$9,110,000 CITY OF GARDENA FINANCING AGENCY (Los Angeles County, California) Taxable Lease Revenue Refunding Bonds, Series 2014

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1 NEW ISSUE FULL BOOK ENTRY RATING: S&P: A+ See RATING herein Interest on the Bonds is includible in gross income of the owners thereof for federal income tax purposes. In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See TAX MATTERS herein for a more complete discussion. $9,110,000 CITY OF GARDENA FINANCING AGENCY (Los Angeles County, California) Taxable Lease Revenue Refunding Bonds, Series 2014 Dated: Date of Delivery Due: May 1, as shown below The $9,110,000 City of Gardena Financing Agency (Los Angeles County, California) Taxable Lease Revenue Refunding Bonds, Series 2014 (the Bonds ), are being issued by the City of Gardena Financing Agency, a joint exercise of powers entity organized and existing under the laws of the State of California (the Agency ), pursuant to the provisions of Article 4 (commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code, a resolution of the Agency and an Indenture of Trust, dated as of December 1, 2014 (the Indenture ), by and between the Agency and U.S. Bank National Association, as trustee (the Trustee ). The Bonds are being issued to (a) refund the outstanding City of Gardena Certificates of Participation (2006 Refinancing Project), Series B (Taxable), (b) fund capitalize interest on a portion of the Bonds through May 1, 2017, and (c) pay the costs of issuance of the Bonds. See THE FINANCING PLAN and ESTIMATED SOURCES AND USES OF FUNDS herein. The Bonds are secured by a pledge of and lien on the Revenues (as defined herein), consisting primarily of Lease Payments (as defined herein). The City will lease certain real property and the improvements thereon (collectively, the Property ) from the Agency pursuant to a Lease Agreement, dated as of December 1, 2014 (the Lease Agreement ), by and between the Agency and the City. Under the Lease Agreement, the City is required to make Lease Payments from legally available funds in amounts calculated to be sufficient to pay principal of and interest on the Bonds. All of the Agency s right, title and interest in and to the Lease Agreement (except for the right to receive any Additional Payments (as defined herein) to the extent payable to the Agency and certain rights to indemnification), including the right to receive Lease Payments under the Lease Agreement, will be assigned to the Trustee under the Indenture for the benefit of the Bondowners. See SECURITY FOR THE BONDS herein. The obligation of the City to make Lease Payments and Additional Payments (as defined herein) is subject to abatement during any period in which, by reason of damage, destruction or a taking by eminent domain, there is substantial interference with the use and occupancy by the City of any portion of the Property. A reserve fund will not be established for the Bonds. The Bonds are subject to redemption as described herein. See THE BONDS Redemption herein. The Bonds are issuable in denominations of $5,000 and any integral multiple thereof. Interest on the Bonds is payable on May 1 and November 1 of each year, commencing May 1, See THE BONDS herein. The Bonds will be delivered in fully registered form only, and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may be purchased in book-entry form only. Principal of and interest on the Bonds will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of the Bonds. See THE BONDS herein and APPENDIX G BOOK-ENTRY ONLY SYSTEM. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED SOLELY BY THE REVENUES PLEDGED UNDER THE INDENTURE. THE BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS, EXCEPT THE AUTHORITY TO THE EXTENT DESCRIBED HEREIN, AND NEITHER THE CITY, THE STATE OF CALIFORNIA NOR ANY OF ITS POLITICAL SUBDIVISIONS, EXCEPT THE AUTHORITY TO THE EXTENT DESCRIBED HEREIN, IS LIABLE THEREON. IN NO EVENT SHALL THE BONDS OR ANY INTEREST OR REDEMPTION PREMIUM THEREON BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE AUTHORITY AS SET FORTH IN THE INDENTURE. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE MEMBERS OF THE AUTHORITY, THE CITY NOR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE. MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS $430, % Term Bonds maturing May 1, 2024; Price: %, to yield 4.049%; CUSIP AE3 $385, % Term Bonds maturing May 1, 2029; Price: %; CUSIP AG8 $8,295, % Term Bonds maturing May 1, 2036; Price: %, to yield 5.278%; CUSIP AF0 This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds will be offered when, as and if issued, and received by the Underwriter, subject to the approval as to their validity by Quint & Thimmig LLP, Larkspur, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City and the Agency by the City Attorney, and by Quint & Thimmig LLP, Larkspur, California, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California. It is anticipated that the Bonds will be available for delivery through DTC in New York, New York, on or about December 2, Citigroup Dated: November 13, 2014 Copyright 2014, American Bankers Association. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, operated by Standard & Poor s. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the Authority and are included solely for the convenience of the registered owners of the Bonds. None of the Authority, the City or the Underwriter is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds.

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3 No dealer, broker, salesperson or other person has been authorized by the Agency, the City or the Underwriter to give any information or to make any representations other than as set forth herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the Agency, the City or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information set forth in this Official Statement has been obtained from official sources and other sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation of the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Agency or the City since the date hereof. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance is given that actual results will meet the Agency s or the City s forecasts in any way, regardless of the level of optimism communicated in the information. The Agency is not obligated to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur. See CONTINUING DISCLOSURE herein. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE OF THIS OFFICIAL STATEMENT, AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. The execution, sale and delivery of the Bonds has not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities. The City maintains a website, however, the information presented therein is not a part of this Official Statement and should not be relied on in making an investment decision with respect to the Bonds.

4 TABLE OF CONTENTS INTRODUCTION... 1 General Description...1 Terms of the Bonds...1 Book-Entry Only... 2 Source of Payment for the Bonds... 2 Additional Bonds...3 The Agency...3 The City...3 Limited Liability...3 Continuing Disclosure... 4 Tax Matters... 4 Certain Risk Factors... 4 Other Information... 4 ESTIMATED SOURCES AND USES OF FUNDS... 5 DEBT SERVICE SCHEDULE... 6 THE PROPERTY... 7 THE FINANCING PLAN...8 THE BONDS...8 General... 8 Transfer and Exchange of Bonds...9 Redemption...9 Selection of Bonds for Redemption Notice of Redemption Partial Redemption of Bonds...12 Effect of Redemption...12 SECURITY FOR THE BONDS General Lease Payments and Additional Payments Insurance and Condemnation Awards...14 Abatement Insurance...16 Additional Bonds...16 THE AGENCY THE CITY CITY FINANCIAL INFORMATION City s Former Financial Difficulties Financial Statements Budgetary Process...18 City Financial Management Policies Reliance on State Budget Principal Sources of General Fund Revenues General Fund Revenues and Expenditures...30 OTHER FINANCIAL INFORMATION Labor Relations...32 Risk Management...32 Employee Retirement Plans...33 Other Post-Employment Benefits...35 Deferred Compensation Plan...36 Short-Term Obligations Long-Term General Fund Obligations General Obligation Debt Overlapping Debt STATE BUDGET INFORMATION...39 Funding by the State of California CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution Article XIIIB of the California Constitution Proposition Proposition Proposition 1A of Proposition Proposition Future Initiatives RISK FACTORS...48 Limited Obligation Lease Payments Are Not Debt Additional Obligations of the City Valid and Binding Covenant to Budget and Appropriate Abatement No Acceleration Upon Default Limitation on Remedies Concentration of Revenue Source...51 Risk of Uninsured Loss including Seismic Risks...51 Eminent Domain...51 Exposure to State of California Fiscal Stress Hazardous Substances Bankruptcy No Liability of Agency to the Owners Risk of Tax Audit Limited Secondary Market City System Pension Benefit Liability Changes in Law FINANCIAL ADVISOR...54 LEGAL MATTERS...54 ABSENCE OF LITIGATION RATING CONTINUING DISCLOSURE TAX MATTERS...56 UNDERWRITING...56 FINANCIAL STATEMENTS...56 OTHER INFORMATION MISCELLANEOUS APPENDIX A: GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY APPENDIX B: COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2013 APPENDIX C: CITY INVESTMENT POLICY APPENDIX D: SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS APPENDIX E: PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX F: FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX G: BOOK-ENTRY ONLY SYSTEM

5 CITY OF GARDENA FINANCING AGENCY CITY OF GARDENA City of Gardena 1700 West 162nd St. Gardena, CA (310) Agency Board of Directors and City Council Paul K. Tanaka, Agency Chair/Mayor Tasha Cerda, Agency Vice Chair/Mayor Pro Tem Rachel C. Johnson, Agency/Council Member Dan Medina, Agency/Council Member Terrence Terauchi, Agency/Council Member Agency/City Staff Mitchell G. Lansdell, Executive Director/City Manager Mary Barnhart, Acting Agency Chief Fiscal Officer/Acting Chief Fiscal Officer Mina Semenza, Secretary/City Clerk Peter L. Wallin, Agency Counsel and City Attorney Special Services KNN Public Finance A Division of Zions First National Bank Los Angeles, California Financial Advisor U.S. Bank National Association Los Angeles, California Trustee Quint & Thimmig LLP Larkspur, California Bond Counsel and Disclosure Counsel

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7 OFFICIAL STATEMENT $9,110,000 CITY OF GARDENA FINANCING AGENCY (Los Angeles County, California) Taxable Lease Revenue Refunding Bonds, Series 2014 INTRODUCTION The following introduction presents a brief description of certain information in connection with the Bonds (as defined below) and is qualified in its entirety by reference to the entire Official Statement and the documents summarized or described herein. References to, and summaries of, provisions of the Constitution and the laws of the State of California (the State ) and any documents referred to herein do not purport to be complete and such references are qualified in their entirety by reference to the complete provisions thereof. Capitalized terms used in this Official Statement and not defined elsewhere herein have the meanings given such terms in the Indenture. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS Definitions. General Description This Official Statement, including the cover page, the cover page and the attached appendices (this Official Statement ), provides certain information concerning the issuance of $9,110,000 aggregate principal amount of City of Gardena Financing Agency Taxable Lease Revenue Refunding Bonds, Series 2014 (the Bonds ), by the City of Gardena Financing Agency, a joint exercise of powers entity organized under the laws of the State (the Agency ). The Bonds are being issued pursuant to Article 4, Chapter 5, Division 7, Title 1 (commencing with section 6584) of the California Government Code, a resolution of the Agency authorizing the issuance of the Bonds, adopted on October 28, 2014 (the Agency Resolution ), and an Indenture, dated as of December 1, 2014 (the Indenture ), by and between the Agency and U.S. Bank National Association, as trustee (the Trustee ). The Bonds are being issued to (a) refund the outstanding City of Gardena Certificates of Participation (2006 Refinancing Project), Series B (Taxable) (the 2006B Certificates ), (b) fund capitalized interest on a portion of the Bonds through May 1, 2017, and (c) pay the costs of issuance of the Bonds. See ESTIMATED SOURCES AND USES OF FUNDS and THE FINANCING PLAN. Terms of the Bonds The Bonds will mature on the dates and in the principal amounts set forth on the cover page of this Official Statement. Interest on the Bonds is payable semiannually on each May 1 and November 1 (each, an Interest Payment Date ), commencing May 1, 2015, computed at the respective rates of interest set forth on the cover page of this Official Statement. The Bonds will be issuable in denominations of $5,000 or any integral multiple thereof. The Bonds are subject to optional and mandatory redemption as described herein. See THE BONDS.

8 Book-Entry Only The Bonds will be issuable in fully registered form only and, when issued and delivered, will be registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York ( DTC ). DTC will act as the depository of the Bonds and all payments due on the Bonds will be made to DTC or its nominee. Ownership interests in the Bonds may be purchased in book-entry form only. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Source of Payment for the Bonds Pursuant to the Site and Facility Lease, dated as of December 1, 2014 (the Site and Facility Lease ), by and between the City and the Agency, the City will lease to the Agency certain real property and certain facilities and improvements located thereon (the Property ) owned by the City. See THE PROPERTY. Concurrently, the City will sublease the Property from the Agency pursuant to a Lease Agreement, dated as of December 1, 2014 (the Lease Agreement ), by and between the Agency and the City. Under the Lease Agreement, subject to abatement as provided therein, the City is required to make lease payments (the Lease Payments ) from legally available funds for use and occupancy of the Property in amounts calculated to be sufficient to pay principal of and interest on the Bonds when due. The City has covenanted in the Lease Agreement to take such action as may be necessary to include the Lease Payments in each of its annual budgets during the term of the Lease Agreement and has further covenanted to make the necessary annual appropriations for all such Lease Payments. All of the Agency s right, title and interest in and to the Lease Agreement (apart from certain rights to receive Additional Payments to the extent payable to the Agency and to indemnification), including the right to receive Lease Payments under the Lease Agreement, are assigned to the Trustee under the Indenture for the benefit of the Bondowners. Except to the extent of amounts otherwise available to the City for payments under the Lease Agreement, during any period in which, by reason of material damage, destruction or condemnation there is substantial interference with the use and occupancy by the City of any portion of the Property, Lease Payments will be adjusted or abated in the proportion in which the value of that portion of the Property rendered unusable bears to the entire value of the Property. Such adjustment or abatement will end with the substantial replacement or reconstruction of the Property. To the extent proceeds of rental interruption insurance are available or there are moneys in the Insurance and Condemnation Fund or Revenue Fund, the Lease Agreement provides there will be no abatement of Lease Payments. See SECURITY FOR THE BONDS Abatement. The Bonds are special limited obligations of the Agency payable solely from and secured by the Revenues and certain other amounts (including proceeds of the sale of the Bonds) held by the Trustee in any fund or account established under the Indenture and pledged therefor, and the Revenues may not be used for any other purpose while any of the Bonds remain Outstanding; provided, however, that the Revenues may be applied for such other purposes as are permitted under the Indenture. Revenues means (i) all Lease Payments and other amounts paid, or caused to be paid, by the City, and received by the Agency pursuant to the Lease Agreement (but not Additional Payments), and (ii) all interest or other income from any investment of any money in any fund or account established pursuant to the Indenture (other than the Rebate Fund). -2-

9 Additional Bonds The Agency may not issue additional bonds, notes or other indebtedness that would be payable out of the Revenues in whole or in part. See SECURITY FOR THE BONDS Additional Bonds. The Agency The Agency is a joint exercise of powers entity formed on July 23, 1991, by agreement between the City and the Parking Authority of the City of Gardena pursuant to Articles 1 through 4, Chapter 5, Division 7, Title 1 of the California Government Code. See THE AGENCY. The City The City was incorporated on September 11, Through annexations and boundary adjustments the City has grown from 3 square miles to approximately 5.9 square miles with the most recent annexation of a portion of the El Camino Village area in The City is located approximately 15 miles south of Los Angeles and 6 miles southeast of Los Angeles International Airport in Los Angeles County (the County ). It is served by three major freeways and is the home of a mix of aerospace, high tech and various other industries. The City has a Council-Manager form of government. The City is governed by five elected officials; the Mayor and four Council members, who act as the City s legislative body. The City Council appoints the City Manager and the City Attorney. The City Manager is responsible for directing, coordinating and carrying out City Council policies. See THE CITY, CITY FINANCIAL INFORMATION and APPENDIX A GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY. Limited Liability THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AGENCY, PAYABLE SOLELY FROM AND SECURED SOLELY BY CERTAIN PROCEEDS OF THE BONDS HELD IN CERTAIN FUNDS AND ACCOUNTS PURSUANT TO THE INDENTURE AND THE REVENUES DERIVED FROM LEASE PAYMENTS AND OTHER PAYMENTS MADE OR CAUSED TO BE MADE BY THE CITY PURSUANT TO THE LEASE AGREEMENT. THE AGENCY IS NOT OBLIGATED TO PAY INTEREST ON OR PRINCIPAL OF THE BONDS EXCEPT FROM THE REVENUES. THE CITY HAS COVENANTED IN THE LEASE AGREEMENT TO TAKE SUCH ACTIONS AS MAY BE NECESSARY TO INCLUDE ALL LEASE PAYMENTS DUE THEREUNDER IN ITS ANNUAL BUDGETS AND TO MAKE THE NECESSARY ANNUAL APPROPRIATIONS THEREFOR. NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE AGENCY, THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION, OR A PLEDGE OF THE FAITH AND CREDIT OF THE CITY. THE AGENCY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. -3-

10 Continuing Disclosure The ultimate security for the payments of principal and interest on the Bonds comes from the Lease Payments to be made by the City, and, therefore, the City, as an obligated person within the meaning of the Rule (as defined below), has agreed to undertake the continuing disclosure responsibilities required by the Rule. The Agency has not undertaken a commitment to provide any continuing disclosure required by the Rule. The City will covenant in a continuing disclosure certificate (the Continuing Disclosure Certificate ) to provide, or cause to be provided, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository and any public or private repository for purposes of Rule 15c2 12(b)(5) adopted by the Securities and Exchange Commission (the Rule ) certain annual financial information and operating data of the type set forth herein including, but not limited to, its audited financial statements and, in a timely manner, notice of certain material events. See CONTINUING DISCLOSURE and APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the Continuing Disclosure Certificate pursuant to which such reports and notices are to be made. Tax Matters In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. The interest on the Bonds is subject to all applicable federal taxation. See TAX MATTERS. Certain Risk Factors Certain events could affect the ability of the City to make the Lease Payments when due. See RISK FACTORS for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds. Other Information The descriptions herein of the Indenture, the Lease Agreement and any other agreements relating to the Bonds are qualified in their entirety by reference to such documents, and the descriptions herein of the Bonds are qualified in their entirety by the forms thereof and the information with respect thereto included in the aforementioned documents. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS. Copies of the documents are on file and, upon request and payment to the City of a charge for copying, mailing and handling, from the City Manager, City of Gardena, 1700 West 162nd Street, Gardena, CA 90247, Telephone: (310) The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement, under any circumstances, creates any implication that there has been no change in the affairs of the City or the Agency since the date hereof. The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and is not intended to indicate future or continuing trends in the financial position or -4-

11 other affairs of the City or the Agency. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds realized upon the sale of, or in connection with, the Bonds as follows: Estimated Sources: Principal Amount of Bonds $9,110, Less: Original Issue Discount (297,460.30) Plus: Moneys Released from 2006B Certificates 579, Total Sources $9,391, Estimated Uses: Deposit to Escrow Fund (1) $8,778, Deposit to Interest Account (2) 350, Costs of Issuance Fund (3) 262, Total Uses $9,391, (1) Represents the amount required to redeem the 2006 Certificates in full on December 15, See THE FINANCING PLAN. (2) Represents capitalized interest on a portion of the Bonds payable on 11/1/15, 5/1/16, 11/1/16 and 5/1/17. (3) Includes, but is not limited to, the Underwriter s discount, the fees and expenses of Bond Counsel, Disclosure Counsel, the Trustee and the rating agency, costs of printing the Official Statement and other costs incurred by the Agency and the City in connection with the issuance and delivery of the Bonds. -5-

12 DEBT SERVICE SCHEDULE The following table sets forth the debt service due on the Bonds. (1) Includes mandatory sinking fund payments. Debt Service Schedule Bond Year Ending May 1 Principal (1) Interest Total 2015 $ 186, $ 186, , , , , $ 55, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,229, ,175, , ,549, ,235, , ,550, ,295, , ,548, ,355, , ,543, ,430, , ,551, ,000 49, ,039, TOTALS $9,110,000 $8,035, $17,145, Pursuant to the Lease Agreement, the City is required to make Lease Payments which have been calculated to be sufficient to make the interest and principal payments due on the Bonds. The City s Lease Payments are due on the fifteenth calendar day of the month preceding each Interest Payment Date. -6-

13 The Property includes the following: THE PROPERTY Property Component Location in the City Current Value City Fire Station Number West 135th Street $ 2,744,722 This station was built in 1958, contains 2,700 square feet of space, houses a quintuple combination pumper and is staffed by four sworn personnel. City Fire Department Headquarters 1650 West 162nd Street 1,918,943 This station was built in 1964, contains 17,915 square feet of space, houses a an engine, a paramedic unit and a utility truck and is staffed by eight sworn personnel and three civilians. Police Department Parking Lot West West 162 nd Street 275,000 This lot is used primarily for police personnel and the public going to police station. It is located adjacent to the driveway entering the police vehicle parking lot. Police Department Parking Lot East 1734 West 162 nd Street 207,000 This lot is used primarily for police personnel and the public going to police station. It is located adjacent to the driveway entering the police vehicle parking lot. Police Department Covered Parking Lot South Western Avenue 1,032,814 This lot is used primarily for special use police vehicles and unmarked police cars. It connects to the lot directly behind the police station. City Parking Lot 1744 West 162 nd Street 275,000 This lot is used primarily by patrons of the shopping center the City owns at Western Avenue. It is located directly behind the center. City Parking Lot 1051 West Gardena Boulevard 269,803 This lot is used primarily by retail shoppers. It is located across the street from a U.S. Post Office which has no off street parking. City Parking Lot 1135 West Gardena Boulevard 266,867 This lot is used primarily by the retail shops adjacent and the Guliano Delicatessen located across the street which has no off street parking. City Parking Lot New Hampshire Avenue 1,039,312 This lot is used primarily by the public for a shopping center including the Gardena Supermarket. It is located at the intersection of Gardena Boulevard and New Hampshire Avenue. City Parking Lot South Harvard Boulevard 464,433 This lot is used primarily by the public for services at Community Center. It is located directly across the street from the Community Center. City Parking Lot LaSalle Avenue 2,825,687 This lot is used primarily by the public for services at the Human Service building and when using the gymnasium and the pool. City Parking Lot South Western Avenue 180,002 This lot is used primarily to service the commercial building owned by the City at Western Avenue. Total Current Value $11,499,583-7-

14 THE FINANCING PLAN The Bonds are being issued to (a) refund the 2006B Certificates, (b) fund capitalized interest for a portion of the Bonds through May 1, 2017, and (c) pay a portion of the costs of issuance of the Bonds. The 2006B Certificates, together with two other series of certificates of participation (the 2006 Certificates ), were delivered pursuant to a Trust Agreement, dated as of June 1, 2006, by and among the City, the Agency and the Trustee, to refinance certain financial obligations of the City. In order to provide for the repayment of the 2006 Certificates, the Agency leased certain real property and improvements to the City pursuant to a lease agreement, dated as of June 1, 2006, under which the City agreed to make lease payments to the Agency from moneys in its General Fund and the City has budgeted and appropriated sufficient amounts in each year to pay the full amount of principal of and interest on the 2006 Certificates. A portion of the proceeds of the Bonds will be deposited in an escrow fund (the Escrow Fund ) held in trust by U.S. Bank National Association, as escrow bank, under an escrow agreement with the City, in an amount sufficient to redeem the outstanding 2006B Certificates in full on December 15, 2014, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest. The other two series of 2006 Certificates will not be refunded at this time. Upon the issuance of the Bonds and the deposit in the Escrow Fund of moneys sufficient to provide for the refunding of the 2006B Certificates, the 2006B Certificates will be deemed defeased and no longer outstanding. The holders of the 2006B Certificates will be entitled to payment solely out of the moneys or securities deposited in the Escrow Fund. General THE BONDS The Bonds will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds will mature on May 1 in each of the years and in the amounts, and will bear interest (calculated on the basis of a 360-day year of twelve 30-day months) at the rates set forth on the cover page hereof. Interest on the Bonds will be payable semiannually on each May 1 and November 1, commencing May 1, 2015 (each, an Interest Payment Date ), to the person whose name appears on the Registration Books as the Owner thereof as of the fifteenth calendar day of the month immediately preceding each such Interest Payment Date (each, a Record Date ), such interest to be paid by check of the Trustee mailed by first-class mail to the Owners at the respective addresses of such Owners as they appear on the Registration Books; provided, however, that payment of interest may be made by wire transfer in immediately available funds to an account in the United States of America to any Owner of Bonds in the aggregate principal amount of $1,000,000 or more who furnishes written wire instructions to the Trustee at least five days before the applicable Record Date. Principal of any Bond will be paid by check of the Trustee upon presentation and surrender thereof at the corporate trust office of the Trustee, except as provided in APPENDIX G BOOK-ENTRY ONLY SYSTEM. Principal of and interest on the Bonds will be payable in lawful money of the United States of America. -8-

15 Each Bond will be dated as of its date of delivery and will bear interest from the Interest Payment Date next preceding such date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or (b) it is authenticated on or before April 15, 2015, in which event it will bear interest from the Closing Date; provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. The Bonds, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ( DTC, and together with any successor securities depository, the Securities Depository ). DTC will act as Securities Depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form. Purchasers will not receive certificates representing their ownership interest in the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondholders or registered owners thereof means Cede & Co. as aforesaid, and not the Beneficial Owners of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer of same day funds by the Trustee to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the Participants for subsequent disbursement to the Beneficial Owners. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Transfer and Exchange of Bonds Any Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Transfer of any Bond will not be permitted by the Trustee during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption pursuant to the Indenture. Whenever any Bond or Bonds are required to be surrendered for transfer, the Agency will execute and the Trustee will authenticate and will deliver a new Bond or Bonds for a like aggregate principal amount and of like maturity. The Trustee may require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Any Bond may be exchanged at the corporate trust office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of like maturity. Exchange of any Bond will not be permitted during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption. The Trustee may require the Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Redemption Optional Redemption. The Bonds maturing on May 1, 2024, are not subject to optional redemption prior to their respective stated maturities. The Bonds maturing on or after May 1, 2029, are subject to optional redemption prior to their respective stated maturities, at the written direction of the Agency, from moneys deposited by the Agency or the City, in whole or in part, in such order of maturity as the City designates (and, if no specific order of redemption is designated by the City, in inverse order of maturity), on any date on or after May 1, 2024 from any available source of funds, at a redemption price equal to the -9-

16 principal amount of the Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing on May 1, 2024 (the 2024 Term Bonds ) are subject to mandatory sinking fund redemption in part by lot on May 1, 2018, and on each May 1 to and including May 1, 2024, from sinking account payments made by the Agency at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, in the aggregate respective principal amounts and on the respective dates as set forth in the following table; provided, however, that if some but not all of the 2024 Term Bonds have been optionally redeemed, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of 2024 Term Bonds so redeemed, to be allocated among the sinking account payments as are thereafter payable on a pro rata basis in integral multiples of $5,000 as determined by the Agency (notice of which determination shall be given by the Agency to the Trustee). Maturity. Redemption Date Principal (May 1) Amount 2018 $55, , , , , , ,000 The Bonds maturing on May 1, 2029 (the 2029 Term Bonds ) are also subject to mandatory sinking fund redemption in part by lot on May 1, 2025, and on each May 1 to and including May 1, 2029, from sinking account payments made by the Agency at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, in the aggregate respective principal amounts and on the respective dates as set forth in the following table; provided, however, that if some but not all of the 2029 Term Bonds have been optionally redeemed, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of 2029 Term Bonds so redeemed, to be allocated among the sinking account payments as are thereafter payable on a pro rata basis in integral multiples of $5,000 as determined by the Agency (notice of which determination shall be given by the Agency to the Trustee). Maturity. Redemption Date Principal (May 1) Amount 2025 $70, , , , ,000 The Bonds maturing on May 1, 2036 (the 2036 Term Bonds ) are also subject to mandatory sinking fund redemption in part by lot on May 1, 2030, and on each May 1 to and including May 1, 2036, from sinking account payments made by the Agency at a redemption price equal to the principal amount thereof -10-

17 to be redeemed together with accrued interest thereon to the redemption date, without premium, in the aggregate respective principal amounts and on the respective dates as set forth in the following table; provided, however, that if some but not all of the 2036 Term Bonds have been optionally redeemed, the total amount of all future sinking account payments will be reduced by the aggregate principal amount of 2036 Term Bonds so redeemed, to be allocated among the sinking account payments as are thereafter payable on a pro rata basis in integral multiples of $5,000 as determined by the Agency (notice of which determination shall be given by the Agency to the Trustee). Maturity. Redemption Date Principal (May 1) Amount 2030 $ 815, ,175, ,235, ,295, ,355, ,430, ,000 Extraordinary Redemption from Insurance or Condemnation Proceeds. The Bonds are also subject to redemption as a whole, or in part on a pro rata basis among maturities then outstanding, as determined by the Trustee in its sole discretion, on any date, in integral multiples of $5,000, to the extent of prepayments made by the City from insurance proceeds or condemnation proceeds not used to repair, reconstruct or replace any portion of the Property damaged or destroyed or elected by the City to be used for such purpose, at a redemption price equal to 100% of the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. Selection of Bonds for Redemption Whenever provision is made for the redemption of less than all of the Bonds of a particular maturity, the Trustee will select the Bonds to be redeemed from all Bonds of such maturity or such given portion thereof not previously called for redemption, by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, the Trustee will treat each Bond as consisting of separate $5,000 portions and each such portion will be subject to redemption as if such portion were a separate Bond. Notice of Redemption Notice of redemption will be mailed by first-class mail, postage prepaid, not less than 20 nor more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books maintained by the Trustee, and to the Municipal Securities Rulemaking Board, the Securities Depositories and the Information Services. Each notice of redemption will state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed, the maturity or maturities of the Bonds to be redeemed and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the redemption date there will become due and payable on each of said -11-

18 Bonds the redemption price thereof, and that from and after such redemption date interest thereon will cease to accrue and will require that such Bonds be then surrendered. Neither the failure to receive any notice nor any defect therein will affect the sufficiency of the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. Notice of redemption of Bonds will be given by the Trustee, at the expense of the Agency, for and on behalf of the Agency. Any notice of optional redemption of the Bonds may be conditional and if any condition stated in the notice of redemption shall not have been satisfied on or prior to the redemption date, (i) said notice shall be of no force and effect, (ii) the City shall not be required to redeem such Bonds ; (iii) the redemption shall be cancelled and (iv) the Trustee shall within a reasonable time thereafter give notice to the persons and in the manner in which the conditional notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled. The actual receipt by the owner of any Bonds of notice of such cancellation shall not be a condition precedent to cancellation, and failure to receive such notice or any defect in such notice shall not affect the validity of the cancellation. So long as the book-entry system is used for the Bonds, the Trustee will give any notice of redemption or any other notices required to be given to registered Owners of Bonds only to DTC. Any failure of DTC to advise any Participant, or of any Participant to notify the Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on such notice. Beneficial Owners may desire to make arrangements with a Participant so that all notices of redemption or other communications to DTC which affect such Beneficial Owners, and notification of all interest payments, will be forwarded in writing by such Participant. See APPENDIX G BOOK-ENTRY ONLY SYSTEM. Partial Redemption of Bonds Upon surrender of any Bonds redeemed in part only, the Agency will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Agency, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered. Effect of Redemption If notice of redemption has been given, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, the Bonds (or portions thereof) so called for redemption are being held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption will become due and payable, interest on the Bonds so called for redemption will cease to accrue, said Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said Bonds will have no rights in respect thereof except to receive payment of the redemption price thereof. All Bonds redeemed pursuant to the provisions of the Indenture will be canceled by the Trustee upon surrender thereof and destroyed. -12-

19 SECURITY FOR THE BONDS General The Bonds are special limited obligations of the Agency payable solely from and secured solely by the Revenues pledged therefor under the Indenture, together with amounts on deposit from time to time in the funds and accounts held by the Trustee, including proceeds of the sale of the Bonds. Under the Indenture, the Agency assigns to the Trustee, for the benefit of the Owners of the Bonds, all of the Revenues and all of the rights of the Agency in the Lease Agreement (except for the right to receive any Additional Payments to the extent payable to the Agency and certain rights to indemnification set forth therein). The Trustee is entitled to collect and receive all of the Revenues, and any Revenues collected or received by the Agency are required to be held, and to have been collected or received, by the Agency as the agent of the Trustee and must be paid by the Agency to the Trustee. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AGENCY PAYABLE SOLELY FROM AND SECURED SOLELY BY THE REVENUES AND OTHER MONEYS PLEDGED THERETO IN THE INDENTURE. THE BONDS ARE NOT A DEBT OF THE AGENCY, THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS AND NEITHER THE AGENCY, THE CITY, THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS, EXCEPT THE AGENCY TO THE EXTENT DESCRIBED HEREIN, IS LIABLE THEREON. IN NO EVENT WILL THE BONDS OR ANY INTEREST OR REDEMPTION PREMIUM THEREON BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES OTHER THAN THOSE OF THE AGENCY AS SET FORTH IN THE INDENTURE. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE MEMBERS OF THE AGENCY NOR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE. Lease Payments and Additional Payments The Lease Agreement requires the City, subject to abatement as provided therein, to deposit with the Trustee, as assignee of the Agency, on each April 15 and October 15, commencing on April 15, 2015 (the Lease Payment Dates ), an amount equal to the aggregate Lease Payment coming due and payable on each such Lease Payment Date. The Lease Payments payable in any fiscal year of the City constitute payment for the use and possession of the Property during such fiscal year. The City will receive a credit towards payment of Lease Payments for amounts on deposit in the Revenue Fund (including the Interest Account and the Principal Account therein) on each Lease Payment Date. The obligation of the City to make Lease Payments is subject to annual appropriations of the City from funds lawfully available therefor. The obligation of the City to make Lease Payments under the Lease Agreement does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the full faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to make Lease Payments under the Lease Agreement. The Agency has no taxing power. The Lease Payments are calculated to be sufficient to pay, when due, the principal of and interest on the Bonds. -13-

20 In addition to the Lease Payments, the City is required to pay when due the following Additional Payments: (a) any fees and expenses incurred by the Agency in connection with or by reason of its leasehold estate in the Property as and when the same become due and payable; (b) any amount due to the Trustee pursuant to the terms of the Indenture; (c) any reasonable fees and expenses of such accountants, consultants, attorneys, and other experts as may be engaged by the Agency or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under the Lease Agreement or the Indenture; and (d) any reasonable out-of-pocket expenses of the Agency in connection with the execution and delivery of the Lease Agreement, the Indenture or the Continuing Disclosure Certificate or in connection with the issuance of the Bonds. Pursuant to the Lease Agreement, the City covenants to take such action as may be necessary to include all Lease Payments and Additional Payments due thereunder in its annual budgets and to make annual appropriations therefor. As provided in the Lease Agreement, the covenants of the City thereunder are duties imposed by law, and it is the duty of each and every public official of the City to take such action and to do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City. California law requires, and the Lease Agreement provides, that Lease Payments are required to be abated in whole or in part during any period in which there is substantial interference with the use and occupancy of the Property by the City due to damage, destruction or taking in eminent domain proceedings. Under these circumstances, failure to make any Lease Payment will not be an event of default under the Lease Agreement. See SECURITY FOR THE BONDS Abatement below. Lease Payments made by the City to the Agency are payable from any revenues lawfully available to the City therefor. The Lease Agreement and the Indenture require that Lease Payments be deposited in the Revenue Fund maintained by the Trustee, which fund is held for the benefit of the owners of the Bonds. The City intends to make all Lease Payments from proceeds of its Transient Occupancy Tax (see CITY FINANCIAL INFORMATION Principal Sources of General Fund Revenues Transient Occupancy Taxes) but such tax proceeds are not pledged as security for the repayment of the Bonds. Insurance and Condemnation Awards In the event of any damage to or destruction of any part of the Property covered by insurance, the Agency, except as hereinafter provided, is required to cause the proceeds of such insurance to be utilized for the repair, reconstruction or replacement of the damaged or destroyed portion of the Property, and the Trustee is required to hold said proceeds in a fund established by the Trustee for such purpose separate and apart from all other funds, to the end that such proceeds are required to be applied to the repair, reconstruction or replacement of the Property to at least the same good order, repair and condition as was the case prior to the damage or destruction, insofar as the same may be accomplished by the use of said proceeds. The Trustee is required to invest said proceeds in Permitted Investments pursuant to the Written Request of the City, as agent for the Agency under the Lease Agreement, and withdrawals of said proceeds are required to be made from time to time upon the filing of a Written Request of the City with the Trustee, stating that the City has expended moneys or incurred liabilities in an amount equal to the amount therein stated for the purpose of the repair, reconstruction or replacement of the Property, and specifying the items for which such moneys were expended, or such liabilities were incurred, in reasonable detail. The City is required to file a written certificate with the Trustee to the effect that sufficient funds from insurance proceeds or from any funds legally available to the City, or from any combination thereof, are available -14-

21 in the event it elects to repair, reconstruct or replace the Property. Any balance of such proceeds not required for such repair, reconstruction or replacement and the proceeds of use and occupancy insurance are required to be treated by the Trustee as Lease Payments. Alternatively, the City, at its option, if the proceeds of such insurance together with any other moneys then available for such purpose are sufficient to prepay all, in case of damage or destruction in whole of the Property, or that portion, in the case of partial damage or destruction of the Property, of the Lease Payments relating to the damaged or destroyed portion of the Property, may elect not to repair, reconstruct or replace the damaged or destroyed portion of the Property and thereupon is required to cause said proceeds to be used for the redemption of Outstanding Bonds. The City is not required to apply the proceeds of insurance to redeem the Bonds in part due to damage or destruction of a portion of the Property unless the Trustee receives a written certificate of the Agency to the effect that the Lease Payments on the undamaged portion of the Property will be sufficient to pay the initially-scheduled principal and interest on the Bonds remaining unpaid after such redemption. No assurance can be given that the proceeds of any insurance or condemnation award will be sufficient under all circumstances to repair or replace any damaged or taken Property or to prepay all Lease Payments with respect to the Property. Also, the City makes no representation as to the sufficiency of any insurance awards or the adequacy of any self-insurance to pay, when and as due, amounts payable under the Lease Agreement or the Bonds. Abatement The Lease Agreement provides for the abatement of Lease Payments during any period in which by reason of damage to or destruction of the Property (other than by eminent domain which may cause abatement of Lease Payments as described below), which causes substantial interference with the use and occupancy by the City of the Property or any portion thereof. The amount of such abatement will be an amount agreed upon by the City and the Agency such that the resulting Lease Payments represent fair consideration for the use and occupancy of the portions of the Property not damaged or destroyed or the portion of the Property completed and available for use and possession by the City. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, the Lease Agreement will continue in full force and effect and the City waives any right to terminate the Lease Agreement by virtue of any such damage and destruction. There will be no abatement of the Lease Payments to the extent that moneys derived from any person as a result of such damage or destruction are available to pay the amount which would otherwise be abated or if there is any money available in the Bond Fund to pay the amount which would otherwise be abated. See Insurance Rental Interruption Insurance. If all of the Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Lease Agreement will terminate with respect to the Property as of the day possession is so taken. If less than all of the Property is taken permanently, or if all of the Property or any part thereof is taken temporarily under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect, and (b) there will be a partial abatement of Lease Payments in an amount to be agreed upon by the City and the Agency such that the resulting Lease Payments for the Property represent fair consideration for the use and occupancy of the remaining usable portion of the Property. -15-

22 Insurance Fire and Extended Coverage Insurance. The City is required under the Lease Agreement to procure and maintain or cause to be procured and maintained, throughout the term of the Lease Agreement, insurance against loss or damage to any structures constituting any part of the Property by fire and lightning, with extended coverage insurance, vandalism, malicious mischief insurance and sprinkler system leakage insurance. Said extended coverage insurance is required to, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance is required to be in an amount equal to the replacement cost (without deduction for depreciation) of all structures constituting any part of the Property. The net proceeds of such insurance will be applied as provided under the caption SECURITY FOR THE BONDS Insurance and Condemnation Awards above. Rental Interruption Insurance. The Lease Agreement requires the City to procure and maintain or cause to be procured and maintained rental interruption insurance or use and occupancy insurance to cover loss, total or partial, of the use of the Property as a result of certain hazards, in an amount at least equal to the maximum Lease Payments coming due and payable during any future 24-month period. Such insurance may be maintained as part of or in conjunction with any other property insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained in the form of self-insurance except for a time element deductible not to exceed sixty days in duration. The proceeds of such insurance, if any, will be paid to the Trustee and deposited in the Revenue Fund, and will be credited towards the payment of the Lease Payments as the same become due and payable. Title Insurance. The City is required to obtain upon the execution and delivery of the Lease Agreement, title insurance on the Property, in an amount not less than the aggregate principal amount of Bonds issued by a company of recognized standing duly authorized to issue the same, subject only to Permitted Encumbrances. Proceeds of such insurance are required to be delivered to the Trustee as a prepayment of rent and are required to be applied by the Trustee to the redemption of Bonds. Additional Bonds Pursuant to the Indenture, the Agency may not issue additional bonds, notes or other indebtedness which would be payable out of the Revenues in whole or in part. See THE AGENCY. THE AGENCY The Agency is a joint exercise of powers authority created by and existing under the laws of the State established pursuant to that certain Joint Exercise of Powers Agreement dated July 23, 1991, between the City and the Parking Authority of the City of Gardena. The Agency is administered by a governing Board which consists of the members of the City Council. THE AGENCY IS NOT OBLIGATED IN ANY MANNER WHATSOEVER TO MAKE PAYMENTS WITH RESPECT TO THE BONDS FROM ANY SOURCE OTHER THAN LEASE PAYMENTS. -16-

23 THE CITY The City was incorporated on September 11, It combined the rural communities of Gardena, Moneta and Strawberry Park into a municipal corporation, Sixth Class City. By action of the State Legislature in 1955, all Sixth Class Cities were officially designated as General Law Cities. Through annexations and boundary adjustments the City has grown from 3 square miles to approximately 5.9 square miles with the most recent annexation of a portion of the El Camino Village area in The City has a population of over 60,000, occupying 21,629 dwelling units as of January 1, The City is located approximately 15 miles south of Los Angeles and 6 miles southeast of Los Angeles International Airport. It is served by three major freeways and is the home of a mix of aerospace, high tech and various other industries. The City has a Council-Manager form of government. The City is governed by five elected officials; the Mayor and four Council members, who act as the City s legislative body. The City Council appoints the City Manager and the City Attorney. The City Manager is responsible for directing, coordinating and carrying out City Council policies. The City Manager appoints the various department heads, who in turn hire all other municipal employees. The residents of the City also elect a City Clerk and a City Treasurer. Members of the City Council and key administrative personnel of the City and the Agency are listed at the front of this Official Statement. See APPENDIX A GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY for a general description of the City as well as certain demographic and statistical information. City s Former Financial Difficulties CITY FINANCIAL INFORMATION From 1996 to 2001, the City experienced significant General Fund deficits. In 1998, the City adopted a recovery plan that provided for certain measures designed to control expenditures as the City recovered from its deficit. The refinancing of certain City obligations through the 2006 Certificates was a key component in the City s long-term recovery effort. By June 30, 2002, the City had eliminated its General Fund deficit and, as of June 30, 2013, had a General Fund balance of approximately $10.3 million (including transfers out), an increase of approximately $0.3 million compared to Fiscal Year 2012, or approximately 22% of fiscal year 2013 General Fund operating expenses (including transfers out). Financial Statements The City s accounting policies conform to generally accepted accounting principles. The audited financial statements also conform to the principles and standards for public financial reporting established by the Governmental Accounting Standards Board. Basis of Accounting and Financial Statement Presentation. The government-wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. -17-

