La Mesa Community Redevelopment Agency. Basic Financial Statements and Independent Auditor s Reports

Transcription

1 La Mesa Community Redevelopment Agency Basic Financial Statements and Independent Auditor s Reports For the year ended June 30, 2011

2 LA MESA COMMUNITY REDEVELOPMENT AGENCY Basic Financial Statements For the year ended June 30, 2011 Table of Contents Page Independent Auditor's Report 1 Management's Discussion and Analysis (Required Supplementary Information) 3 Basic Financial Statements Government-Wide Financial Statements: Statement of Net Assets 8 Statement of Activities and Changes in Net Assets 9 Fund Financial Statements: Govermental Funds: Balance Sheet 10 Reconciliation of the Govermental Funds Balance Sheet to the Government-Wide Statement of Net Assets 12 Statement of Revenues, Expenditures, and Changes in Fund Balances 13 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Assets 15 Notes to Basic Financial Statements 16 Supplemental Information: Non-Major Governmental Funds: Combining Balance Sheet 30 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 31 Report of Internal Control over Financial Reporting and on Compliance and Other Matters based on an Audit of Financial Statement Performed in Accordance with Government Auditing Standards 32 Independent Auditor's Report on Compliance with Health and Safety Code 34 Section Computation of Low and Moderate Income Housing - Excess Surplus 36

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4 To the Board of Directors of the La Mesa Community Redevelopment Agency La Mesa, California As explained in Note 11 of these financial statements, it is uncertain as to the future continuation of redevelopment agencies (a material component unit in the City s financial statements) in the State of California as a result of certain legislative actions enacted by the California State Legislature. In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2011, on our consideration of the Agency's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis as listed 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 required supplementary information 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 information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Agency s financial statements as a whole. The combining nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain other procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements, as a whole. November 29,

5 Management's Discussion and Analysis As management of the La Mesa Community Redevelopment Agency (Agency), we offer readers of these financial statements this narrative overview and analysis of the financial activities of the Agency for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with the Basic Financial Statements and attached notes. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Agency's basic financial statements. The Agency's basic financial statements include three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the Agency's finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the Agency's assets and liabilities, with the difference between the two as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Agency is improving or deteriorating. The statement of activities presents information showing how the government'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., uncollected taxes and earned, but unused vacation leave). The governmental activities of the Agency include general administration and economic development, low and moderate income housing funds, and debt service. Assessment District Debt Service Funds 90-1 and 98-1 although separate, function, for all practical purposes, as funds of the Agency, and therefore have been included as an integral part of the primary government. 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 Agency, 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 Agency are considered governmental funds for accounting and financial presentation purposes. -3-

6 Governmental funds. 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 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 to facilitate this comparison between governmental funds and governmental activities. The Agency 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 Central, Fletcher Parkway, Alvarado Creek, AD 90-1 and AD 98-1 debt service funds, as well as the Fletcher Parkway Low and Moderate Income Housing, and Alvarado Creek Low and Moderate Income Housing capital projects funds. These funds are considered to be major funds. Data from the other three governmental funds (Fletcher Parkway, Central and Alvarado Creek capital project funds) are combined into a single aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. Notes to the financial statements. The notes provide additional information that is essential to fully understanding the data provided in the government-wide and fund financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. However, in the case of the Agency, net assets may not be a true indication of its financial viability. The Agency's net assets are expected to be negative because its investment in assets is primarily in City owned property, and other than property held for resale, it does not hold property in its own name. Under State Law, the Agency needs to show indebtedness in order to be eligible to receive tax increment. With that understanding, total Agency liabilities exceed total assets by $61,297,424. Non-current liabilities including advances from the City of La Mesa and long-term bonds payable totaling $69,976,996 are responsible for this large net deficit. Advances from the City consist mostly of deferred annual interest payments owed on original monies loaned to the Agency. The remaining liabilities consist mainly of long-term debt brought on by developer agreements to service assessment district bonds used to finance infrastructure projects within the various project areas. The Agency anticipates future resources will be sufficient to service the annual debt payments required. It should be noted that of the $1,469,527 in restricted net assets, $689,162 is restricted for low and moderate income housing purposes. These monies are available in the two low and moderate income housing capital projects funds. The remaining $780,365 in restricted funds is reserved for debt service. -4-

