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CITY OF ORANGE HOUSING SUCCESSOR
ORANGE, CALIFORNIA
Financial Statements
For the Year Ended June 30, 2025
PREPARED BY: FINANCE DEPARTMENT
CITY OF ORANGE HOUSING SUCCESSOR
ORANGE, CALIFORNIA
Financial Statements
For the Year Ended June 30, 2025
Table of Contents
Page
Number
INDEPENDENT AUDITORS’ REPORT
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 Fund ......................................................................................................................... 11
Reconciliation of the Statement of Revenues, Expenses and Changes in Fund Balances of Governmental Funds to the Statement of Activities .......................................................... 12
Notes to the Financial Statements .................................................................................................................... 13
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget to Actual .............................................................................................................................................. 18
Notes to the Required Supplementary Information ........................................................................................... 19
OTHER SUPPLEMENTARY INFORMATION
Computation of Low and Moderate Income Housing Funds Excess/Surplus ................................................... 20
LSLCPAS.COM
INDEPENDENT AUDITORS’ REPORT
To the Honorable Mayor and Members of the City Council
City of Orange, California
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities and the Housing Successor special revenue fund (the “Fund” ) of the City of Orange, Califo rnia, (hereafter, the “City”) as of and for the year ended June 30, 2025, and the related notes to the financial sta tements, which collectively comprise the Fund’s basic financial statements as listed in the table of contents.
In our opinion, the financial st atements referred to above pres ent fairly, in all material respects, the respective financial position of the Fund of the City as of June 30, 2025, 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
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial State ments section of our report. We are required to be independent of the City and to meet our other ethical responsib ilities, 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 present only the Fund and do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2025, the changes in its financial position, or, where applicable, its cash flows 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.
To the Honorable Mayor Members of the City Council
City of Orange, California
Auditors’ 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 is sue an auditors’ 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 a uditing standards and Government Auditing Standards will always detect a material m isstatement 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, 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 au diting standards 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 th ose risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of inter nal 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 Fund’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.
Required Supplementary Information
Accounting principles generally accepted in the United States o f America require that the budgetary comparison information as listed on the table of contents 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 basic financial statements in an appropriate operat ional, economic, or historical context. We have applied certain 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 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 assuran ce 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 that accounting principles generally accepted in the United States of America require to be presented to supplem ent the basic financial statements. Such missing information, although not a part of the basic financial stateme nts, is required by the Governmental Accounting Standards Board who considers it to be an essential part of fin ancial reporting for placing the basic financial statements in an appropriate operational, economic, or historic al context. Our opinion on the basic financial statements is not affected by this missing information.
2 To the Honorable Mayor Members of the City Council
City of Orange, California
Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Fund’s basic financial statements. The accompanying Computation of Excess/Surplus (supplementary information) is presented for purposes of additional analysis 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated December 23, 2025, on our consideration of the City’s internal control over the Fund’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 intern al control over financial reporting and compliance and the results of that testing, and not to provide an opinion on t he effectiveness of the City’s internal control over the Fund’s financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City’s internal control over the Fund’s financi al reporting and compliance.
Irvine, California
December 23, 2025
3 LSLCPAS.COM
INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE
AND ON INTERNAL CONTROL OVER COMPLIANCE
To the Honorable Mayor and Members of the City Council
City of Orange, California
Report on Compliance
Opinion
We have audited the City of Or ange, California (hereafter, the “City”)’s compliance with the types of compliance requirements identified as subject to audit in the California H ealth and Safety Code sections applicable to the California Housing Successor Agencies (the HSC) that could have a direct and material effect on each of the City’s Low-Moderate Income Housing Program (the Program) for the year ended June 30, 2025.
In our opinion, the City complied, in all material respects, wi th the types of compliance requirements referred to above that could have a direct and material effect on the Program for the year ended June 30, 2025.
Basis for Opinion
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of the HSC. Our responsibilities under those standards and the HSC are further described in the Auditors’ Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the City and to meet our o ther ethical responsibilities, in accordance with 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 opinion on complianc e for the Program. Our audit does not provide a legal determination of the City’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 or grant agreements applicable to the Program.
