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FY 2005-2006 RDA Financial StatementsLA QUINTA REDEVELOPMENT AGENCY Financial Statements and Supplemental Data Year ended June 30, 2006 (with Independent Auditors' Report Thereon) Conrad Government Services Division Mayer Hoffman McCann P.C. An Independent CPA Firm (This page intentionally left blank) LA QUINTA REDEVELOPMENT AGENCY Financial Statements and Supplemental Data Year ended June 30, 2006 TABLE OF CONTENTS Paye Independent Auditors' Report 1 Basic Financial Statements: Government -wide Financial Statements: Statement of Net Assets 3 Statement of Activities 5 Fund Financial Statements: Governmental Funds: Balance Sheet 6 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 9 Statement of Revenues, Expenditures and Changes in Fund Balances 10 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 12 Notes to the Basic Financial Statements 13 Required Supplementary Information: Schedule of Revenues, Expenditures, and Changes in Fund Balances — Budget and Actual: Low/Moderate Income Housing Fund — PA No. 1 38 Low/Moderate Income Housing Fund — PA No. 2 39 Notes to Required Supplementary Information 40 Report on Compliance and Other Matters and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 41 (This page intentionally left blank) Mayer Hoffman McCann RC. An Independent CPA Firm Conrad Government Services Division 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com Board of Directors La Quinta Redevelopment Agency La Quinta, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the governmental activities and each major fund of the La Quinta Redevelopment Agency, a component unit of the City of La Quinta, California as of and for the year ended June 30, 2006, which collectively comprise the Agency's basic financial statements as listed in the table of contents. These basic financial statements are the responsibility of the management of the La Quinta Redevelopment Agency. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative financial information has been derived from the Agency's 2005 financial statements which were audited by Conrad and Associates, L.L.P., who merged with Mayer Hoffman McCann P.C. as of January 1, 2006, and whose report dated August 18, 2005 expressed unqualified opinions on the respective financial statements of the governmental activities and each major fund. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe 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 financial position of the governmental activities and each major fund of the La Quinta Redevelopment Agency at June 30, 2006, and the results of its operations for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The La Quinta Redevelopment Agency has not presented Management's Discussion and Analysis that the Governmental Accounting Standards Board has determined is necessary to supplement, although not required to be part of, the basic financial statements. The information identified in the accompanying table of contents as required supplementary information is not a required part of the, basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Board of Directors La Quinta Redevelopment Agency Page Two Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The fund financial statements included in supplementary information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The fund financial statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated August 18, 2006 on our consideration of the Agency's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. Irvine, California August 18, 2006 2 LA QUINTA REDEVELOPMENT AGENCY Statement of Net Assets June 30, 2006 Liabilities: Accounts payable Governmental Activities 134,918 2006 2005 Assets: Deposits payable 47,489 Cash and investments (note 2) $ 57,356,384 44,543,631 Accounts receivable 202,305 143,649 Prepaid items 7,987 - Interest receivable 241,896 270,174 Notes receivable (note 3) 12,974,945 12,858,098 Deposits - 1,110 Due from other governments 1,280,300 637,129 Advances to the City of La Quinta (note 4) 5,365,097 7,061,027 Restricted assets: Cash and investments with fiscal agent (note 2) 78,480,843 85,970,211 Capital assets (note 5): Land 47,566,600 52,283,520 Other capital assets, net 354,667 440,000 Total assets 203,831,024 204,208,549 Liabilities: Accounts payable 237,385 134,918 Interest payable 2,684,176 2,732,639 Deposits payable 47,489 46,499 Due to other governments 874,465 - Due to the City of La Quinta - 3,394,775 Noncurrent liabilities (notes 7 to 12): Due within one year 5,120,449 4,175,636 Due in more than one year 255,243,717 269,587,349 Total liabilities 264,207,681 280,071,816 Net assets: Invested in capital assets, net of related debt Restricted for: Low moderate housing Capital projects Unrestricted Total net assets 86,949,361 86,949,361 32,074,429 32,074,429 (179,400,447) (194,887,057) $ (60,376,657) (75,863,267) See accompanying notes to the basic financial statements. 