Agenda packet, regular meeting, third session — Banning City Council, August 27, 2024 (part 6 of 6)

Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments.

The most sensitive accounting estimates affecting the financial statements are net pension and total other postemployment benefits (OPEB) liabilities, disclosures, related deferred inflows/outflows of resources, and pension/OPEB expense. These are based on actuarial valuations which include assumptions adopted by CalPERS and the City.
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3 We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole.

Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City’s financial statements relate to:
 Pension liabilities in Note 11 are sensitive to the underlying actuarial assumptions used, including, but not limited to, the investment rate of return and discount rate. As disclosed in Note 11, a 1% increase or decrease in the discount rate has a significant effect on the City’s total pension liabilities.  OPEB liabilities in Note 12 are sensitive to the underlying actuarial assumptions used, including, but not limited to, the investment rate of return, discount rate, and healthcare cost trend rate. As disclosed in Note 12, a 1% increase or decrease in the discount rate or healthcare trend rate has a significant effect on the City’s total OPEB liabilities.

Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit.

Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole. Uncorrected misstatements or matters underlying those uncorrected misstatements could potentially cause future‐ period financial statements to be materially misstated, even though the uncorrected misstatements are immaterial to the financial statements currently under audit.

The attached schedule of corrected misstatements (Attachment I) summarizes misstatements identified as a result of our audit procedures. These misstatements were brought to the attention of, and corrected by, management.

The attached schedule of uncorrected misstatements (Attachment II) summarizes misstatements whose effects in the current and prior periods, as determined by management, are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the financial statements or the auditor’s report. No such disagreements arose during the course of the audit.
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4 Circumstances that Affect the Form and Content of the Auditor’s Report For purposes of this letter, professional standards require that we communicate any circumstances that affect the form and content of our auditor’s report.

As described in our report, we were not engaged as auditors of the City until after June 30, 2023, nor did the City perform a year‐end inventory observation as of June 30, 2023. We were unable to satisfy ourselves by performing other auditing procedures concerning the inventory held at June 30, 2023. As the inventory balances are material to the Banning Utility Authority water fund, electric utility fund, and business‐type activities, our opinion on each of these opinion units is qualified with respect to this matter.

Further, as described in Note 1 to the financial statements, due to the adoption of GASB Statement No. 96, Subscription‐Based Information Technology Agreements, the City restated opening balance as of July 1, 2022.

Additionally, our report included an emphasis of matter relating to the correction of errors as disclosed in Note

18. We have included an emphasis of matter in our report regarding this restatement.

Representations Requested from Management
We have requested certain written representations from management which are included in the management representation letter dated July 31, 2024.

Matters Resulting in Consultation outside the Engagement Team The following significant and relevant matter resulted in consultations outside of our engagement team:

We obtained information on a matter for which the City Council retained an external forensic accounting firm for services to the Electric Utility.

Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating conditions affecting the entity, and operating plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s auditors.

Other Information Included in Annual Reports
Pursuant to professional standards, our responsibility as auditors for other information, whether financial or nonfinancial, included in the City’s annual reports, does not extend beyond the financial information identified in the audit report, and we are not required to perform any procedures to corroborate such other information.
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5 However, in accordance with such standards, we have read the information and considered whether such information, or the manner of its presentation, was materially inconsistent with its presentation in the financial statements.

Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements.

Existence of a Material Misstatement that Affects the Financial Statements of a Prior Period in Which There Was a Predecessor Auditor
We have identified the existence of material misstatements that affect the prior period financial statements on which the predecessor auditor had previously reported without modification. The misstatements are as follows:

A restatement was recorded to the governmental activities, business‐type activities, and electric utility fund beginning net position, as well as general fund balance to remove an advance between the funds that should have been reflected as a transfer. The restatement increased governmental activities net position, decreased business‐type activities and Electric Utility Fund beginning net position, and increased general fund balance by $394,118. The restatement increased prior year change in net position for governmental activities, decreased change in net position for business‐type activities and the electric utility fund, and increased net change in fund balance for the general fund by $394,118.

A restatement was recorded to the governmental activities beginning net position and general fund balance to remove an invalid receivable that had been recognized as revenue in prior years totaling $708,520. An additional restatement was recorded to recognize a refundable developer deposit that had been recognized as revenue in prior years totaling $41,141. The restatement reduced governmental activities beginning net position and general fund balance by $749,661. The restatement reduced prior year change in net position for governmental activities and reduced prior year net change in fund balance for the general fund by $749,661.

A restatement was recorded to governmental activities beginning net position and general fund balance to increase unearned revenue that had been recognized as revenue in prior years. The restatement reduced governmental activities beginning net position and general fund balance by $304,304. The restatement reduced prior year change in net position for governmental activities and reduced prior year net change in fund balance for the general fund by $304,304.

A restatement was recorded to business‐type activities and refuse utility beginning net position to increase unearned revenue that had been recognized as revenue in prior years. The restatement reduced prior year change in net position by $4,275,000.

A restatement was recorded to the governmental activities and private‐purpose trust fund successor agency beginning net position to reduce land held for resale under the successor agency and present it as land under governmental activities. The restatement increased governmental activities net position and decreased private‐ purpose trust fund successor agency beginning net position by $4,675,556. The restatement increased prior year change in net position for governmental activities and decreased prior year change in net position for the private‐purpose trust fund successor agency by $4,675,556. The assets were transferred by approved Council action in Resolutions 2011‐09 and 2021‐99.
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6 A restatement was recorded to the governmental activities and private‐purpose trust fund successor agency beginning net position to transfer capital assets erroneously recognized as successor agency fund capital assets in prior years. The restatement increased governmental activities net position and decreased private‐purpose trust fund successor agency beginning net position by $6,775,155. The restatement increased prior year change in net position for governmental activities and decreased prior year change in net position for the private‐ purpose trust fund successor agency by $6,775,155.

A restatement was recorded to the beginning net position of the business‐type activities in the amount of $853,513, the Banning Utility Authority water fund in the amount of ($19,183), electric utility fund in the amount of $681,456, Banning Utility Authority wastewater fund in the amount of $132,275, and refuse utility fund in the amount of $58,965 to record receivable balances incurred but not recorded in the prior year. The restatement reduced the prior year change in fund balance by $19,183 for the Banning Utility Authority water fund and increased the prior year change in net position by $681,456 for the electric utility fund, by $132,275 for the Banning Utility Authority wastewater fund and by $58,965 for the refuse utility fund.

Group Audit
The financial statements include the financial statements of the Banning Utility Authority and the Banning Wastewater Facilities Corporation, component units of the City, which we considered to be significant components of the financial statements. The financial statements also include the financial statements of the City of Banning Financing Authority and the City of Banning Housing Authority, component units of the City, which we considered to not be significant components of the financial statements.

Consistent with the audit of the group financial statements as a whole, our audit included obtaining an understanding of the component units and their environments, including internal controls, sufficient to assess the risks of material misstatement of the group financial statements of the City and completion of further audit procedures.

This report is intended solely for the information and use of the Mayor and members of the City Council, and management of the City and is not intended to be, and should not be, used by anyone other than these specified parties.

Rancho Cucamonga, California
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CITY OF BANNING ATTACHMENT I

SUMMARY OF CORRECTED MISSTATEMENTS
JUNE 30, 2023
Account Description Debit Credit
001-0000-248.56-00 ADVANCES FROM OTHER FUNDS / ADV FROM ELECTRIC FUND 394,118.00 670-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 394,118.00 001-0000-289.00-00 FUND BALANCE / UNRESERVED, UNDESIGNATED 394,118.00 670-0000-181.01-00 ADVANCES TO OTHER FUNDS / ADVANCE TO GENERAL FUND 394,118.00 Total 788,236.00 788,236.00
670-0000-201.00-00 CURRENT LIABILITIES / VOUCHERS PAYABLE 1,127,951.00 670-0000-107.60-00 CASH ON DEPOSIT / DEPOSIT WITH RPU TRUSTEE 1,127,951.00 Total 1,127,951.00 1,127,951.00
680-0000-122.00-00 LEASE ASSETS / ACCUM AMRTZN-LEASE ASSET 94,598.00 680-0000-170.30-00 FIXED ASSETS / MACHINERY & EQUIPMENT 577,049.00 680-0000-225.10-00 LEASE ASSETS / ROUA-LEASE LIAB-CURRENT 95,275.00 680-0000-231.20-00 LEASE LIABILITY / ROUA-LEASE LIAB-NC 285,824.00 680-8000-454.49-50 BAD DEBT & DEPREC EXPENSE / DEPRECIATION 94,958.00 680-0000-121.45-00 LEASE ASSETS / ROUA-VEHICLES 577,049.00 680-0000-179.10-00 ACCUMULATED DEPRECIATION / ACCUMULATED DEPRECIATION 94,598.00 680-0000-241.01-00 LONG TERM DEBT / FINANCED PURCHASE SHORT-TERM 95,275.00 680-0000-241.20-00 LONG TERM DEBT / FINANCED PURCHASE NC 285,824.00 680-8000-454.66-09 AMORTIZATION / ROUA AMORTIZATION-LEASE 94,958.00 Total 1,147,704.00 1,147,704.00
850-0000-281.00-00 FUND BALANCE / RESERVED 4,675,556.00 950-0000-170.10-00 FIXED ASSETS / LAND 4,675,556.00
850-0000-131.20-00 INVENTORY / LAND HELD FOR RESALE 4,675,556.00 950-0000-278.00-00 RETAINED EARNINGS / NET INVEST IN FIXED ASSET 4,675,556.00 Total 9,351,112.00 9,351,112.00
660-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 19,183.00 670-0000-112.00-00 RECEIVABLES / ACCOUNTS RECEIVABLE 681,453.00 680-0000-112.00-00 RECEIVABLES / ACCOUNTS RECEIVABLE 132,275.00 690-0000-112.00-00 RECEIVABLES / ACCOUNTS RECEIVABLE 58,965.00 660-0000-112.00-00 RECEIVABLES / ACCOUNTS RECEIVABLE 19,183.00 670-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 681,453.00 680-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 132,275.00 690-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 58,965.00 Total 891,876.00 891,876.00
110-2200-421.90-54 CAPITAL EXPENDITURES - SBITA 106,550.00 110-2200-421.63-11 DEBT SERVICE PROCEEDS - SBITA 106,550.00 Total 106,550.00 106,550.00
001-2200-421.90-55 CAPITAL EXPENDITURES - LEASES 361,506.00 451-2200-421.90-55 CAPITAL EXPENDITURES - LEASES 762,007.00 001-2200-421.63-12 DEBT SERVICE PROCEEDS - LEASES 361,506.00 451-2200-421.63-12 DEBT SERVICE PROCEEDS - LEASES 762,007.00 Total 1,123,513.00 1,123,513.00
Adjusting Journal Entries
Adjusting Journal Entries JE # 1
Prior period adjustment to remove an advance between the General and Electric Funds.

Adjusting Journal Entries JE # 5
Prior period adjustment to adjust utility A/R to agree to CIS (Utility Billing) reports.

Adjusting Journal Entries JE # 6
To record SBITA proceeds and capital outlay expenditures.

Adjusting Journal Entries JE # 2
To remove the cash in transit at 6/30 recorded in the Electric Fund Adjusting Journal Entries JE # 3
To reclassify the Unit 902 Vactor Truck from leased assets/liabilities to capital assets/long-term debt.

Prior period adjustment to transfer land from successor agency to govt wide.

Adjusting Journal Entries JE # 4
Adjusting Journal Entries JE # 7
To record lease proceeds and capital outlay expenditures. 1 of 3
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690-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 4,275,000.00 690-0000-237.00-00 NON-CURRENT LIABILITIES / UNEARNED REVENUE-OPER 4,275,000.00 Total 4,275,000.00 4,275,000.00
690-0000-237.00-00 NON-CURRENT LIABILITIES / UNEARNED REVENUE-OPER 225,000.00 690-9600-356.38-95 UTILITY FUNDS / FRANCHISE FEE 225,000.00 Total 225,000.00 225,000.00
002-2800-361.41-02 SUNDRY CHARGES/SPC PRGRMS / MISC REIMBURSEMENTS 28,696.00 002-0000-238.00-00 NON-CURRENT LIABILITIES / UNAVAIL REVENUE-OPERATG 28,696.00 Total 28,696.00 28,696.00
002-0000-289.00-00 FUND BALANCE / UNRESERVED, UNDESIGNATED 708,520.00 002-0000-289.00-00 FUND BALANCE / UNRESERVED, UNDESIGNATED 41,141.00 002-2800-361.41-02 SUNDRY CHARGES/SPC PRGRMS / MISC REIMBURSEMENTS 219,498.00 002-0000-112.29-00 ACCOUNTS RECEIVABLE / PARDEE 489,467.00 002-0000-112.29-00 ACCOUNTS RECEIVABLE / PARDEE 219,498.00 002-0000-222.30-03 REFUNDABLE DEVELOEPR DPS / PARDEE HOMES-DEUTSCH SP 41,141.00 002-0000-238.00-00 NON-CURRENT LIABILITIES / UNAVAIL REVENUE-OPERATG 219,053.00 Total 969,159.00 969,159.00
001-2200-341.31-42 REVENUE FROM STATE / PACT AB 109 177,223.00 001-0000-238.00-00 NON-CURRENT LIABILITIES / UNAVAIL REVENUE-OPERATG 177,223.00 Total 177,223.00 177,223.00
001-1800-412.49-01 BAD DEBT & DEPREC EXP / BAD DEBT EXPENSE 93,436.00 001-0000-113.00-00 RECEIVABLES / ALLOW FOR DOUBTFUL ACCTS 93,436.00 Total 93,436.00 93,436.00
830-0000-281.00-00 FUND BALANCE / RESERVED 89.00
850-0000-281.00-00 FUND BALANCE / RESERVED 5,425.00
830-9200-490.42-50 SUNDRY CHARGES/SPC PRGRMS / MISCELLANEOUS EXPENSE 89.00 850-9200-490.42-50 SUNDRY CHARGES/SPC PRGRMS / MISCELLANEOUS EXPENSE 5,425.00 Total 5,514.00 5,514.00
700-5300-480.41-38 PERMA TRUST 790,000.00
700-0000-201.05-00 ACCRUAL FOR GROUP 790,000.00
Total 790,000.00 790,000.00
700-5300-480.41-38 PERMA TRUST 66,000.00
700-0000-201.05-00 ACCRUAL FOR GROUP 66,000.00
Total 66,000.00 66,000.00
001-0000-289.00-00 FUND BALANCE / UNRESERVED, UNDESIGNATED 304,304.00 001-3000-351.35-61 CHARGES FOR CURRENT SVC / CONSULTANT PLAN CK REV 141,753.00 001-3000-351.35-61 CHARGES FOR CURRENT SVC / CONSULTANT PLAN CK REV 162,551.00 Total 304,304.00 304,304.00
Adjusting Journal Entries JE # 9
Adjusting Journal Entries JE # 10
To reclassify Pardee unavailable revenue out of revenue.

Adjusting Journal Entries JE # 11
Adjusting Journal Entries JE # 8
To record CY franchise fee revenue per Waste Management agreement.

Prior period adjustment to record refuse franchise fee unearned revenue.

Adjusting Journal Entries JE # 13
To increase general fund allowance for aged activity.

Adjusting Journal Entries JE # 15
Prior period adjustment to correct Pardee A/R to actual.

Adjusting Journal Entries JE # 12
Adjusting Journal Entries JE # 14
To correct prior period adjustment to transfer assets from successor agency to govt'l activities.

To reclassify PACT AB109 revenue as unavailable.

Adjusting Journal Entries JE # 17
Prior period adjustment for plan check fees received in FY22 that pertained to work performed in FY23.

To accrue Fisher settlement to PERMA.

Adjusting Journal Entries JE # 16
To accrue the Goebels settlement.
2 of 3
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001-0001-302.11-09 SALES & USE TAXES / CANNABIS 476,805.00 001-0000-238.00-00 NON-CURRENT LIABILITIES / UNAVAIL REVENUE-OPERATG 476,805.00 Total 476,805.00 476,805.00
Adjusting Journal Entries JE # 18
To adjust the cannabis sales & use taxes revenue for the portion received after the period of availability. 3 of 3
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CITY OF BANNING ATTACHMENT II

SUMMARY OF UNCORRECTED MISSTATEMENTS
JUNE 30, 2023
EXPENSES/ (3)

DEFERRED LIABIL- DEFERRED EXPEND- OFS/OFU & CHANGE IN BEGINNING ENDING

ASSETS OUTFLOWS ITIES INFLOWS REVENUE ITURES TRANSFERS FB/NP FB/NP FB/NP GENERAL FUND:

PY REVERSING ENTRIES
To record unavailable revenue (42,023) (42,023) 42,023 -

CY ENTRIES
Payroll Liabilities - Medical Insurance Payable Reclass to P 84,592 (84,592) - - Total General Fund 84,592 - (84,592) - (42,023) - - (42,023) 42,023 - MAJOR FUND: Banning Utility Authority Water

PY REVERSING ENTRIES
To adjust inventory to physical count 84,790 84,790 (84,790) - Total - - - - 84,790 - - 84,790 (84,790) -

AGGREGATE REMAINING FUNDS

PY REVERSING ENTRIES
To record unavailable revenue (88,348) (88,348) 88,348 -

CY ENTRIES
(273,396) (273,396) 273,396 -
Recyclist SBITA 64,955 (46,305) 18,650 18,650 18,650
Billed/unbilled legal fees - RWG (83,407) 83,407 83,407 83,407 Total 64,955 - (129,712) - (361,744) 102,057 - (259,687) 361,744 102,057 Government-Wide: Governmental Activities

PY REVERSING ENTRIES
To record unavailable revenue (130,371) (130,371) 130,371 -

CY ENTRIES
Deferred Outflows - OPEB (137,624) 137,624 137,624 137,624 Payroll Liabilities - Medical Insurance Payable Reclass to P 84,592 (84,592) - - Right to Use Lease Liability 361,506 361,506 361,506 361,506 Billed/unbilled legal fees - RWG (83,407) 83,407 83,407 83,407 Total Governmental Activities 84,592 (137,624) 193,507 - (130,371) 582,537 - 452,166 130,371 582,537 Government-Wide: Business-type Activities

PY REVERSING ENTRIES
To adjust inventory to physical count 84,790 84,790 (84,790) -

CY ENTRIES
(273,396) (273,396) 273,396 -
Recyclist SBITA 64,955 (46,305) 18,650 18,650 18,650
Total Business-type Activities 64,955 - (46,305) - (188,606) 18,650 - (169,956) 188,606 18,650

BALANCE SHEET
(Includes nonmajor governmental and enterprise funds, internal service fund type, and fiduciary funds)

CHANGE IN FB/NP
Prior period adjustment for Transit Unearned Revenue
Prior period adjustment for Transit Unearned Revenue
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eidebailly.com
Management Letter
For Fiscal Year Ended June 30, 2023
City of Banning, California
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10681 Foothill Blvd., Ste. 300 | Rancho Cucamonga, CA 91730-3831 | T 909.466.4410 | F 909.466.4431 | EOE 1 To the Honorable Mayor and Members of the City Council City of Banning, California
In planning and performing our audit of the financial statements of the City of Banning, California (the City) as of and for the year ended June 30, 2023, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

During our audit we became aware of deficiencies in internal control other than significant deficiencies and material weaknesses that are opportunities for strengthening internal controls and operating efficiency. The observations and recommendations are summarized below. This letter does not affect our report dated July 31, 2024, on the financial statements of the City.

We will review the status of these comments during our next audit engagement. We have already discussed these comments and suggestions with various City personnel, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations.

CURRENT YEAR OBSERVATIONS AND RECOMMENDATIONS
Whistleblower Hotline
Observation:

From our inquiries regarding the City’s internal control, not all employees that were interviewed were aware of the whistleblower hotline.

Recommendation:

We recommend that the City revisit its procedures and awareness communications regarding the City’s whistleblower hotline.

Management’s Response:

The City’s Whistleblower Hotline number is posted in all breakrooms in all city facilities. Additionally, it is provided to new employees in the Employee Assistance Program (EAP) information upon hire and annually as a part of the benefits enrollment process. Human Resources will also send out an email to all staff to ensure everyone is aware of the hotline.
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2 ****************************************
Our audit procedures are designed primarily to enable us to form an opinion on the financial statements, and therefore, may not bring to light all weaknesses in policies or procedures that may exist. We aim, however, to use our knowledge of the City gained during our work to make comments and suggestions that we hope will be useful to you.

We would be pleased to discuss these comments and recommendations with you at any time.

This report is intended solely for the information and use of management of the City, and others within the City and is not intended to be and should not be used by anyone other than these specified parties.

Rancho Cucamonga, California
July 31, 2024
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eidebailly.com
Federal Awards Reports in Accordance
with the Uniform Guidance
June 30, 2023
City of Banning, California
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City of Banning, California
Table of Contents
June 30, 2023
Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .......................................................................................................................... 1 Independent Auditor’s Report on Compliance for the Major Federal Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance ............................................................................................................................................... 3 Schedule of Expenditures of Federal Awards ....................................................................................................... 7 Notes to Schedule of Expenditures of Federal Awards ......................................................................................... 8 Schedule of Findings and Questioned Costs
Section I - Summary of Auditor’s Results .......................................................................................................... 9 Section II - Financial Statement Findings .........................................................................................................10 Section III - Federal Award Findings and Questioned Costs ..............................................................................17 Summary Schedule of Prior Audit Findings..........................................................................................................20 1352
What inspires you, inspires us. | eidebailly.com
10681 Foothill Blvd., Ste. 300 | Rancho Cucamonga, CA 91730-3831 | T 909.466.4410 | F 909.466.4431 | EOE 1 Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
City Council
City of Banning
Banning, California
We have audited, in accordance with the auditing standards generally accepted the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Banning (City) as of and for the year ended June 30, 2023, and the related notes to the financial statements which collectively comprise the City’s basic financial statements, and have issued our report thereon dated July 31, 2024. Our report qualified the opinion on the Banning Utility Authority Water Fund, Electric Utility Fund, and Business-Type Activities because management had not engaged Eide Bailly LLP as of June 30, 2023. As such, we could not perform inventory observations. Additionally, the City did not perform a year-end inventory observation. Our report also included emphasis of matter paragraphs regarding the City’s adoption of Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription-Based Information Technology Arrangements, effective July 1, 2022 and restatement of beginning net position/fund balance for the correction of errors.

Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control.

Accordingly, we do not express an opinion on the effectiveness of the City's internal control.

Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies.
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2 A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying Schedule of Findings and Questioned Costs as items 2023-001 through 2023-003 to be material weaknesses.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying Schedule of Findings and Questioned Costs as items 2023-004 and 2023-005 to be significant deficiencies.

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. 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.

City’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the City’s response to the findings identified in our audit and described in the accompanying Schedule of Findings and Questioned Costs. The City’s response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response.

Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Rancho Cucamonga, California
July 31, 2024
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10681 Foothill Blvd., Ste. 300 | Rancho Cucamonga, CA 91730-3831 | T 909.466.4410 | F 909.466.4431 | EOE 3 Independent Auditor’s Report on Compliance for the Major Federal Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance
City Council
City of Banning
Banning, California
Report on Compliance for the Major Federal Program
Opinion on the Major Federal Program
We have audited the City of Banning’s (City) compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended June 30, 2023. The City’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

In our opinion, the City compiled, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2023.

Basis for Opinion on the Major Federal Program
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards); and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Guidance are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for the major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above.

Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules and provisions of contracts or grant agreements applicable to the City’s federal program.
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4 Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material, if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements of the major federal program as a whole.

In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances.
• Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit.

Other Matters
The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item 2023-007. Our opinion on the major federal program is not modified with respect to these matters.

Government Auditing Standards requires the auditor to perform limited procedures on the City’s response to the noncompliance finding identified in our compliance audit described in the accompanying schedule of findings and questioned costs. The City’s response was not subjected to the auditing procedures applied in the audit of compliance, and accordingly, we express no opinion on the response.
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5 Report on Internal Control over Compliance
Our consideration of internal control over compliance was for the limited purpose described in the Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. However, as discussed below, we did identify certain deficiencies in internal control over compliance that we consider to be material weaknesses and significant deficiencies.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item 2023-006 to be a material weakness.

A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiencies in internal controls over compliance described in the accompanying schedule of findings and questioned costs as item 2023-007 to be a significant deficiency.

Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed.

Government Auditing Standards requires the auditor to perform limited procedures on the City’s response to the internal control over compliance findings identified in our audit described in the accompanying schedule of findings and questioned costs. The City’s response was not subjected to the other auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated July 31, 2024, which contained qualified and unmodified opinion on those financial statements. Our report included an emphasis of matter paragraph regarding the City’s adoption of Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription-Based Information Technology Arrangements, effective July 1, 2022, and 1357
6 a restatement of beginning net position/fund balance for the correction of errors. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basis financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. 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 basic financial statements. This information has 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 basis financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole.

Rancho Cucamonga, California
July 31, 2024
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See Notes to Schedule of Expenditures of Federal Awards 7 City of Banning, California
Schedule of Expenditures of Federal Awards
Year Ended June 30, 2023
Federal Pass-through
Financial Entity
Assistance Identifying
Listing Number Expenditures
Department of Housing and Urban Development
Community Development Blocks Grant - Entitlement Grants Cluster Community Development Blocks Grant - Entitlement Grants 14.218 5.BN.43-19/5.BN.49-20 $ 4,815 Community Development Blocks Grant - Entitlement Grants 14.218 5.BN.48-20 8,211 Community Development Blocks Grant - Entitlement Grants 14.218 5.BN.57-22 10,000 Community Development Blocks Grant - Entitlement Grants Cluster Subtotal 23,026 COVID-19 Emergency Solutions Grant Program 14.231 E-20-UW-06-0506 333,596 Total Department of Housing and Urban Development 356,622 Department of Interior
Direct Assistance
WaterSMART (Sustain and Manage America Resources for Tomorrow) 15.507 R21AP10083-00 37,494 Total Department of Interior 37,494
Department of Justice
Direct Assistance
Coronavirus Emergency Supplemental Funding 16.034 2020-VD-BX-1690 1,188 Passed-through the County of Riverside Sheriff Department Edward Bryne Memorial Justice Assistance Grant Program - 2021 Bryne Grant 16.738 15PBJA-21-GG-01181-JAGX 9,227 Total Department of Justice 10,415
Federal Aviation Administration
Direct Assistance
Airport Improvement Program
COVID-19 Airport Improvement Program 20.106 3-06-0018-019-2021 23,484 Total Federal Aviation Administration 23,484
Department of Transportation
Passed-through CalTrans
Highway Planning and Construction
San Gorgonio Union Pacific Rail Road Pedestrian (UPRR) Improvement Project 20.205 STPLR-7500(288) 29,385 Total Department of Transportation 29,385
Department of Treasury
Direct Assistance
COVID-19 Coronavirus State and Local Fiscal Recovery Funds 21.027 752,115 Total Department of Treasury 752,115
$ 1,209,515
Federal Grantor/Pass-Through
Grantor/Program or Cluster Title
Total Federal Financial Assistance
Passed-through the County of Riverside Economic Development Agency 1359
8 City of Banning, California
Notes to Schedule of Expenditures of Federal Awards
Year Ended June 30, 2023
Note 1 - Basis of Presentation
The accompanying schedule of expenditures of federal awards (the schedule) includes the federal award activity of the City of Banning (City) under programs of the federal government for the year ended June 30, 2023. The information is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position, or cash flows of the City.

Note 2 - Summary of Significant Accounting Policies
Expenditures reported in the schedule are reported on the modified accrual basis of accounting for governmental funds and the accrual basis for proprietary funds, as described in Note 1 of the City’s financial statements. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. No federal financial assistance has been provided to a subrecipient.

Note 3 - Indirect Cost Rate
The City has elected not to use the 10% de minimis indirect cost rate allowed under the Uniform Guidance. 1360
9 City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
Section I – Summary of Auditor’s Results

FINANCIAL STATEMENTS
Type of auditor's report issued Qualified for:

Banning Utility Authority Water Fund
Electric Utility Fund
Business-Type Activities
Unmodified for all other opinion units
Internal control over financial reporting:

Material weaknesses identified Yes
Significant deficiencies identified not considered
to be material weaknesses Yes
Noncompliance material to financial statements noted? No

FEDERAL AWARDS
Internal control over major program:

Material weaknesses identified Yes
Significant deficiencies identified not considered
to be material weaknesses Yes
Type of auditor's report issued on compliance
for major programs: Unmodified
Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance 2 CFR 200.516: Yes
Identification of major programs:

Federal Financial Assistance Listing
COVID-19 Coronavirus State and Local Fiscal
Recovery Funds 21.027
Dollar threshold used to distinguish between type A
and type B programs: $750,000
Auditee qualified as low-risk auditee? No
Name of Federal Program
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10 City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
Section II – Financial Statement Findings
2023-001 Internal Controls over the Financial Reporting Process and Year-End Closing Process Type of Finding: Material Weakness
Criteria:

Management is responsible for the preparation and fair presentation of the financial statements. Management is responsible for ensuring that all financial records and related information is reliable and properly recorded. This requires management to perform a year-end closing process to accumulate, reconcile and summarize information for inclusion in the annual financial statements. Management is responsible for timely billing and collection of receivables.

