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HomeMy WebLinkAboutPFA 2010-11 Final FS 1-13-12 LAKE ELSINORE PUBLIC FINANCING AUTHORITY COMPONENT UNIT FINANCIAL STATEMENTS WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS JUNE 30, 2011 LAKE ELSINORE PUBLIC FINANCING AUTHORITY TABLE OF CONTENTS June 30, 2011 Page Number Independent Auditors’ Report 1 - 2 Basic Financial Statements: 3 Statement of Net Assets 4 Statement of Activities 5 Balance Sheet - Governmental Funds 6 - 7 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 9 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 10 - 11 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 12 Notes to Basic Financial Statements 13 - 41 Supplementary Information: 43 Other Governmental Funds: Combining Balance Sheet 44 - 45 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 46 - 47 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties - 1 - INDEPENDENT AUDITORS’ REPORT The Board of Directors Lake Elsinore Public Financing Authority Lake Elsinore, California We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Lake Elsinore Public Financing Authority (the Authority), (a component unit of the City of Lake Elsinore, California), as of and for the year ended June 30, 2011, which collectively comprise the Authority’s basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the Authority’s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. As described more fully in Note 1A, the basic component unit financial statements present only the Authority and are not intended to present fairly the financial position and results of operations of the City of Lake Elsinore, California in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Authority as of June 30, 2011, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 6 to the basic financial statements, the Authority has implemented the provisions of Governmental Accounting Standards Board Statement Number 54, “Fund Balance Reporting and Governmental Fund Type Definitions”, for the year ended June 30, 2011. - 2 - Management has not presented the management’s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Our audit was made for the purpose of forming opinions on the financial statements that collectively comprise the Lake Elsinore Public Financing Authority’s basic financial statements. The combining schedules, identified as supplementary information in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements of the Authority. 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 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 financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. January 6, 2012 Irvine, California - 3 - BASIC FINANCIAL STATEMENTS Governmental Activities ASSETS: Cash and investments (Note 2)399,336$ Interest receivable 1,214,424 Due from City of Lake Elsinore 3,111,521 Loans receivable from LERDA (Note 4)60,080,000 Interest receivable from LERDA 848,942 Unamortized bond issuance costs3,185,715 Restricted assets (Note 2): Cash and investments with fiscal agents68,192,520 TOTAL ASSETS 137,032,458 LIABILITIES: Interest payable 1,787,804 Due to City of Lake Elsinore 14,440 Noncurrent liabilities (Note 5): Due within one year 3,990,000 Due in more than one year 120,239,532 TOTAL LIABILITIES 126,031,776 NET ASSETS: Restricted for: Debt service 11,000,682 TOTAL NET ASSETS 11,000,682$ See independent auditors' report and notes to basic financial statements. LAKE ELSINORE PUBLIC FINANCING AUTHORITY STATEMENT OF NET ASSETS June 30, 2011 - 4 - Net (Expense) Revenue and Changes in Net Assets ChargesOperatingCapital forGrants andGrants andGovernmental ExpensesServicesContributionsContributionsActivities Governmental activities: General government23,227$ -$ -$ -$ (23,227)$ Interest on long-term debt5,889,972 - - - (5,889,972) Total governmental activities5,913,199$ -$ -$ -$ (5,913,199) General revenues: Investment income6,231,262 Other revenues99,865 Total general revenues6,331,127 Change in net assets417,928 NET ASSETS - BEGINNING OF YEAR10,582,754 NET ASSETS - END OF YEAR11,000,682$ See independent auditors' report and notes to basic financial statements. - 5 - Program Revenues Functions/programs LAKE ELSINORE PUBLIC FINANCING AUTHORITY STATEMENT OF ACTIVITIES For the year ended June 30, 2011 19992003 Series ASeries H BondsBonds Cash and investments (Note 2)-$ 385,367$ Cash and investments with fiscal agents (Note 2)- 28,594,871 Interest receivable - 376 Due from City of Lake Elsinore - 2,940,864 Due from other funds (Note 3)- 45,049 Loans receivable from LERDA (Note 4)- - TOTAL ASSETS -$ 31,966,527$ LIABILITIES: Due to other funds (Note 3)-$ -$ Due to City of Lake Elsinore - 14,440 TOTAL LIABILITIES- 14,440 FUND BALANCES: Nonspendable: Loans receivable from LERDA - - Restricted for (Note 6): Debt service - 31,952,087 TOTAL FUND BALANCES- 31,952,087 TOTAL LIABILITIES AND FUND BALANCES-$ 31,966,527$ See independent auditors' report and notes to basic financial statements. Debt Service Funds LIABILITIES AND FUND BALANCES - 6 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2011 ASSETS 2008200820102010OtherTotal Series ASeries BSeries ASeries CGovernmentalGovernmental BondsBondsBondsBondsFundsFunds 3,562$ -$ -$ -$ 10,407$ 399,336$ 20,644,739 3,120,015 - - 15,832,895 68,192,520 - - - - 10 386 170,461 196 - - - 3,111,521 - - - - - 45,049 - - 14,755,000 29,435,000 15,890,000 60,080,000 20,818,762$ 3,120,211$ 14,755,000$ 29,435,000$ 31,733,312$ 131,828,812$ -$ 45,049$ -$ -$ -$ 45,049$ - - - - - 14,440 - 45,049 - - - 59,489 - - 14,755,000 29,435,000 15,890,000 60,080,000 20,818,762 3,075,162 - - 15,843,312 71,689,323 20,818,762 3,075,162 14,755,000 29,435,000 31,733,312 131,769,323 20,818,762$ 3,120,211$ 14,755,000$ 29,435,000$ 31,733,312$ 131,828,812$ Debt Service Funds (Continued) - 7 - - 8 - THIS PAGE INTENTIONALLY LEFT BLANK Fund balances for governmental funds131,769,323$ Amounts reported for governmental activities in the Statement of Net Assets are different because: Long-term assets are not available to pay for current period expenditures and, therefore, are not reported in the fund financial statements Interest receivable from LERDA848,942$ Interest receivable on investments1,214,038 Unamortized bond issuance costs3,185,715 5,248,695 Long-term liabilities and related items are not due and payable in the current period and are not reported as fund liabilities. Interest on long-term liabilities is not accrued in governmental funds, but rather is recognized as an expenditure when due. All liabilities, both current and long-term, are reported in the Statement of Net Assets. Balances as of June 30, 2011 are: Interest payable(1,787,804) Deferred amount on refunding267,767 Bond premium (197,299) Long-term liabilities (124,300,000) (126,017,336) Net assets of governmental activities 11,000,682$ See independent auditors' report and notes to basic financial statements. - 9 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2011 19992003 Series ASeries H BondsBonds REVENUES: Investment income 