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RPVCCA_RDA_SR_2011_03_01_D_FY09-10_AuditGrrvOF MEMORANDUM RANCHO PALOS VERDES TO: FROM: DATE: SUBJECT: REVIEWED: Project Manager: HONORABLE CHAIR &BOARD MEMBERS DENNIS McLEAN,DIRECTOR OF FINANCE R.~ INFORMATION TECHNOLOGY ~ MARCH 1,2011 FY09·10 REDEVELOPMENT AGENCY AUDITED FINANCIAL REPORT CAROLYN LEHR,CITY MANAGER ~-- Kathryn Downs,Deputy Director of Finance &Information Technology RECOMMENDATION Receive and file the FY09-10 audited financial report of the Rancho Palos Verdes Redevelopment Agency. DISCUSSION Redevelopment law requires that all redevelopment agencies undergo an annual audit. The Agency's auditors,Diehl,Evans &Company,LLP,have completed their audit for FY09-10.The audited financial report of the Redevelopment Agency (RDA)is attached.The financial report includes an unqualified (clean)opinion issued by Diehl, Evans &Company,LLP. A copy of the report is available for public review at the front counter located in the reception area of City Hall.Additionally,the City Clerk's office has a copy of the report on file for permanent retention. The RDA financial report also contains the Independent Auditors'Report on Internal Control over Financial Reporting and on Compliance and Other Matters ("I nternal Control Report").The Internal Control Report noted that the results of the auditors' tests disclosed no instances of noncompliance or other matters that are required to be reported under Government AUditing Standards. The Agency is required to submit an annual report to both the State Controller and its GrrvOF MEMORANDUM RANCHO PALOS VERDES TO: FROM: DATE: SUBJECT: REVIEWED: Project Manager: HONORABLE CHAIR &BOARD MEMBERS DENNIS McLEAN,DIRECTOR OF FINANCE R.~ INFORMATION TECHNOLOGY ~ MARCH 1,2011 FY09·10 REDEVELOPMENT AGENCY AUDITED FINANCIAL REPORT CAROLYN LEHR,CITY MANAGER ~-- Kathryn Downs,Deputy Director of Finance &Information Technology RECOMMENDATION Receive and file the FY09-10 audited financial report of the Rancho Palos Verdes Redevelopment Agency. DISCUSSION Redevelopment law requires that all redevelopment agencies undergo an annual audit. The Agency's auditors,Diehl,Evans &Company,LLP,have completed their audit for FY09-10.The audited financial report of the Redevelopment Agency (RDA)is attached.The financial report includes an unqualified (clean)opinion issued by Diehl, Evans &Company,LLP. A copy of the report is available for public review at the front counter located in the reception area of City Hall.Additionally,the City Clerk's office has a copy of the report on file for permanent retention. The RDA financial report also contains the Independent Auditors'Report on Internal Control over Financial Reporting and on Compliance and Other Matters ("I nternal Control Report").The Internal Control Report noted that the results of the auditors' tests disclosed no instances of noncompliance or other matters that are required to be reported under Government AUditing Standards. The Agency is required to submit an annual report to both the State Controller and its RDA D-1 FY09-10 Redevelopment Agency Audited Financial Report March 1,2011 Page 2 of2 Board by December 31 st each year.The annual report includes the State Controller's Report,the Housing Activities Report,Blight Progress Report,and Property Report. The FY09-10 annual report,including all the required elements,was submitted to both the State Controller and its Board by the December 31,2010 deadline. FY09-10 Redevelopment Agency Audited Financial Report March 1,2011 Page 2 of2 Board by December 31 st each year.The annual report includes the State Controller's Report,the Housing Activities Report,Blight Progress Report,and Property Report. The FY09-10 annual report,including all the required elements,was submitted to both the State Controller and its Board by the December 31,2010 deadline. RDA D-2 RANCHO PALOS VERDES REDEVELOPMENT AGENCY COMPONENT UNIT FINANCIAL STATEMENTS WIm REPORT ON AUDIT BY INDEPENDENT CERTIFmD PUBLIC ACCOUNTANTS JUNE 30,2010 RANCHO PALOS VERDES REDEVELOPMENT AGENCY COMPONENT UNIT FINANCIAL STATEMENTS WIm REPORT ON AUDIT BY INDEPENDENT CERTIFmD PUBLIC ACCOUNTANTS JUNE 30,2010 RDA D-3 RANCHO PALOS VERDES REDEVELOPMENT AGENCY TABLE OF CONTENTS June 30,2010 Independent Auditors'Report Basic Financial Statements: Government-wide Financial Statements: Statement ofNet Assets Statement ofActivities Fund Financial Statements: Balance Sheet -Governmental Funds Reconciliation ofthe Governmental Funds Balance Sheet to the Statement of Net Assets Statement ofRevenues,Expenditures and Changes in Fund Balances -Governmental Funds Reconciliation ofthe Statement of Revenues,Expenditures and Changes in Fund Balances of Governmental Funds to the Statement ofActivities Notes to Financial Statements Required Supplementary Information: Description of Major Fund Budgetary Comparison Schedules Budgetary Comparison Schedule: Housing Set-Aside Special Revenue Fund Note to Required Supplementary Information Supplementary Information: Schedules of Revenues,Expenditures and Changes in Fund Balance -Budget and Actual: Debt Service Fund Abalone Cove Capital Projects Fund Portuguese Bend Capital Projects Fund Independent Auditors'Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page Number 1 3 5 6 9 ,10, 12 13 27 28 29 31 32 33 35 RANCHO PALOS VERDES REDEVELOPMENT AGENCY TABLE OF CONTENTS June 30,2010 Independent Auditors'Report Basic Financial Statements: Government-wide Financial Statements: Statement ofNet Assets Statement ofActivities Fund Financial Statements: Balance Sheet -Governmental Funds Reconciliation ofthe Governmental Funds Balance Sheet to the Statement of Net Assets Statement ofRevenues,Expenditures and Changes in Fund Balances -Governmental Funds Reconciliation ofthe Statement of Revenues,Expenditures and Changes in Fund Balances of Governmental Funds to the Statement ofActivities Notes to Financial Statements Required Supplementary Information: Description of Major Fund Budgetary Comparison Schedules Budgetary Comparison Schedule: Housing Set-Aside Special Revenue Fund Note to Required Supplementary Information Supplementary Information: Schedules of Revenues,Expenditures and Changes in Fund Balance -Budget and Actual: Debt Service Fund Abalone Cove Capital Projects Fund Portuguese Bend Capital Projects Fund Independent Auditors'Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page Number 1 3 5 6 9 ,10, 12 13 27 28 29 31 32 33 35 RDA D-4 ~DIEHL,EVANS &.COMPANY,LLP~CERTIFIED PUBLIC ACCOUNTANTS 6<CONSULTANTS APARTNERSBIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK,SUITE 100 IRVINE,CALIFORNIA 92606-5165 (949)399·0600 •FAX (949)399-0610 www.diehleyans.com December 9,2010 INDEPENDENT AUDITORS'REPORT Agency Board Members Rancho Palos Verdes Redevelopment Agency Rancho Palos Verdes,California MICHAEL R.LUDIN,CPA CRAIG W.SPRAKER,CPA NITIN P.PATEL,CPA ROBERT 1.CALLANAN,CPA ·PHILIP H.HOLTKAMP,CPA ·THOMAS M.PERLOWSKI,CPA ·HARVEY 1.SCHROEDER,CPA KENNETHR.AMES,CPA WJLLIAM C.PENTz,CPA +APROFESSIONAL CO!U'ORATION We have audited the accompanying financial statements of the governmental activities and elich major fund of the Rancho Palos Verdes Redevelopment Agency (the Agency),(a component unit of the City - of Rancho Palos Verdes,California),as of and for the year ended June 30,2010,which collectively comprise the Agency's basic financial statements as listed in the table of contents.These basic financial statements are the responsibility of the Agency's management.Our responsibility is to express opinions on these basic fmancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General ofthe United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic fmancial statements are free of material misstatement.An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting.Accordingly,we express no such opinion._An audit includes examining,on a test basis,evidence supporting the amounts and disclosures iIi the -financial statements.-An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall basic financial statement presentation.We believe that our audit provides a reasonable basis for our opinions. In our opinion,the basic financial statements referred to above present fairly,in all material respects, the respective financial position of the governmental activities and each major fund of the Rancho Palos Verdes Redevelopment Agency as of June 30,2010,and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States ofAmerica. 1 OTHER.OFFICES AT:2965 ROOSEVELT STREET CARLSBAD,CALIFORNIA 92008-2389 (760)729·2343 •FAX (760)729-2234 613 W.VAlLEY PARKWAY,SUITE 330 ESCONDIDO,CALIFORNIA 92025.2598 (760)741-3141 •FAX (760)741·9890 ~DIEHL,EVANS &.COMPANY,LLP~CERTIFIED PUBLIC ACCOUNTANTS 6<CONSULTANTS APARTNERSBIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK,SUITE 100 IRVINE,CALIFORNIA 92606-5165 (949)399·0600 •FAX (949)399-0610 www.diehleyans.com December 9,2010 INDEPENDENT AUDITORS'REPORT Agency Board Members Rancho Palos Verdes Redevelopment Agency Rancho Palos Verdes,California MICHAEL R.LUDIN,CPA CRAIG W.SPRAKER,CPA NITIN P.PATEL,CPA ROBERT 1.CALLANAN,CPA ·PHILIP H.HOLTKAMP,CPA ·THOMAS M.PERLOWSKI,CPA ·HARVEY 1.SCHROEDER,CPA KENNETHR.AMES,CPA WJLLIAM C.PENTz,CPA +APROFESSIONAL CO!U'ORATION We have audited the accompanying financial statements of the governmental activities and elich major fund of the Rancho Palos Verdes Redevelopment Agency (the Agency),(a component unit of the City - of Rancho Palos Verdes,California),as of and for the year ended June 30,2010,which collectively comprise the Agency's basic financial statements as listed in the table of contents.These basic financial statements are the responsibility of the Agency's management.Our responsibility is to express opinions on these basic fmancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General ofthe United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic fmancial statements are free of material misstatement.An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting.Accordingly,we express no such opinion._An audit includes examining,on a test basis,evidence supporting the amounts and disclosures iIi the -financial statements.-An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall basic financial statement presentation.We believe that our audit provides a reasonable basis for our opinions. In our opinion,the basic financial statements referred to above present fairly,in all material respects, the respective financial position of the governmental activities and each major fund of the Rancho Palos Verdes Redevelopment Agency as of June 30,2010,and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States ofAmerica. 1 OTHER.OFFICES AT:2965 ROOSEVELT STREET CARLSBAD,CALIFORNIA 92008-2389 (760)729·2343 •FAX (760)729-2234 613 W.VAlLEY PARKWAY,SUITE 330 ESCONDIDO,CALIFORNIA 92025.2598 (760)741-3141 •FAX (760)741·9890 RDA D-5 In accordance with Government Auditing Standards,we have also issued our report dated December 9,2010 on our consideration of the Rancho Palos Verdes Redevelopment Agency's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations,contracts and grant agreements and other matters.The purpose of that report is to describe the scope of our testing of internal control over fmancial reporting and compliance and the results of that testing,and not to provide an opinion on the internal control over financial reporting or on compliance.That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The budgetary comparison schedule and related note,identified as required supplementary information in the table of contents,are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States ofAmerica. This information is an essential part of financial reporting for placing the basic financial statements in an appropriate operational,economic or historical context.The budgetary comparison schedule and related note have been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic fmancial statements or to the basic financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States ofAmerica.In our opinion,the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.. Management has omitted the management's discussion and analysis information that accounting principles generally accepted in the United States of America require to be presented to supplement the basic fmancial statements.Such missing information,although not a part of the basic financial statements is considered to be an essential part of financial reporting for placing the basic fmancial statements in an appropriate operational,economic,or historical context.Our opinion on the basic fmancial statements is not affected by this missing information. Our audit was made for the purpose of forming opinions on the financial statements that collectively comprise the Agency's basic financial statements.The individual fund schedules,identified as supplementary information in the table of contents,are presented for purposes of additional analysis and are not a required part of the basic financial statements of the Agency.Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements.The information has been subjected to the auditing procedures applied in the audit of the basic fmancial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States ofAmerica.In our opinion,the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. cIY~~~~)r1d7 2 In accordance with Government Auditing Standards,we have also issued our report dated December 9,2010 on our consideration of the Rancho Palos Verdes Redevelopment Agency's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations,contracts and grant agreements and other matters.The purpose of that report is to describe the scope of our testing of internal control over fmancial reporting and compliance and the results of that testing,and not to provide an opinion on the internal control over financial reporting or on compliance.That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The budgetary comparison schedule and related note,identified as required supplementary information in the table of contents,are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States ofAmerica. This information is an essential part of financial reporting for placing the basic financial statements in an appropriate operational,economic or historical context.The budgetary comparison schedule and related note have been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic fmancial statements or to the basic financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States ofAmerica.In our opinion,the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.. Management has omitted the management's discussion and analysis information that accounting principles generally accepted in the United States of America require to be presented to supplement the basic fmancial statements.Such missing information,although not a part of the basic financial statements is considered to be an essential part of financial reporting for placing the basic fmancial statements in an appropriate operational,economic,or historical context.Our opinion on the basic fmancial statements is not affected by this missing information. Our audit was made for the purpose of forming opinions on the financial statements that collectively comprise the Agency's basic financial statements.The individual fund schedules,identified as supplementary information in the table of contents,are presented for purposes of additional analysis and are not a required part of the basic financial statements of the Agency.Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements.The information has been subjected to the auditing procedures applied in the audit of the basic fmancial statements and certain additional procedures,including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States ofAmerica.In our opinion,the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. cIY~~~~)r1d7 2 RDA D-6 BASIC FINANCIAL STATEMENTSBASICFINANCIALSTATEMENTS RDA D-7 This page left blank intentionally.This page left blank intentionally. RDA D-8 RANCHO PALOS VERDES REDEVELOPMENT AGENCY STATEMENT OF NET ASSETS June 30,2010 Governmental Activities ASSETS: Cash and investments $1,756,204 Receivables: Taxes 13,118 Interest 2,571 Notes 6,649,097 Prepaid items 558,839 TOTAL ASSETS 8,979,829 LIABILITIES: Accounts payable 1,007,227 Interest payable 20,417 Due to City of Rancho Palos Verdes 211,956 Unearned revenue 3,346,306 Long-tenn liabilities: Due within one year 85,000 Due beyond one year 25,670,181 TOTAL LIABILITIES 30,341,087 NET ASSETS (DEFICIT): Restricted for: Low and moderate income housing 6,545,220 Unrestricted (27,906,478) TOTAL NET ASSETS (DEFICIT)$(21,361,258) See independent auditors'report and notes to financial statements. 3 RANCHO PALOS VERDES REDEVELOPMENT AGENCY STATEMENT OF NET ASSETS June 30,2010 Governmental Activities ASSETS: Cash and investments $1,756,204 Receivables: Taxes 13,118 Interest 2,571 Notes 6,649,097 Prepaid items 558,839 TOTAL ASSETS 8,979,829 LIABILITIES: Accounts payable 1,007,227 Interest payable 20,417 Due to City of Rancho Palos Verdes 211,956 Unearned revenue 3,346,306 Long-tenn liabilities: Due within one year 85,000 Due beyond one year 25,670,181 TOTAL LIABILITIES 30,341,087 NET ASSETS (DEFICIT): Restricted for: Low and moderate income housing 6,545,220 Unrestricted (27,906,478) TOTAL NET ASSETS (DEFICIT)$(21,361,258) See independent auditors'report and notes to financial statements. 3 RDA D-9 This page left blank intentionally. 4 This page left blank intentionally. 4 RDA D-10 RANCHO PALOS VERDES REDEVEWPMENT AGENCY STATEMENT OF ACTMTIES For the year ended June 30,2010 Functions/programS Expenses Governmental Activities: Administration $16,358 Public works 28,078 Community development 3,856,995 Pass through to other agencies 183,625 SERAF payment 330,125 Interest on long-term debt 885,590 Total governmental activities $5,300,771 Charges for Services $ 2,990,000 $2,990,000 Program Revenues Operating Grants and Contributions $ $ Capital Grants and Contributions $ $ Net (Expenses) Revenues and Changes in Net Assets Governmental Activities $(16,358) (28,078) (866,995) (183,625) (330,125) (885,590) (2,310,771) General revenues: Property tax increment Investment income Total general revenues Change in net assets Net assets (deficit)-beginning ofyear Net assets (deficit)-end of year See independent auditors'report and notes to financial statements. 5 1,078,261 11,355 1,089,616 (1,221,155) (20,140,103) $(21,361,258) RANCHO PALOS VERDES REDEVEWPMENT AGENCY STATEMENT OF ACTMTIES For the year ended June 30,2010 Functions/programS Expenses Governmental Activities: Administration $16,358 Public works 28,078 Community development 3,856,995 Pass through to other agencies 183,625 SERAF payment 330,125 Interest on long-term debt 885,590 Total governmental activities $5,300,771 Charges for Services $ 2,990,000 $2,990,000 Program Revenues Operating Grants and Contributions $ $ Capital Grants and Contributions $ $ Net (Expenses) Revenues and Changes in Net Assets Governmental Activities $(16,358) (28,078) (866,995) (183,625) (330,125) (885,590) (2,310,771) General revenues: Property tax increment Investment income Total general revenues Change in net assets Net assets (deficit)-beginning ofyear Net assets (deficit)-end of year See independent auditors'report and notes to financial statements. 5 1,078,261 11,355 1,089,616 (1,221,155) (20,140,103) $(21,361,258) RDA D-11 RANCHO PALOS VERDES REDEVELOPMENT AGENCY BALANCE SHEET -GOVERNMENTAL FUNDS June 30,2010 Special Revenue Housing Debt Set-Aside Service ASSETS Cash and investments $1,200,467 $ Receivables: Taxes 2,624 10,494 Interest 1,982 9 Notes 6,344,139 Prepaid items 1,086 540,561 TOTAL ASSETS $7,550,298 $551,064 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable and accmed liabilities $1,005,078 $647 Deferred revenue 3,346,306 Due to City ofRancho Palos Verdes 211,956 TOTAL LIABILITIES 4,351,384 212,603 FUND BALANCES: Reserved for: Housing set-aside 207,828 Prepaid items 1,086 540,561 Long term receivable 2,990,000 Unreserved: Undesignated and reported in: Debt service fund (202,100) Capital projects funds TOTAL FUND BALANCES 3,198,914 338,461 TOTAL LIABILITIES AND FUND BALANCES $7,550,298 $551,064 See independent auditors'report and notes to financial statements. 6 RANCHO PALOS VERDES REDEVELOPMENT AGENCY BALANCE SHEET -GOVERNMENTAL FUNDS June 30,2010 Special Revenue Housing Debt Set-Aside Service ASSETS Cash and investments $1,200,467 $ Receivables: Taxes 2,624 10,494 Interest 1,982 9 Notes 6,344,139 Prepaid items 1,086 540,561 TOTAL ASSETS $7,550,298 $551,064 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable and accmed liabilities $1,005,078 $647 Deferred revenue 3,346,306 Due to City ofRancho Palos Verdes 211,956 TOTAL LIABILITIES 4,351,384 212,603 FUND BALANCES: Reserved for: Housing set-aside 207,828 Prepaid items 1,086 540,561 Long term receivable 2,990,000 Unreserved: Undesignated and reported in: Debt service fund (202,100) Capital projects funds TOTAL FUND BALANCES 3,198,914 338,461 TOTAL LIABILITIES AND FUND BALANCES $7,550,298 $551,064 See independent auditors'report and notes to financial statements. 6 RDA D-12 Capital Projects Total Abalone Portuguese Governmental Cove Bend Funds $6,197 $549,540 $1,756,204 13,118 6 574 2,571 304,958 6,649,097 17,192 558,839 $6,203 $872,264 $8,979,829 $$1,502 304,958 306,460 $1,007,227 . 3,651,264 211,956 4,870,447 207,828 17,192 558,839 2,990,000 (202,100) 6,203 548,612 554,815 6,203 565,804 4,109,382 $6,203 $872,264 $8,979,829 7 Capital Projects Total Abalone Portuguese Governmental Cove Bend Funds $6,197 $549,540 $1,756,204 13,118 6 574 2,571 304,958 6,649,097 17,192 558,839 $6,203 $872,264 $8,979,829 $$1,502 304,958 306,460 $1,007,227 . 3,651,264 211,956 4,870,447 207,828 17,192 558,839 2,990,000 (202,100) 6,203 548,612 554,815 6,203 565,804 4,109,382 $6,203 $872,264 $8,979,829 7 RDA D-13 This page left blank intentionally. 8 This page left blank intentionally. 8 RDA D-14 RANCHO PALOS VERDES REDEVELOPMENT AGENCY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30,2010 Fund balances -total governmental funds Amounts reported for governmental activities in the Statement of Net Assets are different because: Interest expenditures are recognized when due,and therefore,interest payable is not recorded in the governmental funds. Long-term notes receivable are not current available resources and,therefore,are offset by deferred revenue in the governmental funds. Long-term liabilities are not due and payable in the current period and,therefore,are not reported in the governmental funds. Net assets (deficit)of governmental activities See independent auditors'report and notes to financial statements. 9 $4,109,382 (20,417) 304,958 (25,755,181) $(21,361,258) RANCHO PALOS VERDES REDEVELOPMENT AGENCY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30,2010 Fund balances -total governmental funds Amounts reported for governmental activities in the Statement of Net Assets are different because: Interest expenditures are recognized when due,and therefore,interest payable is not recorded in the governmental funds. Long-term notes receivable are not current available resources and,therefore,are offset by deferred revenue in the governmental funds. Long-term liabilities are not due and payable in the current period and,therefore,are not reported in the governmental funds. Net assets (deficit)of governmental activities See independent auditors'report and notes to financial statements. 9 $4,109,382 (20,417) 304,958 (25,755,181) $(21,361,258) RDA D-15 RANCHO PALOS VERDES REDEVELOPMENT AGENCY STATEMENT OF REVENUESt EXPENDITURES AND CHANGES IN FUND BALANCES -GOVERNMENTAL FUNDS For the year ended June 30t 2010 Special Revenue Housing Debt Set-Aside Service REVENUES: Tax:increment $215,652 $862,609 Investment income 8,303 183 Sale of property 2,990,000 Other revenues TOTAL REVENUES 3,213,955 862,792 EXPENDITURES: Current: Administration 16,358 Public works Community development 3,856,995 Pass through to other agencies 183,625 SERAF payment 330,125 Debt service: Principal 419,606 Interest and fiscal charges 885,998 TOTAL EXPENDITURES 3,856,995 1,835,712 EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (643,040)(972,920) OTHER FINANCING SOURCES: Advances received from the City ofRancho Palos Verdes 1,774,203 707,705 NET CHANGE IN FUND BALANCES 1,131,163 (265,215) FUND BALANCES -BEGINNlNG OF YEAR 2,067,751 603,676 FUND BALANCES -END OF YEAR $3,198,914 $338,461 See independent auditors'report and notes to financial statements. 10 RANCHO PALOS VERDES REDEVELOPMENT AGENCY STATEMENT OF REVENUESt EXPENDITURES AND CHANGES IN FUND BALANCES -GOVERNMENTAL FUNDS For the year ended June 30t 2010 Special Revenue Housing Debt Set-Aside Service REVENUES: Tax:increment $215,652 $862,609 Investment income 8,303 183 Sale of property 2,990,000 Other revenues TOTAL REVENUES 3,213,955 862,792 EXPENDITURES: Current: Administration 16,358 Public works Community development 3,856,995 Pass through to other agencies 183,625 SERAF payment 330,125 Debt service: Principal 419,606 Interest and fiscal charges 885,998 TOTAL EXPENDITURES 3,856,995 1,835,712 EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (643,040)(972,920) OTHER FINANCING SOURCES: Advances received from the City ofRancho Palos Verdes 1,774,203 707,705 NET CHANGE IN FUND BALANCES 1,131,163 (265,215) FUND BALANCES -BEGINNlNG OF YEAR 2,067,751 603,676 FUND BALANCES -END OF YEAR $3,198,914 $338,461 See independent auditors'report and notes to financial statements. 