Management is responsible for reporting revenue as it is earned and available, where appropriate.

Condition:

During the audit, we identified adjustments, which were proposed and posted, as follows:
• The Riverside Public Utility cash account and accounts payable were overstated in the amount of $1,127,951 within the electric fund
• Depreciable assets and related liability for a vactor truck within the wastewater fund were reclassified into traditional capital assets and long-term debt out of right-of-use assets and lease liabilities as it was deemed to not qualify as a lease under GASB 87 • Borrowings and capital outlay relating to SBITAs were understated in the amount of $106,550 within the community development block grant fund • Borrowings and capital outlay relating to leases were understated in the amount of $1,123,513 within the general fund and park development fund • Revenue and the unearned liability relating to the refuse franchise fee were overstated in the amount of $225,000
• Revenue was overstated and the unavailable deferred inflow was understated for developer monies received outside of the 60-day availability period totaling $248,194 within the developer deposit fund
• Revenue was overstated and the unavailable deferred inflow was understated for PACT AB109 monies received outside of the 60-day availability period totaling $177,223 within the general fund
• Revenue was overstated and the unavailable deferred inflow was understated for Cannabis sales and use tax monies received outside of the 60-day availability period totaling $476,805 within the general fund
• General fund allowance for doubtful accounts was understated in the amount of $93,436
• Internal service expenses and accrued liabilities were understated within the internal service funds relating to litigation settlements and totaled $85,600 1362
City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
11 Corrections of errors to prior year financial statements were posted, as follows:
• A restatement was recorded to the governmental activities, business-type activities, and electric utility fund beginning net position, as well as general fund balance to remove an advance between the funds that was not properly removed in a prior fiscal year. The restatement increased governmental activities net position, decreased business-type activities and electric utility fund beginning net position, and increased general fund balance by $394,118.
• A restatement was recorded to the governmental activities beginning net position and general fund balance to remove a receivable that had been recognized as revenue in prior years totaling $708,520 and to recognize a developer deposit collected in prior years totaling $41,141. The restatement reduced governmental activities beginning net position and general fund balance by $749,661. The City was aggregating amounts asserted to be billed by third parties but not billed/invoiced. Timely and regular billings did not occur.
• A restatement was recorded to the governmental activities beginning net position and general fund balance to increase unearned revenue that had been recognized as revenue in prior years. The restatement reduced governmental activities beginning net position and general fund balance by $304,304.
• A restatement was recorded to business-type activities and refuse utility beginning net position to increase unearned revenue that had been recognized as revenue in prior years. The restatement reduced business-type and refuse utility fund beginning net position by $4,275,000.
• A restatement was recorded to the governmental activities and private-purpose trust fund successor agency beginning net position to reduce land held for resale under the successor agency and reclassify them as land under governmental activities. The restatement increased governmental activities net position and decreased privatepurpose trust fund successor agency beginning net position by $4,675,556. The assets were transferred by approved Council action in Resolutions 2011-09 and 2021-99. • A restatement was recorded to the governmental activities and private-purpose trust fund successor agency beginning net position to transfer capital assets erroneously recognized as successor agency fund capital assets in prior years. The restatement increased governmental activities net position and decreased private-purpose trust fund successor agency beginning net position by $6,775,155.
• A restatement was recorded to the beginning net position of the business-type activities in the amount of $853,513, the Banning Utility Authority water fund in the amount of ($19,183), electric utility fund in the amount of $681,456, Banning Utility Authority wastewater fund in the amount of $132,275, and refuse utility fund in the amount of $58,965 to record receivable balances incurred but not recorded in the prior year. The restatement reduced the beginning net position by $19,183 for the Banning Utility Authority water fund and increased the beginning net position by $681,456 for the electric utility fund, by $132,275 for the Banning Utility Authority wastewater fund and by $58,965 for the refuse utility fund.
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City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
12 Additionally, instances occurred throughout audit fieldwork where subsidiary listings either could not be generated to support account balances or did not agree to the general ledger. A subsidiary listing could not be generated for accounts payable. Within capital assets, the City reclassified business-type accumulated depreciation balances from prior year audits to agree to subsidiary listings.

During testing of subscription-based information technology arrangements (SBITAs), as part of the implementation of GASB Statement No. 96, two agreements were improperly excluded, resulting in an uncorrected misstatement.

Lease asset and liability figures recorded in the general ledger differed from the related amortization schedules, resulting in an uncorrected misstatement.

The City’s net investment in capital asset calculation erroneously excluded deferred charges, deferred gain on refunding, lease/SBITA activity, and unspent bond proceeds. The calculation erroneously included accrued interest.

Cause:

The City did not consistently maintain year-end closing procedures to ensure that all financial information was accumulated and reconciled timely.

The City did not have an internal control process to bill for services rendered timely.

The City lacked an internal control policy to analyze the completeness and cut-off of revenue to record it when earned and available, as applicable.

The City did not have an internal control process in place to ensure SBITA agreements were reviewed for completeness.

The City did not have an internal control process in place to ensure activity with lease amortization schedules agreed to the general ledger.

Effect:

Journal entries were posted, and adjustments made to the financial statements, in order to fairly present the financial statements.

Timely and regular billings did not occur for services rendered, thus creating aged receivables of more than one fiscal year due from developers.

Revenue accounts, as well as related unearned revenues and deferred inflows of resources were misstated.

Context:

The conditions were noted during our testwork throughout the audit. 1364
City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
13 Recommendation:

We recommend the City implement and/or strengthen its closing policies and procedures to ensure amounts are properly captured, reconciled, classified, reviewed, reported in a timely manner, and agree to subsidiary listings.

The City should pursue billings, and ensure collection, and issue invoices on a timely basis.

We recommend the City implement an internal control process to ensure that all revenue is properly recorded in accordance with generally accepted accounting principles.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 2023-002 Inventory Counts
Type of Finding: Material Weakness
Criteria:

Management is responsible for performing test counts of inventories throughout the year, as necessary, and specifically at year-end.

Condition:

The City did not perform a year-end inventory count.

Cause:

The City did not have an internal control process in place to perform a year-end inventory count.

Effect:

Not performing an annual inventory count could lead to a material misstatement of inventory balances. Further, the opinions were qualified for the Banning Utility Authority Water fund, the Electric Utility fund, and Business-Type Activities. The City had not engaged Eide Bailly as the City’s auditor as of June 30, 2023, and as a result, a year end inventory observation was not performed.

Context:

The conditions were noted during our testwork throughout the audit. 1365
City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
14 Recommendation:

The City should perform inventory counts at year-end, as well as ensuring an auditor is engaged to perform a year-end observation.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 2023-003 Timely Preparation and Review of Bank Reconciliations Type of Finding: Material Weakness
Criteria:

Management is responsible for reconciling and reviewing bank accounts in a timely manner on a monthly basis.

Condition:

The December 2022 General Account bank reconciliation was prepared in May 2023.

Additionally, the June 2023 bank reconciliations, with the exception of the General Account, were reviewed in November 2023.

Cause:

The City did not have monitoring processes in place throughout the year to prepare and review bank reconciliations in a timely manner.

Effect:

Errors could go undetected without a timely preparation and review process.

Context:

The conditions were noted during our testwork throughout the audit.

Recommendation:

Bank reconciliations should be prepared and reviewed timely.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1366
City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
15 2023-004 Contributions Subsequent to Measurement Date – Pension Safety Plan Type of Finding: Significant Deficiency
Criteria:

Management is responsible for reporting employer contributions that agree to amounts paid to CalPERS.

Condition:

The City reported employer contributions to the pension safety plan that were higher than the amount per CalPERS, thus resulting in a passed audit adjustment.

Cause:

The City did not have an internal control process in place to reconcile employer contributions.

Effect:

Deferred outflows of resources and pension expense could be misstated.

Context:

The conditions were noted during our testwork of the City’s pension plans.

Recommendation:

We recommend the City implement an internal control process to reconcile contributions subsequent to year-end to the payments made to CalPERS.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1367
City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
16 2023-005 Utility Customer Account Adjustments
Type of Finding: Significant Deficiency
Criteria:

Management is responsible for monitoring adjustments to utility customer accounts.

Condition:

During the process to gain an understanding of the utility customer accounts, it was noted adjustments to customer accounts can be prepared and posted by the same individual.

Additionally, customer account adjustments are not reviewed.

Cause:

A lack of segregation of duties and review process over utility adjustments allows for potentially unapproved adjustments to customer accounts.

Effect:

The control environment over customer accounts is weakened.

Context:

The conditions were noted during our testwork throughout the audit.

Recommendation:

We recommend the City implement policies and procedures that restrict the same individual from having the ability to adjust customer accounts. Additionally, a process should be implemented to review adjustments to customer accounts on a one-by-one basis, based on certain thresholds, or an aggregate basis.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1368
17 City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
Section III – Federal Award Findings and Questioned Costs 2023-006 Program: COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Financial Assistance Listing Number: 21.027
Federal Grantor: U.S. Department of Treasury
Award No. and Year: 2021
Compliance Requirements: Procurement and Suspension and Debarment Type of Finding: Material Weakness in Internal Control over Compliance Criteria:
2 CFR Section 200.303(a), Internal Controls, states that the non-Federal entity must establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statues, regulations, and the terms and conditions of the Federal award.

Title 2 CFR Section 200.214 of the Uniform Guidance states that the City must comply with 2 CFR part 180, which implements Executive Orders 12549 and 12689. The regulations in 2 CFR part 180 restricts awards, subawards, and contracts with certain parties that are debarred, suspended, or otherwise excluded from or ineligible for participation in Federal assistance programs or activities.

Per 2 CFR Section 180.300, when a non-Federal entity enters into a covered transaction with an entity at a lower tier, the non-Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations, is not suspended or debarred or otherwise excluded from participating in the transaction. This verification may be accomplished by (1) checking the System for Award Management (SAM) Exclusions maintained by the General Service Administration (GSA) and available at https://www.sam.gov/SAM/, (2) collecting a certification from the entity, or (3) adding a clause or condition to the covered transaction with that entity.

Condition:

During our testing of the City’s provisions for procurement requirements under the COVID-19 Coronavirus State and Local Fiscal Recovery Funds, we noted for three (3) of four (4) contracts selecting for testing there was no evidence that the City verified the entity was not suspended or debarred or otherwise excluded from participating in the transaction, prior to entering the contract.
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City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
18 Cause:

The City did not follow their policy to verify the information described in the condition prior to entering the transactions.

Effect:

The City’s control was not consistently followed, which required verification of suspension or debarment prior to entering the contract. Subsequent to entering into the contract, management verified the vendors were not suspended or debarred.

Questioned Costs:

No questioned costs were identified as a result of our procedures.

Context/Sampling:

A nonstatistical sample of four (4) out of twelve (12) procurement contracts were sampled for the COVID-19 Coronavirus State and Local Fiscal Recovery Funds.

Repeat Finding from Prior Year:

No
Recommendation:

We recommend the City adhere to their procurement procedures requiring the suspension or debarment verification is performed prior to entering into a covered transaction.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1370
City of Banning, California
Schedule of Findings and Questioned Costs
Year Ended June 30, 2023
19 2023-007 Program: COVID-19 Coronavirus State and Local Fiscal Recovery Funds Federal Financial Assistance Listing Number: 21.027
Federal Grantor: U.S. Department of Treasury
Award No. and Year: 2021
Compliance Requirement: Allowable Costs/Cost Principles Type of Finding: Significant Deficiency in Internal Control and Instance of Non-Compliance Criteria:

Title 2 CFR Section 200.302(b)(7) of the Uniform Guidance requires all non-Federal entities establish written procedures to implement the requirements for determining the allowability of costs in accordance with Subpart E – Cost Principles or the conditions of the Federal award.

Condition:

The City has not established written procedures for determining allowability of costs in accordance with Subpart E – Cost Principles or the conditions of the Federal award.

Cause:

The City’s procedures did not ensure the required written procedures were developed and implemented in accordance with the Uniform Guidance.

Effect:

The City has not compiled with Title 2 CFR Section 200.302(b)(7) regarding establishing written procedures for determining the allowability of costs.

Questioned Costs:

No questioned costs were identified as a result of our procedures.

Context/Sampling:

The condition above was identified during our procedures related to allowable costs.

Repeat Finding from Prior Year:

No
Recommendation:

We recommend the City establish policies and formalize written procedures related to allowable costs in accordance with Subpart E – Cost Principles.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1371
20 City of Banning, California
Summary Schedule of Prior Audit Findings
Year Ended June 30, 2023
Financial Statement Findings
Finding No. Area
2022-001 Inventory Observation
Status of Corrective Action
Report qualification; see current year finding 2023-002 Federal Awards Findings
None noted.
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eidebailly.com
Financial Statements
June 30, 2023
Banning Utility Authority
(A Component Unit of the City of Banning)
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Banning Utility Authority
Table of Contents
June 30, 2023
Independent Auditor’s Report ............................................................................................................................. 1 Financial Statements
Statement of Net Position ............................................................................................................................... 4 Statement of Revenues, Expenditures and Changes in Net Position ................................................................. 6 Statement of Cash Flows ................................................................................................................................. 7 Notes to Financial Statements ......................................................................................................................... 9 Required Supplementary Information
Schedule of Proportionate Share in Net Pension Liability and Related Ratios ..................................................28 Schedule of Plan Contributions .......................................................................................................................29 Schedule of Proportionate Share in Total OPEB Liability and Related Ratios ....................................................30 Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .........................................................................................................................31 Schedule of Findings and Responses ...............................................................................................................33 1374
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10681 Foothill Blvd., Ste. 300 | Rancho Cucamonga, CA 91730-3831 | T 909.466.4410 | F 909.466.4431 | EOE 1 Independent Auditor’s Report
The Honorable Mayor and Members of the City Council
Banning Utility Authority
City of Banning, California
Report on the Audit of the Financial Statements
Qualified and Unmodified Opinions
We have audited the financial statements of the business-type activities and each major fund of the City of Banning Utility Authority (the Authority), a component unit of the City of Banning, California, as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents.

Qualified Opinion on the Water Fund
In our opinion, except for the effects of the matter described in the Basis for Qualified and Unmodified Opinions section of our report, the accompanying financial statements referred to above present fairly, in all material respects, the respective financial position of the water fund of the Authority as of June 30, 2023, and the changes in financial position and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Unmodified Opinions on the Wastewater Fund and Business-Type Activities In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the wastewater fund and the business-type activities of the Authority, as of June 30, 2023, and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Qualified and Unmodified Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified and unmodified audit opinions. 1375
2 Matter Giving Rise to Qualified Opinion on the Water Fund We were not engaged as auditors of the City until after June 30, 2023, nor did the City perform a yearend inventory observation as of June 30, 2023. We were unable to satisfy ourselves by performing other auditing procedures concerning the inventory held at June 30, 2023. As the inventory balance is material to the water fund, our opinion on this opinion unit is qualified with respect to this matter.

Correction of Errors
As discussed in Note 11 to the financial statements, certain errors resulting in a misstatement of amounts previously reported as of June 30, 2022, were discovered during the current year. Accordingly, a restatement has been made to the water fund, wastewater fund, and business-type activities net position as of July 1, 2022, to correct the errors. Our opinions are not modified with respect to that matter.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Authority’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an 1376
3 opinion on the effectiveness of the Authority’s internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Authority’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that schedules of changes in the net pension liability, schedules of pension contributions, and schedule of changes in the total OPEB liability and related ratios as listed in the table of contents, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Management has omitted the management’s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 31, 2024, on our consideration of the Authority’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Authority’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Authority’s internal control over financial reporting and compliance.

Rancho Cucamonga, California
July 31, 2024
1377
See Notes to Financial Statements. 4
Banning Utility Authority
Statement of Net Position
June 30, 2023
Business-Type
Water Wastewater Activities
Fund Fund Total
Current Assets
Pooled cash and investments $ 28,353,840 $ 20,662,343 $ 49,016,183 Receivables
Accounts, net 2,257,589 956,879 3,214,468
Interest 92,265 71,156 163,421
Grants 1,498,240 - 1,498,240
Prepaid costs 2,625 1,313 3,938
Inventories 802,540 - 802,540
Cash with fiscal agent 126,430 2,732,753 2,859,183
-
Total current assets 33,133,529 24,424,444 57,557,973
Noncurrent Assets
Capital Assets
Capital assets, not being depreciated 5,502,898 1,100,768 6,603,666 Capital assets, net of accumulated depreciation 50,860,126 12,748,916 63,609,042 Right to use lease assets, net of accumulated amortization 228,774 - 228,774 Total noncurrent assets 56,591,798 13,849,684 70,441,482 Total assets 89,725,327 38,274,128 127,999,455
Deferred Outflows of Resources
Deferred charge on refunding 611,975 - 611,975
Deferred pension related items 912,029 351,532 1,263,561 Deferred OPEB related items 21,139 18,713 39,852
Total deferred outflows of resources 1,545,143 370,245 1,915,388 1378
See Notes to Financial Statements. 5
Banning Utility Authority
Statement of Net Position
June 30, 2023
Business-Type
Water Wastewater Activities
Fund Fund Total
Current Liabilities
Accounts payable $ 1,482,164 $ 78,818 $ 1,560,982
Accrued liabilities 46,542 14,600 61,142
Accrued interest 133,885 10,065 143,950
Deposits payable 236,770 58,489 295,259
Compensated absences - due within one year 14,174 1,758 15,932 Long-term liabilities - due within one year 1,278,053 324,312 1,602,365 Total current liabilities 3,191,588 488,042 3,679,630
Noncurrent Liabilities
Net pension liability 3,224,756 1,340,651 4,565,407
Total OPEB liability 107,525 33,797 141,322
Compensated absences - due within on year 222,995 90,378 313,373 Long-term liabilities - due within one year 18,778,514 3,411,787 22,190,301 Total noncurrent liabilities 22,333,790 4,876,613 27,210,403 Total liabilities 25,525,378 5,364,655 30,890,033
Deferred Inflows of Resources
Deferred gain on refunding - 84,621 84,621
Deferred pension related items 49,575 20,610 70,185
Deferred OPEB related items 10,633 26,533 37,166
Total deferred inflows of resources 60,208 131,764 191,972 Net Position
Net investment in capital assets 37,147,206 12,531,687 49,678,893 Restricted for capital projects 126,430 230,030 356,460 Unrestricted 28,411,248 20,386,237 48,797,485
Total net position $ 65,684,884 $ 33,147,954 $ 98,832,838 1379
See Notes to Financial Statements. 6
Banning Utility Authority
Statement of Revenues, Expenditures and Changes in Net Position Year Ended June 30, 2023
Business-Type
Water Wastewater Activities
Fund Fund Total
Operating Revenues
Sales and service charges $ 12,107,023 $ 5,029,168 $ 17,136,191 Miscellaneous 41,664 1 41,665
Total operating revenues 12,148,687 5,029,169 17,177,856 Operating Expenses
Salaries and benefits 2,146,615 872,363 3,018,978
Supplies and services 5,022,056 2,040,325 7,062,381
Repairs and maintenance 79,192 57,784 136,976
Depreciation expense 1,672,805 727,353 2,400,158
Total operating expenses 8,920,668 3,697,825 12,618,493 Operating Income 3,228,019 1,331,344 4,559,363
Nonoperating Revenues (Expenses)
Intergovernmental 1,984,405 - 1,984,405
Interest revenue and change in fair value
of investments 270,365 193,518 463,883
Interest expense (751,722) (57,720) (809,442)
Surplus revenue payment to City of Banning (470,000) (181,000) (651,000) Gain on disposal of capital assets 23,213 - 23,213
Total nonoperating revenues (expenses) 1,056,261 (45,202) 1,011,059 Income Before Contributions and Transfers 4,284,280 1,286,142 5,570,422 Contributions and Transfers
Capital contributions 2,373,208 722,435 3,095,643
Transfers in from the City of Banning 16,174 3,693 19,867 Total contributions and transfers 2,389,382 726,128 3,115,510 Changes in Net Position 6,673,662 2,012,270 8,685,932
Net Position - Beginning of Year 59,030,405 31,003,409 90,033,814 Prior Period Adjustment (19,183) 132,275 113,092
Net Position - Beginning of Year as Restated 59,011,222 31,135,684 90,146,906 Net Position - End of Year $ 65,684,884 $ 33,147,954 $ 98,832,838 1380
See Notes to Financial Statements. 7
Banning Utility Authority
Statement of Cash Flows
Year Ended June 30, 2023
Business-Type
Water Wastewater Activities
Fund Fund Total
Operating Activities
Cash received from customers and users $ 12,087,456 $ 4,799,196 $ 16,886,652 Cash paid to suppliers for goods and services (4,156,978) (2,077,831) (6,234,809) Cash paid to employees for services (2,246,774) (884,129) (3,130,903) Net Cash Provided (Used) by Operating Activities 5,683,704 1,837,236 7,520,940 Noncapital Financing Activities
Contribution from City of Banning 16,174 3,693 19,867
Surplus revenue payment to City of Banning (470,000) (181,000) (651,000) Intergovernmental 505,720 - 505,720
Net Cash Provided (Used) by Noncapital Financing Activities 51,894 (177,307) (125,413) Capital and Related Financing Activities
Acquisition and construction of capital assets (5,300,923) (1,024,950) (6,325,873) Capital contributions 2,373,208 722,435 3,095,643
Principal paid on capital debt (1,226,836) (420,950) (1,647,786) Interest paid on capital debt (837,520) (65,165) (902,685) Proceeds from sales of capital assets 23,213 - 23,213
Net Cash Used by Capital and Related Financing Activities (4,968,858) (788,630) (5,757,488) Investing Activities
Interest received 219,662 154,069 373,731
Net Cash Used by Investing Activities 219,662 154,069 373,731 Net Change in Cash and Cash Equivalents 986,402 1,025,368 2,011,770 Cash and Cash Equivalents - Beginning of Year 27,493,868 22,369,728 49,863,596 Cash and Cash Equivalents - End of Year $ 28,480,270 $ 23,395,096 $ 51,875,366 Reconciliation to the Statement of Net Position
Pooled Cash and Investments $ 28,353,840 $ 20,662,343 $ 49,016,183 Restricted Cash with fiscal agent 126,430 2,732,753 2,859,183 Total Cash and Cash Equivalents $ 28,480,270 $ 23,395,096 $ 51,875,366 1381
See Notes to Financial Statements. 8
Banning Utility Authority
Statement of Cash Flows
Year Ended June 30, 2023
Business-Type
Water Wastewater Activities
Fund Fund Total
Reconciliation of Operating Income to Net
Cash Provided by Operating Activities
Operating Income $ 3,228,019 $ 1,331,344 $ 4,559,363
Adjustments to Reconcile Operating Income to Net Cash
Provided by Operating Activities
Changes in Operating Assets and Liabilities
Depreciation expense 1,672,805 727,353 2,400,158
(Increase) Decrease in Assets and Deferred Outflow of Resources Accounts receivable (178,271) (228,660) (406,931)
Prepaid expense (2,625) (1,313) (3,938)
Inventories 119,665 - 119,665
Deferred pension related items (539,047) (196,469) (735,516) Deferred OPEB related items (17,338) (17,133) (34,471)
Increase (Decrease) in Liabilities
Accounts payable 908,740 17,523 926,263
Accrued liabilities 14,297 2,617 16,914
Deposits payable 21,233 138 21,371
Net pension liability 1,096,987 456,058 1,553,045
Total OPEB liability (12,425) (16,071) (28,496)
Compensated absences 16,911 7,990 24,901
Deferred pension related items (655,880) (272,674) (928,554) Deferred OPEB related items 10,633 26,533 37,166
Net Cash Provided by Operating Activities $ 5,683,704 $ 1,837,236 $ 7,520,940 Supplemental Disclosures of Noncash Investing
And Financing Activity
Financed purchase of capital asset with long-term debt $ - $ 577,049 $ 577,049 Amortization of Unamortized Premiums/Discounts 125,339 - - Amortization of Gain/Loss on Defeasance $ (48,958) $ 6,770 $ - 1382
9 Banning Utility Authority
Notes to Financial Statements
June 30, 2023
Note 1 - Summary of Significant Accounting Policies
A. Description of the Reporting Entity
The Banning Utility Authority (Authority) is a joint powers authority which was established on June 1, 2005 pursuant to a Joint Exercise of Powers Agreement between the City of Banning and the Redevelopment Agency of the City of Banning in accordance with the Joint Powers Law (Article 1 through 4 of Chapter 5, division 7, title 1 of the California Government code) for the purpose of assisting the City in the leasing of the utility system. The Banning Redevelopment Agency was dissolved as of January 31, 2012, through the Supreme Court decision on Assemble Bill 1X26. The City services as the Successor Agency to the Redevelopment Agency of the City of Banning. The Authority’s Officers are the Banning City Council. The Authority is a separate legal entity, which is financially accountable to the City of Banning. It is considered a component unit of the City and, accordingly, is included in the Annual Comprehensive Financial Report of the City of Banning.

The Authority consists of the Water Fund and the Wastewater Fund. These funds account for the operations of the Water and Wastewater utilities, respectively. Both funds render services on a user charge basis to residents and businesses located within the City of Banning. The City issued its Basic Financial Statement under a separate cover and are available at City Hall.

B. Basis of Accounting/Measurement Focus
The accounts of the Authority are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenses, as appropriate.

Propriety Fund financial statements include a statement of net position, a statement of revenues, expenses and changes in fund net position, and a statement of cash flows for the water and wastewater funds and businesstype activities as a whole.

Propriety Funds are accounted for using the economic resources measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the statement of net position. The statement of revenues, expenses and changes in fund net position presents increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred.

Operating Revenues in the proprietary funds are those revenues that are generally from the primary operations of the fund. All other revenues are reported as nonoperating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses.
1383
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
10 C. Net Position Flow Assumption
Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grand proceeds) and unrested resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied.

D. Cash and Investments
The Authority’s cash and investments are governed by and in compliance with the California Government Code.

Cash and investments are held in the City’s investment pool. Therefore, for purposes of the statement of cash flows, the Authority considers the entire pooled amount to be cash and cash equivalents.

The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure fair value:

Level 1 inputs are quoted prices in active markets for identical assets, Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

E. Unbilled Services Receivables
Utility revenue is recorded when earned. Customers are billed monthly. The estimated value of services provided, but unbilled, at year-end has been included in the accompanying financial statements.

F. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

G. Inventories and Prepaid Items
Inventory is valued at cost using the first in, first out method. Inventory in the Proprietary Funds consists of expandable supplies held for future consumption or capitalization. The cost is recorded as an expense when inventory items are consumed. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items.
1384
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
11 H. Capital Assets
The Authority’s assets are capitalized at historical cost or estimated historical cost. The Authority follows the City policy, which has set the capitalization threshold for reporting capital assets at $5,000 (amount not rounded) and an estimated useful life in excess of two years. Gifts or contributions of capital assets are recorded at acquisition value. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows:

Utility Plant 20 to 60 Years
Land Improvements 15 to 25 Years
Machinery and Equipment 3 to 25 Years
Right to use lease assets with an initial, individual cost of more than $25,000 ($5,000 in prior years) are recognized at the lease commencement date and represent the City’s right to use an underlying asset for the lease term. Right to use lease assets are measured at the initial value of the lease liability plus any payments made to the lessor before commencement of the lease term, less any lease incentives received from the lessor at or before the commencement of the lease term, plus any initial direct costs necessary to place the lease asset into service. Right to use lease assets are amortized over the shorter of the lease term or useful life of the underlying asset using the straight-line method. The amortization period varies from 3 to 5 years.

I. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The Authority currently has two items that qualify for reporting in this category.

The first item is the deferred charge on refunding. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. The amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. The second item relates to the deferred outflows from changes in net position liability and total OPEB liability. Specifically, changes to deferred outflows related to the net difference in projected and actual earnings on plan investments, change in assumptions, and contributions subsequent to the measurement date.

In additions to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. The separate financial statement element, deferred inflows of resources, represent an acquisition of net assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has one item that qualifies for reporting in this category. It is the deferred inflows from changes in net pension liability and total OPEB liability. Specifically, changes to deferred inflows related to the difference between expected and actual experience. 1385
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
12 J. Net Pension Liability
For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the pension plans fiduciary net positions and additions to/deductions from the pension plans fiduciary net positions have been determined on the same basis as they are reported by the CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

Note 2 - Cash and Investments
The Authority’s cash is pooled with City funds for investment purposes, with interest being allocated on the basis of the Authority’s overall percentage of participation. Investment policies and associated risk factors applicable to the Authority’s funds are those of the City and are included in the City’s financial statements. As of June 30, 2023, cash and investments of the Authority was as follows:

Cash and investments, pooled with the City of Banning $ 49,016,183 Restricted Cash and Investments
Cash with Fiscal Agents - Money Market Mutual Funds 2,859,183 Total cash and investments $ 51,875,366
Cash and Investments with Fiscal Agents
The Authority has funds held by a trustee/fiscal agent pledged for the payment or security of certain bonds. The California Government Code provides these funds, in the absence of specific statutory provisions governing the issuance of bonds, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments its trustees or fiscal agents may make. These ordinances, resolutions, and indentures are generally more restrictive than the Authority's general investment policy. In no instance have additional types of investments, not permitted by the Authority's general investment policy, been authorized.

