Honorable Chairman and Directors of the Bellflower Financing Authority

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1 Page 1 of R TO: ATTENTION: FROM: Honorable Chairman and Directors of the Bellflower Financing Authority Jeffrey L. Stewart, Executive Director Tae Rhee, Finance Director/Treasurer SUBJECT: Consideration and possible action to receive and file Bellflower Financing Authority s audited financial statements for the fiscal year ended June 30, DATE: January 28, 2019 EXECUTIVE SUMMARY The Bellflower Financing Authority ( BFA ) is a component unit of the City of Bellflower organized on June 26, 2006, pursuant to the California Joint Exercise of Powers Act to provide the financing of public capital improvements and other projects for the revitalization of the City. BFA functions as a separate entity and the Board of Directors are comprised solely of the Members of the City Council. The independent CPA firm, Moss, Levy & Hartzheim, LLP, audited BFA s financial statements for fiscal year , and there were no audit findings. RECOMMENDATION TO 1) Receive and file Bellflower Financing Authority s audited financial statements; or 2) Alternatively, discuss and take other action related to this item. FISCAL IMPACT None KEY FINANCIAL SUMMARY The following amounts have been rounded to the nearest 1,000. Total cash and investments $549,000 At June 30, 2018, BFA held $6,000 in cash and BNY Mellon (trustee) held $543,000 in a debt service reserve fund for the 2008 Water System Certificates of Participation (COP). Page 1 of 3

2 Page 2 of 42 Staff Report Bellflower Financing Authority s audited financial statements for the fiscal year ended June 30, 2018 January 28, 2019 Page 2 of Transportation COP payable (15-year debt) $10,000,000 Receivable from City (Propositions A/C, Measure R funds) $10,000,000 Debt issuance cost $183,000 Current year debt service $62,000 In January 2018, the City and BFA issued the 2018 Transportation Certificates of Participation in the amount of $10,000,000 (15-year debt) to provide funds for the construction of the Regional Transit Center and Parking Structure to add approximately 300 vehicle parking spaces. The total project budget is $12,100,000. The annual debt service payments are made with the City s Propositions A and C funds and, if necessary, with Measure R funds Water System COP payable (32-year debt) $6,990,000 Receivable from Municipal Water System (MWS), net of reserve funds $6,450,000 Current year debt service $531,000 In July 2008, the City and BFA issued the 2008 Water System Certificates of Participation in the amount of $8,230,000 (32-year debt) to provide funds to the City for the reimbursement of costs incurred in connection with the acquisition of MWS ($6,212,000) and to make certain improvements to the water system ($965,000). The annual debt service payments are made entirely with the MWS funds. The 2008 and 2018 Certificates represent undivided proportionate interests of the Certificate Owners in the lease payments to be made by the City to BFA under a lease/sublease arrangement. For the 2008 and 2018 COP, the City leases to and then subleases back from BFA a leasehold interest in the Civic Center Property (City Hall) and Thompson Park. Note payable to MTB Enterprises, LLC (25-year debt) $913,000 Capital Assets-Butterfly Garden, net of accumulated depreciation $997,000 Current year debt service $65,000 Lease revenue generated by Butterfly Garden property $63,000 In March 2015, BFA purchased a portion of the land to be developed as the Butterfly Garden in the amount of $995,000 (plus escrow closing costs), financed with a 25-year note payable to MTB Enterprises, LLC. In connection with the purchase, BFA acquired ground leases for a billboard and an oil booster pumping station. These lease revenues (and when necessary, the City s general funds) are used to make the debt service payments on the note. The other remaining portion of the Butterfly Garden was purchased by the City in the amount of $700,000 using $650,000 in State Urban Greening Grant and $50,000 in general funds.

