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HomeMy WebLinkAbout09 CAFR FOR YEAR ENDED 06-30-12,. • Agenda Item 9 AGENDA REPORT Reviewed: City Manager IV Finance Director MEETING DATE: FEBRUARY 5, 2013 TO: JEFFREY C. PARKER. CITY MANAGER FROM: PAMELAARENDS-KING, FINANCE DIRECTOR SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30TH 2012 SUMMARY: The City engages an independent certified public accounting firm to complete an annual audit of the City's financial records. There are a number of reports such as the Comprehensive Annual Financial Report (CAFR), produced as a result of the annual audit and there are actions that are required by the City's governing board (City Council) to meet the requirements of various auditing standards, such as meeting with the auditing firm that conducted the audit to discuss the audit and internal control issues. RECOMMENDATION: 1. Receive and file the CAFR for the year ended June 30, 2012. 2. Receive and file the additional letters and reports: Management Letter, Significant Audit Findings Letter, Government Auditing Standards Letter, Appropriations Limit Worksheet 3. Discuss the audit and internal controls with the independent certified public accounting firm, White Nelson Diehl Evans LLP, who conducted the audit. FISCAL IMPACT: The independent certified public accounting firm that the City contracted with to complete the annual audit is White Nelson Diehl Evans LLP. Total cost of the annual audit including the Single Audit is $48,835. Of this amount, 15% or $7,325 is charged to the Redevelopment Agency (RDA), 25% or $12,209 is charged to the Water Enterprise Fund and 60% or $29,301 is charged to the General Fund. BACKGROUND: The reports that are produced for the fiscal year ending June 30, 2012 are the CAFR; the City State Controllers report; the Single Audit report (the audit of the federal grants awarded to the City); and the report of the auditors consideration of the City's internal control over financial reporting and on their tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The auditors are in the process of completing the Single Audit, which is due to the Federal Government in March 2013. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2012 February 5, 2013 Page 2 of 3 The CAFR consists of a transmittal letter, independent auditor's report, a management's discussion and analysis (MD & A); basic financial statements; notes to the financial statements; supplementary information and a statistical section. The MD & A presents an overview of the basic financial statements and what each section consists of and discusses financial highlights for the year ended June 30, 2012. General Fund financial highlights for the year ended June 30, 2012 are as follows: • General Fund expenditures were $52.7 million, $4 million more than prior year's expenditures and $1.2 million less than originally budgeted. The increase in expenditures is primarily ($1.7 million) due to the decrease in reimbursement of overhead from the Tustin Community Redevelopment Agency (TCRA) and the increase in claims paid, utility and fuel costs, and pension contribution rates. Also contributing to the increase, public safety expenditures were $1.2 million higher due to the filling of vacant positions and increase in pension contribution rates. • General Fund revenues were $57.4 million. Revenues received were $9.7 million more than prior fiscal year primarily due to an $8.6 million increase in other revenue. This increase in other revenue was due to funds received from the Successor Agency to the TCRA (Successor Agency) for reimbursement of costs related to the Newport Boulevard extension project. In addition sales tax revenues were $1.3 million higher than the prior year. Revenues were $9.7 million higher than what was projected for fiscal year 2011/2012 for the same reasons. • Total revenues and transfers in of $57.6 million exceeded total expenditures of $52.7 million, by $4.9 million. This excess revenue was offset by an extraordinary loss of $7.9 million due to the transfer of assets and liabilities to the Successor Agency, due to the dissolution of TCRA on 2/1/2012. The assets and liabilities of the TCRA were transferred to the Successor Agency private purpose trust fund. Therefore, the General Fund's fund balance of $151.6 million as of June 30, 2011 decreased to $148.7 million as of June 30, 2012. Of the $148.7 million, $144.5 million are nonspendable funds primarily due to a total of $144 million in land held for resale and $4 million are unassigned and/or spendable funds not contained in other classifications. Other Financial Highlights for the year ended June 30, 2012 are as follows: • The City's assets, which encompass all governmental and business type activities (i.e. General Fund, Special Revenue Funds, Capital Projects Funds and the Water Enterprise Fund) as of June 30, 2012, exceeded its liabilities by $636.2 million (net assets). The net assets consist of $438.2 million invested in capital assets, net of related debt, $47.7 million in restricted net assets and $150.3 million in unrestricted net assets. Total net assets decreased $2.4 million from the prior fiscal year. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2012 February 5, 2013 Page 3 of 3 Net Long-term liabilities decreased $78.3 million. The net decrease is primarily due to the transfer of tax allocation bond debt to the Successor Agency due to the dissolution of the TCRA. A more thorough discussion of the financial activities for the year ended June 30, 2012 is presented in the MD & A. The City did not have any significant audit findings and there were two material misstatements that were detected relating to adjustments to the dissolution of the TCRA and capitalization of interest that were corrected. There was only one Auditors' Comment in the Management Letter. The comment was to adopt a formal purchasing policy which staff will be bringing back to the City Council. Pamela Arends-King, Finance Dir for Attachments: Comprehensive Annual Financial Report for the year ended June 30, 2012 Management Letter Significant Audit Findings Letter Government Auditing Standards Letter Appropriations Limit Worksheet ATTACHMENT 1 COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR YEAR ENDED JUNE 30, 2012 C1 Y OF US INI Comprehensive Annual Financial Report For the year ended June 30th, 2012 Photo contest winner for the "15 and Under" category Adriana - Boys & Girls Club Photo contest winner for the "amateur" category Ed Rice Photo contest winner for the "professional' category Mark Settles TUSTIN CITY COUNCIL JOHN NIELSEN, MAYOR AL MURRAY, MAYOR PRO TEM JERRY AMANTE DEBORAH GAVELLO� REBECCA "BECKIE" GOMEZ CITY OF TUSTIN COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BYINDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30, 2012 Prepared By: Finance Department CITY OF TUSTIN TABLE OF CONTENTS For the year ended June 30, 2012 INTRODUCTORY SECTION: Page Number Elected and Administrative Officials i Letter of Transmittal iii Organization Chart vii GFOA Certificate of Achievement for Excellence in Financial Reporting viii FINANCIAL SECTION: Independent Auditors' Report 1 Management's Discussion and Analysis (Required Supplementary Information - Unaudited) 3 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Assets 15 Statement of Activities 16 Fund Financial Statements: Governmental Funds: Balance Sheet 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 19 Statement of Revenues, Expenditures and Changes in Fund Balances 20 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 21 Proprietary Fund: Statement of Net Assets 22 Statement of Revenues, Expenses and Changes in Net Assets 23 Statement of Cash Flows 24 Fiduciary Funds: Statement of Fiduciary Net Assets 26 Statement of Changes in Fiduciary Net Assets 27 Notes to Basic Financial Statements 29 CITY OF TUSTIN TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2012 Page Number REQUIRED SUPPLEMENTARY INFORMATION: 73 Schedule of Funding Progress for PERS and Post -Employment Benefit Plan 75 Budgetary Comparison Schedule - General Fund 76 Note to Required Supplementary Information 77 SUPPLEMENTARY INFORMATION: 79 Other Governmental Funds: 81 Combining Balance Sheet 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 88 Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Gas Tax Special Revenue Fund 92 Measure M Special Revenue Fund 93 Park Acquisition and Development Special Revenue Fund 94 Asset Forfeiture Special Revenue Fund 95 Air Quality Special Revenue Fund 96 Supplemental Law Enforcement Special Revenue Fund 97 Housing Authority Special Revenue Fund 98 Agency Funds: 99 Combining Statement of Assets and Liabilities 100 Combining Statement of Changes in Assets and Liabilities 101 STATISTICAL SECTION (UNAUDITED): 105 Description of Statistical Section Contents 107 Financial Trends Net Assets by Component - Last Eight Fiscal Years 108 Changes in Net Assets - Expenses and Program Revenues - Last Eight Fiscal Years 110 Changes in Net Assets - General Revenues - Last Eight Fiscal Years 112 Fund Balances of Governmental Funds - Last Eight Fiscal Years 114 Changes in Fund Balances of Governmental Funds - Last Eight Fiscal Years 116 CITY OF TUSTIN TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2012 Page Number STATISTICAL SECTION (UNAUDITED) (CONTINUED): Revenue Capacity: Assessed Value and Estimated Actual Values of Taxable Property - Last Ten Fiscal Years 118 Direct and Overlapping Property Tax Rates - Last Eight Fiscal Years 120 Principal Property Taxpayers - Current Year and Nine Years Ago 122 Property Tax Levies and Collections - Last Eight Fiscal Years 123 Debt Capacity Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 124 Ratio of General Bonded Debt Outstanding - Last Ten Fiscal Years 126 Overlapping Debt Schedule 127 Legal Debt Margin Information - Last Ten Fiscal Years 128 Pledged -Revenue Coverage - Last Ten Fiscal Years 130 Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Calendar Years 132 Principal Employers - Current Year and Six Years Ago 133 Operating Information Full -Time City Employees by Function - Last Ten Fiscal Years 134 Capital Asset Statistics by Function - Last Ten Fiscal Years 135 Water District Schedules for Revenue Capacity: Water Consumption by Customer Type - Last Ten Fiscal Years 136 Water Rates - Last Ten Fiscal Years 138 Water Customers - Current Year and Six Years Ago 139 CITY OF TUSTIN Elected and Administrative Officials MAYOR John Nielsen CITY COUNCIL Al Murray, Mayor Pro Tem Jerry Amante Deborah Gavello Rebecca "Beckie" Gomez AUDIT COMMISSION Craig Shimomura, Chair R. Lawrence Friend, Chair Pro Tem Robert Ammann Richard G. Hilde Gregory C. Moore CITY MANAGER David E. Kendig City Attorney George W. Jeffries City Treasurer Elizabeth A. Binsack Director, Community Development Pamela Arends-King Director, Finance Douglas S. Stack Director, Public Works / City Engineer Jeffrey C. Parker -i- Pamela Stoker City Clerk VACANT Assistant City Manager Scott M. Jordan Chief of Police Kristi Recchia Director, Human Resources David Wilson Director, Parks and Recreation Services The page left blank intentionally Finance Department January 25, 2013 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL CITIZENS OF THE CITY OF TUSTIN City of Tustin Tustin, California 92780 TUSTIN HIsTURY BUILDING OUR FUTURE HONORING OUR PAST The Comprehensive Annual Financial Report (CAFR) of the City of Tustin for the fiscal year ended June 30, 2012, is hereby submitted. These statements have been prepared in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by an independent public accounting firm of licensed certified public accountants. The report consists of management's representations concerning the finances of the City of Tustin. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with management. To provide a reasonable basis for making these representations, management has established an internal control framework that is designed both to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City's framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds and component units of the City of Tustin. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The City of Tustin's financial statements for the year ended June 30, 2012, have been audited by White Nelson Diehl Evans LLP, an independent public accounting firm of licensed certified public accountants. The independent auditor concluded, based upon the audit, that there was a reasonable basis. for rendering an unqualified opinion that the City of Tustin's financial statements for the fiscal year ended June 30, 2012, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. 300 Centennial Way, Tustin, CA 92780 • P: (714) 573.3060 0 F: (714) 832-0825 8 www.tustinca.org GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Tustin's MD&A can be found immediately following the report of the independent auditors. PROFILE OF THE CITY OF TUSTIN The City of Tustin is located in the central part of Orange County, about forty miles southeast of Los Angeles and eighty miles north of San Diego, at the intersection of the 5 and 55 Freeways. Tustin covers over eleven square miles and adjoins the cities of Orange, Santa Ana and Irvine. The State of California Department of Finance has estimated the City's January 1, 2012 population at 76,567, a one percent increase from 2011. While the City is surrounded by much of the County's main industrial employment, it is essentially a residential community. The City was incorporated under the General Laws of the State of California in 1927 as the "City of Tustin". Government was by a five member elected City Council. The Council/Administrator form of city government was adopted in 1965 and was modified to the Council/Manager form in 1981. Council members serve staggered, four-year terms, with a two consecutive term limit. The Mayor is selected by the City Council from among its membership and serves a one-year term. The City Manager is appointed by the City Council to carry out the policies and direction of the City Council, oversee the day-to-day operations of the City and appoint department heads. Tustin is a full service City. The services provided by the City include police, street and park maintenance, water, recreation, traffic/transportation, public improvements, planning, zoning, and general administrative services. The City contracts with the Orange County Fire Authority for fire suppression services. Also included in the City's overall operations are the Tustin Community Redevelopment Agency (TCRA), the Tustin Public Financing Authority and the City of Tustin Housing Authority (Housing Authority). The activities of all three entities are included in these financial statements. On February 1, 2012, the Tustin Community Redevelopment Agency dissolved with the passage of California State Assembly Bill lx 26. The TCRA activities transferred to the Successor Agency to the Tustin Community Redevelopment Agency (Successor Agency). The resources and activities of the Successor Agency are reported in a separate Private -Purpose Trust fund, which is included in these financial statements. Additional information regarding the dissolution of the TCRA and the Successor Agency is available in Note 1, Note 16 and Note 17 to the basic financial statements. Additional information for the Tustin Public Financing Authority and the Tustin Housing Authority is available in Note 1 of the Notes to Basic Financial Statements. The key element of the City's financial management process is the development and approval of the annual budget. The City Council conducts various open budget workshops as necessary and adopts the budget at a noticed public meeting. The budget is prepared pursuant to generally accepted accounting principles (GAAP) and is balanced by fund. The level of appropriations is controlled by the City Council for each fund. The City Manager is authorized to transfer appropriations within the fund between the various programs and/or departments. Budgetary control is maintained by a real-time financial reporting system. Budget to actual comparisons are provided through display or reports and through budget controls set within the purchasing and accounts payable modules for each individual governmental fund for which an appropriated annual budget has been adopted. - 1V - For the General Fund this comparison is presented on page 76 as part of the required supplementary information and for nonmajor governmental funds this comparison is presented on pages 92 — 98 as part of the other supplementary information for the governmental funds. Successor Agency expenses are restricted by the State of California Department of Finance (DOF) to enforceable obligations. The enforceable obligations are approved every six months by the DOF through the submission of a Recognized Obligation Payment Schedule. ECONOMIC OUTLOOK The State of California continues to slowly recover from the economic downturn. The statewide unemployment rate has dropped from 11.3% in November 2011 to 9.8% for November 2012, which is 2.1% higher than the United States unemployment rate of 7.7% for November 2012. The Orange County unemployment rate has decreased 1.1% from November 2011 to 7.0% for November 2012. The continuing recovery from the recession has resulted in an increase in sales tax revenue, which is the General Fund's largest revenue source. Annual Sales tax revenue went from $20.4 million in fiscal year 2007-2008 to $15.9 million in fiscal year 2009-2010, a 22% decline over three years; however sales tax increased $2.7 million in fiscal year 2010-2011 to $18.6 million and increased $1.3 million in fiscal year 2011-12 to $19.6 million. Sales tax revenue for fiscal year 2012-13 is expected to increase $1 million. Property tax revenue is the City's second largest revenue source. Property tax revenue has remained flat from prior fiscal year. Total property tax revenue received was $7.8 million and is estimated to remain flat for fiscal year 2012-13. Construction at the Marine Corp Air Station Base (base) that was planned before the economic downturn continues. The City is currently in discussion with developers and commercial companies for the development of areas of the base. The new proposed development will consist of construction for commercial, retail and residential purposes. The City will be completing the construction of a fire station and the Tustin Ranch Road extension project by the end of 2013 within the base area. The dissolution of the TCRA has had a significant impact on the development of the base. Tax increment received from TCRA was to be used to help fund a portion of the backbone infrastructure. Staff is currently working on alternative methods to fund the construction of the backbone infrastructure for the base area. The City also negotiated for the sale of land parcels for the development of two hotels and a retail establishment along the 55 Freeway and Edinger Avenue. Escrow closed on the development of the hotels in August 2012. It is anticipated that the hotels will be completed by the fall of 2013. The additional hotel bed tax generated for fiscal year 2013-14 from the new hotels is estimated to be $600,000 to $750,000. The City Council continues to take a proactive approach for maintaining the City's healthy financial position by monitoring revenues and expenses. General Fund Revenues for fiscal year 2012-13 are estimated to be $3.9 million less than fiscal year 2011-12, primarily due to the dissolution of TCRA; however, expenditures are $2.3 million less than budgeted in fiscal year 2011-12. The City expects a $2.2 million deficit for fiscal year 2012-13; therefore City Council has offered an early retirement incentive to qualified employees. Based on the number of people qualified for the incentive the savings to the General Fund in the long term would help eliminate future operating deficits and help the City maintain its General Fund reserves. Qualified employees are required to provide their decision to take the incentive by July 2012. City Council will be reviewing the City's financial condition during the mid -year budget review in February 2013. ACCOMPLISHMENTS AND FUTURE PROJECTS Major capital improvement projects completed included the Metrolink parking structure; the Columbus Tustin Gym Solar panels; Mitchell/Utt pedestrian enhancements; the City Yard Mechanic Roof replacement; replacement of HVAC units at the Police Department; and the Mitchell Ave. Storm Drain. The City continues to work on the Tustin Ranch Road extension; Tustin Ranch irrigation; Valencia North Loop/Armstrong project, the Tustin Legacy Fire Station 937; the Rawlins water reservoir rehabilitation; and the Columbus Tustin Park playground renovation. The City's capital projects for fiscal year 2012-2013 are budgeted at $66 million. Funding sources for the capital projects include revenues from gas tax, Community Development Block Grant, water revenues, Measure M, Park Development Funds, Water Revenue Bond proceeds and Tax Allocation bond proceeds. Major projects include the expansion of Tustin Ranch Road; Tustin Legacy Fire Station; Clifton C. Miller Community Center kitchen remodel; Red Hill Avenue median improvements between Barranca Parkway and north of Valencia Avenue; Tustin Legacy Park; citywide installation of catch basins; Cedar Grove Park and Frontier Park playground equipment; and the rehabilitation of the Rawlings water reservoir. AWARDS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Tustin for its Comprehensive Annual Financial Report for the fiscal year ended June 30, 2011. This was the twenty-fifth consecutive year that the government has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to GFOA to determine its eligibility for another certificate. ACKNOWLEDGMENTS I wish to express my appreciation to the entire Finance Department staff for their contribution to the department during the year. Their efforts are reflected in this report and in other documents resulting from the annual audit process. Special thanks are due to Jennifer Leisz, Finance Manager, Nipa Shah, Part-time Accounting Supervisor, Sean Tran, Administrative Services Manager, Alberto Preciado, Accountant, and the finance staff. Their significance in preparing the final financial documents is reflected in the quality of this report. The Mayor and members of the City Council are to be commended for their interest and support in conducting the financial operations of the City in a responsible and progressive manner. Respectfully submilt-ted, pa,v" Pamela Arends-King Finance Director -vi - LU ~z 0 F W Z � a W Z W a0� 0z W W LuN az Y I N LU Q Q � w Q F N Q z Q irV -!zKv m a Z d U �� �m LLyyeIr z w wN a N ce "S o z N U w c 0" U I I I I I I I I I I I I I � Y I N LU Q Q � w Q N Q z 0 0 I I U { x o z N U w c U � -v11- Y r z ~� LU v 0 U O a U w c Certificate of Achievement for Excellence in Financial Reporting Presented to City of Tustin California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2011 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. p�I►CB OF���, C� • cc*� OF THE UNITED STATES y AhD CAMMUMOM President low�hCA60 Executive Director INDEPENDENT AUDITORS' REPORT City Council Members City of Tustin Tustin, California We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Tustin, as of and for the year ended June 30, 2012, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Tustin'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 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 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 City'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. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Tustin, as of June 30, 2012, and the respective changes in financial position, and cash flows, where applicable, for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 16 to the financial statements, the Tustin Community Redevelopment Agency, a blended component unit of the City, was dissolved effective February 1, 2012 as a result of legislation enacted by the State of California. In accordance with Government Auditing Standards, we have also issued our report dated January 22, 2013 on our consideration of the City of Tustin's internal control over financial reporting and 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties The management's discussion and analysis, the schedules of funding progress and budgetary comparison schedule, identified as required supplementary information in the table of contents, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. This information is an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the management's discussion and analysis and the schedules of funding progress in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the management's discussion and analysis and the schedules of funding progress because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The budgetary comparison schedule and related note have been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Our audit was made for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The combining statements and individual fund schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements of the City. 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. Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the City of Tustin, California as a whole. The introductory section and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. � ALIL", tiJ zy-P Irvine, California January 22, 2013 -2- City of Tustin Management's Discussion and Analysis (Unaudited) June 30, 2012 As management of the City of Tustin, California (City), we offer readers of the City of Tustin's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2012. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found in the introductory section of this report, and with the City's financial statements. Financial Highlights • The assets of the City exceeded its liabilities at June 30, 2012, by $636.2 million (net assets). Net assets consist of $438.2 million invested in capital assets, net of related debt, $47.7 million in restricted net assets and $150.3 million in unrestricted net assets. • The government's total net assets decreased by $2.4 million during the fiscal year ended June 30, 2012. The primary reason for the decrease is due to an extraordinary loss of $27.3 million. The extraordinary loss resulted from the dissolution of the Tustin Community Redevelopment Agency (TCRA), February 1, 2012. The assets and liabilities of the TCRA were transferred to the Successor Agency for the Tustin Community Redevelopment Agency (Successor Agency) private purpose trust fund. Due to the dissolution of the TCRA, the restriction placed on net assets as a result of Debt Service decreased, therefore the unrestricted net assets increased $30.9 million from the prior year. • As of June 30, 2012, the City's governmental funds reported combined ending fund balances of $204.9 million, a decrease of $107.3 million in comparison with the prior year. The significant decrease in ending fund balances is due to an extraordinary loss of $98.4 million caused by the dissolution of the TCRA and the transfer of the TCRA assets and liabilities to the Successor Agency. Approximately $146.3 million (71.5%) is nonspendable; $38.3 million is restricted. • The net decrease in the City's total long-term liabilities was $78.3 million. The $78.3 million net decrease is primarily due to the transfer of tax allocation bond debt of $74.2 million to the Successor Agency due to the dissolution of the TCRA. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements consist of three components: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This report also contains required supplementary and other supplementary information in addition to the basic financial statements themselves. See independent auditors' report. -3- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Government -wide financial statements The government -wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private -sector business. The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases in the net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Government -wide financial statements distinguish City governmental activities that are principally supported by taxes and intergovernmental revenues from other business -type activities that are intended to recover all or a significant portion of their costs through user fees and charges. Governmental activities of the City, the TCRA, a blended component unit, and the Tustin Public Financing Authority, a blended component unit, include general government, public safety, community services and public works. On February 1, 2012, the TCRA was dissolved; therefore, the financial activities reported in these statements for TCRA are for the seven months ended January 31, 2012. Business -type activity of the City is the Water Utility. The government -wide financial statements can be found immediately following this discussion and analysis. Fund financial statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. See independent auditors' report. CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Fund financial statements (Continued) Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the Governmental Funds Balance Sheet and the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains various individual governmental funds organized by their type (special revenue, debt service and capital projects funds). Information is presented separately in the Governmental Funds Balance Sheet and in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. The General Fund and the CFD Construction Capital Projects Fund are considered to be major funds. Data from other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its General Fund and the special revenue funds to demonstrate compliance with the annual budget law. Budgetary comparison schedules have been provided to demonstrate compliance with this budget requirement elsewhere in this report. The governmental funds financial statements can be found immediately following the government -wide financial statements. Proprietary funds. The City of Tustin maintains one type of proprietary (Enterprise) fund. This enterprise fund is used to report the same functions presented as business -type activities in the government -wide financial statements. The City uses an enterprise fund to account for its Water Utility. The proprietary fund financial statements can be found immediately following the governmental funds financial statements. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government -wide financial statement, because the resources of those funds are not available to support the City's own programs. The City utilizes one private -purpose trust fund to account for the assets, liabilities and activities of the Successor Agency. The Successor Agency was created on February 1, 2012 with the dissolution of the TCRA. The second fiduciary fund is an agency fund which is used to account for the assets of Community Facility Districts 04-1, 06-1 and 07-1. The fiduciary funds financial statements can be found immediately following the proprietary fund financial statements. See independent auditors' report. -5- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Notes to the basic financial statements The notes to the basic financial statements provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. The notes to the basic financial statements can be found immediately following the fiduciary funds financial statements. Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information which includes a Budgetary Comparison Schedule for the General Fund and schedules of funding progress for the City's defined benefit pension plan and other postemployment healthcare benefits plan. Required supplementary information can be found immediately following the notes to the basic financial statements. The combining statements referred to earlier in connection with nonmajor governmental funds are presented for all nonmajor Special Revenue Funds, nonmajor Capital Projects Funds, and all nonmajor Debt Service Funds. These combining and individual fund statements and schedules can be found immediately following the required supplementary information. Government -wide Financial Analysis The government -wide financial statements provide long-term and short-term information about the City's overall financial condition. This analysis addresses the financial statements of the City as a whole. The largest portion of the City's net assets (68.7%) reflects its investment in capital assets e.g., land, buildings, improvements other than buildings, equipment, infrastructure, and construction in progress, less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. See independent auditors' report. CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Government -wide Financial Analysis (Continued) Assets: Current and other assets Capital assets Total Assets Liabilities: Current liabilities Non -Current liabilities Total Liabilities Net Assets: Invested in capital assets, net of related debt Restricted Unrestricted Total Net Assets City of Tustin Summary of Net Assets As of June 30, 2012 (in millions of dollars) Governmental Business -Type 20.9 25.5 399.8 438.2 Total Activities Activities Total % Change 2011 2012 2011 2012 2011 2012 2011-2012 $338.5 $243.6 $27.5 $25.9 $366.0 $269.5 383.1 412.7 33.9 37.2 417.0 449.9 721.6 656.3 61.4 63.1 783.0 719.4 (8.1%) 22.8 38.2 2.7 4.3 25.5 42.5 86.6 10.2 32.3 30.5 118.9 40.7 109.4 48.4 35.0 34.8 144.4 83.2 (42%) 378.9 412.7 20.9 25.5 399.8 438.2 116.7 47.7 - - 116.7 47.7 116.6 147.5 5.5 2.8 122.1 150.3 23% 612.2 $607.9 $26.4 $28.3 S638.6 S636.2 (0.38%) Governmental activities. Net assets of the City's governmental activities decreased 0.7 % to $607.9 million, of which $412.7 million is invested in capital assets such as equipment, buildings and infrastructure, net of related debt. Of the remaining total, $47.7 million is restricted to specifically stipulated spending agreements originated by law, contract or other agreements with external parties. The remaining $147.5 million is subject to designation for specific purposes as approved by the City Council, and may be used to meet the City's ongoing obligations. See independent auditors' report. -7- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Government -wide Financial Analysis (Continued) City of Tustin Summary of Changes in Net Assets For the Year Ended June 30, 2012 (in millions of dollars) Governmental Business -Type Activities Activities Total 2011 2012 2011 2012 2011 2012 Revenues: Program revenues: Charges for services Operating grants & contributions Capital grants and contributions General revenues: Taxes Sales taxes shared state revenues Motor vehicle taxes Earnings on investments Miscellaneous Total Revenues Expenses: General government Public safety Public works Community services Interest on long-term debt Water Total Expenses Extraordinary Item: Loss on transfer to successor agency Change in net assets Net Assets - Beginning, restated Net Assets - Ending See independent auditors' report. $6.8 $4.3 $12.4 15.1 $19.2 $19.4 3.4 3.6 - - 3.4 3.6 3.4 20.9 - - 3.4 20.9 32.4 25.2 - - 32.4 25.2 18.6 19.9 - - 18.6 19.9 6.2 5.8 - - 6.2 5.8 2.4 0.9 0.2 0.2 2.6 1.1 1.7 14.4 - - 1.7 14.4 74.9 95.0 12.6 15.3 87.5 110.3 10.3 12.3 - - 10.3 12.3 28.6 28.8 - - 28.6 28.8 17.4 20.8 - - 17.4 20.8 13.2 7.1 - - 13.2 7.1 4.8 3.0 - - 4.8 3.0 _ _ 12.6 13.4 12.6 13.4 74.3 72.0 12.6 13.4 86.9 85.4 _ 27.3 0.6 (4.3) 611.6 612.2 612.2 607.9 _ _ _ kzLD - 1.9 0.6 (2.4) 26.4 26.4 638.0 638.6 26.4 $28.3 1638.6 $636.2 Total % Change 26% (1.7%) (0.38%) CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Government -wide Financial Analysis (Continued) In governmental activities, the decline in net assets of $4.3 million is primarily due to an extraordinary loss of $27.3 million. The extraordinary loss resulted from the dissolution of the Tustin Community Redevelopment Agency (TCRA), February 1, 2012. The assets and liabilities of the TCRA were transferred to the Successor Agency to the Tustin Community Redevelopment Agency (Successor Agency) private purpose trust fund. Note 16 of the Notes to the Basic Financial Statements discusses the changes in California legislation that affected California Redevelopment Agencies. Overall, revenues increased by $20.1 million from prior year. Charges for services decreased $2.5 million from prior year because funds received from assessments for city services from Community Facilities Districts 04-1, 06-1 and 07-1 were reclassified to property taxes in general revenue. Capital grants and contributions program revenues increased $17.5 million due to the capital contribution of $15.9 million from the Orange County Transportation Authority for the construction of the Metrolink Station parking structure. Taxes decreased $7.2 million from prior year because the City only received seven months of property tax increment for TCRA due to the TCRA dissolution. The City's property values continue to remain stable; therefore there were no significant property devaluations to impact revenues other than the loss of property tax increment from the TCRA dissolution. Sales tax revenue increased $1.3 million due to the continuing economic recovery especially in automobile sales. Earnings on investments decreased $1.5 million primarily due to the decrease in interest revenue paid from TCRA's Low and Moderate Income Housing funds to the General Fund for the Reimbursement Agreement in regards to meeting affordable housing obligations. With the dissolution of the Redevelopment Agencies any agreements between the City and TCRA were no longer valid; therefore, no interest income was paid to the City's General Fund. Earnings on the City's investment portfolio averaged less than 0.45%. Miscellaneous revenue increased $12.7 million. The increase is primarily due to an $8.6 million transfer from the Successor Agency for reimbursement of costs incurred by the General Fund related to the potential extension of Newport Boulevard. Expenses decreased $2.3 million from prior year. General Government expenses increased $2 million from prior year due to the decrease in reimbursement from the TCRA for overhead for $0.8 million; increase in fuel costs; claims paid; and increase in salaries and benefits due to increase in pension contribution rates and merit increases. The $3.4 million increase in expenses for Public Works is due to the increase in spending for capital projects. Community services expenses decreased $6.1 million and interest on long-term debt decreased $1.8 million due to the dissolution of TCRA. Business -Type activities net assets increased $1.9 million due to the implementation of the increase in water rates over a five year period starting June 2010. The rates are adequate to cover the annual operating costs and build reserves. Water operation costs increased $0.8 million primarily due to the increase in production costs. See independent auditors' report. CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Financial Analysis of the Government's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance - related legal requirements. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information may be useful in assessing the City's financing requirements. As of the end of the current fiscal year, the City's governmental funds reported total combined ending fund balances of $204.9 million, a decrease of $107.4 million in comparison with the prior year due to the dissolution of TCRA. Approximately $146.3 million (71.2 %) of this total amount constitutes nonspendable fund balance. Of the nonspendable amount $144.4 million is land held for resale. The remainder of the fund balance consists of $54.5 million in restricted funds and $4.1 million in unassigned funds. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund was $4.1 million, while total fund balance was $148.7 million. As a measure of the General Fund's liquidity, it may be useful to compare unassigned fund balance to total fund expenditures. Unassigned fund balance represents 7.7% of the total General Fund expenditures. See independent auditors' report. -10- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Financial Analysis of the Government's Funds (continued) City of Tustin Summary of Changes in Fund Balances - General Fund For the Year Ended June 30, 2012 (in millions of dollars) Expenditures General government 9.9 11.6 Total 27.4 28.6 Public works %Change 6.9 2011 2012 2011-2012 Revenues: 1.1 1.8 Interest and fiscal charges Taxes $36.6 39.5 48.7 Charges for services 4.9 2.7 Intergovernmental 1.1 1.6 Net Transfers Fines and forfeitures 0.7 0.9 Licenses and permits 0.7 0.4 Other 3_7 12.3 Total Revenues 47.7 57.4 20.3% Expenditures General government 9.9 11.6 Public safety 27.4 28.6 Public works 6.6 6.9 Community services 2.8 2.9 Capital outlay 1.1 1.8 Interest and fiscal charges 0_9 0_9 Total Expenses 48.7 52.7 8.2% Excess of Revenues Over (Under) Expenditures (1.0) 4.7 Net Transfers 2_6 0_2 (92.3%) Extraordinary Item: Loss on transfer to successor agency - 7.9 Net Change in Fund Balance $1.6 3.0 (287.5%) Transactions impacting revenues in the General Fund were as follows: • Sales tax revenues were $19.9 million reflecting a $1.3 million increase from prior year due to the economic recovery. • Charges for services decreased $2.2 million from prior year due to the reclassification of assessments received for services from Community Facility Districts 04-1, 06-1 and 07-1 to taxes. • Other revenue increased $8.6 million due to funds received from the Successor Agency for reimbursement of costs the General Fund incurred in associated with the Newport Boulevard extension project. See independent auditors' report. -11- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Financial Analysis of the Government's Funds (continued) Changes in General Fund expenditures from previous fiscal year, by function, occurred as follows during the year ended June 30, 2012: • General Government expenditures increased $1.7 million primarily due to the decrease in reimbursement of overhead from TCRA and the increase in claims paid, utility and fuel costs, and pension contribution rates. • Public safety expenditures increased $1.2 million due to the filling of vacant positions and increase in pension contribution rates. • The $7.9 million extraordinary loss was due to the dissolution of TCRA. The California Department of Finance deemed short-term borrowing of $4.7 million from the General Fund to TCRA unenforceable and disallowed the affordable housing reimbursement payments of $3.2 million from TCRA to the General Fund from 6/30/11 to 1/1/12. The CFD Construction Capital Projects Fund expenditures increased $11.7 million from prior fiscal year. The increase is due to construction activity to build the back -bone infrastructure within the former Marine Corps Air Station Base area. General Fund Budgetary Highlights Differences between the General Fund actual revenues and transfers and amended budgeted revenues and transfers were $9.6 million primarily due to the increase in sales and property taxes that were higher than what was expected and the transfer of $8.6 million from the Successor Agency for reimbursement of funds expended on the Newport Boulevard extension project. Actual General Fund expenditures were less than the amended budgeted amount of $53.9 million by $1.2 million. Financial Analysis of the Proprietary Funds The City has one proprietary fund which is the Water Enterprise Fund. Net assets of the Water Enterprise increased $1.9 million during fiscal year 2012, from $26.4 million as of June 30, 2011, to $28.3 million as of June 30, 2012. Operating revenues for the Water Fund exceeded operating expenses by $3.1 million, leading to the increase in net assets. Significant activity during the year included a $4.6 million increase in capital assets, net of related debt, mostly due to construction in progress for replacing Rawlings Reservoir. In addition, the City issued $8.9 million, 2012 Refunding Water Revenue Bonds to provide funds to defease the 2003 Refunding Water Revenue Bonds and prepay certain outstanding notes payable incurred to finance improvements to the Water Enterprise. Additional information on the proprietary fund's capital assets can be found in the Notes to the Basic Financial Statements section of this report (beginning on page 48). Additional information on the proprietary fund's long-term debt can be found in the Notes to the Basic Financial Statements section of this report (beginning on page 49). See independent auditors' report. -12- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Capital Asset and Debt Administration Capital Assets The City's investment in capital assets for its governmental and business -type activities as of June 30, 2012 amounts to $450 million, net of accumulated depreciation. This investment in capital assets includes land, buildings and system improvements, machinery and equipment, park facilities, roads, highways, and bridges. City of Tustin Summary of Changes in Capital Assets For the Year Ended June 30, 2012 (in millions of dollars) The major activity affecting capital assets this year was continued construction in progress for the Tustin Ranch Road extension and the Rawlings Reservoir replacement; and the completion of the Metrolink Station parking structure, Columbus Gymnasium solar roof, and the Mitchell Avenue storm drain. Additional information on the City's capital assets can be found in the notes to the basic financial statements section of this report (beginning on page 47). Long-term Debt At the end of the current fiscal year, the City had total outstanding long-term liabilities of $40.7 million. Of this amount, $30.3 million are secured solely by specified revenue sources such as property tax increment and water service charges. See independent auditors' report. -13- Governmental Business -Type Total Activities Activities Total %Change 2011 2012 2011 2012 2011 2012 2011-2012 Land $44.3 $44.1 $1.2 $1.2 $45.5 $45.3 Right of way 42.4 42.9 - - 42.4 42.9 Construction in progress 34.8 54.6 1.3 5.8 36.1 60.4 Buildings and improvements 51.1 65.9 5.6 5.3 56.7 71.2 Machinery and equipment 2.8 3.0 - - 2.8 3.0 Infrastructure 207.7 202.2 - - 207.7 202.2 Property, plant and equipment = = 25.8 24.9 25.8 24.9 Total Capital Assets, Net $383.1 $412.7 $33.9 $37.2 $417.0 $449.9 7.9% The major activity affecting capital assets this year was continued construction in progress for the Tustin Ranch Road extension and the Rawlings Reservoir replacement; and the completion of the Metrolink Station parking structure, Columbus Gymnasium solar roof, and the Mitchell Avenue storm drain. Additional information on the City's capital assets can be found in the notes to the basic financial statements section of this report (beginning on page 47). Long-term Debt At the end of the current fiscal year, the City had total outstanding long-term liabilities of $40.7 million. Of this amount, $30.3 million are secured solely by specified revenue sources such as property tax increment and water service charges. See independent auditors' report. -13- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2012 Capital Asset and Debt Administration (Continued) City of Tustin Summary of Changes in Long -Term Liabilities For the Year Ended June 30, 2012 (in millions of dollars) Tax allocation bonds Bonds payable Claims and judgments Postemployment benefits obligation Compensated absences Total Outstanding Debt Governmental Business -Type Activities Activities 2011 2012 2011 2012 76.8 - $- $- 3.3 3.2 3_3 - 32.1 30.3 3.0 - - 3.6 - - 3.6 0_2 0_2 Total Total % Change 2011 2012 2011-2012 76.8 - 32.1 30.3 3.3 3.0 3.2 3.6 3_5 3_8 86.6 $10.2 32.3 30.5 SIL8.9 $40.7 (65.8%) The City's long-term debt decreased $78.2 million from prior year as a result of the following transactions: • Tax allocation bonds totaling $74.2 million were transferred to the Successor Agency to the Tustin Community Redevelopment Agency from the former redevelopment agency. • Total payments to reduce long-term obligations were $11.2 million, which included the defeasance of the 2003 Refunding Water Revenue Bonds of $11 million. • The City issued 2012 Refunding Water Revenue Bonds for $8.9 million to provide funds to defease the 2003 Refunding Water Revenue Bonds and prepay certain outstanding notes payable incurred to finance improvements to the Water Enterprise. Additional information on the City's long-term debt can be found in the notes to the basic financial statements section of this report starting on page 49. Next Year's Budget and Rates The City Council adopted the fiscal year 2012-2013 Budget with total appropriations of $125 million. The General Fund fiscal year 2012-2013 estimated revenues are $45.7 million and budgeted appropriations are $47.9 million resulting in an estimated operating deficit of $2.2 million. The appropriations are $2.3 million less than prior year's appropriation. The City Council approved the offering of an early retirement incentive program administered by Public Agency Retirement Services to help the City reduce expenditures for fiscal year 2012-13. Employees eligible for the early retirement incentive were to make a decision by July 2012. There were no tax rates or fee increases as part of the preparation and adoption of the fiscal year 2012-13 budget. Requests for Information This financial report is designed to provide a general overview of the City's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, City of Tustin, 300 Centennial Way, Tustin, California, 92780. See independent auditors' report. -14- ASSETS: Cash and investments Receivables: Accounts Interest Loans Notes Allowance for uncollectibles Internal balances Prepaid expenses and deposits Land held for resale Deferred bond issuance costs Restricted assets: Cash and investments with fiscal agents Capital assets: Not being depreciated Being depreciated, net TOTAL AS SET S LIABILITIES: Accounts payable and accrued liabilities Due to Successor Agency to the Tustin Community Redevelopment Agency Interest payable Deposits payable Unearned revenue Noncurrent liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET ASSETS: Invested in capital assets, net of related debt Restricted for: Community services Public safety Public works Unrestricted TOTAL NET ASSETS CITY OF TUSTIN STATEMENT OF NET ASSETS June 30, 2012 Governmental Business -type Activities Activity Total $ 59,228,979 $ 22,167,569 $ 81,396,548 4,487,335 2,792,269 7,279,604 83,058 13,080 96,138 1,082,308 - 1,082,308 4,196,429 4,196,429 (4,908,434) (4,908,434) 1,317,615 (1,317,615) - 562,997 4,570 567,567 144,434,527 - 144,434,527 - 434,527 434,527 33,176,151 1,794,770 34,970,921 141,648,126 6,996,232 148,644,358 271,035,334 30,232,413 301,267,747 656,344,425 63,117,815 719,462,240 9,369,405 3,736,199 13,105,604 21,877,282 - 21,877,282 - 295,721 295,721 6,048,520 332,196 6,380,716 955,476 - 955,476 6,560,758 904,934 7,465,692 3,608,309 29,573,904 33,182,213 48,419,750 34,842,954 83,262,704 412,683,460 25,479,160 438,162,620 1,666,143 - 1,666,143 380,353 380,353 45,681,470 - 45,681,470 147,513,249 2,795,701 150,308,950 $ 607,924,675 $ 28,274,861 $ 636,199,536 See independent auditors' report and notes to basic financial statements. -15- CITY OF TUSTIN STATEMENT OF ACTIVITIES For the year ended June 30, 2012 Functions/programs Expenses Governmental activities: General government $ 12,266,470 Public safety 28,800,773 Public works 20,765,854 Community services 7,078,104 Interest on long-term liabilities 3,057,645 Total governmental activities 71,968,846 Business -type activity: Water 13,467,541 Total $ 85,436,387 Program Revenues Charges Operating Capital for Grants and Grants and Services Contributions Contributions $ 1,390,073 $ 21,846 $ - 1,133,096 361,190 - 800,328 2,027,804 20,879,579 974,747 1,179,370 23,050 4,298,244 3,590,210 20,902,629 15,112,161 - - $ 19,410,405 $ 3,590,210 $ 20,902,629 General revenues: Taxes: Property Franchise Transient occupancy Business license Sales taxes shared state revenues Motor vehicle taxes shared state revenues Earnings on investments Miscellaneous Total general revenues Extraordinary Item: Loss on transfer to successor agency Change in net assets Net assets at beginning of year Net assets at end of year See independent auditors' report and notes to basic financial statements. -16- Net (Expense) Revenue and Changes in Net Assets - 23,270,718 Governmental Business -type - 1,621,521 Activities Activity Total $ (10,854,551) $ - $ (10,854,551) (27,306,487) - (27,306,487) 2,941,857 - 2,941,857 (4,900,937) - (4,900,937) (3,057,645) - (3,057,645) (43,177,763) - (43,177,763) - 1,644,620 1,644,620 (43,177,763) 1,644,620 (41,533,143) 23,270,718 - 23,270,718 1,621,521 - 1,621,521 137,131 - 137,131 44,800 - 44,800 19,931,865 - 19,931,865 5,833,094 - 5,833,094 958,169 156,855 1,115,024 14,444,183 59,222 14,503,405 66,241,481 216,077 66,457,558 (27,314,435) - (27,314,435) (4,250,717) 1,860,697 (2,390,020) 612,175,392 26,414,164 638,589,556 $ 607,924,675 $ 28,274,861 $ 636,199,536 -17- ASSETS Cash and investments Cash and investments with fiscal agents Receivables: Accounts Interest Loans Notes Allowance for uncollectibles Due from other funds Advances to other funds Prepaid expenses and deposits Land held for resale TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable and accrued liabilities Due to other funds Due to Successor Agency to the Tustin Community Redevelopment Agency Deposits payable Deferred revenue TOTAL LIABILITIES FUND BALANCES: Nonspendable Restricted Assigned Unassigned CITY OF TUSTIN BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2012 CFD Construction Other Total Capital Projects Governmental Governmental General Fund Funds Funds $ 28,907,140 $ - $ 30,321,839 $ 59,228,979 - 33,176,151 - 33,176,151 3,247,393 - 1,239,942 4,487,335 11,403 - 71,655 83,058 - - 1,082,308 1,082,308 - - 4,196,429 4,196,429 - - (4,908,434) (4,908,434) 6,277,920 - - 6,277,920 - - 1,317,615 1,317,615 532,997 - 30,000 562,997 144,071,850 - 362,677 144,434,527 $ 183,048,703 $ 33,176,151 $ 33,714,031 $ 249,938,885 6,420,226 $ 1,433,649 $ 1,515,530 $ 9,369,405 - 6,277,920 - 6,277,920 21,877,282 - - 21,877,282 6,038,584 - 9,936 6,048,520 34,366,512 7,711,569 2,954,333 45,032,414 144,604,847 - 1,710,292 146,315,139 - 25,464,582 12,810,084 38,274,666 - - 16,239,322 16,239,322 TOTAL FUND BALANCES 148,682,191 25,464,582 30,759,698 204,906,471 TOTAL LIABILITIES AND FUND BALANCES $ 183,048,703 $ 33,176,151 $ 33,714,031 $ 249,938,885 See independent auditors' report and notes to basic financial statements. -18- CITY OF TUSTIN RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2012 Fund balances - total governmental funds $ 204,906,471 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets net of depreciation have not been included as financial resources in governmental funds. 412,683,460 Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Also, Bond issuance costs are not recorded as assets under the modified accrual basis of accounting. All liabilities, both current and long-term, are reported in the Statement of Net Assets. Balances at June 30, 2012 are: Claims and judgments payable $ (3,010,653) Compensated absences (3,542,830) Post employment benefits obligation (3,615,584) Total long-term liabilities (10,169,067) Certain revenues in the governmental funds are deferred because they are not collected within the prescribed time period after year-end. Therefore, they are revenue on the accrual basis used in the government -wide statements. 