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California Redevelopment Dissolution

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Accounting & Financial
Reporting Considerations for
Successor Agencies of
California Redevelopment
Agencies

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California Redevelopment Dissolution

  1. 1. Accounting & Financial Reporting Considerations for Successor Agencies of California Redevelopment Agencies David Bullock, CPA Macias Gini & O’Connell LLP May 2012© 2012 Macias Gini & O’Connell LLP. All rights reserved. This Macias Gini & O’Connell LLP session provides information and comments on current accounting issues and developments. It is not acomprehensive analysis of the subject matter covered and is not intended to provide accounting or other conclusions with respect to the matters addressed in this issue. All relevant facts and circumstances,including the pertinent authoritative literature, need to be considered to arrive at accounting that complies with matters addressed in this publication. For additional information on topics covered in thispublication, contact a Macias Gini & O’Connell LLP client service partner.
  2. 2. Administrative Details Continuing Professional Education (CPE) regulations require online participants take part in online poll questions.  You must be registered and logged in online.  You must respond to a minimum of six questions in order to be eligible for 1.5 CPE credits.  To ask a question during today’s session, use the Q&A feature in LiveMeeting to type in and submit your question.  Download a copy of today’s slides or accompanying handout from the “Handouts” section in the top right corner of your screen.  Help Desk: 916-642-7012 2
  3. 3. Today’s Speaker: David Bullock, CPADavid is an Assurance and GovernmentAdvisory Services Partner in the San FranciscoBay Area office of MGO. He has 18 years ofprofessional experience providing auditing,accounting and consulting services. During thepast year, David has served as the engagementpartner for diverse clients such as the Cities ofOakland, Palo Alto, and Pleasant Hill, County ofAlameda, and the San FranciscoRedevelopment Agency. In addition, Davidcurrently serves as the contracted controller forthe Contra Costa County RedevelopmentAgency. www.mgocpa.com 3
  4. 4. Polling Question #1To what extent have you been following the draftsof the CCMA White Paper on RedevelopmentAgencies … or have you had the opportunity toread the final copy?c) Very closelyd) Somewhat closelye) On a limited basisf) Not at all 4
  5. 5. Polling Question #2What are your roles and responsibilities relating tothe Accounting and Financial Reporting ofSuccessor Agencies?c) Accounting Department of a Successor Agencyd) Auditor-Controller’s Office of a California Countye) An Independent Auditor of a CPA Firmf) Other 5
  6. 6. Today’s Agenda Structure and Presentation Accounting and Reporting Audit Requirements Q&A 6
  7. 7. Finding Levity Amidst the ChallengesIN MEMORIAM ‐‐ OAKLAND REDEVELOPMENT AGENCY, 1956‐ 2012OAKLAND, CA ‐‐ The Oakland Redevelopment Agency passed away peacefully atmidnight on February 1 at age 55. Cause of death was listed as ABX 26 flu, complicatedby acute EOPS poisoning. ORA, as she was affectionately known, was born on October10, 1956. During ORA’s busy life, she was best known for transforming downtownOakland... She was especially proud of the thousands of affordable housing units shehelped produce for low income renters and homeowners. She even helped build the Stateof California’s downtown headquarters, but was later abandoned by an ungrateful Statelegislature and supreme court. She was estranged from her former CEO, Edmund G.Brown of San Francisco, Calif. They had a whirlwind romance in the early part of thiscentury as ORA worked hard to make Mr. Brown’s 10K housing plan a reality; but he laterleft her for higher office and even tried to seize her life savings, which he claimed was hiscommunity property. 7
  8. 8. Structure and Presentation  Successor Agency means “the county, city or city and county” that authorized the creation of each redevelopment agency or another entity, as provided by HSC.  Legal counsel for the SCO’s Office has made a determination that successor agencies are not separate legal entities!  Therefore, no longer a Component Unit 8
