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HomeMy WebLinkAbout0003_7_Financial Reports 2015-16 - Exhibit F RA Financial Statments LAKE ELSINORE RECREATION AUTHORITY FINANCIAL STATEMENTS Year Ended June 30, 2016 Lake Elsinore Recreation Authority Financial Statements Year Ended June 30, 2016 TABLE OF CONTENTS PAGE Independent Auditors’ Report 1 - 2 Basic Component Unit Financial Statements: Government-wide Financial Statements: Statement of Net Position 3 Statement of Activities 4 Fund Financial Statements: Balance Sheet - Governmental Fund 5 Reconciliation of the Balance Sheet to the Statement of Net Position - Governmental Fund 6 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Fund 7 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities - Governmental Fund 8 Notes to Financial Statements 9 - 16 INDEPENDENT AUDITORS' REPORT Board of Directors Lake Elsinore Recreation Authority Lake Elsinore, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and the major fund of the Lake Elsinore Recreation Authority (the “Authority”), a component unit of the City of Lake Elsinore, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Authority, as of June 30, 2016, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Richard A. Teaman, CPA David M. Ramirez, CPA Javier H. Carrillo, CPA Bryan W͘Daugherty, CPA Joshua :͘Calhoun, CPA 4201 Brockton AveŶƵĞ Suite 100Riverside CA 92501 951.274.9500d> 951.274.7828 FAX www.trscpas.com 2 Emphasis of Matter Change in Accounting Principle As described in Note 1 to the financial statements, in 2016, the Authority adopted new accounting guidance, GASB Statement No. 72, Fair Value Measurement and Application. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Management has omitted 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 30, 2016, on our consideration of the City of Lake Elsinore’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority’s internal control over financial reporting and compliance. Riverside, California December 30, 2016 Governmental Activities ASSETS Cash and Investments with Fiscal Agent 1,726,806$ Prepaids 85,387 Interest Receivable 220,708 Lease Receivable 12,750,000 Total Assets 14,782,901 DEFERRED OUTFLOWS OF RESOURCES Deferred Charge on Refunding 193,122 Total Deferred Outflows of Resources 193,122 LIABILITIES Deposits Payable 1,131,700 Interest Payable 220,708 Noncurrent: Due Within One Year 600,000 Due in More Than One Year 12,117,253 Total Liabilities 14,069,661 NET POSITION Restricted for Debt Service 906,362 Total Net Position 906,362$ Statement of Net Position June 30, 2016 Lake Elsinore Recreation Authority The accompanying notes are an integral part of this statement. 3 Program Revenues Charges Operating Capital Net for Grants and Grants and (Expense) Functions/Programs Expenses Services Contributions Contributions Revenue Governmental Activities: General Government 3,163$ $ $ $ (3,163)$ Interest on Long-term Debt 554,344 539,850 (14,494) Total Governmental Activities 557,507$ 0$ 539,850$ 0$ (17,657) General Revenues: Investment Earnings 328 Miscellaneous 570 Total General Revenues 898 Change in Net Position (16,759) Total Net Position - Beginning 923,121 Total Net Position - Ending 906,362$ Lake Elsinore Recreation Authority Statement of Activities Year Ended June 30, 2016 The accompanying notes are an integral part of this statement. 4 Debt Service ASSETS Cash and Investments with Fiscal Agent 1,726,806$ Prepaids 85,387 Total Assets 1,812,193$ LIABILITIES AND FUND BALANCE Liabilities: Accounts Payable 0$ Total Liabilities 0 Fund Balance: Nonspendable for Prepaids 85,387 Restricted for Debt Service 1,726,806 Total Fund Balance 1,812,193 Total Liabilities and Fund Balance 1,812,193$ Balance Sheet - Governmental Fund June 30, 2016 Lake Elsinore Recreation Authority The accompanying notes are an integral part of this statement. 5 Fund Balance (Deficit) for Governmental Fund 1,812,193$ Amounts reported for governmental activities in the Statement of Net Position are different because: Long-term assets which are not considered to be current financial resources are not reported in the governmental fund. Interest Receivable 220,708 Lease Receivable 12,750,000 Long-term liabilities are not due and payable in the current period and are not reported in the governmental fund. Deferred Charges on Refunding 193,122 Deposits Payable (1,131,700) Interest Payable (220,708) Long-term Liabilities (12,717,253) Net Position of Governmental Activities 906,362$ Lake Elsinore Recreation Authority Reconciliation of the Balance Sheet to the Statement of Net Position June 30, 2016 Governmental Fund The accompanying notes are an integral part of this statement. 6 Debt Service REVENUES Lease Revenue 1,127,100$ Investment Earnings 227 Miscellaneous 570 Total Revenues 1,127,897 EXPENDITURES Current: Professional Services 3,163 Debt Service: Principal Retirement 580,000 Interest and Fiscal Charges 547,100 Total Expenditures 1,130,263 Excess (Deficiency) of Revenues over Expenditures (2,366) Net Change in Fund Balance (2,366) Fund Balance, Beginning 1,814,559 Fund Balance, Ending 1,812,193$ Statement of Revenues, Expenditures, and Changes in Fund Balance Year Ended June 30, 2016 Lake Elsinore Recreation Authority Governmental Fund The accompanying notes are an integral part of this statement. 