10 RDA D-16 Capital Projects Total Abalone Portuguese Governmental Cove Bend Funds $$$1,078,261 32 2,837 11,355 2,990,000 50,004 50,004 32 52,841 4,129,620 16,358 28,078 28,078 3,856,995 183,625 330,125 419,606 885,998 28,078 5,720,785 32 24,763 (1,591,165) 2,481,908 32 24,763 890,743 6,171 541,041 3,218,639 $6,203 $565,804 $4,109,382 11 Capital Projects Total Abalone Portuguese Governmental Cove Bend Funds $$$1,078,261 32 2,837 11,355 2,990,000 50,004 50,004 32 52,841 4,129,620 16,358 28,078 28,078 3,856,995 183,625 330,125 419,606 885,998 28,078 5,720,785 32 24,763 (1,591,165) 2,481,908 32 24,763 890,743 6,171 541,041 3,218,639 $6,203 $565,804 $4,109,382 11 RDA D-17 RANCHO PALOS VERDES REDEVELOPMENT AGENCY RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the year ended June 30,2010 Net change in fund balances -total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: Increases in long-term liabilities provide current fmancial resources to governmental funds as other fmancing sources.Conversely,repayments oflong-term liabilities are reported as expenditures. This activity is not reflected in the Statement of Activities: Advances received from the City ofRancho Palos Verdes Repayments of long-term liabilities Interest expenditures are recognized when paid in governmental funds.Interest expense on the Statement of Activities is reported based on interest incurred.This amount represents the change in interest payable. Governmental funds report certain long-term loans made as expenditures and repayments ofthose loans as revenues.However,these transactions have no effect in the Statement ofActivities. The loan activity for the current period is as follows: Loans made Loan repayments $890,743 (2,481,908) 419,606 408 (50,004) Change in net assets of governmental activities See independent auditors'report and notes to financial statements. 12 $(1,221,155) RANCHO PALOS VERDES REDEVELOPMENT AGENCY RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the year ended June 30,2010 Net change in fund balances -total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: Increases in long-term liabilities provide current fmancial resources to governmental funds as other fmancing sources.Conversely,repayments oflong-term liabilities are reported as expenditures. This activity is not reflected in the Statement of Activities: Advances received from the City ofRancho Palos Verdes Repayments of long-term liabilities Interest expenditures are recognized when paid in governmental funds.Interest expense on the Statement of Activities is reported based on interest incurred.This amount represents the change in interest payable. Governmental funds report certain long-term loans made as expenditures and repayments ofthose loans as revenues.However,these transactions have no effect in the Statement ofActivities. The loan activity for the current period is as follows: Loans made Loan repayments $890,743 (2,481,908) 419,606 408 (50,004) Change in net assets of governmental activities See independent auditors'report and notes to financial statements. 12 $(1,221,155) RDA D-18 NOTES TO FINANCIAL STATEMENTSNOTESTOFINANCIALSTATEMENTS RDA D-19 This page left blank intentionally.This page left blank intentionally. RDA D-20 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting policies of the Rancho Palos Verdes Redevelopment Agency (the Agency)conform to accounting principles generally accepted in the United States of America as applicable to governments.The Governmental Accounting Standards Board (GASB)is the accepted standard setting body for governmental accounting and financial reporting principles.The following is a summary of the significant policies. Reporting Entity: The Agency is a separate legal governmental entity created on July 31,1984,pursuant to the Community Redevelopment Law ofthe State of California Health and Safety Code;however,it has been included as a component unit of the City of Rancho Palos Verdes (the City)for purposes of the City's annual financial report.The Agency has responsibility for elimination of blight within the limits of the project areas by preparing and carrying out redevelopment plans for area improvements and rehabilitation. The Agency's primary source of revenue comes from property taxes,referred to in the accompanying financial statements as ''tax increment revenue".The assessed valuation of all property within the project area is determined on the date of adoption of the Redevelopment Plan. Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are allocated to the Agency;all taxes on the "frozen"assessed valuation of the property are allocated to the Agency and other districts. The Agency has no power to levy and collect taxes and any legislative property tax de~emphasis might reduce the amount of tax revenues that would otherwise be available to pay the principal and interest on debt.Broadened property tax exemptions could have a similar effect.Conversely,any increase in the tax rate or assessed valuation,or any reduction or elimination of present exemptions would increase the amount of tax revenues that would be available to pay principal and interest on debt. Measurement Focus,Basis ofAccounting and Financial Statement Presentation: The basic financial statements ofthe Agency are composed of the following: •Government-wide financial statements •Fund financial statements •Notes to financial statements See independent auditors'report. 13 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting policies of the Rancho Palos Verdes Redevelopment Agency (the Agency)conform to accounting principles generally accepted in the United States of America as applicable to governments.The Governmental Accounting Standards Board (GASB)is the accepted standard setting body for governmental accounting and financial reporting principles.The following is a summary of the significant policies. Reporting Entity: The Agency is a separate legal governmental entity created on July 31,1984,pursuant to the Community Redevelopment Law ofthe State of California Health and Safety Code;however,it has been included as a component unit of the City of Rancho Palos Verdes (the City)for purposes of the City's annual financial report.The Agency has responsibility for elimination of blight within the limits of the project areas by preparing and carrying out redevelopment plans for area improvements and rehabilitation. The Agency's primary source of revenue comes from property taxes,referred to in the accompanying financial statements as ''tax increment revenue".The assessed valuation of all property within the project area is determined on the date of adoption of the Redevelopment Plan. Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are allocated to the Agency;all taxes on the "frozen"assessed valuation of the property are allocated to the Agency and other districts. The Agency has no power to levy and collect taxes and any legislative property tax de~emphasis might reduce the amount of tax revenues that would otherwise be available to pay the principal and interest on debt.Broadened property tax exemptions could have a similar effect.Conversely,any increase in the tax rate or assessed valuation,or any reduction or elimination of present exemptions would increase the amount of tax revenues that would be available to pay principal and interest on debt. Measurement Focus,Basis ofAccounting and Financial Statement Presentation: The basic financial statements ofthe Agency are composed of the following: •Government-wide financial statements •Fund financial statements •Notes to financial statements See independent auditors'report. 13 RDA D-21 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Government-wide Financial Statements: The government-wide financial statements (i.e.,the statement of net assets and the statement of activities)report information on all of the activities of the Agency.For the most part,the effect of interfund activity has been removed from these statements.Governmental activities,which normally are supported by taxes and intergovernmental revenues,are reported separately from business-type activities,which rely to a significant extent on fees and charges for support.The Rancho Palos Verdes Redevelopment Agency has no business-type activities. The statement of activities demonstrates the degr~to which the direct expenses of a given function are offset by program revenues.Direct expenses are those that are clearly identifiable with a specific function.Program revenues include 1)charges to customers who purchase,use,or directly benefit from goods,services,or privileges provided by a given function and 2)grants and contributions that are restricted to meeting the operational or capital requirements of a particular function.Other items not properly included among program revenues are reported,instead,as general revenues. Fund Financial Statements: Fund financial statements for the Agency's governmental funds are presented after the government -wide financial statements.These statements display information about major funds individually for governmental funds. The accounting system of the Agency is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity.Each fund is accounted for by providing a separate set of self -balancing accounts that constitute its assets,liabilities,fund equity, revenues,and expenditures. The Agency reports the following major governmental funds: The Housing Set-Aside Special Revenue Fund is used to account for the receipt of 20 percent of the gross tax increment allocation,which is restricted for use on projects that increase or preserve the supply of low and moderate income housing in accordance with Health and Safety Code Section 33334. The Debt Service Fund is used to account for the accumulation of resources for and the payment of principal and interest on the Agency's debt and other long-term obligations. See independent auditors'report. 14 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Government-wide Financial Statements: The government-wide financial statements (i.e.,the statement of net assets and the statement of activities)report information on all of the activities of the Agency.For the most part,the effect of interfund activity has been removed from these statements.Governmental activities,which normally are supported by taxes and intergovernmental revenues,are reported separately from business-type activities,which rely to a significant extent on fees and charges for support.The Rancho Palos Verdes Redevelopment Agency has no business-type activities. The statement of activities demonstrates the degr~to which the direct expenses of a given function are offset by program revenues.Direct expenses are those that are clearly identifiable with a specific function.Program revenues include 1)charges to customers who purchase,use,or directly benefit from goods,services,or privileges provided by a given function and 2)grants and contributions that are restricted to meeting the operational or capital requirements of a particular function.Other items not properly included among program revenues are reported,instead,as general revenues. Fund Financial Statements: Fund financial statements for the Agency's governmental funds are presented after the government -wide financial statements.These statements display information about major funds individually for governmental funds. The accounting system of the Agency is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity.Each fund is accounted for by providing a separate set of self -balancing accounts that constitute its assets,liabilities,fund equity, revenues,and expenditures. The Agency reports the following major governmental funds: The Housing Set-Aside Special Revenue Fund is used to account for the receipt of 20 percent of the gross tax increment allocation,which is restricted for use on projects that increase or preserve the supply of low and moderate income housing in accordance with Health and Safety Code Section 33334. The Debt Service Fund is used to account for the accumulation of resources for and the payment of principal and interest on the Agency's debt and other long-term obligations. See independent auditors'report. 