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HomeMy WebLinkAbout; ; 2003-04 Redevelopment Agency Audit Report; 2004-06-30c _. Carlsbad Redevelopment Agency - Financial and Compliance Report Year Ended June 30,2004 c c ,- P Contents c c IC c c- Independent Auditor's Report on the Financial Statements and Supplementary Information 1 and 2 Financial Section Management's Discussion and Analysis 3-6 Statement of net assets 7 Statement of activities a Balance sheet-govemmental funds 9 and 10 Reconciliation of the balance sheet-govemmental funds to the statement of net assets 11 Statement of revenues, expenditures and changes in fund balances-govemmental funds 12 and 13 Reconciliation of the statement of revenues, expenditures and changes in fund balances- 14 Statement of revenues, expenditures and changes in fund balance-budget to actual- 15 and 16 Basic Financial Statements governmental funds to the statement of activities Low-Moderate Income Housing Funds Notes to financial statements 17-24 Supplementary Information Combining schedule of revenues and expenditures-budget and actual (budgetary basis)- Computation of Low-Moderate Income Housing excesslsurplus funds debt service funds 25 26 and 27 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 2a McGladrey & Pullen c Certified Public Accountants c c P c c c L. c Independent Auditor’s Report on the Financial Statements and Supplementary Information To the Board of Commissioners Carlsbad Redevelopment Agency Carlsbad, California We have audited the accompanying financial statements of the governmental activities and each major fund of the Carlsbad Redevelopment Agency (the Agency), a blended component unit of the City of Carlsbad, as of and for the year ended June 30,2004, which collectively comprise the Agency’s basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the Agency’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the component unit financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Agency as of June 30,2004, and the respective changes in financial position, and the respective budgetary comparison for the Low-Moderate Income Housing Fund for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report, dated September 30,2004 on our consideration of the Agency’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The management‘s discussion and analysis as listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. McGladrey 8 Pullen. LP is a member firm of RSM International, an affiliation of separate and independent legal entities. 1 P c c P Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Agency's basic financial statements. The combined schedule of revenues and expenditures-budget and actual (budgetary basis) debt service funds and computation of Low-Moderate Income Housing excesslsurplus funds, listed in the table of contents as supplementary information, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. San Diego, California September 30,2004 P P c c 2 r- i P P . Financial Section P P c P Management’s Discussion and Analysis c c c c c c c c F c r- c c c P c The Carlsbad Redevelopment Agency (Agency) established the Village project area in 1981 to help in eliminating blight and blighting influences from the Village downtown area, and to achieve desired development, reconstniction and rehabilitation, including but not limited to, residential, commercial, industrial and retail. The Agency established a second project area, the South Carlsbad Coastal project area, in 2000. The Agency finances projects with advances made by the City of Carlsbad (City) and a tax allocation bond issue. City advances and bond debt service payments are paid with yearly property tax increment revenue. As management of the Carlsbad Redevelopment Agency, we offer readers of the Agency’s financial statements this overview and analysis of the financial activities of the Agency for the fiscal year ended June 30,2004. Management wants to assist the reader of these financial statements to better understand the impact of financial decisions made by the Agency. This analysis will focus on the significant changes in an effort to explain the Agency’s overall financial condition. Overview of the financial statements: The Agency’s basic financial statements include three components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to the financial statements. Government-wide financial statements: The government-wide statements are designed to provide readers with a broad overview of the Agency’s finances, in a manner similar to a private-sector business. The statements comprise the statement of net assets and the statement of activities. Statement of net assets-presents information on all of the Agency’s assets and liabilities (including all of its capital assets and long-term liabilities) with the difference between the two reported as net assets. Increases or decreases in net assets may indicate whether the financial position of the Agency is improving or deteriorating over time. Statement of activities-presents information showing how the Agency’s net assets changed during the fiscal year. Changes in net assets are reported on a full accrual basis, or as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. The government-wide financial statements can be found