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Item 1.5 - Poway Housing Successor Annual Report FY 2017-18C) DATE: TO: FROM: INITIATED BY: SUBJECT: Summary: City of Poway COUNCIL AGENDA REPORT April 16, 2019 APPROVED APPROVED AS AMENDED SEE MINUTES) DENIED REMOVED CONTINUED RESOLUTION NO. Honorable Chairman and Members of the Housing Authority Robert Manis, Director of Development Services PA Marie Sanders, Senior Management Analyst J 858) 668-4637 or msanders@poway.org wry Poway Housing Successor Annual Report FY 2017-18 Pursuant to California Health and Safety Code Sections 34176 and 34176.1(f) (Dissolution Law), the Poway Housing Authority, in its capacity as Housing Successor to the dissolved Poway Redevelopment Agency, must prepare an annual report detailing its activities during each fiscal year. The Poway Housing Successor Annual Report for Fiscal Year 2017-18 (Attachment A), and the Poway Housing Authority Basic Financial Statements and Independent Auditors Report for the year ended June 30, 2018 (Attachment B), are included with this agenda report for review by the Poway Housing Authority. Recommended Action: It is recommended that the Poway Housing Authority Board receive and file this report. Discussion: Part 1.85, Division 24 of the California Health and Safety Code, particularly Sections 34176 and 34176.1(f), require that the Housing Successor provide an annual report of the Successor's activities during the prior fiscal year. The purpose of the report is to provide the governing body of the Housing Successor with an annual report on the housing assets and activities of the Housing Successor. The report is to be provided to the Poway Housing Authority Board, along with an independent financial audit of the Low- and Moderate -Income Housing Asset Fund within six months after the end of each fiscal year. Due to Poway's annual timing for completion of the Housing Authority audit, it is not possible for this report to be completed within the six-month period. However, there is no penalty for delayed submission of the report. Environmental Review: This item is not subject to California Environmental Quality Act (CEQA) review. Fiscal Impact: There is no fiscal impact associated with this item. Public Notification: None. 1 of 41 April 16, 2019, Item #1.5 Attachments: A. Poway Housing Successor Annual Report for Fiscal Year 2017-18 B. Poway Housing Authority Basic Financial Statements and Independent Auditor's Report for Fiscal Year 2017-18 Reviewed/Approved By: Reviewed By: Approved By: n Wendy Kaserman Alan Fenstermacher Tina M. White Assistant City Manager City Attorney City Manager 2of41 April 16, 2019, Item #1.5 POWAY HOUSING SUCCESSOR ANNUAL REPORT REGARDING THE LOW- AND MODERATE -INCOME HOUSING ASSET FUND FOR FISCAL YEAR 2017-2018 PURSUANT TO CALIFORNIA HEALTH AND SAFETY CODE SECTION 34176.1(f) FOR THE POWAY HOUSING AUTHORITY This Housing Successor Annual Report (Report) regarding the Low- and Moderate -Income Housing Asset Fund (LMIHAF) has been prepared pursuant to California Health and Safety Code Section 34176.1(f) and is dated as of March 15, 2019. This Report sets forth certain details of the Poway Housing Authority, in its capacity as Housing Successor to the dissolved Poway Redevelopment Agency, activities during Fiscal Year 2017-18 (Fiscal Year). The purpose of this Report is to provide the governing body of the Housing Successor an annual report on the housing assets and activities of the Housing Successor under Part 1.85, Division 24 of the California Health and Safety Code, in particular sections 34176 and 34176.1 Dissolution Law). The following Report is based upon information prepared by Housing Successor staff and information contained within the Poway Housing Authority Basic Financial Statements and Independent Auditor's Report for Fiscal Year 2017-18 as prepared by Rogers, Anderson, Malody & Scott, LLP, which Audit is separate from this annual summary Report; further, this Report conforms with and is organized into sections I. through XI., inclusive, pursuant to the Dissolution Law: Amount Deposited into LMIHAF: This section provides the total amount of funds deposited into the LMIHAF during the Fiscal Year. Any amounts deposited for items listed on the Recognized Obligation Payment Schedule (ROPS) must be distinguished from the other amounts deposited. II. Ending Balance of LMIHAF: This section provides a statement of the balance in the LMIHAF as of the close of the Fiscal Year. Any amounts deposited for items listed on the ROPS must be distinguished from the other amounts deposited. III. Description of Expenditures from LMIHAF: This section provides a categorized description of the expenditures made from the LMIHAF during the Fiscal Year. IV. Statutory Value of Assets Owned by Housing Successor: This section provides the statutory value of real property owned by the Housing Successor, the value of loans and grants receivables, and the sum of these two amounts. V. Description of Transfers: This section describes transfers pursuant to Health and Safety Code Section 34176.1(c)(2), if any, to another housing successor agency made in previous Fiscal Year(s), including whether the funds are unencumbered and the POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 3of41 April 16, 2019, Item #1.5ATTACHMENT A status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for the development of transit priority projects, permanent supportive housing, housing for agricultural employees or special needs housing. VI. Project Descriptions: This section describes any project for which the Housing Successor receives or holds property tax revenue pursuant to the ROPS and the status of that project. VII. Status of Compliance with Section 33334.16: This section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the former redevelopment agency prior to February 1, 2012. For interests in real property acquired on or after February 1, 2012, the Housing Successor must provide a status update on the project. The Poway Housing Successor has acquired one property since February 1, 2012. VIII. Description of Outstanding Obligations under Section 33413: This section describes the outstanding inclusionary and replacement housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the former redevelopment agency as of February 1, 2012, along with the Housing Successor's progress in meeting those prior obligations, if any, of the former redevelopment agency and how the Housing Successor's plans to meet unmet obligations, if any. IX. Income Test: This section provides the information required by Section 34176.1(a)(3)(B), or a description of expenditures by income restriction for five-year period, with the time period beginning January 1, 2014, and whether the statutory thresholds have been met. However, reporting of the Income Test is not required until 2019. X. Senior Housing Test: This section provides the percentage of units of deed -restricted rental housing restricted to seniors and assisted individually or jointly by the Housing Successor, its former redevelopment Agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed -restricted rental housing assisted individually or jointly by the Housing Successor, its former Redevelopment Agency and its host jurisdiction within the same time period. For this Report the ten-year period reviewed is January 1, 2007 to January 1, 2017. XI. Excess Surplus Test: This section provides the amount of excess surplus in the LMIHAF, if any, and the length of time that the Housing Successor has had excess surplus, and the Housing Successor's plan for eliminating the excess surplus. This Report is to be provided to the Housing Successor's governing body along with an independent financial audit of the LMIHAF within six months after the end of each fiscal year. In addition, the Report and the former redevelopment agency's pre -dissolution Implementation Plans are available to the public on the City's website http://poway. org/207/Affordable-Housing. POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 4of41 April 16, 2019, Item #1.5 AMOUNT DEPOSITED INTO LMIHAF A total of $159,801 was deposited into the LMIHAF during the Fiscal Year, as detailed on page 8 of the Audit. II. ENDING BALANCE OF LMIHAF At the close of the Fiscal Year, the ending balance in the LMIHAF was $2,771,448, none of which is being held for items listed on the ROPS, as detailed on page 6 of the Audit. This includes 2,128,971 in cash and investments, and $668,531 in housing loans receivable, less $50,499 in liabilities. The $668,531 is due from the Successor Agency and represents the Housing Authority's 20% of the former Redevelopment Agency's loan balance, and repayment is subject to approval by the California Department of Finance. III. DESCRIPTION OF EXPENDITURES FROM LMIHAF The following is a description of expenditures from the LMIHAF by category: IV. STATUTORY VALUE OF ASSETS OWNED BY HOUSING SUCCESSOR 87,553 0 0 87,553 Under the Dissolution Law and for purposes of this Report, the "statutory value of real property' means the value of properties formerly held by the former redevelopment agency as listed on the housing asset transfer schedule approved by the Department of Finance as listed in such schedule under Section 34176(a)(2), the value of the properties transferred to the Housing Successor pursuant to Section 34181(f), and the purchase price of properties purchased by the Housing Successor. Further, the value of loans and grants receivable are included in these reported assets held in the LMIHAF. The following provides the statutory value of assets owned by the Housing Successor: V. DESCRIPTION OF TRANSFERS 2,128,971 18,582,674 688,531 21,400,176 The Housing Successor did not make any LMIHAF transfers to other Housing Successor(s) under Section 34176.1(c)(2) during the Fiscal Year. POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 5 of 41 April 16, 2019, Item #1.5 VI. PROJECT DESCRIPTIONS The Housing Successor did not receive and did not hold property tax revenue pursuant to the ROPS. VII. STATUS OF COMPLIANCE WITH SECTION 33334.16 Section 34176.1 provides that Section 33334.16 does not apply to interests in real property acquired by the Housing Successor on or after February 1, 2012. With respect to interests in real property acquired by the former redevelopment agency prior to February 1, 2012, and transferred to the Successor Agency pursuant to Health and Safety Code Section 34176, the time periods described in Section 33334.16 shall be deemed to have commenced on the date that the Department of Finance approved the property as a housing asset on the Housing Asset Transfer Form; thus, as to real property acquired by the former redevelopment agency now held by the Housing Successor, the Housing Successor must initiate activities consistent with the development of the real property for the purpose for which it was acquired within five years of the date the DOF approved such property as a housing asset. Poway's Housing Assets Transfer Form was approved by the DOF on August 31, 2012. The following provides a status update on the real property housing assets that were acquired by the former redevelopment agency prior to February 1, 2012, and transferred to the Housing Successor on February 1, 2012, and compliance with the five-year period to commence development activities. POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 6 of 41 Vacant land. To be leased in 12674 Monte Vista Rd 2/22/2000 2.06 Acres 2019 for temporary non- housing use. 13021-13023 Poway Rd 03/26/2002 2.6 Acres Vacant land. Active Exclusive Negotiating Rights Agreement. 13031 Poway Rd 3/30/2010 24 Acres Vacant land. Active Exclusive Negotiating Rights Agreement. Twin Peaks Rd 11/03/2004 2.15 Acres Vacant land. Development options are being evaluated 12341 Oak Knoll Rd 3/23/2011 3.18 Acres Leased Land. DDLA executed for development in 2019. Vacant land. Due to access 13424 Scots Way 08/27/2002 0.70 Acres issues, development options are being evaluated 14048 Sycamore Ave 06/30/2005 0.32 Acres Vacant land. Development options are being evaluated Vacant land. Floodway Wanesta - Floodway 8/27/2004 2.15 Acres properties behind Solara behind Solara Affordable Housing. Cannot be developed. POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 6 of 41 April 16, 2019, Item #1.5 The following provides a status update on real property housing assets that were acquired by the Housing Successor after February 1, 2012. 12207 & 12237 Old Future affordable housing site. Pomerado Road 1/9/2018 1.07 Acres Environmental impact study to be completed in 2019. VIII. DESCRIPTION OF OUTSTANDING OBLIGATIONS PURSUANT TO SECTION 33413 Replacement Housing: According to the 2010-2014 Implementation Plan for the former redevelopment agency, no Section 33413(a) replacement housing obligations were transferred to the Housing Successor. Furthermore, the Housing Successor has not caused the demolition of any units and no new replacement housing obligations have been created. Inclusionary/Production Housing. According to the 2010-2014 Implementation Plan for the former redevelopment agency, no Section 33413(b) inclusionary/production housing obligations were transferred to the Housing Successor. The former redevelopment agency's Implementation Plans are posted on the City's website at http://poway.org/207/Affordable-Housing. IX. EXTREMELY -LOW INCOME TEST Section 34176.1(a)(3)(B) requires that the Housing Successor must require at least 30% of the funds deposited into the LMIHAF to be expended for development of rental housing affordable to and occupied by households earning 30% or less of the AMI over a five-year period. If the Housing Successor fails to comply with the Extremely -Low Income requirement in any five- year report, then the Housing Successor must ensure that at least 50% of the funds remaining in the LMIHAF be expended in each fiscal year following the latest fiscal year following the report on households earning 30% or less of the AMI until the Housing Successor demonstrates compliance with the Extremely -Low Income requirement. This information is not required to be reported until 2019 for the 2014 — 2019 period. X. SENIOR HOUSING TEST The Housing Successor is required to calculate