103-Redevelopment Agency BFS.pdf
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Independent Auditor’s Reports,
Management’s Discussion and Analysis, and
Basic Financial Statements
For The Fiscal Year Ended June 30, 2010
CITY OF CUPETINO
REDEVELOPMENT AGENCY
For The Fiscal Year Ended June 30, 2010
Table of Contents
Page(s)
Independent Auditor’s Report ................................................................................................................ 1-2
Management’s Discussion and Analysis (Unaudited) ........................................................................... 3-6
Basic Financial Statements:
Statement of Net Assets and Governmental Funds Balance Sheet ....................................................... 7
Statement of Activities and Governmental Funds Statement of
Revenues, Expenditures and Changes in Fund Balances ................................................................... 8
Statement of Revenues, Expenditures and Changes in
Fund Balance - Budget and Actual:
Vallco Redevelopment Special Revenue Fund ............................................................................. 9
Low and Moderate Income Housing Special Revenue Fund ..................................................... 10
Notes to the Basic Financial Statements ........................................................................................ 11-15
Independent Auditor’s Report on Internal Control Over Financial Reporting and on
Compliance (Including the Provisions Contained in the Guidelines for Compliance
Audits of Redevelopment Agencies) and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with Government Auditing Standards ................. 16-17
Members of the Governing Board of
The City of Cupertino Redevelopment Agency
Cupertino, California
Independent Auditor’s Report
We have audited the accompanying financial statements of the governmental activities and each major
fund of the City of Cupertino Redevelopment Agency (the Agency), a component unit of the City of
Cupertino (the City), California, as of and for the year ended June 30, 2010, which collectively comprise
the Agency’s basic financial statements as listed in the table of contents. These 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 the auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States. 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 consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the City’s internal control over financial reporting related to the
Agency. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
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 the governmental activities and each major fund of the of the Agency as of
June 30, 2010, and the respective changes in financial position thereof, and the respective budgetary
comparison for the Cupertino Square Redevelopment Special Revenue Fund and Low and Moderate
Income Housing Special Revenue Fund for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated
November 17, 2010, on our consideration of the City’s internal control over financial reporting related to
the Agency and on our tests of its compliance with certain provisions of laws, regulations, contracts, and
grant agreements and other matters for the year ended June 30, 2010. The purpose of that report is to
describe the scope of our testing of internal control over financial reporting and compliance and the
results of that testing, and not to provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government
Auditing Standards and should be considered in assessing the results of our audit.
The management’s discussion and analysis as listed in the table of contents are not a required part of the
basic financial statements but are supplementary information required by accounting principles generally
accepted in the United States of America. We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and presentation of the
required supplementary information. However, we did not audit the information and express no opinion
on it.
Certified Public Accountants
Walnut Creek, California
November 17, 2010
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Management’s Discussion and Analysis (Unaudited)
This discusses the City of Cupertino Redevelopment Agency’s (Agency) financial performance. Please
read this document in conjunction with the accompanying Agency’s Basic Financial Statements.
As a component unit of the City of Cupertino (City), the Agency’s purpose is to eliminate blight in the
Vallco Redevelopment Project Area (Project Area), while ensuring an adequate stock of low and
moderate income housing in the City. The Project Area encompasses the Vallco (formerly Cupertino
Square) Shopping Mall and the “Rose Bowl” site south of the mall. 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 incremental property taxes generated are earmarked for low and moderate
income housing.
2009-10 FINANCIAL HIGHLIGHTS
The Agency’s total net assets and fund balances stood at $1,465,687 as of June 30, 2010, an
improvement from the $753,335 of the prior year.
Total revenues of $1,329,358 were 9% over the $1,215,516 results of last year.
Agency-wide expenses of $617,006 exceeded last year’s $394,810 expenses by 56%.
OVERVIEW OF THE BASIC COMPONENT UNIT FINANCIAL STATEMENTS
This report is in two parts:
1)Management’s Discussion and Analysis, and
2)The Basic Financial Statements along with the notes to the statements.
The Basic Financial Statements
The Basic Financial Statements comprise the Agency-wide and Fund perspectives. These two
perspectives provide different views of the Agency’s financial activities and financial position—long-
term and short-term.