1,240,540$ 2,065,655$ Other revenues - - TOTAL REVENUES1,240,540 2,065,655 EXPENDITURES: Current: Professional services- 9,211 Debt service: Bond issuance costs - - Principal retirement760,000 760,000 Interest and fiscal charges1,240,540 1,668,156 TOTAL EXPENDITURES2,000,540 2,437,367 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES(760,000) (371,712) OTHER FINANCING SOURCES (USES): Refunding bonds issued - - Local agency bonds issued - - Tax allocation bonds issued - - Payment to refunding bond escrow agent (27,495,000) - TOTAL OTHER FINANCING SOURCES (USES)(27,495,000) - CHANGES IN FUND BALANCES(28,255,000) (371,712) FUND BALANCES - BEGINNING OF YEAR 28,255,000 32,323,799 FUND BALANCES - END OF YEAR-$ 31,952,087$ See independent auditors' report and notes to basic financial statements. - 10 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the year ended June 30, 2011 Debt Service Funds 2008200820102010OtherTotal Series ASeries BSeries ASeries CGovernmentalGovernmental BondsBondsBondsBondsFundsFunds 952,870$ 239,111$ 749,389$ 339,178$ 696,240$ 6,282,983$ - - - - 99,865 99,865 952,870 239,111 749,389 339,178 796,105 6,382,848 149 25 - - 13,842 23,227 - - - - 512,772 512,772 1,255,000 - 680,000 - 800,000 4,255,000 737,748 220,486 749,389 339,178 645,979 5,601,476 1,992,897 220,511 1,429,389 339,178 1,972,593 10,392,475 (1,040,027) 18,600 (680,000) - (1,176,488) (4,009,627) - - - 29,435,000 - 29,435,000 - - - - 12,795,000 12,795,000 - - - - 5,550,000 5,550,000 - - - - - (27,495,000) - - - 29,435,000 18,345,000 20,285,000 (1,040,027) 18,600 (680,000) 29,435,000 17,168,512 16,275,373 21,858,789 3,056,562 15,435,000 - 14,564,800 115,493,950 20,818,762$ 3,075,162$ 14,755,000$ 29,435,000$ 31,733,312$ 131,769,323$ - 11 - Debt Service Funds (Continued) Net change in fund balances - total governmental funds16,275,373$ Amounts reported for governmental activities in the Statement of Activities are different because: The issuance of long term debt provides current financial resources to governmental funds, while the repayment of the principal of long term-debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. These amounts are the net effect of these differences in the treatment of long-term debt. Debt issued or incurred: Refunding bonds issued (29,435,000)$ Local agency revenue bonds issued (12,795,000) Tax allocation bonds issued (5,550,000) Payment to refunding bond escrow agent 27,495,000 Issuance costs512,772 Principal payments4,255,000 (15,517,228) Governmental funds report bond issuance costs as an expense in the full amount as current financial resources are used. However, in the Statement of Activities the cost is amortized over the life of the debt. Amortization bond issuance costs (173,927) Amortization bond premium 21,922 Amortization of deferred amount on refunding (29,752) (181,757) Some expenses reported in the Statement of Activities do not require the use of current financial resources and are not reported as governmental fund expenditures. Interest and fiscal charges (106,739) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the governmental funds. Investment income (51,721) Change in net assets of governmental activities 417,928$ See independent auditors' report and notes to basic financial statements. TO THE STATEMENT OF ACTIVITIES For the year ended June 30, 2011 - 12 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - 13 - NOTES TO BASIC FINANCIAL STATEMENTS See independent auditors’ report. - 14 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2011 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES: A. Description of the Reporting Entity: The Lake Elsinore Public Financing Authority (the Authority) is a joint exercise of powers between the City of Lake Elsinore (the City) and the Lake Elsinore Redevelopment Agency (the Agency), created by a joint powers agreement dated July 25, 1989. The purpose of the Authority is to provide financing for public capital improvements for the City and the Agency, the acquisition by the Authority of such public capital improvements and/or the purchase by the Authority of local obligations within the meaning of the Bond Law under the Marks-Roos Bond Pool Act of 1985. Under the Bond Law, the Authority has the power to issue special revenue bonds to pay the cost of any public capital improvement. The Authority office and records are located at City Hall at 130 South Main Street, Lake Elsinore, California. The Authority is a component unit of the City and, accordingly, the financial statements of the Authority are included in the financial statements of the City. The Authority is an integral part of the reporting entity of the City. The funds of the Authority have been blended within the financial statements of the City because the City Council of the City is the governing board of the Authority and exercises control over the operations of the Authority. Only the funds of the Authority are included herein, therefore, these financial statements do no purport to represent the financial position or results of operations of the City. B. Basis of Presentation: The accounting policies of the Authority conform to accounting principles generally accepted in the United States of America as they are applicable to governmental units. The Governmental Accounting Standard Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government (the Authority). Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All Authority activities are governmental; no business-type activities are reported in the statements. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 15 - 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): B. Basis of Presentation (Continued): Government-Wide and Fund Financial Statements (Continued) The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are expenses that are clearly identifiable with a specific program, project, function or segment. Program revenues of the Authority include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items that are properly not included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. All remaining governmental funds are aggregated and reported as other governmental funds. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation: The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all assets and liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Operating statements present increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under the current financial resources measurement focus, only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of “available spendable resources”. Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of “available spendable resources” during a period. Noncurrent portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Noncurrent portions of other long-term receivables are offset by reporting the fund balance as nonspendable. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 16 - 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued): Under the modified accrual basis of accounting, 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 government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, except for principal and interest on general long-term liabilities which are recognized as expenditures to the extent they have matured. Proceeds of general long-term liabilities are reported as other financing sources. Interest associated with the current fiscal period is considered to be susceptible to accrual and so it has been recognized as revenues of the current fiscal period. The Authority reports the following major governmental funds: The following Debt Service Funds are used to account for the accumulation of resources for, and the repayment of, long-term debt principal, interest and related costs: 1999 Series A Bonds 2003 Series H Bonds 2008 Series A Bonds 2008 Series B Bonds 2010 Series A Bonds 2010 Series C Bonds As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Direct expenses have not been eliminated from the functional categories; indirect expenses and internal payments have been eliminated. When both restricted and unrestricted resources are available for use, it is the Authority’s policy to use restricted resources first, and then unrestricted resources as they are needed. D. Investments: Investments are reported at fair value, except for the investment contract and investment in local obligations, which are reported at cost, because the investments are not transferable and the fair values are not affected by changes in interest rates. Investment income includes interest earnings, changes in fair value, and any gains or losses related to the liquidation or sale of the investment. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 17 - 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): E. Explanation of Differences between the Governmental Funds Balance Sheet and the Statement of Net Assets: The “total fund balances” of the Authority’s governmental funds $131,769,323 differs from “net assets” of governmental activities $11,000,682 reported in the Statement of Net Assets. This difference primarily results from the long-term economic focus of the statement of net assets versus the current financial resources focus of the governmental fund balance sheets. Interest Receivable Interest applicable to investments and loans receivable is not collected or earned in the current period and accordingly is not reported as fund assets. All assets are reported in the Statement of Net Assets. Interest receivable from LERDA $ 848,942 Interest receivable on investments 1,214,038 $ 2,062,980 Bond Issuance Costs Bond issuance costs are due and payable in the current period and accordingly reported as an expenditure for the full amount when paid in the governmental funds. However, the Statement of Net Assets reports an asset for the unamortized portion of these costs over the life of the bond. Unamortized bond issuance costs $ 3,185,715 Long-Term Liabilities Long-term liabilities and related items such as bond premiums, deferred amounts on refunding and interest payable on these liabilities applicable to the Authority’s governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities and related items (both current and long-term) are reported in the Statement of Net Assets. Balances at the end of this fiscal year were: Interest payable $ (1,787,804) Deferred amount on refunding 267,767 Bond premium (197,299) Long-term liabilities (124,300,000) Long-term liabilities $ (126,017,336) LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 18 - 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): F. Explanation of Differences between the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances and the Statement of Activities: The “net change in fund balances” of the Authority’s governmental funds $16,275,373 differs from the “change in net assets” for governmental activities $417,928 reported in the Statement of Activities. The differences arise primarily from the long-term economic focus of the Statement of Activities versus the current financial resources focus of the governmental funds. The effect of the differences is illustrated below. Long-Term Debt Transactions Some revenues and expenses reported in the Statement of Revenues, Expenditures and Changes in Fund Balances are included as an addition or deletion of long-term liabilities in the Statement of Net Assets. Refunding bonds issued $ (29,435,000) Local agency revenue bonds issued (12,795,000) Tax allocation bonds issued (5,550,000) Payment to refunding bond escrow agent 27,495,000 Issuance costs 512,772 Long-term debt principal payments 4,255,000 Total Long-term debt transactions $ (15,517,228) Bond Issuance Costs Bond issuance costs are reported in the Statement of Revenues, Expenditures and Changes in Fund Balances in the full amount as current financial resources are used. However, in the Statement of Activities the cost is amortized over the life of the bond. Amortization of bond issuance costs $ (173,927) Bond Premium Bond premiums are reported as revenues for the full amount when bonds are issued in the governmental funds. However, the Statement of Activities reports an increase in expense for the unamortized portion of these costs over the life of the bond. Amortization of bond premium $ 21,922 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 19 - 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): F. Explanation of Differences between the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances and the Statement of Activities (Continued): Deferred Amount on Refunding In the governmental funds, proceeds from refunding bonds and related payment to refund bond escrow agent are reported in the full amount in the year of the refunding. For the Statement of Activities any gain or loss is deferred and amortized over the shorter period over which principal is to be paid on the refunded bonds or issued bonds. Amortization $ (29,752) Interest on Long-Term Debt Interest payable on long-term debt does not require the use of current financial resources and is not reported as governmental fund expenditures. However, these expenses are reported in the Statement of Activities. Interest and fiscal charges $ (106,739) Interest on Loans and Investments Interest on loans receivables from LERDA and investments are not collected or earned in the current period and accordingly is not reported as governmental fund revenues. However, these revenues are reported in the Statement of Activities. Investment income $ (51,721) G. Fund Balance: In the governmental fund financial statements, governmental fund types report nonspendable and restricted fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 20 - 1. REPORTING ENTITY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): H. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. 