the percentage of units of deed -restricted rental housing restricted to seniors and assisted by the Housing Successor, the former redevelopment agency and/or the City within the previous 10 years in relation to the aggregate number of units of deed -restricted rental housing assisted by the Housing Successor, the former redevelopment agency, and/or City within the same time period. If this percentage exceeds 50%, then the Housing Successor cannot expend future funds in the LMIHAF to assist additional senior housing units until the Housing Successor or City assists and construction has commenced on a number of restricted rental units that is equal to 50% of the total amount of deed -restricted POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 7of41 April 16, 2019, Item #1.5 rental units. The following provides the Housing Successor's Senior Housing Test for the 10 - year period of Fiscal Year 2007 through Fiscal Year 2017: XI. EXCESS SURPLUS TEST Excess Surplus is defined in Section 34176.1(d) as an unencumbered amount in the LMIHAF account that exceeds the greater of one million dollars ($1,000,000) or the aggregate amount deposited into the LMIHAF account during the Housing Successor's preceding four Fiscal Years, whichever is greater. The LMIHAF was not created until February 1, 2012. The current balance of $1,303,336 on deposit in the LMIHAF exceeds the sum of the annual deposits made in the preceding four fiscal years ($1,003,531) and as a result, the LMIHAF has an Excess Surplus in the amount of 299, 805. In accordance with the above provisions, the Poway Housing Authority does in fact have an Excess Surplus that is required to be utilized within the next three fiscal years. The Housing Authority will work to spend or commit the funds in the near future on eligible projects within the community to ensure the LMIHAF does not accumulate an excess surplus. The following provides the Excess Surplus test for the preceding four Fiscal Years: 1,238,765 $1,402, 359 $1,576,008 $1,687,392 $1,463,129 179,796 $212,473 224,682 16,201) $(38,825) $(113,298) 386,580 $184,553 $1,003,531 820, 000 86,524) $(54,552) 820,000) 524,319)` $(289,794)" 1,402, 359 $1,576,008 $1,687,392 $1,463,129 $1,303,336 Total commitments as of June 30, 2018 is $814,113. POWAY HOUSING SUCCESSOR ANNUAL REPORT FISCAL YEAR 2017 - 2018 8of41"' April 16, 2019, Item #1.5 Poway Housing Authority Poway, California Basic Financial Statements and Independent Auditor's Report For the Year Ended June 30, 2018 9 of 41 April 16, 2019, Item #1.5ATTACHMENT B Poway Housing Authority Basic Financial Statements For the Year Ended June 30, 2018 TABLE OF CONTENTS Paqe Independent Auditor's Report ........................................................................ 1 Basic Financial Statements Government -Wide Financial Statements Statement of Net Position......................................................................... 4 Statement of Activities.............................................................................. 5 Fund Financial Statements BalanceSheet....................................................................................... 8 Reconciliation of the Balance Sheet to the Statement of Net Position .................. 7 Statement of Revenues, Expenditures and Changes in Fund Balance ................. 8 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities ............................................. 9 Notes to the Basic Financial Statements...................................................... 10 Required Supplementary Information (Unaudited) Budgetary Comparison Schedule................................................................... 23 Note to Budgetary Comparison Schedule......................................................... 24 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 ..................................... 25 10 of 41 April 16, 2019, Item #1.5 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T 909 889 5361 F ramscpa.net PARTNERS Brenda L. Odle, CPA. MST Terry P. Shea, CPA Kirk A. Franks. CPA Scott W. Manna, CPA, CGMA Leena Shanbhag. CPA, MST, CGMA Bradferd A. Welebir, CPA, MBA, CGMA Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) MANAGERS/STAFF Jenny Liu, CPA, MST Seong-Hyea Lee, CPA, MBA Charles De Simon), CPA ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 Independent Auditor's Report To the Chairman and Commissioners of the Poway Housing Authority Poway, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and the major fund of the Poway Housing Authority Authority), a component unit of the City of Poway, California (City), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Gardenya Duran, CPA Management is responsible for the preparation and fair presentation of these Brianna Schultz, CPA financial statements in accordance with accounting principles generally Samuel Singery, CPA accepted in the United States of America; this includes the design, Jing Wu. CPA Evelyn Morentin-Barcena, CPA implementation, and maintenance of internal control relevant to the Jin Gu, CPA. MT preparation and fair presentation of financial statements that are free from Veronica Hernandez, CPA material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures MEMBERS selected depend on the auditor's judgment, including the assessment of the American Institute of risks of material misstatement of the financial statements, whether due to Certified Public Accountants fraud or error. In making those risk assessments, the auditor considers PCPS The AICPA Alliance internal control relevant to the entity's preparation and fair presentation of far CPA Firms the financial statements in order to design audit procedures that are Governmental Audit appropriate in the circumstances, but not for the purpose of expressing an Quality Center opinion on the effectiveness of the entity's internal control. Accordingly, we Employee 8ene(t Plon express no such opinion. An audit also includes evaluating the Audit Quality center appropriateness of accounting policies used and the reasonableness of Cahforma Society of significant accounting estimates made by management, as well as Cemfied Pirohc Accountants evaluating the overall presentation of the financial statements. S! STABILITY, ACCURACY. TRUST. 11 of 41 April 16, 2019, Item #1.5 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the Authority as of June 30, 2018, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Specific Authority Presentation As discussed in Note 1, the basic financial statements present only the Authority and do not purport to, and do not present fairly, the financial position of the City of Poway, California, as of June 30, 2018, and the changes in its financial position, or where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Management has omitted the Management's Discussion and Analysis that accounting principles generally accepted in the United States of America requires to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. Our opinions on the basic financial statements are not affected by this missing information. Accounting principles generally accepted in the United States of America require that the Budgetary Comparison Schedule 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 required supplementary information 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 our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information, because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 2- 12 of 41 April 16, 2019, Item #1.5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 28, 2019, on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance. oe e,ss, i•v-ccou, 1'%a.loot' 2-& UP. San Bernardino, California (/ January 28, 2019 3- 13 of 41 April 16, 2019, Item #1.5 This page intentionally left blank. 