Agency-wide Financial Statements
The Agency-wide Financial Statements provide a long-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 incremental property tax increments support
these services.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Management’s Discussion and Analysis (Unaudited)
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 Agency’s Vallco Redevelopment Fund and the Low and Moderate Income Housing Fund are both
considered major funds. The funds are discussed further in the Analysis of Major Funds section.
Comparisons of budget and actual information are also presented as part of the Basic Financial
Statements.
FINANCIAL ACTIVITIES OF THE AGENCY AS A WHOLE
This analysis focuses on the net assets and changes in net assets of the Agency as a whole, as presented in
the Agency-wide Statement of Net Assets and Statement of Activities.
Governmental Activities
Table 1 shows that the Agency nearly doubled its net assets from $753,335 to $1,465,687. The residual
effect of the 2007 sale of two parcels in the Project Area and subsequent tax reassessment helped
incremental property tax revenues increase from $1,211,128 in 2008-09 to $1,322,925 in 2009-10.
Much of the tax increment growth went toward improving the cash position of the Agency. The Vallco
Redevelopment Fund’s cash balance grew from $252,180 to $628,166. Cash in the Low and Moderate
Housing Fund rose from $507,037 at the end of last year to $842,707 this year.
Table 1
Governmental Net Assets at June 30
2010 2009
Cash and investments $ 1,470,873 $ 759,217
Total assets 1,470,873759,217
Accrued payroll and benefits 5,1865,882
Total liabilities 5,1865,882
Net assets:
Restricted for low and moderate income housing redevelopment projects 842,707546,569
Unrestricted 622,980206,766
Total net assets $ 1,465,687$ 753,335
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Management’s Discussion and Analysis (Unaudited)
As shown in Table 2, the Agency has experienced increases in net assets in the past two years because
property assessed valuation growth has caused incremental property tax revenues to exceed
redevelopment and planning costs. If development of the Project Area continues, the additional tax
revenues will allow the Agency to issue bonds and provide capital for economic improvement.
Table 2
Governmental Activities
Change in Governmental Net Assets
2009-10 2008-09
Expenses
Community development $ 617,006 $ 394,810
Total expenses 617,006 394,810
Revenues
General revenues:
Taxes:
Incremental property tax 1,322,925 1,211,128
Investment income 6,433 4,388
Total general revenues 1,329,358 1,215,516
Total revenues 1,329,358 1,215,516
Increase in net assets $ 712,352 $ 820,706
THE AGENCY’S FUND FINANCIAL STATEMENTS
The activities and balances at the total governmental funds level mirror the Agency-wide results.
Analyses of Major Funds
Vallco Redevelopment Fund
This fund accounts for incremental property tax revenue allocated to the Vallco Redevelopment Project
Area that was 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 Vallco Shopping Mall 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 rose 9% to $992,194 compared to the $908,346 received in the prior year, reflecting
continuing tax growth resulting from the 2007 sale of the Rose Bowl site to KCR Development and the
Wolfe Road/Vallco Parkway retail site to Vallco International Shopping Center (Orbit Resources). The
new growth estimates caused the $520,000 original tax budget to increase to $974,000.
Expenditures rose 56% over last year, ending up at $617,006 for 2009-10. The statutorily required pass-
through of taxes to special districts, schools, and the County of Santa Clara grew to $356,153 compared
to $160,545 last year. This pass-through is paid as a percentage of Project Area taxes. The State also took
away $62,723 in Agency property taxes this year and will take $12,901 next year because of the State’s
budget deficits.
Because tax revenues exceeded community development expenditures, the Project Area’s redevelopment
fund balance increased by $376,682.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Management’s Discussion and Analysis (Unaudited)
Low and Moderate Income Housing Fund
Due to a 2002 legal settlement, the Agency sets aside 25% of the tax increment revenue for future low
and moderate income housing projects sponsored by the Agency. This is higher than the state mandated
20% minimum.
In fiscal 2009-10, the Agency’s property taxes receipts for low and moderate income housing purposes
totaled $330,731 compared to $302,782 for the prior fiscal year, which is proportional to the growth in
overall taxes. In order to accumulate capital for future purposes, housing funds were not spent this year.
The housing fund balance grew from $507,037 to $842,707.
