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HomeMy WebLinkAbout- - CMRDA Financial Report Attachment 1 - 12/7/2010COSTA MESA REDEVELOPMENT AGENCY Basic Financial Statements and Supplemental Data Year ended June 30, 2010 (With Independent Auditors' Report Thereon) (This page intentionally left blank) COSTA MESA REDEVELOPMENT AGENCY Basic Financial Statements and Supplemental Data Year ended :lune 30, 2010 TABLE OF CONTENTS P, Independent Auditors' Report 1 Basic Financial Statements: Government -wide Financial Statements: Statement ofNetAssets 4 Statement of Activities 5 Fund Financial Statements: Governmental Funds: Balance Sheet S Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 9 Statement of Revenues, Expenditures and Changes in Fund. Balances 10 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 11 Notes to the Basic Financial Statements 13 Required Supplementary Iriformation: Schedule of Revenues, Expenditures and Changes in Fund Balances -- Budget and Actual: Low and Moderate Income Housing Special Revenue Fund 33 Notes to the Required Supplementary Information 34 COSTA MESA REDEVELOPMENT AGENCY Basic Financial Statements and Supplemental Data (Continued) TABLE OF CONTENTS, (CONTINUED) Paye Supplementary Schedules: Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual: Redevelopment Debt Service Fund 36 Redevelopment Projects Fund 37 Report on Compliance and Other Matters and on Internal Control Over Financial Reporting, Based on an Audit of Financial Statements Performed in Accordance with. Government Auditing Standards 39 Mayer Hoffirrian McCann PC, An Independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 94.9-4742020 ph 949-263-5520 fx www.rnhm-pc.com Board of Directors Costa Mesa Redevelopment Agency Costa Mesa, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the governmental activities and each major fund of the Costa Mesa Redevelopment Agency (the "Agency"), a component unit of the City of Costa Mesa, California, as of and for the year ended June 30, 2010, which collectively comprise the Agency's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the management of the Costa Mesa Redevelopment Agency. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial comparative information has been derived from the Agency's basic financial statements for the year ended June 30, 2009 and, in our report dated November 18, 2009, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of Aanerica 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the 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 Costa Mesa Redevelopment Agency as of June 30, 2010, and the respective changes in financial position of the Costa Mesa Redevelopment Agency for the year then ended in conformity with accounting principles generally accepted in the United States of An erica. The Agency has not presented management's discussion and analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not required to be part of, the basic financial statements. The inforn-iation identified in the accompanying table of contents as required supplementary information is not required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain hinited procedures, which ,consisted principally of the .required supplementary information. However, we did not audit the information and express no opinion on it. Board of Directors Costa Mesa Redevelopment Agency Costa Mesa, California Page Two Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Costa Mesa Redevelopment Agency's basic financial statements. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information has been subject to auditing procedures applied in. the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements as a whole. In accordance with Government Auditing Standards, we have also issued a report dated November 12, 201.0 on our consideration of the Agen.cy's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Irvine, California November 12, 2010 GOVERNMENT -WIDE FINANCIAL STATEMENTS COSTA MESA REDEVELOPMENT AGENCY Statement of Net Assets June 30, 2010 (With Comparative Data for Prior Year) Assets: Cash and investments (note 3) Cash and investments with fiscal agent (note 3) Due from other governments Due from the City of Costa Mesa Interest receivable (note 10) Loans receivable Rent receivable (note 10) Total assets Liabilities: Accounts payable Interest payable Due to City of Costa Mesa Long-term. liabilities: Portion due within one year: Advances from the City of Costa Mesa (notes 6 and 8) Bonds payable (motes 6 and 7) Portion due beyond one year: Advances from the City of Costa Mesa (notes 6 and 8) Bonds payable (notes 6 and 7) Total liabilities Net assets: Restricted for: Low and moderate income housing Unrestricted Total net assets (deficit) Governmental Activities 201.0 2009 $ 4,282,743 704,300 29,341 15,000 1,272,426 5,166,428 1,102,904 12,573,142 1.5,304 47,463 147,141 447,698 510,000 10,434,213 4,140,000 15,741,819 7,705,334 (10,874,011) $ (3,168,677) See accompanying notes to the basic financial statements, 4 4,651,313 704,300 52,736 16,250 1,212,700 5,157,902 1.090.330 12,885,531 15,629 51,175 57,1.17 414,769 495,000 10,881,911 4,650,000 16,565,601 7,350,205 (11,030,275) (3,680,070) COSTA MESA REDEVELOPMENT AGENCY Statement of Activities Year ended June 30, 2010 Functions/Pro razxzs E�er�ses Governmental 118,001 activities: 186,294 Redevelopment $ 645,180 Love and moderate 2,497,282 income housing 556,827 Interest expense (3,680,070 on long-term debt 2,515,233 Total governmental (With Comparative Data for Prior Year) Program Revenues Operating Capital Charges for Contributions Contributions Net Governmental Activities Services and Grants and Grants 2010 2009 94,868 activities $3,717,240 94,868 - (550,312) (266,536) - - (556,827) (523,280) General revenues: Properly taxes Investment income Miscellaneous Total general revenues Change in net assets Net assets (deficit) at beginning of year Net assets (deficit) at end of year (2,515,233) (1,142,161) 31622,372 (1,931,977) 3,985,851 4,124,964 33,911 118,001 114,003 186,294 4,133,765 4,429,259 511.,393 2,497,282 (3,680,070 (6,1.77,352 $ 3,168,677) (3,680,070 See accompanying notes to the basic financial statements. 