3 Page 3 of 42 Staff Report Bellflower Financing Authority s audited financial statements for the fiscal year ended June 30, 2018 January 28, 2019 Page 3 of 3 ATTACHMENT Bellflower Financing Authority s audited financial statements for the fiscal year ended June 30,

4 Page 4 of 42 (COMPONENT UNIT OF THE CITY OF BELLFLOWER) BASIC FINANCIAL STATEMENTS WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS JUNE 30, 2018

5 Page 5 of 42 TABLE OF CONTENTS June 30, 2018 Independent Auditor s Report... 1 Management s Discussion and Analysis (Required Supplementary Information)... 4 Basic Financial Statements: Government wide Financial Statements: Statement of Net Position... 9 Statement of Activities Fund Financial Statements: Balance Sheet Governmental Fund Reconciliation of the Governmental Fund Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Fund Reconciliation of the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balance to the Statement of Activities Notes to Basic Financial Statements Required Supplementary Information: Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual General Fund Supplemental Information: Transportation Bonds Project Supplemental Schedule Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards... 32

6 Page 6 of 42 PARTNERS COMMERCIAL ACCOUNTING & TAX SERVICES GOVERNMENTAL AUDIT SERVICES RONALD A LEVY, CPA 433 N. CAMDEN DR., SUITE HANNUM AVE, SUITE E CRAIG A HARTZHEIM, CPA BEVERLY HILLS, CA CULVER CITY, CA HADLEY Y HUI, CPA TEL: TEL: ALEXANDER C. HOM, CPA FAX: ADAM V GUISE, CPA TRAVIS J HOLE, CPA The Honorable Board of Directors of the Bellflower Financing Authority Bellflower, California Report on the Financial Statement INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of the governmental activities and the major fund of the Bellflower Financing Authority (the Authority), a component unit of the City of Bellflower, California as of and for the fiscal year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Authority s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the 1 OFFICES: BEVERLY HILLS CULVER CITY SANTA MARIA MEMBER AMERICAN INSTITUTE OF C.P.A. S CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS CALIFORNIA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS

7 Page 7 of 42 appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 the major fund of the Authority as of June 30, 2018 and the respective changes in its financial position for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Prior-Year Comparative Information The financial statements of the Authority as of and for the fiscal year ended June 30, 2017 were audited by a predecessor auditor. In our opinion, the summarized comparative information presented herein as of and for the fiscal year ended June 30, 2017 is consistent, in all material respects, with the audited financial statements from which it has been derived. Such information does not include all of the information required to constitute a presentation in accordance with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Authority s financial statements for the fiscal year ended June 30, 2017, from which such partial information was derived. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the schedule of revenues, expenditures, and changes in fund balance budget and actual general fund, identified as Required Supplementary Information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority s basic financial statements. The Transportation Bonds Project Supplemental Schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements. 2 OFFICES: BEVERLY HILLS CULVER CITY SANTA MARIA MEMBER AMERICAN INSTITUTE OF C.P.A. S CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS CALIFORNIA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS

8 Page 8 of 42 The Transportation Bonds Project Supplemental Schedule is the responsibility of management and were derived from and relate to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Transportation Bonds Project Supplemental Schedule is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 15, 2019 on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 in considering the Authority s internal control over financial reporting and compliance. Moss, Levy & Hartzheim, LLP Culver City, California January 15, OFFICES: BEVERLY HILLS CULVER CITY SANTA MARIA MEMBER AMERICAN INSTITUTE OF C.P.A. S CALIFORNIA SOCIETY OF MUNICIPAL FINANCE OFFICERS CALIFORNIA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS

9 Page 9 of 42 MANAGEMENT S DISCUSSION AND ANALYSIS As management of the Bellflower Financing Authority (Authority), we offer readers of the Authority s financial statements this narrative overview and analysis of the financial activities of the Authority for the fiscal year ended June 30, We encourage the readers to consider the information presented here in conjunction with additional information furnished in the accompanying basic financial statements. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Authority s basic financial statements. The basic financial statements are comprised of three components: 1) Government- Wide Financial Statements, 2) Fund Financial Statements and 3) Notes to the Financial Statements. Government-Wide Financial Statements These statements are designed to provide information about the activities of the Authority as a whole and present a longer-term view of the Authority s finances. They are prepared using the accrual basis of accounting, which is similar to the accounting used by most private sector companies. The Statement of Net Position presents information on all of the Authority s assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference between the assets and deferred outflows of resources less liabilities and deferred inflows of resources reported as net position. In time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. The Statement of Activities presents information on how the Authority s net position changed during the fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. In both the Statement of Net Position and Statement of Activities, only the Authority s basic governmental activities, such as principal and interest payments on certificates of participation and a note payable, are reported. The lease payments received from the City of Bellflower (City), a billboard and an oil booster pumping station are generally sufficient to finance the activities. The Authority does not have any other business-type activities or separate component units. As referred to in Note 1 of the notes to the basic financial statements, the Authority conforms to accounting principles generally accepted in the United States of America as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. Fund Financial Statements The Fund Financial Statements, in general, provide detailed information about the most significant individual funds not the Authority as a whole. A fund is a group of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Authority, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. While funds can be divided into three categories (governmental, proprietary, and fiduciary), the Authority s activities only require the maintenance of a debt service fund (a governmental fund). 4

