Delaware State Housing Authority (Component Unit of the State of Delaware) Comprehensive Annual Financial Report

Transcription

1 Delaware State Housing Authority (Component Unit of the State of Delaware) Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2004

2 COMPREHENSIVE ANNUAL FINANCIAL REPORT DELAWARE STATE HOUSING AUTHORITY (Component Unit of the State of Delaware) For the Fiscal Year Ended June 30, 2004 Prepared by: Administration Staff

3 Delaware State Housing Authority Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2004 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal GFOA Certificate of Achievement Organizational Chart Including Principal Officers i-vi vii viii FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT MANAGEMENT S DISCUSSION & ANALYSIS 1-10 BASIC FINANCIAL STATEMENTS Entity-wide Financial Statements Statement of Net Assets 11 Statement of Activities 13 Fund Financial Statements Balance Sheet - Governmental Funds 14 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 15 Statement of Fund Net Assets - Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Funds 19 Statement of Cash Flows - Proprietary Funds Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual (Budgetary Basis) -General Fund 55 OTHER SUPPLEMENTARY INFORMATION Schedule of Activities - Entity-wide 59 Balance Sheet - Non-Major Governmental Funds Schedule of Revenues, Expenditures, and Changes in Fund Balances - Non-Major Governmental Funds Schedule of Net Assets - Proprietary Fund - Subfunds of the Federal Programs Enterprise Fund 64-65

4 Schedule of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Fund - Subfunds of the Federal Programs Enterprise Fund Schedule of Net Assets - Proprietary Fund - Subfunds of the Single Family Programs Enterprise Fund Schedule of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Fund - Subfunds of the Single Family Programs Enterprise Fund Schedule of Net Assets - Proprietary Fund - Subfunds of the Multi-Family Programs Enterprise Fund Schedule of Revenues, Expenses, and Changes in Fund Net Assets - Proprietary Fund - Subfunds of the Multi-Family Programs Enterprise Fund Schedule of Revenue Bonds Payable STATISTICAL SECTION Expenditures by Function - Governmental Funds - Last Ten Years 81 Revenues by Source - Governmental Funds - Last Ten Years 82 Net Assets and Certain Assets and Liabilities - Enterprise Fund - Last Ten Years 83 Ten Year Return on Assets - Enterprise Fund 84 Ten Year Net Assets vs. Assets - Enterprise Fund 85 Ten Year Net Assets vs. Mortgages Receivable - Enterprise Fund 86 Ten Year Cash and Investments vs. Assets - Enterprise Fund 87 Revenue Bond Coverage - Enterprise Fund 88 Legal Debt Margin Computation - Enterprise Fund 89 Mortgage Loan Delinquencies - Enterprise Fund 90 Single Family Mortgage Loan Demographics - Enterprise Fund Tenant Demographics - Public Housing Tenant Demographics - Section Bond Issues - Enterprise Fund Legal and Financial Participation Insurance in Force 103 Cumulative Number of Units Assisted 104

5 INTRODUCTORY SECTION Letter of Transmittal GFOA Certificate of Achievement Organization Chart Including Principal Officials

6 December 10, 2004 The Honorable Ruth Ann Minner Governor of the State of Delaware Carvel State Office Building 820 N. French Street Wilmington, DE Dear Governor Minner: It is my pleasure to present the Comprehensive Annual Financial Report ("CAFR") for the Delaware State Housing Authority (DSHA) for the fiscal year ended June 30, While we do produce an annual report which contains some of the information found in this document, the CAFR provides a much more in-depth, detailed analysis of our financial transactions and standing for the fiscal year ended The Administration Section of DSHA is responsible for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures. The CAFR is presented in three sections: introductory, financial and statistical. The introductory section, which is unaudited, includes this transmittal letter, the Government Finance Officers Association of the United States and Canada ("GFOA") Certificate of Achievement, and DSHA organizational chart including principal officials. The financial statement section contains the Independent Auditors Report, management s discussion and analysis, the basic financial statements of DSHA and the notes to the basic financial statements, as well as required supplementary and other supplementary information. The statistical section, which is unaudited, includes a variety of financial and demographic information, presented on a multi-year basis. DSHA is required to have an annual audit in accordance with the provisions of the federal Single Audit Act Amendments of 1996 and the related U.S. Office of Management and Budget ("OMB") Circular A-133, Audits of State, Local Governments and Non-Profit Organizations. Information related to the single audit, including a schedule of expenditures of federal awards and the required independent auditors reports, are included in a separately issued single audit report. This report has been prepared in accordance with Generally Accepted Accounting Principles ("GAAP") and in conformance with the financial reporting principles and standards established by the Governmental i

