HomeMy WebLinkAbout; ; 2005-06 Redevelopment Agency Audit Report; 2006-06-30Carlsbad Redevelopment Agency
Financial and Compliance Report
Year Ended June 30, 2006
McGladrey&Pullen
Certified Public Accountants
McGladrey & Pullen, LLP is a member firm of RSM International,
an affiliation of separate and independent legal entities.
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Contents
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2 Independent Auditor's Report on the Financial Statements
and Supplementary Information 1 and 2
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Financial Section
3 Management's Discussion and Analysis 3-6
Basic Financial Statements:
™ Government-wide Financial Statements:
^ Statement of Net Assets 7
m Statement of Activities 8
«i Fund Financial Statements:m Balance sheet—Governmental Funds 9 and 10
*•» Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 11
"""" Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Funds 12 and 13
— Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund
""" Balances of Governmental Funds to the Statement of Activities 14
~ Statement of Revenues, Expenditures and Changes in Fund Balance—Budget and Actual—
""" Low-Moderate Income Housing Funds 15 and 16
^ Notes to Financial Statements 17-24
^ Supplementary Information
_^ Combining Schedule of Revenues and Expenditures—Budget and Actual (Budgetary Basis)—
M Debt Service Funds 25
^ Computation of Low-Moderate Income Housing Excess/Surplus Funds 26 and 27
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^ Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance
— and Other Matters Based on an Audit of Financial Statements Performed in Accordance with
,„ Government Auditing Standards 28
a McGladrey&Pullen
Certified Public Accountants3
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i Independent Auditor's Report on the Financial Statements
3 and Supplementary Information
3 To the Board of Commissioners
Carlsbad Redevelopment Agency
3 Carlsbad, California
3 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
3 year ended June 30,2006, 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 opinions on these financial statements based on our audit.
9 We conducted our audit in accordance with auditing standards generally accepted in the United States of America
2 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
2| 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
3 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.
m 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 30,2006, 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.
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— In accordance with Government Auditing Standards, we have also issued our report, dated October 5,2006, 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 considered
*"" in assessing 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
2 management regarding the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.
McGladrey & Pullen, LLP is a member firm of RSM International,
an affiliation of separate and independent legal entities.
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a*™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 Excess/Surplus
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.
2 Riverside, California
October 5, 2006
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Financial Section
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Management's Discussion and Analysis
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, reconstruction
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, 2006. 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-term inflows and outflows 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.
Financial Analysis of the Agency
Net Assets: The Agency's liabilities exceeded assets by over $8.6 million at the close of Fiscal Year 2006. This
deficit was originally created when the City's General Fund loaned the Agency money to cover debt service costs
during the period soon 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. A portion of the Agency's net assets that are invested in capital assets net of related debt are negative
as of June 30, 2006. When the Agency's bonds were issued, a majority of the bond proceeds were used to finance
capital assets. At June 30,2006, $12.1 million of bonds are still outstanding, creating this deficit.
Total assets increased by just over $1 million during Fiscal Year 2006. This increase is comprised of a $390,000
increase in the Agency's cash balance along with a $670,000 increase in the Agency's loans receivable balance. The
increase in loans receivable is the result of a new loan made to a developer for the construction of a low-income
apartment complex for $940,000, which is offset by a $270,000 scheduled loan payment made to the Agency by a
developer on an outstanding loan.
Liabilities at June 30, 2006 amount to $26.6 million. Of this amount, $12.1 million is outstanding debt on a tax
allocation bond issue and $14.2 million is the advance owed to the City.
Carlsbad Redevelopment Agency
Net Assets
2006
Current and Other Assets
Capital Assets
Total assets
Liabilities
Long-term Liabilities
Total liabilities
Net Assets (Deficit):
Invested in capital assets
Unrestricted
Total net assets (deficit)
$ 9,581,237 $
8,370,971
17,952,208
699,699
25,877,552
26,577,251
(3,694,029)
(4,931,014)
$ (8,625,043) $
2005
8,466,083
8,453,987
16,920,070
715,298
25,753,294
26,468,592
(4,006,013)
(5,542,509)
(9,548,522)
Changes in Net Assets: The increase in net assets for governmental activities was approximately $923,000. This
increase was generated by total revenues of governmental activities of $3.7 million offset by $2.8 million in total costs
of governmental activities.