10 Page 10 of 42 Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the Authority s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Authority only maintains one governmental fund (debt service fund). This fund reports financial transactions using an accounting method called modified accrual accounting. This information is presented in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balance. On behalf of the Authority, the City Council adopts an annual appropriated budget for the debt service fund. A budgetary comparison statement has been provided for the fund to demonstrate compliance with this budget. Proprietary funds are primarily used to account for when a reporting entity charges for the services it provides, whether to outside customers or to other units of the entity. These funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities, using an accrual basis of accounting. Fiduciary funds are used to account for resources held for the benefit of parties outside the reporting entity. In these cases, the entity has a fiduciary responsibility and is acting as a trustee. The Statement of Fiduciary Net Position separately reports all of the entity s fiduciary activities. These activities are excluded from the entity s other financial statements because the entity cannot use these assets to finance its operations. However, the entity is responsible for ensuring that the assets reported in these funds are used for their intended purposes. The Authority does not maintain any proprietary or fiduciary funds. Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Position Governmental Activities / Government-Wide 2018 Governmental Activities / Government-Wide 2017 Current and other assets $ 1,283,590 $ 816,514 Long-term assets 16,876,962 7,447,984 Total assets 18,160,552 8,264,498 Current liabilities 778, ,792 Long-term liabilities 17,305,030 7,903,744 Total liabilities 18,083,720 8,214,536 5

11 Page 11 of 42 Net Position Governmental Activities / Government-Wide 2018 Governmental Activities / Government-Wide 2017 Net position: Net investment in capital assets $ $84,279 $ 58,928 Unrestricted (7,447) (8,966) Total net position $ 76,832 $ 49,962 The Authority s Government-Wide total net position at June 30, 2018 was $76,832. Of this amount, $84,249 was for net investment in capital assets and $7,447 was an unrestricted deficit. The net position for net investment in capital assets represents the net book value of the Authority s capital assets less the outstanding balance of the debt issued to finance the assets. On the other hand, the deficit in unrestricted net position represents a shortage in assets needed to cover the accrued interest on a note payable. Funding for any shortage at the time of a debt service payment due date will be provided by the City s General Fund. The Authority s assets totaled $18.2 million, comprised of $549 thousand in cash and investments (primarily in the 2008 Water System Certificates of Participation reserve account), $735 thousand in current receivables, $15.9 million in long-term lease receivable, and $997 thousand in capital assets. The Authority s liabilities totaled $18.1 million, comprised of the new 2018 Transportation Certificates of Participation of $10 million, 2008 Water System Certificates of Participation of $7 million, a note payable of $913 thousand, and the related accrued interest payable of $181 thousand. Changes in Net Position Governmental Activities/ Government-Wide Totals 2018 Governmental Activities/ Government-Wide Totals 2017 Revenues: General Revenues: Lease interest revenue $ 553,719 $ 419,124 Investment earnings 6,603 5,747 Total General Revenues 560, ,871 Expenses: Interest and fiscal charges 532, ,626 Depreciation expense 1,022 1,021 Total Expenses 533, ,647 Increase (decrease) in net position 26,870 21,224 Net position beginning 49,962 28,738 Net position ending $ 76,832 $ 49,962 The Authority s net position increased $26,870. The general revenues totaled $560 thousand comprised of lease interest revenue and investment earnings. The expenses totaled $533 thousand comprised of interest expense, fiscal charges and depreciation expense. 6

