ANNUAL CONTINUING DISCLOSURE REPORT

Transcription

1 ANNUAL CONTINUING DISCLOSURE REPORT Fiscal Year $18,015,000 WALNUT IMPROVEMENT PROJECT 2013 TAX ALLOCATION REFUNDING BONDS Prepared for SUCCESSOR AGENCY TO THE WALNUT IMPROVEMENT AGENCY CITY HALL La Puente Road Walnut, CA Phone: (909)

2 LIST OF PARTICIPANTS SUCCESSOR AGENCY TO THE WALNUT IMPROVEMENT AGENCY WALNUT, CALIFORNIA Karen Ogawa Director of Administrative Services La Puente Road Walnut, California (909) CITY ATTORNEY/SUCCESSOR AGENCY COUNSEL Law Offices of Michael Montgomery San Marino, California DISCLOSURE CONSULTANT & DISSEMINATION AGENT HdL Coren & Cone Diamond Bar, California (909) FINANCIAL ADVISOR Kosmont Realty Corp. Manhattan Beach, California BOND COUNSEL AND DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California TRUSTEE Bradley E. Scarbrough U.S. Bank National Association 633 West Fifth Street, 24 th Floor Los Angeles, California (213)

3 Walnut Improvement Project 2013 tax Allocation Refunding Bonds A N N U A L C O N T I N U I N G D I S C L O S U R E R E P O R T F I S C A L Y E A R Table of Contents I. CUSIP NUMBERS... 1 II. INTRODUCTION... 1 III. FINANCIAL STATEMENTS... 2 IV. LEGISLATION AFFECTING REDEVELOPMENT AGENCIES... 2 V. BOND INFORMATION... 3 A. Debt Service Schedule... 3 B. Fund Balance... 3 VI. OPERATING INFORMATION PROJECT AREA... 4 A. Land Use... 4 B. Top Ten Taxable Property Owners... 5 C. Annual Tax Receipts to Tax Levy... 5 D. Appeals... 6 E. Historical Taxable Values and Tax Increment Revenues... 7 F. Coverage Analysis... 8 VIII. REPORTING OF SIGNIFICANT EVENTS... 9 DISCLAIMER APPENDIX A: FINANCIAL STATEMENTS Annual Continuing Disclosure Report, Fiscal Year Page i

4 Walnut Improvement Project 2013 tax Allocation Refunding Bonds I. CUSIP NUMBERS The following CUSIP numbers are provided for convenience of reference. While the numbers have been furnished to the Authority from sources, which are believed to be reliable, it is not guaranteed as to accuracy or completeness. Maturity CUSIP # Maturity CUSIP # Maturity CUSIP # A AB A AD A AF A AC A AE 1 II. INTRODUCTION Pursuant to an Official Statement dated July 2, 2013, the Successor Agency to the Walnut Improvement Agency (the Successor Agency ) issued $18,015,000 Walnut Improvement Project 2013 Tax Allocation Refunding Bonds (the Bonds ). The Bonds were issued to defease and refund the following outstanding obligations of the Successor Agency: (i) $16,975,000 initial Principal amount Walnut Improvement Agency Walnut Improvement Project 1999 Tax Allocation Refunding bonds, Series A (the 1999 Bonds ) and (ii) First Amended and Restated Walnut Improvement Project Loan Agreement, dated as of August 1, 2002 (the 2002 Loan Agreement, together with the 1999 bonds, the Prior Obligations ). The City is located in Los Angeles County (the County ), approximately 20 miles east of the City of Los Angeles. The City, located in the northeast portion of the County, is 8.9 square miles in size. Neighboring communities include City of Industry, Diamond Bar and Pomona. The Bonds were issued under and pursuant to an Indenture of Trust, dated as of July 1, 2013 (the Indenture ), by and between the Successor Agency and U.S. Bank National Association, as trustee (the Trustee ). The Bonds are a special obligations of the Successor Agency and are payable from and secured by the Tax Revenues as defined in the Official Statement to be derived from the Walnut Improvement Project (the Project Area ) and moneys in certain funds and accounts established under the Indenture, as further described in the Official Statement. See SECURITY FOR THE BONDS. The Bonds are not a debt of the City of Walnut, the State of California or any of its political subdivisions (other than the Successor Agency), and neither the City, the State nor any political subdivision thereof (other than the Successor Agency) are liable for the Bonds. The Bonds do not constitute an indebtedness in violation of any constitutional or statutory debt limitation or restriction. This Annual Continuing Disclosure Information Statement is being provided pursuant to a covenant made by the Successor Agency for the benefit of the holders of the Bonds and includes the information specified in a Continuing Disclosure Agreement. For further information and a more complete description of the City, Successor Agency, Walnut Improvement Agency (the Agency ), and the Bonds, reference is made to the Official Statement. The information set forth herein has been furnished by the City and by sources, which are believed to be accurate and reliable but is not guaranteed as to accuracy or completeness. Statements contained in this Annual Continuing Disclosure Information Statement which involve estimates, forecasts, or other matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. Further, the information and expressions of opinion contained herein are subject to change without notice and the delivery of this Annual Continuing Disclosure Information Statement will not, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties described herein. Annual Continuing Disclosure Report, Fiscal Year Page 1