The Agency's Fiscal Year 2006 revenue came primarily from property tax increment, which increased by $466,000,
or 18%, in Fiscal Year 2006. 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 29%, or $670,000, in property taxes
in 2006 compared to 2005, while the South Carlsbad area saw a decrease of 95%, or $204,000, for the same time
period. The increase in property tax increment for the Village area occurred, because the assessed values increased
by 15.6% and a higher amount of supplemental taxes were collected in 2006 when compared to 2005. The decrease
in property tax increment for the South Carlsbad area occurred, because the assessed property values in this area
declined from $278 million in 2005, to $242 million in 2006. The decline is due to the lower assessed values assigned
to the Encina Power facility.
Charges for services revenue represents rental income collected from tenants of the Agency's affordable senior
apartment building that totaled $431 ,000 and permits issued by the Agency that totaled $22,000 for Fiscal Year 2006,
which is an increase of $12,000, or 3%, from the prior year. Income from property and investments, which includes
rental income and investment interest income, contributed an additional $298,000 to the Agency's revenue in 2006
compared to $238,000 earned in 2005. The $60,000 increase in income from property and investments for 2006 is a
result of a timing difference on a yearly interest payment from a developer on a housing loan. There were no
payments received during 2005, but two payments were received in 2006.
Agency expenses in Fiscal Year 2006 included $1,332,000 for administration and operation of affordable housing
and redevelopment activities, $314,000 for general and fiscal charges and $1,183,000 for interest expense on the
advance from the City and the Agency's Tax Allocation Bonds.
Community development expenses increased $341,000 in 2006 from 2005. The increase can be attributed to a
$58,000 payment to a consultant to perform a retail analysis and implementation strategy of the village project area,
a $69,000 payment to a consultant for an environmental impact report for the Ponto area located in the South
Carlsbad project area and $225,000 in expenses for street projects in 2006. These street projects are funded by the
Agency and when completed, the infrastructure assets will be transferred to the primary government (the City).
General government expenses increased $73,000 in 2006 from 2005. This increase can be attributed to an increase
in the state-mandated payment to the Educational Revenue Augmentation Fund for 2006. This is the last year for this
required payment to the state.
Carlsbad Redevelopment Agency
Changes in Net Assets
Revenues:
Program revenues, charges for services $
General revenues:
Property tax increment
Income from property and investments
Contributions from property owners
Total revenues
Expenses:
Community development
General government
Interest on long-term debt
Total expenses
Changes in net assets
Net Assets (Deficit), beginning of the year
Net Assets (Deficit) , end of the year $
2006
452,793 $
2,981,383
298,001
20,000
3,752,177
1,331,751
609,431
887,516
2,828,698
923,479
(9,548,522)
(8,625,043) $
2005
441,244
2,515,333
238,405
3,194,982
991,161
241,277
1,129,010
2,361,448
833,534
(10,382,056)
(9,548,522)
The Agency's fund financial statements: At June 30,2006, the Agency's governmental funds reported a combined •
deficit fund balance of $4.7 million, a decrease in the deficit fund balance of about $605,000 from the prior fiscal year. _
An increase in incremental property taxes in 2006 compared to 2005 contributed to the decrease in the deficit fund ™
balance. pn
Capital assets and long-term debt: There were no new additions or deletions to the Agency's capital assets during m
the current fiscal year. Total long-term debt outstanding as of June 30, 2006 amounted to $26.3 million, which
includes the advance to the City of Carlsbad for $14.2 million and future principal payments on the Agency's Tax g
Allocation Bonds in the amount of $12.1 million.cNotes 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 JJJJ
can be found on pages 17-24 of this report.
Contacting the Agency's Financial Management
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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. C
If you have questions about this report or need additional information, please 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.carlsbadca.gov. _
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Carlsbad Redevelopment Agency
Statement of Net Assets
June 30,2006
Assets
Cash and Investments
Receivables
Taxes
Other, net of allowance for bad debt of $15,775
Loans Receivable
Capital Assets, net
Total assets
$ 6,634,815
172,712
11,490
2,762,220
8,370.971
$ 17,952,208
Liabilities
Accrued Liabilities
Due to Other Governments
Deposits Payable
Current Portion of Long-term Debt
Noncurrent Liabilities
Advances from the City of Carlsbad
Due in more than one year
Total liabilities
249,019
2,680
28,000
420,000
14,232,552
11,645,000
$ 26,577,251
Net Assets (Deficit)
Invested in Capital Assets, net of related debt
Unrestricted (deficit)
Total net assets (deficit)
$ (3,694,029)
(4,931,014)
$ (8,625,043)
The notes to the financial statements are an integral part of this statement.
