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HomeMy WebLinkAbout; ; 2003-04 Public Improvement District Audit; 2004-09-29- City of Carlsbad Public Improvement Corporation - - _. Financial and Compliance Report Year Ended June 30,2004 P P P c c Contents c c c c c Independent Auditor's Report on the Financial Statements and Supplementary Information 1 Basic Financial Statements Statement of net assets and governmental funds balance sheet 2 3 Notes to financial statements 4-8 Statement of activities and governmental funds statement of revenues, expenditures and changes in fund balances Supplementary Information Combining balance sheet-governmental funds 9 governmental funds 10 Combining statement of revenues, expenditures and changes in fund balances- Internal Control Structure and Compliance Matters 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 11 P - P c P IC c c c c P c c c P c c c c c- McGladrey & Pullen Certified Public Accountants Independent Auditor's Report on the Financial Statements and Supplementary Information To the Board of Directors City of Carlsbad Public Improvement Corporation Carlsbad, California We have audited the accompanying basic financial statements of the City of Carlsbad Public Improvement Corporation (the Corporation), a blended component unit of the City of Carlsbad, California, as of and for the year ended June 30,2004, as listed in the accompanying table of contents. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities of the Corporation as of June 30,2004, and the respective changes in financial position 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 Corporation'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 considered in assessing the results of our audit. The Corporation has not presented a Management's Discussion and Analysis required by Governmental Accounting Standards Board (GASB) Statement No. 34 that the GASB has determined is necessary to supplement, although not required to be a part of, the financial statements. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The combining balance sheet-governmental funds and combining statement of revenues, expenditures and changes in fund balances-govemmental 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 financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. /+tq //&, LLP San Diego, California September 30,2004 c McGladrey 8 Pullen, UP is a member firm of RSM International, an affiliation of separate and independent legal entities. 1 c c P Financial Statements P City of Carlsbad Public Improvement Corporation c P Statement of Net Assets and Governmental Funds Balance Sheet June 30,2004 Governmental Adjustments Statement of Funds (See Note 2) Net Assets Assets Cash and investments $ 665,740 $ $ 665,740 Interest Receivable 15,580 15,580 Restricted Assets, cash and investments 659,500 659,500 Total assets $ 1,340,820 1,340,820 Liabilities Accrued Interest Payable Noncurrent Liabilities Due within one year Due in more than one year Total liabilities $ 63,382 A 63,382 620,000 B 620,000 2,740,000 B 2,740,000 3,423,382 3,423,382 Fund BalancelNet Assets (Deficit) Fund Balance, reserved for Debt Service 1,340,820 (1,340,820) C Total liabilities and fund balances $ 1,340,820 Net Assets (Deficit), unrestricted Total net assets (deficit) See Notes to Financial Statements. (2,082,562) (2,082,562) $ (2,082,562) $ (2,082,562) 2 City of Carlsbad Public Improvement Corporation Statement of Activities and Governmental Funds Statement of Revenues, Year Ended June 30,2004 Expenditures and Changes in Fund Balances Governmental Adjustments Statement of Funds (See Note 2) Activities Expenditureslexpenses: Debt Service: Principal Interest on long-term debt and fiscal changes Total expenditureslexpenses Program revenues: Lease payments Installment sale payments Investment earnings Total program revenues Deficiency of revenues under expenditures and change in fund balance Change in net assets Fund balancelnet assets (deficit) at beginning of year Fund balancelnet assets (deficit) at end of year $ 1,765,000 $ (1,765,000) B $ 218,913 2,074 A 220,987 1,983,913 (1,762,926) 220,987 800,000 800,000 445,261 445,261 81,531 81,531 1,326,792 1,326,792 (657,121) 657,121 1 ,I 05,805 1,105,805 See Notes to Financial Statements. 3 1,997,941 (5,186,308) (3,188,367) $ 1,340,820 $ (3,423,382) $ (2,082,562) c City of Carlsbad Public Improvement Corporation Notes to Financial Statements Note 1. Summary of Significant Accounting Policies c c c c 7 c- c c c c P The City of Carlsbad Public Improvement Corporation (the Corporation) was organized on June 1,1988 under the Nonprofit Public Benefit Corporation law for the purpose of financing and constructing certain improvements. The Corporation is not subject to federal or state income taxes. Reporting entity: Governmental Accounting Standards Board (GASB) Statement No. 14, The financial Reporting Entify, defines the reporting entity as the primary government and those component units for which the primary government is 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 Council of the City of Carlsbad, California, (the City) also serves as the Board of Directors of the Corporation, the City, in effect, has