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04. Year-end financial report 2008ADMINISTRATIVE SEF:VICES DEPARTMENT I~ I CITY HALL 10300 TORRE AVENUE: • CUPERTiNO, CA 95014-3202 C O P E RT I N O (408) 777-3220 • FAX (~'~08) 777-3109 SUMMARY Agenda Item No_ ~__ Meeting Date: December 16, 2008 SUBJECT AND ISSUE Accept the City's year-end financial reports for 2007-08. BACKGROUND Staff is pleased to present to the City Council the following financial reports for the fiscal year ended June 30, 2008. • Comprehensive Annual Financial Report • Redevelopment Agency Basic Component Unit Financial Statements • Transportation Development Act Program Financial Statements • Memorandum on Internal Control and Required Communications • Independent Accountant's Report for the City's Investment Policy • Compliance with the Proposition 1 11 201)7-08 Appropriations Limit Increment • The Redevelopment Agency's annual ref~ort to State Controller • Development Impact Fee Report Except for the last two items, the above were either audited or issued liy the City's certified public accountants, Maze and Associates, and all reports were discussed with the Audit Con~niittee. The auditors have given a good opinion on the financial statements and the controls associated with producing the information_ The Comprehensive Annual Financial Report will be given to the Governmental Finance Officers Association for consideration of the Certificate of Achievement Award. RECOMMENDATION Accept the City's year-end fmancial reports for x!007-08. Submitted by: David Woo '~ Finance Director Approved for submission: c ~~ r %id~~aPP Cite Manager a-i Year-end financial reports for 2007-08 December 16, 2008 Page 2 of 2 Reviewed by: ~~~ Carol A. Atwood Director of Administrative Services Attachments 4-2 CITY OF CUPERTINO REDEVELOPMENT AGENCY BASIC COMPONENT U1~TIT FINANCIAI~ STATEMENTS FOR TFiE YEAR ENDED JUNE 30, 2008 4-3 CITY OF CUPERTINO REDEVELOPMENT AGENCY Basic Component Unit Financial Statements For The Year Endecl June 30, 2008 - -- TABLE OF CCINTENTS PaEe Independent Auditors' Report .............•---•---------------•----•-~---------------------•--•-•-----•--..........--•-•--......................1 Management's Discussion And Analysis .............................•-----..-......-........------------••---••------•-------..-.....---3 Component Unit Financial Statements: Agency-Wide Financial Statements: Statement of Net Assets ................•----•---•-•----..__..........---•-----•-•--•--....._..-..-.......--•----•-•--............... 10 Statement of Activities ............................................................................................................... 1 1 Fund Financial Statements: Balance Sheet ..............................•-------------•-•---.............._..................................:..............--••-----._ ] 4 Statement of Revenues, Expenditures, and Changes in Fund Balances ...................................15 Statement of Revenues, Expenditures, and Changes in Fund Balance -Budget and Actual: Cupertino Square Redevelopment Special Revenue Fund ...............................................16 Low and Moderate Income Housing Special Revenue Fund .................... ....................... 17 Notes to Component Unit Financial Statements ..............................................................................19 Report On Compliance And On Internal Control Over Financial Reporting Based On An Audit Of Financial Statemennts Performed In Accordance With Government Auditin;; Standards ...................................................25 Schedule of Prior Year Findings -•---.._..-•---••------••-•-----•--------•=----------• ...........................•-_.....:......•--------•-_.27 4-5 MAZE Sc ASSOCIATES ACCOUNTANCY CORPORATION 3478 BusKiIJV; Ave_ -Suite 275 Pleasanf HiI/, Ca/ifomia 94523 (925) 930-0902 • FAX (925) 930-0135 INDEPENDENT AUD:["i'ORS' REPORT maze CaJmazeassociatas.com www. mazeassocia tes. com Members of the Governing Board Cupertino Redevelopment Agency Cupertino, California: We have audited the accompanying basic component unit financial statements of governmental activities, and each major fund, of the Cupertino Redevelopment .Agency (Agency), a component unit of the City of Cupertino, as of and for the year ended June 30, 2008, as listed in the table of contents. These financial statements are the responsibility of the Agency's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatemen#. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financier[ statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fnanci~il statement presentation. We believe that our audit provides a reasonable basis for our opinion_ In our opinion, the financial statements referred to above present fairly in all material respects, the_ respective financial position of governmental activi ies and each major fund, of the Cupertino Redevelopment Agency as of June 30, 2008 and the results of its operations for the year then ended, in conformity with generally accepted accounting principles in the United States of America_ In accordance with Government Auditing Standards, we; have also issued our report dated September 19, 2008 on our consideration of the City of Cupertino's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of ghat 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 St~mdards and should be considered in assessing the results of our audit. Management's Discussion and Analysis is required by the Government Accounting Standards Board, but is not part of the financial statements. We have applie~j certain limited procedures to this information, principally inquiries of management regarding the methods of measurement and presentation of .this information, but we did not audit this information and we express no opinion on it. September 19, 2008 a-~ A Profasslonal Corporation 1 MANAGEMENT'S DISCUSSION AND ANALYSIS - This discusses the City of Cupertino Redevelopment .Agency's financial performance. Please read this document in conjunction with the accompanying Basic +~omponent Unit Financial Statements. As a component unit of the City ,of Cupertino, the Agency's purpose is to eliminate blight in the Cupertino Square Redevelopment Project Area, while ensuring an adequate stock of low and moderate income housing in the City. The project area encompasses the Cupertino Square (formerly Vallco) shopping center and the "Rose Bow!" site south of the nnall_ The Agency can issue debt payable out of the property tax growth expected to result from the redevelopment of the project area. The Agency may enter into development agreements with developers and others to further its purposes. Twenty-five percent of the taxes generated are earmarked for low and moderate income housing. 2007-OS FINANCLAL HIGHLIGHTS Highlights include the following: Agency-wide: Agency total assets amounted to $199,867, a 1:~% increase from the prior year total of $176,338. • 'Agency liabilities totaled $267,238; an increase of $5,543 from the prior year. • The Agency's accumulated deficit stood at $67,371 for June 30, 2008, an improvement of $17,986 from the prior year. • Agency-wide revenues consisted of $227,048 in property taxes and interest. • Agency-wide expenses were $209,062, consisting of non-housing community development activities. Fund Level: • The Cupertino Square Redevelopment Fund's fund balance deficit increased to $267,238 at June 30, 2008, up from a $223,376 deficit at June 30, 2007. • Redevelopment Fund tax revenues of $165,200 represented an 1 8% increase from last year's $140,456. Expenditures climbed 36% from $153,874 in 2006-07 to $209,062 in 2007-08. • Low and Moderate Income Housing Fund tax and interest revenues increased to $61,848 in fiscal 2007-08, up 19°/u from the prior year level of $:12,175. OVERVIEW OF THE BASIC CONIPONENT UNIT FINANCIAL'STATEMENTS This report is in two parts: 1) Management's Discussion and Analysis (this part), and 2) The Basic Component Unit Financial Statements, which include the Agency-wide and the Fund Financial Statements, along with the notes to the: statements. The Basic Component Unit Financial Statements The Basic Component Unit Financial Statements comprise the Agency-wide Financial Statements and the Fund Financial Statements. These two sets of financial statements provide two different views of the Agency's financial activities and financial position-long-term and short-term. 4-9 ~4gency-wide Financial Statements The Agency-wide Financial Statements provide along-term view of the Agency's activities as a whole, and comprise the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets provides information about the financial position of the Agency, including all its capital assets and long- term liabilities on the full accrual basis, similar to that used by private enterprises_ The Statement of Activities provides information about all the Agency's revenues and all its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses of each of the Agency's programs. The Statement of Activities explains in detail the change in Net Assets for the year. All' of the Agency's services are considered to be governmental activities, consisting of community development services. General Agency revenues such as property tax increments support these services. Fund Financial Statements The Fund Financial Statements report the Agency's operations in more detail than the Agency-wide statements and focus on the short-term activities of the Agency's major funds. The Fund Financial Statements are on the modified accrual basis, which means -they measure only current financial resources and .uses such as current revenues and expenditures; current assets, current liabilities and fund balances. They exclude capital and other long-lived assets, long-term debt and other long-term liabilities. The entity's only two funds are considered major funds and are presented individually since these funds account for all financial activities of the Agency. The Cupertino Square Redevelopment Fund serves as its general fund, and is always a major fund. The second fund is the Low and Moderate Income Housing Fund, which the Agency elects to show as a major fund. The funds are discussed further in the Analysis of Major Funds section. Comparisons of budget and actual information are presented as part of the Basic Component Unit Financial Statements. FINANCIAL ACTIVITIES OF TIIE AGENCY AS A WHOLE This analysis focuses on the net assets and changes in net assets of the Agency as a whose, .as presented in the Agency-wide Statement of Net Assets and Statement of Activities. Governmental Activdies Table 1 shows that the Agency's accumulated deficit decreased from $85,357 at June 30, 2007 to $67,371 at June 30, 2008. The accumulated deficit is a