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6.1.F. - Page 16 City. Under the City Charter, the City Council appoints the Board of Port Commissioners who oversees the operations of the Port of Redwood City, which is considered a department of the City of Redwood City. The general fund of the Redevelopment Agency and the agency's low and moderate income housing fund are shown as special revenue funds, with activity reflected in the funds through the February 1, 2012 dissolution date. 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, the Former Redevelopment Agency of Redwood City, and Successor Agency to the Redevelopment Agency of Redwood City 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. 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 slow recovery from the national recession with the unemployment rate in San Mateo County decreasing to 7.1%as of June 2012 from 8.7%as of June 2011. The number of employed residents in the County increased from 337,400 in June 2011 to 360,900 in June 2012. The San Mateo County commercial real estate market, however, is showing signs of stabilizing with the vacancy rate increasing to 14.1%as of the second quarter 2012 compared to 13.5%as of the second quarter 2011.