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HomeMy WebLinkAboutAudited Financial Reports - Redevelopment Agency FYE June 30, 2010CITY OF PALM DESERT FINANCE DEPARTMENT Staff Report REQUEST: RECEIVE AND FILE THE AUDITED FINANCIAL REPORTS FOR THE PALM DESERT REDEVELOPMENT AGENCY FOR THE FISCAL YEAR ENDED JUNE 30, 2010 DATE: April 14, 2011 SUBMITTED BY: Paul S. Gibson, Finance Director CONTENTS: Palm Desert Redevelopment Agency Audited Financial Report for the Fiscal Year Ended June 30, 2010 Recommendation By Minute Motion, that the City Council receive and file the audited Component Unit Financial Report for the Palm Desert Redevelopment Agency for fiscal year ended June 30, 2010. Committee Recommendation The Audit, Investment and Finance Committee received the audited financial statements for the Palm Desert Redevelopment Agency at their January 25, 2011 meeting, and it was recommended that the statements for the fiscal year ended June 30, 2010 be received and filed by the City Council. Background Diehl, Evans & Associates, LLP, performed and completed the annual independent audit for the fiscal year ended June 30, 2010, for the Redevelopment Agency in October 2010, in accordance with generally accepted auditing standards. In the auditor's opinion, the basic financial statements present fairly, in all material respects, the financial position of the Redevelopment Agency as of June 30, 2010, and the results of its operations of the year then ended are in conformity with accounting principles generally accepted in the United States of America. In conducting their audit, the auditors test the City's internal controls. Pages 81 and 82 of the Annual Financial Report show the Report on Internal Controls over Financial Reporting and on compliance and other matters based on an audit of Financial Statements performed in accordance with Government Auditing Standards. G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2010\SR - Council audit RDA CUFR 2010.docx Staff Report Approval of CUFR for Fiscal Year ended June 30, 2010 April 14, 2011 Page 2 of 2 Staff requests that the Council receive and file the audited Component Unit Financial Report for the Palm Desert Redevelopment Agency for fiscal year ended June 30, 2010. Fiscal Impact There is no fiscal impact associated with this action. Submitted by: 6 � Paul S. Gibson, Finance Director/City Treasurer PSG:JLE:nmo Approved by: n M. Wohlmuth, City Manager CITY COUNCIL ACTION APPROVED _ DENIED RECEIVED 2- File- OTIIE11 MEETING DATE, - -- AYES: rz/)&4,/, NOES: � n�— �— A13SENT: N CQC - ABSTAIN: VERIFIED BY• n�r Original on File with City Clerks Office G:\FinanceWiamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2010\SR - Council audit RDA CUFR 2010.docx Staff Report Approval of CUFR for Fiscal Year ended June 30, 2010 April 14, 2011 Page 2 of 2 Staff requests that the Council receive and file the audited Component Unit Financial Report for the Palm Desert Redevelopment Agency for fiscal year ended June 30, 2010. Fiscal Impact There is no fiscal impact associated with this action. Submitted by: Paul S. Gibson, Finance Director/City Treasurer PSG:JLE:nmo Approved by: City Manager G:\Finance\Niamh Ortega\Staff Reports\Audit staff reports\Audit Staff Reports 2010\SR -Council audit RDA CUFR 2010.docx PALM DESERT REDEVELOPMENT AGENCY PALM DESERT, CALIFORNIA ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE YEAR ENDED JUNE 30, 2010 PALM DESERT REDEVELOPMENT AGENCY TABLE OF CONTENTS JUNE 30, 2010 Page Number INDEPENDENT AUDITORS' REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS (Required Supplementary Information) 3 BASIC FINANCIAL STATEMENTS: Government -Wide Financial Statements: Exhibit A - Statement of Net Assets 11 Exhibit B - Statement of Activities 13 Fund Financial Statements: Exhibit C - Balance Sheet - Governmental Funds 14 Exhibit D - Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Assets 17 Exhibit E - Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 18 Exhibit F - Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 20 Notes to Basic Financial Statements 21 SUPPLEMENTARY INFORMATION: Schedule 1 - Combining Balance Sheet - Other Governmental Funds 68 Schedule 2 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Other Governmental Funds 69 Schedule 3 - Balance Sheet - Other Governmental Fund - Special Revenue 70 Schedule 4 - Statement of Revenues, Expenditures and Changes in Fund Balance - Other Governmental Fund - Special Revenue 71 PALM DESERT REDEVELOPMENT AGENCY TABLE OF CONTENTS (CONTINUED) JUNE 30, 2010 Page Number SUPPLEMENTARY INFORMATION (CONTINUED): Schedule 5 - Balance Sheet - Other Governmental Fund - Debt Service 72 Schedule 6 - Statement of Revenues, Expenditures and Changes in Fund Balance - Other Governmental Fund - Debt Service 73 Schedule 7 - Combining Balance Sheet - Other Governmental Funds - Capital Projects 74 Schedule 8 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Other Governmental Funds - Capital Projects 75 Schedule 9 - Combining Balance Sheet - Housing Authority Special Revenue Fund 76 Schedule 10 -Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Housing Authority Special Revenue Fund 78 Schedule 11 -Computation of Low and Moderate Housing Excess Surplus Funds 80 Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 81 DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK, SUITE 100 IRVINE, CALIFORNIA 92606-5165 (949) 399-0600 • FAX (949) 399-0610 wwwbehlevansmm MICHAEL R. LUDIN, CPA CRAIG W. SPRAKER, CPA NITTN P. PATEL, CPA ROBERT J. CALLANAN, CPA •PHILIP It HOLTKAMP, CPA •THOMAS M. PERLOWSKI, CPA -HARVEY 1. SCHROEDER, CPA KENNETHR. AMES, CPA WHIJAM C. PENTZ, CPA November 29, 2010 •A PROFESSIONAL CORPORAT[ON INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Members of the City Council Palm Desert Redevelopment Agency Palm Desert, California We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fluid information of the Palm Desert Redevelopment Agency (the Agency), (a component unit of the City of Palm Desert, California), as of and for the year ended June 30, 2010, which collectively comprise the Agency's basic financial statements, as listed in the table of contents. These basic financial statements are the responsibility of the Agency's management, Our responsibility is to express opinions on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Palm Desert Redevelopment Agency as of June 30, 2010, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. -1- OTHER OFFICES AP: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 CARLSBAD, CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729.2234 (760) 741-3141 • FAX (760) 741-9890 In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2010 on our consideration of the Palm Desert Redevelopment Agency's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing, Standards and should be considered in assessing the results of our audit. The management's discussion and analysis, identified as required supplementary information in the table of contents, is not a required part of the basic financial statements but is supplementary information required by the accounting principles generally accepted in the United States of America. This information is an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the management's discussion and analysis in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the management's discussion and analysis because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance on the management's discussion and analysis. Our audit was made for the purpose of forming opinions on the financial statements that collectively comprise the Agency's basic financial statements. The combining, individual fund statements and schedules, and the Computation of Low and Moderate Housing Excess/Surplus Funds are presented for purposes of additional analysis and are not a required part of the basic financial statements of the Agency. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements of the Agency or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. k./,",4,kI CVC-, cwv►A I LLP -2- PALMDESERT REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2010 Our discussion and analysis of the Palm Desert Redevelopment Agency's (Agency) financial performance for the fiscal year ended June 30, 2010, provides a comparison of current year to prior year ending results based on the government -wide statements, an analysis on the Agency's overall financial position and results of operations to assist users in evaluating the Agency's financial position, and a discussion of significant changes that occurred within each fund. In addition, it describes the activities during the year for capital assets and long-term debt. We end our discussion and analysis with a description of currently known facts, decisions and conditions that are expected to have a significant effect on the financial position or results of operations. Please read it in conjunction with the Agency's financial statements. FINANCIAL HIGHLIGHTS The Agency's governmental activities net assets deficit increased $5.15 million, or 65% percent. The Agency currently has an unrestricted net deficit because of the debt it has issued. Proceeds from the debt were used for capital improvements on behalf of the City or contributed to developers and is not offset by investments in capital assets. During the year, the Agency had revenues that were $5.15 million less than the $101.10 million in expenses recorded by the Agency in its governmental activities. The Agency's governmental activities program revenues and general revenues decreased $4.37 million, or 4.36 percent from the prior year, and program expenses increased $5.82 million, or 6.11 percent. USING THIS ANNUAL REPORT TI-ds annual report consists of a series of financial statements. The Statement of Net Assets and Statement of Activities (on pages 11 and 13) provide information about the activities of the Agency as a whole and present a long-term view of the Agency's finances. Fund financial statements start on page 14. For governmental activities, these fund statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the Agency's operation in more detail than the government -wide statements by providing information about the Agency's most significant funds as well as the other funds. REPORTING THE AGENCY AS A WHOLE The Statement of Net Assets and the Statement of Activities: Our analysis of the Agency as a whole begins on page 11. One of the most important questions asked about the Agency's finances is, "Is the Agency as a whole better off or worse off as a result of the year's activities?" The Statement of Net Assets and the Statement of Activities report information about the Agency as a whole and about its activities in a way to answer this question. These statements include all assets and liabilities of the Agency using the accrual basis of accounting, which is similar to the accounting used by most private -sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Agency's net assets and changes in them Net assets are the difference between assets and liabilities, which is one way to measure the Agency's financial health, or financial position. Over time, increases or decreases in the Agency's net assets are an indication of whether its financial health is improving or deteriorating. In the Statement of Net Assets and the Statement of Activities, we separate the Agency into general government, apartment complexes, public works, payments to other agencies and interest on long-term debt. -3- REPORTING THE AGENCY'S MOST SIGNIFICANT FUNDS Fund Financial Statements: The fund financial statements provide detailed information about the most significant funds and other funds - not the Agency as a whole. Some funds are required to be established by State law and by bond covenants. However, management established many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other resources. The Agency only has governmental type funds. Governmental Funds - Most of the Agency's basic services are reported in governmental funds, which focus on how money flows in and out of those funds and the balances left at year-end that are available for spending. These funds are reported using the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the Agency's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the Agency's programs. The differences of results in the Governmental Fund financial statements to those in the Government -Wide financial statements are explained in a reconciliation following each Governmental Fund financial statement. -4- THE AGENCY AS A WHOLE The Agency's net assets deficit increased $5.15 million from $(7.82) million to $(12.97) million. Our analysis below focuses on the net deficit (Table 1) and changes in net deficit (Table 2) of the Agency's governmental activities. TABLE 1 NET ASSETS (IN MILLIONS) As of June 30, 2010 and 2009 Current and restricted assets Capital assets TOTAL ASSETS Long-term liabilities outstanding Other liabilities TOTAL LIABILITIES Net assets (deficit): Invested in capital assets, netof related debt Restricted Unrestricted TOTAL NET ASSETS (DEFICIT) Governmental Activities 2010 2009 $ 314.90 $ 325.46 157.53 158.15 47243 483.61 417.41 430.52 67.99 60.91 485.40 491.43 118.80 56.26 (188.03) $ 12 97 126.04 49.65 (183.51) $ (7.82) Compared to the prior year, the Agency's net assets deficit of governmental activities increased by $5.15 million. The Agency's Net Assets is made up of three components: Investment in Capital Assets, Net of Related Debt, Restricted Net Assets and Unrestricted Net Deficit. Unrestricted deficit, the part of net deficit that can be used to finance day-to-day operations, increased from $(183.51) million to $(188.03) million, or 2.46 percent. The Agency currently has an unrestricted net deficit because of the debt it has issued. Proceeds from the debt were used for capital improvements on behalf of the City or contributed to developers and is not offset by investments in capital assets. Total liabilities decreased overall by $6.03 million which represents the difference between principal payments of $13.42 million in long-term debt and the increase of $7.39 million in pass thru payments due to other agencies. -5- TABLE 2 CHANGES IN NET ASSETS (IN MILLIONS) As of June 30, 2010 and 2009 Governmental Activities 2010 2009 REVENUES: Program Revenues: Charges for services $ 5.02 $ 5.01 Capital Grants and Contributions 0.20 0.03 General Revenues: Tax increment 88.07 90.14 Other income 1.40 1.33 Investment earnings 1.26 3.81 TOTAL REVENUES 95.95 100.32 EXPENSES: General government 37.83 11.30 Apartment complexes 5.02 5.67 Public works - 18.47 Payments to other agencies 37.79 39.09 Interest on long-term debt 20.46 20.75 TOTAL EXPENSES 101.10 95.28 