the ability to influence and control operations. Therefore, the City has oversight responsibility for the Corporation. Consequently, the financial statements of the Corporation are included in the City's Comprehensive Annual Financial Report. There are no entities which are component units of the Corporation. The Corporation has the same fiscal year as the City. The City's financial statements can be obtained from the Finance Department of the City. The accounting policies of the Corporation 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: Measurement focus, basis of accounting and financial statement presentation: The government-wide financial statements (i.e., the statement of net assets and the statement of activities) 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. 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. Amounts reported as program revenues include lease and installment sale payments and interest earned on investments. 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. Cash and investments: 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. Changes in fair value that occur during a fiscal year are recognized as interest on investments reported for that fiscal year. Interest on investments includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity or sale of investments. 4 City of Carlsbad Public Improvement Corporation c c c Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued 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 amortized over the term of the related debt. c c 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. c c Fund equity: The reserved portion of the fund balances represents those amounts which have been legally identified for the specific purpose or represents amounts which 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 Corporation's policy is to apply restricted net assets first. c c- Unrestricted net assets: The Corporation's unrestricted net assets are in a deficit position primarily because long- term debt is in excess of assets owned by the Corporation. The Corporation issues debt for construction andlor acquisition of assets, which it then turns over to the City. - b Note 2. Adjustments c i The following adjustments were made in the conversion of the governmental fund balance sheet to the statement of net assets, as per GASB Statement No. 34: c A To record accrued interest on long-term debt as of June 30,2004 not recorded in governmental funds, as it is recognized as expenditures when due. c B To record current and long-term portions of long-term debt, as it is not recognized in the governmental funds until amounts are due and payable. c C To reclassify fund balance to net assets. The following adjustments were made in the conversion of the governmental fund statement of revenues, expenditures and changes in fund balances to the statement of activities] as per GASB Statement No. 34: c A Interest expense on long-term debt in the statement of activities differs because of the effect of additional accrued interest. B Principal payments in the statement of activities differs because the repayment of principal consumes current financial resources of governmental funds; however, the repayment does not have any effect on net assets in the statement of activities. c c 5 P c City of Carlsbad Public Improvement Corporation c c c c- c c Notes to Financial Statements Note 3. Cash and Investments Cash and investments: The Corporation’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 Corporation funds on a monthly basis, based upon the average monthly balance of the fund as a percentage 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 the State of California Local Agency Investment Fund, as well as bankers acceptances. 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 follows 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. Restricted cash and investments: The Trust Agreement by and among BNY Western Trust Company, as trustee, and the Corporation, dated February 1,1997, authorizes the trustee to invest in Federal Treasury and Agency Securities, interest-bearing demand or time deposits, certain obligations of US. corporations, money market funds, commercial paper rated A-I by Standard & Poor‘s Corporation and P-I by Moody’s commercial paper with original maturities of not more than 180 days, bankers acceptances with maturities of not more than 180 days and certain tax-exempt obligations. Restricted cash and investments are stated at fair value. The trustees hold all restricted cash and investments of the Corporation. At June 30,2004, the Corporation’s restricted cash and investments, which consist of an investment contract in the amount of $659,500, are not subject to custodial credit risk. Note 4. Installment Sale Agreement Carlsbad Municipal Water District: Under the terms of an Installment Purchase Agreement dated September 1, 1997, the Carlsbad Municipal Water District (District) sold a project to the Corporation and the Corporation sold back the same project to the District. The sale of the project was done to refinance certain outstanding obligations related to the project. All right, title and interest in each component of the project vested