5 (Tris page intentionally left blank) FUND FINANCIAL STATEMENTS COSTA MESA REDEVELOPMENT AGENCY Govennnental Funds 52,736 Balance Sheet 16,250 June 30, 2010 1,212,700 (With Comparative Data for Prior Year) Special Debt Capital Revenue Service Projects Low and - 2,491,713 Moderate Redevelopment 7,512.779 Income Debt Redevelopment Housing Service Projects Assets Cash and investments Cash and investments with fiscal agent Due lroni other governments Due from City of Costa Mesa Interest receivable Loans receivable Rent recolvable Total assets Liabilities and Fund Balances Liabilities: Accounts payable Due to City of Costa Mesa Deferred revenue Total. liabilities Fund balances: Unreserved, aindesignated - reported im Special revenue fined Debt service fiend Capital projects fund Total fund balances Total liabilities and fund balances $2,592,255 - 704,300 5,868 23,473 - 15,000 3,974 2,464 5,166,428 - $7,76S,525 745,237 Totals 2010 2009 1,690,488 4,282,743 4,651,313 704,300 704,300 - 29,341. 52,736 - 15,000 16,250 1,265,988 1,272,426 1,212,700 - 5,166,428 5,157,902 1,102,904 1,102,904 1,090,330 4,059,380 12,573,142 12,885,531. S 9,786 - 5,518 15,304 15,629 53,405 - 93,736 147,141 57,117 5,166,428 - 2,392,459 7,558,887 7,440,033 5,229,619 - 2,491,713 7,721,332 7,512.779 2,538,906 - - 2,538,906 2,192,303 - 745,237 - 745,237 1,717,607 - - 1,567,667 1,567,667 1,462,842 2,538,906 745,237 1,567,667 4,851,810 5,372,752 7,768,525 745,237 4,059,380 12,573,142 12,885,531 See accompanying notes to the basic financial statements. 8 COSTA MESA. REDEVELOPMENT AGENCY Governmental funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 20 10 Fund balances (deficit) of governmental funds Amounts reported for governmental activities in the Statement of Net Assets are different because: Lon -Term. Debt Transactions Long-term liabilities applicable to the Agency's governmental activities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. All liabilities ('both current and long-term) are reported in the Statement of Net Assets: Advances from the City of Costa Mesa 2003 Tax Allocation Bonds Accrued Interest Accrued liabilities in the Statement of Net Assets differ from the amount reported ire governmental funds due to accrued interest on outstanding debt payable. Deferred Revenue Revenues relating to loans, interest and rents receivable are measurable but not available and, accordingly, are recorded as deferred revenue in the governmental funds under the modified accrual basis of accounting. Revenues are recognized when earned under the full accrual basis of accounting and, accordingly, deferred revenue has been eliminated from the Statement of Net Assets Net assets (deficit) of governmental activities See accompanying notes to the basic financial statements. 9 $ 4,851,810 (1.0,881,911) (4,650,000) (47,463) 7,558,887 $ 3,168,677) COSTA .MESA REDEVELOPMENT AGENCY Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year ended June 30, 2010 (With Comparative Data for Prior Year) Special Debt Capital Revenue Service Projects Revenues-. Tax increment Investment income Miscellaneous Rental Total revenues Expenditures: CUITent: Redevelopment Debt service: Principal Interest and fiscal charges ERAF Payment Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Transfers to City of Costa Mesa Transfers in (note 4) Transfers out (note 4) Total other financing sources (uses) Net change in fund balances Fluid balances at beginning of year Fund balances at end of year i -ow ana Moderate Redevelopment Income Debt Redevelopment Housing Service Projects Totals 2010 2009 797,170 3,188,681 - 3,985,851 4,1.24,964 15,785 10,560 7,566 33,911 118,001 99,003 15,000 - 114,003 186,315 - - 94,868 94,868 99,309 911,958 3,214,241 102,434 4.228,633 4,528,589 565,355 - 660,638 1,225,993 1,504,91.9 - 909,769 - 909,769 869,272 - 1,095,841 - 1,095,841 1,145,192 - 1,423,104 - 1,423,104 - 565,355 3,428,714 660,638 4,654.707 3,519,383 346,603 _(214,473) (558,204) (426,074) 7.,009,206 _ - - (94,868) (94,868) (99,309) - - 757,897 757,897 900,000 - (757,897) - 757,897) (900,000) - (757,897) 663,029 (94,868) (99,309) 346,603 (972,370) 104,825 (520,942) 909,897 2,192,303 1,717,607 1,462,842 5,372.752 4,462,855 2,538,906 745,237 1,567,667 4,851,810 5,372,752 See accompanying notes to the basic financial statements. 