14 RDA D-22 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Fund Financial Statements (Continued): Major Funds (Continued) The Abalone Cove Capital Projects Fund is used to account for all project expenditures,including acquisition of properties,cost of site improvements,and other costs within the Abalone Cove project area. The Portuguese Bend Capital PrQjects Fund is used to account for all project expenditures, including acquisition of properties,cost of site improvements,and other costs within the Portuguese Bend project area. Measurement Focus: Measurement focus is a term used to describe "which"transactions are recorded within the various financial statements. In the government-wide statement of net assets and the statement of activities,activities are presented using the economic resources measurement focus.Under the economic resources measurement focus,all (both current and long-term)economic resources and obligations of the government are reported. In the fund financial statements,all governmental funds are accounted for on a spending or ''financial flow"measurement focus.This means that only current assets and current liabilities are generally included on the balance sheets.The reported fund balances (net current assets)are considered a measure of "available spendable resources".Governmental fund operating statements present increases (revenues and other financing sources)and decreases (expenditures and other financing uses)in net current assets.Accordingly,they are said to present a summary of sources and uses of available spendable resources during a period.Revenues,expenses,gains,losses, assets,and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No.33. See independent auditors'report. 15 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Fund Financial Statements (Continued): Major Funds (Continued) The Abalone Cove Capital Projects Fund is used to account for all project expenditures,including acquisition of properties,cost of site improvements,and other costs within the Abalone Cove project area. The Portuguese Bend Capital PrQjects Fund is used to account for all project expenditures, including acquisition of properties,cost of site improvements,and other costs within the Portuguese Bend project area. Measurement Focus: Measurement focus is a term used to describe "which"transactions are recorded within the various financial statements. In the government-wide statement of net assets and the statement of activities,activities are presented using the economic resources measurement focus.Under the economic resources measurement focus,all (both current and long-term)economic resources and obligations of the government are reported. In the fund financial statements,all governmental funds are accounted for on a spending or ''financial flow"measurement focus.This means that only current assets and current liabilities are generally included on the balance sheets.The reported fund balances (net current assets)are considered a measure of "available spendable resources".Governmental fund operating statements present increases (revenues and other financing sources)and decreases (expenditures and other financing uses)in net current assets.Accordingly,they are said to present a summary of sources and uses of available spendable resources during a period.Revenues,expenses,gains,losses, assets,and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No.33. See independent auditors'report. 15 RDA D-23 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Measurement Focus (Continued): Because of the spending measurement focus,expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities.Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities.Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended,rather than as fund assets.The proceeds of long-term.debt are recorded as other financing sources rather than as a fund liability.Amounts paid to reduce long-term debt are reported as fund expenditures. When both restricted and unrestricted resources are available for use,it is the Agency's policy to use restricted resources first,then unrestricted resources as they are needed. Basis ofAccounting: Basis of accounting refers to "when"transactions are recorded,regardless of the measurement focus applied. In the government-wide statement of net assets and statement of activities,the governmental activities are presented using the accrual basis of accounting.Under the accrual basis of accounting,revenues are recognized when earned,and expenses are recorded when the liability is incurred or economic asset used,regardless of the timing of related cash flows.Revenues, expenses,gains,losses,assets,and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place.For government-wide financial reporting,the Agency has elected to apply all applicable GASB pronouncements,as well as any applicable pronouncements of the Financial Accounting Standards Board (FASB),the Accounting Principles Board (APB),or any Accounting Research Bulletins (ARB)issued on or before November 30,1989,unless they contradict or conflict with GASB pronouncements. In the fund financial statements,governmental funds are presented using the modified-accrual basis of accounting.Revenues are recognized when they become measurable and available as net current assets.Measurable means that the amounts can be estimated or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period.Revenue recognition is subject to the measurable and available criteria for the governmental funds in the fund financial statements.The Agency considers tax increment revenue and investment earnings to be available ifthey are collected within 60 days ofthe end ofthe current fiscal period. See independent auditors'report. 16 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Measurement Focus (Continued): Because of the spending measurement focus,expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities.Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities.Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended,rather than as fund assets.The proceeds of long-term.debt are recorded as other financing sources rather than as a fund liability.Amounts paid to reduce long-term debt are reported as fund expenditures. When both restricted and unrestricted resources are available for use,it is the Agency's policy to use restricted resources first,then unrestricted resources as they are needed. Basis ofAccounting: Basis of accounting refers to "when"transactions are recorded,regardless of the measurement focus applied. In the government-wide statement of net assets and statement of activities,the governmental activities are presented using the accrual basis of accounting.Under the accrual basis of accounting,revenues are recognized when earned,and expenses are recorded when the liability is incurred or economic asset used,regardless of the timing of related cash flows.Revenues, expenses,gains,losses,assets,and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place.For government-wide financial reporting,the Agency has elected to apply all applicable GASB pronouncements,as well as any applicable pronouncements of the Financial Accounting Standards Board (FASB),the Accounting Principles Board (APB),or any Accounting Research Bulletins (ARB)issued on or before November 30,1989,unless they contradict or conflict with GASB pronouncements. In the fund financial statements,governmental funds are presented using the modified-accrual basis of accounting.Revenues are recognized when they become measurable and available as net current assets.Measurable means that the amounts can be estimated or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period.Revenue recognition is subject to the measurable and available criteria for the governmental funds in the fund financial statements.The Agency considers tax increment revenue and investment earnings to be available ifthey are collected within 60 days ofthe end ofthe current fiscal period. See independent auditors'report. 16 RDA D-24 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Basis ofAccounting (Continued): Exchange transactions are recognized as revenues in the period in which they are earned (i.e.,the related goods or services are provided).Locally-imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place.Imposed nonexchange transactions are recognized as revenues in the period for which they were imposed.If the period of use is not specified,they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received,whichever occurs first. Government-mandated and voluntary nonexchange transactions are recognized as revenues when all applicable eligibility requirements have been met. Investments: The Agency has adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No.31,"Accounting and Financial Reporting for Certain Investments·and External Pools",which require governmental entities to report certain investments at fair value in the balance sheet and recognize the corresponding change in the fair value of investments in the year in which the change occurred.In accordance with GASB Statement No.31,the Agency has adjusted certain investments to fair value (when material). Use of Estimates: The preparation of basic financial statements in confonnity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the basic financial statements and the reported amounts of revenues and expenditures during the reporting period.Actual results could differ from those estimates. See independent auditors'report. 17 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Measurement Focus,Basis ofAccounting and Financial Statement Presentation (Continued): Basis ofAccounting (Continued): Exchange transactions are recognized as revenues in the period in which they are earned (i.e.,the related goods or services are provided).Locally-imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place.Imposed nonexchange transactions are recognized as revenues in the period for which they were imposed.If the period of use is not specified,they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received,whichever occurs first. Government-mandated and voluntary nonexchange transactions are recognized as revenues when all applicable eligibility requirements have been met. Investments: The Agency has adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No.31,"Accounting and Financial Reporting for Certain Investments·and External Pools",which require governmental entities to report certain investments at fair value in the balance sheet and recognize the corresponding change in the fair value of investments in the year in which the change occurred.In accordance with GASB Statement No.31,the Agency has adjusted certain investments to fair value (when material). Use of Estimates: The preparation of basic financial statements in confonnity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the basic financial statements and the reported amounts of revenues and expenditures during the reporting period.Actual results could differ from those estimates. See independent auditors'report. 17 RDA D-25 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 2.CASH AND INVESTMENTS: Cash and Investments: Cash and investments at June 30,2010,consisted ofthe following: Cash and investments pooled with the City ofRancho Palos Verdes $1,756204 The Agency pools its cash and investments with the City.More information on the City's cash and investments can be found in the City's Comprehensive Annual Financial Report. Investm~mts Authorized by the CaUfornia Government Code and the Agency's Investment Policy: The table below identifies the investment types that are authorized for the Agency by the California Government Code (or the Agency's investment policy,where more restrictive).The table also identifies certain provisions of the California Government Code (or the Agency's investment policy,where more restrictive)that address interest rate risk,credit risk,and concentration of credit risk.This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Agency,rather than the general provisions of the California Government Code or the Agency's investment policy. Authorized Investment JYpe United States Treasury Obligations Certificates of Deposit Repurchase Agreements Money Market Mutual Funds Local Agency Investment Fund (LAIF) Money Market Savings/Demand Deposits N/A Not Applicable See independent auditors'report. 