HomeMy WebLinkAboutOutstanding Loan Balance for Restated and Amended Loan AgreementsOVERSIGHT BOARD MEMORANDUM
DATE: February 27, 2014
TO: CHAIR AND MEMBERS OF THE OVERSIGHT BOARD
FROM: GILBERT A. LIVAS, Executive Director, Downey Successor Agency
SUBJECT: OUTSTANDING LOAN BALANCE FOR THE RESTATED AND
AMENDED LOAN AGREEMENTS
RECOMMENDATION
That the Oversight Board receive and file this report.
BACKGROUND I DISCUSSION
At the Oversight Board meeting of September 19, 2013, Board members
requested additional documentation with respect to the agenda item on the
Restated and Amended Operative Agreements. Attached you will find a copy of
an audit report dated February 14, 2014, from White Nelson Diehl Evans, LLP.
The audit was conducted for fiscal year ending June 30, 2013. The audit reports
a liability of $11,546,570, payable to the City of Downey for loan advances to the
former Downey redevelopment agency. This liability is listed in the "Statement of
Fiduciary Net Assets" (page 4) and further itemized under Note No. 3 on page
12.
The item presented to the Oversight Board, at its September 19,2013, did not
reflect the total liability of $11,546,570. The report presented to the Board
underreported the liability by $300,000. This discrepancy will be presented to
the Oversight Board at a future meeting as an amendment.
Attachment: "A" -Financial Audit Fiscal Year Ending June 30, 2013
SUCCESSOR AGENCY TO THE
DOWNEYREDEVELOPMENTAGENCY
(A PRIVATE-PURPOSE TRUST FUND OF
THE CITY OF DOWNEY, CALIFORNIA)
WITH REPORT ON AUDIT
BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
JUNE 30,2013
Attachment "A"
SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
TABLE OF CONTENTS
June 30,2013
Independent Auditors' Report
Basic Financial Statements:
Statement of Fiduciary Net Position
Statement of Changes in Fiduciary Net Position
Notes to Basic Financial Statements
Independent Auditors' 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
Page
Number
I -3
4
5
6-16
17-18
BASIC FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Oversight Board of the Successor Agency
to the Downey Redevelopment Agency
Downey, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Successor Agency to the Downey
Redevelopment Agency (Successor Agency) as of June 30,2013 and for the year ended, and the related
notes to the basic financial statements, which collectively comprise the Successor Agency's basic
financial statement as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these basic financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States of
America, 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 from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the basic financial statements. The procedures selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the Successor
Agency's preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Successor Agency's internal control. Accordingly, we express no such
opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
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2875 Michelle Dri\·e, Suite 300, Irvine, C\ !)2606 • Td: 714.978.1300 • Fax: 714.978.7893
q(fice.r located in Ormzge and S'an Die~go Countie.r
Auditors' Responsibility (Continued)
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the basic financial statements referred to above present fairly, in all material respects,
the financial position of the Successor Agency as of June 30, 2013 and the changes in financial
position thereof for the year then ended in accordance with accounting principles generally accepted in
the United States of America.
Emphasis of Matters
As discussed in Note 1 a, the financial statements present only the Successor Agency and do not
purport to, and do not fairly present, the financial position of the City of Downey, California as of
June 30, 2013 and the changes in financial position for the year then ended in accordance with
accounting principles generally accepted in the United States of America. Our opinion is not modified
with respect to this matter.
As discussed in Note 1d to the basic financial statements, the Successor Agency incorporated deferred
outflows of resources and deferred inflows of resources into the definitions of the required components
of the residual measure of net position due to the adoption of Governmental Accounting Standards
Board's Statement No. 63, "Financial Reporting of Deferred Outflows of Resources, Deferred Inflows
of Resources, and Net Position". The adoption of this standard also provides a new statement of net
position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of
resources, and net position. Our opinion is not modified with respect to this matter.
As discussed in Notes 1 d to the basic financial statements, the Successor Agency has changed its
method for accounting and reporting certain items previously reported as assets or liabilities during
fiscal year 2012-2013 due to the early adoption of Governmental Accounting Standards Board's
Statement No. 65, ''Items Previously Reported as Assets and Liabilities". Our opinion is not modified
with respect to this matter.
Other Matters
Required Supplementary Information
Management has not presented the management's discussion and analysis that governmental
accounting principles generally accepted in the United States of America require to be presented to
supplement the basic financial statements. Such missing information, although not a part of the basic
financial statements, is required by the Governmental Accounting Standards Board, who considers it to
be an essential part of financial reporting for placing the basic financial statements in an appropriate
operational, economic, or historical context. Our opinion on the basic financial statements is not
affected by this missing information.
