PALM DESERT REDEVELOPMENT AGENCY PALM DESERT, CALIFORNIA ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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1 PALM DESERT, CALIFORNIA ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30,2011

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3 TABLE OF CONTENTS JUNE 30, 2011 Page Number INDEPENDENT AUDITORS' REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 1 3 BASIC FINANCIAL STATEMENTS: Government-Wide Financial Statements: Exhibit A - Statement of Net Assets 11 Exhibit B - Statement of Activities 13 Fund Financial Statements: Exhibit C - Balance Sheet - Governmental Funds Exhibit D - Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Assets Exhibit E - Exhibit F - Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Reconciliation ofthe Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Notes to Basic Financial Statements SUPPLEMENTARY INFORMATION: Schedule 1 - Combining Balance Sheet - Other Governmental Funds Schedule 2 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Other Governmental Funds Schedule 3 - Balance Sheet - Other Governmental Fund - Special Revenue Schedule 4 - Statement of Revenues, Expenditures and Changes in Fund Balance - Other Governmental Fund - Special Revenue

4 TABLE OF CONTENTS JUNE 30, 2011 SUPPLEMENTARY INFORMATION : Page Number Schedule 5 - Balance Sheet - Other Governmental Fund - Debt Service 76 Schedule 6 - Statement of Revenues, Expenditures and Changes in Fund Balance - Other Governmental Fund - Debt Service 77 Schedule 7 - Combining Balance Sheet - Other Governmental Funds - Capital Projects 78 Schedule 8 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Other Governmental Funds - Capital Projects 79 Schedule 9 - Combining Balance Sheet - Housing Authority Special Revenue Fund 80 Schedule 10 -Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Housing Authority Special Revenue Fund 82 Schedule 11 - Computation of Low and Moderate Housing Excess Surplus Funds 84 Independent Auditors' Report on Compliance and on Internal Control Over Compliance 85

5 INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Members of the City Council Palm Desert Redevelopment Agency Palm Desert, California We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the Palm Desert Redevelopment Agency (the Agency), (a component unit of the City of Palm Desert, California), as of and for the year ended June 30, 2011, which collectively comprise the Agency's basic fmancial statements, as listed in the table of contents. These basic financial statements are the responsibility of the Agency's management. Our responsibility is to express opinions on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Palm Desert Redevelopment Agency' s internal control over financial reporting. Accordingly, we express no such opinion. 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 basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Palm Desert Redevelopment Agency as of June 30, 2011, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 9 to the basic financial statements, the Agency has implemented the provisions of Governmental Accounting Standards Board Statement Number 54, "Fund Balance Reporting and Governmental Fund Type Definitions", for the year ended June 30, As explained further in Note 13, the California State Legislature has enacted legislation that is intended to provide for the dissolution of redevelopment agencies in the State of California. The effects of this legislation are uncertain pending the result of certain lawsuits that have been initiated to challenge the constitutionality ofthis legislation Michelle Drive, Suite 300, Irvine, CA Tel: Fax: Offices located in Orange and San Diego Counties

6 In accordance with Government Auditing Standards, we have also issued our report dated December 9,2011 on our consideration of the Palm Desert Redevelopment Agency's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards 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 identified 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 the 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 an opinion on the basic financial statements taken as a whole. The combining schedules and the Computation of Low and Moderate Housing Excess/Surplus Funds are presented for additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates 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 additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements of the Palm Desert Redevelopment Agency 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 taken as a whole. December 9, 2011 Irvine, California - 2 -

7 MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30,2011 Our discussion and analysis of the Palm Desert Redevelopment Agency's (Agency) financial perfonnance for the fiscal year ended June 30, 2011, provides a comparison of current year to prior year ending results based on the government-wide statements, an analysis on the Agency's overall financial position and results of operations to assist users in evaluating the Agency's financial position, and a discussion of significant changes that occurred within each fund. In addition, it describes the activities during the year for capital assets and long-tenn debt. We end our discussion and analysis with a description of currently known facts, decisions and conditions that are expected to have a significant effect on the financial position or results of operations. Please read it in conjunction with the Agency's financial statements. FINANCIAL HIGHLIGHTS The Agency's governmental activities net assets deficit increased $71.53 million, or 552 percent. The Agency's unrestricted net deficit is caused because of the debt issued by the Agency not being offset by capital assets. Proceeds from the debt were used for capital improvements on behalf of the City for public infrastructure, public safety facilities, public recreation facilities, and affordable housing. During the year, the Agency had revenues that were $53.45 million less than the $ million in expenses recorded by the Agency in its governmental activities. The Agency's governmental activities program revenues and general revenues decreased $7.75 million, or 8.08 percent from the prior year, and program expenses increased $40.55 million, or percent. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and Statement of Activities (on pages 11 and 13) provide infonnation about the activities of the Agency as a whole and present a long-tenn view of the Agency's finances. Fund financial statements start on page 14. For governmental activities, these fund statements tell how these services were financed in the short tenn as well as what remains for future spending. Fund financial statements also report the Agency's operation in more detail than the government-wide statements by providing infonnation about the Agency's most significant funds as well as the other funds. REPORTING ON THE AGENCY AS A WHOLE The Statement of Net Assets and the Statement of Activities: Our analysis of the Agency as a whole begins on page 11. One of the most important questions asked about the Agency's finances is, "Is the Agency as a whole better off or worse off as a result of the year's activities?" The Statement of Net Assets and the Statement of Activities report infonnation about the Agency as a whole and about its activities in a way to answer this question. These statements include all assets and liabilities of the Agency using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid

8 REPORTING ON THE AGENCY AS A WHOLE The Statement of Net Assets and the Statement of Activities (Continued): These two statements report the Agency's net assets and changes in them. Net assets are the difference between assets and liabilities, which is one way to measure the Agency's financial health, or financial position. Over time, increases or decreases in the Agency's net assets are an indication of whether its financial health is improving or deteriorating. In the Statement of Net Assets and the Statement of Activities, we separate the Agency into general government, affordable rental units, economic development, community improvements, housing programs, payments to other agencies and interest on long-term debt. REPORTING THE AGENCY'S MOST SIGNIFICANT FUNDS Fund Financial Statements: The fund financial statements provide detailed information about the most significant funds and other funds - not the Agency as a whole. Some funds are required to be established by State law and by bond covenants. However, management established many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other resources. The Agency only has governmental type funds. Governmental Funds - Most of the Agency's basic services are reported in governmental funds, which focus on how money flows in and out of those funds and the balances left at year-end that are available for spending. These funds are reported using the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the Agency's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the Agency's programs. The differences of results in the Governmental Fund financial statements to those in the Government-Wide financial statements are explained in a reconciliation following each Governmental Fund financial statement

9 THE AGENCY AS A WHOLE The Agency's net assets deficit increased $71.53 million from $(12.97) million to $(84.50) million. Our analysis below focuses on the net deficit (Table 1) and changes in net deficit (Table 2) of the Agency's governmental activities. TABLE 1 NET ASSETS (IN MILLIONS) As of June 30, 2011 and 2010 Governmental Activities Current and restricted assets Capital assets $ $ TOTAL ASSETS Long-term liabilities outstanding Other liabilities TOTAL LIABILITIES Net assets (deficit): Invested in capital assets, net of related debt Restricted Unrestricted (244.85) (188.03) TOTAL NET ASSETS (DEFICIT) $ (84.50) $ (12.97) Compared to the prior year, the Agency's net assets deficit of governmental activities increased by $71.53 million. The Agency's Net Assets is made up of three components: Investment in Capital Assets, Net of Related Debt, Restricted Net Assets and Unrestricted Net Deficit. Unrestricted deficit, the part of net deficit that can be used to finance day-to-day operations, increased from $(188.03) million to $(244.85) million, or percent. The Agency currently has an unrestricted net deficit because of the debt it has issued. Proceeds from the debt were used for public infrastructure, public safety facilities, public recreation facilities, and affordable housing and are not offset by investments in capital assets. Total assets overall decreased by $117 million from the prior year. During the year, the Agency transferred land, buildings and improvements totaling $76.63 million to the City. The decrease in current and restricted assets was the payment for bond project expenditures. Total liabilities overall decreased by $45.47 million. Long-term debt decreased by $30.29 which represents the principal payments made during the year and the decrease in other liabilities of $15.18 million was mainly pass-through payments due to other agencies that were paid out during the current year

10 THE AGENCY AS A WHOLE TABLE 2 CHANGES IN NET ASSETS (IN MILLIONS) As of June 30,2011 and 2010 REVENUES: Program Revenues: Charges for services Capital grants and contributions General Revenues: Tax increment Other income Investment earnings $ Governmental Activities $ TOTAL REVENUES EXPENSES: General government Affordable rental units Economic development Community improvements Housing programs Payments to other agencies Interest on long-term debt TOTAL EXPENSES INCREASE (DECREASE) IN NET ASSETS (53.45) (5.15) BEGINNING NET ASSETS (12.97) (7.82) RESTATEMENT OF NET ASSETS (18.08) ENDING NET ASSETS $ (84.50) $ (12.97) Governmental Activities Total revenues decreased from $95.95 million to $88.20 million, an 8.07 percent decrease. The major factors that contributed to the decrease were as follows: Decrease in tax increment due to declining assessed property values. Decrease in other revenues from fewer sales of inventory held for resale

11 THE AGENCY AS A WHOLE Governmental Activities (Continued) The following schedule represents the net cost of providing services: Government Activities Net (Expense) Revenue (In Millions) General government Affordable rental units Economic development Community improvements Housing programs Payment to other agencies Interest on long-term debt $ (4.38) (2.36) (0.58) (67.50) (2.74) (39.42) (19.20) $ (5.05) (2.20) (0.23) (3.82) (0.79) (63.32) (20.46) TOTAL $ (136.18) $ (95.87) The major factors that contributed to the increases and decreases in expenditures were: Increase in the expenditures for community improvements was the cost of the property that was transferred to the City. Increase in the expenditures for housing programs was the cost of rental units that were demolished. Decrease in the expenditures for payment to other agencies was the SERAF payment to the State. For the prior year, the Agency was required to pay $25.53 million compared to the required payment of$5.26 million for the current year. THE AGENCY'S FUNDS On pages 14 and 15, the governmental funds balance sheet is shown. The combined fund balance of $ million decreased from $ million, or percent. More detailed information about the combined fund balance is presented in Note 9 to the financial statements. Major funds balance changes are noted below: For the Low and Moderate Income Housing fund, fund balance decreased due to acquisition of property held for resale and the transfer to the Housing Authority fund for the replacement of capital assets. For the Redevelopment Agency Financing Authority Debt Service fund, fund balance decreased as a result of early repayment of outstanding debt. This was done to actively manage the debt prior to termination of the project areas. The Redevelopment Agency Project Area 1 Debt Service fund, fund balance decreased as a result of the payment for debt and the SERAF payment to the State of California. The Redevelopment Agency Project Area 2 Debt Service funds, fund balance decreased as a result of the payment for debt and the SERAF payment to the State of California. The Redevelopment Agency Project Area 4 Debt Service funds, fund balance decreased as a result of the SERAF payment to the State of California. The Redevelopment Agency Project Area 2 Capital Projects funds, fund balance decreased due to the capital improvements paid for by the fund

12 THE AGENCY'S FUNDS In addition to the major funds, fund balances of other governmental funds had significant changes. The Housing Authority Special Revenue fund had an increase $7.46 million from the prior year. This was due to the transfer from the Low and Moderate Income Housing fund for the future capital replacement costs. Project Area 3 Debt Service fund balance had a minor increase. Project Area 1 Capital Projects fund, fund balance decreased as a result of capital improvements paid for by the fund. Project Areas 3 and 4 Capital Projects fund balance changes were minimal. More detailed information on the fund financial statements balances is presented Note 9 to the financial statements. Budgetary Highlights During the year, with the recommendation from the Agency's staff, the Agency's Board revised the Agency budget several times. Adjustments were made on a monthly basis as the Agency's staff requested additional appropriations to cover the cost of projects that either had change orders for additional work required to complete the project as defined, or the estimated cost at the beginning of the project was underestimated. At mid-year, adjustments were made as department heads requested increases or decreases to their budgets to maintain their current level of services. At year-end, budgets were adjusted for unanticipated expenditures. The Agency's Board approves all amendments that either increase or decrease appropriations. Formal budgetary integration is employed as a management control device during the year for the special revenue and capital project funds. Budgetary data for the special revenue and capital projects funds are not presented herein, as the budgets for these funds are long-term in nature. More detailed information about the Agency's budget is presented in Note 1 (k) to the financial statements. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of 2011, the Agency had $84.42 million invested in a broad range of capital assets, including land, buildings and improvements, apartment complexes, and equipment (See Table 3). This amount represents a net decrease (including additions and deductions) of $ million. TABLE 3 CAPITAL ASSETS AT YEAR-END (NET OF DEPRECIATION, IN MILLIONS) For the Years Ended June 30, 2011 and 2010 Governmental Activities Land Construction in progress Buildings and improvements Equipment $ $ TOTAL $ $

13 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets (Continued) This year's major additions included (in millions): Construction in progress for Aquatic Center Purchase of hillside property Construction in progress for Carlos Ortega Villas Construction in progress for Sagecrest Total $ $ The Agency's fiscal year 2012 capital budget calls for it to spend $2.81 million plus continuing projects of $85.39 million, the majority of which are attributable to the reimbursement to other governments for capital projects, land development, economic development, construction and preservation of low-income housing, and the undergrounding of utilities. More detailed information about the Agency's capital assets is presented in Note leg) and Note 6 to the financial statements. Debt At year-end, the Agency's governmental activities had $ million in bonds and notes versus $ million last year, a decrease of$30.29 million, or 7.25 percent as shown in Table 4. TABLE 4 OUTSTANDING DEBT AT YEAR END (IN MILLIONS) For the Years Ended June 30,2011 and 2010 Governmental Activities Notes payable Advances Revenue bonds and notes (backed by specific tax and fee revenues) $ $ TOTALS $ $ The Agency was able to meet its current year debt obligations in a timely manner. The Agency repaid $22.24 million dollars in outstanding bonds. Debt issued in the prior years has been used to finance various capital projects. An example of this would be the purchase of land, and construction of the various public safety facilities, recreation facilities, public infrastructure and affordable housing. More detailed information about the Agency's debt is presented in Note 8 to the financial statements

