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HomeMy WebLinkAbout08-ATTACHMENT 1 (COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2014Attachment No. 1 Comprehensive Annual Financial Report for the year ended June 30, 2014 FIRE STATION #3 7 CWLI COOX,,OFF TUST7N RANC}f ROA10 TUSTIN COMPREHENSIVE ANNUAL FINANCIAL AR ENDED JUNE 30TH, 2014 OF TUSTINq CALIFORNIA, CITY OF TUSTIN, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BYINDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30, 2014 Prepared By: Finance Department CITY OF TUSTIN TABLE OF CONTENTS For the year ended June 30, 2014 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) 5 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Position 17 Statement of Activities 18 Fund Financial Statements: Governmental Funds: Balance Sheet 20 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 21 Statement of Revenues, Expenditures and Changes in Fund Balances 22 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 23 Proprietary Fund: Statement of Net Position 24 Statement of Revenues, Expenses and Changes in Net Position 25 Statement of Cash Flows 26 Fiduciary Funds: Statement of Fiduciary Net Position 28 Statement of Changes in Fiduciary Net Position 29 Notes to Basic Financial Statements 31 CITY OF TUSTIN TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2014 Page Number REQUIRED SUPPLEMENTARY INFORMATION: 77 Schedules of Funding Progress PERS Miscellaneous Employees 79 Other Post - Employment Benefit Plan 79 Budgetary Comparison Schedules: General Fund 80 Note to Required Supplementary Information 81 SUPPLEMENTARY INFORMATION: 83 Other Governmental Funds: 85 Combining Balance Sheet 86 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 90 Measure M Special Revenue Fund 91 Park Acquisition and Development Special Revenue Fund 92 Asset Forfeiture Special Revenue Fund 93 Air Quality Special Revenue Fund 94 Supplemental Law Enforcement Special Revenue Fund 95 Housing Authority Special Revenue Fund 96 Agency Funds: 97 Combining Statement of Assets and Liabilities 98 Combining Statement of Changes in Assets and Liabilities 99 STATISTICAL SECTION (UNAUDITED): 101 Description of Statistical Section Contents 103 Financial Trends Net Position by Component - Last Ten Fiscal Years 104 Changes in Net Position - Expenses and Program Revenues - Last Ten Fiscal Years 106 Changes in Net Position - General Revenues - Last Ten Fiscal Years 108 Fund Balances of Governmental Funds - Last Ten Fiscal Years 110 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years 112 CITY OF TUSTIN TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2014 Page Number STATISTICAL SECTION (UNAUDITED) (CONTINUED): Revenue Capacity: Assessed Value and Estimated Actual Values of Taxable Property - Last Ten Fiscal Years 114 Direct and Overlapping Property Tax Rates - Last Ten Fiscal Years 116 Principal Property Taxpayers - Current Year and Nine Years Ago 118 Property Tax Levies and Collections - Last Ten Fiscal Years 119 Debt Capacity Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 120 Ratio of General Bonded Debt Outstanding - Last Ten Fiscal Years 122 Overlapping Debt Schedule 123 Legal Debt Margin Information - Last Ten Fiscal Years 124 Pledged- Revenue Coverage - Last Ten Fiscal Years 126 Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Calendar Years 128 Principal Employers - Current Year and Eight Years Ago 129 Operating Information Full -Time City Employees by Function - Last Ten Fiscal Years 130 Capital Asset Statistics by Function - Last Ten Fiscal Years 131 Water District Schedules for Revenue Capacity: Water Consumption by Customer Type - Last Ten Fiscal Years 132 Water Rates - Last Ten Fiscal Years 134 Water Customers - Current Year and Eight Years Ago 135 CITY OF TUSTIN Elected and Administrative Officials MAYOR Al Murray CITY COUNCIL Charles E. "Chuck" Puckett, Mayor Pro Tem John Nielsen Rebecca "Beckie" Gomez Dr. Allan Bernstein AUDIT COMMISSION Robert Ammann, Chair Daniel Erickson, Chair Pro Tem R. Lawrence Friend Craig Shimomura Thomas Stroud CITY MANAGER/CITY CLERK David E. Kendig City Attorney Elizabeth A. Binsack Director, Community Development Pamela Arends -King Director, Finance/ City Treasurer Jeffrey C. Parker -i - Charles Celano Chief of Police David Wilson Director, Parks and Recreation Services Douglas S. Stack Director, Public Works/ City Engineer Derick Yasuda Acting Director of Human Resources The page left blank intentionally -ii - Finance Department HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL CITIZENS OF THE CITY OF TUSTIN City of Tustin Tustin, California 92780 TUSTIN Z i U91 19 1. HISTORY BUILDING OUR FUTURE HONORING OUR PAST The Comprehensive Annual Financial Report (CAFR) of the City of Tustin for the fiscal year ended June 30, 2014, 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, 2014, 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, 2014, 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. 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. 300 Centennial Way, Tustin, CA 92780 • P: (714) 573 -3060 • F: (714) 832 -0825 • www.tustinca.org 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, 2014 population at 78,360, a 0.5 % increase from 2013. 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 Public Financing Authority and the City of Tustin Housing Authority (Housing Authority). The activities of both entities are included in these 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. For the General Fund this comparison is presented on page 80 as part of the required supplementary information and for nonmajor governmental funds this comparison is presented on pages 90 — 96 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. The Successor Agency is presented as a Private Purpose Trust Fund on pages 28 -29. -1V- ECONOMIC OUTLOOK The State of California continues to slowly recover from the economic downturn. The statewide unemployment rate has dropped from 8.6% in October 2013 to 7.3% for October 2014, which is 1.5% higher than the United States unemployment rate of 5.8% for October 2014. The Orange County unemployment rate has decreased 1.1% from October 2013 to 5% for October 2014. The City's sales tax revenue continues to be the largest revenue source for the General Fund. It is 43% of total General Fund revenues. Annual sales tax revenue increased from $21.6 million in fiscal year 2012 -2013 to $22.3 million in fiscal year 2013 -2014, a 3.2% increase. The increase is primarily due to continuing demand for new automobiles. Sales tax revenue for fiscal year 2014 -2015 is expected to increase $0.3 million from prior year. Property tax revenue is the second largest General Fund revenue source (16% of total revenues). Orange County property values and property sales have been stable; therefore, property tax revenue stayed approximately the same as prior year at $8.2 million for fiscal year 2013- 2014. The City's property tax revenue is expected to increase $0.2 million in fiscal year 2014 -2015. Development at the Marine Corp Air Station Base also referred to as the Legacy continues to move forward. The City completed its negotiations with Standard Pacific for the development of 375 single family homes within the Legacy. The land for the development was sold in August 2014 for $56 million. Community Facilities District 14 -01 was formed to raise two special taxes in relation to this development for public services provided such as public safety, parks and street maintenance and to pay debt service for bonds not to exceed $29 million to be issued to fund backbone infrastructure. The bonds are expected to be issued summer 2015. The Irvine Company purchased property within the Legacy for $45.6 million in fiscal year 2012 -2013 to construct 533 rental apartment units of which 37 are for moderate income tenants. Of the $45.6 million collected from the Irvine Company, $15.3 million is designated to fund construction of the Legacy backbone infrastructure. The City also entered into an agreement in fiscal year ending June 30, 2013 with Anton Legacy Tustin L.P. for the sale of land for one dollar and $4.3 million to fund construction of the Legacy backbone infrastructure to construct 225 rental apartments of which 88 are very low- income units, 73 are low- income units and 64 are moderate - income units. The apartments are expected to be completed early fiscal year 2014- 2015. Construction of the Tustin Ranch Road extension project was completed and officially opened to the public in the fall of 2013. Fire Station #37 in the Legacy was completed in March 2014. 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 2014 -15 are estimated to be $0.3 million less than fiscal year 2012 -13, primarily due to a decrease in building permits and building plan checks. Expenditures are $3.4 million more than budgeted in fiscal year 2013 -14 due to the increase of General Fund dollars that must be spent on public works street maintenance of $1.2 million to meet the maintenance of effort requirements to receive Measure M2 tax dollars from the Orange County Transportation Authority for street repair and rehabilitation; a $1 million transfer to an Emergency Fund; and $0.7 million will be spent on the Economic Development division. That division had been paid for by the Successor Agency of the Tustin Community Redevelopment Agency. The City expects a $0.8 million deficit for fiscal year 2014 -15; therefore City Council has chosen to use excess reserves to balance the General Fund budget for fiscal year 2014- 2015. City Council will be reviewing the City's financial condition during the mid -year budget review in February 2015. -v - ACCOMPLISHMENTS AND FUTURE PROJECTS Major capital improvement projects completed include the Rawlings Reservoir Replacement, Newport Avenue Bicycle Trail Reconstruction, McFadden Avenue Rehabilitation between Mantle Land and Pasadena Avenue, and Irvine Boulevard Rehabilitation between Prospect Avenue and Holt Avenue. The City's capital projects for fiscal year 2014 -2015 are budgeted at $50 million. Funding sources for the capital projects include revenues from gas tax, Community Development Block Grant, water revenues, Community Facility bond proceeds, Measure M2, Park Development Funds, and Water Revenue Bond proceeds. Major projects include the Clifton C. Miller Community Center kitchen remodel; installation of a new Voice Over Internet Protocol (phone) system; Frontier Park Water Element recirculation system; Centennial Park picnic area and entry renovations; replacement of the emergency generators at City Hall and the Senior Center; installation of a biofiltration element in the Edinger /Red Hill/Valencia/Kensington Park Quadrant; traffic signal controller equipment upgrades and replacements; and replacement of Simon Ranch Reservoir, Booster Pump Station, and pipeline. Major Legacy projects include Red Hill Avenue median improvements between Barranca parkway and north of Valencia Avenue, the Barranca Parkway Improvements from west of Tustin Ranch Road to east of Aston Street; the extension of Armstrong and Warner Avenues; the design of a community park; landscaping and water quality feature installation at the corner of Red Hill Avenue and Barranca Parkway; improvements to Peters Canyon Channel; and the extension of Moffett Drive from Park Avenue to east of Peters Canyon Channel. 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, 2013. This was the twenty - seventh 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, Sean Tran, Administrative Services Manager, Alberto Preciado, Senior Accountant, the finance staff, and consultant Melissa Shirah, C.P.A. 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 submitted, Pamela Arends -King Finance Director /City Treasurer -vi - CITIZENS OF TUSTIN POLICE PUBLIC WORKS COMMUNITY DEVELOPMENT CITY MANAGER PARKS & RECREATION CITY ATTORNEY DEPUTY CI TY MANAGER FINANCE HUMAN RESOURCES -Vll - LOCAL GOVERNMENT FY 2013 -14 SUCCESSOR AGENCY TO THE TUSTIN REDEVELOPMENT AGENCY COORDINATION AND COOPERATION PRIVATE UTILITIES Cable T.V. Electricity Natural Gas Telephone CONTRACT SERVICES Fire Refuse Animal Control SPECIAL DISTRICTS Library Lighting Sewers Flood Control Re- Assessment District 95 -1 CFD's MAYOR CITY CLERK CITY COUNCIL CITY TREASURER POLICE PUBLIC WORKS COMMUNITY DEVELOPMENT CITY MANAGER PARKS & RECREATION CITY ATTORNEY DEPUTY CI TY MANAGER FINANCE HUMAN RESOURCES -Vll - LOCAL GOVERNMENT FY 2013 -14 SUCCESSOR AGENCY TO THE TUSTIN REDEVELOPMENT AGENCY COORDINATION AND COOPERATION PRIVATE UTILITIES Cable T.V. Electricity Natural Gas Telephone CONTRACT SERVICES Fire Refuse Animal Control SPECIAL DISTRICTS Library Lighting Sewers Flood Control Re- Assessment District 95 -1 CFD's VI Government Finance Officers Association 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, 2013 Executive Director /CEO -viii - INDEPENDENT AUDITORS' REPORT Honorable City Council of the City of Tustin Tustin, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business -type activity, each major fund, and the aggregate remaining fund information of the City of Tustin (the City), as of and for the year ended June 30, 2014, and the related notes to the basic financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these basic 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 basic financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the basic financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -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 Opinion In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activity, each major fund, and the aggregate remaining fund information of the City of Tustin, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedules of funding progress and the budgetary comparison schedules, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the management's discussion and analysis, and 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 information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance on them. The budgetary comparison schedules 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 of the City 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 budgetary comparison schedules are fairly stated in all material respects in relation to the basic financial statements taken as a whole. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements (supplementary information), and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information, as listed in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. -2- Other Matters (Continued) Other Information (Continued) The introductory and statistical sections have 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2014, on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. /& Irvine, California December 15, 2014 -3- The page left blank intentionally -4- City of Tustin Management's Discussion and Analysis (Unaudited) June 30, 2014 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, 2014. 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 and deferred out flows of resources of the City exceeded its liabilities at June 30, 2014, by $672 million (net position). Net position consists of $485.4 million invested in capital assets, $36.7 million in restricted net position and $149.9 million in unrestricted net position. • The government's total net position decreased by $23 million during the fiscal year ended June 30, 2014. The primary reason for the decrease is due to the recognition of the amount due of $18.2 million to Vestar/Kimco for the completion of back bone infrastructure within the former Marine Corps Air Station known as the Legacy. As of June 30, 2014, the City's governmental funds reported combined ending fund balances of $184.5 million, a decrease of $60.5 million in comparison with the prior year. The significant decrease in ending fund balances is primarily due to the increase in spending on capital projects such as the Tustin Ranch Road extension and the recognition of the amount due to Vestar/Kimco for Legacy backbone infrastructure of $18.2 million. Approximately $129 million (70 %) is nonspendable and $31.2 million is restricted. • The net increase in the City's total long -term liabilities was $13.8 million. The $13.8 million net increase is primarily due to the issuance of water revenue bonds in October 2013. 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. 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 netposition presents information on all of the City's assets and liabilities and deferred inflows /outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. See independent auditors' report. -5- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Government -wide financial statements (Continued) The statement of activities presents information showing how the government's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cashflows. 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, and the Tustin Public Financing Authority, a blended component unit, include general government, public safety, community services and public works. 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 ou�flows 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. 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 is considered to be a major fund. 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. See independent auditors' report. M CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Fund financial statements (Continued) Governmental funds (continued). 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 a 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 Tustin Community Redevelopment Agency. 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. 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 nonmaj or Special Revenue Funds, nonmaj or Capital Proj ects Funds, and all nonmaj or Debt Service Funds. These combining and individual fund statements and schedules can be found immediately following the required supplementary information. See independent auditors' report. 7- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 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 position (72 percent) reflects its investment in capital assets (e.g., land, buildings, and improvements other than buildings, equipment, infrastructure, and construction in progress), less any related outstanding debt that was used to acquire those assets. 