PINELLAS COUNTY HOUSING AUTHORITY

Transcription

1 PINELLAS COUNTY HOUSING AUTHORITY Basic Financial Statements and Supplemental Information Year ended December 31, 2010

2 TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT 1 MANAGEMENT DISCUSSION AND ANALYSIS (Required Supplementary Information) 3 BASIC FINANCIAL STATEMENTS Balance Sheet 9 Statement of Revenues, Expenses and Changes in Net Assets 10 Statement of Cash Flows 11 Notes to Basic Financial Statements 13 SUPPLEMENTAL INFORMATION Financial Data Schedule 32 Schedules of Actual Program Costs and Advances 37 SINGLE AUDIT SECTION Schedule of Expenditures of Federal Awards and Indirect Support 40 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 41 Independent Auditors Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Findings and Questioned Costs 45 Page

3 8035 Spyglass Hill Road Melbourne, FL Phone: Fax: S. Orange Ave. Suite 745 Orlando, FL Phone: Fax: INDEPENDENT AUDITORS' REPORT Board of Commissioners Pinellas County Housing Authority Pinellas County, Florida We have audited the accompanying financial statements of the business-type activities of the Pinellas County Housing Authority (the Authority ), as of and for the year ended December 31, 2010, which collectively comprise the Authority s basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the Authority s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the Authority, as of December 31, 2010, and the respective changes in financial position and its cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated June 16, 2011 on our consideration of the Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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. 1

4 Accounting principles generally accepted in the United States of America require that the Management Discussion and Analysis, as listed in the 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 principally 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 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 financial statements that collectively comprise the Authority s financial statements as a whole. The accompanying financial data schedule and schedules of actual program costs and advances are presented for purposes of additional analysis as required by the U.S. Department of Housing and Urban Development, and are not a required part of the basic financial statements of the Authority. The accompanying schedule of expenditures of federal awards and indirect support is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements of the Authority. The supplemental information is the responsibility of management and is derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements taken as a whole. June 16, 2011 Melbourne, Florida Berman Hopkins Wright & LaHam CPAs and Associates, LLP 2

5 Management Discussion and Analysis Pinellas County Housing Authority (the Authority ) offers the readers of the Authority s financial statements this narrative overview and analysis of the financial activities of the Authority for the year ended December 31, We encourage readers to consider the information presented here in conjunction with the Authority s financial statements. This financial report is designed to provide our residents, the citizens of Pinellas County, Florida, all federal and state regulatory bodies, and any creditors with a general overview of the Authority s finances and program compliance. If you have any questions regarding these financial statements or supplemental information, they should be addressed to the Executive Offices of Pinellas County Housing Authority, Ulmerton Road, Largo, Florida, Financial Highlights The assets of the Authority exceeded its liabilities as of December 31, 2010 by $45,611,756. The Authority s total cash and cash equivalents as of December 31, 2010 are $21,031,392, representing a decrease of $1,010,335. The Authority has revenue from the U.S. Department of Housing and Urban Development (HUD) of $27,975,386 for 2010, which includes funds for capital asset activities. Public housing maintained occupancy of 99% for the fiscal year. Overview of Financial Statements The financial statements included in this annual report are those of a special-purpose governmental agency engaged in a single business-type activity prepared on an accrual basis. Over time, significant changes in the Authority s net assets serve as a useful indicator of the entity s financial health. To fully assess the financial health of any authority, the reader must also consider other non-financial factors such as changes in family composition, fluctuations in the local economy, HUD mandated program changes, and the physical condition of capital assets. The following statements are included: Balance Sheet - this statement reports the Authority s assets, liabilities and net assets at the end of the fiscal year. The reader may consider or view the Authority s net assets as the difference between what the Authority owns (assets) and what the Authority owes (liabilities). Statement of Revenues, Expenses, and Changes in Net Assets - this statement presents information showing how the Authority s net assets increased or decreased during the current fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will result in cash inflows and cash outflows in future periods. Statement of Cash Flows - this statement presents information showing the total cash receipts and cash disbursements of the Authority during the current fiscal year. The statement reflects the net changes in cash resulting from operations plus any other cash requirements during the current year (i.e. capital additions, debt service, prior period obligations, etc.). In addition, the statement reflects the receipt of cash that was obligated to the Authority in prior periods and subsequently received during the current fiscal year (i.e. accounts receivable, notes receivable, etc.). 3