result of expenditures incurred by the Agency in the establishment and development of the project area over its first eight years, during which incremental property tax revenues have been minimal. Advances totaling $263,324 from the City of Cupertino have been required to finance the start up costs for the Agency. The advances from the City are repayable from future tax increment revenues, which come from property taxes #hat are levied by the County annually and apportioned to the Agency. The advance balance inched higher by $4,612 during the year. The cash position of the Agency improved $23,529. Housing fund cash rose $61,848 to end up at $199,867. The project area's cash balance decreased $38,319 and ended up at zero by the end of the year. a-io 4 Table 1 Governmental Net .assets at June 30 Cash and investments Total assets Accrued payroll and benefits Advance from City of Cupertino Total liabilities Net assets: Restricted for low and moderate income housing Unrestricted deficit Total net assets (accumulated deficit) 2008 2007 $199,867 $176,338 199,867 176,338 3,914 2,983 263,324 258,712 267,238 261,695 199,867 13 8,019 (267,238) (223,376) ($67,371) ($85,357) As shown in Table 2 on the next page, the Agency has experienced rises in net assets the past two years because property valuation growth has caused tax revenues to exceed redevelopment and planning costs. If development of the project area becomes more int..ense, the additional tax revenues will allow the Agency to payback the City advance, issue bonds, and E~rovide capital for economic improvement. Table 2 Governmental Activities Change in Governmental Net Assets 2007-08 Expenses Community development $209.062 Total expenses 209.062 Revenues General revenues; Taxes: Increments[ property tax 220,267 Investment income 6.781 Total general revenues 227.048 Total revenues 227.048 Increase in net assets 2006-07 $153.874 153.874 187,275 6.051 193.326 193.326 4 - 1 1 S TIE AGENCY'S FUND FINANCIAL STATEMENT5 Table 3 below summarizes total Agency activity and balances at the fund level: Table 3 Total Governmental Fund Level Highlights at June 30 2008 2007 Total assets $ 199,867 $ 176,338 Total liabilities 267,238 261,695 Total fund balance deficits (67,371) (85,357) Total revenues 227,048 193,326 Total expenditures 209,062 153,874 Mirroring the Agency-wide results, the Agency's funds reported a June 30, 2008 combined fund balance deficit of $67,371, an improvement from the $85,357 deficit at June 30, 2007. Analyses of Major Funds Cupertino Square Redevelopment Fund This Fund accounts for property tax increment revenue allocated to the Vallco Redevelopment Project Area, established in August 2000. It serves as the general fund for the project area, with expenditures for the ongoing management and oversight of overall project area activities_ The fund's name comes from the Cupertino Square (formerly named Vallco) shopping center that comprises most of the project area. Excluding the 25% that is set-aside for low and moderate income housing purposes, current year tax increment revenues jumped 1 8% to $1 65,200 compared to the $140,456 received in the prior year, reflecting the sale of the Rose Bowl site to KCR Development and the Wolfe RoadNallco Parkway retail site to Vallco International Shopping Center (Orbit Resources) during the fiscal year. It was $294,800 below the original and final budget that reflected projections in the five-year Agency implementation plan_ Revenues turned out lower because the number of tenants in the Cupertino Square mall and development of the complex and surrounding project area have not occurred as expected_ The mall owners experienced problems with their lender, Gramercy Capital Corporation, and filed Chapter 11 bankruptcy on September 2, 2008 (see Note 7 to the Component Unit Financial Statements)_ Expenditures rose 36% over fast year, ending up at $209,062 for 2007-08. The first full year of the new Economic Development and Redevelopment Agency manager position caused staff costs to increase from $42,948 to $i 68,314, while the statutorily required pass-through of taxes to special districts, schools, and the county decreased to $37,912 compared to $58,453 last year. This pass-through, shown as an expenditure against gross taxes, decreased because it's annually assessed based on estimated taxes and trued-up the following year based on actual receipts. Because 2005-06 actual receipts came in much higher than estimated, the true-up in 2006-07 was elevated_ a-~z 6 In this fund, which excludes housing, tax revenuers were not sufficient to cover the .community development expenditures for the year, causing last year's fund balance deficit to increase from $223,376 to this year's $267,238_ Low and Moderate Income Housine Fund Because of a 2002 legal settlement, the Agency sets-aside 25% of 'the tax increment revenue for future low and moderate income dousing projects sponsored by the Agency. This is higher than the state mandated 20% minimum. In fiscal 2007-08, the Agency's allocation for low and moderate income housing purposes totaled $55,067 compared to $46,819 for the prior fiscal year, proportional to the growth in overall taxes. In order to accumulate capital for future purposes, no housing funds were spent this year. As the cash balance has grown, the fund earned more interest this year, $6,781 compared to $5,356 last year_ The housing fund balance grew from $13 8,019 to $199,867. CAPITAL ASSETS The Agency possesses no capital assets INDEBTEDNESS At June 30, 2008 the Agency's indebtedness consisted of a $263,324 advance from the City of Cupertino to cover staffing, consultant, and legal costs that exceed tax revenues. The advance grew $4,612 from a year ago. The Agency is authorized under California state law to finance redevelopment activities through a number of sources, including loans from City government and the issuance of agency debt. ECONOMIC OUTLOOK AND MAJOR INI"I'IATIV~S While the new 16-screen AMC theatre and upscale bovrling alley, Strike Cupertino, have had successful openings with the theatre ranking among the regional leaders in the AMC chain, difficulties in obtaining financing proceeds from the owners' creditor, Gramercy Capital, stalled tenant and facility improvements that was to have taken advantage of the patrons going to these new attractions. Furthermore, the financial crisis gripping the nation definitely affected retailers and restaurants- at the mall. Plans for a new food court, Steve 8c Barry's, California Pizza Kitchen, and Hofbrau House were shelved or postponed. Facing a pending foreclosure and auction, the owners feted Chapter 11 bankruptcy on September 2, 2008. New retail buildings surrounding one of the parking structures will depend on the bankruptcy proceedings. Separate development rights have been granted for amixed-use condominium retail development in the Rose Bowl section and a new hotel, but the project owners, different from the ones facing bankruptcy, have yet to vest those rights in the development agreement, which will expire in August 2009. CONTACTING THE AGENCY'S FINANCIAL MA1~7AGEMENT This report is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Agency's finances. Further information can be obtained from the City of Cupertino's Finance Department, 10300 Torre Avenue, Cupertino, CA 95014-3202, phone (408) 777-3220, or by visiting the City's website at www.cupertino_org. 4-13 7 CITY OF CUPERTINO REDEVELOPMENT AGENCY STATEMENT OIE` NET ASSETS ' AND STATE]VIENT OF ACTIVITIES The Statement of Net Assets and the Statement of Ac;tivities summarize the entire Agency's financial activities and financia[ position. They are prepared on the same basis as is used by most businesses, which means they include all the Agency's assets and all its liabilities, as well as all its revenues and expenses. This is known as the full accrual basis-the effect of all the Agency's transactions is taken into account, regardless of whether or when cash changes hands, but all material internal transactions between Agency funds have been. eliminated. The Statement of Net Assets reports the difference between the Agency's total assets and the Agency's total liabilities, including all the Agency's capital asset:. and all its long-term debt. The Statement of Net Assets presents similar information #o the old balance :;beet format, but presents it in a way that focuses the reader on the composition of the Agency's net assei:s, by subtracting total liabilities from total assets. The Statement of Net Assets summarizes the financial position of all the Agency's financia[ position in a single column- The Statement of Activities reports increases and decreF~ses in the Agency's net assets. It is also prepared on the full accrual basis, which means it includes a.ll the Agency's revenues and all its expenses, regardless of when cash changes hands- This differs fr~~m the "modified accrual" basis used in the Fund financial statements, which reflect only current assets, current Liabilities, available revenues and measurable expenditures. The Statement of Activities presents the Agency's expenses that are listed by program first. Program revenues-that is, revenues that are generated directly by these programs-are then deducted from program expenses to arrive at the net expense of each program. The Agency's general revenues are then listed and the Change in Net Assets is computed and reconciled with the Statement of Net Assets. These financial statements along with the fund financial statements and footnotes are called Basic Component Unit Financial Statements. a-is 9 CITY OF CUPERTINO REDEVELOPMENT AGENCY STATEMENT OF NET ASSETS JUNE 30, 2008 _ Governmental Activities ASSETS Cash and investments (Note 3) Total Assets LIABILITIES Accrued payroll and benefits Advance from City (Note 4) Total Liabilities NET ASSETS (Note 5) Restricted for: Law and moderate income housing Unrestricted deficit $ 199, 867 199,867 3,914 263,324 267,23 8 199,867 (267,23 8 ) Total Net Assets (Accumulated Deficit) ($67,371) See accompanying notes to financial statements 4-is IO CITY OF CITPERTINO REDEVELOPMENT A_ GENCY STATEMENT OF ACTNITIES FOR THE YEAR ENDED JUNE 30, 2008 Governmental Fun ctions/Programs Activities Expenses: Community development $209,062 Total expenses 209,062 General revenues: Taxes: Incremental property taxes 220,267 Investment income 6,781 Total general revenues 227,048 Change in Net Assets 17,986 Net Assets (Accumulated Deficit) -Beginning (85,357) Net Assets (Accumulated Deficit) -Ending ($67,371) See accompanying notes to financial statements 4 - 17 II FUND FINANCIAL STATEMENTS The funds described below were determined to be Major Funds by the Agency in fiscal 2008. Cupertino Square Redevelopment Fund Accounts for revenue and