TO: SUCCESSOR AGENCY BOARD FROM: Julia H. Cooper
SUBJECT:
SEE BELOW DATE: November 14, 2022
Approved Date
11/17/22
SUBJECT: SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE – AUDITED FINANCIAL STATEMENTS FOR
FISCAL YEAR ENDED JUNE 30, 2022
RECOMMENDATION
Accept the Fiscal Year 2021-2022 Independent Auditor’s Reports and Basic Financial Statements for the Successor Agency to the Redevelopment Agency of the City of San José.
OUTCOME
Provide an overview of the Independent Auditor’s Reports and Basic Financial Statements for the Successor Agency to the Redevelopment Agency for Fiscal Year 2021-2022.
BACKGROUND
On June 29, 2011, Assembly Bill X1 26 (Redevelopment Dissolution Law) was signed into law and subsequently upheld by the California Supreme Court on December 29, 2011. The Redevelopment Dissolution Law requires successor agencies to cause an annual audit of financial transactions and records to be conducted by a certified public accountant (Health and Safety Code Section 34177[n]).
ANALYSIS
The Successor Agency of the Redevelopment Agency (SARA) of the City of San José (City) contracted with Macias Gini & O’Connell LLP (Auditors), a firm of Certified Public Accountants licensed to practice in the State of California, to perform the independent audit. The audit was conducted in accordance with auditing standards generally accepted in the United States. The auditors expressed opinions that the SARA financial statements are fairly stated in conformity with accounting principles generally accepted in the United States of America.
COUNCIL AGENDA: 12/06/22
FILE: 22-1806
ITEM: 9.1
SUCCESSOR AGENCY BOARD
November 14, 2022
Subject: Fiscal Year 2021-22 Audited Financial Statements
The independent auditor's reports and basic financial statements for the SARA cover the period from July 1, 2021 to June 30, 2022 and are available on the City’s website at the following link:
https://www.sanjoseca.gov/your-government/appointees/city-auditor/external-financial-audits
The independent auditor's reports and basic financial statements are organized in the following sections:
•
Report of Independent Certified Public Accountants
• Basic Financial Statements including the Notes to Basic Financial Statements • Report of Independent Certified Public Accountants on Internal Control over Financial Reporting and Other Matters Based on an Audit of Financial Statements Performed in accordance with Government Auditing Standards
The auditors provided an "unmodified" or "clean" opinion whereby they disclosed no instances of noncompliance with accounting principles generally accepted in the United States of America.
The financial statements reflect the financial status of the SARA as of the end of the fiscal year June 30, 2022. The financial statements are intended to provide relevant financial information to the public, investors, rating agencies, insurers, and other interested parties.
CONCLUSION
The Fiscal Year 2021-2022 Audited Financial Statements for the SARA provide an overview of the financial position of the SARA as of June 30, 2022 and are included in the annual continuing disclosure report to the investors in the SARA’s outstanding bonds.
EVALUATION AND FOLLOW UP
The attached Independent Auditor's Reports and Basic Financial Statements of the SARA will be presented to the Countywide Oversight Board of Santa Clara County in January 2023.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
PUBLIC OUTREACH
This memorandum will be posted on the City's Council Agenda website for the December 6, 2022 City Council meeting. This item is to be heard concurrently with the presentation on the City's Annual Comprehensive Financial Report at the December 6, 2022 City Council meeting.
SUCCESSOR AGENCY BOARD
November 14, 2022
Subject: Fiscal Year 2021-22 Audited Financial Statements
COORDINATION
The Finance Department has coordinated this memorandum with the City Attorney's Office.
COMMISION RECOMMENDATION
This item does not have input from any board or commission; however, staff will present the audited financial statements to the Countywide Oversight Board of Santa Clara County in January 2023.
CEQA
Not a Project, File No. PP17-010, City Organizational and Administrative Activities resulting in no changes to the physical environment.
/s/
JULIA H. COOPER
Director of Finance
Chief Financial Officer, SARA
For questions, please contact Julia H. Cooper, CFO/Director of Finance, at (408) 535-7011 or via email at [email protected].
Attachment:
Independent Auditor’s Reports and Basic Financial Statements for the Year June 30, 2022
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE
CITY OF SAN JOSE
(A Component Unit of the
City of San José, California)
Independent Auditor’s Reports
and Basic Financial Statements
For the Year Ended June 30, 2022
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
For the Year Ended June 30, 2022
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Basic Financial Statements:
Statement of Fiduciary Net Position ......................................................................................... .............. 5 Statement of Changes in Fiduciary Net Position .............................................................................. ...... 6 Notes to Basic Financial Statements .......................... ............................................................................ 7
Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards ..................................................... 29
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Auditor’s Report
Board of Directors
Successor Agency of the
Redevelopment Agency of the City of San José
San José, California
Report on the Audit of the Financial Statements
Opinion
We have audited the financial st atements of the Successor Agenc y of the Redevelopment Agency of the City of San José (SARA), a component unit of the City of San José (City), California, as of and for the year ended June 30, 2022, and the related notes to the financia l statements, which collectively comprise the SARA’s basic financial statements as listed in the table of contents.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the SARA, as of June 30, 20 22, and the changes in its financial position for the year then ended in acco rdance with accounting principle s generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards ge nerally accep ted in the United States of
America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our r esponsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of SARA and to meet our other ethical responsibilities, in accordance with the relevant ethical requi rements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements SARA’s management is responsible for the preparation and fair p resentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and mainte nance of internal control rel evant to the preparation and fair presentation of financial statements that are free from materia l misstatement, whether due to fraud or error.
In preparing the financial statements, management is required t o evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the SARA’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.
2 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 accorda nce with GAAS 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, 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 GAAS and Government Auditing Standards, we:
Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures respons ive to those risks. Such procedures include examining, on a test basis, evidence regardi ng the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the aud it in order to design audit procedures that are appropriate in the circumstances, but not f or the purpose of expressing an opinion on the effectiveness of SARA’s internal control. Accord ingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and th e 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 events, considered in the aggregate, that raise substantial doubt about SARA’s ability to continue a s a going concern for a reasonable period of time.
We are required to communicate with those charged with governan ce regarding, among other matters, the planned scope and timing of the audit, significant audit findin gs, and certain internal control–related matters that we identified during the audit.
Required Supplementary Information
Management has omitted the management’s discussion and analysis that accounting principles generally accepted in the United States of America require to be presente d to supplement the basic financial statements. Such missing information, although not a part of t he basic financial statements, is required by the Governmental Accounting Standa rds Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appr opriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
3 Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards , we have also issued our report dated November 10, 2022 on our consideration of the SARA’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, re gulations, contracts and grant agreements and other matters. The purpose of that report is solely to des cribe 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 SARA’s internal control over financial reporting or on compliance.
That report is an integral part of an audit performed in accord ance with Government Auditing Standards in considering the SARA’s internal control over financial reporting and compliance.
Walnut Creek, California
November 10, 2022
4 This page intentionally left blank.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Statement of Fiduciary Net Position
June 30, 2022
See accompanying notes to basic financial statements.