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Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
February 13, 2014, on our consideration of the Successor Agency's internal control over financial
reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and
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 internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards in considering
the Successor Agency's internal control over financial reporting and compliance.
Irvine, California
February 13, 2014
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
STATEMENT OF FIDUCIARY NET POSITION
June 30,2013
ASSETS:
Cash and investments held by City of Downey (Note 2)
Cash and investments with fiscal agent (Note 2)
Accounts receivable
Land held for development
TOTAL ASSETS
LIABILITIES:
Accounts payable
Interest payable
Deposits payable
Advance payable to the City of Downey (Note 3)
Long-term liabilities (Note 4):
Due within one year
Due in more than one year
TOTAL LIABILITIES
NET POSITION:
Net deficit restricted for private purpose
See independent auditors' report and notes to basic financial statements.
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$ 1.779,289
662,708
13,612
2,858,295
5,313,904
6,625
146,952
2,500
11,546,570
290,000
27,369,866
39,362,513
$ (34,048,609)
SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
STATEMENT OF CHANGES IN FIDUCIARY NET POSITION
ADDITIONS:
Taxes
Other revenue
TOTAL ADDITIONS
DEDUCTIONS:
Program expenses
Payment to County
For the year ended June 30, 2013
Interest and fiscal agent expenses
TOTAL DEDUCTIONS
CHANGE IN NET POSITION
NET POSITION AT BEGINNING OF YEAR
NET POSITION AT END OF YEAR
See independent auditors' report and notes to basic financial statements.
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$ 625,149
19,463
644,612
2,971,478
134,035
1,712,735
4,818,248
( 4, 173,636)
(29,874,973)
$ (34,048,609)
NOTES TO BASIC FINANCIAL STATEMENTS
SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
June 30, 2013
1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES:
a. Reporting Entity:
The Downey Redevelopment Agency (the "Former RDA ") was established in January 1976
pursuant to the State of California Health and Safety Code, Section 3300 entitled "Community
Redevelopment Law". The Former RDA's initial project area consisted of four sub-areas.
Two are located in the central downtown area, one in the eastern portion of the City, and one in
the southern portion of the City. The objectives of the redevelopment project are the
elimination and prevention of blight, the improvement and/or construction of public facilities,
roads and other public improvements, and the attraction and facilitation of new developments
within the project area for purposes of increasing the City's residential, commercial and
industrial resources. On December 29, 2011, the California Supreme Court upheld Assembly
Bill 1 X 26 that provided for the dissolution of all redevelopment agencies in the State of
California as of February I, 2012, at which time the City of Downey took over as the Successor
Agency.
The assets and liabilities of the Former RDA (excluding Low and Moderate Income Housing
Fund assets) were transferred to the Successor Agency on February 1, 2012 as a result of the
dissolution of the Former RDA. The Successor Agency acts in a fiduciary capacity to wind
down the affairs of the Former RDA which includes disposing of the assets and liabilities and
its activities are reported in a fiduciary private purpose trust fund. (See Note 5 for additional
information).
The financial statements present only the Successor Agency and do not purport to, and do not
fairly present, the financial position of the City of Downey, California as of June 30, 2013 and
the changes in financial position for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
b. Basis of Presentation:
Fiduciary Fund:
Private-Purpose Trust Fund -This fund is used to account for the assets, deferred outflows of
resources, liabilities, deferred inflows of resources, additions and deductions made on behalf of
the Former RDA.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
June 30, 2013
1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
c. Measurement Focus and Basis of Accounting:
Measurement Focus
Measurement focus is a term used to describe which transactions are recorded within the
various financial statements.
The financial statements are presented using the economic resources measurement focus.
Under the economic measurement focus. all (both current and long-term) economic resources
are reported in the financial statements.
Basis of Accounting
Basis of accounting refers to when revenues and expenses are recognized in the accounts and
reported in the financial statements.