14 of 41 April 16, 2019, Item #1.5 Basic Financial Statements 15 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Statement of Net Position June 30, 2018 ASSETS Cash and investments $ 2,128,971 Accounts receivable 24,445 Due from other governments 668,531 Capital assets 18,582,674 Total assets 21,404,621 LIABILITIES Accounts payable 10,469 Deposits 4,300 Unearned revenue 35,730 Total liabilities 50,499 NET POSITION Net investment in capital assets 18,582,674 Restricted for: Housing 2,771,448 Total net position $ 21,354,122 The accompanying notes are an integral part of these financial statements. 4- 16 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Statement of Activities For the Year Ended June 30. 2018 Governmental Activities Program Grants and Net(Expenses) Revenues Contributions Revenues and Charges Operating Grants Capital Grants Changes in Functions/Programs: Expenses for Services & Contributions & Contributions Net Position Governmental activities: General government $ 19,692 $ 59,839 $ - $ - $ 40,147 Development services 34,861 - - (34,861) Total governmental activities $ 54,553 $ 59,839 $ $ - 5,286 General revenues: Investment income 40,295 Other 59,667 Transfer in (out) 820, 000 Total general revenues and transfers 919,962 Change in net position 925,248 Net position, beginning 20,428,874 Net position, ending $ 21,354,122 The accompanying notes are an integral part of these financial statements. 5- 17 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Balance Sheet Governmental Fund June 30, 2018 ASSETS Cash and investments $ 2,128,971 Accounts receivable 24,445 Due from other governments 668,531 Total assets $ 2,821,947 LIABILITIES AND FUND BALANCE Liabilities: Accounts payable $ 10,469 Deposits 4,300 Unearned revenue 35,730 Total liabilities 50,499 Fund balance: Restricted 2,771,448 Total fund balance 2,771,448 Total liabilities and fund balance $ 2,821,947 The accompanying notes are an integral part of these financial statements. 6- 18 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Reconciliation of the Balance Sheet to the Statement of Net Position Governmental Fund June 30, 2018 Total Governmental Fund Balance $ 2,771,448 Amounts reported in governmental activities in the statement of net position are different because: Capital assets used in the governmental activities are not current financial resources and, therefore, are not reported in the fund. 18,582,674 Net Position of Governmental Activities $ 21,354,122 The accompanying notes are an integral part of these financial statements. 7- 19 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Fund For the Year Ended June 30, 2018 REVENUES Charges for services $ 59,839 Investment income 40,295 Other revenues 59,667 Total revenues 159,801 EXPENDITURES Current: General government 7,987 Development services 34,861 Capital outlay 831,705 Total expenditures 874,553 OTHER FINANCING SOURCES Transfers in 820,000 Total other financing sources 820,000 Net change in fund balance Fund balance, beginning Fund balance, ending 20 of 41 105,248 2,666,200 2,771,448 The accompanying notes are an integral part of these financial statements. 8- April 16, 2019, Item #1.5 Poway Housing Authority Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities Governmental Fund For the Year Ended June 30, 2018 Net change in fund balance - total governmental fund Amounts reported for governmental activities in the Statement of Activities are different because: In governmental funds, the cost of capital assets are reported as expenditures in the period when the assets are acquired. In the Statement of Activities, cost of capital assets are allocated over their estimated useful life. Capital asset expenditures Change in net position of governmental activities 21 of 41 105,248 820,000 925,248 The accompanying notes are an integral part of these financial statements. 9- April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 1 — Summary of Significant Accounting Policies The basic financial statements of the Poway Housing Authority (Authority), a component unit of the City of Poway, California (City), have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant accounting policies of the Authority are described below. A. Description of Reporting Entity On March 1, 2011, the City Council of the City of Poway declared a need for a housing authority in the City of Poway and adopted a resolution forming the Poway Housing Authority. The creation of the Housing Authority provides the City legal authority to continue monitoring ongoing rent and income compliance at affordable housing developments. The former Poway Redevelopment Agency (Agency) and the Authority prepared a Cooperation Agreement to provide for implementation of certain low and moderate income housing projects and to make payments by the Agency to the Authority for the costs to the Authority for performing its obligations. The Agency was dissolved due to the passage of Assembly Bill X1 26 which became effective on October 1, 2011. In accordance with Health and Safety code 34175(b), on February 1, 2012, all housing assets, liabilities and fund balance of the Agency were transferred to the Authority as the Successor Agency to the Poway Redevelopment Agency. The Authority meets the criteria set forth in U.S. GAAP for inclusion as a blended component unit within the City reporting entity based on the City's oversight responsibility in selection of the governing board. In addition, all of the Authority's activities are conducted within the geographic boundaries of the City. Blended component units, although legally separate entities, are, in substance, part of the City's operations; therefore, data from these units are combined with data of the primary government in the financial statement presentation of the City. Only the funds of the Authority are included herein; therefore, these financial statements do not purport to represent the financial position or results of operations of the City. B. Basis of Accounting/Measurement Focus The accounts of the Authority are organized on the basis of funds, each of which is considered 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. 