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HomeMy WebLinkAboutSINGLE AUDITS OF FEDERAL GRANTS 6/30/89 - 6/30/91 • r V PUBLIC NOTICE G) 0 The City of Huntington Beach has completed its Single Audit Report for the fiscal year ending June 30 , 19p' The Single Audit Report is a special report required by the Single Audit Act of 1984 , All. proar. ams , revenues and expenditures from federal funds received directly or passed through other agencies are subjected to special audit procedures . The report ishvailabl.e for public inspection between the hours of Bam and 5pm at the City Clerk ' s office at 2000 Main St . Huntington Beach , CA 92648 . I Dated: , CONNIE BROCKWAY CITY CLERK CITY OF HUNTINGTON BEACH CITY OF HUNTINGTON BEACH • COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES ALL GOVERNMENTAL FUND TYPES For the year ended June 30, 1990 (expressed in thousands) General • REVENUES: Property Taxes (Note 1) $26,061 Other Taxes 32,378 Licenses and Permits 2,962 Fines, Forfeitures and Penalties 2,256 From Use of Money and Property 4,032 • From Other Agencies 8,979 Charges for Current Services 7,028 Other 351 Contributions from Property Owners - TOTAL REVENUES 84,047 EXPENDITURES: Current: City Council 78 City Administrator 491 City Treasurer 414 City Attorney 744 City Clerk 275 Administrative Services 3,375 Community Development 2,515 Fire 14, 148 Police 26,346 Economic Development 607 Community Services 8,168 Public Works 18, 102 Non-Departmental 7,491 Capital Outlay 750 Debt Service: Principal - Interest 112 • TOTAL EXPENDITURES 83,616 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 431 OTHER FINANCING SOURCES (USES) : Operating Transfers In (Note 10b) 1,525 Advances from Other Funds (Note 12g) - Proceeds of Long-Term Debt - • Operating Transfers Out (Note 10b) (2,602) Inventory Increase 21 TOTAL OTHER FINANCING SOURCES (USES) (1 ,056) EXCESS OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES (625) • FUND BALANCE - BEGINNING OF YEAR 29,543 Prior Period Adjustment (Note 20) 1 ,377 FUND BALANCE AS RESTATED - BEGINNING OF YEAR (Note 20) 30,920 Residual Equity Transfers In (Note 10c) 425 Residual Equity Transfers Out (Note 10c) (6,573) • FUND BALANCE - END OF YEAR lZi.J47 See independent auditors' report and notes to financial statements. -4- • • SCHEDULE A-2 Totals Special Debt Capital (Memorandum Only) • Revenue Service Projects 1990 1989 $ - $ 3,625 $ 774 $ 30,460 S 26,970 301 - - 32,679 32, 113 982 - - 3,944 5,773 - - - 2,256 2,458 2,198 3,269 4,641 14, 140 13,884 6,232 - - 15,211 21,721 239 - - 7,267 5,886 28 - 640 1,019 1 ,077 - - 1,654 9,980 6,894 6,055 106,976 111,536 • - - 137 215 156 - - 362 853 1,304 - - 24 438 322 - - 564 1,308 1 ,042 • - - 55 330 293 - - 460 3,835 3,409 - - 118 2,633 3,645 - - - 14, 148 12,722 23 - - 26,369 23,565 1,390 - 774 2,771 748 139 - - 8,307 7,595 - - 326 18,428 16,893 - 94 370 7,955 7,088 8,230 - 11,642 20,622 42,462 - 2,942 54 2,996 6,399 - 7,085 433 7,630 8,778 9,782 10, 121 15,319 118,838 136,421 198 (3,227) (9,264) (11 ,862) (24,885) 10 2,593 113 4,241 3,464 - - 15,848 15,848 46,033 - - 16,226 16,226 4, 194 (1,526) - (466) (4,594) (3,464) - - - 21 7,441 (1,516) 2,593 31,721 31,742 57,668 (1,318) (634) 22,457 19,880 32,783 • 19,621 34,146 53,736 137,046 105, 171 - - (1,442) 65) - 19,621 34, 146 52,294 136,981 105, 171 1,848 1,414 7, 142 10,829 4,992 1 013) - (3,768) (11 ,354) (5,965) 19 138 JIL926 UR,125 ILa,336 136 981 -5- • CITY OF HUNTINGTON BEACH • COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL, SPECIAL REVENUE AND DEBT SERVICE FUND TYPES For the year ended June 30, 1990 (expressed in thousands) General Fund • Variance - Favorable Budget Actual (Unfavorable) REVENUES: Property Taxes $23,595 $26,061 $2,466 Other Taxes 32,066 32,378 312 • Licenses and Permits 3,402 2,962 (440) Fines, Forfeitures and Penalties 2,342 2,256 (86) From Use of Money and Property 5,358 4,032 (1,326) From Other Agencies 9,177 8,979 (198) Charges for Current Services 8,279 7,028 (1,251) Other 441 351 (90) • TOTAL REVENUES 84,660 84,047 613) EXPENDITURES: Current: City Council 86 78 8 City Administrator 420 491 (71) City Treasurer 387 414 (27) • City Attorney 742 744 (2) City Clerk 295 275 20 Administrative Services 3,391 3,375 16 Community Development 2,788 2,515 273 Fire 13,053 14, 148 (1,095) . Police 25,523 26,346 (823) • Economic Development 676 607 69 Community Services 8, 159 8, 168 (9) Public Works 20,289 18, 102 2, 187 Non-Departmental 9,973 7,491 2,482 Capital Outlay 1,046 750 296 Debt Service: • Principal - - - Interest 112 112 - TOTAL EXPENDITURES 86,940 83,616 3,324 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 2 280) 431 2,711 • OTHER FINANCING SOURCES (USES) : Operating Transfers In 1,706 1,525 (181) Operating Transfers Out (2,602) (2,602) - Inventory Increase - 21 21 TOTAL OTHER FINANCING SOURCES (USES) 896) (1,056) 160) EXCESS OF REVENUES AND OTHER SOURCES OVER • (UNDER) EXPENDITURES AND OTHER USES (3, 176) (625) 2,551 FUND BALANCE - BEGINNING OF YEAR 29,543 29,543 - Prior Period Adjustment 1,377 1,377 - FUND BALANCE AS RESTATED - BEGINNING OF YEAR 30,920 30,920 - Residual Equity Transfers In 425 425 - • Residual Equity Transfers Out (6,573) (6,573) - FUND BALANCE - END OF YEAR 21 596 2$ 4, 147 $2,551 See independent auditors' report and notes to financial statements. • -6- • SCHEDULE A-3 • Special Revenue Funds Debt Service Funds Variance - Variance - Favorable Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) $ - $ - $ - $ 3,184 $ 3,625 $ 441 • 200 301 101 - - - 2,910 982 (1,928) - - 1,720 2,198 478 2,878 3,269 391 8,724 6,232 (2,492) - - - 1,531 239 (1,292) - - - • 12 28 16 - - - 15,097 9,980 (5,117) 6,062 6,899 832 • 24 23 1 - - - 3,453 1,390 2,063 - - - 149 139 10 - - - - - - - 94 (94) 20,461 8,230 12,231 - - - • - - - 3,632 2,942 690 - - 4,820 7,085 (2,263) 24,087 9,782 14,305 8,452 10,121 (1,669) (8,990) 198 9, 188 (2,390) (3,227) (8837) • 10 10 - 2,593 2,593 - (1,586) (1,526) 60 - - - (1,576) (1,516) 60 2,593 2,593 - • (10,566) (1,318) 9,248 203 634) 837) 19,621 19,621 - 34, 146 34, 146 - 19,621 19,621 - 34,146 34, 146 - • 1,848 1,848 - 1,414 1,414(1,013) (1,013) - - -L3,890 19 138 9 248 35 763 3$ 4,926 ) • -7- CITY OF HUNTINGTON BEACH Schedule A-3 • COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL (CONTINUED) TOTAL GENERAL, SPECIAL REVENUE AND DEBT SERVICE FUND TYPES For the year ended June 30, 1990 (expressed in thousands) Totals (Memorandum Only) • Variance - Favorable Budget Actual (Unfavorable) REVENUES: Property Taxes $26,779 $29,686 $2,907 Other Taxes 32,266 32,679 413 • Licenses and Permits 6,312 3,944 (2,368) Fines, Forfeitures and Penalties 2,342 2,256 (86) From Use of Money and Property 9,956 9,499 (457) From Other Agencies 17,901 15,211 (2,690) Charges for Current Services 9,810 7,267 (2,543) Other 453 379 74) • TOTAL REVENUES 105,819 100,921 (4,898) EXPENDITURES: - Current: City Council 86 78 8 City Administrator 420 491 (71) City Treasurer 387 414 (27) • City Attorney 742 744 (2) City Clerk 295 275 20 Administrative Services 3,391 3,375 16 Community Development 2,788 2,515 273 Fire 13,053 14,148 (1,095) Police 25,547 26,369 (822) • Economic Development - 4,129 1,997 2,132 Community Services 8,308 8,307 1 Public Works 20,289 18, 102 2, 187 Non-Departmental 9,973 7,585 2,388 Capital Outlay 21,507 8,980 12,527 Debt Service: • Principal 3,632 2,942 690 Interest 4,932 7, 197 (2,265) TOTAL EXPENDITURES 119,479 103,519 15,960 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (13,660) (2,598) 11 ,062 OTHER FINANCING SOURCES (USES) : • Operating Transfers In 4,309 4, 128 (181) Operating Transfers Out (4, 188) (4, 128) 60 Inventory Increase - 21 21 TOTAL OTHER FINANCING SOURCES (USES) 121 21 100) EXCESS OF REVENUES AND OTHER SOURCES OVER • (UNDER) EXPENDITURES AND OTHER USES (13,539) (2,577) 10,962 FUND BALANCES - BEGINNING OF YEAR 83,310 83,310 - Prior Period Adjustment 1,377 1 ,377 - FUND BALANCES AS RESTATED - BEGINNING OF YEAR 84,687 84,687 - Residual Equity Transfers In 3,687 3,687 - • Residual Equity Transfers Out 7 586) (7,586) - FUND BALANCE - END OF YEAR LIB,211 $10,962 See independent auditors' report and notes to financial statements. • -8- � CITY OF HUNTINGTON BEACH SCHEDULE A-4 COMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS For the year ended June 30, 1990 (expressed in thousands) Proprietary Fund Types Fiduciary Fund Totals Internal Types-Pension (Memorandum Only) Enterprise Service Trust 1990 1989 OPERATING REVENUES: Sales $13,379 $9,696 $ - $23,075 $21,303 Rentals 899 - - 899 887 Membership Fees 148 - - 148 - Other 459 - 185 644 1,019 TOTAL OPERATING REVENUES 14,885 9,696 185 24,766 23,209 OPERATING EXPENSES Water Purchases 4,185 - - 4,185 2,807 Administration 1,091 2,754 - 3,845 4,381 Engineering 1,239 - - 1,239 1,282 Production 2,221 - - 2,221 2,490 Maintenance 1,082 - - 1,082 1 ,003 Water Meters 895 - - 895 520 Water Quality 197 - - . 197 Contribution to General Fund in Lieu of taxes 1,899 - - 1,899 1,829 Employee Medical Claims - 2,602 - 2,602 2,095 Liability Claims - 870 - 870 1 , 127 Workers Compensation Claims - 1,018 - 1 ,018 1,491 Pension Payments - - 167 167 - Depreciation (Note If) 1,362 2,638 - 4,000 3, 133 TOTAL OPERATING EXPENSES 14,171 9,882 167 24,220 22, 158 OPERATING INCOME (LOSS) 714 (186) 18 546 1,051 NON-OPERATING REVENUES (EXPENSES) : Interest Income 1 ,266 1,516 - 2,782 2,312 Interest Expense (595) (404) - (999) (601) Joint Venture - 90 - 90 184 TOTAL NON-OPERATING REVENUES (EXPENSES) 671 1,202 - 1 ,873 1,895 INCOME BEFORE OPERATING TRANSFERS 1 ,385 1 ,016 - 2,419 2,946 OPERATING TRANSFERS IN 45 421 - 466 147 OPERATING TRANSFERS OUT 113 - - 113) - NET OPERATING TRANSFERS IN (OUT) 68) 421 - 353 147 NET INCOME 1,317 1,437 18 2,772 3,093 RETAINED EARNINGS - BEGINNING OF YEAR 3,054 1,408 - 4,462 1,516 Prior Period Adjustment (Note 20) 147 - - 147 - RETAINED EARNINGS AS RESTATED - BEGINNING OF YEAR 3,201 1,408 - 4,609 1,516 RETAINED EARNINGS - END OF YEAR 4,518 IL845 18 $ 7,381 $ 4,609 See independent auditors' report and notes to financial statements. -9- Peat Marwick Certified Public Accountants CITY OF HUNTINGTON BEACH, CALIFORNIA Single Audit Reports Year ended June 30, 1991 CITY OF HUNTINGTON BEACH, CALIFORNIA Single Audit Reports June 30, 1991 Table of Contents 410 Page Independent Auditors' Report on Schedule of Federal Financial Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Schedule of Federal Financial Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Notes to Schedule of Federal Financial Assistance. . . . . . . . . . . . . . . . . . 3 Independent Auditors' Report on: • Compliance with General Requirements . . . . . . . . . . . . . . . . . . . . . . 4 • Compliance at the General Purpose Financial Statement Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 • Compliance with Specific Major Program Requirements . . . . . . . 6 • Internal Controls at the General Purpose Financial Statement Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 • Internal Control Structure Used in Administering Federal Financial Assistance Programs . . . . . . . . . . . . . . . . . . . 10 Schedule of Findings and Questioned Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 13 i' Q Peat Marwick Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 INDEPENDENT AUDITORS' REPORT ON SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE The Honorable Members of City Council City of Huntington Beach, California: We have audited the general purpose financial statements of the City of Huntington Beach, California (the "City") , as of and for the year ended June 30, 1991, and have issued our report thereon dated October 18, 1991. These • general purpose financial statements are the responsibility of the management of the City. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general purpose financial statements of the City taken as a whole. The accompanying schedule of federal financial assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to • the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. October 18, 1991 - 1 - logo Member Firm of Klynveld Pear Marwick Goerdeler CITY OF HUNTINGTON BEACH, CALIFORNIA Schedule of Federal Financial Assistance Year ended June 30, 1991 Program Federal or Award Program Ti le CFDA Number Grant Number Amount Revenues Expenditures Department of Housing and Urban Development: Community Development Block Grant 14.218* B-90-MC-06-0506 $ 1,257,000 1,324,242 1,126,282 Department of Transportation: Federal Aid Urban 20.205* HES-OOOS(257) 189,000 189,000 149,260 Federal Aid Urban 20.205* HES-OOOS(302) 36,000 36,000 45,675 Federal Aid Urban 20.205* HES-MO19(006) 796,112 - 12,884 Federal Aid Urban 20.205* HES-MO19(009) 1,087,070 440,771 832,255 Federal Aid Urban 20.205* HES-M032(005) 85,500 85,000 8,384 Federal Aid Urban 20.205* HES-MO19(8) 364,890 39,779 24.773 Total Department of Transportation 1,471,302 790.550 1,073,231 Department of Education R167A90110 18,684 4,305 3,468 Department of Education R167A90110 25,000 16,033 16,082 Department of Education R167A90110 15,617 15,617 15,614 Total Department of Education 59,301 35,955 35,164 Federal Emergency Management Agency 24,253 24.253 93.422 Total $ 2,811,856 2,175,000 2,328,099 * Major program See accompanying independent auditors' report on Schedule of Federal Financial Assistance and Notes to Schedule of Federal Financial Assistance. - 2 - CITY OF HUNTINGTON BEACH, CALIFORNIA Notes to Schedule of Federal Financial Assistance Year ended June 30, 1991 . (1) General The accompanying Schedule of Federal Financial Assistance presents the activity of all federal financial assistance programs of the City of Huntington Beach, California (the "City") . Federal financial assistance received directly from Federal agencies as well as Federal financial assistance passed through the State of California are included in the schedule. The City's reporting entity is defined in note 1 to the City's general purpose financial statements. (2) Basis of Accounting The accompanying Schedule of Federal Financial Assistance is presented using the modified accrual basis of accounting which is described in the footnotes to the City's general purpose financial statements. (3) Relationship to General Purpose Financial Statements and Federal Financial Reports Information reported in the accompanying Schedule of Federal Financial Assistance agrees with the information reported in the related Federal financial reports for all major Federal programs. Revenues from Federal financial assistance programs are reported as intergovernmental revenues in the general purpose financial statements. 3 - Peat Marwick Certified Public Accountants i Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH GENERAL REQUIREMENTS The Honorable Members of City Council City of Huntington Beach, California: We have audited the general purpose financial statements of the City of Huntington Beach, California (the "City") as of and for the year ended June 30, 1991 and have issued our report thereon dated October 18, 1991. We have also applied procedures to test the City's compliance with the following requirements applicable to each of its major federal financial ' assistance programs, which are identified in the schedule of federal financial assistance for the year ended June 30, 1991: • Political activity • Davis-Bacon Act • Civil rights • Cash management • Relocation assistance and real property acquisition • Federal financial reports • Allowable costs/cost principles • Drug-free Workplace Act • Administrative requirements Our procedures were limited to the applicable procedures described in the Office of Management and Budget's Compliance Supplement for Single Audits of State and Local Governments. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the City's compliance with the requirements listed in the preceding paragraph. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the requirements listed in the second paragraph of this report. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not complied, in all material respects, with those requirements. However, the results of our procedures disclosed immaterial instances of noncompliance with those requirements which are described in the accompanying Schedule of Findings and Questioned Costs. This report is intended for the information of the City's management, the State Controller's Office and other federal agencies. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. October 18, 1991 - 4 - • loss Member Firm of Klynveld Peat Marwick Goerdeler Peat Marwick Certified Public Accountants . Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AT THE GENERAL PURPOSE FINANCIAL STATEMENT LEVEL The Honorable Members of City Council City of Huntington Beach, California: We have audited the general purpose financial statements of the City of Huntington Beach, California (the "City") , as of and for the year ended June 30, 1991, and have issued our report thereon dated October 18, 1991. We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. A Compliance with laws, regulations, contracts and grants applicable to the City is the responsibility of the City's management. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts and grants. However, our objective was not to provide an opinion on overall compliance with such • provisions. Accordingly, we do not express such an opinion. The results of our tests indicate that, with respect to the items tested, the City complied, in all material respects, with the provisions referred to in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not complied, in all material respects, with those provisions. This report is intended for the information of the City's management, the State Controller's Office and other federal agencies. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. October 18, 1991 ' K,v rr1,d 5 - • loss Member Firm of Klynveld Peat Marwick Goerdeier Peat Marwick Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 a INDEPENDENT AUDITORS' REPORT . ON COMPLIANCE WITH SPECIFIC MAJOR PRO RAM REQUIREMENTS The Honorable Members of City Council City of Huntington Beach, California: We have audited the general purpose financial statements of the City of Huntington Beach, California (the "City") , as of and for the year ended June 30, 1991 and have issued our report thereon dated October 18, 1991. We have also audited the City's compliance with the requirements governing types of services allowed or unallowed; matching, level of effort or earmarking; reporting; environmental reviews; monitoring subrecipients; and claims for advances and reimbursements that are applicable to each of its major federal financial assistance programs, which are identified in the accompanying schedule of federal financial assistance, for the year ended June 30, 1991. The management of the City is responsible for the City's compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and OMB Circular A-128, Audits of State and Local Governments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed immaterial instances of • noncompliance with the requirements referred to above, which are described in the accompanying schedule of findings and questioned costs. We considered these instances of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph. 6 - • Member Firm of _�.. Klynveld Peat Marwick Goerdeler The Honorable Members of City Council City of Huntington Beach, California Page 2 In our opinion, the City complied, in all material respects, with the requirements governing types of services allowed or unallowed; matching, level . of effort or earmarking; reporting; environmental reviews; monitoring subrecipients; and claims for advances and reimbursements; and reporting that are applicable to each of its major federal financial assistance programs for the year ended June 30, 1991. This report is intended for the information of the City's management, the State Controller's Office and other federal agencies. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. k �W/g • Orange County, California October 18, 1991 7 - Peat Marwick Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROLS AT THE GENERAL PURPOSE FINANCIAL STATEMENT LEVEL The Honorable Members of City Council City of Huntington Beach, California: We have audited the general purpose financial statements of the City of Huntington Beach, California (the "City") , as of and for the year ended June • 30, 1991 and have issued our report thereon dated October 18, 1991. We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. In planning and performing our audit of the general purpose financial statements of the City for the year ended June 30, 1991, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control structure. The management of the City is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. - 8 - Ross Member Firm of Klynveld Peat Marwick Goerdeier The Honorable Members of City Council City of Huntington Beach, California Page 2 For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: Accounting Controls • Revenue/receipts • Purchases/disbursements • Payroll • Administration of Federal programs For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. Our consideration of the internal control structure would not necessarily • disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose 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 structure and its operation that we consider to be material weaknesses as defined above. However, we noted certain matters involving the internal control structure and • its operation that we have reported to the management of the City in a separate letter dated October 18, 1991. This report is intended for the information of the City's management, the State Controller's Office and other federal agencies. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. Orange County, California October 18, 1991 9 - OWN Peat Marwick Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE USED IN ADMINISTERING FEDERAL FINANCIAL ASSISTANCE PROGRAMS The Honorable Members of City Council City of Huntington Beach, California: We have audited the general purpose financial statements of the City of Huntington Beach, California, as of and for the year ended June 30, 1991, and • have issued our report thereon dated October 18, 1991 . We have also audited the City's compliance with requirements applicable to major Federal financial assistance programs and have issued our report thereon dated October 18, 1991. We conducted our audits in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget ("OMB") Circular A-128, Audits of State and Local Governments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement and about whether the City complied with laws and regulations, noncompliance with which would be material to a major Federal financial assistance program. In planning and performing our audits for the year ended June 30, 1991, we considered the City's internal control structure in order to determine our auditing procedures for the purpose of expressing our opinions on the City's general purpose financial statements and on its compliance with requirements applicable to major programs and not to provide assurance on the internal control structure. This report addresses our consideration of internal control structure policies and procedures relevant to compliance with requirements applicable to Federal financial assistance programs. We have addressed policies and procedures relevant to our audit of the general purpose financial statements in a separate report dated October 18, 1991. The management of the City is responsible for establishing and maintaining an • internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles, and that Federal financial - 10 - • loss Member Firm of Klynveld Peat Marwick Goerdeler The Honorable Members of City Council City of Huntington Beach, California Page 2 assistance programs are managed in compliance with applicable laws and regulations . Because of inherent limitations in any internal control • structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of the changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate, For the purpose of this report, we have classified the significant internal control structure policies and procedures used in administering Federal financial assistance programs in the following categories: Accounting Controls • Revenue/receipts • Purchases/disbursements • Payroll Administrative Controls--General Requirements • Political activity • Davis-Bacon Act • Civil rights • Cash management • Relocation assistance and real property management • Federal financial reports • Allowable costs/cost principles • Drug-Free Workplace Act • Administrative requirements Administrative Controls--Special Requirements • Types of services . • Matching level of effect, or earmarking • Reporting • Environmental reviews • Monitoring subrecipients • Claims for advances and reimbursements For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and determined whether they have been placed in operation, and we assessed control risk. During the year ended June 30, 1991, the City expended 94.5% of its total Federal financial assistance under major Federal financial assistance . programs. r The Honorable Members of City Council City of Huntington Beach, California Page 3 We performed tests of controls, as required by OMB Circular A-128, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements, general requirements, and requirements governing claims for advances and reimbursements, and amounts claimed or used for matching that are applicable to each of the City's major Federal financial assistance programs, which are identified in the accompanying schedule of Federal financial assistance. Our procedures were less in scope than would be necessary to render an opinion on these internal control structure policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified • Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that noncompliance with laws and regulations that would be material in relation to a Federal financial assistance program 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 structure and its operation that we consider to be material weaknesses as defined above. We noted other matters involving the internal control structure and its operation that we have reported to the management of the City in a separate letter dated October 18, 1991. • This report is intended for the information of the City's management, the State Controller's Office and other Federal agencies. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. October 18, 1991 - 12 - CITY OF HUNTINGTON BEACH, CALIFORNIA Schedule of Findings and Questioned Costs Year ended June 30, 1991 • Findi.na No. 1 During the review of Community Development Block Grant subgrantee files, we noted that an annual audit report had not been completed for a subrecipient who had received over $25, 000 in grant funds. The City should identify those subrecipients which have been allocated Federal funds amounting to $25, 000 or more for the fiscal year. These subrecipients should then be notified that they will be expected to submit an annual report which evidences an audit was completed in accordance with the specific program requirements or the applicable Office of Management and Budget Circular (i.e. , either A-128 or A-133) . City Response • The City agrees with this finding and will implement a program to monitor its subrecipients' compliance with the audit requirements. Finding No. 2 During our review of the Community Development Block Grant subgrantee files, we noted that two of the annual audit reports filed by subrecipients receiving more than $25, 000 of grant funds did not include either single audit or program audit reports. Upon receipt of the annual audit report from subgrantees who receive more than $25, 000, the City should review the report to ensure it contains all necessary elements. City RespQn= The City agrees with this finding and will implement a program to monitor its subrecipients' compliance with the audit requirements. 13 - CITY OF HUNTINGTON BEACH, CALIFORNIA Schedule of Findings and Questioned Costs (Continued) Year ended June 30, 1991 • Finding No. 3 During our testwork of Community Development Block Grant expenditures, we noted that funds requested and received during the fourth quarter exceeded expenditures due to a misposting during consolidation of the previous grant year awards. Any entry made to consolidate grant year awards should be highlighted and thoroughly reviewed by another individual in the accounting department familiar with Community Development Block Grant to ensure proper allocation of program expenditures. City Res c�P The City agrees with this finding and will emphasize its existing review policies to its accounting staff. 14 - Cn of Hunhngton Beach, caffovnua Mh gW Qu d'Rs d Fov the flsca� yeav ended June 30, 1989 CITY OF MACH SINGE AUDIT OF FFTERALLY ASSIMM CRAM PImQiAM JUNE 30, 1989 CITY OF HUNI'INGPON BEACH TABLE OF CONTENTS June 30, 1989 Page N�mtber General Purpose Financial Statements: Independent Auditors' Report on General Purpose Financial Statements 1 Ccaabined Balance Sheet - All Fund Types and Account Groups 2 - 3 combined Statement of Revenues, Eq3enditures and Changes in Fund Balances - All GoveTzex tal Fund Types 4 - 5 Combined Statement of Revenues, Expenditures and Charges in Fund Balances - Budget and Actual- General, Special Revenue and Debt Servioe Fund Types 6 - 8 Combined Statement of Revenues, Expenses and Changes in Retained Earnings - All Proprietary Fund Types 9 Cxanbined Statement of Changes in Financial Position All Proprietary Fund Types 10 Notes to Financial Statements 11 - 71 Supplementary Information - Federally Assisted Programs: Independent Auditors' Report and Schedule of Federal Financial Assistance Independent Auditors' Report on Schedule of Federal Financial Assistance 72 Schedule of Federal Financial Assistance 73 - 74 Independent Auditors' Reports on Compliance and Schedule of Findings and Questioned Costs Independent Auditors' Report on C7ouplianoe Related to the General Purpose Financial Statements 75 Independent Auditors' Report on Compliance with laws and Regulations Related to Federal Financial Assistance Programs 76 - 77 Schedule of .Findings and Questioned Costs 78 - 79 Independent Auditors' Reports on Internal A000untinv Controls Independent Auditors' Report on the Internal Control Stricture in Accordance with Government Auditing Standards 80 - 81 Independent Auditors' Report on Internal Controls (Accounting and Acbm=strative) - Based on a Study and Evaluation Made as Part of an Examination of the General Purpose Financial Statements and the Additional Tests Required by the Single Audit Act 82 - 84 • • • GENERAL PURPOSE FINANCIAL SrA'ENIS I • • DIEHL,EVANS &COMPAl`I 1 OTHER OFFICES AT: CERTIFIED PUBLIC ACCOUNTANTS 2965 ROOSEVELT ST. CARLSBAD.CA 92008-2389 . APARTNERSHIPINCLUDMGACCOUNTANCYCORPORATIONS (619) 7 29-2343 18401 VON KARMAN,SUITE 200 120 WEST WOODWARD AVE. IRVINE • CALIFORNIA 92715-1542 ESCONDIDO.CA 92025-9990 PHONE(714) 757-7700 September 14, 1989 (619) 741-3141 FAX(714) 757-2707 INuumcm AUDIZc ' REPCW ON GENERAL PURPM FIIO24MAL STATEMENTS • City Council City of Huntington Beach Huntington Beach, California We have audited the general purpose financial statements of the City of Huntington Beach; California as of and for the year ended June 30, 1989, as listed in the table of contents. These financial statements are the responsibility of the City's management. our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose 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 general.purpose financial statement presentation. we believe that our audit provides a reasonable basis for our opinion. In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of 'Huntington Beach as of June 30, 1989, and the results of its operations and the changes in financial position of its proprietary fund types for the year then • ended in conformity with generally accepted accounting principles. z -1- • r • CITY OF HUNTINGION BEACH COINED BALANCE SHEET - ALL FUND 'TYPES AND ACCOUNT GROUPS June 30, 1989 (expressed in thousands) • Governmental Fund Types Special Debt Capital ASSETS General Revenue, Service Projects Cash and investments (Notes le and 3) $ 21,279 $ 16,901 $ 3,894 $ 24,238 Cash with fiscal agent (Note 3) 224 - 9,069 864 Taxes receivable (Note lc) 2,164 - 48 8 • Other receivables 697 1,717 156 2,464 Unbilled receivables (Note lb) - - - Inventory (Note lg) 263- - - - Due frcnn other funds 505 - - - Advances to other funds (Note 10) 48,402 5,300 21,340 7,425 Deposits and other assets (Note 20) 13 - - - Land held for resale (Note lf) - - - 19,549 Property, plant and equipment, net (Notes if and 15) - - - - Amount available for debt service funds - - - - Amount to be provided for payment of long-term debt - - - - TOTAL ASSETS 73,547 L.2 918 34 507 54 548 LIABILITIES AND FUND EQUITY LIABILITIES: Accounts payable $ 1,528 $ 390 $ - $ 129 Accrued liabilities 1,614 10 - 8 Deposits 701 14 - - Tax and revenue anticipation note payable (Note 19) 5,000 - - - Due to other funds - 505 - - Advances from other funds (Notes 10 and 12) - - - - Deferred motion (Note 4) - - - - Claims payable (Note 9) - - - - Deferred revenue (Note 5) 35,161 3,378 361 675 Current portion of long-tern debt - - - - Long-term debt (Notes 12 and 13) - - - - Cmpensated absences payable • (Notes lj, 12 and 13) - - - - TOTAL LIABILITIES 44,004 4,297 361 812 FUND EQUITY: Contributed capital (Note 10) - - - Investment in general fixed assets - - - • Retained earnings - - - - Fund Balances: Reserved (Note 16) 27,043 5,051 34,146 53,736 Unreserved: Designated (Note 16). 486 3,550 - - Undesignated 2,014 11,020 - - • TOTAL FUND EQUITY 29,543 19,621 34,146 53,736 TOTAL LIABILITIES AND FUND EQUITY 73,547 L.2 918 34 507 54 548 See independent auditors' report and notes to financial statements. -2- SCNEDJI£ A-1 J Account Grohs Propriety Rnxi Types Fiduciary General General Internal Fund Type Fixed Ic M-Tezm Total olswrarxitun Only) Enterprise Service Agency Assets Debt 1989 1988 $ 9,783 $ 11,653 $ 573 $ - $ - $ 88,321 $ 75,432 • 936 4,822 10,172 _ _ 26,087 26,197 2,220 2,243 1,204 109 3,255 - - 9,602 . 4,450 1,373 - - - - 1,373 1,218 - - - - - 263 208 505 - 1,417 - - _ _ 83,884 38,002 184 29 226 28 - - - - 19,549 4,854 36,654 10,902 - 69,442 - 116,998 114,410 - - - 12,806 12,806 17,638 - - - - 132,774 132,774 77,938 $ 51,367 $ 27,670 14,029 $ 69,442 $ 145,580 $ 494,608 $ 362,618 $ 1,321 $ 179 $ - $ - $ - $ 3,547 $ 2,701 120 161 - - - 1,913 4,040 1,109 - - - - 1,824 2,630 - - - - - 5,000 - - - - - - 505 - 944 - - - 82,940 83,884 38,002 - 13,429 - - 13,429 11,126 7,422 573 - - 7,995 7,336 - - - - - 39,575 7,946 270 73 - - - 343 818 6,835 5,773 27 - 58,333 70,968 62,354 128 - - - 41307 4,435 3,941 10,727 13,608 14,029 - 145,580 233,418 140,894 37,586 12,654 - - - 50,240 49,362 - - 69,442 - .69,442 65,675 3,054 1,408 - - - 4,462 1,516 119,976 88,415 4,036 6,469 - - - - - 13,034 10,287 40,640 14,062 - 69,442 - 261,190 221,724 $ 51,367 $ 27,670 $ 14,029 $ 69,442 $ 145,580 $ 494,608 $ . 