on pages 7 and 8 of this report. Fund financial statements: The fund financial statements provide more detailed information about the individual funds of the Agency and reinforce information provided in the government-wide statements. Funds are separate accounts established to maintain control over resources that are segregated for specific activities or objectives. All of the Agency’s funds are governmental funds. Fund financial statements focus on near-tern inflows and oufflbws of spendable resources and the balances of spendable resources available at the end of the fiscal year. Since the fund financial statements measure only current revenues, expenditures and fund balances, they exclude capital assets, long-term debt and other long-term amounts. The basic governmental fund financial statements can be found on pages 9-16 of this report. c ‘ - 3 Government-wide Financial Analysis The Agency's liabilities exceeded assets by $10.4 million at the close of the fiscal year. This deficit was created when the City's General fund loaned the Agency money to cover debt service costs during the period won after the Agency's bonds were issued, and when tax increment revenues weren't sufficient to cover the entire debt expense. Redevelopment agencies typically leverage current tax increment revenues by issuing long-term debt (including loans from the City) in order to raise capital to promote economic development within the project areas. Total assets increased by $2.2 million during 2004. This increase is comprised of a $2.5 million increase in the cash balance, which is offset by a $200,000 reduction in loans receivable and a $100,000 reduction in net capital assets. The increase in the cash balance is the result of a $950,000 increase in the Agency's property tax revenue for 2004 compared to 2003 and a cash transfer in the amount of $828,000 that was made from the City's General Capital Construction Fund to help fund a future property purchase. Liabilities at June 30,2004 amount to $26.6 million. Of this amount, $12.8 million is outstanding debt on a tax allocation bond issue and $1 3.2 million is the advance owed to the City. During fiscal year 2004, the Agency paid back $300,000 on the City advance. Carlsbad Redevelopment Agency Net Assets 2003 2004 Current and other assets Capital assets Total assets Liabilities Long-term liabilities Total liabilities Net assets (deficits): Invested in capital assc..; Unrestricted Total net assets $ 7,609,332 $ 9,896,380 6.381.859 6.305.897 13.991 .I 91 16.202.277 697,532 905,442 25,913,764 25,678,891 26,611,296 26,584,333 6,375,950 6,302,817 (18,996,055) (1 6,684,873) $ (12,620,105) $ (10,382,056) Fiscal Year 2004 Governmental Activities The increase in net assets for governmental activities was $2.2 million. This increase was generated by total revenues of governmental activities of $4.5 million offset by $2.3 million in total costs of governmental activities. The Agency's fiscal 2004 revenue came primarily from property tax increment, which increased by $950,000, or 44%, in fiscal year 2004. The Agency receives tax increment from two redevelopment project areas: the Village area and the South Carlsbad Coastal area. The Village area saw an increase of 9%, or $175,000, in property taxes in 2004 compared to 2003, while the South Carlsbad area saw an increase of 444%, or $775,000, for the same time period. The increase in the South Carlsbad area occurred because the Agency had not yet incurred enough debt in this project area to claim the entire amount of incremental property taxes available in 2003. The Agency was able to collect more in property taxes in 2004 because more debt had been incurred. They Agency received a federal HOME capital grant in 2003 to help fund a property purchase. The Agency did not request any HOME grant funds in 2004. 4 T J P c c P P c- c c c c c c c c Charges for services revenue represents rental income collected from tenants of the Agency's affordable senior apartment building that totaled $394,492 and permits issued by the Agency that totaled $12,916 for fiscal year 2004, which is an increase of $23,160, or 6%, from the prior year. Investment earnings contributed an additional $193,336 to the Agency's revenue in 2004 compared to $273,675 earned in 2003. The decrease of $80,339 is mainly due to the combination of a 4% decrease in the average daily cash balance, a 19% drop in the average yield on the portfolio for the fiscal year end and a negative year-end market value adjustment of $97,200. Agency expenses in fiscal year 2004 included $1,274,546 of interest expense on the advance from the City and the Agency's Tax Allocation Bonds, $309,334 for administration of affordable housing activities and $724,262 for depreciation, administrative and program costs. Carlsbad Redevelopment Agency Changes in Net Assets 2003 2004 Revenues: Program revenues: Charges for services Capital grants General revenues: Incremental property taxes Investment earnings Miscellaneous Total revenues Expenses: Community development General government Interest on long-term debt Total expenses Excess (deficiency) before transfers Transfers in (out) Changes in net assets Net assets (deficit) at the beginning of the year Net assets (deficit) at the end of the year $ 384,248 $ 407,408 