7 Governor Ruth Ann Minner December 10, 2004 Page Two Accounting Standards Board ("GASB"). Additionally, this report follows the guidelines recommended by the GFOA and will be submitted for its review and evaluation. Reporting Entity DSHA was created in 1968 by an act of the General Assembly of the State of Delaware (the "State"). DSHA, which is a public corporation, was originally established as the Department of Housing. It was organized under the Department of Community Affairs in 1970 and under the Delaware Economic Development Office in DSHA was established in 1998 as an independent agency in the Executive Department, reporting directly to the Governor of the State, institutionalizing the role of affordable housing as a key aspect of State policy. DSHA is authorized to: (1) make mortgage, construction and other loans to not-for-profit and limitedprofit housing sponsors; (2) make loans to mortgage lenders, requiring the proceeds thereof to be used for making new qualified residential mortgage loans; (3) purchase qualified mortgage loans from mortgage lenders; (4) apply for and receive assistance and subsidies under programs from the Federal government; and (5) issue bonds and notes. DSHA administers a variety of programs performing the following major roles:!housing Finance!Housing Code Enforcement!Planning/Community Development!Public Housing in Kent and Sussex Counties!Partners with other public and private agencies Economic Condition and Outlook According to the U.S. Census Bureau, Delaware s population increased from 783,600 in 2000 to 817,491 in This represents a 4.3% increase compared to a national population increase of 3.3%. The U.S. Census Bureau also reports Delaware s density of population is persons per square mile, while the national average is 79.6; and 9.2% of the state s population is below poverty compared to a national average of 12.4%. Delaware enjoyed a healthy expansion throughout most sectors of its economy during the 1990s. Its economy continues to diversify as demonstrated in the increasing importance of financial services, pharmaceuticals, and biotechnology, and the decreasing role of chemical manufacturing (though still significant.) Most of the State s prosperity over the last decade can be attributed to its diverse economy. Delaware is aggressively pursuing a high technology industry. Delaware remains an above average performer in comparison to the national economy. ii

8 Governor Ruth Ann Minner December 10, 2004 Page Three Delaware s 2003 per capita income was $33,321, representing 106% of the national average of $31,459. The State's average unemployment rate for 2003 was 4.4%, compared to the nation's average of approximately 6.0%, giving Delaware a national ranking of seventh lowest unemployment rate in the U.S., according to the Delaware Department of Labor. Delaware s housing production during 2003 totaled 8,977 units, a 20.4% increase from 2002's 7,459 units. Housing production for single and multi-family units increased from 6,331 units in 2002 to 7,786 units in 2003, according to information gathered by DSHA. Mobile home sales increased from 1,128 in 2002 to 1,191 in The Delaware economy remained sound despite a sustained national economic slowdown through the end of fiscal 2003 and into fiscal The Delaware economy is expected to continue this course. Current Major Initiatives HOME OWNERSHIP Helping more Delawareans reach the American Dream of home ownership is a priority for DSHA. In fiscal 2004, DSHA issued more than $55 million in Single Family Mortgage Revenue Bonds. The proceeds of these sales, together with previous bond issue proceeds in the Single Family Mortgage Revenue Bond Program, provided below market interest rate loans and grants up to 4% of the home s purchases price for assistance with down payment and closing costs helping nearly 1,000 families purchase homes. Through the Second Mortgage Assistance Loan Program, the Delaware Housing Partnership, and the Live Near Your Work Program, over 200 families received over $1 million in financial assistance for downpayment and closing costs to purchase existing, as well as newly-constructed homes throughout Delaware. Owning a home gives families a stake in their communities and in their futures. Since their inception, DSHA s homeownership programs have helped place more than 19,000 Delaware families in a home of their own. Currently, Delaware s homeownership rate of 77.2% is second highest in the nation, with the national average at 68.3%. DSHA is continuing to create financing tools and partnerships that will help even more Delawareans, especially minorities, achieve the American Dream. AFFORDABLE RENTAL HOUSING The Housing Development Fund ( HDF ) is the state s cornerstone for building and preserving affordable housing throughout Delaware. Since its foundation in 1968, the Fund has invested over $200 million to assist more than 17,800 families. iii

