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HomeMy WebLinkAbout04 - CC-4 - Fiscal Year 2014-2015 Financial Audit - 1/19/2016 (2)CITY COUNCIL AND HOUSING AUTHOR/TYAGENDA REPORT MEETING DATE: JANUARY 19, 2016 ITEM No. CC -4 SUBJECT: FISCAL YEAR 2014-2015 INDEPENDENT FINANCIAL AUDIT OF THE COSTA MESA HOUSING AUTHORITY, AS HOUSING SUCCESSOR; AND, HOUSING SUCCESSOR ANNUAL REPORT OF THE LOW AND MODERATE INCOME HOUSING ASSET FUND PURSUANT TO SECTION 34176.1 OF THE DISSOLUTION LAW AND SECTION 34328 OF THE CALIFORNIA HOUSING AUTHORITIES LAW DATE: JANUARY 7, 2016 FROM: COLLEEN O'DONOGHUE, CPA, ASSISTANT FINANCE DIRECTOR PRESENTATION BY: COLLEEN O'DONOGHUE, CPA, ASSISTANT FINANCE DIRECTOR FOR FURTHER INFORMATION COLLEEN O'DONOGHUE, CPA, ASSISTANT CONTACT: FINANCE DIRECTOR 714-754-5219 RECOMMENDATION: Staff recommends that the City Council and Housing Authority receive and file the Fiscal Year 2014-2015 Independent Financial Audit of the Low and Moderate Income Housing Asset Fund and the Fiscal Year 2014-2015 Housing Successor Annual Report prepared pursuant to the California Health and Safety Code (HSC), Section 34176.1 as the housing successor, and Section 34328 as a housing authority. BACKGROUND AND DISCUSSION: On January 17, 2012, pursuant to the California Housing Authorities Law, Health and Safety Code Section 34200, et seq., the City Council established the Costa Mesa Housing Authority (Housing Authority). Also on that date, the City Council selected the Housing Authority to be the housing successor and, as of February 1, 2012, to assume the housing assets, duties, functions and obligations of the former Costa Mesa Redevelopment Agency (former Agency). These actions occurred as a result of the dissolution of the former Agency under Assembly Bill x1 26, the California Supreme Court's decision in California Redevelopment Association, et al. v. Matosantos, Assembly Bill 1484, and other subsequent dissolution legislation including Senate Bill 107 (together, "Dissolution Law"), which laws regulate the administration of successor agencies and housing successors due to the dissolution of all California redevelopment agencies. Further, pursuant to Section 34328 of the California Housing Authorities Law, Health and Safety Code Section 34200, et seq. (HAL), the Housing Authority also prepares and presents an annual report on its activities for the preceding year. Pursuant to Section 34176, added by AB x1 26 and amended by AB 1484, the State Department of Finance (DOF) issued a decision letter in January 2013 that confirms the Housing Authority holds all affordable housing assets of the former Agency as listed in a housing asset transfer schedule prepared by Costa Mesa and submitted to the DOF prior to August 1, 2012. All housing assets are now held and administered by the Housing Authority in the Low to Moderate Income Housing Asset Fund (LMIHAF) pursuant to the Dissolution Law, in particular Sections 34176 and 34176.1, as amended by Senate Bill 341 and Senate Bill 107. All housing successors are required to follow certain expenditure and accounting rules. Section 34176.1(f) requires the housing successor to conduct an independent financial audit of the LMIHAF (Audit) and prepare an annual report (Report) for each fiscal year of the housing successor, and provide such reports to the governing body, within six months after the end of each fiscal year. By statute, this Audit may be included in the City's independent financial audit and comprehensive audit financial report (CAFR), which has been prepared by White Nelson Diehl Evans LLP. The section in the City's audit/CAFR relating to this Audit is entitled: "Costa Mesa Housing Authority (A Component Unit of the City of Costa Mesa) Financial Report for the Year Ended June 30, 2015". The Audit and Report are attached to this agenda report for the City Council and Housing Authority's review and to take minute action to receive and file both reports. Further, as required by Section 34176.1, the Report and the former Agency's pre -dissolution Implementation Plan are available to the public on the City's website (www. costa mesaca.gov). Based upon information prepared by staff and data contained in the Audit, the Report presents information organized into the following, sections I. to XI., inclusive, pursuant to Section 34176.1(f) of the Dissolution Law: Amounts Received and Deposited Pursuant to 34191.4(b)(3)(A). This section provides the total amount of funds paid to the City and the amount deposited into the LMIHAF allocable to 20% of the repayments on the reinstated City/Agency loan per Section 34191.4. Amount Deposited into LMIHAF. This section provides the total amount of funds deposited into the LMIHAF in FY 14-15 and itemized by amounts deposited in FY 14-15 for items listed on Recognized Obligation Payment Schedule (ROPS), amounts allocable to Section 34191.4 deposits, and other amounts deposited into the LMIHAF. III. Ending Balance of LMIHAF. This section provides a statement of the balance in the LMIHAF as of the close of FY 14-15. Any amounts deposited for items listed on the ROPS, and amounts allocable to Section 34191.4 deposits, must be distinguished from the other amounts deposited. IV. Description of Expenditures from LMIHAF. This section provides a description of expenditures made from the LMIHAF during FY 14-15. The expenditures are to be categorized among (A) administration for monitoring, preserving covenanted housing units, (B) homeless prevention and rapid rehousing services and (C) development of housing. V. Statutory Value of Assets Owned by Housing Successor. This section provides the statutory value of real property owned by the Housing Successor, the value of loans and grant receivables, and the sum of these two amounts. VI. Description of Transfers. This section describes transfers, if any, to another housing successor agency made in previous Fiscal Year(s), including whether the funds are unencumbered and the status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for development of transit priority projects, permanent supportive housing, housing for agricultural employees or special needs housing. VII. Project Descriptions. This section describes any project for which the Housing Successor receives or holds property tax revenue pursuant to the ROPS and the status of that project. VIII. Status of Compliance with Section 33334.16. As and if applicable, this section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the former redevelopment agency prior to February 1, 2012. For interests in real property acquired on or after February 1, 2012, provide a status update on the project. IX. Description of Outstanding Obligations under Section 33413. This section describes outstanding inclusionary and replacement housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the former redevelopment agency as of February 1, 2012, along with the Housing Successor's progress in meeting those prior obligations, if any, of the former redevelopment agency and how the Housing Successor's plans to meet unmet obligations, if any. X. Income Test. This section provides information required by Section 34176.1(a)(3)(B), or a description of expenditures by income restriction for five year period, with the time period beginning January 1, 2014 and whether the statutory thresholds have been met. However, reporting of the Income Test is not required