Auditors’ Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud o r error, and express an opinion on the City’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 generally accepted auditing standards, Government Auditing Standards, and the HSC 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, misrepre sentations, 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 aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements of the Program as a whole.
To the Honorable Mayor and Members of the City Council
City of Orange, California
In performing an audit in accordance with generally accepted auditing standards, Government Auditing Standards, and the HSC, 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 proced ures include examining, on a test basis, evidence regarding the City’s compliance with the compliance re quirements referred to above and performing such other procedures as we considered necessary in the circumstances.
• Obtain an understanding of the City’s internal control over co mpliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the HSC, but not for the purpose of expressing an opinion on the effectiveness of the City’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 complian ce does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of the 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 compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of the 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 with a type of compliance requirement of the Program 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 control over compliance was for t he limited purpose described in the Auditors’ Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknes ses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we d id not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not 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.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based o n the requirements of the HSC. Accordingly, this report is not suitable for any other purpose.
Irvine, California
December 23, 2025
5 To the Honorable Mayor and Members of the City Council City of Orange, California
SCHEDULE OF FINDINGS AND RESPONSES
Reference Number: 2025-001
Financial Closing and Reporting
Significant Deficiency
Condition
During our audit, we noted that the City recorded a substantial number of post–trial balance journal entries to correct errors and adjust account balances after the initial trial balance was prepared. The adjustments prepared staff, after audit has begun, were necessary to ensure the financial stateme nts were presented in accordance with generally accepted accounting principles (GAAP).
Criteria
Government Auditing Standards and GAAP require entities to main tain effective internal controls over financial reporting to ensure accurate and timely preparation of financia l statements. An effective financial closing process should minimize the need for extensive post–closing adjustments and ensure that account balances are complete and accurate prior to audit.
Cause
The City lost several key finance personnel during the year, including the Finance Manager, and Senior Accountant, while simultaneously implementing a new ERP system. These factors strained the department’s capacity and contributed to weaknesses in the financial closing process, as staff turnover and system changes disrupted established procedures and reduced the availability of experienced personnel to perform timely reconciliations and reviews.
Effect or Potential Effect
The combination of staff turnover and ERP implementation caused delays in the financial closing process, increased the risk of errors, and required significant post-closing adjustments. These issues impacted audit readiness and the timeliness of financial reporti ng, creating inefficiencies and elevating the risk of material misstatements in the financial statements.
Recommendation
We recommend the City fill open positions to take over or alloc ate resources to the procedures that have led to impacts on the timeliness of the financial closing procedures. This will ensure all journal entries and reconciliations are prepared and will be included in the trial balance provided to the auditors at the beginning of the audit, and limit the number of post-trial balance journal entries.
Management’s Response
Management acknowledges and concurs with the finding and recommendation. While the implementation of a new ERP system during Fiscal Year 2024–2025 created significant operational challenges, the turnover in key Finance positions highlights the critical need of allocating adequate staffing to core financial functions.
Management is actively recruiting to fill critical vacancies and is simultaneously exploring opportunities to streamline processes, leverage system capabilities, and implement innovative approaches to improve efficiency. With the combination of filling critical vacancies, process improvements, and continued stabilization of the new ERP system, the Finance Department is committed to provide a more timely and accurate trial balance at the start of next year’s audit cycle.
6 CITY OF ORANGE, CALIFORNIA
HOUSING SUCCESSOR
Statement of Net Position
Governmental
Activities
ASSETS
Cash and investments 118,262$
Receivables (net of uncollectibles):
Accrued interest 850
Notes and loans 29,582,480
Total assets 29,701,592
DEFERRED OUTFLOWS OF RESOURCES
Pension-related 51,150
OPEB-related 18,985
Total deferred outflows of resources 70,135
LIABILITIES
Accounts payable 2,007
Noncurrent liabilities:
Due in more than one year:
Net pension liability 59,224
Net OPEB liability 109,339
Total liabilities 170,570
DEFERRED INFLOWS OF RESOURCES
OPEB-related 44,357
Total deferred inflows of resources 44,357
NET POSITION
Restricted for housing 29,556,800
Total net position 29,556,800$
June 30, 2025
See Notes to Financial Statements.