3 (This page intentionally left blank) LA QUINTA REDEVELOPMENT AGENCY Statement of Activities Year ended June 30, 2006 Program Revenues Operating Capital Charges for Contributions Contributions Governmental Activities Ex�nses Services and Grants and Grants 2006 2005 Governmental activities: Planning and development $ 11,183,919 - - - (11,183,919) (37,334,379) Low and moderate housing 4,538,525 - 4,906,319 - 367,794 (2,625,010) Interest expense 10,705,989 - - - (10,705,989 (10,878,054) Total governmental activities $ 26,428,433 - 4,906,319 - (21,522,114) (50,837,443) General revenues: Taxes: Property taxes 34,386,827 25,656,998 Investment income 2,012,145 851,103 Rental income 299,525 520,243 Miscellaneous revenues 310,227 12,392 Total general revenues 37,008,724 27,040,736 Change in net assets 15,486,610 (23,796,707) Net assets (deficit) at beginning of year (75,863,26'7) (52,066,560) Net assets (deficit) at end of year $ (60,376,657) (75,863,267) See accompanying notes to the basic financial statements. 5 LA QUINTA REDEVELOPMENT AGENCY Governmental Funds - Balance Sheet Assets Cash and investments Cash and investments with fiscal agent Accounts receivable Prepaid items Interest receivable Notes receivable Deposits Due from other governments Due from other funds (note 15) Advances to the City of La Quinta Total assets Liabilities and Fund Balances Liabilities: Accounts payable Deferred revenue Deposits payable Due to other governments Due to other funds (note 15) Due to the City of La Quinta Total liabilities Fund balances: Reserved for: Bond projects Prepaid items Notes receivable Deposits Advances to the City of La Quinta Unreserved, reported in: Special revenue funds Debt service funds Capital projects funds Total fund balances Total liabilities and fund balances June 30, 2006 Special Revenue Funds Debt Service Funds Low/Moderate Low/Moderate Redevelopment Redevelopment Income Housing - Income Housing - Agency - Agency - PA No. 1 PA No. 2 PA No. 1 PA No. 2 $ 12,407,390 11,978,069 21,154,515 9,082,604 - - 427 18 132,905 8,500 - - 2,488 1,506 - - 49,755 50,366 81,502 50,531 3,474,945 9,500,000 - - 152,908 103,152 611,633 412,607 - - - 1,765,531 $ 16,220,391 21,641,593 21,848,077 11,311,291 $ 36,656 20,444 - 1,362,348 9,500,000 - - 19,654 - - - - - 298,173 576,292 1,418,658 9,520,444 298,173 576,292 2,488 1,506 - - 2,112,597 - - - 12,686,648 12,119,643 - - - - 21,549,904 10,734,999 14,801,733 $ 16,220,391 12,121,149 21,641,593 21,549,904 21,848,077 See accompanying notes to the basic financial statements. 6 10,734,999 11,311,291 Capital Proiects Funds Redevelopment Redevelopment 2004 Agency - Agency - Low/Mod PA No. 1 PA No. 2 Bond 928,957 1,805,387 - 19,864,230 - 58,615,630 - 60,900 - 2,488 1,505 - 1,889 7,853 - 4,385,127 979,970 - 25,182,691 2,855,615 58,615,63( Totals 2006 2005 57,356,922 44,543,631 78,480,305 85,970,211 202,305 143,649 7,987 - 241,896 270,174 12,974,945 12, 85 8,098 - 1,110 1,280,300 637,129 1,765,531 - 5,365,097 7,061,027 157,675,288 151,485,029 97,757 79,350 3,178 237,385 134,918 - - - 10,862,348 10,740,225 - 27,835 - 47,489 46,499 - - - 874,465 - - - 1,765,531 1,765,531 - - - - - 3,394,775 - 97.757 107385 1.768.709 13,787,218 14,316,417 19,864,230 - 58,615,630 78,479,860 85,970,111 2,488 1,505 - 7,987 - - - - 2,112,597 2,117,873 - - - - 1,110 4,385,127 979,970 - 5,365,097 7,061,027 - - - 24,806,291 15,995,452 - - - 32,284,903 28,885,047 833,089 1,766,955 (1,768,709) 831,335 (2,862,008) 25,084,934 2,748,430 56,846,921 143,888,070 137,168,612 25,182,691 2,855,615 58,615,630 157,675,288 151,485,029 7 (This page intentionally left blank) LA QUINTA REDEVELOPMENT AGENCY Governmental Funds Reconcilation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2006 Fund balances of governmental funds Amounts reported for governmental activities in the statement of net assets are different because: Capital assets, net of depreciation, have not been included as financial resources in governmental fund activity. Capital assets Accumulated depreciation Long term debt has not been included in the governmental fund activity Accrued interest payable for the current portion of interest due on long term debt has not been reported in the governmental funds. Revenues that are measurable but not available. Amounts are recorded as deferred revenue under the modified accrual basis of accounting. Net assets (deficit) of governmental activities See accompanying notes to the basic financial statements. 0 $ 143,888,070 48,126,600 (205,333) (260,364,166) (2,684,176) 10,862,348 $ (60,376,657) LA QUINTA REDEVELOPMENT AGENCY Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year ended June 30, 2006 Revenues: Taxes Investment income Rental income Loan repayments Miscellaneous revenues Total revenues Expenditures: Current: Planning and development Debt service: Principal Interest and fiscal charges Payments under pass- through obligations Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Proceeds from advances Proceeds from sale of capital assets Transfers in (note 14) Transfers out (note 14) Transfers from (to) the City of La Quinta Total other financing sources (uses) Net change in fund balances Fund balances at beginning of year Fund balances at end of year Special Revenue Funds Debt Service Funds Low/Moderate Low/Moderate Redevelopment Redevelopment Income Housing - Income Housing - Agency - Agency - PA No. 1 PA No. 2 PA No. 1 PA No. 2 (4,101,737) (3,560,990) (1,808,298) $ 9,126,550 4,962,474 36,506,201 19,849,893 334,912 341,917 652,351 459,695 284,205 15,320 - - 1,320,719 301,131 - - 310,227 - - - 11,376,613 5,620,842 37,158,552 20,309,588 2,050,445 769,275 300,248 154,439 - - 9,076,678 12,891,970 - 8,930,643 1,524,272 - - 19,309,927 16,748,364 2,050,445 769,275 37,617,496 31,319,045 9,326,168 4,851,567 (458,944) (11,009,457) - - 3,835,702 384,812 - - - - 3,945,802 (3,945,802) (1,706,754) - - (101,544) (4,101,737) (3,560,990) (1,808,298) 3,679,767 5,765,178 3,043,269 3,220,823 9,036,555 9,077,880 18,329,081 $ 14,801,733 12,121,149 21,549,904 See accompanying notes to the basic financial statements. 