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2003 RCDC Financial Report■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ r~ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Rosemead, California ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 309 2003 a 1 1 ■ rA11114 A■■■■■■■k .Mll■Mf■f■MOR ■@19MEH0 IMMMMOMMU 1■■■■■■■/ ,•■■p U ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Financial and Compliance Report June 30, 2003 McGladrey& Pullen Certified Public Accountants McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal enfibes. ■ ■ ■ • ■ ■ ■ 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-govemmental activities 4 ■ Fund Financial Statements) Combined balance sheet~ovemmental funds 5 and 6 ■ Reconciliation of the governmental funds balance sheet to the government-wide statement of net assets 7 ■ Combined 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 11-22 Required Supplementary Information ■ Budget comparison schedules Low-Moderate Income Housing Set-Aside Fund 23 ■ Rosemead Housing Development Corporation 24 Notes to required supplementary information 25 ■ Section II-Compliance Section ■ Independent Auditors Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements ■ Performed in Accordance with Government Auditing Standards 26 and 27 • Computation of Low- and Moderate-income Housing Excess/Surplus Funds 28 and 29 I ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ FINANCIAL SECTION ■ ® McGladrey&Pullen Certified Public Accountants 0 E 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 govemmental 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, 2003, 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 GovemmentAuditing 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 opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities and each major fund of the Commission as of June 30, 2003, 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. As described in Note 1, the Commission has implemented a new financial reporting model, as required by the ■ provisions of Government Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis-for State and Local Governments, as of June 30, 2003. The Commission has not presented a Management's Discussion and Analysis required by 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 September 19, 2003 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 and grants. That report is an integral part of an audit performed in j♦ accordance with Govemment Audrt Standards and should be read in conjunction with this report in considering the results of our audit. ■ McGladrey 8 Pullen, LLP is a member firm of RSM international, an affiliation of separate and independent legal entities. ■ ■ ■ ■ The budgetary comparison schedules and computation of low- and moderate-income housing excess/surplus funds on pages 23 and 24, and 28 and 29, respectively, are not a required part of the basic financial statements, but are ■ supplementary information required by GASB. 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. Pasadena, California September 19, 2003 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 2 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Statement of Net Assets-Governmental Activities June 30, 2003 Assets Current Assets Cash and investments $ 8,683,177 Receivables 134,567 Prepaid items 3,000 Cash and investments with fiscal agents 2,321,914 Total current assets 11,142,658 Noncurrent Assets, capital assets, depreciable buildings, property and equipment, net 17,957,528 Total assets $ 29,100,186 Liabilities Accounts payable and accrued liabilities $ 658,140 Long-term debt, due within one year 445,000 Total current liabilities 1,103,140 Noncurrent Liabilities, long-term debt, due in more than one year 33,385,000 Total liabilities $ 34,488,140 Net Assets (Deficit) Invested in Capital Assets, net of related debt $ (15,872,472) Restricted for: Debt service 2,321,914 Low- and moderate-income housing 872,903 Unrestricted (deficit) 7,289,701 Total net (deficit) $ (5,387,954) See Notes to Financial Statements. 3 THIS PAGE INTENTIONALLY LEFT BLANK ■ ■ Rosemead Community Development Commission ■ Statement of Activities-Governmental Activities ■ Year Ended June 30, 2003 ■ Net (Expense) ■ Revenue ■ and Changes in Program Revenues Net Assets ■ Charges for Governmental Functions/Programs Expenses Services Activities ■ Governmental activities: General government $ 528,384 $ 264,969 $ (263,415) ■ Intergovernmental, City of Rosemead 1,612,115 (1,612,115) ■ Public works 359,118 - (359,118) Interest on long-term debt 1,875,973 - (1,875,973) ■ Depreciation 372,864 - (372,864) Total primary government $ 4,748,454 $ 264,969 (4,483,485) ■ ■ General revenues: Property taxes 3,433,713 ■ Loss on sale of capital assets (84,538) Total general revenues and transfers 3,349,175 Change in net assets (1,134,310) ■ Net asset (deficit), beginning of year (4,253,644) ■ Net asset (deficit), end of year $ (5,387,954) ■ See Notes to Financial Statements. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 4 Rosemead Community Development Commission Combined Balance Sheet-Govemmental Funds June 30, 2003 Rosemead Low-Moderate Housing Income Housing Development Debt Service Assets Set-Aside Fund Corporation Fund Cash and Investments Receivables Restricted Cash and Investment Prepaid Expenditures Total assets $ 870,540 $ 778,467 $ - 2,363 11,872 32,835 - - 2,321,914 - 3,000 $ 872,903 $ 793,339 $ 2,354,749 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 $ $ 41,961 $ - 2,321,914 872,903 - - 3,000 - - 748,378 32,835 872,903 751,378 2,354,749 $ 872,903 $ 793,339 $ 2,354,749 See Notes to Financial Statements. 5 Total Capital Projects Governmental Fund Funds $ 7,034,170 $ 8,683,177 87,497 134,567 - 2,321,914 - 3,000 $ 7,121,667 $ 11,142,658 $ 148,461 $ 190,422 2,321,914 872,903 - 3,000 6,973,206 7,754,419 6,973,206 10,952,236 $ 7,121,667 $ 11,142,658 6 Rosemead Community Development Commission Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Assets June 30, 2003 Total fund balances, governmental funds $ 10,952,236 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds. 17,957,528 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. (467,718) Long-term liabilities are not due and payable in the current period; therefore, except for advances from the City of Pomona and Pomona Financing Authority, they are not reported in the governmental funds balance sheet. (33,830,000) Net (deficit) of governmental activities $ (5,387,954) See Notes to Financial Statements. 7 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ THIS PAGE INTENTIONALLY LEFT BLANK Rosemead Community Development Commission Combined Statement of Revenues, Expenditures and Changes in Fund Balances- Governmental Funds Year Ended June 30, 2003 Revenues: Property tax increment Charges for services Use of money and property 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): Operating transfers: From other funds (To) other funds Total other financing sources (uses) Revenues and other financing sources over(under)expenditures and other financing sources (uses) Fund balance, beginning Fund balance, ending See Notes to Financial Statements. Rosemead Low-Moderate Housing Income Housing Development Debt Service Set-Aside Fund Corporation Fund 264,969 135,045 264,969 135,045 1,201 269,541 - 265,200 384,784 425,000 - - 1,881,073 1,201 919,525 2,306,073 (1,201) (654,556) (2,171,028) 1,570,416 1,392,666 2,170,919 (1,392,666) - - 177,750 1,392,666 2,170,919 176,549 738,110 (109) 696,354 13,268 2,354,858 $ 872,903 $ 751,378 $ 2,354,749 8 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Total Capital Projects Governmental Fund Funds $ 3,105,416 $ 3,105,416 199,981 199,981 193,162 593,176 3,498,559 3,898,573 257,642 528,384 1,346,915 1,612,115 371,747 371,747 563,763 948,547 425,000 - 1,881,073 2,540,067 5,766,866 958,492 (1,868,293) 5,134,001 (3,741,335) (5,134,001) (3,741,335) (2,782,843) (1,868,293) 9,756,049 12,820,529 $ 6,973,206 $ 10,952,236 9 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, 2003 Net change in fund balances (deficit), total governmental funds $ (1,868,293) 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. 961,176 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. (372,864) Repayment of bond principal is an expenditure in governmental funds, but the repayment reduces long-tens liabilities in the government-wide statement of net assets. This amount represents long-term debt repayments. 425,000 In the statement of activities, interest is accrued on long-term liabilities whereas, in the governmental fund statements, interest expenditures are reported when due. 5,100 The net effect of various miscellaneous transactions involving capital assets (i.e., sales) is to decrease net assets. (284,429) Change in net assets of governmental activities $ (1,134,310) See Notes to Financial Statements. ■ ■ ■ ■ ■ ■ 10 ■ 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: Government 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. The City's financial statements can be obtained from the Finance Department of 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 property 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 beginning on 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-Moderating 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-tens 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. ■ 0 12 ■ i Rosemead Community Development Commission Notes to Financial Statements i Note 1. Summary of Significant Accounting Policies, Continued Implementation of new accounting principles: i GASB Statement No. 34: The Commission adopted the provisions of GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments. This Statement i affects the manner in which the Commission records transactions and presents financial information. State and local