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2006 RCDC Financial and Compliance Report■ ■ ■ ■ Rosemead Community Development Commission ■ Financial and Compliance Report ■ Fiscal Year Ended June 30, 2006 ■ ■ ■ ■ ■ ■ ■ ! ■ ■ ! ■ ■ ■ i ■ o ■ • ■ McGladrey& Pullen ■ Certified Public Accountants ■ McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. ■ ■ ■ ■ ■ ■ ■ ■ ■ Contents ■ Section I— Financial Section ■ Independent Auditor's Report on the Financial Statements and Supplementary Information 1 and 2 ■ Basic Financial Statements Government -wide Financial Statements ■ Statement of net assets — governmental activities 3 Statement of activities — governmental activities 4 ■ Fund Financial Statements Balance sheet - govemmental funds 5 and 6 ■ Reconciliation of the governmental funds balance sheet to the government -wide statement ■ of net assets 7 Statement of revenues, expenditures and changes in fund balances -- governmental funds 8 and 9 ■ Reconciliation of governmental funds statement of revenue, expenditures and changes in fund balances to the government -wide statement of activities 10 Notes to financial statements 11 -22 Required Supplementary Information ■ Budget comparison schedules 23 and 24 Note to required supplementary information 25 Other Supplementary Information Computation of Low- Moderate Income Housing Excess /Surplus Funds 26 and 27 ■ Section II— Compliance Section Independent Auditor's 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 28 and 29 ■ ■ ■ ■ ■ ■ ■ EJ ■ 11 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Financial Section ■ ■ McGladrey& Pullen ■ Certified Public Accountants ■ ■ Independent Auditor's Report on the Financial Statements ■ and Supplementary Information ■ To the Governing Board ■ Rosemead Community Development Commission Rosemead, California ■ We have audited the accompanying financial statements of the governmental activities and each major fund of the ■ Rosemead Community Development Commission (the Commission), a blended component unit of the City of Rosemead, California, as of and for the year ended June 30, 2006, which collectively comprise the Commission's ■ basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Commission's management. Our responsibility is to express an opinion on these financial statements based on our ■ audit. ■ We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the ■ Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes ■ examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as ■ evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our ■ opinions. ■ In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Commission as of June 30, 2006, and the ■ respective changes in financial position thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America. ■ The Commission has not presented a Management's Discussion and Analysis required by Governmental Accounting ■ Standards Board (GASB) Statement No. 34 that the GASB has determined is necessary to supplement, although not required to be part of, the basic financial statements. In accordance with Government Auditing Standards, we have also issued our report dated January 15, 2007 on our ■ consideration of the Commission's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to ■ describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over the financial reporting or on compliance. That report ■ is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. ■ The budgetary comparison information as listed in the table of contents is not a required part of the basic financial ■ statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures that consist principally of inquiries of management ■ regarding the methods of measurement and presentation of the required supplementary information. However, we ■ did not audit the information and express no opinion on it. ■ ■ McGladrey & Pullen, LLP is a member fin of RSM Intematonal, an affiliation of separate and independent legal entries. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Commission's basic financial statements. The computation of Low- Moderate Income Housing excess /surplus funds as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. loc.g *,•.fit tai Pasadena, California January 15, 2007 2 Rosemead Community Development Commission Statement of Net Assets — Governmental Activities June 30, 2006 Assets Current Assets Cash and investments $ 7,152,772 Receivables, other 825,831 Deferred charges 550,323 Restricted cash and investments 6,804,123 Total current assets 15,333,049 Noncurrent Assets, capital assets, depreciable buildings, property and equipment, net 25,628,882 Total assets $ 40,961,931 Liabilities Current Liabilities Accounts payable and accrued liabilities $ 939,578 Long -term debt, due within one year 780,000 Total current liabilities 1,719,578 Noncurrent Liabilities, long -term debt, due in more than one year 36,636,830 Total liabilities $ 38,356,408 Net Assets Invested in capital assets, net of related debt $ (5,092,151) Restricted for low- moderate income housing 870,799 Restricted for capital projects 6,030,655 Unrestricted net assets 796,220 Total net assets $ 2,605,523 See Notes to Financial Statements. M 3 Rosemead Community Development Commission Statement of Activities — Governmental Activities Year Ended June 30, 2006 See Notes to Financial Statements. 4 General revenues: Property tax increment 3,310,295 Income from property and investments 912,373 Total general revenues and transfers 4,222,668 Change in net assets (1,071,640) Net assets, beginning of year 3,677,163 Net assets, end of year $ 2,605,523 Net Revenue (Expense) and Changes in Program Revenues Net Assets Charges for Governmental Functions /Programs Expenses Services Activities Governmental activities: General government $ 536,801 $ 590 $ (536,211) Intergovernmental, City of Rosemead 1,677,820 396,544 (1,281,276) Public works 1,644,602 - (1,644,602) Interest on long -term debt 1,832,219 - (1,832,219) Total primary government $ 5,691,442 $ 397,134 (5,294,308) See Notes to Financial Statements. 