2007, the Principal is $460,000; Interest* is $354,437; Interest Rate Swap, Net is $937,256; and the Total is $1,751,693 In 2008, the Principal is $2,700,000; Interest* is $348,940; Interest Rate Swap, Net is $922,720; and the Total is $3,971,660 In 2009, the Principal is $2,900,000; Interest* is $316,675; Interest Rate Swap, Net is $837,400; and the Total is $4,054,075 In 2010, the Principal is $3,100,000; Interest* is $282,020; Interest Rate Swap, Net is $745,760; and the Total is $4,127,780 In 2011, the Principal is $3,400,000; Interest* is $244,975; Interest Rate Swap, Net is $647,800; and the Total is $4,292,775 In 2012, the Principal is $3,800,000; Interest* is $204,345; Interest Rate Swap, Net is $540,360; and the Total is $4,544,705 In 2013, the Principal is $4,000,000; Interest* is $158,935; Interest Rate Swap, Net is $420,280; and the Total is $4,579,215 In 2014, the Principal is $4,500,000; Interest* is $111,135; Interest Rate Swap, Net is $293,880; and the Total is $4,905,015 In 2015, the Principal is $4,800,000; Interest* is $57,360; Interest Rate Swap, Net is $151,680; and the Total is $5,009,040 Total for all years, the Principal is $29,660,000; Interest* is $3,142,133; Interest Rate Swap, Net is $8,308,904; and the Total is $41,111,037 *For the purposes of calculating the annual debt service requirements, the June 30, 2003 effective rate of 1.195% was used for the variable rate debt END OF TABLE The 1985A Certificates are limited general obligations of VTA and are secured by sales tax revenue and an irrevocable letter of credit in the amount of $30,074,000, which expires on June 1, 2015. The 1985A Certificates mature beginning in 2007 and are subject to redemption prior to their maturity date on each June 1 through deposit on such date in a separate sinking fund account, of the principal amount due together with accrued interest to the date of redemption. As of June 30, 2003, VTA had repaid $23,200,000 of the 1985A Certificates. As a result of making payments prior to scheduled maturity dates, the next required sinking fund payments are due in 2007 through 2015 and range from $460,000 to $4,800,000. g) Improvement Bond Series 22R The Improvement Bond Series 22R (Bonds) were assumed by VTA upon the purchase of land in fiscal 1992 to be used as VTA's administration building site. The Bonds were originally issued in 1979, bear interest at 6.9%, and mature through 2004. The final principal payment due next year is $36,884. h) Scheduled Payments A table shows annual debt service requirements (including sinking fund requirements) to maturity for long-term debt: For the Year ending June 30, 2004, Principal(1) is $90,632,230 and Interest(2) is $14,597,667 For the Year ending June 30, 2005, Principal(1) is $8,895,000 and Interest(2) is $13,190,835 For the Year ending June 30, 2006, Principal(1) is $9,285,000 and Interest(2) is $12,842,267 For the Year ending June 30, 2007, Principal(1) is $9,735,000 and Interest(2) is $12,438,247 For the Year ending June 30, 2008, Principal(1) is $10,160,000 and Interest(2) is $12,005,755 For the Year ending June 30, 2009-2013, Principal(1) is 57,725,000 and Interest(2) is $53,922,538 For the Year ending June 30, 2014-2018, Principal(1) is 71,685,000 and Interest(2) is $41,719,605 For the Year ending June 30, 2019-2023, Principal(1) is 89,825,000 and Interest(2) is $25,663,081 For the Year ending June 30, 2024-2028, Principal(1) is 74,135,000 and Interest(2) is $5,887,796 Total debt service requirements Principal(1) is$422,077,230 and Interest(2) is $192,267,790 ____________________________ (1) Included in annual debt service requirements for the year ending June 30, 2004 is the principal and interest payments of the 2002 Bond and Grant Anticipation Note (Note), which has a maturity date of December 4, 2003. However, the Note will be paid out of the debt offering plan as discussed above in Note 7(a) and, accordingly, is not treated as a current obligation. (2) For the purposes of calculating the annual debt service requirements, the June 30, 2003 effective rate of 1.15% was used for the variable rate debt. END OF TABLE A table shows changes in long-term liabilities for the business-type activity: Sales Tax Revenue Bonds: 2001 Series A Senior Lien on July 1, 2002, there was $195,230,000, $0 in Additions, $(4,845,000) in Retirements with a balance on June 30, 2003 of $190,385,000. Amounts Due Within One Year were $5,085,000. Sales Tax Revenue Bonds: 2000 Series A Junior Lien on July 1, 2002, there was $39,050,000, $0 in Additions, $(980,000) in Retirements with a balance on June 30, 2003 of $38,070,000. Amounts Due Within One Year were $1,010,000. Sales Tax Revenue Bonds: 1998 Series A Junior Lien on July 1, 2002, there was $47,745,000, $0 in Additions, $(1,180,000) in Retirements with a balance on June 30, 2003 of $45,565,000. Amounts Due Within One Year were $1,215,000. Sales Tax Revenue Bonds: 1997 Series A Refunding on July 1, 2002, there was $36,390,000, $0 in Additions, $(1,120,000) in Retirements with a balance on June 30, 2003 of $35,270,000. Amounts Due Within One Year were $1,195,000. Series 1985A Equipment Trust Certificates on July 1, 2002 was $29,660,000, $0 in Additions, $0 Retirements with a balance on June 30, 2003 of $0. Amounts Due Within One Year were $0. Improvement Bond, Series 22R on July 1, 2002 was $70,891, $0 in Additions, $(34,007) in Retirements with a balance on June 30, 2003 of $36,884. Amounts Due Within One Year were $36,884. Bond & Grant Anticipation Note on July 1, 2002 was $0, $81,500,000 in Additions, $0 in Retirements with a balance on June 30, 2003 of $81,500,000. Amounts Due Within One Year were $0. Bond & Grant Anticipation Note Plus Premium on July 1, 2002 was $0, $590,346 in Additions, $0 in Retirements with a balance on June 30, 2003 of $590,346. Amounts Due Within One Year were $0. Deferred amounts and discounts on July 1, 2002 was $(4,845,387), $0 in Additions, $238,118 in Retirements, with a balance on June 30, 2003 of $(4,607,269) on June 30, 2003. Amounts due Within One Year were $0. Outstanding debt, net on July 1, 2002 was $343,300,504, $ 82,090,346 in Additions, $(7,920,889) in Retirements with a balance on June 30, 2003 of $417,469,961 on June 30, 2003. Amounts due Within One Year were $8,541,884. Claims liability: General liability insurance on July 1, 2002 was $13,113,698, $(3,912,550) in Additions, $(3,557,237) in Retirements with a balance on June 30, 2003 of $5,643,911. Amounts due Within One Year were $0. Claims liability: Worker's compensation liability on July 1, 2002 was $39,243,905, $19,646,352 in Additions, $(9,561,155) in Retirements with a balance on June 30, 2003 of $49,329,102. Amounts due Within One Year were $0. Total claims liability on July 1, 2002 was $52,357,603, $15,733,802 in Additions, $(13,118,392) in Retirements with a balance on June 30, 2003 of $54,973,013. Amounts due Within One Year were $0. Accrued vacation and sick leave on July 1, 2002 was $14,604,748, $(161,541) in Additions, $0 in Retirements with a balance on June 30, 2003 of $14,443,207. Amounts due Within One Year were $0. Accrued vacation and sick leave current on July 1, 2002 was $6,066,308, $279,240 in Additions, $0 in Retirements with a balance on June 30, 2003 of $6,345,547. Amounts due Within One Year were $6,345,547. Total accrued vacation and sick leave on July 1, 2002 was $20,671,056, $117,699 in Additions, $0 in Retirements with a balance on June 30, 2003 of $20,788,754. Amounts due Within One Year were $6,345,547. Retiree health care on July 1, 2002 was $32,915,556, $13,216,054 in Additions, $0 in Retirements with a balance on June 30, 2003 of $46,131,610. Amounts due Within One Year were $0. Total long-term liabilities on July 1, 2002 was $449,244,719, $111,157,901 in Additions, $(21,039,281) in Retirements with a balance on June 30, 2003 of $539,363,338. Amounts due Within One Year were $14,887,431. Changes in long-term liabilities for the governmental activity are as follows: Accrued vacation and sick leave on July 1, 2002 was $206,757, $59,038 in Additions, $0 in Retirements with a balance on June 30, 2003 of $265,795. Amounts due Within One Year were $3,972. END OF TABLE i) Limitations and Restrictions There are a number of limitations and restrictions contained in the various bond indentures. VTA's management believes that VTA is in compliance with all significant limitations and restrictions. j) Lease - Leaseback In September 1998, VTA simultaneously entered into two transactions to lease out 50 vehicle cars to investors (Headlease), State Street Bank and Trust Company of Connecticut, National Association (Trustee), and simultaneously sublease the vehicles back from the investors for a period of 32 to 33 years. VTA maintains ownership of the vehicles and is obligated to insure and maintain the vehicles throughout the term of the lease. VTA has the right to buy out the lease after 16.5 and 18.5 years depending on the equity investor and the condition of the equipment. VTA received a prepayment of approximately $92,286,000, which represented all rental obligations up to the date of the early buy-out option. Investors made equity contributions of approximately 20% and a financial institution made loans to the trust for the balance of the Headlease rental prepayment amount. VTA is required to make annual rental payments pursuant to the sublease. Simultaneously, VTA entered into a sublease prepayment agreement with the financial institution. VTA made a payment to the financial institution in the amount of $68,149,000 in consideration of the assumption by the financial institution of the debt portion of future rental payments, the debt portion of the early buy-out option and its absolute, unconditional and irrevocable guarantee of the prompt payment of such amounts when due. VTA used an additional $16,853,000 of the Headlease prepayment to purchase obligations of the United States government in various dollar amounts and maturities which coincide with the due dates of the equity portion of the sublease rental obligations and the equity portion of the early buy-out option. The investments have been transferred to a custodian. Additionally, VTA acquired a financial guaranty insurance policy to secure the equity portion of the sublease rental obligations. VTA paid $1,683,000 in appraisal, legal advisor and other fees. The pecuniary benefit to VTA in fiscal 1999 was $5,600,000. k) Japanese Operating Lease In June 2000, VTA had entered into a Japanese operating lease (JOL) transaction covering 285 buses of various vintages manufactured by Gillig and Flexible (Buses). VTA received payments totaling $55.4 million and VTA is obligated to make semi-annual rental payments throughout the term of the leases. VTA paid $53.4 million to financial institutions to assume the rental obligations. As a result of the JOL transaction, VTA realized a financial benefit of $2,022,000. VTA has the ability to terminate the leases on the Buses after 6 years with respect to some of the Buses, and after 8 years with respect to the remainder of the Buses. VTA will continue to operate, maintain, and insure the Buses throughout the term of the lease. NOTE 8 - SALES TAX REVENUE Sales tax revenue represents sales tax revenue from the California State Board of Equalization, which, under a sales tax measure, collects for VTA 0.5% for each taxable sales dollar spent in the County. These amounts are available to fund both operations and capital expenditures except that portion which is to be used to repay long-term debt as described in Note 7. Collection fees charged by the State Board of Equalization were approximately $1,112,000 in fiscal year 2002/03. The amount of sales tax collected during fiscal year 2003 was $132,632,377. NOTE 9 - VTA PROGRAMS FUNDED THROUGH LOCAL SALES TAX MEASURES Measure B Transportation Improvement Program (MBTIP) In November 1996, the voters of Santa Clara County approved Measure A - an advisory measure listing an ambitious program of transportation improvements for the County. Also approved on the same ballot, Measure B authorized the County Board of Supervisors to collect a nine-year half-cent sales tax for general County purposes. The tax was identified as a funding source for Measure A projects. Collection of the tax began in April 1997; however, use of the revenue was delayed pending the outcome of litigation challenging the legality of the sales tax. In August 1998, the California courts upheld the tax allowing the Measure A transportation program to move forward. In March 1999, the VTA Board of Directors and the County Board of Supervisors approved a Memorandum of Understanding (MOU) formalizing the partnership to implement Measure A. With this partnership in place, the County and VTA are in a position to complete a transportation program valued at $2.1 billion. The County will administer the funding, and VTA will be responsible for project management of the transit and highway projects and will assist in the administration of the pavement management and bicycle elements of the program. The Measure B Transit Projects, which consist mainly of light-rail extensions and new rail vehicles, become the property of VTA. The Measure B Highway projects, which consist primarily of widening highways and improvements become the property of the State. The accompanying basic financial statements include the financial activities of the Measure B Transit Projects in the Enterprise Fund and in the business-type activity, Measure B Highway Projects in a capital projects fund and in the governmental activity and the Measure B Ancillary Program, which includes pavement management and bicycle elements, in an agency fund. The Ancillary Program was created to administer the Measure B Pavement & Bikeways Program and Measure B Ancillary Fund, also known as the Local Program Reserves. In fiscal year 2001, VTA and the County entered into two agreements for Fund Swap arrangements, whereby VTA agreed to secure federal and/or State grant funds and program them for certain 1996 MBTIP Projects in exchange for the County to release the corresponding 1996 MBTIP Project funds for other local projects. The Tasman East Light Rail Project was programmed for $72.8 million in grant funds with $67.9 million being available for other local projects and the Vasona Light Rail Project was programmed for $51.6 million with the same amount being available for other local projects. A third agreement provided for a simultaneous exchange of funds. VTA secured 2001 Series A Senior Lien Sales Tax Revenue Bonds to reimburse the County approximately $184.1 million of 1996 MBTIP project costs, namely the Tasman East, Vasona and Capitol Corridor Light Rail Projects. The reimbursement of 1996 MBTIP project costs made $184.1 million available for the acquisition of low floor vehicles. On February 15, 2002, amendment #1 to the agreement was executed to increase the amount of reimbursement to $198.3 million. As of June 30, 2002, full reimbursement of the $198.3 million was made to the Measure B Ancillary Program Agency Fund. As of June 30, 2003 approximately $115.9 million have been expended for the acquisition of low floor vehicles. During the year, VTA paid approximately $366.2 million for current year costs for the program. Of this amount, the County of Santa Clara contributed approximately $263.3 million; namely $123.3 million ($122 million Measure B funding and $1.3 million swap fund) for transit projects in the Enterprise Fund; $90.5 million for highway projects in the Measure B Highway Capital Projects Fund; and $49.5 million for the Ancillary Program (Pavement and Bikeways). The remaining balance was received from various federal, State and local fund sources. 