  9. 9. Structure and Presentation CCMA: Reporting Fund is to be a Private Purpose Trust Fund • What does that mean? − Fiduciary Fund − Report assets held in a trustee or agency capacity for others, therefore cannot be used to support the governments own programs − Economic resources measurement focus and accrual basis of accounting − Combine individual sub-funds into one reporting fund 9
  10. 10. Structure and Presentation No balances in Government-Wide financial statements at June 30, 2012! Impact to Governmental Funds Major Fund Determination • For 2012, could be a significant change in the calculation of major funds − No ending assets or liabilities and only seven months of revenues and expenditures • Suggestion: keep the treatment consistent with 2011, regardless of quantified results 10
  11. 11. Structure and Presentation Other Considerations • Transmittal letter (CAFR only) • Management’s Discussion and Analysis • Notes to the basic financial statements • Combining statements and schedules • Statistical section (CAFR only) 11
  12. 12. Polling Question #3Successor Agencies should be reported in thefinancial statements as:c) Component unitd) Governmental fundse) Enterprise fundsf) Fiduciary funds 12
  13. 13. Polling Question #3 DebriefSuccessor Agencies should be reported in thefinancial statements as:d) Fiduciary funds 13
  14. 14. Polling Question #4A private purpose trust fund is used to:b) Account for tax-supported activities.c) Report resources held by the reportinggovernment in a purely custodial capacity.d) Report all trust arrangements under which theprincipal and income benefit individuals, privateorganizations, or other governments.e) Report an activity for which a fee is charged toexternal users for goods and services. 14
  15. 15. Polling Question #4 DebriefA private purpose trust fund is used to:c) Report all trust arrangements under which the principal and income benefit individuals, private organizations, or other governments. 15
  16. 16. Accounting and Reporting AB X1 26 requires dissolution on 2/1/12 • Final seven months will continue to be reported in the governmental funds or as a discrete component unit • After dissolution, activity of the successor agency will be reported in a fiduciary fund For entities that followed the CRA guidance - Activity will have to be distinguished between the former Redevelopment Agency and the Successor Agency New Fund Required: “Redevelopment Obligation Retirement Fund” 16
  17. 17. Accounting and Reporting Transfers of assets and liabilities of the former RDA to the successor agency • Reported as extraordinary gains/losses in governmental funds and governmental activities − Since government-wide financial statements have capital assets and long-term debt, among other differences, there will need to be a reconciliation of these differences when compared to governmental funds • Reported as extraordinary gains/losses in the trust fund or as additions (“net assets received upon dissolution of redevelopment agency”) 17
  18. 18. Accounting and Reporting All transfers of assets and liabilities need to be at carrying value (e.g. net book value) − Same methodology proposed in GASB Exposure Draft – Governmental Combinations and Disposals of Governmental Operations − Extremely important to establish the carrying value at the transfer date (i.e., cut-off) 18
  19. 19. Accounting and Reporting Extraordinary Items may include • Unpaid advances from the City/County • Transfers of properties held for resale and capital assets at carrying value • Transfers of outstanding bonds at carrying value • Transfers of all other assets and liabilities (including compensated absences, accrued employee benefits, etc. that go to the successor agency) 19
  20. 20. Accounting and Reporting Housing Funds • Unencumbered balances of Low and Moderate Income Housing Fund goes to the successor agency − Pending legislation • Assets transferred to the housing successor agency − If the City/County elected to be the housing successor, then the transferred assets should be reported within its governmental funds … or possibly an enterprise fund in the case where a housing authority of the City/County elected to be the the housing successor 20
