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2004 RCDC Financial Reportue L Rosemead Community DevMopmeM Commission Rosemead, California ANNUAL HNANCML REPORT MSCAL YEAR ENDED JUNE 309 2004 _oO~OQ 0 Q D 0 0 Q❑❑❑❑❑~ d❑❑❑❑❑❑❑L El @[E~W[gn El uoo❑❑❑o❑D v❑❑❑❑❑❑❑V ~El❑❑op~ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Annual Financial and Compliance Report Fiscal Year Ended June 30, 2004 McGladrey& Pullen Certified Public Accountants McGladrey 8 Pullen, uP is a member firm of RSM International, an affiliation of separate and independent legal entities. ■ ■ ■ ■ ■ ■ ■ ■ Contents ■ Section 1-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-govemmental activities 3 Statement of activities-governmental activities 4 ■ Fund Financial Statements Balance sheet-governmental 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 of government-wide statement of activities 10 ■ Notes to financial statements 11-20 Required Supplementary Information ■ Budget comparison schedules 21 and 22 Note to required supplementary information 23 ■ 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 24 and 25 Computation of Low-Moderate Income Housing Excess/Surolus Funds 26 and 27 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ • ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ • Financial Section ■ • The budgetary comparison information on pages 21 and 22 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. 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- and moderate-income housing excess/surplus funds on pages 26 and 27 is presented for purposes of additional analysis and is not a required part of the basic i 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. An~ Pasadena, California October 8, 2004 2 • • Rosemead Community Development Commission Statement of Net Assets-Governmental Activities June 30, 2004 • • Assets Current Assets Cash and investments $ 7,931,437 • Receivable from the City of Rosemead 14,400 Receivables, other 148,306 • Prepaid items 3,000 • Cash and investments with fiscal agents 2,321,835 Total current assets 10,418,978 Noncurrent assets, capital assets, depreciable buildings, property and equipment, net 25,598,208 Total assets $ 36,017,186 Liabilities Current Liabilities Accounts payable and accrued liabilities $ 763,067 Long-term debt, due within one year 465,000 Total current liabilities 1,228,067 Noncurrent Liabilities, long-term debt, due in more than one year 32,920,000 Total liabilities $ 34,148,067 Net Assets Invested in capital assets, net of related debt $ (5,464,957) Restricted for low-moderate income housing 870,580 Unrestricted net assets 6,463,496 Total net assets $ 1,869,119 See Notes to Financial Statements. 3 ■ This page intentionally left blank. 0 ■ ■ Rosemead Community Development Commission ■ Statement of Activities--Governmental Activities Year Ended June 30, 2004 ■ Net Revenue ■ (Expense) and Changes in ■ Program Revenues Net Assets Charges for Governmental ■ Functions/Programs Expenses Services Activities ■ Governmental activities: General government $ 431,872 $ 887,903 $ 456,031 ■ Intergovernmental, City of Rosemead 1,677,820 - (1,677,820) Public works 459,042 - (459,042) ■ Interest on long-term debt 1,854,185 - (1,854,185) Depreciation 1,004,430 - (1,004,430) ■ Total primary government $ 5,427,349 $ 887,903 (4,539,446) General revenues: ■ Property taxes 3,376,578 ■ Total general revenues and transfers 3,376,578 ■ Change in net assets (1,162,868) ■ Net asset, beginning of year, as restated 3,031,987 ■ Net asset, end of year $ 1,869,119 ■ ■ See Notes to Financial Statements. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 4 Rosemead Community Development Commission Balance Sheet-Governmental Funds June 30, 2004 Rosemead Low-Moderate Housing Income Housing Development Debt Service Assets Set-Aside Fund Corporation Fund Cash and investments Receivable from the City of Rosemead Receivables, other Restricted cash and investment Prepaid items Total assets $ 870,540 $ 636,119 $ - 14,400 - 40 14,658 32,835 - - 2,321,835 3,000 - $ 870,580 $ 668,177 $ 2,354,670 Liabilities and Fund Balances Accounts payable and accrued liabilities Fund balances: Reserved for debt service Reserved for low-moderate income housing Reserved for prepaid items Unreserved, designated for redevelopment projects Total fund balances Total liabilities and fund balances $ $ 39,817 $ 2,321,835 870,580 - - - 3,000 - - 625,360 32,835 870,580 628,360 2,354,670 $ 870,580 $ 668,177 $ 2,354,670 See Notes to Financial Statements. 5 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Total Capital Projects Govemmental Fund Funds $ 6,424,778 $ 7,931,437 - 14,400 100,773 148,306 - 2,321,835 - 3,000 $ 6,525,551 $ 10,418,978 $ 261,094 $ 300,911 2,321,835 870,580 - 3,000 6,264,457 6,922,652 6,264,457 10,118,067 $ 6,525,551 $ 10,418,978 6 This page intentionally left blank. a ■ ■ ■ ■ ■ Rosemead Community Development Commission Reconciliation of the Governmental Funds Balance Sheet to the Govemment-wide Statement of Net Assets June 30, 2004 ■ Total fund balances, governmental funds. $ 10,118,067 ■ 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. 