5 Assets:
Cash and investments 2,154,525$
Receivables, net of allowance of $300,049 73,389
Restricted cash and investments 121,843,471
Advances to the City of San José 732,875
Loans receivable, net of allowance of $11,483,415 3,986,214 Accrued interest receivable, net 1,284,019
Deposits 5,000
Prepaid bond insurance 1,406,527
Capital assets:
Nondepreciable 2,077,460
Depreciable, net 642,261
Total assets 134,205,741
Deferred outflows of resources:
Loss on deferred amount on refunding 26,653,956
Liabilities:
Accounts payable 152,702
Accrued interest payable 18,924,720
Noncurrent liabilities:
Due within one year 103,084,387
Due in more than one year 1,216,752,415
Total liabilities 1,338,914,224
Net deficit held in trust (1,178,054,527)$
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Statement of Changes in Fiduciary Net Position
For the Year Ended June 30, 2022
See accompanying notes to basic financial statements.
6 Additions:
Redevelopment property tax trust fund revenues 189,785,843 $ Investment income 230,603
Gain on sale of revenue participation 135,808
Development fees and other 43,688
Total additions 190,195,942
Deductions:
Administrative expenses:
Reimbursement of personnel expense 205,938
Materials, supplies and other services 22,999
Project expenses 72,028
Pass-through amount to the County of Santa Clara 47,944,257 Depreciation 26,761
Interest on debt 45,236,894
Allowance for loan losses 55,970
Total deductions 93,564,847
Change in net position 96,631,095
Net deficit, beginning of year (1,274,685,622)
Net deficit, end of year (1,178,054,527)$
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
7 NOTE 1 – REPORTING ENTITY
The former Redevelopment Agency of the City of José (“Agency”) was established in 1956 by the San José City Council as a public entity legally separate from the City of San José (“City”). In January 1975, the City Council declared itself the Agency Board, replac ing a separate board. Until June 28, 2011, the Agency had the broad authority to acquire, rehabilitate, develop, administer, and sell or lease property in a “Redevelopment Area”. Redevelopment proj ects were developed in cooperation with private developers. Public redevelopment projects were als o developed under cooperation agreements between the Agency and the City or other public entity that would own the project.
On June 29, 2011, Assembly Bill X1 26 (“AB X1 26”) was enacted. On December 29, 2011, the California Supreme Court upheld the constitutionality of AB X1 26, and all redevelopment agencies in California were dissolved by operation of law effective February 1, 2012. AB X1 26 was subsequently amended on June 27, 2012 by Assembly Bill 1484 and on September 22, 2015 by Senate Bill 107, AB X1 26, as so amended, is referred to herein as the Redevelopmen t Dissolution Law. The legislation provides for successor agencies and oversight boards to be resp onsible for overseeing the dissolution process and the wind down of redevelopment activity. On January 24, 2012, the City Council affirmed its decision to serve as the Successor Agency to the Redevelopm ent Agency of the City of San José (“SARA” or “Successor Agency”), effective February 1, 2012. The SARA is a fiduciary component unit of the City. Also, upon dissolution, the City Council elected to retain the housing assets as well as the functions and powers previously performed by the Agency.
The SARA is a separate public entity from the City, subject to the direction and oversight of a Board consisting of the Mayor and the other members of the City Counc il (“SARA Board”). The SARA is also, pursuant to the Redevelopment Dissolution Law, subject to the direction and oversight of an oversight board.
Beginning July 1, 2018, pursuant to Health and Safety Code section 34179(j), the individual oversight boards within Santa Clara County were combined into one county- wide oversight board (“Oversight Board”). The Oversight Board is comprised of seven member repre sentatives with one member appointed by each of the following: County Board of Supervisors , the city selection committee established pursuant to Section 50270 of the Government Code, t he independent special district selection committee established pursuant to Section 56332 of th e Government Code, the County Superintendent of Education, the Chancellor of the California C ommunity Colleges, a public appointment made by the County Board of Supervisors, and the re cognized employee organization representing the largest number of successor agency employees in the County. The Oversight Board is staffed by the County of Santa Clara Auditor-Controller (“County Auditor-Controller”) and tasks have been delegated among the County Finance Agency, the Office of t he County Executive, the Clerk of the Board of Supervisors, and Office of the County Counsel.
In general, the SARA’s assets can only be used to pay enforceable obligations in existence at the date of dissolution (including the completion of any unfinished projects that were subject to legally enforceable contractual commitments). In general, the SARA is a llocating revenue in the amount that is necessary to pay the estimated annual installment payments on enforceable obligations of the Agency until all enforceable obligations of the Agency have been paid in full and all assets have been liquidated.
Based upon the nature of the SARA’s custodial role, the SARA is reported in a fiduciary fund (private- purpose trust fund).
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
8 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in accordan ce with accounting principles generally accepted in the United States of America (“GAAP”).
Basis of Accounting
The financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenues from grants, entitlements and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied.
New Pronouncements
During the year ended June 30, 2022, the SARA implemented the following Governmental Accounting Standards Board (“GASB”) Statements:
The SARA has adopted GASB Statement No. 87, Leases. This GASB statement establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. A lease is defined as a contract that conveys control of the right to use another entity's nonfinancial asset as specified in the contract for a period of time in an exchange or exchange- like transaction. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. Application of Statement No. 87 is effective for the SARA’s fiscal year ended June 30, 2022.
The application of Statement No. 87 did not have any effect on the SARA’s financial statements.
The SARA has adopted GASB Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period . This statement requires that interest costs incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a c onstruction period will not be in cluded in the historical cost of a capital asset reported in a business-type activity or enterprise fund, and fiduciary fund. Application of Statement No. 89 is effective for the SARA’s fiscal year ended June 30, 2022. The application of Statement No. 89 did not have any effect on the SARA’s financial statements.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
9 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Pronouncements, continued
The SARA has adopted GASB Statement No. 92, Omnibus 2020 . The statement is to enhance comparability in accounting and financial reporting and to impr ove the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This statement addresses a variety of topics and includes specific provisions about the following: The effective date of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, for interim financial reports; Report ing of intra-entity transfers of assets between a primary government employer and a component unit defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan; The applicability of Statements No. 73, Accounting and Financial Reporting for Pensi ons and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, as amended, and No. 74, Financial Reporting for Postemployment Benefits Plans Other Than Pension Plans , as amended, to reporting assets accumulated for postemployment ben efits; The applicability of certain requirements of Statement No. 84, Fiduciary Activities , to postemployment benefit arrangements; Measurement of liabilities (and assets, if any) related to asse t retirement obligations (AROs) in a government acquisition; Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers; Reference to nonrecurring fair value measurements of assets or liabilities in authoritative literature; and Terminology used to refer to derivative instruments. The application of Statement No. 92 did not have any effect on the SARA’s financial statements.