5 Walnut Improvement Project 2013 tax Allocation Refunding Bonds III. FINANCIAL STATEMENTS The audited financial statement of the Agency for the prior fiscal year are being prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Government Accounting Standards Board. The audited financial statement for Fiscal Year ending June 30, 2014 is being provided for the City of Walnut. IV. LEGISLATION AFFECTING REDEVELOPMENT AGENCIES Pursuant to legislation enacted in June, 2011 (Assembly Bill No. 26 ( st Executive Session) enacted as Stats. 2011, 1st Executive Session , Chapter 5 (hereafter Assembly Bill X1 26) and upheld by the California Supreme Court on December 29, 2011, in a case captioned California Redevelopment Association v. Matosantos, 2011 Cal. LEXIS (Cal., December 29, 2011), as of February 1, 2012, redevelopment agencies in California, including the Agency, were terminated and successor agencies were appointed to wind down the affairs of the redevelopment agencies. Pursuant to this legislation, the City of Walnut (the City ) elected to become the successor agency for purposes of winding down the affairs of the Agency, including the repayment of the above captioned bonds (the Bonds ) of the Agency. Assembly Bill X1 26 contains a number of provisions that acknowledge the continuing obligation to pay debt service on indebtedness, such as the Bonds, notwithstanding the termination of redevelopment agencies. Administration and payment of the Bonds depends on provisions of Assembly Bill X1 26 and the interactions of a variety of parties involved in different capacities in the process of winding down the affairs of the Agency. For example, Assembly Bill X1 26 includes a variety of provisions, including (i) limitations on the powers of the successor agency in connection with winding down the affairs of the Agency, (ii) establishment of an oversight board comprised of seven members representing the taxing entities, that may have competing interests, to review and approve activities of the successor agency, (iii) provision for administration of property taxes by the county auditor-controller in a manner different than had been the case at the time of issuance of the bonds, (iv) direction to county auditor-controllers to conduct audits (a) to establish each redevelopment agency's assets and liabilities, (b) to determine and allocate each redevelopment agency's pass-through payment obligations to other taxing agencies, (c) to document and determine both the amount and the terms of any indebtedness incurred by the redevelopment agency; and (v) establish oversight of activities of the redevelopment agency and the successor agency by the California Department of Finance, the State Controller and the State Attorney General. On June 27, 2012 the legislature passed and the Governor signed Assembly Bill This legislation made certain revisions to the language of AB 1x 26 based on experience after its implementation. On January 9, 2015, the Governor announced his budget proposal for FY Among several other proposed revisions to the laws that dissolved the former redevelopment agencies, the Governor is proposing to include language in the dissolution legislation that specifies that the tax increment limits and the time limits contained in the redevelopment plans for the former project areas will no longer be enforceable. Under this proposed change, the Successor Agency would continue to be allocated revenue from all former project areas until such time as all enforceable obligations have been repaid. The legislation that will implement these proposals has been drafted and circulated but has not yet been introduced in the Legislature and we cannot guarantee that such legislation will be enacted. Annual Continuing Disclosure Report, Fiscal Year Page 2

6 Walnut Improvement Project 2013 tax Allocation Refunding Bonds The text of Assembly Bill X1 26 and Assembly Bill 1484 can be found at Docket information for the CRA Lawsuit can be found at the California Appellate Courts Case Information System website, at the following webpage: provided, however, that nothing contained in either such website is incorporated into this Annual Report. V. BOND INFORMATION A. Debt Service Schedule Bond Year Ending 1-Mar Principal Interest Total 2015 $3,045, $565, $3,610, ,170, , ,611, ,300, , ,611, ,435, , ,611, ,165, , ,219, Total Outstanding $15,115, $1,549, $16,664, B. Fund Balance Fund As of December 31, 2013 Reserve Fund N/A (1) Reserve Requirement $0 (1) The Successor Agency has purchased a surety bond in the amount of $1,911, from Build America Mututal Assurance Company securing the amount of the Reserve Requirement. Annual Continuing Disclosure Report, Fiscal Year Page 3