governments have traditionally used a financial reporting model substantially different from the one used to i prepare private-sector financial reports. GASB Statement No. 34 establishes new requirements and a new reporting model for the annual financial reports i of state and local governments. The Statement was developed to make annual reports of state and local governments easier to understand and more useful to the people who use governmental financial information to i make decisions. ■ Management's discussion and analysis: GASB Statement No. 34 requires that financial statements be accompanied by a narrative introduction and analytical overview of the Commission's financial activities in the form ■ of "management's discussion and analysis" (MDBA). This analysis is similar to the analysis provided in the annual reports of private-sector organizations. i Government-wide financial statements: The reporting model includes financial statements prepared using full i accrual accounting for all of the Commission's activities. This approach includes not just current assets and liabilities, but also capital and other long-term assets as well as long-term liabilities. Accrual accounting also reports all of the revenues and costs of providing services each year, not just those received or paid in the current year or soon thereafter. i Statement of net assets: The statement of net assets is designed to display the financial position of the Commission (government and business-type activities). The Commission now reports all capital assets in the government-wide statement of net assets and reports depreciation expenses-the cost of "using up" capital i assets-in the statement of activities. The net assets of the Commission are broken down into three categories: (1) invested in capital assets, net of related debt; (2) restricted; and (3) unrestricted. i . Statement of activities: The government-wide statement of activities reports expenses and revenues in a format that focuses on the cost of each of the Commission's functions. The expense of individual functions is compared to ■ the revenue generated directly by the function. i Accordingly, the Commission has recorded capital and certain other long-term assets and liabilities in the statement of net assets, and has reported all revenues and the cost of providing services under the accrual basis of . accounting in the statement of activities. i GASB Statement No. 37: The Commission adopted the provisions of GASB Statement No. 37, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments: Omnibus. This Statement amends GASB Statement No. 34 to either (1) clarify certain provisions or (2) modify other provisions that the GASB believes may have unintended consequences in some circumstances. Accordingly, the Commission considered the effects of this Statement when adopting the provisions of GASB Statement No. 34, as previously described. i ■ i 13 ■ Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued GASB Statement No. 38: The Commission adopted the provisions of GASB Statement No. 38, Certain Financial Statement Note Disclosures. This Statement modifies, establishes and rescinds certain financial statement disclosure requirements. Accordingly, certain footnote disclosures have been revised to conform to the provisions of GASB Statement No. 38. GASB Statement No. 41: The Commission adopted the provisions of GASB Statement No. 41, Budgetary Comparison Schedules-Perspective Differences. This Statement amends GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, to clarify the budgetary presentation requirements for governments with significant budgetary perspective differences that result in their not being able to present budgetary comparison information for their general fund and major special revenue funds. These governments are required to present budgetary comparison schedules as required supplementary information (RSI) based on the fund, organization or program structure that the government uses for its legally adopted budget. Accordingly, the Commission considered the effects of this Statement when adopting the provisions of GASB Statement No. 34 for the fiscal year ended June 30, 2003. GASB Interpretation No. 6: The Commission adopted the provisions of GASB Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. This Interpretation clarifies the application of standards for modified accrual recognition of certain liabilities and expenditures in areas where differences have arisen, or could arise, in interpretation and practice. This Interpretation impacts the fund level financial statements (governmental funds only, not fiduciary funds) required by GASB Statement No. 34 but has no direct impact on the govemment-wide financial statements. Accordingly, the Commission has not recognized the current portion of certain long-term liabilities and related expenditures in the governmental fund financial statements for amounts not considered to be due and payable as of June 30, 2003. 