Agenda packet — Costa Mesa City Council, January 18, 2022 (part 7 of 7)

STATEMENTS
DEPARTMENT: FINANCE DEPARTMENT
PRESENTED BY: CAROL MOLINA, FINANCE DIRECTOR
CONTACT INFORMATION: CAROL MOLINA, FINANCE DIRECTOR, (714) 754-5243 RECOMMENDATION:

Staff recommends that the City Council and Costa Mesa Financing Authority receive and file the Costa Mesa Financing Authority’saudited financial statements for the fiscal year ended June 30, 2021.

BACKGROUND:

The Costa Mesa Financing Authority was created by a joint powers agreement between the City of Costa Mesa and the Costa Mesa Housing Authority, dated August 1, 2017. It was created pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California to provide financing for capital improvements, acquisition of capital improvements, and the purchase of local obligations.

Following the close of each fiscal year, the City retains an independent public accounting firm of licensed certified public accountants to complete an audit of the City’sfinancial records, including the Costa Mesa Financing Authority. The goal of the audit is to provide a reasonable assurance from an independent source that the information presented in the financial statements is reliable and free of material misstatement. The City retained Davis Farr, LLP to complete the audit for the fiscal year ended June 30, 2021.

ANALYSIS:

The Financing Authority received an unmodified opinion from Davis Farr LLP. This is the highest and cleanest attestation report given by independent auditors.

In Fiscal Year 2020-21, the Financing Authority continued to support debt service payments for the 2017 Lease Revenue Bonds, which were originally issued in October 2017 to fund the Donald Dungan Library, Neighborhood Community Center and Lions Park projects; and to advance refund the 2007 Certificates of Participation. At June 30, 2021, the 2017 bonds outstanding principal was $24.9 million.

Page 1 of 2 ends

1521
File #: 21-538 Meeting Date: 1/18/2022
ALTERNATIVES:

The audited financial statements are required in order to comply with Governmental Accounting Standards Board (GASB) and Generally Accepted Accounting Principles (GAAP) requirements.

Hence, the reports are presented to the City Council for receive and file purposes.

FISCAL REVIEW:

There is no fiscal impact associated with receiving and filing the report.

LEGAL REVIEW:

The City Attorney’s Office has reviewed the report, and approves the report as to form.

CITY COUNCIL GOALS AND PRIORITIES:

This staff report achieves the following City Council Goal(s):
· Achieve Fiscal Sustainability
CONCLUSION:

Staff recommends that the City Council and Costa Mesa Financing Authority receive and file the Costa Mesa Financing Authority’saudited financial statements for the fiscal year ended June 30, 2021.

Page 2 of 2 ends

1522

COSTA MESA

FINANCING AUTHORITY
(A Component Unit of the
City of Costa Mesa)
Financial Statements
Year Ended June 30, 2021
1523

COSTA MESA FINANCING AUTHORITY
Table of Contents
Year Ended June 30, 2021
Page
Number
Independent Auditor’s Report 1 - 2
Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position 3
Statement of Activities 4
Fund Financial Statements:

Balance Sheet - Governmental Fund 5
Reconciliation of the Governmental Fund Balance
Sheet to the Statement of Net Position 6
Statement of Revenues, Expenditures and Changes in
Fund Balances - Governmental Fund 7
Reconciliation of the Governmental Fund Statement of
Revenues, Expenditures and Changes in Fund Balances
to the Statement of Activities 8
Notes to the Basic Financial Statements 9 - 16
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 17 -18 1524
1 INDEPENDENT AUDITOR’S REPORT
Board of Directors
Costa Mesa Financing Authority
Costa Mesa, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities and the major fund of the Costa Mesa Financing Authority (the Authority), a component unit of the City of Costa Mesa, California, as of and for the year ended June 30, 2021, and the related notes to the basic financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents.

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

Auditor’s Responsibility
Our responsibility is to express opinions on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the basic financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Authority as of June 30, 2021, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
1525

2 Emphasis of a Matter

As described
m
ore fully
i
n Note
1 A,
t
he basic f
i
nancial state
m
ents present only the Authority

a
nd

are

not

i
ntended

p
resent

f
airly

the

financial

po
s
ition

a
n
d

res
u
lts

of operations

o
f

the City

of Co
s
t
a

M
esa,

C
a
li
f
ornia in
a
ccordan
c
e
w
ith

a
c
cou
n
ting

p
rinciples

generally acce
p
ted in

t
he United
S
tat
e
s of

A
m
erica.

Report on Summarized Comparative Information

We have previously audited the financial statements of the Authority for the year ended June 30, 20 20

and we expressed an unmodified opinion on those
audited
financial statements in our report
dated December
21 , 20
20 . In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 20
20 is consistent, in all ma
terial respects, with the
audited financial statements from which it has been derived.

Other M
a
tters

Required Supplementary Information

Manage
m
ent

has

not

presented
t
he
m
anag
e
m
en
t
’
s

discussion

and

a
n
alysis

t
hat

accounting

principles gener
a
lly

a
c
cepted

t
h
e

U
nited

S
t
ates

A
m
erica

req
u
ire

presented

supple
m
ent

t
he

b
asic financial

state
m
ents.

Such

m
issing

info
r
m
ation, although

not

part

of the

basic

financial

state
m
ents,

is required

the

Govern
m
ental

A
ccounting

S
t
andards

Board,

who

considers

t
o

essential

part

of financial

reporting

for

placing

the

basic

financial

state
m
ents

a
ppropriate

operational,

econo
m
i
c, or

historical

context.

O
ur

opinions on

the

basic

financial
sta
t
e
m
ents

are

not

a
f
f
ected

this
m
issing
infor
m
ation.

Other Rep
o
rting Required by
Government Auditing Stand
a
rds

In accordance with
Government Auditing Standards
, we have also issued our report dated
December
17 , 202
1 ,

our

consideration

the

Authorit
y
’s

inter
n
al

c
o
ntrol

over

financial

rep
o
rting and on

our tests of its co
m
pliance

with certain provisions of laws,

re
gu
l
a
ti
o
n
s, c
on
t
ra
c
t
s,

and
g
ra
n
t
agree
m
ents and other matters. The purpose of that report is
solely
to descr
i
be the scope of our
testing of internal control over
financial r
e
porting and co
m
pliance and the results of that testing, and
not to provide

opinion

internal

contr
o
l

over

financial

reporting

on
c
o
m
pliance.

That

rep
o
rt

an integral

part

audit perfor
m
ed

i
n

accordance

with

Government

Auditing

Standards
in

consi
d
eri
n
g the Authority’s internal control over

financial

reporting

and

co
m
pliance.

Irvine, Cali
f
ornia

December
17 , 202
1 1526
2021 2020
ASSETS:

Cash and investments with fiscal agent (Note 2) 1$ 43$ Lease interest receivable 276,512 293,263
Leases receivable (Note 3) 24,850,000 26,525,000
TOTAL ASSETS 25,126,513 26,818,306
LIABILITIES:

Interest payable 276,512 293,263
Noncurrent liabilities:

Due within one year (Note 3) 1,887,767 1,822,767
Due in more than one year (Note 3) 26,102,279 27,990,046 TOTAL LIABILITIES 28,266,558 30,106,076
NET POSITION:

Restricted for debt service 1 43
Unrestricted (3,140,046) (3,287,813)
TOTAL NET POSITION (3,140,045)$ (3,287,770)$
Governmental Activities

COSTA MESA FINANCING AUTHORITY
Statement of Net Position
June 30, 2021
(With comparative totals for June 30, 2020)
See accompanying notes to financial statements.
3 1527
Charges Operating Capital
for Grants and Grants and
Expenses Services Contributions Contributions 2021 2020 Governmental Activities:

Interest on Long-term debt 991,783$ - - - (991,783)$ (1,057,483) Total governmental
activities 991,783$ - - - (991,783) (1,057,483) General revenues:

Investment income 1,139,508 1,204,825
Total general revenues 1,139,508 1,204,825
Changes in net position 147,725 147,342

NET POSITION AT
BEGINNING OF YEAR (3,287,770) (3,435,112)
NET POSITION AT END OF YEAR (3,140,045)$ (3,287,770)
Program Revenues
Functions/Programs
Net (Expenses) Revenues

COSTA MESA FINANCING AUTHORITY
Statement of Activities
Year Ended June 30, 2021
(With comparative totals for the year ended June 30, 2020) See accompanying notes to financial statements.
4 1528
2021 2020
ASSETS:

Cash and investments with fiscal agent 1$ 43$ Leases receivable 24,850,000 26,525,000
TOTAL ASSETS 24,850,001$ 26,525,043$
DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE:

DEFERRED INFLOWS OF RESOURCES:

Unavailable lease revenue 24,850,000$ 26,525,000$
TOTAL DEFFERED INFLOW OF RESOURCES 24,850,000 26,525,000 FUND BALANCE:

Restricted for debt service 1 43
TOTAL FUND BALANCE 1 43

TOTAL DEFERRED INFLOWS OF RESOURCES
AND FUND BALANCE 24,850,001$ 26,525,043$
Government Fund
Total

COSTA MESA FINANCING AUTHORITY
Balance Sheet
Governmental Fund
June 30, 2021
(With comparative totals for June 30, 2020)
See accompanying notes to financial statements.
5 1529
Fund balances for governmental fund 1$
Amounts reported for governmental activities in the Statement of Net Position are different because:

Accrued interest receivable for the current portion of interest due on lease payments has not been reported in the governmental funds.

Interest receivable 276,512
Long-term liabilities applicable to the Authority's governmental activities are not due and payable in the current period and, accordingly, are not reported as governmental fund liabilities. All liabilities (both current and long-term) are reported in the Statement of Net Position.

Revenue bonds (24,850,000)
Premium on bonds (3,140,046)
Accrued interest payable for the current portion of interest due on long-term debt has not been reported in the governmental funds.

Interest payable - revenue bonds (276,512)
Revenues relating to leases receivable are measurable but not available and, accordingly, are recorded as unavailable revenue in the governmental funds under the modified accrual basis of accounting. 24,850,000 Net position of governmental activities (3,140,045)$

COSTA MESA FINANCING AUTHORITY
Reconciliation of the Governmental Fund Balance Sheet
to the Statement of Net Position
June 30, 2021
See accompanying notes to financial statements.
6 1530
2021 2020
REVENUES:

Other interest 7$ 1,338$
Lease payments 2,814,501 2,813,487
TOTAL REVENUES 2,814,508 2,814,825
EXPENDITURES:

Debt service:

Principal 1,675,000 1,610,000
Interest 1,139,550 1,205,250
TOTAL EXPENDITURES 2,814,550 2,815,250

EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (42) (425)
NET CHANGE IN FUND BALANCE (42) (425)
FUND BALANCE AT BEGINNING OF YEAR 43 468 FUND BALANCE AT END OF YEAR 1$ 43$
Total
Governmental Fund

COSTA MESA FINANCING AUTHORITY
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Fund
Year Ended June 30, 2021
(With comparative totals for the year ended June 30, 2020) See accompanying notes to financial statements.
7 1531
Net change in fund balances - total governmental fund (42)$ Amounts reported for governmental activities in the Statement of Activities are different because:

The Statement of Net Position includes accrued interest on leases receivable.

The net change in accrued interest for the current period is reported on the Statement of Activities. 276,512
Repayment of long-term principal is an expenditures in the governmental and, thus, has the effect of reducing the fund balances because current funds resources have been used. For the Authority as a whole, however, the principal financial payments reduce the liabilities in the Statement of Net Position and do not result in an expense in the Statement of Activities.