7 Walnut Improvement Project 2013 tax Allocation Refunding Bonds VI. OPERATING INFORMATION PROJECT AREA A. Land Use The following table represents the breakdown of land use in the Project Area by the number of parcels and by assessed value for fiscal year Unsecured and Possessory Interest values are connected with parcels that are already accounted for in other categories. Walnut Improvement Project Net Taxable Category Parcels Value % of Total Residential 4,808 $2,474,726, % Commercial 61 $133,558, % Industrial 32 $43,592, % Institutional 6 $7,700, % Miscellaneous 2 $416, % Recreational 1 $0 0.0% Vacant 84 $37,995, % Exempt 96 $0 0.0% Subtotal 5,090 $2,697,990, % SBE Nonunitary 0 $168, % Cross Reference 0 $421, % Unsecured 0 $25,546, % Subtotal 0 $26,135, % Total 5,090 $2,724,126, % Source: L. A. County Assessor 2014/15 Combined Tax Rolls Annual Continuing Disclosure Report, Fiscal Year Page 4

8 B. Top Ten Taxable Property Owners Walnut Improvement Project 2013 tax Allocation Refunding Bonds The following Table shows the ten largest property taxpayers for Fiscal Year , by assessed value in the Project Area. Walnut Improvement Project % of Redevelopment % of Project Asessed Incremental Property Owner Assessed Value Value Net AV Value Primary Land Use 1 Essex CAL WA LP $28,302, % 1.06% Residential 2 Ruey Cher and Tsu Kao* $19,628, % 0.73% Commercial 3 Snow Creek Village West Partners $17,100, % 0.64% Commercial Walnut Cake LLC* $13,224, % 0.49% Commercial 5 Henns Investment Company $9,372, % 0.35% Industrial 6 Margaret Wang Trust* $8,423, % 0.31% Commercial 7 Orange Grove Service Inc.* $8,150, % 0.30% Commercial 8 Extra Space Properties Tw enty $7,449, % 0.28% Industrial One LLC 9 Edro Engineering Company Inc. $6,267, % 0.23% Unsecured 10 Sigma Enterprises Inc. $6,178, % 0.23% Commercial Top Ten Total $124,097, % 4.63% Agency Total Net AV $2,724,126, % Incremental Net AV Total $2,679,337, % *Pending Appeals On Parcels Source: Los Angeles County Assessor Combined Tax Rolls and SBE Non Unitary Tax Roll C. Annual Tax Receipts to Tax Levy The County apportions tax revenues to redevelopment agencies based upon the amount of the tax levy that is received from the taxpayers. The following table illustrates the tax revenue collections for previous five years. Current Year Collection Prior Year Current Year Collection Percentage Total Collection Percentage Year Tax Levy Collection (1) Total $23,104, $22,847, $1,580, $24,427, % % ,289, ,225, , ,915, % % ,735, ,683, ,017, ,700, % % ,524, ,290, , ,249, % % ,554, ,284, ,097, ,381, % % Source: L. A. County Auditor-Controller, Tax Division "CRA Remittance Advice." (1) Walnut Improvement Project Prior Year Collection may include Supplemental Revenue, reductions for tax payer refunds and revenue from prior years. Annual Continuing Disclosure Report, Fiscal Year Page 5