See the City of Banning’s Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2023 for further disclosure regarding the pooled cash and investments and related risks.

Equity in the Cash and Investment Pool of the City of Banning The Authority has no separate bank accounts or investments other than the Authority's equity in the cash and investment pool managed by the City. The Authority is a voluntary participant in that pool. This pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City. The Authority has not adopted an investment policy separate from that of the City. The fair value of the Authority's investment in this pool is reported in the accompanying financial statements at amounts based upon the Authority's pro-rata share of the fair value calculated by the City for the entire City portfolio. The balance available for withdrawal is based on the accounting records maintained by the City, which are recorded on an amortized cost basis. The City’s investment pool is not registered with the Securities and Exchange Commission and is not rated.
1386
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
13 Investments
Under provision of the City’s investment policy, the City is authorized to invest in investments allowed by Government Code of the State of California. From these permitted investments, the City’s investment officials shall determine those investment types that best meet the needs and abilities of the City. Maximum maturity period for any portion of invested operating moneys shall not exceed five years per California Government Code.

Investments Authorized by Debt Agreements
The above investments do not address investment of debt proceeds held by a bond trustee. Investments of debt proceeds held by a bond trustee are governed by provisions of the debt agreements rather than the general provisions of the California Government Code or the City’s investment policy.

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. Presented below is the minimum rating required by (where applicable) the California Government Code, the City’s investment policy, or debt agreements, and the actual Standard & Poor’s rating as of year-end for each investment type.

As of June 30, 2023, the Authority does not have any investments that are subject to this disclosure since both the City’s pool and the Authority’s cash with fiscal agent are unrated.

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 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 Authority'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 deposit 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 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure Authority deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits.

For the investments held by bond trustee, the bond trustee selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government.
1387
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
14 Concentration of Credit Risk
The City is in compliance with restrictions imposed by its investment policy, which limits certain types of investments. In addition, GASB Statement No. 40 requires a separate disclosure if any single issuer comprised more than 5% of the total investment value. The investments issued or explicitly guaranteed by the US government and investments in mutual money market funds and external investment pools are excluded from this requirement. Within the City’s investment pool there are federal agency securities with Federal Home Loan Bank that represent more than 5% of total investment value. See the City’s ACFR for further, detailed disclosures regarding concentration of credit risk.

Interest Rate Risk
The City’s investment policy limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The City has elected to use the segmented time distribution method of disclosure for its interest rate risk. As of June 30, 2023, the City’s investment pool had a weighted average maturity of 1.98 years and the Authority’s money market mutual funds held by fiscal agent had a maturity of one year or less.

Fair Value Measurement and Application
The City categorizes its fair value measurements within the fair value hierarchy established by U.S. GAAP. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The Authority’s pro-rata share of investments in the City’s investment pool at June 30, 2023, are uncategorized and measured at $1.

Note 3 - Receivables
As of June 30, 2023, the Authority had $3,214,468 in accounts receivable. Receivables are reported net of allowance for doubtful accounts, which were established based on current collection experience. Allowances for doubtful accounts were $530,204 for the Water Fund and $194,643 for the Wastewater Fund. 1388
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
15 Note 4 - Changes in Capital Assets
Capital Assets of the Authority for the year ended June 30, 2023, consisted of the following:

Beginning Transfers/ Ending
Balance Increases Decreases Adjustments Balance
Capital Assets Not Being Depreciated
Land $ 3,343,377 $ 252,193 $ - $ - $ 3,595,570
Construction in progress 4,173,539 1,114,971 - (2,280,414) 3,008,096 Total capital assets not
being depreciated 7,516,916 1,367,164 - (2,280,414) 6,603,666 Capital Assets Being Depreciated
Buildings and Structures - - - 124,070 124,070
Land improvements 18,430 - - 2,621,660 2,640,090
Machinery and equipment 625,563 1,675,412 (111,801) 3,134,585 5,323,759 Utility plant 112,066,407 3,860,346 - (3,571,097) 112,355,656 Total capital assets being
depreciated 112,710,400 5,535,758 (111,801) 2,309,218 120,443,575 Less Accumulated Depreciation
Land improvements 1,075 130,452 - - 131,527
Machinery and equipment 138,271 345,625 (111,801) 123,401 495,496 Utility plant 54,457,247 1,750,263 - - 56,207,510
Total accumulated depreciation 54,596,593 2,226,340 (111,801) 123,401 56,834,533 Total capital assets being
depreciated, net 58,113,807 3,309,418 - 2,185,817 63,609,042 Right to Use Lease Assets Being
Amortized
Machinery and Equipment 8,573 - - - 8,573
Vehicles 378,642 - - - 378,642
Total Right to Use Lease
Assets being Amortized 387,215 - - - 387,215
Less Accumulated Amortization
for Right to Use Lease Assets 79,220 173,818 - (94,597) 158,441 Right to Use Lease Assets,
being amortized, net 307,995 (173,818) - 94,597 228,774 Business-Type Activities
Capital Assets, Net $ 65,938,718 $ 4,502,764 $ - $ - $ 70,441,482 Depreciation/amortization expense was charged to business-type activities as follows:

Banning Utility Authority Water $ 1,672,805
Banning Utility Authority Wastewater 727,353
Total depreciation/amortization expense -
business-type activities $ 2,400,158
1389
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
16 Note 5 - Long Term-Debt
The following is a summary of the changes in long-term debt for the fiscal year ended June 30, 2023:

Beginning Ending Due Within
Balance Incurred Retired Balance One Year
Direct Borrowing
Lease Liability $ 291,670 $ - $ 96,836 $ 194,834 $ 93,053 Financed Purchase - 577,049 195,950 381,099 94,312
Bonds Payable
2015 Water Revenue Bond 19,425,000 - 1,130,000 18,295,000 1,185,000 2019 Wastewater Refunding Bond 3,580,000 - 225,000 3,355,000 230,000 Premium 1,692,072 - 125,339 1,566,733 -
Total $ 24,988,742 $ 577,049 $ 1,773,125 $ 23,792,666 $ 1,602,365 a. Lease Liability
The authority leases vehicle and equipment for various terms under long-term, noncancelable lease agreements. The leases expire at various dates through 2026. This liability, totaling $194,834 at June 30, 2023, will be paid in future years. The annual requirements to amortize the lease liability as of June 30, 2023, including interest, are as follows:

Principal Interest Totals
2024 $ 93,053 $ 1,855 $ 94,908
2025 64,259 793 65,052
2026 37,522 121 37,643
Total $ 194,834 $ 2,769 $ 197,603
Year Ending June 30,
b. Financed Purchase
On September 28, 2022, the Banning Utility Authority entered into a financed purchase agreement to purchase a vactor truck for wastewater operations. The financed purchase bears an interest rate of 4.50%. Interest is payable annually on September 28. The annual requirements to amortize the outstanding financed purchase as of June 30, 2023, including interest, are as follows:

Principal Interest Totals
2024 $ 94,312 $ 962 $ 95,274
2025 94,619 656 95,275
2026 94,940 335 95,275
2027 97,228 - 97,228
Total $ 381,099 $ 1,953 $ 383,052
Year Ending June 30,
1390
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
17 2015 Water Revenue Bonds
On August 19, 2015, the Banning Utility Authority issued $25,365,000 in Water Revenue Bonds, Refunding and Improvement Projects. The proceeds of the bonds, together with other money being made available by the Authority, will be used to (i) finance certain capital improvements to the water fund; (ii) refund a portion of the Authority’s $35,635,000 Water Revenue Bonds, Refunding and Improvement Projects, 2005 Series, currently outstanding in the aggregate principal amount of $29,165,000; and (iii) pay costs of issuance of the Bonds. As a result, the refunding bonds defeased the liability of the 2005 Water Revenue Bonds, which have been removed from long-term debt. The 2015 Water Revenue Bonds bear interest at rates ranging from 2.00% to 5.00%.

Interest is payable semi-annually on May 1 and November 1.

The annual requirements to amortize the outstanding bond indebtedness as of June 30, 2023, including interest, are as follows:

Principal Interest Totals
2024 $ 1,185,000 $ 773,688 $ 1,958,688
2025 1,240,000 713,063 1,953,063
2026 1,305,000 649,438 1,954,438
2027 1,370,000 582,563 1,952,563
2028 1,440,000 526,713 1,966,713
2029 to 2033 8,065,000 1,706,106 9,771,106
2034 to 2035 3,690,000 139,500 3,829,500
Total $ 18,295,000 $ 5,091,071 $ 23,386,071
Year Ending June 30,
2019 Wastewater Refunding Revenue Bonds
On October 8, 2019, the Banning Utility Authority issued the 2019 Wastewater Refunding Revenue Bonds. The proceeds of the bond, together with other money being made available by the Authority, will be used to (i) refund the Authority’s 2005 $7,100,000 Wastewater Revenue Bonds, currently outstanding in the amount of $4,585,000; (ii) finance certain improvements (the Facilities) to the Wastewater System of the City of Banning; (iii) and to refinance certain obligations of the Authority. As a result, the refunding bonds defeased the liability of the 2005 Wastewater Revenue Bonds, which have been removed from long-term debt. The refunding resulted in an economic gain of $109,348. The 2019 Wastewater Refunding Revenue Bonds bear interest of

1.80%. Interest is payable semi-annually on May 1 and November 1, commencing May 1, 2020. The annual requirements to amortize the outstanding bond indebtedness as of June 30, 2023, including interest, are as follows:

Principal Interest Totals
2024 $ 230,000 $ 58,320 $ 288,320
2025 235,000 54,135 289,135
2026 240,000 49,860 289,860
2027 245,000 45,495 290,495
2028 250,000 41,040 291,040
2029 to 2033 1,315,000 135,585 1,450,585
2034 to 2036 840,000 22,860 862,860
Total $ 3,355,000 $ 407,295 $ 3,762,295
Year Ending June 30,
1391
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
18 Pledged Revenue
The Authority pledged, as security for bonds issued, all surplus revenues from the fund.

The bonds include a provision, that in any event of default, the trustee has the right to accelerate the total unpaid principal amount of the bonds. However, in the event of default and such acceleration, there can be no assurance that the Trustee will have sufficient moneys available for payment of the bonds.

Note 6 - Compensated Absences
Accumulated vacation, sick leave, holiday and compensatory time amount to $329,305.

Beginning Ending Due Within
Balance Additions Deletions Balance One Year
Water $ 220,258 $ 159,603 $ 142,692 $ 237,169 $ 14,174
Wastewater 84,146 58,402 50,412 92,136 1,758
Total $ 304,404 $ 218,005 $ 193,104 $ 329,305 $ 15,932
Note 7 - Insurance
The Authority is covered under the City of Banning’s insurance policies. Therefore, the limitation and selfinsured retentions applicable to the City also apply to the Authority.

The City maintains self-insurance programs for workers' compensation, general liability and wrongful employment practices. For general liability claims, the City is at risk for up to $50,000 per occurrence; amounts in excess of $50,000 up to $50,000,000 are covered through the Public Entity Risk Management Authority (PERMA) and excess insurance. For workers' compensation claims, the City is at risk for up to $250,000 per occurrence. Losses exceeding $250,000 up to statutory limits are covered by the PERMA under their risk-sharing pool program and excess insurance. For wrongful employment practices claims, the City is at risk for up to $25,000 per occurrence; amounts in excess of $25,000 up to $1,000,000 are covered through the Employment Risk Management Authority. Estimates for all liabilities, including an estimate for incurred but not reported claims (IBNR's), have been included in the City’s Self-Insurance Internal Service Fund.

PERMA also provides a nonrisk sharing "deductible" or claims-servicing pool for general liability claims within the self-insured retention (SIR) level ($50,000). Annual contributions are deposited with the Authority from which claims are paid on behalf of the City. Any claims paid by PERMA for the City in excess of deposits at year-end are recorded as "Due to Other Agencies" within the City’s Self-Insurance Internal Service Fund.

In addition, the City makes deposits with PERMA for workers' compensation claims below the $250,000 SIR from which claims are paid on behalf of the City.

There are no significant reductions the City’s insurance coverages from prior years and there have been no settlements exceeding the insurance coverages for each of the past three fiscal years. 1392
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
19 Note 8 - Commitments and Contingencies
Banning Utility Authority Lease Commitment
The City created the Authority on July 1, 2005. The Authority leases from the City all of its utility enterprise assets. The Authority has also entered into a management agreement with the City for the operation and maintenance of the utility enterprises. The lease expires on June 30, 2060, after which time, all of the utility enterprise assets and activities revert to the City. The lease does not qualify as a lease under GASB Statement No. 87, Leases. The Authority’s right to the utility enterprise funds does not meet the description of an exchange or exchange-like transaction because each party does not receive or give up essentially equal value or not quite equal value. In addition, the governing boards of the City and Authority are the same and can modify the terms of the lease at will. No fixed payment amounts from the Authority to the City were identified and payments are only to be made after maintenance and operations costs of the Authority, as well an any outstanding debt service. The amount will then be determined between the City and the Authority. During the fiscal year, the Authority made lease payments of $651,000 to the City, which are reported within the nonoperating expenses of the Statement of Revenues, Expenses, and Changes in Fund Net Position.

Grant Compliance Audits
The Authority participates in certain federal and state assisted grant programs. These programs are subject to program compliance audits by the grantors or their representatives. Any liability for reimbursement that may arise as the result of these audits is not believed to be material.

Pending Litigation
The City is involved in several pending lawsuits of a nature common to many similar jurisdictions. City management estimates that potential claims against the City, not covered by insurance, will not have a material adverse effect on the financial statements of the Authority.

Note 9 - City Employees Retirement Plan (Defined Benefit Pension Plan) a. General Information about the Pension Plan
Plan Description
All qualified permanent and probationary employees of the Authority are eligible to participate in the City’s Miscellaneous Plan, agent multiple-employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. 1393
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
20 Benefits Provided
CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The Plan provisions and benefits in effect at June 30, 2023, are summarized as follows:

Hire Date Prior to January 1, 2013* On/after January 1, 2013 Benefit Formula 2.5% at Age 55 2.2% at Age 62
Benefit Vesting Schedule 5 Years of Service 5 Years of Service Benefit Payments Monthly for Life Monthly for Life
Retirement Age Age 50 Age 52
Monthly Benefits, as a Percentage
of Eligible Compensation 2.00% to 2.50% 1.00% to 2.50%
Required Employee Contribution Rates 7.46% 7.00%
Required Employer Contribution Rates
Normal Cost Rate 9.42% 7.19%
Payment of Unfunded Liability $ 324,685 $ -
*Closed to new entrants not previously in CalPERS
Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the differences between the actuarially determined rate and the contribution rate of employees. For the period ended June 30, 2023, the Authority’s portion of contributions totaled $501,973.
b. Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2022, the measurement date, the Authority reported net pension liabilities for its proportionate share of the net pension liability of all Plans as follows:

Proportionate
Share of Net
Pension
Liability
Miscellaneous $ 4,565,407
1394
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
21 The Authority’s net pension liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2022, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 using standard update procedures. The Authority’s proportionate share of the net pension liability was based on a projection of the Authority’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined.

The Authority’s proportionate share of the net pension liability for the Miscellaneous Plans as of June 30, 2021 and 2022, the measurement dates, was as follows:

Proportion - June 30, 2021 15.90%
Proportion - June 30, 2022 14.29%
Change - Increase(Decrease) -1.61%
For the year ended June 30, 2023, the Banning Utility Authority incurred a pension expense of $569,119 for the Plan. At June 30, 2023, the City of Banning has deferred outflows and deferred inflows of resources related to pensions as follows:

Deferred Deferred
Outflows of Inflows of
Resources Resources
Pension Contributions Subsequent to
Measurement Date $ 501,973 $ -
Difference between Expected and Actual Experience 17,262 70,185 Net Difference Between Projected and Actual
Earnings on Pension Plan Investments 467,934
Changes in Assumption 276,392 -
Total $ 1,263,561 $ 70,185
The $501,973 reported as deferred outflows of resources related to contributions subsequent to the measurement date, will be recognized as a reduction of the net pension liability in the year ended June 30, 2024.

Other amounts reported as deferred outflows or deferred inflows of resources related to pensions will be recognized as pension expense as follows:
2024 $ 194,385
2025 169,727
2026 32,626
2027 294,665
Total $ 691,403
Year Ending June 30,
1395
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
22 Actuarial Assumptions
For the measurement period ended June 30, 2022, the total pension liability was determined by rolling forward the June 30, 2021 total pension liability. The June 30, 2021 and the June 30, 2022 total pension liabilities were based on the following actuarial methods and assumptions:

Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 68
Actuarial Assumptions
Discount Rate 6.90%
Inflation 2.50%
Projected Salary Increase Varies by Entry Age and Service Investment Rate of Return 7.00 % Net of Pension Plan Investment and Administrative Expenses; including Inflation.

Mortality Rate Table (1) Derived using CalPERS' Membership Data for all Funds Post Retirement Benefit Increase Contract COLA up to 2.50% until Purchasing Power Protection Allowance Floor on Purchasing Power
applies, 2.50% thereafter
(1) The mortality table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website.

Changes of Assumption
For the measurement period ended June 30, 2022, the discount rate was reduced from 7.15 percent to 6.90 percent, the inflation rate was reduced from 2.50 percent to 2.30 percent, and the investment rate of return was reduced from 7.15 percent to 6.90 percent.

Discount Rate
The discount rate used to measure the total pension liability was 6.90% for the Miscellaneous Plan and reflects the long-erm expected rate of return of the Plan net of investment expenses and without reduction for administrative expenses. The projection of cash flows used to determine the discount rate of Miscellaneous Plan assumed that contributions from plan member will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Miscellaneous Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on the plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. 1396
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
23 In determining the long-term expected rate of return, CalPERS took into account both short- term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all of the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. The target allocation shown was adopted by the CalPERS Board effective on July 1, 2015.

Global Equity - Cap-Weighted 30.00 % 4.54
Global Equity - Non-Cap-Weighted 12.00 3.84
Private Equity 13.00 7.28
Treasury 5.00 0.27
Mortgage-Backed Securities 5.00 0.50
Investment Grade Corporates 10.00 1.56
High Yield 5.00 2.27
Emerging Market Debt 5.00 2.48
Private Debt 5.00 3.57
Real Assets 15.00 3.21
Leverage (5.00) (0.59)
Total 100.00 %
(1) In the System's ACFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity Securities and (2) An expected inflation of 2.30% used for this period. (3) Figures are based on the 2021-22 Asset Liability Management study.

New Strategic
Asset Class (1) Allocation Real Return (2) (3)
1397
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
24 Sensitivity of the Net Pension Liability to Changes in the Discount Rates The following presents the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 6.90%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (5.90%) or 1 percentage-point higher (7.90%) than the current rate:

Current
1% Decrease Discount Rate 1% Increase
(5.9%) (6.9%) (7.9%)
Miscellaneous Plan's Net
Pension Liability (Assets) $6,377,577 $4,565,407 $3,064,269 *This information represents the sensitivity of the Authority's overall Net Pension Liability to changes in the discounted rates.

Pension Plan Fiduciary Net Position
Detailed information about the Plan’s fiduciary net position is available in the separately issued CalPERS financial report.

Note 10 - Other Postemployment Benefit Plan
Plan Description
All qualified permanent and probationary employees of the Authority are eligible to participate in City’s other postemployment benefits (OPEB) which is provided through a single-employer defined benefit healthcare plan.

The plan, which is administered by the City, allows employees at retirement to continue participating in City medical plans with payment of the full premium until age 65. Premiums are the same for actives and retirees, resulting in an implicit subsidy to retirees. Employees who waive coverage at retirement are not eligible to reenroll. The Authority to do so is included annually in the memorandum of understanding between the City and each of its employee groups and ultimately passed by City council action. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB statement 75. The plan does not issue a separate report.

As of June 30, 2022, the measurement date, the Authority reported total OPEB liability of $141,322 for its proportionate share of the total OPEB liability.
1398
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
25 Actuarial Assumptions and Other Inputs
The total OPEB liability as of June 30, 2023, was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement, unless otherwise specified:

Valuation Date June 30, 2023
Measurement Date June 30, 2022
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions
Discount Rate 3.54%
Inflation 2.50%
Projected Salary Increase 2.75% per annum, in aggregate Healthcare Cost Trend Rates 8.5% decreasing to 3.45% by 2076 Pre-retirement Turnover Derived from CalPERS pensions plan Mortality Derived from CalPERS pension plan updated
to reflect most recent experience study
Discount Rate
There are no assets accumulated in a trust; therefore, the discount rate is the average of three rate indices: S&P General Obligation Municipal Bond 20-Year High Grad Index, the Fidelity Municipal Bond AA 20-Year Maturity Yield and the Bond Buyer General Obligation 20-Bond Municipal Bond index. The use of this index results to discount rate of 3.54% at measurement date June 30, 2022.

Change in Assumption
Discount rate was changed from 2.16% to 3.54%.

Sensitivity of the Total OPEB Liability to Changes in the Discount Rate and Healthcare Cost Trend Rates The following presents the total OPEB liability of the Authority, calculated using the discount rate for the Plan, as well as what the Authority’s total OPEB liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate:

Current
1% Decrease Discount Rate 1% Increase
(2.54%) (3.54%) (4.54%)
Total OPEB Liability $152,503 141,322 $130,826
*This information represents the sensitivity of the Authority's overall Total OPEB Liability to changes in the discount rates.
1399
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
26 The following presents the total OPEB liability of the Authority, calculated using the discount rate for the Plan, as well as what the Authority’s total OPEB liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current healthcare cost trend rates:

Healthcare
Cost
Trend Rates
1% Decrease Current 1% Increase
Miscellaneous Plan's Net
Total OPEB Liability $124,960 141,322 $160,687
*This information represents the sensitivity of the Authority's overall Total OPEB Liability to changes in the healthcare cost trend rates.

OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended June 30, 2023, the Authority recognized OPEB expense of $269,995. At June 30, 2023, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Deferred
Outflows of Inflows of
Resources Resources
Pension Contributions Subsequent to
Measurement Date $ 4,270 $ -
Change in Proportion 35,202 23,191
Change in Assumptions 380 13,975
Total $ 39,852 $ 37,166
An amount of $4,270 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the OPEB liability in the year ending June 30, 2024.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Deferred
Outflows/Inflows
of Resources
2024 $ (323)
2025 (323)
2026 (323)
2027 (323)
2028 (323)
Thereafter 31
Total $ (1,584)
Year Ending June 30,
1400
Banning Utility Authority
Notes to Financial Statements
June 30, 2023
27 Note 11 - Correction of Errors
A restatement was recorded to the beginning net position of the water fund in the amount of ($19,183) and the wastewater fund in the amount of $132,275 to record receivable balances incurred but not recorded in the prior year due to the trial balance not being reconciled to the general ledger. The restatement reduced the prior year change in net position by $19,183 for the water fund and increased the prior year change in net position by $132,275 for the wastewater fund.

Business-Type
Water Wastewater Activities
Net Position at July 1, 2022, as previously reported $ 59,030,405 $ 31,003,409 $ 90,033,814 Accounts receivable (19,183) 132,275 113,092
Net Position, as restated $ 59,011,222 $ 31,135,684 $ 90,146,906 1401
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Required Supplementary Information
June 30, 2023
Banning Utility Authority
1402
28 Banning Utility Authority
Schedule of Proportionate Share in Net Pension Liability and Related Ratios Last Ten Fiscal Years*
June 30, 2023
Fiscal Year End June 30, 2023 June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015Measurement Period June 30, 2022 June 30, 2021 June 30, 2020 June 30, 2019 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014Plan's Proportion of the Net Pension Liability 14.29% 15.90% 16.07% 16.07% 16.07% 16.07% 17.66% 18.14% 18.14%Plan's Proportionate Share of the net Pension Liability $4,565,407 $3,012,362 $4,383,010 $4,194,667 $3,877,339 $3,861,222 $3,966,634 $3,616,218 $3,308,132Plan's Covered Payroll $1,623,839 $1,505,440 $1,380,098 $1,474,271 $1,323,997 $750,489 $903,564 $1,084,435 $1,073,672Plan's Proportionate Share of the Net Pension Liability as a Percentage of Covered Payroll 281.15% 204.33% 317.59% 284.52% 292.85% 514.49% 439.00% 333.47% 308.11%Plan's Proportionate Share of Aggregate Employers Contributions $501,973 $472,661 $487,369 $400,411 $345,993 $299,328 $282,328 $282,241 $244,728Notes to Schedule Benefit Changes
There were no changes in benefits
Changes in Assumptions
From fiscal year June 30, 2015 to June 30, 2016
GASB 68, paragraph 68 states that the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense.The discount rate of 7.5% used for the June 30, 2014, measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015, measurement date is withoutreduction of pension plan administrative expenses.

From fiscal year June 30, 2016 to June 30, 2017
There were no changes in assumptions.

From fiscal year June 30, 2017 to June 30, 2018
The accounting discount rate reduced from 7.65% to 7.15% From fiscal year June 30, 2018 to June 30, 2019
Demographic assumptions and inflation rate were changed in accordance with CalPERS Experience Study and Review of Actuarial Assumptions December 2017.

From fiscal year June 30, 2019 to June 30, 2020
There were no changes in assumptions.

From fiscal year June 30, 2020 to June 30, 2021
There were no changes in assumptions.

From fiscal year June 30, 2021 to June 30, 2022
The accounting discount rate reduced from 7.15% to 6.90% * - Fiscal year 2015 was the first year of implementation; therefore, only nine years are shown. 1403
29 Banning Utility Authority
Schedule of Plan Contributions
Last Ten Fiscal Years*
June 30, 2023
2023 2022 2021 2020 2019 2018 2017 2016 2015
Actuarially Determined Contributions - $ 501,973 $ 487,369 $ 451,639 $ 400,411 $ 345,993 $ 299,328 $ 282,241 $ 268,518 $244,728Contributions in Relation to The Actuarially Determined Contribution (501,973) (487,369) (451,639) (400,411) (345,993) (299,328) (282,241) (268,518) (244,728) Contribution Deficiency (Excess) $ - $ - $ - $ - $ - $ - $ - $ - $ - Covered Payroll $1,769,717 $1,623,839 $1,505,440 $1,380,098 $1,474,271 $1,323,997 $750,489 $903,564 $1,084,435 Contributions as a Percentage of Covered Payroll 28.36% 30.01% 30.00% 29.01% 23.47% 22.61% 37.61% 29.72% 22.57%Notes to Schedule:

Valuation Date 6/30/2020 6/30/2019 6/30/2018 6/30/2017 6/30/2016 6/30/2015 6/30/2014 6/30/2013 6/30/2012Methods and Assumptions Used to Determine Contribution Rates Actuarial Cost Method Entry Age Entry Age Entry Age Entry Age Entry Age Entry Age Entry Age Entry Age Entry AgeAmortization Method (1) (1) (1) (1) (1) (1) (1) (1) (1)Asset Valuation Method Fair value Fair value Fair value Fair value Fair value Fair value Fair value Fair value Fair valueInflation 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.50% 2.75% 2.75%Salary Increases (2) (2) (2) (2) (2) (2) (2) (2) (2)Investment Rate of Return 7.00% (3) 7.50% (3) 7.50% (3) 7.50% (3) 7.50% (3) 7.375% (3) 7.15% (3) 7.375% (3) 7.375% (3)Retirement Age (4) (4) (4) (4) (4) (4) (4) (4) (4)Mortality (5) (5) (5) (5) (5) (5) (5) (5) (5) (1) Level percentage of payroll, closed(2) Depending on age, service, and type of employment(3) Net of pension plan investment expense, including inflation(4) 2.5% at 55 and 2% at 60 retirement age from 50-67, 2% at 62 retirement age 52-67(5) Mortality assumptions are based on mortality rates resulting from the most recent CalPERS Experience Study adopted by CalPERS Board of Directors. * - Fiscal year 2015 was the first year of implementation; therefore, only nine years are shown. 1404
30 Banning Utility Authority
Schedule of Proportionate Share in Total OPEB Liability and Related Ratios Last Ten Fiscal Years*
June 30, 2023
Fiscal Year Ended June 30, 2023 June 30, 2022
Measurement Period June 30, 2022 June 30, 2021
Plan's Proportion of the total OPEB Liability 12.68% 15.90% Plan's Proportionate Share of
the total OPEB Liability $141,322 $169,818
Plan's Coverage Payroll $1,623,839 $1,505,440
Plan's Proportionate Share of the total OPEB
Liability as a Percentage of Covered Payroll 8.70% 11.28% Notes to Schedule
Benefit Changes
There were not changes in benefits.

