CITY OF ORANGE HOUSING SUCCESSOR
CITY OF ORANGE, CALIFORNIA
FINANCIAL STATEMENTS
FISCAL YEAR ENDED JUNE 30, 2022
PREPARED BY: FINANCE DEPARTMENT
Susan Galvan, Assistant City Manager
ORANGE HOUSING SUCCESSOR
FOR THE FISCAL YEAR ENDED JUNE 30, 2022
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT Page No.
Financial Audit ........................................................................................................................ 1 Compliance Audit .................................................................................................................... 4
BASIC FINANCIAL STATEMENTS
Government-Wide Financial Statements:
Statement of Net Position ............................................................................................. 7 Statement of Activities ................................................................................................. 8 Fund Financial Statements:
Balance Sheet - Governmental Funds ........................................................................... 9 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position .................................................................................. 10 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds ................................................................................. 11 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the
Statement of Activities ............................................................................................... 12 Notes to Financial Statements ........................................................................................... 13
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule ...................................................................................... 20 Notes to Required Supplementary Information ................................................................. 21
OTHER SUPPLEMENTARY INFORMATION
Computation of Low and Moderate Income Housing Funds Excess/Surplus ..................... 22
203 N. Brea Blvd., Suite 203
Brea, CA 92821 Lance, Soll & Lunghard, LLP Phone: 714.672.0022 INDEPENDENT AUDITORS’ REPORT
To the Honorable Mayor and Members of the City Council
City of Orange, California
Report on the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities and governmental fund of the City of Orange Housing Successor (the “Housing Successor”), a major special revenue fund of the City of Orange, California (the “City”) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the Fu nd’s basic 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 respective financial position of the governmental activities an d the governmental fund of the Housing Successor as of June 30, 2022, and the changes in finan cial position for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinions
We conducted our audit in accordance with auditing standards ge nerally accepted in the United States of America (GAAS), the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our r esponsibilities under those standards are further described in the Auditor’s Responsibiliti es for the Audit of the Financial Statements section of our report. We are required to be independent of th e City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. 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 Housing Successor are intended to present the financial position, the changes in financial position, and, whe re applicable, cash flows of only that portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City that is attributable to the transa ctions of the Housing Successor. They do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2022, the changes in its financial position, or, whe re applicable, its cash flows fo r 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 presenta tion of these financial statements in accordance with accounting prin ciples generally accepted in the United States of America; and for the design, implementation, and maintenance of internal control rel evant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or
To the Honorable Mayor and Members of the City Council
City of Orange, California
events, considered in the aggregate, that raise substantial dou bt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. 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 G AAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, mi srepresentations, or the over ride of internal control. Misstatements are considered material if, there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS and Government Auditing Standards, we:
Exercise professional judgment and maintain professional skept icism 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 au dit 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 t he reasonableness of significant accounting estimates made by management, as well as evaluate th e overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or eve nts, considered in the aggregate, that raise substantial doubt about the City’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.
Other Reporting Responsibilities
Required Supplementary Information
Accounting principles generally accepted in the United States o f America require that the budgetary comparison schedule as listed on the table of contents, be pres ented to supplement the basic financial statements. Such information is the responsibility of managemen t and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied c ertain limited procedures 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 th e methods of preparing the information
To the Honorable Mayor and Members of the City Council
City of Orange, California
and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during ou r audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Management has omitted management’s discussion and analysis and the required pension and other post-employment benefits schedules that accounting principles g enerally 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 opinion on the basic financial statements is not affected by this missing information.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards , we have also issued our report dated December 16, 2022 on our consideration of the City’s internal c ontrol over the Housing Successor’s 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 the City’s internal control over the Housing Successor’s 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 the Housing Successor’s financial reporting and compliance.
Brea, California
December 16, 2022
203 N. Brea Blvd., Suite 203
Brea, CA 92821 Lance, Soll & Lunghard, LLP Phone: 714.672.0022
INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE ON COMPLIANCE WITH
APPLICABLE REQUIREMENT AND ON INTERNAL CONTROL OVER COMPLIANCE
To the Honorable Mayor and Members of the City Council
City of Orange, California
Report on Compliance for Housing Successor
Opinion
We have audited the City of Orange Housing Successor (the “Hous ing Successor”) of the City of Orange, California (the “City”)’s compliance with the types of compliance requirements identified as subject to audit in the California Health and Safety Code section applicable to California Housing Successor Agencies for the year ended June 30, 2022.