9 Walnut Improvement Project 2013 tax Allocation Refunding Bonds D. Appeals Within the Project Area there have been 228 assessment appeals filed since Fiscal Year Of the 228 filed, 80 have been allowed with a reduction in value and 56 have been denied. There are 92 appeals currently pending on 55 parcels within the Project Area. The values under appeal total $107.2 million and the owners are seeking reductions totaling 54.6 million. Based on the average number appeals allowed over the past 6 years and the average reduction in value achieved in those successful appeals, it is estimated that 32 of the currently pending appeals will be allowed with a reduction of $11.1 million. The following table shows the number of appeals that are pending, the values under appeal and the projected value reduction. Total Appeals Filed No. of Resolved Appeals % $11,054,855 ($107.2 million) Source: Los Angeles County Clerk of the Board No. of Appeals Allowed Walnut Improvement Project Avereage Reduction No. of Appeals Pending (Appealed Value) Estimated Appeals to be Allowed Estimated AV Loss on Pending Appeals Allowed Shown on the following Table is the pending base year appeals for the top ten property taxpayers as of January 13, Owner Fiscal Year Ruey Cher and Tsu Kao 2014/15 2 $19,628,786 $9,813,000 $9,815, Walnut Cake LLC 2012/13 5 $13,224,519 $7,596,332 $5,628, /14 5 $13,224,519 $8,389,309 $4,835, /15 5 $13,224,519 $7,447,134 $5,777,385 Margaret Wang Trust 2014/15 1 $8,423,942 $4,211,000 $4,212,942 Orange Grove Service Inc. 2013/14 4 $8,150,000 $7,375,000 $775,000 Source: Los Angeles County Clerk of the Board Walnut Improvement Project No. of Parcels 2013/14 Total Value Under Appeal Owner's Opinion Value Maximum Potential Loss 2014/15 4 $8,150,000 $5,597,000 $2,553,000 Annual Continuing Disclosure Report, Fiscal Year Page 6

10 Walnut Improvement Project 2013 tax Allocation Refunding Bonds E. Historical Taxable Values and Tax Increment Revenues The following table shows the actual assessed values for Fiscal Year to based upon the County Auditor/Controller s equalized rolls and incremental values of Property within the Project Area and the historical Tax Revenues for Fiscal Year to Walnut Improvement Project Historical (1) and Estimated Tax Revenues Local Secured Land $1,061,503,401 $1,093,392,149 $1,122,864,094 $1,179,848,743 $1,269,650,758 Improvements $1,296,996,409 $1,330,160,358 $1,365,102,748 $1,410,903,338 $1,447,144,487 Personal Property $151,989 $172,118 $184,947 $233,668 $215,468 Gross Local Secured $2,358,651,799 $2,423,724,625 $2,488,151,789 $2,590,985,749 $2,717,010,713 Exemptions ($8,942,456) ($9,056,596) ($15,492,785) ($13,547,391) ($18,599,003) Total Secured $2,349,709,343 $2,414,668,029 $2,472,659,004 $2,577,438,358 $2,698,411,710 State Assessed $168,000 $168,000 $168,000 $168,000 $168,000 Unsecured Land $0 $0 $0 $0 $0 Improvements $10,286,743 $9,098,836 $9,782,811 $11,103,069 $11,458,212 Personal Property $14,046,519 $14,081,906 $14,195,013 $15,485,318 $14,102,318 Gross Local Unsecured $24,333,262 $23,180,742 $23,977,824 $26,588,387 $25,560,530 Exemptions ($14,200) ($14,200) ($14,200) ($14,200) ($14,200) Local Unsecured Taxable Value $24,319,062 $23,166,542 $23,963,624 $26,574,187 $25,546,330 Total Taxable Value $2,374,196,405 $2,438,002,571 $2,496,790,628 $2,604,180,545 $2,724,126,040 Base Year Value ($44,788,079) ($44,788,079) ($44,788,079) ($44,788,079) ($44,788,079) Incremental Taxable Value $2,329,408,326 $2,393,214,492 $2,452,002,549 $2,559,392,466 $2,679,337,961 Assessed Value % Inc/(Dec) Incremental Value % Inc/(Dec) 2.69% 2.41% 4.30% 4.61% 2.74% 2.46% 4.38% 4.69% Tax Increment Revenue Collected $23,661,106 $24,431,973 $24,979,725 $26,095,235 $26,793,380 Unitary Tax Increment Collected $254,714 $268,513 $270,005 $286,513 $289,171 Total Tax Increment Revenue Collected $23,915,820 $24,700,486 $25,249,731 $26,381,749 $27,082,550 Ajustments to Tax Increment Revenue: Revenue Above Redevelopment Plan ($19,915,820) ($20,700,486) ($21,249,731) ($22,381,749) ($23,082,550) Annual Limit SB 2557 Property Tax ($64,407) ($59,655) ($58,992) ($57,254) ($54,067) Administration Fees SB 813 Administrative Fee $0 ($4,118) $0 ($1,812) ($2,771) Abx 1 26 Administration Cost $0 $0 ($27,083) ($15,623) ($13,487) Abx 1 26 One-Time Audit Cost $0 $0 $0 $0 $0 Tax Revenues $3,935,593 $3,940,345 $3,913,925 $3,925,311 $3,929,675 (1) Fiscal Years through are based on actual Annual Continuing Disclosure Report, Fiscal Year Page 7

