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HomeMy WebLinkAbout- - CM RDA Finanical Report 2011 - 12/6/2011COSTA MESA REDEVELOPMENT AGENCY Basic Financial Statements and Supplemental Data Year ended June 30, 2011 (With Independent Auditors' Report Thereon) (This page intentionally left blank) COSTA MESA REDEVELOPMENT AGENCY Basic Financial Statements and Supplemental Data Year ended June 30, 2011 Page Independent Auditors' Report 1 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Assets 4 Statement of Activities 5 Fund Financial Statements: Governmental Funds: Balance Sheet 8 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 12 Required Supplementary Information: 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) Supplementary Schedules: Page Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual: Redevelopment Debt Service Fund 36 Redevelopment Projects Fund 37 Computation of Low and Moderate Income Housing Fund — Excess Surplus 38 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 Report on Compliance and Other Matters that could have a Direct and Material Effect in Relation to the Redevelopment Program Taken as a Whole and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 41 Mayer Koffman McCann PC. 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 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, 2011, 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, 2010 and, in our report dated November 12, 2010, 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 America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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, 2011, 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 America. As described further in Note 1 to the financial statements, the accompanying financial statements reflect certain changes in the reporting of fund types and fund balance classifications for governmental funds due to the implementation of GASB Statement No. 54. As explained further in Note 11 to the financial statements, the future operation of redevelopment agencies in the state of California may be impacted by the results of litigation initiated in response to certain legislative actions enacted by the California State Legislature. The Agency has not presented Management's Discussion and Analysis that the 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, operating, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Member of Kreston International - a globlil network of independent accounting firms Board of Directors Costa Mesa Redevelopment Agency Costa Mesa, California Page Two The information 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 limited procedures, which consisted principally of the required supplementary information. However, we did not audit the information and express no opinion on it. 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 23, 2011 on our consideration of the Agency'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 23, 2011 /-A ,/,4.....a.. J. c 19 COSTA MESA REDEVELOPMENT AGENCY Statement of Net Assets June 30, 2011 (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) Prepaid items 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 (notes 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 2011 $ 5,403,191 704,300 21,741 15,000 1,324,993 4,065 5,107,320 1,120,624 13,701,234 30,358 43,638 138,336 483,254 525,000 9,950,959 3,615,000 14,786,545 8,136,499 (9,221,810) $ (1,085,311) See accompanying notes to the basic financial statements. 4 4,282,743 704,300 29,341 15,000 1,272,426 5,166,428 1,102,904 12,573,142 15,304 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) COSTA MESA REDEVELOPMENT AGENCY Statement of Activities Year ended June 30, 2011 (With Comparative Data for Prior Year) ProL,ram Revenues General revenues: Property taxes (net of ERAF payment) 3,877,249 2,562,747 Operating Capital 26,833 33,911 Miscellaneous Charges for Contributions Contributions Net Governmental Activities Functions/Programs Expenses Services and Grants and Grants 2011 2010 511,393 Net assets (deficit) at beginning of year Governmental (3,680,070) Net assets (deficit) at end of year $ (1,085,311) (3,168,677) activities: Redevelopment $ 464,076 88,991 - - (375,085) (550,312) Low and moderate income housing 491,962 - - - (491,962) (556,827) Interest expense on long-term debt 1,042,388 - - - (1,042,388) (1,092,129) Total governmental activities $1,998,426 88,991 - - (1,909,435) (2,199,268) General revenues: Property taxes (net of ERAF payment) 3,877,249 2,562,747 Investment income 26,833 33,911 Miscellaneous 88,719 114,003 Total general revenues 3,992,801 2,710,661 Change in net assets 2,083,366 511,393 Net assets (deficit) at beginning of year (3,168,677) (3,680,070) Net assets (deficit) at end of year $ (1,085,311) (3,168,677) See accompanying notes to the basic financial statements. 