12 Page 12 of 42 FINANCIAL ANALYSIS OF THE AUTHORITY S FUND As noted earlier, the Authority uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Fund. The focus of the Authority s governmental fund is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Authority s financing requirements. Under Governmental Accounting Standards Board Statement No. 54 (GASB 54), any available fund balance is classified as restricted to reflect its constraint for a specific purpose, namely capital assets and debt service. At the end of the fiscal year, the Authority s fund balance reserved for debt service was $547 thousand comprised of cash and investments (primarily in the 2008 Certificates reserve account). Governmental Revenues The following table presents a summary of governmental fund revenues for the fiscal year ended June 30, 2018, compared to the prior year revenues. Amount Comparison of Governmental Revenues Fiscal Years and % of Total Amount % of Total Revenues Revenues 7 Variance % increase (decrease) Lease revenue $ 589, % $ 590, % $ (1,387) (0.2)% Investment earnings 6, % 6, % % Total $ 596, % $ 596, % $ ( 959) (0.2)% The total revenues of the governmental fund for fiscal year were $596 thousand, a decrease of $959, or 0.2%, from the preceding fiscal year. The lease revenue included amounts received from the City s Municipal Water System ($527 thousand) and two ground leases ($63 thousand). The lease revenue decreased $1,387 and investment earnings increased $428 compared to the preceding fiscal year. Governmental Expenditures The following table presents a summary of governmental fund expenditures for the fiscal year ended June 30, 2018, compared to the prior year expenditures. Governmental Expenditures Fiscal Years and Amount % of Total Expenditures Amount % of Total Expenditures Variance % increase (decrease) Debt service $ 842, % $ 599, % $ 243, % Total $ 842, % $ 599, % $ 243, % The total expenditures of the governmental fund for fiscal year were $843 thousand, of which $531 thousand was for the debt service payments on the 2008 Water System Certificates of Participation, $65 thousand was for the debt service payments on a note payable to MTB Enterprises, LLC (note executed in connection with the Butterfly Garden property acquisition), $62 thousand was for the debt service payments on the new 2018 Transportation Certificates of Participation, $183 thousand was for the new debt issuance costs, and $1,870 was for the trustee fees. The total expenditures increased $244 thousand, or 40.6%, from the preceding fiscal year. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets. At June 30, 2018, the Authority s investment in capital assets was $997 thousand. The only capital asset activity for the fiscal year was the depreciation expense on the Butterfly Garden s building and improvements in the amount of $1,022. For additional information, please refer to the notes to the basic financial statements Note 4, Capital Assets.

13 Page 13 of 42 Capital Assets Variance % increase (decrease) Land $ 948,941 $ 948,941 $ - - Buildings and improvements 47,840 48,862 (1,022) (2.1)% Total $ 996,781 $ 997,803 $ (1,022) (0.1)% Long-Term Debt. At June 30, 2018, the Authority had $17.9 million in outstanding long-term debt for governmental activities. During the fiscal year, the Authority issued new debt in the amount of $10 million and redeemed $201 thousand of principal amounts for other debt. For additional information, please refer to the notes to the basic financial statements Note 5, Long-Term Obligations. Long-Term Debt Variance % increase (decrease) 2008 Water System COPs $ 6,990,000 $ 7,165,000 $ (175,000) (2.4)% 2018 Transportation COPs 10,000,000-10,000,000 n/a Note payable 912, ,875 (26,373) (2.8)% Total $ 17,902,502 $ 8,103,875 $ 9,798, % On January 18, 2018, the Authority issued the 2018 Certificates of Participation (Regional Transit Center and Parking Structure) in the amount of $10 million to construct the Regional Transit Center and Parking Structure adding approximately 300 vehicle parking spaces. The total project budget is currently $12.1 million. ECONOMIC OUTLOOK The Authority was organized in 2006 to undertake the financing of public capital improvements and other projects for revitalization of the City. The source of repayment for the 2008 Water System Certificates of Participation is water revenues. We believe the water revenues generated by the Municipal Water System will continue to be sufficient to make the semi-annual debt service payments. The sources of repayment for the 2018 Transportation Certificates of Participation are Proposition A, Proposition C and Measure R local return funds (Los Angeles Countywide sale taxes). We believe the local return funds will continue to be sufficient to make the semi-annual debt service payments. The sources of repayment for the note payable to MTB Enterprises, LLC are ground lease revenues for a billboard and an oil booster pumping station and if necessary, the City s General Fund revenue. We believe these revenues will continue to be sufficient to make the semi-annual debt service payments. On November 8, 2016, Measure W was approved by the Bellflower residents to authorize the sale of the Municipal Water System to California American Water for $17 million. The net proceeds after paying off the existing debts, including the 2008 Water System Certificates of Participation, will be placed in the Public Projects Fund to be used to fund capital projects designed to attract new businesses, retain existing businesses, and create new community recreation facilities. It is expected that the Municipal Water System will dissolve in fiscal year following approval of the sale by the California Public Utilities Commission. CONTACTING THE AUTHORITY S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the Authority s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance, Bellflower Financing Authority, Civic Center Drive, Bellflower, CA