2000 Measure A Program The Santa Clara Valley Transportation Authority 2000 Measure A Program (MAP) was created in response to the Measure A ballot approved by the voters of Santa Clara County on November 7, 2000. The MAP is responsible for a number of key capital transit projects, including the connection of rapid transit to San Jose, increased bus and light rail service and providing for related operating expenses. The MAP is funded by the half-cent sales tax to be imposed for a period of 30 years and to take effect upon expiration of the current County of Santa Clara 1996 Measure B half-cent sales tax, April 1, 2006. VTA will receive the half-cent sales tax directly. NOTE 10 - FEDERAL, STATE, AND LOCAL ASSISTANCE The VTA is dependent upon the receipt of funds from several sources to meet its operating, maintenance, and capital requirements. The receipt of such revenues is controlled by federal, State, and local laws, the provisions of various grant contracts and regulatory approvals and, in some instances, is dependent on the availability of grant funds and the availability of local matching funds. A summary of the various governmental funding sources is as follows: (a) Federal Grants Federal grants are approved principally by the Federal Transportation Administration (FTA) and the Federal Highway Administration (FHWA). A table shows Federal grants for the year ended June 30, 2003: Operating assistance grants: FTA Section 9 for Business-type Activity in the Enterprise Fund are $32,858,906 and for Governmental Activity in Special Revenue Funds are $0. Operating assistance grants: Job Access and Reverse Commute Program Business-type Activity in the Enterprise Fund are $297,843 and for Governmental Activity in Special Revenue Funds are $0. Operating assistance grants: Federal Technical Studies for Business-type Activity in the Enterprise Fund are $19,307 and for Governmental Activity in Special Revenue Funds are $452,451. Total Operating assistance grants for Business-type Activity in the Enterprise Fund are $33,176,056 and for Governmental Activity in Special Revenue Funds are $452,451. END OF TABLE FTA and FHWA reserve the right to audit expenditures financed by their grants to determine if such expenditures comply with the conditions of the grant agreements. VTA's management believes the results of such audits would not have a material adverse effect on the VTA's financial position. FTA and FHWA retain their interest in assets acquired under federal grants should the assets be disposed of prior to the end of their economic lives, or not be used for mass transit purposes. The Job Access and Reverse Commute Program was authorized in Section 3037 of the Transportation Equity Act for the 21st Century (TEA-21). This program, administered by the FTA, is intended to implement a variety of transportation services that will connect welfare recipients to employment and other job-related activities and opportunities. (b) State and Local Grants and Assistance A table shows State and local grants for the business-type activity and the enterprise fund for the year ended June 30, 2003: Operating assistance grants: Transportation Development Act is $58,878,303 Operating assistance grants: State Transit Assistance is $6,429,687 Operating assistance grants: Measure B Assistance - JPB Contribution is $4,041,055 Operating assistance grants: AB434 is $1,457,086 Operating assistance grants: Other programs is $150,052 Total operating assistance grants is $70,956,183. Capital grants: Transportation Capital Improvement is $158,125 Capital grants: Proposition 116 is $152,159 Capital grants: Traffic Congestion Relief Program is $21,434,339 Capital grants: State Flexible Congestion Relief is $2,342,689 Capital grants: AB434 is $6,000 Capital grants: State General Fund is $7,808,428 Capital grants: State/Local Partnership is $32,235 Capital grants: Other local grants: Santa Clara County (Fund Swap Program) - (Note 9) is $122,023,263 Capital grants: Other local grants: Santa Clara County (Measure B Program) - (Note 9) is $67,430,036 Capital grants: Other local grants: Various cities and counties is $1,471,761 Total capital grants is $222,859,035 Total state and local grants is $293,815,218. END OF TABLE Transportation Development Act (TDA) funds represent VTA's share of the 0.25% sales tax collected in the County. State Transit Assistance (STA) represents funds received pursuant to the STA Program, whereby, a portion of gasoline sales tax revenues is appropriated by the State Legislature to the State Transportation Planning and Development Account for certain transit and energy-related purposes. STA funds are allocated throughout the State on the basis of population and operating revenues and are claimed by VTA on a cost-reimbursement basis. AB434 fees represent funds received from the Bay Area Air Quality Management District. These funds are used for shuttle services and projects promoting clean air in the South Bay. Transit Capital Improvement (TCI) program funds are received from the State Transportation Planning and Development Account. All state funds must be matched by 50% of local funds. Projects are programmed by the California Transportation Commission, with each county assigned a county minimum allocation. Proposition 116 funds are received from the California Transportation Commission from Rail Bonds funds pursuant to the 1990 Clean Air and Transportation Improvement Act. These funds are used to reimburse project costs relating to the construction of the Tasman Corridor Project and other light rail projects. The Traffic Congestion Relief Program (TCRP) provides funds for projects throughout the State of California to reduce traffic congestion, provide for safe and efficient movement of goods, and provide system connectivity. TCRP is being implemented by the California Transportation Commission, in consultation with State Department of Transportation. State Flexible Congestion Relief (State FCR) funds are from the State Highway Account (SHA) which is programmed in the State Transportation Improvement Program (STIP). These funds are used to reimburse project costs relating to construction of the Tasman Corridor Project. General funds are received from the State of California through its Business Transportation and Housing Agency, Department of Transportation. The funds are to be used to reimburse project costs relating to the Vasona Light Rail-Winchester Extension Project. State/Local Partnership (SLP) was originally created by SB140 and subsequently funded by the passage of Proposition 111 for locally funded and constructed highway and exclusive mass transit guideway projects. Applications for eligible projects are submitted to Caltrans and the amount of state match available is dependent on the number of applicants and the size of the legislative appropriation. The funds are used to reimburse project costs relating to the Tasman East Project. Santa Clara County Fund Swap is Measure B revenue received by VTA for local projects in exchange for federal and/or State grant funds and program them for certain 1996 MBTIP Projects. Additional information on the 1996 MBTIP can be found in Note 9. Various cities and districts contribute revenue to light rail projects for project enhancements NOTE 11 - SANTA CLARA VALLEY TRANSPORTATION AUTHORITY AMALGAMATED TRANSIT UNION PENSION PLAN a) Plan Description All ATU employees are covered by the Santa Clara Valley Transportation Authority Amalgamated Transit Union Pension Plan (Plan). The Plan is a noncontributory single-employer defined benefit pension plan. The Plan provides retirement, disability, and death benefits based on the employees' years of service, age, and final compensation. Employees with 10 or more years of service are entitled to full annual pension benefits beginning at normal retirement age of 65. Employees with less than 10 years of service are entitled to a reduced annual benefit at age 65 providing the Pension Board approves of such a benefit. Employees with 15 or more years of service are entitled to full annual pension benefits beginning at age 55. The Plan permits early retirement if an employee becomes disabled after 10 or more years of service, and deferred vested retirement upon employee termination after 10 or more years of service, with benefits payable permitted at age 65. Employees may elect to receive their benefits in the form of a joint or survivor annuity. These benefit provisions and all other requirements are established by California statute and the labor agreement with the ATU. VTA enhanced the Pension benefit for ATU represented employees effective February 1, 2001 and it was enhanced again on February 1, 2003. The enhancement scheduled for February 1, 2004 was accelerated to July 1, 2002. Separately issued audited financial statements of the Plan are available from VTA. A table presents current membership of the Plan as of June 30, 2003: Retirees and beneficiaries currently receiving benefits is 616 Terminated vested members not yet receiving benefits is 174 Active members is 1,587 Total is 2,377 END OF TABLE b) Basis of Accounting Contributions are recognized as revenue in the period in which employee services are performed., pursuant to contractual commitments. Benefits (distributions to participants) and refunds of prior contributions are recognized when due and payable in accordance with the terms of the Plan. Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price on the last business day of the fiscal year at current exchange rates. Purchases and sales of securities are reflected on the trade date. Investment income is recognized as earned. c) Actuarial Methods and Assumptions Description: Valuation Date Methods/Assumptions: January 1, 2003 Description: Actuarial cost method Methods/Assumptions: Entry Age Normal, with normal cost determined on an aggregated basis Description: Amortization method Methods/Assumptions: Level dollar open method Description: Remaining amortization period Methods/Assumptions: 20 years (Level dollar open method) Description: Actuarial asset valuation method: Methods/Assumptions: Market value of assets less unrecognized investment gain or losses during the prior four years, phased in at 20% per year, subject to a minimum of 80% and a maximum of 110% of market value. Description: Actuarial assumptions Methods/Assumptions: Investment rate of return at 8.00%, Projected Salary Increases at 19.03% for the first three years of service, and Infalation rate of 3.50%and type of employment d) Concentrations Investments in the commingled State Street Bank and Trust Company S&P 500 Conservative Index Fund and commingled Putnam International Trust Fund represented 14% and 14%, respectively, of the Plan's net assets as of June 30, 2003. e) Funding Policy VTA contributes to the Plan at actuarially determined rates applied to eligible payroll sufficient to maintain funding of vesting benefits. VTA's contributions to the Plan for the year ended June 30, 2003, were made in accordance with actuarially determined requirements computed as of January 1, 2002. VTA's contribution rate as a percentage of payroll was 12.76% for fiscal year 2002/03. The schedule of funding progress can be found on page 2-60. f) Net Pension Obligation VTA's net pension obligation to the Plan was zero as of June 30, 2003. A table shows the three-year trend information: For Fiscal Year Ended June 30, 2001, the Annual Pension Cost (APC) was $7,349,000, 100% APC was Contributed with a Net Pension Obligation of $0. For Fiscal Year Ended June 30, 2002, the Annual Pension Cost (APC) was $10,302,000, 100% APC was Contributed with a Net Pension Obligation of $0. For Fiscal Year Ended June 30, 2003, the Annual Pension Cost (APC) was $12,362,000, 100% APC was Contributed with a Net Pension Obligation of $0. NOTE 12 - PUBLIC EMPLOYEES' RETIREMENT PLAN a) Plan Description All eligible non-ATU employees of VTA participate in the State's Public Employees Retirement System (CalPERS). Prior to separation from the County on January 1, 1995, all eligible VTA employees participated in CalPERS through the County. As a result of the separation from the County, certain administrative employees were transferred from the County to VTA. All of those administrative employees' service credits earned during the period they worked for the County's transportation agency were transferred to VTA's CalPERS account. The transfer of related assets at a market value totaling approximately $52,300,000 was completed by CalPERS in fiscal 1999. CalPERS is an agent multiple-employer defined benefit retirement plan that acts as a common investment and administrative agent for various local and state governmental agencies within California. CalPERS provides retirement, disability, and death benefits based on the employees' years of service, age, and final compensation. Employees vest after five years of service and may receive retirement benefits at age 50. These benefit provisions and all other requirements are established by state statute and VTA resolutions. VTA contracts with CalPERS to administer these benefits. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, CA 95814. However, a separate report for VTA's Plan in not available. (b) Actuarial Methods and Assumptions Description: Valuation Date Methods/Assumptions: June 30, 2003 Description: Actuarial cost method Methods/Assumptions: Entry Age Actuarial cost method Description: Amortization method Methods/Assumptions: Level percent of payroll Description: Average Remaining Period Methods/Assumptions: 15 years as of the Valuation date, closed period Description: Asset valuation method: Methods/Assumptions: 3 Year Smoothed Market Description: Actuarial assumptions Methods/Assumptions: Investment rate of return at 8.25% compounded annually (net of expenses), Projected Salary Increases at 3.75 to 14.20% depending on Age, Service, and type of employment Description: Inflation Methods/Assumptions: 3.50% Description: Payroll Growth Methods/Assumptions: 3.75% Description: Individual Growth Methods/Assumptions: A merit scale varying by duration of employment coupled with an assumed annual inflation component of 3.50% and an annual production growth of 0.25% c) Funding Policy Active members in VTA's CalPERS Plan (CalPERS Plan) are not required to contribute to the CalPERS Plan. VTA elected to contribute the actuarially determined amount necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required contribution rate from July 1, 2002 through June 30, 2003, was 5.363% for the employer and 7.0% for employees. The required employee contribution was paid by VTA. The contribution requirements of the CalPERS Plan are established by State statute and the employer contribution is established and may be amended by CalPERS. The schedule of funding progress can be found on page 2-61. d) Net Pension Obligation VTA's net pension obligation to the CalPERS Plan was zero as of June 30, 2003. For fiscal year 2003, VTA's annual pension cost was approximately $6,995,000, which was fully contributed. The required contribution for fiscal year 2003 was determined as part of the June 30, 2000, actuarial valuation using the entry age normal cost method with the contributions determined as a percent of pay. A table shows the three-year trend: For Fiscal Year Ended June 30, 2001, the Annual Pension Cost (APC) was $5,077,000, 100% APC was Contributed with a Net Pension Obligation of $0. For Fiscal Year Ended June 30, 2002, the Annual Pension Cost (APC) was $6,361,000, 100% APC was Contributed with a Net Pension Obligation of $0. For Fiscal Year Ended June 30, 2003, the Annual Pension Cost (APC) was $6,6995,000, 100% APC was Contributed with a Net Pension Obligation of $0. END OF TABLE NOTE 13 - ATU MEDICAL TRUST VTA had total assets as of June 30, 2003 of $7,661,381 for the Spousal Medical Trust and $1,438,299 for the Retiree Vision and Dental Trust. The Spousal Medical Trust is a medical insurance benefit for eligible pensioners' spouses. Pursuant to a collective bargaining agreement, VTA's required contribution to the Trust was increased from $.20 to $.25 per hour worked by all ATU employees, effective February 4, 2002. As of June 30, 2003, there were 193 participating spouses who were eligible for benefits from the Trust. Contributions by VTA were approximately $805,000. Benefit payments made by the Trust for fiscal year 2003 