4 General revenues: Property tax increment 3,310,295 Income from property and investments 912,373 Total general revenues and transfers 4,222,668 Change in net assets (1,071,640) Net assets, beginning of year 3,677,163 Net assets, end of year $ 2,605,523 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ This page is intentionally left blank Rosemead Community Development Commission Balance Sheet — Governmental Funds June 30, 2006 Rosemead Low - Moderate Housing Income Housing Development Debt Service Assets Set -Aside Fund Corporation Fund Cash and investments Receivables, other Restricted cash and investments Total assets Liabilities and Fund Balances Accounts payable and accrued liabilities Fund balances: Reserved for debt service Reserved for low- moderate income housing Reserved for capital projects Unreserved, designated for redevelopment projects Total fund balances Total liabilities and fund balances See Notes to Financial Statements. 5 $ 870,540 $ 194,391 $ - 259 62,170 18,294 - - 1,323,791 $ 870,799 $ 256,561 $ 1,342,085 $ $ 47,123 $ - 1,342,085 870,799 - - 209,438 870,799 209,438 1,342,085 $ 870,799 $ 256,561 $ 1,342,085 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Total Capital Projects Governmental Fund Funds $ 6,087,841 $ 7,152,772 745,108 825,831 5,480,332 6,804,123 $ 12 313,281 $ 14,782,726 $ 397,151 $ 444,274 A 1,342,085 - 870,799 5,480,332 5,480,332 6,435,798 6,645,236 11,916,130 14,338,452 $ 12,313,281 $ 14,782,726 A Rosemead Community Development Commission Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Assets June 30, 2006 Total fund balances, governmental funds. $ 14,338,452 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets, less accumulated depreciation, used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds. 25,628,882 Interest payable on long -term debt does not require current financial resources. Therefore, interest payable is not reported as a liability in the governmental funds balance sheet. (495,304) Long -term liabilities are not due and payable in the current period; therefore, they are not reported in the governmental funds balance sheet. (37,416,830) Debt issuance costs are not current financial resources and, therefore, are not reported in the governmental funds. 550,323 Net assets of governmental activities $ 2,605,523 See Notes to Financial Statements. 7 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ i ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ i LL ■ ■ ■ i This page is intentionally left blank Rosemead Community Development Commission Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds Year Ended June 30, 2006 Revenues: Property tax increment Use of money and property Intergovernmental - City of Rosemead Other Total revenues Expenditures: Current: General government Intergovernmental, City of Rosemead Public works Capital outlay Debt service: Principal Interest Advanced refunding Bond issuance cost Total expenditures Revenues over(under)expenditures Other financing sources (uses): Long -term debt issued Premium on debt issued Payment to refunded bond escrow agent Transfers: From other funds (To) other funds Total other financing sources (uses) Net change in fund balances Fund balance, beginning Fund balance, ending See Notes to Financial Statements. 9 Rosemead Low - Moderate Housing Income Housing Development Debt Service Set -Aside Fund Coraoration Fund 136 406,200 118,000 - 300 136 406,500 118,000 275,796 351,600 490,000 1,559,114 - 627,396 2,049,114 136 (220,896) (1,931,114) (9,569,028) 10,487,392 - 918,364 136 (220,896) (1,012,750) 870,663 430,334 2,354,835 $ 870,799 $ 209,438 $ 1,342,085 ■ IS IN ■ ■ ■ Total ■ Capital Projects Govemmental Fund Funds $ 3,310,295 $ 3,310,295 388,037 912,373 396,544 396,544 290 590 4,095,166 4,619,802 148,474 424,270 1,326,220 1,677,820 2,419,692 2,419,692 2,607 2,607 490,000 1,559,114 550,323 550,323 4,447,316 7,123,826 (352,150) (2,504,024) 14,005,000 14,005,000 316,830 316,830 - (9,569,028) 10,487,392 (10,487,392) (10,487,392) 3,834,438 4,752,802 3,482,288 2,248,778 8,433,842 12,089,674 $ 11,916,130 $ 14,338,452 9 Rosemead Community Development Commission Reconciliation of Governmental Funds Statement of Revenue, Expenditures and Changes in Fund Balances to the Government-wide Statement of Activities Year Ended June 30, 2006 Net change in fund balances, total governmental funds $ 2,248,778 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay as expenditures. However, in the government -wide statement of activities and changes in net assets, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount of capital assets recorded in the current period. 1,788,166 Depreciation expense on capital assets is reported in the government -wide statement of activities and changes in net assets, but they do not require the use of current financial resources. Therefore, depreciation expense is not reported as expenditures in governmental funds. (1,123,000) Repayment of bond principal is an expenditure in governmental funds, but the repayment reduces long -term liabilities in the government -wide statement of net assets. This amount represents long -term debt repayments. 9,825,000 In the statement of activities, interest expense is reported as it accrues on long -term liabilities whereas, in the governmental fund statements, interest expenditures are reported when due. This is the amount by which interest paid exceeds interest accrued. (39,077) Bond proceeds are reported as financing sources in governmental funds and thus contribute to the change in fund balance. In the statement of net assets, however, acquiring debt increases long -term liabilities and does not affect the statement of activities. (14,321,830) Debt issuance costs are not current financial resources and therefore are capitalized and amortized in the government -wide statement of activities and expensed in the governmental funds. 550,323 Change in net assets of governmental activities $ (1,071,640) See Notes to Financial Statements. 