HomeMy WebLinkAbout16 - NB-4 - Receive and File Audited Financial State - 1/19/20211
CITY COUNCIL AND COSTA MESA
FINANCING AUTHORITY AGENDA
REPORT
MEETING DATE: JANUARY 19, 2021 ITEM NUMBER: NB-4
SUBJECT: RECEIVE AND FILE THE COSTA MESA FINANCING AUTHORITY’S AUDITED
FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2020
DATE: JANUARY 7, 2021
FROM: FINANCE DEPARTMENT
PRESENTATION BY: JENNIFER KING, CPA, ASSISTANT FINANCE DIRECTOR
FOR FURTHER INFORMATION CONTACT: JENNIFER KING, CPA, ASSISTANT FINANCE
DIRECTOR, (714) 754-5219
RECOMMENDATION:
Staff recommends that 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, 2020 (Attachment 1).
BACKGROUND:
The Costa Mesa Financing Authority was created by a joint powers agreement between
the City of Costa Mesa and the Costa Mesa Housing Authority, dated August 1, 2017. It
was created pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of
Division 7 of Title 1 of the Government Code of the State of California to provide financing
for capital improvements, acquisition of capital improvements, and the purchase of local
obligations.
Following the close of each fiscal year, the City retains an independent public accounting
firm of licensed certified public accountants to complete an audit of the City’s financial
records, including the Costa Mesa Financing Authority. The goal of the audit is to provide
a reasonable assurance from an independent source that the information presented in
the financial statements is reliable and free of material misstatement. The City retained
Davis Farr, LLP to complete the audit for the fiscal year ended June 30, 2020.
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DISCUSSION:
The Financing Authority received an unmodified opinion from Davis Farr 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 2019-20, 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, Neighborhood Community Center and Lions
Park projects; and to advance refund the 2007 Certificates of Participation. At June 30,
2020, the 2017 bonds outstanding principal was $26.5 million.
ALTERNATIVES CONSIDERED:
The City Council and Financing Authority may choose to reject all or part of the report as
presented. The report is for receive and file purposes.
FISCAL REVIEW:
There is no fiscal impact associated with receiving and filing the report.
LEGAL REVIEW:
The City Attorney’s Office has reviewed and approved this report as to form.
CITY COUNCIL GOALS & PRIORITIES:
This item is in accordance with City Council Goals and Priorities No. 3 – Keep the City
Fiscally Sustainable. To address our long-term obligations as well as immediate needs
CONCLUSION:
Staff recommends that the City Council receive and file the Costa Mesa Financing
Authority’s audited financial statements for the fiscal year ended June 30, 2020.
CAROL MOLINA JENNIFER KING, CPA
Finance Director Assistant Finance Director
KIMBERLY HALL BARLOW
City Attorney
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ATTACHMENT: 1. Costa Mesa Financing Authority Financial Statements
COSTA MESA
FINANCING AUTHORITY
(A Component Unit of the
City of Costa Mesa)
Financial Statements
Year Ended June 30, 2020
COSTA MESA FINANCING AUTHORITY
Table of Contents
Year Ended June 30, 2020
Page
Number
Independent Auditor’s Report 1 - 2
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 Balances - Governmental Fund 7
Reconciliation of the Governmental Fund Statement of
Revenues, Expenditures and Changes in Fund Balances
to the Statement of Activities 8
Notes to the Basic Financial Statements 9 - 17
Independent Auditor’s 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 18 -19
1
INDEPENDENT AUDITOR’S REPORT
Board of Directors
Costa Mesa Financing Authority
Costa Mesa, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities and each
major fund of the Costa Mesa Financing Authority (the Authority), (a component unit of the City of
Costa Mesa, California) as of and for the year ended June 30, 2020, 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.
Auditor’s 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. 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 auditor’s 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 entity’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 entity’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.
2
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 each major fund of the
Authority as of June 30, 2020, 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 1A, the basic 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 accordance with accounting principles generally accepted in the United States of
America.