10 4,896,590 7,998,654 (1,706,754) 11,188,490 179,033 10,555,966 10,734,999 Capital Projects Funds Redevelopment Redevelopment 2004 Agency - Agency - Low/Mod PA No. 1 PA No. 2 Bond Totals 2006 2005 70,445,118 51,413,319 1,038,028 101,147 2,246,441 5,174,491 2,687,348 - - - 299,525 520,243 1,621,850 2,381,602 310,227 12,392 1,038,028 101,147 2,246,441 77,851,211 57,014,904 666,017 205,708 720,227 4,866,359 4,838,374 - - - 21,968,648 3,404,964 - - 10,454,915 10,750,792 - - - 36,058,291 25,756,321 666,017 205,708 720,227 73,348,213 44,750,451 372,011 (104,561) 1,526,214 4,502,998 12,264,453 273,000 - - 9,005,292 2,940,487 - 7,824,584 - 8,209,396 8,566,295 - - - 11,944,456 6,620,386 - (6,291,900) - (11,944,456) (6,620,386) (6,001,673) (312,526) (2,773,994) (14,998,228) (31,702,384) (5,728,673) 1,220,158 (2,773,994) 2,216,460 (20,195,602) (5,356,662) 1,115,597 (1,247,780) 6,719,458 (7,931,149) 30,441,596 1,632,833 58,094,701 137,168,612 145,099,761 25,084,934 2,748,430 56,846,921 143,888,070 137,168,612 11 LA QUINTA REDEVELOPMENT AGENCY Reconcilation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year ended June 30, 2006 Net changes in fund balances - total governmental funds Amounts reported for governmental activities in the statement of activities is different because: Governmental funds report capital outlay as expenditures. However, in the $ 6,719,458 statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. (4,802,253) Proceeds from debt is reported as other financing sources in the governmental funds. The issuance of debt increases liabilities in the statement of net assets, but does not result in an increase in the statement of activities. (9,005,292) Repayment of bond and loan principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Principal repayment 22,703,648 Bond issuance costs are recorded as an expenditure in the governmental funds while full accrual requires the amortization of these costs over the life of the debt. (299,537) The statement of net assets includes accrued interest on long term debt. 48,463 Revenues that are measurable but not available. Amounts are not recorded as revenues under the modified accrual basis of accounting. 122,123 Changes in net assets of governmental activities $ 15,486,610 See accompanying notes to the basic financial statements. 12 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements Year ended June 30, 2006 1 Summary of Significant Accounting Policies The following is a summary of the significant accounting policies of the La Quinta Redevelopment Agency: (a) Organization and Tax Increment Financing Redevelonment Goals and Objectives The general objective of the Redevelopment Plan adopted by the Agency is to encourage investment in the Redevelopment Project Areas by the private sector. The Redevelopment Plan provides for the demolition of buildings and improvements, the relocation of any displaced occupants, and the construction of streets, parking facilities, utilities and other public improvements. The Redevelopment Plan also includes the ability to redevelop land by private enterprise or public agencies, the rehabilitation of structures, the rehabilitation or construction of single family and low and moderate income housing, and participation by owners and tenants of properties in the Redevelopment Project. Redevelopment Project Areas The Agency has established two redevelopment project areas. On November 29, 1983 the City Council approved and adopted the Redevelopment Plan for the La Quinta Redevelopment Project Area No. 1. On May 16, 1989 the City Council approved and adopted the Redevelopment Plan for the La Quinta Redevelopment Project Area No. 2. These plans provide for the elimination of blight and deterioration that was found to exist in the project areas. Tax Increment Financing The Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project. The assessed valuation of a redevelopment project last equalized prior to adoption of a redevelopment plan or amendment to such redevelopment plan, or "base roll", is established and, except for any period during which the assessed valuation drops below the base year level, the taxing bodies, thereafter, receive the taxes produced by the levy of the current tax rate upon the base roll. Taxes collected upon any increase in assessed valuation over the base roll ("tax increment") are paid and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes. 13 