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
Facing difficulties in making payments to their lender, Gramercy Capital, mall owners Cupertino
Square LLC and Orbit Resources filed bankruptcy in September 2008. In May 2009, Gramercy Capital
foreclosed on the owners and subsequently sold the mall to Son Son Company in October 2009. Property
tax assessment appeals are pending with the County of Santa Clara. The other owner, KCR Development,
who are not in bankruptcy, started building a mixed-use condominium/retail development in the Rose
Bowl section of the Project Area in order to vest their rights in a development agreement with the
Agency, but will delay completion of the project until economic conditions improve. Cupertino Square
was recently renamed Vallco Shopping Mall and while the 16-screen AMC theatres, some restaurants,
and local farmers market at the mall generates positive regional business, the resulting customer traffic
does not migrate to the mall retail stores. Business improvement plans from the mall owners are to be
determined.
CONTACTING THE AGENCY’S FINANCIAL MANAGEMENT
This report is intended to provide a general overview of the Agency’s finances. Further information can
be obtained from the City of Cupertino’s Finance Department, 10300 Torre Avenue, Cupertino, CA
95014-3202, phone (408) 777-3220, or by visiting the City’s website at www.cupertino.org.
CITY OF CUPERTINO REDEVELOPMENT AGENCY
Statement of Net Assets and
Governmental Funds Balance Sheet
June 30, 2010
Low and
ModerateTotal
VallcoIncomeGovernmentalStatement of
RedevelopmentHousing FundsAdjustmentsNet Assets
Assets:
Cash and investments$ 6 28,166$ 8 42,707$ 1,470,873$ - $ 1,470,873
Total assets$ 628,166$ 842,707$ -1,470,873 1,470,873
Liabilities:
Accrued payroll and benefits$ 5,186$ - $ 5,186 - 5,186
Total liabilities 5,186 - 5,186 - 5,186
Fund balances/net assets:
Fund balances:
Reserved for low and moderate
income housing - 842,707 842,707(842,707) -
Unreserved, undesignated 622,980 - 622,980(622,980) -
Total fund balances 622,980 842,707 1,465,687(1,465,687) -
Total liabilities and fund balances$ 628,166$ 842,707$ 1,470,873
Net assets:
Restricted for:
Low and moderate income housing
redevelopment projects 842,707 842,707
Unrestricted 622,980 622,980
Total net assets$ 1,465,687$ 1,465,687
See accompanying notes to financial statements.
CITY OF CUPERTINO REDEVELOPMENT AGENCY
Statement of Activities and
Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances
For the Fiscal Year Ended June 30, 2010
Low and
ModerateTotal
VallcoIncomeGovernmentalStatement of
RedevelopmentHousing FundsAdjustmentsActivities
Expenditures/expenses:
Community development:
Salaries and benefits$ 181,466$ -$ 181,466$ -$ 181,466
Professional and legal costs 16,664 - 16,664 - 16,664
Pass-through expenditures 356,153 - 356,153 - 356,153
Payment to Supplemental Educational
Revenue Augmentation Fund 62,723 - 62,723 - 62,723
Total expenditures/expenses 617,006 - 617,006 - 617,006
General revenues:
Incremental property taxes 992,194 330,731 1,322,925 - 1,322,925
Use of money and property 1,494 4,939 6,433 - 6,433
Total general revenues 993,688 335,670 1,329,358 - 1,329,358
Change in fund balances/net assets 376,682 335,670 712,352 - 712,352
Fund balances/net assets,
Beginning of year 246,298 507,037 753,335 - 753,335
End of year$ 622,980$ 842,707$-1,465,687$ $1,465,687
See accompanying notes to financial statements.
CITY OF CUPERTINO REDEVELOPMENT AGENCY
Vallco Redevelopment Special Revenue Fund
Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual
For the Fiscal Year Ended June 30, 2010
Variance with
Budgeted AmountsFinal Budget
ActualPositive
OriginalFinalAmounts(Negative)
Revenues:
Incremental property taxes$ 520,000$ 974,000$ 992,194$ 18,194
Use of money and property - - 1,494 -
Total revenues 520,000 974,000 993,688 18,194
Expenditures:
Community development:
Salaries and benefits 172,208 181,466 181,466 -
Professional and legal costs 51,300 81,421 16,664 64,757
Pass-through expenditures 122,000 356,153 356,153 -
Payment to Supplemental Educational
Revenue Augmentation Fund - 63,000 62,723 277
Total expenditures 345,508 682,040 617,006 65,034
Net change in fund balances$ 174,492$ 291,960376,682$ 83,228
Fund balance, beginning of year 246,298
Fund balance, end of year$ 622,980
See accompanying notes to financial statements.