10 COSTA MESA REDEVELOPMENT AGENCY Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year ended June 30, 2010 Net changes in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: Lott -Terra Debt Transactions Repayment of long --term debt principal is an expenditure in governmental funds and, thus, has the effect of reducing fund balances because current financial resources have been used. for the Agency as a whole, however, the principal payments reduce the liabilitiesin the Statement of Net Assets and do not result in an expense in the Statement of Activities. Repayment of Advance to City of Costa Mesa Repayment of 2003 Tax Allocation Bonds Accrued ,interest The Statement of Net Assets includes accrued interest on long-term debt. The net change in accrued interest for the current period is reported on the Statement of Activities. $ (520,942) 414,769 495,000 3,712 De erred Revenue Earned revenue has been deferred in the fund financial statements if it is collectible after the availability period. However, revenue is recognized when earned in the Statement of Activities. 118,854 Changes in net assets of governmental activities See accompanying notes to the basic financial statements. 11 $ 511,393 (This page intentionally left blank) 12 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements Year ended June 30, 2010 �_l}_ _ Summary of Significant Accol�nting Policies The accounting policies of the Costa Mesa Redevelopment Agency (the "Agency") conform to generally accepted accounting principles. (a) Measurement Focus and Basis of Accounting The basic f nancial statements of the Agency are composed of the following: • Government -wide financial statements ® Fund financial statements ® Notes to the basic financial statements Financial reporting is based upon all GASB pronouncements, as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board. (APB) Opinions, and Accounting Research Bulletins (ARBs) of the Committee on Accounting Procedure that were issued on or before November 30, 1989 that do not conflict with or contradict GASB pronouncements. FASB Pronouncements issued after November 30, 1989 are not followed in the preparation of the accompanying financial statements. Government -wide Financial Statements Government -wide financial statements display information about the Agency as a whole. The Agency has no business -type activities. These statements include separate columns for the governmental funds of the Agency. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). 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 expenses 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, Tosses, 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, special assessments and payments made by parties outside of the reporting Agency'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. 13 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) I Summary of Significant Accounting Policies Continued (a) Measurement Focus and. Basis of Accounting, 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 a liability in the government -wide financial statements, rather than as other financing sources. Amounts paid to reduce Iong-ten-n indebtedness of the reporting government are reported as a reduction of the related liability, rather than as expenditures. Fund Financial Statements The underlying accounting system of the Agency is organized and operated on the basis of separate funds. 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. Fund financial statements for the Agency's governmental funds are presented after the government -wide financial statements. These statements display information about major governmental funds individually and non -major funds in the aggregate for governmental funds. The Agency has no non -major funds. Governmental Funds In the fund financial statements, governmental funds are presented using the modified accrual basis of accounting. Revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated or otherwise determined. Available means that the amounts were collectible within the current period or shortly thereafter to be used to pay liabilities of the current period. Expenditures are recorded when the related liabilities are incurred. 14 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 1 Summa of SieDificant Accounting Policies Continued 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). Locally unposed derived tax revenues are recognized. as revenues in the period in which the underlying exchange transaction upon which they are based tabes place. 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 and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) 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 net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Noncurrent portions of long-tei-rn 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 net current assets. Recognition of governmental fund type revenue represented by non-current receivables are deferred until they become current receivables. Non- current portions of other long-term receivables are offset by fund balance reserve accounts. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transaction are recognized in accordance with the requirements of GASB Statement No. 33, Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non-current liabilities. Since they do not affect net Lurrent 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 other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. 