10 u Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies Nature of operations: The Rosemead Redevelopment Agency was established in June 1972 pursuant to State of ® California Health and Safety Code Section 33000 entitled Community Redevelopment Law. The Agency's name was changed to the Rosemead Community Development Commission (the Commission) in January 2002. Its purpose is to finance street, park and utility improvements. It also acquires and constructs major capital facilities all within the Rosemead Project Area No. 1. The Commission is a component unit of the City of Rosemead, California, (the City) and is included in the basic financial statements of the City. The Commission has the same fiscal year as the City. The financial statements contain information for the Commission only. The City's financial statements can be obtained from the Finance Department of the City. Description and scope of the reporting entity: Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, defines the reporting entity as the primary government and those component units for which the primary government is, or has the potential to be, financially accountable. Financial accountability is defined as appointment of a voting majority of the component unit's Board and either (a) the primary government has the ability to impose its will or (b) the possibility that the component unit will provide a financial benefit to, or impose a financial burden on, the primary government. Based upon the above criteria, the blended component unit of the Commission is the Rosemead Housing Development Corporation (the Corporation), as the Commission's governing board serves as the governing board of the Corporation. Since the City Council of the City also serves as the Board of Directors of the Commission, the City, in effect, has the ability to influence and control operations. Therefore, the City has oversight responsibility for the Commission. Accordingly, in applying the criteria of GASB Statement No. 14, the financial statements of the Commission are included in the City's Comprehensive Annual Financial Report. The Commission has the same fiscal year as the City. Government-wide and fund financial statements: The government -wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the activities of the Commission. For the . most part, the effect of interfund activity has been removed from these statements. Governmental activities are supported by taxes and intergovernmental revenues. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable to a specific function or segment. Program revenues include charges to customers or applicants who purchase, use or directly benefit from goods, v services or privileges provided by a given function or segment. Taxes and other items not properly classified as program revenues are reported as general revenues. Major individual governmental funds are reported in separate columns in the fund financial statements. A Measurement focus, basis of accounting and financial statement presentation: The government -wide financial S statements are reported using the economic resources measurement focus and 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. Grants and similar items are recognized as revenue as soon as all eligibility requirements of the provider are met. Amounts reported as program revenues include charges to customers or applicants for goods, S services or privileges provided. Internally dedicated resources, such as taxes, are reported as general revenues rather than as program revenues. A 11 s Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued Net assets are reported as restricted when constraints placed on their use are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or imposed by law through local enabling legislation. When both restricted and unrestricted resources are available for use, it is the Commission's policy to use restricted resources first, then unrestricted resources as they are needed. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Principal and interest on long -term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made eady in the following year. Revenues that are accrued generally include real property taxes. Real property taxes are levied for the period from July 1 to June 30 against property owners of record on March 1. The taxes are due in two installments, on December 10 and April 10, and become delinquent after December 10 and April 10, respectively. Under the provisions of NCGA Interpretation 3, property tax revenue is recognized in the fiscal year for which the taxes have been levied, provided it is collected within 60 days of the end of the fiscal year in the fund financial statements. The Commission reports the following major governmental funds: The Low- Moderate Income Housing Set -Aside Fund is used to account for the 20% of gross property tax increment revenue received by the Commission to fund future projects involving the replacement or rehabilitation of low- and moderate - income housing within City limits. The Rosemead Housing Development Corporation (the Corporation) is used to account for the construction and financing of low- and moderate - income housing. The Debt Service Fund is used to account for the accumulation of resources for the payment of principal, interest and related costs associated with all long -term debt of the Commission. The Capital Projects Fund is used to account for the financial resources to be used for the improvement and rehabilitation of the community redevelopment project areas and acquisition or construction of major capital facilities within the Commission. Management has the ultimate responsibility for the appropriateness of the accounting policies and procedures used by the Commission. Cash and investments: Cash includes amounts in demand and time deposits. Investments are reported in the accompanying balance sheet at fair value, except for certain money market contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. 