503,811 Net assets of governmental activities $ 607,924,675 See independent auditors' report and notes to basic financial statements. -19- CITY OF TUSTIN STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the year ended June 30, 2012 REVENUES: Taxes Licenses and permits Fines and forfeitures Investment income Intergovernmental revenue Charges for services Rental income Otherrevenue TOTAL REVENUES EXPENDITURES: Current: General government Public safety Public works Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out Sale of property TOTAL OTHER FINANCING SOURCES (USES) EXTRAORDINARY LOSS NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING OF YEAR, IAS RESTATED FUND BALANCES - END OF YEAR 11,581,224 CFD 11,656,331 28,583,326 - 131,021 Construction Other Total 6,954,384 Capital Projects Governmental Governmental General Fund Funds Funds $ 39,463,821 $ - $ 11,443,485 $ 50,907,306 443,928 - - 443,928 875,068 - - 875,068 67,637 3,630 401,458 472,725 1,609,770 - 4,803,367 6,413,137 2,699,561 - 114,191 2,813,752 364,774 - 115,481 480,255 11,581,224 287 74,820 11,656,331 28,583,326 - 131,021 28,714,347 6,954,384 - - 6,954,384 2,953,396 - 3,552,985 6,506,381 1,744,414 12,859,546 11,212,570 25,816,530 - - 2,590,000 2,590,000 904,593 - 2,359,730 3,264,323 4,695,397 (12,856,203) (860,294) (9,021,100) 192,671 - 2,827,620 3,020,291 - - (3,020,291) (3,020,291) 236,416 - (192,671) 43,745 (7,879,742) - (90,506,400) (98,386,142) (2,947,929) (12,856,203) (91,559,365) (107,363,497) $ 148,682,191 $ 25,464,582 $ 30,759,698 $ 204,906,471 See independent auditors' report and notes to basic financial statements. -20- CITY OF TUSTIN RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the year ended June 30, 2012 Net change in fund balances - total governmental funds $ (107,363,497) Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital expenditures exceeded depreciation and disposition of capital assets in the current period: Capital expenditures $ 20,478,936 Capital contributions 18,682,413 Disposition of capital assets (134,702) Depreciation expenses (9,191,465) 29,835,182 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long term -debt and changes in other long-term liabilities affects the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long-term liabilities: Principal repayments $ 2,590,000 Amortization of bond discount (17,281) Amortization of bond premium 2,060 Amortization of bond issuance costs (18,880) Postemployment benefits obligation (444,514) Claims and judgments payable 275,665 Compensated absences (260,711) 2,126,339 Some revenues reported in the Statement of Activities are not considered to be available to finance current expenditures and therefore are not reported as revenues in the governmental funds Net change in deferred revenues (2,682,661) Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental funds Net change in accrued interest payable on long-term liabilities 221,899 The Tustin Redevelopment Agency was dissolved as of February 1, 2012 pursuant to Assembly Bill 1x26 and 1484. Assets and liabilities of the dissolved Agency as of February 1, 2012 were transferred to the Successor Agency: Transfer of deferred bond issue costs $ (1,268,865) Transfer of capital assets to the Successor Agency (238,383) Transfer of long-term debt to the Successor Agency 74,252,052 Transfer of accrued interest payable to the Successor Agency 867,217 73,612,021 Change in net assets of governmental activities $ (4,250,717) See independent auditors' report and notes to basic financial statements. -21- CITY OF TUSTIN STATEMENT OF NET ASSETS PROPRIETARY FUND June 30, 2012 ASSETS CURRENT ASSETS: Cash and investments Accounts receivable Interest receivable Prepaid expenses TOTAL CURRENT ASSETS NONCURRENT ASSETS: Restricted cash and investments with fiscal agents Deferred bond issuance costs Capital assets: Not being depreciated Being depreciated, net TOTAL NONCURRENT ASSETS TOTAL ASSETS LIABILITIES LIABILITIES: CURRENT LIABILITIES: Accounts payable and accrued liabilities Advances from other funds Deposits payable Compensated absences Interest payable Bonds payable TOTAL CURRENT LIABILITIES LONG-TERM LIABILITIES: Compensated absences Bonds payable TOTAL LONG-TERM LIABILITIES TOTAL LIABILITIES NET ASSETS: Invested in capital assets, net of related debt Unrestricted TOTAL NET ASSETS Business -type Activity Water Enterprise Flinn $ 22,167,569 2,792,269 13,080 4,570 24,977,488 1,794,770 434,527 6,996,232 30,232,413 39,457,942 64,435,430 3,736,199 1,317,615 332,196 194,934 295,721 710,000 6,586,665 21,659 29,552,245 29,573,904 36,160,569 25,479,160 2,795,701 $ 28,274,861 See independent auditors' report and notes to basic financial statements. -22- CITY OF TUSTIN STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUND For the year ended June 30, 2012 OPERATING REVENUES: Charges for services OPERATING EXPENSES: Personnel services Purchased water and power Maintenance and operation Depreciation and amortization TOTAL OPERATING EXPENSES OPERATING INCOME NONOPERATING REVENUES (EXPENSES): Investment income Other income Interest expense TOTAL NONOPERATING REVENUES (EXPENSES) CHANGE IN NET ASSETS TOTAL NET ASSETS AT BEGINNING OF YEAR TOTAL NET ASSETS AT END OF YEAR See independent auditors' report and notes to basic financial statements. -23 - Business -type Activity Water Enterprise Flinn $ 15,112,161 2,479,348 2,897,419 5,306,854 1,309,357 11,992,978 3,119,183 156,855 59,222 (1,474,563) (1,258,486) 1,860,697 26,414,164 $ 28,274,861 CITY OF TUSTIN STATEMENT OF CASH FLOWS PROPRIETARY FUND For the year ended June 30, 2012 NET CASH PROVIDED BY OPERATING ACTIVITIES 5,558,666 CASH FLOWS FROM CAPITAL AND Business -type RELATED FINANCING ACTIVITIES: Activity Acquisition of capital assets Water Cash paid to other funds for capital assets Enterprise Proceeds from issuance of debt Fund CASH FLOWS FROM OPERATING ACTIVITIES: 899,325 Receipts from customers $ 14,635,133 Payments to suppliers (5,377,404) Cash paid to other funds for services (1,200,000) Payments to employees (2,499,063) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,558,666 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (4,390,810) Cash paid to other funds for capital assets (409,841) Proceeds from issuance of debt 8,910,000 Premium from issuance of debt 899,325 Payment to refunding bond escrow agent (10,852,404) Issuance cost (179,069) Principal paid on bonds (740,000) Interest paid (1,581,796) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (8,344,595) CASH FLOWS FROM INVESTING ACTIVITIES: Investment income 161,915 NET DECREASE IN CASH AND CASH EQUIVALENTS (2,624,014) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 26,586,353 CASH AND CASH EQUIVALENTS - END OF YEAR $ 23,962,339 See independent auditors' report and notes to basic financial statements. (Continued) -24- CITY OF TUSTIN STATEMENT OF CASH FLOWS PROPRIETARY FUND (CONTINUED) For the year ended June 30, 2012 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Other nonoperating income Change in assets and liabilities: (Increase) decrease in accounts receivable (Increase) decrease in prepaid costs Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in deposits payable Increase (decrease) in compensated absences NET CASH PROVIDED BY OPERATING ACTIVITIES See independent auditors' report and notes to basic financial statements. -25- Business -type Activitv Water Enterprise Find $ 3,119,183 1,309,357 59,222 (540,375) (3,870) 1,635,821 4,125 (24,797) $ 5,558,666 CITY OF TUSTIN STATEMENT OF FIDUCIARY NET ASSETS June 30, 2012 LIABILITIES Accounts payable $ 1,439,415 $ - $ 1,439,415 Interest payable 1,072,932 - 1,072,932 Deposits payable 1,000 - 1,000 Deferred revenue - - - Due to bondholders - 14,716,979 14,716,979 Long-term liabilities: Due within one year 2,835,000 - 2,835,000 Due in more than one year 71,427,923 - 71,427,923 TOTAL LIABILITIES 76,776,270 14,716,979 91,493,249 NET ASSETS HELD IN TRUST $ 19,163,386 $ - $ 19,163,386 See independent auditor's report and notes to basic financial statements. -26- Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Agency Trust Fund Funds Total ASSETS: Cash and investments $ 64,784,320 $ - $ 64,784,320 Cash and investments with fiscal agents 6,400,433 14,647,615 21,048,048 Receivables: Accounts - 69,364 69,364 Interest 29,792 - 29,792 Due from City of Tustin 21,877,282 - 21,877,282 Prepaid items and deposits 10,650 - 10,650 Unamortized bond issuance costs 1,255,379 - 1,255,379 Land held for resale 1,345,000 - 1,345,000 Capital assets, net 236,800 - 236,800 TOTAL ASSETS $ 95,939,656 $ 14,716,979 $ 110,656,635 LIABILITIES Accounts payable $ 1,439,415 $ - $ 1,439,415 Interest payable 1,072,932 - 1,072,932 Deposits payable 1,000 - 1,000 Deferred revenue - - - Due to bondholders - 14,716,979 14,716,979 Long-term liabilities: Due within one year 2,835,000 - 2,835,000 Due in more than one year 71,427,923 - 71,427,923 TOTAL LIABILITIES 76,776,270 14,716,979 91,493,249 NET ASSETS HELD IN TRUST $ 19,163,386 $ - $ 19,163,386 See independent auditor's report and notes to basic financial statements. -26- CITY OF TUSTIN STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS For the period from February 1, 2012 through June 30, 2012 ADDITIONS: Investment income Rental income Earned bond premium Transfer from governmental funds TOTAL ADDITIONS DEDUCTIONS: Community services Interest Depreciation and amortization Transfer to governmental funds TOTAL DEDUCTIONS EXTRAORDINARY GAIN CHANGE IN NET ASSETS NET ASSETS - BEGINNING OF PERIOD NET ASSETS - END OF YEAR Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Trust Fund $ 463,660 6,250 1,472 6,122,195 6,593,577 974,936 1,393,032 27,412 12,349,246 14,744,626 27,314,435 19,163,386 $ 19,163,386 See independent auditor's report and notes to basic financial statements. -27- The page left blank intentionally CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES: a. The Financial Reporting Entity: The City of Tustin (City) was incorporated in 1927 as a "General Law" City governed by an elected five -member city council. As required by accounting principles generally accepted in the United States of America, these financial statements present the City of Tustin (the primary government) and its component units. The component units discussed below are included in the City's reporting entity because of the significance of their operational or financial relationship with the City. These entities are legally separate from each other. However, the City of Tustin's elected officials have a continuing full or partial accountability for fiscal matters of the other entities. The financial reporting entity consists of: (1) the City, (2) organizations for which the City is financially accountable, and (3) organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes, or set rates or charges, or issue bonded debt without approval by the primary government. In a blended presentation, a component unit's balances and transactions are reported in a manner similar to the balances and transactions of the City. Component units are presented on a blended basis when the component unit's governing body is substantially the same as the City's or the component unit provides services almost entirely to the City. Blended Component Units The Tustin Community Redevelopment Agency (Agency) was established October 20, 1976 pursuant to the State of California Health and Safety Code, Section 33000, entitled "Community Redevelopment Law". Its purpose was to prepare and carry out plans for improvement, rehabilitation, and redevelopment of blighted areas within the territorial limits of the City of Tustin. The City provides management assistance to the Agency, and the members of the City Council constitute the members of the Board of Directors of the Agency. Effective February 1, 2012, the Tustin Redevelopment Agency was dissolved as a result of Assembly Bill X26 (the Dissolution Act). See Note 16 for additional information. The Agency' financial transactions for the seven month period from July 1, 2011 through January 31, 2012 are included with the debt service fund type and capital projects fund type. See independent auditors' report. -29- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): a. The Financial Reporting Entity (Continued): Blended Component Units (Continued) The Tustin Public Financing Authority is a joint powers authority organized pursuant to the State of California Government Code, Section 6500. The Authority exists under a Joint Exercise of Power Agreement dated May 1, 1995, by and between the City of Tustin and the Tustin Community Redevelopment Agency. The members of the City Council constitute the members of the Board of Directors of the Authority. The Authority is authorized to borrow money for the purpose of financing the acquisition of bonds, notes, and other obligations of, or for the purpose of making loans to the City and/or to refinance outstanding obligations of the City or Assessment Districts of the City. Separate component unit financial statements for the Tustin Public Financing Authority are not issued. The City of Tustin Housing Authority (the Housing Authority) was established by the City Council in 2011, and is responsible for the administration of providing affordable housing in the City. The Housing Authority is governed by a five -member Board of Director which consists of members of the City Council. Certain assets of the former redevelopment agency's Low and Moderate Income Housing Fund were transferred to the Housing Authority at February 1, 2012. The Housing Autthority's financial transactions are reported in the Special Revenue Funds. Since the City Council serves as the governing board for these component units, all of the City's component units are considered to be blended component units. Blended component units, although legally separate entities, are in substance, part of the City's operations and so data from these units are reported with the interfund data of the primary government. These component units do not issue separate component unit financial statements. b. Government -wide and Fund Financial Statements: The government -wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information about the reporting government as a whole, except for its fiduciary activities. All fiduciary activities are reported only in the fund financial statements. 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. Likewise, the primary government (including its blended component units) is reported separately from discretely presented component units for which the primary government is financially accountable. The City has no discretely presented component units. For the most part, the effect of interfund activity has been removed from these statements. See independent auditors' report. -30- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): b. 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 those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Separate financial statements for the City's governmental, proprietary, and fiduciary funds are presented after the government -wide financial statements. These statements display information about major funds individually and other governmental funds in the aggregate for governmental funds. Fiduciary fund statements, even though excluded from the government -wide financial statements, include financial information for private purpose trust funds and agency 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, as are the proprietary fund and fiduciary fund (fiduciary funds do not have a measurement focus) financial statements. Under the economic resources measurement focus, all assets and liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets/statements of net assets. 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. See independent auditors' report. -31- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): c. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued): Proprietary funds result from providing services and producing and delivering goods. Nonexchange transactions, in which the City gives (or receives) value without directly receiving (or giving) equal value in exchange include taxes, grants, entitlements, and donations. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all the eligibility requirements have been satisfied. Property taxes are recognized as revenue in the year for which they are levied. Operating revenues are those that result from providing services. Operating expenses for proprietary funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. 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. However, special reporting treatments are used to indicate that they should not be considered "available spendable resources" since they do not represent net current assets. Recognition of governmental fund type revenue represented by noncurrent receivables is deferred until they become current receivables. 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 long-term liabilities, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of long-term liabilities are reported as other financing sources. Property taxes, franchise taxes, licenses, intergovernmental revenue and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. See independent auditors' report. -32- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): c. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued): The City's fiduciary funds consist of a private purpose trust fund which is reported using the economic resources measurement focus and the agency funds which have no measurement focus, but utilizes the accrual basis for reporting its assets and liabilities. All governmental activities, business -type activities and proprietary funds of the City follow Governmental Accounting Standards Board (GASB) pronouncements. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. Fund Classifications The funds designated as major funds are determined by a mathematical calculation consistent with GASB Statement No. 34. The City reports the following major governmental funds: The General Fund is the primary operating fund of the City and is used to account for all revenues and expenditures that are not required to be accounted for in another fund. The CFD Construction Capital Projects Fund is used to account for construction and improvements to the Tustin Legacy area. The City reports the following major proprietary fund: The Water Enterprise Fund is used to account for the City's water service operations to residents and businesses. The City's fund structure also includes the following fund types: Governmental Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted by law or administrative action for a specified purpose. Debt Service Funds are used to account for the accumulation of resources for, and the payment of, long-term liabilities, interest, and related fiscal agent costs. See independent auditors' report. -33 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): c. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued): Fund Classifications (Continued) Governmental Funds (Continued) Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities, and for the improvement, rehabilitation, and redevelopment of the Community Redevelopment Agency project areas. The Agency was dissolved effective February 1, 2012. Fiduciary Funds Private Purpose Trust Fund is used to account for the activities of the Successor Agency to the Tustin Community Redevelopment Agency. Agency Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations and other governments. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The agency funds are used to account for taxes received for special assessments debt for which the City is not obligated. d. Assets, Liabilities and Net Assets or Equity: Cash, Cash Equivalents and Investments Investments are stated at fair value (the value at which a financial instrument would be exchanged in a current transaction between willing parties other than a forced or liquidation sale), except for certain investments which have a remaining life of less than one year when purchased and investment contracts, which are stated at amortized cost. The City's proprietary fund participates in the pooling of City-wide cash and investments. Amounts held in the City pool are available to the fund on demand and are considered to be cash and cash equivalents for statement of cash flow purposes. Investments not held in the City pool that are short-term investments with original maturities of three months or less from the date of acquisition are considered cash and cash equivalents. See independent auditors' report. -34- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): d. Assets, Liabilities and Net Assets or Equity (Continued): Capital Assets Capital assets (including infrastructure) are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Contributed capital assets are valued at their estimated fair value at the date of contribution. Capital asset purchases (other than infrastructure) in excess of $5,000 are capitalized if they have an expected useful life of one year or more. Infrastructure assets with a cost exceeding $100,000 are capitalized. Capital assets include additions to public domain (infrastructure), certain improvements including pavement, curb and gutter, sidewalks, traffic control devices, streetlights, sewers, storm drains, bridges, and right-of-way corridors within the City. Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method in the government -wide financial statements and in the fund financial statements of the enterprise fund. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective statement of net assets. The lives used for depreciation purposes of each capital asset class are: Buildings 5 - 40 years Improvement other than buildings 5 - 40 years Property and plant 5 - 40 years Machinery and equipment 4 - 10 years Infrastructure 25 - 75 years Land Held for Resale Land held for resale is carried at the lower of cost or estimated realizable value determined only upon the execution of a disposition and development agreement. Property Taxes Under California law, property taxes are assessed and collected by the counties up to 1% of assessed value, plus other increases approved by the voters. The property taxes go into a pool, and are then allocated to the cities based on complex formulas. Accordingly, the City of Tustin accrues as revenues only those taxes which are received within 60 days after year end in the fund financial statements. See independent auditors' report. -35- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): d. Assets, Liabilities and Net Assets or Equity (Continued): Property Tax Calendar Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien date January 1 Levy period July 1 to June 30 Levy date On or before 4th Monday in September Due date November 1 - 1St installment February 1 - 2nd installment Collection date December 10 - 1St installment April 10th - 2nd installment Interest and penalties are assessed after the collection date. Compensated Absences All vested vacation and compensatory leave time is recognized as an expense and as a liability in the proprietary type fund at the time the liability vests. Governmental fund types recognize the vested vacation and compensatory time as an expenditure in the current year to the extent it is paid during the year or is due and payable at year-end. Accrued vacation and compensatory time relating to governmental funds is included as a liability in the long-term liabilities as those amounts are payable from future resources, and within the statement of net assets for amounts relating to the proprietary fund type. e. 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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the statement of net assets date, and reported amounts of revenues and expenses during the reporting period. Estimates are used to determine depreciation expense, the allowance for doubtful account and certain liabilities. Actual results may differ from those estimates. See independent auditors' report. -36- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): f. Subsequent Events: In preparing these financial statements, the City has evaluated events and transactions for potential recognition or disclosure through January 22, 2013, the date the financial statements were available to be issued. 2. CASH AND INVESTMENTS: Cash and Investments Cash and investments as of June 30, 2012 are classified in the accompanying financial statements as follows: Statement of Net Assets: Cash and investments $ 81,396,548 Cash and investments with fiscal agents 34,970,921 Fiduciary Funds: Cash and investments 64,784,320 Cash and investments with fiscal agents 21,048,048 Total Cash and Investments 202.199.837 Cash and investments as of June 30, 2012 consist of the following: Cash on hand $ 9,100 Deposits with financial institutions 20,007,642 Investments 182,183,095 Total Cash and Investments 202,199.837 See independent auditors' report. -37- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by the California Government Code and the City's Investment Policy The table below identifies the investment types that are authorized for the City. The table also identifies certain provisions of the City's investment policy that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by fiscal agents that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. Investment Types Authorized by State Law Local Agency Bonds U.S. Treasury Obligations U.S. Agency Securities Banker's Acceptances Commercial Paper Negotiable Certificates of Deposit Repurchase Agreements Reverse Repurchase Agreements Medium -Term Notes Mutual Funds Money Market Mutual Funds Mortgage Pass -Through Securities County Pooled Investment Funds Local Agency Investment Fund (LAIF) JPA Pools (other Investment Pools) N/A - Not Applicable See independent auditors' report. Authorized by Investment Polices Yes Yes Yes Yes Yes Maturity 5 years 5 years 5 years 180 days 90 days Yes 5 years Yes 1 year No 92 days Yes 5 years Yes N/A Yes N/A Yes Yes Yes Yes 5 years N/A N/A N/A Maximum Percentage of Portfolio None None None 40% 15% 30% None 20% of base value 30% 15% 20% None None None None Maximum Investment in One Issuer None None None 30% 10% None None None None 10% 10% None None WSW% None CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee is governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustees. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk. Maximum Authorized Investment Type Maturity U.S. Treasury Obligations None U.S. Agency Securities None Banker's Acceptances 270 days Commercial Paper 180 days Money Market Funds N/A Investment Contracts 30 years Certificates of Deposit None Corporate Notes None Repurchase Agreements None N/A - Not Applicable Disclosures Relating to Interest Rate Risk Maximum Maximum Percentage Investment of Portfolio in One Issuer None None None None None None None None None None None None None None None None None None 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 City 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. See independent auditors' report. -39- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 2. CASH AND INVESTMENTS (CONTINUED): Disclosures Relating to Interest Rate Risk (Continued) Information about the sensitivity of the fair values of the City'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 City's investments by maturity: Remaining Maturity (in Months) 12 Months 13-24 25-60 Over 60 Investment Type or Less Months Months Months Total United States Treasury Bills $ 24,999,525 $ - $ - $ - $ 24,999,525 United States Treasury Notes 7,018,398 3,008,556 4,989,060 - 15,016,014 United States Government Sponsored Agency Securities: FFCB - - 5,001,875 - 5,001,875 FHLB - 4,995,745 - - 4,995,745 State Investment Pool: City 48,519,070 - - - 48,519,070 Successor Agency 1,247,420 - - - 1,247,420 Orange County Investment Pool 368,827 - - - 368,827 Government reserve money market fund 16,061,541 - - - 16,061,541 Certificates of deposit 5,000,685 - - - 5,000,685 Corporate notes - - 4,953,425 - 4,953,425 Held by Fiscal Agents: Money market funds 56.018.968 - - - 56.018.968 159.234.434 8.004.301 14.944.360 - $182,183,095 See independent auditors' report. .m CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 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 City's investment policy, or debt agreements, and the Standard and Poor's actual rating as of year end for each investment type. N/A - Not Applicable See independent auditors' report. -41- Total Minimum Exempt as of Legal from Not Investment Tyne June 30, 2012 Ratine Disclosure AAA AA+ Al Aa3 Rated U.S. Treasury Bills $ 24,999,525 N/A $24,999,535 $ $ $ $ $ U.S. Treasury Notes 15,016,014 N/A 15,016,014 U.S. Government Sponsored Agency Securities: FFCB 5,001,875 N/A - 5,001,875 FHLB 4,995,745 N/A 4,995,745 - State Investment Pool: City 48,519,070 N/A - 48,519,070 Successor Agency 1,247,420 N/A 1,247,420 Orange County Investment Pool 368,827 N/A 368,827 Government Reserve money market funds 16,061,541 A 16,061,541 - Certificates of deposit 5,000,685 N/A - 5,000,685 Corporate notes 4,953,425 AA - - 4,953,425 Held by Fiscal Agents: Money market funds 56.018.968 A 56.018.968 Total S 182.183095 $40015.539 $72.080.509 S 9.997.620 $ 5.000.685 S 4.953.425 $50.135317 N/A - Not Applicable See independent auditors' report. -41- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 2. CASH AND INVESTMENTS (CONTINUED): Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. The City does not have Investments in any one issuer (other than U. S. Treasury securities, mutual funds, and external investment pools) that represents 5% or more of total City investments. 