14 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS In preparing the budget for 2012, management reviewed several existing factors that could affect the successful completion of projects including: The continued expectation that the Agency will assist the City with funding for various capital projects. In the five-year capital improvement program, all restricted capital funds for the City have been allocated to various projects and there are no additional funds available to assist the Agency with the Agency's planned projects, however, the Agency's continued participation is essential to complete the City's capital improvement program. In previous years, as the State of California attempted to balance their budget, Redevelopment Agency tax increment revenues throughout the State have been captured to cover (at minimum) a $2.05 billion shortfall, resulting in a SERAF shift of $25,526,215 for the fiscal year , and an additional SERAF shift of $5,255,397 for for the Palm Desert Redevelopment Agency. The constitutionality of both of these shifts are currently before an appellate court following a decision made by the Sacramento Superior Court affirming their legality. The effects of the State's endeavors to balance their budget, have caused the Agency to cut projects essential to the community and Redevelopment Plan. Although the passage of Proposition 22 has thwarted future takes under this same method, the uncertainty of future State shortfalls and their resourcefulness in retaining local taxes derived from property tax including Redevelopment funds, will determine the Agency's ability to complete such projects, as well as the ability to meet the needs of the community. The Agency also considered the possibility that the Governor may attempt to enact legislation to eliminate redevelopment agencies across the State and how that would impact both the City and the Agency's proposed projects and programs. NOTE: On June 29, 2011, the Governor signed several bills related to the State's budget including ABX1 26 and ABX1 27 that further thwart redevelopment funds. AB Xl 26 immediately prohibited redevelopment agencies from engaging in most activities (including, but not limited to, the incurrence of new debt, the execution of new contracts and the modification of existing contracts). Furthermore, pursuant to AB Xl 26, a redevelopment agency would be dissolved on October 1, 2011, unless the city (or the county, as the case may be) that activated the redevelopment agency timely enacted an ordinance (an "AB Xl 27 Ordinance") to opt into the "Alternative Voluntary Redevelopment Program" ("AVRP") and agreed to make specified annual payments to the county auditorcontroller for allocation to special districts and educational entities. Pursuant to AB Xl 27, so long as the city is a participant in the A VRP, the redevelopment agency would be exempt from most of the provisions of AB Xl 26 and be permitted to continue and carryon redevelopment activities. More detailed information about the City and the Agency's actions related to these two budget bills is presented in Note 14 of the financial statements. The City of Palm Desert continues to grow with new hotels, commercial and residential development, construction of a four-year university, street improvements, park construction, and various other improvement projects. The 2012 capital improvement project budget is a reflection of the Agency's commitment to the residents of Palm Desert. A copy of the City's financial plan can be obtained by contacting the City Finance Department (See below). CONTACTING THE AGENCY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the Agency's finances and to show the Agency's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Finance Department at the City of Palm Desert, Fred Waring Drive, Palm Desert, California , or (760)

15 Exhibit A STATEMENT OF NET ASSETS June 30, 2011 ASSETS: Cash and investments Receivables Property held for resale Prepaid items and deposits Unamortized debt issuance costs Restricted assets: Restricted cash with fiscal agent Capital assets, not depreciated Capital assets, being depreciated (net of accumulated depreciation) TOTAL ASSETS LIABILITIES: Accounts payable Accrued liabilities Interest payable Deposits payable Unearned revenue Amounts due under pass-through agreements Noncurrent liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET ASSETS: Invested in capital assets, net of related debt Restricted for: Special projects Unrestricted ( deficit) TOTAL NET ASSETS (DEFICIT) Governmental Activities $ 119,469,509 9,180,471 2,685, ,320 9,190, ,306,011 20,941,764 63,476, ,427,999 3,068, ,649 4,834, ,371 20,010 44,341,716 15,412, ,712, ,931,747 97,601,359 62,751,287 (244,856,394) $ (84,503,748) See independent auditors' repoli and notes to basic financial statements

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17 ExhibitB STATEMENT OF ACTIVITIES For the year ended June 30,2011 FunctionslPrograms PRIMARY GOVERNMENT: Governmental activities: General administration Affordable rental units Economic development Community improvements Housing programs Payments to other agencies Interest on long-term debt Expenses $ 4,380,918 7,298, ,007 67,623,600 3,157,383 39,418,936 19,198,308 $ Charges for Services 4,932, ,652 Program Revenues Operating Capital Grants and Grants and Contributions Contributions $ $ l31,451 Net (Expense) Revenue and Changes in Net Assets Govemmental Activities $ (4,380,918) (2,366,624) (582,007) (67,492,149) (2,739,731) (39,418,936) (19,198,308) Total Primary Govemment $ 141,659,776 $ 5,349,652 $ $ l31,451 (l36,178,673) GENERAL REVENUES: Taxes: Tax increment Rental income Other revenues Investment eamings Total general revenues CHANGE IN NET ASSETS NET ASSETS (DEFICIT) - BEGINNING OF YEAR RESTATEMENT NET ASSETS (DEFICIT) - BEGINNING OF YEAR, AS RESTATED NET ASSETS (DEFICIT) - END OF YEAR 80,977, , ,342 1,302,495 82,720,983 (53,457,690) (12,962,722) (18,083,336) (31,046,058) $ (84,503,748) See independent auditors' report and notes to basic financial statements. - l3 -

18 BALANCESHEET-GOVERNMENTALFUNDS June 30,2011 Special Revenue Fund Debt Service Funds Low and Moderate Income Project Project Housing Area 1 Area 2 ASSETS: Cash and investments $ 23,896,294 $ 57,103,855 $ 1,803,817 Restricted cash with fiscal agent 24,647,938 Receivables 7,441,439 84,295 25,044 Due from other funds 584,461 3,395,278 Advances to other funds 17,821,288 Property held for resale 2,685,387 Prepaid costs and deposits 130 TOTAL ASSETS $ 76,492,476 $ 57,772,611 $ 5,224,139 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 17,368 $ 7,938 $ Accrued liabilities 32,280 Deposits payable 500 Due to other funds Advances from other funds 10,438,131 3,755,605 Unearned revenue 6,796 Deferred revenue 36,493 Amounts due pass-through agreement 27,541,155 1,803,817 TOTAL LIABILITIES 93,437 37,987,224 5,559,422 FUND BALANCES (DEFICIT): Nonspendable 27,831,397 Restricted 48,567,642 19,785,387 Committed Unassigned (335,283) TOTAL FUND BALANCES (DEFICIT) 76,399,039 19,785,387 (335,283) TOTAL LIABILITIES AND FUND BALANCES $ 76,492,476 $ 57,772,611 $ 5,224,139 See independent auditors' report and notes to basic financial statements. ~ 14-

19 Exhibit C Debt Service Funds (Continued) Capital Projects Fund Other Total Project Financing Project Governmental Govermnental Area 4 Authority Area 2 Funds Funds $ 13,583,016 $ $ $ 23,082,527 $ 119,469,509 8,295,750 37,552,210 59,810, ,306,011 8,233 7,761 45,112 1,568,587 9,180,471 3,979,739 17,821,288 2,685, , ,320 $ 13,591,249 $ 8,303,511 $ 37,597,322 $ 84,638,417 $ 283,619,725 $ $ $ 2,480,872 $ 561,969 $ 3,068, , , , ,371 3,979, ,313 4,950,052 2,657,239 16,850,975 13,214 20,010 36,493 9,829,959 5,166,785 44,341,716 12,487,198 6,460,611 7,222,521 69,810,413 1,377,190 29,208,587 1,104,051 8,303,511 31,136,711 68,285, ,183,146 7,752,862 7,752,862 (335,283) 1,104,051 8,303,511 31,136,711 77,415, ,809,312 $ 13,591,249 $ 8,303,511 $ 37,597,322 $ 84,638,417 $ 283,619,

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21 ExhibitD RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2011 Total fund balance for governmental funds $ 213,809,312 Amounts reported for governmental activities in the Statement of Net Assets are different because: When capital assets (land, buildings, equipment, etc.) that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds. However, the Statement of Net Assets includes those capital assets among the assets ofthe Agency as a whole: Beginning Balance as restated, net depreciation Current year additions Transfer assets to city Current year deletions Current year depreciation Ending Balance, net depreciation Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current-period expenditures. Those assets (for example, receivables) are offset by deferred revenues in the governmental funds and, thus, are not included in fund balance: Interest that was not paid at year-end Long-term liabilities applicable to the Agency's governmental activities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. All liabilities, both current and long-term, are reported in the Statement of Net Assets. Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. The cost of issuing bonds is recognized as an expenditure in the period paid, however, in the Statement of Net Assets, it is amortized over the life of the bonds. Net assets (deficit) of governmental activities $ 139,442,469 9,940,845 (58,522,089) (3,625,306) (2,817,320) 84,418,599 36,493 (387,124,803) (4,834,051) 9,190,702 $ (84,503,748) See independent auditors' report and notes to basic financial statements

22 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS For the year ended June 30, 2011 Special Revenue Fund Debt Service Funds Low and Moderate Income Project Project Housing Area 1 Area 2 REVENUES: Taxes $ $ 49,506,489 $ 15,274,576 Intergovernmental Investment earnings 424, ,330 5,632 Rental income 1,993 Other revenues 420, ,784 TOTAL REVENUES 847,498 50,090,603 15,280,208 EXPENDITURES: Current: General government 1,218,343 22,028 10,834 Community improvements Economic development Housing programs 415,531 Affordable rental units Payments to other agencies 19,677,610 5,758,262 Supplemental Educational Revenue Augmentation Payment 4,274,306 Capital outlay 995 Debt service: Interest and fiscal charges 199, ,767 Principal retirement 6,663,940 2,558,767 TOTAL EXPENDITURES 1,634,869 30,837,747 8,706,630 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (787,371) 19,252,856 6,573,578 OTHER FINANCING SOURCES (USES): Transfers in 16,365,307 Transfers out (17,133,573) (26,036,092) (9,408,437) TOTAL OTHER FINANCING SOURCES (USES) (768,266) (26,036,092) (9,408,437) NET CHANGE IN FUND BALANCES (1,555,637) (6,783,236) (2,834,859) FUND BALANCES - BEGINNING OF YEAR 77,954,676 26,568,623 2,499,576 FUND BALANCES (DEFICIT) - END OF YEAR $ 76,399,039 $ 19,785,387 $ (335,283) See independent auditors' report and notes to basic financial statements

23 Exhibit E Debt Service Funds (Continued) Capital Projects Fund Other Total Project Financing Project Governmental Governmental Area 4 Authority Area 2 Funds Funds $ 11,947,394 $ $ $ 4,249,101 $ 80,977,560 21,394 21,394 30,024 40, , ,851 1,340,345 4,855,025 4,857, , ,955 1,005,769 11,977,418 40, ,632 9,748,326 88,202,086 7, ,649 2,714,273 4,416,912 6,745,784 1,182,424 7,928,208 13, , , ,531 4,735,159 4,735,159 6,744,173 1,983,494 34,163, , ,370 5,255,397 8,188,748 1,751,102 9,940,845 17,237,994 17,816,624 22,240,000 31,462,707 7,519,679 39,477,994 15,392,109 13,147, ,716,929 4,457,739 (39,437,593) (15,174,477) (3,399,575) (28,514,843) 31,591, ,798 11,713,634 60,399,502 (5,086,158) (5,097) (535,271) (2,194,874) (60,399,502) (5,086,158) 31,586, ,527 9,518,760 (628,419) (7,850,927) (14,980,950) 6,119,185 (28,514,843) 1,732,470 16,154,438 46,117,661 71,296, ,324,155 $ 1,104,051 $ 8,303,511 $ 31,136,711 $ 77,415,896 $ 213,809,

24 Exhibit F RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTNITIES For the year ended June 30, 2011 Net change in fund balances - total governmental funds $ (28,514,843) Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the costs of those assets are allocated over their estimated useful lives as a depreciation expense. This is the amount by which capital assets deletions and depreciation ($64,964,715) exceeded capital assets addition ($9,940,845) in the current period. The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when the debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. These amounts are the net effect of theses differences in the treatment oflong-term debt and related items: Principal payments Capital accretion Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds: Net change in accrued interest for the current period The cost of issuing bonds is recognized as an expenditure in the period paid, however, in the Statement of Net Assets, the deferred charges are amortized over the life of the bonds. Premium on bonds is recognized as a revenue in the period received, however in the Statement of Net Assets it is amortized over the life of the bond. Losses on defeased bonds are recorded in the Statement of Net Assets as a reduction to long-term liabilities and amortized over the life of the bonds. Change in net assets of governmental activities $ 31,462,707 (1,529,211) (55,023,870) 29,933, ,062 (506,523) 475,703 (122,715) $ (53,457,690) See independent auditors' report and notes to basic financial statements

25 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Basis of Presentation: Government-Wide Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the activities of the Agency. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Palm Desert Redevelopment Agency has no business-type activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for the governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. Fund Financial Statements The accounting system of the Agency is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues and expenditures. An emphasis is placed on major funds within the governmental category. A fund is considered major if total assets, liabilities, revenues or expenditures of that individual governmental fund are at least 10% of the corresponding total for all funds of that category or type