24 Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. Audited Financial Statements. The City retained the firm of Pun & McGeady LLP, Irvine, California (the City s Auditor ), to examine the general purpose financial statements of the City as of and for the year ended June 30, The audited financial statements for fiscal year ended June 30, 2013, are included in APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, The City has not requested, and the City s Auditor has not provided, any review or update of such financial statements in connection with their inclusion in this Official Statement. Budgetary Process The City Council adopts an annual budget with appropriations for all City funds prior to the beginning of the fiscal year, which begins on July 1 of each year. The City Council adopted its fiscal year Budget on June 24, 2014.The City Council has the legal authority to amend the budget at any time during the fiscal year. A comprehensive mid-year budget review is done to update revenue and expenditure projections. The City maintains budgetary controls to ensure compliance with legal provisions embodied in the appropriated budget approved by the City Council. The level of budgetary control (that is, the level at which expenditures cannot legally exceed the appropriated amount) for the City s operating budget is the program area within each fund, and for the capital improvement budget it is each individual capital improvement project within each fund. For the operating budget, the City Manager has the authority to move appropriations between accounts (without dollar limitation) within a budget program and within the same fund as long as the transfers are within the same program area. For the capital improvement program, the City Manager has the authority to transfer appropriations (with no dollar limitation) between capital projects within the same fund. Appropriation increases, decreases or transfers between funds require the approval of the City Council. All appropriations lapse at the end of the fiscal year unless specific carryovers are approved by the City Council. Certain of the City s revenues are collected and dispersed by the State (such as sales tax and motor-vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). Therefore, State budget decisions can have an impact on City finances. On-going weak economic conditions have resulted in significant revenue shortfalls to the State. See STATE BUDGET INFORMATION. There can be no assurances that, as a result of the current State financial stress, it will not significantly reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address the State financial difficulties. No prediction can be made by the City as to what measures the State will adopt to respond to the current or potential future financial difficulties. The City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on the City s finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. There can be no assur- -18-

25 ances that State actions to respond to State financial difficulties will not adversely affect the financial condition of the City. On November 6, 2012, the voters of the State approved Proposition 30, a sales and income tax increase initiative supported by Governor Jerry Brown, primarily to prevent significant cuts to funding for schools. Proposition 30 raises California s sales tax to 7.50% from 7.25%, and creates four new income tax brackets for taxpayers with taxable incomes exceeding $250,000, $300,000, $500,000 and $1,000,000. This increased tax will be in effect for seven years. The State Legislative Analyst s Office estimates that Proposition 30 will raise an average of $6 billion annually between and , and smaller amounts in , and , as the taxes are phased in and out. The following table shows the City s budget and actual results for general fund revenues and expenditures for fiscal years and and the adopted budget for fiscal year CITY OF GARDENA General Fund Budget Summary Fiscal Years through FY FY FY FY FY Budget Actual Budget Pre-Audit Budget REVENUE: Taxes $38,189,768 $38,607,171 $40,386,269 $40,787,693 $41,435,709 Licenses, permits and fees 687, , ,355 1,023,180 1,000,675 Intergovernmental 394, , , , ,036 Charges for services 3,930,165 4,087,263 4,035,698 3,984,912 4,064,841 Fines, forfeitures and penalties 994, ,860 1,029,117 1,004,537 1,054,500 Use of money and property 246,922 94, , , ,000 Miscellaneous 1,471,620 1,889, ,225 (1) 2,553,136 (2) 1,255,370 TOTAL REVENUE $45,914,667 $46,916,281 $48,012,350 $50,028,196 $49,561,131 EXPENDITURES: General government: Executive office $1,062,922 $1,061,208 $1,124,679 $1,062,399 $1,258,037 City clerk 369, , , , ,900 City treasurer 218, , , , ,540 Administrative Services 2,295,472 2,293,687 2,541,782 2,374,082 2,629,744 Non-departmental 2,071,493 2,314, , , ,520 Public safety - police 19,728,874 19,743,204 21,670,161 21,660,370 22,407,236 Public safety L.A. county fire district 8,832,599 8,823,890 9,184,292 9,184,289 9,596,720 Public works 4,516,189 4,511,663 4,710,949 4,710,943 4,863,350 Recreation and human services 3,599,036 3,491,004 3,834,951 3,834,949 4,015,644 Community development 1,246,430 1,245,555 1,233,996 1,227,917 1,498,834 Capital outlay 723, , , ,662 1,152,243 TOTAL EXPENDITURES $44,664,737 $44,656,103 $46,402,882 $46,124,292 $48,955,768 TOTAL OTHER SOURCES/(USES) (1,791,780) (1,960,547) (1,524,831) (2,060,515) (1,062,892) Net Change in Fund Balance (541,850) 299,631 84,637 1,843,390 (457,529) Beginning Fund Balance 9,961,015 9,961,015 10,260,646 10,260,646 11,947,162 Ending Fund Balance 9,419,165 10,260,646 10,345,283 12,104,036 11,489,633 Source: City of Gardena 2013 CAFRs and City of Gardena Finance Department. (1) Includes an LA County administrative fee settlement of $561,437 and $275,000 for AB 109 from trust. (2) Includes the sale of a parking structure for $1,592,

26 City Financial Management Policies The City Council has adopted a comprehensive set of financial management policies including: (1) a general finance and budget policy; (2) a fund balance policy, establishing targeted general fund reserves; (2) an investment policy to ensure the prudent investment of City funds; (3) use of a long term debt policy; (4) investment policies; and (5) a post-issuance compliance policy. The City s fiscal policies are reviewed at least annually, and are adopted or reaffirmed in conjunction with approval of the budget. Reserves Policy. The City will increase the committed fund balance in any fiscal year in which recurring revenue sources exceed recurring expenditure uses with the intent to attain and maintain a minimum committed balance of three (3) months, or 25%, of regular general fund operating expenditures. Investment Policy. The investment of funds of the City (except pension and retirement funds) is made in accordance with the City s Investment Policy, most recently approved on June 24, 2014 (the Investment Policy ), prepared by the Finance Director as authorized by section of the Government Code of California. The Investment Policy is submitted to the City Council annually. The Investment Policy allows for the purchase of a variety of securities and provides for limitations as to exposure, maturity and rating which vary with each security type. The composition of the portfolio will change over time as old investments mature, or are sold, and as new investments are made. Invested funds are managed to insure preservation of capital through high quality investments, maintenance of liquidity and then yield. Further, operating funds may not be invested in any investment with a maturity greater than five years. The City has never invested in derivatives or reverse repurchase agreements and such investments and instruments are not allowed by City policy. For more information about the City s investment policy, see APPENDIX C CITY INVESTMENT POLICY. Reliance on State Budget Approximately 42.4% of the City s general fund revenues for fiscal year consisted of payments collected by the State and passed-through to local governments or collected by the County and allocated to local governments by State law. Approximately 43.5% of the City s general fund revenues for fiscal year are expected to come from such sources. There can be no assurance that current or future State budget difficulties will not adversely affect the City s revenues or its ability to make payments under the Lease Agreement. See STATE BUDGET INFORMATION. Principal Sources of General Fund Revenues Sales and use taxes and Card Club Revenues each represented approximately 26.75% of general tax revenues in fiscal year Property taxes represented approximately 17.5% of general tax revenues in fiscal year These sources represented an aggregate of approximately 71% of the general tax revenues for fiscal year For a discussion of potential State Budget impacts on general fund revenues, see Reliance on State Budget. Card Club Gross Revenue Fees. The City currently has two card clubs, the Normandie Casino founded in 1936 and the Hustler Casino founded in A Card Club Revenue Fee is collected by the City from the card clubs and is set by the City s Municipal Code at 12% of each card club s gross revenue. -20-

27 The fee is collected monthly. The Card Club Revenues, were approximately $9.5 million in fiscal year and is projected at approximately $9.9 million in fiscal year The City s historical Card Club Revenue since 1998 is shown in the following table. CITY OF GARDENA Card Club Gross Revenue Fees Fiscal Years 1998 through 2014 Fiscal Year Ended June 30 Card Club Fees 1998 $4,530, ,799, (1) 2,948, ,127, ,613, (2) 4,593, ,765, (3)(4) 6,898, (4) 7,995, (4) 9,281, (4) 9,541, (4) 8,523, (4) 7,660, (4) 7,365, (4) 7,434, (4) 8,394, pre-audit 9,467,078 Source: City of Gardena. (1) Hustler Casino opened. (2) City entered into agreements with card clubs temporarily reducing the fees due to the City to provide incentives for marketing. (3) Agreements with card clubs to reduce fees terminated and repayment to the City began. (4) Includes the gross revenue fees collected plus any repayments made during the reporting period. The City previously entered into economic incentive agreements with the two card clubs, Hustler Casino in August 2002 and the Normandie Club in February 2003, which allowed the clubs to defer a portion of their business license fee payments to the City. The agreements required the card clubs to utilize a portion of the deferred funds for marketing to increase clientele. These agreements reduced the percentage of gross revenue paid to the City during that time period through a percentage reimbursement to each card club with the deferred revenue accounted for as a receivable from the card clubs to the City. These agreements terminated on June 30, 2004, with a combined $2.6 million due from the card clubs to the City. By November 2008, the Hustler Casino had paid in full the amount it owed to the City. The Normandie Club has continued to struggle financially, with some periods of recovery. In February 2013, the Normandie Club hit the threshhold to trigger repayment and for the first time since May 2008, was put on notice that a payment is due to the City per the terms of the agreement. The Normandie Club has an outstanding balance of $304,

28 Closure or decline in the revenue of the card clubs could significantly impact the City s revenues and could affect the City s ability to make Basic Lease Payments. See RISK FACTORS Concentration of Revenue Source herein. Sales Taxes. A sales tax is imposed on the privilege of consuming personal property in California. California does not tax services. The tax rate is established by the State Legislature and is presently 7.50% (after the passage of Proposition 30). In addition, many of California s cities, counties, towns and communities have special taxing jurisdiction to impose a transaction (sales) or use tax. These so-called district taxes increase the tax rate in a particular area by adding the local option tax to the statewide tax. These district taxes can vary up to 1%, and more than one district tax may be in effect for a particular location. The City s share of sales tax is approximately 1% of the total 9.50%. The State s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. On March 2, 2004, voters approved a statewide bond initiative formally known as the California Economic Recovery Act. This act authorized the issuance of $15 billion of Economic Recovery Bonds to finance ongoing State budget deficits, which are payable from a fund established by the redirection of tax revenues known as the Triple Flip. The State issued $11.3 billion of Economic Recovery Bonds prior to June 30, 2004, and the remainder of the authority in Under the Triple Flip, one-quarter of local governments one percent share of the sales tax imposed on taxable transactions within their jurisdiction is being redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, State legislation provides for certain property taxes to be redirected to local government. Because these property tax monies were previously earmarked for schools, the legislation provides for schools to receive other State general fund revenues. It is expected that the swap of sales taxes for property taxes will terminate once the Economic Recovery Bonds are repaid, which is currently expected to occur during the State s fiscal year. See STATE BUDGET INFORMATION. The following table shows the City s sales and use tax revenues for fiscal years through Source: City of Gardena. *Pre-audit. CITY OF GARDENA Sales and Use Tax Revenues (Amounts in Thousands) Fiscal Year Total Revenue $ 6,574, ,233, ,112, ,093, * 9,472,341 Tax Levies, Collections and Delinquencies. Property taxes are levied by the County for each fiscal year on taxable real and personal property which is situated in the County, including the City. The County levies, bills and collects property taxes for the City. Property taxes paid to the City by the County within 90 days after the end of the fiscal year are available and are, therefore, recognized as revenue. -22-

29 For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State/assessed public utilities property and property the taxes on which are a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. Secured and unsecured property taxes are levied based on the assessed value as of January 1, the lien date, of the preceding fiscal year. Secured property tax is levied on October 1 and due in two installments, on November 1 and March 1. Collection dates are December 10 and April 10 which are also the delinquent dates. At that time, delinquent accounts are assessed a penalty of 10%. Accounts that remain unpaid on June 30 are charged an additional 1.5% per month. Such property may thereafter be redeemed by payment of a penalty of 1.5% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Treasurer. Unsecured property tax is levied on July 1 and due on July 31, and has a collection date of August 31 which is also the delinquent date. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1.5% attaches to them on the first day of each month until paid. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Clerk and County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed to the assessee. The County is not a Teeter county. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, nonprofit hospitals and charitable institutions. Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of base revenues from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. The passage of Assembly Bill 454 in 1987 changed the manner in which unitary and operating nonunitary property is assessed by the State Board of Equalization. The legislation deleted the formula for the allocation of assessed value attributed to such property and imposed a State-mandated local program requiring the assignment of the assessment value of all unitary and operating non-unitary property in each county of each State assessee other than a regulated railway company. The legislation established formulas for the computation of applicable county-wide rates for such property and for the allocation of property tax revenues attributable to such property among taxing jurisdictions in the county beginning in fiscal year This legislation requires each County to issue each State assessee, other than a regulated railway company, a single tax bill for all unitary and operating nonunitary property. Assessment Appeals. Property tax values determined by the County Assessor may be subject to appeal by property owners. Assessment appeals are annually filed with the Assessment Appeals Board for a -23-

30 hearing and resolution. The resolution of an appeal may result in a reduction to the County Assessor s original taxable value and a tax refund to the applicant/property owner. Each assessment appeal could result in a reduction of the taxable value of the real property, personal property or possessory interest of the property which is the subject of the appeal. Alternatively, an appeal may be withdrawn by the applicant or the Assessment Appeals Board may deny or modify the appeal at a hearing or by stipulation. Effect of Delinquencies and Foreclosures on Property Tax Collections. As described above, once an installment of property tax becomes delinquent, penalties are assessed commencing on the applicable delinquency date until the delinquent installment(s) and all assessed penalties are paid. In the event of foreclosure and sale of property by a mortgage holder, all past due property taxes, penalties and interest are required to be paid before the property can be transferred to a new owner. The level of default and foreclosure activity has affected certain homeowners nationwide. Within the State, the greatest impacts to date are in regions of the Central Valley, the Inland Empire, and other areas in the State where the large numbers of new mortgages were originated in more affordable areas. The increased level of default and foreclosure activity has resulted in downward pressure on home prices in the affected areas. Set forth in the table below are assessed valuations for secured and unsecured property within the City for the five most recent fiscal years. CITY OF GARDENA Assessed Valuations (Amounts in Thousands) Fiscal Year Local Secured Utility Unsecured Total $4,363,324,304 $3,785,648 $328,342,954 $4,695,452, ,392,067,188 3,447, ,518,605 4,714,033, ,449,807,686 3,447, ,556,748 4,784,812, ,633,302,642 3,447, ,015,836 4,957,766, ,851,819,389 3,447, ,062,605 5,170,329,875 Source: California Municipal Statistics, Inc. -24-

31 Assessed Valuation by Land Use. The following table shows the land use of parcels in the City, according to assessed valuation. As shown, the majority of land in the City is used for residential purposes. CITY OF GARDENA Assessed Valuation and Parcels by Land Use Fiscal Year Assessed % of No. of % of Non-Residential: Valuation (1) Total Parcels Total Commercial/Office $ 720,368, % % Vacant Commercial 22,445, Industrial 735,316, Vacant Industrial 15,046, Recreational/Casinos 40,026, Government/Social/Institutional 48,228, Miscellaneous 1,662, Subtotal Non-Residential $ 1,583,094, % 1, % Residential: Single Family Residence $ 1,962,426, % 8, % Condominium/Townhouse 405,244, , Mobile Home 4,780, Mobile Home Park 24,278, Residential Units 451,595, , Residential Units/Apartments 407,668, Vacant Residential 12,729, Subtotal Residential $ 3,268,724, % 12, % Total $ 4,851,819, % 14, % Source: California Municipal Statistics, Inc. (1) Local Secured Assessed Valuation; excluding tax-exempt property. -25-

32 Assessed Valuation of Single Family Residential Parcels. The following table shows a breakdown of the assessed valuations of Single Family Residential parcels in the City, according to assessed valuation. CITY OF GARDENA Per Parcel Assessed Valuation of Single Family Homes No. of Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 8,687 $ 1,962,426,835 $ 225,904 $ 220, No. of % of Cumulative Total % of Cumulative Assessed Valuation Parcels (1) Total % of Total Valuation Total % of Total $0 - $24, % 0.046% $ 90, % 0.005% $25,000 - $49, ,712, $50,000 - $74,999 1, ,232, $75,000 - $99, ,731, $100,000 - $124, ,526, $125,000 - $149, ,331, $150,000 - $174, ,250, $175,000 - $199, ,256, $200,000 - $224, ,898, $225,000 - $249, ,065, $250,000 - $274, ,749, $275,000 - $299, ,557, $300,000 - $324, ,545, $325,000 - $349, ,256, $350,000 - $374, ,594, $375,000 - $399, ,512, $400,000 - $424, ,626, $425,000 - $449, ,882, $450,000 - $474, ,232, $475,000 - $499, ,121, $500,000 and greater ,252, Total 8, % $ 1,962,426, % Source: California Municipal Statistics, Inc. (1) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. The County only provides secured tax charge and delinquency information for general obligation bond debt service levies. Since the City does not have any general obligation bonds outstanding, there is no information to report. -26-

33 Principal Taxpayers. The following table sets forth the principal secured property taxpayers in the City as of fiscal year , the most current information available. CITY OF GARDENA Largest Local Secured Property Tax Payers Fiscal Year Property Owner Primary Land Use Assessed Valuation % of Total (1) 1. Nissin Foods USA Company Inc. Industrial $ 57,214, % 2. GA HC REIT II Gardena CA Hospital LLC Hospital 42,190, JSL Gardena I LLC Shopping Center 28,416, Majestic Properties Inc. Casino 25,282, Hitco Technologies Inc. Industrial 20,096, Gramercy Properties LLC Industrial 19,372, Dayton Hudson Corp. Commercial 18,479, Russmar Investment Corp. Casino 18,129, PK I Gardena Gateway Center LP Shopping Center 18,041, Kaiser Foundation Health Plan Inc. Office Building 17,656, Gardena Professional Medical Plaza LP Office Building 17,181, New Group Gardena LLC Shopping Center 17,123, Marukai Corp. Shopping Center 16,394, Sam s Real Estate Business Trust Commercial 15,334, ABS CA O LLC Shopping Center 14,766, Gateway Plaza LLC Shopping Center 13,409, GLP Investments LLC Industrial 12,836, Gardena Vidovich Ltd. Grocery Store 11,730, Ray Pellegrino Apartments 10,296, Daniel A. Ginsburg Industrial 10,179, Total Top 20 $ 404,133, % Source: California Municipal Statistics, Inc. (1) Local Secured Assessed Valuation: $4,851,819,389. Motor Vehicle In-Lieu Tax. Vehicle license fees are assessed in the amount of 2% of a vehicle s depreciation market value for the privilege of operating a vehicle on California s public highways. A program to offset (or reduce) a portion of the vehicle license fees ( VLF ) paid by vehicle owners was established by Chapter 322, Statutes of Beginning January 1, 1999, a permanent offset of 25% of the VLF paid by vehicle owners became operative. Various pieces of legislation increased the amount of the offset in subsequent years to the existing statutory level of 67.5% of 2% (resulting in the current effective rate of 0.65%). This level of offset was estimated to provide tax relief of $3.95 billion in the fiscal year In connection with the offset of the VLF, the Legislature authorized appropriations from the State general fund to backfill the offset so that the local governments, which receive all of the vehicle license fee revenues, would not experience any loss of revenues. The legislation that established the VLF offset program also provided that if there were insufficient general fund moneys to fully backfill the VLF offset, the percentage offset would be reduced proportionately (i.e., the license fee payable by drivers would be increased) to assure that local governments would not be disadvantaged. In June 2003, the State Director of Finance ordered the suspension of VLF offsets due to a determination that insufficient general fund moneys would be available for this purpose, and, beginning in October 2003, VLF paid by vehicle owners -27-

34 were restored to the 1998 level. However, the offset suspension was rescinded by the Governor on November 17, 2003, and offset payments to local governments resumed. Local governments received backfill payments totaling $3.80 billion in fiscal year Backfill payments totaling $2.65 billion were expected to be paid to local governments in fiscal year The State-local agreement also provided for the repayment in August 2006 of approximately $1.2 billion in backfill that was not received by local governments during the time period between the suspension of the offsets and the implementation of higher fees. This repayment obligation was codified by Proposition 1A, which was approved by voters in the November 2004 general election and was repaid early by the State in August For a description of Proposition 1A, see CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Proposition 1A of Beginning in fiscal year , the State-local agreement permanently reduced the VLF rate to 0.65% and replaced the backfill with a like amount of property taxes. Subsequent to fiscal year , each city s property tax in-lieu of VLF increased proportionally to increases in such city s assessed valuation. However, in fiscal years and , the State shifted $700 million in city and county taxes to the State s General Fund. The following table sets forth the Motor Vehicle License Fees and Property Tax In-Lieu of VLF received by the City for the last five fiscal years. CITY OF GARDENA Property Tax In-Lieu of VLF * Motor Vehicle License Fees (In-Lieu Taxes) $4,852,146 $4,884,614 $4,650,221 $4,720,740 $4,884,878 Source: City of Gardena. *Pre-audit. Senate Bill 89 was signed into law as part of the State s fiscal year Budget Act. SB 89 increases VLF by $12. As a result of SB 89, $300 million is transferred to a new Local Law Enforcement Services Account ( LLESA ) to fund law enforcement grants. In addition, beginning July 1, 2011, SB 89 transfers the remaining VLF revenue previously allocated to cities to the LLESA. Instead of cities receiving $130 million in VLF revenues, under SB 89 they would receive only $75 million in earmarked grants. This has the effect of reducing the City s revenues by $10,000 in FY The City considers this revenue loss to be permanent. In addition, the City receives the following local taxes: Utility User s Tax. The city imposes a utility user s tax on all utilities, electricity, gas, water, telephone and cable television. The current rate is 5% with a senior citizens exemption at age 60. Total utility users taxes were $5,383,285 in fiscal year , representing 11% of the General Fund revenues, and are projected to be $5,400,000 in fiscal year representing 11% of the General Fund. -28-

35 The following table shows the City s general fund tax revenues by source for the most recent five fiscal years: CITY OF GARDENA General Fund Tax Revenues by Source * Sales and Use Tax $ 6,574,657 $ 7,233,151 $ 8,112,695 $ 9,093,802 $ 9,472,341 Card Club Gross Revenue Fee 7,660,557 7,365,159 7,434,236 8,394,406 9,467,078 Property Taxes 5,859,335 5,798,031 5,740,677 5,924,450 6,192,249 Utility Users Tax 4,382,844 4,534,246 5,211,568 5,224,829 5,383,285 Motor Vehicle License Fees 4,852,146 4,884,614 4,650,221 4,720,740 4,884,878 TOTAL TAX REVENUES $29,329,539 $29,815,201 $31,149,397 $33,358,227 $35,399,831 Source: City of Gardena. *Pre-audit. In addition, the City receives the following general fund revenues: Fines, Forfeitures and Penalties. These revenues include parking citations and other fines for municipal code violations. Charges for Services. The City charges fees for plan checking, building inspection and a variety of other municipal services. The following table illustrates other revenue sources: CITY OF GARDENA Other Revenue Sources * Licenses and permits $ 756,986 $ 722,541 $ 948,646 $ 915,614 $ 1,023,180 Intergovernmental 543, , , , ,953 Charges for services 3,127,169 4,021,370 4,191,605 4,087,263 3,984,912 Fines and forfeitures 1,237,986 1,280,465 1,309, ,860 1,004,537 Use of money and property 268, , ,036 94, ,785 Other revenues 1,552, ,312 1,510,601 1,889,831 2,553,136 TOTAL $ 7,487,305 $ 7,639,885 $ 8,653,924 $ 8,309,110 $ 9,240,503 Source: City of Gardena. *Pre-audit. -29-

36 General Fund Revenues and Expenditures The following two tables summarize the General Fund Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance of the City s general fund for the fiscal years through CITY OF GARDENA General Fund Balance Sheet Fiscal Years through Fiscal Year Ended June 30, ASSETS Cash and investments $ 10,772,241 $10,754,763 $ 10,411,905 $8,086,100 (1) $ 8,939,392 Accounts receivable, net 228, , , , ,871 Taxes receivable 2,611,596 2,250,162 2,803,777 2,797,043 2,883,112 Interest receivables 108,205 35,435 27,625 28,470 28,971 Employees receivable 60,884 59,962 52,516 57,014 55,819 Inventories 45,025 30,668 43,077 41,231 47,376 Prepaids and deposits 624, , ,704 72,220 66,890 Due from other governments 235, , , , ,305 Due from other funds 14,625 15, , , ,067 Lease payment receivable 444, , , , ,132 Long-term receivables 68, , ,837 88,198 58,059 TOTAL ASSETS $ 15,214,578 $ 14,978,551 $ 15,772,082 $ 12,769,885 $ 13,342,994 LIABILITIES Accounts payable $ 848,579 $ 461,323 $ 535,982 $ 660,563 $ 635,595 Accrued liabilities 36,860 56,220 50,202 46, ,783 Salaries and benefits payable 1,018,290 1,026,170 1,073, , ,913 Deposits 4,283,823 4,223,418 4,340,798 1,195,630 (2) 1,287,926 Deferred revenues 444, , , , ,131 TOTAL LIABILITIES $ 6,632,516 $ 6,328,801 $ 6,505,051 $ 2,808,870 $ 3,082,348 FUND BALANCES Nonspendable $ 758,634 $ 201,163 $ 198,145 Restricted 48,922 40,951 56,014 Committed 5,105,052 6,592,339 6,825,301 Assigned 3,097,213 2,908,689 2,906,950 Unassigned 257, , ,236 TOTAL FUND BALANCES $ 8,582,062 $ 8,649,750 $ 9,267,037 $ 9,961,015 $ 10,260,646 Total liabilities and fund balances $ 15,214,578 $ 14,978,551 $ 15,772,082 $ 12,769,885 $ 13,342,994 Source: City of Gardena CAFRs (1) Reflects a purchase of property and a transfer to working capital. (2) Reclassified Parking & Park Land In Lieu fees. -30-

37 CITY OF GARDENA General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Fiscal Years through Fiscal Year Ended June 30, REVENUES Taxes $37,828,718 $33,609,902 $34,807,753 $36,128,538 $38,607,171 Licenses and permits 553, , , , ,614 Intergovernmental 1,106, , , , ,623 Charges for services 3,115,843 3,127,169 4,021,370 4,191,605 4,087,263 Fines, forfeitures and penalties 1,311,735 1,237,986 1,280,465 1,309, ,860 Use of money and property 449, , , ,036 94,919 Miscellaneous 624,444 1,552, ,312 1,510,601 1,889,831 TOTAL REVENUES $44,990,120 $41,090,207 $42,447,638 $44,782,462 $46,916,281 EXPENDITURES Current: General government $ 5,259,623 $ 4,818,062 $ 4,436,711 $ 5,637,263 $ 6,256,927 Public safety 27,183,715 26,173,679 25,749,375 27,147,506 28,567,094 Public works 4,855,289 4,365,839 4,278,518 4,530,898 4,511,663 Recreation and human services 3,141,297 3,000,526 3,253,260 3,523,150 3,491,004 Community development 1,289,724 1,083, ,361 1,081,045 1,245,555 Capital Outlay 456, , , , ,860 Debt Service: Principal retirement Interest and fiscal charges TOTAL EXPENDITURES $42,186,363 $39,723,260 $38,830,154 $42,454,549 $44,656,103 Excess of revenues over expenditures 2,803,757 1,336,947 3,617,484 2,327,913 2,260,187 TOTAL OTHER FINANCING SOURCES/(USES) (2,167,417) (1,299,259) (3,000,203) (1,633,929) (1,960,547) Net change in fund balances $ 636,340 $ 67,688 $ 617,281 $ 693,984 $ 299,631 Fund balances, July 1 $ 7,945,722 $ 8,582,062 $ 8,649,750 $ 9,267,031 $ 9,961,015 Fund balances, June 30 $ 8,582,062 $ 8,649,750 $ 9,267,031 $ 9,961,015 $10,260,646 Source: City of Gardena CAFRs. -31-

38 OTHER FINANCIAL INFORMATION Labor Relations Currently 388 of 504 permanent City employees are covered by negotiated agreements and the City Manager and five department heads have individual employment agreements with the City. Negotiated agreements have the following expiration dates: Source: City of Gardena CITY OF GARDENA Negotiated Employee Agreements Contract Number of Bargaining Unit Expiration Date Employees Gardena Municipal Employees Association December 31, Gardena Management Employees Organization December 31, Gardena Police Officers Association December 31, The City has never had an employee work stoppage. Risk Management The City is exposed to various risks of losses related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; natural disasters and employee health insurance claims. Self-Insurance Programs. The City is self-insured for the first $500,000 of each workers compensation claim, $400,000 of each general liability claim and $250,000 of each Municipal Bus Line claim against the City. In addition, the City carries insurance of individual general liability claims in excess of $400,000 to $10,000,000 with Argonaut. Additionally, the City has health insurance coverage for the employees and their families with an annual maximum amount of $1 million for all services. The City carries stop-loss insurance of individual health benefit claims in excess of $50,000 to $950,000 per person per year. At June 30, 2013, $8,335,432 has been accrued for the City s self-insurance programs, of which $6,791,038 is considered to be current. Said accruals represent estimates of amounts to be paid for reported claims and incurred but unreported claims based upon past experience, modified for current trends and information. While the ultimate amounts of losses incurred through June 30, 2013 are dependent on future developments, based upon information provided from the City Attorney, outside counsel and others involved with the administration of the programs, City management believes that the aggregate accrual is adequate to cover such losses. For the prior three (3) fiscal years, no settlements exceeded the City s insurance coverage. -32-

39 Purchased Insurance. Property Insurance. Several insurance companies underwrite this insurance protection. The City is currently insured according to a schedule of covered property submitted by the City to Travelers Property Casualty Company of America. Total all-risk property insurance coverage is $60.1 million. There is a $10,000 per loss deductible. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. Fidelity Bonds. The City purchases blanket fidelity bond coverage ranging from $40,000 to $200,000 with $2,500 deductible. The fidelity coverage is provided through the Authority. Premiums are paid annually and are not subject to retroactive adjustments. Adequacy of protection. During the past three fiscal years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. See APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2013 Notes to Basic Financial Statements NOTE 8. Employee Retirement Plans PERS Plan Description. The City contributes to the California Public Employees Retirement System ( PERS ), an agent multiple-employer defined benefit pension plan for miscellaneous employees and a cost-sharing multiple-employer defined benefit plan for safety employees. PERS provides retirement and disability benefits, annual cost-of living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefits provisions and all other requirements are established by State statute and City ordinance. Copies of the PERS annual financial report may be obtained from their Executive Office located at 400 P Street, Sacramento, California Funding Policy. Active classic members are required by State statute to contribute 7% if a miscellaneous member and 9% if a safety member, of their annual covered salary. Employees assume responsibility for half of the member s rate, or 3.5% for miscellaneous members and 4.5% for safety members. Additionally, the City is required to contribute at an actuarially determined employer rate; the current rate is % for miscellaneous and % for safety employees, of the annual covered payroll. The Public Employee Pension Reform Act of 2013 ( PEPRA ) was enacted in January 2013 and requires PEPRA members to contribute 6.75% if a miscellaneous member and 12.25% if a safety member of their annual covered salary. Employees assume responsibility for half of the member s rate, or 3.375% for miscellaneous members and 6.125% for safety members. The City s contribution rate for PEPRA employees is 9.07% for miscellaneous members and 12.25% for safety members. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by PERS. Annual Pension Cost. For the year ended June 30, 2013, the City s annual pension cost of $6,206,207 for PERS was equal to the City s required and actual contributions, of which $2,082,967 is for the miscellaneous plan and $4,123,240 is for the safety plan. The required contribution was determined as -33-

40 part of the June 30, 2010 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary increases from 3.55% to 14.45% depending on age, service, and type of employment, and (c) 3.25% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 3.0%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a fifteen-year period (smoothed market value). PERS unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed 20-year basis with 3.0% calculated as inflation. CITY OF GARDENA Annual Pension Costs Miscellaneous Plan Safety Plan Combined Fiscal Year Annual Pension Cost (APC) Percentage APC Contributed Annual Pension Cost (APC) Percentage APC Contributed Net Pension Obligation FY11 $1,744, % $3,412, % $0 FY12 $1,861, % $3,778, % $0 FY13 $2,082, % $4,123, % $0 Source: City of Gardena 2013 CAFR. A schedule of funding progress is shown below. CITY OF GARDENA Unfunded Liabilities (Dollars in Thousands) Unfunded Actuarial Entry Age Actuarial UAAL Actuarial Value Accrued Accrued Funded Covered as a % Valuation of Assets Liability Liability Ratio Payroll Of Payroll Date (A) (B) (A-B) (A/B) (C) (A-B)/C 6/30/12 $112,165 $119,160 $(6,995) 94.1% $16,330 (42.839)% 6/30/11 110, ,894 (2,576) ,401 (16.726) 6/30/10 106, ,465 (1,685) ,528 (10.851) 6/30/08 50,226 (50,226) ,348 (273.74) Source: City of Gardena 2013, 2012, 2011, 2010 and 2009 CAFRs. Other Retirement Plans. For all of its part-time employees who are not eligible for coverage under the PERS pension plan, the City provides pension benefits through a defined contribution plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The plan is administered as part of the Public Agency Retirement Systems ( PARS ). The PARS Trust Agreement may be amended by a two-thirds majority or greater of the Member Agencies. The plan conforms to the requirements under Internal Revenue Code 401(a) and has received a favorable Letter of Determination from the Internal Revenue Service. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5 percent to a retirement plan, and City Council resolved to match the employees contributions up to 3.75 percent. The City s contributions for each employee (and interest -34-

41 earned by the accounts) are fully vested immediately. For the year ended June 30, 2013, the City s payroll covered by the plan was $364,632. The City made employer contributions of $13,672. For more information, including schedules of funding progress for the City s various pension plans, see APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2013 Notes to Basic Financial Statements NOTE 9. Other Post-Employment Benefits Plan Description. The City provides retiree healthcare benefits for employees who retire simultaneously from PERS and the City and who meet the qualifying criteria negotiated by the various City labor groups. The City offers Kaiser and a self-insured PPO. Miscellaneous employees hired prior to July 1, 2002 must be 55 years of age and have at least 13 years of full-time service with the City. Effective July 1, 2002, miscellaneous (non-management) employees must have at least 20 years of full-time service to qualify. Safety employees must be 50 years of age and have 25 years of full-time service in the police or fire department of the City. In October 2000, City fire services transferred to contracted services with the Los Angeles County Fire District. Postemployment benefits continue only for fire personnel retiring from service prior to that date. The City s health plan year runs February through January with open-enrollment every January prior to the start of the new plan year. The monthly benefit to be paid by the City is $1,060 per month. Eligibility. All of the plan s employees became participants in accordance with negotiated Memorandum of Understanding ( MOU ) as negotiated by each group or bargaining unit. In order to receive benefits, eligible employees must meet the minimum requirements defined in their MOU. Participants of the plan as of June 30, 2013 were 299 active employees and 197 retirees. Funding Policy. The contribution requirements for plan members and the City are established by an MOU as negotiated by each group or bargaining unit. The required contribution is based on projected payas-you-go financing requirements. For the year ended June 30, 2013, the City contributed $2,252,000. Plan members receiving benefits contributed $46,474 of the total premiums as their required contributions. The City s annual Other Postemployment Benefit ( OPEB ) cost (expense) is calculated based on the Annual Required Contribution of the Employer ( ARC ), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excesses) over a period not to exceed thirty years. The City has elected to amortize its Unfunded Actuarial Accrued Liability ( UAAL ) during the current fiscal year. -35-

42 The following table shows the components of the City s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City s net OPEB obligation to the Plan: CITY OF GARDENA Net OPEB Obligation Governmental Activities Business-Type Activities Total Annual required contribution $ 5,965,000 $ 1,468,000 $ 7,433,000 Interest on net OPEB obligation 236,000 74, ,000 Adjustment to ARC (498,000) (150,000) (648,000) Annual OPEB cost (expense) 5,703,000 1,392,000 7,095,000 Contributions made (1,862,000) (390,000) (2,252,000) Increase in net OPEB obligation 3,841,000 1,002,000 4,843,000 Net OPEB obligation beginning of year 6,832,720 2,054,104 8,886,824 Net OPEB obligation end of year 10,673,720 3,056,104 13,729,824 Source: City of Gardena 2013 CAFR. The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year ended June 30, 2013 and the two preceding years were as follows: Source: City of Gardena 2013 CAFR. CITY OF GARDENA Percentage of OPEB Contributed Fiscal Year Annual OPEB Cost Actual Contribution Percentage Of Annual OPEB Cost Contributed Net OPEB Obligation FY11 $ 4,389,000 $ 1,520, % $5,876,824 FY12 4,650,000 1,640, ,886,824 FY13 7,095,000 2,252, ,729,824 For more information see APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2013 Notes to Basic Financial Statements NOTE 10. Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salaries until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plan assets are under the participants control and are principally invested in demand deposits and mutual funds and are held in trust for the exclusive benefit of the participants and their beneficiaries. The plan assets are not included in the City s financial statements. At June 30, 2013, the amount held by the trustee for employees is $16,052,

43 Short-Term Obligations The City currently has no outstanding short-term obligations. Long-Term General Fund Obligations In June 2006, the City and the Agency caused the delivery of the $12,495,000 Certificates of Participation (2006 Refinancing Project), Series A (Taxable) (the 2006A Certificates ) and the 2006B Certificates, both payable by the City from its General Fund. The proceeds of these issues were used to refinance the City s 1999 Certificates of Participation in connection with a Memorandum of Understanding ( MOU ) entered into with certain financial institutions. Pursuant to the MOU, the Agency paid the financial institutions $19.0 million (the Initial Amount ) as prepayment of the 1999 Certificates, of which $18.0 million were funded by the 2006A Certificates and the 2006B Certificates and the balance of $1.0 million from other available City funds. The 2006B Certificates are being refunded by the Bonds. The 2006A Certificates are not being refunded by the Bonds. In June 2006, the City and the Agency caused the delivery of the $3,650,000 Certificates of Participation (2006 Refinancing Project), Series C (Tax-Exempt) (the 2006C Certificates ). The proceeds of this issue were used to defease the City s 1994 Civic Center improvement Certificates of Participation, and were placed in an irrevocable trust to provide for all future debt service payments related to the 1994 issuance. The 2006C Certificates are not being refunded by the Bonds. In January 2007, the South Bay Regional Public Communications Authority issued its Refunding Revenue Bonds, 2007 Series A in the amount of $2,800,000 (the 2007 SBRPCA Bonds ), for the benefit of the City and payable by the City from its General Fund. The proceeds of the 2007 SBRPCA Bonds of the bonds was to refund the South Bay Regional Public Communications Authority Revenue Bonds, 2001 Series A. -37-

44 The following table shows the City s payment obligations with respect to the 2006A Certificates, the 2006C Certificates,the 2007 SBRPCA Bonds and the Bonds, as of November 13, Fiscal Year Ending 2006A 2006C June 30 Certificates Certificates SBRPCA Bonds Bonds Total 2015 $1,045, $294, $183, $ 186, ,709, ,046, , , , ,981, ,045, , , , ,977, ,045, , , , ,029, ,044, , , , ,031, ,041, , , , ,031, ,041, , , , ,027, ,043, , , , ,030, ,043, , , , ,025, ,041, , , , ,027, ,041, , , ,725, ,043, , , ,727, ,042, , , ,726, ,043, , , ,730, ,045, , , ,731, , , ,229, ,732, , ,549, ,728, ,550, ,550, ,548, ,548, ,543, ,543, ,551, ,551, ,039, ,039, General Obligation Debt The City currently has no outstanding general obligation debt. Overlapping Debt Set forth below is a direct and overlapping debt report (the Debt Report ) prepared by California Municipal Statistics, Inc. and effective October 1, The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the respective percentage of the assessed valuation of the overlapping public agencies identified in column 1 which is represented by property located in the City; and (3) the third col- -38-

45 umn is an apportionment of the dollar amount of each public agency s outstanding debt (which amount is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City s assessed valuation represented in column Assessed Valuation: $5,170,329,875 Direct and Overlapping Bonded Debt as of October 1, 2014 CITY OF GARDENA OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 10/1/14 Los Angeles County Flood Control District 0.430% $ 75,164 Metropolitan Water District ,973 Los Angeles Community College District ,151,865 Los Angeles Unified School District ,382,778 Los Angeles County Regional Park and Open Space Assessment District ,384 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $129,261,164 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.430% $ 7,686,187 Los Angeles County Superintendent of Schools Certificates of Participation ,492 Los Angeles Unified School District Certificates of Participation ,330,001 City of Gardena General Fund Obligations ,980,000 (1) Los Angeles County Sanitation District No. 5 Authority ,878,371 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $35,912,051 Less: Los Angeles County General Fund Obligations supported by landfill revenues 21,652 Los Angeles Unified School District QZABs supported by periodic payments to investment accounts 49,004 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $35,841,395 GROSS COMBINED TOTAL DEBT $165,173,215 (2) NET COMBINED TOTAL DEBT $165,102,559 Ratios to Assessed Valuation: Total Overlapping Tax and Assessment Debt % Total Direct Debt ($22,980,000) % Gross Combined Total Debt % Net Combined Total Debt % Source: California Municipal Statistics, Inc. (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Funding by the State of California STATE BUDGET INFORMATION General. California counties administer numerous health and social service programs as the administrative agent of the State of California (the State ) and pursuant to State law. Many of these programs have been either wholly or partially funded with State revenues which have been subject each year to the State budget and appropriation process. Over the last several years, State and federally mandated expenditures in justice, health and welfare have grown at a greater rate than the County's discretionary general purpose revenues. -39-

