HomeMy WebLinkAboutNB-2 - 25-623 - Annual Finance Report Ending 06/30/2025 - 3/17/2026CITY OF COSTA MESA
Agenda Report
77 Fair Drive
Costa Mesa, CA 92626
File #:25-623 Meeting Date:3/17/2026
TITLE:
CITY OF COSTA MESA,COSTA MESA FINANCE AUTHORITY,AND COSTA MESA HOUSING
AUTHORITY AUDITED FINANCIAL STATEMENTS,AND HOUSING SUCCESSOR ANNUAL
REPORT FOR THE PERIOD ENDING JUNE 30, 2025
DEPARTMENT:FINANCE DEPARTMENT
PRESENTED BY:ANNA ACOSTA, FINANCE MANAGER
CONTACT INFORMATION:ANNA ACOSTA, FINANCE MANAGER, (714) 754-3985
RECOMMENDATION:
1.Staff recommends the City Council receive and file the following reports for the fiscal year ended
June 30, 2025:
a.Annual Comprehensive Financial Report (ACFR) (Attachment 1).
b.Air Quality Improvement Fund Compliance Report (Attachment 2).
c.Audit Communication Letter (Attachment 3).
d.Independent Accountant's Report on Agreed-Upon Procedures Applied to Appropriation
Limit Worksheets (Attachment 4).
2.Staff recommends the City Council and Costa Mesa Financing Authority receive and file the
Costa Mesa Financing Authority audited financial statements for the fiscal year ended June 30,
2025 (Attachment 5).
3.Staff recommends the City Council and Housing Authority receive and file the following reports
for the fiscal year ended June 30, 2025:
a.Independent Financial Audit of the Costa Mesa Housing Authority,including the Low and
Moderate-Income Housing Asset Fund (Attachment 6); and
b.The Fiscal Year 2024-25 Housing Successor Annual Report prepared under the California
Health and Safety Code section 34176.1 as the housing successor and section 34328 as
a housing authority (Attachment 7).
BACKGROUND:
Federal Single Audit guidelines require a recipient of federal funds to have an independent annual
financial audit and compliance audit of the federal programs.As such,the City has retained an
independent public accounting firm of licensed certified public accountants,CliftonLarsonAllen (CLA),
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LLP, to complete an audit of the City’s financial records.
The goal of the financial statement audit is to provide users with reasonable assurance from an
independent source that the information presented in the financial statements is reliable and free of
material misstatements.All the financial reports received unmodified opinions from CliftonLarsonAllen
LLP signifying that,without exception,the financial statements present in all material respects the
financial position of the City.
ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
The ACFR is an audited summary report of the financial transactions of the City for Fiscal Year 2024-
25 ending on June 30,2025.The report is presented to the City Council and designed to provide
summary financial information.
The financial statements were prepared in conformity with generally accepted accounting principles
(GAAP)as set by the Governmental Accounting Standards Board (GASB).The specific financial
documents on which the auditor expresses an opinion include (1)the financial statements,and (2)
notes to the basic financial statements,which include required supplementary information.These
documents,along with the auditor’s opinion letter and management’s discussion and analysis,form
the core of the ACFR.The additional documents within the ACFR include:the letter of transmittal
from the City Manager and Finance Director,the combining and individual fund statements,and a
supplemental statistical section presenting detailed information to assist the reader in assessing the
economic condition of the City.
The City’s audit was performed in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in the
Government Auditing Standards,issued by the Comptroller General of the United States.Such audits
utilize sampling of data,inquiries of staff and management,testing of procedures and transactions,
confirmation with outside parties,checking of certain internal files and documents,review of meeting
minutes,specialized audit checklists,and other accounting techniques.The auditors considered the
City’s internal controls in determining what procedures to use and the size of samples to be selected
and reviewed.In their report,the auditors indicated the financial statements were free of material
misstatements and all significant transactions were recognized in the proper period.
AIR QUALITY IMPROVEMENT FUND COMPLIANCE REPORT
Assembly Bill 2766 (AB 2766)authorized the South Coast Air Quality Management District
(SCAQMD)to impose an annual vehicle registration fee and to distribute a portion of the revenue to
all local jurisdictions within the South Coast Air Basin.These revenues are to be used solely to
reduce air pollution from motor vehicles by implementing new programs and studies necessary for
the implementation of the California Clean Air Act.The City’s Air Quality Improvement Fund accounts
for the use of these funds received from CSAQMD.The Air Quality Improvement Fund Compliance
Report received an unmodified (clean) audit opinion.
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AUDIT COMMUNICATION LETTER
Audit clarity standards (AU-C)Section 260 requires defined and documented communication
between the auditors and the City Council or Audit Committee.This letter provides an opportunity for
the auditors to report on any difficulties or major concerns discovered during the audit and explain
their role.They provide commentary on management's responsibilities for accounting policies,and
they state that no significant difficulties were encountered in performing the audit,and no
disagreements occurred with management.