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. 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. ■ ■ 14 Rosemead Community Development Commission Notes to Financial Statements ■ Note 1. Summary of Significant Accounting Policies, Continued 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 $5,000 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 assets useful life are not capitalized. Costs associated with construction in progress are recorded in their respective fixed asset category upon approval by the City Council, which approximates the completion date. 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 During the year ended June 30, 2003, the Commission capitalized general infrastructure assets acquired during the year ended June 30, 2003. No retroactive infrastructure assets have been capitalized. As per GASB Statement No. 34, the City has until its year ending June 30, 2006 to record its retroactive general infrastructure assets. Receivables: All trade, service and tax receivables are shown net of an allowance for uncollectibles. Long-term obligations: Long-tern 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. ■ 15 ■ Rosemead Community Development Commission Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued Receivables: Property taxes attach as an enforceable lien on property as of March 1. Taxes are levied on July 1 and are payable in two installments, on December 10 and April 10. The County of Los Angeles bills and collects the property taxes and remits them to the Commission in installments during the year. Property taxes received within 60 days after the Commission's fiscal year end are considered "measurable" and "available" and are accrued in the Commission's financial statements. All other receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. 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 time 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, 2003 are as follows: Unrestricted cash and investments Cash $ 1,339,720 Time certificates of deposit 2,062,174 Cash total 3,401,894 Investment in State Treasurers Investment Pool 5,281,283 Total unrestricted cash and investments 8,683,177 Restricted cash and investments, cash deposits held in trust with fiscal agents 2,321,914 Total cash and investments $ 11,005,091 At June 30, 2003, the carrying amount of the Commission's cash deposits, including those held in trust, totaled $3,401,894, and the bank balance of the Commission's cash deposits maintained in financial institutions is $3,473,477. The cash deposits are held by the Commission's agent in the Commission's name. Of the $3,473,477 maintained in financial institutions, $462,920 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. ■ 0 16 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued 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. 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. The following is the summary of investments as of June 30, 2003: Investment in pool California State Local Agency Investment Fund (LAIF) Cash deposits held in trust with fiscal agents- Guaranteed investment contract Total investments Category Fair 1 2 3 Uncategorized Value $ $ $ $ 5,281,283 $ 5,281,283 2,321,914 2,321,914 $ $ $ $ 7.603.197 $ 7.603.197 ■ 17 ■ Rosemead Community Development Commission Notes to Financial Statements Note 2. Cash and Investments, Continued 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 alternatives 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, 2003, the Commission's pooled investments in LAIF in the amount of $5,281,283 are not subject to custodial credit risk categorization. The total estimated fair value invested by all public agencies in LAW is $55,709,492,881. Of that amount, 100% is invested in nonderivative financial products. Cash with fiscal agents: The Commission has monies held by trustees pledged to the payment or security of certain 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. Note 3. Reimbursement Agreements and Related-party Transactions The Commission has entered into various reimbursement agreements with the City which require the City to install certain public improvements for the benefit of the Rosemead Redevelopment Commission Project Area No. 1. In addition, the Commission reimburses the City for administrative services, facilities and other operating services, which totaled $1,612,115 for the fiscal year ended June 30, 2003. The Commission and 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, expiring June 2047. Total lease commitments remaining are $2,640,000 for the Angelus Senior Housing facility at June 30, 2003. The Corporation has also entered into a 55-year lease agreement with the City for the Garvey Senior Housing facility, expiring June 2057. Total lease commitments remaining are $3,909,600 for the Garvey Senior Housing facility at June 30, 2003. The Corporation paid $60,000 and $50,400 in lease payments to the City during the year ended June 30, 2003 for the Angelus and Garvey Senior Housing facilities, respectively. 