Changes in Assumptions
From fiscal year June 30, 219 to June 30, 2020
There were no changes in assumptions.

From fiscal year June 30, 2020 to June 30, 2021
There were no changes in assumptions.

From fiscal year June 30, 2021 to June 30, 2022
There were no changes in assumptions.

No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB statement 75. * - Fiscal year 2021 was the first year of implementation; therefore, only three years are shown. 1405
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10681 Foothill Blvd., Ste. 300 | Rancho Cucamonga, CA 91730-3831 | T 909.466.4410 | F 909.466.4431 | EOE 31 Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
City Council
Banning Utility Authority
Banning, California
We have audited, in accordance with the auditing standards generally accepted the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities and each major fund of the City of Banning Utility Authority (the Authority), a component unit of the City of Banning, California, as of and for the year ended June 30, 2023, and the related notes to the financial statements which collectively comprise the Authority’s basic financial statements, and have issued our report thereon dated July 31, 2024. Our report qualified the opinion on the water fund because management had not engaged Eide Bailly LLP as of June 30, 2023. As such, we could not perform an inventory observation. Additionally, the City did not perform a year-end inventory observation. Our report also included an emphasis of matter paragraph regarding a restatement of beginning net position/fund balance for the correction of errors.

Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control.

Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying Schedule of Findings and Responses as items 2023-001 through 2023-003 to be material weaknesses. 1406
32 A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency described in the accompanying Schedule of Findings and Responses as item 2023-004 to be a significant deficiency.

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Authority’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. 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.

Authority’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the Authority’s response to the findings identified in our audit and described in the accompanying Schedule of Findings and Responses. The Authority’s response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response.

Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Rancho Cucamonga, California
July 31, 2024
1407
33 Banning Utility Authority
Schedule of Findings and Responses
Year Ended June 30, 2023
2023-001 Internal Controls over the Financial Reporting Process and Year-End Closing Process Type of Finding: Material Weakness
Criteria:

Management is responsible for reporting revenue as it is earned and available, where appropriate.

Condition:

During the audit, we identified adjustments, which were proposed and posted, as follows:
• Depreciable assets and related liability for a vactor truck within the wastewater fund were reclassified into traditional capital assets and long-term debt out of right-of-use assets and lease liabilities as it was deemed to not qualify as a lease under GASB 87 Corrections of errors to prior year financial statements were posted, as follows:
• A restatement was recorded to the beginning net position of the business-type activities in the amount of $113,092, the water fund in the amount of ($19,183) and wastewater fund in the amount of $132,275 to record receivable balances incurred but not recorded in the prior year. The restatement reduced the beginning net position by $19,183 for the water fund and increased the beginning net position by $132,275 for the wastewater fund.

Additionally, instances occurred throughout audit fieldwork where subsidiary listings either could not be generated to support account balances or did not agree to the general ledger. A subsidiary listing could not be generated for accounts payable. Within capital assets, the City reclassified business-type accumulated depreciation balances from prior year audits to agree to subsidiary listings.

Cause:

The City did not consistently maintain year-end closing procedures to ensure that all financial information was accumulated and reconciled timely.
1408
Banning Utility Authority
Schedule of Findings and Responses
Year Ended June 30, 2023
34 Effect:

Journal entries were posted, and adjustments made to the financial statements, in order to fairly present the financial statements.

Context:

The conditions were noted during our testwork throughout the audit.

Recommendation:

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 2023-002 Inventory Counts
Type of Finding: Material Weakness
Criteria:

Management is responsible for performing test counts of inventories throughout the year, as necessary, and specifically at year-end.

Condition:

The City did not perform a year-end inventory count.

Cause:

The City did not have an internal control process in place to perform a year-end inventory count.

Effect:

Not performing an annual inventory count could lead to a material misstatement of inventory balances. Further, the opinion was qualified for the water fund. The City had not engaged Eide Bailly as the City’s auditor as of June 30, 2023, and therefore an inventory observation was not performed.

Context:

The conditions were noted during our testwork throughout the audit. 1409
Banning Utility Authority
Schedule of Findings and Responses
Year Ended June 30, 2023
35 Recommendation:

The City should perform inventory counts at year-end, as well as ensuring an auditor is engaged to perform a year-end observation.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 2023-003 Timely Preparation and Review of Bank Reconciliations Type of Finding: Material Weakness
Criteria:

Management is responsible for reconciling and reviewing bank accounts in a timely manner on a monthly basis.

Condition:

The December 2022 General Account bank reconciliation was prepared in May 2023.

Additionally, the June 2023 bank reconciliations, with the exception of the General Account, were reviewed in November 2023.

Cause:

The City did not have monitoring processes in place throughout the year to prepare and review bank reconciliations in a timely manner.

Effect:

Errors could go undetected without a timely preparation and review process.

Context:

The conditions were noted during our testwork throughout the audit.

Recommendation:

Bank reconciliations should be prepared and reviewed timely.

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1410
Banning Utility Authority
Schedule of Findings and Responses
Year Ended June 30, 2023
36 2023-004 Utility Customer Account Adjustments
Type of Finding: Significant Deficiency
Criteria:

Management is responsible for monitoring adjustments to utility customer accounts.

Condition:

During the process to gain an understanding of the utility customer accounts, it was noted adjustments to customer accounts can be prepared and posted by the same individual.

Additionally, customer account adjustments are not reviewed.

Cause:

A lack of segregation of duties and review process over utility adjustments allows for potentially unapproved adjustments to customer accounts.

Effect:

The control environment over customer accounts is weakened.

Context:

The conditions were noted during our testwork throughout the audit.

Recommendation:

Views of Responsible Officials:

Management agrees with the finding. See separate corrective action plan. 1411
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10681 Foothill Blvd., Ste. 300 | Rancho Cucamonga, CA 91730-3831 | T 909.466.4410 | F 909.466.4431 | EOE 1 July 31, 2024
To the Honorable Mayor and Members of the City Council
City of Banning, California
We have audited the financial statements of the business‐type activities and each major fund of the City of Banning Utility Authority (the Authority), a component unit of the City of Banning, California, as of and for the year ended June 30, 2023, and have issued our report thereon dated July 31, 2024. Professional standards require that we advise you of the following matters relating to our audit.

Our Responsibility in Relation to the Financial Statement Audit under Generally Accepted Auditing Standards and Government Auditing Standards
As communicated in our letter dated November 13, 2023, our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities.

Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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 entity’s internal control over financial reporting.

Accordingly, as part of our audit, we considered the internal control of the Authority solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.

We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process.

However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.

We have provided our comments regarding internal control deficiencies during our audit in our Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards dated July 31, 2024.

Planned Scope and Timing of the Audit
The timing of the audit was modified to allow the Authority sufficient time to close its books and records. 1412
2 Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, our firm, and other firms utilized in the engagement, if applicable, have complied with all relevant ethical requirements regarding independence.

Qualitative Aspects of the Entity’s Significant Accounting Practices Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the Authority is included in Note 1 to the financial statements.

There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during the year ended June 30, 2023. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole.

Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the Authority’s financial statements relate to:
 Pension liabilities in Note 9 are sensitive to the underlying actuarial assumptions used, including, but not limited to, the investment rate of return and discount rate. As disclosed in Note 9, a 1% increase or decrease in the discount rate has a significant effect on the Authority’s total pension liabilities.  OPEB liabilities in Note 10 are sensitive to the underlying actuarial assumptions used, including, but not limited to, the investment rate of return, discount rate, and healthcare cost trend rate. As disclosed in Note 10, a 1% increase or decrease in the discount rate or healthcare trend rate has a significant effect on the Authority’s total OPEB liabilities.

Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit. 1413
3 Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole. Uncorrected misstatements or matters underlying those uncorrected misstatements could potentially cause future‐ period financial statements to be materially misstated, even though the uncorrected misstatements are immaterial to the financial statements currently under audit.

Circumstances that Affect the Form and Content of the Auditor’s Report For purposes of this letter, professional standards require that we communicate any circumstances that affect the form and content of our auditor’s report.

As described in our report, we were not engaged as auditors of the City until after June 30, 2023, nor did the City perform a year‐end inventory observation as of June 30, 2023. We were unable to satisfy ourselves by performing other auditing procedures concerning the inventory held at June 30, 2023. As the inventory balance is material to the water fund, our opinion on this opinion unit is qualified with respect to this matter.

Further, our report included an emphasis of matter paragraph relating to the correction of errors as disclosed in Note 11.

Representations Requested from Management
We have requested certain written representations from management which are included in the management representation letter dated July 31, 2024.

Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.
1414
4 Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the Authority, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating conditions affecting the entity, and operating plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Authority’s auditors.

Existence of a Material Misstatement that Affects the Financial Statements of a Prior Period in Which There Was a Predecessor Auditor
We have identified the existence of a material misstatement that affects the prior period financial statements on which the predecessor auditor had previously reported without modification. The misstatement is as follows:

A restatement was recorded to the beginning net position of the water fund in the amount of ($19,183) and the wastewater fund in the amount of $132,275 to record receivable balances incurred but not recorded in the prior year due to the trial balance not being reconciled to the general ledger. The restatement reduced the prior year change in net position by $19,183 for the water fund and increased the prior year change in net position by $132,275 for the wastewater fund.

This report is intended solely for the information and use of the Mayor and members of the City Council, and management of the Authority and is not intended to be, and should not be, used by anyone other than these specified parties.

Rancho Cucamonga, California
1415

BANNING UTILITY AUTHORITY ATTACHMENT I

SUMMARY OF CORRECTED MISSTATEMENTS
JUNE 30, 2023
Account Description Debit Credit
680-0000-122.00-00 LEASE ASSETS / ACCUM AMRTZN-LEASE ASSET 94,598.00 680-0000-170.30-00 FIXED ASSETS / MACHINERY & EQUIPMENT 577,049.00 680-0000-225.10-00 LEASE ASSETS / ROUA-LEASE LIAB-CURRENT 95,275.00 680-0000-231.20-00 LEASE LIABILITY / ROUA-LEASE LIAB-NC 285,824.00 680-8000-454.49-50 BAD DEBT & DEPREC EXPENSE / DEPRECIATION 94,958.00 680-0000-121.45-00 LEASE ASSETS / ROUA-VEHICLES 577,049.00 680-0000-179.10-00 ACCUMULATED DEPRECIATION / ACCUMULATED DEPRECIATION 94,598.00 680-0000-241.01-00 LONG TERM DEBT / FINANCED PURCHASE SHORT-TERM 95,275.00 680-0000-241.20-00 LONG TERM DEBT / FINANCED PURCHASE NC 285,824.00 680-8000-454.66-09 AMORTIZATION / ROUA AMORTIZATION-LEASE 94,958.00 Total 1,147,704.00 1,147,704.00
660-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 19,183.00 680-0000-112.00-00 RECEIVABLES / ACCOUNTS RECEIVABLE 132,275.00 660-0000-112.00-00 RECEIVABLES / ACCOUNTS RECEIVABLE 19,183.00 680-0000-279.00-00 RETAINED EARNINGS / UNRESERVED/UNDESIGNATED 132,275.00 Total 151,458.00 151,458.00
Adjusting Journal Entries
Adjusting Journal Entries JE # 5
Prior period adjustment to adjust utility A/R to agree to CIS (Utility Billing) reports.

Adjusting Journal Entries JE # 3
To reclassify the Unit 902 Vactor Truck from leased assets/liabilities to capital assets/long-term debt. 1 of 1
1416

BANNING UTILITY AUTHORITY ATTACHMENT II

SUMMARY OF UNCORRECTED MISSTATEMENTS
JUNE 30, 2023
EXPENSES/ (3)

DEFERRED LIABIL- DEFERRED EXPEND- OFS/OFU & CHANGE IN BEGINNING ENDING

ASSETS OUTFLOWS ITIES INFLOWS REVENUE ITURES TRANSFERS FB/NP FB/NP FB/NP MAJOR FUND: Banning Utility Authority Water

PY REVERSING ENTRIES
To adjust inventory to physical count 84,790 84,790 (84,790) - Total - - - - 84,790 - - 84,790 (84,790) -
MAJOR FUND: Banning Utility Authority Wastewater

PY REVERSING ENTRIES
N/A
Total - - - -
Government-Wide: Business-type Activities

PY REVERSING ENTRIES
To adjust inventory to physical count 84,790 84,790 (84,790) - Total - - - - 84,790 - - 84,790 (84,790) -

BALANCE SHEET CHANGE IN FB/NP
1417

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Doug Schulze, City Manager
MEETING DATE: August 27, 2024
SUBJECT: Consideration of Resolution 2024-143, Creating a Community Revitalization Investment Authority to Operate within the Community, and Making Certain Findings and Taking Certain Actions in Connection Therewith, and Resolution 2024-05 SA, Making Certain Findings Relating to the City of Banning's Creation of a Community Revitalization Investment Authority to Operate within the Community
RECOMMENDATION:
(1) That the Successor Agency adopt Resolution 2024-05 SA; and (2) That the City Council adopt Resolution 2024-143.

BACKGROUND:

The Community Revitalization and Investment Authority (CRIA) in California, established by Assembly Bill 2 in 2015, offers several benefits for designated districts. CRIA works by enabling tax increment financing to fund projects within a designated Revitalization Area. As developers and businesses improve properties in the investment area, the higher appraised value results in greater property tax assessment. This increased revenue is then allocated directly to the CRIA for use only within the investment area. The CRIA can be created by a resolution of the governing body of a city or county, and once formed, it can conduct a variety of activities, including funding infrastructure improvements, affordable housing projects, seismic retrofits, property acquisition, tenant improvements, and undertaking brownfield cleanup
The CRIA is intended to provide a source of tax increment funding for infrastructure and housing in disadvantaged communities, and it does not require a public vote for creation or issuance of bonds. The CRIA's sponsoring jurisdiction can provide a loan to the CRIA in the interim period while the revenue is generated. Overall, the CRIA offers a way to revitalize areas without raising taxes, providing a sustainable way to fund much-needed projects.

Some of the key benefits include:

1. Increased Funding for Affordable Housing: CRIAs increase funding for and production of affordable housing in disadvantaged communities, with a mandatory affordable housing set-aside of 25%.

2. Powers of Eminent Domain: CRIA's entail the powers of eminent domain for the first 12 years, which can be used to acquire private property for public use with fair compensation to the property owner.

3. No Public Vote Required: Unlike some other financing districts, CRIAs do not require a public vote for creation or issuance of bonds, although they are subject to a majority protest at adoption.

4. Tax Increment Financing: CRIA's use tax increment funds to finance projects within a designated 1418
Revitalization Area, providing a mechanism for funding community improvements and economic development.

5. Job Creation and Training: The CRIA program can also lead to job creation and training opportunities through community revitalization and cleanup efforts, as evidenced by grants from the EPA's Brownfields Jobs Training Program.

The process for creating a Community Revitalization and Investment Authority (CRIA) in California involves several steps, as outlined by the California Government Code and various local government resources:

1. Feasibility Analysis: Conduct a feasibility analysis to determine if the creation of a CRIA is suitable for the community. This process has been completed.
2 . Community Outreach: Hold public informational meetings and provide notice of informational meetings to property owners and residents, typically at least 10 days prior to the meeting. City Council has previously completed this process. As a result, Council directed the City Manager to discuss creation of a joint City/County District with Riverside County. Meetings were held with Riverside County staff from 5th District Supervisor Gutierrez' office as well as staff from the County Executive's Office. Riverside County staff expected some additional incentive from the City. The conditions required by the County for partnership in the CRIA would render the CRIA financially infeasible for the City.

3. Resolution by Governing Body: A single-member CRIA (City only) may be created by resolution of the governing body. This is the next step required in the process, if Council desires to proceed.

4. Adoption of Revitalization Plan: Once formed, the CRIA board adopts a Revitalization Plan, which outlines the activities the CRIA will undertake, such as funding infrastructure improvements, affordable housing projects, seismic retrofits, property acquisition, tenant improvements, and undertaking brownfield cleanup. CRIA funds could be used for implementation of the recently adopted Downtown Revitalization and Complete Streets Plan.

5. Board Composition: The CRIA is governed by a board, typically made up of at least 3 members of a legislative body and 2 public members.

JUSTIFICATION:

A Community Revitalization Investment Authority (CRIA) will provide tools to achieve City Council goals of cleaning up the Ramsey Street corridor and creating a vibrant downtown. CRIA funds could be used for implementation of the Downtown Revitalization Plan. Establishing a Community Revitalization Investment Authority is an identified economic strategy in the adopted Community Economic Development Strategy (2021-2026). Funds generated by the CRIA can be used for implementation of the Downtown Revitalization/Complete Streets Plan, which is critical for establishing a vibrant downtown.

FISCAL IMPACT:

CRIA funding capacity is estimated in the range of $23 to $46 million in present value terms.

ALTERNATIVES:

Do not adopt resolutions and provide alternate direction to staff.

BUDGETED?:

No
CONTRACT/AGREEMENT:

No
ATTACHMENTS:

1. Resolution 2024-05 SA, CRIA Formation.docx

2. Resolution 2024-143, CRIA Formation.docx

3. Banning CRIA Next Steps 2-13-2024.pdf
1419
Resolution 2024-05 SA

Page 1 of 3 ends

RESOLUTION 2024-05 SA

A RESOLUTION OF THE SUCCESSOR AGENCY TO THE FORMER BANNING

REDEVELOPMENT AGENCY MAKING CERTAIN FINDINGS RELATING TO THE CITY OF BANNING’S CREATION OF A COMMUNITY REVITALIZATION INVESTMENT AUTHORITY

TO OPERATE WITHIN THE COMMUNITY
WHEREAS, the California Legislature approved Assembly Bill 2 (Stats. 2015, c. 319, as amended), and thereby enacted Part 1 (commencing with Section 62000) of Division 4 of Title 6 of the Government Code (the “CRIA Law”) to create a planning and financing tool for local governments to address areas characterized by deteriorated buildings in which persons live or work, conditions that make the viable use of buildings or parcels difficult, high business vacancies and lack of employment opportunities, and inadequate public improvements, water, or sewer utilities; and
WHEREAS, the CRIA Law authorizes cities to create a public body, corporate and politic known as a “Community Revitalization Investment Authority” (“CRIA”) to operate in the community, and to grant the CRIA jurisdiction to carry out a community redevelopment revitalization plan (“Plan”) within a community revitalization investment area (“Plan Area”); and WHEREAS, a CRIA formed by a city that created a redevelopment agency that was dissolved pursuant to Part 1.85 (commencing with Section 34170) of Division 24 of the Health & Safety Code (the “Dissolution Law”) may not become effective until the successor agency of the former redevelopment agency has adopted findings of fact that satisfy the requirements of subsection (b)(3) of Section 62001 of the Government Code; and WHEREAS the City of Banning has heretofore created a redevelopment agency, known as the Banning Redevelopment Agency (“Former Agency”), which was dissolved by virtue of the Dissolution Law, and the Successor Agency to the Former Agency (“Successor Agency”) is charged with overseeing and effectuating the “wind down” of the Former Agency’s affairs in accordance with statutory mandates; and
WHEREAS, the City Council of the City of Banning will, contemporaneously with adoption of this Resolution, consider the creation of the Banning Community Revitalization Investment Authority (“Authority”) pursuant to the CRIA Law; and
WHEREAS, the Successor Agency desires to facilitate the creation and effectiveness of the Authority by adopting this resolution making the findings set forth in subsection (b)(3) of Section 62001 of the Government Code; and
WHEREAS, all other legal prerequisites to the adoption of this Resolution have occurred.

NOW, THEREFORE, THE SUCCESSOR AGENCY TO THE FORMER BANNING REDEVELOPMENT AGENCY HEREBY FINDS, DECLARES, AND RESOLVES as follows:

SECTION 1. The foregoing recitals are true and correct and incorporated herein this Resolution as substantive findings.

SECTION 2. Pursuant to subsection (b)(3) of Section 62001, and based upon staff presentations and reports, public testimony, and other matters presented during its consideration of this matter, the Successor Agency hereby makes the following findings of fact:
1420
Resolution 2024-05 SA

Page 2 of 3 ends

(A) The Successor Agency has received a finding of completion from the Department of Finance pursuant to Section 34179.7 of the Health & Safety Code, with such finding of completion dated April 13, 2013;
(B) Neither the City or the Successor Agency is currently or has been a named plaintiff in any litigation against the state in which assets of the Former Agency are the subject, and accordingly no assets of the Former Agency which are the subject of such litigation will be used to benefit any efforts of the Authority, and further that no assets of the Former Agency which may be the subject of any such future litigation will be used to benefit any efforts of the Authority unless such litigation has been resolved by entry of a final judgment by any court of competent jurisdiction and any appeals have been exhausted; and (C) The Successor Agency has complied with all orders of the State Controller pursuant to Section 34167.5 of the Health & Safety Code, as such orders and the Successor Agency’s compliance therewith are evidenced by the State Controller’s Asset Transfer Review for the City of Banning.

SECTION 3. The Secretary of the Successor Agency shall certify to the adoption of this Resolution, and it shall become effective immediately upon approval.

PASSED, APPROVED AND ADOPTED this 27th day of August 2024.

Alberto Sanchez, Chairperson
Banning Successor Agency
ATTEST:

Caroline Patton, Secretary
Banning Successor Agency
APPROVED AS TO FORM:

Serita Young, Agency Counsel
Richards, Watson & Gershon
1421
Resolution 2024-05 SA

Page 3 of 3 ends

CERTIFICATION:

I, Caroline Patton, Secretary of the Banning Successor Agency, do hereby certify that the foregoing Resolution 2024-05 SA, was duly adopted by the Successor Agency of the City of Banning, California, at a regular meeting thereof held on the 27th day of August 2024 by the following vote, to wit:

AYES:

NOES:

ABSENT:

ABSTAIN:

Caroline Patton, Secretary
Banning Successor Agency
1422
Resolution 2024-143

Page 1 of 5 ends

RESOLUTION 2024-143

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BANNING, CALIFORNIA,

CREATING A COMMUNITY REVITALIZATION INVESTMENT AUTHORITY TO OPERATE

WITHIN THE COMMUNITY, AND MAKING CERTAIN FINDINGS AND TAKING CERTAIN

ACTIONS IN CONNECTION THEREWITH
WHEREAS, the California Legislature approved Assembly Bill 2 (Stats. 2015, c. 319, as amended), and thereby enacted Part 1 (commencing with Section 62000) of Division 4 of Title 6 of the Government Code (the “CRIA Law”) to create a planning and financing tool for local governments to address areas characterized by unsafe or unhealthy buildings in which persons live or work, conditions that make the viable use of buildings or parcels difficult, high business vacancies and lack of employment opportunities, and inadequate public improvements, water, or sewer utilities; and
WHEREAS, the CRIA Law authorizes cities to create a public body, corporate and politic known as a “Community Revitalization Investment Authority” (“CRIA”) to operate in the community, and to grant the CRIA jurisdiction to carry out a community redevelopment revitalization plan (“Plan”) within a community revitalization investment area (“Plan Area”); and WHEREAS, a CRIA may be created by the adoption of a resolution by the legislative body of a city, and the composition of the CRIA’s governing board is comprised of three (3) appointed members of the legislative body, and two (2) appointed members of the public that live or work within the Plan Area; and,
WHEREAS, a CRIA is an “agency” as described in subdivision (b) of Section 16 of the California Constitution for purposes of receiving tax increment revenues, with the powers and duties set forth in Government Code Section 62002, which include, but are not limited to: providing funding to rehabilitate, repair, upgrade, or construct infrastructure; providing for low- and moderate-income housing in accordance with Part 2 (commencing with Section 62100) of Division 4, Title 6 of the Government Code; remediating or removing a release of hazardous substances pursuant to the Polanco Redevelopment Act; providing for seismic retrofits or existing buildings in accordance with applicable laws and regulations; acquiring and transferring real property; issuing bonds in conformity with Article 4.5 (commencing with Section 53506) and Article 5 (commencing with Section 53510 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code; borrowing money, receiving grants, or accepting financial or other financial assistance from the state or federal governments, or any other public agency or private lending institution; making loans or grants for owners of tenants to improve, rehabilitate, or retrofit buildings or structures within the Plan Area; and providing direct assistance to businesses within the Plan Area in connection with new or existing facilities for industrial or manufacturing uses; and, WHEREAS, following its creation, a CRIA is required to adopt a Plan that includes the elements set forth in Section 62003 of the Government Code, and a CIRA may carry out the adopted Plan within a Plan Area that satisfies the conditions and requirements set forth in subsections (d) or (e) of Section 62001 of the Government Code; WHEREAS, a CRIA’s adoption of a Plan must be considered at three (3) public hearings held at least thirty (30) days apart, and such public hearings must comply with the procedural and substantive requirements set forth in Section 62004 of the Government Code; 1423
Resolution 2024-143

Page 2 of 5 ends

WHEREAS, a CRIA formed by a city that created a redevelopment agency that was dissolved pursuant to Part 1.85 (commencing with Section 34170) of Division 24 of the Health & Safety Code may not become effective until the successor agency of the former redevelopment agency has adopted findings of fact that satisfy the requirements of subsection (b)(3) of Section 62001 of the Government Code; and,
WHEREAS, the City of Banning is a California general law city located in Riverside County; and,
WHEREAS, following the dissolution of the Banning Redevelopment Agency, the City has had difficulty remediating blighted conditions existing throughout the community, encouraging private investment and development in the area, attracting new to and retaining existing businesses in the community, funding vital development and infrastructure improvements, and providing affordable housing opportunities and programs for its residents, among other things; and,
WHEREAS, the City Council of the City of Banning therefore desires to create a CRIA to operate within its jurisdiction boundaries to address these issues, to support the economic revitalization of the community, and to address geographical areas within its boundaries marked by deteriorated buildings, conditions that make the viable use of buildings or parcels difficult, high incidents of business vacancies and unemployment, and inadequacies in public improvements and utilities; and,
WHEREAS, contemporaneously with adoption of this Resolution, the Successor Agency of the Former Banning Redevelopment Agency has adopted a Resolution making the findings required by subsection (b)(3) of Section 62001 of the Government Code; and, WHEREAS, all other legal prerequisites to the adoption of this Resolution have occurred.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Banning as follows:

SECTION 1. The foregoing recitals are true and correct and incorporated herein this Resolution as substantive findings.

SECTION 2. Pursuant to Part 1 (commencing with Section 62000) of Division 4 of Title 6 of the Government Code, the City Council hereby creates, and authorizes and declares the existence of, a community revitalization investment authority within the City of Banning, to be known as the Banning Community Revitalization Investment Authority, a public body, corporate and politic (the “Authority”).

SECTION 3. The Authority is hereby authorized and directed to prepare and adopt a community revitalization and investment plan that complies with and satisfies the requirements of Section 62003 of the Government Code (“Authority Plan”), and is further authorized and directed to implement and carry out said plan within a community revitalization investment area that complies with and satisfies the requirements of subdivision (d) of Section 62001 of the Government Code (“Authority Plan Area”). The Authority is authorized and directed to take any and all actions necessary and appropriate to identify, prepare, and adopt the Authority Plan and Authority Plan Area.

SECTION 4. The City Council hereby appoints the following three (3) members of the City Council to the Governing Board of the Authority Governing Board (“City Council Members”):
1424
Resolution 2024-143

Page 3 of 5 ends

Member 1:

Member 2:

Member 3:

SECTION 5. The City Council Members shall appoint two (2) public members to the Governing Board of the Authority, and such persons shall either reside in or work within the Authority Plan Area (“Public Members”). City staff is hereby authorized and directed to prepare a draft Authority Plan (“Draft Plan”) for consideration by the Authority, and between publication of the notice for the first public hearing required by subsection (c) of Section 62004, and the date of the first public hearing on the Authority Plan, the City Council Members shall accept nominations for and make appointments of the Public Members to the Governing Board of the Authority. Such nominations and appointments of the Public Members shall be completed in the manner directed by the City Council Members. The Authority may, on its own initiative, or it shall upon the direction of the City Council, adopt rules and regulations governing the manner and method of future appointments to the Governing Board of the Authority, as well as the terms of office of members of the Governing Board of the Authority.

SECTION 6. Following its adoption of a Plan in accordance with Section 62004 of the Government Code, the Authority is hereby authorized and empowered to do all of the actions and activities authorized by the CRIA Law, including but not limited to those set forth in Section 62002 of the Government Code.

SECTION 7. This Resolution is exempt from the California Environmental Quality Act pursuant to Section 15061(b)(3) of the CEQA Guidelines, as it can be seen with certainty that the actions authorized by this Resolution will not have an impact on the environment, in that the Authority’s adoption of the Authority Plan and Authority Plan Area are subject to future discretion of the Governing Board of the Authority, and the Authorities contents and scope of the Authority Plan and Authority Plan Area are too speculative at this time to enable environmental review.

SECTION 8. The City Clerk shall certify to the adoption of this resolution and shall cause a certified resolution to be filed in the book of original resolutions.

PASSED, APPROVED AND ADOPTED this 27th day of August 2024.