  21. 21. Accounting and Reporting – February 1, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of Select Governmental Funds Reported in the Primary Government (i.e., city-wide) CITY OF EXAMPLE Governmental Funds - SELECT FUNDS ONLY Balance Sheet Note: Normally, the reporting date Note: Housing Successor February 1, 2012 would be 6-30-12, however, we are showing 2-1-12 for illustration of the impact of the dissolution (closing the Low and Tax Allocation former redevelopment funds). Moderate Refunding New City Project Area Income Bonds Housing One Housing Debt Service Fund TotalAssets: Interest receivable $ - $ - $ - $ 10,000 $ 10,000 Notes and loans receivable - - - 1,058,000 1,058,000 Land held for redevelopment - - - 500,000 500,000 Total assets $ - $ - $ - $ 1,568,000 $ 1,568,000Liabilities and Fund Balances: Liabilities: Deferred revenue $ - $ - $ - $ 600,000 $ 600,000 Fund balances: Restricted for: Low and moderate income housing - - - 968,000 968,000 Total liabilities and fund balances $ - $ - $ - $ 1,568,000 $ 1,568,000 21
  22. 22. Accounting and Reporting – February 1, 2012 Preliminary and Tentative - For Illustration Purposes Only Example of Select Governmental Funds Reported in the Primary Government (i.e., city-wide) Note: Excludes new CITY OF EXAMPLE activity in the "New Governmental Funds - SELECT FUNDS ONLY City Housing Fund" Statement of Revenues, Expenditures and Changes in Fund Balances subsequent to 2/1/12. For the Year Ended June 30, 2012 Low and Tax Allocation Moderate Refunding New City Project Area Income Bonds Housing One Housing Debt Service Fund Total Revenues: Property taxes $ 712,000 $ 928,000 $ 3,000,000 $ - $ 4,640,000 Use of money and property 15,000 20,000 5,000 - 40,000 Other - 80,000 - - 80,000 Total revenues 727,000 1,028,000 3,005,000 - 4,760,000 Expenditures: Current: Community development 1,849,000 900,000 130,000 - 2,879,000 Debt service: Principal - - 570,000 - 570,000 Interest and fiscal charges - - 597,000 - 597,000 Total expenditures 1,849,000 900,000 1,297,000 - 4,046,000 Excess (deficiency) of revenues over (under) expenditures (1,122,000) 128,000 1,708,000 - 714,000 Other financing sources (uses) Transfers in 200,000 - - 968,000 1,168,000 Transfers out (1,100,000) (1,668,000) (200,000) - (2,968,000) Total other financing sources (uses) (900,000) (1,668,000) (200,000) 968,000 (1,800,000) Extraordinary loss (562,000) (1,258,000) (1,552,000) - (3,372,000) Change in fund balances (2,584,000) (2,798,000) (44,000) 968,000 (4,458,000) Fund balances, beginning of year 2,584,000 2,798,000 44,000 - 5,426,000 Fund balances, end of year $ - $ - $ - $ 968,000 $ 968,000 22
  23. 23. Accounting and Reporting – February 1, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of Footnote Disclosure Reconciling Extraordinary Loss in Governmental Funds CITY OF EXAMPLE Reconciliation of the Extraordinary Loss Reported in Governmental Funds to the Extraordinary Loss Recognized in the Fiduciary Fund Financial StatementsTotal extraordinary loss reported in governmental funds - increase to net assets $ 3,372,000 Capital assets recorded in the government-wide financial statements - Increase to net assets 500,000 Long-term liabilities reported in the government-wide financial statements - Decrease to net assets: Long-term debt (5,700,000) Interest payable (190,000) Total changes to net assets of the successor agency as a result of initial transfer $ (2,018,000) 23
  24. 24. Accounting and Reporting – February 1, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of a Private Purpose Trust Fund CITY OF EXAMPLE Statement of Fiduciary Net Assets Successor Agency to the Example Redevelopment Agency Private Purpose Trust Fund February 1, 2012Assets: Cash and investments: Note: Normally, the reporting date Held in City Treasury would be 6-30-12, however, we are $ 2,750,000 showing 2-1-12 for illustration of Held with trustees initial balances transferred from the 650,000 Interest receivable former redevelopment agency. 8,000 Land held for redevelopment 86,000 Nondepreciable capital assets 500,000 Total assets 3,994,000Liabilities: Accounts payable and accrued liabilities 122,000 Interest payable 190,000 Long-term debt: Due within one year 700,000 Due in more than one year 5,000,000 Total liabilities 6,012,000Net Assets: Held in trust for other purposes $ (2,018,000) 24