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. Assets: Current and other assets Capital assets Total Assets Deferred Outflows of Resources Liabilities City of Tustin Summary of Net Position As of June 30, 2014 (in millions of dollars) Business - Governmental Type Activities Activities 2013 2014 2013 2014 Total % Change Total 2013 2014 2013 -2014 $284.0 $245.9 $19.1 $35.0 $303.1 $280.9 431.8 461.7 45.8 45.9 477.6 507.6 715.8 707.6 64.9 80.9 780.7 788.5 - - 0.5 0.5 0.5 0.5 Current liabilities 38.5 55.9 Non - Current liabilities 13.6 14.1 Total Liabilities 52.1 70.0 Net Position: 86.2 117.0 Net investment in capital assets 431.8 461.7 Restricted 54.4 36.7 Unrestricted 177.5 139.2 3.8 3.4 42.3 59.3 30.3 43.6 43.9 57.7 34.1 47.0 86.2 117.0 24.2 23.7 456.0 485.4 - - 54.4 36.7 7_1 10.7 184.6 149.9 1.0% 35.7% (18.8 %) Total Net Position S663.7 $637.6 $31.3 34.4 $695.0 S672.0 (3.3 %) Governmental activities. Net position of the City's governmental activities decreased 3.9% to $637.6 million, of which $461.7 million is invested in capital assets such as equipment, buildings and infrastructure. Of the remaining total, $36.7 million is restricted to specifically stipulated spending agreements originated by law, contract or other agreements with external parties. The remaining $139.2 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. -8- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Government -wide Financial Analysis (Continued) City of Tustin Summary of Changes in Net Position For the Year Ended June 30, 2014 (in millions of dollars) Governmental Business -Type Total Activities Activities Total % Change 2013 2014 2013 2014 2013 2014 2013 -2014 Revenues: Program revenues: Charges for services $3.9 $3.9 $16.8 $18.7 $20.7 $22.6 Operating grants & contributions 4.5 3.3 - - 4.5 3.3 Capital grants and contributions 21.0 12.2 - - 21.0 12.2 General revenues: Taxes 16.7 16.3 - - 16.7 16.3 Sales taxes shared state revenues 21.6 22.3 - - 21.6 22.3 Motor vehicle taxes 6.0 6.2 - - 6.0 6.2 Earnings on investments 0.2 0.6 - 0.1 0.2 0.7 Miscellaneous 7.2 4.0 0.3 0.4 7.5 4.4 Gain on sale of assets 43.3 - - - 43.3 - Total Revenues 124.4 68.8 17.1 19.2 141.5 88.0 (37.8 %) Expenses: General government 18.7 14.8 - - 18.7 14.8 Public safety 30.7 28.5 - - 30.7 28.5 Public works 15.1 49.5 - - 15.1 49.5 Community services 3.2 3.5 - - 3.2 3.5 Interest on long -term debt 0.9 - - - 0.9 - Water - - 13.6 16.1 13.6 16.1 Total Expenses 68.6 96.3 13.6 16.1 82.2 112.4 36.7% Extraordinary Item: Forgiveness of interest on advances - 1.4 - - - 1.4 Change in net position 55.8 (26.1) 3.5 3.1 59.3 (23.0) Net Position - Beginning, restated 607.9 663.7 27.8 31.3 635.7 695.0 Net Position - Ending $663.7 $637.6 $31.3 SL4.4 $695.0 $672.0 (3.3 %) See independent auditors' report. CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Government -wide Financial Analysis (Continued) In governmental activities, the decrease in net position of $26.1 million is primarily due to the increase in public works spending from prior year from $15.1 million to $49.5 million. Major public works projects completed during fiscal year ending June 30, 2014 include the Tustin Ranch Road extension through the Legacy and fire station 937 within the Legacy. The increase in Public Works expense also includes the recognition of the amount due to Vestar/Kimco, the developer and owners of the major retail complex in the Legacy known as the District. Vestar/Kimco completed Legacy backbone infrastructure totaling approximately $50 million of which the City was responsible for $18.2 million. Overall, governmental revenues decreased by $55.6 million from prior year. The primary reason for the decrease is due to the $43.3 million gain on sale of assets in fiscal year ending June 30, 2013. The City sold 21 acres of land held for resale in the Legacy for the construction of rental apartments and land held for resale along the 55 freeway and Edinger Avenue for the construction of two hotels and retail establishments. Operating grants and contributions decreased $1.2 million primarily due to a transfer of funds from the Successor Agency for third party costs incurred relating to the Newport Boulevard extension project of $0.9 million in fiscal year ending June 30, 2013. Taxes decreased $0.4 million from prior fiscal year due to the increase in successful appeals for reconsideration of taxable values of property due to the decrease in property values during the recent recession. Sales tax revenue increased $0.7 million from fiscal year ending June 30, 2013 due to consumers continuing demand for new automobiles. Earnings on investments increased $0.4 million as a result of diversifying the investment portfolio and extending maturity dates based on cash flow needs. Prior year's average weighted rate of return was 0.33% compared to 0.56% for fiscal year ending June 30, 2014. Miscellaneous revenue for governmental activities decreased $3.2 million. The reasons for the decrease were the transfer in for fiscal year ending June 30, 2013 from the Successor Agency to the Tustin Community Redevelopment Agency (Successor Agency) of $2.0 million for reimbursement of capital funds expended for the Newport Boulevard extension project, and the $0.9 million transfer from the Successor Agency to the Housing Authority to meet the low- moderate housing requirement set aside. Governmental expenses increased $27.7 million from prior year. Of this amount, Public Works spending increased $34.4 million from fiscal year ending June 30, 2013 due to the increase in capital project spending primarily within the Legacy area and the recognition of the amount due to Vestar/Kimco for the completion of backbone infrastructure within the Legacy totaling $18.2 million. The agreement the City had with Vestar/Kimco was that after the projects were complete and land held for resale was sold within the Legacy, then the City would reimburse Vestar/Kimco the amount due. The projects were completed towards the later part of fiscal year ending June 30, 2014 and subsequently the City sold land held for resale in the Legacy to Standard Pacific for the development of 375 single family homes for $56 million in August 2014. With the proceeds of that sale, Vestar/Kimco was paid on September 4, 2014. General Government expenses decreased $3.9 million from prior year due to: • A legal settlement payment of $2.1 million to Key Bank paid in fiscal year 2012/2013. After the dissolution of the Tustin Legacy Community Partnership (TLCP), who were the master developers for the Legacy area, a lien of $53 million, held by Key Bank on the property that TLCP held but reverted back to the City after the dissolution was successfully negotiated down to $2.1 million. See independent auditors' report. -10- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Government -wide Financial Analysis (Continued) An annual payment of $1.3 million for an annuity in fiscal year ending June 30, 2013. Due to the potential budget deficit for fiscal year ending June 30, 2013, an early retirement incentive was offered to qualifying employees effective October 31, 2012 by purchasing an annuity. 35 employees took advantage of the early retirement incentive. The $1.3 million represents two annual payments of the total cost of the annuity of $3.4 million. No annual payment for the annuity was paid in fiscal year ending June 30, 2014 as it was paid in the prior year. Leave buy out of $0.8 million which was paid to the 35 employees that took advantage of the early retirement incentive in the prior fiscal year. The $2.2 million decrease in Public Safety expenses is primarily due to the decrease in workers compensation cases and liability claims from prior fiscal year. Community services expenses increased $0.3 million due to filing of vacant positions. Business -Type activities net position increased $3.1 million due to the implementation of 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 $2.5 million primarily due to the increase in purchasing water from the East Orange County Water District. Two of the City's underground wells and pumps, 17th Street and Main Street were inoperable during the fiscal year so more water was purchased instead of pumped. The two pumps and wells are currently being refurbished and repaired. Extraordinary item, Forgiveness of Interest on Advances increased $1.4 million from fiscal year ending June 30, 2013. The City entered into a promissory note December 2008, maturing December 2013 with the former Redevelopment Agency for $18.8 million with an interest rate of 4.25% per annum compounded semiannually. The Department of Finance (DOF) agreed to lower the interest rate to the Local Agency Investment Fund interest rate effective at the time the promissory note was issued which was 2.54 %. The DOF agreed to a flat interest rate. The $1.4 million Forgiveness of Interest on Advances is the difference between the interest accrued and the interest amount DOF agreed would be due. See Note 6 on page 50. The settlement with the DOF resulted in the decrease of interest on long -term debt of $0.9 million from prior year because the settlement agreement already calculated the flat interest rate that was expensed at the higher rate in prior fiscal years. 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. See independent auditors' report. -11- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Financial Analysis of the Government's Funds (Continued) As of the end of the current fiscal year, the City's governmental funds reported total combined ending fund balances of $184.5 million, a decrease of $60.5 million in comparison with the prior year due to the significant increase in spending on capital projects. Approximately $129.0 million (70.0 %) of this total amount constitutes nonspendable fund balance. Of the nonspendable amount $129.0 million is land held for resale. The remainder of the fund balance consists of $31.2 million in restricted funds, $5.5 million assigned to capital projects, and $18.8 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 $18.8 million, while total fund balance was $149.2 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 19% of the total General Fund expenditures. City of Tustin Summary of Changes in Fund Balances - General Fund For the Year Ended June 30, 2014 (in millions of dollars) Expenditures General government 16.3 13.1 Total 27.8 28.1 Public works %Change 5.8 2013 2014 2013 -2014 Revenues: 1.1 49.7 Interest and fiscal charges Taxes $44.3 $45.1 54.8 Charges for services 2.4 1.7 Intergovernmental 5.6 0.9 Fines and forfeitures 0.7 0.6 Licenses and permits 0.6 1.3 Other 3_0 3_8 Total Revenues 56.6 53.4 (5.7 %) Expenditures General government 16.3 13.1 Public safety 27.8 28.1 Public works 6.0 5.8 Community services 2.7 2.8 Capital outlay 1.1 49.7 Interest and fiscal charges 0_9 - Total Expenses 54.8 99.5 81.6% Excess of Revenues Over (Under) Expenditures 1.8 (46.1) Other Financing Sources (Uses): Net transfers (0.8) 0.9 Sale of property 43.3 Total Other Financing Sources (Uses) 42.5 0_9 Extraordinary Item: Forgiveness of interest on advances - 1_4 Net Change in Fund Balance $44.3 43.8 (198.9 %) See independent auditors' report. -12- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Financial Analysis of the Government's Funds (Continued) Transactions impacting revenues in the General Fund were as follows: • Sales tax revenues were $22.3 million reflecting a $0.7 million increase from prior year due to the continuing demand for new automobiles. • Charges for services decreased $0.7 million from prior year primarily due to the decrease in workers compensation contributions from other funds and departments as the workers compensation reserves are adequate to cover claims. • Intergovernmental revenue decreased $4.7 million from prior year due to the decrease of the amount the Successor Agency reimbursed the General Fund ($4.1 million) for an outstanding obligation for third party costs incurred for the extension of Newport Boulevard. The DOF made the determination that the obligation to the City for the third party costs which totaled $38 million was no longer a valid obligation. Also for the fiscal year ending June 30, 2013, $0.5 million was repaid to the General Fund from the Community Facility Districts for negative cash balances in fiscal year ending June 30, 2012. • License and Permits increased $0.7 million due to the increase in building permits from prior year due to the Irvine Company's construction of apartments in the Legacy and Anton Legacy LP's construction of apartments including low to moderate income apartments in the Legacy. Overall building activity increased in fiscal year ending June 30, 2014. • Other Revenue increased $0.8 million from prior year. Investment income increased $0.4 million due to the increase in cash from land held for resale of $43.3 million in fiscal year ending June 30, 2013 and the diversification of the investment portfolio and extending maturity dates based on cash flow needs. Prior year's average weighted rate of return was 0.33% compared to 0.56% for fiscal year ending June 30, 2014. Rental income increased $0.2 million from prior year due to the City renting the hangar at the Legacy for commercial purposes and expanding rental leases on City property located on Del Almo Avenue. Changes in General Fund expenditures from previous fiscal year, by function, occurred as follows during the year ended June 30, 2014: • General Government expenditures decreased $3.2 million from prior year. A majority of the decline was due to a $2.1 million legal settlement with Key Bank, paid in fiscal year ending June 30, 2013. A legal settlement with Key Bank resolved a $53 million lien on property within the Legacy that reverted back to the City when its business relationship with the former master developer, Tustin Legacy Community Partnership, dissolved. Also in the prior fiscal year there was a payment of $1.3 million for the annual annuity the City purchased for $3.4 million for the early retirement incentive due to the structural deficit the City was experiencing going into fiscal year ending June 30, 2013. • Public safety expenditures increased $0.3 million due to filing vacant positions. • The $0.1 million increase for Community services is due to filing vacant positions. • Public Works expenditures decreased $0.2 million due to vacant positions. • Capital Outlay increased $48.6 million primarily due to construction in the Legacy such as the Tustin Ranch Road extension, Valencia Avenue extension from Kensington Park Drive to Tustin Ranch Road, the Park Avenue extension from Legacy Road to the Jamboree Road ramp, and fire station 937; and the recognition of the amount due to Vestar/Kimco for the completion of backbone infrastructure totaling approximately $50 million of which the City was responsible for $18.2 million. See independent auditors' report. -13- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Financial Analysis of the Government's Funds (Continued) • Net transfers increased $1.7 million primarily due to the transfer of cash from the Community Facility Districts to the General Fund to eliminate deficit cash balances. The cash was refunded to the General Fund when the Community Facility Districts were reimbursed for expenditures from the bond proceeds held with the fiscal agent. Sale of property decreased $43.3 million from prior fiscal year due to the sale of land held for resale in the Legacy to the Irvine Company for construction of apartments and land held for resale along the 55 freeway and Edinger Avenue for the construction of two hotels and retail establishments. The $1.4 million extraordinary item, Forgiveness of Interest on Advances is due to a settlement between the City and the DOF regarding a promissory note of $18.8 million the City entered into with the former Redevelopment Agency in December 2008 maturing December 2013. The promissory note had an interest rate of 4.25% per annum compounded semiannually. DOF agreed to lower the interest rate to the Local Agency Investment fund interest rate effective at the time the promissory note was issued which was 2.54% and agreed to a flat interest rate. The $1.4 million Forgiveness of Interest on Advances is the difference of the interest accrued and the interest amount DOF agreed would be due. The settlement with the DOF resulted in the decrease of $0.9 million of interest and fiscal charges from prior year. General Fund Budgetary Highlights Differences between the General Fund actual revenues and transfers and amended budgeted revenues and transfers were $3.2 million primarily due to better actual revenues received then projected primarily for sales tax, building permits, rental income, hotel bed tax, and investment income. Actual General Fund expenditures were more than the amended budgeted amount of $92.9 million by $6.7 million due to the recognition of the $18.2 million due to Vestar/Kimco for the completion of backbone infrastructure in the Legacy. Financial Analysis of the Proprietary Funds The City has one proprietary fund which is the Water Enterprise Fund. Net position of the Water Enterprise increased $3.1 million during fiscal year 2014, from $31.3 million as of June 30, 2013, to $34.4 million as of June 30, 2014. Operating revenues for the Water Fund exceeded operating expenses by $4.2 million, leading to the increase in net position. Significant activity during the year included the issuance of water revenue bonds totaling $14 million for major capital projects such as the rehabilitation of two wells. The Rawlings Reservoir was completed during fiscal year ending June 30, 2014. 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 52). See independent auditors' report. -14- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 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, 2014 amounts to $507.6 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. Land Right of way Construction in progress Buildings and improvements Machinery and equipment Infrastructure Property, plant and equipment City of Tustin Summary of Changes in Capital Assets For the Year Ended June 30, 2014 (in millions of dollars) Governmental Activities 2013 2014 $44.1 $44.1 44.3 44.3 80.7 69.2 64.7 76.0 2.7 3.4 195.3 224.7 Business -Type Activities 2013 2014 $1.2 $1.2 15.6 2.4 5.1 4.8 23.9 37.5 69.8 Total Total %Change 2013 2014 2013 -2014 $45.3 $45.3 37.5 44.3 44.3 96.3 71.6 69.8 80.8 2.7 3.4 195.3 224.7 23.9 37.5 Total Capital Assets, Net $431.8 $461.7 $45.8 $45.9 $447.6 $507.6 13.4% The major activity affecting capital assets this year was the decrease in construction in progress due to the completion of the Tustin Ranch Road extension and the completion of the Rawlings Reservoir replacement. 