Alberto Sanchez, Mayor
City of Banning
ATTEST:

Caroline Patton, Administrative City Clerk
City of Banning
1425
Resolution 2024-143

Page 4 of 5 ends

APPROVED AS TO FORM:

Serita R. Young, City Attorney
Richards, Watson & Gershon
1426
Resolution 2024-143

Page 5 of 5 ends

CERTIFICATION:

I, Caroline Patton, Administrative City Clerk of the City of Banning, California, do hereby certify that the foregoing Resolution 2024-143, was duly adopted by the City Council of the City of Banning, California, at a regular meeting thereof held on the 27th day of August 2024 by the following vote, to wit:

AYES:

NOES:

ABSENT:

ABSTAIN:

Caroline Patton, Administrative City Clerk
City of Banning, California
1427
Prepared by:

Kosmont Companies
Community Revitalization and
Investment Authority (CRIA)
Next Steps for Implementation
February 13, 2024
1428
Executive Summary
Communicating in a Digital World
2 • City of Banning has potential for private sector investment and development across multiple opportunity site areas in the City
• Investments in critical infrastructure and property assemblage, particularly in the Downtown / Ramsey Street area, are needed to support investment and economic revitalization • A public/private financing strategy that includes Tax Increment Financing (TIF) financing in the form of a Community Revitalization and Investment Authority (CRIA) has been evaluated by staff and consulting firm Kosmont to be well-suited to capture value from new development to fund acquisition and infrastructure costs, particularly due to eminent domain authority of CRIA • CRIA funding capacity is estimated in the range of $23 to $46 million in present value terms (25% of funding being set aside for affordable housing uses, or $6 to $11 million) 1429
Executive Summary (Continued)
Communicating in a Digital World
3 • City staff and consultants have had multiple discussions with County of Riverside staff and elected officials, and the conditions required by the County for partnership in the CRIA would render the CRIA financially infeasible for the City
• It is thus suggested that the City proceed with CRIA implementation without the County • Purpose of today’s meeting is to formally create the CRIA entity and appoint City Councilmembers to the CRIA governing board
• Next steps include drafting the guiding CRIA Plan, followed by a set of public meetings and hearings to present and vet the CRIA Plan with the community • Completion of the CRIA formation process is anticipated in the Fall of 2024 1430
Outline
Communicating in a Digital World
4 1. Overview of TIF / CRIA

2. Banning CRIA Boundary and Strategic Considerations

3. Targeted Property Assembly Activities and Infrastructure Projects

4. Financing and Funding Alternatives

5. Next Steps
1431
5 $0M
$100M
$200M
$300M
$400M
$500M
$600M
0 5 10 15 20 25 30 35 40 45 50 55
Baseline Property Value
Property taxes continue to flow to City / County / Schools / Other Taxing Entities as normal New Property Value from
New Development / Rehabilitation
Available to TIF District
Years from District Formation
Assessed
Property Value
(A/V) within
TIF District
Boundaries
New Total
Value After
TIF District
Benefits all
Taxing Entities
Period of New
Development
Note: Illustrative. Conservative 2% growth of existing assessed value (A/V) shown; does not include mark-to-market increases associated with property sales.

What is Tax Increment Financing (TIF) –Not a New Tax
1432
CRIA Fundamentals
Communicating in a Digital World
6 Does NOT increase property taxes
Term 30 years to issue debt; 45 years to repay
Public agency separate from the city, county that created it; implements governing Governance document (CRIA Plan) City or County that meets disadvantaged community definitions (median income, unemployment, crime, deterioration) Eligibility
Mandatory public hearings for formation (includes protest opportunity); no public Approvals vote to issue debt Infrastructure, affordable housing, remediation, acquire and transfer property (incl. via eminent domain), loans and grants to property owners and businesses; 25% affordable housing set aside
Eligible
Projects
1433
7 CRIA versus Former Redevelopment Agencies
Sample of Similarities and Differences
Former RDA CRIA
Eligible Use of Funds • Infrastructure and affordable housing • Market-rate housing
• Parcel assembly
• Tax and other private business /
developer subsidies, incl. golf courses,
casinos, big box retail, auto malls
• Infrastructure and affordable housing
• Market-rate housing
• Parcel assembly
• Assistance to businesses
• Assistance not allowed for golf courses,
casinos, big box retail, auto malls
Eminent Domain /
Condemnation
• Allowed • Allowed for first 12 years of CRIA lifetime Eligible Areas • Must qualify as “blighted” with loose
definition
• “Blight” defined quantitatively
Governance • City Council or County Board
• School entity participation
• CRIA Board, including public members
(no school entities)
Formation • Vote of governing body, limited ongoing
review
• 3 public hearings, majority protest
opportunity, annual review required,
“check-in” at 15 years post-formation
1434
Why are Public Agencies Authorizing TIF Districts?
Communicating in a Digital World
8 1. Return on Investment: Private sector investment induced by district commitment accelerates growth of net fiscal revenues, job creation, housing production, essential infrastructure improvements

2. Ability to attract additional funds / other public money (“OPM”) – tax increment from other entities (county, special districts), federal / state grants / loans (e.g., for TOD, water, housing, parks, remediation)

3. Eminent domain authority (specific to CRIA)
1435
TIF Districts in Progress
Statewide
(Partial List)
Fully Formed In Formation Process Under Evaluation
Jurisdiction Purpose
Apple Valley Industrial and housing supportive infrastructure Banning Downtown revitalization, industrial infrastructure Barstow Industrial and housing supportive infrastructure Brentwood Housing, employment, and transit-supportive infrastructure Buena Park Mall reimagination, housing-supportive infrastructure Carson + L.A. County Remediation, affordable housing, recreation Citrus Heights Mall reimagination
Covina Downtown housing and blended use supportive infrastructure Fairfield Downtown, housing, and transit-supportive infrastructure Fresno Downtown, housing and transit-supportive infrastructure Fresno County Industrial and commercial supportive infrastructure Humboldt County Coastal mixed-use and energy supportive infrastructure Indian Wells Housing and tourism-supportive infrastructure Imperial County Industrial, renewable energy, and housing and infrastructure La Verne + L.A. County Housing and transit-supportive infrastructure Long Beach Economic empowerment and affordable housing
Los Angeles (Downtown, San Pedro, other) Affordable housing and transit-supportive infrastructure Los Angeles County Uninc. West Carson Housing / bio-science / tech infrastructure Madera County (3 Districts) Water, sewer, roads and other housing infrastructure Modesto + Stanislaus County Downtown, housing, and recreation infrastructure Mount Shasta + Siskiyou County Rural brownfield mixed-use infrastructure Napa Downtown, housing, tourism supportive infrastructure Oakland Affordable housing and infrastructure
Ontario Industrial and housing infrastructure
Palmdale + L.A. County Housing and commercial infrastructure Pittsburg Housing, commercial, and tech park infrastructure Placentia + Orange County Housing and TOD infrastructure Rancho Cucamonga Blended use and connectivity infrastructure Redlands Education related and blended use infrastructure Redondo Beach + L.A. County Parks / open space, recreation infrastructure Riverside Affordable housing and infrastructure
Sacramento County (Unincorporated) Industrial / commercial supportive infrastructure San Jose Affordable housing and TOD infrastructure
Sanger Housing and commercial supportive infrastructure Santa Cruz Downtown and blended use infrastructure
Santa Fe Springs Blended use infrastructure
Selma Water, sewer, and other housing supportive infrastructure Vacaville Housing and business park infrastructure
Yucaipa Housing and commercial infrastructure 1436
CRIA Qualification Analysis
+ Economic Development Opportunity Sites
10 Source: City of Banning, ESRI (2023)
• Income
• Unemployment
• Crime
• Planned and proposed projects
1437
Draft CRIA Boundary
Refined Iteratively Over the Last 12 Months
11 Source: City of Banning, Riverside County Auditor-Controller (2023) • Approx. 3,226 acres (22% of
Citywide acreage)
• Approx.$766.9M in existing
assessed value (32.7% of
Citywide A/V)
• (100% within the City of Banning)
1438
CRIA Boundary Land Uses
12 Source: City of Banning, General Plan and Zoning Map (2021) 1439 13 Potential Targeted Improvements
• Acquisition / assemblage of underutilized parcels for redevelopment, particularly along Ramsey Street
• Development off-site infrastructure (e.g., water / sewer / storm drain, other utilities) • Roadway, streetscape improvements
• Affordable housing
• Parks and open space
1440
14 Future Development Assumptions
Absorption Assumed over 30 Years
Note: AV at buildout values in current 2024 dollars.

Source: City of Banning Planning and Economic Development Staff, CoStar (2023) Area # SF or Units Estimated
AV Factor
Estimated
Total AV at Buildout
Residential 600 units $325,000 per unit $195 million
Industrial 3,000,000 SF $185 PSF $555 million
Cannabis/Flex Space 65,000 SF $165 PSF $11 million
Grandave Studios 225,000 SF $165 PSF $37 million
Retail 80,000 SF $250 PSF $20 million
Total New Development Assumed within CRIA Study Area $818 million 1441
15 Potential Partner Agencies
Property Tax Distribution
• Primary non-school recipients and potential
contributors of property tax are City of
Banning and County of Riverside
• City receives approx. 16% of every $1 collected
in property taxes within the CRIA Study Area
 City additionally receives equivalent of approx.
11% of property tax in lieu of MVLF, also
available to CRIA
• County receives approx. 11%
 County additionally receives equivalent of
approx. 9% of property tax in lieu of MVLF, also
available to CRIASchool-related entities
cannot participate
Tax Rate Area (TRA) weighted average distributions for CRIA Study Area shown. Post-ERAF (Education Revenue Augmentation Fund) distribution.

Parcels within former Redevelopment Agency Project Areas are subject to RPTTF revenue flow until expiration of ROPS obligations.

Source: Riverside County Auditor Controller (2023)
City
16%
County
11%
Other Entities /
Schools (not
eligible)
73%
Weighted Average Property Tax Distribution
within CRIA Study Area
1442
16 Scenario Analysis Summary Matrix
Boundary Scenario #2
CRIA Revenue
Contribution Scenario
Year 5
Accumulated
Revenue +
Bonding
Capacity*
Year 10
Accumulated
Revenue +
Bonding
Capacity*
45-Year
Present Value
@ 3%
25% Affordable
Housing
Set-Aside
A) City 25% Scenario $2,428,000 $7,593,000 $22,950,000 $5,738,000 B) City 50% Scenario $5,501,000 $15,831,000 $45,900,000 $11,475,000 City contribution includes contribution from both AB8 + MVLF in-lieu property tax. * Bonding capacity assumes Year 5 is first bond issuance for CRIA. “Year 5 means fifth year of revenue following district formation. Net proceeds shown. Bondable revenue assumes $25,000 admin charge, 150% debt service coverage. 6.5% interest rate; 30-year term. Proceeds net of 2% underwriter's discount, estimated reserve fund (maximum annual debt service), costs of issuance estimated at $350,000.

Source: Kosmont Financial Services (KFS), registered municipal advisor. 1443
17 Nominal vs. Present-Value Dollars
Revenue Allocation
Scenarios
Present Value Dollars
(3% Discount Rate)
Nominal 2024
Dollars
City 25% Scenario $23M $52M
City 50% Scenario $46M $103M
1444
18 Potential Cash Flow / Debt Issuance Approaches
• Kosmont Financial Services is in active discussions with public finance underwriters regarding CRIA debt issuances in other jurisdictions
• Underwriters have proposed several approaches for the leverage of CRIA tax increment for accelerated debt issuance (e.g., 2-3 years from CRIA formation), for example:
a) CRIA increment only
b) Overlapping CRIA and CFD (CFD Backstop) – landowners / developers must be willing to pay CFD special taxes in the short term (e.g., 5-10 years) until CRIA increment reaches a level to cover debt service
c) CRIA increment with City or County general fund backstop • There are advantages and disadvantages with each approach (e.g., upfront proceeds available, public agency risk, cost of capital)
• Additional alternatives are available if private sector partners (e.g., landowners / developers are willing to advance infrastructure funding in exchange for reimbursement from CRIA proceeds)
1445
19 CRIA Helps Attracts Other Funding
Federal & State Sources
 Cap-and-Trade / HCD grant & loan
programs (AHSC, IIG, TCC)
 Prop 1 bond funds / Prop 68
 SB 1 Road funds
 SB 2 Transfer Tax funds
 Federal DOT / EPA / EDA funding
Other Potential Funding Sources
 Development Agreement / impact fees
 Benefit assessments (e.g., contribution from CFD)
 Private investment
Communities with CRIAs are more likely to win state grant funding sources 1446
City “Return on Investment”
20 • Implementation of regional economic development policy objectives, including affordable housing, community revitalization in a Disadvantaged Community, quality of life improvement • Jobs and wages from both temporary construction activities and ongoing operation of new development, including 2,400+ permanent new jobs
• Acceleration of development and related fiscal revenues: $24.1 million in present value fiscal benefit for City General Fund over 45 years, net of tax increment contribution to EIFD, and net of estimated fiscal expenditures (45-year, 25% City allocation example) 1447
21 Fiscal ROI – Summary of Potential Net Fiscal Impacts Net of 25% Increment Contribution to Banning CRIA
Annual
(Stabilized
Year 20)
Year 0-45
Nominal
Total
Year 0-45
Present Value
@ 3.0%
City of Banning
Estimated Fiscal Revenues (Net of CRIA Allocation) $4,445,310 $205,601,200 $89,224,300 Estimated Fiscal Expenditures $3,083,000 $158,519,500 $65,168,600 Estimated Net Fiscal Impact to City $1,362,310 $47,081,700 $24,055,700 1448
22 Potential CRIA Formation Schedule
 Tax increment allocation begins fiscal year following district formation  Debt issuance, if desired, would occur after a stabilized level of tax increment has been established Target Date Task
TODAY: Feb 13, 2024 a) City adopts resolution creating the CRIA entity Feb-Mar 2024 b) CRIA drafts Community Revitalization and Investment Plan (CRIA Plan) Apr 2024 c) Distribute draft CRIA Plan to property owners and residents within CRIA boundary May 2024 d) Initial CRIA public meeting to present the draft CRIA Plan to the public and property owners Jul 2024 e) CRIA Public Hearing #1 to hear written and oral comments but take no action Jul or Aug 2024 f) City Council considers resolution approving the CRIA Plan and allocation of property tax increment to CRIA
Aug 2024 g) CRIA Public Hearing #2 to hear additional comments and take action to modify or reject Plan, if appropriate
Sept 2024 h) CRIA Public Hearing #3 to consider oral and written protests and take action to terminate proceedings or adopt CRIA Plan by ordinance
1449
23 Next Steps / Action Items
• For Tonight:
a) City Council to consider Resolution forming the CRIA entity b) Successor Agency to consider Resolution making findings of pre-requisites to CRIA formation
• Staff and consultants to prepare draft CRIA Plan, distribute publicly via mail and website, convene a public meeting of the CRIA to present the draft CRIA Plan (targeting May 2024) 1450
24 THANK YOU
Questions?
Kosmont Companies
1601 N. Sepulveda Blvd. #382 Manhattan Beach, CA 90266
Ph: (424) 297-1070 | Fax: (424) 286-4632
www.kosmont.com
1451
Disclaimer
25 The analyses, projections, assumptions, rates of return, and any examples presented herein are for illustrative purposes and are not a guarantee of actual and/or future results. Project pro forma and tax analyses are projections only.Actual results may differ from those expressed in this analysis.

Discussions or descriptions of potential financial tools that may be available to the City are included for informational purposes only and are not intended to be to be “advice” within the context of this Analysis.

Municipal Advisory activities are conducted through Kosmont Companies’ affiliate, Kosmont Financial Services, which is Registered as a Municipal Advisor with the SEC and MSRB. 1452

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Doug Schulze, City Manager
MEETING DATE: August 27, 2024
SUBJECT: Consideration of the First Reading and Introduction of Ordinance 1606, Setting Salaries for City Council
RECOMMENDATION:

Conduct first reading of Ordinance 1606 and set second reading for September 10, 2024 Regular Meeting of the City Council.

BACKGROUND:

Governor Newsom signed SB 329 into law in July 2023 that allows general law cities to adjust council member salaries for inflation for the first time in almost four decades. Prior to SB 329, city councils in general law cities could vote to receive a limited salary, which was capped based on population size provided in state law. Serving on a city council requires lengthy time commitments and limited pay can discourage many residents from running for office, especially low-income residents, single parents and young people.

Prior to SB 329, city councils in general law cities could vote to receive a limited salary, not to exceed caps based on population size provided in state law. They could not increase their salary annually. This limited mechanism did not allow salaries to stay in line with inflation. In previous decades, the Legislature updated these numbers for inflation, but the last update was in 1984 despite an over 300% increase in the cost of living.

SB 329 (Section 26516 of the Government Code) authorizes city councils to enact an ordinance providing that each member of the city council shall receive a salary based on the population of the city as set forth in paragraph (2) of Gov't. Code Section 26516. In cities up to and including 35,000 in population, the salary can be set up to and including nine hundred fifty dollars ($950) per month. The population is determined by the last preceding federal census, or a subsequent census, or estimate validated by the Department of Finance.

The salary of council members may be increased beyond the amount provided in this subdivision by an ordinance or by an amendment to an ordinance, but the amount of the increase shall not exceed the greater of either (1) an amount equal to 5 percent for each calendar year from the operative date of the last adjustment of the salary in effect when the ordinance or amendment is enacted or (2) an amount equal to inflation since January 1, 2024, based upon the California Consumer Price Index, which shall not exceed 10 percent for each calendar year. An ordinance cannot be enacted or amended to provide automatic future increases in salary.

Any amounts paid by a city for retirement, health and welfare, and federal social security benefits shall not be included for purposes of determining salary under Gov't Code Section 36516. Reimbursements 1453
for actual and necessary expenses pursuant to Section 36514.5 are also not included for purposes of determining salary.

The City Council must consider the adoption of an ordinance to increase compensation in open session during at least two regular meetings of the city council. At the first meeting, the city council shall present the proposed ordinance, which shall including findings demonstrating the need for the increased compensation. At least seven days after the first meeting, the city council must hold a second meeting to consider whether to adopt the ordinance.

JUSTIFICATION:

City Council salaries have not been increased for many years and low compensation may discourage or even prohibit some residents from running for office.

FISCAL IMPACT:

As proposed, the annual cost of the increase to $950 per month from $300 per month will be $39,000 ALTERNATIVES:

Conduct first reading and move ordinance, as written, to September 10, 2024 meeting for consideration.

Conduct first reading and move ordinance, with modification(s), to September 10, 2024 meeting for consideration.

Do not move ordinance forward for second reading and consideration.

BUDGETED?:

No
CONTRACT/AGREEMENT:

No
ATTACHMENTS:

1. Ordinance 1606, City Council Compensation.docx

2. SB 329.pdf
1454
Ordinance 1606

Page 1 of 4 ends

ORDINANCE 1606

AN ORDINANCE OF THE CITY OF BANNING, CALIFORNIA, AMENDING SECTION 2.04.030 OF THE BANNING MUNICIPAL CODE TO INCREASE THE SALARY OF EACH MEMBER OF THE CITY COUNCIL TO $950 PER MONTH WHEREAS, Government Code Section 36516 provides that a City Council may enact an ordinance setting the salary for each member of the City Council, the amount of which shall be based upon population; and
WHEREAS, on October 24, 2006, the City Council adopted Ordinance 1354, setting City Councilmember compensation to $300 per month; and
WHEREAS, Government Code Section 36516(a)(2)(A) provides that cities up to and including 35,000 in population may set City Councilmember salaries by ordinance up to and including $950 per month; and
WHEREAS, Government Code Section 36516(a)(3) provides that the population of a city shall be determined by the last preceding federal census, or a subsequent census, or estimate validated by the Department of Finance; and
WHEREAS, the City of Banning population as of the 2020 federal census was 29,505 and the California Department of Finance has estimated that the 2024 population for Banning is 31,213; and
WHEREAS, the time, commitment, and expense of serving on the Banning City Council has increased significantly since 2006; and
WHEREAS, pursuant to Government Code Section 36516.5, changes to city councilmember salaries may not take effect until a new city council term begins and, in the case of councilmembers serving staggered terms, all councilmembers may receive the salary increase once one or more councilmembers begin a new term in office; and WHEREAS, the next General Municipal Election for the City of Banning is to be held on November 5, 2024, and the proposed salary increase set forth in this Ordinance shall not take effect until the start of a new city council term following the November 2024 election; The City Council of the City of Banning does hereby ordain as follows:

SECTION 1. All of the above recitals are true and correct and are herein by reference.

SECTION 2. The Council hereby finds that increasing time commitments by the Council and increasing cost of living demonstrate the need for the increase in compensation.

SECTION 3. Section 2.04.03 (“Compensation”) of Chapter 2.04 (“City Council”) of Title 2 (“Administration and Personnel”) of the Banning Municipal Code is hereby amended to read as follows:
“2.04.030 - Compensation.
1455
Ordinance 1606

Page 2 of 4 ends

A. Pursuant to California Government Code section 36516(a)(2)(A), each council person shall receive a monthly salary of nine hundred fifty dollars.

B. Pursuant to California Government Code section 36516.5 the salary provided for in subsection A shall take effect as to all members of the city council only upon the commencement of the new or re-elected term of office by any member of council following the November 2024 municipal election.

C. Pursuant to California Government Code section 36516(a)(4), the City Council may increase the salary of each council person beyond the amount provided in subsection A by an ordinance or an amendment to an ordinance, provided the amount of the increase shall not exceed the greater of either of the following:
(1) An amount equal to five percent for each calendar year from the operative date of the last adjustment of the salary in effect when the ordinance or amendment is enacted.
(2) An amount equal to inflation since January 1, 2024, based upon the California Consumer Price Index, which shall not exceed ten percent for each calendar year.”
SECTION 4. The City Clerk is directed to certify the passage and adoption of this Ordinance; cause it to be entered into the City of Banning’s book of original ordinances; make a note of the passage and adoption in the records of this meeting; and, within fifteen (15) days after the passage and adoption of this Ordinance, cause it to be published or posted in accordance with California law.

SECTION 5. If any section, subsection, sentence, clause, phrase, or portion of this Ordinance is for any reason held invalid or unconstitutional, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance and each and every section, subsection, sentence, clause, phrase, or portion not declared invalid or unconstitutional without regard to whether any portion of this Ordinance would be subsequently declared invalid or unconstitutional.

SECTION 6. This Ordinance will become effective on the thirty-first (31st) day following its passage and adoption.

PASSED, APPROVED AND ADOPTED this 10th day of September 2024.

Alberto Sanchez, Mayor
City of Banning
ATTEST:

Caroline Patton, Administrative City Clerk
City of Banning
1456
Ordinance 1606

Page 3 of 4 ends

APPROVED AS TO FORM:

Serita Young, City Attorney
Richards, Watson & Gershon
1457
Ordinance 1606

Page 4 of 4 ends

CERTIFICATION:

I, Caroline Patton, Administrative City Clerk of the City of Banning, California, do hereby certify that Ordinance 1606 was duly introduced at a regular meeting of the City Council of the City of Banning, held on the 27th day of August 2024, and was duly adopted at a regular meeting of said City Council on the 10th day of September 2024, by the following vote, to wit:

AYES:

NOES:

ABSENT:

ABSTAIN:

Caroline Patton, Administrative City Clerk
City of Banning, California
1458
1459
1460
1461

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Emery Papp, Senior Planner
MEETING DATE: August 27, 2024
SUBJECT: Discussion of Proposed Amendments to Banning Municipal Code and Zoning Pertaining to Cannabis Businesses, Including the Possibility of Implementing an Urgency Ordinance/Moratorium
RECOMMENDATION:

Receive information and presentation from staff and public speakers; followed by discussion of the Council Members and direction to staff.

BACKGROUND:

In July 2018, the Banning City Council passed Ordinance Nos. 1523 and 1524, which created a conditional use permit process for cannabis cultivation, manufacturing, and testing lab facilities and a procedure for the issuance of cannabis regulatory permits for cannabis cultivation, manufacturing, and testing lab facilities, respectively. Ballot Measure N, on the November 2018 ballot, established a cannabis cultivation tax and provided that the City Council can amend the cultivation tax. Ballot Measure O, on the same 2018 ballot, provided that should the Banning City Council adopt an ordinance allowing for the issuance of conditional use permits to cannabis retailers and an ordinance to allow for the issuance of regulatory permits to cannabis retailers to operate in certain commercial zones, a commercial retail cannabis tax will go into effect. Both Measures N and O passed. In November 2018, after the election, the City Council enacted Ordinance No. 1531, which provided for a conditional use permit process to allow cannabis retailers within the City.

In July 2020, the City Council passed Ordinance No. 1564, which would allow cannabis distribution facilities in industrial zones contingent on the approval of Measure L, which was on the November ballot.

Measure L was a measure that would impose a tax on cannabis distribution facilities. Measure L passed, and Ordinance No. 1564 went into effect. Finally, in 2021, the City Council passed Ordinance No. 1577, which allowed cannabis microbusinesses, established the regulatory scheme for such businesses, and established zoning standards for the microbusinesses.

The revenue generated by cannabis business taxes has not met the City’s prior expectations. Tax revenue is dependent on the retail sales each cannabis retailer generates and the size and number of cannabis cultivation businesses that are operating in the City. This ranges from $150,000 to $330,000 per year, per license/Conditional Use Permit. In an effort to boost revenues from cannabis business taxes, the City has passed a number of additional cannabis Ordinances in recent years to amend zoning requirements and business licensing requirements for cannabis businesses, without having the desired effect of increasing tax revenues.

Cannabis business operations have also raised concerns about potential land use conflicts, such as odor and noise control, inadequate separations from sensitive uses, and other potential unintended 1462
consequences and public safety, health, and welfare impacts. Councilmembers and Planning Commissioners alike have expressed dissatisfaction regarding the processing of some recent land use entitlement applications due to potential impacts on residents. Proposals to revise the City’s current cannabis regulations have therefore been discussed.

One idea under discussion is a moratorium on cannabis businesses. Under Section 65858 of the California Government Code, cities may adopt interim ordinances prohibiting approval of new land uses that might conflict with an amendment to a general plan, specific plan, or zoning ordinance that the city plans to study within a reasonable time period. Therefore, a moratorium on cannabis uses in Banning would not eliminate existing businesses, but it would temporarily prohibit new businesses from applying for or receiving approvals from the City while the City studies possible changes to the its cannabis regulations.

A moratorium must be adopted by ordinance that requires a four-fifths vote of the city council and contains a finding that there is a current and immediate threat to the public health, safety, or welfare. The ordinance may be adopted either on an urgency basis or after a noticed public hearing. An urgency ordinance can be adopted without notice and a hearing, without prior Planning Commission review, and can be made to take effect immediately by the inclusion of urgency findings.

Once enacted, a moratorium has an initial duration of 45 days, and after can only be extended following a noticed public hearing. Up to two extensions are allowed for a maximum term of two years. Each extension is subject to the same requirements for four-fifths approval and legislative findings. Cities must also issue a written report describing the measures taken to alleviate the condition that led to the adoption of the ordinance at least ten days prior to any extension.

The City Council may consider further input on this subject from members of the public and provide direction to City staff. If the City Council wishes to consider a moratorium, staff will prepare an ordinance for its consideration at a future meeting based on the direction received from the City Council.

JUSTIFICATION:

Section 65858 of the California Government Code permits local jurisdictions to adopt an urgency measure as an interim zoning ordinance. Should the Council direct staff to prepare an urgency ordinance placing a moratorium on cannabis businesses, the procedures for same may be found in the attached citation from CGC 65858.

It is important to note that should the City adopt an Ordinance to place a moratorium on cannabis related businesses, that such a ban would not apply to any lawfully established cannabis businesses currently operating, nor does it "freeze" any regulatory permits, applications or use permit entitlement applications for cannabis businesses that are submitted prior the enactment of the urgency ordinance.

FISCAL IMPACT:

Potential loss of Cannabis Business Tax revenues, staff time, and City Attorney time to prepare Moratorium Ordinance(s)
ALTERNATIVES:

Direct staff to:

1. Make no amendments to the current BMC

2. Amend the current BMC provisions

3. Prepare an Urgency Ordinance, temporarily placing a hold on new cannabis businesses and prepare a Moratorium Ordinance
BUDGETED?:

No
1463
CONTRACT/AGREEMENT:

No
ATTACHMENTS:

1. 05-14-2024 CC Staff Report.pdf

2. SR_Ordinance 1565_05-12-2020.pdf

3. Cannabis Ad Hoc Committee Meeting Minutes 6.18.2024 v2.docx

4. California Government Code Section 65858.docx

5. DCC Medicinal and Adult-Use Regulations.docx
1464

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Emery Papp, Senior Planner
Adam Rush, Community Development Director
MEETING DATE: May 14, 2024
SUBJECT: Consideration of Amending the City of Banning Municipal Code Requirements for Cannabis Businesses
RECOMMENDATION:

Discuss and consider amendments to the City of Banning Municipal Code requirements for cannabis businesses, and provide direction to Community Development Department staff.