15 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) Summary of Significant Accounting Policies, (Continued) When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. (b) Major Funds The following have been presented in the accompanying fund financial statements as major funds: Low and Moderate Income Housing Fund — This special revenue fund is used to account for that portion of the Agency's tax increment revenue or note proceeds that is legally restricted or earmarked for increasing or improving housing for low or moderate income households, Redevelopment Debt Service Fund — This debt service fund is used to account for that portion of the Agency's tax increment revenue that is set aside for interest and. principal payments associated with all debts of the Agency. Redevelopment Projects Fund — This capital projects fund is used to account for the financial resources for the development and redevelopment of the project areas, including acquisition of properties, cost of site improvements, other costs of benefit to the project area, and the portion of the Agency's tax increment revenue that is legally restricted for increasing or improving housing for low or moderate income households and administrative expenses incurred in sustaining the Agency. (c) Cash and Investments Investments are reported in the accompanying statement of net assets at fair value, except for certain certificates of deposit and investment contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. 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. 16 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1)Summar of Significant Accounting Policies Continued The Agency's cash and investments held by fiscal agents are pledged to the payment or security of certain long-term issuances. The California Government Code provides that these monies, in the absence of specific statutory provisions governing the issuance of bonds, may be invested in accordance with the ordinance, resolutions or indentures specifying the types of investments its trustees or fiscal agents may make. The Agency pools cash and investments of all funds, except for assets held by fiscal agents. Each fund's share in this pool is displayed in the accompanying financial statements as cash and investments. Investment income earned by the pooled investments is allocated to the various funds based on each fund's average cash and investment balance. (d) Deferred Revenue Deferred revenue consists of the outstanding principal and interest on the loan to the Costa Mesa Family "Village that is measurable but not considered available to finance current operations. Also included in deferred revenue are outstanding rehabilitation loans for the Rental Rehabilitation Loan Program. Similar to the loan to the Costa Mesa Family Village, these loans are considered to be measurable but not available to finance current operations. (e) Relationship to the City of Costa Mesa The Costa Mesa Redevelopment Agency is an integral part of the reporting entity of the City of Costa Mesa. The financial activity of the Agency has been included within the scope of the financial statements of the City because the City Council of the City of Costa Mesa is the governing body and exercises responsibility over the operations of the Agency. Only the financial activity of the Agency is included herein, therefore, these Financial. statements do not purport to represent the financial position or results of operations of the City of Costa Mesa, California. (1) Capital Assets Capital assets (including infrastructure) are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Contributed capital assets are valued at their estimated fair market value at the date of the contribution. Generally, capital asset purchases in excess of $5,000 are capitalizedif they have an expected useful life of three years or more. 17 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 1 Summary of Significant Accounting Policies Continued Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method in the government -wide financial statements. Depreciation is charged as an expense against operations and accumulated. depreciation is reported on the respective statement of net assets. The range of lives used. for depreciation purposes for each capital asset class are as follows: Office fumiture 5-15 years (g) 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 generally accepted accounting principles. Accordingly, such information should be read in conjunction with the government's prior year financial. statements, from which this selected financial data was derived. (h) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported and amounts and disclosures. Accordingly, actual results could differ from those estimates. QCreation of the Costa Mesa Redevelopment Agency The Agency was created by Ordinance No. 72-2 of the Costa Mesa City Council, adopted on January 17, 1972. The Agency was established pursuant to the Community Redevelopment Law of California as codified in Section 33000 of the State of California Health and Safety Code. The principal objectives of the Agency are to prepare and carry out plans for the improvement, rehabilitation and development of blighted areas within the territorial limits of the City of Costa Mesa. The principal project of the Agency is known as the Downtown Redevelopment Project which was approved by Ordinance No. 73-44 at the meeting of the Costa Mesa City Council on December 24, 1973. The plan was amended to add area No. 2 by Ordinance No. 77-27 approved on July 5, 1977. Ordinance No. 77- 36, approved on August 1, 1977, amended the plan to resolve inconsistencies between the plan. and the City's general plan and improve the procedures for processing combined Agency and City permits. Ordinance No. 80-22, approved on November 17, 1980, amended the plan to add area No. 3. is COSTA MESA REDEVELOPMENT AGENCY Notes to the .Basic Financial Statements (Continued) (3) Cash and Investments Cash and investments are classified in the accompanying