5 (This page intentionally left blank) FUND FINANCIAL STATEMENTS Assets Cash and investments Cash and investments with fiscal agent Due from other governments Due from City of Costa Mesa Interest receivable Loans receivable Rent receivable Prepaid items Total assets COSTA MESA REDEVELOPMENT AGENCY Governmental Funds Balance Sheet June 30, 2011 (With Comparative Data for Prior Year) Special Debt Capital Revenue Service Projects Low and Moderate Redevelopment Totals Income Debt Redevelopment Housing Service Projects 2011 2010 $ 3,105,288 - 2,297,903 5,403,191 4,282,743 Liabilities and Fund Balances Liabilities: Accounts payable Due to City of Costa Mesa Deferred revenue Total liabilities Fund balances: Nonspendable - prepaid items Restricted for: Low and moderate income housing Debt service Redevelopment projects Total fund balances Total liabilities and find balances - 704,300 - 704,300 704,300 4,348 17,393 - 21,741 29,341 - 15,000 - 15,000 15,000 3,418 1,216 1,320,359 1,324,993 1,272,426 5,107,320 - - 5,107,320 5,166,428 - - 1,120,624 1,120,624 1,102,904 813 - 3,252 4,065 - $ 8,221,187 737,909 4,742,138 13,701,234 12,573,142 $ 25,084 - 5,274 30,358 15,304 59,604 - 78,732 138,336 147,141 5,114,820 - 2,439,561 7,554,381 7,558,887 5,199,508 - 2,523,567 7,723,075 7,721,332 813 - 3,252 4,065 - 3,020,866 - - 3,020,866 2,538,906 - 737,909 - 737,909 745,237 - - 2,215,319 2,215,319 1,567,667 3,021,679 737,909 2,218,571 5,978,159 4,851,810 $ 8,221,187 737,909 4,742,138 13,701,234 12,573,142 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, 2011 Fund balances (deficit) of governmental funds $ 5,978,159 Amounts reported for governmental activities in the Statement of Net Assets are different because: Long -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 (10,434,213) 2003 Tax Allocation Bonds (4,140,000) Accrued Interest Accrued liabilities in the Statement of Net Assets differ from the amount reported in governmental funds due to accrued interest on outstanding debt payable. (43,638) 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 7,554,381 Net assets (deficit) of governmental activities $ (1,085,311) See accompanying notes to the basic financial statements. 9 COSTA MESA REDEVELOPMENT AGENCY Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year ended June 30, 2011 (With Comparative Data for Prior Year) Revenues: Tax increment Investment income Miscellaneous Rental Total revenues Expenditures: Current: 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 Fund balances at beginning of year Fund balances at end of year Special Debt Capital Revenue Service Projects Low and Moderate Redevelopment Income Debt Redevelopment Housing Service Projects Totals In11 Inin $ 834,048 3,336,193 - 4,170,241 3,985,851 15,360 4,094 7,379 26,833 33,911 73,719 15,000 - 88,719 114,003 - - 88,991 88,991 94,868 923,127 3,355,287 96,370 4,374,784 4,228,633 440,354 - 422,187 862,541 1,225,993 - 957,698 - 957,698 909,769 - 1,046,213 - 1,046,213 1,095,841 - 292,992 - 292,992 1,423,104 440,354 2,296,903 422,187 3,159,444 4,654,707 482,773 1,058,384 (325,817) 1,215,340 (426,074) - - (88,991) (88,991) (94,868) - - 1,065,712 1,065,712 757,897 - (1,065,712) - (1,065,712) (757,897) - (1,065,712) 976,721 (88,991) (94,868) 482,773 (7,328) 650,904 1,126,349 (520,942) 2,538,906 745,237 1,567,667 4,851,810 5,372,752 $ 3,021,679 737,909 2,218,571 5,978,159 4,851,810 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, 2011 Net changes in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: Long -Term 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 liabilities in 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. Deferred Revenue Earned revenue has been deferred in collectible after the availability period. earned in the Statement of Activities. the fund financial statements if it is However, revenue is recognized when Changes in net assets of governmental activities See accompanying notes to the basic financial statements. 11 $ 1,126,349 3,825 (4,506) $ 2,083,366 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements Year ended June 30, 2011 (1) Summary of Significant Accounting 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 financial 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, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No. 33. Program revenues include charges for services, 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. 12 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 11 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 long-term 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. 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 imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes 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. 13 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) SummM 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 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-term receivables due to governmental funds are reported on the balance sheet in spite of their spending measurement focus. Special reporting treatments are used to indicate that they should not be considered "available spendable resources," since they do not represent net current assets. Recognition of governmental fund type revenues 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 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 current assets, such long-term amounts are not recognized as governmentalfund 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. 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. 14 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) SummM of Significant Accounting Policies, (Continued) 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. 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 loans for the First Time Homebuyer Program and 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. W COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) SummM of Significant Accounting Policies (Continued) (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 "City"). 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. (f) 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 capitalized if they have an expected useful life of three years or more. 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 furniture 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. 