11 Walnut Improvement Project 2013 tax Allocation Refunding Bonds F. Coverage Analysis The following table sets forth the projected property tax revenue for purposes of the Dissolution Act and debt service coverage on the Bonds for fiscal year through Walnut Improvement Project Actual (1) and Projected (2) Tax Revenues and Debt Service Coverage Fiscal Year Assessed Valuation $2,604,180,545 $2,724,126,040 $2,672,663,543 $2,725,829,498 $2,780,058,773 Base Year Valuation (44,788,079) (44,788,079) (44,788,079) (44,788,079) (44,788,079) Increment Valuation $2,559,392,466 $2,679,337,961 $2,627,875,464 $2,681,041,419 $2,735,270,694 Estimated Gross Property Tax Revenues $26,381,749 $27,082,550 $26,549,196 $27,080,856 $27,623,148 County admin. Fees (57,254) (54,067) (58,992) (58,992) (58,992) County ABx1 26 Admin. Fees (17,435) (16,258) (27,083) (27,083) (27,083) Net Property Tax Revenues $26,307,060 $27,012,226 $26,463,121 $26,994,781 $27,537,073 Bonds Debt Service $3,614,172 $3,610,350 $3,611,050 $3,611,650 $3,611,950 Debt Service Coverage (1) (2) Fiscal Year is based on actual. Fiscal Years and on are the projections set forth in the Official Statement. Annual Continuing Disclosure Report, Fiscal Year Page 8

12 Walnut Improvement Project 2013 tax Allocation Refunding Bonds VIII. REPORTING OF SIGNIFICANT EVENTS The Continuing Disclosure Covenants outline the Significant Events that must be reported if they are deemed material. The City has no knowledge that any of the events listed below have occurred or have not been previously reported during the fiscal year ended June 30, Principal and interest payment delinquencies on the Bonds. 2. Non-payment related defaults. 3. Unscheduled draws on debt service reserves reflecting financial difficulties. 4. Unscheduled draws on credit enhancements reflecting financial difficulties. 5. Substitution of credit or liquidity providers, or their failure to perform. 6. Adverse tax opinions or events affecting the tax-exempt status of the security. 7. Modifications to rights of security holders. 8. Contingent or unscheduled bond calls. 9. Defeasances. 10. Release, substitution, or sale of property securing repayments of the securities. 11. Rating changes. Annual Continuing Disclosure Report, Fiscal Year Page 9

13 Walnut Improvement Project 2013 tax Allocation Refunding Bonds DISCLAIMER ANY SUBSEQUENT STATEMENTS REGARDING THE BONDS OTHER THAN A STATEMENT MADE BY THE ISSUER OR THE TRUSTEE IN AN OFFICIAL RELEASE OR SUBSEQUENT NOTICE OR ANNUAL REPORT, PUBLISHED IN A FINANCIAL NEWSPAPER OR OTHER PUBLICATION GENERAL CIRCULATION AND/OR FILED WITH THE MUNICIPAL SECURITIES RULEMAKING BOARD OR A NATIONALLY RECOGNIZED MUNICIPAL SECURITIES INFORMATION REPOSITORY, ARE NOT AUTHORIZED BY THE ISSUER OR THE TRUSTEE. NEITHER THE ISSUER NOR THE TRUSTEE SHALL BE RESPONSIBLE FOR THE ACCURACY, COMPLETENESS OR FAIRNESS OF ANY SUCH UNAUTHORIZED STATEMENT. THIS REPORT IS BEING FILED PURSUANT TO THE DISCLOSURE AGREEMENT AND DOES NOT PURPORT TO CONTAIN ALL MATERIAL INFORMATION WITH RESPECT TO THE BONDS OR THE FINANCIAL CONDITION OF THE DISTRICT. NEITHER THE ISSUER NOR THE TRUSTEE HAS ANY OBLIGATION TO UPDATE THIS REPORT OTHER THAN AS EXPRESSLY PROVIDED IN THE DISCLOSURE AGREEMENT. DATED: March 10, 2015 Successor Agency to the Walnut Improvement Agency Annual Continuing Disclosure Report, Fiscal Year Page 10