9 Governor Ruth Ann Minner December 10, 2004 Page Four In partnership with the Housing Development Fund, DSHA also utilized the HOME Investment Partnerships Program to develop affordable housing. During fiscal 2004, $895,000 in HOME funds was combined with $9.6 million in financial support from the Housing Development Fund and Construction Loan Fund to create and/or preserve 675 units. Some of the recipients of this financial support during fiscal 2004 were: (1) rental housing communities for families such as County Seat Apartments, West Court Apartments, and Overlook Colony; and (2) rental housing communities for the elderly such as County Meadows, Hurds Crossing, and Ingleside Homes. Affordable rental housing also received a boost when DSHA reserved $1.2 million in Housing Tax Credits for four developments throughout the state. These communities will receive this allotment in tax credits each year for the next ten years, and will create 190 new units of affordable rental housing. Preserving existing affordable rental housing, as well as creating additional units, is a top priority for Delaware. As affordable rental housing becomes more and more scarce, here and across the nation, DSHA has been seeking proactive ways to keep these units available, as well as creating new ones. Through our Public Housing, Section 8 Housing Choice Vouchers, Housing Tax Credit compliance monitoring and Section 8 New Construction managerial oversight, DSHA has the vast responsibility of monitoring nearly 11,000 units of affordable rental housing throughout the state. The U.S. Department of Housing and Urban Development (US Dept of HUD) conducted its Annual Compliance Review of DSHA s Contract Administration staff. This affordable housing program was found to be in full compliance and operating at a satisfactory level. In addition to preserving and creating affordable rental housing, DSHA also accepts responsibility to help other service providers and residents get access to the resources they need. In fiscal 2002, DSHA partnered with the First State Community Loan Fund to introduce Individual Development Accounts (IDA) that match up to $1,500 in savings which our residents can use as a downpayment on a home, to further their education, or to start their own business. During fiscal 2004, 77 families participated in the IDA program with five of the families using their savings to purchase a home. The Moving to Work Program continued in full swing. DSHA s partnership with the Delaware Transit Corporation also continued, which provided residents with transportation to employment and educational facilities throughout the state. Through the efforts of DSHA, resident services staff, voluteers, and community leaders, adult education courses, computer classes, after-school programs, parenting classes, homework tutoring, adolescent pregnancy prevention seminars, summer lunches, and a variety of other services were made available at DSHA sites for the residents to benefit from and enjoy. Financial literacy classes are a requirement to help better prepare residents for self-sufficiency. Finanza s, a model bilingual financial literacy program directed to Hispanic immigrants working in the poultry industry, continues to be available. iv

10 Governor Ruth Ann Minner December 10, 2004 Page Five HOUSING REHABILITATION/COMMUNITY REHABILITATION One of the biggest difficulties low- and moderate-income families face is keeping up with high cost repairs. In 2002, more than 13,000 homes throughout Delaware were substandard. DSHA has been working diligently to find ways to help protect the existing affordable housing stock for future generations to enjoy. To that end, we provide programs that individual homeowners can access, in addition to community-based programs to help preserve entire neighborhoods. In fiscal 2004, just under $3.5 million was made available through the Neighborhood Revitalization Fund, Housing Rehabilitation Loan Program, and Community Development Block Grant Program to help Delaware families repair their homes to meet State Housing Code standards. An additional 270 families also benefitted by accessing the First State Resource Conservation & Development s Emergency Home Repair Program, which received $300,000 in financial support through the Housing Development Fund. OTHER PROGRAMS DSHA continued to invest in our partners in the affordable housing industry. Housing Opportunities for Persons with AIDS served an additional 47 families with $121,000 in funding. DSHA implemented a Fair Housing Plan, which identifies specific impediments and proposed actions to help remove barriers to affordable housing. DSHA continues to seek more productive and creative ways to further expand the abilities of housing organizations and meet the ever-growing affordable housing needs of Delawareans. Other Information INDEPENDENT AUDIT The various mortgage revenue bond resolutions require an annual audit of the books of DSHA by an independent certified public accountant of recognized national standing or a firm of accountants of recognized national standing. This requirement has been fulfilled and the auditors opinion has been included in the Financial Statement section of this report. In addition, the audit meets the requirements of the federal Single Audit Act Amendment of 1996 and related OMB Circular A-133. MANAGEMENT S DISCUSSION AND ANALYSIS Management has provided a narrative overview and analysis of the financial activities of DSHA to accompany the basic financial statement in the form of Management s Discussion and Analysis (MD & A). This transmittal letter is intended to complement DSHA s MD&A and should be read in conjunction with it. DSHA s MD&A can be found following the report of the independent auditors. v

11 Governor Ruth Ann Minner December 10, 2004 Page Six AWARDS During the course of fiscal 2004, DSHA merited two national honors for excellence. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Delaware State Housing Authority for its comprehensive annual financial report for the fiscal year ended June 30, This was the ninth consecutive year that DSHA has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. DSHA was the 2004 recipient of a National Association of Housing and Redevelopment Officials (NAHRO) Award of Merit for Program Innovation/Client Services for its Delawareans Save! IDA Program. The program provides for a match of up to $1,500 for participating DSHA Public Housing and Section 8 Voucher resident families saving for the purchase of a home, business development, or postsecondary education. ACKNOWLEDGMENTS The preparation of this report was accomplished through the efficient and dedicated efforts of the Administration section and other staff members of DSHA. Sincerely, cfl:lal SAUNDRA R. JOHNSON Director Delaware State Housing Authority cc: Mark Brainard, Chief of Staff Gregory Patterson, Communications Director Joseph Schoell, Legal Counsel vi

12 Copy of Achievement Certificate vii

13 Delaware State Housing Authority Component Unit of the State of Delaware Organizational Chart Including Principal Officials Governor of the State of Delaware Ruth Ann Minner Director Delaware State Housing Authority Saundra Ross Johnson Staff of 2 Deputy Director Delaware State Housing Authority Catherine M. Gregory Staff of 1 Assistant Director Financial Management Housing Finance/ Development Administrator Chief of Community Relations Housing Management Program Administrator Housing Asset Management Administrator Director of Community Planning and Development Housing Finance/ Development Administrator Douglas Croft James Boyle Christina Dirksen Edward Strauss Susan Eliason Kim Brockenbrough Jerry Jones Staff of 26 Staff of 15 Staff of 4 Staff of 51 Staff of 4 Staff of 8 Staff of 13 viii