  25. 25. Accounting and Reporting – February 1, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of a Private Purpose Trust Fund CITY OF EXAMPLE Statement of Changes in Fiduciary Net Assets Successor Agency to the Example Redevelopment Agency Private Purpose Trust Fund For the Period February 1, 2012 through June 30, 2012 Establishing the "Extraordinary Loss" … at February 1, 2012Additions: Note: Excludes new activity in the private purpose trust fund Property taxes $ - subsequent to 2/1/12, in order to Investment earnings isolate the initial transfer of - Other assets and liabilities. - Total additions -Deductions: Program expenses of former redevelopment agency - Administrative expenses - Interest and fiscal ageny expenses of former redevelopment agency - Total deductions -Extraordinary loss (2,018,000)Change in net assets (2,018,000)Net assets - beginning -Net assets - ending $ (2,018,000) 25
  26. 26. Accounting and Reporting – January 31, 2012 Preliminary and Tentative - For Illustration Purposes Only Example of a Stand Alone Audit of the Redevelopment Agency, before Dissolution CITY OF EXAMPLE REDEVELOPMENT AGENCY Statement of Net Assets January 31, 2012 Governmental Activities Assets: Cash and investments: Held in City Treasury $ 2,750,000 Held with trustees 650,000 Interest receivable 18,000 Notes and loans receivable 1,058,000 Land held for redevelopment 586,000 Nondepreciable capital assets 500,000 Total assets 5,562,000 Liabilities: Accounts payable and accrued liabilities 122,000 Interest payable 190,000 Long-term debt: Due within one year 700,000 Due in more than one year 5,000,000 Total liabilities 6,012,000 Net Assets: Invested in capital assets 500,000 Restricted for: Low and moderate income housing 2,826,000 Debt service 1,742,000 Unrestricted (deficit) (5,518,000) Total net deficit $ (450,000) 26
  27. 27. Accounting and Reporting – January 31, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of a Stand Alone Audit of the Redevelopment Agency, before Dissolution CITY OF EXAMPLE REDEVELOPMENT AGENCY Statement of Activities For the Period July 1, 2011 through January 31, 2012 Governmental ActivitiesProgram Expenses: Community development $ 2,319,000 Pass-through agreements 150,000 Developer tax sharing reimbursements 410,000 Intergovernmental 1,800,000 Interest and fiscal charges 617,000 Total program expenses 5,296,000General Revenues: Property taxes 4,640,000 Investment earnings 40,000 Other 130,000 Total general revenues 4,810,000 Change in net assets (486,000)Net assets, beginning of year 36,000Net deficit, end of year $ (450,000) 27
  28. 28. Accounting and Reporting – January 31, 2012 Preliminary and Tentative - For Illustration Purposes Only Example of a Stand Alone Audit of the Redevelopment Agency, before Dissolution CITY OF EXAMPLE REDEVELOPMENT AGENCY Governmental Funds Balance Sheet January 31, 2012 Low and Tax Allocation Moderate Refunding Project Area Income Bonds One Housing Debt Service Total Assets: Cash and investments: Held in City Treasury $ 650,000 $ 1,200,000 $ 900,000 $ 2,750,000 Held with trustees - - 650,000 650,000 Interest receivable 6,000 10,000 2,000 18,000 Advances to other funds - 60,000 - 60,000 Notes and loans receivable - 1,058,000 - 1,058,000 Land held for redevelopment 86,000 500,000 - 586,000 Total assets $ 742,000 $ 2,828,000 $ 1,552,000 $ 5,122,000 Liabilities and Fund Balances: Liabilities: Accounts payable and accruals $ 120,000 $ 2,000 $ - $ 122,000 Deferred revenue - 600,000 - 600,000 Advances from other funds 60,000 - - 60,000 Total liabilities 180,000 602,000 - 782,000 Fund balances: Restricted for: Low and moderate income housing - 2,226,000 - 2,226,000 Debt service - - 1,552,000 1,552,000 Assigned for redevelopment 979,000 - - 979,000 Unassigned (417,000) - - (417,000) Total fund balances 562,000 2,226,000 1,552,000 4,340,000 Total liabilities and fund balances $ 742,000 $ 2,828,000 $ 1,552,000 $ 5,122,000 28