7 Net Change in Fund Balance (Deficit) - Total Governmental Fund (2,366)$ Amounts reported for governmental activities in the Statement of Activities are different because: The governmental fund reports the receipt of lease principal payments as revenue, but repayments of the principal are included as a reduction of the lease receivable in the Statement of Net Position. Interest on Lease Receivable (7,250) Principal Lease Payments (580,000) 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 postion. These amounts are the effect of these differences in the treatment of long-term debt. Long-term Debt Principal Payments 580,000 Investment earnings on long-term deposits payable are reported as governmental fund revenues but these amounts increase long-term deposits payable reported on the Statement of Net Position. Investment Earnings on Deposits Payable 101 Some expenses reported in the Statement of Activities do not require the use of current financial resources and are not reported as governmental fund expenses. Amortization of Deferred Charges on Refunding (12,393) Amortization of Bond Discount (2,101) Interest and Fiscal Charges 7,250 Change in Net Position of Governmental Activities (16,759)$ Lake Elsinore Recreation Authority Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Fund Year Ended June 30, 2016 The accompanying notes are an integral part of this statement. 8 Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 9 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Reporting Entity The Lake Elsinore Recreation 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”), which was dissolved effective February 1, 2012, created by a joint powers agreement dated December 1, 1996. The Recreation Authority continues to function without the Agency. The purpose of the Authority is to provide, through the issuance of revenue bonds, a financing pool to fund capital improvement projects. These revenue bonds are to be repaid solely from the revenues of certain public obligations. The Authority does not have taxing power. The City Council also acts as the governing body of the Authority. The Authority's activities in these financial statements are reported as a debt service fund. 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 of Lake Elsinore. The Authority is an integral part of the reporting entity of the City of Lake Elsinore. The funds of the Authority have been blended within the financial statements of the City because the City Council of the City of Lake Elsinore 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 not purport to represent the financial position or results of operations of the City of Lake Elsinore. B) Implementation of Governmental Accounting Standards Board (GASB) Pronouncements Governmental Accounting Standard Board Statement No. 72 In February of 2015, GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. Statement No. 72 is effective for periods beginning after June 15, 2015. The Authority implemented GASB No. 72 and is reflected on the Authority’s financial statements. C) 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. The more significant accounting policies reflected in the financial statements are summarized as follows: Government-wide Financial Statements: The Government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the 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. 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. Taxes and other items that are properly not included among program revenues are reported instead as general revenues. Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 10 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C) Basis of Presentation - Continued As part of the basic financial statements, separate fund financial statements are provided for governmental funds. The Authority has only one governmental fund, which is reported as a major fund. D) Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the full 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. 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 therefore recognized as revenues on the current fiscal period. The Authority reports the following major governmental fund: The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, long-term debt principal, interest and related costs. 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. E) Investments Investments are stated at fair value. Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 11 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued F) Prepaids Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaids in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. The Authority’s prepaids represent bond insurance being allocated over the life of the related debt. G) Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority only has one item that qualifies for reporting in this category. It is the deferred charge on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. Currently, the Authority does not report any deferred inflows. H) Net Position GASB No. 63 requires that the difference between assets, liabilities and deferred inflows/outflows of resources be reported as net position. Net position is classified as either net investment in capital assets, restricted, or unrestricted. Net position classified as net investment in capital assets consists of capital assets, net of accumulated depreciation and reduced by the outstanding principal of related debt. Restricted net position is the net position that has external constraints placed on them by creditors, grantors, contributors, laws, or regulations of other governments, or through constitutional provisions, or enabling legislation. Unrestricted net position consists of net position that does not meet the definition of net investment in capital assets or restricted net position. I) 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 special purpose. Assigned fund balance represents tentative management plans that are subject to change. J) 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, deferred outflows/inflows of resources, 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. Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 12 2) CASH AND INVESTMENTS The Authority’s cash and investments are held by outside fiscal agents under the provisions of bond indentures. Investment of cash with fiscal agents is governed by the trust indenture. Investments Authorized by Debt Agreements Investments 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. Investments authorized for funds held by bond trustee include U.S. Treasury Obligations, U.S. Government Sponsored Agency Securities, Commercial Paper, Local Agency Bonds, Banker’s Acceptance and Money Market Funds. There were no limitations on the maximum amount that can be invested in one issuer, maximum percentage allowed or the maximum maturity of an investment. 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 shorter term investments to provide the cash flow and liquidity needed for operations. The Authority’s cash and investments of $1,726,806 consisted of mutual funds, and the fair value of the mutual funds is not affected by changes in interest rates. 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. At June 30, 2016, the minimum required rating for the investment in mutual funds is A. The actual rating by Standard and Poor’s of the investment was AAA. 3) FAIR VALUE MEASUREMENTS Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurements and Application, provides the framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value with Level 1 given the highest priority and Level 3 the lowest priority. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the organization has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following: a. Quoted prices for similar assets or liabilities in active markets. b. Quoted prices for identical or similar assets or liabilities in markets that are not active. Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 13 3) FAIR VALUE MEASUREMENTS - Continued c. Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level 3 inputs are unobservable inputs for the asset or liability. Fair value of assets measured on a recurring basis at June 30, 2016, are as follows: Fair Value Uncategorized Investments: Held by Fiscal Agent: Money Market Funds $ 1,726,806 $ 1,726,806 Total Investments $ 1,726,806 $ 1,726,806 The above investments are uncategorized under the fair value hierarchy. The money market funds are exempt under GASB No. 72 fair value measurements. 4) LEASE RECEIVABLE AND DEPOSITS PAYABLE The Authority has entered into a lease agreement with the City to lease certain recreation facilities financed with the proceeds of the 2013 Series A Revenue Refunding Bonds. Under the lease agreement, the Authority receives lease payments in an amount to pay the debt service on the 2013 Series A Revenue Refunding Bonds (see Note 4). The lease receivable balance at June 30, 2016 amounted to $12,750,000. As part of the bond issuance related to the lease, the Authority retained amounts for a reserve account. The amounts retained are reflected as deposits payable in the Statement of Net Position. The deposits payable balance at June 30, 2016 is $1,131,700. 5) LONG-TERM LIABILITIES The following is a summary of changes in long-term liabilities for governmental activities: Date of Years of Rates of Amount Issue Maturity Interest Authorized 2013 Revenue Refunding Bonds, Series A 9/13 2013-2032 3% to 5% $ 14,460,000 Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 14 5) LONG-TERM LIABILITIES - Continued Beginning Ending Due Within Balance Additions Retirements Balance One Year 2013 Revenue Refunding Bonds, Series A $ 13,330,000 $ $ 580,000 $ 12,750,000 $ 600,000 Bond Discount (34,848) (2,101) (32,747) Total $ 13,295,152 $ 0 $ 577,899 $ 12,717,253 $ 600,000 6) REVENUE BONDS 2013 Series A In September 2013, $14,460,000 principal amount of 2013 Revenue Refunding Bonds, Series A, was issued in accordance with the indenture to provide funds to advance refund the 2000 Revenue Refunding Bonds, Series A. The original purpose of the prior bonds was to finance the Authority’s lease of certain City recreation facilities from the City for lease back to the City. The term bonds are due in annual installments of $565,000 to $1,075,000 from February 1, 2014 through February 1, 2032; interest rates varying from 3.00% to 5.00%. The bonds are subject to call and redemption prior to their stated maturity commencing February 1, 2024, at specified redemption prices. At June 30, 2016, the Authority has a cash reserve balance for debt service of $1,131,700, which is sufficient to cover the Bond Indenture Reserve Requirement of $1,131,700. Future debt requirements for the Revenue Bonds are as follows: 2013 Series A Year Ending June 30, Principal Interest Total 2017 $ 600,000 $ 529,700 $ 1,129,700 2018 620,000 511,700 1,131,700 2019 635,000 493,100 1,128,100 2020 655,000 474,050 1,129,050 2021 675,000 454,400 1,129,400 2022 - 2026 3,800,000 1,844,012 5,644,012 2027 - 2031 4,690,000 955,988 5,645,988 2032 1,075,000 53,750 1,128,750 Total $ 12,750,000 $ 5,316,700 $ 18,066,700 Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 15 7) LIABILITY, PROPERTY AND PROTECTION Description Self-Insurance Pool Pursuant to Joint Powers Agreement To account for risks of loss and liability claims, the Authority participates in the City’s liability, property and protection policy. The City of Lake Elsinore is a member of the California Joint Powers Insurance Authority (Authority). The Authority is composed of 116 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the 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 lines of coverage. The California JPIA 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 nine- member Executive Committee. Self-insurance Programs of the Insurance Authority Each member pays an annual contribution at the beginning of the coverage period. A retrospective adjustment is then conducted annually thereafter, for coverage years 2012-13 and prior, until all claims incurred during those coverage years 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. Coverage years 2013-14 and forward are not subject to routine annual retrospective adjustment. 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. Liability - In the liability program claims are pooled separately between police and general government 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 with 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 to $50 million are distributed based on the outcome of cost allocation within the first and second loss layers. For 2015-16 the Authority’s pooled retention is $2 million per occurrence, with reinsurance to $20 million, and excess insurance to $50 million. The Authority’s reinsurance contracts are subject to the following additional pooled retentions: (a) $2.5 million annual aggregate deductible in the $3 million x/s $2 million layer, b) $3 million annual aggregate deductible in the $5 million x/s $10 million layer. There is a third annual aggregate deductible in the amount of $2.5 million in the $5 million x/s $5 million layer, however it is fully covered under a separate policy and therefore not retained by the Authority. The overall coverage limit for each member, including all layers of coverage, is $50 million per occurrence. Costs of covered claims for subsidence losses have a sub-limit of $30 million per occurrence. Lake Elsinore Recreation Authority Notes to Financial Statements Year Ended June 30, 2016 16 7) LIABILITY, PROPERTY AND PROTECTION - Continued Self-insurance Programs of the Insurance Authority - Continued Workers’ Compensation - In the workers’ compensation program claims are pooled separately between public safety (police and fire) and general government 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 $50,000 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 $50,000 to $100,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. (4) Incurred costs from $100,000 to statutory limits are distributed based on the outcome of cost allocation within the first and second loss layers. For 2015-16 the Authority’s pooled retention is $2 million per occurrence, with reinsurance to statutory limits under California Workers’ Compensation Law. Employer’s Liability losses are pooled among members to $2 million. Coverage from $2 million to $5 million is purchased as part of a reinsurance policy, and Employer’s Liability losses from $5 million to $10 million are pooled among members. Purchased Insurance Property Insurance - The City of Lake Elsinore participates in the all-risk property protection program of the Authority. This insurance protection is underwritten by several insurance companies. City of Lake Elsinore property is currently insured according to a schedule of covered property submitted by the City of Lake Elsinore to the Authority. City of Lake Elsinore property currently has all-risk property insurance protection in the amount of $41,623,755. 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. 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 Authority. Premiums are paid annually and are not subject to retroactive adjustments. Adequacy of Protection During the past three fiscal years, none of the above programs of protection experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured liability coverage in 2015-16. 8) CONTINGENCIES As of June 30, 2016, 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.