were approximately $491,000. The Retiree Vision and Dental Trust is a vision and dental benefit for eligible pensioners. Effective February 8, 1999 and pursuant to a collective bargaining agreement, VTA is required to contribute $0.10 per hour worked by ATU employees. As of June 30, 2003, there were 559 eligible participants. Contributions by VTA were approximately $377,000 for the Retiree Vision and Dental Trust. NOTE 14 - RETIREE HEALTH CARE PROGRAMS a) ATU VTA provides an ATU Retiree Health Care Program (ATU Program), a post-employment benefit, in accordance with the agreement between VTA and the ATU, to all ATU represented employees who retire from VTA on or after attaining the age of 55 with at least 15 years of service, or if an employee becomes disabled and has completed at least 10 years of service. As of June 30, 2003, 559 retirees met the eligibility requirements. VTA pays medical premiums for its eligible retirees. b) Non-ATU All non-ATU employees upon retirement with at least five years of service and attaining age 50 are also covered under a Retiree Health Care Program (Non-ATU Program). As of June 30, 2003, 143 retirees met the eligibility requirements. c) Actuarial Information An actuarial analysis of Retiree Health Benefits as of July 1, 2002 disclosed that the actuarial liability, which is the present value of benefits attributed to past service, is $132,621,222. VTA's contributions are advance funded on an actuarially determined basis. For the year ended June 30, 2003, VTA made contributions to both the ATU and Non-ATU programs, which were expensed, of approximately $12,436,000. Benefits paid to participants of the program were approximately $2,534,000. The actuarial cost method used for determining the benefit obligations is the projected unit benefit cost method. The significant economic assumptions used were as follows: 1) a discount rate of 7.0%, 2) a projected salary increase of 5.0%, and 3) a health inflation assumption of 12.0%, graded down 1.0% per year to 5% after 7 years. As of June 30, 2003, VTA had restricted assets of $46,131,611 to cover future payments of the ATU and Non-ATU Programs. NOTE 15 - SELF-INSURANCE VTA is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets, errors, and omissions; injuries to employees; injuries to the public; and natural disasters. For the past three fiscal years, settlement amounts have not exceeded commercial insurance coverage. A table shows coverage provided by self-insurance and excess coverage as of June 30, 2003: Workers' Compensation is Self-Insured with no Excess Coverage (in aggregrate) Employer's liability coverage has a $1,000,000 Deductible with $3,000,000 per accident in Excess Coverage (in aggregate) Excess public entity liability coverage has a $2,000,000 Deductible with $23,000,000 in Excess Coverage (in aggregate) Property, boiler, and machinery coverage has a $100,000 Deductible with $168,432,000 combined blanket limit in Excess Coverage (in aggregate) Flood Earthquake coverage: National Flood Insurance (eligible locations) has a $5,000 Deductible with $500,000 in Excess Coverage (in aggregate) Flood Earthquake coverage: Other insurance - flood has a $100,000 - flood Deductible with $5,000,000 in Excess Coverage (in aggregate) Flood Earthquake coverage: Other insurance - earthquake has a 5% of location value Deductible with $5,000,000 in Excess Coverage (in aggregate) Light rail vehicles include spare parts coverage, no earthquake coverage has a $250,000 Deductible with $20,000,000 in Excess Coverage (in aggregate) Buses coverage has a $100,000 Deductible with $20,000,000 in Excess Coverage (in aggregate) Vans and mobile equipment coverage has a $25,000 Deductible with $20,000,000 in Excess Coverage (in aggregate) Crime coverage has a $25,000 Deductible with $5,000,000 in Excess Coverage (in aggregate) Owner-controlled insurance programs: Light rail construction projects has $0 Deductible with $10,000,000 in Excess Coverage (in aggregate) Owner-controlled insurance programs: Highway construction projects has $0 Deductible with $50,000,000 in Excess Coverage (in aggregate) Owner-controlled insurance programs: Builder's risk has $0 Deductible with $100,000,000 in Excess Coverage (in aggregate) END OF TABLE Workers' Compensation and General Liability The unpaid general liability and workers' compensation claim liability, included in other accrued liabilities, are based on the results of actuarial studies and include amounts for claims incurred but not reported and claims adjustment expenses. Claims liability discount rates are calculated considering the effects of inflation, recent claim settlement trends, including frequency and amount of pay-outs, and other economic and social factors. Estimated losses for general liability and workers' compensation claims are charged to expense in the period the loss is incurred (including estimates for claims incurred but not yet reported) and are accrued as a liability based on the present value of estimated future cash payments using a 6% average discount rate for workers' compensation as of June 30, 2003, and a 6% average discount rate for general liability as of June 30, 2003, until paid. It is VTA's practice to obtain full actuarial studies annually. VTA uses third-party administrators to perform its claims processing function. A table shows changes in the balances of workers' compensation and general claims liabilities for the two years ended June 30, 2003: Unpaid claims at June 30, 2001 was $37,044,068 for Workers' Compensation and $12,463,490 for General Liability Provision for claims and claims adjustment expense was $11,476,846 for Workers' Compensation and $4,043,380 for General Liability Payment for claims was $(9,277,0009) for Workers' Compensation and $(3,393,172) for General Liability Unpaid claims at June 30, 2002 was $39,243,905 for Workers' Compensation and $13,113,698 for General Liability Provision for claims and claims adjustment expense was $19,646,352 for Workers' Compensation and $(3,912,550) for General Liability Payment for claims was $(9,561,155) for Workers' Compensation and $(3,557,237) for General Liability Unpaid claims at June 30, 2003 was $49,329,102 for Workers' Compensation and $5,643,911 for General Liability END OF TABLE NOTE 16 - LEASES VTA leases various properties for use as transfer facilities, parking lots, information centers, and warehouses under lease agreements that expire at various dates through 2013. These agreements are accounted for as operating leases. Rent expense was approximately $605,000 in fiscal year 2002/03. A table presents the future lease payments under noncancellable lease agreements: For Year ending June 30, 2004 $431,098 For Year ending June 30, 2005 $244,984 For Year ending June 30, 2006 $215,792 For Year ending June 30, 2007 $224,943 For Year ending June 30, 2008 $142,947 For Year ending June 30, 2009-2013 $821,887 Total is $2,081,651 END OF TABLE NOTE 17 - LITIGATION Claims and litigation are outstanding for which VTA cannot determine the ultimate outcome and resulting liability, if any. However, VTA's management believes its actuarially determined reserves and excess insurance coverage will adequately cover estimated potential material adverse losses as of June 30, 2003. NOTE 18 - CONTRACTED SERVICES PROVIDED BY THE COUNTY OF SANTA CLARA The County provides support services to VTA for protection (Office of the Sheriff), fuel for vehicles and vehicle maintenance and repairs. Amounts paid to the County for such services were approximately $6,761,000 during fiscal year 2002/03. NOTE 19 - JOINT VENTURES a) Peninsula Corridor Joint Powers Board VTA is a member agency of the Peninsula Corridor Joint Powers Board (PCJPB), along with the San Mateo County Transit District (SamTrans) and the City and County of San Francisco (CCSF). The PCJPB is governed by a separate board composed of nine members, three from each participating agency. The PCJPB was formed in October 1991 to plan, administer, and operate the Peninsula Corridor rail service (Caltrain), which began operating on July 1, 1992. Prior to July 1, 1992, such rail service was operated by CalTrans. The net operating costs and administrative expenses of the PCJPB, for services provided between San Francisco and San Jose are reimbursed by the member agencies. VTA, SamTrans, and CCSF are responsible for 40.18%, 41.66%, and 18.16%, respectively, of the member agencies' total reimbursement for such expenses. During the year ended June 30, 2003, VTA paid $14,104,840 to the PCJPB for operating costs and $8,193,097 for capital contributions and other costs. The balance of VTA's prepaid contribution at the end of fiscal year 2003 was approximately $6.4 million. SamTrans serves as the managing agency of the PCJPB, providing administrative personnel and facilities. The disbursement of funds received by the PCJPB is controlled by provisions of various grant contracts entered into with the U.S. government, the State, and the member agencies. VTA's agreement with the PCJPB expired in 2001 and continues in full force and effect on a year-to-year basis, until any member provides a one-year's prior written notice of withdrawal. If two or more parties to the agreement withdraw, then the agreement shall terminate at the end of the fiscal year following expiration of the one-year's notice given by the second party. In that event, the property and funds of the PCJPB would be distributed to the member agencies in accordance with a separate agreement to be entered into between the parties. A table presents a summary financial information (not included in VTA's financial statements) for the PCJPB as of and for the year ended June 30, 2003: Total assets are $840,080,011 Total liabilities are $(166,222,130) Total equity is $673,857,881 Operating revenues are $23,560,951 Operating expenses are $(51,158,496) Non-operating revenues, net are $27,597,545 Net loss is $0. END OF TABLE Complete financial statements for the PCJPB can be obtained from SamTrans at 1250 San Carlos Avenue, San Carlos, California 94070. b) Altamont Commuter Express The Altamont Commuter Express (ACE) is a commuter rail service covering over 85 miles between Stockton and San Jose with stops in Manteca, Tracy, Livermore, Pleasanton, Fremont, Santa Clara, and San Jose. ACE is funded by the member agencies of VTA, the Alameda County Congestion Management Agency and the San Joaquin Regional Rail Commission which also serves as the managing agency. ACE commenced operations in October 1998, and now provides three daily round trip commuter rail service from San Joaquin County through the Tri-Valley Area of Alameda County to Santa Clara County. The operating maintenance and management costs of the service is reimbursed by the members at a rate of approximately 43% from VTA, 23% from San Joaquin Regional Rail Commission and 34% from the Alameda County Congestion Management Agency. During the year ended June 30, 2003, VTA contributed approximately $2,715,183 for operating costs. The balance of VTA's prepaid contribution at the end of fiscal year 2003 was $2,678,430 based on the fiscal year 2002 audited balance of ACE deferred member contribution. In July 2003, a partial settlement of $2,345,097 was received as partial settlement of VTA's deferred member contribution. See Note 21 under Cooperative Agreement Among VTA, San Joaquin Regional Rail Commission and Alameda County Congestion Management Agency. Complete financial statements for ACE can be obtained from the San Joaquin Regional Rail Commission at 5000 South Airport Way, Room 201, Stockton, California 95213. c) Capitol Corridor Intercity Rail Service VTA is a member agency of the Capitol Corridor Joint Powers Authority, which provides intercity rail service between Sacramento and San Jose. The Capitol Corridor intercity rail service is provided by the Capitol Corridor Joint Powers Board, which is comprised of members of the governing bodies of VTA, the Sacramento Regional Transit District, the Placer County Transportation Planning Agency, the congestion management agencies of Solano and Yolo counties, and the Bay Area Rapid Transit District. BART is the managing agency for the Capitol Corridor Service. Complete financial statements for the Capitol Corridor Service can be obtained from the San Francisco Bay Area Rapid Transit District (BART) at P.O. Box 12688, Oakland, California 94606-2688. d) California Transit Finance Authority VTA is a participant of the California Transit Finance Authority (CTFA), which was formed in 1999 through a joint powers agreement for the purpose of establishing the California Transit Variable Rate Finance Program (Program). The Program makes low-cost, variable rate financing available to the members of the California Transit Association for the acquisition of transit equipment and facilities. Through the Program, VTA issued $50,000,000 of Junior Lien Sales Tax Revenues Bonds in March of 1999 and $40,000,000 in November 2000 (Note 7). Complete financial statements for the CTFA can be obtained from Shaw/Yoder Inc. at 1414 K Street, Suite 320, Sacramento, California 95814. NOTE 20 - SANTA CLARA VALLEY TRAFFIC AUTHORITY As described in Note 1, effective April 1, 1997, VTA assumed responsibility as successor organization for the purpose of winding up the affairs of the Traffic Authority. The following item related to the Traffic Authority will have an ongoing impact. Agreement with Caltrans Caltrans was contracted to act as the technical director for the 1985 Measure A programs, and to plan, review, and approve all plans and specifications for development, as well as to supervise construction. The Traffic Authority's contract with Caltrans required a final determination of costs from the close out process of construction projects. On April 19, 2002, VTA and Caltrans executed a Closeout and Settlement Agreement (Agreement) to finalize all remaining obligations incurred as a result of projects funded under the Santa Clara County Commuter Relief Act of 1984 (1985 Measure A). The Agreement resulted in a net settlement amount of $3,811 in favor of VTA. NOTE 21 - SUBSEQUENT EVENTS Cooperative Agreement Among VTA, San Joaquin Regional Rail Commission and Alameda County Congestion Management Agency On June 24, 2003, VTA entered into a Cooperative Service Agreement with the San Joaquin Regional Rail Commission (SJRRC) and the Alameda County Congestion Management Agency (ACCMA) for continued VTA funding of Altamont Commuter Express (ACE) commuter rail service in the amount of $3,960,000 in fiscal year 2004 and $4,034,000 in fiscal year 2005. The cooperative agreement replaced the ACE Joint Powers Agreement (JPA), which was executed on May 15, 1997 by the three ACE member agencies - VTA, SJRRC and ACCMA. Since October 19, 1998, ACE commuter rail service has operated from Stockton to San Jose, via the Tri-Valley area of Alameda County. ACE service currently consists of three weekday morning trains originating in San Joaquin County providing service to Santa Clara County with stops at Great America, Santa Clara Caltrain and San Jose Diridon Stations. Three afternoon trains provide return trip service from San Jose. On July 29, 2003, VTA received a partial settlement of its deferred member contribution to ACE in the amount of $2,345,097. This amount represents the audited deferred member contribution of VTA as of June 30, 2002, net of the Self Insured Retention Reserve of $333,333, which will be retained by SJRCC when all statutes of limitations for filing claims have lapsed, and claims against the ACE Service, if any, as operated under the original ACE JPA, have been settled. $550 million debt offering plan VTA plans to borrow up to $550 million that would be secured by the VTA's additional half-cent sales tax approved by more than two-thirds of the voters voting on the measure on November 7, 2000 (the 2000 Measure A Sales Tax). The bond plan earmarks more than $230.5 million for BART and other new projects, while an additional 80 million would be spent on operating expenses associated with deferral of service reductions. Bonds would also cover the $65 million for accelerated reimbursement of some of the repayment obligations, $92.5 million in interest on the bonds, as well as other bond-related costs, and $82 million for retirement of the 2002 Grant and Bond Anticipation Note for Fremont-South Bay Right of Way purchased from Union Pacific Railroad. On September 24, 2003 a Superior Court ruling allowed the implementation of VTA's plan to defray current operational expenses using a portion of the debt offering. A tax passed to pay for construction and operations for future projects can now be used to keep the current buses and trolleys running. On November 20, 2003, Measure A sales tax revenue bonds were issued for the amount of $131 million to pay the VTA 2002 Bond and Grant Anticipation Notes and capitalize interest on certain bond issuance costs associated with 2000 Measure A sales tax revenue bonds and generate new money. 