Carlsbad Redevelopment Agency
Statement of Activities
For the Year Ended June 30,2006
Net Revenues
(Expenses) and
Program Changes in
Revenues Net Assets
Functions/Programs
Governmental Activities:
Community development
General government
Interest on long-term debt
Total governmental activities
Charges for Governmental
Expenses Services Activities
$ 1,331,751 $ 452,793 $
313,967
1,182,980
$ 2,828,698 $ 452,793
General Revenues:
Property tax increment
Income from property and investments
Contributions from property owners
Total general revenues
Changes in net assets
Net Assets (Deficit), beginning of year
Net Assets (Deficit), end of year $
(878,958)
(313,967)
(1,182,980)
(2,375,905)
2,981,383
298,001
20,000
3,299,384
923,479
(9,548,522)
(8,625,043)
The notes to the financial statements are an integral part of this statement.
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Carlsbad Redevelopment Agency
Balance Sheet—Governmental Funds
June 30,2006
Assets
Special Revenue Funds
Low-Moderate
Income
Housing
Tyler Court
Apartments
Cash and Investments
Receivables
Taxes
Other, net of allowance for bad debt of $15,775
Loans Receivable
Total assets
$ 3,163,802 $ 1,016,066
37,222
368
2,762,220 -_
$ 5.963,612 $ 1.016,066
Liabilities and Fund Balances
Liabilities
Accrued liabilities
Due to other governments
Advances from the City of Carlsbad
Deposits payable
Total liabilities
Fund Balances
Reserved for:
Loans receivable
Future loan
Encumbrances
Unreserved:
Designated for continuing appropriations
Undesignated
Total fund balances (deficit)
Total liabilities and fund balances
3,854 $
3,854
2,762,220
210,000
5,739
2,981,799
5.959,758
21.724
21,724
994,342
994,342
$ 5,963.612 $ 1.016,066
The notes to the financial statements are an integral part of this statement.
Debt
Service
$ 1,524,825 $
135,490
1,471
$ 1,661,786 $
Total
Capital Governmental
Projects Funds
930,122 $
9,651
939,773 $
6,634,815
172,712
11,490
2,762,220
9,581,237
$ - $
2,680
14,232,552
14,235,232
(12,573,446)
(12,573,446)
$ 1,661,786 $
33,410 $
6,276
39,686
233,203
666,884
900,087
939,773 $
37,264
2,680
14,232,552
28,000
14,300,496
2,762,220
210,000
238,942
666,884
(8,597,305)
(4,719,259)
9,581,237
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Carlsbad Redevelopment Agency
Reconciliation of Balance Sheet of Governmental Funds to the Statement of Net Assets
June 30,2006
Total fund balances (deficits)—Governmental Funds. $ (4,719,259)
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, not reported in the funds. 8,370,971
Interest payable on long-term debt does not require current financial resources; therefore, interest
payable is not reported as a liability in the funds. (211,755)
Long-term liabilities (other than advances from the City of Carlsbad) are not due and payable in the
current period and, therefore, not reported in the funds. (12,065,000)
Net assets (deficit) of governmental activities $ (8,625,043)
The notes to the financial statements are an integral part of this statement.
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Carlsbad Redevelopment Agency
Statement of Revenues, Expenditures and Changes in Fund Balances-
Governmental Funds
For the Year Ended June 30,2006
Special Revenue Funds
Low-Moderate
Income
Housing
Tyler Court
Apartments
Revenues:
Property tax increment
Charges for services
Income from property and investments
Contributions from property owners
Total revenues
Expenditures:
Current:
General government
Community development
Capital outlay
Debt service:
Principal retirement
Interest and fiscal charges
Total expenditures
Excess (deficiency) of revenues over (under) expenditures
Other financing sources (uses):
Transfers in
Transfers out
Transfer out to the City of Carlsbad
Total other financing sources (uses)
Net change in fund balances
Fund Balance (Deficit), beginning of year
Fund Balance (Deficit), end of year
$596,812 $
148,791
745,603
97,339
431,118
17,788
448,906
280,377
97,339
648,264
280,377
168,529
-
-
648,264
5,311,494
$ 5,959,758 $
168,529
825,813
994,342
The notes to the financial statements are an integral part of this statement.
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Debt
Service
$ 2,384,571 $
-
40,429
-
2,425,000
18,503
-
-
395,000
1,485,357
1,898,860
526,140
(1,000,000)
-
(1,000,000)
(473,860)
(12,099,586)
$ (12,573,446) $
Capital
Projects
.