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 51). Long -term Debt At the end of the current fiscal year, the City had total outstanding long -term liabilities of $57.2 million. Of this amount, $43.4 million are secured solely by specified revenue sources such as property tax increment and water service charges. See independent auditors' report. -15- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2014 Capital Asset and Debt Administration (Continued) Long -term Debt (Continued) City of Tustin Summary of Changes in Long -Term Liabilities For the Year Ended June 30, 2014 (in millions of dollars) The City's long -term debt increased $13.8 million from prior year due to the Water Enterprise Fund issuing water revenue bonds of $14 million to rehabilitate two wells and complete other infrastructure proj ects. 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 53. Next Year's Budget and Rates The City Council adopted the fiscal year 2014 -2015 Budget with total appropriations of $136.4 million which includes $10.8 million of capital outlay for the Water Enterprise Fund. The General Fund fiscal year 2014 -2015 estimated revenues are $50.6 million and budgeted appropriations are $51.4 million resulting in an estimated operating deficit of $0.8 million. The appropriations are $3.4 million more than prior year's appropriation and include an increase of $1.2 million for additional spending on street maintenance to meet the City's Maintenance of Effort to qualify for the receipt of Measure M2 funds for street maintenance and rehabilitation; transfer of the Economic Development Division from the Successor Agency to the General Fund resulting in an annual cost of $0.7 million; an increase in the contract with the Orange County Fire Authority of $0.4 million; a $1 million transfer from the General Fund to an Emergency Fund requested by the City Council; and filling vacant positions within the Police Department. The City Council approved the use of $0.8 million of General Fund undesignated fund balance to balance the fiscal year 2014 -2015 budget. The tax rates include an increase in the hotel bed tax. In the November 2014 elections, voters approved the increase of the hotel bed tax from 6% to 10% effective January 1, 2015. There were no fee increases as part of the preparation and adoption of the fiscal year 2014 -15 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. -16- Governmental Business -Type Total Activities Activities Total % Change 2013 2014 2013 2014 2013 2014 2013 -2013 Bonds payable $- $- $30.1 $43.4 $30.1 $43.4 Claims and judgments 4.4 4.3 - - 4.4 4.3 Postemployment benefits obligation 4.3 4.9 - - 4.3 4.9 Termination benefits 2.0 2.0 - - 2.0 2.0 Compensated absences 2_9 2_9 0_2 0_2 3_1 3_1 Total Outstanding Debt $13.6 $14.1 30.3 43.6 43.9 57.7 31.4% The City's long -term debt increased $13.8 million from prior year due to the Water Enterprise Fund issuing water revenue bonds of $14 million to rehabilitate two wells and complete other infrastructure proj ects. 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 53. Next Year's Budget and Rates The City Council adopted the fiscal year 2014 -2015 Budget with total appropriations of $136.4 million which includes $10.8 million of capital outlay for the Water Enterprise Fund. The General Fund fiscal year 2014 -2015 estimated revenues are $50.6 million and budgeted appropriations are $51.4 million resulting in an estimated operating deficit of $0.8 million. The appropriations are $3.4 million more than prior year's appropriation and include an increase of $1.2 million for additional spending on street maintenance to meet the City's Maintenance of Effort to qualify for the receipt of Measure M2 funds for street maintenance and rehabilitation; transfer of the Economic Development Division from the Successor Agency to the General Fund resulting in an annual cost of $0.7 million; an increase in the contract with the Orange County Fire Authority of $0.4 million; a $1 million transfer from the General Fund to an Emergency Fund requested by the City Council; and filling vacant positions within the Police Department. The City Council approved the use of $0.8 million of General Fund undesignated fund balance to balance the fiscal year 2014 -2015 budget. The tax rates include an increase in the hotel bed tax. In the November 2014 elections, voters approved the increase of the hotel bed tax from 6% to 10% effective January 1, 2015. There were no fee increases as part of the preparation and adoption of the fiscal year 2014 -15 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. -16- ASSETS: Cash and investments Receivables: Accounts Interest Loans Allowance for uncollectibles Internal balances Prepaid expenses and deposits Land held for resale Restricted assets: Cash and investments Capital assets: Not being depreciated Being depreciated, net TOTAL AS SET S DEFERRED OUTFLOWS OF RESOURCES: Deferred charge on refunding LIABILITIES: Accounts payable and accrued liabilities Due to Successor Agency to the Tustin Community Redevelopment Agency Interest payable Deposits payable Noncurrent liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET POSITION: Net investment in capital assets Restricted for: Community services Public safety Public works Unrestricted TOTAL NET POSITION CITY OF TUSTIN STATEMENT OF NET POSITION June 30, 2014 Governmental Business -type Activities Activity Total $ 92,448,407 $ 11,396,664 $ 103,845,071 11,554,728 3,328,718 14,883,446 114,954 15,995 130,949 1,055,263 - 1,055,263 (705,263) (705,263) 454,398 (454,398) - 240,053 1,415 241,468 129,164,828 - 129,164,828 11,637,694 20,662,549 32,300,243 157,560,595 3,641,220 161,201,815 304,112,728 42,280,925 346,393,653 707,638,385 80,873,088 788,511,473 - 473,029 473,029 29,410,659 2,450,425 31,861,084 21,404,683 - 21,404,683 - 493,455 493,455 5,130,946 386,706 5,517,652 7,507,373 936,882 8,444,255 6,576,385 42,676,319 49,252,704 70,030,046 46,943,787 116,973,833 461,673,323 23,657,878 485,331,201 2,364,429 - 2,364,429 442,474 442,474 33,886,555 - 33,886,555 139,241,558 10,744,452 149,986,010 $ 637,608,339 $ 34,402,330 $ 672,010,669 See independent auditors' report and notes to basic financial statements. -17- CITY OF TUSTIN STATEMENT OF ACTIVITIES For the year ended June 30, 2014 Functions /programs Expenses Governmental activities: General government $ 14,825,780 Public safety 28,440,799 Public works 49,538,371 Community services 3,498,460 Total governmental activities Business -type activity: Water Total Program Revenues Charges Operating Capital for Grants and Grants and Services Contributions Contributions $ 249,237 $ 36,615 $ - 920,112 343,193 - 1,710,813 2,435,700 12,181,882 967,134 509,796 40,224 96,303,410 3,847,296 3,325,304 12,222,106 16,100,137 18,682,821 $ 112,403,547 $ 22,530,117 $ 3,325,304 $ 12,222,106 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: Forgiveness of interest on advances Change in net position NET POSITION AT BEGINNING OF YEAR NET POSITION AT END OF YEAR See independent auditors' report and notes to basic financial statements. -18- Net (Expense) Revenue and Chances in Net Position Governmental Business -type Activities Activity Total $ (14,539,928) $ - $ (14,539,928) (27,177,494) - (27,177,494) (33,209,976) - (33,209,976) (1,981,306) - (1,981,306) (76,908,704) - (76,908,704) - 2,582,684 2,582,684 (76,908,704) 2,582,684 (74,326,020) 13,661,771 - 13,661,771 1,663,215 - 1,663,215 616,897 - 616,897 393,241 - 393,241 22,288,032 - 22,288,032 6,150,893 - 6,150,893 628,180 144,381 772,561 4,040,996 408,749 4,449,745 49,443,225 553,130 49,996,355 1,412,257 - 1,412,257 (26,053,222) 3,135,814 (22,917,408) 663,661,561 31,266,516 694,928,077 $ 637,608,339 $ 34,402,330 $ 672,010,669 -19- CITY OF TUSTIN BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2014 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES: 129,049,954 Other Total Accounts payable and accrued liabilities $ 26,591,863 Governmental Governmental Due to other funds General Funds Funds ASSETS 149,184,089 35,314,389 184,498,478 Cash and investments $ 66,839,982 $ 25,608,425 $ 92,448,407 Restricted cash and investments 1,697,804 9,939,890 11,637,694 Receivables: 52,304,863 3,656,661 55,961,524 Accounts 3,869,406 7,685,322 11,554,728 Interest 37,792 77,162 114,954 Loans - 1,055,263 1,055,263 Allowance for uncollectibles - (705,263) (705,263) Due from other funds 15,236 - 15,236 Advance to other funds - 454,398 454,398 Prepaid expenses and deposits 240,053 - 240,053 Land held for resale 128,809,901 354,927 129,164,828 TOTAL ASSETS $ 201,510,174 $ 44,470,124 $ 245,980,298 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES: 129,049,954 - 129,049,954 Restricted Accounts payable and accrued liabilities $ 26,591,863 $ 2,818,796 $ 29,410,659 Due to other funds - 15,236 15,236 Due to Successor Agency to the 149,184,089 35,314,389 184,498,478 Tustin Community Redevelopment Agency 21,404,683 - 21,404,683 Deposits payable 4,308,317 822,629 5,130,946 TOTAL LIABILITIES 52,304,863 3,656,661 55,961,524 DEFERRED INFLOWS OF RESOURCES: Unavailable revenue 21,222 5,499,074 5,520,296 FUND BALANCES Nonspendable 129,049,954 - 129,049,954 Restricted 1,352,309 29,820,853 31,173,162 Assigned - 5,493,536 5,493,536 Unassigned 18,781,826 - 18,781,826 TOTAL FUND BALANCES 149,184,089 35,314,389 184,498,478 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 201,510,174 $ 44,470,124 $ 245,980,298 See independent auditors' report and notes to basic financial statements. -20- CITY OF TUSTIN RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2014 Fund balances - total governmental funds $ 184,498,478 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets net of depreciation have not been included as financial resources in governmental funds. 461,673,323 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. All liabilities both current and long -term, are reported in the Statement of Net Position. Balances at June 30, 2014 are: Claims and judgments payable $ (4,278,500) Compensated absences payable (2,853,830) Post employment benefits obligation (4,970,150) Termination benefits payable (1,981,278) Total long -term liabilities (14,083,758) Other long -term assets are not available to pay for current period expenditures and, therefore, are reported as unavailable revenue in the governmental funds balance sheet. 5,520,296 Net position of governmental activities $ 637,608,339 See independent auditors' report and notes to basic financial statements. -21- CITY OF TUSTIN STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the year ended June 30, 2014 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 TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) EXTRAORDINARY GAIN NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING OF YEAR FUND BALANCES - END OF YEAR 13,120,551 Other Total 28,072,138 Governmental Governmental General Funds Funds $ 45,096,520 $ - $ 45,096,520 1,284,232 - 1,284,232 631,340 - 631,340 459,703 162,083 621,786 967,020 6,486,702 7,453,722 1,672,913 114,355 1,787,268 601,727 17GG G'7A 149,997 I IAG 1G1 751,724 C 110 71r 13,120,551 1,084,873 14,205,424 28,072,138 98,176 28,170,314 5,797,705 - 5,797,705 2,841,129 240,170 3,081,299 49,719,496 24,702,940 74,422,436 99,551,019 26,126,159 125,677,178 See independent auditors' report and notes to basic financial statements. -22- (46,071,990) (15,867,861) (61,939,851) 1,478,158 606,454 2,084,612 (606,454) (1,478,158) (2,084,612) 871,704 (871,704) - l A111G'7 - 1,412,257 (43,788,029) (16,739,565) (60,527,594) 192,972,118 52,053,954 245,026,072 $ 149,184,089 $ 35,314,389 $ 184,498,478 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, 2014 Net change in fund balances - total governmental funds 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 and contributions exceeded depreciation and disposition of capital assets in the current period: Capital expenditures $ 40,184,890 Capital contributions 138,836 Disposition of capital assets (542,682) Depreciation expenses (9,869,009) 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 position. This amount is the net effect of these differences in the treatment of long -term liabilities: Postemployment benefits obligation Claims and judgments payable Compensated absences payable Some revenues reported in the Statement of Activities are not considered to be available to finance current expenditures and therefore are not reported as unavailable revenues in the governmental funds: Net change in unavailable revenue Change in net position of governmental activities See independent auditors' report and notes to basic financial statements. -23 - $ (692,326) 182,582 53,372 $ (60,527,594) 29,912,035 (456,372) 5,018,709 $ (26,053,222) CITY OF TUSTIN STATEMENT OF NET POSITION PROPRIETARY FUND June 30, 2014 ASSETS: CURRENT ASSETS: Cash and investments Accounts receivable Interest receivable Prepaid expenses Restricted cash and investments TOTAL CURRENT ASSETS NONCURRENT ASSETS: Capital assets: Not being depreciated Being depreciated, net TOTAL NONCURRENT ASSETS TOTAL ASSETS DEFERRED OUTFLOWS OF RESOURCES: Deferred charge on refunding LIABILITIES: CURRENT LIABILITIES: Accounts payable and accrued liabilities Advance from other fund Deposits payable Compensated absences payable Termination benefits payable Interest payable Bonds payable TOTAL CURRENT LIABILITIES LONG -TERM LIABILITIES: Compensated absences payable Termination benefits payable Bonds payable TOTAL LONG -TERM LIABILITIES TOTAL LIABILITIES NET POSITION: Net investment in capital assets Unrestricted TOTAL NET POSITION Business -type Activity Water Enterprise Fund $ 11,396,664 3,328,718 15,995 1,415 20,662,549 35,405,341 3,641,220 42,280,925 45,922,145 81,327,486 473,029 2,450,425 454,398 386,706 152,095 14,787 493,455 770,000 4,721,866 16,899 29,575 42,629,845 42,676,319 47,398,185 23,657,878 10,744,452 $ 34,402,330 See independent auditors' report and notes to basic financial statements. -24- CITY OF TUSTIN STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUND For the year ended June 30, 2014 OPERATING REVENUES: Charges for services OPERATING EXPENSES: Personnel services Purchased water Maintenance and operation Depreciation and amortization TOTAL OPERATING EXPENSES OPERATING INCOME NONOPERATING REVENUES (EXPENSES): Investment income Other income Interest expense and other fiscal charges TOTAL NONOPERATING REVENUES (EXPENSES) CHANGE IN NET POSITION NET POSITION AT BEGINNING OF YEAR NET POSITION AT END OF YEAR See independent auditors' report and notes to basic financial statements. -25- Business -type Activity Water Enterprise Fund $ 18,955,616 2,408,163 7,632,436 3,157,999 1,524,084 14,722,682 4,232,934 144,381 135,954 (1,377,455) (1,097,120) 3,135,814 31,266,516 $ 34,402,330 CITY OF TUSTIN STATEMENT OF CASH FLOWS PROPRIETARY FUND For the year ended June 30, 2014 NET CASH PROVIDED BY OPERATING ACTIVITIES 4,826,049 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: 118,320 Receipts from customers $ 18,752,447 Payments to suppliers (10,333,349) Cash paid to other funds for services (1,200,000) Payments to employees (2,393,049) NET CASH PROVIDED BY OPERATING ACTIVITIES 4,826,049 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (1,420,208) Cash paid to other funds for capital assets (439,032) Proceeds from issuance of debt 14,045,000 Premium from issuance of debt 118,320 Principal paid on bonds (710,000) Interest paid (1,502,292) NET CASH PROVIDED BY CAPITAL AND RELATED FINANCING ACTIVITIES 10,091,788 CASH FLOWS FROM INVESTING ACTIVITIES: Investment income 134,981 NET INCREASE IN CASH AND CASH EQUIVALENTS 15,052,818 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,006,395 CASH AND CASH EQUIVALENTS - END OF YEAR $ 32,059,213 CASH AND CASH EQUIVALENTS: Cash and investments - current assets $ 11,396,664 Cash and investments - restricted assets 20,662,549 TOTAL CASH AND CASH EQUIVALENTS $ 32,059,213 See independent auditors' report and notes to basic financial statements. (Continued) -26- CITY OF TUSTIN STATEMENT OF CASH FLOWS PROPRIETARY FUND (CONTINUED) For the year ended June 30, 2014 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 expenses 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. -27- Business -type Activity Water Enterprise Fund $ 4,232,934 1,524,084 135,954 (379,388) (1,190) (730,678) 40,265 4,068 $ 4,826,049 CITY OF TUSTIN STATEMENT OF FIDUCIARY NET POSITION June 30, 2014 ASSETS: Cash and investments Restricted cash and investments Receivables: Taxes Interest Due from City of Tustin Prepaid items and deposits Land held for resale Capital assets, net TOTAL ASSETS LIABILITIES: Accounts payable Interest payable Deposits payable Residual payable to County Auditor - Controller Due to bondholders Long -term liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET POSITION: Held in trust See independent auditors' report and notes to basic financial statements. -28- Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Agency Trust Fund Funds $ 5,506,431 $ 11,766 38,454,693 12,057,095 19,660 21,404,683 3,790 1,345,000 229,200 66,963,457 77,011 1,031,132 2,000 21,404,683 3,060,000 65,475,107 91,049,933 $ (24,086,476) 83,464 $ 12,152,325 142 12,152,183 $ 12,152,325 CITY OF TUSTIN STATEMENT OF CHANGES IN FIDUCIARY NET POSITION For the year ended June 30, 2014 ADDITIONS: Tax revenue Rental income Investment income Other revenue TOTAL ADDITIONS DEDUCTIONS: Community services Interest Capital contributions to the City of Tustin Depreciation and amortization TOTAL DEDUCTIONS EXTRAORDINARY LOSS CHANGE IN NET POSITION NET POSITION - BEGINNING OF YEAR NET POSITION - END OF YEAR Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Trust Fund $ 5,408,687 15,000 199,142 95,355 5,718,184 417,017 3,297,594 138,836 33,424 3,886,871 (939,658) 891,655 (24,978,131) $ (24,086,476) See independent auditors' report and notes to basic financial statements. -29- The page left blank intentionally -30- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2014 1. SUMMARY OF 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 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. 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. 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 Directors which consists of members of the City Council. The Housing Authority'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. See independent auditors' report. -31- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): b. Government -wide and Fund Financial Statements: The government -wide financial statements (i.e., the statement of net position and the statement of changes in net position) 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. Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities, payables and receivables. All internal balances in the statement of net position have been eliminated except those representing balances between the governmental activities and the business -type activity, which are presented as internal balances and eliminated in the total primary government column. In the statement of activities, inter -fund services have been eliminated; however, those transactions between governmental and business -type activity have not been eliminated. 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, deferred outflows of resources, liabilities, deferred inflows of resources, 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. See independent auditors' report. -32- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): b. Government -wide and Fund Financial Statements (Continued): 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, deferred outflows of resources, liabilities, and deferred inflows of resources (whether current or noncurrent) associated with their activity are included on their statements of net position. Operating statements present increases (revenues) and decreases (expenses) in total net position. 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. 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. See independent auditors' report. -33 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): c. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued): 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. 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 utilize 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. See independent auditors' report. -34- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): c. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued): Fund Classifications The funds designated as major funds are determined by a mathematical calculation. The City reports the following major governmental fund: 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 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. Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. 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. See independent auditors' report. -35- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): d. New Accounting Pronouncements: Current Year Standards GASB 66 - "Technical Corrections, an amendment of GASB Statement No. 10 and Statement No. 62 ", required to be implemented in the current fiscal year did not impact the City. GASB 70 - "Accounting and Financial Reporting for Nonexchange Financial Guarantees required to be implemented in the current fiscal year did not impact the City. Pending Accounting Standards GASB has issued the following statements which may impact the City's financial reporting requirements in the future: GASB 68 - "Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No. 27 ", effective for the fiscal years beginning after June 15, 2014. GASB 69 - "Government Combinations and Disposals of Government Operations", effective for periods beginning after December 15, 2013. GASB 71 - "Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68 ", effective for periods beginning after June 30, 2014. e. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position 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. -36- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position 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 $10,000 are capitalized if they have an expected useful life of five years or more. Infrastructure assets with a cost exceeding $150,000 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 position. The lives used for depreciation purposes of each capital asset class are: Buildings 5 - 40 years Improvements other than buildings 5 - 40 years Property and plant 5 - 40 years Machinery and equipment 4 - 10 years Infrastructure 25 - 75 years Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense /expenditure) until then. The City has one item that qualifies for reporting in this category. It is the deferred charge on refunding, net of accumulated amortization, reported in the government -wide statement of net position and the proprietary fund financial statements. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. See independent auditors' report. -37- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued): Deferred Outflows /Inflows of Resources (Continued) In addition to liabilities, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The City has only one type of item, which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable revenues, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from two sources: grants and loans receivable. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. 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. The City of Tustin accrues as revenues only those taxes which are received within 60 days after year end in the fund financial statements. Property Tax Calendar Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien date Levy period Levy date See independent auditors' report. January 1" July I" to June 30th On or before 4th Monday in September CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued): Property Tax Calendar (Continued) Due date Collection date December 10th - 1St installment November 1St - 1St installment February 1St - 2 n installment April 10`h -2 d 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. Any additional accrued vacation and compensatory time relating to governmental funds and amounts relating to the proprietary fund type are included as long -term liabilities within the statement of net position. f. Use of Estimates: The preparation of financial statements in accordance 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 position date, and reported amounts of revenues and expenses during the reporting period. Estimates are used to determine depreciation expense, the allowance for doubtful accounts and certain liabilities. Actual results may differ from those estimates. g. Subsequent Events: In preparing these financial statements, the City has evaluated events and transactions for potential recognition or disclosure through December 15, 2014, the date the financial statements were available to be issued. See independent auditors' report. -39- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 2. CASH AND INVESTMENTS: Cash and Investments Cash and investments as of June 30, 2014 are classified in the accompanying financial statements as follows: Statement of Net Position: Cash and investments $ 103,845,071 Restricted cash and investments 32,300,243 Fiduciary Funds: Cash and investments 5,518,197 Restricted cash and investments 50,511,788 Total Cash and Investments 192.175.299 Cash and investments as of June 30, 2014 consist of the following: Cash on hand $ 9,100 Deposits with financial institutions 8,728,335 Investments 183,437,864 Total Cash and Investments 192.175.299 See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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. Maximum Maximum Investment Types Percentage Investment Authorized by the Ci . 's Policy Maturity of Portfolio in One Issuer Negotiable certificates of deposit None 30% None Prime quality commercial paper 270 days * 25% None Government sponsored pools (LAIF, mutual funds) N/A None None Commercial bank time drafts (Bankers acceptances) 180 days 25% 30% Medium -term notes 5 years 10% None Municipal and state securities None 15% 5% Federal agency bonds or notes 5 years 75% None U.S. Treasury securities 5 years None None Money market funds N/A None None Repurchase agreements 1 year None None N/A - Not Applicable * Average weighted maturity shall not exceed ninety (90) days if commercial paper exceeds fifteen (15) percent of total portfolio assets. See independent auditors' report. -41- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 2. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustees 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. Authorized Investment Tti U.S. Treasury Obligations U.S. Government Sponsored Agency Securities Banker's Acceptances Commercial Paper Money Market Mutual Funds Investment Contracts Certificates of Deposit Corporate Notes Repurchase Agreements N/A - Not Applicable Disclosures Relating to Interest Rate Risk Maximum Maturity None Maximum Maximum Percentage Investment of Portfolio in One Issuer None None None None None 270 days None None 180 days None None N/A None None 30 years 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. -42- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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 trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity: Remaining Maturity 12 Months 13-24 25-60 Over 60 Investment Type or Less Months Months Months Total United States Treasury Obligations $ 15,014,260 $ 3,000,234 $ 12,936,641 $ - $ 30,951,135 United States Government Sponsored Agency Securities: Federal National Mortgage Association (FNMA) - 4,997,655 10,201,890 - 15,199,545 Federal Home Loan Bank (FHLB) - - 8,488,634 - 8,488,634 Federal Home Loan Mortgage Corporation (FHLMC) - 7,112,520 21,963,392 - 29,075,912 Federal Farm Credit Bank (FFCB) - - 7,020,277 - 7,020,277 Local Agency Investment Pool (LAIF): City 26,718,504 - - - 26,718,504 Successor Agency 3,029,480 - - - 3,029,480 Orange County Investment Pool 10,384,814 - - - 10,384,814 Money Market Mutual Funds 65,000 - - - 65,000 Negotiable Certificates of Deposit 2,479,314 743,116 1,986,520 - 5,208,950 Commercial Paper 1,996,733 - - - 1,996,733 Medium -term Notes 5,008,540 - 9,118,208 14,126,748 Municipal Bonds 1,002,250 - - - 1,002,250 Held by Fiscal Agents: Money Market Mutual Funds 30,169,882 - - - 30,169,882 95.868.777 15.853.525 71.715.562 - $183,437,864 See independent auditors' report. -43- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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 The actual ratings for the "Other" category above are as follows: Commercial Paper: Medium -term Notes: Municipal Bonds: A -1 1.996.733 A $ 2,009,666 Al 1.002.250 A2 5,008,540 Aa3e 1,001,544 8.019.750 See independent auditors' report. Total Minimum Exempt as of Legal from Not Investment Tyne June 30, 2014 Ratine Disclosure AAA AA+ AA Other Rated U.S. Treasury Obligations $ 30,951,135 N/A $30,951,135 $ $ - $ $ $ U.S. Government Sponsored Agency Securities: FNMA 15,199,545 N/A - 15,199,545 FHLB 8,488,634 N/A 8,488,634 FHLMC 29,075,912 N/A 29,075,912 FFCB 7,020,277 N/A 7,020,277 - Local Agency Investment Pool: City 26,718,504 N/A - 26,718,504 Successor Agency 3,029,480 N/A 3,029,480 Orange County Investment Pool 10,384,814 N/A 10,384,814 Money Market Mutual Funds 65,000 AA 65,000 - Negotiable Certificates of Deposit 5,208,950 N/A - 5,208,950 Commercial Paper 1,996,733 A -1 1,996,733 - Medium -term Notes 14,126,748 A 6,106,998 8,019,750 Municipal Bonds 1,002,250 A - - 1,002,250 Held by Fiscal Agents: Money Market Mutual Funds 30.169.882 A 30.169.882 Total $ 183,437,864 &!Q,951135 &K-234 882 $59,784,368 $ 6,106,998 $11,018,733 $45,341,748 N/A - Not Applicable The actual ratings for the "Other" category above are as follows: Commercial Paper: Medium -term Notes: Municipal Bonds: A -1 1.996.733 A $ 2,009,666 Al 1.002.250 A2 5,008,540 Aa3e 1,001,544 8.019.750 See independent auditors' report. 2 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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, money market mutual funds, and external investment pools) that represent 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, an investor 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, an investor 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, 2014, 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, 2014, 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. Treasury Obligations U.S. Government Sponsored Agency Securities Medium -term Notes Municipal Bonds Negotiable Certificates of Deposit Commercial Paper See independent auditors' report. -45- Carrying Value $ 30,951,135 59,784,368 14,126,748 1,002,250 5,208,950 1,996,733 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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 (OCIP) 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 OCIP 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 $10,384,814. Information on OCIP's use of derivative securities in its investment portfolio and OCIP'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, 2014 was $350,000. 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, 2014, was $50,026. An allowance of $50,026 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, 2014, was $655,237. An allowance of $655,237 has been recorded to reflect the amount of loans not expected to be collectible. See independent auditors' report. WM CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 4. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS: Due To and Due From The composition of interfund receivables and payables as of June 30, 2014 is as follows: Receivable Fund Payable Fund Amount General Fund Other Governmental Funds $ 15,236 The amounts loaned from the General Fund are to provide short term loans to fund operations. Advances To and Advances From The composition of interfund advances as of June 30, 2014 is as follows: Receivable Fund Payable Fund Amount Other Governmental Funds Water Enterprise Fund $ 454,398 On April 6, 2010, the City entered into a promissory note with the Tustin Water Enterprise Fund in the amount of $2,123,437 to provide the cash necessary to meet a 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 remaining amount receivable from the Water Enterprise Fund as of June 30, 2014 payable to the Other Capital Projects Fund (Other Governmental Fund) is $454,398. See independent auditors' report. -47- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 4. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS (CONTINUED): Interfund Transfers The composition of interfund transfers for the year ended June 30, 2014 is as follows: Transfers In Transfers Out Amount General Fund Other Governmental Funds $ 1,478,158 Other Governmental Funds General Fund 606.454 2.084.612 The transfers during the fiscal year ended June 30, 2014 were for the following purposes: A transfer from other governmental funds totaling $269,845 was made to reimburse the General Fund per the adopted budget for fiscal year 2013 -14. A transfer from other governmental funds totaling $1,208,313 to the General Fund to repay taxes for amounts transferred to cover negative cash in prior years. The General Fund transferred $537,480 to other governmental funds to eliminate negative cash until reimbursement is received from the fiscal agent. The General Fund transferred $21,348 to other governmental funds to correct Air Quality revenue coded to sales tax in the prior year. The General Fund transferred $47,626 to other governmental funds to transfer interest earnings on deposit accounts to the Other Capital Projects Fund. 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. See independent auditors' report. .• CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 5. LAND TRANSFER FROM THE UNITED STATES GOVERNMENT (CONTINUED): 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 parcels were recorded at their estimated fair values at the dates 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 recorded value of the remaining parcels that were conveyed to the City is $97,890,526 as of June 30, 2014 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. On May 21, 2013, the City Council approved a General Plan Amendment, MCAS Tustin Specific Plan Amendment, Development Agreement, and Agreement for Exchange of Real Property with the SOCCCD. The Exchange Agreement delineates the terms and processes associated with the exchange of the ultimate ownership of approximately 89 acres of land within Planning Area 1 of Tustin Legacy. The City of Irvine has identified concerns about that project's traffic impacts in Irvine, and about the traffic analysis of projects in the MCAS Tustin Specific Plan area generally. In July 2013, the City entered into a settlement agreement with the City of Irvine which allowed the City to proceed with the Exchange Agreement. The transfer of the parcels occurred subsequent to year end in August 2014. See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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 City has negotiated with the State Department of Finance (DOF) to allow for the Local Agency Investment Fund (LAIF) interest rate as the effective interest and to pay the debt off over four to five years. The DOF agreed to allow the LAIF interest rate at the time the City entered into the promissory note with the former Redevelopment Agency which was 2.54% and has agreed to installment payments of five years with the first payment due within thirty days of the City accepting DOF's offer. The City is currently reviewing DOF's offer. With the effective flat interest rate of 2.54% compounded annually the total amount payable to the Successor Agency to the Tustin Community Redevelopment Agency as of June 30, 2014 was $21,404,683. During the year ended June 30, 2014, $1,412,257 of interest was forgiven and is reported as an extraordinary item on the statement of activities. See independent auditors' report. -50- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 7. CAPITAL ASSETS: A summary of changes in the Governmental Activities capital assets for the year ended June 30, 2014 is as follows: Capital assets, not being depreciated: Land Right of way Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements other than buildings Machinery and equipment Infrastructure Total capital assets, being depreciated Less accumulated depreciation for: Buildings Improvements other than buildings Machinery and equipment Infrastructure Total accumulated depreciation Total capital assets, being depreciated, net Total Governmental activities capital assets, net See independent auditors' report. Balance at Balance at July 1, 2013 Additions Deletions June 30, 2014 $ 44,140,596 $ - 44,266,501 - 80,687,719 39,979,205 $ - $ 44,140,596 44,266,501 (51,513,426) 69,153,498 169.094.816 39.979.205 (51.513.426) 157.560.595 66,004,966 5,361,699 15,575,989 8,040,821 14,342,169 1,428,709 285,375,112 37,026,718 381,298,236 51,857,947 - 71,366,665 - 23,616,810 (368,746) 15,402,132 (762,380) 321,639,450 (1,131,126) 432,025,057 (12,651,425) (1,374,338) - (14,025,763) (4,279,067) (701,369) - (4,980,436) (11,648,360) (717,912) 368,747 (11,997,525) (90,052,912) (7,075,390) 219,697 (96,908,605) (118,631,764) (9,869,009) 588,444 (127,912,329) 262,666,472 41,988,938 (542,682) 304,112,728 431.761.288 81.968.143 (52.056.108) 461.673.323 -51- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 7. CAPITAL ASSETS (CONTINUED): Depreciation expense was charged to functions /programs of the