  29. 29. Accounting and Reporting – January 31, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of a Stand Alone Audit of the Redevelopment Agency, before Dissolution CITY OF EXAMPLE REDEVELOPMENT AGENCY Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets - Governmental Activities January 31, 2012Total fund balances reported on the governmental funds balance sheet $ 4,340,000 Amounts reported for governmental activities in the statement of net assets are different from those reported in the governmental funds above because of the following: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds 500,000 Receivables not available: Certain receivables are not available to pay for current period expenditures and therefore are deferred in the governmental funds. 600,000 Long-term liabilities: The liabilities below are not due and payable in the current period and therefore are not reported in the governmental funds: Long-term debt (5,700,000) Interest payable (190,000) Net deficit of governmental activities $ (450,000) 29
  30. 30. Accounting and Reporting – January 31, 2012 Preliminary and Tentative - For Illustration Purposes Only Example of a Stand Alone Audit of the Redevelopment Agency, before Dissolution CITY OF EXAMPLE REDEVELOPMENT AGENCY Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Period July 1, 2011 through January 31, 2012 Low and Tax Allocation Moderate Refunding Project Area Income Bonds One Housing Debt Service Total Revenues: Property taxes $ 712,000 $ 928,000 $ 3,000,000 $ 4,640,000 Use of money and property 15,000 20,000 5,000 40,000 Other - 80,000 - 80,000 Total revenues 727,000 1,028,000 3,005,000 4,760,000 Expenditures: Current: Community development 1,419,000 900,000 - 2,319,000 Pass-through agreements 150,000 - - 150,000 Developer tax sharing reimbursements 280,000 - 130,000 410,000 Intergovernmental 1,100,000 700,000 - 1,800,000 Debt service: Principal - - 570,000 570,000 Interest and fiscal charges - - 597,000 597,000 Total expenditures 2,949,000 1,600,000 1,297,000 5,846,000 Excess (deficiency) of revenues over (under) expenditures (2,222,000) (572,000) 1,708,000 (1,086,000) Other financing sources (uses) Transfers in 200,000 - - 200,000 Transfers out - - (200,000) (200,000) Total other financing sources (uses) 200,000 - (200,000) - Change in fund balances (2,022,000) (572,000) 1,508,000 (1,086,000) Fund balance, beginning of year 2,584,000 2,798,000 44,000 5,426,000 Fund balance, end of year $ 562,000 $ 2,226,000 $ 1,552,000 $ 4,340,000 30
  31. 31. Accounting and Reporting – January 31, 2012Preliminary and Tentative - For Illustration Purposes OnlyExample of a Stand Alone Audit of the Redevelopment Agency, before Dissolution CITY OF EXAMPLE REDEVELOPMENT AGENCY Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities - Governmental Activities For the Period July 1, 2011 through January 31, 2012Net change in fund balances - total governmental funds $ (1,086,000)Amounts reported for governmental activities in the statement of activities are different because of the following: Long term debt transactions: Repayment of bond principal is an expenditure in the governmental funds, but in the statement of net assets the repayment reduces long-term liabilities. 570,000 Accrual of noncurrent items: The amounts below included in the statement of activities do not provide or (require) the use of current financial resources and therefore are not reported as revenues or expenditures in governmental funds: Change in deferred revenue 50,000 Change in interest payable (20,000) Change in net assets of governmental activities $ (486,000) 31
  32. 32. Accounting and Reporting  Disclosure of dissolution and transfer of assets and liabilities • A sample disclosure is included as part of the CCMA White Paper • Good starting point, but must be tailored to fit the events and circumstances unique to your organization • Suggests to reconcile the difference between the extraordinary gain/loss reported in the governmental funds versus the fiduciary fund’s extraordinary gain/loss or additions 32
  33. 33. Polling Question #5Extraordinary items are:b) Within the control of management that are eitherunusual in nature or infrequent in occurrencec) Unusual in nature not in the control ofmanagementd) Only infrequent in nature.e) Both unusual in nature and infrequent inoccurrence. 33