6 Overview of Financial Statement (continued) Notes to the Basic Financial Statements - notes to the basic financial statements provide additional information that is essential to a full understanding of the data provided. These notes provide greater understanding on the overall activity of the Authority and how values are assigned to certain assets and liabilities and the longevity of these values. In addition, notes reflect the impact (if any) of any uncertainties the Authority may face. In addition to the basic financial statements listed above, our report includes supplemental information. This information provides more detail on the Authority s various programs and the required information mandated by regulatory bodies that fund the Authority s various programs. The Authority s Programs Low Rent Public Housing - under this program, the Authority rents units that it owns to lowincome households. The Low Rent Public Housing Program is operated under an Annual Contributions Contract (ACC) with HUD, and HUD provides Operating Subsidy and Capital Grant Funding to enable the Authority to provide housing at a rental rate that is based upon 30% of household income, adjusted for family composition and certain allowances. Public Housing Program - this program is the primary funding source for physical and management improvements to the Authority s public housing properties. Recovery Grant Program - this program is a special funding source of $1,330,980 provided under American Recovery and Reinvestment Act of 2010 (ARRA) for physical improvements to the Authority s public housing properties. Housing Choice Voucher Program and Veterans Affairs Supportive Housing - the Authority administers contracts with independent landlords and private property owners. Landlords and property owners enter into Housing Assistance Payment Contracts with the Authority. The Authority then subsidizes the family s rent through a Housing Assistance Payment made to the landlord. The program is administered under an Annual Contributions Contract (ACC) with HUD. HUD provides Annual Contributions funding to enable the Authority to approve market rate leases, with the participants portion of rent set at 30% of household income, adjusted for family composition and certain allowances. Business Activities - the Authority owns and operates a 240-unit affordable apartment complex, East Lake Club Apartments in Oldsmar, Florida, and commercial property that also houses the central offices. Component Units - Palm Lake Village Housing Corporation one & two bedroom apartments, incorporated on July 7, 1986 to provide affordable housing opportunities to residents age 55 and older. Crystal Lake Manor one & two bedroom affordable apartments for residents age 55 and older. Magnolia Gardens Assisted Living Facility studio, one & two bedroom apartments that provide affordable assisted living to residents age 62 and older. 4

7 Financial Analysis Balance Sheet Net Change Current assets $ 21,668,612 $ 23,007,901 $ (1,339,289) Capital assets, net 48,946,901 49,419,522 (472,621) Other noncurrent assets 1,191,612 1,087, ,851 Total assets $ 71,807,125 $ 73,515,184 $ (1,708,059) Current liabilities $ 1,758,016 $ 4,058,287 $ (2,300,271) Long-term debt 24,343,057 24,775,280 (432,223) Other noncurrent liabilities 94,296 72,768 21,528 Total liabilities 26,195,369 28,906,335 (2,710,966) Invested in capital assets, net 24,548,923 24,643,358 (94,435) Restricted net assets 4,610,585 7,607,129 (2,996,544) Unrestricted net assets 16,452,248 12,358,362 4,093,886 Total net assets 45,611,756 44,608,849 1,002,907 Total liabilities and net assets $ 71,807,125 $ 73,515,184 $ (1,708,059) Current Assets decreased by $1,339,289 primarily due to decreases in cash and cash equivalents of $1,010,715 partly due to cash received of $1,853,342 on December 31, 2009 for January 2010 Section 8 Housing Choice Voucher Program housing assistance payments offset by 2010 collection of HUD 2009 accounts receivable of $601,839 in addition to a decrease in net receivables of $270,026. See accompanied Statement of Cash Flows. Net Capital Assets decreased by $472,621 primarily due to depreciation expense of $2,868,504 recorded for FY 2010 offset by capital additions of $2,395,883 (mainly public housing capital fund additions of $1,531,310). Other Noncurrent Assets increased by $103,851 due to an increase in prepaid expenses of $5,486 in addition to East Lake Club Apartments and Palm Lake Village Housing Corporation net change in debt related escrow balances of $208,404, offset by amortization of loan costs of $110,038. Total Assets decreased by $1,708,059 due to a decrease of $1,339,289 in current assets and net capital assets of $472,621 offset by an increase in other non-current assets of $103,851. Total Liabilities decreased by $2,710,966 primarily due to $1,853,342 in deferred revenue for January 2010 Section 8 Housing Choice Voucher program housing assistance payments received in December of 2009, long-term debt principal payments of $419,323, and a decrease in Recovery Grant liability of $371,570. 5