CITY OF CUPERTINO REDEVELOPMENT AGENCY
Low and Moderate Income Housing Special Revenue Fund
Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual
For the Fiscal Year Ended June 30, 2010
Variance with
Budgeted AmountsFinal Budget
ActualPositive
OriginalFinalAmounts(Negative)
Revenues:
Incremental property taxes$ 130,000$ 282,000$ 330,731$ 48,731
Use of money and property 20,000 20,000 4,939(15,061)
Total revenues 150,000 302,000 335,670 33,670
Net change in fund balances$ 150,000$ 302,000335,670$ 33,670
Fund balances beginning of year 507,037
Fund balances end of year$ 842,707
See accompanying notes to financial statements.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Notes to the Basic Financial Statements
For the Fiscal Year Ended June 30, 2010
NOTE 1 – Summary of Significant Accounting Policies
(a) Financial Reporting Entity
The City of Cupertino Redevelopment Agency (Agency) was created under the provisions of the
California Health and Safety Code for the purpose of conducting economic development and
redevelopment activities, and rehabilitating property considered to be in a blighted condition. On
August 21, 2000, the City Council enacted and passed Ordinance 1850, establishing the
Redevelopment Plan for the Cupertino Vallco Redevelopment Project Area (Project Area). The
Project Area encompasses the Vallco (formerly named Cupertino Square) Shopping Mall and the
“Rose Bowl” site.
The Agency is a separate legal entity governed by the City Council sitting in a separate capacity
as the Redevelopment Agency Board (Board). City staff performs all administrative, accounting,
management, and budgeting functions. Since the City exercises significant control over the
Agency’s operations, the Agency is considered a blended component unit of the City and is
included in the City’s basic financial statements.
(b) Measurement Focus, Basis of Accounting and Financial Statement Presentation
The government-wide financial statements (i.e., the statement of net assets and the statement of
activities) report information on the Agency’s activities. For the most part, the effect of interfund
activity has been removed from these statements. The Agency is only engaged in governmental
activities, which normally are supported by taxes and intergovernmental revenues.
The statement of activities demonstrates the degree to which the direct expenses of a given
function or segment is offset by program revenues. Direct expenses are those that are clearly
identifiable with a specific function or segment. Program revenues include (1) charges to
customers or applicants who purchase, use or directly benefit from goods, services or privileges
provided by a given function or segment and (2) grants and contributions that are restricted to
meeting the operational or capital requirements of a particular function or segment. The Agency
did not have program revenues for the year ended June 30, 2010. Taxes and other items not
included among program revenues are reported instead as general revenues.
The government-wide financial statements are reported using the economic resources
measurement focus and the accrual basis of accounting. Revenues are recorded when earned and
expenses are recorded when a liability is incurred, regardless of the timing of cash flows.
Property taxes are recognized as revenues in the year for which they are levied. Grants and
similar items are recognized as revenue as soon as all eligibility requirements have been met.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Notes to the Basic Financial Statements
For the Fiscal Year Ended June 30, 2010
NOTE 1 – Summary of Significant Accounting Policies (Continued)
(b) Measurement Focus, Basis of Accounting and Financial Statement Presentation
(Continued)
Governmental fund financial statements are reported using the current financial resources
measurement focus and the modified accrual basis of accounting. Revenues are recognized as
soon as they are both measurable and available. Revenues are considered to be available if they
are collected within 60 days of the end of the current fiscal year. Expenditures generally are
recorded when a liability is incurred, as under accrual accounting. However, debt service
expenditures are recorded only when payment is due.
Property taxes and interest associated with the current fiscal period are all considered being
susceptible to accrual and so have been recognized as revenues of the current fiscal period. All
other revenue items are considered to be measurable and available only when the Agency
receives cash.
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.
The Agency reports the following two major governmental funds:
TheVallco Redevelopment Special Revenue Fund is used to account for resources and
expenditures related to the development of the Project Area.
TheLow and Moderate Income Housing Special Revenue Fund is used to account for 25%
portion of the Agency’s tax increment revenues and other sources that are required to be set-
aside for low and moderate income housing and related expenditures.