Report on Summarized Comparative Information
We have previously audited the financial statements of the Authority for the year ended June 30,
2019 and we expressed an unmodified opinion on those audited financial statements in our report
dated December 13, 2019. In our opinion, the summarized comparative information presented
herein as of and for the year ended June 30, 2019 is consistent, in all material respects, with the
audited financial statements from which it has been derived.
Other Matters
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 opinions on the basic financial
statements are 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
21, 2020, 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.
Irvine, California
December 21, 2020
2020 2019
ASSETS:
Cash and investments with fiscal agent (Note 2)43$ 468$
Lease interest receivable 293,263 309,362
Leases receivable (Note 3)26,525,000 28,135,000
TOTAL ASSETS 26,818,306 28,444,830
LIABILITIES:
Interest payable 293,263 309,362
Noncurrent liabilities:
Due within one year (Note 3)1,822,767 1,757,767
Due in more than one year (Note 3)27,990,046 29,812,813
TOTAL LIABILITIES 30,106,076 31,879,942
NET POSITION:
Restricted for debt service 43 468
Unrestricted (3,287,813) (3,435,580)
TOTAL NET POSITION (3,287,770)$ (3,435,112)$
Governmental Activities
COSTA MESA FINANCING AUTHORITY
Statement of Net Position
June 30, 2020
(With comparative totals for June 30, 2019)
See accompanying notes to financial statements.
3
Charges Operating Capital
for Grants and Grants and
Expenses Services Contributions Contributions 2020 2019
Governmental Activities:
Interest on
Long-term debt 1,057,483$ -$ -$ -$ (1,057,483)$ (1,105,685)$
Total governmental
activities 1,057,483$ -$ -$ -$ (1,057,483) (1,105,685)
General revenues:
Investment income 1,204,825 1,205,810
Total general revenues 1,204,825 1,205,810
Changes in net position 147,342 100,125
NET POSITION AT
BEGINNING OF YEAR (3,435,112) (3,535,237)
NET POSITION AT END OF YEAR (3,287,770)$ (3,435,112)$
Program Revenues
Functions/Programs
Net (Expenses) Revenues
and Changes in Net Position
Governmental Activities
COSTA MESA FINANCING AUTHORITY
Statement of Activities
Year ended June 30, 2020
(With comparative totals for the year ended June 30, 2019)
See accompanying notes to financial statements.
4
2020 2019
ASSETS:
Cash and investments with fiscal agent 43$ 468$
Leases receivable 26,525,000 28,135,000
TOTAL ASSETS 26,525,043$ 28,135,468$
DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE:
DEFERRED INFLOWS OF RESOURCES:
Unavailable lease revenue 26,525,000$ 28,135,000$
TOTAL DEFFERED INFLOW OF RESOURCES 26,525,000 28,135,000
FUND BALANCE:
Restricted for debt service 43 468
TOTAL FUND BALANCE 43 468
TOTAL DEFERRED INFLOWS OF RESOURCES
AND FUND BALANCE 26,525,043$ 28,135,468$
Government Fund
Total
COSTA MESA FINANCING AUTHORITY
Balance Sheet
Governmental Fund
June 30, 2020
(With comparative totals for June 30, 2019)
See accompanying notes to financial statements.
5
Fund balances for governmental fund 43$
Amounts reported for governmental activities in the Statement of Net
Position are different because:
Accrued interest receivable for the current portion of interest due on
lease payments has not been reported in the governmental funds.
Interest receivable 293,263
Long-term liabilities applicable to the Authority's governmental activities are not
due and payable in the current period and, accordingly, are not reported as
governmental fund liabilities. All liabilities (both current and long-term) are
reported in the Statement of Net Position.
Revenue bonds (26,525,000)
Premium on bonds (3,287,813)
Accrued interest payable for the current portion of interest due on long-term
debt has not been reported in the governmental funds.