1997 Series A and 2001 Series A Sales Tax Revenue Bonds Downgrade On September 3, 2003, Fitch Ratings downgraded VTA's outstanding 2001 Series A and 1997 Series A sales tax revenue bonds. Outstanding bonds, totaling $225.7 million, were downgraded to 'A+' from their prior 'AA' rating. Fitch reports that the downgrade was a result of substantial declines in sales tax revenue, in addition to current and near-term uncertainty for operating recovery. VTA has undertaken activities that begin to align its operations with the lower revenue base. Measures implemented to date include an increase in fares and reduction in service levels as well as deferral of certain capital projects. Kinkisharyo Lease-leaseback Agreement In August 2003, VTA entered into two "lease to service contract" transactions over 46 Kinkisharyo low floor light rail vehicles (the "LRVs"). These transactions incorporate separate Head Lease agreements under which the LRVs are leased to statutory trusts formed on behalf of the equity investors. The trusts lease the LRVs back to VTA under separate Lease Agreements. The Head Leases are for a period of 65 years. The agreements with the trusts leasing the vehicles back to VTA are for periods of approximately 23.4 and 29.4 years followed by service contract periods of approximately 13 years. VTA maintains legal ownership of the LRVs and, under the Lease Agreements, is obligated to operate, maintain and insure the LRVs. VTA has the option to repurchase the vehicles after the end of the Lease. VTA received prepayments of the Head Lease rents in the aggregate amount of approximately $203,187,500. Of this amount, an aggregate of approximately $153,474,300 was invested with a debt payment undertaker whose repayment obligations are guaranteed by American Internal Group, Inc. Investment in REFCORP securities amounted to $10,350,000, while investment in equity payment undertaking agreements with AIG Matched Funding Corp. and Valley Car Deal Ltd. amounted to $12,845,000. These investments will be used to fund VTA's rent payments under the Lease Agreement and to fund VTA's purchase portion (if exercised) at the end of the term of each Lease Agreement, and are held with a trustee. VTA paid $4,804,600 in legal, financial advisory, and other fees. The pecuniary benefit to VTA received in August 2003 amounted to $21,713,600. A table presents the Required Supplementary Information, Schedule of Funding Progress (a): Santa Clara Valley Transportation Authority Amalgamated Transit Union Pension Plan (Unaudited) On the Actuarial Valuation Date 1/1/2001, the Actuarial Value of Assets was $204,874,533, Actuarial Accrued Liability (AAL) was $226,732,913, Unfunded AAL was $21,858,380, Funded Ratio was 90.4%; Covered Payroll was $81,984,832, and Unfunded AAL as a Percentage of Covered Payroll was 26.7%; On the Actuarial Valuation Date 1/1/2002 (b), the Actuarial Value of Assets was $220,426,0990, Actuarial Accrued Liability (AAL) was $273,436,635, Unfunded AAL was $53,010,545, Funded Ratio was 81.0%; Covered Payroll was $100,320,190, and Unfunded AAL as a Percentage of Covered Payroll was 53.0%; On the Actuarial Valuation Date 1/1/2003, the Actuarial Value of Assets was $224,004,253, Actuarial Accrued Liability (AAL) was $278,113,814, Unfunded AAL was $54,109,561, Funded Ratio was 81.0%; Covered Payroll was $93,951,901, and Unfunded AAL as a Percentage of Covered Payroll was 58.0%. (a)The schedule of funding progress presents the most recent actuarial information regarding the funding progress of the Santa Clara Valley Transportation Authority Amalgamated Transit Union Pension Plan. (b)Benefit improvements effective February 1, 2001 are reflected in the January 1, 2002 valuation. END OF TABLE A table presents Required Supplementary Information, Schedule of Funding Progress, Santa Clara Valley Transportation Authority CalPERS Plan (Unaudited) On the Actuarial Valuation Date 6/30/1999, the Entry Age Normal Accrued Liability was $63,226,750, Actuarial Value of Assets was $75,445,690, Overfunded Actuarial Accrued Liability (AAL) was $(12,218,940), Funded Ratio was 119.3%; Annual Covered Payroll was $34,844,154, and Overfunded AAL as a Percentage of Covered Payroll was (35.1)%. On the Actuarial Valuation Date 6/30/2000, the Entry Age Normal Accrued Liability was $74,228,216, Actuarial Value of Assets was $88,459,322, Overfunded Actuarial Accrued Liability (AAL) was $(14,231,106), Funded Ratio was 119.2%; Annual Covered Payroll was $40,000,651, and Overfunded AAL as a Percentage of Covered Payroll was (35.6)%. On the Actuarial Valuation Date 6/30/2001, the Entry Age Normal Accrued Liability was $87,012,005, Actuarial Value of Assets was $97,221,500, Overfunded Actuarial Accrued Liability (AAL) was $(10,209,495), Funded Ratio was 111.7%; Annual Covered Payroll was $48,235,135, and Overfunded AAL as a Percentage of Covered Payroll was (21.2)%. END OF TABLE A statement presents Required Supplementary Information, Budgetary Comparison Schedule, Congestion Management Program Special Revenue Fund, For the Year Ended June 30, 2003: REVENUES: Member agency assessment revenue in the Original Budget was $2,032,000, in the Final Budget was $2,032,000, Actual was $2,031,608 and the Variance Positive (Negative) was $392; REVENUES: Federal Technical Studies operating assistance grants in the Original Budget was $500,000, in the Final Budget was $452,000, Actual was $452,451 and the Variance Positive (Negative) was $(451); REVENUES: Local operating assistance grants in the Original Budget was $1,450,000, in the Final Budget was $1,480,000, Actual was $0 and the Variance Positive (Negative) was $1,480,000; REVENUES: Administrative fees in the Original Budget was $120,000, in the Final Budget was $120,000, Actual was $145,327 and the Variance Positive (Negative) was $(25,327); REVENUES: State operating assistance grants in the Original Budget was $291,000, in the Final Budget was $300,000, Actual was $400,000 and the Variance Positive (Negative) was $(100,000); REVENUES: Other Revenue in the Original Budget was $25,000, in the Final Budget was $15,000, Actual was $11,475 and the Variance Positive (Negative) was $3,525; REVENUES: Investment earnings in the Original Budget was $0, in the Final Budget was $0, Actual was $34,534 and the Variance Positive (Negative) was $(34,534); REVENUES: Total revenues in the Original Budget was $4,418,000, in the Final Budget was $4,399,000, Actual was $3,075,395 and the Variance Positive (Negative) was $1,323,605. EXPENDITURES: Salaries and benefits in the Original Budget was $3,003,000, in the Final Budget was $3,000,000, Actual was $2,265,119 and the Variance Positive (Negative) was $734,881; EXPENDITURES: Services and other in the Original Budget was $3,244,000, in the Final Budget was $3,175,000, Actual was $1,071,534 and the Variance Positive (Negative) was $2,103,466; EXPENDITURES: Total expenditures in the Original Budget was $6,247,000, in the Final Budget was $6,175,000, Actual was $3,336,653 and the Variance Positive (Negative) was $2,838,347. CHANGE IN FUND BALANCE: in the Original Budget was $(1,829,000), in the Final Budget was $(1,776,000), Actual was $(261,258) and the Variance Positive (Negative) was $(1,514,742). FUND BALANCE, BEGINNING OF YEAR: Actual was $1,776,086. FUND BALANCE, END OF YEAR: Actual was $1,514,828. END OF TABLE Note to Required Supplementary Information, Budgetary Basis of Accounting State law requires the adoption of an annual budget, which must be approved by the Board of Directors. VTA budgets annually for its Congestion Management Program Special Revenue Fund. The budget for the Special Revenue Fund is prepared on a modified accrual basis. Budgetary control is maintained at the fund level. Line item reclassification amendments to the budget must be authorized by the responsible director. Operating expenses are monitored by managers who are assigned responsibility for controlling their budgets. Emphasis is placed on the total budget for the division, however, capital items must be within budgeted amounts. Annual appropriations for the operating budget lapse at the end of the fiscal year to the extent that they have not been expended. The unexpended capital budget at fiscal year end is carried forward from year to year until the project is completed. Supplemental budgetary changes made to the Special Revenue Funds throughout the year are not significant but are reflected in the accompanying financial statements. The Comparative Statements of Fund Net Assets, Enterprise Fund, June 30, 2003 and 2002: Assets - Current Assets - Cash and cash equivalents for 2003 is $1,168,034, and for 2002 is $1,168,684 Assets - Current Assets - Investments for 2003 is $25,154,169, and for 2002 is $3,916,187 Assets - Current Assets - Receivables, net for 2003 is $2,388,261, and for 2002 is $4,125,506 Assets - Current Assets - Due from other governmental agencies for 2003 is $35,124,025, and for 2002 is $44,740,260 Assets - Current Assets - Inventories for 2003 is $21,950,963, and for 2002 is $20,238,940 Assets - Current Assets - Other current assets for 2003 were $10,240,169, and for 2002 were 10,603,942 Assets - Total Current Assets for 2003 is $96,025,621, and for 2002 is $84,793,519. Assets - Restricted Assets - Cash and cash equivalents for 2003 is $45,938,808, and for 2002 is 54,290,997 Assets - Restricted Assets - Cash and investments with fiscal agent for 2003 is $31,406,103, and for 2002 is $32,864,470 Assets - Restricted Assets - Investments for 2003 is $186,802,765, and for 2002 is $231,652,764 Assets - Restricted Assets - Receivables, net for 2003 is $704,929 and for 2002 is $1,162,665 Assets - Restricted Assets - Due from other funds for 2003 is $117,082 and for 2002 is $10,042,123 Assets - Restricted Assets - Due from other governmental agencies for 2003 is $35,068,354 and for 2002 is $18,487,543 Assets - Total Restricted Assets for 2003 were $300,038,041 and for 2002 is $348,500,562 Assets - Other non-current Assets - Deferred bond issuance costs for 2003 is $1,841,885 and for 2002 is $1,845,911 Assets - Other non-current Assets - Due from other governmental agencies for 2003 is $0 and for 2002 is $9,739,946 Assets - Total other non-current assets for 2003 is $1,841,885 and for 2002 is $11,585,857 Capital Assets - Non-depreciable - Land and right of way for 2003 is $570,714,935 and for 2002 is $572,664,544 Capital Assets - Non-depreciable -Construction in progress for 2003 is $923,872,041 and for 2002 is $608,403,203 Capital Assets - Depreciable - Buildings, improvements, furniture, and fixtures for 2003 is $237,238,946 and for 2002 is $227,826,416 Capital Assets - Depreciable - Vehicles for 2003 is $306,338,319 and for 2002 is $220,504,063 Capital Assets - Depreciable - Light-rail tracks and electrification for 2003 is $281,182,310 and for 2002 is $276,398,247 Capital Assets - Depreciable - CalTrain-Gilroy extension for 2003 is $48,962,184 and for 2002 is $48,774,692 Capital Assets - Depreciable - Other for 2003 is $28,706,147 and for 2002 is $28,366,298 Capital Assets: Less accumulated depreciation for 2003 is $(270,293,736) and for 2002 is $(242,025,655) Capital Assets - Net capital assets for 2003 is $2,126,091,146 and for 2002 is $1,740,911,808 Total Assets for 2003 is $2,523,996,693 and for 2002 is $2,185,791,746. Liabilities - Current Liabilities - Current portion of long-term debt for 2003 is $8,541,884 and for 2002 is $8,159,007 Liabilities - Current Liabilities - Accounts payable for 2003 is $21,787,661 and for 2002 is $20,512,900 Liabilities - Current Liabilities - Other accrued liabilities for 2003 is $9,147,902, and for 2002 is 8,913,513 Liabilities - Current Liabilities - Due to other governmental agencies for 2003 is $4,307,280 and for 2002 is $4,290,886 Liabilities - Total Current Liabilities for 2003 is $43,784,727, and for 2002 is $41,876,306. Liabilities - Liabilities payable from restricted assets - Accounts payable for 2003 is $35,677,503 and for 2002 is $48,727,023a Liabilities - Liabilities payable from restricted assets - Other accrued liabilities-current for 2003 is $7,874,533 and for 2002 is $8,070,000 Liabilities - Liabilities payable from restricted assets - Due to other funds for 2003 is $8,180,097 and for 2002 is $20,670,849 Liabilities - Liabilities payable from restricted assets - Due to other governmental agencies for 2003 is $41,488,686 and for 2002 is $23,293,891a Liabilities - Liabilities payable from restricted assets -- Restricted portion of long-term debt for 2003 is $15,079,901 and for 2002 is $15,206,433 Liabilities - Liabilities payable from restricted assets - Other accrued liabilities - non-current for 2003 is $129,073,231 and for 2002 is $97,874,215 Liabilities - Total Liabilities payable from restricted assets for 2003 is $237,373,951 and for 2002 is $213,842,411 Liabilities - Non-current liabilities - Long-term debt, excluding current portion for 2003 is $393,848,176 and for 2002 is $319,935,064 Liabilities - Non-current liabilities - Other accrued liabilities for 2003 is $32,836 and for 2002 is $37,965 Liabilities - Total non-current liabilities for 2003 is $393,881,012 and for 2002 is $319,973,029 Total Liabilities for 2003 is $675,039,690 and for 2002 is $575,691,746 NET ASSETS - Invested in capital assets, net of related debt for 2003 is $1,686,312,966 and for 2002 is $1,367,401,141 NET ASSETS - Unrestricted for 2003 is $162,644,037 and for 2002 is $242,698,859 Total net assets for 2003 is $1,848,957,003 and for 2002 is $1,610,100,000 a $23 million accounts payable reclassed to due to other governmental agencies to agree with FY03 presentation. END OF STATEMENT The Statement of Revenues, Expenses and Changes in Fund Net Assets, Enterprise Fund, For the Years Ended June 30, 2003 and 2002: Operating revenues - Passenger fares for 2003 is $30,959,394 and for 2002 is $31,282,143 Operating revenues - Advertising and other for 2003 is $3,416,350 and for 2002 is $5,840,054 Total operating revenues for 2003 is $34,375,744 and for 2002 is $37,122,197 Operating expenses - Labor for 2003 is $134,524,401 and for 2002 is $136,385,643 Operating expenses - Fringe benefits for 2003 is $92,001,274 and for 2002 is $82,958,178 Operating expenses - Materials and supplies for 2003 is $20,698,044 and for 2002 is 20,469,737 Operating expenses - Services for 2003 is $22,055,307 and for 2002 is $28,618,516 Operating expenses - Utilities for 2003 is $5,734,599 and for 2002 is $7,212,102 Operating expenses - Casualty and liability for 2003 is $4,118,733 and for 2002 is $3,199,473 Operating expenses - Purchased transportation for 2003 is $31,553,403 and for 2002 is 35,779,948 Operating expenses - Leases and rentals for 2003 is $605,447 and for 2002 is $791,861 Operating expenses - Miscellaneous for 2003 is $3,154,396 and for 2002 is $4,470,598 Operating expenses - Depreciation expense for 2003 is $41,516,009 and for 2002 is $33,355918 Operating expenses - Costs allocated to capital and other programs for 2003 is $(20,201,407) and for 2002 is $(12,356,974) Total operating expense for 2003 is $335,760,206 and for 2002 is $340,885,001 Operating loss for 