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HomeMy WebLinkAbout08 COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015�.� • Agenda Item 8 AGENDA REPORT Reviewed: City Manager ,s-r-ln(Sr Finance Director fo-, MEETING DATE: FEBRUARY 2, 2016 TO: JEFFREY C. PARKER, CITY MANAGER FROM: MATTHEW S. WEST, ACTING FINANCE DIRECTOR SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015 SUMMARY: The City engages an independent certified public accounting firm to complete an annual audit of the City's financial records. There are a number of reports such as the Comprehensive Annual Financial Report (CAFR), produced as a result of the annual audit and there are actions that are required by the City's governing board (City Council) to meet the requirements of various auditing standards, such as meeting with the auditing firm that conducted the audit to discuss the audit and internal control issues. RECOMMENDATION: Receive and file the CAFR for the year ended June 30, 2015. Discuss the audit and internal controls with the independent certified public accounting firm, White Nelson Diehl Evans LLP, who conducted the audit. FISCAL IMPACT: The independent certified public accounting firm that the City contracted with to complete the annual audit is White Nelson Diehl Evans LLP. Total cost of the annual audit was $47,398. Of this amount, $19,699 was charged to the Water Enterprise fund; and $27,699 was charged to the General Fund. In addition, $5,050 was paid to CaIPERS and charged to the General Fund for required GASB 68 information. BACKGROUND: The reports that are produced for the fiscal year ending June 30, 2015 are the CAFR; the City State Controllers report; the Single Audit; and the report of the auditor's consideration of the City's internal control over financial reporting and on their tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The CAFR consists of a transmittal letter, independent auditor's report, management's discussion and analysis (MD & A); basic financial statements; notes to the financial statements; supplementary information and a statistical section. The MD & A presents an overview of the basic financial statements and what each section consists of, and discusses financial highlights for the year ended June 30, 2015. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015 February 2, 2016 Page 2 of 4 General Fund financial highlights for the year ended June 30, 2015 (see page 12 of the Management's Discussion and Analysis section of the 2015 CAFR) are as follows: • The City's General Fund total expenditures were $69.6 million, $29.9 million less than prior year's expenditures. This was mostly caused by a $43.9 million decline in Capital Outlay, due to the completion of major construction projects in fiscal year 2014. As a result, Capital Outlay is down significantly in fiscal year 2015. Construction projects completed in fiscal year 2014 included 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 #37. • General Fund revenues were $120.3 million, $66.9 million more than the prior fiscal year. The primary reason for the increase in revenues is due to the gain on sale of Land Held for Resale of $48.1 million, resulting from the sale of land within the former Marine Corps Air Station known as the Legacy to Standard Pacific for the development of residential housing. In addition, $16.9 million was received from Standard Pacific for backbone infrastructure. • Adding to the net increase in General Fund balances is a $21.4 million Special Item, due to a decision from the DOF to allow the City to pay a Due to the Successor Agency promissory note with the former Redevelopment Agency over a five year period; therefore, it was reclassified to long-term debt. The $5 million debt service payment was the first payment to the Successor Agency for that long-term debt obligation. • Total revenues of $120.3 million exceeded total expenditures, transfers and special item of $46.1 million, by $74.2 million. Therefore, the General Fund's fund balance of $149.2 million as of June 30, 2014 increased to $223.4 million as of June 30, 2015. Of the $223.4 million, $122.4 million are nonspendable funds primarily due to a total of $122 million in Land Held for Resale; $16.7 million are legally restricted funds for backbone infrastructure at the Tustin Legacy development, and $84.3 million are unassigned and/or . spendable funds not contained in other classifications. Other Financial Highlights for the year ended June 30, 2015 are as follows: • The city adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions — An Amendment of GASB Statement No. 27 and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date — An Amendment of GASB Statement No. 68, both effective July 1, 2014. These statements provide guidance with respect to the reporting of pensions and established standards for measuring and recognizing liabilities, deferred outflows COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015 February 2, 2016 Page 3 of 4 of resources, deferred inflows of resources, and expense/expenditures. For defined benefit pensions, the City's net pension liability was not previously recorded on the statement of net position. GASB 68 requires that accounting changes adopted to conform to the provision of the Statement be applied retroactively by restating financial statements. The cumulative effects of applying the provision of GASB Statements No. 68 and 71 have been reported as a restatement of beginning net position for the year ended June 30, 2015 in accordance with the Statements. This restatement decreased the governmental activities net position at July 1, 2014 by $45.4 million and the net position of business -type activities by $2.4 million. Governmental fund financial statements are unaffected by the implementation of GASB 68 and 71. Information on the pension plan is located under CAFR footnote 9 (pages 57-66) and in the required supplementary information section of the CAFR on pages 87-90. • After the restatement for GASB 68 mentioned above, the City's total net position increased by $82.2 million primarily due to the gain on sale of assets of $48.1 million mentioned previously and the $32.1 million contribution from Successor Agency for the bond proceeds. With the dissolution of the Tustin Community Redevelopment Agency February 1, 2012, the State Department of Finance (DOF) disallowed the use of unspent bond proceeds. The City pursued a lawsuit to dispute this disallowance, and on August 5, 2014 the DOF issued a letter approving expenditure of the bond proceeds in accordance with bond covenants. The bond proceeds of $32.1 million were transferred from the Successor Agency to the Tustin Community Redevelopment Agency (SATCRDA) to the City effective January 1, 2015, to be spent on capital projects in the Legacy area per the bond covenants. • The City's assets, which encompass all Governmental and Business -Type Activities (i.e. General Fund, Special Revenue Funds, Capital Projects Funds and the Water Enterprise Fund) and deferred out flows of resources as of June 30, 2015, exceeded its liabilities by $706.4 million (net position). Net position consists of $480.9 million net investment in capital assets, $72.9 million in restricted net position and $152.6 million in unrestricted net position. • The City's long-term debt as of June 30, 2014 was restated due to implementation of GASB Statements 68 and 71 to record the pension liability. The pension liability as of June 30, 2014 was $49.6 million for Governmental Activities and $2.6 million for Business -Type Activities. Those balances decreased during fiscal year 2015 to $38.1 million for Governmental Activities and $1.8 million for Business -Type Activities as of June 30, 2015. • Business -Type Activities net position increased $4.1 million, after the restatement for GASB 68, due to the implementation of the increase in water rates over a five year period starting June 2010. The water rates are adequate to cover the annual operating costs and build reserves. COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2015 February 2, 2016 Page 4 of 4 A more thorough discussion of the financial activities for the year ended June 30, 2015 is presented in the MD & A. The City did not have any audit findings and there was one material misstatement that staff corrected totaling $0.5 million relating to the transfer of 14741 and 14751 Newport Avenue to the Orange County Rescue Mission (OCRM). 4l,k �- 6V ✓/I Mdtthew S. West Acting Finance Director Attachments: CAFR for the year ended June 30, 2015 Management Letter Governmental Auditing Standards Letter Appropriations Limit Worksheet To the Honorable Mayor and Members of the City Council City of Tustin Tustin, California We have audited the financial statements of the governmental activities, business -type activity, each major fund, and aggregate remaining fund information of the City of Tustin (the City) for the year ended June 30, 2015. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our engagement and planning communication letters to you dated June 18, 2015. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects ofAccounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As discussed in Notes 1 d and 20 to the financial statements, the City has recorded the net pension liability, deferred outflows of resources, and deferred inflows of resources related to the cost-sharing defined benefit pension plans due to the adoption of Governmental Accounting Standards Board's (GASB) Statement No. 68, "Accounting and Financial Reporting for Pensions" and Statement No. 71, "Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68 ". The adoption of these standards required retrospective application resulting in a $45,364,118 and $2,418,112 reduction of previously reported net position of the governmental activities and business -type activity, respectively. No other accounting policies were adopted and the application of other existing polices was not changed during the year ended June 30, 2015. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 - Tel: 714.978.1300 - Fax: 714.978.7893 O icer located in Orange and San Diego Counties Significant Audit Findings (Continued) Qualitative Aspects ofAccounting Practices (Continued) The most sensitive estimates affecting the City's financial statements are as follows: a. Management's estimate of the fair market value of investments is based on market values provided by outside sources. b. Management's estimate of the value of capital assets (infrastructure assets) is based on industry standards. c. The estimated useful lives of capital assets for depreciation purposes are based on industry standards. d. The annual required contributions, pension expense, net pension liability and corresponding deferred outflows of resources and deferred inflows of resources for the City's public defined benefit plans with CalPERS are based on actuarial valuations provided by CalPERS. e. The annual required contribution and actuarial accrued liability for the City's Other Post -Employment Benefit Plan is based on certain actuarial assumptions and methods prepared by an outside consultant. f. Management's estimate of the claims payable liabilities related to general liability and worker's compensation claims are based on estimates by the claims administrators. We evaluated the key factors and assumptions used to develop these estimates in determining that they were reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were reported in Note 9 regarding the CalPERS defined benefit plans, Note 10 regarding the City's other post -employment benefit plan, Note 12 regarding the claims payable, Note 18 regarding the recent changes in legislation affecting California Redevelopment Agencies and Note 20 regarding the restatement of prior year financial statements. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Pei forming the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. -2- Significant Audit Findings (Continued) Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. The following material misstatement, detected as a result of audit procedures, was corrected by management: a. Adjustment to capital assets to retire right of way property transferred to another agency. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 22, 2015. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to management's discussion and analysis, the safety plan schedule of proportionate share of the net pension liability and schedule of contributions, the miscellaneous plan schedule of changes in net pension liability and related ratios and schedule of contributions, the other post -employment benefit plan schedule of funding progress, and the budgetary comparison schedule, which are required supplementary information (RSI) that supplements the financial statements. Our procedures consisted of inquiries of management regarding 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 our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. -3- Other Matters (Continued) We were engaged to report on the combining and individual non -major fiend financial statements and schedules (supplementary information), which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the basic financial statements or to the basic financial statements themselves. We were not engaged to report on the introductory section and statistical section, which accompany the financial statements but are not RSI. We did not audit or perforin other procedures on this other information and we do not express an opinion or provide any assurance on them. Restriction on Use This information is intended solely for the use of the City Council and management of the City of Tustin and is not intended to be, and should not be, used by anyone other than these specified parties. Z'�� 4'*� '0'6;j� aa"V", ) z�/ Irvine, California December 22, 2015 M INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the City Council Of the City of Tustin Tustin, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activity, each major fund, and the aggregate remaining fund information of the City of Tustin, California (the City), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated December 22, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe_ than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fat: 714.978.7893 O fficer locatedin Orange and San Diego Counties Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Irvine, California December 221) 2015 -2- CffTY OF TUSTff N APPR®PMA MNS LMT WORKSHEET NO. 6 W= ffND EP END EN7 ACCOUNTANTS' R EP®I1 T ON AGREED-UPON PROCEDURES APP=ID TO APPR®I RffATMNS M1D ffT WORKSHEET FOR THE YEAR ENDED SUNIE 309 2015 INDEPENDENT ACCOUNTANTS' REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEET To the Honorable Mayor and Members of City Council of the City of Tustin Tustin, California We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet No. 6 of the City of Tustin, California for the year ended June 30, 2015. These procedures, which were agreed to by the City of Tustin, California and the League of California Cities (as presented in the League publication entitled "Article XIII -B Appropriations Limit Uniform Guidelines") were performed solely to assist the City of Tustin, California in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The City of Tustin's management is responsible for the Appropriations Limit Worksheet No. 6. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the completed Worksheet No. 6 for the year ended June 30, 2015, and compared the limit and annual adjustment factors included in that worksheet to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheet to those that were selected by a recorded vote of the City Council. When selecting the population factor, the City has the option to utilize the larger of the annual percentage change of the City or the County in which the City is located. The County's factor of 1.00930000 was the larger percentage change; however, the City's factor was utilized. Utilizing the appropriate factor for inflation and the population factor for the County, the adopted appropriations limit for fiscal year 2015 would have increased from $73,045,518 to $73,453,065. -1- 2875 Michelle Drive, Suite 300, Irvine, CA 92606 - Tel: 714.978.1300 - rax: 714.978.7893 Oices located in Orange and San Diego Counties 2. For the accompanying Appropriations Limit Worksheet No. 6, we added last year's limit to the total adjustments, and compared the resulting amount to this year's limit. No exceptions were noted as a result of this procedure. 3. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet No. 6 to the prior year appropriations limit adopted by the City Council for the prior year. No exceptions were noted as a result of this procedure. We were not engaged to, and did not, perform an audit, the objective of which would be the expression of an opinion on the accompanying Appropriations Limit Worksheet No. 6. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication entitled "Article XIIIB Appropriations Limitation Uniform Guidelines". This report is intended solely for the use of the City Council and management of the City of Tustin, California and is not intended to be, and should not be, used by anyone other than these specified parties. Irvine, California December 22, 2015 -2- CITY OF TUSTIN APPROPRIATIONS LIMIT WORKSHEET NO. 6 For the year ended .lune 30, 2015 Appropriations limit for fiscal year ended June 30, 2014 (see Note 2) Adjustment factors for the fiscal year ended June 30, 2015 (see Note 2): Inflation Factor (Note 3 ) Population Factor (Note 4) Combined Factor $ 72,944,017 0.99770000 1.00370000 1.00139149 x 0.00139149 Adjustment for inflation and population 101,501 Other adjustments (Note 5) - Total adjustments 101,501 Appropriations limit for fiscal year ended June 30, 2015 $ 73,045,518 See Accompanying Notes to Appropriations Limit Worksheet No. 6. -3- CITY OF TUSTIN NOTES TO APPROPRIATIONS LIMIT WORKSHEET NO. 6 For the year ended June 30, 2015 1. PURPOSE OF LIMITED PROCEDURES REVIEW: Under Article XIIIB of the California Constitution (the Gann Spending Limitation Initiative), California governmental agencies are restricted as to the amount of annual appropriations from proceeds of taxes. Effective for years beginning on or after July 1, 1990, under Section 1.5 of Article XIIIB, the annual calculation of the appropriations limit is subject to a limited procedures review in connection with the annual audit. 2. METHOD OF CALCULATION: Under Section 10.5 of Article XIIIB, for fiscal years beginning on or after July 1, 1990, the appropriations limit is required to be calculated based on the limit for the fiscal year 1986-87, adjusted for the inflation and population factors discussed at Notes 3 and 4 below. 3. INFLATION FACTORS: A California governmental agency may adjust its appropriations limit by either the annual percentage change in the 4th quarter per capita personal income (which percentages are supplied by the State Department of Finance), or the percentage change in the local assessment roll from the preceding year due to the change of local nonresidential construction. The factor adopted by the City of Tustin for the fiscal year 2014-2015 represents the annual percentage change for per capita personal income. 4. POPULATION FACTORS: A California governmental agency may adjust its appropriations limit by either the annual percentage change of the jurisdiction's own population, or the annual percentage change in population in the County where the jurisdiction is located. The factor adopted by the City of Tustin for fiscal year 2014-2015 represents the annual percentage change in the population for the City of Tustin. 5. OTHER ADJUSTMENTS: A California government agency may be required to adjust its appropriations limit when certain events occur, such as the transfer of responsibility for municipal services to, or from, another government agency or private entity. The City of Tustin had no such adjustments for the year ended June 30, 2015. M TUSTIN LEGACY P1 ..........k a. w� a r live Cornerstone tx F�� 1 CITY OF TUSTIN, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30, 2015 Prepared By: Finance Department CITY OF TUSTIN TABLE OF CONTENTS For the year ended June 30, 2015 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, 2015 Page Number REQUIRED SUPPLEMENTARY INFORMATION: 85 Safety Plan Schedule of Proportionate Share of the Net Pension Liability 87 Schedule of Contributions 88 Miscellaneous Plan: Schedule of Changes in the Net Pension Liability and Related Ratios 89 Schedule of Contributions 90 Other Post -Employment Benefit Plan: Schedule of Funding Progress 91 Budgetary Comparison Schedule: General Fund 92 Note to Required Supplementary Information 93 SUPPLEMENTARY INFORMATION: 95 Other Governmental Funds: 97 Combining Balance Sheet 98 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 100 Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Gas Tax Special Revenue Fund 102 Measure M Special Revenue Fund 103 Park Acquisition and Development Special Revenue Fund 104 Asset Forfeiture Special Revenue Fund 105 Air Quality Special Revenue Fund 106 Supplemental Law Enforcement Special Revenue Fund 107 Housing Authority Special Revenue Fund 108 Special Tax B Special Revenue Fund 109 Agency Funds: 111 Combining Statement of Assets and Liabilities 112 Combining Statement of Changes in Assets and Liabilities 113 CITY OF TUSTIN TABLE OF CONTENTS (CONTINUED) For the year ended June 30, 2015 Page Number STATISTICAL SECTION (UNAUDITED): 115 Description of Statistical Section Contents 117 Financial Trends Net Position by Component - Last Ten Fiscal Years 118 Changes in Net Position - Expenses and Program Revenues - Last Ten Fiscal Years 120 Changes in Net Position - General Revenues - Last Ten Fiscal Years 122 Fund Balances of Governmental Funds - Last Ten Fiscal Years 124 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years 126 Revenue Capacity: Assessed Value and Estimated Actual Values of Taxable Property - Last Ten Fiscal Years 128 Direct and Overlapping Property Tax Rates - Last Ten Fiscal Years 130 Principal Property Taxpayers - Current Year and Nine Years Ago 132 Property Tax Levies and Collections - Last Ten Fiscal Years 133 Debt Capacity Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 134 Ratio of General Bonded Debt Outstanding - Last Ten Fiscal Years 136 Overlapping Debt Schedule 137 Legal Debt Margin Information - Last Ten Fiscal Years 138 Pledged -Revenue Coverage - Last Ten Fiscal Years 140 Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Calendar Years 142 Principal Employers - Current Year and Nine Years Ago 143 Operating Information Full -Time City Employees by Function - Last Ten Fiscal Years 144 Capital Asset Statistics by Function - Last Ten Fiscal Years 145 Water District Schedules for Revenue Capacity: Water Consumption by Customer Type - Last Ten Fiscal Years 146 Water Rates - Last Ten Fiscal Years 148 Water Customers - Current Year and Nine Years Ago 149 CITY OF TUSTIN Elected and Administrative Officials MAYOR Charles E. Puckett CITY COUNCIL John Nielsen, Mayor Pro Tem Rebecca Gomez Al Murray Dr. Allan Bernstein AUDIT COMMISSION Daniel Erickson, Chair Thomas Stroud, Chair Pro Tem Robert Ammann R. Lawrence Friend Craig Shimomura 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 Director of Human Resources The page left blank intentionally Finance Department December 23, 2015 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL CITIZENS OF THE CITY OF TUSTIN City of Tustin Tustin, California 92780 TUSTIN BUIMNG OUR FUTURE 1-14NOKINQ QVK PA5T The Comprehensive Annual Financial Report (CAFR) of the City of Tustin for the fiscal year ended June 30, 2015, 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, 2015, 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 unmodified opinion that the City of Tustin's financial statements for the fiscal year ended June 30, 2015, 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 a 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, 2015 population at 78,347, a 0.02 % decrease from 2014. 