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CITY OF SAN LEANDRO, CALIFORNIA Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2012 3 The Management’s Discussion and Analysis (MD&A) provides an overview of the City of San Leandro’s activities and financial performance for the fiscal year ended June 30, 2012. To obtain a complete picture of the City’s financial condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic Financial Statements. FINANCIAL HIGHLIGHTS Information about net assets is presented in the summary schedule, below: At the close of the most recent fiscal year, the net assets of the City exceeded its liabilities at the close of the fiscal year end by $355.6 million (net assets). Of this amount, $282 million was invested in capital assets, net of related debt. Of the remaining $73.6 million balance, $8.7 million is restricted for capital projects and $9.2 million is restricted for other purposes leaving $55.7 million unrestricted. As of June 30, 2012, the City’s total net assets increased by $23.4 million; representing a $21.5 million increase in governmental activities and a $1.9 million increase in Business Type activities. City’s governmental activities were significantly affected by the dissolution of the Redevelopment Agency (RDA) as of February 1, 2012 wherein total assets decreased by $17.1 million and were transferred to the private purpose trust fund. As assets were transferred to the private purpose trust fund so were liabilities as total liabilities decreased in the amount of $38.6 million. The net assets of the City’s business-type activities increased by $1.9 million due to the modernization and expansion of the Water Pollution Control Plant which is expected to be completed in 2014. In March 2012, the City refinanced the outstanding $24 million CalPERS public safety side fund obligations to take advantage of lower interest rates by issuing Pension Obligation Bonds for $18 million and a $6 million loan from the Water Pollution Control Plant. In 2011-12, as required by the Governmental Accounting Standard Board (GASB), governments are obligated to enhance the financial reporting of the fund balance categories. Fund balances are described and presented in Note 10 which details the classifications of the City’s new fund balance categories. The City’s governmental funds include the general, special revenue, debt service, and capital projects, with a combined ending fund balance of $42.1 million, a decrease of $18.3 million from the prior fiscal year. The decrease is primarily due to the dissolution of the Redevelopment Agency Funds which were then transferred to a private purpose trust fund. a) Approximately 25% of the amount ($10.1 million) is Nonspendable because the funds are both legally and contractually required to be maintained and are not available or spendable such as advances and loans to other funds.