INCREASE (DECREASE) IN NET ASSETS (5.15) 5.04 BEGINNING NET ASSETS (7.82) (12,86) RESTATEMENT OF NET ASSETS ENDING NET ASSETS $ (12.97) $ (7,82) Governmental Activities Total revenues decreased from $100.32 million to $95.95 million, a 4.35 percent decrease. The major factors that contributed to the decrease were as follows: • Decrease in tax increment due to declining assessed property values. �, Decrease in investment earnings due to declining interest rates. The following schedule represents the net cost of providing services: 2010 General Government $ (37.59) Apartment Complexes (0.03) Pubic Works Payment to Other Agencies (37.79) Interest on Long -Term Debt (20.46) TOTAL $ (95.87) The major factor that contributed to the increase in expenditures was: 20M $ (11.27) (0.66) (18.47) (39.09) 20.7 $ (90.24) • Increase in expenditures on General Government due to SERAF payment to State. THE AGENCY'S FUNDS On pages 14 and 15, the governmental funds balance sheet is shown. The combined fund balance of $242.32 million decreased from $259.39 million, or 6.58 percent. The Agency has reserved $103.33 million for encumbrances, continuing appropriations, loans, debt service, etc. More detailed information about the combined fund balance reserves is presented in Note 9 to the financial statements. Major funds balance changes are noted below: • For the Low and Moderate Income Housing fund, fund balance increased due to capital expenditures being carried over and the reduction in transfer out that were made in the prior year to cover capital projects. • For the Redevelopment Agency Financing Authority Debt Service fund, fund balance decreased as a result of transfers in from debt service to actively manage the debt prior to termination of the project areas. • The Redevelopment Agency Project Area 1 Debt Service fund, fund balance decreased as a result of the 2009-10 SERAF payment to State of California. • The Redevelopment Agency Project Area 2 Debt Service funds, fund balance decreased as a result of the 2009-10 SERAF payment to the State of California. • The Redevelopment Agency Project Area 4 Debt Service funds, fund balance decreased as a result of the 2009-10 SERAF payment to the State of California. • The Redevelopment Agency Project Area 2 Capital Projects Funds, fund balance increased as the result of transfers in for administrative costs and capital improvements. In addition to the major funds, fund balances of other governmental funds had significant changes. The Housing Authority Special Revenue fund had a decrease of $0.07 million from the prior year. This was due to declining revenue as a result of current economic conditions, as well as the lower income of tenants, which determines the calculation of rental rates. Project Area 3 debt service fund balance decreased due to the 2009-10 SERAF payment to the State of California. Project Area 1 capital projects funds, fund balance decreased as a result of a decrease in cash with fiscal agent. Project Area 3 and 4 capital projects fund balance changes were minimal. More detailed information on the fund financial statements balances is presented in the notes to the financial statements. -7- Budgetary Highlights During the year, with the recommendation from the Agency's staff, the Agency's Board revised the Agency budget several times. Adjustments were made on a monthly basis as the Agency's staff requested additional appropriations to cover the cost of projects that either had change orders for additional work, or the estimated cost at the beginning of the project was underestimated. At mid -year, adjustments were made as department heads requested increases or decreases to their budgets to maintain their current level of services. At year-end, budgets were adjusted for unanticipated expenditures. The Agency's Board approves all amendments that either increase or decrease appropriations. Formal budgetary integration is employed as a management control device during the year for the special revenue and capital project funds. Budgetary data for the special revenue and capital projects funds are not presented herein, as the budgets for these funds are long-term in nature. More detailed information about the Agency's budget is presented in Note 1 (1) to the financial statements. CAPITAL ASSET AND DEBT ADNMIUSTRATION Capital Assets At the end of 2010, the Agency had $157.53 million invested in a broad range of capital assets, including land, buildings and improvements, apartment complexes, vehicles and equipment (See Table 3). This amount represents a net decrease (including additions and deductions) of $.62 million. TABLE 3 CAPITAL ASSETS AT YEAR-END (NET OF DEPRECIATION, IN MILLIONS) For the Years Ended June 30, 2010 and 2009 Governmental Activities 2010 2009 Land $ 77.14 $ 77.13 Construction in progress 13.29 11.83 Buildings and improvements 67.02 69.09 Equipment 0.08 0.10 TOTAL $ 157.53 $ 158.15 -8- This year's major addition included (in millions): Construction in progressfor Desert Willow Lakeview Terrace/Kitchen Expansion $ 0.80 Construction in progress for Aquatic Center 0.33 Construction in progress for California Villas 0.13 $ 1.26 The Agency's fiscal year 2011 capital budget calls for it to spend $14.40 million plus continuing projects of $96.98 million. The majority of which are attributable to the reimbursement to other governments for capital projects, land development, construction of low-income family housing, and the undergrounding of utilities. More detailed information about the Agency's capital assets is presented in Note l(g) and Note 6 to the financial statements. Debt At year-end, the Agency's governmental activities had $417.41 million in bonds and notes versus $430.52 million last year, a decrease of $13.11 million, or 3.04 percent as shown in Table 4. TABLE 4 OUTSTANDING DEBT AT YEAR END (IN MILLIONS) For the Years Ended June 30, 20 1, 0 and 2009 Notes payable Advances Revenue bonds and notes (backed by specific tax and fee revenues) TOTALS Governmental Activities 2010 2009 $ 0.24 $ 0.37 22.66 22.66 394.51 407.49 $ 417.41 $ 430.52 The Agency was able to meet its current year debt obligation in a timely manner. The Agency repaid $14.27 million dollars in outstanding bonds. Debts issued in the prior years have been used to finance various capital projects. An example of this would be the purchase of land, and construction of the City's municipal golf course. More detailed information about the Agency's debt is presented in Note 8 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS In preparing the budget for 2011, management looked at the following economic factors; • In prior years, the City had unallocated reserves in its capital projects and special revenue funds that could be used to start and complete Agency's projects in an effort to maximize the Agency's cash flow. In the five-year capital improvement program, all restricted capital funds for the City have been allocated to various projects. Any additional projects would require that the Agency fund their own projects. • As the State of California attempts to balance their budget, Redevelopment Agency tax increment revenues throughout the State have been captured to cover (at minimum) a $2.05 billion shortfall, resulting in a prior year SERAF shift of $25,526,215, and an additional SERAF shift of $5,255,397 for 2010-11 for the Palm Desert Redevelopment Agency. Both of these shifts are currently in the appellate court following a decision made by the Sacramento Superior Court affirming their legality. The effects of the State's endeavors to balance their budget, have caused the Agency to cut projects essential to the community and Redevelopment Plan. Although the passage of Proposition 22 has thwarted future takes under this same method, the uncertainty of future State shortfalls and their resourcefulness in retaining local taxes derived from property tax including Redevelopment funds, will determine the Agency's ability to complete such projects, as well as the ability to meet the needs of the community. The City of Palm Desert continues to grow with new hotels, commercial and residential development, construction of a four-year university, street improvements, park construction, and various other improvement projects. The 2011 capital improvement project budget is a reflection of the Agency's commitment to the residents of Palm Desert. A copy of the City's 2010-2011 financial plan can be obtained by contacting the City Finance Department (See below). CONTACTING THE AGENCY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the Agency's finances and to show the Agency's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Finance Department at the City of Palm Desert, 73-510 Fred Waring Drive, Palm Desert, California 92260-2578, or (760) 346-0611. -10- PALM DESERT REDEVELOPMENT AGENCY STATEMENT OF NET ASSETS June 30, 2010 ASSETS: Cash and investments Receivables Property held for resale Prepaid items and deposits Unamortized debt issuance costs Restricted assets: Restricted cash with fiscal agent Capital assets, not depreciated Capital assets, being depreciated (net of accumulated depreciation) TOTAL ASSETS LIABILITIES: Accounts payable Accrued liabilities Interest payable Deposits payable Unearned revenue Amounts due under pass -through agreements Noncurrent liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET ASSETS: Invested in capital assets, net of related debt Restricted for: Special projects Unrestricted (deficit) TOTAL NET ASSETS (DEFICIT) See independent auditors' report and notes to basic financial statements. Exhibit A Governmental Activities $ 144,529,949 9,923,249 855,224 26,813 9,697,225 149,878,702 90,425,168 67,100,637 472,436,967 1,621,826 124,054 5,135,113 411,069 18,160 60,678,180 14,747,707 402,663,580 485,399,689 118,799,925 56,263,384 (188,026,031) $ (12,962,722) - 11 - THIS PAGE INTENTIONALLY LEFT BLANK -12- PALM DESERT REDEVELOPMENT AGENCY STATEMENT OF ACTIVITIES For the year ended June 30, 2010 Functions/Programs Expenses PRIMARY GOVERNMENT: Governmental activities: General administration $ 37,828,828 Apartment complexes 5,023,817 Payments to other agencies 37,794,435 Interest on long-term debt 20,455,714 Total Primary Program Revenues Operating Capital Charges for Grants and Grants and Services Contributions Contributions $ 35,226 4,986,066 Exhibit B Net (Expense) Revenue and Changes in Net Assets Governmental Activities $ 208,068 $(37,585,534) - (37,751) (37,794,435) (20,455,714) Government $ 101,102,794 $ 5,021,292 $ - $ 208,068 (95,873,434) GENERAL REVENUES: Taxes: Tax increment 88,068,683 Rental income 176,542 Other revenues 1,226,057 Investment earnings 1,262,578 Total general revenues 90,733,860 CHANGE IN NET ASSETS (5,139,574) NET ASSETS (DEFICIT) - BEGINNING OF YEAR (7,823,148) NET ASSETS (DEFICIT) - END OF YEAR $(12,962,722) See independent auditors' report and notes to basic financial statements. -13- PALM DESERT REDEVELOPMENT AGENCY BALANCE SHEET - GOVERNMENTAL FUNDS June 30, 2010 ASSETS: Cash and investments Restricted cash with fiscal agent Receivables Advances to other funds Property held for resale Prepaid costs and deposits TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable Accrued liabilities Deposits payable Advances from other funds Unearned revenue Deferred revenue Amounts due pass -through agreement TOTAL LIABILITIES FUND BALANCES: Reserved Unreserved reported in: Special revenue fund Debt service funds Capital projects funds TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCES Special Revenue Fund Debt Service Funds Low and Moderate Income Project Project Housing Area 1 Area 2 $ 26,663,015 $ 74,527,487 $ 8,420,774 25,195,523 - - 7,525,042 142,800 54,587 17,821,288 - - 855,224 - - $ 78,060,092 $ 74,670,287 $ 8,475,361 $ 30,841 $ - $ 30,786 - - 500 - - - 10,438,131 3,755,605 6,796 - - 36,493 - - - 37,663,533 2,220,180 105,416 48,101,664 5,975,785 35,765,570 - 42,189,106 - - - 26,568,623 2,499,576 77,954,676 26,568,623 2,499,576 $ 78,060,092 $ 74,670,287 $ 8,475,361 See independent auditors' report and notes to basic financial statements. -14- Capital Debt Service Funds (Continued) Projects Fund Exhibit C Other Total Project Financing Project Governmental Governmental Area 4 Authority Area 2 Funds Funds $ 21,058,713 $ - $ - $ 13,859,960 $ 144,529,949 - 16,139,929 46,965,009 61,578,241 149,878,702 35,624 14,509 1,644 2,149,043 9,923,249 - - - - 17,821,288 - - - - 855,224 - - - 26,813 26,813 $ 21,094,337 $ 16,154,438 $ 46,966,653 $ 77,614,057 $ 323,035,225 $ 848,992 $ 741,993 $ 1,621,826 - 93,268 124,054 - 410,569 411,069 2,657,239 - - 970,313 17,821,288 - - - 11,364 18,160 - - - 36,493 16,704,628 - - 4,089,839 60,678,180 19,361,867 - 848,992 6,317,346 80,711,070 22,136,111 45,432,498 103,334,179 - - - - 42,189,106 1,732,470 16,154,438 - 1,870,304 48,825,411 - - 23,981,550 23,993,909 47,975,459 1,732,470 16,154,438 46,117,661 71,296,711 242,324,155 $ 21,094,337 $ 16,154,438 $ 46,966,653 $ 77,614,057 $ 323,035,225 -15- THIS PAGE INTENTIONALLY LEFT BLANK -16- PALM DESERT REDEVELOPMENT AGENCY RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2010 Total fund balance for governmental funds Amounts reported for governmental activities in the Statement of Net Assets are different because: When capital assets (land, buildings, equipment, etc.) that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds. However, the Statement of Net Assets includes those capital assets among the assets of the Agency as a whole: Beginning Balance, net depreciation Current year additions Current year deletions Current year depreciation Ending Balance, net depreciation $ 158,151,087 3,039,204 (1,055,324) (2,609,162) Because the focus of governmental funds is on short-term financing, some assets will not be available to pay for current -period expenditures. Those assets (for example, receivables) are offset by deferred revenues in the governmental funds and, thus, are not included in fund balance: Interest that was not paid at year-end Long-term liabilities applicable to the Agency's governmental activities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. All liabilities, both current and long-term, are reported in the Statement of Net Assets. tnterest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. The cost of issuing bonds is recognized as an expenditure in the period paid, however, in the Statement of Net Assets, it is amortized over the life of the bonds. Net assets (deficit) of governmental activities See independent auditors' report and notes to basic financial statements. -17- Exhibit D $ 242,324,155 157,525,805 36,493 (417,411,287) (5,135,113) 9,697,225 $ (12,962,722) PALM DESERT REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS For the year ended June 30, 2010 REVENUES: Taxes Intergovernmental Investment earnings Rental income Other revenues TOTAL REVENUES EXPENDITURES: Current: General government Payments to other agencies Capital outlay Debt service: Interest and fiscal charges Principal retirement TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING OF YEAR FUND BALANCES - END OF YEAR Special Revenue Fund Debt Service Funds Low and Moderate Income Project Project Housing Area 1 Area 2 $ - $ 51,579,766 $ 18,562,862 485,444 101,720 33,355 3,067 - - 743,313 473,864 - 1,231,824 52,155,350 18,596,217 See independent auditors' report and notes to basic financial statements. -18- 2,522,568 15,402,222 5,385,616 - 20,896,327 7,284,372 4,099 - - 310,395 425,016 - - 122,707 2,526,667 36,608,944 13,217,711 (1,294,843) 15,546,406 5,378,506 17,821,289 122,178 43,033 (9,586,557) (23,551,710) (10,857,060) 8,234,732 �23,429,532) (10,814,027) 6,939,889 (7,883,126) (5,435,521) 71,014,787 34,451,749 7,935,097 $ 77,954,676 $ 26,568,623 $ 2,499,576 Capital Debt Service Funds (Continued) Projects Fund Project Financing Project Area 4 Authority Area 2 Exhibit E Other Total Governmental Governmental Funds Funds $ 13,129,446 $ - $ - $ 4,796,609 $ 88,068,683 - - - 243,294 243,294 34,779 94,667 10,871 522,409 1,283,245 - - - 5,020,703 5,023,770 - - 760 127,014 1,344,951 13,164,225 94,667 11,631 10,710,029 95,963,943 3,736,718 - 1,074,962 11,066,073 39,188,159 7,400,665 - - 2,213,071 37,794,435 - - 1,137,092 1,898,013 3,039,204 18,000,774 - - 18,736,185 - 14,145,000 - - 14,267,707 11,137,383 32,145,774 2,212,054 15,177,157 113,025,690 2,026,842 (32,051,107) (2,200,423) (4,467,128) (17,061,747) 31,349 31,759,391 2,750,356 987,191 53,514,787 (5,249,037) (791,298) (256,352) (3,222,773) (53,514,787) (5,217,688) 30,968,093 2,494,004 (2,235,582) - (3,190,846) (1,083,014) 293,581 (6,702,710) (17,061,747) 4,923,316 17,237,452 45,824,080 77,999,421 259,385,902 $ 1,732,470 $ 16,154,438 $ 46,117,661 $ 71,296,711 $ 242,324,155 -19- PALM DESERT REDEVELOPMENT AGENCY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the year ended June 30, 2010 Net change in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the costs of those assets are allocated over their estimated useful lives as a depreciation expense. This is the amount by which capital assets deletions and depreciation ($3,664,486) exceeded capital assets addition ($3,039,204) in the current period. The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when the debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. These amounts are the net effect of theses differences in the treatment of long-term debt and related items: Principal payments Capital accretion Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds: Net change in accrued interest for the current period The cost of issuing bonds is recognized as an expenditure in the period paid, however, in the Statement of Net Assets, the deferred charges are amortized over the life of the bonds. Premium on bonds is recognized as a revenue in the period received, however in the Statement of Net Assets it is amortized over the life of the bond. Losses on defeased bonds are recorded in the Statement of Net Assets as a reduction to long-term liabilities and amortized over the life of the bonds. Revenue will not be collected within 60 days of the Agency's fiscal year end and, therefore, are not considered available in the governmental funds: Interest not received on development disposition agreement. Change in net assets of governmental activities See independent auditors' report and notes to basic financial statements. $ 14,267,707 (1,515,681) Exhibit F $ (17,061,747) (625,282) 12,752,026 (50,312) (506,524) 475,703 (122,715) (723) $ (5,139,574) -20- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Basis of Presentation: Government -Wide Financial Statements The government -wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the activities of the Agency. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges for support. The Palm Desert Redevelopment Agency has no business -type activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for the governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. Fund Financial Statements The accounting system of the Agency is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self -balancing accounts that constitute its assets, liabilities, fund equity, revenues and expenditures. An emphasis is placed on major funds within the governmental category. A fund is considered major if total assets, liabilities, revenues or expenditures of that individual governmental fund are at least 10% of the corresponding total for all funds of that category or type. See independent auditors' report. -21- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): a. Basis of Presentation (Continued): Fund Financial Statements (Continued) The funds of the Agency are described below: Governmental Fund Types: Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue resources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Debt Service Funds - Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term obligation principal, interest and related costs. Capital Projects Funds - Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities. The Agency's major governmental funds are as follows: The Low and Moderate Income Housing Special Revenue Fund is used to account for the tax increment set -aside to be spent on projects that benefit low and moderate -income families. Project Area 1 Debt Service Fund is used to account for the tax increment revenues and expenditures of Project Area 1. Project Area 2 Debt Service Fund is used to account for tax increment revenues and expenditures of Project Area 2. Project Area 4 Debt Service Fund is used to account for tax increment revenues and expenditures of Project Area 4. The Financing Authority Debt Service Fund is used to account for the resources and payment of the debt issued by the Palm Desert Financing Authority and loaned to the Redevelopment Agency. See independent auditors' report. -22- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): a. Basis of Presentation (Continued): Fund Financial Statements (Continued) Major Governmental Funds (Continued) Project Area 2 Capital Project Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities in Project Area 2. b. Measurement Focus and Basis of Accounting: Measurement Focus Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. On the government -wide statement of net assets and the statement of activities, activities are presented using the economic resources measurement focus. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the government are reported. In the fund financial statements, all governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balances (net current assets) are considered a measure of "available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Noncurrent portions of long-term receivables due to governmental funds are reported on their balance sheets, in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources" since they do not represent net current assets. Noncurrent portions of long-term receivables are offset by fund balance reserve accounts. See independent auditors' report. - 23 - PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): b. Measurement Focus and Basis of Accounting (Continued): Basis of Accounting Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. In the government -wide statement of net assets and statement of activities, the governmental activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or soon enough thereafter to pay current liabilities. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. Revenues that are susceptible to accrual include property taxes that are levied for and due for the fiscal year and collected within 60 days after year-end. Property taxes, rents and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. c. Investments: Investments are stated at fair value (quoted market price or the best available estimate thereof). d. Property Held for Resale: The Agency purchased land within the Agency's project area. The land held for resale is recorded in the Redevelopment Agency Special Revenue Fund as property held for resale, at the lower of acquisition cost or net realizable value. At June 30, 2010, the cost of the property held for resale for various housing properties in Palm Desert totaled $855,224. See independent auditors' report. -24- 1 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): e. Prepaid Items and Deposits: Certain payments to vendors reflect costs applicable to future accounting periods are recorded as prepaid items in the government -wide and fund financial statements. The Agency has $26,813 of miscellaneous prepaid items. f. Property Tax Calendar: Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien Date Levy Date Due Date Delinquent Date January 1 July 1 to June 30 November 1 - 1 st Installment March 1 - 2nd Installment December 10 - 1 st Installment April 10 - 2nd Installment Under California law, property taxes are assessed and collected by the counties up to 1 % of assessed value, plus other increases approved by the voters. The property taxes go into a pool, and are then allocated to the agencies based on complex formulas prescribed by the state statutes. g. Capital Assets and Depreciation: Capital assets are reported in the government -wide financial statements. Capital assets are defined by the Agency as assets with an initial cost of more than $500 and an estimated life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The Agency had no infrastructure assets. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. See independent auditors' report. -25- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): g. Capital Assets and Depreciation (Continued): Property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives: Buildings 40 years Improvements other than buildings 20 years Machinery and equipment 5 to 8 years h. Long -Term Obligations: In the government -wide financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. i. Fund Equity: In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. See independent auditors' report. -26- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): j. Explanation of differences between Governmental Funds Balance Sheets and the Statement of Net Assets: Long -Term Debt Total Capital Transactions/ Reclassifications Statement Governmental Related Interest and of Net Funds Items Payable Eliminations Assets Assets: Cash and investments $ 144,529,949 $ - $ - $ - $ 144,529,949 Restricted cash with fiscal agent 149,878,702 - - - 149,878,702 Receivables 9,923,249 - - - 9,923,249 Advances to other funds 17,821,288 - - (17,821,288) - Property held for resale 855,224 - - - 855,224 Prepaid items and deposits 26,813 - - - 26,813 Deferred charges - - 9,697,225 - 9,697,225 Capital assets - 157,525,805 - - 157,525,805 Total Assets 323,035,225 157,525,805 9,697,225 (17,821,288) 472,436,967 Liabilities: Accounts payable 1,621,826 - - - 1,621,826 Accrued liabilities 124,054 - - - 124,054 interest payable - - 5,135,113 - 5,135,113 Deposits payable 411,069 - - - 411,069 Advances to other funds 17,821,288 - - (17,821,288) - Unearned revenue 18,160 - - - 18,160 Deferred revenue 36,493 - - (36,493) - Amounts due under pass -through agreements 60,678,180 - - - 60,678,180 Long-term liabilities - current - - 14,747,707 - 14,747,707 Long-term liabilities - noncurrent - - 402,663,580 - 402,663,580 Total Liabilities 80,711,070 - 422,546,400 (17,857,781) 485,399,689 Net Assets (Deficit) $ 242,324,155 $157,525,805 $ (412,849,175) $ 36,493 $ (12,962,722) See independent auditors' report. -27- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): k. Explanation of differences between Governmental Funds Operating Statements and the Statement of Activities: Total Capital Long -Term Cost of Reclassifications statement Governmental Related Debt Accrued Issuance/ and of Funds Items Transactions Interest perm amount Eliminations Activities Revenues: Taxes $ 88,068,683 $ $ $ $ $ $ 88,068,683 Intergovernmental 243,294 - 243,294 Investment earnings 1,283,245 (20,667) 1,262,578 Rental income 5,023,770 (4,847,228) 176,542 Charges for services - 4,986,066 4,986,066 Other revenues 1,344,951 (118,894) 1,226,057 Total Revenues 95,963,943 - (723) 95,963,220 Expenditures: Current: General government 39,188,159 3,664,486 (5,023,817) 37,828,828 Payments to other agencies 37,794,435 - - 37,794,435 Apartment complexes - 5,023,817 5,023,817 Capital outlay 3,039,204 (3,039,204) - - Debt service: Interest and fiscal charges 18,736,185 1,515,681 50,312 153,536 20,455,714 Principal retirement 14,267,707 (14,267,707) - - - Total Expenditures 113,025,690 625,282 (12,752,026) 50,312 153,536 101,102,794 Other Financing Sources (Uses): Transfers in 53,514,787 - - - (53,514,787) - Transfers out (53,514,787) 53,514,787 Total Other Financing Sources (Uses) - - - Net Change in Fund Balance $ (17,061,747) $ (625,282) $12,752,026 $ (SQ312) $ (153,536) $ (723) $ (LI39,574) See independent auditors' report. -28- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): 1. Budgetary Accounting: The Agency uses the following procedures in establishing its budgetary data reported in the financial statements: Before the beginning of the fiscal year, the Executive Director submits to the Board of Directors a proposed budget for the year commencing the following July 1. 2. Public hearings are conducted to obtain taxpayer comments. 3. The Budget is subsequently adopted through passage of a resolution. 4. Original appropriations are modified by supplementary appropriations and transfers among budget categories. The Board approves all significant changes. Annual appropriations lapse at year-end. 5. Encumbrances and Continuing Appropriations are rebudgeted as of July 1 by Board action. They are reported as reservations of fund balance in the fund -level financial statements. 6. Formal budgetary integration is employed as a management control device during the year for the Special Revenue and Capital Projects Funds. Formal budgetary integration is not employed for Debt Service Funds because effective budgetary control is alternatively achieved through debt indenture provisions. 7. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Budgetary data for the Special Revenue Funds and Capital Projects Funds are not presented herein, as the budgets for these funds are long-term in nature. m. Relationship to the City of Palm Desert: The Palm Desert Redevelopment Agency is an integral part of the reporting entity of the City of Palm Desert, California. The funds of the Agency have been included within the scope of the basic financial statements of the City because the City Council of the City of Palm Desert exercises oversight responsibility over the operations of the Agency. Only the funds of the Agency are included herein and these financial statements, therefore, do not purport to represent the financial position or results of operations of the City of Palm Desert. See independent auditors' report. -29- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): n. Use of Estimates: The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and, accordingly, include amounts that are based on management's best estimates and judgments. The financial statements include estimates for depreciation expense and fair value of investments. Accordingly, actual results could differ from the estimates. 2. ORGANIZATION AND TAX INCREMENT FINANCING: The Agency is a separate governmental entity as prescribed in the California Community Redevelopment law and as set forth in the Health and Safety Code of the State of California. The Agency consists of Project Area 1, Project Area 2, Project Area 3 and Project Area 4. In addition, the Agency and the City of Palm Desert (the City) have established the Palm Desert Financing Authority as a joint power of authority between the Agency and the City for purposes of financing and funding capital improvements. Transactions related to the joint power for the Agency are recorded in a debt service fund. The Palm Desert Housing Authority was established in January 1998, as a component unit of the Agency and is partly responsible for the administration of providing affordable housing in the City of Palm Desert. The apartment complexes are operated by the Authority through a management company. The transactions related to the Housing Authority are reported in a Special Revenue Fund. Agency expenses include capital improvement projects and operating costs which include required staff support and consultant services. The Agency's primary source of revenue comes from property taxes, referred to in the accompanying financial statements as "tax increment revenue." The assessed valuation of all property within each project area was determined on the date of adoption of the Project Area. Except for certain amounts provided by specific agreement (see Note 7), property taxes related to the incremental increase in assessed values after the adoption of the Project Area have been allocated to the Agency, while all property taxes on the "frozen" assessed valuation as of the adoption date have been allocated to the City and other districts. See independent auditors' report. -30- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 3. CASH AND INVESTMENTS: Cash and Investments Cash and investments reported in the accompanying financial statements consisted of the following: Cash and investments pooled with the City $ 141,378,949 Investment in City Bonds 3,151,000 Restricted cash with fiscal agent 149,878,702 $ 294,408,651 Investments Authorized by the California Government Code and the Agency's Investment Policy The Agency is subject to the City's investment policy. Under provision of the City's investment policy and in accordance with the California Government Code, the following investments are authorized: • United States Treasury bills, notes, bonds or certificates of indebtedness • United States government -sponsored enterprise obligations, participations or other instruments • Banker's Acceptances issued by commercial banks • Commercial Paper issued by general corporations • Negotiable Certificates of Deposits, issued by a nationally or state -chartered bank, a savings association, a federal association or by a state -licensed branch of a foreign bank • Time Certificates of Deposit issued by qualified public depositories • Repurchase Agreements sold by authorized brokers • Medium -Term Notes issued by corporations organized and operating in the United States, or by depository institutions operating in the United States and licensed by the United States or by any state • Money Market Mutual Funds that are registered with the SEC under the Investment Act of 1940 • State of California Local Agency Investment Fund (LAIF) that is managed by the State Treasurer's Office • Structured Notes in the form of callable securities or "STRIPS" issued by the United States Treasury, Federal Agencies or government -sponsored enterprises • Local Government Investment Pools See independent auditors' report. -31- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 3. CASH AND INVESTMENTS (CONTINUED): Investments Authorized by the California Government Code and the Agency's Investment Policy (Continued) The City's Investment policy imposes the following restrictions on the maximum percentage it can invest in a single type of investment. Portfolio Issuer Maximum United States Treasury Bills, Notes, Bonds 100% United States Government -Sponsored Enterprise Securities 100% Banker's Acceptances 40% Commercial Paper 25% Negotiable Certificates of Deposit 30% Time Certificates of Deposit 15% Repurchase Agreements 20% Medium -Term Corporate Notes 30% Money Market Mutual Funds 20% Local Agency Investment Fund (LAIF) $50M/Acct Structured Notes (STRIPS) 20% Local Government Investment Pools 30% N/A - Not Applicable Single Issuer Maximum N/A 30% 30% 10% N/A N/A N/A 5% N/A N/A N/A N/A The City's policy is more conservative than state law, which has no issuer concentration limits on federal agency debt. The federal agency debt that the City purchases have implied credit ratings of 'AAA/Aaa' . Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the Agency's investment policy. See independent auditors' report. -32- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 3. CASH AND INVESTMENTS (CONTINUED): Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Agency 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. Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Agency's investment of $3,151,000 in City of Palm Desert Bonds are not rated, while investments held by bond trustee of $147,287,068 consist of $66,381,033 in money market mutual funds, which are rated AAA by Standard and Poor's and $80,906,035 in LAIF which is not rated. The Agency also reports $2,591,634 in restricted cash with fiscal agent for the Housing Authority which consists of $2,112,833 investment in CAMP (local government investment pool) which is rated AAA by Standards and poor's, $22,126 invested with LAIF which is not rated and $456,675 in deposits which are not subject to credit risk. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker -dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the Agency's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure the Agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. See independent auditors' report. -33- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 3. CASH AND INVESTMENTS (CONTINUED): Disclosures Related to Interest Rate Risk, Credit Risk and Custodial Credit Risk: The Agency's cash and investments are pooled with the City of Palm Desert's cash and investments. Additional disclosures regarding $141,378,949 pooled investments related to interest rate risk, credit risk and custodial credit risk are available in the City of Palm Desert's Comprehensive Annual Financial Report. The Agency's investment of $3,151,000 in the City of Palm Desert Bonds is due as follows: (1) within 12 months or less $101,000, (2) between 13 and 24 months $447,000, and (3) over 24 months $2,603,000. The restricted cash and investments held by the bond trustee and Housing Authority consist of investments in money market mutual funds, local government investment pools and demand deposits and are not subject to interest rate risk. 4. LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES: Receivables consisted of the following at June 30, 2010: Accounts Interest Loans Accounts Interest Loans Special Revenue Fund Low and Moderate Debt Service Funds Income Project Project Project Financing Housing Area 1 Area 2 Area 4 Authority $ 125,666 $ 142,800 $ 54,587 $ 35,624 $ - 71,366 - - - 14,509 7,328,010 - - - - 7,525,042 _ 142,800 5 ,587 35,624 14,509 Capital Projects Fund Project Area 2 1,644 1, Other Governmental Funds $ 67,334 481,709 1,600,000 2,149,043 Total Governmental Receivables $ 426,011 569,228 8,928,010 —S 9,923,27U— See independent auditors' report. -34- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 4. LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES (CONTINUED): Loans Receivable a. A loan receivable for the construction of a multi -family affordable housing development dated June 14, 2001, with a balance of $7,298,547 is due from the Palm Desert Development Company. The loan is secured by a Deed of Trust, with assignment to property, rent and fixtures on the housing development located in Palm Desert. Interest is earned and due annually at a rate of 1% per annum from the date on which the final certificate of occupancy is issued. Principal on the loan is based on the applicable agency's percentage of positive net cash flow derived from the operations of the Development. b. The Agency has $29,463 in home improvement loans. Payments of interest and principal are due monthly on these loans. c. On April 21, 2003, the Agency entered into a loan agreement with The Regents of the University of California, on behalf of its Riverside Campus, to loan various amounts over a period of time, not to exceed an aggregate amount of $2,000,000. Proceeds of the loan are to be used for capital improvements at the University's Riverside Campus. The outstanding principal balance and interest on the note is due in five annual payments beginning July 15, 2009. As of June 30, 2010, the amount outstanding on the loan was $1,600,000. d. The Agency has issued loans for several other projects, all of which are secured by a deed of trust. A valuation allowance equal to the loan balance has been recognized where there is a significant possibility that these loans either become uncollectible or forgiven by the Agency at a future date if all the terms of the loans have been met. See independent auditors' report. - 35 - PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 4. LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES (CONTINUED): Detailed information for these loans is as follows: Loans Receivable Loan Balance Interest Maturity Project Name Outstanding Rate Date Secured By Special Provisions of Loan Self -Help $ 429,000 7.25% 30 years Deed of Trust Loan balance and interest due upon maturity, Housing Program or 2024 unpaid balance of loan or interest will bear an interest rate of 12%. Home Improvement 218,346 N/A N/A Deed of Trust Loans Portola Palms 149,040 3.00% 30 years Deed of Trust Mobilehome Park from date of loan Desert Rose 2,257,521 3.00% 30 - 45 years' Deed of Trust from date of loan Falcon Crest 5,888,423 3.00% 30-45 years Deed of Trust from date of loan Loan is payable upon change or transfer of title, refinancing or upon the death of the borrower. Restrictive convenants are placed against property to maintain affordability for up to 45 years in exchange for favorable loan terms. Loan balance and interest will be forgiven at maturity if debtor does not breach the terms and conditions of either the unit regulatory agreement or note. Loan will be forgiven at maturity unless the debtor is in violation of the unit regulatory agreement or the deed of trust. Loan is payable upon change or transfer of title, refinancing or upon the death of the borrower. Acquisition, 190,510 3.00% 30 - 45 years Deed of Trust Loan is payable upon change or transfer of Rehabilitation, from date Assignment title, refinancing or upon the death of the Resale of loan of Rent borrower. Restrictive convenants are placed against property to maintain affordability for up to 45 years in exchange for favorable loan terms. * All properties acquired from the Redevelopment Agency after June 2009 will have a 45 year restrictive covenant See independent auditors' report. -36- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 4. LOANS, NOTES RECEIVABLE AND DUE FROM OTHER GOVERNMENTAL AGENCIES (CONTINUED): Advances To/From Other Funds Advances From Advances To Amount Low and Moderate Income Housing Debt Service Project Area #1 $ 10,438,131 Low and Moderate Income Housing Debt Service Project Area 92 3,755,605 Low and Moderate Income Housing Other Governmental Funds 970,313 Low and Moderate Income Housing Debt Service Project Area #4 2,657,239 S 17.8 288 The advances from the Low and Moderate Income Housing Fund to the Debt Service Project Areas Funds were made to cover the SERAF payment. The advances have no interest rate. 5. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS: Transfers The composition of interfund transfers as of June 30, 2010, is as follows: Transfers From Special Revenue Funds: Low and Moderate Income Housing Debt Service Funds: Project Area I Project Area 2 Project Area 4 Financing Authority Capital Projects Fund: Project Area 2 Other Governmental Funds Totals Special Revenue Fund Low and Moderate Income Project Housing Area 1 Transfers To Capital Projects Debt Service Funds Fund Project Project Financing Project Area 2 Area 4 Authority Area 2 Other Governmental Funds Total $ - $ 122,178 $ 43,033 $ 31,349 $ 9,082,658 $ - $ 307,339 $ 9,586,557 10,438,133 13,113,577 - 23,551,710 3,755,605 6,061,182 1,040,273 10,857,060 2,657,238 2,512,272 - 79,527 5,249,037 - 791,298 - 791,298 - 256,352 256,352 970,313 - - - 989,702 918,785 343,973 3,222,773 $ 17,821,289 $ 122,178 $ 43,033 $ 31,349 $ 31,759,391 $ 2,750,356 $ 987,191 $ 53,514,787 See independent auditors' report. -37- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 5. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS (CONTINUED): Transfers are used to: 1. move receipts restricted to debt service from the funds collecting the receipts to the debt service funds as debt service payments become due, 2. transfer 20% of tax increments received by RDA Debt Service Funds to the Low and Moderate Income Housing Special Revenue Fund, 3. transfer allocation of administrative expenses, and 4. transfer revenues to provide for capital projects. See independent auditors' report. -38- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 6. CAPITAL ASSETS: A summary of changes in capital assets for the year ended June 30, 2010, is as follows: Balance at July 1, 2009 Transfers Additions Deletions Balance at June 30, 2010 Capital assets, not being depreciated: Land $ 77,129,190 $ - $ 1,064,047 $ (1,055,324) $ 77,137,913 Construction -in -progress 11,833,565 - 1,453,690 - 13,287,255 Total capital assets, not being depreciated 88,962,755 - 2,517,737 (1,055,324) 90,425,168 Capital assets, being depreciated: Buildings 91,626,042 - 511,582 - 92,137,624 Improvements other than buildings 7,312,141 - - - 7,312,141 Machinery and equipment 297,468 - 9,885 (10,830) 296,523 Total capital assets, being depreciated 99,235,651 - 521,467 (10,830) 99,746,288 Less accumulated depreciation for: Buildings (26,547,736) - (2,207,413) - (28,755,149) Improvements other than buildings (3,304,047) - (365,607) - (3,669,654) Machinery and equipment (195,536) - (36,142) 10,830 (220,848) Total accumulated depreciation (30,047,319) - (2,609,162) 10,830 (32,645,651) Capital assets, being depreciated, net 69,188,332 - (2,087,695) - 67,100,637 Capital assets, net - Governmental Activities $158,151,087 $ - $ 430,042 $ (1,055,324) $157,525,805 Depreciation expense of $2,609,162 is reported with general administration expense in the Statement of Activities. See independent auditors' report. -39- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 7. AMOUNTS DUE UNDER PASS -THROUGH AGREEMENTS: Property taxes related to the incremental increase in assessed values after the adoption of the Redevelopment Plan are, except where otherwise provided by specific agreement, allocated to the Agency. All taxes on the "frozen" assessed valuation of the property are allocated to the City and other taxing agencies. The Agency has entered into various pass -through agreements with other tax agencies to allocate their tax increment resulting from the increase in assessed values after the adoption of the Redevelopment Plan. At June 30, 2010, the Agency has an obligation of $60,678,180 to other agencies and entities related to specific pass -through agreements as follows: Balance at Balance at Entity June 30, 2009 Additions Payments June 30, 2010 Riverside County - Capital Improvement $ 19,100,688 * $ 20,693,584 $15,887,409 $ 23,906,863 Riverside County - Schools 820,792 789,297 826,486 783,603 Riverside County - Library 9,789,662 1,849,126 24,558 11,614,230 Riverside County - Fire 3,280,832 3,180,860 3,284,204 3,177,488 Coachella Valley Mosquito Abatement District 676,989 643,523 677,243 643,269 Coachella Valley Water District 9,713,483 1,289,051 30,074 10,972,460 Desert Community College District 1,421,245 1,368,077 1,445,317 1,344,005 Desert Sands Unified School District 6,004,686 * 5,926,865 6,274,284 5,657,267 Coachella Valley Recreation and Park District 511,403 486,412 512,268 485,547 Coachella Valley Resources District 4,743 4,969 4,774 4,938 Palm Springs Unified School District 377,837 376,618 377,837 376,618 County Juvenile Health District 980,811 983,252 914,148 1,049,915 Other Deposits 602,298 313,177 253,498 661,977 $ 53,285,469 $ 37,904,811 $30,512,100 $ 60,678,180 * The Redevelopment Agency has used bond proceeds for the construction of capital improvements, which benefit these entities. These entities have agreements with the Redevelopment Agency, which will allow it to use a portion of these amounts to offset debt service costs. See independent auditors' report. -40- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES: Schedule of Changes The following is a schedule of changes in long-term liabilities of the Agency for the fiscal year ended June 30, 2010: Balance Repayments/ Balance Due Within July 1, 2009 Additions Reductions June 30, 2010 One Year Project Area No. 1 2002A TARRBs, $22,070,000 $ 22,070,000 $ - $ $ 22,070,000 $ - 2003 TARBs, $19,000,000 19,000,000 - - 19,000,000 - 2004A TARRBs, $24,945,000 20,775,000 - 945,000 19,830,000 1,130,000 2006 A & B TARBs, $62,320,000 56,065,000 - . 2,195,000 53,870,000 2,320,000 2007A TARRBs, $32,600,000 28,060,000 - 2,640,000 25,420,000 2,625,000 Advances from City 6,663,940 - 6,663,940 Total $ 152,633,940 $ 10,438,131 $ 5,780,000 $ 146,853,940 $ 6,075,000 Project Area No. 2 2002A TARRBs, $17,310,000 $ 13,355,000 $ - $ 695,000 $ 12,660,000 $ 720,000 2003 TARBs, $15,745,000 15,745,000 - - 15,745,000 - 2006 A-D TARBs, $67,618,213 68,350,021 1,005,564 2,015,000 67,340,585 1,790,000 Advances from City 15,991,060 - - 15,991,060 - County note payable 368,121 - 122,707 245,414 122,707 Total $ 113,809,202 $ 1, 5,564 2,832,707 $ 111,982,059 $ 2,632,707 Project Area No. 3 2003 TARBs, $4,745,000 $ 4,120,000 $ - $ 100,000 $ 4,020,000 $ 105,000 2006 A-C TABs, $15,059,526 15,566,776 216,202 135,000 15,647,978 170,000 Total $ 19,686,776 $ 216,202 $ 235,000 5 19,667,978 $ 275,000 Project Area No. 4 1998 TARBs, $11,02,000 $ 8,355,000 $ - $ - $ 8,355,000 $ 130,000 2001 TARBs, $15,695,000 14,200,000 - 305,000 13,895,000 320,000 2006A TARBs, $19,273,089 19,854,678 293,915 445,000 19,703,593 435,000 Total $ 42,409,678 $ 293,915 $ 750,000 $ 41,953,593 $ 885,000 Combined Low and Moderate Housing 1998 TARBs, $48,760,000 $ 4,385,000 $ - $ 1,390,000 $ 2,995,000 $ 1,460,000 2002 TARBs, $12,100,000 10,610,000 - 275,000 10,335,000 285,000 2007 TARBs, $86,155,000 81,090,000 - 3,005,000 78,085,000 3,135,000 Total $ 96,085,000 $ - $ 4,670,000 $ 91,415,000 5 4,880,000 Total - All Project Areas Bonds payable $ 401,601,475 $ 1,515,681 $ 14,145,000 $ 388,972,156 $ 14,625,000 Advances from City 22,655,000 - - 22,655,000 - County note payable 368,121 122,707 245,414 122,707 Subtotal 424,624,596 1,515,68f 14,2 7,7 7 411,812,5TO 7,707 Add: Unamortized bond premium 7,375,240 475,703 6,899,537 Less: Deferred amount on refunding 1,483,535 - 122,715 1,360,820 Total 430,516,301 $ 17515,681 14,620,695 $ 417,411,287 $ 14,747,707 See independent auditors' report. -41- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): A description of long-term liabilities outstanding (excluding defeased debt) of the Agency as of June 30, 2010, follows: Tax Allocation Bonds Tax Allocation bonds used for capital improvements are special obligations of the Agency and the Financing Authority (a component unit of the Agency) and are secured by an irrevocable pledge of tax revenues and other funds as provided under the Bond Resolution. The bonds and any interest thereon are not a debt of the City, the State of California or any of its political subdivisions, and neither the City, the State of California nor any of its political subdivisions is liable on the bonds, nor in any event shall the bonds and interest thereon be payable out of any funds or properties other than those provided under the Bond Resolution. The Agency purchased insurance from Ambac Assurance Corporation (Ambac) and MBIA Insurance Corporation (MBIA) for the purpose of enhancing the creditworthiness of the bonds. On November 8, 2010, Ambac Financial Group, Inc. ("Ambac Group"), whose principal operating subsidiary, Ambac Assurance Corporation, is a guarantor of public finance and structured finance obligations, announced that it filed for a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). Ambac Group will continue to operate in the ordinary course of business as "debtor -in -possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. On February 18, 2009, MBIA announced the restructuring of its financial guaranty insurance operations into two separately capitalized sister companies, with one entity (MBIA Illinois) assuming the risk associated with its US municipal exposures, and the other (MBIA Corp) insuring the remainder of the portfolio. Subsequent to the restructuring of MBIA, Moody's Ratings assigned ratings to the reinsured municipal securities based on the higher of (a) the insurance financial strength rating of MBIA Illinois, to `Baal'; or (b) the published underlying rating. Subsequent to the restructuring of MBIA, S&P assigned its insurance financial strength rating of MBIA Illinois to `AA -minus'. Effective March 19, 2009, MBIA Illinois was renamed National Public Finance Guarantee Corporation ("NPFGC"). See independent auditors' report. -42- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (continued) Pursuant to California Health and Safety Code Section 33670, the total number of dollars of taxes which may be divided and allocated to the Agency for Project Area No. 1 is $500,000,000, and it is estimated that the cap will be reached in the year 2022. Project Area No. 4's total is $600,000,000, and it is estimated that this cap will be reached in the year 2034. The result of reaching the cap limits would preclude the Agency from receiving taxes and using the taxes to pay debt in these project areas, thereby requiring the Agency to call bonds prior to those dates. As of June 30, 2010, the Agency has transferred $6,273,954 to its trustee to cover debt payments. Standard & Poor's Ratings Services ("Standard & Poor's") has lowered its underlying rating from "A" to "A-" on the following issues of bonds issued by the Authority: (i) the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, as Amended), 2006 Series A (the "2006A Authority Bonds"), (ii) the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as Amended), 2006 Series B (Taxable) (the "2006B Authority Bonds", and together with the 2006A Authority Bonds, the "2006 Authority Bonds"), and (iii) the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as Amended), 2007 Series A (the "2007 Authority Bonds"). See independent auditors' report. - 43 - PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (continued) 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) In March 2002, the Palm Desert Financing Authority issued $22,070,000 of Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) 2002 Series A. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency. A portion of the proceeds of the loan was used to prepay the prior loan, which affected the current refunding of a like portion of the prior bonds. The remainder was used to fund various redevelopment capital projects of the Agency in Project Area No. 1. The bonds consist of $10,905,000 term bonds at 5.00% due April 1, 2025, and $11,165,000 term bonds at 5.10% due April 1, 2030. Interest is payable semi-annually on April 1 and October 1. Mandatory sinking fund redemptions begin April 1, 2024. The future debt service requirements on the 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) are as follows: Year Ending June 30, Principal 2011 $ - 2012 - 2013 - 2014 - 2015 - 2016- 2020 - 2021- 2025 10,905,000 2026 - 2030 11,165,000 $ 22,070,000 See independent auditors' report. -44- Interest Total $ 1,114,665 $ 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 1,114,665 5,573,325 5,573,325 5,334,325 16,239,325 1,764,855 12,929,855 $ 18,245,830 $ 40,315,830 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Series 2003 Tax Allocation Revenue Bonds (Project Area No. 1) In July 2003, the Financing Authority issued $19,000,000 Tax Allocation Revenue Bonds (Project Area No. 1 as Amended) Series 2003. The proceeds of the bonds were disbursed to make a loan to the Redevelopment Agency. The Agency used the proceeds of the loan to fund various redevelopment capital projects of the Agency and to finance costs of issuance of the bonds. The bonds bear interest at 5.0%. They consist of $7,050,000 serial bonds with principal payments due in 2026 and 2027, and $11,950,000 term bonds due in 2030. Interest will be payable on April 1 and October 1, of each year, beginning April 1, 2004. Principal payments will be on April I of the years stated above. The future debt service requirements on the 2003 Series Tax Allocation Revenue Bonds (Project Area No. 1) are as follows: Year Ending June 30, Principal Interest Total 2011 $ - $ 950,000 $ 950,000 2012 - 950,000 950,000 2013 - 950,000 950,000 2014 - 950,000 950,000 2015 - 950,000 950,000 2016 - 2020 - 4,750,000 4,750,000 2021 - 2025 - 4,750,000 4,750,000 2026 - 2030 19,000,000 2,942,500 21,942,500 $ 19,000,000 $ 17,192,500 $ 36,192,500 See independent auditors' report. -45- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) 2004 Series A Tax Allocation Refunding Revenue Bonds (Project Area No. 1 as Amended) In June 2004, the Palm Desert Financing Authority issued $24,945,000 of Tax Allocation Refunding Revenue Bonds (Project Area No. 1 as Amended) 2004 Series A. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to refinance a portion of the Agency's obligations from 1995 and to fund various redevelopment capital projects within or of benefit to the project area. Interest rates on the bonds vary from 3.0% to 5.0% per annum payable semi-annually on April 1 and October 1. Principal payments will be made annually beginning April 1, 2005. The future debt service requirements on the 2004 Series A Tax Allocation Revenue Bonds (Project Area No. 1, as amended) are as follows: Year Ending June 30, Principal Interest Total 2011 $ 1,130,000 $ 927,063 $ 2,057,063 2012 1,050,000 876,213 1,926,213 2013 1,155,000 828,963 1,983,963 2014 1,210,000 776,988 1,986,988 2015 1,235,000 728,588 1,963,588 2016 - 2020 7,015,000 2,763,826 9,778,826 2021 - 2025 7,035,000 1,043,200 8,078,200 $ 19,830,000 $ 7,944,841 $ 27,774,841 See independent auditors' report. - 46 - PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Tax Allocation Revenue Bonds (Project Area No. 1, as Amended) 2006 Series A and Series B Taxable On July 6, 2006, the Palm Desert Financing Authority issued $37,780,000 of Tax Allocation Revenue Bonds (Project Area No. 1, as Amended) 2006 Series A and $24,540,000 of Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as Amended) 2006 Series B (Taxable). The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A loan will be used to assist the Agency to fund various redevelopment capital projects within or of benefit to Project Area No. 1, as Amended, pay costs of issuance and pay the premium on a Reserve Fund surety bond. The proceeds of the Series B loan will be used to refinance the Agency's obligations incurred under a loan agreement entered into in 1997, pay costs of issuance and pay the premium on a Reserve Fund surety bond. The Series A bonds consist of $26,415,000 Serial Bonds with interest rates ranging from 4.70% to 5.25% payable semiannually on October 1 and April 1. Bond maturities begin April 1, 2017, and continue annually through 2030. Term bonds in the amount of $11,365,000 carry an interest rate of 5.00% and mature April 1, 2022. The Series B bonds consist of $13,220,000 Serial Bonds with interest rates ranging from 5.56% to 5.77% payable semiannually on October 1 and April 1. Bond maturities began April 1, 2007, and continue annually through 2012. Term bonds in the amount of $11,320,000 carry an interest rate of 5.82% and mature April 1, 2016. The future debt service requirements on the 2006 Series A and Series B Tax Allocation Revenue Bonds (Project Area No. 1, as amended) are as follows: Year Ending June 30, Principal 2011 $ 2,320,000 2012 2,450,000 2013 2,595,000 2014 2,745,000 2015 2,905,000 2016 - 2020 15,430,000 2021 - 2025 21,015,000 2026 - 2030 4,410,000 $ 53,870,000 See independent auditors' report. -47- Interest Total $ 2,848,266 $ 5,168,266 2,714,634 5,164,634 2,573,269 5,168,269 2,422,240 5,167,240 2,262,482 5,167,482 9,229,753 24,659,753 3,542,788 24,557,788 348,035 4,758,035 $ 25,941,467 $ 79,811,467 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) 2007 Series A On January 9, 2007, the Palm Desert Financing Authority issued $32,600,000 Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) 2007 Series A. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the 2007 Loan will be used to refinance a portion of the outstanding obligations of the Redevelopment Agency, fund various redevelopment capital projects within the Palm Desert Redevelopment Agency Project Area No. 1, as amended, and pay the costs associated with the issuance of the bonds. The Series A bonds consist of $32,600,000 Serial Bonds with interest rates ranging from 3.50% to 5.00% payable semiannually on October 1 and April 1. Bond maturities began April 1, 2008 and continue annually through 2018. The future debt service requirements on the 2007 Series A Tax Allocation Refunding Revenue Bonds (Project Area No. 1, as amended) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2018 Principal $ 2,625,000 2,870,000 2,955,000 3,100,000 3,230,000 10,640,000 $ 25,420,000 See independent auditors' report. -48- $ 1,201,625 1,083,500 940,000 794,500 686,000 1,078,500 $ 5,784,125 Interest Total $ 3,826,625 3,953,500 3,895,000 3,894,500 3,916,000 11,718,500 $ 31,204,125 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No. 2) In July 2002, the Palm Desert Financing Authority issued $17,310,000 of Tax Allocation Refunding Revenue Bonds (Project Area No. 2). The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency to prepay outstanding indebtedness and to fund various redevelopment capital projects within or of benefit to the project area. Interest rates on the bonds vary from 3.0% to 5.0% per annum payable semi-annually on February 1 and August 1. The future debt service requirements on the 2002 Series A Tax Allocation Refunding Revenue Bonds (Project Area No. 2) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2023 Principal $ 720,000 760,000 795,000 835,000 870,000 5,010,000 3,670,000 $ 12,660,000 See independent auditors' report. -49- Interest $ 581,497 548,638 509,763 472,353 436,113 1,533,734 281,250 $ 4,363,348 Total $ 1,301,497 1,308,638 1,304,763 1,307,353 1,306,113 6,543,734 3,951,250 $ 17,023,348 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Series 2003 Tax Allocation Revenue Bonds (Project Area No. 2) In March 2003, the Palm Desert Financing Authority issued $15,745,000 of Tax Allocation Revenue Bonds (Project Area No. 2) Series 2003. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency to fund various redevelopment capital projects of the Agency in Project Area No. 2. Interest rates on the bonds vary from 4.5% to 5.0% per annum payable semi-annually on February 1 and August 1, with principal maturing as follows: $ 875,000 Serial Bonds August 1, 2023 910,000 Serial Bonds August 1, 2024 2,485,000 Term Bonds August 1, 2026 11,475,000 Term Bonds August 1, 2033 The future debt service requirements on the 2003 Series Tax Allocation Revenue Bonds (Project Area No. 2) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2034 Principal 1,785,000 6,915,000 7,045,000 $ 15,745,000 See independent auditors' report. -50- Interest $ 769,006 769,006 769,006 769,006 769,006 3,845,030 3,765,494 2,663,192 726,625 $ 14,845,371 Total $ 769,006 769,006 769,006 769,006 769,006 3,845,030 5,550,494 9,578,192 7,771,625 $ 30,590,371 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Project Area No. 2 Tax Allocation Refunding Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B, Revenue Bonds 2006 Series C and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series D On July 25, 2006, the Palm Desert Financing Authority issued its Project Area No. 2, $41,340,000 Tax Allocation Refunding Revenue Bonds 2006 Series A, $1,567,118 Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B, $7,775,000 Tax Allocation Revenue Bonds 2006 Series C and $16,936,095 Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series D. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A, B and C Bonds will be used to make three loans to refinance the Agency's obligations incurred under a loan agreement entered into in 1995, fund various redevelopment capital projects within or of benefit to its Project Area No. 2, purchase a Reserve Fund surety policy bond and pay costs of issuance of the bonds. The Agency will use the proceeds of the Series D Bonds to fund various redevelopment capital projects within or of benefit to the Project Area, fund a debt service reserve fund and pay cost of issuance of the bonds. The Series A bonds consist of $16,250,000 Serial Bonds with interest rates ranging from 4.00% to 5.00% payable semiannually on August 1 and February 1. Bond maturities begin August 1, 2007, and continue annually through 2026. Term bonds in the amount of $8,225,000 carry an interest rate of 4.90% and mature August 1, 2031. Term bonds in the amount of $16,865,000 carry an interest rate of 5.125% and mature August 1, 2036. The Series B bonds consist of $1,567,118 Capital Appreciation Bonds with a reoffering yield ranging from 3.85% to 4.08%. Bond maturities begin April 1, 2007, and continue annually through 2010. The Series C bonds consist of $3,950,000 Serial Bonds with interest rates ranging from 3.90% to 4.90% payable semiannually on August 1 and February 1. Bond maturities begin August 1, 2010, and continue annually through 2026. Term bonds in the amount of $1,910,000 carry an interest rate of 4.90% and mature August 1, 2031. Term bonds in the amount of $1,915,000 carry an interest rate of 5.00% and mature August 1, 2035. The Series D bonds consist of $16,936,095 Capital Appreciation Bonds with a reoffering yield ranging from 4.65% to 6.10%. Bond maturities began August 1, 2007, and continue annually through 2035. Each year the outstanding balance is increased for the accretion of interest associated with the bonds. The accreted interest at June 30, 2010, is $3,629,194. See independent auditors' report. -51- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Project Area No. 2 Tax Allocation Refunding Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B. Revenue Bonds 2006 Series C and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series D (Continued) The debt service requirements schedules on the 2006 Series A Tax Allocation Refunding Revenue Bonds, Series B Tax Allocation Revenue Capital Appreciation Bonds, Series C Revenue Bonds and Series D Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) do not agree to the liability for those bonds shown in the schedule of changes. These bond issues include capital appreciation bonds, which are issued at a discount. The carrying amount of these bonds accretes, or increases each year. The amount shown in the schedule of changes include the accreted value to date. The future debt service requirements are as follows: Year Ending June 30, Principal 2011 $ 1,547,001 2012 1,647,818 2013 1,808,558 2014 1,880,353 2015 1,949,239 2016 - 2020 7,490,552 2021 - 2025 10,454,379 2026 - 2030 11,799,082 2031 - 2035 15,396,513 2036 - 2037 9,737,896 See independent auditors' report. $ 63,711,391 Interest Total $ 2,589,956 $ 4,136,957 2,561,720 4,209,538 2,628,779 4,437,337 2,681,585 4,561,938 2,733,786 4,683,025 12,445,214 19,93 5,766 14,017,066 24,471,445 13,051,939 24,851,021 10,589,477 25,985,990 2,184,947 11,922,843 $ 65,484,469 $ 129,195,860 -52- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Series 2003 Tax Allocation Revenue Bonds (Project Area No. 3) In July 2003, the Financing Authority issued $4,745,000 Tax Allocation Revenue Bonds (Project Area No. 3) Series 2003. The proceeds of the bonds were disbursed to make a loan to the Redevelopment Agency. The Agency will use the proceeds of the loan to fund various redevelopment capital projects within or of benefit to the project area and to finance costs of issuance of the bonds. The bonds bear interest at rates ranging from 3.000% to 5.125%. Principal maturities for the serial bonds of $2,475,000 began April 1, 2004, and continue through October 1, 2031. The term bonds in the amount of $2,270,000 are due in 2033. The future debt service requirements on the 2003 Series Tax Allocation Revenue Bonds (Project Area No. 3) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2033 Principal $ 105,000 110,000 115,000 120,000 120,000 690,000 860,000 1,100,000 800,000 $ 4,020,000 See independent auditors' report. - 53 - $ 189,848 186,225 182,265 177,953 173,272 787,135 618,411 379,250 83,281 $ 2,777,640 Interest Total $ 294,848 296,225 297,265 297,953 293,272 1,477,135 1,478,411 1,479,250 883,281 $ 6,797,640 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Project Area No. 3 Tax Allocation Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series C On July 25, 2006, the Palm Desert Financing Authority issued its Project Area No. 3, $11,915,000 Tax Allocation Revenue Bonds 2006 Series A, $383,660 Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B and $2,760,866 Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series C. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A and B Bonds will be used to make two loans to fund various redevelopment capital projects within or of benefit to its Project Area No. 3, purchase a Reserve Fund surety policy and pay the costs of issuance of the bonds. The Agency will loan the proceeds of the Series C Bonds to fiind various redevelopment capital projects within or of benefit to the Project Area, fund a debt service reserve fund and pay the costs of issuance of the bonds. The Series A bonds consist of $2,980,000 Serial Bonds with interest rates ranging from 4.00% to 4.75% payable semiannually on April 1 and October 1. Bond maturities begin April 1, 2007, and continue annually through 2025. Term bonds in the amount of $4,465,000 carry an interest rate of 4.75% and mature April 1, 2036. Term bonds in the amount of $4,470,000 carry an interest rate of 5.00% and mature April 1, 2041. The Series B bonds consist of $383,660 Capital Appreciation Bonds with a yield ranging from 5.31% to 5.54%. Bond maturities are April 1, 2020, 2021, 2027 and 2028. The Series C bonds consist of $2,760,866 Capital Appreciation Bonds with a yield ranging from 4.80% to 6.10%. Bond maturities began April 1, 2009, and continue annually through 2034. Each year the outstanding balance is increased for the accretion of interest associated with the bonds. The accreted interest at June 30, 2010, is $776,564. See independent auditors' report. -54- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Project Area No. 3 Tax Allocation Revenue Bonds 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 2006 Series B and Subordinate Tax Allocation Revenue Capital Appreciation Bonds 2006 Series C (Continued) The future debt service requirements on the 2006 Series A Tax Allocation Revenue Bonds, Series B Tax Allocation Revenue Capital Appreciation Bonds and Series C Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2035 2036 - 2040 2041 Principal $ 160,871 198,934 228,133 254,760 285,721 1,614,190 1,916,677 1,941,143 3,030,985 4,255,000 985,000 $ 14,871,414 See independent auditors' report. -55- $ 570,204 562,141 565,742 571,715 578,154 3,217,255 3,721,092 4,153,207 3,515,965 903,075 49,250 $ 18,407,800 Interest Total $ 731,075 761,075 793,875 826,475 863,875 4,831,445 5,637,769 6,094,350 6,546,950 5,158,075 1,034,250 $ 33,279,214 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) 1998 Series Tax Allocation Revenue Bonds (Project Area No. 4) On March 1, 1998, the Palm Desert Financing Authority issued $11,020,000 of Tax Allocation Revenue Bonds (Project Area No. 4) Series 1998. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to fund various redevelopment capital projects of the Agency in Project Area No. 4. Interest rates on the bonds vary from 4.0% to 5.2% per annum payable semi- annually on April 1 and October 1, with principal maturing annually on October 1. In July 2006 $1,785,000 of the outstanding balance was advance refunded by the issuance of Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A. The future debt service requirements on the 1998 Series Tax Allocation Revenue Bonds (Project Area No. 4) (after defeasance) are as follows: Year Ending June 30, Principal Interest Total 2011 $ 130,000 $ 426,665 $ 556,665 2012 135,000 420,635 555,635 2013 140,000 414,240 554,240 2014 145,000 407,506 552,506 2015 360,000 394,973 754,973 2016 - 2020 2,070,000 1,674,728 3,744,728 2021 - 2025 2,680,000 1,063,140 3,743,140 2026 - 2029 2,695,000 288,990 2,983,990 $ 8,355,000 $ 5,090,877 $ 13,445,877 See independent auditors' report. -56- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) 2001 Series Tax Allocation Revenue Bonds (Project Area No. 4) In November 2001, the Palm Desert Financing Authority issued $15,695,000 of Tax Allocation Revenue Bonds (Project Area No. 4) Series 2001. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to fund various redevelopment capital projects of the Agency in Project Area No. 4. Interest rates on the bonds vary from 3.5% to 4.9% per annum payable semi- annually on April 1 and October 1, with principal maturing annually on October 1. The future debt service requirements on the 2001 Series Tax Allocation Revenue Bonds (Project Area No. 4) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2032 Principal 320,000 325,000 345,000 365,000 375,000 2,150,000 2,670,000 4,125,000 3,220,000 $ 13,895,000 See independent auditors' report. -57- 639,909 628,011 614,805 599,909 584,038 2,648,851 2,091,529 1,357,320 156,480 $ 9,320,852 Interest Total 959,909 953,011 959,805 964,909 959,038 4,798,851 4,761,529 5,482,320 3,376,480 $ 23,215,852 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A and Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) Series B On July 25, 2006, the Palm Desert Financing Authority issued $14,610,000 of Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A and $4,663,089 of Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency. The proceeds of the Series A and B Bonds will be used to make two loans to refinance a portion of the outstanding obligations of the Redevelopment Agency under a loan agreement dated March 1, 1998, fund various redevelopment capital projects within or of benefit to its Project Area No. 3, purchase a Reserve Fund surety policy and pay the costs of issuance of the bonds. The Series A bonds consist of $8,155,000 Serial Bonds with interest rates ranging from 4.40% to 5.00% payable semiannually on October 1 and April 1. Bond maturities began October 1, 2008, and continue annually through 2026. Term bonds in the amount of $2,200,000 carry an interest rate of 5.00% and mature October 1, 2029. Term bonds in the amount of $4,255,000 carry an interest rate of 5.00% and mature October 1, 2034. The Series B bonds consist of $4,663,089 Capital Appreciation Bonds with a yield ranging from 4.14% to 5.56%. Bond maturities begin October 1, 2010 and continue annually through 2034. Each year the outstanding balance is increased for the accretion of interest associated with the bonds. The accreted interest at June 30, 2010, is $1,070,001. See independent auditors' report. -58- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A and Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) Series B (Continued) The future debt service requirements on the 2006 Series A Tax Allocation Refunding Bonds and Series B Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2035 Principal $ 435,000 554,233 656,190 779,182 718,718 1,453,205 2,778,326 4,495,323 6,763,415 $ 18,633,592 See independent auditors' report. -59- Interest $ 662,658 657,612 651,686 635,195 599,477 2,716,225 2,947,368 3,545,510 8,823,461 $ 21,239,192 Total $ 1,097,658 1,211,845 1,307,876 1,414,377 1,318,195 4,169,430 5,725,694 8,040,833 15,586,876 $ 39,872,784 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) 1998 Series Tax Allocation (Housing Set -Aside) Revenue Bonds In January 1998, the Palm Desert Financing Authority issued $48,760,000 in Tax Allocation (Housing Set -Aside) Revenue Bonds. The proceeds from the bonds were loaned to the Palm Desert Redevelopment Agency to finance the acquisition of seven apartment complexes consisting of 725 rental units from the Housing Authority of the County of Riverside. Interest rates on the bonds vary from 4.0% to 5.1 % per annum payable semi-annually on April 1 and October 1 with principal maturing annually on October 1. In February 2007 $38,740,000 of the outstanding balance was advance refunded by the issuance of Tax Allocation (Housing Set -Aside) Refunding Revenue Bonds Series 2007. The future debt service requirements on the 1998 Series Tax Allocation (Housing Set -Aside) Revenue Bonds (after defeasance) are as follows: Year Ending June 30, Principal Interest Total 2011 1,460,000 113,250 1,573,250 2012 1,535,000 38,375 1,573,375 $ 2,995,000 $ 151,625 $ 3,146,625 See independent auditors' report. -60- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) 2002 Series Tax Allocation (Housing Set -Aside) Revenue Bonds In August 2002, the Palm Desert Financing Authority issued $12,100,000 of Tax Allocation (Housing Set -Aside) Revenue Bonds Series 2002. The Palm Desert Financing Authority loaned the bond proceeds to the Palm Desert Redevelopment Agency to fund various low and moderate housing capital projects of the Agency and to finance costs of issuance of the bonds. Interest rates on the $6,555,000 serial bonds vary from 2.0% to 4.9% per annum payable semi-annually on March 1 and October 1. Annual principal payments begin October 1, 2003. The $5,545,000 term bonds bear an interest rate of 5.0% per annum and mature October 1, 2031. The future debt service requirements on the 2002 Series Tax Allocation (Housing Set -Aside) Revenue Bonds are as follows: Year Ending June 30, 2011 2012 2013 2014 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2032 See independent auditors' report. Principal $ 285,000 295,000 305,000 320,000 330,000 1,890,000 2,390,000 3,065,000 1,455,000 $ 10,335,000 -61- Interest $ 481,298 470,201 458,348 445,848 432,848 1,934,347 1,436,798 762,125 73,625 $ 6,495,438 Total $ 766,298 765,201 763,348 765,848 762,848 3,824,347 3,826,798 3,827,125 1,528,625 $ 16,830,438 PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. 'LONG-TERM LIABILITIES (CONTINUED): Tax Allocation Bonds (Continued) Tax Allocation (Housing Set -Aside) Refunding Revenue Bonds Series 2007 On February 7, 2007, the Palm Desert Financing Authority issued $86,155,000 Tax Allocation (Housing Set -Aside) Refunding Revenue Bonds Series 2007. The Palm Desert Financing Authority loaned the proceeds to the Palm Desert Redevelopment Agency. The proceeds of the 2007 Loan will be used to finance the development of low and moderate income housing by the Redevelopment Agency, refinance a portion of the outstanding obligations of the Redevelopment Agency, purchase a debt service surety bond for deposit in the Reserve Fund, and pay certain costs associated with the issuance of the bonds. The Series 2007 bonds consist of $86,155,000 Serial Bonds with interest rates ranging from 4.00% to 5.00% payable semiannually on October 1 and April 1. Bond maturities began October 1, 2007 and continue annually through 2027. The future debt service requirements on the Tax Allocation (Housing Set -Aside) Refunding Revenue Bonds Series 2007 are as follows: Year Ending June 30, Principal Interest Total 2011 3,135,000 3,606,438 6,741,438 2012 3,265,000 3,478,438 6,743,438 2013 5,005,000 3,313,038 8,318,038 2014 5,235,000 3,082,063 8,317,063 2015 5,505,000 2,813,563 8,318,563 2016 - 2020 32,050,000 9,533,188 41,583,188 2021 - 2025 13,895,000 3,788,675 17,683,675 2026 - 2028 9,995,000 649,294 10,644,294 $ 78,085,000 $ 30,264,697 $ 108,349,697 Advances from City The City of Palm Desert has made advances to the Agency to finance capital projects in the following amounts: (a) $6,663,940 for Project Area No. 1 and $15,991,060 for Project Area No. 2. These advances do not have a fixed repayment schedule. See independent auditors' report. -62- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 8. LONG-TERM LIABILITIES (CONTINUED): Notes Payable County of Riverside The Agency entered into a cooperation agreement with the County of Riverside (the County) on December 15, 1987, regarding the adoption of the Agency's Project Area No. 2. The agreement states that the Agency was to retain 50% of the County's share of tax increment. This was based on the County's share of tax increment being what would be allocated to the County in the absence of a redevelopment project area being adopted. This agreement called for the Agency to retain 50% of the County's share until the gross increment reached $3,500,000. The agreement further states that when gross increment reaches $10,000,000 that the Agency would repay the 50% of the retained County's share of increment in equal payments over a 10-year period. The gross increment reached the $3,500,000 limit in fiscal year 1991-1992. The Agency reached the $10,000,000 limit in fiscal year 2002-2003. The total amount owed to the County at June 30, 2010, was $368,121. Annual payments on the note are $122,707. Future debt service payments are as follows: Year Ending June 30, Principal 2011 $ 122,707 2012 122,707 $ 245,414 See independent auditors' report. Interest Total $ 122,707 122,707 $ 245,414 -63- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) 9. RESERVES OF FUND BALANCES: Loans receivable Property held for resale Prepaid items and deposits Encumbrances Continuing appropriations Advances Reserve requirement Totals June 30, 2010 Special Revenue Fund Low and Moderate Income Housing $ 7,328,010 855,224 243,423 9,517,625 17,821,288 Capital Proj ects Fund Other Project Governmental Area 2 Funds 1,885,151 20,250,960 $ 1,600,000 26,813 1,607,171 42,162,148 - - 36,366 $ 35,765,570 $ 22,136,111 $ 45,432,498 Total $ 8,928,010 855,224 26,813 3,735,745 71,930,733 17,821,288 36,366 $ 103,334,179 Reserved for Loans Receivables - These reserves are set up to reflect the noncurrent portion receivables so that they will not be considered as current funds available. Reserved for Property Held for Resale - This reserve for property held for resale has been set aside to indicate that it will not be considered as current funds available. Reserved for Prepaid Items and Deposits - These reserves are set up to reflect the noncurrent portion of the deposits so that they will not be considered as current funds available. Reserved for Encumbrances - These reserves represent the portion of purchase orders awarded for which the goods or services had not yet been received at June 30, 2010. Although all appropriations lapse at year-end, even if encumbered, the City intends either to honor the contracts in progress or to cancel them. Encumbrances are rebudgeted on July 1, by Council action. Reserved for Continuing Appropriations - This reserve is for appropriations for capital projects that are unexpended as of June 30, 2010, and are carried forward as continuing appropriations to be expended in 2010-2011. Reserved for Advances - These reserves are set up to indicate that these funds will not be considered as current funds available. Reserved for Reserve Requirement - These reserves are set up for the maintenance requirements for the housing apartments. See independent auditors' report. -64- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 10. CONDUIT DEBT OBLIGATION: 2003 Series A - $22,310,000 Lease Revenue Bonds In December 2003, the Palm Desert Financing Authority (Authority) issued $22,310,000 in Lease Revenue Bonds. The proceeds of the Bonds were used to: a) finance the construction of a County animal shelter and related facilities located in the unincorporated area of Thousand Palms, California; b) finance construction of certain County medical clinic facilities located in Mecca, California; c) refund the Palm Desert Financing Authority Lease Revenue Bonds Series 1996; d) acquire a debt service reserve insurance policy; e) fund capitalized interest on the bonds; and f) pay costs of issuance of the bonds. The Authority will lease sites relating to each project from the County of Riverside (County) pursuant to a Site Lease dated as of December 1, 2003, and will lease back to the County the Sites and the Facilities pursuant to a Facilities Lease dated December 1, 2003. Under the Lease, the County will pay to the Trustee Base Rental Payments in the amount equal to the scheduled debt service of the Bonds. The Authority will assign its right to receive the Base Rental Payments to the Trustee for the benefit of the owners of the bonds. The debt service on the bonds is to be paid solely from lease payments made by the County. The Authority has no obligation to make the debt service payments in the event that the County is not able to make the required base rental payments. As of June 30, 2010, the outstanding amount was $19,185,000. 2008 Series A - $72,445,000 Lease Revenue Bonds In November 2008, the Palm Desert Financing Authority (Authority) issued $72,445,000 in Lease Revenue Bonds. The proceeds of the Bonds were used to: a) finance the construction, installation, acquisition, development and rehabilitation of certain public capital improvements within the County, including the Palm Desert Sheriff's Station Facilities (as described herein), community centers, a multi -service center, park improvements and other various infrastructure improvements; b) fund capitalized interest on the 2008 Series A Bonds related to the Palm Desert Sheriff Station Facilities through August 31, 2010 and with respect to the Multi -Service Center Facilities (as described herein) through December 31, 2009; c) fund a deposit into the Reserve Account as additional security for the 2008 Series A Bonds; and d) pay certain costs associated with the issuance and delivery of the 2008 Series A Bonds. Under the Lease, the County will pay to the Trustee Base Rental Payments in the amount equal to the scheduled debt service of the Bonds. The Authority will assign its right to receive the Base Rental Payments to the Trustee for the benefit of the owners of the bonds. The debt service on the bonds is to be paid solely from lease payments made by the County. The Authority has no obligation to make the debt service payments in the event that the County is not able to make the required base rental payments. As of June 30, 2010, the outstanding amount was $70,510,000. See independent auditors' report. -65- PALM DESERT REDEVELOPMENT AGENCY NOTES TO BASIC FINANCIAL STATEMENTS (CONTINUED) June 30, 2010 11. INSURANCE: The Agency is covered under the City of Palm Desert's insurance. For additional information, see the City's financial statements. 12. COMMITMENTS AND CONTINGENCIES: SERAF Contingency: SERAF Contributions for the Fiscal Years 2009-2010 and 2010-2011 Pursuant to AB 26 4x, a budget trailer bill, California redevelopment agencies were required to make SERAF contributions totaling $1.7 billion for the fiscal year 2009-2010 and $350 million for the fiscal year 2010-2011. Under AB 26 4x, agencies may borrow a portion of the required contributions from their low and moderate income housing fund. Alternatively, sponsoring governmental agencies (the cities or counties) may elect to pay the SERAF contributions on behalf of their redevelopment agencies. On October 20, 2009, the CRA filed a class action lawsuit in behalf of all California redevelopment agencies, again challenging the SERAF obligations as unconstitutional. On May 13, 2010, the Superior Court found in favor of the State relative to the class action suit. The Agency's SERAF contributions for fiscal year 2009-2010 was $25,526,215. The Agency borrowed funds from the low and moderate income housing fund to make this payment. The Agency's SERAF contribution for fiscal year 2010-2011 will be $5,225,397. See independent auditors' report. -66- SUPPLEMENTARY INFORMATION -67- Schedule 1 PALM DESERT REDEVELOPMENT AGENCY COMBINING BALANCE SHEET - OTHER GOVERNMENTAL FUNDS June 30, 2010 Total Special Debt Capital Other Revenue Service Projects Governmental Fund Fund Funds Funds ASSETS: Cash and investments $ 1,474,601 $ 6,912,926 $ 5,472,433 $ 13,859,960 Restricted cash with fiscal agent 2,591,634 - 58,986,607 61,578,241 Accounts receivable 4,813 17,530 44,991 67,334 Interest receivable 30 - 481,679 481,709 Notes receivable - - 1,600,000 1,600,000 Prepaid costs and deposits - - 26,813 26,813 TOTAL ASSETS $ 4,071,078 $ 6,930,456 $ 66,612,523 $ 77,614,057 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 152,652 $ - $ 589,341 $ 741,993 Accrued liabilities 43,755 - 49,513 93,268 Deposits payable 395,569 - 15,000 410,569 Unearned revenues 11,364 - - 11,364 Advances due to other funds - 970,313 - 970,313 Amounts due pass -through agreement - 4,089,839 - 4,089,839 TOTAL LIABILITIES 603,340 5,060,152 653,854 6,317,346 FUND BALANCES: Reserved for: Encumbrances 78,998 - 1,528,173 1,607,171 Notes receivable - - 1,600,000 1,600,000 Continuing appropriations 3,352,374 - 38,809,774 42,162,148 Reserve requirement 36,366 - - 36,366 Prepaid costs and deposits - - 26,813 26,813 Unreserved, designated for: Debt service - 1,870,304 - 1,870,304 Capital projects - - 23,993,909 23,993,909 TOTAL FUND BALANCES 3,467,738 1,870,304 65,958,669 71,296,711 TOTAL LIABILITIES AND FUND BALANCES $ 4,071,078 $ 6,930,456 $ 66,612,523 $ 77,614,057 See independent auditors' report. -68- Schedule 2 PALM DESERT REDEVELOPMENT AGENCY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS REVENUES: Taxes Intergovernmental Investment earnings