governmental activities as follows: General government $ 155,582 Public safety 289,017 Public works 8,944,707 Community services 479,703 9.869.009 A summary of changes in the Business -type Activities capital assets for the year ended June 30, 2014 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 Balance at Balance at July 1, 2013 Additions Deletions June 30, 2014 $ 1,177,216 $ - $ - $ 1,177,216 15,614,513 1,610,085 (14,760,594) 2,464,004 16,791,729 1,610,085 (14,760,594) 3,641,220 9,568,372 - - 9,568,372 42,839,888 14.760.594 (192,525) 57,407,957 52.408,260 14,760,594 (192,525) 66,976,329 (4,487,888) (268,744) - (4,756,632) (18,930,018) (1,201,279) 192,525 (19,938,772) (23,417,906) (1,470,023) 192,525 (24,695,404) 28,990,354 13, 290, 5 71 42,280,925 45.782.083 14.900.656 (14.760.594) 45.922.145 During the fiscal year ended June 30, 2014, the City capitalized interest of $189,878. See independent auditors' report. -52- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 8. LONG -TERM LIABILITIES: A summary of long -term liability activity for the year ended June 30, 2014 is as follows: See independent auditors' report. -53 - Balance at Balance at Due Within July 1, 2013 Additions Deletions June 30, 2014 One Year Governmental activities: Claims and judgments (Note 12) $ 4,461,082 $ 2,796,114 $ (2,978,696) $ 4,278,500 $ 4,278,500 Postemployment benefits obligation (Note 10) 4,277,824 1,107,635 (415,309) 4,970,150 - Termination benefits 1,981,278 - - 1,981,278 660,426 Compensated absences 2,907,202 2,234,030 (2,287,402) 2,853,830 2,568,447 Total governmental activities long -term liabilities $ 13,627,386 L-6 ,137,779 $ X681,407) $ 14,083,758 &7 ,507,373 Business -type activities: 2011 Water Revenue bonds $ 20,760,000 $ - $ - $ 20,760,000 $ - Bond premium 284,310 - (10,199) 274,111 - 2012 Refunding Water Revenue bonds 8,200,000 - (710,000) 7,490,000 725,000 Bond premium 797,129 - (81,757) 715,372 - 2013 Water Revenue bonds - 14,045,000 - 14,045,000 45,000 Bond premium - 118,320 (2,958) 115,362 - Termination benefits 44,362 - - 44,362 14,787 Compensated absences 164,926 160,639 (156,571) 168,994 152,095 Total business -type activities long -term liabilities $ 30250.727 L_11.323 959 $ (961.485) $ 43.613 201 $ 936.882 See independent auditors' report. -53 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 8. LONG -TERM LIABILITIES (CONTINUED): Termination Benefits Payable In June 2012, the City Council approved the offering of an early retirement incentive program administered by Public Agency Retirement Services (PARS) to directly reduce General Fund expenditures while also making is easier to restructure staffing levels and operations in a more economical and efficient manner. The City offered early retirement incentives to all regular employees meeting the following criteria: a) Employed by the City in a full -time or part -time benefited position as of June 5, 2012; and b) 50 years of age with 5 years of City service and 5 years of Ca1PERS service as of October 31, 2012; and c) Resign from City employment effective no later than October 31, 2012; and d) Retire under Ca1PERS effective no later than November 1, 2012. The incentive provided a benefit of 7% of the employee's base salary. Employees chose one of 14 options on how they would receive the benefit. 35 City employees accepted the City's offer. The City purchased an annuity through Pacific Life Insurance Company to fund the plan with 5 annual payments of $675,213. As of June 30, 2014, the outstanding liability due to fund the plan is $2,025,640, ($1,981,278 reported in the governmental activities and $44,362 in the business -type activities) with annual payment dates of October 10, 2014 through 2016. Business -type Activities 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 1 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 the 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, 2014, total interest and principal remaining on the bonds is $41,473,313. During the fiscal year, the total interest expense incurred was $1,047,625 and net revenues were $5,757,018. See independent auditors' report. -54- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 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, 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040-2041 Add: Premium Totals Principal 735,000 4,255,000 5,470,000 6,995,000 3,305,000 20,760,000 274,111 Interest $ 1,047,625 1,047,625 1,047,625 1,047,625 1,047,625 5,238,125 4,647,150 3,430,413 1,909,750 249,750 20,713,313 Total $ 1,047,625 1,047,625 1,047,625 1,047,625 1,047,625 5,973,125 8,902,150 8,900,413 8,904,750 3,554,750 41,473,313 274,111 21.034.111 20.713.313 $ 41.747.424 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 deferred outflow of resources, is being charged to interest expense through 2023. The remaining balance at June 30, 2014 is $473,029. See independent auditors' report. -55- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 8. LONG -TERM LIABILITIES (CONTINUED): Business -type Activities (Continued) 2012 Refunding Water Revenue Bonds (Continued) 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, 2014, total interest and principal remaining on the bonds is $8,966,125. During the fiscal year, the total interest expense incurred was $286,375, principal payments were $710,000, and net revenues were $5,757,018. The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2015 2016 2017 2018 2019 2020-2023 Add: premium Totals See independent auditors' report. Principal $ 725,000 745,000 770,000 795,000 830,000 3,625,000 7,490,000 715,372 Interest $ 272,175 250,425 228,075 197,275 165,475 362,700 1,476,125 Total $ 997,175 995,425 998,075 992,275 995,475 3,987,700 8,966,125 715,372 8,205,372 1.476.125 9.681.497 -56- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 8. LONG -TERM LIABILITIES (CONTINUED): Business -type Activities (Continued) 2013 Water Revenue Bonds On April 1, 2014, the City issued $14,045,000, 2013 Water Revenue Bonds. The Bonds were issued to finance certain water system improvements. The Bonds are payable in annual installments ranging from $45,000 to $2,615,000 until maturity on April 1, 2043. Interest is payable semiannually on April I and October 1, with rates ranging from 2.0% to 5.00% 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, 2014, total interest and principal remaining on the bonds is $29,081,370. During the fiscal year, the total interest expense incurred was $288,859 and net revenues were $5,757,018. The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040-2041 Add: premium Totals See independent auditors' report. Principal $ 45,000 45,000 45,000 50,000 50,000 535,000 1,820,000 2,235,000 2,790,000 6,430,000 14,045,000 115.362 Interest $ 654,020 653,120 652,220 651,320 650,320 3,217,100 2,983,845 2,575,906 2,012,775 985,744 15,036,370 Total $ 699,020 698,120 697,220 701,320 700,320 3,752,100 4,803,845 4,810,906 4,802,775 7,415,744 29,081,370 115.362 14.160.362 15.036.370 29.196.732 -57- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 9. PENSION PLAN: Plan Description The City contributes to the California Public Employees' Retirement System (Ca1PERS), 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. Ca1PERS provides retirement and disability benefits, annual cost -of- living adjustments, and death benefits to plan members and beneficiaries. Ca1PERS 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 Ca1PERS' annual financial report may be obtained from its website: www.calpers.ca.gov. Funding Policy Participants are required to contribute a percentage of their annual covered salary. The City is required to contribute the remaining amount necessary to fund the benefits for its members, using the actuarial methods recommended by the Ca1PERS actuaries and actuarial consultants and adopted by the Board of Administration. The following chart summarizes the employee and employer required contributions as of June 30, 2014: Plan / Group Hire date into a Ca1PERS- Employee Employer covered position with City of Contribution Rate Tustin Safety (All Hired into the City of Tustin's 9% 34.671% Employee Safety plan on or before Groups) 12.31.11 (3% @ 50) Hired into the City of Tustin's 9% 19.90% Safety plan from 01.01.12 — 12.31.12, or on/after 01.01.13 if defined as a "classic member" under the PEPRA 2% @ 50 Hired on/after 01.01.13 if 11.5% 11.5% defined as a "new member" under the PEPRA 2.7% @ 57 See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 9. PENSION PLAN (CONTINUED): Funding Policy (Continued) Miscellaneous (All Employee Groups) Hired into the City of Tustin's Miscellaneous plan on or before 12.31.11 2% @ 55 7% 10.962% Hired into the City of Tustin's 7% 10.962% 69,152,607 Miscellaneous plan from 01 .01.12 — 12.31.12, or on/after 01.01.13 if defined as a "classic member" under the PEPRA 2% @ 60 Hired on/after 01.01.13 if 6.25% 10.962% defined as a "new member" under the PEPRA 2% @ 62 The funded status of the miscellaneous plan based on the June 30, 2013 actuarial valuation is as follows: Actuarial Actuarial Accrued Value of Liability Assets $85,633,544 $ 69,152,607 Unfunded Liability (Excess Assets) $ 16,480,937 Funded Ratio 80.75 % Annual Covered Payroll $ 11,720,064 Unfunded Liability % of Covered Pavroll 140.62 % 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. Annual Pension Cost For 2014, the City's annual pension cost of $2,267,691 for the Miscellaneous Plan and $3,829,463 for the Safety Plan (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, 2014 was determined as part of the June 30, 2013 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions for the Miscellaneous Plan included (a) 7.50% investment rate of return (net of administrative expenses), (b) projected annual salary increases of 3.30% to 14.20% depending on age, service and type of employment, and (c) 3.00% per year cost -of- living adjustments. Both (a) and (b) included an inflation component of 2.75 %. See independent auditors' report. -59- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 9. PENSION PLAN (CONTINUED): Annual Pension Cost (Continued) The actuarial value of Ca1PERS assets was determined using techniques that smooth the effects of short -term volatility in the market value of investments over a five -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 Plan. Fiscal Year 6/30/12 6/30/13 6/30/14 Fiscal Year 6/30/12 6/30/13 6/30/14 Three -Year Trend Information for PERS - Miscellaneous Plan Annual Pension Cost (APC $ 2,349,007 2,155,633 2,267,691 Percentage APC Contributed 100% 100% 100% Three -Year Trend Information for PERS - Safety Plan Annual Pension Cost (APC) $ 3,785,849 3,766,627 3,829,463 Percentage APC Contributed 100% 100% 100% 10. POST - EMPLOYMENT HEALTH CARE BENEFITS: Plan Description Net Pension Obligation Net Pension Obligation 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 defined 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. See independent auditors' report. •1 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 10. POST - EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): 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, 2014: Police Police General Management Confidential Support Total Retirees Receiving Benefits 35 34 29 1 6 105 Eligible Active Employees 91 83 39 7 44 264 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 contributions are made on a pay -as- you -go basis. 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, 2014, the City paid $415,309 in contributions for postemployment health care benefits. Current active employees are not required to contribute any portion towards these benefits. Annual OPEB Cost and Net OPEB 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. See independent auditors' report. -61- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 10. POST - EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): Funding Policy (Continued) The City's ARC for the year ended June 30, 2014 was $1,290,080. 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: Increase in net OPEB obligation Net OPEB obligation, beginning Net OPEB obligation, ending 235,317 252,411 61,887 9,929 132,782 692,326 1,304,376 1,321,103 751,881 351,125 549,339 4,277,824 1.539.693 1.573.514 813.768 $ 361,054 682.121 4.970.150 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2014 and the two preceding years were as follows: Fiscal Annual Year Police Ended Police General Management Confidential Support Total ARC $ 440,515 $ 409,050 $ 237,738 $ 27,969 $ 174,808 $ 1,290,080 Interest on net OPEB obligation 43,594 44,154 25,130 11,735 18,360 142,973 Adjustment to ARC (99,225) (100,498) (57,196) (26,710) (41,789) (325,418) Annual OPEB cost 384,884 352,706 205,672 12,994 151,379 1,107,635 Contributions made (149,567) (100 995) (143,785) (3,065) (18,597) ----(415 309) Increase in net OPEB obligation Net OPEB obligation, beginning Net OPEB obligation, ending 235,317 252,411 61,887 9,929 132,782 692,326 1,304,376 1,321,103 751,881 351,125 549,339 4,277,824 1.539.693 1.573.514 813.768 $ 361,054 682.121 4.970.150 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2014 and the two preceding years were as follows: Fiscal Annual Year OPEB Ended Cost 6/30/12 $ 747,031 6/30/13 1,034,400 6/30/14 1,107,635 See independent auditors' report. -62- Percentage of Annual OPEB Cost Contributed 40.50% 35.98% 37.50% Net OPEB Obliization $ 3,615,584 4,277,824 4,970,150 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 10. POST - EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): Funding Status and Progress As of June 30, 2013, the most recent valuation date, the actuarial accrued liability for benefits was $12.05 million, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $12.05 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 $20.35 million and the ratio of the UAAL to the covered payroll was 59.2 %. 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 2014 was determined as part of the June 30, 2013 actuarial valuation. The actuarial cost method used for determining the benefit obligations is the entry age normal cost method. The actuarial assumptions included a 4.00% 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. -63- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 11. IRS SECTION 457 DEFERRED COMPENSATION PLAN: In accordance with federal law, all part -time employees must be enrolled in Social Security or another "qualified" retirement plan. Since the City does not participate in Social Security, part -time employees are enrolled in the City's IRS Section 457 deferred compensation plan. Nationwide Retirement Solutions, Inc. acts as the third party administrative services provider for the defined contribution plan. Employees are required to contribute 5.5% of salary to the deferred compensation plan every pay period. The City contributes an additional 2% of salary, for a total contribution of 7.5 %. Council established the plan by resolution in fiscal year 2011 -2012, and has the authority to amend contribution requirements. Contributions to the participants account must equal at least 7.5% of the participant's compensation, or such other minimum amount as required for the plan to be considered a retirement system under applicable government code and legal requirements. Total contributions to the plan during fiscal year 2014 were $58,122. 12. 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. See independent auditors' report. IME CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 12. SELF - INSURANCE PROGRAM /RISK POOL (CONTINUED): The pool is managed by an 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, 2014. At June 30, 2014, estimated claims payable of $4,278,500, 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, 2013 and 2014, including a provision for incurred but not reported claims and loss adjustment expenses, were as follows: June 30, 2013 2014 Beginning Balance $ 3,010,653 4,461,082 Additions $ 3,290,272 2,796,114 13. SPECIAL ASSESSMENT DISTRICTS' BONDS: Deletions $ 1,839,843 2,978,696 Ending Balance $ 4,461,082 4,278,500 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. See independent auditors' report. -65- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 13. SPECIAL ASSESSMENT DISTRICTS' BONDS (CONTINUED): 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, 2013 Community Facilities District 06 -1, 2007 Community Facilities District 06 -1, 2010 Community Facilities District 07 -1, 2007 Amount Outstanding of Issue June 30, 2014 $ 9,350,000 $ 9,350,000 53,570,000 52,170,000 1,675,000 1,645,000 13,680,000 13,470,000 78.275.000 76.635.000 In May 2013, the City issued $9,350,000 of Special Tax Refunding Bonds, Series 2013 to, to refund in full and defease the City of Tustin Community Facilities District No. 04 -1 Special Tax Bonds, Series 2004. The 2004 series were originally issued to facilitate the new infrastructure construction on the former MCAS 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, 2032, and pay costs of issuing the Series 2013 Bonds. Serial current interest bonds will mature from September 1, 2032 to September 1, 2032. Term current interest bonds will mature on September 1, 2014, with mandatory sinking payments from September 1, 2030 through September 1, 2032. Interest maturity rates of the current interest bonds range from 2.00% at September 1, 2014 to 5.00% at September 1, 2028 - and current term interest bonds are 5.375% and 5.50% on their respective maturity dates. At June 30, 2014, the amount of the Special Tax Refunding Bonds, Series 2013 was $9,350,000. In September 2007, the City issued $53,570,000 of Special Tax Bonds, Series 2007A, to facilitate the new infrastructure construction on the former MCAS 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, 2014, the amount of the Special Tax Bonds, Series 2007A was $52,170,000. See independent auditors' report. .. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 13. SPECIAL ASSESSMENT DISTRICTS' BONDS (CONTINUED): 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 MCAS 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, 2014, the amount of the Special Tax Bonds, Series 2010 was $1,645,000. In September 2007, the City issued $13,680,000 of Special Tax Bonds, Series 2007, to facilitate the new infrastructure construction on the former MCAS 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, 2014, the amount of the Special Tax Bonds, Series 2007 was $13,470,000. 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. 14. 