21,675
90,993
20,000
132,668
569,654
232,199
.
-
801,853
(669,185)
1,000,000
-
(69,166)
930,834
261,649
638,438
900,087
Total
Governmental
Funds
$ 2,981,383
452,793
298,001
20,000
3,752,177
18,503
947,370
232,199
395,000
1,485,357
3,078,429
673,748
1,000,000
(1,000,000)
(69,166)
(69,166)
604,582
(5,323,841)
$ (4,719,259)
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Carlsbad Redevelopment Agency
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities
For the Year Ended June 30,2006
Net change in fund balances—total Governmental Funds. $ 604,582
Amounts reported for governmental activities in the Statement of Activities are different because:
Governmental Funds report capital outlays as expenditures. However, in the Statement of
Activities, the cost of those assets is allocated over their estimated useful lives and reported
as depreciation expense.
Purchase of capital assets 6,673
Depreciation expense (89,689)
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. 395,000
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. 6,913
Change in net assets of governmental activities $ 923,479
The notes to the financial statements are an integral part of this statement.
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Carlsbad Redevelopment Agency
Statement of Revenues, Expenditures and Changes in Fund Balance—Budget and Actual—
Low-Moderate Income Housing Funds
For the Year Ended June 30,2006
Budgeted Amounts
Revenues:
Taxes
Income from property and investments
Total revenues
Expenditures:
Community development
Total expenditures
Net change in fund balances
Fund balance at beginning of year
Fund balance at end of year
Original
$ 460,000 $
108,000
568,000
134,793
134,793
433,207
5,311,494
$ 5,744,701 $
Final
550,000
148,000
698,000
134,793
134,793
563,207
5,311,494
5,874,701
Variance with
Final Budget-
Actual Amounts Over
(Budgetary Basis)
$ 596,812 $
194,606
791,418
103,078
103,078
688,340 $
5,311,494
$ 5,999,834
(Under)
46,812
46,606
93,418
(31,715)
(31,715)
125,133
The notes to the financial statements are an integral part of this statement.
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Carlsbad Redevelopment Agency
Statement of Revenues, Expenditures and Changes in Fund Balance—Budget and Actual-
Low-Moderate Income Housing Funds (Continued)
For the Year Ended June 30,2006
Budget-to-GAAP Reconciliation
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.
Expenditures
Actual amounts (budgetary basis) "total charges to appropriations" from the budgetary
comparison schedule (previous page).
Differences—budget to GAAP:
Encumbrances are shown in the year encumbered for budgetary purposes, but in the
year paid for financial reporting purposes.
Actual Amounts
(Budgetary Basis)
Revenues
Actual amounts (budgetary basis) "available for appropriation" from the budgetary comparison
schedule (previous page).$ 791,418
(45,815)
$ 745,603
$ 103,078
(5,739)
97.339
The notes to the financial statements are an integral part of this statement.
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Carlsbad Redevelopment Agency
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
The Carlsbad Redevelopment Agency (the Agency) was established in July 1976 with the adoption of Ordinance
3 No. 1191 by the Carlsbad City Council pursuant to the California Community 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,
9 rehabilitate, develop, administer, and sell or lease property. The Agency is not subject to federal or state income
taxes.a
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.
'3 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 (i.e., 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
H 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
M have any business-type activities.
2 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,
imm 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.
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<•* 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 non-major funds as of June 30,2006.
a Measurement focus, basis of accounting and financial statement presentation: The Government-wide Financial
m 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
g 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
3 revenues in the year for which they are levied.
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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, as long as the expenditure reflects a near-term cash outflow.
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 12:01 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 funds are used to account for money administered by the
Agency for designated low- and moderate-income housing projects.
The Tyler Court Apartments special revenue fund is used to account for the operations of the affordable senior
citizen apartment project.
The Redevelopment Debt Service Funds are 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 and southern
coastal areas of the City.
The Capital Projects funds are used to account for capital projects and general operations of the Agency.
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.
18
. Carlsbad Redevelopment Agency
« Notes to Financial Statements
a Note 1. Summary of Significant Accounting Policies, Continueda
Cash and investments: Cash includes amounts in demand and time deposits. Investments are reported in the
3 accompanying balance sheet at fair value.
3 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
3 losses realized upon the liquidation, maturity or sale of investments; property rentals; and the sale of Agency-owned
property.