Interest payable - revenue bonds (293,263)
Revenues relating to leases receivable are measurable but not available and,
accordingly, are recorded as unavailable revenue in the governmental funds
under the modified accrual basis of accounting.26,525,000
Net position of governmental activities (3,287,770)$
COSTA MESA FINANCING AUTHORITY
Reconciliation of the Governmental Fund Balance Sheet
to the Statement of Net Position
June 30, 2020
See accompanying notes to financial statements.
6
2020 2019
REVENUES:
Other interest 1,338$ 1,547$
Lease payments 2,813,487 2,804,263
TOTAL REVENUES 2,814,825 2,805,810
EXPENDITURES:
Debt service:
Principal 1,610,000 1,600,000
Interest 1,205,250 1,253,450
TOTAL EXPENDITURES 2,815,250 2,853,450
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (425) (47,640)
NET CHANGE IN FUND BALANCE (425) (47,640)
FUND BALANCE AT BEGINNING OF YEAR 468 48,108
FUND BALANCE AT END OF YEAR 43$ 468$
Total
Governmental Fund
COSTA MESA FINANCING AUTHORITY
Statement of Revenues, Expenditures and Changes in Fund Balances
Governmental Fund
Year ended June 30, 2020
(With comparative totals for the year ended June 30, 2019)
See accompanying notes to financial statements.
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Net change in fund balances - total governmental fund (425)$
Amounts reported for governmental activities in the Statement of Activities are
different because:
The Statement of Net Position includes accrued interest on leases receivable.
The net change in accrued interest for the current period is reported on the
Statement of Activities.293,263
Repayment of long-term principal is an expenditures in the governmental
and, thus, has the effect of reducing the fund balances because current
funds resources have been used. For the Authority as a whole, however,
the principal financial payments reduce the liabilities in the Statement of
Net Position and do not result in an expense in the Statement of Activities.
Debt service principal 1,610,000
Amortization of bond premium 147,767
The Statement of Net Position includes accrued interest on long-term
debt. The net change in accrued interest for the current period is reported
on the Statement of Activities.(293,263)
Revenues relating to leases receivable that do not meet the "availability"
criteria for revenue recognition and therefore are not reported
as revenue in the funds.(1,610,000)
Change in net position of governmental activities 147,342$
COSTA MESA FINANCING AUTHORITY
Reconciliation of the Governmental Fund Statement of
Revenues, Expenditures and Changes in Fund Balances
to the Statement of Activities
Year ended June 30, 2020
See accompanying notes to financial statements.
8
9
COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
Year Ended June 30, 2020
1. Reporting Entity and Summary of Significant Accounting Policies
A. Description of the Reporting Entity:
The Costa Mesa Financing Authority (the Authority) was created by a joint powers agreement
between the City of Costa Mesa (the City) and the Costa Mesa Housing Authority (the Housing
Authority), dated August 1, 2017. It was created pursuant to Article 1 (commencing with
Section 6500) of Chapter 5 of Division 7 of Title of the Government Code of the State of
California (the “JPA Act”).
The Authority is an integral part of the reporting entity of the City. The financial activity of
the Authority has been included within the scope of the basic financial statements of the City
because the City Council of the City of Costa Mesa is the governing board over the
operations of the Authority. Only the financial activity 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. 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 display information about the reporting government
as a whole, except for its fiduciary activities. These statements include separate columns for
the governmental and business-type activities of the primary government (including its
blended component units), as well as its discretely presented component units. The Authority
has no business-type activities or discretely presented component units.
Government-wide financial statements are presented using the economic resources
measurement focus and the accrual basis of accounting. Measurement focus indicates the
type of resources being measured. 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 exchange and exchange-like transactions are
recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and
liabilities resulting from nonexchange transactions are recognized in accordance with the
requirements of Governmental Accounting Standards Board (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.
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
1. Reporting Entity and Summary of Significant Accounting Policies (Continued):
Amounts paid to acquire capital assets are capitalized as assets in the government-wide
financial statements, rather than reported as expenditures. Proceeds of long-term debt are
recorded as liabilities in the government-wide financial statements, rather than as other
financing sources. Amounts paid to reduce long-term indebtedness of the reporting
government are reported as reductions of the related liabilities, rather than as expenditures.