362,618 -3- CITY OF HUN INGItON BEACH CaID STATEMENT OF REVENUES, Ems" MMURFS AND CHANGES IN FUND BALANCES ALL GOVEME24TAL FUND TYPES For the year ended June 30, 1989 • (expressed in thousands) General REVENUES: Property taxes (Note li) $ 23,072 Other taxes 30,519 Licenses and permits 3,650 Fines, forfeitures and penalties 2,458 Fran use of money and property 6,530 Fran other agencies 8,542 Charges for current services 5,886 Other 1,077 Contributions from property owners (Note 14) - TOTAL REVENUES 81,734 EXPENDITURES: Current: City Council 113 City Achninistrator 782. • City Treasurer 320 City Attorney 415 City Clerk 170 Administrative Services 2,956 CommLmity Development 2,110 Fire 12,722 • Police 23,556 Economic Development - Community Services 7,472 Public Works 16,505 Non-departmental 7,012 Capital outlay 1,026 • Debt Service: Principal - Interest 228 TOTAL EXPENDITURES 75,387 EXCESS OF REVENUES OVER (UNDER) E)MMI'IURFS 6,347 • OTHER FINANCING SOURCES (USES) Operating transfers in 1,291 Advances from other funds (Note 12g) - Proceeds of long-term debt - Operating transfers out (2,170) Other (Note 20) 6,191 TOTAL OTHER FINANCING SOURCES (USES) 5,312 EXCESS OF REVENUES AND OTHER SOURCES OVER F)MENDITURFS AND OTHER USES 11,659 FUND BAIMCE - BEGINNING OF YEAR 22,349 • Residual equity transfers in (Note lob) 346 Residual equity transfers out (Note lob) (4,811) FUND BALANCE - END OF YEAR $ 29,543 See independent auditors' report and notes to financial statements. �. -4- SCHE:= A-2 Totals Special Debt Capital (Memorandm Only) Revemie Service Pro?ects 1989 1988 $ - $ 3,298 $ 600 $ 26,970 $ 24,275 217 - - 30,736 30,207 2,123 - - 5,773 4,348 - - - 2,458 2,338 2,449 3,192 1,713 13,884 8,003 13,179 - - 21,721 15,492 5,886 3,208 - - - 1,077 1,410 1,654 1,654 - 17,968 6,490 3,967 110,159 89,281 - - 43 156 130 198 - 324 1,304 1,106 - - 2 322 290 - - 627 1,042 973 - - 123 293 245 - - 453 3,409 3,287 - - 1,535 3,645 4,187 - - - 12,722 11,840 9 - - 23,565 22,370 748 - - 748 - 123 - - 7,595 6,954 - - 388 16,893 16,205 4 55 17 7,088 7,153 10,810 - 31,453 43,289 9,786 1,362 5,037 6,399 975 - 5,799 2,751 8,778 4,268 11,892 7,216 42,753 137,248 89,769 6,076 (726) (38,786) (27,082) (488) - 2,000 173 3,464 3,154 - 46,033 46,033 21,108 6,463 6,463 26,313 (1,291) (3) - (3,464) (3,607) - .1,250 7,441 727 (1,291.) 1,997 53,919 59,937 47,695 4,785 1,271 15,133 32,848 47,207 14,848 32,875 35,099 105,171 57,964 782 - 3,864 4,992 1,350 (794) - (360) (5,965) (1,350) $ 19,621 $$ 34,146. $ 53,736 $ 137,046 $ 105,171 -5- • CITY OF HUNTINGION BEACH CXHBINED S-BUMMfr OF REVENUES, E XPE NDIZURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENm2AL, SPECIAL REVENUE AND DEBT SERVICE FUND TYPES For the year ended June 30, 1989 • (expressed in thousands) General. Fund Variance - Favorable Budget Actual (Unfavorable) • REVENUES: Property taxes $ 22,440 $ 23,072 $ 632 Other taxes 31,978 30,519 (1,459) Licenses and permits 3,366 3,650 . 284 Fines, forfeitures and penalties 2,570 2,458 (112) From use of money and property 6,875 6,530 (345) • From other agencies 8,894 8,542 (352) Charges for current services 5,197 5,886 689 Other 596 1,077 481 TOTAL REVENUES 81,916 81,734 (182) EXPENDITURES: Current: City Council 98 113 (15) City Administrator 772 782 (10) City Treasurer 319 320 (1) City Attorney 398 415 (17) City Clerk 199 170 29 Administrative Services 3,215 2,956 259 Ccm wnity Development 2,219 2,110 109 Fire 12,701 12,722 (21) Police 23,373 23,556 (183) c mmwnity Services 7,386 7,472 (86) Public Works 18,558 16,505 2,053 • Non-departmental 7,086 7,012 74 Capital outlay 1,915 1,026 889 Debt Service: Principal - - - Interest 228 228 - TOTAL EXPENDITURES 78,467 75,387 3,080 • EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 3,449 6,347 2,898 OTHER FINANCING SOURCES (USES) : Operating transfers in 1,300 1,291 (9) Operating transfers out (2,044) (2,170) (126) Other 6,191 6,191 - • TOTAL OTHER FINANCING SOURCES (USES) 5,447 5,312 (135) EXCESS OF REVENUES AND CYPHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES 8,896 11,659 2,763 FUND BALANCES - BDGINNING OF THE YEAR 22,349 22,349 Residual equity transfers in 346 346 - • Residual equity transfers out (4,811) (4,811) - FUND BALANCES - END OF YEAR $ 26,780 $ 29,543 $ 2,763 See independent auditors' report and notes to financial statements. -6- • SCHEDULE A-3 Special Revenue Funds Debt Service Funds Variance - Variance - Favorable Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) $ - $ - $ - $ 2,221 $ 3,298. $ 1,077 209 217 8 - - - 1,720 2,123 403 - - 1,567 2,449 882 3,268 3,192 (76) 9,438 13,179 3,741 - - - 12,934 17,968 5,034 5,489 6,490 1,001 189 198 (9) - - - 437 748 (311) - - 10 9 1 - - 189 123 66 - - - 4 4 - 55 55 22,909 10,810 12,099 - - - - - 1,362 1,362 - - - - 6,490 5,799 691 23,738 11,892 11,846 7,907 7,216 691 (10,804) 6,076 16,880 (2,418) (726) 1,692 2,099 2,000 (99) (1,300) (1,291) 9 - (3) (3) (1,300) (1,291) 9 2,099 1,997 102) (12,104) 4,785 16,889 (319) 1,271 1,590 14,848 14,848 - 32,875 32,875 - 782 782 - - - - (794) (794) - - - - $ 2,732 $ 19,621 $ 16,889 $ 32,556 $ 34,146 $ 1,590 (401�INCJID) -7- • CITY OF HUNrINGION BEACH SCHED= A-3 CMBIlNED STATEMENT OF REVENUES, FAQ" NDI'iURFS AND C2WGES IN FUND BALANCES - BUDGET AND ACTUAL ( ) G04ERAL, SPECIAL REVENUE AND DEBT SERVICE FUND TYPES For the year ended June 30, 1989 (expressed in thousands) Totals (Memrandum Only) Variance - Favorable REVENUES: Budget Actual (Unfavorable) • Property taxes $ 24,661 $ 261370 $ 1,709 Other taxes 32,187 30,736 (1,751) Licenses and permits 5,086 5,773 687 Fines, forfeitures and penalties 2,570 2,458 (112) Fran use of money and property 11,710 12,171 461 From other agencies 18,332 21,721 3,389 • Changes for current services .5,197 5,886 689 Other 596 1,077 481 TOTAL REVENUES 100,339 106,192 5,853 EXPENDITURES: Current: City Council 98 113 (15) City Administrator 961 980 (19) City Treasurer 319 320 (1) City Attorney 398 415 (17) City Clerk 199 170 29 Administrative Services 3,215 2,956 259 Ca munity Develgm-ent 2,656 2,858 (202) • Fire 12,701 12,722 (21) Police 23,383 23,565 (182) cammulity Services 7,575 7,595 (20) Public Works 18,558 16,505 2,053 Non-departmental 7,145 7,071 74 Capital outlay 24,824 11,836 12,988 • Debt Service: Principal 1,362 1,362 - Interest 6,718 6,027 691 TONAL EXPENDITURES 110,112 94,495 15,617 EXCESS OF REVENUES OVER • EXPENDITURES (9,773) 11,697 21,470 OTHER FINANCING SOURCES (USES) : Operating transfers in 3,399 3,291 (108) Operating transfers out (3,344) (3,464) (120) Other 6,191 6,191 - 'POTAL OM ER FINANCING • SOURCES (USES) 6,246 6,018 (228) EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES (3,527) 17,715 21,242 FUND BALANCES - BEGINNING OF THE YEAR 70,072 70,072 - Residual equity transfers in 1,128 1,128 - • Residual equity transfers out (5,605) (5,605) FUND BALANCES - END OF YEAR $ 62,068 $ 83,310 $ 21,242 See independent auditors' report and notes to financial statements. -8- • SCHEDULE A-4 CITY OF HUNIrDCR3N BEACH OCMBINED STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED FAIUD2M - ALL PROPRIETARY FUND TYPES For the year ended June 30, 1989 (expressed in thousands) Totals Internal (Memorandum Only) Enterprise Service 1989 1988 OPERATING REVENUES: Sales $ 12,467 $ 8,836 $ 21,303 $ 9,698 Rentals 887 - 887 9,388 Other 1,019 - 1,019 449 TC TAL OPERATING REVENUES 14,373 8,836 23,209 19,535 OPERATING EXPENSES: Water purchases 2,807 2,807 2,988 _ Administration 1,104 3,277 4,381 2,901 Engineering 1,282 - 1,282 827 Production 2,490 - 2,490 2,123 Maintenance 1,003 - 1,003 1,167 Water Meters 520 - 520 595 Contribution to General Fund in lieu of taxes 1,829 - 1,829 1,390 Employee medical claims - 2,095 2,095 1,834 Liability claims - 1,127 1,127 914 Workers motion claims - 1,491 1,491 2,245 Depreciation (Note lf) 1,392 11,741 3,133 3,215 TOTAL OPERATING EXPENSES 12,427 9,731 22,158 20,199 OPERATING INCOME (ID6.S) 1,946 (895) 1,051 (664) NON-OPERATING REVENUES (EXPENSES) : Interest income 1,080 1,232 2,312 1,588 Interest expense (601) - (601) (612) Joint venture - 184 184 - TOTAL NON-OPERATING REVENUES (EXPENSES) 479 1,416 1,895 976 NET INCOME 2,425 521 2,946 312 RETADM EARNINGS - BBGINNING OF YEAR 629 887 1,516 1,204 RETAINED EIARNINGS - END OF YEAR $ 3,054 $ 1,408 $ 4,462 $ 1,516 See independent auditors' report and notes to financial statements. -9- • CITY OF HUNTINGTON BEACH SCVEDULE A-5 C CMBINED STATEMENT OF CIS IN MANCIAL POSITION - ALL PROPRIETARY FUND TYPES For the year ended June 30, 1989 (expressed in thousands) • Totals Internal (Memorandum Only) Enterprise Service 1989 1988 SOURCES OF WORKING CAPITAL: Operations: Net income $ 2,425 $ 521 $ 2,946 $ 312 • Lass on sale of plant, property and equipment 9 15 24 92 Depreciation 1,392 1,741 3,133 3,215 Working capital provided by operations 3,826 2,277 6,103 3,619 Increase in self-insurance claims • payable - 86 86 163 Increase in coupensated absences 9 - 9 - contributions received 438 819 1,257 2,915 Increase in Certificates of Participation 13 5,510 5,523 13 Decrease in restricted assets 512 - 512 71 • Increase in note payable - - - 336 Sale of property, plant and equipment - 60 60 102 TOTAL SOURCES OF WORKING CAPITAL 4,798 8,752 13,550 7,219 USES OF WORKING CAPITAL: Increase in investment in joint venture - 184 184 - Increase in plant, property and equipment 459 1,580 2,039 5,.019 Increase in restricted assets - 4,822 4,822 34 Decrease in long-term notes 93 73 166 79 Decrease in long-term bonds 166 - 166 - Increase in advances from other funds 128 - 128 1,118 Disposition of fixed assets acquired with contributed capital - 379 379 - Decrease in cmpensated absences - - - 6 TOTAL USES OF WORKING CAPITAL 846 7,038 7,884 6,256 NET INCREASE IN WORKING CAPITAL $ 3,952 1 714 15 666 g 963 • EI M?M OF NET INCREASE (DECREASE) IN WORKING CAPITAL: Cash and investments $ 3,261 $ 1,736 $ 4,997 $ 1,185 Interest receivable 18 53 71 21 Accounts receivable 674 4 678 (25) Unbilled receivable, 155 - 155 289 • Accounts payable (507) 39 (468) 159 Due to other funds 59 - 59 - Interest payable (5) (125) (130) 6 Deposits 307 - 307 (593) CU rent portion of long-term debt (10) - (10) (3) Accrued payroll - 7 7 76) • NET INCREASE IN WORKING CAPITAL $ 3,952 1 714 5 666 1 963 See independent auditors' report and notes to financial statennents. -10- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • JUNE 30, 1989 1. S@vtY OF SIGNIFICANT AC00UNTI IM POLICIL'S: a. Description of Land Types and Account Groups: The City of EluntingLon Beach (City) accounts for its financial position and operations in accordance with generally accepted accounting principles for governmental units prescribed by the Government Accounting Standards Board (GASB) . The City uses various funds and account groups to record its financial activity. A fund or account group is an accounting entity with a self-balancing set of accounts established to record the financial position and results of operations of a specific governmental activity. The City . maintains the following fund types and account groups: Governmental Land Types: The General rand is used to account for all financial activity that is not required to be accounted for in another fund. Special.Revenue tends are used to account for the receipt and expenditure of monies legally restricted to a specific use. Debt Service Funds are used to account for the receipt and disbursement of monies used for the payment of general and redevelopment long-term principal and interest. Capital Projects Pands are used to account for monies used for the acquisition and construction of major capital facilities. Proprietary U'und Types: Enterprise Lands are used to account for City operations that are financed in a manner similar to private businesses. Enterprise funds are used when the City wishes to recover the cost of a particular service furnished to the public on a cost (expenses including depreciation) reimbursement basis or when the City wishes to make periodic determinations of net income. Internal Service lands are used to account for goods and services provided by one department of the City to another on a cost-reimbursement -basis. riduciai—Clind Type: Acienc`LAuids are used to account for assets held by the .City as an agent for ind!i ideals or private organizations. See independent auditor ' s report -11 • CITY OF HUNTINGTON BEACH NOTES TO CINANCIAL STATEMENTS (continued) .TUNE 30, 1989 • 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) • a. Description of Fund Types and Account Groups: Account Groups: The General Fixed Assets Account Group is used to record and control capital • assets owned by the City other than those owned by proprietary fund types. The General Long Term Debt Account Group is used to account for the unmatured long-teni liabilities that will be financed from governmental funds. b. Basis of Accounting: • Governmental and agency fund types use a modified accrual basis of accounting. Revenues are recognized when they are susceptible to accrual. This means that they must be measurable and available to finance current period expenditures. Revenues susceptible to accrual are received within 60 days after year-end and include property taxes, sales tax, federal and state grants and subventions, interest and certain charges for current service. Revenues which are not susceptible to accrual include certain licenses, permits, fines and forfeiture and other miscellaneous revenue. Expenditures, other than principal and interest on long-term debt are recorded when incurred. Proprietary fund types are accounted for on the accrual basis. Accounting for these fund types normally follows accounting for private businesses. Revenues are recognized when earned, regardless of the date -of receipt. Expenditures are recognized when incurred. Unbilled water revenue is accrued when earned. c. Measurement Focus: The Ci.ty's g(-wernment.Il funds are accounted for on a spending or "financial flew" meas-urFnnent focus. This means that generally only current assets ,and • current liabilities are included on their balance sheets. Staterients of revenue, exFv:-nd1tures and changes in fund balance for governmental funds generally present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All proprietary funds are accounted for on a cost of services or "capital maintenance" measurement focus. The fund equity amount represents total net • assets. Proprietary funds are accounted for on a capital maintenance SF'(- i-ndepen(lont. and i.t,-ir ' s report_ -12- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 • 1. S[1kIARY OF SIGNIFICANT ACODUNTING POLI= ((OWERM: C. Measurement Focus: measurement focus. This means that all assets and liabilities, whether current or noncurrent, are shown on the balance sheets. Their reported fund equity represents total net assets. Proprietary fund operating statements present increases (revenues) and decreases (expenses) in total net assets. d. Budgets and Budgetary Accounting: The City Council annually adopts a budget by June 30th of the prior fiscal year for all governmental fund types. The budgeted expenditures become the appropriations to the various departments. Estimates are also made for • revenue which, along with the appropriations, are used to compute the budgetary fund balance. This appropriated budget, as defined by GASB Code Section 2400.109, covers substantially all governmental fund type expenditures with the exception of capital improvement projects (capital projects funds) carried forward from prior years, which constitute a legally authorized non-appropriated budget. The City Council may amend the budget at • any time. The City Administrator may transfer funds from one object purpose (personal services, operating expenditures or capital outlay expenditures) to another within the same department without changing the total budget of a department. A department head may transfer funds from like object categories of the same department. Any changes to a total departmental budget must be approved by the City Council. Expenditures may not exceed appropriations at • the departmental level. All unused appropriations lapse at year-end. Budgets for governmental fund types are adopted on a basis substantially consistent with generally accepted accounting principles as legally required. There are no significant non-budgeted financial activities. Revenues for special revenue funds are budgeted by entitlements, grants and estimates of • future develoFrrent and economic growth. Expenditures and transfers are budgeted based upon available financial resources. On or before February 28th of each year, each Department submits data to the City Administrator so that a budget may be prepared. This budget is prepared by fund, function and activity and includes information on past • years, current year estimates and requested appropriations for the next fiscal near. 13cfore May 1st, the proposed budget is presented to the City Council. The City COUncil holds public hearings and may amend the budget by See independent auditor ' s report -13- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 1. SUM MY OF SIGNIFICANT ACCOUNTING POLICIES (C(M rINUM): • d. Budgets and Budgetary Accounting: a majority vote. Any changes to the budget must be within the revenues and reserves estimated as available. Budgetary data is presented for the General, special revenue and debt service Elands. Budgetary information is not presented for the capital projects funds since these are budgeted on a long-term project by project basis. The City utilizes an encumbrance system as an aid in controlling expenditures. Encumbrances represent amounts committed for goods or services for which a purchase order has been issued and the goods have not been received or the services have not been rendered. At year-end, all outstanding encumbrances are reported as reservations of fund balance in governmental fund types. These outstanding encumbrances are then reprogrammed into the new fiscal year. The budgetary information presented for estimated revenue and appropriations represent the original budget adjusted for changes made by action of the City Council, City Administrator or Department Head. All changes to the original, adopted appropriations (expenditures plus other financing uses) are summarized below (in thousands) . Elands with no changes are not shown: • Fund Original Revised General $79,672 $85,322 Special Revenue Funds: Gas Tax 8,161 10,513 Sewer 525 736 Planned Local Drainage 1,795 2,133 Public Communications 219 220 Grants 1,930 6,490 Park Acquisition 2,326 4,858 • and Development Narcotics rorfeiture 100 198 • • See independent auditor ' s report -14- • CITY OF HUNTINGTON BEAC❑ NOTES TO FINANCIAL STATEMENTS (continued) • JDNE 30, 1989 1. SUMMAM OF SIGNIFICANT A000ONTING POLICIM (00 NTL'NOED):. • e. Investments: Investments are stated at cost, which is less than market. If market • values decline below cost, no loss is recorded if such declines are considered permanent. The assets of the Employee Deferred Compensation Fund (an Agency Fund) are reported at market value rather than cost, in accordance with GASB Statement 2. f. Property and Equipment: • Acquisitions of property and equipment are generally recorded as expenditures in governmental fund types at the time of purchase and are capitalized at cost in the General Fixed Assets Account Group. Land held by the Redevelopment Agency for resale is capitalized at the lower of cost or market in the Redevelopment Agency Capital Projects Fund. Expenditures for infrastructure (roads, curbs, sidewalks, sewers, etc. ) are not capitalized as such assets are immovable and generally of value only to the City. No depreciation is provided for any asset capitalized inkthe General Fixed Assets. Account Group.. • Property and equipment acquired by proprietary fund types are capitalized' at cost at the time of purchase in the fund making the purchase. Both proprietary and general fixed assets- acquired from gifts. or contributions are capitalized"• at fair market value at the time received`, or in the case of water fixed assets at City Council acceptance. date. Depreciation for both donated and acquired assets is calculated on the straight-line- method over the estimated useful lives of the assets shown below and charged to the operations of the respective fund Production, putrping,. trans►nission and distribution plant - 10 to 50 years General plant- 20 to 50 years • Transportation equipment- 5 to 30 years Interest is capitalized on proprietary fund assets acquired with tax-exempt debt. The amount of interest to be capitalized is calculated by offsetting interest expense incurred form the date of borrowing- until completion of the project with interest earned on the invested proceeds over the same period. The City has capitalized $185,000 of interest on the construction of the Dnerald Cove apartment complex. • Set- independent auditor ' s report -15- CITY OF nUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JDNE 30, 1989 i� • 1. SUMMARY OF SIGNIFICANT AO00UN`r G POLICIES (CONTINUED) • g. Inventories: Inventories are accounted for in governmental funds by the consumption method, whereby inventories are capitalized and recorded as expenditures • when used. Inventories of materials and supplies totalled $262,662 at June 30, 1989 and are valued using the weighted average cost method. This amount is offset with an appropriate reservation of fund balance. h. Interfund Transactions: • During the course of normal operations, numerous transactions between funds. These result in operating transfers, residual equity trc:1".7fers, balances due to or due from other funds and balances advanced to ar from other funds. Residual equity transfers represent nonrecurring or non- • routine transfers of equity between funds. Operating transfers represent transfers between funds that are normal and recurring. Amounts that are due to or due from other funds represent the current (due within one year) portion of monies that are to be paid to or received from other funds. Amounts that are classified as advances from other funds represent the long-term portion of monies which will be repaid to other funds. Amounts that are classified as advances to other funds represent the long-term portion of amounts that will be received from other funds. In governmental funds amounts that are advanced to other funds are also offset equally by a fund balance reserve account, which indicates that they do not constitute expendable, available financial resources and therefore are not available for appropriation. In proprietary funds there is no reservation of fund equity. Quasi-external transactions are interfund transactions that would be treated as revenues, expenditures or expenses if they had involved organizations external to the City. The City has recorded all quasi- external transactions as revenues, expenditures or expenses. Transactions that constitute reimbursement to a fund for expenditures or expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the fund that it is reimbursed. all other interfund transactions are reported as operating transfers. • See Ltidependent auditor ' s report -16- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 1. SUMMARY OF SIGNIFICANT ACODUNTING POUCIES (OONT NUM): • i. Long-Term Obligations: Governmental fund long-term debt (principal, interest and fiscal charges) • is recognized as an expenditure when due regardless of when the expenditure is incurred. Obligations that are expected to be financed from spendable, available financial resources are reported as a fund liability. The remainder of the obligation is reported in the General Long-Term Debt Account Group. Bond discounts and issuance costs are recognized in the period that the debt is issued. • Proprietary fund long-term debt is accounted for in the respective funds. Interest on the debt is recorded when incurred. Principal that is due within one year is classified as a current liability. The remainder is classified as a long-term liability. Bond discounts are recorded as a • reduction of outstanding debt and are deferred and amortized over the term of the debt. j. Enployee Compensated Absences: • The City records the cost of vacation and sick leave when paid in the governmental fund types and when incurred in the proprietary fund types. At June 30, 1989, the unfunded liability for vacation and sick leave accumulated by the City's governmental funds totalled $4,307,025 (note 12f) . The City has recorded this amount in the General Long-Term Debt Account Group with the assumption that these amounts will be paid with future financial resources rather than currently available spendable resources. In the proprietary fund types the liability of $128,085 has been recorded. These amounts represent the "cash surrender value" of all accumulated vacation and sick leave which is the amount that would be paid to employees if they teminate. Vacation is paid at 1000 of the accrued amount, while sick leave is paid at varying amounts depending on the employee's contract. • • See independent auditor ' s report -17- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 • 1. SUMMARY OF SIGNIFICANT ACODUN 19M PGLI= (CONTI UED): • k. Fund Dquity: The various types of fund equity recorded on the balance sheet are described below: Governmental Fund Types Reserved Fund Balance represents that portion of fund balance that is not appropriable for expenditure or that is legally segregated for a specific future use. • Unreserved/Designated Fund Balance represents that portion of fund balance that has been tentatively set aside by the City Council. Unreserved/Undesignated Fund. Balance represents the portion of fund balance that is available to be appropriated and spent by the City Council. Proprietary Fund Types Retained Earnings represents the accumulated earnings of an enterprise or internal service fund. Contributed Capital represents the pennanent fund capital of a proprietary • fund which is created when a general fixed asset is transferred to a proprietary fund or a residual equity or certain types of operating transfers are made to a proprietary fund. A description of the changes in these amounts is shown in note 11(b) . • Account Groups Investment in General Fixed Assets represents the City's monetary investment in general fixed assets at cost. • 1. Property Tax Revenue: Pr(-)perty tax in California is levied in accordance with article 13-A of the California constitution. The basic levy is a countywide-levy of one � Percent of total assessed valuation. This basic levy is allocated to See independent ai-iditor ' -s report -18- � • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) .TUNE 30, 1989 1. S1*14ARY OF SIGNIFICANT AOCIOUNTPING POLICIES (OKKl'I WM): • 1. Property Tax Revenue: county government, school districts, cities and special districts. Additional levies require two-thirds approval by voters and are allocated directly to the specific government unit. Property tax revenue is recognized. in the fiscal year levied provided that the revenue is collected during the year or within 60 days of year-end. The County acts as a collection agent for property tax for all of the local • governmental units. Property taxes are normally collected twice per year. The property tax calendar is as follows: Lien Date- March 1st of prior fiscal year Levy Date- July 1st Due Date, First Installment- November loth • Due Date, Second Installment- February loth Delinquent Date, First Installment- December 11th Delinquent Date, Second Installment- February 11th The taxes are remitted to the local governments periodically during the year. Below are shown the dates and percentages from the County (dates and • percentages vary slightly from year to year) November 30th- 50 December 19th- 20e December 28th- 20a February 1st- Balance of First Installment • March 28th- 50 April 26th- 340 July 26th of next fiscal year- Balance of Second Installment m. Allocation of Interest Income Among Funds: • The City Fools .all non-restricted cash for investment purchases. Interest inccxme is all(xcated monthly to the various funds based on the month-end dash halanc•es. Interest income from restricted cash is recorded directly_ in they fund (.3rning the income. • • See independent auditor ' s report -19- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE. 30, 1989 1. S@TMY OF SIGNIFICANT AC00UM'1W POLICIES (ODWINUED): • n. Equipment Replacement Land: All machinery and equipment which is not owned by proprietary funds is owned by the Equipment Replacement Fund, an internal service fund. The • machinery and equipment is leased to user departments. All machinery and equipment which does not replace existing equipment is purchased by the respective fund and transferred to the Equipment Replacement Fund. This is recorded as a residual equity transfer out in the purchasing fund and contributed capital in the Equipment Replacement Fund. • o. Emerald Cove Housing Fund Transfer: The City operates the Emerald Cove Senior Citizens Apartment Complex and records the activity in the Emerald Cove Housing Fund, an enterprise fund. • The City annually transfers funds from the Low-Income Housing Fund to subsidize operations. These transfers are recorded as a residual equity transfer in the Low-Income Housing Fund and contributed capital in the Emerald Cove Housing Fund since the City desires annual determinations of net income. • p. Total Columns and Comparative Data on Combined Financial Statements: The combined financial statements include total columns which aggregate the financial statements of the various fund types and account groups. The • columns are designated "memorandum only" because the totals are not comparable to a consolidation since interfund transactions (with the exception of certain leases between the oversight unit and component units described in note 2) are not. eliminated. Com}par.mtive tuta] data for the prior year have been presented in the • arr.cAnpi-inying financial stater:,*-_-nt.s in order to provide an understanding of changes In the iit.y's financial position and operations. However, comparative data for .individual funds have not been presented in all statements }.x,�cause their inclusion would make certain statements unduly complex and difficult to understand. • ;oe rident auditor ' s roport -20- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 1. NARY OF SIGNIFICANT A000U.NTTNG POLICIES (OURrINUED): • q. Joint Ventures: The City is involved in one joint venture which isrecorded in a proprietary fund type. It is recorded using the equity method of . accounting. The net increase in the city's equity position is recorded as a non--operating revenue or expense. 2. WgCRIPTION OF THE REIMrING ENTITY: • This report incorporates GASB Code Section 2100, "Defining the Governmental Reporting Entity," which outlines criteria to determine whether a separate legal entity's financial information should be included. in the City's financial statements. Based upon the statement's guidelines, certain separate legal entities have been included in this report. The criteria used in evaluating the different entities were oversight responsibility, financial dependency, ability to influence operations, designation of management, budget adoption, significant influence over operations, financing deficits or entitlement to surpluses, location within the City's geographic boundaries and benefit and general availability to the citizens. • of Huntington Beach, Below is a description of each of these entities and how their financial activity has been evaluated and incorporated into this report: Huntington Beach Public Facilities Corporation (Public Facilities Corporation)- This entity was formed in 1970 to issue. bonds to construct • the civic center and library complexes. The City leases the facilities from the Public Facilities Corporation. The lease is a capital lease because title to the facilities passes to the City upon termination of the lease. The Public Facilities Corporation's original governing body was appointed by the City Council. However, the governing board itself appoints any successors. The City Council adopts an annual budget for the Public • Cacilities Corporation which cannot terminate its lease with the City if the City meets the terms of the lease. At the termination of the lease, the Public fac.ili.tios Corporation will dissolve and its assets will revert to the City. The :assets and related revenue and expenditures that are used for repayment of the bonds are recorded as a debt service fund. Assets used to':construct capital' improvements are recorded as a capital projects • fund. . The capital projects fund normally receives no revenue other than interest. If additional. funds are required for capital projects, they will See independent auditor ' s report -21 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 2. DES RIPPICN OF THE- RMRTING RITTTY: • be transferred from the Public Facilities Corporation Debt Service Fund. Since the Public Facilities Corporation is a part of the City's reporting entity, the capital lease between the City and the Public Facilities Corporation has been eliminated. Parking Authority of the City of Huntington Beach (Parking Authority)- This entity was formed in 1967 to issue bonds to construct off-street parking facilities. The City leases the facilities from the Parking Authority. The lease is a capital lease because the City Council may, by resolution, dissolve the Parking Authority and deed the assets to the City. The Parking Authority's governing body is the City Council which annually adopts a budget for the Parking Authority. The Parking Authority is financially dependent on the City for all its operations. At any time during the term of the lease the lease payment may be forgiven by resolution of the City Council if there is sufficient cash in the Parking Authority to meet the debt service requirements. The assets and related revenue and expenditures that are used for repayment of the bonds are recorded in a debt service fund. Assets.used to construct capital improvements are recorded in a capital projects fund. The capital projects fund normally receives no revenue. If additional funds are required, they will be transferred from the Parking Authority Debt Service Fund. Since the Parking Authority is a part of the City's reporting entity, the lease has been eliminated. Redevelopment Agency of the City of Hunting Lon Beach (Redevelopment Agency)- This entity was formed in 1967 to facilitate the renovation -of older areas in the City limits. The City Council serves as governing body of and adopts an annual budget for the Redevelopment Agency. The Agency is financially dependent on the City for all of its operations. The tax increment revenue received by the Agency which can only be used to repay Agency debt is recorded in a debt service fund and the capital improvements made are recorded in a capital projects fund. Long-term advances from the City to the agency have been recorded as a long-tenn advance on the respective fund's balance sheet with a corresponding reservation of fund equity. The Agency's debt is recorded in the General Long-Term Debt • Account Group since these amounts will be paid from future financial resources., 11untingLon Mach Civic Improvement Corporation (Civic Improvement Corporation)- This corporation was formed to provide for the defeasance of the Huntington Beach Public Facilities Corporation Leasehold Mortgage Bonds- 1st Issue as described in Note 12. The Civic Improvement See independent auditor ' s report -22- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL -STATEMENTS (continued) JUNE 30, 1989 2. DESMIPTION OF THE REPORTING MQTITY: • Corporation issued $20,000,000 of certificates of participation to provide for this defeasance. The governing board of the Civic Improvement Corporation is the City Council which also adopts its annual budget. The Civic Improvement Corporation is dependent upon the City for all of its • operations. The Civic Improvement Corporation has title to the Civic Center complex and leases it to the City. It is a capital lease because title to the Civic Center complex reverts to the City at the end of the lease. The lease cannot be terminated if the City meets all its financial obligations. The assets pledged for repayment of the certificates of participation and the related revenues and expenditures are recorded in the Civic Improvement Corporation Debt Service Fund. The lease has been eliminated. Huntington Beach Public Financing Authority (Public Financing Authority)- This corporation was formed in March, 1988 to issue debt to finance public improvements and other capital purchases for the City and Redevelopment Agency. The Authority's governing body is the City Council which also adopts the annual budget. The Authority is totally financially dependent on the City. The Authority's activity is recorded as both a debt service fund and as a poit ion of the activity in the Equipment Replacement Fund (a proprietary fund type) . There are many other governmental agencies, including the County of Orange, various elementary school districts, the Coast Community College District, the EiuntingLon Beach Union High School District and various special districts which provide services within the City. These entities have independently elected governing boards and are not a component unit of the City of Huntington Beach and their financial information is not included in this report. 