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SR-413-001 (26) THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Basic Financial Statements and Supplemental Data Year Ended June 30, 2003 (With Independent Auditors' Report Thereon) THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA BASIC FINANCIAL STATElVIENTS AND SUPPLEMENTAL DATA YEAR ENDED JUNE 30, 2003 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditors' Report............. .... ...... ............... .......................... ..... ..... ............ ............... 1 Management's Discussion and Analysis (Required Supplementary Information)...................... 3 Basic Financial Statements: Agency-wide Financial Statements: Statement of Net Assets .... .............. ...... .... ...... .... ......... .................... ........ ....... .... ........... 10 Statement of Activities ... ...... ..... .......... ........ ....... .............................. ....... ........ ........ ....... 11 Fund Financial Statements: Balance Sheet - Governmental Funds ......... ................. .................. ....... ......... ......... ....... 12 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets.................................................................. ..... 13 Statements of Revenues, Expenditures, and Changes in Fund Balances- Governmental Funds...... ........... ................ .......... ................. ................ ...... ............ .... 14 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities. . . . . . . . . . .. . . . . . . . . .. . .. . . . . . . . .. . .. . .... 15 Notes to Basic Financial Statements..................................................................................... 16 Supplemental Schedules: Schedules of Revenues, Expenditures, and Changes in Fund Balances (Deficits)- Budget and Actual: Downtown Redevelopment Low/Mod Housing Capital Projects Fund.......... ...... 30 Earthquake Recovery Redevelopment Low/Mod Housing Capital Projects Fund... 31 Ocean Park Redevelopment Low/Mod Housing Capital Projects Fund............... 32 Downtown Redevelopment Capital Projects Fund.... .......... ..... .................... 33 Earthquake Recovery Redevelopment Capital Projects Fund............. .............. 34 Ocean Park Redeyelopment Capital Projects Fund....... .... ............................ 35 COMPLIANCE SECTION Independent Auditor's Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ............ ................... ... ...................... ................. .......... ....... 36 CONRAD AND ASSOCIATES, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS 2301 DUPONT DRIVE, SUITE 200 IRVINE, CALIFORNIA 92612 (949) 474-2020 Fax (949) 263-5520 Board of Directors Redevelopment Agency of the City of Santa Monica, California Independent Auditors' Report We have audited the accompanying basic financial statements of the governmental activities and each major fund of the Redevelopment Agency of the City of Santa Monica, California (the Agency), a component unit ofthe City of Santa Monica, California, as of and for the year ended June 30, 2003, which collectively comprise the Agency's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the management of the Agency. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. . In our opinion, the basic 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 Redevelopment Agency of the City of Santa Monica, California as of June 30, 2003, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. The information identified in the accompanying table of contents as Management's Discussion and Analysis is not a required p.art of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Redevelopment Agency of the City of Santa Monica's basic financial statements. The supplementary schedules as listed in the table of contents 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. 1 MEMBERS OF AICPA AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION Board of Directors Redevelopment Agency ofthe City of Santa Monica, California Page Two ' In accordance with Government Auditing Standards, we have also issued a report dated October 16, 2003 on our consideration of the Redevelopment Agency of the City of Santa Monica's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. tE>>? r d cI /V7 / /1-5 $ tn"'J /1 't'ii;, / L - L . ~ . October 16, 2003 2 Management's Discussion and Analysis As management of the Redevelopment Agency of the City of Santa Monica, (the "Agency"), we offer readers of the Agency's report this narrative overview and analysis of the financial activities of the Agency for the fiscal year ended June 30, 2003. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in the Agency's basic financial statements, which immediately follow this section. Financial Highlights The assets of the Agency exceeded its liabilities at the close of fiscal year June 30, 2003 by $19,414,613 (net assets). The Agency's net assets increased by $21,537,335 in fiscal year 2002-03 due to increased tax increment revenues and decreased project expenditures. As of the close of fiscal year June 30, 2003, the Agency's governmental funds reported combined ending fund balances of $24,120,486, an increase of $12,885,927 from the prior year due to increased tax increment revenues and decreased project expenditures. The Agency's total debt decreased by $960,000 during the current fiscal year as shown in note 3 of the notes to the basic financial statements. Overview of the Basic Financial Statements This discussion and analysis is intended to serve as an introduction to the Santa Monica Redevelopment Agency's basic financial statements. The Agency;s basic [mancial statements consist of three components: 1) agency-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. In addition to the basic financial statements, also included in this financial report is supplementary information relating to the Agency's budgets. Agency- Wide Financial Statements The agency-wide financial statements are designed to provide readers with a broad overview of the Agency's finances. These statements include all assets and liabilities, using the full accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the fiscal year's revenues and expenses are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus assets, liabilities and expenses are reported in these statements for some items that will result in cash flows in future fiscal periods. 