Debt service principal 1,675,000
Amortization of bond premium 147,767
The Statement of Net Position includes accrued interest on long-term debt. The net change in accrued interest for the current period is reported on the Statement of Activities. (276,512)
Revenues relating to leases receivable that do not meet the "availability" criteria for revenue recognition and therefore are not reported as revenue in the funds. (1,675,000)
Change in net position of governmental activities 147,725$

COSTA MESA FINANCING AUTHORITY
Reconciliation of the Governmental Fund Statement of
Revenues, Expenditures and Changes in Fund Balances
to the Statement of Activities
Year Ended June 30, 2021
See accompanying notes to financial statements.
8 1532
9 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
Year Ended June 30, 2021

1. Reporting Entity and Summary of Significant Accounting Policies A. Description of the Reporting Entity:

The Costa Mesa Financing Authority (the Authority) was created by a joint powers agreement between the City of Costa Mesa (the City) and the Costa Mesa Housing Authority (the Housing Authority), dated August 1, 2017. It was created pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title of the Government Code of the State of California (the “JPA Act”).

The Authority is an integral part of the reporting entity of the City. The financial activity of the Authority has been included within the scope of the basic financial statements of the City because the City Council of the City of Costa Mesa is the governing board over the operations of the Authority. Only the financial activity of the Authority is included herein, therefore, these financial statements do not purport to represent the financial position or results of operations of the City.

B. Basis of Accounting and Measurement Focus:

The basic financial statements of the Authority are composed of the following:
 Government-wide financial statements
 Fund financial statements
 Notes to the basic financial statements
Government-wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities of the primary government (including its blended component units), as well as its discretely presented component units. The Authority has no business-type activities or discretely presented component units.

Government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Measurement focus indicates the type of resources being measured. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the government-wide financial statements. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of Governmental Accounting Standards Board (GASB) Statement No. 33.

Program revenues include charges for services and payments made by parties outside of the reporting government’s citizenry if that money is restricted to a particular program.

Program revenues are netted with program expenses in the statement of activities to present the net cost of each program.
1533
10 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as expenditures. Proceeds of long-term debt are recorded as liabilities in the government-wide financial statements, rather than as other financing sources. Amounts paid to reduce long-term indebtedness of the reporting government are reported as reductions of the related liabilities, rather than as expenditures.

When both restricted and unrestricted resources are combined, expenses are considered to be paid first from restricted resources, and then from unrestricted resources.

Fund Financial Statements
The underlying accounting system of the Authority is organized and operated on the basis of separate funds, each of which is considered to be 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, deferred inflows of resources, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.

Fund financial statements for the primary government’s governmental funds are presented after the government-wide financial statements. These statements display information about major funds individually and other governmental funds in the aggregate for governmental funds. Fiduciary statements include financial information for fiduciary funds and similar component units. Fiduciary funds primarily represent assets held by the Authority in a custodial capacity for other individuals or organizations. The Authority has no fiduciary funds.

Governmental Funds
In the fund financial statements, governmental funds are presented using the modified- accrual basis of accounting. Their revenues are recognized when they become measurable and available as fund balances. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The Authority uses a sixty-day availability period.

Unavailable revenues are reported as deferred inflows of resources in the governmental funds.

Revenue recognition is subject to the measurable and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government-mandated and voluntary non-exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. 1534
11 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets, current liabilities and deferred inflows of resources are generally included on their balance sheets.

The reported fund balance is considered to be a measure of “available spendable resources.” Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances.

Accordingly, they are said to present a summary of sources and uses of “available spendable resources” during a period.

Noncurrent portions of long-term receivables due to governmental funds are reported on the balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered “available spendable resources,” since they do not represent available fund balance. Recognition of governmental fund type revenues represented by noncurrent receivables are reported as unavailable revenues. Noncurrent portions of other long-term receivables are offset by deferred inflows of resources - unavailable revenue.

Because of the spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities.

Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as an other financing sources rather than as fund liabilities. Amounts paid to reduce long-term indebtedness are reported as fund expenditures.

C. Activities in Major Fund:

The following debt service fund is presented as a major fund in the accompanying basic financial statements:
2017 Lease Revenue Bonds Fund - To account for the accumulation of resources for the payments of debt service for lease revenue bond principal and interest relating to the 2017 Lease Revenue Bonds.

D. Cash and Investments:

Investments are reported in the accompanying financial statements at fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments. 1535
12 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

E. Net Position:

Restricted net position consists of constraints placed on net position use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted net position is the remaining balance of net position.

F. Deferred Outflow/Inflows of Resources:

In addition to assets, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until that. The Authority does not have any applicable deferred outflows of resources.

In addition to liabilities, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The Authority reports unavailable lease revenue as deferred inflows of resources in the governmental funds.

G. Budgetary Reporting:

Formal budgetary integration is not employed for the Authority because effective control is alternatively achieved through the debt indenture provisions.

H. Fund Equity:

The fund balances are reported in the fund statements in the following classification:

Restricted Fund Balance - this includes amounts that can be spent only for specific purposes stipulated by constitution, external resource providers, or through enabling legislation. If the Board action limiting the use of funds is included in the same action (legislation) that created (enables) the funding source, then it is restricted.

I. Long Term Obligations:

In the government-wide financial statements, long term debt and other long term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts, as well as prepaid insurance costs related to bond issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount.
1536
13 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

J. Use of Estimates:

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

K. Fair Value Measurements:

Certain assets and liabilities are required to be reported at fair value. T he fair value framework provides a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are described as follows:

Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly and fair value is determined through the use of models or other valuation methodologies including:
 Quoted prices for similar assets or liabilities in active markets;  Quoted prices for identical or similar assets or liabilities in markets that are inactive;  Inputs other than quoted prices that are observable for the asset or liability;  Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. These unobservable inputs reflect the Authority’s own assumptions about the inputs market participants would use in pricing the asset or liability (including assumptions about risk). These unobservable inputs are developed based on the best information available in the circumstances and may include the Authority’s own data.

L. Prior Year Data:

Selected information regarding the prior year has been included in the accompanying financial statements. This information has been included for comparison purposes only and does not represent a complete presentation in accordance with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Authority’s prior year financial statements, from which this selected financial data was derived. In addition, certain minor reclassifications of the prior year data have been made to enhance their comparability to the current year. 1537
14 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

2. Cash and Investments:

Cash and investments at June 30, 2021 are classified in the accompanying Statement of Net Position as follows:

Cash and investments with fiscal agent $ 1 Cash and investments held at June 30, 2021 consisted of the following:

Investments:

Money market mutual funds $ 1
Investments Authorized by Debt Agreements
Investments of debt proceeds held by 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. The table on the following page identifies the investment types that are generally authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk.

Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Authority manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.

Maximum Maximum
Maximum Percentage Investment
Authorized Investments Maturity Allowed in One Issuer
United States Treasury Securities None None None
Federal Agency Securities 1 year None None
Banker’s Acceptances 1 year 30%
None
None
Commercial Paper None 25% None
Money Market Mutual Funds None None None
Investment Agreements None None None
Interest-Bearing Time Deposits None None None
Repurchase Agreements None None None
Local Agency Investment Fund None None None
State Obligations None None None
Pre-refunded Municipal Obligations None None None
1538
15 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

2. Cash and Investments (Continued):

Information about the sensitivity of the fair values of the Authority’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Authority’s investments by maturity:

Remaining Maturity (in Months)
12 Months 13 Months
Investment Type or Less or More Total
Money market mutual funds $ 1 $ - $ 1 Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City’s investment policy, or debt agreements, and the Standard & Poor’s actual rating as of year end for each investment type:

Minimum Legal Rating
Investment Type Rating Total AAA
Money market mutual funds AAA $ 1 $ 1 Concentration of Credit Risk
The investment policy of the City contains no limitations on the amount that can be invested in anyone issuer beyond that stipulated by the California Government Code. No investments in anyone issuer (other than mutual funds and external investment pools) represent 5% or more of total investments by reporting unit (governmental activities or major fund).

Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker- dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by the state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Authority deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. 1539
16 COSTA MESA FINANCING AUTHORITY
Notes to the Basic Financial Statements
(Continued)

3. Long-Term Liabilities:

The following is a summary of changes in long-term liabilities of the Authority for the year ended June 30, 2021:
2017 Lease Revenue Bonds:

On October 1, 2017, the Authority issued $29,735,000 in 2017 Lease Revenue Bonds to finance certain capital improvements of the City of Costa Mesa and to advance refund $16,765,000 of outstanding Costa Mesa Public Financing Authority 2007 Certificates of Participation (2007 Certificates). The bond issue also included a bond premium of $3,694,172. The bonds mature from October 1, 2018 through October 1, 2042 in annual installments ranging from $570,000 to $2,220,000. Interest is payable semi-annually on April 1 and October 1 of each year, commencing on April 1, 2018 at a rate ranging from 2.0% to 5.0%. As of June 30, 2021, the principal outstanding is $24,850,000 and the unamortized bond premium balance is $3,140,046.

The lease agreement requires the City to make lease payments to the Authority on each April 1 and October 1 preceding the debt service payment date, commencing April 1, 2018. Lease payments are paid by the City directly to the Trustee.

The Authority’s source of payment on the certificates will be from lease payments received from its lease with the City. This lease receivable has been recorded on the balance sheet of the related debt service fund. Unavailable revenue has been recorded in an equal amount in the fund financial statements because this lease revenue, although measurable, is not considered available to finance expenditures of the fiscal year reported upon. Lease revenues are pledged toward payment of these bonds. The amount of anticipated future lease payments is equal to the amount of future principal and interest installments due on the debt.

Future debt requirements for the 2017 Lease Revenue Bonds are as follows:

Amount Amount Due
Balance at Balance at Due Within Beyond
July 1, 2020 Additions Reductions June 30, 2021 One Year One Year 2017 Lease Revenue
Bonds 26,525,000$ -$ (1,675,000)$ 24,850,000$ 1,740,000$ 23,110,000$ 2017 Bond Premium 3,287,813 - (147,767) 3,140,046 147,767 2,992,279 Total 29,812,813$ -$ (1,822,767)$ 27,990,046$ 1,887,767$ 26,102,279$ Year Ending
June 30 Principal Interest Total
2022 1,740,000$ 1,062,550$ 2,802,550$
2023 1,830,000 973,300 2,803,300
2024 1,920,000 879,550 2,799,550
2025 2,015,000 781,175 2,796,175
2026 2,115,000 677,925 2,792,925
2027-2031 4,685,000 2,387,125 7,072,125
2032-2036 3,840,000 1,501,200 5,341,200
2037-2041 4,635,000 719,999 5,354,999
2042-2043 2,070,000 67,763 2,137,763
Total 24,850,000$ 9,050,587$ 33,900,587$
1540
17 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
Board of Directors
Costa Mesa Financing Authority
Costa Mesa, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, financial statements of the governmental activities and the major fund of the Costa Mesa Financing Authority (the Authority), as of and for the year ended June 30, 2021, and the related notes to the basic financial statements, which collectively comprise of the Authority’s basic financial statements, and have issued our report thereon dated December 17, 2021.

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 Authority’s internal control. Accordingly, we do not express an opinion on the effectiveness of 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

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.
1541
18 The results of our tests disclos
e
d no instances of noncompliance or other
m
atters that are required
to be reported under
Government

Auditing
S
t
anda
r
d
s
.

Purpose of this Report

The

purpose

this

report

solely

describe the

scope

our

testing

internal

control

and
co
m
pliance

and

the

results

that testing,

and

not

provide

opinion

the

effectiveness

the
Authorit
y
’s

int
e
rnal

control

c
o
mpliance.

T
his

rep
o
rt

is an

integr
a
l

part

audit

performed

in accorda
n
ce with

Government

Auditing

Standards
in

considering

the

Authority’s

i
n
tern
a
l

cont
r
ol

and co
m
pliance. Accordingl
y
, this communicat
i
on is not suitable for any other purpose.