^, The Agency maintains its cash and investments for all funds 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.
**m
"** Capital assets: Capital assets, which include land, buildings and improvements, equipment, and construction in
"" progress, 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.
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.
DM
^ Depreciation is charged to the community development program, in the Statement of Activities, using the straight-line
H method based on the estimated useful life of an asset. The estimated useful lives of depreciable assets are 10-50
._ years for buildings and improvements.
mm
,„, 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.
*«w»
*•*• Long-term obligations: In the Government-wide Financial Statements, long-term debt and other long-term
— obligations are reported as liabilities in the Statement of Net Assets.
»M#
— 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 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.
H 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.
19
Carlsbad Redevelopment Agency
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies, Continued
Use of restricted/unrestricted 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 and/or 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.
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 follows the guidelines of the State of California Government Code.
20
Carlsbad Redevelopment Agency
Notes to Financial Statements
a
a
a
a
a
a
a
a
Note 3. Cash and Investments, Continued
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 gain/loss is recorded.
Citywide information concerning cash and investments for the year ended June 30, 2006, including authorized
investments, custodial credit risk, credit and interest rate risk for debt securities and concentration of investments,
carrying amount and market value of deposits and investments may be found in the notes to the City's
Comprehensive Annual Financial Report.
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 30,2006, there were four loans outstanding,
totaling $2,762,220, 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 acquired/developed.
a
a
a
Note 5. Capital Assets
Capital asset activity was as follows for the year ended June 30,2006:
Capital assets not being depreciated:
Land
Construction in progress
Total capital assets not
being depreciated
Capital assets being depreciated:
Buildings and improvements
Equipment
Total capital assets being
depreciated
Less accumulated depreciation for:
Buildings and improvements
Equipment
Total accumulated
depreciation
Total capital assets being
depreciated, net
Governmental activities
capital assets, net
Balance at
July 1,2005
$ 2,977,883
17,903
2,995,786
6,107,370
26,946
6,134,316
(675,666)
(449)
(676,115)
5,458,201
Increases
<Rq>
24,576
24,576
-
(86,994)
(2,695)
(89,689)
(89,689)
Balance at
Decreases June 30, 2006
$ - $ 2,977,883
(17,903) 24,576
(17,903) 3,002,459
6,107,370
26,946
6,134,316
(762,660)
(3,144)
(765,804)
5,368,512
$ 8,453,987 $ (65,113) $ (17.903) $ 8,370,971
21
Carlsbad Redevelopment Agency
Notes to Financial Statements
Note 5. Capital Assets, Continued
Depreciation expense of approximately $89,700 was charged to the Community Development Function/Program 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 30,2006:
Principal Principal Due
Balance at Balance at Within
June 30,2005 Additions Reductions June 30,2006 One Year
Governmental activities:
Bonds $ 12,460,000 $ - $ 395,000 $ 12,065,000 $ 420.000
Total governmental
activity $ 12.460.000 $ - $ 395,000 $ 12,065.000 $ 420.000
Long-term debt at June 30,2006 is comprised of the following:
1993 Carlsbad Housing and Redevelopment Commission Tax Allocation Bonds,
principal due in amounts ranging from $420,000 to $1,000,000 on September 1 of
each year through 2023. 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. Payable from redevelopment
property tax increment revenues.
Less current portion
The annual requirements, principal and
$
$
interest to amortize the outstanding debt as of June 30, 2006
12,065,000
420,000
11.645.000
are as follows:
Governmental Activities
Years Ending June 30,
2007
2008
2009
2010
2011
2012-2016
2017-2021
2022-2024
Principal
$ 420,000 $
440,000
465,000
490,000
515,000
3,005,000
3,880,000
2,850,000
$ 12,065,000 $
Interest
624,240
601,665
577,909
552,840
526,459
2,186,570
1,286,898
231,875
6,588,456
22
Carlsbad Redevelopment Agency
Notes to Financial Statements
Note 6. Long-term Debt, ContinuedaThe Tax Reform Act instituted certain arbitrage restrictions with respect to the issuance of tax-exempt bonds.
9 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
3 applicable rebates are not paid to the federal government at least every five years.
3 The Agency does not have investment earnings on various bonds and financings; therefore, no arbitrage rebate
_ liability exists as of June 30,2006.a
** Note 7. Advances from the City of Carlsbad
a 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 nom stated maturity date. The outstanding balance at June 30,2006 is $14,232,552.