14 FINANCIAL SECTION Independent Auditors Report Management s Discussion and Analysis Basic Financial Statements Required Supplementary Information Other Supplementary Information

15 INDEPENDENT AUDITORS REPORT September 17, 2004 To the Delaware State Housing Authority Dover, Delaware We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Delaware State Housing Authority (the Authority ), a component unit of the State of Delaware, as of and for the year ended June 30, 2004, which collectively comprise the Authority s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Authority s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the Authority s 2003 financial statements and, in our report dated October 16, 2003, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information. 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 Governmental 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 statement 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. As discussed in Note F to the financial statements, certain errors resulting in overstatement of accrued interest were discovered by the Authority s management during the current year. Accordingly, the 2003 financial statements have been restated.

16 In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Delaware State Housing Authority, as of June 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 17, 2004 on our consideration of the Authority 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 Governmental Auditing Standards and should considered in assessing the results of our audit. The management s discussion and analysis and budgetary comparison information on pages 1 through 10 and page 55 are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation 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 Authority s basic financial statements. The introductory section, the other supplementary information in the financial section, and the statistical sectionn as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary information in the financial section has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. BARBACANE, THORNTON & COMPANY

17 Management s Discussion and Analysis The Delaware State Housing Authority (the Authority), a component unit of the State of Delaware, is a public corporation whose Director is appointed by and reports directly to the Governor of the State. The Authority s functions are to provide home ownership, affordable rental housing, and both housing and community rehabilitation assistance. Funding for the home ownership program is derived from the issuance of single family mortgage revenue bonds. The affordable rental housing programs are supported through our multi-family revenue bond issuance, Federal grant funds from the U.S. Department of Housing and Urban Development (US Dept of HUD), and the State Housing Development Fund. Housing rehabilitation is also funded through the State sponsored Housing Development Fund. Community rehabilitation is provided through grants from US Dept of HUD. As management of the 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, The Authority s Management s Discussion and Analysis (MD&A) is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the Authority s financial activity, (c) identify changes in the Authority s financial position (its ability to address the next and subsequent year challenges), and (d) identify individual fund issues or concerns. Since the MD&A is designed to focus on the current year s activities, resulting changes and currently known facts, please read it in conjunction with the Authority s financial statements (beginning on page 11). Financial Highlights The assets of the Authority exceeded its liabilities at the close of the fiscal year by $229,528,292 (net assets). Unrestricted net assets totaled $19,861,163. This amount is dedicated to the Authority s operations, pursuant to Title 31, Chapter 40 of the State of Delaware Code and the Authority s bond resolutions. The Authority s total net assets increased by $6,453,993. Business-type activities used $7,284,602 of net assets, while governmental activities added $13,738,595. At the close of the current fiscal year, the Authority s governmental funds reported combined ending fund balances of $159,285,700, an increase of $17,245,285 in comparison with the prior year. Approximately 20.9 percent of this total amount, $33,262,313, is available for spending at the Authority s discretion (unreserved fund balance). At the end of the current fiscal year, unreserved fund balance for the general fund was $19,625,237 or percent of total general fund expenditures. The Authority s total debt decreased by $69,187,664 (18.1 percent) during the current fiscal year. The Single Family Programs experienced heavy mortgage prepayments. 1

18 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Authority s basic financial statements. The Authority s basic financial statements comprise three components: 1) entity-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains supplementary information in addition to the basic financial statements themselves. Entity-wide Financial Statements The entity-wide financial statements are designed to provide readers with a broad overview of the Authority s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the Authority s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. The statement of activities presents information showing how the Authority s net assets changed during the most recent fiscal year. All changes in net assets 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 (e.g., earned but unused vacation leave). Both of the entity-wide financial statements distinguish functions of the Authority that are principally supported by state grants, interest income, and transfers (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through federal grants and interest income (business-type activities). The governmental activities of the Authority include administrative, home ownership, affordable rental housing, and housing rehabilitation. The business-type activities of the Authority include home ownership, affordable rental housing, and community rehabilitation. The entity-wide financial statements can be found on pages of this report. Fund Financial Statements A fund is a grouping 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. All of the funds of the Authority can be divided into two categories: governmental funds and proprietary funds. 2