46 The State Budget Process. The State's fiscal year begins on July 1 and ends on June 30. Pursuant to the State Constitution, the Governor of the State is required to propose a budget for the next fiscal year (the "Governor's Budget") to the State Legislature no later than January 10 of each year. The Governor's Budget is then revised in May and a final budget must be adopted by each house of the State Legislature by no later than June 15. The budget becomes law upon the signature of the Governor. Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the State Legislature takes up the proposal. Under the State Constitution, money may be drawn from the State Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the State Legislature and signed by the Governor. The Budget Act must be approved by each house of the State Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line-item vetoes are subject to override by a two-thirds majority vote of each house of the State Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by each house of the State Legislature and be signed by the Governor. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. However, delays in the adoption of a final State budget in any fiscal year may affect payments of State funds during such budget impasse State Budget. The Governor signed the fiscal year State budget (the State Budget ) on June 20, The State Budget advances a multiyear plan that is balanced, while paying off budgetary debt from past years and setting aside reserves. The State Budget provides for $105.5 billion in revenues and transfers for fiscal year (up slightly from the $102.2 billion estimated for fiscal year ), and $108.0 billion in total expenditures for fiscal year (up slightly from the $100.7 billion estimates for fiscal year ). In addition, the State enters fiscal year with a positive prior year general fund balance, approximately $3.9 billion (compared to a positive prior year general fund budget for fiscal year of approximately $2.4 billion). The State Budget, accordingly, is able to set aside a $449 million reserve in a special fund for economic uncertainties and $1.6 billion in a budget stabilization account (also known as the Rainy Day Fund). With the passage of Proposition 30, The Schools and Local Public Safety Protection Act ( Proposition 30 ), the State Budget reinvests in, rather than cuts, education funding. Proposition 30 increased the personal income tax rates on the State s highest income taxpayers by up to three percent for a period of seven years beginning with the 2012 tax year, and increased the sales tax by one-quarter percent for a period of four years beginning on January 1, The complete State Budget is available from the California Department of Finance website at The Authority, the City and the Underwriters can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference. Future State Budgets. Changes in the revenues received by the State can affect the amount of funding, if any, to be received from the State by the City and other cities and counties in the State. The City cannot predict the extent of the budgetary problems the State will encounter in this or in any future Fiscal Year, and, it is not clear what measures would be taken by the State to balance its budget, as required by -40-

47 law. In addition, the City cannot predict the final outcome of current or future State budget negotiations, the impact that such budgets will have on its finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets are being and will be affected by national and State economic conditions and other factors, including the current economic conditions, over which the City has no control. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIIIA of the California Constitution On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter, the appraised value of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition. Legislation enacted by the California Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. The voters of the State subsequently approved various measures which further amended Article XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the Full Cash Value of other real property between parents and children, do not constitute a purchase or change of ownership triggering reappraisal under Article XIIIA. Other amendments permitted the State Legislature to allow persons over the age of 55 who meet certain criteria or severely disabled homeowners who sell their residence and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence s assessed value to the new residence. Other amendments permit the State Legislature to allow persons who are either 55 years of age or older, or who are severely disabled, to transfer the old residence s assessed value to their new residence located in either the same or a different county and acquired or newly constructed within two years of the sale of their old residence. In the November 1990 election, the voters approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of new construction certain additions and improve- -41-

48 ments, including seismic retrofitting improvements and improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, Article XIIIA has also been amended to provide that there would be no increase in the Full Cash Value base in the event of reconstruction of the property damaged or destroyed in a disaster. Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently recapture such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor s measure of the restoration of value of the damaged property. Section 4 of Article XIIIA also provides that cities, counties and special districts cannot, without a two-thirds vote of the qualified electors, impose special taxes, which has been interpreted to include special fees in excess of the cost of providing the services or facility for which the fee is charged, or fees levied for general revenue purposes. Both the California State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA. Article XIIIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, the Gann Initiative, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The base year for establishing such appropriation limit is fiscal year Increases in appropriations by a governmental entity are also permitted (1) if financial responsibility for providing services is transferred to the governmental entity, or (2) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Appropriations subject to Article XIIIB include generally any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to any entity of government from (1) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (2) the investment of tax revenues and (3) certain State subventions received by local governments. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate proceeds of taxes received by the City over such two-year period above -42-

49 the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. As amended in June 1990, the appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the City s option, either (1) the percentage change in California per capita personal income, or (2) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college ( K-14 ) districts. Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years. The City s General Fund revenue structure is primarily comprised of tax revenue, with the major source coming from transient occupancy tax. The City has a voter approved appropriations limit override of $900,000 to allow the City the flexibility to appropriate and spend the locally generated tax revenues for City programs and services in future years. The current approved override will expire on June 30, The City plans to continue to ask the voters to approve the necessary level of override given the potential for future growth of tax revenue. The City has maintained a voter approved override since The City s appropriations limit for fiscal is $91,565,987 and will exceed the estimated General Fund spending plan of $49,812,125 in an amount of $41,753,862. Proposition 62 Proposition 62 was adopted by the voters at the November 4, 1986, general election which (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two-thirds vote of the governmental entity s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local government entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA of the California Constitution, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities, and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local Transportation Authority v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court held that a county-wide sales tax of one-half of one percent was a special tax that, under Section of the Government Code, required a two-thirds voter approval. The county-wide sales tax at issue received an affirmative vote of only 54.1% and was found to be invalid. -43-

50 Following the California Supreme Court s decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001, the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al. ( La Habra ). In this case, the court held that public agency s continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. Proposition 218 Proposition 218. On November 5, 1996, California voters approved Proposition 218 Voter Approval for Local Government Taxes Limitation on Fees, Assessments, and Charges Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to Section 4 of Article XIIIA the California Constitution, and (iii) assessments, fees, and charges for property related services as provided in Article XIIID. Proposition 218 added voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such provisions has been to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairment of contracts. Proposition 218 provides that, effective July 1, 1997, fees that are charged as an incident of property ownership may not exceed the funds required to provide the property related services and may only be charged for services that are immediately available to the owner of the property. The City does not expect the application of Proposition 218 will have a material adverse impact on its ability to pay Lease Payments. -44-

51 Proposition 1A of 2004 The California Constitution and existing statutes give the legislature authority over property taxes, sales taxes and the VLF. The legislature has authority to change tax rates, the items subject to taxation and the distribution of tax revenues among local governments, schools, and community college districts. The State has used this authority for many purposes, including increasing funding for local services, reducing State costs, reducing taxation, addressing concerns regarding funding for particular local governments, and restructuring local finance. The California Constitution generally requires the State to reimburse the local governments when the State mandates a new local program or higher level of service. Due to the ongoing financial difficulties of the State, it has not provided in recent years reimbursements for many mandated costs. In other cases, the State has suspended mandates, eliminating both responsibility of the local governments for complying with the mandate and the need for State reimbursements. The 2004 Budget Act, related legislation and the enactment of Proposition 1A of 2004 (described below) dramatically changed the State-local fiscal relationship. These constitutional and statutory changes implemented an agreement negotiated between the Governor and local government officials (the Statelocal agreement ) in connection with the 2004 Budget Act. One change related to the reduction of the VLF rate from 2% to 0.65% of the market value of the vehicle. In order to protect local governments, which had previously received all VLF revenues, the 1.35 percent reduction in VLF revenue to cities and counties from this rate change was backfilled by an increase in the amount of property tax revenues they receive. This worked to the benefit of local governments, because the backfill amount annually increases in proportion to the growth in secured roll property tax revenues, which has historically grown at a higher rate than VLF revenues. Proposition 1A of 2004 requires the State to provide local governments with equal replacement revenues. On November 3, 2004 the voters of the State approved Proposition 1A ( Proposition 1A of 2004 ). Proposition 1A of 2004 amended the State Constitution to, among other things, reduce the Legislature s authority over local government revenue sources by placing restrictions on the State s access to local governments property tax, sales tax, and VLF revenues as of November 3, Pursuant to Proposition 1A of 2004, the State is able to borrow up to 8% of local property tax revenues but only if the Governor proclaims such action is necessary due to a severe State fiscal hardship and two-thirds of both houses of the State Legislature approve the borrowing. Any amounts borrowed are required to be repaid within three years. Proposition 1A of 2004 also permits the State to borrow from local property tax revenues for no more than two fiscal years within a period of 10 fiscal years, and only if previous borrowings have been repaid. In addition, the State cannot reduce the local sales tax rate or restrict the authority of the local governments to impose or change the distribution of the statewide local sales tax. Proposition 1A of 2004 generally prohibits the State from mandating activities on cities, counties, or special districts without providing the funding needed to comply with the mandates, and if the State does not provide funding for the activity that has been determined to be mandated, the requirement on cities, counties, or special districts to abide by the mandate is suspended. Proposition 1A of 2004 also expanded the definition of what constitutes a mandate to encompass State action that transfers to cities, counties, and special districts financial responsibility for a required program for which the State previously had partial or complete responsibility. The State mandate provisions of Proposition 1A of 2004 do not apply to schools or community colleges or to mandates relating to employee rights. -45-

52 Pursuant to statutory changes made in conjunction with amendments to the fiscal year State Budget Act, the fiscal year State Budget Act and related budget legislation adopted by the State Legislature and signed by the Governor in February 2012 (collectively, the February 2012 Budget Package ), the VLF rate increased from 0.65% to 1.15% effective May 19, Of this 0.50% increase, 0.35% will flow to the State General Fund, and 0.15% will support various law enforcement programs previously funded by the State General Fund. Proposition 22 Proposition 22 ( Proposition 22 ), which was approved by California voters in November 2010, prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash-flow or budget balancing purposes to the State General Fund or any other State fund. Due to the prohibition with respect to State s ability to take, reallocate, and borrow money raised by local governments for local purposes, Proposition 22 supersedes certain provisions of Proposition 1A of See Proposition 1A of 2004 herein. In addition, Proposition 22 generally eliminates the State s authority to temporarily shift property taxes from cities, counties, and special districts to schools, temporarily increase schools and community college districts share of property tax revenues, prohibits the State from borrowing or redirecting redevelopment property tax revenues or requiring increased pass-through payments thereof, and prohibits the State from reallocating vehicle license fee revenues to pay for State imposed mandates. In addition, Proposition 22 requires a two-thirds vote of each house of the State Legislature and a public hearing process to be conducted in order to change the amount of fuel excise tax revenues shared with cities and counties. The LAO states that Proposition 22 will prohibit the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies. Proposition 22 prohibits the State from borrowing sales taxes or excise taxes on motor vehicle fuels or changing the allocations of those taxes among local government except pursuant to specified procedures involving public notices and hearings. In addition, Proposition 22 requires that the State apply the formula setting forth the allocation of State fuel tax revenues to local agencies revert to the formula in effect on June 30, The LAO anticipates that Proposition 22 will require the State to adopt alternative actions to address its fiscal and policy objectives, particularly with respect to short-term cash flow need. The City does not believe that the adoption of Proposition 22 will have a significant impact on its revenues and expenditures during fiscal year Proposition 26 Proposition 26 ( Proposition 26 ), which was approved by California voters on November 2, 2010, revises the California Constitution to expand the definition of taxes. Proposition 26 re-categorizes many State and local fees as taxes and specifies a requirement of two-thirds voter approval for taxes levied by local governments. Proposition 26 requires the State obtain the approval of two-thirds of both houses of the State Legislature for any proposed change in State statutes, which would result in any taxpayer paying a higher tax. Proposition 26 eliminates the previous practice whereby a tax increase coupled with a tax reduction that resulted in an overall neutral fiscal effect was subject only to a majority vote in the State Legislature. Furthermore, pursuant to Proposition 26, any increase in a fee above the amount needed to provide the spe- -46-

53 cific service or benefit is deemed to be a tax and the approval thereof will require such two-thirds vote of approval to be effective. In addition, for State imposed fees and charges, any fee or charge adopted after January 1, 2010 with a majority vote of approval of the State Legislature which would have required a twothirds vote of approval of the State Legislature if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote. Proposition 26 amends Article XIII C of the State Constitution to state that a tax means a levy, charge or exaction of any kind imposed by a local government, except (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property or the purchase rental or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Proposition 218. See Proposition 218. Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010, unless exempted, as stated above. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies. As of the date hereof, none of the City s fees or charges has been challenged in a court of law in connection with the requirements of Proposition 26. If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two-thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a fifty percent voter requirement. Proposed local government fees that are not subject to Proposition 26 generally are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of the affected property owners. Future Initiatives Article XIIIA, Article XIIIB, Proposition 218 and Proposition 1A of 2004, Proposition 22 and Proposition 26 were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the City or local districts to increase revenues or to increase appropriations which may affect the City s revenues or its ability to expend its revenues. -47-

54 RISK FACTORS This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investment in the Bonds. This section is not meant to be a comprehensive or definitive discussion of the risks associated with an investment in the Bonds, and the order in which this information is presented does not necessarily reflect the relative importance of various risks. Potential investors in the Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an informed investment decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market value and/or in the marketability of the Bonds. There can be no assurance that other risk factors not discussed herein will not become material in the future. Limited Obligation The Bonds are not City debt and are limited obligations of the Agency. Neither the full faith and credit of the Agency nor the City is pledged for the payment of the interest on or principal of the Bonds nor for the payment of Lease Payments. The Agency has no taxing power. The obligation of the City to pay Lease Payments when due is an obligation payable from amounts in the general fund of the City. The obligation of the City to make Lease Payments under the Lease Agreement does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Bonds nor the obligation of the City to make Lease Payments under the Lease Agreement constitute a debt or indebtedness of the Agency, the City, the State or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restrictions. Lease Payments Are Not Debt The obligation of the City to make the Lease Payments under the Lease Agreement does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Bonds nor the obligation of the City to make Lease Payments constitute a debt of the City, the State of California or any political subdivision thereof (other than the Agency) within the meaning of any constitutional or statutory debt limitation or restriction. The Bonds are not general obligations of the Agency, but are limited obligations payable solely from and secured by a pledge of Revenues and amounts held in the funds and accounts created under the Indenture, consisting primarily of Lease Payments. The Agency has no taxing power. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Lease Payments from any source of legally available funds and the City has covenanted in the Lease Agreement that, for so long as the Property is available for its use, it will make the necessary annual appropriations within its budget for the Lease Payments. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the Lease Payments, or which the City, in its discretion, may determine to pay prior to the Lease Payments. The City has the capacity to enter into other obligations payable from the City s general fund, without the consent of or prior notice to the Owners of the Bonds. To the extent that additional obligations -48-

55 are incurred by the City, the funds available to make Lease Payments may be decreased. In the event the City s revenue sources are less than its total obligations, the City could choose to fund other municipal services before making Lease Payments. The same result could occur if, because of State constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. The City s appropriations, however, have never exceeded the limitations on appropriations under Article XIIIB of the California Constitution. For information on the City s current limitations on appropriations, see CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND APPROPRIATIONS Article XIIIB of the California Constitution. Additional Obligations of the City The Lease Agreement does not prohibit the City from incurring additional lease and other obligations payable from the City s General Fund. Valid and Binding Covenant to Budget and Appropriate Pursuant to the Lease Agreement, the City covenants to take such action as may be necessary to include Lease Payments due in its annual budgets and to make necessary appropriations for all such payments. Such covenants are deemed to be duties imposed by law, and it is the duty of the public officials of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform such covenants. A court, however, in its discretion may decline to enforce such covenants. Upon issuance of the Bonds, Bond Counsel will render its opinions (substantially in the forms of APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION) to the effect that, subject to the limitations and qualifications described therein, the Lease Agreement constitutes a valid and binding obligation of the City. As to the Agency s practical realization of remedies upon default by the City, see Limitations on Remedies. Abatement In the event of loss or substantial interference in the use and possession by the City of all or any portion of the Property caused by material damage, title defect, destruction to or condemnation of the Property, Lease Payments will be subject to abatement. In the event that such component of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time that proceeds of the City s rental interruption insurance will be available in lieu of Lease Payments, or in the event that casualty insurance proceeds or condemnation proceeds are insufficient to provide for complete repair or replacement of such component of the Property or prepayment of the Bonds, there could be insufficient funds to make payments to Owners in full. Reduction in Lease Payments due to abatement as provided in the Lease Agreement does not constitute a default thereunder. It is not possible to predict the circumstances under which such an abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Property is substantially higher or lower than its value at the time of the execution and delivery of the Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Bonds. -49-

56 No Acceleration Upon Default In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement and the Trustee is not empowered to sell a fee simple interest in the Property and use the proceeds of such sale to prepay the Bonds or pay debt service thereon. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest as described below. Limitation on Remedies The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. Although the Lease Agreement provides that if the City defaults the Trustee may reenter the Property and re-let the Property, portions of the Property may not be easily recoverable, and even if recovered, could be of little value to others because of the Property s specialized nature. Additionally, the Trustee may have limited ability to re-let the Property to provide a source of rental payments sufficient to pay the principal of and interest on the Bonds so as to preserve the tax-exempt nature of interest on the Bonds. The Trustee is not obligated to re-let the Property in a manner so as to preserve the tax-exempt nature of interest on the Bonds. Furthermore, due to the governmental nature of the Property, it is not certain whether a court would permit the exercise of the remedy of re-letting with respect thereto. Alternatively, the Trustee may terminate the Lease Agreement and proceed against the City to recover damages pursuant to the Lease Agreement. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. The rights of the Owners of the Bonds are subject to certain limitations on legal remedies against cities, redevelopment agencies and other governmental entities in the State, including but not limited to a limitation on enforcement against funds that are otherwise needed to serve the public welfare and interest. Additionally, the rights of the Owners of the Bonds may be subject to (i) bankruptcy, insolvency, reorganization, moratorium, or similar laws limiting or otherwise affecting the enforcement of creditors rights generally (as such laws are now or hereafter may be in effect), (ii) equity principles (including but not limited to concepts of materiality, reasonableness, good faith and fair dealing) and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or law, (iii) the exercise by the United States of America of the powers delegated to it by the Constitution, and (iv) the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs bankruptcy proceedings for public agencies, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners, the Trustee and the Agency could be prohibited or severely restricted from taking any steps to enforce their rights under the Lease Agreement and from taking any steps to collect amounts due from the City under the Lease Agreement. Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditor s rights, by equitable principles and by the exercise of judicial discretion. Additionally, the Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Indenture. The lack of availability -50-

57 of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Bondowners. Concentration of Revenue Source The City relies on, among other things, the Card Club Revenue Fee imposed on the City s card clubs. The Card Club Revenue Fee is set by the City s Municipal Code at 12% of each Card Club s gross revenue. The Card Club Revenue Fee is the City s second largest revenue source. The card clubs continue to demonstrate growth, however there is heavy competition from Tribal Government gaming and card clubs in other cities. In addition, changes to State law regulating casinos could have an impact on the continued operation of the card clubs. Closure or decline in the revenues of either of the card clubs could materially and adversely impact the City s revenues and could affect the City s ability to make Lease Payments. Such a result could be affected by events not related to the operation of the card clubs, natural disasters or other economic or environmental events occurring outside of their control. Risk of Uninsured Loss including Seismic Risks The City, like much of California, is subject to seismic activity that could result in interference with its right to use and possession of the Property. The two faults likely to have the most impact on the County are the West Los Angeles Fault and Concord-Green Valley Fault Zone. The City is not obligated under the Lease Agreement to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Property. Depending on its severity, an earthquake could result in abatement of Lease Payments under the Lease Agreement. See Abatement. The occurrence of severe seismic activity in the area of the Property could result in substantial damage and interference with the City s right to use and occupy all or a portion of the Property, and result in Lease Payments being subject to abatement. See " Abatement" above. There can be no assurance that the providers of the City s liability and rental interruption insurance will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. Further, there can be no assurances that amounts received as proceeds from insurance or from condemnation of the Property will be sufficient to redeem the Bonds. Under the Lease Agreement the City may obtain casualty insurance which provides for a deductible up to $250,000. Should the City be required to meet such deductible expenses, the availability of general fund revenues to make Lease Payments may be correspondingly affected. Eminent Domain If the Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease Agreement will cease as of the day possession is taken. If less than all of the Property is taken permanently, or if the Property or any part thereof is taken temporarily, under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect and will not be terminated by virtue of such taking, and (b) there will be a partial abatement of Lease Payments as a result of the application of net proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the City and the Agency such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Property. -51-

58 Exposure to State of California Fiscal Stress There can be no assurances that, as a result of ongoing financial stress, the State will not significantly reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of efforts to address its financial difficulties. No prediction can be made by the City as to what measures the State will adopt to respond to the current or potential future financial difficulties. The City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on the City s finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control. There can be no assurances that State actions to respond to State financial difficulties will not adversely affect the financial condition of the City. See STATE BUDGET INFORMATION. Hazardous Substances The existence or discovery of hazardous materials may limit the beneficial use of the Property. In general, the owners and lessees of the Property may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act, is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition of the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance. Further it is possible that the beneficial use of the Property may be limited in the future resulting from the current existence on the Property of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the Property of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly limit the beneficial use of the Property. The City is unaware of the existence of hazardous substances on the Property site which would materially interfere with the beneficial use thereof. Bankruptcy The City is not subject to the involuntary procedures of the United States Bankruptcy Code (the Bankruptcy Code ). However, pursuant to Chapter 9 of the Bankruptcy Code, the City may seek voluntary protection from its creditors for purposes of adjusting its debts. In the event the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Among the adverse effects of such a bankruptcy might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or court-approved secured debt which may have a priority of payment superior to that of -52-

59 Owners of Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the City s debt (a Plan ) without the consent of the Trustee or all of the Owners of Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. In addition, the City could either reject the Lease Agreement or assume the Lease Agreement despite any provision of the Lease Agreement which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease Agreement, the Trustee, on behalf of the Owners of the Bonds, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or Owners of the Bonds. Moreover, such rejection would terminate the Lease Agreement and the City s obligations to make payments thereunder. The Agency is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Agency may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Agency were to become a debtor under the Bankruptcy Code, the Agency would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Agency or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Agency; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or court-approved secured debt which may have priority of payment superior to that of the Owners of the Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the Agency s debt without the consent of the Trustee or all of the Owners of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. However, the bankruptcy of the Agency, and not the City, should not affect the Trustee s rights under the Lease Agreement. The Agency could still challenge the assignment, and the Trustee and/or the Owners of the Bonds could be required to litigate these issues in order to protect their interests. No Liability of Agency to the Owners Except as expressly provided in the Indenture, the Agency will not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. Risk of Tax Audit The Internal Revenue Service (the IRS ) has an ongoing program of examining tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from gross income for federal income tax purposes. It is possible that the Bonds or other tax-exempt obligations of the City may be selected for examination under such program. There is no assurance that an IRS examination of the Bonds or other tax-exempt obligations of the City will not adversely affect the market value of the Bonds. See TAX MATTERS. -53-

60 tions. The City has not been contacted by the IRS regarding the examination of any of its bond transac- Limited Secondary Market As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds can or could be sold for any particular price. City System Pension Benefit Liability Many factors influence the amount of the City s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of applicable law, changes in the levels of benefits provided or in the contribution rates of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods, and differences between actual and anticipated investment experience of PERS. Any of these factors could give rise to additional liability of the City to PERS as a result of which the City would be obligated to make additional payments to PERS over the amortization schedule for full funding of the City s obligation to PERS. See OTHER FINANCIAL INFORMATION Employee Retirement Plans. Changes in Law There can be no assurance that the electorate of the State will not at some future time adopt additional initiatives or that the Legislature will not enact legislation that will amend the laws or the Constitution of the State resulting in a reduction of the general fund revenues of the City and consequently, having an adverse effect on the security for the Bonds. FINANCIAL ADVISOR The Agency and the City have retained KNN Public Finance, A Division of Zions First National Bank, Los Angeles, California (the Financial Advisor ) in connection with the authorization, issuance, sale and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Financial Advisor is an independent registered municipal advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. LEGAL MATTERS All legal matters in connection with the issuance, sale and delivery of the Bonds are subject to the approval of Quint & Thimmig LLP, Larkspur, California, Bond Counsel. Bond Counsel s opinion with respect to the Bonds will be substantially in the form set forth in APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION. Certain legal matters will also be passed on for the Agency by Quint & Thimmig LLP, as Disclosure Counsel, and for the Agency by the City Attorney. Certain legal matters will -54-

61 be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California. The fees and expenses of Bond Counsel, Disclosure Counsel and Underwriter s Counsel are contingent upon the issuance and delivery of the Bonds. ABSENCE OF LITIGATION At the time of issuance of the Bonds, the Agency and the City will certify that there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court or regulatory agency, public board, or body pending or threatened against the City or the Agency affecting their existence or the titles of their respective officers or seeking to restrain or to enjoin the issuance, sale, or delivery of the Bonds, or the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the Bonds, any agreement entered into between the City and any purchaser of the Bonds, the Lease Agreement, the Indenture, the Site and Facility Lease or any other applicable agreements or any action of the City or the Agency contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or the Agency or their authority with respect to the Bonds or any action of the City or the Agency contemplated by any of said documents, nor, to the knowledge of the City or the Agency, is there any basis therefor. RATING Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), has assigned the rating of A+ to the Bonds. Such rating reflects only the view of S&P and any desired explanation of the significance of such rating should be obtained from S&P at 55 Water Street, New York, NY Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P if in the judgment of S&P, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price for the Bonds. CONTINUING DISCLOSURE Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the Rule ), the City has covenanted to provide certain financial information and operating data relating to the City and the balances of funds relating to the Bonds, by not later than March 31 of each fiscal year commencing with the report for the fiscal year ending June 30, 2014 (the Annual Information ), and to provide notices of the occurrence of certain enumerated events, if deemed by the City to be material. The Annual Information and notices of material events will be filed by the City or the Dissemination Agent, with the Municipal Securities Rulemaking Board via its Electronic Municipal Market Access ( EMMA ) system. The nature of the information to be provided in the Annual Information and the notices of material events is set forth in APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE. Except as described below, the City has not failed, in the last five years, to comply with its continuing disclosure obligation. The City filed its 2011 audited financial statements and its 2011 Annual Information two days late. The City filed its rating upgrade (to A+ from A ) received from S&P on September 9, 2014, on October 16,

62 TAX MATTERS Interest on the Bonds is includible in gross income for federal income purposes. Ownership of the Bonds may result in other federal income tax consequences to certain taxpayers. Bondholders should consult their tax advisors with respect to the inclusion of interest on the Bonds in gross income for federal income tax purposes and any collateral tax consequences. taxes. In the opinion of Bond Counsel, interest on the Bonds is exempt from California personal income Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. The complete text of the final opinion that Bond Counsel expects to deliver upon the issuance of the Bonds is set forth in APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION. UNDERWRITING The Bonds are being purchased by Citigroup Global Markets Inc. (the Underwriter ) at a price of $8,723, (being $9,110,000 aggregate principal amount of the Bonds, less $89, of Underwriter s discount, less $297, of original issue discount). The Underwriter may offer and sell the Bonds to certain dealers and others at prices different from the prices stated on the cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter. The Underwriter has entered into a retail distribution agreement with each of TMC Bonds L.L.C. ( TMC ) and UBS Financial Services Inc. ( UBSFS ). Under these distribution agreements, the Underwriter may distribute municipal securities to retail investors through the financial advisor network of UBSFS and the electronic primary offering platform of TMC. As part of this arrangement, the Underwriter may compensate TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the Bonds. The initial public offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. FINANCIAL STATEMENTS The City s financial statements for the fiscal year ended June 30, 2013, included in APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2013, have been audited by the City s Auditor, as stated in its reports appearing in such appendix. The City s Auditor has not undertaken to update its reports or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this -56-

63 Official Statement, and no opinion is expressed by the City s Auditor with respect to any event subsequent to its report. OTHER INFORMATION All summaries and explanations of the Indenture, the Lease Agreement and the other documents referred to herein are qualified in their entirety by reference to such documents, and references herein to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Any statements in this Official Statement involving matters of opinion are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Agency and the purchasers or owners of the Bonds. Copies of the Indenture and the Lease Agreement are available for inspection from the Trustee. MISCELLANEOUS Insofar far as any statements made in this Official Statement involve matters of opinion, assumptions, projections, anticipated events or estimates, whether or not expressly stated, they are set forth as such and not as representations of fact, and actual results may differ substantially from those set forth herein. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the owners of the Bonds. The summaries of certain provisions of the Bonds, statutes and other documents or agreements referred to in this Official Statement do not purport to be complete, and reference is made to each of them for a complete statement of their provisions. Copies are available for review by making requests to the City. The Appendices are an integral part of this Official Statement and must be read together with all other parts of this Official Statement. The audited financial statements of the City, including a summary of significant accounting policies, for the fiscal year ended June 30, 2013, are contained in Appendix B. -57-

64 The execution and delivery of this Official Statement have been duly authorized by the Agency and the City. CITY OF GARDENA FINANCING AGENCY By /s/ Mitchell G. Lansdell Executive Director CITY OF GARDENA By /s/ Mitchell G. Lansdell City Manager -58-

65 APPENDIX A GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY The City The City was incorporated on September 11, It combined the rural communities of Gardena, Moneta and Strawberry Park into a municipal corporation, Sixth Class City. By action of the State Legislature in 1955, all Sixth Class Cities were officially designated as General Law Cities. Through annexations and boundary adjustments the City has grown from 3 square miles to approximately 5.9 square miles with the most recent annexation of a portion of the El Camino Village area in The City has a population of over 60,000, occupying 21,629 dwelling units as of January 1, The City is located approximately 15 miles south of Los Angeles and 6 miles southeast of Los Angeles International Airport. It is served by three major freeways and is the home of a mix of aerospace, high tech and various other industries. The City has a Council-Manager form of government. The City is governed by five elected officials; the Mayor and four Council members, who act as the City s legislative body. The City Council appoints the City Manager and the City Attorney. The City Manager is responsible for directing, coordinating and carrying out City Council policies. The City Manager appoints the various department heads, who in turn hire all other municipal employees. The residents of the City also elect a City Clerk and a City Treasurer. The County The County is the most populous county in the United States. Los Angeles County alone is more populous than 43 individual U.S. states. The county seat is the city of Los Angeles, the largest city in California and the second-largest city in the United States. Los Angeles County also includes two offshore islands, San Clemente Island and Santa Catalina Island. The county is home to 88 incorporated cities and many unincorporated areas. At 4,083 square miles (10,570 km 2 ), it is larger than the combined areas of the states of Rhode Island and Delaware. The county is home to over a quarter of all California residents and is one of the most ethnically diverse counties in the country. Appendix A Page 1

66 Population The table below summarizes population of the City and the County. POPULATION Gardena and Los Angeles County Year City of Gardena Los Angeles County ,829 9,818, ,947 9,847, ,154 9,889, ,602 9,963, ,082 10,041,797 Source: California Department of Finance, Demographic Research Unit. Employment The following table summarizes the historical numbers of workers by industry in the Los Angeles Long Beach Glendale MD for the last five years: LOS ANGELES LONG BEACH GLENDALE MD (LOS ANGELES COUNTY) Labor Force and Industry Employment Annual Averages by Industry (1) Total, All Industries 3,955,600 3,894,600 3,914,600 4,012,300 4,118,000 Total Farm 6,200 6,200 5,600 5,400 5,500 Total Nonfarm 3,949,500 3,888,400 3,909,000 4,006,900 4,112,600 Goods Producing 510, , , , ,700 Mining and Logging 4,100 4,100 4,000 4,300 4,600 Construction 117, , , , ,500 Manufacturing 389, , , , ,500 Service Providing 3,438,800 3,406,600 3,433,200 3,526,400 3,624,900 Private Service Providing 2,843,000 2,827,000 2,867,700 2,969,600 3,075,700 Trade, Transportation & Utilities 742, , , , ,700 Information 191, , , , ,300 Financial Activities 216, , , , ,800 Professional & Business Services 529, , , , ,300 Educational & Health Services 639, , , , ,400 Leisure & Hospitality 385, , , , ,700 Other Services 137, , , , ,500 Government 595, , , , ,200 Source: California Employment Development Department, based on March 2013 benchmark. (1) Last available full year data. *Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households, and persons involved in labor/management trade disputes. Employment reported by place of work. Items may not add to totals due to independent rounding. Appendix A Page 2

67 The following tables summarize historical employment and unemployment for Los Angeles County, the State of California and the United States for the past five years: LOS ANGELES COUNTY, CALIFORNIA, AND UNITED STATES Civilian Labor Force, Employment, and Unemployment (Annual Averages) Unemployment Year Area Labor Force Employment Unemployment Rate (1) 2009 Los Angeles County 4,907,600 4,339, , % California 18,208,300 16,144,500 2,063, United States 154,142, ,877,000 14,265, Los Angeles County 4,916,300 4,298, , % California 18,316,400 16,051,500 2,264, United States 153,889, ,064,000 14,825, Los Angeles County 4,936,400 4,331, , % California 18,384,900 16,226,600 2,158, United States 153,617, ,869,000 13,747, Los Angeles County 4,901,300 4,365, , % California 18,494,900 16,560,300 1,934, United States 154,975, ,469,000 12,506, Los Angeles County 4,960,300 4,470, , % California 18,596,800 16,933,300 1,663, United States 155,389, ,929,000 11,460, Source: California Employment Development Department, based on March 2013 benchmark and US Department of Labor, Federal Bureau of Labor Statistics (1) The unemployment rate is computed from unrounded data, therefore, it may differ from rates computed from rounded figures available in this table. Appendix A Page 3

68 Major Employers The table below sets forth the principal employers of the County. LOS ANGELES COUNTY 2014 Major Employers Company Location Industry American Honda Motor Co Inc Torrance Automobile & Truck Brokers (Whls) California State University Long Beach Schools-Universities & Colleges Academic Cedars-Sinai Medical Ctr West Hollywood Hospitals Century Plaza Towers Los Angeles Office Buildings & Parks Edison Carrier Solutions Rosemead Electric Companies Fx Networks Llc Los Angeles Television-Cable & CATV Kaiser Permaente Los Angeles Hospitals Lac & Usc Medical Ctr Los Angeles Hospitals Long Beach City Hall Long Beach City Government-Executive Offices Long Beach Memorial Med Ctr Long Beach Hospitals Los Angeles County Sheriff Monterey Park Sheriff Los Angeles Police Dept Los Angeles Police Departments Nestle USA Inc Glendale Food Products & Manufacturers Paramount Petroleum Corp Paramount Asphalt & Asphalt Products-Manufacturers Pomona Valley Hospital Med Ctr Pomona Hospitals Pro Parts Canoga Park Automobile Parts-Used & Rebuilt (Whls) Providence Holy Cross Cancer Sylmar Cancer Treatment Centers Santa Monica College Santa Monica Schools-Universities & Colleges Academic Sony Pictures Entertainment Culver City Motion Picture Producers & Studios Specair Gardena Manufacturers Torrid City Of Industry Women's Apparel-Retail Ucla Los Angeles Schools-Universities & Colleges Academic Ucla Health System Los Angeles Schools-Universities & Colleges Academic Walt Disney Co Burbank Motion Picture Producers & Studios Warner Bros Studio Burbank Television Program Producers Source: California Employment Development Department. Data retrieved September 25, Appendix A Page 4

69 Construction Activity The following tables reflects the five-year history of building permit valuation for the City and County: CITY OF GARDENA Building Permits and Valuation (Dollars in Thousands) Permit Valuation: New Single-family $ 3,139 $ 860 $ 3,616 $ 16,392 $ 636 New Multi-family ,994 5,712 Res. Alterations/Additions 2,490 1,330 2,822 1,788 1,730 Total Residential 5,629 2,190 7,038 21,174 8,079 Total Nonresidential 4,293 14,351 7,805 10,718 17,662 Total All Building $ 9,922 $ 16,541 $ 14,843 $ 31,892 $ 25,742 New Dwelling Units: Single Family Multiple Family Total LOS ANGELES COUNTY Building Permits and Valuation (Dollars in Thousands) Permit Valuation: New Single-family $ 798,305 $ 922,092 $ 1,026,679 $ 1,127,916 $ 1,523,457 New Multi-family 521, ,621 1,225,553 1,484,648 1,953,088 Res. Alterations/Additions 1,073,157 1,109,768 1,431,581 1,208,758 1,267,408 Total Residential 2,393,256 2,842,482 3,683,813 3,821,323 4,743,954 Total Nonresidential 26,673,543 2,676,939 2,809,102 3,678,238 9,070,320 Total All Building $ 5,066,800 $ 5,519,421 $ 6,492,915 $ 7,499,562 $ 13,814,274 New Dwelling Units: Single Family 2,131 2,439 2,338 2,820 3,607 Multiple Family 3,522 5,029 8,052 8,895 13,243 Total 5,653 7,468 10,390 11,715 16,850 Sources: Construction Industry Research Board: Building Permit Summary. Note: Totals may not add due to independent rounding. Appendix A Page 5

70 Commercial Activity Taxable sales in the City and County are shown below. Beginning in 2009, reports summarize taxable sales and permits using the NAICS codes. As a result of the coding change, however, industry-level data for 2009 are not comparable to prior years. TAXABLE SALES, CITY OF GARDENA (dollars in thousands) 2008 Retail Stores Apparel Stores $ 5,176 General Merchandise Stores 93,177 Food Stores 40,607 Eating and Drinking Places 100,710 Home Furnishings and Appliances 16,026 Building Material Group 80,804 Motor Vehicles and Parts 85,248 Service Stations 95,804 All Other Retail Stores 39,252 Retail Stores Totals 556,802 All Other Outlets 219,355 Total All Outlets (2) $ 776, (1) 2010 (1) 2011 (1) 2012 (1)(3) Retail and Food Services Motor Vehicles and Parts Dealers $ 73,816 $ 66,990 $ 77,785 $ 91,993 Home Furnishings and Appliance Stores 17,452 18,099 17,927 22,243 Bldg. Mtrl. and Garden Equip. and Supplies 59,228 62,940 88, ,028 Food and Beverage Stores 49,141 46,390 46,471 45,780 Gasoline Stations 75,321 89, , ,663 Clothing and Clothing Accessories Stores 4,370 4,130 4,807 9,378 General Merchandise Stores 70,629 70,167 70,985 75,257 Food Services and Drinking Places 96,875 97, , ,426 Other Retail Group 36,482 36,157 34,618 35,469 Total Retail and Food Services 483, , , ,238 All Other Outlets 174, , , ,370 Totals All Outlets (2) $ 657,728 $ 653,665 $ 714,528 $ 787,607 Source: California Board of Equalization, Taxable Sales in California (Sales & Use Tax). (1) Starting in 2009, categories were revised from prior years. (2) Totals may not add up due to independent rounding. (3) Last available full year data. Appendix A Page 6

71 TAXABLE SALES, LOS ANGELES COUNTY (dollars in thousands) 2008 Retail Stores Apparel Stores $ 6,290,994 General Merchandise 12,861,677 Food Stores 4,921,329 Eating and Drinking 14,607,067 Household Group 4,482,776 Building Material Group 6,388,930 Automotive Group 13,282,539 Service Stations 13,437,380 All Other Retail Stores 13,537,617 Retail Stores Totals 89,810,309 Business & Personal Services 5,196,651 All Other Outlets 36,874,784 Total All Outlets (2) $ 131,881, (1) 2010 (1) 2011 (1) 2012 (1)(3) Retail and Food Services Motor Vehicles and Parts Dealers $ 10,801,444 $ 11,285,457 $ 12,686,384 $ 14,479,392 Furniture and Home Furnishings Stores 2,058,460 2,158,334 2,321,830 2,441,922 Electronics and Appliance Stores 3,406,513 3,454,412 3,416,744 3,570,668 Bldg Mtrl. and Garden Equip. and Supplies 5,754,600 6,129,586 6,306,814 6,510,966 Food and Beverage Stores 5,410,953 5,405,254 5,591,250 5,824,815 Health and Personal Care Stores 2,735,112 2,773,004 2,998,946 3,163,312 Gasoline Stations 9,629,797 11,012,642 13,394,467 14,037,507 Clothing and Clothing Accessories Stores 7,145,713 7,607,711 8,356,612 9,166,549 Sporting Goods, Hobby, Book and Music Stores 2,434,950 2,448,246 2,478,020 2,454,806 General Merchandise Stores 10,059,028 10,369,383 10,866,531 11,157,997 Miscellaneous Store Retailers 4,319,761 4,449,560 4,649,598 4,798,211 Nonstore Retailers 810, , ,596 1,200,322 Food Services and Drinking Places 13,876,812 14,291,264 15,286,655 16,512,136 Total Retail and Food Services 78,444,115 82,175,416 89,251,447 95,318,603 All Other Outlets 34,300,613 34,766,918 37,189,291 39,976,979 Totals All Outlets (2) $ 112,744,727 $ 116,942,334 $ 126,440,737 $ 135,295,582 Source: California Board of Equalization, Taxable Sales in California (Sales & Use Tax). (1) Starting in 2009, categories were revised from prior years. (2) Totals may not add up due to independent rounding. (3) Last available full year data. Appendix A Page 7

72 Median Household Income The following table summarizes the median household effective buying income for the City, the County, the State of California and the nation for the years 2008 through CITY OF GARDENA, LOS ANGELES COUNTY, CALIFORNIA AND UNITED STATES Effective Buying Income Source: Nielsen, Inc. Year Area Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income 2008 City of Gardena $ 998,178 $ 40,431 Los Angeles County 206,127,855 44,653 California 844,823,319 49,736 United States 6,571,536,768 43, City of Gardena $ 1,021,205 $ 41,218 Los Angeles County 207,077,609 45,390 California 844,823,319 49,736 United States 6,571,536,768 43, City of Gardena $ 931,385 $ 38,242 Los Angeles County 196,757,991 43,133 California 801,393,028 47,177 United States 6,365,020,076 41, City of Gardena $ 945,608 $ 38,637 Los Angeles County 197,831,465 43,083 California 814,578,457 47,062 United States 6,438,704,663 41, City of Gardena $ 959,945 $ 38,211 Los Angeles County 210,048,048 44,384 California 664,088,827 47,307 United States 6,737,867,730 41,358 Appendix A Page 8