14 Walnut Improvement Project 2013 tax Allocation Refunding Bonds APPENDIX A: FINANCIAL STATEMENTS Annual Continuing Disclosure Report, Fiscal Year Page 11

15 , CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014

16 , CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014

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18 COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2014 TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT... 1 MANAGEMENT'S DISCUSSION AND ANALYSIS... 5 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Page Number Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Fiduciary Net Position - Fiduciary Funds Statement of Changes in Fiduciary Net Position Notes to Financial Statements... 27

19 COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2014 TABLE OF CONTENTS REQUIRED SUPPLEMENTARY INFORMATION Page Number Notes to Required Supplementary Information Budgetary Comparison Information: General Fund Community Development Block Grant LOSMD COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds Budgetary Comparison Schedules - Special Revenue Funds: Gas Tax Traffic Safety COPS Air Quality Improvements Waste Management Administration Proposition C Bikeway Proposition A State Park Grant Used Oil Recycling Grant General Recycling Grant Cable TV Education Walnut Housing Authority Proposition R Budgetary Comparison Schedules - Capital Projects Funds: Capital Improvement Combining Statement of Net Position - Trust and Agency Fund Combining Statement of Changes in Assets and Liabilities Trust and Agency Fund... 82

20 INDEPENDENT AUDITORS REPORT To the Honorable Mayor and Members of the City Council City of Walnut, California Report on Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of City of Walnut, California, (the City) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Walnut, California, as of June 30, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

21 To the Honorable Mayor and Members of the City Council City of Walnut, California Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the respective budgetary comparison for the General Fund, the Community Development Block Grant, and LOSMD be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements and schedules as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 18, 2014 on our consideration of the City s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal 2

22 To the Honorable Mayor and Members of the City Council City of Walnut, California control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City s internal control over financial reporting and compliance. Brea, California November 18,

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24 Management s Discussion and Analysis As management of the City of Walnut, we offer readers of the City of Walnut s financial statements this narrative overview and analysis of the financial activities of the City of Walnut for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal. Financial Highlights The City of Walnut s assets and deferred outflows of resources exceeded its liabilities at the close of the fiscal year by $102,928,075 (net position). The General Fund has a fund balance of $16.3 million. The General Fund actual resources available for appropriation (revenue inflows and fund balance) exceeded final budget by $1,404,792 while actual appropriations (outflows) were $144,412 less than budget. At the close of the current fiscal year, the City of Walnut governmental funds reported a combined fund balances of $29,772,624. At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned, and unassigned components of the fund balance) for the General Fund was $15.7 million or approximately 137% of the total general fund expenditures. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City of Walnut s basic financial statements. The City of Walnut s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Walnut s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the City of Walnut s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serves as a useful indicator of whether the financial position of the City of Walnut is improving or deteriorating. The statement of activities presents information showing how the City of Walnut s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Walnut that are principally supported by taxes and intergovernmental revenues (governmental activities). The governmental activities of the City of Walnut include general government, public safety, community development, community services, and public works. The government-wide financial statements include the blending of separate legal entities the Walnut Public Financing Authority and the Walnut Housing Authority. Although legally 5

25 separate, these component units are important because the City of Walnut is financially accountable for them. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Walnut, like other local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Walnut can be divided into two categories: governmental funds and fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Walnut maintains 20 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, three special revenue funds, and one capital project fund, all of which are considered to be major funds. Data from the other 15 governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. The City of Walnut adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside of the government. Fiduciary funds are not reported in the government-wide financial statements because the resources for those funds are not available to support the City of Walnut s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City of Walnut maintains two different types of fiduciary funds. The Agency funds reports resources held by the City of Walnut in a custodial capacity for individuals, and private organizations. The Private-purpose trust fund is used to accounts for all the financial transactions of the Successor Agency of the former redevelopment agency. Notes to the Financial Statements. The notes provide additional information that is necessary to acquire a full understanding of the data provided in the government-wide and fund financial statements 6