8 Financial Analysis (continued) Net Assets - The difference between an organization s assets and its liabilities is its net assets. Net assets are categorized as one of three types. 1. Invested in capital assets, net of related debt - capital assets, net of accumulated depreciation and related debt reflects the capital asset balance net of associated longterm debt activity. 2. Restricted - the Authority s net assets where use is subject to constraints imposed by law or agreement. 3. Unrestricted - the Authority s net assets that are neither invested in capital assets nor restricted which change principally due to operations. These resources are available to meet the Authority s ongoing obligations to its residents and creditors. Changes in Net Assets Net Change Operating revenue HUD revenue $ 26,444,076 $ 24,960,485 $ 1,483,591 Tenant revenue 8,438,975 8,243, ,587 Grant revenue 784, ,105 (87,371) Other revenue 587, ,611 (25,930) Total operating revenue 36,255,466 34,689,589 1,565,877 Operating expenses Housing assistance payments 21,364,161 20,381, ,742 Depreciation 2,868,504 2,513, ,275 Administrative 4,308,862 3,641, ,145 Tenant services 1,170,642 1,009, ,880 Utilities 1,522,653 1,665,452 (142,799) Maintenance 2,706,718 2,424, ,456 Protective services 193, ,628 1,775 General 1,296,876 1,305,834 (8,958) Total operating expenses 35,431,819 33,133,303 2,298,516 Operating income (loss) 823,647 1,556,286 (732,639) Non operating revenues (expenses) Gain on disposal of fixed assets 38,164 3,000 35,164 Interest income - unrestricted 26,962 30,548 (3,586) Interest income - restricted 7,820 9,831 (2,011) Interest expense (1,424,996) (1,442,691) 17,695 Total non operating expenses (1,352,050) (1,399,312) 47,262 Change in net assets before capital contributions (528,403) 156,974 (685,377) Capital contributions HUD capital grants 1,531, , ,593 Change in net assets 1,002, ,691 9,216 Total net assets - beginning 44,608,849 43,615, ,691 Total net assets - ending $ 45,611,756 $ 44,608,849 $ 1,002,907 6

9 Financial Analysis (continued) Total Operating Revenue increased $1,565,877 in FY The primary cause was an increase in HUD revenue of $1,483,591 primarily resulting from a net increase in the Section 8 Housing Choice Voucher program of $1,681,252 offset by a decrease of $415,980 in the Veterans Affairs Supportive Housing program. Operating Expenses are categorized by the Authority as administrative, tenant services, utilities, maintenance, protective services, general, depreciation expense and housing assistance payments. Total Operating Expenses increased by $2,298,516 during FY 2010 as compared to FY This is primarily a result of increased housing assistance payments within the Section 8 Housing Choice Voucher program & Veterans Affairs Supportive Housing program of $982,742, depreciation of $355,275, administrative of $667,145, tenant services of $160,880 and maintenance of $282,456 offset by decreased utility expense of $142,799. Administrative expenses include all non-maintenance and non-resident service personnel costs, legal costs, auditing costs, travel and training costs, and other administrative costs such as supplies, telephone, computer, etc. The increase in administrative cost of $667,145 is due mainly to an increase of $739,513 in administrative salaries, $76,550 in administrative benefits offset by a decrease in office expenses of $195,514. In mid-2009, the Authority ceased interlocal agreements with other local housing authorities that provided shared staff for services including executive and Section 8 management services, accounting services, personnel services, procurement services and computer support; the authority paid $377,537 in 2009 in relation to these partial year shared services and $565,328 in 2008 for these full year services; however, these expenses were presented as contract costs and not included in administrative salaries. In mid-2009, the Authority hired dedicated full-time in-house staff for these critical functions. Interest Income has decreased primarily due to decreased cash and cash equivalents of $1,010,335. Capital Contributions increased by $694,593 mainly due to Recovery Grant revenue of $674,475. Capital Asset and Debt Activity Throughout 2010, the Authority had significant capital additions mainly to all public housing properties. These improvements included new roofing, flooring, windows, door replacements and an alarm system upgrade. At the end of the FY 2010 the Authority had debt of $24,775,280, which is comprised of $24,343,057 in long-term debt (included in non-current liabilities), and $432,223 as the current portion of long-term debt (included in current liabilities). Principal payments of $419,323 were made in Factors Affecting Next Year s Budget The Authority is primarily dependent upon HUD for the funding of its Low Rent Public Housing, Section 8 Housing Choice Voucher, Veterans Affairs Supportive Housing, and Public Housing programs; therefore, the Authority is affected more by the federal budget than by local economic conditions. The funding of programs could be significantly affected by the 2011 federal budget. 7