expenditures related to the development of the project area at the Cupertino Square regional mall (Vallco). Low and Moderate Income Housing Fund Accounts for redevelopment tax revenues used for low 2nd moderate income housing programs. a-~s 13 CITY OF CUPERTINO REDEVELOPMENT AGENCY GOVERNMENTAL FUNDS _ _ BALANCE SHEET JUNE 30, 2008 Low and Moderate Total Cupertino Square Income Governmental Redevelopment Housing Funds Assets Cash and investments (Note 3) $199,867 $199,867 Total Assets $199,867 $199,867 Liabilities and Fund Balances Accrued payroll and benefits $3,914 $3,914 Advance from City (Note 4) 263,324 263,324 Total Liabilities 267,238 267,238 Fund balances (deFcit) (Note 5): Reserved for low and moderate income housing $199,867 199,867 Unreserved, undesignated (267,238) (267,238) TOTAL FUND BALANCES (DEFICIT) (267,238) 199,867 (67,371) Total Liabilities and Fund Balances $199,867 5199,867 See accompanying notes to financial statements a-Zo 14 CITY OF CUPERTTNO REDEVELOPMENT AGENCY GOVERNMENTF~L FUNDS STATEMENT OF REVENUES, EXPENDITURE:i AND CHANGES IN FUND BALANCES FOR THE YEAR ENDETJ JUNE 30, 2008 Revenues: Incremental property taxes (Note 2) Use of money and property Total Revenues Expenditures: Community development: Salaries and benefits Professional and legal costs Pass-through expenditures (Note 6) Miscellaneous Total Expenditures Net change in Fund Balances Low and Moderate Total Cupertino Square Income Governmental Redevelopment Housing Funds $1 Ei5,200 $55,067 $220,267 6,751 6,787 1 E~5,200 61,848 227,048 168,3 l4 234 37,912 2,602 2C 9,062 (43,862) 61,848 168,3 ] 4 234 37,912 2,602 209,062 17,986 Fund balances (deficit), beginning of year (223 376 138,019 (85,357) Fund balances (deficit), end of year ($267 238 $199,867 _.($67,371) See accompanying notes to 1.9nancial statements 4-21 IS CITY OF CUPERTINO REDEVELOPMENT AGENCY CUPERTINO SQUARE REDEVELOPMENT SPECIAL REVENUE FUND _ STATEMENT OF REVENUES, EXPENDI"I"URES AND CHANGES IiV FUND BALANCE BUDGET AND ACTUAL FOR THB YEAR ENDED TUNE 30, 2008 REVENUES: Incremental property taxes Total Revenues EXPENDITURES Community development: Salaries and benefits Professional and legal costs Pass-through expenditures Miscellaneous Total Expenditures Net change in Fund Balances Fund balance (deficit), beginning of year Fund balance (deficit), end of year (223,376) ($267,23 8) See accompanying notes to financial statements 4-22 Variance with Budgeted A mounts Final Budget Positive Original Final Actual Amounts (Negative) $460,000 $460,000 $165,200 ($294,800) 460,000 460,000 165,200 (294,800) i 69,13 5 169,13 5 168, 314 821 50,000 50,000 234 49,766 37,912 (37,912) 2,602 (2,602) 219,135 219,135 209,062 10,073 $240,865 $240,865 (43,862) ($284,727) 16 CITY OF CUPERTINO REDEVELOPMENT AGENCY LOW AND MODERATE INCOME HOUSING SPECIAL REVENUE FUND_ __ STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUT1D BALANCES BUDGET AND ?.CTUAL FOR THE YEAR ENDED JUNE 30, 2008 REVENUES: Incremental property taxes Use of money and property Total Revenues EXPENDITURES: Community development: Pass-through expenditures (Note 6) Total Expenditures _ Variance with Budgeted Amounts Final Budget Positive Original Final Actual Amounts (Negative) $115,000 $115,000 $55,067 ($59,933) 6,787 6,781 175,000 115,000 6],848 (53,152) EXCESS (DEFIC1ENCl~ OF REVENUES OVER EXPENDITURES $115,000 $115,000 Fund balances beginning of year Fund balances end of year 61,848 ($53,152) 138,019 $ 7 99, 867 See accompanying notes to financial statements 4-23 17 CITY OF CUPERTINO REDEVELOPMENT AGENCY Notes to Component Unit 1?financial Statements NOTE 1 -SIGNIFICANT ACCOUNTING POLICIE:~ A_ Description of tfie Cupertino Redevelopment Agency - The Cupertino Redevelopment Agency (Agency) was created under the provisions of the ~~alifornia Health and Safety Code for the purpose of rehabilitating property considered to be in a blighted condition. On August 2I, 2000, the City Council enacted and passed Ordinance 1850, estat~lishing the Redevelopment Plan for the Cupertino Vallco Redevelopment Project Area. The Project Area encompasses the Cupertino Square (formerly named Vallco) shopping center and the "Rose Bowl" site. The Agency's primary source of revenue is property taxes, referred to in the accompanying financial statements as "incremental property taxies." Property taxes allocated to the Agency are computed in the following manner: 1 . The assessed valuation of all property in the Project Area is determined on the date of adoption of the Redevelopment Plan by a designation of a fiscal year assessment ro1L 2. Property taxes related to any incrementat increase in assessed values after the adoption of a Redevelopment Plan are allocated to the Agency; all taxes on the "frozen" assessed valuation of the property are allocated to the City and other districts receiving taxes from the project area. The Agency has no power to levy and collect takes. Any legislative property tax reduction would lower the amount of tax revenues that would otherwise be avaitable to pay the principal and interest on bonds or loans from the City and any increased 1:ax rate or assessed valuation or any elimination of present exemptions would increase the amount of tax revenues available for this purpose. The Agency is also authorized to finance the Redevelopment Plan from other sources, including assistance from the City, tfie State and federal governments, interest income and the issuance of Agency debt. The Agency is a separate legal entity governed by the City Council sitting in a separate capacity as the Redevelopment Agency Board. City staff performs all administrative, accounting, management and budgeting functions. Since the City exercises control over the Agency operations, the Agency is considered a component unit of the City and is included in the City's basic financial statements. B. Basrs of Presentation The Agency's Basic Component Unit Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities- in the Uni#ed States of America. These Statements require that the financial statements described below be presented. Agency-Wsde Statements: The Statement of Net ~~ssets and the Statement of Activities include the financial activities of the overall Agency government. Eliminations have been made to minimize the double counting of internal activities. a-zs I9 CITY OF CUPERT7N0 REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements NOTE 1 -SIGNIFICANT ACCOUNTING POLICIES (Continued) The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Agency's governmental activities. Direct expenses are those that are specifically associated with a program or Function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meeting the operational needs of a particular program, and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including ail taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the Agency's funds. The emphasis of fund financial statements is on major individual funds, each of which is displayed in a separate column. The Agency considers both of its funds to be major funds. C. Major Funds Major funds are identified and presented separately in the fund financial statements. All other funds, called non-major funds, are combined and reported in a single column, regardless of their fund-type_ Major funds are deftned as funds that have either assets, liabilities, revenues or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. The Agency reported the following major governmental funds in the accompanying financial statements: Cupertino Square Redevelopment Fund -Accounts for revenue and expenditures related to the development of the project area at the Cupertino Square regional mall. Low and Moderate Income Housing Fund -Accounts for redevelopment tax revenues used for low and moderate income housing programs in the City. D. Basis ofAccounting The agency-wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Governmental funds financial statements are reported using the current .jmancial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The Agency considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Expenditures are recorded when the related fund- liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which aze recognized as expenditures to the extent they have matured. Governmental capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of governmental -ong- term debt and acquisitions under capital leases are reported as other~nancing sources. a - zs 20 CTTY OF CUPERTINO REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements NOTE 1 -SIGNIFICANT ACCOi3N'I`ING POLICIES (Cpntinued} Those revenues susceptible to accrual are incremental property taxes and interest- I~lon-exchange transactions, in which the Agency gives or receives value without directly receiving or giving equal value in exchange, include tai:es, grants, entitlements, and donations. On the accrual basis, revenue from taxes is recognized in the fiscal yeaz for which the taxes are levied or assessed- Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The Agency may fund programs with a combination of cost-reimbursement grants, categorical block grants, and' general revenues. Thus, both restricted and unrestricted net assets may be available to finance program expenditures- The Agency's policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary. Certain indirect costs -are included in program expenses reported for individual functions and activities. E. Budgets and Budgetary Accounting The Agency operates under the general laws of the State of California and follows the budgetary process of the City. Annually, the Board adopts a budget effective July 1 for the ensuing fiscal year. From the effective date of the budget, which is adopted and controlled at the 'Agency level, the amounts stated therein as proposed expenditures t~ecome appropriations. The Board may amend the budget by resolution during the fiscal year. All appropriations lapse at year end. Encumbrance accounting is employed as an exten:;ion of the budgetary process. Under encumbrance accounting, purchase orders, contracts, and other commitments for expenditures are recorded in order to reserve that portion of the applicable appropriation. Encumbrances outstanding at yeaz-end are recorded as reservations of fund balance because they do not constitute expenditures or liabilities, and are automatically reappropriated the following year. Unencumbered and unexpended appropriations lapse at year-end. - F. Property Tax Levy, Collection and Maximum hates -Article XIII of the California Constitution provides for a maximum general property tax rate ~~f $1.00 per $100 of assessed value, which may be adjusted by no more than two percent per year unless the property is sold or transferred, in which case it is reassessed