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a
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City of Costa Mesa
Agenda Report
77 Fair Drive
Costa Mesa, CA 92626
File #: 21-540 Meeting Date: 1/18/2022
TITLE:

COSTA MESA HOUSING AUTHORITY FINANCIAL STATEMENTS AND HOUSING SUCCESSOR ANNUAL REPORT FOR THE PERIOD ENDING JUNE 30, 2021
DEPARTMENT: FINANCE DEPARTMENT
PRESENTED BY: CAROL MOLINA, FINANCE DIRECTOR
CONTACT INFORMATION: CAROL MOLINA, FINANCE DIRECTOR, (714) 754-5243 RECOMMENDATION:

Staff recommends that the City Council and Housing Authority receive and file the following:

1. The Fiscal Year 2020-21 Independent Financial Audit of the Costa Mesa Housing Authority, including the Low and Moderate Income Housing Asset Fund; and

2. The Fiscal Year 2020-21 Housing Successor Annual Report prepared under the California Health and Safety Code Section 34176.1 as the housing successor and Section 34328 as a housing authority.

BACKGROUND:

On January 17, 2012, under the California Housing Authorities Law (HAL), Health and Safety Code (HSC) Section 34200, et seq., the City Council established the Costa Mesa Housing Authority (Housing Authority). Also on that date, the City Council selected the Housing Authority to be the housing successor and, as of February 1, 2012, to assume the housing assets, duties, functions and obligations of the former Costa Mesa Redevelopment Agency (Former Agency). These actions occurred as a result of the dissolution of the Former Agency under Assembly Bill x1 26, the California Supreme Court’s decision in California Redevelopment Association v. Matosantos, Assembly Bill 1484, and other subsequent dissolution legislation (together, “Dissolution Law”), which laws regulate the administration of successor agencies and housing successors due to the dissolution of all California redevelopment agencies. Further, under Section 34328 of the HAL, the Housing Authority also prepares and presents an annual report on its activities for the preceding year.

Under Section 34176, added by AB x1 26 and amended by AB 1484, the State Department of Finance (DOF) issued a decision letter in January 2013 that confirms the Housing Authority holds all affordable housing assets of the Former Agency as listed in a Housing Asset Transfer (HAT) schedule prepared by the Housing Authority and submitted to the DOF prior to August 1, 2012.

Since dissolution, all housing assets are held and administered by the Housing Authority in the Low to Moderate Income Housing Asset Fund (LMIHAF) under the Dissolution Law, as per Sections

Page 1 of 4 ends

1543
File #: 21-540 Meeting Date: 1/18/2022
to Moderate Income Housing Asset Fund (LMIHAF) under the Dissolution Law, as per Sections 34176 and 34176.1. Under Section 34176.1(f), the housing successor is required to conduct an independent financial audit of the LMIHAF (LMIHAF Audit) and prepare an annual report (Report) for each fiscal year, and provide such reports to the governing body, within six months after the end of each fiscal year.

From inception, the Housing Authority’sprimary function had been to serve as the housing successor to the Former Agency. Beginning in Fiscal Year (FY) 2018-19, the Housing Authority expanded services beyond the scope of LMIHAF by consolidating the City’s existing homeless outreach program and establishing a new bridge shelter operation for homeless individuals.

ANALYSIS:

An audit of the Housing Authority’s financial activities, consisting of the LMIHAF activities and homeless assistance programs, was completed as part of the City’soverall financial audit by an independent certified public accounting firm, Davis Farr, LLP. The Housing Authority received an unmodified opinion. This is the highest attestation report given by independent auditors. The reports that deal with compliance information also received unmodified opinions with no findings. The audit results are incorporated as part of the City’sComprehensive Annual Financial Report (CAFR). The section in the City’s audit/CAFR relating to the LMIHAF Audit is entitled: Costa Mesa Housing Authority (A Component Unit of the City of Costa Mesa) Financial Statements Year ended June 30, 2020 (Attachment 1).

In FY 2020-21, the Housing Authority received approximately $1.9 million in revenues and incurred $3.6 million in expenditures. The General Fund provided a budgeted $1.8 million transfer to the homeless outreach and bridge shelter programs. At June 30, 2021, the Housing Authority’savailable fund balance was $3.7 million, all of which is restricted for LMIHAF purposes.

Staff has also prepared the Report (Attachment 2) summarizing the housing successor activities for FY 2020-21 as outlined by Section 34176.1(f). The LMIHAF Audit and Report are attached to this agenda report for the City Council’s review and to take minute action to receive and file in accordance with the applicable Dissolution Laws. Further, as required by Section 34176.1, the Report and the former Agency’s pre-dissolution Implementation Plan are available to the public on the City’s website <http://www.costamesaca.gov/>www.costamesaca.gov <http://www.costamesaca.gov/><http://www.costamesaca.gov/>.

Based upon information prepared by staff and data contained in the LMIHAF Audit, the Report presents information organized into the following Sections I to XIV, inclusive, under Section 34176.1 (f) of the Dissolution Law:

I. Amounts Received and Deposited under Section 34191.4(b)(3)(A). This section provides the total amount of funds paid to the City and the amount deposited into the LMIHAF allocable to 20% of the repayments on the reinstated City/Agency loan per Section 34191.4.

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File #: 21-540 Meeting Date: 1/18/2022
III. Ending Balance of LMIHAF. This section provides a statement of the balance in the LMIHAF as of the close of FY 2020-21. Any amounts deposited for items listed on the ROPS, and amounts allocable to Section 34191.4 deposits, must be distinguished from the other amounts deposited.

IV. Description of Expenditures from LMIHAF. This section provides a description of expenditures made from the LMIHAF during FY 2020-21. The expenditures are to be categorized among (A) administration for monitoring, preserving covenanted housing units, (B) homeless prevention and rapid rehousing services and (C) development of housing.

V. Statutory Value of Assets Owned by Housing Successor. This section provides the statutory value of real property owned by the Housing Successor, the value of loans and grants receivables, and the sum of these two amounts.

VI. Description of Transfers. This section describes transfers, if any, to another housing successor made in previous fiscal year(s), including whether the funds are unencumbered and the status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for development of transit priority projects, permanent supportive housing, regional homeless shelter, housing for agricultural employees, or special needs housing.

VII. Project Descriptions. Any project for which the Housing Successor receives or holds property tax revenue under the ROPS and the status of that project.

VIII. Status of Compliance with Section 33334.16. As and if applicable, this section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the Former Agency prior to February 1, 2012. For interests in real property acquired on or after February 1, 2012, provide an update on the project.

IX. Description of Outstanding Obligations under Section 33413. This section describes outstanding inclusionary and replacement housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the Former Agency as of February 1, 2012, along with the Housing Successor’sprogress in meeting those prior obligations, if any, of the Former Agency and how the Housing Successor plans to meet unmet obligations, if any.

X. Income Test. This section provides information required by Section 34176.1(a)(3)(B), or a description of expenditures by income category and restriction for the applicable five-year period, with the time period beginning January 1, 2014, and whether the statutory thresholds have been met. FY 2018-19 was the end of the initial five-year period under this section. The next five year report is due in FY 2023-24.

XI. Senior Housing Test. This section provides the percentage of deed-restricted rental housing units restricted to seniors and assisted individually or jointly by the Housing Successor, its former redevelopment agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed-restricted rental housing assisted individually or jointly by the Housing Successor, its former redevelopment agency and its host jurisdiction within the same 10-year time period.

XII. Excess Surplus Test: This section provides the amount of excess surplus in the LMIHAF, if

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File #: 21-540 Meeting Date: 1/18/2022
XII. Excess Surplus Test: This section provides the amount of excess surplus in the LMIHAF, if any, and the length of time that the Housing Successor has had excess surplus, and the Housing Successor’s plan for eliminating the excess surplus.

XIII. Inventory of Homeownership Units: This section provides a summary of covenanted homeownership units assisted by the former redevelopment agency or the housing successor that include equity sharing and repayment provisions, including: (A) number of units; (B) number of units lost to the portfolio in the last fiscal year and the reason for those losses; and (C) any funds returned to the housing successor pursuant to losses or repayments.

XIV. Additional Information: Costa Mesa Housing Authority’sActivities for the Preceding FY 2020 -21 under HSC Section 34328.

ALTERNATIVES:

The reports are for receive and file purposes.

FISCAL REVIEW:

There is no fiscal impact associated with receiving and filing the reports.

LEGAL REVIEW:

The City Attorney’s Office has reviewed the reports, and approves the reports as to form.

CITY COUNCIL GOALS AND PRIORITIES:

Achieve fiscal sustainability.

CONCLUSION:

Staff recommends that the City Council and Housing Authority receive and file the following:

1. The Fiscal Year 2020-21 Independent Financial Audit of the Costa Mesa Housing Authority, including the Low and Moderate Income Housing Asset Fund; and

2. The Fiscal Year 2020-21 Housing Successor Annual Report prepared under the California Health and Safety Code Section 34176.1 as the housing successor and Section 34328 as a housing authority.

Page 4 of 4 ends

1546

COSTA MESA HOUSING

AUTHORITY
(A Component Unit of the
City of Costa Mesa)
Financial Statements
Year ended June 30, 2021
Attachment 1

1547

COSTA MESA HOUSING AUTHORITY
Table of Contents
Year ended June 30, 2021
Page
Number
Independent Auditor’s Report 1 - 3
Basic Financial Statements:

Government-Wide Financial Statements:

Statement of Net Position 4
Statement of Activities 5
Fund Financial Statements:

Balance Sheet - Governmental Fund 6
Reconciliation of the Governmental Fund Balance
Sheet to the Statement of Net Position 7
Statement of Revenues, Expenditures and Changes in
Fund Balance - Governmental Fund 8
Reconciliation of the Governmental Fund Statement of
Revenues, Expenditures and Changes in Fund Balance
to the Statement of Activities 9
Notes to Basic Financial Statements 10 - 27 Required Supplementary Information:

Schedule of Proportionate Share of the Net Pension Liability and Related Ratios 28 - 29 Schedule of Pension Plan Contributions 30 - 31
Schedule of Proportionate Share of OPEB Liability and Related Ratios 32 Schedule of Revenues, Expenditures and Changes in
Fund Balance - Budget and Actual 33
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 34 - 35 1548
1 INDEPENDENT AUDITOR’S REPORT
Board of Directors
Costa Mesa Housing Authority
Costa Mesa, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities and the major fund of the Costa Mesa Housing Authority (Au thority), a component unit of the City of Costa Mesa, California, as of and for the year ended June 30, 2021, and the related notes to the basic financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents.

Auditor’s Responsibility
Our responsibility is to express opinions on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
1549
2 Opinions
In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Authority as of June 30, 2021, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of a Matter
As described more fully in Note 1A, the basic financial statements present only the Authority and are not intended to present fairly the financial position and results of operations of the City of Costa Mesa, California, in conformity with accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter.

Report on Summarized Comparative Information
We have previously audited the financial statements of the Authority for the year ended June 30, 2020 and we expressed an unmodified opinion on those audited financial statements in our report dated December 21, 2020. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2020 is consistent, in all material respects, with the audited financial statements from which it has been derived.

Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the schedule of proportionate share of the net pension liability and related ratios, the schedule of pension plan contributions, the schedule of proportionate share of the Other Post Employment Benefit liability and related ratios, and the schedule of revenues, expenditures and changes in fund balance - budget and actual, identified as required supplementary information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, 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 the audit of the basic financial statements. We do not express an opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Management has not presented 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 a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinions on the basic financial statements are not affected by this missing information.
1550

3 Other Rep
o
rting Required by
Government Auditing Stand
a
rds

In accordance with
Government Auditing Standards
, we have also issued our report dated
December
17 , 202
1 ,

our

consideration

the

Authorit
y
’s

inter
n
al

c
o
ntrol

over

financial

rep
o
rting and on
our tests of its co
m
pliance

with certain provisions of laws,

re
gu
l
a
ti
o
n
s, c
on
t
ra
c
t
s,

and
g
ra
n
t
agree
m
ents and other matters. The purpose of that report is
solely
to descr
i
be the scope of our
testing of internal control over financial r
e
porting and co
m
pliance and the results of that testing,
and not to provide

opinion

internal

contr
o
l

over

financial

reporting

on
c
o
m
pliance.