3 The statement of net assets presents all of the Agency's assets and liabilities, with the difference reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator to determine whether the financial position of the Agency is improving or deteriorating. The statement of activities presents information showing the Agency's revenues and expenses for the fiscal year. Functional activities are highlighted in this statement, whereby direct and indirect functional costs are shown net of related program revenue. This statement shows the extent to which the various functions depend on general taxes and non-program revenues for support. Both of the agency-wide financial statements highlight functions of the Agency that are principally supported by property tax increment and bond proceeds. The governmental activities of the Agency include redevelopment activities and interest on long-term debt. Redevelopment activities, in general, include providing needed public improvements, assisting with development and rehabilitation of existing properties, and providing low and moderate-income housing to eliminate or alleviate blighting conditions. The agency-wide financial statements can be found on pages 10 and 11 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Agency uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The Agency only has governmental fund types. Governmental funds - Government funds are used to account for essentially the same functions reported as governmental activities in the agency-wide financial statements. However, unlike the agency-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources as well as on balances of spendable resources available at the end of the fi~cal year. Such information may be useful in evaluating the agency's near-term financing requirements. Because the focus of governmental funds is narrower than that of the agency-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the agency-wide financial statements. By doing so, readers may better understand the long-term impact of the agency'~ near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to the agency-wide financial statements on pages 13 and 15 to facilitate this comparison between governmental funds and governmental activities. The Agency maintains seven individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances, for each of these funds. The governmental funds financial statements can be found on pages 12 and 14 of this report. Notes to Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the agency-wide and fund financial statements. The notes to the basic financial statements can be found on pages 16 - 29 of this report. 4 Agency-Wide Financial Analysis Our agency-wide analysis focuses on the net assets and changes III net assets for the Agency's governmental activities. A summary ofthe Agency's net assets (deficit) as of June 30, 2003 and June 30, 2002 are as follows: Summary of Net Assets June 30, 2003 and 2002 Governmental Activities Current and other assets Capital assets, net Total assets $ 2003 74,058,809 78,507,340 152,566,149 21,571,942 111,579,594 133,151,536 Current and other liabilities Long-term liabilities Total liabilities Net assets (deficit): Invested in capital assets, net of related debt Restricted Unrestricted Total net assets (deficit) $ 11,114,597 2,076,374 6,223,642 19,414,613 2002 59,500,725 70,357,527 129,858,252 44,861,398 87,119,576 131,980,974 (2,449,409) 9,297,255 (8,970,568) (2,122,722) As noted earlier, net assets may serve over time as a useful indicator of the agency's financial position. In the case of the Agency, assets exceeded liabilities by $19,414,613 at June 30, 2003. By far the largest portion of the Agency's liabilities reflects its bonded indebtedness, totaling $87,480,000. The Agency, operating under California Redevelopment Law, must maintain debt in excess of its available assets to legally receive tax increment revenue. Bond proc"eeds are used to construct infrastructure, which becomes an asset of the Agency, or to alleviate blight. However, such expenditures do not generally create assets to offset bo;nded debt. Future tax increment revenues must be used to liquidate non-currentbond liabilities. 5 Governmental Activities Governmental activities increased the Agency's net assets by $21,537,335. Key elements of this increase are as follows: Changes in Net Assets Year Ended June 30, 2003 and 2002 Governmental Activities 2003 2002 Revenues General revenues Property taxes Investment earnings Rental income Miscellaneous $ 31,073,143 1,456,804 591,250 442,808 33,564,005 24,792,260 1,676,153 1,151,706 81, 194 27,701,313 Total general revenues Expenses Redevelopment activities Interest on long term debt Total expenses Increase in net assets 6,116,486 5,910,184 12,026,670 21,537,335 (2,122,722) 19,414,613 4,826,945 6,386,791 11,213,736 16,487,577 (18,610,299) (2,122,722) Net assets (deficit) - beginning of year Net assets (deficit) - end of year $ Property tax increment revenues of$31,073,143 are the Agency's major source of revenue. This revenue increased by $6,280,883 or 25.3% from the prior year as a result of increased assessed valuation and sale of properties. Investment earnings of $1 ,456,804 were received from investments of available funds. Redevelopment activities expenses of $6, 116,486 shown on the statement of activities consist of: Redevelopment and public improvement project operating costs Low and moderate housing projects Depreciation Total redevelopment activities expenses $ 2,368,944 3,054,203 693,339 6,116,486 $ Redevelopment and public improvement project operating costs of $2,368,944 are comprised of operating expenses such as administrative fees charged by the County for collection and disbursement of property taxes, operating transfers to the General Fund, payment to the General Fund in accordance with a reimbursement agreement in conjunction with the Downtown Redevelopment Project, lease payment for the Ocean Park Boulevard Housing Project and administrative indirect costs. 6 Low and moderate housing project expenditures of $3,054,203 included development and monitoring of affordability covenants for both new and existing housing projects, monitoring of construction activities, and administrative costs. Financial Analysis of the Agency's Funds As noted earlier, the Agency uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental Funds The focus of the Agency's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Agency's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of June 30, 2003, the Agency's governmental funds reported total ending fund balances of $24,120,486, which is an increase of $12,885,927 from the prior year: The fund balance of $48,291,556 is reserved to indicate that 'it is not available for new spending. It is comprised of $36,198,447 for continuing capital projects, $6,463,749 for debt service, $3,156,975 for notes receivable and $5,242,188 for advances to the City of Santa Monica. The remainder of the fund deficit, $26,940,873, is unreserved, undesignated. The key elements of the $12,885,927 increase in fund balance from the prior year are as follows: $1,735,020 increased funding requirements in the Debt Service Fund for the Downtown Project and Ocean Park Project bonds, $7,914,301 increase in the Downtown Project Earthquake Recovery Project Fund due to increased tax increment revenues, and $3,236,606 revenue that has been reserved for continuing capital projects. Major Funds The Debt Service fund balance increased $1,735,020 due to lower funding requirements for the Downtown Project and Ocean Park Project bonds. Principal and interest payments have been reduced due to the issuance of Refunding Bonds during fiscal year 2002. The Downtown Project Low/Mod Housing fund balance increased by $568,069 primarily due to increased 20% set.:.aside funds. The Downtown Project fund balance increased $1,033,152 due to increased tax increment revenues. The Earthquake Recovery Project Low/Mod Housing fund balance increased $3,572,875 due to increased 20% set-aside funds. The Earthquake Recovery Project fund balance increased $6,451,392 due to increased tax increment revenues. The Ocean Park Project Low/Mod Housing fund balance decreased $872,844 due to higher project improvement expenditures. The Ocean Park Project fund balance increased $398,263 due to lower project improvement and debt service expenditures. 