7 The Agency's net assets decreased by $2,044,669 during the current fiscal year. The decrease can be attributed mainly to interest expense accrued on advances due to the City of La Mesa. La Mesa Community Redevelopment Agency Statement of Net Assets Governmental Activities ASSETS Current and other assets $ 1,544,207 $ 1,685,156 Capital assets 8,350,000 8,350,000 Total assets 9,894,207 10,035,156 LIABILITIES Long-term liabilities outstanding 69,976,996 68,094,623 Other liabilities 1,214,635 1,193,288 Total liabilities 71,191,631 69,287,911 NET ASSETS: Invested in capital assets, net of related debt 3,445,000 2,345,000 Restricted 1,469,527 1,554,966 Unrestricted (66,211,951) (63,152,721) Total net assets $ (61,297,424) $ (59,252,755) Governmental activities. Tax increment revenues grew $269,140 (7.9%) from the previous fiscal year. This increase exceeds the overall property tax rate growth in La Mesa primarily due to the continued development of a new apartment complex within the Fletcher Parkway project area. Overall investment earnings decreased by $60,242 due to continued low investment rates coupled with fewer cash reserves for investments. Agency operating expenditures for fiscal year decreased from the prior year by $2,408,458 (80%). This decrease is due to the one-time payments made to Fairfield Grossmont Trolley, LLC (Fairfield) in the prior fiscal year ($1,512,062) for the inclusion of low and moderate housing units in their apartment complex development on Fletcher Parkway, as well as one-time payments to the State of California ($1,082,107). The Fairfield project was completed during the prior fiscal year, and there will be no more future payments. Interest on long-term debt decreased from the prior year by $48,331 (1.0%). -5-

8 La Mesa Community Redevelopment Agency Changes in Net Assets Governmental Activities REVENUE General revenues: Property taxes $ 3,657,200 $ 3,388,060 Investment Earnings 69, ,727 Miscellaneous/Transfers from City (391,842) (372,517) Total Revenues 3,334,843 3,145,270 EXPENDITURES Community development 592,690 3,001,148 Interest on long-term debt 4,786,822 4,835,153 Total expenditures 5,379,512 7,836,301 Change in net assets (2,044,669) (4,691,031) Net assets-beginning of year (59,252,755) (54,561,724) Net assets-end of year $ (61,297,424) $ (59,252,755) FINANCIAL ANALYSIS OF THE AGENCY S FUNDS As noted earlier, the Agency uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental funds. The focus of Agency's governmental funds is to provide information on near-term inflow, outflows, and balances of available resources. Such information is useful in assessing the Agency's financing requirements. The unreserved fund balance of the governmental funds shows a deficit position of $65,709,152 and a decrease of $2,426,909 from the prior year. Advances from the City of La Mesa totaling $65,771,996 cause this huge deficit. The advances from the City increased this fiscal year over last by $2.2 million. The majority of this advance is deferred interest accumulated over the life of the advance. Because the advances are deferred, the Agency's financial position is not as tenuous as it may appear. However, all available resources for the Agency are committed to capital projects ($689,162) and debt service ($780,365). Interest on the advance from the City in the Central Debt Service fund accounted for the majority of the decrease. With the implementation of the GASB Statement No. 34, advances from the City of La Mesa, including deferred interest and amounts due for the Police Station site, are presented in the appropriate debt service and capital project funds. The advances from the City were previously shown in the General Long Term Debt Group, separate from these funds. This presentation has dramatically changed the fund balances of these funds. The negative fund balances displayed for each of the project area debt service funds and the Alvarado Creek Housing Set Aside Fund reflects the advances due to the City. As annual deferred interest is added to the total advances due the City, the debt service fund balance deficits are expected to grow. The Alvarado Creek Housing Set Aside balance deficit will decrease with scheduled annual payments to the City for the Police Station property. -6-