26 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : a. Basis of Presentation (Continued): Fund Financial Statements (Continued) The funds of the Agency are described below: Governmental Fund Types: Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue resources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Funds - Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term obligation principal, interest and related costs. Capital Projects Funds - Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. The Agency's major governmental funds are as follows: The Low and Moderate Income Housing Special Revenue Fund is used to account for the tax increment set-aside to be spent on projects that benefit low and moderate-income families. Project Area 1 Debt Service Fund is used to account for the tax increment revenues and expenditures of Project Area 1. Project Area 2 Debt Service Fund IS used to account for tax increment revenues and expenditures of Project Area 2. Project Area 4 Debt Service Fund IS used to account for tax increment revenues and expenditures of Project Area 4. The Financing Authority Debt Service Fund is used to account for the resources and payment of the debt issued by the Palm Desert Financing Authority and loaned to the Redevelopment Agency

27 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : a. Basis of Presentation (Continued): Fund Financial Statements (Continued) Major Governmental Funds (Continued) Project Area 2 Capital Project Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities in Project Area 2. b. Measurement Focus and Basis of Accounting: Measurement Focus Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. On the government-wide statement of net assets and the statement of activities, activities are presented using the economic resources measurement focus. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the government are reported. In the fund financial statements, all governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balances (net current assets) are considered a measure of "available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Noncurrent portions of long-term receivables due to governmental funds are reported on their balance sheets, in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources" since they do not represent net current assets

28 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : b. Measurement Focus and Basis of Accounting (Continued): Basis of Accounting Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. In the government-wide statement of net assets and statement of activities, the governmental activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or soon enough thereafter to pay current liabilities. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. Revenues that are susceptible to accrual include property taxes that are levied for and due for the fiscal year and collected within 60 days after year-end. Property taxes, rents and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. c. Investments: Investments are stated at fair value (quoted market price or the best available estimate thereof). d. Property Held for Resale: The Agency purchased several residential properties within the Agency's project area to preserve them as affordable. The properties were restricted as affordable at the time of the Agency's purchase. The properties are recorded in the Redevelopment Agency Special Revenue Fund as property held for resale, at the lower of acquisition cost or net realizable value. At June 30,2011, the cost ofthe property held for resale for various affordable housing properties in Palm Desert totaled $2,685,

29 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : e. Prepaid Items and Deposits: Certain payments to vendors reflect costs applicable to future accounting periods are recorded as prepaid items in the government-wide and fund financial statements. The Agency has $177,320 of miscellaneous prepaid items. f. Property Tax Calendar: Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien Date Levy Date Due Date Delinquent Date January 1 July 1 to June 30 November 1-1st Installment March 1-2nd Installment December 10-1 st Installment April 10-2nd Installment Under California law, property taxes are assessed and collected by the counties up to 1 % of assessed value, plus other increases approved by the voters. The property taxes go into a pool, and are then allocated to the agencies based on complex fonnulas prescribed by the state statutes. g. Capital Assets and Depreciation: Capital assets are reported in the government-wide financial statements. Capital assets are defined by the Agency as assets with an initial cost of more than $500 and an estimated life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The Agency had no infrastructure assets. The cost of nonnal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized

30 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : g. Capital Assets and Depreciation (Continued): Property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives: Buildings Improvements other than buildings Machinery and equipment 40 years 20 years 5 to 8 years h. Long-Term Obligations: In the government-wide financial statements, long-tenn debt and other long-term obligations are reported as liabilities. Bond 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 the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures

31 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : 1. Explanation of differences between Governmental Funds Balance Sheets and the Statement of Net Assets: Long-Tenn Debt Total Capital Transactions/ Reclassifications Statement Governmental Related Interest and of Net Funds Items Payable Eliminations Assets Assets: Cash and investments $ 119,469,509 $ $ $ $ 119,469,509 Receivables 9,180,471 9,180,471 Advances to other funds 17,821,288 (17,821,288) Due from other funds 3,979,739 (3,979,739) Property held for resale 2,685,387 2,685,387 Prepaid items and deposits 177, ,320 Unamortized debt issuance costs 9,190,702 9,190,702 Restricted cash with fiscal agent 130,306, ,306,011 Capital assets 84,418,599 84,418,599 Total Assets 283,619,725 84,418,599 9,190,702 (21,801,027) 355,427,999 Liabilities: Accounts payable 3,068,147 3,068,147 Accrued liabilities 133, ,649 Advances to other funds 17,821,288 (17,821,288) Due to other funds 3,979,739 (3,979,739) Interest payable 4,834,051 4,834,051 Deposits payable 409, ,371 Unearned revenue 20,010 20,010 Deferred revenue 36,493 (36,493) Amounts due under pass-through agreements 44,341,716 44,341,716 Long-tenn liabilities - within one year 15,412,707 15,412,707 Long-tenn liabilities - more than one year 371,712, ,712,096 Total Liabilities 69,810, ,958,854 (21,837,520) 439,931,747 Net Assets (Deficit) $ 213,809,312 $ 84,418,599 $ (382,768,152) $ 36,493 $ (84,503,748)

32 June 30, 2011 l. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : J. Explanation of differences between Governmental Funds Operating Statements and Statement of Activities: the Total Capital Long-Term Cost of Reclassifications Govemmental Related Debt Accrued Issuance! and Funds Items Transactions Interest perm amount Eliminations Revenues: Taxes $ 80,977,560 $ $ $ $ $ $ Intergovemmental 21,394 (21,394) Investment eamings 1,340,345 (37,850) Charges for services 417,652 Capital grants 131,451 Rental income 4,857,018 (4,728,432) Affordable rental units 4,932,000 Other revenues 1,005,769 (693,427) Total Revenues 88,202,086 Expenditures: Current: General govemment 4,416,912 (35,994) Economic development 582,007 Payments to other agencies 39,418,936 Pass-through agreements 34,163,539 (34,163,539) Affordable rental units 4,735,159 2,527,471 35,994 Community improvements 7,928,208 59,695,392 Housing programs 415,531 2,741,852 Supplemental educational revenue augmentation 5,255,397 (5,255,397) Capital outlay 9,940,845 (9,940,845) Debt service: Principal retirement 31,462,707 (31,462,707) Interest and fiscal charges 17,816,624 1,529,211 (301,062) 153,535 Total Expenditures 116,716,929 55,023,870 (29,933,496) (301,062) 153,535 Statement of Activities 80,977,560 1,302, , , ,586 4,932, ,342 88,202,086 4,380, ,007 39,418,936 7,298,624 67,623,600 3,157,383 19,198, ,659,776 Other Financing Sources (Uses): Transfers in 60,399,502 (60,399,502) Transfers out (60,399,502) 60,399,502 Total Other Financing Sources (Uses) Net Change in Fund Balances $ (28,514,843) $ (55,023,870) $ 29,933,496 $ 301,062 $ (153,535) $ $ (53,457,690)

33 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : k. Budgetary Accounting: The Agency uses the following procedures in establishing its budgetary data reported in the financial statements: 1. Before the beginning of the fiscal year, the Executive Director submits to the Board of Directors a proposed budget for the year commencing the following July Public hearings are conducted to obtain taxpayer comments. 3. The Budget is subsequently adopted through passage of a resolution. 4. Original appropriations are modified by supplementary appropriations and transfers among budget categories. The Board approves all significant changes. Annual appropriations lapse at year-end. 5. Encumbrances and Continuing Appropriations are rebudgeted as of July 1 by Board action. 6. Formal budgetary integration is employed as a management control device during the year for the Special Revenue and Capital Projects Funds. Formal budgetary integration is not employed for Debt Service Funds because effective budgetary control is alternatively achieved through debt indenture provisions. 7. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Budgetary data for the Special Revenue Funds and Capital Projects Funds are not presented herein, as the budgets for these funds are long-term in nature. 1. Relationship to the City of Palm Desert: The Palm Desert Redevelopment Agency is an integral part of the reporting entity of the City of Palm Desert, California. The funds ofthe Agency have been included within the scope of the basic financial statements of the City because the City Council, acting as the Redevelopment Agency Board, ofthe City of Palm Desert exercises oversight responsibility over the operations of the Agency. Only the funds of the Agency are included herein and these financial statements, therefore, do not purport to represent the financial position or results of operations ofthe City of Palm Desert

34 June 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : m. Use of Estimates: The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and, accordingly, include amounts that are based on management's best estimates and judgments. The financial statements include estimates for depreciation expense and fair value of investments. Accordingly, actual results could differ from the estimates. 2. ORGANIZA non AND TAX INCREMENT FINANCING: The Agency is a separate governmental entity as prescribed in the California Community Redevelopment law and as set forth in the Health and Safety Code of the State of California. The Agency consists of Project Area 1, Project Area 2, Project Area 3 and Project Area 4. In addition, the Agency and the City of Palm Desert (the City) have established the Palm Desert Financing Authority as a joint power of authority between the Agency and the City for purposes of financing and funding capital improvements. Transactions related to the joint power for the Agency are recorded in a debt service fund. The Palm Desert Housing Authority was established in January 1998, as a component unit of the Agency and is partly responsible for the administration of providing affordable housing in the City of Palm Desert. The apartment complexes are operated by the Authority through a management company. The transactions related to the Housing Authority are reported in a Special Revenue Fund. Agency expenses include capital improvement projects and operating costs which include required staff support and consultant services. The Agency's primary source of revenue comes from property taxes, referred to in the accompanying financial statements as "tax increment revenue." The assessed valuation of all property within each project area was determined on the date of adoption of the Project Area. Except for certain amounts provided by specific agreement (see Note 7), property taxes related to the incremental increase in assessed values after the adoption of the Project Area have been allocated to the Agency, while all property taxes on the "frozen" assessed valuation as of the adoption date have been allocated to the City and other districts

35 June 30, CASH AND INVESTMENTS: Cash and Investments Cash and investments reported m the accompanymg financial statements consisted of the following: Cash and investments pooled with the City Investments Investment in Energy Bonds Restricted cash with fiscal agent $ 12,004, ,675,285 2,790, ,306,011 $ 249,775,520 Investments Authorized by the California Government Code and the Agency's Investment Policy The Agency is subject to the City's investment policy. Under provision of the City's investment policy and in accordance with the California Government Code, the following investments are authorized: United States Treasury bills, notes, bonds or certificates of indebtedness United States government-sponsored agency securities, participations or other instruments Banker's Acceptances issued by commercial banks Commercial Paper issued by general corporations Negotiable Certificates of Deposits, issued by a nationally or state-chartered bank, a savings association, a federal association or by a state-licensed branch of a foreign bank Time Certificates of Deposit issued by qualified public depositories Repurchase Agreements sold by authorized brokers Medium-Term Notes issued by corporations organized and operating in the United States, or by depository institutions operating in the United States and licensed by the United States or by any state Money Market Mutual Funds that are registered with the SEC under the Investment Act of 1940 State of California Local Agency Investment Fund (LAIF) that is managed by the State Treasurer's Office Structured Notes in the form of callable securities or "STRIPS" issued by the United States Treasury, Federal Agencies or government-sponsored enterprises Local Government Investment Pools

36 June 30, CASH AND INVESTMENTS : Investments Authorized by the California Government Code and the Agency's Investment Policy (Continued) The City's Investment policy imposes the following restrictions on the maximum percentage it can invest in a single type of investment. Portfolio Single Issuer Issuer Maximum Maximum United States Treasury Bills, Notes, Bonds 100% N/A United States Government-Sponsored Agency Securities 100% 30% Banker's Acceptances 40% 30% Commercial Paper 25% 10% Negotiable Certificates of Deposit 30% N/A Time Certificates of Deposit 15% N/A Repurchase Agreements 20% N/A Medium-Term Corporate Notes 30% 5% Money Market Mutual Funds 20% N/A Local Agency Investment Fund (LAIF) $50M/Acct N/A Structured Notes (STRIPS) 20% N/A Local Government Investment Pools 30% N/A N/A - Not Applicable The City's policy is more conservative than state law, which has no issuer concentration limits on federal agency debt. The federal agency debt that the City purchases have implied credit ratings of "AAA/Aaa". Subsequent to June 30, 2011, Federal agency debt has been downgraded to AA+ (N egative)1 Aaa (Negative). Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the Agency's investment policy

37 June 30, CASH AND INVESTMENTS : Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Agency manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The Agency's investment of $2,790,000 in the City of Palm Desert Bonds is due as follows: (1) within 12 months or less $131,000, (2) between 13 and 24 months $423,000, and (3) over 24 months $2,236,000. The investment of$32,178,519 in Federal Agency Coupons is due as follows: (1) within 12 months or less $12,045,834 and (2) between 13 and 24 months $20,132,685. The investment in medium term notes of $6,720,057 is due as follows: (1) within 12 months or less $3,036,792 and (2) between 13 and 24 months $3,683,265. The restricted cash and investments held by the bond trustee and Housing Authority consist of investments in money market mutual funds, local government investment pools and demand deposits and are not subject to interest rate risk. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Agency's investment of $2,790,000 in City of Palm Desert bonds is not rated. Investments held by the bond trustee of $126,963,662 consist of $2,948,743 in money market mutual funds rated AAA by Standard and Poor's, and $124,014,919 in LAIF which is not rated. The Agency deposited $625,100 into an escrow account that is not subject to credit risk. The other investments include: $7,500,000 in the unrated Riverside County Treasurer's Pool; $49,753,919 in Rabobank's Money Market accounts, rated AAA; $8,522,790 in CAMP (California Asset Management Program), AAA-rated by Standard and Poor's; $32,178,519 in AAA-rated Federal Agency Coupons; and $6,720,057 in Medium-Term Notes which are rated AA. For the Housing Authority, $131 was invested in CAMP, rated AAA, $1,650,267 invested with unrated LAIF and $1,066,851 in deposits which are not subject to credit risk

38 June 30, CASH AND INVESTMENTS : Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the Agency's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure the Agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Disclosures Related to Interest Rate Risk, Credit Risk and Custodial Credit Risk: The Agency's cash and investments are pooled with the City of Palm Desert's cash and investments. Additional disclosures regarding $12,004,224 pooled investments related to interest rate risk, credit risk and custodial credit risk are available in the City of Palm Desert's Comprehensive Annual Financial Report