10- 22 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 1 — Summary of Significant Accounting Policies (Continued) B. Basis of Accounting/MeasurementFocus (Continued) Government -Wide Financial Statements The Authority's Government -Wide Financial Statements include a Statement of Net Position and a Statement of Activities. These statements present summaries of governmental activities for the Authority. These basic financial statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the Authority's assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Certain types of transactions are reported as program revenues for the Authority in three categories: Charges for services Operating grants and contributions Capital grants and contributions Governmental Fund Financial Statements Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for the governmental fund. An accompanying schedule is presented to reconcile and explain the differences in fund balance as presented in these statements to the net position presented in the Government -Wide Financial Statements. All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balance presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Revenues are recorded when received in cash, except that revenues subject to accrual generally 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the Authority, are property tax, and intergovernmental revenues. Expenditures are recorded in the accounting period in which the related fund liability is incurred. 23 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 1 — Summary of Significant Accounting Policies (Continued) B. Basis of Accounting/Measurement Focus (Continued) Unearned revenues arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods when both revenue recognition criteria are met or when the government has a legal claim to the resources, the unearned revenue is removed from the balance sheet and revenue is recognized. The Reconciliation of the Fund Financial Statements to the Government -Wide Financial Statements is provided to explain the differences created by the integrated approach of generally accepted accounting principles. Fund Accounting The Authority uses funds to maintain its financial records during the year. A fund is defined as a fiscal and accounting entity with a self -balancing set of accounts. The Authority only has one governmental fund. Governmental Fund Housing Authority Fund - The Housing Authority Fund is the Authority's operating fund. It accounts for all financial resources of the general government. C. Cash and Investments The Authority's cash and investment balances are included in the City's investment pool. The City pools cash resources from all City funds in order to facilitate the management of cash and achieve the goal of obtaining the highest yield with the greatest safety and least risk. The balance in the pooled cash account is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing accounts and other investments for varying terms. Investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. 12- 24 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 1 — Summary of Significant Accounting Policies (Continued) C. Cash and Investments (Continued) The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund ("LAIF") which has invested a portion of the pool funds in structured notes and asset-backed securities. LAIF determines fair value on its investment portfolio based on market quotations for those securities where market quotations are readily available and based on amortized cost or best estimate for those securities where market value is not readily available. LAIF investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these investments are subject to market risk and changes in interest rates. Cash equivalents are considered amounts in demand deposits and short-term investments with a maturity date within three months of the date acquired by the Authority and are presented as Cash and investments" in the accompanying basic financial statements. D. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, streets, sidewalks, medians and storm drains) are reported in the Government -Wide Financial Statements. Authority policy has set the capitalization threshold for reporting capital assets at 5,000. Capital assets are valued at historical cost or estimated historical cost if actual historical cost was not available. Donated assets are valued at their estimated acquisition value on the date donated. Depreciation is recorded on a straight-line basis over estimated useful lives of the assets as follows: Buildings 10-50 years Building improvements 10-100 years Furniture and equipment 5-20 years Infrastructure 20-50 years 13- 25 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 1 — Summary of Significant Accounting Policies (Continued) E. Deferred Outflows/Inflows of Resources In addition to assets, the balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of fund balance that applies to future periods and so will not be recognized as an outflow of resources (expenditure) until then. The Authority currently has no items that qualify for reporting in this category. In addition to liabilities, the balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial element, deferred inflows of resources, represents an acquisition of fund balance that applies to future periods and so will not be recognized as an inflow of resources (revenue) until that time. The Authority currently has no items that qualify for reporting in this category. F. Net Position Net position is comprised of the various net earnings from operating income, non-operating revenues and expenses. Net position is classified in the following categories: Net Investment in Capital Assets — This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of debt that are attributable to the acquisition, construction, or improvement of those assets. Restricted — This component of net position consists of restricted assets and deferred outflows of resources reduced by liabilities and deferred inflows of resources related to those assets. Unrestricted — This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. When an expense is incurred for purposes for which both restricted and unrestricted net position are available, the Authority's policy is to apply restricted net position first. 14- 26 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 1 — Summary of Significant Accounting Policies (Continued) G. Fund Balances In the governmental fund financial statements, fund balances are classified in the following categories: Nonspendable — Nonspendable fund balances are items that cannot be spent because they are not in spendable form, such as prepaid items and inventories, items that are legally or contractually required to be maintained intact, such as principal of an endowment or revolving loan funds. Restricted — Restricted fund balances encompass the portion of net fund resources subject to externally enforceable legal restrictions. This includes externally imposed restrictions by creditors, such as through debt covenants, grantors, contributions, laws or regulations of other governments, as well as restrictions imposed by law through constitutional provisions or enabling legislation. Committed — Committed fund balances encompass the portion of net fund resources, the use of which is constrained by limitations that the government imposes upon itself