7 CITY OF ORANGE, CALIFORNIA
HOUSING SUCCESSOR
Statement of Activities
For the Year Ended June 30, 2025
Operating Capital
Charges for Contributions Contributions Governmental
Expenses Services and Grants and Grants Activities
Functions/Programs:
Primary government:
Governmental activities:
General government 31,144$ -$ -$ -$ (31,144)$ Community development 217,590 - - - (217,590) Economic development 47,169 - - - (47,169) Total governmental activities 295,903$ -$ -$ -$ (295,903)$ General revenues:
General revenues:
Use of money and property 111,472
Total general revenues 111,472
Change in net position (184,431)
Net position-beginning 29,741,231
Net position-ending 29,556,800$
Program Revenues
Net (Expenses)
Revenues and
Changes in Net
Position
See Notes to Financial Statements.
8 CITY OF ORANGE, CALIFORNIA
HOUSING SUCCESSOR
Balance Sheet
Governmental Fund
June 30, 2025
ASSETS
Cash and investments 118,262$
Receivables (net of allowance for uncollectible):
Accrued interest 850
Notes and loans 29,582,480
Total assets 29,701,592$
LIABILITIES
Accounts payable 2,007$
Total liabilities 2,007
DEFERRED INFLOWS OF RESOURCES
Unavailable revenues 1,250,000
Total deferred inflows of resources 1,250,000
FUND BALANCE
Restricted for housing 28,449,585
Total fund balance 28,449,585
Total liabilities, deferred inflows of resources,
and fund balance 29,701,592$
See Notes to Financial Statements.
9 HOUSING SUCCESSOR
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position
June 30, 2025
Amounts reported for governmental activities in the Statement of Net Position are different because:
Total fund balances - governmental funds 28,449,585$
Deferred outflows-pension related 51,150
Deferred outflows-OPEB related 18,985
Deferred inflows-OPEB related (44,357)
Total deferred outflows and inflows related to postretirement benefits 25,778 Long-term receivables 1,250,000
Net pension liability (59,224)
Net OPEB liability (109,339)
Total long-term liabilities (168,563)
Net position of governmental activities 29,556,800$
Long-term liabilities that are not due and payable in the current period, and therefore, are not reported in the funds.
CITY OF ORANGE, CALIFORNIA
Differences between expected and actual experiences, assumption changes and net differences between projected and actual earnings, and contributions subsequent to the measurement date for the postretirement benefits (pension and OPEB) are recognized as deferred outflows of resources and deferred inflows of resources on the Statement of Net Position.
Other long-term assets that are not available to pay for current period expenditures and, therefore, are either labeled unavailable or not reported in the funds.
See Notes to Financial Statements.
10 CITY OF ORANGE, CALIFORNIA
HOUSING SUCCESSOR
Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Fund
For the Year Ended June 30, 2025
REVENUES
Use of money and property 111,472$
Total revenues 111,472
EXPENDITURES
Current:
General government 28,962
Community development 202,739
Economic development 46,026
Total expenditures 277,727
Net change in fund balances (166,255)
Fund balance-beginning 28,615,840
Fund balance-ending 28,449,585$
See Notes to Financial Statements.
11 HOUSING SUCCESSOR
Reconciliation of the Statement of Revenues, Expenses and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2025
Amounts reported for governmental activities in the Statement of Activities are different because:
Net change in fund balances - total governmental funds: (166,255)$ Changes in pension liabilities and related deferred outflows and inflows of resources (28,410) Changes in OPEB liabilities and related deferred outflows and inflows of resources 10,234 Total adjustment (18,176)
Change in net position of governmental activities (184,431)$ Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds.
CITY OF ORANGE, CALIFORNIA
See Notes to Financial Statements.
12 CITY OF ORANGE HOUSING SUCCESSOR
Notes to Financial Statements
For the Year Ended June 30, 2025
NOTE 1: SIGNIFICANT A CCOUNTING POLICIES
A. Financial Reporting Entity
The Orange Successor Housing Agency (Housing Successor) was est ablished on February 1, 2012, pursuant to the dissolution of the former Redevelopment Agency. Prior to th at, 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 a nd 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. Separate financial statements are prepared for the City, and may be obtained from the City.