2. CASH AND INVESTMENTS: Cash and Investments Cash and investments at June 30, 2011 are classified in the accompanying financial statements as follows: Government- Wide Statement of Net Assets Cash and investments $ 399,336 Restricted assets: Cash and investments with fiscal agents 68,192,520 Total Cash and Investments $ 68,591,856 Cash and investments at June 30, 2011 consisted of the following: Deposits with financial institutions $ 4,723,065 Investments 63,868,791 Total Cash and Investments $ 68,591,856 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 21 - 2. CASH AND INVESTMENTS (CONTINUED): Investment Authorized by the California Government Code and the Authority’s Investment Policy The table below identifies the investment types that are authorized for the Authority by the California Government Code (or the Authority’s investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the Authority’s investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Authority, rather than the general provisions of the California Government Code or the Authority’s investment policy. Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity of Portfolio* in One Issuer United States Treasury Obligations 5 years None None United States Government Sponsored Agency Securities 5 years None 40% State and Local Agency Obligations 5 years None None Banker’s Acceptances 180 days 40% 10% Insured or Collateralized Time Certificate of Deposits 5 years None None Commercial Paper 270 days 15% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 30 days None None Reverse Repurchase Agreements 92 days 10% None Medium-Term Corporate Notes 5 years 30% None Local Agency Investment Fund (LAIF) N/A None $ 50,000,000 California Asset Management Program (CAMP) N/A None None Money Market Fund 5 years 20% None N/A - Not Applicable * - Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 22 - 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the Authority’s investment policy. Investments authorized for funds held by bond trustee include, United States Treasury Obligations, United States Government Sponsored Agency Securities, Guaranteed Investment Contracts, Commercial Paper, Local Agency Bonds, Banker’s Acceptance and Money Market Mutual Funds. There were no limitations on the maximum amount can be invested in one issuer, maximum percentage allowed or the maximum maturity of an investment, except for the maturity of Banker’s Acceptance which are limited to one year. Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Authority manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the Authority’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Authority’s investments by maturity: Remaining Maturity (in Months) 1 - 24 25 - 60 More Than Investment Type Months Months 60 Months Total LAIF $ 324,805 $ - $ - $ 324,805 Local Obligation Bonds 4,872,418 11,291,317 39,665,823 55,829,558 Money Market Mutual Funds 7,714,428 - - 7,714,428 $ 12,911,651 $ 11,291,317 $ 39,665,823 $ 63,868,791 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 23 - 2. CASH AND INVESTMENTS (CONTINUED): Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the Authority’s investment policy, or debt agreements, and the actual rating, by Standard and Poor’s, as of year end for each investment type: Minimum Total as of Legal June 30, Investment Type Rating 2011 AAA Unrated LAIF N/A $ 324,805 $ - $ 324,805 Local Obligation Bonds N/A 55,829,558 - 55,829,558 Money Market Mutual Funds A 7,714,428 7,714,428 - $ 63,868,791 $ 7,714,428 $ 56,154,363 N/A - Not Applicable Concentration of Credit Risk The investment policy of the Authority contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer that represent 5% or more of total Authority’s investments are as follows: Reported Issuer Investment Type Amount Community Facilities District 88-3 Bonds, 2008 Series A Subordinate Local Agency Bond $ 6,610,000 Community Facilities District 88-3 Bonds, 2008 Series A Local Agency Bond 20,090,000 Community Facilities District 98-1 Bonds Local Agency Bond 17,535,000 Community Facilities District 88-3 Bonds, 2008 Series B Local Agency Bond 3,265,000 Community Facilities District 2003-2, 2010 Series A Local Agency Bond 7,340,000 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 24 - 2. CASH AND INVESTMENTS (CONTINUED): Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the Authority’s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure the Authority’s deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. At June 30, 2011, the Authority’s deposits (bank balances) were fully insured by the Federal Depository Insurance Corporation. Investment in State Investment Pool The Authority is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the Authority’s investment in this pool is reported in the accompanying financial statements at amounts based upon the Authority’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. 3. INTERFUND RECEIVABLES/PAYABLES: Interfund receivables and payables at June 30, 2011 are as follows: Receivable Payable 2003 Series H Bonds Debt Service Fund $ 45,049 $ - 2008 Series B Bonds Debt Service Fund - 45,049 $ 45,049 $ 45,049 The interfund amounts from the 2003 Series H Bonds Debt Service Fund to the 2008 Series B Bonds Debt Service fund are to provide funds for temporary operations. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 25 - 4. LOANS RECEIVABLE: The Authority has entered into loan agreements with the Agency whereby the Authority loaned the proceeds of the 2010 Series A, B and C Tax Allocation Bonds and the 2011 Series A Tax Allocation Bonds issued by the Authority to the Agency to retire debt and provide funds for certain public improvements in Agency project areas. The following table represents the balance of net proceeds loaned to the Agency at June 30, 2011: Loans Tax Allocation Receivable Revenue Bonds Principal Balance 2010 Series A Issue $ 14,755,000 $ 14,755,000 2010 Series B Issue 10,340,000 10,340,000 2010 Series C Issue 29,435,000 29,435,000 2011 Series A Issue 5,550,000 5,550,000 Total $ 60,080,000 $ 60,080,000 On June 29, 2011, the Governor of the State of California signed Assembly Bills 1x 26 and 27 as part of the State’s budget package. Assembly Bill 1x 26 requires each California redevelopment agency to suspend nearly all activities except to implement existing contracts, meet already-incurred obligations, preserve its assets and prepare for the impending dissolution of the agency. Assembly Bill 1x 27 provides a means for redevelopment agencies to continue to exist and operate by means of a Voluntary Alternative Redevelopment Program. Under this program each City would adopt an ordinance agreeing to make certain payments to the County Auditor Controller in fiscal year 2011-12 and annual payments each fiscal year thereafter. Assembly Bill 1x 26 indicates that the City “may use any available funds not otherwise obligated for other uses” to make this payment. The League of California Cities and the California Redevelopment Association (CRA) filed a lawsuit on July 18, 2011 on behalf of cities, counties and redevelopment agencies petitioning the California Supreme Court to overturn Assembly Bills 1x 26 and 27 on the grounds that these bills violate the California Constitution. On August 11, 2011, the California Supreme Court issued a stay of all of Assembly Bill 1x 27 and most of Assembly Bill 1x 26. On December 29, 2011, the California Supreme Court rendered an opinion upholding Assembly Bill 1x 26 and invalidating Assembly Bill 1x 27. AB 1x 26 requires that the Agency continues to meet already incurred obligations. The Financing Authority expects repayment of the loans. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 26 - 5. LONG-TERM LIABILITIES: Date of Years of Rate of Amount Issue Maturity Interest Authorized Local Agency Revenue Bonds: 1996 Series E 3/96 1997-2026 5.25% - 7.50% $ 1,750,000 1999 Series G 2/99 2000-2015 5.00% - 5.80% 4,035,000 2003 Series H 2/03 2003-2033 2.75% - 6.375% 31,570,000 2008 Series A 1/08 2008-2020 3.5% - 4.30% 22,295,000 2008 Series B 3/08 2008-2038 4.5% - 6.875% 3,265,000 2010 Series A 11/10 2013-2040 3.25% - 6.25% 7,430,000 2011 Series A 6/11 2012-2038 3.00% - 6.125% 5,365,000 Tax Allocation Revenue Bonds: 2010 Series A 2/10 2010-2033 2.00% - 5.25% 15,435,000 2010 Series B 5/10 2010-2025 2.00% - 4.75% 10,855,000 2010 Series C 10/10 2011-2030 2.00% - 5.00% 29,435,000 2011 Series A 1/11 2012-2021 4.00% - 6.00% 5,550,000 The following is a summary of long-term liability transactions for the year ended June 30, 2011: Outstanding Outstanding Due June 30, June 30, Within 2010 Additions Retirements 2011 One Year Local Agency Revenue Bonds: 1996 Series E $ 1,390,000 $ - $ (45,000) $ 1,345,000 $ 45,000 1999 Series G 1,680,000 - (240,000) 1,440,000 255,000 2003 Series H 28,050,000 - (760,000) 27,290,000 850,000 2008 Series A 19,340,000 - (1,255,000) 18,085,000 1,340,000 2008 Series B 3,265,000 - - 3,265,000 - 2010 Series A - 7,430,000 - 7,430,000 - 2011 Series A - 5,365,000 - 5,365,000 - Tax Allocation Revenue Bonds: 1999 Series A 28,255,000 - (28,255,000) - - 2010 Series A 15,435,000 - (680,000) 14,755,000 305,000 2010 Series B 10,855,000 - (515,000) 10,340,000 545,000 2010 Series C - 29,435,000 - 29,435,000 650,000 2011 Series A - 5,550,000 - 5,550,000 - 108,270,000 47,780,000 (31,750,000) 124,300,000 3,990,000 Add (less) deferred amounts: Bond premium 219,221 - (21,922) 197,299 - On refunding (297,519) - 29,752 (267,767) - $ 108,191,702 $ 47,780,000 $ (31,742,170) $ 124,229,532 $ 3,990,000 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 27 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds: In February 1990, the Authority was authorized to issue $500,000,000 in revenue bonds for the purpose of enabling the Authority to acquire certain qualified obligations (the Local Obligations) of the City or the Agency for whose benefit the program has been designed, or of any other local agencies in the State of California (the Local Agencies). The Bonds were issued to provide funds to finance the acquisition or construction of land, buildings, equipment and other capital improvements. The Bonds will constitute special obligations of the Authority and will be issued in Series from time to time pursuant to Supplemental Indentures. These bonds will be payable solely from the repayment by Local Agencies of their obligations and any available surplus revenues. 1996 Series E In March 1996, $1,750,000 principal amount of 1996 Local Agency Revenue Bonds, Series E, was issued in accordance with the indenture described above. The bonds are due in annual installments of $15,000 to $135,000 from October 1, 1997 through October 1, 2026; interest at 5.25% to 7.50%. The bonds maturing on or before October 1, 2005, are not subject to optional redemption prior to maturity. The bonds maturing on or after October 1, 2006 are subject to redemption under certain circumstances, at the option of the Authority, from funds deposited in the Series E redemption account on or after October 1, 2005, at a specified redemption price together with accrued interest. The Series E Bonds are also subject to special mandatory redemption on various specified dates at specified redemption prices under certain circumstances, as provided in the Bond Indenture Agreement. At June 30, 2011, the Authority has a cash reserve balance for debt service of $149,909, which is sufficient to cover the Bond Indenture Reserve Requirement of $149,909. Future debt requirements for the 1996 Series E Local Agency Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 45,000 $ 99,075 $ 144,075 2013 50,000 95,625 145,625 2014 55,000 91,688 146,688 2015 60,000 87,375 147,375 2016 60,000 82,875 142,875 2017 - 2021 385,000 335,813 720,813 2022 - 2026 555,000 160,313 715,313 2027 135,000 5,063 140,063 Totals $ 1,345,000 $ 957,827 $ 2,302,827 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 28 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds (Continued): 1999 Series G In February 1999, $4,035,000 principal amount of 1999 Local Agency Revenue Bonds, Series G, was issued in accordance with the indenture described above. The bonds are due in annual installments of $165,000 to $370,000 from September 2, 2000 through September 2, 2015; interest at 5.00% to 5.80%. The bonds are subject to call and redemption prior to their stated maturity commencing September 2, 2008 at specified redemption prices. At June 30, 2011, the Authority has a cash reserve balance for debt service of $144,034, which is sufficient to cover the Bond Indenture Reserve Requirement of $144,000. Future debt requirements for the 1999 Series G Local Agency Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 255,000 $ 76,125 $ 331,125 2013 275,000 60,755 335,755 2014 285,000 44,515 329,515 2015 305,000 27,405 332,405 2016 320,000 9,280 329,280 Totals $ 1,440,000 $ 218,080 $ 1,658,080 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 29 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds (Continued): 2003 Series H In February 2003, $31,570,000 principal amount of 2003 Local Agency Revenue Bonds, Series H, was issued in accordance with the indenture described above. The bonds are due in annual installments of $375,000 to $1,850,000 from October 1, 2003 through October 1, 2033; interest at 2.75% to 6.375%. The bonds are subject to mandatory redemption, without premium, prior to their maturity dates commencing October 1, 2014 in the case of bonds maturing October 1, 2015, October 1, 2016 in the case of bonds maturing October 1, 2020, October 1, 2021 in the case of bonds maturing October 1, 2026, and October 1, 2027 in the case of bonds maturing October 1, 2033, from Sinking Account payments under the Indentures. The bonds are subject to optional redemption prior to maturity in a manner determined by the Authority on October 1, 2013, and on any date thereafter at a redemption price equal to the principal amount thereof, plus accrued interest to the date of redemption, plus a specified premium. At June 30, 2011, the Authority has a cash reserve balance for debt service of $2,676,053, which is sufficient to cover the Bond Indenture Reserve Requirement of $2,657,752. Future debt requirements for the 2003 Series H Local Agency Revenue Bonds are as