25,598,208 ■ 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. (462,156) Long-term liabilities are not due and payable in the current period; therefore, they are not ■ reported in the governmental funds balance sheet. (33,385,000) Net assets of governmental activities $ 1,869,119 ■ See Notes to Financial Statements. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 7 ■ Rosemead Community Development Commission Statement of Revenues, Expenditures and Changes in Fund Balances- Governmental Funds Year Ended June 30, 2004 Revenues: Property tax increment Charges for services Use of money and property State grants Other Total revenues Expenditures: Current: General government Intergovernmental, City of Rosemead Public works Capital outlay Debt service: Principal Interest Total expenditures Revenues over(under)expenditures Other financing sources (uses): 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. Rosemead Low-Moderate Housing Income Housing Development Debt Service Set-Aside Fund Comoration Fund 473,414 134,736 14,739 488,153 134,736 2,323 259,571 - 351,600 445,000 1,859,747 2,323 611,171 2,304,747 (2,323) (123,018) (2,170,011) 2,169,932 2,169,932 (2,323) (123,018) (79) 872,903 751,378 2,354,749 $ 870,580 $ 628,360 $ 2,354,670 8 ■ ■ ■ ■ ■ ■ ■ r ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Total Capital Projects Governmental Fund Funds $ 3,376,579 $ 3,376,579 85 85 83,678 691,828 246,250 246,250 - 14,739 3,706,592 4,329,481 169,978 431,872 1,326,220 1,677,820 727,833 727,833 21,378 21,378 445,000 - 1,859,747 2,245,409 5,163,650 1,461,183 (834,169) 2,169,932 (2,169,932) (2,169,932) (2,169,932) (708,749) (834,169) 6,973,206 10,952,236 $ 6,264,457 $ 10,118,067 9 a Rosemead Community Development Commission Reconciliation of Governmental Funds Statement of Revenue, Expenditures and Changes in Fund Balances to Government-wide Statement of Activities Year Ended June 30, 2004 Net change in fund balances, total governmental funds $ (834,169) 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. 290,169 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. (1,004,430) 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. 445,000 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. 5,562 In the statement of activities, only the gain on sale of the land is reported whereas in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the cost of the land sold. (65,000) Change in net assets of governmental activities $ (1,162,868) See Notes to Financial Statements. 10 ■ I . , ■ 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 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. 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, ■ 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. Measurement focus, basis of accounting and financial statement presentation: The government-wide financial 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, services or privileges provided. Internally dedicated resources, such as taxes, are reported as general revenues rather than as program revenues. 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. 11 Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued 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 early 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 replacing 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. 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. 12 ■ ■ Rosemead Community Development Commission ■ Notes to Financial Statements • Note 1. Summary of Significant Accounting Policies, Continued ■ 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 statement 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. Costs associated with construction in progress are recorded in their respective fixed asset category 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 Buildings 50 . Improvements other than buildings 15 Furniture and office equipment 7 . Street 30 Sidewalks 40 Receivables: All trade, service and tax receivables are shown net of an allowance for uncollectibles. 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. t ■ 13 Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued 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 restrictedlunrestricted 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 Cash resources of the individual funds are combined to form a pool of cash and investments. The Commission values all of its cash and invested cash at fair value on a portfolio basis. The Commission manages its pooled idle cash and investments under a formal investment policy that is reviewed by the Investment Committee and adopted annually by the City Council and that follows the guidelines of the California Government Code. Individual investments cannot be identified with any single fund because the Commission may be required to liquidate its investments at any lime to cover large cash outlays required in excess of normal operating needs. Funds must request large outlays in advance in order for the City Treasurer to have the funding available. The carrying amount of the Commission's cash and investments at June 30, 2004 are as follows: Unrestricted cash and investments: Cash Time certificates of deposit Cash total Investment in U.S. government securities Investment in State Treasurers Investment Pool Total unrestricted cash and investments Restricted cash and investments in a corporate note payable with a fiscal agent Total cash and investments $ 1,555,146 850,000 2,405,146 255 5,526,036 7,931,437 2,321,835 $ 10,253,272 14 ■ . Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued At June 30, 2004, the carrying amount of the Commission's cash deposits totaled $2,405,146, and the bank balance of the Commission's cash deposits maintained in financial institutions is $2,432,946. The cash deposits are held by the Commission's agent in the Commission's name. Of the $2,432,946 maintained in financial institutions, $411,010 is insured by the Federal Deposit Insurance Corporation (FDIC) and the remainder is 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 statues, the Commission maintains deposits at those depository institutions insured by the FDIC. The California Government 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 pledged 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. The Commission is authorized by its investment policy, in accordance with Section 53601 of the California Government Code, to invest in the following instruments: Securities issued or guaranteed by the federal government or its agencies Bankers' acceptances that are eligible for purchase by the Federal Reserve System Commercial paper, rated A-1/P-1, secured by an irrevocable line of credit or government securities Certificates of deposit with national and state licensed or chartered banks, and federal or state savings and loan associations ■ Medium-term corporate notes, rated AAA or AA . Money market funds . In accordance with GASB Statement No. 3, Deposits with Financial Institutions, Investments (Including Repurchase Agreements) and Reverse Repurchase Agreements, the Commission's investments are categorized, according to the following criteria, to give an indication of the level of risk assumed by the Commission at year end: Category 1 includes investments that are insured or registered or for which the securities are held by the Commission or its agent in the Commission's name. i Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's Trust Department or agent in the Commission's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty or by its Trust Department or agent, but not in the Commission's name. 15 Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued The following is the summary of investments as of June 30, 2004: Investment in pool: California State Local Agency Investment Fund (LAIF) U.S. government securities Investment in a corporate note payable Total investments Category Fair 1 2 3 Uncategorized Value $ 5,526,036 $ 5,526,036 255 255 Investments: State statutes authorize the Commission to invest any available funds in securities issued or guaranteed by the United States Treasury or agencies of the United States, bank certificates of deposit, bankers acceptances, negotiable certificates of deposit, the LAIF, commercial paper and bonds, and registered warrants or treasury notes of the State of California and its agencies. An advisory board has been established to monitor LAIF's compliance with regulations and investment altemafives established by the state. The Commission participates in a voluntary external investment pool, LAIF, which is managed by the State Treasurer. LAIF has oversight provided by the Local Agency Investment Advisory Board. The Board consists of five members as designated by state statute. The Chairman of the Board is the State Treasurer or his designated representative. The fair value of the Commission's shares in the pool approximates the fair value of the position in the pool. At June 30, 2004, the Commission's pooled investments in LAIF in the amount of $5,526,036 are not subject to custodial credit risk categorization. The total estimated fair value invested by all public agencies in LAIF is $57,637,500,817. Of that amount, 100% is invested in nonderivative financial products. Cash and investments with fiscal agents: 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, 2004, the monies held by the trustee were invested in a taxable 5.8% corporate note payable that matures on October 1, 2023. 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, 2004. The Commission and City are commonly controlled by the City Council. 