9 DEBT ADMINISTRATION Long-term debt. At the end of the fiscal year , the Agency had total bonded special assessment debt outstanding of $5,305,000. The Agency has various agreements with developers to pay the debt service on these bonds. Refer to the Notes to Basic Financial Statements for a more detailed display of the aforementioned debt. No new debt was issued during the current fiscal year. Agency payments decreased the debt by $375,000 during this fiscal year. La Mesa Community Redevelopment Agency Outstanding Debt Governmental Activities Special Assessement debt with governmental commitment $ 5,305,000 $ 5,680,000 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS The future of redevelopment is essentially at a standstill, with the State of California s attempts to abolish redevelopment altogether and the League of California Cities/California Redevelopment Association s challenges through the courts. On September 13, 2011, the Agency approved a resolution adopting the provisions of Assembly Bill x1 27, which provides a means to continue to exist and make certain payments to the County Auditor Controller in fiscal year and annual payments each fiscal year thereafter. Property tax increment revenues are anticipated to be such that all debt service and annual payments to the County Auditor Controller, should be required, would be met. Additional information regarding this legislation and its effect on the Agency can be found in the Subsequent Events section located in the Notes to the Basic Financial Statements. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Agency's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the La Mesa Community Redevelopment Agency / City of La Mesa Finance Department, 8130 Allison Avenue, La Mesa, CA

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11 BASIC FINANCIAL STATEMENTS

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13 LA MESA COMMUNITY REDEVELOPMENT AGENCY Statement of Net Assets June 30, 2011 Governmental Activities ASSETS Current assets: Cash and investments $ 760,712 Accounts receivable 73,693 Total current assets 834,405 Noncurrent assets: Restricted cash and investments 709,802 Capital assets: Non-depreciable 8,350,000 Total noncurrent assets 9,059,802 Total assets 9,894,207 LIABILITIES Current liabilities: Accounts payable 1,772 Interest payable 102,799 Salaries payable 10,064 Advance from City of La Mesa, due within one year 700,000 Long-term debt, due within one year 400,000 Total current liabilities 1,214,635 Non-current liabilities: Advance from City of La Mesa, due in more than one year 65,071,996 Long-term debt, due in more than one year 4,905,000 Total noncurrent liabilities 69,976,996 Total liabilities 71,191,631 NET ASSETS Invested in capital assets, net of related debt 2,300,000 Restricted for: Low and moderate income housing 689,162 Debt service 780,365 Total restricted 1,469,527 Unrestricted (deficit) (65,066,951) Total net assets (deficit) $ (61,297,424) The accompanying notes are an integral part of these financial statements. -8-

14 LA MESA COMMUNITY REDEVELOPMENT AGENCY Statement of Activities and Changes in Net Assets For the year ended June 30, 2011 Program Revenues Governmental Operating Capital Activities Net Charges for Contributions Contributions (Expenses) Expenses Services and Grants and Grants Revenues Primary government: Community Development $ 592,690 $ - $ - $ - $ (592,690) Interest on long-term debt 4,786, (4,786,822) Total governmental activities $ 5,379,512 $ - $ - $ - (5,379,512) General revenues: Property taxes 3,657,200 Investment earnings 69,485 Transfers to City of La Mesa (391,842) Total general revenues and transfers 3,334,843 Change in net assets (2,044,669) Net assets (deficit), beginning of year (59,252,755) Net assets (deficit), end of year $ (61,297,424) The accompanying notes are an integral part of these financial statements. -9-