18 Maximum Maturity 3 years N/A 7 days N/A N/A N/A Maximum Amount or Percentage ofPortfolio None None 15% 15% None $5 million Maximum Investment in One Issuer None None None 15% None 15% RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 2.CASH AND INVESTMENTS: Cash and Investments: Cash and investments at June 30,2010,consisted ofthe following: Cash and investments pooled with the City ofRancho Palos Verdes $1,756204 The Agency pools its cash and investments with the City.More information on the City's cash and investments can be found in the City's Comprehensive Annual Financial Report. Investm~mts Authorized by the CaUfornia Government Code and the Agency's Investment Policy: The table below identifies the investment types that are authorized for the Agency by the California Government Code (or the Agency's investment policy,where more restrictive).The table also identifies certain provisions of the California Government Code (or the Agency's investment policy,where more restrictive)that address interest rate risk,credit risk,and concentration of credit risk.This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Agency,rather than the general provisions of the California Government Code or the Agency's investment policy. Authorized Investment JYpe United States Treasury Obligations Certificates of Deposit Repurchase Agreements Money Market Mutual Funds Local Agency Investment Fund (LAIF) Money Market Savings/Demand Deposits N/A Not Applicable See independent auditors'report. 18 Maximum Maturity 3 years N/A 7 days N/A N/A N/A Maximum Amount or Percentage ofPortfolio None None 15% 15% None $5 million Maximum Investment in One Issuer None None None 15% None 15% RDA D-26 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 2.CASH AND INVESTMENTS (CONTINUED): Disclosures Relating to Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.Generally,the longer the maturity of an ip.vestment,the greater the sensitivity of its fair value to changes in market interest rates.One of the ways that the Agency manages its exposure to interest rate risk is by pooling its cash and investments with the City of Rancho Palos Verdes.The City purcha~es a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time,as necessary,to provide the cash flow and liquidity needed for the Agency's operations. Disclosures Relating to Credit Risk: Generally,credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Concentration of Credit Risk: The investment policy of the Agency contains no limitations on the amount that can be invested in anyone issuer beyond that stipulated by the California Government Code. Custodial Credit Risk: Custodial credit risk for deposits is the risk that,in the event of the failure of a depository financial institution,a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party.The custodial credit risk for investments is the risk that,in the event of the failure of the counterparty (e.g.,broker-dealer)to a transaction,a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party.The California Government Code and the Agency's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments,other than the following provision for deposits:The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit).The market value of the pledged securities in the collateral pool must equal at least 110%of the total amount deposited by the public agencies.California law also allows financial institutions to secure the Agency's deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits. See independent auditors'report. 19 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 2.CASH AND INVESTMENTS (CONTINUED): Disclosures Relating to Interest Rate Risk: Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.Generally,the longer the maturity of an ip.vestment,the greater the sensitivity of its fair value to changes in market interest rates.One of the ways that the Agency manages its exposure to interest rate risk is by pooling its cash and investments with the City of Rancho Palos Verdes.The City purcha~es a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time,as necessary,to provide the cash flow and liquidity needed for the Agency's operations. Disclosures Relating to Credit Risk: Generally,credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Concentration of Credit Risk: The investment policy of the Agency contains no limitations on the amount that can be invested in anyone issuer beyond that stipulated by the California Government Code. Custodial Credit Risk: Custodial credit risk for deposits is the risk that,in the event of the failure of a depository financial institution,a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party.The custodial credit risk for investments is the risk that,in the event of the failure of the counterparty (e.g.,broker-dealer)to a transaction,a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party.The California Government Code and the Agency's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments,other than the following provision for deposits:The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit).The market value of the pledged securities in the collateral pool must equal at least 110%of the total amount deposited by the public agencies.California law also allows financial institutions to secure the Agency's deposits by pledging first trust deed mortgage notes having a value of 150%of the secured public deposits. See independent auditors'report. 19 RDA D-27 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 2.CASH AND INVESTMENTS (CONTINUED): Additional Information: Information regarding the exposure of the City's investment pool to interest rate risk,credit risk, concentration of credit risk and custodial risk is available in the City of Rancho Palos Verdes, California's Comprehensive Annual Financial Report. Allocation of Interest Income Among Funds: Interest income from pooled investments is allocated to those funds which are required by law or administrative section to receive interest Interest is allocated on a quarterly basis based on the monthly ending cash balances in each fund receiving interest. 3.NOTES RECEIVABLE: Portuguese Bend Club Homeowners'Association: In August 1999,the Agency entered into an agreement with a Homeowners Association (the Association),whereby the Agency agreed to advance the Association up to $750,000 in connection with a capital project undertaken by the Association.The terms of the agreement specify that the association is to repay the Agency in equal monthly installments of $4,167 beginning twelve months after completion of the project.The project was completed during the 2001-02 fiscal year. The balance is to be repaid over a IS-year period without interest.During the 2009-10 fiscal year, the Agency received principal repayments of $50,004.The balance of the note receivable at June 30,2010,was $304,958. AMCAL Mirandela Fund L.P.: In March 2009,the Agency entered into a Disposition and Development Agreement (DDA)with AMCAL Mirandela Fund LP (AMCAL).Under the DDA,the Agency would provide financial assistance to AMCAL in an amount up to $6,790,000 to develop a thirty-four unit senior housing project.Thirty-three of the units would be restricted to families of Low or Moderate Income Senior Households and one unit would be offered at market rate rental for an on-site manager. The loans accrue simple interest at a rate of 3%per annum on the amounts disbursed.The terms of the DDA specify that the Agency loans should be repaid annually from the net available cash as defined by the DDA.Unless paid in full earlier,the remaining balance of the Agency loans should be due and payable in full fifty-five years from the date of the Certification of Completion. See independent auditors'report. 20 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 2.CASH AND INVESTMENTS (CONTINUED): Additional Information: Information regarding the exposure of the City's investment pool to interest rate risk,credit risk, concentration of credit risk and custodial risk is available in the City of Rancho Palos Verdes, California's Comprehensive Annual Financial Report. Allocation of Interest Income Among Funds: Interest income from pooled investments is allocated to those funds which are required by law or administrative section to receive interest Interest is allocated on a quarterly basis based on the monthly ending cash balances in each fund receiving interest. 3.NOTES RECEIVABLE: Portuguese Bend Club Homeowners'Association: In August 1999,the Agency entered into an agreement with a Homeowners Association (the Association),whereby the Agency agreed to advance the Association up to $750,000 in connection with a capital project undertaken by the Association.The terms of the agreement specify that the association is to repay the Agency in equal monthly installments of $4,167 beginning twelve months after completion of the project.The project was completed during the 2001-02 fiscal year. The balance is to be repaid over a IS-year period without interest.During the 2009-10 fiscal year, the Agency received principal repayments of $50,004.The balance of the note receivable at June 30,2010,was $304,958. AMCAL Mirandela Fund L.P.: In March 2009,the Agency entered into a Disposition and Development Agreement (DDA)with AMCAL Mirandela Fund LP (AMCAL).Under the DDA,the Agency would provide financial assistance to AMCAL in an amount up to $6,790,000 to develop a thirty-four unit senior housing project.Thirty-three of the units would be restricted to families of Low or Moderate Income Senior Households and one unit would be offered at market rate rental for an on-site manager. The loans accrue simple interest at a rate of 3%per annum on the amounts disbursed.The terms of the DDA specify that the Agency loans should be repaid annually from the net available cash as defined by the DDA.Unless paid in full earlier,the remaining balance of the Agency loans should be due and payable in full fifty-five years from the date of the Certification of Completion. See independent auditors'report. 20 RDA D-28 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 3.NOTES RECEIVABLE (CONTINUED): AMCAL Mirandela Fund L.P.(Continued): During the year ended June 30,2010,the Agency has disbursed $3,289,090 in cash loans to,and taken back a $2,990,000 note receivable for the sale of Agency land held for development from, AMCAL pursuant to the DDA.Accrued interest on outstanding loans totaled $65,049.The balance of notes receivable with AMCAL including interest receivable at June 30,2010 was $6,344,139. 4.LAND HELD FOR DEVELOPMENT: On March 21,2000,the Agency purchased approximately 20 acres of land to be used for an affordable housing project.The total cost ofthe land was $702,392.The Agency recorded the cost of the land as an asset in the RDA Housing Set-Aside special revenue fund that purchased the property. A developer submitted an application for a senior condominium housing project with an affordable housing component.The project was planned to utilize a parcel owned by the Agency and a neighboring private parcel.The developer withdrew the application, and the property owner of the neighboring private parcel has moved forward with a senior condominium project on only that parcel.In September 2007,the City/Agency made a decision to move forward with development of only the Agency parcel with a senior affordable housing project.In September 2008,the Agency entered into an Exclusive Negotiating Agreement with AMCAL:Multi-Housing Inc.On March 3,2009,the City Council/Agency Board approved AMCAL's proposed 34-unit senior affordable housing project,which includes 33 rental units of affordable housing and 1 market rate rental unit for an on-site manager.On March 17,2009,the Agency approved a Disposition and Development Agreement (DDA)With AMCAL.In September 2009,the project was awarded Tax Credits from the California Tax Credit Allocation Committee,which Will be an important funding source for the proj ect.The Agency transferred the land to the developer for construction of the proposed senior affordable housing project on December 29,2009 in excha,nge for a $2,990,000 note receivable from the developer. See independent auditors'report. 21 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 3.NOTES RECEIVABLE (CONTINUED): AMCAL Mirandela Fund L.P.(Continued): During the year ended June 30,2010,the Agency has disbursed $3,289,090 in cash loans to,and taken back a $2,990,000 note receivable for the sale of Agency land held for development from, AMCAL pursuant to the DDA.Accrued interest on outstanding loans totaled $65,049.The balance of notes receivable with AMCAL including interest receivable at June 30,2010 was $6,344,139. 