7 Capital Asset and Debt Administration Capital Assets The Agency's investment in capital assets for its governmental activities as of June 30, 2003 amounts to $78,507,340 (net of accumulated depreciation). This investment in capital assets includes parking structures, buildings, land, and equipment. A summary of the Agency's capital assets, net of depreciation, follows: Governmental Activities Land Buildings, parking structures, and improvements Machinery and equipment Construction in progress Sub-total $ 2003 61,467,500 16,723,799 6,303 7,212,810 85,410,412 (6,903,072) 78,507,340 2002 60,500,000 13,707,317 6,303 2,353,640 76,567,260 (6,209,733) 70,357,527 Less accumulated depreciation Total $ Long-Term Liabilities At the end of the current fiscal year, the Agency had total bonded debt and long-term liabilities of $87,480,000. The bonds are secured solely by specified revenue sources (i.e., property tax increment). The Agency's total debt decreased by $960,000 (1.1%) during the current fiscal year. The decrease was due to scheduled debt service payments on the Earthquake Recovery Project outstanding obligations. Time limitations on incursion of debts exist in all project areas. Time limitations vary by the date when an area was added to the project. Proj ect area Ocean Park 1A Ocean Park 1 B Downtown Earthquake Recovery Time limitation to incur debt January 1,2004 January 1, 2004 January 1, 2004 June 21, 2014 The Agency does not have an overall credit rating; however, the Agency has received bond ratings on all of its outstanding bond issues as follows: Downtown Redevelopment Refunding Project Lease Revenue Bonds, "AAA" and "Aaa;" Ocean Park Redevelopment Project Tax Allocation Bonds, "BBB+," "Baal" and "A;" and Earthquake Recovery Redevelopment Project Tax Allocation Bonds, "AAA" and "Aaa." Additional information on outstanding long-term liabilities may be found in note 3 of the notes to the basic financial statements. 8 Economic Factors and Next Year's Budget The assessed value of property is estimated to rise in all project areas. In the Downtown Redevelopment Project as a result of standard minimum increases; in the Earthquake Redevelopment Project area due to sales of property and commercial development; and in the Ocean Park Project area as a result of standard minimum increases and sales of properties. Request for Information This financial report is designed to provide a general overview of the Agency's finances for all those with an interest in the Agency's finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Santa Monica Redevelopment Agency, 2121 Cloverfield Blvd., Suite 100, Santa Monica, California 90064 or (310) 458-2232. 9 Tbe Redevelopment Agency of tbe City of Santa Monica (A Component Unit of the City of Santa Monica, California) Statement of Net Assets June 30, 2003 Assets: Cash and investments (note 2) Cash and investments with fiscal agents (notes 2 and 4) Accounts receivable Interest receivable Property tax increment receivable Unamortized bond issuance costs, net Notes receivable, net (note 11) Capitalized lease receivable (note 5) Advances to the City of Santa Monica (note 10) Capital assets (note 6): Land Construction in progress Other capital assets, net Total assets Liabilities: Accounts payable and other liabilities Accrued interest payable on bonds Contracts retainage payable (note 8) Due to City of Santa Monica Parking Authority (note 8) Due to other agencies Noncurrent liabilities (note 3): Due within one year Due in more than one year Total liabilities Net assets: Invested in capital assets, net of related debt Restricted: Low- and moderate-income housing Unrestricted Total net assets See accompanying notes to basic financial statements. 10 Governmental Activities $ 37,953,004 20,087,257 78,250 127,831 1,093,804 679,500 3,156,975 5,640,000 5,242,188 61,467,500 7,212,810 9,827,030 152,566,149 786,478 2,373,923 5,657,991 2,958,016 3,522,734 6,27Z,800 111,579,594 133,151,536 11,114,597 2,076,374 6,223,642 $ 19,414,613 Functions/programs: Governmental activities: Housing and community development Interest on long term debt Total governmental activities General revenues: Property taxes Investment earnings Rental income Miscellaneous Total general revenues Change in net assets Net assets (deficit) - beginning of year. Net assets - end of year The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Statement of Activities Expenses $ 6,116,486 5,910,184 12,026,670 See accompanying notes to basic financial statements. Year Ended June 30, 2003 Charges for Services 11 Program Revenues Operating Grants and Contributions Capital Grants and Contributions Net (expense) revenue and changes in net assets Total $ (6,116,486) (5,910,184) (\2,026,670) $ 31,073,143 1,456,804 591,250 442,808 33,564,005 21,537,335 (2,122,722) $ 19,414,613 ..'2 'ifE ~~ f~ = " -tl ~'2 3 ;~ ~ u * ;:; "'.. Se" ...... ""en 0 ::~ ~ ~ "e;. 0 ci ~u '-' ~ ~ v I :3 ~~ E -, - 0 "" ~.<;: c:; [5 ~ .9E c; ~ ~ co ~8. ~ g "'u ~$ " = -;s~ Q = C ~~a ;>- o OJ) ...=~ ... ... ..s_ JO.. Q.," =~.: ~t~ 013 :=: ... = ~ ... ... .. i::' S tj ;.~ g-.~ .cc;)Q:;Q t:~~~ ..:=:... ~ ... :=: ~ " ... '0 ... =~ c '" ;1:6- " Q.," -0'" ; ~'e "...JO.. Q'" '" :=: ~ ...= ~ ;e-~ ~ g.a1~.5 ; qj 'e~ ~ ~~~~= 0'" - ~ .. 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" " CIl The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2003 Total fund balances-governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities that are not financial resources, and, therefore, are not reported in funds: Capital assets Accumulated depreciation Other long term assets that are not available to pay for current-period expenditures and therefore, are deferred in funds . Long-term liabilities, that are not payable in the current period and therefore not reported in funds: Bonds payable Accrued interest payable Deferred charge for issuance cost to be amortized over life of debt Net assets of governmental activities See accompanying notes to the basic financial statements. 13 $ 24,120,486 85,410,412 (6,903,072) 5,640,000 (87,158,790) (2,373,923) 679,500 $ 19,414,613 ~ <Ll " ~"2' ~ '2 '8 0; ~ tS ~ ""~ ,~ :!u ~ ~.