3. CASH AND LVJES'I1— T : Cash and investments at June 30, 1989 totalled $114,408,057 and are classified in the accompanying combined balance sheet as follows (in thousands) : cash and Investments $ 88,321 Cash with Fiscal :agent 26,087 • Total $114,408 See independent at-iditor ' s report -23- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JDNE 30, 1989 3. CASH AM INVES DINM (aWrINQID): • The following disclosures are made in accordance with GASB Statement Number 3. Collateral for Deposits Under provisions of the California Government Code, California banks and savings and loan associations are required to secure a City's deposits by pledging government securities with a value of 1100 of a City's deposit. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 1500 of a City's total deposits. • The collateral for deposits in Federal and state chartered banks is held in safekeeping by an authorized Agent of Depository recognized by the State of California Department of Banking. The collateral for deposits with savings and loan associations is generally held in safekeeping by the Federal Home Loan Bank in San Francisco, California as a third-party trustee. These securities are physically held in an undivided pool for all California public agency depositors. The trustees keep- detailed records of the security pool. The City Treasurer, at his discretion, may waive the collateral requirement for deposits which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. It is the City's policy to waive the collateral requirement if there is a higher interest yield on the investments. Authorized Investments • The City of I-IuntingLon Beach operates its pooled cash investments under the "Prudent Ian Rule" (California Civil Code sections.2261 et seq. ) . This allows a broad spectrum of invesianents as long as the investment is deemed prudent and allowable under legislation of the State of California (Government Code Section 53600 et seq. ) . • Under the provisions of the City's .investment policy and in accordance with Section 53601 of the California Government Code, the City may invest in the following types of instruments: • See independent auditor ' s report -24- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 3. CAM AND INVES'ff4& PS (00tMMED): • a. Bankers acceptances b. Negotiable certificates of deposit c. Commercial paper d. Bonds issued by the City e. Obligations of the United States Treasury f. Federal Agency Obligations of: Federal Intermediate Credit Bank (FICBs) Federal Land Bank (FLBs) • Federal Home Loan Bank (FHLBs) Federal National Mortgage Association (FNMAs) Small Business Administration (SBAs) Government National Mortgage Association (GNMAs) Tennessee Valley Authorities (TVAs) Student Loan Association Notes (Sallie Mae's) • g. Obligations of the State of California or of any local agency within the State of California: The Local Agency Investment Fund (LAIF) is a special fund of the California State Treasury through which any local government may pool investments. Each agency may invest up to $10,000,000 in this fund. Investments in IAIF are highly liquid and may be converted to cash within 24 hours. Investments with LAIF are secured by the full faith and credit of the State of California. h. Repurchase Agreements: Throughout the year ending June 30, 1989, the City utilized overnight repurchase agreements for temporary investment of idle cash. Such agreeirtents were used on average of 20 to 22 times per month and generally dial not exceed 100 of the City's investment portfolio. • i. Reverso-Rc-EAirchase AgrPements: Alt hough the CJ ty's investment �,o.l ic,y does not- PI-F A LIde the use uC Reverse-RetxircL-Ase agreements, the City did not borrow throilgh the use of reverse repurchase agreements at any time during the year. • j. Mediwn-Term Corporate Notes See independent auditor' s report -25- • • CITY OF IIUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 3. CAM AND INVE.SIMEbM (OXM[NUM: k. rtitual Funds Safekeeping Arrangements for Investments Under Sections 53651 to 53653 of the California Government Code, as • amended, the collateral underlying an agency's investments must be delivered to the City. If U.S. Federal obligations are used as the underlying collateral, the delivery may be made by "book-entry" only. For all other collateral, the security must be physically delivered to the City or a third-party custodial agent. Under California Senate Bill number 2115, passed in 1986, a bank is • permitted to maintain the underlying securities in its Trust or Safekeeping Department when acting as a third-party custodial agent. GASB Statement 3 requires the City's bank balance of deposits and investments be categorized as follows: • Deposits Category 1- Deposits which are insured by FDIC, FSLIC, a state depository insurance fund or a multiple-financial institution collateral pool, or deposits which are collateralized with securities held by the • City or the City's agent in the City's name. Category 2- Deposits which are collateralized with securities held-by the pledging financial institutions trust department in the City's name. Category 3- Deposits which are uncollateralized, or collateralized but • the pledged securities are not held in the City's name. Investments Category 1- Investment which are insured by SIPC, or where the • securities are held by the City or the City's agent in the City's name. Category 2- Investments which are uninsured, where the securities are held by the purchasing financial institution's trust department or agent in the City's name. • See independent auditor ' s report -26- • • CITY OF HUNTINGTON BEACH NOTRS TO FINANCIAL STATEMENTS (continued) 3 UNE 30, 1989 J. am AND nana1Mmm (OmrI m): • Category. 3= Investments which are uninsured, where the securities are field by the purchasing financial institution's trust department or. agent; but not in the City's name. Category Market 1 2 3 Cost Value be 70� sits Demand Accounts $ - $ 1,853 $ - $ 1,853 $ 1,853 Certificates 7;144 45,596 - 52,740 52,740 • of t)6posit Cash with Viscal - - 15,915 15,915 15,915 Agent Deferred - - 10,172 10,172 10,172 Cot q*hsation Subtotal __.7,144 47,449 26,087 80,680 80,680 Iiivestioents Corporate Notes $ 2,936 $ 778 $ - 3,714 3,672 Hankers 13,'025 497 - $13,522 13,547 Acceptances • rederal 1,444 - - 1,444 1,477 Obligations Mutual rands - - 7,712 7,712 7,768 Repurchase ' - - 11900 11900 11900 Agreements • Subtotal $ 17.,405 $1,275 9$ ,612 2$ 8,292 2$� 8,364 Investment in LAIF 10,000 10,000 Petty Cash 49 49 Savings • Total Bank Deposits 119,021 119,093 and Investments Less Demand �Warrants (4,613) (4,613) Outstanding Total Cash and $114,408 $114,480 • Investments See independent auditor ' s report -27- • CITY OF HUNTINGTON BOAC❑ NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 4. DCFEINUM COMPENSATION: • Permanent City employees have the option of deferring a portion of their salary under Section 457 of the Internal Revenue Code. These amounts are invested in savings accounts, certificates of deposit and other prudent investments. The City retains title to these funds until withdrawn by the employee, which may take place at termination or any later date. The assets of the plan remain subject to the general claims of creditors of the City. The amount of deferred compensation payable at June 30, 1989 was $13,429,000 which represents the market value of the investments. Since the Citv has a fiduciary responsibility to administer the plan, the assets are recorded in an agency fund in the City's financial statements. The assets of the plan are subject to the claims of the City's general • creditors and must remain the property of the City until paid or made available to the participants. The City believes that it is unlikely that it will use the assets to satisfy the claims of general creditors now or in the future. The City offers two different investment mediums for participants. The choice of investment is made by the participants. • 5. DEL-Ud ED REVENUE: Certain revenues in governmental funds due from the Redevelopment Agency have been deferred until received from the Agency. Interest on these • amounts accrues at 10% per annum with the exception of interest on loans from the Public financing Authority which accrues interest at varying rates. They are detailed below (in thousands) : GMMMAL FUND: • Development fees deferred in 1984 and 1985 $ 173 Land sales from the City to the Redevelopment Agency from 1982,183 to 30,636 1988/89 Interest on above amounts and on general 4,352 • fund advances from 1978/79 to 1987/88 Total c',enera l LAind 35,161 • See independent auditor ' s report -28- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) DUNE 30, 1989 5. DUTMED REVENW. t CONTINUM: • SPECIAL REVENWE FUNDS: Park Acquisition and Development Fund: • Sale of Emerald Cove site to Redevelopment 1,741 Agency Development fees deferred in 1985 248 Land sale proceeds paid to Emerald Cove 832 Interest on above amounts 289 Total Park Acquisition and Development Fund 3,110 • Sewer rand: Development fees deferred in 1985 43 Interest on above ammunts 19 Total Sewer Fund 62 • Gas. Tax rund Interest on advances from 1988/89 50 Planned Local Drainage: • Development fees deferred in 1985 72 Interest on above amounts and on advances 84 from 1987/88 Total Drainage Fund 156 Total Special Revenue rands 3,378 • DEDT SERVICE rLNDS: Public rinancing Authority: Interest on advances from 1988/89 361 • CAPITAL PROJECTS FUNDS Parking Structure Interest on above advances fro►n 1988/89 675 • Total Deferred Revenue 3 9,575 • See Lndr!pPndF,nt auditor ' s report -29- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 6. RLTIItEN9E PLAN - bKXWL: • a. Plan Description: The City contributes to the California Public Employees Retirement System (PERS) , an agent, multiple employer retirement system that acts as a common • investment and administrative agent for participating public entities in California. Generally only an employee's base salary (excluding overtime) is subject to retirement benefits. The total payroll for the year ending June 30, 1989 was $46,537,456. The payroll subject to retirement benefits was $38,113,271. • The plan covers all permanent City employees and temporary employees who work more than 1000 hours in a twelve month period. Benefits vest after five years of service. Benefits for employees vary based upon such factors as final yearly compensation, safety or non-safety status and age at retirement. There are two groups of covered employees: • Safety employees- include sworn police, fire and marine safety employees Miscellaneous eirployees- all other covered employees b. ERployee and Employer Contribution Obligations: • The City makes two types of contributions on behalf of covered employees. The first contribution represents the amount required to be made by the City (the employer rate) . The second represents an amount which is normally paid by the employee, but is reimbursed to the employee by the • City (the member rate) . The member rate is set by contract and normally remains unchanged. I The einployer rare is set by PERS and changes from year to year. The employer rates for the fiscal year ending June 30, .1989 are shown below: • • See independent auditor ' s report -30- 'ROM Iva • � v CLTY OF BEACH SINGLE AID1T OF FECERAILY ASSMM GRAHr PAS JQNE 30, 1990 • CITY OF HL ING ION BEACH TABLE OF CONTENTS June 30, 1990 • Page Number General Purpose Financial Statements: • Independent Auditors' Report on General Purpose Financial Statements 1 Coembined Balance Sheet - All Fund Types and Account Groups 2 - 3 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types 4 - 5 • Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General and Special Revenue and Debt Service Fund Types 6 - 8 Combined Statement of Revenues, Expenses and Changes • in Retained Earnings - All Proprietary Fund Types 9 Combined Statement of Cash Flows - All Proprietary Fund Types 10 - 11 Notes to Financial Statements 12 - 75 • Supplementary Information - Federally Assisted Programs: Independent Auditors' Retort and Schedule of Federal Financial Assistance • Independent Auditors' Report on Schedule of Federal Financial Assistance 76 Schedule of Federal Financial Assistance 77 Independent Auditors' Reports on Compliance and • Schedule of Findings and Questioned Costs Independent Auditors' Report on Compliance Related to the General Purpose Financial Statements 78 Independent Auditors' Report on Compliance with Laws and • Regulations Related to Major Federal Financial Assistance Programs 79 - 80 Independent Auditors' Report on Compliance with Laws and Regulations Related to Non-major Federal Financial Assistance Programs 81 Schedule of Findings and Questioned Costs 82 • CITY OF HLNrING'W BEACH • TABU: OF CONTENTS (OONrnium) June 30, 1990 • Page Nwnber Independent Auditors' Reports on Internal Accounting Controls Independent Auditors' Report on the Internal Control Structure �• in Accordance with Goverment Auditing Standards 83 - 85 Independent Auditors' Report on Internal Controls (Accounting and 1ministrative) - Based on a Study and Evaluation Made as Part of an audit of the General Purpose Financial Statements and the Additional Tests Required by the Single Audit Act 86 - 88 • • • • • • GENERAL P@WOBB FnQJRMM SMEMEd15 • DIEHL,DJANS &CON A V 1 RALPH K-TKM-XLMcDANIEL,CPA A41PH H.W'EQ�fiR�LB,CPA CERTIFIED PUBLIC ACCOUNTANTS MICK-0-R.U'DIN.CPA A P'ARMERSHIP INLUFDNC ACLXXJ.V ALY CORPORAMM ROBERT R.W9NI:.CIA • PHILIP H.HOLTKAMP,CB4 18401 VON KARMAN,SUITE 200 THOMAS M.PERLaWSIG,CPA IRVINE • CALIFORNIA 92715.1542 HAWU I SCHROEDER,CPA PHONE(714)757-7700 September 21, 1990 FAX(714)757-2707 • INDEPE R4T AUDIMPSI REPORT ON GENERAL PURPOSE FINANCIAL STATEMENTS • City Council City of Huntington Beach Huntington Beach, California We have audited the general purpose financial statements of the City of Huntington Beach, California as of and for the year ended June 30, 1990, as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. • We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose 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 general purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of • Huntington Beach at June 30, 1990, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with generally accepted accounting principles. • • MI ER OFFICES AT: 2965 ROOSEVELT ST 613 W.VALLEY PKWY.,SUITE 330 CARLSBAD.CA 92008.2389 ESCONDI DO.CA 92025.2552 (619)729-2343 (619)741-3141 (619)729-2234 FAX (619)741.9890 FAX • CITY OF HUNTINGTON BEACH COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1990 (expressed in thousands) Governmental Fund Types Special Debt Capital ASSETS AND OTHER DEBITS General Revenue Service Projects Cash and Investments (Notes le and 3) $ 7,743 $16,816 $ 3,325 $38,772 Cash With Fiscal Agent (Note 3) - - 7,370 227 Taxes Receivable (Note 1) 2,985 - 317 70 Other Receivables 1,518 1 ,251 150 545 Unbilled Receivables (Note lb) - - - - Inventory (Note lg) 284 - - - M Due from Other Funds 97 - - - Advances to Other Funds (Note 10) 57, 140 5,707 24, 122 17,264 Deposits and Other Assets 7,519 - - - Land Held for Resale (Note If) - - - 24,597 Property, Plant and Equipment, Net (Notes if and 15) - - - - Amount Available for Debt Service Funds (Note lb) - - - - Amount to be Provided for Payment of Long-Term Debt - - - TOTAL ASSETS AND OTHER DEBITS IIZ,286 23 774 115,284 JaL,475 LIABILITIES, EQUITY AND OTHER CREDITS LIABILITIES: Accounts Payable $ 2,046 $ 905 $ - $ 1 ,013 Accrued Liabilities 1,255 10 - 8 Deposits 346 14 - 34 Tax and Revenue Anticipation Notes - - - - Due to Other Funds - 47 - 50 Advances from Other Funds (Notes 10 and 12) - - - - Deferred Compensation (Note 4) - - - - Claims Payable (Note 9) - - - - Deferred Revenue (Note 5) 49,492 3,660 358 2,245 Current Portion of Long-Term Debt - - - - Long-Term Debt (Notes 12 and 13) - - - Compensated Absences (Notes lj, 12 and 13) - - - - TOTAL LIABILITIES 53, 139 4,636 358 3,350 EQUITY AND OTHER CREDITS: • Contributed Capital (Note 11b) - - Investment in General Fixed Assets - - - - Retained Earnings - - - Fund Balances: Reserved (Note 16) 22,959 6,567 34,926 78, 125 Designated (Note 16) - 3,946 - - Undesignated 1 , 188 8,625 - - TOTAL EQUITY AND OTHER CREDITS 24, 147 19, 138 34,926 78,125 TOTAL LIABILITIES, EQUITY • AND OTHER CREDITS 7$ 1,286 23 774 35 284 81 475 See independent auditors' report and notes to financial statements. -2- • • SCHEDULE A-1 Fiduciary Account Groups Propriety Fund Types Fund Type General General Internal Trust and Fixed Long-Term Totals (Memorandum Only-) • Enterprise Service Agency Assets Debt 1.990 1989 $12,747 $13,673 $ 2,713 $ - $ - $ 95,789 5 88,321 900 2,049 13,379 - - 23,925 26,087 - - - - - 3,372 3,597 931 212 2,484 - - 7,091 7,333 1,216 - - - - 1,216 1,373 • - - - - - 284 263 - - - - - 97 505 1,560 - - - 105,793 83,884 - 274 29 - - 7,822 226 - - - - 24,597 20,37-6 • 36,394 14,193 - 94,790 - 145,377 132,025 - - - - 11.,162 11,162 12,806 - - 167,772 167,772 130,432 53 748 30 401 118,605 121,790 $178,934 59$ 4,297 50$ 7,228 • $ 814 $ 416 $ - $ - $ $ 5, 194 $ 3,547 135 188 - - - 1,596 1,913 1,345 - 992 - - 2,731 1,.824 • - - - - - - 5,000 - . - - - - 97 505 944 - - - 104,849 105,793 83,884 - - 15,795 - - 15,795 13,42.9 - 6,962 1,773 - - 8,735 7,995 - - - - - 55,.755 39,5T5 ! 273 81 - - - 354 343 6,734 5,688 27 - 69.,764 82,2.13 68,626 161 - - - 4,321 4,482 4,435 10,406 13,335 18,587 0, 178.,934 282,745 231,016 • 38,824 14,221 - - - 53,045 50,093 - - - 94,790 - 94,790 84,469 4,518 2,845 - - - 7,363 4,609 - - 18 - - 142,.595 118,534 • - - - - - 3,946 4,036 - - - - - 9,813 14,.41.1 43,342 17,066 18 94,790 0 311 ,552 276, 152 53 748 110,401 $18,605 $94,790 178 934 59� 4,297 50$ 7,228 -3- • CITY OF HUNTINGTON BEACH COMBINED STATEMENT OF CASH FLOWS ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS For the Year Ended June 30, 1990 (expressed in thousands) Proprietary Fund Types Internal Enterprise Service CASH FLOWS FROM OPERATING ACTIVITIES: Operating Income (Loss) : $ 714 $ (186) Adjustment to reconcile operating income to net cash • provided by operating activities Depreciation 1,374 2,638 Change in Assets and Liabilities: Decrease (Increase) in Accounts Receivable 382 4 • Decrease (Increase) in Interest Receivable (107) (107) Decrease in Unbilled Receivable 157 - - Decrease (Increase) in Advance to Other Funds (143) - Increase (Decrease) in Accounts Payable (507) 96 Increase (Decrease) in Claims Payable - (460) Increase (Decrease) in Accrued Payroll 17 (12) • Increase in Accrued Interest - 164 Increase (Decrease) in Deposits 236 Increase in Compensated Absences 33 - Total Adjustments 1,442 2,323 Net Cash Provided by Operating Activities 2, 156 2, 137 • CASH FLOW .FROM NON-CAPITAL FINANCING ACTIVITY Operating Transfer In (Out) to Other Funds 68) 421 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: • Interest Expense (595) (404) Acquisition and Construction of Capital Assets (1,102) (5,913) Capital Contributed 1,385 1,567 Principal Paid on Bonds (26) - Principal Paid on Note Payable 88) 77) • Total Cash Used for Capital and Related Financing Activity 426) (4,827) CASH FLOWS FROM INVESTING ACTIVITY Interest on Investment 1,266 1 ,516 NET INCREASE (DECREASE) IN CASH EQUIVALENTS 2,928 (753) • CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,719 16,475 CASH AND CASH EQUIVALENTS, END OF YEAR 1$ 3,647 $15,722 See independent auditor's report and notes to financial statements. • -10- • • SCHEDULE A-5 • Fiduciary Totals Fund Type (Memorandum Only) Pension Trust 1990 1989 $18 $ 546 $ 1,051 • 4,012 3,133 • - 386 (678) (214) (71) 157 (155) (143) (128) (411) 467 (460) 86 • - 5 79 164 130 236 (307) 33 9 3,765 2,565 • = 4,311 3,616 353 - • (999) (601) - (7,015) (2,086) - 2,952 878 - (26) (166) 165) 5,510 • (5,253) 3,379 2,782 2,312 • 18 2, 193 9,307 - 27,194 17,887 29 387 JZL 194 • -11- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS JUNE 30, 1990 • 1. Sf*RY OF SIM;IFICANr ACMU RrM POLICIES: a. Description of Fund Types and Account Groups: • The City of Huntington Beach (City) accounts for its financial position and operations according to generally accepted accounting principles for governmental units prescribed by the Government Accounting Standards Board (GASB) . The City uses various funds and account groups to record its • financial activity. A fund or account group is an accounting entity with a self-balancing set of accounts to record the financial position and results of operations of a specific governmental activity. The City maintains the following fund types and account groups: Goverrmiental Fluid Types: • The General Fund accounts for all financial activity that is not required to be accounted for in another fund. Special Revenue Fluids account for the receipt and expenditure of monies legally restricted to a specific use. • Debt Service Funds account for the receipt and disbursement of monies used for the payment of general and redevelopment long-term principal and interest. Capital Projects Fluids account for monies used for the acquisition and • construction of major capital facilities. Proprietary Fund Types: Enterprise Funds account for City operations that are financed in a manner similar to private businesses and are are used when the City wishes to recover the cost of a particular service furnished to the public on a cost (expenses including depreciation) reimbursement basis or when the City wishes to periodically determine net income. Internal Service Funds account for goods and services provided by one department of the City to another on a cost-reimbursement basis. • Fiduciary Fund Type: Agency Funds account for assets held by the City as an agent for individuals or private organizations. • See Independent Auditor's Report 12 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS JUNE 30, 1990 1. SUMMARY OF SIGNIFICANT' ADMU11TIM POLICIES: a. Description of Fund Types and Account Groups: Pension Trust Funds account for contributions made and retirement benefits paid. Account Groups: The General Fixed Assets Account Group records and controls the City's capital assets not owned by proprietary funds. The General Long Term Debt Account Group accounts for the unmatured long- • term liabilities financed from governmental funds. b. Basis of Accounting: • Governmental and agency funds use a modified accrual basis of accounting. Revenues are recognized when they are susceptible to accrual. This means that they must be measurable and available to finance current period expenditures and received within 60 days after year-end. They include property taxes, sales tax, federal and state grants and subventions, interest and certain charges for current service. Revenues which are not • susceptible to accrual include certain licenses, permits, fines and forfeiture and other miscellaneous revenue. Expenditures are recognized when the rerelated fund liability is incurred, if measurable, except for u matured interest on long-term debt which is recognized when due. Proprietary fund types are accounted for on the accrual basis. Accounting • for these fund types normally follows accounting for private businesses. Revenues are recognized when earned, regardless of the date of receipt and expenditures are recognized when the related fund liability is incurred. Unbilled water revenue is accrued when earned. Pension trust funds are accounted for on the flaw of economic resources. • All assets and liabilities, both current and long-term are presented on the balance sheet. The operating statement presents increases (revenues) and decreases (expenses) in total net assets. • See Independent Auditor's Report 13 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS JUNE 30, 1990 • 1. SUMMARY OF SIGNIFICANT' A000@TTING POLICIES (OONrINUM) c. Measurement Focus: i The City's governmental funds are accounted for on" a spending or "financial flow" measurement focus where generally only current assets and current liabilities are included on balance sheets. Statements of revenue, expenditures and changes in fund balance for governmental funds generally • present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Proprietary funds are accounted for on a capital maintenance measurement focus. Assets and liabilities, whether current or noncurrent, are shown on the balance sheets. Reported fund equity represents total net • assets. Proprietary fund operating statements present increases (revenues) _ and decreases (expenses) in total net assets. d. Budgets and Budgetary Accounting: • The City Council annually adopts a budget by June 30th of the prior fiscal year for all governmental fund types. The budgeted expenditures become the appropriations to the various departments. Estimates are also made for revenue which, along with the appropriations, are used to compute the budgetary fund balance. The appropriated budget covers substantially all • governmental fund type expenditures with the exception of capital improvement projects (capital projects funds) carried forward from prior years, which constitute a legally authorized non-appropriated budget. The City Council may amend the budget at any time. The City Administrator may transfer funds from one object purpose (personal services, operating expenditures or capital outlay expenditures) to another within the same • department without changing the total budget of a department. A department head may transfer funds from like object categories of the same department. Any changes to a total departmental budget must be approved by the City Council. Expenditures may not exceed appropriations at the departmental level. All unused appropriations lapse at year-end. • Budgets for governmental fund types are adopted on a basis substantially consistent with generally accepted accounting principles as legally required. There are no significant non-budgeted financial activities. Revenues for special revenue funds are budgeted by entitlements, grants and estimates of future development and economic growth. Expenditures and transfers are budgeted based upon available financial resources. • See Independent Auditor's Report 14 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 1. SED24MM OF SIGNIFICANT ACOOLNrM POLICIES (cmenmm) • d. Budgets and Budgetary Accounting: On or before February 28th of each year, each department submits data to the City Administrator so that a budget may be prepared. This budget is prepared by fund, function and activity and includes information on past years, current year estimates and requested appropriations for the next fiscal year. Before May 1st, the proposed budget is presented to the City Council. The City Council holds public hearings and may amend the budget by a majority vote. Any changes to the budget must be within the revenues and reserves estimated as available. • Budgetary data is presented for the General, Special Revenue and Debt Service Funds. Budgetary information is not presented for the Capital Projects Funds since these are budgeted on a long-term project by project basis. The City uses an encumbrance system as an aid in controlling expenditures. • Encumbrances are amounts committed for goods or services for which a purchase order has been issued and the goods have not been received or the services have not been rendered. At year-end, alloutstanding -encumbrances are reported as reservations of fund balance in governmental fund types. These outstanding encumbrances are then reprogranuned into the new fiscal year. • •e. Investments: Investments are stated at cost, which is greater than market -at June 30, 1990. If market values decline below cost, no loss is recorded unless .such declines are considered permanent. The assets of the Employee Deferred Compensation Fund (an agency fund) are reported at market value -rather than cost. • f. Property and Equipment: Acquisitions of property and equipment are generally recorded as expenditures in governmental fund types at the time of purchase and are capitalized at historical cost or estimated historical cost in the General • Fixed Assets Account Group. Land held by the Redevelopment Agency for See Independent Auditor's Report 15 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 1. SUKKNU OF SIGNIFICANT ACMUNrING POLICIES (CO RMMED) : f. Property and Equipment: • resale is capitalized at the lower of cost or market in the Redevelopment Agency Capital Projects Fund. Expenditures for infrastructure (roads, curbs, sidewalks, sewers, etc.) are not capitalized as such assets are immovable and generally of value only to the City. No depreciation is • provided for any asset capitalized in the General Fixed Assets Account Group. All purchased fixed assets acquired by proprietary funds are valued at historical cost (where historical records are available) and at estimated historical cost where no historical records exist. Both proprietary and • general fixed assets acquired from gifts or contributions are capitalized at fair market value at the time received, or in the case of water fixed assets, at City Council acceptance date. Depreciation for both donated and proprietary fund acquired assets is calculated on the straight-line method over the estimated useful lives of the assets shown below and charged to the respective fund. • Production, pumping, transmission and distribution plant - 10 to 50 years General plant- 20 to 50 years Transportation equipment- 5 to 30 years • Interest is capitalized on proprietary fund assets acquired with tax-exempt debt. The amount of interest to be capitalized is calculated by offsetting interest expense incurred form the date of borrowing until completion of the project with interest earned on the invested proceeds over the same period. The City has capitalized $185,000 of interest on the construction of the Emerald Cave apartment complex. • g. Inventories: Inventories are recorded in governmental funds by the consumption method. • Inventories are capitalized and recorded as expenditures when used. Inventories of materials and supplies totalled $284,102 at June 30, 1990 and are valued using the weighted average cost method. This amount is offset with an reservation of fund balance. • See Independent Auditor's Report 16 • • CITY OF HUNTINGTON BEACH NOTES TO- FINANCIAL STATEMENTS_ (continued) JUNE 30, 1990 • 1. SUMMARY OF SIGNIFICANT ACWU1nMV:POLICIES. (CONTINUED) • h. Interfund Transactions: During the course of normal operations, numerous transactions.