4.LAND HELD FOR DEVELOPMENT: On March 21,2000,the Agency purchased approximately 20 acres of land to be used for an affordable housing project.The total cost ofthe land was $702,392.The Agency recorded the cost of the land as an asset in the RDA Housing Set-Aside special revenue fund that purchased the property. A developer submitted an application for a senior condominium housing project with an affordable housing component.The project was planned to utilize a parcel owned by the Agency and a neighboring private parcel.The developer withdrew the application, and the property owner of the neighboring private parcel has moved forward with a senior condominium project on only that parcel.In September 2007,the City/Agency made a decision to move forward with development of only the Agency parcel with a senior affordable housing project.In September 2008,the Agency entered into an Exclusive Negotiating Agreement with AMCAL:Multi-Housing Inc.On March 3,2009,the City Council/Agency Board approved AMCAL's proposed 34-unit senior affordable housing project,which includes 33 rental units of affordable housing and 1 market rate rental unit for an on-site manager.On March 17,2009,the Agency approved a Disposition and Development Agreement (DDA)With AMCAL.In September 2009,the project was awarded Tax Credits from the California Tax Credit Allocation Committee,which Will be an important funding source for the proj ect.The Agency transferred the land to the developer for construction of the proposed senior affordable housing project on December 29,2009 in excha,nge for a $2,990,000 note receivable from the developer. See independent auditors'report. 21 RDA D-29 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES: A summary of changes in long-term liabilities for the year ended June 30,2010,is as follows: The Agency has entered into an agreement with the City of Rancho Palos Verdes,whereby the City has agreed to provide the Agency operating funds and staff assistance,supplies,technical and other services and facilities of the City as the Agency may require in carrying out its function under the community redevelopment law.The Agency will repay the resulting indebtedness,plus interest, from incremental property tax revenues arising from the project area,as such revenue becomes available.Variable interest was accrued at a rate of approximately 3.658%during the fiscal year ended June 30,2010.Of the $17,594,675 remajning indebtedness,$13,561,526 relates to the Portuguese Bend portion of the Agency,while $4,033,149 relates to the Abalone Cove portion. During the year ended June 30,2010 accrued interest of $478,553 was added to the balance of the advance to the Portuguese Bend Fund,while principal of $86,832 and accrued interest of $142,320 was advanced to the Abalone Cove Fund. In connection with the development of the senior affordable housing project discussed in Notes 3 and 4,the City agreed to advance funds to the Agency for use in providing financial assistance to the developer in the form of a construction loan.The balance of these advances at June 30,2010 was $1,774,203. As of June 30,2010,no revenue was available to the Agency to repay the advances due to the City, nor are sufficient revenues expected to be available to repay advances in the immediate future. Accordingly,there is no fixed payment schedule for this indebtedness. See independent auditors'report. 22 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES: A summary of changes in long-term liabilities for the year ended June 30,2010,is as follows: The Agency has entered into an agreement with the City of Rancho Palos Verdes,whereby the City has agreed to provide the Agency operating funds and staff assistance,supplies,technical and other services and facilities of the City as the Agency may require in carrying out its function under the community redevelopment law.The Agency will repay the resulting indebtedness,plus interest, from incremental property tax revenues arising from the project area,as such revenue becomes available.Variable interest was accrued at a rate of approximately 3.658%during the fiscal year ended June 30,2010.Of the $17,594,675 remajning indebtedness,$13,561,526 relates to the Portuguese Bend portion of the Agency,while $4,033,149 relates to the Abalone Cove portion. During the year ended June 30,2010 accrued interest of $478,553 was added to the balance of the advance to the Portuguese Bend Fund,while principal of $86,832 and accrued interest of $142,320 was advanced to the Abalone Cove Fund. In connection with the development of the senior affordable housing project discussed in Notes 3 and 4,the City agreed to advance funds to the Agency for use in providing financial assistance to the developer in the form of a construction loan.The balance of these advances at June 30,2010 was $1,774,203. As of June 30,2010,no revenue was available to the Agency to repay the advances due to the City, nor are sufficient revenues expected to be available to repay advances in the immediate future. Accordingly,there is no fixed payment schedule for this indebtedness. See independent auditors'report. 22 RDA D-30 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES (CONTINUED): Tax Increment Bond and Deferred Interest Payable: In July 1991,the Agency received $10,000,000 in loan proceeds (the Loan)from the County of Los Angeles (the County)upon the County's issue of Abalone Cove Improvement Bonds 2651-M pursuant to a Reimbursement and Settlement Agreement (the Agreement),dated October 27,1987, in connection with the Horan Lawsuit.The Loan was made for the purpose of abating the Abalone Cove landslide.The settlement loan was secured by property assessment liens in the Abalone Cove project area. As stipulated by the parties to the Agreement,a portion of the Loan proceeds was used to repay a tax allocation and revenue anticipation promissory note issued to the County in the principal amount of $1,450,000,plus accrued interest equal to $179,244.A second portion of the proceeds was used to repay expenses advanced by the County in the amount of $135,614.A third portion was used to repay certain loans from the City to the Agency in the amount of $787,340. Per the terms of the Agreement,$1,000,000 of the proceeds was deposited in the Abalone Cove Maintenance Permanent Fund of the Joint Powers Improvement Authority (the JPIA).The remainder of the proceeds were accounted for in the Agency's Abalone Cove Capital Projects Fund.Concurrent with the execution of the Agreement,the County deeded its title in the Abalone Cove Beach Park to the Agency. As part of the Agreement,the Agency is required to transfer 17%of tax increment revenue to the Consolidated Fire Protection District of the County and 50.9%of tax increment revenue for debt repayment to the County.In accordance with the Agreement,the Agency was to pay the loan principal plus interest at 7.7654%over a 30-year period that began in 1992.However,these debt payments were to be deferred 10 years until the fiscal year ended June 30,2002. As part of the deferral arrangement,the accrued interest from the inception of the loan through June 30,2002,in the amount of $7,314,944,was scheduled to be paid over a 20-year·period beginning in the fIScal year ended June 30,2003,with no additional interest.The remaining balance of $10,274,119 was scheduled to be paid to the County over a 20-year period beginning in the fiscal year ended June 30,2002,with interest at 7.7654%. See independent auditors'report. 23 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES (CONTINUED): Tax Increment Bond and Deferred Interest Payable: In July 1991,the Agency received $10,000,000 in loan proceeds (the Loan)from the County of Los Angeles (the County)upon the County's issue of Abalone Cove Improvement Bonds 2651-M pursuant to a Reimbursement and Settlement Agreement (the Agreement),dated October 27,1987, in connection with the Horan Lawsuit.The Loan was made for the purpose of abating the Abalone Cove landslide.The settlement loan was secured by property assessment liens in the Abalone Cove project area. As stipulated by the parties to the Agreement,a portion of the Loan proceeds was used to repay a tax allocation and revenue anticipation promissory note issued to the County in the principal amount of $1,450,000,plus accrued interest equal to $179,244.A second portion of the proceeds was used to repay expenses advanced by the County in the amount of $135,614.A third portion was used to repay certain loans from the City to the Agency in the amount of $787,340. Per the terms of the Agreement,$1,000,000 of the proceeds was deposited in the Abalone Cove Maintenance Permanent Fund of the Joint Powers Improvement Authority (the JPIA).The remainder of the proceeds were accounted for in the Agency's Abalone Cove Capital Projects Fund.Concurrent with the execution of the Agreement,the County deeded its title in the Abalone Cove Beach Park to the Agency. As part of the Agreement,the Agency is required to transfer 17%of tax increment revenue to the Consolidated Fire Protection District of the County and 50.9%of tax increment revenue for debt repayment to the County.In accordance with the Agreement,the Agency was to pay the loan principal plus interest at 7.7654%over a 30-year period that began in 1992.However,these debt payments were to be deferred 10 years until the fiscal year ended June 30,2002. As part of the deferral arrangement,the accrued interest from the inception of the loan through June 30,2002,in the amount of $7,314,944,was scheduled to be paid over a 20-year·period beginning in the fIScal year ended June 30,2003,with no additional interest.The remaining balance of $10,274,119 was scheduled to be paid to the County over a 20-year period beginning in the fiscal year ended June 30,2002,with interest at 7.7654%. See independent auditors'report. 23 RDA D-31 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES (CONTINUED): Tax Increment Bond and Deferred Interest Payable (Continued): On November 1,1997,the City,the Agency and the County entered into a Memorandum of Understanding (MOD)agreeing to restructure the repayment schedule of the debt owed the County by the Agency.In accordance with the terms of the MOU,the $10,000,000 loan principal owed the County was cancelled.As consideration for the loan cancellation,the Agency made a lump sum payment to the County in the amount of $4,545,000 and issued a $5,455,000 tax increment bond to the County (the Agency bond).Of the $4,545,000 lump sum payment,$2,000,000 was paid from tax increment revenue and interest earnings accumulated in the Debt Service Fund.The remaining $2,545,000 was funded by a combination of a loan from the General Fund of the City to the Agency for $1,545,000 and a net operating transfer from the Agency's Abalone Cove Capital Projects Fund to the Debt Service Fund of $1,000,000.The private property liens resulting from the formation of the bond assessment district in connection with the Agreement in 1987 were discharged in accordance with the terms of the MOU. The Agency bond was issued as a conduit through the JPIA to the County.No issuance costs were incurred.One hundred percent (100%)of net future tax increment revenue will fund the payment of the Agency bond debt and the deferred interest from the original Loan until paid in full.In December 1997,the County began withholding payment of the Agency's net tax increment revenue (net of the 17%payment to the Consolidated Fire Protection District of the County and the 20% housing set-aside amount)to offset the annual principal and interest charges.The principal of the Agency bond will mature in installments each December 2nd ,commencing December 2,2004. Interest accrues at a rate of 5%per annum and is payable in arrears each June 2nd and December 2nd• Additionally,both the accrued interest and deferred interest on the $10,000,000 Loan previously owed the County was retroactively recalculated from the Loan origination date at a rate of approximately 5%compared to 7.7654%per the original Agreement.The recalculated deferred interest is $3,111,400.In accordance with the MOU,the recalculated deferred interest does not accrue additional interest.As of June 30,2010,a total of$1,975,097 in accumulated tax increment has been applied against this balance,including $354,606 applied during fiscal year 2009-10.The remaining balance at June 30,2010,was $1,136,303.The accumulated amount of tax increment withheld over the scheduled principal and interest payment made during the life of the Agency bond is recorded in the Debt Service Fund as a prepaid item at June 30,2010. See independent auditors'report. 