at its highest level of decision making, normally the governing body through council resolutions, etc., and that remain binding unless removed in the same manner. The Board of Commissioners is considered the highest authority for the Authority. Assigned — Assigned fund balances encompass the portion of net fund resources reflecting the government's intended use of resources. Assignment of resources can be done by the highest level of decision making or by a committee or official designated for that purpose. The Board of Commissioners has authorized the Executive Director for that purpose. Unassigned — This category is for any remaining balances that are not classified as nonspendable, restricted, committed or assigned. When expenditures are incurred for purposes for which both restricted and unrestricted fund balances are available, the Authority's policy is to apply restricted fund balances first, then unrestricted fund balances as they are needed. When expenditures are incurred for purposes where only unrestricted fund balances are available, the Authority uses the unrestricted resources in the following order: committed, assigned, and unassigned. H. Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 15- 27 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30. 2018 Note 2 — Cash and Investments The Authority's cash and investment balances are maintained as part of the City investment pool, which includes cash balances and authorized investments of all City funds. This pooled cash is invested by the City Treasurer to enhance earnings. The pooled interest earned is allocated to the funds based on average month-end cash balances of the various funds. Cash and investments consisted of the following at June 30, 2018: Demand deposits $ 17,199 Investments 2,111,772 Total cash and investments $ 2,128,971 A. Cash Deposits The carrying amounts of the Authority's demand deposits were $17,199 at June 30, 2018. Bank balances at June 30, 2018, were $45,709 which were fully insured or collateralized with securities held by the pledging financial institutions in the City's name as discussed below. The California Government Code requires California banks and savings and loan associations to secure the Authority's cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the Authority's name. The market value of pledged securities must equal at least 110% of the Authority's cash deposits. California law also allows institutions to secure Authority deposits by pledging first trust deed mortgage notes having a value of 150% of the Authority's total cash deposits. The Authority may waive collateral requirements for cash deposits, which are fully insured by the Federal Deposit Insurance Corporation. The Authority, however, has not waived the collateralization requirements. The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents under the provisions of bond indentures. Interest income earned on pooled cash and investments is allocated on an accounting period basis to the various funds based on the period -end cash and investment balances. Interest income from cash and investments with fiscal agents is credited directly to the related fund. 16- 28 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 2 — Cash and Investments (Continued) B. Investments The table below identifies the investment types that are authorized for the Authority by the California Government Code (or the City's investment policy, whichever is more restrictive). The table also identifies certain provisions of the California Government Code (or the City's investment policy, whichever is more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Authority, rather than the general provisions of the California Government Code or the City's investment policy. Investment Type U.S. Treasury Obligations U.S. Agency Securities Bankers' Acceptances Medium -Term and Corporate Notes Money Market Mutual Funds Mortgage Backed Securities Asset Backed Securities Commercial Paper Municipal Bonds Negotiable Certificates of Deposit Local AgencylmestmentFund (LAJF) CountyofSan Diego Imestment Pool CalTrust Joint Powers Authority Obligation of any state C. Risk Disclosures Interest Rate Risk 5 years 180 days 5 years N/A 5 years 5 years 270 days 5 years 5 years N/A N/A N/A 5 years 75% 40% 30% 20% 20% 20% 25% 30% 30% None None None None Mabmum Investment in Onelssuer None 25% 5% 5% 10% None None 3% 5% 5% 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 the market interest rates. One of the ways that the Authority manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 17- 29 of 41 Mabmum Mabmum Percentage of Maturity Portfolio 5 years None 5 years 180 days 5 years N/A 5 years 5 years 270 days 5 years 5 years N/A N/A N/A 5 years 75% 40% 30% 20% 20% 20% 25% 30% 30% None None None None Mabmum Investment in Onelssuer None 25% 5% 5% 10% None None 3% 5% 5% 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 the market interest rates. One of the ways that the Authority manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 17- 29 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 2 — Cash and Investments (Continued) C. Risk Disclosures (Continued) Interest Rate Risk (Continued) Information about the sensitivity of the fair values of the Authority's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Authority's investments by maturity: Investment Type U.S. Treasury Bills U.S. Agencies Municipalities CalTrust Investment Pool - Short term CalTrust Investment Pool - Medium term Medium -Term and Corporate Notes Local Agency Investment Fund (LAIF) Total 2,111,772 $ 1,295,830 $ 257,038 $ 558,904 None of the Authority's investments are highly sensitive to interest rate fluctuations. Concentration of Credit Risk The Authority's Policy states that not more than 25% of the portfolio shall be invested in any one entity or any one instrument to protect the Authority from concentration of credit risk, with the following exceptions: U.S. Treasury Obligations and investments pools (State of California — Local Agency Investment Fund). In addition, purchases of commercial paper must not exceed 25% of the value of the portfolio at any time, and single issuer holdings must not exceed 5% per issuer. The Authority is in compliance with these provisions of the Policy. The following is a chart of the Authority's investment portfolio: Trustee/Custodian Imestment Type Remaining Maturities Union Bank U.S. Treasuries 12 Months 13 to 24 25 to 60 Amounts or Less Months Months 297,709 157,121 87,715 $ 52,873 711,130 295,729 77,493 337, 908 43,350 21,628 21,722 190,023 190,023 190,220 190,220 307, 915 69,684 70,108 168,123 371,425 371,425 2,111,772 $ 1,295,830 $ 257,038 $ 558,904 None of the Authority's investments are highly sensitive to interest rate fluctuations. Concentration of Credit Risk The Authority's Policy states that not more than 25% of the portfolio shall be invested in any one entity or any one instrument to protect the Authority from concentration of credit risk, with the following exceptions: U.S. Treasury Obligations and investments pools (State of California — Local Agency Investment Fund). In addition, purchases