15 FUND FINANCIAL STATEMENTS

16 LA MESA COMMUNITY REDEVELOPMENT AGENCY Governmental Funds Balance Sheet June 30, 2011 Major Funds Fletcher Alvarado Central Parkway Creek Redevelopment Redevelopment Redevelopment Projects Projects Projects Debt Service Debt Service Debt Service Assets Cash and investments $ - $ 3,887 $ - Restricted cash and investments Due from other funds Accounts receivable 25,736 23,355 5,674 Total assets $ 25,736 $ 27,242 $ 5,674 Liabilities and Fund Balances Liabilities: Accounts payable $ - $ - $ - Salaries payable Due to other funds 1, Advance from City of La Mesa 47,863,949 3,463,424 8,394,623 Total liabilities 47,865,682 3,463,424 8,394,623 Fund balances: Restricted for: Capital projects Debt service Unassigned (47,839,946) (3,436,182) (8,388,949) Total fund balances (deficit) (47,839,946) (3,436,182) (8,388,949) Total liabilities and fund balances $ 25,736 $ 27,242 $ 5,674 The accompanying notes are an integral part of these financial statements. -10-

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19 LA MESA COMMUNITY REDEVELOPMENT AGENCY Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets June 30, 2011 Fund balances (deficit) of governmental funds $ (64,239,625) Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in govermental activities are not financial resources and therefore are no reported in the funds. Nondepreciable 8,350,000 Long-term liabilities applicable to the Agency's govermental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. All liabilities - both current and long-term are reported in the statement of net assets. Interest Payable (102,799) Bonds Payable (5,305,000) Net assets (deficit) of governmental activities $ (61,297,424) The accompanying notes are an integral part of these financial statements. -12-

20 LA MESA COMMUNITY REDEVELOPMENT AGENCY Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the year ended June 30, 2011 Major Funds Fletcher Alvarado Central Parkway Creek Redevelopment Redevelopment Redevelopment Projects Projects Projects Debt Service Debt Service Debt Service Revenues: Property tax increments $ 932,807 $ 1,809,647 $ 369,867 Use of money and property 3,281 7, Total revenues 936,088 1,816, ,050 Expenditures: Current: Community development Debt service: Principal Interest and fiscal charges 3,397, , ,646 Total expenditures 3,397, , ,646 Excess (deficiency) of revenues over (under) expenditures (2,460,922) 1,422,659 (310,596) Other financing sources (uses): Transfers from City of La Mesa ,158 Transfers to City of La Mesa - (600,000) - Transfers in Transfers out (46,126) (610,662) (580,938) Total other financing sources (uses) (46,126) (1,210,662) (372,780) Net change in fund balances (2,507,048) 211,997 (683,376) Fund balances (deficits), beginning of year (45,332,898) (3,648,179) (7,705,573) Fund balances (deficits), end of year $ (47,839,946) $ (3,436,182) $ (8,388,949) The accompanying notes are an integral part of these financial statements. -13-

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22 LA MESA COMMUNITY REDEVELOPMENT AGENCY Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Assets For the year ended June 30, 2011 Net change in fund balances - total governmental funds $ (2,426,909) Amounts reported for governmental activities in the statement of activities differs from the amounts reported in the statement of activities because: Repayment of debt service principal and capital lease liabilities are expenditures in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 375,000 Accrued interest for debt service. This is the net change in accrued interest for the current period. 7,240 Change in net assets of governmental activities $ (2,044,669) The accompanying notes are an integral part of these financial statements. -15-