In our opinion, the Housing Successor complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and mat erial effect on its Ho using Successor for the year ended June 30, 2022.
Basis for Opinion
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to fi nancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of California Health and Safety Code sections appl icable to California Housing Successor Agencies. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the Housing Successor and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit does not provide a legal determination of the Housing Successor’s compliance with the compliance requirements referred to above.
Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control o ver compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts applicable to the Housing Successor programs.
Auditor’s Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above, whether due to fraud or error, and express an opinion on the Housing Successor’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with
To the Honorable Mayor and Members of the City Council
City of Orange, California
GAAS, Government Auditing Standards, and the California Health and Safety Code sections applicable to California Housing Successor Agencies will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggreg ate, it would influence the judgment made by a reasonable user of the report on compliance about the Housing S uccessor’s compliance with the requirements of the government program as a whole.
In performing an audit in accordance with GAAS, Government Auditing Standards, and California Health and Safety Code sections applicable to California Housing Successor Agencies, we:
Exercise professional judgment and maintain professional skept icism throughout the audit.
Identify and assess the risks of material noncompliance, wheth er due to fraud or error, and design and perform audit procedures responsive to those risks. Such p rocedures include examining, on a test basis, evidence regarding the Housing Successor’s compli ance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances.
Obtain an understanding of the Housing Successor’s internal co ntrol over compliance relevant to the audit in order to design audit procedures that are appropri ate in the circumstances and to test and report on internal control over compliance in accor dance with California Health and Safety Code sections applicable to California Housing Successor Agencies, but not for the purpose of expressing an opinion on the effectiveness of the Housing Su ccessor’s internal control over compliance. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit.
Report on Internal Control over Compliance
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the norma l course of performing their assigned functions, to prevent, or detect and correct, noncompliance wit h a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over comp liance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal cont rol over compliance was for t he limited purpose described in the Auditor’s Responsibilities for t he Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be a material weakness, as defined above. However, material weaknesses or significant deficiencie s in internal control over compliance may exist that have not been identified.
Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed.
To the Honorable Mayor and Members of the City Council
City of Orange, California
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over complia nce and the results of that tes ting based on the requirements of the California Health and Safety Code sections applicable to Califo rnia Housing Successor Agencies.
Accordingly, this report is not suitable for any other purpose.
Report on Excess/Surplus Calculation
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate rema ining fund information of the City, as of and for the year ended June 30, 2022, and the related notes to the financial statement s, which collectively comprise the City’s basic financial statements. We issued our report thereon dated December 16, 2022, which contained unmodified opinions on those financial statements. Our audit wa s conducted for the purpose of forming opinions on the financial statement s that collectively comprise the basic financial statements. The accompanying report on excess/surplus calculation is presented for purposes of additional analysis as required by the California Health and Safety Code sections appl icable to California Housing Successor Agencies and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financ ial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the unde rlying accounting and other records used to prepare the basic financial statements or to the basic finan cial statements themselves, and other additional procedures in accor dance with auditing standards gen erally accepted in the United States of America. In our opinion, the report on excess/surplus calcul ation is fairly stated in all material respects in relation to the basic financial statements as a whole.