73 APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2013 Appendix B

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77 COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2013 CITY OF GARDENA, CALIFORNIA PREPARED BY THE ADMINISTRATIVE SERVICES DEPARTMENT TERRENCE BEAMAN Chief Fiscal Officer * * * * * * * * * * * * * * * * * * * *

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79 City of Gardena Comprehensive Annual Financial Report For the year ended June 30, 2013 TABLE OF CONTENTS Page INTRODUCTORY SECTION (Unaudited) Letter of Transmittal... i GFOA Certificate of Achievement for Excellence in Financial Reporting... v Organization Chart... vi Officials of the City of Gardena, California... vii Commissions and Committees... viii FINANCIAL SECTION Independent Auditors Report... 1 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... 5 Management s Discussion and Analysis (Required Supplementary Information) (Unaudited)... 7 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Governmental Fund Financial Statements: Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities Proprietary Fund Financial Statements: Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Fiduciary Fund Financial Statements: Statement of Fiduciary Net Position... 40

80 City of Gardena Comprehensive Annual Financial Report For the year ended June 30, 2013 TABLE OF CONTENTS (Continued) Page FINANCIAL SECTION (Continued) Index to Notes to Basic Financial Statements Notes to Basic Financial Statements Required Supplementary Information (Unaudited): Budgetary Control and Accounting Policy Budgetary Comparison Schedule General Fund Public Employees Retirement System Schedule of Funding Progress Other Postemployment Benefits Schedule of Funding Progress Supplementary Information: Nonmajor Governmental Funds: Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual: Consolidated Lighting District Special Revenue Fund Public Works Grants Special Revenue Fund Prop C Local Return Special Revenue Fund Gas Tax Special Revenue Fund Asset Forfeiture Special Revenue Fund Public Safety Grants Special Revenue Fund Employment Training Grants Special Revenue Fund Human Services Grants Special Revenue Fund Economic Development Grants Special Revenue Fund Community Development Block Grant (CDBG) Special Revenue Fund City Debt Service Funds: Combining Balance Sheet Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances Internal Service Funds: Combining Statement of Net Position Combining Statement of Activities Combining Statement of Cash Flows Fiduciary Funds: Combining Statement of Fiduciary Net Position Combining Statement of Changes in Fiduciary Assets and Liabilities

81 City of Gardena Comprehensive Annual Financial Report For the year ended June 30, 2013 TABLE OF CONTENTS (Continued) Page STATISTICAL SECTION (Unaudited) Net Position by Component Changes in Net Position Fund Balances of Governmental Funds Changes in Fund Balances - Governmental Funds Governmental Revenues by Sources General Governmental Expenditures by Function Assessed Valuation and Actual Value of Taxable Property Assessed Value of Property by User Code Assessed Value and Estimated Value of Taxable Property Construction and Bank Deposits Property Tax Rates All Overlapping Governments Direct and Overlapping Property Tax Rates Ten Largest Property Taxpayers Top 25 Sales Tax Producers Property Tax Levies, Tax Collections, and Delinquency Card Club Gross Revenue Fee Ratio of Outstanding Debt by Type Pledged-Revenue Coverage Ratio of General Bonded Debt Outstanding Direct and Overlapping Bonded Debt Legal Debt Margin Information Demographic and Economic Statistics Ten Principal Employers Full-Time and Part-Time City Employees by Function Operating Indicators by Function Capital Asset Statistics by Function

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83 City of Gardena 1700 West 162 nd Street Gardena, CA December 10, 2013 PAUL K. TANAKA, Mayor DAN MEDINA, Mayor Pro Tem TASHA CERDA, Councilmember RACHEL C. JOHNSON, Councilmember TERRENCE TERAUCHI, Councilmember MINA-SEMENZA, City Clerk J. INGRID TSUKIYAMA, City Treasurer MITCHELL G. LANSDELL, City Manager PETER L. WALLIN, City Attorney Honorable Mayor, Members of the City Council, and Citizens of Gardena COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR LETTER OF TRANSMITTAL It is our pleasure to submit the Comprehensive Annual Financial Report (CAFR) of the City of Gardena (the City) for the fiscal year ended June 30, 2013 (FY ). The report is intended to update readers on the status of the City s financial position and results of operations for the past fiscal year. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. This CAFR has been prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America as promulgated by the Government Accounting Standards Board (GASB). The report contains a citywide view of all governmental and business-type activities, as well as a focus on the financial position and operating results of the City s major funds. The City s financial statements have been audited by Pun & McGeady, LLP (P&M), an independent public accounting firm fully licensed and qualified to perform audits of the State and local governments within the State of California. The financial statements included in this CAFR represent all City funds. The goal of the independent audit is to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2013, are free of material misstatement. The auditors concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City s financial statements for the fiscal year ended June 30, 2013, were fairly presented in conformity with GAAP. The independent auditor s report is presented as the first component of the financial section of the CAFR. Management s discussion and analysis (MD&A) immediately follows the independent auditor s report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. i

84 PROFILE OF THE GOVERNMENT The City of Gardena, appropriately nicknamed The Freeway City, is located just miles from the beautiful California coast, near the interchange of the Harbor, San Diego, and Gardena freeways, and just 13 miles south of the City of Los Angeles, in the South Bay Area. Gardena is a part of the Los Angeles-Long Beach- Glendale Metropolitan Statistical Area. Gardena has the singular distinction of having within its borders both the first legal card club licensed in the State of California, granted in 1936, and the newest club in the state, which opened in At one time only five-card draw and lowball poker could be played. During the 1960s, Gardena was the only city in Los Angeles County to have legal gambling. In the mid-1980s, a tremendous Asian influence arrived with the introduction of the California games: Blackjack, Pai Gow Poker, and Super 9. The City of Gardena, incorporated on September 11, 1930 as a general law city, operates under the Council- Manager form of government. Policy-making and legislative authority are vested in a governing council consisting of four members of the City Council and a Mayor elected on a non-partisan basis at-large for fouryear terms, with an election every two years. The Council is responsible for, among other things, establishing policy, passing ordinances, adopting an annual budget, appointing members to various City Commissions and Boards and hiring the City Manager and City Attorney. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the government, and for appointing the heads of the various departments. Gardena offers a full range of municipal services, including police and code enforcement; recreation and human services; public works; streets and parks; planning and building services; engineering; transportation services (enterprise fund); and general administration. Fire services are contracted with Los Angeles County. The Council is required to adopt an initial budget for the fiscal year no later than June 30 preceding the beginning of the fiscal year on July 1. This annual budget serves as the foundation for the City of Gardena s financial planning and control. The budget is prepared by fund, function (e.g. public safety), and department (e.g., police). Department heads may transfer resources within a department as they see fit. LOCAL ECONOMIC CONDITIONS AND OUTLOOK The City of Gardena is fortunate to have a stable and diverse economic base, which somewhat shields its economy from downturns in any specific category. Card club revenue is among the top five revenue sources for the City. Revenue from this source to local government is a unique and steady revenue stream which historically improves during an economic downturn. However during the recession the City saw a decline in card club revenue which has since rebounded to FY levels. Although sales tax had always been the City s number one revenue source, fiscal years and revenue from this source fell below card club revenue. In FY , sales tax revenue was again our number one revenue source. Having no major shopping mall or auto mall in the City has, in fact, been a plus during the recession since the City s revenue is more diverse and not dependent upon sales by any particular industry. ii

85 The real estate market overall continues to lag throughout the South Bay area of Los Angeles with foreclosed properties still having an impact upon property tax. In Gardena however, new housing is beginning to sell at higher rates and the number of building permits being issued is increasing. The City s unemployment rate climbed from 4.7% in 2008 to 9.5% in 2013, but it is still lower than the 10.2% average in Los Angeles County. The unemployment rate in the South Bay area increased from 4.5% in 2008 to 6.4% in Professional and business services are the largest sector of employment in the area and have held up better than manufacturing. Nearby cities of El Segundo and Redondo Beach have a high concentration of aerospace and high-tech sector companies. Given the global geopolitical situation, demand for such goods should continue to stay stable for several years. The region s second largest employment sector, manufacturing, still struggles as construction remains stagnate and outsourcing and overseas production continue to impact the American manufacturing markets. Gardena First! is a marketing outreach program to educate the public on how money spent within the City not only helps businesses to stay open and create new jobs for Gardena residents but also ensures that sales tax dollars stay in Gardena and strengthen the local community. Over the past twelve years, the City s cooperative elected and administrative leadership has implemented policies and programs that have strengthened the City s fiscal stability. The City has a Standard & Poor s A rating on its 2006 Refunding Certificates of Participation (COPs) Series A, B, and C. In comparison, the City was near bankruptcy prior to the consolidation and refinancing of its debt in The S&P A rating is reflective of a stable fiscal outlook and the expectation that Gardena will continue to maintain balanced operational costs with adequate fiscal reserves. LONG-TERM FINANCIAL PLANNING AND MAJOR INITIATIVES Unrestricted Fund Balance (the total of the committed, assigned, and unassigned components of fund balance) in the general fund at year end was 21.1% of total general fund expenditures. This amount was slightly below the policy guidelines set by the Council for budgetary and planning purposes (approximately 25%). The year-end amount is below the minimum target set by the policy guidelines because of the slow recovery of the economy and fluctuating expenditures. The City Council adopted the first Five-Year Plan in 2002 to implement a strategy to pull the City out of financial debt and looming bankruptcy. Establishing a Mission and Vision Statement united elected leadership, employees and employee labor groups to cut expenditures to within available revenues, preserve jobs, and maintain service levels. By 2007, the City had regained both Moody s and Standard & Poor s credit ratings, launched a new state-of-the-art transit facility, held the first Jazz Festival, upgraded the City Council Chambers, initiated District Policing and progressed in many areas of public service and workforce excellence. In 2010, the City began adopting a rolling 5-year plan in order to keep moving forward on a consistent and continuous improvement plan. The City will maintain a safe community environment by implementing Building Development Safety and Security Standards, as well as continue street and sidewalk improvements citywide, implement a camera system on all buses to enhance transit security, procure and install a bus stop security lighting system, replace the transportation department s communications system, and continue the next phase of the Police video command center and real-time crime center. iii

86 The City will sustain economic development by marketing City-owned properties for sale/development, establish expedited developer plan approval processes, establish an expedited plan check process to reduce time and cost for developers, and acquire new grants for additional funding of economic development efforts, and to identify and provide tools/incentives that will increase business expansion along the Rosecrans Corridor. The City s long term financial planning focuses on the Capital Improvement Plan, which is produced as part of the annual budget. The plan primarily addresses maintenance, repair and upgrading of facilities and infrastructure, particularly streets, parks, and sewers. RELEVANT FINANCIAL POLICIES The City has adopted a set of financial policies. During the current year, the City updated GASB Statement No. 54, titled Fund Balance Policy for the General Fund. This policy provides the users of the financial statements greater information about the availability of reported fund balance and the City s commitment of financial resources. Note 12, of the Notes to Basic Financial Statements, presents more detailed information about the five categories of fund balance nonspendable, restricted, committed, assigned and unassigned fund balance. AWARDS and ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Gardena for its CAFR for the fiscal year ended June 30, This was the twenty-seventh consecutive year that the government has achieved this prestigious award. In order to be awarded a Certificate of Achievement, the government had to publish an easily readable and efficiently organized CAFR that satisfied both generally accepted accounting principles and applicable program requirements. A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. However, we believe that our current CAFR continues to meet the Certificate of Achievement for Excellence in Financial Reporting Program s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report could not have been accomplished without the collaborative assistance of the Department Heads and staff in all City departments. First and foremost, we want to recognize the dedicated employees of the Administrative Services Department, particularly the Fiscal Resources Division, headed by Mary Barnhart, Accounting/Finance Manager. Their professional expertise and unassuming commitment to excellence is constantly manifested in the quality of the City s financial records and reporting. Appreciation is also expressed to the audit staff of Pun & McGeady, LLP (P&M), for their advice and assistance in the preparation of this report. Finally, we would like to thank the Mayor and members of the City Council for their support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, Respectfully submitted, Mitchell G. Lansdell City Manager Terrence Beaman Chief Fiscal Officer iv

87 v

88 CITY OF GARDENA ORGANIZATION CHART CITIZENS OF GARDENA CITY CLERK (Elected) CITY ATTORNEY (Appointed) MAYOR & CITY COUNCIL (Elected) CITY MANAGER (Appointed) CITY TREASURER (Elected) Commissions & Committees Elected & Administrative Offices Grants Administration Legislation & Public Information Financial Services Purchasing/Contract Management Information Systems Communication Services Cable Television/Public Access Personnel and Labor Relations Risk Management Police, Streets & Development Services Operations Support Services Patrol Bureau Detective Bureau Special Investigations Transit Security Parking and Code Enforcement Animal Control Inspections Building Services Permits and Licenses Planning and Special Studies Development Services Building and Entitlement Records Economic Development Housing Gardena One-Stop Employment and Business Center Street Maintenance Traffic Signals and Signs Sanitation Equipment Maintenance Engineering Sewer Maintenance AQMD Transportation (Enterprise Fund) Gardena Municipal Bus Line Administrative Transportation Maintenance Vehicle Maintenance Special Transit Rideshare Contracted Fire Services Los Angeles County Consolidated Fire Protection District Recreation, Human Services, Parks & Facilities Youth and Family Services Family Child Care Senior Citizens Socialization Center Sports and Aquatics Developmentally Disabled Special Events Classes Recreation and Leisure Activities Buildings/Facility Maintenance Parks Maintenance and Special Projects Civic Center Grounds Tree Trimming Handy Worker Program vi

89 OFFICIALS OF THE CITY OF GARDENA, CALIFORNIA FISCAL YEAR CITY OF GARDENA CITY COUNCIL Paul K. Tanaka, Mayor Dan Medina, Mayor Pro Tem Tasha Cerda, Councilmember Rachel C. Johnson, Councilmember Terrence Terauchi, Councilmember Administration Officials and Department Heads City Manager Mitchell G. Lansdell Chief Fiscal Officer Terrence Beaman City Treasurer... J. Ingrid Tsukiyama City Clerk... Mina-Semenza City Attorney... Peter L. Wallin Chief of Police... Edward Medrano Community Development Director... Mitchell G. Lansdell Public Works Director... Mitchell G. Lansdell Recreation and Human Services Director... Kelly J. Fujio Transportation Director... Jack Gabig Assistant Fire Chief LA County Fire District... Glenn Massey vii

90 CITY OF GARDENA COMMISSIONS, CORPORATIONS, BOARDS, COMMITTEES, ETC. MAYOR & CITY COUNCIL (Elected) NON-APPOINTED COMMITTEES / ASSOCIATIONS APPOINTED COMMISSIONS Planning & Environmental Quality Commission CORPORATIONS/ AGENCIES/ BOARDS City of Gardena Financing Agency APPOINTED ADVISORY GROUPS Economic Development Committee Gardena Valley Affiliated Committee on Aging Gardena Sister City Association Recreation and Parks Commission Senior Citizens Commission Human Services Commission Gardena Youth Commission Rent Mediation Board Board of Appeals Housing Appeals Board Gardena Business Advisory Council Gardena Beautiful Committee Gardena Police Foundation Gardena Traffic Committee Gardena Recreation and Sports Advisory Board viii

91 9 Corporate Park Suite 130 Irvine, California Phone: (949) Fax: (949) INDEPENDENT AUDITORS REPORT To the Honorable Mayor and Members of the City Council of the City of Gardena Gardena, California Report on Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Gardena, California (the City ), as of and for the year ended June 30, 2013, and the related notes to the basic 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 of 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 City 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 City 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.

92 To the Honorable Mayor and Members of the City Council of the City of Gardena Gardena, California Page 2 Opinions In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2013, and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis, Budgetary Control and Accounting, Budgetary Comparison Schedule, and Schedules of Funding Progress on pages 7 through 15 and 77 through 79 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 Fund Financial Statements and Budgetary Comparison 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 Fund Financial Statements and Budgetary Comparison 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 Fund Financial Statements and Budgetary Comparison Schedules are fairly stated in all material respects in relation to the basic financial statements 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. 2

93 To the Honorable Mayor and Members of the City Council of the City of Gardena Gardena, California Page 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 6, 2013, 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 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 in considering the City s internal control over financial reporting and compliance. Irvine, California December 6,

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95 9 Corporate Park Suite 130 Irvine, California Phone: (949) Fax: (949) 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 Independent Auditors Report To the Honorable Mayor and Members of the City Council of the City of Gardena Gardena, California We have audited, in accordance with the 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, the financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of Gardena, California (the City ), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City s basic financial statements, and have issued our report thereon dated December 6, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City s internal control over financial reporting ( internal control ) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control. Accordingly, we do not express an opinion on the effectiveness of the City s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

96 To the Honorable Mayor and Members of the City Council of the City of Gardena Gardena, California Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 6,

97 City of Gardena Management s Discussion and Analysis As management of the City of Gardena (City), California, we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City 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, which can be found in the introductory section of this report, as well as with the City s financial statements, which follow this discussion. Financial Highlights The assets of the City exceeded its liabilities at the close of the fiscal year by $108,488,056 (net position). The City s total net position decreased $7,640,240. Net position of governmental activities decreased $2,882,581 while net position of business-type activities decreased $4,757,659, due primarily to an increase in liability for other postemployment benefits (OPEB). At the close of the fiscal year, the City s governmental funds reported combined fund balances of $26,156,957, an increase of $905,986 in comparison to the prior year. Nonmajor Governmental Funds showed an increase of $608,206 while the General Fund increased by $299,631. At the end of the fiscal year, the unrestricted fund balance (the total of the committed, assigned, and unassigned components of fund balance) for the General Fund was $10,006,487, or approximately 22.4% of total General Fund expenditures. The City s total outstanding long-term debt decreased by $645,065 during the fiscal year. The decrease is attributable to scheduled principal pay down of issued bonds and capital leases. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements consist of three components: 1) government-wide financial statements; 2) fund financial statements; and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. The statement of net position presents financial information about all of the City s assets and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. 7

98 City of Gardena Management s Discussion and Analysis (Continued) The statement of activities presents information showing how the City 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 that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, public works, community development, and recreation and human services. The business-type activities of the City include Gardena Municipal Bus Lines (GMBL) and the City's Sewer Maintenance Program. The government-wide financial statements can be found on pages of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary 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 statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains thirteen (13) 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, the capital projects fund, and the debt service fund, which are considered to be major funds. Data from the other ten (10) 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 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. The governmental fund financial statements can be found on pages of this report. 8

99 City of Gardena Management s Discussion and Analysis (Continued) Proprietary Funds. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its transit operation and for its sewer maintenance. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses internal service funds to account for the management of its retained risks which includes liability insurance, workers compensation, and health insurance. Because all of these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the transit operation and for the sewer maintenance, both of which are considered to be major funds of the City. Conversely, internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds are provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. The proprietary fund financial statements can be found on pages of this report. 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 of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City maintains one type of fiduciary fund. The Agency fund reports resources held by the City in a custodial capacity for individuals, private organizations and other governments. The fiduciary fund financial statements can be found on pages of this report. 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. The notes to the financial statements can be found on pages of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information concerning the City s funding its obligation to provide pension and OPEB benefits to its employees. Required supplementary information can be found on pages of this report. The combining statements, referred to earlier in connection with nonmajor governmental funds and internal service funds, are presented immediately following the required supplementary information on pensions and OPEB. Combining and individual fund statements and schedules can be found on pages of this report. 9

100 City of Gardena Management s Discussion and Analysis (Continued) Government-wide Overall Financial Analysis As noted earlier, net position, over time, may serve as a useful indicator of a government s financial position. In the case of the City, assets exceeded liabilities by $108,488,056 at the close of the fiscal year. CITY OF GARDENA NET POSITION Governmental Activities Business-type Activities TOTAL Current assets $ 41,031,954 $ 40,058,350 $ 9,347,824 $ 10,228,917 $ 50,379,778 $ 50,287,267 Non-current assets 1,815,813 1,878, ,815,813 1,878,715 Capital assets 45,923,877 45,042,684 75,906,094 79,771, ,829, ,814,235 Total Assets: 88,771,644 86,979,749 85,253,918 90,000, ,025, ,980,217 Current liabilities 13,634,635 12,584,693 7,151,451 8,239,378 20,786,086 20,824,071 Non-current liabilities 40,937,852 37,313,318 3,813,568 2,714,532 44,751,420 40,027,850 Total Liabilities: 54,572,487 49,898,011 10,965,019 10,953,910 65,537,506 60,851,921 Net Investment in Capital Assets 22,478,931 20,538,595 75,906,094 79,771,551 98,385, ,310,146 Restricted 15,289,092 14,664, ,289,092 14,664,735 Unrestricted (3,568,866) 1,878,408 (1,617,195) (724,993) (5,186,061) 1,153,415 Total Net Position: $ 34,199,157 $ 37,081,738 $ 74,288,899 $ 79,046,558 $ 108,488,056 $ 116,128,296 By far, the largest portion of the City s net position (90.7%) reflects its investment in capital assets (e.g., land, buildings, machinery, equipment, vehicles, and infrastructure), less any related outstanding debt that was used to acquire those assets. The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are not available for future spending. Although the City s investment in capital assets is reported net of related debt, it should be noted that the resources used to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City s net position (14.1%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of ($5,186,061) is unrestricted and may be used to meet the government s ongoing obligations to its citizens and creditors which include the net OPEB obligation. At the end of the fiscal year, the City is able to report positive balances in all reported categories of net position with the exception of unrestricted, both for the government as a whole, as well as for its separate governmental and business-type activities. The negative in unrestricted is a result of the increase in the net OPEB obligation in the non-current liabilities. However, the City s overall net position decreased $7,640,240 from the prior fiscal year. The reasons for this overall decrease are discussed in the following sections for governmental activities and business-type activities. 10

101 City of Gardena Management s Discussion and Analysis (Continued) Governmental Activities. During the fiscal year, net position for governmental activities decreased $2,882,581 from the prior fiscal year for an ending balance of $34,199,157. The decrease in the overall net position of governmental activities is a combination of decreased revenues and increased expenses. Revenues for the governmental activities decreased $2,684,081 primarily as a result of completed capital grant projects and a decrease in miscellaneous revenues as a result of one-time revenues in fiscal year Expenses increased approximately 5% which is due to the increased cost of doing business. The decrease in public works expenses was the result of less capital assets being purchased. CITY OF GARDENA'S CHANGES IN NET POSITION Governmental Activities Business -type Activities TOTAL Revenues: Program Revenues: Charges for services $ 7,559,994 $ 8,271,255 $ 4,143,129 $ 3,956,606 $ 11,703,123 $ 12,227,861 Operating grants and contributions 5,084,561 5,383,364 16,005,906 13,857,657 21,090,467 19,241,021 Capital grants and contributions 1,602,081 3,313, ,916 1,174,600 2,342,997 4,488,220 General Revenues: Property taxes 5,924,450 5,740, ,924,450 5,740,677 Sales and other taxes 34,815,144 32,461, ,815,144 32,461,244 Investment income and miscellaneous 2,582,504 5,082,655 (11,760) 220,717 2,570,744 5,303,372 Total Revenues: 57,568,734 60,252,815 20,878,191 19,209,580 78,446,925 79,462,395 Expenses: General government 11,534,998 9,144, ,534,998 9,144,682 Public safety 31,266,838 29,072, ,266,838 29,072,734 Public works 8,904,024 10,127, ,904,024 10,127,663 Recreation and human services 6,424,691 6,562, ,424,691 6,562,245 Community development 2,153,815 2,396, ,153,815 2,396,761 Interest and fiscal charges 1,564,640 1,609, ,564,640 1,609,611 Enterprise operations ,238,159 22,827,762 24,238,159 22,827,762 Total Expenses: 61,849,006 58,913,696 24,238,159 22,827,762 86,087,165 81,741,458 Increase (decrease) in Net Position before other revenues and transfers (4,280,272) 1,339,119 (3,359,968) (3,618,182) (7,640,240) (2,279,063) Transfers 1,397,691 1,180,312 (1,397,691) (1,180,312) - - Change in Net Position (2,882,581) 2,519,431 (4,757,659) (4,798,494) (7,640,240) (2,279,063) Net position - beginning of year 37,081,738 34,562,307 79,046,558 83,845, ,128, ,407,359 Net position - end of year $ 34,199,157 $ 37,081,738 $ 74,288,899 $ 79,046,558 $ 108,488,056 $ 116,128,296 11

102 City of Gardena Management s Discussion and Analysis (Continued) Expenses and Program Revenues - Governmental Activities $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- General government Business-type Activities. The City s business-type activities decreased the net position by $4.8M or 6.1% for the fiscal year ended June 30, Business-type activities revenue increased by $1.7M or 8% for a total $20.9M in revenues at year-end. In comparison to the prior fiscal year, the charges for services increased by $186,523, due, in part, to a change in ridership billing. Operating grants and contributions increased by $2.1M or 15.5% compared to the prior fiscal year. Capital grants and contributions decreased by $433,684 or 36.9% primarily due to the purchase of new Paratransit vehicles in fiscal year and no major capital purchases in fiscal year Related business-type activity costs increased during the fiscal year by $1.4M or 6.2% compared to the previous fiscal year due largely to increased personnel and fuel costs. Overall transfers increased by $217,379 primarily due to the transfer out from the Municipal Bus Lines Fund to the Capital Improvement Fund for the storage tank removal project while the Sewer Fund projects were completed in fiscal year , thereby reducing the transfers to the Capital Improvement Fund. Financial Analysis of Governmental Funds Public safety Public works Recreation and human services Community development Expenses Program Revenue Interest and fiscal charges As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds. The focus of the City s governmental funds is to provide information about near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, an unassigned fund balance may serve as a useful measure of a government s net resources available for discretionary use as they represent the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the City itself, or a group or individual that has been delegated authority to assign resources for use for particular purposes by the City s Council. On June 30, 2013, the City s governmental funds reported combined fund balances of $26,156,957, an increase of $905,986 in comparison with the prior year. Approximately 1% of this amount ($274,236) constitutes an unassigned fund balance, which is available for spending at the government s discretion. The remainder of the fund balance is either nonspendable, restricted, committed, or assigned to indicate that it is: 1) not in spendable form ($207,135); 2) restricted for particular purposes ($15,289,092); 3) committed for particular purposes ($6,825,301); or 4) assigned for particular purposes ($3,561,193). 12

103 City of Gardena Management s Discussion and Analysis (Continued) The general fund is the chief operating fund of the City. At the end of the fiscal year, the unassigned fund balance of the general fund was $274,236, while the total fund balance increased to $10,260,646. As a measure of the general fund s liquidity, it may be useful to compare both the unassigned fund balance and the total fund balance to total general fund expenditures. Unassigned fund balance represents approximately one percent of total general fund expenditures, while total fund balance represents approximately 23 percent of that same amount. The fund balance of the City s general fund increased by $299,631 during the fiscal year. As discussed earlier in connection with governmental activities, the increase was due to a recovering economy. Sales tax revenue increased by $981,107 from the prior fiscal year, and card club revenue increased by $960,170. The capital projects fund, a major fund, had a $6,159 decrease in fund balance during the fiscal year, due to the continuation of the City Hall Improvement Project. The ending fund balance of $654,243 is assigned for ongoing capital projects. The debt service fund, the remaining major governmental fund, had a increase in fund balance during the fiscal year of $4,308 to bring the year end fund balance to $3,458,249. Proprietary Funds. The City s proprietary funds provide the same type of information found in the governmentwide financial statements, but in more detail. Unrestricted net position of the Municipal Bus Lines at the end of the fiscal year was $407,813 and for the sewer maintenance was $1,916,340. The total decrease in net position for both funds was $3,745,614 and $498,386, respectively. As noted earlier in the discussion of business-type activities, the decrease in net position is attributed to increase in personnel and fuel costs. General Fund Budgetary Highlights The final amended budget for revenue is less than one percent more than the original budget. Actual revenue was higher than the final budget by two percent as a result of the increase in the taxes category. Sales tax had the largest variance of $417,403. A review of actual expenditures compared to the appropriations in the final budget yields no significant variances overall. A detailed budgetary comparison schedule for the year ended June 30, 2013, is presented as required supplementary information following the notes to the financial statements. Capital Assets and Debt Administration Capital Assets. The City s investment in capital assets for its governmental and business-type activities as of June 30, 2013, amounts to $121,829,971 (net of accumulated depreciation). This investment in capital assets includes land, buildings, machinery, equipment, vehicles, park facilities, roads, and highways. The total decrease in capital assets for the fiscal year is approximately 2.5%. 13

104 City of Gardena Management s Discussion and Analysis (Continued) CITY OF GARDENA'S CAPITAL ASSETS (Net of depreciation) Governmental Activities Business-Type Activities Total Non-depreciable assets: Land $ 6,541,402 $ 5,619,939 $ 16,049,153 $ 16,049,153 $ 22,590,555 $ 21,669,092 Monuments 46,151 46, ,151 46,151 Construction in progress 1,258, ,245 2,709 56,362 1,261, ,607 Total non-depreciable assets 7,846,159 6,495,335 16,051,862 16,105,515 23,898,021 22,600,850 Capital assets, being depreciated: Buildings/structures and improvements 10,521,564 9,751,085 37,375,238 38,234,393 47,896,802 47,985,478 Buses ,196,486 20,721,216 18,196,486 20,721,216 Machinery and equipment 2,926,335 2,839,047 3,236,187 3,357,925 6,162,522 6,196,972 Furniture and fixtures , , , ,742 Infrastructure , , , ,760 Street lights network 667, , , ,816 Traffic lights network 3,978,507 4,397, ,978,507 4,397,297 Roadway network 19,983,576 20,849, ,983,576 20,849,104 Total depreciable assets (net) 38,077,718 38,547,349 59,854,232 63,666,036 97,931, ,213,385 Total capital assets $ 45,923,877 $ 45,042,684 $ 75,906,094 $ 79,771,551 $ 121,829,971 $ 124,814,235 Major capital asset events during the fiscal year included the following: Phase 2 of the video policing project for a cost of $419,577 was placed into operation. Acquisition of property located at S. Western Avenue. Additional information on the City s capital assets can be found in Note 6 on pages 60-61of this report. Long-term Debt. At the end of the fiscal year, the City had total bonded debt outstanding of $24,170,000. No new debt was issued in fiscal year The remainder of the City s long-term debt comprises of capital leases. CITY OF GARDENA'S OUTSTANDING DEBT Governmental Activities Total Refunding Revenue Bonds $ 2,175,000 $ 2,250,000 $ 2,175,000 $ 2,250,000 Certificates of Participation 21,995,000 22,515,000 21,995,000 22,515,000 -Bond discount Capital Leases 153, , , ,069 $ 24,323,004 $ 24,968,069 $ 24,323,004 $ 24,968,069 The City maintains an A rating from Standard & Poor s for general obligation debt. State statutes limit the amount of general obligation debt a governmental entity may issue to 3.75 percent of the average full valuation. The current debt limitation for the City is $179,430,462, which is significantly in excess of the City s outstanding general obligation debt. Additional information about the City s long-term debt can be found in Note 7 on pages of this report. 14

105 City of Gardena Management s Discussion and Analysis (Continued) Economic Factors and Current Year s Budget and Rates The following economic factors currently affect the City and were considered when developing the fiscal year budget: The unemployment rate for the City is currently 9.5 percent, which is a decrease from a rate of 10.4 percent a year ago because of the economic recovery. While the unemployment rate is likely to decrease, it is not expected to reach the prerecession level of 4.7% for several years. The City Council adopted the fiscal year Combined General Fund operating budget in June The original budget estimates General Fund revenues at $47,422,929 and expenditures at $47,343,735, resulting in a budgeted surplus of $79,194. Sales tax increased 10.8% over the prior fiscal year but is still 5% lower than our highest year of Interest rates are expected to remain at record low levels throughout fiscal year On the expenditure side, previous negotiated salary increases were unfrozen. Restructuring of departments to solidify the City s spending plan while the organization is in transition. Contract settlements with all of the City s unions. Requests for Information This financial report is designed to provide a general overview of the City s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Administrative Services Division, 1700 W. 162 nd Street, Gardena, CA or ed to AdminWeb@ci.gardena.ca.us. 15

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107 BASIC FINANCIAL STATEMENTS 17

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109 GOVERNMENT-WIDE FINANCIAL STATEMENTS 19

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111 City of Gardena Statement of Net Position June 30, 2013 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and investments $ 27,991,395 $ 9,697,743 $ 37,689,138 Cash and investments with fiscal agents 3,460,449-3,460,449 Receivables, net 5,513,360 3,289,215 8,802,575 Internal balances 3,941,348 (3,941,348) - Inventories 47, , ,590 Prepaids and deposits 78,026-78,026 Deferred charges 1,411,681-1,411,681 Other receivables 404, ,132 Capital assets not being depreciated 7,846,159 16,051,862 23,898,021 Capital assets being depreciated, net of accumulated depreciation 38,077,718 59,854,232 97,931,950 Total assets 88,771,644 85,253, ,025,562 LIABILITIES Accounts payable and other liabilities 2,281, ,827 2,744,695 Due to other governmental agencies 18, ,646 Interest payable 744, ,164 Deposits 1,299,124-1,299,124 Unearned revenues 434,131 6,498,483 6,932,614 Long-term debt - due within one year 8,856, ,367 9,045,843 Long-term debt - due in more than one year 40,937,852 3,813,568 44,751,420 Total liabilities 54,572,487 10,965,019 65,537,506 NET POSITION Net investment in capital assets 22,478,931 75,906,094 98,385,025 Restricted for: Employment and training services 537, ,583 Law enforcement 2,203,648-2,203,648 Local street improvements 6,020,275-6,020,275 Other capital projects 2,679,485-2,679,485 Other purposes 389, ,852 Debt service 3,458,249-3,458,249 Total restricted 15,289,092-15,289,092 Unrestricted (deficit) (3,568,866) (1,617,195) (5,186,061) Total net position $ 34,199,157 $ 74,288,899 $ 108,488,056 See accompanying Notes to Basic Financial Statements. 21

112 City of Gardena Statement of Activities For the year ended June 30, 2013 Charges Operating Capital Total for Grants and Grants and Program Functions/Programs Expenses Services Contributions Contributions Revenues Primary government: Governmental activities: General government $ 11,534,998 $ 3,012,767 $ 19,551 $ - $ 3,032,318 Public safety 31,266,838 1,405,062 1,044,017 1,522,229 3,971,308 Public works 8,904, ,644 2,306,621 79,852 2,678,117 Recreation and human services 6,424,691 1,998,540 1,022,988-3,021,528 Community development 2,153, , ,384-1,543,365 Interest and fiscal charges 1,564, Total governmental activities 61,849,006 7,559,994 5,084,561 1,602,081 14,246,636 Business-type activities: Program Revenues Municipal bus line 23,375,194 3,410,708 16,005, ,916 20,157,530 Sewer 862, , ,421 Total business-type activities 24,238,159 4,143,129 16,005, ,916 20,889,951 Total primary government $ 86,087,165 $ 11,703,123 $ 21,090,467 $ 2,342,997 $ 35,136,587 See accompanying Notes to Basic Financial Statements. 22

113 City of Gardena Statement of Activities (Continued) For the year ended June 30, 2013 Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Business-Type Functions/Programs Activities Activities Total Primary government: Governmental activities: General government $ (8,502,680) $ - $ (8,502,680) Public safety (27,295,530) - (27,295,530) Public works (6,225,907) - (6,225,907) Recreation and human services (3,403,163) - (3,403,163) Community development (610,450) - (610,450) Interest and fiscal charges (1,564,640) - (1,564,640) Total governmental activities (47,602,370) - (47,602,370) Business-type activities: Municipal bus line - (3,217,664) (3,217,664) Sewer - (130,544) (130,544) Total business-type activities - (3,348,208) (3,348,208) Total primary government (47,602,370) (3,348,208) (50,950,578) General revenues: Taxes: Property taxes 5,924,450-5,924,450 Sales taxes 9,093,802-9,093,802 Business license 2,224,694-2,224,694 Utility users taxes 5,224,829-5,224,829 Franchise taxes 2,311,421-2,311,421 Card club taxes 8,394,406-8,394,406 Other taxes 2,773,929-2,773,929 Vehicle license 4,792,063-4,792,063 Total taxes 40,739,594-40,739,594 Investment income 163,025 33, ,631 Miscellaneous 2,419,479 (45,366) 2,374,113 Transfers 1,397,691 (1,397,691) - Total general revenues and transfers 44,719,789 (1,409,451) 43,310,338 Change in net position (2,882,581) (4,757,659) (7,640,240) Net position - beginning of year 37,081,738 79,046, ,128,296 Net position - end of year $ 34,199,157 $ 74,288,899 $ 108,488,056 See accompanying Notes to Basic Financial Statements. 23

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115 FUND FINANCIAL STATEMENTS Governmental Fund Financial Statements Proprietary Fund Financial Statements Fiduciary Fund Financial Statements 25

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117 GOVERNMENTAL FUND FINANCIAL STATEMENTS General Fund - To account for and report all financial resources not accounted for and reported in another fund. City Capital Projects Fund - To account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlay. City Debt Service Fund - To account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest. Nonmajor Governmental Funds - To account for the aggregate of all the nonmajor governmental funds. 27

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119 City of Gardena Balance Sheet Governmental Funds June 30, 2013 Major Funds Nonmajor Total City Capital City Debt Governmental Governmental General Projects Service Funds Funds ASSETS Cash and investments $ 8,939,392 $ 1,226,483 $ - $ 10,750,954 $ 20,916,829 Cash and investments with fiscal agents - - 3,460,449-3,460,449 Receivables: Accounts 352, , ,917 Taxes 2,883, ,455 3,004,567 Interest 28, ,971 Employees 55, ,819 Inventories 47, ,376 Prepaids and deposits 66, ,990 75,880 Due from other governments 252, ,389,260 1,641,565 Due from other funds 254, ,067 Lease payment receivable 404, ,132 Long-term receivables 58, ,059 Total assets $ 13,342,994 $ 1,226,483 $ 3,460,449 $ 12,294,705 $ 30,324,631 Liabilities: LIABILITIES AND FUND BALANCES Accounts payable $ 635,595 $ 572,240 $ 2,200 $ 190,771 $ 1,400,806 Accrued liabilities 196, , ,903 Salaries and benefits payable 527, , ,969 Due to other governments ,872 18,872 Due to other funds , ,067 Deposits 1,287, ,287,926 Deferred revenues 434, ,131 Fund Balances: Total liabilities 3,082, ,240 2, ,886 4,167,674 Nonspendable 198, , ,135 Restricted 56,014-3,458,249 11,774,829 15,289,092 Committed 6,825, ,825,301 Assigned 2,906, , ,561,193 Unassigned 274, ,236 Total fund balances 10,260, ,243 3,458,249 11,783,819 26,156,957 Total liabilities and fund balances $ 13,342,994 $ 1,226,483 $ 3,460,449 $ 12,294,705 $ 30,324,631 See accompanying Notes to Basic Financial Statements. 29

120 City of Gardena Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position June 30, 2013 Total Fund Balances - Total Governmental Funds $ 26,156,957 Amounts reported for governmental activities in the Statement of Net Position are different because: Bond issuance costs from issuing debt were expenditures in the fund financial statements. However, they were deferred and subject to capitalization and amortization in the Government-Wide Financial Statements. 1,411,681 Capital assets used in governmental activities are not financial resources and are not reported in the funds: Capital assets, not being depreciated $ 7,846,159 Capital assets, depreciable 84,863,971 Less accumulated depreciation (46,786,253) 45,923,877 Interest expenditures are recognized when due, and therefore, interest payable is not recorded in the governmental funds. (744,164) Long-term liabilities were not due and payable in the current period. Therefore, they were not reported in the Governmental Funds' Balance Sheet. Long-term debt - due within one year (2,065,438) Long-term debt - due in more than one year (39,393,458) (41,458,896) Internal service funds are used by management to charge the costs of general liability, workers' compensation and health benefit claims to individual funds. The assets and liabilities of the internal service fund is included in governmental activities in the Government-Wide Statement of Net Position. 2,909,702 Net Position of Governmental Activities $ 34,199,157 See accompanying Notes to Basic Financial Statements. 30

121 City of Gardena Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the year ended June 30, 2013 Major Funds Nonmajor Total City Capital City Debt Governmental Governmental General Projects Service Funds Funds REVENUES: Taxes $ 38,607,171 $ - $ - $ 2,132,423 $ 40,739,594 Licenses and permits 915, ,614 Intergovernmental 411, ,505,693 7,917,316 Charges for services 4,087, ,087,263 Fines, forfeitures, and penalties 909, ,357 1,629,217 Use of money and property 94, , ,025 Miscellaneous 1,889, ,874 2,116,705 Total revenues 46,916, ,652,427 57,568,734 EXPENDITURES: Current: General government 6,256, ,256,927 Public safety 28,567, ,440,090 30,007,184 Public works 4,511, ,516 5,145,179 Recreation and human services 3,491, ,670,514 6,161,518 Community development 1,245, ,556 2,119,111 Capital outlay 583,860 4,383, ,111 5,806,502 Debt service: Principal retirement , ,065 Interest and fiscal charges - - 1,518,953-1,518,953 Total expenditures 44,656,103 4,383,531 2,164,018 6,456,787 57,660,439 REVENUES OVER (UNDER) EXPENDITURES 2,260,178 (4,383,531) (2,163,992) 4,195,640 (91,705) OTHER FINANCING SOURCES (USES): Transfers in 720,937 4,377,372 2,168, ,184 7,379,793 Transfers out (2,681,484) - - (3,700,618) (6,382,102) Total other financing sources (uses) (1,960,547) 4,377,372 2,168,300 (3,587,434) 997,691 NET CHANGE IN FUND BALANCES 299,631 (6,159) 4, , ,986 FUND BALANCES: Beginning of year 9,961, ,402 3,453,941 11,175,613 25,250,971 End of year $ 10,260,646 $ 654,243 $ 3,458,249 $ 11,783,819 $ 26,156,957 See accompanying Notes to Basic Financial Statements. 31