at market value. The State Legislature has determined the method of distribution of property tax receipts among the counties, cities, school districts and other special districts. Santa Clara County assesses properties, bills for and collects property taxes on the following schedule: Secured Unsecured Valuation date January 1 January ] LienAevy date ]uly 1 July I 50% on No~~ember 1 Due dates 50% on February 1 July 31 December 1 O August 31 Delinquent as of April ] O Property taxes levied are recorded as revenues and receivables in the fiscal yeaz of levy, a - 27 21 CITY OF CUPERTINO REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements NOTE 2 -LOW AND MODERATE INCOME HOUSING FUND ACTIVITIES Under California Redevelopment Law, agencies are required to deposit a minimum twenty percent of incremental property taxes received into a Low and Moderate Income Housing Fund. However, on January 31, 2002 the Agency settled a lawsuit challenging the formation of the Project Area. This settlement requires the Agency to set aside twenty-five percent of incremental property taxes for low and moderate income housing activities. For fiscal 2007-2008, the Agency received $220,267 in incremental properly takes of which twenty-five percent, or $55,067, was deposited into the Low and Moderate Income Housing Special Revenue Fund. NOTE 3 -CASH AND INVESTMENTS The Agency's cash is included in a cash and investments pool maintained by the City of Cupertino (City), the details of which are presented in the City's basic financial statements. As of June 30, 2008 the City's treasury was composed primarily of investments in the State of California Local Agency investment Fund, Federal agencies securities, U.S. Treasuries; non-negotiable certificates of deposit, and money market funds. NOTE 4 -ADVANCE FROM THE CITY GENERAL FUND As of June 30, 2008, tax increment revenues were not yet sufficient to finance Agency operations. To assist the Agency until project redevelopment generates additional tax increment revenues, the City advanced funds to the Agency to finance operations. As of June 30, 2008 the balance of the advance was $263,328. NOTE S -NET ASSETS AND FUND BALANCES Net Assets are measured on the full accrual basis, while Fund Balances are measured on the modified accrual basis. A_ Net Assets At the Agency-Wide level, net assets is the excess of all the Agency's assets over all its liabilities. Restricted describes the portion of net assets which is restricted as . to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the Agency cannot unilaterally alter. These principally include developer fees received for use on capital projects, debt service requirements, and redevelopment funds restricted to low and moderate income housing purposes. Unrestricted describes the portion of net assets which is not restricted to use. B. Fund Deficit As of June 30, 2008, the Cupertino Square Redevelopment Special Revenue Fund had a deficit of $267,238, caused by initial community development activities of the Agency. The deficit is funded by advances from the General Fund. The deficit should be eliminated with tax increment growth. a-Za 22 CITY OF CUPERTINO REDEVELOPMENT AGENCY Notes to Component Unit :Financial Statements NOTE 6 -PASS-THI2OUGA PAYMENTS Pursuant to California Redevelopment Law (Health and Safety Code Section 33607.5), the Agency is obligated to pass-through twenty percent of the gross tax increment received on the Project Area to jurisdictions within the project area_ In addition, the Agency is obligated to pass-through an additional amount of tax increment pursuant to Health and Safety Code Section 33676, which requires basic aid payments to be made_ For the year ended June 30, 2008, the Agency calculated and recorded $37,912 in pass-through and basic aid pa~~ments to the affected jurisdictions_ NOTE 7 -SUBSEQUENT EVENT The owners of the Cupertino Square shopping; center that comprises most of the Cupertino Redevelopment Agency project area, filed for Chapter 11 bankruptcy on September 2, 2008. The Square ran into financing difficulties with Gramercy Capital Corporation leading to a lawsuit and foreclosure actions. Further development of the Square is on hold pending resolution of the suit, possible refinancing, or sale of the property. 4-29 23 MAZE Sc ASSOCIATES ACCOUNTANCY CORPORATION 3478 BusKirlc Ave. -Suite 275 Pleasant Hit/, California 94523 (925) 930-0902 -FAX (925) 930-0735 REPORT ON INTERNAIL CONTROL OVER mazeG~+7mazeassociates_com FINANCIAL REPORTING AND ON www.mazeassociates_corn COMPLIANCE AND OT)EIER MATTERS BASED ON AN AUDIT OF FINANCIAL STA'T'EMENTS PERFORMED IN ACCORDANCE WITH GOYERN119E1VlAUDII7NGSTANDARDS Members of the City of Cupertino Redevelopment Agency Cupertino, California We have audited the financial statements of the City of ~~upertino Redevelopment Agency as of and for the year ended Tune 30, 2008, and have issued- our report thereon dated September i 9, 2008. We have conducted our audit in accordance with generally accepted auditing standards in the United States of America and the standards applicable to financial sud its contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered the Agency's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expr$ssing an opinion on the effectiveness of the Agency's internal control over Fnancial reporting. Accordingly, we do riot express an opinion on the effectiveness of the Agency's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing l:heir assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Agency's ability to initiate, authorize,' record, process, or report financial data reliably in accordance with generailly accepted accounting principles such that there is more than a remote likelihood that a misstateiment of the Agency's financial statements that is more than inconsequential will not be prevented or detected ley the Agency's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the Agency's internal control. Our consideration of internal control over financia! reporting was for the limited purpose described in the second paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. As part of our audits, we prepared and issued our separate Memorandum on Internal Control dated September 19, 2008_ 4-31 A Professlongl~c~rporatlon Compliance crud Other Matters As part of obtaining reasonable assurance about whether the Agency's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Our audit included tests of compliance with provisions of the Guidelines for Compliance Audits of California Redevelopment ~4~encies. 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 instances of noncompliance that are required to be reported under Government .4uditingStandards which are described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the Agency's responses to the findings included in the Schedule of Findings and Questioned Costs and, accordingly, we express no opinion on them. This report is intended for the information of the Board, management and federal awarding agencies and pass-through entities acid is not intended to be and should not be used by anyone other than the above parties. September 19, 2008 4-32 26 SCHEDULE OF PRIOR YEAR FINDINGS Finding 07-OI: Reports on Blight Progress _ According to the Health 8c Safety Code Section 33080.1, the Agency is required to submit an annual report on blight progress to the Agency Board and'the State Controller's Office within 6 months after fiscal year end. We understand t:he Agency did not submit this required information for fiscal year 2006. We recommend 1:he Agency submit the required information to the Board and State Controller Office on a timel~i basis in future fiscal years. Management Response: The Agency has complied with this requirement by filing the 2007 blight progress report. 4-33 27 CITY OF CiT]'ERTINO TRANSPORTATION DEVELOPMENT ACT PROGRAM FINANCIAL STATEMENTS FOR TIDE YEAR ENDED JUNE 30, 2008 4-35 CITY OF CT_TPERTINO _ - Transportation Development Act Program (A Program of the City of Cupertino, California) For the Year Ended June 30, 2008 Table of Contents Page Independent Audstor's Report.....--•----------------•-----._..................................................--................................ l Balance Sheet -•--•--------------•••----........................................................-..--••--•- - •--2 Statement of Revenues and Expenditures ............................................................................................. 3 Notes to Financial Statements ...........................................°---•--------...---•-•.••---........................_.....-•------- `1 IndependenlAudttor's Compliance Report ...................................•-•-•----...............-.......-.......-•---.•---.--•.-... 6 4-36 MAZE 8c ASSOC/AYES ACCOUNTANCY CORPORAT/ON 3478 SusKlrk Ave_ - Suiie 215 Pleasant Hi11, California 94523 (925) 930-0902 -FAX (925) 930-0135 INDEPENDENT AUDITOR'S REPORT maze@mazeassociates.com www_ mazeassocia tes. com The Honorable Mayor and Members of the City Council of the City of Cupertino, California We have audited the accompanying financial statements of the City of Cupertino Transportation Development Act Program (the Program), a component of the City of Cupertino, California (the City), as of June 30, 2008, and for the year then ended, as listed in the table of contents. These financial statements are the responsibility of the management of the City. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and the standards prescribed by the Transportation Development Act. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 welt as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion_ As discussed in Note 1 to the financial statements, the financial statements referred to above present only the Program and are not intended to present fairly the financial position results of total operations of the City in conformity with generally accepted accounting principles in the United States of America_ In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Program as of June 30, 2008, and the results of the Program's operations for the year then ended in conformity wah generally accepted accounting principles in the United States of America. ~~ ~~~ September 19, 2008 4-37 A Prolsssionai Corporation 1 CITY OF CUPERTINO TRANSPORTATION DEVELOPMENT ACT PROGRAM (A Program of t15e City of Cupertino, California) BALANCE SHEET June 30, 20U8 ASSETS Account Receivable LIABILITIES Due to City of Cupertino See notes to financial statements. $3 8,3 61 $38,361 4-38 2 CTi Y OF CUPERTINO _ - TRANSPORTATION DEVELOPMENT ACT PROGRAM (A Program of the City of Cupertino, California) STATEMENT OF REVENUES AND EXPENDITURES FOR THE YEAR ENDED J[TNE 30, 2008 REVENUES: T.D.A_ Article 3.0 City of Cupertino and Other Contributions (Note 4) Total Revenues EXPENDITURES: Professional and Contract Services Excess of Revenues Over Expenditures See notes to financial statements. 