268,649 2,167,746 3,117,893 273,675 193,336 5,257 3,099,575 3,718,637 322,515 309,334 664,854 724,262 376.351 827.554 1 , 1 74,190 2,238,049 (13,794,295) (12,620,105) $ (12,620,105) $ (10,382,056) The Agency's fund financial statements: At June 30,2004, the Agency's governmental funds reported a combined deficit fund balance of $3.6 million, a reduction in the deficit fund balance of about $1.9 million from the prior fiscal year. The Agency's revenues exceeded expenditures by $1 .I million. Net transfers into the Agency amounted to $828,000. This represented a transfer in from the City's General Capital Construction Fund to help fund the future purchase of the Carlsbad School District's portion of the City's Senior Center building. f r 5 Capital assets and long-term debt: There was one addition to capital assets during the current fiscal year. The Agency purchased copier equipment for $15,760. Total long-term debt outstanding as of June 30,2004 amounted to $26.1 million, which includes the advance to the City of Carlsbad for $13.2 million, future principal payments on the Agency’s Tax Allocation Bonds in the amount of $12.8 million and capital lease obligations of $3,100. Notes to the financial statements: The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 17-24 of this report. Contacting the Agency’s Financial Management This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the Agency’s finances and to demonstrate the Agency’s accountability for the money it receives. If you have questions about this report or need additional information, contact the Finance Department, 1635 Faraday Avenue, Carlsbad, California 92008. We can also be reached at (760) 602-2430, or visit us on-line at www.ci.carlsbad.ca.us. a a 7 I 7 -? 7 1 .1 6 c Carlsbad Redevelopment Agency c P c c 7 c c IC- - . P P . r Statement of Net Assets June 30,2004 Cash and Investments Receivables Taxes Interest Other, net Loans Receivable Capital Assets, net Total assets $ 7,752,261 33,981 496 18,358 2,091,284 6,305,897 $ 16,202,277 Accrued Liabilities Due to Other Governments Current Portion of Long-term Debt Deposits Payable Noncurrent Liabilities Advances from the City of Carlsbad Due in more than one year Total liabilities $ 264,297 237,424 383,080 20,641 13,218,891 12.460.000 $ 26,584,333 Net Assets (Deficit) Invested in Capital Assets, net of related debt Unrestricted (Deficit) Total net assets (deficit) See Notes to Financial Statements. $ 6,302,817 (1 6,684,873) $ (1 0,382,056) P c 7 This page intentionally left blank - Carlsbad Redevelopment Agency Statement of Activities Year Ended June 30,2004 Net Revenues (Expenses) and Program Changes in Revenues Net Assets Charges for Governmental FunctionslPrograms Expenses Services Activities Governmental activities: Community development $ 309,334 $ 407,408 $ 98,074 (724,262) General government 724,262 Interest on long-term debt 1,274,546 (1,274,546) Total governmental activities $ 2,308,142 $ 407,408 (1,900,734) General revenues: Property tax increment 3,117,893 Income from property and investments 193,336 Intergovernmental-City of Carlsbad 827,554 Total general and intergovernmental revenues 4,138,783 Changes in net assets 2,238,049 Net assets (deficit) at beginning of year Net assets (deficit) at end of year See Notes to Financial Statements. 8 (12,620,105) $ (1 0,382,056) Carlsbad Redevelopment Agency Balance Sheet-Govemmental Funds June 30,2004 Special Revenue Funds Income Tyler Court Assets Housing Apartments Low-Moderate Cash and Investments Receivables Taxes Interest Other, net Loans Receivable Total assets $ 2,727,912 $ 704,360 6,796 99 2,091,284 $ 4,826,091 $ 704,360 Liabilities and Fund Balances Liabilities Accrued liabilities $ 4,033 $ Due to other governments Advances from the City of Carlsbad Deposits payable 20,641 Total liabilities 4,033 20,641 Fund Balances Reserved for: Loans receivable Low-Moderate Income Housing Encumbrances Designated for continuing appropriations Undesignated Total fund balances (deficit) Total liabilities and fund balances Unreserved: 2,091,284 210,000 674 2,520,100 683,719 4,822,058 683,719 $ 4,826,091 $ 704,360 1 I 3 1 See Notes to Financial Statements. 9 - c P 7 c P c - 7 c 7 Debt Service Funds Village South Carlsbad Total Redevelopment Redevelopment Capital Governmental Area Area Projects Funds $ 1,901,887 $ 1,056,939 $ 1,361,163 $ 7,752,261 27,185 33,981 397 496 18,358 18,358 2,091,284 $ 1,929,469 $ 1,056,939 $ 1,379,521 $ 9,896,380 $ -$ -$ 34,946 $ 38,979 237,424 237,424 12,960,970 257,921 13,218,891 20,641 12,960,970 495,345 34,946 13,515,935 2,091,284 210,000 80,207 80,881 1,264,368 1,264,368 (1 1,031,501) 561,594 (7,266,088) (1 1,031,501) 561,594 1,344,575 (3,619,555) $ 1,929,469 $ 1,056,939 $ 1,379,521 $ 9,896,380 c 10 This page intentionally left blank Carlsbad Redevelopment Agency Reconciliation of Balance Sheet-Governmental Funds to the Statement of Net Assets June 30,2004 Total fund balances-govemmental funds. $ (3,619,555) Amounts reported for governmental activities and in the statement of net assets are different because: Capital assets, net of accumulated depreciation, used in governmental activities are not financial resources and, therefore, are not reported in the funds. Interest payable on long-term debt does not require current financial resources. Therefore, interest payable is not reported as a liability in the funds. Long-term liabilities (other than advances from the City of Carlsbad) are not due and payable in the current period and, therefore, are not reported in the funds. Net assets (deficit) of governmental activities See Notes to Financial Statements. 