122 City of Gardena Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Position For the year ended June 30, 2013 Net Change in Fund Balances - Total Governmental Funds $ 905,986 Amounts reported for governmental activities in the Statement of Activities are different because: Acquisition of capital assets was reported as expenditures in the governmental funds. However, in the Government-Wide Statement of Activities, the cost of those assets was allocated over the estimated useful lives as depreciation expense. The following was the amount of capital assets recorded in the current period: Capital outlay ($2,200,691 of capital outlay expenditures were for current public works expenditures for repairs and maintenance and therefore, were not capitalized) 3,605,811 The net effect of disposal of capital assets. (54,483) Depreciation expense on capital assets was reported in the Government-Wide Statement of Activities, but they did not require the use of current financial resources. Therefore, depreciation expense was not reported as an expenditure in the governmental funds. (2,670,135) The fund financial statements record interest expenditures on the current financial resources measurement focus whereas the Government-Wide financial statements recognize interest expense on the accrual basis. The reconciling amount was the change in accrued interest from the prior year. 15,690 Long-term compensated absences expense was reported in the Government-Wide Statement of Activities, but it did not require the use of current financial resources. Therefore, the increase in long-term compensated absences was not reported as an expenditure in the governmental funds. (608,508) Other postemployment benefits expense was reported in the Government-Wide Statement of Activities, but it did not require the use of current financial resources. Therefore, the increase in other postemployment benefits liability was not reported as an expenditure in the governmental funds. (3,841,000) Proceeds from long-term debt provided current financial resources to governmental funds, but issuing debt increased long-term liabilities in the Government-Wide Statement of Net Position. Repayment of bond principal was an expenditure in the governmental funds, but the repayment reduced long-term liabilities in the Government-Wide Statement of Net Position. Capital lease payments $ 50,065 Principal repayments of long-term debt 595, ,065 Amortization expense was reported in the Government-Wide Statement of Activities, but it did not require the use of current financial resources. Therefore, amortization expense was not reported as an expenditure in the governmental funds. Amortization of deferred charges (61,377) (61,377) Internal service funds were used by management to charge the costs of certain activities, such as insurance, to individual funds. The net revenue of the internal service funds was reported with governmental activities. (819,630) Change in Net Position of Governmental Activities $ (2,882,581) See accompanying Notes to Basic Financial Statements. 32

123 PROPRIETARY FUND FINANCIAL STATEMENTS 33

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125 PROPRIETARY FUNDS Enterprise Funds are used to account and report activities for which fees are charges to external users for goods and/or services. Enterprise Funds include: Municipal Bus Line Fund - To account for user charges, fees, federal, state and county grants and all operating costs associated with the operation of the City's bus line. Sewer Fund - To account for user charges, fees and all operating costs associated with the operation, maintenance, upgrade and periodic reconstructions of the City's sanitary sewer system. Internal Service Funds account for financing of goods and services provided by one department to other departments of the City on a cost-reimbursement basis. 35

126 City of Gardena Statement of Net Position Proprietary Funds June 30, 2013 ASSETS Governmental Business-Type Activities Activities Municipal Internal Bus Line Sewer Total Service Funds Current assets: Cash and investments $ 7,758,381 $ 1,939,362 $ 9,697,743 $ 7,074,566 Receivables, net: Accounts 120,029 69, , ,462 Interest Inventories 302, ,214 - Prepaids and deposits ,146 Due from other governments 3,100,144-3,100,144 - Total current assets 11,280,768 2,008,404 13,289,172 7,424,174 Noncurrent assets: Capital assets, net 75,374, ,601 75,906,094 - Total assets 86,655,261 2,540,005 89,195,266 7,424,174 LIABILITIES Current liabilities: Accounts payable 263,559 15, , ,190 Accrued liabilities 1,250-1,250 - Salaries and benefits payable 175,498 6, ,053 - Deposits ,198 Due to other governmental agencies Unearned revenue 6,498,483-6,498,483 - Compensated absences 175,458 13, ,367 - Current portion of claims payable ,791,038 Total current liabilities 7,115,022 36,429 7,151,451 6,911,426 Noncurrent liabilities: Compensated absences 701,829 55, ,464 - Net OPEB liability 3,056,104-3,056,104 - Long-term portion of claims payable ,544,394 Total noncurrent liabilities 3,757,933 55,635 3,813,568 1,544,394 Total liabilities 10,872,955 92,064 10,965,019 8,455,820 NET POSITION Net investment in capital assets 75,374, ,601 75,906,094 - Unrestricted 407,813 1,916,340 2,324,153 (1,031,646) Total net position $ 75,782,306 $ 2,447,941 $ 78,230,247 $ (1,031,646) Net position reconciliation: Net position of proprietary funds $ 75,782,306 $ 2,447,941 $ 78,230,247 $ (1,031,646) Adjustment to reflect the consolidation of internal service fund activities related to the Municipal Bus Line (3,941,348) - (3,941,348) 3,941,348 Net position of business-type activities $ 71,840,958 $ 2,447,941 $ 74,288,899 Net position of governmental activities $ 2,909,702 See accompanying Notes to Basic Financial Statements. 36

127 City of Gardena Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the year ended June 30, 2013 Governmental Business-Type Activities Activities Municipal Internal Bus Line Sewer Total Service Funds OPERATING REVENUES: Charges for services $ 3,171,764 $ 732,421 $ 3,904,185 $ 8,382,164 Other 238, ,944 1,046,246 Total operating revenues 3,410, ,421 4,143,129 9,428,410 OPERATING EXPENSES: Salaries and benefits 10,807, ,520 11,253,513 - Insurance claims ,856,795 General and administrative 5,896, ,785 6,224,567 4,351,033 Depreciation 4,486,529 89,660 4,576,189 - Other operating expenses 1,670,231-1,670,231 - Total operating expenses 22,861, ,965 23,724,500 11,207,828 OPERATING INCOME (LOSS) (19,450,827) (130,544) (19,581,371) (1,779,418) NONOPERATING REVENUES (EXPENSES): Local transportation fund 4,020,355-4,020,355 - Other local assistance 10,871,585-10,871,585 - State transit assistance fund 1,113,966-1,113,966 - Interest income 20,498 13,108 33,606 46,129 Other 14,634 (60,000) (45,366) - Total nonoperating revenues (expenses) 16,041,038 (46,892) 15,994,146 46,129 INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS (3,409,789) (177,436) (3,587,225) (1,733,289) CONTRIBUTIONS AND TRANSFERS: Capital contributions 740, ,916 - Transfers in ,000 Transfers out (1,076,741) (320,950) (1,397,691) - Total contributions and transfers (335,825) (320,950) (656,775) 400,000 Change in net position (3,745,614) (498,386) (4,244,000) (1,333,289) NET POSITION: Beginning of year 79,527,920 2,946,327 82,474, ,643 End of year $ 75,782,306 $ 2,447,941 $ 78,230,247 $ (1,031,646) Change in net position reconciliation: Change in net position of proprietary funds $ (3,745,614) $ (498,386) $ (4,244,000) $ (1,333,289) Adjustment to reflect the consolidation of internal service fund activities related to the Municipal Bus Line (513,659) - (513,659) 513,659 Change in net position of business-type activities $ (4,259,273) $ (498,386) $ (4,757,659) Change in net position of governmental activities $ (819,630) See accompanying Notes to Basic Financial Statements. 37

128 City of Gardena Statement of Cash Flows Proprietary Funds For the year ended June 30, 2013 Governmental Business-Type Activities Activities Municipal Internal Bus Line Sewer Total Service Funds CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers and users $ 3,376,630 $ 731,541 $ 4,108,171 $ 8,035,060 Receipts from claims and recoveries ,046,246 Payments for insurance claims (6,394,065) Payments to suppliers (7,736,845) (313,616) (8,050,461) (4,339,788) Payments to employees (9,880,925) (442,119) (10,323,044) - Net cash provided (used) by operating activities (14,241,140) (24,194) (14,265,334) (1,652,547) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Other - (60,000) (60,000) - Transfers (to) from other funds (1,076,741) (320,950) (1,397,691) 400,000 Transit assistance funds received 17,144,197-17,144,197 - Net cash provided (used) by noncapital financing activities 16,067,456 (380,950) 15,686, ,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (709,278) (9,000) (718,278) - Proceeds from sale of capital assets 7,546-7,546 - Funds provided by capital grants 740, ,916 - Net cash provided (used) by capital and related financing activities 39,184 (9,000) 30,184 - CASH FLOWS FROM INVESTING ACTIVITIES: Interest received 20,498 13,108 33,606 46,129 Net cash provided (used) by investing activities 20,498 13,108 33,606 46,129 Net increase (decrease) in cash and cash equivalents 1,885,998 (401,036) 1,484,962 (1,206,418) CASH AND CASH EQUIVALENTS: Beginning of year 5,872,383 2,340,398 8,212,781 8,280,984 End of year $ 7,758,381 $ 1,939,362 $ 9,697,743 $ 7,074,566 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) $ (19,450,827) $ (130,544) $ (19,581,371) $ (1,779,418) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation expense 4,486,529 89,660 4,576,189 - (Increase) decrease in: Accounts receivable (34,078) (880) (34,958) (347,104) Prepaid expenses 1,109-1,109 - Inventory 15,856-15,856 - Increase (decrease) in: Accounts payable and accrued expenses (183,706) 14,169 (169,537) 462,777 Accrued liabilities (3,091) - (3,091) - Net OPEB liability 1,002,000-1,002,000 - Accrued payroll and compensated absences (74,932) 3,401 (71,531) - Deposits ,198 Total adjustments 5,209, ,350 5,316, ,871 Net cash provided (used) by operating activities $ (14,241,140) $ (24,194) $ (14,265,334) $ (1,652,547) See accompanying Notes to Basic Financial Statements. 38

129 FIDUCIARY FUND FINANCIAL STATEMENTS Agency Funds are used to account for assets held by the City in the capacity of agent for individuals. Agency Fund spending is controlled primarily through legal agreements and applicable State and Federal laws. 39

130 City of Gardena Statement of Fiduciary Net Position Fiduciary Funds June 30, 2013 ASSETS Agency Funds Cash and investments $ 3,958,504 Total assets $ 3,958,504 LIABILITIES Deposits $ 3,958,504 Total liabilities $ 3,958,504 See accompanying Notes to Basic Financial Statements. 40

131 NOTES TO BASIC FINANCIAL STATEMENTS 41

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133 City of Gardena Index to Notes to Basic Financial Statements For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies A. Financial Reporting Entity B. Basis of Accounting and Measurement Focus C. Cash, Cash Equivalents and Investments D. Cash and Investments with Fiscal Agent E. Interfund Transactions F. Inventories and Prepaid Items G. Capital Assets H. Interest Payable I. Deferred Revenue/Unearned Revenue J. Compensated Absences K. Claims Payable L. Long-Term Debt M. Property Taxes N. Net Position and Fund Balances O. Use of Estimates P. Accounting Changes Note 2 Stewardship, Compliance and Accountability Note 3 Cash and Investments Note 4 Other Receivables Note 5 Interfund Transactions Note 6 Capital Assets Note 7 Long-Term Debt Note 8 Self-Insurance Programs Note 9 Retirement Plan Note 10 Other Postemployment Benefits Note 11 Deferred Compensation Plan Note 12 Classification of Fund Balances Note 13 Jointly Governed Organization Note 14 Commitments and Contingencies

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135 City of Gardena Notes to Basic Financial Statements For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies The basic financial statements of the City of Gardena, California, (the City ) have been prepared in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ) as applied to governmental agencies. The Governmental Accounting Standards Board ( GASB ) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the significant policies: A. Financial Reporting Entity The City was incorporated September 11, 1930, under the General Laws of the State of California. The City is governed by an elected five-member council. Component units are legally separate entities that meet any one of the following tests: 1. The City appoints the voting majority of the board and: is able to impose its will on the component unit and/or is in a relationship of financial benefit or burden with the component unit. 2. The component unit is fiscally dependent upon the City. 3. The financial statements of the City would be misleading if data from the component unit were omitted. Management determined that the following component unit should be blended based on the criteria above: City of Gardena Public Improvement Corporation The City of Gardena Public Improvement Corporation (the Corporation ), a nonprofit corporation, was created in August 1986 primarily to issue bonds to finance the major improvements of the City s Civic Center (the Facility ). In February 1991, the Corporation also issued bonds to finance the First-Time Home Buyers Program. In January 1994, the Corporation refunded and defeased the 1986 certificates and funded various capital improvements. The original advisory board of the Corporation was appointed by members of the City Council. New board members are appointed by the Mayor and are subject to the approval of the City Council. In August 1986, February 1991 and January 1995, the City entered into long-term noncancelable leases related to the Facility with the Corporation which provide for payments in amounts sufficient to meet the annual debt service on the certificates issued by the Corporation. At the end of the respective lease term, the ownership of the facility will be transferred to the City. This component unit is included in the primary government because of the significance of its financial and operational relationship and due to the governing body being appointed by the City Council. Separate financial statements are not prepared for the Corporation. The City had no discretely presented component units. B. Basis of Accounting and Measurement Focus The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. City resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. 45

136 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) B. Basis of Accounting and Measurement Focus (Continued) In 2013, the City implemented GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The statement of net position reports separate sections for Deferred Outflows of Resources and Deferred Inflows of Resources, when applicable. Deferred Outflows of Resources represent outflows of resources (consumption of net position) that apply to future periods and that, therefore, will not be recognized as an expense until that time. Deferred Inflows of Resources represent inflows of resources (acquisition of net position) that apply to future periods and that, therefore, are not recognized as revenue until that time. Government Wide Financial Statements The Government-Wide Financial Statements are presented on an economic resources measurement focus and the accrual basis of accounting. Accordingly, all of the City s assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Fiduciary activities are not included in these statements. Certain types of transactions are reported as program revenues for the City in three categories: Charges for services Operating grants and contributions Capital grants and contributions Certain eliminations have been made in regards to interfund activities, payables and receivables. All internal balances in the Statement of Net Position have been eliminated except those representing balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities, internal service fund transactions have been eliminated; however, those transactions between governmental and business-type activities have not been eliminated. The following interfund activities have been eliminated: Due from and to other funds Transfers in and out Governmental Fund Financial Statements All governmental funds are accounted for on a spending or current financial resources measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property taxes, other local taxes, franchise fees, forfeitures and penalties, motor license fees, rents and concessions, interest revenue, and state and federal grants and subventions. Expenditures are recorded in the accounting period in which the related fund liability is incurred. 46

137 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) B. Basis of Accounting and Measurement Focus (Continued) Governmental Fund Financial Statements (Continued) Deferred revenues arise when potential revenues do not meet both the measurable and available criteria for recognition in the current period. Deferred revenues also arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods when both revenue recognition criteria are met or when the government has a legal claim to the resources, the deferred revenue is removed from the Balance Sheet and revenue is recognized. Reconciliations of the fund financial statements to the Government-Wide Financial Statements are provided to explain the differences. Certain indirect costs are included as part of the program expenses reported for individual functions and activities. The City reports the following major governmental funds: General Fund - The General Fund is used to account for and report all financial resources not accounted for and reported in another fund. City Capital Projects Fund - The City Capital Projects Fund is used to account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlay. City Debt Service Fund - The City Debt Service Fund is used to account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest. Proprietary Fund Financial Statements Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Net Position presents increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the proprietary funds are charges to customers for sales and services. Operating expenses for the proprietary funds include the costs of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. A separate column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the Government-Wide Financial Statements. The City s internal service funds include three individual funds which provide services directly to other City funds. These areas of service include general liability, workers compensation, and health benefits. 47

138 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) B. Basis of Accounting and Measurement Focus (Continued) Proprietary Fund Financial Statements (Continued) The City reports the following major proprietary funds: Municipal Bus Line Fund - The Municipal Bus Line Fund accounts for user charges, fees, federal, state and county grants and all operating costs associated with the operation of the City s bus line. Sewer Fund - The Sewer Fund accounts for user charges, fees and all operating costs associated with the operation, maintenance, upgrade and periodic reconstructions of the City s sanitary sewer system. Fiduciary Fund Financial Statements Fiduciary fund financial statements include a Statement of Net Position and Statement of Changes in Assets and Liabilities. The City s fiduciary fund is an agency fund, which is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations. The agency fund is accounted for using the accrual basis of accounting. The City maintains three agency funds: LA CLEAR Training, Los Angeles County Police Chief s Association, and BSSC Trust/AB109 Parole Compliance. C. Cash, Cash Equivalents and Investments The City s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. All cash and investments of proprietary funds are held in the City's investment pool. These cash pools have the general characteristics of a demand deposit account, therefore, all cash and investments in the proprietary funds are considered cash and cash equivalents for Statement of Cash Flows purposes. Investments are stated at fair value (quoted market price or best available estimate thereof). D. Cash and Investments with Fiscal Agents Cash and investments with fiscal agents are restricted for the redemption of bonded debt and for acquisition and construction of capital projects. E. Interfund Transactions Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as due from/to other funds (i.e., current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the Government-Wide Financial Statements as internal balances. 48

139 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) F. Inventories and Prepaid Items Inventories within the various fund types consist of materials and supplies which are valued at cost on a first-in, first-out basis. Reported expenditures reflect the consumption method of recognizing inventory-related expenditures. A nonspendable fund balance has been reported in the governmental funds to show that inventories do not constitute available spendable resources, even though they are a component of net current assets. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. G. Capital Assets In the Government-Wide Financial Statements, capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Donated capital assets are valued at their estimated fair market value on the date donated. City policy has set the capitalization threshold for reporting capital assets at $5,000. The City defines infrastructure assets as the basic physical assets that allow the City to function. The assets include streets, bridges, sidewalks, drainage systems, and lighting systems, etc. Each major infrastructure system can be divided into subsystems. For example, the street system can be subdivided into pavement, curb and gutters, sidewalks, medians, streetlights, landscaping and land. These subsystems were not delineated in the basic financial statements. The appropriate operating department maintains information regarding the subsystems. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest on construction-related debt incurred during the period of construction for business-type assets is capitalized as a cost of the constructed assets. Capital assets acquired under capital lease are capitalized at the net present value of the total lease payments. For all infrastructure systems, the City elected to use the Basic Approach. Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method and half-year convention. The lives used for depreciation purposes are as follows: Buildings/structures and improvements Machinery and equipment Buses Furniture and fixtures Infrastructure years 3-15 years 10 years 3-10 years years Capital Assets Acquired Under Lease Purchase Contracts The long-term principal portion of debt on non-proprietary capital assets acquired through lease purchase contracts is accounted for in the Government-Wide Financial Statements as capital lease obligations. A capital asset is recorded at the net present value of total lease payments in the Government-Wide Financial Statements. 49

140 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) H. Interest Payable In the Government-Wide Financial Statements, interest payable on long-term debt is recognized as the liability is incurred for governmental activities and business-type activities. In the Fund Financial Statements, only proprietary fund types recognize the interest payable when the liability is incurred. I. Deferred Revenue / Unearned Revenue In the Government-Wide Financial Statements, unearned revenue is recognized for transactions for which revenue has not yet been earned. Typical transactions recorded as unearned revenues in the Government-Wide Financial Statements are prepaid charges for services. In the Fund Financial Statements, deferred revenue is recorded when transactions have not yet met the revenue recognition criteria based on the modified accrual basis of accounting. The City records deferred revenue for transactions for which revenues have not been earned, or for which funds are not available to meet current financial obligations. Typical transactions for which deferred revenue is recorded are grants received but not yet earned or available, long-term loans receivables, and prepaid charges for services. J. Compensated Absences It is the City s policy to accrue annual leave when incurred in the Government-Wide Financial Statements and the proprietary funds. In governmental funds, the costs for annual leave that are expected to be liquidated with expendable available financial resources are reported as an expenditure and reported as a liability of the governmental fund only if they have matured. A liability is recorded for unused sick leave balances only to the extent that it is probable that the unused balances will result in termination payments. This is estimated by including in the liability the unused balances of employees currently entitled to receive termination benefits, as well as those who are expected to become eligible to receive termination benefits as a result of continuing their employment with the City. Other amounts of unused sick leave are excluded from the liability since their payment is contingent solely upon the occurrence of a future event (illness) which is outside the control of the City and the employee. K. Claims Payable Claims payable in the Internal Service Fund represents estimates of claims against the City. The estimated claims payable represents the City s best estimate of the amount to be paid on workers compensation and general liability claims. Losses for claims incurred but not reported are also recorded if the probable amount of loss can be reasonably estimated. The City is self-insured for general liability in the amount of $400,000 per claim and workers compensation for $500,000 per claim. Losses in excess of $400,000, up to $10,000,000 for general liability, and in excess of $500,000, up to $1,000,000 for workers compensation, are covered by outside insurance. 50

141 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) L. Long-Term Debt In the Government-Wide Financial Statements, long-term debt and other long-term obligations are reported as liabilities in the appropriate activities. Bond premium and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the Fund Financial Statements, the governmental fund financial statements do not present long-term liabilities. Consequently, long-term debt is shown as a reconciling item in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position. M. Property Taxes Under California law, property taxes are assessed and collected by the counties for up to 1% of assessed property value, plus other increases approved by the voters. Property taxes collected are pooled and then allocated to the cities based on complex formulas. The following are key dates pertaining to property taxes: January 1 Lien Date June 30 Levy Date November 1 and February 1 Due Dates December 10 and April 10 Collection Dates Distribution Dates: November 20, 2012 Unsecured, redemptions, and SB813 taxes December 20, 2012 Homeowners' exemption, secured, and SB813 taxes January 18, 2013 Homeowners' exemption, secured, and SB813 taxes February 20, 2013 Redemptions, secured, and SB813 taxes March 20, 2013 Secured and SB813 taxes April 19, 2013 Secured and SB813 taxes May 20, 2013 Redemptions, homeowners' exemption, secured, and SB813 taxes June 20, 2013 Homeowners' exemption, SB813 taxes July 19, 2013 Secured and SB813 taxes August 20, 2013 Secured, redemptions, unsecured, and SB813 taxes N. Net Position and Fund Balances In the Government-Wide Financial Statements and proprietary fund financial statements, net position is classified as follows: Net Investment in Capital Assets This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets. Restricted This component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. 51

142 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) N. Net Position and Fund Balances (Continued) Unrestricted This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. In the Governmental Fund Financial Statements, fund balances are classified as follows: Nonspendable Nonspendable fund balances are items that cannot be spent because they are not in spendable form, such as prepaid items and inventories, or items that are legally or contractually required to be maintained intact, such as principal of an endowment or revolving loan funds. Restricted Restricted fund balances encompass the portion of net fund resources subject to externally enforceable legal restrictions. This includes externally imposed restrictions by creditors, such as through debt covenants, grantors, contributors, laws or regulations of other governments, as well as restrictions imposed by law through constitutional provisions or enabling legislation. Committed Committed fund balances encompass the portion of net fund resources, the use of which is constrained by limitations that the government imposes upon itself at its highest level of decision making, normally the governing body, and that remain binding unless removed in the same manner. The City Council is considered the highest authority for the City. Adoption of a resolution by the City Council is required to commit resources or to rescind the commitment. Assigned Assigned fund balances encompass the portion of net fund resources reflecting the government s intended use of resources. Assignment of resources can be done by the highest level of decision making or by a committee or official designated for that purpose. The City Council has authorized by resolution the City Finance Officer for that purpose. Unassigned This amount is for any portion of the fund balances that do not fall into one of the above categories. Spending Policy Government-Wide Financial Statements and the Proprietary Fund Financial Statements When expenses are incurred for purposes for which both restricted and unrestricted components of net position are available, the City s policy is to apply the restricted component of net position first, then the unrestricted component of net position as needed. Governmental Fund Financial Statements When expenditures are incurred for purposes for which all restricted, committed, assigned and unassigned fund balances are available, the City s policy is to apply in the following order, except for instances wherein an ordinance specifies the fund balance: Restricted Unassigned Committed Assigned 52

143 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 1 Summary of Significant Accounting Policies (Continued) O. Use of Estimates The preparation of the basic financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. P. Accounting Changes GASB has issued Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements ( SCA ). The requirements of this statement improve financial reporting by establishing recognition, measurement, and disclosure requirements for SCAs for both transferors and governmental operators, requiring governments to account for and report SCAs in the same manner, which improves the comparability of financial statements. This statement became effective for periods beginning after December 15, 2011 and did not have a significant impact on the City s financial statements for the year ended June 30, GASB has issued Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. The requirements of this statement result in financial reporting entity financial statements being more relevant by improving guidance for including, presenting, and disclosing information about component units and equity interest transactions of a financial reporting entity. This statement became effective for periods beginning after June 15, 2012 and did not have a significant impact on the City s financial statements for year ended June 30, GASB has issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement combines the authoritative accounting and financial reporting of the FASB and the American Institute of Certified Public Accountants ( AICPA ). The statement eliminates the need for financial statement preparers and auditors to determine which FASB and AICPA pronouncement provisions apply to state and local governments. This statement became effective for period beginning after December 15, 2011 and did not have a significant impact on the City s financial statements for the year ended June 30, GASB has issued Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The requirement of this statement standardizes the presentation of the deferred inflows and outflows of resources and their effects on a government s net position. This statement became effective for periods beginning after December 15, The implementation of this statement to the City was limited to renaming of Net Assets to Net Position. Note 2 Stewardship, Compliance and Accountability A. Deficit Net Position In the Government-Wide Financial Statements, the City had a deficit unrestricted net position at June 30, 2013 for its governmental activities of $(3,568,866) and business-type activities of $(1,617,195). 53

144 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 2 Stewardship, Compliance and Accountability (Continued) A. Deficit Net Position (Continued) The following fund had a deficit net position at June 30, 2013: Internal Service Funds: Workers' Compensation Fund $ (2,701,061) The net position balance includes both short and long-term liabilities. The deficit balance is expected to be recovered through future interfund transfers and other revenues as applicable for this purpose. B. Expenditures in Excess of Appropriations The following funds had expenditures in excess of budget: Excess of Expenditures over Fund Appropriations Expenditures Appropriations General Fund: General government: Non-departmental $ 2,071,493 $ 2,314,993 $ (243,500) Public safety: Public safety 19,728,874 19,743,204 (14,330) Nonmajor Governmental Funds: Public Safety Grants Special Revenue Fund: Public safety 1,229,329 1,254,866 (25,537) Employment Training Grants Special Revenue Fund: Capital outlay (317) Economic Development Grants Special Revenue Fund: Capital outlay ,382 (19,082) The excess expenditures were covered by carryover funds from the prior year, sufficient revenues, and/or transfers from other available funds. Note 3 Cash and Investments The City maintains a cash and investment pool, which includes cash balances and authorized investments of all funds. Certain restricted funds which are held and invested by independent outside custodians through contractual agreements are not pooled. These restricted funds include cash and investments with fiscal agents. The City had the following cash and investments at June 30, 2013: Government-Wide Statement of Net Position Statement of Governmental Business-Type Fiduciary Activities Activities Net Position Total Cash and investments $ 27,991,395 $ 9,697,743 $ 3,958,504 $ 41,647,642 Cash and investments with fiscal agents 3,460, ,460,449 Total $ 31,451,844 $ 9,697,743 $ 3,958,504 $ 45,108,091 54

145 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 3 Cash and Investments (Continued) The City s cash and investments at June 30, 2013 in more detail: Cash and cash equivalents: Petty cash $ 9,580 Demand deposits (412,736) Total cash and cash equivalents (403,156) Investments: Money market mutual fund 878,260 Negotiable certificates of deposit 1,671,818 Non-negotiable certificates of deposit 3,349,900 Local Agency Investment Fund 30,142,021 U.S. Government sponsored enterprise securities 3,001,770 Medium-term notes 3,007,029 Total investments 42,050,798 Total cash and investments 41,647,642 Cash and investments with fiscal agents 3,460,449 Total $ 45,108,091 A. Deposits The carrying amounts of the City s demand deposits were ($412,736) at June 30, Bank balances at that date were $2,163,419, the total amount of which was collateralized or insured with accounts held by the pledging financial institutions in the City s name as discussed below. The California Government Code requires California banks and savings and loan associations to secure the City s cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name. The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also allows institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the City s total cash deposits. The City may waive collateral requirements for cash deposits, deposits, which are fully insured up to $250,000 by the Federal Deposit Insurance Corporation ( FDIC ). The City, however, has not waived the collateralization requirements. The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents under the provisions of bond indentures. Interest income earned on pooled cash and investments is allocated on an accounting period basis to the various funds based on the period-end cash and investment balances. Interest income from cash and investments with fiscal agents is credited directly to the related fund. 55

146 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 3 Cash and Investments (Continued) B. Investments Under the provisions of the City s investment policy, and in accordance with California Government Code, the following investments are authorized: Maximum Maximum Maximum Percentage Investment in Authorized Investment Type Maturity of Portfolio * One Issuer United States Treasury Obligations 5 years No Limit No Limit U.S. Government Sponsored Enterprise Securities 5 years No Limit No Limit Bankers' Acceptances 180 days 40% 15% Commercial paper 270 days 15% 15% Negotiable certificates of deposit 5 years 30% 15% Repurchase agreements 90 days N/A 15% Reverse repurchase agreements 90 days 20% 15% Local Agency Investment Fund ("LAIF") N/A No Limit No Limit Non-negotiable certificates of deposits 5 years 25% 15% Medium-term notes 5 years 30% 15% Mutual funds 5 years 20% No Limit Money market mutual funds 90 days 20% No Limit N/A - Not Applicable * Excluding amounts held by bond trustees that are not subject to California Government Code restrictions. The City is a participant in LAIF which is regulated by California Government Code Section under the oversight of the Treasurer of the State of California. The City s investments with LAIF at June 30, 2013, included a portion of the pool funds invested in Structured Notes and Asset-Backed Securities: Structured Notes: debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset-Backed Securities: generally mortgage-backed securities that entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (for example, Collateralized Mortgage Obligations) or credit card receivables. As of June 30, 2013, the City had $30,142,021 invested in LAIF, which had invested 1.96% of the pool investment funds in Structured Notes and Asset-Backed Securities. 56

147 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 3 Cash and Investments (Continued) C. Risk Disclosures Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the City s investment policy limits investments to a maximum maturity of five years. At June 30, 2013, the City had the following investment maturities: Investment Maturities (in Years) Investment Type Fair Value Less Than 1 Year 1 to 2 Years 2 to 3 Years 3 to 4 Years Money market mutual fund $ 878,260 $ 878,260 $ - $ - $ - Negotiable certificates of deposit 1,671, , , ,715 Non-negotiable certificates of deposit 3,349,900 2,949, , Local Agency Investment Fund 30,142,021 30,142, U.S. Government securities 3,001, ,000,188 1,001,582 Medium-term notes 3,007,029 1,003,004 1,002,330-1,001,695 Cash and investments with fiscal agents: Money market mutual fund 3,460,449 3,460, Total $ 45,511,247 $ 38,433,634 $ 1,901,785 $ 2,925,836 $ 2,249,992 Credit Risk - State law limits investments in commercial paper and corporate bonds to the top two ratings issued by nationally recognized statistical rating organizations (NRSROs). It is the City s policy to limit its investments in these investment types to the top rating issued by Standard & Poor s and Moody s Investors Service. At June 30, 2013, the City s credit risks, expressed on a percentage basis, were as follows: Credit Quality Distribution for Securities with Credit Exposure as a Percentage of Total Investments Moody's S&P's % of Investments Credit Credit with Interest Investment Type Rating Rating Rate Risk Local Agency Investment Fund Not Rated Not Rated 71.68% Medium-term notes: Met Life Aa3 AA- 2.39% General Electric A1 AA+ 2.39% Toyota Motor AA3 AA- 2.37% U.S. Government sponsored enterprise securities Aaa AA+ 7.14% Negotiable certificates of deposit Not Rated Not Rated 3.98% Non-negotiable certificates of deposit Not Rated Not Rated 7.97% Money market mutual fund P-1 Aa 2.09% Total % Custodial Credit Risk - For deposits, custodial credit risk is the risk that, in the event of the failure of a depository financial institution, the City will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer), the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. 57

148 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 4 Other Receivables In February 1994, the City entered into a long-term lease contract to lease land to the YMCA for construction of a new YMCA facility that would benefit the community. The facility opened on February 6, 1995 with a 30-year lease term, ending in Under the terms of the agreement, the maximum amount that the City could receive was $1,400,000. This amount is payable in monthly payments, with annual rent adjustments over a 30-year lease term. In January 2013, the monthly payment was reduced from $132 to $117 per month. At the adjustment date, annual rent was equal to total rent of $1,400,000 less all previous payments, multiplied by the six-month average LAIF interest rate. The lease includes two 25-year options to renew and an option to purchase the land at the end of the lease for the amount of $1,400,000 reduced by the amount already paid as of the time of purchase. As of June 30, 2013, the unpaid YMCA receivable, including interest, is $404,132. Note 5 Interfund Transactions A. Government-Wide Financial Statements Internal Balances - At June 30, 2013, the City had the following internal receivable and payable, which represents internal service charges between the governmental activities and business-type activities: Internal Payable Business-Type Internal Receivable Activities Governmental Activities $ 3,941,348 Transfers - At June 30, 2013, the City had the following transfers: Transfers Out Business-Type Transfers In Activities Governmental Activities $ 1,397,691 The purpose of the transfers was for reimbursing the governmental activities for public works engineering job costs and administrative costs. 58

149 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 5 Interfund Transactions (Continued) B. Fund Financial Statements Due From/To Other Funds - At June 30, 2013, the City had the following due from/to other funds: Due From Other Funds Due To Other Funds General Fund Governmental Funds: Nonmajor Governmental Funds $ 254,067 Total $ 254,067 The above amounts resulted from temporary reclassifications made at June 30, 2013 to cover cash shortfalls. Transfers In/Out - At June 30, 2013, the City had the following transfers in/out, which arise in the normal course of operations: Transfers In Governmental Funds General City Capital City Nonmajor Internal Transfers Out Fund Projects Debt Service Governmental Service Funds Total Governmental Funds: General Fund $ - $ - $ 2,168,300 $ 113,184 $ 400,000 $ 2,681,484 Nonmajor Governmental Funds 720,937 2,979, ,700,618 Enterprise Funds: Municipal Bus Line - 1,076, ,076,741 Sewer - 320, ,950 Total $ 720,937 $ 4,377,372 $ 2,168,300 $ 113,184 $ 400,000 $ 7,779,793 Administratively, resources may be transferred from one City fund to another. The purpose of the majority of transfers was for reimbursing a fund that made an expenditure on behalf of another fund, such as debt service and capital projects. 59

150 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 6 Capital Assets A. Government-Wide Financial Statements A summary of changes in the capital assets for the governmental activities for the year ended June 30, 2013 is as follows: Governmental Activities Balance Balance July 1, 2012 Additions Deletions Transfers June 30, 2013 Capital assets, not being depreciated: Land $ 5,619,939 $ 921,463 $ - $ - $ 6,541,402 Monuments 46, ,151 Construction in progress 829, ,258 - (372,897) 1,258,606 Total capital assets, not being depreciated 6,495,335 1,723,721 - (372,897) 7,846,159 Capital assets, being depreciated: Buildings/structures and improvements 21,107,289 1,220, ,485 22,612,368 Machinery and equipment 5,738, ,496 (492,398) 88,412 5,995,917 Infrastructure: Street lights network 1,292, ,292,393 Traffic lights network 12,563, ,563,704 Roadway network 42,399, ,399,589 Total capital assets, being depreciated 83,101,382 1,882,090 (492,398) 372,897 84,863,971 Less accumulated depreciation: Buildings/structures and improvements (11,356,204) (734,600) - - (12,090,804) Machinery and equipment (2,899,359) (608,138) 437,915 - (3,069,582) Infrastructure: Street light network (581,577) (43,080) - - (624,657) Traffic lights network (8,166,407) (418,790) - - (8,585,197) Roadway network (21,550,486) (865,527) - - (22,416,013) Total accumulated depreciation (44,554,033) (2,670,135) 437,915 - (46,786,253) Total capital assets, being depreciated, net 38,547,349 (788,045) (54,483) 372,897 38,077,718 Governmental activities capital assets, net $ 45,042,684 $ 935,676 $ (54,483) $ - $ 45,923,877 Depreciation expense was charged to functions/programs of the governmental activities for the fiscal year ended June 30, 2013 as follows: General government $ 799,940 Public safety 352,780 Public works 1,466,764 Recreation and human services 43,835 Community development 6,816 Total depreciation expense $ 2,670,135 60

151 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 6 Capital Assets (Continued) A. Government-Wide Financial Statements (Continued) A summary of changes in the capital assets for the business-type activities for the year ended June 30, 2013 is as follows: Business-Type Activities Balance Balance July 1, 2012 Additions Deletions Transfers June 30, 2013 Capital assets, not being depreciated: Land $ 16,049,153 $ - $ - $ - $ 16,049,153 Construction in progress 56,362 62,743 - (116,396) 2,709 Total capital assets, not being depreciated 16,105,515 62,743 - (116,396) 16,051,862 Capital assets, being depreciated: Buildings/structures and improvements 45,639, ,885-20,574 45,929,399 Buses 33,322,283 - (179,280) - 33,143,003 Machinery and equipment 10,456, ,584 (82,452) 95,822 10,830,315 Furniture and fixtures 1,685,066 26, ,711,132 Infrastructure 11,184, ,184,496 Total capital assets, being depreciated 102,288, ,535 (261,732) 116, ,798,345 Less accumulated depreciation: Buildings/structures and improvements (7,405,547) (1,148,614) - - (8,554,161) Buses (12,601,067) (2,517,184) 171,734 - (14,946,517) Machinery and equipment (7,098,436) (578,144) 82,452 - (7,594,128) Furniture and fixtures (1,225,324) (298,558) - - (1,523,882) Infrastructure (10,291,736) (33,689) - - (10,325,425) Total accumulated depreciation (38,622,110) (4,576,189) 254,186 - (42,944,113) Total capital assets, being depreciated, net 63,666,036 (3,920,654) (7,546) 116,396 59,854,232 Business-type activities capital assets, net $ 79,771,551 $ (3,857,911) $ (7,546) $ - $ 75,906,094 Depreciation expense for business-type activities for the fiscal year ended June 30, 2013 was charged as follows: Municipal Bus Line $ 4,486,529 Sewer 89,660 Total depreciation expense $ 4,576,189 61

152 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 7 Long-Term Debt A. Governmental Activities A summary of changes in long-term liabilities for governmental activities for the year ended June 30, 2013 is as follows: Balance Balance Due within Due in more July 1, 2012 Additions Deletions June 30, 2013 One Year than One Year 2006 Refunding Certificates of Participation Series A & B $ 19,625,000 $ - $ (345,000) $ 19,280,000 $ 365,000 $ 18,915, Refunding Certificates of Participation Series C 2,890,000 - (175,000) 2,715, ,000 2,540, Refunding Revenue Bonds, Series A 2,250,000 - (75,000) 2,175,000 80,000 2,095,000 Capital lease obligation 203,069 - (50,065) 153, ,004 - Claims payable 7,872,702 6,856,795 (6,394,065) 8,335,432 6,791,038 1,544,394 Compensated absences 5,853,664 2,843,506 (2,234,998) 6,462,172 1,292,434 5,169,738 Net OPEB liability 6,832,720 5,703,000 (1,862,000) 10,673,720-10,673,720 Total $ 45,527,155 $ 15,403,301 $ (11,136,128) $ 49,794,328 $ 8,856,476 $ 40,937,852 Typically, the General Fund has been used to liquidate the liability for compensated absences, claims payable, and net other postemployment benefits Certificates of Participation, Series A&B Original Issuance $21,010,000 In June 2006, the Agency issued the 2006 Refinancing Project, Series A and B Taxable Certificates of Participation in the amount of $21,010,000. The purpose of the issue was to refinance the City s 1999 Certificates of Participation in connection with a Memorandum of Understanding ( MOU ) entered into with certain financial institutions. Pursuant to the MOU, the Agency paid the financial institutions $19.0 million (the Initial Amount ) as prepayment of the 1999 Certificates, of which $18.0 million were funded by the 2006 Series A and B Certificates and the balance of $1.0 million from other available City funds. Upon payment of the Initial Amount, the 1999 Leases as well as the pledges and security interests granted in connection with the 1999 Leases will be terminated and the City s obligations under the Reimbursement Agreement for the 1999 Certificates will be terminated. The Initial Payment represents approximately 75% of the principal owed. The City of Gardena 2006A Certificated, 5.98% to 6.38%, and 2006B Certificated, 6.8%, were issued in June 2006 in the amounts of $12,495,000 maturing July 1, 2030 and $8,515,000 maturing July 1, 2036, respectively. Mandatory prepayment of the 2006 Series A and B Certificates occurred in July 2008 and will occur again in July The certificates of participation debt service payments will be made from the debt service funds. 62

153 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 7 Long-Term Debt (Continued) A. Governmental Activities (Continued) 2006 Certificates of Participation, Series A & B Original Issuance $21,010,000 (Continued) The amount outstanding at June 20, 2013 totaled $19,280,000. The annual debt service requirements on these certificates are as follows: Fiscal Year Principal Interest Total 2014 $ 365,000 $ 1,248,533 $ 1,613, ,000 1,226,109 1,611, ,000 1,202,338 1,612, ,000 1,177,072 1,612, ,000 1,149,392 1,609, ,770,000 5,253,148 8,023, ,770,000 4,218,312 7,988, ,160,000 2,789,450 7,949, ,525, ,170 6,307,170 $ 19,280,000 $ 19,046,524 $ 38,326, Certificates of Participation, Series C Original Issuance $3,650,000 In June 2006, the City issued the 2006 Series C Certificates of Participation in the amount of $3,650,000. The proceeds were used to defease the 1994 Civic Center improvement Certificates of Participation, and were placed in an irrevocable trust to provide for all future debt service payments related to the 1994 issuance. Accordingly, the trust account assets and liabilities for the defeased debt are not included in the City's basic financial statements. The City of Gardena 2006 Series C Certificates, 3.625% to 4.5%, was issued in June 2006 in the amount of $3,650,000, with the full amount maturing serially through July 1, 2024, in annual principal installments ranging from $135,000 to $285,000. The certificates of participation debt service payments will be made from the debt service funds. The amount outstanding at June 30, 2013 totaled $2,715,000. The annual debt service requirements on these certificates are as follows: Fiscal Year Principal Interest Total 2014 $ 175,000 $ 115,697 $ 290, , , , , , , ,000 92, , ,000 83, , ,195, ,128 1,459, ,000 25, ,312 $ 2,715,000 $ 788,928 $ 3,503,928 63