39 June 30, LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES: Receivables consisted of the following at June 30, 2011: Special Revenue Fund Low and Moderate Debt Service Funds Income Project Project Project Financing Housing Area 1 Area 2 Area 4 Authority Accounts $ 49,577 $ 84,295 $ 25,044 $ 8,233 $ Interest 67,270 7,761 Loans 7,324,592 $ 7,441,439 $ 84,295 $ 25,044 $ 8,233 $ 7,761 Capital Projects Fund Other Total Project Governmental Governmental Area 2 Funds Receivables Accounts $ 446 $ 66,273 $ 233,868 Interest 44, , ,011 Loans 1,200,000 8,524,592 $ 45,112 $ 1,568,587 $ 9,180,

40 June 30, LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES : Loans Receivable a. A loan receivable for the construction of a multi-family affordable housing development dated June 14, 2001, with a balance of $7,298,547 is due from the Palm Desert Development Company. The loan is secured by a Deed of Trust, with assignment to property, rent and fixtures on the housing development located in Palm Desert. Interest is earned and due annually at a rate of 1 % per annum from the date on which the final certificate of occupancy is issued. Principal on the loan is based on the applicable agency's percentage of positive net cash flow derived from the operations of the Development. b. The Agency has $26,045 in home improvement loans. Payments of interest and principal are due monthly on these loans. c. On April 21, 2003, the Agency entered into a loan agreement with The Regents of the University of California, on behalf of its Riverside Campus, to loan various amounts over a period of time, not to exceed an aggregate amount of $2,000,000. Proceeds of the loan are to be used for capital improvements at the University's Riverside Campus. The outstanding principal balance and interest on the note is due in five annual payments beginning July 15, As of June 30,2011, the amount outstanding on the loan was $1,200,000. d. The Agency has issued loans for several other projects, all of which are secured by a deed of trust. A valuation allowance equal to the loan balance has been recognized where there is a significant possibility that these loans either become uncollectible or forgiven by the Agency at a future date if all the terms of the loans have been met

41 June 30, LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES : Detailed information for these loans is as follows: Loans Receivable (Continued) Project Name Self-Help Housing Program Loan Balance Outstanding $ 429,000 Interest Rate 7.25% Maturity Date 30 years or 2024 Secured By Deed of Trust Special Provisions of Loan Loan balance and interest due upon maturity, unpaid balance of loan or interest will bear an interest rate of 12%. Home Improvement Loans 318,304 N/A N/A Deed of Trust Loan is payable upon change or transfer of title, refinancing or upon the death of the borrower. Restrictive convenants are placed against property to maintain affordability for up to 45 years in exchange for favorable loan tenns. Portola Palms Mobilehome Park 113, % 30 years from date ofloan Deed of Trust Loan balance and interest will be forgiven at maturity if debtor does not breach the tenns and conditions of either the unit regulatory agreement or note. Desert Rose 2,275, % years * from date ofloan Deed of Trust Loan will be forgiven at maturity unless the debtor is in violation of the unit regulatory agreement or the deed of trust. Falcon Crest 5,490, % years from date ofloan Deed of Trust Loan is payable upon change or transfer of title, refinancing or upon the death of the borrower. Acquisition, Rehabilitation, Resale 190, % years from date ofloan Deed of Trust Assignment of Rent Loan is payable upon change or transfer of title, refinancing or upon the death of the borrower. Restrictive convenants are placed against property to maintain affordability for up to 45 years in exchange for favorable loan tenns. * All properties acquired from the Redevelopment Agency after June 2009 will have a 45 year restrictive covenant

42 June 30, LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES : Advances To/From Other Funds Advances From Low and Moderate Income Housing Low and Moderate Income Housing Low and Moderate Income Housing Low and Moderate Income Housing Advances To Debt Service Project Area #1 Debt Service Project Area #2 Debt Service Project Area #4 Other Governmental Funds $ Amount 10,438,131 3,755,605 2,657, ,313 $ )88 The advances from the Low and Moderate Income Housing Fund to the Debt Service Project Areas Funds were made to cover the SERAF payment are due to be paid prior to June 30, The advances have no interest rate. Due from Others Debt Service Project Area #1 Debt Service Project Area #2 Due to Others Capital Project Area #2 Capital Project Area #2 Amount $ 584,461 3,395,278 $ )39 The Debt Service Project Areas' receivable of $3,979,739 to Capital Project Area #2 was to provide temporary funds for operations

43 June 30, INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS: Transfers The composition of interfund transfers as of June 30, 2011, is as follows: Transfers To Special Revenue Fund Low and Moderate Debt Service Funds Capital Proj ects Fund Other Income Financing Project Governmental Transfers From Housing Authority Area 2 Funds Special Revenue Funds: Low and Moderate Income Housing $ $ 9,080,944 $ $ 8,052,629 Debt Service Funds: Project Area I 10,004,878 13,116,577 2,914,637 Proj ect Area 2 3,087,009 5,754, ,236 Project Area 4 2,414,608 2,614,220 57,330 Financing Authority 5,097 Capital Projects Fund: Project Area 2 535,271 Other Governmental Funds 858,812 1,025, , ,767 Totals $ 16,365,307 $ 31,591,763 $ 728,798 $ 11,7\3,634 Total $ 17,133,573 26,036,092 9,408,437 5,086,158 5, ,271 2,194,874 $ 60,399,502 Transfers are used to: 1. move receipts restricted to debt service from the funds collecting the receipts to the debt service funds as debt service payments become due, 2. transfer 20% of tax increments received by RDA Debt Service Funds to the Low and Moderate Income Housing Special Revenue Fund, 3. transfer allocation of administrative expenses, and 4. transfer revenues to provide for capital projects

44 June 30, CAPITAL ASSETS: A summary of changes in capital assets for the year ended June 30,2011, is as follows: Balance at Balance as restated Jul~ Restatement at Jul~ 1, 2010 Transfers Additions Deletions Capital assets, not being depreciated: Land $ 77,137,913 $ (12,718,829) $ 64,419,084 $ 293,538 $ 1,232,569 $ (55,001,281) Construction-in-progress ]3,287,255 13,287,255 (10,707,184) 8,600,644 (1,182,861 ) Total capital assets, not being depreciated 90,425,168 (12,718,829) 77,706,339 (10, ) 9,833,213 (56,184,142) Capital assets, being depreciated: Buildings 92,137,624 (6,318,939) 85,818,685 10,413,646 (6,368,646) Improvements other than buildings 7,312,141 7,312,141 47,292 (47,292) Infrastructure 1,990 (5,128) Machinery and equipment 296, ,523 58,350 (58,350) Total capital assets, being depreciated 99, (6,3 I 8,939) 93,427,349 10,413, ,632 (6,479,416) Balance at June 30, 2011 $ 10,943,910 9,997,854 20,941,764 89,863,685 7,312,141 (3,138) 296,523 97,469,21 I Less accumulated depreciation for: Buildings (28,755,149) 954,432 (27,800,717) (2,415,103) 511,035 Improvements other than buildings (3,669,654) (3,669,654) (365,607) Machinery and equipment (220,848) (220,848) (36,610) 5,128 Total accumulated depreciation (32,645,651) 954,432 (31,691,219) (2,817,320) 516,163 Capital assets, being depreciated, net 67,100,637 (5,364,507) 61,736,130 10,413,646 (2,709,688) (5,963,253) Capital assets, net - Govemmental Activities $ 157,525,805 $ (18,083,336) $ 139,442,469 $ 7,123,525 $ (62,147,395) (29,704,785) (4,035,261) (252,330) (33,992,376) 63,476,835 $ 84,418,599 Depreciation expense of $2,527,472 is reported with Affordable rental units, $275,385 is reported with Community improvements, and $14,463 is reported with Housing program expenses in the Statement of Activities. During the year, the Agency Board approved Resolution No. 581 transferring property to the City of Palm Desert totaling $58,522,

45 June 30, AMOUNTS DUE UNDER PASS-THROUGH AGREEMENTS: Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are, except where otherwise provided by specific agreement, allocated to the Agency. All taxes on the "frozen" assessed valuation of the property are allocated to the City and other taxing agencies. The Agency has entered into various pass-through agreements with other tax agencies to allocate their tax increment resulting from the increase in assessed values after the adoption of the Redevelopment Plan. At June 30, 2011, the Agency has an obligation of $44,341,716 to other agencies and entities related to specific pass-through agreements as follows: Entity Riverside County - Capital Improvement Riverside County - Schools Riverside County - Library Riverside County - Fire Coachella Valley Mosquito Abatement District Coachella Valley Water District Desert Community College District Desert Sands Unified School District Coachella Valley Recreation and Park District Coachella Valley Resources District Palm Springs Unified School District County Juvenile Health District Other Deposits Balance at June 30, 2010 $ 23,906,863 * 783,603 11,614,230 3,177, ,269 10,972,460 1,344,005 5,657,267 * 485,547 4, ,618 1,049, ,977 Additions $ 23,796, ,662 1,710,496 2,944, ,173 1,095,835 1,205,279 5,276, ,674 4, ,543 1,037, ,612 Payments $ 26,610, ,603 3,548,864 3,177, ,269 11,421,798 1,344,005 5,834, ,547 4, ,618 1,032, ,468 Balance at June 30, 2011 $ 21,093, ,662 9,775,862 2,944, , ,497 1,205,279 5,099, ,674 4, ,543 1,054, ,121 $ 60,678,180 $ 39,223,366 $ 55,559,830 $ 44,341,716 * The Redevelopment Agency has used bond proceeds for the construction of capital improvements, which benefit these entities. These entities have agreements with the Redevelopment Agency, which will allow it to use a portion of these amounts to offset debt service costs

46 June 30, LONG-TERM LIABILITIES: Schedule of Changes The following is a schedule of changes in long-term liabilities of the Agency for the fiscal year ended June 30, 2011: Balance Repayments/ Balance Due Within July 1,2010 Additions Reductions June 30, 2011 One Year Project Area No A TARRBs, $22,070,000 $ 22,070,000 $ $ $ 22,070,000 $ 2003 TARBs, $19,000,000 19,000,000 19,000, A TARRBs, $24,945,000 19,830,000 1,130, ,700,000 1,050, A & B TARBs, $62,320,000 53,870,000 2,320, ,550,000 2,450, A TARRBs, $32,600,000 25,420,000 2,625, ,795,000 2,870,000 Advances from City 6,663,940 6,663,940 Total ~ 14b,853,940 ~ $ 1':1,'738,940 ~ IJ4,I [5,000 $ b,3'70,000 Project Area No A TARRBs, $17,310,000 $ 12,660,000 $ $ 720,000 $ 11,940,000 $ 760, TARBs, $15,745,000 15,745,000 15,745, A-D TARBs, $67,618,213 67,340, ,362 9,405,000 58,928,947 1,720,000 Advances from City 15,991,060 2,436,060 13,555,000 County note payable 245, , , ,707 Total ~ [[ [,98':1,059 ~ 99j,3b':1 $ [':1,b8j,'7b7 $ mo,':19 I,b54 ~ ':1,b0':1,'70'7 Project Area No TARBs, $4,745,000 $ 4,020,000 $ $ 105,000 $ 3,915,000 $ 110, A-C TABs, $15,059,526 15,647, , ,000 15,704, ,000 Total ~ [9,bb7,978 $ ':1':1b,j80 $ ':175,000 $ 19,b19,j58 ~ ji),ooo Project Area No TARBs, $11,02,000 $ 8,355,000 $ $ 130,000 $ 8,225,000 $ 135, TARBs, $15,695,000 13,895, ,000 13,575, , A TARBs, $19,273,089 19,703, , ,000 19,578, ,000 Total $ 4l,11)j,393 $ 309,4b9 $ m,ooo $ 41,3'j8,Ob':1 $ 1,0'30,000 Combined Low and Moderate Housing 1998 TARBs, $48,760,000 $ 2,995,000 $ $ 1,460,000 $ 1,535,000 $ 1,535, TARBs, $12,100,000 10,335, ,000 10,050, , TARBs, $86,155,000 78,085,000 3,135,000 74,950,000 3,265,000 Total $ 9I,4B,000 $ ~ 4,880,000 $ 8b,5j5,000 $ 5,095,000 Total - All Project Areas Bonds payable $ 388,972,156 $ 1,529,211 $ 22,240,000 $ 368,261,367 $ 15,290,000 Advances from City 22,655,000 9,100,000 13,555,000 County note payable 245, , , ,707 Subtotal 411,872,570 1,529,211 31,462, ,939,074 15,412,707 Add: Unamortized bond premium 6,899, ,703 6,423,834 Less: Defen'ed amount on refunding 1,360, ,715 1,238,105 Total $ 417,411,287 $ 1,529,211 $ 31,815,695 $ 387,124,803 $ 15,412,

47 June 30, LONG-TERM LIABILITIES : A description of long-term liabilities outstanding (excluding defeased debt) of the Agency as of June 30, 2011, follows: Tax Allocation Bonds Tax Allocation bonds used for capital improvements are special obligations of the Agency and the Financing Authority (a component unit ofthe Agency) and are secured by an irrevocable pledge of tax revenues and other funds as provided under the Bond Resolution. The bonds and any interest thereon are not a debt of the City, the State of California or any of its political subdivisions, and neither the City, the State of California nor any of its political subdivisions is liable on the bonds, nor in any event shall the bonds and interest thereon be payable out of any funds or properties other than those provided under the Bond Resolution. The Agency purchased insurance from Ambac Assurance Corporation (Ambac) and MBIA Insurance Corporation (MBIA) for the purpose of enhancing the creditworthiness of the bonds. On November 8, 2010, Ambac Financial Group, Inc. ("Ambac Group"), whose principal operating subsidiary, Ambac Assurance Corporation, is a guarantor of public finance and structured finance obligations, announced that it filed for a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). Ambac Group will continue to operate in the ordinary course of business as "debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. On February 18, 2009, MBIA announced the restructuring of its financial guaranty insurance operations into two separately capitalized sister companies, with one entity (MBIA Illinois) assuming the risk associated with its US municipal exposures, and the other (MBIA Corp) insuring the remainder of the portfolio. Subsequent to the restructuring ofmbia, Moody's Ratings assigned ratings to the reinsured municipal securities based on the higher of (a) the insurance financial strength rating of MBIA Illinois, to 'Baal'; or (b) the published underlying rating. Subsequent to the restructuring ofmbia, S&P assigned its insurance financial strength rating ofmbia Illinois to 'AA-minus'. Effective March 19, 2009, MBIA Illinois was renamed National Public Finance Guarantee Corporation ("NPFGC"). National Public Finance Guarantee Corporation (formerly MBIA Illinois), an insurance subsidiary ofmbia, which assumes the risk associated with U.S. municipal exposures, has financial strength credit ratings of "BBB (Developing)/Baa1 (Developing)"