2006-0600I120 Mary Avenue Bicycle Footbridge $38,361 4, 808,4 I 9 4,846,780 4, 846,7 80 4-39 3 CITY OF CUPERTINO 7TtA1~TSPORTATION DEVELOPMENT ACT PROGRAM A PROGRAM OF TfIE CITY OF CUPERTINO, CALIFORNIA NOTES TO FINANCIAL STATEMENTS - - NOTE 1 -DESCRIPTION OF REPORTING ENTITY The City of Cupertino, California (the City} Transportation Development Act Program (the Program) includes the financial activities associated with the projects funded by the State of California Transportation Development Act (TDA). The State of California created a local transportation fund for each County funded by one-duarter of a cent of the 7% state sales tax_ Article 3 of the TDA permits local agencies to spend a portion of that money (not to exceed 2%) on facilities provided for the exclusive use of pedestrians and bicycles. The projects are distributed through the Metropolitan Transportation Commission (MTC) which is the agency responsible for allocation of funds to eligible claimants within the greater San Francisco Bay Area. Eligibility is contingent upon the cities having adopted a comprehensive bicycle master plan. The City of Cupertino adopted the Cupertino Bicycle Transportation Plan on December 7, 1998 (Resolution 98-249). The Program is for the improvement of bicycle facility and construction of bicycle lanes in various locations throughout the City. Individual project funds are generally expended over a two or three year period. There was $38,361 in fund revenues allocated by MTC for the year ended June 30, 2006. NOTE 2 -SUMMARY OF SIGNIFICANT ACCOITN'rING POLICIES 1 A. Fund Accounting The projects are accounted for as part of a Mary Avenue Bicycle Footbridge Capital Project Fund of the City. A fund is a set of self-balancing accounts which comprise its assets, liabilities, fund equity, revenues and expenditures. B. Bass ojAccountrng Basis of accounting refers to when revenues and expenditures are recognized. The projects are accounted for in a governmental fund type and the modified accrual basis of accounting is used. Under the modified accrual basis revenues are recognized when they become measurable and available as net current assets. TDA Article 3.0 revenues are recognized when qualifying project expenditures are incurred. Expenditures are generally recognized when they are incurred. 4 - 40 4 CITY OF CUy'ERTINO TRANSPORTATION DEVELOPMENT ACT PROGRAM A PROGRAM OF THE CITY OF CUPERTINO, CALIFORNIA NOTES TO FINANCIAL STATEMENTS NOTE 3 - TDA ARTICLE REVENUE/EXPENS~ ect Name Mary Avenue Bicycle Footbridge Project TaiTC Allocation # TDA Grant 2006-06001120 $38,361 NOTE 4 -CITY OF CUPERTINO CONTRIBUTION Expended To 6/30/08 $38,361 For the fiscal year ended June 30, 2008, the projects had disbursements which exceeded the grant revenues available. These disbursements were paid by the City and have been reflected as City contributions in the accompanying financial statemE:nts. 4-41 M,yzE ~ ASSOCIATES ACCOL/NTANCY CORPORAT/ON 3478 BusKir/~ Ave. -Suite 275 Peasant Hill, Ca/fforn/a 94523 (925) 930-0902 -FAX (925) 930-0735 maze C~ m azea s s o c fa tes. c o m www. mazeassoclates. com INI?EPENDENT AUDITORS' COMPLIANCE REPORT The Honorable Mayor and Members of the City Council of the City of Cupertino, California We have audited the accompanying financial statements of the City of Cupertino Transportation Development Act Program (the Program), a program of the City of Cupertino, California (the City), as of June 30, 2008, and for the period ended June 30, 2008, and have issued our report thereon dated September 16, 2008. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Compliance with laws, regulations, contracts and grants applicable to the Program is the responsibility of the management of the City. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of the Transportation Development Act including - Public Utilities Code Section 99245 as enacted and amended by_stature through June, 2007, and the allocation instructions and resolutions of the Metropolitan Transportation Commission as required by Section 6666 of the California Administrative Code. However, the objective of our audit was not to provide an opinion on overalt compliance with such provisions. Accordingly, we do not express such an opinion- The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. This report is intended for the information of the Mayor, Members of the City Council, management, and others. within the City, and officials of applicable state grantor agencies- However, this report is a natter of public record and its distribution is not limited. ~na~ a~~~~.~~- September 19, 2008 4 - 42 A Professlonaf Corporation 6 CITY OF CUPERTINO MEMORANDUM ON IlVTERNAT, CONTROL .AND REQUII2ED COMMi7NICATIONS FOR THE YEAR ENDED J [7N1~ 30, 2008 4 - 43 CITY OF CUPERTTNO MEMORArTDUM ON INTERNAT. CONTROL AND REQiTiuF.D COMNIiTNICATIONS For the Year Ended June 30, 2008 Table of Contents Page Memorandum on Internal Control Siructure-.-.-_.--•°-----------------•--•--.-°---.____ ..........._----------..--.--.--.-.- 1 Schedule of Other Matters----•--•------------------------------••----...............--------- ---------•-•---....-----------••--•-2 Status of Prior Year Schedule of Other Matters--._-----_•-•----•-°-•----------- -----•------....._.........-•---____7 Required Communicatfons -•--•---.°°----••--•---•-•--•-•--•--•--•----------------•--•------•-----._ ........._..-•-----------•--••--•---9 Financial Statement Audit Assurance---------------------•-------•-•------•---------• •-------•--•----••----_.............9 Other Information Included with the Audited Financial Statements ____________________________________ 9 Accounting Policies ..................•-•------------...........-•--•-----•---------•---•---• •--- -•---• •------------................. 9 Unusual Transactions, Controversial or Emerging Areas ................. ..................................10 Estimates-•--•---•--•--•-----•-------•-----•-•----• ...................•--••--•--............------•-•--• •---•---...............-•--------- 10 Disagreements with Management ............................•---.--._...--_--------.--- -.--._......._..-----..-------.--. 10 Retention Issues ------•----•--........--•--•-----••-•------•-------•-•-------•--•-----•--------•--• ------•---•--•--• ................. 10 Difficulties ........................•--•-----•------•--.........--•---------•--•--...._......_....__...- --••----•-•--........_...----•--._ 10 Audit Adjustments ---------------------••--•----------•---._._......-----••--•-••--•--..._....... ..---------••--•--••--•-••---._... 10 Uncoaected Misstaiements --•---------------------------•--•-•--•----•--•--•--•---••----•-- ------•-----------.....--••-----..11 4-44 MAZE ~ ASSOC/AYES ACCOUNTANCY CORPORAT/ON 3478 Buskirk Ave. -Suite 275 P/easant Hi//, Ca//forma 94523 (925) 930-0902 -FAX (925) 930-0735 maze Ca3 mazeassocia tes. coin MEMORAl~iDUM ON INI~RNA.I. CONTROL STRUCT'i7JC2E ten'-mazeassociates.com September 19, 2008 To the City Council of the City of Cupertino, California In planning and performing our audit of the financial statements of the City of Cupertino as of and for the year ended June 30, 2008, in accordance with auditing; standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) 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 City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control_ A control deficiency exists when the design or operF~tion of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis_ A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generlly accepted accounting principles such that there is more than a remote likelihood that a misstatement oiP the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material missl:atement of the financial statements will not be prevented or detected by the entity's internal control_ Our consideration of internal control was for the limited purpose described in the first paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, we noted no matters that we consider to be material weaknesses. Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe to be of potential benefit to the City. The City's written responses included in this report have not been subjected to the auditing procedures apglied in the audit of the financial statements and, accordingly, we express no opinion on them. This communication is intended solely for the information and use of management, City Council, others within the organization, and agencies and pass-through entities requiring compliance with generally accepted government auditing standards, and is not intended to be and should not be used by anyone other than these specified parties_ 4 - 45 A ProfBSSfonaf Corpo~atfon 1 CITY OF CUPERTINO MEMORANDUM ON INTERNAL CONTROL STRUCTURE SCHEDULE OF OTHER MATTERS - 2008-O1 -Restrictions Over Below Market Rate Units Cupertino has approximately 96 below market rate (BMR) ownership units throughout the City. Each unit holds a restriction on the resale value of the property as it relates to the encumbering of debt. A property owner cannot sell the unit above the formula value set for each property to qualify as a BNIR unit. As such, the owner cannot encumber above this resale valuation restriction. It has come to City Management's attention that one of these units has been encumbered by approximately $300,000 over the restricted value. In addition, on review of the remaining 95 units, City staff found that five units have second loans ranging from $10,000 to $15,000 over this limit. The City holds a fast position on the properties and the deeds record a value restriction, but negotiations will be needed with lenders that have extended the additional loans. Cupertino does not believe that they have additional debt exposure on any of these properties. We recommend the City put a monitoring system in place to ensure owners aze following the restrictions set forth_ Management Response: We concur with the audit fording, have discussed performance standards with our monitoring contractor, and have initiated follow up procedures to routinely monitor and advise owners of this limitation. In addition, with the assistance of Goldfarb and Lipman, the City has substantially revised the BIvIIZ contracts, resale agreements and deed of trust documents to highlight loan limitations to the property owner and any possible lending agency. 