B. Basis of Presentation
The Housing Successor’s financial statements are prepared in co nformity with accounting principles generally accepted in the United States o f America. The Government Accoun ting 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 o f 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.
C. Measurement Focus, Basis of Accounting and Financial Stateme nt Presentation
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Und er the economic resources measu rement 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 expe nses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and simi lar 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 fin ancial 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 Hous ing Successor considers reven ues relating to grants to be available if they are collected within 120 days of the end of the current fiscal peri od, 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.
13 CITY OF ORANGE HOUSING SUCCESSOR
Notes to Financial Statements
For the Year Ended June 30, 2025
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. Assets, Liabilities a nd 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 fis cal year are recognized as use of money and property for that fiscal year. Use of money and property includ es 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 funds for inves tment purposes, with interest being allocated monthly to various funds based on each fund’s prior month-end c ash and investment balance. Interest income for cash and investments excluded from pooled cash is credited dire ctly to the related funds. Investment policies applicable to all the Housing Successor’s funds are those of th e City 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 assets that applies to a fut ure period and will not be reco gnized as an outflow of resources (expense/expenditure) until that t ime. The Housing Successor ha s 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 assets 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 calcula te 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 resource s 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.
14 CITY OF ORANGE HOUSING SUCCESSOR
Notes to Financial Statements
For the Year Ended June 30, 2025
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 r esources 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, 2025.
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, 2025.
Unassigned include the residual amounts that have not been rest ricted, 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 an d 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 compone nt 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.
NOTE 2: CASH AND INVESTMENTS
As of June 30, 2025, cash and investments were reported in the accompanying financial statements as follows:
Equity in City Investment pool $ 118,262 Total cash and investments $ 118,262
A. Equity in the Cash and Investment Pool of the City of Orange
The Housing Successor has no separate bank accounts or investme nts other than its equity in the cash and investment pool managed by the City. The Housing Successor is a voluntary participant in that pool. This pool is governed by and under the regulatory oversight of the Investmen t Policy adopted by the City Council of the City.
The Housing Successor has not adopted an investment policy separate from that of the City. 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.
15 CITY OF ORANGE HOUSING SUCCESSOR
Notes to Financial Statements
For the Year Ended June 30, 2025
NOTE 2: CASH AND INVESTMENTS (CONTINUED)
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’s Annual Comprehensive Financial Report.
C. Fair Value Measurements
The Housing Successor categorizes its fair value measurement wi thin the fair value hierarchy established by generally accepted accounting principles. The hierarchy is base d 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.
NOTE 3: NOTES AND LOANS RECEIVABLE
With the dissolution of the Redevelopment Agency effective February 1, 2012, the City Council adopted a resolution authorizing the City 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 an d 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, 2025, net of allowance for loan forgiveness, is $29,582,480.
Additionally, the former Redevel opment Agency issued several pr omissory notes, pursuant to and in implementation of the “Affordable Housing Resale Restrictions O ption 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 repres ent 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, 2025, the outstanding amount for these loans was $241,114. Due to the length of the deferral and the uncertainty of prepayment on these loans, an allowance has been recorded for the full amount of the loan receivable.
On December 21, 2022, the City entered into Financing Agreement s that provided the Developer of the Villa St. Joseph Affordable Housing Project for the acquisition and development of forty-nine (49) affordable rental housing units for Extremely Low Income, Very Low Income, Low In come Senior Citizen Households, and one (1) manager’s unit located at 480 South Batavia Street in the City, while maintaining compliance with the affordable housing requirements. The Financing Agreements provided for Ci ty Loans from various funds, which included $576,000 from the Housing Successor Fund. The loan balance is $458,696 at June 30, 2025. Due to the length of the deferral and the uncertainty of prepayment on these loans, an allowance has been recorded for the full amount of the loan receivable.