until 2019. XI. Senior Housing Test. This section provides the percentage of units of deed - restricted rental housing restricted to seniors and assisted individually or jointly by the Housing Successor, its former redevelopment agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed - restricted rental housing assisted individually or jointly by the Housing Successor, its former redevelopment agency and its host jurisdiction within the same time period. For this Report the ten-year period reviewed is January 1, 2004 to January 1, 2014, and for the first six months of the next ten-year period of January 1, 2014 to January 1, 2024. XII. Excess Surplus Test: This section provides the amount of excess surplus in the LMIHAF, if any, and the length of time that the Housing Successor has had excess surplus, and the Housing Successor's plan for eliminating the excess surplus. XIII. Inventory of Homeownership Units: This section provides a summary of covenanted homeownership units assisted by the former redevelopment agency or the housing successor that include an equity sharing and repayment provisions, including: (A) number of units; (B) number of units lost to the portfolio in the last fiscal year and the reason for those losses, and (C) any funds returned to the housing successor pursuant to losses or repayments. XIV. Additional Information about CMHA's Activities for the Preceding Fiscal Year 14-15 per HSC Section 34328. This section relates to the HAL and presents other information about the Housing Authority not otherwise described in the preceding sections of the Report. ALTERNATIVES CONSIDERED: As this is a receive and file action, there are no options presented. FISCAL REVIEW: There is no fiscal impact associated with receiving and filing the Audit and Report. LEGAL REVIEW: Special Counsel Celeste Brady of Stradling Yocca Carlson & Rauth assisted staff with preparation of the Report and this agenda report. CONCLUSION: Staff recommends that the City Council and Housing Authority receive and file the Audit and Report as presented. COLLEEN O'DONOGHUE, CPA Assistant Finance Director STEPHEN G. DUNIVENT Interim Finance Director Attachment 1. Housing Successor Annual Report for FY 14-15 Attachment 2. Costa Mesa Housing Authority (A Component Unit of the City of Costa Mesa) Financial Report for the Year Ended June 30, 2015 ATTACHMENT 1 COSTA MESA HOUSING AUTHORITY ANNUAL REPORT AS HOUSING AUTHORITY AND AS HOUSING SUCCESSOR FOR FISCAL YEAR 2014-2015 UNDER CALIFORNIA HEALTH & SAFETY CODE SECTIONS 34176.1 AND 34328 This Annual Report of the Costa Mesa Housing Authority (CMHA) is prepared pursuant to the California Health and Safety Code (HSC), Section 34176.1 as the housing successor, and Section 34328 as a housing authority (together, HSC Report). In particular, Division 24 of the HSC sets forth the Dissolution Law in Parts 1.8 and 1.85 and the Housing Authorities Law in Part 2, which respectively require preparation of an annual report on housing successor and the housing authority's activities for the prior fiscal year. This Report details the CMHA's activities during Fiscal Year (FY) 2014-2015 and is intended to satisfy the requirements under both HSC Sections 34328 and 34176.1. In particular this Report details the CMHA's activities for FY 2014-2015, including the information required about the Low and Moderate Income Housing Asset Fund (LMIHAF) and on other information pursuant to Section 34176.1(f). After receipt of the complete, final CAFR (term defined below) that is expected by the end of December 2015, then this Report will be finalized using information and data in the CAFR and will be provided to, and will be presented for joint consideration and action by the City Council Housing Authority Board in January 2016. The Report includes information prepared by City staff on behalf of the CMHA and information contained within the independent financial audit of the Low and Moderate Income Housing Asset Fund Financial Report for FY 2014-2015 (CA F R) as prepared by White Nelson Diehl Evans LLP, which audit is separate from this Report; further, this Report conforms with and is organized into sections I. through XIII., inclusive, pursuant to Section 34176.1(f) of the Dissolution Law: I. Amounts Received and Deposited Pursuant to 34191.4(b)(3)(A). This section provides the total amount of funds paid to the City and the amount deposited into the LMIHAF allocable to 20% of the repayments on the reinstated City/Agency loan per Section 34191.4. II. Amount Deposited into LMIHAF. This section provides the total amount of funds deposited into the LMIHAF in FY 14-15 and itemized by amounts deposited in FY 14-15 for items listed on Recognized Obligation Payment Schedule (ROPS), amounts allocable to Section 34191.4 deposits, and other amounts deposited into the LMIHAF. III. Ending Balance of LMIHAF. This section provides a statement of the balance in the LMIHAF as of the close of FY 14-15. Any amounts deposited for items listed on the ROPS, and amounts allocable to Section 34191.4 deposits, must be distinguished from the other amounts deposited. IV. Description of Expenditures from LMIHAF. This section provides a description of expenditures made from the LMIHAF during FY 14-15. The expenditures are to be categorized among (A) administration for monitoring, preserving covenanted Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 11 housing units, (B) homeless prevention and rapid rehousing services and (C) development of housing. V. Statutory Value of Assets Owned by Housing Successor. This section provides the statutory value of real property owned by the Housing Successor, the value of loans and grant receivables, and the sum of these two amounts. VI. Description of Transfers. This section describes transfers, if any, to another housing successor agency made in previous Fiscal Year(s), including whether the funds are unencumbered and the status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for development of transit priority projects, permanent supportive housing, housing for agricultural employees or special needs housing. VII. Project Descriptions. This section describes any project for which the Housing Successor receives or holds property tax revenue pursuant to the ROPS and the status of that project. VIII. Status of Compliance with Section 33334.16. As and if applicable, this section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the former redevelopment agency prior to February 1, 2012. For interests in real property acquired on or after February 1, 2012, provide a status update on the project. IX. Description of Outstanding Obligations under Section 33413. This section describes outstanding inclusionary and replacement housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the former redevelopment agency as of February 1, 2012, along with the Housing Successor's progress in meeting those prior obligations, if any, of the former redevelopment agency and how the Housing Successor's plans to meet unmet obligations, if any. X. Income Test. This section provides information required by Section 34176.1(a)(3)(B), or a description of expenditures by income restriction for five year period, with the time period beginning January 1, 2014 and whether the statutory thresholds have been met. However, reporting of the Income Test is not required until 2019. XI. Senior Housing Test. This section provides the percentage of units of deed - restricted rental housing restricted to seniors and assisted individually orjointly by the Housing Successor, its former redevelopment agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed - restricted rental housing assisted individually or jointly by the Housing Successor, its former redevelopment agency and its host jurisdiction within the same time period. For this Report the ten-year period reviewed is January 1, 2004 to January 1, 2014, and for the first six months of the next ten-year period of January 1, 2014 to January 1, 2024. XII. Excess Surplus Test: This section provides the amount of excess surplus in the LMIHAF, if any, and the length of time that the Housing Successor has had excess surplus, and the Housing Successor's plan for eliminating the excess surplus. Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 12 XIII. Inventory of Homeownership Units: This section provides a summary of covenanted homeownership units assisted by the former redevelopment agency or the housing successor that include an equity sharing and repayment provisions, including: (A) number of units; (B) number of units lost to the portfolio in the last fiscal year and the reason for those losses, and (C) any funds returned to the housing successor pursuant to losses or repayments. This Report is to be provided to CMHA and its governing body, the City Council, in accordance with the Dissolution Law and the HAL. In addition, this Report and the former Costa Mesa Redevelopment Agency's (former Agency) pre -dissolution Implementation Plan are available to the public on the City's website (www. costa mesaca.gov). I. AMOUNTS RECEIVED AND DEPOSITED PURSUANT TO 34191.4(B)(3)(A) In FY 14-15, a total of $359,675 was approved by DOF and remitted via ROPS 14-15A and attributable to the reinstated City/Agency loan under Section 34191.4; and, of that figure, $287,740 (allocable to 80% of $359,675) was paid to the City, and $71,935 was deposited into the LMIHAF (allocable to 20% of $359,675). II. AMOUNTS DEPOSITED INTO LMIHAF • The amount of $71,935 was deposited into the LMIHAF in FY -15 allocable to the 20% of the monies received by the City in repayment of the reinstated City/Agency loan per Section 34191.4; plus • $0 was held for items listed on the ROPS; plus • Other deposits into the LMIHAF in FY 14-15 of: (1) $78,550 rental income, (2) $568,143 loan repayments, and (3) $4,964 investment income. In sum, the cumulative total is $723,592 of all deposits into the LMIHAF during FY 14-15. III. ENDING BALANCE OF LMIHAF At the close of FY 14-15, the ending balance in the LMIHAF was $912,240, of which $0 is held for items listed on the ROPS. IV. DESCRIPTION OF EXPENDITURES FROM LMIHAF The table below lists and describes expenditures from LMIHAF by category for FY 14- 15: Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 13 Fiscal Year 14-15 MONITORING, ENFORCEMENT AND $124,772 Monitoring and PRESERVING THE LONG TERM Administration AFFORDABLE HOUSING COVENANTS Expenditures IMPOSED BY THE FORMER AGENCY OR CMHA AS HOUSING SUCCESSOR AND COSTS TO ADMINISTER HOMELESS PREVENTION AND RAPID REHOUSING SUPPORTIVE SERVICES, AND TOWARD DEVELOPMENT AND PRESERVATION OF HOUSING Homeless Prevention MONITORING, ENFORCEMENT AND $60,468 and Rapid Rehousing PRESERVING THE LONG TERM Services Expenditures AFFORDABLE HOUSING COVENANTS IMPOSED BY THE FORMER AGENCY OR CMHA AS HOUSING SUCCESSOR AND COSTS TO ADMINISTER HOMELESS PREVENTION AND RAPID REHOUSING SUPPORTIVE SERVICES, AND TOWARD DEVELOPMENT AND PRESERVATION OF HOUSING Housing Development HOUSING DEVELOPMENT AND $26,941 Expenditures PRESERVATION OF EXISTING LOW AND VERY LOW INCOME RENTAL HOUSING UNITS AT RISK OF CONVERSION TO MARKET RATE (CCBHC Projects) Total Total LMIHAF Expenditures $212,181 in FY 14-15 V. STATUTORY VALUE OF ASSETS OWNED BY HOUSING SUCCESSOR IN LMIHAF Under the Dissolution Law and for purposes of this Report, the "statutory value of real property" means the value of properties formerly held by the former redevelopment agency as listed on the housing asset transfer schedule approved by the Department of Finance as listed in such schedule under Section 34176(a)(2), the value of the properties transferred to the Housing Successor pursuant to Section 34181(f), and the purchase price of property(ies) purchased by the Housing Successor. Further, the value of loans and grants receivable is included in these reported assets held in the LMIHAF. The following table provides the statutory value of assets owned by the Housing Successor as of the end of FY 14-15: Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 14 VI. DESCRIPTION OF TRANSFERS The Housing Successor did not make any LMIHAF transfers to other Housing Successor(s) under Section 34176.1(c)(2) during FY 14-15. VII. APPROVED ROPS PROJECTS The Housing Successor does not receive or hold property tax revenue under a ROPS. VIII. STATUS OF COMPLIANCE WITH SECTION 33334.16 Section 34176.1 provides that Section 33334.16 does not apply to interests in real property acquired by the Housing Successor on or after February 1, 2012. With respect to interests in real property acquired by the former Agency prior to February 1, 2012, the time periods described in Section 33334.16 shall be deemed to have commenced on the date that the Department of Finance approved the property as a housing asset in the LMIHAF; thus, as to real property acquired by the former redevelopment agency now held by the Housing Successor in the LMIHAF, the Housing Successor must initiate activities consistent with development of the real property for the purpose for which it was acquired within five years of the date the DOF approved such property as a housing asset. In this regard, the CMHA, as housing successor, did not own any real property as of dissolution on February 1, 2012. IX. DESCRIPTION OF OUTSTANDING OBLIGATIONS PURSUANT TO SECTION 33413 Replacement Housing: According to the March 2010 Implementation Plan for the former redevelopment agency, in Section 33413(a) replacement housing obligations were transferred to the Housing Successor; however, the former Agency had no outstanding replacement housing obligations as of dissolution on February 1, 2012. Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 15 As of End of FY 14-15 Cash and Investments $930,738 Interest Receivable $ 1,346 Statutory Value of Real Property Owned by Costa Mesa Housing Authority $ 0 Value of Loans and Grants Receivable $3,627,094 Total Value $4,559,178 VI. DESCRIPTION OF TRANSFERS The Housing Successor did not make any LMIHAF transfers to other Housing Successor(s) under Section 34176.1(c)(2) during FY 14-15. VII. APPROVED ROPS PROJECTS The Housing Successor does not receive or hold property tax revenue under a ROPS. VIII. STATUS OF COMPLIANCE WITH SECTION 33334.16 Section 34176.1 provides that Section 33334.16 does not apply to interests in real property acquired by the Housing Successor on or after February 1, 2012. With respect to interests in real property acquired by the former Agency prior to February 1, 2012, the time periods described in Section 33334.16 shall be deemed to have commenced on the date that the Department of Finance approved the property as a housing asset in the LMIHAF; thus, as to real property acquired by the former redevelopment agency now held by the Housing Successor in the LMIHAF, the Housing Successor must initiate activities consistent with development of the real property for the purpose for which it was acquired within five years of the date the DOF approved such property as a housing asset. In this regard, the CMHA, as housing successor, did not own any real property as of dissolution on February 1, 2012. IX. DESCRIPTION OF OUTSTANDING OBLIGATIONS PURSUANT TO SECTION 33413 Replacement Housing: According to the March 2010 Implementation Plan for the former redevelopment agency, in Section 33413(a) replacement housing obligations were transferred to the Housing Successor; however, the former Agency had no outstanding replacement housing obligations as of dissolution on February 1, 2012. Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 15 Inclusionary/Production Housing. According to the March 2010 Implementation Plan for the former redevelopment agency, in Section 33413(b) inclusionary/production housing obligations were transferred to the Housing Successor; however, the former Agency had no outstanding inclusionary/production housing obligations as of dissolution on February 1, 2012. The former redevelopment agency's Implementation Plan for the former Downtown Project Area is posted on the City's website at (www.costamesaca.gov). Therefore, the Housing Successor has no outstanding replacement or inclusionary/production housing obligations. The former Agency's Implementation Plan is posted on the City's website at (www. costa mesaca.gov). X. EXTREMELY -LOW INCOME TEST Section 34176.1(a)(3)(B) requires that the Housing Successor must require at least 30% of the LMIHAF to be expended for development of rental housing affordable to and occupied by households earning 30% or less of the AMI. If the Housing Successor fails to comply with the Extremely -Low Income requirement in any five-year report, then the Housing Successor must ensure that at least 50% of the funds remaining in the LMIHAF be expended in each fiscal year following the latest fiscal year following the report on households earning 30% or less of the AMI until the Housing Successor demonstrates compliance with the Extremely -Low Income requirement. This information is not required to be reported until 2019 for the 2014 — 2019 period. XI. SENIOR HOUSING TEST The Housing Successor is to calculate the percentage of units of deed -restricted rental housing restricted to seniors and assisted by the Housing Successor, the former redevelopment agency and/or the City within the previous 10 years in relation to the aggregate number of units of deed -restricted rental housing assisted by the Housing Successor, the former redevelopment agency and/or City within the same time period. If this percentage exceeds 50%, then the Housing Successor cannot expend future funds in the LMIHAF to assist additional senior housing units until the Housing Successor or City assists and construction has commenced on a number of restricted rental units that is equal to 50% of the total amount of deed -restricted rental units. The Housing Successor's Senior Housing Test for the 10 year period of January 1, 2004 to January 1, 2014 (six months of FY 14-15 for this Report) evidences that 9.8% of the funds were expended on assistance to provide senior affordable housing units and 90.2% of the funds were expended on assistance to provide non-senior/family affordable housing units. In particular, 36 senior units with long-term 55 -year affordability covenants were established during the subject 10 -year period (specifically, the St. John's Manor Project). For the current 10 -year period of January 1, 2014 to January 1, 2024, the CMHA $0 funds, therefore 0% of funds were expended on development or assistance to develop senior or non-senior/family units. XII. EXCESS SURPLUS TEST Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 16 The term excess surplus is defined as: "an unencumbered amount in the [LMIHAF] account that exceeds the greater of one million dollars ($1,000,000) or the aggregate amount deposited into the account during the housing successor's preceding four fiscal years, whichever is greater." For this Report presenting information about FY 14-15, the preceding four fiscal years were FY 13 14, FY 12-13, FY 11-12, and 10-11; however, the housing successor did not yet exist in FY 10-11 and came into existence on and has existed since February 1, 2012, so the housing successor has not yet existed for four preceding fiscal years. In any event, the LMIHAF does not have an Excess Surplus. XII. INVENTORY OF HOMEOWNERSHIP UNITS. This section provides an inventory of homeownership units assisted by the former redevelopment agency and assumed by the CMHA, as housing successor, that are subject to covenants or restrictions or to an adopted program that protects the former redevelopment agency's investment of moneys from the Low and Moderate Income Housing Fund per Section 33334.3(f). This inventory includes: (A) The total number of homeownership units assisted by the former redevelopment agency is 41 units, which includes loans and restricted single-family homes assisted by the former redevelopment agency through its (1) First Time Homebuyer Program, (2) Single -Family Rehabilitation Program, (3) affordable housing projects with Habitat for Humanity of Orange County, and (4) the Neighborhood Stabilization Program. (B) The total number of homeownership units lost to the CMHA/Housing Successor's portfolio between February 1, 2012 up to June 30, 2015, along with the reason or reasons for those losses. Total losses between February 1, 2012 to June 30, 2015: 27 units Reason for loss from homeownership portfolio of each such unit: [Such as foreclosure, loan repayments, etc.] Principal Repayments: $ 285,816.11 Loan Impairment: $1,095,000.00 Foreclosure: $ 436,000.00 Funds returned to the CMHA/Housing Successor as part of an adopted program that protects the former Agency's investment of moneys from the Low and Moderate Income Housing Fund. This includes repayments of all such loans including principal, interest, and equity sharing payments between February 1, 2012 to June 30, 2015. $ 301,584.00 (Principal, interest and fees) Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 Page 17 (C) The number of homeownership units lost to the CMHA/Housing Successor's portfolio in FY 14-15 and the reason for those losses. Total losses to portfolio in FY 14-15 10 units Reason for loss from homeownership portfolio in FY 14-15 of each such unit: [Such as foreclosure, loan repayments, etc.] Principal Repayments: $51,434.00 Funds returned to the CMHA/Housing Successor as part of an adopted program that protects the former Agency's investment of moneys from the Low and Moderate Income Housing Fund. This includes repayments of all SF Rehab and FTHB loans including principal, interest, and equity sharing payments during FY 2014-15: 66,643.00 (Principal, interest and fees). (D) The CMHA/Housing Successor does have existing consulting agreements with: Amerinational Community Services, Inc., a Minnesota Corporation and Farmers State Bank of Hartland, a Minnesota corporation relating to certain, but not all, aspects of administration of the former Agency's Single Family Rehabilitation Program and First Time Homebuyer program (FTHB) that provided second lien mortgages for homeownership units. These consulting services include assistance with oversight and administration of