-:occur between funds. These result in operating transfers, residual equity transfers, balances due to or due from other funds and balances advanced to or from • other funds. Residual equity transfers-are nonrecurring or--non-routine transfers of equity between funds. Operating transfers.are.transfers between funds that are normal and recurring. Amounts that-are=due-to or. due from other funds are-the current. (due-_within.one year) portion of monies that are to be paid to or received fran other funds. Amounts that are classified as advances from other funds..are the-long-term-portion of. • monies which will be repaid- to_other_funds. Amounts that are-classified as advances to other funds..represent.the_-long-term.portion of_amounts that will be received fran other. funds. In governmental. funds-amounts,that are advanced to other funds are also offset equally by a fund balance reserve account, which indicates that they are not.spendable financial resources. In proprietary funds there is no reservation of_fund equity. • Quasi-external transactions are interfund_.transactions that would be- treated as revenues, expenditures or.. expenses.if-they-had- involved. organizations external to.:the, City. The: City has:-recorded_all.quasi- external transactions as revenues; expenditures 7or: expenses. Transactions that reimburse a fund for expenditures or expenses. initially made from it • that, are recorded as expenditures/expenses. All other interfund transactions are reported as operating_ transfers. i. Long-Perm Obligations: • Governmental fund long-term debt (principal, interest and.fiscal. charges) is recorded as an expenditure when due regardless of when the. expenditure is incurred. Obligations that are expected to be financed frown spendable, available financial resources are reported.as a-fund liability. The • remainder is reported in the General Long-Perm Debt Account Group. Bond discounts and issuance costs. are recognized in the period that the debt is issued. • See Independent Auditor's Report 17 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 1. Si OOM OF SIGNIF'ICAM ADMUMMM POLICIES (Cm 92MED): Proprietary fund long-term debt is accounted for in the respective funds. • Interest on the debt is recorded when incurred. Principal that is due within one year is shown as a current liability. The remainder is classified as a long-term liability. Bond discounts are recorded as a reduction of outstanding debt and are deferred and amortized over the term of the debt. • j. IImployee Cmpensated Absences: The City records the cost of vacation and sick leave when paid in the governmental fund types and when incurred in the proprietary fund types. • At June 30, 1990, the unfunded liability for vacation and sick leave for the City's governmental funds totalled $4,321,000 (note 12) . The City has recorded this amount in the General Inng-Term Debt Account Group since these amounts will be paid with future financial resources rather than currently available spendable resources. In the proprietary fund types the liability of $161,000 has been recorded. These amounts represent the "cash • surrender value" of all accumulated vacation and sick leave which is the amount that would be paid to employees if they terminate. Vacation is paid at 100% of the accrued amount, while sick leave is paid at varying amounts depending on the employee's contract. • k. Fund Equity: ty: The various types of fund equity recorded on the balance sheet are described below: Governmental Fund Types Reserved Fund Balance is the portion of fund balance that is not appropriable for expenditure or that is legally segregated for a specific future use. Unreserved/Designated Fund Balance is the portion of fund balance that has been tentatively set aside by the City Council. Unreserved/Undesignated Fund Balance is the portion of fund balance that is available to be spent by the City Council. • See Independent Auditor's Report 18 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 1. S[IIKK1RY OF SIGNIFICANT ACOOUNFa1G POLICIES (ODNrIN[JED) • k. Fund Equity: Proprietary Fluid Tripes Retained Earnings is the accumulated earnings of an enterprise or internal • service fund. - Contributed Capital is the permanent fund capital of a proprietary fund created when assets are contributed to a proprietary fund or a residual equity transfer is made to a proprietary fund. Pension Trust Fund Reserved fund balance is the portion of fund balance that is reserved for future pension payments. . Account Groups Investment in General* Fixed Assets is the City's investment in general fixed assets recorded at cost. 1. Property Tax Revenue: • Property tax in California is levied according to Article 13 A of the California Constitution. The basic levy is a countywide-levy of one percent of total assessed valuation and is allocated to county government, school districts, cities and special districts. Additional levies require two-thirds approval by voters and are allocated directly to the specific government unit. Property tax revenue is recognized in the fiscal year levied provided that the revenue is collected during the year or within 60 days of year-end. The County acts as a collection agent for property tax for all of the local • governmental units. Property taxes are normally collected twice per year. The property tax calendar is as follows: Lien Date- March 1st of prior fiscal year Levy Date- July 1st Due Date, First Installment- November, loth Due Date, Second Installment- February loth See Independent Auditor's -Report 19 CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 1. SUMMRY OF SIGNIFICANT' ACWMnUW POLICIES (00WINUED) : 1. Property Tax Revenue: • Delinquent Date, First Installment- December llth Delinquent Date, Second Installment- February lath The taxes are paid to the local governments periodically during the year. • Below are the dates and percentages of the payments from the County (dates and percentages vary slightly from year to year) November 30th- 5% December 19th- 20% December 28th- 20% • February 1st- Balance of First Installment March 28th- 5% April 26th- 34% July 26th of next fiscal year- Balance of Second Installment • m. Allocation of Interest Intone Among Funds: The City pools all non-restricted cash for investment purchases. Interest income is allocated monthly to the various funds based on the month-end cash balances. Interest income from restricted cash is recorded directly • in the fund earning the income. n. Equipment Replacement Fund: • All machinery and equipment which is not awned by proprietary funds is owned by the Equipment Replacement Fund, an internal service fund, and leased to user departments. All machinery and equipment which does not replace existing equipment is purchased by the respective fund and transferred to the Equipment Replacement Fund. The transaction is recorded as a capital outlay expenditure in the fund making the purchase and • contributed capital in the Equipment Replacement Fund. • See Independent Auditor's Report 20 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 1. SUMMAW OF SIGNIFICANP ACMM?rM POLICIES (OoNrINUED): • o. Emerald Owe Housing Fund Transfer: The City operates the Emerald Cove Senior Citizens Apartment Complex and records the activity in the Emerald Cove Housing Fund, an enterprise fund. The City annually transfers funds from the Low-Income Housing Fund to subsidize operations. The transfer is reported as an operating transfer. • p. Total Columns and Comparative Data on Combined Financial Statements: The combined financial statements include "total" columns which total the • financial statements of the fund types and account groups. The columns are labeled "memorandtmi only" because the totals are not comparable to a consolidation. Interfund transactions (except for certain leases between the oversight unit and component units described in note 2) are not eliminated. • Comparative total data for the prior year have been shown in the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. However, comparative data for individual funds have not been presented in all statements because their inclusion would make certain statements unduly complex and difficult to understand. • q. Joint Ventures: The City is involved in one joint venture which is recorded in a • proprietary fund type using the equity method of accounting. The net increase or decrease in the City's equity position is shown as a non- operating revenue or expense. r. PERS Surplus: • The City has surplus funds in its account at the California Public Retirement System (PERS) . This represents excess contributions received from past years. The City has elected to reduce future contribution rates to Pam. These amounts are recorded as "Other Assets" and are offset by an • identical amount recorded as "Deferred Revenue" (See notes 5 and 6) . See Independent Auditor's Report 21 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 1. SUMMARY OF SIGNIFICANT A0MUWr NG POLICIES (COWTIN M) s. Cash Flow Statements: • For purposes of the Statement of Cash Flows, the Proprietary and Similar Trust Fund types considers all cash and investments to be cash and cash equivalents. • 2. Dt CRIPTIOIJ OF THE REPORTING ENTITY: The financial activity of certain separate legal entities have been included in this report. Each separate legal entity was evaluated to see • if its operations should be combined with the City's. The criteria used were; oversight responsibility, financial dependency, ability to influence operations, designations of management, budget adoption, entitlements of budget surpluses or deficits and location within the City's geographic boundaries. Below is a description of each of these entities and how their • financial activity has been evaluated and shown in this report: Huntington Beach Public Facilities Corporation (Public Facilities Corporation)- This entity was formed in 1970 to issue bonds to construct the civic center and library complexes. The Public Facilities Corporation leases the library complex to the City. The lease is a capital lease • because title to the facilities passes to the City upon termination of the lease. The Public Facilities Corporation's original governing body was appointed by the City Council. However, the governing board itself appoints any successors. The City Council adopts an annual budget for the Public Facilities Corporation which cannot end its lease with the City if the City meets the terms of the lease. At the end of the lease, the Public • Facilities Corporation will dissolve and its assets will revert to the City. The assets and related revenue and expenditures that are used for repayment of the bonds are recorded as a debt service fund. Assets used to construct capital improvements were recorded in a capital projects fund. Since the Public Facilities Corporation is a part of the City's reporting entity, the capital lease between the City and the Public Facilities . Corporation is not shown on the combined balance sheet. Parking Authority of the City of Huntington Beach (Parking Authority)- This entity was formed in 1967 to issue bonds to construct off-street parking facilities. The City leases the facilities from the Parking Authority. The lease is a capital lease because the City Council may, by . resolution, dissolve the Parking Authority and deed the assets to the City. See Independent Auditor's Report 22 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 2. DESC RIPPICN OF THE REPORTING F3Jl.' : • The Parking Authority's governing body is the City Council which annually adopts a budget for the Parking Authority. The Parking Authority is financially dependent on the City for all its operations. At any time during the term of the lease the lease payment may be forgiven by resolution of the City Council if there is enough cash in the Parking Authority to meet the debt service requirements. The assets and related • revenue and expenditures that are used for repayment of the bonds are recorded in a debt service fund. Assets used to construct capital improvements were recorded in a capital projects fund. Since the Parking Authority is a part of the City's reporting entity, the capital lease is not shown on the combined balance sheet. • Redevelopment Agency of the City of. Huntirx#= Beach (the Agency)- This entity was formed in 1967 to renovate older areas in the City. The City Council serves its governing body of and adopts its annual budget. The Agency is financially dependent on the City for all of its operations. The tax increment revenue received and disbursed by the Agency is recorded in a debt service fund and the capital iprovements made are recorded in a • capital projects fund. The Agency's debt is recorded in the General Long- Term Debt Account Group since these amounts will be paid from future. financial resources. Huntington Beach Civic Improvement Corporation (Civic Improvement Corporation)- This corporation was formed to provide for the defeasance of • the Huntington Beach Public Facilities Corporation Leasehold Mortgage Bonds- 1st Issue as described in Note 12. The Civic Improvement Corporation -issued $20,000,000 of certificates of participation to provide .for this defeasance. During the year the Civic Improvement Corporation also issued an additional $15,025,000 of additional certificates of participation. The governing board of the Civic Improvement Corporation is • the City Council which also adopts its annual budget. The Civic Improvement Corporation is dependent uponz the City for all of its operations. The Civic Improvement Corporation has title to the Civic Center ccuplex and leases it to the City. It is a capital lease because title to the Civic Center complex reverts to the City at the end of the lease. The lease cannot be terminated if the City meets all its financial • obligations. The assets pledged for repayment of the certificates of participation and the related revenues and expenditures are recorded in the Civic Improvement Corporation .Debt Service Fund. Since the Civic Improvement Corporation is a part of the City-Is reporting entity, the capital lease is not shown on the balance-sheet. • See Independent Auditor's Report 23 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUKE ,30, 1990 • 2. DESCRIPTION OF 00 REPORTING ENTITY( CONTINUM : Huntington Beach Public Financing Authority (Public Financing Authority)- • This corporation was formed in March, 1988 to issue debt to finance public improvements and other capital purchases for the City and Redevelopment Agency. The Authority's governing body is the City Council which also adapts the annual budget. The Authority is totally financially dependent on the City. The Authority's activity is recorded as both a debt service fund and as a portion of the activity in the Equipment Replacement Fund (a • proprietary fund type) . The City of Huntington Beach C mmunity Facilities District 1990-1 (Community Facilities District) and the Reservoir Hill Assessment District • (the Assessment District) were formed to construct public improvements within the City boundaries. The governing board of these districts is the City Council. The proceeds of debt issued and the expenditure for the public improvements are recorded in capital projects funds. The monies collected to retire the debt are recorded in an agency fund. There are many other governmental agencies, including the County of Orange, various elementary school districts, the Coast Community College District, the Huntington Beach Union High School District and various assessment districts and other special districts which provide services within the City. These are not component units of the City of Huntington Beach and their financial information is not included in this report. • 3. CASH AND INVES*II�fPs: Cash and investments at June 30, 1990 totalled $119,714,000 and are shown • in the accompanying combined balance sheet as follows (expressed in thousands) : Cash and Investments $95,789 Cash with Fiscal Agent 23,925 • Total $119,714 • See Independent Auditor's Report 24 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 3. CASH AND INVESTMEWS (COQJI'II =) : • Collateral for Deposits The California Government Code requires California banks and savings and loan associations to secure a City's deposits by pledging government securities with a value of 110% of a City's deposit. California law also allows financial institutions to secure City deposits by pledging first • trust deed mortgage notes having a value of 150% of a City's total deposits. The collateral for deposits in Federal and state chartered banks is held in safekeeping by an authorized Agent of Depository recognized by the State of California Department of Banking. The collateral for deposits with savings • and loan associations is generally held in safekeeping by the Federal Home Iran Bank in San Francisco, California as a third party trustee. These securities are physically held in an undivided pool for all California public agency depositors. The trustees keep detailed records of the security pool. • The City Treasurer, at his discretion, may waive the collateral requ.irev ent for deposits which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. It is the City's policy to waive the collateral requirenwit if there is a higher interest yield on the investments. • Authorized Investments The City of Huntington Beach operates its pooled cash investments under the "Prudent Man Rule" (California Civil Code sections 2261 et seq.) . This allows a broad spectrum of investments as long as the investment is allowable under legislation of the State of California (Government Code • Section 53600 et seq.) . Under the provisions of the City's investment policy and in accordance with Section 53601 of the California Government Code, the City may invest in the following types of instruments: • a. Bankers acceptances b. Negotiable certificates of deposit c. Commercial paper d. Bonds issued by the City e. Obligations of the United States Treasury • See Independent Auditor's Report 25 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 3. CASH AMID INVES aWM (OONr WED) : f. Federal Agency Obligations of: • Federal Intermediate Credit Bank (FICBs) Federal land Bank (FLBs) Federal Home Loan Bank (FHLBs) Federal National Mortgage Association (RMs) • Small Business Administration (SBAs) Government National. Mortgage Association (Gills) Tennessee Valley Authorities (TVAs) Student loan Association Notes (Sallie Mae's) g. Obligations of the State of California or of any local agency within the State of California: • The Local Agency Investment Fund (IAIF) is a special fund of the California State Treasury through which any local government may pool investments. Each agency may invest up to $10,000,000 in this fund. Investments in LAIF are highly liquid and may be converted to cash within 24 hours. Investments with LAIF are secured by the full faith • and credit of the State of California. h. Repurchase Agreements: Throughout the year ending June 30, 1990, the City utilized overnight repurchase agreements for temporary investment of idle cash. Such • agreements were used on average of 20 to 22 times per month and generally did not exceed 10% of the City's investment portfolio. i. Reverse-Repurchase Agreements: Although the City's investment policy does not preclude the use of • Reverse-Repurchase Agreements, the City did not borrow through the use of reverse repurchase agreements at any time during the year. j. Medium-Term Corporate Notes • • See Independent Auditor's Report 26 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 301 1990 • 3. CASH AMID INVES HEM (CMMN=): • k. Ritual Funds Safekeeping Arrangements for Investments Under Sections 53651 to 53653 of the California Government Code, as amended, the collateral underlying an agency's i.nvestments .must be • delivered to the City. If U.S. Federal obligations are used as the underlying collateral, the delivery may be made by "book-entry" only. For all other collateral, the security must be physically delivered to the City or a third-party custodial agent. A bank is permitted to maintain the underlying securities in its Trust • or Safekeeping Department when acting as a third-party custodial agent. The City's balance of deposits and investments with financial institutions us categorized under the following risk categories: Deposits • Category 1- Deposits which are insured by FDIC, FSLIC, a state depository insurance fund or a multiple-financial institution collateral pool, or deposits which are collateralized with securities held by the City or the City's agent in the City's name. • Category 2- Deposits which are collateralized with securities held by the pledging financial institutions trust department in the City's name. Category 3- Deposits which are uncollateralized, or collateralized but the pledged securities are not held in the CityIs -name. • Investments Category 1- Investment which are insured by SIPC, or where the securities are held by the City or the .City Is agent in the City's name. Category 2- Investments which are uninsured, where the securities are • held by the purchasing financial institution's trust department or agent in the City's name. Category 3- Investments which are uninsured, where the securities are held by the purchasing financial institution's trust department or agent, but not in the City's name. • See Independent Auditor's Report 27 • CITY -OF .HUNT.INGTON .BEACH • NOTES TO '.7INANCZAL ;STATEMENTS (continued) JUNE 30, `1990 • 3. CASH AMID (OONinwm).: Category Market 1 2 3 Cost Value Deposits Demand Ants $ 181 $2-,524 $- :< -. .a $ 2:,705 r $ .2:;705 = Certificates- - of Deposit 41656 --44-,899. _.. r o 49.',555- =-49,555 r Cash with Fiscal - - 10,646 10,646 10,646 Agent Deferred _ ---A 13:;279 -1;2.79 ".Y=E 134 279- Ccapensation 423 -_23.-,925'_ 76w 185_=. ~-==76;38. 5.= • Subtotal 4,837 . 47; _ , Investments Corporate Notes 3,500 784 6,478 10,762 10,765 Federal Mortgage - - 938 938 921 Notes - Federal --_ _-.- _: _- -:.: 7-391 : _ . 7,-391: '. == c_7,364: ObligationsU.S. Treasury Notes - 5;989' - -__-_5-;989.:-:_ i r::5,989- Repurchase - _- v _- 4;350__ter ::.4,350 4,350 Agreements • Subtotal 3,500 784 25,146 29,430 29,389 Others Investment in--IAIF __. ,.19_,:000.-,`- :=19;000 Petty Cash 8 --8. • Subtotal 19,008 19,008 btal�Deposits -.124;623 124,582 = and Investments in Financial Institutions Less Demand Warrants (4,909) (4,909) Outstanding ._ .Total=Cash and $119,714 $119,673 See Independent Auditor's Report 28 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 4. DEFERRED COMPENSATION: • Permanent City employees may defer a portion of their salary under Section 457 of the Internal Revenue Code. These amounts are invested in savings accounts, certificates of deposit and other prudent investments. The City retains title to these funds until withdrawn by the employee, which may take place at termination or any later date. The assets of the plan remain subject to the general claims of creditors of the City. The amount of • deferred compensation payable at June 30, 1990 was $15,795,000 which represents the market value of the investments. Since the City has a fiduciary responsibility to administer the plan, the assets are recorded in an agency fund in the City's financial statements. The City believes that it is unlikely that it will use the assets to pay • any general creditors now or in the future. The City offers two different investment mediums for participants. The choice of investment is made by the participants. 5. DEFERRED REVENUE: Certain revenues in goverrmPntal funds have been deferred until received. Interest on these amounts accrues at 10% per annum with the exception of interest on loans from the Public Financing Authority and the PERS surplus which accrue interest at varying rates. The amounts are as follows • (expressed in thousands) : GENERAL RAL FUND: Development fees deferred in 1984 and 1985 $ 49 Land sales from the City to the Redevelopment Agency from 1982/83 to 32,903 1989/90 Interest on above amounts and on general 9,021 fund advances from 1978/79 to 1989/90 PERS Surplus-see note 6 7,519 • Total General Fund 49,492 • See Independent Auditor's Report 29 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 5. DEFEMW REVENUE (OMITINUED) SPECIAL REVENUE FUNW: • Park Acquisition and Development Fund: Sale of Emerald Cove site to Redevelopment Agency $1,741 Land sale proceeds paid to Emerald Cove 832 • Development fees deferred in 1985 248 Interest on above amounts 407 Total Park Acquisition and Development Fund 3,228 • Sewer Fund: Development fees deferred in 1985 43 Interest on above amounts and on 1989/90 Advances 41 Total Sewer Fluid 84 Gas Tax Fund: Interest on advances fiat 1988/89 105 • Planned Local Drainage: Development fees deferred in 1985 73 Interest on above amounts and on advances 120 from 1987/88 • Total Drainage Fund 193 Grant Fund: Revenue Received in Advance 50 • Total Special Revenue FZinds $3,660 • See Independent Auditor's Report 30 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 5. DEFERRED REVENUE (CONTINUED) • UM SERVICE FUNDS: Public Financing Authority: Interest on advances fram 1988/89 $358 CAPITAL PRaTECTS FUNDS • Capital Improvement Fund: Interest on Advances from 1989/90 20 Parking Structure: Interest on advances from 1988/89 2,225 • and 1989/90 Total Capital Projects Rind 2,245 Total Deferred Revenue $55,755 6. Rh'I'IPIZEN' PLAN - NORMAL: a. Plan Description: The City contributes to the California Public Employees Retirement System (PERS) , an agent, multiple employer retirement system that acts as a common investment and administrative agent for participating public entities in California. Generally only an employee's base salary (excluding overtime) • is subject to retirement benefits. The total payroll for the year ending June 30, 1990 was $48,393,307. The payroll subject to retirement benefits was $40,414,710. The plan covers all permanent City employees and t Tporary employees who work more than 1000 hours in a twelve month period. Benefits vest after • =five years of service. Benefits for employees vary based upon final yearly sensation, safety or non-safety status and age at retirement. There are two groups of covered employees: Safety employees- include sworn police, fire and marine safety employees Miscellaneous employees- all other covered employees i See Independent Auditor's Report 31 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 6. RETrIIMXMTP PLAN - NORMAL (OOrTPIN-W) b. aployee and Employer Contribution Obligations: • The City makes two types of contributions on behalf of covered employees. The first contribution represents the amount required to be made by the City (the employer rate) . The second represents an amount which is normally paid by the employee, but is reimbursed to the employee by the • City (the m rber rate) . The member rate is set by contract and normally remains unchanged. The employer rate is set by PERS and changes fran year to year. The employer rates for the fiscal year ending June 30, 1990 are shown below: • Miscellaneous Safety ��� category Normal Cost Rate 6.110% 14.508% Unfunded Liability Rate 6.110)% 1.043% • Total Required 0% 15.551% The member rates for the fiscal year ending June 30, 1990 are as follows: • Member Rates as a Percentage of Wages Local Miscellaneous Members- 7% Local Safety Members- 9% • The employer rate contributes the remaining amounts necessary to fund the benefits for its members, using the actuarial basis recommended by the PERS actuaries and and adopted by the Board of Administration. • See Independent Auditor' s Report 32 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 6. IMfIREHENr PLAN - M MAL (CONTINUED) • c. Funding Status and Progress: Pension benefit obligation is a standardized measure of the present value of future pension benefits estimated to be payable in the future due to employee service to date. It helps assess the funding status of the • system, assess progress made in ac=milating enoaxp assets to pay benefits when due, and make cmiparisons among employers. This measure is independent of the funding method used to determine City contributions to the system. PEPS conducted an actuarial valuation to determine the City's pension • benefit obligation as of June 30, 1990. Significant actuarial assumptions used were as follows: . Rate of return on present and future assets- 8.5% per annum . Projected salary increases for covered employees due to inflation- 5.0% per year . Projected salary increases due to merit- 1.5% per year. . Across the board real salary increases- .50% . Postretirement benefit increases- 0% Assets in excess of the pension benefit obligation applicable to City employees were $625,000 at June 30, 1990. There was no change in the • pension benefit obligation from last year resulting from benefit provisions or actuarial assumptions: Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $49,509 • Current E xployees: Accumulated employee contributions and investment 36,364 earnings Ernployer-financed, vested 51,363 Employer-financed, non vested 1,671 • Total pension benefit obligation 138,907 Less net assets available for benefits at cost 139,532 (market value is $163,532) Excess of assets available aver pension $ 625 • benefit obligation See Independent Auditor's Report 33 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 r 6. TWIMWENr PLAN - NORMAL (CONTINUED) d. Actuarially Determined Contribution Requirements and Contributions Made: PERS uses the Entry Age Normal Actuarial Cost Method which is a projected benefit cost method and takes into account those benefits that are expected to be earned in the future as well as those already accrued. This method states that the normal cost for an employee is the level aomamt which would fund the projected benefit if it were paid annually from date of employment until retirement. PERS uses a modification of the Entry Age Cost method in which the employer's total normal cost is expressed as a level percent of payroll. PERS also uses the level percentage of payroll • method to amortize any unfunded actuarial liabilities. The amortization period of the unfunded actuarial liability ends in the year 2000 for prior service benefits and in 2011 for current service benefits. The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as those used to conxite the pension benefit obligation, as previously described. The contribution to the system for 1989/90 of $7,375,289 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1988. The contribution consisted of the normal cost, $3,945,538 (9.76% of current covered payroll) and a $179,810 amortization of the unfunded actuarial accrued liability (.44% of covered payroll) . The City made employer contributions of $4,128,245 (10.21% of covered payroll) and on behalf of employees contributed $3,247,044 (8.03% of covered payroll. e. Trend Information: Trend information gives an indication of the progress made in accumulating enough assets to pay benefits when due. Ten year trend information for the City of Huntington Beach is not published in the California Public Employees Retirement System Annual Report. Therefore, ten years of trend information are required within the City's financial statements since PERS does not display financial information for individual agencies within their report. 1987/88 is the first year that this actuarial information has been made available by PERS and until ten years are available, as many years as are available will be presented. Trend information for 1987/88, 1988/89 • and 1989/90 are shown and employer contributions for 1986/87, 1987/88 and 1988/89 are shown (dollar amounts expressed in millions) : See Independent Auditor's Report 34 41 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 6. RETII09TP PLAN - NORMAL (C@PPINED) • e. Trend Information: 1986/87 1987/88 1988 89 1989 90 Net assets available for benefits $105.6 $120.6 $139.5 Pension benefit obligation $115.3 $126.7 $138.9 Net assets available for benefits, • expressed as a percentage of the 91.6% 95.1% 100.4% pension benefit obligation Unfunded pension benefit obligation 9.7% 6.1% (.7) Annual Covered Payroll $32.1 $ 34.4 $ 37.0 $40.4 Unfunded pension benefit obligation as 28.3% 16.7% 1.5 • a percentage of covered payroll Employer contributions $ 4.5 $ 4.4 $ 4.5 $4.1 Employer contributions expressed as a percentage of annual covered made 14.1% 12.7% 11.9% 10.1% according to actuarially determined • requirements 7. RETIRFMERP PLAN - : • a. Plan Description: The City provides a supplemental retirement plan to all employees covered under the City's normal retirement plan with the California Public Employees Retirement System (see note 6) . It is a single-employer PERS. • It is a defined benefit plan and will pay the retiree an additional amount to his or her normal amount for life. The amount will cease upon the employee's death. The amount is computed at retirement and remains constant for his or her life. • • See Independent Auditor's Report 35 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 7. IMVIREKEUr PLAN e (CCHrINUED) : b. flqployer Obligations: • The City estimated the pension benefit obligation as of June 30, 1990 by estimating the total expected pension payments to be made and discounting them at 8%. The pension benefit obligation as of June 30, 1990 is as follows (expressed in thousands) : Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $1,335 Current employees who are vested 5,915 • Total pension benefit obligation 7,250 Net assets available for benefits 18 Unfunded pension benefit obligation $7,232 • There was no actuarial study of the annual contribution required to fund the pension liability. City management does not believe that there is a significant difference between the unfunded pension benefit obligation calculated above and the amount that would result from an independent actuarial computation. • The City annually transfers the estimated payments for the year from the General Fund to a pension trust fund. c. Trend Information: This is the second year that the City is accounting for these benefits. Therefore only two years of trend information is presented. As soon as trend information is available, it will be presented (expressed in thousands) : • See Independent Auditor's Report 36 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 7. RETIREMENP PLAN - (OON+1INUED) : • 1988/89 1989/90 Net assets available for benefits - $18 Pension benefit obligation $7,071 $7,250 Net assets available for benefits, - .35% expressed as a percentage of the pension benefit obligation Unfunded pension benefit obligation $7,071 $7,232 Annual Covered Payroll N/A N/A Unfunded pension benefit obligation as N/A N/A a percentage of covered payroll • Employer contributions - 185 Employer contributions expressed as a percentage of annual covered payroll made - - according to actuarially determined requirements d. Accountin g For Supplemental Pension Plan: Expenditures for this pension plan are recorded in a pension trust fund. During the year, contributions of $184,779 were made and expenditures of $166,341 were recorded. 8. MEDICAL INSURANCE: • a. Plan Description: The City provides post-retirement medical insurance benefits to retirees who meet all three of the following criteria: • .At the time of retirement the employee is employed by the City; and .At the time of retirement the employee has a minimum of ten years of service or is granted a service connected disability retirement. .Following official separation frcam the City, the retiree is granted a retirement allowance by the California Public Employee's Retirement System. • See Independent Auditor's Report 37 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • S. Pourrommme MEDICAL nOMANCE (CMINUED) : a. Plan Description: • The City's obligation to provide the benefits to a retiree ceases when any of the following occurs: .During any period the retiree is eligible to receive health insurance at • the expense of another employer. .The retiree becomes eligible to enroll automatically or voluntarily in Medicare. If a retiree dies, the benefits that would be payable for his or her insurance will be provided to the spouse or family for eighteen months. • Benefits for insurance premiums are payable based on the years of service credit for the retiree. The premiums may be used for any of the health plans that the City's active employees may participate in. b. Accounting and Funding: The Retiree Medical Insurance Fund is recorded as an agency fund. Contributions are made by the City's operating funds on a periodic basis. The fund is only to be used to purchase medical insurance for retirees. • There are no outstanding liabilities at year-end. For the year contributions of $1,163,046 were made by active employees and $103,155 of premiums were paid from the fund. The plan is being "advance-funded", but not on an actuarial basis. 