The financial statements are presented using the accrual basis of accounting. Under the accrual
basis of accounting, revenues are recorded when earned and expenses are recorded at the time
liabilities are incurred, regardless of when the related cash flows take place. Nonexchange
transactions, in which the Successor Agency gives (or receives) value without directly
receiving (or giving) equal value in exchange, include property taxes. On an accrual basis,
revenue from property taxes is recognized in the fiscal year for which the taxes are levied.
d. New Accounting Pronouncements:
Implemented
In fiscal year 2012-2013, the Successor Agency implemented Governmental Accounting
Standards Board (GASB) Statement No. 63, "Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position". This statement incorporates
deferred outflows of resources and deferred inflows of resources, as defined by GASB
Concepts Statement No. 4, '"Elements of Financial Statements" into the definitions of the
required components of the residual measure of net position, formerly net assets. This
statement also provides a new Statement of Net Position format to report all assets, deferred
outflows of resources, liabilities, deferred inflows of resources, and net position.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
d. New Accounting Pronouncements (Continued):
Implemented (Continued)
In fiscal year 2012-2013, the Successor Agency early implemented GASB Statement No. 65,
"Items Previously Reported as Assets and Liabilities". This statement established accounting
and financial reporting standards that reclassify, as deferred outflows of resources or deferred
inflows of resources, certain items that were previously reported as assets and liabilities.
Accounting changes adopted to conform to the provisions of this statement should be applied
retroactively. The implementation of this statement did not result in any reclassification of
assets or liabilities due to deferred outflows of resources or deferred inflows of resources.
Pending Accounting Standards
GASB has issued the following statements which may impact the Successor Agency's financial
reporting requirements in the future:
• GASB 66 -"Technical Corrections, an amendment of GASB Statement No. 10 and
Statement No. 62 ", effective for periods beginning after December 15, 2012.
• GASB 67 -"Financial Reporting for Pension Plans, an amendment of GASB Statement
No. 25", effective for the fiscal years beginning after June 15,2013.
• GASB 68 -"Accounting and Financial Reporting for Pensions, an amendment of GASB
Statement No. 27", effective for the fiscal years beginning after June 15, 2014.
• GASB 69 -''Government Combinations and Disposals of Government Operations",
effective for periods beginning after December 15, 2013.
• GASB 70-"Accounting and Financial Reporting for Nonexchange Financial Guarantees",
effective for the periods beginning after June 15,2013.
e. Deferred Outflows/Inflows of Resources:
In addition to assets, the statement of net position will sometimes report a separate section for
deferred outflows of resources. This separate financial statement element, deferred outflows of
resources, represents a consumption of net position that applies to a future period(s) and so will
not be recognized as an outflow of resources (expense/expenditure) until then. The Successor
Agency does not have deferred outflows of resources.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
e. Deferred Outflows/Inflows of Resources (Continued):
In addition to liabilities, the statement of net position will sometimes report a separate section
for deferred inflows of resources. This separate financial statement element, deferred inflows
of resources, represents an acquisition of net position that applies to a future period(s) and will
not be recognized as an inflow of resources (revenue) until that time. The Successor Agency
does not have deferred inflows of resources.
f. Investments:
Investments are reported at fair value, except for investment contract, which is reported at cost,
because its fair value is not affected by changes in interest rates.
g. Land Held for Development:
Land held for development is valued at the lesser of cost, net realizable value or contracted
sales price.
h. Property Tax Calendar:
Property taxes are assessed and collected each fiscal year according to the following property
tax calendar:
Lien Date
Levy Date
Due Date
Delinquent Date
January 1
July 1 to June 30
November 1 -1st Installment
March 1 -2nd Installment
December 1 0 -1st Installment
April 10-2nd Installment
Under California law, property taxes are assessed and collected by the counties up to 1% of
assessed value, plus other increases approved by the voters. The property taxes go into a pool,
and are then allocated to the agencies based on complex formulas prescribed by state statutes.
The Successor Agency will be allocated its share of property taxes based on its need to pay for
enforceable obligations as defined in AB 1 x26 as modified by AB 1484.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30,2013
1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
1. Estimates:
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
2. CASH AND INVESTMENTS:
The Successor Agency's cash and investments are presented on the accompanying statement of net
position as follows:
Pooled with City of Downey $ 1,779,289
Cash and investments with fiscal agent 662,708
Total Cash and Investments $ 2.441.997
Equity in Cash and Investments Pool ofthe City of Downey
A portion of the Successor Agency's cash and investments are maintained in an investment pool
managed by the City of Downey. The Successor Agency is a voluntary participant in that pool.
This pool is governed by and under the regulatory oversight of the Investment Policy adopted by
the City Council of the City of Downey. The Successor Agency has not adopted an investment
policy separate from that of the City of Downey. The fair value of the Successor Agency's
investment in this pool is reported in the accompanying financial statements at amounts based upon
the Successor Agency's pro-rata share of the fair value calculated by the City for the entire City
portfolio. The balance available for withdrawal is based on the accounting records maintained by
the City, which are recorded on an original cost basis.