amortized loan payments, if any, due; with tracking and calculation of loan balances in the event of payoff; and, other administrative activities for these outstanding SF Rehab and FTHB loans. In addition, the CMHA retains the services of Keyser Marston Associates, a professional housing economic consultant, and the CMHA legal counsel, Celeste Brady of Stradling Yocca Carlson & Rauth, assists staff in review of legal issues related to the outstanding SF Rehab and FTHB loans, such as and including relating to refinancing of first lien mortgages so long as consistent with the SF Rehab and FTHB program refinancing criteria, repayments, impairment analyses, defaults, foreclosures, bankruptcies, renting out part of the home, short sale requests, and other issues that arise in the administration of the former Agency's loan programs for ownership housing. XIII. ADDITIONAL INFORMATION ABOUT CMHA'S ACTIVITIES FOR THE PRECEDING YEAR FY 14-15 PER HSC SECTION 34328 Without repeating the information presented above in this report, the CMHA: (1) continued to monitor and enforce the housing assets transferred from the former redevelopment agency to the CMHA as housing successor; (2) proceeded with non -judicial foreclosure proceedings initiated by the City of Costa Mesa and the Housing Authority that were pending during FY 14-15. Trustee sales by auction were held (after June 30, 2015 but within the 60 -day reporting in the CAFR) on August 28, 2015 at the Santa Ana Superior Court for three (of the four) affordable housing projects that had been owned and operated by Civic Center Barrio Housing Corporation ("CCBHC"), including: Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 18 (a) 707, 711 W. 18th St., 8 units in two 4-plexes; 8 Low Income units; former redevelopment agency, now a Housing Authority loan, with successful credit bid of $753,471.87. (b) 734, 740, 744 James St., 11 units in one 3-plex and two 4-plexes; 9 Low and 2 Very Low Income units; City loan with successful credit bid of $1,180,026.24; (c) 745 W. 18th St., 3 units in one 3-plex; 3 Very Low Income units; City loan with successful credit bid of $450,563.65; and (d) proceedings were initiated in FY 14-15 but have not to date been concluded relating to 8 Very Low Income affordable rental units located at 717, 721 James Street, Costa Mesa, adjacent to the above -listed units. All 22 of the affordable rental units acquired through the foreclosure proceedings, (a) to (c) above, have been vested with the Costa Mesa Housing Authority and more detail will be provided in next year's annual report regarding FY 15-16. It is anticipated that the Trustee's sale on the 8 units at 717, 721 James Street will occur in early 2016. During FY 14-15, the owner of the Costa Mesa Village SRO project, an existing affordable housing project for which the former redevelopment agency provided a deferred, subordinate loan of $500,000, refinanced the first lien permanent loan so the CMHA's subordinate loan was due and fully repaid; however, it is noted the Regulatory Agreement of record against the property remains in place and by its terms in effect in perpetuity. A portion of the repayment proceeds were allocable to federal CDBG funds so were remitted to the City and the balance deposited into the LMIHAF. As housing successor and pursuant to Section 34176.1(a)(2), the Housing Authority may expend up to $250,000 per fiscal year "for homeless prevention and rapid rehousing services for individuals and families who are homeless or would be homeless but for this assistance, including the provision of short-term or medium-term rental assistance, housing relocation and stabilization services including housing search, mediation, or outreach to property owners, credit repair, security or utility deposits, utility payments, rental assistance for a final month at a location, moving cost assistance, and case management, or other appropriate activities for homelessness prevention and rapid rehousing of persons who have become homeless." In this regard in FY 14-15 and as detailed in this Report, the Housing Authority provided partial funding for Community Outreach Workers who assertively work toward placing homeless individuals and families into temporary or permanent housing as it becomes available. The part-time staff addresses the various needs represented by our homeless population on a daily basis. Further, a part-time Management Analyst maintains the database that Community Outreach Workers and volunteers from varied community groups utilize to streamline their reporting and recordkeeping processes relative to placement of homeless individuals and families into housing. Costa Mesa Housing Authority Housing Successor Annual Report FY 14-15 P a g e 19 ATTACHMENT COSTA MESA HOUSING AUTHORITY (A COMPONENT UNIT OF THE CITY OF COSTA MESA) FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015 COSTA MESA HOUSING AUTHORITY TABLE OF CONTENTS For the year ended June 30, 2015 Page Number Independent Auditors' Report 1 Basic Financial Statements: Government -Wide Financial Statements: Statement of Net Position 3 Statement of Activities 4 Fund Financial Statements: Balance Sheet - Governmental Fund 5 Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Position 6 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Fund 7 Reconciliation of the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 8 Notes to Basic Financial Statements 9 Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 20 INDEPENDENT AUDITORS' REPORT The Board of Directors Costa Mesa Housing Authority Costa Mesa, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and the major fund of the Costa Mesa Housing Authority (the Authority), (a component unit of the City of Costa Mesa, California) as of and for the year ended June 30, 2015, and the related notes to the basic financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these basic 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 basic financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the basic financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Authority's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Opinions In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Authority as of June 30, 2015, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of a Matter As described more fully in Note IA, the basic component unit financial statements present only the Authority and are not intended to present fairly the financial position and results of operations of the City of Costa Mesa, California in conformity with accounting principles generally accepted in the United States of America. Other Matter Required Supplementary Information Management has not presented the management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2015, on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance. 1=� ez,� LGA° Irvine, California December 15, 2015 -2- COSTA MESA HOUSING AUTHORITY STATEMENT OF NET POSITION June 30, 2015 ASSETS: Cash and investments Interest receivable Loans receivable, net of allowance (Note 3) Capital assets, nondepreciable TOTAL ASSETS LIABILITIES: Accounts payable Payroll payable TOTAL LIABILITIES NET POSITION: Net investment in capital assets Restricted for: Affordable housing TOTAL NET POSITION Governmental Activities $ 930,738 1,346 3,627,094 1,697,665 6,256,843 19,660 184 19,844 1,697,665 4,539,334 $ 6,236,999 See