16 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) SummM of Significant Accounting Policies, (Continued) (i) Fund Equity The accompanying financial statements reflect certain changes that have been made with respect to the reporting of the components of fund balances for governmental funds. In previous years, fund balances for governmental funds were reported in accordance with previous standards that included components for reserved fund balance, unreserved fund balance, designated fund balance, and undesignated fund balance. Due to the implementation of GASB No. 54, the components of the fund balances of governmental funds now reflect the component classifications described below. Prior year amounts have been restated to reflect the component designations required by GASB No. 54. Fund balances are reported in the fund statements in the following classifications: Nonspendable Fund Balance — this includes amounts that cannot be spent because they are either not spendable in form (such as prepaid items) or legally or contractually required to be maintained intact (such as endowments). 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. Committed Fund Balance — this includes amounts that can be used only for the specific purposes determined by a formal action of the Board. It includes legislation (Board action) that can only be overturned by new legislation requiring the same type of voting consensus that created the original action. Therefore, if the Board action limiting the use of the funds is separate from the action (legislation) that created (enables) the funding source, then it is committed, not restricted. The Agency considers a resolution, an ordinance, or a minutes action to constitute a formal action of the Board for the purposes of establishing committed fund balance. 17 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) Assigned Fund Balance — this includes amounts that are designated or expressed by the Board, but does not require a formal action like a resolution or ordinance. The Board may delegate the ability of an employee or committee to assign uses of specific funds, for specific purposes. Such delegation of authority has not yet been granted to persons or bodies other than the Board. Unassigned Fund Balance — this includes the remaining spendable amounts which are not included in one of the other classifications. It is the Agency's practice that restricted resources will be applied first, followed by (in order of application) committed, assigned, and unassigned resources, in the absence of a formal policy adopted by the Board. (2) Creation 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. 18 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 June 30, 2011 as follows: Cash and investments $5,403,191 Cash and investments with fiscal agent 704,300 Total $6,107,491 Cash and investments at June 30, 2011 consisted of the following: Deposits with financial institutions $ 16,243 Money market mutual funds 704,300 State investment pool (LAIF) 5,386,948 Subtotal — investments 6,091,248 Total $6,107,491 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 Government 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 Type MqgWty 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 N/A Orange County Treasurer's Pool N/A 35% None Money Market Mutual Funds N/A 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 coining 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 None Banker's Acceptances 30 days None None Commercial Paper 270 days None None Money Market Mutual Funds N/A 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 coining 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: Investment Type Held by Agency: State Investment Pool (LAIF) Held by fiscal agent: Money Market Mutual Funds Total Disclosures Relating to Credit Risk Remaining Mat Drit (in Months) 12 Months 13 to 24 25 to 60 Total or Less Months Months $5,386,948 5,386,948 - - 704,300 704,300 $6,091,248 6,091,248 - 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 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 Rating Rating $5,386,948 N/A Unrated 704,300 AAm. AAAm Total $6,091,248 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 parry. 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 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 (LAIF) that is regulated by California Government 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) Interfund Transfers Interfund transfers at June 30, 2011 are recorded between the following Agency funds: Receiving Fund Pang Fund Amount Redevelopment Projects Redevelopment Debt Service $1,065,712 The $1,065,712 transfer from the Redevelopment Debt Service Fund to the Redevelopment Projects fund is to cover expenditures incurred by the Projects fund. (5) Capital Assets A summary of changes in capital assets for the year ended June 30, 2011 is as follows: Balance at Balance at July 1, 2010 Additions Deletions June 30, 2011 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 furniture2( 3,064)- - (23,064) Total .accumulated depreciation -(21064) - - (23,064) Total capital assets being depreciated, net - - - - Governmental activities capital assets, net � - - - There was no depreciation expense for the year ended June 30, 2011. 24 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (6) Long -Term Liabilities A summary of changes in long-term liabilities for the year ended June 30, 2011 is as follows: Portion Portion Due Due Balance at Balance at Within Beyond July 1. 2010 Additions Reductions June 30. 