The SARA has adopted GASB Statement No. 93, Replacement of Interbank Offered Rates . This statement is to address those and other accounting and financial reporting implications that result from the replacement of an Interbank Offered Rate (IBOR). This state ment achieves that objective by:
providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is repla ced as the reference rate of th e hedging derivative instrument’s variable payment; clarifying the hedge accounting termination provisions when a hedged item is amended to replace the reference rate; clarifying that the uncertainty related to the continued availability of IBORs does not, by itself, affect the assessment of whether the occurrence of a hedged expected transaction is probable; removing London Interbank Offered Rate ( L I B O R ) a s a n a p p r o p r i a t e benchmark interest rate for the qualitative evaluation of the e ffectiveness of an interest rate swap; identifying a Secured Overnight Financing Rate and the Effectiv e Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap; clarifying the definition of reference rate, as it is used in Statement No. 53, as amended; and providing an exception to the lease modifications guidance in Statement N o. 87, as amended, for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend.
The removal of LIBOR as an appropriate benchmark interest rate is effective for reporting periods ending after December 31, 2021. All other requirements of this statement are effective for reporting periods beginning after June 15, 2021. The SARA did not have any direct exposure to derivative contracts tied to LIBOR as of June 30, 2022, so the application of Statement No. 92 did not have any effect on the SARA’s financial statements.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
10 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Pronouncements, continued
The SARA has adopted GASB Statement No. GASB 99, Omnibus 2022 for the items as follows, which were effective upon issuance, and they did not have any effect on the SARA’s financial statements: (i).
Extension of the period during wh ich the London Interbank Offer ed Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate of taxable debt, (ii). Disclosures related to nonmonetary transactions, (iii). Pledges of future revenues when resources are not receiv ed by the pledging government, (iv).
Accounting for the distribution of benefits as part of the Supp lemental Nutrition Assistance program (SNAP), (v). Classification of provisions in Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – For State and Local Governments , as amended, related to the focus of the government-wide financial statements, (vi). Terminology used in Statement 53 to refer to resource flows statements, and (vii). Terminology updates related to certain provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Res ources, Deferred Inflows of Resources, and Net Position. The SARA is currently evaluating the remaining items in this statement with the detail in the section that follows.
The SARA is currently analyzing its accounting practices to det ermine the potential impact on the financial statements for the upcoming GASB Statements:
In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. This statement provides a single method of reporting conduit debt obligations by issuer s and eliminates diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitm ents extended by issuers and a rrangements associated with conduit debt obligations; and improving required note disclosures. Application of Statement No. 91 is effective for the SARA’s fiscal year ending June 30, 2023.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
11 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Pronouncements, continued
In March 2020, the GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. This statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). As used in this statement, a PPP is an arrangement in which a government (the t ransferor) contracts with an operator (a governmental or nongovernmental entity) to provide public se rvices by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-lik e transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this statement as a PPP in which (1) the operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement. This statem ent also provides guidance for accounting and financial reporting for availability payment arr angements (APAs). As defined in this statement, an APA is an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. Application of Statement No. 94 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.
In May 2020, the GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements. This statement provides guidance on the accounting and financ ial reporting for subscription-based information t echnology arrangements (SBITAs) for government end users (governments). This statement (1) defines a SBITA; (2) establis hes that a SBITA results in a right-to- use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended. A SBITA is defined as a contract that conveys control of the right to u se another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination w ith tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction. The subscription term includes the period during which a government has a noncancelable right to use the underlying IT assets. The subscription term also includes periods covered by an option to extend (if it is reasonably certain that the government or SBITA vendor will exercise that option) or to terminate (if it is reasonably certain that the government o r SBITA vendor will not exercise that option). Under this statement, a government generally should re cognize a right-to use subscription asset—an intangible asset—and a corresponding subscription liab ility. Application of Statement No. 96 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
12 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Pronouncements, continued
In April 2022, the GASB issued Statement No. GASB 99, Omnibus 2022. The objectives of this statement are to enhance comparability in accounting and financ ial reporting and to improve the consistency of authoritative literature by addressing: (1) Clas sification and reporting of derivative instruments within the scope of Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, that do not meet the definition of either an investment deriv ative instrument or a hedging derivative instrument; (2) Clarification of provis ions in Statement No. 87, Leases, as amended, related to the determination of the lease term, classification of a lease as a short-term lease, recognition and measurement of a lease liability and a lease asset, and identification of lease incentives; (3) Clarification of provisions in Statement No. 94 , Public-Private and Public-Public Partnerships and Availability Payment Arrangements, related to (a) the determination of the public- private and public-public partnership (PPP) term and (b) recognition and measurement of installment payments and the transfer of the underlying PPP asset; (4) Clar ification of provisions in Statement No. 96, Subscription-Based Information Technology Arrangements, related to the subscription-based information technology arrangement (SBITA) term, classification of a SBITA as a short-term SBITA, and recognition and measurement of a subscription liability; (5) Extension of the period during which the London Interbank Offered Rate (LIBOR) is considered an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap that hedges the interest rate risk of taxable debt; (6) Accounting for the distribution of benefit s as part of the Supplemental Nutrition Assistance Program (SNAP); (7) Disclosures related to nonmoneta ry transactions; (8) Pledges of future revenues when resources are not received by the pledging government; (9) Clarification of provisions in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments , as amended, related to the focus of the government-wide financial statements; (10) Terminology updates related to certa in provisions of Statement No. 63, Financial Reporting of Deferred Outflows of Reso urces, Deferred Inflows of Resources, and Net Position; and (11) Terminology used in Statement 53 to refer to resource flows statements.
The requirements of this statement that are effective as follows: Items (5), (6), (7), (8), (9), (10), and (11) were implemented starting this fiscal year, and all reporting period thereafter; Items (1), (2), (3), and (4) related to leases, PPPs, and SBITAs are effective for fiscal ye ars beginning after June 15, 2022, and all reporting periods thereafter. The requirements related to financial guarantees and the classification and reporting of derivative instruments within t he scope of Statement 53 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
13 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
New Pronouncements, continued
In June 2022, GASB issued Statement No. 100, Accounting Changes and Error Corrections – an amendment of GASB Statement No. 62 . The primary objective of this statement is to enhance accounting and financial reporti ng requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. This statement defines a ccounting changes as changes in accounting principles, changes in accounting estimates, and cha nges to or within the financial reporting entity and describes the transactions or other events that constitute those changes. As part of those descriptions, for (1) certain changes in accounting pr inciples and (2) certain changes in accounting estimates that result from a change in measurement m ethodology, a new principle or methodology should be justified on the basis that it is preferable to the principle or methodology used before the change. That prefera bility should be based on the qu alitative characteristics of financial reporting—understandability, reliability, relevance, timeliness, consistency, and comparability. This statement also addresses corrections of errors in previously issued financial statements.
The requirements of this statement are effective for accounting changes and error corrections made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged.
In June 2022, GASB issued Statement No. 101, Compensated Absences. This statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attribu table to services already rendered when an employee has performed the services required to earn th e leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies rela ted to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits s hould not be included in a liability for compensated absences. This statement requires that a liabil ity for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used.