follows: Year Ending June 30, Principa1 Interest Total 2012 $ 850,000 $ 1,628,856 $ 2,478,856 2013 940,000 1,583,519 2,523,519 2014 1,055,000 1,531,737 2,586,737 2015 1,160,000 1,472,144 2,632,144 2016 1,280,000 1,405,044 2,685,044 2017 - 2021 7,250,000 5,849,919 13,099,919 2022 - 2026 3,640,000 4,155,469 7,795,469 2027 - 2031 6,010,000 2,654,250 8,664,250 2032 - 2034 5,105,000 506,654 5,611,654 Totals $ 27,290,000 $ 20,787,592 $ 48,077,592 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 30 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds (Continued): 2008 Series A In January 2008, $22,295,000 principal amount of 2008 Local Agency Revenue Bonds, Series A, was issued in accordance with the indenture described above. The bonds are due in annual installments of $940,000 to $2,520,000 from September 1, 2008 through September 1, 2020; interest at 3.5% to 4.3%. The bonds were issued to refund the 1997 Series F, Local Agency Revenue Bonds. The advance refunding resulted in an economic gain of $3,145,273 and a decrease in cash flows of $4,693,375. The proceeds from the 2008 Series A Bonds were used to fully redeem the 1997 Series F Bonds. The bonds are subject to call and redemption prior to their stated maturity commencing September 1, 2008 at specified redemption prices. At June 30, 2011, the Authority has a cash reserve balance for debt service of $1,115,006, which is sufficient to cover the Bond Indenture Reserve Requirement of $904,250. Future debt requirements for the 2008 Series A Local Agency Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 1,340,000 $ 692,335 $ 2,032,335 2013 1,425,000 643,948 2,068,948 2014 1,515,000 588,710 2,103,710 2015 1,620,000 526,010 2,146,010 2016 1,720,000 459,210 2,179,210 2017 -2021 10,465,000 1,119,425 11,584,425 Totals $ 18,085,000 $ 4,029,638 $ 22,114,638 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 31 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds (Continued): 2008 Series B In March 2008, $3,265,000 principal amount of 2008 Local Agency Revenue Bonds, Series B, was issued in accordance with the indenture described above. The bonds are due in annual installments of $5,000 to $285,000 from September 1, 2008 through September 1, 2038; interest at 4.5% to 6.875%. The bonds are subject to call and redemption prior to their stated maturity commencing September 1, 2008 at specified redemption prices. At June 30, 2011, the Authority has a cash reserve balance for debt service of $308,914, which is sufficient to cover the Bond Indenture Reserve Requirement of $308,844. Future debt requirements for the 2008 Series B Local Agency Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ - $ 220,487 $ 220,487 2013 5,000 220,374 225,374 2014 10,000 220,024 230,024 2015 15,000 219,430 234,430 2016 20,000 218,573 238,573 2017 -2021 210,000 1,065,896 1,275,896 2022 - 2026 430,000 966,625 1,396,625 2027 - 2031 740,000 765,531 1,505,531 2032 - 2036 1,030,000 463,375 1,493,375 2037 - 2039 805,000 85,421 890,421 Totals $ 3,265,000 $ 4,445,736 $ 7,710,736 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 32 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds (Continued): 2010 Series A In November 2010, $7,430,000 principal amount of 2010 Local Agency Revenue Bonds, Series A, was issued in accordance with the indenture described above. The bonds are due in annual installments of $10,000 to $735,000 from September 1, 2013 through September 1, 2040; interest at 3.25% to 6.25%. The bonds are subject to call and redemption prior to their stated maturity commencing September 1, 2013 at specified redemption prices. At June 30, 2011, the Authority has a cash reserve balance for debt service of $743,265, which is sufficient to cover the Bond Indenture Reserve Requirement of $743,000. Future debt requirements for the 2010 Series A Local Agency Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ - $ 447,138 $ 447,138 2013 - 447,138 447,138 2014 10,000 446,975 456,975 2015 20,000 446,463 466,463 2016 25,000 445,644 470,644 2017 -2021 315,000 2,196,894 2,511,894 2022 - 2026 690,000 2,072,078 2,762,078 2027 - 2031 1,230,000 1,804,928 3,034,928 2032 - 2036 2,015,000 1,314,844 3,329,844 2037 - 2041 3,125,000 521,094 3,646,094 Totals $ 7,430,000 $ 10,143,196 $ 17,573,196 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 33 - 5. LONG-TERM LIABILITIES (CONTINUED): A. Local Agency Revenue Bonds (Continued): 2011 Series A In June 2011, $5,365,000 principal amount of 2011 Local Agency Revenue Bonds, Series A, was issued in accordance with the indenture described above. The bonds are due in annual installments of $135,000 to $370,000 from September 1, 2012 through September 1, 2038; interest at 3.0% to 6.125%. The bonds are subject to call and redemption on and after their stated maturity commencing September 1, 2016 at redemption price equal to principal amount. At June 30, 2011, the Authority has a cash reserve balance for debt service of $427,175, which is sufficient to cover the Bond Indenture Reserve Requirement of $427,175. Future debt requirements for the 2011 Series A Local Agency Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ - $ 192,767 $ 192,767 2013 135,000 285,925 420,925 2014 140,000 281,800 421,800 2015 145,000 277,525 422,525 2016 145,000 273,175 418,175 2017 -2021 830,000 1,273,606 2,103,606 2022 - 2026 1,045,000 1,033,856 2,078,856 2027 - 2031 1,385,000 681,806 2,066,806 2032 - 2036 1,230,000 236,244 1,466,244 2037 - 2039 310,000 29,400 339,400 Totals $ 5,365,000 $ 4,566,104 $ 9,931,104 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 34 - 5. LONG-TERM LIABILITIES (CONTINUED): B. Tax Allocation Revenue Bonds: 1999 Series A In February 1999, $33,450,000 principal amount of Tax Allocation Revenue Bonds, Series A, was issued in accordance with the indenture described above. The term bonds are due in annual installments of $410,000 to $2,175,000 from September 1, 2000 through September 1, 2030; interest at 5.00% to 5.50%. The bonds are subject to call and redemption prior to their stated maturity commencing September 1, 2015, at specified redemption prices. The 1999 Series A Tax Allocation Revenue Bonds were refunded by the 2010 Series C Tax Allocation Revenue Bonds in October 2010 and retired in December 2010. 