of commercial paper must not exceed 25% of the value of the portfolio at any time, and single issuer holdings must not exceed 5% per issuer. The Authority is in compliance with these provisions of the Policy. The following is a chart of the Authority's investment portfolio: Trustee/Custodian Imestment Type Amount Union Bank U.S. Treasuries 297,709 Union Bank U.S. Agencies 711,130 Union Bank Municipalities 43,350 Union Bank Medium -Term and Corporate Notes 307,915 Wells Fargo CalTrust Investment Pool 380, 243 State Treasurer Office Local Agency Investment Fund (LAIF) 371,425 FM 30 of 41 2,111,772 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 2 — Cash and Investments (Continued) C. Risk Disclosures (Continued) 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. The following presentation is the minimum rating required by (where applicable) the California Government Code, the Authority's investment policy, or debt agreements, and the actual rating as of year-end for each investment type: Investment Type Amounts Rating Not Rated U.S. Tmasury Bills 297, 709 Aaa U.S.Agancies 711,130 Ass Municipalities 43,350 Aaa CalTmst Investment Pod - Shoal term 190, 023 Aaf 190,023 CelTrust Investment Pod -Metlium tens 190, 220 WA 190,220 Metlium-Tenn anal Corporate Notes 307, 915 At t.ocal AgencyImestmeM FUM LAIF) 371,425 WA 371,425 AAA+ AA+ AA AA- A+ A A- 297,708 $ - $ - $ - $ - $ - 711,130 - - - - - 21,398 14,239 28,479 58,154 113,923 28,593 43,130 Total $ 2,111,772 $ 751,888 $ 21,3% $1,023, 077 $ 28,479 $ 101,504 $ 113,923 $ 28,593 $ 43,130 D. Investment in Local Agency Investment Funds The Authority's investments with Local Agency Investment Funds (LAIF) at June 30, 2018, included a portion of the pooled funds invested in Medium -Term and Short -Term Structured Notes and Asset -Backed Securities. These investments included the following: Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset -Backed Securities the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables. As of June 30, 2018, the Authority had $371,425 invested in LAIF, which had invested 2.67% of the pooled investment funds in short-term and medium-term Structured Notes and Asset - Backed Securities. 19- 31 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 2 — Cash and Investments (Continued) E. Investment in CaITRUST The Authority is a voluntary participant in the Investment Trust of California (CaITRUST), a Joint Powers Authority. CalTRUST is a program established by public agencies in California for the purpose of pooling and investing local agency funds. CalTRUST invests in fixed income securities eligible for investment pursuant to California Government Code Sections 53601, et. seq. and 53635, at. seq. Investments in CalTRUST are highly liquid, as deposits can be converted to cash within 24 hours without loss of interest. The balance available for withdrawal is based on the accounting records maintained by CaITRUST, which are recorded on a fair market value basis. Separate CaITRUST financial statements are available from CalTRUST'S offices at 400 Capital Mall, Suite 702, Sacramento, CA 95814. As of June 30, 2018, the Authority had $380,243 invested in CaITRUST. The Authority's investment in this pool is reported in the accompanying financial statements at fair market value. F. Fair Value Measurements Generally accepted accounting principles establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels: Level 1 inputs consist of quoted prices (unadjusted) for identical assets and liabilities in active markets that a government can access at the measurement date, Level 2 inputs consist of inputs that are observable for an asset or liability, either directly or indirectly, and Level 3 inputs have the lowest priority and consist of unobservable inputs for an asset or liability. The following table presents the balances of the assets measured at fair value on a recurring basis as of June 30, 2018. Investments by Fair Value Level June 30, 2018 Assets U.S. Treasury Bills U.S. Agencies Municipalities CarTrust Investment Pool - Short term Carrrust Investment Pool - Medium term Madium-Term and Corporate Notes Local Agency Investment Fund (LAIF) 32 of 41 Fair Value Measurement Using Not Subject Level 1 Level 2 Level 3 to GASB 72 Total 297,709 $ - $ - $ - $ 297,709 711, 130 - - - 711,130 43,350 - - - 43,350 190,023 190,023 190,220 190,220 307,915 - - - 307,915 371,425 371,425 1,360,104 $ $ $ 751,668 $2,111,772 20- April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30, 2018 Note 3 — Capital Assets The summary of changes in capital assets for the year ended June 30, 2018 is as follows: Note 4 — Related Party Transactions In an effort to ensure that the objectives of Poway's Redevelopment Plan and the Poway Redevelopment Agency's (Agency) 5 -Year Implementation Plan are fulfilled, on March 11, 2011, the Agency transferred all housing -related assets to the Authority through a Cooperation Agreement between the Agency and the Authority. Under the terms of this agreement, the Authority agreed to respectively carry out the projects and activities of the Agency in accordance with the objectives and purposes included in the Redevelopment and Implementation Plans. Projects included in the Cooperation Agreement between the Agency and the Authority further the goals of the Redevelopment Plan. It was initially anticipated that these projects would be funded based on available tax increment to be received through 2037, but because of the dissolution of the Agency under AB X1 26, tax increment revenue has been eliminated, and therefore, no funding for these projects from that source is available. Future project funding will come from the management of the Authority's assets and may include interest revenue, lease revenue, residual receipt revenue and the sale of assets. Note 5 — Rehabilitation Loan Program Housing Rehabilitation Loan Program Non -forgivable loans are due upon the sale, transfer or foreclosure of the property. Due to the contingent repayment schedule of these loans, an expenditure is recorded when the loan is made and no receivable is included in the accompanying basic financial statements. The balance of the non -forgivable rehabilitation loans at June 30, 2018 is $7,870. 