48 participants were eligible to receive benefits at June 30, 1990. • 9. RISK MAID: The City is exposed to various risks of loss related to torts; theft of, • damage to and destruction of assets; errors and omissions; injuries to employees; natural disasters and employee health insurance claims. • See Independent Auditor's Report 38 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 9. RIM MKIDW3EMERr (CM?rINUM) • The City established a Self-Insurance Fund (an internal service fund) to account for and finance uninsured risks of loss. This fund provides liability coverage for claims up to $1,000,000, workers cagDensation coverage up to $150,000 per claim and the first $75,000 of each health claim. The City is also a participant in the Big Independent Cities • Excess Fool Joint Powers Authority, (see note 18) which provides insurance for individual liability claims in excess of $1,000,000. Independent insurance coverage is purchased for health and workers coapensation claims in excess of the above amounts. Settled claims have not exceeded this crcial coverage in any of the past three fiscal years. • All funds of the City participate in the program and make payments to the Self-Insurance Fund based on historical cost information. The payments are adjusted over a reasonable period of time so that revenues and expenses of the Self-Insurance Fund are approximately equal. The claims liability of $6,962,000 is dosed of the following claims • totals (expressed in thousands) : Liability Claims $2,837 Workers Compensation Claims 3,990 Health Claims 135 Total 6,962 Liabilities are reported if, prior to the issuance of the financial statements, it is probable that a liability has been incurred as of the date of the financial statements and the amount of the claim can be • reasonably estimated. Changes in the claims liability during the year were as follows (expressed in thousands) : Balance Balance July 1, 1989 Additions Payments June 30, 1990 • Liability $3,329 $ 378 ($870) $2,837 Workers 3,901 1,017 (928) 3,990 Cmpensation Health 192 2,545 (2,602) 135 • Total $7,422 $3,940 ($4,400) $6,962 See Independent Auditor's Report 39 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 10. IMERFUNID TRAVEACTIMS: a. Receivables/Payables: • Individual interfund receivables and payables at June 30, 1990 were as follows (expressed in thousands) : Advances to Advances from • Other Funds Other Funds General Fund $57,140 Special Revenue Funds: Sewer 259 Planned local Drainage 442 Grants 1,173 Gas Tax 605 Park Acquisition and 3,228 Development Debt Service Funds: Public Financing Authority 24,122 Capital Projects Funds: Parking Structure 17,044 Capital Itprovement 220 • Enterprise Funds: Water Utility 1,560 Mmrald Cove Housing $ 944 General Long-Term Debt Account Group 104,849 • Totals $105,793 $105,793 See Independent Auditor's Report 40 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 10. IIRI'E WMM TPMNSALTIONS (C1ONTI UED) : • b. Operating Transfers In/Out: Below is a schedule reconciling operating transfers in and out: Cperating Transfers In, Governmental Funds- $4,241 • Cperating Transfers In, Proprietary Funds- 466 Total Cperatuq Transfers In- $4,707 Operating Transfers Out, Govemnental Funds- $4,594 • Operating Transfers Out, Proprietary Funds- 113 Total Operating Transfers Out- $4,707 c. Residual Equity Transfers In/Out: Below is a schedule reconciling residual equity transfers in and out: Total Residual Equity Transfers In- $10,829 • Transfers from Reservoir Hill Capital Projects To Reservoir Hill Debt 214 Service (an Agency Fund) which does not show transfers • Residual Equity Transfers to Emergency Fire Medical Fund which were recorded 311 as contributed capital in Total Residual Equity Transfers Out $11,354 • • See Independent Auditor's Report 41 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 11. PROPRIETARY FUNDS SUPPLEMENTARYII 1iMATION: a. Segment Information for Enterprise Funds: • The City maintains four enterprise funds; Water Utility, Meadowlark Golf Course, Emerald Cove Housing and Fire Paramedical. Certain key financial data was as follows (expressed in thousands) : • MEADOWLARK EMERAID WATER GOLF COVE FIRE UTILITY COURSE HOUSING PARAMEDICAL TOTAL Operating $13,838 $289 $610 $148 $14,885 Revenues • Depreciation 1,253 27 82 0 1,332 Expense Operating 124 262 291 37 714 Inccre (Loss) • Net Income (Loss) 951 253 67 46 1,317 Contributed 1,074 0 0 311 1,224 Capital Received, Net • Net Acquisitions 1,094 0 0 0 1,097 (Dispositions) of Fixed Assets Net Working 9,117 1,181 1,672 357 12,327 • Capital Total Assets 41,865 4,379 7,112 392 53,748 bong-11� 711 1,636 5,492 0 7,839 Obligations • Net of Current Portion Total Equity 38,817 20,671 1,497 357 43,342 • See Independent Auditor's Report 42 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 11. PBflPRIL'i C FUNDS II TION (OONrINUED) • b. Contributed Capital: Below is a schedule of the changes in contributed capital during the year (expressed in thousands) : Meadowlark Emerald Emergency • Water Golf Cove Fire Equipment Utility Course Housing Medical Replacement Additions Developer $ 1,074 $ 0 $ 0 $ 0 $ 0 Contributions • Contributions from other funds 0 0 0 311 1,567 • Prior Period Adjustment, (note 20) 0 0 (147) 0 0 Net Increase 1,074 0 (147) 311 1,567 (Decrease) • Contributed Capital July 1, 1989 34,884 1,267 1,435 0 0 Contributed • Capital, $35,958 $1,267 $1,288 $311 $1,567 June 30, 1990 • • See Independent Auditor's Report 43 • CITY OF HUNTINGTON BEACH • NOTES, TO FINANCIAL STATEMENTS (continued) JUNE 300 1990 12. GENERAL ICM-TERK DEBT: Below is a sunrazy of changes in general long-tern debt for the year ending • June 30, 1990 (expressed in thousands) : Balance Balance Outstanding Outstanding July 1, June 30, 1989 Additions (Retirements) 1990 • 1970 Park Bonds $2,280 $ 0 $(305) $1,975 Public Facilities Corporation Leasehold 2,770 0 (240) 2,530 Mortgage Bonds- 2nd Issue • Parking Authority 700 0 (135) 565 Revenue Bonds Civic Inprovement Corporation Certificates 19,610 0 (230) 19,380 of Participation-1986' Civic Inprovement Corporation Certificates 0 15,025 (0) 15,025 of Participation-1989 • Ccapensated Absences 4,307 14 0 4,321 Advances From 82,940 25,151 (3,242) 104,849 ' Other Funds • Amounts Due Under Owner Participation 1,246 341 0 1,587 and Disposition and Development Agreements Public Financing Authority Revenue Bonds 26,510 0 (270) 26,240 Mortgages Payable 2,875 0 (413) 2,462 Total $143,238 $40,531 $4 835 $178,934 • See Independent Auditor's Report 44 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 12. GENERAL LCNG-iT DEBT (C@TrDMED): • a. 1970 Park Bonds: On March 1, 1970 the City sold $6,000,000 of general obligation bonds to acquire and construct park facilities. Principal matures annually on March 1st with interest, at 6%, payable semi-annually. The annual debt service • requirements to amortize the bonds outstanding at June 30, 1990 are as follows (expressed in thousands) : Year Fading • June 30, Principal Interest Total 1991 $ 350 $118 $ 468 1992 370 98 468 1993 395 75 470 1994 415 52 467 1995 445 27 472 Total $1,975 $370 $2,345 • b. Huntington Beach Public Facilities Corporation Leasehold Mortgage Bonds- Second Issue: On September 1, 1972 $5,000,000 of leasehold mortgage bonds were issued to construct the Central Library complex. The bonds are secured by a lease • which requires the City's General Fund to annually transfer $399,000 to the Public Facilities Corporation's Debt Service Fund. Principal matures annually on September 1st with interest ranging frcm 5.0% to 5.9% per annum payable semi-annually. The annual debt service requirements to amortize the bonds outstanding at June 30, 1990 are as follows (expressed in thousands) : • • See Independent Auditor's Report 45 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 12. GENERAI, IOWCYERM DEBT (CONTINUED) : b. Huntington Beach Public Facilities Corporation Leasehold Mortgage Bonds- • Second Issue: Year Ending June 30, Principal Interest Total • 1991 $ 260 $132 $ 392 1992 270 117 387 1993 290 101 391 1994 305 84 389 1995 320 66 386 1996 340 46 386 1997 360 28 388 1998 385 10 395 Total $2,530 $584 $3,114 • c. Parking Authority Revenue Bonds: On September 1, 1968 $2,300,000 of revenue bonds were issued to construct off-street parking improvements. The bonds are secured by a lease which • requires that the City budget annual transfers to the Parking Authority sufficient to meet the debt service requirements on the bonds. Principal matures annually on September 1 and bears interest at 5.25% per annum, payable semi-annually. The annual debt service requirements to amortize the bonds outstanding at June 30, 1990 are as follows (expressed in thousands) : • Year Ending June 30, Principal Interest Total • 1991 $140 $ 26 $166 1992 150 18 168 1993 160 10 170 1994 115 3 118 Total $565 $57 $622 • See Independent Auditor's Report 46 0 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 300 1990 • 12. COAL I ERM DEBT (OOrTPINUED) : d. Huntington Beach Civic Improvement Corporation Certificates of Participation- 1986: On July 15, 1986 the Huntington Civic Improvement Corporation issued $20,000,000 of certificates of participation in order to defease the • Huntington Beach Public Facilities Corporation Ieasehold Mortgage Bonds- First Issue and construct certain parking facilities. The certificates are secured by a lease on the Civic Center complex which requires the City's General Fund to transfer to the Civic Improvement Corporation an amount equal to the annual debt service requirements on the certificates. The interest rates on the certificates varies between 4.75% and 7.9%. Interest • is payable semi-annually on February 1st and August 1st with principal maturing annually on August 1st. Debt service requirements to maturity are as follows (expressed in thousands) : Year • Ending June 30, Principal Interest Total 1991 $ 245 $1,494 $ 1,739 1992 260 1,479 1,739 1993 275 1,462 1,737 1994 295 1,443 1,738 1995 315 1,422 1,737 1996 335 1,399 1,734 1997 360 1,374 1,734 1998 385 1,346 1,731 1999 415 1,316 1,731 2000-2007 4,715 9,079 13,794 2008-2016 11,780 5,234 17,014 Total $19,380 $271048 $46,428 • • See Independent Auditor's Report '47 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 2.2. GENERAL ICWD-TERK DEBT (oaNrII UED): e. Huntington Beach Civic Improvement Corporation Certificates of • Participation- 1989: In August, 1989 the Civic Improvement Corporation issued $15,025,000 of additional certificates of participation to provide further funds for • parking structure and other public improvements in the Main/Pier redevelopment project area. As described in note 2, the Civic Improvement corporation owns the Civic Center complex which represents the security for the certificates. The City will annually transfer sufficient monies to fund the debt service requirements on the certificates. The interest rates on the certificates vary between 5.9% and 7.0$ with interest payable semi- annually on February 1st and August 1st with principal maturing annually on August ist. Debt service its to maturity are as follows (expressed in thousands) : Year Ending • June 30, Principal Interest Total 1991 $ 135 $ 1,031 $ 1,166 1992 180 1,021 1,201 1993 190 1,010 1,200 1994 205 998 1,203 • 1995 215 985 1,200 1996 230 971 1,201 1997 245 955 1,200 1998 260 939 1,199 1999 275 921 1,196 2000 295 902 1,197 • 2001 315 882 1,197 2002 335 860 1,195 2003 360 837 1,197 2004 385 811 1,196 2005-2020 11,400 12,369 23,904 • Total $15,025 $25,492 $40,517 • See Independent Auditor's Report 48 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 12. GENERAL T ERM DEBT (CMUINOED) : • f. Ooapetsated Absences Payable: There is no fixed payment schedule to pay the governmental fund liability of $4,321,000 for ccapensated absences earned through June 30, 1990 (see note lj) . • g. Long-term Advances from Other Funds: There is no fixed repayment schedule for the Redevelopment Agency to pay • the long-term advances from the City which totalled $104,849,000 at June 30, 1990. These advances were used to fund the operating and capital expenditures of the Redevelopment Agency. Below is a description of the various transactions (expressed in thousands) : • General Fund: Cash Advances from 1979 to 1990 $15,055 Land Sales from 1982 to 1990 32,903 Deferred Development Fees 49 • Interest on above at 10% per annum 9,021 Total Advances from General Fund 57,028 Special Revenue Funds: Park Acquisition and Development Fund Land Sale in 1983 1,741 Deferred Development Fees 248 Interest on above at 10% per annum 407 Total Advances from Park Acquisition $2,396 Development Fund • See Independent Auditor's Report 49 • CITY OF HUNTINGTON BEACH • NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 12. GENERAL IJOW.Y-TERK DEBT (CONTINUED) : g. Long-term Advances fr m Other Funds: • Sewer Fund: Advance in 1989/90 $175 • Deferred Development Fees 43 Interest on above at 10% per anrmm 41 Total Advances from Sewer Fund 259 Drainage FLmd: • Advance in 1987/88 250 Deferred Development Fees 72 Interest on above at 10% per annum 120 Total Advances from Drainage Fund 442 • Gas Tax Fund: Advance in 1988/89 500 Interest on above at 10% per annum 105 Total Gas Tax Fund 605 • Grant Fund Advances from 1983 to 1989 1,173 Total Special Revenue Ru-ds 4,875 • Capital Projects Funds Capital Improvement Fund: Advance in 1989/90 200 • Interest on above at 10% per annum 20 Total Capital Improvement Fund $220 • See Independent Auditor's Report 50 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 12. GERMtAL 1CW.,- 'ERM DEBT (OONPnMED) • g. long-tern Advances from Other Funds: Parking Structure: Advance in 1989/90 $14,820 • Interest on above at 10% per annum 2,224 Total Parking Structure Fund 17,044 Total Capital Projects Funds 17,264 • Debt Service Funds: Public Financing Authority: Advances from 1988 to 1990 23,764 Interest on above at varying rates 358 Total Debt Service Funds 24,122 Enterprise Funds Water Fund: • Advances frown 1986/87 to 1988/89 1,138 Deferred 'Development Fees 422 Total Water Fund 1,560 • Total Advanced frcan Other Funds $104,849 Below is a reconciliation of the changes in amounts advanced from other funds to the Redevelopment Agency recorded as general long-term debt for the year ended June 30, 1990: • Amount due to other funds on July 1, 1989 $82,940 Advances Received 15,848 Advances Repaid (3,242) Interest recorded in other funds as deferred revenue 9,303 • Amount advanced from other funds, June 30, 1990 $104,849 See Independent Auditor's Report 51 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 12. GENERAL I@]G-TEF44 DEBT (OOQd nmm): h. Amounts Due Under owner Participation and Disposition and Development Agreements: In 1988 the Redevelopment Agency entered into an agreement with a private party to receive a loan to relocate tenants of a mobile hcane park. At year • end, $2,192,075 of the loan was received. This advance carries no interest. r1here is no fixed repayment schedule for this advance but the amount will be repaid with a pledge of tax increment revenues and transient occupancy tax revenues received by the Agency. The principal amount of the debt is recorded at $1,587,212 which represents the present value of the future debt service payments expected to be made from 1992 to 1996 discounted at 8%. i. Public Financing Authority Revenue Bonds: On May 1, 1988 the Public Financing Authority issued $26,775,000 of Revenue Bonds to finance loans to four of the Redevelopment project areas. The bonds are secured by four separate loan agreements between the Public Financing Authority and the Redevelopment Agency. Each loan agreement is secured by a pledge of all taxes levied upon all taxable property within the related project area. Interest on the bonds ranges from 5.75% to 8.375%. Interest is payable semi-annually on May 1st and November 1st. Principal matures annually on November 1st. Debt service requirements are as follows (expressed in thousands) : Year Exiling June 30, Principal Interest Total 1991 $ 295 $2,149 $ 2,444 • 1992 305 2,131 2,436 1993 325 2,111 2,436 1994 340 2,089 2,429 1995 370 2,065 2,435 1996 405 2,038 2,444 1997 430 2,009 2,439 . 1998 465 1,976 2,441 1999 495 1,940 2,435 2000-2007 5,735 13,775 19,510 2008-2018 17,075 4,858 21,933 Total $26,240 $37,141 $63,382 • See Independent Auditor's Report 52 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 12. GENERAL IDWa-TERM DEBT (COQ$IrII&W) : • j. Miscellaneous Notes Payable: In 1988 the Redevelopment Agency purchased property in the Main/Pier project area and assumed three separate mortgages. The mortgages bear interest at 11% with debt service payable monthly according to the mortgage • contract. Below is a schedule of debt service requirements to maturity (expressed in thousands) . Fiscal Year Ending June 30, Principal Interest Total 1991 $1,050 $200 $1,250 • 1992 615 134 749 1993 18 87 105 1994 21 85 106 1995 758 759 1,517 Total $2,462 $1,265 $3,727 • k. Defeased Bonds Outstanding: As of June 30, 1990, there were $5,565,000 of defeased Public Facilities Corporation Leasehold Mortgage Bonds- 1st Issue outstanding. The debt service on these bonds is being handled by an escrow account consisting of guaranteed Federal securities with yields sufficient to fund all of the required debt service. Accordingly, the bonds payable are not reflected in the accompanying financial statements. • • See Independent Auditor's Report 53 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 13. PROPRIETARY FOND IERM DEBT: The following is a summary of changes in proprietary fund long-term debt • for the year ending June 30, 1990 (expressed in thousands) : Balance Balance Outstanding Outstanding July 1, July 1, • 1989 Additions (Retirements) 1990 1963 Water Revenue Bonds $703 $ - $(26) $ 677 San Joaquin 166 - (53) 113 Reservoir Note • Meadowlark Golf 1,700 - (31) 1,669 Course Note &ierald Cove Certificates of • Participation, net of unamortized discount of $51 4,536 12 0 4,548 Note Payable 336 - (77) 259 County of Orange • Compensated Absences 128 33 - 161 Advances from other 944 - - 944 Funds • Claims Payable 7,422 - (460) 6,962 Public Financing Authority Certificates of Participation 5,510 - - 5,510 • Total $21,445 $45 jj647 $20,843 The current portion of the proprietary furry long-term debt is $354,000 • See Independent Auditor's Report 54 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 13. PlmPRI11;T'ARY FM IIJTXr-I'ERM DEBT (CONrI NM): • a. 1963 Water Revenue Bonds: On November 1, 1963 the City sold $3,750,000 of revenue bonds to construct crater improvements. The bonds are secured by revenues of the Water Fund. Principal matures annually on November 1 and bears interest at 3.5% per • annum, payable semi-annually. The annual debt service requirements to amortize the bonds outstanding at June 30, 1990 are as follows (expressed in thousands) : Year • Ending June 30, Principal Interest Total 1991 $190 $19 $209 1992 200 10 210 1993 200 6 206 1994 87 1 88 Total $677 $36 $713 The bond indenture requires that the Water Fund net revenues equal or • exceed 1.25 times the annual debt service requirement (principal and interest) . Net revenues are defined as gross revenues less maintenance and operation revenues, excluding depreciation. The City has complied with this requirement as shown below (in thousands) : Gross revenues $14,809 Operating expenses, excluding $12,430 interest and depreciation Net revenues $ 2,379 • Debt service $ 209 Debt service coverage 11.3 • See Independent Auditor's Report 55 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 13. PROPRIEn= F@ID LCWr-TES DEBT (oaNTIN M): b. San Joaquin Reservoir Note Payable: • In 1979 the City and several other local cities and water districts purchased the San Joaquin Reservoir. The City is paying a portion (13.56%) of the debt service for the 1961 construction of the reservoir plus operating and improvement costs. In the event of default, the expenses • and,/or debt service payments shall be reallocated among the remaining non- defaulting owners in proportion to the percentage interest owned as though the party in default did not exist. The City recorded its portion of the reservoir as plant, property and equipment in the Water Fund. Interest on the note is payable semi-annually on December 1st and June 1st • with principal maturing on December 1st. Debt service requirements to maturity are as follows (expressed in thousands) : Year Ending • June 30, Principal Interest Total 1991 $ 59 $2 $ 61 1992 54 1 55 Total $113 $3 $116 • c. Meadowlark Golf Course Note Payable: • In October, 1974 the City purchased of Meadowlark Golf Course through a long-term 7% note totalling $2,272,000 (Sales price of $3,200,000 less downpayment of $928,000. The note payable is collateralized by future revenues and does not represent a general obligation of the City. The City has leased the golf course to an outside party for a minimum amount of $150,000 annually through 2002 plus a percentage of income based upon gross • revenues. Fran 2003 until 2008 the minimum payment will be $200,000 plus a percentage of income above a certain amount of base gross revenues. In 2009 the payment will be $115,703. • See Independent Auditor's Report 56 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 13. PROPRIETARY FMM LONG-TERM DEBT (O0 T n4UED) : • c. Meadowlark Golf Course Note Payable: As part of the City's initial payment of $928,000 the County of Orange contributed $600,000 upon the City's guarantee to use general City funds, when and if necessary, to ensure that Meadowlark Golf Course will be • maintained as open space. The annual debt service (principal and interest) is due on February 28th of each year. Debt service requirements to maturity (ass m uyg the percentage of income rent does not exceed the base) are as follows (expressed in thousands) • Year Ending June 30, Principal Interest Total 1991 $ 33 $ 117 $ 150 • 1992 35 115 150 1993 38 112 150 1994 40 110 150 1995 43 107 150 1996 46 104 150 1997 50 100 150 • 1998 53 97 150 1999 57 93 150 2000-2009 1,274 548 1,922 Total $1,669 $1,503 $3,172 • d. Emerald Cave Housing Certificates of Participation: On June 1, 1984, the Redevelopment Agency sold certificates of • participation to finance the construction of a senior citizens apartment complex. The certificates bear interest at 9.5% per annum, which is payable semi-annually. The entire principal is due on June 1, 1994 A discount of $126,500 is being amortized to maturity. The unamortized discount at June 30, 1990 is $52,000. Below is a schedule of debt service • requirements to naturity (expressed in thousands) : See Independent Auditor's Report 57 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 13. FWID IiOWr� DEBT (CONTINUED): • d. Emerald Cove Housing Certificates of Participation: Year Juing ne 30, Principal Interest Total • 1991 $ 0 $ 437 $ 437 1992 0 437 437 1993 0 437 437 1994 4,548 400 4,948 • Totals $4,548 $1,711 $6,259 e. Note Payable- County of Orange: In July, 1987 the City received $409,140 of Fire Camunications Equipment under an agreement with the County of Orange whereby the City will repay the County for the equipment. The equipment and note are recorded in the Equipment Replacement Fund, an internal service fund. Interest rates on the note vary between 5.4% and 6.5%. Interest is payable annually on December 1st and June 1st with principal maturing on June 1st. Debt service • requirements are as follows (expressed in thousands) : Year Junding e 30, Principal Interest Total • 1991 $ 81 $16 $ 97 1992 86 11 97 1993 92 6 98 Total $259 $33 $292 • • See Independent Auditor's Report 58 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 13. PROPRIEnM F@ID I NG-TEI M DEBT (OMT INUED) : • f. Compensated Absences: There is no fixed repayment schedule to repay the ccwensated absences for proprietary fund types of $161,000 at June 301 1990. • g. Advances Frxm Other Funds: There is no fixed repayment schedule to repay the amounts advanced from the General Fund and Park Acquisition and Development Fund to the Emerald Cove • Housing Fund of $943,081 at June 30, 1990. $832,430 was advanced from the Park Acquisition and Development Fund and $111,411 was advanced in 1984 from the General Fund which helped fund the initial operation of the apartment ecraplex. Both advances bear no interest. • h. Claims Payable There is no repayment schedule for claims payable of $6,962,000 as of June 30, 1990 (see note 9) . • i. Public Financing Authority Certificates of Participation: In March, 1989, the Public Financing Authority issued $5,510,000 of certificates of participation to finance the purchase of capital equipment. • The amount is recorded as a liability of the Equipment Replacement Fund, an internal service fund. Interest on the certificates ranges from 6.75% to 6.95%. Interest is payable semiannually on February 1st and August 1st with principal maturing annually on February 1st. A discount of $69,000 is being amortized to maturity. Debt service requirements to maturity are as follows (expressed in thousands) : • • See Independent Auditor's Report 59 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 13. PROPRIETARY FM LONG-TERM DEBT (CONTINUED) i. Public Financing Authority Certificates of Participation: • Year Ending June 30, Principal Interest Total • 1991 $ 0 $ 376 $ 376 1992 960 376 1,336 1993 1,025 313 1,338 1994 1,100 243 1,343 1995 1,170 168 1,338 1996 1,255 87 1,342 • Total $5,510 $1,563 $7,073 14. RESERVOIR HILL ASSESSMERr BONDS: • In January, 1989, the City issued $1,653,905 of special assessment bonds to finance certain public improvements. Proceeds from the issue which are to be used for improvements have been accounted for in a capital project fund, and have been designated as "contribution from property owners". The bonds are to be repaid only by property taxes levied in the assessment district. • The City has no liability on the bonds if revenues are insufficient to fund the required debt service. The debt has been excluded from the General Long-JreYm Debt Account Group. Principal matures annually on September 2nd, with interest payable semiannually on March 2nd and September 2nd. Interest rates on the bonds • range between 6.5% and 8.1% Debt service requirements to maturity are as follows (expressed in thousands) : • • See Independent Auditor's Report 60 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 14. TMSERWIR HILL ASSESSMENT BMMS: • Year Ending June 30, Principal Interest Total 1991 $ 0 $ 146 $ 146 1992 4 133 137 1993 40 129 169 1994 45 125 170 1995 50 122 172 1996 50 118 168 1997 55 114 169 1998 60 110 170 • 1999 65 105 170 2000 70 100 170 2001-2011 1,215 610 1,825 Total $1,654 $1,812 $3,466 15. CHANGES IN FIXED ASSETS: Below is a schedule of the changes in general fixed assets for the year • (expressed in thousands) : Balance Balance July 1, 1989 Additions Dispositions June 30, 1990 Iru�d $ 57,570 $ 4,383 ($ 485) $61,468 • Buildings 24,647 837 (1,041) 24,443 Other 1,733 0 0 1,733 Construction in Process 564 7,146 (564) 7,146 Total $ 84,514 $12,366 9 090 $94,790 • • See Independent Auditor's Report 61 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 15. CIMNGES IN FIXED ASSETS ma Ti INUED) Below is a schedule of changes in proprietary fund fixed assets for the • year (in thousands) : Enterprise Fluids: Balance Balance • July 1, 1989 Additions Dispositions June 30, 1990 Land $ 4,732 $ 0 $ 0 $ 4,732 Buildings 5,334 0 0 5,334 Machinery and • Equipment 49,563 1,108 (11) 50,660 Total Cost $59,629 $ 1,108 $ 11 60,726 Less accumnilated depreciation (22,975) (24,332) Net Book Value, $36,654 $36,394 Enterprise Fluids Internal Service Fluids Balance Balance July 1, 1989 Additions Dispositions June 30, 1990 Machinery and $22,342 $6,306 $11301 $27,347 Equrpmrit Less accumulated • depreciation (11,440) (13,154) Net Book Value, $10,902 $14,193 Internal Service Fluids • See Independent Auditor' s Report 62 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 16. RESERVES AMID DESIGNATIONS OF FM EQUITY: r Under generally accepted accounting principles, the City is allowed to set up reserves and designations of fund equity. Reserves indicate amounts which cannot be appropriated in future periods or which are legally set aside for a specific future use. Designations represent amounts that the City has made tentative plans to use in a future period. The City's reserves and designations are described below (expressed in thousands) : • Special Debt Capital Trust General Revenue Service Projects and Fund Funds Funds Funds Agency Total RESERVES Encumbrances $ 2,258 $4,176 $ 0 $ 0 $ 0 $ 6,434 Long-term 15,155 1,959 23,764 15,019 0 55,897 receivables Reimbursement 0 432 0 0 0 432 agreements Capital 5,213 0 0 38,509 0 43,722 projects Debt service 0 0 11,162 0 0 11,162 go Pension Payments 0 0 0 0 18 18 Land held for 0 0 0 24,597 0 24,597 resale Other fund 49 0 0 0 0 49 ` deficits Inventory 284 0 0 0 0 284. TOTAL RESERVES 22,959 6,567 34,926 78,125 18 142,595 DESIGNATIONS • Subsequent year's expenditures 0 3,946 0 0 0 3,946 TEAL RESERVES $22,959 $10,513 $34,296 $78,125 $ 18 $ 146,541 AND DESIGNATIONS • See Independent Auditor's Report 63 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 16. r43SERVFS AND DESIGNATIONS OF FMM EQUITY: a. Reserves for encumbrances are amounts committed for unperformed services or for undelivered goods where a commitment to purchase has been made. b. Reserves for advances to other funds, deposits and other assets are for amounts not scheduled to be repaid until future years, and for which there is no offsetting deferred revenue. • c. Reserves for reimbursement agreements are expected future reimbursements to developers for sewer and drainage construction. d. Reserves for continuing projects are amounts committed for long-term projects not yet completed. • e. Reserves for debt service are amounts accumulated in debt service funds or set aside in another fund in accordance with a bond indenture or similar covenant f. Reserve for pension payments are amounts accumulated in the Retirement Supplement Pension Trust fund to fund future pension payments. g. Reserves for land held for resale represent land held by the Redevelopment Agency that is legally committed for resale. h. Reserves for inventory are for general supplies inventory. • i. Reserves for other fund deficits are amounts to cover fund deficits in the Self-Insurance Fund. j. Designations for subsequent years' expenditures are made to fund deficits budgeted in subsequent years. 17. COMMITMENTS AND : a. Legal Actions: • Theme are legal actions pending against the City resulting from normal operations. In the opinion of management and the City Attorney, the financial resolution of these actions should not have a significant impact on these financial statements. • See Independent Auditor' s Report 64 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 17. COMNII'II1PS AMID CONTINGENCIES (CONTINUED) • b. Mortgage Revenue Bonds: The City established a program in February, 1983 to provide funds for the purchase of hom mortgages within the City. Under this program, a total of $40,000,000 of mortgage revenue bonds has been issued, $20,000,000 in • March, 1983 and an additional $20,000,000 in July, 1984. In 1983 the City also issued $16,000,000 of Loans to Lender Revenue Bonds to construct an apartment cmiplex for low and moderate income housing. In 1985 the City also issued $25,000,000 of Multi-Family Housing Revenue Bonds for construction of various apartment complexes. • The bonds are payable from, and are secured by, a pledge of payments made on the home mortgages and all funds held by the trustee under the indenture. agreements. The City is not required to make payments on the bonds from any other source. Therefore, these programs have been excluded from the accompanying combined financial statements. • C. Land Purchases- A.C. Marion: In 1987, City has agreed to purchase a parcel of land from a private party for $3,190,000 in various phases. At June 30, 1990, one remaining phase • had not yet been purchased. The City pays a rental option for the use of the unpurchased land which is paid quarterly on February 28th, May 31st, August 31st and November 30th. The City may cancel the agreement at any time in which case the obligation to pay the remaining rental/option fees or to purchase the remaining phase ends. Listed below is the schedule of payments and rental/option fees for the life of the contract (expressed in • thousands) : Fiscal Year DxUng Purchase Quarterly • June 30, Price Phase Rents 1991 $690 5 $26 • See Independent Auditor's Report 65 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 17. W�NPS AND (Cour mm) : d. 1988 Owner Participation Agreement-Mola Development Corporation: In. July, 1988, the Redevelopment Agency, the City and Mola Development Corporation (Mola) entered into an owner participation agreement for the Townssquare project (a residential and commercial development in the MairVPier project area of the Redevelopment Agency) . Certain property 0 which was owned by third parties was acquired by both the Agency and Nola. This property was combined with adjacent property owned by Mola, property owned by the Agency and property sold to the Agency by the City for $1,956,000 (see note 12) , which represented the lower of cost or market of the land. The market value was $2,500,000. The combined land was used for the development Mien the individual residential units are cmpleted and sold, the proceeds will reimburse the Redevelopment Agency for the market value of its land and pay a 9% developers fee to Mola. The remaining proceeds will be divided between the Agency and Mola based on the value of the respective land contributed by each party. In the prior year a land draw of $1,250,000 was received by the Agency which left a beginning year balance of $1,250,000 to be reimbursed. During the year, $810,848 was repaid to the Agency leaving an unreimbursed amount of $439,152. One year after the commercial units are completed, Mola will be obligated to pay to the Agency 50% of the net operating income of the commercial units for the proceeding year and on a monthly basis thereafter. - • f. Owner Participation Agreement-Koury: In November, 1988, the City, the Redevelopment Agency and Robert Koury, an individual entered into an owner participation agreement which will provide a for the development of a parking structure and related commercial and retail space in the Main/Pier project area of the Redevelopment Agency. • See Independent Auditor's Report 66 0 • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 17. OOMMITHENTS AND CuNrINGEW (CONTINUED): •► The Redevelopment Agency purchased land from the City valued at $3,133,500. This sales price will be paid to the City by future tax increment revenues of the Main/Pier project area (see note 12) . This land was combined with other Redevelopment Agency owned land and land owned by Koury to provide the space for the development. The Agency purchased the land held by Koury for $1,235,000 and secured the performance of the agreement by issuing • Koury a deed of trust. The Agency agreed to construct a parking garage and 32,000 square feet of its retail/ccmwzcial space. When the constriction is completed the Agency will sell its interest in the retail/commercial space for $1,235,000. The Agency will retain title to the parking structure. • g. Disposition and Development Agreement-Robert L. Mayer Corporation: In August, 1988, the Redevelopment Agency, the City and Robert L. Mayer Corporation (Mayer) entered into a disposition and development agreement for the development of hotels, residential and commercial parcels in the Main/Pier project area. The development will take place in three different residential and six different commercial phases. Mayer agreed to loan to the Agency up to $4,800,000 to relocate residents of a mobilehcme park in the area. As of June 30, 1990, $2,192,075 in loans from Mayer have been made (see note 12h) . Mayer will be repaid by the Agency pledging a portion of the tax increment and transient occupancy tax revenues that the improvements generate. After the indebtedness is repaid, the Agency will also be liable to rebate to Mayer additional tax increment and transient occupancy tax revenue generated by the project when the project is completed. • The Agency purchased land from the City for $22,400,000. This sales price will be repaid to the City by future tax inert revenues of the Main/Pier project area. The land purchased fraan the City which will be used for the commercial portion of the development will be leased by the Agency to Mayer for 99 years under an operating lease. The minimum annual lease payments to be received by the Agency are as follows (expressed in thousands) : • See Independent Auditor's Report 67 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 17. COMMIT149M AND COMINGENCIES (OOrTPIN W : Year Ending r June 30, Amount 1991 $34 1992 125 1993 125 1994 125 1995 131 Totals $540 The remaining land will be used for the residential development. When the residential units are sold, the Agency will receive revenue based on a specific schedule in the agreement. • At June 30, 1990, $8,377,000 of the land representing the residential portion is recorded as "Land Held for Resale" on the balance sheet of the Redevelopment Agency's Capital Projects Fund. h. Arbitrage: Under Internal Revenue Code Section 148, governmental obligations are subject to "arbitrage" rules which require that investment income with a yield of 1/8 of 1% over the yield of the debt issued must be rebated to the federal government every five years unless a rebate exception is made. As of June 30, 1990, the following debt issues have arbitrage rebate amounts as follows (expressed in thousands) : 1989 Public Financing Authority Certificates of Participation (note 13i) $ 67 1989 Civic Improvement Corporation Certificates of Participation (note 12e) 19 1988 Public Financing Authority Revenue Bonds (note 12i) 133 Total $220 • See Independent Auditor's Report 68 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 18. JOINr VENrMMS: • In October, 1988, the City and the cities of Persona, San Bernardino, Santa Ana and Oxnard formed the Big Independent Cities Excess Pool Joint Powers Authori , (BICEP) to finance a claims payment pool for certain liability claims in excess of $1,000,000 per claim. BICEP is governed by a Board of Directors which is cagx sed of one director • representing each City appointed by each City's City Council. A director must be a member of the City Council or an official or staff person of the City which he or she represents. Any changes to the board must be approved by the current board members. Each participating City pays an insurance premium to BICEP which is used to fund the operating and debt service expenditures of BICEP. The participants' shares of the assets, liabilities • and fund equity are as follows: Huntington Beach 21.43% Oxnard 15.62% • San Bernardino 19.09% Santa Ana 30.27% Pomona 13.59% In December, 1988, BICEP issued $15,055,000 of Insurance Program Revenue • Bonds, 1988A which was used to initiate the insurance pool. The interest rates on these bonds varies between 6.5% and 8.25% and are payable from premium payments from the participating cities. The premiums paid from the participants represents the security for the debt Debt service requirements to maturity are as follows (in thousands) : • • See Independent Auditor's Report 69 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 • 18. JOINT VENTURES (CONTINUED) : Year • Ending June 30, Principal Interest Total 1991 $ 360 $ 1,203 $ 1,563 1992 390 1,178 1,568 1993 425 1,151 1,576 1994 450 1,120 1,570 1995 485 1,087 1,572 1996 520 1,050 1,570 1997 560 1,010 1,570 1998 620 967 1,587 ' 1999 670 918 1,588 2000-2009 10,485 8,639 19,124 Total $14,965 $18,323 $33,288 The city's share of the above liability is $3,206,999. � The June 30, 1990 financial information for BICEP is as follows (expressed in thousands) : BICEP City Balance Sheet Total Share • Assets $16,665 $3,571 Liabilities 15,389 3,287 Equity 1,276 274 Revenue and Exper�.se • Revenues 2,372 508 Expenses 1,745 374 Non-Operating Revenue 627 134 Net Non-Operating Revenue (211) (45) (Expense) Excess of Revenue over 415 89 Expense See Independent Auditor's Report 70 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 19. SUPPLEMENEM IMMO. ITION: • a. Actual Expenditures Exceeding Appropriations: Expenditures exceeded appropriations at the departmental level in the funds shown as follows (expressed in thousands) : • General Fund City Administrator $71 City Treasurer 27 City Attorney 2 Fire 1,095 Police 823 • Cmm unity Services 9 Redevelopment Agency Debt Service Interest 2,026 Parking Authority Debt Service Principal 2 Interest 1 Civic Improvement Corporation, Debt Service Non-Departmental 94 • Public Financing Authority Interest - 300 b. Budgetary Changes: • During the year the appropriations authorized by the City Council for governmental fund expenditures are changed by action of the City Council as described in note 1(d) . Fund's with changed budgets for total expenditures and transfers out are shown below (expressed in thousands) : • • See Independent Auditor's Report 71 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 19. au II EDrOM ION (Coffri2mm) b. Budgetary Changes: • Fund Original Revised General $86,340 $96,115 Special Revenue Funds: • Gas Tax 7,868 9,437 Sewer 1,686 2,208 Planned local Drainage 1,674 2,118 Public m mm mications 0 737 Grants 1,395 5,185 • Park Acquisition 5,843 6,504 and Development Narcotics Forfeiture 200 497 20. PRIOR PERIOD AD7US MENT: a. Redevelopment Agency Capital Projects Fluid: At June 30, 1989. the City had recorded $19,549,000 of Land Held for Resale on the balance sheet of the Redevelopment Agency Capital Projects Fund. The amount was also recorded by an offsetting reserve of fund balance. The amount was understated by $827,010. At June 30, 1989 the Agency recorded $2,730,470 of revenue received from • Robert Mayer for a loan to relocate tenants of a mobile hone park (see note 17g) in the Redevelopment Agency Capital Projects Fund. Only $461,435 of the revenue should have been recorded which resulted in a $2,269,035 overstatement of beginning equity. Below is a restatement of the Redevelopment Agency Capital Projects Fund Equity as of June 30, 1989 (expressed in thousands) : • • See Independent Auditor' s Report 72 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 20. PRIOR PERIOD ADJUSTMERr (CC NrngUED) • a. Redevelopment Agency Capital Projects Fund: Fund Balance 6/30/89 $34,761 • Restatement due to prior year 827 error regarding Land Held for Resale Restatement due to isproper • recording of loan proceeds (2,269) Fund Balance as Restated $33,319 b. Accruals of Utility Taxes and Certain State Subventions: y At June 30, 1989 the City did not accrue utility taxes and certain state subventions that met the criteria for revenue accrual. This resulted in an understatement of the beginning General Fund Balance as follows (expressed in thousands) : • Fund Balance 6/30/89 $29,543 Restatement due to prior year error 1,377 Fund Balance as Restated $30,920 • c. General Fixed Assets Account Group: At June 30, 1989 the City did not record $15,027,000 of land in the General Fixed Assets Account Group. This amount is shown as an addition in note • 15. Below is a restatement of the beginning balance for land in the General Fixed Assets Account Group: • See Independent Auditor's Report 73 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1990 20. PRIOR PERIM ADJUSTMENP (OOZJI'nWM) : c. General Fixed Assets Account Group: • Land 6/30/89 $42,498 Restatement due to prior 15,027 year error • Beginning Balance as $57,570 Restated d. Emerald Cove Operating Transfers: • Prior to this fiscal year, subsidies from the Low-Ism Housing Capital Projects Rand were recorded as contributed capital in the Emerald Cove Housing Fund. These should have been recorded as operating transfers in and been added to retained earnings instead of contributed capital. Below �! is a restatement of the beginning balance of retained earnings in the Emerald Cove Housing Fund: Beginning Balance $ (5) Restatement due to above 147 • Beginning Balance as $ 142 Restated f. General IcM-1rerm Debt Account Group: • At June 30, 1989, the City incorrectly recorded a loan fran Robert Mayer Corporation (see note 20a) . This resulted in an overstatement of the beginning amount owed under Owner Participation and Disposition and Development agreements as follows: Amount Recorded, 6/30/89 $3,588 • Restatement Due to (2,342) Prior Year Error Beginning Balance as Restated $1,246 • See Independent Auditor's Report 74 • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1990 ,21. SUBSDQUEUr EVENTS (CONTIIBiJED): • a. Mello Roos Bonds: In August, 1990, the City issued $2,400,000 of Mello-Roos Special Tax Bonds to finance the acquisition and construction of public improvements within the Huntington Beach Cmmu ity Facilities District 1990-1. The bonds are • secured by a special tax levy on property within the district. The City is not liable to make any bond payment if the taxes collected are not sufficient to cover the debt service. Interest rates on the certificates vary frcm 6.35% to 7.6%. Interest is payable semi-annually on April 1st and October 1st with principal maturing annually on October 1st. Debt service requirements are as follows: • Year Ending June 30, Principal Interest Total 1991 $ 0 $ 180 $ 180 1992 0 180 180 1993 25 179 204 1994 25 177 202 1995 30 176 206 1996 30 174 204 1997 30 172 202 • 1998 35 169 204 1999 40 167 207 2000 45 164 204 2001-2021 2,140 1,959 4,099 Total $2,400 $3,517 $5,917 • b. Tax and Revenue Anticipation Note: In August, 1990 the City issued $4,500,000 of Tax and Revenue Anticipation notes bearing interest at 6.25%. The notes (including principal and interest) are due on July 31, 1991. • See Independent Auditor's Report 75 • Il�EP'IIIDII� AIDITCIRSI' MKIRT AND SCHEDULE OF FIDII2AL MUMUAL ASSLSVOCE • &COMMA 1 V 1 RODNEY.X T r,-\AL CPA RAI.PH H.\\'EIN'IR4LB.CPA CERMED PUBLIC ACCOUNTANTS MLCHAEL R.1.1.DIN,CPA ROBERT R.VINE.CPA A PARTNERSHIP 6NC=ING ACCOL NTACY CORPORATIONS • PHILIP H.HOLT1Ci.\{P,CM 18401 VON KARMAN,SUITE 200 September 21, 1990 THOKAS M.PERLOWS5 3.CPA WINE • CALIFORNIA 92715.1542 KAWEYI SCHROEDER,CK PHONE(714)757-7700 FAX(714)757.2707 • INDEPENDENT AUDITORS' REPORT ON SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE • City Council City of Huntington Beach Huntington Beach, California • We have audited the general purpose financial statements of the City of Huntington Beach as of and for the year ended June 30, 1990, and have issued our report thereon dated September 21, 1990. These general purpose financial statements are the responsibility of the City of Huntington Beach's management. Our responsibility is to express an opinion on these general purpose financial • statements based on our audit. We conducted our audit of such general purpose financial statements in accordance with generally accepted auditing standards and Government Auditinct 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 general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a • reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general purpose financial statements of the City of Huntington Beach taken as a whole. The accompanying Schedule of Federal Financial Assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to the auditing procedures applied in the audit of ;t�general purpose financial statements and, in our opinion, is fairly stated -in all material respects in relation to the general purpose financial statements taken as a whole. -76- OTHER OFFICES AT: 2965 ROOSEVELT ST 613 W-XALLEY PKNXT...SUITE 330 CARLSBAD,CA 92CC8.2389 ESCONDIDO,CA 92C25.2552 (619)729-2343 (619)741.3141 (619)729.2234 FAX (619)741-9890 FAX • CITY OF HUNTINGTON BEACH SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE For the year ended June 30, 1990 Accrued or Accrued or Grant Federal Pass-Through Program (Deferred) (Deferred) Federal Grantor/Pass Through Identification CFDA Grantor's or Award Revenue at Federal Non-Federal Revenue at Program Title Number Number Number Amount July 1, 1989 Receipts Receipts Expenditures June 30, 1990 U.S. Department of HUD Community Development Block Grant • Entitlement B-89-MC-06-0506 14.218 S 1,318,000 $(1) 467,998_S 1,430,066_S - $ 1,025,703_S 63,635 U.S. Department of Transportation Passed through State Department of Transportation: Highway Planning and Construction (Federal Aid Highway Program) HES-OOOS(257) 20.205 7.5181 183,600 19,664 196,640 176,976 HES-MO32(005) 20.205 7.5181 85,500 - 8,272 82,718 74,446 HES-M014(2) 20.205 7.5181 69,300 7,120 5,198 12,318 - HES-M021(3) 20.205 7.5181 85,500 4,193 2,923 7,116 HES-M004(5) 20.205 7.5181 974,917 (2) 213,468 213,468 19,815 19,815 HES-M033(3) 20.205 7.5181 45,000 15,216 38,250 32,238 55,272 - HES-M019(8) 20.205 12.5181 364,690 307,600 330,544 330,562 387,652 34,146 HES-Mo19(006) 20.205 12.5181 796,112 - 91,389 673,464 582,075 536,284 593,575 510,061 1,434,995 867,643 U.S. Department of Education Library Literacy G008610694 84.167 - 21,540 (415) - 415 R167A80169 84.167 18,414 (1,372) 3,986 - 5,305 (53) R167A90110 84.167 18,684 14,379 837 15.216 (1,787) 18,365 837 20,936 (53) Passed through California State Library LSCA-I-7.8 84.034 40.1435 13,989 (4,203) - 118 4,321 LSCA-1-7.6 84.034 40.1709 15,113 15,113 - 15,110 (3) (4,203) 15,113 118 19,431 (3) Federal Emergency Management Agency Passed through State Office of Emergency Services: Emergency Management Assistance Program 83.516 34,855 10,981 34,855 54,893 88,701 9,935 TOTAL FEDERAL ASSISTANCE $ 2,091,974 $ 565,909 S 2,589,766 (1) Amount increased from prior year's report by $184,356 which constitutes an increase in accrued revenues from prior years. (2) Amount increased from prior year's report by $213,468 which constitutes an increase in accrued revenues from prior years. See Independent Auditors' Report on Schedule of Federal Financial Assistance (Page 76). -77- • • • • • • • • • • • • • • IIIDEPENDM AMITCIRSf IUM)CRLS ON COMPUMCE AND SCHEME OF FDOINGS AMID COSTS • • • • • DIEHL,EVANS &CONT 11 V 1 RODNEY ML.CPA RALPH H..�1'ERv'EINI i dRAI,'B.CPA CERDRED PUBLIC ACCOUNTANTS MICHAEL R.LIMN,CPA ROBERi R.%1NE.CP.a A PARITIEASWP eacwonac MCOIMACY coxroannoru PHB.IP H.HOLTKA2.CPA 18401 VON KARMAN,SUITE 200 Se 21, 1990 THOMAS M.PERLOWSM,CPA UWM • CALIFORNIA 92715.1542 HAMY 1 SCHROEDER.CPA PHONE(714)757-7700 FAX(714)757.2707 IMEPENDEPTr AUDITORS' RFU30RT ON CCMPLTANCE P ATED TO THE GENERAL PupjwE FINANCIAL STATEmE m City Council City of Huntington Beach Huntington Beach, California We have audited the general purpose financial statements of the City of Huntington Beach as of and for the year ended June 30, 1990, and have issued our report thereon dated September 21, 1990. We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable to the City of Huntington Beach is the responsibility of the City of Huntington Beach's management. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the City's aaltplianee with certain provisions of laws, regulations, contracts, and grants. However, our objective was not to provide an opinion on overall compliance with such provisions. The results of our tests indicate that, with respect to the items tested, the City of Huntington Beach ccuplied, in all material respects, with the provisions referred to in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not cmplied, in all material respects, with those provisions. This report is intended for the information of the City's management, the City Council and the City's oversight agency (U.S. Department of Housing and Urban DevelopTent) . This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. -78- OTHER OFFICES AT: 296S ROOSEVELT ST. 613 W.VALLEY PKWY,SL1TE 330 CARLSBAD.CA 92008-2389 ESCONDIDO,CA 9202S.2552 (619)729.2343 (619)741.3141 1619)729.2234 FAX (619)741.9890 FAX DiEHL,EvANs &COW *Y RODNEY. E:N-MA L.CPA ���j C11 V 1 R41.PH H.�•EL\"IR.�LB,CPA CERTIFIED PUBLIC ACCOUNTANTS MICHLAEL R L DIN.CI'A A PARTNERSI9P DXUJDM ACCOUNTACY CORPORATIONS ROBERT R.51•LN-E.CPA PHMJP H.HOLTKA-%1P•CPA 18401 VON KARMAN,SUITE 200 THOMAS M.PERLOWSM.CPA WINE • CALIFORNIA 92715-1542 HARVEY 1 SCHROEDER.CPA PHONE(714)757.7700 SepteMber 21, 1990 FAX(714)757.2707 IlMEPENDENT AUDITORS' REPORT ON C HPLIANCE WITH LAWS AND RDGU=ONS RIM= TO MAJOR FEDERAL FIMNCIAL ASSISTANCE PROGRAMS City Council City of Huntington Beach Huntington Beach, California We have applied procedures to test the City of Huntington Beach's compliance with the following general requirements applicable to each of its major federal financial assistance programs, which are identified in the schedule of federal financial assistance, for the year ended June 30, 1990: Political Activity Relocation Assistance and Real Davis-Bacon Act Property Management Civil Rights Federal Financial Reports Cash Management Drug-free Workplace Act Our procedures were limited to the applicable procedures described in the Office of Management and Budget's Compliance Supplement for Single Audits of State and Local Gaverrmlents. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the City of Huntington Beach's cmpliance with the requirements listed in the preceding paragraph. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the .requirements listed in the first paragraph of this report. Our procedures included all of the requirements listed above. With respect to items not tested, nothing came to our attention that caused us to believe that the City of Huntington Beach had not complied, in all material respects, with those requirements. • -79- OTHER OFFICES AT: 2965 ROOSEVELT ST. 613 W.VALLEY PK%`Y.,SLITS 330 CARLSBAD,CA 92008.2389 ESCONDIDO,CA 92025-2552 (619)729.2343 (619)741-3141 (619)729-2234 FAX (619)741.9890 FAX • • We also have audited the City of Huntington Beach's compliance with the following specific requirements that are applicable to each of the City's major • federal financial assistance programs, which are identified in the accompanying schedule of federal financial assistance, for the year ended June 30, 1990: Types of services Reporting allowed or unallowed Claims for advances and Eligibility reimbursements Matching, level of effort Special requirements • or earmarking The management of the City of Huntington Beach is responsible for the City's ompliance with those requirements. Our responsibility is to express an opinion on cou liance with those requirements based on our audit. • We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Ccaptroller General of the United States, and OMB Circular A-128, "Audits of State and Focal Governments". Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the • requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the City of Huntington Beach complied, in all material respects, with the requirements governing types of services allowed or unallowed; matching, level of effort or earmarking; reporting; claims for advances and reimbursements, and the special requirements in the Office of Management and Budget's Commliance Supplement for Single Audits of State and Local Governments; and amounts claimed or used for matching that are applicable to each of its major federal financial assistance programs for the year ended June 30, 1990. This report is intended for the information of the City's management, the City • Council and the City's oversight agency (U.S. Department of Housing and Urban -Development) . This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. • • -80- • DIEHLXvANs &CO (n^NY RALPH F.%T MNIE1,CPA �,J��/�(��J i RALPI4 H.N'EPfIR4l1B,CPA CER-IFIED PUBLIC ACCOUNfANPB MICHAEL R.LUDIN,CI'A ROBERT R.%T-ZE.CPA • n PARINERSMP Lkz i vLuc nccot�rrncY cownMno�s PHILIP H.HOLTKAMP.CPA 18401 VON KARMAN,SUITE 200 THOMAS M.PERLOWSIG,CPA IRVINE • CALIFORNIA 92715.1542 HARVEY I SCHROEDER,CPA PHONE(714)757-7700 September 21, 1990 FAX(714)757.2707 INDEPENDENT AUDIMRSI REPORT ON COMPLIANCE WITH LAWS AND RDCQJIATIONS RETATED TO NON-MANOR FEDERAL FIlWCIAL ASSISTANCE PFDGPJ MS City Council • City of Huntington Beach Huntington Beach, California in connection with our audit of the general puttee financial statements of the City of Huntington Beach, as of and for the year ended June 30, 1990, and with our study and evaluation of the City's internal control systems used to administer federal financial assistance programs, as required by Office of Management and Budget Circular A-128, "Audits of State and Local Governments", we selected certain transactions applicable to certain nonmajor federal financial assistance programs for the year ended June 30, 1990. • As required by Circular A-128, we have performed auditing procedures to test compliance with the requirements governing types of services allowed or unallowed and for allowable costs. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the City's compliance with these requirements. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the requirements listed in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the City of Huntington Beach had not complied, in all material respects, with those requirements. This report is intended for the information of the City's management, the City Council and the City's oversight agency (U.S. Department of Housing and Urban Development) . This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. -81- OTHER OFFICES AT: 2965 ROOSEVELT ST. 613 W.V.MM I'MY.,SUITE 330 CARLSBAD,CA 92008.2389 ESCONDIDO.CA 92025 2552 1619)729-2343 (619)741.3141 (619)729-2234 FAX (619)741.9890 FAX • CITY OF HUNTINGT'ON BEACH • saffDULE OF FINDINGS AND QUESPIONFD COSTS For the year ended June 30, 1990 • Award Questioned Program Amount Finding/Non-Compliance Costs There were no findings or questioned costs for the year ended June 30, 1990. • One finding and instance of non-oonpliance reported on the Single Audit report • for the year ended June 30, 1989 remained unchanged from our previous reports concerning the Library Literacy Program. The City has not reimbursed $415 to the U.S. Department of Education for an advance received but not expended. We have not included this finding in our report for the year ended June 30, 1990. The City has taken action to prevent the reoo =ences of the other findings as listed in the prior year Schedule of Findings and Questioned Costs. • • • • • • See Independent Auditors' Report on Compliance with Laws and Regulations Related to Federal Financial Assistance Programs (Pages 7.9 to 81) . -82- • • ���ID AMITORS' IU12CIRT5 CAI INTERNAL AMOUNTING CIS DiEHLXvANs &C �� m,��n 7 RODNEY..ELN- lEl.CP:\ vl�/��V� RALPH H.\\'EL\'iR.\f;R.CPA CERTIFIED PURUC ACCOUNTANTS NICFL\F.L R.WON.CR\ n rAxruFRsluP wn2rowc Acra xrk rolun r coRoru September 21, 1990 ROBEKf R.NINE.CPAPHILIP H.HOLTK.-\,\1P.CR 18401 VON KARMAN,SUITE 200 THOMAS M.PERLO\VSKI.CPA IRVINE • CALIFORNIA 92715.1542 HARVEY I.SCHROEDER.CPA PHONE(714)757-7700 FAX(714)757.2707 INDEPEMENr AUDITORS' REPORT ON THE IlNTEPNAL CONTROL STRUCTURE IN AOOORDMCE WITH GO'VERNMEW AUDITING STANDAMS • City council City of Huntington Beach Huntington Bead, California We have audited the general purpose financial statements of the City of • Huntington Beach as of and for the year ended June 30, 1990, and have issued our report thereon dated September 21, 1990. We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. In planning and performing our audit of general purpose financial statements of the City of Huntington Beach for the year ended June 30, 1990, we considered its internal control structure in order to determine our auditing procedures for the • purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control structure. The management of the City of Huntington Beach is responsible for establishing and maintaining an internal control stricture. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in . accordance with generally accepted accounting principles. The objectives of internal control systems used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that, with respect to federal financial assistance programs, resource use is • -83- OTHER OFFICES AT: 2965 ROOSEVELT ST. 613\V.\ALM PK\\'Y.,SUITE 3 30 CARLSBAD,CA 92008-2389 ESCONDIDO,CA 92025-2552 (619)729.2343 (619)741-3141 (619)729-2234 FAX (619)741.9890 FAX • • consistent with laws, regulations, and policies; resources are safeguarded against waste, loss, and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports. Because of inherent limitations in any internal • control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. • For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: Cash receipts Cash disbursements Purchasing and accounts payable • Billings and receivables Payroll Inventory Budgeting Property and equipment General ledger • For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. We noted a certain matter involving the internal accounting control structure • and its operation that we consider to be a reportable condition under standards established by the American Institute of Certified Public Accountants. A reportable condition involves matters coming to our attention relating to significant deficiencies in the design or operation of the internal accounting control structure that, in our judgment, could adversely affect the City's ability to record, process, s=rarize, and report financial data consistent with the assertions of management in the general purpose financial statements. FAU/HES PFD= BILLINGS Currently, all FAU/HES project billings are prepared by the Public Works • Department. For most projects, billings are submitted when the project is complete, which results in the City financing the project for the duration of the project. In order to assure timely billings, and take advantage of .all revenue sources available, we recommend that the Accounting Department periodically review with the Public Works Department the status of FAU/HES grants and related expenditures and prepare progress billings when appropriate. • A material weakness is a reportable condition in which the design or operation of the specific internal accounting control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose 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. -84- • • Our consideration of the internal control structure would not necessarily • disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. We believe the reportable condition described above is not a material weakness. Also, was noted certain matters involving the internal control structure and its operation that we have reported to the management of the City of Huntington Beach in a separate commmication dated DecmWp 10, 1990. This report is intended for the information of the City's management, the City Council and the City's oversight agency (U.S. Department of Housing and Urban Development) . This restriction is not intended to limit the distribution of • this report which, upon acceptance by the City, is a matter of public record. 90.4" -'. • • • • • • -85- • • DiEHL,EVANs &CO' T� RAITH I'K.WDATINIR E1.CP.A �J RrU.I'H 11.N'Elh'fR.-11;11,lT.-\ CERIIFIF.D PUBLIC ACCOUNI'ANI'S MICIIALL R.111AN.CPA ROBERT R.WINE.CPA • A PARMERSHIP NILUMI4c ACCOWTACY CORPORAnONS September 21, 1990 PHILIP H.HOLTKNW.CPA 18401 VON KARb4AN,SUITE 200 THOALAS Ni.PERLOW'SKI.CPA IRVINE • CALIFORNIA 92715-1542 HAMY y SCHROEDER,CPA PHONE(714)757.7700 FAX(714)757-2707 INDEPENDENT AUDITORS' REPORT ON INfER!iAL CONTROLS (ACaXUrING AND ADMINISTRATIVE) BASED ON A STUDY AND EVALZIATION MADE AS A PART OF AN AUDIT OF THE GENERAL PURPOSE FINANCIAL SIATEMnS AND THE ADDITIONAL TEST'S RDQiT112ED BY THE SINGLE AUDIT ACT' • City Council City of Huntington Beach Huntington Beach, California We have audited the general purpose financial statements of the City of Huntington Beach, for the year ended June 30, 1990, and have issued our report thereon dated September 21, 1990. As part of our audit, we made a study and • evaluation of the internal control systems, including applicable internal adm=strative controls, -used in administering federal financial assistance programs to the extent we considered necessary to evaluate the systems as required by generally accepted auditing standards, Government Auditinct Standards, issued by the Ccnptroller General of the United States, the Single Audit Act of 1984, and the provisions of Office of Management and Budget • Circular A-128, "Audits of State and Local Governments". For the purpose of this report, we have classified the significant internal accounting and administrative -controls used in administering federal financial assistance programs in the following categories: Accounting Controls • Cash receipts Cash disbursements Purchasing and accounts payable Billings and receivables Payroll Inventory • Budgeting Property and equipment General Ledger • -86- OTHER OFFICES AT: 2965 ROOSEVELT ST. 613 W.VALLEY PK%VY.,SUITE 330 CARLSBAD.CA 92008.2389 ESCONDIDO.CA 92025-2552 (619)729-2343 (619)741.3141 (619)729.2234 FAX (619)741-9890 FAX _ • • Administrative Controls General: Specific: • Political Activity Types of services Davis-Bacon Act Eligibility Civil Rights Matching level of effort Cash Management Reporting Relocation assistance and Cost Allocation real property management Claims for advances and Federal financial reports reimbursements • Drug-free Workplace Act Monitoring subrecipients Special requirements The management of the City of Huntington Beach, is responsible for establishing and maintaining internal control systems used in administering federal financial _ • assistance programs. In fulfilling that responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control systems used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that, with respect to federal financial assistance programs, resource use is consistent with laws, • regulations, and policies; resources are safeguarded against waste, loss and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports. Because of inherent limitations in any system of internal accounting and administrative controls used in administering federal financial assistance • programs, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the systems to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study included all of the applicable control categories listed above, except • for Cost Allocation which was not applicable. During the year ended June 30, 1990, the City of Huntington Beach, expended 95 percent of its total federal financial assistance under major federal financial assistance programs. With respect to internal control systems used in administering major federal financial assistance programs, our study and evaluation included considering the types of errors and irregularities that could occur, determining the internal control procedures that should prevent or detect such errors and irregularities, • determining whether the necessary procedures are prescribed and are being followed satisfactorily, and evaluating any weaknesses. With respect to the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Huntington Beach, • our study and evaluation was limited to a preliminary review of the systems to obtain an understanding of the control environment and the flow of transactions through the accounting system. Our study and evaluation of the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Huntington Beach, did not extend beyond this preliminary review phase. • -87- • • our study and evaluation was more limited than would be necessary to express an • opinion on the internal control systems used in administering the federal financial assistance programs of the City of Huntington Beach. Accordingly, we do not express an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Huntington Beach. Further, we do not express an opinion on the internal control systems used in administering the major federal financial assistance programs of the City of • Huntington Beach. Also, our audit, made in accordance with the standards mentioned above, would not necessarily disclose material weaknesses in the internal control systems used solely in administering nonmajor federal financial assistance programs. Also, our study and evaluation and our audit disclosed no condition that we believe to be a material weakness in relation to a federal financial assistance program of the City of Huntington Beach. This report is intended for the information of the City's management, the City Council and the City's oversight agency (U.S. Department of Housing and Urban Development) . This restriction is not intended to limit the distribution of • this report which, upon acceptance by the City, is a matter of public record. • • • • • -88- • PUBLIC NOTICE The City of Huntington Beach has completed its Single Audit Report for the fiscal year ending June 30 , 1989 . The Single Audit Report is a special report required by the Single Audit Act of 1984 . All programs , revenues and expenditures from federal funds received directly or passed through other agencies are subjected to special audit procedures . The report ishvailable for public inspection between the hours of Sam and 5pm at the City Clerk' s office at 2000 Main St . Huntington Beach, CA 92648 . Dated: March 2, 1990 CONNIE BROCKWAY CITY CLERK CITY OF HUNTINGTON BEACH o Authorized to Publish Advertisements of all kinds including public notices by Decree of the Superior Court of Orange County, Caldomia, Number A-6214, September 29, 1961, and -- -- A-24831 June 11,1963. STATE OF CALIFORNIA County of Orange am a Citizen of the United States and a _ resident of the County aforesaid; I am over the age of eighteen years, and not a party to or interested in the below entitled matter. I am a principal clerk of the ORANGE COAST DAILY PILOT, a newspaper of general circulation, printed and published in the City of Costa Mesa, County of Orange, State of California, and that attached Notice is a true and complete copy as was printed and published in the Costa Mesa, PUBLIC NOTICE ' PUBLIC NOTICE Newport Beach, Huntington Beach, Fountain The City_ of Huntington Beach has Completed its Valley, Irvine, the South Coast communities and Single Audit Report for the fiscal year ending June 30, Laguna Beach issues of said newspaper to wit 1989.'The;Single Audlf the issue(s)of: I quired bys nee ISir,g eoa�dn Act of 1984..All programs revenues and expenditures from federal.funds received directly or passed.through other agencies are sub- March 8, 15, 1990 jected procedures. The 1al audit rocedu I available for public Inspec- i tion between the hours of ` - 8am to 5pm at_the City 1 Clerk's office at 2000 Main I Street, Huntington Beach, i! CA 92648. Dated:March 2, 1990 CONNIE BROCKWAY,. CITY CLERK, CITY OF HUNTINGTON BEACH Published Orange Coast Daily Pilot March 8,15,1990: Th238 I declare, under penalty of perjury, that the foregoing is true and correct. Executed on Mach 14, , 199 0 at Costa Mesa,Califo S' nature. U �� PROOF OF PUBLICATION • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 6. RLTIREMP.W PLAN - NORMAL (CONTINUED): • b. Employee and Employer Contribution Obligations: Miscellaneous Safety Category Category' • Normal Cost Rate 6.141% 16.384% Unfunded Liability Rate .038% .137% Total Required 6.179% 16.521% The member rates for the fiscal year ending June 30, 1989 are as follows: Member Rates as a Percentage of Wages Local Miscellaneous Members- 7% Local Safety Members- 9% The employer rate contributes the remaining amounts necessary to fund the • benefits for its members, using the actuarial basis recommended by the PERS actuaries and actuarial consultants and adopted by the Board of Administration. c. Funding Status and Progress: • Pension benefit obligation is a standardized measure of the present value of future pension benefits estimated to be payable in the future due to employee service to date. It helps assess the funding status of the system, assess progress made in accumulating sufficient assets to pay • benefits when due, and make comparisons among employers. This measure is independent of the funding method used to determine City contributions to the system. PERS conducted an actuarial valuation to determine the City's pension • benefit obligation as of June 30, 1989. Significant actuarial assumptions used were as follows: See independent auditor ' s report -31- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 6. RLTIREMWr PLAN - NWMhL (ODG�D) • c. Funding Status and Progress: . Rate of return on present and future assets- 8.5% per annum .. Projected salary increases for covered employees due to inflation- 5.5% per year . Projected salary increases due to merit- 1.5% per year. . Postretirement benefit increases- 0% The pension benefit obligation as of June 30, 1989 based upon June 330, 1988 data adjusted for plan amendments adopted through January 9, 1989 was as follows (in thousands) : Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $44,478 Current Employees: Accumulated employee contributions and investment 32,135 earnings Employer-financed, vested 48,521 Employer-financed, non-vested 1,653 Total pension benefit obligation 126,787 Net assets available for benefits at cost (market value is $136,408 120,609 Unfunded pension benefit obligation d. Actuarially Determined Contribution Requirements and Contributions Made: PERS uses the Entry Aye Nonnal Actuarial Cost Method which is a projected benefit cost method. That is, it takes into account those benefits that are expected to be earned in the future as well as those already accrued. This method states that the normal cost for an employee is the level amount which would fund the projected benefit if it were paid annually from date of employment until retirement. PERS uses a modification of the Entry Age See independent auditor ' s report -32- • CITY oP nUNTINGTON BEACH NOTtS TO' FINANCIAL STATEMENTS, • (continued Y JUNE1 3OF, 1981, 6`. RETIRDIMT PLAN - N� (COO[J17 WEb)s • d. Actuarially DeterminedContribution Requirements and Contributions Made: Cost method in which the eiiployer's total normal cost is expressed as a • level percent of payroll: PERS also uses the level percentage of payroll method to amortize any unfunded actuarial liabilities. The amortization period of the unfunded actuarial liability ends in the year 2000 for prior §ei-vice benefits and in 2011 for current service benefits. The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as those used to compute the pension benefit obligation, as previously described. The contribution to the system for 1988/89 of $6,817,910 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1987. The contribution • consisted of the normal cost, $4;400,028 (11.540 of current covered payroll) and a $121;050 amortization of the unfunded actuarial accrued liability ( .320 of co'iered payroll) . The City made employer contributions of $4,521,078 (11.86% of covered payroll) and on behalf of employees contributed $2,296,832 (6.020 of covered payroll. • e. Trend Infori atioh: Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Ten year trend information for ` the City of Huntington Beach is not published in the California Public Employees Retirement System Annual Report. Therefore, ten years of trend information are required within the City's financial statements since PERS does not display financial information for individual agencies within their report. 