48 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Pursuant to California Health and Safety Code Section 33670, the total number of dollars of taxes which may be divided and allocated to the Agency for Project Area No.1 is $500,000,000, and it is estimated that the cap will be reached in the year Project Area No. 4's total is $600,000,000, and it is estimated that this cap will be reached in the year The result of reaching the cap limits would preclude the Agency from receiving taxes and using the taxes to pay debt in these project areas, thereby requiring the Agency to call bonds prior to those dates. As of June 30, 2011, the Agency has transferred $6,298,846 to its trustee to cover debt payments. Standard & Poor's Ratings Services ("Standard & Poor's") has lowered its underlying rating from "A" to "A-" on the following issues of bonds issued by the Authority: (i) the Authority's Tax Allocation Revenue Bonds (Project Area No.1, as Amended), 2006 Series A (the "2006A Authority Bonds"), (ii) the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No.1, as Amended), 2006 Series B (Taxable) (the "2006B Authority Bonds", and together with the 2006A Authority Bonds, the "2006 Authority Bonds"), and (iii) the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No.1, as Amended), 2007 Series A (the "2007 Authority Bonds")

49 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No.!, as amended) In March 2002, the Palm Desert Financing Authority issued $22,070,000 of Tax Allocation Refunding Revenue Bonds (Project Area No.1, as amended) 2002 Series A. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency. A portion of the proceeds of the loan was used to prepay the prior loan, which affected the current refunding of a like portion of the prior bonds. The remainder was used to fund various redevelopment capital projects of the Agency in Project Area No. 1. The bonds consist of $10,905,000 term bonds at 5.00% due April 1, 2025, and $11,165,000 term bonds at 5.10% due April 1, Interest is payable semi-annually on April 1 and October 1. Mandatory sinking fund redemptions begin April 1, The future debt service requirements on the 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No.1, as amended) are as follows: Year Ending June 30, Principal Interest $ $ 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 5,573,325 12,920,000 4,789,075 9,150,000 1,195,440 $ Total 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 5,573,325 17,709,075 10,345,440 $ 22,070,000 $ 17,131,165 ========= $ 39,201,

50 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Series 2003 Tax Allocation Revenue Bonds (Project Area No. 1) In July 2003, the Financing Authority issued $19,000,000 Tax Allocation Revenue Bonds (Project Area No.1 as Amended) Series The proceeds of the bonds were disbursed to make a loan to the Redevelopment Agency. The Agency used the proceeds of the loan to fund various redevelopment capital projects of the Agency and to finance costs of issuance of the bonds. The bonds bear interest at 5.0%. They consist of $7,050,000 serial bonds with principal payments due in 2026 and 2027, and $11,950,000 term bonds due in Interest will be payable on April 1 and October 1, of each year, beginning April 1, Principal payments will be on April 1 of the years stated above. The future debt service requirements on the 2003 Series Tax Allocation Revenue Bonds (Project Area No.1) are as follows: Year Ending June 30, Principal Interest $ $ 950, , , , ,000 4,750,000 3,440,000 4,750,000 15,560,000 1,992,500 $ Total 950, , , , ,000 4,750,000 8,190,000 17,552,500 $ 19,000,000 $ 16,242,500 ======== $ 35,242,

51 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 2004 Series A Tax Allocation Refunding Revenue Bonds (Project Area No.1 as Amended) In June 2004, the Palm Desert Financing Authority issued $24,945,000 of Tax Allocation Refunding Revenue Bonds (Project Area No. I as Amended) 2004 Series A. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to refinance a portion of the Agency's obligations from 1995 and to fund various redevelopment capital projects within or of benefit to the project area. Interest rates on the bonds vary from 3.0% to 5.0% per annum payable semi-annually on April 1 and October 1. Principal payments will be made annually beginning April 1, The future debt service requirements on the 2004 Series A Tax Allocation Revenue Bonds (Project Area No.1, as amended) are as follows: Year Ending June 30, Principal 2012 $ 1,050, ,155, ,210, ,235, ,280, ,355, ,415,000 $ 18,700,000 Interest $ 876, , , , ,100 2,435, ,500 $ 7,017,778 Total $ 1,926,213 1,983,963 1,986,988 1,963,588 1,956,100 9,790,426 6,110,500 $ 25,717,

52 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Tax Allocation Revenue Bonds (Project Area No.!, as Amended) 2006 Series A and Series B (Taxable) On July 6, 2006, the Palm Desert Financing Authority issued $37,780,000 of Tax Allocation Revenue Bonds (Project Area No.1, as Amended) 2006 Series A and $24,540,000 of Tax Allocation Refunding Revenue Bonds (Project Area No.1, as Amended) 2006 Series B (Taxable). The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A loan will be used to assist the Agency to fund various redevelopment capital projects within or of benefit to Project Area No.1, as Amended, pay costs of issuance and pay the premium on a Reserve Fund surety bond. The proceeds of the Series B loan will be used to refinance the Agency's obligations incurred under a loan agreement entered into in 1997, pay costs of issuance and pay the premium on a Reserve Fund surety bond. The Series A bonds consist of $26,415,000 Serial Bonds with interest rates ranging from 4.70% to 5.25% payable semiannually on October 1 and April 1. Bond maturities begin April 1, 2017, and continue annually through Term bonds in the amount of $11,365,000 carry an interest rate of 5.00% and mature April 1, The Series B bonds consist of $13,220,000 Serial Bonds with interest rates ranging from 5.56% to 5.77% payable semiannually on October 1 and April 1. Bond maturities began April 1, 2007, and continue annually through Term bonds in the amount of $11,320,000 carry an interest rate of 5.82% and mature April 1, The future debt service requirements on the 2006 Series A and Series B Tax Allocation Revenue Bonds (Project Area No.1, as amended) are as follows: Year Ending June 30, Principal 2012 $ 2,450, ,595, ,745, ,905, ,075, ,895, ,810, ,075,000 $ 51,550,000 Interest $ 2,714,634 2,573,269 2,422,240 2,262,482 2,093,410 8,404,650 2,492, ,478 $ 23,093,201 Total $ 5,164,634 5,168,269 5,167,240 5,167,482 5,168,410 26,299,650 21,302,038 1,205,478 $ 74,643,

53 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) 2007 Series A On January 9, 2007, the Palm Desert Financing Authority issued $32,600,000 Tax Allocation Refunding Revenue Bonds (Project Area No.1, as amended) 2007 Series A. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the 2007 Loan will be used to refinance a portion of the outstanding obligations of the Redevelopment Agency, fund various redevelopment capital projects within the Palm Desert Redevelopment Agency Project Area No.1, as amended, and pay the costs associated with the issuance of the bonds. The Series A bonds consist of $32,600,000 Serial Bonds with interest rates ranging from 3.50% to 5.00% payable semiannually on October 1 and April 1. Bond maturities began April 1, 2008 and continue annually through The future debt service requirements on the 2007 Series A Tax Allocation Refunding Revenue Bonds (Project Area No.1, as amended) are as follows: Year Ending June 30, Principal 2012 $ 2,870, ,955, ,100, ,230, ,390, ,250,000 $ 22,795,000 Interest $ 1,083, , , , , ,500 $ 4,582,500 Total $ 3,953,500 3,895,000 3,894,500 3,916,000 3,922,000 7,796,500 $ 27,377,

54 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No.2) In July 2002, the Palm Desert Financing Authority issued $17,310,000 of Tax Allocation Refunding Revenue Bonds (Project Area No.2). The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency to prepay outstanding indebtedness and to fund various redevelopment capital projects within or of benefit to the project area. Interest rates on the bonds vary from 3.0% to 5.0% per annum payable semi-annually on February 1 and August 1. The future debt service requirements on the 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No.2) are as follows: Year Ending June 30, Principal 2012 $ 760, , , , , ,260, ,510,000 $ 11,940,000 Interest $ 548, , , , ,388 1,290, ,750 $ 3,781,851 Total $ 1,308,638 1,304,763 1,307,353 1,306,113 1,307,388 6,550,846 2,636,750 $ 15,721,

55 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Series 2003 Tax Allocation Revenue Bonds (Project Area No.2) In March 2003, the Palm Desert Financing Authority issued $15,745,000 of Tax Allocation Revenue Bonds (Project Area No.2) Series The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency to fund various redevelopment capital projects of the Agency in Project Area No.2. Interest rates on the bonds vary from 4.5% to 5.0% per annum payable semi-annually on February 1 and August 1, with principal maturing as follows: $ 875,000 Serial Bonds 910,000 Serial Bonds 2,485,000 Term Bonds 11,475,000 Term Bonds August 1, 2023 August 1, 2024 August 1, 2026 August 1,2033 The future debt service requirements on the 2003 Series Tax Allocation Revenue Bonds (Project Area No.2) are as follows: Year Ending June 30, Principal Interest $ $ 769, , , , ,006 3,845,031 2,930,000 3,658,691 7,400,000 2,312,488 5,415, ,125 $ Total 769, , , , ,006 3,845,031 6,588,691 9,712,488 5,830,125 $ 15,745,000 $ 14,076,365 ===:::::i:::::====== $ 29,821,

56 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Project Area No.2 Tax Allocation Refunding Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B, Revenue Bonds 2006 Series C and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series D On July 25,2006, the Palm Desert Financing Authority issued its Project Area No.2, $41,340,000 Tax Allocation Refunding Revenue Bonds 2006 Series A, $1,567,118 Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B, $7,775,000 Tax Allocation Revenue Bonds 2006 Series C and $16,936,095 Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series D. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A, Band C Bonds will be used to make three loans to refinance the Agency's obligations incurred under a loan agreement entered into in 1995, fund various redevelopment capital projects within or of benefit to its Project Area No.2, purchase a Reserve Fund surety policy bond and pay costs of issuance of the bonds. The Agency will use the proceeds of the Series D Bonds to fund various redevelopment capital projects within or of benefit to the Project Area, fund a debt service reserve fund and pay cost of issuance ofthe bonds. The Series A bonds consist of $16,250,000 Serial Bonds with interest rates ranging from 4.00% to 5.00% payable semiannually on August 1 and February 1. Bond maturities begin August 1,2007, and continue annually through Term bonds in the amount of $8,225,000 carry an interest rate of 4.90% and mature August 1, Term bonds in the amount of $16,865,000 carry an interest rate of 5.125% and mature August 1,2036. The Series B bonds consist of $1,567,118 Capital Appreciation Bonds with a reoffering yield ranging from 3.85% to 4.08%. Bond maturities begin April 1, 2007, and continue annually through The Series C bonds were paid off during the fiscal year. The Series D bonds consist of $16,936,095 Capital Appreciation Bonds with a reoffering yield ranging from 4.65% to 6.10%. Bond maturities began August 1, 2007, and continue annually through Each year the outstanding balance is increased for the accretion of interest associated with the bonds. The accreted interest at June 30, 2011, is $4,379,

57 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Project Area No.2 Tax Allocation Refunding Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B, Revenue Bonds 2006 Series C and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series D (Continued) The debt service requirements schedules on the 2006 Series A Tax Allocation Refunding Revenue Bonds, Series B Tax Allocation Revenue Capital Appreciation Bonds, Series C Revenue Bonds and Series D Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No.2) do not agree to the liability for those bonds shown in the schedule of changes. These bond issues include capital appreciation bonds, which are issued at a discount. The carrying amount of these bonds accretes, or increases each year. The amount shown in the schedule of changes include the accreted value to date. The future debt service requirements are as follows: Year Ending June 30, Principal 2012 $ 1,482, ,633, ,700, ,759, ,108, ,806, ,749, ,974, ,790, ,545,000 $ 54,549,390 Interest $ 2,200,570 2,274,429 2,334,447 2,394,399 2,059,088 11,211,420 13,123,694 11,466,626 10,142, ,466 $ 57,323,593 Total $ 3,683,388 3,907,987 4,034,800 4,153,637 3,167,400 18,017,462 22,873,109 21,441,195 25,932,539 4,661,466 $ 111,872,

58 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Series 2003 Tax Allocation Revenue Bonds (Project Area No.3) In July 2003, the Financing Authority issued $4,745,000 Tax Allocation Revenue Bonds (Project Area No.3) Series The proceeds of the bonds were disbursed to make a loan to the Redevelopment Agency. The Agency will use the proceeds of the loan to fund various redevelopment capital projects within or of benefit to the project area and to finance costs of issuance of the bonds. The bonds bear interest at rates ranging from 3.000% to 5.125%. Principal maturities for the serial bonds of $2,475,000 began April 1, 2004, and continue through October 1,2031. The term bonds in the amount of $2,270,000 are due in The future debt service requirements on the 2003 Series Tax Allocation Revenue Bonds (Project Area No.3) are as follows: Year Ending June 30, Principal 2012 $ 110, , , , , , , ,155, ,000 $ 3,915,000 Interest $ 186, , , , , , , ,875 42,281 $ 2,587,792 Total $ 296, , , , ,473 1,477,548 1,481,900 1,477, ,281 $ 6,502,