12 F-1 0 Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued Changes in fair value that occur during a fiscal year are recognized as income from property and investments reported for that fiscal year. Income from property and investments includes interest earnings; changes in fair value; any gains or losses realized upon the liquidation, maturity or sale of investments; and property rentals and the sale of Commission -owned property. ® The Commission pools cash and investments of all funds, except for assets held by fiscal agents. Each fund's share in this pool is displayed in the accompanying financial statements as cash and investments. Investment income earned by the pooled investments is allocated to the various funds on a monthly basis, based on each fund's average cash and investments balance, except for investment income associated with funds not legally required to receive pooled investment income which has been assigned to and recorded as revenue of the general fund, as provided by California Government Code Section 53647. Restricted cash and investments represent amounts that are restricted under the terms of debt agreements. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. Capital assets: Capital assets, which include land, buildings, equipment and infrastructure assets (e.g., roads, bridges, traffic signals and similar items), are reported in the government -wide financial statements. Capital assets are defined by the Commission as assets with an initial individual cost of more than $500 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of an asset or materially extend an asset's useful life are not capitalized. Construction in progress costs are transferred to their respective fixed asset category S� upon completion. Depreciation is charged to operations using the straight -line method based on the estimated useful life of an asset. The estimated useful lives of depreciable assets are as follows: Years A� Buildings 50 Improvements other than buildings 15 Furniture and office equipment 7 Streets 30 Sidewalks 40 ei GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance 0� Recoveries, was adopted during the year ended June 30, 2006. Statement No. 42 requires an evaluation of prominent events or changes in circumstances to determine whether an impairment loss should be recorded and 0� whether any insurance recoveries should be offset against the impairment loss. The effect of the implementation of GASB Statement No. 42 was not significant to the Commission's net assets or changes in net assets for the year ®� ended June 30, 2006. Receivables: All trade, service and tax receivables are shown net of an allowance for uncollectibles. 0� A� 13 A� Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued All other receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. Long -term obligations: Long -term debt and other long -term obligations are reported as liabilities in the applicable governmental activities statement of net assets. Bond premiums, discounts and issuance costs are deferred and amortized over the life of the bonds using the effective - interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums, discounts and issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources, while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund equity: In the fund financial statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balances represent tentative management plans and are subject to change. Use of restricted/unrestricted net assets: When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Commission's policy is to apply restricted net assets first. Note 2. Cash and Investments Summary of cash and investments: Cash and investments are reported in the accompanying balance sheet and statement of net assets as follows at June 30, 2006: Cash and investments $ 7,152,772 Restricted cash and investments 6,804,123 $ 13,956,895 Components of the Commission's cash and investments at June 30, 2006 are as follows: Unrestricted cash and investments: Cash $ 2,751,150 Investment in State Treasurer's Investment Pool 3,520,306 Time certificates of deposit 881,316 Total unrestricted investments 4,401,622 Total unrestricted cash and investments 7.152.772 Restricted cash in time certificates of deposit 5,480,332 Restricted investment in a corporate note 1,323,791 Total restricted cash and investments 6,804,123 Total cash and investments $ 13,956,895 14 J ® Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued Investments authorized in accordance with California Government Code Section 3601 and under the provisions of the Commission's policy: The table below identifies the investment types that are authorized by the Commission's investment policy. The table also identifies certain provisions of the Commission's investment policy that address interest rate risk, custodial (investments and cash deposits) credit risk, default credit risk and concentration risk. This table does not address investments of bond proceeds held by bond trustee that are governed by provisions of debt agreements of the Commission, rather than general provisions of the Commission's investment S policy. Maximum Maximum Maximum Percentaqe of Investment in One ■ Authorized Investment Type Maturity Portfolio Issuer S U.S. Treasury obligations 5 years None None U.S. agency securities 5 years None None Banker's acceptances 180 days 40% 10% Commercial paper 270 days 25% 10% Negotiable certificates of deposit 36 months 30% None Medium -term notes 36 months 15% 5% Local Agency Investment Fund (LAI F) N/A None None Nonnegotiable certificates of deposit 1 year 10% None California agency indebtedness N/A None None Investments authorized by debt agreements: Investments held by the bond trustee are governed by the provisions of the debt agreement rather than the general provisions of California Government Code or the Commission's investment policy. The table below identifies the investment types that are authorized for investments held by the ■ bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk and concentration risk. Maximum Maximum ■ Maximum Percentage Investment in Authorized Investment Type Maturity of Portfolio One Issuer S U.S. Treasury obligations 5 years None None U.S. agency securities 5 years