Brea, California
December 16, 2022
CITY OF ORANGE HOUSING SUCCESSOR
STATEMENT OF NET POSITION
Governmental
Activities
ASSETS:
Pooled cash and investments 610,239$
Receivables:
Notes and loans (net of allowance for net present value) 20,905,642 Accrued interest 984
Net pension asset 177,526
Total Assets 21,694,391
DEFERRED OUTFLOWS OF RESOURCES:
Deferred pension related items 13,018
Deferred other post employment benefits 37,977
Total Deferred Outflows of Resources 50,995
LIABILITIES:
Noncurrent liabilities:
Total Other post employment benefits 161,005
Total Liabilities 161,005
DEFERRED INFLOWS OF RESOURCES:
Deferred pension related items 122,530
Deferred other post employment benefits 16,532
Total Deferred Inflows of Resources 139,062
NET POSITION:
Unrestricted 21,445,319
Total Net Position 21,445,319$
JUNE 30, 2022
See Notes to Financial Statements
CITY OF ORANGE HOUSING SUCCESSOR
STATEMENT OF ACTIVITIES
YEAR ENDED JUNE 30, 2022
Operating Capital
Charges for Contributions Contributions Governmental
Expenses Services and Grants and Grants Activities
Functions/Programs
Governmental Activities:
General government 25,481$ - - - (25,481)
Community development 44,377 - - - (44,377)
Economic development 34,133 - - - (34,133)
Total Primary Government 2,789,140$ - - - (2,789,140)
General Revenues:
Use of money and property 81,742
Other financing use - pension asset 404,254
Other 3,000,000
Total General Revenues 3,485,996
Change in Net Position 696,856
Net Position at Beginning of Year 20,748,463
Net Position at End of Year 21,445,319$
Program Revenues
Net (Expenses)
Revenues and
Changes in Net
Position
See Notes to Financial Statements
CITY OF ORANGE HOUSING SUCCESSOR
BALANCE SHEET
GOVERNMENTAL FUND
JUNE 30, 2022
ASSETS:
Pooled cash and investments 610,239$
Receivables:
Notes and loans (net of allowance for net present value) 20,905,642 Accrued interest 984
Accounts -
Total Assets 21,516,865
FUND BALANCE:
Restricted 21,516,865
Total Fund Balance 21,516,865$
See Notes to Financial Statements
CITY OF ORANGE HOUSING SUCCESSOR
RECONCILIATION OF THE BALANCE SHEET OF THE GOVERNMENTAL FUND
TO THE STATEMENT OF NET POSITION
JUNE 30, 2022
Fund balance of governmental fund 21,516,865$
Amounts reported for governmental activities in the statement of net position are different because:
Pension/OPEB related debt applicable to the governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities.
Deferred outflows of resources and deferred inflows of resources related to pensions/OPEB are only reported in the Statement of Net Position as the changes in these amounts affect only the government-wide statements for governmental activities.
Deferred outflows of resources - pension 13,018
Deferred outflows of resources - OPEB 37,977
Deferred inflows of resources - pension (122,530)
Deferred inflows of resources - OPEB (16,532)
Pension asset 177,526
OPEB liability (161,005)
Net Position of governmental activities 21,445,319$
See Notes to Financial Statements
CITY OF ORANGE HOUSING SUCCESSOR
STATEMENT OF REVENUES,
EXPENDITURES AND CHANGES IN FUND BALANCE
GOVERNMENTAL FUND
YEAR ENDED JUNE 30, 2022
REVENUES:
Use of money and property 81,742$
Inter fund revenue 3,000,000
Total Revenues 3,081,742
EXPENDITURES:
Current:
General government 25,481
Community development 44,377
Economic development 24,460
Economic development-Adjustment of loans receivable to present value 2,685,149 Total Expenditures 2,779,467
Net Change in Fund Balance 302,275
Fund Balance, Beginning of Year 21,214,590
Fund Balance, End of Year 21,516,865$
See Notes to Financial Statements
CITY OF ORANGE HOUSING SUCCESSOR
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES,
AND CHANGES IN FUND BALANCE OF THE GOVERNMENTAL FUND
TO THE STATEMENT OF ACTIVITIES
JUNE 30, 2022
Net change in fund balance - governmental fund 302,275$ Other post employment benefits expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in government funds. (9,673)
Pension obligation expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. 404,254 Net change in net position of governmental activities 696,856$ See Notes to Financial Statements
Note 1: Significant Accounting Policies
a. Financial Reporting Entity
The Orange Successor Housing Agency (Housing Successor) was established on February 1, 2012, pursuant to the dissolution of the former Redevelopment Agency.
Prior to that, the activities were accounted for in the Redevelopment Agency Housing Fund. The City Council became the governing board of the Housing Successor. The Housing Successor was formed for purposes of construction and management of quality affordable housing within the City.