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. See independent auditors' report. -67- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 14. COMMITMENTS AND CONTINGENCIES (CONTINUED): 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, 2014, the total infrastructure cost incurred by the Developer that is subject to reimbursement was $48,529,810 and the total reimbursement made by the City was $30,241,666. The City paid final reimbursement to Vestar totaling $18,288,144 in September 2014 from net proceeds from the sale of land held for resale totaling $55,957,960. 15. GOVERNMENTAL FUND BALANCE CLASSIFICATIONS: The fund balances reported on the fund statements 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. Committed - This classification includes amounts that can be used only for the specific purposes determined by a formal action of the City's highest level of decision - making authority. The City Council is the highest level of decision - making authority for the City that can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. 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. See independent auditors' report. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 15. GOVERNMENTAL FUND BALANCE CLASSIFICATIONS (CONTINUED): Unassigned - The classifications include the residual balance for the City'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. Nonspendable: Prepaid items Land held for resale Restricted for: Public works Public safety Community services Assigned to: Capital projects Unassigned Total fund balances Other Total General Governmental Governmental Fund Funds Funds $ 240,053 $ - $ 240,053 128,809,901 - 128,809,901 1,352,309 27,450,172 28,802,481 - 442,474 442,474 - 1,928,207 1,928,207 - 5,493,536 5,493,536 18,781,826 - 18,781,826 149.184.089 35.314.389 184.498.478 16. OTHER REQUIRED INDIVIDUAL FUND DISCLOSURES: Excess of Expenditures over Appropriations: General Fund Other Governmental Funds: Air Quality Special Revenue Fund Variance with Budget Actual Final Budget $ 92,871,714 $ 99,551,019 $ (6,679,305) See independent auditors' report. -69- 202,000 210,499 (8,499) CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 17. 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. 18. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES: On June 29, 2011, Assembly Bills Ix 26 (the "Dissolution Act ") and lx 27 were enacted as part of the fiscal year 2011 -12 state budget package. 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 the 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. See independent auditors' report. -70- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 18. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED): 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. 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. The Dissolution Act and AB 1484 also establish roles for the County Auditor - Controller (the "CAC), 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. 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. See independent auditors' report. -71- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 18. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED): 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. As part of the dissolution process AB 1484 required the Successor Agency to have due diligence reviews of both the low and moderate income housing funds and all other funds to be completed by October 15, 2012 and January 15, 2013 to compute the funds (cash) which were not needed by the Successor Agency to be retained to pay for existing enforceable obligations. These funds were to be remitted to the CAC after the DOF completed its review of the due diligence reviews. The Successor Agency remitted $14,317,623 to the CAC on December 18, 2012 for the low and moderate income housing funds due diligence review. The amount due to the CAC for the Other Funds due diligence review is $28,295,637, of which $6,418,355 was remitted by the Successor Agency on May 10, 2013. The City has negotiated with the State Department of Finance (DOF) to allow for the Local Agency Investment Fund (LAIF) interest rate as the effective interest and to pay the debt off over four to five years. The DOF agreed to allow the LAIF interest rate at the time the City entered into the promissory note with the former Redevelopment Agency which was 2.54% and has agreed to installment payments of four years with the first payment due within thirty days of the City accepting DOF's offer. The City is currently reviewing DOF's offer. With the effective flat interest rate of 2.54% compounded annually the total amount receivable from the City and payable to CAC as of June 30, 2014 was $21,404,683. During the year ended June 30, 2014, $939,658 of interest was forgiven and is reported as an extraordinary item on the statement of changes in fiduciary net position. 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. Management believes, in consultation with legal counsel, that the obligations of the Dissolved RDA due to the City are valid enforceable obligations payable by the Successor Agency under the requirements of the Dissolution Act and AB 1484. The amount due to the City and a corresponding reserve for $34,345,383, are recorded on the City's financial records for reimbursement for the Newport Avenue Extension Phase 1, pursuant to the Public Works agreement dated June 2, 1983. The City's position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by an appropriate judicial authority that would resolve this issue unfavorably to the City. See independent auditors' report. -72- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 19. 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 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. The total amount receivable from the General Fund as of June 30, 2014 was $21,404,683. The City has negotiated with the State Department of Finance (DOF) to allow for the Local Agency Investment Fund (LAIF) interest rate as the effective interest and to pay the debt off over four to five years. The DOF agreed to allow the LAIF interest rate at the time the City entered into the promissory note with the former Redevelopment Agency which was 2.54% and has agreed to installment payments of five years with the first payment due within thirty days of the City accepting DOF's offer. The City is currently reviewing DOF's offer. With the effective flat interest rate of 2.54% compounded annually the total amount due from the City as of June 30, 2014 was $21,404,683. Capital Assets Capital assets, not being depreciated Land Capital assets, being depreciated: Buildings Less accumulated depreciation Total capital assets, being depreciated, net Successor Agency capital assets, net See independent auditors' report. Balance at Balance at July 1, 2013 Additions Deletions June 30, 2014 $ 119,000 $ - $ - $ 119,000 190,000 - - 190,000 (76,000) (3,800) - (79,800) 114.000 (3,800) - 110.200 $ 233,000 (3.800) $ - S 229,200 -73- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 19. 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, 2014 is as follows: 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, 2014, the 1998 Bonds outstanding balance was $4,565,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30. 2015 2016 2017 Totals See independent auditors' report. Principal $ 1,445,000 1,525,000 1,595,000 4.565.000 -74- Interest $ 188,138 113,888 37,881 339.907 Total $ 1,633,138 1,638,888 1,632,881 4.904.907 Balance at Balance at Due Within July 1, June 30, One 2013 Additions Deletions 2014 Year Tax allocation bonds $ 72,175,000 $ $ (2,945,000) $ 69,230,000 $ 3,060,000 Unamortized premium 92,432 (3,532) 88,900 - Unamortized discount (813.417) 29,62 (783.793) - Total bonds payable $ 71,454,015 $ 29.624 $ L_948.532) $ 68,535,107 1-3 .060,000 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, 2014, the 1998 Bonds outstanding balance was $4,565,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30. 2015 2016 2017 Totals See independent auditors' report. Principal $ 1,445,000 1,525,000 1,595,000 4.565.000 -74- Interest $ 188,138 113,888 37,881 339.907 Total $ 1,633,138 1,638,888 1,632,881 4.904.907 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 19. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) Tax Allocation Bonds Payable (Continued) 2010 Housing Tax Allocation Bonds 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, 2014, the 2010 Housing Bonds outstanding balance was $22,770,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2040 Totals See independent auditors' report. Principal $ 760,000 785,000 815,000 850,000 880,000 4,985,000 5,795,000 3,050,000 3,935,000 915,000 22.770.000 -75- Interest $ 1,054,106 1,025,106 993,106 959,806 925,206 4,047,191 2,772,500 1,686,850 777,656 24,018 14.265.545 Total $ 1,814,106 1,810,106 1,808,106 1,809,806 1,805,206 9,032,191 8,567,500 4,736,850 4,712,656 939,018 37.035.545 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2014 19. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) Tax Allocation Bonds Payable (Continued) 2010 MCAS Tax Allocation Bonds 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, 2014, the 2010 MCAS Bonds outstanding balance was $41,895,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 2035-2039 2039-2041 Totals See independent auditors' report. Principal Interest Total $ 855,000 $ 1,957,100 $ 2,812,100 880,000 905,000 935,000 970,000 5,475,000 6,835,000 8,690,000 11,100,000 5,250,000 41.895.000 -76- 1,931,075 1,904,300 1,872,025 1,833,925 8,535,306 7,125,831 5,215,750 2,753,750 265,750 33.394.812 2,811,075 2,809,300 2,807,025 2,803,925 14,010,306 13,960,831 13,905,750 13,853,750 5,515,750 75.289.812 REQUIRED SUPPLEMENTARY INFORMATION -77- The page left blank intentionally -78- CITY OF TUSTIN SCHEDULES OF FUNDING PROGRESS For the year ended June 30, 2014 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) 06/30/11 $ 68,289,474 $ 75,399,067 $ 7,109,593 90.57% $ 13,462,500 52.81% 06/30/12 72,395,531 79,578,148 7,182,617 90.97% 13,524,065 53.11% 06/30/13 69,152,607 85,633,544 16,480,937 80.75% 11,720,064 140.62% SCHEDULE OF FUNDING PROGRESS FOR OTHER POST - EMPLOYMENT BENEFIT PLAN See independent auditors' report. -79- 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) 06/30/09 $ - $ 8,584,000 $ 8,584,000 0.00% $ 23,100,000 37.16% 06/30/11 - 9,801,000 9,801,000 0.00% 21,515,000 45.55% 06/30/13 - 12,047,000 12,047,000 0.00% 20,346,000 59.21% See independent auditors' report. -79- CITY OF TUSTIN BUDGETARY COMPARISON SCHEDULE GENERAL FUND REVENUES: Taxes Licenses and permits Fines and forfeitures Investment income Intergovernmental Charges for services Rental income Otherrevenue TOTAL REVENUES EXPENDITURES: Current: General government Public safety Public works Community services Capital outlay Debt service: 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 GAIN For the year ended June 30, 2014 15,364,677 15,992,150 13,120,551 Variance with 29,495,120 29,556,336 28,072,138 Final Budget Budgeted Amounts 5,797,705 Positive Original Final Actual (Negative) $ 43,417,900 $ 43,417,900 $ 45,096,520 $ 1,678,620 584,700 584,700 1,284,232 699,532 726,000 726,000 631,340 (94,660) 105,000 105,000 459,703 354,703 1,169,156 1,169,156 967,020 (202,136) 2,151,100 2,151,100 1,672,913 (478,187) 447,600 447,600 601,727 154,127 15,364,677 15,992,150 13,120,551 2,871,599 29,495,120 29,556,336 28,072,138 1,484,198 6,000,060 6,271,560 5,797,705 473,855 2,953,225 2,953,225 2,841,129 112,096 3,881,456 37,148,443 49,719,496 (12,571,053) 950,000 950,000 - 950,000 58,644,538 92,871,714 99,551,019 (6,679,305) (7,735,882) (41,963,058) (46,071,990) (4,108,932) 1,612,301 1,612,301 1,478,158 (134,143) (1,420,000) (1,420,000) (606,454) 813,546 5,000 5,000 - (5,000) - - 1,412,257 1,412,257 NET CHANGE IN FUND BALANCE (7,538,581) (41,765,757) (43,788,029) (2,022,272) FUND BALANCE - BEGINNING OF YEAR 192,972,118 192,972,118 192,972,118 - FUND BALANCE - END OF YEAR $ 185,433,537 $ 151,206,361 $ 149,184,089 $ (2,022,272) See independent auditors' report and note to required supplementary information. -80- CITY OF TUSTIN NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2014 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 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 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. The page left blank intentionally -82- SUPPLEMENTARY INFORMATION The page left blank intentionally -84- CITY OF TUSTIN OTHER GOVERNMENTAL FUNDS June 30, 2014 SPECIAL REVENUE FUNDS The 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 AB3229, 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. CAPITAL PROJECTS FUNDS The Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. Construction 95 -1 - This fund accounts for infrastructure improvements to the Tustin 95 -1 Area. Other Capital Projects - This fund is used to account for capital projects which are not funded by a specific source. CFD Construction — This fund is used to account for construction and improvements to the Tustin Legacy area. CITY OF TUSTIN COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS June 30, 2014 Special Revenue Funds Park Acquisition and Asset Air Gas Tax Measure M Development Forfeiture Quality ASSETS Cash and investments $ 5,260,360 $ 770,741 $ 8,125,489 $ 380,304 $ 91,063 Restricted cash and investments - - - - - Receivables: Accounts 231,095 6,343,828 - - - Interest 2,771 406 4,277 200 48 Loans - - - - - Allowance for uncollectibles Advance to other funds Land held for resale TOTAL ASSETS $ 5,494,226 $ 7,114,975 $ 8,129,766 $ 380,504 $ 91,111 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES: Accounts payable and accrued liabilities Due to other funds Deposits payable TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES: Unavailable revenue FUND BALANCES: Restricted Assigned $ 158,718 $ 299,616 $ - 15,236 158,718 314,852 - 5,084,074 5,335,508 1,716,049 55,635 $ 8,522 $ 21,156 55,635 8,522 21,156 8,074,131 371,982 69,955 TOTAL FUND BALANCES 5,335,508 1,716,049 8,074,131 371,982 69,955 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 5,494,226 $ 7,114,975 $ 8,129,766 $ 380,504 $ 91,111 See independent auditors' report. -86- Special Revenue Funds (Continued) Capital Projects Funds Total Supplemental Other Other Law Housing Construction Capital CFD Governmental Enforcement Authority Total 95 -1 Projects Construction Total Funds $ 69,350 $ 1,590,491 $ 16,287,798 $ 3,664,234 $ 5,656,393 $ - $ 9,320,627 $ 25,608,425 - - - - - 9,939,890 9,939,890 9,939,890 4,612 - 6,579,535 3 1,105,260 524 1,105,787 7,685,322 37 65,839 73,578 - 3,584 - 3,584 77,162 - 1,055,263 1,055,263 - - 1,055,263 (705,263) (705,263) - - (705,263) - - 454,398 454,398 454,398 354,927 354,927 - - 354,927 $ 73,999 $ 2,361,257 $ 23,645,838 $ 3,664,237 $ 7,219,635 $ 9,940,414 $ 20,824,286 $ 44,470,124 $ 3,507 $ 8,114 $ 555,268 $ 13,028 $ 913,406 $ 1,337,094 $ 2,263,528 $ 2,818,796 - - 15,236 - - - - 15,236 9,936 9,936 812,693 - 812,693 822,629 3,507 18,050 580,440 13,028 1,726,099 1,337,094 3,076,221 3,656,661 415,000 5,499,074 5,499,074 70,492 1,928,207 17,566,324 3,651,209 - 8,603,320 12,254,529 29,820,853 - - - - 5,493,536 - 5,493,536 5,493,536 70,492 1,928,207 17,566,324 3,651,209 5,493,536 8,603,320 17,748,065 35,314,389 $ 73,999 $ 2,361,257 $ 23,645,838 $ 3,664,237 $ 7,219,635 $ 9,940,414 $ 20,824,286 $ 44,470,124 -87- CITY OF TUSTIN COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS REVENUES: Investment income Intergovernmental revenue Charges for services Rental income Other revenue TOTAL REVENUES EXPENDITURES: Current: General government Public safety Community services Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING OF YEAR See independent auditors' report. For the year ended June 30, 2014 Special Revenue Funds Park Acquisition and Asset Air Gas Tax Measure M Development Forfeiture Quality $ 28,083 $ 13,098 S 46,055 $ 2,153 S 963 2,435,700 2,444,333 - 200,126 - - - 18,540 - 95,815 149,997 - 2,540 2,463,783 2,457,431 217,132 202,279 96,778 802,394 1,781 33,538 243,082 1,023,933 3,281,589 246,333 - 210,499 1,826,327 3,283,370 279,871 243,082 210,499 637,456 (825,939) (62,739) (40,803) (113,721) (93,211) (23,333) - (93,211) (23,333) 637,456 (919,150) (86,072) 21,348 21,348 (40,803) (92,373) 4,698,052 2,635,199 8,160,203 412,785 162,328 S 5,335,508 S 1,716,049 S 8,074,131 S 371,982 S 69,955 -88- Special Revenue Funds (Continued) Capital Projects Funds 4,078 4,078 1,084,873 98,176 - 98,176 Total Supplemental - 98,176 - Other 240,170 - Other Law Housing 240,170 Construction Capital CFD 104,456 Governmental Enforcement Authority Total 95 -1 Projects Construction Total Funds $ 261 $ 9,335 S 99,948 $ (2,709) S 62,631 $ 2,213 S 62,135 $ 162,083 146,366 - 5,226,525 1,252,801 7,376 1,260,177 6,486,702 - 114,355 42,054 - - - 114,355 (11,019,113) - 149,997 - - 149,997 18,687 21,227 2,164 3,321,770 21,348 3,323,934 3,345,161 146,627 28,022 5,612,052 (545) 4,637,202 9,589 4,646,246 10,258,298 - 1,080,795 4,078 4,078 1,084,873 98,176 - 98,176 - - 98,176 - 240,170 240,170 - - - - 240,170 6,397 - 4,768,751 104,456 8,801,031 11,028,702 19,934,189 24,702,940 104,573 240,170 6,187,892 104,456 8,805,109 11,028,702 19,938,267 26,126,159 42,054 (212,148) (575,840) (105,001) (4,167,907) (11,019,113) (15,292,021) (15,867,861) - 21,348 47,626 537,480 585,106 606,454 (116,544) (153,301) - (1,208,313) (1,361,614) (1,478,158) (95,196) (153,301) 47,626 (670,833) (776,508) (871,704) 42,054 (212,148) (671,036) (258,302) (4,120,281) (11,689,946) (16,068,529) (16,739,565) 28,438 2,140,355 18,237,360 3,909,511 9,613,817 20,293,266 33,816,594 52,053,954 S 70,492 $ 1,928,207 S 17,566,324 $ 3,651,209 S 5,493,536 $ 8,603,320 S 17,748,065 $ 35,314,389 -89- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GAS TAX SPECIAL REVENUE FUND REVENUES: Investment income Intergovernmental revenue TOTAL REVENUES EXPENDITURES: Current: General government 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, 2014 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 10,000 $ 10,000 $ 28,083 $ 18,083 2,223,400 2,223,400 2,435,700 212,300 2,233,400 2,233,400 2,463,783 230,383 928,000 928,000 802,394 125,606 1,258,100 1,427,285 1,023,933 403,352 2,186,100 2,355,285 1,826,327 528,958 47,300 (121,885) 637,456 759,341 4,698,052 4,698,052 4,698,052 - $ 4,745,352 $ 4,576,167 $ 5,335,508 $ 759,341 -90- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL MEASURE M SPECIAL REVENUE FUND REVENUES: Investment income Intergovernmental revenue TOTAL REVENUES EXPENDITURES: General Government Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING USES: Transfers out NET CHANGE IN FUND BALANCE ijo6jn]j:�_jw_r[$j=p xe:mm�ce=01J:r_�:4 FUND BALANCE - END OF YEAR See independent auditors' report. For the year ended June 30, 2014 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 2,000 $ 2,000 $ 13,098 $ 11,098 8,110,774 8,110,774 2,444,333 (5,666,441) 8,112,774 8,112,774 2,457,431 (5,655,343) - - 1,781 (1,781) 9,365,907 9,365,907 3,281,589 6,084,318 9,365,907 9,365,907 3,283,370 6,082,537 (1,253,133) (1,253,133) (825,939) 427,194 (39,000) (39,000) (93,211) (54,211) (1,292,133) (1,292,133) (919,150) 372,983 2,635,199 2,635,199 2,635,199 - $ 1,343,066 $ 1,343,066 $ 1,716,049 $ 372,983 -91- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL PARK ACQUISITION AND DEVELOPMENT SPECIAL REVENUE FUND REVENUES: Investment income Charges for services Rental income Otherrevenue TOTAL REVENUES EXPENDITURES: Current: General government Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING USES: Transfers out NET CHANGE IN FUND BALANCE FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR See independent auditors' report. For the year ended June 30, 2014 - 2,022 33,538 Variance with 388,500 538,500 246,333 Final Budget Budgeted Amounts 540,522 Positive Original Final Actual (Negative) $ 55,000 $ 55,000 $ 46,055 $ (8,945) 13,500 13,500 18,540 5,040 128,000 128,000 149,997 21,997 - - 2,540 2,540 196,500 196,500 217,132 20,632 - 2,022 33,538 (31,516) 388,500 538,500 246,333 292,167 388,500 540,522 279,871 260,651 (192,000) (344,022) (62,739) 281,283 - - (23,333) (23,333) (192,000) (344,022) (86,072) 257,950 8,160,203 8,160,203 8,160,203 - $ 7,968,203 $ 7,816,181 $ 8,074,131 $ 257,950 -92- 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, 2014 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 500 $ 500 $ 2,153 $ 1,653 222,000 222,000 200,126 (21,874) 222,500 222,500 202,279 (20,221) 187,000 252,000 243,082 8,918 35,500 (29,500) (40,803) (11,303) 412,785 412,785 412,785 - $ 448,285 $ 383,285 $ 371,982 $ (11,303) -93 - CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL AIR QUALITY SPECIAL REVENUE FUND For the year ended June 30, 2014 REVENUES: Investment income Charges for services TOTAL REVENUES EXPENDITURES: Capital outlay EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES: Transfers in NET CHANGE IN FUND BALANCE FUND BALANCE - BEGINNING OF YEAR ij1j6jj9]j:7_js_rn AlDk See independent auditors' report. Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 100 $ 100 $ 963 $ 863 82,000 82,000 95,815 13,815 82,100 82,100 96,778 14,678 202,000 202,000 210,499 (8,499) (119,900) (119,900) (113,721) 6,179 - - 21,348 21,348 (119,900) (119,900) (92,373) 27,527 162,328 162,328 162,328 - $ 42,428 $ 42,428 $ 69,955 $ 27,527 -94- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL SUPPLEMENTAL LAW ENFORCEMENT SPECIAL REVENUE FUND For the year ended June 30, 2014 EXPENDITURES: Current: Public safety 97,800 97,800 98,176 (376) Capital outlay 25,000 52,400 6,397 46,003 TOTAL EXPENDITURES 122,800 150,200 Variance with EXCESS OF REVENUES OVER Final Budget (UNDER) EXPENDITURES Budgeted Amounts (27,100) Positive FUND BALANCE - BEGINNING OF YEAR Original Final Actual (Negative) REVENUES: $ 28,738 $ 1,338 $ 70,492 $ 69,154 Investment income $ - $ - $ 261 $ 261 Intergovernmental revenue 123,100 123,100 146,366 23,266 TOTAL REVENUES 123,100 123,100 146,627 23,527 EXPENDITURES: Current: Public safety 97,800 97,800 98,176 (376) Capital outlay 25,000 52,400 6,397 46,003 TOTAL EXPENDITURES 122,800 150,200 104,573 45,627 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 300 (27,100) 42,054 69,154 FUND BALANCE - BEGINNING OF YEAR 28,438 28,438 28,438 - FUND BALANCE - END OF YEAR $ 28,738 $ 1,338 $ 70,492 $ 69,154 See independent auditors' report. -95- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL HOUSING AUTHORITY SPECIAL REVENUE FUND REVENUES: Investment income Otherrevenue TOTAL REVENUES EXPENDITURES: Current: Community services 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, 2014 Budgeted Amounts Original Final 265,800 265,800 240,170 25,630 265,800 265,800 240,170 25,630 (265,800) (265,800) (212,148) 53,652 2,140,355 2,140,355 2,140,355 - $ 1,874,555 $ 1,874,555 $ 1,928,207 $ 53,652 -96- Variance with Final Budget Positive Actual (Negative) $ 9,335 $ 9,335 18,687 18,687 28,022 28,022 265,800 265,800 240,170 25,630 265,800 265,800 240,170 25,630 (265,800) (265,800) (212,148) 53,652 2,140,355 2,140,355 2,140,355 - $ 1,874,555 $ 1,874,555 $ 1,928,207 $ 53,652 -96- CITY OF TUSTIN AGENCY FUNDS June 30, 2014 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. 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. -97- CITY OF TUSTIN COMBINING STATEMENT OF ASSETS AND LIABILITIES ALL AGENCY FUNDS June 30, 2014 See independent auditors' report. -98- Community Community Community Facilities Facilities Facilities District District District 04 -01 06 -01 07 -01 Total ASSETS Cash and investments $ - $ 11,766 $ - $ 11,766 Restricted cash and investments 1,003,329 9,145,080 1,908,686 12,057,095 Taxes receivable 19,215 64,249 - 83,464 TOTAL ASSETS $ 1,022,544 $ 9,221,095 $ 1,908,686 $ 12,152,325 LIABILITIES Accounts payable $ - $ 142 $ - $ 142 Due to bondholders 1,022,544 9,220,953 1,908,686 12,152,183 TOTAL LIABILITIES $ 1,022,544 $ 9,221,095 $ 1,908,686 $ 12,152,325 See independent auditors' report. -98- CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS For the year ended June 30, 2014 See independent auditors' report. (Continued) -99- Balance Balance July 1, 2013 Additions Deletions June 30, 2014 COMMUNITY FACILITIES DISTRICT 04 -01 ASSETS: Cash and investments $ - $ 1,298,244 $ 1,298,244 $ - Restricted cash and investments 537,450 734,279 268,400 1,003,329 Taxes receivable 29,485 19,215 29,485 19,215 TOTAL ASSETS $ 566,935 $ 2,051,738 $ 1,596,129 $ 1,022,544 LIABILITIES: Accounts payable $ - $ 730,247 $ 730,247 $ - Due to bondholders 566,935 1,295,522 839,913 1,022,544 TOTAL LIABILITIES $ 566,935 $ 2,025,769 $ 1,570,160 $ 1,022,544 COMMUNITY FACILITIES DISTRICT 06 -01 ASSETS: Cash and investments $ 156,532 $ 5,351,156 $ 5,495,922 $ 11,766 Restricted cash and investments 9,024,663 3,660,572 3,540,155 9,145,080 Taxes receivable 78,885 64,249 78,885 64,249 TOTAL ASSETS $ 9,260,080 $ 9,075,977 $ 9,114,962 $ 9,221,095 LIABILITIES: Accounts payable $ - $ 3,660,436 $ 3,660,294 $ 142 Due to bondholders 9,260,080 5,363,759 5,402,886 9,220,953 TOTAL LIABILITIES $ 9,260,080 $ 9,024,195 $ 9,063,180 $ 9,221,095 See independent auditors' report. (Continued) -99- CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED) For the year ended June 30, 2014 See independent auditors' report. -100- Balance Balance July 1, 2013 Additions Deletions June 30, 2014 COMMUNITY FACILITIES DISTRICT 07 -01 ASSETS: Cash and investments $ 24,001 $ 1,117,887 $ 1,141,888 $ - Restricted cash and investments 1,868,347 914,579 874,240 1,908,686 TOTAL ASSETS $ 1,892,348 $ 2,032,466 $ 2,016,128 $ 1,908,686 LIABILITIES: Accounts payable $ - $ 914,470 $ 914,470 $ - Due to bondholders 1,892,348 1,127,007 1,110,669 1,908,686 TOTAL LIABILITIES $ 1,892,348 $ 2,041,477 $ 2,025,139 $ 1,908,686 TOTAL ALL AGENCY FUNDS ASSETS: Cash and investments $ 180,533 $ 7,767,287 $ 7,936,054 $ 11,766 Restricted cash and investments 11,430,460 5,309,430 4,682,795 12,057,095 Taxes receivable 108,370 83,464 108,370 83,464 TOTAL ASSETS $ 11,719,363 $ 13,160,181 $ 12,727,219 $ 12,152,325 LIABILITIES: Accounts payable $ - $ 5,305,153 $ 5,305,011 $ 142 Due to bondholders 11,719,363 7,786,288 7,353,468 12,152,183 TOTAL LIABILITIES $ 11,719,363 $ 13,091,441 $ 12,658,479 $ 12,152,325 See independent auditors' report. -100- STATISTICAL SECTION - 101 - The page left blank intentionally - 102- DESCRIPTION OF STATISTICAL SECTION CONTENTS June 30, 2014 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 says about the City's overall financial health. Contents: Pages Financial Trends - These schedules contain trend information to help the reader understand how the City's financial performance and well -being have changed over time. 104 Revenue Capacity - These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax. 114 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. 120 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. 128 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. 130 Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. -103- CITY OF TUSTIN NET POSITION BY COMPONENT Last Ten Fiscal Years (accrual basis of accounting) Business -type activities Net investment in capital assets $ 22,198,864 Fiscal Year $ 22,150,723 $ 22,267,386 2005 2006 2007 2008 Governmental activities: Unrestricted 207,310,935 206,342,244 199,289,608 Net investment in capital assets $ 238,482,797 $ 261,132,785 $ 285,331,502 $ 343,062,465 Restricted 53,511,631 55,021,376 94,111,615 161,669,815 Unrestricted 8,287,989 14,993,866 (19,936,964) (14,320,020) Total governmental activities net position $ 300,282,417 $ 331,148,027 $ 359,506,153 $ 490,412,260 Business -type activities Net investment in capital assets $ 22,198,864 $ 20,494,561 $ 22,150,723 $ 22,267,386 Restricted - - - - Unrestricted 207,310,935 206,342,244 199,289,608 172,421,511 Total business -type activities net position $ 229,509,799 $ 226,836,805 $ 221,440,331 $ 194,688,897 Primary government: Net investment in capital assets $ 260,681,661 $ 281,627,346 $ 307,482,225 $ 365,329,851 Restricted 53,511,631 55,021,376 94,111,615 161,669,815 Unrestricted 215,598,924 221,336,110 179,352,644 158,101,491 Total primary government net position $ 529,792,216 $ 557,984,832 $ 580,946,484 $ 685,101,157 -104- Fiscal Year 2009 2010 2011 2012 2013 2014 $ 357,299,104 $ 360,282,692 $ 378,911,546 $ 412,683,460 $ 431,761,288 $ 461,673,323 145,602,640 135,670,302 116,718,495 47,727,966 54,367,385 36,693,458 104,037,153 114,737,049 116,545,351 147,513,249 177,532,888 139,241,558 $ 606,938,897 $ 610,690,043 $ 612,175,392 $ 607,924,675 $ 663,661,561 $ 637,608,339 $ 24,964,824 $ 24,541,113 $ 20,872,492 $ 25,479,160 $ 24,171,745 $ 23,657,878 1,191,694 - - - - - 1,981,499 1,851,666 5,541,672 2,795,701 7,094,771 10,744,452 $ 28,138,017 $ 26,392,779 $ 26,414,164 $ 28,274,861 $ 31,266,516 $ 34,402,330 $ 382,263,928 $ 384,823,805 $ 399,784,038 $ 438,162,620 $ 455,933,033 $ 485,331,201 146,794,334 135,670,302 116,718,495 47,727,966 54,367,385 36,693,458 106,018,652 116,588,715 122,087,023 150,308,950 184,627,659 149,986,010 $ 635,076,914 $ 637,082,822 $ 638,589,556 $ 636,199,536 $ 694,928,077 $ 672,010,669 -105- CITY OF TUSTIN CHANGES IN NET POSITION 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 Ten 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 Capital grants and contributions Total business -type activities program revenues Net revenues (expenses): Governmental activities Business -type activities Total 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 $ (36,654,849) $ (21,323,413) $ (36,099,262) $ 15,609,054 (500,904) 1,797,262 (2,570,303) 26,105,959 $ (37,155,753) $ (19,526,151) $ (38,669,565) $ 41,715,013 -106- Fiscal Year 2009 2010 2011 2012 2013 2014 $ 8,499,303 $ 7,802,579 $ 7,854,361 $ 12,266,470 $ 18,705,913 $ 14,825,780 29,126,019 27,277,141 28,622,807 28,800,773 30,702,298 28,440,799 22,102,002 20,816,686 19,809,907 20,765,854 15,087,234 49,538,371 5,112,770 12,742,391 13,150,089 7,078,104 3,201,865 3,498,460 3,566,782 4,087,839 4,814,598 3,057,645 967,115 - 68,406,876 72,726,636 74,251,762 71,968,846 68,664,425 96,303,410 30,222,148 16,982,781 13,621,100 28,791,083 29,367,544 19,394,706 12,569,331 11,938,146 12,578,667 13,467,541 13,574,149 16,100,137 1,259,093 - - - - - 13,828,424 11,938,146 12,578,667 13,467,541 13,574,149 16,100,137 1,694,464 1,404,925 1,109,150 1,390,073 763,101 249,237 2,136,772 1,168,348 1,196,830 1,133,096 917,947 920,112 2,374,308 3,761,321 3,508,904 800,328 1,248,595 1,710,813 897,386 957,545 969,006 974,747 926,432 967,134 4,253,442 3,403,411 3,441,281 3,590,210 4,513,158 3,325,304 18,865,776 6,287,231 3,395,929 20,902,629 20,998,311 12,222,106 30,222,148 16,982,781 13,621,100 28,791,083 29,367,544 19,394,706 11,281,679 10,594,471 12,422,746 15,112,161 16,688,773 18,682,821 22,587 - - - - - 11,304,266 10,594,471 12,422,746 15,112,161 16,688,773 18,682,821 $ (38,184,728) $ (55,743,855) $ (60,630,662) $ (43,177,763) $ (39,296,881) $ (76,908,704) (2,524,158) (1,343,675) (155,921) 1,644,620 3,114,624 2,582,684 $ (40,708,886) $ (57,087,530) $ (60,786,583) $ (41,533,143) $ (36,182,257) $ (74,326,020) -107- General revenues and other changes in net position: 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 POSITION GENERAL REVENUES Last Ten 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 position: 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) (26,724,434) Total primary government $ 21,946,745 $ 28,192,616 $ 22,931,652 $ 103,778,066 -108- Fiscal Year 2009 2010 2011 2012 2013 2014 $ 34,022,959 $ 28,347,659 $ 30,205,879 $ 23,270,718 $ 14,526,101 $ 13,661,771 154,379 141,335 142,915 137,131 137,064 616,897 356,565 337,867 358,526 44,800 377,498 393,241 1,689,573 1,720,505 1,648,319 1,621,521 1,655,388 1,663,215 19,858,142 15,917,332 18,597,453 19,931,865 21,575,405 22,288,032 252,666 6,122,789 6,189,249 5,833,094 5,951,653 6,150,893 4,863,469 4,086,852 2,358,847 958,169 243,921 628,180 2,314,540 1,520,662 1,700,323 14,444,183 7,231,648 4,040,996 - - - - 43,335,089 - 103,805,196 - - - - - - - - (27,314,435) - 1,412,257 167,317,489 58,195,001 61,201,511 38,927,046 95,033,767 50,855,482 164,764 86,654 158,242 156,855 39,700 144,381 82,810 25,340 19,064 59,222 271,858 408,749 (103,805,196) - - - - - (103,557,622) 111,994 177,306 216,077 311,558 553,130 $ 63,759,867 $ 58,306,995 $ 61,378,817 $ 39,143,123 $ 95,345,325 $ 51,408,612 $ 129,132,761 $ 2,451,146 $ 570,849 $ (4,250,717) $ 55,736,886 $ (26,053,222) (106,081,780) (1,231,681) 21,385 1,860,697 3,426,182 3,135,814 $ 23,050,981 $ 1,219,465 $ 592,234 $ (2,390,020) $ 59,163,068 $ (22,917,408) -109- CITY OF TUSTIN FUND BALANCES OF GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) Fund Balance prior to GASB 54 - 110 - 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 $ - $ - $ - $ - Restricted - - - - Committed - - - - Assigned - - - - Unassigned - - - - Total general fund $ - $ - $ - $ - All other governmental funds: Nonspendable $ - $ - $ - $ - Restricted - - - - Committed - - - - Assigned - - - - Unassigned - - - - Total all other governmental funds $ - $ - $ - $ - - 110 - Fiscal Year 2009 2010 2011 2012 2013 2014 $ 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 $ 128,988,209 $ 129,049,954 - - - - 19,615,343 1,352,309 - 47,608 - - - - - 5,823,384 - - - - - - 7,443,165 4,077,344 44,368,566 18,781,826 $ - $ 150,010,159 $ 151,630,120 $ 148,682,191 $ 192,972,118 $ 149,184,089 $ - $ 34,800,738 $ 22,352,713 $ 1,710,292 $ 1,287,607 $ - - 111,455,097 130,673,281 38,274,666 33,885,757 29,820,853 - 344,708 - - - - - 11,670,324 18,603,317 16,239,322 16,880,590 5,493,536 - (8,495,076) (10,989,463) - - - $ - $ 149,775,791 $ 160,639,848 $ 56,224,280 $ 52,053,954 $ 35,314,389 - 111 - CITY OF TUSTIN CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS Revenues: Taxes Licenses and permits Fines and forfeitures Investment income Intergovernmental revenues Charges for services Rental income Developer contributions Otherrevenues Total revenues Expenditures: Current: General government Public safety Public works Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Bond issue costs Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Proceeds from debt issuance Transfers in Transfers out Contribution to developer Sale of property Total other financing sources (uses) Extraordinary gain (loss) Net change in fund balances Debt service as a percentage of noncapital expenditures Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2005 2006 2007 2008 $ 39,290,491 $ 40,542,668 $ 48,306,569 $ 51,775,505 1,008,965 2,153,355 2,095,154 2,710,309 895,816 784,966 783,390 818,868 1,662,329 2,849,921 4,228,582 7,529,488 7,613,141 15,338,254 20,136,822 27,394,402 1,530,537 2,107,336 2,043,251 1,583,324 208,222 304,733 349,450 786,438 12,827,879 8,260,032 3,160,370 59,309,772 65,037,380 72,341,265 81,103,588 151,908,106 8,429,464 10,134,368 7,806,916 8,295,887 21,075,766 22,697,122 24,450,803 26,561,960 7,475,332 7,691,894 9,651,745 10,136,680 2,834,472 3,026,890 3,023,648 2,886,132 13,509,215 27,057,889 28,503,673 15,080,865 1,220,000 1,275,000 1,330,000 1,055,000 884,533 1,023,622 1,620,897 4,718,806 55,428,782 72,906,785 76,387,682 68,735,330 9,608,598 (565,520) 4,715,906 83,172,776 - - 25,000,000 - 5,203,652 7,190,511 10,795,694 7,803,274 (3,970,443) (5,270,356) (10,795,694) (7,803,274) - - - (11,934,400) 65,431 137,442 1,676,618 44,658 1,298,640 2,057,597 26,676,618 (11,889,742) $ 10,907,238 $ 1,492,077 $ 31,392,524 $ 71,283,034 5.29% 5.28% 6.57% 12.06% - 112 - Fiscal Year 2009 2010 2011 2012 2013 2014 $ 56,198,002 $ 52,579,529 $ 57,324,011 $ 50,907,306 $ 44,279,024 $ 45,096,520 1,692,955 3,538,198 716,144 443,928 577,044 1,284,232 832,188 890,770 893,642 875,068 678,428 631,340 4,429,915 3,198,484 1,632,215 472,725 173,890 621,786 14,626,663 5,378,430 5,372,905 6,413,137 21,551,042 7,453,722 4,497,309 2,708,705 5,020,485 2,813,752 2,685,080 1,787,268 771,807 869,645 358,030 480,255 550,003 751,724 - 4,051,180 1,593,475 - - - 1,188,200 1,028,432 2,425,052 14,075,025 9,773,813 6,110,735 84,237,039 74,243,373 75,335,959 76,481,196 80,268,324 63,737,327 6,728,236 7,197,709 7,505,928 11,656,331 17,357,805 14,205,424 27,759,939 26,359,435 27,508,514 28,714,347 27,944,039 28,170,314 11,311,291 10,133,685 9,110,621 6,954,384 5,980,807 5,797,705 5,005,986 12,251,479 12,740,969 6,506,381 2,752,523 3,081,299 24,772,717 13,125,983 9,979,670 25,816,530 28,487,231 74,422,436 11,143,000 7,913,000 10,659,000 2,590,000 - - 3,570,834 4,603,661 4,131,435 3,264,323 967,115 - - - 429,731 - - - 90,292,003 81,584,952 82,065,868 85,502,296 83,489,520 125,677,178 (6,054,964) (7,341,579) (6,729,909) (9,021,100) (3,221,196) (61,939,851) - 26,274,205 43,281,289 - - - 142,866,218 37,207,661 2,645,014 3,020,291 6,122,454 2,084,612 (41,295,836) (37,207,661) (2,645,014) (3,020,291) (6,122,454) (2,084,612) 40,201 7,421 18,138 43,745 43,340,797 - 101,610,583 26,281,626 43,299,427 43,745 43,340,797 - - - - (98,386,142) - 1,412,257 $ 95,555,619 $ 18,940,047 $ 36,569,518 $ (107,363,497) $ 40,119,601 $ (60,527,594) 28.96% 22.37% 26.76% 10.88% 1.76% 0.00% - 113 - CITY OF TUSTIN ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY (IN THOUSANDS) 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 18 and 19 for more information. (B) This rate represents the weighted average of all individual direct rates applied by the City of Tustin. - 114 - City Fiscal Year Taxable Ended Assessed June 30 Secured Unsecured Value 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 2013 7,486,098 341,604 7,827,702 2014 7,679,827 317,521 7,997,348 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 18 and 19 for more information. (B) This