~ .S ... c = 0 o~ u~ <Ll '" .cen - '- '-0 =0 ~u <Ll <Ll ....c <,;:; =~ [8 ~ .: E g <Ll <Ll <Ll > C > ~ 8. ~ ~ g '0 iUU = ~$ E <Ll ;;; ii5 ~ M, c 8 .a ~ ~ Us 0 -g tL.I M "'- <Ll "'~ s ! ~ i C <Ll C &i; ~ &j <.::i ~ >- 0; " ~e-d 0::= ~~Z > = ... """~ ;e_ ~ g-.~ ; 1j f ~~::. o1l ;=: <Ll = ~ "" <Ll ~ ~ 8_ ::I <U Q.!OJ r::r;>o =.<U ..c:=Q3= t:~~~ ";=:'Q ~ <Ll ;=: ~ .. <Ll = ... "~ = <Ll ~e_ = Q." _=<Ll ;~'E =<Lll>< ~'Q ~ ~ ",,= ~ ;e-"g ~ g-~~.5 ; ~ .~~ ~ ~ ~ ~~ =: o1l - ;=: .. U J;! .. 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N '" v) 00 00 N '" "" V; 00 V; '" .q: ci '" N N. - ..,: N '" '0 N 00 '" '" ~~ N ~ ''1. '" V; "" V; "" <:> r-:a:: "" N "" r-:M' N V', ..". '" ~ '" '" 00 N ..... e '" '" V; 0 "" ~ iM 00 '" ...QtO c- <C o 00 "" V; N '" "" "" ..... r-'" '" V; N V; o N o '" '" ...... '" '" N '" ..... ..... 00'" M"' N "" ..... '" "<1"" ...0 ~ <Ll " C " 0; "" 'Q = <Z ,S M, C -B 'B a OJ ~ ~ z S~ ~ <Ll 00 " g.: ~ '" C '- ].s=o ~ "," = s ct1 I'Ll ""' -' ... '" ;: <Ll E <Ll ~ 0; '" " " " u:: .~ " .c .9 ~ <Ll o C "" C 's:. " '" "- E o " " " " <Ll en The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica California) Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance to the Statement of Activities Year Ended June 30, 2003 Net change in fund balance - governmental funds Net change in governmental activities in the statement of activities are different because: Governmental funds report project improvements as expenditures. Such expenditures are capitalized in the statement of net assets The cost of capital asstes is allocated over their estimated useful lives and reported as depreciation expense in the statement of activities Principal payments on long-term debt use current financial resources but have no effect on net assets Change in accrued interest expense on long-term debt is recorded as an expense in the statement of activities, but is not recorded in the governmental funds Costs of issuance are recorded as expenditures in the governmental funds. Such costs are capitalized and amortized in the statement of activities The loss on bond refunding is amortized in the statement of activities Other changes, net Change in net assets of governmental activities See accompanying notes to basic financial statements. 15 $ 12,885,927 8,843,152 (693,339) 960,000 (343,487) (75,704) (42,077) 2,863 $ 21,537,335 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (1) Summary of Significant Accounting Policies (a) General The Redevelopment Agency of the City of Santa Monica, California (Agency) was established by the Santa Monica City Council in 1957 pursuant to the Community Redevelopment Law of California as codified in the State of California Health and Safety Code. The purpose of the Agency is to eliminate blight and to promote economic revitalization within designated project areas of the City of Santa Monica. The Agency has three project areas: the Downtown Redevelopment Project Area, the Earthquake Recovery Redevelopment Project Area and the Ocean Park Redevelopment Project .Area. Local funds are provided principally from incremental property taxes and rentals for parking facilities. (b) Reporting Entity The Agency is a component unit of the City of Santa Monica, California (City). As such, the operations of the Agency are also included in the Comprehensive Annual Financial Report of the City. (c) Basis of Accounting and Measurement Focus The basic financial statements of the Agency are composed of the following: . Agency-wide financial statements · Fund financial statements . Notes to the financial statements Agency-Wide Financial Statements Agency-wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) display information about the Agency as a whole. All significant interfund activity has been eliminated in the Statement of Activities. The Agency provides only governmental activities which are supported principally by property tax increments. Agency-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Amounts paid to acquire capital assets are capitalized as assets in the agency-wide financial statements, rather than reported as an expenditure. Proceeds of long-term debt are recorded as a 16 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 liability in the agency-wide financial statements, rather than as another financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. In the Agency-wide financial statement, net assets are classified in the following categories: Invested in Capital Assets. Net of Related Debt: This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduce this category. Restricted Net Assets: This category presents external restrictions imposed by creditors, grantors, contributions or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Assets: Represents the net assets of the Agency, not restricted for any project or other purpose. Fund Financial Statements The accounting system of the Agency is organized and operated on the basis of separate funds. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures. I Fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The modified accrual basis of accounting is defmed as the basis of accounting under which expenditures, other than accrued interest on long-term debt, are recorded at the time liabilities are incurred. Revenues are recorded when received in cash, except for measurable and available revenues, which are defined as available to finance current period expenditures and are accrued to properly reflect the revenues earned. Revenues ,which are susceptible to accrual include property tax increment, interest income, and rental Income. All governmental funds are accounted for on a spending or "financial flow" measurement focus. Generally, only current assets, and current liabilities are included on the balance sheets. However, non-current portions of long-term receivables related to governmental funds are also reported on their balance sheets and are offset by deferred revenue or fund balance reserve accounts. Statements of revenues, expenditures, and changes in fund balances for governmental funds generally present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. 