23 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the La Mesa Community Redevelopment Agency (Agency) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the Agency's accounting policies are described below. A. Description of Reporting Entity The La Mesa Community Redevelopment Agency (Agency) was activated in November 1973, by the City of La Mesa, California (City) pursuant to the State of California Health and Safety Code, Section 33101, entitled Community Redevelopment Law. The primary purpose of the Agency is to eliminate blighted areas by encouraging development of residential, commercial, industrial, recreational and public facilities. GASB Statement No. 14, The Financial Reporting Entity, defines the reporting entity as the primary government and those component units for which the primary government is, or has the potential to be, financially accountable. Financial accountability is defined as appointment of a voting majority of the component unit's Board and either (a) the primary government has the ability to impose its will or (b) the possibility that the component unit will provide a financial benefit to or impose a financial burden on the primary government. Since the City Council of the City also serves as the Board of Directors of the Agency, the City, in effect, has the ability to influence and control operations. Therefore, the City has oversight responsibility for the Agency. Accordingly, in applying the criteria of GASB Statement No. 14, the Agency is considered to be a blended component unit of the City and is included in the City's annual financial report. B. Basis of Accounting/Measurement Focus The accounts of the Agency are organized on the basis of funds, each of which is considered 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, fund equity, revenues, and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Government - Wide Financial Statements The Agency's Government-Wide Financial Statements include a Statement of Net Assets and a Statement of Activities and Changes in Net Assets. These statements present summaries of governmental activities for the Agency. -16-

24 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) B. Basis of Accounting/Measurement Focus (continued) These basic financial statements are presented on an economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the Agency's assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Assets. The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Certain types of transactions are reported as program revenues for the Agency in three categories: Charges for services Operating grants and contributions Capital grants and contributions The Agency did not have any program revenues for the year ended June 30, Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities, payables and receivables. The following interfund activities have been eliminated: Transfers in/ out Governmental Fund Financial Statements Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major governmental funds. An accompanying schedule is presented to reconcile and explain the differences in net assets as presented in these statements to the net assets presented in the government-wide financial statements. The Agency has presented all major funds that meet those qualifications. All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. -17-

25 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) B. Basis of Accounting/Measurement Focus, (continued) Revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the Agency, are property tax, sales tax, intergovernmental revenues and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. Deferred revenues arise when potential revenues do not meet both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues also arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods when both revenue recognition criteria are met or when the government has a legal claim to the resources, the deferred revenue is removed from the combined balance sheet and the revenue is recognized. The Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach of GASB Statement No. 34. C. Cash and Investments The City pools cash resources from all funds in order to facilitate the management of cash and achieve the goal of obtaining the highest yield with the greatest safety and least risk. The balance in the pooled cash account is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing accounts and other investments for varying terms. In accordance with Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, highly liquid money market investments with maturities of one year or less at the time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF) which has invested a portion of the pooled funds in structured notes and asset-backed securities. LAIF determines fair value on its investment portfolio based on market quotations for those securities where market quotations are readily available and based on amortized cost or best estimate for those securities where market value is not readily available. LAIF's investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these investments are subject to market risk as to change in interest rates. -18-

26 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C. Cash and Investments, (continued) Cash equivalents are considered amounts in demand deposits and short-term investments with a maturity date within three months of the date acquired by the Agency and are presented as "Cash and Investments" in the accompanying component unit financial statements. In accordance with GASB Statement No. 40, Deposit and Investment Risk Disclosure (An amendment of GASB Statement No.3), certain disclosure requirements, if applicable, for deposit and investment risks are specified for the following areas: Interest Rate Risk Credit Risk Overall Custodial Credit Risk Concentration of Credit Risk Foreign Currency Risk D. Capital Assets The Agency's assets are capitalized at historical cost or estimated historical cost. Agency policy has set the capitalization threshold for reporting general fixed assets at $5,000. Gifts or contributions of capital assets are recorded at fair market value when received. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Buildings and Improvements Improvements other than buildings Machinery and Equipment Infrastructure 40 years 40 years 5 10 years years In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34 which requires the inclusion of infrastructure capital assets in local governments' basic financial statements. The Agency did not have any infrastructure capital assets at June 30,