3
3 Note 8. Fund Balances
^ Reserves for the loans receivable and future Low-Moderate Income Housing loans are established to show that
certain assets are already committed for other purposes and are not available for discretionary expenditures.
*mi*
tm»
Reserve for encumbrances represents commitments related to unperformed contracts for services and undelivered
,« goods.
H Unreserved-undesignated balances represent the fund balance remaining after the reduction for reserved and
^ designated fund balances.
*•
'<*»** Note 9. Risk Management
*" The Agency is exposed to various risks of loss related to its operations, including but not limited to, losses associated
—» with injuries to members of the public and property damage. The Agency, through the City, is self-insured, with
** excess coverage for liability purposes, and carries property insurance as well through the City. Since the Agency
•m 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,
2 nor did the City have any settlements that were in excess of insurance coverage in any of the three preceding years.
't&Note 10. Commitments and Contingencies"••«•Operating lease: In June 1988, the Agency entered into an agreement to lease a parking lot on State Street from a
3 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
U upon market rental values, through August 2007. Current fiscal year lease payments totaled $88,720.
23
Carlsbad Redevelopment Agency
Notes to Financial Statements
Note 10. Commitments and Contingencies, Continued
Minimum future rental payments under operating lease as of June 30,2006 are as follows:
Years ending June 30, Amount
2007 $ 94,044
2008 15,674
Total minimum future rental payments $ 109,718
c
24
a*
1
a
a
i
a
a
a
a
a
a
Supplementary Information
a
a
a
a
*•—
a
a
Carlsbad Redevelopment Agency
Combining Schedule of Revenues and Expenditures—Budget and Actual (Budgetary Basis)—
Debt Service Funds
Year Ended June 30,2006
Actual
Amounts
(Budgetary
Budget Basis)
Variance
Favorable
(Unfavorable)
Redevelopment areas:
Total revenues
Total expenditures
Net change in fund balance
2,265,000
1,914,976
2,461,851
1,898,860
196,851
16.116
350.024 $562,991 $212,967
a
i
a
a
a
25
Carlsbad Redevelopment Agency
Computation of Low-Moderate Income Housing Excess/Surplus Funds
Year Ended June 30,2006
Project Area I
Village
Fund Balance—Beginning of Year
Less unavailable funds—included in beginning fund balance:
Rehabilitation loans
Future loan
Encumbrances
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
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 2001-02
Fiscal year 2002-03
Fiscal year 2003-04
Fiscal year 2004-05
Total set-aside deposited into fund
Excess/Surplus Funds
Greater of available fund balance for excess/surplus 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
$ 4,920,400
2,091,284
1,151,516
2,286
3,245,086
1,675,314
733,849
(67,190)
272.866
2,614,839
(1,565)
$ 2.613,274
$ 2,613,274
372,475
398,628
433,639
460,046
1,664,788
$
$
$
948,486
5,587,059
2,613,274
2,762,220
210,000
1,565
$ 5,587,059
26
Carlsbad Redevelopment Agency
Computation of Low-Moderate Income Housing Excess/Surplus Funds, Continued
Year Ended June 30,2006
aft Project Area 11
South Carlsbad
a
a
a
i
a
Fund Balance—Beginning of Year
Less unavailable funds, included in beginning fund balance:
Encumbrances
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
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 2001-02
Fiscal year 2002-03
Fiscal year 2003-04
Fiscal year 2004-05
Total set-aside deposited into fund
Excess/Surplus Funds
Greater of available fund balance for excess/surplus 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
Encumbrances
Ending fund balance
$391,094
2,193
2,193
388,901
11,754
(30,149)
2,193
372,699
(4,174)
368,525
125,145
43,652
237,424
53,776
459,997
372,699
368,525
4,174
372,699
27
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McGladrey&Pullen
Certified Public Accountants
2 Independent Auditor's Report on Internal Control over Financial Reporting
and on Compliance and other Matters Based on an Audit of Financial Statements
3 Performed in Accordance with Government Auditing Standards
3 To the Board of Commissioners
:3
a
Carlsbad Redevelopment Agency
3 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 30,2006, which collectively comprise the Agency's basic financial statements, and have issued our
report thereon dated October 5,2006. 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, management of the Agency and the State
Controllers' Office, Division of Accounting and Reporting, and is not intended to be, and should not be, used by
anyone other than those specified parties.
Riverside, California
October 5,2006
McGladrey & Pullen, LLP is a member firm of RSM International,
an affiliation of separate and independent legal entities.
28