2003 is $(301,384,462) and for 2002 is $(303,762,804) Non-operating revenues (expenses) - Sales tax revenue for 2003 is $132,632,377, and for 2002 is $144,217,679 Non-operating revenues (expenses) - Federal operating assistance grants for 2003 is $33,176,056 and for 2002 is $23,811,499 Non-operating revenues (expenses) - State and local operating assistance grants for 2003 is $70,956,183 and for 2002 is $103,561,477 Non-operating revenues (expenses) - CalTrain subsidy for 2003 is $(14,104,840) and for 2002 is $(14,897,490) Non-operating revenues (expenses) - CalTrain capital contribution for 2003 is $(8,193,097) and for 2002 is $(10,417,503) Non-operating revenues (expenses) - Altamont Commuter Express subsidy for 2003 is $(2,715,183) and for 2002 is $(1,739,723) Non-operating revenues (expenses) - Investment earnings for 2003 are $14,244,891 and for 2002 is $24,512,650 Non-operating revenues (expenses) - Interest expense for 2003 is $(14,222,072) and for 2002 is $(14,716,798) Non-operating revenues (expenses) - Other income is for 2003 $4,103,722 and for 2002 is $2,883,008 Non-operating revenues (expenses) - Other expense for 2003 is $(4,857,574) and for 2002 is $(3,162,766) Non-operating revenues net for 2003 is $211,020,463 and for 2002 is $254,052,033 Change in net assets before capital contributions and special item for 2003 is $(90,363,999) and for 2002 is $(49,710,771) Capital contributions for 2003 is $316,996,725 and for 2002 is $226,125,304 Special item - gain on sale of land for 2003 is $12,224,277 and for 2002 is $0 Change in net assets for 2003 is $238,857,003 and for 2002 is $176,414,533 Net assets, beginning of year for 2003 is $1,610,100,000 and for 2002 is $1,433,685,467 Net assets, end of year for 2003 is $1,848,957,003 and for 2002 is $1,610,100,000. END OF STATEMENT Comparative Statement of Cash Flows, Enterprise Fund, For the Years Ended June 30,2003 and 2002: Cash flows from operating activities - Cash received from passenger fares for 2003 was $30,856,421 and for 2002 was $34,245,867 Cash flows from operating activities - Cash received from advertising for 2003 is $3,416,350 and for 2002 was $5,840,054 Cash flows from operating activities - Cash paid to employees for 2003 is $(196,728,258) and for 2002 was $(202,655,822) Cash flows from operating activities - Cash paid to suppliers for 2003 is $(61,877,582) and for 2002 was $(64,817,156) Cash flows from operating activities - Cash paid for purchased transportation for 2003 is $(31,553,403) and for 2002 was $(35,779,948) Cash flows from operating activities - Net cash used in operating activities for 2003 is $(255,886,472) and for 2002 was $(263,167,005) Cash flows from noncapital financing activities - Operating grants received for 2003 is $125,088,506 and for 2002 is $142,294,481 Cash flows from noncapital financing activities - Sales tax received for 2003 is $132,596,836 and for 2002 is $150,536,472 Cash flows from noncapital financing activities - Caltrain subsidy for 2003 is $(14,104,840) and for 2002 is $(24,991,619) Cash flows from noncapital financing activities -Altamont Commuter Express subsidy for 2003 is ($2,715,183) and for 2002 is $(2,826,297) Cash flows from noncapital financing activities -Other noncapital receipts for 2003 is $15,956,496 and for 2002 is $26,508,156 Cash flows from noncapital financing activities - Other noncapital payments for 2003 is $(1,168,192) and for 2002 is $(2,838,180) Cash flows from noncapital financing activities - Net cash provided by noncapital financing activities for 2003 is $255,653,623 and for 2002 is $288,683,013 Cash flows from capital and related financing activities - Payment of long-term debt for 2003 is $(8,159,007) and for 2002 is $(7,951,653) Cash flows from capital and related financing activities - Proceeds from Bond and Grant Application Notes is $82,090,346 and for 2002 us $0 Cash flows from capital and related financing activities - Interest paid on long-term debt is $(13,866,495) and for 2002 is $(14,478,680) Cash flows from capital and related financing activities - Cost of bond issuance is $(206,117) Cash flows from capital and related financing activities - Acquisition and construction of capital assets is $(441,043,932) and in 2002 $(294,681,637) Cash flows from capital and related financing activities - Capital contribution from other governments is $316,996,725 and in 2002 $216,477,630 Cash flows from capital and related financing activities - Proceeds from sale of capital assets is $14,847,164 and in 2002 $467,365 Cash flows from capital and related financing activities - Net cash used in capital and related financing activities is $(49,341,316) and in 2002 $(100,166,975) Cash flows from investing activities - Proceeds from sale of investments for 2003 is $1,647,021,434 and for 2002 is $2,199,240,418 Cash flows from investing activities - Purchases in investments for 2003 is $(1,623,409,418) and for 2002 is $(2,138,980,418) Cash flows from investing activities - Interest income received for 2003 is $16,150,943 and for 2002 is $18,770,773 Cash flows from investing activities - Net cash provided by investing activities for 2003 is $39,762,959 and for 2002 is $79,031,171 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS for 2003 is $(9,811,206) and for 2002 is $4,380,204 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR for 2003 is $88,324,151 and for 2002 is $83,943,947 CASH AND CASH EQUIVALENTS, END OF YEAR for 2003 is $78,512,945 and for 2002 is $88,324,151 Reconciliation of operating loss to net cash used in operating activities - Operating loss for 2003 is $(301,384,462) and for 2002 is $(304,087,390) Reconciliation of operating loss to net cash used in operating activities - Adjustments to reconcile operating loss to net cash used in operating activities - Depreciation for 2003 is $41,516,009 and for 2002 is $33,355,918 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Receivables for 2003 is $(168,807) and for 2002 is $2,963,724 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Due from other governmental agencies for 2003 is $65,834 and for 2002 is $0 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Inventories for 2003 is $(1,712,024) and for 2002 is $(4,604,878) Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Other current assets for 2003 is $0 and for 2002 is $91,231 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Accounts payable for 2003 is $(11,774,761) and for 2002 is $(97,238) Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities - Other current liabilities for 2003 is $17,576,868 and for 2002 is $9,211,628 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Non-current - other accrued liabilities for 2003 is $(5,129) and for 2002 is $0 Reconciliation of operating loss to net cash used in operating activities - Changes in operating assets and liabilities -Net cash used in operating activities for 2003 is $(255,886,472) and for 2002 is $(263,167,005) Supplemental disclosure of cash flow information - cash and cash equivalents, end of year - Unrestricted for 2003 is $1,168,034 and for 2002 is $1,168,684 Supplemental disclosure of cash flow information - cash and cash equivalents, end of year - Restricted for 2003 is $77,344,911 and for 2002 is $87,155,467 Supplemental disclosure of cash flow information - cash and cash equivalents, end of year - Total for 2003 is $78,512,945 and for 2002 is $88,324,151 Noncash investing activities - Increase/(Decrease) in fair value of investments for 2003 is $(1,236,100) and for 2002 is $4,152,063. END OF STATEMENT Budgetary Comparison Schedule, Enterprise Fund, For the Year Ended June 30, 2003: OPERATING REVENUES: Passenger fares: In the Original Budget there was $38,010,941, in the Final Amended Budget there was $32,886,592, Actual was $30,959,394, with a Negative Variance of $(1,927,198) OPERATING REVENUES: Advertising and other: In the Original Budget there was $4,612,250, in the Final Amended Budget there was $3,424,948, Actual was $3,416,350, with a Negative Variance of $(8,598) OPERATING REVENUES: Total operating revenues: In the Original Budget there was $42,623,191, in the Final Amended Budget there was $36,311,540, Actual was $34,375,744, with a Negative Variance of $(1,935,796) OPERATING EXPENSES: Labor and fringe benefits: In the Original Budget there was $227,486,429, in the Final Amended Budget there was $345,428,023, Actual was $226,525,675, with a Positive Variance of $118,902,348 OPERATING EXPENSES: Services and supplies: In the Original Budget there was $68,728,727, in the Final Amended Budget there was $65,175,356, Actual was $56,366,526, with a Positive Variance of $8,808,830 OPERATING EXPENSES: Purchased transportation: In the Original Budget there was $35,532,200, in the Final Amended Budget there was $33,288,729, Actual was $31,553,403, with a Positive Variance of $1,735,326 OPERATING EXPENSES: Costs allocated to capital and other programs: In the Original Budget there was $(16,750,441), in the Final Amended Budget there was $(134,053,731), Actual was $(20,201,407), with a Negative Variance of $(113,852,324) OPERATING EXPENSES: Total operating expenses: In the Original Budget there was $314,996,915, in the Final Amended Budget there was $309,838,377, Actual was $294,244,197, with a Positive Variance of $15,594,180 OPERATING EXPENSES: Operating Loss: In the Original Budget there was $(272,373,724), in the Final Amended Budget there was $(273,526,837), Actual was $(259,868,453), with a Positive Variance of $13,658,384 NON-OPERATING REVENUES/(EXPENSES): Sales tax revenue: In the Original Budget there was $155,000,000, in the Final Amended Budget there was $133,000,000, Actual was $132,632,377, with a Negative Variance of $(367,623) NON-OPERATING REVENUES/(EXPENSES): Federal operating assistance grants: In the Original Budget there was $31,985,696, in the Final Amended Budget there was $40,508,094, Actual was $33,176,056, with a Negative Variance of $(7,332,038) NON-OPERATING REVENUES/(EXPENSES): State and local operating assistance grants: In the Original Budget there was $72,470,613, in the Final Amended Budget there was $76,511,668, Actual was $70,956,183, with a Negative Variance of $(5,555,485) NON-OPERATING REVENUES/(EXPENSES): Caltrain subsidy: In the Original Budget there was $(16,604,567), in the Final Amended Budget there was $(18,145,622), Actual was $(22,297,937), with a Negative Variance of $(4,152,315) NON-OPERATING REVENUES/(EXPENSES): Altamont Commuter Express subsidy: In the Original Budget there was $(3,360,000), in the Final Amended Budget there was $(2,450,000), Actual was $(2,715,183), with a Negative Variance of $(265,183) NON-OPERATING REVENUES/(EXPENSES): Investment income: In the Original Budget there was $12,320,000, in the Final Amended Budget there was $14,739,688, Actual was $14,244,891, with a Negative Variance of $(494,797) NON-OPERATING REVENUES/(EXPENSES): Interest expense: In the Original Budget there was $(24,664,966), in the Final Amended Budget there was $(16,043,000), Actual was $(14,222,072), with a Positive Variance of $1,820,928 NON-OPERATING REVENUES/(EXPENSES): Other income: In the Original Budget there was $22,527,500, in the Final Amended Budget there was $60,430,714, Actual was $4,103,722, with a Negative Variance of $(56,326,992) NON-OPERATING REVENUES/(EXPENSES): Other expense: In the Original Budget there was $(7,465,064), in the Final Amended Budget there was $(12,474,398), Actual was $(4,857,574), with a Positive Variance of $7,616,824 Non-operating revenues, net: In the Original Budget there was $242,209,212, in the Final Amended Budget there was $276,077,144, Actual was $211,020,463, with a Negative Variance of $(65,056,681) Net income (loss) - budget basis, before capital contributions: In the Original Budget there was $(30,164,512), in the Final Amended Budget there was $2,550,307, Actual was $(48,847,990), with a Negative Variance of $(51,398,297) Capital contributions: In the Original Budget there was $0, in the Final Amended Budget there was $0, Actual was $316,996,725, with a Positive Variance of $316,996,725 Special item - gain on sale of land: In the Original Budget there was $0, in the Final Amended Budget there was $0, Actual was $12,224,277, with a Positive Variance of $12,224,277 Change in net assets - budget basis: In the Original Budget there was $(30,164,512), in the Final Amended Budget there was $2,550,307, Actual was $280,373,012, with a Positive Variance of $277,822,705 Depreciation: Actual was $(41,516,009), with a Negative Variance of $(41,516,009) Change in net assets - GAAP basis: Actual was 238,857,003, with a Positive Variance of 236,306,696 END OF STATEMENT Statement of Restricted Assets and Related Liabilities, Enterprise Fund, June 30, 2003: Restricted assets: Cash and cash equivalents in Capital and Operating was $45,938,808, $0 in General Liability Insurance, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $45,938,808 Restricted assets: Cash and equity with fiscal agent: in Capital and Operating was $16,326,202, $0 in General Liability Insurance, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $15,079,901 in Debt Service for a Total of $31,406,103 Restricted assets: Investments was $64,909,387, $5,643,911 in General Liability Insurance, $49,329,102 in Workers' Compensation Insurance, $46,131,611 in Retiree Health Care, $20,788,754 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $186,802,765 Restricted assets: Receivable in Capital and Operating was $704,929, $0 in General Liability Insurance, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $704,929 Restricted assets: Due from other funds in Capital and Operating was $117,082, $0 in General Liability Insurance, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $117,082 Restricted assets: Due from other government agencies was $35,068,354, $0 in General Liability Insurance, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $35,068,354 Restricted assets: Total assets in Capital and Operating was $163,064,762, $5,643,911 in General Liability Insurance, $49,329,102 in Workers' Compensation Insurance, $46,131,611 in Retiree Health Care, $20,788,754 in Accrued Vacation and Sick, $15,079,901 in Debt Service for a Total of $300,038,041 Liabilities payable from restricted assets: Accounts payable in Capital and Operating were $35,677,503, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $35,677,503 Liabilities payable from restricted assets: Other accrued liabilities - current in Capital and Operating were $1,528,986, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $6,345,547 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $7,874,533 Liabilities payable from restricted assets: Due to other governmental agencies in Capital and Operating were $41,488,686, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $41,488,686 Liabilities payable from restricted assets: Due to other funds in Capital and Operating were $8,180,097, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $8,180,097 Liabilities payable from restricted assets: Long-term debt, excluding current portion in Capital and Operating were $0, $0 in Workers' Compensation Insurance, $0 in Retiree Health Care, $0 in Accrued Vacation and Sick, $15,079,901 in Debt Service for a Total of $15,079,901 Liabilities payable from restricted assets: Other accrued liabilities - noncurrent in Capital and Operating were $13,525,400, $5,643,911 in General Liability Insurance, $49,329,102 in Workers' Compensation Insurance, $46,131,611 in Retiree Health Care, $14,443,207 in Accrued Vacation and Sick, $0 in Debt Service for a Total of $129,073,231 Total liabilities in Capital and Operating were $100,400,672, $5,643,911 in General Liability Insurance, $49,329,102 in Workers' Compensation Insurance, $46,131,611 in Retiree Health Care, $20,788,754 in Accrued Vacation and Sick, $15,079,901 in Debt Service for a Total of $237,373,951 END OF STATEMENT: Combining Statement of Plan Net Assets, Pension Trust Funds, June 30, 2003: ASSETS: Restricted Assets: Investments in ATU Pension is $221,339,421, ATU Medical - Spousal Medical is $7,661,381, ATU Medical - Retiree Vision/Dental is $1,438,299, ATU Medical - Total ATU Medical is $9,099,680, Total investments is $230,439,101 ASSETS: Restricted Assets: Receivables in ATU Pension is $1,101,950, ATU Medical - Spousal Medical is $0, ATU Medical - Retiree Vision/Dental is $0, ATU Medical - Total ATU Medical is $0, Total receivables is $1,101,950 ASSETS: Total Assets in ATU Pension is $222,441,371, ATU Medical - Spousal Medical is $7,661,381, ATU Medical - Retiree Vision/Dental is $1,438,299, ATU Medical - Total ATU Medical is $9,099,680, Total is $231,541,051 LIABILITIES: Accounts payable in ATU Pension is $3,452, ATU Medical - Spousal Medical is $0, ATU Medical - Retiree Vision/Dental is $0, ATU Medical - Total ATU Medical is $0, Total is $3,452 NET ASSETS: Net assets held in trust for: Pension benefits in ATU Pension is $222,437,919, ATU Medical - Spousal Medical is $0, ATU Medical - Retiree Vision/Dental is $0 ATU Medical - Total ATU Medical is $0, Total is $222,437,919 NET ASSETS: Net assets held in trust for: Spousal medical benefits in ATU Pension, $0, ATU Medical - Spousal Medical is $7,661,381, ATU Medical - Retiree Vision/Dental is $0 ATU Medical - Total ATU Medical is $7,661,381, Total is $7,661,381 NET ASSETS: Net assets held in trust for: Retiree dental and vision benefits in ATU Pension is $0, ATU Medical - Spousal Medical is $0, ATU Medical - Retiree Vision/Dental is $1,438,299, ATU Medical - Total ATU Medical is $1,438,299, Total is $1,438,299 NET ASSETS: Total Net assets in ATU Pension is $222,437,919, ATU Medical - Spousal Medical is $7,661,381, ATU Medical - Retiree Vision/Dental is $1,438,299 ATU Medical - Total ATU Medical is $9,099,680, Total is $231,537,599 END OF STATEMENT: Combining Statement of Changes in Plan Net Assets, Pension Trust Funds, For the Year Ended June 30, 2003: ADDITIONS: Contributions: ATU Pension Trust is $12,362,127, ATU Medical Trust - Spousal Medical is $805,262, ATU Medical Trust - Vision/Dental is $377,342, ATU Medical Trust - Total ATU Medical Trust is $1,182,604, Total is $13,544,731 ADDITIONS: Investment earnings: Investment income: ATU Pension Trust is $2,613,559, ATU Medical Trust - Spousal Medical is $613,943, ATU Medical Trust - Vision/Dental is $26,181, ATU Medical Trust - Total ATU Medical Trust is $640,124, Total is $3,253,683 ADDITIONS: Investment earnings: Net appreciation in the fair value of investments: ATU Pension Trust is $5,103,755, ATU Medical Trust - Spousal Medical is $0, ATU Medical Trust - Vision/Dental is $0, ATU Medical Trust - Total ATU Medical Trust is $0, Total is $5,103,755 ADDITIONS: Investment earnings: Investment expense: ATU Pension Trust is $(834,046), ATU Medical Trust - Spousal Medical is $0, ATU Medical Trust - Vision/Dental is $0, ATU Medical Trust - Total ATU Medical Trust is $0, Total is $(834,046) ADDITIONS: Investment earnings: Net investment income: ATU Pension Trust is $6,883,268, ATU Medical Trust - Spousal Medical is $613,943, ATU Medical Trust - Vision/Dental is $26,181, ATU Medical Trust - Total ATU Medical Trust is $640,124, Total is $7,523,392 ADDITIONS: Total additions: ATU Pension Trust is $19,245,395, ATU Medical Trust - Spousal Medical is $1,419,205, ATU Medical Trust - Vision/Dental is $403,523, ATU Medical Trust - Total ATU Medical Trust is $1,822,728, Total is $21,068,123 DEDUCTIONS: Benefit payments: ATU Pension Trust is $8,834,055, ATU Medical Trust - Spousal Medical is $490,860, ATU Medical Trust - Vision/Dental is $0, ATU Medical Trust - Total ATU Medical Trust is $490,860, Total is $9,324,915 DEDUCTIONS: Other benefits paid to participants: ATU Pension Trust is $113,718, ATU Medical Trust - Spousal Medical is $0, ATU Medical Trust - Vision/Dental is $0, ATU Medical Trust - Total ATU Medical Trust is $0, Total is $113,718 DEDUCTIONS: Total deductions: ATU Pension Trust is $8,947,773, ATU Medical Trust - Spousal Medical is $490,860, ATU Medical Trust - Vision/Dental is $0, ATU Medical Trust - Total ATU Medical Trust is $490,860, Total is $9,438,633 DEDUCTIONS: Net increase: ATU Pension Trust is $10,297,622, ATU Medical Trust - Spousal Medical is $928,345, ATU Medical Trust - Vision/Dental is $403,523, ATU Medical Trust - Total ATU Medical Trust is $1,331,868, Total is $11,629,490 NET ASSETS HELD IN TRUST: Beginning of year in ATU Pension Trust is $212,140,297, ATU Medical Trust - Spousal Medical is $6,733,036, ATU Medical Trust - Vision/Dental is $1,034,776, ATU Medical Trust - Total ATU Medical Trust is $7,767,812, Total is $219,908,109 NET ASSETS HELD IN TRUST: End of year in ATU Pension Trust is $222,437,919, ATU Medical Trust - Spousal Medical is $7,661,381, ATU Medical Trust - Vision/Dental is $1,438,299, ATU Medical Trust - Total ATU Medical Trust is $9,099,680, Total is $231,537,599 END OF STATEMENT: Combining Statement of Fiduciary Assets and Liabilities, Agency Funds, For the Year Ended June 30, 2003 Assets Restricted assets: Cash and equity with fiscal agent - BAAQMD Program $0, Measure B Ancillary Program $5,776,140, for a total of $5,776,140. Restricted assets: Investments - BAAQMD Program $4,864,368, Measure B Ancillary Program $78,296,992, for a total of $83,161,360. Total assets - BAAQMD Program $4,864,368, Measure B Ancillary Program $84,073,132, for a total of $88,937,500. Liabilities Liabilities payable from restricted assets: Accounts payable - BAAQMD Program $4,156,909, Measure B Ancillary Program $0, for a total of $4,156,909. Liabilities payable from restricted assets: Other accrued liabilities (current) - BAAQMD Program $0, Measure B Ancillary Program $84,413, for a total of $84,413. Liabilities payable from restricted assets: Due to other governmental agencies - BAAQMD Program $707,459, Measure B Ancillary Program $83,988,719, for a total of $84,696,178. Total Liabilities payable from restricted assets - BAAQMD Program $4,864,368, Measure B Ancillary Program $84,073,132, for a total of $88,937,500. END OF STATEMENT Combining Statement of Changes in Fiduciary Assets and Liabilities, Agency Funds, For the Year Ended June 30, 2003 BAAQMD Program Restricted assets: Investments; Balance as of July 1, 2002 was $6,453,190, Increase was $0, Decrease was $1,588,822, and Balance As of June 30, 2003 was $4,864,368. Liabilities payable from restricted assets: Accounts payable; Balance as of July 1, 2002 was $6,024,558, Increase was $0, Decrease was $1,867,649, and Balance As of June 30, 2003 was $4,156,909. Liabilities payable from restricted assets: Due to other funds; Balance as of July 1, 2002 was $0, Increase was $0, Decrease was $0, and Balance As of June 30, 2003 was $0. Liabilities payable from restricted assets: Due to other governmental agencies; Balance as of July 1, 2002 was $428,632, Increase was $278,827, Decrease was $0, and Balance As of June 30, 2003 was $707,459. Total liabilities payable form restricted assets: Balance as of July 1, 2002 was $6,453,190, Increase was $278,827, Decrease was $1,867,649, and Balance As of June 30, 2003 was $4,864,368. Measure B Ancillary Program Restricted assets: Cash and cash equivalents; Balance as of July 1, 2002 was $5,232,516, Increase was $543,624, Decrease was $0, and Balance As of June 30, 2003 was $5,776,140. Restricted assets: Investments; Balance as of July 1, 2002 was $152,733,666, Increase was $0, Decrease was $74,436,674, and Balance As of June 30, 2003 was $78,296,992. Restricted assets: Due from other governmental agencies; Balance as of July 1, 2002 was $4,809,326, Increase was $0, Decrease was $4,809,326, and Balance As of June 30, 2003 was $0. Total restricted assets: Balance as of July 1, 2002 was $162,775,508, Increase was $543,624, Decrease was $79,246,000, and Balance As of June 30, 2003 was $84,073,132. Liabilities payable from restricted assets: Other accrued liabilities; Balance as of July 1, 2002 was $0, Increase was $84,413, Decrease was $0, and Balance As of June 30, 2003 was $84,413. Liabilities payable from restricted assets: Due to other funds; Balance as of July 1, 2002 was $11,442,124, Increase was $0, Decrease was $11,442,124, and Balance As of June 30, 2003 was $0. Liabilities payable from restricted assets: Due to other governmental agencies; Balance as of July 1, 2002 was $151,333,384, Increase was $0, Decrease was $67,344,665, and Balance As of June 30, 2003 was $83,988,719. Total liabilities payable form restricted assets: Balance as of July 1, 2002 was $162,775,508, Increase was $84,413, Decrease was $78,786,789, and Balance As of June 30, 2003 was $84,073,132. Totals - All Agency Funds Restricted assets: Cash and cash equivalents; Balance as of July 1, 2002 was $5,232,516, Increase was $543,624, Decrease was $0, and Balance As of June 30, 2003 was $5,776,140. Restricted assets: Investments; Balance as of July 1, 2002 was $159,186,856, Increase was $0, Decrease was $76,025,496, and Balance As of June 30, 2003 was $83,161,360. Restricted assets: Due from other governmental agencies; Balance as of July 1, 2002 was $4,809,326, Increase was $0, Decrease was $4,809,326, and Balance As of June 30, 2003 was $0. Total restricted assets: Balance as of July 1, 2002 was $169,228,698, Increase was $543,624, Decrease was $80,834,822, and Balance As of June 30, 2003 was $88,937,500. Liabilities payable from restricted assets: Accounts payable; Balance as of July 1, 2002 was $6,024,558, Increase was $0, Decrease was $1,867,649, and Balance As of June 30, 2003 was $4,156,909. Liabilities payable from restricted assets: Other accrued liabilities; Balance as of July 1, 2002 was $0, Increase was $0, Decrease was $(84,413), and Balance As of June 30, 2003 was $84,413. Liabilities payable from restricted assets: Due to other funds; Balance as of July 1, 2002 was $11,442,124, Increase was $0, Decrease was $11,442,124, and Balance As of June 30, 2003 was $0. Liabilities payable from restricted assets: Due to other governmental agencies; Balance as of July 1, 2002 was $151,762,016, Increase was $0, Decrease was $67,065,838, and Balance As of June 30, 2003 was $84,696,178. Total liabilities payable form restricted assets: Balance as of July 1, 2002 was $169,228,698, Increase was $0, Decrease was $80,291,198, and Balance As of June 30, 2003 was $88,937,500. END OF STATEMENT: A table shows Government-wide Expenses by Function: In fiscal year 2002 Transit expenses were $385,819,000, Governmental Activity-Congestion Management was $2,740,000, Governmental Activity- Capital Improvement Projects was $112,697,000, and the total was $501,256,000. In fiscal year 2003 Transit expenses were $379,853.000, Governmental Activity-Congestion Management was $3,428,000, Governmental Activity- Capital Improvement Projects was $141,425,000, and the total was $524,706,000. Note: Government-wide financial statements have been prepared in accordance with the requirements of GASB 34. Financial statements were not restated for previous years for purposes of providing ten year trend data. In future years, as information becomes available additional years will be presented. END OF TABLE A table shows Government-wide Revenues: In fiscal year 2002 Program Revenues-Charges for Services were $38,809,000, Program Revenues-Operating Grants were $129,778,000, Program Revenues-Capital Grants were $338,793,000, General Revenues-Sales Tax Revenue was 144,218,000, General Revenues-Investment Income was 24,542,000, General Revenues-Other Income was 2,891,000 and the Total of all categories was $679,031,000. In fiscal year 2003 Program Revenues-Charges for Services were $36,553,000, Program Revenues-Operating Grants were $104,985,000, Program Revenues-Capital Grants were $458,360,000, General Revenues-Sales Tax Revenue was 132,693,000, General Revenues-Investment Income was 14,344,000, General Revenues-Other Income was 16,340,000 and the Total of all categories was $763,275,000. Note: Government-wide financial statements have been prepared in accordance with the requirements of GASB 34. Financial statements were not restated for previous years for purposes of providing ten year trend data. In future years, as information becomes available, additional years will be presented. END OF TABLE ENTERPRISE FUND FINANCIAL RATIOS 1994 - 2003 Current Ratios The Current Ratio indicates VTA's ability to meet all of its short-term liabilities with liquid assets and is determined by dividing total current assets and restricted assets, by all current liabilities and liabilities payable from restricted assets. A Current Ratio of 1 or higher is an indication of financial strength. Although this is the fourth consecutive year that VTA's current ratio has dropped, financial strength continues to be conveyed at a level of 1.4. A graph presenting current ratios: The current ratio in 1994 was 4.1, 4.9 in 1995, 6.0 in 1996, 6.4 in 1997, 5.2 in 1998, 7.3 in 1999, 5.4 in 2000, 2.4 in 2001, 1.7 in 2002, and 1.4 in 2003. END OF GRAPH Operating Recovery Ratio The operating recovery ratio is the operating revenue divided by the net operating expenses. This key measure shows almost a four percent gain from 1994 to fiscal 1998 in keeping with VTA's strategic plan. During FY02 operating income decreased while the operating expenses increased, causing a sizable drop in the ratio. In FY03 VTA experienced a decrease in operating income as well, but it was in conjunction with a decrease in operating expenses. The proportion of the decrease in operating income was slightly more; therefore, the Operating Recovery Ratio decreased by only .5 percent compared to the prior year. VTA's ongoing target remains at 25%. A graph presenting operating recovery ratios: The Operating Cost Recovery Ratio was 12.6% in 1994, 14.4% in 1995, 14.6% in 1996, 16.2% in 1997, 17.3% in 1998, 16.5% in 1999, 16.3% in 2000, 16.1% in 2001, 13.5% in 2002, and 13.0% in 2003. END OF GRAPH Times Debt Service Coverage The Times-Debt-Service-Coverage Ratio indicates VTA's financial position to cover its debt service with sales tax revenue and is determined by dividing sales tax revenue by debt service. For fiscal year 2003, the ratio decreased slightly by .5 due to the fact that sales tax revenue fell when compared to FY02, but as a much smaller percentage than prior years. A graph presents the Times Debt Service Coverage: The Times Debt Service coverage ratio as 30.7 in 1994, 26.4 in 1995, 28.3 in 1996, 30.5 in 1997, 31.6 in 1998, 24.8 in 1999, 30.0 in 2000, 20.6 in 2001, 6.4 in 2002, and 5.9 in 2003. END OF GRAPH Operating Revenues and Net Operating Expenses Operating expenses are exclusive of purchased transportation and depreciation to more accurately depict operations related to directly operated service. A graph shows Operating Revenues and Net Operating Expenses: Operating Revenue was $19,279,000in 1994, $21,096,000 in 1995, $22,964,000 in 1996, $25,577,000 in 1997, $30,003,000 in 1998, $30,956,000 in 1999, $36,253,000 in 2000, $37,982,000 in 2001, $37,122,000 in 2002, and $34,376,000 in 2003. Net Operating Expenses were $156,025,000 1994, $150,567,000 in 1995, $162,326,000 in 1996, $166,510,000 in 1997, $184,100,000 in 1998, $202,227,000 in 1999, $222,875,000 in 2000, $236,137,000 in 2001, $274,407,000 in 2002, and $265,180,000 in 2003. END OF GRAPH Non-operating Assistance and Interest Income Sales tax revenue in Santa Clara County is the greatest contributing factor to the non-operating revenue sources shown in the following graph. This is the second year in the last ten that there has been a significant drop in overall non-operating revenue. A graph illustrates trends in selected material non-operating revenue sources: Sales and Tax Revenue was $95,134,000 in 1994, $100,638,000 in 1995, $122,274,000 in 1996, $128,969,000 in 1997, $138,429,000 in 1998, $143,712,000 in 1999, $166,764,000 in 2000, $183,540,000 in 2001, $144,218,000 in 2002, and $132,632,000 in 2003. TDA & STA funds were $50,411,000 in 1994, $50,007,000 in 1995, $52,597,000 in 1996, $69,243,000 in 1997, $72,624,000 in 1998, $67,589,000 in 1999, $80,436,000 in 2000, $86,388,000 in 2001, $103,561,000 in 2002, and $70,956,000 in 2003. Federal