19 Governmental Funds Governmental funds are used to account for the same functions reported as governmental activities in the entity-wide financial statements. However, unlike the entity-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 the Authority s near-term financing requirements. Because the focus of governmental funds is narrower than that of the entity-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the entity-wide financial statements. By doing so, readers may better understand the long-term impact of the government 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 between governmental funds and governmental activities to facilitate this comparison. The Authority maintains ten individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and the Housing Development Fund, both of which are considered to be major funds. Data from the other eight governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of supplementary combining schedules elsewhere in this report. The basic governmental fund financial statements can be found on pages of this report. The Authority adopts an annual appropriated budget for its General Fund. A budgetary comparison schedule has been provided for the General Fund after the notes to the financial statements to demonstrate compliance with this budget. Proprietary Funds. The Authority maintains one type of proprietary fund. Enterprise funds are used to report the same activities presented as business-type activities in the entity-wide financial statements. The Authority uses enterprise funds to account for its federal, single family, and multi-family programs. Proprietary funds provide the same type of information as the entity-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the federal programs, single family, and multi-family funds, all of which are considered to be major funds of the Authority. The basic proprietary fund financial statements can be found on pages of this report. 3

20 Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the entity-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. Other Information This report contains certain individual fund, program, and bond financial schedules which can be found on pages of this report. Entity-wide Financial Analysis Delaware State Housing Authority s Net Assets Governmental Activities Business-type Activities Total Noncapital assets $ 169,493,070 $ 150,323,026 $ 388,811,860 $ 469,604,565 $ 558,304,930 $ 619,927,591 Capital assets 2,102,321 2,202,835 18,966,391 19,119,866 21,068,712 21,322,701 Total assets 171,595, ,525, ,778, ,724, ,373, ,250,292 Long-term liabilities outstanding 10,304,158 9,659, ,171, ,551, ,475, ,211,559 Other liabilities 5,128, ,088 14,241,431 15,522,346 19,370,038 15,964,434 Total liabilities 15,432,765 10,101, ,412, ,074, ,845, ,175,993 Net Assets: Invested in capital assets, net of related debt 2,102,321 1,848,629 18,966,391 19,119,866 21,068,712 20,968,495 Restricted 134,199, ,810,226 54,399,275 61,530, ,598, ,340,628 Unrestricted 19,861,163 18,765, ,861,163 18,765,176 Total net assets $ 156,162,626 $ 142,424,031 $ 73,365,666 $ 80,650,268 $ 229,528,292 $ 223,074,299 4

21 Revenues: Program Revenues: Delaware State Housing Authority s Changes in Net Assets Governmental Activities Business-type Activities Total Charges for services $ 7,112,102 $ 5,464,300 $ 23,819,599 $ 25,867,769 $ 30,931,701 $ 31,332,069 Operating grants and contributions 3,345,000 3,476,958 39,894,578 41,352,740 43,239,578 44,829,698 Capital grants and contributions , , , ,869 General Revenues, principally Investment income 455,405 1,653,248 4,398,748 7,015,101 4,854,153 8,668,349 Total Revenues 10,912,507 10,594,506 68,534,420 75,158,479 79,446,927 85,752,985 Expenses: Administrative 5,696,664 6,029, ,696,664 6,029,516 Home Ownership 198, ,651 17,761,070 24,142,135 17,959,085 24,447,786 Affordable rental housing 1,117,949 1,465,691 42,241,404 42,565,864 43,359,353 44,031,555 Housing rehabilitation 2,869,820 4,489, ,869,820 4,489,792 Community rehabilitation - - 3,108,012 2,576,215 3,108,012 2,576,215 Total Expenses 9,882,448 12,290,650 63,110,486 69,284,214 72,992,934 81,574,864 Change in net assets before transfers 1,030,059 (1,696,144) 5,423,934 5,874,265 6,453,993 4,178,121 Transfers 12,708,536 8,249,885 (12,708,536) (8,249,885) - - Changes in net assets 13,738,595 6,553,741 (7,284,602) (2,375,620) 6,453,993 4,178,121 Net assets, beginning 142,424, ,870,290 80,650,268 83,025, ,074, ,896,178 Net assets, ending $ 156,162,626 $ 142,424,031 $ 73,365,666 $ 80,650,268 $ 229,528,292 $ 223,074,299 As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. The Authority s assets exceeded its liabilities by $229,528,292 at the close of the fiscal year. Of the Authority s total assets, 70.1 percent represent mortgage loans outstanding. Cash and investments comprise 21.4 percent of the total assets, while other noncapital assets make up 4.9 percent of total assets. Investment in capital assets accounts for 3.6 percent of total assets. Of the Authority s total liabilities, 87.8 percent consists of revenue bonds payable. Escrow deposits represent 8.1 percent of total liabilities, with miscellaneous liabilities comprising 4.1 percent of total liabilities. Restricted net assets are net assets that have to be spent for particular purposes because of the requirement of bond covenants, US Dept of HUD regulations, and State requirements. Unrestricted net assets are amounts available to be spent to meet the Authority s needs. Most (82.2 percent) of the Authority s net assets are restricted by bond covenants and federal and state grantors. Another 9.2 percent of net assets reflects the Authority s investment in capital assets (e.g. land, buildings, improvements, and equipment), less any related debt used to acquire those assets that are still outstanding. The remaining 8.6 percent of net assets are unrestricted. Net assets for the previous fiscal year had a similar composition. At the end of the current fiscal year, the Authority is able to report positive balances in all categories of net assets, both for the Authority as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. 5