10 Economic Factors Significant economic factors affecting the Authority are as follows: Federal funding provided by Congress to the Department of Housing and Urban Development; Local labor supply and demand, which can affect salary and wage rates; Local inflationary, recessionary and employment trends, which can affect resident incomes and therefore the amount of rental income; Inflationary pressure on utility rates, housing costs, supplies and other costs. Conclusion Overall, the Authority had a successful year financially. Net Assets increased $1M which reflects sound management of the agency and good financial oversight by the Board of Commissioners. The Authority continues to operate a diverse housing portfolio to provide revenue not dependent on Federal sources. The Authority s management is committed to staying abreast of regulations and appropriations as well as performing ongoing analysis of budgets, expenses and program areas to assure the Authority continues to operate at the highest standards and degree of integrity established by the U.S. Department of Housing and Urban Development. The Authority will continue to deliver quality service to its customers and will strive to increase the availability of quality affordable housing for very-low to moderate income citizens of Pinellas County. The Authority will search for opportunities to increase revenues, increase the economic self-sufficiency of its residents, reduce dependency on federal dollars, increase training, and develop green cost saving opportunities. Management is committed to providing sustainable, quality housing to its residents. Requests for Information This financial report is designed to provide our residents, the citizens of Pinellas County, Florida, all Federal and State regulatory bodies, and any creditors with a general overview of the Authority s finances. If you have questions regarding these financial statements or supplemental information, they should be addressed to Debra Johnson, Executive Director, Ulmerton Road, Largo, FL

11 BALANCE SHEET December 31, 2010 ASSETS CURRENT ASSETS Cash and cash equivalents - unrestricted $ 16,780,972 Cash and cash equivalents - restricted 4,250,040 Receivables, net 497,236 Prepaid expenses 99,358 Inventory, net 40,626 Total current assets 21,668,232 NONCURRENT ASSETS Cash and cash equivalents - restricted 380 Capital assets, net 48,946,901 Intangible assets, net 377,302 Prepaid escrows - restricted 814,310 Total assets $ 71,807,125 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current portion of long-term debt $ 432,223 Deferred revenue 13,365 Accounts payable 557,999 Accrued salaries 122,452 Accrued compensated absences 23,475 Accrued interest payable 156,040 Payments in lieu of taxes 147,950 Tenant security deposits 292,238 Other current liabilities 12,274 Total current liabilities 1,758,016 NONCURRENT LIABILITIES Long-term debt 24,343,057 Accrued compensated absences 93,916 Family self-sufficiency escrow 380 Total liabilities 26,195,369 NET ASSETS Invested in capital assets, net of related debt 24,548,923 Restricted net assets 4,610,585 Unrestricted net assets 16,452,248 Total net assets 45,611,756 Total liabilities and net assets $ 71,807,125 The accompanying notes are an integral part of this financial statement. 9

12 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year ended December 31, 2010 OPERATING REVENUES HUD operating revenues $ 26,444,076 Tenant revenue, net 8,438,975 Grant revenue 784,734 Other operating revenue 587,681 Total operating revenues 36,255,466 OPERATING EXPENSES Administrative 4,308,862 Tenant services 1,170,642 Utilities 1,522,653 Maintenance 2,706,718 Protective services 193,403 General 1,296,876 Depreciation 2,868,504 Housing assistance payments 21,364,161 Total operating expenses 35,431,819 OPERATING INCOME 823,647 NONOPERATING REVENUES (EXPENSES) Gain on disposal of fixed assets 38,164 Interest income - unrestricted 26,962 Interest income - restricted 7,820 Interest expense (1,424,996) Total nonoperating revenues (expenses) (1,352,050) Change in net assets before capital contributions (528,403) CAPITAL CONTRIBUTIONS HUD capital grants 1,531,310 Change in net assets 1,002,907 Total net assets - beginning 44,608,849 Total net assets - ending $ 45,611,756 The accompanying notes are an integral part of this financial statement. 10

13 STATEMENT OF CASH FLOWS Year ended December 31, 2010 CASH FLOWS FROM OPERATING ACTIVITIES HUD operating grants received $ 26,541,315 Collections from tenants 6,548,194 Collections from other sources 1,336,591 Payments to employees (5,007,472) Payments to suppliers (6,528,141) Housing assistance payments (21,363,781) Net cash provided by operating activities 1,526,706 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES HUD capital grants received 1,713,481 Interest paid (1,386,274) Payments on long-term debt (419,323) Proceeds from disposal of assets 38,938 Purchase of property and equipment (2,578,827) Net cash used in capital and related financing activities (2,632,005) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 94,964 NET DECREASE IN CASH (1,010,335) Cash and cash equivalents at beginning of year 22,041,727 Cash and cash equivalents at end of year $ 21,031,392 AS PRESENTED IN THE BALANCE SHEET: Cash and cash equivalents - unrestricted $ 16,780,972 Cash and cash equivalents - restricted 4,250,040 Cash and cash equivalents - restricted noncurrent $ ,031,392 The accompanying notes are an integral part of this financial statement. 11