17 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA lYIONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (d) Budget and Budgetary Accounting The following procedures have been used in establishing the budgetary data reflected in the basic financial statements: Formal budgetary adoption is employed as a management control device during the year for the Capital Projects Funds budgets. The Agency Board Members do not adopt a budget for the Debt Service Fund. The budget is prepared on a non-GAAP-budgetary basis that considers encumbrances outstanding at year-end as an expenditure of that year, whereas encumbrances are not considered as expenditures under GAAP. Budgeted amounts are as originally adopted or as amended by the Agency Board Members during the year (e) Major Funds The Agency considers all of its funds as major governmental funds. They are: The Capital Project Funds are as follows: Downtown Low/Mod Housing, Earthquake Recovery Low/Mod Housing, Ocean Park Low/Mod Housing, Downtown Redevelopment, Earthquake Recovery Redevelopment and Ocean Park Project Areas. The Capital Projects Funds are used to account for bond proceeds available for project improvements, interest income on invested funds, tax increment revenues and certain other income. The Debt Service Fund is used primarily to account for repayment of principal and interest on long-term indebtedness of the Agency. (f) Investments Investments are stated at fair value and generally consist of federal government-backed securities. In order to maximize investment return, the Agency pools its available cash except for cash required to be held by outside fiscal agents under the provisions of bond indentures. All investment decisions are made by the City Treasurer based on the Agency's investment policy or controlling bond indentures. Interest income, realized gains and losses and changes in fair value of investments arising from such pooled cash and investments are apportioned to each participating Agency fund based on the relationship of such fund's respective cash balances to aggregate pooled cash and investments. Interest income, realized gains and losses and changes in fair value of investments arising from 18 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 cash and investments held by outside fiscal agents under the provisions of bond indentures is credited directly to the related fund. The Agency's investments are stated at fair value. Fair value is determined based upon market closing prices or bid/asked prices for regularly traded securities. The fair value of guaranteed investment contracts and other investments with no regular market are estimated based on similar traded investments. The fair value of mutual funds, government-sponsored investment pools and other similar investments are stated at share value, or appropriate allocation of fair value of the pool, if separately reported. Certain money market investments with initial maturities at the time of purchase of less than one year are recorded at cost. The calculation of realized gains and losses is independent of the calculation of the net increase in the fair value of investments. Realized gains and losses on investments that had been held in more than one fiscal year and sold in the current fiscal year may have been recognized as an increase or decrease in fair value of investments reported in the prior year. (g) Long-Term Liabilities In the Agency-wide financial statements, long-term debt and other long-term liabilities are reported' as liabilities in the statement of net assets. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amourlt of debt issued is reported as other financing sources. Premiums received on debt issuance are reported as other financing sources while discounts on debt issuance are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds receiyed, are reported as debt service expenditures. (h) Tax Increment Revenues Incremental property taxes are considered as project revenues by the Agency when they become both measurable and available for financing the Agency's redevelopment activities during the year. Property taxes are considered available if received within 60 days following year-end in accordance with generally accepted accounting principles. Incremental property tax revenues represent property taxes collected from the excess of taxes levied and collected each year on any redevelopment project over that amount which would have been levied and collected on the base year property tax assessment. A property tax base year is determined to be the year prior to the establishment of a redevelopment project area. 19 THE REDEVELOPMENT AGENCY OF THE CI'fY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (i) Deferred Revenue Funds received and not used in the current fiscal year are carried over to the next fiscal year and are included in deferred revenue as depicted in the accompanying fund financic:o.l statements. OJ Low- and Moderate-"lncome Housing Under requirements of the State of California :Health and Safety Code, the Agency is required to set aside 20% of tax increment revenues for use in housing projects benefiting low- and moderate-income households. At June 30, 2003, the net cumulative unspent low- and moderate-income housing set aside funds have been obligated by the Agency and are included in the respective project area Low and Moderate Income Capital Projects Fund for 20% set aside. (k) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of changes in net assets during the reporting period. Actual results could differ from those estimates. (2) Cash and Investments Cash and investments of the Redevelopment Agency are pooled and invested with all other idle funds of the City. Equity in the City of Santa Monica investment portfolio $37.953.004 Cash and investments with fiscal agent (note 4): Money market mutual fund Federal agencies $13,162,375 6,924,882 Total cash and investments with fiscal agent $20.087.257 Detailed information concerning the City's pooled cash and investments can be found in the City's Comprehensive Annual Financial Report for the year ended June 30,2003. Interest income earned on pooled cash and investments is allocated monthly by the City of Santa Monica to the various funds based on the month-end cash balances. Interest income from cash and investments with fiscal agents is credited directly to the related fund. 20 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 Included in the Agency's pooled cash and investments is $4,030,874 in cash and investments restricted for continuing capital projects in low- and moderate-income housing funds at June 30, 2003. The Agency's investments are categorized in the following table: . Category I - Includes investments that are insured or registered or for which the securities are held by the Agency or its agent (other than the counterparty) in the Agency's name. . Category 2 ~ Includes uninsured and unregistered investments for which the securities are held by the counterParty's trust department or agent in the Agency's name. Trustee-held securities: Federal agencies Money market Not Required To Be Fair value, Category 1 Category 2 Categorized June 30, 2003 $ 6,924,882 6,924,882 13,162,375 13,162,375 $ 6,924,882 13,162,375 20,087,257 Total (3) Long-term Liabilities On May 2,2002, the Redevelopment Agency issued $5,640,000 of Downtown Project refunding bonds bearing interest at 4.6% to defease the outstanding 1992 Downtown Project Bonds. On May 2, 2002, the Redevelopment Agency issued $19,315,000 of Ocean Park refunding and new money bonds bearing interest at 5.03% to defease the outstanding 1992 Ocean Park Project Bonds and to provide funds for new low/moderate income projects. On December 1, 1999, the Redevelopment Agency