22 The Authority s net assets increased by $6,453,993 during the current fiscal year. Of this amount, governmental activities net assets increased by $13,738,595 while business-type net assets decreased by $7,284,602. Of the Authority s total revenues, 54.5 percent are derived from operating grants and contributions, mostly from US Dept of HUD. Another 38.9 percent comes from charges for services which is mostly comprised of mortgage interest. Investment income represents 6.1 percent of total revenues, while capital grants make up the remaining 0.5 percent. More than half of the Authority s total expenses, or 59.4 percent, are for affordable rental housing. Another 24.6 percent of total expenses are for home ownership. Community and housing rehabilitation account for 4.3 and 3.9 percent, respectively, leaving only 7.8 percent of total costs attributable to Authority administration. During the fiscal year, net transfers of $12,708,536 were made from business-type activities to the governmental activities. The Authority s General Fund operations are supported in full by transfers of surplus funds and administrative fees from the Single and Multi-Family Programs. Governmental Activities Governmental Activities Net (Expenses)/Revenues by Function Function Expenses Revenues Fiscal 2004 Net (Exp)/Rev Fiscal 2003 Net (Exp)/Rev Administration $ 5,696,664 $ 1,923,592 $ (3,773,072) $ (4,631,562) Home ownership 198,015 1,418,494 1,220, ,821 Affordable rental housing 1,117,949 7,018,103 5,900,154 5,343,347 Housing rehabilitation 2,869,820 96,913 (2,772,907) (4,405,998) Total $ 9,882,448 $ 10,457,102 $ 574,654 $ (3,349,392) Governmental Activities Revenues by Source Fiscal 2004 Fiscal 2003 Source Revenue Percent Revenue Percent Charges for services $ 7,112,102 30% $ 5,464,300 29% Operating grants and contributions 3,345,000 14% 3,476,958 18% Other general revenues 455,405 2% 1,653,248 9% Transfers 12,708,536 54% 8,249,885 44% Total $ 23,621, % $ 18,844, % 6

23 Governmental activities increased the Authority s net assets by $13,738,595. The key elements of this increase were the net transfer of $1,270,810 of surplus funds and administrative fees from the Single Family and Multi-Family Program Funds to the General Fund and the transfer in of $11,476,498 in mortgage loans from the business-type activities. Additionally, governmental activities had revenues in excess of expenditures of $1,030,059. Governmental expenses decreased from fiscal 2003 for the following reasons: (1) there was a substantial decrease in loans granted in the Neighborhood Revitalization Fund (NRF) for fiscal 2004; and (2) in fiscal 2003, the Authority established additional allowances for uncollectible loan principal increasing expenses for that year. During fiscal 2004 there were only adjustments to these allowances. Business-type Activities Business-type Activities Net (Expenses)/Revenues by Function Function Expenses Revenues Fiscal 2004 Net (Exp)/Rev Fiscal 2003 Net (Exp)/Rev Home ownership $ 17,761,070 $ 15,515,393 $ (2,245,677) $ (6,489,822) Affordable rental housing 42,241,404 45,512,267 3,270,863 5,348,986 Community rehabilitation 3,108,012 3,108, Total $ 63,110,486 $ 64,135,672 $ 1,025,186 $ (1,140,836) Business-type Activities Revenues by Source Fiscal 2004 Fiscal 2003 Source Revenue Percent Revenue Percent Charges for services $ 23,819,599 35% $ 25,867,769 34% Operating grants and contributions 39,894,578 58% 41,352,740 55% Capital grants and contributions 421,495 1% 922,869 1% Other general revenues 4,398,748 6% 7,015,101 10% Total $ 68,534, % $ 75,158, % Business-type activities decreased the Authority s net assets by $7,284,602. The key elements of this decrease were the net transfer of surplus funds, administrative fees, and mortgage loans from Single Family and Multi-Family Program Funds to governmental activities totaling $12,747,308 and net losses in the Federal Public Housing Program of $754,014 and Section 8 Contract Administration Program of $218,752 for fiscal These decreases were offset by the Federal HOME Program grant revenue of $1,916,321, used to generate mortgages, and investment income of $4,398,748. Financial Analysis of the Authority s Funds As noted earlier, the Authority uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. 7

