Measure HH Fund
East Palo Alto, California
Financial Statements and
Independent Auditor’s Reports
For the year ended June 30, 2022
City of East Palo Alto
Measure HH Fund
Financial Statements
For the year ended June 30, 2022
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................................. 1 Financial Statements:
Balance Sheet .......................................................................................................................................................... 3 Statement of Revenues, Expenditures and Changes in Fund Balances ......................................................... 4 Notes to Financial Statements ............................................................................................................................. 5 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 ................... 9 INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
of the City of East Palo Alto
East Palo Alto, California
Report on Financial Statements
We have audited the accompanying financial statements of the Measure HH Special Revenue Fund (Measure HH Fund) of the City of East Palo Alto (City), as of and for the year ended June 30, 2022, and the related notes to the financial statements as listed in the table of contents.
In our opinion, the financial statements referred to above present fairly in all material respects the financial position of the Measure HH Special Revenue Fund at June 30, 2022 and the respective changes in financial position for the year then ended, in conformity 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. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Emphasis of Matter
As discussed in Note 1, the financial statements of the Measure HH Fund are intended to preset the financial position, and changes in financial position that is attributable to the transactions of the Measure HH Fund. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2022, and the changes in its financial position for the year then ended in accordance 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 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.
Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement To the Honorable Mayor and Members of the City Council
of the City of East Palo Alto
East Palo Alto, California
2 resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’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.
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.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 19, 2022 on our consideration of the City'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 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 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 City's internal control over financial reporting and compliance.
Badawi & Associates, CPAs
Berkeley, California
December 19, 2022
City of East Palo Alto
Measure HH Fund
Balance Sheet
Measure HH
Special Revenue
Fund
ASSETS:
Cash and investments 4,730,693 $
Accrued interest 12,161
Total assets $ 4,742,854
Fund Balances:
Restricted 4,742,854
Total fund balances 4,742,854
$ 4,742,854
June 30, 2022
Total liabilities and fund balances
See accompanying notes to the financial Statements
3 City of East Palo Alto
Measure HH Fund
Statement of Revenues, Expenditures and Changes in Fund Balances Measure HH
Special Revenue
Fund
REVENUES:
Parcel Tax - Measure HH 1,677,265 $
Interest income (101,281)
Total revenues 1,575,984
EXPENDITURES:
Administration
General government 6
Community development 121,483
Total expenditures 121,489
EXPENDITURES 1,454,495
FUND BALANCES:
Beginning of year 3,288,359
End of year $ 4,742,854
For the Year Ended June 30, 2022
REVENUES OVER (UNDER)
See accompanying notes to the financial Statements
4 City of East Palo Alto
Measure HH Fund
Notes to Financial Statements
For the year ended June 30, 2022
5 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
All transactions of the Measure HH Special Revenue Fund (Measure HH Fund) of the City of East Palo Alto, California (City), are included as a separate special revenue fund in the basic financial statements of the City. The Measure HH Fund accounts for the City’s share of revenues earned and expenditures incurred under the City’s Measure HH parcel tax. The accompanying financial statements are for the Measure HH Fund only and are not intended to fairly present the financial position or results of operations of the City.
B. Basis of Accounting and Measurement Focus
The accompanying financial statements are prepared on the modified accrual basis of accounting.
Revenues are generally recorded when measurable and available, and expenditures are recorded when the related liabilities are incurred.
The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a current financial resources measurement focus, wherein only current assets and current liabilities generally are included on the balance sheet.
Operating statements of governmental funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets.
C. Fund Accounting
The operations of the Measure HH Fund are accounted for in a separate special revenue fund. The fund is a separate accounting entity with a set of self-balancing accounts which comprise the assets, liabilities, fund equity, revenues, and expenses.
D. Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.
City of East Palo Alto
Measure HH Fund
Notes to Financial Statements
For the year ended June 30, 2022
6 2. CASH AND INVESTMENTS
Measure HH monies are pooled with the City's cash, cash equivalents, and investments. The City pools cash resources from all funds to facilitate the management of cash. Cash and cash equivalents are considered amounts on hand, in demand deposits, and short-term investments with a maturity date within three months of the date acquired by the City and are presented as "Cash and Investments". The City invests in two external investment pools, the State of California Local Agency Investment Fund (LAIF) and the San Mateo County Investment Fund (County Pool).
All pooled cash and investments held by the City are considered cash and cash equivalents because LAIF and the County Pool are used essentially as demand deposits from the standpoint of the City. Information about the City's Cash and Investments is disclosed in the City's Comprehensive Annual Financial Report.
As of June 30, 2022, the Measure HH Fund had the following cash and investment activity:
Investments are stated at fair value using the aggregate method, resulting in the following investment income allocated to the Measure HH Fund:
3. MEASURE HH FUNDS
In November 2018, the voters approved Measure HH, a special parcel tax to combat community displacement through affordable housing programs and assets, and provide programs for facilitating community access to job opportunities. The proceeds of the parcel tax are to be used for affordable and supportive housing programs, programs that facilitate access to job opportunities in the S.T.E.M. sectors, and building trades and strengthen First Source Hiring.
Revenue generated from this special tax can be used only for the following purposes:
x to create and maintain affordable and supportive housing programs, with an emphasis on the creation of net new housing;
x to create and maintain programs that facilitate access to job opportunities for East Palo Alto residents in the science, technology, engineering, and mathematics (STEM) sectors, building trades, and to strengthen the City's First Source Hiring Program, and; x to pay for City staff and overhead costs to administer the ordinance and provide an annual report.
Revenue generated from this special tax must be used in the following manner:
x a minimum of 35% of the revenue must be used exclusively for the construction of new, affordable housing stock.
City of East Palo Alto
Measure HH Fund
Notes to Financial Statements
For the year ended June 30, 2022
7 3. MEASURE HH FUNDS, Continued
x a maximum of 15% of the revenue may be used for City staff and overhead costs to administer the ordinance and to provide an annual report.
x the remaining proceeds may be used for any of the other purposes specified in the ordinance at the discretion of the City Council
The tax revenue cannot be used for any other purpose.
The authority to levy the tax imposed by Chapter 3.70 shall not expire unless ended by the voters of East Palo Alto. Measure HH authorizes the City Council to amend the parcel tax without subsequent voter approval, provided such amendment does not increase the amount of tax paid by any taxpayer in excess of the rate set forth in the Measure or change the allowed uses for the tax revenues.
A. Measure HH Expenditures
During fiscal year 2022, the City incurred $121,489 in administrative activities. 8 This page intentionally left blank
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
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
of the City of East Palo Alto
East Palo Alto, 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 basic financial statements of the Measure HH Special Revenue Fund, as of and for the year ended June 30, 2022, and the related notes to the financial statements, and have issued our report thereon dated December 19, 2022.
Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered 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 City's internal control. Accordingly, we do not express an opinion on the effectiveness of 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 City'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.
To the Honorable Mayor and Members of the City Council
of the City of East Palo Alto
East Palo Alto, California
10 Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Measure HH Special Revenue 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. 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 is 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 in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Badawi & Associates, CPAs
Berkeley, California
December 19, 2022