At June 30,2013 the City was holding $1,779,289 in cash and investments on deposit for the
Successor Agency which is reflected in the City's Comprehensive Annual Financial Report. The
monies on deposit with the City of Downey are not categorized.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
2. CASH AND INVESTMENTS (CONTINUED):
Cash and Investments with Fiscal Agent
Under terms of the various bond indentures, generally, the Bond Trustee is allowed to deposit funds
in federally-insured certificates of deposits or investments authorized for governmental entities
which include mutual funds under Section 53601 of the California Government Code. At
June 30, 2013, cash with fiscal agent consist of $19,458 of money market mutual funds and
$643,250 of investment contract.
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value
of an investment. Generally, the longer the maturity of an investment is, the greater the sensitivity
of its fair value to changes in market interest rates. One of the ways that the City of Downey
manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer
term investments and by timing cash flows from maturities so that a portion of the portfolio is
maturing or coming close to maturity evenly over time as necessary to provide the cash flow.
At June 20, 2013, the Successor Agency's cash with fiscal agent held in money market mutual
funds in the amount of $19,45 8 was available on demand and in investment contract in the amount
of $643,250 was due in more than five years.
Information about the Successor Agency's exposure to interest rate risk as a result of its equity in
the cash and investment pool of the City of Downey in the amount of $1,779,289 is provided by
disclosures in the notes to the basic financial statements of the City of Downey that shows the
distribution of the City's investments by maturity.
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the
holder of the investment. This is measured by the assignment of a rating by a nationally recognized
statistical rating organization. The minimum ratings required by (where applicable) the California
Government Code and the City of Downey's Investment Policy and the actual ratings as of
year-end for the investment pool of the City of Downey is provided by disclosures in the notes to
the basic financial statements of the City of Downey. The Successor Agency's cash with fiscal
agent investment in money market mutual funds of $19,458 was rated AAA by Standards and
Poor. The Successor Agency's cash with fiscal agent investment in investment contract of
$643,250 was unrated.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
2. CASH AND INVESTMENTS (CONTINUED):
Concentration of Credit Risk
Investments in any one issuer (other than U.S. Treasury securities, mutual funds and investment
pools) that represent 5% or more of total investments for the entire entity (or for each separate
major fund or for other governmental funds in the aggregate) are disclosed in the notes to the basic
financial statements of the City of Downey.
Custodial Credit Risk
The Successor Agency does not have any significant certificates of deposit or demand accounts
that are subject to custodial credit risk disclosure (as defined by GASB Statement No. 40). The
Successor Agency does not have direct investments in securities subject to custodial credit risk
disclosure (as defined by GASB Statement No. 40).
3. ADVANCE PAYABLE TO THE CITY OF DOWNEY:
As of June 30,2013, amounts advanced to the Successor Agency were as follows:
Outstanding
Agreement Agreement Original Balance at
Number Date Pu ose Amount June 30, 2013
25 02/10/98 Capital Projects Costs $ 2,650.000 $ 1,600.000
26 07/13/99 Capital Projects Costs 2,200.000 2,200.000
27 06/27/00 Administrative Costs 250.000 150.000
31 09/23/03 Administrative Costs 200.000 200.000
33 0 I /25/05 Administrative Costs 200.000 200.000
35 0 Ill 0/06 Administrative Costs 200.000 200.000
38 01/23/07 Administrative Costs 150.000 150.000
MSTAGMT 0 I /0 I /08 Administrative Costs I, 100.000 1,100.000
MSTAGMT 01/01/08 Administrative Costs 150.000 150.000
MSTAGMT 03/25/08 P/W Agreement-Lakewood Phase 1-D 646,570 646.570
MSTAGMT 01/01/09 Administrative Costs 1,500,000 1,500.000
MSTAGMT 01/01/09 Administrative Costs 150.000 150.000
MSTAGMT 06/30110 Administrative Costs 1,000.000 1,000.000
MSTAGMT 06/30/10 Administrative Costs 500.000 500.000
MSTAGMT 06/30/11 Administrative Costs 1,000.000 1,000.000
MSTAGMT 06/30/11 Administrative Costs 800 000 800 000
$ 12 696 570 $ 11 546 570
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
4. LONG-TERM LIABILITIES:
Long-term liability activity for the year ended June 30, 2013 was as follows:
Balance Balance
June 30. June 30.