DEPARTMENT DIRECTOR:

Adam Rush, Community Development Director
BACKGROUND:

The City Council and the Planning Commission each act in their individual capacities as a decisionmaking body and a recommending body, respectively, for approval of cannabis business related entitlements under Title 17 of the Banning Municipal Code (BMC), otherwise referred to as the "Zoning Code." Cannabis businesses are unique in the sense that they require adherence to State requirements through the California Department of Cannabis Control, as well as Banning Municipal Code (BMC) requirements set out in Title 3 - Revenue and Finance; Title 5 - Business Licenses and Regulations; and Title 17 - Zoning of the BMC. Pertinent Sections of the BMC concerning cannabis businesses are attached to this report.

Since adoption of the first cannabis ordinance which established a process allowing for cannabis businesses to operate in the City of Banning, three retail cannabis stores have opened, two indoor cultivation facilities were approved with one operating for approximately two (2) years, one manufacturing and distribution facility was approved and is open, and two requests for an indoor cultivation facilities were denied by the City Council. The City continues to receive inquiries regarding additional retail cannabis locations, indoor cultivation facilities, and for cannabis microbusinesses; however, no current applications are on file. The City currently has a limit on the number of retail cannabis establishments, which is set at 1 retailer per 10,000 residents. As the City's population continues to increase, the public and the City Council have expressed concern regarding the number of retail outlets in the City of Banning. Concerns regarding odor emanating from cultivation facilities continues to remain.

Discussion Items:

Staff is seeking discussion and guidance from the City Council regarding potential amendments to the Banning Municipal Code related to cannabis businesses in the following areas:
1 1465

1. Number of Retail Cannabis Locations. Does the City Council wish to keep the existing ratio of 1:10,000; or set a finite cap on the number of retail establishments allowed? If placing a finite cap, by what metric(s) shall staff evaluate in setting the desired number of retail cannabis establishments?

2. Potential increase in Number of Retail Cannabis Establishments. Should the City Council consider: a) Allowing retail establishments to locate into other commercial zones? Currently, retail cannabis establishments are only permitted in the Highway Serving Commercial (HSC) Zoning District; b) Continue with "Cannabis Lottery" format for consideration of new retail cannabis establishments?; c) Evaluate new applicants on a first-come, first-served basis?; d) Evaluate new applicants on a merit-based evaluation system?; e) Increase/decrease the 1,000 linear-foot minimum distance separating existing retail cannabis establishments and from newly proposed cannabis retail business?; f) Should any proposed distance separation be measured from property line to property line, door to door, "as the crow flies" (in a straight line, crossing physical barriers such as walls and streets), or along an accessible path of travel (going around physical barriers)?; g) Should the existing requirement for separation of 200 feet from residential uses be revisited?

3. Indoor Cultivation/Manufacturing Facilities. There is currently one indoor cultivation facility and one manufacturing/distribution facility operating in the City of Banning and another cultivation facility has been entitled but is not yet operational. An application for a cultivation facility was recently denied by the City Council based on its proximity to residential uses, concerns regarding building height and design, and concerns regarding odors potentially emanating from the facility. As a result of these actions, should the City Council consider: a) a distance separation (setback) from an industrial cannabis business to nearby residential uses, and if so, by what metric(s) will this distance be determined?; b) Limitations on building height in proximity of residential uses?; c) Physical barriers separating industrial cannabis businesses from residential uses such as fences, walls, berms, additional landscaping, etc.?; d) Require certified air handling/HVAC engineers to prepare an odor control plan for submittal and review as part of the Conditional Use Permit application process?

4. Cannabis Microbusiness Establishments. Cannabis microbusinesses are currently allowed in the Business Park (BP) and Industrial (I) zones only. Applications for Microbusinesses currently require at least 3 of the 4 types of activities to qualify as a microbusiness which include: retail establishments, manufacturing, cultivation, and distribution. The "cap" on retail does not apply to cannabis microbusinesses that contain a retail component. As standalone retail cannabis establishments are currently only permitted in the HSC Zone, should the City consider: a) Continue to authorize future microbusinesses to include a retail component?; b) Expanding opportunities for microbusinesses by allowing them in the HSC Zone or General Commercial (GC) Zone?; c) If expanding microbusinesses into the HSC and GC Zones, should there be a physical separation from other cannabis retail establishments or residential uses?

5. Design Guidelines. Should the City Council consider adopting additional design guidelines for cannabis businesses to reduce impacts on surrounding land uses, including: a) Increased physical separation from residential and other sensitive uses such as walls and fences, landscaping and berming? This would primarily apply to cultivation, but also retail, microbusiness, and manufacturing uses as well; b) Distance separations from other cannabis businesses and sensitive uses (e.g., daycares, schools, churches, parks/playgrounds, senior facilities)? NOTE: Small Family Daycares (SFD) can exist within residential neighborhoods without direct knowledge by City staff.; c) Building height and form when adjacent to residential development and other sensitive uses?; d) Air handling and odor control?
JUSTIFICATION:

It is the intent of this discussion to fully vet the types of cannabis businesses permitted by the City of Banning, identify how City staff will evaluate the merits of cannabis business applications, and enhance the City’s community engagement regarding all cannabis related businesses. This will be achieved through public discussion at City-noticed public meetings and future public hearings serving to increase transparency and awareness of proposed BMC amendments, express to the citizens of Banning that their concerns have been heard, and that steps are being taken to address those concerns, and to 2 1466
provide additional opportunities for public input, discourse, and participation.

Per City Council discussion and direction to staff, City staff will prepare an ordinance amending applicable provisions of the BMC that endeavors to strike a balance between the needs of the residents and citizens of the City of Banning, the needs of the business community, and the desire of the City Council.

FISCAL IMPACT:

The preparation of this Staff Report was prepared by the Community Development staff under the normal course of duties and responsibilities. No additional costs were incurred. If and when the City Council initiates a Zoning Text Amendment (ZTA) to modify and incorporate changes to the City's Cannabis Business program, an Ordinance will need to be drafted by the City Attorney's Office, reviewed by the Community Development Department and the City Manager and then scheduled before the Planning Commission at a public hearing for their review, input, and recommendation to the City Council.

At the time that an Ordinance is considered by the Council, another public hearing will occur during the introduction and first reading of the ordinance, and then a second reading is required. This process will require the support of City Staff (namely the Community Development Department, Deputy City Clerk, City Attorney, and City Manager). A specific dollar amount is unknown at this time, however, preliminary estimates for City Attorney are approximately $5,000 to $12,500 in legal costs, with an additional $7,500 to $15,000 in total staff support costs The anticipated time frame for completion of amendments to the Banning Municipal Code for cannabis businesses is expected to take from six (6) to eight (8) months.

Both the costs and time frame are widely subject to change, based upon the degree and complexity of input requested by the City Council.

ALTERNATIVES:

1. Provide direction to staff regarding additional research, but delay initiation of the amendment.

2. Continue this item off calendar and without discussion.

BUDGETED?:

No
CONTRACT/AGREEMENT:

No
ATTACHMENTS:

1. Chapter_3.15___CANNABIS_RETAILER_TAX.docx

2. Chapter_3.17___CANNABIS_INDUSTRIAL_TAX.docx

3. Chapter_5.33___CANNABIS_RETAILER_REGULATORY_PERMITS.docx

4. Chapter_5.34___MARIJUANA_CULTIVATION.docx

5. Chapter_5.35___CANNABIS_REGULATORY_PERMITS.docx

6. 17.08.020 Residential Uses.docx

7. 17.12.020 Commercial Uses.docx

8. 17.53 CANNABIS_CONDITIONAL_USE_PERMITS.docx

9. 17.54___CANNABIS_RETAILER_CONDITIONAL_USE_PERMITS.docx 3 1467

CITY OF BANNING

CITY COUNCIL REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Kevin G. Ennis, City Attorney
Maricela E. Marroquin, Assistant City Attorney
Adam Rush, Community Development Director
MEETING DATE: May 12, 2020
SUBJECT: Discussion Item Regarding Cannabis Retailers, Distributors and Cultivators
RECOMMENDED ACTION:

That the City Council provide direction on the following items:

1. Numbers of Retailers Allowed. Whether the cap on cannabis retailers should be increased to allow all businesses on the lottery waiting list to apply (21 in total) which could allow up to 24 retailers in total to operate in City, or if a different cap should be set;

2. Processing New Retail Applications. How staff should process the additional retailer conditional use permit applications (i.e., all at the same time or in groups);

3. Tax on Distributors. Whether the Council wants to place a tax measure on the November 2020 ballot imposing a tax on cannabis distributors, and if so, at what tax rate; and

4. Modification of Cultivation Tax. Whether the Council wants to modify the cultivation tax rate which is currently set at $15 per square foot per canopy space, or alternatively, change the methodology altogether.

5. Other Changes. Whether the Council wants to provide additional direction on other changes to the City’s Cannabis regulations that the Council would like staff to explore.

BACKGROUND:

At its April 14, 2020 meeting, the City Council considered several options pertaining to expanding the cannabis program to increase the number of cannabis businesses operating in the City. The City Council directed staff to draft an ordinance allowing cannabis 73 1468
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distributors to operate in the City. The City Council also directed staff to amend the zoning code to allow cannabis retailers to operate in the General Commercial zone, to eliminate the separation requirement between retailers and residentially zoned property, and to eliminate the current cap on cannabis retailers which are currently limited to one for every 10,000 residents. Staff has drafted an ordinance consistent with the Council’s direction.

This draft ordinance was considered by the Planning Commission at its May 6, 2020 public hearing. Staff will orally update the City Council on the recommendations made by the Planning Commission and then will formally bring the Commission’s recommendations at an upcoming meeting.

Today, staff seeks additional policy direction from the Council regarding the cap on allowable number of cannabis retailers and how staff should process the additional retailer conditional use permit (“CUP”) applications before it presents the cannabis ordinance to the Council for its consideration. Staff is also seeking Council direction on whether it wants to impose a tax on cannabis distributors and whether it wants to alter the tax on cultivation facilities. Staff also requests Council input on whether it would like to make any additional revisions to the cannabis program.

At the April 14, 2020 meeting, the Council requested more information about how cannabis businesses are taxed. This memorandum also discusses how cannabis is taxed and collected by the State.

DISCUSSION:

A. Cannabis Retailers
On November 6, 2018, the Banning voters adopted Measure O establishing a tax on cannabis retailers. The tax was set as an annual tax of 10% of gross receipts of the cannabis retailer. The voters allowed the City Council to modify that tax rate to increase or decrease the rate as long as it does not exceed 15% of gross receipts. The ballot measure, the tax ordinance approved by the voters, and the argument in favor of Measure O are included as Attachment A.

In conjunction with Measure O, on December 11, 2018, the City Council adopted an ordinance that currently permits one cannabis retailer for every 10,000 residents. This equates to allowing up to three retailers to operate in the City. Also, on December 11, 2018, the City Council adopted a resolution establishing a process for determining which three cannabis retailers would be eligible to apply to obtain a regulatory permit and CUP to operate in the City. A copy of that Resolution is attached as Attachment B. Included as Attachment C is a timeline summarizing the regulatory permit and CUP approval process.

At the April 14, 2020 City Council meeting, the majority of the Council expressed its frustration at the pace of getting cannabis uses up and running in Banning and, for 74 1469
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purposes of remedying that issue, stated that it was in favor of: (1) eliminating this numeric cap and allowing retailers that are on the waiting list to apply for retailer permits, (2) eliminating the separation requirement between retailers and residentially zoned property, and (3) allowing retailers to operate in the General Commercial zone.

Consistent with the Council’s direction, staff has drafted an amendment to the zoning ordinance that was considered by the Planning Commission at its May 6, 2020 meeting.

Staff is seeking direction from the Council on a few discrete issues related to allowing more retailers to operate in the City.

1. Elimination or increase of retailer permit cap
There were 24 businesses that participated in the lottery that was held on May 23, 2018 to determine which three businesses would be the first ones eligible to obtain cannabis regulatory permits and proceed to the CUP approval process for operation at specific sites. Two retailers, Black Sun Medicinals a.k.a. Empire Cannabis (Lottery Position #1) and Nourish Cannabis (Lottery Position #2) both obtained CUPs to operate in the City in January 2020. A third retailer, Harvest Corner, LLC (Lottery Position #3) has submitted a completed CUP application that is currently being processed by staff. Banning Municipal Code section 5.33.050(D) provides that a cannabis retailer has one year from the date of issuance of the cannabis regulatory permit to obtain a CUP. Harvest Corner, LLC submitted a complete CUP application on April 22, 2020 and only has until May 23, 2020 to obtain a CUP. City staff has prepared amendments to Section 5.33.050 of the City’s Code that, upon approval by the Council at an upcoming meeting, will allow Harvest Corner, LLC an additional 30 days, until June 22, 2020, to obtain a CUP to operate in the City. If Harvest Corner, LLC successfully obtains a CUP, the CUP will be conditioned to require that the retailer submit building plans within as short a period of time as is feasible, such as within 60 days of the approval of the CUP or the CUP will be null and void.

Staff would like direction from the Council as to whether it wants to: (1) allow all 21 remaining retailers (other than the first three) that are currently on the waiting list to apply for a permit (which would potentially allow 24 retailers to seek approval to operate in the City), (2) allow a more limited number of retailers to operate in the City, or (3) allow an unlimited number of retailers to operate (i.e., allow businesses that are not on the waiting list to participate in the process).

If the City were to allow up to 24 retailers to operate in the City (or an unlimited number of retailers), this could significantly increase the amount of applicants, businesses and eventually local taxes that the City could collect from these businesses as there would be more businesses to collect taxes from. The Council should consider, however, whether this could oversaturate the market, and whether retailers would be discouraged from operating in the City given that there would be so much local competition. Of course, 75 1470
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opening up the process to all 24 retailers does not guarantee that they will all apply, or even that they would all obtain a CUP to operate in the City.

Another approach to consider is to increase the cap from three retailers to a higher number such as ten (10). In the San Gorgonio Pass area, there are three cities, Banning, Beaumont and Calimesa, and some unincorporated areas such as Cherry Valley and Cabazon. Of these cities, only Banning allows cannabis retailers to operate. The population of the three Pass Area cities combined is approximately 100,000. Therefore, the commercial market for cannabis sales may not be limited to the population of the City and the City may want to take into account the entire population of the San Gorgonio Pass area which exceeds 100,000. Using the figure of allowing one cannabis retailer for every 10,000 residents, but using the population of the San Gorgonio Pass (approximately 100,000 residents), this would allow for ten retailers to operate in the City.

Included as Attachment D is a comment letter the City received on April 24, 2020 from Nourish Earth, one of the retailers that has obtained a CUP to operate in the City, that opposes allowing additional retailers to operate in the City for a two-year period.

2. Processing of additional permit applications
Staff also seeks Council direction regarding how to process the permit applications. The City could allow all the retailers to apply at once which would, presumably, allow additional retailers to open up more quickly in the City. Staff has not yet contacted all the applicants on the waiting list to determine their interest in applying for CUP applications. Of the 21 applicants on the waiting list, City staff has begun to reach out to those applicants to determine which of them is still interested in operating in Banning.

Staff believes that there would be a benefit to the City to having an orderly process for processing the remaining 21 applications. That orderly process would be to generally honor the results of the lottery and allow applicants to apply based on their position on the waiting list while at the same time speeding up the application and approval process.

One alternative is to allow the applicants to apply, and to process their applications, in the order that they appear on the waiting list. This could, however, create a prolonged process where it could take several years to process all the retailer applications.

Instead, staff is recommending that staff send a letter to the applicants on the waiting list advising that they have 14 days to confirm, in writing, that they are still interested in applying for a CUP to operate a retailer in the City. Any applicant that does not respond within 14 days, or that states that they are no longer interested, will be removed from the waiting list. The letter would advise applicants that they have 90 days from the opening of the designated application period to submit a complete application for a CUP, and that if they obtain a CUP, a condition of approval would require that building plans be 76 1471
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submitted within the shortest period of time feasible, such as 60 days of approval of the CUP, or the CUP would be null and void.

Those applicants that remain on the waiting list will be categorized into groups depending on their lottery position, with a certain set number of retailers being permitted to apply at one time. For example, assuming the Council decides to allow all 21 applicants on the waiting list to apply (and assuming all the applicants still want to obtain a CUP), the City could follow a schedule such as the following:

Lottery numbers Designated Application period
4 through 8 June 1, 2020 - August 31, 2020
9 through 13 September 1, 2020 - November 30, 2020
14 through 18 December 1, 2020 - March 1, 2021
19 through 21 March 2, 2021 - May 31, 2021
The applicants would be permitted to submit a completed CUP application during their designated application period (90 days for each application period). Any applicant that submits a completed application during their designated application period would have their application processed in the order that it is deemed complete. Retailers would be incentivized to apply quickly to ensure that their application is processed first. Staff would process all the applications until the cap was reached, assuming there was a cap instituted. If there is no cap, then all the applications would be processed.

The alternative would be to allow all applicants on the lottery waiting list, or any other applicants, to submit applications by a certain deadline. This approach has the benefit of allowing any applicant to seek and obtain approval and then compete against other applicants for approval, compete to open and establish market share before others, and to result in a market-driven limit on the number of retailers that could run profitable businesses in Banning.

In considering these two approaches, Staff is concerned that if all 21 remaining applicants, or an unlimited number of applicants, are all allowed to concurrently submit applications and seek approval, that decisions of the City to deem some of the applications complete and ready to move forward but not others, could result in challenges from applicants that the City’s decisions to deem one application complete and ready to proceed but not another were incorrect. Also, the Planning Commission and City Council would likely be presented with multiple applications at once which could lead to significant pressure to approve one applicant over another. In sum, and based on the experience in other communities, this type of wide open process can lead to jockeying to be the first to get approved, which in many cases has led to litigation over decisions at each step in the process. The lottery process, in contrast, which the City has already completed, provides for options for the more orderly processing of applications and can lessen the risks noted above because the lottery already designates which applicant gets to proceed before others. If, however, the City Council prefers to undertake a process 77 1472
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untethered to the lottery list, staff will proceed to develop a process to best manage the volume of applications and the risks noted above.

3. Background check
Chapter 5.33 of the Banning Municipal Code requires that all cannabis retail owners and persons with a financial interest in a retailer pass a background check before they can participate in the lottery. All the retailers that are on the waiting list have met this requirement. However, since the background checks were conducted about a year ago, staff recommends that new background checks be run to ensure that there have not been any new disqualifying convictions by any owner or person with a financial interest in a retailer. This would delay the process for retailers to apply for a CUP as a business cannot apply for a CUP until it has first obtained a cannabis retailer regulatory permit.

Alternatively, the Council could elect to allow the retailers to apply for a CUP, but make the issuance of the CUP contingent upon the passing of a background check. This would require an amendment to Chapter 5.33 of the Banning Municipal Code which requires that a background check be conducted before a regulatory permit is issued.

B. Cannabis Distribution
Pursuant to the Council’s direction, staff has drafted a cannabis ordinance that will permit cannabis distribution facilities to operate in the Industrial zone. This draft ordinance was considered by the Planning Commission at its May 6, 2020 meeting for recommendation to the City Council.

1. Imposition of tax
If the City Council adopts an ordinance allowing cannabis distributors to operate in the City, the Council will need to determine whether to tax distributors, and if so, at what rate.

Staff conducted a study of the tax rates that are being charged by cities in the counties of Riverside and San Bernardino, as well as the unincorporated areas of Riverside and San Bernardino counties. Attached as Attachment E is the chart compiling this information.

There do not appear to be many jurisdictions that have a separate distribution tax, as opposed to a general tax on “other cannabis businesses” that do not fall into specific categories such as retailers and cultivators. From what staff was able to gather, for those cities that do impose a tax on distributors, they are charged a tax at the following rates:

Adelanto (1% of gross receipts), unincorporated San Bernardino (2% of gross receipts), unincorporated Riverside County ($3 per square feet as a community benefit fee), and San Jacinto ($10 per sq. foot of gross building footprint used for any cannabis related activity including ancillary office and other administrative areas). In addition, Perris charges a tax at a rate of 10% of proceeds, but allows the business to deduct the amount of sales and use taxes and excise taxes collected from consumers and remitted to the State from their reported proceeds for the purpose of calculating their taxes owed to the 78 1473
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city. Palm Springs allows distributors to operate in its jurisdiction but does not tax the distributors.

The City could decide not to impose a tax on distributors and instead just rely on tax revenues from cultivators, manufacturers, testing laboratories and retailers. This would be consistent with the state taxation model which does not tax distributors. Instead, the state requires distributors to collect the cannabis cultivation tax from cultivators or manufacturers and to collect the excise tax from retailers and then transmit these taxes to the State. The City could follow that same approach and exempt distributors from a separate tax and instead focus on the taxes to be collected from the other functions in the cannabis chain. Having no tax on distributors would also place the City at a competitive advantage to other communities. However, this approach may reduce overall potential revenues and it may be difficult to change approaches once distribution uses are allowed and start operating in the City.

2. Process for Imposing Tax
If the City wants to impose a local tax on distributors, the tax would have to be approved by the voters. If the tax is a general tax, that is a tax that can be used for any governmental purpose, the tax must be approved by a majority of the electorate (50% plus one of the voters voting in the election vote in favor of the measure). 1 If the tax is a
special tax (i.e., a tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund), the tax must be approved by a two-thirds vote of the electorate.2 Measure O, the retailer tax, and Measure N, the tax on cultivation, manufacturing, and testing laboratories were both general tax measures.

Any measure imposing taxes must be considered at an election consolidated with a regularly scheduled general election for members of the City Council, except in cases of an emergency.3 In this case, the next regularly scheduled election at which members of the city council will be elected will take place on November 4, 2020. A measure imposing a general tax cannot be placed on the ballot unless it is approved by a two-thirds vote of all members of the City Council (4/5th vote).4
If the City Council is inclined to support imposing a tax on cannabis distributors, then the City Council may direct staff to begin working on a tax measure to be presented to the Council at a future meeting in June 2020.
1 Cal. Const. art. XIIIC, §§ 1(a) and 2.
2 Cal. Const. art. XIIIC, §§ 1(d) and 2.
3 Cal. Const. art. XIIIC, § 2(b).
4 Cal. Gov. Code § 53724(b).

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C. Cannabis Cultivation

1. Current Cannabis Cultivation Tax
On November 6, 2018, the Banning voters adopted Measure N imposing a tax on cannabis cultivation facilities. Measure N, which is codified in Banning Municipal Code (“BMC”) Chapter 3.17, sets the cannabis cultivation tax rate at $15 per square foot of canopy space, but allows the City Council to increase or lower the tax rate as long as it does not exceed $25 per square foot of canopy space. See BMC §§ § 3.17.030(B) and

3.17.050(A). Canopy space is defined as the designated areas at a cultivation facility that will contain mature plants at any point in time. See BMC § 3.17.020. Any designated area in the cultivation facility intended for cultivation, whether the area is stacked with shelves, counts towards the canopy space. For example, a 10,000 square foot facility, could have 5,000 square feet of space designated for cultivation with the cannabis plants stacked on two levels for a total of 10,000 square feet of canopy space. Each area at a cultivation facility that will contain mature plants at any point in time (each level of the stacks) would count towards the area used to calculate the canopy tax.

2. Cultivation Tax in Other Jurisdictions

Staff reviewed the tax rates, contained in Attachment E, that are being charged by cities in the Riverside and San Bernardino County. By way of comparison, at least two cities in Riverside County impose the same or similar cultivation tax as Banning including Cathedral City ($15 per square foot of canopy space) and Coachella ($15 per square foot for the first 20,000 square feet and $7.50 per square foot of the remainder of the grow area). At least one city in Riverside County imposes a tax that is higher than Banning’s tax including Perris ($25 per square foot of canopy space). The following cities in Riverside County currently impose a lower tax per square foot of canopy space/cultivation area than the tax imposed by Banning, including: Moreno Valley ($7), Palm Desert ($13), Palm Springs ($10), San Jacinto ($10), and Blythe ($3). In addition, unincorporated Riverside County charges different tax rates depending on the size of the cultivation operation, and whether the cultivation operation is indoors, outdoors, or uses mixed light.

For indoor cultivation ranging from 10,000 to 43,560 square feet, the cultivator is charged a $5.50 per square foot community benefit fee. Desert Hot Springs charges a tax of $25.50 per square foot for the first 3,000 square feet of cultivation, and $10.20 per square foot for the remaining space used for cultivation. Coachella has a hybrid approach where it charges cultivators a tax of $15 per square foot for the first 20,000 square feet, and $7.50/sq. foot for the remainder of the grow canopy area for the facility. In addition, wholesale gross receipts are taxed annually at 4% for cultivation. Staff was not able to identify any city in Riverside or San Bernardino County that imposes a strictly gross receipts tax on cannabis cultivators.

Staff is requesting direction as to whether the Council wants to retain the tax rate at $15 per square foot of canopy space, change the tax rate to a different amount, or change the 80 1475
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tax rate to a percentage of gross receipts. If the Council desires to change the tax rate from the current $15 per square foot of canopy space to a lower dollar amount per canopy space, the Council is permitted to do so without a vote of the people because Measure N specifically allowed for that adjustment to be made by the City Council. If, however, the City Council wants to change that tax to a gross receipts tax, this would be a change from the tax methodology set forth in Measure N and would require voter approval.

D. Summary of discussion with Matt Herald
At the April 14, 2020 City Council meeting, the Community Development Director discussed possible amendments to the cannabis ordinances to allow cannabis retailers to operate in the General Commercial zone. There was also a discussion about whether to allow cannabis distributors to operate in the City. Matt Herald with Next Gen Organix, Inc. spoke in favor of allowing cannabis distributors to operate in the City. The Community Development Director and the City Attorney’s office subsequently contacted Mr. Herald to obtain more information about his proposal. Below is a summary of staff’s discussion with Mr. Herald.

1. Cannabis Distributors
Mr. Herald explained that distributors are an integral part of the cannabis supply chain.

Cannabis cultivators are required to use licensed distributors to transport their harvested cannabis products from the cultivation location to manufacturers and testing laboratories.

The distributors collect the state’s cultivator tax from cultivators as part of this process.

In addition, all cannabis and cannabis products, whether from a cultivator or manufacturer, must be tested in laboratories, which again, must be transported to those laboratories by state licensed distributors. Finally, once the cannabis product has been tested and packaged, it is only state licensed distributers that are permitted to transport and sell finished cannabis products to cannabis retailers, from which the distributor is to collect the state required cannabis excise tax.

Distributors are an integral link in state licensed cannabis chain and in the State’s cannabis tax collection scheme. If cannabis distributors are only located outside the City, then this important part of the cannabis supply chain would have to occur through distributors located outside the City leading to additional expenses and inefficiencies in that supply chain process. Accordingly, certain cultivators, manufacturers and testing laboratories may not want to locate in the City unless they know there is a stated licensed distributors also located close by in the City to take on these functions. Also, some cultivators and manufacturers want to operate the various license duties under one company and in one location. To accomplish that and incentivize those businesses to locate in Banning, distributors must be allowed to be a part of those business models.

In addition, since the distributors are required by the state to collect the state’s cannabis tax from cultivators and the state’s excise tax from retailers, some of those tax 81 1476
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transactions could be recorded as having occurred outside the City and thus avoiding City taxes on cannabis cultivation and manufacturing, thereby leading to potential diminution in the true amount of City taxes that should be collected on activities occurring in the City.

For all these reasons, if the City wants to attract and maintain cultivators, manufacturers and testing laboratories, and ensure that the City gets its full and fair share of the taxes on those activities, Mr. Herald recommends that the City should allow the distributors to also locate in the City.

2. Cultivation Tax
Mr. Herald also explained that the cannabis cultivation tax should be calculated on a percentage of the gross receipts rather than on canopy space. He contended that this decreases the start-up costs for cultivators. This is because with a tax based on canopy space devoted to growing cannabis, the taxes would start to be owed as soon as the space is used to grow cannabis. In contrast, if the cultivation tax is based on gross receipts, the tax is not owed until the crop is harvested and transported to a testing laboratory or manufacturer. This change would effectively delay the point in time when the City tax would become due and owing and that added time allows for greater use of start-up funds for the cultivation activity rather than also having to use some of that startup cost to pay the City tax.

In addition, he said that change would eliminate staff time spent measuring canopy space to determine the amount of tax that a cultivator must pay to the City. He explained that by using a gross receipts model, the City could collect the cultivation tax at the same time that the State cultivation taxes are paid, and because the State’s required tax collection system would record the quantities that the distributor collects from the cultivator, there is a way to verify the quantities of the cannabis product and the dollar value of that product to which the gross receipts tax would apply. Mr. Herald noted that many cities do use a canopy space methodology for taxing cultivation and he would not be dissuaded from locating in Banning because of that tax methodology.