21- 33 of 41 Balance Balance June 30, 2017 Additions Deletions June 30, 2018 Capital assets, not being depreciated: Land 17,762,674 820,000 $ - 18,582,674 Total capital assets, not being depreciated 17,762,674 820, 000 - 18,582,674 Governmental activities - capital assets 17,762,674 820,000 $ - 18,582,674 Note 4 — Related Party Transactions In an effort to ensure that the objectives of Poway's Redevelopment Plan and the Poway Redevelopment Agency's (Agency) 5 -Year Implementation Plan are fulfilled, on March 11, 2011, the Agency transferred all housing -related assets to the Authority through a Cooperation Agreement between the Agency and the Authority. Under the terms of this agreement, the Authority agreed to respectively carry out the projects and activities of the Agency in accordance with the objectives and purposes included in the Redevelopment and Implementation Plans. Projects included in the Cooperation Agreement between the Agency and the Authority further the goals of the Redevelopment Plan. It was initially anticipated that these projects would be funded based on available tax increment to be received through 2037, but because of the dissolution of the Agency under AB X1 26, tax increment revenue has been eliminated, and therefore, no funding for these projects from that source is available. Future project funding will come from the management of the Authority's assets and may include interest revenue, lease revenue, residual receipt revenue and the sale of assets. Note 5 — Rehabilitation Loan Program Housing Rehabilitation Loan Program Non -forgivable loans are due upon the sale, transfer or foreclosure of the property. Due to the contingent repayment schedule of these loans, an expenditure is recorded when the loan is made and no receivable is included in the accompanying basic financial statements. The balance of the non -forgivable rehabilitation loans at June 30, 2018 is $7,870. 21- 33 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Notes to the Basic Financial Statements June 30. 2018 Note 5 — Rehabilitation Loan Program (Continued) Affordable Housing Loans These loans are made to aid in the purchase of affordable housing in the City of Poway. They are for a 45 year term with no interest and if there is a sale, transfer, or foreclosure before the end of the term, the loan must be assumed by an income -qualified buyer and the 45 year term starts over. Due to the contingent nature of the repayment schedule of these loans, an expenditure is recorded when the loan is made and no receivable is included in the accompanying basic financial statements. The balance of these Affordable Housing loans at June 30, 2018 is $2,690,132. Development Loans The City, through the Housing Authority, has development loans primarily for affordable rental housing projects and for one group home for the developmentally disabled. The affordable rental housing loans have 55 year terms with three percent simple interest. Loan payments are made from residual receipts and generally do not cover the annual accrued interest. Therefore, due to the contingent nature of the repayment schedule of these loans, an expenditure is recorded when the loan is made and no receivable is included in the accompanying basic financial statements. The balance of the development loans, including accrued interest, at June 30, 2018 is $34,847,960. 22- 34 of 41 April 16, 2019, Item #1.5 This page intentionally left blank. 35 of 41 April 16, 2019, Item #1.5 Required Supplementary Information Unaudited) 36 of 41 April 16, 2019, Item #1.5 Poway Housing Authority Budgetary Comparison Schedule For the Year Ended June 30, 2018 REVENUES Charges for services Investment income Other revenues Total revenues EXPENDITURES Current: General government Development services Capital outlay Total expenditures OTHER FINANCING SOURCES Transfers in Total other financing sources Net change in fund balance Fund balance, beginning Fund balance, ending 37 of 41 Original Variance with Budget Final Budget Actual Final Budget 49,120 49,120 59,839 $ 10,719 22,000 22,000 40,295 18,295 40,000 40,000 59,667 19,667 111,120 111,120 159,801 48,681 10,400 10,400 7,987 2,413 10,000 32,450 34,861 2,411) 554,319 1,645,819 831,705 814,114 574,719 1,688,669 874,553 814,116 820,000 820,000 620,000 820, 000 - 463,599) $ (757,549) 105,248 $ 862,797 2,666,200 2,771,448 See accompanying note to budgetary comparison schedule. 23- April 16, 2019, Item #1.5 Poway Housing Authority Note to Budgetary Comparison Schedule For the Year Ended June 30, 2018 Note 1 — Budgetary Information The Authority adopts an annual budget prepared on the modified accrual basis for its major fund. The Executive Director is required to prepare and submit to the Authority's Board of Directors the annual budget of the Authority and administer it after adoption. Any revisions that alter the total appropriations of any fund must be approved by the Board of Directors. Prior year appropriations lapse unless they are encumbered at year-end or re -appropriated through the formal budget process. For the major fund, total expenditures may not legally exceed total appropriations. Budget information is presented for the major fund on a basis consistent with generally accepted accounting principles. Budgeted revenue and expenditure amounts represent the original budget modified for adjustments during the year. 24- 38 of 41 April 16, 2019, Item #1.5 This page intentionally left blank. 39 of 41 April 16, 2019, Item #1.5 735 E. Carnegie Dr. Suite 100 San Bernardino. CA 92408 909 889 0871 T 909 889 5361 F ramscpa.net PARTNERS Brenda L. Odle, CPA, MST Terry P. Shea, CPA Kirl, A. Franks, CPA Scott W. Marino, CPA. CGMA Leena Shanbhag, CPA. MST, CGMA Bradferd A. Welebir, CPA, MBA, CGMA Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller. CPA (Parmer Emeritus) MANAGERS/STAFF Jenny Liu, CPA, MST Seong-Hyea Lee. CPA, MBA Charles De Simoni. CPA Gardenya Duran, CPA Brianna Schultz, CPA Samuel Singery, CPA Jing Wu, CPA Evelyn Morentin-Barcena, CPA Jin Gu, CPA, MT Veronica Hernandez, CPA ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 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 Independent Auditor's Report To the Chairman and Commissioners of the Poway Housing Authority Poway, 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 and the major fund of the Housing Authority of the City of Poway (Authority), a component unit of the City of Poway City), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements and have issued our report thereon dated January 28, 2019. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority'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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control. A deficiency in internal control exists when the design or operation of a MEMBERS American Institute of g employees, control does not allow management or in the normal course Certified Public Accountants of performing their assigned functions, to prevent, or detect and correct, PCPS The AICPA Allionce misstatements on a timely basis. A material weakness is a deficiency, or far CPA Firms a combination of deficiencies, in internal control, such that there is a Governmental Audit reasonable possibility that a material misstatement of the entity's financial Qaorty Cente, statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination ofEmployeeinrertPer deficiencies, in internal control that is less severe than a materialAudi( Quality Center weakness, yet important enough to merit attention by those charged with California Society of governance. Ceruhed Noblic Accountants 25- STABILITY. ACCURACY. TRUST. 40 of 41 April 16, 2019, Item #1.5 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority'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 entity'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 Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. 440geAs, e t.cocs, 1'la LoePy A c -&, LLP. San Bernardino, California Q January 28, 2019 26- 41 of 41 April 16, 2019, Item #1.5