Rental income Other revenues TOTAL REVENUES EXPENDITURES: Current: General government Payments to other agencies Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out For the year ended June 30, 2010 Total Special Debt Capital Other Revenue Service Projects Governmental Fund Fund Funds Funds $ - $ 4,796,609 $ - $ 4,796,609 - - 243,294 243,294 19,944 20,907 481,558 522,409 4,847,228 - 173,475 5,020,703 118,894 - 8,120 127,014 4,986,066 4,817,516 906,447 10,710,029 5,030,676 1,044,024 4,991,373 11,066,073 - 2,213,071 - 2,213,071 654,731 - 1,243,282 1,898,013 5,685,407 3,257,095 6,234,655 15,177,157 (699,341) 1,560,421 (5,328,208) (4,467,128) 10,991 976,200 987,191 (2,063,432) (1,159,341) (3,222,773) TOTAL OTHER FINANCING SOURCES (USES) - (2,052,441) (183,141) (2,235,582) NET CHANGE IN FUND BALANCES (699,341) (492,020) (5,511,349) (6,702,710) FUND BALANCES - BEGINNING OF YEAR 4,167,079 2,362,324 71,470,018 77,999,421 FUND BALANCES - END OF YEAR $ 3,467,738 $ 1,870,304 $ 65,9584669 $ 71,296,711 See independent auditors' report. -69- PALM DESERT REDEVELOPMENT AGENCY BALANCE SHEET - OTHER GOVERNMENTAL FUND SPECIAL REVENUE ASSETS: Cash and investments Restricted cash with fiscal agent Accounts receivable Interest receivable TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable Accrued liabilities Deposits payable Unearned revenue TOTAL LIABILITIES FUND BALANCES: Reserved for: Encumbrances Continuing appropriations Reserve requirement TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCES See independent auditors' report. June 30, 2010 Schedule 3 Housing Authority Totals $ 1,474,601 $ 1,474,601 2,591,634 2,591,634 4,813 4,813 30 30 $ 4,071,078 $ 4,071,078 $ 152,652 $ 152,652 43,755 43,755 395,569 395,569 11,364 11,364 603,340 603,340 78,998 78,998 3,352,374 3,352,374 36,366 36,366 3,467,738 3,467,738 $ 4,071,078 $ 4,071,078 -70- PALM DESERT REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUND SPECIAL REVENUE For the year ended June 30, 2010 REVENUES: Investment earnings Rental income Other revenues TOTAL REVENUES EXPENDITURES: Current: General government Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES FUND BALANCES - BEGINNING OF YEAR FUND BALANCES - END OF YEAR See independent auditors' report. Schedule 4 Housing Authority Totals $ 19,944 $ 19,944 4,847,228 4,847,228 118,894 118,894 4,986,066 4,986,066 5,030,676 5,030,676 654,731 654,731 5,685,407 5,685,407 (699,341) (699,341) 4,167,079 4,167,079 $ 3,467,738 $ 3,467,738 -71- PALM DESERT REDEVELOPMENT AGENCY BALANCE SHEET - OTHER GOVERNMENTAL FUND DEBT SERVICE ASSETS:. Cash and investments Accounts receivable TOTAL ASSETS LIABILITIES AND FUND BALANCES LIABILITIES: Advances due to other funds Amounts due pass -through agreement TOTAL LIABILITIES FUND BALANCES: Unreserved, designated for: Debt service TOTAL FUND BALANCES TOTAL LIABILITIES AND FUND BALANCES See independent auditors' report. June 30, 2010 Schedule 5 Project Area 3 Totals $ 6,912,926 $ 6,912,926 17,530 17,530 $ 6,930,456 $ 6,930,456 $ 970,313 $ 970,313 4,089,839 4,089,839 5,060,152 5,060,152 1,870,304 1,870,304 1,870,304 1,870,304 $ 6,930,456 $ 6,930,456 -72- PALM DESERT REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUND DEBT SERVICE For the year ended June 30, 2010 REVENUES: Taxes Investment earnings EXPENDITURES: Current: General government Payments to other agencies TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out TOTAL OTHER FINANCING SOURCES (USES) NET CHANGE IN FUND BALANCES FUND BALANCES - BEGINNING OF YEAR FUND BALANCES - END OF YEAR See independent auditors' report. Schedule 6 Proj ect Area 3 Totals $ 4,796,609 $ 4,796,609 20,907 20,907 4,817,516 4,817,516 1,044,024 1,044,024 2,213,071 2,213,071 3,257,095 3,257,095 1,560,421 1,560,421 10,991 10,991 (2,063,432) (2,063,432) (2,052,441) (2,052,441) (492,020) (492,020) 2,362,324 2,362,324 $ 1,870,304 $ 1,870,304 -73- Schedule 7 PALM DESERT REDEVELOPMENT AGENCY COMBINING BALANCE SHEET - OTHER GOVERNMENTAL FUNDS CAPITAL PROJECTS June 30, 2010 Project Project Project Area 1 Area 3 Area 4 Totals ASSETS: Cash and investments $ 936,454 $ 2,808,529 $ 1,727,450 $ 5,472,433 Restricted cash with fiscal agent 18,460,143 18,431,472 22,094,992 58,986,607 Accounts receivable 44,991 - - 44,991 Interest receivable 376,166 21,095 84,418 481,679 Notes receivable - - 1,600,000 1,600,000 Prepaid costs and deposits 26,813 - - 26,813 TOTAL ASSETS $ 19,844,567 $ 21,261,096 $ 25,506,860 $ 66,612,523 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 520,045 $ 51,353 $ 17,943 $ 589,341 Accrued liabilities 49,513 - - 49,513 Deposits payable - - 15,000 15,000 TOTAL LIABILITIES 569,558 51,353 32,943 653,854 FUND BALANCES: Reserved: Encumbrances 491,129 500,000 537,044 1,528,173 Notes receivable - - 1,600,000 1,600,000 Continuing appropriations 14,598,011 10,839,182 13,372,581 38,809,774 Prepaid costs and deposits 26,813 - - 26,813 Unreserved, designated for: Capital projects 4,159,056 9,870,561 9,964,292 23,993,909 TOTAL FUND BALANCES 19,275,009 21,209,743 25,473,917 65,958,669 TOTAL LIABILITIES AND FUND BALANCES $ 19,844,567 $ 21,261,096 $ 25,506,860 $ 66,612,523 See independent auditors' report. -74- Schedule 8 PALM DESERT REDEVELOPMENT AGENCY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - OTHER GOVERNMENTAL FUNDS CAPITAL PROJECTS REVENUES: Intergovernmental Investment earnings Rental income Other revenues TOTAL REVENUES EXPENDITURES: Current: General government Capital outlay TOTAL EXPENDITURES EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out For the year ended June 30, 2010 Project Project Project Area 1 Area 3 Area 4 Totals $ 243,294 $ - $ - $ 243,294 121,374 143,555 216,629 481,558 91,615 - 81,860 173,475 8,120 - - 8,120 464,403 143,555 298,489 906,447 4,456,055 144,209 391,109 4,991,373 1,112,184 - 131,098 1,243,282 5,568,239 144,209 522,207 6,234,655 (5,103,836) (654) (223,718) (5,328,208) 793,255 103,418 79,527 976,200 (918,785) (45,969) (194,587) (1,159,341) TOTAL OTHER FINANCING SOURCES (USES) (125,530) 57,449 (115,060) (183,141) NET CHANGE IN FUND BALANCES (5,229,366) 56,795 (338,778) (5,511,349) FUND BALANCES - BEGINNING OF YEAR 24,504,375 21,152,948 25,812,695 71,470,018 FUND BALANCES - END OF YEAR $ 19,275,009 $ 21,209,743 $ 25,473,917 $ 65,958,669 See independent auditors' report. -75- PALM DESERT REDEVELOPMENT AGENCY COMBINING BALANCE SHEET HOUSING AUTHORITY SPECIAL REVENUE FUND June 30,2010 Complexes Laguna Catalina Desert Las One Capital Palms Gardens Pointe Serenas Neighbors Quail Pueblos ASSETS: Cash and investments S 1,474,601 S $ $ - $ - S - $ $ Restncted cash with fiscal agent 2,134,922 20,948 25,792 21,042 49,357 9,410 227,377 4,620 Accounts receivable - 175 - 356 854 70 281 11 Interest receivable 30 Due from other apartment 972,143 5,576,345 - TOTAL ASSETS $ 3,609,553 $ 21,123 $ 25,792 $ 21,398 $ 1,022,354 $ 9,480 $ 5,804,003 $ 4,631 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 4,163 $ 5,447 $ 6,391 $ 11,363 $ 10,196 $ 1,499 $ 36,331 $ 911 Management fee payable 1,680 2,518 2,191 5,249 840 13,404 526 Accrued payroll 1,851 2,737 3,157 3,866 1,005 20,922 740 Security deposits payable 20,748 25,492 20,892 49,007 9,360 167,694 4,620 Unearned revenue 277 591 413 490 296 7,771 Due to other apartment - 1,013,786 254,996 441,639 - 241,478 - 337,175 TOTAL LIABILITIES 4,163 1,043,789 292,725 479,655 68,808 254,478 246,112 343,972 FUND BALANCES (DEFICffS): Reserved: Encumbrances 78,998 - Continuing appropriations 3,352,374 Reserve requirement fund - Low income purposes 174,018 (1,022,666) (266,933) (458,257) 953,546 (244,998) 5,557,891 (339,341) TOTALFUND BALANCES (DEFICITS) 3,605,390 (1,022,666) (266,933) (458,257) 953,546 (244,998) 5,557,891 (339,341) TOTAL LIABILITIES AND FUND BALANCES $ 3,609,553 $ 21,123 $ 25,792 $ 21,398 $ 1,022,354 $ 9,480 $ 5,804,003 $ 4,631 See independent auditors' report. .76- Schedule 9 Complexes (Continued) _ California Country Palm Total Combined Combined Villas Taos Village Village Candlewood La Rocca Sage Crest Complexes Total Reclassification Total $ $ - $ $ _ $ _ $ - $ $ $ 1,474,601 $ $ 1,474,601 54,542 3,150 17,000 8,556 10,200 4,718 456,712 2,591,634 2,591,634 2,478 144 - 444 - 4,813 4,813 4,813 - - 30 30 - - - - 6,548,488 6,548,488 (6,548,488) $ 57,020 S 3,150 $ $ 17,144 $ 8,556 $ 10,644 S 4,718 $ 7,010,013 $ 10,619,566 $ (6,548,488) $ 4,071,078 S 10,196 $ 1,775 $ S . $ 24,705 $ 2,451 $ 1,829 $ 113,094 $ 117,257 $ $ 117,257 4,690 359 1,109 1,054 910 865 35,395 35,395 35,395 4,098 667 1,465 1,216 937 1,094 43,755 43,755 43,755 54,292 3,100 16,950 8,556 10,200 4,668 395,569 395,569 395,569 851 5 479 131 29 31 11,364 11,364 11,364 2,835,116 337,856 365,436 48,808 453,491 27,824 190,983 6,548,488 6,548,488 (6,548,488) - 2,909,243 343,762 365,436 68,811 489,153 42,351 199,370 7,147,665 7,151,828 (6,548,488) 603,340 _ - - - 78,998 78,998 3,352,374 3,352,374 36,366 36,366 36,366 36,366 (2,852,223) (340,612) (365,436) (88,033) (480,597) (31,707) (194,652) (174,018) - - (2,852,223) (340,612) (365,436) (51,667) (480,597 (31,707) (194,652) (137,652) 3,467,738 3,467,738 S 57,020 $ 3,150 S - S 17,144 S 8,556 $ 10,644 $ 4,718 $ 7.010,013 $ 10,619,566 $ (6,548,488) S 4,071,078 77. PALM DESERT REDEVELOPMENT AGENCY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES HOUSING AUTHORITY SPECIAL REVENUE FUND June 30,2010 Complexes Laguna Catalina Desert Las One Capital Palms Gardens Pointe Serenas Neighbors Quail Pueblos REVENUES: Rental income $ $ 211,806 $ 278,820 $ 246,637 $ 678,822 $ 94,600 $ 2,154,678 $ 48,532 Other revenues 118,894 Investment earnings 19,944 TOTAL REVENUES 138,838 211,806 278,820 246,637 678,822 94,600 2,154,678 48,532 EXPENDITURES: Current: Payroll - 66,197 119,166 114,364 155,885 33,754 764,582 30,486 Administrative 48,076 80,204 156,356 180,571 277,631 77,442 864,384 35,050 Management 13,889 37,212 52,951 $7,903 31,771 340,699 12,204 Maintenance 19,845 30,030 26,560 62,020 9,870 162,465 7,415 Capital outlay 654,731 - - - - TOTAL EXPENDITURES 702,807 180,135 342,764 374,446 583,439 152,837 2,132,130 85,155 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (563,969) 31,671 (63,944) (127,809) 95,383 (58,237) 22,548 (36,623) FUND BALANCES (DEFICITS) - BEGINNING OFYEAR 4,169,359 (1,054,337) (202,989) (330,448) 858,163 (186,761) 5,535,343 (302,718) FUND BALANCES (DEFICITS) - END OF YEAR $ 3,605,390 $ (1,022,666) $ (266,933) $(458,257) $ 953,546 $(244,998) $ 5,557,891 $(339,341) See independent auditors' report. .78. Schedule 10 Complexes (Continued) California Country Palm Total Combined Combined Villas Taos Village Village Candlewood La Rocca Sage Crest Complexes Total Reclassification Total $ 615,574 $ 21,389 $ $ 185,937 $ 110,976 $ 131,597 $ 67,860 $ 4,847,228 $ 4,847,228 $ $ 4,947,228 118,894 118,894 - 19,944 19,944 615,574 21,389 185,937 110,976 131,597 67,860 4,847,228 4,986,066 4,986,066 186,728 24,799 50,367 52,250 35,228 44,093 1,677,899 1,677,899 1,677,899 233,444 49,563 44,799 80,025 45,796 39,213 2,164,478 2,212,554 2,212,554 52,050 14,579 12,016 34,113 7,906 14,641 711,934 711,934 711,934 57,535 4,520 15,120 12,600 11,235 9,074 428,289 428,289 428,289 - - 654,731 654,731 529,757 93,461 122,302 178,988 100,165 107,021 4,982,600 5,685,407 5,685,407 85,817 (72,072) 63,635 (68,012) 31,432 (39,161) (135,372) (699,341) (699,341) (2,938,040) (268,540) (365,436) (115,302) 412,585 (63,139) 155,491 (2,280) 4,167,079 4,167,079 $ (2,852,223) $(340,612) $(365,436) $ (51,667) $(480,597) $ (31,707) $ (194,652) $ (137,652) $ 3,467,738 $ $ 3,467,738 -79- Schedule 11 PALM DESERT REDEVELOPMENT AGENCY COMPUTATION OF LOW AND MODERATE HOUSING EXCESS SURPLUS FUNDS July 1, 2009 Excess Surplus in the Low and Moderate Income Housing Fund is any unexpended or unencumbered amount that exceeds the greater of either $1,000,000 or the aggregate amount deposited in the Low and Moderate Income Housing Fund during the preceding four fiscal years. It is computed at the beginning of the fiscal year to which it relates. OPENING FUND BALANCE - JULY 1, 2009 LESS UNAVAILABLE AMOUNTS: Encumbrances Loans and notes receivable Property held for resale Reserve requirement Unspent bond proceeds AVAILABLE LOW/MODERATE INCOME HOUSING FUNDS LIMITATION (GREATER OF $1,000,000 OR FOUR YEARS SET -ASIDE): Set -aside for last four years: 2008 - 2009 $ 18,235,620 2007 - 2008 18,141,322 2006 - 2007 16,573,467 2005 - 2006 15,404,798 TOTAL SET -ASIDE FOR LAST FOUR YEARS $ 68,355,207 Base limitation $ 1,000,000 GREATER AMOUNT COMPUTED EXCESS SURPLUS - JULY 1, 2009 See independent auditors' report. Tax Increment Deposits to Housing Fund $ 75,181,866 251,297 7,475,884 465,834 27,285 25,571,421 41,390,145 68,355,207 -80- DIEHL, EVANS & COMPANY, LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS 5 CORPORATE PARK, SUITE 100 IRVINE, CALIFORNIA 92606-5165 (949) 399-0600 • FAX (949) 399-0610 www.diehlevans.com MICHAEL R LUDIN, CPA CRAIG W. SPRAKER, CPA NrM P. PATBL, CPA ROBERT J. CALLANANI CPA •PHILIP R HOLTKAMP, CPA *THOMAS M. PERLOWSKI, CPA •HARVEYJ.SCHROEDER,CPA KENNETH R AMES, CPA WILLIAM C. PENTZ, CPA November 29, 2010 'A PROFESSIONAL CORPORATION INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the City Council Palm Desert Redevelopment Agency Palm Desert, California We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the Palm Desert Redevelopment Agency (the Agency) as of and for the year ended June 30, 2010, which collectively comprise the Agency's basic financial statements and have issued our report thereon dated November 29, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Agency's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Agency's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Agency's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Agency's financial statements will not be prevented, or detected and corrected on a timely basis. -81- OTHER OFFICES AT: 2965 ROOSEVELT STREET 613 W. VALLEY PARKWAY, SUITE 330 CARLSBAD, CALIFORNIA 92008-2389 ESCONDIDO, CALIFORNIA 92025-2598 (760) 729-2343 • FAX (760) 729-2234 (760) 741-3141 • FAX (760) 741-9890 Internal Control Over Financial Reporting(Continued) Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Agency's financial statements are free of material misstatements, 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. Such provisions included those provisions of laws and regulations identified in the Guidelines For Compliance Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants. 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. This report is intended solely for the information and use of the Palm Desert Redevelopment Agency Directors and management of the Palm Desert Redevelopment Agency and the State Controller's Office, Division of Accounting and Reporting and is not intended to be and should not be used by anyone other than these specific parties. -82-