26 Combining Statements. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the Notes to the required supplementary information. Government-wide Overall Financial Analysis Our analysis focuses on the net position and changes in net position of the City s governmental activities. City of Walnut Net Position (In Thousands) Governmental Activities Current and other assets $ 31,787 $ 38,185 Capital assets 73,613 75,279 Total assets 105, ,464 Total deferred outflows of resources Long-term liabilities outstanding Other liabilites 1,779 1,789 Total Liabilities 2,472 2,430 Net position: Net investments in capital assets 73,613 75,279 Restricted 8,290 13,482 Unrestricted 21,025 22,273 Total net position $ 102,928 $ 111,034 The City s assets and deferred outflows of resources exceeded liabilities by $102,928,075 at the close of the fiscal year. The largest portion of the City of Walnut s net position (71.5%) reflects its investment in capital assets (e.g. land, buildings and improvements, furniture, fixtures, equipment, and infrastructures), less any related outstanding debt that was used to acquire those assets. The City of Walnut uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. An additional portion of the City of Walnut s net position (8.1%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $21,025,425 is unrestricted and maybe used to meet the government s ongoing obligations to its citizens and creditors. At the end of the current fiscal year, the City of Walnut is able to report positive balances in all reported categories of net position, both for the government as a whole, as wells as for its separate government activities. The same situation held true for the prior fiscal year. The City of Walnut overall net position decreased $8,106,197 mainly due to the transfer to the Walnut Successor Agency of the $6,150,000 unspent bond proceeds from the Walnut Housing Successor Agency, that was use to defeased the 1999 and 2002 outstanding tax allocation bonds of the dissolved Walnut Improvement Agency, as well as, changes as a result of operations as 7

27 recorded in the statement of activities and reflected in the statement of net positions. The following is an explanation of the major changes: Current and other assets decreased by $6,398,430. Cash and investments were lower due to the transfer of the unspent bond proceeds to Walnut Successor Agency, which was used to defeased the bonds. Accounts receivable decreased due to the receipt of the payment from the outstanding lien from the 360 Camino de Teodoro property owner. Notes and loan receivables decreased due to the receipt of the partial payment from the Successor Agency for the Supplemental Education Revenue Augmentation Fund (SERAF) loan. In addition, the deferred loan increased as a result of the three new Community Development Block Grant (CDBG) loans processed during the year. Due from other governments also increased as a result of the grants that were awarded to the City. Capital assets decreased $1,665,814 net of depreciation. The decrease was attributed to the infrastructures, furniture, and equipment that were fully depreciated and retired during the year. The City also donated a portion of the land for the Habitat for Humanity project. The Creekside and the Area 1 Street Resurfacing, the American Disability Act (ADA) Sidewalk Replacement (CDBG funded), radios for emergency operations (COPS grant funded), computer servers and backup, parks snack bars refurbishments are the capital assets completed during the fiscal year. The changes are as follows: City of Walnut Asset Type (In Thousands) Land $ (33) Building and improvements (467) Furniture and equipment 28 Infrastructure (1,194) Capital assets net decrease $ (1,666) The City of Walnut uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Long-term debt outstanding increased $51,460 due to the increase of other postemployment benefit obligation ($83,949), and a decrease in accrued employee benefits compensated absences ($32,489) during the year. 8

28 Governmental Activities. Governmental activities decreased the City of Walnut net position by $8,106,197. Key elements of the changes are as follow: City of Walnut Changes in Net Position (In Thousands) Governmental Activities Revenues Program revenues: Charges for services $ 5,614 $ 5,759 Operating contributions and grants 1,491 1,340 Capital contributions and grants 1,338 1,207 General revenues: Taxes Property taxes 5,995 5,642 Sales taxes 1,346 1,414 Franchise taxes Business license taxes Other taxes Motor vehicle in lieu Use of money and property Other Total revenues 17,840 16,901 Expenses General government $ 2,555 $ 2,409 Public safety 3,619 3,614 Community development 8,240 1,936 Community services 3,623 3,527 Public works 7,909 7,910 Total expenses 25,946 19,396 Decrease in net position $ (8,106) $ (2,495) The decrease of $145,540 in charges for services is mainly due to no developer fees, and insurance refund were received this year as compared to last fiscal year. However, the revenues from animal licensing increased due to additional canvassing held this year, as well as, increase in recreation program revenues in aquatics, sports leagues, camp programs, code fines and vehicle code fines. 9