16 ■ Rosemead Community Development Commission ■ Notes to Financial Statements ■ Note 3. Reimbursement Agreements and Related-party Transactions, Continued 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 $2,580,000 for the Angelus Senior Housing facility at June 30, 2004. 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 $3,846,000 for the Garvey Senior Housing facility at June 30, 2004. The Corporation paid $60,000 and $72,000 in lease payments to the City during the year ended June 30, 2004 for the Angelus and Garvey Senior ` Housing facilities, respectively. Note 4. Capital Assets and Accounting Change Capital asset activity was as follows for the year ended June 30, 2004: Retroactive Balance at Infrastructure Balance at July 1, 2003 Implementation Increases Decreases June 30, 2004 Governmental activities: Capital assets not being depreciated: Land $ 2,475,308 $ - $ - $ 65,000 $ 2,410,308 Construction in progress 6,593 - 156,070 - 162,663 Total capital assets, not ■ being depredated 2,481,901 - 156,070 65,000 2,572,971 . Capital assets being depreciated: Buildings and improvements 17,014,012 - - - 17,014,012 ■ Furniture and office equipment 1,288,087 - 84,594 - 1,372,681 Infrastructure 6,036 14,050,265 49,505 - 14,105,806 ■ Total capital assets being depreciated 18,308,135 14,050,265 134,099 - 32,492,499 Less accumulated depreciation for: Buildings and improvements 1,918,859 - 421,075 - 2,339,934 Furniture and office equipment 913,649 - 103,765 - 1,017,414 t Infrastructure - 5,630,324 479,590 - 6,109,914 Total accumulated depreciation 2,832,508 5,630,324 1,004,430 9,467,262 ■ Total capital assets being depreciated, net 15,475,627 8,419,941 (870,331) - 23,025,237 . Governmental activities capital assets, net $ 17,957,528 $ 8,419,941 $ (714,261) $ 65,000 $ 25,598,208 ■ Depreciation expense was charged entirely to the general government function of the Commission for the year ended June 30, 2004. t 17 Rosemead Community Development Commission Notes to Financial Statements Note 4. Capital Assets and Accounting Change, Continued Effective July 1, 2002 (i.e., the fiscal year ended June 30, 2003), the Commission adopted GASB Statement No. 34, and related pronouncements. In accordance with the reporting requirements of GASB Statement No. 34, the City was required to prospectively report all of its major general infrastructure asset additions in the statement of net assets, and retroactively report general infrastructure prior to the fiscal year beginning after June 15, 2006. However, the Commission decided to report its major general infrastructure assets effective July 1, 2003. The effect of reporting all of their major general infrastructure assets was to increase the Commission's fund balance for the governmental funds as of July 1, 2003 by $8,419,941, net of accumulated depreciation of $5,630,324. 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 for this project 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, 2004: Principal Principal Balance at Balance at Due Within June 30. 2003 Additions Reductions June 30, 2004 One Year Governmental activities: Tax allocation bonds, Series 1993A $ 33,830,000 $ $ 445,000 $ 33,385,000 $ 465,000 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. The Tax Reform Act instituted certain arbitrage restrictions with resp' ct 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. 18 ■ Rosemead Community Development Commission ■ Notes to Financial Statements - Note 5. Long-term Debt, Continued • 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, 2004. At June 30, 2004, debt service requirements to maturity for governmental activities long-term debt are as follows: Long-term Debt Fiscal Year Ending June 30, Principal Interest 2005 $ 465,000 $ 1,836,765 2006 490,000 1,812,168 2007 515,000 1,785,909 2008 545,000 1,757,948 2009 570,000 1,728,400 2010-2014 3,340,000 8,139,370 2015-2019 4,365,000 7,092,913 2020-2024 5,715,000 5,701,500 2025-2029 7,505,000 3,862,460 2030-2034 9,875,000 1,442,700 $ 33,385,000 $ 35,160,133 s 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 lia bility 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 insu rance coverage in any of the three preceding years. S 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, 2004, 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. t a E 19 0 Rosemead Community Development Commission Notes to Financial Statements Note 7. Commitments and Contingent Liabilities, Continued 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 be deducted from future transfers for the set-aside over future years. During the fiscal year ended June 30, 2004, the 20% requirement of $394,533 was funded using this advance. As of June 30, 2004, the remaining advance was $1,734,878. 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 October 8, 2004. 