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) Ll Summa of Significant Accounti Lag Policies Continued N Basis ofAccounting—and Measurement Focus The basic financial statements of the Agency are composed of the following: • Government -wide financial statements • Fund financial statements • Notes to the basic financial statements Government -wide Financial Statements Government -wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business -type activities of the primary government (including its blended component units), as well as its discreetly presented component units. The La Quinta Redevelopment Agency has no business - type activities or discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the Agency. The accompanying government -wide financial statements for the Agency present negative net assets because the primary activity of the Agency is to issue debt to construct infrastructure that will be owned and maintained by the City. Government -wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the government -wide financial statements. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Program revenues include charges for services and payments made by parties outside of the reporting government's citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. 14 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) Amounts paid to acquire capital assets are capitalized as assets in the government - wide financial statements, rather than reported as expenditure. Proceeds of long- term debt are recorded as a liability in the government -wide financial statements, rather than as other financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. Fund Financial Statements The underlying accounting system of the Agency is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self - balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund financial statements for the primary government's governmental, proprietary, and fiduciary funds are presented after the government -wide financial statements. These statements display information about major funds individually and nonmajor funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds and similar component units. Fiduciary funds primarily represent assets held by the Agency in a custodial capacity for other individuals or organizations. The Agency has no nonmajor funds, enterprise funds, or fiduciary funds. Governmental Funds In the fund financial statements, governmental funds and agency funds are presented using the modified -accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The Agency uses a sixty day availability period. 15 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies, (Continued) Revenue recognition is subject to the measurable and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government - mandated and voluntary non-exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of "available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Non-current portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources," since they do not represent net current assets. Recognition of governmental fund type revenues represented by noncurrent receivables are deferred until they become current receivables. Noncurrent portions of other long-term receivables are offset by fund balance reserve accounts. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by noncurrent liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as an other financing source rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. 16 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1) Summary of Significant Accounting Policies. (Continued) (c) Major Funds The following funds are presented as major funds in the accompanying basic financial statements: Special Revenue Low and Moderate Income Housing P.A. No. 1 and No. 2 Funds — To account for the required 20% set aside of property tax increments that is legally restricted for increasing or improving housing for low and moderate income households. Debt Service Funds. P.A. No. 1 and No. 2 — To account for the accumulation of resources for the payment of debt service for bond principal, interest and trustee fees. Capital Projects Funds. P.A. No. 1 and No. 2 — To account for the bond proceeds, interest and other funding that will be used for development, planning, construction and land acquisition. 2004 Low and Moderate Income Housing. Fund_ — To account for the bond proceeds, interest and other funding that will be used for development, planning, construction, and land acquisition for low and moderate income housing projects. d Cash and Investments For financial reporting purposes, investments are adjusted to their fair value whenever the difference between fair value and the carrying amount is material. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation or sale of investments. (e) Capital Assets Capital assets (including infrastructure) are recorded at cost where historical records are available and at an estimated historical cost where no historical records exist. Contributed fixed assets are valued at their estimated fair market value at the date of the contribution. Generally, fixed asset purchases in excess of $5,000 are capitalized if they have an expected useful life of three years or more. Buildings are depreciated over a useful life of thirty years. 