INDEPENDENT ACCOUNTANT’S REPORT ON AGREED UPON PROCEDURES APPLIED TO
APPROPRIATION LIMIT WORKSHEETS
Section 1.5 of Article XIIIB of the California Constitution requires that the City follow the procedures
agreed upon by the State of California and the League of California Cities (as presented in the
League publication entitled “Article XIIIB Appropriations Limitation Uniform Guidelines”)to determine
the annual appropriations limit (known as the Gann Limit),which sets forth the maximum amount of
special tax revenues an agency is allowed to spend.The auditors perform an “Agreed-Upon
Procedure”whereby they recalculate the Gann Limit.They determined that the city has correctly
calculated the Gann Limit.
COSTA MESA HOUSING AUTHORITY FINANCIAL STATEMENTS
On January 17,2012,under the California Housing Authorities Law (HAL),Health and Safety Code
(HSC)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 v.Matosantos,Assembly Bill
1484,and other subsequent dissolution legislation (together,“Dissolution Law”),which laws regulate
the administration of successor agencies and housing successors due to the dissolution of all
California redevelopment agencies.Further,under section 34328 of the HAL,the Housing Authority
also prepares and presents an annual report on its activities for the preceding year.
Under 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 confirmed the Housing Authority holds all
affordable housing assets of the Former Agency as listed in a Housing Asset Transfer schedule
prepared by the Housing Authority and submitted to the DOF prior to August 1, 2012.
Since dissolution,all housing assets are held and administered by the Housing Authority in the Low
to Moderate Income Housing Asset Fund (LMIHAF)under the Dissolution Law,as per sections 34176
and 34176.1.Under section 34176.1(f),the Housing Successor is required to conduct an
independent financial audit of LMIHAF and prepare an annual report for each fiscal year and provide
such reports to the governing body.
From its inception,the Housing Authority’s primary function had been to serve as the Housing
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From its inception,the Housing Authority’s primary function had been to serve as the Housing
Successor to the former Agency.Beginning in Fiscal Year (FY)2018-19,the Housing Authority
expanded services beyond the scope of LMIHAF by consolidating the City’s existing Homeless
Outreach Program and establishing a new Bridge Shelter operation for individuals experiencing
homelessness.
ANALYSIS:
Based on the results of their audit,CLA,LLP provided the City with an unmodified opinion on the
financial statements,which indicates that the City’s financial statements are free of material
misstatements and are in accordance with GAAP.This is the best and highest audit opinion the city
could receive.
GENERAL FUND FINANCIAL RESULTS
FY 2024-25 General Fund revenues (before transfers)totaled $191 million,an increase of $7.0
million over the prior fiscal year. Summary is as follows:
§Tax revenue increased by $5.8 million or 3.8 percent.Notable contributors to this increase
were sales tax by $1.8 million due to price increases on consumer products.Property tax
increased by $2.9 million as a result of a steady housing market and an increase in the City’s
single-family homes median sales price.Cannabis and Business tax revenues increased by
$1.2 million due to higher annual receipts of new Measure Q Cannabis businesses.
§Charges for services increased by $1.0 million or 10 percent.This includes a rise in paramedic
fees by $0.5 million,increase of permit fees by $0.3 million,as well as vehicle storage fees
and self-haul fees by $0.2 million.
§Transient occupancy tax decreased by $0.2 million or 1.9 percent due to a slight reduction in
travel and tourism.
General Fund expenditures (before transfers)totaled $180.5 million,approximately $2.8 million below
the budget.General Fund transfers out totaled $10.9 million and included $3.9 million to the Capital
Improvements Funds for capital improvement projects,$2.8 million to the Finance Authority Debt
Service Fund for bond service payments,$1.3 million to the Housing Authority for subsidy of
homeless program costs,and $2.9 million to the Internal Service Funds pursuant to Costa Mesa
Municipal Code section 2-209.4 1.5% transfer to information the City’s Information Technology needs.
GENERAL FUND - FUND BALANCE
The General Fund’s fund balance (i.e.,Reserve)increased by $0.5 million.General Fund
expenditures of $180.5 million,plus Transfers Out of $10.9 million,totaled $191.4 million,which was
an increase of $7.1 million compared to last fiscal year.This was offset by $190.9 million in General
Fund revenue, reflects an increase of $6.1 million compared to last fiscal year.
As of June 30,2025,the City has a total of $61.0 million in General Fund balances (reserves)as
follows:1)A total of $25.1 million committed for declared disasters,self-insurance,and economic
uncertainty;2)A total of $14.4 million assigned for compensated absences,the Police Retirement 1%
Supplemental Plan,workers compensation claims,a facilities reserve,strategic plan projects,prepaid
items,and inventory;3)An allocation of $2.1 million for the Section 115 Trust for post-retirement
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items,and inventory;3)An allocation of $2.1 million for the Section 115 Trust for post-retirement
benefits;and,4)$19.3 million in unassigned fund balance for a total of $61.0 million.This amount is
$6.0 million above the City Council’s adopted reserve policy of $55.0 million.