59 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Project Area No.3 Tax Allocation Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series C On July 25,2006, the Palm Desert Financing Authority issued its Project Area No.3, $11,915,000 Tax Allocation Revenue Bonds 2006 Series A, $383,660 Tax Allocation Revenue Capital Appreciation Bonds 2006 Series Band $2,760,866 Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series C. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A and B Bonds will be used to make two loans to fund various redevelopment capital projects within or of benefit to its Project Area No.3, purchase a Reserve Fund surety policy and pay the costs of issuance of the bonds. The Agency will loan the proceeds of the Series C Bonds to fund various redevelopment capital projects within or of benefit to the Project Area, fund a debt service reserve fund and pay the costs of issuance of the bonds. The Series A bonds consist of $2,980,000 Serial Bonds with interest rates ranging from 4.00% to 4.75% payable semiannually on April 1 and October 1. Bond maturities begin April 1, 2007, and continue annually through Term bonds in the amount of $4,465,000 carry an interest rate of 4.75% and mature April 1, Term bonds in the amount of $4,470,000 carry an interest rate of 5.00% and mature April 1, The Series B bonds consist of $383,660 Capital Appreciation Bonds with a yield ranging from 5.31 % to 5.54%. Bond maturities are April 1,2020,2021,2027 and The Series C bonds consist of $2,760,866 Capital Appreciation Bonds with a yield ranging from 4.80% to 6.10%. Bond maturities began April 1, 2009, and continue annually through Each year the outstanding balance is increased for the accretion of interest associated with the bonds. The accreted interest at June 30,2011, is $993,

60 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Project Area No.3 Tax Allocation Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series C (Continued) The future debt service requirements on the 2006 Series A Tax Allocation Revenue Bonds, Series B Tax Allocation Revenue Capital Appreciation Bonds and Series C Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No.3) are as follows: Year Ending June 30, Principal 2012 $ 198, , , , , ,563, ,095, ,981, ,323, ,470,000 $ 14,710,543 Interest $ 562, , , , ,687 3,448,684 3,646,626 4,209,408 2,977, ,250 $ 17,837,596 Total $ 761, , , , ,418 5,012,032 5,742,350 6,190,438 6,300,351 5,162,250 $ 32,548,

61 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 1998 Series Tax Allocation Revenue Bonds (Project Area No.4) On March 1, 1998, the Palm Desert Financing Authority issued $11,020,000 of Tax Allocation Revenue Bonds (Project Area No.4) Series The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to fund various redevelopment capital projects of the Agency in Project Area No.4. Interest rates on the bonds vary from 4.0% to 5.2% per annum payable semiannually on April 1 and October 1, with principal maturing annually on October 1. In July 2006 $1,785,000 of the outstanding balance was advance refunded by the issuance of Tax Allocation Refunding Revenue Bonds (Project Area No.4) 2006 Series A. The future debt service requirements on the 1998 Series Tax Allocation Revenue Bonds (Project Area No.4) (after defeasance) are as follows: Year Ending June 30, Principal 2012 $ 135, , , , , ,175, ,825, ,070,000 $ 8,225,000 Interest $ 420, , , , ,375 1,565, , ,100 $ 4,664,212 Total $ 555, , , , ,375 3,740,373 3,745,010 2,235,100 $ 12,889,

62 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 2001 Series Tax Allocation Revenue Bonds (Project Area No.4) In November 2001, the Palm Desert Financing Authority issued $15,695,000 of Tax Allocation Revenue Bonds (Project Area No.4) Series The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to fund various redevelopment capital projects of the Agency in Project Area No.4. Interest rates on the bonds vary from 3.5% to 4.9% per annum payable semiannually on April 1 and October 1, with principal maturing annually on October 1. The future debt service requirements on the 2001 Series Tax Allocation Revenue Bonds (Project Area No.4) are as follows: Year Ending June 30, Principal 2012 $ 325, , , , , ,250, ,785, ,090, ,650,000 $ 13,575,000. Interest $ 628, , , , ,322 2,548,904 1,962,194 1,136,160 39,600 $ 8,680,943 Total $ 953, , , , ,322 4,798,904 4,747,194 6,226,160 1,689,600 $ 22,255,

63 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Tax Allocation Refunding Revenue Bonds (Project Area No.4) 2006 Series A and Tax Allocation Revenue Capital Appreciation Bonds (Project Area No.4) Series B On July 25, 2006, the Palm Desert Financing Authority issued $14,610,000 of Tax Allocation Refunding Revenue Bonds (Project Area No.4) 2006 Series A and $4,663,089 of Tax Allocation Revenue Capital Appreciation Bonds (Project Area No.4) 2006 Series B. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A and B Bonds will be used to make two loans to refinance a portion of the outstanding obligations of the Redevelopment Agency under a loan agreement dated March 1, 1998, fund various redevelopment capital projects within or of benefit to its Project Area No.3, purchase a Reserve Fund surety policy and pay the costs of issuance of the bonds. The Series A bonds consist of$8,155,000 Serial Bonds with interest rates ranging from 4.40% to 5.00% payable semiannually on October 1 and Aprill. Bond maturities began October 1, 2008, and continue annually through Term bonds in the amount of $2,200,000 carry an interest rate of 5.00% and mature October 1, Term bonds in the amount of $4,255,000 carry an interest rate of 5.00% and mature October 1, The Series B bonds consist of $4,663,089 Capital Appreciation Bonds with a yield ranging from 4.14% to 5.56%. Bond maturities begin October 1, 2010 and continue annually through Each year the outstanding balance is increased for the accretion of interest associated with the bonds. The accreted interest at June 30, 2011, is $1,379,

64 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Tax Allocation Refunding Revenue Bonds (Project Area No.4) 2006 Series A and Tax Allocation Revenue Capital Appreciation Bonds (Project Area No.4) Series B (Continued) The future debt service requirements on the 2006 Series A Tax Allocation Refunding Bonds and Series B Tax Allocation Revenue Capital Appreciation Bonds (Project Area No.4) are as follows:. Year Ending June 30, Principal 2012 $ 554, , , , , ,073, ,290, ,339, ,113,401 $ 18,198,592 Interest $ 657, , , , ,641 2,837,240 2,901,973 4,177,361 7,572,349 $ 20,576,534 Total $ 1,211,845 1,307,876 1,414,377 1,318,195 1,216,571 3,910,568 6,192,835 8,517,109 13,685,750 $ 38,775,

65 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 1998 Series Tax Allocation (Housing Set-Aside) Revenue Bonds In January 1998, the Palm Desert Financing Authority issued $48,760,000 in Tax Allocation (Housing Set-Aside) Revenue Bonds. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to finance the acquisition of seven apartment complexes consisting of 725 rental units from the Housing Authority of the County of Riverside. Interest rates on the bonds vary from 4.0% to 5.1 % per annum payable semi-annually on April 1 and October 1 with principal maturing annually on October 1. In February 2007 $38,740,000 of the outstanding balance was advance refunded by the issuance of Tax Allocation (Housing Set-Aside) Refunding Revenue Bonds Series The future debt service requirements on the 1998 Series Tax Allocation (Housing Set-Aside) Revenue Bonds (after defeasance) are as follows: Year Ending June 30, 2012 $ Principal Interest Total 1,535,000 $ 38,375 ======= $ 1,573,

66 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) 2002 Series Tax Allocation (Housing Set-Aside) Revenue Bonds In August 2002, the Palm Desert Financing Authority issued $12,100,000 of Tax Allocation (Housing Set-Aside) Revenue Bonds Series The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency to fund various low and moderate housing capital proj ects of the Agency and to finance costs of issuance of the bonds. Interest rates on the $6,555,000 serial bonds vary from 2.0% to 4.9% per annum payable semi-annually on March 1 and October 1. Annual principal payments begin October 1, The $5,545,000 term bonds bear an interest rate of 5.0% per annum and mature October 1, The future debt service requirements on the 2002 Series Tax Allocation (Housing Set-Aside) Revenue Bonds are as follows: Year Ending June 30, Principal 2012 $ 295, , , , , ,980, ,510, ,220, ,000 $ 10,050,000 Interest $ 470, , , , ,004 1,847,932 1,316, ,000 18,625 $ 6,014,140 Total $ 765, , , , ,004 3,827,932 3,826,334 3,825, ,625 $ 16,064,

67 June 30, LONG-TERM LIABILITIES : Tax Allocation Bonds (Continued) Tax Allocation (Housing Set-Aside) Refunding Revenue Bonds Series 2007 On February 7, 2007, the Palm Desert Financing Authority issued $86,155,000 Tax Allocation (Housing Set-Aside) Refunding Revenue Bonds Series The Palm Desert Financing Authority loaned the proceeds to the Palm Desert Redevelopment Agency. The proceeds of the 2007 Loan will be used to finance the development of low and moderate income housing by the Redevelopment Agency, refinance a portion of the outstanding obligations of the Redevelopment Agency, purchase a debt service surety bond for deposit in the Reserve Fund, and pay certain costs associated with the issuance of the bonds. The Series 2007 bonds consist of $86,155,000 Serial Bonds with interest rates ranging from 4.00% to 5.00% payable semiannually on October 1 and April 1. Bond maturities began October 1, 2007 and continue annually through The future debt service requirements on the Tax Allocation (Housing Set-Aside) Refunding Revenue Bonds Series 2007 are as follows: Year Ending June 30, Principal 2012 $ 3,265, ,005, ,235, ,505, ,785, ,790, ,560, ,805,000 Advances from City $ 74,950,000 Interest $ 3,478,438 3,313,038 3,082,063 2,813,563 2,531,313 8,012,187 3,135, ,294 $ 26,658,259 Total $ 6,743,438 8,318,038 8,317,063 8,318,563 8,316,313 36,802,187 17,695,363 7,097,294 $ 101,608,259 The City of Palm Desert has made advances to the Agency to finance capital projects in the following amounts: (a) $6,663,940 for Project Area No.1 and $15,991,060 for Project Area No.2. During the year, the Agency repaid all of the advances for Project Area No.1, and $2,436,060 for Project Area No.2. At June 30, 2011, the outstanding advance balance is $13,555,000. These advances do not have a fixed repayment schedule

68 June 30, LONG-TERM LIABILITIES : Notes Payable County of Riverside The Agency entered into a cooperation agreement with the County of Riverside (the County) on December 15, 1987, regarding the adoption of the Agency's Project Area No.2. The agreement states that the Agency was to retain 50% ofthe County's share of tax increment. This was based on the County's share of tax increment being what would be allocated to the County in the absence of a redevelopment project area being adopted. This agreement called for the Agency to retain 50% of the County's share until the gross increment reached $3,500,000. The agreement further states that when gross increment reaches $10,000,000 that the Agency would repay the 50% of the retained County's share of increment in equal payments over a 10-year period. The gross increment reached the $3,500,000 limit in fiscal year The Agency reached the $10,000,000 limit in fiscal year The total amount owed to the County at June 30,2011, was $122,707. Future debt service payments are as follows: Year Ending June 30, Principal Interest Total 2012 $ 122,707 $ $ 122,

69 June 30, FUND BALANCES: Special Revenue Fund Debt Services Funds Low and Moderate Income Project Project Project Financing Housing Area I Area 2 Area 4 Authority Non,pend.ble: Prepaid cost $ 130 Notes and loans 7,324,592 Advances to other funds 17,821,288 Property held for resale 2,685,387 Restricted for: Debt service 19,785,387 1,104,051 8,303,511 Low income housing 48,567,642 Capital projects Committed to: Replacement reserve Unassigned (335,283) Capital Projects Fund Other Project Govemmental Area 2 Funds Total ,200,000 8,524,592 17,821,288 2,685,387 2,055,793 31,248,742 3,210,831 51,778,473 31,136,711 63,019,220 94,155,931 7,752,862 7,752,862 (335,283) Totals $ 76,399,039 19,785,387 (335,183) 1,104,051 8,303,511 31,136,711 77,415, ,809,311 Special Debt Revenue Services Fund Fund Capital Project Funds Housing Project Project Project Project Authority Area 3 Area 1 Area 3 Area 4 Nonspendable: Prepaid cost 177,190 Notes and loans 1,200,000 Restricted for: Debt service 2,055,793 Low income housing 3,210,831 Capital proj eets 17,539,121 21,183,548 24,296,551 Committed to: Replacement reserve 7,752,862 Other Govemmental Funds 177,190 1,200,000 2,055,793 3,210,831 63,019,220 7,752,862 Totals 10,963,693 2,055,793 17,716,311 21,183,548 25,496,551 77,415,

70 June 30, RESERVES OF FUND BALANCES : The Agency has implemented Governmental Accounting Standards Board Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions", for the year ended June 30,2011. The fund balances reported on the fund statements now consist of the following categories: Nonspendable - This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted for - This classification includes amounts that can be spent only for specific purposes stipulated by constitution, external resource providers or through enabling legislation. Committed - This classification includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority. Assigned - This classification includes amounts to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds the assigned fund balance represents the remaining amount that is not restricted or committed. Unassigned - This classification includes the residual balance for the government's fund balance and includes all spendable amounts not contained in other classifications. In other funds, the unassigned classification is used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed or assigned. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the Agency's policy is to apply restricted fund balance first. When an expenditure is incurred for purposes for which committed, assigned or unassigned fund balances are available, the Agency's policy is to apply committed fund balance first, then assigned fund balance, and finally unassigned fund balance