27 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E. Long-Term Debt Government-Wide Financial Statements Long-term debt and other financed obligations are reported as liabilities in the appropriate funds. Bonds, premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of applicable premium, or discount. Issuance costs are reported as deferred charges. Fund Financial Statements The fund financial statements do not present long-term debt, but it is shown in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets. F. Fund Balance Beginning with the current fiscal year, the Agency implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government s fund balance more transparent. The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used: Nonspendable amounts that are not in a spendable form (such as inventory) or are required to be maintained intact. Restricted amounts constrained to specific purposes by their providers (such as grantors, bondholders and higher levels of government), through constitutional provisions or by enabling legislation. Committed amounts constrained to specific purposes by a government itself, using the highest level of decision-making authority; to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest level action to remove or change the constraint. -20-

28 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) Assigned amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official or body to which the governing body delegates the authority. Unassigned amounts that are for any purpose; positive amounts are reported only in a general fund. The City Council, acting as the Agency s Board, establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance or resolution. G. Net Assets In the Government-Wide Financial Statements, net assets are classified in the following categories: Invested in Capital Assets, Net of Related Debt - This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or improvement of the assets. Restricted Net Assets - This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. Unrestricted Net Assets - This amount is all net assets that do not meet the definition of "invested in capital assets, net of related debt" or "restricted net assets." H. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. ORGANIZATION AND TAX INCREMENT FINANCING The Agency has established three redevelopment project areas known as (1) Central Area Redevelopment Project encompassing approximately 60 acres in the central portion of the City, (2) the Fletcher Parkway Redevelopment Project encompassing approximately 50 acres, and (3) the Alvarado Creek Redevelopment Project encompassing approximately 70 acres. The Agency s goals for the project areas include the elimination of blighted conditions, encouragement of rehabilitation, rebuilding and development and economic revitalization, among other objectives. -21-

29 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, ORGANIZATION AND TAX INCREMENT FINANCING, (continued) The Agency's primary source of funding, other than loans and advances from the City and bond proceeds, is property taxes, referred to in the accompanying financial statements as "tax increment revenue". Property taxes allocated to the Agency are computed in the following manner: The assessed valuation of all property within the project area is determined on the date of adoption of the Redevelopment Plan; and Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are allocated to the Agency; all taxes on the "frozen" assessed valuation of the property are allocated to the City and other districts. Under California law, property taxes are assessed and collected by the counties at 1 % of assessed value, plus other increases approved by the voters. The property taxes are pooled, and are then allocated to the cities based on complex formulas. Accordingly, the Agency accrues only those taxes which are received within 60 days after year-end. The Agency's property taxes are levied by the San Diego County Assessor and collected by the San Diego County Treasurer. Secured property taxes are levied on July 1 based on the previous March 1 assessed values as determined by the San Diego County Assessor. Secured taxes are due in two equal installments on November 1 and February 1 following the levy date and become delinquent on December 10 and April 10 following the levy date. The Agency has no power to levy and collect taxes, and any legislative property tax decrease might reduce the amount of tax revenues that would otherwise be available to pay the principal of, and interest on, bonds or loans from the City. Broadened property tax exemptions could have a similar effect. Conversely, any increase in the tax rate or assessed valuation, or any reduction or elimination of present exemptions would increase the amount of tax revenues that would be available to pay principal and interest on bonds or loans from the City. 3. CASH AND INVESTMENTS At June 30, 2011, cash and investments consisted of the followings: Cash and investments $ 760,712 Restricted cash and investments 709,802 Total $ 1,470,