2008-02 - Information Technology Best Practices Recommendations We conducted an Infonmation Systems Review with our audit which encompassed the forancial information system and the network environment that houses it. We expanded our work in previous years beyond simply looking at financial information systems as a result of greater risks of unauthorized access caused by overall industry growth of web-based commerce and internet based forancial systems. Internal controls that are present in the overall network environment have become more important and relevant to understanding the internal controls over the financial system. We believe Information System controls must be continuously improved and enhanced to stay ahead of the ever increasing sophistication of hackers and criminals_ Currently, there are no Information Technology standards which local governments are required to conform to. Indeed there are a wide variety of informal guidelines and suggested controls from many different orgAn»~tions which local governments can use to implement appropriate controls to ensure adequate security over information technology. Our Information Technology staff has reviewed these informal guidelines and we have concluded that the certification and accreditation framework developed by the National Institute of Standazds and Technology ~l~IIS`I`) for the Federal Information Security Management Act (FISMA) are the most appropriate for local government. KIST standards represent the minimum security requirements for federal government agencies information systems_ We understand the U. S. Department of Justice recommends these for local law enforcement. Our procedures included performing an external network scan based on PCI DSS criteria and NIST in determining that internal control provides for: - Internet access defenses including hacker prevention, detection and deterrent systems - Security of data from physical or network access 4 - 46 1. CITY OF CiTPERTIl~lO MEMORANDUM ON INTERNAL CONTROL, STRUCTURE - Adequately protecting data from unauthorized inU~rnal access ' - - Reasonable measures to ensure continuation of service While the results of our work did not indicate material[ weaknesses, we did note exploitable vulnerabilities and a few areas which should be improved. A summary of these results are as follows: • General Information Systems Controls - We compared the City's information systems controls with the various NIST standards and believe improvements should be considered for implementation such as employing Audit/Event logging, contingency p fanning and training and other areas. • Financial Application Server Vulnerabilities -Our man found exploitable vulnerabilities in the City's financial systems (Financial application server acid one randomly selected workstation). Our results indicate a weakness in the information systems control processes. In addition, the City should evacuate and monitor the effectiveness of its information systems control procedures, including periodic vulnerability scans. • Audit/Event Logging - We believe this is another important standard of 1~IIST. The City should have audit/event logs of any addition, deletion or change in financial information system user accounts and that log should be monitored by someone without the rights to effect such changes to ensure only authorized and appropriate changes are made. Maxagement Response: The City will be reviewing its adherence to PCI DSS and hTIST criteria during this fiscal year and addressing all findings into a formal Security Policy and possible supplemental policy. • All patch management will be analyzed and remediated using the City Bindview server asset. Analysis is being reviewed to find all machines that aze not up to date_ The Bindview product also allows us to deliver the patches to machines remotely. Remediation is well under way. • The latest version of Win VNC has been downloaded and will be installed on all machines utilizing this remote access resource. • The Finance server has, since this report, been updated with latest patches and had SQL service pack 4 installed. This system has to have verification from proprietary vendor, Sungazd Pentamation, before installing any such updates, whereas they will not guarantee support otherwise. Although it may impede prompt updating, the City wants to ensure the continued support form the vendor for the system. The City can work with the vendor towards a better communication vehicle with which to inform about untested and verified patches and updates • The City will also be working with Sungard for the installation and upgrade of the SQL server to 2005 to 2008 (pending compatibility and support ii-om vendor). • CA Brightstor patches applied to server. • The City is currently reviewing the products that will allow auditing change control on Aetive Directory. • The City will be reviewing a custom or possible baseline addition to the Sungard application that will allow for audit and event logging of security changes such as addition, deletion or changes to user accounts. 4 - 47 CITY OF CUPERTINO MEMORANDUM ON INTERNAL CONTROL STRUCTURE 2008-03 - iTpcoming GASB -Statement No. 49 -Accounting and Financial Reporting for Pollution Remediation Obligations (Effective for Fiscal Year 2008-2009) This Statement addresses accounting and financial reporting for poIIution remediation obligations (including contamination), which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups_ This Statement excludes pollution prevention and landfill closure or post-closure costs_ A municipality must estimate expected outlays for pollution remediation if it knows a site is polluted and any of the following recognition triggers occur Pollution poses an imminent danger to the public or environment and a government has little or no discretion to avoid fixing the problem. A government has violated a pollution prevention-related permit or license. A regulator has identified (or evidence indicates it will identify) a government as responsible (or potentially responsible) for cleaning up pollution, or for paying all or some of the cost of the clean up. A government is named (or evidence indicates that it will be named) in a lawsuit to compel it to address the pollution_ A government begins or legally obligates itself to begin cleanup or post-cleanup activities (limited to amounts the government is legally required to complete). Liabilities and expenses would be estima#ed using an "expected cash flows^ measurement technique, which is used by environmental professionals but will be employed for the fast time by governments. Statement 49 also will require governments to disclose information about their pollution obligations associated with clean up efforts in the notes to the financial statements. Pollution remediation outlays should be capitalized is the proprietary fund statements when goods and services are acquired if acquired for any of the following circumstances: a. To prepare property for sale. Capitalized costs (including pollution remediation costs) continue to be limited to lower of cost or net realizable value b. To prepare property for use when the property was acquired with known or suspected pollution that was expected to be remediated. Governments should capitalize only those pollution remediation outlays expected to be necessary to place the asset into its intended location and condition for use. c. To perform pollution remediation that restores apollution-caused decline in service utility that was recognized as an asset unpairment. Governments should capitalize only those pollution remediation outlays expected to be necessary to place the asset into its intended location and condition for use. d. To acquire property, plant, and equipment that has a future alternative use. Outlays should be capitalized only to the extent of the estimated service utility that will exist after pollution remediation activities uses have caused_ For outlays under criteria a and b, capitalization is appropriate only if the outlays take place within a reasonable period prior to the expected sale or following acquisition of the property, respectively, or are delayed, but the delay is beyond the government's control. Management Response: Accepted: Applicability to City not expected_ a - as 4 CITY OF CU]PERTINO MEMORANDUM ON INTERNAL CONTROL STRUCTURE 2008-04 -Upcoming GASB Statement No. 51, Accounting and Fsnancial RenoriinQ fo Intangible Assets (Effective for fiscal 09/IO) - Retroactive Apnlicafion Required Governments have different types of intangible assets, such as easements, water rights, patents, trademarks, and computer software. Easements are n~ferred to in the GASB 34 description of capital assets, which has raised questions about whether and vrhen intangible assets should be considered capital assets for fmancial reporting purposes. The absence of specific authoritative guidance has resulted in inconsistencies in the recognition, initial measurement, and amortization of intangible assets among governments. The objective of this Statement is to establish accounting and fmancial reporting requirements for intangible assets to reduce inconsistencies and enhance comparability. A summary of the statement: - Intangible assets should be classified, accounted for and reported as capital assets, unless excluded from the scope. Guidance in this statement is in addition to existing capital asset guidance. - GASB 51 specifically addresses the nature of intangible assets. o Lack of physical substance. An asset may be contained in or on an item with physical substance, for example, a compact disc in the case of computer software_ An asset also may be closely associated with another item that has physical substance, for example, the underlying land in the case of a right of-way easement These modes of containment and associated items should not be considered when determining whether or not an asset lacks physical substance. o Nonfinancial nature. In the context of this Statement, an asset with a nonfmancial nature is one that is not in a monetary form similar to cash and investment securities, and it represents neither a claim or right to assets in a monetary form similar to receivables, nor a prepayment for goods or services_ o Initial useful life greater than one year,. - GASB 51 excludes: o Assets acquired or created primarily for the purpose of directly obtaining income or profit_ o Assets resuiting from capital lease trane;actions reported by lessees. o Goodwill created through the combination of a government and another entity. - Recognition of an intangible asset occurs only if it is considered identifiable. That is when either of the following apply: o The asset is separable from the government. That is it can be sold, transferred, licensed, rented, or exchanged. o The asset arises from contractual or other legal rights, regardless of whether transferable or separable_ a - as CITY OF CUPERTINO MEMORANDiTM ON INTERNAL CONTROL STR7TCTURE - Specific conditions must present to