14 STATEMENT OF CASH FLOWS (continued) Year ended December 31, 2010 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 823,647 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 2,868,504 Provision for bad debt, net of recoveries 13,743 (Increase) decrease in assets: Receivables, net 76,188 Prepaid expenses 546 Inventory, net (3,876) Prepaid escrows - restricted (140,888) Increase (decrease) in liabilities: Deferred revenue (1,887,198) Accounts payable (81,435) Accrued salaries 8,475 Accrued compensated absences 26,431 Due to HUD (23,568) Payments in lieu of taxes (72,714) Tenant security deposits (8,531) Family self-sufficiency escrow (380) Other current liabilities (72,238) Net cash provided by operating activities $ 1,526,706 The accompanying notes are an integral part of this financial statement. 12

15 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Reporting entity Pinellas County Housing Authority (the Authority ), a governmental agency, was created pursuant to Florida Statutes Chapter 421 by Pinellas County, Florida (the County ). The primary purpose of the Authority is to develop, acquire and operate safe, decent, sanitary, and affordable housing for low-income families in Pinellas County in accordance with federal legislation and regulations. The Authority's governing board consists of a five member Board of Commissioners (the Board ), the members of which are appointed by the Governor of the State of Florida. The Authority is not a component unit of the County, as defined in Governmental Accounting Standards Board ( GASB ) Statement No. 14, The Reporting Entity ( GASB No. 14 ), as amended by GASB Statement No. 39, as the Board independently oversees the Authority s operations. The definition of the reporting entity as defined by GASB No. 14, as amended, is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization s governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. Some component units, despite being legally separate from the primary government, are so integrated with the primary government that they are in substance part of the primary government. These component units are blended with the primary government. The Authority s operations include a blended component unit, Palm Lake Village Housing Corporation, which owns and operates Palm Lake Village, Crystal Lake Manor Apartments and Magnolia Gardens Assisted Living Facility. The Palm Lake Village Housing Corporation is included in the basic financial statements and consists of a legally separate entity for which the Authority is financially accountable and has the same governing board as the Authority. 2. Government-wide and fund financial statements The government-wide financial statements report information about the reporting government as a whole excluding fiduciary activities. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Businesstype activities rely to a significant extent on fees and charges for support. 13

16 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. Government-wide and fund financial statements (continued) Governments use fund accounting, whereby funds are organized into three major categories: governmental, proprietary and fiduciary. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues and expenditures/expenses. For financial reporting purposes, the Authority reports all of its operations as a single business activity in a single enterprise fund. Therefore, the government-wide and the fund financial statements are the same. Enterprise funds are proprietary funds. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating activity generally arises from providing services in connection with a proprietary fund s principal activity. The operating revenues of the Authority consists primarily of rental charges to tenants, county operating grants and operating grants from the Department of Housing and Urban Development ( HUD ), and include, to a lesser extent, certain operating amounts of capital grants that offset operating expenses. Operating expenses for the Authority include the cost of tenant services, general, administrative, utilities, maintenance, protective services, depreciation and housing assistance payments. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses, except for capital contributions, which are presented separately. When restricted resources meet the criteria to be available for use and unrestricted resources are also available for use, it is the Authority s policy to use restricted resources first, and then unrestricted resources, as needed. 3. Measurement focus and basis of accounting Measurement focus is a term used to describe which transactions are recorded within the various financial statements. The proprietary fund utilizes an economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net assets. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. The basis of accounting used is similar to businesses in the private sector; thus, these funds are maintained on the accrual basis of accounting. Revenues are recognized when earned and expenses are recorded in the period incurred or economic asset used. 14