The requirements of this statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. Earlier application is encouraged.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
14 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investments
The SARA records investment transactions on the trade date. Investments are reported at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. F a i r v a l u e i s defined as 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. Investment income, including
unrealized gains and losses, is recognized as revenue.
In accordance with GASB Statement No. 72, the SARA categorizes its fair value measurements within the fair value hierarchy established by GAAP. The following levels indicate the hierarchy of inputs used to measure fair value and the primary valuation methodolog ies used for financial instruments measured at fair value on a recurring basis:
Level 1 - Investments whose values are based on quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date. Level 2 - Investments whose values are based on inputs – other than quoted prices included within Level 1 – that are observable for an asset, either directly or indirectly. Level 3 - Investments whose values are based on unobservable in puts for an asset and may require a degree of professional judgment.
Redevelopment Property Tax Trust Fund Revenues
The Redevelopment Dissolution Law requires the County Auditor-Controller to collect funds formerly received by the Agency as tax increment and referred to herein as redevelopment property tax revenues.
After deducting its administrati on costs, the County Auditor-Co ntroller must distribute the collected redevelopment property tax revenues into the SARA’s Redevelopme nt Property Tax Trust Fund (“RPTTF”) to the extent necessary to pay the SARA’s enforceable obligations, subject to the review and approval of the State Department of Finance. The Redevelopment Dissolution Law requires the County Auditor-Controller to distribute funds from the RPTTF twice each year as follows:
Distribution Date
Covers Recognized Obligation
Payment Schedules to be Paid*
January 2 January 1 through June 30
June 1 July 1 through December 31
* The amounts distributed for Recognized Obligation Payment Sched ules (“ROPS”) are forward looking to the next six- month period.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
15 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Redevelopment Property Tax Trust Fund Revenues, continued
On December 21, 2017, the SARA issued the 2017 Senior Tax Allocation Refunding Bonds and the 2017 Subordinate Tax Allocation Refunding Bonds (“2017 Refunding Bonds”) to refund certain bonds and other enforceable obligations of the former Agency. The pay ment of debt service on the 2017 Refunding Bonds and the other obligations under the related ind enture are payable from certain tax revenues on a basis senior to the payment (i) of all AB1290 sta tutory pass-through payments except AB1290 payments to the San José Unified School District and (ii ) the negotiated pass-through payments to Santa Clara County. Under the distribution provisio ns of the Redevelopment Dissolution Law, AB1290 statutory pass-through payments and negotiated pass-through payments are made with funds on deposit in the RPTTF before funds are transferred to the SARA for the payment of enforceable obligations, including payment of debt service on the 2017 Refu nding Bonds, unless there are insufficient funds to pay such debt service and certain other conditions are satisfied. Such conditions include the timely filing of a Notice of Insufficiency by the SARA in accordance with the Redevelopment Dissolution Law and the concurrence by the State Controller that there are insufficient funds for such purpose.
All funds remaining in the RPTTF after payment of items (1) thr ough (6) below, are paid to the applicable taxing entities. In the event there are insufficient tax revenues from the RPTTF to pay debt service on the 2017 Refunding Bonds, a Notice of Insufficiency is filed timely by the SARA, certain other conditions under the Redevelopment Dissolution Law are sa tisfied, and tax revenues from the RPTTF is distributed as follows: (1) administrative fees of the County Auditor-Controller; (2) San José Unified AB1290 pass-through; (3) debt service on the 2017 Refun ding Bonds; (4) all other AB1290 and negotiated pass-through payments due to Santa Clara County; (5) all other enforceable obligations; and (6) the SARA’s administrative cost allowance. See Note 6 for additional information regarding the 2017 Refunding Bonds.
Restricted Assets
Assets are restricted for specified uses by bonded debt require ments, grant provisions or other requirements and their use is limited by applicable bond covenants or agreements.
Capital Assets
The SARA defines capital assets as assets with an initial indiv idual cost of at least $5,000 and an estimated useful life in excess of one year. The capital assets consist of both depreciable and non- depreciable assets. Capital assets are recorded in the financial statements at historical cost and are being depreciated using the straight-line method over the estimated useful life of 40 years for parking structures and buildings.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
16 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Original Issue Discounts, Premiums, and Refundings
Original issue discounts and premiums are amortized using the straight-line method over the life of the bonds. Bonds payable are reported net of the applicable bond di scounts and/or premiums. Gains or losses occurring from refunding of debt are reported as deferre d inflows of resources or deferred outflows of resources, respectively; and amortized over the shorter of the life of the refunded debt or refunding debt. Amortization of these balances is recorded as a component of interest expense.
Use of Estimates
The preparation of basic financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates.
NOTE 3 – CASH AND INVESTMENTS
The SARA’s cash and investments consist of the following at June 30, 2022:
Cash & Investments Amount
Cash and Investments 2,154,525$
Restricted Cash and Investments 121,843,471
Total Cash and Investments 123,997,996$
Investments
The SARA follows provisions of the California Government Code, as set forth in the City’s investment policy. The City Council adopted an investment policy ("Policy”) on April 2, 1985, related to the City’s cash and investment pool, which is subject to annual review. Th e Policy specifically prohibits trading securities for the sole purpose of speculating or taking an un-hedged position on the future direction of interest rates. Per the Policy, the investments conform to Sect ions 53600 et seq. of the California Government Code and the applicab le limitations contained within the Policy. The Policy was last reviewed and amended on March 15, 2022.
The Policy permits the City Director of Finance, acting as Chie f Financial Officer for the SARA, to authorize investments that depart from the Policy’s limits if such an action is in the best interest of the SARA and is otherwise consistent with the Policy and applicable City, state and federal laws.
The SARA also has investments subject to provisions of the bond indenture for the 2017 Tax Allocation Refunding Bonds (see Note 6). Accord ing to the bond indenture, the SARA is permitted to invest in the City’s cash and investment pool, Local Agency Investment Fund (“LAIF”), obligations of the U.S.
Treasury or U.S. Government agencies, time deposits, money mark et mutual funds invested in U.S.
Government securities, along with various other permitted investments.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
17 NOTE 3 – CASH AND INVESTMENTS – Continued
Investments, continued
At June 30, 2022, the SARA invested an amount of $1,860,291 wit h LAIF, which is restricted for enforceable obligations. The weighted average days to maturity of LAIF was 311 days at June 30, 2022.
Government Code Section 16429.1 authorizes each local governmen t agency to invest funds in the LAIF administered by the California State Treasurer. The total amount recorded by all public agencies in LAIF at June 30, 2022 was approximately $36 billion. LAIF is part of the State’s Pooled Money Investment Account (“PMIA”). The PMIA is not registered with th e Securities and Exchange Commission (“SEC”), but is required to invest according to the California Government Code. The total amount recorded by all public agencies in PMIA at June 30, 2022 was approximately $235 billion and of that amount, 86.92% was invested in U.S. Treasuries and agencies, 7.82% in depository securities,
4.91% in commercial paper, and 0.35% in loans.