issued Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds for $65,285,000 at various interest rates of 4.45% to 7.50% which were initially given underlying ratings of A by Fitch, Baal by Moody's, and A- by Standard and Poor's, but all rated the issue AAA with insurance. The bonds were issued to purchase approximately 11.3 acres in the Civic Area of the City and to finance other redevelopment activities of benefit to the Project Area. 21 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 A summary of the changes in the long-term liabilities of the Agency for the year ended June 30, 2003 is as follows: Downtown Earthquake Ocean Park Redevelopment Recovery Redevelopment Bo~ds payable Project Bonds Project Bonds Project Bonds Total Beginning balance $ 5,640,000 63,485,000 19,315,000 88,440,000 Debt retired (960,000) (960,000) Total bonds payable 5,640,000 62,525,000 19,315,000 87,480,000 Premium on bond issue, Net 42,465 42,465 Deferred loss on Refunding, net (125,898) (237,777) . (363,675) Ending balance $ 5,514,102 62,525,000 19,119,688 87,158,790 Due within one year $ 390,000 1,000,000 865,000 2,255,000 Debt service requirements for the Agency's bonds at June 30, 2003 are as follows: Downtown Redevelopment Project Bonds Principal Interest Total Fiscal year ending June 30: 2004 $ 390,000 168,600 558,600 2005 985,000 152,388 1,137,388 2006 1,015,000 125,357 1,140,357 2007 1,050,000 93,840 1,143,840 2008 1,080,000 58,680 1,138,680 2009 1,120,000 20,160 1 , 140, 160 Total $ 5,640,000 619,025 6,259,025 22 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements . Year Ended June 30, 2003 Earthquake Recovery Pro,ject Bonds Principal Interest Ocean Park Project Bonds Principal Interest Total Fiscal year ending June 30: 2004 $ 865,000 859,091 1,724,091 2005 905,000 820,448 i 1,725,448 2006 945,000 784,629 1,729,629 . 2007 980,000 748,535 1,728,535 .2008 1,015,000 711,129 1,726,129 2009 - 2013 5,740,000 2,869,926 8,609,926 2014 - 2018 7,205,000 1,346,510 8,551,510 2019 1,660,000 41,500 1,701,500 Total $ 19,315,000 8,181,768 27,496,768 Fiscal year ending June 30: 2004 2005 2006 2007 2008 2009 - 2013 2014 - 2018 2019 - 2023 2024 - 2028 2029 - 2030 $ 1,000,000 1,045,000 1,095,000 1,145,000 1,195,000 7,450,000 10,110,000 13,265,000 17,610,000 8,610,000 62,525,000 Total $ 3,673,210 3,627,198 3,579,047 3,528,075 3,456,927 15,783,075 13,099,314 9,849,679 5,347,500 524,100 62,468,125 Total 4,673,210 4,672,198 4,674,047 4,673,075 4,651,927 23,233,075 23,209,314 23,114,679 22,957,500 9,134,100 124,993,125 In addition, the Agency is indebted to the City of Santa Monica for the following loans, with interest at varying rates per annum accruing on principal only. These notes are for a period of one year. At the end of that period, the notes are reissued, with accrued interest, for a one-year period. Both the Agency and the City expect to renew these notes until such time as sufficient future unpledged tax increment is available to redeem them. 23 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 The notes consist of the foIlowingat June 30, 2003: Balance at Principal Principal Balance at Due within Advance payable to June 30,2002 addition reduction June 30,2003 one year Downtown Redevelopment Project Capital Projects Fund: City of Santa Monica General Fund $ 1,292,291 40,893 (36,700) 1,296,484 45,800 City of Santa Monica General Fund 14,481,490 661,482 (210,910) 14,932,062 230,000 15,773,781 702,375 (247,610) 16,228,546 275,800 Earthquake Recovery Redevelopment Project Capital Projects Fund: City of Santa Monica General Fund loan to LowlMod Housing fund 8,742,188 (3,500,000) 5,242,188 3,742,000 City of Santa Monica Miscellaneous Grants Special Revenue Fund 3,118,900 3,118,900 City of Santa Monica CDBG Special Revenue Fund 346,552 346,552 12,207,640 (3,500,000) 8,707,640 3,742,000 Ocean Park Redevelopment Project Capital Projects Rund: City of Santa Monica CDBG Special Revenue Fund 5,006,493 160,709 5,167,202 City of Santa Monica CDBG Special Revenue Fund 571,859 18,357 590,216 5,578,352 179,066 5,757,418 Total advances payable to the City of Santa Monica $ 33,559,773 881,441 (3,747,610) 30,693,604 4,017,800 The notes payable in the Earthquake Recoyery Redevelopment Project Capital Projects Fund with outstanding balances of $3,118,900 and $346,552, respectively, as of June 30, 2003 are non-interest bearing. The above bonds, notes and advances are payable when future tax increment revenues are received by the projects. Management does not anticipate that the remaining balance of these notes and advances will be repaid with currently available spendable resources. Management believes that the Agency is in compliance with all significant financial restrictions and requirements as set forth in its yarious bond covenants. 24 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORl~IA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (4) Investments Maintained by Fiscal Agent As part of the Agency's bonded debt covenants, an independent fiscal agent is required to maintain various funds/accounts. Balances in these funds/accounts at June 30, 2003 total $20,087,257 and are described as follows: Earthquake Downtown Recovery Ocean Park Redevelopment Project Tax Redevelop- Project Lease Allocation ment Project Revenue Bonds Bonds Bonds Total Debt Service Fund: Interest and principal accounts $ 462,492 2,847,855 1,304,818 4,615,165 Reserve Fund 1,848,589 1,848,589 Agency Retention Deposit 5,267,838 5,267,838 Redevelopment Fund 484,739 1,926,734 2,411,473 Housing Account 5,835,857 5,835,857 Expense Fund 13,775 68,435 20,895 103,105 City Fund 2,862 2,368 5,230 Total $ 479,129 8,668,867 10,939,261 20,087,257 . (5) Capitalized Lease On May 1, 1978, the City of Santa Monica entered into a lease agreement with the Agency to provide parking for the shopping center in the Do~town Project. The lease requires the City to pay the Agency a base rental at an estimated rate of approximately $1,130,000 per year, and in addition, the lease requires the City to make additional payments each year sufficient to operate and maintain the Parking Facility. The lease extends for a period of 35 years or repayment of the bonds issued to finance construction ofthe Parking Facility, whichever occurs earlier. Upon termination of the lease, ownership of the Parking Facility will rest with the City. Such lease meets the criteria of a capitalizable financing lease. At June 30, 2003, the present value of the lease payments receivable from the City was $5,640,000. 