17 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3. Measurement focus and basis of accounting (continued) For financial reporting purposes, the Authority considers its HUD grants associated with operations as operating revenue because these funds more closely represent revenues generated from operating activities rather than nonoperating activities. HUD grants associated with capital acquisition and improvements are considered capital contributions and are presented after nonoperating activity on the accompanying statement of revenues, expenses and changes in net assets. As provided by GASB No. 34 and related guidance, tenant revenue is reported net of $13,743 in accounts written-off. 4. Summary of programs The accompanying basic financial statements include the activities of several housing programs subsidized by HUD at the Authority. A summary of each significant program is provided below. Low Rent Public Housing Programs The Low Rent Public Housing Programs include the following: asset management projects ( AMPs ), Public Housing, Recovery Grant, and various other related HUD grants. The purpose of the public housing program is to provide decent and affordable housing to low-income families at reduced rents. The developments are owned, maintained and managed by the Authority. The developments/units are acquired, developed and modernized under HUD s Development and programs. Funding of the program operations and development is provided by operating subsidies and tenant rentals (determined as a percentage of family income, adjusted for family composition and other allowances). Central Office Cost Center The Central Office Cost Center ( COCC ) is a business unit within the Authority that generates revenue from fee income and other business activities. The COCC consists of activities funded through these revenue sources. 15

18 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. Summary of programs (continued) Housing Assistance Payments Programs The Section 8 Housing Choice Voucher ( HCV ) program utilizes existing privately owned family rental housing units to provide decent and affordable housing to lowincome families. Funding of the program is provided by federal housing assistance contributions from HUD for the difference between the approved landlord contract rent and the rent paid by the tenant. In addition, the Authority receives an administrative fee to cover operating expenses. The Veterans Affairs Supportive Housing ( VASH ) program combines HUD HCV rental assistance for homeless veterans with case management and clinical services provided by the Department of Veterans Affairs at its medical centers and in the community. Business Activities The Authority owns and operates a 240 unit affordable apartment complex, East Lake Club Apartments in Oldsmar, Florida, and Greenhouse Shoppes a commercial property that houses the central offices, which are both classified as business activities. 5. Assets, liabilities and net assets a. Cash and cash equivalents For financial statement purposes cash and cash equivalents are considered to be cash in banks, bond fund reserves in U.S. treasuries, certificates of deposits and money market funds with original maturities of three months or less. b. Receivables, net Receivables, net consist of all revenues earned at year-end and not yet received. The majority of receivables consist of tenant receivables and other grant receivables. The receivables are reported net of allowance for doubtful accounts consisting of $21,253. The allowance for uncollectible amounts is based on periodic aging of tenant accounts receivables and fraud recovery receivables. 16

19 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Assets, liabilities and net assets (continued) c. Inventory, net Inventory, net, consists principally of materials held for use or consumption and is recorded on the first-in, first-out ( FIFO ) method. If inventory falls below cost due to damage, deterioration or obsolescence, the Authority establishes an allowance for obsolete inventory. Based on management s experience with the types of items in inventory and related usage plans, an allowance for obsolescence of $4,515 is recorded as of December 31, d. Capital assets The Authority s policy is to capitalize assets with a value in excess of $2,000 and a useful life in excess of one year. The Authority capitalizes the costs of site acquisition and improvement, structures, equipment and direct development costs meeting the capitalization policy. Assets are valued at historical cost, or estimated historical cost if actual historical cost is not available, and contributed assets are valued at fair market value on the date contributed. Depreciation has been provided using the straight-line method over the estimated useful lives, which range as follows: Buildings and improvements Leasehold improvements Equipment years 5 years 5 years e. Intangible assets, net Intangible assets consist of bond issuance costs and loan closing costs, which are amortized using the straight-line method over the life of the bonds or notes. These intangible assets have an original cost of $555,821 and are being presented in the financial statements net of accumulated amortization of $178,519. For the year ended December 31, 2010, amortization expense associated with these intangibles of $37,037 was charged to interest expense. f. Deferred revenues Deferred revenues include amounts collected before revenue recognition criteria are met. The deferred items consist of prepaid rents totaling $13,