1987/88 is the first year that this actuarial information has been made available by PERS and until ten years are available, as many years as ` are available will be presented. Trend information for 1987/88 and 1988/89 are shown and employer contributions for 1986/87, 1987/88 and 1988/89 are shown (dollar amounts expressed in millions) : • See independent auditor ' s report -33- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • .TUNE 30, 1989 6. RETIREMENT PLAN -NORMAL WOMI NUED) • e. Trend Information: 1986/87 1987/88 1988/89 Net assets available for benefits - $105.6 $120.6 Pension benefit obligation - $115.3 $126.7 Net assets available for benefits, expressed - 91.6% 95.1% as a percentage of the pension benefit obligation Unfunded pension benefit obligation - 9.7% 6.1% Annual Covered Payroll $32.1 $ 36.7 $ 38.1 • Unfunded pension benefit obligation as - 26.4% 16.0% a percentage of covered payroll Employer contribution's ' $ 4.5 $ 4.4 $ 4.5 Employer contributions expressed as a • percentage of annual covered made 14.1% 12.7% 11.9% according to actuarially determined requirements 7. RLTMBM NT PI&N - SUPPLfiM&WAL: • a. Plan Description: The City provides a retirement supplement plan to all employees covered • under the City's normal retirement plan with the California Public Employees Retirement System (see note 6) . This plan will pay the retiree an additional amount to his or her normal amount for life. The amount will cease upon the employee's death. The amount is computed at retirement and remains constant for his or her life. • b. Employer and Employee Contribution Obligations: The City is funding the retirement supplement plan on a "pay-as-you-go" basis. This means that no funds are being set-aside to fund the future • unfunded liabilities. See independent auditors report -34- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 7. RETIREMENT PLAN - (CONTINUED): • c. Funding Status and Progress: The City conducted an actuarial valuation to determine the pension benefit • obligation as of June 30, 1989. Significant actuarial assumptions used were identical to the assumptions described in note 6. The pension benefit obligation as of June 30, 1988 is as follows: Retirees and beneficiaries currently receiving benefits and terminated employees not yet receiving benefits $1,292 Current emmployees who are vested 5,779 Total pension benefit obligation $7,071 Net assets available for benefits 0 Unfunded pension benefit obligation 7$ ,071 Since there was no analysis of the pension benefit obligation as. of June 30, 1988, .no analysis of the total change in pension benefit obligation is presented. d. Actuarially Determined Contribution Requirements and Contributions Made Since the City is on a "pay-as-you-go" basis, there was no computation as to the level of funding for the plan. e. Trend Information This is the first year any analysis of funding status and no trend information is available. As soon as trend information is available, it will be presented. f. Accounting ['or Supplemental Pension Plan Expenditures for this pension plan are recorded in the general fund. During the year, expenditures of $156,170 were recorded. See independent .auditor ' s report -35- CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • .LUNG 30, 1989 8. MCDICAL INSURANCE: a. Plan Description: The City provides post-retirement medical insurance benefits to retirees who meet all three of the following criteria: .At the time of retirement the employee is employed by the City; and .At the time of retirement the employee has a minimum of ten years of service or is granted a service connected disability retirement. .Following official separation from the City, the retiree is granted a retirement allowance by the California Public Employee's Retirement System. The City's obligation to provide the benefits to a retiree ceases when any of the following occurs: .During any period the retiree is eligible to receive health insurance at the expense of another employer. .The retiree becomes eligible to enroll automatically or voluntarily in Medicare. If an retiree dies, the benefits that would be payable for his or her insurance would be provided to the spouse or family for eighteen months. • Benefits for insurance premiums are payable based on the years of service credit for the retiree. The premiums may be used for any of the health plans that the City's active employees may participate in. b. Accounting and Funding: The Retiree Medical Insurance Pund is recorded as an agency fund. Contributions are made by the City's operating funds on a periodic basis. The fund is only to be used to purchase medical insurance for retirees. There are no outstanding liabilities at year-end. During the year payments of $53,151 were made for insurance premiums. See independent auditor ' s report -36- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 9. SELF INSURANCE: • The City is self-insured for workers' compensation, general liability and certain health claims. The self-insurance covers the first $150,000 for worker's compensation claims and the first $75,000 of each health claim. Claims in excess of self-insurance limits are covered by insurance up to $1,000,000 for health and the statutory limit for workers' compensation. The City maintains no general liability policy. Self-Insurance activity is recorded in an internal service fund. It is the City's policy to charge expense claims that are reasonably determinable and where the evidence of the City's liability is probable in accordance with GASB Code Section C.50.110. Expense is recognized for claims that have occurred but have not yet been reported to the City. Charges are made by the Self-Insurance Fund to other funds based on estimated costs. The liability for self-insurance claims includes an estimate for amounts incurred but not reported at year-end. Transfers from the General Fund are periodically made to cover deficits caused from inadequate charges to other funds. 10. INTERF[ M TRAN.SACTIOW: • a. Receivables/Payables: Individual interfund receivables and payables at June 30, 1989 were as follows (in thousands) : • Advances to Advances from Other Funds Other Funds General Fund $48,402 Special Revenue runds: Sewer 62 • Planned Local Drainage 406 Grants 1,172 Gas Tax 550 Park Acquisition and 3,110 Developu ent • See independent auditor' s report -37- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 10. INrERFUND TRANSACTIONS (OONTINUM): • Debt Service Funds: Public Financing Authority 21,340 Capital Projects Funds: Parking Structure 7,425 • Enterprise Funds: Water Utility 1,417 Emerald Cove Housing $ 944 General Long-Term Debt Account Group 82,940 Totals 8$ 3,884 83$ ,884 b. Residual Equity Transfers 0 Below is a schedule reconciling total residual equity transfers in with total residual equity transfers out (in thousands) Residual Equity transfers $41992 Plus current year transfers to Equipment Replacement Fund (a proprietary fund) which were recorded as contributed capital in the Equipment Replacement Fund 819 Plus transfers from Low Income IIousing Fund to the Emerald Cove Housing Fund (a proprietary fund) which were recorded as contributed capital in the Emerald 60 Cove Housing Fund. Plus transfers from Reservoir Hill fluid to the Water [find (a proprietary fund) which were recorded as • contributed capital in the Water Fund. 94 Residual transfers out 5$ ,965 • See independent auditor ' s report -38- • CITY OF HUNTINGTON BEACH NOTES. TO,. FINANCIAL STATEMENTS, • (continued) DUNE 30, 1989 11, PROPRIETARY F[1 M SUPPIOIENTARY IN. HVICN: • a. Segment. Information for Enterprise Funds: The City maintains three enterprise funds;. Water Utility, Meadowlark Golf. • Course and Emerald Cove Housing. Certain key financial, data was as follows (in thousands) : MEADOWLARK EMERALD WATER GOLF COVE UTILITY COURSE HOUSING TOTAL • Operating Revenues $13,483 $ 283 $ 607 $14,373 Depreciation Expense 1,275 27 90 1,392 • Operating Income (Loss) 1,442 256 248 1,946 Net Income (Loss) 2,191 221 13 2,425 ! Contributed Capital Received, 470 0 62 532 Net Net Acquisitions (Dispositions) of Fixed Assets 430 0 0 430 Net Working Capital 7,079 936 1,525 9,540 Total Assets 40,222 4,159 6,986 51,367 Long-Tenn obligations, Net of Current Portion 756 1,671 5,480 7,907 ! Total Equity 36,792 2,418 1,430 40,640 • See independent auditor ' s report -39- CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 11. PROPRIETARY FUNDS SUPPI114MVMY INECIMTICN: • b. Contributed Capital: Below is a schedule of the changes in contributed capital during the year (in thousands) : • Water Meadowlark Emerald Equipment Source: Utility Golf Course Cove Housing Replacement Additions Developer $ 282 $ - $ - $ - Contributions Reservoir Hill Transfer (note 10b) 94 - - - Low Income Housing Transfer - - 62 - (note 11b) Equipment Purchases - - - by City (note 11b) 819 Total Additions $ 376 $ - $ 62 $ 819 Reductions Disposals of Equipment - - - 379 Total Reductions - - - 379 Net Increase (Decrease) in Contributed Capital 376 - 62 440 Contributed Capital July 1, 1988 34,508 1,267 1,373 12,214 Contributed Capital, 124,884 1,267 IL,435 JL2,654 June 30, 1989 • See independent auditor ' s report -40- • • CITY OF HUNTINGTON BEAcn • NOTES 'TO FINANCIAL STATEMENTS (continued) JUAIC 30=, 1'989 12. CftIIDZAL 1MG—TUN DWr: • Below is a sutmry of changes in general long-term debt for the year ending June 30, 1989 (in thousands) : Balance Balance • -Outstanding Outstanding July 1, June 30, 1988 Additions (Retirements) 1989 1970 Park Bonds $2;590 $ 0 $(310) $2,280 Public Facilities • Corporation Leasehold 3,000 0 (230) 2,770 Mortgage Bonds- 2nd Issue Parking Authority 825 0 (125) 700 Revenue Bonds • Civic Improvement Corporation Certificates 19,830 0 (220) 19,610 of Paft,icipation • Coastal Conservancy 408 0 (408) 0 Note Compensated Absences 3,822 485 0 4,307 - Advances From 36,918 51,145 (6,194) 82,940 • Other Funds Amounts Due Under Owner Participation 1,408 3,588 (1,408) 3,588 and Disposition and Develortnent Agreements • Public Financing Authority Revenue 26,775 0 (265) 26,510 Bonds • Mortgages Payable 0 2,815 0 2,875 Total $95,576 560,871 ($.11,167) 145,580 • See independent auditor ' s report -41 CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS . (continued) • JUNE 30, 1989 12. (� - DONG-TERM DIr (CONTINUED): : • a. 1970 Park Bonds: On March 1, 1970 the City sold $6,000,000 of general obligation bonds to acquire and construct park facilities. Principal matures annually on March 1st with interest, at 6%, payable semi-annually. The annual debt service requirements to amortize the bonds outstanding at June 30, 1989 are as follows (in thousands) : Year Ending June 30, Principal Interest Total 1990 $305 $137 $442 1991 350 118 468 1992 370 98 468 1993 395 75 470 1994 415 52 467 1995 445 27. 472 Total 2$ ,280 $507 $2,787 b. HuntingLon Beach Public Facilities Corporation Leasehold Mortgage Bonds- Second Issue: On September 1, 1972 $5,000,000 of leasehold mortgage bonds were issued to construct the Central Library complex. The bonds are secured by a lease whereby the City annually transfers $399,000 to the Public Facilities Corporation. Principal matures annually on September 1st with interest ranging from 5.0o to 5.9% per annum payable semi-annually The annual debt service requirements to amortize the bonds outstanding at June 30, 1989 are as follows tin thousands) : See independent auditor' s report -42- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 3.0, 1989 12. (SAL UWr-TER4 DEBT (CONTINUED): • b. Huntington Beach Public Facilities Corporation Leasehold Mortgage Bonds- Second Issue: Year • Ending June 30, Principal Interest Total 1990 $240 $146 $386 1991 260 132 392 1992 270 117 387 • 1993 290 101 391 1994 305 84 389 1995 320 66 386 1996 340 46 386 1997 360 28 388 1998 385 10 395 Total 2$ ,770 $730 3$ ,500 c. Parking Authority Revenue Bonds: A On September 1, 1968 $2,300,000 of revenue bonds were issued to construct off-street parking improvements. The bonds are secured by a lease which requires that the City budget annual transfers to the Parking Authority sufficient to meet the debt service requirements on the bonds. Principal • matures annually on September 1 and bears interest at 5.25% per annum, payable semi-annually. The annual debt service requirements to amortize the bonds outstanding at June 30, 1989 are as follows (in thousands) : • • See independent auditor' s report -43- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 12. GENERAL If=-TERM D[Wr (OCNTINUM): c. Parking Authority Revenue Bonds: Year Ending June 30, Principal Interest Total 1990 135 33 168 1991 140 26 166 1992 150 18 168 1993 160 10 170 1994 115 3 118 Total $ 700 90 $ 790 d. Huntington Beach Civic Improvement Corporation Certificates of Participation: On July 15, 1986 the Huntington Civic Improvement Corporation issued $20,000,000 of certificates of participation in order to defease the Huntington Beach Public Facilities Corporation Leasehold Mortgage Bonds- First Issue and construct certain parking facilities. The Civic Imcprovement Corporation owns the Civic Center complex and leases it to the City. The City has agreed to make annual lease payments equal to debt service requirements on the certificates. The interest rates on the certificates varies between 4.75% and 7.90. Interest is payable semi- annually on Cebruary 1st and August 1st with principal maturing annually on August 1st. Debt service requirements to maturity are as follows (in thousands) : r See independent auditor' s report --44- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) J.UNE 30, 1989 12. ORAL DONG-TERM Dtr (CONTINUED): • d. Huntington Beach Civic Improvement Corporation Certificates of Participation: • Year Ending June 30, Principal Interest Total 1990 $230 $1,508 $1,738 1991 245 1,494 1,739 • 1992 260 1,479 1,739 1993 275 1,462 1,737 1994 295 1,443 1,738 1995 315 1,422 1,737 1996 335 1,399 1,734 1997 360 1,374 1,734 • 1998 385 1,346 1,731 1999 415 1,316 1,731 2000-2007 4,715 9,079 13,794 2008-2016 11,780 5,234 17,014 Total 1$ 9,610 2$ 8,556 $ 48,166 • e. California Coastal Conservancy Note Payable: In March,. 1983, a storm .damaged the municipal pier. The California Coastal Conservancy agreed to lend the City $425,000 to cover a portion of the repair costs. Due to the complete destruction of the end of the pier in January of 1988 and the later condemnation of the entire pier, the State Coastal Conservancy Commission agreed to amend the original loan agreement and forgive the loan.. • f. Compensated Absences Payable: There is no fixed payment schedule to pay the governmental fund liability • of $4,307,025 for compensated absences earned through June 30, 1989 (see note 1k1 . See independent auditor ' s report -45- • • CITY OF ❑UNTINGTON BEACn NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 12. GIINMW, Ia4G-TEIi"►I DEITY (CONVINUED) • g. Long-term Advances from Other Funds: There is no fixed repayment schedule for the Redevelopment Agency to pay the long-term advances from the City which totalled $82,940,076 at June 30, 1989. Below is a description of the various transactions (in thousands) : Sale of land by the Park Acquisition and Development rand in 1983 for $1,741 plus interest of $74 which was $1,915 computed at 10% per annum. During the year $177 of • principal and $192 of interest was repaid. Land sales from the General Fund from 1983 to 1989 totalling $30,635 plus interest totalling $3,064. 33,699 During the year 358 of interest was repaid. Cash advances from the General Fund from 1978 to 1989 for $13,132 plus interest of $1,271 14,403 which was computed at 10% per annum. During the year $3,570 and $1,648 of interest was repaid. Cash advances from the Grant Fund in 1983 and 1989 • no interest. 1,173 Developers fees payable to various funds totalling $558 which are subsidized by the Agency plus interest of $190 which was computed at 10o per annum. During the year $130 of principal and $117 of interest 748 • was repaid. Cash advances from the Public Financing Authority in 1988 and 1989 totalling $20,979 plus interest of 21,340 $361 computed at varying rates. Advances from the Drainage Pund in 1987 totalling $250 plus interest. of $53 computed at 10o per annum: 303 Advances frtNn the Parking Structure Fund in 1988 totalling 7,425 $6,750 plus interest of $675 computed at 10% per annum. See independent auditor ' s report -46- • • CITY OF. HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 12. G&VIMAL I1 NG-THZM D= (CONTINUED): • g. Long-term Advances from Other rands: Advances from the Gas Tax Eland in 1988 totalling $500 plus 550 • interest of $50 computed at 10% per annum. Advances from the Water [end totalling $1,139 in 1986/87 and 1987/88 plus interest of $245 which was computed at 10% per annum: 1,384 • Total amount advanced from other funds 8,� 2,940 Below is a reconciliation of the changes in amounts advanced from other funds to the Redevelopment Agency recorded as general long-term debt for the year ended June 30, 1989: Amount due to other funds on July 1, 1988 $36,918 Advances Received 46,033 Advances Repaid (6,194) Interest recorded in other funds as deferred revenue 5,112 Amount advanced from other funds, June 30, 1989 8� 2,940 h. Amounts Due Under Owner Participation and Disposition and Development Agreements: Beginning in 1983, the Redevelopment Agency entered into various agreements with outside parties to facilitate Redevelopment activities (see note 17) . Part of two of these agreements calls for debt to be incurred to outside • developers. In 1983, the Redevelopment Agency agreed to purchase certain public improvements from Mola Development Corporation for $1,408,047. The amount carried interest at 11% per annum. The amount was to be repaid to Mola by a pledge of tax increment revenues generated by other improvements • constructed by Mola. In July, 1988 the agency and Mola agreed to settle the debt, for $1,200,000. See independent auditor' s report -47- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 12. CMVERAL ILXQG-TM 4 DMr (CONTINUED): • h. Amounts Due Under Owner Participation and Disposition and Development Agreements: In 1988 the Redevelopment Agency was loaned $2,730,332 by a private corporation to relocate tenants of a mobile home park. This advance • carries no interest. There is no fixed repayment schedule for this advance but the amount will be repaid with a pledge of tax increment revenues and transient occupancy tax revenues received by the Agency. Also in 1989 the Agency agreed to reimburse a private party for various public improvements made for a specific project totalling $857,771. There • is no specific repayment schedule except that the amount is expected to be repaid by early 1991. i. Public Financing Authority Revenue Bonds: • on May 1, 1988 the Public Financing Authority issued $26,775,000 of Revenue Bonds to finance loans to four of the Redevelopment project areas. The bonds are secured by four separate loan agreements between the Public Financing Authority and the Redevelopment Agency. Each loan agreement is secured by a pledge of all taxes levied upon all taxable property within • the related project area. A portion of the proceeds of the bonds were withheld from the Public Financing Authority since the increment assessed valuation (assessed valuation minus base year valuation) was not sufficient to yield tax increment revenues to repay the loans. These proceeds are recorded as "Restricted Cash" on the Public Financing Authority's balance • sheet. This escrowed cash is invested in securities with yields sufficient enough to cover debt service on the bonds should the incremment assessed valuation not increase enough to yield sufficient tax increment revenues. If the increment assessed valuation becomes large enough, this cash will be released for general use by the Public Financing Authority. Interest on the bonds ranges .from 5.75' to 8.3750. Interest is payable � semi-annually on May 1st and November 1st. Principal matures annually on November lst.. Debt service requirements are as follows (in thousands) : See independent auditor ' s report -48- • • CITY OF HUNTINGTON DEACTI NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 12. GENMAL ILM-TE14M DLr (CONTINUED) • i. Public financing Authority Revenue Fonds: Year Ending June 30, Principal Interest Total 1990 $270 $2,165 $2,435 1991 295 2,149 2,444 1992 305 2,131 2,436 • 1993 325 2,111 2,436 1994 340 2,089 2,429 1995 370 2,065 2,435 1996 405 2,038 2,444 1997 430 2,009 2,439 1998 465 1,976 2,441 1999 495 1,940 2,435 2000-2007 5,735 13,775 19,510 2008-2018 17,075 4,858 21,933 26,510 3$ 9,306 6$ 5,817 • j. Miscellaneous Notes Payable: In 1988 the Redevelopment Agency purchased property in the Main/Pier project area and assumed three separate mortgages. The mortgages bear interest at 11% with debt service payable monthly according to the mortgage • . contract. Below is a schedule of debt service requirements to maturity (expressed in thousands) . • • See independent auditor' s report_ -49- • • CITY OF 11UNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 12. GENU AL IONG-TERM DEBT (OWTINUED): • j. Miscellaneous Notes Payable: Fiscal Year Ending • June 30, Principal Interest Total 1990 $ 14 321 $ 335 1991 1,050 200 1,250 1992 1,014 134 1,148 1993 18 87 105 • 1994 21 85 106 1995 758 759 1,517 Total $ 2,875 $ 1,586 4$ ,461 • k. Defeased Bonds Outstanding: As of June 30, 1989, there were $6,095,000 of defeased Public Facilities Corporation Leasehold Mortgage Bonds -1st Issue outstanding. The debt service on these bonds is being handled by an escrow account consisting of guaranteed Federal securities with yields sufficient to fund all of the required debt service. 13. PROPRIETARY FUND IONG-TERM DI P: • The following is a summary of changes in proprietary fund long-term debt for the year ending June 30, 1989 (in thousands) : • See _independent auditor' s report -50- • CITY OF HUNTINGTON BEACH NOTES -TO TINANCIAL STATEMENTS (continued) JUNE 30, 1989 13. PROPRIETARY FUND ta4G-TERK DEBT: w Balance Balance Outstanding Outstanding July 1, July 1, 1988 Additions (Retirements) 1989 1963 Water Revenue Bonds $ 869 $ 0 $166 $ 703 San Joaquin 220 0 54 166 Reservoir Note Meadowlark Golf Course Note 1,729 0 29 1,700 Emra1d Cove Certificates of ParLicipation, net 4,523 13 0 4,536 of unamortized discount of $64 Note Payable County of Orange 409 0 73 336 • Compensated Absences 119 9 0 128 Advances from other 944 0 0 944 . Funds Claims Payable 7,336 86 0 7,422 Public Financing Authority Certificates of Participation 0 5,510 0 5,510 Total 16,149 5$ ,618 $322 2$ 1,445 The current portion of the proprietary fund long-term debt is $269,620 • See independent_ auditor' s report -51- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JDNE 30, 1989 13. PFD RIOMY FM IONG-TERM DEBT (OMrINU D: • a. 1963 Water Revenue Bonds: On November 1, 1963 the City sold $3,750,000 of revenue bonds to construct water improvements. The bonds are secured by revenues of the Water Fund. Principal matures annually on November 1 and bears interest at 3.5% per annum, payable semi-annually. The annual debt service requirements to amortize the bonds outstanding at June 30, 1989 are as follows (in thousands) : Year Ending June 30, Principal Interest Total 1990 $ 190 $ 19 $ 209 1991 200 10 210 1992 200 6 206 1993 113 1 114 Total S 703 �5 36 $ 739 The bond indenture requires that the Water Fund net revenues equal or • exceed 1.25 times the annual debt service requirement (principal and interest) . Net revenues are defined as gross revenues less maintenance and operation revenues, excluding depreciation. The City has complied with this requirement as shown below (in thousands) : • Gross revenues $ 12,467 Operating expenses, excluding $ 10,766 interest and depreciation Net revenues $ 1,701 • Debt service $ 30 Debt service coverage 56.7 See i ndopendent audi t t)r ' s repot-t. -52- • • CITY OP HUNTINGTON BEACH NOTES TO FINANCIAL .STATEMENTS (continued) JUNE. 30., 1989 • 13. D IETARY FUND IONG-TM4 DEBT tOONYI M): b. San Joaquin Reservoir Note Payable: • In 1979 the City and several other local cities and water districts purchased the San Joaquin Reservoir. The City is paying a portion (13.56%) of the debt service for the 1961 construction of the reservoir plus operating and improvement costs. In the event of default, the expenses • and/or debt .service payments shall be reallocated among the remaining non- defaulting owners in proportion to the percentage interest owned as though the party in default did not exist. The City has recorded its portion of the reservoir as a fixed asset in the Water Pund. The future required payments on the note are as follows (in thousands) : • Year Ending Required June 30, Payment 1990 $ 60 1991 61. • 1992 55 $ 176 less amount representing interest (10) Principal Outstanding $ 166 at June 30, 1989 c. Meadowlark Golf Course Note Payable: • In October, 1974 the City financed the purchase of Meadowlark Golf Course through a long-term 7% note totalling $2,272,000 (Sales price of $3,200,000 less downpayment of $9.28,000. The note payable is collateralized by future revenues and does not represent a general obligation of the City. The City has leased the golf course to an outside party for a minimum amount of • $150,000 annually through 2002 plus a percentage of income based upon gross revenues. rrom 2003 until 2008 the minimum- payment will be $200,000 plus a percentage of income based upon gross revenues. In 2009 the payment will be $115,703. • See independent auditor ' s report -53- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 13. PBfJPitIL'1`ARY F EM I1 NG-TERM DEBT (CONTINUED): • c. Meadowlark Golf Course Note Payable: As part of the City's initial payment of $928,000 the County of Orange contributed $600,000 upon the City's guarantee to use general City funds, when and if necessary, to ensure that Meadowlark Golf Course will be maintained as open space The future required payments on the note are as follows (in thousands) : Year Ending Required June 30, Payment 1990 $ 150 1991 150 1992 150 1993 150 1994 150 1995 and after 2,565 3,315 less amount • representing interest (1,615) Principal Outstanding $ 1,700 at June 30, 1989 d. Emerald Cove I1ousing Certificates of Participation: • On June 1, 1984, the RedeveloPnent Agency sold certificates of participation to finance the construction of a senior citizens apartment complex. The certificates bear interest at 9.51. per annum, which is payable semi-annually. The entire principal is due on June 1, 1994 A discount. of $126,500 is being amortized to maturity. Below is a schedule of debt service requirements to maturity (expressed in thousands) : • See independent auditor' s report -54- • 4 , • CITY OF 11UNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) .TUNE . 30, 1989 13. PLaDPRIL'PARY FUND DONG-TERM DEW (C0NrLN=): • d. Emerald Cove Housing Certificates of Participation: Year Ending June 30, Principal Interest Total 1990 $ 0 $ 437 $ 437 1991 0 437 437 • 1992 0 437 437 1993 0 437 437 1994 4,600 400 5,000 Totals 4�5 600 $2,148 66,748 • e. Note Payable- County of Orange: In July, 1987 the City received Cire Convmications Dquipment valued at $409,140 under an agreement with the County of Orange whereby the City will repay the County for the equipment. The equipment and note are recorded in the Equipment Replacement Fund, an internal service fund. Interest rates on the note vary between 5.4% and 6.5%. Debt service requirements are as follows (in thousands) : Year • Ending Required June 30, Payment 1990 $ 98 1991 98 1992 97 • 1g93 and after 97 $390 less amount representing interest (54) Principal Outstanding $336 at June 30, 1989 • See independent auditor ' s report -55- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • .TUNE 30, 1989 13. PR40PRILTARY FUND IEWY-TERK DI P (CONTINUED): • f. Compensated Absences: There is no fixed repayment schedule to repay the compensated absences for proprietary fund types of $128,075 at June 30, 1989. g. Advances From Other Funds: There is no fixed repayment schedule to repay the amounts advanced from • other funds of $943,081 at June 30, 1989. h. Claims Payable There is no repayment schedule for claims payable of $7,422,000 as of June • 30, 1989 (see note 10) . i. Public Financing Authority Certificates of Participation: • In March, 1989, the Public Financing Authority issued $5,510,000 of certificates of parLicipation to finance the purchase of capital equipment. The amount is recorded as a liability of the Equipmnt Replacement fund. Interest on the certificates ranges from 6.75% to 6.95%. Interest is payable semiannually on February 1st and August 1st with principal maturing • annually on February 1st. A discount of $68,875 is being amortized to maturity. Debt service requirements to maturity are as follows: • • See .Lndependent auditor ' s report -56- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 13. Ply mErARY FUND Inw Tm4 DINT (c=rINUED),: • i. Public Financing Authority Certificates of Participation: Year Ending • June 30, Principal Interest Total 1990 $ 0 $ 346 $ 346 1991 0 376 376 1992 960 376 1,336 1993 1,025 313 1,338 • 1994 11100 243 1,343 1995 1,170 168 1,338 1996 1,255 87 1,342 Total 5$ ,510 11,909 7$ ,419 • 14. RISI MI R MLL AvSES.4Mr DONW: • In January, 1989, the City issued $1,653,905 of special assessment bonds to finance certain public improvements. Proceeds from the issue which are to be used for improvements have been accounted for in a capital project fund, and have been designated as "contribution from property owners". The bonds are only to be repaid by property taxes levied in the assessment district. The City has no liability on the bonds if revenues are insufficient to fund • the required debt service. Accordingly, these bonds have been excluded from the General Long-Term Debt Account Group. Principal matures annually on September 2nd, with interest payable semiannually on March 2nd and September 2nd. Interest rates on the bonds range between 6.5' and 8.1% Debt service requirements to maturity are as follows (in thousands) : • • See. Independent auditor ' s report -57 • CITY OF UUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) .TUNE 30, 1989 14. RESUMIR UTM AS::TS�r :DONDS (OONTINUm): • Year Ending June 30, Principal Interest Total 1990 $ 0 $ 146 $ 146 1991 4 133 137 1992 40 129 169 1993 45 125 170 1994 50 122 172 1995 50 118 168 1996 55 114 169 1997 60 110 170 1998 65 105 170 1999 70 100 170 2000-2010 1,215 610 1,825 Total IL,654 11,812 $3,466 15. CPAGES IN FIXED ASSETS: Below is a schedule of the changes in general fixed assets for the year (in • thousands) : Balance Balance July 1, 1988 Additions Dispositions June 30, 1989 Land $ 38,784 $ 3,714 $ 0 $42,498 • Buildings 25,158 0 (511) 24,647 Other 1,733 0 0 1,733 Construction in Process 0. 564 0 564 Total L6.5,Ei75 $ 4,2.78 (5l 1 $69,442 • • See independent auditor ' s report -58- • CITY OF• HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) .TUNE 30, 1989 15. Cimms 1N FIX® ASSETS. (awrnwm): • Belay is a schedule of changes in proprietary fund fixed assets for the year (in thousands) : 40 Enterprise Funds: Balance Balance July 1, 1988 Additions Dispositions June 30, 1989 Land $ 4,731 $ 0 $ 0 $ 4,731 Buildings 5,334 0 0 5,334 Machinery and Equipment 49,134 458 (28) 49,564 Total Cost $59,199 $ 458 $ (28) 59,629 Less accumulated depreciation (21,270) (22,975) Net Book Value, 3�" 7,929 $ 36,654 Enterprise Funds • Internal Service elands Balance Balance July 1, 1988 Additions Dispositions June 30, 1989 Machinery and $21,267 $1,580 $(505) $ 22,342 Equipment Less accumulated depreciation (10,128) (11,440) Net Book Value, 1$ 1,139 101902 Internal Service _ • rands • See independent auditor' s report -59- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 16. RESSIRVM, AND DESICT MCNS OF FUND EQUITY: • Under the provisions of GASB Code Sections 1800.121-123, the City has set up reserves and designations of fund equity. Reserves indicate amounts which cannot be appropriated in future periods or which are legally set aside for a specific future use. Designations represent amounts that the City has made tentative plans to use in a future period. The City's reserves and designations are described below (in thousands) : Special Debt Capital General Revenue Service Projects Fund Funds Funds Funds Total RESERVES � Encumbrances $2,086 $2,706 $ - $ - $ 4,792 Long-team receivables 13,241 1,922 21,340 9,100 45,603 Reimbursement - 423 - - 423 agreements Capital 11,453 - - 25,087 36,540 projects Debt service - - 12,806 - 12,806 Land held for - - - 19,549 19,549 resale Inventory 263 - - - 263 TOTAL RPSERVES 27,043 5,051 34,146 53,736 119,476 DESIGNATIONS Subsequent year's 486 3,550 - - 4,036 expenditures TOTAL RrSERVES 27,529 8,601 3$ 4,146 $53,736 12$ 4,012 AND DESIGNATIONS-- . • See independent auditor' s report -60- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 16. RGS'CEWES AMID DESIGNATIONS OF FUND 0WITY: • a. Reserves for encumbrances represent amounts committed for unperformed services or for undelivered goods where a commitment to purchase has been made. b. Reserves for long-term receivables represent amounts included in • advances to other funds. and other receivables which are not scheduled to be repaid until future years, and for which there is no offsetting deferred revenue. c. Reserves for reimbursement agreements represent expected future reimbursements to developers for sewer and drainage construction. • d. Reserves for continuing projects represent amounts committed for long- term projects not yet completed. e. Reserves for debt service represent amounts accumulated in debt service funds or set aside in another fund in accordance with a bond indenture or similar covenant. f. Reserves for land held for resale represent land held by the Agency that is legally committed for resale. g. Reserves for inventory represent amounts for general supplies inventory. • h. Designations for subsequent years' expenditures are made to provide for deficits budgeted in subsequent years. i. Designations for other fund deficits represent amounts to cover fund- deficits in the Self-Insurance Fund. • 17. COMT�J AND CKWrrNG NCIES: • a. Legal Actions: There are certain legal actions.pending against the City that have arisen in the course of normal operations. In the opinion of management and the City Attorney, the ultimate resolution of these actions is not expected to have a significant impart on these financial statements. • See independent auditor ' s report -61- • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30, 1989 17. O0MMITMRns AND CONTINGUq= (OCNrINUM): • b. MorLgage Revenue Bonds: The City established a program in February, 1983 to provide funds for the purchase of home mortgages within the City. Under this program, a total of $40,000,000 of mortgage revenue bonds has been issued, $20,000,000 in • March, 1983 and an additional $20,000,000 in July, 1984. In 1983 the City also issued $16,000,000 of Loans to Lender Revenue Bonds to construct an apartment complex for low and moderate income housing. In 1985 the City also issued $25,000,000 of Multi-Family Housing Revenue Bonds for construction of various apartment complexes. • The bonds are payable from, and are secured by, a pledge of payments made on the home mortgages and all funds held by the trustee under the indenture agreements. The bonds are not an indebtedness of the City and there exists no legal obligation on the part of the City to make payments on the bonds from any source other than the revenue and assets that were pledged. Accordingly, these programs have been excluded from the accompanying combined financial statements. c. Land Purchases- A.C. Marion: • The City has entered into an agreement to purchase a parcel of land from a private party for $3,190,000. The agreement required the City to pay $1,000,000 for the purchase of phase I of the parcel and pay $500,000 for phase II of the parcel. For the next three years the City may purchase one of the remaining phases each year. For the use of the remaining parcels • the City pays a rental/option fee which is paid quarterly on February 28th, May 31st, August 31st and November 30th. The City may cancel the agreement at any time in which case the obligation to pay the remaining rental/option fees or to purchase any remaining phases ceases. Listed below is the schedule of payments and rental/option fees for the life of the contract (in thousands) : • See independent auditor ' s report -62- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS • (continued) .LONE 30, 1989 17. cON Mani 15 AND awrna3m= (COnINOED): • c. Land Purchases- A.C. Marion: Fiscal • Year Ending Purchase Quarterly June 30, Price Phase Rents 1990 .