recognize internally generated intangibles. Capitalization of costs begins after all of the following criteria are met: - o Determination of specific objectives of the project and the nature of the service capacity expected upon the completion. o Demonstration of. the feasibility that the completed project will provide its expected service capacity o Demonstration of the current intention, ability, and effort to complete or continue development of the intangible asset. o Internally generated computer softwaze is used as an example in applying the specific conditions approach. - Amortization lives aze addressed: o Limited by contractual or legal provisions. Renewal periods for rights may be considered if there is evidence that the government will seek and be able to achieve renewal and that any anticipated outlays to be incurred as part of achieving the renewal aze nominal_ Such evidence should consider the required consent of a third party and the satisfaction of any conditions required to achieve renewal. o An indefinite life (no amortization) is permitted so long as there are. No limiting legal, contractual, regulatory, technological, or other factors, and No subsequent change in circumstances. A permanent right-of-way easement is an example. Retroactive 14pplication. For GASB 34 Phase I 8c II governments, retroactive reporting is required for intangible assets acquired in fiscal years ending after June 30, 1980. Retroactive reporting is not required for intangible assets with inde>-mite useful lives or internally generated intangibles, as of the effective date of this Statement. Management Response: Accepted. Will examine possible application to City. 4-50 CITY OF CUl'ERTINO MEMORANDUM ON INTERNA,I., CONTROL STRUCTURE STATUS OF PRIOR YEAR SCHIr.DULE OF OTHER MATTERS 2007-Oi VTA Grant Receivable FoIIow-up As of June 30, 2007, the City had a Mary Avenue Bicy~~le Footbridge Capitai Project which was budgeted to cost about $10.7 million in total_ $2 million of the project costs were budgeted to be funded by the City's General Fund. The remaining project costs were budgeted to be funded by grants. As of Tune 30, 2007, the City had recorded $1.4 million of grant reimbursement receivables from Santa Clara Valley Transportation Authority (VTA) and Caltrans_ However, the City had to defer the $1.4 million of grant revenue in the fund level because the City did not receive the grant reimbursements within the "current and available" period of 60 days_ Since the amount of the grants are large, the City should make sure that ail grant reimbursements are submitted and collected timely_ We recommend that after the Pubiic Works Department has completed the initial submissions of the requests for grant reimbursement, the requests should then be forwarded to the Finance Department iPor follow-up to make sure that they are collected timely. Management Response: Recommendation impieme:nted. The grants were collected by the end of December 2007 and Finance will continue to monitor a l receivables on this project. 4-51 7 MAZE 8c ASSOC/AYES ACCOUNTANCY CORPORAT/ON 3478 Buskirk Ave_ -Suite 275 Pleasant Hfl/, Ca/ffornla 94523 REQIl1T2F.D CONIPViiJPTICATI0I~TS (925) 930-0902 -FAX (925) 930-0135 maze @mazeassociates. com September 19, 2008 www.mazeassociates.com To the City Council of the City of Cupertino, California We have audited the financial statements of the City of Cupertino as of and for the year ended June 30, 2008 and have issued our report thereon dated September 19, 2008. Professional standazds require that we advise you of the following matters relating to our audit. Financial Statement Audit Assurance: Our responsibility, a prescribed by professional standards, is to plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit in accordance with generally accepted auditing standards does not provide absolute assurance about, or guarantee the aca~uracy of, the financial statements. Because of the concept of reasonable assurance and because we did not perform a detailed examination of all transactions, there is an inherent risk that material errors, fraud, or illegal acts may exist and not be detected by us. Other Information Included with the Audited Financial Statements: Pursuant to professional standards, our responsibility as auditors for other information in documents containing the City's audited financial statements does not extend beyond the financial information identified in the audit report, and we are not required to perform any procedures to corn borate such other information. Our responsibility also includes communicating to you any information that we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its mariner of presentation, is materially inconsistent with the infomation, or manner of its presentation, appeazing in the financial statements. This other information and the extent of our procedures is explained in our audit report_ Accounting Policies: Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial .statements. There have been no initial s~~Iections of accounting policies and no changes in significant accounting policies or their application during 2008_ As described in the notes to the financial statements, during the year, the City implemented the following new standazds: GASB Statement No. 48 -Sales and Pledges of Receivables and Future Revenues and Intra Entity Transfers ofAssetr and Future Revenues This Statement establishes financial reporting of several categories of transactions_ There was no cumulative effect on prior year financial statements_ 4-53 A Professlana! t:orporat/on 9 GASB Statement No_ 50 -Pension Disclosures - an amendment of GASB Statements No. 25 and No_ 27 This Statement amends current disclosures for cost sharing defined beneftt pension plans by requiring among other things, funding trend data for cost sharing pools. There was no impact to the City's financial statement disclosures_ Unusual Transactions, Controversial or Emerging Areas: No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. There have been no initial selections of accounting policies and no changes in significant accounting policies or their application during 2008. Estimates: Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. "Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events_ Certain accounting estimates are particulazly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgments_ The most sensitive accounting estimates affecting the financial statements aze depreciation and compensated absences. Management's estimate of the depreciation is based on useful lives determined by management_ These lives have been determined by management based on the expected useful life of assets as disclosed in note 7. We evaluated the key factors and assumptions used to develop the depreciation estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole. Accrued compensated absences is estimated using accumulated unpaid Ieave hours and hourly pay rates in effect at the end of the fiscal year. We evaluated the key factors and assumptions used to develop the accrued compensated absences and determined that it is reasonable in relation to the basic financial statements taken as a whole. Disagreements with Management: For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfactioa, concerning a financial accounting, reporting, or auditing matter that could be significant to the City's financial statements or the auditor's report. No such disagreements arose during the course of the audit. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Retention Issues: We did not discuss any major issues with management regarding the application of accounting principles and auditing standards that resulted in a condition to our retention as the City's auditors. Difficulties: We encountered no serious difficulties in dealing with management relating to the performance of the audit. Audit Adjustments: For purposes of this communication, professional standards define an audit adjustment, whether or not recorded by the City, as a proposed correction of the financial statements that, in our judgment, may not have been detected except through the audit procedures performed. These adjustments may include those proposed by us but not recorded by the City that could potentially cause future financial statements to be materially misstated, even though we have conctuded that the adjustments are not material to the current financial statements. a-sa 10 We did not propose any audit adjustments that, in our judgment, could have a significant effect, either individually or in the aggregate, on the entity's financial reporting process. Uncorrected Misstatements: Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than ithose that are trivial, and communicate them to the appropriate level of management. We have no such misstatements to report to the auditcommittee. ~~, 2 ~ ~~ Q ~ ~:.krs~r This report is intended solely for the information and use of the audit committee, City Council, and management and is no# intended to be and should not be used by anyone other than these specified parties. a-ss 11 INDEPENDENT ACCOiJNTANT'S REPORT ON AGREED-UPON PROCEDURES FOR THE CITY OF CUPERTINO INVESTMENT POLICY 4-56 MAZE 8c ASSOC/AYES ACCOUNTANCY CORPORATION 3478 SuskirK Ave_ ~- Suite 275 Pleasant Hl!/, California 94523 (925) 930-0902 -FAX (925) 930-0735 INDEPENDENT ACCOUNTANT'S REPORT maze@mazeassoc/ates.com www mazeassoc/ates_com ON AGREED-UPON PROCEDURES FOR TFIE CIT'iC OF CUPERTINO INVESTMENT POLICY September 19, 2008 David Woo Director of Finance City of Cupertino 10300 Torre Avenue Cupertino, CA 95014-3255 Dear David: At your request, we have performed the limited procedures enumerated below, which were agreed upon by the City, solely to assist you with res~~ect to the Investment Policy. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the City's responsibility as the specified user of this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. DETAIL TESTS AND RESULTS As requested, we performed tests of the Investment Policy listed below. Procedure A. We obtained the Investment Policy policy), dated April 17, 2007, approved by City Council. We compared the investments authorized by the policy against the investments listed in the March 2008 Treasurer's Investment Report to make sure that al] investment types are allowed by the investment policy. Finding: No exceptions noted. All investment types appear to be in compliance with the City's investment policy. 