29 The increase of $151,270 in operating contributions and grants is due to timely receipt of revenues for the park grant and bikeway fund grant. The Community Development Block Grant (CDBG) and the gas tax revenues also increased this year as compared to the prior year. The capital contribution and grants increased by $130,490 due to more revenues received from proposition A, proposition R, and proposition C during the year as compared to prior year. In addition, the Tree grant revenue was also received. Property tax increased by $353,611 as compared to last year, a 6% increase attributed to the increase of property values within the City. Sales tax decreased by $68,222 as compared to the prior year. Franchise tax revenues received increased by $48,254 compared to last year due to increased demand for services. Other taxes revenues increased by $9,020 due to higher Public Safety Augmentation Fund (PSAF) and development tax received during the year. However, the documentary stamp tax revenues received this year is lower as compared to last year. The increase of $424,681 in use of money and property from last year is mainly due to the recording of the market valuation adjustment of the investments as required by GASB 31. Investment earnings is still at the lower rate. However, revenues received from telecommunication lease increased $40,196 compared to prior year. Other revenues increased by $35,602 as compared to last year due to reimbursement for additional staff time rendered during the bond refunding, as well as, the receipt of restitution payment from the 360 Camino De Teodoro property owner. General government expenses increased by $146,854 due to expenses related to the municipal election, community promotion, and the family festival. Public safety expenses is at the same level as last year. Community development expenses increased by $6,302,796, due to the Successor Walnut Housing Authority transferred to the Walnut Successor Agency the unspent bond proceeds including interest to defeased the outstanding bonds. In addition, the increase is attributed to the ADA sidewalk repair, environmental and affordable housing monitoring consulting services as compared to prior year. 10

30 $10,000 City of Walnut Government Activities Expenses and Program Revenues (In Thousands) $8,000 $6,000 $4,000 $2,000 expenses revenues $ General government Public safety Community development Community services Public works City of Walnut Governmental Activities Revenue by Source (% of Total Revenues) Contributions and grants 16% Property taxes 34% Charges for services 31% Sales taxes 8% Use of money Other taxes and property 3% 3% Franchise taxes 5% Financial Analysis of the City s Funds As noted earlier, the City of Walnut uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. The focus of the City of Walnut s governmental funds is to provide information on near-term inflows, outflows, and balance of spendable resources. Such information is useful in assessing the City of Walnut s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. 11

31 As of the end of the current fiscal year, the City of Walnut s governmental funds reported combined fund balances of $29,772,624. A decrease of $6,335,727 in comparison to prior year. Of this balance 21% ($6,348,851) are legally restricted to fund such areas as low and moderate housing projects, public safety, community services, and public works; 36% ($10,748,511) are committed to capital projects, other post employment benefits, disaster recovery, self-insurance and facility maintenance; 30% ($8,847,785) are assigned to community services and maintenance and operations, 9% ($2,580,419) are nonspendable balances for Notes and loans, advances to other funds, and prepaid costs; 4% ($1,247,058) are unassigned. The general fund is the chief operating fund of the City of Walnut. At the end of the current fiscal year, the general fund reflects a fund balance of $16,302,814. The unassigned fund balance of the general fund is $1,247,058, which represents approximately 11% compared to the general fund expenditures, while the total fund balance represents approximately 143% of the general fund expenditures. The general fund balance increased $858,510 in comparison to last year due higher property tax, code fines, recreation program revenues, and one time Tree grant from Los Angeles County Board of Supervisor and Bus Stop Enhancement program grant revenues from Foothill Transit. The capital improvement fund accounts for major capital outlay and infrastructures improvements for the City. The fund balance at the end of the year is $5,060,132, a decreased of $1,490,488 as a result of the various capital items and projects completed during the year. These projects were Creekside Resurfacing, Area 1 Residential Street Resurfacing, Slurry Seal projects for Area 2, Trail Maintenance project, purchase of two trucks for maintenance division and recreation services (MDRS), and computers servers and backup replacement equipment. The non-major governmental fund balance relating to the gas tax fund increased as a result of state adjustment to the allocation of the revenues received during the year. proposition A, proposition C and proposition R fund increased during the year due to higher allocation received from Los Angeles County for the City s share of the ½ cents sales tax levied for local transit and public transit purposes. General Fund Budgetary Highlights The actual charges to appropriations for the general fund at year end were $144,412 less than the final budget. The budget to actual variance in appropriations was due close control by management on spending and savings realized due to decrease in staffing level through normal attrition. Actual revenues compared favorably to the final budget with a $1,404,792 excess. This positive variance was due to the increased revenues as mentioned earlier. In addition, this increase is also attributed to the increased revenues received from franchise tax, vehicle code fines, animal licensing, building related plan check and inspections, and passports. Budget amendments and supplemental appropriation were made during the year to increase appropriations for unanticipated expenditures after adoption of the original budget in the amount of $537,