154 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 7 Long-Term Debt (Continued) A. Governmental Activities (Continued) 2007 Refunding Revenue Bonds, Series A Original Issuance $2,800,000 In January 2007, the City issued the South Bay Regional Public Communications Authority Refunding Revenue Bonds, 2007 Series A in the amount of $2,800,000. The purpose of the bonds was to refund the South Bay Regional Public Communications Authority Revenue Bonds, 2001 Series A, to provide a reserve fund for the Bonds, and to pay certain costs of issuance of the Bonds. The bonds accrue interest at rates between 5% to 5.125%. Interest on the bonds is payable semiannually on each January 1 and July 1, commencing July 1, Principal payments are due in annual installments ranging from $70,000 to $175,000, commencing July 1, 2007 through January 1, The bonds are subject to optional and mandatory redemption prior to maturity. The refunding revenue bonds debt service payments will be made from the debt service funds. The amount outstanding at June 30, 2013 totaled $2,175,000. The annual debt service requirements on these bonds are as follows: Capital Leases Fiscal Year Principal Interest Total 2014 $ 80,000 $ 109,575 $ 189, , , , , , , ,000 97, , ,000 92, , , , , , , , ,000 52, ,531 $ 2,175,000 $ 1,184,906 $ 3,359,906 Balance Balance Due within Due in more July 1, 2012 Additions Deletions June 30, 2013 One Year than One Year Viron - California National Bank $ 203,069 $ - $ (50,065) $ 153,004 $ 153,004 $ - $ 203,069 $ - $ (50,065) $ 153,004 $ 153,004 $ - 64

155 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 7 Long-Term Debt (Continued) A. Governmental Activities (Continued) Capital Leases (Continued) The assets acquired through capital leases are as follows: Governmental Activities Assets: Machinery and equipment $ 285,154 Less: accumulated depreciation (285,154) Total $ - Viron California National Bank The City has lease agreements for the acquisition and installation of energy-management equipment and other equipment that meet the criteria for capitalization. Total equipment acquired through capital leases amounted to $1,409,157. The total principal balance of the leases at June 30, 2013 was $153,004. The annual debt service requirements outstanding at June 30, 2013 were as follows: Year Ending June 30, Principal Interest Total ,004 4, ,767 Total $ 153,004 $ 4,763 $ 157,767 B. Pledged Revenues The City has not pledged any future sources of revenue for the payment of any debts. C. Business-Type Activities The following is a summary of changes in long-term liabilities for business-type activities for the year ended June 30, 2013: Balance Balance Due within Due in more July 1, 2012 Additions Deletions June 30, 2013 One Year than One Year Compensated absences $ 825,535 $ 646,456 $ (525,160) $ 946,831 $ 189,367 $ 757,464 Net OPEB liability 2,054,104 1,392,000 (390,000) 3,056,104-3,056,104 Total $ 2,879,639 $ 2,038,456 $ (915,160) $ 4,002,935 $ 189,367 $ 3,813,568 65

156 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 8 Self-Insurance Programs Self-insurance programs of the City The City is self-insured for the first $500,000 of each workers compensation claim, $400,000 of each general liability claim and $250,000 of each Municipal Bus Line claim against the City. In addition, the City carries insurance of individual general liability claims in excess of $400,000 to $10,000,000 with Everest National Insurance Co. Additionally, the City has health insurance coverage for the employees and their families with an annual maximum amount of $1 million for all services. The City carries stop-loss insurance of individual health benefit claims in excess of $50,000 to $950,000 per person per year. At June 30, 2013, $8,335,432 has been accrued for the City s self-insurance programs, of which $6,791,038 is considered to be current. Said accruals represent estimates of amounts to be paid for reported claims and incurred but unreported claims based upon past experience, modified for current trends and information. While the ultimate amounts of losses incurred through June 30, 2013 are dependent on future developments, based upon information provided from the City Attorney, outside counsel and others involved with the administration of the programs, City management believes that the aggregate accrual is adequate to cover such losses. For the prior three (3) fiscal years, no settlements exceeded the City s insurance coverage. Changes in the reported liability since June 30, 2013 resulted from the following: Claims Payable Expenses and Beginning Changes in Claims Ending Due within Due in more Balance Estimates Payments Balance One Year than One Year $ 10,626,431 $ 3,942,687 $ (5,846,861) $ 8,722,257 $ 6,363,840 $ 2,358, ,722,257 5,651,902 (6,501,457) 7,872,702 6,398,039 1,474, ,872,702 6,856,795 (6,394,065) 8,335,432 6,791,038 1,544,394 Purchased insurance Property Insurance - Several insurance companies underwrite this insurance protection. The City is currently insured according to a schedule of covered property submitted by the City to Travelers Property Casualty Company of America. Total all-risk property insurance coverage is $60.1 million. There is a $10,000 per loss deductible. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. Fidelity Bonds - The City purchases blanket fidelity bond coverage ranging from $40,000 to $200,000 with $2,500 deductible. The fidelity coverage is provided through the Authority. Premiums are paid annually and are not subject to retroactive adjustments. Adequacy of protection During the past three fiscal years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. 66

157 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 9 Retirement Plan Plan Description The City contributes to the California Public Employees Retirement System ( PERS ), an agent multiple-employer defined benefit pension plan for miscellaneous employees and a cost-sharing multiple-employer defined benefit plan for safety employees. PERS provides retirement and disability benefits, annual cost-of living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefits provisions and all other requirements are established by State statute and City ordinance. Copies of the PERS annual financial report may be obtained from their Executive Office located at 400 P Street, Sacramento, California Funding Policy Active classic members are required by State statute to contribute 7% if a miscellaneous member and 9% if a safety member, of their annual covered salary. Employees assume responsibility for half of the member s rate, or 3.5% for miscellaneous members and 4.5% for safety members. Additionally, the City is required to contribute at an actuarially determined employer rate; the current rate is 9.017% for miscellaneous and % for safety employees, of the annual covered payroll. The Public Employee Pension Reform Act of 2013 ( PEPRA ) was enacted in January 2013 and requires PEPRA members to contribute 6.75% if a miscellaneous member and 12.25% if a safety member of their annual cover salary. Employees assume responsibility for half of the member s rate, or 3.375% for miscellaneous members and 6.125% for safety members. The City s contribution rate for PEPRA employees is 9.07% for miscellaneous members and 12.25% for safety members. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by PERS. Annual Pension Cost For the year ended June 30, 2013, the City s annual pension cost of $6,206,207 for PERS was equal to the City s required and actual contributions, of which $2,082,967 is for the miscellaneous plan and $4,123,240 is for the safety plan. The required contribution was determined as part of the June 30, 2010 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary increases from 3.55% to 14.45% depending on age, service, and type of employment, and (c) 3.25% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 3.0%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a fifteen-year period (smoothed market value). PERS unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed 20-year basis with 3.0% calculated as inflation. 67

158 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 9 Retirement Plan (Continued) Annual Pension Cost (Continued) The following is the three-year trend information for the miscellaneous and safety plans: Miscellaneous Plan Annual Percentage Fiscal Pension of APC Net Pension Year Cost (APC) Contributed Obligation 6/30/11 $ 1,744, % $ - 6/30/12 1,861, % - 6/30/13 2,082, % - Safety Plan Annual Percentage Fiscal Pension of APC Net Pension Year Cost (APC) Contributed Obligation 6/30/11 $ 3,412, % $ - 6/30/12 3,778, % - 6/30/13 4,123, % - A. Funded Status of Plan Miscellaneous Employees A schedule of funding progress for the most current available year is below. The schedule of funding progress presented as Required Supplementary Information ( RSI ) following the Notes to the Basic Financial Statements presents multi-year trend information about whether the actuarial value of the plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Actuarial Actuarial Value Entry Age Actuarial Unfunded Actuarial Funded Covered UAAL as a % Valuation of Assets Accrued Liability Accrued Liability Ratio Payroll of Payroll Date (A) (B) (A - B) (A / B) (C) (A - B) / C 6/30/12 $ 112,165 $ 119,160 $ (6,995) 94.1% $ 16,330 (42.839)% * Amounts in thousands B. Funded Status of Plan Safety Employees In fiscal year ended June 30, 2004, PERS established a risk pool for cities and other government entities that have less than 100 active members. Actuarial valuations performed included other participants within the same risk pool. Therefore, stand alone information of the schedule of the funding progress for the City s safety employees is no longer available nor disclosed. C. Public Agency Retirement System ( PARS ) Defined Contribution Pension Plan For all of its part-time employees who are not eligible for coverage under the PERS pension plan, the City provides pension benefits through a defined contribution plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The plan is administered as part of the Public Agency Retirement Systems ( PARS ). The PARS Trust Agreement may be amended by a two-thirds majority or greater of the Member Agencies. The plan conforms to the requirements under Internal Revenue Code 401(a) and has received a favorable Letter of Determination from the Internal Revenue Service. 68

159 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 9 Retirement Plan (Continued) C. Public Agency Retirement System ( PARS ) (Continued) Defined Contribution Pension Plan (Continued) All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5 percent to a retirement plan, and City Council resolved to match the employees contributions up to 3.75 percent. The City s contributions for each employee (and interest earned by the accounts) are fully vested immediately. For the year ended June 30, 2013, the City s payroll covered by the plan was $364,632. The City made employer contributions of $13,672. Note 10 Other Postemployment Benefits Plan Description The City provides retiree healthcare benefits for employees who retire simultaneously from PERS and the City and who meet the qualifying criteria negotiated by the various City labor groups. The City offers Kaiser and a self-insured PPO. Miscellaneous employees hired prior to July 1, 2002 must be 55 years of age and have at least 13 years of full-time service with the City. Effective July 1, 2002, miscellaneous (non-management) employees must have at least 20 years of full-time service to qualify. Safety employees must be 50 years of age and have 25 years of full-time service in the police or fire department of the City. In October 2000, City fire services transferred to contracted services with the Los Angeles County Fire District. Postemployment benefits continue only for fire personnel retiring from service prior to that date. The City s health plan year runs February through January with open-enrollment every January prior to the start of the new plan year. The monthly benefit to be paid by the City is $1,060 per month. Eligibility All of the Plan s employees became participants in accordance with negotiated Memorandum of Understanding ( MOU ) as negotiated by each group or bargaining unit. In order to receive benefits, eligible employees must meet the minimum requirements defined in their MOU. Participants of the Plan as of June 30, 2013 were as follows: Participants Total Active employees 299 Retirees 197 Total 496 Funding Policy The contribution requirements for Plan members and the City are established by an MOU as negotiated by each group or bargaining unit. The required contribution is based on projected pay-as-you-go financing requirements. For the year ended June 30, 2013, the City contributed $2,252,000. Plan members receiving benefits contributed $46,474 of the total premiums as their required contributions. 69

160 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 10 Other Postemployment Benefits (Continued) Annual OPEB Cost and Net OPEB Obligation The City s annual Other Postemployment Benefit ( OPEB ) cost (expense) is calculated based on the Annual Required Contribution of the Employer ( ARC ), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excesses) over a period not to exceed thirty years. The City has elected to amortize its Unfunded Actuarial Accrued Liability ( UAAL ) during the current fiscal year. The following table shows the components of the City s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City s net OPEB obligation to the Plan: Governmental Business-Type Activities Activities Total Annual required contribution $ 5,965,000 $ 1,468,000 $ 7,433,000 Interest on net OPEB obligation 236,000 74, ,000 Adjustment to annual required contribution (498,000) (150,000) (648,000) Annual OPEB cost (expense) 5,703,000 1,392,000 7,095,000 Contributions made (1,862,000) (390,000) (2,252,000) Increase in net OPEB obligation 3,841,000 1,002,000 4,843,000 Net OPEB obligation - beginning of year 6,832,720 2,054,104 8,886,824 Net OPEB obligation - end of year $ 10,673,720 $ 3,056,104 $ 13,729,824 The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year ended June 30, 2013 and the two preceding years were as follows: % of Annual Fiscal Year Annual Annual OPEB Cost Net OPEB Ended OPEB Cost Contribution Contributed Obligation 6/30/2011 $ 4,389,000 $ 1,520, % $ 5,876,824 6/30/2012 4,650,000 1,640, % 8,886,824 6/30/2013 7,095,000 2,252, % 13,729,824 Funded Status and Funding Progress As of June 30, 2012, the most recent actuarial valuation date, the Actuarial Accrued Liability for benefits was $79,724,000, and the actuarial value of assets was $0, resulting in an UAAL of $(79,724,000). The covered payroll (annual payroll of active employees covered by the Plan) was $18,505,000, and the ratio of UAAL to the covered payroll was 431 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare costs trend. Amounts determined regarding the funded status of the Plan and the Annual Required Contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as Required Supplementary Information following the notes to the basic financial statements, presents multi-year trend information about whether the actuarial value of Plan Assets is increasing or decreasing over time relative to the Actuarial Accrued Liabilities for benefits. 70

161 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 10 Other Postemployment Benefits (Continued) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive Plan (the Plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2012 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions include a 4.00 percent investment rate of return (net of administrative expenses), which is based on the expected return on funds invested, and an annual healthcare cost trend rate of 8.50 percent initially reduced by decrements to an ultimate rate of 5.00 percent thereafter. The actuarial assumption for inflation was 3.0 percent, and the aggregate payroll increases was 3.25 percent used in the actuarial valuation. The City s unfunded actuarial accrued liability will be amortized as a level percentage of projected covered payroll on a closed basis. The amortization period at June 30, 2012 was 20 years. Note 11- Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salaries until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plan assets are under the participants control and are principally invested in demand deposits and mutual funds and are held in trust for the exclusive benefit of the participants and their beneficiaries. The plan assets are not included in the accompanying financial statements. At June 30, 2013, the amount held by Trustee for employees is $16,052,

162 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 12 Classification of Fund Balances At June 30, 2013, fund balances are classified in the governmental funds as follows: Nonmajor Total General City Capital City Debt Govermental Governmental Fund Projects Service Funds Funds Nonspendable Employee receivables $ 55,819 $ - $ - $ - $ 55,819 Lease / long-term receivables 28, ,060 Inventories 47, ,376 Prepaids 66, ,990 75,880 Total nonspendable 198, , ,135 Restricted Debt service - - 3,458,249-3,458,249 Employment & training services , ,583 Law enforcement 43, ,160,168 2,203,648 Local street improvements ,020,275 6,020,275 Other capital projects ,679,485 2,679,485 Other purposes 12, , ,852 Total restricted 56,014-3,458,249 11,774,829 15,289,092 Committed Emergency contingency 6,825, ,825,301 Total committed 6,825, ,825,301 Assigned Computer replacement 419, ,767 Equipment replacement 318, ,883 Future debt service payments 2,168, ,168,300 Other capital projects - 654, ,243 Total assigned 2,906, , ,561,193 Unassigned 274, ,236 Total fund balance $ 10,260,646 $ 654,243 $ 3,458,249 $ 11,783,819 $ 26,156,957 Note 13 Jointly Governed Organization South Bay Regional Public Communications Authority The City is a member of the South Bay Regional Public Communications Authority ( SBRPCA ), which provides financing and equipment for a police communications system for the City and the other member municipalities of SBRPCA - Hawthorne and Manhattan Beach. SBRPCA financial statements can be obtained from the SBRPCA at 4440 West Broadway, Hawthorne, California Revenues, expenses and indebtedness incurred by the SBRPCA relating to services associated with central dispatch are divided by member agencies in accordance with set percentages, however, expenses incurred relating to specific equipment and services requested by an individual member agency for use by its own public safety services are paid entirely by that member agency. As of June 30, 2013, the City s percentage interest is 32.08%. 72

163 City of Gardena Notes to Basic Financial Statements (Continued) For the year ended June 30, 2013 Note 13 Jointly Governed Organization (Continued) South Bay Regional Public Communications Authority (Continued) As of and for the year ended June 30, 2013, the latest available information, SBRPCA s unaudited financial information is as follows: Current assets $ 3,104,167 Noncurrent assets 7,750,578 Total assets $ 10,854,745 Total liabilities $ 1,348,900 SBRPCA equity 9,505,845 Total liabilities and SBRPCA equity $ 10,854,745 Total revenues $ 9,341,575 Total expenses (9,535,808) Excess (under) of revenues over expenses $ (194,233) Note 14 Commitments and Contingencies The City participates in a number of federal and state assisted grant programs, which are subject to program compliance audits by the grantors or their representatives. Final closeout audits of these programs have not yet been completed. Accordingly, the City s ultimate compliance with applicable grant requirements will be established at some future date. Expenditures, if any, that may be disallowed by the granting agencies cannot be determined at this time, although the City expects such amounts, if any, to be immaterial. The City is currently a party to various claims and legal proceedings. In management s opinion, the ultimate liabilities, if any, resulting from such claims and proceedings, will not materially affect the City s financial position. 73

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165 REQUIRED SUPPLEMENTARY INFORMATION 75

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167 City of Gardena Required Supplementary Information (Unaudited) For the year ended June 30, 2013 Note 1 Budgetary Control and Accounting Policy The City adopts annual budgets for the General Fund and special revenue funds and adopts project length budgets for projects within the City Capital Projects Fund. The City s budget is a detailed operating plan, which identifies estimated costs and results in relation to estimated revenues. The budget includes (1) the programs, projects, services, and activities to be provided during the fiscal year, (2) the estimated resources (inflows) and amounts available for appropriation and (3) the estimated charges to appropriations (outflows). The budget represents a process through which policy decisions are made, implemented, and controlled. The City s policy prohibits expending funds for which there is no legal appropriation. The City s procedures for preparing the budgetary data reflected in the financial statements are: The budget is prepared under the City Manager s direction and adopted by the City Council, generally prior to June 30 of each year. It is revised periodically during the year by the City Council. The budget presented in the financial statements includes the original and final amounts. The budget serves as a policy document for the deliverance of public services; however, expenditures are individually approved by the City Council. The City Manager is authorized to transfer amounts within individual fund budgets without the approval of City Council. Additional appropriations during the year may be submitted to the City Council for review and approval. Budget information is presented for the governmental fund types. Budgeted revenue amounts represent the original budget modified by Council-authorized adjustments during the year, which were contingent upon new, or additional revenue sources. Budgeted expenditure amounts represent original appropriations adjusted for supplemental appropriations during the year. Total expenditures of each governmental fund may not legally exceed fund appropriations, and total expenditures for each department (for example: police department, public works department, community development department, etc.) may not legally exceed departmental appropriations. The City does not employ encumbrance accounting. The budgets conform, in all material respects, to generally accepted accounting principles. Appropriations lapse at year-end to the extent they have not been expended, except for capital projects appropriations which lapse when individual projects are completed. 77

168 City of Gardena Required Supplementary Information (Unaudited) (Continued) For the year ended June 30, 2013 Note 1 Budgetary Control and Accounting Policy (Continued) Budgetary Comparison Schedule General Fund REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Taxes $ 36,998,200 $ 38,189,768 $ 38,607,171 $ 417,403 Licenses and permits 687, , , ,189 Intergovernmental 338, , ,623 17,487 Charges for services 4,838,541 3,930,165 4,087, ,098 Fines, forfeitures and penalties 1,126, , ,860 (84,771) Use of money and property 235, ,922 94,919 (152,003) Miscellaneous 1,532,014 1,471,620 1,889, ,211 Total revenues 45,756,380 45,914,667 46,916,281 1,001,614 EXPENDITURES: Current: General government: City clerk 356, , , City treasurer 269, , , Executive office 1,090,722 1,062,922 1,061,208 1,714 Administrative services 2,505,772 2,295,472 2,293,687 1,785 Non-departmental 1,094,441 2,071,493 2,314,993 (243,500) Public safety: Police 19,874,313 19,728,874 19,743,204 (14,330) L.A. County Fire District 8,923,599 8,832,599 8,823,890 8,709 Public works 4,806,639 4,516,189 4,511,663 4,526 Recreation and human services 3,608,536 3,599,036 3,491, ,032 Community development 1,178,918 1,246,430 1,245, Capital outlay 203, , , ,603 Total expenditures 43,912,398 44,664,737 44,656,103 8,634 REVENUE OVER (UNDER) EXPENDITUR 1,843,982 1,249,930 2,260,178 1,010,248 OTHER FINANCING SOURCES (USES): Transfers in 937, , ,589 (10,674) Transfers out (2,059,391) (2,528,043) (2,686,136) (158,093) - Total other financing sources (uses) (1,122,184) (1,791,780) (1,960,547) (168,767) Net changes in fund balance 721,798 (541,850) 299, ,481 FUND BALANCE: Beginning of year 9,961,015 9,961,015 9,961,015 - End of year $ 10,682,813 $ 9,419,165 $ 10,260,646 $ 841,481 78

169 City of Gardena Required Supplementary Information (Unaudited) (Continued) For the year ended June 30, 2013 Note 2 Public Employees Retirement System A. Schedule of Funding Progress Miscellaneous Employees The schedule of funding progress ($ in thousands) for the past three actuarial valuations is presented below: Actuarial Actuarial Value Entry Age Actuarial Unfunded Actuarial Funded Covered UAAL as a % Valuation of Assets Accrued Liability Accrued Liability Ratio Payroll of Payroll Date (A) (B) (A - B) (A / B) (C) (A-B) / C 6/30/10 $ 106,780 $ 108,465 $ (1,685) 98.4% $ 15,528 (10.9)% 6/30/11 110, ,894 (2,576) 97.7% 15,401 (16.7)% 6/30/12 112, ,160 (6,995) 94.1% 16,330 (42.8)% B. Schedule of Funding Progress Safety Employees In fiscal year ended June 30, 2004, PERS established a risk pool for cities and other government entities that have less than 100 active members. Actuarial valuations performed included other participants within the same risk pool. Therefore, stand alone information of the schedule of the funding progress for the City s safety employees is no longer available nor disclosed. Note 3 Other Postemployment Benefits A. Schedule of Funding Progress The schedule of funding progress ($ in thousands) for the past three actuarial valuations is presented below: Actuarial Actuarial Value Entry Age Actuarial Unfunded Actuarial Funded Covered UAAL as a % Valuation of Assets Accrued Liability Accrued Liability Ratio Payroll of Payroll Date (A) (B) (A - B) (A / B) (C) (A-B) / C 6/30/2008 $ - $ 50,226 $ (50,226) 0.0% $ 18,348 (273.7)% 6/30/ ,888 (55,888) 0.0% 18,662 (299.5)% 6/30/ ,724 (79,724) 0.0% 18,505 (430.8)% 79

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171 SUPPLEMENTARY INFORMATION 81

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173 NONMAJOR GOVERNMENTAL FUNDS Consolidated Lighting District Special Revenue Fund - To account for monies received from property assessments restricted to fund district lighting activities. Public Works Grants Special Revenue Fund - represents six funds used to implement various capital improvement projects. The Artesia Boulevard Landscaping Assessment is received from property assessments and restricted to funding district landscaping activities. The Transportation Community and System Preservation grant is received from Caltrans to implement programs that promote pedestrian friendly areas, job growth, and business retention along the Rosecrans corridor. The Surface Transportation Program Local Hazmat Grant is federal funding earmarked for street improvements and maintenance. The Proposition A Park Bond Safe Neighborhood Parks Proposition of 1992 and 1996 is received from Los Angeles County Regional Park and Open Space District to be used for acquisition and improvements to parks. The South Coast AQMD fund is monies received from the motor vehicle tax to be expended on programs to reduce air pollution, which is necessary to comply with the California Clean Air Act of Measure R funds are derived from Los Angeles County 1/2 cent sales tax approved by voters in November 2008 to meet the transportation needs of Los Angeles County. The program is to be used for transportation projects that have been approved by the Los Angeles County Metropolitan Transportation Authority ("MTA"). Prop C Local Return Special Revenue Fund - To account for monies derived from Los Angeles County 1/2% sales tax, received from MTA and expended on streets and roads heavily used by public transit. Gas Tax Special Revenue Fund - To account for funding from the State of California for the state and county gas tax allocation. Asset Forfeiture Special Revenue Fund - To account for monies that were seized from criminal activities and is to be used solely for law enforcement purposes. Public Safety Grants Special Revenue Fund - represents fourteen funds used to fund various police activities. Three of the grants receive funding from the California Office of Traffic Safety. These grants fund sobriety checkpoints, saturation patrols, seatbelt enforcement, warrant/probation sweeps and additional activities to raise public awareness and reduce alcohol involved fatalities. An additional seven grants from the U.S. Department of Justice provide funding for technological programs and equipment to improve public safety issues. Two grants were awarded by the U.S. Department of Homeland Security to purchase emergency response equipment as well as to create an emergency preparedness action plan to deploy safety personnel during emergency situations. One American Recovery and Reinvestment ("ARRA") grants were awarded for job creation. Finally, the COPS grant and Traffic Safety grant are funds earmarked for any police activity that will increase public safety. 83

174 NONMAJOR GOVERNMENTAL FUNDS (CONTINUED) Employment Training Grants Special Revenue Fund - represents five funds used to promote employment. Two of these funds receive grants from the Department of Health and Human Services to provide funding to assist individuals receiving Temporary Assistance to Needy Families ("TANF") with work readiness skills. One of the funds assist adults with job search, training and placement. An additional one funds offer services to reintegrate dislocated workers into the workforce. One of the funds provide funding for low income and at-risk youth to participate in summer youth employment programs, job training, facilitative programs to encourage attaining educational goals, such as GED programs and other supportive services, as well as other programs to encourage employability. Human Services Grants Special Revenue Fund - represents four funds. Two of the funds provide meals to the elderly and disabled. These meals are served at the Nakaoka Center or delivered directly to the participants. One grant provides for a socialization program for elderly persons suffering from Alzheimer's Disease or dementia. The Family Child Care grant is funded by the California Department of Education and provides daycare and early education to qualified families. Economic Development Grants Special Revenue Fund - represents four funds used for housing and environmental issues. Two of the grants receive funding from the U.S. Department of Housing and Urban Development ("HUD") to assist cities, counties and non profit community housing development organizations to create and retain affordable housing. Eligible activities include housing rehabilitation to benefit lower income renters and owners. The remaining two funds receive funding from the U.S. Environmental Protection Agency ("EPA"). These grants are used to empower communities and other stakeholders in economic redevelopment to work together in a timely manner to prevent, assess, safely clean up, and sustainably use brownsfields (previously unusable land). Community Development Block Grant (CDBG) Special Revenue Fund - To account for funding from HUD to fund programs that benefit low income, elderly or disabled individuals. A number of programs are funded with these monies, including an at-risk youth program, code enforcement, a handy worker program for small home repairs and access ramps, projects to improve or eliminate slum blight conditions, as well as assistance for landlords in designated areas to improve living conditions for qualified tenants. 84

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176 City of Gardena Combining Balance Sheet Nonmajor Governmental Funds June 30, 2013 Special Revenue Consolidated Prop C Lighting Public Works Local Gas Asset Public Safety District Grants Return Tax Forfeiture Grants ASSETS Cash and investments $ 241,399 $ 2,536 $ 1,630,684 $ 3,753,771 $ 1,925,909 $ 66 Receivables: Accounts - 20, Taxes 7, , Due from other governmental agencies - 649, , ,636 Prepaid expenses 3, Total assets $ 252,100 $ 673,229 $ 1,630,684 $ 3,867,511 $ 1,952,728 $ 447,702 Liabilities: LIABILITIES AND FUND BALANCES Accounts payable $ 42,391 $ 931 $ - $ - $ 12,330 $ 9,744 Accrued liabilities Salaries and benefits payable ,051 Due to other governments Due to other funds - 25, ,137 Fund Balances: Total liabilities 42,391 25, , ,932 Nonspendable 3, Restricted 206, ,298 1,630,684 3,867,511 1,940, ,770 Total fund balances 209, ,298 1,630,684 3,867,511 1,940, ,770 Total liabilities and fund balances $ 252,100 $ 673,229 $ 1,630,684 $ 3,867,511 $ 1,952,728 $ 447,702 86

177 City of Gardena Combining Balance Sheet (Continued) Nonmajor Governmental Funds June 30, 2013 Special Revenue Community Total Employment Human Economic Development Nonmajor Training Services Development Block Grant Governmental Grants Grants Grants (CDBG) Funds ASSETS Cash and investments $ 479,736 $ 87,565 $ 2,610,586 $ 18,702 $ 10,750,954 Receivables: Accounts ,498 24,046 Taxes ,455 Due from other governmental agencies 67,290 66,150 85,734 45,643 1,389,260 Prepaid expenses 5, ,990 Total assets $ 553,016 $ 154,572 $ 2,696,320 $ 66,843 $ 12,294,705 Liabilities: LIABILITIES AND FUND BALANCES Accounts payable $ 2,549 $ 99,303 $ 16,835 $ 6,688 $ 190,771 Accrued liabilities - 7, ,120 Salaries and benefits payable 6,894 11,298-7,813 40,056 Due to other governments - 18, ,872 Due to other funds , ,067 Fund Balances: Total liabilities 9, ,593 16,835 39, ,886 Nonspendable 5, ,990 Restricted 537,583 17,979 2,679,485 27,412 11,774,829 Total fund balances 543,573 17,979 2,679,485 27,412 11,783,819 Total liabilities and fund balances $ 553,016 $ 154,572 $ 2,696,320 $ 66,843 $ 12,294,705 87

178 City of Gardena Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the year ended June 30, 2013 Special Revenue Consolidated Prop C Lighting Public Works Local Gas Asset Public Safety District Grants Return Tax Forfeiture Grants REVENUES: Taxes $ 650,207 $ 687,450 $ 794,766 $ - $ - $ - Intergovernmental - 816,177-1,422, ,314 1,572,078 Fines, forfeitures, and penalties ,916 Use of money and property 889 4,707 8,680 21,394 12, Miscellaneous 24,415 30, Total revenues 675,511 1,538, ,446 1,443, ,858 1,739,237 EXPENDITURES: Current: Public safety ,224 1,254,866 Public works 604,154 29, Recreation and human services Community development Capital outlay , ,745 Total expenditures 604,154 29, ,891 1,558,611 REVENUES OVER (UNDER) EXPENDITURES 71,357 1,508, ,446 1,443,540 (14,033) 180,626 OTHER FINANCING SOURCES (USES): Transfers in Transfers out - (1,602,920) (389,542) (1,261,811) (324,104) - Total other financing sources (uses) - (1,602,920) (389,542) (1,261,811) (324,104) 480 NET CHANGE IN FUND BALANCES 71,357 (93,948) 413, ,729 (338,137) 181,106 FUND BALANCES: Beginning of year 138, ,246 1,216,780 3,685,782 2,278,535 38,664 End of year $ 209,709 $ 647,298 $ 1,630,684 $ 3,867,511 $ 1,940,398 $ 219,770 88

179 City of Gardena Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Continued) Nonmajor Governmental Funds For the year ended June 30, 2013 Special Revenue Community Total Employment Human Economic Development Nonmajor Training Services Development Block Grant Governmental Grants Grants Grants (CDBG) Funds REVENUES: Taxes $ - $ - $ - $ - $ 2,132,423 Intergovernmental 426,655 1,755, , ,384 7,505,693 Fines, forfeitures, and penalties , ,357 Use of money and property 4,106 1,014 14,287-68,080 Miscellaneous 2, ,893-18, ,874 Total revenues 433,471 1,907, , ,456 10,652,427 EXPENDITURES: Current: Public safety ,440,090 Public works ,516 Recreation and human services 689,301 1,981, ,670,514 Community development , , ,556 Capital outlay , ,111 Total expenditures 689,618 1,981, , ,688 6,456,787 REVENUES OVER (UNDER) EXPENDITURES (256,147) (73,518) 547,629 (16,232) 4,195,640 OTHER FINANCING SOURCES (USES): Transfers in - 73,292-39, ,184 Transfers out - - (107,615) (14,626) (3,700,618) Total other financing sources (uses) - 73,292 (107,615) 24,786 (3,587,434) NET CHANGE IN FUND BALANCES (256,147) (226) 440,014 8, ,206 FUND BALANCES: Beginning of year 799,720 18,205 2,239,471 18,858 11,175,613 End of year $ 543,573 $ 17,979 $ 2,679,485 $ 27,412 $ 11,783,819 89

180 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Consolidated Lighting District - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Taxes $ 649,500 $ 649,500 $ 650,207 $ 707 Use of money and property Miscellaneous ,415 24,415 Total revenues 649, , ,511 25,661 EXPENDITURES: Current: Public works 646, , ,154 42,142 Total expenditures 646, , ,154 42,142 REVENUES OVER (UNDER) EXPENDITURES 3,554 3,554 71,357 67,803 OTHER FINANCING SOURCES (USES): Transfers out (70,000) (70,000) - 70,000 Total other financing sources (uses) (70,000) (70,000) - 70,000 Net changes in fund balance (66,446) (66,446) 71, ,803 FUND BALANCE: Beginning of year 138, , ,352 - End of year $ 71,906 $ 71,906 $ 209,709 $ 137,803 90

181 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Public Works Grants - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Taxes $ 91,662 $ 141,662 $ 687,450 $ 545,788 Intergovernmental 1,309,000 1,309, ,177 (492,823) Use of money and property ,707 4,207 Miscellaneous ,000 30,000 Total revenues 1,401,162 1,451,162 1,538,334 87,172 EXPENDITURES: Current: Public works 184, ,162 29, ,800 Total expenditures 184, ,162 29, ,800 REVENUES OVER (UNDER) EXPENDITURES 1,217,000 1,267,000 1,508, ,972 OTHER FINANCING SOURCES (USES): Transfers out (10,429,395) (10,529,395) (1,602,920) 8,926,475 Total other financing sources (uses) (10,429,395) (10,529,395) (1,602,920) 8,926,475 Net changes in fund balance (9,212,395) (9,262,395) (93,948) 9,168,447 FUND BALANCE: Beginning of year 741, , ,246 - End of year $ (8,471,149) $ (8,521,149) $ 647,298 $ 9,168,447 91

182 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Prop C Local Return - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Taxes $ 742,015 $ 742,015 $ 794,766 $ 52,751 Use of money and property 25,000 25,000 8,680 (16,320) Total revenues 767, , ,446 36,431 REVENUES OVER (UNDER) EXPENDITURES 767, , ,446 36,431 OTHER FINANCING SOURCES (USES): Transfers out (1,270,000) (1,270,000) (389,542) 880,458 Total other financing sources (uses) (1,270,000) (1,270,000) (389,542) 880,458 Net changes in fund balance (502,985) (502,985) 413, ,889 FUND BALANCE: Beginning of year 1,216,780 1,216,780 1,216,780 - End of year $ 713,795 $ 713,795 $ 1,630,684 $ 916,889 92

183 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Gas Tax - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 1,614,101 $ 1,614,101 $ 1,422,146 $ (191,955) Use of money and property 19,250 19,250 21,394 2,144 Total revenues 1,633,351 1,633,351 1,443,540 (189,811) REVENUES OVER (UNDER) EXPENDITURES 1,633,351 1,633,351 1,443,540 (189,811) OTHER FINANCING SOURCES (USES): Transfers out (1,517,207) (1,517,207) (1,261,811) 255,396 Total other financing sources (uses) (1,517,207) (1,517,207) (1,261,811) 255,396 Net changes in fund balance 116, , ,729 65,585 FUND BALANCE: Beginning of year 3,685,782 3,685,782 3,685,782 - End of year $ 3,801,926 $ 3,801,926 $ 3,867,511 $ 65,585 93

184 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Asset Forfeiture - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 510,000 $ 510,000 $ 673,314 $ 163,314 Use of money and property 6,500 6,500 12,760 6,260 Miscellanous Total revenues 516, , , ,358 EXPENDITURES: Current: Public safety 277, , ,224 92,376 Capital outlay 437,000 1,092, , ,333 Total expenditures 714,600 1,369, , ,709 REVENUES OVER (UNDER) EXPENDITURES (198,100) (853,100) (14,033) 839,067 OTHER FINANCING SOURCES (USES): Transfers out (100,000) (425,000) (324,104) 100,896 Total other financing sources (uses) (100,000) (425,000) (324,104) 100,896 Net changes in fund balance (298,100) (1,278,100) (338,137) 939,963 FUND BALANCE: Beginning of year 2,278,535 2,278,535 2,278,535 - End of year $ 1,980,435 $ 1,000,435 $ 1,940,398 $ 939,963 94

185 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Public Safety Grants - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 1,173,239 $ 1,531,320 $ 1,572,078 $ 40,758 Fines, forfeitures, and penalties 100, , ,916 66,916 Use of money and property Total revenues 1,273,239 1,631,320 1,739, ,917 EXPENDITURES: Current: Public safety 1,111,236 1,229,329 1,254,866 (25,537) Capital outlay 18, , ,745 8,246 Total expenditures 1,129,239 1,541,320 1,558,611 (17,291) REVENUES OVER (UNDER) EXPENDITURES 144,000 90, ,626 90,626 OTHER FINANCING SOURCES (USES): Transfers in (480) Transfers out (100,000) (100,000) - 100,000 Total other financing sources (uses) (100,000) (100,000) ,520 Net changes in fund balance 44,000 (10,000) 181, ,146 FUND BALANCE: Beginning of year 38,664 38,664 38,664 - End of year $ 82,664 $ 28,664 $ 219,770 $ 190,146 95

186 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Employment Training Grants - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 655,304 $ 655,304 $ 426,655 $ (228,649) Use of money and property - - 4,106 4,106 Miscellaneous - - 2,710 2,710 Total revenues 655, , ,471 (221,833) EXPENDITURES: Current: Recreation and human services 782, , ,301 92,995 Capital outlay (317) Total expenditures 782, , ,618 92,678 REVENUES OVER (UNDER) EXPENDITURES (126,992) (126,992) (256,147) (129,155) FUND BALANCE: Beginning of year 799, , ,720 - End of year $ 672,728 $ 672,728 $ 543,573 $ (129,155) 96

187 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Human Services Grants - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 1,789,183 $ 1,709,475 $ 1,755,788 $ 46,313 Use of money and property 2, , Miscellaneous 30, , ,893 32,704 Total revenues 1,821,183 1,828,414 1,907,695 79,281 EXPENDITURES: Current: Recreation and human services 2,222,874 2,006,470 1,981,213 25,257 Total expenditures 2,222,874 2,006,470 1,981,213 25,257 REVENUES OVER (UNDER) EXPENDITURES (401,691) (178,056) (73,518) 104,538 OTHER FINANCING SOURCES (USES): Transfers in ,292 (73,292) Total other financing sources (uses) ,292 (73,292) Net changes in fund balance (401,691) (178,056) (226) 31,246 FUND BALANCE: Beginning of year 18,205 18,205 18,205 - End of year $ (383,486) $ (159,851) $ 17,979 $ 31,246 97

188 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Economic Development Grants - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 626,051 $ 626,051 $ 148,151 $ (477,900) Fines, forfeitures, and penalties , ,441 Use of money and property ,287 14,287 Total revenues 626, , ,879 88,828 EXPENDITURES: Current: Community development 626, , , ,945 Capital outlay ,382 (19,082) Total expenditures 626, , , ,863 REVENUES OVER (UNDER) EXPENDITURES - (194,062) 547, ,691 OTHER FINANCING SOURCES (USES): Transfers out - (1,200,000) (107,615) 1,092,385 Total other financing sources (uses) - (1,200,000) (107,615) 1,092,385 Net changes in fund balance - (1,394,062) 440,014 1,834,076 FUND BALANCE: Beginning of year 2,239,471 2,239,471 2,239,471 - End of year $ 2,239,471 $ 845,409 $ 2,679,485 $ 1,834,076 98

189 City of Gardena Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Community Development Block Grant (CDBG) - Special Revenue Fund For the year ended June 30, 2013 REVENUES: Budgeted Amounts Actual Variance with Original Final Amounts Final Budget Intergovernmental $ 1,176,149 $ 1,176,149 $ 691,384 $ (484,765) Miscellaneous ,072 Total revenues 1,176,149 1,176, ,456 (466,693) EXPENDITURES: Current: Community development 770, , ,688 78,919 Total expenditures 770, , ,688 78,919 REVENUES OVER (UNDER) EXPENDITURES 406, ,542 (16,232) (387,774) OTHER FINANCING SOURCES (USES): Transfers in ,412 39,412 Transfers out (406,000) (406,000) (14,626) 391,374 Total other financing sources (uses) (406,000) (406,000) 24, ,786 Net changes in fund balance - (34,458) 8,554 43,012 FUND BALANCE: Beginning of year 18,858 18,858 18,858 - End of year $ 18,858 $ (15,600) $ 27,412 $ 43,012 99

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191 DEBT SERVICE FUNDS DEBT SERVICE FUNDS: To account for the accumulation of resources for, and the payment of, interest and principal on general long-term debt, including tax allocation bonds and long-term notes payable. Loan Fund - To account for the accumulated funds for the payment of interest and principal for the loans obtained to fund CMS Viron Energy Services' study of the City's lighting, heating, cooling and other energy consuming systems Refunding COPs, Series A & B Fund - To account for the accumulated funds for the payment of interest and principal for the certificates issued in Refunding COPs, Series C Fund - To account for the accumulated funds for the payment of interest and principal for the certificates issued in Refunding Revenue Bonds SBRPCA Fund - To account for the accumulated funds for the payment of interest and principal for the certificates issued in

192 City of Gardena Combining Balance Sheet All Debt Service Funds June 30, Refunding 2006 Refunding Leases and COPs, Series Refunding Revenue Bonds Loan A & B COPs, Series C SBRPCA Total ASSETS Cash and investments with fiscal agents $ - $ 2,636,398 $ 519,439 $ 304,612 $ 3,460,449 Total assets $ - $ 2,636,398 $ 519,439 $ 304,612 $ 3,460,449 Liabilities: LIABILITIES AND FUND BALANCES Accounts payable $ - $ 1,870 $ 330 $ - $ 2,200 Total liabilities - 1, ,200 Fund Balances: Restricted - 2,634, , ,612 3,458,249 Total fund balances - 2,634, , ,612 3,458,249 Total liabilities and fund balances $ - $ 2,636,398 $ 519,439 $ 304,612 $ 3,460,