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 92 as part of the required supplementary information and for nonmajor governmental funds this comparison is presented on pages 102 - 109 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. -iv- ECONOMIC OUTLOOK The State of California maintains a stable economy since the economic downturn. The statewide unemployment rate has dropped from 7.3% in October 2014 to 5.8% for October 2015, which is 0.8% higher than the United States unemployment rate of 5.0% for October 2015. The Orange County unemployment rate has decreased 0.7% from October 2014 to 4.3% for October 2015. The City's sales tax revenue continues to be the largest revenue source for the General Fund. It is 44% of total General Fund revenues. Annual sales tax revenue remained the same from fiscal year 2013-2014 to fiscal year 2014-2015 at $22.2 million. Sales tax revenue for fiscal year 2015-2016 is expected to increase $2.2 million from prior year primarily due to the last triple flip payment the City will receive from the State of California for the 25% of the sales tax the State withheld in prior years. Property tax revenue is the second largest General Fund revenue source (16% of total revenues). Orange County property values and property sales have increased; therefore, property tax revenue is estimated to increase $0.4 million from prior year to $8.8 million for fiscal year 2015-2016. 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 were issued November 2015. Standard Pacific also contributed $16.9 million to be used for the construction of backbone infrastructure within the Legacy. Construction of the 375 homes started spring of 2015. 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 2015-16 are estimated to be $4.4 million more than fiscal year 2014-15, primarily due to the increase in sales tax for the final triple flip payment; increase in property tax revenue and an increase in building permits and building plan checks due to the continuing development of the Legacy. Expenditures are $3.9 million more than budgeted in fiscal year 2014-15 primarily due to the cost of living salary increase of 4% for all employees and the increase in the fire services contract with the Orange County Fire Authority of $0.3 million from prior fiscal year. The City expects a $1.1 million surplus for fiscal year 2015-16. City Council will be reviewing the City's financial condition during the mid -year budget review in February 2016. ACCOMPLISHMENTS AND FUTURE PROJECTS Major capital improvement projects completed include the Bocce Ball Court at Pepper Tree Park, Tustin Ranch Irrigation upgrades/rehabilitation, Red Hill grade separation, Browning Avenue/Parkview Way pedestrian enhancements, Enderle Center Dr. and Vandenberg intersection enhancement, Newport Blvd. bicycle trail from Main St. to Irvine Blvd., and Williams Street Storm drains. Legacy projects completed were the Valencia north loop/Armstrong storm drains, street curbs and gutters, sidewalks irrigation, traffic signals and utilities; and Armstrong south loop roadway construction, Armstrong to Tustin Ranch Road. The City's capital projects for fiscal year 2015-2016 are budgeted at $82 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, former Redevelopment Agency bond proceeds and Water Revenue Bond proceeds. Major capital projects for fiscal year 2015-2016 include Centennial Park picnic area and entry renovation, Civic Center and Senior Center alternative power source, annual roadway and public infrastructure maintenance program. Major Legacy projects include Veterans Sports Park at Tustin Legacy, Victory Park, Peters Canyon Channel improvements, Moffett Drive extension from Park Avenue to east of Peters Canyon Channel, Bell Avenue extension from Red Hill Avenue to Armstrong Avenue, Tustin Legacy Linear Park between Barranca Parkway and Armstrong Avenue, and Aston Street extension between Barranca parkway and Tustin Legacy Linear Park, and Red Hill Avenue median improvements between Barranca parkway and north of Valencia Avenue. Water services capital projects for fiscal year 2015-2016 are the Simon Ranch Reservoir; booster pump station and pipeline replacement; and drilling and installing the Edinger Well. 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, 2014. This was the twenty- eighth 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, Elizabeth Andrew C.P.A., 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, Pam J Pamela Arends-King Finance Director/City Treasurer -vi - CITIZENS OF TUSTIN POLICE PUBLIC WORKS COMMUNITY DEVELOPMENT CITY MANAGER PARKS & RECREATION CITY ATTORNEY DEPUTY CITY MANAGER FINANCE HUMAN RESOURCES -Vll- LOCAL GOVERNMENT FY 2014-15 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 CITY MANAGER FINANCE HUMAN RESOURCES -Vll- LOCAL GOVERNMENT FY 2014-15 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 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 34, 2014 *00,w - 4 0.: Poo 0 t., , Executive Director/CEO 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, 2015, 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, 2015, 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. Emphasis of Matter As discussed in Notes 1 and 20 to the financial statements, the City adopted Governmental Accounting Standards Board's Statement No. 68, `Accounting and Financial Reporting for Pensions" and Statement No. 71, `Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68 ". The adoption of these standards required retrospective application resulting in a $45,364,118 and $2,418,112 reduction of previously reported net position, in the governmental activities and business -type activity, respectively. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, the safety plan schedule of proportionate share of the pension liability and the schedule of contributions, the miscellaneous plan schedule of changes in the net pension liability and related ratios and the schedule of contributions, the other post -employment benefit plan schedule of funding progress, and the budgetary comparison schedule, identified as Required Supplementary Information (RSI) in the accompanying 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 RSI 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 RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 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. -2- Other Matters (Continued) Other Information (Continued) 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. 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 22, 2015, 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 22, 2015 -3- The page left blank intentionally City of Tustin Management's Discussion and Analysis (Unaudited) June 30, 2015 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, 2015. 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 outflows of resources of the City exceeded its liabilities and deferred inflows of resources at June 30, 2015, by $706.4 million (netposition). Net position consists of $480.9 million invested in capital assets, $72.9 million in restricted net position and $152.6 million in unrestricted net position. The government's total net position increased by $82.2 million during the fiscal year ended June 30, 2015. The primary reasons for the increase are due to the gain on land held for resale of $48.1 million for the development of residential housing and the receipt of $16.9 million from the developer of the residential housing, Standard Pacific, for backbone infrastructure within the former Marine Corps Air Station known as the Legacy. In addition, bond proceeds totaling $32 million were transferred from the Successor Agency to the Tustin Community Redevelopment Agency (SATCRA) to the General Fund. As of June 30, 2015, the City's governmental funds reported combined ending fund balances of $284.8 million, an increase of $100.3 million in comparison with the prior year. The significant increase in ending fund balances is primarily due to the gain on Land Held for Resale of $48.1 million; the backbone infrastructure fee of $16.9 million; the decision from the Department of Finance to allow the City to pay a Due to the SATCRA promissory note of $21.4 million to be paid over five years, therefore it was reclassified to long-term debt; and the transfer of bond proceeds of $32 million from the Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Trust to the General Fund. Approximately $122.5 million is nonspendable; $40.7 million is restricted; and $37.4 million is assigned. The City's long-term liabilities reflect the adoption of Government Accounting Standards Board (GASB) pronouncement 68, "Accounting and Financial Reporting for Pensions, an Amendment of GASB Statement No. 27" with the inclusion of Pension Liabilities for Governmental Activities of $38.1 million and Business -Type Activities of $1.8 million for fiscal year ending June 30, 2015 and $49.6 million for Governmental Activities and $2.6 million for Business -Type Activities for fiscal year ending June 30, 2014. 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. -5- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 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. 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. M CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Fund financial statements (Continued) Governmental funds (continued). The City maintains various individual governmental funds organized by their type (special revenue, debt service and capital projects funds). Information is presented separately in the Governmental Funds Balance Sheet and in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. The General Fund and the MCAS 2010 Capital Project fund are considered to be major funds. Data from other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmaj or governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts a bi-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, 07-1 and 13-1. 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. 7- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 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 (68 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. City of Tustin Summary of Net Position As of June 30, 2015 (in millions of dollars) Net Position Net investment in capital assets 461.7 456.6 Business- 480.9 Restricted Total 72.9 Governmental 72.9 Type 93.8 140.8 % Change 152.6 Activities Activities Total 32.0 36.1 624.2 706.4 13.2% 2014 2015 2014 2015 2014 2015 2014-2015 Assets: Current and other assets $245.9 $298.1 $35.0 $38.3 $280.9 $336.4 Capital assets 461.7 456.6 45.9 45.7 507.6 502.3 Total Assets 707.6 754.7 80.9 84.0 788.5 838.7 6.4% Deferred Outflows of Resources 4_2 8_6 0_7 0_6 4_9 9_2 Liabilities: Current liabilities 55.9 12.4 3.4 3.2 59.3 15.6 Non -Current liabilities 63.7 69.7 46.2 44.6 109.9 114.3 Total Liabilities 119.6 82.1 49.6 47.8 169.2 129.9 (23.2%) Deferred Inflows of Resources - 10.9 - 0.7 - 11.6 Net Position Net investment in capital assets 461.7 456.6 23.7 24.3 485.4 480.9 Restricted 36.7 72.9 - - 36.7 72.9 Unrestricted 93.8 140.8 8.3 11.8 102.1 152.6 Total Net Position J592.2Jk 70.3 32.0 36.1 624.2 706.4 13.2% Governmental activities. Net position of the City's governmental activities increased 13.2% to $670.3 million, of which $456.6 million is invested in capital assets such as equipment, buildings and infrastructure. Of the remaining total, $72.9 million is restricted to specifically stipulated spending agreements originated by law, contract or other agreements with external parties. The remaining $140.8 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. CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Government -wide Financial Analysis (Continued) City of Tustin Summary of Changes in Net Position For the Year Ended June 30, 2015 (in millions of dollars) Governmental Business -Type Total Activities Activities Total % Change 2014 2015 2014 2015 2014 2015 2014-2015 Revenues: Program revenues: Charges for services $3.9 $3.8 $18.7 $19.4 $22.6 $23.2 Operating grants & contributions 3.3 3.5 - - 3.3 3.5 Capital grants and contributions 12.2 20.2 - - 12.2 20.2 General revenues: Taxes 16.3 17.9 - - 16.3 17.9 Sales taxes shared state revenues 22.3 22.3 - - 22.3 22.3 Motor vehicle taxes 6.2 6.4 - - 6.2 6.4 Earnings on investments 0.6 1.1 0.1 0.2 0.7 1.3 Miscellaneous 4.0 7.8 0.4 0.5 4.4 8.3 Gain on sale of assets - 48.1 - - - 48.1 Contribution from Successor Agency - 32.1 - - - 32.1 Total Revenues 68.8 163.2 19.2 20.1 88.0 183.3 108.3% Expenses: General government 14.8 17.1 - - 14.8 17.1 Public safety 28.5 29.9 - - 28.5 29.9 Public works 49.5 34.4 - - 49.5 34.4 Community services 3.5 3.7 - - 3.5 3.7 Water - - 16.1 16.0 16.1 16.0 Total Expenses 96.3 85.1 16.1 16.0 112.4 101.1 (10.1%) Extraordinary Item: Forgiveness of interest on advances 1.4 - - - 1.4 - Change in net position (26.1) 78.1 3.1 4.1 (23.0) 82.2 Net Position - Beginning 663.7 637.6 31.3 34.4 695.0 672.0 Restatement for Prior Period Adjustment - 45.4 2.4 47.8 Net Position - Ending $637.6 $670.3 $34.4 36.1 $672.0 $706.4 13.2% M CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Government -wide Financial Analysis (Continued) In governmental activities, the increase in net position of $78.1 is primarily due to the following reasons: • The City received $56 million from Standard Pacific for the sale of 74 acres of Land Held for Resale within the Legacy area. Standard Pacific is developing a residential neighborhood of 375 homes. The City also received $16.9 million from Standard Pacific for the development of Legacy backbone infrastructure. With the dissolution of the Tustin Community Redevelopment Agency February 1, 2012, the State Department of Finance (DOF) disallowed the use of unspent bond proceeds. The City pursed a lawsuit to dispute this disallowance and on August 5, 2014, the DOF issued a letter approving expenditure of the bond proceeds in accordance with bond covenants. The bond proceeds of $32.1 million were transferred from the Successor Agency to the Tustin Community Redevelopment Agency (SATCRDA) to the City effective January 1, 2015 to be spent on capital projects in the Legacy area per the bond covenants. The City implemented GASB 68 which requires the recognition of pension liabilities. The restatement for prior period adjustment of a negative $45.4 million in fiscal year 2015 is the adjustment to the government -wide statements for the unfunded pension plan liabilities (see Note 9). Overall, governmental revenues increased $94.4 million from prior year. The primary reasons for the $94.4 million increase in revenues as previously mentioned were the sale of Land Held for Resale to Standard Pacific for the development of 375 residential homes and the transfer of the unspent bond proceeds from the SATCRDA to the City. Capital grants and contributions increased $8 million from fiscal year 2014 primarily due to the $16.9 million the City received from Standard Pacific for the construction of Legacy backbone infrastructure. Taxes increased $1.6 million from prior year primarily due to: Hotel Bed Tax increased $0.5 million due to the increase in the Hotel Bed Tax rate. The citizens of Tustin voted in November 2014 to increase the Hotel Bed Tax from 6% to 10%. The new tax rate became effective January 1, 2015. • Property tax revenue increased $0.5 million and Property Tax in Liu of Vehicle License Fees increased $0.2 million due to the increase in property values. Earnings on investments increased $0.5 million from fiscal year 2014 due to a larger investment portfolio and longer weighted average portfolio life (days) which resulted in a higher weighted average investment yield. Due to the gain on sale of the Land Held for Resale to Standard Pacific and the funds received for the construction of Legacy backbone infrastructure the average balance for the investment portfolio in fiscal year 2015 was $191 million compared to $162 million in fiscal year 2014. The weighted average portfolio life (days) was 730 days with a weighted average portfolio yield of 0.85% in fiscal year 2015. The weighted average portfolio life (days) for fiscal year 2014 was 450 days with a weighted average portfolio yield of 0.56%. Miscellaneous revenue increased $3.9 million from prior year due to the receipt of $0.7 million for the reimbursement of state mandated costs from the past few years; the liquidation of a retention of $0.4 million from Sandoval Pipeline Engineering for failure to complete work in the time allowed for the Tustin Ranch Road extension project; increase in rental income of $0.4 million from renting space within the Legacy; the reimbursement of $1.2 million for street maintenance to meet the City's Maintenance of Effort requirement to receive Measure M sales tax revenue from the Orange County Transportation Authority; and the sale of 5.7 acres of land held for resale for $0.5 million to the South Orange County Community College. -10- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Government -wide Financial Analysis (Continued) Governmental expenses decreased $11.2 million from prior year primarily due to the decrease in Public Works spending on capital projects. Last fiscal year the City recognized 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 increased $2.3 million from prior year due to: The City paid $0.7 million for a payment to the early retirement incentive program administered by Public Agency Retirement Services (See Note 7). No payment to the program was made in prior fiscal year as fiscal year 2014's payment was made in fiscal year 2013. The Economic Development Department expenses of $0.7 million were paid out of the General Fund. The Department had been paid out of the Successor Agency to the Tustin Community Redevelopment Agency in the prior year, but the State Department of Finance disallowed those expenses for fiscal year 2015. Professional and consulting services for the development of the Legacy increased $1.3 million from prior year due to the increase in planning and design activity. Public Safety increased $1.4 million from fiscal year 2014 primarily due to the increase in OPEB costs, claims and judgements and compensated absences totaling $1.1 million. Community Services increased $0.2 million from prior year due to the increase in consulting costs in relation to the development at the Legacy. Extraordinary item Forgiveness of Interest on Advances decreased $1.4 million from fiscal year ending June 30, 2014. 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. Business -Type activities net position increased $4.1 million from prior year. Charges for services increased $0.7 million from fiscal year 2014 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 decreased $0.1 million primarily because less water was purchased from the East Orange County Water District due to water conservation. The Restatement for Prior Period Adjustment of a negative $2.4 million is the recognition of the pension plan unfunded liability. 