The LAIF is part of the State’s PMIA that allows cities, counti es and special districts to place money into the fund. LAIF operating accounts allow a maximum of 15 tr ansactions per account in a calendar month. The transaction amount sha ll be no less than $5,000 and in increments of a thousand. LAIF allocates interest earnings once every quarter. The interest earnings can be withdrawn in exact amount at any time. LAIF bond accounts have no restrictions on the amounts allowed on deposit, but are limited to one withdrawal every 30 days.
Fair Value Measurement Categorization
The SARA categorizes its fair value measurements within the fair value hierarchy established by GAAP. The Money Market Mutual Funds and LAIF are valued by net asset value. The inputs and techniques used for securities are not necessarily an indication of risk associated with investing in these securities. The SARA’s investments in Money Market Mutual Funds and LAIF are not subject to the fair value hierarchy.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the eve nt of the failure of a depository financial institution, the SARA will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker - dealer) to a transaction, the SARA, where the SARA’s funds are invested, will not be able to recover the value of its investment or collateral securities that are in the possession of another party.
The California Government Code requires that a financial institution secure its deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by the depository regulated under state law, unless so waived by the governmental unit. The market value of the pledged governmental securities and/or first trust deed mortgage notes held in the collateral pool must be at least 110% and 150% of the SARA’s deposits, respectively. The collateral is held by the pledging financial institution’s trust department and is considered held in the SARA’s name.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
18 NOTE 3 – CASH AND INVESTMENTS - Continued
Custodial Credit Risk, continued
As of June 30, 2022, $44,234 of the SARA’s bank balance was exposed to custodial credit risk because it was uninsured beyond the FDIC i nsurance coverage limit of $2 50,000. However, all uninsured balances are collateralized by th e pledging financial instituti ons as required by Section 52652 of the California Government Code. Such collateral is held by the pled ging financial institutions’ trust department or agent, in the SARA ’s name. The actual book balanc e of bank deposits amounted to $294,234 at June 30, 2022.
The SARA invests in individual investments and in investment po ols. Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to increase security, the SARA employs the trust department of a bank or trustee as the custodian of certain SARA investments, regardless of their form.
Interest Rate Risk
The fair value of fixed income investments fluctuates in respon se to changes in market interest rates.
Increases in prevailing interest rates generally translate into decreases in fair value of those instruments.
The fair value of interest sensitive instruments may also be af fected by the creditworthiness of the issuer, prepayment options, and other general interest rate conditions. Certain fixed income investments have call provisions that could result in shorter maturity peri ods. One of the ways that the SARA manages its exposure to interest rate risk is by purchasing sho rter-term investments and by timing the cash flows from the maturities as necessary to provide the cash flow and liquidity needs for operations.
Credit Risk
Credit risk is the risk that an issuer of an investment will no t fulfill its obligation to the holder of the investment. This risk is measured by the assignment of a rating by the nationally recognized statistical rating organizations. The SARA’s investment policy has mitigate d credit risk by limiting investments to the safest types of securities, by prequalifying financial institutions, by diversifying the portfolio and by establishing monitoring procedures.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
19 NOTE 3 – CASH AND INVESTMENTS - Continued
The following schedule indicates the interest rate and credit r isk of the SARA’s investments at June 30, 2022:
Moody' s
Credit Balance
Rating U nd er 30 31-180 181-365 at June 30
Investm ents:
LAIF Not rated - $ - $ 1,860,291$ 1,860,291 $ Money Market Mutual Funds Aaa 121,843,471 - - 121,843,471 Subtotal Investments 123,703,762
Bank Deposits 294,234
Total Cash and Investm ents 123,997,996$
Maturity ( in Days)
Concentration of Credit Risk
Concentration of credit risk is the risk that the failure of an y one issuer would place an undue financial burden on the SARA. Investments issued by or explicitly guaranteed by the U.S. Government and investments in mutual funds, external investment pools, and other pooled investments are exempt from this requirement, as they are normally diversified themselves.
Restricted Cash and Investments:
Held with Fiscal Agents
Under the provisions of the bond indenture, certain accounts wi th the trustee were established for repayment of debt and reserve requirements. At June 30, 2022, t he amounts held by the trustee for the 2017 Tax Allocation Refunding Bonds aggregated to $121,843,471. All restricted investments held by the trustee at June 30, 2022 were in compliance with the bond indenture.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
20 NOTE 4 – LOANS RECEIVABLE
Composition of loans receivable at June 30, 2022 is as follows:
Accrued
Loan Interest
Description Receivable Receivable Allowance Net
1 Parcels of land sold to developers 1,728,360$ - $ (1,728,360)$ - $ 2 HUD Section 108 loans 790,035 32,933 (822,968) - 3 Historic home relocation loans 1,654,339 - (1,654,339) - 4 Rehabilitation of residential units 53,060 31,512 (84,572) - 5 Commercial building loans 5,978,835 1,284,019 (1,992,621) 5,270,233 6 Rehabilitation of historic hotel building 5,265,000 - (5,265,000) - Total 15,469,629$ 1,348,464$ (11,547,860)$ 5,270,233$
1. Over the years, parcels of land had been sold to commercial real estate developers in various mixed- use projects. In one downtown residential condominium project located at 360 South Market Street in San José, the original deve loper entered into a Disposition and Development Agreement (“DDA”) with the Agency in 2005 to develop a mixed-use project on the property (“360 Residences Project”). The 360 Residences Project was acquired by a new owner at a foreclosure sale on March 25, 2011 subject to the original DDA. On April 26, 2011, the DD A was amended to give the new owner the right to convert the project from for-sale to rental. The DDA was also amended to give the new owner the authority to subsequently convert any units b ack to for-sale units. Under the amended DDA, the new owner also executed a new promissory note payable to the Agency in the principal amount of $1,728,360. The principal under the promissory note is due and payable when all proceeds of sold condominium units exceed an invested capital threshold. At June 30, 2022, the amount due from the new owner was $1,728,360. A provision for doubtful accounts was recorded for the entire balance due under the promissory note because the likelihood of the payment criteria being met is questionable in the foreseeable future.
2. In 1997 and 2007, the Agency extended loans to developers using funds obtained from the U.S.
Department of Housing and Urban Development Section 108 loan pr oceeds. These loans have a 20-year repayment schedule and bear interest at an annual rate of 3%. At June 30, 2022, the amount due from the developers was $822,968. A provision for the doubtful accounts was recorded for the entire balance because the likelihood of the payment criteria being met is questionable.
3. The Agency relocated historic si ngle-family homes to vacant lots in downtown San José. These homes were sold to families and a non-profit agency. The owners made interior and exterior improvements using loans provided by the Agency. The loans are to be paid only in the event of non-compliance with the terms and conditions of the agreements. At the time residential occupancy of the house ceases or the property is transferred to anyone ot her than the owner by any method other than inheritance, the unamortized portion of the loan sha ll become due and payable in full.