2011 One Year One Year Bonds: 2003 Tax Allocation Refunding Bonds $ 4,650,000 Advances from the City of Costa Mesa 10,881,911 Total s 15.531,911 (7) Bonds Pam (510,000) 4,140,000 525,000 3,615,000 (447,698 10,434,213 483,254 9,950,959 59 7,698 14.574,213 1.008,254 13.565,959 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 bonds 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 the 1993 Series 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, 2011. The principal balance outstanding at June 30, 2011 is $4,140,000. 25 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: Year Ending June 30 2012 2013 2014 2015 2016 2017 2018 Total Pledged Revenue Governmental Activities Principal Interest $ 525,000 165,362 545,000 145,276 565,000 123,075 590,000 100,712 610,000 77,450 635,000 49,375 670,000 16,750 $4,140,000 678,000 The City and its component units have debt issuances outstanding that are collateralized by -the pledging of certain revenues. The amount and term of the remainder of these commitments are indicated in the debt service to maturity table presented in this note. 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 are expected to approximate the relationship of debt service to pledged revenue for the remainder of the term of the commitment: Annual Amount of Pledged Revenue (net of expenses, Revenue Pledged where required) Description of pledged revenue/debt: Tax increment Downtown Redevelopment Project 2003 Tax Allocation Refunding Bonds $3,043,202 Total tax increment $3,043,202 26 Annual Debt Service Debt Service as Payments (of all debt a Percentage of secured by this Pledged revenue) Revenue 692,200 22.75% 692,200 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (8) Advances from the City of Costa Mesa The City of Costa Mesa General Fund has loaned the Agency a total of $10,434,213 as of June 30, 2011. A portion of the loan from the City's General Fund bears interest at a rate of 8% per year. The remaining portion totaling $161,638 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: W Governmental Activities Year Ending June 30 Principal Interest 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 708,399 601,510 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 9,118 1,086 2031 9,391 813 2032 9,673 531 2033 8,057 241 Total $10,434,213 6.684,532 W 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-term debt since it is a special obligation of private parties (with no government comnutment) payable entirely from 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, 2011 was approximately $3,200,000. (10) Costa Mesa Family Village Rent Receivable The 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 Costa Mesa Family Village and the development of certain multi -family rental housing. The term of the ground lease between the Costa Mesa Family Village and the Agency is 55 years. Under the terms of the ground lease, Costa Mesa Family Village shall pay the Agency each lease year an amount equal to the greater of 8% of the annual 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 Costa Mesa 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, 2011, the Costa Mesa Family Village accumulated rent is $1,120,624 and the accrued interest is $1,320,359. G 1) Recent Changes in Legislation Affecting Redevelopment Agencies On June 29, 2011, the Governor of the State of California signed Assembly Bills Xl 26 and 27 as part of the State's budget package. Assembly Bill X1 26 requires each California redevelopment agency to suspend nearly all activities except to implement existing contracts, meet already -incurred obligations, preserve its assets and prepare for the impending dissolution of the agency. Assembly Bill X1 27 provides a means for redevelopment agencies to continue to exist and operate by means of a Voluntary Alternative Redevelopment Program. Under this program, each city would adopt an ordinance agreeing to make certain payments to the County Auditor Controller in fiscal 28 COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (11) Recent Changes in Legislation Affecting Redevelopment Agencies, (Continued) year 2011-12 and annual payments each fiscal year thereafter. Assembly Bill X1 26 indicates that the city "may use any available funds not otherwise obligated for other uses" to make this payment. The City of Costa Mesa intends to use available monies of its redevelopment agency for this purpose and the. City and Agency have approved a reimbursement agreement to accomplish that objective. The amounts to be paid after fiscal year 2012-13 have yet to be determined by the state legislature. Assembly Bill X1 26 directs the State Controller of the State of California to review the propriety of any transfers of assets between redevelopment agencies and other public bodies that occurred after January 1, 2011. If the public body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency by Assembly Bill XI 26. In the event that Assembly Bill XI 26 is upheld, the interagency receivable recognized by funds of the City that had previously loaned or advanced funds to the redevelopment agency may become uncollectible resulting in a loss recognized by such funds. The City might additionally be impacted if reimbursements previously paid by the redevelopment agency to the City for shared administrative services are reduced or eliminated. The League of California Cities and the California Redevelopment Association (CRA) filed a lawsuit on July 18, 2011 on behalf of cities, counties and redevelopment agencies petitioning the California Supreme Court to overturn Assembly Bills X1 26 and 27 on the grounds that these bills violate the California Constitution. On August 11, 2011, the California Supreme Court issued a stay of all of Assembly Bill X1 27 and most of Assembly Bill X1 26. The California Supreme Court stated in its order