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. -11- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Financial Analysis of the Government's Funds The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information may be useful in assessing the City's financing requirements. As of the end of the current fiscal year, the City's governmental funds reported total combined ending fund balances of $284.8 million, an increase of $100.3 million in comparison with the prior year as previously stated is primarily due to the sale of Land Held for Resale for residential homes in the Legacy; the contribution of funds from the developer for construction of backbone infrastructure in the Legacy; and the transfer of unspent bond proceeds from the former Redevelopment Agency to be spent on capital projects in the Legacy. Approximately $122.0 million (43.0 %) of this total amount constitutes nonspendable fund balance. Of the nonspendable amount, $122.0 million is Land Held for Resale. The remainder of the fund balance consists of $40.7 million in restricted funds, $37.4 million assigned to capital projects, and $84.3 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 $84.3 million, while total fund balance was $233.4 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 121% of the total General Fund expenditures. City of Tustin Summary of Changes in Fund Balances - General Fund For the Year Ended June 30, 2015 (in millions of dollars) Expenditures General government 2014 2015 Revenues: 28.1 33.0 Taxes $45.1 $43.7 Charges for services 1.7 1.8 Intergovernmental 0.9 2.6 Fines and forfeitures 0.6 0.8 Licenses and permits 1.3 0.9 Other 3.8 22.4 Gain on sale of land held for resale - 48.1 Total Revenues 53.4 120.3 Expenditures General government 13.1 16.6 Public safety 28.1 33.0 Public works 5.8 6.3 Community services 2.8 2.9 Capital Outlay 49.7 5.8 Debt service - 5.0 Total Expenses 99.5 69.6 Excess of Revenues Over (Under) Expenditures (46.1) 50.7 Other Financing Sources (Uses): Net transfers 0.9 2.1 Special Item Extraordinary Item: Forgiveness of interest on advances Net Change in Fund Balance -12- 21.4 Total %Change 2014-2015 125.3% (30.1%) 1_4 43.8 74.2 269.4% CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Financial Analysis of the Government's Funds (continued) Transactions impacting revenues in the General Fund were as follows: • Property tax revenue totaled $14.9 million reflecting an increase of $0.6 million from prior year due to the increase in property values. • Intergovernmental revenue increased $1.7 million from fiscal year 2014 due to the reimbursement of state mandate costs of $0.7 million from the past few years. The State of California's Governor ordered that past due state mandate costs should be reimbursed due to excess state revenues. The City's Community Development Block Grant (CDBG) program's revenue increased $0.6 million from prior year due to the increase in budgeted funds by the Federal Government. • License and Permits decreased $0.4 million due to the decrease in building permits from prior year. During fiscal year 2014 the Irvine Company's constructed apartments in the Legacy and St. Anton Legacy LP's constructed apartments including low to moderate income apartments in the Legacy. Overall building activity was higher in fiscal year 2014. • Other Revenue increased $18.6 million from prior year primarily due to the $16.9 million the City received from Standard Pacific for construction of backbone infrastructure in the Legacy. The City sold 5.7 acres of Land Held for Resale in the Legacy for $0.5 million to the South Orange County Community College. Rental income increased $0.3 million from prior year due to the increase in renting space within the Legacy, primarily providing parking areas for the auto dealerships and renting the hangar located in the Legacy. Reimbursement for cost recovery increased $1.2 million from prior year for street maintenance to meet the City's Maintenance of Effort requirement to receive Measure M sales tax revenue from the Orange County Transportation Authority. Changes in General Fund expenditures from previous fiscal year, by function, occurred as follows during the year ended June 30, 2015: General Government expenditures increased $3.5 million from prior year. Improvement and Right of Away expense increased $1.2 million for street and sidewalk maintenance to meet the Maintenance of Effort requirements to receive the Measure M sales tax from the Orange County Transportation Authority. Claims paid for workers compensation and liability claims increased $0.5 from prior year due to increase of settling outstanding claims. As previously stated, the City paid $0.7 million as a payment to the early retirement incentive program administered by Public Agency Retirement Services. The City paid the fiscal year 2014's payment in fiscal year 2013. The Economic Development Department expenses of $0.7 million were paid out of the General Fund because the Department of Finance disallowed that expense to be paid out of the Successor Agency to the Tustin Community Redevelopment Agency as was done in fiscal year 2014. Also, professional and consulting services for the development of the Legacy increased $1.3 million from prior year due to the increase in planning and design activity. Public safety expenditures increased $4.9 million from prior year primarily due to the payment of the Public Safety Side Fund pension liability of $4.3 million and a $0.5 million increase in claims paid. Public Works expenditures increased $0.5 million due to filling vacant positions and the increase in contract professional services. Capital Outlay decreased $43.9 million primarily due to the decrease in construction projects. Construction projects completed in fiscal year 2014 included 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. -13- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Financial Analysis of the Government's Funds (continued) • Net Transfers increased $1.2 million from prior year due to the transfer from Community Facility District Agency funds of $2.8 million to the General Fund for services provided in the Special Tax B areas. The services provided are public safety, street, park and landscape maintenance. The City's net transfer to other government funds and agency funds to eliminate deficit cash balances was $0.4 million (See Note 4). As stated previously the Gain on Sale of Land Held for Resale increased $48.1 million from prior fiscal year due to the sale of Land Held for Resale in the Legacy to Standard Pacific for the development of 375 residential homes. The $1.4 million extraordinary item, Forgiveness of Interest on Advances, decreased from fiscal year 2014. The extraordinary item was 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 Special Item of $21.4 million is due to a decision from the DOF to allow the City to pay a Due to the Successor Agency promissory note with the former Redevelopment Agency over a five year period; therefore it was reclassified to long-term debt (See Note 8). The $5 million debt service payment was the first payment to the Successor Agency for that long-term debt obligation. The MCAS 2010 Capital Project Fund's increase in excess of revenues over expenditures of $31.4 million is primarily due, as previously stated, to the DOF allowing the use of unspent bond proceeds that were outstanding when the former Tustin Community Redevelopment Agency was dissolved February 1, 2012. The $32.1 million contribution from the Successor Agency will be used for backbone infrastructure within the Legacy area per the bond covenants. General Fund Budgetary Highlights Differences between the General Fund actual revenues and transfers and amended budgeted revenues and transfers were $4.0 million primarily due to better actual revenues received then projected primarily for property taxes, investment income, state mandate reimbursements and developer contributions. The amended budgeted expenditures were $80.5 million, an increase in appropriations of $8.2 million from the original budgeted expenditures of $72.3 million. The increase in appropriations was due the expected increase in professional and consulting services for design and development in the Legacy area. Actual General Fund expenditures were less than the amended budgeted amount of $80.5 million by $10.9 million due to the decrease in capital project spending and use of professional and consulting services. 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 $4.1 million during fiscal year 2015, from $32.0 million as of June 30, 2014, to $36.1 million as of June 30, 2015. Total revenues for the Water Fund exceeded total expenses by $4.1 million; however, with the implementation of GASB 68 the Restatement for Prior Period Adjustment of a negative $2.4 for pension liabilities reduced increase in Net change in position to $1.7 million. -14- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Financial Analysis of the Proprietary Funds (Continued) Significant activity during the year included the adoption of a water conservation ordinance to encourage saving water during the drought California has been experiencing. As a result of water conservation water production costs decreased $0.1 million from prior fiscal year. 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, 2015 amounts to $502.4 million, net of accumulated depreciation. This investment in capital assets includes land, buildings and system improvements, machinery and equipment, park facilities, roads, highways, and bridges. City of Tustin Summary of Changes in Capital Assets For the Year Ended June 30, 2015 (in millions of dollars) Land Right of way Construction in progress Buildings and improvements Machinery and equipment Infrastructure Property, plant and equipment Total Capital Assets, Net Governmental Activities 2014 2015 $44.1 $44.1 44.3 43.8 69.2 57.8 76.0 76.4 3.4 3.2 224.7 231.4 $461.7 $456.7 Business -Type Activities 2014 2015 $1.2 $1.2 2.4 3.6 4.8 4.5 37.5 36.4 $45.9 $45.7 $507.6 $502.4 (1.0%) The major activity affecting capital assets this year was the decrease in construction in progress due to the completion of improvements for Valencia Avenue, Kensington Park Drive, Lansdowne Road, Severyns Road and Armstrong Avenue. 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 50). Long-term Debt At the end of the current fiscal year, the City had total outstanding long-term liabilities of $114.3 million. Of this amount, $42.6 million are secured solely by specified revenue sources such as property tax increment and water service charges. -15- Total Total %Change 2014 2015 2014-2015 $45.3 $45.3 44.3 43.8 71.6 61.4 80.8 80.9 3.4 3.2 224.7 231.4 37.5 36.4 $45.9 $45.7 $507.6 $502.4 (1.0%) The major activity affecting capital assets this year was the decrease in construction in progress due to the completion of improvements for Valencia Avenue, Kensington Park Drive, Lansdowne Road, Severyns Road and Armstrong Avenue. 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 50). Long-term Debt At the end of the current fiscal year, the City had total outstanding long-term liabilities of $114.3 million. Of this amount, $42.6 million are secured solely by specified revenue sources such as property tax increment and water service charges. -15- CITY OF TUSTIN Management's Discussion and Analysis (Unaudited) June 30, 2015 Long-term Debt (Continued) City of Tustin Summary of Changes in Long -Term Liabilities For the Year Ended June 30, 2015 (in millions of dollars) Bonds payable Due to Successor Agency to the Tustin Community Redevelopment Agency Claims and judgments Postemployment benefits obligation Termination benefits Compensated absences Pension liabilities Governmental Business -Type Total Activities Activities Total % Change 2014 2015 2014 2015 2014 2015 2014-2015 $- $- $43.4 $42.6 $43.4 $42.6 - 16.4 - - - 16.4 4.3 5.1 - - 4.3 5.1 4.9 5.7 - - 4.9 5.7 2.0 1.3 - - 2.0 1.3 2.9 3.0 0.2 0.2 3.1 3.2 49.6 38.2 2_6 1_8 52.2 40.0 Total Outstanding Debt $63.7 $69.7 $46.2 44.6 109.9114.3 4.0% The City's long-term debt as of June 30, 2014, was restated due to implementation of GASB Statements 68 and 71 to record the pension liability. Overall, long-term debt increased $4.4 million from the restated prior year balances mostly due to the reclassification of the amount Due to the Successor Agency to the Tustin Community Redevelopment Agency ($16.4 million) from current to long-term liabilities. This was the result of a settlement agreement with the State Department of Finance. This increase was offset by a decrease of $12.2 million in pension liabilities, comprised of reductions for the Safety (police) Plans totaling $6.4 million and $5.8 million for the Miscellaneous (all other) Plans. 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 52. Next Year's Budget and Rates The City Council adopted the fiscal year 2015-2016 Budget with total appropriations of $186.1 million which includes $9 million of capital outlay for the Water Enterprise Fund. The General Fund fiscal year 2015-2016 estimated revenues are $55.5 million and budgeted appropriations are $54.3 million resulting in an estimated operating surplus of $1.2 million. The appropriations are $3.9 million higher than prior year's appropriation. The primary reason for the increase in appropriations is the 4% cost of living salary increase for all employees. The last cost of living salary increase the employees received was in 2008. The fire service $0.3 million. All other appropriations are consistent with fiscal year 2014. There were no fee increases as part of the preparation and adoption of the fiscal year 2015-16 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. -16- CITY OF TUSTIN STATEMENT OF NET POSITION June 30, 2015 ASSETS: Cash and investments Receivables: Accounts Interest Loans Allowance for uncollectibles Prepaid items and deposits Land held for resale Restricted assets: Cash and investments Capital assets: Not being depreciated Being depreciated, net TOTAL ASSETS DEFERRED OUTFLOWS OF RESOURCES: Deferred charge on refunding Deferred amounts on pension plans TOTAL DEFERRED OUTFLOWS OF RESOURCES LIABILITIES: Accounts payable and accrued liabilities Interest payable Deposits payable Noncurrent liabilities: Due within one year Due in more than one year TOTAL LIABILITIES DEFERRED INFLOWS OF RESOURCES: Deferred amounts on pension plans NET POSITION: Net investment in capital assets Restricted for: Community services Public safety Public works Unrestricted TOTAL NET POSITION See accompanying notes to basic financial statements. -17- Governmental Business -type Activities Activity Total $ 151,529,865 $ 14,767,193 $ 166,297,058 4,744,042 2,791,123 7,535,165 227,839 30,668 258,507 1,588,866 - 1,588,866 (1,238,866) - (1,238,866) 431,231 110 431,341 122,384,169 - 122,384,169 18,455,244 20,673,118 39,128,362 145,713,206 4,728,481 150,441,687 310,935,879 40,984,094 351,919,973 754,771,475 83,974,787 838,746,262 - 418,969 418,969 8,648,172 195,401 8,843,573 8,648,172 614,370 9,262,542 7,143,331 2,203,804 9,347,135 - 487,792 487,792 5,371,885 482,855 5,854,740 12,632,869 981,393 13,614,262 57,049,754 43,611,267 100,661,021 82,197,839 47,767,111 129,964,950 10,916,161 705,594 11,621,755 456,649,085 24,270,718 480,919,803 2,110,077 - 2,110,077 452,447 452,447 70,366,998 - 70,366,998 140,727,040 11,845,734 152,572,774 $ 670,305,647 $ 36,116,452 S 706,422,099 CITY OF TUSTIN STATEMENT OF ACTIVITIES For the year ended June 30, 2015 Functions/programs Expenses Governmental activities: General government $ 17,121,057 Public safety 29,886,284 Public works 34,435,214 Community services 3,699,059 Total governmental activities 85,141,614 Business -type activity: Water Total 15,982,078 $ 101,123,692 See accompanying notes to basic financial statements. Program Revenues Charges Operating Capital for Grants and Grants and Services Contributions Contributions $ 252,074 $ 16,764 $ - 1,071,099 222,400 - 1,564,314 2,184,778 20,115,139 892,102 1,122,881 129,340 3,779,589 3,546,823 20,244,479 19,375,359 - - $ 23,154,948 $ 3,546,823 $ 20,244,479 General revenues: Taxes: Property Franchise Transient occupancy Business license Sales taxes shared state revenues Motor vehicle taxes shared state revenues Earnings on investments Gain on sale of land held for resale Contribution from sucessor agency Miscellaneous Total general revenues Change in net position NET POSITION AT BEGINNING OF YEAR, AS RESTATED NET POSITION AT END OF YEAR -18- Net (Expense) Revenue and Changes in Net Position Governmental Business -type Activities Activity Total $ (16,852,219) $ - $ (16,852,219) (28,592,785) - (28,592,785) (10,570,983) - (10,570,983) (1,554,736) - (1,554,736) (57,570,723) - (57,570,723) - 3,393,281 3,393,281 (57,570,723) 3,393,281 (54,177,442) 14,552,535 - 14,552,535 1,763,878 - 1,763,878 1,090,675 - 1,090,675 419,148 - 419,148 22,269,896 - 22,269,896 6,380,698 - 6,380,698 1,052,276 249,863 1,302,139 48,136,121 - 48,136,121 32,137,773 - 32,137,773 7,829,149 489,090 8,318,239 135,632,149 738,953 136,371,102 78,061,426 4,132,234 82,193,660 592,244,221 31,984,218 624,228,439 $ 670,305,647 $ 36,116,452 $ 706,422,099 -19- CITY OF TUSTIN BALANCE SHEET GOVERNMENTAL FUNDS June 30, 2015 See accompanying notes to basic financial statements. -20- MCAS 2010 Other Total Capital Project Governmental Governmental General Fund Funds Funds ASSETS Cash and investments $ 90,711,343 $ 31,420,596 $ 29,397,926 $ 151,529,865 Restricted cash and investments 16,645,150 - 1,810,094 18,455,244 Receivables: Accounts 4,050,889 - 693,153 4,744,042 Interest 102,780 28,628 96,431 227,839 Loans 539,133 - 1,049,733 1,588,866 Allowance for uncollectibles (539,133) - (699,733) (1,238,866) Prepaid items and deposits 429,400 - 1,831 431,231 Land held for resale 122,029,242 - 354,927 122,384,169 TOTAL ASSETS $ 233,968,804 $ 31,449,224 $ 32,704,362 $ 298,122,390 LIABILITIES, DEFERRED INFLOWS )F RESOURCES AND FUND BALANCE LIABILITIES: Accounts payable and accrued liabilities $ 5,828,375 $ 39,565 $ 1,275,391 $ 7,143,331 Deposits payable 4,556,161 - 815,724 5,371,885 TOTAL LIABILITIES 10,384,536 39,565 2,091,115 12,515,216 DEFERRED INFLOWS OF RESOURCES: Unavailable revenue 197,156 - 623,557 820,713 FUND BALANCES: Nonspendable 122,458,642 - - 122,458,642 Restricted 16,650,332 - 24,048,818 40,699,150 Assigned - 31,409,659 5,940,872 37,350,531 Unassigned 84,278,138 - - 84,278,138 TOTAL FUND BALANCES 223,387,112 31,409,659 29,989,690 284,786,461 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 233,968,804 $ 31,449,224 $ 32,704,362 $ 298,122,390 See accompanying notes to basic financial statements. -20- CITY OF TUSTIN RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION June 30, 2015 Fund balances - total governmental funds $ 284,786,461 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. 456,649,085 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, 2015 are: Claims and judgments payable $ (5,148,755) Compensated absences payable (3,025,019) Due to Successor Agency (16,404,683) Post employment benefits obligation (5,694,218) Termination benefits payable (1,320,852) Total long-term liabilities (31,593,527) Pension related debt applicable to the City's governmental activites are not due and payable in the current period and accordingly are not reported as fund liabilities. Deferred outflows of resources and deferred inflows of resources related to pensions are only reported in the Statement of Net Position as the changes in these amounts effects only the government -wide statements for governmental activities: Deferred outflows of resources 8,648,172 Deferred inflows of resources (10,916,161) Pension liability (38,089,096) (40,357,085) 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. 