On January 23, 2024, the City entered into a Financing Agreemen t that provided the Developer of 1800 E. La Veta Avenue in the City for the development and oper ation of one hundred sixty-four (164) affordable rental housing units for Extremely Low Income and Lower Income Senior Citizen Households, and two (2) manager’s units. The Financing Agreement provided for a City loan from the Housing Successor Fund in the amount of $2,200,000. The loan balance is $1,980,000 at June 30, 2025. Due to the length of the deferral and the uncertainty of prepayment on these loans, an allowance has been recorded for the full amount of the loan receivable.
16 CITY OF ORANGE HOUSING SUCCESSOR
Notes to Financial Statements
For the Year Ended June 30, 2025
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). CalPE RS 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 pu blic 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 purpos es), and membership information are listed in the CalPERS June 30, 2016 Annual Actuarial Valuation Report. Detail s of the benefits provided can be obtained in Appendix B of the actuarial valuation report. This report and C alPERS’ 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 Annual Comprehensive Financial Report for the Year Ended June 30, 2025.
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 classifi ed 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 fo r 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 Annual Comprehensive Financial Report for the year ended June 30, 2025.
The City allocates a percentage of the GASB 68 net pension liability, deferred outflows, deferred inflows, and required supplementary information to the Housing Successor bas ed on its pro rata share of the actual employer pension cost to the City.
NOTE 5: OTHER POST EMPLO YMENT 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 Emp loyees' 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 ag reement between the City and CalPERS. The City currently contributes $149 per month for each retiree and the retiree is responsible for the balance of the premium amount.
The City allocates a percentage of the net OPEB liability, deferred outflows and inflows, and required supplementary information to the Housing Successor based on its pro rata share determined by an actuarial valuation annually.
NOTE 6: SUBSEQUENT EVENTS
In preparing these financial statements, the Housing Successor has evaluated events and transactions for potential recognition or disclosure through December 23, 2025, the date the financial statements were available to be issued.
No events or transactions were identified that required recognition or disclosure.
17 HOSUING SUCCESSOR
Variance with
Final Budget
Budget Amounts Actual Positive
Original Final Amounts (Negative)
REVENUES
Use of money and property 101,937$ 101,937$ 111,472$ 9,535$ Total revenues 101,937 101,937 111,472 9,535
EXPENDITURES
Current:
General government 36,715 34,715 28,962 5,753 Community development 114,187 131,101 202,739 (71,638) Economic development 47,151 2,823,151 46,026 2,777,125 Total expenditures 198,053 2,988,967 277,727 2,711,240 Net change in fund balances (96,116)$ (2,887,030)$ (166,255) 2,720,775$ Fund balance-beginning 28,615,840
Fund balance-ending 28,449,585$
CITY OF ORANGE, CALIFORNIA
Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget to Actual For the Year Ended June 30, 2025
18 CITY OF ORANGE HOUSING SUCCESSOR
Notes to Required Supplementary Information
For the Year Ended June 30, 2025
NOTE 1: BUDGETARY ACCOUNTING
Annual budgets are adopted by July 1 of each year on a basis co nsistent 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 C ouncil throughout the year. Department heads are responsible for monitoring their department’s appropriated budget.
Legal level of Control – The legal level of budgetary control i s at the department level within each fund. Transfers of appropriations between funds, between departments within a f und, and between capital outlay or debt service and another object group classification within a department, re quire City Council approval. All other transfers of appropriations can be made with City management approval.
19 CITY OF ORANGE, CALIFORNIA
HOUSING SUCCESSOR
Computation of Low and Moderate Income Housing Funds
Excess/Surplus
Opening Fund Balance 28,449,585$
Less Unavailable Amounts:
Loans receivable (29,582,480)
(29,582,480)
Available Housing Successor Funds (1,132,895)
Limitation (greater of $1,000,000 or four years deposits) Aggregate amount deposited for last four years:
2024-2025 111,472$
2023-2024 12,774,724
2022-2023 650,408
2021-2022 81,742
Total 13,618,346$
Base Limitation 1,000,000$
Greater amount 13,618,346
Computed Excess/Surplus None A
A. No Excess Surplus was developed for fiscal year ended June 30, 2025. 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, 2026. 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.
Low and Moderate
All Project Area
July 1, 2025
Housing Funds
20