The Housing Successor is controlled by the City of Orange (City) and, accordingly, the accompanying fund financial statements are included as a special revenue fund of the basic financial statements prepared by the City. The accompanying financial statements are intended to reflect the financial position of operations for the Housing Successor Fund only and do not purport to, and do not, present the financial position of the City of Orange, California. Separate financial statements are prepared for the City of Orange, and may be obtained from the City. b. Basis of Presentation
The Housing Successor’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States of America.
The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the fund. The Housing Successor has no fiduciary activities.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.
While separate government-wide and fund financial statements are presented, they are interrelated.
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
Note 1: Significant Accounting Policies (Continued)
c. Measurement Focus, Basis of Accounting and Financial Statement Presentation
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long term) economic resources and obligations are included in the accompanying Statement of Net Position. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under the current financial resources measurement focus, only current assets and liabilities are generally included on the balance sheet. Under the modified accrual basis of accounting, revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Housing Successor considers revenues relating to grants to be available if they are collected within 120 days of the end of the current fiscal period, and within 60 days for all other revenues. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.
Use of money and property is considered to be measurable and available only when cash is received by the government.
d. Assets, Liabilities and Net Position or Equity
Cash and Investments
Investments are reported in the accompanying financial statements at fair value, which 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 use of money and property for that fiscal year. Use of money and property includes interest earnings, changes in fair value (realized/unrealized), gains or losses realized upon the liquidation, maturity, or sale of investments, and rental income.
Cash and investments are pooled with other City of Orange funds for investment purposes, with interest being allocated monthly to various funds based on each fund’s prior month-end cash and investment balance. Interest income for cash and investments excluded from pooled cash is credited directly
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
Note 1: Significant Accounting Policies (Continued)
to the related funds. Investment policies applicable to all the Housing Successor’s funds are those of the City of Orange and are included in the notes to the City’s basic financial statements.
Deferred Outflows/Inflows of Resources
In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense/expenditure) until that time. The Housing Successor has items related to the pension and OPEB plans that qualify for reporting in this category.
In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred of inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The Housing Successor has items related to the pension and OPEB plans that qualify for reporting in this category.
Net Position Flow Assumption
Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Housing Successor’s policy to consider restricted net position to have been depleted before unrestricted net position is applied.
Fund Balance Flow Assumptions
Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the Housing Successor’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance.
Unassigned fund balance is applied last.
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
Note 1: Significant Accounting Policies (Continued)
Fund Equity
In the fund financial statements, government funds report the following fund balance classification:
Non-spendable include 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 include amounts that are constrained on the use of resources by either (a) external creditors, grantors, contributors, or laws of regulations of other governments or (b) by law through constitutional provisions or enabling legislation.
Committed include amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest authority, the City Council. The formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution. The Housing Successor did not have any committed fund balance as of June 30, 2022.
Assigned include amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. The Housing Successor did not have any assigned fund balance as of June 30, 2022.
Unassigned include the residual amounts that have not been restricted, committed, or assigned to specific purposes.
Use of Estimates
The preparation of basic 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, liabilities and deferred inflow/outflows of resources at the reporting date and revenue and expenses during the reporting period. Actual results could differ from those estimates.
Loans Receivable
Non-current portions of long-term receivables due are reported on the Governmental and Government-wide financial statements. For loans that have a forgiveness component and/or repayment term greater than that of conventional loans, an allowance is recorded to more accurately present the net present value of these receivables.