STATEMENT OF NET POSITION
Change in Net Position
On June 30,2025,the Statement of Net Position,which is in essence the city’s overall balance sheet
and reflects the City’s total assets and liabilities on an All-Funds basis,reflects a decrease of $1.4
million due to the change in the GASB 101 compensated absences reporting requirements.
Pensions and Retiree Medical Liabilities
The City’s net pension liability decreased by $11.4 million to $335.8 million primarily due to CalPERS’
rate of return earnings of 11.6%,an increase by 4.8%of the rate of return target of 6.8%.Three of the
City’s four pension plans are administered by CalPERS.The Police 1%Supplemental Plan is
administered by the city and is paid on a pay-as-you-go basis.
In addition,FY 2024-25 is the eighth year the City is required to record the Other Post Employment
Benefits (OPEB)net liability for retiree health care on its financial statements,similar to the pension
liability above.The City’s net OPEB liability decreased by $0.9 million to $46.4 million due to an
increase of mortality changes in the retired population.This plan is administered by the city and is
paid to retirees on a pay-as-you-go basis.
COSTA MESA FINANCING AUTHORITY FINANCIAL STATEMENTS
The Costa Mesa Financing Authority received an unmodified opinion from the auditors,CLA,LLP.
This is the highest and cleanest attestation report given by independent auditors.The reports that
deal with compliance information also received unmodified opinions and no findings were noted.
In Fiscal Year 2024-25,the Financing Authority continued to support debt service payments for the
2017 Lease Revenue Bonds,which were originally issued in October 2017 to fund the Donald
Dungan Library,Norma Hertzog Neighborhood Community Center,and Lions Park projects;and to
advance the refund of the 2007 Certificates of Participation.On June 30,2025,the 2017 bonds
outstanding principal was $17.3 million.
COSTA MESA HOUSING AUTHORITY FINANCIAL STATEMENTS
An audit of the Housing Authority’s financial activities,consisting of the LMIHAF activities and
homeless assistance programs,was completed as part of the City’s overall financial audit by an
independent certified public accounting firm,CLA,LLP.The Housing Authority received an
unmodified opinion.This is the highest attestation report given by independent auditors.The reports
that deal with compliance information also received unmodified opinions with no findings.The audit
results are incorporated as part of the City’s Annual Comprehensive Financial Report (ACFR).The
section in the City’s audit/ACFR relating to the LMIHAF Audit is entitled:Costa Mesa Housing
Authority (A Component unit of the City of Costa Mesa)Financial Statements Year ended June 30,
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2025 (Attachment 6).
In FY 2024-25,the Housing Authority received approximately $4.3 million in revenues and incurred
$5.8 million in expenditures.Revenues and transfers of $4.37 million include City of Newport Beach
contribution of $1.34 million;$1.10 of Housing Authority revenues that includes loan repayments and
grants;$1.7 million subsidy to the Housing Authority for homeless program costs and rental
assistance program;$660.000 ARPA funding for Mercy House Rental Assistance Program,for
households facing Just Cause Evictions and for Homeless Outreach.On June 30,2025,the Housing
Authority’s available fund balance was $6.9 million,which is restricted and allocated primarily for
previously approved City Council priorities and projects.
ALTERNATIVES:
Not applicable. The reports are for receive and file purposes.
FISCAL REVIEW:
There is no fiscal impact associated with receiving and filing the audited financial statements and
reports.
LEGAL REVIEW:
The City Attorney’s Office has approved this report and approves it as to form.
CITY COUNCIL GOALS AND PRIORITIES:
This item supports the following City Council Goal:
·Achieve Long-Term Fiscal Sustainability
·Strengthen the Public’s Safety and Improve the Quality of Life
·Diversify, Stabilize and Increase Housing to Reflect Community Needs
·Maintain and Enhance the City’s Facilities, Technology and Equipment
CONCLUSION:
1.Staff recommends the City Council receive and file the following reports for the fiscal year ended
June 30, 2025:
a.Annual Comprehensive Financial Report (ACFR) (Attachment 1).
b.Air Quality Improvement Fund Compliance Report (Attachment 2).
c.Audit Communication Letter (Attachment 3).
d.Independent Accountant's Report on Agreed-Upon Procedures Applied to Appropriation
Limit Worksheets (Attachment 4).
2.Staff recommends the City Council and Costa Mesa Financing Authority receive and file the
Costa Mesa Financing Authority audited financial statements for the fiscal year ended June 30,
2025 (Attachment 5).
3.Staff recommends the City Council and Housing Authority receive and file the following report for
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3.Staff recommends the City Council and Housing Authority receive and file the following report for
the fiscal year ended June 30, 2025:
a.Independent Financial Audit of the Costa Mesa Housing Authority,including the Low and
Moderate-Income Housing Asset Fund (Attachment 6).
b.The Fiscal Year 2024-25 Housing Successor Annual Report prepared under the California
Health and Safety Code section 34176.1 as the housing successor and section 34328 as
a housing authority (Attachment 7).
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