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 City'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 secures 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 City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2012, none of the City's deposits with financial institutions in excess of federal depository insurance limits were held in uncollateralized accounts. As of June 30, 2012, the City's investments in the following investment types were held by the same broker-dealer (counterparty) that was used by the City to buy the securities: Investment Type U.S. Treasuries Federal Agency Securities Corporate Notes See independent auditors' report. -42- Reported Amount $ 40,015,539 9,997,620 4,953,425 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 2. CASH AND INVESTMENTS (CONTINUED): Investment in State Investment Pool The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City'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. Investment in County Investment Pool The Orange County Investment Pool Fund (OCPIF) is a pooled investment fund program governed by the Orange County Board of Supervisors, and is administered by the Orange County Treasurer and Tax Collector. Investments in OCPIF are highly liquid as deposits and withdrawal can be made at any time without penalty. The City's fair value of its share in the pool is the same value of the pool shares, which amounted to $368,827. Information on OCPIF's use of derivative securities in its investment portfolio and OCPIF's and the City's exposure to credit, market, or legal risk is not available. 3. LOANS RECEIVABLE: Multi -Family Development Loan: A Bridge Loan was provided to a Senior Apartment Developer to assist in the development of 53 affordable rental units. The total outstanding balance as of June 30, 2012, was $345,441. Home Improvement Loans: Home improvement loans were provided to low and moderate income households (rental and ownership). These deferred loans are due upon sale, refinance, or when the rental units are no longer available as affordable units. Term is 30 years. The total outstanding balance as of June 30, 2012, was $56,768. An allowance of $31,906 has been recorded to reflect the amount of the loans not expected to be collectible. Homebuyer Program Loans: Down payment assistance was provided to qualified first time homebuyers. The loans provided in the Ambrose Lane Development are due beginning in 2016, or when the homeowner sells or refinances. The loans provided in the Tustin Grove Development are due when the homeowner sells or refinances. If the homeowner does not sell or refinance before July 2015, the loan is forgiven. The total outstanding balance as of June 30, 2012, was $680,099. An allowance of $680,099 has been recorded to reflect the amount of loans not expected to be collectible. See independent auditors' report. -43- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 4. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS: Due To and Due From The composition of interfund balances as of June 30, 2012 is as follows: Due To Due From General Fund CFD Construction Capital Projects Fund Amount 6.277.920 The amounts loaned from General Fund to the CFD Construction Capital Projects Fund are to provide short-term loans to fund operations. Advances To and Advances From The composition of interfund advances as of June 30, 2012 is as follows: Advances To Advances From Amount Water Enterprise Fund Other Governmental Funds 1,317,615 On April 6, 2010, the City entered into a promissory note with Tustin Water Enterprise Fund in the amount of $2,123,437 to provide the cash necessary to meet the bond covenant. The Water Enterprise Fund promised to pay the City on June 1, 2015, the principal amount of $2,123,437 with interest accrued thereon from April 6, 2010 to the maturity date at the rate of 3.5% per annum, compounded semiannually on June 1 and December 1 in each year, commencing June 1, 2010. The total amount receivable from Water Enterprise Fund as of June 30, 2012 for other governmental funds is $1,317,615. Interfund Transfers The composition of interfund transfers for the year ended June 30, 2012 is as follows: Transfers In Transfers Out General Fund Other Governmental Funds Other Governmental Funds Other Governmental Funds Amount $ 192,671 2,827,620 3,020,291 A transfer from other governmental funds was made to reimburse the General Fund per adopted budget for fiscal year 2011-12. See independent auditors' report. -44- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 5. LAND TRANSFER FROM THE UNITED STATES GOVERNMENT: On May 13, 2002, the City entered into an agreement with the United States of America (the Government) wherein the Government agreed to convey to the City a portion of the former Marine Corps Air Station Tustin (MCAS Tustin). The transfer is pursuant to the authority provided by Section 2905(b)4 of the Defense Base Closure and Realignment Act of 1990, as amended, and the implementing regulations of the Department of Defense to convey surplus property at a closing installation to the local redevelopment authority at no cost for economic development purposes. The real properties, consisting of approximately 1,153 acres of land located within the bounds of the former MCAS Tustin, were conveyed to the City in multiple parcels, by separate conveyances. Parcel Group I, (consisting of approximately 977 acres), was conveyed to the City on May 14, 2002. A portion of Parcel Group I (consisting of approximately 23 acres) was conveyed to the City during fiscal year 2003 and the remainder was conveyed to the City in fiscal year 2004. Conveyance of Parcel Group II (consisting of a total of 49 acres) was conveyed in September 2006 and May and July 2003. Conveyance of Parcel Group III (consisting of approximately 18 acres) and Parcel Group IV (consisting of approximately 119 acres) were conveyed in September 2006 and April 2008, respectively. As part of the agreement, the City also received certain personal property and utilities on the base. The land was recorded at their estimated fair value at the date of conveyance. Subsequent to the conveyance of properties from the Government, the Agreement required the City to convey approximately 22 acres to Santa Ana Unified School District (SAUSD), 15 acres to Rancho Santiago Community College District (RSCCD) and 65 acres to South Orange County Community College District (SOCCCD) subject to certain conditions as detailed in the agreement with the Government and the terms and conditions of the settlement and release agreements between the City and SAUSD and the City and the RSCCD. The SAUSD declined the conveyance of the land from the City and instead of receiving the land, the SAUSD was paid $60,000,000 under an agreement dated December 20, 2002. The City conveyed the RSCCD parcel during fiscal year 2003. Conveyance of the SOCCCD parcel happened in fiscal year 2004. The value of the remaining parcels that have been conveyed to the City as of June 30, 2012 is $101,558,282 and is included in the total of the land held for resale reported in the General Fund. The value was based on an assumption that most of the land will be sold in a bulk sale to a single developer and the remaining property not sold will be park space or conveyed to other governmental agencies. See independent auditors' report. -45- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 6. DUE TO SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY: On December 31, 2008, the City entered into a promissory note with the former Redevelopment Agency in the amount of $18,881,750. The City promised to pay the former Redevelopment Agency on December 1, 2013, the principal amount of $18,881,750 with interest accrued thereon from December 30, 2008 to the maturity date at the rate of 4.25% per annum, compounded semiannually on June 1 and December 1 in each year, commencing June 1, 2009. Effective February 1, 2012, the former Redevelopment Agency was dissolved and the promissory note was transferred to the Successor Agency to the Tustin Community Redevelopment Agency. The total amount payable to the Successor Agency to the Tustin Community Redevelopment Agency as of June 30, 2012 was $21,877,282. See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 7. CAPITAL ASSETS: A summary of changes in the Governmental Activities capital assets for the year ended June 30, 2012 is as follows: Capital assets, being depreciated Buildings Balance at 15,778,684 Transfers Balance at Improvements other than buildings July 1, 2011 Additions Deletions (a) June 30, 2012 Capital assets, not being 13,775,664 1,044,764 (400,727) - 14,419,701 depreciated: 284,345,195 1,231,635 (201,718) - 285,375,112 Land $ 44,259,596 $ - $ - $ (119,000) $ 44,140,596 Right of way 42,408,200 531,976 - - 42,940,176 Construction in progress 34,810,290 21,478,504 (1,721,440) - 54,567,354 Total capital assets, not being depreciated 121,478,086 22,010,480 (1,721,440) (119,000) 141,648,126 Capital assets, being depreciated Buildings 50,450,493 15,778,684 (34,211) (190,000) 66,004,966 Improvements other than buildings 14,136,665 817,225 - - 14,953,890 Machinery and equipment 13,775,664 1,044,764 (400,727) - 14,419,701 Infrastructure 284,345,195 1,231,635 (201,718) - 285,375,112 Total capital assets, depreciation being depreciated 362,708,017 18,872,308 (636,656) (190,000) 380,753,669 Less accumulated depreciation for Buildings (10,253,844) (1,186,754) 34,211 70,617 (11,335,770) Improvements other than buildings (3,208,792) (512,524) - - (3,721,316) Machinery and equipment (11,000,922) (795,016) 400,727 - (11,395,211) Infrastructure (76,635,884) (6,697,171) 67,017 - (83,266,038) Total accumulated depreciation (101,099,442) (9,191,465) 501,955 70,617 (109,718,335) Total capital assets, being depreciated, net 261.608.575 9.680.843 (134.701) (119.383) 271.035.334 Governmental activities capital assets, net $ 383,086,661 $ 31,691,323 $ (1 856,141) $ (238,383) $ 412,683,460 (a) The net transfer of $238,383 relates to the transfer of assets to the Successor Agency to the Tustin Community Redevelopment Agency from the former redevelopment agency. See Notes 16 and 17 for additional information. See independent auditors' report. -47- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 7. CAPITAL ASSETS (CONTINUED): Depreciation expense was charged to functions/programs of the governmental activities as follows: General government $ 122,274 Public safety 291,058 Public works 8,308,702 Community services 469,431 9.191.465 A summary of changes in the Business -type Activities capital assets for the year ended June 30, 2012 is as follows: Capital assets, not being depreciated Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings and improvements Property, plant and equipment Total capital assets, being depreciated Less accumulated depreciation for: Buildings and improvements Property, plant and equipment Total accumulated depreciation Total capital assets, being depreciated, net Total business -type activity capital assets, net See independent auditors' report. Balance at Balance at July 1, 2011 Additions Deletions June 30, 2012 $ 1,177,216 $ - $ 1.266.135 4.552.881 _ 2.443.351 4.552.881 9,568,372 - 42.839.888 - 52.408.260 (3,950,420) (268,722) (16.974.118) (982.587) (20,924,538) (1,251,309) 31,483,722 (1,251,309) - $ 1,177,216 5.819.016 6.996.232 - 9,568,372 42.839.888 52,408,260 - (4,219,142) (17.956.705) (22,175,847) 30,232,413 33.927.073 S 3.301.572 $ 37.228.645 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 8. LONG-TERM LIABILITIES: 2003 Refunding Water A summary of long-term liability activity for the year ended June 30, 2012 is as follows: $ (11,165,000) $ $ $ Balance at on refunding (123,953) Balance at Due Within 2011 Water July 1, Revenue bonds 20,760,000 Transfers June 30, One (10,200) 2011 Additions Deletions (a) 2012 Year Governmental activities: Bond premium 899,325 (20,440) 878,885 - Deferred charges Tax allocation bonds $ 77,600,000 $ $ (2,590,000) $ (75,010,000) $ $ Total business -type Unamortized premium 99,496 activities long-term (2,060) (97,436) liabilities $ 32,347,146 $ 9,372,432 $ (11.240,740) $ Unamortized discount (872,665) 17,281 855,384 the former redevelopment agency. See Notes 16 and 17 for additional information Total bonds payable 76,826,831 See independent auditors' report. (2,574,779) (74,252,052) Claims and judgments 3,286,318 1,832,406 (2,108,071) 3,010,653 3,010,653 Postemployment benefits obligation (see Note 10) 3,171,070 747,031 (302,517) 3,615,584 361,558 Compensated absences 3,282,119 2,430,612 (2,169,901) 3,542,830 3,188,547 Total governmental activities long-term liabilities $ 86,566,338 $ 5,010,049 $ X7155,268) (74.252.0521 $ 10,169,067 $ 6,560,758 Business -type activities: 2003 Refunding Water Revenue bonds $ 11,165,000 $ $ (11,165,000) $ $ $ Deferred charges on refunding (123,953) 123,953 2011 Water Revenue bonds 20,760,000 - 20,760,000 Bond premium 304,709 (10,200) 294,509 - 2012 Refunding Water Revenue bonds - 8,910,000 8,910,000 710,000 Bond premium 899,325 (20,440) 878,885 - Deferred charges on refunding (594,664) 13,515 (581,149) - Compensated absences 241,390 157,771 (,182,568) 216,593 194,934 Total business -type activities long-term liabilities $ 32,347,146 $ 9,372,432 $ (11.240,740) $ $ 30,478,838 $ 904,934 (a) The transfers relate to the transfer of long-term liabilities to the Successor Agency to the Tustin Community Redevelopment Agency from the former redevelopment agency. See Notes 16 and 17 for additional information See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 8. LONG-TERM LIABILITIES (CONTINUED): Business -type Activities 2003 Refunding Water Revenue Bonds On September 9, 2003, the City issued $14,355,000, 2003 Refunding Water Revenue Bonds. The Bonds were issued to provide funds to defease the Water System Revenue Certificates of Participation, Series 1993 and prepay certain outstanding notes payable incurred to finance improvements to the Water Enterprise. The bonds were refunded by the 2012 Refunding Water Revenue Bonds. 2011 Water Revenue Bonds On May 25, 2011, the Public Financing Authority issued $20,760,000, 2011 Water Revenue Bonds. The Bonds were issued to finance certain water system improvements. The Bonds are payable in annual installments ranging from $735,000 to $1,690,000 until maturity on April 1, 2041. Interest is payable semiannually on April I and October 1, with rates ranging from 5.0% to 5.25% per annum. The City has pledged net revenues received from the operation of Water Enterprise to repay the outstanding debt service. The net revenues are the amount of the gross revenues received less the amount of maintenance and operation costs, which include management, personnel, services, equipment, repair and other necessary costs of maintaining and operating the Water Enterprise. The City has covenanted to fix, prescribe, revise and collect rates, fees and charges for the services and facility furnished by the Water Enterprise during each fiscal year which are sufficient to yield net revenues, at least equal to 120% of the annual debt service on the bonds. At June 30, 2012, total interest and principal remaining on the bonds is $43,568,563. During the fiscal year, the total interest expense incurred were $890,481 and net revenues were $4,428,540. See independent auditors' report. -50- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 8. LONG-TERM LIABILITIES (CONTINUED): Business -type Activities (Continued) 2011 Water Revenue Bonds (Continued) The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2032 2033-2037 2038-2041 Add: Premium Totals Principal 3,165,000 4,945,000 6,340,000 6,310,000 20,760,000 294,510 Interest $ 1,047,625 1,047,625 1,047,625 1,047,625 1,047,625 5,23 8,125 5,010,375 3,954,688 2,559,750 807,500 22,808,563 Total $ 1,047,625 1,047,625 1,047,625 1,047,625 1,047,625 5,238,125 8,175,375 8,899,688 8,899,750 7,117,500 43,568,563 294,510 21.054.510 22.808.563 43.863.073 2012 Refunding Water Revenue Bonds On March 27, 2012, the City issued $8,910,000, 2012 Refunding Water Revenue Bonds. The Bonds were issued to provide funds to defease the 2003 Refunding Water Revenue Bonds and prepay certain outstanding notes payable incurred to finance improvements to the Water Enterprise. The Bonds are payable in annual installments ranging from $710,000 to $960,000 until maturity on April 1, 2023. Interest is payable semiannually on April 1 and October 1, with rates ranging from 2.0% to 4.0% per annum. The defeasance resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $594,664. The difference reported in the accompanying statements as a deduction from revenue bonds payable, is being charged to interest expense through 2023. See independent auditors' report. -51- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 8. LONG-TERM LIABILITIES (CONTINUED): Business -type Activities (Continued) 2012 Refunding Water Revenue Bonds The City has pledged net revenues received from the operation of Water Enterprise to repay the outstanding debt service. The net revenues are the amount of the gross revenues received less the amount of maintenance and operation costs, which include management, personnel, services, equipment, repair and other necessary costs of maintaining and operating the Water Enterprise. The City has covenanted to fix, prescribe, revise and collect rates, fees and charges for the services and facility furnished by the Water Enterprise during each fiscal year which are sufficient to yield net revenues, at least equal to 120% of the annual debt service on the bonds. At June 30, 2012, total interest and principal remaining on the bonds is $10,958,046. During the fiscal year, there were no debt service payments due. The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2013 2014 2015 2016 2017 2018-2022 2023 Add: premium Less: deferred charges on refunding Totals See independent auditors' report. Principal $ 710,000 710,000 725,000 745,000 770,000 4,290,000 960,000 8,910,000 878,886 581.14 Interest $ 285,546 286,375 272,175 250,425 228,075 687,050 38,400 2,048,046 Total $ 995,546 996,375 997,175 995,425 998,075 4,977,050 998,400 10,958,046 878,886 581.14 9,207,737 2.048.046 11.255.783 -52- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 9. PENSION PLAN: Plan Description The City contributes to the California Public Employees' Retirement System (PERS), an agent -multiple employer public employee defined pension benefit plan for miscellaneous employees and a cost-sharing multiple -employer public employee defined benefit pension plan for public safety employees. PERS provides retirement and disability benefits, annual cost -of -living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and City ordinance. Copies of PERS' annual financial report may be obtained from their website: www.calpers.ca.gov. Funding Policy Participants are required to contribute 7% (9% for safety employees) of their annual covered salary. For members employed by the City by December 31, 2011, the City contributes a portion of the required member contributions. For City employees, other than safety and management, the City contributes 3.5% of the employees' contribution and the employee contributes 3.5%. For safety employees (including safety management), the City contributes 4.5% of the employees' contribution and the employee contributes 4.5%. For City management, other than safety management, the City contributes 3% of the employees' contribution and the employee contributes 4%. The City is required to contribute the remaining amount necessary to fund the benefits for its members, using the actuarial methods recommended by the PERS actuaries and actuarial consultants and adopted by the Board of Administration. For the participants employed by December 31, 2011, the required employer contribution rate for year ended June 30, 2012 was 9.943% and 32.170% for miscellaneous and safety employees, respectively. For safety members employed by the City on or after January 1, 2012, the required contribution rate was 19.169%. The contribution requirements of the plan members are established by the state statute and the employer contribution rate is established and may be amended by PERS. The funded status of the plan based on the June 30, 2011 actuarial valuation is as follows: Actuarial Actuarial Accrued Value of Liability Assets $75,399,067 $ 68,289,474 See independent auditors' report. Unfunded Liability (Excess Assets) $ 7,109,593 -53 - Funded Ratio 90.57 % Annual Covered Payroll $ 13,462,500 Unfunded Liability % of Covered Payroll 52.81 % D CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 PENSION PLAN (CONTINUED): Funding Policy (Continued) The schedule of funding progress presented as Required Supplementary Information following the Notes to Basic Financial Statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The assumptions for the June 30, 2011 actuarial valuation for the funded status were the same as those of the June 30, 2010 valuation that determined the required contributions. Annual Pension Cost For 2012, the City's annual pension cost of $2,349,007 for the Miscellaneous Plan and $3,785,849 for the Safety Plan (based on an actuarially determined basis) was equal to the City's required and actual contributions. The required contribution for the miscellaneous plan for the year ended June 30, 2012 was determined as part of the June 30, 2009 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions for the Miscellaneous Plan included (a) 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary increases that vary by duration of service, and (c) 3.25% per year cost -of -living adjustments. Both (a) and (b) included an inflation component of 3.0%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a four-year period (smoothed market value). PERS unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period as of the actuarial valuation date was 19 years for the miscellaneous employee plan. Three -Year Trend Information for PERS - Miscellaneous Plan Fiscal Annual Pension Year Cost (APC) 6/30/10 $ 2,254,708 6/30/11 2,205,531 6/30/12 2,349,007 Percentage APC Contributed 100% 100% 100% Three -Year Trend Information for PERS - Safety Plan Fiscal Annual Pension Percentage Year Cost (APC) APC Contributed 6/30/10 $ 3,245,673 100% 6/30/11 3,396,182 100% 6/30/12 3,785,849 100% See independent auditors' report. -54- Net Pension Obligation Net Pension Obligation CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 10. POST -EMPLOYMENT HEALTH CARE BENEFITS: Plan Description The City provides other postemployment benefits (OPEB) to retired employees in the form of a contribution towards their medical premiums under the PERS health plan, a single -employer deferred benefit plan which provides medical insurance benefits to eligible retirees in accordance with various labor agreements. Survivor benefits are not provided. The City's OPEB plan does not issue a separate stand-alone report. Eligibility Employees hired prior to July 1, 2011 are eligible for retiree health benefits if they retire from the City on or after age 50 (unless disabled), with five years of service and are eligible for a PERS pension and are enrolled in a PERS retiree health plan. Employees hired after June 30, 2011 are eligible for retiree health benefits if they retire from the City on or after age 50 (unless disabled), with ten years of service and are eligible for a PERS pension and are enrolled in a PERS retiree health plan. The benefits are available only to employees who retire from the City. Membership of the plan consisted of the following at June 30, 2012: Police Police General Management Confidential Support Total Retirees Receiving Benefits 32 22 19 - 5 78 Eligible Active Employees 87 102 42 6 40 277 The above table does not reflect current retirees not enrolled in the PERS health plan who may be eligible to enroll in the plan at a later date. Funding Policy The City's current contribution is based on pay-as-you-go. As of July 1, 2011, the City's monthly contribution rate was $250 for the Confidential, General, and Police Support groups; $350 for the Police and Management group. For the year ended June 30, 2012, the City paid $302,517 in contributions for postemployment health care benefits. Current active employees are not required to contribute any portion towards these benefits. See independent auditors' report. -55- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 10. POST -EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): Funding Policy (Continued) Annual OPER Cost and Net OPER Obligation. The City's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) not to exceed thirty years. The City's ARC for the year ended June 30, 2012 was $984,031. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation: ARC (OPEB cost) Interest on net OPEB obligation Adjustment to ARC Annual pension cost Contributions made Increase(decrease)in net OPEB obligation Net OPEB obligation, beginning Net OPEB obligation, ending Police Police General Management Confidential Support Total $ 329,858 $ 343,718 $ 169,087 $ 16,632 $ 124,736 $ 984,031 37,245 33,357 26,168 14,185 13,045 124,000 (108,431) (97,114) (76,183) (41,296) (37,976) (361,000) 258,672 279,961 119,072 (132,971) (62,920) (91,044) 125,701 217,041 28,028 (10,479) 99,805 747,031 - (15,582) (302,517) (10,479) 84,223 444,514 952,474 853,062 669,193 362,755 333,586 3,171,070 1.078.175 S09 -7221&---L5-2276 S4-17809 S 3.615.584 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2012 and the two preceding years were as follows: Fiscal Annual Percentage of Net Year OPEB Annual OPEB OPEB Ended Cost Cost Contributed Obligation 6/30/10 $ 897,043 15.10% $ 2,461,016 6/30/11 887,145 19.96% 3,171,070 6/30/12 747,031 40.50% 3,615,584 See independent auditors' report. -56- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 10. POST -EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): Funding Status and Progress As of June 30, 2011, the most recent valuation date, the actuarial accrued liability for benefits was $9.8 million, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $9.8 million and a funded ratio (actuarial value of assets as a percentage of the actuarial accrued liability) of 0%. The covered payroll (annual payroll of active employees) was $21.52 million and the ratio of the UAAL to the covered payroll was 45.6%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial assets, consistent with the long-term perspective of the calculations. The required contribution for the fiscal year 2012 was determined as part of the June 30, 2011 actuarial valuation. The actuarial cost method used for determining the benefit obligations is the entry age normal cost method. The actuarial assumptions included a 4.25% investment rate of return (which is based on assumed long-term investment return on plan assets and on the City's assets, as appropriate), annual inflation rate of 3%, annual payroll increase of 3.25% and an annual healthcare cost trend rate with increases that vary by year. The UAAL is being amortized as a level percentage of projected payroll over a closed period of 30 years. See independent auditors' report. -57- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 11. SELF-INSURANCE PROGRAM/RISK POOL: The City uses a combination of insured and self-insured programs to finance its property and casualty risk. The City is self-insured for worker's compensation, automotive, and general liability risks. Excess liability coverage for the City's self-insurance retention of $250,000 per occurrence is provided through a risk sharing pool, the California Insurance Pool Authority (CIPA). The CIPA provides excess liability coverage above $2,000,000 per occurrence and $40,000,000 annual aggregate. The City's self-insurance retention limit is $400,000 per occurrence for worker's compensation claims. Worker's compensation claims which exceed the self-insurance retention are insured by CIPA up to the California statutory limit for worker's compensation. Property and employment practices liability risk are financed through insurance contracts and have various limits and deductibles. The City is a member of CIPA in order to jointly purchase insurance coverage and to share costs for professional risk management, claim administration, and group purchasing of insurance products with ten other Orange County cities. Members may be assessed the difference between the funds available and the $40,000,000 annual aggregate in proportion to their annual premium. CIPA uses independent actuaries and underwriters to determine premiums and help set insurance limits and deductible levels. The pool is managed by all independent general manager and contracted legal advisers. Two internal subcommittees are made up of City members to provide direction on underwriting and claims activities. The Governing Board of CIPA is comprised of one member from each participating City and is responsible for the selection of the independent general manager, legal counsel, and electing subcommittee members. The financial statements of the CIPA are available at the administrative office located at 240 Newport Center Drive, Suite 210, Newport Beach, California. The government retains a risk of loss, due to the fact that actual losses may exceed estimated claims or coverage amounts. Settled claims have not exceeded any of the City's coverage amounts in any of the last three fiscal years, and there were no reductions in the City's coverage during the year ended June 30, 2012. At June 30, 2012, estimated claims payable of $3,010,653, which includes a provision for incurred but not reported claims and loss adjustment expenses, are reported as a long-term liability. Changes in the balances of claims liabilities for the years ended June 30, 2011 and 2012, including a provision for incurred but not reported claims and loss adjustment expenses, were as follows: June 30, 2011 2012 Balance $ 2,240,963 3,286,318 Estimates $ 2,138,342 1,832,406 See independent auditors' report. -58- Payments $ 1,092,987 2,108,071 Balance $ 3,286,318 3,010,653 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 12. SPECIAL ASSESSMENT DISTRICTS'BONDS: Special assessment districts exist in various parts of the City to provide improvements to properties located in those districts. Properties are assessed for the cost of improvements; these assessments are payable over the term of the debt issued to finance the improvements and must be sufficient to repay this debt. The bonds listed below were issued pursuant to the Refunding Act of 1984 for the 1915 Improvement Act Bonds and the Improvement Bond Act of 1915 and are the liabilities of the property owners and are secured by liens against the assessed property. The City Treasurer acts as an agent for collection of principal and interest payments by the property owners and remittance of such monies to bondholders. Neither the faith and credit nor the general taxing power of the City have been pledged to the payment of the bonds. Therefore, none of the following special assessment bonds have been included in the accompanying financial statements. District Bonds Community Facilities District 04-1, 2004 Community Facilities District 06-1, 2007 Community Facilities District 06-1, 2010 Community Facilities District 07-1, 2007 Community Facilities Districts Amount of Issue $ 11,415,000 53,570,000 1,675,000 13,680,000 Outstanding June 30, 2012 $ 10,095,000 53,255,000 1,660,000 13,610,000 80.340.000 78.620.000 In December 2004, the City issued $11,415,000 of Special Tax Bonds, Series 2004, to facilitate the new infrastructure construction on the former MCAB being converted into various public, housing, commercial and educational uses. The proceeds of the bonds will be used to pay the cost and expense of acquisition and construction of certain public facilities necessary for the development of the Tustin Legacy District, fund the reserve account, pay capitalized interest on bonds through September 16, 2005, and pay costs of issuing the Series 2004 Bonds. Serial current interest bonds will mature from September 1, 2006 to September 1, 2025. Term current interest bonds will mature on September 1, 2029, with mandatory sinking payments from September 1, 2030 through September 1, 2034. Interest maturity rates of the current interest bonds range from 2.75% at September 1, 2006 to 5.35% at September 1, 2025 - and current term interest bonds are 5.375% and 5.50% on their respective maturity dates. At June 30, 2012, the amount of the Special Tax Bonds, Series 2004 was $10,095,000. See independent auditors' report. -59- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 12. SPECIAL ASSESSMENT DISTRICTS'BONDS (CONTINUED): Community Facilities Districts (Continued) In September 2007, the City issued $53,570,000 of Special Tax Bonds, Series 2007A, to facilitate the new infrastructure construction on the former MCAB being converted into various public, housing, commercial and educational uses. The proceeds of the bonds will be used to pay the cost and expense of acquisition and construction of certain public facilities necessary for the development of the Tustin Legacy District, fund the reserve account, pay capitalized interest on bonds through September 1, 2008, and pay costs of issuing the Series 2007A Bonds. Serial current interest bonds will mature from September 1, 2009 to September 1, 2025. Term current interest bonds will mature on September 1, 2036, with mandatory sinking payments from September 1, 2026 through September 1, 2036. Interest maturity rates of the current interest bonds range from 4% at September 1, 2009 to 5.375% at September 1, 2025 and current term interest bonds are 6% on their respective maturity dates. At June 30, 2012, the amount of the Special Tax Bonds, Series 2007A was $53,255,000. In September 2007, the City issued $13,680,000 of Special Tax Bonds, Series 2007, to facilitate the new infrastructure construction on the former MCAB being converted into various public, housing, commercial and educational uses. The proceeds of the bonds will be used to pay the cost and expense of acquisition and construction of certain public facilities necessary for the development of the Tustin Legacy District, fund the reserve account, and pay costs of issuing the Series 2007 Bonds. Serial current interest bonds will mature from September 1, 2009 to September 1, 2025. Term current interest bonds will mature on September 1, 2037, with mandatory sinking payments from September 1, 2026 through September 1, 2037. Interest maturity rates of the current interest bonds range from 4% at September 1, 2009 to 5.65% at September 1, 2025 and current term interest bonds are 6% through their respective maturity dates. At June 30, 2012, the amount of the Special Tax Bonds, Series 2007 was $13,610,000. In October 2010, the City issued $1,675,000 of Special Tax Bonds, Series 2010 to, to facilitate the new infrastructure construction on the former MCAB being converted into various public, housing, commercial and educational uses. The proceeds of the bonds will be used to pay the cost and expense of acquisition and construction of certain public facilities necessary for the development of the Tustin Legacy District, fund the reserve account, and pay costs of issuing the Series 2010 Bonds. Serial current interest bonds will mature from September 1, 2011 to September 1, 2035. Term current interest bonds will mature on September 1, 2039, with mandatory sinking payments from September 1, 2036 through September 1, 2039. Interest maturity rates of the current interest bonds range from 1.5% at September 1, 2011 to 5.625% at September 1, 2035 and current term interest bonds are 5.75% through their respective maturity dates. At June 30, 2012, the amount of the Special Tax Bonds, Series 2010 was $1,660,000. See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 12. SPECIAL ASSESSMENT DISTRICTS'BONDS (CONTINUED): Community Facilities Districts (Continued) Neither the general taxing power of the City nor the faith or credit of the PFA or the City have been pledged to the payment of the bonds. Therefore, the bonds have not been included in the accompanying financial statements. 13. COMMITMENTS AND CONTINGENCIES: There are certain legal actions pending against the City which have arisen in the normal course of operations. In the opinion of management and the City Attorney, the ultimate resolution of such actions is not expected to have a significant impact, if any, on the financial statements or operations of the City. In July 2004, the City entered into a disposition and development agreement ("DDA") with Vestar Development Company ("Developer") where the City agreed to sell and/or lease or sublease and developer agreed to purchase and/or lease or sublease the Tustin Legacy Property. Pursuant to the DDA, the City and Developer entered into an infrastructure construction and payment agreement ("Agreement") dated June 8, 2005. The Agreement calls for the Developer to pay the Project Fair Share Contribution (as defined in the DDA) with respect to the Tustin Legacy Backbone Infrastructure program. Pursuant to the original and subsequent agreements, the Developer is entitled to reimbursement of its infrastructure costs that exceed the Project Fair Share Obligation upon full acceptance of individual Developer Backbone Infrastructure Segments. As of June 30, 2012, the total infrastructure cost incurred by the Developer that is subject to reimbursement was $45,164,084 and the total reimbursement made by the City was $30,241,666. Estimated future reimbursements to be made by the City (as the infrastructure segments are completed and accepted by the City and only if there are excess land sale proceeds from parcels identified in the agreement) are $21,873,901. 14. GOVERNMENTAL FUND BALANCE CLASSIFICATIONS: The fund balances reported on the fund statements now consist of the following categories: Nonspendable - 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 - This classification includes amounts that can be spent only for specific purposes stipulated by constitution, external resource providers or through enabling legislation. See independent auditors' report. -61- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 14. GOVERNMENTAL FUND BALANCE CLASSIFICATIONS (CONTINUED): Committed - This classification includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the City Council. Those committed amounts cannot be used for any other purpose unless City Council removes or changes the specified use by taking the same type of action (for example, resolution, ordinance, minutes action, etc.) that it employed to previously commit those amounts. The City considers a resolution, an ordinance, or a minutes action to constitute a formal action of City Council for the purposes of establishing committed fund balance. Assigned - This classification includes amounts that are intended to be used for specific purposes as indicated by City Council or by persons to whom City Council has delegated the authority to assign amounts for specific purposes. City Council has not delegated such authority. In governmental funds, other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. Unassigned - The classifications include the residual balance for the government's general fund and includes all spendable amounts not contained in other classifications. In other funds, 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 City'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 City's policy is to apply committed fund balance first, then assigned fund balance, and finally unassigned fund balance. CFD Construction Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds Nonspendable: Prepaid items $ Advance to other funds Land held for resale Restricted for: Low income housing projects Capital projects Public safety Assigned to: Capital projects Unassigned Total fund balances See independent auditors' report. 532,997 $ - $ 30,000 - - 1,317,615 144,071,850 - 362,677 - - 850,972 - 25,464,582 11,578,759 - - 380,353 4.077.344 $ 562,997 1,317,615 144,434,527 850,972 37,043,341 380,353 16,239,322 16,239,322 - 4,077,344 148.682.191 25.464.582 30.759.698 204.906.471 -62- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 15. JOINT POWERS AUTHORITY: Orange County Fire Authority In January 1995, the City of Tustin entered into a joint powers agreement with the Cities of Buena Park, Cypress, Dana Point, Irvine, Laguna Hills, Laguna Niguel, Lake Forest, La Palma, Los Alamitos, Mission Viejo, Placentia, San Clemente, San Juan Capistrano, Seal Beach, Stanton, Villa Park, and Yorba Linda and the County of Orange (County) to create the Orange County Fire Authority. The purpose of the Authority is to provide for mutual fire protection, prevention, and suppression services and related and incidental services including, but not limited to, emergency medical and transport services, as well as providing facilities and personnel for such services. The effective date of formation was March 1, 1995. The Authority's governing board consists of one representative from each City and two from the County. The operations of the Authority are funded with structural fire fees collected by the County through the property tax roll for the unincorporated area and on behalf of all member cities except for the Cities of Stanton, Tustin, San Clemente, Buena Park, Placentia, and Seal Beach. The County pays all structural fees it collects to the Authority. The Cities of Stanton, Tustin, San Clemente, Buena Park, Placentia, and Seal Beach are considered "cash contract cities" and, accordingly, make cash contributions based on the Authority's annual budget. The financial statements of the Orange County Fire Authority are available at 1 Fire Authority Road, Irvine, California. 16. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES: On June 29, 2011, Assembly Bills lx 26 (the "Dissolution Act") and Ix 27 were enacted as part of the fiscal year 2011-12 state budget package. The Dissolution Act required each California redevelopment agency to suspend nearly all activities except to implement existing contracts, meet already -incurred obligations, preserve its assets and prepare for impending dissolution. Assembly Bill Ix 27 provided a means for redevelopment agencies to continue to exist and operate by means of a Voluntary Alternative Redevelopment Program. 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 the Dissolution Act and Assembly Bill Ix 27 on the grounds that these bills violate the California Constitution. On December 29, 2011, the California Supreme Court upheld the Dissolution Act and struck down Assembly Bill Ix 27. See independent auditors' report. -63- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 16. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED): On June 27, 2012, as part of the fiscal year 2012-13 state budget package, the Legislature passed and the Governor signed AB 1484, which made technical and substantive amendments to the Dissolution Act based on experience to -date at the state and local level in implementing the Dissolution Act. Under the Dissolution Act, each California redevelopment agency (each a "Dissolved RDA") was dissolved as of February 1, 2012, and the sponsoring community that formed the Dissolved RDA, together with other designated entities, have initiated the process under the Dissolution Act to unwind the affairs of the Dissolved RDA. A Successor Agency was created for each Dissolved RDA which is the sponsoring community of the Dissolved RDA unless it elected not to serve as the Successor Agency. On September 20, 2011, the City elected to serve as the Successor Agency to the Tustin Community Redevelopment Agency. The Dissolution Act also created oversight boards which monitor the activities of the successor agencies. The roles of the successor agencies and oversight boards is to administer the wind down of each Dissolved RDA which includes making payments due on enforceable obligations, disposing of the assets (other than housing assets) and remitting the unencumbered balances of the Dissolved RDAs to the County Auditor -Controller for distribution to the affected taxing entities. The Dissolution Act allowed the sponsoring community that formed the Dissolved RDA to elect to assume the housing functions and take over the certain housing assets of the Dissolved RDA. If the sponsoring community does not elect to become the Successor Housing Agency and assume the Dissolved RDA's housing functions, such housing functions and all related housing assets will be transferred to the local housing authority in the jurisdiction. AB 1484 modified and provided some clarifications on the treatment of housing assets under the Dissolution Act. The Tustin Housing Authority elected on January 17, 2012 to serve as the Housing Successor Agency. Prior to February 1, 2012, the final seven months of activity of the Dissolved RDA are reported in the governmental funds of the City. After the date of dissolution, the housing assets, obligations, and activities of the Dissolved RDA have been transferred and are reported in the Housing Authority special revenue fund in the financial statements of the City. All other assets, obligations, and activities of the Dissolved RDA have been transferred and are reported in a fiduciary fund (private -purpose trust fund) in the financial statements of the City. See independent auditors' report. am CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 16. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED): The transfer of the assets and liabilities of the Dissolved RDA as of February 1, 2012 (except for certain assets of the former Low and Moderate Income Housing Fund, which were transferred to the Tustin Housing Authority) (effectively the same date as January 31, 2012) from the governmental funds of the City to the fiduciary fund was reported in the governmental funds as an extraordinary loss (or gain) in the governmental fund financial statements. The receipt of these assets and liabilities as of February 1, 2012 was also reported in the fiduciary fund as an extraordinary gain (or loss). Because of the different measurement focus of the governmental funds (current financial resources measurement focus) and the measurement focus of the fiduciary private -purpose trust fund (economic resources measurement focus), the extraordinary loss (gain) recognized in the governmental funds was not the same amount as the extraordinary gain (loss) that was recognized in the fiduciary fund financial statements. The difference between the extraordinary loss recognized in the fund financial statements and the extraordinary gain recognized in the fiduciary fund financial statements is reconciled as follows: Total extraordinary loss reported in governmental funds - increase to net assets of the Successor Agency Trust Fund $ 98,386,142 Capital assets reported in the government -wide financial statements - increase to net assets of the Successor Agency Trust Fund 238,383 Accrued interest receivable reported in the government -wide financial statements - increase to net assets of the Successor Agency Trust Fund 2,540,314 Accrued bond interest payable reported in the government -wide financial statements - decrease to net assets of the Successor Agency Trust Fund (867,217) Long-term debt reported in the government -wide financial statements - decrease to the net assets of the Successor Agency Trust Fund (72,983,187) Net increase to net assets of the Successor Agency Trust Fund as a result of initial transfers (equal to amount of extraordinary gain reported in the government -wide financial statements of the City)27314.435 The Dissolution Act and AB 1484 also establish roles for the County Auditor -Controller, the California Department of Finance (the "DOF") and the California State Controller's office in the dissolution process and the satisfaction of enforceable obligations of the Dissolved RDAs. See independent auditors' report. -65- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 16. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED) The County Auditor -Controller is charged with establishing a Redevelopment Property Tax Trust Fund (the "RPTTF") for each Successor Agency and depositing into the RPTTF for each six-month period the amount of property taxes that would have been redevelopment property tax increment had the Dissolved RDA not been dissolved. The deposit in the RPTTF fund is to be used to pay to the Successor Agency the amounts due on the Successor Agency's enforceable obligations for the upcoming six-month period. The Successor Agency is required to prepare a recognized obligation payment schedule (the "ROPS") approved by the oversight board setting forth the amounts due for each enforceable obligation during each six month period. The ROPS is submitted to the DOF for approval. The County Auditor -Controller will make payments to the Successor Agency from the RPTTF fund based on the ROPS amount approved by the DOF. The ROPS is prepared in advance for the enforceable obligations due over the next six months. The Successor Agency received $6,122,195 from the County Auditor -Controller on June 11, 2012 for the ROPS for the period July 1, 2012 to December 31, 2012. The process of making RPTTF deposits to be used to pay enforceable obligations of the Dissolved RDA will continue until all enforceable obligations have been paid in full and all non -housing assets of the Dissolved RDA have been liquidated. The State Controller of the State of California has been directed to review the propriety of any transfers of assets between Dissolved RDA and other public bodies that occurred after January 1, 2011. If the public body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency. The low and moderate income housing fund of the former redevelopment agency transferred loans, prepaid costs and real property in totaling $30,816,798 to Tustin Housing Authority as the Housing Successor Agency on February 1, 2012 as authorized by Health and Safety Code Section 34176(a)(2). The low and moderate income housing fund of the former redevelopment agency made principal and interest payments totaling $6,459,484 according to the affordable reimbursement agreement with the City of Tustin for the period January 1, 2011 to June 30, 2012. On December 15, 2012, the Department of Finance determined that the agreement was not an enforceable obligation and they payments had to be paid back by the City. The City reversed the repayments and the asset balances at June 30, 2012 in the accompanying financial statements were adjusted to reflect this repayment by the City. On December 15, 2012, the Department of Finance issued a final letter of determination and determined that the low and moderate income housing fund's balances available for distribution to the taxing agencies was $14,317,799. This amount includes the disallowed payments discussed in the preceding paragraph. See independent auditors' report. -66- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 17. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES: The assets and liabilities of the former redevelopment agency were transferred to the Successor Agency to the Tustin Community Redevelopment Agency on February 1, 2012 as a result of the dissolution of the former redevelopment agency. The City is acting in a fiduciary capacity for the assets and liabilities. Disclosures related to these transactions are as follows: Due from the City of Tustin On December 31, 2008, the City entered into a promissory note with the Agency in the amount of $18,881,750. The City promised to pay the Agency on December 1, 2013, the principal amount of $18,881,750 with interest accrued thereon from December 30, 2008 to the maturity date at the rate of 4.25% per annum, compounded semiannually on June 1 and December 1 in each year, commencing June 1, 2009. Effective February 1, 2012, the Agency was dissolved and the promissory note was transferred to the Successor Agency. The total amount receivable from the General Fund as of June 30, 2012 was $21,877,282. Capital Assets Balance at Transfers (a) Balance at July 1, 2011 Feb. 1, 2012 Additions Deletions June 30, 2012 Capital assets, not being depreciated: Land $ $ 119,000 $ $ $ 119,000 Capital assets, being depreciated: Buildings - 190,000 - - 190,000 Less accumulated depreciation for: Buildings - (70,617) -------(I,583) - (72,200) Total capital assets, being depreciated, net - 119,383 (1,583) - 117,800 Successor Agency capital assets, net $ - $ 238,383 S (1.583) S - 236.800 (a) Transfers relate to the transfer of the assets from the dissolution of the former redevelopment agency. See independent auditors' report. -67- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 17. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities A summary of long-term liability activity for the year ended June 30, 2012 is as follows: Balance at Balance at Due Within July 1, Transfers June 30, One 2011 (a) Additions Deletions 2012 Year Governmental activities: Tax allocation bonds $ $ 75,010,000 $ $ $ 75,010,000 $ 2,835,000 Unamortized premium 97,436 (1,472) 95,964 - Unamortized discount (855,384) 12,343 (843,041) - Total bonds payable $ 174 252 052 $ $ 10,871 174 262 923 $ 2,835,000 (a) The transfers relate to the transfer of long-term liabilities from the former redevelopment agency. The Successor Agency to the Tustin Community Redevelopment Agency has assumed these liabilities as a result of the dissolution of the former redevelopment agency. See Note 16 for additional information. Tax Allocation Bonds Payable 1998 Town Center Tax Allocation Bonds On July 1, 1998, the Tustin Community Redevelopment Agency issued $20,805,000 Tax Allocation Refunding Bonds to refund the Agency's Town Center Area Redevelopment Project Tax Allocation Refunding Bonds, Series 1987, in aggregate principal amount of $5,145,000 and the Agency's Town Center Area Redevelopment Project Subordinate Tax Allocation Bonds, Series 1991 in aggregate principal amount of $12,880,000. As of June 30, 2006, the 1987 and 1991 bonds have been fully redeemed. Serial bonds are payable in annual installments ranging from $775,000 to $1,315,000 commencing on December 1, 1998. Interest is payable semiannually on June 1 and December 1, with rates ranging from 3.5% to 5.0% per annum. The bonds maturing on or after December 1, 2009, are subject to redemption prior to maturity as a whole or in part, at the option of the Agency, on any date on or after December 1, 2008 at prices ranging from 100% to 101% of principal. At June 30, 2012, the 1998 Bonds outstanding balance was $7,260,000. See independent auditors' report. am CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 17. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) Tax Allocation Bonds Payable (Continued) 1998 Town Center Tax Allocation Bonds (Continued) The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2013 2014 2015 2016 2017 Totals Principal $ 1,315,000 1,380,000 1,445,000 1,525,000 1,595,000 2010 Housing Tax Allocation Bonds Interest $ 323,771 258,073 188,138 113,888 37.881 Total $ 1,638,771 1,638,073 1,633,138 1,638,888 1,632,881 7.260.000 $ 921,751 8.181.751 On March 1, 2010, the Tustin Community Redevelopment Agency issued $26,170,000 Tax Allocation Housing Bonds, Series 2010 to refinance low and moderate income housing activities throughout the geographic boundaries of the City and, in particular, to repay a reimbursement obligation from the Agency to the City, relating to the City's write down of land for use for affordable housing purposes. Serial bonds are payable in annual installments ranging from $550,000 to $1,300,000 commencing on September 1, 2010. Interest is payable semiannually on March 1 and September 1, with rates ranging from 2% to 5% per annum. At June 30, 2012, the 2010 Housing Bonds outstanding balance was $24,220,000. See independent auditors' report. am CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 17. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) Tax Allocation Bonds Payable (Continued) 2010 Housing Tax Allocation Bonds (Continued) The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2032 2033-2037 2038-2040 Totals Principal $ 715,000 735,000 760,000 785,000 815,000 4,600,000 5,660,000 3,985,000 3,555,000 2.610.000 2010 MCAS Tax Allocation Bonds 24.220.000 Interest $ 1,100,181 1,078,431 1,054,106 1,025,106 993,106 4,438,009 3,339,094 2,035,244 1,170,619 210.263 16.444.159 Total $ 1,815,181 1,813,431 1,814,106 1,810,106 1,808,106 9,038,009 8,999,094 6,020,244 4,725,619 2,820,263 40.664.159 On October 27, 2010, the Tustin Community Redevelopment Agency issued $44,170,000 Tax Allocation Bonds, Series 2010 for the purpose of financing redevelopment activities within or for the benefit of the Agency's MCAS -Tustin Redevelopment Project Area. The bonds are payable in annual installments ranging from $640,000 to $12,230,000 commencing on September 1, 2011. Interest is payable semiannually on March 1 and September 1, with rates ranging from 2.0% to 5.0% per annum. The bonds maturing on or after September 1, 2019, are subject to optional redemption prior to maturity, as a whole or in part, from any available source of funds, at a redemption price equal to the principal amount thereof, together with accrued interest to the date fixed for redemption, without premium. At June 30, 2012, the 2010 MCAS Bonds outstanding balance was $43,530,000. See independent auditors' report. -70- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2012 17. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) Tax Allocation Bonds Payable (Continued) 2010 MCAS Tax Allocation Bonds (Continued) The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2013 2014 2015 2016 2017 2018-2022 2023-2027 2028-2032 2033-2037 2038-2041 Totals Principal $ 805,000 830,000 855,000 880,000 905,000 5,060,000 6,225,000 7,890,000 10,065,000 10,015,000 43.530.000 17. RESTATEMENT OF BEGINNING BALANCES: Interest $ 2,006,900 1,982,375 1,957,100 1,931,075 1,904,300 8,963,625 7,753,000 6,042,463 3,811,375 1,031,875 37.384.088 Total $ 2,811,900 2,812,375 2,812,100 2,811,075 2,809,300 14,023,625 13,978,000 13,932,463 13,876,375 11,046,875 80.914.088 The following Other Governmental Funds beginning fund balances at July 1, 2011 were restated as follows: The beginning fund balances above were restated to transfer back tax increment allocated for 20% housing set aside to the debt service funds pursuant to AB 1484. See independent auditors' report. -71- Previously As Reported Adjustment Restated Town Center Project Area Debt Service Fund $ 9,681,062 $ 469,673 $ 10,150,735 Marine Base Project Area Debt Service Fund (1,525,280) 1,194,674 (330,606) South Central Project Area Debt Service Fund 6,683,759 412,629 7,096,388 Low Income Housing Capital Projects Fund 13,846,914 (882,302) 12,964,612 Marine Base Low Income Housing Capital Projects Fund 3,663,365 (1,194,674) 2,468,691 32.349.820 $ 32.349.820 The beginning fund balances above were restated to transfer back tax increment allocated for 20% housing set aside to the debt service funds pursuant to AB 1484. See independent auditors' report. -71- The page left blank intentionally -72- REQUIRED SUPPLEMENTARY INFORMATION -73 - The page left blank intentionally -74- CITY OF TUSTIN SCHEDULES OF FUNDING PROGRESS For the year ended June 30, 2012 SCHEDULE OF FUNDING PROGRESS FOR PERS MISCELLANEOUS EMPLOYEES SCHEDULE OF FUNDING PROGRESS FOR OTHER POST -EMPLOYMENT BENEFIT PLAN Actuarial Actuarial Value Accrued Unfunded UAAL as a Actuarial of Assets Liability AAL Funded Covered % of Valuation (AVA) (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b) - (a) (a)/(b) (c) [(b)-(a)]/(c) 06/30/08 $ 55,906,203 $ 58,955,701 $ 3,049,498 94.83% $ 14,416,837 21.15% 06/30/09 59,641,991 64,934,473 5,292,482 91.85% 14,785,480 35.80% 06/30/10 63,773,252 69,334,930 5,561,678 91.98% 13,660,580 40.71% 06/30/11 68,289,474 75,399,067 7,109,593 90.57% 13,462,500 52.81% SCHEDULE OF FUNDING PROGRESS FOR OTHER POST -EMPLOYMENT BENEFIT PLAN See independent auditors' report. -75- Actuarial Actuarial Value Accrued Unfunded UAAL as a Actuarial of Assets Liability AAL Funded Covered % of Valuation (AVA) (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b) - (a) (a)/(b) (c) [(b)-(a)]/(c) 06/01/07 $ - $ 13,602,031 $ 13,602,031 0.00% $ 21,886,909 62.15% 06/30/09 - 13,626,000 13,626,000 0.00% 23,100,000 58.99% 06/30/11 - 9,801,000 9,801,000 0.00% 21,515,000 45.55% See independent auditors' report. -75- CITY OF TUSTIN BUDGETARY COMPARISON SCHEDULE GENERAL FUND For the year ended June 30, 2012 See independent auditors' report and note to required supplementary information. -76- Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Taxes $ 36,271,300 $ 36,271,300 $ 39,463,821 $ 3,192,521 Licenses and permits 78,000 78,000 443,928 365,928 Fines and forfeitures 751,900 751,900 875,068 123,168 Investment income 929,155 929,155 67,637 (861,518) Intergovernmental 1,530,936 1,530,936 1,609,770 78,834 Charges for services 4,909,000 4,909,000 2,699,561 (2,209,439) Rental income 254,500 254,500 364,774 110,274 Otherrevenue 3,004,700 3,004,700 11,892,175 8,887,475 TOTAL REVENUES 47,729,491 47,729,491 57,416,734 9,687,243 EXPENDITURES: Current: General government 11,034,524 11,034,524 11,581,224 (546,700) Public safety 29,739,403 29,739,403 28,583,326 1,156,077 Public works 7,276,500 7,276,500 6,954,384 322,116 Community services 3,079,700 3,079,700 2,953,396 126,304 Capital outlay 2,771,736 2,771,736 1,744,414 1,027,322 Debt service: Interest and fiscal charges - - 904,593 (904,593) TOTAL EXPENDITURES 53,901,863 53,901,863 52,721,337 1,180,526 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (6,172,372) (6,172,372) 4,695,397 10,867,769 OTHER FINANCING SOURCES: Transfers in 3,662,348 3,662,348 192,671 (3,469,677) Sale of property 3,000 3,000 43,745 40,745 TOTAL OTHER FINANCING SOURCES 3,665,348 3,665,348 236,416 (3,428,932) EXTRAORDINARY LOSS - - (7,879,742) (7,879,742) NET CHANGE IN FUND BALANCE (2,507,024) (2,507,024) (2,947,929) (440,905) FUND BALANCE - BEGINNING OF YEAR 151,630,120 151,630,120 151,630,120 - FUND BALANCE - END OF YEAR $ 149,123,096 $ 149,123,096 $ 148,682,191 $ (440,905) See independent auditors' report and note to required supplementary information. -76- CITY OF TUSTIN NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2012 1. BUDGETS AND BUDGETARY ACCOUNTING: The City follows these procedures in establishing the budgets. (1) The annual budget is adopted by the City Council after the holding of a hearing and provides for the general operation of the City. The operating budget includes proposed expenditures and the means of financing them. (2) The City Council approves total budgeted appropriations and any amendments to appropriations throughout the year. This "appropriated budget" covers City expenditures in all governmental funds, except for debt service and capital improvement projects carried forward from prior years. The City Manager is authorized to transfer budgeted amounts between departments. Actual expenditures may not exceed budgeted appropriations at the fund level. Budget figures used in the accompanying required supplementary information are the original and final adjusted amounts. (3) Formal budgetary integration is employed as a management control device during the year. Commitments for materials and services, such as purchase orders and contracts, are recorded as encumbrances to assist in controlling expenditures. Capital projects appropriations are an automatic supplemental appropriation for the next year. All others lapse unless they are encumbered at year-end or re -appropriated through the formal budget process. There were no outstanding encumbrances at year-end. (4) Annual budgets are adopted for the General and Special Revenue Funds on a basis substantially consistent with accounting principles generally accepted in the United States of America. Accordingly, actual revenues and expenditures can be compared with related budgeted amounts without any significant reconciling items. No budgetary comparisons are presented for the City's Debt Service and Proprietary Funds as the City is not legally required to adopt budgets for these fund types. Budgetary comparisons of Capital Projects Funds are primarily "long-term" budgets, which emphasize capital outlay plans extending over one year. Because of the long-term nature of these budgets, "annual" budget comparisons are not considered meaningful and accordingly, no budgetary information is provided. See independent auditors' report. -77- The page left blank intentionally SUPPLEMENTARY INFORMATION -79- The page left blank intentionally CITY OF TUSTIN OTHER GOVERNMENTAL FUNDS June 30, 2012 SPECIAL REVENUE FUNDS are used to account for the proceeds of specific revenue sources that are restricted by law or administrative action for a specific purpose. Gas Tax - This fund accounts for revenues and expenditures apportioned under the Street and Highways Code of the State of California. Expenditures may be made for any street -related purpose allowable under the Code. Measure M - This fund is used to account for monies received from the County for street projects. Park Acquisition and Development - This fund is used to account for fees received from developers to develop the City's park system. Asset Forfeiture - This fund is used to account for monies received from the Federal government that are used for special law enforcement purchases. Air Quality - This fund is used to account for funds received from South Coast Air Quality Management District to be used for reducing pollution. Supplemental Law Enforcement - This law was established under Government Code Section 30061 enacted by A133229, Chapter 134, of the 1996 Statutes and is an appropriation from the State Budget for the "Citizen Option for Public Safety Program". This fund can only be used for police front line municipal activities that provide police services to the City in prevention of drug abuse, crime prevention, and community awareness programs. Housing Authority - This fund is used to account for revenues and associated expenditures to be used for increasing or improving low and moderate income housing. DEBT SERVICE FUNDS are used to account for the accumulation of resources for, and payment of, long-term liabilities, interest, and related fiscal agent costs. Town Center Project Area - This fund records the accumulation and disbursement of monies to meet the debt service requirements of the Town Center Redevelopment Project. Marine Base Project Area - This fund is used to meet the debt service requirements of the Marine Base Project Area. South Central Project Area - This fund is used to meet the debt service requirements of the South Central Project Area. The page left blank intentionally CITY OF TUSTIN OTHER GOVERNMENTAL FUNDS (CONTINUED) June 30, 2012 CAPITAL PROJECTS FUNDS are used to account for financial resources to be used for the acquisition or construction of major capital facilities, and for the improvement, rehabilitation, and redevelopment of the Community Redevelopment Agency project areas. The Agency was dissolved effective February 1, 2012. Other Capital Projects - This fund is used to account for capital projects which are not funded by a specific source. Construction 95-1 - This fund accounts for infrastructure improvements to the Tustin 95-1 Area. Town Center Project Area - This fund accounts for acquisition and construction activity in the Town Center Redevelopment Project Area. Low Income Housing - This fund accounts for acquisition and construction activity for low income housing to residents of South Central and Town Center Project Areas. As prescribed by the California Health and Safety Code, 20% of Redevelopment Agency tax increment revenue is set aside in this fund for the purpose of low income housing development. Marine Base Project Area - This fund accounts for acquisition and construction activity in the Marine Base Redevelopment Project Area. South Central Project Area - This fund accounts for acquisition and construction activity in the South Central Redevelopment Project Area. Marine Base Low Income Housing - This fund accounts for acquisition and construction activity for low income housing. As prescribed by the California Health and Safety Code, 20% of Redevelopment Agency tax increment revenue is set aside in this fund for the purpose of low income housing development. CITY OF TUSTIN COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS June 30, 2012 See independent auditors' report. -84- Special Revenue Funds Park Acquisition and Asset Gas Tax Measure M Development Forfeiture ASSETS Cash and investments $ 3,989,902 S 2,768,678 S 8,613,717 S 345,396 Receivables: Accounts 213,939 563,929 1,845 - Interest 2,354 1,127 5,083 204 Loans - - - - Notes Allowance for uncollectibles Advances to other funds Prepaid expenses and deposits Land held for resale - - - - TOTALASSETS $ 4,206,195 S 3,333,734 S 8,620,645 S 345,600 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable and accrued liabilities $ 239,004 S 152,515 S 33,413 S 2,435 Deposits payable - - - - Deferred revenue - - - - TOTAL LIABILITIES 239,004 152,515 33,413 2,435 FUND BALANCES: Nonspendable - - - - Restricted 3,967,191 3,181,219 - 343,165 Assigned - - 8,587,232 - TOTAL FUND BALANCES 3,967,191 3,181,219 8,587,232 343,165 TOTAL LIABILITIES AND FUND BALANCES $ 4,206,195 S 3,333,734 S 8,620,645 S 345,600 See independent auditors' report. -84- $ $ 3,901 $ 15,294 $ 446,562 $ $ $ $ - 9,936 9,936 - 422,494 422,494 3,901 447,724 878,992 - 392,677 392,677 183,633 37,188 850,972 8,563,368 - - - 8,587,232 183,633 37,188 1,243,649 17,543,277 $ 183,633 $ 41,089 $ 1,691,373 $ 18,422,269 $ $ $ $ (Continued) -85- Special Revenue Funds (Continued) Debt Service Funds Total Town Marine South Total Supplemental Special Center Base Central Debt Air Law Housing Revenue Project Project Project Service Quality Enforcement Authority Funds Area Area Area Funds $ 160,076 $ 31,832 $ 870,857 $ 16,780,458 $ $ $ $ 23,463 9,238 175 812,589 94 19 57,361 66,242 - - 1,082,308 1,082,308 4,196,429 4,196,429 (4,908,434) (4,908,434) 30,000 30,000 - - 362,677 362,677 $ 183,633 $ 41,089 $ 1,691,373 $ 18,422,269 $ $ $ $ $ $ 3,901 $ 15,294 $ 446,562 $ $ $ $ - 9,936 9,936 - 422,494 422,494 3,901 447,724 878,992 - 392,677 392,677 183,633 37,188 850,972 8,563,368 - - - 8,587,232 183,633 37,188 1,243,649 17,543,277 $ 183,633 $ 41,089 $ 1,691,373 $ 18,422,269 $ $ $ $ (Continued) -85- CITY OF TUSTIN COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS (CONTINUED) June 30, 2012 See independent auditors' report. -86- Capital Projects Funds Town Other Center Capital Construction Project Projects 95-1 Area ASSETS Cash and investments $ 9,173,558 S 4,367,823 S Receivables: Accounts 424,456 2,897 Interest 5,413 - Loans - Notes Allowance for uncollectibles - Advances to other funds 1,317,615 Prepaid expenses and deposits - Land held for resale - - TOTALASSETS $ 10,921,042 S 4,370,720 S LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable and accrued liabilities $ 944,964 124,004 S Deposits payable - - Deferred revenue 1,006,373 - TOTAL LIABILITIES 1,951,337 124,004 FUND BALANCES: Nonspendable 1,317,615 - Restricted - 4,246,716 Assigned 7,652,090 - TOTAL FUND BALANCES 8,969,705 4,246,716 TOTAL LIABILITIES AND FUND BALANCES $ 10,921,042 S 4,370,720 S See independent auditors' report. -86- -87- Capital Projects Funds (Continued) Marine South Marine Base Total Total Low Base Central Low Capital Other Income Project Project Income Projects Governmental Housing Area Area Housing Funds Funds $ $ $ $ $ 13,541,381 S 30,321,839 427,353 1,239,942 5,413 71,655 - 1,082,308 4,196,429 - (4,908,434) 1,317,615 1,317,615 - 30,000 - 362,677 $ $ $ $ $ 15,291,762 S 33,714,031 $ $ $ $ $ 1,068,968 S 1,515,530 - 9,936 1,006,373 1,428,867 2,075,341 2,954,333 1,317,615 1,710,292 4,246,716 12,810,084 7,652,090 16,239,322 13,216,421 30,759,698 $ $ $ $ $ 15,291,762 S 33,714,031 -87- CITY OF TUSTIN COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS REVENUES: Taxes Investment income Intergovernmental revenue Charges for services Rental income Other revenue TOTAL REVENUES EXPENDITURES: Current: General government Public safety Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) EXTRAORDINARY GAIN (LOSS) NET CHANGE IN FUND BALANCES FUND BALANCES (DEFICIT) - BEGINNING OF YEAR, AS RESTATED FUND BALANCES - END OF YEAR See independent auditors' report. For the year ended June 30, 2012 Special Revenue Funds Park Acquisition and Asset Gas Tax Measure M Development Forfeiture 6,215 11,574 32,310 1,379 2,027,804 1,681,532 - 178,537 - - 19,144 - 102,630 2,034,019 1,693,106 154,084 179,916 64 18,112 56,644 602,216 661,073 161,335 1,283 1,052 - - 603,563 662,125 179,447 56,644 1,430,456 1,030,981 (25,363) 123,272 (64,762) (64,762) 1,430,456 966,219 (25,363) 123,272 2,536,735 2,215,000 8,612,595 219,893 $ 3,967,191 S 3,181,219 S 8,587,232 S 343,165 -88- -89- Special Revenue Funds (Continued) 74,820 Debt Service Funds Total Town Marine South Total - Supplemental - Special Center Base Central Debt Air Law Housing Revenue Project Project Project Service Quality Enforcement Authority Funds Area Area Area Funds $ - $ - $ - $ - $ 2,892,973 $ 5,952,937 $ 2,597,575 $ 11,443,485 756 111 41,331 93,676 55,200 553 13,804 69,557 - 134,155 - 4,022,028 - - - - 95,047 - 114,191 - (9,511) - 102,630 1,135,311 4,292,011 1,365,611 6,792,933 - - 897,622 897,622 - - - - 95,803 134,266 938,953 5,230,147 2,948,173 5,953,490 2,611,379 11,513,042 -89- - 74,820 131,021 131,021 - - - - - - - - 349,811 5,592 1,244,602 1,600,005 2,802 12,756 93,921 1,534,103 - - - - - - - - 1,255,000 640,000 - 1,895,000 - - - 2,335 208,051 1,015,887 1,166 1,225,104 2,802 143,777 93,921 1,742,279 1,812,862 1,661,479 1,245,768 4,720,109 93,001 (9,511) 845,032 3,487,868 1,135,311 4,292,011 1,365,611 6,792,933 (64,762) (2,827,620) (2,827,620) - (64,762) (2,827,620) (2,827,620) - 398,617 398,617 (11,286,046) (1,133,785) (8,461,999) (20,881,830) 93,001 (9,511) 1,243,649 3,821,723 (10,150,735) 330,606 (7,096,388) (16,916,517) 90,632 46,699 - 13,721,554 10,150,735 (330,606) 7,096,388 16,916,517 $ 183,633 $ 37,188 1,243,649 $ 17,543,277 $ - $ $ $ (Continued) -89- CITY OF TUSTIN COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS (CONTINUED) For the year ended June 30, 2012 REVENUES: Taxes Investment income Intergovernmental revenue Charges for services Rental income Other revenue TOTAL REVENUES EXPENDITURES: Current: General government Public safety Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) EXTRAORDINARY GAIN (LOSS) NET CHANGE IN FUND BALANCES FUND BALANCES (DEFICIT) - BEGINNING OF YEAR, AS RESTATED FUND BALANCES - END OF YEAR See independent auditors' report. Capital Projects Funds Town Other Center Capital Construction Project Projects 95-1 Area 82,680 1,483 10,875 781,339 - - 778,612 330,758 - 1,642,631 332,241 10,875 - - 122,245 4,387,013 1,163,044 - 4,091 4,391,104 - 1,111 1,163,044 123,356 (2,748,473) (830,803) (112,481) (71,640) (71,640) (4,530,114) (2,748,473) (902,443) (4,642,595) 11,718,178 5,149,159 4,642,595 $ 8,969,705 S 4,246,716 S - -90- 74,820 - - - - - 131,021 54,405 1,581,048 110,173 85,109 1,952,980 3,552,985 - 4,085,389 43,021 - 9,678,467 11,212,570 463,333 749,815 1,267,553 - 231,667 695,000 2,590,000 3,306 373,968 1,132,291 2,359,730 5,666,437 156,500 690,744 13,458,738 19,921,126 (1,239,550) (5,404,933) (112,073) (692,782) (11,141,095) (860,294) 2,827,620 (56,269) 2,827,620 2,827,620 (127,909) (3,020,291) (56,269) 2,827,620 2,699,711 (192,671) (11,668,793) (37,075,405) (14,972,966) (1,775,909) (70,023,187) (90,506,400) (12,964,612) (39,652,718) (15,085,039) (2,468,691) (78,464,571) (91,559,365) 12,964,612 39,652,718 15,085,039 2,468,691 91,680,992 122,319,063 $ $ $ $ $ 13,216,421 S 30,759,698 -91- Capital Projects Funds (Continued) Marine South Marine Base Total Total Low Base Central Low Capital Other Income Project Project Income Projects Governmental Housing Area Area Housing Funds Funds $ $ $ - S - S - S 11,443,485 19,036 93,683 32,506 (2,038) 238,225 401,458 - - - 781,339 4,803,367 - - - - 114,191 801 3,300 8,750 12,851 115,481 8,166 164,521 3,171 1,285,228 2,182,850 28,003 261,504 44,427 (2,038) 2,317,643 19,060,832 74,820 - - - - - 131,021 54,405 1,581,048 110,173 85,109 1,952,980 3,552,985 - 4,085,389 43,021 - 9,678,467 11,212,570 463,333 749,815 1,267,553 - 231,667 695,000 2,590,000 3,306 373,968 1,132,291 2,359,730 5,666,437 156,500 690,744 13,458,738 19,921,126 (1,239,550) (5,404,933) (112,073) (692,782) (11,141,095) (860,294) 2,827,620 (56,269) 2,827,620 2,827,620 (127,909) (3,020,291) (56,269) 2,827,620 2,699,711 (192,671) (11,668,793) (37,075,405) (14,972,966) (1,775,909) (70,023,187) (90,506,400) (12,964,612) (39,652,718) (15,085,039) (2,468,691) (78,464,571) (91,559,365) 12,964,612 39,652,718 15,085,039 2,468,691 91,680,992 122,319,063 $ $ $ $ $ 13,216,421 S 30,759,698 -91- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GAS TAX SPECIAL REVENUE FUND For the year ended June 30, 2012 REVENUES: Investment income Intergovernmental revenue TOTAL REVENUES EXPENDITURES: Current: General government Capital outlay Debt service: Interest and fiscal charges TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR See independent auditors' report. Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 18,600 $ 18,600 $ 6,215 $ (12,385) 1,348,420 2,033,800 2,027,804 (5,996) 1,367,020 2,052,400 2,034,019 (18,381) - - 64 (64) 700,000 1,285,651 602,216 683,435 - - 1,283 (1,283) 700,000 1,285,651 603,563 682,088 667,020 766,749 1,430,456 663,707 2,536,735 2,536,735 2,536,735 - $ 3,203,755 $ 3,303,484 $ 3,967,191 $ 663,707 -92- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL MEASURE M SPECIAL REVENUE FUND For the year ended June 30, 2012 See independent auditors' report. -93 - Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $ - $ - $ 11,574 $ 11,574 Intergovernmental revenue 2,598,545 2,598,545 1,681,532 (917,013) TOTAL REVENUES 2,598,545 2,598,545 1,693,106 (905,439) EXPENDITURES: Capital outlay 3,221,971 3,221,971 661,073 2,560,898 Debt service: Interesst and fiscal charges - - 1,052 (1,052) TOTAL EXPENDITURES 3,221,971 3,221,971 662,125 2,559,846 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (623,426) (623,426) 1,030,981 1,654,407 OTHER FINANCING USES: Transfers out - - (64,762) (64,762) NET CHANGE IN FUND BALANCE (623,426) (623,426) 966,219 1,589,645 FUND BALANCE - BEGINNING OF YEAR 2,215,000 2,215,000 2,215,000 - FUND BALANCE - END OF YEAR $ 1,591,574 $ 1,591,574 $ 3,181,219 $ 1,589,645 See independent auditors' report. -93 - CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL PARK ACQUISITION AND DEVELOPMENT SPECIAL REVENUE FUND For the year ended June 30, 2012 See independent auditors' report. -94- Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $ 63,700 $ 63,700 $ 32,310 $ (31,390) Charges for services 13,000 13,000 19,144 6,144 Rental income 70,000 70,000 102,630 32,630 TOTAL REVENUES 146,700 146,700 154,084 7,384 EXPENDITURES: Current: General government - - 18,112 (18,112) Capital outlay 559,000 559,000 161,335 397,665 TOTAL EXPENDITURES 559,000 559,000 179,447 379,553 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (412,300) (412,300) (25,363) 386,937 FUND BALANCE - BEGINNING OF YEAR 8,612,595 8,612,595 8,612,595 - FUND BALANCE - END OF YEAR $ 8,200,295 $ 8,200,295 $ 8,587,232 $ 386,937 See independent auditors' report. -94- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL ASSET FORFEITURE SPECIAL REVENUE FUND REVENUES: Investment income Intergovernmental revenue TOTAL REVENUES EXPENDITURES: Current: General government EXCESS OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR See independent auditors' report. For the year ended June 30, 2012 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,300 $ 1,300 $ 1,379 $ 79 110,000 110,000 178,537 68,537 111,300 111,300 179,916 68,616 150,000 150,000 56,644 93,356 (38,700) (38,700) 123,272 161,972 219,893 219,893 219,893 - $ 181,193 $ 181,193 $ 343,165 $ 161,972 -95- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL AIR QUALITY SPECIAL REVENUE FUND REVENUES: Investment income Charges for services TOTAL REVENUES EXPENDITURES: Capital outlay EXCESS OF REVENUES OVER (UNDER) EXPENDITURES ijo6jn]j:�_jw_r[$j=p xe:mm�[#=M1J:r_�:4 FUND BALANCE - END OF YEAR See independent auditors' report. For the year ended June 30, 2012 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 100 $ 100 $ 756 $ 656 65,000 65,000 95,047 30,047 65,100 65,100 95,803 30,703 82,685 82,685 2,802 79,883 (17,585) (17,585) 93,001 110,586 90,632 90,632 90,632 -- $ 73,047 $ 73,047 $ 183,633 $ 110,586 -96- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL SUPPLEMENTAL LAW ENFORCEMENT SPECIAL REVENUE FUND REVENUES: Investment income Intergovernmental revenue TOTAL REVENUES EXPENDITURES: Current: Public safety Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR See independent auditors' report. For the year ended June 30, 2012 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 111 $ 111 311,000 311,000 134,155 (176,845) 311,000 311,000 134,266 (176,734) 237,400 700 237,400 700 131,021 106,379 12,756 (12,056) 238,100 238,100 143,777 94,323 72,900 72,900 (9,511) (82,411) 46,699 46,699 46,699 - $ 119,599 $ 119,599 $ 37,188 $ (82,411) -97- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL HOUSING AUTHORITY SPECIAL REVENUE FUND For the year ended June 30, 2012 REVENUES: Investment income Otherrevenue TOTAL REVENUES EXPENDITURES: Capital outlay EXCESS OF REVENUES OVER (UNDER) EXPENDITURES EXTRAORDINARY GAIN NET CHANGE IN FUND BALANCE FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR See independent auditors' report. Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 41,331 $ 41,331 - 0 897,622 897,622 - - 938,953 938,953 -98- - - 93,921 (93,921) - - 845,032 845,032 - - 398,617 398,617 - - 1,243,649 1,243,649 $ 1,243,649 $ 1,243,649 CITY OF TUSTIN AGENCY FUNDS June 30, 2012 AGENCY FUNDS are used to account for assets held by the City in a trustee capacity or as an agent for individual, private organizations and other governments. Assessment District 95-1 - This fund records the deposit of monies held to pay the debt service requirements of the assessment district. Assessment District 95-2 - This fund records the deposit of monies held to pay the debt service requirements of the assessment district. Community Facilities District 04-01 - This fund records the deposit of monies held to pay the debt service requirements of the community facilities district. Community Facilities District 06-01 - This fund records the deposit of monies held to pay the debt service requirements of the community facilities district. Community Facilities District 07-01 - This fund records the deposit of monies held to pay the debt service requirements of the community facilities district. ASSETS Cash and investments with fiscal agents Taxes receivable Due from City of Tustin TOTAL ASSETS LIABILITIES Accounts payable Due to the City of Tustin Due to bondholders TOTAL LIABILITIES CITY OF TUSTIN COMBINING STATEMENT OF ASSETS AND LIABILITIES ALL AGENCY FUNDS June 30, 2012 Community Community Community Assessment Assessment Facilities Facilities Facilities District District District District District 95-1 95-2 04-01 06-01 07-01 Total $ - $ - $3,081,296 $9,360,498 $2,205,821 $ 14,647,615 - - 18,224 51,140 - 69,364 $ - $ - $3,099,520 $9,411,638 $2,205,821 $ 14,716,979 See independent auditors' report. - - 3,099,520 9,411,638 2,205,821 14,716,979 $ - $ - $3,099,520 $9,411,638 $2,205,821 $ 14,716,979 -100- CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS For the year ended June 30, 2012 See independent auditors' report. (Continued) - 101 - Balance Balance July 1, June 30, 2011 Additions Deletions 2012 ASSESSMENT DISTRICT 95-1 ASSETS: Cash and investments with fiscal agents $ 8,281,889 $ 22,714 $ 8,304,603 $ - Taxes receivable 21,752 - 21,752 - Due from the City 139,754 - 139,754 - TOTAL ASSETS $ 8,443,395 $ 22,714 $ 8,466,109 $ - LIABILITIES: Accounts payable $ 31,624 $ 13,368 $ 44,992 $ - Due to City of Tustin 313,679 - 313,679 - Due to bondholders 8,098,092 9,346 8,107,438 - TOTAL LIABILITIES $ 8,443,395 $ 22,714 $ 8,466,109 $ - ASSESSMENT DISTRICT 95-2 ASSETS: Cash and investments with fiscal agents $ 3,029,637 $ 21,837,726 $ 24,867,363 $ - Taxes receivable 33,935 2,896 36,831 - TOTAL ASSETS $ 3,063,572 $ 21,840,622 $ 24,904,194 $ - LIABILITIES: Accounts payable $ 34,186 $ 163,241 $ 197,427 $ - Due to City of Tustin 155,836 - 155,836 - Due to bondholders 2,873,550 21,677,381 24,550,931 - TOTAL LIABILITIES $ 3,063,572 $ 21,840,622 $ 24,904,194 $ - See independent auditors' report. (Continued) - 101 - CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED) For the year ended June 30, 2012 COMMUNITY FACILITIES DISTRICT 04-01 ASSETS: Cash and investments with fiscal agents Taxes receivable TOTAL ASSETS LIABILITIES: Accounts payable Due to City of Tustin Due to bondholders TOTAL LIABILITIES COMMUNITY FACILITIES DISTRICT 06-01 ASSETS: Cash and investments with fiscal agents Taxes receivable TOTAL ASSETS LIABILITIES: Accounts payable Due to City of Tustin Due to bondholders TOTAL LIABILITIES Balance Balance July 1, June 30, 2011 Additions Deletions 2012 $ 3,120,784 $ 2,180,482 $ 2,219,970 $ 3,081,296 $ 3,126,953 $ 2,198,706 $ 2,226,139 $ 3,099,520 $ 5,128 $ - $ 5,128 $ - 132,525 - 132,525 - 2,989,300 2,198,706 2,088,486 3,099,520 $ 3,126,953 $ 2,198,706 $ 2,226,139 $ 3,099,520 $ 9,097,213 $ 10,912,059 $ 10,648,774 $ 9,360,498 48,522 51,140 48,522 51,140 $ 9,145,735 $ 10,963,199 $ 10,697,296 $ 9,411,638 $ 52,659 $ 3,629,447 $ 3,682,106 $ - 926,395 914,499 1,840,894 - $ 9,145,735 $ 10,963,199 $ 10,697,296 $ 9,411,638 See independent auditors' report. (Continued) -102- CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED) For the year ended June 30, 2012 LIABILITIES Accounts payable Balance $ 4,642,650 $ 4,766,714 $ - Balance 1,881,390 July 1, 2,795,889 - Due to bondholders June 30, 31,718,953 2011 Additions Deletions 2012 COMMUNITY FACILITIES DISTRICT 07-01 ASSETS: Cash and investments with fiscal agents $ 2,201,049 $ 2,250,861 $ 2,246,089 $ 2,205,821 Taxes receivable 52 - 52 - TOTAL ASSETS $ 2,201,101 $ 2,250,861 $ 2,246,141 $ 2,205,821 LIABILITIES: Accounts payable $ 467 $ 836,594 $ 837,061 $ - Due to City of Tustin 352,955 - 352,955 - Due to bondholders 1,847,679 1,414,267 1,056,125 2,205,821 TOTAL LIABILITIES $ 2,201,101 $ 2,250,861 $ 2,246,141 $ 2,205,821 TOTAL ALL AGENCY FUNDS ASSETS: Cash and investments with fiscal agents $ 25,730,572 $ 37,203,842 $ 48,286,799 $ 14,647,615 Taxes receivable 110,430 72,260 113,326 69,364 Due from the City 139,754 - 139,754 - TOTAL ASSETS $ 25,980,756 $ 37,276,102 $ 48,539,879 $ 14,716,979 LIABILITIES Accounts payable $ 124,064 $ 4,642,650 $ 4,766,714 $ - Due to City of Tustin 1,881,390 914,499 2,795,889 - Due to bondholders 23,975,302 31,718,953 40,977,276 14,716,979 TOTAL LIABILITIES $ 25,980,756 $ 37,276,102 $ 48,539,879 $ 14,716,979 See independent auditors' report. -103- The page left blank intentionally -104- STATISTICAL SECTION -105- The page left blank intentionally -106- DESCRIPTION OF STATISTICAL SECTION CONTENTS June 30, 2012 This part of the City of Tustin's Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information say about the City's overall financial health. Contents: Pages Financial Trends - Theses schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. 108 Revenue Capacity - These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax. 118 Debt Capacity - These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. 124 Demographic and Economic Information - These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. 132 Operating Information - These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. 134 Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. The City implemented GASB Statement 34 in 2005, schedules presenting government -wide information include information beginning in that year. -107- Governmental activities: Invested in capital assets, net of related debt Restricted Unrestricted Total governmental activities net assets Business -type activities: Invested in capital assets, net of related debt Restricted Unrestricted Total business -type activities net assets Primary government: Invested in capital assets, net of related debt Restricted Unrestricted Total primary government net assets CITY OF TUSTIN NET ASSETS BY COMPONENT Last Eight Fiscal Years (accrual bases of accounting) Fiscal Year 2005 2006 2007 2008 $ 238,482,797 $ 261,132,785 $ 285,331,502 $ 343,062,465 53,511,631 55,021,376 94,111,615 161,669,815 8,287,989 14,993,866 (19,936,964) (14,320,020) $ 300,282,417 $ 331,148,027 $ 359,506,153 $ 490,412,260 $ 22,198,864 $ 20,494,561 $ 22,150,723 $ 22,267,386 207,310,935 206,342,244 199,289,608 172,421,511 $ 229,509,799 $ 226,836,805 $ 221,440,331 $ 194,688,897 $ 260,681,661 $ 281,627,346 $ 307,482,225 $ 365,329,851 53,511,631 55,021,376 94,111,615 161,669,815 215,598,924 221,336,110 179,352,644 158,101,491 $ 529,792,216 $ 557,984,832 $ 580,946,484 $ 685,101,157 GASB 34 was implemented for the fiscal year ended June 30, 2005. Information prior to implementation of GASB 34 is not available. -108- Fiscal Year 2009 2010 2011 2012 $ 357,299,104 $ 360,282,692 $ 378,911,546 $ 412,683,460 145,602,640 135,670,302 116,718,495 47,727,966 104,037,153 114,737,049 116,545,351 147,513,249 $ 606,938,897 $ 610,690,043 $ 612,175,392 $ 607,924,675 $ 24,964,824 $ 24,541,113 $ 20,872,492 $ 25,479,160 1,191,694 - - - 1,981,499 1,851,666 5,541,672 2,795,701 $ 28,138,017 $ 26,392,779 $ 26,414,164 $ 28,274,861 $ 382,263,928 $ 384,823,805 $ 399,784,038 $ 438,162,620 146,794,334 135,670,302 116,718,495 47,727,966 106,018,652 116,588,715 122,087,023 150,308,950 $ 635,076,914 $ 637,082,822 $ 638,589,556 $ 636,199,536 -109- CITY OF TUSTIN CHANGES IN NET ASSETS EXPENSES AND PROGRAM REVENUES Expenses: Governmental activities: General government Public safety Public works Community services Interest on long-term debt Total governmental activities expenses Last Eight Fiscal Years (accrual basis of accounting) Fiscal Year 2005 2006 2007 2008 $ 9,151,650 $ 10,269,053 $ 7,926,778 $ 8,668,759 21,748,046 23,255,837 25,269,653 27,875,230 14,169,030 14,354,535 19,091,399 30,814,898 3,255,036 3,425,790 3,444,799 3,442,833 874,939 1,003,920 1,618,814 4,715,026 49,198,701 52,309,135 57,351,443 75,516,746 Business -type activities: Water 9,324,853 9,365,401 11,879,958 11,870,706 Tustin Legacy 1,788,633 1,355,822 1,518,560 1,279,802 Total business -type activities expenses 11,113,486 10,721,223 13,398,518 13,150,508 Program revenues: Governmental activities: Charges for services: General government Public safety Public works Community services Operating grants and contributions Capital grants and contributions Total governmental activities program revenues Business -type activities: Charges for services: Water Tustin Legacy Operating grants and contributions Capital grants and contributions Total business -type activities program revenues Net revenues (expenses) 1,928,287 2,388,279 2,540,796 2,716,432 1,180,959 1,364,877 1,476,811 2,749,660 1,631,277 3,230,212 2,987,687 1,688,753 941,297 876,199 916,075 929,548 2,377,440 3,655,881 3,677,905 3,831,037 4,484,592 19,470,274 9,652,907 79,210,370 12,543,852 30,985,722 21,252,181 91,125,800 8,478,119 8,858,151 10,418,522 10,923,061 1,328,686 3,660,334 409,693 34,370 805,777 - - 28,299,036 10,612,582 12,518,485 10,828,215 39,256,467 Governmental activities $ (36,654,849) $ (21,323,413) $ (36,099,262) $ 15,609,054 Business -type activities (500,904) 1,797,262 (2,570,303) 26,105,959 Total net revenues (expenses) $ (37,155,753) $ (19,526,151) $ (38,669,565) $ 41,715,013 GASB 34 was implemented for the fiscal year ended June 30, 2005. Information prior to implementation of GASB 34 is not available. - 110 - Fiscal Year 2009 2010 2011 2012 $ 8,499,303 $ 7,802,579 $ 7,854,361 $ 12,266,470 29,126,019 27,277,141 28,622,807 28,800,773 22,102,002 20,816,686 19,809,907 20,765,854 5,112,770 12,742,391 13,150,089 7,078,104 3,566,782 4,087,839 4,814,598 3,057,645 68,406,876 72,726,636 74,251,762 71,968,846 30,222,148 16,982,781 13,621,100 28,791,083 12,569,331 11,938,146 12,578,667 13,467,541 1,259,093 - - - 13,828,424 11,938,146 12,578,667 13,467,541 1,694,464 1,404,925 1,109,150 1,390,073 2,136,772 1,168,348 1,196,830 1,133,096 2,374,308 3,761,321 3,508,904 800,328 897,386 957,545 969,006 974,747 4,253,442 3,403,411 3,441,281 3,590,210 18,865,776 6,287,231 3,395,929 20,902,629 30,222,148 16,982,781 13,621,100 28,791,083 11,281,679 10,594,471 12,422,746 15,112,161 22,587 - - - 11,304,266 10,594,471 12,422,746 15,112,161 $ (38,184,728) $ (55,743,855) $ (60,630,662) $ (43,177,763) (2,524,158) (1,343,675) (155,921) 1,644,620 $ (40,708,886) $ (57,087,530) $ (60,786,583) $ (41,533,143) General revenues and other changes in net assets: Governmental activities: Taxes: Property taxes Transient occupancy taxes Business license taxes Othertaxes Sales tax Motor vehicle in lieu, unrestricted Investment income Other general revenues Gain (loss) on disposal of capital assets Transfers Extraordinary item Total governmental activities Business -type activities CITY OF TUSTIN CHANGES IN NET ASSETS GENERAL REVENUES Last Eight Fiscal Years (accrual basis of accounting) Fiscal Year 2005 2006 2007 2008 $ 19,338,392 $ 21,242,797 $ 28,617,969 $ 31,070,501 139,879 155,199 161,105 163,831 N/A N/A N/A N/A 1,320,209 1,409,696 1,534,720 1,665,601 18,351,207 18,912,722 19,317,135 20,428,465 455,244 433,795 443,222 321,918 - 3,202,914 4,842,033 7,417,199 10,846,132 1,323,230 1,598,099 1,523,530 (216,936) (422,555) - (1,366,208) 1,233,209 5,931,225 7,943,105 53,668,609 51,467,336 52,189,023 64,457,388 114,893,446 Investment income - 1,411,899 1,567,316 815,560 Gain (loss) on disposal of capital assets 8,358,415 - 3,519,618 (681) Miscellaneous 509,956 49,070 - 23,337 Transfers (1,233,209) (5,931,225) (7,943,105) (53,668,609) Total business -type activities 7,635,162 (4,470,256) (2,856,171) (52,830,393) Total primary government $ 59,102,498 $ 47,718,767 $ 61,601,217 $ 62,063,053 Changes in net assets: Governmental activities $ 14,812,487 $ 30,865,610 $ 28,358,126 $ 130,502,500 Business -type activities 7,134,258 (2,672,994) (5,426,474) (26,721,434) Total primary government $ 21,946,745 $ 28,192,616 $ 22,931,652 $ 103,781,066 GASB 34 was implemented for the fiscal year ended June 30, 2005. Information prior to implementation of GASB 34 is not available. - 112 - Fiscal Year 2009 2010 2011 2012 $ 34,022,959 $ 28,347,659 $ 30,205,879 $ 23,270,718 154,379 141,335 142,915 137,131 356,565 337,867 358,526 44,800 1,689,573 1,720,505 1,648,319 1,621,521 19,858,142 15,917,332 18,597,453 19,931,865 252,666 6,122,789 6,189,249 5,833,094 4,863,469 4,086,852 2,358,847 958,169 2,314,540 1,520,662 1,700,323 14,444,183 103,805,196 - - - - - - (27,314,435) 167,317,489 58,195,001 61,201,511 38,927,046 164,764 86,654 158,242 156,855 82,810 25,340 19,064 59,222 (103,805,196) - - - (103,557,622) 111,994 177,306 216,077 $ 63,759,867 $ 58,306,995 $ 61,378,817 $ 39,143,123 $ 129,132,761 $ 2,451,146 $ 570,849 $ (4,250,717) (106,081,780) (1,231,681) 21,385 1,860,697 $ 23,050,981 $ 1,219,465 $ 592,234 $ (2,390,020) - 113 - CITY OF TUSTIN FUND BALANCES OF GOVERNMENTAL FUNDS Last Eight Fiscal Years (modified accrual basis of accounting) Fund Balance prior to GASB 54 The City of Tustin has elected to show only eight years of data for this schedule. - 114 - Fiscal Year 2005 2006 2007 2008 General fund: Reserved $ 276,989 $ 118,510 $ 248,372 $ 116,342 Unreserved 19,931,022 24,124,968 20,454,356 24,471,029 Total general fund $ 20,208,011 $ 24,243,478 $ 20,702,728 $ 24,587,371 All other governmental funds: Reserved $ 32,804,461 $ 34,612,789 $ 68,724,358 $ 76,696,588 Unreserved, reported in: Special revenue funds 7,592,615 8,550,855 10,639,839 64,896,223 Debt service funds 1,936,057 2,510,686 - - Capital projects funds 17,029,831 11,145,244 12,388,651 17,558,428 Total all other governmental funds $ 59,362,964 $ 56,819,574 $ 91,752,848 $ 159,151,239 Fund Balance subsequent to GASB 54 General fund: Nonspendable $ - $ - $ - $ - Committed - - - - Assigned - - - - Unassigned - - - - Total general fund $ - $ - $ - $ - All other governmental funds: Nonspendable $ - $ - $ - $ - Restricted - - - - Committed - - - - Assigned - - - - Unassigned - - - - Total all other governmental funds $ - $ - $ - $ - The City of Tustin has elected to show only eight years of data for this schedule. - 114 - Fiscal Year 2009 2010 2011 2012 $ 120,632,293 $ 144,139,167 $ - $ - 1,971,846 5,870,992 - - $ 122,604,139 $ 150,010,159 $ - $ - $ 49,777,973 $ 66,609,267 $ - $ - 16,437,130 14,277,683 - - - (6,774,245) - - 90,474,987 75,663,086 - - $ 156,690,090 $ 149,775,791 $ - $ - $ 144,139,167 $ 144,186,955 $ 144,604,847 47,608 - - 5,823,384 - - - 7,443,165 4,077,344 $ 150,010,159 $ 151,630,120 $ 148,682,191 $ - $ 34,800,738 $ 22,352,713 $ 1,710,292 - 111,455,097 130,673,281 38,274,666 - 344,708 - - - 11,670,324 18,603,317 16,239,322 - (8,495,076) (10,989,463) - $ - $ 149,775,791 $ 160,639,848 $ 56,224,280 - 115 - CITY OF TUSTIN CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS Last Eight Fiscal Years (modified accrual basis of accounting) Other financing sources (uses) Proceeds from debt issuance - Fiscal Year 25,000,000 - Transfers in 2005 2006 2007 2008 Revenues: (3,970,443) (5,270,356) (10,795,694) (7,803,274) Taxes $ 39,290,491 $ 40,542,668 $ 48,306,569 $ 51,775,505 Licenses and permits 1,008,965 2,153,355 2,095,154 2,710,309 Fines and forfeitures 895,816 784,966 783,390 818,868 Investment income 1,662,329 2,849,921 4,228,582 7,529,488 Intergovernmental revenues 7,613,141 15,338,254 20,136,822 27,394,402 Charges for services 1,530,537 2,107,336 2,043,251 1,583,324 Rental income 208,222 304,733 349,450 786,438 Developer contributions - - - - Other revenues 12,827,879 8,260,032 3,160,370 59,309,772 Total revenues 65,037,380 72,341,265 81,103,588 151,908,106 Expenditures: Current: General government 8,429,464 10,134,368 7,806,916 8,295,887 Public safety 21,075,766 22,697,122 24,450,803 26,561,960 Public works 7,475,332 7,691,894 9,651,745 10,136,680 Community services 2,834,472 3,026,890 3,023,648 2,886,132 Capital outlay 13,509,215 27,057,889 28,503,673 15,080,865 Debt service: Principal retirement 1,220,000 1,275,000 1,330,000 1,055,000 Interest and fiscal charges 884,533 1,023,622 1,620,897 4,718,806 Bond issue costs - - - - Total expenditures 55,428,782 72,906,785 76,387,682 68,735,330 Excess (deficiency) of revenues over (under) expenditures 9,608,598 (565,520) 4,715,906 83,172,776 Other financing sources (uses) Proceeds from debt issuance - - 25,000,000 - Transfers in 5,203,652 7,190,511 10,795,694 7,803,274 Transfers out (3,970,443) (5,270,356) (10,795,694) (7,803,274) Contribution to developer - - - (11,934,400) Sale of property 65,431 137,442 1,676,618 44,658 Total other financing sources (uses) 1,298,640 2,057,597 26,676,618 (11,889,742) Extraordinary loss - - - - Net change in fund balances $ 10,907,238 $ 1,492,077 $ 31,392,524 $ 71,283,034 Debt service as a percentage of noncapital expenditures 5.29% 5.28% 6.57% 12.06% The City of Tustin has elected to show only eight years of data for this schedule. - 116 - Fiscal Year 2009 2010 2011 2012 $ 56,198,002 $ 52,579,529 $ 57,324,011 $ 50,907,306 1,692,955 3,538,198 716,144 443,928 832,188 890,770 893,642 875,068 4,429,915 3,198,484 1,632,215 472,725 14,626,663 5,378,430 5,372,905 6,413,137 4,497,309 2,708,705 5,020,485 2,813,752 771,807 869,645 358,030 480,255 - 4,051,180 1,593,475 - 1,188,200 1,028,432 2,425,052 14,075,025 84,237,039 74,243,373 75,335,959 76,481,196 6,728,236 7,197,709 7,505,928 11,656,331 27,759,939 26,359,435 27,508,514 28,714,347 11,311,291 10,133,685 9,110,621 6,954,384 5,005,986 12,251,479 12,740,969 6,506,381 24,772,717 13,125,983 9,979,670 25,816,530 11,143,000 7,913,000 10,659,000 2,590,000 3,570,834 4,603,661 4,131,435 3,264,323 - - 429,731 - 90,292,003 81,584,952 82,065,868 85,502,296 (6,054,964) (7,341,579) (6,729,909) (9,021,100) - 26,274,205 43,281,289 - 142,866,218 37,207,661 2,645,014 3,020,291 (41,295,836) (37,207,661) (2,645,014) (3,020,291) 40,201 7,421 18,138 43,745 101,610,583 26,281,626 43,299,427 43,745 - - - (98,386,142) $ 95,555,619 $ 18,940,047 $ 36,569,518 $ (107,363,497) 28.96% 22.37% 26.76% 10.88% -117- CITY OF TUSTIN ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY Last Ten Fiscal Years Notes: Exemptions are netted directly against individual categories In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. (A) Effective February 1, 2012, the Redevelopment Agency was dissolved. See Notes 16 and 17 for more information. - 118 - City Fiscal Year Taxable Ended Assessed June 30 Secured Unsecured Value 2003 $ 4,637,831 $ 301,761 $ 4,939,592 2004 4,969,203 314,645 5,283,848 2005 5,306,887 308,339 5,615,226 2006 5,753,518 285,670 6,039,188 2007 6,397,216 301,747 6,698,963 2008 7,109,465 359,631 7,469,096 2009 7,505,735 435,026 7,940,761 2010 7,381,782 371,722 7,753,504 2011 7,274,075 371,027 7,645,102 2012 7,360,593 344,424 7,705,017 Notes: Exemptions are netted directly against individual categories In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. (A) Effective February 1, 2012, the Redevelopment Agency was dissolved. See Notes 16 and 17 for more information. - 118 - Redevelopment Agency (A) - 119 - Total Direct Tax Rate 0.091% 0.190% 0.220% 0.226% 0.261% 0.279% 0.326% 0.308% 0.310% 0.303% Taxable Assessed Secured Unsecured Value (A) $ 621,304 $ 67,143 $ 688,447 659,266 61,810 721,076 927,400 68,767 996,167 1,039,506 71,738 1,111,244 1,496,217 84,203 1,580,420 2,425,555 165,392 2,590,947 1,946,378 71,422 2,017,800 1,667,3 98 80,166 1,747,564 1,696,957 77,235 1,774,192 1,590,722 83,160 1,673,882 - 119 - Total Direct Tax Rate 0.091% 0.190% 0.220% 0.226% 0.261% 0.279% 0.326% 0.308% 0.310% 0.303% CITY OF TUSTIN DIRECT AND OVERLAPPING PROPERTY TAX RATES Last Eight Fiscal Years (rate per $100 of taxable value) Direct Rate: City of Tustin Tustin Unified School District South Orange County Community College District County of Orange Orange County Flood Control District Orange County Library District Orange County Department of Education Various Special Districts Total Direct Rate Overlapping Rates: Tustin Unified School District Bonds Metropliton Water District Bonds Rancho Santiago Community College District Bonds Irvine Ranch Water District Bonds Santa Ana Unified School District Bonds Total Overlapping Rates Total Direct and Overlapping Rates Fiscal Year 2005 2006 2007 2008 $ 0.1272 S 0.1272 $ 0.1272 S 0.1272 0.4397 0.4397 0.4397 0.4397 0.0886 0.0886 0.0886 0.0886 0.0617 0.0617 0.0617 0.0617 0.0198 0.0198 0.0198 0.0198 0.0167 0.0167 0.0167 0.0167 0.0161 0.0161 0.0161 0.0161 0.2302 0.2302 0.2302 0.2302 1.0000 1.0000 1.0000 1.0000 0.0554 0.0311 0.0023 0.0317 0.0058 0.0052 0.0047 0.0045 0.0273 0.0169 0.0191 0.0237 0.0001 0.0477 0.2138 0.2143 0.0496 0.0435 0.0392 0.0359 0.1382 0.1444 0.2791 0.3101 $ 1.1382 S 1.1444 $ 1.2791 S 1.3101 The City of Tustin has elected to show only eight years of data for this schedule. Source: Hdl, Coren & Cone -120- Fiscal Year 2009 2010 2011 2012 $ 0.1272 $ 0.1272 $ 0.1272 $ 0.1272 0.4397 0.4397 0.4397 0.4397 0.0886 0.0886 0.0886 0.0886 0.0617 0.0617 0.0617 0.0617 0.0198 0.0198 0.0198 0.0198 0.0167 0.0167 0.0167 0.0167 0.0161 0.0161 0.0161 0.0161 0.2302 0.2302 0.2302 0.2302 1.0000 1.0000 1.0000 1.0000 0.0310 0.0380 0.0596 0.0559 0.0043 0.0043 0.0037 0.0037 0.0225 0.0274 0.0314 0.0315 0.2143 0.2242 0.2242 0.2155 0.0321 0.0739 0.0717 0.0715 0.3042 0.3678 0.3906 0.3781 $ 1.3042 $ 1.3678 $ 1.3906 $ 1.3781 -121 - Taxnaver Irvine Company LLC Vestar Kimco Tustin LP Avalon II California Value I Irvine Apartment Communities LP Ricoh Development of California Inc Borchard Redhill SKB-Tustin LLC PK II Larwin Square SC LP Costco Wholesale Corporation CPII Park Place LLC Tustin Heights SC LP CITY OF TUSTIN PRINCIPAL PROPERTY TAX PAYERS Current Year and Nine Years Ago 2012 Percent of Total City Taxable Taxable Assessed Assessed Value Value $ 218,130,508 155,332,597 97,409,550 86,147,485 50,094,745 49,705,576 48,800,223 42,000,279 33,923,534 33,047,879 2003 Percent of Total City Taxable Taxable Assessed Assessed Value Value 2.33% $ 275,854,696 1.66% 1.04% 0.92% 0.53% 0.53% 0.52% 31,683,505 0.45% 0.36% 0.35% 5.00% 0.57% Steelcase Inc 71,004,273 1.29% AIMCO Brookside Tustin 36,885,671 0.67% Pairgain Technologies Inc 34,333,380 0.62% Sanyo Foods Corporation 32,043,523 0.58% Catellus Finance 28,229,343 0.51% Larwin Square Tustin LLC 22,931,099 0.42% Cadigan Communities LP 22,816,382 0.41% MacPherson Properties 22,611,838 0.41% $ 814,592,376 8.69% $ 578,393,710 10.48% The amounts shown above include the Combined Tax Rolls and the SBE Non -Unitary Tax Roll Sources: Orange County Assessor's Office HdL, Coren & Cone -122- CITY OF TUSTIN PROPERTY TAX LEVIES AND COLLECTIONS Last Nine Fiscal Years Total Collections to Date Percent Collected within the of Levy Fiscal Taxes Levied Fiscal Year of Levy Collections in Year Ended for the 29,417,184 Percent Subsequent June 30 Fiscal Year Amount of Levy Years 2004 $ 12,011,332 $ 11,507,171 95.80% $ 27,851 2005 19,706,674 19,338,392 98.13% 42,299 2006 21,602,011 21,242,797 98.34% 309,074 2007 30,701,393 28,617,969 93.21% 799,215 2008 33,554,781 31,070,501 92.60% 695,793 2009 38,515,110 34,022,959 88.34% 1,417,067 2010 31,739,378 28,347,659 89.31% 917,222 2011 30,713,746 29,541,000 96.18% 610,052 2012 30,163,205 20,433,400 67.74% 147,389 Total Collections to Date Notes: The amounts presented include City property taxes and Redevelopment Agency (A) tax increment. This schedule also include amounts collected by the City and Redevelopment Agency (A) that were passed -through to other agencies. The City of Tustin has elected to show only nine years of data for this schedule. (A) Effective February 1, 2012, the Redevelopment Agency was dissolved. See Notes 16 and 17 for more information. Source: County of Orange Auditor Controller's Office - 123 - Percent Amount of Levy $ 11,535,022 96.03% 19,380,691 98.35% 21,551,871 99.77% 29,417,184 95.82% 31,766,294 94.67% 35,440,026 92.02% 29,264,881 92.20% 30,151,052 98.17% 20,580,789 68.23% Notes: The amounts presented include City property taxes and Redevelopment Agency (A) tax increment. This schedule also include amounts collected by the City and Redevelopment Agency (A) that were passed -through to other agencies. The City of Tustin has elected to show only nine years of data for this schedule. (A) Effective February 1, 2012, the Redevelopment Agency was dissolved. See Notes 16 and 17 for more information. Source: County of Orange Auditor Controller's Office - 123 - CITY OF TUSTIN RATIOS OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years Fiscal Governmental Activities Year General Tax Tax Tax Lease Total Ended Obligation Allocation Allocation Allocation Revenue Notes Notes Governmental June 30 Bonds Bonds (1) Bonds (7) Bonds (8) Bonds (2) Payable (3) Payable (4) Activities 2003 $ $ 16,800,000 $ $ $ 1,230,000 $ $ $ 18,030,000 2004 15,910,000 945,000 16,855,000 2005 14,990,000 645,000 15,635,000 2006 14,030,000 330,000 14,360,000 2007 13,020,000 - 25,000,000 38,020,000 2008 11,975,000 25,000,000 36,975,000 2009 10,870,000 14,962,000 19,284,170 45,116,170 2010 9,720,000 26,170,000 8,199,000 20,112,456 64,201,456 2011 8,515,000 24,915,000 44,170,000 - 20,976,317 98,576,317 2012 - - - - 21,877,282 21,877,282 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Per Capita Personal Income is not available for the City of Tustin alone so the Percentage of Personal Per Capita Income has been left off this schedule. (1) On July 1, 1998 the City issued $20.8 million of Tax Allocation Refunding Bonds to retire Series 1987 Refunding Bonds. On February 1, 2012, the remaining liability of $7,260,000 was transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. (2) In June of 1996 the City issued $2.7 million of Lease Revenue Bonds as a member of the Countywide Joint Powers Authority. The final maturity was August, 2006. (3) In April of 2007 the Tustin Redevelopment Agency executed a note payable in the amount of $25 million to acquire property to carry out the program objectives of the Agency. (4) In December of 2008 the City executed a note payable to the Tustin Redevelopment Agency in the amount of $18,881,750 to increase its deposit of probable compensation per court order pending litigation. The balance also includes accrued interest in the amount of $1,162,188. As of February 1, 2012, this note is payable to the Successor Agency to the Tustin Community Redevelopment Agency. (5) In September of 2003 the City issued $14.355 million of Refunding Water Revenue Bonds to defease the outstanding Certificates of Participation and the Orange County Water District Notes. These bonds were defeased in March 2012. (6) In 1998 the City executed a note payable in the amount of $6.8 million with the Orange County Water District. -124- (7) In March 2010 the Tustin Redevelopment Agency issued $26,170,000 Tax Allocation Housing Bonds, Series 2010 to refinance low and moderate income housing activities throughout the geographic boundaries in the City. On February 1, 2012, the remaining liability of $24,220,000 was transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. (8) In November 2010 the Tustin Redevelopment Agency issued $44,170,000 MCAS Tax Allocation Bonds, Series 2010 to finance capital improvements in the MCAS project area. On February 1, 2012, the remaining liability of $43,530,000 was transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. (9) In May 2011 the City issued $20,760,000 Water Revenue Bonds, 2011 Series A to finance water capital improvement proj ects. (10) In March 2012 the City issued $8.91 million of Refunding Water Revenue Bonds to defease the outstanding 2003 Water Revenue Bonds. -125- Business -type Activities Water Water Water Certificates Total Total Debt Revenue Revenue Revenue of Notes Business -type Primary per Bonds (5) Bonds (9) Bonds (10) Participation Payable (6) Activities Government Capita $ $ $ $ 8,100,000 $ 4,632,456 $ 12,732,456 $ 30,762,456 $ 445 7,575,000 3,991,272 11,566,272 28,421,272 407 13,668,367 - - 13,668,367 29,303,367 417 13,461,607 13,461,607 27,821,607 394 13,331,607 13,331,607 51,351,607 719 13,080,000 13,080,000 50,055,000 696 12,560,000 12,560,000 57,676,170 783 11,875,000 11,875,000 76,076,456 1,018 11,165,000 20,760,000 31,925,000 130,501,317 1,722 - 20,760,000 8,910,000 29,670,000 51,547,282 673 (7) In March 2010 the Tustin Redevelopment Agency issued $26,170,000 Tax Allocation Housing Bonds, Series 2010 to refinance low and moderate income housing activities throughout the geographic boundaries in the City. On February 1, 2012, the remaining liability of $24,220,000 was transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. (8) In November 2010 the Tustin Redevelopment Agency issued $44,170,000 MCAS Tax Allocation Bonds, Series 2010 to finance capital improvements in the MCAS project area. On February 1, 2012, the remaining liability of $43,530,000 was transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. (9) In May 2011 the City issued $20,760,000 Water Revenue Bonds, 2011 Series A to finance water capital improvement proj ects. (10) In March 2012 the City issued $8.91 million of Refunding Water Revenue Bonds to defease the outstanding 2003 Water Revenue Bonds. -125- CITY OF TUSTIN RATIO OF GENERAL BONDED DEBT OUTSTANDING Last Ten Fiscal Years General bonded debt is debt payable with governmental fund resources and general obligation bonds recorded in enterprise funds. The City currently does not have general bonded debt in either fund. * - Assessed value has been used because the actual value of taxable property is not readily available in the State of California. Effective February 1, 2012, the redevelopment agency was dissolved. The outstanding balance of tax allocation bonds were transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. - 126- Outstanding General Bonded Debt Fiscal Year General Tax Percent of Ended Obligation Allocation Assessed Per June 30 Bonds Bonds Total Value * Capita 2003 $ - $ 16,800,000 $ 16,800,000 0.30% $ 243 2004 - 15,910,000 15,910,000 0.26% 228 2005 - 14,990,000 14,990,000 0.23% 213 2006 - 14,030,000 14,030,000 0.20% 199 2007 - 13,020,000 13,020,000 0.16% 182 2008 - 11,975,000 11,975,000 0.12% 166 2009 - 10,870,000 10,870,000 0.11% 148 2010 - 35,890,000 35,890,000 0.38% 480 2011 - 77,600,000 77,600,000 0.82% 1,024 2012 - - - - - General bonded debt is debt payable with governmental fund resources and general obligation bonds recorded in enterprise funds. The City currently does not have general bonded debt in either fund. * - Assessed value has been used because the actual value of taxable property is not readily available in the State of California. Effective February 1, 2012, the redevelopment agency was dissolved. The outstanding balance of tax allocation bonds were transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. - 126- CITY OF TUSTIN OVERLAPPING DEBT SCHEDULE June 30, 2012 2011-12 Assessed Valuation S 9,375,898,773 Redevelopment Incremental Valuation (2,048,680,989) (A) Adjusted Assessed Value S 7,327,217,784 City's Share of Total Debt (1) Debt at OVERLAPPING TAX AND ASSESSMENT DEBT: 6/30/12 %Applicable 6/30/12 Metropolitan Water District S 196,545,000 0.406% S 797,973 Rancho Santiago Community College District 302,555,660 0.017 51,434 Santa Ana Unified School District 302,027,117 0.0003 906 Irvine Unified School District Community Facilities District No. 86-1 106,170,000 0.24 254,808 Tustin Unified School District School Facilities Improvement District No. 2002-1 57,675,577 39.944 23,037,932 Tustin Unified School District School Facilities Improvement District No. 2008-1 49,000,000 39.523 19,366,270 Tustin Unified School District Community Facilities District No. 88-1 50,255,000 100 50,255,000 Tustin Unified School District Community Facilities District No. 06-1 13,560,000 100 13,560,000 City of Tustin Community Facilities Districts 78,620,000 100 78,620,000 Irvine Ranch Water District Improvement Districts 342,641,210 0.493-52.208 95,653,331 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 281,597,654 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations S 233,751,000 1.945% 4,546,457 Orange County Pension Obligations 214,405,353 1.945 4,170,184 Orange County Board of Education Certificates of Participation 1,600,000 1.945 311,200 Municipal Water District of Orange County Water Facilities Corporation 12,145,000 2.296 278,849 Orange Unified School District Certificates of Participation 48,555,000 0.034 16,509 Orange Unified School District Benefit Obligations 89,865,000 0.034 30,554 Tustin Unified School District Certificates of Participation 50,676,741 0.0003 152 City of Tustin - 100 - Irvine Ranch Water District Certificates of Participation 77,190,000 7.369 5,688,131 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT: 15,042,036 Less: MWDOC Water Facilities Corporation (100% self supporting) (278,849) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT: 14,763,187 GROSS COMBINED TOTAL DEBT (2) S 296,639,690 NET COMBINED TOTAL DEBT S 296,360,841 (1) Percentage of overlapping agency's assessed valuation located within boundaries of the City. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non -bonded capital lease obligations. Ratios to 2011-12 Assessed Valuations: Total Overlapping Tax and Assessment Debt 3.000% Ratios to Adjusted Assessed Valuations: Combined Direct Debt 0.000% Gross Combined Total Debt 4.050% Net Combined Total Debt 4.040% (A) Effective February 1, 2012, the Redevelopment Agency was dissolved. See Notes 16 and 17 for more information. Source: California Municipal Statistics, Inc. -127- Assessed valuation Conversion percentage Adjusted assessed valuation Debt limit percentage Debt limit Total net debt applicable to limitation Legal debt margin Total debt applicable to the limit as a percentage of debt limit CITY OF TUSTIN LEGAL DEBT MARGIN INFORMATION Last Ten Fiscal Years 2003 $ 4,939,592,000 25% 1,234,898,000 15% 185,234,700 Fiscal Year 2004 $ 5,283,848,000 25% 1,320,962,000 15% 198,144,300 2005 $ 5,615,226,000 25% 1,403,806,500 15% 210,570,975 2006 $ 6,039,188,000 25% 1,509,797,000 15% 226,469,550 $ 185,234,700 $ 198,144,300 $ 210,570,975 $ 226,469,550 0.0% 0.0% 0.0% 0.0% The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state. Sources: County Tax Assessor's Office City Finance Department -128- Fiscal Year 2007 2008 2009 2010 2011 2012 $ 6,698,963,000 $ 7,469,096,000 $ 7,940,761,000 $ 7,753,504,000 $ 7,645,102,000 $ 7,705,016,000 25% 25% 25% 25% 25% 25% 1,674,740,750 1,867,274,000 1,985,190,250 1,938,376,000 1,911,275,500 1,926,254,000 15% 15% 15% 15% 15% 15% 251,211,113 280,091,100 297,778,538 290,756,400 286,691,325 288,938,100 $ 251,211,113 $ 280,091,100 $ 297,778,538 $ 290,756,400 $ 286,691,325 $ 288,938,100 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -129- Fiscal Year Ended June 30 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CITY OF TUSTIN PLEDGED -REVENUE COVERAGE Last Ten Fiscal Years Refunding Water Revenue Bonds Debt Service Less Net Water Operating Available Revenue Expenses Revenue 2.85 400,000 $ 8,718,072 $ 6,019,880 $ 2,698,192 9,189,579 6,032,117 3,157,462 8,905,221 7,297,101 1,608,120 9,348,715 7,417,023 1,931,692 10,844,515 9,986,251 858,264 11,240,752 10,053,706 1,187,046 11,510,315 10,573,932 936,383 12,829,902 9,928,608 2,901,294 12,422,746 10,566,435 1,856,311 15,112,161 10,683,621 4,428,540 Refunding Water Revenue Bonds Debt Service Principal Interest Coverage $ 525,000 $ 421,200 2.85 400,000 311,002 4.44 230,000 583,920 1.98 130,000 575,410 2.74 180,000 570,470 1.14 335,000 563,450 1.32 520,000 550,385 0.87 685,000 530,105 2.39 710,000 502,705 1.53 740,000 1,432,659 2.04 Notes: Details regarding the City's outstanding debt can be found in the notes to the basic financial statements. Operating expenses do not include interest or depreciation expenses. Water revenues in 2010 include proceeds from an advance from the City's general fund. (A) Effective February 1, 2012, the redevelopment agency was dissolved. The outstanding balance of tax allocation bonds were transferred to the Successor Agency to the Tustin Community Redevelopment Agency. See Notes 8, 16 and 17 for more information. - 130- Tax Allocation Bonds (A) Tax Debt Service Allocation Principal Interest Coverage $ 2,295,614 $ 850,000 $ 800,450 1.39 2,362,640 890,000 765,205 1.43 2,401,247 920,000 727,640 1.46 2,952,481 960,000 687,680 1.79 3,956,734 1,000,000 642,040 2.41 3,381,188 1,055,000 594,358 2.05 4,460,947 1,105,000 547,365 2.70 3,831,975 1,150,000 497,180 2.33 17,928,849 2,460,000 2,204,419 3.84 -131- CITY OF TUSTIN DEMOGRAPHIC AND ECONOMIC STATISTICS Last Ten Calendar Years Source: HdL Coren & Cone, LLC -132- Personal Per Capita County of Orange Calendar City of Tustin Income Personal Unemployment Year Population (In Thousands) Income Rate 2003 69,126 $ 1,764,929 $ 25,532 4.90% 2004 69,753 1,832,204 26,267 4.70% 2005 70,291 1,953,946 27,798 4.20% 2006 70,524 2,064,542 29,274 3.70% 2007 71,383 2,246,281 31,468 3.30% 2008 71,931 2,368,395 32,926 3.80% 2009 73,670 2,450,480 33,263 5.20% 2010 74,736 2,407,036 32,207 8.90% 2011 75,733 2,363,057 31,186 9.40% 2012 76,597 2,429,318 31,716 8.60% Source: HdL Coren & Cone, LLC -132- CITY OF TUSTIN PRINCIPAL EMPLOYERS Current Year and Six Years Ago (1) Information is not available for fiscal year 2001-2002. Sources: www.InfoUSA.com, City of Tustin -133- 2012 2006(l) Percent of Percent of Number of Total Number of Total Employer Employees Employment Employees Employment Young's Market Co LLC 2,100 5.14% Tustin Unified School District 1,600 3.92% Lamppost Pizza Corp 1,400 3.43% Ricoh Electronics Inc 1,384 3.39% 1,038 2.77% Toshiba America Medical Systs 900 2.20% 300 0.76% Rockwell Collins Inc 600 1.47% Costco 450 1.10% Safmarine 400 0.98% City Of Tustin 300 0.73% Cash Plus Inc 250 0.61% Warner Systems Inc 250 0.61% Home Depot 203 0.50% Health South Tustin Rehab Hosp 200 0.49% Logomark Inc 200 0.49% Straub Distributing Co 200 0.49% Tustin Toyota 200 0.49% Schick Records Management 199 0.49% Peregrine Pharmaceuticals 174 0.43% All Green Electronic Recycling LLC 150 0.37% Texas Instruments 560 1.42% MacPherson Enterprises 540 1.37% Cherokee International 330 0.84% Revere Transducers 200 0.51% Tustin Hospital 200 0.51% Fireman's Fund Insurance 190 0.48% KTBN Channel 40 Trinity Broadcasting 180 0.46% Safeguard Business Systems 175 0.45% (1) Information is not available for fiscal year 2001-2002. Sources: www.InfoUSA.com, City of Tustin -133- Function General Government Community Development Public Works Police Parks and Recreation Redevelopment Agency Water Total CITY OF TUSTIN FULL-TIME CITY EMPLOYEES BY FUNCTION Last Ten Fiscal Years Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 32 32 31 31 31 31 27 27 25 29 21 21 22 24 28 29 28 24 17 17 47 47 48 48 50 51 50 53 52 51 141 141 141 141 145 144 147 147 140 139 20 20 18 17 17 15 16 15 14 15 5 5 2 3 5 5 6 6 6 5 22 22 22 22 20 20 23 22 23 25 288 288 284 286 296 295 297 294 277 281 The City contracts with the OC Fire Authority for fire services. Source: City of Tustin Finance Department -134- CITY OF TUSTIN CAPITAL ASSET STATISTICS BY FUNCTION Last Ten Fiscal Years Fiscal Year Function 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Fire Stations (1) 2 2 2 2 2 2 2 2 2 2 Public Works Street (miles) 101.8 101.8 101.8 101.8 101.8 106.3 127.2 127.2 127.2 127.2 Street Lights 2,855 2,855 2,855 2,855 2,855 3,285 3,544 3,544 3,544 3,544 Traffic Signals 97 97 97 97 97 113 113 116 117 118 Storm Drain (miles) 23.7 23.7 23.7 23.7 23.7 49.1 49.2 49.2 49.2 49.2 Street Trees 16,689 16,667 16,744 16,638 16,638 15,821 15,853 15,853 15,837 15,786 Parks and Recreation Parks 12 12 12 12 12 12 12 13 13 13 Parks (acres) 81.5 81.5 81.5 81.5 81.5 81.5 81.5 98.5 98.5 98.5 Community Centers 1 1 1 1 1 1 1 1 1 1 Senior Centers 1 1 1 1 1 1 1 1 1 1 Water Metered Services 13,500 13,500 13,500 13,900 14,080 14,117 14,118 14,118 14,139 14,139 Average daily consumption 12,500 12,500 12,500 12,514 17,205 14,970 14,460 14,460 12,899 13,491 Reservoirs 6 6 6 6 6 6 6 6 6 6 Wells 12 12 12 12 12 12 13 13 13 13 Water Main (miles) 173 173 173 173 173 173 173 173 173 173 Fire Hydrants 2,200 2,200 2,200 2,200 2,200 2,200 2,201 2,201 2,201 2,201 (1) The City contracts with the OC Fire Authority for fire services, and they have full use of City owned stations. Source: City of Tustin Finance Department -135- CITY OF TUSTIN WATER CONSUMPTION BY CUSTOMER TYPE Last Ten Fiscal Years Measured in hundred cubic feet. Source: City of Tustin Finance Department -136- Fiscal Year Type of Customer 2003 2004 2005 2006 Residential 2,259,295 2,522,125 2,539,105 2,847,140 Apartment/Multiple Units 958,049 1,042,914 1,101,639 1,218,770 Commercial 270,860 288,347 285,628 331,990 Fire Services 557 598 1,100 306 Irrigation 118,393 129,127 132,442 137,651 Government 133,120 180,387 170,830 179,426 Restaurants 48,046 59,591 61,706 71,356 Hospitals 15,756 18,333 13,732 14,690 Non -Profit 33,287 35,386 37,906 43,427 Industrial 64,675 57,214 60,262 77,425 Hotel/Motels 10,705 9,806 8,502 10,878 AllOthers 80,312 96,678 112,043 103,570 3,993,055 4,440,506 4,524,895 5,036,629 Measured in hundred cubic feet. Source: City of Tustin Finance Department -136- Fiscal Year 2007 2008 2009 3,319,069 3,202,982 3,012,575 1,312,731 1,264,584 1,226,181 360,170 326,987 305,601 11,453 478 184 171,200 174,858 171,382 265,158 260,688 264,425 67,378 61,029 54,916 14,243 14,376 11,222 48,320 48,922 45,387 71,065 69,920 67,985 13,367 12,803 12,890 100,604 115,246 105,221 5,754,758 5,552,873 5,277,969 2010 2011 2012 2,749,415 2,592,741 2,733,482 1,142,749 1,133,899 1,172,823 287,951 296,001 305,638 217 275 1,242 145,287 134,408 149,957 238,914 212,561 236,658 52,761 48,873 53,183 9,636 11,587 12,204 43,985 41,291 44,488 56,360 51,760 58,298 13,562 8,332 8,514 171,781 176,248 147,552 4,912,618 4,707,976 4,924,039 -137- CITY OF TUSTIN WATER RATES Last Ten Fiscal Years Notes: HCF = Hundred Cubic Feet (1 HCF = 748 gallons) A seven (7) tiered rate structure was implement on July 1, 2010. Additionally, a new fixed charge (Capital Fee) was implemented with the new rate structure, which has been included in the Bi -Monthly Fixed Charge. The rate shown is for a standard residential customer. The bi-monthly fixed rate shown is based on the standard residential customer meter (5/8"). The City uses the American Water Works Association equivalent meter capacity ratios from the AWWA Manual M6 to calculate fixed charges for meters ranging from 1 to 6 inches. Source: City of Tustin Finance Department -138- Consumption Charges Bi -Monthly Up to From From All Fiscal Fixed 12 13 to 40 41 to 60 Over 60 Year Charge HCF HCF HCF HCF 2003 $ 16.00 $ 0.35 $ 1.12 $ 1.20 $ 1.32 2004 16.00 0.35 1.12 1.20 1.32 2005 16.00 0.35 1.12 1.20 1.32 2006 18.16 0.40 1.27 1.36 1.50 2007 20.24 0.44 1.42 1.52 1.67 2008 22.26 0.49 1.56 1.67 1.84 2009 22.26 0.49 1.56 1.67 1.84 2010 22.26 0.49 1.56 1.67 1.84 Consumption Charges Bi -Monthly Up to From From From From From All Fiscal Fixed 10 11 to 20 21 to 30 31 to 40 41 to 50 51 to 60 Over 60 Year Charge HCF HCF HCF HCF HCF HCF HCF 2011 $ 34.49 $ 0.58 $ 1.02 $ 1.33 $ 1.65 $ 1.97 $ 2.29 $ 2.62 2012 36.94 0.70 1.22 1.60 1.99 2.37 2.76 3.17 Notes: HCF = Hundred Cubic Feet (1 HCF = 748 gallons) A seven (7) tiered rate structure was implement on July 1, 2010. Additionally, a new fixed charge (Capital Fee) was implemented with the new rate structure, which has been included in the Bi -Monthly Fixed Charge. The rate shown is for a standard residential customer. The bi-monthly fixed rate shown is based on the standard residential customer meter (5/8"). The City uses the American Water Works Association equivalent meter capacity ratios from the AWWA Manual M6 to calculate fixed charges for meters ranging from 1 to 6 inches. Source: City of Tustin Finance Department -138- CITY OF TUSTIN WATER CUSTOMERS Current Year and Six Years Ago Total Water Sales $ 1,449,966 11.67% $ 702,985 12.01% (1) Information is not available for fiscal year 2001-2002. Source: City of Tustin Finance Department -139- 2012 2006(l) Percent of Percent of Water Total Water Water Total Water Water Customer Charges Revenues Charges Revenues TUSTIN UNIFIED SCHOOL DIST $ 471,855 3.80% $ 204,869 3.50% CITY OF TUSTIN 128,889 1.04% 52,710 0.90% AT& T SERVICES, INC. 74,379 0.60% RICOH ELECTRONICS INC 68,087 0.55% HSA LP 59,167 0.48% 53,459 0.91% CALTRANS - DISTRICT 12 56,450 0.45% TUSTIN ACRES COMM ASSOC 46,659 0.38% 22,501 0.38% CMC ASSOCIATION MGMT 38,992 0.31% 23,149 0.40% SCHROEDER PROP MGMT 38,895 0.31% 19,940 0.34% TUSTIN PLAZA CENTER, LP 37,930 0.31% CADIGAN COMMUNITIES 37,171 0.30% SKB-TUSTIN LLC 36,655 0.30% RED HILL ASSOCIATION 33,974 0.27% 15701 TV WAY PARTNERSHIP 30,955 0.25% SIERRA CORP MGT 30,075 0.24% SYCAMORE GARDENS ASSOC 29,388 0.24% TRINITY UNITED PRESBYTERIAN 28,703 0.23% AVALON 2 CALIF 1 LP 28,453 0.23% BRIARWOOD INVESTMENT CO LT 27,404 0.22% 25,311 0.43% TUSTIN HOSPITAL MEDICAL CENTER 25,101 0.20% KEY INN 24,659 0.20% TUSTIN VILLAGE COMMUNITY ASSOC 24,610 0.20% 18,364 0.31% TUSTIN PLACE H.O.A. 24,208 0.19% VILLA VALENCIA MHP 24,033 0.19% VALENCIA GARDENS OWNER LLC 23,274 0.19% BASCOM EAST TUSTIN AVE APT LLC 65,410 1.12% PACIFIC BELL 50,417 0.86% V KAY - NNC VALENCIA GARDENS A 27,033 0.46% GREENWOOD AND MCKENZIE 23,490 0.40% ALDERS APARTMENT COMPANY 20,903 0.36% PACIFIC POINT APTS 20,513 0.35% WESTCHESTER PARK L.P 19,784 0.34% ARNEL MANAGEMENT 18,655 0.32% REGENCY WEST 18,599 0.32% SYCAMORE CREEK APARTMENTS 17,878 0.31% Total Water Sales $ 1,449,966 11.67% $ 702,985 12.01% (1) Information is not available for fiscal year 2001-2002. Source: City of Tustin Finance Department -139- The page left blank intentionally -140- I_ItICTC IAA1401vj MANAGEMENT LETTER The Honorable Mayor and Members of City Council and Management of the City of Tustin Tustin, California We have audited the financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Tustin, California, (the City), as of and for the year ended June 30, 2012, which collectively comprise the City's basic financial statements and have issued our report thereon dated January 22, 2013. In planning and performing our audit of the financial statements of the City of Tustin (the City) as of the year ended June 30, 2012, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified a certain matter involving the internal control and other operational matters that is presented for your consideration. This letter does not affect our report dated January 22, 2013 on the financial statements of the City. Our comments and recommendations are intended to improve the internal control or result in other operating efficiencies. Our comment with our recommendation for improvements is summarized as follows: Purchasing Policy Auditors' Comment During our audit, we noted that City does not have a formal purchasing policy. We recommend that City adopts a formal purchasing policy that will give guidance on the following items: • Employees authorized to approve purchases • Use of purchase orders • Limits or threshold on various levels of purchases • Informal and formal bidding requirements 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Management's Response The City will adopt a formal purchasing policy that will give guidance on the following items: • Employees authorized to approve purchases • Use of purchase orders • Limits or threshold on various levels of purchases This communication is intended solely for the information and use of management, the City Council, and others within the City, and is not intended to be, and should not be, used by anyone other than these specified parties. /� f�/�� LSP January 22, 2013 Irvine. California -2- ATTACHMENT 3 SIGNIFICANT AUDIT FINDINGS LETTER To the Honorable Mayor and Members of the City Council of the City of Tustin Tustin, California We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Tustin for the year ended June 30, 2012. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our engagement letter dated June 26, 2012 and in our letter on planning matters dated June 26, 2012. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects ofAccounlino Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City of Tustin are described in Note 1 to the financial statements. No new accounting procedures were adopted and the application of other existing policies was not changed during the year ended June 30, 2012. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Significant Audit Findings (Continued): Qualitative Aspects of Accounting Practices (Continued) The most sensitive estimates affecting the City of Tustin's financial statements are as follows: a. Management's estimate of the fair market value of investments is based on market values provided by outside sources. b. Management's estimate of the value of the capital assets (infrastructure) is based on industry standards. c. Management's estimate of the useful lives of capital assets for depreciation purposes is based on industry standards. d. Management's estimate of the claims payable liabilities related to general liability and worker's compensation claims is based on reports prepared by third party administrators and inquiries of the City Attorney. e. The funded status and funding progress of the public defined benefit plans with Ca1PERS is based on actuarial valuations. f The funded status and funding progress of postemployment benefits other than the public defined benefit plans with Ca1PERS is based on actuarial valuations. We evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in relation to the financial statements taken as a whole. Certain financial disclosures are particularly sensitive because of their significance to the financial statements users. The most sensitive disclosures affecting the financial statements are reported in Note 9 regarding the defined benefit pension plans, Note 11 regarding claims payable, Note 10 regarding other post -employment benefits and Note 16 regarding the recent changes in legislation affecting California Redevelopment Agencies. The financial statement disclosures are neutral, consistent and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. 2- Corrected and Uncorrected Misstatements (Continued) The following material misstatements detected as a result of audit procedures were corrected by management: a. Adjustments related to the dissolution of California Redevelopment Agencies. b. Adjustments related to the capitalization of interest. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated January 22, 2013. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. -3- Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. This information is intended solely for the use of the management, City Council and others within the City and is not intended to be and should not be used by anyone other than these specified parties. January 22, 2013 Irvine, California -4- ATTACHMENT 4 GOVERNMENT AUDITING STANDARDS LETTER INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of City Council of the City of Tustin Tustin, California We have audited the financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Tustin, California (the City), as of and for the year ended June 30, 2012, which collectively comprise the City's basic financial statements and have issued our report thereon dated January 22, 2013. 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. Internal Control Over Financial Renortin2 Management of the City is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties Internal Control Over Financial Reporting (Continued) Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Tustin, California's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted a certain matter that we reported to management in a separate letter dated January 22, 2013. This report is intended solely for the information and use of City Council, management, and others within the City of Tustin, California, and is not intended to be and should not be used by anyone other than these specified parties. z � &P January 22, 2013 Irvine, California -2- ATTACHMENT 5 APPROPRIATIONS LIMIT WORKSHEET CITY OF TUSTIN APPROPRIATIONS LIMIT WORKSHEET NO. 6 WITH INDEPENDENT ACCOUNTANTS' REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEET FOR THE YEAR ENDED JUNE 30, 2012 INDEPENDENT ACCOUNTANTS' REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEET To the Honorable Mayor and Members of City Council of the City of Tustin Tustin, California We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet No. 6 of the City of Tustin, California for the year ended June 30, 2012. These procedures, which were agreed to by the City of Tustin, California and the League of California Cities (as presented in the League publication entitled "Article XIII -13 Appropriations Limit Uniform Guidelines") were performed solely to assist the City of Tustin, California in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The City of Tustin's management is responsible for the Appropriations Limit Worksheet No. 6. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: We obtained the completed Worksheet No. 6 for the year ended June 30, 2012, and compared the limit and annual adjustment factors included in that worksheet to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheet to those that were selected by a recorded vote of the City Council. No exceptions were noted as a result of this procedure. 2875 Michelle Drive, Suite 300, Imine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893 Offices located in Orange and San Diego Counties 2. For the accompanying Appropriations Limit Worksheet No. 6, we added last year's limit to the total adjustments, and compared the resulting amount to this year's limit. The combined adjustment factor of 0.02909789 used to compute the appropriations limit for the year ended June 30, 2012 was calculated using the population factor for the City, which was lower than the population factor for the County of Orange. Had the City used the population factor for the County of Orange, the appropriations limit would have been $65,218,794. 3. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet No. 6 to the prior year appropriations limit adopted by the City Council for the prior year. No exceptions were noted as a result of this procedure. We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the accompanying Appropriations Limit Worksheet No. 6. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication entitled "Article XIIIB Appropriations Limitation Uniform Guidelines". This report is intended solely for the use of the City Council and management of the City of Tustin, California and is not intended to be, and should not be, used by anyone other than these specified parties. Z,)� 04;11� t;� LSP January 22, 2013 Irvine, California -2- CITY OF TUSTIN APPROPRIATIONS LIMIT WORKSHEET NO. 6 For the year ended June 30, 2012 Appropriations limit for fiscal year ended June 30, 2011 (see Note 2) Adjustment factors for the fiscal year ended June 30, 2012 (see Note 2): Inflation Factor (Note 3) 1.02510000 Adjustment for inflation and population Other adjustments (Note 5) Total adjustments Population Factor (Note 4) 1.00390000 Appropriations limit for fiscal year ended June 30, 2012 Combined Factor 1.02909789 $ 63,179,627 x 0.02909789 1,838,393 1.838.394 $ 65.018.020 See independent accountants' report on agreed-upon procedures applied to appropriations limit worksheet and accompanying notes. -3- CITY OF TUSTIN NOTES TO APPROPRIATIONS LIMIT WORKSHEET NO. 6 For the year ended June 30, 2012 1. PURPOSE OF LIMITED PROCEDURES REVIEW: Under Article XIIIB of the California Constitution (the Gann Spending Limitation Initiative), California governmental agencies are restricted as to the amount of annual appropriations from proceeds of taxes. Effective for years beginning on or after July 1, 1990, under Section 1.5 of Article XIIIB, the annual calculation of the appropriations limit is subject to a limited procedures review in connection with the annual audit. 2. METHOD OF CALCULATION: Under Section 10.5 of Article XIIIB, for fiscal years beginning on or after July 1, 1990, the appropriations limit is required to be calculated based on the limit for the fiscal year 1986-87, adjusted for the inflation and population factors discussed at Notes 3 and 4 below. 3. INFLATION FACTORS: A California governmental agency may adjust its appropriations limit by either the annual percentage change in the 4th quarter per capita personal income (which percentages are supplied by the State Department of Finance), or the percentage change in the local assessment roll from the preceding year due to the change of local nonresidential construction. The factor adopted by the City of Tustin for the fiscal year 2011-2012 represents the annual percentage change for per capita personal income. 4. POPULATION FACTORS: A California governmental agency may adjust its appropriations limit by either the annual percentage change of the jurisdiction's own population, or the annual percentage change in population in the County where the jurisdiction is located. The factor adopted by the City of Tustin for fiscal year 2011-2012 represents the annual percentage change in the population for the City of Tustin. 5. OTHER ADJUSTMENTS: A California government agency may be required to adjust its appropriations limit when certain events occur, such as the transfer of responsibility for municipal services to, or from, another government agency or private entity. The City of Tustin had no such adjustments for the year ended June 30, 2012. See independent accountants' report on agreed-upon procedures applied to appropriations limit worksheet. IKI!