193 City of Gardena Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances All Debt Service Funds For the year ended June 30, Refunding 2006 Refunding Leases and COPs, Series Refunding Revenue Bonds Loan A & B COPs, Series C SBRPCA Total REVENUES: Use of money and property $ - $ - $ - $ 26 $ 26 Total revenues EXPENDITURES: Debt service: Principal retirement 50, , ,000 75, ,065 Interest and fiscal charges 9,132 1,271, , ,052 1,518,953 Total expenditures 59,197 1,616, , ,052 2,164,018 REVENUES OVER (UNDER) EXPENDITURES (59,197) (1,616,633) (298,136) (190,026) (2,163,992) OTHER FINANCING SOURCES (USES): Transfers in 59,197 1,626, , ,150 2,168,300 Total other financing sources (uses) 59,197 1,626, , ,150 2,168,300 NET CHANGE IN FUND BALANCES - 9,684 (3,500) (1,876) 4,308 FUND BALANCES: Beginning of year - 2,624, , ,488 3,453,941 End of year $ - $ 2,634,528 $ 519,109 $ 304,612 $ 3,458,

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195 INTERNAL SERVICE FUNDS The Internal Service Fund accounts for financing of goods and services provided by one department to other departments of the City on a cost-reimbursement basis. Internal Service Funds include: Self-Insurance Liability Insurance Fund - To finance and account for the City's general liability claims program. Self-Insurance Workers' Compensation Fund - To finance and account for the workers' compensation claims program. Self-Insurance Health Benefit Fund - To finance and account for the health benefit claims program. 105

196 City of Gardena Combining Statement of Net Position All Internal Service Funds June 30, 2013 Liability Workers' Health Insurance Compensation Benefit Total Current assets: ASSETS Cash and investments $ 948,000 $ 4,020,317 $ 2,106,249 $ 7,074,566 Accounts receivable , ,462 Prepaids and deposits - 2,146-2,146 Total current assets 948,000 4,022,463 2,453,711 7,424,174 Total assets 948,000 4,022,463 2,453,711 7,424,174 LIABILITIES Current liabilities: Accounts payable 108, ,190 Deposits ,198 11,198 Claims payable - current portion 398,337 5,613, ,982 6,791,038 Total current liabilities 506,867 5,613, ,840 6,911,426 Noncurrent liabilities: Claims payable - long-term portion 434,589 1,109,805-1,544,394 Total noncurrent liabilities 434,589 1,109,805-1,544,394 Total liabilities 941,456 6,723, ,840 8,455,820 NET POSITION Unrestricted (deficit) 6,544 (2,701,061) 1,662,871 (1,031,646) Total net position $ 6,544 $ (2,701,061) $ 1,662,871 $ (1,031,646) 106

197 City of Gardena Combining Statement of Activities All Internal Service Funds For the year ended June 30, 2013 Liability Workers' Health Insurance Compensation Benefit Total OPERATING REVENUES: Charges for services $ 984,040 $ 799,136 $ 6,598,988 $ 8,382,164 Other 8,037 8,800 1,029,409 1,046,246 Total operating revenues 992, ,936 7,628,397 9,428,410 OPERATING EXPENSES: Insurance claims 1,501,726 1,818,851 3,536,218 6,856,795 General and administrative 400, ,139 3,569,676 4,351,033 Total operating expenses 1,901,944 2,199,990 7,105,894 11,207,828 OPERATING INCOME (LOSS) (909,867) (1,392,054) 522,503 (1,779,418) NONOPERATING REVENUES (EXPENSES): Interest income 6,760 24,281 15,088 46,129 Total nonoperating revenues 6,760 24,281 15,088 46,129 INCOME (LOSS) BEFORE TRANSFERS (903,107) (1,367,773) 537,591 (1,733,289) TRANSFERS: Transfers in 150, , ,000 Total transfers 150, , ,000 Change in net position (753,107) (1,117,773) 537,591 (1,333,289) NET POSITION (DEFICIT): Beginning of year 759,651 (1,583,288) 1,125, ,643 End of year $ 6,544 $ (2,701,061) $ 1,662,871 $ (1,031,646) 107

198 City of Gardena Combining Statement of Cash Flows All Internal Service Funds For the year ended June 30, 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Liability Workers' Health Insurance Compensation Benefit Total Receipts from customers and users $ 984,398 $ 799,136 $ 6,251,526 $ 8,035,060 Receipts from claims recoveries 8,037 8,800 1,029,409 1,046,246 Payments for insurance claims (1,501,726) (1,400,472) (3,491,867) (6,394,065) Payments to suppliers (377,841) (381,139) (3,580,808) (4,339,788) Net cash provided by (used in) operating activities (887,132) (973,675) 208,260 (1,652,547) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers from other funds 150, , ,000 Net cash provided by (used in) noncapital financing activities 150, , ,000 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received 6,760 24,281 15,088 46,129 Net cash provided by (used in) investing activities 6,760 24,281 15,088 46,129 Net increase (decrease) in cash and cash equivalents (730,372) (699,394) 223,348 (1,206,418) CASH AND CASH EQUIVALENTS: Beginning of year 1,678,372 4,719,711 1,882,901 8,280,984 End of year $ 948,000 $ 4,020,317 $ 2,106,249 $ 7,074,566 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Operating income (loss) $ (909,867) $ (1,392,054) $ 522,503 $ (1,779,418) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: (Increase) decrease in accounts receivable (347,462) (347,104) (Increase) decrease in prepaids and deposits Increase (decrease) in accounts payable and accrued expenses 22, ,379 22, ,777 Increase (decrease) in accrued liabilities Increase (decrease) in deposits ,198 11,198 Total adjustments 22, ,379 (314,243) 126,871 Net cash provided by (used in) operating activities $ (887,132) $ (973,675) $ 208,260 $ (1,652,547) 108

199 FIDUCIARY FUND FINANCIAL STATEMENTS LA CLEAR - Training Agency Fund - this fund was established to account for the Los Angeles Criminal Information Clearinghouse ("LA CLEAR"), which promotes the exchange of strategic, tactical, operational intelligence and information through training. Los Angeles County Police Chiefs' Association Agency Fund - this fund was established to account for monies held on behalf of all of the municipal police chiefs in the County of Los Angeles, funded in whole or in part by taxpayer dollars, in the form of membership dues paid by local governments. BSCC Trust/AB109 Parole Compliance Agency Fund - The Board of State and Community Corrections ("BSCC") provides funding for city police departments to enable front-line intervention services in each county. 109

200 City of Gardena Combining Statement of Fiduciary Net Position Agency Funds June 30, 2013 Agency Funds Los Angeles LA CLEAR - County Police BSCC Trust / Training Chiefs' Association AB109 Parole Fund Fund Compliance Fund Totals ASSETS Cash and investments $ 404 $ - $ 3,958,100 $ 3,958,504 Total assets $ 404 $ - $ 3,958,100 $ 3,958,504 LIABILITIES Deposits $ 404 $ - $ 3,958,100 $ 3,958,504 Total liabilities $ 404 $ - $ 3,958,100 $ 3,958,

201 City of Gardena Combining Statement of Changes in Fiduciary Assets and Liabilities Agency Funds For the year ended June 30, 2013 Assets: LA CLEAR - Training Fund Balance Balance July 1, 2012 Additions Deletions June 30, 2013 Cash and investments $ 6,509 $ 97,820 $ (103,925) $ 404 Total assets $ 6,509 $ 97,820 $ (103,925) $ 404 Liabilities: Deposits payable $ 6,509 $ 97,820 $ (103,925) $ 404 Total liabilities $ 6,509 $ 97,820 $ (103,925) $ 404 Los Angeles County Police Chiefs' Association Fund Assets: Cash and investments $ 26,500 $ - $ (26,500) $ - Total assets $ 26,500 $ - $ (26,500) $ - Liabilities: Deposits payable $ 26,500 $ - $ (26,500) $ - Total liabilities $ 26,500 $ - $ (26,500) $ - Assets: BSCC Trust / AB109 Parole Compliance Fund Cash and investments $ - $ 6,998,910 $ (3,040,810) $ 3,958,100 Total assets $ - $ 6,998,910 $ (3,040,810) $ 3,958,100 Liabilities: Deposits payable $ - $ 6,998,910 $ (3,040,810) $ 3,958,100 Total liabilities $ - $ 6,998,910 $ (3,040,810) $ 3,958,100 Assets: Total All Agency Funds Cash and investments $ 33,009 $ 7,096,730 $ (3,171,235) $ 3,958,504 Total assets $ 33,009 $ 7,096,730 $ (3,171,235) $ 3,958,504 Liabilities: Deposits payable $ 33,009 $ 7,096,730 $ (3,171,235) $ 3,958,504 Total liabilities $ 33,009 $ 7,096,730 $ (3,171,235) $ 3,958,

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203 STATISTICAL SECTION Fiscal Year

204 STATISTICAL SECTION Fiscal Year (This page is intentionally left blank) 114

205 CITY OF GARDENA STATISTICAL SECTION Fiscal Year This part of the City of Gardena's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information say about the government's overall financial health. CONTENTS Page Financial Trends - These tables contain trend information that may assist the reader in the City's current financial performance by placing it in historical perspective. - Net Position by Component Changes in Net Position Fund Balances of Governmental Funds Changes in Fund Balances - Governmental Funds 124 Revenue Capacity - These tables contain information that may help in assessing the viability of the City's most significant revenue sources, the property and sales taxes. - Governmental Revenues by Sources General Governmental Expenditures by Function Assessed Valuation and Actual Value of Taxable Property Assessed Value of Property by Use Code Assessed Value and Estimated Value of Taxable Property Construction and Bank Deposits Property Tax Rates - All Overlapping Governments Direct and Overlapping Property Tax Rates Ten Largest Property Taxpayers Top 25 Sales Tax Producers Property Tax Levies, Tax Collections, and Delinquency Card Club Gross Revenue Fee 145 Debt Capacity - These tables present information that may assist the reader in analyzing the affordability of the City's current levels of outstanding debt and the City's ability to issue debt in the future. - Ratio of Outstanding Debt by Type Pledged - Revenue Coverage Ratio of General Bonded Debt Outstanding Direct and Overlapping Bonded Debt Legal Debt Margin Information 150 Demographic and Economic Information - These tables offer demographic and economic indicators to help the reader understand the environment withing which the City's financial activities take place. - Demographic and Economic Statistics Ten Principal Employers 153 Operating Information - These tables contain service and infrastructure indicators that can inform one's understanding how the information in the City's financial statements relate to the services the City provides and the activities it performs. - Full-Time and Part-Time City Employees by Function Operating Indicators Capital Asset Statistics by Function

206 City of Gardena Net Position by Component (1) Last Ten Fiscal Years Ended June 30, 2013 (accrual basis of accounting) Fiscal Year Governmental Activities Net Investment in Capital Assets $22,478,931 $20,538,595 $18,985,090 $17,048,157 $15,976,297 Restricted for: Debt Service 3,458,249 3,453,941 3,471,066 3,461,581 3,415,353 Employment and Training Services 537, Law Enforcement 2,203, Local Street Improvements 6,020, Capital Projects 2,679, ,205 1,179,572 Other Purposes 389, Specific Projects and Programs - 11,210,794 8,478,780 7,301,648 10,355,305 Total Restricted: 15,289,092 14,664,735 11,949,846 11,515,434 14,950,230 Unrestricted (3,568,866) 1,878,408 3,627,371 3,010,912 5,542,232 Total governmental activities net position $34,199,157 $37,081,738 $34,562,307 $31,574,503 $36,468,759 Business-type Activities Net Investment in Capital Assets $75,906,094 $79,771,551 $83,365,100 $86,263,907 $69,127,201 Unrestricted (1,617,195) (724,993) 479, ,448 1,947,975 Total business-type activities net position $74,288,899 $79,046,558 $83,845,052 $87,253,355 $71,075,176 Primary Government Net Investment in Capital Assets $98,385,025 $100,310,146 $102,350,190 $103,312,064 $85,103,498 Restricted 15,289,092 14,664,735 11,949,846 11,515,434 14,950,230 Unrestricted (5,186,061) 1,153,415 4,107,323 4,000,360 7,490,207 Total Primary Government Net Position: $108,488,056 $116,128,296 $118,407,359 $118,827,858 $107,543,935 Note: (1) - Accounting standards require that net position be reported in three components in the financial statements: net investment in capital assets, restricted, and unrestricted. Net position are considered restricted only when (1) an external party, such as the State of California or the federal government, places a restriction on how the revenues may be used, or (2) enabling legislation is enacted by the City. Source: City of Gardena, Administrative Services Department - Finance Division 116

207 City of Gardena Net Position by Component (Continued) (1) Last Ten Fiscal Years Ended June 30, 2013 (accrual basis of accounting) Fiscal Year Governmental Activities Net Investment in Capital Assets $10,444,951 $12,050,494 $26,595,871 $22,194,948 $21,920,236 Restricted for: Debt Service 3,495,328 3,377,888 2,318, , ,264 Employment and Training Services Law Enforcement Local Street Improvements Capital Projects 1,484,071 1,440,350 2,105, , ,231 Other Purposes Specific Projects and Programs 6,802,764 5,309, Total Restricted: 11,782,163 10,127,797 4,424,221 1,028,858 1,057,495 Unrestricted 7,064,375 2,677,151 (21,573,161) (17,405,432) (17,738,915) Total governmental activities net position $29,291,489 $24,855,442 $9,446,931 $5,818,374 $5,238,816 Business-type Activities Net Investment in Capital Assets $61,490,538 $38,753,216 $25,123,049 $15,899,895 $15,024,284 Unrestricted 2,667,455 2,644,621 2,257,614 1,995,521 (1,020,381) Total business-type activities net position $64,157,993 $41,397,837 $27,380,663 $17,895,416 $14,003,903 Primary Government Net Investment in Capital Assets $71,935,489 $50,803,710 $51,718,920 $38,094,843 $36,944,520 Restricted 11,782,163 10,127,797 4,424,221 1,028,858 1,057,495 Unrestricted 9,731,830 5,321,772 (19,315,547) (15,409,911) (18,759,296) Total Primary Government Net Position: $93,449,482 $66,253,279 $36,827,594 $23,713,790 $19,242,719 Note: (1) - Accounting standards require that net position be reported in three components in the financial statements: net investment in capital assets, restricted, and unrestricted. Net position are considered restricted only when (1) an external party, such as the State of California or the federal government, places a restriction on how the revenues may be used, or (2) enabling legislation is enacted by the City. Source: City of Gardena, Administrative Services Department - Finance Division 117

208 City of Gardena Changes in Net Position Last Ten Fiscal Years Ended June 30, 2013 (accrual basis of accounting) Fiscal Year Expenses Governmental Activities General Government $11,534,998 $9,144,682 $7,664,340 $6,810,404 $7,359,877 Public Safety 31,266,838 29,072,734 27,489,863 29,073,301 29,174,505 Public Works 8,904,024 10,127,663 7,520,866 12,666,722 9,129,851 Recreation and Human Services 6,424,691 6,562,245 6,364,297 6,566,080 6,350,057 Community Development 2,153,815 2,396,761 2,275,785 2,382,432 2,225,022 Interest and fiscal charges 1,564,640 1,609,611 1,643,644 1,670,766 1,752,812 Total governmental activities expenses: 61,849,006 58,913,696 52,958,795 59,169,705 55,992,124 Business-type Activities Municipal Bus Line 23,375,194 22,025,126 19,784,655 19,824,401 15,573,659 Sewer 862, , , , ,979 Waste management resources Total business-type activities expenses: 24,238,159 22,827,762 20,572,271 20,650,053 16,195,638 Total primary government expenses: $86,087,165 $81,741,458 $73,531,066 $79,819,758 $72,187,762 Program Revenues Governmental Activities Charges for services: General Government $3,012,767 $2,945,455 $2,740,615 $2,366,413 $2,179,923 Public Safety 1,405,062 1,901,588 2,009,200 1,859,417 2,014,136 Public Works 291, , , , ,470 Recreation and Human Services 1,998,540 2,015,733 2,282,245 2,123,238 1,993,259 Community Development 851,981 1,085, , , ,849 Interest and fiscal charges Operating Grants and Contributions 5,084,561 5,383,364 6,346,737 7,677,970 6,463,703 Capital Grants and Contributions 1,602,081 3,313,620 2,520,045 1,118, ,103 Total governmental activities program revenues: 14,246,636 16,968,239 17,000,121 16,118,573 14,390,443 Business-type Activities Charges for services: Municipal Bus Line 3,410,708 3,258,066 3,179,805 3,062,578 2,876,238 Sewer 732, , , , ,182 Grants and Contributions 16,746,822 15,032,257 13,577,047 33,189,735 19,426,795 Total business-type activities program revenues: 20,889,951 18,988,863 17,467,188 36,968,301 23,076,215 Total primary government revenues: $35,136,587 $35,957,102 $34,467,309 $53,086,874 $37,466,658 Source: City of Gardena, Administrative Services Department - Finance Division 118

209 City of Gardena Changes in Net Position (Continued) Last Ten Fiscal Years Ended June 30, 2013 (accrual basis of accounting) Fiscal Year Expenses Governmental Activities General Government $6,278,952 $6,477,684 $6,359,197 $4,157,960 $3,314,666 Public Safety 28,467,330 25,404,538 25,626,890 23,763,101 20,754,053 Public Works 6,683,106 8,249,542 6,226,349 5,492,176 5,496,680 Recreation and Human Services 6,754,187 6,172,800 5,327,147 4,618,357 5,160,272 Community Development 2,896,734 2,273,604 3,070,971 1,925,366 1,888,093 Interest and fiscal charges 1,921,147 2,268,928 2,113,279 1,588,082 1,319,389 Total governmental activities expenses: 53,001,456 50,847,096 48,723,833 41,545,042 37,933,153 Business-type Activities Municipal Bus Line 14,741,966 14,221,718 14,337,486 12,965,562 12,633,763 Sewer 507, , , ,758 - Waste management resources ,378 86,065 Total business-type activities expenses: 15,249,228 14,563,754 14,484,906 13,358,698 12,719,828 Total primary government expenses: $68,250,684 $65,410,850 $63,208,739 $54,903,740 $50,652,981 Program Revenues Governmental Activities Charges for services: General Government $2,306,141 $2,650,299 $5,849,589 $3,431,678 $1,990,352 Public Safety 2,121,887 1,851,006 1,196,091 1,052, ,779 Public Works 235, , , ,724 1,361,806 Recreation and Human Services 2,140,176 2,044, , , ,957 Community Development 775,318 1,118,600 1,037,126 1,400,480 - Interest and fiscal charges , Operating Grants and Contributions 6,093,654 4,944,446 11,748,272 9,228,824 5,893,437 Capital Grants and Contributions 1,211,120 1,637,162 2,263,484 2,232,897 3,184,345 Total governmental activities program revenues: 14,883,530 14,468,680 23,371,129 18,042,811 13,701,294 Business-type Activities Charges for services: Municipal Bus Line 2,626,290 2,151,476 2,399,926 2,090,498 2,191,641 Sewer 787, , , ,234 - Grants and Contributions 33,801,504 20,676,280 20,236,513 11,015,446 18,181,810 Total business-type activities program revenues: 37,215,637 23,588,101 23,386,400 13,852,178 20,373,451 Total primary government revenues: $52,099,167 $38,056,781 $46,757,529 $31,894,989 $34,074,745 Source: City of Gardena, Administrative Services Department - Finance Division 119

210 City of Gardena Changes in Net Position (Continued) Last Ten Fiscal Years Ended June 30, 2013 (accrual basis of accounting) Fiscal Year Net (expense)/revenue: (1) Governmental activities ($47,602,370) ($41,945,457) ($35,958,674) ($43,051,132) ($41,601,681) Business-type activities (3,348,208) (3,838,899) (3,105,083) 16,318,248 6,880,577 Total net revenues (expenses): ($50,950,578) ($45,784,356) ($39,063,757) ($26,732,884) ($34,721,104) General Revenue and Other Changes in Net Position Governmental activities Taxes: Property taxes $5,924,450 $5,740,677 $5,798,031 $5,859,335 $6,037,336 Sales tax 9,093,802 8,112,695 7,233,151 6,574,657 8,946,532 Business license 2,224,694 2,120,052 2,228,790 2,065,730 2,229,475 Utility user taxes 5,224,829 5,211,568 4,534,246 4,382,844 4,567,849 Franchise taxes 2,311,421 2,277,747 2,259,808 1,706,257 2,033,635 Card club taxes 8,394,406 7,434,236 7,365,159 7,660,557 8,523,146 Other taxes 2,773,929 2,550,706 2,366,440 2,152,895 1,826,923 Vehicle license 4,792,063 4,754,240 4,952,630 4,922,131 4,957,484 Grants and contributions not restricted to specific programs Investment income 163, , , , ,196 Miscellaneous 2,419,479 4,814,396 1,472,970 2,201,122 2,041,078 Transfers 1,397,691 1,180, , , ,678 Total governmental activities 44,719,789 44,464,888 38,946,478 38,075,698 42,573,332 Business-type activities Investment income 33,606 47,367 46,882 37, ,597 Miscellaneous (45,366) 173,350 95,033 10,465 1,617 Transfers (1,397,691) (1,180,312) (445,135) (187,552) (713,678) Total business-type activities: (1,409,451) (959,595) (303,220) (140,069) -487,464 Total primary government: $43,310,338 $43,505,293 $38,643,258 $37,935,629 $42,085,868 Change in Net Position Governmental activities (2,882,581) 2,519,431 2,987,804 (4,975,434) 971,651 Business-type activities (4,757,659) (4,798,494) (3,408,303) 16,178,179 6,393,113 Total primary government: ($7,640,240) ($2,279,063) ($420,499) $11,202,745 $7,364,764 (1) -Net (expense)/revenue is the difference between the expenses and program revenues of a function or program. It indicates the degree to which a function or program is supported with its own fees and program specific grants versus its reliance upon funding from taxes and other general revenues. -A number in parentheses are net expenses, indicating that expenses were greater than program revenues and therefore, general revenues were needed to finance that function or program. -Numbers without parentheses are net revenues, meaning that program revenues were more than sufficient to cover expenses. Source: City of Gardena, Administrative Services Department - Finance Division 120

211 City of Gardena Changes in Net Position (Continued) Last Ten Fiscal Years Ended June 30, 2013 (accrual basis of accounting) Fiscal Year Net (expense)/revenue: (1) Governmental activities ($38,117,926) ($36,378,416) ($25,352,704) ($23,502,231) ($24,231,859) Business-type activities 21,966,409 9,024,347 8,901, ,480 7,653,623 Total net revenues (expenses): ($16,151,517) ($27,354,069) ($16,451,210) ($23,008,751) ($16,578,236) General Revenue and Other Changes in Net Position Governmental activities Taxes: Property taxes $5,757,421 $5,439,214 $5,144,953 $3,619,822 $4,533,389 Sales tax 9,544,897 9,247,256 8,277,714 8,558,479 7,817,610 Business license 2,186,129 2,209, Utility user taxes 4,426,718 4,432,509 4,267,459 4,150,100 3,987,879 Franchise taxes 2,033,544 2,095,135 1,930,779 1,904,159 1,962,644 Card club taxes 9,541,470 9,281,190 7,995,092 6,898,330 4,765,894 Other taxes 2,049,948 2,545,717 1,358,078 1,499,372 4,014,912 Vehicle license 4,777,727 4,121, Grants and contributions not restricted to specific programs ,012 Investment income 1,499,195 1,566, , , ,733 Miscellaneous 716, , Transfers 20,507 40,067 (459,046) (3,680) - Total governmental activities 42,553,973 41,882,819 28,981,261 26,830,766 27,478,073 Business-type activities Investment income 208, , , , ,088 Miscellaneous 30 13, Transfers (20,507) (40,067) 459,046 3,680 - Total business-type activities: 188, , , , ,088 Total primary government: $42,742,414 $42,127,053 $29,565,014 $27,264,323 $27,765,161 Change in Net Position Governmental activities 4,436,047 5,504,403 3,628,557 3,328,535 3,246,214 Business-type activities 22,154,850 9,268,581 9,485, ,037 7,940,711 Total primary government: $26,590,897 $14,772,984 $13,113,804 $4,255,572 $11,186,925 (1) -Net (expense)/revenue is the difference between the expenses and program revenues of a function or program. It indicates the degree to which a function or program is supported with its own fees and program specific grants versus its reliance upon funding from taxes and other general revenues. -A number in parentheses are net expenses, indicating that expenses were greater than program revenues and therefore, general revenues were needed to finance that function or program. -Numbers without parentheses are net revenues, meaning that program revenues were more than sufficient to cover expenses. Source: City of Gardena, Administrative Services Department - Finance Division 121

212 City of Gardena Fund Balances of Governmental Funds Last Ten Fiscal Years Ended June 30, 2013 (modified accrual basis of accounting) Fiscal Year General Fund Reserved $ - $ - $ - $776,838 $1,178,460 Unreserved ,872,912 7,403,602 Nonspendable (2) 198, , , Restricted (2) 56,014 40,951 48, Committed (2) 6,825,301 6,592,339 5,105, Assigned (2) 2,906,950 2,908,689 3,097, Unassigned (2) 274, , , Total General Fund: $10,260,646 $9,961,015 $9,267,031 $8,649,750 $8,582,062 All Other Governmental Funds Reserved $ - $ - $ - $3,461,656 $3,418,166 Unreserved, reported in: Special revenue funds ,285,104 10,352,492 Capital project funds ,205 1,179,572 Nonspendable (2) 8,990 5,770 5, Restricted (2) 15,233,078 14,623,784 11,900, Assigned (2) 654, , , Total all other governmental funds: $15,896,311 $15,289,956 $12,604,549 $11,498,965 $14,950,230 Fund Balances Fiscal Year Ended June 30, 2013 General Fund 39.23% All Other Governmental Funds 57.07% NOTE: (1) Reserved fund balance at June 30, 2006 includes unexpended bond proceeds from 2006 Series A, B & C Certificates of Participation. (2) New reporting requirements per GASB 54 Source: City of Gardena, Administrative Services Department - Finance Division 122

213 City of Gardena Fund Balances of Governmental Funds (Continued) Last Ten Fiscal Years Ended June 30, 2013 (modified accrual basis of accounting) Fiscal Year General Fund Reserved $3,747,641 $729,315 $254,118 $251,542 $485,287 Unreserved 4,198,081 6,188,207 5,177,194 3,434,473 2,476,501 Nonspendable (2) Restricted (2) Committed (2) Assigned (2) Unassigned (2) Total General Fund: $7,945,722 $6,917,522 $5,431,312 $3,686,015 $2,961,788 All Other Governmental Funds Reserved $3,608,370 $3,377,888 (1 $2,318,689 $873,439 $882,264 Unreserved, reported in: Special revenue funds 6,689,722 5,309,559 4,903,829 6,487,447 5,895,689 Capital project funds 1,484,071 1,440,350 2,105, , ,231 Nonspendable (2) Restricted (2) Assigned (2) Total all other governmental funds: $11,782,163 $10,127,797 $9,328,050 $7,516,305 $6,953,184 (in Millions) Fund Balances All Other Governmental Funds Last Ten Fiscal Years Fiscal Year NOTE: (1) Reserved fund balance at June 30, 2006 includes unexpended bond proceeds from 2006 Series A, B & C Certificates of Participation. (2) New reporting requirements per GASB 54 Source: City of Gardena, Administrative Services Department - Finance Division 123

214 City of Gardena Changes In Fund Balances - Governmental Funds Last Ten Fiscal Years Ended June 30, 2013 (modified accrual basis of accounting) Fiscal Year Revenues: Taxes $40,739,594 $38,201,922 $36,738,257 $35,324,406 $39,122,379 Licenses and permits 915, , , , ,437 Use of money and property 163, , , ,589 1,155,013 Intergovernmental 7,917,316 10,079,951 10,427,073 10,987,467 9,817,734 Fines, forfeitures, and penalties 1,629,217 4,320,435 1,635,058 1,237,986 1,311,735 Charges for services 4,087,263 4,191,605 4,021,370 3,127,169 3,115,843 Miscellaneous 2,116,705 1,721,779 1,170,066 1,772,116 1,173,956 Total Revenues: 57,568,734 60,252,815 55,501,464 54,006,719 56,250,097 Expenditures: Current: General government 6,256,927 5,637,263 4,436,711 4,818,062 5,259,623 Public safety 30,007,184 28,901,414 27,610,469 27,828,064 28,306,413 Public works 5,145,179 5,267,198 4,954,220 4,981,970 5,474,205 Recreation and Human resources 6,161,518 6,554,306 6,432,471 6,325,339 6,194,222 Community development 2,119,111 2,383,002 2,286,955 2,327,038 2,194,422 Capital outlay 5,806,502 6,368,035 4,363,450 8,448,679 2,925,685 Debt service: Principal 645,065 1,139,060 1,188,881 1,297,619 1,223,482 Interest and fiscal charges 1,518,953 1,553,458 1,590,577 1,632,255 1,698,168 Others (1) Total Expenditures: 57,660,439 57,803,736 52,863,734 57,659,026 53,276,220 Excess of Revenues over (under) Expenditures (91,705) 2,449,079 2,637,730-3,652,307 2,973,877 Other Financing Sources (Uses): Proceeds of long-term debt Sales of property Issuance of capital leases ,957 Costs of Bond issuance Escrow payment Transfers in 7,379,793 8,316,550 5,875,179 11,650,983 6,316,115 Transfers out (6,382,102) (7,386,238) (6,790,044) (11,463,431) (5,602,437) Total Other Financing Sources (Uses): 997, ,312 (914,865) 187, ,635 Net change in fund balances $905,986 $3,379,391 $1,722,865 ($3,464,755) $3,813,512 Debt service as a percentage of noncapital expenditures: (2) 4.00% 4.92% 5.61% 5.29% 5.80% NOTE: (1) -In fiscal year , the City of Gardena issued a Refunding Revenue Certificates of Participation Series 2007A to refund the Series 2001A bonds. Also $2,646,000 were paid to the Union Bank and Sumitomo Bank to settle the 1991A&B Certificates of Participation completely. (2) -In fiscal year correction was made to percentages that were calculated in error Source: City of Gardena, Administrative Services Department - Finance Division 124

215 City of Gardena Changes In Fund Balances - Governmental Funds (Continued) Last Ten Fiscal Years Ended June 30, 2013 (modified accrual basis of accounting) Fiscal Year Revenues: Taxes $40,317,853 $39,372,102 $29,193,877 $26,809,656 $24,413,768 Licenses and permits 618,340 1,006,696 2,802,216 2,977,154 7,475,300 Use of money and property 1,499,195 1,566,144 1,008, ,812 2,307,613 Intergovernmental 9,601,379 8,773,066 13,936,489 11,305,418 6,608,623 Fines, forfeitures, and penalties 1,404,186 1,187,414 1,360, , ,309 Charges for services 3,259,625 3,501,504 3,843,842 1,836,732 1,431,211 Miscellaneous 716, , , , ,396 Total Revenues: 57,416,996 56,311,432 52,848,434 44,988,246 43,007,220 Expenditures: Current: General government 5,751,891 5,786,628 5,645,502 3,388,910 2,344,198 Public safety 26,497,252 24,996,447 23,982,058 22,129,814 19,332,588 Public works 5,007,564 5,005,971 5,458,056 4,731,017 4,653,273 Recreation and Human resources 6,201,136 6,153,673 5,006,004 4,262,892 4,767,728 Community development 2,824,473 2,248,138 2,970,976 1,825,117 1,807,042 Capital outlay 2,653,503 3,849,204 1,958,600 4,594,935 4,021,736 Debt service: Principal 1,083, ,039 1,482, ,682 2,495,234 Interest and fiscal charges 1,735,754 1,133,232 2,106,345 1,581,148 1,290,929 Others (1) - 132, Total Expenditures: 51,754,937 49,970,496 48,610,250 43,443,515 40,712,728 Excess of Revenues over (under) Expenditures 5,662,059 6,340,936 4,238,184 1,544,731 2,294,492 Other Financing Sources (Uses): Proceeds of long-term debt - 2,800,000 24,660, , ,229 Sales of property ,310 - Issuance of capital leases Costs of Bond issuance - - (1,538,565) - - Escrow payment - (5,447,231) (22,443,531) - - Transfers in 5,454,457 9,786,109 28,114,006 4,708,162 2,229,211 Transfers out (8,433,950) (11,346,042) (29,473,052) (5,411,842) (3,942,661) Total Other Financing Sources (Uses): (2,979,493) (4,207,164) (681,142) (257,383) (787,221) Net change in fund balances $2,682,566 $2,133,772 $3,557,042 $1,287,348 $1,507,271 Debt service as a percentage of noncapital expenditures: 5.76% 3.89% 7.42% 5.77% 9.86% NOTE: (1) -In fiscal year , the City of Gardena issued a Refunding Revenue Certificates of Participation Series 2007A to refund the Series 2001A bonds. Also $2,646,000 were paid to the Union Bank and Sumitomo Bank to settle the 1991A&B Certificates of Participation completely. (2) -In fiscal year correction was made to percentages that were calculated in error Source: City of Gardena, Administrative Services Department - Finance Division 125

216 City of Gardena Governmental Revenues By Sources Last Ten Fiscal Years Permits, Fines Uses of Fiscal Licenses and Money and Year Taxes and Fees Forfeitures Property ,413,768 7,475, ,309 2,307, ,809,656 2,977, , , ,193,877 2,802,216 1,360,027 (2) 1,008, ,372,102 (1) 1,006,696 1,187,414 1,566, ,317, ,340 1,404,186 1,499, ,122, ,437 1,311,735 1,155, ,324, ,986 1,237, , ,738, ,541 1,635, , ,201, ,646 4,320, , ,739, ,614 1,629, ,025 General Revenues by Sources Fiscal Year Ended June 30, 2013 Use of Money/Property 0.28% Inter-Gov % Service Charges 7.10% Other Revenue 3.68% Fine/Forfeitures 2.83% Permits/Licenses 1.59% Taxes 70.77% (1) Vehicle in-lieu and Vehicle license fees offset of $4,534,740 are recategorized for Taxes, which were previously in Intergovernmental category. (2) Fines and Forfeitures category was increased since fiscal year when the Traffic Red Light Violation system installed. Source: City of Gardena, Administrative Services Department - Finance Division 126

217 City of Gardena Governmental Revenues By Sources (Continued) Last Ten Fiscal Years Charges Fiscal Inter- for Other Year Governmental Services Revenues Total ,608,623 1,431, ,396 43,007, ,305,418 1,836, ,876 44,988, ,936,489 3,843, ,478 52,848, ,773,066 3,501, ,506 56,311, ,601,379 3,259, ,418 57,416, ,817,734 3,115,843 1,173,956 56,250, ,987,467 3,127,169 1,772,116 54,006, ,427,073 4,021,370 1,170,066 55,501, ,079,951 4,191,605 1,721,779 60,252, ,917,316 4,087,263 2,116,705 57,568,734 General Revenues by Sources Last Ten Fiscal Years 70,000,000 60,000,000 50,000,000 $44.2M $42.5M $43.0M $45.0M $52.8M $56.3M $57.4M $56.3M $54.1M $55.5M 40,000,000 30,000,000 20,000,000 10,000, Fiscal Year (1) Vehicle in-lieu and Vehicle license fees offset of $4,534,740 are recategorized for Taxes, which were previously in Intergovernmental category. (2) Fines and Forfeitures category was increased since fiscal year when the Traffic Red Light Violation system installed. Source: City of Gardena, Administrative Services Department - Finance Division 127

218 City of Gardena General Governmental Expenditures By Function Last Ten Fiscal Years Recreation and Fiscal General Public Public Human Year Government Safety Works Services ,064,459 19,332,588 4,653,273 4,767, ,404,449 22,129,814 4,731,017 4,262, ,645,502 23,982,058 5,458,056 5,006, ,786,628 24,996,447 5,005,971 6,153, ,751,891 26,497,252 5,007,564 6,201, ,259,623 28,306,413 5,474,205 6,194, ,818,062 27,828,064 4,981,970 6,325, ,436,711 27,610,469 4,954,220 6,432, ,637,263 28,901,414 5,267,198 6,554, ,256,927 30,007,184 5,145,179 6,161,518 General Governmental Expenditures by Function Fiscal Year ended June 30, 2013 Community Development 3.68% Capital Outlay 10.07% Debt Services 3.75% General Government 10.85% Recreation/ Human Services 10.69% Public Works 8.92% Public Safety 52.04% Note: These figures include all governmental fund types and exclude other financing sources (uses). (General, Special Revenue, Capital Projects and Debt Service Funds) (1) These figures include Lease/Bonds Payments for Debt Services and excluding Cost of bonds issuance and escrow payments. Source: City of Gardena, Administrative Services Department - Finance Division 128

219 City of Gardena General Governmental Expenditures By Function (Continued) Last Ten Fiscal Years Fiscal Community Capital Debt Year Development Outlay Service (1) Total ,807,042 2,512,833 2,778,385 39,916, ,825,117 4,021,736 2,088,167 43,463, ,970,976 1,958,600 3,589,054 48,610, ,248,138 3,849,204 1,930,435 49,970, ,824,473 2,653,503 2,819,118 51,754, ,194,422 2,925,685 2,921,650 53,276, ,327,038 8,448,679 2,929,874 57,659, ,286,955 4,363,450 2,779,458 52,863, ,383,002 6,368,035 2,692,518 57,803, ,119,111 5,806,502 2,164,018 57,660,439 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 Total General Governmental Expenditures Last Ten Fiscal Years Fiscal Year Note: These figures include all governmental fund types and exclude other financing sources (uses). (General, Special Revenue, Capital Projects and Debt Service Funds) (1) These figures include Lease/Bonds Payments for Debt Services and excluding Cost of bonds issuance and escrow payments. Source: City of Gardena, Administrative Services Department - Finance Division 129

220 City of Gardena Assessed Valuation (1) and Actual Value of Taxable Property Last Ten Fiscal Years STATE ASSESSED LOCALLY ASSESSED SECURED -UTILITY SECURED Fiscal Improve- Personal Improve- Personal Other Year Land ments Property Total Land ments Property Exemptions Total ,591, ,726 48,485 4,931,469 1,551,614,836 1,508,279,718 15,363,284 (55,404,655) 3,019,853, ,145, ,592 60,500 4,535,765 1,703,813,658 1,601,158,810 20,995,462 (60,986,520) 3,264,981, ,136, ,598 56,432 4,308,238 1,913,789,622 1,686,202,413 23,963,136 (69,526,477) 3,554,428, ,112,860 98,261 46,398 4,257,519 2,167,687,753 1,817,827,814 23,346,248 (76,777,041) 3,932,084, ,004,905 17, ,022,117 2,418,979,034 1,870,211,884 14,985,643 (84,512,157) 4,219,664, ,004,905 17, ,022,117 2,590,827,844 1,954,304,143 17,809,422 (90,284,731) 4,472,656, ,748, ,748,677 2,542,363,726 1,965,076,314 18,326,833 (92,796,442) 4,432,970, ,785, ,785,648 2,485,326,071 1,944,955,301 18,265,803 (85,222,871) 4,363,324, ,447, ,447,881 2,495,176,359 1,970,054,531 19,208,150 (92,371,852) 4,392,067, ,447, ,447,881 2,523,336,461 2,007,313,501 19,615,465 (100,457,741) 4,449,807,686 Assessed Valuation by Categories (Total Secured and Unsecured) Fiscal Year Ended June 30, 2013 Personal Property 4.08% Improvements 44.20% Land 51.72% In 1978, California voters passed Proposition 13 which set the property tax at a 1.00% fixed amount. This 1.00% is shared by all the taxing agencies for which the subject property resides within. In addition to 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. Assessed valuation is based on 100% of full value in accordance with Section 135 of the California Revenue and Taxation Code. Source: (1) County of Los Angeles, Auditor-Controller Office/Tax Division (2) Hdl Coren & Cone 130

221 City of Gardena Assessed Valuation (1) and Actual Value of Taxable Property (Continued) Last Ten Fiscal Years LOCALLY ASSESSED TOTALS Home- UNSECURED Before Taxable % Total Owner Fiscal Improve- Personal Other Other Assessed INCR. Direct Property Year ments Property Exemptions Total Exemptions Value (DECR.) Rate (2) Tax Relief ,026, ,815,228 (49,000) 258,792,410 3,339,030,717 3,283,584, % % 50,732, ,004, ,731,789 (51,000) 245,685,727 3,576,240,422 3,515,209, % % 51,492, ,750, ,777,712 (65,500) 262,463,127 3,890,792,036 3,821,207, % % 51,300, ,113, ,538,281 (73,000) 270,579,015 4,283,822,068 4,206,972, % % 51,407, ,513, ,365,383 (105,000) 296,774,369 4,605,078,047 4,520,460, % % 51,546, ,099, ,269,584 (77,000) 294,292,417 4,861,332,943 4,770,971, % % 52,084, ,615, ,987,533 (103,000) 329,499,628 4,859,118,178 4,766,218, % % 52,462, ,536, ,904,412 (98,000) 328,342,954 4,780,773,777 4,695,452, % % 52,044, ,213, ,398,528 (93,000) 318,518,605 4,806,498,526 4,714,033, % % 51,729, ,830, ,827,045 (100,604) 331,556,748 4,885,370,660 4,784,812, % % 50,719,063 6,000 Total Assessed Valuation (Taxable Values) Last Ten Fiscal Years (in Millions) 5,000 4,000 3,000 2,000 $3,284 $3,515 $3,821 $4,207 $4,520 $4,771 $4,766 $4,695 $4,714 $4,785 1, Fiscal Year In 1978, California voters passed Proposition 13 which set the property tax at a 1.00% fixed amount. This 1.00% is shared by all the taxing agencies for which the subject property resides within. In addition to 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. Assessed valuation is based on 100% of full value in accordance with Section 135 of the California Revenue and Taxation Code. Source: (1) County of Los Angeles, Auditor-Controller Office/Tax Division (2) Hdl Coren & Cone 131