2012 Additions Reductions 2013
Bond payable $ 7,165.000 $ -$ (275.000) $ 6,890.000 $
Advances from County 19 411 090 I 358 776 20,769,866
Total long-term liabilities $ 26 576 090 $ I 358 776 $ 1275 000) $ 27 659 866 $
1997 Tax Allocation Bonds Payable
Due Due In
Within More Than
One Year One Year
290.000 $ 6.600,000
20,769,866
290 000 $ 27 369 866
In 1997 the Downey Redevelopment Agency issued $9,925,000 in Tax Allocation Bonds, partially
to advance refund the existing 1990 Tax Allocation bond issue, which had a balance outstanding of
$4,470,000, and to repay the City for advances of $3,970,508 plus interest. The bonds have an
average interest rate of 5.1 %. U.S. Bank serves as trustee for payment of principal and interest.
The balance outstanding at June 30, 2013 is $6,890,000
The future debt service requirements on these bonds are as follows:
Year Ending
June 30, PrinciQal Interest Total
2014 $ 290,000 $ 345,681 $ 635,681
2015 305,000 330,435 635,435
2016 320,000 314,420 634,420
2017 335,000 297,634 632,634
2018 350,000 280,081 630,081
2019-2023 2,050,000 1,103,156 3,153,156
2024-2028 2,630,000 506,607 3,136,607
2029 610 000 15 631 625,631
Total $ 6.890.000 $ 3.193.645 $ I 0.083.645
Advances from Coun!J:
As part of the City's redevelopment program, the City and County of Los Angeles have entered
into a tax increment pass-through deferral agreement. This agreement specifies that the City will
defer the payment of all current tax increment pass-through due to the County, until some future
date, when certain conditions are met. Until that time, the County will charge 7% interest on the
outstanding deferral amount. During the year, there was no pass-through agreement amounts owed
to the County that were deferred. Interest of $1,358,776 was accrued during the year on the
outstanding deferral amount still owing. The amount owed the County, including accrued interest,
at June 30,2013 was $20,769,866.
See independent auditors' report.
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..
SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
5. COMMITMENTS AND CONTINGENCIES:
Recent Changes in Legislation Affecting California Redevelopment Agencies
On June 29,2011, Assembly Bills 1x 26 (the "Dissolution Act") and 1x 27 were enacted as part of
the fiscal year 2011-12 state budget package.
On June 27, 2012, as part of the fiscal year 2012-13 state budget package, the Legislature passed
and the Governor signed AB 1484, which made technical and substantive amendments to the
Dissolution Act based on experience to-date at the state and local level in implementing the
Dissolution Act.
Under the Dissolution Act, each California redevelopment agency (each a "Dissolved RDA") was
dissolved as of February 1, 2012, and the sponsoring community that formed the Dissolved RDA,
together with other designated entities, have initiated the process under the Dissolution Act to
unwind the affairs of the Dissolved RDA. A Successor Agency was created for each Dissolved
RDA which is the sponsoring community of the Dissolved RDA unless it elected not to serve as
the Successor Agency. On January 10, 2012. the City elected to serve as the Successor Agency of
the Community Development Commission of City of Downey.
The Dissolution Act also created oversight boards which monitor the activities of the successor
agencies. The roles of the successor agencies and oversight boards is to administer the wind down
of each Dissolved RDA which includes making payments due on enforceable obligations,
disposing of the assets (other than housing assets) and remitting the unencumbered balances of the
Dissolved RDAs to the County Auditor-Controller for distribution to the affected taxing entities.
The Dissolution Act allowed the sponsoring community that formed the Dissolved RDA to elect to
assume the housing functions and take over the certain housing assets of the Dissolved RDA. If the
sponsoring community does not elect to become the Successor Housing Agency and assume the
Dissolved RDA's housing functions, such housing functions and all related housing assets will be
transferred to the local housing authority in the jurisdiction. AB 1484 modified and provided some
clarifications on the treatment of housing assets under the Dissolution Act. The Downey Housing
Authority elected on January 10, 2012 to serve as the Housing Successor Agency.
After the date of dissolution, the housing assets, obligations, and activities of the Dissolved RDA
have been transferred and are reported in the Housing Authority Special Revenue Fund in the
financial statements of the City. All other assets, obligations, and activities of the Dissolved RDA
have been transferred and are reported in a fiduciary fund (private-purpose trust fund) in the
financial statements of the City.
See independent auditors' report.