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
Note 2: Cash and Investments
As of June 30, 2022, cash and investments were reported in the accompanying financial statements as follows:
Equity in City Investment pool $ 610,239 Total cash and investments $ 610,239
a. Equity in the Cash and Investment Pool of the City of Orange The Housing Successor has no separate bank accounts or investments other than its equity in the cash and investment pool managed by the City of Orange. The Housing Successor 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 of Orange. The Housing Successor has not adopted an investment policy separate from that of the City of Orange. The fair value of the Housing Successor’s investment in the pool is reported in the accompanying financial statements at amounts based upon the Housing Successor’s pro-rata share of the fair value calculated by the City for the entire City portfolio. The balance available for withdrawal is based on the accounting records maintained by the City, which are recorded at the estimated fair value.
b. Disclosures Relating to the Investment Policy, Interest Rate Risk and Custodial Credit Risk
Additional disclosures related to the investment policy, interest rate risk, credit risk and custodial credit risk are available in the City of Orange’s Comprehensive Annual Financial Report.
c. Fair Value Measurements
The Housing Successor categorizes its fair value measurement within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the relative inputs used to measure the fair value of the investments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The Housing Successor’s investment in the City investment pool is not subject to the fair value hierarchy.
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
Note 3: Loans Receivable
With the dissolution of the Redevelopment Agency effective February 1, 2012, the City Council adopted a resolution authorizing the City of Orange to become the Housing Successor and enabling the City to retain housing assets and functions of the Redevelopment Agency. The Housing Successor provides housing loans for the rehabilitation and expansion of housing for low and moderate-income families in the City. Housing rehabilitation loans are for the purpose of rehabilitation and upgrading existing housing due to structural deficiencies. Housing loans also assist in the construction of new multi-family housing projects or rehabilitation of existing multi-family units. The balance of the loan at June 30, 2022, net of allowance for net present value, is $20,905,642.
Additionally, the former Redevelopment Agency issued several promissory notes, pursuant to and in implementation of the “Affordable Housing Resale Restrictions Option to Designate Eligible Purchaser with Alternative Option to Purchase and Option to Purchase upon Default.” These notes do not actually represent cash paid to the borrowers, but represent the subsidy constructively received by the borrower as a result of borrowers’ purchase of the property at a price below its fair market value. No repayment of these notes is due by the borrower until the Affordable Term of the loan date (45 years commencing from the loan date), or upon default, as described in the note. As of June 30, 2022, the outstanding amount for these loans was $465,000. Due to the length of the deferral and the uncertainty of repayment on these loans, an allowance has been recorded for the full amount of the loan receivable.
Note 4: Retirement Plan
a. Plan Description, Benefits Provided and Employees Covered The City contributes to the California Public Employees' Retirement System (CalPERS), an agent multiple-employer public employee defined benefit pension plan (the Plan). CalPERS provides retirement and disability benefits, annual cost- of-living adjustments, and death benefits to plan members and their beneficiaries.
CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and memoranda of understanding with employee bargaining units. A full description of the pension plan regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the CalPERS June 30, 2016 Annual Actuarial Valuation Report. Details of the benefits provided can be obtained in Appendix B of the actuarial valuation report. This report and CalPERS’ audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Employers. Additional information can be found in the City’s Comprehensive Annual Financial Report for the Year Ended June 30, 2022.
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
Note 4: Retirement Plan (continued)
The Plan provides benefits for two membership classifications, Miscellaneous and Safety, and those benefits are tiered based upon date of CalPERS membership.
Safety membership is extended to those in active law enforcement and fire suppression, while all others are classified as Miscellaneous members. Assembly Bill (AB) 340, also known as the Public Employees’ Pension Reform Act (PEPRA), created new benefit formulas and a final compensation period as well as new contribution requirements for new employees. For the purpose of PEPRA, “new employees” are those hired on or after January 1, 2013 and had never been a member of CalPERS previously. CalPERS refers to members prior to January 1, 2013, as Classic members.
Employees of the City of Orange Housing Successor are covered under the Miscellaneous Plan. Further details of the City of Orange Retirement Plans can be found in the City’s Comprehensive Annual Financial Report for the Year Ended June 30, 2022.
The City allocates a percentage of the GASB 68 net pension liability, deferred outflows, deferred inflows, and required supplementary information to the Housing Successor based on its pro rata share of the actual employer pension cost to the City.
Note 5: Other Post Employment Benefits (OPEB)
The City administers an Agent Multiple-Employer defined benefit post- employment healthcare plan for eligible City retirees and their dependents through the California Public Employees' Retirement System (CalPERS). Retirees from the City enrolled in the Public Employees Medical and Hospital Insurance Program (PEMHCA), a single-employer postemployment benefits plan through CalPERS, are eligible for these benefits. These health insurance benefits are authorized through City Resolutions/Memorandas of Understanding defining health care benefits and contribution levels and through the contractual agreement between the City and CalPERS. The City currently contributes $149 per month for each retiree and the retiree is responsible for the balance of the premium amount.