Unpaid principal shall bear an interest rate of 8% per annum. As long as the owners are compliant with the terms and conditions of the agreement, the loan is for given at the end of the agreement.
The total loans of $1,654,339 have been offset with a provision for doubtful accounts as it is anticipated that these loans will be forgiven.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
21 NOTE 4 – LOANS RECEIVABLE - Continued
4. The Agency extended various bank-assisted loans to aid first-time homebuyers and to aid with the rehabilitation of homes. The loans accrue interest at various i nterest rates and are due when the related properties are sold. At June 30, 2022, the total amount due from such loans was $84,572. A provision for doubtful accounts was provided for the entire loan because the likelihood of the payment criteria being met is questionable.
5. The Agency extended and amended various loans to property owner s for the rehabilitation and improvements of commercial buildings. The loans are due within 10 to 25 years. The principal amount of the loans vary and they bear different interest rates . At June 30, 2022, the total amount due from these loans was $7,262,857. An allowance for doubtful accounts in the amount of $1,992,624 was made for the portion that is deemed uncollectable.
6. In May 2005, the Agency amended and restated a DDA with a developer recognizing a loan for the rehabilitation of a historic hotel building. The loan has a 60- year repayment schedule, bears no interest, and requires principal payments on a semi-annual basi s. At June 30, 2022, no payments were received and the remaining amount due from the developer w as $5,265,000. A provision for doubtful accounts was provided for the entire loan balance due under the promissory note because the likelihood of the payment criteria being met is questionable in the foreseeable future.
NOTE 5 – CAPITAL ASSETS
A summary of changes in the SARA’s capital assets for the year ended June 30, 2022 is as follows:
July 1, 2021 Addition Disp osal Transfer June 30, 2022 Capital Assets, Not Being Depreciated:
Land 2,077,460 $ - $ - $ -$ 2,077,460$ Total Capital Assets, Not Being Depreciated 2,077,460 - - - 2,077,460 Capital Assets, Being Depreciated:
Buildings 1,070,435 - - - 1,070,435 Less Accumulated Depreciation:
Buildings (401,413) (26,761) - - (428,174) Total Capital Assets, Being Depreciated, net 699,022 (26,761) - - 642,261 Total Capital Assets, net 2,746,482$ (26,761) $ - $ -$ 2,719,721$
On August 27, 2015, the Oversight Board approved a revised Asse t Disposition Schedule for the non- governmental purpose properties listed on the Long Range Proper ty Management Plan (“LRPMP”), and approved the Disposition Process For Sale of Properties, wh ich requires the sale of assets either through an open and competitiv e solicitation process or through a direct sale to the affected taxing entities or a non-profit organization. Additional amendments to the Asset Disposition Schedule were approved by the Oversight Board on January 14, 2016, April 28, 2016, October 27, 2016, and April 13, 2017.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
22 NOTE 6 – DEBT
The following is a summary of long-term debt of the SARA at June 30, 2022 (in thousands):
Type of Indebtedness Purpose
Original
Issue
Amount Issue Date
Maturity
Date
Interest
Rate
Range
Annual
Principal
Installments
June 30, 2022
Balance
Senior Tax Allocation Bonds:
2017 Refunding Bonds Series A Refunding - merged area projects 79,825$ 12/21/2017 8/1/2035 5.00% $0 - 53,810 79,825$ 2017 Refunding Bonds Series A-T Refunding - merged area projects 1,333,325 12/21/2017 8/1/2034 1.90-3.38% $32,910 - 93,735 1,031,305 Total Senior Tax Allocation Bonds 1,111,130
Subordinate Tax Allocation Bonds:
2017 Refunding Bonds Series B Refunding - merged area projects 26 4,390 12/21/2017 8/1/2029 2.00-5.00 % $7,820 - 29,835 176,500
Total Subordinate Tax Allocation Bonds 176,500
Total Long-Term Debt 1,287,630$
The following summari zes the changes in long-term debt afor the year ended June 30, 2022 (in thousands):
June 30, 2021 Additions Reductions June 30, 2022
Amount Due Within
One Year
Senior Tax Allocation Bonds:
2017 Refunding Bonds Series A 79,825$ - $ - $ 79,825$ -$ 2017 Refunding Bonds Series A-T 1,104,980 - (73,675) 1,031,305 75,505 Subtotal Senior Tax Allocation Bonds 1,184,805 - (73,675) 1,111,130 75,505 Subordinate Tax Allocation Bonds:
2017 Refunding Bonds Series B 198,765 - (22,265) 176,500 23,375 Subtotal Subordinate Tax Allocation Bonds 198,765 - (22,265) 176,500 23,375 Subtotal Long-Term Debt, Unamortized 1,383,570 - (95,940) 1,287,630 98,880 Issuance Premium (Discount), Net 36,411 - (4,204) 32,207 4,204 Total Long-Term Obligations 1,419,981$ - $ (100,144)$ 1,319,837$ 103,084$
RPTTF revenue distributed by the County to the SARA in FY 2022 was $141,841,586, which was assigned to pay recognized payment obligations, including debt service and debt related expenses on the Successor Agency Senior and Subordinate Tax Allocation Refunding Bonds, SARA administrative costs, and other enforceable obligations. During FY 2022, total RPTTF revenue collected by the County was $366,013,962. After payment of County administrative fees t otaling $3,254,269, the balance is distributed based on the Health and Safety Code unless such pay ments have been subordinate to the payment of debt service on the 2017 Senior Tax Allocation Refunding Bonds described in the following section, as is the case with all agencies except for the senior pass-through payments due to the San Jose Unified School District ($11,093,168). After meeting obligations to make debt service payments on the 2017 Bonds, subordinate pass-thr ough payments are made to the C ounty ($47,944,257), Basic Aid ($439,585), and other taxing entities ($37,116,516). With the residual balance ($124,324,581) distributed to taxing entities.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
23 NOTE 6 – DEBT - Continued
All summaries of documents related to debt contained in this No te are made subject to the provisions of such documents and do not purpor t to be complete statements of any or all such provisions. Each reference in this Note is qualified in its entirety by referenc e to such document, which is on file with the SARA’s Chief Financial Officer.
2017 Tax Allocation Refunding Bonds
On December 21, 2017, the SARA issued the 2017 Refunding Bonds pursuant to an Indenture of Trust dated as of December 1, 2017 (“2017 Indenture”), by and between the SARA and Wilmington Trust, National Association, as trustee (“Trustee”). The 2017 Refundin g Bonds were issued in the aggregate original principal amount of $1,677,540,000, in two senior series and one subordinate series. The senior series bonds, collectively referenced herein as 2017 Senior Tax Allocation Refunding Bonds, consist of $79,825,000 original principal amount of the tax-exempt senior lien 2017 Series A Bonds Senior Tax Allocation Refunding Bonds ( “2017A Bonds”) and $1,333,325,0 00 original principal amount of taxable senior lien 2017 Series A-T Bonds Senior Taxable Tax Allocation Refunding Bonds (“2017A- T Bonds”). The subordinate series bonds, referred to herein as 2017 Subordinate Tax Allocation Refunding Bonds, consist of $264,3 90,000 of tax-exempt subordinate lien 2017 Series B Bonds Tax Allocation Refunding Bonds.