11 6,305,897 (225,318) (1 2,843,080) $ (10,382,056) Carlsbad Redevelopment Agency Statement of Revenues, Expenditures and Changes in Fund Balances-GovernmentaI Funds Year Ended June 30,2004 Special Revenue Funds Income Tyler Court Housing Apartments Low-Moderate Revenues: Property tax increment $ 671,063 $ Charges for services 394,492 Income from property and investments Total revenues Expenditures: Current: General government Community development Principal retirement Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Debt Service: Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balance (deficit), beginning of year Fund balance (deficit), end of year 105,314 6,669 776,377 401,161 73,194 236,140 619 172 73,985 236,140 702,392 165,021 702,392 165,021 4,119,666 51 8,698 4,822,058 $ 683,719 See Notes to Financial Statements. 12 c e c P c c P c c Debt Service Funds Village South Carlsbad Total Redevelopment Redevelopment Capital Governmental Area Area Projects Funds $ 1,734,557 $ 712,273 $ - $ 3,117,893 12,916 407,408 15,086 1531 1 50,756 193,336 1,749,643 727,784 63,672 3,718,637 16,276 11,145 620,879 648,300 309,334 360,000 2,210 362,829 1,238,435 41,624 614 1,280,845 1,614,711 52,769 623,703 2,601,308 134,932 67501 5 (560,031) 1 ,I 17,329 1,929,752 1,929,752 (240,000) (862,198) (1,102,198) (240,000) 1,067,554 827,554 134,932 435,015 507,523 1,944,883 ( 1 1,166,433) 126,579 837,052 (5,564,438) $ (11,031,501) $ 561,594 $ 1,344,575 $ (3,619,555) P P 13 Carlsbad Redevelopment Agency - Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances- Year Ended June 30,2004 Governmental Funds to the Statement of Activities Net change in fund balances-total governmental funds. Amounts reported for governmentat activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the government-wide statement of activities, the cost of those assets is allocated over their useful lives and reported as depreciation expense. Purchase of capital assets Depreciation expense 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. In the statement of activities, interest is accrued on long-term debt whereas, in the governmental fund statements, an interest expenditure is reported when due. Change in net assets of governmental activities 15,760 (91,722) $ 1,944,883 3 - - --.1 - - 362,829 - - 6.299 $ 2,238,049 I See Notes to Financial Statements. 14 Carlsbad Redevelopment Agency Statement of Revenues, Expenditures and Changes in Fund Balance-Budget and Actual- Year Ended June 30,2004 LowModerate Income Housing Funds Variance from Final Budget- Budgeted Amounts Actual Amounts Over Original Final (Budgetary Basis) (Under) Revenues: Taxes Income from property and Total revenues investments $ 495,400 $ 495,400 $ 671,063 $ 175,663 33,000 33,000 145,779 1 12,779 528.400 528.400 816.842 288.442 Expenditures: Current, community development Debt service: Principal retirement Interest and fiscal charges Total expenditures Net change in fund balances Fund balance at beginning of year Fund balance at end of year 136,274 255,160 73,868 (1 81,292) 619 61 9 619 172 172 172 137.065 255.951 74.659 (181.2921 391,335 272,449 742,183 469,734 4,118,201 4,118,201 4,118,201 $ 4,509,536 $ 4,390,650 $ 4,860,384 $ 469,734 See Notes to Financial Statements. 15 Carlsbad Redevelopment Agency Statement of Revenues, Expenditures and Changes in Fund Balance-Budget and Actual- Year Ended June 30,2004 Low-Moderate income Housing Funds, Continued Budget-to-GAAP Reconciliation Revenues: Actual amounts (budgetary basis) "available for appropriation" from the budgetary comparison schedule (previous page). $ 816,842 The recording of unrealized gains and losses on the City's investments are shown for financial reporting purposes (pursuant to GASB 31), but are not shown for budgetary purposes. (40,465) $ 776,377 Expenditures: Actual amounts (budgetary basis) "total charges to appropriations" from the budgetary Differences-budget to GAAP: comparison schedule (previous page). $ 74,659 Encumbrances are shown in the year encumbered for budgetary purposes, but in the year paid for financial reporting purposes. (674) $ 73,985 See Notes to Financial Statements. 16 c c Carlsbad Redevelopment Agency Notes to Financial Statements r b c c P b. r_ c c P i. c c c c c c c P L c c Note 1. Summary of Significant Accounting Policies The Carlsbad Redevelopment Agency (the Agency) was established in July 1976 with the adoption of Ordinance No. 1191 by the Carlsbad City Council pursuant to the California Communriy Redevelopment Law, now codified as Part 1, Division 24, of the State of California Health and Safety Code. The Agency has the broad authority to acquire, rehabilitate, develop, administer, and sell or lease property. The Agency is not subject to federal or state income taxes. The principal objectives of the Agency are to eliminate blighted influences within the Village and South Carlsbad project areas of the City of Carlsbad, California, (the City), stimulate and attract