INSIDE LOOK: Mandated Projects Page 2. Commission Initiated Projects Page 3. Administrative Activities Page 4. Meetings and Outreach Efforts Page 5

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1 INSIDE LOOK: Mandated Projects Page 2 Commission Initiated Projects Page 3 Administrative Activities Page 4 Meetings and Outreach Efforts Page 5 FY Budget Overview Page 7

2 I N T R O D U C T I O N This Comprehensive Quarterly Report presents an overview of the Commission s activities during the months of July, August, September and October This report provides an update on projects and activities, a summary of the outreach efforts and an assessment of the agency s current budget and investment portfolio performance. M A N D A T E D P R O J E C T S During the first quarter, OC LAFCO staff participated in meetings and discussions involving active and anticipated routine and complex changes of organization. The filed and potential applications include an annexation to special district boundaries and the potential transfer of water and sewer systems. Additionally, staff performed work on administrative projects including an update to the OC LAFCO policies and procedures and the initiation of the fourth round of Municipal Services Reviews. The following section provides an update on project related activities that occurred during this quarter. Focused Municipal Service Review of the Potential Transfer of Water and Wastewater Systems for the City of San Juan Capistrano At its meeting of October 10, the Commission approved the actions to receive and file the Focused Municipal Service Review (MSR) on the City of San Juan Capistrano Water and Wastewater Utilities and to adopt the statement of determinations. This MSR was prepared in response to an application submitted by the City in August 2016 requesting a review focusing on the potential transfer of the operations and facilities of these utilities to another public agency. The MSR will serve as the foundation for a review and analysis of a plan for service and application submitted by an agency. The Focused MSR determinations found that all three of the alternative service providers, which are Moulton Niguel Water District, Santa Margarita Water District, and South Coast Water District, are generally in a better position than the City to address the water and wastewater financing needs, if the systems were to be annexed into the district. The Focused MSR documents are available on the OC LAFCO website. Next Steps for the City of San Juan Capistrano The City of San Juan Capistrano City Council established a subcommittee that has been meeting with the representatives from the three districts to discuss their interest in being the successor agency and to ensure that the needs of the City and its residents will be appropriately addressed by the provider that assumes the system. The items of discussion include projected rates, capital improvement plans, 2 P a g e

3 governance models and the transition plan and timeline. In October, each of the three districts submitted proposals which are currently being reviewed by the subcommittee. Following the outcome of that process, it is anticipated that the item will be heard by the full Council before the end of January and that the application to transfer the water and wastewater operations and facilities will be filed with OC LAFCO early in the 2019 calendar year. Amendments to the LAFCO Policies, Procedures and Guidelines State law requires the Commission to adopt policies and procedures to perform its legislative authority and enhance internal processes. Annually, in its Work Plan, the Commission selects a number of policies and procedures to review and update. The Commission has formed an Ad-Hoc Committee to work with staff and legal counsel to review and, if necessary, revise those policies identified in the Work Plan. During the first part of this fiscal year, the work on the policy updates was focused on the following: Guidelines for Evaluating a Plan for Services Guidelines for Preparing Municipal Service Reviews Guidelines for Establishing and Updating Spheres of Influence Community Identity Policy During this quarter, a series of meetings were conducted by the OC LAFCO Ad Hoc Committee and staff with representatives from the Executive Committee of the Orange County City Manager Association as well as with representatives from a consortium of special districts to discuss the proposed updates to these policies, to explain the basis for the changes within the State law, and to identify and address any issues resulting from the changes. This deliberative process has yielded proposed revisions to these four policies that require consideration and approval by the full Commission. They will be presented at the Board s November 14 th meeting. C O M M I S S I O N I N I T I A T E D P R O J E C T S Update on Unincorporated Islands Program Over the past 17 years, the Commission has identified the annexation of unincorporated islands as a top priority project during its strategic planning sessions and has included it as part of its yearly work plan. The Commission s leadership on this program has proven successful with a total of 56 small unincorporated islands being annexed since the beginning of the program. During the first quarter of this fiscal year, considerable progress was made towards the potential annexation of a small unincorporated island of approximately 25 acres within the City of Santa Ana s sphere of influence. As a result of an on-going, two-year collaborative effort between staffs of OC LAFCO, the City of Santa Ana, and the County, the Santa Ana City Council directed its staff to conduct 3 P a g e