Statement of Net Assets at .lune 30, 2010 as follows: Cash and investments $4,282,743 Cash and investments with fiscal agent 704,300 Total 4 98 7 043 Cash. and investments at June 30, 2010 consisted of the following: Deposits with financial institutions S 35,976 Money market nnutual funds 704,300 State investment pool (LAIF) 4 2, 4{,767 Subtotal — investments 4,951,067 Total $4.987043 Investments Authorized by the California Government Code and the Costa Mesa Redevelopment Agency's Investment Policy The following table identifies the investment types that are authorized for the Costa Mesa Redevelopment Agency and by the California Governnnent Code (or the Costa Mesa Redevelopment Agency's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the Costa Mesa Redevelopment Agency's investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Costa Mesa Redevelopment Agency, rather than the general provisions of the California Government Code or the Costa Mesa Redevelopment Agency's investment policy. 19 COSTA .MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 3 Cash and Investments Continued Investments Authorized by the California Government Code and the Costa Mesa Redevelopment Agency's Investment Policy, (Continued) Based on state law requirements or investment policy requirements, whichever is more restrictive. Exclude amounts held by bond trustee that are not subject to California Government Code Restrictions. 20 Maximum Maximum Authorized Maximum Percentage of Investment Investment Tvge Maturity Portfolio In One Issuer Specifically Authorized by Agency's Investment Policy: U.S. Treasury Securities 5 Years None None Federal Agency Securities 5 Years 60% 60% Banker's Acceptances 180 days 40% 10% Negotiable Certificates of Deposit 5 years 30% None Commercial Paper 270 days 25% 10% Medium Term Corporate Notes 5 Years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 10% None Local Agency Investment Fund N/A $50 .Million NIA Orange County Treasurer's Pool N/A 35% None Money Market Mutual Funds NIA 20% 10% Asset-backed and Mortgage Backed Securities 5 Years 20% None Additional Investments Authorized by the California Government Code: Local Agency Bonds 5 Years None None JPA Pools (other investment pools) N/A None None Exclude amounts held by bond trustee that are not subject to California Government Code Restrictions. 20 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (3)Cash and Investments, (.Continued) Investments Authorized by Debt Agreements Investment 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 Costa Mesa Redevelopment Agency's investment policy. The table below identifies the investment types that are 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. 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 Costa Mesa Redevelopment Agency 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 corning close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 21 Maximum. Maximum Authorized Maximum. Percentage Investment in. Investment Type Maturity Allowed One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities None None Nome Banker's Acceptances 30 days None None Cornmercial Paper 270 days None None Money Market Mutual Funds NIA None None Investment Contracts None None None Interest -Bearing Time Deposits None None None Repurchase Agreements 270 Days None None Local Agency Investment Fund None None None State Obligations None None None Pre -refunded Municipal Obligations None None None 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 Costa Mesa Redevelopment Agency 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 corning close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 21 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 3 Cash and Investments Continued Information about the sensitivity of the fair values of the Costa Mesa Redevelopment Agency'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 Costa Mesa Redevelopment Agency's investments by maturity: Remaining Maturity _(in ._Months) 12 Months 13 to 24 25 to 60 Investment Type Total or Less Months Months Held by Agency: State Investment Pool (.LAIF) Held by fiscal agent: Money Market Mutual Funds Total Disclosures Relating to Credit Disk $4,246,767 4,246,767 - - 704,300 704,300 - - $4,9514 067 951.067 - 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 minium rating required by (where applicable) the California Government Code, the Costa Mesa Redevelopment Agency's investment policy, or debt agreements, and the actual rating as of year end for each investment type: Investment Type Held by Agency: State Investment Pool (LAIF) Held by Fiscal Agent: Money Market Mutual Funds Minimum Total Legal R.atin Rating $4,246,767 N/A Unrated 704,300 AArn AAA Total X67 22 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (3) 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 goveniment 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 Costa Mesa Redevelopment Agency'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 Agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Investment in State Investment Pool The Costa Mesa Redevelopment Agency is a voluntary participant in the Local Agency Investment Fund (LAIN') that is regulated by California Goveirment Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the Costa Mesa Redevelopment Agency's investment in this pool is reported in the accompanying financial statements at amounts based upon the Costa Mesa Redevelopment .Agency's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an. amortized cost basis. Included in LAIF's investment portfolio are mortgage-backed securities, other asset-backed securities, loans to certain state funds, securities with interest rates that vary according to changes in rates greater that a one-for-one basis, and structured notes. 