private investment, generate added employment through increased specialty goods and services, and expand the City’s sales tax revenue. The accounting policies of the Agency conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The following is a summary of the more significant policies. Description and scope of the reporting entity: The Agency is an integral part of the reporting entity of the City. The funds of the Agency have been included within the scope of the basic financial statements of the City because the City Council is the governing board over the operations of the Agency. Only the funds of the Agency are included herein; therefore, these financial statements do not purport to represent the financial position or results of operations of the City. Government-wide and fund financial statements: The government-wide financial statements (Le., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the Agency. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on user fees and charges for support. The Agency does not have any business-type activities. 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 (1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment, if any. Taxes and other items not properly classified as program revenues are reported as general revenues. Separate financial statements are provided for the governmental funds. Major individual governmental funds are reported in separate columns in the fund financial statements. There were no nonmajor funds as of June 30,2004. 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. In applying the susceptible to accrual concept to intergovernmental revenues, the legal and contractual requirements of the individual programs are used as guidance. Property taxes are recognized as revenues in the year for which they are levied. r c r K- r 17 Carlsbad Redevelopment Agency 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 Agency 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. The Agency's primary source of revenue is property taxes, referred to in the accompanying financial statements as "property tax increment." Property taxes allocated to the Agency are computed in the following manner: property taxes related to any incremental increase in assessed values after the adoption of a Redevelopment Plan are allocated to the Agency; all taxes on the "frozen" assessed valuation of the property are allocated to the City and other districts receiving taxes from the project area. The Agency has no power to levy and collect taxes and any legislative property tax reduction would lower the amount of tax revenues that would otherwise be available to pay the principal and interest on bonds or loans from the City. Conversely, any increase in the tax rate or assessed valuation or any elimination of present exemptions would increase the amount of tax revenues that would be available to pay principal and interest on bonds or loans from the City. The Agency is also authorized to finance the Redevelopment Plan from other sources, including assistance from the City, the state and federal governments, interest income and the issuance of Agency debt. Real property taxes are levied on October 15 against property owners of record on January 1 of that year. The taxes are due in two installments, on November 1 and February 1, and become delinquent after December 10 and April 10, respectively. Tax liens attach annually as of 12:Ol a.m. on the first day of January in the fiscal year for which the taxes are levied. The Agency has presented the following major funds: The Low-Moderate Income Housing special revenue fund is used to account for money administered by the Agency for designated low- and moderateincome housing projects. The Tyler Court Apartments special revenue fund is used to account for the operations of the affordable senior citizen apartment project. The Village Redevelopment Area debt service fund is used to account for the accumulation of resources for, and payment of, principal and interest on the Agency's bonds, issued to finance improvements for the downtown area of the City. The South Carlsbad Redevelopment Area debt service fund is used to account for the accumulation of resources to finance improvements in the southern area of the City. The Capital Projects fund is used to account for capital projects of the Agency. 18 c Carlsbad Redevelopment Agency c Notes to Financial Statements c Note 1. Summary of Significant Accounting Policies, Continued Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying note disclosures. Accordingly, actual results could differ from those estimates. c 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 certificates of deposit and investment 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. c IC- Changes in fair value that occur during a fiscal year are recognized as income from 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; property rentals; and the sale of Agency-owned property. P 1. The Agency maintains its cash and investments for all funds, except for assets held by fiscal agents, with the City as pooled cash and investments. Each fund's share of the 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. Restricted cash and investments represent amounts that are restricted under the terms of debt agreements. 