14 BASIC FINANCIAL STATEMENTS Page 14 of 42

15 Page 15 of 42 STATEMENT OF NET POSITION JUNE 30, 2018 (With comparative totals at June 30, 2017) Governmental Activities Assets: Current Assets Cash and cash equivalents held by the City of Bellflower $ 6,283 $ 8,299 Investments with fiscal agents 542, ,994 Interest receivable Leases receivable 570, ,000 Accrued lease interest receivable 164,052 90,005 Total Current Assets 1,283, ,514 Long-term Assets Lease receivable 15,880,181 6,450,181 Capital assets: Not being depreciated 948, ,941 Being depreciated (net of accumulated depreciation) 47,840 48,862 Total Assets 18,160,552 8,264,498 Liabilities: Current Liabilities Unearned revenue - rental payments - 2,876 Interest payable 181, ,785 Note payable 27,472 25,131 Certificates of participation 570, ,000 Total Current Liabilities 778, ,792 Long-term Liabilities Note payable 885, ,744 Certificates of participation 16,420,000 6,990,000 Total Long-Term Liabilities 17,305,030 7,903,744 Total Liabilities 18,083,720 8,214,536 NET POSITION: Net investment in capital assets 84,279 58,928 Unrestricted (7,447) (8,966) Total Net Position $ 76,832 $ 49,962 See accompanying notes to basic financial statements. 9

16 Page 16 of 42 STATEMENT OF ACTIVITIES For the fiscal year ended June 30, 2018 (With comparative totals for the fiscal year ended June 30, 2017) Net (Expense) Revenue and Changes in Net Position Program Governmental Activities Function/Program Expenses Revenues Governmental Activities: Unallocated depreciation expense $ 1,022 $ - $ (1,022) $ (1,021) Interest and fiscal charges 532,430 - (532,430) (402,626) Total Governmental Activities $ 533,452 $ - (533,452) (403,647) General Revenues: Lease interest revenue 553, ,124 Investment earnings 6,603 5,747 Total General Revenues 560, ,871 Change in Net Position 26,870 21,224 Net Position, Beginning of Fiscal Year 49,962 28,738 Net Position, End of Fiscal Year $ 76,832 $ 49,962 See accompanying notes to basic financial statements. 10

17 Page 17 of 42 BALANCE SHEET - GOVERNMENTAL FUND June 30, 2018 (With comparative totals at June 30, 2017) General Fund Assets: Cash and cash equivalents held by the City of Bellflower $ 6,283 $ 8,299 Investments with fiscal agents 542, ,994 Interest receivable Lease receivable 6,450,181 6,625,181 Total Assets 6,999,719 7,176,690 Deferred Inflows of Resources: Unavailable revenue - lease 6,450,181 6,625,181 Unavailable revenue - rental payments 2,982 2,876 Total Deferred Inflows of Resources 6,453,163 6,628,057 Fund Balances: Restricted for debt service 546, ,633 Total Fund Balances 546, ,633 Total Deferred Inflows of Resources and Fund Balance $ 6,999,719 $ 7,176,690 See accompanying notes to basic financial statements. 11