25 THE REDEVELOPMENT AGENCY OF THE CITY OF SANl'A MONICA, CALIFORNIA (A Component Unit .of the City of Santa Monica, California) Notes tG Basic Financial Statements Year Ended June 30, 2003 (6) Capital Assets A summary of changes in the capital assets is as follows: Beginning Ending balance Additions Deletions balance Nondepreciable: Land $ 60,500,000 967,500 61,467,500 Construction in progress 2,353,640 5,859,170 (1,000,000) 7,212,810 Depreciable: Buildings, parking structures, and improvements 13,707,317 3,016,482 16,723,799 Machinery and equipment 6,303 6,303 Total at historical cost 76,567,260 9,843,152 (1,000,000) 85,410,412 Accumulated depreciation: Buildings, parking structures, and improvements (6,208,472) (691,129) (6,899,601) Machinery and equipment (1,261) (2,210) (3,471) Total accumulated depreciation (6,209,733) (693,339) (3,903,072) Total $ 70,357,527 9,149,813 (1,000,000) 78,507,340 Depreciation expense in the amount of $693,339 was charged to the Housing and Community Development function in the Statement of Activities. (7) Fund Deficits (a) A deficit fund balance in the amount of $13,687,097 exists in the Downtown Redevelopment Project Fund, primarily due to the issuance oflong-term debt for redevelopment purposes. (b) A deficit fund balance in the amount of $255,139 exists in the Ocean Park Redevelopment Project Fund, primarily due to the issuance of long-term debt for redevelopment purposes. Management plans to use future tax increment revenues to payoff the long-term debt and eliminate the fund deficits. 26 THE REDEVELOPMENT AGENCY OF THE CITY OFSANT A MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (8) Contracts Retainage Payable and Other Liabilities By far the largest portion of the Agency's contracts retainage payable and other liabilities is the retention deposit. This represents funds deposited by the Rand Corporation per an OVimer participation agreement that provides for timely satisfaction of obligations and payment of all costs and expenses per the participation agreement. As of June 30, 2003, the outstanding balance totals $5,267,838 of the total $5,657,991 contracts retainage payable balance. During the year, the Redevelopment Agency and the Parking Authority entered into a purchase/sales agreement for the purchase/sale of six downtown parking structures with related land for $60 million. The related promissory note, secured by a deed of trust, calls for annual principal payments of $2 million for 30 years with interest. These parking structures with related land, built generally in the late 60's, were carried on the books of the Parking Authority at historical cost less related depreciation. At the time of sale, the book value of the six structures and land was $2,958,016. The sale/purchase transaction has been recorded as a transfer of the structures and land from the Parking Authority to the Redevelopment Agency and a corresponding receivablelliability for the book value of the assets transferred. The excess of the purchase price over the book value is not recorded as a gain on the transfer because the transaction is between two blended component uIlits of the City of Santa Monica. As related parties, no gain on the sale is recorded. Once the Redevelopment Agency's payments exceed the book value of the assets transferred, all future promissory note payments will be considered recorded as inter fund transfers on the financial statements of the two component units. 27 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (9) Interfund Transactions Transfers (to) from other funds at June 30, 2003 are as follows: Out In Debt Service Fund: Transfers in from the Downtown Redevelopment $ 7,015,304 Project, Earthquake Recovery Redevelopment Project, and Ocean Park Redevelopment Project funds for debt service payments Earthquake Recovery Redevelopment Project Low/Mod Housing Fund: Transfers out to the Debt Service Fund for bond (938,633) debt service payments Ocean Park Redevelopment Project Low/Mod Housing Fund: Transfers out to the Debt Service Fund for bond (349,366) debt service payments Downtown Redevelopment Project: Transfers out to the Debt Service Fund for bond (575,310) debt service payments Earthquake Recovery Redevelopment Project: Transfers out to the Debt Service Fund for bond (3,754,529) debt service payments Ocean Park Redevelopment Project: Transfers out to the Debt Service Fund for bond (1,397,466) debt service payments Total $ (7,015,304) 7,015,304 (10) Advances to the City On February 27,2001, the Agency advanced $10,242,188 to the City to finance housing improvement projects. The note bears interest equal to the interest rate earned on the City's investment pool plus 0.5% per annum. The advance was originally issued for a one-year period. At the end of the one-year period, the note is annually reissued, with accrued interest, if any, for a one-year period. During the fiscal year 2002-03, the City made principal payments of $3,500,000. At June 30, 2003, the outstanding principal balance was $5,242,188. 28 THE REDEVELOPMENT AGENCY OF THE CITY OF SANTA :MONICA, CALIFORNIA (A Component Unit of the City of Santa Monica, California) Notes to Basic Financial Statements Year Ended June 30, 2003 (11) Notes Receivable Balance at July 1,2002 Additions Deletions Balance at June 30, 2003 Community Corporation of Santa Monica (a) $ Habitat for Humanity - Los Angeles (b) Community Corporation of Santa Monica (c) 1,069,260 1,069,260 470,432 470,432 1,571,033 1,571,033 Low income senior housing (d) 46,250 46,250 46,250 3,110,725 3,156,975 Total Notes Receivable $ a. A promissory note in the amount of $1,382,619 was executed with Community Corporation of Santa Monica for an Affordable Housing Project located at 1512 Fifteenth Street. This loan is for the acquisition of land and pre development expenses for future low/moderate income housing. This is a 0% loan with the principal amount due and payable after a two-year deferral period. At June 30, 2003, $1,069,260 had been disbursed to the borrower. b. A promissory note in the amount of $575,000 was executed with Habitat for Humanity - Los Angeles for an Affordable Housing Project located at 2018 Nineteenth Street. This loan is for the acquisition of a vacant parcel of land where Habitat will build up to six new ownership units that will be sold to very low income buyers. This is a 0% loan with the principal amount due and payable after a two-year deferral period. At June 30, 2003, $470,432 had been disbursed to the borrower. . c. A promissory note in the amount of $2,714,033 was executed with Community Corporation of Santa Monica for an Affordable Housing ~roject located at 2601 - 2615 Santa Monica Blvd. This loan is for the acquisition of land and predevelopment expenses for a 40-unit income housing development. This is a 0% loans with the principal amount due and payable after a two-year deferral period. At June 30, 2003, $1,571,033 had been disbursed to the borrower. The Earthquake Recovery Redevelopment Project and the Ocean Park Redevelopment Project provided $318,307 and $1,252,726 respectively. d. The Redevelopment Housing Trust Fund, formerly known as "CHARP" provides funds to eligible borrowers in the form of deferred payment loans to make up the financial gap between available non-program resources, including the borrower's equity and private financing, and the limited equity cooperatives. At June 30, 2003, loans totaling $46,250 are outstanding. 