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 governmental activities columns in the government- wide financial statements. Capital assets are defined by the Agency as assets with an initial, individual cost of more than $10,000 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. c c The cost of normal maintenance and repairs that do not add to the value of an asset or materially extend an asset's useful life are not capitalized. Construction-in-progress costs are transferred to their respective fixed asset category upon completion. - Depreciation is charged to operations, in the statement of activities, using the straight-line method based on the estimated useful life of an asset. The estimated useful lives of depreciable assets are 10-50 years for building and improvements. In June 1999, GASB Statement No. 34 was issued, which requires the inclusion of infrastructure capital assets in local governments' basic financial statements. The Agency has no infrastructure to be included in the capital assets. Long-term obligations: In the government-wide financial statements, 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 are amortized over the term of the related debt. c c r 19 Carlsbad Redevelopment Agency 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. Net assets: Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net assets invested in capital assets, net of related debt, exclude unspent bond proceeds. Net assets are reported as restricted when there are limitations imposed by creditors, grantors, or laws or regulations of other governments. Restricted resources are used first to fund appropriations. Fund equity: The reserved portion of the fund balances represents those amounts that have been legally identified for a specific purpose or amounts that are not available to liquidate current liabilities. The unreserved portion represents the amount available for future appropriations. Designated fund balances represent tentative plans for the future use of financial resources. Use of restrictedlunrestricted net assets: When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Agency's policy is to apply restricted net assets first. Unrestricted net assets: The Agency's unrestricted net assets are in a deficit position primarily because long-term debt is in excess of capital assets owned by the Agency. The Agency issues debt for construction andlor acquisition of assets, which it then turns over to the City or to private parties within the redevelopment project area. Note 2. Budgetary Data During May or June, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. Public hearings are conducted at the City Council meetings to obtain citizens' comments during June. The City Council finalizes the budget no later than July 1. The City Manager (as the Agency Executive Director) is authorized to make transfers of appropriated amounts from one department to another within a fund. The legal level of budgetary control is at the fund level. Budgets have been adopted for the Low-Moderate Income Housing special revenue fund and the debt service funds, in total. A budget is not adopted for the Tyler Court Apartments special revenue fund. Revisions that alter the total appropriations of any fund must be approved by the City Council, with the exception of budget adjustments that involve offsetting revenues and expenditures. The City Manager is authorized to increase or decrease an appropriation for a specific purpose where the appropriation is offset by unbudgeted revenue, which is designated for said specific purpose. Monthly reports are provided to the City Council during the year, and any changes to the adopted budget are approved by the City Council as necessary. Budgets for governmental type funds are adopted on the modified accrual basis, except that encumbrances are treated as budgeted expenditures in the year purchases are committed. Expenditures may not exceed budgeted appropriations at the fund level. All appropriations lapse at fiscal year end unless the City Council takes action in the form of a resolution to continue the appropriation into the following fiscal year. 1 20 c Carlsbad Redevelopment Agency r c c c c P IC- - c c c 6 c - b P c Notes to Financial Statements Note 2. Budgetary Data, Continued For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB Statement No. 31, and actual expenditures have been adjusted to include encumbrances outstanding. Note 3. Cash and investments The Agency's cash and invested cash are pooled with the City's cash and invested cash. Income from the investment of pooled cash is allocated to the Agency's funds on a monthly basis, based upon the average monthly balance of the fund as a percent of the average monthly total pooled cash balance. Individual investments cannot be identified with any single fund because the City may be required to liquidate its investments at any time to cover large cash outlays required in excess of normal operating needs. Cash and invested cash consist of U.S. government-backed securities and investments in State of California Local Agency Investment Fund, as well as corporate notes. The City values all of its cash and invested cash at fair value on a portfolio basis. The City 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 