Proceeds of the 2017 Refunding Bonds were used to (i) redeem, d efease, or prepay all of the former Agency’s then outstanding tax allocation bonds and reimbursemen t obligations under an agreement entered into in connection with the Financing Authority’s Reven ue Bonds, Series 2001A (4 th and San
Fernando Parking Facility Project) and Lease Revenue Bonds, Ser ies 2001F (Convention Center Refunding Project) (Refunded Obligations), and (ii) pay the costs of issuing the 2017 Refunding Bonds, including the cost of debt service reserve insurance policies. The refunding resulted in a difference between the reacquisition price (the amount required to repay p reviously issued debt in a refunding transaction) and the net carrying amount of the Refunded Obligations. This difference was reported as deferred outflows of resources in the Statement of Fiduciary Ne t Position and is being amortized over the next 14 years.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
24 NOTE 6 – DEBT- Continued
2017 Tax Allocation Refunding Bonds, continued
The 2017 Refunding Bonds are secured and payable from Tax Revenues and certain funds and accounts held by the Trustee. Tax Revenues are generally defined in the 2017 Indenture as the portion of property tax revenues collected in the Merged Project Area derived from incremental growth in assessed property values over the initial base year values in each of 17 component areas of the Merged Project Area, less certain County administrative fees, the AB1290 statu tory pass-through payment to the San José Unified School District and amounts collected pursuant to the pension override or State Water Project override provisions of the Redevelopment Dissolution Law, if any. All other AB1290 statutory pass-through payments and the ne gotiated pass-through payments to Santa Clara County are subordinate to the payment of debt service on the 2017 Refunding Bonds and other debt service related obligations under the 2017 Indenture. Under the distribution pr ovisions of the Redevelopment Dissolution Law, AB1290 statutory pass-through payments and negotiated pass-through payments are made from funds on deposit in the RPTTF before funds are transf erred to the SARA for the payment of enforceable obligations (including payment of debt service on the 2017 Refunding Bonds) unless there are insufficient funds to pay such debt service and other payment obligations under the 2017 Indenture and certain other conditions are satisfied. Such conditions include the timely filing of a Notice of Insufficiency by the SARA in accordance with the Redevelopment Dissolution Law and the concurrence by the State Controller that there are insufficient funds for such purpose. The SARA has covenanted in the 2017 Indenture to comply with the provisions of the Redevelopment Dissolution Law related to placing its obligations under the 2017 Indenture on the recognized obligations under the 2017 Indenture throughout the term of the 2017 Refunding Bonds and, if applicable, file a Notice of Insufficiency in the event that are insufficient Tax Revenues to make payment of debt service or other payment obligations under the 2017 Indenture. See Note 2 for a general description of the provisions of the Redevelopment Dissolution Law regarding distributions fr om the RPTTF and order of priority of payments therefrom.
The SARA has covenanted in the 2017 Indenture to take such acti ons as required under the Redevelopment Dissolution Law to include in each annual Recognized Obligation Payment Schedule the amount of debt service on the 2017 Refunding Bonds so as to enable the County Auditor-Controller to distribute from the RPTTF to SARA on each January 2 and June 1 the amounts required for the SARA to pay principal of, and interest on, the 2017 Refunding Bonds coming due in the respective six- month period following such distribution dates. These actions will include, without limitation, placing on the periodic Recognized Obligation Payment Schedule for approval by the Oversight Board and State Department of Finance the amounts to be held by the SARA as a reserve until the next six-month period, as contemplated by the Redevelopment Dissolution Law, that are necessary to comply with the 2017 Indenture.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
25 NOTE 6 – DEBT- Continued
2017 Tax Allocation Refunding Bonds, continued
Separate municipal bond debt service reserve policies issued by Build America Mutual Assurance Company (“BAM”) were deposited in the Senior Bonds Reserve Acco unt of the Bond Reserve Fund for the 2017 Senior Tax Allocation Refunding Bonds (“2017 Senior Bonds Reserve Policy”) and in the Subordinate Bonds Reserve account of the Bond Reserve Fund for the 2017 Subordinate Tax Allocation Bonds (“2017 Subordinate Bonds Reserve Policy”). The 2017 Senior Bonds Reserve Policy was issued in the original stated amount of $112,102,119, to satisfy the Senior Bonds Reserve Requirement under the 2017 Indenture on the date the 2017 Senior Tax Allocation Refunding Bonds were issued. The 2017 Subordinate Bonds Reserve Policy was issued in the original stated amount of $30,978,128, to satisfy the Subordinate Bonds Reserve Requirement under the 2017 Indenture on the date the 2017 Subordinate Tax Allocation Refunding Bonds were issued.
The 2017 Senior Bonds Reserve Policy will terminate the earlier to occur of (i) the date on which the 2017 Senior Tax Allocation Refunding Bonds are no longer outsta nding under the 2017 Indenture; or (ii) August 1, 2035. The 2017 Subordinate Bonds Reserve Policy will terminate the earlier to occur of (i) the date on which the 2017 Subordinate Tax Allocation Refunding Bonds are no longer outstanding under the Indenture; or (ii) August 1, 2029. Per the terms of the 2017 Indenture, the SARA is not obligated to replace either reserve policy or to fund either reserve account with cash if, at any time that the 2017 Senior Tax Allocation Refunding Bonds or 2017 Subordin ate Tax Allocation Refunding Bonds are outstanding, amounts are not available under such policy or if the rating of the claims-paying ability of BAM is downgraded, suspended or withdrawn.
The 2017 Senior Tax Allocation Refunding Bonds are rated “AA” by S&P Global Ratings and Fitch and the 2017 Subordinate Tax Allocation Refunding Bonds were rated “AA-” by S&P Global Ratings and Fitch.