rate represents the weighted average of all individual direct rates applied by the City of Tustin. - 114 - Redevelopment Agency (A) -115 - Total Direct Tax Rate (B) 0.220% 0.226% 0.261% 0.279% 0.326% 0.308% 0.310% 0.303% 0.302% 0.116% Taxable Assessed Secured Unsecured Value (A) $ 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 1,596,843 77,628 1,674,471 1,663,391 71,642 1,735,033 -115 - Total Direct Tax Rate (B) 0.220% 0.226% 0.261% 0.279% 0.326% 0.308% 0.310% 0.303% 0.302% 0.116% CITY OF TUSTIN DIRECT AND OVERLAPPING PROPERTY TAX RATES Last Ten Fiscal Years (rate per $100 of taxable value) Direct Rate (A): 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 Metropolitan 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 Notes: (A) Individual direct rates applied to the revenue base. Source: Hdl, Coren & Cone -116- Fiscal Year 2005 2006 2007 2008 $ 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 0.0554 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 $ 1.1444 $ 1.2791 $ 1.3101 Fiscal Year 2009 2010 2011 2012 2013 2014 $ 0.1272 $ 0.1272 $ 0.1272 $ 0.1272 $ 0.1272 $ 0.1272 0.4397 0.4397 0.4397 0.4397 0.4397 0.4397 0.0886 0.0886 0.0886 0.0886 0.0886 0.0886 0.0617 0.0617 0.0617 0.0617 0.0617 0.0617 0.0198 0.0198 0.0198 0.0198 0.0198 0.0198 0.0167 0.0167 0.0167 0.0167 0.0167 0.0167 0.0161 0.0161 0.0161 0.0161 0.0161 0.0161 0.2302 0.2302 0.2302 0.2302 0.2302 0.2302 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.0310 0.0380 0.0596 0.0559 0.0672 0.0891 0.0043 0.0043 0.0037 0.0037 0.0035 0.0035 0.0225 0.0274 0.0314 0.0315 0.0324 0.0333 0.2143 0.2242 0.2242 0.2155 0.2155 0.2155 0.0321 0.0739 0.0717 0.0715 0.0775 0.0736 0.3042 0.3678 0.3906 0.3781 0.3961 0.4150 $ 1.3042 $ 1.3678 $ 1.3906 $ 1.3781 $ 1.3961 $ 1.4150 - 117- CITY OF TUSTIN PRINCIPAL PROPERTY TAX PAYERS Current Year and Nine Years Ago Taxnaver Irvine Company LLC Vestar Kimco Tustin LP Avalon II California Value I PK II Larwin Square SC LP Irvine Apartment Communities LP Ricoh Development of California Inc Borchard Redhill SKB- Tustin LLC Costco Wholesale Corporation Cadigan Communities LP CPII Park Place LLC Moffett Meadows Partners, LLC WL Homes Bascom East Tustin Avenue Apartment LLC Pan Pacific Retail Prop Saddleback Memorial Medic Bedrosian Tustin, LLC 2014 2005 Percent of Percent of Total City Total City Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Value Value Value Value $ 227,080,989 2.33% $ 65,223,171 1.00% 161,608,021 1.66% 97,699,746 1.00% 50,771,745 0.52% 50,674,680 0.52% 210,693,161 3.42% 49,023,342 0.50% 47,494,260 0.49% 30,113,321 0.46% 47,423,012 0.49% 47,268,376 0.48% 26,194,631 0.40% 42,307,193 0.43% 144,651,140 2.22% 69,876,021 1.07% 67,546,366 1.04% 44,593,136 0.68% 39,596,614 0.61% 26,753,547 0.41% $ 821,351,364 8.42% $ 725,241,108 11.31% The amounts shown above include the Combined Tax Rolls and the SBE Non - Unitary Tax Roll. Sources: Hdl, Coren & Cone - 118 - CITY OF TUSTIN PROPERTY TAX LEVIES AND COLLECTIONS Last Ten 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 31,766,294 Percent Subsequent June 30 Fiscal Year Amount of Levy Years 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 2013 9,492,638 9,257,817 97.53% 121,715 2014 9,862,476 9,655,778 97.90% 121,400 Total Collections to Date Notes: The amounts presented include City property taxes and former Redevelopment Agency tax increment. This schedule also includes amounts collected by the City and former Redevelopment Agency that were passed - through to other agencies. Effective February 1, 2012, the former Redevelopment Agency was dissolved. See Notes 18 and 19 for more information Source: County of Orange Auditor Controller's Office - 119- Percent Amount of Levy $ 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% 9,379,532 98.81% 9,777,178 99.14% Notes: The amounts presented include City property taxes and former Redevelopment Agency tax increment. This schedule also includes amounts collected by the City and former Redevelopment Agency that were passed - through to other agencies. Effective February 1, 2012, the former Redevelopment Agency was dissolved. See Notes 18 and 19 for more information Source: County of Orange Auditor Controller's Office - 119- CITY OF TUSTIN RATIOS OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years Fiscal Governmental Activities Year Tax Tax Tax Lease Total Ended Allocation Allocation Allocation Revenue Notes Notes Governmental June 30 Bonds (1) Bonds (6) Bonds (7) Bonds (2) Payable (3) Payable (4) Activities 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 2013 22,816,940 22,816,940 2014 21,404,683 21,404,683 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 18 and 19 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 $2,522,933. As of February 1, 2012, this note is payable to the Successor Agency to the Tustin Community Redevelopment Agency. See Note 18 for more information. (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. -120- (6) 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 18 and 19 for more information. (7) 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 18 and 19 for more information. (8) In May 2011 the City issued $20,760,000 Water Revenue Bonds, 2011 Series A to finance water capital improvement projects. (9) In March 2012 the City issued $8.91 million of Refunding Water Revenue Bonds to defease the outstanding 2003 Water Revenue Bonds. (10) In October 2013 the City issued $14, 045,000 Water Revenue Bonds to finance water capital improvement projects. - 121 - Business -type Activities Water Water Water Water Total Total Debt Revenue Revenue Revenue Revenue Business -type Primary Per Bonds (5) Bonds (8) Bonds (9) Bonds (10) Activities Government Capita $ 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 21,044,310 8,997,129 30,041,439 52,858,379 678 21,034,111 8,205,372 14,160,362 43,399,845 64,804,528 827 (6) 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 18 and 19 for more information. (7) 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 18 and 19 for more information. (8) In May 2011 the City issued $20,760,000 Water Revenue Bonds, 2011 Series A to finance water capital improvement projects. (9) In March 2012 the City issued $8.91 million of Refunding Water Revenue Bonds to defease the outstanding 2003 Water Revenue Bonds. (10) In October 2013 the City issued $14, 045,000 Water Revenue Bonds to finance water capital improvement projects. - 121 - 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 18 and 19 for more information. - 122- Outstanding General Bonded Debt Fiscal Year General Tax Percent of Ended Obligation Allocation Assessed Per June 30 Bonds Bonds Total Value * Capita 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 - - - - - 2013 - - - - - 2014 - - - - - 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 18 and 19 for more information. - 122- CITY OF TUSTIN OVERLAPPING DEBT SCHEDULE June 30, 2014 2013 -14 Assessed Valuation Redevelopment Incremental Valuation Adjusted Assessed Value OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Rancho Santiago Community College District Santa Ana Unified School District Tustin Unified School District School Facilities Improvement District No. 2002 -1 Tustin Unified School District School Facilities Improvement District No. 2008 -1 Tustin Unified School District School Facilities Improvement District No. 2012 -1 Tustin Unified School District Community Facilities District No. 88 -1 Tustin Unified School District Community Facilities District No. 06 -1 City of Tustin Community Facilities Districts Irvine Unified School District Community Facilities District No. 86 -1 Irvine Ranch Water District Improvement Districts TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations Orange County Pension Obligations Orange County Board of Education Certificates of Participation Municipal Water District of Orange County Water Facilities Corporation Orange Unified School District Certificates of Participation Orange Unified School District Benefit Obligations Santa Ana Unified School District Certificates of Participation City of Tustin TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT: Less: MWDOC Water Facilities Corporation (100% self supporting) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT: OVERLAPPING TAX INCREMENT DEBT (Successor Agencies) GROSS COMBINED TOTAL DEBT NET COMBINED TOTAL DEBT $ 9,732,380,911 Total Overlapping Tax and Assessment Debt (1,716,672,478) Total Direct Debt 0.00% 8,015,708,433 3.88% Net Combined Total Debt 4.71% City's Share of Total Debt (1) Debt at 6/30/14 %Applicable 6/30/14 $ 132,275,000 0.445% $ 588,624 285,430,201 0.015 42,815 289,561,562 0.0005 1,448 53,319,645 45.447 24,232,179 72,135,000 43.215 31,173,140 35,000,000 44.065 15,422,750 45,415,000 100.000 45,415,000 13,515,000 100.000 13,515,000 76,635,000 100.000 76,635,000 88,135,000 0.271 238,846 325,662,300 0.487- 81.795 96,466,938 S 303,731,740 145,476,000 2.200% 3,200,472 32,195,288 2.200 708,296 15,500,000 2.200 341,000 7,775,000 2.633 204,716 86,665,000 0.030 26,000 33,191,560 0.030 9,957 76,291,353 0.0005 381 - 100.000 - 4,490,822 204,716 4,286,106 $ 100,025,000 0.002 - 100.00% $ 69,230,616 $ 377,453,178 (2) $ 377,248,462 (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. Effective February 1, 2012, the former Redevelopment Agency was dissolved. See Notes 18 and 19 for more information Ratios to 2013 -14 Assessed Valuations: Total Overlapping Tax and Assessment Debt 3.12% Total Direct Debt 0.00% Gross Combined Total Debt 3.88% Net Combined Total Debt 4.71% Ratios to Redevelopment Incremental Valuations ($1.716.672.478): Total Overlapping Tax Increment Debt 4.03% Source: California Municipal Statistics, Inc. -123- CITY OF TUSTIN LEGAL DEBT MARGIN INFORMATION Last Ten Fiscal Years Fiscal Year 2005 2006 2007 2008 Assessed valuation $ 5,615,226,000 $ 6,039,188,000 $ 6,698,963,000 $ 7,469,096,000 Conversion percentage 25% 25% 25% 25% Adjusted assessed valuation 1,403,806,500 1,509,797,000 1,674,740,750 1,867,274,000 Debt limit percentage 15% 15% 15% 15% Debt limit 210,570,975 226,469,550 251,211,113 280,091,100 Total net debt applicable to limitation - - - - Legal debt margin $ 210,570,975 $ 226,469,550 $ 251,211,113 $ 280,091,100 Total debt applicable to the limit as a percentage of debt limit 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 valuation. However, this provision was enacted when assessed valuation was based on 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 from the current full valuation perspective to the 25% level 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 -124- Fiscal Year 2009 2010 2011 2012 2013 2014 $ 7,940,761,000 $ 7,753,504,000 $ 7,645,102,000 $ 7,705,016,000 $ 7,827,702,000 $ 7,997,348,000 25% 25% 25% 25% 25% 25% 1,985,190,250 1,938,376,000 1,911,275,500 1,926,254,000 1,956,925,500 1,999,337,000 15% 15% 15% 15% 15% 15% 297,778,538 290,756,400 286,691,325 288,938,100 293,538,825 299,900,550 $ 297,778,538 $ 290,756,400 $ 286,691,325 $ 288,938,100 $ 293,538,825 $ 299,900,550 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -125- CITY OF TUSTIN PLEDGED - REVENUE COVERAGE Last Ten Fiscal Years Fiscal Year Less Net Water Revenue Bonds Ended Water Operating Available Debt Service June 30 Revenue Expenses Revenue Principal Interest Coverage 2005 $ 8,905,221 $ 7,297,101 $ 1,608,120 $ 230,000 $ 583,920 1.98 2006 9,348,715 7,417,023 1,931,692 130,000 575,410 2.74 2007 10,844,515 9,986,251 858,264 180,000 570,470 1.14 2008 11,240,752 10,053,706 1,187,046 335,000 563,450 1.32 2009 11,510,315 10,573,932 936,383 520,000 550,385 0.87 2010 12,829,902 9,928,608 2,901,294 685,000 530,105 2.39 2011 12,422,746 10,566,435 1,856,311 710,000 502,705 1.53 2012 15,112,161 10,683,621 4,428,540 740,000 1,432,659 2.04 2013 16,688,773 11,462,258 5,226,515 710,000 957,111 3.14 2014 18,955,616 13,198,598 5,757,018 710,000 1,622,859 2.47 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 18 and 19 for more information. - 126- Tax Allocation Bonds (A) Tax Debt Service Allocation Principal Interest Coverage $ 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 -127- CITY OF TUSTIN DEMOGRAPHIC AND ECONOMIC STATISTICS Last Ten Calendar Years Source: HdL Coren & Cone, LLC -128- Personal Per Capita County of Orange Calendar City of Tustin Income Personal Unemployment Year Population (In Thousands) Income Rate 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% 2013 77,983 2,451,708 31,439 5.60% 2014 78,360 2,375,640 30,317 4.90% Source: HdL Coren & Cone, LLC -128- CITY OF TUSTIN PRINCIPAL EMPLOYERS Current Year and Eight Years Ago (1) Information is not available for fiscal year 2004 -2005. Sources: Orange County Workforce Investment Board City of Tustin US Census Bureau -129- 2014 2006(l) Percent of Percent of Number of Total Number of Total Employer Employees Employment Employees Employment Tustin Unified School District 1,313 3.07% Rockwell Collins Inc 600 1.40% Ricoh Electronics Inc 500 1.17% 1,038 2.77% Costco 450 1.05% City of Tustin 360 0.84% Newport Specialty Hospital 300 0.70% Tustin Hospital Medical Center 300 0.70% 200 0.51% Toshiba America Medical Systs 300 0.70% 300 0.76% Micro Vention Inc. 300 0.70% Balboa Water Group 253 0.59% KTBN Channel 40 Trinity Broadcasting 180 0.46% Texas Instruments 560 1.42% MacPherson Enterprises 540 1.37% GE Power Electronics (formerly Cherokee International) 330 0.84% Revere Transducers 200 0.51% Fireman's Fund Insurance 190 0.48% Safeguard Business Systems 175 0.45% (1) Information is not available for fiscal year 2004 -2005. Sources: Orange County Workforce Investment Board City of Tustin US Census Bureau -129- 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 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 31 31 31 31 27 27 25 29 26 35 22 24 28 29 28 24 17 17 15 15 48 48 50 51 50 53 52 51 40 47 141 141 145 144 147 147 140 139 131 140 18 17 17 15 16 15 14 15 13 13 2 3 5 5 6 6 6 5 3 - 22 22 20 20 23 22 23 25 17 17 284 286 296 295 297 294 277 281 245 267 The City contracts with the OC Fire Authority for fire services. Source: City of Tustin Human Resource Department -130- CITY OF TUSTIN CAPITAL ASSET STATISTICS BY FUNCTION Last Ten Fiscal Years Fiscal Year Function 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 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) 101.8 101.8 101.8 106.3 127.2 127.2 127.2 127.2 127.2 129.1 Street Lights 2,855 2,855 2,855 3,285 3,544 3,544 3,544 3,544 3,544 3,640 Traffic Signals 97 97 97 113 113 116 117 118 118 121 Storm Drain (miles) 23.7 23.7 23.7 49.1 49.2 49.2 49.2 49.2 49.2 51.2 Street Trees 16,744 16,638 16,638 15,821 15,853 15,853 15,837 15,786 16,097 16,073 Parks and Recreation Parks 12 12 12 12 12 13 13 13 13 13 Parks (acres) 81.5 81.5 81.5 81.5 81.5 98.5 98.5 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 13,900 14,080 14,117 14,118 14,118 14,139 14,139 14,172 14,181 Average daily consumption 12,500 12,514 17,205 14,970 14,460 14,460 12,899 13,491 13,601 13,975 Reservoirs 6 6 6 6 6 6 6 6 6 6 Wells 12 12 12 12 13 13 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 2,201 2,201 2,201 2,201 2,201 1,914 (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 -131- CITY OF TUSTIN WATER CONSUMPTION BY CUSTOMER TYPE Last Ten Fiscal Years Measured in hundred cubic feet. Source: City of Tustin Finance Department -132- Fiscal Year Type of Customer 2005 2006 2007 2008 Residential 2,539,105 2,847,140 3,319,069 3,202,982 Apartment/Multiple Units 1,101,639 1,218,770 1,312,731 1,264,584 Commercial 285,628 331,990 360,170 326,987 Fire Services 1,100 306 11,453 478 Irrigation 132,442 137,651 171,200 174,858 Government 170,830 179,426 265,158 260,688 Restaurants 61,706 71,356 67,378 61,029 Hospitals 13,732 14,690 14,243 14,376 Non - Profit 37,906 43,427 48,320 48,922 Industrial 60,262 77,425 71,065 69,920 Hotel/Motels 8,502 10,878 13,367 12,803 All Others 112,043 103,570 100,604 115,246 4,524,895 5,036,629 5,754,758 5,552,873 Measured in hundred cubic feet. Source: City of Tustin Finance Department -132- Fiscal Year 2009 2010 2011 3,012,575 2,749,415 2,592,741 1,226,181 1,142,749 1,133,899 305,601 287,951 296,001 184 217 275 171,382 145,287 134,408 264,425 238,914 212,561 54,916 52,761 48,873 11,222 9,636 11,587 45,387 43,985 41,291 67,985 56,360 51,760 12,890 13,562 8,332 105,221 171,781 176,248 5,277,969 4,912,618 4,707,976 2012 2013 2014 2,733,482 2,815,322 2,905,069 1,172,823 1,158,480 1,163,159 305,638 308,376 321,125 1,242 818 577 149,957 151,965 167,346 236,658 268,581 276,292 53,183 53,461 52,520 12,204 12,442 7,634 44,488 44,476 45,920 58,298 57,462 60,438 8,514 10,417 12,866 147,552 82,716 87,785 4,924,039 4,964,516 5,100,731 - 133 - 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 -134- 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 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 2013 40.63 0.73 1.29 1.69 2.10 2.56 2.97 3.40 2014 43.59 0.79 1.38 1.81 2.25 2.79 3.24 3.70 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 -134- Water Customer Tustin Unified School District City of Tustin CalTrans - District 12 AT& T Services, Inc. Ricoh Electronics, Inc. Tustin Place Homeowners Association Tustin Plaza Center, LP Schroeder Property Management SKB- Tustin LLC HSA LP Tustin Acres Comm. Assoc. 15701 TV Way Partnership EMS Development Trinity United Presbyterian Red Hill Association Westchester Park L.P. Cadigan Communities Valencia Gardens Owner LLC School's First Credit Union Atomic Investments Sycamore Gardens Assoc. GRE Tustin Financial CMC Association Mgmt. Key Inn Sierra Corp. Mgt. Briarwood Investment Co. Lt. Tustin Village Community Assoc. Bascon East Tustin Ave Apt. LLC Pacific Bell V KAY - NNC Valencia Gardens Greenwood and McKenzie Alders Apartment Company Pacific Point Apartments Arnel Management Regency West Sycamore Creek Apartments Total Water Sales CITY OF TUSTIN WATER CUSTOMERS Current Year and Eight Years Ago 2014 Percent of Water Total Water Charges Revenues 2006(l) Percent of Water Total Water Charges Revenues $ 778,935 4.11% $ 204,869 3.50% 171,104 0.90% 52,710 0.90% 83,238 0.44% 71,216 0.38% 78,935 0.42% 48,439 0.26% 47,173 0.25% 44,598 0.24% 19,940 0.34% 42,485 0.22% 34,623 0.18% 53,459 0.91% 33,548 0.18% 22,501 0.38% 33,025 0.17% 32,212 0.17% 31,115 0.16% 29,176 0.15% 28,767 0.15% 19,784 0.34% 28,493 0.15% 28,022 0.15% 27,080 0.14% 26,591 0.14% 26,133 0.14% 25,678 0.14% 25,374 0.13% 23,149 0.40% 25,046 0.13% 24,456 0.13% 25,311 0.43% 18,364 0.31% 65,410 1.12% 50,417 0.86% 27,033 0.46% 23,490 0.40% 20,903 0.36% 20,513 0.35% 18,655 0.32% 18,599 0.32% 17,878 0.31% $ 1,825,462 9.63% $ 702,985 12.01% (1) Information is not available for fiscal year 2004 -2005. Source: City of Tustin Finance Department -135-