24 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES (CONTINUED): Tax Increment Bond and Deferred Interest Payable (Continued): On November 1,1997,the City,the Agency and the County entered into a Memorandum of Understanding (MOD)agreeing to restructure the repayment schedule of the debt owed the County by the Agency.In accordance with the terms of the MOU,the $10,000,000 loan principal owed the County was cancelled.As consideration for the loan cancellation,the Agency made a lump sum payment to the County in the amount of $4,545,000 and issued a $5,455,000 tax increment bond to the County (the Agency bond).Of the $4,545,000 lump sum payment,$2,000,000 was paid from tax increment revenue and interest earnings accumulated in the Debt Service Fund.The remaining $2,545,000 was funded by a combination of a loan from the General Fund of the City to the Agency for $1,545,000 and a net operating transfer from the Agency's Abalone Cove Capital Projects Fund to the Debt Service Fund of $1,000,000.The private property liens resulting from the formation of the bond assessment district in connection with the Agreement in 1987 were discharged in accordance with the terms of the MOU. The Agency bond was issued as a conduit through the JPIA to the County.No issuance costs were incurred.One hundred percent (100%)of net future tax increment revenue will fund the payment of the Agency bond debt and the deferred interest from the original Loan until paid in full.In December 1997,the County began withholding payment of the Agency's net tax increment revenue (net of the 17%payment to the Consolidated Fire Protection District of the County and the 20% housing set-aside amount)to offset the annual principal and interest charges.The principal of the Agency bond will mature in installments each December 2nd ,commencing December 2,2004. Interest accrues at a rate of 5%per annum and is payable in arrears each June 2nd and December 2nd• Additionally,both the accrued interest and deferred interest on the $10,000,000 Loan previously owed the County was retroactively recalculated from the Loan origination date at a rate of approximately 5%compared to 7.7654%per the original Agreement.The recalculated deferred interest is $3,111,400.In accordance with the MOU,the recalculated deferred interest does not accrue additional interest.As of June 30,2010,a total of$1,975,097 in accumulated tax increment has been applied against this balance,including $354,606 applied during fiscal year 2009-10.The remaining balance at June 30,2010,was $1,136,303.The accumulated amount of tax increment withheld over the scheduled principal and interest payment made during the life of the Agency bond is recorded in the Debt Service Fund as a prepaid item at June 30,2010. See independent auditors'report. 24 RDA D-32 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES (CONTINUED): Tax Increment Bond and Deferred Interest Payable (Continued): After payment of the deferred interest,the Agency may elect to further defer payment to the County for the 50.9%of tax increment revenue in order to extinguish any other indebtedness ofthe Agency.This deferral would allow the tax increment to be available for the repayment of advances made to the Agency by the City. In the event the deferral is elected,and the debt owed the City is fully extinguished and no other Agency indebtedness exists,the Agency will transfer all subsequent tax increment revenue to the County to fund prior deferrals and current payments of the 50.9%of tax increment revenue required to be paid per the Agreement. The debt service schedule below summarizes all fixed principal and interest payments for the term of the Agency bond.Because the payback period for the deferred interest amount will fluctuate depending on the availability of excess tax increment revenues,no amounts have been included in the following schedule for repayment ofthe deferred interest. Year Ending June 30,Principal Interest 2011 $85,000 $260,375 2012 100,000 255,750 2013 120,000 250,250 2014 135,000 243,875 2015·155,000 236,625 2016 -2020 1,145,000 1,033,375 2021-2025 1,900,000 657,500 2026 -2028 1.610,000 125,000 Totals $5.250,000 $3,062,750 Total $345,375 355,750 370,250 378,875 391,625 2,178,375 2,557,500 1.735,000 $8,312,750 See independent auditors'report. 25 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 5.LONG-TERM LIABILITIES (CONTINUED): Tax Increment Bond and Deferred Interest Payable (Continued): After payment of the deferred interest,the Agency may elect to further defer payment to the County for the 50.9%of tax increment revenue in order to extinguish any other indebtedness ofthe Agency.This deferral would allow the tax increment to be available for the repayment of advances made to the Agency by the City. In the event the deferral is elected,and the debt owed the City is fully extinguished and no other Agency indebtedness exists,the Agency will transfer all subsequent tax increment revenue to the County to fund prior deferrals and current payments of the 50.9%of tax increment revenue required to be paid per the Agreement. The debt service schedule below summarizes all fixed principal and interest payments for the term of the Agency bond.Because the payback period for the deferred interest amount will fluctuate depending on the availability of excess tax increment revenues,no amounts have been included in the following schedule for repayment ofthe deferred interest. Year Ending June 30,Principal Interest 2011 $85,000 $260,375 2012 100,000 255,750 2013 120,000 250,250 2014 135,000 243,875 2015·155,000 236,625 2016 -2020 1,145,000 1,033,375 2021-2025 1,900,000 657,500 2026 -2028 1.610,000 125,000 Totals $5.250,000 $3,062,750 Total $345,375 355,750 370,250 378,875 391,625 2,178,375 2,557,500 1.735,000 $8,312,750 See independent auditors'report. 25 RDA D-33 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 6.CONTINGENCIES: There are certain legal actions currently pending against the Agency arising in the normal course of the Agency's operations.In the opinion of management and the Agency's attorney,the ultimate resolution of such actions is not expected to have a significant effect upon the component unit ftnancial statements ofthe Agency. Excess Surplus The Agency's Housing Set-Aside Fund has accumulated excess surplus fund balance as deftned by the California Health and Safety Code.The Agency is required to develop a plan to eliminate the excess surplus within the time frame allowed by the Health and Safety Code.If the Agency does not eliminate the excess surplus in the required time frame,significant penalties could be assessed, including transferring such excess surplus to the County Housing Authority and/or the California Department of Housing and Community Development.In an effort to eliminate the accumulated excess surplus,the Agency has provided ftnancial assistance to AMCAL Mirandela L.P.for development of the affordable senior housing project,as described in Note 3. SERAF Contributions for the Fiscal Years 2009·2010 and2010-2011 ~",,., Pursuant to AB 26 4x,a budget trailer bill,California redevelopment agencies were required to make Supplemental Education Revenue Augmentation Fund (SERAF)contributions totaling $1.7 billion for the fiscal year 2009-2010 and $350 million for the fiscal year 2010·2011.Under AB 26 4x,agencies may borrow a portion of the required contributions from their low and moderate income housing fund.Alternatively,sponsoring governmental agencies (the cities or counties)may elect to pay the SERAF contributions on behalf oftheir redevelopment agencies.On October 20,2009,the California Redevelopment Association filed a class action lawsuit On behalf of all California redevelopment agencies,again challenging the SERAF obligations as unconstitutional.The court ruled that the SERAF obligations were not unconstitutional. The Agency's SERAF contributions for the fiscal year 2009-2010 was $330,125.The Agency utilized its non-housing funds to make the payment. The Agency's SERAF contributions for the fiscal year 2010·2011 will be $67,967. See independent auditors'report. 26 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30,2010 6.CONTINGENCIES: There are certain legal actions currently pending against the Agency arising in the normal course of the Agency's operations.In the opinion of management and the Agency's attorney,the ultimate resolution of such actions is not expected to have a significant effect upon the component unit ftnancial statements ofthe Agency. Excess Surplus The Agency's Housing Set-Aside Fund has accumulated excess surplus fund balance as deftned by the California Health and Safety Code.The Agency is required to develop a plan to eliminate the excess surplus within the time frame allowed by the Health and Safety Code.If the Agency does not eliminate the excess surplus in the required time frame,significant penalties could be assessed, including transferring such excess surplus to the County Housing Authority and/or the California Department of Housing and Community Development.In an effort to eliminate the accumulated excess surplus,the Agency has provided ftnancial assistance to AMCAL Mirandela L.P.for development of the affordable senior housing project,as described in Note 3. SERAF Contributions for the Fiscal Years 2009·2010 and2010-2011 ~",,., Pursuant to AB 26 4x,a budget trailer bill,California redevelopment agencies were required to make Supplemental Education Revenue Augmentation Fund (SERAF)contributions totaling $1.7 billion for the fiscal year 2009-2010 and $350 million for the fiscal year 2010·2011.Under AB 26 4x,agencies may borrow a portion of the required contributions from their low and moderate income housing fund.Alternatively,sponsoring governmental agencies (the cities or counties)may elect to pay the SERAF contributions on behalf oftheir redevelopment agencies.On October 20,2009,the California Redevelopment Association filed a class action lawsuit On behalf of all California redevelopment agencies,again challenging the SERAF obligations as unconstitutional.The court ruled that the SERAF obligations were not unconstitutional. The Agency's SERAF contributions for the fiscal year 2009-2010 was $330,125.The Agency utilized its non-housing funds to make the payment. The Agency's SERAF contributions for the fiscal year 2010·2011 will be $67,967. See independent auditors'report. 26 RDA D-34 REQUIRED SUPPLEMENTARY INFORMATIONREQUIREDSUPPLEMENTARYINFORMATION RDA D-35 This page left blank intentionally.This page left blank intentionally. RDA D-36 RANCHO PALOS VERDES REDEVELOPMENT AGENCY DESCRIPTION OF MAJOR FUND BUDGETARY COMPARISON SCHEDULES June 30,2010 Budgetary comparison schedules are presented as part of the required supplementary information for the Major Special Revenue Funds as provided for by GASB Statement No.34.The Schedules of Revenues,Expenditures and Changes in Fund Balances·Budget and Actual for the remaining major funds are presented to aid in additional analysis and are not a required part of the basic financial statements. See independent auditors'report. 27 RANCHO PALOS VERDES REDEVELOPMENT AGENCY DESCRIPTION OF MAJOR FUND BUDGETARY COMPARISON SCHEDULES June 30,2010 Budgetary comparison schedules are presented as part of the required supplementary information for the Major Special Revenue Funds as provided for by GASB Statement No.34.The Schedules of Revenues,Expenditures and Changes in Fund Balances·Budget and Actual for the remaining major funds are presented to aid in additional analysis and are not a required part of the basic financial statements. See independent auditors'report. 27 RDA D-37 RANCHO PALOS VERDES VERDES REDEVELOPMENT AGENCY BUDGETARY COMPARISON SCHEDULE HOUSING SET-ASIDE SPECIAL REVENUE FUND For the year ended June 30,1010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Tax increment $205,200 $211,700 $215,652 $3,952 Investment income 10,600 10,600 8,303 (2,297) Sale of property 2,990,000 2,990,000 TOTAL REVENUES 215,800 222,300 3,213,955 2,991,655 EXPENDITURES: Cmrent: Community development 919,500 3,599,996 3,856,995 (256,999) EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (703,700)(3,377,696)(643,040)2,734,656 OTHER FlNANClNG SOURCES: Advances received from City ofRancho Palos Verdes 1,766,368 1,774,203 7,835 NET CHANGE IN FUND BALANCE (703,700)(1,611,328)1,131,163 2,742,491 FUND BALANCE -BEGINNING OF YEAR 2,067,751 2,067,751 2,067,751 FUND BALANCE -END OF YEAR $1,364,051 $456,423 $3,198,914 $2,742,491 See independent auditors'report and note to required supplementary information 28 RANCHO PALOS VERDES VERDES REDEVELOPMENT AGENCY BUDGETARY COMPARISON SCHEDULE HOUSING SET-ASIDE SPECIAL REVENUE FUND For the year ended June 30,1010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Tax increment $205,200 $211,700 $215,652 $3,952 Investment income 10,600 10,600 8,303 (2,297) Sale of property 2,990,000 2,990,000 TOTAL REVENUES 215,800 222,300 3,213,955 2,991,655 EXPENDITURES: Cmrent: Community development 919,500 3,599,996 3,856,995 (256,999) EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (703,700)(3,377,696)(643,040)2,734,656 OTHER FlNANClNG SOURCES: Advances received from City ofRancho Palos Verdes 1,766,368 1,774,203 7,835 NET CHANGE IN FUND BALANCE (703,700)(1,611,328)1,131,163 2,742,491 FUND BALANCE -BEGINNING OF YEAR 2,067,751 2,067,751 2,067,751 FUND BALANCE -END OF YEAR $1,364,051 $456,423 $3,198,914 $2,742,491 See independent auditors'report and note to required supplementary information 28 RDA D-38 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30,2010 The Agency adopts an annual budget using the modified-accrual basis of accounting consistent with accounting principles generally accepted in the United States of America.Budgetary controls are established at the function/program level.At year-end,unexpended appropriations lapse. The Agency's Executive Director may transfer budget appropriations between major categories within a fund in conformance with the policies set by the Agency's Board.Any major changes or amendments must be approved by the Agency's Board. See independent auditors'report. 