(c)Budgetary Practices
The Agency 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, the amounts
stated therein as proposed expenditures become appropriations. The Board may amend the
budget by resolution during the fiscal year. Encumbrance accounting is employed as an
extension 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 year-end are recorded as reservations of
fund balance because they do not constitute expenditures or liabilities, and are automatically
reappropirated to the following year. Unencumbered and unexpended appropriations lapse at
year end. Additional disclosures and information regarding the City’s budgetary practices is
presented in the notes to the City’s basic financial statements.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Notes to the Basic Financial Statements
For the Fiscal Year Ended June 30, 2010
NOTE 1 – Summary of Significant Accounting Policies (Continued)
(d) Cash and Investments
The Agency’s cash and investments are pooled with the City’s cash and investment pool. The
City’s investment policy authorizes the City to invest in the State of California Local Agency
Investment Fund, federal agencies securities, U.S. treasury notes and bills, securities of the U.S.
and other government issues, bankers’ acceptances, commercial paper, negotiable and non-
negotiable certificates of deposit, repurchase agreements, medium-term corporate notes, and
money market mutual funds as permitted by City’s investment policy. Investments are stated at
fair value. The fair value of investments is determined annually and is based on current market
prices. Investment income earned by the cash and investment pool is allocated monthly among
the funds based upon the ending monthly balance of cash maintained by each fund.
(e) Property Tax Increment Revenues
Incremental property tax revenues represent taxes collected on the project area from the excess of
taxes levied and collected over that amount which was levied and collected in the base year (the
year of the project area inception) property tax assessment.
The County of Santa Clara (County) assesses properties and bills for and collects property taxes
as follows:
SecuredUnsecured
Valuation/lien datesJanuary 1January 1
Levy datesOn or before November 1July 1
Due dates (delinquent after)50% on November 1 (December 10)July 1 (August 31)
50% on February 1 (April 10)
The term “unsecured” refers to taxes on personal property other than land and buildings. Secured
taxes are secured by liens on the property being taxed. The County bills and collects property
taxes and remits to the Agency its share of the amount levied less administrative fees.
(f) Net Assets
The government-wide financial statements utilize a net assets presentation. Net assets are
categorized as restricted and unrestricted.
Restricted Net Assets – This category presents external restrictions imposed by creditors, grantors,
contributors or laws or regulations of other governments and restrictions imposed by law through
constitutional provisions or enabling legislation.
Unrestricted Net Assets – This category represents net assets of the Agency, not restricted for any
project or other purpose.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Notes to the Basic Financial Statements
For the Fiscal Year Ended June 30, 2010
NOTE 1 – Summary of Significant Accounting Policies (Continued)
(g) Estimates
The preparation of basic financial statements in conformity with accounting principles generally
accepted in United States of America requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.
NOTE 2 – Cash and Investments
Investments in City’s Cash and Investment Pool
The City’s pooled investment account possesses the characteristics of a demand deposit account,
and consists of investments in the State of California Local Agency Investment Fund, federal
agencies securities, U.S. treasury notes and bills, money market funds as permitted by City’s
investment policy, and non-negotiable certificates of deposit. At June 30, 2010, the Agency
invested $1,470,873 in the City’s cash and investment pool.
As a means of limiting its exposure to fair value losses arising from rising interest rates, the
City’s investment policy limits investments in any security to a maximum remaining maturity of
five years at the time of purchase. At June 30, 2010, the City’s cash and investment pool has a
weighted average to maturity of 194 days and is unrated. Additional information regarding
custodial credit risk, interest rate risk and concentration of credit risk of the City’s pooled cash
and investments is presented in the City’s basic financial statements.
NOTE 3 – Risk Management
The Agency is exposed to various risks of loss related to torts, theft of, damage and destruction of
assets, errors and omissions, and natural disasters. The Agency, as a component unit of the City,
was covered with respect to certain risks from the City’s commercial insurance policies.
Additional disclosures and information regarding the City’s insurance is presented in the notes to
the City’s basic financial statements.