820,713 Net position of governmental activities $ 670,305,647 See accompanying notes to basic financial statements. -21- CITY OF TUSTIN STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS REVENUES: Taxes Licenses and permits Fines and forfeitures Investment income Intergovernmental revenue Charges for services Rental income Other revenue Developer contribution Gain on sale of land held for resale Contribution from successor agency TOTAL REVENUES EXPENDITURES: Current: General government Public safety Public works Community services Capital outlay Debt service: Principal retirement TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) For the year ended June 30, 2015 SPECIAL ITEM 21,404,683 NET CHANGE IN FUND BALANCES 74,203,023 - 21,404,683 31,409,659 (5,324,699) 100,287,983 FUND BALANCES - BEGINNING OF YEAR 149,184,089 - 35,314,389 184,498,478 FUND BALANCES - END OF YEAR $ 223,387,112 $ 31,409,659 $ 29,989,690 $ 284,786,461 See accompanying notes to basic financial statements. -22- MCAS 2010 Other Total Capital Project Governmental Governmental General Fund Funds Funds $ 43,696,204 $ - $ - $ 43,696,204 885,043 - - 885,043 752,597 - - 752,597 716,989 123,075 201,597 1,041,661 2,644,657 - 12,387,730 15,032,387 1,849,950 - 20,451 1,870,401 938,971 - 174,369 1,113,340 3,743,105 - 2,559,287 6,302,392 16,934,704 - - 16,934,704 48,136,121 - - 48,136,121 - 32,137,773 - 32,137,773 120,298, 341 32,260, 848 15,343,434 167,902,623 16,628,862 - 939,435 17,568,297 32,963,299 - 99,630 33,062,929 6,347,830 69,427 - 6,417,257 2,899,151 - 271,596 3,170,747 5,781,519 781,762 17,236,812 23,800,093 5,000,000 - - 5,000,000 69,620,661 851,189 18,547,473 89,019,323 50,677,680 31,409,659 (3,204,039) 78,883,300 3,693,381 - 1,572,721 5,266,102 (1,572,721) - (3,693,381) (5,266,102) 2,120,660 - (2,120,660) - SPECIAL ITEM 21,404,683 NET CHANGE IN FUND BALANCES 74,203,023 - 21,404,683 31,409,659 (5,324,699) 100,287,983 FUND BALANCES - BEGINNING OF YEAR 149,184,089 - 35,314,389 184,498,478 FUND BALANCES - END OF YEAR $ 223,387,112 $ 31,409,659 $ 29,989,690 $ 284,786,461 See accompanying notes to basic financial statements. -22- 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, 2015 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 Disposition of capital assets Depreciation expenses 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: Principal payment Advances from Successor Agency Postemployment benefits obligation Claims and judgments payable Compensated absences payable Termination benefits payable Pension expense reported in the governmental funds includes the annual required contributions. In the Statement of Activities, pension expense includes the change in the net pension liability, and related change in pension amounts for deferred outflows of resources and deferred inflows of resources Some revenues reported in the Statement of Activities are not considered to be available to finance current expenditures and therefore are reported as available revenues in the governmental funds: Net change in unavailable revenue Change in net position of governmental activities See accompanying notes to basic financial statements. -23- $ 6,132,843 (515,993) (10,641,088) $ 5,000,000 (21,404,683) (724,068) (870,255) (171,189) 660.426 $ 100,287,983 (5,024,238) (17,509,769) 5,007,033 (4,699,583) $ 78,061,426 CITY OF TUSTIN STATEMENT OF NET POSITION PROPRIETARY FUND June 30, 2015 LONG-TERM LIABILITIES: Business -type Compensated absences payable Activity Termination benefits payable Water Bonds payable Enterprise ASSETS: Fund CURRENT ASSETS: 43,611,267 Cash and investments $ 14,767,193 Accounts receivable 2,791,123 Interest receivable 30,668 Prepaid items 110 Restricted cash and investments 20,673,118 TOTAL CURRENT ASSETS 38,262,212 NONCURRENT ASSETS: $ 36,116,452 Capital assets: Not being depreciated 4,728,481 Being depreciated, net 40,984,094 TOTAL NONCURRENT ASSETS 45,712,575 TOTAL ASSETS 83,974,787 DEFERRED OUTFLOWS OF RESOURCES: Deferred charge on refunding 418,969 Deferred amounts on pension plans 195,401 TOTAL DEFERRED OUTFLOWS OF RESOURCES 614,370 LIABILITIES: CURRENT LIABILITIES: Accounts payable and accrued liabilities 2,203,804 Deposits payable 482,855 Compensated absences payable 176,606 Termination benefits payable 14,787 Interest payable 487,792 Bonds payable 790,000 TOTAL CURRENT LIABILITIES 4,155,844 LONG-TERM LIABILITIES: Compensated absences payable 19,622 Termination benefits payable 14,787 Bonds payable 41,743,944 Net pension liability 1,832,914 TOTAL LONG-TERM LIABILITIES 43,611,267 TOTAL LIABILITIES 47,767,111 DEFERRED INFLOWS OF RESOURCES: Deferred amounts on pension plans 705,594 NET POSITION: Net investment in capital assets 24,270,718 Unrestricted 11,845,734 TOTAL NET POSITION $ 36,116,452 See accompanying 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, 2015 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 Loss on sale of assets TOTAL NONOPERATING REVENUES (EXPENSES) CHANGE IN NET POSITION NET POSITION AT BEGINNING OF YEAR, AS RESTATED NET POSITION AT END OF YEAR See accompanying notes to basic financial statements. -25- Business -type Activity Water Enterprise Fund $ 19,375,359 2,488,663 6,530,965 3,492,020 1,771,670 14,283,318 5,092,041 249,863 489,091 (1,695,472) (3,289) (959,807) 4,132,234 31,984,218 $ 36,116,452 CITY OF TUSTIN STATEMENT OF CASH FLOWS PROPRIETARY FUND For the year ended June 30, 2015 NET CASH PROVIDED BY OPERATING ACTIVITIES 7,678,670 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (1,202,202) Cash paid to other funds for capital assets (454,398) Principal paid on bonds (770,000) Interest paid (2,106,162) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (4,532,762) CASH FLOWS FROM INVESTING ACTIVITIES: Investment income 260,054 Change in the fair value of investments (24,864) NET CASH PROVIDED BY INVESTING ACTIVITIES 235,190 NET INCREASE IN CASH AND CASH EQUIVALENTS 3,381,098 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 32,059,213 CASH AND CASH EQUIVALENTS - END OF YEAR $ 35,440,311 CASH AND CASH EQUIVALENTS: Cash and investments - current assets $ 14,767,193 Cash and investments - restricted assets 20,673,118 TOTAL CASH AND CASH EQUIVALENTS $ 35,440,311 See accompanying notes to basic financial statements. (Continued) -26- Business -type Activity Water Enterprise Fund CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers $ 20,498,194 Payments to suppliers (9,144,412) Cash paid to other funds for services (1,200,000) Payments to employees (2,475,112) NET CASH PROVIDED BY OPERATING ACTIVITIES 7,678,670 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (1,202,202) Cash paid to other funds for capital assets (454,398) Principal paid on bonds (770,000) Interest paid (2,106,162) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (4,532,762) CASH FLOWS FROM INVESTING ACTIVITIES: Investment income 260,054 Change in the fair value of investments (24,864) NET CASH PROVIDED BY INVESTING ACTIVITIES 235,190 NET INCREASE IN CASH AND CASH EQUIVALENTS 3,381,098 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 32,059,213 CASH AND CASH EQUIVALENTS - END OF YEAR $ 35,440,311 CASH AND CASH EQUIVALENTS: Cash and investments - current assets $ 14,767,193 Cash and investments - restricted assets 20,673,118 TOTAL CASH AND CASH EQUIVALENTS $ 35,440,311 See accompanying notes to basic financial statements. (Continued) -26- CITY OF TUSTIN STATEMENT OF CASH FLOWS PROPRIETARY FUND (CONTINUED) For the year ended June 30, 2015 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 items (Increase) decrease in deferred ouflows of resources Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in deposits payable Increase (decrease) in compensated absences Increase (decrease) in termination benefits payable Increase (decrease) in net pension liability Increase (decrease) in deferred inflows of resources NET CASH PROVIDED BY OPERATING ACTIVITIES See accompanying notes to basic financial statements. -27- Business -type Activity Water Enterprise Fund $ 5,092,041 1,771,670 489,091 537,595 1,305 (16,058) (246,622) 96,149 27,234 (14,788) (764,541) 705,594 $ 7,678,670 CITY OF TUSTIN STATEMENT OF FIDUCIARY NET POSITION ASSETS: Cash and investments Restricted cash and investments Receivables: Taxes Interest Due from City of Tustin Prepaid items and deposits Capital assets, net TOTAL ASSETS LIABILITIES: Accounts payable Interest payable Deposits payable Due to bondholders Long-term liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET POSITION: Held in trust See accompanying notes to basic financial statements. June 30, 2015 -28- Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Agency Trust Fund Funds $ 5,304,175 6,390,213 4,833 16,404,683 5,471 1,570,400 29,679,775 30,348 1,007,695 2,000 $ 119,268 12,254,623 72,218 $ 12,446,109 $ 980 12,445,129 7,291,171 - 74,614,711 - 82,945,925 $ 12,446,109 $ (53,266,150) CITY OF TUSTIN STATEMENT OF CHANGES IN FIDUCIARY NET POSITION For the year ended June 30, 2015 ADDITIONS: Tax revenue Rental income Investment income TOTAL ADDITIONS DEDUCTIONS: Administrative expenses Community services Interest Contribution to the City of Tustin Depreciation and amortization TOTAL DEDUCTIONS CHANGE IN NET POSITION NET POSITION - BEGINNING OF YEAR NET POSITION - END OF YEAR See accompanying notes to basic financial statements. -29- Successor Agency to the Tustin Community Redevelopment Agency Private Purpose Trust Fund $ 6,528,897 15,000 155,180 6,699,077 250,000 281,648 3,175,906 32,137,773 33,424 35,878,751 (29,179,674) (24,086,476) $ (53,266,150) The page left blank intentionally -30- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2015 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 (the 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, which designates management and has full accountability for the Housing Authority's financial affairs. 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 and management of the City has operational responsibility 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 within the funds of the primary government. These component units do not issue separate component unit financial statements. -31- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 activities) 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. -32- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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. -33 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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. 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. -34- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 funds: The General Fund is the primary operating fund of the City and is used to account for all revenues and expenditures that are not required to be accounted for in another fund. The MCAS 2010 Capital Proj ects Fund is used to account for capital proj ect costs at the Marine Corps Air Station. 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. -35 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): d. New Accounting Pronouncements: Current Year Standards In fiscal year 2014-2015, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 68, "Accounting and Financial Reporting for Pensions, an Amendment of GASB Statement No. 27" and GASB Statement No. 71, "Pension Iransition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68". These Statements establish standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenses. For defined benefit pension plans, these Statements identify the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Accounting changes adopted to conform to the provisions of these statements should be applied retroactively. The result of the implementation of these standards decreased the net position at July 1, 2014 by $45,364,118 and $2,418,112, in the governmental activities and business -type activity, respectively. GASB Statement No. 69 - "Government Combinations and Disposals of Government Operations" was required to be implemented in the current fiscal year and 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 72 - Fair Value Measurement and Application", effective for periods beginning after June 15, 2015. • GASB 73 - "Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 ", effective for periods beginning after June 15, 2015 - except for those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for periods beginning after June 15, 2016. • GASB 74 - "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans", effective for periods beginning after June 15, 2016. • GASB 75 - `Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions", effective for periods beginning after June 15, 2017. • GASB 76 - "The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments ", effective for periods beginning after June 15, 2015. -36- 1 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): 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. 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 -37- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 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 ou�flows 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 that time. The City has three items that qualify for reporting in this category. The first item 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. The second item is the deferred outflow related to pensions. This amount is equal to employer contributions made after the measurement date of the net pension liability. The third item is a deferred outflow related to pensions for the changes in proportion and differences between employer contributions and the proportionate share of contributions. This amount is amortized over a closed period equal to the average of the expected remaining services lives of all employees that are provided with pensions through the Plans determined as of June 30, 2013 (the beginning of the measurement period ended June 30, 2014), which is 3.8 years. 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 two items that qualify for reporting in this category. The first item, which arises only under a modified accrual basis of accounting is unavailable revenue, which is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from grants. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The second item is a deferred inflow related to pensions resulting from the difference in projected and actual earnings on investments of the pension plan fiduciary net position. This amount is amortized over five years. Land Held for Resale Land held for resale is carried at the lower of cost or estimated realizable value determined only upon the execution of a disposition and development agreement. I CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued): 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 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 January 1 st Levy period July 1st to June 30th Levy date On or before 4th Monday in September Due date November 1st - 1st installment February 1st - 2" d installment Collection date December 10th - 1st installment April 10th - 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. -39- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position or Equity (Continued): Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City's California Public Employees' Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 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. 2. CASH AND INVESTMENTS: Cash and Investments Cash and investments as of June 30, 2015 are classified in the accompanying financial statements as follows: Statement of Net Position: Cash and investments $ 166,297,058 Restricted cash and investments 39,128,362 Fiduciary Funds: Cash and investments 5,423,443 Restricted cash and investments 18,644,836 Total Cash and Investments 229.493.699 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 2. CASH AND INVESTMENTS (CONTINUED): Cash and Investments (Continued) Cash and investments as of June 30, 2015 consist of the following: Cash on hand $ 9,100 Deposits with financial institutions 6,975,127 Investments 222,509,472 Total Cash and Investments 229.493.699 Investments Authorized by the California Government Code and the City's Investment Policy The table below identifies the investment types that are authorized for the City. The table also identifies certain provisions of the City's investment policy that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by fiscal agents that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. Investment Types Authorized by the City's Policy Maturity Negotiable certificates of deposit None Prime quality commercial paper 270 days Government sponsored pools (LAIF, mutual funds) Commercial bank time drafts (Bankers acceptances) Medium-term notes Municipal and state securities Federal agency bonds or notes U.S. Treasury securities Money market funds Repurchase agreements N/A - Not Applicable N/A Maximum Percentage of Portfolio 30% 25% None Maximum Investment in One Issuer None None None 180 days 25% 30% 5 years 15% None None 15% 5% 5 years 75% None 5 years None None N/A None None 1 year None None * Average weighted maturity shall not exceed ninety (90) days if commercial paper exceeds fifteen (15) percent of total portfolio assets. -41- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 Types 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. -42- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 $ 3,001,641 $ 22,018,823 $ 9,510,077 $ - $ 34,530,541 United States Government Sponsored Agency Securities: Federal National Mortgage Association (FNMA) Federal Home Loan Bank (FHLB) Federal Home Loan Mortgage Corporation (FHLMC) Federal Farm Credit Bank (FFCB) Local Agency Investment Pool (LAIF) Orange County Investment Pool Negotiable Certificates of Deposit Medium-term Notes Municipal Bonds Held by Fiscal Agents: Money Market Mutual Funds - - 16,227,854 - 10,075,630 15,986,873 - 17,509,419 18,182,271 - 1,995,798 12,851,213 28,124,069 10,410,395 - - 744,426 2,236,798 9,181,038 - 9,100,221 9,128,609 - - 3,986,680 - 16,227,854 - 26,062,503 - 35,691,690 - 14,847,011 - 28,124,069 - 10,410,395 - 12,162,262 - 18,228,830 - 3,986,680 22,237,637 - - - 22,237,637 64.518.168 62.936.689 95.054.615 - $222,509,472 -43 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 ratings for the "Other" category above are as follows: Medium-term Notes: A $ 3,009,377 A2 3,115,996 Aa3e 1,001,921 AA- 2,031,690 9,158,984 Municipal Bonds: Aa3 3.986.680 Total Minimum Exempt as of Legal from Not Investment Type June 30, 2015 Rating Disclosure AAA AA+ AA Other Rated U.S. Treasury Obligations $ 34,530,541 N/A $34,530,541 $ $ - $ $ $ U.S. Government Sponsored Agency Securities: FNMA 16,227,854 N/A 16,227,854 FHLB 26,062,503 N/A 26,062,503 FHLMC 35,691,690 N/A 35,691,690 FFCB 14,847,011 N/A 14,847,011 - LocalAgencyInvestmentPool: 28,124,069 N/A - - - - - 28,124,069 Orange County Investment Pool 10,410,395 N/A 10,410,395 Negotiable Certificates of Deposit 12,162,262 N/A 12,162,262 Medium-termNotes18,228,830 A 2,007,056 7,062,790 9,158,984 - Municipal Bonds 3,986,680 A - - 3,986,680 Held by Fiscal Agents: Money Market Mutual Funds 22,237,637 A 22,237,637 Total S ??? 509,447? 124,2, SIZA22.OiB L-7462.22-0 513,145,664 iiQ 2.6_= N/A - Not Applicable The ratings for the "Other" category above are as follows: Medium-term Notes: A $ 3,009,377 A2 3,115,996 Aa3e 1,001,921 AA- 2,031,690 9,158,984 Municipal Bonds: Aa3 3.986.680 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 2. CASH AND INVESTMENTS (CONTINUED): Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer that represent 5% or more of total City's investments are as follows: Issuer Federal National Mortgage Association Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal Farm Credit Bank 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. -45- Reported Investment Type Amount United States Government Sponsored Agency Securities $ 16,227,854 United States Government Sponsored Agency Securities 26,062,503 United States Government Sponsored Agency Securities 35,691,690 United States Government Sponsored Agency Securities 14,847,011 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. -45- 2 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 CASH AND INVESTMENTS (CONTINUED): Custodial Credit Risk (Continued) As of June 30, 2015, 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, 2015, 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 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 LAW for the entire LAW 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 $10,410,395. 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. Carrying Investment Type Value U.S. Treasury Obligations $ 34,530,541 U.S. Government Sponsored Agency Securities 92,829,058 Medium-term Notes 18,228,830 Municipal Bonds 3,986,680 Negotiable Certificates of Deposit 12,162,262 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 LAW for the entire LAW 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 $10,410,395. 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. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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, 2015 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, 2015, was $44,496. An allowance of $44,496 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, 2015, was $655,237. An allowance of $655,237 has been recorded to reflect the amount of loans not expected to be collectible. Orange County Rescue Mission: On February 10, 2015, the City entered into an agreement with the Orange County Rescue Mission (OCRM), whereby the City agreed to convey two residential buildings to the OCRM to be used for housing for homeless veterans. In exchange, the OCRM executed a promissory note to the City in the amount of $533,000. The note is payable after 30 years with 3% interest. For every year that the OCRM uses the property for homeless veterans housing, the promissory note and any accrued interest will be forgiven by 1/30th. Should the OCRM successfully utilize the properties for homeless veterans housing for all 30 years in which the note is in effect, as stipulated in the deed of trust, it will owe no money to the City. The total outstanding balance at June 30, 2015, including accrued interest of $6,133 was $539,133. An allowance of $539,133 has been recorded to reflect the amount of the note not expected to be collectible. 4. INTERFUND TRANSFERS: The composition of interfund transfers for the year ended June 30, 2015 is as follows: Transfers In General Fund Other Governmental Funds Transfers Out Other Governmental Funds General Fund -47- Amount $ 3,693,381 1,572,721 5266.102 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 4. INTERFUND TRANSFERS (CONTINUED): The transfers during the fiscal year ended June 30, 2015 were for the following purposes: A transfer from other governmental funds totaling $322,216 was made to reimburse the General Fund per the adopted budget for fiscal year 2014-15. A transfer from other governmental funds totaling $537,479 to the General Fund to repay taxes for amounts transferred to cover negative cash in prior years. A transfer from other governmental funds totaling $2,833,686 to the General Fund for services provided in the Special Tax B area. The General Fund transferred $1,572,721 to other governmental funds to eliminate negative cash until reimbursement is received from the fiscal agent. 5. LAND TRANSFER FROM THE UNITED STATES GOVERNMENT: On May 13, 2002, the City entered into an agreement with the United States of America (the Government) wherein the Government agreed to convey to the City a portion of the former Marine Corps Air Station Tustin (MCAS Tustin). The transfer is pursuant to the authority provided by Section 2905(b)4 of the Defense Base Closure and Realignment Act of 1990, as amended, and the implementing regulations of the Department of Defense to convey surplus property at a closing installation to the local redevelopment authority at no cost for economic development purposes. The real properties, consisting of approximately 1,153 acres of land located within the bounds of the former MCAS Tustin, were conveyed to the City in multiple parcels, by separate conveyances. Parcel Group I, (consisting of approximately 977 acres), was conveyed to the City on May 14, 2002. A portion of Parcel Group I (consisting of approximately 23 acres) was conveyed to the City during fiscal year 2003 and the remainder was conveyed to the City in fiscal year 2004. Conveyance of Parcel Group II (consisting of a total of 49 acres) was conveyed in September 2006 and May and July 2003. Conveyance of Parcel Group III (consisting of approximately 18 acres) and Parcel Group IV (consisting of approximately 119 acres) were conveyed in September 2006 and April 2008, respectively. As part of the agreement, the City also received certain personal property and utilities on the base. The land 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. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 5. LAND TRANSFER FROM THE UNITED STATES GOVERNMENT: (CONTINUED): 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. 