None None Banker's acceptances 270 days 40% 10% Commercial paper 180 days 25% 10% Money market portfolio 1 year None None The Commission has monies held by a trustee pledged to the payment or security of their outstanding tax allocation bonds. These are subject to the same risk category as the invested cash. The California Government Code provides that these monies, in absence of specific statutory provisions governing the issuance of bonds or certificates, may be invested in accordance with the ordinance, resolutions or indentures specifying the types of investments its trustees or fiscal agents may make. These ordinances, resolutions or indentures are generally more restrictive than the Commission's general investment policy. At June 30, 2006, the monies held by the trustee were invested in a taxable 5.8% corporate note payable with a A -1 rating by Standard & Poor's and a P -1 rating by Moody's Investors Service that matures on October 1, 2023. 15 Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued Disclosures related to interest rate risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways the Commission manages its exposure to interest rate risk is by investing in pooled investments that are readily withdrawable, such as LAIF. Custodial credit risk (deposits): Custodial credit risk for deposits is the risk that, in event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Commission maintains its bank accounts at financial institutions that are collateralized with securities held by the pledging financial institution, or by its Trust Department or agent, but not in the Commission's name. The primary difference between the carrying amount and the bank balance are deposits in transit and outstanding checks. In accordance with state statutes, the Commission maintains deposits at those depository institutions insured by the FDIC. The California Government Code (the Code) requires California banks and savings and loan associations to collateralize the deposits of governmental entities by pledging government securities as collateral. The market value of pledge securities must equal at least 110% of those deposits. California law also allows financial institutions to secure the deposits of governmental entities by pledging first trust deed mortgage notes having a collateral value of 150% of a corporation's total deposits; however, the collateralized securities are not held in the name of the Commission. The Commission has deposits with a bank balance of $4,793,210 with several financial institutions. Of the bank balance, $300,350 is federally insured and the balance is collateralized in accordance with the Code. Custodial credit risk (investments): Custodial credit risk for investments is the risk that the Commission will not be able to recover the value of its investments in the event of a counterparty failure. The Commission does not have investments in debt or equity securities, other than those amounts invested with a fiscal agent as required by bonds outstanding. Disclosures related to credit risk: Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of an investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of June 30, 2006 for each investment type: Investment Type Unrated AAA* A' P -1" LAIF $ 3,520,306 $ 3,520,306 $ - $ - $ Source: Standard and Poor's '* Source: Moody's Investors Service Concentration of credit risk: The investment policy of the Commission contains no limitations on the amount that can be invested in by any one issuer beyond that stated above. As of June 30, 2006 the Commission has an investment in a time certificate of deposit that is greater than 5% of the Commission's total investment. 16 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued Investment in state investment pool: The Commission is a voluntary participant in the LAIF that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the Commission's investment in this pool is reported in the accompanying financial statements at amounts based upon the Commission's pro rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. The total estimated fair value invested by all public entities agencies in LAIF is $63,366,260,064. Of that amount, 100% is invested in nonderivative financial products. As of June 30, 2006, the average maturity of the LAIF investments was 142 days. LAIF is not rated; however, the City Treasurer considers the default credit risk of LAIF to be minimal. Note 3. Reimbursement Agreements and Related -party Transactions The Commission reimburses the City for administrative services, facilities and other operating services, which totaled $1,677,820 for the fiscal year ended June 30, 2006. The Commission and the City are commonly controlled by the City Council. The Corporation has also entered into a 55 -year lease agreement with the City for the Angelus Senior Housing facility at $60,000 annually, expiring June 2047. Total lease commitments remaining are $2,460,000 for the Angelus Senior Housing facility at June 30, 2006. The Corporation has also entered into a 55 -year lease agreement with the City for the Garvey Senior Housing facility at $72,000 annually, expiring November 2057. Total lease commitments remaining are $3,702,000 for the Garvey Senior Housing facility at June 30, 2006. The Corporation paid $60,000 and $72,000 in lease payments to the City during the year ended June 30, 2006 for the Angelus and Garvey Senior Housing facilities, respectively. 