0 0 18 ■ ■ ■ ■ ■ ■ ■ Rosemead Community Development Commission Notes to Financial Statements Note 4. Capital Assets Capital asset activity was as follows for the year ended June 30, 2003: Balance at Balance at July 1, 2002 Increases Decreases Reclassification June 30, 2003 Governmental activities: Capital assets not being depreciated: Land $ 2,620,737 $ 139,000 $ 284,429 $ - $ 2,475,308 Construction in progress 10,303,539 468,662 - (10,772,201) Total capital assets, not being depreciated 12,924,276 607,662 284,429 (10,772,201) 2,475,308 Capital assets being depreciated Buildings and improvements 6,241,811 - 10,772,201 17,014,012 Furniture and office equipment 947,202 353,514 - 1,300,716 Total capital assets being depreciated 7,189,013 353,514 10,772,201 18,314,728 Less accumulated depredation for: Buildings and improvements 1,637,676 281,183 - 1,918,859 Furniture and office equipment 821,968 91,681 - 913,649 Total accumulated depreciation 2,459,644 372,864 - - 2,832,508 Total capital assets being depreciated, net 4,729,369 (19,350) - 10,772,201 15,482,220 Governmental activities capital assets, net $ 17,653,645 $ 588,312 $ 284,429 $ - $ 17,957,528 Depreciation expense was charged entirely to the general government function of the Commission for the year ended June 30, 2003. 19 ■ Rosemead Community Development Commission Notes to Financial Statements Note 4. Capital Assets, Continued In 1998 the Commission entered into a 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 will be 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, 2003: Principal Balance at Principal Balance at Due Within June 30, 2002 Additions Reductions June 30, 2003 One Year Governmental activities: Tax allocation bonds, Series 1993A Total 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 June 30, 2022. Additional Low-Moderate Income Housing Set-Aside commitments are addressed in Note 7. 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, 2003. N N 20 ■ ■ Rosemead Community Development Commission ■ Notes to Financial Statements ■ ■ Note 5. Long-term Debt, Continued ■ At June 30, 2003, debt service requirements to maturity for governmental activities long-term debt are as follows: ■ Long-term Debt Fiscal Year Ending June 30, Principal Interest ■ 2004 $ 445,000 $ 1,859,748 ■ 2005 465,000 1,836,765 ■ 2006 490,000 1,812,168 2007 515,000 1,785,909 ® 2008 545,000 1,757,948 2009-2013 3,170,000 8,314,025 ■ 2014-2018 4,135,000 7,326,663 ® 2019-2023 5,415,000 6,012,655 2024-2028 7,100,000 4,271,400 ■ 2029-2033 9,355,000 1,981,140 2034 2,195,000 61,460 ® $ 33,830,000 $ 37,019,881 ■ ■ 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 June 30, 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, 1996, 1997 and 1998 ■ 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, 2003, 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 be deducted from future transfers for the set-aside over future years ■ ■ 21 ■ Rosemead Community Development Commission Notes to Financial Statements Note 7. Commitments and Contingent Liabilities, Continued 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 3, 2003. 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 $18,600 for the Angelus Senior Housing facility and $16,567 for the Garvey Senior Housing facility during fiscal year ended June 30, 2003. Note 9. Subsequent Event In October 2003, the Corporation sold land with a carrying value of $65,000 for approximately $256,000. Note 10. Pronouncements Issued but Not Yet Adopted GASB Statement No. 39: In May 2002, the GASB issued Statement No. 39, Determining Whether Certain Organizations are Component Units. This Statement amended GASB Statement No. 14, The Financial Reporting Entity, to provide additional guidance to determine whether certain organizations for which the primary government is not financially accountable should be reported as component units based on the nature and significance of their relationship with the primary government. Generally, it requires reporting, as a component unit, an organization that raises and holds economic resources for the direct benefit of a governmental unit. The Commission will be required to implement this Statement for the fiscal year ending June 30, 2004. The Commission does not believe implementation of this Statement will materially impact the Commission's financial statements. GASB Statement No. 40: Beginning with the fiscal year ending June 30, 2005, the Commission will be adopting the provisions of GASB Statement No. 40, Deposit and Investment Risk Disclosures. This Statement amends GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, to address common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk and foreign currency risk. As an element of interest rate risk, this