That

rep
o
rt

an integral

part

audit perfor
m
ed

i
n

accordance

with

Government

Auditing

Standards
in

consi
d
eri
n
g the Authority’s internal control over

financial

reporting

and

co
m
pliance.

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1 1551
2021 2020
ASSETS:

Cash and investments (Note 2) 3,389,539$ 3,646,271$
Cash and investments with fiscal agent (Note 2) 23,652 24,615 Due from other governments 513,081 -
Rent receivable 17,297 17,576
Interest receivable 4,940 11,879
Loans receivable, net of allowance (Note 3) 650,674 862,534 Capital assets (Note 4):

Not depreciated 2,063,865 2,063,865
Being depreciated, net 2,471,850 2,636,640
TOTAL ASSETS 9,134,898 9,263,380
DEFERRED OUTFLOWS OF RESOURCES:

Pension related (Note 6) 321,582 272,780
OPEB related (Note 7) 131,732 69,557
TOTAL DEFERRED OUTFLOWS OF RESOURCES 453,314 342,337 LIABILITIES:

Accounts payable 839,142 883,687
Accrued liabilities 18,264 11,049
Deposits 26,592 27,523
Net pension liability (Note 6) 2,699,607 2,221,033
OPEB liability (Note 7) 718,412 627,570
TOTAL LIABILITIES 4,302,017 3,770,862
DEFERRED INFLOWS OF RESOURCES:

Pension related (Note 6) 4,941 38,904
OPEB related (Note 7) 31,272 2,381
TOTAL DEFERRED INFLOWS OF RESOURCES 36,213 41,285 NET POSITION:

Investment in capital assets 4,535,715 4,700,505
Restricted for community programs 714,267 1,093,065 TOTAL NET POSITION 5,249,982$ 5,793,570$
Governmental Activities
Costa Mesa Housing Authority
Statement of Net Position
June 30, 2021
(With comparative totals for June 30, 2020)
See accompanying notes to financial statements.
4 1552
Operating Capital
Charges Grants and Grants and
Expenses for Services Contributions Contributions 2021 2020 Governmental Activities:

Community programs 4,192,949$ 396,753$ 1,041,662$ -$ (2,754,534)$ (4,286,276)$ Total governmental
activities 4,192,949$ 396,753$ 1,041,662$ -$ (2,754,534) (4,286,276) General revenues:

Repayment of Successor Agency advance 381,141 258,209 Investment income (loss) (2,497) 102,263
Other income 41,466 10,401
Transfer from the City of Costa Mesa 1,790,836 2,438,346 Total general revenues and transfers 2,210,946 2,809,219 CHANGE IN NET POSITION (543,588) (1,477,057)
NET POSITION AT BEGINNING OF YEAR 5,793,570 7,270,627 NET POSITION AT END OF YEAR 5,249,982$ 5,793,570$
Program Revenues
Functions/Programs
Net (Expense) Revenue and
Changes in Net Position
Governmental Activities
Costa Mesa Housing Authority
Statement of Activities
Year ended June 30, 2021
(With comparative totals for the year ended June 30, 2020) See accompanying notes to financial statements.
5 1553
2021 2020
ASSETS:

Cash and investments 3,389,539$ 3,646,271$
Cash and investments with fiscal agent 23,652 24,615 Due from other governments 513,081 -
Rent receivable 17,297 17,576
Interest receivable 4,940 11,879
Loans receivable, net of allowance 650,674 862,534 TOTAL ASSETS 4,599,183$ 4,562,875$
LIABILITIES:

Accounts payable 839,142$ 883,687$
Accrued liabilities 18,264 11,049
Deposits 26,592 27,523
TOTAL LIABILITIES 883,998 922,259
FUND BALANCE:

Restricted for community programs 3,715,185 3,640,616 TOTAL FUND BALANCE 3,715,185 3,640,616
TOTAL LIABILITIES AND FUND BALANCE 4,599,183$ 4,562,875$ Costa Mesa Housing Authority
Balance Sheet
Governmental Fund
June 30, 2021
(with comparative totals for June 30, 2020)
See accompanying notes to financial statements.
6 1554
Fund balance - total governmental fund 3,715,185$
Amounts reported for governmental activities in the Statement of Net Position are different because:

Capital Related Items
When capital assets (property, plant, equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the Statement of Net Position includes those capital assets among the assets of the Authority as whole:

Capital assets 5,359,665
Accumulated depreciation (823,950)
Pension and OPEB Related Transactions
Long-term liabilities applicable to the Authority's governmental activities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. All liabilities (both current and long-term) are reported in the Statement of Net Position. Also, deferred outflows of resources and deferred inflows of resources related to the long term liabilities do not provide current financial resources and are therefore not presented in the governmental funds:

Deferred outflows of resources related to pensions 321,582 Deferred outflows of resources related to OPEB 131,732
Deferred inflows of resources related to pensions (4,941) Deferred inflows of resources related to OPEB (31,272)
CalPERS pension liability (2,699,607)
OPEB liability (718,412)
Net position of governmental activities 5,249,982$
Costa Mesa Housing Authority
Reconciliation of the Governmental Funds Balance Sheet
to the Statement of Net Position
June 30, 2021
See accompanying notes to financial statements.
7 1555
2021 2020
REVENUES:

Rental income 396,753$ 405,379$
Repayment of Successor Agency advance 381,141 258,209 Intergovernmental 1,041,662 -
Investment income (loss) (2,497) 102,263
Miscellaneous 41,466 10,401
TOTAL REVENUES 1,858,525 776,252
EXPENDITURES:

Current:

Community programs 3,574,792 2,968,016
TOTAL EXPENDITURES 3,574,792 2,968,016

EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (1,716,267) (2,191,764)
OTHER FINANCING SOURCES:

Transfer from the City of Costa Mesa 1,790,836 2,438,346 Net change in fund balances 74,569 246,582
FUND BALANCE - BEGINNING OF YEAR 3,640,616 3,394,034 FUND BALANCE - END OF YEAR 3,715,185$ 3,640,616$
(with comparative totals for June 30, 2020)
Statement of Revenues, Expenditures and Changes in Fund Balance Costa Mesa Housing Authority
Governmental Fund
Year ended June 30, 2021
See accompanying notes to financial statements.
8 1556
Net change in fund balances - total governmental fund 74,569$ Amounts reported for governmental activities in the Statement of Activities are different because:

Capital Related Items
Governmental funds report capital outlay as expenditures.

However, in the Statement of Activities, the cost of those assets are allocated over their estimated useful lives as depreciation expense. This is the amount of depreciation charged to the program in the Statement of Activities in the current period:

Depreciation expense (164,790)
Pension
Pension expense reported in the governmental funds includes the annual required contributions. In the Statement of Activities, pension expenses includes the change in the net pension liability, and related changes in pension amounts for deferred outflows of resources and deferred inflows of resources. (395,809)
OPEB
OPEB expense reported in the governmental funds includes the annual required contributions. In the Statement of Activities, OPEB expense includes the change in the net pension liability, and related changes in OPEB amounts for deferred outflows of resources and deferred inflows of resources. (57,558) Change in net position of governmental activities (543,588)$ Costa Mesa Housing Authority
Reconciliation of the Governmental Funds Statement of
Revenues, Expenditures and Changes in Fund Balances
to the Statement of Activities
Year ended June 30, 2021
See accompanying notes to financial statements.
9 1557

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
Year ended June 30, 2021
10 1. Reporting Entity and Summary of Significant Accounting Policies:

The accounting policies of the Costa Mesa Housing Authority (Authority) conform to accounting principles generally accepted in the United States of America as applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting and financial reporting principles. The following is a summary of the Authority’s significant accounting policies:

A. Description of the Reporting Entity:

The Authority was established on January 17, 2012, pursuant to City Council Resolution No. 12-3. The primary purpose of the Authority is to promote affordable housing for families of low and moderate income within the City of Costa Mesa, California (City). Pursuant to Assembly Bill 1484, the housing assets and obligations of the former Redevelopment Agency’s Low and Moderate Income Housing Fund were transferred to the Authority. The Authority is an integral part of the reporting entity of the City. The fund of the Authority has been included within the scope of the basic financial statements of the City because the City Council exercises oversight responsibility over the operations of the Authority.

Only the fund of the Authority is included herein, therefore, these financial statements do not purport to represent the financial position or results of operations of the City.

B. Fund Accounting:

The basic accounting and reporting entity is a “fund”. A fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts, recording resources, related liabilities, obligations, reserves and equities segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The accounting records of the Authority are organized on the basis of funds. Currently, the Authority only utilizes one fund.

C. Basis of Accounting and Measurement Focus:

The basic financial statements of the Authority are composed of the following:
 Government-wide financial statements
 Fund financial statements
 Notes to the basic financial statements
1558

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
11 1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

Government-wide Financial Statements
Government-wide financial statements display information about the Authority as a whole.

All activities of the Authority are classified as governmental activities. Government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Measurement focus indicates the type of resources being measured. Under the economic resources measurement focus, all (both current and long- term) economic resources and obligations of the reporting government are reported in the government-wide financial statements. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No. 33.

Program revenues include charges for services, and payments made by parties outside of the reporting government’s citizenry if that money is restricted to a particular program.

Program revenues are netted with program expenses in the statement of activities to present the net cost of each program.

Amounts paid to acquire capital assets are capitalized in the government-wide financial statements, rather than reported as expenditures.

Governmental resources are allocated to and accounted for in the individual fund based upon the purposes for which it is to be spent and the means by which spending activities are controlled.

Fund financial statements for the Authority’s governmental fund are presented after the government-wide financial statements. These statements display information about the governmental major fund individually and nonmajor funds in aggregate if applicable.

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
12 1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

Revenue recognition is subject to the measurable and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Imposed nonexchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government-mandated and voluntary nonexchange transactions are recognized as revenues when all applicable eligibility requirements have been met.

In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance is considered to be a measure of “available spendable resources”. Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Accordingly, they are said to present a summary of sources and uses of “available spendable resources” during a period.

Noncurrent portions of long-term receivables due to governmental funds are reported on the balance sheet in spite of their spending measurement focus.

Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term indebtedness are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures.

D. New Accounting Pronouncements
Current Year Standards
GASB 84 - Fiduciary Activities. The implementation of this statement did not result in financial impact to the Authority.

GASB 90 – Majority Equity Interests – an amendment of GASB Statements No. 14 and No.

61. The implementation of this statement did not result in financial impact to the Authority.

GASB 98 – The Annual Comprehensive Financial Report. The implementation of this statement did not result in financial impact to the Authority.

Pending Accounting Standards
GASB has issued the following pronouncements that have an effective date subsequent to June 30, 2021, which may impact the financial reporting requirements in the future. Unless otherwise noted, management has not determined what, if any, impact implementation of the following Statements may have on future financial statements. 1560

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
13 1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

GASB 87 – Leases: Effective for the fiscal year ending June 30, 2022.

GASB 91 – Conduit Debt Obligations: Effective for the fiscal year ending June 30, 2023.

GASB 92 – Omnibus 2020: Effective for the fiscal year ending June 30, 2022.

GASB 93 – Replacement of Interbank Offered Rates: Effective for the fiscal year ending June 30, 2022.

GASB 94 – Public-Private and Private-Public Partnerships and Availability Payment Arrangements: Effective for the fiscal year ending June 30, 2023.

GASB 96 – Subscription-Based Information Technology Arrangement: Effective for the fiscal year ending June 30, 2023.

GASB 97 – Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans: Effective for the fiscal year ending June 30, 2021.

E. Cash and Investments:

Investments are reported in the accompanying financial statements at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments.

