COSTA MESA
FINANCING AUTHORITY
(A Component Unit of the
City of Costa Mesa)
Financial Statements
Year Ended June 30, 2021
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 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.
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
to
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
in
t
h
e
U
nited
S
t
ates
of
A
m
erica
req
u
ire
to
be
presented
to
supple
m
ent
t
he
b
asic financial
state
m
ents.
Such
m
issing
info
r
m
ation, although
not
a
part
of the
basic
financial
state
m
ents,
is required
by
the
Govern
m
ental
A
ccounting
S
t
andards
Board,
who
considers
it
t
o
be
an
essential
part
of financial
reporting
for
placing
the
basic
financial
state
m
ents
in
an
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
by
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 ,
on
our
consideration
of
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
an
opinion
on
internal
contr
o
l
over
financial
reporting
or
on
c
o
m
pliance.
That
rep
o
rt
is
an integral
part
of
an
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 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 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 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 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 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 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 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.
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. 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. 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.
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. 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
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. 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$
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.
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
of
this
report
is
solely
to
describe the
scope
of
our
testing
of
internal
control
and
co
m
pliance
and
the
results
of
that testing,
and
not
to
provide
an
opinion
on
the
effectiveness
of
the
Authorit
y
’s
int
e
rnal
control
or
on
c
o
mpliance.
T
his
rep
o
rt
is an
integr
a
l
part
of
an
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