30 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, CASH AND INVESTMENTS, (continued) The Agency has pooled its cash and investments with the City in order to achieve a higher return on investments. Certain restricted funds, which are held and invested by independent outside custodians through contractual agreements, are not pooled. These restricted funds include cash with fiscal agents. The investments made by the City are limited to those allowable under State statutes and include the following types of investments: Negotiable Certificates of Deposit U.S. Treasury Bills Bankers Acceptances California Local Agency Investment Fund (LAIF) Repurchase Agreements Mutual Funds Commercial Papers Municipal Securities Corporate Bonds All cash and investments are stated at fair value. Pooled investment earnings are allocated monthly based on the average cash and investment balances of the various funds and related entities of the City. Cash and investments in the accompanying balance sheet include investment earnings accrued through June 30, In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, investments were stated at fair value using the aggregate method. See the City's Basic Financial Statements for disclosures related to cash and investments and the related risk disclosures. 4. CAPITAL ASSETS The following is a summary of the changes in capital assets at June 30, 2011: Governmental Activities: Balance Balance Governmental July 1, 2010 Additions Deletions June 30, 2011 Non-depreciable assets: Land $ 8,350,000 $ - $ - $ 8,350,000 Total governmental $ 8,350,000 $ - $ - $ 8,350,

31 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, CAPITAL ASSETS, (continued) On November 25, 2008, the Agency entered into a Purchase and Sale Agreement with the City to purchase certain real property located at 8181 Allison Avenue, La Mesa, California at the appraised value of $8,350,000 for the purposes of increasing, improving and preserving the community's supply of housing available at affordable cost to persons and families of low or moderate income. This Agreement is consistent with the Redevelopment Plan for the Central Area Redevelopment Project and the Implementation Plan. However, expenditures of funds from the Low and Moderate Income Housing Funds of Alvarado Creek and Fletcher Parkway Redevelopment Projects are necessary since both project areas are in close proximity to one another, within the same immediate job and housing market, and will each receive benefits. On June 24, 2007, the property was independently appraised and the certified appraisal report was released on June 27, 2007 with the appraised value of the property $8,350, LONG-TERM DEBT Summary of changes in governmental activities long-term debt for the year ended June 30, 2011 was as follows: Bonds payable: 1996 AD 90-1 refunding bonds AD improvement bonds Balance Balance Due Within Due in More July 1, 2010 Additions Deletions June 30, 2011 One Year Than One Year $ 770,000 $ - $ (135,000) $ 635,000 $ 145,000 $ 490,000 4,910,000 - (240,000) 4,670, ,000 4,415,000 Total $ 5,680,000 $ - $ (375,000) $ 5,305,000 $ 400,000 $ 4,905,000 Fletcher Parkway AD Refunding On July 3, 1996, the Agency issued the Assessment District No Series 1996 Limited Obligation Improvement Bonds (1996 AD 90-1 Refunding Bonds) in the amount of $1,940,000 bearing interest rates of 4.25% % to refund the Assessment District No Limited Obligation Improvement Bonds (the 1/1990 Bonds), to pay the costs of issuance of the bonds and to establish a Reserve Fund. The outstanding balance as of June 30, 2011 was $635,

32 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, LONG-TERM DEBT, (continued) The annual debt service requirements for the bonds outstanding at June 30, 2011 were as follows: 1996 AD 90-1 Refunding Bonds Year Ending June 30, Principal Interest Total 2012 $ 145,000 $ 36,784 $ 181, ,000 27, , ,000 16, , ,000 5, ,775 Total $ 635,000 $ 86,746 $ 721,746 Alvarado Creek AD Improvement On June 24, 1998, the Agency issued Assessment District No Limited Obligation Improvement Bonds in the amount of $6,825,000 bearing interest rates of 4.25%-5.60% with maturity dates from September 2, 1999 to The Bonds were issued to provide funding for the acquisition of certain storm drain, surface improvements, and rights of way associated with the improvements, to pay the costs of issuance and to establish a Reserve Fund. Interest is payable on March 2 and September 2 of each year, commencing March 2, The outstanding balance as of June 30, 2011 was $4,670,000. The annual debt service requirements for the Bonds outstanding at June 30, 2011 were as follows: AD Improvement Bonds Year Ending June 30, Principal Interest Total 2012 $ 255,000 $ 259,925 $ 514, , , , , , , , , , , , , ,865, ,944 2,545, ,395, ,194 1,518,194 Total $ 4,670,000 $ 1,950,538 $ 6,620,