When both restricted and unrestricted resources are combined, expenses are considered to
be paid first from restricted resources, and then from unrestricted resources.
Fund Financial Statements
The underlying accounting system of the Authority is organized and operated on the basis of
separate funds, each of which is considered to be a separate accounting entity. The
operations of each fund are accounted for with a separate set of self-balancing accounts that
comprise its assets, liabilities, deferred inflows of resources, fund equity, revenues and
expenditures or expenses, as appropriate. Governmental resources are allocated to and
accounted for in individual funds based upon the purposes for which they are to be spent
and the means by which spending activities are controlled.
Fund financial statements for the primary government’s governmental funds are presented
after the government-wide financial statements. These statements display information about
major funds individually and other governmental funds in the aggregate for governmental
funds. Fiduciary statements include financial information for fiduciary funds and similar
component units. Fiduciary funds primarily represent assets held by the Authority in a
custodial capacity for other individuals or organizations. The Authority has no fiduciary funds.
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 uses a sixty-day availability period.
Unavailable revenues are reported as deferred inflows of resources in the governmental
funds.
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.
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
1. Reporting Entity and Summary of Significant Accounting Policies (Continued):
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.
Noncurrent portions of long-term receivables due to governmental funds are reported on
the balance sheets 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 available fund balance. Recognition of
governmental fund type revenues represented by noncurrent receivables are reported as
unavailable revenues. Noncurrent portions of other long-term receivables are offset by
deferred inflows of resources - unavailable revenue.
Because of the spending measurement focus, expenditure recognition for governmental fund
types excludes amounts represented by noncurrent liabilities. Since they do not affect
net current assets, such long-term amounts are not recognized as governmental fund type
expenditures or fund liabilities.
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 debt are
recorded as an other financing sources rather than as fund liabilities. Amounts paid to reduce
long-term indebtedness are reported as fund expenditures.
C. Activities in Major Fund:
The following debt service fund is presented as a major fund in the accompanying basic
financial statements:
2017 Lease Revenue Bonds Fund - To account for the accumulation of resources for the
payments of debt service for lease revenue bond principal and interest relating to the 2017
Lease Revenue Bonds.
D. Cash and Investments:
Investments are reported in the accompanying financial statements at fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. 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.
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
1. Reporting Entity and Summary of Significant Accounting Policies (Continued):
E. Net Position:
Net position of the Authority is 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 is the remaining balance of net position.
F. Deferred Outflow/Inflows of Resources:
In addition to assets, the statement of net position and the governmental funds balance
sheet will sometimes report a separate section for deferred outflows of resources. This
separate financial statement element, deferred outflows 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. The Authority does not have any
applicable deferred outflows of resources.
In addition to liabilities, the statement of net position and the governmental funds 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 lease
revenue as deferred inflows of resources in the governmental funds.
G. Budgetary Reporting:
Formal budgetary integration is not employed for the Authority because effective control is
alternatively achieved through the debt indenture provisions.
H. Fund Equity:
The fund balances are reported in the fund statements in the following classification:
Restricted Fund Balance - this includes amounts that can be spent only for specific purposes
stipulated by constitution, external resource providers, or through enabling legislation. If the
Board action limiting the use of funds is included in the same action (legislation) that created
(enables) the funding source, then it is restricted.
I. Long Term Obligations:
In the government-wide financial statements, long term debt and other long term obligations
are reported as liabilities in the statement of net position. Bond premiums and discounts, as
well as prepaid insurance costs related to bond issuance costs, are deferred and amortized
over the life of the bonds. Bonds payable are reported net of the applicable bond premium
or discount.