2017 Senior Tax Allocation Refunding Bonds - The 2017 Senior Tax Allocation Refunding Bonds were issued in two series – the tax-exempt 2017A Bonds and the taxable 2017A-T Bonds, with a parity senior lien on Tax Revenues. The 2017A Bonds are structured as two serial maturities in 2034 and 2035; both maturities bear interest at 5% per annum. The 2017A-T Bonds are structured as serial maturities in 2018 through and including 2029, and a term bond of $361,845,000 maturing in 2034 (which term bond is subject to mandatory payment of principal b eginning on August 1, 2030 through final maturity on August 1, 2034). The 2017A-T Bonds bear interest at rates ranging from 1.898% to
3.375% per annum. The 2017A and the 2017A-T Bonds maturing on a nd after August 1, 2028 are subject to redemption at the option of the SARA on or after Aug ust 1, 2027 at par. The 2017A Bonds have $79,825,000 in principal subject to call and the 2017A-T Bonds have approximately $544,790,000 in principal subject to redemption at the option of the SARA. T he total debt service payments on the 2017 Senior Tax Allocation Refunding Bonds was $111,182,899 for the year ended June 30, 2022. The principal and interest remaining on the 2017 Senior Tax Allocat ion Refunding Bonds as of June 30, 2022 is $1,374,611,180.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
26 NOTE 6 – DEBT- Continued
2017 Tax Allocation Refunding Bonds, continued
2017 Subordinate Tax Allocation Refunding Bonds - The 2017 Subordinate Tax Allocation Refunding Bonds are structured as serial tax-exempt bonds with maturities in 2018 through 2029; and bear interest at rates ranging from 2% to 5% per annum. The 201 7 Subordinate Tax Allocation Refunding Bonds are subject to redemption at the option of the SARA on or after August 1, 2027 at par. In total, $17,490,000 in principal is subject to this ten- year par call. The 2017 Subordinate Tax Allocation Refunding Bonds are payable from Tax Revenues on a subordinate basis to the 2017 Senior Tax Allocation Refunding Bonds. The debt service payment on the 2017 Subordinate Tax Allocation Refunding Bonds was $31,646,625 for the year ended June 30, 2022. The principal and interest remaining on the 2017 Subordinate Tax Allocation Refunding Bond s as of June 30, 2022 is $207,649,250.
2017 Refunding Bonds - Events of Default - The events of default under the 2017 Indenture for the 2017 Refunding Bonds are: (i) failure to pay debt service when due; (ii) failure to comply with covenants and conditions of the 2017 Indenture or the 2017 Refunding Bonds or any Senior Parity Debt Instrument or Subordinate Parity Debt Instrument (as those term s are defined in the 2017 Indenture) and such default shall have continued for a period of 30 days f ollowing SARA’s receipt from the Trustee or any bond owner of written notice of the occurrence of such default, provided that if in SARA’s reasonable opinion the failure stated in the notice can be corrected, but not within such 30 day period, such failure will not constitute an event of default if corrective action is instituted by the SARA within such 30 day period and SA RA thereafter diligently and in good faith cures such failure in a reasonable period of time; and (iii) bankruptcy or similar debt or relief proceedings. Upon the occurrence and during the continuance of an event of default un der the 2017 Indenture, the Trustee may, or, if requested by the owners of a majority of the principal amount of the outstanding 2017 Senior Tax Allocation Refunding Bonds (for events of default with respect to the 2017 Senior Tax Allocation Refunding Bonds) or the 2017 Subordinate Tax Allocation Refunding Bonds (for events of default with respect to the 2017 Subordinate Tax Allocation Bonds), as appli cable, shall, subject to the provisions of the 2017 Indenture, exercise any remedies available to the T rustee in law or at equity. The 2017 Indenture does not provide for acceleration of payment of the 2 017 Refunding Bonds. The 2017 Indenture, however, provides for application of Tax Revenues up on an event of default in the order of priority set forth in the 2017 Indenture.
Tax Sharing Agreement with the County of Santa Clara
Prior to 1994, the Redevelopment Law authorized redevelopment a gencies to enter into tax sharing agreements with school districts and other taxing agencies to a lleviate any financial burden or detriments to such taxing agencies caused by a redevelopment project. In 1983, the Agency and County entered into a tax sharing agreement (“Original Agreement”) und er which the Agency would pay a portion of tax increment revenue generated in the Merged Area (“County Pass-Through Payment”). On December 16, 1993, the Agency, the County, and the City entered into a settlement agreement, which continued the County Pass-Through Payment.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
27 NOTE 6 – DEBT- Continued
Tax Sharing Agreement with the County of Santa Clara, continued
On May 22, 2001, the County, the City and the Agency approved an Amended and Restated Agreement (“Amended Agreement”), which ame nded and restated the Original Agreement in its entirety. In addition to the continued Pass-Through Payment, the Amended Agreement delegated to the County the authority to undertake redevelopment projects in or of benefit to the Merged Area, and required the Agency to transfer funds to the County to pay for such projects (“Delegated Payment”). Until June 30, 2004, the Delegated Payment was equal to the County Pass-Through Payment. After January 1, 2004, 20% of the proceeds of any debt secured by the Agency’s Tax Inc rement Revenues (excluding bonds payable from Housing Set-Aside and refunding bonds) was require d to be paid to the County as the Delegated Payment.
Debt Service Requirements
The debt service requirements for all debt are based upon a fixed rate of interest.
The annual requirements to amortize outstanding tax allocation bonds at June 30, 2022, including mandatory sinking fund payments, are as follows (in thousands):
Year Ending
June 30 Principal Interest
2023 98,880$ 43,842 $
2024 102,035 40,555
2025 105,455 37,023
2026 109,100 33,262
2027 112,975 29,271
2028-2032 495,780 90,768
2033-2036 263,405 19,910
Total 1,287,630$ 294,631 $
NOTE 7 –TRANSACTIONS WITH THE CITY OF SAN JOSE
Advances to the City
The Agency advanced a portion of a loan made by the City’s Hous ing Department to a third party for a transitional housing project. The SARA is entitled to 24.5% of the total loan repayment and therefore has recorded a long-term receivable in the amount of $732,875 at June 30, 2022.
Reimbursements to the City
During the fiscal year, the SARA reimbursed the City for personnel expenses totaling $205,938.
SUCCESSOR AGENCY TO THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN JOSE
(A Component Unit of the City of San José, California)
Notes to Basic Financial Statements
For the Year Ended June 30, 2022
28 NOTE 8 – COMMITMENTS AND CONTINGENCIES
Risk Management
The SARA is exposed to various risks of loss related to torts, theft, damage to and destruction of assets, errors and omissions, general liabilities for which the SARA carries a property insurance policy, or is self-insured. Claim expenses and liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated using actuar ial methods or other estimating techniques. The technique to estimate claims is based on many c omplex factors, such as inflation, changes in legal doctrines, past settlements, and damages awarded. Accordingly, claims are reevaluated periodically to consider the effects of inflation, recent claim settlement trends (including frequency and amount of pay-outs), and other economic and social factors. The estimated claims liability will include amounts of incremental claims adjustment expense related to specific claims.
The SARA does not have any claims liabilities outstanding at June 30, 2022.
Contractual Commitments
At June 30, 2022, the SARA had $391,149 for contractual obligations and commitments.
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
29 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards
Board of Directors
Successor Agency of the
Redevelopment Agency of the City of San José
San José, California
We have audited, 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, the fin ancial statements of the Successor Agency of the Redevelopment Agency of the City of San José (SARA), a c omponent unit of the City of San José (City), California, as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the SARA’S basic financ ial statements, and have issued our report thereon dated November 10, 2022.
Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statement s, we considered the SARA’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectivene ss of the SARA’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the SARA’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allo w management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpo se described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitation s, during our audit we did not identify any deficiencies in internal control that we consider to be materia l weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the SAR A’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on complia nce with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that a re required to be reported under Government Auditing Standards.
30 Purpose of this Report
The purpose of this report is solely to describe the scope of o ur testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. A ccordingly, this communication is not suitable for any other purpose.
Walnut Creek, California
November 10, 2022