F. Capital Assets:

Capital assets are recorded at historical cost at the time of purchase. Assets acquired from gifts or contributions are recorded at acquisition value on the date contributed. Generally, capital asset purchases in excess of $5,000 are capitalized if they have an expected useful life of two years or more. Capital assets used in operations are generally depreciated in the government-wide financial statements. It is the Authority’s policy not to depreciate assets in its first year of service. A full year of depreciation is charged at final year of asset life or upon disposal. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective statement of net position. The range of lives used for computing depreciation for building improvements and structures is 10 to 20 years.
1561

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
14 1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

G. Net Position:

Net position of the Authority can be classified into three components - net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows:

Net investment in capital assets - This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of net investment in capital assets. Rather, that portion of the debt is included in the same net position component as the unspent proceeds.

Restricted - This component of net position consists of constraints placed on net position use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation.

Unrestricted - This component of net position consists of net position that does not meet the definition of “net investment in capital assets” or “restricted”. The Authority has no unrestricted net position.

When both restricted and unrestricted resources are available for use, it is the Authority’s policy to use restricted resources first, then unrestricted resources as they are needed.

H. Deferred Outflows/Inflows of Resources:

In addition to assets, the statement of net position and the governmental fund balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The Authority has two items that qualify for reporting in this category in the statement of net position. The items are deferred outflows related to pensions and OPEB.

In addition to liabilities, the statement of net position and the governmental fund balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The Authority has two items that qualify for reporting in this category in the statement of net position. The items are deferred inflows related to pensions and OPEB.
1562

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
15 1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

I. Fund Balance:

Fund balance classifications are defined as follows:

Nonspendable - This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact.

Restricted - This classification includes amounts that can be spent only for specific purposes stipulated by constitution, external resource providers or through enabling legislation.

Committed - This classification includes amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority.

Assigned - This classification includes amounts to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds, other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed.

Unassigned - The classifications include the residual balance for the government’s general fund and includes all spendable amounts not contained in other classifications.

It is the Authority’s policy that restricted resources will be applied first, followed by (in order of application) committed, assigned, and unassigned resources, in the absence of a formal policy adopted by the Board.

J. Pensions:

For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis. For the 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.

GASB 68 requires that the reported results must pertain to liability and asset information within certain defined timeframe. For this report, the following timeframes are used:

Valuation Date June 30, 2019
Measurement Date June 30, 2020
Measurement Period July 1, 2019 to June 30, 2020
1563

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
16 1. Reporting Entity and Summary of Significant Accounting Policies (Continued):

K. Other Post Employment Benefits (OPEB):

For purposes of measuring the OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense and information about the plan (OPEB Plan), have been determined by an independent actuary. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms.

Generally accepted accounting principles require that the reported results must pertain to liability information within certain defined timeframes. For this report, the following timeframes are used:

Valuation Date June 30, 2019
Measurement Date June 30, 2020
Measurement Period July 1, 2019 to June 30, 2020
L. Use of Estimates:

M. Prior Year Data
The information included in the accompanying financial statements for the prior year has been presented for comparison purposes only and does not represent a complete presentation in accordance with generally accepted accounting principles. Certain minor reclassifications of prior year data have been made in order to enhance their comparability with current year figures.

2. Cash and Investments:

Equity in Cash and Investment Pool of the City of Costa Mesa The Authority does not have a separate bank account; however, the Authority’s cash and investments are maintained in an 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 original cost basis. At June 30, 2021, the Authority had a total cash balance of $3,413,191, of which $3,389,539 was part of the City’s cash and investment pool and the remaining $23,652 was cash held with a fiscal agent for tenant deposits. 1564

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
17 3. Loans Receivable:

Loans receivable as of June 30, 2021 were comprised of the following:

Amount
The first-time homebuyer program provides loans to first-time homebuyers for purchases of homes in the City of Costa Mesa. For loans made before 2007, loan repayments were deferred for 10 years and for loans made in 2007 and after, repayments of the loan are deferred for 30 years. $ 1,488,656
The single-family rehabilitation loan program provides loans to homeowners to make home improvements and repair code
violations. There were 3 loans made under this program in 2009. The loans do not pay interest and are not due until the property is sold.

142,500
The rental rehabilitation program is for deferred loans to owners of multi-family properties to make improvements and repair code violations. There are 3 remaining loans under this program and repayment is deferred until sale, transfer or default. Interest of 4 percent is due on these loans.

148,559
There are 3 loans made to underwrite land to a developer to build 3 single-family homes to be maintained in perpetuity for affordable housing. The Authority maintains enforceable covenants on the property. The loans are to be repaid only upon default of affordable housing covenants.

508,542
There are 2 loans made to eligible homebuyers under the Federal Neighborhood Stabilization Program (NSP) administered by the State of California. The NSP program consists of acquisition, rehabilitation, and subsequent sale of foreclosed homes. Borrowers met income and affordability qualifications set by the HUD HOME Program and California Community Redevelopment law. 181,250
Total loans receivable 2,469,507
Less allowance for doubtful accounts (1,818,833)
Loans receivable, net of allowance of doubtful accounts $ 650,674 1565

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
18 4. Capital Assets:

The following is a summary of the capital asset activity for the year ended June 30, 2021:

Depreciation expense of $164,790 was charged to the community programs function on the Statement of Activities.

5. Repayment of Successor Agency Advance
In 2012, all California redevelopment agencies were dissolved, including the City of Costa Mesa Redevelopment agency. In the dissolution process, the State of California Department of Finance (DOF) disallowed a loan in the amount of $9,278,545 from the City’s General Fund to the former Redevelopment Agency as an enforceable obligation. Subsequently, the Department of Finance (DOF) Finding of Completion on May 24, 2013 allowed the placement of these loan agreements on the Recognized Obligation Payment Schedule (ROPS).

The City has adjusted the loan for repayments and interest additions. The loan repayment, reported on the ROPS, is subject to DOF approval on an annual basis. As of June 30, 2021, the loan balance is estimated to be $4,916,327. The Housing Authority is entitled to receive 20% of the annual repayment. In the current fiscal year, the Housing Authority received $381,141 on this loan.

6. Defined Benefit Pension Plan (CalPERS):

Plan Description
All qualified permanent and probationary Authority employees are eligible to participate in the City’s Miscellaneous Plan, an 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 plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

For further details regarding this plan, including funding progress, refer to the City of Costa Mesa’s Annual Comprehensive Financial Report.

Balance at Balance at
July 1, 2020 Additions Deletions June 30, 2021
Capital assets not being depreciated:

Land 2,063,865$ -$ -$ 2,063,865$ Capital assets being depreciated:

Building impr ovements and structures 3,295,800 - - 3,295,800 Less accumulated depreciation/amortization:

Building impr ovements and structures (659,160) (164,790) - (823,950) Total capital assets being
depreciated, net 2,636,640 (164,790) - 2,471,850 Capital assets, net 4,700,505$ (164,790)$ -$ 4,535,715$ 1566

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
19 6. Defined Benefit Pension Plan (CalPERS) (Continued):

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 to 62 with statutorily reduced benefits. For employees hired into a plan with the 1.5% at 65 formula, eligibility for service retirement is age 55 with at least 5 years of service. PEPRA miscellaneous members become eligible for service retirement upon attainment of age 52 with at least 5 years of service. All members are eligible for non-duty disability benefits after 5 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. Safety members can receive a special death benefit if the member dies while actively employed and the death is job-related. The cost of living adjustments are applied as specified by the Public Employees’ Retirement Law.

The Plan’s provisions and benefits in effect at June 30, 2021, are summarized as follows:

Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. 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 employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contributions requirements are classified as plan member contributions. For the year ended June 30, 2021, the Authority’s total contributions for the Miscellaneous Plan were $267,302.

Prior to On or After On or After
Hire Date March 11, 2012 March 11, 2012 January 1, 2013 Benefit formula 2.5% @55 2.0% @60 2% @62
Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 63 52 - 67
Monthly benefits, as a % of
eligible compensation 2.0% to 2.5% 1.092% to 2.418% 1.0% to 2.5% Required employee contribution
rates 10.47% 7.00% 7.50%
Required employer contribution
rates 7.98% 10.45% 10.45%
Miscellaneous (Agent Multiple-Employer)
1567

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
20 6. Defined Benefit Pension Plan (CalPERS) (Continued):

Actuarial Methods and Assumptions Used to Determine Total Pension Liability The June 30, 2019 valuation was rolled forward to determine the June 30, 2020 total pension liability, based on the following actuarial methods assumptions:

Measurement date June 30, 2020
Actuarial cost method Entry-Age Normal in accordance with the requirements of GASB 68
Actuarial assumptions:

Discount rate 7.15%
Inflation 2.50%
Salary increases Varies by Entry Age and Service
Mortality Rate Table1 Derived using CalPERS Membership Data for all funds
Postretirement benefit
increase
The lessor of contract COLA or 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 probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality rate include 15 years of projected mortality improvement using le includes 15 years of mortality improvements using 90% of Scale MP 2016 published by the Society of Actuaries . For more details on this table, please refer to the CalPERS Experience Study and Review of Actuarial Assumptions report from December 2017 that can be found on the CalPERS website.

Discount Rate
The discount rate used to measure the total pension liability was 7.15 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at the statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long term expected rate of return on plan on investment 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. 1568

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
21 6. Defined Benefit Pension Plan (CalPERS) (Continued):

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 the funds’ asset classes, except 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 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 expected real rate of returns by asset class are as followed:

Asset Class1
Assumed asset
allocation
Real Return
Years 1 – 10 2
Real Return
Years 11+ 3
Global Equity 50.0% 4.80% 5.98%
Fixed Income 28.0% 1.00% 2.62%
Inflation assets 0.0% 0.77% 1.81%
Private Equity 8.0% 6.30% 7.23%
Real assets 13.0% 3.75% 4.93%
Liquidity 1.0% 0.00% (0.92%)
1 In the System’s CAFR, Fixed Income is included Global Debt Securities; Liquidity is included in Short-term Investment; Inflation Assets are included both Global Equity Securities and Global Debt Securities. 2 An expected inflation of 2.00% used for this period
3 An expected inflation of 2.92% used for this period
The following table shows the Authority’s proportionate share of the net pension liability over the measurement period:

Increase (Decrease)
Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability
(a) (b) (c) = (a) - (b)
Balance at: 6/30/2019 (VD) $ 6,506,177 $ 4,285,144 $2,221,033 Balance at: 6/30/2020 (MD) 7,852,083 5,152,475 2,699,607 Net Changes during 2019-20 1,345,906 867,331 478,574 1569

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
22 6. Defined Benefit Pension Plan (CalPERS) (Continued):

The Authority’s net pension liability for the plan is measured as the proportionate share of the net pension liability. The net pension liability of the plan is measured as of June 30, 2020, and the total pension liability for the plan used to calculate the net pension liability was determined by an actuarial valuation of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. The Authority’s proportion 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 plan as of June 30, 2020 and 2021 was as follows:

Miscellaneous Plan
Proportion – June 30, 2019 2.218%
Proportion – June 30, 2020 2.608%
Change – Increase (Decrease) 0.390%
Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Plan as of the Measurement Date, calculated using the discount rate of 7.15 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage -point lower (6.15 percent) or 1 percentage-point higher (8.15 percent) than the current rate:

Discount
Rate – 1%
(6.15%)
Current
Discount Rate
(7.15%)
Discount
Rate + 1%
(8.15%)
Authority’s proportionate share of the Net
Pension Liability $3,700,805 $2,699,607 $1,874,482
Amortization of Deferred Outflows and Deferred Inflows of Resources Under GASB 68, actuarial gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred inflows and deferred outflows to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss:
1570

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
23 6. Defined Benefit Pension Plan (CalPERS) (Continued):

Net difference between projected and
actual earnings on pension plan
investments
5 year straight-line amortization
All other amounts Straight-line amortization over the expected average remaining service lifetime (EARSL) of all members
that are provided with pensions (active, inactive, and
retired) as of the beginning of the measurement
period
The EARSL for the Plan for the June 30, 2020 measurement date is 2.4 years, which was obtained by dividing the total services years by the total number of participants (active, inactive, and retired) in the Plan. Inactive employees and retirees have remaining service lifetimes equal to zero. Total future service is based on the members’ probability of decrementing due to an event other than receiving a cash refund.

Pension Expense, and Deferred Outflows/Inflows of Resources Related to Pensions For the fiscal year ended June 30, 2021, the Authority recognized pension expense of $313,851.

At June 30, 2021, the Authority reported deferred outflows of resources and deferred inflows of resources related to the CalPERS pension as follows:

Deferred Outflows Deferred Inflows
of Resources of Resources
Pension contributions subsequent to the
measurement date $ 267,302 $ -
Differences between expected and actual
experience 18,047 (4,941)
Net difference between projected and
actual earnings on pension plan
investments 36,233 -
Totals $ 321,582 $ (4,941)
1571

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
24 6. Defined Benefit Pension Plan (CalPERS) (Continued):

The Authority reported $267,302 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the fiscal year ending June 30, 2022. Other amounts reported as deferred inflows or outflows of resources related to pensions will be recognized as pension expense as follows:

Fiscal Year Ended
June 30:

Deferred
Outflows/(Inflows)
of Resources
2022 $ (9,781)
2023 11,501
2024 27,038
2025 20,581
2026 -
Thereafter -

7. Other Post-Employment Benefits (OPEB):

Plan Description
The City administers a single-employer defined benefit plan, which provides medical insurance benefits to eligible retirees and their spouses in accordance with various labor agreements.

The plan covers employees hired before January 1, 2004 who retire directly from the City with 10 or more years of City service. The City provides a contribution up to a percentage of the lesser of $500 per month or the premium for the most popular medical plan elected by the employees. The percentage varies by retirement date and years of City service. For employees hired on or after January 1, 2004, the City will only pay for the PEMHCA subsidy once they meet the definition of a retiree under CalPERS. The City provides retiree life insurance of $1,000 for the retiree and $500 for the retiree’s spouse.

Contributions
The contribution requirements of plan members and the Authority are established and may be amended by the City Council. The required contribution is made on a pay-as-you-go basis (i.e., as medical insurance premiums become due). Neither the City nor the Authority has established a trust for the purpose of holding assets accumulated for plan benefits.

Actuarial Methods and Assumptions Used to Determine Total OPEB Liability The Authority’s total OPEB liability was measured as of June 30, 2020 by an actuarial valuation based on the following actuarial methods and assumptions:

Discount Rate: 3.51% for accounting disclosure purposes. The rate is based on a yield for 20-year tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher (or equivalent quality on another rating scale). For the current valuation, the discount rate was selected from the range of indices as shown in the table below:
1572

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
25 7. Other Post-Employment Benefits (OPEB) (Continued):

Actuarial Methods and Assumptions Used to Determine Total OPEB Liability (Continued) As of 06/30/20
Bond Buyer Go 20 – Municipal Bond Index 2.21%
S&P Municipal Bond 20-year High Grade
Rate Index

2.66%
Fidelity 20-year Go Municipal Bond Index 2.45%
Bond Index Range 2.21% - 2.66%
Actual Discount Rate Used 2.66%
Inflation Rate: 2.75% per year
Aggregate Payroll Increases: 3.00% per year. This assumption is used to amortize the unfunded actuarial accrued liability and to determine the Entry Age Normal actuarial liabilities.

Mortality Rate: Based on rates used in the most recent CalPERS pension valuation.

Turnover Rate: Assumption used to project terminations (voluntary and involuntary) prior to meeting minimum retirement eligibility for retiree health coverage. The rates represent the probability of termination in the next 12 months. The termination rates are based on those used in the most recent CalPERS pension valuation.

Retirement Rate: Annual retirement rates are based on those used in the most recent CalPERS pension valuation.

The following table shows the Authority’s proportionate share of the total OPEB liability over the measurement period ended June 30, 2020:

Increase (Decrease)
Total OPEB
Liability
Balance at: June 30, 2019 $ 627,570
Balance at: June 30, 2020 718,412
Net Changes during 2019-20 90,842
1573

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
26 7. Other Post-Employment Benefits (OPEB) (Continued):

The Authority’s total OPEB liability for the plan is measured as the proportionate share of the plan’s total OPEB liability. The total OPEB liability of the plan is measured as of June 30, 20 20, and the total OPEB liability for the plan used to calculate the net pension liability was determined by an actuarial valuation of June 30, 2020. The Authority’s proportion of the total OPEB liability was based on a projection of the Authority’s long -term share of contributions to the OPEB plan relative to the projected contributions of all participating employers, actuarially determined. The Authority’s proportionate share of the total OPEB liability for the plan as of June 30, 2020 and 2019 was as follows:

OPEB Plan
Proportion – June 30, 2019 1.065%
Proportion – June 30, 2020 1.142%
Change – Increase (Decrease) 0.077%
Sensitivity of the Total OPEB Liability to Changes in the Discount Rate The following presents the total OPEB liability of the Plan as of the Measurement Date, calculated using the discount rate of 2.66 percent, as well as what the total OPEB liability would be if it were calculated using a discount rate that is 1 percentage-point lower (2.51 percent) or 1 percentage-point higher (4.51 percent) than the current rate:

Discount
Rate – 1%
(1.66%)
Current
Discount Rate
(2.66%)
Discount
Rate + 1%
(3.66%)
Authority’s proportionate share of the total
OPEB liability $827,060 $718,412 $630,943
The following presents the total OPEB liability, as well as what the total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1 percentage-point lower or 1 percentage-point higher than the current healthcare cost trend rates:
1% Decrease
(5.25% decreasing
to 3.50%)
Current Healthcare
Cost
Trend Rates
(6.25% decreasing
to 4.50%)
1% Increase
(7.25% decreasing to

5.50%)
Authority’s
proportionate share
of the total OPEB
liability $663,991 $718,412 $796,965
1574

COSTA MESA HOUSING AUTHORITY
Notes to Basic Financial Statements
(Continued)
27 7. Other Post-Employment Benefits (OPEB) (Continued):

OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended June 30, 2021, the Authority recognized OPEB expense of $78,339. At June 30, 2021, the Authority reported deferred outflows of resources and deferred inflows of resources related to the OPEB plan as follows:

Deferred
Outflows
Deferred
Inflows
of Resources of Resources
OPEB contributions subsequent to
the measurement date $ 20,781 $ -
Differences between expected and
actual differences 16,990 (31,272)
Changes in assumptions 93,961 -
Totals $ 131,732 $ (31,272)
The Authority reported $20,781 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the total OPEB liability in the fiscal year ending June 30, 2022.

Other amounts reported as deferred inflows or outflows of resources related to pensions will be recognized as pension expense as follows:

Fiscal Year Ended
June 30:

Deferred
Outflows/(Inflows)
of Resources
2022 $ 13,949
2023 13,919
2024 13,919
2025 13,919
2026 13,919
Thereafter 9,934
1575
Measurement date June 30 2014 2015 2016
Plan's proportion of the net pension liability 0.703% 0.703% 0.703% Plan's proportionate share of the net pension liability 536,746$ 561,947$ 632,922$ Plan's covered payroll 129,116$ 126,041$ 139,833$
Plan's proportionate share of the net pension liability as a percentage of covered payroll 415.71% 445.84% 452.63% Plan's proportionate share of the fiduciary net position as a percentage of the Plan's total pension liability 69.49% 68.26% 64.94% Plan's proportionate share of aggregate employer
contributions 36,704$ 42,575$ 45,855$
Notes to schedule:

Benefit changes:

Changes in assumptions:

In 2017, The accounting discount rate reduced from 7.65% to 7.15%.

None in 2019 and 2020.

In 2018, demographic assumptions and inflation were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. * - Fiscal year 2015 was the first year of implementation, therefore only seven years are shown.

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 7.50% 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 without reduction of pension plan administration expense.

Last Ten Fiscal Years*
Costa Mesa Housing Authority
Required Supplementary Information
Schedule of Proportionate Share of the Net Pension Liability and Related Ratios CalPERS Miscellaneous Plan
The figures above do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2018 valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes).
28 1576
2017 2018 2019 2020

1.095% 0.831% 2.218% 2.608%
1,095,223$ 783,393$ 2,221,033$ 2,699,607$
213,885$ 166,758$ 541,070$ 626,246$
512.06% 469.78% 410.49% 431.08%

64.17% 66.53% 65.86% 65.62%
75,706$ 76,921$ 219,059$ 267,302$
29 1577
Fiscal year ended June 30 2015 2016 2017
Contractually required contribution
(actuarially determined) 36,704$ 42,575$ 45,855$
Contributions in relation to the actuarially
determined contributions (36,704) (42,575) (45,855) Contribution deficiency (excess) -$ -$ -$ Covered payroll 126,041$ 139,833$ 213,885$
Contributions as a percentage of covered payroll 29.12% 30.45% 21.44%

Notes to schedule:

Valuation date 6/30/2012 6/30/2013 6/30/2014
Methods and assumptions used to determine contribution rates:

Single and agent employers Entry Age Normal
Amortization method/period For details, see June 30, 2018 Funding Valuation Report.

Asset valuation method
Inflation 2.50%
Salary increases Varies by Entry Age and Service
Payroll growth 2.75%
Investment rate of return
Retirement age
Mortality
Other information:

For changes to previous year’s information, refer to past GASB 68 reports. * -
Costa Mesa Housing Authority
Required Supplementary Information
Schedule of Pension Plan Contributions
CalPERS Miscellaneous Plan
Last Ten Fiscal Years*
Fiscal year 2015 was the first year of implementation, therefore only seven years are shown.

Market Value of Assets. For details, see June 30, 2018
Funding Valuation Report.

7.00%, net of pension plan investment and
administrative expense; including inflation.

The probabilities of Retirement are based on the 2017
CalPERS Experience Study for the period from 1997 to
The probabilities of mortality are based on the 2017
CalPERS Experience Study for the period from 1997 to
2015. Pre-retirement and Post-retirement mortality
rates include period from 1997 to 2015. Pre-
retirement and Post-retirement mortality rates include
20 years of projected mortality improvement using
Scale BB published by the Society of Actuaries.
30 1578
2018 2019 2020 2021
75,706$ 76,921$ 219,059$ 267,302$
(75,706) (76,921) (219,059) (267,302)
-$ -$ -$ -$
166,758$ 541,070$ 626,246$ 299,397$

45.40% 14.22% 34.98% 89.28%
6/30/2015 6/30/2016 6/30/2017 6/30/2018
For details, see June 30, 2018 Funding Valuation Report. 31 1579
Measurement date June 30 2017 2018 2019 2020
Plan's proportion of the total OPEB liability 0.391% 0.510% 1.065% 1.142% Plan's proportionate share of the total OPEB liability 208,922$ 271,334$ 627,570$ 718,412$ Plan's covered payroll 160,415$ 221,304$ 466,770$ 521,271$ Plan's proportionate share of the OPEB liability
as a percentage of covered employee payroll 130.24% 122.61% 134.45% 137.82% Plan's proportionate share of the fiduciary net position as a percentage of the Plan's total OPEB liability 0.00% 0.00% 0.00% 0.00% Notes to schedule:

Changes in assumptions. The discount rate as of the June 30, 2016 measurement date was 2.85%. The discount rate as of the June 30, 2017 measurement date was 3.40%.

The discount rate as of the June 30, 2018 measurement date was 3.50%. The discount rate as of the June 30, 2019 measurement date was 3.51%.

Historical information is required only for measurement periods for which GASB 75 is applicable.