33 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, LONG-TERM DEBT, (continued) Pledged Revenues The Agency has pledged tax revenues to the repayment of the Agency debts through the final maturity of the Bonds, or early retirement of the Bonds, whichever comes first. Tax revenues consist of tax increment revenues allocated to the Agency's various project areas pursuant to Section of the Redevelopment Law excluding that portion of such tax increment revenues required to be paid under Tax-Sharing Agreements unless the payment of such amounts has been subordinated to the payment of debt services on the Bonds. Tax increment received in was $3,657,020 and total debt service paid was $694,258. The Bonds required 20% of net pledged revenues. In future years, annual principal and interest payments on the Bonds and advances are expected to require roughly 25% of tax increment revenues. The total principal and interest remaining to be paid on the Bonds is $7,342, INTERFUND TRANSACTIONS A. Transfers In and Out Transfers In AD Imp District Debt Service AD Imp District Debt Service Non-Major Funds Total Transfers Out Governmental Activities: Central RDA Projects Debt Service $ - $ - $ 46,126 $ 46,126 Fletcher Parkway RDA Projects Debt Service - 181, , ,662 Alvarado Creek RDA Projects Debt Service 516,500-64, ,938 Fletcher Parkway Low and Moderate Income Housing Capital Projects , ,000 Total $ 516,500 $ 181,800 $ 1,039,426 $ 1,737,726 Certain transfers are made from Agency debt service funds to related assessment district bond debt service funds for principal and interest payments as specified by agreements between the Agency and participating developers. Other transfers are made from agency debt service funds to agency capital project funds to pay for ongoing agency administrative costs. -26-

34 La Mesa Community Redevelopment Agency Notes to Basic Financial Statements For the year ended June 30, COMMITMENTS In accordance with the California Community Redevelopment Law, the Agency is obligated to set aside 20% of its gross tax increments received in all project areas for low and moderate income housing. However, this commitment is not required to be funded for the Central Area Redevelopment Project until existing debt relating to that area has matured. The set aside commitment on the unfunded debt at June 30, 2011 is $2,961,820 and is due when the existing debt is paid. 8. ADVANCES FROM THE CITY OF LA MESA Separate notes payable have been executed between the Agency and the City for each project area for advances plus interest for funds needed for initial project area planning and administration costs. The fund balance deficits in each project area debt service fund are a direct result of the advances due to the City. For all project areas, it is the Agency's intention to pay back the advances from the City, to the legal extent allowed, with tax increment funds. It is anticipated that the City will forgive any unpaid debt due from the Agency at the legal termination of tax increment funding for each project area. At June 30, 2011, the outstanding balance of the advances was $65,771, RELATED PARTY TRANSACTION On November 25, 2008, the Agency entered into a Purchase and Sale Agreement with the City to purchase certain real property located at 8181 Allison Avenue, La Mesa, California at the appraised value of $8,350,000 for the purposes of increasing, improving and preserving the community's supply of housing available at affordable cost to persons and families of low or moderate income. The Agency made an initial payment of $1,000,000 at closing and issued a promissory note to the City for $7,350,000. The promissory notes includes a schedule of minimum payments for the 10 year period and these annual minimum payments of approximately $750,000 will be made from the Agency's Low and Moderate Income Housing Fund to the City. At June 30, 2011, the outstanding balance of the advances from the City to the Agency relating to this transaction was $6,050, OTHER REQUIRED DISCLOSURES Government-Wide Financial Statements The unrestricted net assets had a deficit balance of $(61,297,424) at June 30, 2011 because long-term debt and advances from the City are in excess of all assets owned by the Agency. The Agency issues debt for redevelopment project areas. The debt will be repaid by future property tax increments. -27-