18 Page 18 of 42 RECONCILIATION OF THE GOVERNMENTAL FUND BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2018 Fund balance of governmental Fund $ 546,556 Amounts reported for governmental activities in the Statement of Net Position are different because: Unavailable lease revenue is not available to pay for current period expenditures and, therefore, is not reported in the fund financial statements: Unavailable revenue - lease 16,450,181 Accrued lease interest receivable is not available to pay for current period expenditures and, therefore, is not reported in the fund financial statements 164,052 Unavailable rental revenue is not available to pay for current period expenditures but is recognized as revenue on the Statement of Activities 2,982 Long-term liabilities are not due and payable in the current period and are not reported as fund liabilities. Interest on long-term liabilities is not accrued in the governmental fund, but rather is recognized as an expenditure when due. All liabilities, both current and long-term are reported in the Statement of Net Position. Balances at June 30, 2018 are: Certificates of Participation (16,990,000) Note payable (912,502) Interest payable (181,218) Capital assets, net of accumulated depreciation, used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds. 996,781 Net Position of governmental activities $ 76,832 See accompanying notes to basic financial statements. 12

19 Page 19 of 42 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUND For the fiscal year ended June 30, 2018 (With comparative totals for the fiscal year ended June 30, 2017) General Fund Revenues: Lease revenue $ 589,437 $ 590,824 Investment earnings 6,603 6,175 Total Revenues 596, ,999 Expenditures: Debt Service: Principal payments 201, ,537 Interest and fiscal charges 458, ,783 Debt issuance costs 182,584 - Total Expenditures 842, ,320 Excess (Deficiency) of Revenues Over Expenditures (246,811) (2,321) Other Financing Sources (Uses): Proceeds from issuance of debt 10,000,000 - Transfers in from the City of Bellflower 62,253 - Transfers out to the City of Bellflower (9,817,519) - Total Other Financing Sources (Uses) 244,734 - Net Change in Fund Balances (2,077) (2,321) Fund Balances, Beginning of Fiscal Year 548, ,954 Fund Balances, End of Fiscal Year $ 546,556 $ 548,633 See accompanying notes to basic financial statements. 13

20 Page 20 of 42 RECONCILIATION OF THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES For the fiscal year ended June 30, 2018 Net change in fund balances of governmental fund $ (2,077) Amounts reported for governmental activities in the Statement of Activities are different because: The issuance of long-term debt provides current financial resources to the governmental fund, while the repayment of the principal of long-term debt consumes the current financial resources of the governmental fund. Neither transaction, however, has any effect on net position. The amounts are the net effect of these differences in the treatment of long-term debt: Repayment of certificates of participation 175,000 Repayment of note payable 26,373 Debt issuance costs 182,584 Issuance of certificates of participation (10,000,000) The governmental fund reports capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense (1,022) Revenues in the Statement of Activities do not provide current financial resources and are not reported as revenues in the governmental fund: Receipt of lease payment and earned finance charge (97,971) Under the modified accrual basis of accounting, transfers out are recorded as other financing sources. Under the full accrual method of accounting these payments are recorded as increases to lease receivables 9,817,519 Under the modified accrual basis of accounting used in the governmental fund, revenues are recognized when the resources are measurable and become available, and interest on long-term debt is not recognized until it is due. However, in the Statement of Activities revenues and changes in interest revenue and interest expenses are recognized in the current year: Interest expense recorded under the accrual method versus the modified accrual method (73,536) Change in net position of governmental activities $ 26,870 See accompanying notes to basic financial statements. 14

21 NOTES TO BASIC FINANCIAL STATEMENTS Page 21 of 42

22 Page 22 of 42 NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2018 NOTE 1 REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES: Financial Reporting Entity: The Bellflower Financing Authority (Authority) was organized on June 26, 2006 by the City of Bellflower (the City) and the Bellflower Redevelopment Agency pursuant to the Joint Exercise of Powers Act (California Government Code Sections 6500, et seq.) to provide the financing of public capital improvements and other projects for revitalization of the City. The Authority is a component unit of the City and is accounted for in the Public Facilities Corporation Debt Service Fund and the Transportation Bond Project Debt Service Fund in the City s financial statements. The Authority functions as a separate entity and its policies are determined by the Board of Directors comprised solely of the members of the City Council. All staff work is performed by the officials and staff of the City or by consultants. Basis of Presentation The accounting policies of the Authority conform to accounting principles generally accepted the United States of America as they are applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. Government-Wide Financial Statements: The government-wide financial statements (i.e. the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government (the Authority). Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Authority s activities are governmental; no business-type activities are reported in the statements. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are expenses that are clearly identifiable with a specific program, project, function or segment. The Authority does not allocate indirect expenses to functions in the Statement of Activities. Program revenues of the Authority include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Lease revenues and investment income and other items that are properly not included among program revenues are reported instead as general revenues. 15