follow the guidelines of the State of California Government Code. Invested cash is stated at fair value. The increase in the fair value of investments is recognized as an increase to interest income revenue. The City normally holds investments to term; therefore, no realized gainlloss is recorded. Note 4. Loans Receivable Loans receivable represent monies provided to low- and moderate-income residents in the City for home improvements or down payments made to acquire certain residences within the City and to the developers of such residences qualifying as low- and moderate-income housing. As of June 30,2004, there were three loans outstanding, totaling $2,091,284, of varying terms, which are typically paid off over the final years of the term. Transfer of ownership of the property prior to the final year of the loan causes the balance owed to become due and payable to the Agency. The loans are collateralized by the property acquiredldeveloped. r- 1. c A P i T I- - i, 7 i 21 Carlsbad Redevelopment Agency Notes to Financial Statements Note 5. Capital Assets Capital asset activity was as follows for the year ended June 30,2004: Balance at Balance at July 1,2003 Increases Decreases June 30,2004 Capital assets not being depreciated, land $ 2,977,883 $ -$ - $ 2,977,883 Capital assets being depreciated: Buildings and improvements 3,905,653 3,905,653 Equipment 15,760 15,760 depreciated 3,905,653 15,760 3,921,413 Total capital assets being Less accumulated depreciation for: Buildings and improvements (501,677) (86,994) (588,67 1) Equipment (4,728) (4,728) Total accumulated Total capital assets being Governmental activities depreciation (501,677) (91,722) (593,399) depreciated, net 3,403,976 (75,962) 3,328,014 capital assets, net $ 6,381,859 $ (75,962) $ - $ 6,305,897 Depreciation expense of approximately $92,000 was charged to the general government functionlprogram on the statement of activities. Note 6. Long-term Debt The following is a summary of changes in the principal balance of long-term debt for the year ended June 30,2004: Principal Principal Due Balance at Balance at Within June 30,2003 Additions Reductions June 30,2004 One Year Governmental activities: I Bonds $ 13,200,000 $ - $ 360,000 $ 12,840,000 $ 380,000 Obligation under capital lease 5,909 2,829 3,080 3,080 activity $ 13,205,909 $ - $ 362,829 $ 12,843,080 $ 383,080 Total governmental 3 22 Carlsbad Redevelopment Agency c Notes to Financial Statements c Note 6. Long-term Debt, Continued c- Long-term debt at June 30, 2004 is comprised of the following: 1993 Carlsbad Housing and Redevelopment Commission Tax Allocation Bonds, principal due in amounts ranging from $360,000 to $1,000,000 on September 1 of each year through 2024. Interest payable on March 1 and September 1 at rates varying from 5.25% to 5.30% per annum. The Agency posted a surety bond in lieu of cash reserve in the amount of $1,055,953. $ 12,840,000 c c c Equipment leased under capital lease obligation. The lease term is 60 months, with interest at 15.11%, expiring June 2005. The lease is secured by the underlying equipment. 3,080 12,843,080 Less current portion 383,080 $ 12,460,000 c- c P c c The annual requirements, principal and interest to amortize the outstanding debt as of June 30,2004 are as follows: Governmental Activities Principal Interest Years Ending June 30, c 2005 2006 2007 2008 2009 201 0-2014 201 5-201 9 2020-2024 $ 380,000 $ 665,978 395,000 645,634 420,000 624,240 440,000 601,665 465,000 577,909 2,715,000 2,486,606 3,505,000 1,674,694 P P c- c 4,520,000 623,341 $ 12,840,000 $ 7,900,066 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. P c During the current year, the Agency performed calculations of excess investment earnings on various bonds and financings in accordance with arbitrage regulations. The Agency has determined that no arbitrage rebate liability exists as of June 30,2004. Note 7. Advances from the City of Carlsbad c .- Since activation of the Agency in July 1976, the City has advanced the Agency monies for approved expenditures. Advances from the City bear interest equal to the City's interest rate received on pooled investments. There is no stated maturity date. The outstanding balance at June 30, 2004 is $13,218,891. c L ? t 23 Carlsbad Redevelopment Agency Notes to Financial Statements Note 8. Fund Balances Reserves for the loan receivable and low- to moderate-income housing are established to show that certain assets are already committed for other purposes and are not available for discretionary expenditures. Reserve for encumbrances represents commitments related to unperformed contracts for services and undelivered goods. Unreserved-undesignated balances represent the fund balance remaining after reduction for reserved and designated fund balances. Note 9. Risk Management The Agency 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 Agency, through the City, carries liability insurance. The Agency carries no insurance coverage for natural disasters. Since the Agency 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 10. Commitments and Contingency Operating lease: In June 1988, the Agency entered into an agreement to lease a parking lot on State Street from a private party. The lease requires monthly rental payments, adjusted annually based upon an