23 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 4 hiterfund Advances and Transfers lnterfund transfers at June 30, 2010 are recorded between the following Agency funds: Receiving Fund Paying Fund Amount Redevelopment Projects Redevelopment Debt Service $757,897 The $757,897 transfer from the Redevelopment Debt Service Fund to the Redevelopment Projects fund is to cover expenditures incurred by the Projects fund. 24 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (5) Capital Assets A summary of changes in. capital assets for the year ended. June 30, 2010 is as follows: Balance at Balance at July 1, 2009 Additions Deletions June 30, 2010 Governmental Activities Capital assets being depreciated: Office furniture $23,064 - - 23,064 Total capital assets being depreciated 23,064 - - 23,064 Less accumulated depreciation for: Office furniture 23.064) - - (23.064) Total. accumulated depreciation2( 3,064) - - (23,064) Total capital assets being depreciated, net Governmental activities capital. assets, net.___- There was no depreciation expense for the year ended June 30, 2010. 25 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (6) Long -Tenn Liabilities A summary of changes in long-term liabilities for the year ended June 30, 2010 is as follows: (7) Bonds Payable On October 1, 2003, the Costa Mesa Redevelopment Agency issued $7,470,000 Tax Allocation Refunding Bonds to refund the remaining $9,955,000 Downtown Redevelopment Project 1993 Tax Allocation Refunding Bonds. The boards issued consist of serial bonds maturing from 2004 to 2017 in annual installments ranging from $450,000 to $670,000. Interest is payable on April 1 and October 1, commencing on April 1, 2004 at rates ranging from 2.0% to 5.0%. Bonds maturing on or after October 1, 2014 are subject to optional redemption, in whole or in part from among maturities as selected by the Agency on October 1, 2013. The bonds are secured by tax revenue. The net proceeds of $7,416,738 (after payment of $275,700 in underwriting fees, insurance and other issuance costs) were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on these bonds. As a result, the 1993 Series bonds were considered to be defeased and the liability for those bonds was removed from the government -wide statement of net assets. The amount required for the bond reserve for the 2003 Tax Allocation Refunding Bonds is $704,300. The City has $704,300 on reserve with the fiscal agent at June 30, 2010. The principal balance outstanding at June 30, 2010 is $4,650,000. 26 Portion Portion Due Due Balance at Balance at Within Beyond Jul,,._._.lyl_, 2009 Additions Reductions June 30, 2010 One Year One Year Bonds: 2003 Tax Allocation. Refunding Bonds $ 5,145,000 - (495,000) 4,650,000 510,000 4,1.40,000 Advances from the City of Costa Mesa 11,296,680414 769) 10,$81,911 447,698 10,434,213 Total 516,441 -_......_ (909 769) 15._53 957 69$ 14.5, 74.213 (7) Bonds Payable On October 1, 2003, the Costa Mesa Redevelopment Agency issued $7,470,000 Tax Allocation Refunding Bonds to refund the remaining $9,955,000 Downtown Redevelopment Project 1993 Tax Allocation Refunding Bonds. The boards issued consist of serial bonds maturing from 2004 to 2017 in annual installments ranging from $450,000 to $670,000. Interest is payable on April 1 and October 1, commencing on April 1, 2004 at rates ranging from 2.0% to 5.0%. Bonds maturing on or after October 1, 2014 are subject to optional redemption, in whole or in part from among maturities as selected by the Agency on October 1, 2013. The bonds are secured by tax revenue. The net proceeds of $7,416,738 (after payment of $275,700 in underwriting fees, insurance and other issuance costs) were used to purchase U.S. government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on these bonds. As a result, the 1993 Series bonds were considered to be defeased and the liability for those bonds was removed from the government -wide statement of net assets. The amount required for the bond reserve for the 2003 Tax Allocation Refunding Bonds is $704,300. The City has $704,300 on reserve with the fiscal agent at June 30, 2010. The principal balance outstanding at June 30, 2010 is $4,650,000. 26 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 7 Bonds Payable, (Continued) The annual minimum requirements to amortize the 2003 Tax Allocation Refunding Bonds are as follows: Pledged Revenue The City and its component units have debt issuances outstanding that are collateralized by the pledging of certain revenues. The amount and terra of the remainder of these commitments are indicated in the debt service to maturity tables presented in the accompanying notes. The purposes for which the proceeds of the related debt issuances were utilized are disclosed in the debt descriptions in the accompanying notes. For the current year, debt service payments as a percentage of the pledged gross revenue (or net of certain expenses where so required by the debt agreement) are indicated in the table below. These percentages also approximate the relationship of debt service to pledged revenue for the remainder of the term of the commitment: Revenue Pledged Tax Increment Revenue Annual Amount of Annual Debt Service Pledged. Revenue (net of expenses, where required) $1,765,138 27 Payments (of all debt secured by this revenue $692,200 Debt Service as a Percentage of Pledged Revenue 39,22% Governmental Activities Year Ending June 30 Principal Interest 2011 510,000 182,200 2012 525,000 165,362 2013 545,000 145,276 2014 565,000 123,075 2015 590,000 100,712 2016 610,000 77,450 2017 635,000 49,375 2018 670,000 16,750 Total 4 650 000 860,200 Pledged Revenue The City and its component units have debt issuances outstanding that are collateralized by the pledging of certain revenues. The amount and terra of the remainder of these commitments are indicated in the debt service to maturity tables presented in the accompanying notes. The purposes for which the proceeds of the related debt issuances were utilized are disclosed in the debt descriptions in the accompanying notes. For the current year, debt service payments as a percentage of the pledged gross revenue (or net of certain expenses where so required by the debt agreement) are indicated in the table below. These percentages also approximate the relationship of debt service to pledged revenue for the remainder of the term of the commitment: Revenue Pledged Tax Increment Revenue Annual Amount of Annual Debt Service Pledged. Revenue (net of expenses, where required) $1,765,138 27 Payments (of all debt secured by this revenue $692,200 Debt Service as a Percentage of Pledged Revenue 39,22% COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (5j_ Advances from. the City of Costa Mesa The City of Costa Mesa General Fund has loaned the Agency a total of $10,881,911 as of June 30, 2010. A portion of the loan from the City's General Fund bears interest at a rate of 8% per year. The remaining portion totaling $166,838 is a loan from the City's Community Development Block Grant Fund that bears interest at a rate of 3% per year. Repayment of the loans is not expected in the forthcoming year. The annual minimum. requirements to amortize loans payable to the City of Costa Mesa are as follows: Governmental Activities Year Ending June 30 Principal interest 2011 447,698 862,210 2012 483,254 826,654 2013 521,647 788,262 2014 563,103 746,806 2015 607,867 702,042 2016 656,204 653,705 2017 708,399 601,51.0 2018 764,760 545,149 2019. 825,621 484,288 2020 891,341 418,567 2021 962,310 347,599 2022 1,038,945 270,964 2023 1,121,701 188,208 2024 1,211,066 98,843 2025 7,865 2,339 2026 8,101 2,103 2027 8,344 1,860 2028 8,594 1,610 2029 8,852 1,352 2030 9,1.18 1,086 2031 9,391 813 2032 9,673 531 2033 8,057 241 Total $10 881 911 7,546.742 28 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (9) Debt Without Government Commitment The following bond issue is not reflected in the Agency's long-tcrrn debt since it is a special obligation of private parties (with no government commitment) payable entirely frown and secured by non -Agency resources described in the bond resolution: On October 1, 1994, the Agency issued $3,500,000 of Variable Rate Demand Multi- family Housing Revenue Bonds, 1994 Series A, to advance refund the 1984 Multi - Family Housing Revenue Bonds and to make a loan to the Costa Mesa Family Village (the Developer). The bonds were issued under and secured by an indenture of trust by and between the Agency and First Trust of California National Association as trustee. The Bonds were issued in denominations of $100,000 and are due November 1, 2014. The outstanding balance at June 30, 2010 was approximately $3,200,000. (10) Costa Mesa Family Village Rent Receivable The Redevelopment Agency records a rent receivable and accumulated interest based on a "Ground Lease" with Costa Mesa Family Village. In November, 1984, the Costa Mesa Family Village and the Agency entered into a "Parcel 3 Ground Lease". The Ground Lease provided for the lease of certain real property to the Family Village and the development of certain multi -family rental housing. The term of the lease between the Family Village and the Agency is 55 years. Under the terms of the lease, Family Village shall pay the Agency each lease year an amount equal to the greater of 8% of the amival gross receipts or $27,000, which is considered current rent. An amount is also calculated as deferred rent and this is the amount by which $108,000 exceeds the calculated lease payment. This additional amount is accumulated rent and is considered deferred rent and accrues interest at a compounding rate. The Family Village must pay the accumulated deferred rent plus any accrued interest only if the properties are re -financed, sold or transferred to another owner. At June 30, 2010, the Family Village accumulated rent is $1,102,904 and the accrued interest is $1,265,988. 29 (This page intentionally left blank) 30 REQUIRED SUPPLEMENTARY INFORMATION 3 (This page intentionally left dank) 32 COSTA MESA REDEVELOPMENT AGENCY Low and Moderate Income Housing Special Revenue Fund Schedule of Revenues, Expenditures and Changes in. Fund Balances - Budget and Actual Year ended. June 30, 2010 33 Variance with Final Budget Final Positive Prior Year Budget Actual (Negative) Actual. Revenues: Tax increment 831,350 797,170 (34,180) 825;167 Investment income 8,314 15,785 7,471 42,844 Miscellaneous - 99,003 99,003 170,065 Total revenues 839,664 91.1,958 72,294 1,038,076 Expenditures Current, - Redevelopment 524,796 565,355 (40,559) 1,129,420 Total expenditures 524,796 565,355 (40,559) 1,129,420 Net change in fund balances 314,868 346,603 31,735 (91,344) Fund balances at beginning of year 2,192,303 2,192,303 - 2,283,647 Fund balances at end of year $ 2,507,171 2,538,906 31,735 2,192,303 33 COSTA MESA REDEVELOPMENT AGENCY Notes to the Required Supplementary Information Year ended June 30, 2010 (i) _Budgetary Reporting The Agency adopted an annual budget prepared on the modified accrual basis for the Low and. Moderate Housing, Redevelopment Debt Service and Redevelopment Projects Funds, which is consistent with generally acceptedaccounting principles. 