20 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Assets, liabilities and net assets (continued) g. Accrued compensated absences It is the Authority s policy to permit full-time permanent employees to accumulate earned but unused vacation and sick pay benefits, based on tenure with the Authority. The policy allows employees to accumulate unused vacation leave up to a maximum of 240 hours and unused sick leave up to a maximum of 480 hours. Upon termination, employees are paid for unused accumulated vacation (after one year of continuous employment). Unused accumulated sick leave is paid to the employee upon termination as follows: age 55 or over and five years of service at 50% (maximum of 240 hours) or all others with at least six years of service and with a minimum of 400 hours accumulated at 25% (maximum of 100 hour compensation). In accordance with the provisions of GASB Statement No. 16, Accounting for Compensated Absences, the estimated liability for vested leave benefits is recorded when it is earned as an expense and the cumulative unpaid amount is reported as a liability. h. Eliminations For financial reporting purposes, certain amounts are internal and are therefore eliminated. The following have been eliminated from the financial statements. i) Interprogram due to/from In the normal course of operations, certain programs pay for common costs that create interprogram receivables or payables. These interprogram receivables or payables are eliminated for the presentation of the Authority as a whole. For the year ended December 31, 2010, $97,330 was eliminated. ii) Fee for service The Authority s Central Office Cost Center internally charges fees for services rendered to the AMPs of the Authority. These charges include management fees, bookkeeping fees, and asset management fees. For financial reporting purposes $1,639,627 of fees for service have been eliminated for the year ended December 31, iii) Internal rent charges Greenhouse Shoppes, a component of the Authority s business activities, charges rent to programs within the Authority. For financial reporting purposes $177,432 of internal rent charges have been eliminated for the year ended December 31,

21 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Assets, liabilities and net assets (continued) i. Net assets In accordance with GASB No. 34, total equity as of December 31, 2010, is classified into three components of net assets: i.) Invested in capital assets, net of related debt This category consists of capital assets (including restricted capital assets), net of accumulated depreciation and reduced by any outstanding balances of bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, and improvements of those assets. ii.) Restricted net assets This category consists of net assets restricted in their use by (1) external groups such as grantors, creditors or laws and regulations of other governments; or (2) law through constitutional provisions or enabling legislation. The balance sheet of the Authority reports $4,610,585 of restricted net assets which consists of escrows of $1,570,237, that are restricted by bond and note payable restrictions, Section 8 HAP reserves of $2,803,648 and Veterans Affairs Supportive Housing Program reserves of $236,700 that are restricted by HUD guidelines (See Note B-9-b). iii.) Unrestricted net assets This category includes all of the remaining net assets that do not meet the definition of the other two categories. 6. Application of FASB standards GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, offers the option of following all Financial Accounting Standards Board ( FASB ) standards issued after November 30, 1989, unless the latter conflicts with or contradicts GASB pronouncements, or not following FASB standards issued after such date. The Authority elected the option to not follow FASB pronouncements issued after November 30, Budgets Budgets are prepared on an annual basis for each major program and are used as a management tool throughout the accounting cycle. Budgets are not, however, legally adopted nor required in the basic financial statement presentation. 19

22 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 8. Income taxes Organizations that followed the provisions of FSP FIN 48-3, which delays the implementation of FIN 48 (FASB ASC ), Accounting for Uncertainty for Income Taxes, are required to implement those provisions for the fiscal year ended The Authority qualifies as a tax-exempt governmental entity, accordingly, no provision for Federal or State income tax is required. The component unit is a not-for-profit organization and is also tax exempt. 9. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 10. Leasing activities The Authority is the lessor of dwelling units to low-income and market rate residents. The low-income rents under the leases are determined generally by the resident s income as adjusted for eligible deductions regulated by HUD, although the resident may opt for a flat rent. Leases may be cancelled by the lessee at any time or renewed every year. The Authority may cancel the leases only for cause. In addition, the Authority leases out commercial space on a short term basis. A significant majority of the capital assets are used in these leasing activities. Revenues associated with these leases are recorded in the accompanying financial statements and related schedules within tenant revenue. NOTE B - DETAILED NOTES 1. Cash and cash equivalents As of December 31, 2010, the Authority s cash and cash equivalents consist of cash in the amount of $16,237,205 and U.S. Treasuries in the amount of $4,794,187. The Authority s deposits are insured by the Federal Depository Insurance Corporation up to $250,000, for interest bearing accounts. Monies invested greater than the insurance coverage are secured by qualified public depositories pledging securities with the State Treasurer in such amounts required by the Florida Security for Public Deposits Act. In the event of a default or insolvency of a qualified public depositor, the State Treasurer will implement procedures for payment of losses according to the validated claims of the Authority pursuant to Section , Florida Statutes. Financial institutions must meet the criteria of being a Qualified Public Depository as described in the Florida Security for Public Deposits Act, under Chapter 280, Florida Statutes, before any investments are made with those institutions. 20