222 City of Gardena Assessed Value of Property by User Code Last Ten Fiscal Years Fiscal Year CATEGORY Residential $2,964,299,525 $2,928,170,695 $2,911,633,835 $2,967,752,342 $3,088,152,735 Commercial 656,284, ,739, ,966, ,412, ,873,533 Industrial 710,111, ,590, ,070, ,982, ,221,030 Irrigated Farm Recreational 38,681,903 39,093,769 37,970,527 38,835,383 39,124,755 Institutional 29,057,255 33,433,960 40,203,021 35,342,641 32,840,476 Miscellaneous Vacant land 45,420,007 45,486,424 36,066,401 49,773,918 43,472,782 SBE Nonunitary 3,447,881 3,447,881 3,785,648 3,748,677 4,022,117 Possessory Int. 5,953,104 5,553,161 5,413,157 7,871,043 9,971,367 Unsecured 331,556, ,518, ,342, ,499, ,292,417 Unknown ,784,812,315 4,714,033,674 4,695,452,906 4,766,218,736 4,770,971,212 Homeowner Exemption (1) TOTALS: $4,784,812,315 $4,714,033,674 $4,695,452,906 $4,766,218,736 $4,770,971,212 Notes: In 1978 the voters of the State of California passed Proposition 13 which limited taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum of 2%). With few exemptions, property is only reassessed as a result of new construction or at the time it is sold to a new owner. At that point, the property is reassessed based upon the added value of the construction or at the purchase price (market value) or economic value of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitation just mentioned. -Exempt values are not included in Total. (1) -In certain report formatting changes have been made to comply with GASB 44 standard reporting requirements; therefore, the net of Homeowner Exemption is separated from previous years. Source: L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone 132

223 City of Gardena Assessed Value of Property by User Code (Continued) Last Ten Fiscal Years Fiscal Year CATEGORY Residential $2,951,188,834 $2,649,261,410 $2,394,480,356 $2,173,388,335 $2,009,662,779 Commercial 601,086, ,385, ,466, ,504, ,470,393 Industrial 537,618, ,963, ,651, ,923, ,512,101 Irrigated Farm 380, , , , ,063 Recreational 35,688,999 36,070,433 35,457,538 26,170,610 25,561,614 Institutional 39,369,829 38,767,413 40,732,166 43,447,469 40,275,161 Miscellaneous - 279, ,262 Vacant land 45,839,532 36,652,921 43,187,258 25,174,000 30,957,057 SBE Nonunitary 4,022,117 4,257,519 4,308,238 4,535,765 4,931,469 Possessory Int. 8,491,756 8,166,802 8,517,297 7,866,983 7,980,659 Unsecured 296,774, ,579, ,470, ,692, ,799,410 Unknown - 3,764, ,487 1,146,860 1,023,094 4,520,460,890 4,155,520,617 3,821,207,059 3,515,209,902 3,283,584,062 Homeowner Exemption (1) - 51,400, TOTALS: $4,520,460,890 $4,206,921,308 $3,821,207,059 $3,515,209,902 $3,283,584,062 (in Millions) 3,500 3,000 2,500 2,000 1,500 1, Assessed Value - Taxable Property Last Ten Fiscal Years $2,010 $2, $2,649 $2, $2,951 Notes: In 1978 the voters of the State of California passed Proposition 13 which limited taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum of 2%). With few exemptions, property is only reassessed as a result of new construction or at the time it is sold to a new owner. At that point, the property is reassessed based upon the added value of the construction or at the purchase price (market value) or economic value of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitation just mentioned. -Exempt values are not included in Total. (1) -In certain report formatting changes have been made to comply with GASB 44 standard reporting requirements; therefore, the net of Homeowner Exemption is separated from previous years. Source: L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone $3,088 $2,967 $2,911 $2, Fiscal Year , Residential Commercial Vacant land All others 133

224 City of Gardena Assessed Value and Estimated Value of Taxable Property Last Ten Fiscal Years (in thousands) Fiscal Year Residential Commercial Industrial Agriculture Recreational Institutional Miscellaneous Vacant land $2,009,663 $434,471 $469,512 $352 $25,562 $40,274 $58 $30, ,173, , , ,171 43,447-25, ,394, , , ,458 40,732-43, ,649, , , ,070 38, , ,951, , , ,689 39,370-45, ,088, , ,221-39,125 32,840-43, ,967, , ,983-38,835 35,343-49, ,911, , ,070-37,970 40,203-36, ,928, , ,590-39,094 33,434-45, ,964, , ,111-38,682 29,057-45,420 NOTES: Report formatting changes have been made to comply with GASB 44 standard reporting requirements. Public Utility values are not included in this report. (1) Tax Rate Areas: TRA Tax rate limit: A state constitutional amendment (Proposition 13) provided that the tax rate was limited to 1% of full cash values, levied only by the County and shared with all other jurisdictions. All other jurisdictions and the County can levy a tax rate for voter-approved debt. (2) Estimated Actual Value is derived from a series of calculations comparing median assessed values from 1940 to current median sales price and the Factor of Taxable Assessed Value is the result. This factor is changing from year to year; however, since the previous fiscal years calculating data is not available, the fiscal year factor is used. Source: L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone 134

225 City of Gardena Assessed Value and Estimated Value of Taxable Property (Continued) Last Ten Fiscal Years (in thousands) Total Factor of Direct Estimated Taxable Fiscal SBE Tax Taxable Assessed Year Nonunitary Possessory Int. Unsecured Unknown TOTAL Rate (1) Value (2) Value $4,932 $7,981 $258,799 $1,023 $3,283, $4,379, ,535 7, ,692 1,147 3,515, ,688, ,308 8, , ,821, ,096, ,258 8, ,579 55,165 4,206, ,610, ,022 8, ,774-4,520, ,028, ,022 9, ,292-4,770, ,363, ,749 7, ,500-4,766, ,356, ,786 5, ,343-4,695, ,262, ,448 5, ,519-4,714, ,287, ,448 5, ,557-4,784, ,381, NOTES: Report formatting changes have been made to comply with GASB 44 standard reporting requirements. Public Utility values are not included in this report. (1) Tax Rate Areas: TRA Tax rate limit: A state constitutional amendment (Proposition 13) provided that the tax rate was limited to 1% of full cash values, levied only by the County and shared with all other jurisdictions. All other jurisdictions and the County can levy a tax rate for voter-approved debt. (2) Estimated Actual Value is derived from a series of calculations comparing median assessed values from 1940 to current median sales price and the Factor of Taxable Assessed Value is the result. This factor is changing from year to year; however, since the previous fiscal years calculating data is not available, the fiscal year factor is used. Source: L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone 135

226 City of Gardena Construction and Bank Deposits (Miscellaneous Information) Last Ten Fiscal Years CONSTRUCTION (1) Residential Commercial Industrial Fiscal No. of No. of No. of Year Permits Valuation Permits Valuation Permits Valuation $9,661, $4,678, $7,169, ,173, ,591, ,169, ,176, ,978, ,801, ,480, ,617, ,850, ,346, ,213, ,197, ,613, ,368, ,357, ,835, ,286, , ,588, ,451, ,806, ,524, ,810, , ,378, ,953, ,531 2,000 Number of Permits Last Ten Fiscal Years 1,800 1,600 1,769 1,512 1,400 1,200 1,333 1,326 1, , Fiscal Year Sources: (1) City of Gardena, Community Development Department. (2) FDIC, savings and loan associations and credit unions are not included. -There are 25 banking institutes in Gardena including bank deposits, savings and loan associations and credit unions. 136

227 City of Gardena Construction and Bank Deposits (Continued) (Miscellaneous Information) Last Ten Fiscal Years CONSTRUCTION (1) All others Bank Fiscal No. of No. of Deposits (2) Year Permits Valuation Permits Valuation (in Thousands) $5,157, $26,666,852 $2,313, ,441,615 1,013 54,375,953 2,364, ,734, ,690,447 2,520, ,020, ,968,166 2,491, ,718, ,476,216 2,517, ,282, ,622,045 2,517, ,219 1,326 23,690,784 1,587, ,000 1,333 35,891,770 1,535, ,015 37,000 1,769 40,722,713 1,514, ,000 1,512 23,598,275 1,609,537 Total available 10/4/13 60,000 Permit Valuation Last Ten Fiscal Years (in thousands) 54,376 50,000 (in Thousands) 40,000 30,000 20,000 15,855 26,667 28,690 23,691 35,892 40,723 23,598 10,000 12,753 13, Fiscal Year Sources: (1) City of Gardena, Community Development Department. (2) FDIC, savings and loan associations and credit unions are not included. -There are 25 banking institutes in Gardena including bank deposits, savings and loan associations and credit unions. 137

228 City of Gardena Property Tax Rates (1) - All Overlapping Governments Last Ten Fiscal Years (Rate per $100 of Taxable Value) Los Angeles Fiscal Los Angeles Unified School Year General County District Property Tax Rates -All Overlapping Governments Fiscal Year ended June 30, General LA County TAX RATES LAUSD LACCD LACFC MWD Governments (1) Tax Rate Areas: TRA Tax rate limit: A state constitutional amendment (Proposition 13) provided that the tax rate was limited to 1% of full cash values, levied only by the County and shared with all other jurisdictions. All other jurisdictions and the County can levy a tax rate for voter-approved debt. Source: L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone 138

229 City of Gardena Property Tax Rates (1) - All Overlapping Governments (Continued) Last Ten Fiscal Years (Rate per $100 of Taxable Value) Los Angeles Los Angeles Community County Metropolitan Fiscal College Flood Water Year District Control District Total Tax Rates Total Overlapping Governments Last Ten Fiscal Years Fiscal Year (1) Tax Rate Areas: TRA Tax rate limit: A state constitutional amendment (Proposition 13) provided that the tax rate was limited to 1% of full cash values, levied only by the County and shared with all other jurisdictions. All other jurisdictions and the County can levy a tax rate for voter-approved debt. Source: L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone 139

230 City of Gardena Direct and Overlapping Property Tax Rates (rate per $100 of assessed value) Ten Fiscal Year Detail of Rates for Largest General Fund Tax Rates Area (Proposition 13 Rate) FISCAL YEAR Agency City of Gardena Tax District % % % % % Children's Institutional Tuition Fund % % % % % County Sanitation District No. 5 Operations % % % % % County School Services % % % % % County School Service Fund of Angeles -LAUSD % % % % % Development Center for Handicapped Minors -LA Unified School District % % % % % Educational Augmentation Fund Impound % % % % % Educational Augmentation Fund (ERAF) Impound % % % % % LA County Community College District % % % % % LA County Community College Children's Center Fund % % % % % LA County Accumulative Capital Outlays % % % % % LA County Fire - Ffw % % % % % LA County Flood Control Improvement District % % % % % LA County Library % % % % % LA County Flood Control Maintenance % % % % % Los Angeles Children's Center Fund % % % % % LA County General % % % % % Los Angeles Unified School District % % % % % Greater L A Co Vector Control % % % % % Water Replacement District of Southern California % % % % % Total Prop. 13 Rate: % % % % % TOTAL DIRECT RATE (Producing Revenue for The City) (1) : % % % % % County of Los Angeles (1) % % % % % Notes: General fund tax rates are representative and based upon the direct and overlapping rates for the largest General Fund tax rates area (TRA) by net taxable value. Total Direct Rate (1) is weighted average of all individual direct rates applied by the government preparing the statistical section information. The percentages presented in the columns above do not sum across rows. RDA rate is based on the largest RDA tax rate area (TRA) and includes only rate(s) from indebtedness adopted prior to 1989 per California State statute. RDA direct and overlapping rates are applied only to the incremental property values. In 1978, California voters passed Proposition 13 which set the property tax at a 1.00% fixed amount. This 1.00% is shared by all the taxing agencies for which the subject property resides within. In addition to 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. Source: (1) L.A. County Assessor 2003/ /13 Combined Tax Rolls, HdL, Coren & Cone 140

231 City of Gardena Direct and Overlapping Property Tax Rates (Continued) (rate per $100 of assessed value) Ten Fiscal Year Detail of Rates for Largest General Fund Tax Rates Area (Proposition 13 Rate) FISCAL YEAR Agency City of Gardena Tax District % % % % % Children's Institutional Tuition Fund % % % % % County Sanitation District No. 5 Operations % % % % % County School Services % % % % % County School Service Fund of Angeles -LAUSD % % % % % Development Center for Handicapped Minors -LA Unified School District % % % % % Educational Augmentation Fund Impound % % % % % Educational Augmentation Fund (ERAF) Impound % % % % % LA County Community College District % % % % % LA County Community College Children's Center Fund % % % % % LA County Accumulative Capital Outlays % % % % % LA County Fire - Ffw % % % % % LA County Flood Control Improvement District % % % % % LA County Library % % % % % LA County Flood Control Maintenance % % % % % Los Angeles Children's Center Fund % % % % % LA County General % % % % % Los Angeles Unified School District % % % % % Greater L A Co Vector Control % % % % % Water Replacement District of Southern California % % % % % Total Prop. 13 Rate: % % % % % TOTAL DIRECT RATE (Producing Revenue for The City) (1) : % % % % % County of Los Angeles (1) % % % % % Total Direct Rate Last Ten Fiscal Years % % % % % % % 0.115% 0.115% 0.111% 0.111% 0.111% 0.113% 0.119% 0.119% 0.118% 0.119% % Fiscal Year 141

232 City of Gardena Ten Largest Property Taxpayers Current Year and Nine Years Ago Owner/Taxpayer Fiscal Year Fiscal Year Percent of Percent of Total Total City Total Total City Business Assessed Assessed Assessed Assessed Type Value Value Value Value Hitco Technologies Inc. Manufacturing parts $104,587, % Nissin Foods Company Inc. Manufacturing 58,707, JSL Gardena I LLC Non-residential property owners 27,733, Brek Manufacturing Company Manufacturing 27,685, Southwest Offset Printing Co. Book binding and printing 27,030, Majestic Properties Inc. Property management 25,916, Gramercy Properties LLC Non-residential property owners 20,848, Dayton Hudson Corp. (Target) Retail sales 20,190, Russmar Investment Corp Non-residential property owners 17,693, New Group Gardena LLC Property management 16,638, Nissin Foods Company Inc. Manufacturing 37,151, % Gardena Hospital LP Hospital services 16,305, Kataoka USA Inc. Commercial leasing 16,000, Majestic Properties Inc. Property management 15,638, New Group Gardena LLC Property management 15,065, Dayton Hudson Corp. (Target) Retail sales 14,674, Gardena South Park Senior Project Inc. Senior housing development 13,504, Wal Mart Stores Inc. - (Sam's) Retail sales 12,925, Marukai Corporation Retail sales 12,060, Russmar Investment Corp Non-residential property owners 7,615, Top Ten Totals (secured and unsecured): 347,031, % 160,940, % All Others (secured) 4,437,780, ,122,643, Total All Assessed Valuation (secured): $4,784,812, % $3,283,584, % Source: L.A. County Assessor 2002/ /13 Combined Tax Rolls and the SBE Non Unitary Tax Roll, HdL Coren & Cone, 2004 City of Gardena CAFR 142

233 City of Gardena Top 25 Sales Tax Producers (1) (Miscellaneous Information) Current Fiscal Year and Nine Years Ago Fiscal Year Fiscal Year Tax Payers Business Type Tax Payers Business Type 1 Arco AM/PM Mini Marts Service Stations Albertson's Food Centers Food Markets 2 Chevron Service Stations Service Stations Arco AM/PM Mini Marts Service Stations 3 Crenshaw Lumber Company Bldg. Matls-Whsle B&W Tile Company Bldg. Matls-Whsle 4 Crenshaw Wholesale Electric Electronic Equipment Crenshaw Lumber Company Bldg. Matls-Whsle 5 Enterprise Rent-A-Car Leasing Crenshaw Wholesale Electric Electronic Equipment 6 Food 4 Less Food Markets DCH Gardena Honda Auto Sales 7 G & C Equipment Corporation Bldg. Matls-Retail Enterprise Rent-A-Car Leasing 8 Gardena Blue Water Service Stations Food 4 Less Food Markets 9 Gardena Honda Auto Sales G & C Equipment Corporation Bldg. Matls-Retail 10 Gardena Nissan Auto Sales Gardena Nissan Auto Sales 11 Hitco Carbon Composites Heavy Industry Heidelberg Web Systems Light Industry 12 Marukai Pacific Market Food Markets J.D. Fields Lumber Company Bldg. Matls-Whsle 13 McDonald's Restaurants Restaurants Marukai Pacific Market Food Markets 14 Mobil Service Stations Service Stations Mobil Service Stations Service Stations 15 Nader's Furniture Store Furniture/Appliance Nader's Furniture Store Furniture/Appliance 16 Pacific Supply Company Bldg. Matls-Retail Pacific Supply Company Bldg. Matls-Retail 17 Sam's Club Department Store Ralph's Grocery Company Food Markets 18 Shell Service Stations Service Stations Reback's Plumbing N Things Bldg. Matls-Whsle 19 Smardan-Hatcher Supply Company Bldg. Matls-Whsle Sam's Club Department Store 20 Target Stores Department Store Sav-On Drug Stores Drug Stores 21 The New York Times Sales Light Industry Smardan-Hatcher Supply Company Bldg. Matls-Whsle 22 Union 76 Service Stations Service Stations Target Stores Department Store 23 Vons Service Stations Service Stations Union 76 Service Stations Service Stations 24 Wood Oil Co. Energy Sales Vons Service Stations Service Stations 25 Z Gallerie Furniture/Appliance Wood Oil Co. Energy Sales -Account for 56% -Account for 54% of the total sales tax collected. of the total sales tax collected. *** The names are listed in alphabetical order, not sales tax volume. Source: SBOE data -MBIA MuniServices, LLC (1) Period: from July 1 to June 30 of the following year. 143

234 City of Gardena Property Tax Levies, Tax Collections, and Delinquency Last Ten Fiscal Years COLLECTED WITHIN THE FISCAL YEAR OF LEVY TOTAL COLLECTIONS TO DATE Fiscal Taxes Levied for Percent of Collections in Percent of Year the Fiscal Year Amount Levy Subsequent Years Amount Levy ,932,996 3,932, % 577 3,932, % ,042,293 4,026, % 15,952 4,042, % ,382,607 4,371, % 10,693 4,382, % ,756,468 4,746, % 10,333 4,756, % ,162,845 5,162, % 389 5,162, % ,411,417 5,401, % 9,699 5,411, % ,386,694 5,379, % 7,257 5,386, % ,334,443 5,334, % 0 5,334, % ,386,423 5,385, % 581 5,386, % ,491,677 5,489, % 2,383 5,491, % Tax Collections and Delinquency Last Ten Fiscal Years 5,491,677 6,000,000 5,491,677 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Fiscal Year LEVIES COLLECTIONS NOTE: Article XIII-A of the Constitution of the State of California adopted by the electorate in June 1978, precludes the City from a local property tax levy. All general-purpose property taxes are levied by the County and allocated to other governmental entities on a predetermined formula. Source: California Municipal Statistics, Inc. - Oakland, California. 144

235 City of Gardena Card Club Gross Revenue Fee Last Ten Fiscal Years Percent of Fiscal Card Club General Fund General Fund Year Revenue (1) Gross Revenue Revenue ,765,894 34,839, % ,898,330 39,470, % ,995,092 45,555, % ,281,190 47,106, % ,541,470 47,047, % ,523,146 46,009, % ,660,557 42,209, % ,365,159 43,111, % ,434,236 45,813, % ,394,406 47,637, % Card Club Gross Revenue Last Ten Fiscal Years Fiscal Year (1) -Two card clubs: Normandie Casino & Hustler Casino City receives 12% of the total monthly gross revenue of the card game business. 145

236 City of Gardena Ratio of Outstanding Debt by Type Last Ten Fiscal Years GOVERNMENTAL ACTIVITIES of per Percent Taxable Taxable Debt Capita of Debt by Fiscal Certificates of Revenue Capital Assessed Assessed per Personal Personal Year Population (1) Participation (2) Bonds Leases Other Total Value (3) Value Capita Income (4) Income ,649 33,010,000-1,209,940-34,180,000 3,283,584, % , % ,072 32,545,000-1,073,296-34,714,157 3,515,209, % , % ,513 27,385, ,240-34,219,940 3,821,207, % , % ,947 24,660,000 2,800, ,227 2,340,000 33,618,296 4,206,921, % , % ,781 24,330,000 2,680, ,377 1,920,000 28,315,240 4,520,460, % , % ,810 23,915,000 2,565, ,377 1,920,000 29,176,377 4,770,971, % , % ,927 23,470,000 2,445, ,010 1,015,000 27,296,010 4,766,218, % , % ,009 23,005,000 2,320, , ,000 26,107,129 4,695,452, % , % ,124 22,515,000 2,250, ,069-24,968,069 4,714,033, % , % ,566 21,995,000 2,175, ,004-24,323,004 4,784,812, % , % Percent Average 600 Outstanding Debt per Capita Last Ten Fiscal Years $564 $550 $460 $495 $458 $472 $441 $442 $422 $ Fiscal Year NOTES: (1) State of California, Finance Department (2) The City of Gardena had 6 Certificates of Participations at the end of fiscal year At the end of fiscal year there were only two Certificates of Participation Series 2001A and 2006AB&C. During the fiscal year , the City refunded the Certificates of Participation Series 1994 and 1999 A & B by Series 2006 A B & C. In fiscal year , the City refunded Certificates of Participation Series 2001A by the Refunding Revenue COPs series 2007A. -Refer to Notes in the Financial Statement for details of the City's outstanding debt (3) Assessed value has been used because the actual value of taxable property is not readily available in the State of California (4) Income data is provided by the U.S. Department of Commerce Bureau of Economic Analysis, U.S. Census Bureau Sources: City of Gardena, Administrative Services Department - Finance Division County of Los Angeles, Auditor-Controller Office/Tax Division 146

237 City of Gardena Pledged-Revenue Coverage Last Five Fiscal Years Refunding Certificates of Participation Net Fiscal Operating Available Debt Service Percent Year Revenue (2) Expenses (2) Revenue Principal Interest Coverage (1) $ 44,990,120 $ 42,186,363 $ 2,803,757 $ 115,000 $ 134, ,090,207 39,723,260 1,366, , , ,447,638 38,830,154 3,617, , , ,782,462 42,454,549 2,327,913 70, , ,916,281 44,656,103 2,260,178 75, , NOTES: (1) (2) On January 24, 2007, the City issued the Refunding Revenue Bonds, Series 2007A to refund the Certificates of Participation Series 2001A. No principal and interest were paid during the fiscal year Revenue and expenses do not include the transfers in and out. -Details regarding the City's outstanding debt can be found in the notes to the financial statements. In Fiscal Year 11/12, corrections were made to amounts for Revenue and Operating Expenses. Sources: City of Gardena, Administrative Services Department - Finance Division 147

238 City of Gardena Ratio of General Bonded Debt Outstanding Last Ten Fiscal Years Percent OUTSTANDING GENERAL BONDED DEBT of Less: Amounts Taxable Taxable Debt Fiscal Certificates of Available in Debt Assessed Assessed per Year Population (1) Participation Service Fund (2) Total Value Value Capita ,649 $33,010,000 $425,000 $32,585,000 $3,283,584, % $ ,072 32,545, ,000 31,910,000 3,515,209, % ,513 27,385, ,000 26,960,000 3,821,207, % ,947 29,800, ,000 29,470,000 4,206,921, % ,781 24,330, ,000 23,915,000 4,520,460, % ,810 23,915, ,000 23,470,000 4,770,971, % ,927 23,470, ,000 23,005,000 4,766,218, % ,009 23,005, ,000 22,515,000 4,695,452, % ,124 22,515, ,000 21,995,000 4,714,033, % ,566 21,995, ,000 21,455,000 4,784,812, % 360 General Bonded Debt Outstanding per Capita Last Ten Fiscal Years $537 $522 $438 $476 $387 $380 $371 $382 $372 $ Fiscal Year Source: (1) State of California, Finance Department (2) This is the amount restricted for debt service principal payments. 148

239 City of Gardena Direct and Overlapping Bonded Debt June 30, Assessed Valuation: $4,784,812, Population: 59,566 Percent City's Share Total Debt Applicable of Debt 06/30/2013 To City (1) 06/30/2013 OVERLAPPING DEBT REPAID WITH PROPERTY TAXES: Los Angeles County Flood Control District $ 19,770, % $ 86,790 Metropolitan Water District 165,085, % 376,394 Los Angeles Community College District 3,712,555, % 29,811,817 Los Angeles Unified School District 10,945,695, % 109,128,579 Los Angeles County Regional Park and Open Space Assessment District 142,870, % 628,628 Total Overlapping Debt to be Repaid with Property Taxes $ 14,985,975,000 $ 140,032,208 OVERLAPPING OTHER DEBT: Los Angeles County General Fund Obligation $ 1,729,437, % $ 7,609,524 Los Angeles County Superintendent of Schools - Certificates of Participation 10,377, % 45,660 Los Angeles Unified School District - Certificates of Participation 395,161, % 3,939,759 Los Angeles County Sanitation District No. 5 Authority 46,698, % 2,769,202 Total Overlapping Other Debt 2,181,674,184 14,364,145 Total Overlapping Debt $ 17,167,649, ,396,353 City Direct Debt 24,323,004 Total Direct and Overlapping Debt $ 178,719,357 (2) -(1) Percentage of overlapping agency's assessed valuation located within boundaries of the City. -(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue, and tax allocation bonds, and non-bonded capital lease obligations. Per Ratios to Assessed Valuation Capita -Direct Debt ($24,170,000) % 408 -Overlapping Debt % 2,592 -Total Debt % 3,000 STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/2013: $0 Source: HDL Coren & Cone, Los Angeles County Assessor's Office 149

240 City of Gardena Legal Debt Margin Information Last Ten Fiscal Years Fiscal Year Assessed valuation $4,784,812,315 $4,714,033,674 $4,695,452,906 $4,766,218,736 $4,770,971,212 Conversion percentage 25% 25% 25% 25% 25% Adjusted assessed valuation 1,196,203,079 1,178,508,419 1,173,863,227 1,191,554,684 1,192,742,803 Debt limit percentage 15% 15% 15% 15% 15% Debt limit $179,430,462 $176,776,263 $176,079,484 $178,733,203 $178,911,420 Total net debt applicable to limit: General obligation bonds Legal debt margin $179,430,462 $176,776,263 $176,079,484 $178,733,203 $178,911,420 Total debt applicable to the limit as a percentage of debt limit - 0% - 0% - 0% - 0% - 0% Section of the Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% OF MARKET VALUE. Effective with fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The Computations shown above reflect a conversion of assessed valuation data for each fiscal year from current full valuation perspective to the 25% level that was in effect at the time the legal debt margin was enacted by the State of California for local governments located within the State. Source: City of Gardena, Administrative Services Department - Finance Division 150

241 City of Gardena Legal Debt Margin Information (Continued) Last Ten Fiscal Years Fiscal Year Assessed valuation $4,520,460,890 $4,206,914,308 $3,821,207,059 $3,515,209,902 $3,283,584,062 Conversion percentage 25% 25% 25% 25% 25% Adjusted assessed valuation 1,130,115,223 1,051,728, ,301, ,802, ,896,016 Debt limit percentage 15% 15% 15% 15% 15% Debt limit $169,517,283 $157,759,287 $143,295,265 $131,820,371 $123,134,402 Total net debt applicable to limit: General obligation bonds Legal debt margin $169,517,283 $157,759,287 $143,295,265 $131,820,371 $123,134,402 Total debt applicable to the limit as a percentage of debt limit - 0% - 0% - 0% - 0% - 0% $ Section of the Government $123 Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation 120 was based upon 25% OF MARKET VALUE. Effective with fiscal year, each parcel is now assessed at 100% of market 100 value (as of the most recent change in ownership for that parcel). The Computations shown above reflect a conversion of assessed valuation data for each fiscal year from current full valuation 80 perspective to the 25% level that was in effect at the time the legal debt margin was enacted by the State of California for local governments located within the State. 60 (in Million) Legal Debt Margin Last Ten Fiscal Years $143 $158 $170 $179 $179 $176 $177 $ SOURCE: City of Gardena, Administrative Services Department - Finance Division Fiscal Year 151

242 City of Gardena Demographic and Economic Statistics Last Ten Calendar Years City of City of Average Los Angeles Average Gardena Per Capita Gardena Gardena Gardena Annual County Annual Personal Personal LAUSD Gardena Unemployment Housing Population Percentage Population Percentage Income Income Enrollment Employment Rate Year Units (1) Increase (1) Increase (1,000s) (2) (2) (3) (4) (4) ,158 60, % 10,107, % 1,890,265 33, ,784 26, % ,159 61, % 10,166, % 2,012,273 35, ,201 27, % ,232 61, % 10,245, % 2,149,002 36, ,319 28, % ,492 61, % 10,331, % 2,270,875 21, ,626 28, % ,557 61, % 10,363, % 1,338,303 22, ,680 29, % ,528 61, % 10,393, % 1,367,461 42, ,168 26, % ,534 61, % 10,441, % 2,651,590 42, ,441 25, % ,477 59, % 9,858, % 2,596,337 43, ,441 25, % ,501 59, % 9,884, % 2,797,216 47, ,233 26, % ,501 59, % 9,958, % 2,646,100 44, ,716 27, % City of Gardena Population Last Ten Calendar Years 62,500 62,000 61,500 61,000 60,500 60,000 59,500 59,000 58,500 58,000 57,500 61,947 61,781 61,810 61,927 61,513 61,072 60,649 59,566 59,009 59, Calendar Year Notes: (1) State of California, Finance Department. (2) Income data is provided by the U.S. Department of Commerce Bureau of Economic Analysis, U.S. Census Bureau. (3) Student Enrollment is from LAUSD website. LAUSD does not have breakdown per City count. (4) Employment and Unemployment rates are provided by the EDD's Labor Market Information Division. Data at the end of June. 152

243 City of Gardena Ten Principal Employers Current Year and One Year Ago Percent of Percent of Number of Total Number of Total Employer (1) Business Type Employees Employment Employees Employment Gardena Memorial Hospital Hospital services % Hustler Casino Casino % United Parcel Service Inc. Delivery % Hitco Carbon Composites, Inc. Manufacturing parts % Normandie Club, LP Casino % Southwest Offset Printing Book binding and printing % Ramona's Mexican Food Food % Nissin Foods Company Manufacturing % Target Retail % Sam's Club Retail % Gardena Memorial Hospital Hospital services % Hustler Casino Casino % United Parcel Service Inc. Delivery % Hitco Carbon Composites, Inc. Manufacturing parts % Normandie Club, LP Casino % Southwest Offset Printing Book binding and printing % Ramona's Mexican Food Food % Nissin Foods Company Manufacturing % Target Retail % Sam's Club Retail % Total top ten employers 4,243 4,033 Total City Employment (1) 27,100 26,200 NOTE: Non-Governmental Employers. Several potential businesses that may qualify for Top 10 ranking. However, current employee counts were unattainable at the time of report preparation. Previous historical data is not available. (1) -Total City employment provided by EDD -Labor Market Information Division. The information before 2006 was not available. SOURCE: Economic Development Staff 153

244 City of Gardena Full-Time and Part-Time City Employees by Function Last Ten Fiscal Years Fiscal Year Function General government Public safety Public works Community development Transit - Bus line Total City of Gardena Employment Last Ten Fiscal Years Fiscal Year Source: City of Gardena, Administrative Services Department - Finance Division 154

245 City of Gardena Operating Indicators by Function Last Ten Fiscal Years Fiscal Year Function Police: Arrests 3,333 3,421 3,159 3,892 4,467 4,504 4,481 3,675 2,915 3,395 Number of parking citations issued 26,615 25,218 21,337 19,223 21,068 22,718 19,032 17,939 20,144 11,129 Public works: Street resurfacing (miles) Traffic lights and signals Parks and recreation: Number of recreation classes 1,232 1,380 1,360 1,338 1,349 1,341 1,600 1,600 1,700 1,500 Number of facility rentals ,135 1,164 1,396 1,302 1,850 2,725 2,650 2,500 Transit: Number of customers served (1) 3,761,506 3,737,640 3,487,459 3,739,114 4,246,325 4,447,783 4,721,483 4,738,634 4,656,211 4,907,290 NOTE: (1) -Fixed route only Source: City of Gardena, Administrative Services Department 155

246 City of Gardena Capital Asset Statistics by Function Last Ten Fiscal Years Fiscal Year Function (1) Police: Stations Public works: Streets (miles) Two lanes street N/A N/A N/A -Four lanes street N/A N/A N/A -Alley N/A N/A N/A -Sidewalks N/A N/A N/A Street lights -Edison maintenance (2) 3,229 3,247 3,250 3,186 3,186 3,200 3,024 3,194 3,194 3,194 -City maintenance N/A N/A N/A Traffic signals Traffic signals (shared) Parks and recreation: Number of parks Number of parkette Number of municipal pool Number of gymnasiums (3) Community center (3) Transit: Stations Bus stops NOTE: (1) -Reappraisal at the end of fiscal year (2) -Streetlights maintained by SC Edison Company. (3) -Corrected in Fiscal Year gymnasium and community center was reversed. Source: City of Gardena, Administrative Services Department - Finance Division 156

247 APPENDIX C CITY INVESTMENT POLICY Appendix C

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249 RESOLUTION NO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GARDENA, CALIFORNIA, ACKNOWLEDGING THE RECEIPT AND FILING OF THE ANNUAL STATEMENT OF INVESTMENT POLICY FOR THE FISCAL YEAR WHEREAS, the Governor of the State of California signed legislation into law effective January 1, 1996 (SB564); and WHEREAS, this statement is intended to outline the policies for maximizing the efficiency of the City's Cash Management System and for prudent investment of the City's funds, and to provide guidelines for suitable investments. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF GARDENA, CALIFORNIA, DOES HEREBY FIND, DETERMINE, AND RESOLVE AS FOLLOWS: SECTION 1. That the City Treasurer of the City of Gardena declares the annual Statement of Investment Policy for fiscal year to be as follows: I. POLICY In accordance with State Law and under the authority granted by the City Council, the City Treasurer is responsible for investing the unexpended cash in the City Treasury. The investment of the City of Gardena's funds is directed to the goals of safety, liquidity and yield. The authority governing investments for municipal governments is set folth in the California Government Code, Sections through The City Treasurer shall attempt to obtain the highest yield using the average three months TreasUlY Bill as a bench mark, provided that all investments meet the criteria established for safety and liquidity. Criteria for selecting investments and the order of priority are: 1. Safety. The safety and risk associated with an investment refers to the potential loss of principal, interest or a combination of these amounts. The City only operates in those investments or accounts considered safe as to their maintenance and protection. 2. Liquidity. This refers to the ability to convert accounts or instruments into cash. Liquidity is an important investment quality especially when the need for unexpected funds occurs occasionally. 3. Yield. Yield is the potential dollar earning on the original principal of the investment or cash account. and sometimes is described as the rate of return. The investment policy and practices of the City Treasurer for the City of Gardena are based upon Federal, State, and Local law and prudent money management. The primary objectives ofthis policy are: 1. To protect the principal and asset holdings of the City's poltfolio. 2. To ensure adequate liquidity is provided for the prompt, efficient handling of City's disbursement. 3. To generate the maximum amount of investment income within the parameter of this Statement of Investment Policy and the guidelines for suitable investments. The ultimate goal is to enhance the economic status of the City while protecting its funds. Page 1 of6

250 Resolution No II. SCOPE The investment policy applies to all financial assets of the City of Gardena as accounted for in the City Annual Audited RepOli with some limited exceptions for Bonds Proceeds managed by the Trustees. Policy statements outlined in this document focus on the City of Gardena's pooled funds, but will also apply to all other funds under the City Treasurer's span of control unless exempted by resolution or statute. This policy is applicable, but not limited to all funds listed below: General City Account Funds Bus Lines Fund Sewer Fund Capital Improvement Funds Special Capital Improvements Liability Fund TRAN Proceeds Any new fund created by the Accounting Manager unless specifically exempted by resolution One exception does exist regarding the investments of the bond reserve funds. The Trustee has no obligation in adhering to this policy due to the Bond Indenture Agreement. However, the Trustee shall consult with the Treasurer for guidelines and recommendations. III. PRUDENCE Generally, investments shall be made in the context of the "Prudent Investor" rule which states that:" Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." It is the City's full intent, at the time of purchase, to hold all investments until maturity to ensure the return of all invested principal dollars. However, it is realized that market prices of securities will vary depending on economic and interest rate conditions at any point in time. It is fmiher recognized, that in a well-diversified investment polifolio, occasional measured losses are inevitable due to uncontrollable forces in the economy and bond market. These occasional losses must be within the context of the overall investment program and the resultant long term rate of return. The City Treasurer and other individuals assigned to manage the investment polifolio, acting within the intent and scope of the investment policy and other written procedures and exercising due diligence, shall be relieved of personal responsibility and liability for an individual security's credit risk or market price change, provided deviations from expectations are repolied in a timely manner and appropriate action is taken to control adverse development. IV. OBJECTIVES A. SAFETY OF PRINCIPAL Safety of principal is the foremost objective of the City of Gardena. Each investment transaction shall seek to ensure that capital losses are avoided, whether from securities default, broker-dealer default or erosion of market value. The City shall seek to preserve principal by mitigating the two types of risk, credit risk and market risk. Credit risk, defined as the risk of loss due to failure of the issuer of a security, shall be mitigated by investing in investment grade securities and by diversifying the investment portfolio so that the failure of anyone issuer does not unduly harm the City's capital base and cash flow. Page 2 of6

251 Resolution No Market risk, defined as market value fluctuations due to overall, changes in the general level of interest rates, shall be mitigated by limiting the average maturity of the City's investment portfolio to two years, the maximum maturity of anyone security to five years, structuring the polifolio based on historic and current cash flow analysis eliminating the need to sell securities prior to maturity and avoiding the purchase of long term securities for the sole purpose of sholi term speculation. B. LIQUIDITY Because the City operates its own Bus Lines, cash flow is generated on a daily basis. Historical cash flow trends are compared to current cash flow requirements on an ongoing basis in an effoli to ensure that the City's investment polifolio will remain sufficiently liquid to enable the City to meet all reasonable anticipated operating requirements. C. COLLATERAL REQUIREMENTS Collateral are required for investments in certificates of deposit, repurchase agreements and reverse repurchase agreements. In order to reduce market risk, the collateral level will be at least 110% of market value of principal and accrued interest. In order to conform with the provisions of the Federal Bankruptcy Code, which provides for liquidation of securities held as collateral, the only securities acceptable as collateral shall be certificates of deposit, commercial paper, eligible banker's acceptances, medium term notes or securities that are the direct obligation of, or are fully guaranteed as to principal and interest by, the United States or any agency of the United States. V. AUTHORIZED INVESTMENT The City is governed by the Government Code, Section et seq. The temporarily idle funds of the City of Gardena shall only be invested in securities and diversified within the context of these limitations. The following investments are authorized, as fmiher limited herein: 1. United States Treasury Bills, Notes and Bonds, or those for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no limitation as to the percentage of the City's surplus funds which can be invested. The maximum maturity length shall not exceed 5 years. 2. Securities issued or guaranteed by the full faith and credit of the United States Government or its agencies, which include, but are not limited to: FDIC, FFCB, FHLB, FNMA, FHLMC, GMNA, TVA. Although there is no percentage limitation on these issues, the "prudent investor" rule shall apply for a single agency name, as U.S. Government backing is implied rather than guaranteed. The maximum maturity length shall not exceed 5 years. Investments deta;/ed in items 3 through IO are jilrther restricted to percentage of the cost value of the portfolio in anyone issuer to a maximum of I5%. The total value invested in anyone issuer shall not exceed 5% of the issuer's net worth. Again, a five year maximum maturity limitation is applicable unless jitrther restricted by this policy. 3. Bill of Exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as banker's acceptance. Banker's acceptances purchased may not exceed 180 days maturity or 40% of the City's temporarily idle funds. Page 3 of6

252 Resolution No Commercial paper ranked "PI" by Moody's Investor Services and "Al+" by Standard and Poor's, and issued by a domestic corporation having assets in excess of $500,000,000 and having an "AA" or better rating on its long term debentures as provided by Moody's or Standard and Poor's. Purchase of eligible commercial paper may not exceed 270 days maturity nor represent more than 1 0% of the outstanding paper of an issuing corporation. Purchase of commercial paper may not exceed 15% of the City's surplus funds. 5. Negotiable certificates of deposit issued by a nationally or State-Chat1ered Bank or a State or Federal Savings and Loan Association. Purchase of negotiable certificates of deposit may not exceed 30% of total portfolio. A maturity limitation of five years is applicable 6. Repurchase agreements. The City may invest in repurchase agreements with banks and dealers with which the City has entered into a master repurchase agreement contract that specifies terms and conditions of repurchase agreements. The maturity of repurchase agreements shall not exceed 90 days. The underlying securities are to be United States Treasuries or Agencies that have a market collateral value that equals 102% of the repurchase agreement amount including accrued interest. The maximum maturity of that collateral is not to exceed 5 years. 7. Reverse repurchase agreements that specify terms and conditions may be transacted with broker dealers and financial institutions, but cannot exceed 20% of the portfolio value on the date entered into. The City may enter into reverse repurchase agreements which may not exceed 90 days. 8. Local Agency Investment Fund. The City may invest in the Local Agency Investment Fund (LAIF) established by the State Treasurer for the benefit of local agencies up to the maximum permitted by State law 9. Time Deposit. The City may invest in non-negotiable, collateralized time deposits, in accordance with the California Government Code, in those banks and savings and loan associations that meet the requirements for investment in negotiable cel1ificates of deposit. Since time deposits are not liquid, no more that 25% of the temporarily idle fund may be invested in this category 10. Medium Term Corporate Notes, with a maximum maturity of five years, may be purchased. Securities eligible for investment shall be rated AA or better by Moody's or Standard & Poor's rating services. Purchase of medium term notes may not exceed 30% of the market value of the portfolio and not more than 15% of the market value of the portfolio may be invested in notes issued by one corporation. Commercial paper holdings should also be included when calculating the 15% limitation 11. Mutual Funds investments held by City must restrict their underlying investments to subsection "A" through "J" of of the Government Code or subsections "M" or "N" of of the Government Code. Mutual Funds held by the City will have a maximum maturity of five (5) years, will not exceed twenty (20%) percent of the pol1folio, and will have a minimum rating of AAA 01' AAl by Moody's and AAA 01' AA+ by S&P. Mutual Fund investments will be made in accordance with section (k) (l) ofthe Government Code 12. Mutual Funds (Money Market Funds) held by the City will have a maximum maturity of 90 days, will not exceed twenty (20%) percent of the City's p011folio, and will have a minimum rating of AAA or Aa by either Moody's or S&P. Mutual Fund investments will be made in accordance with section (k) (2) ofthe Government Code. 13. Ineligible investments. Investments not described herein, including, but not limited to common stocks are prohibited from the use in this fund. Page 4 of6