24 Governmental Funds The focus of the Authority s governmental funds 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. In particular, unreserved fund balance may serve as a useful measure of the Authority s net resources available for spending at the end of the fiscal year. As of the end of the fiscal year, the Authority s governmental funds reported combined ending fund balances of $159,285,700, an increase of $17,245,285 in comparison with the prior year. Approximately 21 percent of this total amount, $33,262,313, constitutes unreserved fund balance, which is available for spending at the Authority s discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it is comprised of long-term loans receivables. The General Fund is the chief operating fund of the Authority. At the end of the current fiscal year, unreserved fund balance of the General Fund for the Authority s purposes was $19,625,237. The fund balance of the Authority s General Fund increased by $1,095,987 during the current fiscal year. The key factor in this increase is the investment balance increase of $1,566,501, due mainly to the transfer of surplus funds from the Single Family and Multi-Family Program Funds to the General Fund. The HDF has a total fund balance of $112,808,875, of which $83,816,776 is reserved for mortgages. An additional $14,089,528 has been reserved and legally segregated for loan commitments. The net increase in fund balance during the current year in the HDF was $6,228,484. The increase is mostly the result of a $3,304,000 grant from the State which was used to generate mortgages, $2,291,313 in interest income, and $1,675,427 in fee revenue offset by administrative and grant expenditures of $332,331 and $785,618 respectively. Proprietary Funds The financial statements for the Authority s proprietary funds, which are all enterprise funds, provide the same type of information found in the entity-wide financial statements, but in more detail. Restricted net assets of the Federal Programs Fund at the end of the year amounted to $28,277,076, and those for Single Family and Multi-Family Programs Funds amounted to $8,738,269 and $17,383,930 respectively. The total change in net assets for these funds was $1,433,345, ($11,806,491), and $3,088,544, respectively. Other factors concerning the finances of these three funds have already been addressed in the discussion of the Authority s business-type activities. General Fund Budgetary Highlights There were no differences between the General Fund s total original budget and the total final amended budget for fiscal During the year expenditures were $370,966 (10.4%) less than budgetary estimates. In all areas the Authority was under budget as follows: Salary and other employment costs $206,474 Travel 14,825 Contractual services 84,951 Energy 14,870 Supplies and materials 49,846 Total under budget amount $370,966 8

25 Due to the slowing economy, the State imposed a hiring freeze which resulted in an under variance in salaries and other employment costs. Additionally, the Authority took measures to reduce spending in the remaining budget categories. Capital Asset and Debt Administration Capital Assets. The Authority s investment in capital assets for its governmental and business type activities as of June 30, 2004, amounts to $21,068,712 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, and equipment. The total decrease in the Authority s investment in capital assets for the current fiscal year was 1.19 percent (a 4.56 percent decrease for governmental activities and a 0.8 percent decrease for business-type activities). Major capital asset events during the fiscal year included the following: Retaining wall and sidewalk construction at one public housing site. HVAC and plumbing upgrades at two public housing sites. HVAC, window, and bathroom upgrades began at one public housing site. Delaware State Housing Authority s Capital Assets (net of depreciation) Governmental Activities Business-type Activities Total Land $ 797,960 $ 797,960 $ 2,421,242 $ 2,470,228 $ 3,219,202 $ 3,268,188 Buildings 1,160,170 1,222,610 11,434,306 12,270,994 12,594,476 13,493,604 Depreciable Land/Site Improvements 19,958 29,936 5,059,787 4,323,520 5,079,745 4,353,456 Computer equipment 113, , , ,243 Equipment ,056 55,124 51,056 55,124 Telecom equipment 10,412 14, ,412 14,087 Total $ 2,102,321 $ 2,202,836 $ 18,966,391 $ 19,119,866 $ 21,068,712 $ 21,322,702 Additional information on the Authority s capital assets can be found in note IV., D. on page 37 of this report. Long-term Debt At the end of the current fiscal year, Delaware State Housing Authority had total bonded debt outstanding of $307,212,932. The Authority s debt represents bonds secured solely by specified revenue sources (i.e. revenue bonds). 9

26 Delaware State Housing Authority s Outstanding Debt Governmental Activities Business-type Activities Total Notes payable $ 4,630,375 $1,221,460 $ 647,997 $ 845,444 $ 5,278,372 $ 2,066,904 Revenue Bonds payable ,212, ,612, ,212, ,612,064 Total $ 4,630,375 $1,221,460 $ 307,860,929 $ 380,457,508 $ 312,491,304 $ 381,678,968 The Authority s total debt decreased by $69,187,664 (18.1 percent) during the current fiscal year. The key factors in this decrease were bond calls of $121,794,592 and scheduled bond maturities of $7,870,000, netted by new bond issuance of $55,020,941 in the Single Family Programs Enterprise Fund and new debt issued in the amount of $3,763,121 in the Construction Loan Program, a non-major governmental fund. The bond calls of $113,374,592 in the Single Family Programs Enterprise Fund were a result of heavy prepayments in all of the Single Family Programs and the refunding of Home Ownership Mortgage Revenue Bond 1989 Series A and B, 1990 Series A, 1991 Series A and B, 1993 Series A with the Single Family Mortgage Revenue Bond 2003 Series B. A Multi-Family Program Enterprise Fund call of $6,835,000 was a result of mortgage payoffs in the Multi-Family Mortgage Revenue Refunding Bond 2001 Series A. The Authority maintains a range of BB to AAA ratings from Standard & Poor s and a range of A1 to Aaa ratings from Moody s for revenue bonds. The Authority is authorized to issue bonds and notes in order to exercise its authorized powers. As of June 30, 2004, the Authority s total bonded debt limitation was $350 million for bonds subject to the Capital Reserve Fund Provision. The Capital Reserve Fund is a special fund held by the State of Delaware, established to secure a small portion of the Authority s bonds. As of June 30, 2004, there are no bonds outstanding subject to that limitation. To issue debt subject to Capital Reserve requirements in excess of this limitation would require approval of the State of Delaware General Assembly. There is no State limit on Authority bonds not subject to the Capital Reserve Fund provision; however, the Authority must abide by federal private activity caps. Authority bonds and notes issued are not the debt of the State of Delaware and the State is not liable for repayment of such debt. Additional information on the Authority s long-term debt can be found in note IV., F. on pages of this report. Economic Factors and Next Year s Budget and Rates The Authority budgeted salary and other employment cost increases of $336,474; travel expense decreases of $12,175; energy cost increases of $13,670, general contractual service and supply cost increases of $200,297 for an average budget increase of 16.8 percent over fiscal 2004 actual expenditures. The Authority considered increases in health care costs and pension contributions, in addition to general cost inflation, in preparing its General Fund budget for the 2005 fiscal year. Requests for Information This financial report is designed to provide a general overview of the Authority s finances for all those with an interest in the Authority s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Assistant Director, Financial Management, Delaware State Housing Authority, 18 The Green, Dover, DE