23 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE B - DETAILED NOTES (continued) 1. Cash and cash equivalents (continued) In accordance with GASB No. 40, the Authority s exposure to deposit and investment risk is disclosed as follows: Interest Rate Risk. Interest rate risk is the risk that the relative value of a security will decline due to a change in interest rates. The Authority s policy to limit its exposure to declines in fair values of its investment portfolio is to only invest in HUD allowed investments and to monitor investments. As of December 31, 2010, the Authority had no investments, and therefore was not exposed to interest rate risk. Credit Risk. Credit risk is the risk that a counterparty will fail to meet its obligations in accordance with agreed terms. It is the Authority s policy to follow the HUD regulations by only having direct investments and investments through mutual funds to direct obligations, guaranteed obligations, or obligations of the agencies in the United States of America. As of December 31, 2010, the Authority was not exposed to credit risk since they follow HUD regulations. Custodial Credit Risk. Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned. The Authority s deposit policy for custodial credit risk requires collateral to be held in the Authority s name by its agent or by the bank s trust department. As of December 31, 2010, none of the Authority s total bank balance of $21,196,789 was exposed to custodial credit risk. Restricted cash and cash equivalents As of December 31, 2010, restricted cash and cash equivalents consist of: HAP reserves - HCV $ 2,803,648 Tenant security deposits 292,238 HAP reserves - VASH 236,700 Restricted funded reserves: Palm Lake Village project fund $ 400,000 Palm Lake Village operating fund 209,142 Palm Lake Village replacement reserve 175,930 Palm Lake Village general fund 129,466 Palm Lake Village fees fund 2,916 Palm Lake Village subtotal: 917,454 Total restricted cash and cash equivalents - current 4,250,040 Family self sufficiency escrow - noncurrent 380 Total restricted cash and cash equivalents $ 4,250,420 21

24 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE B - DETAILED NOTES (continued) 2. Receivables, net As of December 31, 2010, receivables consist of: HUD grants receivable $ 298,961 Tenant receivables 79,533 Fraud recovery 23,800 Due from Pinellas County 112,500 Other miscellaneous receivables 3,695 Total receivables 518,489 Allowance for doubtful accounts - tenants (6,403) Allowance for doubtful accounts - fraud $ (14,850) 497, Capital assets A summary of changes in capital assets for the year ended December 31, 2010 is as follows: Balance at January 1, 2010 Transfers in/ Additions Transfers out/ Deletions Balance at December 31, 2010 Non-depreciable: Land $ 10,615,124 $ - $ - $ 10,615,124 Construction in progress 2,139, ,375 (2,094,656) 162,416 Total non-depreciable 12,754, ,375 (2,094,656) 10,777,540 Depreciated: Buildings and improvements 70,385,289 3,977,338-74,362,627 Equipment 732, ,730 (231,257) 873,964 Leasehold improvements 882, ,196 (90,036) 915,582 Total depreciated 72,000,202 4,473,264 (321,293) 76,152,173 Total capital assets 84,755,023 4,590,639 (2,415,949) 86,929,713 Less accumulated depreciation: Buildings and improvements (34,106,307) (2,665,538) - (36,771,845) Equipment (561,930) (146,632) 221,193 (487,369) Leasehold improvements (667,264) (56,334) - (723,598) Total accumulated depreciation (35,335,501) (2,868,504) 221,193 (37,982,812) Capital assets, net $ 49,419,522 $ 1,722,135 $ (2,194,756) $ 48,946,901 22

25 NOTES TO BASIC FINANCIAL STATEMENTS December 31, 2010 NOTE B - DETAILED NOTES (continued) 4. Prepaid escrows As of December 31, 2010, prepaid escrows consist of: East Lake Mortgage 2007 prepaid escrow $ 285,235 Palm Lake Village Bond Series 2005 Insurance escrow deposit 502,928 PILOT tax escrow deposit 17,747 Completion/repair escrow deposit 2,913 Other escrows 5,487 Total prepaid escrows $ 814, Noncurrent liabilities A summary of changes in noncurrent liabilities is as follows: Payable at January 1, 2010 Additions Reductions Payable at December 31, 2010 Due Within One Year Housing Revenue Bonds, Series Palm Lake Village $ 11,510,000 $ - $ (220,000) $ 11,290,000 $ 225,000 Less unamortized bond discount (105,234) - 4,100 (101,134) (4,100) Housing Revenue Bonds, Series 2005, net 11,404,766 - (215,900) 11,188, ,900 East Lake Mortgage ,785,737 - (199,323) 13,586, ,323 Total long-term debt 25,190,503 - (415,223) 24,775, ,223 Family self-sufficiency escrow Accrued compensated absences 90, ,032 (210,601) 117,391 23,475 Total noncurrent liabilities $ 25,281,463 $ 237,412 $ (625,824) $ 24,893,051 $ 455,698 23