17 Rosemead Community Development Commission Notes to Financial Statements Note 4. Capital Assets and Accounting Change Capital asset activity was as follows for the year ended June 30, 2006: Governmental activities: Capital assets not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets being depreciated: Buildings and improvements Vehicles Furniture and office equipment Infrastructure Total capital assets being depreciated Less accumulated depreciation for: Buildings and improvements Vehicles Furniture and office equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Governmental activities capital assets, net Balance at Balance at June 30, 2005 Increases Decreases June 30, 2006 $ 2,410,308 $ - $ - $ 2,410,308 472,057 1,229,385 908,221 793,221 2,882,365 1,229,385 908,221 3,203,529 17,036,455 943,983 17,980,438 11,090 - 11,090 1,392,036 61,853 - 1,453,889 14,105,806 461,166 134,796 14,432,176 32,545,387 1,467,002 134,796 33,877,593 2,762,502 485,502 3,248,004 2,218 2,218 4,436 1,109,611 110,313 - 1,219,924 6,589,705 524,967 134,796 6,979,876 10,464,036 1,123,000 134,796 11,452,240 22,081,351 344,002 22,425,353 $ 24,963,716 $ 1,573,387 $ 908,221 $ 25,628,882 18 ■ . Rosemead Community Development Commission Notes to Financial Statements Note 4. Capital Assets and Accounting Change, Continued Depreciation expense was charged entirely to the general government function of the Commission for the year ended June 30, 2006. In 1998 the Commission entered into a no cost ground lease with the Army Corps of Engineers to provide for parking . and access adjacent to the Rio Hondo Flood Control Channel in order for the Commission to proceed with the construction of a second Senior Citizen Housing project, which will consist of 72 housing units, and an adjacent . 20,000- square -foot Community Center. During the year ended June 30, 2003, the ground lease with the Army Corps of Engineers was extended to a 25 -year lease and expires during the year ending June 30, 2028. The property that . the second Senior Citizen Housing project sits on was purchased years ago by the Commission for $1.66 million, of which $1.0 million was reimbursed to the Commission by Federal HOME funds. The costs incurred on this project were allocated between the Corporation (Senior Citizen Housing project) and the Commission (Community Center). ■ Note 5. Long -term Debt Long -term debt consists of the following at June 30, 2006: Principal Principal Balance at Balance at Due within . June 30, 2005 Additions Reductions June 30, 2006 One Year Governmental activities: Tax allocation bonds, Series 1993A $ 32,920,000 $ - $ 9,825,000 $ 23,095,000 $ - Tax allocation bonds, Series 2006A - 14,005,000 - 14,005,000 780,000 Unamortized bond premiums - 316,830 - 316,830 - . $ 32,920,000 $ 14,321,830 $ 9,825,000 $ 37,416,830 $ 780,000 Tax allocation bonds, Series 1993A: In November 1993, the Commission issued tax allocation bonds in the amount of $34,275,000 (Series 1993A) to finance a portion of the cost of the redevelopment area known as Project Area No. 1. The bonds bear interest ranging from 4.6% to 5.6 %. The bonds mature before October 1, 2033. The bond issue reallocated $6,813,850 of proceeds from the 1991 bond issue deposited in the Low - Moderate Income Housing Set -Aside Fund in October 1991. The reallocation had the effect of satisfying the present value effect of the $423,574 borrowed from the Educational Revenue Augmentation Fund (ERAF) in fiscal year ended June 30, 1993 and satisfying the present value effect of the set -aside requirements as follows: $812,342 for fiscal year ended June 30, 1992, $847,147 for fiscal year ended June 30, 1993 and $469,142 for each of the fiscal years ended /ending June 30, 1997 through 2022. Additional Low- Moderate Income Housing Set -Aside commitments are addressed in Note 7. In 2006 an additional $9,335,000 of principal was defeased by the issuance of the Series 2006A bonds. 19 Rosemead Community Development Commission Notes to Financial Statements Note 5. Long-term Debt, Continued On March 9, 2006, the Commission sold $14,005,000 of Tax Allocation Bonds, Series 2006A with a true interest cost of 3.95% to provide project funds and to advance refund $9,335,000, a portion of previously outstanding 1993A Tax Allocation Bonds. The Commission completed the advance refunding to reduce aggregate debt service payment over the next 13 years by approximately $2,341,000 and to obtain an economic gain (difference between present value of the old and new debt service payments) of $537,000. Tax Allocation Bonds, Series 2006A: As noted in the paragraph above, the Commission issued tax allocation bonds in the amount of $14,005,000 (Series 2006A) to primarily: (1) refund a portion of the Commission's outstanding Series 1993A bonds and (2) to finance redevelopment activity in Redevelopment Project Area No. 1. The bonds bear interest ranging from 3.25% to 5.00% and mature in annual installments of $780,000 to $1,250,000 on various dates through October 1, 2022. The Commission posted a surety bond in lieu of cash reserve in the amount of $1,323,238. Portions of the bonds are subject to early redemption, at the option of the Commission, beginning October 1, 2017. Arbitrage Rebate: The Tax Reform Act instituted certain arbitrage restrictions with respect to the issuance of tax - exempt bonds. Arbitrage regulations deal with the investment of all tax - exempt bond proceeds at an interest yield greater than the interest yield paid to bondholders. Generally, all interest paid to bondholders can be retroactively rendered taxable if applicable rebates are not paid to the federal government at least every five years. During the current year, the Commission performed calculations of excess investment earnings on various bonds and financings in accordance with arbitrage regulations. The Commission has determined that no arbitrage rebate liability exists as of June 30, 2006. At June 30, 2006, debt service requirements to maturity for governmental activities long -term debt are as follows: Fiscal Years Ending June 30, 2007 2008 2009 2010 2011 2012 -2016 2017 -2021 2022 -2026 2027 -2031 2032 -2034 20 Long -term Debt Principal Interest $ 780,000 $ 1,881,698 810,000 1,815,114 845,000 1,785,183 870,000 1,757,314 900,000 1,727,989 5,020,000 8,094,444 6,265,000 6,862,793 6,985,000 5,229,198 8,380,000 3,208,240 6,245,000 712,040 $ 37,100,000 $ 33,074,013 ■ ■ Rosemead Community Development Commission ■ Notes to Financial Statements ■ Note 6. Risk Management ■ The Commission is exposed to various risks of loss related to torts; thefts of, damage to and destruction of assets; ■ errors and omissions; and natural disasters. The Commission, through the City, carries commercial liability insurance coverage. The Commission carries no insurance coverage for natural disasters. Since the Commission does not ■ have any employees (it uses employees from the City), it is not liable for injury to employees, workers' compensation, ■ or employee health and accident insurance. The City has had no reductions in insurance coverage, nor did the City have any settlements that were in excess of insurance coverage in any of the three preceding years. ■ ■ Note 7. Commitments and Contingent Liabilities ■ Low- Moderate Income Housing Set -Aside Fund: Under State law, the Commission is required to set aside a portion of its property tax increment revenue for low- and moderate - income housing. The Commission has made ■ findings that, for the years ended June 30, 1986 through 1991, it was allowed to defer funding of the set - aside. The set -aside amounts incurred during the fiscal years ended June 30, 1994, 1995 and 1996 were also deferred until the ■ fiscal year ending June 30, 2023, as provided by the Commission's adoption of the housing deficit repayment plan. As of June 30, 2006, the accumulated set -aside amount not yet funded was approximately $4,947,000. As required ■ by law, the Commission devised a plan to fund the accumulating amount. ■ To help fund the completion of the Senior Citizen Housing project construction, the Capital Projects Fund transferred an additional $849,863 to the Low - Moderate Income Housing Set -Aside Fund during the fiscal year ended June 30, ■ 2002, over and above the 20% requirement of $299,993, and an additional $1,279,548 to the Low- Moderate Income Housing Set -Aside Fund during the fiscal year ended June 30, 2003, over and above the 20% requirement of ■ $290,868. These additional amounts, which total $2,129,411, are considered an advance on future set -aside requirements and will offset future transfers for the set - aside. During the fiscal years ended June 30, 2006, 2005 and ■ 2004, the 20% set -aside requirements of $512,609, $448,578 and $394,533, respectively, were funded using the ■ advance. As of June 30, 2006, the remaining advance was $773,692. ■ Advance agreement: In February 1995, the Commission approved an agreement with a local utility company to advance the utility company $117,600 required to install water distribution mains within the Commission ■ redevelopment area. The agreement remains on hold by the Commission as of January 16, 2007. ■ Note 8. Property Management and Operations ■ The Commission, through the Corporation, has an agreement with a management company, dated July 1994 and ■ April 2002, to operate the development housing. This agreement is automatically renewed for successive periods of one year, unless terminated by the Corporation. The management company is responsible for collecting rents and ■ receipts, employing an on -site manager and maintaining financial records. Total fees paid to the management company were $14,160 for the Angelus Senior Housing facility and $7,402 for the Garvey Senior Housing facility ■ during fiscal year ended June 30, 2006. ■ ■ ■ ■ ■ 21 ■ Rosemead Community Development Commission Notes to Financial Statements Note 9. Pronouncements Issued but Not Yet Adopted The GASB has issued several pronouncements prior to June 30, 2006 that have effective dates that may impact future financial presentations. Management has not currently determined what, if any, impact implementation of the following statements may have on the Commission's financial statements. • GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions • GASB Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra -Entity Transfers of Assets and Future Revenues • GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations Note 11. Subsequent Events In December 2006, the Commission issued Tax Allocation Refunding Bonds, Series 20068, at a coupon rate of 3.25% to 4.5 %. The principal amount of the bonds is $24,230,000 which was issued primarily to refund the Commission's outstanding Series 1993A, Tax Allocation Bonds. As of June 30, 2006, the Series 1993A Bonds had an outstanding balance of $23,095,000. 22 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Required Supplementary Information ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ This page is intentionally left blank Rosemead Community Development Commission Budget Comparison Schedules Year Ended June 30, 2006 Low- Moderate - Income Housing Set -Aside Fund Variance from Budgeted Amounts Actual Final Budget Original Final Amounts over (under) Fund balance, July 1, 2005 $ 17,700 $ 17,700 $ 870,663 $ 852,963 Resources (inflows) Use of money and property 17,700 17,700 136 (17,564) Transfers from other funds - - - Other - - - Amount available for appropriations 17,700 17,700 136 (17,564) Charges to appropriations (outflows): General government - - Intergovernmental, City of Rosemead Transfers to other funds 40,000 40,000 (40,000) Total charges to appropriations 40,000 40,000 - (40,000) Excess (deficiency) of resources over (under) charges to appropriations (22,300) (22,300) 136 22,436 Fund balance, June 30, 2006 $ (4,600) $ (4,600) $ 870,799 $ 875,399 See Note to Required Supplementary Information. 23 ■ ■ ■ ■ ■ Rosemead Housing Development Corporation ■ Variance from Budgeted Amounts Actual Final Budget ■ Original Final Amounts over (under) ■ $ 29,498 $ 29,498 $ 430,334 $ 400,836 ■ ■ 405,600 405,600 406,200 600 40,000 40,000 - (40,000) ■ 5,700 5,700 300 (5,400) 451,300 451,300 406,500 (44,800) ■ ■ 455,300 455,300 275,796 (179,504) ■ 351,600 351,600 351,600 ■ 806,900 806,900 627,396 (179,504) ■ ■ (355,600) (355,600) (220,896) 134,704 $ (326102) $ (326,102) $ 209,438 $ 535,540 ■ ■ ■ ■ i ■ ■ ■ ■ IN ■ ■ ■ ■ 24 ■ Rosemead Community Development Commission Note to Required Supplementary Information Budgetary Information Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for the governmental fund. All annual appropriations lapse at fiscal year end. On or before the last day in March of each year, all agencies of the government submit requests for appropriations to the government's manager so that a budget may be prepared. Before the first Thursday of June 30, the proposed budget is presented to the Commission's governing board for review. The governing board holds public hearings and a final budget must be prepared and adopted no later than June 30. The appropriated budget is prepared by fund, function and department. The Commission's department heads, with approval of the Finance Director and City Manager, may make transfers of appropriations within a department. Transfers of appropriations between departments must be approved by the governing board. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the department level. The governing board made several supplemental budgetary appropriations throughout the year. Actual expenditures did not exceed budgeted expenditures for the fiscal year ended June 30, 2006. The supplemental budgetary appropriations made in the governmental funds are detailed in the required supplementary information. Encumbrance accounting is employed in the governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. 25 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Other Supplementary Information ■ Current year proceeds /uses (actual plus changes in unavailable): ■ Rosemead Community Development Commission 136 ■ Computation of Low - Moderate Income Housing Excess /Surplus Funds - Year Ended June 30, 2006 (136) ■ Available fund balance —end of year - ■ Project Area 1 ■ Encumbrances - ■ Fund Balance— Beginning of Year $ 870,663 ■ Land sales –HS 33334.12(g)(3)(A) - ■ Adjustments $ - ■ Less unavailable funds — included in beginning fund balance: fund balance and evaluate that am( ■ Land held for resale - Rehabilitation loans $ ■ ERAF loan receivable - Set -aside deferrals - ■ Unspent bond proceeds and other prefunded amounts (see Note 7 to ■ the financial statements) (870,663) ■ Total unavailable funds (870,663) ■ Available fund balance— beginning of year 760,010 ■ Current year proceeds /uses (actual plus changes in unavailable): Proceeds 136 ■ Uses - Changes in unavailable amounts (136) ■ Available fund balance —end of year - ■ Encumbrances - ■ Unspent bond proceeds present - Land sales –HS 33334.12(g)(3)(A) - ■ Available fund balance —for excess surplus $ - ■ Does available fund balance for excess /surplus exceed $1,000,000? If so, enter available fund balance and evaluate that am( ■ available fund balance and evaluate that amount against tax increment. If less, enter zero. $ ■ Does available fund balance for excess /surplus exceed the greater ■ of prior four years' set -aside deposits or $1,000,000? ■ Tax increment set -aside amounts: Fiscal year 2001 -02 769,135 ■ Fiscal year 2002 -03 760,010 Fiscal year 2003 -04 863,675 ■ Fiscal year 2004 -05 917,720 Total set -aside deposited into fund 3,310,540 ■ 3,310,540 ■ Excess /Surplus Funds Greater of available fund balance for excess /surplus less prior four years' tax ■ increment set -aside deposits $ ■ ■ ■ K. Rosemead Community Development Commission Computation of Low- Moderate Income Housing Excess /Surplus Funds, Continued Year Ended June 30, 2006 Reconciliation to Ending Fund Balance Ending GAAP fund balance Available fund balance –end of year above Add unavailable funds —end of year Land held for resale Rehabilitation loans ERAF loan receivable Set -aside deferrals Other, unspent bond proceeds and other prefunded amounts (see Note 7 to the financial statements) Total unavailable funds 27 Area 1 $ 870,799 870,799 870,799 $ 870,799 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Compliance Section ■ ■ McGladrey& Pullen Certified Public Accountants ■ ■ ■ Independent Auditor's 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 ■ ■ To the Governing Board Rosemead Community Development Commission ■ Rosemead, California ■ We have audited the financial statements of the governmental activities and each major fund of the Rosemead Community Development Commission (the Commission), a component unit of the City of Rosemead, California, as of ■ and for the year ended June 30, 2006, which collectively comprise the Commission's basic financial statements, and have issued our report thereon dated January 15, 2007. We conducted our audit in accordance with auditing ■ standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. ■ Internal Control over Financial Reporting ■ In planning and performing our audit, we considered the Commission's internal control over financial reporting in ■ order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of internal control over ■ financial reporting would not necessarily disclose all matters in internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more ■ internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be ■ detected within a timely period by employees in the normal course of performing their assigned functions. We noted ■ no matters involving internal control over financial reporting and its operation that we consider to be material weaknesses. ■ Compliance and Other Matters ■ As part of obtaining reasonable assurance about whether the Commission'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. This included those provisions of laws and regulations identified in the Guidelines for Compliance Audits of California Redevelopment Agencies issued by the State Controller and as interpreted in the ■ Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants. ■ 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. However, we noted an immaterial instance of noncompliance that we have reported to management of the Commission in a separate letter, ■ dated January 15, 2007. ■ ■ ■ McGladrey & Pullen. LLP is a member firm of RSM International, ■ an affiliation of separate and independent legal entries. 28 ■ IN ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ IN ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ This report is intended for the information of Governing Board, management and the State Controller. However, this report is a matter of public record and its distribution is not limited. Pasadena, California January 15, 2007 29