4 a Community Workshop for the residents of this unincorporated island. The workshop, which was held on September 14, provided an opportunity for landowners and tenants to learn about the annexation process, to ask questions about the changes that may result from the proposed annexation, and to provide feedback. Approximately 30 individuals attended the Community Workshop, which included a panel composed of the OC LAFCO Executive Officer, the City of Santa Ana s Deputy City Manager, and the County Chief Executive Officer, with an OC LAFCO Policy Analyst serving as the moderator. The panel presented information and answered questions from the audience. Additionally, City staff representing both the Public Works and Planning Departments were available to provide information. Community Workshop on Santa Ana Unincorporated Island It is anticipated that the Santa Ana City Council will consider formally filling an annexation application to OC LAFCO in late November, which would result in consideration of the project by the Commission in February or March of A D M I N I S T R A T I V E A C T I V I T I E S OC LAFCO s Audited Financial Statements Annually, an independent auditor prepares OC LAFCO s audited financial statements. During this quarter, staff and the agency s independent accountant prepared internal administrative and accounting documents for the audit preparation and participated in meetings and discussions with the auditing firm representatives. The auditing firm, Davis Farr LLP, has prepared OC LAFCO s FY audited financial statements. This year, in accordance with the Governmental Accounting Standards Board (GASB) rules 68 and 75, the financial statements include detailed information about the Commission s pension liabilities and the other post-employment benefit obligations. The auditors found that there were no material issues relating to OC LAFCO s accounting procedures and policies, internal financial controls, or office procedures, and issued an Unqualified Opinion, which is the highestlevel opinion an entity can receive. The auditor will present the findings to the Commission at the meeting in November. The audited financial statements are publicly available on the OC LAFCO website. 4 P a g e

5 CALAFCO Legislative Committee and Annual Conference Updates OC LAFCO staff participates in discussions that shape legislation of interest to the agency and to LAFCOs in general through its membership on the CALAFCO Legislative Committee. During the first quarter, the Legislature returned from summer recess in mid-august and continued to review and consider legislation through the conclusion of the session on August 31. This was a period of high activity, during which the CALAFCO Legislative Committee continued to monitor legislation and engage in discussions with key stakeholders, legislative staff and legislators regarding several bills. Key bills included CALAFCO s sponsored legislation, Assembly Bill 2258, seeking a one-time grant funding for LAFCO studies and the annual Omnibus Bill proposing non-controversial and non-technical changes to the Cortese-Knox-Hertzberg Local Government Reorganization Act of Following the conclusion of the Legislative session, Governor Brown had until September 30 to sign or veto bills. Some of the LAFCO-related bills he signed include the Omnibus Bill, AB 2600 regarding the formation of Regional Parks and Open Space Districts, and AB 2238 which requires LAFCOs to consider information related to high fire hazard zones during the review of a proposal. The Governor vetoed AB 2258 noting that the funding proposal should be evaluated in the annual budget process. The CALAFCO Legislative Committee will consider whether to resubmit this legislation during the next legislative cycle. The new Legislative session starts on December 17 and staff will monitor legislation that is of interest to OC LAFCO and provide an update to the Commission during its meeting in January Additionally, Executive Officer Emery served as Co-Program Chair for the 2018 CALAFCO Annual Conference that was held in Yosemite on October 3-5. She provided leadership to the team of Board members and staff volunteers from LAFCOs across the State in developing a solid program that featured informative sessions on topics including: the causes and impacts of tree mortality in California, the history and use of Municipal Service Reviews, managing responses to natural disasters, and providing leadership in an ever-changing environment. During the conference, Commissioner Cheryl Brothers was re-elected to serve on the CALAFCO Board and former Commissioner, John Withers, received the Distinguished Service Award. M E E T I N G S A N D O UTR E A C H E F F O R T S During the first quarter, the meetings listed on page 6 provided the opportunity for staff to work with representatives from the County, cities, and special districts, and other OC LAFCO stakeholders on key Commission projects. 5 P a g e

6 F i r s t Q u a r t e r F Y M E E T I N G S & O U T R E A C H E F F O R T S J u l y M e e t i n g s Commission Ad-Hoc Committee on Policies and Procedures 2017 Year End Orange County Employees Retirement System Review Representatives from Special Districts on Policies and Procedures and Work Plan Representatives from Executive Committee of Orange County City Manager Association on Policies, Procedures and Work Plan CALAFCO Legislative Committee Center for Demographic Research TAC Advisory Committee CALAFCO Conference Program Committee South County Water and Wastewater Group on MSRs and Work Plan CALAFCO Board of Directors A u g u s t M e e t i n g s Moulton Niguel Water District, Santa Margarita Water District, and South Coast Water District with Consultants on San Juan Capistrano Focused MSR Orange County City Manager Association CALAFCO Southern Region ISDOC Executive Committee regarding Policies, Procedures and Work Plan Commission Ad-Hoc Committee on Policies, Procedures and Work Plan with Special Districts Group Orange County Council of Governments Management Oversight Committee for Center for Demographic Research El Toro Water District- Community Advisory Group CALAFCO Legislative Committee CALAFCO Conference Program Committee City of San Juan Capistrano on Focused MSR Landowner representative on annexation of Santa Ana island S e p t e m b e r M e e t i n g s County and City of Santa Ana Staff on Community Workshop for 17 th and Tustin Unincorporated Island Community Workshop on 17th and Tustin Unincorporated Island Orange County Employees Retirement System Financial Update Orange County Council of Governments CALAFCO Conference Program Committee Yorba Linda Water District Director on Special District Alternative Formula CALAFCO Awards Committee City of Laguna Niguel OC LAFCO Introduction and MSR Process Meeting with Independent Auditor regarding Annual Audit CALAFCO Awards Committee Laguna Niguel City Manager on OC LAFCO Strategic Plan, Work Plan and Budget O c t o b e r M e e t i n g s Commission Ad-Hoc Committee on Policies, Procedures and Work Plan CALAFCO Conference Orange County Employees Retirement System Financial Update Orange County Council of Governments CALAFCO Legislative Committee Anaheim City Manager on OC LAFCO Strategic Plan, Work Plan and Budget Irvine City Manager on OC LAFCO Strategic Plan, Work Plan and Budget Trabuco Canyon Water District General Manager on OC LAFCO Strategic Plan, Work Plan and Budget ISDOC Quarterly 6 P a g e