that "the briefing schedule is designed to facilitate oral argument as early as possible in 2011, and a decision before January 15, 2012." A second order issued by the California Supreme Court on August 17, 2011 indicated that certain provisions of Assembly Bills X1 26 and 27 were still in effect and not affected by its previous stay, including requirements to file an appeal of the determination of the community remittance payment by August 15, the requirement to adopt an Enforceable Obligations Payment Schedule ("EOPS") by August 29, 2011, and the requirement to prepare a preliminary draft of the initial Recognized Obligation Payment Schedule ("ROPS") by September 30, 2011. Because the stay provided by Assembly Bill X1 26 only affects enforcement, each agency must adopt an Enforceable Obligation Payment Schedule and draft Recognized Obligation Payment Schedule prior to September 30, as required by the statute. Enforceable obligations include bonds, loans and payments required by the federal or State government; legally enforceable payments required in connection with agency employees such as pension payments and unemployment payments, judgments or settlements; legally binding and enforceable agreements or contracts; and contracts or W COSTA MESA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (11) Recent Changes in Legislation Affecting Redevelopment Agencies, (Continued) agreements necessary for the continued administration or operation of the agency that are permitted for purposes set forth in ABIX 26. On September 20, 2011, Costa Mesa Redevelopment Agency Ordinance No. 11-09 was adopted, indicating that the City will comply with the Voluntary Alternative Redevelopment Program in order to permit the continued existence and operation of the agency, in the event Assembly Bills X1 26 and/or 27 are upheld as constitutional. The initial payment by the Agency is estimated to be $1.5 million with one half due on January 15, 2012 and the other half due May 15, 2012. The amounts to be paid after fiscal year 2011-12 have yet to be determined by the State Legislature. The semi-annual payments will be due on January 15 and May 15 of each year and would increase or decrease with changes in tax increment. Additionally, an increased amount would be due to schools if any "new debt" is incurred. Assembly Bill X1 27 allows a one-year reprieve on the Agency's obligation to contribute 20% of tax increment to the low -and -moderate - income housing fund so as to permit the Agency to assemble sufficient funds to make its initial payments. Failure to make these payments would require agencies to be terminated under the provisions of ABX1 26. Management believes that the Agency will have sufficient funds to pay its obligations as they become due during the fiscal year ending June 30, 2012. The nature and extent of the operation of redevelopment agencies in the State of California beyond that time frame are dependent upon the outcome of litigation surrounding the actions of the State. In the event that Assembly Bills X1 26 and/or 27 are specifically found by the courts to be unconstitutional, there is a possibility that future legislative acts may create new challenges to the ability of redevelopment agencies in the State of California to continue in view of the California State Legislature's stated intent to eliminate California redevelopment agencies and to reduce their funding. co • • i• r ••IM• • •• • 31 (This page intentionally left blank) 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, 2011 Revenues: Tax increment Investment income Miscellaneous Total revenues Expenditures: Current: Redevelopment Total expenditures Net change in fund balances Fund balances at beginning of year Fund balances at end of year Variance with Final Budget Original Final Positive Prior Year Budget Budget Actual (Negative) Actual $ 864,604 864,604 834,048 (30,556) 797,170 8,646 8,646 15,360 6,714 15,785 - - 73,719 73,719 99,003 873,250 873,250 923,127 49,877 911,958 876,131 876,131 876,131 876,131 440,354 435,777 565,355 440,354 435,777 565,355 (2,881) (2,881) 482,773 485,654 346,603 2,538,906 2,538,906 2,538,906 - 2,192,303 $ 2,536,025 $ 2,536,025 3,021,679 485,654 2,538,906 33 COSTA MESA REDEVELOPMENT AGENCY Notes to the Required Supplementary Information Year ended June 30, 2011 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 accepted accounting principles. 34 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, 2011 W Variance with Final Budget Final Positive Prior Year Budget Actual (Negative) Actual Revenues: Tax increment $ 3,165,710 3,336,193 170,483 3,188,681 Investment income 34,584 4,094 (30,490) 10,560 Miscellaneous 25,510 15,000 (10,510) 15,000 Total revenues 3,225,804 3,355,287 129,483 3,214,241 Expenditures: Debt service: Principal 957,698 957,698 - 909,769 Interest and fiscal charges 1,051,410 1,046,213 5,197 1,095,841 ERAF Payment - 292,992 (292,992) 1,423,104 Total expenditures 2,009,108 2,296,903 (287,795) 3,428,714 Excess (deficiency) of revenues over (under) expenditures 1,216,696 1,058,384 (158,312) (214,473) Other financing sources and (uses): Transfer to other funds (1,220,695) (1,065,712) 154,983 (757,897) Total other financing sources and (uses) (1,220,695) (1,065,712) 154,983 (757,897) Net change in fund balances (3,999) (7,328) (3,329) (972,370) Fund balances at beginning of year 745,237 745,237 - 1,717,607 Fund balances at end of year $ 741,238 737,909 (3,329) 745,237 W COSTA MESA REDEVELOPMENT AGENCY Redevelopment Projects Fund Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Year ended June 30, 2011 Revenues: Rental Investment income Total revenues Expenditures: Current: Redevelopment Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources and (uses): Transfers from other funds Transfers to City of Costa Mesa Total other financing sources and (uses) Net changes in fund balances Fund balances at beginning of year Fund balances at end of year Variance with Final Budget Final Positive Prior Year Budget Actual (Negative) Actual $ 118,669 88,991 (29,678) 94,868 - 7,379 7,379 7,566 118,669 96,370 (22,299) 102,434 791,008 422,187 368,821 660,638 791,008 422,187 368,821 660,638 (672,339) (325,817) 346,522 (558,204) 1,220,695 1,065,712 (154,983) 757,897 (118,669) (88,991) 29,678 (94,868) 1,102,026 976,721 (125,305) 663,029 429,687 650,904 221,217 104,825 1,567,667 1,567,667 - 1,462,842 $ 1,997,354 2,218,571 221,217 1,567,667 37 COSTA MESA REDEVELOPMENT AGENCY Computation of Low and Moderate Income Housing Fund - Excess Surplus June 30, 2011 Fund Balance - June 30, 2011 $ 3,021,679 Less: Unavailable Amounts - Available Low/Moderate Income Housing Funds 3,021,679 Limitation (Greater of $1,000,000 or Four Years Set -Aside): Set-aside for last four years 2010-2011 834,048 2009-2010 797,170 2008-2009 1,193,278 2007-2008 1,167,693 Total set-aside for last four years 3,992,189 Base limitation 1,000,000 Greater Amount 3,992,189 Computed Excess Surplus - June 30, 2011 $ - 9M ❑Q' Mayer Hoffman McCann PC. 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 We have audited the basic financial statements of the Costa Mesa Redevelopment Agency as of and for the year ended June 30, 2011, and have issued our report thereon dated November 23, 2011. 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. Comliance 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 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. 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 Governmental 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 Reporting Management of the Costa Mesa Redevelopment Agency is responsible for establishing and maintaining effective internal controls over financial reporting. 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 over financial reporting. Member of Kreston International- a g1o191 network of independent accounting firms Board of Directors Costa Mesa Redevelopment Agency Page Two 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. 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 defined to be 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. The matters below conform to this definition. Long-term Receivables The City and Agency have a number of long-term receivables. Professional standards provide that the reporting government accumulate appropriate information to support the reporting government's conclusion as to whether or not any allowance for uncollectible amounts is appropriate in the circumstances. We recommend that in 2012, the City accumulate appropriate information to support its conclusion in this regard. This may include any or all of the following: information about the market value of property securing the receivable, information about other liens against that property, information about the financial condition of the obligated party, etc.). 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 23, 2011 .m C Mayers Hoffman McCann PC. 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 Independent Auditor's Report Compliance We have audited Costa Mesa Redevelopment Agency's compliance with the Guidelines for Compliance Audits California Redevelopment Agencies, issued by the California State Controller applicable to Costa Mesa Redevelopment Agency (the Agency) for the year ended June 30, 2011. Compliance with the requirements referred to above is the responsibility of the Agency's management. Our responsibility is to express an opinion on the Agency's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Guidelines for Compliance Audits California Redevelopment Agencies, issued by the California State Controller and as interpreted in the Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, August 2011, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants.. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect in relation to the redevelopment program taken as a whole. An audit includes examining, on a test basis, evidence about the Agency's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Agency's compliance with those requirements. In our opinion, the Agency complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect in relation to the redevelopment program taken as a whole for the year ended June 30, 2011. Internal Control Over Compliance Management of the Agency is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit, we considered the Agency's internal control over compliance to determine Member of Kreston International - a giAll network of independent accounting firms Board of Directors Costa Mesa Redevelopment Agency Page Two the auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Agency's internal control over compliance. A deficiency in internal control over compliance 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, noncompliance on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a compliance requirement will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance 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 deficiencies, significant deficiencies, or material weaknesses in internal control over compliance. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Board of Directors, management, and the State Controller and is not intended to be and should not be used by anyone other than those specified parties. Irvine, California November 23, 2011 42