29 RANCHO PALOS VERDES REDEVELOPMENT AGENCY NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30,2010 The Agency adopts an annual budget using the modified-accrual basis of accounting consistent with accounting principles generally accepted in the United States of America.Budgetary controls are established at the function/program level.At year-end,unexpended appropriations lapse. The Agency's Executive Director may transfer budget appropriations between major categories within a fund in conformance with the policies set by the Agency's Board.Any major changes or amendments must be approved by the Agency's Board. See independent auditors'report. 29 RDA D-39 This page left blank intentionally. 30 This page left blank intentionally. 30 RDA D-40 SUPPLEMENTARY INFORMATIONSUPPLEMENTARYINFORMATION RDA D-41 This page left blank intentionally.This page left blank intentionally. RDA D-42 RANCHO PALOS VERDES REDEVELOPMENT AGENCY SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE·BUDGET AND ACTUAL DEBT SERVICE FUND For the year ended June 30,2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Tax increment·$820,900 $846,900 $862,609 $15,709 Investment income 183 183 TOTAL REVENUES 820,900 846,900 862,792 15,892 EXPENDITURES: Current: Administration 16,400 16,400 16,358 42 Pass through to other agencies 174,400 174,400 183,625 (9,225) SERAF payment 330,125 330,125 Debt service: Principal 381,375 381,375 419,606 (38,231) Interest and fiscal charges 1,025,525 1,025,525 885,998 ..,~39,527 TOTAL EXPENDITURES 1,597,700 1,927,825 1,835,712 92,113 EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (776,800)(1,080,925)(972,920)108,005 OTHER FINANCING SOURCES: Advances received from the City ofRancho Palos Verdes 760,400 707,705 (52,695) NET CHANGE IN FUND BALANCE (776,800)(320,525)(265,215)55,310 FUND BALANCE·BEGINNING OF YEAR 603,676 603,676 603,676 FUND BALANCE -END OF YEAR $(173,124)$283,151 $338,461 $55,310 See independent auditors'report. 31 RANCHO PALOS VERDES REDEVELOPMENT AGENCY SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE·BUDGET AND ACTUAL DEBT SERVICE FUND For the year ended June 30,2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Tax increment·$820,900 $846,900 $862,609 $15,709 Investment income 183 183 TOTAL REVENUES 820,900 846,900 862,792 15,892 EXPENDITURES: Current: Administration 16,400 16,400 16,358 42 Pass through to other agencies 174,400 174,400 183,625 (9,225) SERAF payment 330,125 330,125 Debt service: Principal 381,375 381,375 419,606 (38,231) Interest and fiscal charges 1,025,525 1,025,525 885,998 ..,~39,527 TOTAL EXPENDITURES 1,597,700 1,927,825 1,835,712 92,113 EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (776,800)(1,080,925)(972,920)108,005 OTHER FINANCING SOURCES: Advances received from the City ofRancho Palos Verdes 760,400 707,705 (52,695) NET CHANGE IN FUND BALANCE (776,800)(320,525)(265,215)55,310 FUND BALANCE·BEGINNING OF YEAR 603,676 603,676 603,676 FUND BALANCE -END OF YEAR $(173,124)$283,151 $338,461 $55,310 See independent auditors'report. 31 RDA D-43 RANCHO PALOS VERDES REDEVELOPMENT AGENCY SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL ABALONE COVE CAPITAL PROJECTS FUND For the year ended June 30,2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $90 $90 $32 $(58) FUND BALANCE -BEGINNING OF YEAR 6,171 6,171 6,171 FUND BALANCE -END OF YEAR $6,261 $6,261 $6,203 $(58) See independent auditors'report. 32 RANCHO PALOS VERDES REDEVELOPMENT AGENCY SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL ABALONE COVE CAPITAL PROJECTS FUND For the year ended June 30,2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $90 $90 $32 $(58) FUND BALANCE -BEGINNING OF YEAR 6,171 6,171 6,171 FUND BALANCE -END OF YEAR $6,261 $6,261 $6,203 $(58) See independent auditors'report. 32 RDA D-44 RANCHO PALOS VERDES REDEVELOPMENT AGENCY SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL PORTUGUESE BEND CAPITAL PROJECTS FUND For the year ended June 30,2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $7,300 $7,300 $2,837 $(4,463) Other revenues 50,004 50,004 TOTAL REVENUES 7,300 7,300 52,841 45,541 EXPENDITURES: Current: Public works 31,075 32,073 28,078 3,995 EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (23,775)(24,773)24,763 49,536 FUND BALANCE·BEGINNING OF YEAR 541,041 541,041 541,041 FUND BALANCE·END OF YEAR $517,266 $516,268 $565,804 $49,536 See independent auditors'report. 33 RANCHO PALOS VERDES REDEVELOPMENT AGENCY SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL PORTUGUESE BEND CAPITAL PROJECTS FUND For the year ended June 30,2010 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $7,300 $7,300 $2,837 $(4,463) Other revenues 50,004 50,004 TOTAL REVENUES 7,300 7,300 52,841 45,541 EXPENDITURES: Current: Public works 31,075 32,073 28,078 3,995 EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER)EXPENDITURES (23,775)(24,773)24,763 49,536 FUND BALANCE·BEGINNING OF YEAR 541,041 541,041 541,041 FUND BALANCE·END OF YEAR $517,266 $516,268 $565,804 $49,536 See independent auditors'report. 33 RDA D-45 This page left blank intentionally. 34 This page left blank intentionally. 34 RDA D-46 ~DIEHL,EVANS &:COMPANY,LLP~CERTIFIED PUBliC ACCOUNTANTS fir CONSULTANTS A PA1l.TNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK,SUITE 100 IRVINE,CALIFORNIA 92606·5165 (949)399-0600 •FAX (949)399.()610 www·diehleyans.com December 9,2010 MICHAEL R.LUDIN,CPA CRAIG W.SPRAKBR,CPA NITIN P.PATEL,CPA ROBERT I.CALLANAN,CPA "PHILIPHHOLTKAMP,CPA ·THOMAS M.PERLOWSKI,CPA "HA1l.VEY I.SCHROEDER,CPA KBNNETHR.AMES,CPA WlLLlAM C.PENTZ,CPA .AP1IOFIlSSlONAL COlIPORATION INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Agency Board Members Rancho Palos Verdes Redevelopment Agency Rancho Palos Verdes,California We have audited the accompanying financial statements of the governmental activities and each major fund of the Rancho Palos Verdes Redevelopment Agency (the Agency),(a component unit of the City of Rancho Palos Verdes,California)as of and for the year ended June 30,2010,which collectively comprise the Rancho Palos Verdes Redevelopment Agency's basic financial statements and have issued our report thereon dated December 9,2010.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Intemal Control Over Financial Reporting In planning and performing our audit,we considered the Agency's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the Agency's intemal control over financial reporting.Accordingly,we do not express an opinion on the effectiveness of the Agency's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees,in the nonnal course of performing their assigned functions,to prevent,or detect and correct misstatements on a timely basis.A material weakness is a deficiency,or combination of deficiencies,in internal control,such that there is a reasonable possibility that a material misstatement of the Agency's financial statements will not be prevented,or detected and corrected on a timely basis. 35 OTHER OFFICES AT:2965 ROOSEVELT STREET CARLSBAD,CALIFORNIA 92008·2389 (760)729-2343.FAX (760)729·2234 613 W.VALLEY PARKWAY,SUITE 330 ESCONDIDO,CALIFORNIA 9202S-2S98 (760)741-3141e FAX (760)741-9890 ~DIEHL,EVANS &:COMPANY,LLP~CERTIFIED PUBliC ACCOUNTANTS fir CONSULTANTS A PA1l.TNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK,SUITE 100 IRVINE,CALIFORNIA 92606·5165 (949)399-0600 •FAX (949)399.()610 www·diehleyans.com December 9,2010 MICHAEL R.LUDIN,CPA CRAIG W.SPRAKBR,CPA NITIN P.PATEL,CPA ROBERT I.CALLANAN,CPA "PHILIPHHOLTKAMP,CPA ·THOMAS M.PERLOWSKI,CPA "HA1l.VEY I.SCHROEDER,CPA KBNNETHR.AMES,CPA WlLLlAM C.PENTZ,CPA .AP1IOFIlSSlONAL COlIPORATION INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Agency Board Members Rancho Palos Verdes Redevelopment Agency Rancho Palos Verdes,California We have audited the accompanying financial statements of the governmental activities and each major fund of the Rancho Palos Verdes Redevelopment Agency (the Agency),(a component unit of the City of Rancho Palos Verdes,California)as of and for the year ended June 30,2010,which collectively comprise the Rancho Palos Verdes Redevelopment Agency's basic financial statements and have issued our report thereon dated December 9,2010.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Intemal Control Over Financial Reporting In planning and performing our audit,we considered the Agency's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the Agency's intemal control over financial reporting.Accordingly,we do not express an opinion on the effectiveness of the Agency's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees,in the nonnal course of performing their assigned functions,to prevent,or detect and correct misstatements on a timely basis.A material weakness is a deficiency,or combination of deficiencies,in internal control,such that there is a reasonable possibility that a material misstatement of the Agency's financial statements will not be prevented,or detected and corrected on a timely basis. 35 OTHER OFFICES AT:2965 ROOSEVELT STREET CARLSBAD,CALIFORNIA 92008·2389 (760)729-2343.FAX (760)729·2234 613 W.VALLEY PARKWAY,SUITE 330 ESCONDIDO,CALIFORNIA 9202S-2S98 (760)741-3141e FAX (760)741-9890 RDA D-47 Internal Control Over Financial Reporting (Continued) Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies,significant deficiencies or material weaknesses.We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses,as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the basic financial statements of the Agency are free of material misstatements,we performed tests of its compliance with certain provisions of laws,regulations,contracts and grant agreements,noncompliance with which could have a direct and material effect on the determination of financial statement amounts.Such provisions included those provisions of laws and regulations identified in the Guidelines For Compliance Audits of California Redevelopment Agencies,issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplis~g Compliance Audits of California Redevelopment Agencies,issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants.However,providing an opinion on compliance with those provisions was not .an objective of our audit and,accordingly,we do not express such an opinion.The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of the Agency's Board Members,management, others within the entity,and the State Controller's Office,Division ofAccounting and Reporting and is not intended to be and should not be used by anyone other than these specified parties. rlYiR/l/~~~l '#~ 36 Internal Control Over Financial Reporting (Continued) Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies,significant deficiencies or material weaknesses.We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses,as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the basic financial statements of the Agency are free of material misstatements,we performed tests of its compliance with certain provisions of laws,regulations,contracts and grant agreements,noncompliance with which could have a direct and material effect on the determination of financial statement amounts.Such provisions included those provisions of laws and regulations identified in the Guidelines For Compliance Audits of California Redevelopment Agencies,issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplis~g Compliance Audits of California Redevelopment Agencies,issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants.However,providing an opinion on compliance with those provisions was not .an objective of our audit and,accordingly,we do not express such an opinion.The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of the Agency's Board Members,management, others within the entity,and the State Controller's Office,Division ofAccounting and Reporting and is not intended to be and should not be used by anyone other than these specified parties. rlYiR/l/~~~l '#~ 36 RDA D-48