27 DELAWARE STATE HOUSING AUTHORITY STATEMENT OF NET ASSETS JUNE 30, 2004 (WITH SUMMARIZED INFORMATION AS OF JUNE 30, 2003) GOVERNMENTAL ACTIVITIES BUSINESS-TYPE ACTIVITIES ASSETS Current assets: Cash and cash equivalents $ 12,388 $ 153,771 $ 166,159 $ 1,146,889 Investments 26,030,558 8,893,775 34,924,333 51,157,848 Mortgages receivable 1,842,820 55,061,790 56,904,610 61,883,969 Accrued interest & other receivables 12,665,541 5,406,070 18,071,611 17,797,063 Grants receivable - US Dept of HUD - 229, , ,334 Internal balances (304,011) 304, Prepaid expenses 34,230 2,519,246 2,553,476 2,505,924 Deferred bond issuance costs - 595, , ,440 Total current assets 40,281,526 73,163, ,444, ,257,467 Non-current assets: Investments 24,474,928 64,354,812 88,829,740 92,652,469 Mortgages receivable, net 102,436, ,667, ,103, ,852,772 Accrued interest & other receivables, net - 2,500,364 2,500,364 1,971,856 Internal balances 2,300,100 (2,300,100) - - Deferred bond issuance cost - 4,426,211 4,426,211 5,193,027 Capital assets: Land 797,960 2,421,242 3,219,202 3,268,188 Depreciable assets - net of accumulated depreciation 1,304,361 16,545,149 17,849,510 18,054,513 Total non-current assets: 131,313, ,615, ,928, ,992,825 TOTAL ASSETS $ 171,595,391 $ 407,778,251 $579,373,642 $ 641,250,292 LIABILITIES Current liabilities: Accounts payable and other current liabilities $ 483,798 $ 4,163,891 $ 4,647,689 $ 3,809,746 Due to St of Delaware-pension costs 6,645 1,124 7,769 6,751 Accrued arbitrage rebate payable - 917, , ,521 Compensated absences payable 7,789 5,049 12,838 16,373 Accrued interest payable - 104, , ,894 Nonrefundable deferred commitment fees - 161, , ,812 Notes payable 4,630,375 46,787 4,677, ,986 Revenue bonds payable - 8,841,096 8,841,096 11,240,351 Total current liabilities 5,128,607 14,241,431 19,370,038 15,964,434 Non-current liabilities: Accrued arbitrage rebate payable - 371, , ,507 Compensated absences payable 587, , , ,525 Escrow Deposits 9,716,458 18,546,074 28,262,532 27,829,582 Nonrefundable deferred commitment fees - 2,111,642 2,111,642 2,534,314 Notes payable - 601, ,210 1,850,918 Revenue bonds payable - 298,371, ,371, ,371,713 Total non-current liabilities 10,304, ,171, ,475, ,211,559 TOTAL LIABILITIES 15,432, ,412, ,845, ,175,993 NET ASSETS Invested in capital assets, net of related debt 2,102,321 18,966,391 21,068,712 20,968,495 Restricted by federal and state regulations 120,111,639 28,277, ,388, ,998,634 Restricted by bond covenants - 26,122,199 26,122,199 34,840,146 Restricted for other purposes 14,087,503-14,087,503 5,501,848 Unrestricted, for Authority s purposes 19,861,163-19,861,163 18,765,176 TOTAL NET ASSETS 156,162,626 73,365, ,528, ,074,299 TOTAL LIABILITIES & NET ASSETS $ 171,595,391 $ 407,778,251 $579,373,642 $ 641,250,292 The accompanying notes are an integral part of the financial statements. 11