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6.1 B Page 13 The general fund of the Redevelopment Agency and the agency's low and moderate income housing fund are shown as special revenue funds. Debt service paid during the year is shown under debt service funds. The Port of Redwood City is an enterprise activity and is presented as an enterprise fund. Financial information for separate legal entities related to the City including the Redwood City Facilities and Infrastructure Authority, Redwood City Public Financing Authority, and Redwood City Redevelopment Agency is blended in the City's financial statements in accordance with Governmental Accounting Standards Board Statement No. 14. FINANCIAL INFORMATION Accounting System and Budgetary Control The City's accounting records for governmental operations are maintained on a modified accrual basis, with the revenues being recorded when both measurable and available, and expenditures being recorded when the services or goods are received and the liabilities are incurred. Accounting records for the City's enterprises are maintained on the accrual basis. In developing and modifying the City's accounting system, consideration is given to the adequacy of internal accounting controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding: • The safeguarding of assets against loss from unauthorized use or disposition, and • The reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that: • The cost of a control should not exceed the benefits likely to be derived, and • The evaluation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that all of the City's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Budgetary control is maintained at the program level by encumbering estimated purchase amounts prior to the release of purchase orders to vendors. Purchase orders that result in an overrun of budget balances are not released until additional appropriations are made available. Open encumbrances are reported as reservations of fund balance at year-end. As demonstrated by the statements and schedules included in the financial section of this report, the City of Redwood City continues to meet its responsibility for sound financial management. FACTORS AFFECTING FINANCIAL CONDITION Local Economy The local economy is reflecting the national recession with the unemployment rate in Redwood City increasing to 9.2% as of lune 2010 from 8.9% as of June 2009. The number of employed residents in Redwood City declined from 38,600 in June 2009 to 37,300 in June 2010. The Redwood City commercial real estate market, however, is showing some signs of stabilizing with the vacancy rate decreasing to 17.0% as of the second quarter 2010 compared to 19.9% as of the second quarter 2009.