29 The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Downtown Redevelopment Low/Mod Housing Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30, 2003 Variance with final b:.Idget - Actual Positive Final budget amounts (Negative) Revenues: . Property tax increment $ 358,080 566,843 208,763 Investment income 11,024 1,226 (9,798) Total revenues 369,104 568,069 198,965 Expendi ttlres: Current: Project improvements 860,997 860,997 Total expenditures 860,997 860,997 Net change in fund balances (491,893) 568,069 1,059,962 Fund balances: Beginning of year 557,692 557,692 End of year $ 65,799 1,125,761 1,059,962 I 30 The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Earthquake Recovery Redevelopment Low/Mod Housing Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances (Deficits) - Budget and Actual Year Ended June 30,2003 Variance with final budget - Actual Positive Final budget amounts (Negative) Revenues: Property tax increment $ 5,341,845 6,577,635 1,235,790 Investment income 100,987 23,871 (77,116) Other income 168,926 168,926 Total revenues 5,442,832 6,770,432 1,327,600 Expenditures: Current: Project improvements 5,768,350 2,034,475 3,733,875 Debt service: Interest and others 224,321 224,449 ( 128) Total expenditures 5,992,671 2,258,924 3,733,747 Excess (deficiency) of revenues over (under) expenditures (549,839) 4,511,508 5,061,347 Other financing uses - transfers out (938,733) (938,633) ! 100 Net change in fund balances (1,488,572) 3,572,875 5,061,447 Fund balances (deficits): Beginning of year (2,700,527) (2,700,527) End of year $ (4,189,099) 872,348 5,061,447 31 The RedevelopmentAgency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Ocean Park Redevelopment Low/Mod Housing Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Year Ended June 30,2003 Variance with final budget - Actual Positive Final budget amounts (Negative) Revenues: Property tax increment $ 548,216 548,539 323 Investment income 87,989 69,645 (18,344) Other income 11,068 11,068 Total revenues 636,205 629,252 (6,953) Expenditures: Current: Project improvements 6,860,812 1,152,730 5,708,082 Total expenditures 6,860,812 1,152,730 5,708,082 Excess (deficiency) of revenues over (under) expenditures (6,224,607) (523,478) 5,701,129 Other financing uses - transfers out (349,394) (349,366) 28 Net change in fund balances (6,574,001) (872,844) 5,701,157 Fund balances: Beginning of year 6,804,653 6,804,653 End of year $ 230,652 5,931,809 5,701,157 32 The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) DowntowitRedevelopment Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances (Deficits) - Budget and Actual Year Ended June 30, 2003 Variance with final budget - Actual Positive Final budget amounts (Negative) Revenues: Property tax increment $ 1,431,322 2,217,771 786,449 Investment income 259,400 233,250 (26,150) Property rental 591,250 591,250 Other income 89,475 89,475 Total revenues 2,281,972 3,131,746 849,774 Expenditures: Current: Project improvements 2,233,034 820,909 1,412,125 Debt service: Interest and others 274,100 702,375 (428,275) Total expenditures 2,507,134 1,523,284 983,850 Excess (deficiency) of revenues over (under) expenditures (225,162) 1,608,462 1,833,624 Other financing uses - transfers out (591,300) (575,310) 15,990 Net change in fund balances (816,462) 1,033,152 1,849,614 Fund balances (deficits): Beginning of year (14,720,249) (14,720,249) End of year $ (15,536,711) (13,687,097) 1,849,614 33 The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Earthquake Recovery Redevelopment Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances (Deficits) - Budget and Actual Year Ended June 30, 2003 Variance with final budget - Actual Positive Final budget amounts (Negative) Revenues: Property tax increment $ 21,369,380 25,665,755 4,296,375 Investment income 539,700 927 ,654 387,954 Other income 75,000 158,475 83,475 Total revenues 21,984,080 26,751,884 4,767,804 Expenditures: Current: Project improvements 32,819,028 9,968,328 22,850,700 Pass through agreements 6,587,739 6,577,635 10,104 Total expenditures 39,406,767 16,545,963 22,860,804 Excess (deficiency) of revenues over (under) expenditures (17,422,687) 10,205,921 27,628,608 Other financing uses - transfers out (3,756,600) (3,754,529) 2,071 Net change in fund balances (21,179,287) 6,451,392 27,630,679 Fund balances (deficits): Beginning of year 17,217,663 17,217,663 End of year .$ (3,961,624) 23,669,055 27,630,679 34 The Redevelopment Agency of the City of Santa Monica (A Component Unit of the City of Santa Monica, California) Ocean Park Redevelopment Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balances (Deficits) - Budget and Actual Year Ended June 30, 2003 Variance with final budget - Actual Positive Final budget amounts (Negative) Revenues: Property tax increment $ 2,192,866 2,074,235 (118,631) Investrnentincome 95,000 102,711 7,711 Other income 12,001 12,001 Total revenues 2,287,866 2,188,947 (98,919) Expenditures: Current: Project improvements 3,608,570 214,153 3,394,417 Debt service: Interest and others 179,065 (179,065) Total expenditures 3,608,570 393,218 3,215,352 Excess (deficiency) of revenues over expenditures and other uses (1,320,704) 1,795,729 3,116,433 Other fmancing uses - transfers out (1,379,623) (1,397,466) (17,843) Net change in fund balances (2,700,327) 398,263 3,098,590 Fund balances (deficits): Beginning of year (653,402) ( 653,402) End of year '$ (3,353,729) (255,139) 3,098,590 35 CONRAD AND ASSOCIATES, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS 2301 DUPONT DRIVE, SUITE 200 IRVINE, CALIFORNIA 92612 (949) 474-2020 Fax (949) 263-5520 The Board Members Redevelopment Agency of the City of Santa Monica, California REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS - We have audited the basic financial statements of the Redevelopment Agency of the City of Santa Monica, California (Agency), a component unit of the City of Santa Monica, California, as of and for the year ended June 30, 2003, and have issued our report thereon dated October 16,2003. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the . standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the financial statements of the Redevelopment Agency of the City of Santa Monica are free of material misstatements, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions included those provisions of laws and regulations identified in the Guidelines for Compliance Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. 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 controls that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more ofthe internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information of the management of the Agency and the State Controller and is not intended to be and should not be used by anyone other than these specified parties. trJ1 r' ~{d' 1't4-1 dO' A~ S,C -Ct' 4! ide /' L . L__ . r' October 16, 2003 36 MEMBERS OF AICPA AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION