Agenda packet — Costa Mesa City Council, February 18, 2025 (part 2 of 2)

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File #: 25-133 Meeting Date: 2/18/2025
complete an audit of the City’s financial records.

The goal of the financial statement audit is to provide users with reasonable assurance from an independent source that the information presented in the financial statements is reliable and free of material misstatements. All the financial reports received unmodified opinions from Davis Farr LLP signifying that, without exception, the financial statements fairly present in all material respects the financial position of the City.

ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
The ACFR is an audited summary report of the financial transactions of the City for Fiscal Year 2023- 24 ending on June 30, 2024. The report is presented to the City Council and designed to provide summary financial information.

The financial statements were prepared in conformity with generally accepted accounting principles (GAAP) as set by the Governmental Accounting Standards Board (GASB). The specific financial documents on which the auditor expresses an opinion include (1) the financial statements, and, (2) notes to the basic financial statements, which include required supplementary information. These documents, along with the auditor’sopinion letter and management’sdiscussion and analysis form the core of the ACFR. The additional documents within the ACFR include: the letter of transmittal from the City Manager and Finance Director, the combining and individual fund statements, and a supplemental statistical section presenting detailed information to assist the reader in assessing the economic condition of the City.

The City’s audit was performed in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in the Government Auditing Standards, issued by the Comptroller General of the United States. Such audits utilize sampling of data, inquiries of staff and management, testing of procedures and transactions, confirmation with outside parties, checking of certain internal files and documents, review of meeting minutes, specialized audit checklists, and other accounting techniques. The auditors considered the City’sinternal controls in determining what procedures to use and the size of samples to be selected and reviewed. In their report, the auditors indicated the financial statements were free of material misstatements and all significant transactions were recognized in the proper period.

AIR QUALITY IMPROVEMENT FUND COMPLIANCE REPORT
Assembly Bill 2766 (AB2766) authorized the South Coast Air Quality Management District (SCAQMD) to impose an annual vehicle registration fee and to distribute a portion of the revenue to all local jurisdictions within the South Coast Air Basin. These revenues are to be used solely to reduce air pollution from motor vehicles by implementing new programs and studies necessary for the implementation of the California Clean Air Act. The City’sAir Quality Improvement Fund accounts for the use of these funds received from CSAQMD. The Air Quality Improvement Fund Compliance Report received an unmodified (clean) audit opinion.

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AUDIT COMMUNICATION LETTER
Audit clarity standards (AU-C) Section 260 requires defined and documented communications between the auditors and the City Council or Audit Committee. This letter provides an opportunity for the auditors to report on any difficulties or major concerns discovered during the audit and explain their role. They provide commentary on management’sresponsibilities for accounting policies, and they stated that there was a delayed receipt of audit schedules that added to the timing of the audit as it relates to the performance of the audit, and that no disagreements occurred with management.

Staff will implement additional project management controls and deadlines earlier in the audit process to avoid any future delays.

INDEPENDENT ACCOUNTANT’S REPORT ON AGREED UPON PROCEDURES APPLIED TO

APPROPRIATION LIMIT WORKSHEETS
Section 1.5 of Article XIIIB of the California Constitution requires that the City follow the procedures agreed upon by the State of California and the League of California Cities (as presented in the League publication entitled “ArticleXIIIB Appropriations Limitation Uniform Guidelines”)to determine the annual appropriations limit (known as the Gann Limit), which sets forth the maximum amount of special tax revenues an agency is allowed to spend. The auditors perform an “Agreed-Upon Procedure” whereby they recalculate the Gann Limit. They determined that the City has correctly calculated the Gann Limit.

COSTA MESA HOUSING AUTHORITY FINANCIAL STATEMENTS AND HOUSING SUCCESSOR

ANNUAL REPORT
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, “DissolutionLaw”),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 confirmed the Housing Authority holds all affordable housing assets of the Former Agency as listed in a Housing Asset Transfer 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 34176 and 34176.1. Under Section 34176.1(f), the Housing Successor is required to conduct an independent financial audit of LMIHAF and prepare an annual report for each fiscal year, and provide

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such reports to the governing body.

From its inception, the Housing Authority’s primary 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 individuals experiencing homelessness.

ANALYSIS:

Based on the results of their audit, Davis Farr LLP provided the City with an unmodified opinion on the financial statements, which indicates that the City’s financial statements are free of material misstatements and are in accordance with GAAP. This is the best and highest audit opinion the City could receive.

GENERAL FUND FINANCIAL RESULTS
FY 2023-24 General Fund revenues (before transfers) totaled $183.9 million, an increase of $6.2 million over the prior fiscal year. Summary is as follows:
· Property tax increased by $3.0 million due to a steady housing market, an increase in the City’ssingle-family homes median sales price, and an increase in overall property assessed valuations from new developments and improvements on properties. · Cannabis tax revenues increased by $2.3 million due to an increase in the full annual receipts of new Measure Q Cannabis businesses.
· Transient occupancy tax (hotel tax) slightly increased by $0.3 million due to room rate increases and a shift from consumer spending to experiences, travel, and leisure. · Sales tax revenue decreased by $3.5 million compared to last fiscal year. This can be attributed to high inflation and interest rates on debt that have driven consumers to reduce discretionary spending.

General Fund expenditures (before transfers) totaled $166.9 million, approximately $1.5 million below the budget. General Fund transfers out totaled $16.5 million and included $7.2 million to the Capital Improvements Funds for capital improvement projects and the transfer for the 5% Capital Assets Needs (CAN) Ordinance, $2.8 million to the Finance Authority Debt Service Fund for bond service payments, $1.5 million to the Housing Authority for the Rental Assistance Program, $1.3 million for the Bridge Shelter and related Homeless Services Program, and $3.7 million to the Internal Service Funds for various equipment, technology and vehicle purchases as well as a true-up per the City’s Information Technology Needs Ordinance.

GENERAL FUND - FUND BALANCE
The General Fund’s fund balance (i.e.reserves) increased by $1.3 million. General Fund expenditures of $166.9 million, plus Transfers Out of $16.5 million, totaled $183.4 million, which was an increase of $7.1 million compared to last fiscal year. This was offset by $183.9 million in General

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an increase of $7.1 million compared to last fiscal year. This was offset by $183.9 million in General Fund revenues, plus Transfers In of $0.9 million, for a total of $184.8 million, reflects an increase of $7.2 million compared to last fiscal year.

As of June 30, 2024, the City has a total of $60.3 million in General Fund balances (reserves) as follows: 1) A total of $25.1 million committed for declared disasters, self-insurance, and economic uncertainty; 2) A total of $14.4 million assigned for compensated absences, the Police Retirement 1% Supplemental Plan, workers compensation claims, a facilities reserve, strategic plan projects, prepaid items, and inventory; 3) An allocation of $3.4 million for the Section 115 Trust for post-retirement benefits; and, 4) $17.7 million in unassigned fund balance for a total of $60.3 million. This amount is $5.3 million above the City Council’s adopted reserve policy of $55.0 million.

STATEMENT OF NET POSITION
Change in Net Position
On June 30, 2024, the Statement of Net Position which is in essence the City’soverall balance sheet and reflects the City’stotal assets and liabilities on an All Funds basis, reflects a positive $2.3 million increase across All Funds, including the General Fund.

Pensions and Retiree Medical Liabilities
The City’snet pension liability increased by $14.8 million to $347.2 million primarily due to CalPERS’ rate of return earnings of 5.8%, falling short by 1.0% of the rate of return target of 6.8%. Three of the City’s four pension plans are administered by CalPERS. The Police 1% Supplemental Plan is administered by the City and is paid on a pay-as-you-go basis.

In addition, FY 2023-24 is the seventh year the City is required to record the Other Post Employment Benefits (OPEB) net liability for retiree health care on its financial statements, similar to the pension liability above. The City’snet OPEB liability decreased by $6.9 million to $45.5 million due to greater than expected mortality changes in the retired population. This plan is administered by the City and is paid to retirees on a pay-as-you-go basis.

COSTA MESA FINANCING AUTHORITY FINANCIAL STATEMENTS
The Costa Mesa Financing Authority received an unmodified opinion from the auditors, Davis Farr LLP. This is the highest and cleanest attestation report given by independent auditors. The reports that deal with compliance information also received unmodified opinions and no findings were noted.

In Fiscal Year 2023-24, 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, Norma Hertzog Neighborhood Community Center, and Lions Park projects; and to advance the refund of the 2007 Certificates of Participation. On June 30, 2024, the 2017 bonds outstanding principal was $19.4 million.

COSTA MESA HOUSING AUTHORITY FINANCIAL STATEMENTS AND HOUSING SUCCESSOR

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COSTA MESA HOUSING AUTHORITY FINANCIAL STATEMENTS AND HOUSING SUCCESSOR

ANNUAL REPORT
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’sAnnual Comprehensive Financial Report (ACFR). The section in the City’s audit/ACFR 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, 2024 (Attachment 6).

In FY 2023-24, the Housing Authority received approximately $2.2 million in revenues and incurred $6.1 million in expenditures. The General Fund provided a budgeted $2.8 million transfer to the Homeless Outreach, and Rental Assistance programs, which includes $1.3 million for the Homeless Services Program. On June 30, 2024, the Housing Authority’s available fund balance was $8.3 million, which is restricted and allocated primarily for previously approved City Council priorities and projects.

ALTERNATIVES:

Not applicable. The reports are for receive and file purposes.

FISCAL REVIEW:

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

LEGAL REVIEW:

The City Attorney’s Office has approved this report and approves it as to form.

CITY COUNCIL GOALS AND PRIORITIES:

This item supports the following City Council Goal:
· Achieve Long-Term Fiscal Sustainability
· Strengthen the Public’s Safety and Improve the Quality of Life · Diversify, Stabilize and Increase Housing to Reflect Community Needs · Maintain and Enhance the City’s Facilities, Technology and Equipment · Advance Environmental Sustainability and Climate Resiliency · Recruit and Retain High Quality Staff

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CONCLUSION:

1. Staff recommends the City Council receive and file the following reports for the fiscal year ended June 30, 2024:
a. Annual Comprehensive Financial Report (ACFR) (Attachment 1); b. Air Quality Improvement Fund Compliance Report (Attachment 2); c. Audit Communication Letter (Attachment 3); and
d. Independent Accountant's Report on Agreed-Upon Procedures Applied to Appropriation Limit Worksheets (Attachment 4).

2. Staff recommends the City Council and Costa Mesa Financing Authority receive and file the Costa Mesa Financing Authority audited financial statements for the fiscal year ended June 30, 2024 (Attachment 5).

3. Staff recommends the City Council and Housing Authority receive and file the following reports for the fiscal year ended June 30, 2024:
a. Independent Financial Audit of the Costa Mesa Housing Authority, including the Low and Moderate-Income Housing Asset Fund (Attachment 6); and
b. The Fiscal Year 2023-24 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 (Attachment 7).

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T

HE CITY OF COSTA MESA ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2024 CAN BE FOUND AT THE LINK BELOW:

City of Costa Mesa - ACFR Draft - 01-14-2025
Attachment 1
307
In
dependent Auditor’s Report on Internal Control Over Financial Reporting a
nd on Compliance and Other Matters Based on an Audit of the Air Quality Imp
rovement Special Revenue Fund Performed
in
Accordance with Government Auditing Standards
The
Honorable Mayor and City Council
City of 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, the financial statements of the City of Costa Mesa, California (the City) including the Air Quality Improvement Special Revenue Fund (the Fund) of the City, as of and for the year ended June 30, 2024, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated January 16, 2025.

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

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.

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s Fund 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. Such provisions include those provisions of laws and regulations identified in Assembly Bill 2766 Chapter 1705 [Health and Safety Code Sections 44220 through 44247] (the Guide).

Attachment 2
308
However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government
Auditing Standards
.

Purpose of this Report

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

Irvine, California

January

16 ,
202
5 309
The
Honorable Mayor and City Council
City o
f Costa Mesa, California
We
have audited the financial statements of the governmental activities, each major fund, and the aggre
gate remaining fund information of the City of Costa Mesa (“City”) as of and for the year ended Ju
ne 30, 2024, and have issued our report thereon dated January 16, 2025. Professional standards re
quire that we advise you of the following matters relating to our audit.

Our
Responsibility in Relation to the Financial Statement Audit As
communicated in our engagement letter dated July 3, 2024, our responsibility, as described by pro
fessional standards, is to form and express opinions about whether the financial statements that have
been prepared by management with your oversight are presented fairly, in all material respects, in
accordance with accounting principles generally accepted in the United States of America. Our aud
it of the financial statements does not relieve you or management of your respective respo
nsibilities.

O
ur responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain re
asonable, rather than absolute, assurance about whether the financial statements are free of mater
ial misstatement. An audit of financial statements includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the cir
cumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s in
ternal control over financial reporting. Accordingly, as part of our audit, we considered the internal co
ntrol of the City solely for the purpose of determining our audit procedures and not to provide any assur
ance concerning such internal control.

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

H
owever, we are not required to design procedures for the purpose of identifying other matters to co
mmunicate to you.

Planned Sc
ope and Timing of the Audit
We
conducted our audit consistent with the planned scope and timing we previously communicated to the
Mayor.

Comp
liance with All Ethics Requirements Regarding Independence The
engagement team, others in our firm, as appropriate, and our firm have complied with all re
levant ethical requirements regarding independence.

We identified self-review threats to independence as a result of non-attest services provided. Those non-attest services included recording journal entries detected during the audit process and preparing the financial statements. To mitigate the risk, management has reviewed and accepted responsibility for journal entries and has compared the draft financial statements and footnotes to the underlying accounting records to verify accuracy and has reviewed a disclosure checklist to ensure footnotes are complete and accurate.

Attachment 3
310

Significant Risks Identified

We have
identified the following significant risks:



Risk of errors in construction in progress. We reviewed projects included within the balance of construction of progress to determine if they were properly classified at fiscal
year
-
end
.



Compliance with
Federal Grant Requirements. We reviewed the City’s schedule of federal expenses and selected major programs to test for compliance with federal grant requirements.

Qualitative Aspects of the Entity’s Significant Accounting Practices

Significant Accounting Policies

Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements.

No new accounting policies were adopted, and the application of existing policies was not changed during the year ended
June 30, 2024.

No matters have come to our attention that would
require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or em
erging areas for which there is a lack of authoritative guidance or consensus.

Significant Accounting Estimates

Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about

future events. Certain
accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments.

The most sensitive accounting estimates affecting the financial statements include:



Management’s estimate of amounts recorded as claims and liabilities is based on management’s reliance on a third
-
party claims administrator. We evaluated the key factors and assumptions used to develop the amounts by the third -
party claims administrator a
nd
determined that it is reasonable in relation to the financial statements taken as a whole.



Management’s estimate of transactions related to net pension and OPEB liabilities based on actuarial information.

We evaluated the key factors and assumptions used to develop the amounts by the actuary and determined that it is reasonable in relation to the financial statements taken as a whole.

We evaluated the key factors and assumptions used to develop the estimates and determined that it is reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units.

Financial Statement Disclosures

Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users.

The most sensitive disclosures affecting
the financial statements were:



The disclosure of investment fair value in note 2 to the financial statements



The disclosure of pensions in note 11 to the financial statements



The disclosure of OPEB in note 14 to the financial statements.

311

T
he financial statement disclosures are neutral, consistent, and clear.

Difficulties Encountered during the Audit

W
e experienced difficulties in the performance of the audit due

to
the delayed

receipt of audit
schedules

and subsequent journal entries
,

which

added to the tim
ing

of the audit.

Significant Unusual
Transactions

For purposes of this communication, professional standards require us to communicate to you significant unusual transactions identified during our audit.

There were no unusual transactions
noted as a result of

our audit procedures.

Uncorrected and Corrected Misstatements

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

Management has determined that the
effect

of the following
uncorrected adjustment
are

immaterial, both individually and in the aggregate, to the financial statements as a whole:

To adjust
ambulance

receiv
ables
, revenues and related bad debt

To account for accrued interest earned in the balance reported for the OC Sheriff ’
s
Investment Pool

To record a prior
period

adjustment for projects in service in prior fiscal
years and the
related accumulated depreciation

adjust
ment

to increase the claims payable liability
.

In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures.

There
was a material adjustment to beginning fund balances that we identified as a result of

our audit procedures, brought to the attention of, and corrected by management.

Disagreements with Management

For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s f inancial statements or the auditor’s report.

No such disagreements arose during the course of the audit.

Representations Requested from
Management

We have requested certain written representations from management in a letter dated January

16 ,
202
5 .

312

Management’s Consultations with Other Accountants

In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.

Other Significant Matters, Findings, or Issues

In the normal course of
our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards,

significant events
or transactions that occurred during the year, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in
a
condition to our retention as the City’s auditors.

Other Information Included in the Annual Comprehensive Financial Report

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

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

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

Irvine, California

January
16 , 2025

313
IN
DEPENDENT ACCOUNTANT’S REPORT
The Ho
norable Mayor and City Council
City of Costa Mesa, California
We have performed the procedures enumerated below on the City of Costa Mesa, California (City) appropriations limit worksheets for compliance with the requirements of Section 1.5 of Article XIIIB of the California Constitution for the year ended June 30, 2024. The City is responsible for compliance with Section 1.5 of Article XIIIB of the California Constitution.

The City has agreed to and acknowledged that these procedures are appropriate to meet the intended purpose of evaluating compliance with the requirements of Section 1.5 of Article XIIIB of the California Constitution and the League of California Cities publication entitled Article XIIIB Appropriations Limitation Uniform Guidelines for the year ended June 30, 2024. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures and the associated findings are as follows:

1. We obtained the worksheets referred to above and compared the limit and annual adjustment factors included in those worksheets to the limit and ann ual
adj
ustment factors that were adopted by resolution of the City Council. We als o co
mpared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote.

Results: No exceptions were noted as a result of our procedures.

2. We
recalculated the mathematical computations reflected in the City’s worksheets.

Results: No exceptions were noted as a result of our procedures.

3. We
compared the current year information used to determine the current year limit and agreed it to worksheets prepared by the City and to informati on pro
vided by the State Department of Finance.

Results: No exceptions were noted as a result of our procedures.

4. We
compared the amount of the prior year appropriations limit presented in th e wo
rksheets to the amount adopted by the City Council for the prior year.

Results: No exceptions were noted as a result of our procedures.

ATTACHMENT 4
314

The Honorable Mayor and City Council

City of
Costa Mesa
, California

Page Two

We were engaged by the City to perform this
agreed
-
upon procedures
engagement and
conducted our engagement i
n accordance with standards established by the American Institute of Certified
Public Accountants. W
e were not engaged to and did
not

conduct

examination or review
, the objective of which would be the expression of an opinion

or
conclusion, respectively

on the worksheets referred to above. Accordingly, we do not express such an opinion

or conclusion
. Had we performed additional
procedures
,

other
matters might have come to our attention that would have been reported to you.

No
procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication entitled

Article XIIIB
Appropriations

Limitation Uniform Guidelines
.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed -
upon procedures
engagement.

This report is intended solely for the
information and
use of the
Management of the
City of
Costa Mesa
, California and
is not intended to be, and should not be, used by anyone other than the
specified part
y
.

Irvine, California

January

16 , 202
5 315

COSTA MESA

FINANCING AUTHORITY
(A Component Unit of the
City of Costa Mesa)
Financial Statements
Year Ended June 30, 2024
ATTACHMENT 5
316

COSTA MESA FINANCING AUTHORITY

Table of Contents

Year Ended June 30, 2024

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 Balances - Governmental Fund 8

Reconciliation of the Governmental Fund Statement of
Revenues, Expenditures and Changes in Fund Balances
to the Statement of Activities 9

Notes to the Basic Financial Statements 10 - 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 18 - 19 317

INDEPENDENT AUDITOR’S REPORT

Board of Directors
Costa Mesa Financing Authority
Costa Mesa, California

Report on the Audit of the Financial Statements

Opinion

We have audited the 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, 202 4, and the related notes to the financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements 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, 2024, 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.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Authority and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Emphasis of a Matter

As described more fully in Note 1A, the basic component unit 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 accordance with accounting principles generally accepted in the United States of America.

Responsibilities of Management for the Financial Statements

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

1 318

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Authority’s ability to continue as a going concern for one year after the date that the financial statements are issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a h igh level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Misstatements are considered material if there is a substantial likelihood that, i ndividually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

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

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

Required Supplementary Information

Management has not presented the management’s d iscussion and analysis that accounting principles gener ally 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.

2 319

Report on Summarized Comparative Information

We have previously audited the Authority’s 202 3 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated December 22, 2023. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2023 is consistent, in all material respects, with the audited financial statements from which it has been derived.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated January 16, 2025, on our consideration of the Authority’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority’s internal control over financial reporting and compliance.

Irvine, California
January 16, 2025

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2024 2023
ASSETS:

Cash and investments with fiscal agent (Note 2) 17,449$ 7,278$ Lease interest receivable 207,888 254,763
Leases receivable (Note 3) 19,360,000 21,280,000 TOTAL ASSETS 19,585,337 21,542,041
LIABILITIES:

Interest payable 207,888 254,763
Noncurrent liabilities:

Due within one year (Note 3) 2,162,767 2,067,767 Due in more than one year (Note 3) 19,893,978 22,056,745 TOTAL LIABILITIES 22,264,633 24,379,275
NET POSITION:

Restricted for debt service 17,449 7,278
Unrestricted (2,696,745) (2,844,512)
TOTAL NET POSITION (2,679,296)$ (2,837,234)$
Governmental Activities

COSTA MESA FINANCING AUTHORITY
Statement of Net Position
June 30, 2024
(With comparative totals for June 30, 2023)
See accompanying notes to financial statements.
4 321
Charges Operating Capital
for Grants and Grants and
Expenses Services Contributions Contributions 2024 2023 Governmental Activities:

Interest on long-term debt 731,783$ - - - (731,783)$ (825,533) Total governmental
activities 731,783$ - - - (731,783) (825,533) General revenues:

Investment income 889,721 980,574
Total general revenues 889,721 980,574
Changes in net position 157,938 155,041

NET POSITION AT
BEGINNING OF YEAR (2,837,234) (2,992,275)
NET POSITION AT END OF YEAR (2,679,296)$ (2,837,234) Program Revenues
Functions/Programs
Net (Expenses) Revenues

COSTA MESA FINANCING AUTHORITY
Statement of Activities
Year Ended June 30, 2024
(With comparative totals for the year ended June 30, 2023) See accompanying notes to financial statements.
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2024 2023
ASSETS:

Cash and investments with fiscal agent 17,449$ 7,278$ Leases receivable 19,360,000 21,280,000
TOTAL ASSETS 19,377,449$ 21,287,278$
DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE:

DEFERRED INFLOWS OF RESOURCES:

Unavailable lease revenue 19,360,000$ 21,280,000$
TOTAL DEFERRED INFLOW OF RESOURCES 19,360,000 21,280,000 FUND BALANCE:

Restricted for debt service 17,449 7,278
TOTAL FUND BALANCE 17,449 7,278

TOTAL DEFERRED INFLOWS OF RESOURCES
AND FUND BALANCE 19,377,449$ 21,287,278$
Government Fund
Total

COSTA MESA FINANCING AUTHORITY
Balance Sheet
Governmental Fund
(With comparative totals for June 30, 2023)
June 30, 2024
See accompanying notes to financial statements.
6 323
Fund balances for governmental fund 17,449$
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 207,888
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 (19,360,000)
Premium on bonds (2,696,745)
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 (207,888)
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. 19,360,000 Net position of governmental activities (2,679,296)$

COSTA MESA FINANCING AUTHORITY
Reconciliation of the Governmental Fund Balance Sheet
to the Statement of Net Position
June 30, 2024
See accompanying notes to financial statements.
7 324
2024 2023
REVENUES:

Other interest 10,171$ 7,274$
Lease payments 2,799,550 2,803,300
TOTAL REVENUES 2,809,721 2,810,574
EXPENDITURES:

Debt service:

Principal 1,920,000 1,830,000
Interest 879,550 973,300
TOTAL EXPENDITURES 2,799,550 2,803,300

EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 10,171 7,274
NET CHANGE IN FUND BALANCE 10,171 7,274
FUND BALANCE AT BEGINNING OF YEAR 7,278 4 FUND BALANCE AT END OF YEAR 17,449$ 7,278$ Total
Governmental Fund

COSTA MESA FINANCING AUTHORITY
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Fund
(With comparative totals for the year ended June 30, 2023) Year Ended June 30, 2024
See accompanying notes to financial statements.
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Net change in fund balances - total governmental fund 10,171$ 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. 207,888
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 1,920,000
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. (207,888)
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. (1,920,000)
Change in net position of governmental activities 157,938$

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, 2024
See accompanying notes to financial statements.
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COSTA MESA FINANCING AUTHORITY

Notes to the Basic Financial Statements

Year Ended June 30, 2024

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 govern mental 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 presen ted us ing 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 t he 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 state ments. Under the accrual basis of accounting, revenues, e xpenses, gains, losses, assets, and lia bilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchan ge 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.
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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 state ments, 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 govern mental funds in the aggregate for govern mental funds. Fiduciary state ments include financial information for fiduciary funds and similar component units. Fiduciary funds pri marily represent assets he ld 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 deter mined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expendit ures 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.

11 328

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 usi ng 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 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 acco mpanying 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 tran saction between market participants at the measurement date. Changes in fair value that occur during a fiscal year are recognized as invest ment 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.

12 329

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 i mposed 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 govern mental 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 th at applies to future periods and will not be recognized as an inflow of resources (reven ue) until that time. The Authority reports unavailable lease revenue as deferred inflows of resources in the governmental fund.

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 Balance:

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 report ed net of the applicable bond premium or discount.

13 330

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 A merica 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. The 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 (inclu ding 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.

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COSTA MESA FINANCING AUTHORITY

Notes to the Basic Financial Statements

(Continued)

2. Cash and Investments:

Cash and investments at June 30, 2024 are classified in the accompanying Statement of Net Position as follows:

Cash and investments with fiscal agent $ 17,449

Cash and investments held at June 30, 2024 consisted of the following:

Investments:

Money market mutual funds $ 17,449

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 invest ments 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 30 days None
None
None
Commercial Paper 270 days None None
Money Market Mutual Funds None None None
Investment Agreements None None None
Interest-Bearing Time Deposits 30 days None None
Repurchase Agreements 270 days None None
Local Agency Investment Fund None None None
State Obligations None None None
Pre-refunded Municipal Obligations None None None
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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 $ 17,449 $ - $ 17,449

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 appli cable) the Cali fornia Gover nment 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 $ 17,449 $ 17,449

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 Govern ment 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.

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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, 2024:

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 P articipation (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 se mi-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, 20 24, the principal outstanding is $19,360,000 and the unamortized bond premium balance is $2,696,745.

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, 20 18. 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:

Year Ending
June 30 Principal Interest Total
2025 2,015,000$ 781,175$ 2,796,175$
2026 2,115,000 677,925 2,792,925
2027 2,220,000 569,550 2,789,550
2028 570,000 499,800 1,069,800
2029 600,000 470,550 1,070,550
2030-2034 3,485,000 1,858,875 5,343,875
2035-2039 4,345,000 1,011,462 5,356,462
2040-2043 4,010,000 265,850 4,275,850
Total 19,360,000$ 6,135,187$ 25,495,187$
Amount Amount Due
Balance at Balance at Due Within Beyond
July 1, 2023 Additions Reductions June 30, 2024 One Year One Year 2017 Lease Revenue
Bonds 21,280,000$ -$ (1,920,000)$ 19,360,000$ 2,015,000$ 17,345,000$ 2017 Bond Premium 2,844,512 - (147,767) 2,696,745 147,767 2,548,978 Total 24,124,512$ -$ (2,067,767)$ 22,056,745$ 2,162,767$ 19,893,978$ 17 334

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 A merica 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, 20 24, 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 January 16, 2025.

Report on Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the Authority’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressi ng an opinion on the effectiveness of Authority’s internal control. Accordingly, we do not express an opinion on the e ffectiveness 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 contr ol that we consi der to be material weaknesses. However, material weaknesses or significant deficiencies 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.

18 335

The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

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

Irvine, California
January 16, 2025
19 336

COSTA MESA HOUSING

AUTHORITY
(A Component Unit of the
City of Costa Mesa)
Financial Statements
Year ended June 30, 2024
ATTCHMENT 6
337

COSTA MESA HOUSING AUTHORITY
Table of Contents
Year ended June 30, 2024

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 - 26

Required Supplementary Information:

Schedule of Proportionate Share of the Net Pension Liability and Related Ratios 27 - 28 Schedule of Pension Plan Contributions 29 - 30 Schedule of Proportionate Share of OPEB Liability and Related Ratios 31 Schedule of Revenues, Expenditures and Changes in
Fund Balance - Budget and Actual 32

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 33 - 34

338

INDEPENDENT AUDITOR’S REPORT

Board of Directors
Costa Mesa Housing Authority
Costa Mesa, California

Report on the Financial Statements

Opinions

We have audited the financial statements of the governmental activities and the major fund of the Costa Mesa Housing Authority (Authority), a component unit of the City of Costa Mesa, California, as of and for the year June 30, 2024, and the related notes to the financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements 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, 2024, 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.

Basis for Opinions

Emphasis of Matter

As described more fully in Note 1A, the basic financial sta tements 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 opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

ability to continue as a going concern for one year after the date that the financial statements are issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

In performing an audit in accordance with GAAS, we:

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the schedule of proportionate share of the net pension lia bility 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, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basi c financial statements in an appropriate operational, economic, or historical context. We have applied certain limited pro cedures to the required supplementary information 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 our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the 2 340

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.

Report on Summarized Comparative Information

We have previously audited the Authority’s 20 23 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated December 21, 2023. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2023 is consistent, in all material respects, with the audited financial statements from which it has been derived.

Other Reporting Required by Government Auditing Standards

Irvine, California
January 16, 2025

3 341
2024 2023
ASSETS:

Cash and investments (Note 2) 7,725,840$ 6,904,364$ Cash and investments with fiscal agent (Note 2) 25,487 24,493 Accounts receivable 43,341 38,549
Due from other governments 345,528 1,220,209 Rent receivable 16,448 20,064
Interest receivable 6,966 5,050
Loans receivable, net of allowance (Note 3) 1,295,210 496,064 Lease receivable (Note 5) 1,355,038 1,434,726
Capital assets (Note 4):

Not depreciated 2,063,865 2,063,865
Being depreciated, net 1,977,480 2,142,270
TOTAL ASSETS 14,855,203 14,349,654
DEFERRED OUTFLOWS OF RESOURCES:

Pension related (Note 6) 741,126 665,087
OPEB related (Note 7) 145,205 125,013
TOTAL DEFERRED OUTFLOWS OF RESOURCES 886,331 790,100 LIABILITIES:

Accounts payable 1,100,900 336,921
Accrued liabilities 46,409 28,771
Deposits 24,902 23,908
Net pension liability (Note 6) 3,099,311 2,586,560
OPEB liability (Note 7) 702,844 583,371
TOTAL LIABILITIES 4,974,366 3,559,531
DEFERRED INFLOWS OF RESOURCES:

Lease related (Note 5) 1,323,545 1,414,825
Pension related (Note 8) 9,017 38,780
OPEB related (Note 7) 336,313 180,623
TOTAL DEFERRED INFLOWS OF RESOURCES 1,668,875 1,634,228 NET POSITION:

Investment in capital assets 4,041,345 4,206,135 Restricted for community programs 5,056,948 5,739,860 TOTAL NET POSITION 9,098,293$ 9,945,995$
Governmental Activities
Costa Mesa Housing Authority
Statement of Net Position
June 30, 2024
(With comparative totals for June 30, 2023)
See accompanying notes to financial statements.
4 342
Operating Capital
Charges Grants and Grants and
Expenses for Services Contributions Contributions 2024 2023 Governmental Activities:

Community programs 6,945,418$ 538,955$ 1,282,105$ -$ (5,124,358)$ (1,597,452)$ Total governmental
activities 6,945,418$ 538,955$ 1,282,105$ -$ (5,124,358) (1,597,452) General revenues:

Repayment of Successor Agency advance - 342,011 Investment income (loss) 231,987 9,416
Other income 117,032 221,113
Transfer from the City of Costa Mesa 3,927,637 5,288,708 Total general revenues and transfers 4,276,656 5,861,248 CHANGE IN NET POSITION (847,702) 4,263,796
NET POSITION AT BEGINNING OF YEAR 9,945,995 5,682,199 NET POSITION AT END OF YEAR 9,098,293$ 9,945,995$
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, 2024
(With comparative totals for the year ended June 30, 2023) See accompanying notes to financial statements.
5 343
2024 2023
ASSETS:

Cash and investments 7,725,840$ 6,904,364$
Cash and investments with fiscal agent 25,487 24,493 Accounts receivable 43,341 38,549
Due from other governments 345,528 1,220,209
Rent receivable 16,448 20,064
Interest receivable 6,966 5,050
Loans receivable, net of allowance 1,295,210 496,064 Lease receivable 1,355,038 1,434,726
TOTAL ASSETS 10,813,858$ 10,143,519$
LIABILITIES:

Accounts payable 1,100,900$ 336,921$
Accrued liabilities 46,409 28,771
Deposits payable 24,902 23,908
TOTAL LIABILITIES 1,172,211 389,600
DEFERRED INFLOWS OF RESOURCES:

Lease related 1,323,545 1,414,825
Unavailable revenue - 38,549
TOTAL DEFERRED INFLOWS OF RESOURCES 1,323,545 1,453,374 FUND BALANCE:

Restricted for community programs 8,318,102 8,300,545 TOTAL FUND BALANCE 8,318,102 8,300,545
TOTAL LIABILITIES AND FUND BALANCE 10,813,858$ 10,143,519$ Costa Mesa Housing Authority
Balance Sheet
Governmental Fund
June 30, 2024
(with comparative totals for June 30, 2023)
See accompanying notes to financial statements.
6 344
Fund balance - total governmental fund 8,318,102$
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 (1,318,320)
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 741,126 Deferred outflows of resources related to OPEB 145,205
Deferred inflows of resources related to pensions (9,017) Deferred inflows of resources related to OPEB (336,313) CalPERS pension liability (3,099,311)
OPEB liability (702,844)
Net position of governmental activities 9,098,293$
Costa Mesa Housing Authority
Reconciliation of the Governmental Funds Balance Sheet
to the Statement of Net Position
June 30, 2024
See accompanying notes to financial statements.
7 345
2024 2023
REVENUES:

Rental income 538,955$ 416,489$
Repayment of Successor Agency advance - 342,011 Intergovernmental 1,320,654 2,686,381
Investment income (loss) 231,987 9,416
Miscellaneous 117,032 221,113
TOTAL REVENUES 2,208,628 3,675,410
EXPENDITURES:

Current:

Community programs 6,118,708 4,286,833
TOTAL EXPENDITURES 6,118,708 4,286,833

EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (3,910,080) (611,423)
OTHER FINANCING SOURCES:

Transfer from the City of Costa Mesa 3,927,637 5,288,708 Net change in fund balances 17,557 4,677,285 FUND BALANCE - BEGINNING OF YEAR 8,300,545 3,623,260 FUND BALANCE - END OF YEAR 8,318,102$ 8,300,545$
(with comparative totals for June 30, 2023)
Statement of Revenues, Expenditures and Changes in Fund Balance Costa Mesa Housing Authority
Governmental Fund
Year ended June 30, 2024
See accompanying notes to financial statements.
8 346
Net change in fund balances - total governmental fund 17,557$ 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. (406,949)
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. (254,971) Change in net position of governmental activities (847,702)$ 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, 2024
See accompanying notes to financial statements.
9 347

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

Year ended June 30, 2024

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 ass ets 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 here in, 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 acti vities or attaining certain ob jectives in acc ordance with special reg ulations, restrictions, or limitations. The accounting records of the A uthority 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

10 348

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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 gov ernmental 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 cap italized in the government-wide financial statements, rather than reported as expenditures.

Fund Financial Statements

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 govern mental fund are presented after the government-wide financial state ments. These state ments display info rmation about the governmental major fund individually and nonmajor funds in aggregate if applicable.

Governmental Funds

In the fund financial statements, governmental funds are presented using the modified- accrual basis of accounting. Their revenues are recognized when they beco me measurable and available as fund balances. Measurable means that the amounts can be estimated, or otherwise deter mined. 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 generally considers revenues collected within sixty days after the fiscal year-end to be available, which includes loan repayments and rental income.
11 349

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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 rel ated goods or services are provided). Imposed nonexchange transactions are recognized as revenues in the period for which they were i mposed. If the period of use is not specifi ed, 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 state ments, govern mental 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 oth er 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. 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.

E. Leases:

The Authority is a lessor for leases as detailed in note 6. The Authority recognizes a lease receivable and a deferred inflow of resources in the financial statements.

At the commencement of the lease, the Authority initially measures the lease receivable at the present value of payments expected to be received and paid during the lease term.

Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflows of resources is reco gnized as revenue over the life of the lease term.

12 350

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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

Key estimates and judgments include how the Authority determines the discount rate it uses to discount the expected lease receipts and payments to present value, lease term and lease receipts.

• The Authority uses the estimated cost of capital rate as the discount rate for leases.
• The lease term includes the noncancellable period of the lease.

The Authority monitors changes in circumstances that would require a remeasurement of its leases and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable.

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. Depreciati on 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 i mprovements and structures is 10 to 20 years.

G. Net Position:

Net position of the Authority can be classified into three co mponents - 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 c onstraints 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.
13 351

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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

When both restricted and unrestricted resources are available for use, it is the Authority’s policy to use restricted resources first, then unre stricted 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 state ment of net position and the govern mental fund balance sheet will sometimes report a separate section for deferred inflows of resources. T his separate financial statement element, deferred inflows of resources, represents an acquisition of net position th at applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The Authority has three items that qualify for reporting in this category in the statement of net position . The items are deferred inflows related to pensions, OPEB and leases.

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 n ot meet the criteria to be classified as restri cted or com mitted. 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 res idual balance for the government’s General Fund and includes all spendable amounts not contained in other classifications.

14 352

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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

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, 2022
Measurement Date June 30, 2023
Measurement Period July 1, 2022 to June 30, 2023

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, b enefit 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, 2023
Measurement Date June 30, 2023
Measurement Period July 1, 2022 to June 30, 2023

L. Use of Estimates:

The preparation of financial state ments 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.

15 353

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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

N. Prior Year Data

The information included in the accompanying financial statements for the prior year has been presented for co mparison purposes only and does not represent a complete presentation in acc ordance with generally acce pted accounti ng principles. Certain minor reclassifications of prior year data have been made in order to enhance their co mparability 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 invest ment 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 invest ment 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 Authorit y’s pro-rata share of the fair value calculated by the City for the e ntire 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, 2024, the Authority had a total cash balance of $7,751,327 of which $ 7,725,840 was part of the City’s cash and investment pool and the remaining $25,487 was cash held with a fiscal agent for tenant deposits. 16 354

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

3. Loans Receivable:

Loans receivable as of June 30, 2024 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.

$ 1,520,685

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.

154,518

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.

115,250

A promissory note to CM Mercy House CHDO from Low to Moderate Income Housing Asset Funds for the property improvements for forty (40) housing units and forty-seven (47) senior housing units.

850,000

Total loans receivable

3,291,495

Less allowance for doubtful accounts

(1,996,285)

Loans receivable, net of allowance for doubtful accounts $ 1,295,210

17 355

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

4. Capital Assets:

The following is a summary of the capital asset activity for the year ended June 30, 2024:

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

5. Lease Receivable

Land

On July 1, 1985, the City entered into a 55-year ground lease agreement with Costa Mesa Family Village for three parcels of land. The lease began in July 1985 and will end in October 2039. The lessees are required to make annual fixed payments ranging from $6,750 to $13,500 wi th an interest rate of 2.015%. As of June 30, 2024, the lease receivable is $1, 355,038, and deferred inflows of resources is $ 1,323,545. The City recognized $ 91,280 of lease revenue during the fiscal year.

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, 2023 Additions Deletions June 30, 2024
Capital assets not being depreciated:

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

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

Building improvements and structures (1,153,530) (164,790) - (1,318,320) Total capital assets being
depreciated, net 2,142,270 (164,790) - 1,977,480 Capital assets, net 4,206,135$ (164,790)$ -$ 4,041,345$ 18 356

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

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 e mployees hired into a plan with the 1.5% at 65 formula, eligibility for service retirement is age 55 with at least five years of service. PEPRA miscellaneous members become eligible for service retirement upon attainment of age 52 with at least five years of service.

All members are eligible for non-duty disability benefits after five 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 e mployed 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, 2024, 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 additio nal a mount to finance any unfunded accrued lia bility. 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. Pay ments made by the e mployer to satisfy contribution require ments 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, 2024, the Authority’s total contributions for the Miscellaneous Plan were $345,762.

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% 8.50%
Required employer contribution
rates 7.29% 11.21% 11.21%
Miscellaneous (Agent Multiple-Employer)
19 357

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

6. Defined Benefit Pension Plan (CalPERS) (Continued):

Actuarial Methods and Assumptions Used to Determine Total Pension Liability

The June 30, 2022 valuation was rolled forward to determine the June 30, 20 23 total pension liability, based on the following actuarial methods assumptions:

Measurement date June 30, 2023
Actuarial cost method

Entry-Age Normal in accordance with the
requirements of GASB 68
Actuarial assumptions:

Discount rate 6.90%
Inflation 2.30%
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 2.30%
until Purchasing Power Protection
Allowance floor on purchasing power
applies, 2.30% thereafter

1 The mortality table used was developed based on CalPERS -specific data. The probabilities of mortality are based on the 2021 CalPERS Experience Study and Review of Actuarial Assumptions. Mortality rates incorporate full generational mortality improvement using 80% of Scale MP -2020 published by the Society of Actuaries. For more details on this table, please refer to the 2021 experience study report from November 2021 that can be found on the CalPERS website.

Discount Rate

The discount rate used to measure the total pension liability was 6.90 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 memb ers. 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.

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 comp ound (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 20 358

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

6. Defined Benefit Pension Plan (CalPERS) (Continued):

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 return by asset class are as followed:

Asset Class1

Assumed asset
allocation

Real Return
Years 1–101,2
Global Equity – Cap-weighted 30.00% 4.54%
Global Equity – Non-Cap-weighted 12.00 3.84
Private Equity 13.00 7.28
Treasury 5.00 0.27
Mortgage-backed Securities 5.00 0.50
Investment Grade Corporates 10.00 1.56
High Yield 5.00 2.27
Emerging Market Debt 5.00 2.48
Private Debt 5.00 3.57
Real Assets 15.00 3.21
Leverage (5.00) (0.59)

1 An expected inflation of 2.30% used for this period.
2 Figures are based on the 2021 Asset Liability Management study.

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: 6/30/2022 (VD) $ 7,733,777 $ 5,147,217 $2,586,560 Balance at: 6/30/2023 (MD) 9,221,072 6,121,761 3,099,311 Net Changes during 2022-23 1,487,295 974,545 521,751

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, 2023, and the total pension liability for the plan used to calculate the net pension liability was determined by an actuarial valuation of June 30, 2022 rolled forward to June 30, 2023 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.

21 359

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

6. Defined Benefit Pension Plan (CalPERS) (Continued):

The Authority’s proportionate share of the net pension liability for the plan as of June 30, 2022 and 2023 was as follows:

Miscellaneous Plan
Proportion – June 30, 2022 2.405%
Proportion – June 30, 2023 2.749%
Change – Increase (Decrease) 0.344%

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 6.90 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 (5.90 percent) or 1 percentage-point higher (7.90 percent) than the current rate:

Discount
Rate – 1%
(5.90%)
Current
Discount Rate
(6.90%)
Discount
Rate + 1%
(7.90%)
Authority’s proportionate share of the Net
Pension Liability $4,281,668

$3,099,311

$2,127,272

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:

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

22 360

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

6. Defined Benefit Pension Plan (CalPERS) (Continued):

Pension Expense, and Deferred Outflows/Inflows of Resources Related to Pensions

For the fiscal year ended June 30, 2024, the Authority recognized pension expense of $472,011.

At June 30, 2024, 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 $ 345,762 $ -
Differences between expected and actual
experience 89,651 (9,017)
Changes in assumptions 32,446 -
Net difference between projected and actual
earnings on pension plan investments 273,267 -

Totals

$ 741,126

$ (9,017)

The Authority reported $ 345,762 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, 2025. 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
2025 $ 134,327
2026 50,780
2027 194,080
2028 7,160

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.

23 361

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

7. Other Post-Employment Benefits (OPEB) (Continued):

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, 2023 by an actuarial valuation based on the following actuarial methods and assumptions:

Discount Rate: 4.13% 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:

As of 06/30/23
Bond Buyer Go 20 – Municipal Bond Index 3.65%
S&P Municipal Bond 20 -year High Grade
Rate Index

4.13%
Fidelity 20-year Go Municipal Bond Index 3.86%
Bond Index Range 3.65% - 4.13%
Actual Discount Rate Used 4.13%

Aggregate Payroll Increases: 2.80% 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.

24 362

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

7. Other Post-Employment Benefits (OPEB) (Continued):

The following table shows the Authority’s proportionate share of the total OPEB liability over the measurement period ended June 30, 2023:

Increase (Decrease)
Total OPEB
Liability
Balance at: June 30, 2022 $ 583,371
Balance at: June 30, 2023 702,844
Net Changes during 2022-23 119,473

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 23, and the total OPEB liability for the plan used to calculate the net pension liability was determined by an actuarial valuation of June 30, 2023. 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, 20 23 and 2022 was as follows:

OPEB Plan
Proportion – June 30, 2022 1.114%
Proportion – June 30, 2023 1.546%
Change – Increase (Decrease) (0.433%)

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 4.13 percent, as well as what the total OPEB liability would be if it were calculated using a discount rate that is one percentage-point lower (3.13 percent) or one percentage-point higher (5.13 percent) than the current rate:

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 one percentage-point lower or one percentage-point higher than the current healthcare cost trend rates:

Discount
Rate – 1%
(3.13%)
Current
Discount Rate
(4.13%)
Discount
Rate + 1%
(5.13%)
Authority’s proportionate share of the total
OPEB liability $787,965

$702,844

$632,264
25 363

COSTA MESA HOUSING AUTHORITY

Notes to Basic Financial Statements

(Continued)

7. Other Post-Employment Benefits (OPEB) (Continued):

1% Decrease
(7.00% decreasing
to 3.50%)
Current Healthcare
Cost
Trend Rates
(8.00% decreasing
to 4.50%)

1% Increase
(9.00% decreasing to

5.50%)
Authority’s
proportionate share
of the total OPEB
liability $658,238

$702,844

$766,350

OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB

For the year ended June 30, 2024, the Authority recognized OPEB income of $284,184. At June 30, 20 24, 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 $ 29,214

$ -
Differences between expected and
actual differences 9,198 (153,248)
Changes in assumptions 106,793 (183,065)

Totals $ 145,205 $ (336,313)

The Authority reported $ 29,214 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, 2025.

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
2025 $ (7,514)
2026 (7,514)
2027 (19,670)
2028 (19,670)
2029 (26,394)
Thereafter (139,560)
26 364
Measurement date June 30 2014 2015 2016 2017
Plan's proportion of the net pension liability 0.703% 0.703% 0.703% 1.095% Plan's proportionate share of the net pension liability 536,746$ 561,947$ 632,922$ 1,095,223$ Plan's covered payroll 129,116$ 126,041$ 139,833$ 213,885$ Plan's proportionate share of the net pension liability as a percentage of covered payroll 415.71% 445.84% 452.63% 512.06% 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% 64.17% Plan's proportionate share of aggregate employer
contributions 36,704$ 42,575$ 45,855$ 75,706$
Notes to schedule:

Benefit changes:

The figures above generally include any liability impact that may have resulted from voluntary benefit changes that occurred on or before the Measurement Date. However, offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes) that occurred after the Valuation Date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary.

In 2022, SB 1168 increased the standard retiree lump sum death benefit from $500 to $2,000 for any death occurring on or after July 1, 2023. The impact, if any, is included in the changes of benefit terms.

Changes in assumptions:

There were no assumption changes in 2023. Effective with the June 30, 2021 valuation date (June 30, 2022 measurement date), the accounting discount rate was reduced from 7.15% to 6.90%. In determining the long- term expected rate of return, CalPERS took into account long-term market return expectations as well as the expected pension fund cash flows. In addition, demographic assumptions and the price inflation assumption were changed in accordance with the 2021 CalPERS Experience Study and Review of Actuarial Assumptions.

The accounting discount rate was 7.15% for measurement dates June 30, 2017 through June 30, 2021,

7.65% for measurement dates June 30, 2015 through June 30, 2016, and 7.50% for measurement date June 30, 2014.

Costa Mesa Housing Authority
Required Supplementary Information
Schedule of Proportionate Share of the Net Pension Liability and Related Ratios CalPERS Miscellaneous Plan
Last Ten Fiscal Years
27 365
2018 2019 2020 2021 2022 2023

0.831% 2.218% 2.608% 2.396% 2.405% 2.749%
783,393$ 2,221,033$ 2,699,607$ 1,690,541$ 2,586,560$ 3,099,311$ 166,758$ 541,070$ 626,246$ 299,397$ 634,611$ 762,996$ 469.78% 410.49% 431.08% 564.65% 407.58% 406.20%

66.53% 65.86% 65.62% 77.06% 66.56% 66.39%
76,921$ 219,059$ 267,302$ 265,290$ 287,431$ 345,762$ 28 366
Fiscal year ended June 30 2015 2016 2017 2018
Contractually required contribution
(actuarially determined) 36,704$ 42,575$ 45,855$ 75,706$ Contributions in relation to the actuarially
determined contributions (36,704) (42,575) (45,855) (75,706) Contribution deficiency (excess) -$ -$ -$ -$ Covered payroll 126,041$ 139,833$ 213,885$ 166,758$ Contributions as a percentage of covered payroll 29.12% 30.45% 21.44% 45.40%

Notes to schedule:

Valuation date 6/30/2012 6/30/2013 6/30/2014 6/30/2015
Methods and assumptions used to determine contribution rates:

Single and agent employers Entry Age Actuarial Cost Method Amortization method/period
Asset valuation method
Inflation 2.30%
Salary increases Varies by category, entry age, and duration of service.

Payroll growth 2.80%
Investment rate of return
Other information:

For changes to previous year’s information, refer to past GASB 68 reports.

Varies by date established and source. May be level dollar or level percent of pay and may include direct rate smoothing.

Market value of assets.

6.80%, net of pension plan investment and
administrative expense; including inflation.

Costa Mesa Housing Authority
Required Supplementary Information
Schedule of Pension Plan Contributions
CalPERS Miscellaneous Plan
Last Ten Fiscal Years
29 367
2019 2020 2021 2022 2023 2024
76,921$ 219,059$ 267,302$ 265,290$ 287,431$ 345,762$ (76,921) (219,059) (267,302) (265,290) (287,431) (345,762) -$ -$ -$ -$ -$ -$ 541,070$ 626,246$ 299,397$ 634,611$ 762,996$ 932,086$

14.22% 34.98% 89.28% 41.80% 37.67% 37.10%
6/30/2016 6/30/2017 6/30/2018 6/30/2019 6/30/2020 6/30/2021 30 368
Measurement date June 30 2017 2018 2019 2020 2021 2022 2023 Plan's proportion of the total OPEB liability 0.391% 0.510% 1.065% 1.142% 1.042% 1.114% 1.546% Plan's proportionate share of the total OPEB liability 208,922$ 271,334$ 627,570$ 718,412$ 690,181$ 583,371$ 702,844$ Plan's covered payroll 160,415$ 221,304$ 466,770$ 521,271$ 556,337$ 654,345$ 1,072,214$

Plan's proportionate share of the OPEB liability
as a percentage of covered employee payroll 130.24% 122.61% 134.45% 137.82% 124.06% 89.15% 65.55% 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% 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%. The discount rate as of the June 30, 2020 measurement date was 2.66%. The discount rate as of the June 30, 2021 measurement date was 2.19%. The discount rate as of the June 30, 2022 measurement date was 4.09%. The discount rate as of June 30, 2023 was 4.13%.

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 seven years are shown.

Required Supplementary Information
Costa Mesa Housing Authority
Schedule of Proportionate Share of OPEB Liability and Related Ratios Last Ten Fiscal Years*
31 369
Variance with
Final Budget
Original Final Positive Prior Year
Budget Budget Actual (Negative) Actual
REVENUES:

Rental income 370,000$ 370,000$ 538,955$ 168,955$ 416,489$ Repayment of Successor
Agency advance - - - - 342,011 Intergovernmental 1,821,579 2,146,579 1,320,654 (825,925) 2,686,381 Investment income (loss) 21,550 21,550 231,987 210,437 9,416 Miscellaneous 6,000 6,000 117,032 111,032 221,113 TOTAL REVENUES 2,219,129 2,544,129 2,208,628 (335,501) 3,675,410 EXPENDITURES:

Current:

Community programs 4,017,325 10,212,005 6,118,708 4,093,297 4,286,833 TOTAL EXPENDITURES 4,017,325 10,212,005 6,118,708 4,093,297 4,286,833

EXCESS (DEFICIENCY) OF

REVENUES OVER (UNDER)
EXPENDITURES (1,798,196) (7,667,876) (3,910,080) 3,757,796 (611,423) Other financing sources:

Transfers from the City
of Costa Mesa 3,927,637 3,927,637 3,927,637 - 5,288,708 Net change in fund balance 2,129,441 (3,740,239) 17,557 3,757,796 4,677,285 FUND BALANCE - BEGINNING OF YEAR 8,300,545 8,300,545 8,300,545 - 3,623,260 FUND BALANCE - END OF YEAR 10,429,986$ 4,560,306$ 8,318,102$ 3,757,796$ 8,300,545$ Costa Mesa Housing Authority
Year ended June 30, 2024
(With Comparative Data for Prior Year)
Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Housing Authority Fund
Required Supplementary Information
32 370

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 A merica 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, 2024, 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 January 16, 2025.

Report on Internal Control over Financial Reporting

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the 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 i mportant 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 contr ol that we consi der to be material weaknesses. However, material weaknesses may exist that have not been identified. 33 371

Report on Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Authority’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agree ments, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

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

Irvine, California
January 16, 2025

34 372
Costa Mesa Housing Authority
Housing Successor Annual Report FY 2021-2022 Page | 1 C

OSTA MESA HOUSING AUTHORITY ANNUAL REPORT

AS HOUSING AUTHORITY AND AS HOUSING SUCCESSOR
FOR FISCAL YEAR 2023-2024 UNDER CALIFORNIA
HEALTH & SAFETY CODE SECTIONS 34176.1 AND 34328
T
his 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 . T he Dissolution Law and HAL respectively require preparation of an annual report on the housing successor and the housing authority’s activi ties for the prior fiscal year. This Report details the Housing Authority’s activities during Fiscal Year (FY) 2023-24 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).

Th
is R eport 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 2023-24. The City Council and the Housing Authority will review and file the Report in an open meeting in February 2024; upon their review and approval, 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.

T
his 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. A
mounts 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.
• A
ll obligations have been paid off. The housing successor Agency was in process to dissolve in FY 2023-24.

II. A
mount Deposited into LMIHAF. This section provides the total amount of funds deposited into the LMIHAF in FY 2023-24 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 August 23,2024, Department of Finance approved Costa Mesa Successor Agency (Agency) the dissolution of the Agency. • $0 was held for items listed on the ROPS; and
• other deposits into the LMIHAF in FY 20 23-24 were: (1) $ 540,268 rental income, (2) $115,500 loan repayments, and (3) $230,673 investment gain.

The c
umulative total of all deposits into the LMIHAF was $ 886,441 during FY Attachment 7
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2023-24.

III. Ending Balance of LMIHAF. This section provides a statement of the balance in the LMIHAF as of the close of FY 2023-24. 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 2023-24 on June 30, 202 4, the ending balance in the LMIHAF was $4,635,482, 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 2023-24. The expenditures are to be categorized among (A) administration for monitoring, pres erving covenanted housing units; (B) homeless prevention and rapid rehousing services; and (C) development of housing.

The table below lists and describes FY 2023-24 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
2023-24 is the greater of (a) 5% of the statutory
value of (i) real property owned by the housing
successor and (ii) loan s and grants receivable, or
(b) $200,000 (plus allowed CPI adjustments).

Based on the valuation listed in Section V,
[lines 6+7 in that table=$5,336,555 for FY 2023-24,
the Housing Authority as housing successor was
authorized to spend up to $266,828 (i.e., 5% of
$4,702,199), but only expended $133,408.

$133,408
Homeless
Prevention
and Rapid
Rehousing
Services
Expenditures
Costs for homeless prevention and rapid rehousing
supportive services for individuals and families who
are homeless or would be homeless without this
assistance.

The housing successor Agency was in process to
dissolve in FY 2023-24.
-

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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 covenant s on multifamily units, and (e) preservation of
assisted affordable h ousing 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 o perating
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 th e long-term affordable housing
covenants which were at risk of termination and
potential conversion to market housing.

The eight properties are 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 property
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 2023-24 was $302,229.

302,229
Total FY 2022-23 LMIHAF Expenditures $435,637

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 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 375
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Authority as of the end of FY 2023-24:

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 shelters, 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 2023-24.

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 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 376
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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 obligations 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
.

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, 377
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the income test is not required until year 2019.

The applicable provisions of Section s 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 R eport 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 s uccessor 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 2023-24, the Housing Authority expended no funds ($0) for senior housing thus far ; therefore 0% of funds were expended on development or assistance to develop senior housing units.

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 378
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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 portfolio 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 Housing Authority as housing successor, that are subject to covenants or restrictions or to an adopted program that protects the Former Agency’s investment of moneys from the Low and Moderate Income Housing Fund per Section 33334.3(f).

Total homeownership inventory 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, 2024 (subparagraph (B) below) include:

(A) As of dissolution on February 1, 2012, the total number of homeo wnership units assisted by the F ormer Agency and had covenants and restrictions of record 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, 2024, along with the reasons for those losses.

Total losses between February 1, 2012, and June 30, 2024: 31 units 379
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Reasons for the units’ losses from the homeownership portfolio:

Principal Repayments: $1,069,392
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 F ormer Agency’s investment of moneys from the Low and Moderate Income Housing Fund, including loan principal, interest, and equity sharing payments between February 1, 2012 and June 30, 2024: $1,515,998.

(C) The number of homeownership units lost to the Housing Authority’s portfolio as housing successor in FY 2023-24 and the reason for those losses.

There were no homeownership units lost to the Housing Authority’s portfolio as housing successor in FY 202 3-24. One owner made partial payments on homeownership loans . Principal and interest p ayments received totaled $115,500 and were deposited into the LMIHAF.

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 2023-24 was $117,500.

(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 payoff; 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 counsel s, City Attorney and Authority General Counsel Kimberly Hall Barlow of Jones & Mayer, and Celeste Brady of Stradling Yocca Carlson & Rauth (SYCR). Counsels assist staff in review ing 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.

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XIV. Additional Information: Housing Authority ’s Activities for the preceding y ear (FY 2022-23) 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 relocation, 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 month at a location, moving cost assistance, and case management, or other appropriate activities for homelessness prevention and rapid rehousing of persons who have become homeless.” In this regard in FY 2023-24 and as detailed in this R eport, the Housing Authority’s LMIHAF provided partial funding for Community Outreach Workers who assertively work toward placing homeless individuals and families into temporary or permanent housing as it becomes available. S taff addresses the various needs represented by the local homeless population on a daily basis. Further, a part-time Management Analyst maintains the database that Community Outreach Workers and volunteers from varied community groups utilize to streamline their reporting and recordkeeping processes relative to placement of homeless individuals and families into housing.
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Costa Mesa City CouncilFebruary 18, 2025

Costa Mesa City Council
February 18, 2025