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 August 2014 and was considered an even exchange. The City also entered into a separate agreement with the SOCCCD in July 2014 to acquire the Valencia Parcels, approximately 5 acres of land, for $1,083,220 less a demolition credit of $500,000. In August 2014, the City sold 74 acres of the land to a developer for $56,000,000 resulting in a gain on land held for resale of $48,136,121. In February 2015, the City entered into an Exchange Agreement with the United States of America Department of Army. The Exchange Agreement delineates the terms associated with the exchange of the ultimate ownership of approximately 15 acres of usable land and improvements. The transfer of the property occurred in April 2015 and was determined to be of equivalent value. The recorded value of the remaining parcels as of June 30, 2015 was $90,026,647. 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. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 6. CAPITALASSETS: A summary of changes in the Governmental Activities capital assets for the year ended June 30, 2015 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 Balance at Balance at July 1, 2014 Additions Deletions June 30, 2015 $ 44,140,596 $ - 44,266,501 - 69,153,498 17,268,882 $ - $ 44,140,596 (508,345) 43,758,156 (28,607,926) 57,814,454 157,560,595 17,268,882 (29,116,271) 145,713,206 71,366,665 - 23,616,810 2,755,483 15,402,132 606,549 321,63 9,450 14,109,855 (15,950) (237,3 87) (627,252) 71,350,715 26,134,906 15,381,429 335,749,305 432,025,057 17,471,887 (880,589) 448,616,355 (14,025,763) (1,433,004) 15,950 (15,442,817) (4,980,436) (849,414) 231,464 (5,598,386) (11,997,525) (845,060) 625,527 (12,217,058) (96,908,605) (7,513,610) - (104,422,215) (127,912,329) (10,641,088) 872,941 (137,680,476) 304,112,728 6,830,799 (7,648) 310,935,879 461,673,323 24,099.681 (29,123,919) 456,649,085 -50- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 6. CAPITAL ASSETS (CONTINUED): Depreciation expense was charged to functions/programs of the governmental activities as follows: General government $ 214,332 Public safety 330,093 Public works 9,602,805 Community services 493,858 10,641088 A summary of changes in the Business -type Activity capital assets for the year ended June 30, 2015 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 Balance at Balance at July 1, 2014 Additions Deletions June 30, 2015 $ 1,177,216 $ - $ 2,464,004 1,087,261 _ 3,641,220 1,087,261 - $ 1,177,216 3,551,265 4,728,481 9,568,372 - (67,995) 9,500,377 57,407,957 424,068 (71,216) 57,760,809 66,976,329 424,068 (139,211) 67,261,186 Less accumulated depreciation for: Buildings and improvements (4,756,632) (268,009) 64,707 (4,959,934) Property, plant and equipment (19,938,772) (1,449,601) 71,215 (21,317,158) Total accumulated depreciation (24,695,404) (1,717,610) 135,922 (26,277,092) Total capital assets, being depreciated, net 42,280,925 (1,293,542) (3,289) 40,984,094 Total business -type activity capital assets, net 45,922,145 (206 881) (3289) 45.712.575 During the fiscal year ended June 30, 2015, the City capitalized interest of $309,126. -51- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 7. LONG-TERM LIABILITIES: A summary of long-term liability activity for the year ended June 30, 2015 is as follows: Governmental activities: Due to Successor Agency to the Tustin Community Redevelopment Agency (Note 8) $ Pension liability (Note 9c) Postemployment benefits Balance at July 1, 2014 (As Restated - Balance at Due Within Note 20) Additions Deletions June 30, 2015 One Year - $ 21,404,683 $ (5,000,000) $ 16,404,683 $ 4,101,171 49,610,256 - (11,521,160) 38,089,096 - obligation (Note 10) 4,970,150 1,142,391 (418,323) 5,694,218 - Claims and judgments (Note 12) 4,278,500 3,874,920 (3,004,665) 5,148,755 5,148,755 'termination benefits 1,981,278 - (660,426) 1,320,852 660,426 Compensated absences 2,853,830 2,496,825 (2,325,636) 3,025,019 2,722,517 Total governmental activities long-term liabilities $ 63,694,014 $ 28,918,819 $ (22,930,210) $ 69,682,623 $ 12,632,869 Business -type activity: 2011 Water Revenue bonds $ 20,760,000 $ - $ - $ 20,760,000 $ - Bond premium 274,111 (10,200) 263,911 - 2012 Refunding Water Revenue bonds 7,490,000 (725,000) 6,765,000 745,000 Bond premium 715,372 (81,757) 633,615 - 2013 Water Revenue bonds 14,045,000 (45,000) 14,000,000 45,000 Bond premium 115,362 (3,944) 111,418 - Pension liability (Note 9c) 2,597,455 (764,541) 1,832,914 - 'termination benefits 44,362 - (14,788) 29,574 14,787 Compensated absences 168,994 180,891 (153,657) 196,228 176,606 Total business -type activity long-term liabilities 46210.656 1 180,891 (1.798.887) 44.592.660 $ 981,393 -52- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 7. 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) Resigned from City employment effective no later than October 31, 2012; and d) Retired 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. Thirty-five 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, 2015, the outstanding liability due to fund the plan is $1,350,426, ($1,320,852 reported in the governmental activities and $29,574 in the business -type activity) with annual payment dates of October 10, 2015 and 2016. Business -type Activity 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, 2015, total interest and principal remaining on the bonds is $40,425,688. During the fiscal year, the total interest expense incurred was $1,047,625 and net revenues were $6,863,711. -53 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 7. LONG-TERM LIABILITIES (CONTINUED): Business -type Activity (Continued) 2011 Water Revenue Bonds (Continued) The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031 - 203 5 2036-2040 2041 Add: Premium Totals Principal 1,505,000 4,470,000 5,750,000 7,345,000 1,690,000 20,760,000 263,911 Interest $ 1,047,625 1,047,625 1,047,625 1,047,625 1,047,625 5,201,375 4,429,838 3,151,850 1,560,000 84,500 19,665,688 Total $ 1,047,625 1,047,625 1,047,625 1,047,625 1,047,625 6,706,375 8,899,838 8,901,850 8,905,000 1,774,500 40,425,688 263,911 21,023,911 19.665.688 $ 40,689.599 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, 2015 is $418,969. -54- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 7. LONG-TERM LIABILITIES (CONTINUED): Business -type Activity (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, 2015, total interest and principal remaining on the bonds is $7,968,950. During the fiscal year, the total interest expense incurred was $272,175, principal payments were $725,000, and net revenues were $6,863,711. The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 2021-2023 Add: premium Totals Principal $ 745,000 770,000 795,000 830,000 860,000 2,765,000 6,765,000 633,615 Interest $ 250,425 228,075 197,275 165,475 138,500 224,200 1,203,950 Total $ 995,425 998,075 992,275 995,475 998,500 2,989,200 7,968,950 633,615 7,398,615 1203.950 8.602.565 -55- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 7. LONG-TERM LIABILITIES (CONTINUED): Business -type Activity (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 1 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, 2015, total interest and principal remaining on the bonds is $28,382,350. During the fiscal year, the total interest expense incurred was $654,020 and net revenues were $6,863,711. The annual debt service requirements to amortize the bonds are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031 - 203 5 2036-2040 2041 Add: premium Totals Principal $ 45,000 45,000 50,000 50,000 50,000 820,000 1,900,000 2,325,000 2,930,000 5,785,000 14,000,000 111.418 Interest $ 653,120 652,220 651,320 650,320 648,320 3,194,690 2,908,210 2,480,006 1,876,338 667,806 14,382,350 Total $ 698,120 697,220 701,320 700,320 698,320 4,014,690 4,808,210 4,805,006 4,806,338 6,452,806 28,382,350 111.418 14,111,418 14.382.350 28.493.768 -56- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 8. 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 to be used 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 also agreed to five installment payments with the first payment due within seven days of the City accepting 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 was $21,404,683. The City signed the settlement agreement on December 9, 2014, and the first installment payment totaling $5,000,000 was made within the required time period. The remaining balance as of June 30, 2015 is $16,404,683 and is payable in four annual installments of $4,101,171 beginning on or before December 31st, 2015, and again on or before December 31 of each of the following three years (2016, 2017 and 2018). The balance of $21,404,683 at the time of settlement was reclassified to long-term debt and was reported as a special item in the general fund. 9. PENSION PLANS: a. General Information about the Pension Plans: Plan Descriptions All qualified permanent and probationary employees are eligible to participate in the City's separate Safety (police) and Miscellaneous (all other) Plans. The Miscellaneous Plan is an agent multiple -employer defined benefit pension plan, and the Safety Plan is a cost-sharing multiple employer defined benefit pension plan. Both of these Plans are administered by the California Public Employees' Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and City resolution. Ca1PERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the Ca1PERS website. -57- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): a. General Information about the Pension Plans (Continued): Benefits Provided Ca1PERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non -duty disability benefits after 5 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The Plans' provisions and benefits in effect at June 30, 2015, are summarized as follows: Miscellaneous Prior to January 1, 2012 to On or After Hire date January 1, 2012 December 31, 2012 January 1, 2013 Benefit formula 2%A55 2%A60 2%A62 Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments monthly for life monthly for life monthly for life Retirement age 50-63 50-63 52-67 Monthly benefits, as a % of eligible compensation 2% 2% 2% Required employee contribution rates 7% 7% 6.25% Required employer contribution rates 11.701% 11.701% 11.701% Safety Prior to January 1, 2012 to On or After Hire date January 1, 2012 December 31, 2012 January 1, 2013 Benefit formula 3%A50 2%A50 2.7%A57 Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 50-55 50-57 Monthly benefits, as a % of eligible compensation 3% 2% 2.7% Required employee contribution rates 9% 9% 11.5% Required employer contribution rates 27.859% 20.083% 11.500% CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): a. General Information about the Pension Plans (Continued): Employees Covered At June 30, 2015, the following employees were covered by the benefit terms for the Miscellaneous Plan: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total Contributions Miscellaneous 218 297 172 687 Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. b. Net Pension Liability: The City's net pension liability for each Plan is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 2014, using an annual actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below. -59- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): b. Net Pension Liability (Continued): Actuarial Assumptions The total pension liabilities in the June 30, 2013 actuarial valuations were determined using the following actuarial assumptions: Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions Miscellaneous June 30, 2013 June 30, 2014 Entry -Age Normal Cost Method Safety June 30, 2013 June 30, 2014 Entry -Age Normal Cost Method Discount Rate 7.50% 7.50% Inflation 2.75% 2.75% Payroll Growth 3.00% 3.00% Projected Salary Increase 3.3% - 14.2% (1) 3.3% - 14.2% (1) Investment Rate of Return 7.5%(2) 7.5%(2) Mortality (3) (3) (1) Depending on age, service and type of employment. (2) Net of pension plan investment expenses, including inflation. (3) The probabilities of mortality are derived using Ca1PERS' membership data for all funds. The mortality table used was developed based on Ca1PERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. for more details on this table, please refer to the 2014 experience study report. The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2013 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can found on the Ca1PERS website. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): b. Net Pension Liability (Continued): Discount Rate The discount rate used to measure the total pension liability was 7.50% for each Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, Ca1PERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50% discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.50% will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the Ca1PERS website. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50% investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65%. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. Ca1PERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. Ca1PERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, Ca1PERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. Ca1PERS will continue to check the materiality of the difference in calculation until such time a change in methodology occurs. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best -estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. -61- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): b. Net Pension Liability (Continued): Discount Rate (Continued) In determining the long-term expected rate of return, Ca1PERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long- term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. Asset Class Global Equity Global Fixed Income Inflation Sensitive Private Equity Real Estate Infrastructure and Forestland Liquidity Total New Strategic Allocation 47.00% 19.00% 6.00% 12.00% 11.00% 3.00% 2.00% 100.00% (a) An expected inflation of 2.5% used for this period (b) An expected inflation of 3.0% used for this period -62- Real Return Years 1-10 (a) 5.25% 0.99% 0.45% 6.83% 4.50% 4.50% -0.55% Real Return Years 11+ (b) 5.71% 2.43% 3.36% 6.95% 5.13% 5.09% -1.05% CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): c. Changes in the Net Pension Liability: The changes in the net pension liability for the Miscellaneous Plan are as follows: Balance at June 30, 2014 Changes in the Year: Service cost Interest on the total pension liability Differences between actual and expected experience Changes in assumptions Changes in benefit terms Contribution - employer Contribution - employee (paid by employer) Contribution - employee Net investment income Administrative expenses Benefit payments, including refunds of employee contributions Net Changes Increase (Decrease) Total Plan Net Pension Pension Fiduciary Liability Liability Net Position (Asset) $ 89,297,153 $ 69,316,731 $ 19,980,422 1,747,494 6,613,765 - 1,747,494 - 6,613,765 - 1,379,562 (1,379,562) - 962,617 (962,617) - 11,900,167 (11,900,167) (3,974,724) (3,974,724) - 4,386,535 10,267,622 (5,881,087) Balance at June 30, 2015 $ 93,683,688 $ 79,584,353 $ 14,099,335 -63 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): c. Changes in the Net Pension Liability (Continued): As of June 30, 2015, the City reported net pension liabilities for its proportionate shares of the net pension liability for the Safety Plan as follows: Safety Proportionate Share of Net Pension Liability $ 25,822,675 The City's net pension liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2014, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The City's proportionate share of the net pension liability was based on a projection of the City's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City's proportionate share of the net pension liability for the Safety Plan as of June 30, 2013 and 2014 was as follows: Safety Proportion - June 30, 2013 0.67363% Proportion - June 30, 2014 0.68843% Change - Increase (Decrease) 0.01480% CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): c. Changes in the Net Pension Liability (Continued): Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City for each Plan, calculated using the discount rate for each Plan, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1 -percentage point lower or 1 -percentage point higher than the current rate: Miscellaneous Safety 1% Decrease 6.50% 6.50% Net Pension Liability $ 26,757,588 $ 41,322,196 Current Discount Rate 7.50% 7.50% Net Pension Liability $ 14,099,335 $ 25,822,675 1% Increase 8.50% 8.50% Net Pension Liability $ 3,669,639 $ 13,051,739 Pension Plan Fiduciary Net Position Detailed information about each pension plan's fiduciary net position is available in the separately issued Ca1PERS financial reports. -65 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 9. PENSION PLANS (CONTINUED): d. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2015, the City recognized pension expense of $3,470,634. At June 30, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Differences between actual and expected experience Change in assumptions Change in employer's proportion and differences between the employer's contributions and the employer's proportionate share of contributions Net differences between projected and actual earnings on plan investments Total Deferred Deferred Outflows Inflows of Resources of Resources $ 8,552,671 290,902 (11,621,755) $8,552,671 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Year Ending June 30, 2016 2017 2018 2019 2020 Thereafter e. Payable to the Pension Plans: Amount $ (2,801,545) (2,801,545) (2,822,324) (2,905,439) At June 30, 2015, the City had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2015. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 10. POST -EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): Plan Description The City provides other postemployment benefits (OPEB) to retired employees in the form of a contribution towards their medical premiums under the PERS health plan, a single -employer 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. 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, 2015: Police Police General Management ConfidentialSupport Total Retirees Receiving Benefits 35 32 28 1 6 102 Eligible Active Employees 93 88 41 6 43 271 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, 2015, the City paid $418,323 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. -67- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 10. POST -EMPLOYMENT HEALTH CARE BENEFITS (CONTINUED): Funding Policy (Continued) The City's ARC for the year ended June 30, 2015 was $1,400,220. 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 248,449 272,100 69,480 4,431 129,608 724,068 1,539,693 1,573,514 813,768 361,054 682,121 4,970,150 1.788.142 1.845.614 883248 13-65485i__8_11729 5.694218 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015 and the two preceding years were as follows: Fiscal Annual Year Police Ended Police General Management Confidential Support Total ARC $ 480,504 $ 450,473 $ 259,022 $ 26,278 $ 183,943 $ 1,400,220 Interest on net OPEB obligation 59,037 60,334 31,203 13,844 26,155 190,573 Adjustment to ARC (138,910) (141,961) (73,417)(32,574) (61,540) (448,402) Annual OPEB cost 400,631 368,846 216,808 7,548 148,558 1,142,391 Contributions made (152,182) (96,746) (147,328) (3,117) (18,950) (418,323) Increase in net OPEB obligation Net OPEB obligation, beginning Net OPEB obligation, ending 248,449 272,100 69,480 4,431 129,608 724,068 1,539,693 1,573,514 813,768 361,054 682,121 4,970,150 1.788.142 1.845.614 883248 13-65485i__8_11729 5.694218 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015 and the two preceding years were as follows: Fiscal Annual Year OPEB Ended Cost 6/30/13 $ 1,034,400 6/30/14 1,107,635 6/30/15 1,142,391 Percentage of Annual OPEB Cost Contributed 35.98% 37.50% 36.62% Net OPEB Oblivation $ 4,277,824 4,970,150 5,694,218 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 2015 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. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 2015 were $62,099. 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. 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. -70- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 12. SELF-INSURANCE PROGRAWRISK POOL (CONTINUED): 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, 2015. At June 30, 2015, estimated claims payable of $5,148,755, 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, 2014 and 2015, including a provision for incurred but not reported claims and loss adjustment expenses, were as follows: June 30, 2014 2015 Beginning Balance $ 4,461,082 4,278,500 Additions $ 2,796,114 3,874,920 13. SPECIAL ASSESSMENT DISTRICTS' BONDS: Deletions $ 2,978,696 3,004,665 Ending Balance $ 4,278,500 5,148,755 Special assessment districts exist in various parts of the City to provide improvements to properties located in those districts. Properties are assessed for the cost of improvements; these assessments are payable over the term of the debt issued to finance the improvements and must be sufficient to repay this debt. The bonds listed below were issued pursuant to the Refunding Act of 1984 for the 1915 Improvement Act Bonds and the Improvement Bond Act of 1915 and are the liabilities of the property owners and are secured by liens against the assessed property. The City Treasurer acts as an agent for collection of principal and interest payments by the property owners and remittance of such monies to bondholders. Neither the faith and credit nor the general taxing power of the City have been pledged to the payment of the bonds. Therefore, none of the following special assessment bonds have been included in the accompanying financial statements. District Bonds Community Facilities District 04-1, 2013 Community Facilities District 06-1, 2007 Community Facilities District 06-1, 2010 Community Facilities District 07-1, 2007 -71- Amount of Issue $ 9,350,000 53,570,000 1,675,000 13,680,000 Outstanding June 30, 2015 $ 9,110,000 51,770,000 1,645,000 13,370,000 78275,000 75,895,000 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 13. SPECIAL ASSESSMENT DISTRICTS' BONDS (CONTINUED): 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, 2015, the amount of the Special Tax Refunding Bonds, Series 2013 was $9,110,000. 