Operating Grants were $6,067,000 in 1994, $146,000 in 1995, $110,000 in 1996, $49,000 in 1997, $59,000 in 1998, $11,656,000 in 1999, $6,051,000 in 2000, $17,837,000 in 2001, $23,811,000 in 2002, and $33,176,000 in 2003. Investment income was $2,310,000 in 1994, $2,554,000 in 1995, $4,148,000 in 1996, $5,943,000 in 1997, $8,785,000 in 1998, $5,535,000 in 1999, $8,286,000 in 2000, $22,078,000 in 2001, $24,513,000 in 2002, and $14,245,000 in 2003. END OF GRAPH Actual Reserves to Target Reserves Total budgetary reserves (actual reserve) result from the difference between current unrestricted assets and current unrestricted liabilities. The target reserve indicates the minimum amount (15%) of subsequent year operating budget VTA is required to set aside in order to cover unanticipated revenue shortfalls or unavoidable expenditures that may be required. FY02 was the first year since FY94 that VTA was not able to meet its target reserve goal and did not surpass the prior year's level, but in FY03 VTA overcame the shortfall. A graph shows the actual reserve and the minimum target level reserve: In 1994, the target reserve was $20,000,000 and the actual reserve was $41,800,000 In 1995, the target reserve was $20,000,000 and the actual reserve was $43,744,000 In 1996, the target reserve was $20,000,000 and the actual reserve was $66,195,000 In 1997, the target reserve was $20,000,000 and the actual reserve was $95,310,000 In 1998, the target reserve was $34,900,000 and the actual reserve was $125,410,000 In 1999, the target reserve was $40,700,000 and the actual reserve was $136,400,000 In 2000, the target reserve was $44,283,000 and the actual reserve was $160,910,000 In 2001, the target reserve was $50,607,000 and the actual reserve was $259,245,000 In 2002, the target reserve was $42,375,000 and the actual reserve was $177,575,000 In 2003, the target reserve was $46,849,000 and the actual reserve was $114,905,000 END OF GRAPH Vehicle Revenue Miles During FY03 total revenue miles decreased primarily due to a drop service demand. The graph depicts vehicle miles in revenue service miles: In 1994, Vehicle Revenue Miles were17,112,000 for Bus, 1,715,000 for Light Rail, and 1,40,006,000 for Paratransit In 1995, Vehicle Revenue Miles were16,896,000 for Bus, 1,662,000 for Light Rail, and 1,511,000 for Paratransit In 1996, Vehicle Revenue Miles were16,931,000 for Bus, 1,868,000 for Light Rail, and 1,729,000 for Paratransit In 1997, Vehicle Revenue Miles were17,451,000 for Bus, 1,888,000 for Light Rail, and 1,994,000 for Paratransit In 1998, Vehicle Revenue Miles were17,904,000 for Bus, 2,092,000 for Light Rail, and 2,494,000 for Paratransit In 1999, Vehicle Revenue Miles were18,784,000 for Bus, 1,328,000 for Light Rail, and 3,523,000 for Paratransit In 2000, Vehicle Revenue Miles were19,140,000 for Bus, 2,722,000 for Light Rail, and 4,748,000 for Paratransit In 2001, Vehicle Revenue Miles were18,770,000 for Bus, 1,924,000 for Light Rail, and 8,495,000 for Paratransit In 2002, Vehicle Revenue Miles were18,633,000 for Bus, 1,962,000 for Light Rail, and 9,937,000 for Paratransit In 2003, Vehicle Revenue Miles were17,471,000 for Bus, 1,499,000 for Light Rail, and 7,233,000 for Paratransit END OF GRAPH Passenger Miles FY03 is the second consecutive year since FY99 that VTA's passenger miles have dropped down below prior year levels. Paratransit continues to grow, but we experienced declines in Bus and Light Rail due primarily to the continued drop in employment and service cuts over the past year. A graph presents passenger mile statistics: In 1994, Passenger Miles were 156,872,000 for Bus, 29,501,000 for Light Rail, and 1,937,000 for Paratransit In 1995, Passenger Miles were 153,902,000 for Bus, 26,413,000 for Light Rail, and 1,795,000 for Paratransit In 1996, Passenger Miles were 163,348,000 for Bus, 28,428,000 for Light Rail, and 1,881,000 for Paratransit In 1997, Passenger Miles were 185,226,000 for Bus, 31,037,000 for Light Rail, and 2,420,000 for Paratransit In 1998, Passenger Miles were 201,818,000 for Bus, 32,992,000 for Light Rail, and 2,494,000 for Paratransit In 1999, Passenger Miles were 179,561,000 for Bus, 32,820,000 for Light Rail, and 3,798,000 for Paratransit In 2000, Passenger Miles were 178,688,000 for Bus, 35,758,000 for Light Rail, and 6,013,000 for Paratransit In 2001, Passenger Miles were 182,187,000 for Bus, 42,462,000 for Light Rail, and 6,711,000 for Paratransit In 2002, Passenger Miles were 180,720,000 for Bus, 34,656,000 for Light Rail, and 7,947,000 for Paratransit In 2003, Passenger Miles were 153,481,000 for Bus, 26,815,000 for Light Rail, and 8,497,000 for Paratransit END OF GRAPH Santa Clara County Demographic Data Population In comparison with the beginning of the decade, Santa Clara County's population has risen by 2.8%. Approximately 5.8% of County residents live in unincorporated areas, but the number has steadily decreased over time as the population continues to migrate toward the cities. Los Altos Hills had the largest percentage increase over the past year, with a 2.8% gain. Gilroy was second at 2.6%, but has had the largest total gain for the last three years which totaled 8.5%. In the year 2020, it is predicted that the County's population will grow 25% to approximately 2.2 million residents. A table provides a historical summary of population in the County and its incorporated cities: The city of Campbell had a population of 11,863 in 1960; 24,731 in 1970; 26,843 in 1980; 36,048 in 1990; 38,138 in 2000; and 38,300 in 2003 The city of Cupertino had a population of 3,664 in1960; 18,216 in 1970; 34,297 in 1980; 40,263 in 1990; 50,546 in 2000; and 52,200 in 2003 The city of Gilroy had a population of 7,348 in 1960; 12,665 in 1970; 21,641 in 1980; 31,487 in 1990; 41,464 in 2000, 45,000 in 2003 The city of Los Altos had a population of 19,696 in 1960, 24,872 in 1970; 25,769 in 1980; 26,303 in 1990; 27,693 in 2000, and 27,700 in 2003 The city of Los Altos Hills had a population of 3,412 in 1960; 6,862 in 1970; 7,421 in 1980; 7,514 in 1990; 7,902 in 2000; and 8,225 in 2003 The city of Los Gatos had a population of 9,036 in 1960; 23,466 in 1970; 26,906 in 1980; 27,357 in 1990; 28,592 in 2000; and 28,900 in 2003 The city of Milpitas had a population of 6,572 in 1960; 27,149 in 1980; 37,820 in 1980; 50,686 in 1990, 62,698 in 2000; and 65,000 in 2003 The city of Monte Sereno had a population of 1,506 in 1960; 3,074 in 1970; 3,434 in1980; 3,287 in 1990; 3,483 in 2000; and 3,500 in 2003 The city of Morgan Hill had a population of 3,151 in 1960; 6,485 in 1970; 17,060 in 1980; 23,928 in 1990; 33,556 in 2000; and 34,900 in 2003 The city of Mountain View had a population of 30,889 in 1960; 54,206 in 1970; 58,655 in 1980; 67,460 in 1990; 70,708 in 2000; and 72,000 in 2003 The city of Palo Alto had a population of 52,475 in 1960; 55,999 in 1970; 55,225 in 1980; 55,900 in 1990; 58,598 in 2000; and 60,500 in 2003 The city of San Jose had a population of 204,196 in 1960; 445,779 in 1970; 629,400 in 1980; 782,248 in 1990; 894,943 in 2000; and 925,000 in 2003 The city of Santa Clara had a population of 58,880 in 1960; 87,717 in 1970; 87,700 in 1980, 93,613 in 1990; 102,361 in 2000; and 105,800 in 2003 The city of Saratoga had a population of 14,861 in 1960; 27,199 in 1970; 29,261 in 1990; 29,843 in 2000; and 30,500 in 2003 The city of Sunnyvale had a population of 51,898 in 1960; 95,408 in 1970; 106,618 in 1980; 117,229 in 1990; 131,760 in 2000; and 132,500 in 2003 Unincorporated cities had a population of 162,056 in 1960; 152,181 in 1970; 127,021 in 1980; 106,193 in 1990; 100,300 in 2000; and 99,900 in 2003 County Total* had a population of 641,503 in 1960; 1,066,009 in 1970; 1,295, 071 in 1980; 1,497,577 in 1990; 1,682,585 in 2000; and 1,729,900 in 2003 California had a population of 15,717,204 in 1960; 18,136,045 in 1970; 23,668,145in 1980; 29,760,021 in 1990; 33,871,648 in 2000; and 35,591,000 in 2003. Totals may not be precise due to independent rounding. Source: U.S. Census; State of California, Department of Finance, Demographic Research Unit, California Development Department END OF TABLE Employment and Industry Silicon Valley continues to be a leader in technological advances, but job cuts continue. In the last three years, there have been about 200,000 jobs lost in Silicon Valley. In June 2003 employment figures showed a drop in jobs within Santa Clara County alone of 46,500 in comparison to June 2002. It is expected that it will take seven years to recover these Valley jobs and get us back up to the level that we were before the bubble burst. In June 2003 the County's unemployment rate was reported to have reached 8.5%, 1.8% higher than that of the State's. Typically Santa Clara County has a lower unemployment rate compared to both the State and national levels due primarily to the varied workforce, but for the last two years the number has soared upward. The frightening aspect is that these estimates are based solely on unemployment benefit claims, which excludes those who have chosen less suitable options as an alternative to unemployment (such as early retirement or relocation). Therefore, the percentage is somewhat skewed as the affected rate would be much higher. In 2002 the County had 9.6 million wage and salary jobs. This was the first time since 1991 that there had been a drop from the prior year. Three major industry sectors comprise 74.6 percent of the County's employment: manufacturing (22.3%), services (43.2%) and retail trade (9.1%). Sources: Department of Finance, Statistics & Demographic Research California Employment Development Department SFGate.com, September 23, 2003 Silicon Valley biz ink, August 15, 2003 A table presenting wage and salary employment by industry: The Total Civilian Labor Force* was 861.0 in 1994; 867.0 in 1995, 895.0 in 1996, 937.5 in 1997, 958.8 in 1998, 965.5 in 1999, 1,001.8 in 2000, 1,005.8 in 2001, and 958.2 in 2002. Civilian Employment was 807.3 in 1994, 824.2 in 1995, 862.8 in 1996, 909.2 in 1997, 927.9 in 1998, 936.3 in 1999, 982.0 in 2000, 960.0 in 2001, and 877.6 in 2002 Civilian Unemployment was 53.7 in 1994, 42.8 in 1995, 32.2 in 1996, 28.3 in 1997, 30.9 in 1998, 29.2 in 1999, 19.8 in 2000, 45.8 in 2001, and 80.6 in 2002 Civilian Unemployment rate was as follows: At the County level , 6.2% in 1994, 4.9% in 1995, 3.6% in 1996, 3.0% in 1997, 3.2% in 1998, 3.0% in 1999, 2.0% in 2000, 4.6% in 2001, and 8.4% in 2002 In the State of California, 8.6%, 7.8% in1995, 7.2% in 1996, 6.3% in 1997, 5.9% in 1998, 5.2% in 1999, 4.9% in 2000, 5.3% in 2001, and 6.7% in 2002 In Wage and Salary Employment** Total Farm Agriculture was 5.1 in 1994, 4.5 in 1995, 5.1 in 1996, 5.1 in 1997, 5.2 in 1998, 5.3 in 1999, 5.0 in 2000, 4.6 in 2001, and 4.5 in 2002. Construction and Mining was 26.6 in 1994, 28.8 in 1995, 32.7 in 1996, 36.5 in 1997, 41.3 in 1998, 44.8 in 1999, 47.6 in 2000, 48.0 in 2001, and 43.2 in 2002. Manufacturing was 213.6 in 1994, 223.0 in 1995, 237.7 in 1996, 247.2 in 1997, 246.1 in 1998, 234.9 in 1999, 251.7 in 2000, 240.5 in 2001 and 203.6 in 2002. Transportation & Public Utilities had 14.5 in 1994, 14.9 in 1995, 16.1 in 1996, 16.7 in 1997, 17.0 in 1998, 17.3 in 1999, 17.6 in 2000, 16.3 in 2001, and 15.3 in 2002 Wholesale Trade had 34.5 in 1994, 36.4 in 1995, 39.2 in 1996, 41.9 in 1997, 42.4 in 1998, 42.3 in 1999, 42.2 in 2000, 40.7 in 2001, and 36.3 in 2002 Retail Trade had 74.2 in 1994, 75.8 in 1995, 79.9 in 1996, 82.5 in 1997, 83.8 in 1998, 86.6 in 1999, 90.6 in 2000, 88.2 in 2001, and 82.9 in 2002. Finance, Insurance and Real Estate had 31.2 in 1994, 30.4 in 1995, 31.4 in 1996, 32.4 in 1997, 33.8 in 1998, 34.2 in 1999, 34.0 in 2000, 35.2 in 2001, 34.9 in 2002 Services had 317.1 in 1994, 334.8 in 1995, 355.2 in 1996, 380.9 in 1997, 403.0 in 1998, 419.8 in 1999, 451.8 in 2000, 440.0 in 2001, and 395.2 in 2002 Government had 88.3 in 1994, 87.8 in 1995, 87.7 in 1996, 88.5 in 1997, 88.9 in 1998, 91.4 in 1999, 94.5 in 2000, 94.6 in 2001, and 97.9 in 2002 Total Wage and Salary Employment*** was 805.1 in 1994, 836.4 in 1995, 885.0 in 1996, 931.7 in 1997, 961.5 in 1998, 976.6 in 1999, 1,035.0 in 2000, 1,008.1 in 2001, and 913.8 in 2002. * - Labor force data are based upon place of residence. Employment includes self-employed, unpaid family, workers domestics, and workers involved in labor-management disputes. Data are Benchmarked to 2002. ** - Wage and salary employment is reported by place of work. Data are benchmarked to 2002. *** - Totals may not be precise due to independent rounding. Sources: California State Department of Employment Development. Department of Finance, Statistics, & Demographic Research. END OF TABLE Major Employers Santa Clara County, which is centered in the heart of Silicon Valley, is home to numerous high technology and computer software and hardware manufacturing companies. Public-sector employers continue to top the list of the largest employers in the Valley. Santa Clara County ranks as number one, employing almost 16,000 workers. The City of San Jose alone has over 6,500 full-time employees. Although there have been hiring freezes and cut-backs that have impacted many of the public-sector organizations, they typically tend to remain more stable in a volatile job market. Source: www.sccgov.org (Santa Clara County) San Jose and Silicon Valley Business Journal (Book of Lists 2003) A table lists the largest employers in the Silicon Valley, which encompasses the County and surrounding areas: Santa Clara County had 15,930 employees in Government Services Cisco Systems had 13,000 employees in Computer Network Equipment Manufacturing Stanford University had 10,900 employees in Higher Education Hewlett-Packard Co. had 10,000 employees in Computing and Imaging Solutions Lockheed Martin Space Systems Co. - Space & Strategic Missiles had 6,730 employees in Aerospace Systems City of San Jose had 6,591 employees in Municipal Government San Jose State University had 5,760 employees in Higher Education Kaiser Permanente had 5,259 employees in Nonprofit Healthcare Organization San Jose Unified School District had 3,359 employees in Public Education Santa Clara Valley Transportation Authority had 2,853 employees in Public Transportation and Congestion Management Seagate Technology LLC had 2,100 employees in Engineering National Semiconductor Corp. had 2,000 employees in Design, Manufacture, and Market Semiconductors Source: San Jose and Silicon Valley Business Journal (Book of Lists July 25, 2003) END OF TABLE Commercial Activity Santa Clara County is an important center of commercial activity. Taxable sales activity at business and personal service outlets, as well as at other non-retail commercial establishments, are a significant component of the County's commercial activity. During 2002 there was a significant impact on sales tax revenue resulting from a $7.6 million dollar decrease in taxable sales within the County. The following table sets forth the amount of taxable transactions from 1993 through 2002. A table shows taxable transactions by sector in the County of Santa Clara from 1993-2002: In 1993 taxable transactions were $18,865,200,000 In 1994 taxable transactions were $19,778,000,000 In 1995 taxable transactions were $22,512,100,000 In 1996 taxable transactions were $25,740,500,000 In 1997 taxable transactions were $26,967,000,000 In 1998 taxable transactions were $27,488,815,000 In 1999 taxable transactions were $30,348,644,000 In 2000 taxable transactions were $33,843,217,000 In 2001 taxable transactions were $36,597,963,000 In 2002 taxable transactions were $28,974,350,000 Souce: State Board of Equalization, Taxable Sales in California (Sales & Use Taxes) END OF TABLE Construction Activity Vacancy rates are an important indicator of economic activity. On a positive note, recent reports indicate that there appears to be an upturn in the office space leasing market. It is expected that the County will experience small vacancy increases during the rest of 2003 and only slight declines in deviation from asking rates. New construction has been affected in Santa