71 June 30, CONDUIT DEBT OBLIGATION: 2003 Series A - $22,310,000 Lease Revenue Bonds In December 2003, the Palm Desert Financing Authority (Authority) issued $22,310,000 in Lease Revenue Bonds. The proceeds of the Bonds were used to: a) finance the construction of a County animal shelter and related facilities located in the unincorporated area of Thousand Palms, California; b) finance construction of certain County medical clinic facilities located in Mecca, California; c) refund the Palm Desert Financing Authority Lease Revenue Bonds Series 1996; d) acquire a debt service reserve insurance policy; e) fund capitalized interest on the bonds; and f) pay costs of issuance of the bonds. The Authority will lease sites relating to each project from the County of Riverside (County) pursuant to a Site Lease dated as of December 1,2003, and will lease back to the County the Sites and the Facilities pursuant to a Facilities Lease dated December 1,2003. Under the Lease, the County will pay to the Trustee Base Rental Payments in the amount equal to the scheduled debt service of the Bonds. The Authority will assign its right to receive the Base Rental Payments to the Trustee for the benefit of the owners of the bonds. The debt service on the bonds is to be paid solely from lease payments made by the County. The Authority has no obligation to make the debt service payments in the event that the County is not able to make the required base rental payments. As of June 30, 2011, the outstanding amount was $18,575, Series A - $72,445,000 Lease Revenue Bonds In November 2008, the Palm Desert Financing Authority (Authority) issued $72,445,000 in Lease Revenue Bonds. The proceeds of the Bonds were used to: a) finance the construction, installation, acquisition, development and rehabilitation of certain public capital improvements within the County, including the Palm Desert Sheriffs Station Facilities (as described herein), community centers, a multi-service center, park improvements and other various infrastructure improvements; b) fund capitalized interest on the 2008 Series A Bonds related to the Palm Desert Sheriff Station Facilities through August 31, 2010 and with respect to the Multi-Service Center Facilities (as described herein) through December 31, 2009; c) fund a deposit into the Reserve Account as additional security for the 2008 Series A Bonds; and d) pay certain costs associated with the issuance and delivery of the 2008 Series A Bonds. Under the Lease, the County will pay to the Trustee Base Rental Payments in the amount equal to the scheduled debt service of the Bonds. The Authority will assign its right to receive the Base Rental Payments to the Trustee for the benefit of the owners of the bonds. The debt service on the bonds is to be paid solely from lease payments made by the County. The Authority has no obligation to make the debt service payments in the event that the County is not able to make the required base rental payments. As of June 30, 2011, the outstanding amount was $66,090, OTHER DISCLOSURES: The Debt Service Project Area#2 Fund has a net fund balance deficit of $335,283, which was caused by early debt payoff. The deficit will be funded through future tax increments

72 June 30, INSURANCE: The Agency is covered under the City of Palm Desert's insurance. For additional information, see the City's financial statements. 13. COMMITMENTS AND CONTINGENCIES: SERAF Contingency: SERAF Contributions for the Fiscal Years and Pursuant to AB 26 4x, a budget trailer bill, California redevelopment agencies were required to make SERAF contributions totaling $1.7 billion for the fiscal year and $350 million for the fiscal year Under AB 26 4x, agencies may borrow a portion of the required contributions from their low and moderate income housing fund. Alternatively, sponsoring governmental agencies (the cities or counties) may elect to pay the SERAF contributions on behalf of their redevelopment agencies. On October 20,2009, the CRA filed a class action lawsuit in behalf of all California redevelopment agencies, again challenging the SERAF obligations as unconstitutional. On May 13, 2010, the Superior Court found in favor of the State relative to the class action suit. The Agency's SERAF contributions for fiscal year was $25,526,215. The Agency borrowed funds from the low and moderate income housing fund to make this payment. The SERAF contribution for fiscal year made by the Agency totaled $5,255, RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES: As part of the State Budget for fiscal year , Governor Brown signed two bills, AB Xl 26 and AB Xl 27, on June 29, 2011, affecting redevelopment agencies throughout the State of California. Upon its effectiveness on June 29, 2011, AB Xl 26 immediately prohibited redevelopment agencies from engaging in most activities (including, but not limited to, the incurrence of new debt, the execution of new contracts and the modification of existing contracts). Furthermore, pursuant to AB Xl 26, a redevelopment agency would be dissolved on October 1, 2011, unless the city (or the county, as the case may be) that activated the redevelopment agency timely enacted an ordinance (an "AB Xl 27 Ordinance") to opt into the "Alternative Voluntary Redevelopment Program" ("A VRP") and agreed to make specified annual payments to the county auditor-controller for allocation to special districts and educational entities. Pursuant to AB Xl 27, so long as the city is a participant in the AVRP, the redevelopment agency would be exempt from most of the provisions of AB Xl 26 and be permitted to continue and carry on redevelopment activities

73 June 30, RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES : On July 18, 2011, the California Redevelopment Association (the "CRA") and the League of California Cities (the "League") filed a petition with the California Supreme Court, requesting the Court to review the constitutionality of AB Xl 26 and AB Xl 27 (California Redevelopment Assn. v. Matosantos, S194861) (the "CRA Lawsuit"). The CRA and the League also requested the Supreme Court to issue a stay of the implementation of AB Xl 26 and AB Xl 27, pending the Court's disposition of the CRA Lawsuit. On August 11, 2011, the Supreme Court issued a stay order (the "Stay Order"), which was modified on August 17, The Supreme Court granted a stay of portions of AB Xl 26 and AB Xl 27. The provisions that allow a redevelopment agency to continue carrying on redevelopment activities, if the city has adopted an AB Xl 27 Ordinance, are subject to the stay. The City Council of the City of Palm Desert adopted Ordinance No on September 8,2011, opting into the A VRP in order to provide for the continuation of the Palm Desert Redevelopment Agency. However, because of the effect of the Stay Order, the authority for the Agency to engage in most activities, as of the date of this report, continues to be in suspension. The initial payment by the City is estimated to be $20.5 million with one half due on January 15, 2012 and the other half due May 15,2012. The amounts to be paid for the fiscal year and succeeding years have yet to be determined. The semi-annual payments will be due on January 15 and May 15 of each year and would increase or decrease with changes in tax increment. Additionally, an increased amount would be due to schools if any "new debt" is incurred. Assembly Bill Xl 27 allows a one-year reprieve on the Agency's obligation to contribute 20% of tax increment to the low-and-moderate-income housing fund. The City and Agency have entered into a reimbursement agreement and the reprieve on the Agency's obligation to contribute to housing will assist the Agency to assemble sufficient funds to reimburse the City for the initial payments. Failure to make these payments would require agencies to be terminated under the provisions of ABXl 26. The Supreme Court heard oral arguments on November 10, 2011, but has not issued its decision as of the date of this report. It is uncertain whether the Supreme Court will strike down, uphold or modify some or all of the provisions of AB Xl 26 and AB Xl 27. If AB Xl 26 and AB Xl 27 are upheld in whole or in part, it may take some time to ascertain the mechanics and practical effects of the implementation of the upheld provisions. For example, under AB Xl 26, if a redevelopment agency is dissolved, a successor agency to the redevelopment agency will be required to make payments for enforceable obligations, including previously issued agency bonds, listed in Recognized Obligation Payment Schedules. However, AB Xl 26 establishes a flow of revenues to repay bonds that is different from the flow of tax increment currently provided in the Community Redevelopment Law

74 June 30, RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES : Further, under AB Xl 26, if the Agency is dissolved, the State Controller of the State of California is directed to review the propriety of any transfers of assets between redevelopment agencies and other public bodies that occurred after January 1, If the public body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency by AB Xl 26, if a successor agency is established but only to such extent that such order for return is not prohibited by state or federal law. In addition, under AB Xl 26, if the Agency is dissolved, the interagency receivable recognized by funds of the City that had previously loaned or advanced funds to the Agency may become uncollectible resulting in a loss recognized by such funds. The City may also be impacted if reimbursements previously paid by the Agency to the City for shared administrative services are reduced or eliminated. Management believes that the Agency will have sufficient funds to pay its obligations as they become due during the fiscal year ending June 30, The nature and extent of the operation of redevelopment agencies in the State of California beyond that time frame cannot be determined at this time and are dependent upon the outcome of many factors related to the constitutionality of AB Xl 26 and AB Xl 27. There is always a possibility that future legislative acts may create new challenges to the ability of redevelopment agencies to operate in the State of California in light of the California State Legislature's continued taking of redevelopment agencies funding to balance the state's budget. The full text of AB Xl 26 and AB Xl 27 may be obtained from the "Official California Legislative Information" website maintained by the Legislative Counsel of the State of California, at the following webpage: Docket information for the CRA Lawsuit can be found at the California Appellate Courts Case Information System website, at the following webpage: None of the web sites or webpages referenced above are in any way incorporated into this Annual Report. They are cited for informational purposes only. The Agency makes no representation whatsoever as to the accuracy or completeness of any of the information on such websites. 15. NET ASSET RESTATEMENTS Net assets, July 1, 2010, as previously reported To adjust capital assets inadvertently not transferred in prior year to the City of Palm Desert $ (12,962,722) (18,083,336) Net assets, July 1, 2010, as restated $ (31,046,058)

75 SUPPLEMENTARY INFORMATION

76 Schedule 1 COMBINING BALANCE SHEET - OTHER GOVERNMENTAL FUNDS June 30, 2011 Total Special Debt Capital Other Revenue Service Projects Governmental Fund Fund Funds Funds ASSETS: Cash and investments $ 8,911,859 $ 8,186,462 $ 5,984,206 $ 23,082,527 Restricted cash with fiscal agent 2,717,249 57,092,864 59,810,113 Accounts receivable 2,706 6,429 57,138 66,273 Interest receivable 1, , ,314 Notes receivable 1,200,000 1,200,000 Prepaid costs and deposits 177, ,190 TOTAL ASSETS $ 11,633,771 $ 8,192,891 $ 64,811,755 $ 84,638,417 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 215,117 $ $ 346,852 $ 561,969 Accrued liabilities 47,876 53, ,369 Deposits payable 393,871 15, ,871 Unearned revenues 13,214 13,214 Advances due to other funds 970, ,313 Amounts due pass-through agreement 5,166,785 5,166,785 TOTAL LIABILITIES 670,078 6,137, ,345 7,222,521 FUND BALANCES: Nonspendable 1,377,190 1,377,190 Restricted 3,210,831 2,055,793 63,019,220 68,285,844 Committed 7,752,862 7,752,862 TOTAL FUND BALANCES 10,963,693 2,055,793 64,396,410 77,415,896 TOTAL LIABILITIES AND FUND BALANCES $ 11,633,771 $ 8,192,891 $ 64,811,755 $ 84,638,

77 Schedule 2 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS For the year ended June 30, 2011 Total Special Debt Capital Other Revenue Service Projects Governmental Fund Fund Funds Funds REVENUES: Taxes $ $ 4,249,101 $ $ 4,249,101 Intergovernmental 21,394 21,394 Investment earnings 37,850 25, , ,851 Rental income 4,728, ,593 4,855,025 Other revenues 165,718 41, ,955 TOTAL REVENUES 4,932,000 4,274, ,674 9,748,326 EXPENDITURES: Current: General government 35,993 7,656 2,670,624 2,714,273 Community improvements 1,182,424 1,182,424 Economic development 568, ,079 Affordable rental units 4,735,159 4,735,159 Payments to other agencies 1,983,494 1,983,494 Supplemental Educational Revenue Augmentation Payment 213, ,370 Capital outlay 381,388 1,369,714 1,751,102 TOTAL EXPENDITURES 5,152,540 2,204,520 5,790,841 13,147,901 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (220,540) 2,070,132 (5,249,167) (3,399,575) OTHER FINANCING SOURCES (USES): Transfers in 7,716,495 3,997,139 11,713,634 Transfers out (1,884,643) (310,231) (2,194,874) TOTAL OTHER FINANCING SOURCES (USES) 7,716,495 (1,884,643) 3,686,908 9,518,760 NET CHANGE IN FUND BALANCES 7,495, ,489 (1,562,259) 6,119,185 FUND BALANCES - BEGINNING OF YEAR 3,467,738 1,870,304 65,958,669 71,296,711 FUND BALANCES - END OF YEAR $ 10,963,693 $ 2,055,793 $ 64,396,410 $ 77,415,

78 Schedule 3 BALANCESHEET-OTHERGOVERNMENTALFUND SPECIAL REVENUE June 30, 2011 ASSETS: Cash and investments Restricted cash with fiscal agent Accounts receivable Interest receivable $ Housing Authority Totals 8,911,859 $ 8,911,859 2,717,249 2,717,249 2,706 2,706 1,957 1,957 TOTAL ASSETS $ 11,633,771 $ 11,633,771 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable Accrued liabilities Deposits payable Unearned revenue TOTAL LIABILITIES $ 215,117 $ 215,117 47,876 47, , ,871 13,214 13, , ,078 FUND BALANCES: Restricted Committed TOTAL FUND BALANCES 3,210,831 3,210,831 7,752,862 7,752,862 10,963,693 10,963,693 TOTAL LIABILITIES AND FUND BALANCES $ 11,633,771 $ 11,633,

79 Schedule 4 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUND SPECIAL REVENUE For the year ended June 30, 2011 Housing Authority Totals REVENUES: Investment earnings $ 37,850 $ 37,850 Rental income 4,728,432 4,728,432 Other revenues 165, ,718 TOTAL REVENUES 4,932,000 4,932,000 EXPENDITURES: Current: General government 35,993 35,993 Affordable rental units 4,735,159 4,735,159 Capital outlay 381, ,388 TOTAL EXPENDITURES 5,152,540 5,152,540 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (220,540) (220,540) OTHER FINANCING SOURCES: Transfers in 7,716,495 7,716,495 TOTAL OTHER FINANCING SOURCES 7,716,495 7,716,495 NET CHANGE IN FUND BALANCES 7,495,955 7,495,955 FUND BALANCES - BEGINNING OF YEAR 3,467,738 3,467,738 FUND BALANCES - END OF YEAR $ 10,963,693 $ 10,963,