accompanying notes to basic financial statements. -3- COSTA MESA HOUSING AUTHORITY STATEMENT OF ACTIVITIES For the year ended June 30, 2015 See accompanying notes to basic financial statements. -4- Net (Expense) Revenue and Changes in Program Revenues Net Position Operating Capital Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activities Governmental activities: Affordable housing $ 176,057 $ 87,194 $ - $ - $ (88,863) Total governmental activities $ 176,057 $ 87,194 $ - $ - (88,863) General revenues and transfers: Repayment of Successor Agency advance 71,935 Loan repayments 78,550 Investment income 4,964 Transfers (36,124) Total general revenues and transfers 119,325 Special item - note receivable write-off (see Note 5) (675,522) CHANGE IN NET POSITION (645,060) NET POSITION AT BEGINNING OF YEAR 6,882,059 NET POSITION AT END OF YEAR $ 6,236,999 See accompanying notes to basic financial statements. -4- COSTA MESA HOUSING AUTHORITY BALANCESHEET GOVERNMENTAL FUND June 30, 2015 ASSETS Cash and investments Interest receivable Loans receivable, net of allowance TOTAL ASSETS LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE LIABILITIES: Accounts payable Payroll payable TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES: Unavailable revenue TOTAL DEFERRED INFLOWS OF RESOURCES FUND BALANCE: Restricted for affordable housing $ 930,738 1,346 3,627,094 $ 4,559,178 $ 19,660 184 3,627,094 3,627,094 912,240 TOTAL FUND BALANCE 912,240 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE $ 4,559,178 See accompanying notes to basic financial statements. -5- COSTA MESA HOUSING AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2015 Fund balance - total governmental fund $ 912,240 Amounts reported for governmental activities in the Statement of Net Position are different because: When capital assets (property, plant, equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the Statement of Net Position includes those capital assets among the assets of the Authority as whole: Land 1,697,665 Loans receivable are not available to pay for current period expenditures. and, therefore, are reported as unavailable revenue in the governmental funds. For the Statement of Net Position, the loans are considered available to pay for expenses and have been previously reported as revenues. Net position of governmental activities See accompanying notes to basic financial statements. 3,627,094 $ 6,236,999 COSTA MESA HOUSING AUTHORITY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUND For the year ended June 30, 2015 REVENUES: Rental income Repayment of Successor Agency advance Other income (loan repayments) Investment income TOTAL REVENUES EXPENDITURES: Current: Affordable housing Miscellaneous TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR $ 78,550 71,935 568,143 4,964 723,592 176,057 36,124 212,181 511,411 11 ` $ 912,240 See accompanying notes to basic financial statements. -7- COSTA MESA HOUSING AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES For the year ended June 30, 2015 Net change in fund balance - total governmental fund Amounts reported for governmental activities in the Statement of Activities are different because: For the governmental funds, collections on loans receivable are recorded as revenue when received by reducing unavailable revenue. For the governmental activities, principal loan repayments in the current fiscal year reduces the revenue as the loans have been previously reported as revenues for the governmental activities. Interest added to the loan in the current year which is not available for the governmental funds is recognized as revenue for the governmental activities and reported as unavailable revenue for the governmental funds. Special item - write-off (see Note 5) Principal repayments Interest added to the loan Change in net position of governmental activities See accompanying notes to basic financial statements. $ (675,522) (542,360) 61,411 $ 511,411 (1,156,471 $ (645,060) COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES: The accounting policies of the Costa Mesa Housing Authority (the Authority) conform to accounting principles generally accepted in the United States of America as applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting and financial reporting principles. The following is a summary of the Authority's significant accounting policies: A. Description of the Reporting Entity: The Costa Mesa Housing Authority was established on January 17, 2012, pursuant to City Council Resolution No. 12-3. The primary purpose of the Authority is to promote affordable housing for families of low and moderate income within the City of Costa Mesa, California (the City). Pursuant to Assembly Bill 1484, the housing assets and obligations of the former Redevelopment Agency's Low and Moderate Income Housing Fund were transferred to the Housing Authority. The Authority is an integral part of the reporting entity of the City. The fund of the Authority has been included within the scope of the basic financial statements of the City because the City Council exercises oversight responsibility over the operations of the Authority. Only the fund of the Authority is included herein, therefore, these financial statements do not purport to represent the financial position or results of operations of the City. B. Fund Accounting: The basic accounting and reporting entity is a "fund". A fund is defined as an independent fiscal and accounting entity with a self -balancing set of accounts, recording resources, related liabilities, obligations, reserves and equities segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The accounting records of the Authority are organized on the basis of funds. Currently, the Authority only utilizes one fund. COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): C. Basis of Accounting and Measurement Focus: The basic financial statements of the Authority are composed of the following: • Government -wide financial statements • Fund financial statements • Notes to the basic financial statements Government -wide Financial Statements Government -wide financial statements display information about the Authority as a whole. All activities of the Authority are classified as governmental activities. Government -wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the government -wide financial statements. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No. 33. Program revenues include charges for services, and payments made by parties outside of the reporting government's citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. Amounts paid to acquire capital assets are capitalized assets in the government -wide financial statements, rather than reported as an expenditure. Fund Financial Statements The underlying accounting system of the Authority is organized and operated on the basis of one separate fund, of which is considered to be a separate accounting entity. The operations of the fund are accounted for with a set of self -balancing accounts that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in the individual fund based upon the purposes for which it is to be spent and the means by which spending activities are controlled. -10- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): C. Basis of Accounting and Measurement Focus (Continued): Fund Financial Statements (Continued) Fund financial statements for the Authority's governmental fund are presented after the government -wide financial statements. These statements display information about the governmental major fund individually. Governmental Funds In the fund financial statements, governmental funds are presented using the modified -accrual basis of accounting. Their revenues are recognized when they become measurable and available as fund balances. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The Authority generally considers revenues collected within sixty days after the fiscal year-end to be available which includes loan repayments and rental income. Unavailable revenues are reported as deferred inflows of resources. Revenue recognition is subject to the measurable and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government -mandated and voluntary non-exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets, current liabilities and deferred inflows of resources are generally included on their balance sheets. The reported fund balance is considered to be a measure of "available spendable resources". Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. -11- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): C. Basis of Accounting and Measurement Focus (Continued): Governmental Funds (Continued) Noncurrent portions of long-term receivables due to governmental funds are reported on the balance sheet in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources", since they do not represent current assets. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term indebtedness are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. D. New Accounting Pronouncements: Current Year Standards GASB Statement No. 68 - "Accounting and Financial Reporting for Pensions, an Amendment of GASB Statement No. 27" was required to be implemented in the current fiscal year and did not impact the Authority. GASB Statement No. 69 - "Government Combinations and Disposals of Government Operations " was required to be implemented in the current fiscal year and did not impact the Authority. GASB Statement No. 71 - "Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68" was required to be implemented in the current fiscal year and did not impact the Authority. Pending Accounting Standards GASB has issued the following statements which may impact the Authority's financial reporting requirements in the future: • GASB 72 - "Fair Value Measurement and Application", effective for periods beginning after June 15, 2015. -12- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): D. New Accounting Pronouncements (Continued): Pending Accounting Standards (Continued) • GASB 73 - "Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 ", effective for periods beginning after June 15, 2015 - except for those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for periods beginning after June 15, 2016. • GASB 74 - "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans ", effective for periods beginning after June 15, 2016. • GASB 75 - "Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions ", effective for periods beginning after June 15, 2017. • GASB 76 - "The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments ", effective for periods beginning after June 15, 2015. E. Cash and Investments: Investments are reported in the accompanying financial statements at fair value. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments. F. Capital Assets: Capital assets are recorded at historical cost at the time of purchase. Assets acquired from gifts or contributions are recorded at fair market value on the date received. Generally, capital asset purchases in excess of $5,000 are capitalized if they have an expected useful life of 2 years or more. Capital assets used in operations are generally depreciated in the government -wide financial statements. The Authority's only capital asset consists of land that was contributed by the former Costa Mesa Redevelopment Agency and is recorded at cost. Land is considered to be a non -depreciable asset. -13- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): G. Net Position: Net position of the Authority can be classified into three components - net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows: • Net investment in capital assets - This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of net investment in capital assets. Rather, that portion of the debt is included in the same net position component as the unspent proceeds. • Restricted - This component of net position consists of constraints placed on net position use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. • Unrestricted net position - This component of net position consists of net position that does not meet the definition of "net investment in capital assets" or "restricted". The Authority has no unrestricted net position. When both restricted and unrestricted resources are available for use, it is the Authority's policy to use restricted resources first, then unrestricted resources as they are needed. H. Deferred Outflows/Inflows of Resources: In addition to assets, the statement of net position and the governmental fund balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred ou flows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The Authority does not have any applicable deferred outflows of resources. In addition to liabilities, the statement of net position and the governmental fund balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The Authority reports unavailable revenue on loans receivable as deferred inflows of resources. -14- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): I. Fund Equity: Fund balance classifications are defined as follows: Nonspendable - This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted - This classification includes amounts that can be spent only for specific purposes stipulated by constitution, external resource providers or through enabling legislation. Committed - This classification includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority. Assigned - This classification includes amounts to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds, other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. Unassi ngned - The classifications include the residual balance for the government's general fund and includes all spendable amounts not contained in other classifications. The Authority reports its fund balance as restricted for affordable housing. It is the Authority's policy that restricted resources will be applied first, followed by (in order of application) committed, assigned, and unassigned resources, in the absence of a formal policy adopted by the Board. J. Use of Estimates: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -15- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 2. CASH AND INVESTMENTS: Equity in Cash and Investment Pool of the City of Costa Mesa The Authority does not have a separate bank account; however, the Authority's cash and investments are maintained in an investment pool managed by the City. The Authority is a voluntary participant in that pool. This pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City. The Authority has not adopted an investment policy separate from that of the City. The fair value of the Authority's investment in this pool is reported in the accompanying financial statements at amounts based upon the Authority's pro -rata share of the fair value calculated by the City for the entire City portfolio. The balance available for withdrawal is based on the accounting records maintained by the City, which are recorded on an original cost basis. At June 30, 2015, the Authority had a cash balance of $930,738. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment is, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow. Information about the Authority's exposure to interest rate risk as a result of its equity in the cash and investment pool of the City is provided by disclosures in the notes to the basic financial statements of the City that shows the distribution of the City's investments by maturity. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Minimum ratings required by (where applicable) the California Government Code and the City's Investment Policy and the actual ratings as of year-end for each investment type are provided by disclosures in the notes to the basic financial statements of the City. SG' COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 2. CASH AND INVESTMENTS (CONTINUED): Concentration of Credit Risk Investments in any one issuer (other than U.S. Treasury securities, mutual funds and investment pools) that represent 5% or more of total investments for the entire entity (or for each separate major fund or for other governmental funds in the aggregate) are disclosed in the notes to the basic financial statements of the City. Custodial Credit Risk The Authority does not have any significant certificates of deposit or demand accounts that are subject to custodial credit risk disclosure (as defined by GASB Statement No. 40). The Authority does not have direct investments in securities subject to custodial credit risk disclosure (as defined by GASB Statement No. 40). 3. LOANS RECEIVABLE: Amount The first-time homebuyer program provides loans to first-time homebuyers for purchases of homes in the City of Costa Mesa. For loans made before 2007, loan repayments were deferred for 10 years and for loans made in 2007 and after, repayments of the loan are deferred for 30 years. $ 3,478,761 The single-family rehabilitation loan program provides loans to homeowners to make home improvements and repair code violations. There were 3 loans made under this program in 2009. The loans do not pay interest and are not due until the property is sold. 142,500 Loan receivable to a developer to construct a 36 -unit senior -rental project for low-income residents. The loan repayment is deferred until 2062 and no interest is to be paid on the loan. The Authority is to receive residual receipts if the project has net profits on an annual basis, until 2062. 543,617 The rental rehabilitation program is for deferred loans to owners of multi -family properties to make improvements and repair code violations. There are 3 remaining loans under this program and repayment is deferred until sale, transfer or default. Interest of 4 percent is due on these loans. 130,683 There are 5 loans made to underwrite land to a developer to build 5 single-family homes to be maintained in perpetuity for affordable housing. The Authority maintains enforceable covenants on the property. The loans are to be repaid only upon default of affordable housing covenants. 681,283 -17- COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 3. LOANS RECEIVABLE (CONTINUED): Amount There are two loans made to eligible homebuyers under the Federal Neighborhood Stabilization Program (NSP) administered by the State of California. The NSP program consists of acquisition, rehabilitation, and subsequent sale of foreclosed homes. Borrowers met income and affordability qualifications set by the HUD HOME Program and California Community Redevelopment law. $ 181,250 Subtotal 5,158,094 Allowance for doubtful accounts (1,531,000) Total 3,627,094 4. CONTINGENCIES: In the dissolution process, the DOF disallowed a loan in the amount of $9,278,545 from the City's General Fund to the former Redevelopment Agency as an enforceable obligation. The DOF's Finding of Completion on May 24, 2013 allowed the placement of these loan agreements on the recognized obligation payment schedule (the "ROPS"), provided the oversight board made a finding that the loan was for legitimate redevelopment purposes pursuant to Health and Safety Code section 34191.4. On October 9, 2013, the City filed a lawsuit in the Sacramento Superior Court, Case No. 34-2013-80001675, against the DOF and the Orange County Auditor -Controller. The lawsuit sought, among other relief, orders requiring the DOF to approve annual loan repayments to the City on future ROPS submitted by the Successor Agency and requiring the Orange County Auditor -Controller to refund the $2,492,747 payment the City made on May 1, 2013. Based on the uncertainty of DOF reinstatement of the loan, the City wrote off the outstanding balance of the loan in the fiscal year 2012-13. At this time, the status of the lawsuit is still active. On April 17, 2014, the Oversight Board approved the finding that the loan was for legitimate redevelopment purposes pursuant to Health and Safety Code Section 34191.4. On May 6, 2014, the DOF sent a letter affirming the Oversight Board's decision that the loan was for legitimate redevelopment purpose and reestablishing the loan under certain Amended and Restated Agreement. Subsequent to the write-off of the loan, the City has adjusted the loan for principal additions, interest additions and principal received after the loan was recognized as an enforceable obligation. At June 30, 2015, the loan balance is estimated to be $9,252,576. The Housing Authority is entitled to receive 20% of this amount which is $1,850,515. The loan balance continues to be excluded from the fiscal year 2014-15 financial statements as certain assurances from the DOF need to occur before the City will formally reinstate the loan. COSTA MESA HOUSING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) For the year ended June 30, 2015 5. SPECIAL ITEM: During the year the City seized possession of properties associated with loans receivable from the developer related to an 8 -unit multi -family rental project in the amount of $675,522. Based on the seizure the City wrote -off the balance of the note receivable. 6. SUBSEQUENT EVENTS: In preparing these financial statements, the Authority has evaluated events and transactions for potential recognition or disclosure through December 15, 2015, the date the financial statements were available to be issued. -19- INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERNMENTA UDITING STANDARDS The Board of Directors Costa Mesa Housing Authority Costa Mesa, California We have audited, in accordance with the 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, financial statements of the governmental activities and the major fund of the Costa Mesa Housing Authority (the Authority), as of and for the year ended June 30, 2015, and the related notes to the basic financial statements, which collectively comprise of the Authority's basic financial statements, and have issued our report thereon dated December 15, 2015. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of Authority's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Authority's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -20- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 15, 2015 -21-