NOTE 4 - Commitments and Contingencies
Low and Moderate Income Housing Fund
Under California Redevelopment Law (Health and Safety Code Section 33334.3), redevelopment
agencies are required to deposit a minimum of twenty percent of incremental property taxes
received into a distinct fund to set-aside funds for low and moderate income housing and related
expenditures. On January 22, 2002, the Agency settled a lawsuit challenging the formation of the
Project Area. Pursuant to the settlement, the Agency is required to set aside twenty-five percent
of incremental property taxes for low and moderate income housing activities. For the fiscal year
ended June 30, 2010, the Agency received $1,322,925 in incremental property taxes, of which
twenty-five percent, or $330,731, was deposited into the Agency’s Low and Moderate Income
Housing Special Revenue Fund.
CITY OF CUPERTINO
REDEVELOPMENT AGENCY
Notes to the Basic Financial Statements
For the Fiscal Year Ended June 30, 2010
NOTE 4 - Commitments and Contingencies (Continued)
Pass-Through Payments
Under the 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 from the Project
Area to jurisdictions within the Project Area. In addition, the Agency is obligated to pass-through
an additional amount of tax increment as basic aid payments pursuant to California
Redevelopment Law (Health and Safety code Section 33676). For the fiscal year ended
June 30, 2010, the Agency recorded $356,153 in pass-through and basic aid payments to the
affected jurisdictions.
Payment to Supplemental Educational Revenue Augmentation Funds (SERAF)
On July 24, 2009, the State Legislature passed Assembly Bill (AB) 26 4x, which requires
redevelopment agencies statewide to deposit a total of $2.05 billion of property tax increment in
county Supplemental Educational Revenue Augmentation Funds (SERAF) to be distributed to
meet the State’s Proposition 98 obligations to schools. The SERAF revenue shift of $2.05 billion
will be made over two years, $1.7 billion in fiscal year 2009-2010 and $350 million in fiscal year
2010-2011. The SERAF would then be paid to school districts and the county offices of education
which have students residing in redevelopment project areas, or residing in affordable housing
projects financially assisted by a redevelopment agency, thereby relieving the State of payments
to those schools. The Agency’s share of this revenue shift is $62,723 in fiscal year 2009-2010 and
$12,901 in fiscal year 2010-2011. Payments are to be made by May 10 of each respective fiscal
year. Accordingly, the first payment was made on May 10, 2010 to the County and the next
payment will be made on May 10, 2011.
Members of the Governing Board of
The City of Cupertino Redevelopment Agency
Cupertino, California
Independent Auditor’s Report on Internal Control Over Financial Reporting and on
Compliance (Including the Provisions Contained in the Guidelines for Compliance
Audits of Redevelopment Agencies) and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with Government Auditing Standards
We have audited the financial statements of the governmental activities and each major fund of the City
of Cupertino Redevelopment Agency (Agency), a component unit of the City of Cupertino, California, as
of and for the year ended June 30, 2010, which collectively comprise the Agency’s basic financial
statements, and have issued our report thereon dated November 17, 2010. We conducted our audit in
accordance with auditing standards generally accepted in the United States of America and the standards
applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller
General of the United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the City’s internal control over financial reporting
related to the Agency as a basis for designing our auditing procedures for the purpose of expressing our
opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness
of the City’s internal control over financial reporting related to the Agency. Accordingly, we do not
express an opinion on the effectiveness of the City’s internal control over financial reporting related to the
Agency.
Adeficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent or
detect misstatements on a timely basis. A material weakness is a deficiency, or combination of
deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of
the Agency’s financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the
first paragraph of this section and would not necessarily identify all deficiencies in internal control over
financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not
identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses, as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Agency’s financial statements are free of
material 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. Such provisions include those provisions of laws and
regulations identified in the Guidelines for Compliance Audits of California Redevelopment Agencies
issued by the State Controller’s Office and as interpreted in the Suggested Auditing Procedures for
Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental
Accounting and Auditing Committee of the California Society of Certified Public Accountants. However,
providing an opinion on compliance with those provisions was not an objective of our audit, and
accordingly, we do not express such an opinion. The results of our tests disclosed no instances of
noncompliance or other matters that are required to be reported under Government Auditing Standards.
This report is intended solely for the information and use of the Agency’s Board of Directors and the City
of Cupertino and is not intended to be and should not be used by anyone other than these specified parties.
This report is intended solely for the information and use of the Governing Board of the Agency,
management, pass-through entities, and the State Controller’s Office and is not intended to be and should
not be used by anyone other than these specified parties.
Certified Public Accountants
Walnut Creek, California
November 17, 2010