in the District immediately upon execution and delivery of the Agreement. All revenues (which consist of all income, rents, rates, fees, charges and other monies derived from the ownership or operation of the Water System) are irrevocably pledged to the payment of the installment payments due under the Agreement. The Agreement requires the District to pay semiannual installment payments to the Corporation equal to the debt service requirements of the 1997 Water Revenue Certificates of Participation issued by the Corporation on September 1, 1997 (the water revenue certificates) (Note 5). Under the terms of the Installment Purchase Agreement between the District and the Corporation, the District is required to make payments on every April 15 and October 15 until the certificates have been paid in full. The Agreement expired on May 1,2004, the date the certificates reached maturity and the District made the final debt service payment. r i 6 P c c City of Carlsbad Public improvement Corporation Notes to Financial Statements Note 5. Certificates of Participation The following is a summary of the debt of the Corporation for the year ended June 30, 2004: c c c c c P c c c c c 7 c Balance at Balance at Due within June 30,2003 Additions Reductions June 30,2004 One Year Refunding Certificates of Participation (Hosp Grove Water Revenue Certificates of Participation (1 988 Refunding Project) Series 1997 1,175,000 1 ,I 75,000 Project) Series 1997 $ 3,950,000 $ - $ 590,000 $ 3,360,000 $ 620,000 $ 5,125,000 $ - $ 1,765,000 $ 3,360,000 $ 620,000 Hosp Grove: In 1997 the Corporation issued Refunding Certificates of Participation (Hosp Grove Project) Series 1997 (the certificates) pursuant to a Trust Agreement by and among the Corporation, the City and the trustee. The certificates bear interest at rates ranging from 4.4% to 4.7%, payable on August 1 and February 1, and mature on August 1 of each year through 2008. The Corporation is required to maintain a debt service reserve of $659,500. As of June 30,2004, the reserve balance was $659,500. The certificates represent an undivided interest in lease payments made by the City to the Corporation for the lease of the Hosp Grove property from the Corporation. Under the terms of the lease agreement, the City is required to make semiannual lease payments to the Corporation equal to the debt service requirements on these certificates of participation. The lease payments from the City are reflected as program revenues in the accompanying statement of activities and governmental funds statement of revenues, expenditures and changes in fund balances. Debt service requirements to maturity for the certificates are as follows: Years Ending June 30, Principal Interest 2005 2006 2007 2008 2009 $ 620,000 $ 138,475 635,000 1 10,865 670,000 81,820 700,000 50,645 735,000 17,273 $ 3,360,000 $ 399,078 Water Revenue Certificates: The Corporation issued Water Revenue Certificates of Participation (1 988 Refunding Project) Series 1997 pursuant to a Trust Agreement by and among the Corporation, the District and the trustee. The water revenue certificates represented an undivided interest in the installment purchase payments made by the Water District to the Corporation (Note 4). The water revenue certificates were paid off during the fiscal year ended June 30,2004. P I - L c L 7 c City of Carlsbad Public Improvement Corporation Notes to Financial Statements Note 6. Rate Covenants c c P c c The 1997 Water Revenue Certificates of Participation require that the District set its charges for services each year at rates sufficient to produce net revenues (after paying the operating and maintenance expenses of the District, excluding depreciation) at least 1.1 5 times the debt service for that year. Note 7. Fund Balances The reserve for debt service represents resources legally restricted to the payment of long-term debt principal and interest maturing in future years. c P Supplementary Information c c c c V c tu C r 01 C .: P r b b b C C U r L( 6 5 r U L( 6 c c c c- c c c c c c c c 0 U r m - Internal Control Structure and Compliance Matters P McGladrey & Pullen Certified Public Accountants c c c c c c c c r r c c c c Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in accordance with Government Auditing Standards To the Board of Directors City of Carlsbad Public Improvement Corporation Carlsbad, California We have audited the basic financial statements of the City of Carlsbad Public Improvement Corporation (Corporation), a blended component unit of the City of Carlsbad, California, as of and for the year ended June 30, 2004, 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 Corporation'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 over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Corporation's basic 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. 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 Corporation's management and the Board of Directors, and is not intended to be, and should not be, used by anyone other than these specified parties. Mq San Diego, California September 30,2004 McGladrey 8 Pullen, LLP is a member firm of RSM International, an affiliaSon of separate and independent legal entities. 11