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
1. Reporting Entity and Summary of Significant Accounting Policies (Continued):
J. Use of Estimates:
The preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
K. Fair Value Measurements:
Certain assets and liabilities are required to be reported at fair value. The fair value
framework provides a hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are
described as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical
assets or liabilities in active markets.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly and fair value is determined through the use of
models or other valuation methodologies including:
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in markets that are inactive;
Inputs other than quoted prices that are observable for the asset or liability;
Inputs that are derived principally from or corroborated by observable market data by
correlation or other means.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair
value measurement. These unobservable inputs reflect the Authority’s own assumptions
about the inputs market participants would use in pricing the asset or liability (including
assumptions about risk). These unobservable inputs are developed based on the best
information available in the circumstances and may include the Authority’s own data.
L. Prior Year Data:
Selected information regarding the prior year has been included in the accompanying
financial statements. This information has been included for comparison purposes only and
does not represent a complete presentation in accordance with accounting principles
generally accepted in the United States of America. Accordingly, such information should be
read in conjunction with the Authority’s prior year financial statements, from which this
selected financial data was derived. In addition, certain minor reclassifications of the prior
year data have been made to enhance their comparability to the current year.
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
2. Cash and Investments:
Cash and investments at June 30, 2020 are classified in the accompanying Statement of
Net Position as follows:
Cash and investments with fiscal agent $ 43
Total Cash and Investments $ 43
Cash and investments held at June 30, 2020 consisted of the following:
Investments:
Money market mutual funds $ 43
Total Cash and Investments $ 43
Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustee are governed by provisions of the debt
agreements, rather than the general provisions of the California Government code or the City’s
investment policy. The table on the following page identifies the investment types that are
generally authorized for investments held by bond trustee. The table also identifies certain
provisions of these debt agreements that address interest rate risk, credit risk, and concentration
of credit risk.
Maximum Maximum
Maximum Percentage Investment
Authorized Investments Maturity Allowed in One Issuer
United States Treasury Securities None None None
Federal Agency Securities 1 year None None
Banker’s Acceptances 1 year 30%
None
None
Commercial Paper None 25% None
Money Market Mutual Funds None None None
Investment Agreements None None None
Interest-Bearing Time Deposits None None None
Repurchase Agreements None None None
Local Agency Investment Fund None None None
State Obligations None None None
Pre-refunded Municipal Obligations None None None
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
2. Cash and Investments (Continued):
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, the greater the
sensitivity of its fair value to changes in market interest rates. One of the ways that the Authority
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 and liquidity needed for operations.
Information about the sensitivity of the fair values of the Authority’s investments (including
investments held by bond trustee) to market interest rate fluctuations is provided by the
following table that shows the distribution of the Authority’s investments by maturity:
Remaining Maturity (in Months)
12 Months 13 Months
Investment Type or Less or More Total
Money market mutual funds $ 43 $ - $ 43
Total $ 43 $ - $ 43
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. Presented below is the minimum rating required by
(where applicable) the California Government Code, the City’s investment policy, or debt
agreements, and the Standard & Poor’s actual rating as of year end for each investment type:
Minimum Legal Rating
Investment Type Rating Total AAA
Money market mutual funds AAA $ 43 $ 43
Total $ 43 $ 43
Concentration of Credit Risk
The investment policy of the City contains no limitations on the amount that can be invested in
anyone issuer beyond that stipulated by the California Government Code. No investments in
anyone issuer (other than mutual funds and external investment pools) represent 5% or more
of total investments by reporting unit (governmental activities or major fund).
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COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
2. Cash and Investments (Continued):
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository
financial institution, a government will not be able to recover its deposits or will not be able to
recover collateral securities that are in the possession of an outside party. The custodial credit
risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-
dealer) to a transaction, a government will not be able to recover the value of its investment or
collateral securities that are in the possession of another party. The California Government Code
and the City’s investment policy do not contain legal or policy requirements that would limit
the exposure to custodial credit risk for deposits or investments, other than the following
provision for deposits: The California Government Code requires that a financial institution
secure deposits made by the state or local governmental units by pledging securities in an
undivided collateral pool held by a depository regulated under state law (unless so waived by
the governmental unit). The market value of the pledged securities in the collateral pool must
equal at least 110% of the total amount deposited by the public agencies. California law also
allows financial institutions to secure Authority deposits by pledging first trust deed mortgage
notes having a value of 150% of the secured public deposits.