$500 4 $ 71 1991 690 5 26 • Total 1$ ,190 $ 97 d. 1988 Owner Participation Agreement-Mola Development Corporation: • In July, 1988, the Redevelopment Agency, the City and Mola Development Corporation (Nola) entered into an owner participation agreement for the Townsquare project (a residential and commercial development in the Main/Pier project area of the Redevelopment Agency) . Certain property • which was owned by third parties was acquired by both the Agency and Mola. This property was combined with adjacent property owned by Mola, property owned by the Agency and property sold to the Agency by the City for $1,956,000 (see note 17) . The resultant configuration was used for the development. • During the year, Mola obtained a land draw to construct the project. . The Agency received $1,250,094 of this land draw representing its share of the total proceeds which was computed based upon the relative value of the Redevelopment Agency's land to the total land value in the project. This amount is recorded as an "other financing source" in the Redevelopment Agency's Capital Projects Fund. The total value of Redevelopment Agency • owned land in the project is $1,956,000 which is recorded as "Land Held for Resale" on the balance sheet of the Agency's Capital Projects Fund. When the individual residential units are completed and sold, proceeds will be distributed which will reimburse the Redevelopment Agency for the remaining value of its land which was not reimbursed by the land draw • ($1,250,000) and pay a 9% developers fee to Nola. The remaining proceeds will be divided between the Agency and Nola based on the value of the respective land contributed by each party. See independent auditor ' s report -63- • • CITY OF HUNTINGTON DEACn NOTES TO FINANCIAL STATEMENTS (continued) • JDNE 30, 1989 17. CMMITHMWS AND C TrINM4MES (CONTINUED): • d. 1988 Owner Participation Agreement-Nola Development Corporation: One year after the commercial units are completed, Nola will be obligated to pay to the Agency 50% of the net operating income of the commercial units for the proceeding year and on a monthly basis thereafter. e. 1983 Owner Participation Agreement Nola Development Corporation: In 1983, the City, the Redevelopment Agency and Nola Development Corporation (Nola) entered into an owner participation agreement relating to certain improvements in the Oakview project area of the Redevelopment Agency. The Agency agreed to purchase certain public improvements from . Nola for $1,408,047 plus interest at 11% per annum. The purchase price was to be paid by a pledge of certain tax increment revenues in the project area. The Agency agreed to advance to the City $211,394 plus interest at 11% per annum of building fees normally due at the time of occupation. In July, 1988, the Agency and Nola agreed that the Agency would pay Nola $1,200,000 to settle the liability for the public improvements. It was also agreed that the amount of deferred development fees plus interest was • $300,000. Nola paid $100,000 in July, 1988 and agreed to pay $81,843 annually on June 30th 1989, 1990 and 1991 to settle the deferred development fees. f. Owner Participation Agreement-N/R Huntington Partners: • In October, 1987, the City, the Redevelopment Agency and N/R entered into an owner participation agreement which will provide for a residential development in the Main/Pier project area of the Redevelolx:ent Agency. N/R HuntingLon Partners loaned the City $300,000 for certain parcel • acquisitions. The amount will be repaid by a pledge of a portion of tax increment revenues generated by the improvements. See independent auditor ' s report -64- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JDNE 30, 1989 17. WTIITMiNIS AND OOi rRJG94CIES (00NTINum): • g. Owner Participation Agreement-Koury: In November, 1988, the City, the Redevelopment Agency and Robert Koury, an • individual entered into an owner participation agreement which will provide for the development of a parking structure and related commercial and retail space in the Main/Pier project area of the Redevelopment Agency. The Redevelopment Agency purchased land from the City valued at $3,133,500. This sales price will be paid to the City by future tax increment revenues of the Main/Pier project area (see note 12) . This land was combined with other Redevelopment Agency owned land and land owned by Koury to provide the space for the development. The Agency purchased the land held by Koury for $1,235,000 and secured the performance of the agreement by issuing Koury a deed of trust. The Agency agreed to construct a parking garage and 32,000 square feet of retail/commercial space. When the construction is completed the Agency will sell interest in the retail/commercial space for $1,235,000. The Agency will retain title to the parking structure. h. Disposition and Development Agreement-Robert L. Mayer Corporation: In August, 1988, the Redevelopment Agency, the City and Robert L. Player Corporation (Mayer) entered into a disposition and development agreement for the development of hotels, residential and commercial parcels in the Main/Pier project area. The development will take place in three different residential and six different commercial phases. • Mayer agreed to loan to the Agency $4,800,000 to relocate residents of a mobilehome park in the area. As of June 30, 1989, $2,730,332 of the costs have been incurred and $461,535 cash has been received from Mayer. Mayer will be repaid by the Agency pledging a portion of the tax increment and transient occupancy tax revenues that the improvements generate. After the • indebtedness is repaid, the Agency will also be liable to rebate to Mayer additional tax increment and transient occupancy tax revenue generated by the project when the project is completed. The Agency purchased land from the City for $22,400,000. This sales price • will be repaid to the City by future tax increment revenues of the MainlPier project area. The land purchased from the City which will be See independent auditor ' s report -65- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) JUNE 30, 1989 17. AND CUNTINGENCIES (CONTINUED): • h. Disposition and Development Agreement-Robert L. Mayer Corporation: used for the commercial portion of the development will be leased by the Agency to Mayer for 99 years. The remaining land will be used for the • residential development. When the residential units are sold, the Agency will receive revenue based on a specific schedule in the agreement. At June 30, 1989, $8,377,000 of the land representing the residential portion is recorded as "Land Held for Resale" on the balance sheet of the Redevelopment Agency's Capital Projects Ptund. • i. Disposition and Development Agreement-California Resorts: In August, 1988, the Redevelopment Agency, the City and California Resorts . entered into a disposition and development agreement. The City sold the Redevelopment Agency certain land for $1,512,500. This will be repaid from future tax increment revenues. This land was combined with land owned by California Resorts and other third parties to construct a hotel. 18. JOINT VM?I RES: • In October, 1988, the City and the cities of Pomona, San Bernardino, Santa Ana and Oxnard formed the Big Independent Cities Excess Pool Joint Powers Authority, (BICEP) to finance a claims payment pool for certain liability • claims in excess of $1,000,000 per claim. BICEP is governed by a Board of Directors. which is composed of one director representing each City, appointed by each City's City Council. A director must be a member of the City Council or an official or staff person of the . City which he or she represents. Any changes to the board must be approved by the current board rr_inbe.rs. Mach participating City pays an insurance premium to BICEP which is used to fund the operating and debt service expenditures of DICrIl. The partic#ants' shares of the assets, liabilities and fund equity- are as follows: • See independent auditor ' s report -66- • • CITY OF HUNTINGTON BEACn NOTES TO FINANCIAL STATEMENTS • (continued) JUNE 30, 1989 18. JOIW VW1111 :i (CONTINUED): • Hunting Lon Beach 21.43% Oxnard 15.62% San Bernardino 19.09% Santa Ana 30.27% Pomona 13.59% • In December, 1988, BICEP issued $15,055,000 of Insurance Program Revenue Bonds, 1988A which was used to initiate the insurance pool. The interest rates on these bonds varies between 6.5% and 8.25% and are payable from • premium payments from the participating cities. The premiums paid from the participants represents the security for the debt Debt service requirements to maturity are as follows (in thousands) : Year Ending • June 30, Principal Interest Total 1990 $ 90 $1,208 $1,298 1991 360 1,203 1,563 1992 390 1,178 1,568 1993 425 11151 1,576 1994 450 1,120 1,570 • 1995 485 1,087 1,572 1996 520 11050 1,570 1997 560 11010 1,570 1998 620 967 1,587 1999 670 918 1,588 2000-2009 10,485 8,639 19,124 • Total 15,055 1$ 9,531 3$ 4,586 The City's share of the liability is $3,226,287. The June 30, 1989 financial information for BICEP is as follows (expressed in thousands) : • See independent auditor' s report -67- • • CITY OF HUNTINGTON BEACH NOTES TO FINANCIAL STATEMENTS (continued) • JUNE 30; 1989 18. JOINT VR?rUREti (OONTPINUM): • BICEP City Balance Sheet Total Share Assets $16,711 $3,581 Liabilities 15,850 3,397 • Equity 861 184 Revenue and Expense Revenues 1,824 391 • Expenses 1,268 272 Non-Operating Revenue 305 65 Expense Excess of Revenue over 861 184 • Expense 19. TAX AND REVENUE AAIIZCIPATIONT NOTES: • On November 21, 1988 the City issued $5,000,000 of tax and revenue anticipation notes which bear interest at 4.5%. The entire principal and interest is due on November 20, 1989. At year-end the City had accrued $200,000 of interest on these notes. • 20. 0M]R RDQUU= DiSCEOSURFS.- a. Budgetary Information: • Expenditures exceeded appropriations at the departmental level in the funds shown as follows (expressed in thousands) : • See independent auditor ' s report -68- CITY OF HUNTINGTON BEACH NOTES. TO, FINANCIAL STATEMENTS. (,continued.) JUNE 30•, 1989 20. OTHER RDQUIRM DISCLDSUPM:: • a. Budgetary Information: General Fund. . City Council. $ 15 City Administrator 10- City Treasurer 1 ' City Attorney 17 Fire 21 Police 181 • Community.. Services; 86 Operating: Transfer Out 126: Public Communications City Administrator 9 Grants Economic Development 311 Pa.rking. Authority Operating. Transfer Out 3 b. Other Financing Sources (Other).: Other financing sources (other) totalled $7,441,097 which included the following: .$1,250,094 of proceeds from the sale of City owned property (see note 17) in the Main/Pier project area of the Redevelopment Agency which is recorded in the Capital Projects Fund of the- Redevelopment Agency. .$6,191,003 of proceeds were recorded in- the General Fund from the sale of the City's right. to own its cable television franchise. • c. Deficit Retained Earnings: The llmerald Cove (lousing Rind (an enterprise fund) had a deficit retained • earnings of $4,601 at year-end. This deficit will be funded in future years through increased rents. See independent auditor' s report -69- • CITY OF HUNTINGTON BEACII NOTES TO FINANCIAL STATEMENTS (continued) • 3UNE .30, 1989 20. OTM-It RDQUIRID DISCIOSMM: • d. Other Assets: Other assets include the following (in thousands) : Prepaid Expenses, General hand $ 13 • Investment in Joint Venture, Self-Insurance Lund 184 an Internal Service Rand House owned by Deferred Compensation Rand, 29 an Agency Rand Total $226 • 21. SUBSEQUENT LVL%M: In August, 1989 the Civic U provement Corporation issued $15,025,000 of • additional certificates of participation to provide further funds for parking structure and other public improvements in the Main/Pier redevelopment project area. As described in note 2, the Civic Improvement owns the Civic Center complex which represents the security for the certificates. The City will annually transfer sufficient monies to fund the debt service requirements on the certificates. The interest rates on • the certificates vary between 5.9% and 7.0% with interest payable seini- annually on rebruary 1st and August 1st with principal maturing annually on August 1st. Debt service requirements to maturity are as follows: • • • See independent auditor ' s report -70- • • CITY OF HUNTINGTON BEAC❑ NOTES TO FINANCIAL STATEMENTS (continued) .TUNE 30, 1989 21. SUBSEQUENT EVENTS (OORTI ajm): • Year Ending June 30, Principal Interest Total • 1990 $ 0 $ 517 $ 517 1991 135 1,031 1,166 1992 180 1,021 1,201 1993 190 1,010 11200 1994 205 998 1,203 1995 215 985 1,200 1996 230 971 1,201 1997 245 955 1,200 1998 260 939 11199 1999. 275 921 1,196 2000 295 902 1,197 2001 315 882 1,197 2002 335 860 1,195 2003 360 837 1,197 2004 385 811 1,196 2005-2020 11,400 12,369 23,769 Total 1$ S,025 2$ 6,009 4$ 1,034 • • • • See independent auditor ' s report -71- INE AZZCN FEEERAIM ASSISM PIm(RAIN1S ENEM Ai]DMXMF ItE AMID SCHED= OF FOAL FnQQK IAL • DIEHL,EvANS &COMPANY OTHER OFFICES AT: CERTIFIED PUBLIC ACCOUNTANTS 2965 ROOSEVELT ST. • CARLSBAD.CA 92008-2389 A PARTNERSHIP INCLUDING A CCOIiNTANCY CORPORATIONS (619) 729-2343 18401 VON KARMAN,SUITE 200 120 WEST WOODWARD AVE. IRVINE • CALIFORNIA 92715-1542 ESCONDIDO.CA 92025-9990 PHONE(714) 757-7700 (619) 741-3141 FAX(714) 757-2707 September 15, 1989 • INDEPENM?r AUDI'iC.1R.S' REPORT C K SCfEDJIE OF FEDERAL FIlWCTAT• ASSISTANCE • City Council City of Huntington Beach Huntington Beach, California We have audited the general purpose financial statements of the City of Huntington Beach_ as of-and for the year ended June 30, 1989, and have issued our report thereon dated September 14, 1989. These general purpose financial statements are the responsibility of the City of Huntington Beach's management. Our responsibility is to express an opinion cn these general purpose financial statements based on our audit. We conducted our audit of such general purpose financial statements in • accortdance.with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. An audit includes examining,n+g, Ion a test basis, evidence supporting the amounts and disclosures in the general purpose financial • statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general purpose • financial statements of the City of Huntington Beach taken as a whole. The aeoclpanying Schedule of Federal Financial Assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in • relation to the general purpose financial statements taken as a whole. n � J -72- CITY OF HUNTINGTON BEACH SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE For the year ended June 30, 1989 Accrued or Accrued or Grant Federal Pass-Through Program (Deferred) (Deferred) Federal Grantor/Pass Through Identification CFDA Grantor's or Award Revenue at Federal Non-Federal Revenue at Program Title Number Number Number Amount July 1, 1988 Receipts Receipts Expenditures June 30, 1989 U.S. Department of HUD Community Development Block Grant - Entitlement 8-88-MC-06.0506 14.218 S 1,268,000 $ 49.236 E 2,272.979 E E 2,507,385 S 283.642 U.S. Department of Transportation Passed through State Department of Transportation:: Highway Planning and Construction (Federal Aid Highway Program) HES-M014(2) 20.205 7.5181 69,300 (1) 57,992 57,992 - HES-M021(3) 20.205 7.5181 85,500 (2) 74,866 74,866 HES-M004(5) 20.205 7.5181 974,917 168,864 923,058 877,136 1,631,310 - HES-14033(3) 20.205 7.5181 45,000 - 1,691 16,907 15,216 HES-1O19(8) 20.205 12.5181 364,690 - - 48,254 355,854 307,600 301,742 1,055,916 927,081 2,004,071 322,816 U.S. Department of Education Library Literacy 0005610694 84.167 - 21,540 (415) - - (415) G008715118 84.167 - 25,000 (759) 4,752 20 5,531 - R167A80169 84.167 - 18,414 - 14.428 - 13,056 (1,372) (1,174) 19,180 20 18.587 (1,787) Passed through California State Library LSCA-13 84.034 40.1109 13,989 (6,270) - 1,129 7,399 LSCA-1-7.6 84.034 40.1435 13,989 13,989 - 9,786. (4,203) (6,270) 13,989 1.129 17,185 (4,203) Federal Emergency Management Agency Passed through State Office of Emergency Services: Emergency Management Assistance Program - 83.516 - 47,674 22,898 47,674 52,735 88,492 10,981 Disaster Service - 83.516 059.3600 58,051 (4) 36,161 36,161 - 59,059 83,835 52,735 88,492 10,981 See Independent Auditors' Report on Schedule of Federal .Financial Assistance (Page 72). .73- CITY OF HUNTINGTON BEACH SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE (Continued) For the year ended June 30, 1989 Accrued or Accrued or Grant Federal Pass-Through Program (Deferred) (Deferred) Federal Grantor/Pass Through Identification CFDA Grantor's or Award Revenue at Federal Non-Federal Revenue at Program Title Number Number Number Amount July 1, 1988 Receipts Receipts Expenditures June 30, 1989 U.S. Department of Commerce .Pass through California Coastal Commission: Coastal Management Program LCP-7544 11.419 - S 68,410 SO) 17,918 i 66,525 f - f 48.607 S Cash at Federal Non-Federal Cash Cash at July 1, 1988 Receipts Receipts Disbursements June 30, 1989 U.S. Department of the Treasury State and Local Government Fiscal Assistance: General Revenue Sharing Entitlement No. 17 11 05-20030-009 21.300 - 1,283,572 596,377 - 596,377 TOTAL FEDERAL ASSISTANCE S 3,512,424 t 980,965 ! 5,280,704 (1) Amount decreased from prior year's report by $10,048 which constitutes a decrease in accrued revenues from prior years. (2) Amount decreased from prior year's report by $1,263 which constitutes a decrease in accrued revenues from prior years. (3) Proper expenditures of f17,918 had not been included in the fiscal year 87-88 audit report, resulting in an understatement of accrued revenue at June 30, 1988. Beginning accrued revenue at July 1, 1988 has been adjusted to reflect the additional $17,918 receivable from the California Coastal Commission. (4) Proper expenditures S",286 had not been included in the fiscal year 87-88 audit report, resulting in an understatement of accrued revenue of S36,161 at June 30, 1988. Beginning accrued revenue at July 1, 1988 has been adjusted to reflect the additional receivable from the State Office of Emergency Services. See Independent Auditors' Report on Schedule of Federal Financial Assistance (Page 72). -74- • • • • INI7EPENDERr ALWIMS' IT'S ON COMPLIANCE AMID SCHED= OF FIlEaNGS AND COSTS s • • • • • • • DIEHL,EVANS &COMPANY OTHER OFFICES AT: CERIIFlED PUBLIC ACCOUNTANTS 2965 ROOSEVELT ST. CARLSBAD.CA 92008-2389 • A PAR INVIISHI►IN('I.I-I1Ml:AC(III IN FAN(Y1'1111NIRAf11IN% (619) 729-2343 18401 VON KARMAN,SUI"TF.200 120 WEST WOODWARD AVE. IRVINE IF CALIFORNIA 92715-1542 ESCONDIDO.CA 92025-9990 PRONE(714) 757-7700 September 15 1989 (619) 741.3141 FAX(714) 757-2707 • INDEPENDEW AUDIT(MS' REPORT CAI 030MIMCE RELATED TO Tim GENEFIL PURPOSE FINANCIAL STATEMENTS City Council City of Huntington Beach • Huntington Beach, California We have audited the general purpose financial statements of the City of -Huntington Beach as of and for the year ended June 30, 1989, and have issued our report thereon dated September 14,- 1989. We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. Coplianoe with laws, regulations, contracts, and grants applicable to the City of Huntington Beach is the responsibility of the City of Huntington Beach's managaller>,t. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the City's ompliance with certain provisions of laws, regulations, contracts, and grants. However, our objective was not to provide an opinion on overall amplianoe with such provisions. The results of our tests indicate that, with respect to the items tested, the City of Huntington Beach ccuplied, in all material respects, with the provisions referred to in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not cmplied, in all material respects, with those provisions. This report is intended for the information of the City's management, the City Council and the City's cognizant agency, U.S. Department of Housing and Urban DeveloP'nent. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. ' L -75- DIEHL,EVANS &COMPANY OTHER OFFICES AT: CERTIFIED PUBLIC ACCOUNTANTS 2965 ROOSEVELT ST. • CARLSBAD.CA 9 2008-2 399 A PARTNERSHIP INCLUDING At CUUNTANCY CORPORATIONS (619) 729 2343 18401 VON KARMAN,SUITE 200 120 WEST WOODWARD AVE. IRVINE • CALIFORNIA 92715-1542 ESCONDIDO.CA 92025-9990 PHONE(714) 757-7700 September 15 1989 (619) 741-3141 FAX(714) 757-2707 ' INDEPENDRU AUDITORS' REPOM CN CC14PZIMCE WI'Ili LAWS AND RDGfJLA' CM RELATED rM FOAL FINANCIAL ASSISTANCE PROGT A City Council City of Huntington Beach Huntington Beach, California We have applied procedures to test the City of Huntington Beach's compliance with the following general requirements applicable to each of its major federal financial assistance programs, which are identified in the schedule of federal financial assistance, for the year ended June 30, 1989: Political Activity Relocation Assistance and Real Davis-Baoon Act Property Management Civil Rights Federal Financial Reports Cash Management Drug-free Workplace Act our procedures were limited to the applicable procedures described in the Office of Management and Budget's CImliance Supplement for Single Audits of State and Focal Gvverrunents. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the City of Huntington Beach's oompliance with the requirements listed in the preceding paragraph. ' Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of nonlcmplianoe with the requirements listed in the first paragraph of this report. our procedures included all of the requirements listed above except for Drug-Free Workplace Act because this requirement was not applicable. With respect to items not tested, nothing came to our attention that caused us to believe that the City of Huntington Beach had not o applied, in all material respects, with those requirements. However, the results of our procedures disclosed immaterial instances of noncompliance with those requirements, which are described in the accMpanying schedule of findings and questioned costs. -76- We also have audited the City of Huntington Beach's compliance with the following specific requirements that are applicable to each of the City's major federal financial assistance programs, which are identified in the accompanying schedule of federal financial assistance, for the year ended June 30, 1989: Types of services Reporting allowed or unallowed Claims for advances and Eligibility reimbursements Matching, level of effort Special requirements or earmarking The management of the City of Huntington Beach is responsible for the City's compliance with those requirements. our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit in accordance with generally accepted auditing standards, Gaverrmient Auditing Standards, issued by the Camptroller General of the United States, and CMB Circular A-128, "Audits of State and Iocal Governments". Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes exm in ng, on a test basis, evidence about the City's cmpliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed immaterial instances of noncamplianee with the requirements referred to above, which are described in the accompanying schedule of findings and questioned costs. We considered these instances of noncompliance in forming our opinion on compliance, which is. expressed in the following paragraph. In our opinion, the City of Huntington Beach complied, in all material respects, with the requirements governing types of services allowed or unallowed; matching, level of effort or earmarking; reporting; claims for advances and reimbursements, and the special requirements in the Office of Management and Budget's Compliance Supplement for Single Audits of State and local Governments; and amounts claimed or used for matching that are applicable to each of its major federal financial assistance programs for the year ended June 30, 1989. As required by Circular A-128, we have performed auditing procedures on certain selected transactions of nonmajor programs to test compliance for allowable costs. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the city's cmTplianee with these requirements. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the requirements listed in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the City of Huntington Beach had not complied, in all material respects, with the non-major specific requirements. However, the results of our procedures disclosed immaterial instances of noncompliance with those requirements, which are described in the accompanying schedule of findings and questioned costs. This report is intended for the information of the City's management, the City Council and the City's cognizant agency, U.S. Department of Housing and Urban Development. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. • CITY OF H UM4GIM BEACH SC3IEDUIE OF FINDINGS AND QUESTIONED COSTS For the year ended June 30, 1989 Award Questioned Program Amount Findirnt/Non-Cmpliance Costs • Community Develgm ent $ 1,268,000 Finding: Block Grant A charge for payroll costs was Grant No. B-88 MC-06-0506 not approved by an authorized employee. Recam*ndaticn: • We reconanend that an authorized authorized employee approve time sheets before payment. $ - Finding: • For subrecipients receiving $25,000 or more, the City is required to review audit reports submitted by the subrecipient and ensure that prcapt and corrective action is taken on instances of material non-compliance with laws and regulations. The City provided more than $25,000 to one subrecipient, but did not require the subrecipient to submit an audit report. Reecmmen]ation: We reams end that the City required all subrecipients receiving $25,000 or more to submit an audit report. U.S. Department of $ 21,540 Finding: Education Library Advances fran the federal Literacy Program government were not spent Grant No. 9008610694 within the entitlement period. Reoanrer elation: We reecnmend that the advance not spent be returned to the U.S. Department of Education. $ 415 See Independent Auditors' Report on Ccniplianee with Laws and Regulations Related to Federal Financial Assistance Programs (Pages 76 and 77) . -78- CITY OF HUN INGPON BEACH SCH]'n Tf F OF FINDINGS AND QUESTIONED OOSTS (Continued) For the year ended June 30, 1989 A plan for corrective action for fiscal year ended June 30, 1988 was not submitted to the cognizant agent. We recommend that the City submit a plan for corrective action to the cognizant agent for the fiscal year ended June 30, 1989. One finding and instance of non-compliance reported in the single audit report for the year ended June 30, 1988 remains unchanged. fram. our previous report concerning the Library Literacy Program and is still applicable for the fiscal year ended June 30, 1989 and is included above. The City has taken action to prevent the reoccurrence of the other finding in the prior year. The Single Audit Report for fiscal year ended June 30, 1988 was not made available for public inspection within 30 days after completion of the audit. We recommend that the Single Audit Report for fiscal year ended June 30, 1989 be available for public inspection within 30 days after completion of the audit. • • • • i See Independent Auditors' Report on Compliance with Iaws and Regulations Related to Federal Financial Assistance Programs (Pages 76 and 77) . -79- • • • j, • MEM ADDTTORS' laUKM CAI INTERNAL ACOOONTING CC RMIS • • • • • • DIE} iL,EVA�N�S �](,COM PAL�1 1J OTHER OFFICES AT: CERTIFIED PUBLIC ACCOUNTANT5 2965 ROOSEVELT ST. CARLSBAD.CA 92008-2389 • APARTNFRSHIPINCLUDING AI'COI:NT AN('YCORPORATIONS (619) 729-2343 18401 VON KARMAN,SUITE 200 120 WEST WOODWARD AVE. IRVINE • CALIFORNIA 92715-1542 ESCONDIDO.CA 92025-9990 PHONE(714) 757-7700 Sept,amber 15 1989 (619) 741-3141 FAX(714) 757-2707 INDEPENDEW AUDITORS' REPORT CK INTERNAL CORML STRUCILM IN ACCORDANCE WIM GOVE 009M AUDITING STANDARDB City Council City of Huntington Beach Huntington Beach, California • We have audited the general purpose financial statements of the City of Huntington Beach as of and for the year ended June 30, 1989, and have issued our report thereon dated September 14, 1989. • We conducted our audit in accordance with generally accepted auditing standards 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 general purpose financial statements are free of material misstatement. • In planning and performing our audit of general purpose financial statements of the City of Huntington Beach for the year ended June 30, 1989, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control structure. • The management of the City of Huntington Beach is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. Zhe objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The objectives of internal control system used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that, with respect to federal financial assistance programs, resource use is consistent with laws, regulations, and policies; resources are safeguarded against waste, loss, and misuse; and reliable data are obtained, maintained, and • -80- fairly disclosed in reports. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the stricture to future periods is subject to the risk that procedures may becom inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: • Cash receipts Cash disbursements Purchasing and accounts payable Billings and receivables Payroll Inventory Budgeting Property and equipanent General ledger For all of the internal control stricture categories listed above, we obtained • an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or .operation of one or. more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by enployees in the normal course of performing their assigned • functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. However, we noted certain matters involving the internal control structure and its operation that we have reported to the management of the City of Huntington Beach in a separate cxmnmication dated Deoamber 15, 1989. • This report is intended for the information of the City's management, the City Council and the City's cognizant agency, U.S. Department of Housing and Urban Development. This restriction is not intended to limit the distribution of this report which, upon acceptance by the City, is a matter of public record. • DrIE////--H-����L,EVANS &COMPANY OTHER OFFICES AT r tip VIIIr)pr`rpl/Ir1l�Altt`l/ru'f�t�`Ir111. 2965 ROOSEVELTST. • CARLSHAD.CA 92008-2399 r•011.1 NMI.r—i m,i�..,..� .u.i.m r r�-..rnp.n.u.^ (6191 729-2343 18401 VON KARMAN,SUITE 200 120 WEST WOODWARD AVE. IRVINE • CALIFORNIA 92715-1542 ESCONDIDO.CA 92025-9990 PHONE(714) 757-7700 Seber em 15 1989 (619) 741-3141 FAX(714) 757-2707 Y` �` • REPORT ON iNuERmAL DOP mbis (AcoouNrING AND ALmIINISPRA=) BASED CN A STUDY AND EVAL=CN MADE AS A PART OF AN • AUDIT OF THE GERMAL PURPOSE FINANCIAL STATEMENTS AND THE ADDITIONAL TESTS RDQUIRED BY ME SINGLE AUDIT ACT • City Council City of Huntington Beach Huntington Beach, California We have audited the general purpose financial statements of the City of Huntington Beach, for the year ended June 30, 1989, and have issued our report thereon dated September 14, 1989. As part of our audit, we made a study and evaluation of the internal control systems, including applicable internal a&A istrative controls; used in administering federal financial assistance programs to the extent we considered necessary to evaluate the systems as required by generally accepted auditing standards, Government Auditing Standards, issued by the CaVtroller General of the United States, the Single Audit Act of 1984, and the provisions of Office of Management and Budget Circular A-128, "Audits of State and Local Governments". For the purpose. of this report, we have classified the significant internal accounting and administrative controls used in administering federal financial assistance programs in the following categories: Ao=mtim Controls Cash receipts Cash disbursements Purchasing and ants payable Billings and receivables Payroll Inventory Budgeting Property and equipment General Ledger -82- Administrative Controls General: Specific: Political Activity Types of services Davis-Bacon Act Eligibility Civil Rights Matching level of effort Cash Management Reporting Relocation assistance and Cost Allocation real property management Claims for advances and Federal financial reports reimbursements Drug-free Workplace Act Monitoring subrecipients Special requirements The management of the City of Huntington Beach, is responsible for establishing and maintaining internal control systems used in administering federal financial assistance programs. In fulfilling that responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control systems used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that, with respect to federal financial assistance programs, resource use is consistent with laws, regulations, and policies; resources are safeguarded against waste, loss and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports. Because of inherent limitations in any system of internal accounting and administrative controls used in administering federal financial assistance programs, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the systems to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of cco pliance with the procedures may deteriorate. our study included all of the applicable control categories listed above except for administrative controls for Drug-Free Workplace Act and Cost Allocation which were not applicable. During the year ended June 30, 1989, the City of Huntington Beach, expended 96.3 percent of its total federal financial assistance under major federal financial assistance programs. With respect to internal control systems used in administering major federal financial assistance programs, our study and evaluation included considering the types of errors and irregularities that could occur, determining the internal control procedures that should prevent or detect such errors and irregularities, determining whether the necessary procedures are prescribed and are being followed satisfactorily, and evaluating any weaknesses. With respect to the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Huntington Beach, our study and evaluation was limited to a preliminary review of the systems to obtain an understanding of the control environment and the flow of transactions through the accounting system. Our study and evaluation of the internal control systems used solely in administering the nonmiajor federal financial assistance programs of the City of Huntington Beach, did not extend beyond this preliminary review phase. -83- • Our study and evaluation was more limited than would be necessary to express an opinion on the internal control systems used in administering the federal • financial assistance programs of the City of Huntington Beach. Accordingly, we do not express an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Huntington Beach. Further, we do not express an opinion on the internal control systems used in administering the major federal financial assistance programs of the City of Huntington Beach. • Also, our audit, made in accordance with the standards mentioned above, would not necessarily disclose material weaknesses in the internal control systems . used solely in administering normajor federal financial assistance programs. Our study and evaluation and our audit disclosed no condition that we believe to • be a material weakness in relation to a federal financial assistance program of the City of Huntington Beach. This report is intended solely for the use of the City's management and the City Council and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report which, upon acceptance by the • City, is a matter of public record. • • • • -84-