Future years' information will be displayed up to 10 years as information becomes available. * - Fiscal year 2018 was the first year of implementation, therefore only four years are shown.

Required Supplementary Information
Costa Mesa Housing Authority
Schedule of Proportionate Share of OPEB Liability and Related Ratios Last Ten Fiscal Years*
32 1580
Variance with
Final Budget
Original Final Positive Prior Year
Budget Budget Actual (Negative) Actual
REVENUES:

Rental income 384,000$ 384,000$ 396,753$ 12,753$ 405,379$ Repayment of Successor
Agency advance 258,209 258,209 381,141 122,932 258,209 Intergovernmental 1,196,581 2,531,464 1,041,662 (1,489,802) - Investment income (loss) 38,000 38,000 (2,497) (40,497) 102,263 Miscellaneous 535,581 535,581 41,466 (494,115) 10,401 TOTAL REVENUES 2,412,371 3,747,254 1,858,525 (1,888,729) 776,252 EXPENDITURES:

Current:

Community programs 3,128,109 3,464,791 3,574,792 (110,001) 2,968,016 TOTAL EXPENDITURES 3,128,109 3,464,791 3,574,792 (110,001) 2,968,016

EXCESS (DEFICIENCY) OF

REVENUES OVER (UNDER)
EXPENDITURES (715,738) 282,463 (1,716,267) (1,998,730) (2,191,764) Other financing sources:

Transfers from the City
of Costa Mesa - - 1,790,836 1,790,836 2,438,346 Net change in fund balance (715,738) 282,463 74,569 (207,894) 246,582 FUND BALANCE - BEGINNING OF YEAR 3,640,616 3,640,616 3,640,616 - 3,394,034 FUND BALANCE - END OF YEAR 2,924,878$ 3,923,079$ 3,715,185$ (207,894)$ 3,640,616$ Costa Mesa Housing Authority
Year ended June 30, 2021
(With Comparative Data for Prior Year)
Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Housing Authority Fund
Required Supplementary Information
33 1581
34 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
Board of Directors
Costa Mesa Housing Authority
Costa Mesa, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, financial statements of the governmental activities and the major fund of the Costa Mesa Housing Authority (Authority), as of and for the year ended June 30, 2021, and the related notes to the basic financial statements, which collectively comprise of the Authority’s basic financial statements, and have issued our report thereon dated December 17, 2021.

3 5

Compliance and Other

Matters

part

obtaining

reasonable

assurance

about

whe
t
her

the Authorit
y
’
s

f
i
nancial

s
t
a
t
e
m
ents

are

f
r
ee from
m
aterial

m
isstate
m
ent,

perfor
m
ed

tests

its

c
o
mpliance

with

c
e
r
t
ain

provisions

laws, regulations, contracts, and grant agree
m
ents, nonco
m
pliance

with

which

could

have

direct

and
m
aterial e
f
f
e
ct on the

financial

state
m
en
ts
. Howeve
r
, providing an opinion on co
m
pliance

with

those

provisions

was

not

objective

our

audit,

and

accordingl
y
,

not

express such an
opinion. The results of our
tests disclos
e
d no instances of noncompliance or other
m
atters that are
required to be reported under
Government

Auditing
S
t
anda
r
d
s
.

Purpose of this Report

The

purpose

this

report

solely

describe the

scope

our

testing

internal

control

and
co
m
pliance

and

the

results

that testing,

and

not

provide

opinion

the

effectiveness

the
Authorit
y
’s

int
e
rnal

control

c
o
mpliance.

T
his

rep
o
rt

is an

integr
a
l

part

audit

performed

in accorda
n
ce with

Government

Auditing

Standards
in

considering

the

Authority’s

i
n
tern
a
l

cont
r
ol

and co
m
pliance. Accordingl
y
, this communicat
i
on is not suitable for any other purpose.

Irvine, C
a
li
f
ornia

December
17 , 202
1 1583
Attachment 2
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2020-2021 P a g e | 1

COSTA MESA HOUSING AUTHORITY ANNUAL REPORT

AS HOUSING AUTHORITY AND AS HOUSING SUCCESSOR
FOR FISCAL YEAR 2020-2021 UNDER CALIFORNIA
HEALTH & SAFETY CODE SECTIONS 34176.1 AND 34328

This annual report (Report) of the Costa Mesa Housing Authority (Housing Authority) is prepared under the California Health and Safety Code (HSC), Division 24, Parts 1.8 and

1.85 (Dissolution Law), in particular Section 34176.1 as the housing successor, and under the California Housing Authorities Law, HSC Section 34200, et seq. (HAL), in particular Section 34328 as a housing authority. The Dissolution Law and HAL respectively require preparation of an annual r eport on the housing successor and the housing authority’s activities for the prior fiscal year. This Report details the Housing Authority’s activities during Fiscal Year (FY) 2020-21 and is intended to satisfy the requirements under both HSC Sections 34176.1 and 34328. More specifically, this Report includes information required about the Low and Moderate Income Housing Asset Fund (LMIHAF) and other information under Section 34176.1(f).

This Report is based on information prepared by City staff on behalf of the Housing Authority and data contained within the independent financial audit of the LMIHAF (Audit), which is prepared by Davis Farr LLP and accompanies this Report . The Audit is incorporated in the City of Costa Mesa’s Annual Comprehensive Financial Report (ACFR) for FY 2020 -21. A copy of the Report in this draft form, has been provided to the City Council, as governing body, and to the Housing Authority under 34176.1(f). Upon their joint review and action to file the Report in an open meeting in January 2022, this Report will be posted on the City’s website www.costamesaca.gov and thereafter appended to the City’s annual update report prepared under Section 65400 of the Government Code.

This Report conforms with and is organized into sections I through XIV, inclusive, under HSC Section 34176.1(f) of the Dissolution Law and Section 34328 of the HAL:

I. Amounts Received and Deposited Under 34191.4(b)(3)(A) . This section provides the total amount of funds paid to the City and the amount deposited into the LMIHAF representing 20% of repayments on the reinstated City/Agency loan per Section 34191.4.

The Department of Finance (D OF) approved a total of $ 1,905,703 attributable to the reinstated City/Agency loan under Section 34191.4 . The Successor Agency received $1,902,703 in FY 2020-21, and had excess cash on hand of $3,000 from previously approved obligations . Of the $ 1,905,703, $ 1,524,562 (representing 80% of $ 1,905,703) was due to the City . The remaining balance was deposited into the LMIHAF upon receipt in May 2021, totaling $381,141 (representing 20% of $1,905,703).

II. Amount Deposited into LMIHAF. This section provides the total amount of funds deposited into the LMIHAF in FY 2020-21 and itemized by amounts listed on Recognized Obligation Payment Schedule (ROPS), amounts representing Section 34191.4 deposits, and other amounts deposited into the LMIHAF.  In FY 2020-21, the amount of $ 381,141 (representing 20% of $1,905,703) was deposited into the LMIHAF;
1584
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2020-21 P a g e | 2  $0 was held for items listed on the ROPS; and

 other deposits into the LMIHAF in FY 20 20-21 were: (1) $ 396,753 rental income, and (2) $29,349 loan repayments,

 The LMIHAF suffered a $2,497 investment loss.

The net cumulative total of all deposits into the LMIHAF was $804,748 during FY 2020-21.

III. Ending Balance of LMIHAF. This section provides a statement of the balance in the LMIHAF as of the close of FY 2020-21. Any amounts deposited for items listed on the ROPS and amounts representing Section 34191.4 deposits, must be distinguished from the other amounts deposited.

At the close of FY 2020-21 on June 30, 20 21, the ending balance in the LMIHAF was $3,715,185, of which $0 was held for items listed on the ROPS.

IV. Description of Expenditures from LMIHAF. This section provides a description of expenditures made from the LMIHAF during FY 2020-21. The expenditures are to be categorized among (A) administration for monitoring, preserving covenanted housing units; (B) homeless prevention and rapid rehousing services ; and (C) development of housing.

The table below lists and describes FY 2020-21 LMIHAF expenditures by category:

Monitoring
and
Administration
Expenditures
Costs for monitoring, enforcement, and preserving
long-term affordable housing covenants imposed by
the former Costa Mesa Redevelopment A gency
(Former Agency) or the Housing Authority, as
housing successor.

The maximum expe nditure for this category in FY
2020-21 is the greater of (a) 5% of the statutory value of (i) real property owned by the housing successor
and (ii) loans and grants receivable, or (b) $200,000
(plus allowed CPI adjustments).

Based on the valuation listed in Section V,
[lines 5+6 in that table=$5,186,389] for FY 2020-21,
the Housing Authority as housing successor was
authorized to spend up to $ 259,319 (i.e., 5% of
$5,186,389), but only expended $134,880.

$134,880
Homeless
Prevention
and Rapid
Rehousing
Services
Costs for homeless prevention and rapid rehousing
supportive services for individuals and families who
are homeless or would be homeless without this
assistance.

250,000
1585
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2020-21 P a g e | 3 Expenditures The housing successor was authorized to spend up to $250,000 for this category in FY 2020-21 and had
spent $250,000.

Housing
Development
Expenditures
Costs for housing “development”, which term is
defined to inc lude: (a) new construction, (b)
acquisition and rehabilitation, (c) substantial
rehabilitation, (d) long-term affordability covenants
on multifamily units, and (e) preservation of assisted
affordable housing that is eligible for (i) prepayment, (ii) termination, or (iii) for which the expiration of
rental restrictions is scheduled to occur within five
years.

The costs in this category represent the operating
costs for a 30 -apartment low and very low income
housing property , which the housing successor
intends to solicit proposals from housing providers
to purchase and extend affordability.

The 30 apartments within eight properties commonly
referred to as James /W. 18th Properties, were
acquired by the City and Housing Authority through
non-judicial foreclosure proceedings in FY 2015-
2016. This acquisition was made in order to
preserve the long-term affordable housing
covenants which were at risk of termination and
potential conversion to market housing.

The eight properties are still owned by the Housing
Authority and continue to be operated as affordable
housing units for low and very low income
households/tenants by a professional p roperty
management company. The operating costs for the
property include staff salaries and benefits, utilities, supplies, repairs and maintenance, taxes, property
management fees, legal and consulting costs . The
total amount spent in FY 2020-21 was $172,558.

172,558
Total FY 2020-21 LMIHAF Expenditures $557,438

V. Statutory Value of Assets Owned by Housing Successor. This section provides the statutory value of real property owned by the Housing Authority, as housing successor, the value of loans and grants receivables, and the sum of these two amounts.

Under Dissolution Law and for purposes of this Report, the “statutory value of real property” means the value of properties formerly held by the Former Agency as listed on the housing asset transfer schedule approved by the DOF under Section 34176(a)(2), the value of the properties transferred to the housing successor under Section 34181(f), and the purchase price of properties purchased by the Housing 1586
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2020-21 P a g e | 4 Authority. Further, the value of loans and grants receivable is included in these reported assets held in the LMIHAF.

The following table provides the statutory value of assets owned by the Housing Authority as of the end of FY 2020-21:

VI. Description of Transfers. This section describes transfers, if any, to another housing successor made in previous fiscal year(s), including whether the funds are unencumbered and the status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for development of transit priority projects, permanent supportive housing, regional homeless shelter s, housing for agricultural employees, or special needs housing.

The Housing Authority, as housing successor, did not make any LMIHAF transfers to other housing successor(s) under Section 34176.1(c)(2) during FY 2020-21.

VII. Project Descriptions. This section describes any project for which the Housing Authority, as housing successor, receives or holds property tax revenue under the ROPS and the status of that project.

The Housing Authority, as housing successor, does not receive or hold property tax revenue under a ROPS.

VIII. Status of Compliance with Section 33334.16. As and if applicable, this section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the former redevelopment agency prior to February 1, 2012.

For interests in real property, if any, acquired on or after February 1, 2012, provide a status update on the project.