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
5. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Recent Changes in Legislation Affecting California Redevelopment Agencies (Continued)
The Dissolution Act and AB 1484 also establish roles for the County Auditor-Controller (the
"CAC), the California Department of Finance (the "DOF") and the California State Controller's
office in the dissolution process and the satisfaction of enforceable obligations of the Dissolved
RDAs.
The County Auditor-Controller is charged with establishing a Redevelopment Property Tax Trust
Fund (the "RPTTF") for each Successor Agency and depositing into the RPTTF for each six-month
period the amount of property taxes that would have been redevelopment property tax increment
had the Dissolved RDA not been dissolved. The deposit in the RPTTF fund is to be used to pay to
the Successor Agency the amounts due on the Successor Agency's enforceable obligations for the
upcoming six-month period.
The Successor Agency is required to prepare a recognized obligation payment schedule (the
"ROPS") approved by the oversight board setting forth the amounts due for each enforceable
obligation during each six month period. The ROPS is submitted to the DOF for approval. The
County Auditor-Controller will make payments to the Successor Agency from the RPTTF fund
based on the ROPS amount approved by the DOF. The ROPS is prepared in advance for the
enforceable obligations due over the next six months.
The process of making RPTTF deposits to be used to pay enforceable obligations of the Dissolved
RDA will continue until all enforceable obligations have been paid in full and all non-housing
assets of the Dissolved RDA have been liquidated.
As part of the dissolution process AB 1484 required the Successor Agency to have due diligence
reviews of both the low and moderate income housing funds and all other funds to be completed by
October 15, 2012 and January 15, 2013 to compute the funds (cash) which were not needed by the
Successor Agency to be retained to pay for existing enforceable obligations. These funds were to
be remitted to the CAC after the DOF completed its review of the due diligence reviews. The
Successor Agency made payments totaling $134,035 to the CAC as a result of the due diligence
reviews.
The DOF issued a Finding of Completion on May 15, 2013 in which DOF concurred that the
Successor Agency has made full payments of any payments required as a result of the due
diligence reviews.
See independent auditors' report.
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INDEPENDENT AUDITORS' 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
Oversight Board of the Successor Agency
to the Downey Redevelopment Agency
Downey, California
We have audited, in accordance with the 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, the financial statements of the Successor
Agency to the Downey Redevelopment Agency (the Successor Agency) as of and for the year ended
June 30, 2013, and the related notes to the financial statements, which collectively comprise the
Successor Agency's basic financial statements, and have issued our report thereon dated
February 13, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Successor
Agency's internal control over financial reporting (internal control) to determine the audit procedures
that are appropriate in the circumstances for the purpose of expressing our opinion on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the Successor
Agency's internal control. Accordingly, we do not express an opinion on the effectiveness of the
Successor Agency's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a
material misstatement of the Successor Agency's financial statements will not be prevented, or
detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough to
merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify
any deficiencies in internal control that we consider to be material weaknesses. However, material
weaknesses may exist that have not been identified.
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2875 :tvlichcllc Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
q{fire.r /o,ctted in On11~~e and Jan OieJ;o Cou11tieJ
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Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Successor Agency's financial statements
are free from 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.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
Successor Agency's internal control or on compliance. This report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the Successor Agency's
internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Irvine, California
February 13,2014
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SUCCESSOR AGENCY TO THE DOWNEY REDEVELOPMENT AGENCY
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED)
June 30, 2013
5. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Recent Changes in Legislation Affecting California Redevelopment Agencies (Continued)
The State Controller of the State of California has been directed to review the propriety of any
transfers of assets between Dissolved RDA and other public bodies that occurred after
January 1, 2011. If the public body that received such transfers is not contractually committed to a
third party for the expenditure or encumbrance of those assets, the State Controller is required to
order the available assets to be transferred to the public body designated as the successor agency.
Management believes, in consultation with legal counsel, that the obligations of the Dissolved
RDA due to the City are valid enforceable obligations payable by the Successor Agency under the
requirements of the Dissolution Act and AB 1484. The City's position on this issue is not a
position of settled law and there is considerable legal uncertainty regarding this issue. It is
reasonably possible that a legal determination may be made at a later date by an appropriate
judicial authority that would resolve this issue unfavorably to the City.
6. SUBSEQUENT EVENT:
In preparing these financial statements, the Successor Agency has evaluated events and
transactions for potential recognition or disclosure through February 13, 2014, the date the
financial statements were available to be issued.
See independent auditors' report.
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