3. Large-scale cannabis operations
Mr. Herald also noted that beginning in 2023, large scale cannabis cultivators will be permitted to operate in the State. Currently, the largest size of a cultivation operation permitted under current State licensing is 22,000 square feet of canopy space. The City currently allows cultivators up to that current state maximum size. City staff researched 82 1477
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this issue and determined that beginning January 1, 2023, the State will start issuing licenses to the following cultivators:
• Type 5 for outdoor cultivation using no artificial lighting greater than one acre, inclusive, of total canopy size on one premises.
• Type 5A for indoor cultivation using exclusively artificial lighting greater than 22,000 square feet, inclusive, of total canopy size on one premises. • Type 5B for cultivation using a combination of natural and supplemental artificial lighting at a maximum threshold to be determined by the licensing authority, greater than 22,000 square feet, inclusive, of total canopy size on one premises.

The City currently only permits commercial cannabis cultivation that occurs indoors and that contains not less than 10,000 square feet of canopy space and that does not exceed 22,000 square feet of canopy space. Mr. Herald suggested that the City consider allowing greater sizes of cultivation facilities under one or more of the Type 5 licenses.

4. Palm Springs’ Cannabis Program
We asked Mr. Herald which city’s tax scheme would he recommend. He referred us to Palm Springs. Staff has investigated the Palm Springs program and found that Palm Springs adopted a voter-approved measure imposing a maximum 15% gross receipt tax on all cannabis businesses except cannabis cultivation. Cannabis cultivators pay a $10.00 tax per square foot of cultivation area. The tax measure allows the Palm Springs City Council to set the gross receipts rates by resolution based on business type. The current tax rate for retailers is 10% for gross receipts. In February 2019, the City Council adopted a resolution reducing the tax rate on manufacturers to 2% of gross receipts, and eliminated the tax on distributors and testing laboratories. The cannabis cultivation tax remains at $10.00 per square foot of cultivation area. According to a February 2019 staff report, in Fiscal Year 2017-18 Palm Springs collected $1,605,337 in cannabis tax revenue from all cannabis businesses except cultivators. For Fiscal Year 2018-19, it appears that Palm Springs collected roughly $2 million in tax revenue from cannabis businesses, except cultivators. For Fiscal Years 2017-18 and 2018-19, Palm Springs did not collect any tax revenue from cannabis cultivation.

E. State Taxation of Cannabis
In California, the State imposes several taxes on commercial cannabis and cannabis products, including a cultivation tax and an excise tax. Additionally, cannabis and cannabis products are subject to sales and use tax. These taxes are imposed in addition to local taxes. These taxes are each briefly addressed below. 83 1478
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1. Cultivation Tax
The State imposes a cultivation tax on all harvested cannabis that enters the commercial market. The tax is based on the weight and category of the cannabis and the California Department of Tax and Fee Administration (“CDTFA”) annually adjusts the cultivation tax rates based on inflation.5 There are currently three categories of cannabis subject to this tax, listed here with their current tax rate: (1) cannabis flowers ($9.65 per dry-weight ounce), (2) cannabis leaves ($2.87 per dry-weight ounce), and (3) fresh cannabis plant ($1.35 per ounce).6
Cultivators pay this tax to manufacturers or distributors when their harvested cannabis “enters the commercial market.” Where manufacturers are involved, manufacturers collect the cannabis cultivation tax from cultivators from which they receive unprocessed cannabis and provide the cultivator with a receipt. Manufacturers then pay the cultivation tax collected from cultivators to a distributor. Distributors collect the cannabis cultivation tax from cultivators and manufacturers from which they receive cannabis and/or cannabis products. Distributors provide an invoice or receipt to the businesses from which they collect the cultivation tax and distributors file cannabis tax returns and pay the amounts due to the CDTFA.

2. Excise Tax
The State imposes a 15-percent excise tax upon retail purchasers of cannabis or cannabis products.7 The 15-percent excise tax is calculated based on the average market price of the cannabis or cannabis products sold in a retail sale. The average market price is determined by the type of transaction (either “arm's length” - subject to an 80% mark-up - or “nonarm's length”) that occurred when the seller sold the cannabis or cannabis product to the retailer.

Retailers charge and collect the cannabis excise tax from customers who purchase cannabis and/or cannabis products. Retailers pay the cannabis excise tax that is due to the distributor that provided the cannabis or cannabis products. Distributors collect the cannabis excise tax from cannabis retailers they supply with cannabis and/or cannabis product and provide them with an invoice or receipt. Distributors file cannabis tax returns and pay the amounts due to the CDTFA.

Cannabis tax returns that are filed by distributors for excise and cultivation taxes can be due quarterly or monthly.
5 Cal. Rev. & Tax. Code § 34012(k).
6 18 Cal. Code of Regulations § 3700(c). Rates available at: https://www.cdtfa.ca.gov/taxes-andfees/tax-rates-stfd.htm. 7 Cal. Rev. & Tax. Code § 34011.
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3. Sales and Use Tax
In California, all retail sales of tangible personal property are taxable unless the law provides a specific exemption. Cannabis and cannabis products are generally considered tangible personal property and without a specific exemption, so sales of such property are subject to sales and use tax. Sales tax due on taxable cannabis sales at retail is computed on the selling price of cannabis, plus the cannabis excise tax. Sales and use taxes do not apply to the retail sale of medicinal cannabis, medicinal cannabis concentrate, edible medicinal cannabis products, or topical cannabis.8 Retailers charge and collect sales tax on taxable retail sales of cannabis and/or cannabis products, and other products. Retailers file sales and use tax returns and pay the sales and/or use tax to the CDTFA. The statewide sales and use tax rate is 7.25%.

F. State Tack and Trace Program

1. Tracking of Sales
The State established a track and trace program, known as the California Cannabis Track-and-Trace (“CCTT”) system, for recording the inventory and movement of cannabis and cannabis products through the commercial cannabis distribution and supply chain, from cultivation to sale.9 The State contracted with a private company called METRC to provide the track-and-trace system. The CCTT system must be used by all cannabis businesses licensed by the State to record, track and maintain information about their cannabis and cannabis product inventories and activities, including taxable activities discussed above. Specifically, licensees must record the sale and transfer and receipt of cannabis goods.10

2. Local Access to Tracked Information Records
Local jurisdictions are authorized to request information received and contained in records kept within the CCTT database and with the State as necessary to perform official duties pursuant to a local ordinance or to assist in law enforcement.11 According to a California Department of Food and Agriculture and the Bureau of Cannabis Control FAQ, the State’s cannabis licensing authorities are still developing procedures for vetting and processing CCTT data requests from local jurisdictions.

Alternatively, the City could seek options to access to the CCTT system directly. In March a couple counties entered into MOUs with State licensing authorities to establish a pilot program whereby the counties will be provided access to the CCTT data. So an 8 Cal. Rev. & Tax. Code § 34011(f).
9 Cal. Bus. & Prof. Code § 26067.
10 16 Cal. Code of Regulations § 5049. 11 Cal. Bus. & Prof. Code § 26067(b)(6)-(7). 85 1480
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agreement with the State could grant access to this system. Further, verified third-party vendors are allowed access to the CCTT system. These are the vendors that can interface with the CCTT system to obtain data from that system. Staff could explore whether any third party venders provide tax collection assistance.

FISCAL IMPACT:

At this time, staff is unable to quantify the fiscal impact associated with any of the items for which it is seeking Council direction on. Once Council provides direction on the changes it would like to make to the cannabis program, staff will analyze the fiscal impact of these changes and provide information on the fiscal impact when it brings the draft ordinance back to the Council for its consideration.

ATTACHMENTS:

A. Ballot Measures N and O and arguments in favor of Measures N and O https:// banningca.gov/DocumentCenter/View/7334/Attachment-A---Resolution-2018-82 B. 2018 Resolution Establishing Process for Applying for Cannabis Permits https:// banningca.gov/DocumentCenter/View/7335/Attachment-B---
Resolution-2018-153
C. Timeline summarizing cannabis retailer permit and conditional use permit approval process
https://banningca.gov/DocumentCenter/View/7336/Attachment-C---Timeline-forCannabis-Permits D. April 24, 2020 letter from Nourish Earth
https://banningca.gov/DocumentCenter/View/7337/Attachment-D---Letter-to-Cityof-Banning E. Chart summarizing cannabis taxation rates in Riverside and San Bernardino counties
https://banningca.gov/DocumentCenter/View/7338/Attachment-E---Survey_- Commercial-Cannabis-Activity-and-Associated-Tax-Rates
F. Presentation
https://banningca.gov/DocumentCenter/View/7352/Attachment-F---Presentation Approved by:

Douglas Schulze
City Manager
86 1481
1 City of Banning
Cannabis Ad-Hoc Committee Meeting
Meeting Minutes
Tuesday, June 18, 2024, at 2:00 PM, Small Conference Room at City Hall, 99 East Ramsey Street, Banning, CA, 92220 and Microsoft Teams.

Participants Present:

I. Introduction: Emery Papp
A. Review of previous meeting minutes.

B. Current number of operators and active applications.

C. Options/Direction moving forward.

II. Old Business:

A. Proximity to Residential Uses.

B. Odor Complaints.

C. Design Guidelines for Cannabis Businesses
III. Discussion Items:

A. Revenue Generation/Cannabis Business Tax Collection.

1. Review or audit of receipts/books (City staff or Consultant).

2. Frequency to collect taxes (currently annual).

3. Staff Report to City Council tentatively scheduled for July 9, 2024.

Emery Papp Sr. Planner
Steve Flower
Alberto Lopez
RWG Law
Mayor
Rick Minjares Council Member
Sandra Calderon Project Coordinator
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2 B. Desire to Limit or Expand Cannabis Businesses?

1. Adopt an Urgency Ordinance.

2. Adopt a Moratorium?

3. If moratorium, then what permanent BMC revisions are desired (Moratoriums are not permanent and can only be done one time).

4. If expansion of some uses are desired, to what extent?

Meeting Discussion:

Emery: Each individual cannabis cultivation conditional use permit is required by the issuance of their operating permit to have a minimum of 10,000 square feet of canopy area. I provided Lincoln with some tax estimate figures for budgeting purposes. I want to say it's something like $15 per square foot. So, 10,000 square feet of canopy, they should be pulling in around $50,000 a year minimum, but they can also go up to 22,000 square feet of canopy area. There are two cannabis business that might come online. It was predetermined that if they complete their demolition work prior to their permit expiring, it would be acceptable to the city in terms of having a substantial investment in that entitlement. I will check with our building official on the status of their building permit and their demolition permit for those two businesses.

Cannabis business tax might be one of the discussion items to include in the presentation to council. The City may not be receiving the revenue they should because of the lack of auditors. The City is currently using HDL for business license and we might want to look into using their services.

Cannabis business tax is being changed to be collected, either six months or every quarter. Staff will double check.

Two Council Members were interested in the possibility of a moratorium at the last City Council meeting. I searched the municipal code for moratoriums and urgency ordinances but was not able to find anything.

Steven: It is covered under general law for the State. What typically happens is you adopt a short-term moratorium that goes for about 180 days, and then you can extend it. The maximum could be two years. The basis for doing that, as the law says, is you’d have to use that time to study whether you're going to change your rules and do something different. It's basically a way of halting a certain type of development or a certain place until you figure out what you want to do with it. It's not a way to roll back what you necessarily already have in place. It's a way of freezing things and saying we're not going to allow any more until we figure this out. That's what a moratorium would do, in essence, but it can't be just forever. You have a voter initiative and I'd have to think about how that would interact with it, but that would be another consideration. 1483
3 I think the council member’s intent is to bring everything back to Council to where we get rid of cannabis in a way, but this doesn't do that.

Rick: We talked about not increasing the number of licenses or anything like that. That's what I recall.

If the Council decides to go for moratorium, they know where to go with that if Council decides so let’s start, you know, changing certain things when it comes to how far away they need to be from homes and schools. They can change that as well. And we can do the other side as well because I know how he was interested in bringing back to see if anybody's interested in doing one more cannabis retailer, but based on merit, instead of what we used to in the past which was the lottery, which we're getting rid of completely.

Emery brings all that to council and then Council can decide to move forward from there.

Rick will send Emery a copy of his city’s current Ordinance to review and compare or to see how it could be helpful to our Banning.

Steven: There has to be the initial urgency ordinance that establishes the moratorium, and then you pretty much come back at your next meeting to extend it. And then there's a maximum time limit per state law on how long that moratorium can go.

Emery: We talked briefly about whether it was the Council's desire to have staff present the possibility, and the steps towards adopting an urgency ordinance to establish a moratorium on cannabis related businesses. So that'll be part of my next presentation to the City Council, which is currently scheduled for July 9. That's going to be a big agenda.

So, there's a possibility that could get pushed out after the summer break. Councilmember Flynn would like to see this stay on the agenda. We’ll make every effort to do that.

Emery: Are there any other items that you would like to see added to the presentation on this issue?
Alberto: Financial tax collection from the past, and how we're moving forward. Whether tax will be collected every six months or quarterly, and maybe we can get with HDL and see if they can provide the auditing service, just like you mentioned, and I'll go from there, just because that's important.

Emery: Our options and direction moving forward for the City Council would be to mention the possibility of an urgency ordinance and a moratorium and the steps that would be required to make those things happen including the timeframes, but to also include some of the other elements that were part of the presentation last time. it'd be, you know, the flip side of that coin, which would be not necessarily expanding but potentially allowing for expansion of cannabis uses by moving in different zones, possibly changing separation 1484
4 requirements, which could also mean increasing them from away from sensitive uses, like residences or schools. I know we already have those in there. And to a certain degree, we're not allowed to be more restrictive than state law, but we are certainly allowed to be less restrictive.

Adjournment:
3:00 P.M.
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California Government Code Section 65858 - Urgency measure adopted as interim ordinance
(a) Without following the procedures otherwise required prior to the adoption of a zoning ordinance, the legislative body of a county, city, including a charter city, or city and county, to protect the public safety, health, and welfare, may adopt as an urgency measure an interim ordinance prohibiting any uses that may be in conflict with a contemplated general plan, specific plan, or zoning proposal that the legislative body, planning commission or the planning department is considering or studying or intends to study within a reasonable time. That urgency measure shall require a four-fifths vote of the legislative body for adoption. The interim ordinance shall be of no further force and effect 45 days from its date of adoption. After notice pursuant to Section 65090 and public hearing, the legislative body may extend the interim ordinance for 10 months and 15 days and subsequently extend the interim ordinance for one year. Any extension shall also require a four-fifths vote for adoption. Not more than two extensions may be adopted. (b) Alternatively, an interim ordinance may be adopted by a four-fifths vote following notice pursuant to Section 65090 and public hearing, in which case it shall be of no further force and effect 45 days from its date of adoption. After notice pursuant to Section 65090 and public hearing, the legislative body may by a four-fifths vote extend the interim ordinance for 22 months and 15 days.
(c) The legislative body shall not adopt or extend any interim ordinance pursuant to this section unless the ordinance contains legislative findings that there is a current and immediate threat to the public health, safety, or welfare, and that the approval of additional subdivisions, use permits, variances, building permits, or any other applicable entitlement for use which is required in order to comply with a zoning ordinance would result in that threat to public health, safety, or welfare.

In addition, any interim ordinance adopted pursuant to this section that has the effect of denying approvals needed for the development of projects with a significant component of multifamily housing may not be extended except upon written findings adopted by the legislative body, supported by substantial evidence on the record, that all of the following conditions exist:
(1) The continued approval of the development of multifamily housing projects would have a specific, adverse impact upon the public health or safety. As used in this paragraph, a "specific, adverse impact" means a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety standards, policies, or conditions as they existed on the date that the ordinance is adopted by the legislative body. (2) The interim ordinance is necessary to mitigate or avoid the specific, adverse impact identified pursuant to paragraph (1).
(3) There is no feasible alternative to satisfactorily mitigate or avoid the specific, adverse impact identified pursuant to paragraph (1) as well or better, with a less burdensome or restrictive effect, than the adoption of the proposed interim ordinance.
(d) Ten days prior to the expiration of that interim ordinance or any extension, the legislative body shall issue a written report describing the measures taken to alleviate the condition which led to the adoption of the ordinance.
(e) When an interim ordinance has been adopted, every subsequent ordinance adopted pursuant to this section, covering the whole or a part of the same property, shall automatically terminate 1486
and be of no further force or effect upon the termination of the first interim ordinance or any extension of the ordinance as provided in this section. (f) Notwithstanding subdivision (e), upon termination of a prior interim ordinance, the legislative body may adopt another interim ordinance pursuant to this section provided that the new interim ordinance is adopted to protect the public safety, health, and welfare from an event, occurrence, or set of circumstances different from the event, occurrence, or set of circumstances that led to the adoption of the prior interim ordinance.
(g) For purposes of this section, "development of multifamily housing projects" does not include the demolition, conversion, redevelopment, or rehabilitation of multifamily housing that is affordable to lower income households, as defined in Section 50079.5 of the Health and Safety Code, or that will result in an increase in the price or reduction of the number of affordable units in a multifamily housing project.
(h) For purposes of this section, "projects with a significant component of multifamily housing" means projects in which multifamily housing consists of at least one-third of the total square footage of the project.

Ca. Gov. Code § 65858
Amended by Stats 2001 ch 939 (SB 1098), s 1, eff. 1/1/2002. 1487
Department of Cannabis Control
Medicinal and Adult-Use Commercial Cannabis Regulations California Code of Regulations Title 4
Division 19. Department of Cannabis Control
Link to 239 Pages of DCC Regulations:
https://cannabis.ca.gov/wpcontent/uploads/sites/2/2024/08/dcc_commercial_cannabis_regulations_07_2024.pdf 1488

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Art Vela, Public Works Director
Lincoln Bogard, Administrative Finance Director
MEETING DATE: August 27, 2024
SUBJECT: Discussion of the Banning Electric Utility Emergency Rate Increase Scenarios
RECOMMENDATION:

Discuss the different alternatives for a possible emergency electrical rate increase and provide direction to staff.

BACKGROUND:

On May 14, 2024 City Council approved Resolution 2024-71, approving a contract with NHA Advisors, LLC (NHA). NHA's scope of work included financial planning, debt management and financial implementation, ballot initiatives and other related services. Recognizing the financial challenges faced by the Banning Electric Utility (BEU), Resolution 2024-71 included a $100,000 task order to evaluate and assess financing and other options for BEU.

On June 25, 2024, staff presented a report regarding the lowering of the Banning Finance Authority's Outstanding Electric System Revenue Bond rating and requested that City Council consider an interim Electric Rate Adjustment. City Council provided direction to staff to return at a future meeting with options for City Council to consider regarding an Emergency Electric Rate Increase.

City staff worked with NHA, to analyze four preliminary options for an emergency electric rate increase in the to improve operating revenues and replenish cash balances. It is important to note that the analysis presented in this staff report are best estimates available at this time based on a dynamic model, but this modeling is not a cost of service study and NHA is not acting as the City’s rate consultant. The City will soon be issuing a request for proposals for a consultant to perform a cost of service study, and is also proceeding with this high level analysis in the interest of time.

Option 1
This option is a “do nothing” scenario and evaluates the impact to BEU of not implementing emergency rate increases. This scenario assumes the first electric utility rate increases happen after the City completes a full cost of service study in conjunction with the electric master plan. Under this scenario, the cash balance is expected to be more negative by FY 2025 end, which will further pressure other City funds and could result in an additional credit rating downgrade. Additionally, it is likely that the BEU will have a covenant default related to the 120% debt service coverage requirement on the 2015 Bonds.

Option 2
Option 2 models the amount of emergency rate increase in FY 2025 needed to simply cover operations and essential expenditures. Using FY 2025 budgeted operating revenues and expenses as the baseline, 1489
it calculates that a 13% one-time rate increase (effective October 1, 2024) would generate sufficient revenues in FY 2025 to allow BEU to fund essential CIP, meet the 120% debt service coverage requirement, and cover operating expenses. The fund balance remains negative and does not see any meaningful improvement under this scenario – which means that other City funds will not be paid back for funds loaned to BEU.

Option 3
Option 3 explores the amount of emergency rate increases needed in FY 2025 and FY 2026 to bring the fund balance back into the black – allowing the Electric Utility to repay what it owes to other City Funds.

Analysis of this option calculated that a 64% one-time rate increase in FY 2025, effective October 1, 2024, should generate sufficient revenues to bring BEU cash balance to a positive number after paying back the other City Funds. Under this scenario of Option 3, future years could see a reduction in rates, depending on the findings of the upcoming cost of service study. If stretching that recovery timeline out to two years, two 22% annual rate increases would be needed to bring the fund balance to the same place by the end of FY 2026. Under both scenarios for Option 3, BEU meets its 120% debt service coverage requirement for both fiscal years. Additionally, the BEU replenishes its fund balance within the two-year window given to it by the credit rating agency.

Option 4
Option 4 analyzes the amount of emergency rate increase needed in FY 2025 to cover operations and essential expenditures (similar to Option 2) but expands upon Option 2 to include approximately $10 million bond financing to bring BEU's cash balance back into the positive (allowing it to repay what it owes to other City Funds). The debt service requires a 13% emergency rate increase in FY 2025, which is similar to Option 2. The trade-off to the benefit of the rapid improvement in cash balance is that this Option 4 also has the interest cost of a financing and long-term annual debt service payments.

Debt service on a bond financing would be structured to have minimal to no payments in the first two years to allow the Electric Utility to build up its reserves and adopt a longer-term rate increase plan.

Compared to Option 2, this option would require higher long-term rate increases to support the annual debt service on a bond.

Because of the Electric Utility’s current “BB” credit rating, it is likely that a bond financing would be unrated. Additionally, it would be issued on a taxable basis because of IRS limitations on the use of tax exempt debt to reimburse an issuer for prior capital expenditures.

Staff is seeking direction from City Council on which option it would like to proceed with. Staff would return to City Council in September with a resolution for either Option 2, 3 or 4, if one of those are selected.

JUSTIFICATION:

The Electric Utility’s cash balance has decreased significantly in recent years due to a combination of capital spending and inflationary pressures. Over the past three years, the Electric Utility has spent $10 million per year on average toward capital projects. Additionally, while the Electric Utility has historically been able to generate sufficient operating revenues to cover operating expenses, in each of the last three fiscal years – 2022, 2023 and 2024 – operating expenses have been greater than operating revenues. One driver behind this is power purchase costs, which increased 31% from 2019 to 2023.

As a result, the Electric Utility’s unrestricted cash and investments balance decreased significantly from over $18 million in FY 2019 to negative $9.5 million in FY 2024. Because operating expenses have been greater than revenues in the last three years and cash balances are negative, Electric Utility has needed to borrow from other City funds, which has put significant strain on those funds. 1490
The General Fund’s cash balance in FYE 2023 was $4.5 million after including a $3.5M amount due from other funds. This is a marked decrease from the General Fund’s pooled cash balances over $13 million in fiscal year 2018. Continued borrowing from the General Fund is not an option to support the Electric Utility. Additionally, the Banning Utility Authority’s Water and Wastewater Funds are subject to California’s Proposition 218 related to utility rates and charges and having those funds’ send cash to the Electric Utility could expose the City to the risk of a legal challenge.

The options listed above, with the exception of Option 1, would provide relief to the current fiscal challenges faced by BEU.

FISCAL IMPACT:

Options 1 thru 4 have different degrees of fiscal impact to BEU.

ALTERNATIVES:

1. Option 1

2. Option 2

3. Option 3

4. Option 4

5. Provide alternative direction to staff.

BUDGETED?:

No
CONTRACT/AGREEMENT:

No
ATTACHMENTS:

1. Options 1 thru 4.pdf

2. Staff Report Bond Rating Decrease 6.25.24.pdf

3. Staff Report Reso 2024-71 NHA Advisors.pdf
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15 Draft Estimated
2022‐23 2023‐24 2024‐25 2025‐26 2026‐27 2027‐28 2028‐29 Assumed Rate Increases 4.7% 0.0% 0.0% 0.0% 0.0%Assumed Rate Increase Date 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Total Gross Revenues 34,167,255 35,346,961 37,292,549 37,592,549 35,520,209 35,520,209 35,520,209Total Operating Expenses 30,760,816 34,333,079 35,235,777 35,740,279 37,474,936 39,314,601 41,246,250 Net Revenues 3,406,439 1,013,882 2,056,772 1,852,270 (1,954,727) (3,794,392) (5,726,041) Debt
2015 Electric Revenue Bonds 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Placeholder
Total Debt Service 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Debt Service Coverage (1.20x Requirement) 1.40 0.42 0.85 0.76 (0.81) (1.56) (2.36) City's Reported Coverage (EMMA Filings) 1.25
Cash Balance Calculations
Net Revenues After Debt Service 981,645 (1,409,162) (366,272) (572,274) (4,377,020) (6,220,686) (8,149,054) Capital Expenditures 8,073,472 5,145,653 1,140,072 1,130,000 1,130,000 1,130,000 1,130,000 Other Cash Adjustments (2,101,693) 5,020,639 (350,000)             ‐ (350,000)                           ‐                           ‐ Net Revenues After Capital Expenditures and Transfers Out (4,990,134) (11,575,454) (1,156,344) (1,352,274) (5,507,020) (7,350,686) (9,279,054) Beginning Cash Balance 6,966,959 1,976,825 (9,598,629) (10,754,972) (12,107,246) (17,614,266) (24,964,953) Net change in Cash & Cash Equivalents (4,990,134) (11,575,454) (1,156,344) (1,352,274) (5,507,020) (7,350,686) (9,279,054) Ending Cash Balance 1,976,825 (9,598,629) (10,754,972) (12,107,246) (17,614,266) (24,964,953) (34,244,006) Projected
Summary Results for Option 1 (“Do Nothing”)
NHA is not a rate consultant; these required rate increases are estimates, subject to a cost of service study
NHA does not recommend this option
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16 Draft Estimated
2022‐23 2023‐24 2024‐25 2025‐26 2026‐27 2027‐28 2028‐29 Assumed Rate Increases 13.0% 0.0% 11.0% 6.0% 6.0%
Assumed Rate Increase Date 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Total Gross Revenues 34,167,255 35,346,961 38,959,905 39,259,905 40,450,974 42,426,820 44,521,217Total Operating Expenses 30,760,816 34,333,079 35,235,777 35,740,279 37,474,936 39,314,601 41,246,250 Net Revenues 3,406,439 1,013,882 3,724,128 3,519,626 2,976,039 3,112,219 3,274,967 Debt
2015 Electric Revenue Bonds 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Placeholder
Total Debt Service 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Debt Service Coverage (1.20x Requirement) 1.40 0.42 1.54 1.45 1.23 1.28 1.35 City's Reported Coverage (EMMA Filings) 1.25
Cash Balance Calculations
Net Revenues After Debt Service 981,645 (1,409,162) 1,301,084 1,095,082 553,745 685,925 851,954 Capital Expenditures 8,073,472 5,145,653 1,140,072 1,130,000 1,130,000 1,130,000 1,130,000 Other Cash Adjustments (2,101,693) 5,020,639 (350,000)             ‐ (350,000)                           ‐                           ‐ Net Revenues After Capital Expenditures and Transfers Out (4,990,134) (11,575,454) 511,012 315,082 (576,255) (444,075) (278,046) Beginning Cash Balance 6,966,959 1,976,825 (9,598,629) (9,087,616) (8,772,534) (9,348,789) (9,792,864) Net change in Cash & Cash Equivalents (4,990,134) (11,575,454) 511,012 315,082 (576,255) (444,075) (278,046) Ending Cash Balance 1,976,825 (9,598,629) (9,087,616) (8,772,534) (9,348,789) (9,792,864) (10,070,910) Projected
Summary Results for Option 2 (“Maintain Operations ONLY”)Cash balance never gets positive under this scenario but hovers around current negative levels; this option has serious, negative implications for ability of other City funds to be repaid for amounts they have loaned the Electric Utility NHA is not a rate consultant; these required rate increases are estimates, subject to a cost of service study
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17 Draft Estimated
2022‐23 2023‐24 2024‐25 2025‐26 2026‐27 2027‐28 2028‐29 Assumed Rate Increases 63.7% 0.0% 0.0% 0.0% 0.0%
Assumed Rate Increase Date 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Total Gross Revenues 34,167,255 35,346,961 49,169,526 49,469,526 47,397,186 47,397,186 47,397,186Total Operating Expenses 30,760,816 34,333,079 35,235,777 35,740,279 37,474,936 39,314,601 41,246,250 Net Revenues 3,406,439 1,013,882 13,933,749 13,729,247 9,922,250 8,082,585 6,150,936 Debt
2015 Electric Revenue Bonds 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Placeholder
Total Debt Service 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Debt Service Coverage (1.20x Requirement) 1.40 0.42 5.75 5.66 4.10 3.33 2.54 City's Reported Coverage (EMMA Filings) 1.25
Cash Balance Calculations
Net Revenues After Debt Service 981,645 (1,409,162) 11,510,705 11,304,703 7,499,957 5,656,291 3,727,923 Capital Expenditures 8,073,472 5,145,653 1,140,072 1,130,000 1,130,000 1,130,000 1,130,000 Other Cash Adjustments (2,101,693) 5,020,639 (350,000)             ‐ (350,000)                           ‐                           ‐ Net Revenues After Capital Expenditures and Transfers Out (4,990,134) (11,575,454) 10,720,633 10,524,703 6,369,957 4,526,291 2,597,923 Beginning Cash Balance 6,966,959 1,976,825 (9,598,629) 1,122,005 11,646,708 18,016,664 22,542,955 Net change in Cash & Cash Equivalents (4,990,134) (11,575,454) 10,720,633 10,524,703 6,369,957 4,526,291 2,597,923 Ending Cash Balance 1,976,825 (9,598,629) 1,122,005 11,646,708 18,016,664 22,542,955 25,140,878 Projected
Summary Results for Option 3A (“Recovery from Rates in 2025”) NHA is not a rate consultant; these required rate increases are estimates, subject to a cost of service study
1494
18 Draft Estimated
2022‐23 2023‐24 2024‐25 2025‐26 2026‐27 2027‐28 2028‐29 Assumed Rate Increases 21.2% 21.2% 0.0% 0.0% 0.0%
Assumed Rate Increase Date 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Total Gross Revenues 34,167,255 35,346,961 40,603,984 47,510,365 45,438,025 45,438,025 45,438,025 Total Operating Expenses 30,760,816 34,333,079 35,235,777 35,740,279 37,474,936 39,314,601 41,246,250 Net Revenues 3,406,439 1,013,882 5,368,207 11,770,086 7,963,090 6,123,424 4,191,775 Debt
2015 Electric Revenue Bonds 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Placeholder
Total Debt Service 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,013 Debt Service Coverage (1.20x Requirement) 1.40 0.42 2.22 4.85 3.29 2.52 1.73 City's Reported Coverage (EMMA Filings) 1.25
Cash Balance Calculations
Net Revenues After Debt Service 981,645 (1,409,162) 2,945,163 9,345,542 5,540,796 3,697,130 1,768,762 Capital Expenditures 8,073,472 5,145,653 1,140,072 1,130,000 1,130,000 1,130,000 1,130,000 Other Cash Adjustments (2,101,693) 5,020,639 (350,000)             ‐ (350,000)                           ‐                           ‐Net Revenues After Capital Expenditures and Transfers Out (4,990,134) (11,575,454) 2,155,091 8,565,542 4,410,796 2,567,130 638,762 Beginning Cash Balance 6,966,959 1,976,825 (9,598,629) (7,443,538) 1,122,005 5,532,800 8,099,930 Net change in Cash & Cash Equivalents (4,990,134) (11,575,454) 2,155,091 8,565,542 4,410,796 2,567,130 638,762 Ending Cash Balance 1,976,825 (9,598,629) (7,443,538) 1,122,005 5,532,800 8,099,930 8,738,693 Projected
Summary Results for Option 3B (“Recovery from Rates in 2026”) NHA is not a rate consultant; these required rate increases are estimates, subject to a cost of service study
1495
19 Draft Estimated
2022‐23 2023‐24 2024‐25 2025‐26 2026‐27 2027‐28 2028‐29 Assumed Rate Increases 13.0% 5.0% 10.0% 5.0% 5.0%Assumed Rate Increase Date 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Total Gross Revenues 34,167,255 35,346,961 38,959,905 40,739,209 41,781,535 43,494,601 45,293,321Total Operating Expenses 30,760,816 34,333,079 35,235,777 35,740,279 37,474,936 39,314,601 41,246,250 Net Revenues 3,406,439 1,013,882 3,724,128 4,998,930 4,306,599 4,180,000 4,047,070 Debt
2015 Electric Revenue Bonds 2,424,794 2,423,044 2,423,044 2,424,544 2,422,294 2,426,294 2,423,0132024 Electric Revenue Bonds (Taxable) 0 0 925,750 925,750 925,750 Total Debt Service 2,424,794 2,423,044 2,423,044 2,424,544 3,348,044 3,352,044 3,348,763 Debt Service Coverage (1.20x Requirement) 1.40 0.42 1.54 2.06 1.29 1.25 1.21 City's Reported Coverage (EMMA Filings) 1.25
Cash Balance Calculations
Net Revenues After Debt Service 981,645 (1,409,162) 1,301,084 2,574,386 958,556 827,956 698,308 Capital Expenditures 8,073,472 5,145,653 1,140,072 1,130,000 1,130,000 1,130,000 1,130,000 Other Cash Adjustments (2,101,693) 5,020,639 (350,000)             ‐ (350,000)                           ‐                           ‐ Proceeds from Bonds ‐        ‐ 10,209,621                           ‐                           ‐                           ‐ Net Revenues After Capital Expenditures and Transfers Out (4,990,134) (11,575,454) 10,720,633 1,794,386 (171,444) (302,044) (431,692) Beginning Cash Balance 6,966,959 1,976,825 (9,598,629) 1,122,005 2,916,391 2,744,946 2,442,902 Net change in Cash & Cash Equivalents (4,990,134) (11,575,454) 10,720,633 1,794,386 (171,444) (302,044) (431,692) Ending Cash Balance 1,976,825 (9,598,629) 1,122,005 2,916,391 2,744,946 2,442,902 2,011,210 Projected
Summary Results for Option 4 (“Recovery from Bonds in 2025”)Cash balance recovers quickly under this scenario, tradeoff is the long‐term debtrepayments on a ~$10M Bond (principal + interest) NHA is not a rate consultant; these required rate increases areestimates, subject to a cost of service study 1496