3. Long-Term Liabilities:
The following is a summary of changes in long-term liabilities of the Authority for the year
ended June 30, 2020:
2017 Lease Revenue Bonds:
On October 1, 2017, the Authority issued $29,735,000 in 2017 Lease Revenue Bonds to finance
certain capital improvements of the City of Costa Mesa and to advance refund $16,765,000 of
outstanding Costa Mesa Public Financing Authority 2007 Certificates of Participation (2007
Certificates). The bond issue also included a bond premium of $3,694,172. The bonds mature
from October 1, 2018 through October 1, 2042 in annual installments ranging from $570,000
to $2,220,000. Interest is payable semi-annually on April 1 and October 1 of each year,
commencing on April 1, 2018 at a rate ranging from 2.0% to 5.0%. As of June 30, 2020, the
principal outstanding is $26,525,000 and the unamortized bond premium balance is $3,287,813.
Amount Amount Due
Balance at Balance at Due Within Beyond
July 1, 2019 Additions Reductions June 30, 2020 One Year One Year
2017 Lease Revenue
Bonds 28,135,000$ -$ (1,610,000)$ 26,525,000$ 1,675,000$ 24,850,000$
2017 Bond Premium 3,435,580 - (147,767) 3,287,813 147,767 3,140,046
2017 Lease Revenue
Bonds 31,570,580$ -$ (1,757,767)$ 29,812,813$ 1,822,767$ 27,990,046$
17
COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)
3. Long-Term Liabilities (Continued):
The lease agreement requires the City to make lease payments to the Authority on each April 1
and October 1 preceding the debt service payment date, commencing April 1, 2018. Lease
payments are paid by the City directly to the Trustee.
The Authority’s source of payment on the certificates will be from lease payments received
from its lease with the City. This lease receivable has been recorded on the balance sheet of the
related debt service fund. Unavailable revenue has been recorded in an equal amount in the
fund financial statements because this lease revenue, although measurable, is not considered
available to finance expenditures of the fiscal year reported upon. Lease revenues are pledged
toward payment of these bonds. The amount of anticipated future lease payments is equal to the
amount of future principal and interest installments due on the debt.
Future debt requirements for the 2017 Lease Revenue Bonds are as follows:
Year Ending
June 30 Principal Interest Total
2021 1,675,000$ 1,139,550$ 2,814,550$
2022 1,740,000 1,062,550 2,802,550
2023 1,830,000 973,300 2,803,300
2024 1,920,000 879,550 2,799,550
2025 2,015,000 781,175 2,796,175
2026-2030 6,135,000 2,657,625 8,792,625
2031-2035 3,660,000 1,680,250 5,340,250
2036-2040 4,495,000 865,093 5,360,093
2041-2043 3,055,000 151,044 3,206,044
Total 26,525,000$ 10,190,137$ 36,715,137$
18
INDEPENDENT AUDITOR’S 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
Board of Directors
Costa Mesa Financing 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 Financing Authority (the Authority),
as of and for the year ended June 30, 2020, 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 21, 2020.
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 entity’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.
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
19
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 21, 2020
FY 2019-20
FINANCING AUTHORITY
FINANCIAL STATEMENTS
AND
OPERATING RESULTS
January 19, 2021
OVERVIEW
• Financing Authority description
• Operating results
1
FINANCING AUTHORITY
• Separate legal entity formed in 2017 by a joint powers agreement between
the City and the Housing Authority
• Holds the 2017 Lease Revenue Bonds which provided partial funding for the
Lyons Park Project
• Financial activity consists of lease revenues collected from the City and debt
service payments on the bonds
2
FISCAL YEAR 2019-20
FINANCING AUTHORITY OPERATING RESULTS
3
FY 19-20
Actual
Beginning Fund Balance, July 1 468$
Total Revenues 2,814,825
Less: Debt Service Payments 2,815,250
Operating Results (425)$
Ending Fund Balance, June 30 43$