Clara County more than any other County in California. Non-residential construction has deceased by almost $1 billion. New single-family homes and retail store construction is up countywide, but other commercial properties such an new office space has suffered due to the existing supply on hand. According to the Construction Industry Research Board, calendar year 2002 total permit valuations for new residential and non-residential construction decreased by 26.9%. The number of single-family units increased to 2,057, but the number of multiple family units decreased by 43.1% to 2,556. Home sales in Santa Clara County showed a significant increase in June 2003 compared to June 2002. Sales were up 11%, with the largest gain occurring during the month of June equaling 7%. The average price and median price of a home was down 1% and 1.7% respectively. Currently, there appears to be a sense of stability in the County's real estate market. Source: Department of Finance Silicon Valley biz ink, Sept 19-25, 2003 www.btcommercial.com, March 10, 2003 Silicon Valley/San Jose Business Journal, January 6, 2003 www.rereport.com, (Santa Clara County Real Estate Trends) A table provides a summary of building permit valuations and the number of new dwelling units authorized in the County from 1993-2002: In 1993, the valuation of New Residential permits were $556,600,000, Non-Residential permits were $597,600,000 for a total of $1,154,200,000. New Dwelling Permits for Single Family Units were 1,848; Multiple Family units were 1,331 for a total of 3,179. In 1994, the valuation of New Residential permits were 637,500,000, Non-Residential permits were 596,000,000 for a total of 1,233,500,000. New Dwelling Permits for Single Family Units were 2,128; Multiple Family units were 1,817 for a total of 3,945. In 1995, the valuation of New Residential permits were 657,100,000, Non-Residential permits were 859,400,000 for a total of 1,516,500,000. New Dwelling Permits for Single Family Units were 2,213; Multiple Family units were 1,232 for a total of 3,445. In 1996, the valuation of New Residential permits were 911,500,000, Non-Residential permits were 1,290,000,000 for a total of 2,201,500,000. New Dwelling Permits for Single Family Units were 4,032; Multiple Family units were 3,542 for a total of 7,574. In 1997, the valuation of New Residential permits were 1,329,600,000, Non-Residential permits were 1,914,700,000 for a total of 3,244,300,000. New Dwelling Permits for Single Family Units were 4,367; Multiple Family units were 4,443 for a total of 8,810. In 1998, the valuation of New Residential permits were 1,294,600,000, Non-Residential permits were 1,882,000,000 for a total of 3,176,600,000. New Dwelling Permits for Single Family Units were 3,911; Multiple Family units were 3,615 for a total of 7,526. In 1999, the valuation of New Residential permits were 1,306,000,000, Non-Residential permits were 1,856,000,000 for a total of 3,162,000,000. New Dwelling Permits for Single Family Units were 3,333; Multiple Family units were 3,677 for a total of 7,010. In 2000, the valuation of New Residential permits were 1,348,800,000, Non-Residential permits were 2,865,900,00 for a total of 4,214,700,000. New Dwelling Permits for Single Family Units were 2,834; Multiple Family units were 4,220 for a total of 7,054. In 2001, the valuation of New Residential permits were 1,051,500,000, Non-Residential permits were 2,254,800,000 for a total of 3,306,300,000. New Dwelling Permits for Single Family Units were 1,642; Multiple Family units were 4,318 for a total of 5,960. In 2002, the valuation of New Residential permits were 1,087,300,000, Non-Residential permits were 1,330,600,000 for a total of 2,417,900,000. New Dwelling Permits for Single Family Units were 2,057; Multiple Family units were 2,556 for a total of 4,513. Sources: Construction Industry Research Board END OF TABLE VTA FACTS SHEET- Current Bus System Data -July 2003 Demographic Information of Service Area: Santa Clara County Population: 1,729,900* Urbanized Area (UZA): 326 square miles Route Mileage (round trip): 2,925 *Source: Employment Development Department (EDD) Facilities: Number of Bus Stops: 4,529 Number of Shelters: 719 Number of Benches: 2,285 Number of Trash Receptacles: 896 Number of Transit Centers: 14 Routes by Service Type: Grid Routes: 14 Crosstown Routes - Regular: 16 Crosstown Routes - Limited Stop: 6 Feeder Routes - Neighborhood: 21 Feeder Routes - Shuttle: 1 Express Routes - Commute: 7 Express Routes - Regional: 4 Total Routes: 69 Bus Deployment: Weekday - AM Peak: 346 Weekday - Midday: 230 Weekday - PM Peak: 349 Weekday - Evenings: 197 Saturday: 188 Sunday: 154 Base to Peak ratio: 65.9% Active Buses: 447 Park and Ride Lots Bus: 15 Light Rail: 16 Caltrain: 15 Total: 46 Parking Spaces: Bus: 770 Light Rail: 6,399 Parking Spaces: 4,586 Parking Spaces: 11,755 Historical Data: In Fiscal Year 1978: Active Buses were 250, peak Buses were 175, Scheduled Hours were 680,351, Scheduled Miles were 9,874,025, Ridership was 15,740,000, and Average Weekday Ridership was 54,200. In Fiscal Year 1979: Active Buses were 330, peak Buses were 214, Scheduled Hours were 744,403, Scheduled Miles were 10,974,722, Ridership was 21,000,000, and Average Weekday Ridership was 71,320. In Fiscal Year 1980: Active Buses were 410, peak Buses were 245, Scheduled Hours were 866,922, Scheduled Miles were 13,208,223, Ridership was 27,220,000, and Average Weekday Ridership was 93,690. In Fiscal Year 1981: Active Buses were 494, peak Buses were 283, Scheduled Hours were 1,071,450, Scheduled Miles were 16,121,241, Ridership was 31,660,000, and Average Weekday Ridership was 106,435. In Fiscal Year 1982: Active Buses were 654, peak Buses were 340, Scheduled Hours were 1,289,275, Scheduled Miles were 19,315,699, Ridership was 34,310,000, and Average Weekday Ridership was 114,614. In Fiscal Year 1983: Active Buses were 654, peak Buses were 377, Scheduled Hours were 1,375,751, Scheduled Miles were 20,486,007, Ridership was 34,870,000, and Average Weekday Ridership was 117,921. In Fiscal Year 1984: Active Buses were 587, peak Buses were 398, Scheduled Hours were 1,393,663, Scheduled Miles were 20,709,523, Ridership was 35,745,658, and Average Weekday Ridership was 120,025. In Fiscal Year 1985: Active Buses were 542, peak Buses were 408, Scheduled Hours were 1,423,306, Scheduled Miles were 21,054,147, Ridership was 35,827,506, and Average Weekday Ridership was 121,031. In Fiscal Year 1986: Active Buses were 542, peak Buses were 412, Scheduled Hours were 1,478,363, Scheduled Miles were 21,828,651, Ridership was 34,970,518, and Average Weekday Ridership was 117,218. In Fiscal Year 1987: Active Buses were 542, peak Buses were 421, Scheduled Hours were 1,523,996, Scheduled Miles were 22,743,434, Ridership was 34,157,000, and Average Weekday Ridership was 114,845. In Fiscal Year 1988: Active Buses were 526, peak Buses were 420, Scheduled Hours were 1,534,980, Scheduled Miles were 23,054,441, Ridership was 35,220,000, and Average Weekday Ridership was 118,432. In Fiscal Year 1989: Active Buses were 518, peak Buses were 417, Scheduled Hours were 1,524,689, Scheduled Miles were 22,904,636, Ridership was 37,024,000, and Average Weekday Ridership was 124,958. In Fiscal Year 1990: Active Buses were 508, peak Buses were 412, Scheduled Hours were 1,539,093, Scheduled Miles were 22,983,312, Ridership was 38,700,000, and Average Weekday Ridership was 132,000. In Fiscal Year 1991: Active Buses were 512, peak Buses were 422, Scheduled Hours were 1,586,495, Scheduled Miles were 23,683,679, Ridership was 41,652,000, and Average Weekday Ridership was 141,000. In Fiscal Year 1992: Active Buses were 512, peak Buses were 413, Scheduled Hours were 1,563,141, Scheduled Miles were 23,313,885, Ridership was 40,104,000, and Average Weekday Ridership was 135,375. In Fiscal Year 1993: Active Buses were 474, peak Buses were 392, Scheduled Hours were 1,437,719, Scheduled Miles were 21,544,840, Ridership was 38,943,000, and Average Weekday Ridership was 131,368. In Fiscal Year 1994: Active Buses were 461, peak Buses were 380, Scheduled Hours were 1,367,725, Scheduled Miles were 20,577,474, Ridership was 38,737,136, and Average Weekday Ridership was 128,392. In Fiscal Year 1995: Active Buses were 460, peak Buses were 378, Scheduled Hours were 1,367,258, Scheduled Miles were 20,401,172, Ridership was 39,183,337, and Average Weekday Ridership was 130,432. In Fiscal Year 1996: Active Buses were 457, peak Buses were 377, Scheduled Hours were 1,371,163, Scheduled Miles were 20,452,092, Ridership was 42,625,173, and Average Weekday Ridership was 139,787. In Fiscal Year 1997: Active Buses were 468, peak Buses were 386, Scheduled Hours were 1,407,689, Scheduled Miles were 20,721,892, Ridership was 45,887,950, and Average Weekday Ridership was 150,224. In Fiscal Year 1998: Active Buses were 506, peak Buses were 398, Scheduled Hours were 1,464,964, Scheduled Miles were 21,184,990, Ridership was 46,118,198, and Average Weekday Ridership was 150,437. In Fiscal Year 1999: Active Buses were 522, peak Buses were 415, Scheduled Hours were 1,565,500, Scheduled Miles were 22,399,973, Ridership was 47,486,765, and Average Weekday Ridership was 154,082. In Fiscal Year 2000: Active Buses were 512, peak Buses were 427, Scheduled Hours were 1,623,603, Scheduled Miles were 22,923,518, Ridership was 47,007,594, and Average Weekday Ridership was 151,480. In Fiscal Year 2001: Active Buses were 502, peak Buses were 418, Scheduled Hours were 1,616,941, Scheduled Miles were 22,640,485, Ridership was 47,237,748, and Average Weekday Ridership was 152,708. In Fiscal Year 2002: Active Buses were 491, peak Buses were 402, Scheduled Hours were 1,589,200, Scheduled Miles were 22,043,527, Ridership was 44,900,522, and Average Weekday Ridership was 144,823. In Fiscal Year 2003: Active Buses were 454, peak Buses were 375, Scheduled Hours were 1,497,846, Scheduled Miles were 20,556,769, Ridership was 39,169,325, and Average Weekday Ridership was 126,030. END OF TABLE VTA FACTS SHEET- Current Light Rail System Data -July 2003 Demographic Information of Service Area: Santa Clara County Population: 1,729,900 (Source:EDD) Urbanized Area (UZA): 326 square miles Hours of Operation per day: 21 (Tasman Line operates 19 hrs. Almaden line operates 17.5 hrs on weekdays and 16 hrs. on weekends) Facilities: Number of Stations: Guadalupe 31, Tasman 19, for a total of 50 % of Platform Lifts equipped: Guadalupe 100%, Tasman 100%, for a total of 100% Length of Line (.6 miles of the rail track is a single track): Guadalupe 18 miles, Tasman 11.5 miles, for a total of 29.5 miles Route Mileage (round trip): Guadalupe 36 miles, Tasman 22.4 miles, for a total of 58.4 miles Park and Ride Lots Light Rail: 16 Caltrain: 1 (Downtown Mountain View - Caltrain Station (non-VTA lot)) Total Lots: 17 Parking Spaces: Light Rail: 6,399 Caltrain: 338 Total Parking Spaces: 6,737 Headways: Weekday Minutes: 15 Saturday Minutes: 15 Sunday Minutes: 15 Active Cars: Light Rail: 97 (50 UTDC cars & 77 Kinkisharyo cars) Historic Trolley: 4 System Line Openings: Younger St. to Old Ironsides: The opening Date was December 11, 1987, Length is 7.6 miles, and Cumulative Length is 7.6 miles. Downtown San Jose to younger St.: The opening Date was June 17, 1988, Length is .7 miles, and Cumulative Length is 8.3 miles. Tamien to Downtown San Jose: The opening Date was August 17, 1990, Length is 2.1 miles, and Cumulative Length is 10.4 miles. Almaden to Ohlone/Chynoweth: The opening Date was April 25, 1991, Length is 1.1 miles, and Cumulative Length is 11.5 miles. Santa Teresa to Tamien: The opening Date was April 25, 1991, Length is 8.6 miles, and Cumulative Length is 20.1 miles. Downtown Mountain View to Old Ironsides: The opening Date was December 02, 1999, Length is 7.6 miles, and Cumulative Length is 27.7 miles. Tasman to Baypointe: The opening Date was December 02, 1999, Length is .4 miles, and Cumulative Length is 28.1 miles. Baypointe to I-880 Milpitas: The opening Date was May 17, 2001, Length is 1.4 miles, and Cumulative Length is 29.5 miles. Historical Data: In Fiscal Year 1988: Scheduled Hours were 16,622, Scheduled Miles were 222,329, Peak Cars were 6, Light Rail Ridership was 359,965, Historic Trolley Ridership was 0, Total Ridership was 359,965, and Average Weekday Ridership was 1,101. In Fiscal Year 1989: Scheduled Hours were 42,665, Scheduled Miles were 538,799, Peak Cars were 8, Light Rail Ridership was 2,078,725, Historic Trolley Ridership was 39,985, Total Ridership was 2,118,710, and Average Weekday Ridership was 7,630. In Fiscal Year 1990: Scheduled Hours were 45,378, Scheduled Miles were 557,449, Peak Cars were 8, Light Rail Ridership was 2,431,520, Historic Trolley Ridership was 67,465, Total Ridership was 2,498,985, and Average Weekday Ridership was 8,083. In Fiscal Year 1991: Scheduled Hours were 67,424, Scheduled Miles were 890,617, Peak Cars were 16, Light Rail Ridership was 3,890,482, Historic Trolley Ridership was 110,660, Total Ridership was 4,001,142, and Average Weekday Ridership was 12,569. In Fiscal Year 1992: Scheduled Hours were 94,191, Scheduled Miles were 1,394,480, Peak Cars were 34, Light Rail Ridership was 6,018,280, Historic Trolley Ridership was 117,281, Total Ridership was 6,135,561, and Average Weekday Ridership was 19,756. In Fiscal Year 1993: Scheduled Hours were 85,419, Scheduled Miles were 1,283,621, Peak Cars were 36, Light Rail Ridership was 6,206,903, Historic Trolley Ridership was 38,796, Total Ridership was 6,245,699, and Average Weekday Ridership was 20,339. In Fiscal Year 1994: Scheduled Hours were 79,280, Scheduled Miles were 1,203,823, Peak Cars were 32, Light Rail Ridership was 6,108,755, Historic Trolley Ridership was 24,246, Total Ridership was 6,133,001, and Average Weekday Ridership was 19,735. In Fiscal Year 1995: Scheduled Hours were 78,630, Scheduled Miles were 1,198,107, Peak Cars were 32, Light Rail Ridership was 5,635,697, Historic Trolley Ridership was 23,622, Total Ridership was 5,659,319, and Average Weekday Ridership was 18,138. In Fiscal Year 1996: Scheduled Hours were 82,006, Scheduled Miles were 1,274,202, Peak Cars were 31, Light Rail Ridership was 6,144,587, Historic Trolley Ridership was 23,498, Total Ridership was 6,168,085, and Average Weekday Ridership was 20,008. In Fiscal Year 1997: Scheduled Hours were 84,909, Scheduled Miles were 1,339,564, Peak Cars were 32, Light Rail Ridership was 6,704,027, Historic Trolley Ridership was 24,365, Total Ridership was 6,728,392, and Average Weekday Ridership was 22,006. In Fiscal Year 1998: Scheduled Hours were 87,285, Scheduled Miles were 1,368,229, Peak Cars were 33, Light Rail Ridership was 6,865,223, Historic Trolley Ridership was 44,877, Total Ridership was 6,910,100, and Average Weekday Ridership was 22,727. In Fiscal Year 1999: Scheduled Hours were 88,800, Scheduled Miles were 1,359,589, Peak Cars were 33, Light Rail Ridership was 6,819,307, Historic Trolley Ridership was 43,398, Total Ridership was 6,862,705, and Average Weekday Ridership was 22,579. In Fiscal Year 2000: Scheduled Hours were 112,202, Scheduled Miles were 1,648,334, Peak Cars were 43, Light Rail Ridership was 7,874,710, Historic Trolley Ridership was 39,020, Total Ridership was 7,913,730, and Average Weekday Ridership was 25,673. In Fiscal Year 2001: Scheduled Hours were 136,483, Scheduled Miles were 1,986,763, Peak Cars were 41, Light Rail Ridership was 9,200,445, Historic Trolley Ridership was 36,629, Total Ridership was 9,237,074, and Average Weekday Ridership was 30,383. In Fiscal Year 2002: Scheduled Hours were 137,087, Scheduled Miles were 2,032,588, Peak Cars were 41, Light Rail Ridership was 7,769,121, Historic Trolley Ridership was 20,449, Total Ridership was 7,789,570, and Average Weekday Ridership was 25,573. In Fiscal Year 2003: Scheduled Hours were 106,416, Scheduled Miles were 1,567,594, Peak Cars were 29, Light Rail Ridership was 6,047,947, Historic Trolley Ridership was 4,572, Total Ridership was 6,052,519, and Average Weekday Ridership was 19,772. END OF REPORT