2010 Series A In February 2010, $15,435,000 principal amount of Tax Allocation Revenue Bonds, Series A, was issued in accordance with the indenture described above. The term bonds are due in annual installments of $305,000 to $2,910,000 from September 1, 2010 through September 1, 2033; interest at 2.00% to 5.25%. The bonds are subject to call and redemption prior to their stated maturity commencing September 1, 2024, at specified redemption prices. At June 30, 2011, the Agency has a cash reserve balance for debt service of $1,472,778, which is sufficient to cover the Bond Indenture Reserve Requirement of $1,471,914. Future debt requirements for the 2010 Series A Tax Allocation Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 305,000 $ 686,781 $ 991,781 2013 310,000 679,081 989,081 2014 315,000 669,707 984,707 2015 325,000 660,106 985,106 2016 330,000 651,106 981,106 2017 - 2021 1,835,000 3,087,306 4,922,306 2022 - 2026 2,225,000 2,676,153 4,901,153 2027 - 2031 2,830,000 2,034,638 4,864,638 2032 - 2033 6,280,000 431,024 6,711,024 Totals $ 14,755,000 $ 11,575,902 $ 26,330,902 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 35 - 5. LONG-TERM LIABILITIES (CONTINUED): B. Tax Allocation Revenue Bonds (Continued): 2010 Series B In May 2010, $10,855,000 principal amount of Tax Allocation Revenue Bonds, Series B, was issued in accordance with the indenture described above. The term bonds are due in annual installments of $515,000 to $895,000 from September 1, 2010 through September 1, 2025; interest at 2.00% to 4.75%. The bonds are subject to call and redemption prior to their stated maturity commencing September 1, 2019, at specified redemption prices. At June 30, 2011, the Agency has a cash reserve balance for debt service of $939,806, which is sufficient to cover the Bond Indenture Reserve Requirement of $939,538. Future debt requirements for the 2010 Series B Tax Allocation Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 545,000 $ 384,900 $ 929,900 2013 560,000 371,050 931,050 2014 575,000 354,025 929,025 2015 590,000 336,550 926,550 2016 610,000 318,550 928,550 2017 - 2021 3,355,000 1,271,163 4,626,163 2022 - 2026 4,105,000 490,350 4,595,350 Totals $ 10,340,000 $ 3,526,588 $ 13,866,588 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 36 - 5. LONG-TERM LIABILITIES (CONTINUED): B. Tax Allocation Revenue Bonds (Continued): 2010 Series C In October 2010, $29,435,000 principal amount of Tax Allocation Revenue Bonds, Series C, was issued in accordance with the indenture described above. The term bonds are due in annual installments of $650,000 to $2,115,000 from September 1, 2011 through September 1, 2030; interest at 2.00% to 5.00%. The bonds are subject to call and redemption on or after their stated maturity commencing September 1, 2020, at redemption price equal to principal amount. At June 30, 2011, the Agency has a cash reserve balance for debt service of $2,223,028, which is sufficient to cover the Bond Indenture Reserve Requirement of $2,222,395. Future debt requirements for the 2010 Series C Tax Allocation Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ 650,000 $ 1,083,714 $ 1,733,714 2013 1,140,000 1,065,814 2,205,814 2014 1,165,000 1,042,764 2,207,764 2015 1,190,000 1,019,214 2,209,214 2016 1,215,000 994,404 2,209,404 2017 - 2021 6,565,000 4,438,653 11,003,653 2022 - 2026 7,825,000 3,104,009 10,929,009 2027 - 2031 9,685,000 1,189,834 10,874,834 Totals $ 29,435,000 $ 13,938,406 $ 43,373,406 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 37 - 5. LONG-TERM LIABILITIES (CONTINUED): B. Tax Allocation Revenue Bonds (Continued): 2011 Series A In January 2011, $5,550,000 principal amount of Tax Allocation Revenue Bonds, Series A, was issued in accordance with the indenture described above. The term bonds are due in annual installments of $445,000 to $700,000 from September 1, 2012 through September 1, 2021; interest at 4.00% to 6.00%. The bonds are subject to call and redemption on and after their stated maturity commencing September 1, 2016, at redemption price equal to principal amount. At June 30, 2011, the Agency has a cash reserve balance for debt service of $539,738, which is sufficient to cover the Bond Indenture Reserve Requirement of $539,623. Future debt requirements for the 2011 Series A Tax Allocation Revenue Bonds are as follows: Year Ending June 30, Principal Interest Total 2012 $ - $ 323,422 $ 323,422 2013 445,000 286,613 731,613 2014 465,000 267,250 732,250 2015 485,000 246,481 731,481 2016 505,000 223,550 728,550 2017 - 2021 2,950,000 665,188 3,615,188 2022 700,000 21,000 721,000 Totals $ 5,550,000 $ 2,033,504 $ 7,583,504 LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 38 - 6. GOVERNMENTAL FUND BALANCE CLASSIFICATIONS: The Authority has implemented Governmental Accounting Standards Board Statement No. 54, “Fund Balance Reporting and Governmental Fund Type Definitions”, for the year ended June 30, 2011. The fund balances reported on the fund statements now consist of the following categories: Nonspendable Fund Balance - This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted Fund Balance - This classification includes amounts that can be spent only for specific purposes stipulated by constitution, external resource providers or through enabling legislation. Committed Fund Balance - This classification includes amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority. Assigned Fund Balance - This classification includes amounts to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds, other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. Unassigned Fund Balance - This classification includes all spendable amounts not contained in other classifications. The unassigned classification is used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed or assigned. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the Authority’s policy is to apply restricted fund balance first. When an expenditure is incurred for purposes for which committed, assigned or unassigned fund balances are available, the Authority’s policy is to apply committed fund balance first, then assigned fund balance, and finally unassigned fund balance. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 39 - 7. LIABILITY, PROPERTY AND PROTECTION: A. Description Self-Insurance Pool Pursuant to Joint Powers Agreement: The City is a member of the California Joint Powers Insurance Authority (Insurance Authority). The Insurance Authority is composed of 121 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the Insurance Authority is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group purchased insurance for property and other coverages. The Insurance Authority's pool began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a 9-member Executive Committee. B. Self-Insurance Programs of the Insurance Authority: A revised cost allocation methodology was introduced in 2010-11, however it retains many elements of the previous cost allocation methodology. Each member pays an annual contribution (formerly called the primary deposit) to cover estimated losses for the coverage period. This initial funding is paid at the beginning of the coverage period. After the close of the coverage period, outstanding claims are valued. A retrospective deposit computation is then conducted annually thereafter until all claims incurred during the coverage period are closed on a pool-wide basis. This subsequent cost re-allocation among members based on actual claim development can result in adjustments of either refunds or additional deposits required. The total funding requirement for self-insurance programs is estimated using actuarial models and pre-funded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) relative to other members of the risk- sharing pool. Additional information regarding the cost allocation methodology is provided below. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 40 - 7. LIABILITY, PROPERTY AND PROTECTION (CONTINUED): B. Self-Insurance Programs of the Insurance Authority (Continued): General Liability Insurance. In the liability program claims are pooled separately between police and non-police exposures. (1) The payroll of each member is evaluated relative to the payroll of other members. A variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. (2) The first layer of losses includes incurred costs up to $30,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. (3) The second layer of losses includes incurred costs from $30,000 to $750,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. (4) Incurred costs in excess of $750,000 up to the reinsurance attachment point of $5 million are distributed based on the outcome of cost allocation within the first and second loss layers. (5) Costs of covered claims from $5 million to $10 million are paid under a reinsurance contract subject to a $2.5 million annual aggregate deductible. Costs of covered claims from $10 million to $15 million are paid under two reinsurance contracts subject to a combined $3 million annual aggregate deductible. On a cumulative basis for all 2010-11 reinsurance contracts the annual aggregate deductible is $5.5 million. (6) Costs of covered claims from $15 million up to $50 million are covered through excess insurance policies. The overall coverage limit for each member including all layers of coverage is $50 million per occurrence. Costs of covered claims for subsidence losses are paid by reinsurance and excess insurance with a pooled sub-limit of $35 million per occurrence. This $35 million subsidence sub-limit is composed of (a) $5 million retained within the pool’s SIR, (b) $10 million in reinsurance and (c) $20 million in excess insurance. The excess insurance layer has a $20 million annual aggregate. C. Purchased Insurance: All Risk Property Insurance - The City participates in the all-risk property protection program of the Insurance Authority. This insurance protection is underwritten by several insurance companies. The City’s property is currently insured according to a schedule of covered property submitted by the City to the Insurance Authority. The City’s property currently has all-risk property insurance protection in the amount of $35,808,267. There is a $5,000 deductible per occurrence except for non-emergency vehicle insurance which has a $1,000 deductible. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. LAKE ELSINORE PUBLIC FINANCING AUTHORITY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2011 See independent auditors’ report. - 41 - 7. LIABILITY, PROPERTY AND PROTECTION (CONTINUED): C. Purchased Insurance (Continued): Crime Insurance The City purchases crime insurance coverage in the amount of $1,000,000 with a $2,500 deductible. The fidelity coverage is provided through the Insurance Authority. Premiums are paid annually and are not subject to retroactive adjustments. D. Adequacy of Protection: During the past three fiscal (claims) years, none of the above programs of protection have experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured liability coverage in 2010-2011. The aforementioned information is not included in the accompanying financial statements. Complete financial statements for the California Joint Powers Insurance Authority may be obtained from their administrative office located at 8081 Moody Street, La Palma, California 90623. 8. CONTINGENCIES: As of June 30, 2011, in the opinion of the Authority’s management, there are no outstanding matters which would have a significant effect on the financial condition of the funds of the Authority. 9. SUBSEQUENT EVENTS: Issuance of Local Agency Revenue Bonds 2011 Series B In November 2011, the Authority issued Local Agency Revenue Bonds 2011 Series B in the aggregate principal amount of $1,405,000. The proceeds were used to refund the 1996 Series E bonds and acquire local obligation bonds. - 42 - THIS PAGE INTENTIONALLY LEFT BLANK - 43 - SUPPLEMENTARY INFORMATION 199519961997 Series ASeries ESeries F BondsBondsBonds Cash and investments4,116$ 2,684$ 19$ Cash and investments with fiscal agents- 1,361,253 - Interest receivable4 3 - Loans receivable from LERDA - - - TOTAL ASSETS4,120$ 1,363,940$ 19$ FUND BALANCES: Nonspendable: Loans receivable from LERDA - - - Restricted for: Debt service4,120 1,363,940 19 TOTAL FUND BALANCES4,120 1,363,940 19 TOTAL LIABILITIES AND FUND BALANCES4,120$ 1,363,940$ 19$ See independent auditors' report. Debt Service Funds - 44 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS June 30, 2011 ASSETS LIABILITIES AND FUND BALANCES Total 199919992010201020112011Other Series CSeries GSeries BSeries ASeries ASeries AGovernmental BondsBondsBondsBondsBondsBondsFunds 3,588$ -$ -$ -$ -$ -$ 10,407$ - 2,078,316 - 7,200,276 - 5,193,050 15,832,895 3 - - - - - 10 - - 10,340,000 - 5,550,000 - 15,890,000 3,591$ 2,078,316$ 10,340,000$ 7,200,276$ 5,550,000$ 5,193,050$ 31,733,312$ - - 10,340,000 - 5,550,000 - 15,890,000 3,591 2,078,316 - 7,200,276 - 5,193,050 15,843,312 3,591 2,078,316 10,340,000 7,200,276 5,550,000 5,193,050 31,733,312 3,591$ 2,078,316$ 10,340,000$ 7,200,276$ 5,550,000$ 5,193,050$ 31,733,312$ Debt Service Funds (Continued) - 45 - 199519961997 Series ASeries ESeries F BondsBondsBonds REVENUES: Investment income 17$ 97,976$ -$ Other revenues- - - TOTAL REVENUES17 97,976 - EXPENDITURES: Current: Professional services- 9 - Debt service: Bond issuance costs- - - Principal retirement- 45,000 - Interest and fiscal charges- 102,225 - TOTAL EXPENDITURES- 147,234 - EXCESS OF REVENUES OVER (UNDER) EXPENDITURES17 (49,258) - OTHER FINANCING SOURCES (USES): Local agency revenue bonds issued - - - Tax allocation bonds issued - - - TOTAL OTHER FINANCING SOURCES (USES)- - - CHANGES IN FUND BALANCES17 (49,258) - FUND BALANCES - BEGINNING OF YEAR 4,103 1,413,198 19 FUND BALANCES - END OF YEAR4,120$ 1,363,940$ 19$ See independent auditors' report. - 46 - LAKE ELSINORE PUBLIC FINANCING AUTHORITY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS For the year ended June 30, 2011 Debt Service Funds Total 199919992010201020112011Other Series CSeries GSeries BSeries ASeries ASeries AGovernmental BondsBondsBondsBondsBondsBondsFunds 14$ 119,954$ 325,386$ 152,893$ -$ -$ 696,240$ - - - 99,865 - - 99,865 14 119,954 325,386 252,758 - - 796,105 - 61 - 5,846 - 7,926 13,842 - - - 348,748 - 164,024 512,772 - 240,000 515,000 - - - 800,000 - 90,480 325,386 127,888 - - 645,979 - 330,541 840,386 482,482 - 171,950 1,972,593 14 (210,587) (515,000) (229,724) - (171,950) (1,176,488) - - - 7,430,000 - 5,365,000 12,795,000 - - - - 5,550,000 - 5,550,000 - - - 7,430,000 5,550,000 5,365,000 18,345,000 14 (210,587) (515,000) 7,200,276 5,550,000 5,193,050 17,168,512 3,577 2,288,903 10,855,000 - - - 14,564,800 3,591$ 2,078,316$ 10,340,000$ 7,200,276$ 5,550,000$ 5,193,050$ 31,733,312$ - 47 - Debt Service Funds (Continued)