Section 34176.1 provides that Section 33334.16 does not apply to interests in real property acquired by the Housing Authority, as housing successor, on or after February 1, 2012.

With respect to interests in real property acquired by the Former Agency prior to February 1, 2012, the time periods described in Section 33334.16 shall be deemed to have commenced on the date that the DOF approved the property as a housing

1. Cash and Investments $3,389,539

2. Cash and Investments with Fiscal Agent 23,652

3. Interest Receivable 4,940

4. Rent Receivable 17,297

5. 6. Value of Loans and Grants Receivable 650,674
Total Statutory Asset Value $8,621,817
Statutory Value of Real Property Owned by
the Housing Authority
As of June 30, 2021
End of FY 2020-21
4,535,715
1587
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2020-21 P a g e | 5 asset in the LMIHAF; thus, as to real property acquired by the Former Agency, now held by the Housing Authority as housing successor, in the LMIHAF, the Housing Authority as housing successor, must initiate activities consistent with development (as the term is explained in Section IV and Section 34176.1(a)(3)(D)) of the real property for the purpose for which it was acquired within five years of the date the DOF approved such property as a housing asset.

In this regard, the Housing Authority as housing successor, did not own any real property acquired for development (to be developed) as of dissolution on February 1, 2012 subject to this limitation so the five-year limitation of Section 33334.16 does not apply.

It is noted that the F ormer Agency held at dissolution, now the Housing Authority holds as landlord/ground lessor, the underlying fee interests in three Ground Leases with Costa Mesa Family Village, a California limited partnership, as tenant/ground lessee (affiliate of Shapell Properties) relating to the existing 72-unit multifamily affordable housing apartment development called Costa Mesa Family Village, located at 1924 and 1981 Wallace Avenue and 2015 Pomona Avenue. The three ground leases end/expire in 2039. Section 33334.16 does not apply to such ground leases and this existing affordable housing development as the subject property was not held for development; it is developed property.

IX. Description of Outstanding Obligations under Section 33413. This section describes outstanding inclusionary and replacement housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the former redevelopment agency as of February 1, 2012, along with the Housing Authority’s progress, as housing s uccessor, in meeting those prior obligations, if any, of the former redevelopment agency and how the Housing Authority, as housing successor, plans to meet unmet obligations, if any.

Replacement Housing: Under the Former Agency’s last Implementation Plan in effect prior to dissolution (the 2010-2014 plan), the Former A gency’s replacement housing obligations, if any, under Section 33413(a) were transferred to the Housing Authority as housing successor ; however, the F ormer Agency had no outstanding replacement housing obligations as of dissolution on February 1, 2012.

Inclusionary/Production Housing. Under the Former Agency’s last Implementation Plan in effect prior to dissolution (the 2010 -2014 plan) , its inclusionary/production housing obligations, if any, under Section 33413(b) were transferred to the Housing Authority as housing successor ; however, the Former Agency had no outstanding inclusionary/production housing obligations as of dissolution on February 1, 2012.

Therefore, the Housing Authority, as housing successor, has no outstanding replacement or inclusionary/production housing ob ligations and thus no implementation obligation under Section 33413.

For information, the Former Agency’s Implementation Plan is posted on the City’s website at www.costamesaca.gov.

1588
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2020-21 P a g e | 6

X. Income Test. This section provides information required by Section 34176.1(a)(3)(B), or a description of expenditures by income category and restriction for the applicable five -year period, with the time period beginning January 1, 2014 and whether the statutory thresholds have been met. However, the income test is not required until year 2019.

The applicable provisions of Sections 34176.1(a)(3)(A)(B)(C) require that the Housing Authority, as housing successor, must require at least 30% of the LMIHAF to be expended for development of rental housing affordable to and occupied by households earning 30% or less of the Area Median Income (AMI). If the Housing Authority as housing successor, fail s to comply with the extremely-low income requirement in a five-year report ing period, then the provisions of Section 34176.1(B) will apply in each fiscal year following the latest fiscal year following the Report are expended for the development of housing occupied by extremely low income households until the housing successor demonstrates compliance with such requirement in a subsequent annual report.

FY 2018 -19 was the end of the initial five -year period under Section 34176.1(a)(3)(B). The Housing Authority’s next five-year report on compliance with Section 34176.1(a)(3)(A) is due in FY 2023-24.

XI. Senior Housing Test. This section provides the percentage of deed-restricted rental housing units restricted to seniors and assisted individually or jointly by the housing successor, its former redevelopment agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed- restricted rental housing assisted individually or jointly by the housing successor, its former redevelopment agency and its host jurisdiction within the same 10-year time period.

The housing successor is to calculate the percentage of units of deed-restricted rental housing restricted to seniors and assisted by the housing successor, the Former Agency and/or the City within the previous 10 years in relation to the aggregate number of units of deed-restricted rental housing assisted by the housing successor, the Former Agency, and/or City within the same time period. If this percentage exceeds 50%, then the housing successor cannot expend future LMIHAF funds to assist additional senior housing units until the Housing Authority as housing successor, or City assists and construction has commenced on a number of restricted rental units that is equal to 50% of the total amount of deed- restricted rental units.

As reported in the prior FY 2018-19 annual report, for the 10-year period of January 1, 2004 to January 1, 2014, 9.8% of the funds were expended on assistance to provide senior affordable housing units and 90.2% of the funds were expended on assistance to provide non -senior/family affordable housing units. In particular, 36 senior units with long-term 55-year affordability covenants were established during the previous 10-year period (specifically, the St. John’s Manor Project in 2006).

For the current 10-year period of January 1, 2014 to January 1, 2024 that includes the subject FY 2020-21, the Housing Authority expended no funds ($0) for senior housing thus far ; therefore 0% of funds were expended on development or 1589
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XII. Excess Surplus Test. This section provides the amount of excess surplus in the LMIHAF, if any, and the length of time that the housing successor has had excess surplus, and the housing successor’s plan for eliminating the excess surplus.

The term excess surplus is defined in Section 34176.1(d) as: “an unencumbered amount in the LMIHAF account that exceeds the greater of one million dollars ($1,000,000) or the aggregate amount deposited into the account during the housing successor’s preceding four fiscal years, whichever is greater.” The table below provides the Excess Surplus test for the preceding four years. The LMIHAF does not have an excess surplus.

XIII. Inventory of Homeownership Units. This section provides a summary of covenanted homeownership units assisted by the former redevelopment agency or the housing successor that include equity sharing and repayment provisions, including: (A) number of units; (B) number of units lost to the por tfolio in the last fiscal year and the reason for those losses; and (C) any funds returned to the housing successor due to losses or repayments.

This section provides an inventory of homeownership units assisted by the Former Agency and assumed by the Hou sing Authority as housing successor, that are

LMIHAF LMIHAF
July 1, 2020 July 1, 2021
Opening Fund Balance $ 3,640,616 $ 3,715,185
Less Unavailable Amounts:

Loans Receivable Net (862,534) (650,674) Encumbrances - - Available Housing
Successor Funds (A) 2,778,082 3,064,511
Limitation (Greater of $1,000,000 or four years deposits):

Aggregate Amount Deposited for last four years:
2020-21 N/A $ 804,746
2019-20 770,962 770,962
2018-19 827,902 827,902
2017-18 687,292 687,292
2016-17 922,994 N/A
Total $ 3,209,150 $ 3,090,902
Base Limitation $ 1,000,000 $ 1,000,000
Greater Amount (B) $ 3,209,150 $ 3,090,902
Excess/Surplus [(A)-(B)] $0 $0
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Total homeownership in ventory as of dissolution on February 1, 2012 (subparagraph (A) below) and inventory, losses, and repayments for the period from February 1, 2012 through June 30, 2021 (subparagraph (B) below) include:

(A) As of dissolution on February 1, 2012, the total number of homeownership units assisted by the F ormer Agency and had covenants and restrictions of rec ord was 41 units, which included loans and restricted single-family homes assisted by the Former Agency through its (1) First Time Homebuyer (FTHB) Program, (2) Single-Family Rehabilitation (SF Rehab) Program, (3) affordable housing projects with Habitat for Humanity of Orange County, and (4) Neighborhood Stabilization Program.

(B) The total number of homeownership units lost to the Housing Authority ’s portfolio as housing successor between February 1, 2012 through June 30, 2021, along with the reasons for those losses.

Total losses between February 1, 2012 and June 30, 2021: 30 units

Reasons for the units’ losses from the homeownership portfolio:

Principal Repayments: $744,920
Loan Impairment: $1,095,000
Foreclosure: $436,000

Funds returned to the Housing Authority as housing successor, as part of an adopted program that protects the Former Agency’s investment of moneys from the Low and Moderate Income Housing Fund, including loan principal, interest, and equity sharing payme nts between February 1, 2012 and June 30, 2021 :
$1,173,174.

(C) The number of homeownership units lost to the Housing Authority’s portfolio as housing successor in FY 2020-21 and the reason for those losses.

Total losses to portfolio in FY 2020-21: 3 units

One homeownership loan was fully paid off. The total amount received from the full homeownership loan repayment was $18,313 and these funds were deposited into LMIHAF.

Two homeownership loans reached maturity date for FY 2020-21 and therefore forgiven as per the terms of the promissory note. The total of those loans is $172,741.

Two owners made partial payments on homeownership loans. Principal and interest p ayments re ceived totaled $11,036 and were deposited into the LMIHAF.

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The funds returned to the Housing Authority as housing successor, as part of an adopted program that protects the Former Agency’s investment of moneys from Low and Moderate Income Housing Fund, included repayments of FTHB program loans. Total principal, interest, and equity sharing payments during FY 2020-21 was $29,349.

(D) The Housing Authority as housing successor, has existing co nsulting agreements with: AmeriN ational Community Services, Inc., a Minnesota Corporation (dba AmeriNat) and Farmers State Bank of Hartland, a Minnesota corporation. The agreements are related to certain, but not all, aspects o f administration of the Former A gency’s SF Rehab and FTHB programs that provided second lien mortgages for homeownership units. The consulting services include assistance with oversight and administration of amortized loan payments, if any, due; with tracking and calculation of loan balances in the event of payo ff; and, other administrative activities for these outstanding SF Rehab and FTHB loans.

In addition, the Housing Authority retains the services of Keyser Marston Associates, a professional housing economic consultant, and the Housing Authority legal advisors, City Attorney and Authority General Counsel Kimberly Hall Barlow of Jones & Mayer, and Celeste Stahl Brady of Stradling Yocca Carlson & Rauth (SYCR). Counsel assist staff in reviewing legal issues related to outstanding SF Rehab and FTHB program loans, such as the refinancing of first lien mortgages consistent with SF Rehab and FTHB program refinancing criteria, repayments, impairment analyses, defaults, foreclosures, bankruptcies, renting out part of the home, short sale requests, and other issues that arise in the administration of the former Agency’s loan programs for ownership housing.

XIV. Additional Information: Housing Authority’s Activities for the preceding year (FY 2020-21) under HSC Section 34328.

Without repeating the infor mation presented above in this R eport, the Housing Authority:

(A) continued to monitor and enforce housing assets transferred from the Former Agency to the Housing Authority as housing successor , as well as other Housing Authority (non-housing successor) assets;

(B) continued property management and operation of the James/W.18th Properties. See Sections IV. And X. above for more detailed discussion about these properties.

(C) As housing successor under Section 34176.1(a)(2), the Housing Authority may expend up to $250,000 per fiscal year “for homeless prevention and rapid rehousing services for individuals and families who are homeless or would be homeless but for this assistance, including the provision of short -term or medium-term rental assistance, housing reloc ation, and stabilization services including housing search, mediation, or outreach to property owners, credit repair, security or utility deposits, utility payments, rental assistance for a final 1592
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Costa Mesa City CouncilJanuary 18, 2022

Costa Mesa City Council
January 18, 2022