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 $20,000 for the Angelus Senior Housing facility and $26,257 for the Garvey Senior Housing facility during fiscal year ended June 30, 2004. Note 9. Pronouncements Issued but Not Yet Adopted The GASB has issued several pronouncements prior to June 30, 2004, 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 financial statements of the Rosemead Community Development Commission. • GASB Statement Number 40, Deposit and Investment Risk Disclosures • GASB Statement Number 42, Accounting and Financial Reporting for Impairment of Capital Assets and Insurance Recoveries 20 ■ ■ ■ ■ ■ ■ ■ ■ ■ r ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Required Supplementary Information ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ w ■ ■ ■ ■ ■ ■ • ■ • ■ • ■ ■ This page intentionally left blank. L Rosemead Community Development Commission Budget Comparison Schedules Year Ended June 30, 2004 Low-Moderate Income Housing Set-Aside Fund Variance from Budgeted Amounts Actual Final Budget Original Final Amounts Over (Under) Fund balance, July 1, 2003 $ $ $ 872,903 $ 872,903 Resources (inflows): Use of money and property - - Transfers from other funds 400,000 400,000 (400,000) Other - - Amount available for appropriations 400,000 400,000 (400,000) Charges to appropriations (outflows) General government 2,323 2,323 Intergovernmental, City of Rosemead - - - - Transfers to other funds 400,000 400,000 - (400,000) Total charges to appropriations 400,000 400,000 2,323 (397,677) Excess of resources over (under) charges to appropriations - - (2,323) (2,323) Fund balance, June 30, 2004 $ - $ - $ 870,580 $ 870,580 See Note to Required Supplementary Information. 21 ■ ■ ■ Rosemead Housing Development Cor poration ■ Variance from ■ Budgeted Amounts Actual Final Budget Original Final Amounts Over (Under) ■ ■ $ 173,068 $ 173,068 $ 751,378 $ 578,310 ■ 405,600 405,600 473,414 67,814 ■ 400,000 400,000 - (400,000) ■ 7,800 7,800 14,739 6,939 ■ 813,400 813,400 488,153 (325,247) ■ ■ 593,740 593,740 259,571 (334,169) 366,000 366,000 351,600 (14,400) 959,740 959,740 611,171 (348,569) ■ (146,340) (146,340) (123,018) 23,322 ■ $ 26,728 $ 26,728 $ 628,360 $ 601,632 ■ ■ ■ i ■ ■ ■ ■ ■ ■ ■ 22 ■ ■ 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. i On or before the last day in March of each year, all agencies of the government submit requests for appropriations to i 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 government's Council for review. The Council 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 City Council. The legal level of budgetary i control (i.e., the level at which expenditures may not legally exceed appropriations) is the department level. The Council made several supplemental budgetary appropriations throughout the year. 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. ■ ■ ■ ■ ■ ■ i ■ ■ ■ ■ i ■ ■ 23 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ lE ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Compliance Section ■ ■ McGladrey&Pullen Certified Public Accountants ■ t Independent Auditor's Report on Internal Control Over Financial Reporting S 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, 2004, which collectively comprise the commission's basic financial statements, and have issued our report thereon dated October 8, 2004. 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 e 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 October 8, 2004. ■ ■ McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. 24 ■ ■ ■ 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, Califomia ■ October 8, 2004 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 25 ■ i i i Rosemead Community Development Commission Computation of Low-Moderate Income Housing Excess/Surplus Funds Year Ended June 30, 2004 roject Area 1 ■ Fund Balance-Beginning of Year $ 872,903 Adjustments i Less unavailable funds-included in beginning fund balance: Land held for resale Rehabilitation loans ERAF loan receivable Set-aside deferrals Unspent bond proceeds and other prefunded amounts (see Note 7) (872,903) Total unavailable funds (872,903) i Available fund balance-beginning of year i Current year proceedsluses (actual plus changes in unavailable): i Proceeds Uses (2,323) i Changes in unavailable amounts 2,323 i Available fund balance-end of year - i Encumbrances Unspent bond proceeds present i Land sales-HS 33334.12(g)(3)(A) Available fund balance-for excess surplus $ i Does available fund balance for excess/surplus exceed $1,000,000? If so, enter available fund balance and evaluate that amount against tax increment. i 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: i Fiscal year 1999-00 $ 705,661 Fiscal year 2000-01 709,551 Fiscal year 2001-02 769,135 Fiscal year 2002-03 760,010 Total set-aside deposited into fund 2,944,357 i 2,944,357 Excess/Surplus Funds i Greater of available fund balance for excess/surplus or prior four years' tax increment set-aside deposits $ - ■ ■ 26 i Rosemead Community Development Commission Computation of Low-Moderate Income Housing Excess/Surplus Funds, Continued Year Ended June 30, 2004 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 Area $ 870,580 870,580 870,580 $ 870,580 27