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, 2015, the amount of the Special Tax Bonds, Series 2007A was $51,770,000. In October 2010, the City issued $1,675,000 of Special Tax Bonds, Series 2010 to, to facilitate the new infrastructure construction on the former 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, 2015, the amount of the Special Tax Bonds, Series 2010 was $1,645,000. -72- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 13. SPECIAL ASSESSMENT DISTRICTS' BONDS (CONTINUED): 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, 2015, the amount of the Special Tax Bonds, Series 2007 was $13,370,000. 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. 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. -73 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 15. GOVERNMENTAL FUND BALANCE CLASSIFICATIONS (CONTINUED): 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. Unassigned - This classification includes the residual balance for the City's general fund including all spendable amounts not contained in other classifications. Negative fund balance in governmental funds, after determining the fund balance classifications described above, is also reported as unassigned fund balance. 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: Capital projects (1) Public safety programs Housing projects Assigned to: Capital projects (2) Unassigned Total fund balances MCAS 2010 Other Total General Capital Governmental Governmental Fund Projects Fund Funds Funds $ 429,400 $ - $ - $ 429,400 122,029,242 - - 122,029,242 16,650,332 - 21,914,707 38,565,039 - - 452,447 452,447 - - 1,681,664 1,681,664 31,409,659 84,278,138 5,940,872 37,350,531 - 84,278,138 223.387.112 31.409.659 29.989.690 284.786.461 (1) The General Fund balance restricted for capital projects ($16,650,332) is comprised of funds legally restricted for backbone infrastructure at the Tustin Legacy development. A majority of the fund balance restricted for capital projects in the other governmental funds ($21,914,707) includes State gas taxes restricted for allowable street -related purposes and developer fees to improve City parks. (2) The MCAS 2010 Capital Projects fund balance assigned to capital projects ($31,409,659) is for financing development activities within or for the benefit of the MCAS -Tustin redevelopment project area as indicated by the 2010 MCAS Bond indenture. The other governmental funds balance assigned to capital projects ($5,940,872) is to be used for specific projects indicated in the adopted budget. -74- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 16. OTHER REQUIRED INDIVIDUAL FUND DISCLOSURES: Excess of Expenditures over Appropriations: Variance with Budget Actual Final Budget Other Governmental Funds: Supplemental Law Enforcement Special Revenue Fund $ 98,500 $ 137,310 $ (38,810) 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. -75 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 18. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES: On June 29, 2011, Assembly Bills lx 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. The Dissolution Act also created oversight boards which monitor the activities of the successor agencies. The roles of the successor agencies and oversight boards are 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 did not elect to become the Successor Housing Agency and assume the Dissolved RDA's housing functions, such housing functions and all related housing assets were 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 established roles for the County Auditor -Controller (the "CAC"), the California Department of Finance (the "DOP) and the California State Controller's office in the dissolution process and the satisfaction of enforceable obligations of the Dissolved RDAs. -76- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 18. RECENT CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED): The County Auditor -Controller was charged with establishing a Redevelopment Property Tax Trust Fund (the "RPTTF") for each Successor Agency and depositing into the RPTTF for each six- month period the amount of property taxes that would have been redevelopment property tax increment had the Dissolved RDA not been dissolved. The deposit in the RPTTF fund is to be used to pay to the Successor Agency the amounts due on the Successor Agency's enforceable obligations for the upcoming six-month period. The Successor Agency is required to prepare a recognized obligation payment schedule (the "ROPS") approved by the oversight board setting forth the amounts due for each enforceable obligation during each six month period. The ROPS is submitted to the DOF for approval. The County Auditor -Controller will make payments to the Successor Agency from the RPTTF fund based on the ROPS amount approved by the DOF. The ROPS is prepared in advance for the enforceable obligations due over the next six months. The process of making RPTTF deposits to be used to pay enforceable obligations of the Dissolved RDA will continue until all enforceable obligations have been paid in full and all non -housing assets of the Dissolved RDA have been liquidated. The State Controller of the State of California was directed to review the propriety of any transfers of assets between the Dissolved RDA and other public bodies that occurred after January 1, 2011. If the public body that received such transfers was not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller was required to order the available assets to be transferred to the public body designated as the successor agency. The State Controller completed its review on July 31, 2014, and did not identify any unallowable transfers of assets that occurred during the audit between the former RDA, the City and or other public agencies. 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 $25,934,993, 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. -77- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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 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 also agreed to five installment payments with the first payment due within seven days of the City accepting 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 was $21,404,683. The City signed the settlement agreement on December 9, 2014, and the first installment payment totaling $5,000,000 was made within the required time period. The remaining balance as of June 30, 2015 is $16,404,683 and is payable in four annual installments of $4,101,171 beginning on or before December 31st, 2015, and again on or before December 31 of each of the following three years (2016, 2017 and 2018). Contribution to the City of Tustin As part of the redevelopment dissolution (see Note 18), proceeds from the 2010 MCAS Tax Allocation Bonds were transferred to the Successor Agency to the Tustin Redevelopment Agency on February 1, 2012. The California Department of Finance (DOF) initially disallowed use of the unspent bond proceeds for the project for which the bond proceeds were intended, and the City pursued a lawsuit to dispute this disallowance. On August 5, 2014, the DOF issued a letter approving expenditure of the bond proceeds in accordance with bond covenants. Funds totaling $32,137,773, were transferred to the City effective January 1, 2015, to be spent on capital projects in the Tustin Legacy area per the bond covenants. CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 19. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Capital Assets Capital assets, not being depreciated Land (1) Capital assets, being depreciated: Buildings Less accumulated depreciation Total capital assets, being depreciated, net Successor Agency capital assets, net Long -Term Liabilities Balance at Balance at July 1, 2014 Additions Deletions June 30, 2015 $ 1,464,000 $ - $ - $ 1,464,000 190,000 - (79,800) (3,800) 110,200 (3,800) - 190,000 (83,600) - 106,400 L574200(3.800) $ - S 1.570.400 A summary of long-term liabilities activity for the year ended June 30, 2015 is as follows: (1) The beginning balance has been increased by $1,345,000 to include land that was previously reported as land held for resale. -79- Balance at Balance at Due Within July 1, 2014 Additions Deletions June 30, 2015 One Year Tax allocation bonds $ 69,230,000 $ $ (3,060,000) $ 66,170,000 $ 3,190,000 Unamortized premium 88,900 (3,532) 85,368 - Unamortizeddiscount (783,793) 29,624 (754,169) - Note payable to County Auditor Controller 21.404.683 (5.000.000) 16.404.683 4.101.171 Total long-term liabilities $ 89.939.790 $ $ x.033.908) $ 81905.882 $ 7.291.171 (1) The beginning balance has been increased by $1,345,000 to include land that was previously reported as land held for resale. -79- CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 19. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) 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, 2015, the 1998 Bonds outstanding balance was $3,120,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2016 2017 Totals Principal $ 1,525,000 1,595,000 Interest $ 113,888 37,881 Total $ 1,638,888 1,632,881 3,120,000 $ 151,769 327L769 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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, 2015, the 2010 Housing Bonds outstanding balance was $22,010,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031 - 203 5 2036-2040 Totals Principal $ 785,000 815,000 850,000 880,000 920,000 5,190,000 5,220,000 3,210,000 4,140,000 22,010,000 Interest $ 1,025,106 993,106 959,806 925,206 889,206 3,831,534 2,497,125 1,524,663 565,688 13211.440 Total $ 1,810,106 1,808,106 1,809,806 1,805,206 1,809,206 9,021,534 7,717,125 4,734,663 4,705,688 35221.440 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 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, 2015, the 2010 MCAS Bonds outstanding balance was $41,040,000. The annual debt service requirements to amortize the tax allocation bonds are as follows: Year Ending June 30, 2016 2017 2018 2019 2020 2021-2025 2026-2030 2031 - 203 5 2036-2040 2041 Totals Principal $ 880,000 905,000 935,000 970,000 1,010,000 5,705,000 7,170,000 9,125,000 11,650,000 2,690,000 41,040,000 Interest $ 1,931,075 1,904,300 1,872,025 1,833,925 1,794,325 8,296,744 6,782,694 4,770,375 2,185,000 67,250 31.437.713 Total $ 2,811,075 2,809,300 2,807,025 2,803,925 2,804,325 14,001,744 13,952,694 13,895,375 13,835,000 2,757,250 72.477.713 CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 19. SUCCESSOR AGENCY TO THE TUSTIN COMMUNITY REDEVELOPMENT AGENCY DISCLOSURES (CONTINUED): Long -Term Liabilities (Continued) Note Payable to County Auditor Controller 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 County Auditor -Controller ("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 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 of 2.54% which was in effect at the time the City entered into the promissory note with the former Redevelopment Agency and has agreed to installment payments over four years after the first payment due within seven days of the City accepting 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. The City signed the settlement agreement on December 9, 2014, and the first installment payment totaling $5,000,000 was made within the required time period. The remaining balance as of June 30, 2015 is $16,404,683 and is payable in four annual installments of $4,101,171 beginning on or before December 31, 2015, and again on or before December 31s' of each of the following three years (2016, 2017 and 2018). 20. RESTATEMENTS OF PRIOR YEAR FINANCIAL STATEMENTS: Restatements of the Government -Wide Financial Statements' net position as of July 1, 2014 are as follows: Net position at July 1, 2014, as originally reported Implementation of GASB Statements 68 and 71 to record pension liability at beginning of year Net position at July 1, 2014, as restated Governmental Business -type Activities Activity Total $ 637,608,339 $ 34,402,330 $ 672,010,669 (45,364,118) (2,418,112) (47,782,230) 592244.221 31.984.218 624228.439 -83 - CITY OF TUSTIN NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2015 20. RESTATEMENTS OF PRIOR YEAR FINANCIAL STATEMENTS (CONTINUED): Restatement of the Water Enterprise Fund's net position as of July 1, 2014 is as follows: Net position at July 1, 2014, as originally reported $ 34,402,330 Implementation of GASB Statements 68 and 71 to record pension liability at beginning of year (2,418,112) Net position at July 1, 2014, as restated 31,984.218 21. SUBSEQUENT EVENTS: In August 2015, the City entered into a school facilities implementation, funding and migration agreement, and related site conveyance agreement with the Tustin Unified School District (TUSD) as well as a joint community facilities agreement with TUSD and Standard Pacific that provides a framework for development of grades 6-12 schools on the 40 -acre designated site, along with the opening of Heritage Elementary School as a magnet elementary site in the fall of 2016. The estimated cost to complete the project is $75,117,850. In order to facilitate the implementation plan, the City will advance funds to the project development with three different approaches. First the City advanced $4 million in October 2015. Second, the City will deposit an additional $15 million in the project development account by May 2016. Third, the City will have the option to advance additional funds for the entire project or just certain projects. The City also issued 2014-1 Community Facilities District Special Tax Bonds, Series 2015A, totaling $27,045,000. Of the $27,045,000, $7,858,391 are available to be spent on school facilities. In preparing these financial statements, the City has evaluated events and transactions for potential recognition or disclosure through December 22, 2015, the date the financial statements were available to be issued. REQUIRED SUPPLEMENTARY INFORMATION The page left blank intentionally CITY OF TUSTIN SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SAFETY PLAN Last Ten Fiscal Years* Plan's proportion of the net pension liability 0.68843% Plan's proportionate share of the net pension liability $ 25,822,675 Plan's covered - employee payroll $ 9,640,345 Plan's proportionate share of the net pension liability as a percentage of covered - employee payroll 267.86% Plan's fiduciary net position $ 89,890,706 Plan's proportionate share of the fiduciary net position as a percentage of the Plan's total pension liability 348.11% Plan's proportionate share of aggregate employer contributions $ 2,544,912 Notes to Schedule: Benefit Changes: There were no changes in benefits. Changes in Assumptions: There were no changes in assumptions * - Fiscal year 2015 was the 1st year of implementation, therefore only one year is shown. -87- CITY OF TUSTIN SCHEDULE OF CONTRIBUTIONS SAFETY PLAN Last Ten Fiscal Years* Contractually required contribution (actuarially determined) $ 3,045,919 Contributions in relation to the actuarially determined contributions (3,045,919) Contribution deficiency (excess) $ - Covered - employee payroll $ 9,640,345 Contributions as a percentage of covered - employee payroll 31.60% Notes to Schedule: Valuation Date 6/30/2013 Methods and Assumptions Used to Determine Contribution Rates Single and agent employers Entry age Amortization method Level percentage of payroll, closed Remaining amortization period 30 year fixed with 5 year ramp up at beginning and 5 year ramp down at the end of the amortization period. Changes in liability for plan amendments, changes in actuarial methodology and assumptions are amortized over a 20 year period. Asset valuation method Market Inflation 2.75% Salary increases 3.30% to 14.20% depending on age, service and type of employment Investment rate of return 7.50%, net of pension plan investment expense, including inflation Retirement age 50 years Mortality Morality assumptions are based on mortality rates resulting from the most recent Ca1PERS Experience Study adopted by the Ca1PERS Board, first used in the June 30, 2009 valuation. For purposes of the post-retirement mortality rates, those revised rates include 5 years of projected on-going mortality improvement using Scale BB published by the Society of Actuaries until June 30, 2010. There is no margin for future mortality improvement beyond the valuation date. * - Fiscal year 2015 was the 1st year of implementation, therefore only one year is shown. -88- CITY OF TUSTIN SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS MISCELLANEOUS PLAN Last Ten Fiscal Years* 2015 Total Pension Liability: Service cost $ 1,747,494 Interest on total pension liability 6,613,765 Differences between expected and actual experience - Changes in assumptions - Changes in benefit terms - Benefit payments, including refunds of employee contributions (3,974,724) Net Change in Total Pension Liability 4,386,535 Total Pension Liability - Beginning of Year 89,297,153 Total Pension Liability - End of Year (a) $ 93,683,688 Plan Fiduciary Net Position Contributions - employer $ 1,379,562 Contributions - employee 962,617 Net investment income 11,900,167 Benefit payments (3,974,724) Net Change in Plan Fiduciary Net Position 10,267,622 Plan Fiduciary Net Position - Beginning of Year 69,316,731 Plan Fiduciary Net Position - End of Year (b) $ 79,584,353 Net Pension Liability - Ending (a) -(b) $ 14,099,335 Plan fiduciary net position as a percentage of the total pension liability 84.95% Covered - employee payroll $ 12,071,666 Net pension liability as percentage of covered- employee payroll 116.80% Notes to Schedule: Benefit Changes: There were not changes in benefits. Changes in Assumptions: There were not changes in assumptions * Fiscal year 2015 was the 1 st year of implementation; therefore, only one year is shown. -89- CITY OF TUSTIN SCHEDULE OF CONTRIBUTIONS MISCELLANEOUS PLAN Last Ten Fiscal Years* 2015 Actuarially determined contribution $ 1,379,562 Contributions in relation to the actuarially determined contributions (1,379,562) Contribution deficiency (excess) $ Covered - employee payroll $ 12,071,666 Contributions as a percentage of covered - employee payroll 11.43% Notes to Schedule: Valuation Date 6/30/2013 Methods and Assumptions Used to Determine Contribution Rates Single and agent employers Entry age Amortization method Level percentage of payroll, closed Remaining amortization period 30 year fixed with 5 year ramp up at beginning and 5 year ramp down at the end of the amortization period. Changes in liability for plan amendments, changes in actuarial methodology and assumptions are amortized over a 20 year period. Asset valuation method Market Inflation 2.75% Salary increases 3.30% to 14.20% depending on age, service and type of employment Investment rate of return 7.50%, net of pension plan investment expense, including inflation Retirement age 2.0% at 55 retirement age from 55-67, 2% at 62 retirement age 52-67 Mortality Morality assumptions are based on mortality rates resulting from the 2010 Ca1PERS Experience Study adopted by the Ca1PERS Board, first used in the June 30, 2009 valuation. For purposes of the post- retirement mortality rates, those revised rates include 5 years of projected on-going mortality improvement using Scale AA published by the Society of Actuaries until June 30, 2010. There is no margin for future mortality improvement beyond the valuation date. * - Fiscal year 2015 was the 1st year of implementation, therefore only one year is shown. -90- CITY OF TUSTIN SCHEDULE OF FUNDING PROGRESS For the year ended June 30, 2015 OTHER POST -EMPLOYMENT BENEFIT PLAN -91- 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% -91- CITY OF TUSTIN BUDGETARY COMPARISON SCHEDULE GENERAL FUND REVENUES: Taxes Licenses and permits Fines and forfeitures Investment income Intergovernmental Charges for services Rental income Other revenue Developer contribution Gain on sale of land held for resale TOTAL REVENUES EXPENDITURES: Current: General government Public safety Public works Community services Capital outlay Debt service: Principal retirement TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) For the year ended June 30, 2015 Budgeted Amounts Original Final Actual Variance with Final Budget Positive (Negative) $ 43,053,400 $ 43,053,400 $ 43,696,204 $ 642,804 921,900 921,900 885,043 (36,857) 726,000 726,000 752,597 26,597 113,000 113,000 716,989 603,989 1,439,200 1,439,200 2,644,657 1,205,457 2,165,400 2,165,400 1,849,950 (315,450) 767,400 767,400 938,971 171,571 2,577,100 2,577,100 3,743,105 1,166,005 8,500,000 8,500,000 16,934,704 8,434,704 56,000,000 56,000,000 48,136,121 (7,863,879) 116,263,400 116,263,400 120,298,341 4,034,941 19,652,100 26,524,978 16,628,862 9,896,116 29,706,800 29,706,800 32,963,299 (3,256,499) 6,047,400 6,228,869 6,347,830 (118,961) 3,076,000 3,076,000 2,899,151 176,849 13,842,600 14,966,725 5,781,519 9,185,206 - - 5,000,000 (5,000,000) 72,324,900 80,503,372 69,620,661 10,882,711 43,938,500 35,760,028 50,677,680 14,917,652 Transfers in 3,591,300 3,706,300 3,693,381 (12,919) Transfers out (2,720,600) (7,835,600) (1,572,721) 6,262,879 TOTAL OTHER FINANCING SOURCES (USES) 870,700 (4,129,300) 2,120,660 6,249,960 SPECIAL ITEM - - 21,404,683 21,404,683 NET CHANGE IN FUND BALANCE 44,809,200 31,630,728 74,203,023 42,572,295 FUND BALANCE - BEGINNING OF YEAR 149,184,089 149,184,089 149,184,089 - FUND BALANCE - END OF YEAR $ 193,993,289 $ 180,814,817 $ 223,387,112 $ 42,572,295 See accompanying note to required supplementary information. -92- CITY OF TUSTIN NOTE TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2015 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. -93 - The page left blank intentionally SUPPLEMENTARY INFORMATION -95 - The page left blank intentionally CITY OF TUSTIN OTHER GOVERNMENTAL FUNDS June 30, 2015 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 A133229, Chapter 134, of the 1996 Statutes and is an appropriation from the State Budget for the "Citizen Option for Public Safety Program". This fund can only be used for police front line municipal activities that provide police services to the City in prevention of drug abuse, crime prevention, and community awareness programs. Housing Authority - This fund is used to account for revenues and associated expenditures to be used for increasing or improving low and moderate income housing. Special Tax B - This fund is used to account for Special Tax B perpetual tax levied on taxable property in the Tustin Legacy to pay for authorized services and administrative expenses. 