7 FY B U D G E T O V E R V I E W On July 11, the Commission adopted the final FY budget of $1,139,860, which represents a slight increase of 0.2 percent above the previous fiscal year. This budget reflects the agency s continued efforts to provide services and programs in an effective and efficient manner. The revenues for FY include a total apportionment of $1,091,777 which is equally divided amongst the County, cities and independent special districts. This report includes the first budget update for the current fiscal year. The following budget review provides the Commission with the bank account balances and a comprehensive overview of OC LAFCO revenues and expenditures for the period ending October 31, (see page 9). 1 Revenues The majority of OC LAFCO s revenues are from the $1,085,155 collected in apportionments from the funding agencies. The remaining apportionment balance of $6,622 is expected to be collected in the second period. OC LAFCO also earns interest from its investment portfolio. In the period ending October 31, 2018, the agency earned approximately $2,635 in interest which is 18% of the interest revenues anticipated for the fiscal year. Another source of OC LAFCO revenue is application filing fees. These filing fees are not used for budgeting purposes and are shown in the financial overview as revenue within the Special Fund column. The Special Fund column in the chart on page 9 includes an accounting of application revenues and expenses incurred during the first period of the fiscal year. Expenditures The total General Fund expenditures as of the period ending October 31, 2018 are approximately 28% or $341,176 of the total budget of $1,139,860. The following table provides the comparison of the percentage of actual funds used and the target levels for the current fiscal year. Total FY Funds Used 1 st Period 2 nd Period 3 rd Period Target 33% 66% 100% Actual 28% All financial statements contained in the CQ report are on an accrual accounting basis. 7 P a g e

8 Balances and Investment Report The following table illustrates the balance of OC LAFCO s bank accounts as of October 31, 2018: As of 10/31/18 Balance 770-Payroll Account $ 348,331 Wells Fargo Checking 111,669 Wells Fargo Savings 210,618 Total $ 638,403 To maximize funds, apportionment fees are deposited in the Local Agency Investment Fund (LAIF) and OC Fund accounts. Throughout the fiscal year, the accountant and designated staff members withdraw from the accounts to cover the agency s operational expenses. The following table illustrates the balance of OC LAFCO s investment portfolio as of October 31, As of 10/31/18 Balance LAIF $ 890,639 OC Fund 475,965 Total $ 1,366,604 Balance Sheet 2` This report includes the balance sheet to provide an understanding of OC LAFCO s financial status. This financial document on page 10 summarizes the agency s assets and liabilities as of October 31, Unaudited Subject to Change 8 P a g e

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10 OC Local Agency Formation Commission Balance Sheet As of October 31, 2018 Oct 31, 18 ASSETS Current Assets Cash and Investments 1000 County Acct-Payroll 348, Wells Fargo Checking 111, Wells Fargo Savings 210, OC Fund 475, Investment Acct - LAIF 890, Fair Market Value Adjustments (2,819) Total Cash and Investments 2,034,402 Other Current Assets Other Current Asset 1300 Interest Receivable - Other Prepaid Expenses - Other 32, Retirement Prepaid Expense 76,995 Total Other Current Asset 110,443 Total Other Current Assets 110,443 Total Current Assets 2,144,845 Total Fixed Assets 51,019 Other Assets 1580 Def. Outflows Pension Related 444, Deferred OPEB Contributions 8, Security Deposit 6,082 Total Other Assets 459,230 Total Other Assets 459,230 TOTAL ASSETS 2,655,094 LIABILITIES & NET POSITION Liabilities Current Liabilities 2000 Accounts Payable 25, Salaries Payable - OC (9050) 14, Compensated Absences 28,540 Total Current Liabilities 68,282 Long Term Liabilities 2164 Deferred Inflows OPEB Related 4, Net OPEB Liability 130, Net Pension Liability 1,268, Def. Inflows Pension Related 471, Deferred Lease Incentive 30,599 Total Long Term Liabilities 1,904,410 Total Liabilities 1,972,692 Net Position 3000 Unrestricted (138,061) 3901 Investment in Capital Assets 51,019 Net Income 769,444 Total Net Position 682,401 TOTAL LIABILITIES & NET POSITION 2,655, P a g e