Statement requires certain disclosures of investments that have fair value that are highly sensitive to changes in interest rates. Deposit and investment policies related to the risks identified in this Statement also should be disclosed. Accordingly, the Commission has not yet revised the cash and investments footnote disclosure to conform to the provisions of GASB Statement No. 40. Li 0 22 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ REQUIRED SUPPLEMENTARY INFORMATION Rosemead Community Development Commission Budget Comparison Schedules Year Ended June 30, 2003 Low-Moderate Income Housing Set-Aside Fund Budgeted Amounts Actual Variance Original Final Amounts Final Budget Fund Balance, July 1, 2002 Resources (inflows): Use of money and property Transfers from other funds Amount available for appropriations Charges to appropriations (outflows): General government Intergovernmental, City of Rosemead Capital outlay Transfers to other funds Total charges to appropriations Excess of resources over (under) charges to appropriations Fund balance (deficit), June 30, 2003 $ $ $ 696,354 $ 696,354 1,408,933 1,408,933 1,570,416 161,483 1,408,933 1,408, 933 1,570,416 161,483 1,201 (1,201) 1.445.000 1.445.000 1 51.133 (36,067) (36,067) 176,549 212,616 $ (36,067) $ (36,067) $ 872,903 $ 908,970 23 ■ ■ ■ ■ ■ Rosemead Housing Development Corporation ■ ■ Budgeted Amounts Actual Variance ■ Original Final Amounts Final Budget_ ■ $ 3,015 $ 3,015 $ 13,268 $ 10,253 ■ ■ 327,200 327,200 264,969 (62,231) 1,445 000 1,445,000 1,392,666 (52,334) ■ 1,772,200 1,772,200 1,657,635 (114,565) ■ ■ 995,724 1,024,016 269,541 754,475 ■ 366,000 366,000 265,200 100,800 384,784 384,784 384,784 - 1,746,508 1,774,800 919,525 855,275 ■ ■ 25,692 (2,600) 738,110 740,710 $ 28,707 $ 415 $ 751,378 $ 750,963 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 24 Rosemead Community Development Commission Notes 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 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 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. 25 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ COMPLIANCE SECTION ■ ■ McGladrey& Pullen ■ Certified Public Accountants ■ ■ ■ Independent Auditor's Report on Compliance and on Internal Control over Financial Reporting 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 basic financial statements 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, 2003, and ■ have issued our report thereon dated September 19, 2003. 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 Govemment Auditing Standards, issued by the Comptroller General of the United States. ■ Compliance ■ 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 grants, 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 ■ that are required to be reported under Government Auditing Standards. However, we noted certain immaterial instances of noncompliance that we have reported to management of the Commission in a separate letter, dated ■ September 19, 2003. ■ 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 assurance on 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 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 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. However, we noted ■ other matters involving internal control over financial reporting that we have reported to management of the Commission in a separate letter, dated September 19, 2003. ■ ■ ■ McGladrey 8 Pullen, uP is a member fin of RSM International, ■ an affiliation of separate and independent legal enfides. ■ 26 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 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 September 19, 2003 27 ■ ■ Rosemead Community Development Commission ■ Computation of Low-Moderate Income Housing Excess/Surplus Funds ■ Year Ended June 30, 2003 ■ ■ ■ Fund Balance-Beginning of Year ■ Adjustments 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 ■ Total unavailable funds Available fund balance-beginning of year ■ Current year proceeds/uses (actual plus changes in unavailable): ■ Proceeds ■ Uses Changes in unavailable amounts ■ 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 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 1998-99 Fiscal year 1999-00 ■ Fiscal year 2000-01 ■ Fiscal year 2001-02 Total set-aside deposited into fund i Excess/Surplus Funds ■ Greater of available fund balance for excess/surplus or prior four years' tax increment set-aside deposits i ■ ■ i 28 Area 1 $ 696,354 (696,354) (696,354) 1,570,416 (1,393,867) (176,549) $ 708,027 705,661 709,551 769,135 2,892,374 2,892,374 Rosemead Community Development Commission Computation of Low-Moderate Income Housing Excess/Surplus Finds, Continued Year Ended June 30, 2003 Project Area 1 Reconciliation to Ending Fund Balance Ending GAAP fund balance $ 872,903 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 Total unavailable funds 872,903 872,903 $872 903 29 4~ ~~I~II~~I ■