  34. 34. Polling Question #5 DebriefExtraordinary items are:d) Both unusual in nature and infrequent in occurrence. 34
  35. 35. Polling Question #6The Low and Moderate Income Housing Fund (20%Fund) balances are to be disposed as follows:b) Encumbered balances are transferred to theSuccessor Agencyc) Unencumbered balances are transferred tothe Successor Agencyd) Total balances transferred to the SuccessorAgencye) Transferred to the City’s General Fund 35
  36. 36. Polling Question #6 DebriefThe Low and Moderate Income Housing Fund (20%Fund) balances are to be disposed as follows:b) Unencumbered balances are transferred to the Successor Agency 36
  37. 37. Audit RequirementsState and Local Audits/Oversight•Actions of the Oversight Board = DOF•Agreed-upon procedures engagements, directedby the County Auditor-Controllers • Due by 7/1/12 and submitted to SCO by 7/15/12 • Purpose (1) establish assets/liabilities, (2) pass- through obligations, (3) determine the amount and terms of indebtedness, and (4) “Certify” the initial ROPS•Actions of the County ACO = SCO•SCO also reviews redevelopment asset transfersmade after 1/1/11 to determine if appropriate 37
  38. 38. Audit Requirements Transition Audits are highly recommended but not required by the SCO (no legislative basis – either for former RDA or SA) • No direct funding for audits under ABX1 26 • Bond covenants may require a separate audit Two separate engagements are contemplated as two separate entities involved 38
  39. 39. Audit Requirements The RDA Audit Guide – Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies (August 2011) is no longer in effect (i.e., no compliance audit required)!!! SCO states there is no legislative basis to require State Controller’s Reports or Statements of Indebtedness Not yet known whether HCD reports will be required 39
  40. 40. Polling Question #7The State Department of Finance is responsible to:b) Review the actions of the Oversight Boardc) Review the actions of the County Auditor-Controller’s Officed) Certify the Recognized Obligation PaymentSchedulee) Review the redevelopment asset transfers madeafter 1/1/11 40
  41. 41. Polling Question #7 DebriefThe State Department of Finance is responsible to:c) Review the actions of the Oversight Board 41
  42. 42. Polling Question #8A “Stub” period audit of the former redevelopmentagency is:b) Required by the State Controller’s Officec) Required by the State Department of Financed) Directly funded under ABX1 26e) Not required, but recommended 42
  43. 43. Polling Question #8 DebriefA “Stub” period audit of the former redevelopmentagency is:d) Not required, but recommended 43
  44. 44. What’s Next? Pending legislation DOF has proposed trailer bill, with significant changes to the existing laws and regulations in the Health and Safety Code Administrative Costs will start to drop (5% to 3%, still subject to $250,000 … administrative budget to be approved by the Oversight Board) Oversight Boards will consolidate on July 1, 2016 44
  45. 45. ReferencesCCMA White Paper (CalCPA members only) -http://www.calcpa.org/Content/24325.aspxDOF -http://www.dof.ca.gov/assembly_bills_26-27/view.phpSCO -http://www.sco.ca.gov/ard_local_info_resources.htmlLeague of California Cities -http://www.cacities.org/Home 45
  46. 46. Closing Items Play this and previous MGO Academy webinars at www.mgocpa.com/go/mgo/thought-leadership If you are eligible for CPE credit for today’s session, you will receive the certificate electronically in one to two weeks. Please complete and return the evaluation survey, which you will receive via email. 46
  47. 47. Questions & Contact InfoNorthern California Central CaliforniaSan Francisco Bay Area: Sacramento:David Bullock, Partner Richard Green, Partnerdbullock@mgocpa.com rgreen@mgocpa.com(925) 395-2835 (916) 642-7046Southern CaliforniaLos Angeles: Orange County:Jim Godsey, Partner Linda Hurleyjgodsey@mgocpa.com lhurley@mgocpa.com(310) 746-2177 (949) 296-4340San Diego:Kevin Starkey, Directorkstarkey@mgocpa.com(619) 618-7211 Thank you for attending. 47

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