The City allocates a percentage of the GASB 75 OPEB total liability, deferred outflows and inflows, and required supplementary information to the Housing Successor based on its pro rata share determined by an actuarial valuation annually.
Note 6: Subsequent Event
In preparing these financial statements, the Housing Successor has evaluated events and transactions for potential recognition or disclosure through December 16, 2022, the date the financial statements were available to be issued. No events or transactions were identified that required recognition or disclosure.
CITY OF ORANGE HOUSING SUCCESSOR
BUDGETARY COMPARISON SCHEDULE
YEAR ENDED JUNE 30, 2022
Variance with
Final Budget
Actual Positive
Original Final Amounts (Negative)
REVENUES:
Use of money and property 175,904$ 175,904 81,742 (94,162) Other - - 3,000,000 3,000,000
Fines and forfeitures
Contributions
Developer participation
Miscellaneous Income - - - -
Miscellaneous - - - -
Total Revenues 175,904 175,904 3,081,742 2,905,838
EXPENDITURES:
Current:
General government
City manager 127 127 127 -
Finance 24,578 24,578 25,354 (776)
Community development 52,196 52,196 44,377 7,819
Economic development 25,432 1,275,432 24,460 1,250,972
- - 2,685,149 (2,685,149)
Total Expenditures 102,333 1,352,333 2,779,467 (1,427,134) Net Change in Fund Balance 73,571 (1,176,429) 302,275 1,478,704 Fund Balance, Beginning of Year 19,962,502 18,462,502 21,214,590 2,752,088 Fund Balance End of Year 20,036,073$ 17,286,073$ 21,516,865$ 4,230,792$ - -
Budgetary Amounts
Economic development-Adjustment of
loans receivable to present value
CITY OF ORANGE HOUSING SUCCESSOR
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
JUNE 30, 2022
Budgetary Accounting
Annual budgets are adopted by July 1 of each year on a basis consistent with generally accepted accounting principles for all governmental funds. The budget is monitored to ensure compliance with legal provisions embodied in the appropriated budget as approved or amended by the City Council throughout the year. Department heads are responsible for monitoring their department’s appropriated budget.
Legal level of Control – The legal level of budgetary control is at the department level within each fund. Transfers of appropriations between funds, between departments within a fund, and between capital outlay or debt service and another object group classification within a department, require City Council approval. All other transfers of appropriations can be made with City management approval.
CITY OF ORANGE HOUSING SUCCESSOR
COMPUTATION OF LOW AND MODERATE
INCOME HOUSING FUND
EXCESS/SURPLUS
Opening Fund Balance 21,516,865$
Less Unavailable Amounts:
Loans receivable (20,905,642)$
(20,905,642)
Available Low and Moderate Income Housing Funds 611,223 Limitation (greater of $1,000,000 or four years set-aside) Set-Aside for last four years:
2021 - 2022 81,742
2020 - 2021 1,030,623
2019 - 2020 707,554
2018 - 2019 275,177
Total 2,095,096$
Base Limitation 1,000,000$
Greater amount 2,095,096
Computed Excess/Surplus None A
All Project Area
A. An Excess Surplus was not developed for fiscal year ended June 30, 2022. According to HSC 34176.1(d) if a housing successor has an excess surplus, the housing successor shall encumber the excess surplus for the purposes as described in 34176.1 paragraph (3) of subdivision (a), or transfer these funds pursuant to 34176.1 paragraph (2), within three fiscal years, currently by June 30, 2024. If the housing successor fails to comply within this subdivision, the housing successor, within 90 days of the end of the third fiscal year, shall transfer any excess surplus to the Department of Housing and Community Development for expenditure pursuant to the Multifamily Housing Program or the Joe Serna Jr. Farmworker Housing Grant Program.
July 1, 2022
Low and Moderate
Housing Funds