4-57 R Professional Gvrporatfon Procedure B_ We compared the City's Investment Policy with California Government Code Section 53601 to ensure the City's Investment Policy complied with California Government Code Section 53601 _ Finding: No exceptions noted. The City's Investment Policy appears to comply with California Government Code Section 53601 . Procedure C_ We compared the March 2008 Treasurer's Investment Report with California Government Code Section 53646 to ensure the March 2008 Treasurer's Investment Report complied with California Government Code Section 53646_ Finding: No exceptions noted_ The March 2008 Treasurer's Investment Report appears to comply with California Government Code Section 53646_ Procedure D_ We inquired whether investment performance statistics and activity reports are generated on a monthly basis for presentation to the oversight (audit) committee, City Manager and City Council, as required by the Tnveshment Policy. Finding: No exceptions noted. Per our conservation with the Finance Director, investment performance statistics and activity reports are generated on a monthly basis and presented to the oversight (audit) committee, City Manager and City Council, as required by the Investment Policy. Procedure E. We inquired and documented our understanding of the wire transfer procedures. The Investment Policy requires all wire transfers initiated by Treasury Section personnel to be reconfirmed by the appropriate financial institution to non-treasury staff. Finding: No exceptions noted. Per review of the wire transfer procedures, the City appears to be in compliance with the Investment Policy Procedure F_ We selected two investment sales from various months of Treasurer's Reports and performed the followings • Traced investment type to the supporting broker's confirmation. • Traced the sale date to the supporting broker's confirmation_ • Traced the amount of the investment sold to a supporting broker's confirmation_ Finding: No exceptions noted. The City appears to be in compliance with the Investment Policy. 4-58 Procedure G. We selected the eight investments purchased (as of March 2008) for fiscal 2008 from the City's investment files and performed the following: • Traced to the Treasurer's Investment F:eport in the month acquired. • Agreed the amount, terms and interest rate to the Treasurer's Investment Report_ • Verified that the investment type is aul:horized by the investment policy. Finding: No exceptions noted. The City appears to be in compliance with the ]nvestment Policy. Procedure H_ We sent audit confirmations to Wells Fargo Bank, the City's third party investment safekeeping custodian, for the March 2008 statement. We: received the March 2008 statement from Wells Fargo Bank and traced the following from each investment Iisted in the Wells Fargo s#atement to the City's March 2005 Treasurer's Investment Report: • Investment description • Market value • Purchase date • Maturity date Coupon rate Finding: No exceptions noted. The City appears to be in compliance with the Investment Po! icy. Procedure J. We judgmentally selected 9 Federal 'Agencie:~ investments from the March 2008 Wells Fargo statement and traced the reported ratings to Moody's rating online. Finding: No exceptions noted. The City appears to be in compliance with the Investment Policy. We were not engaged to, and did not, perform an audit in accordance with generally accepted auditing standards, the objective of which would be the expression of an opinion on the specified elements, accounts, or items in this report_ Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the City's information and use and is not intended to be and should not be used by anyone other than the City. Yours very truly, Maze 8c Associates 4-59 MAZE 8c ASSOCIATES AGREED UPON PROCEDURES REPORT ON COlVIPLIA ~TCE WITH THE PROPOSITION 111 2007-2008 APPROPRIATIONS LIlVII'T INCREMENT Honorable Mayor and Members of the City Council City of Cupertino, California We have applied the procedures below to the Appropriation Limit Worksheet for the City of Cupertino for the year ended June 30, 2008. These procedures, which were suggested by the League of California Cities and presented in their Article XIIIB Appropriations Limitation Uniform Guidelines, were performed solely to assist you in meeting the requirements of Section 1.5 of Article X1SIB of the California Constitution. The sufficiency of the procedures is solely the responsibility of the specified users of this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. This report is intended for the information of management and the City Council; however, this restriction is not intended to limit the distribution of this report, which is a matter of public record. The procedures you requested us to perform and our Endings were as follows: A. We obtained the Appropriations Limitation Worksheet and determined that the 2007-2008 Appropriations Limit of $65,248,148 and annual adjustment factors were adopted by resolution of the City Council. We also determined that the population and inflation option was selected by a recorded vote of the City Council. The City Council adopted the L02% City Population Change Factor_ B. We recomputed the 2007-2008 Appropriations Limit by multiplying the 2006-2007 Appropriations Limit by the annual adjustment factor. C. For the Appropriations Limitation Worksheet, we agreed the Per Capita Income, County and City Population Factors to California State Department of Finance Worksheets. These agreed-upon procedures are substantially less in scope than an audit, the objective of which is the expression of an opinion on the Appropriations Limitation Worksheet. Accordingly, we do not express such an opinion. Had we performed additional procedures or had we made an audit of the Appropriations Limitation Worksheet and the other completed worksheets described above, matters might have come to our attention that would have been reported to you. May 20, 2008 ACCOUNTANCY CORPORAT/ON 3478 BusKiric Ave_ -Suite 275 Peasant Hi//, California 94523 (925) 930-0902 • FAX (925) 930-0'/35 maze C~mazeassocia tes. com www. mazeassoclates. com 4-60 A Profess/ona/ Corporat/on ADMINISTRATIVE SEF2VICES DEPARTMENT CITY HALL ' '~~'' ~ 10300 TORRE AVENUI= • CUPERTINO, CA 950'14-3202 C l.1 P E R-T I N S (408) 777-3220 -FAX (408) 777-3109 December 9, 2008 State Controller's Office Division of Accounting and Reporting Section Local Government Reporting Section P_ O_ Box 942850 Sacramento, CA 94250 Dear Sirs, In accordance with Section 33080.1 of the Health and Safety Code, this is the Cupertino Redevelopment Agency's annual report for the fiscal year ended June 30,-2008. The report includes the following enclosures and electronic submissions: (1) A signed cover page of State Controller's Annual Report ofFinancia~i Transaction. The report itself has been transmitted via. the SCO FTP site. (2) U.S. Bureau of the Census survey form. (3) Confirmation of the Agency's Online Filing of Annual Housing and Community Development Report. (4) Two copies of the independent financial audit including an opinion of the Agency's compliance with applicable laws and regulations governing redevelopment agencies. (5) A signed copy of the Statement of Indebtedness filed with the County auditor for the 2008-09 tax year on October 1, 2008. Properties and Loans The Agency had no outstanding loan receivable:; and owned no properties. 2007-08 Redevelopment AQency Accomplishment and Blisrht Prol2ress Report Coordinated the following.• Enacted an ordinance in October of 2007 to comply with SB 53, which requires redevelopment agencies to describe their policies related to Eminent Domain_ Convened a special Bconomic Development Committee meeting in Tanuary of 2008 for the mall owners to present their leasing strategy for the mall. Facilitated discussion on the future relocation of the Cupertino Farmers Market. Facilitated prominent article on the mall's renovation on the cover of the Business section in the San Jose Mercury News on February 1, 2008. 4-61 G~xpertino Redevelopment Agency Annual Report for Fiscal Year Ending Tune 30, 2008 Page 2 of 2 Provided Facilitation for the following development-activities: Strike Cupertino opening featuring 32 bowling lanes, 75 video and virtual reality games, a restaurant, bar, and party rooms. (July 2007) Exterior improvements to the mall including new paint and signage. Interior improvements to the mall including new HVAC, lighting, restrooms, sewer system, police sub-station, fountains, and relocation of leasing office and childcare azea. Construction commencement of $1 million rehabilitation of Benihana Restaurant. Construction commencement of the new Food Court. City Council confirmed compliance of new plans for J.C. Penney Garage retail and Rose Bowl site. (March, 2008) Developed the South Vallco Master Plan encompassing the Redevelopment Project area, and facilitated discussions with affected property owners_ Miscellaneous In Fall 2007, the mall was purchased by Orbit Resources,_and three out-parcels were sold to the Evershine Group_ 2007 holiday shopping showed a significant increase from 2006. New Space Square Footage Strike Cupertino 38,000 sf Rehabilitated Space Square Footage Zales 1,250 sf Benihana 8,037 sf -Child Development Center 2,000 sf Froyo Frozen Yogurt 750 sf Ms. Fields 450 sf Total: 12,487 sf If you have any questions, you may contact me at (408) 777-3280. Respectfully submitted, v~ f avid Woo Finance Director, City of Cupertino cc: Kelly Kline Enclosures 4-62 ' CITY OF CUPERTINO DEVELOPMENT IMPACT FEE REPORT FISCAL YEAR ENDING JUNE 30, 2008 1. Below Market Rate Housing Mitigation fee (A) Description and Amount: An in-lieu fee collected on new residential, office/industrial, hotel, and retail development in order to address impact on affordable housing. Fee was $2.50 per sq ft on residential and $4.75 per sq 1't on office/industrial, hotel, and retail for the reported year. (B) Amount collected in FY 07/08 311,140 (C) Beginning of year balance 1,209,852 End of year balance 1,446,916 (D) Interest earned 67,092 (E) Expenditures: WVCS affordable housing placement 65k, Project Sentinel rental mediation 23k, Santa Clara County housing trust 25k and administrative costs 28k. 2. Park Dedication fee {A) Description: Fee collected on new residential developments for the acquisition, improvement, and maintenance of parks and recreation 1`acilities_ (B) Amount collected in FY 07/08 173,391 (C) Beginning of year balance 150,353 End of year balance 334,475 (D) Interest earned 10,731 (E) Expenditures: None 3. Stevens Creek Blvd "Heart of the City" specific plan fee (A) Permit applicants along Stevens Creek Blvd corridor pa~~ a $0.044 per sq-ft based fee to reimburse City for the $94,929 cost of the 1994 specific plan for the central area of the City. (B) Amount collected in FY 07/08 2,325 (C) Beginning of year balance 97,854 End of year balance 103,011 (D) Interest eamed (estimate @ 2.86%) 2,832 (E) Expenditure: Costs incurred to prepare 1994 "Heart of ttie City" specific plan_ 4-63