80 Schedule 5 BALANCESHEET-OTHERGOVERNMENTALFUND DEBT SERVICE June 30, 2011 ASSETS: Cash and investments Accounts receivable TOTAL ASSETS $ $ Project Area 3 Totals 8,186,462 $ 8,186,462 6,429 6,429 8,192,891 $ 8,192,891 LIABILITIES AND FUND BALANCES LIABILITIES: Advances due to other funds Amounts due pass-through agreement TOTAL LIABILITIES $ 970,313 $ 970,313 5,166,785 5,166,785 6,137,098 6,137,098 FUND BALANCES: Restricted TOTAL FUND BALANCES 2,055,793 2,055,793 2,055,793 2,055,793 TOTAL LIABILITIES AND FUND BALANCES $ 8,192,891 $ 8,192,

81 Schedule 6 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUND DEBT SERVICE For the year ended June 30, 2011 Project Area 3 Totals REVENUES: Taxes $ 4,249,101 $ 4,249,101 Investment earnings 25,551 25,551 TOTAL REVENUES 4,274,652 4,274,652 EXPENDITURES: Current: General government 7,656 7,656 Payments to other agencies 1,983,494 1,983,494 Supplemental Educational Revenue Augmentation Payment 213, ,370 TOTAL EXPENDITURES 2,204,520 2,204,520 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 2,070,132 2,070,132 OTHER FINANCING USES: Transfers out (1,884,643) (1,884,643) TOTAL OTHER FINANCING USES (1,884,643) (1,884,643) NET CHANGE IN FUND BALANCES 185, ,489 FUND BALANCES - BEGINNING OF YEAR 1,870,304 1,870,304 FUND BALANCES - END OF YEAR $ 2,055,793 $ 2,055,

82 Schedule 7 COMBINING BALANCE SHEET - OTHER GOVERNMENTAL FUNDS CAPITAL PROJECTS June 30, 2011 Project Project Project Area 1 Area 3 Area 4 Totals ASSETS: Cash and investments $ 882,679 $ 2,812,216 $ 2,289,311 $ 5,984,206 Restricted cash with fiscal agent 16,665,559 18,462,293 21,965,012 57,092,864 Accounts receivable 57,138 57,138 Interest receivable 206,915 21,601 71, ,357 Notes receivable 1,200,000 1,200,000 Prepaid costs and deposits 177, ,190 TOTAL ASSETS $ 17,989,481 $ 21,296,110 $ 25,526,164 $ 64,811,755 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 219,677 $ 112,562 $ 14,613 $ 346,852 Accrued liabilities 53,493 53,493 Deposits payable 15,000 15,000 TOTAL LIABILITIES 273, ,562 29, ,345 FUND BALANCES: Nonspendable 177,190 1,200,000 1,377,190 Restricted 17,539,121 21,183,548 24,296,551 63,019,220 TOTAL FUND BALANCES 17,716,311 21,183,548 25,496,551 64,396,410 TOTAL LIABILITIES AND FUND BALANCES $ 17,989,481 $ 21,296,110 $ 25,526,164 $ 64,811,

83 Schedule 8 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGESINFUNDBALANCES-OTHERGOVERNMENTALFUNDS CAPITAL PROJECTS For the year ended June 30, 2011 Project Project Project Area 1 Area 3 Area 4 Totals REVENUES: Intergovernmental $ 21,394 $ $ $ 21,394 Investment earnings 70, , , ,450 Rental income 63,819 62, ,593 Other revenues 41,237 41,237 TOTAL REVENUES 196, , , ,674 EXPENDITURES: Cun'ent: General government 2,601,619 5,414 63,591 2,670,624 Community improvements 1,057, ,061 11,723 1,182,424 Economic development 568, ,079 Capital outlay 1,311,364 58,350 1,369,714 TOTAL EXPENDITURES 5,538, , ,664 5,790,841 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (5,342,043) (7,376) 100,252 (5,249,167) OTHER FINANCING SOURCES (USES): Transfers in 3,939,809 57,330 3,997,139 Transfers out (156,464) (18,819) (134,948) (310,231) TOTAL OTHER FINANCING SOURCES (USES) 3,783,345 (18,819) (77,618) 3,686,908 NET CHANGE IN FUND BALANCES (1,558,698) (26,195) 22,634 (1,562,259) FUND BALANCES - BEGINNING OF YEAR 19,275,009 21,209,743 25,473,917 65,958,669 FUND BALANCES - END OF YEAR $ 17,716,311 $ 21,183,548 $ 25,496,551 $ 64,396,410 See independent auditors' report,

84 COMBINING BALANCE SHEET HOUSING AUTHORITY SPECIAL REVENUE FUND June 30, 2011 Complexes Laguna Catalina Desert Las One Capital Palms Gardens Pointe Serenas Neighbors Quail Pueblos ASSETS: Cash and investments 8,911,859 Restricted cash with fiscal agent 1,650,398 21,453 24,800 19,615 48,963 9, ,925 4,713 Accounts receivable , Interest receivable 1,957 Due from other apartment 1,121,691 5,629,457 TOTAL ASSETS 10,564,214 21,501 24,825 21,352 1,170,675 9,459 6,466,620 4,743 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable 87,175 3,347 9,829 14,964 13,493 1,021 25,501 1,046 Management fee payable 1,680 2,520 2,190 5, , Accrued payroll 2,629 3,311 2,854 4, , Security deposits payable 21,253 24,500 19,465 48,613 9, ,395 4,713 Unea111ed revenue , ,702 Due to other apartment 1,013, , , , ,905 TOTAL LIABILITIES 87,175 1,042, , ,257 73, , , ,067 FUND BALANCES (DEFICITS): Restricted 10,477,039 3,089,037 Committed 128, , ,800 1,137, ,250 3,145, ,500 Unassigned (1,150,362) (I,090,708) (973,705) (40,46R) (621,463) (606,824) TOTAL FUND BALANCES (DEFICITS) 10,477,039 (1,021,417) (346,908) (576,905) 1,097,512 (249,213) 6,234,037 (375,324) TOTAL LIABILITIES AND FUND BALANCES 10,564,214 21,501 24,825 21,352 1,17(),675 9,459 $ 6,466,620 4,743 See independent audirors' report - 80-

85 Schedule 9 Complexes (Continued) Califomia Country Palm Total Combined Combined Villas Taos Village Village Candlewood La Rocca Sage Crest Complexes Total Reclassification Total 8,911,859 8,911,859 53,799 6,550 17,900 8,483 10,000 4,250 1,066,851 2,717,249 2,717, ,706 2,706 2,706 1,957 1,957 12,563 6,763,711 6,763,711 (6,763,711) 54,299 6,597 30,463 8,483 10,001 4,250 7,833,268 18,397,482 (6,763,711 ) 11,633,771 9,462 1,078 2,104 7,222 1,219 2,066 92, , ,527 4, ,260 1, ,590 35,590 35,590 5, ,447 1,560 1, ,876 47,876 47,876 53,549 6,500 17,850 8,483 10,000 4, , , , ,214 13,214 13,214 2,783, , , ,233 14, ,112 6,763,711 6,763,711 (6,763,711) 2,858, , ,436 22, ,775 27, ,398 7,346,614 7,433,789 (6,763,711) 670,078 3,089,037 13,566,076 (10,355,245) 3,210, ,250 96, , ,150 52,000 7,752,862 7,752,862 7,752,862 (3,265,349) (445,858) (365,436) (185,570) (1,329,442) (69,912) (210,148) (10,355,245) (10,355,245) 10,355,245 (2,804,099) (348,862) (365,436) 7,621 (536,292) (17,912) (210,148) 486,654 10,963,693 10,963,693 54,299 6,597 30,463 8,483 10,001 4,250 7,833,268 18,397,482 (6,763,711) 11,633,

86 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES HOUSING AUTHORITY SPECIAL REVENUE FUND June 30, 2011 Complexes Laguna Catalina Desert Las One Capital Palms Gardens Pointe Serenas Neighbors Quail Pueblos REVENUES: Rental income 206, , , , ,648 2,091,898 54,118 Other revenues 34,686 7,677 2,584 6,973 8,655 6,058 73, Investment eamings 37,850 TOTAL REVENUES 72, , , , , ,706 2,165,865 55,000 EXPENDITURES: Current: Payroll 87, ,567 91, ,568 31, ,704 28,084 Administrative 35,994 82, , , ,592 54, ,961 41,271 Management 20,125 30,170 26,325 62,670 9, ,105 7,340 Maintenance 22,995 30,240 39,661 75,881 16, ,949 14,288 Capital outlay 381,388 TOTAL EXPENDITURES 417, , , , , ,921 1,989,719 90,983 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (344,846) 1,249 (79,975) (118,648) 143,966 (4,215) 176,146 (35,983) OTHER FINANCING SOURCES (USES): Transfers in 7,716, ,000 Transfers out (500,0110) TOTAL OTHER FINANCING SOURCES (USES) 7,216, ,000 NET CHANGE IN FUND BALANCES 6,871,649 1,249 (79,975) (118,648) 143,966 (4,215) 676,146 (35,983) FUND BALANCES (DEFICITS) - BEGINNING OF YEAR 3,605,390 (1,022,666) (266,933) (458,257) 953,546 (244,998) 5,557,891 (339,341) FUND BALANCES (DEFICITS)- END OF YEAR 10,477,039 (1,021,417) (346,908) (576,905) 1,097,512 (249,213) 6,234,037 (375,324) - 82-

87 Schedule 10 ComEJexes (Continued) California Counby Palm Total Combined Combined Villas Taos Village Village Candlewood La Rocca Sage Crest Complexes Total Reclassification Total 547,487 66, , , ,323 54,531 4,728,432 4,728,432 4,728,432 12, ,588 2,562 1, , , ,718 37,850 37, , , , ,540 54,935 4,859,464 4,932,000 4,932, ,854 25,344 49,300 52,739 34,859 28,799 1,604,956 1,604,956 1,604, ,212 34,527 53,598 83,194 49,454 28,935 2,101,118 2,137,112 2,137,112 58,940 6,125 15,050 12,600 11,270 8, , , ,360 49,004 9,572 12,309 19,831 8,162 3, , , , , , ,010 75, , , ,745 70,431 4,735,158 5,152,540 5,152,540 48,124 (8,250) 59,288 (55,695) 13,795 (15,496) 124,306 (220,540) (220,540) 500,000 8,216,495 (500,000) 7,716,495 (500,000) 500, ,000 7,716,495 7,716,495 48,124 (8,250) 59,288 (55,695) 13,795 (15,496) 624,306 7,495,955 7,495,955 (2,852,223) (340,612) (365,436) (51,667) (480,597) (31,707) (194,652) (137,652) 3,467,738 3,467,738 $ (2,804,099) $ (348,862) $ (365,436) 7,621 $ (536,292) $ (17,912) $ (210,148) 486,654 10,963,693 10,963,

88 Schedule 11 COMPUTATION OF LOW AND MODERATE HOUSING EXCESS SURPLUS FUNDS July 1, 2010 Excess Surplus in the Low and Moderate Income Housing Fund is any unexpended or unencumbered amount that exceeds the greater of either $1,000,000 or the aggregate amount deposited in the Low and Moderate Income Housing Fund during the preceding four fiscal years. It is computed at the beginning of the fiscal year to which it relates. OPENING FUND BALANCE - JULY 1,2010 LESS UNAVAILABLE AMOUNTS: Encumbrances Loans and notes receivable Property held for resale Reserve requirement Prepaid items and deposits Unspent bond proceeds AVAILABLE LOWIMODERATE INCOME HOUSING FUNDS Tax Increment Deposits to Housing Fund $ 81,422, ,421 7,328, ,224 36,366 25,195,523 47,684,870 LIMITATION (GREATER OF $1,000,000 OR FOUR YEARS SET-ASIDE): Set-aside for last four years: TOTAL SET -ASIDE FOR LAST FOUR YEARS Base limitation $ 17,821,288 18,235,620 18,141,322 16,573,467 $ 70,771,697 $ 1,000,000 GREATER AMOUNT 70,771,697 COMPUTED EXCESS SURPLUS - JULY 1,2010 $ See independent auditors' repmi

89 Compliance (Continued) Management's Response The information required to be included in the Agency's Fiscal Statement (H & S Section ) can be found in various reports contained in the Annual Report to the Legislative Body which was filed in December The Agency was notified in March 2011 by the State Controller (SCO) that the information required in the Fiscal Statement must be compiled in one cohesive report and filed as a part of the Annual Report. The Agency's Annual Report did not include a separate Fiscal Statement and the SCO noted it as a "finding". Staff prepared the separate Fiscal Statement for the year ended June 30,2010, as soon as the Agency was made aware of the requirement, and submitted it to the legislative body in May of The only noted recommendation of the SCO was to train staff better on reporting requirements. This report is now a routine inclusion in the Annual Report. In our opinion, except for the noncompliance described in the preceding paragraph, the Agency complied, in all material respects, with the compliance requirements referred to above that are applicable for the year ended June, 30, Internal Control Over Compliance Management of the Agency is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit, we considered the Agency's internal control over compliance to determine the auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness ofthe Agency's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a compliance requirement will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses in internal control over compliance. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. The Agency's response to the noncompliance identified in our audit is described above. We did not audit the Agency's response, and, accordingly we express no opinion on the response. This report is intended solely for the information and use of management, the Board of Directors, others within the Agency and the State Controller's Office, Division of Accounting and Reporting and is not intended to be and should not be used by anyone other than these specific parties. December 9, 2011 Irvine, California

90 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Board of Directors Palm Desert Redevelopment Agency Palm Desert, California We have audited the accompanying financial statements of the governmental activities and each major fund of the Palm Desert Redevelopment Agency (the Agency), (a component unit of the City of Palm Desert), as of and for the year ended June 30,2011, which collectively comprise the Agency's basic financial statements and have issued our report thereon dated December 9, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the Agency is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Agency's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Agency's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Agency's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above Michelle Drive, Suite 300, Irvine, CA Tel: Fax: Offices located in Orange and San Diego Counties