23 Page 23 of 42 NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2018 NOTE 1 REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (Continued): Fund Financial Statements: The accounts of the Authority are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, deferred inflows of resources, fund equity, revenues, and expenditures or expenses, as appropriate. Authority resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. The Authority s accounts are organized into one major fund as follows: Major Governmental Fund: The General Fund is used to account for the accumulation of resources for, and the payment of long-term debt principal, interest, and related costs. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances for these funds, present increases (i.e. revenues and other financing sources) and decreases (i.e. expenditures and other financing uses) in net current assets. Measurement Focus and Basis of Accounting: The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported 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. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under the current financial resources measurement focus only current assets, deferred outflows of resources, current liabilities, and deferred inflows of resources 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 fund balance. 16

24 Page 24 of 42 NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2018 NOTE 1 REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (Continued): Noncurrent portions of long-term receivables in governmental funds are reported on their balance sheets in spite of their spending measurement focus. Recognition of governmental fund type revenues represented by noncurrent receivables are deferred inflows of resources until they become available. Under the modified accrual basis of accounting, revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Lease revenue and investment earnings are susceptible to accrual. Expenditures generally are recorded when a liability is incurred, except for principal and interest on long-term liabilities which are recognized as expenditures to the extent they have matured. Proceeds of long-term liabilities are reported as other financing sources. General capital asset acquisitions are reported as expenditures in governmental funds. Deferred Outflows/Inflows of Resources: In addition to assets, the Statement of Net Position and the Governmental Fund Balance Sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority does not have any deferred outflows of resources to report. In addition to liabilities, the Statement of Net Position and the Governmental Fund Balance Sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The Authority has one item that qualifies for reporting in this category on the Governmental Fund Balance Sheet. It is unavailable revenue on lease financing. Budgets and Budgetary Accounting: Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for all governmental funds. These budgets are revised by the Authority s governing board and the Executive Director during the fiscal year, to give consideration to unanticipated income and expenditures. 17

25 Page 25 of 42 NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2018 NOTE 1 REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (Continued): 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 in the United States of America. Accordingly, such information should be read in conjunction with the Authority s prior year financial statements, from which this selected financial data was derived. Use of Estimates: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from the estimates. Assets, Liabilities, and Equity: Cash and Investments: Cash includes all demand accounts, savings accounts, and certificates of deposits of the Authority. The Authority s cash and investments, with the exception of cash and investments with fiscal agent, are pooled with the City to maximize the yield. Investments are reported in the accompanying financial statements at fair value which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Receivables: In the government-wide statements, receivables consist of all revenues earned at fiscal year-end. Major receivable balances for the governmental activities include lease charges. Under the financing method of accounting for the lease with the City, the minimum lease payable for the remaining term of the lease has been included in the assets of the Authority. Capital Assets: Capital assets, which include land and buildings and improvements, follow the City s policy and are reported in the governmental activities column in the government-wide financial statements. Capital assets are defined by the Authority as assets with a cost of $2,100 or more and an estimated useful life in excess of one year. Such capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the capital asset or materially extend capital asset lives are not capitalized. 18

26 Page 26 of 42 NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2018 NOTE 1 REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (Continued): Capital assets of the Authority are depreciated using the straight-line method over their estimated useful lives: The Authority only has Buildings and improvements which have a useful life of 20 to 50 years. Long-term Liabilities: The accounting treatment of long-term liabilities depends on whether it is reported in the government-wide or fund financial statements. All long-term liabilities to be repaid from governmental resources are reported as liabilities in the government-wide statements. The long-term liabilities consist of Certificates of Participation and note payable. Long-term liabilities for governmental funds are not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payment of principal, interest and issuance costs are reported as expenditures. Equity Classifications: Government-wide Statements Equity is classified as net position which can be further classified as net investment in capital assets, restricted, or unrestricted. Net investment in capital assets - consists of net position represented by the current net book value of the Authority s capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted net position - consists of net position with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. Unrestricted - consists of net position which is not restricted or invested in capital assets. Sometimes the Authority will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority s practice to consider restricted - net position to have been depleted before unrestricted - net position is applied. 19