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Art Vela, Public Works Director
Art Vela, Public Works Director
MEETING DATE: June 25, 2024
SUBJECT: Discussion Regarding the Lowering of the Banning Financing Authority’s Outstanding Electric System Revenue Bond Rating and Consideration of an Interim Electric Rate Adjustment
RECOMMENDATION:

Discussion and direction regarding an interim electric rate adjustment.

DEPARTMENT DIRECTOR:

Art Vela, Public Works Director
BACKGROUND:

Electric System Revenue Bonds
In 2007 the Banning Finance Authority, through the City of Banning, issued a series of electric system revenue bonds (“Electric System Series 2007 Bonds”) to assist in the financing of improvements including new substations, circuit breakers, underground feeders, land and other improvements. The amount of the Electric System Series 2007 Bonds was $45,790,000.

In 2015, City Council (acting as the Banning Finance Authority) adopted Resolution 2015-02FA authorizing the refunding of the revenue bonds (“Electric System 2015 Refunding Revenue Bonds”) with the intent to take advantage of historic low interest rates which were to save the City approximately $1,050,000. At the time of the refunding, the Electric System Series 2007 Bonds had an outstanding aggregate principal amount of $40,045,000. The Electric System 2015 Refunding Revenue Bonds were authorized in an amount of not-to-exceed $45,000,000.

For clarity purpose, a revenue bond is a type of municipal bond. Municipal bonds act like loans, with bondholders becoming creditors. In exchange for borrowed funds (i.e. funds invested by bondholders) the bondholders/investors are promised interest on their invested amount. Revenue bonds are secured by revenues generated by the issuer which, in the City’s case, is the City’s Electric Utility.

Electric System 2015 Refunding Revenue Bonds Ratings
Credit ratings are provided by credit rating agencies, such as S&P Global, that specialize in evaluating credit risk. Credit ratings are forward looking and provide investors with independent opinions about an issuer’s, such as a corporation or state/city government, to meet its financial obligation. Typically, ratings are expressed as letter grades that range from ‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk.

From the S&P Global’s website: “Our studies have shown that the higher the ratings, the lower the 1 1497
default rates, and vice versa. For example, our historical statistics show a 3-year cumulative default rate for a ‘BBB’ rated company of 0.91%, vs. 4.17% for a ‘BB’ rated one, 12.41% for a ‘B’ rate one and

45.67% for a ‘CCC/CC’ rate one.”
On March 20, 2024 the City of Banning received notice from S&P Global that they had lowered the underlying rating from ‘A-’ to ‘BBB’ and put on Credit Watch, see attached correspondence and back up analysis.

On May 2, 2024, the City of Banning received notice from S&P Global that they had again lowered the underlying rating from ‘BBB’ to ‘BB’ with an “outlook for this rating as negative”, see attached correspondence and back up analysis (“May 2024 S&P Analysis”).

In summary, according to the May 2024 S&P Analysis the recent downgrading of the Electric System 2015 Refunding Revenue Bonds was a result of the following:

The use of interfund borrowings to meet financial obligations.

Lack of proactive rate setting.

May 2024 S&P Analysis also describes that the outlook is negative which “reflects our view that rates are not anticipated to be raised before fiscal-year end 2025.

Fiscal Year 2024/2025 Budget
In an effort to improve the Banning Electric Utility's financial position the City has taken to following approach reflective in the planned Fiscal Year (FY) 2024/2025 budget:

Continued implementation of the Power Cost Adjustment Factor (PCAF; Estimated at $1.1M). The PCAF began on January 1, 2022.

Continued to sell Renewable Energy Credits (RECs; Estimated at $2.48M) Reduced the utility’s Capital Improvement Plan from $16.4M to $1.1M Collection of delinquencies ($1.9M). Shutoff notices resumed in April, 2024.

With the above changes the Electric Utility is projected to have a FY 2024/2025 budget shortfall of $1,200,130.

It is also projected that the Electric Utility will have a FY 2025/2026 budget shortfall of $1,135,060.

For reference, the Electric Utility will have a budget shortfall of approximately $4.7M at the end of FY 2023/2024. Although the utility is expecting a $2.5 million Aid In Construction payment to be recorded before June 30, 2024, which will reduce that expected net loss to approximately $2.2 million.

One option for City Council’s consideration would be an interim rate adjustment in order to avoid further deterioration of the Banning Electric Utility’s cash position, which is projected to be negative $8.8M at the end of FY 2023/2024. If City Council provides direction to staff to proceed with this option, staff will present an analysis and recommendation to City Council at the August 27, 2024 City Council meeting.

The rate adjustment would be considered “interim” while staff hires a consultant to develop a complete Cost of Service (COS)/Rate Study, which would likely be completed during the fourth quarter of FY 2024/2025.

JUSTIFICATION:

According to the May 2, 2024 S&P Analysis, the Electric System 2015 Refunding Revenue Bonds rating could be further downgraded if the Banning Electric Utility is not able to rebuild and maintain a sustained track level of positive reserves and improve its structural balance. 2 1498
The May 2024 S&P Analysis indicates that the “negative outlook” is a result of rates likely not being raised prior to fiscal year end 2025.

FISCAL IMPACT:

The projected budgetary shortfalls for FY 2024/2025 and FY 2025/2026 will continue to negatively impact the utility’s cash balance, which may result in a higher rate increase in the future.

ALTERNATIVES:

Do not proceed with Interim Electric Rate Adjustment.

BUDGETED?:

No
CONTRACT/AGREEMENT:

No
ATTACHMENTS:

1. Resolution No. 2015-02 FA Electric Refunding Bonds.pdf

2. March 2024 S&P Rating Downgrade.pdf

3. May 2024 S&P Rating Downgrade.pdf

4. S&P Rating Scale.pdf

5. FY25 and FY26 Electric Budgets,pdf.pdf
3 1499

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Lincoln Bogard, Administrative Services Director MEETING DATE: May 14, 2024
SUBJECT: Consideration of Resolution 2024-71, Approving a three (3) year Contract with Option to Extend for Two (2) Additional Years with NHA Advisors, LLC for Municipal Advisory Services that will be funded via task orders per Procurement Policy requirements and approving an initial task order for $100,000 to evaluate and assess financing and other options for the Electric Department
RECOMMENDATION:

Adopt Resolution 2024-71.

DEPARTMENT DIRECTOR:

BACKGROUND:

The City does not currently have a contract with a municipal advisor. Municipal advisory services include financial planning and modeling, market analysis, debt management and implementation, ballot initiatives, and other value added services.

The City is a complex organization that has several enterprise funds that necessitate the need for the services provided by municipal advisors. Additionally, the General Fund would also benefit from those same services.

Most cities and other local agencies utilize the services of a municipal advisor.

The Scope Of Work that we advertised is as follows:

4. Scope of Work

4.1. General Services
A successful proposer will have the ability to provide services including, but not limited to, comprehensive financial planning and analysis services, credit rating surveillance, advise on market conditions, debt issuance and continuing disclosure services in order to:
achieve sufficient funds to operate the City
identify revenue streams for the City
and assist in efficient and effective administration in support of the management of the City

4.2. Financial Planning
The services to be provided by the municipal advisor shall be as needed and include, but not limited to, the following:
1 1500
Act as the City of Banning’s Independent Registered Municipal Advisor as defined by the U.S.

Securities Exchange Commission (SEC) in connection with all capital markets activity.

Provide independent financial advice and serve solely the interest of the City of Banning.

Review the overall financial status of the City and recommend specific financing programs to maximize resources available for the implementation of projects.

Provide continuing updates and advice on the impact of current or proposed state or federal legislation and that could affect the financial plans of the City and refunding opportunities.

Provide as-needed financial advice regarding market conditions and trends, financial products, credit analysis, alternative financing, State or Federally subsidized loan programs, and other specialty financing.

Review the City's long-range financing strategy, particularly with respect to its capital improvement program.

Develop a financing plan analyzing alternatives based on the City’s needs and the municipal market environment evaluating structuring and pricing options: long or short term; callable or noncallable features; credit enhancement (Obtain bids if necessary); level debt service versus front or back-loaded debt service; and the consideration of premiums; discounts; or par securities.

Review and evaluate the City’s existing capital financing plans and work closely with Finance staff to determine whether current borrowing strategies need to be amended. Development of comprehensive capital plan, including the timing and security for planned borrowings, for its general fund and enterprise fund activities.

Assist in the formulation of financing plans, including presentations of alternative financial programs and strategies, taking into consideration appropriate debt structures, timing, impact on tax rates and taxpayers, budgeting, credit ratings, tax laws, and assessment of capital market conditions.

Analyze and make recommendations relating to various financing options so as to secure the lowest practical interest rate; enhance the marketability of the Bonds; achieve the widest competition for bond purchase to include retail, institutional, and other investor classes; and achieve optimal leverage of municipal resources, while maintaining a prudent level of risk, through debt obligations. Identify the advantages and disadvantages of any recommendations (bond market conditions, timing of sales, etc.).

At the request of the City, advise the City on reinvestment strategies for bond proceeds and any other funds related to the financing, execute investment bid processes, as needed, and negotiate final terms and conditions on the City’s behalf.

Prepare and present information designed to facilitate understanding of public sector financing and its implications to City staff and elected officials.

Be familiar with the City of Banning’s existing debt levels and covenants relating to that debt, bond resolutions, financial policies, strategic plan, capital plan, and anticipated financing needs.

Assist in preparing a financial model to include credit profile evaluation, valuation forecast, water fund financial forecast model, capital planning model and debt model.

Assist with ancillary services such as debt and capital planning advisory services.

Assist in the development of strategic financial plans and a financing schedule. This will include considering various potential financing. Techniques, including but not limited to, public versus privately- placed debt, fixed versus variable rate debt, long-term versus short-term amortization.

Developing financial analysis and special reports as requested.

Provide timely credit market information, evaluation and presentation of financing options, longterm financial planning, documentation of financing decision and on-going quantitative analysis.

Advise on current market conditions in the context of upcoming bond issues which may impact interest rates and bond sales. Advise on bond issue timing based on market conditions.

Conduct a survey of the financial resources of the City to determine the extent of their capacity to authorize, issue and service any debt instruments contemplated.

Consider and analyze future financing needs projected by the City’s staff and consulting experts.

Provide recommendations to the City regarding debt instruments under consideration, including such elements as the date of issue, interest payment dates, schedule of principal maturities, options of prior payment, security provisions, and such other provisions as may be appropriate in 2 1501
order to make the issue attractive to investors while achieving the objectives of the City.

Advise the City of its interpretation of current bond market conditions, other related forthcoming bond issues and general information, with economic data so that the date of sale of the debt instruments may be set at a favorable time.

Review all outstanding long-term debt obligations for savings. Work with the City to balance bonds/cash/loans for ongoing Capital Improvement Projects.

Provide advice to the City on development projects on an ongoing basis to include capital funding and revenue to the City as well as review and advise on long-term contracts with outside development partners. Work with the City on an ongoing basis to acquire and/or increase bond ratings and visibility with institutional investors.

Perform other financial advisory services as may be required from time to time, including advising a municipality on refunding opportunities.

Assist with preparing City Council presentations and/or make presentations to City Council and City Management, as requested.

4.3. Debt Management and Financial Implementation
The services to be provided by the municipal advisor shall be as needed and include, but not limited to, the following:

Evaluate the particular financings being contemplated, giving consideration to the complexity, market acceptance, rating, size and structure in order to make the recommendation as to an appropriate method of sale.

Provide recommendations for specific debt offerings, including but not limited to, options regarding timing, sizing, maturity schedules, call provisions and rate structure.

Coordinate the preparation of the notice of sale and bidding instructions, official statement, official bid and such other documents as may be required and submit all such documents to the City for examination, approval and certification.

Advise on all debt offerings, including proposed interest rates and yields, need for credit enhancements, pre-sale marketing, and negotiation of fees and expenses.

Advise on bond sales climate and make recommendations with respect to whether sale of bonds should be competitive or negotiated. If negotiated, assist in the selection of bond underwriting firms by developing and issuing RFP’s. Manage, analyze, provide summaries of RFP responses, and provide recommendations of the underwriting team.

Make recommendations to the City as to the advisability of obtaining a credit rating, or ratings, for the debt instrument and, when directed by the City, coordinate the preparation of such information as may be appropriate for submission to the rating agency, or agencies.

Upon request from the City, assist in the selection of a Trustee and/or Paying Agent for the debt instruments, and assist in the negotiation of agreements pertinent to these services and the fees incident thereto.

Assist in preparation and review of official statements and other financing documents necessary for the issuance of debt. Conduct thorough review of the financial calculations relating to the sale of debt contained in the associated documents.

Assist in the selection and assignment of roles and responsibilities of bond counsel, trustee, paying agent, insurers, printers, rating agencies, and other parties involved in the debt issuance process.

Assist in the solicitation, evaluation, and negotiation of insurance proposals if needed.

Assist with the preparation for and participate in presentations, discussions, meetings, and conference calls with credit rating agencies for the issuance of debt.

Evaluate and provide expert advice during the bond pricing in the area of overall structure of the bond issue, including timing of the issue relative to market conditions, maturity structures, call provisions, interest rates, reserve fund requirements, disposition of bond proceeds, flow of funds, issuance costs, confirmation of present value savings, etc.

Assist in the presentation, preparations, and distribution of the Preliminary Official Statement (POS), Notice of Sale (NOS), Official Statement (OS), and other documents and materials 3 1502
required to facilitate the sale of any securities. Provide mailing list and overall management of mailing of the POS and NOS to potential underwriters and investors and manage the production mailing of the final OS.

If the securities are sold on a competitive basis, assist in the bid process, verify the bids, and reallocate principal amounts throughout the loan if required to meet municipality objectives. Have a working knowledge with those competitive underwriters who typically lead syndicates that bid for municipal securities.

Assist with the preparation for and participate in information meetings and conference calls with prospective investors and others, as appropriate, prior to the issuance of debt.

Assist the City with independent auditor requests regarding debt related calculations or related information. Work with bond/tax counsel in advance of the publication or sale of any securities to ensure acceptance of the financing structure and the ability of bond counsel to deliver an unqualified opinion and review tax certificate to the municipality. Assist in the preparation and review of legal and financing documents in coordination with municipality legal counsel, bond counsel, underwriter’s counsel (if any) and disclosure counsel (if any), City staff, and other relevant parties.

Assist in the preparation and review of legal and financing documents in coordination with City staff, consultants, City Counsel, bond counsel, underwriter’s counsel (if any) and disclosure counsel (if any), and other relevant parties.

Create presentation materials and arrange calls/meetings with the rating agencies, bond underwriters (if negotiated), institutional investors, financial publications, credit enhancers, and other market participants. Note that presentation materials must meet or exceed the City’s current aesthetic and informational standards.

Participate in pre-closing and closing activities to ensure that all documents contained in the transaction of the sale accurately reflect the municipality’s understanding of the terms of the transaction. Review and approve closing documents including the tax certificate and 8038 filing forms.

Prepare a comprehensive “Final Pricing Book” within a reasonable time of the closing of each financing transaction that includes information requested by the City, at a minimum summary of the transaction describing any unique financing feature, security and other characteristics of the transaction.

Assist in the preparation and the required reporting of continuing disclosure documents, monitoring and reporting of disclosure events.

Make available qualified personnel for consultations and conferences with municipality officials, bond counsel, and staff members, as well as for other meetings on an as needed basis. With respect to bond financings, assist in sizing and structuring of the sale, prepare credit presentations, determine the maturing schedule, establish syndicate policies and closing procedures, and any other matters which may assist the City in obtaining the lowest practical interest cost and the widest competition for purchase of its obligations.

After consulting with and receiving directions from the City, arrange for such reports and opinions of recognized independent consultants as may be appropriate for the successful marketing of the debt instruments.

Provide feedback on underwriter recommendations, especially bond pricing and date.

Assist in determining the best method for marketing ore remarketing bonds under current market conditions.

Assist in evaluation of debt service reserve fund, and other debt related funds.

Attend meetings of the governing body of the City, its staff, representatives or committees as requested at all times when Consultant may be of assistance or service and the subject of financing is to be discussed.

To the extent authorized by the City, coordinate all work incident to printing of the offering documents and the debt instruments.

Maintain liaison with Bond Counsel in the preparation of all legal documents pertaining to the authorization, sale and issuance of the debt instruments.

As soon as a bid for the debt instruments is accepted by the City, coordinate the efforts of all 4 1503
concerned to the end that the debt instruments may be delivered and paid for as expeditiously as possible and assist the City in the preparation or verification of final closing figures incident to the delivery of the debt instruments.

After the closing of the sale and delivery of the debt instruments, deliver to the City a schedule of annual debt service requirements for the debt instruments and assure that the Trustee and or Paying Agent has been provided with a copy of the authorizing ordinance.

Subsequent to the sale and delivery of Debt Instruments, review the transaction and transaction documentation with Bond Counsel and any other experts and consultants retained by the City and assist in developing appropriate responses to legal processes, audit procedures, inquiries, internal reviews and similar matters.

Assist the City with independent auditor requests regarding debt related calculations or related information.

The firm engaged as Municipal Advisor will not be permitted to participate as underwriter or provider of escrow securities for the City of Banning for the term of the contract, even if the Municipal Advisor resigns or is terminated during the term thereof.

4.4. Ballot Initiatives
Assist the City with any requested voter-approved revenue measures:

Perform quantitative modeling and feasibility analysis that accounts for the distressed community designation that the City currently holds.

Develop revenue strategies to meet operational, capital, and service needs.

Analysis of tax types and ways to supplement through changes to parcel taxes, special taxes, general taxes, etc.

Sales Tax Measures
Utility Users Tax Measures
Transfer Taxes
Special Assessments
Other measures
Support services for management, elected officials, and community stakeholders, including but not limited to preparing tax filings, ballot arguments, community education, and reports to City Council.

4.5. Value Added Services Identified by the City
Pension and Other Post-Employment Benefits (OPEB) services, such as Section 115 trusts, Unaccrued Actuarial Liability (UAL) restructuring, funding policies, risk assessment, forecasting and sensitivity analysis.

Stakeholder education in areas of expertise.

Continuing Disclosure Compliance.

Vehicle lease versus buy analysis and budget management support services.

Fiscal analysis and forecasting services including sensitivity and scenario analysis.

Recession planning and efforts to provide early warning and planning for stability with the City's credit rating in mind.

JUSTIFICATION:

The City expects to issue debt for Wastewater, Water, and Electric in the next five (5) years. Financial modeling, evaluation, and assessment of financing needs or alternatives are needed citywide.

The City issued a Request for Proposals (RFP) for Municipal Advisory Services on March 6, 2024, which received two (2) proposals. NHA Advisors, LLC was selected for contract award through an evaluation process.

The evaluation scores are attached to this report.

FISCAL IMPACT:

This contract will be funded through task orders as defined in the Procurement Policy (B-30). Staff is 5 1504
currently requesting approval of a $100,000 task order to evaluate and assess financing and other options for the Electric Department to increase liquidity and stabilize or improve its bond rating. The first task order will be appropriated and paid out of general ledger account 670-7000-473.33-11 for Professional Services.

ALTERNATIVES:

Do not approve Resolution and provide alternative direction.

BUDGETED?:

No
CONTRACT/AGREEMENT:

Yes
ATTACHMENTS:

1. Resolution 2024-71, NHA Advisors LLC.docx

2. C01021 PSA - Municipal Advisory Services

3. Municipal Advisory Services Evaluation Tabulation
6 1505

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Lincoln Bogard, Administrative Services Director Lincoln Bogard, Administrative Services Director
MEETING DATE: August 27, 2024
SUBJECT: Presentation and consideration of the Results of the Time Study and Associated Cost Analysis of the Itron Electric Meter Failures Due to Mesh Communication Issues that Resulted in Reprogramming and Replacing Impacted Electric Meters
RECOMMENDATION:

Receive and file presentation and provide direction to staff regarding seeking reimbursement from Itron for meter reprogramming and exchange costs.

BACKGROUND:

The City undertook an Openway AMI Project to automate electric meter reads for all electric meters. Iron was selected as the vendor to provide the AMI "Smart" Meters. During the AMI rollout, there were several issues with the Itron meters. Initially, a large number of meters required replacement due to faulty batteries that resulted in Fatal 5 Errors if the batteries failed prior to connecting the meters to the automated reads from the collectors. After that, a significant percentage of meters failed due to a problem with the mesh network connection option. The meters could communicate with the collectors, but if they could not communicate with a collector, the default was for it to change over to the mesh network and communicate with another nearby meter. That process was supposed to allow the nearby meter to communicate both reads to the collector, but a programming issue resulted in both meters going offline and neither communicating to the collectors. This effect was "contagious" and ended up impact thousands of meters throughout the City.

Staff informed Council of the issues and has now performed a time study and cost analysis for the massive effort required to correct the situation. Itron has offered to work with the City to reimburse some or all of the costs of the meter reprogramming and exchanges.

JUSTIFICATION:

The initial warranty period for the meters was three (3) years from the date of shipment.

Additional Warranty Terms: Itron shall perform the repairs or updates with reasonable care and in a diligent and competent manner. Itron's sole obligation in connection with repair or update failures shall be, at its option, to correct or re -perform repairs/updates or refund to Customer the amount paid for the repairs/updates. Customer must report any deficiencies in repair work to Itron in writing within 90 days of shipment to receive the remedies described herein.

FISCAL IMPACT:

Potential recovery from Itron of City staffing costs of $627,428 to address and correct the issues with the 1506
electric meters.

Work Order / Project Amount per Meter
WF0254708 $ 4.91
WF0240168 $ 109.74
WF0271788 $ 30.99
EL2408 $ 11.16
UTILLBILL $ 47.58
Total Per Meter $ 204.37
Total Cost (3,070 Meters) $627,428
ALTERNATIVES:

Receive and file and direct staff not to seek reimbursement for expenses.

BUDGETED?:

No
CONTRACT/AGREEMENT:

No
1507

CITY OF BANNING

STAFF REPORT
TO: CITY COUNCIL
FROM: Douglas Schulze, City Manager
PREPARED BY: Emery Papp, Senior Planner
MEETING DATE: August 27, 2024
SUBJECT: Overview and Presentation of Industrial Development Projects in the City of Banning
RECOMMENDATION:

Receive, file, and discussion only
BACKGROUND:

City Council Member Flynn requested an overview of the industrial development projects currently under review by City staff to provide additional information to the public of the type and amount of development projects that are anticipated to be considered before the Planning Commission and the City Council in the future. The City Council should be mindful that this is a broad overview and presentation on the proposed projects. This item is not a public hearing on any of the proposed projects. Each of the of the proposed projects are seeking entitlements that will involve a quasi-adjudicatory proceeding before the Planning Commission and/or the City Council. For those projects, it is important that Council Members refrain from making comments that may indicate bias or a predetermination of the vote that will be cast.

The projects to be briefly introduced this evening that are currently under review include:
101 W. Lincoln
Banning Point (Creation)
Banning Commerce Center (Sansone)
Banning 25 (Seefried)
Charles Street Industrial Building (CDRE Holdings)
Condon Johnson Heavy Equipment Yard
First Hathaway Logistics
First Lincoln Logistics
Sunset Crossroads Specific Plan
WEKA Industrial
Recently Approved Industrial Projects include:

Brown Strauss Steel
KCB Towers Equipment Yard
KVL Tires
Pallet Yard
Graphic images and summaries for each project can be found in the attached PowerPoint presentation. 1508
JUSTIFICATION:

This is a City Council initiated request to present information pertaining to entitlement applications for industrial development projects currently being processed by the City of Banning. This exercise will provide additional information to the City Council, Planning Commission, and the general public regarding the proposed projects in addition to the project information available to the public on the City's website.

FISCAL IMPACT:

No Fiscal Impact, only staff time to prepare the presentation.

ALTERNATIVES:

None
BUDGETED?:

No
CONTRACT/AGREEMENT:

No
1509

Banning City CouncilAugust 27, 2024

Banning City Council
August 27, 2024