increase in the Consumer Price Index, not to exceed 6% of the previous year's rents, and readjusted in years 10 and 15, based upon market rental values, through August 2007. Approximate minimum future rental payments under operating lease as of June 30,2004 are as follows: Years Ending June 30, Amount 2005 2006 2007 2008 $ 83,700 83,700 83,700 7,000 $ 258,100 I 24 c c P P Supplementary Information c Carlsbad Redevelopment Agency c c c c c c i c Combined Schedule of Revenues and Expenditures-Budget and Actual (Budgetary Basis) Year Ended June 30,2004 Debt Service Funds Actual Amounts Variance (Budgetary Favorable Budget Basis) (Unfavorable) Total revenues $ 2,066,200 $ 2,527,580 $ 461,380 Total expenditures 1,686,718 1,667,480 19,238 Net change in fund balance $ 379,482 $ 860,100 $ 480,618 Redevelopment areas: c- c c c c c 25 Carlsbad Redevelopment Agency Computation of Low-Moderate Income Housing ExcesslSurplus Funds Year Ended June 30,2004 Project Area I Village Fund Balance-Beginning of Year Adjustments Less unavailable funds-included in beginning fund balance: Rehabilitation loans Future loan Encumbrances Total unavailable funds Available Fund Balance-Beginning of Year Current year proceedsluses (actual plus changes in unavailable): Proceeds Uses Changes in unavailable amounts Available Fund Balancend of Year Encumbrances Available Fund Balance-for Excess Surplus Does available fund balance for excesslsurplus exceed $1 ,OOO,OOO? If so, enter available fund balance and evaluate that amount against tax increment. Does available fund balance for excesslsurplus exceed the greater of prior four years' If less, enter zero. set-aside deposits or $1 ,OOO,OOO? Tax increment set-aside amounts: Fiscal year 199940 Fiscal year 2000-01 Fiscal year 2001-02 Fiscal year 2002-03 Total set-aside deposited into fund ExcesslSurplus Funds Greater of available fund balance for excesslsurplus less prior four years' tax increment set-aside deposits Reconciliation to Ending Fund Balance Ending GAAP fund balance Available fund balance-end of year above Rehabilitation loans Future loan Encumbrances Ending Fund Balance 26 $ 3,975,436 2,290,024 21 0,000 1,465 2,501,489 1,473,947 534,306 (51,324) 200,205 2,157,134 (674) $ 2,156,460 $ 2,156,460 346,360 393,824 372,475 398,628 1,511,287 $ 6451 73 $ 4,458,418 $ 2,156,460 2,091,284 21 0,000 674 $ 4,458,418 Carlsbad Redevelopment Agency c Computation of Low-Moderate Income Housing ExcesslSurplus Funds, Continued Year Ended June 30,2004 Project Area II South Carlsbad c Fund Balance-Beginning of Year Adjustments $ 144,230 c Less unavailable funds, included in beginning fund balance: Rehabilitation loans Prepaid expenses Encumbrances Total unavailable funds c Available Fund Balance-Beginning of Year Current year proceedsluses (actual plus changes in unavailable): Proceeds Uses Changes in unavailable amounts 144,230 c 7 242 , 07 1 (22,661) c Available Fund Balance-End of Year Encumbrances Available Fund Balance-for Excess Surplus 363,640 c $ 363,640 Does available fund balance for excesslsurplus exceed $1 ,OOO,OOO? If so, enter available fund balance and evaluate that amount against tax increment. If less, enter zero. P Does available fund balance for excesslsurplus exceed the greater of prior four years' set-aside deposits or $1 ,OOO,OOO? Tax increment set-aside amounts: Fiscal year 199940 Fiscal year 2000-01 Fiscal year 2001-02 Fiscal year 2002-03 Total set-aside deposited into fund c c 125,145 c 43,652 168,797 ExcesslSurplus Funds Greater of available fund balance for excesslsurplus less prior four years' tax increment set-aside deposits c c $ 7 Reconciliation to Ending Fund Balance Ending GAAP fund balance $ 363,640 Available fund balanc-nd of year above Rehabilitation loans Encumbrances Ending Fund Balance $ 363,640 c- $ 363,640 c 27 This page intentionally left blank McGladrey & Pullen Certified Public Accountants Independent Auditor's Report on ,.rternal Control over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in accordance with Government Auditing Standards To the Board of Commissioners Carlsbad Redevelopment Agency Carlsbad, California We have audited the accompanying financial statements of the governmental activities and each major fund of the Carlsbad Redevelopment Agency (the Agency), a blended component unit of the City of Carlsbad, as of and for the year ended June 30,2004, which collectively comprise the Agency's basic financial statements, and have issued our report thereon dated September 30,2004. 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 Agency'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 the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the 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 of the 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 the internal control and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Agency'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. This report is intended for the information of the Board of Commissioners and management of the Agency, and is not intended to be, and should not be, used by anyone other than those specified parties. San Diego, California September 30,2004 McGladrey B Pullen, UP is a member firm of RSM International, an affiliation of separate and independent legal entities. 28