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. -97- CITY OF TUSTIN COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS June 30, 2015 -98- Special Revenue Funds Park Acquisition and Asset Air Gas Tax Measure M Development Forfeiture Quality ASSETS Cash and investments $ 5,177,648 $ 3,979,545 $ 7,988,607 $ 381,794 $ 167,414 Restricted cash and investments - - - - - Receivables: Accounts 209,507 251,679 - - 25,511 Interest 4,718 3,674 7,278 348 153 Loans - - - - - Allowance for uncollectibles Prepaid items and deposits Land held for resale - - - - - TOTAL ASSETS $ 5,391,873 $ 4,234,898 $ 7,995,885 $ 382,142 $ 193,078 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES: Accounts payable and accrued liabilities $ 236,984 $ 217,050 $ 158,837 $ 20 $ 9 Deposits payable - - - - - TOTAL LIABILITIES 236,984 217,050 158,837 20 9 DEFERRED INFLOWS OF RESOURCES: Unavailable revenue - - - - - FUND BALANCES: Restricted 5,154,889 4,017,848 7,837,048 382,122 193,069 Assigned - - - - - TOTAL FUND BALANCES 5,154,889 4,017,848 7,837,048 382,122 193,069 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 5,391,873 $ 4,234,898 $ 7,995,885 $ 382,142 $ 193,078 -98- Special Revenue Funds (Continued) Capital Projects Funds Total Supplemental Other Other Law Housing Construction Capital CFD Governmental Enforcement Authority Special Tax B 95-1 Projects Construction Funds $ 68,902 $ 1,355,502 $ $ 3,392,248 $ 6,886,266 $ - $ 29,397,926 - - - - 1,810,094 1,810,094 5,267 - 200,870 319 693,153 63 73,923 6,274 - 96,431 - 1,049,733 - - 1,049,733 (699,733) - (699,733) 1,831 - 1,831 354,927 - - - - 354,927 $ 74,232 $ 2,136,183 $ $ 3,392,248 $ 7,093,410 $ 1,810,413 $ 32,704,362 $ 3,907 $ 21,896 - 9,936 3,907 31,832 422,687 70,325 1,681,664 70,325 1,681,664 $ $ 145,880 $ 490,808 $ 1,275,391 805,788 - 815,724 951,668 490,808 2,091,115 200,870 3,392,248 - - 5,940,872 3,392,248 5,940,872 $ 74,232 $ 2,136,183 $ - $ 3,392,248 $ 7,093,410 $ -99- 623,557 1,319,605 24,048,818 - 5,940,872 1,319,605 29,989,690 1,810,413 $ 32,704,362 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 FUND BALANCES - END OF YEAR For the year ended June 30, 2015 Special Revenue Funds Park Acquisition and Asset Air Gas Tax Measure M Development Forfeiture Quality $ 40,326 $ 30,498 $ 61,599 $ 3,036 $ 845 2,184,778 6,458,491 - 58,594 122,345 - - 20,451 - - 174,369 2,225,104 6,488,989 256,419 61,630 123,190 841,700 2,699 40,251 51,490 76 1,564,023 4,072,876 453,251 - - 2,405,723 4,075,575 493,502 51,490 76 (180,619) 2,413,414 (237,083) 10,140 123,114 (111,615) (111,615) - - - (180,619) 2,301,799 (237,083) 10,140 123,114 5,335,508 1,716,049 8,074,131 371,982 69,955 $ 5,154,889 $ 4,017,848 $ 7,837,048 $ 382,122 $ 193,069 - 100 - Special Revenue Funds (Continued) Capital Projects Funds Total Supplemental Other Other Law Housing Construction Capital CFD Governmental Enforcement Authority Special Tax B 95-1 Projects Construction Funds $ 520 $ 11,370 $ - $ 2,709 $ 49,502 $ 1,192 $ 201,597 136,623 - 2,833,686 - 593,000 213 12,387,730 - - - - 20,451 - - - - 174,369 13,683 4,254 2,206,350 335,000 2,559,287 137,143 25,053 2,833,686 6,963 2,848,852 336,405 15,343,434 - - 3,219 939,435 99,630 - - - 99,630 - 271,596 - - - 271,596 37,680 - 55,323 2,398,297 8,655,362 17,236,812 137,310 271,596 55,323 2,401,516 8,655,362 18,547,473 (167) (246,543) 2,833,686 (48,360) 447,336 (8,318,957) (3,204,039) - - - 1,572,721 1,572,721 (2,833,686) (210,601) (537,479) (3,693,381) (2,833,686) (210,601) (167) (246,543) (258,961) 1,035,242 (2,120,660) 447,336 (7,283,715) (5,324,699) 70,492 1,928,207 3,651,209 5,493,536 8,603,320 35,314,389 $ 70,325 $ 1,681,664 $ $ 3,392,248 $ 5,940,872 $ 1,319,605 $ 29,989,690 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 For the year ended June 30, 2015 1,003,360 1,014,302 Variance with 172,602 1,641,300 Final Budget Budgeted Amounts 329,315 Positive Original Final Actual (Negative) $ 10,000 $ 10,000 $ 40,326 $ 30,326 2,004,100 2,004,100 2,184,778 180,678 2,014,100 2,014,100 2,225,104 211,004 1,003,360 1,014,302 841,700 172,602 1,641,300 1,893,338 1,564,023 329,315 2,644,660 2,907,640 2,405,723 501,917 (630,560) (893,540) (180,619) 712,921 5,335,508 5,335,508 5,335,508 - $ 4,704,948 $ 4,441,968 $ 5,154,889 $ 712,921 -102- 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: 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 For the year ended June 30, 2015 - - 2,699 (2,699) 8,856,300 12,016,717 4,072,876 7,943,841 8,856,300 12,016,717 4,075,575 7,941,142 113,688 (3,046,729) 2,413,414 5,460,143 (39,000) (39,000) (111,615) (72,615) 74,688 (3,085,729) 2,301,799 5,387,528 1,716,049 1,716,049 1,716,049 - $ 1,790,737 $ (1,369,680) $ 4,017,848 $ 5,387,528 -103- Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 2,000 $ 2,000 $ 30,498 $ 28,498 8,967,988 8,967,988 6,458,491 (2,509,497) 8,969,988 8,969,988 6,488,989 (2,480,999) - - 2,699 (2,699) 8,856,300 12,016,717 4,072,876 7,943,841 8,856,300 12,016,717 4,075,575 7,941,142 113,688 (3,046,729) 2,413,414 5,460,143 (39,000) (39,000) (111,615) (72,615) 74,688 (3,085,729) 2,301,799 5,387,528 1,716,049 1,716,049 1,716,049 - $ 1,790,737 $ (1,369,680) $ 4,017,848 $ 5,387,528 -103- 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 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 For the year ended June 30, 2015 Budgeted Amounts Original Final Actual Variance with Final Budget Positive (Negative) $ 55,000 $ 55,000 $ 61,599 $ 6,599 13,500 13,500 20,451 6,951 128,000 128,000 174,369 46,369 196,500 196,500 256,419 59,919 - - 40,251 (40,251) 973,500 1,128,480 453,251 675,229 973,500 1,128,480 493,502 634,978 (777,000) (931,980) (237,083) 694,897 8,074,131 8,074,131 8,074,131 - $ 7,297,131 $ 7,142,151 $ 7,837,048 $ 694,897 - 104 - 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 For the year ended June 30, 2015 320,000 320,000 51,490 268,510 (169,000) (169,000) 10,140 179,140 371,982 371,982 371,982 - $ 202,982 $ 202,982 $ 382,122 $ 179,140 -105- Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,000 $ 1,000 $ 3,036 $ 2,036 150,000 150,000 58,594 (91,406) 151,000 151,000 61,630 (89,370) 320,000 320,000 51,490 268,510 (169,000) (169,000) 10,140 179,140 371,982 371,982 371,982 - $ 202,982 $ 202,982 $ 382,122 $ 179,140 -105- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL AIR QUALITY 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 For the year ended June 30, 2015 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 100 $ 100 $ 845 $ 745 82,000 82,000 122,345 40,345 82,100 82,100 123,190 41,090 - - 76 (76) 100,000 100,000 - 100,000 100,000 100,000 76 99,924 (17,900) (17,900) 123,114 141,090 69,955 69,955 69,955 - $ 52,055 $ 52,055 $ 193,069 $ 141,090 -106- 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, 2015 EXPENDITURES: Current: Public safety 98,500 98,500 99,630 (1,130) Capital outlay - - 37,680 (37,680) TOTAL EXPENDITURES 98,500 98,500 137,310 (38,810) EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 24,600 24,600 (167) (24,767) FUND BALANCE - BEGINNING OF YEAR 70,492 70,492 70,492 - FUND BALANCE - END OF YEAR $ 95,092 $ 95,092 $ 70,325 $ (24,767) -107- Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Investment income $ - $ - $ 520 $ 520 Intergovernmental revenue 123,100 123,100 136,623 13,523 TOTAL REVENUES 123,100 123,100 137,143 14,043 EXPENDITURES: Current: Public safety 98,500 98,500 99,630 (1,130) Capital outlay - - 37,680 (37,680) TOTAL EXPENDITURES 98,500 98,500 137,310 (38,810) EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 24,600 24,600 (167) (24,767) FUND BALANCE - BEGINNING OF YEAR 70,492 70,492 70,492 - FUND BALANCE - END OF YEAR $ 95,092 $ 95,092 $ 70,325 $ (24,767) -107- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL HOUSING AUTHORITY SPECIAL REVENUE FUND REVENUES: Investment income Other revenue TOTAL REVENUES EXPENDITURES: Current: Community services EXCESS OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE - BEGINNING OF YEAR FUND BALANCE - END OF YEAR For the year ended June 30, 2015 Budgeted Amounts Original Final 366,400 366,400 271,596 94,804 (366,400) (366,400) (246,543) 119,857 1,928,207 1,928,207 1,928,207 - $ 1,561,807 $ 1,561,807 $ 1,681,664 $ 119,857 -108- Variance with Final Budget Positive Actual (Negative) $ 11,370 $ 11,370 13,683 13,683 25,053 25,053 366,400 366,400 271,596 94,804 (366,400) (366,400) (246,543) 119,857 1,928,207 1,928,207 1,928,207 - $ 1,561,807 $ 1,561,807 $ 1,681,664 $ 119,857 -108- CITY OF TUSTIN SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL SPECIAL TAX B SPECIAL REVENUE FUND For the year ended June 30, 2015 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES: Intergovernmental revenue $ 2,250,000 $ 2,250,000 $ 2,833,686 $ 583,686 OTHER FINANCING USES: Transfers out (2,250,000) (2,250,000) (2,833,686) (583,686) NET CHANGE IN FUND BALANCE - - - - FUND BALANCE - BEGINNING OF YEAR - - - - FUND BALANCE - END OF YEAR -109- The page left blank intentionally - 110 - CITY OF TUSTIN AGENCY FUNDS June 30, 2015 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. Community Facilities District 13-01 - This fund records the deposit of monies held to pay the debt service requirements of the community facilities district. ASSETS Cash and investments Restricted cash and investments Taxes receivable TOTAL ASSETS LIABILITIES Accounts payable Due to bondholders TOTAL LIABILITIES CITY OF TUSTIN COMBINING STATEMENT OF ASSETS AND LIABILITIES ALL AGENCY FUNDS June 30, 2015 -112- Community Community Community Community Facilities Facilities Facilities Facilities District District District District 04-01 06-01 07-01 13-01 Total $ 18,529 $ 99,759 $ - $ 980 $ 119,268 1,075,291 9,246,015 1,933,317 - 12,254,623 14,372 57,846 - - 72,218 $ 1,108,192 $ 9,403,620 $ 1,933,317 $ 980 $ 12,446,109 $ - $ - $ - $ 980 $ 980 1,108,192 9,403,620 1,933,317 - 12,445,129 $ 1,108,192 $ 9,403,620 $ 1,933,317 $ 980 $ 12,446,109 -112- CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS For the year ended June 30, 2015 COMMUNITY FACILITIES DISTRICT 07-01 ASSETS: Cash and investments $ Balance $ 1,144,603 $ 1,144,603 $ Balance Restricted cash and investments July 1, 2014 1,908,686 Additions 914,747 Deletions June 30, 2015 COMMUNITY FACILITIES DISTRICT 04-01 1,933,317 TOTAL ASSETS $ 1,908,686 $ 2,059,350 $ 2,034,719 ASSETS: 1,933,317 LIABILITIES: Cash and investments $ - $ 1,274,823 $ 1,256,294 $ 18,529 Restricted cash and investments - 1,003,329 687,825 615,863 1,075,291 Taxes receivable 1,933,317 19,215 $ 14,372 $ 19,215 $ 14,372 TOTAL ASSETS $ 1,022,544 $ 1,977,020 $ 1,891,372 $ 1,108,192 LIABILITIES: Accounts payable $ - $ 687,825 $ 687,825 $ - Due to bondholders 1,022,544 1,269,980 1,184,332 1,108,192 TOTAL LIABILITIES $ 1,022,544 $ 1,957,805 $ 1,872,157 $ 1,108,192 COMMUNITY FACILITIES DISTRICT 06-01 ASSETS: Cash and investments $ 11,766 $ 5,539,715 $ 5,451,722 $ 99,759 Restricted cash and investments 9,145,080 3,604,914 3,503,979 9,246,015 Taxes receivable 64,249 57,846 64,249 57,846 TOTAL ASSETS $ 9,221,095 $ 9,202,475 $ 9,019,950 $ 9,403,620 LIABILITIES: Accounts payable $ 142 $ 3,609,657 $ 3,609,799 $ - Due to bondholders 9,220,953 5,523,894 5,341,227 9,403,620 TOTAL LIABILITIES $ 9,221,095 $ 9,133,551 $ 8,951,026 $ 9,403,620 COMMUNITY FACILITIES DISTRICT 07-01 ASSETS: Cash and investments $ - $ 1,144,603 $ 1,144,603 $ - Restricted cash and investments 1,908,686 914,747 890,116 1,933,317 TOTAL ASSETS $ 1,908,686 $ 2,059,350 $ 2,034,719 $ 1,933,317 LIABILITIES: Accounts payable $ - $ 914,601 $ 914,601 $ - Due to bondholders 1,908,686 1,144,865 1,120,234 1,933,317 TOTAL LIABILITIES $ 1,908,686 $ 2,059,466 $ 2,034,835 $ 1,933,317 (Continued) -113- CITY OF TUSTIN COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED) For the year ended June 30, 2015 -114- Balance Balance July 1, 2014 Additions Deletions June 30, 2015 COMMUNITY FACILITIES DISTRICT 13-01 ASSETS: Cash and investments $ - $ 217,474 $ 216,494 $ 980 TOTAL ASSETS $ - $ 217,474 $ 216,494 $ 980 LIABILITIES: Accounts payable $ - $ 217,474 $ 216,494 $ 980 TOTAL LIABILITIES $ - $ 217,474 $ 216,494 $ 980 TOTAL ALL AGENCY FUNDS ASSETS: Cash and investments $ 11,766 $ 8,176,615 $ 8,069,113 $ 119,268 Restricted cash and investments 12,057,095 5,207,486 5,009,958 12,254,623 Taxes receivable 83,464 72,218 83,464 72,218 TOTAL ASSETS $ 12,152,325 $ 13,456,319 $ 13,162,535 $ 12,446,109 LIABILITIES: Accounts payable $ 142 $ 5,429,557 $ 5,428,719 $ 980 Due to bondholders 12,152,183 7,938,739 7,645,793 12,445,129 TOTAL LIABILITIES $ 12,152,325 $ 13,368,296 $ 13,074,512 $ 12,446,109 -114- STATISTICAL SECTION -115 - The page left blank intentionally - 116 - DESCRIPTION OF STATISTICAL SECTION CONTENTS June 30, 2015 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. 118 Revenue Capacity - These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax. 128 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. 134 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. 142 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. 144 Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. - 117 - CITY OF TUSTIN NET POSITION BY COMPONENT Last Ten Fiscal Years (accrual basis of accounting) - 118- Fiscal Year 2006 2007 2008 2009 Governmental activities: Net investment in capital assets $ 261,132,785 $ 285,331,502 $ 343,062,465 $ 357,299,104 Restricted 55,021,376 94,111,615 161,669,815 145,602,640 Unrestricted 14,993,866 (19,936,964) (14,320,020) 104,037,153 Total governmental activities net position $ 331,148,027 $ 359,506,153 $ 490,412,260 $ 606,938,897 Business -type activities: Net investment in capital assets $ 20,494,561 $ 22,150,723 $ 22,267,386 $ 24,964,824 Restricted - - - 1,191,694 Unrestricted 206,342,244 199,289,608 172,421,511 1,981,499 Total business -type activities net position $ 226,836,805 $ 221,440,331 $ 194,688,897 $ 28,138,017 Primary government: Net investment in capital assets $ 281,627,346 $ 307,482,225 $ 365,329,851 $ 382,263,928 Restricted 55,021,376 94,111,615 161,669,815 146,794,334 Unrestricted 221,336,110 179,352,644 158,101,491 106,018,652 Total primary government net position $ 557,984,832 $ 580,946,484 $ 685,101,157 $ 635,076,914 - 118- Fiscal Year 2010 2011 2012 2013 2014 2015 $ 360,282,692 $ 378,911,546 $ 412,683,460 $ 431,761,288 $ 461,673,323 $ 456,649,085 135,670,302 116,718,495 47,727,966 54,367,385 36,693,458 72,929,522 114,737,049 116,545,351 147,513,249 177,532,888 93,877,440 140,727,040 $ 610,690,043 $ 612,175,392 $ 607,924,675 $ 663,661,561 $ 592,244,221 $ 670,305,647 $ 24,541,113 $ 20,872,492 $ 25,479,160 $ 24,171,745 $ 23,657,878 $ 24,270,718 1,851,666 5,541,672 2,795,701 7,094,771 8,326,340 11,845,734 $ 26,392,779 $ 26,414,164 $ 28,274,861 $ 31,266,516 $ 31,984,218 $ 36,116,452 $ 384,823,805 $ 399,784,038 $ 438,162,620 $ 455,933,033 $ 485,331,201 $ 480,919,803 135,670,302 116,718,495 47,727,966 54,367,385 36,693,458 72,929,522 116, 588, 715 122,087,023 150,308,950 184,627,659 102,203, 780 152,5 72, 774 $ 637,082,822 $ 638,589,556 $ 636,199,536 $ 694,928,077 $ 624,228,439 $ 706,422,099 -119- 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 2006 2007 2008 2009 $ 10,269,053 $ 7,926,778 $ 8,668,759 $ 8,499,303 23,255,837 25,269,653 27,875,230 29,126,019 14,354,535 19,091,399 30,814,898 22,102,002 3,425,790 3,444,799 3,442,833 5,112,770 1,003,920 1,618,814 4,715,026 3,566,782 52,309,135 57,351,443 75,516,746 68,406,876 Business -type activities: Water 9,365,401 11,879,958 11,870,706 12,569,331 Tustin Legacy 1,355,822 1,518,560 1,279,802 1,259,093 Total business -type activities expenses 10,721,223 13,398,518 13,150,508 13,828,424 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) 2,388,279 2,540,796 2,716,432 1,694,464 1,364,877 1,476,811 2,749,660 2,136,772 3,230,212 2,987,687 1,688,753 2,374,308 876,199 916,075 929,548 897,386 3,655,881 3,677,905 3,831,037 4,253,442 19,470,274 9,652,907 79,210,370 18,865,776 30,985,722 21,252,181 91,125,800 30,222,148 8,858,151 10,418,522 10,923,061 11,281,679 3,660,334 409,693 34,370 22,587 - - 28,299,036 - 12,518,485 10,828,215 39,256,467 11,304,266 $ (21,323,413) $ (36,099,262) $ 15,609,054 $ (38,184,728) 1,797,262 (2,570,303) 26,105,959 (2,524,158) $ (19,526,151) $ (38,669,565) $ 41,715,013 $ (40,708,886) -120- Fiscal Year 7nln 7n11 Inl') In12 7n1A 7n1 Iz $ 7,802,579 $ 7,854,361 $ 12,266,470 $ 18,705,913 $ 14,825,780 $ 17,121,057 27,277,141 28,622,807 28,800,773 30,702,298 28,440,799 29,886,284 20,816,686 19,809,907 20,765,854 15,087,234 49,538,371 34,435,214 12,742,391 13,150,089 7,078,104 3,201,865 3,498,460 3,699,059 4,087,839 4,814,598 3,057,645 967,115 - - 72,726,636 74,251,762 71,968,846 68,664,425 96,303,410 85,141,614 16,982,781 13,621,100 28,791,083 29,367,544 19,394,706 27,570,891 11,938,146 12,578,667 13,467,541 13,574,149 16,100,137 15,982,078 11,938,146 12,578,667 13,467,541 13,574,149 16,100,137 15,982,078 1,404,925 1,109,150 1,390,073 763,101 249,237 252,074 1,168,348 1,196,830 1,133,096 917,947 920,112 1,071,099 3,761,321 3,508,904 800,328 1,248,595 1,710,813 1,564,314 957,545 969,006 974,747 926,432 967,134 892,102 3,403,411 3,441,281 3,590,210 4,513,158 3,325,304 3,546,823 6,287,231 3,395,929 20,902,629 20,998,311 12,222,106 20,244,479 16,982,781 13,621,100 28,791,083 29,367,544 19,394,706 27,570,891 10,594,471 12,422,746 15,112,161 16,688,773 18,682,821 19,375,359 10,594,471 12,422,746 15,112,161 16,688,773 18,682,821 19,375,359 $ (55,743,855) $ (60,630,662) $ (43,177,763) $ (39,296,881) $ (76,908,704) $ (57,570,723) (1,343,675) (155,921) 1,644,620 3,114,624 2,582,684 3,393,281 $ (57,087,530) $ (60,786,583) $ (41,533,143) $ (36,182,257) $ (74,326,020) $ (54,177,442) -121- General revenues and other changes in net position: Governmental activities: Taxes: Property taxes Transient occupancy taxes Business license taxes Other taxes Sales tax Motor vehicle in lieu, unrestricted Investment income Other general revenues Gain (loss) on disposal of capital assets Gain on sale of land held for resale Transfers Extraordinary item Contribution from successor agency 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 InnK ')nn7 �nno �nno $ 21,242,797 $ 28,617,969 $ 31,070,501 $ 34,022,959 155,199 161,105 163,831 154,379 N/A N/A N/A 356,565 1,409,696 1,534,720 1,665,601 1,689,573 18,912,722 19,317,135 20,428,465 19,858,142 433,795 443,222 321,918 252,666 3,202,914 4,842,033 7,417,199 4,863,469 1,323,230 1,598,099 1,523,530 2,314,540 (422,555) - (1,366,208) - 5,931,225 7,943,105 53,668,609 103,805,196 Business -type activities (2,672,994) (5,426,474) (26,724,434) 52,189,023 64,457,388 114,893,446 167,317,489 Investment income 1,411,899 1,567,316 815,560 164,764 Gain (loss) on disposal of capital assets - 3,519,618 (681) - Miscellaneous 49,070 - 23,337 82,810 Transfers (5,931,225) (7,943,105) (53,668,609) (103,805,196) Total business -type activities (4,470,256) (2,856,171) (52,830,393) (103,557,622) Total primary government $ 47,718,767 $ 61,601,217 $ 62,063,053 $ 63,759,867 Changes in net position: Governmental activities $ 30,865,610 $ 28,358,126 $ 130,502,500 $ 129,132,761 Business -type activities (2,672,994) (5,426,474) (26,724,434) (106,081,780) Total primary government $ 28,192,616 $ 22,931,652 $ 103,778,066 $ 23,050,981 -122- Fiscal Year 2010 2011 2012 2013 2014 2015 $ 28,347,659 $ 30,205,879 $ 23,270,718 $ 14,526,101 $ 13,661,771 $ 14,552,535 141,335 142,915 137,131 137,064 616,897 1,090,675 337,867 358,526 44,800 377,498 393,241 419,148 1,720,505 1,648,319 1,621,521 1,655,388 1,663,215 1,763,878 15,917,332 18,597,453 19,931,865 21,575,405 22,288,032 22,269,896 6,122,789 6,189,249 5,833,094 5,951,653 6,150,893 6,380,698 4,086,852 2,358,847 958,169 243,921 628,180 1,052,276 1,520,662 1,700,323 14,444,183 7,231,648 4,040,996 7,829,149 - - - 43,335,089 - 48,136,121 - - (27,314,435) - 1,412,257 - - - - - - 32,137,773 58,195,001 61,201,511 38,927,046 95,033,767 50,855,482 135,632,149 86,654 158,242 156,855 39,700 144,381 249,863 25,340 19,064 59,222 271,858 408,749 489,090 111,994 177,306 216,077 311,558 553,130 738,953 $ 58,306,995 $ 61,378,817 $ 39,143,123 $ 95,345,325 $ 51,408,612 $ 136,371,102 $ 2,451,146 $ 570,849 $ (4,250,717) $ 55,736,886 $ (26,053,222) $ 78,061,426 (1,231,681) 21,385 1,860,697 3,426,182 3,135,814 4,132,234 $ 1,219,465 $ 592,234 $ (2,390,020) $ 59,163,068 $ (22,917,408) $ 82,193,660 -123- CITY OF TUSTIN FUND BALANCES OF GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) Fund Balance prior to GASB 54 All other governmental funds Reserved $ 34,612,789 Fiscal Year $ 76,696,588 $ 49,777,973 Unreserved, reported in: 2006 2007 2008 2009 General fund: 8,550,855 10,639,839 64,896,223 16,437,130 Reserved $ 118,510 $ 248,372 $ 116,342 $ 120,632,293 Unreserved 24,124,968 20,454,356 24,471,029 1,971,846 Total general fund $ 24,243,478 $ 20,702,728 $ 24,587,371 $ 122,604,139 All other governmental funds Reserved $ 34,612,789 $ 68,724,358 $ 76,696,588 $ 49,777,973 Unreserved, reported in: Special revenue funds 8,550,855 10,639,839 64,896,223 16,437,130 Debt service funds 2,510,686 - - - Capital projects funds 11,145,244 12,388,651 17,558,428 90,474,987 Total all other governmental funds $ 56,819,574 $ 91,752,848 $ 159,151,239 $ 156,690,090 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 $ - $ - $ - $ - -124- Fiscal Year 2010 2011 2012 2013 2014 2015 $ 144,139,167 $ - $ - $ - $ - $ - 5,870,992 - - - - - $ 150,010,159 $ - $ - $ - $ - $ - $ 66,609,267 $ - $ - $ - $ - $ - 14,277,683 - - - - - (6,774,245) - - - - - 75,663,086 - - - - - $ 149,775,791 $ - $ - $ - $ - $ - $ 144,139,167 $ 144,186,955 $ 144,604,847 $ 128,988,209 $ 129,049,954 $ 122,458,642 - - - 19,615,343 1,352,309 16,650,332 47,608 - - - - - 5,823,384 - - - - - - 7,443,165 4,077,344 44,368,566 18,781,826 84,278,138 $ 150,010,159 $ 151,630,120 $ 148,682,191 $ 192,972,118 $ 149,184,089 $ 223,387,112 $ 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 24,048,818 344,708 - - - - - 11,670,324 18,603,317 16,239,322 16,880,590 5,493,536 37,350,531 (8,495,076) (10,989,463) - - - - $ 149,775,791 $ 160,639,848 $ 56,224,280 $ 52,053,954 $ 35,314,389 $ 61,399,349 -125- CITY OF TUSTIN CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) Other financing sources (uses) Proceeds from debt issuance - Fiscal Year - - 2006 2007 2008 2009 Revenues: Transfers out (5,270,356) (10,795,694) (7,803,274) Taxes $ 40,542,668 $ 48,306,569 $ 51,775,505 $ 56,198,002 Licenses and permits 2,153,355 2,095,154 2,710,309 1,692,955 Fines and forfeitures 784,966 783,390 818,868 832,188 Investment income 2,849,921 4,228,582 7,529,488 4,429,915 Intergovernmental revenues 15,338,254 20,136,822 27,394,402 14,626,663 Charges for services 2,107,336 2,043,251 1,583,324 4,497,309 Rental income 304,733 349,450 786,438 771,807 Developer contributions - - - - Gain on sale of land held for resale - - - - Contribution from Successor Agency - - - - Other revenues 8,260,032 3,160,370 59,309,772 1,188,200 Total revenues 72,341,265 81,103,588 151,908,106 84,237,039 Expenditures: Current: General government 10,134,368 7,806,916 8,295,887 6,728,236 Public safety 22,697,122 24,450,803 26,561,960 27,759,939 Public works 7,691,894 9,651,745 10,136,680 11,311,291 Community services 3,026,890 3,023,648 2,886,132 5,005,986 Capital outlay 27,057,889 28,503,673 15,080,865 24,772,717 Debt service: Principal retirement 1,275,000 1,330,000 1,055,000 11,143,000 Interest and fiscal charges 1,023,622 1,620,897 4,718,806 3,570,834 Bond issue costs - - - - Total expenditures 72,906,785 76,387,682 68,735,330 90,292,003 Excess (deficiency) of revenues over(under)expenditures (565,520) 4,715,906 83,172,776 (6,054,964) Other financing sources (uses) Proceeds from debt issuance - 25,000,000 - - Transfers in 7,190,511 10,795,694 7,803,274 142,866,218 Transfers out (5,270,356) (10,795,694) (7,803,274) (41,295,836) Contribution to developer - - (11,934,400) - Sale of property 137,442 1,676,618 44,658 40,201 Total other financing sources (uses) 2,057,597 26,676,618 (11,889,742) 101,610,583 Extraordinary gain (loss) - - - - Special item - - - - Net change in fund balances $ 1,492,077 $ 31,392,524 $ 71,283,034 $ 95,555,619 Debt service as a percentage of noncapital expenditures 5.28% 6.57% 12.06% 28.96% -126- Fiscal Year $ 52,579,529 $ 57,324,011 $ 50,907,306 $ 44,279,024 $ 45,096,520 $ 43,696,204 3,538,198 716,144 443,928 577,044 1,284,232 885,043 890,770 893,642 875,068 678,428 631,340 752,597 3,198,484 1,632,215 472,725 173,890 621,786 1,041,661 5,378,430 5,372,905 6,413,137 21,551,042 7,453,722 15,032,387 2,708,705 5,020,485 2,813,752 2,685,080 1,787,268 1,870,401 869,645 358,030 480,255 550,003 751,724 1,113,340 4,051,180 1,593,475 - - - 16,934,704 - - - 43,340,797 - 48,136,121 - - - - - 32,137,773 1,028,432 2,425,052 14,075,025 9,773,813 6,110,735 6,302,392 74,243,373 75,335,959 76,481,196 123,609,121 63,737,327 167,902,623 7,197,709 7,505,928 11,656,331 17,357,805 14,205,424 17,568,297 26,359,435 27,508,514 28,714,347 27,944,039 28,170,314 33,062,929 10,133,685 9,110,621 6,954,384 5,980,807 5,797,705 6,417,257 12,251,479 12,740,969 6,506,381 2,752,523 3,081,299 3,170,747 13,125,983 9,979,670 25,816,530 28,487,231 74,422,436 23,800,093 7,913,000 10,659,000 2,590,000 - - 5,000,000 4,603,661 4,131,435 3,264,323 967,115 - - - 429,731 - - - - 81,584,952 82,065,868 85,502,296 83,489,520 125,677,178 89,019,323 (7,341,579) (6,729,909) (9,021,100) 40,119,601 (61,939,851) 78,883,300 26,274,205 43,281,289 - - - - 37,207,661 2,645,014 3,020,291 6,122,454 2,084,612 5,266,102 (37,207,661) (2,645,014) (3,020,291) (6,122,454) (2,084,612) (5,266,102) 7,421 18,138 43,745 - - - 26,281,626 43,299,427 43,745 - - - - - (98,386,142) - 1,412,257 - - - - - - 21,404,683 $ 18,940,047 $ 36,569,518 $(107,363,497) $ 40,119,601 $ (60,527,594) $ 100,287,983 22.37% 26.76% 10.88% 1.76% 0.00% 6.42% -127- 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. -128- City Fiscal Year Taxable Ended Assessed June 30 Secured Unsecured Value 2006 $ 5,753,518 $ 285,670 $ 6,039,188 2007 6,397,216 301,747 6,698,963 2008 7,708,506 435,160 8,143,666 2009 7,019,706 341,056 7,360,762 2010 6,874,131 323,694 7,197,825 2011 6,791,003 318,875 7,109,878 2012 6,865,333 294,518 7,159,851 2013 6,975,148 295,303 7,270,451 2014 7,151,192 267,629 7,418,821 2015 7,503,074 287,558 7,790,632 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. -128- Redevelopment Agency (A) -129- Total Direct Tax Rate (B) 0.226% 0.261% 0.279% 0.326% 0.308% 0.310% 0.303% 0.302% 0.116% 0.116% Taxable Assessed Secured Unsecured Value (A) $ 1,039,506 $ 71,738 $ 1,111,244 1,496,217 84,203 1,580,420 1,826,514 89,863 1,916,377 2,432,407 165,392 2,597,799 2,175,049 128,194 2,303,243 2,180,029 129,387 2,309,416 2,085,982 133,065 2,219,047 2,107,792 123,929 2,231,721 2,192,026 121,534 2,313,560 2,362,339 139,834 2,502,173 -129- Total Direct Tax Rate (B) 0.226% 0.261% 0.279% 0.326% 0.308% 0.310% 0.303% 0.302% 0.116% 0.116% CITY OF TUSTIN DIRECT AND OVERLAPPING PROPERTY TAX RATES Last Ten Fiscal Years (rate per $100 of taxable value) Direct Rate: City of Tustin Tustin Unified School District South Orange County Community College District County of Orange Orange County Flood Control District Orange County Library District Orange County Department of Education Various Special Districts Total Direct Rate Overlapping Rates: Tustin Unified School District Bonds 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 Source: Hdl, Coren & Cone -130- Fiscal Year 2006 2007 2008 2009 $ 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 0.0311 0.0023 0.0317 0.0310 0.0052 0.0047 0.0045 0.0043 0.0169 0.0191 0.0237 0.0225 0.0477 0.2138 0.2143 0.2143 0.0435 0.0392 0.0359 0.0321 0.1444 0.2791 0.3101 0.3042 $ 1.1444 $ 1.2791 $ 1.3101 $ 1.3042 Fiscal Year 2010 2011 2012 2013 2014 2015 $ 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 0.0380 0.0596 0.0559 0.0672 0.0891 0.0696 0.0043 0.0037 0.0037 0.0035 0.0035 0.0035 0.0274 0.0314 0.0315 0.0324 0.0333 0.0508 0.2242 0.2242 0.2155 0.2155 0.2155 0.0960 0.0739 0.0717 0.0715 0.0775 0.0736 0.0687 0.3678 0.3906 0.3781 0.3961 0.4150 0.2886 $ 1.3678 $ 1.3906 $ 1.3781 $ 1.3961 $ 1.4150 $ 1.2886 - 131 - CITY OF TUSTIN PRINCIPAL PROPERTY TAX PAYERS Current Year and Ten Years Ago 2015 2005 The amounts shown above include the Combined Tax Rolls and the SBE Non -Unitary Tax Roll. Sources: Hdl, Coren & Cone -132- Percent of Percent of Total City Total City Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Taxpayer Value Value Value Value Irvine Company LLC $ 228,477,924 2.22% $ 65,223,171 1.00% Vestar Kimco Tustin LP 162,372,463 1.58% Avalon 11 California Value I LP 98,143,300 0.95% Irvine Apartment Communities LP 50,873,840 0.49% 210,693,161 3.42% Ricoh Development of California Inc 48,516,780 0.47% PK II Larwin Square SC LP 48,263,673 0.47% Borchard Redhill SKB-Tustin LLC 47,709,881 0.46% 30,113,321 0.46% Cadigan Communities LP 47,482,617 0.46% 26,194,631 0.40% Costco Wholesale Corporation 47,286,886 0.46% CPII Park Place LLC 42,498,878 0.41% Moffett Meadows Partners, LLC 144,651,140 2.22% WL Homes 69,876,021 1.07% Bascom East Tustin Avenue Apartment LLC 67,546,366 1.04% Pan Pacific Retail Prop 44,593,136 0.68% Saddleback Memorial Medic 39,596,614 0.61% Bedrosian Tustin, LLC 26,753,547 0.41% $ 821,626,242 7.97% $ 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 -132- CITY OF TUSTIN PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years 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 -133- Collected within the Fiscal Taxes Levied Fiscal Year of Levy Collections in Total Collections to Date Year Ended for the Percent Subsequent Percent June 30 Fiscal Year Amount of Levy Years Amount of Levy 2006 $ 21,602,011 $ 21,242,797 98.34% $ 309,074 $ 21,551,871 99.77% 2007 30,701,393 28,617,969 93.21% 799,215 29,417,184 95.82% 2008 33,554,781 31,070,501 92.60% 695,793 31,766,294 94.67% 2009 38,515,110 34,022,959 88.34% 1,417,067 35,440,026 92.02% 2010 31,739,378 28,347,659 89.31% 917,222 29,264,881 92.20% 2011 30,713,746 29,541,000 96.18% 610,052 30,151,052 98.17% 2012 30,163,205 20,433,400 67.74% 147,389 20,580,789 68.23% 2013 9,492,638 9,257,817 97.53% 121,715 9,379,532 98.81% 2014 9,862,476 9,655,778 97.90% 121,400 9,777,178 99.14% 2015 9,287,149 9,007,785 96.99% 163,497 9,171,282 98.75% 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 -133- 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 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 2015 16,404,683 16,404,683 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (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. As of February 1, 2012, this note is payable to the Successor Agency to the Tustin Community Redevelopment Agency. See Note 19 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. -134- Debt Percentage of Per Personal Income Capita 1.35% $ 394 2.29% 719 2.11% 696 2.35% 783 3.16% 1,018 5.52% 1,722 2.12% 673 2.16% 678 2.73% 827 2.44% 752 (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. - 135- Business -type Activity Water Water Water Water Total Total Revenue Revenue Revenue Revenue Business -type Primary Bonds (5) Bonds (8) Bonds (9) Bonds (10) Activity Government $ 13,461,607 $ $ $ $ 13,461,607 $ 27,821,607 13,331,607 13,331,607 51,351,607 13,080,000 13,080,000 50,055,000 12,560,000 12,560,000 57,676,170 11,875,000 11,875,000 76,076,456 11,165,000 20,760,000 - 31,925,000 130,501,317 - 20,760,000 8,910,000 29,670,000 51,547,282 21,044,310 8,997,129 30,041,439 52,858,379 21,034,111 8,205,372 14,160,362 43,399,845 64,804,528 21,023,911 7,398,615 14,111,418 42,533,944 58,938,627 Debt Percentage of Per Personal Income Capita 1.35% $ 394 2.29% 719 2.11% 696 2.35% 783 3.16% 1,018 5.52% 1,722 2.12% 673 2.16% 678 2.73% 827 2.44% 752 (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. - 135- 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. -136- Outstanding General Bonded Debt Fiscal Year General Tax Percent of Ended Obligation Allocation Assessed Per June 30 Bonds Bonds Total Value * Capita 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 - - - - - 2015 - - - - - 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. -136- CITY OF TUSTIN OVERLAPPING DEBT SCHEDULE June 30, 2015 2014-15 Assessed Valuation $10,292,804,580 Redevelopment Incremental Valuation (2,334,044,315) Adjusted Assessed Value 7,958,760,265 City's Share of Total Debt (1) Debt at OVERLAPPING TAX AND ASSESSMENT DEBT: 6/30/15 % Applicable 6/30/15 Metropolitan Water District $ 110,420,000 0.444% $ 490,265 Rancho Santiago Community College District 277,290,443 0.014 38,821 Rancho Santiago Community College District School Facilities Improvement Dst No. 1 70,585,000 0.001 706 Santa Ana Unified School District 282,043,547 0.001 2,820 Tustin Unified School District School Facilities Improvement District No. 2002-1 49,798,788 44.364 22,092,734 Tustin Unified School District School Facilities Improvement District No. 2008-1 70,495,000 42.409 29,896,225 Tustin Unified School District School Facilities Improvement District No. 2012-1 32,535,000 43.748 14,233,412 Tustin Unified School District Community Facilities District No. 88-1 38,360,000 100.000 38,360,000 Tustin Unified School District Community Facilities District No. 06-1 13,465,000 100.000 13,465,000 City of Tustin Community Facilities Districts 75,895,000 100.000 75,895,000 Irvine Unified School District Community Facilities District No. 86-1 77,270,000 0.241 186,221 Irvine Ranch Water District Improvement Districts 458,823,980 5.497-81.041 55,982,916 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $ 250,644,120 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 98,906,000 2.185% 2,161,096 Orange County Pension Obligations 366,854,623 2.185 8,015,774 Orange County Board of Education Certificates of Participation 15,190,000 2.185 331,902 Municipal Water District of Orange County Water Facilities Corporation 5,360,000 2.611 139,950 Orange Unified School District Certificates of Participation 30,614,699 0.029 8,878 Orange Unified School District Benefit Obligations 84,965,000 0.029 24,640 Santa Ana Unified School District Certificates of Participation 73,662,130 0.001 737 City of Tustin - 100.000 - TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT: 10,682,977 Less: MWDOC Water Facilities Corporation (100% self supporting) 139,950 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT: 10,543,027 OVERLAPPING TAX INCREMENT DEBT (Successor Agencies) $ 94,160,000 0.002-100.00% $ 66,170,560 GROSS COMBINED TOTAL DEBT $ 327,497,657 (2) NET COMBINED TOTAL DEBT $ 327,357,707 (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages wer 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 leas obligations. Effective February 1, 2012, the former Redevelopment Agency was dissolved. See Notes 18 and 19 for more informatio Ratios to 2014-15 Assessed Valuations: Total Overlapping Tax and Assessment Debt 2.44% Total Direct Debt 0.00% Gross Combined Total Debt 3.18% Net Combined Total Debt 3.18% Ratios to Redevelopment Incremental Valuations ($2,334,044,315): Total Overlapping Tax Increment Debt 2.84% Source: California Municipal Statistics, Inc. - 137- CITY OF TUSTIN LEGAL DEBT MARGIN INFORMATION Last Ten Fiscal Years Fiscal Year 2006 2007 2008 2009 Assessed valuation $ 6,039,188,000 $ 6,698,963,000 $ 8,143,666,000 $ 7,360,762,000 Conversion percentage 25% 25% 25% 25% Adjusted assessed valuation 1,509,797,000 1,674,740,750 2,035,916,500 1,840,190,500 Debt limit percentage 15% 15% 15% 15% Debt limit 226,469,550 251,211,113 305,387,475 276,028,575 Total net debt applicable to limitation - - - - Legal debt margin $ 226,469,550 $ 251,211,113 $ 305,387,475 $ 276,028,575 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 -138- Fiscal Year 2010 2011 2012 2013 2014 2015 $ 7,197,825,000 $ 7,109,878,000 $ 7,159,851,000 $ 7,270,451,000 $ 7,418,821,000 $ 7,790,632,000 25% 25% 25% 25% 25% 25% 1,799,456,250 1,777,469,500 1,789,962,750 1,817,612,750 1,854,705,250 1,947,658,000 15% 15% 15% 15% 15% 15% 269,918,438 266,620,425 268,494,413 272,641,913 278,205,788 292,148,700 $ 269,918,438 $ 266,620,425 $ 268,494,413 $ 272,641,913 $ 278,205,788 $ 292,148,700 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% - 139- 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 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 2015 19,375,359 12,511,648 6,863,711 770,000 1,973,820 2.50 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 and amortization expenses. Water revenues in 2010 include proceeds from an advance from the City's general fund. -140- Tax Allocation Bonds (A) Tax Debt Service Allocation Principal Interest Coverage $ 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 -141- CITY OF TUSTIN DEMOGRAPHIC AND ECONOMIC STATISTICS Last Ten Calendar Years Source: HdL Coren & Cone, LLC -142- Personal Per Capita County of Orange Calendar City of Tustin Income Personal Unemployment Year Population (In Thousands) Income Rate 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% 2015 78,347 2,411,442 30,779 5.10% Source: HdL Coren & Cone, LLC -142- CITY OF TUSTIN PRINCIPAL EMPLOYERS Current Year and Nine Years Ago (1) Information is not available for fiscal year 2004-2005. Sources: Orange County Workforce Investment Board City of Tustin US Census Bureau -143- 2015 2006(l) Percent of Percent of Number of Total Number of Total Employer Employees Employment Employees Employment Tustin Unified School District 1,449 3.39% Rockwell Collins Inc 600 1.40% Ricoh Electronics Inc 500 1.17% 1,038 2.77% Costco 450 1.05% City of Tustin 372 0.87% 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 -143- 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 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 31 31 31 27 27 25 29 26 35 33 24 28 29 28 24 17 17 15 15 16 48 50 51 50 53 52 51 40 47 48 141 145 144 147 147 140 139 131 140 141 17 17 15 16 15 14 15 13 13 14 3 5 5 6 6 6 5 3 - - 22 20 20 23 22 23 25 17 17 18 286 296 295 297 294 277 281 245 267 270 The City contracts with the OC Fire Authority for fire services. Source: City of Tustin Human Resource Department -144- CITY OF TUSTIN CAPITAL ASSET STATISTICS BY FUNCTION Last Ten Fiscal Years Fiscal Year Function 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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) 101.8 101.8 106.3 127.2 127.2 127.2 127.2 127.2 129.1 129.1 Street Lights 2,855 2,855 3,285 3,544 3,544 3,544 3,544 3,544 3,640 3,640 Traffic Signals 97 97 113 113 116 117 118 118 121 121 Storm Drain (miles) 23.7 23.7 49.1 49.2 49.2 49.2 49.2 49.2 51.2 51.4 Street Trees 16,638 16,638 15,821 15,853 15,853 15,837 15,786 16,097 16,073 15,815 Parks and Recreation Parks 12 12 12 12 13 13 13 13 13 13 Parks (acres) 81.5 81.5 81.5 81.5 98.5 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 13,900 14,080 14,117 14,118 14,118 14,139 14,139 14,172 14,181 14,148 Average daily consumption 12,514 17,205 14,970 14,460 14,460 12,899 13,491 13,601 13,975 13,975 Reservoirs 6 6 6 6 6 6 6 6 6 6 Wells 12 12 12 13 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 2,201 2,201 2,201 2,201 2,201 1,914 1,945 (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 -145- CITY OF TUSTIN WATER CONSUMPTION BY CUSTOMER TYPE Type of Customer Residential Apartment/Multiple Units Commercial Fire Services Irrigation Government Restaurants Hospitals Non -Profit Industrial Hotel/Motels All Others Measured in hundred cubic feet. Source: City of Tustin Finance Department Last Ten Fiscal Years Fiscal Year 2006 2007 2008 2009 2,847,140 3,319,069 3,202,982 3,012,575 1,218,770 1,312,731 1,264,584 1,226,181 331,990 360,170 326,987 305,601 306 11,453 478 184 137,651 171,200 174,858 171,382 179,426 265,158 260,688 264,425 71,356 67,378 61,029 54,916 14,690 14,243 14,376 11,222 43,427 48,320 48,922 45,387 77,425 71,065 69,920 67,985 10,878 13,367 12,803 12,890 103,570 100,604 115,246 105,221 5,036,629 5,754,758 5,552,873 5,277,969 -146- 2010 2011 Fiscal Year 2012 2013 2014 2015 2,749,415 2,592,741 2,733,482 2,815,322 2,905,069 2,603,538 1,142,749 1,133,899 1,172,823 1,158,480 1,163,159 1,139,321 287,951 296,001 305,638 308,376 321,125 310,585 217 275 1,242 818 577 837 145,287 134,408 149,957 151,965 167,346 155,766 238,914 212,561 236,658 268,581 276,292 229,262 52,761 48,873 53,183 53,461 52,520 51,658 9,636 11,587 12,204 12,442 7,634 10,018 43,985 41,291 44,488 44,476 45,920 41,601 56,360 51,760 58,298 57,462 60,438 59,292 13,562 8,332 8,514 10,417 12,866 21,379 171,781 176,248 147,552 82,716 87,785 71,324 4,912,618 4,707,976 4,924,039 4,964,516 5,100,731 4,694,581 -147- CITY OF TUSTIN WATER RATES Last Ten Fiscal Years Notes: HCF = Hundred Cubic Feet (1 HCF = 748 gallons) (1) A revised seven (7) tiered rate structure was approved on August 5, 2014 to address a stage 2 emergency drought water demand reduction mandate. A seven (7) tiered rate structure was implemented 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 -148- 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 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 61 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 2015(l) 46.85 0.84 1.48 1.94 2.41 3.05 3.53 4.05 Emergency Drought Stage 2 - Consumption Charges Bi -Monthly Up to From From From From From All Fiscal Fixed 8 9 to 16 17 to 24 25 to 32 33 to 40 41 to 48 Over 49 Year Charge HCF HCF HCF HCF HCF HCF HCF 2015(l) $ 46.85 $ 0.84 $ 1.48 $ 1.94 $ 2.41 $ 3.05 $ 3.53 $ 4.05 Notes: HCF = Hundred Cubic Feet (1 HCF = 748 gallons) (1) A revised seven (7) tiered rate structure was approved on August 5, 2014 to address a stage 2 emergency drought water demand reduction mandate. A seven (7) tiered rate structure was implemented 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 -148- CITY OF TUSTIN WATER CUSTOMERS Current Year and Nine Years Ago (1) Information is not available for fiscal year 2004-2005. Source: City of Tustin Finance Department -149- 2015 2006(l) Percent of Percent of Water Total Water Water Total Water Water Customer Charges Revenues Charges Revenues Tustin Unified School District $ 708,074 3.74% $ 204,869 3.50% City of Tustin 164,480 0.87% 52,710 0.90% AT& T Services, Inc. 83,470 0.44% Ricoh Electronics, Inc. 80,191 0.42% CalTrans - District 12 70,667 0.37% Tustin Plaza Center, LP 59,833 0.32% Schroeder Property Management 53,205 0.28% 19,940 0.34% SKB-Tustin LLC 51,237 0.27% Tustin Acres Comm. Assoc. 49,974 0.26% 22,501 0.38% Westchester Park L.P. 36,694 0.19% 19,784 0.34% Tustin Place Homeowners Association 35,756 0.19% Tree Haven Homeowners Association 34,875 0.18% HSA LP 34,852 0.18% 53,459 0.91% 15701 TV Way Partnership 34,080 0.18% Sierra Corporate Management 33,912 0.18% 71286 JMJ LLC 33,124 0.17% Residence Inn Tustin 32,925 0.17% Briarwood Investment Co. Ltd. 31,556 0.17% 25,311 0.43% Bascon East Tustin Ave Apt. LLC 65,410 1.12% Pacific Bell 50,417 0.86% V KAY - NNC Valencia Gardens 27,033 0.46% Greenwood and McKenzie 23,490 0.40% CMC Association Mgmt. 23,149 0.40% Alders Apartment Company 20,903 0.36% Pacific Point Apartments 20,513 0.35% Arnel Management 18,655 0.32% Regency West 18,599 0.32% Tustin Village Community Assoc. 18,364 0.31% Sycamore Creek Apartments 17,878 0.31% Total Water Sales $ 1,628,905 8.58% $ 702,985 12.01% (1) Information is not available for fiscal year 2004-2005. Source: City of Tustin Finance Department -149- The page left blank intentionally -150-