2 Expenditures in Excess of Appropriations The Redevelopment Debt Service Fund had an excess of expenditures over appropriations of $40,559 at June 30, 2010. 34 SUPPLEMENTARY SCHEDULES 35 COSTA MESA REDEVELOPMENT AGENCY Redevelopment Debt Service Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Year ended June 30, 2010 36 Variance with Final. Budget Final Positive Prior Year Budget Actual (Negative) Actual Revenues: Tax increment $'3,325,400 3,188,681 (136,719) 3,299,797 Investment income 33,254 10,560 (22,694) 35,336 Miscellaneous 15,000 155000 - 16,250 Total revenues 3,373,654 3,21.4,241 (159,413) 3,351,383 Expenditures: Debt service: Principal 909,769 909,769 - 869,272 Interest and fiscal charges 1,099,414 1,095,841 3,573 1,1.45,192 ERAF Payment - 1,423,104 (1,423,104) - Total expenditures 2,009,183 3,428,714 (1,419,531 2,014,464 Excess (deficiency) of revenues over (under) expenditures 1,364,471 (214,473) (1,578,944 1,336,919 Other financing sources and (uses): Transfer to other funds (1,623,936) (757,897) 866,039 (900,000) Total other financing sources and (uses) _(1,623,936) (757,897) 866,039 (900,000) Net change in Fund balances (259,465) (972,370) (712,905) 436,919 Fund balances at beginning of year 1,717,607 1,717,607 - 1,280,688 .Fund balances at end of year 1,458,142 745,237 (712,905) 1,717,607 36 COSTA MESA REDEVELOPMENT AGENCY Redevelopment Projects Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Year ended June 30, 2010 Expenditures: Current: Redevelopment 343,147 660,638 (317,491) 375,499 Total expenditures 343,147 660,638 (31.7,491) 375,499 Excess (deficiency) of revenues over (under) expenditures (229,478) (558,204) (328,726) (236,369) Other financing sources and (uses): Transfers from other funds 1,623,936 757,897 (866,039) 900,000 Transfers to City of Costa Mesa (300,000) (94,868 205,132 (99,309) Total other Financing Variance with sources and (uses) 1,323,936 Final Budget (660,907) 800,691 Final. 1,094,458 Positive Prior Year Budget Actual (Negative) Actual Revenues: $ 2,557,300 1,567,667 (989,633) 1,462,842 Rental 113,669 94,868 (18,801) 99,309 Investment income - 7,566 7,566 39,821 Total revenues 113,669 102,434 (11,235) 139,130 Expenditures: Current: Redevelopment 343,147 660,638 (317,491) 375,499 Total expenditures 343,147 660,638 (31.7,491) 375,499 Excess (deficiency) of revenues over (under) expenditures (229,478) (558,204) (328,726) (236,369) Other financing sources and (uses): Transfers from other funds 1,623,936 757,897 (866,039) 900,000 Transfers to City of Costa Mesa (300,000) (94,868 205,132 (99,309) Total other Financing sources and (uses) 1,323,936 663,029 (660,907) 800,691 Net changes in fund balances 1,094,458 104,825 (989,633) 564,322 Fund balances at beginning of year 1,462,842 1,462,842 - 898,520 Fund balances at end of year $ 2,557,300 1,567,667 (989,633) 1,462,842 37 (This page intentionally left blank) 38 Mayer Hoffman McCann Pip An independent CPA Firm 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www,mhm-pc.com Board of Directors Costa Mesa Redevelopment Agency Costa Mesa, California REPORT ON COMPLIANCE AND OTHER MATTERS AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the basic financial statements of the Costa Mesa Redevelopment Agency as of and for the year ended :Tune 30, 2010, and have issued our report thereon dated November 12, 2010. 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. Com li ance and Other Matters As part of obtaining reasonable assurance about whether the basic financial statements of the Costa Mesa Redevelopment Agency are free of material misstatements, we perfon-ned 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. Such provisions included those provisions of laws and regulations identified in the Guidelines for Comptroller Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Govermnen.tal Accounting and Auditing Committee of the California Society of Certified Public Accountants. 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. Internal Control Over Financial Re ortin In planning and performing our audit, we considered the Costa Mesa Redevelopment Agency's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control. Accordingly, we do not express an opinion on the effectiveness of the Agency's internal control. 39 Board. of Directors Costa Mesa Redevelopment Agency Costa Mesa, California 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 perfoi ping their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or 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. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all the deficiencies in the internal control that might be deficiencies, significant deficiencies or material weaknesses. We did. not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined. above. This report is intended for the information and use of the Board of Directors, management of the Agency and the State Controller and is not intended to be and should not be used by anyone other than. these specified parties. Irvine, California November 12, 2010 40