17 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (1)_ SummLU of Significant Accounting Policies (Continued) Capital assets include public domain (infrastructure) general fixed assets consisting of certain improvements including roads, streets, sidewalks, medians, and storm drains. (f) Comparative Data Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the Agency's financial position and operations. However, comparative (i.e., presentation of prior year totals by fund type) data have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. Certain minor reclassifications of prior year data have been made in order to enhance their comparability with current year figures. (2) Cash and investments Cash and investments held by the Agency at June 30, 2006 consisted of the following: Equity in State of California Local Agency Investment Fund $ 3,738,015 Equity in City cash and investment pool 53,618,369 Total cash and investments held by the Agency $57,356,384 Cash and investments held by fiscal agent at June 30, 2006 consisted of the following: U.S. Treasury bills $72,853,870 Money market mutual funds 5,626,973 Total cash and investments held by fiscal agent 78.480.$43 Investments Authorized by the California Government Code and the Aa_encv's Investment Policy The table below identifies the investment types that are authorized for the Agency by the California Government Code and the Agency's investment policy. The table also identifies certain provisions of the California Government Code (or the Agency's investment policy, if more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the Agency, rather than the general provisions of the California Government Code or the Agency's investment policy. 18 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (2) Cash and Investments, (Continued) Investment Types Authorized by State Law Local Agency Bonds U.S. Treasury Obligations U.S. Agency Securities Banker's Acceptances Commercial Paper Negotiable Certificates of Deposit Repurchase Agreements Reverse Repurchase Agreements (Continued) Authorized By Investment *Maximum Policy Maturijy No Yes Yes No Yes No No No N/A 5 years 5 years N/A 90 days N/A N/A N/A Medium -Term Notes Yes 2 years Mutual Funds Yes N/A Money Market Mutual Funds Yes N/A Mortgage Pass -Through Securities No N/A County Pooled Investment Funds No N/A Local Agency Investment Fund Yes N/A (LAIF) JPA Pools (other investment pools) No N/A * Based on state law requirements or investment policy requirements, whichever is more restrictive. Investments Authorized by Debt Aagements *Maximum Percentage Of Portfolio N/A 100% None N/A 30% N/A N/A N/A 15% 20% 20% N/A N/A 25% N/A *Maximum Investment In One Issuer N/A 100% $3 Million N/A $3 Million N/A N/A N/A $3 Million 10% 10% N/A N/A None N/A Investment of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the Agency's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. 19 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (2) Cash and Investments, (Continued) Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Agency manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the Agency's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Agency's investments by maturity: Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturijy Allowed in One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities None None None Banker's Acceptances 360 days None None Commercial Paper 270 days None None Money Market Mutual Funds N/A None None Negotiable Certificates of Deposit 360 days None None Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Agency manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the Agency's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Agency's investments by maturity: 0411 Remaining Maturity in months Total 3 Months 4 to 6 Investment Type Amount Or Less Months State investment pool $ 3,738,015 3,738,015 - Held by bond trustee: Money market funds 5,626,973 5,626,973 - U.S. Treasury bills 72853_,870 33,825,670 39,028,200 Total $82218,858 4 1_ 3 �5t�8 22.02 0411 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (2) Cash and Investments, (Continued) Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the Agency's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Minimum Exempt Ratinas of Year End Total Legal From Not Investment Type Amount Ratin Disclosure Aa Rated State investment pool $ 3,738,015 N/A - - 3,738,015 Held by bond trustee: Money market funds 5,626,973 A - 55626,973 - U.S. Treasury bills 72,853,870 N/A 72,853,870 - - Total $82.218.858BL 53 Investments in any one issuer that represent 5% or more of total investments by reporting unit (major fund, nonmajor funds in the aggregate, etc.) are as follows: $14,237,795 and $58,615,630 of the cash and investments (held by bond trustee) reported in Capital Projects Redevelopment Agency — PA No. 1 fund and 2004 Low/Mod Bond fund, respectively, are held in the form of U.S. Treasury bills maturing between September 21 and December 21, 2006. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the Agency's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental 21 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 2 Cash and Investments Continued unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Agency deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits Investment in State Investment Pool The Agency is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the Agency's investment in this pool is reported in the accompanying financial statements at amounts based upon the Agency's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. (3) Notes Receivable In September 1994, the Agency sold certain real property to LILAC Housing for $2,112,847. The property was used to construct single- family homes and rental units to increase the City's supply of low and moderate income housing. The note bears interest at 6% per annum and is due in full on June 15, 2029. In December 2000, the Agency entered into an agreement with LINC Housing to receive $9,500,000 as a reimbursement for Agency costs incurred for the construction of infrastructure related to the development of senior apartments. Payments are due to the Agency in the amount of annual positive cash flow generated by the rental of the units. All unpaid principal and interest on the note are due fifty-five years after the completion of the project. Interest on the note accrues at 3% per annum. Other notes receivable Total notes receivable 22 Outstanding Balance at June 30, 2006 $ 3,397,767 9,500,000 77,178 U2 974.945 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 4) Advances to the City of La Quinta The Redevelopment Agency advanced funds to the City of La Quinta to help the City meet the cost of developing the public -owned improvements to the La Quinta Community Park and Civic Center Campus. There is no stipulated repayment date established for the Agency advances. Interest accrues at the earning rate of the City's Investment Pool funds, and shall be adjusted quarterly. At June 30, 2006, outstanding Project Area No. 1 advances were $4,385,127 and Project Area No. 2 advances were $979,970. 5 Capital Assets Capital asset activity for the year ended June 30, 2006 was as follows: Buildings Total cost of depreciable assets Less accumulated depreciation for: Buildings Net depreciable assets Capital assets not depreciated: Land Capital assets, net Balances at June 30, 2005 Additions Deletions $ 660,000 - 100 000 660,000 - (100,000) 220,000) (22,000) 36,667 440,000 (22,000) (63,333) 52,283,520 52.723.520 23 2,401,120 (7,118,040) 2 37 120 (2=.! 1.3 ) Balances at June 30, 2006 560,000 560,000 (205,333) 354,667 47,566,600 7.321.267 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (6) Property Taxes Under California law, property taxes are assessed and collected by the counties up to 1% of assessed value, plus other increases approved by the voters. The property taxes are recorded initially in a pool, and are then allocated to the cities based on complex formulas, Accordingly, the City of La Quints accrues only those taxes that are received from the County within sixty days after year-end. Lien date January 1 Levy date July 1 Due dates November 1 and February 1 Collection dates December 10 and April 10 The La Quinta Redevelopment Agency's primary source of revenue comes from property taxes. Property taxes allocated to the Agency are computed in the following manner: (a) The assessed valuation of all property within the project area is determined on the date of adoption of the Redevelopment Plan. (b) Property taxes related to the incremental increase in assessed values after the adoption of the 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. The Agency has no power to levy and collect taxes and any legislative property tax shift might reduce the amount of tax revenues that would otherwise be available to pay the principal of, and interest on, debt. Broadened property tax exemptions could have a similar effect. Conversely, any increase in the tax rate or assessed valuation, or any reduction or elimination of present exemptions would increase the amount of tax revenues that would be available to pay principal and interest on debt. 24 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 7) Lonii-Term Liabilities Long-term liability activity for the year ended June 30, 2006 was as follows: Amounts Balance at Balance at due within .lune 30 2005 Additions Deletions June 30, 2006 one-year Loans payable to City of La Quinta Financing Authority Project Area No. 1: 1994 Tax Allocation Bonds 1998 Tax Allocation Bonds 2001 Tax Allocation Bonds 2002 Tax Allocation Bonds 2003 Tax Allocation Bonds Pass-through agreement payable: Coachella Valley Unified School District Advances from City of La Quinta Loans payable to City of La Quinta Financing Authority Project Area No. 2: 1998 Tax Allocation Bonds Due to County of Riverside Advances from City of La Quinta Loans payable to City of La Quinta Financing Authority Total long-term liabilities $66,323,236 112,038 (554,773) 65,880,501 1,147,286 15,655,000 - (1,510,000) 14,145,000 1,620,000 15,760,000 - - 15,760,000 - 46,318,906 64,658 - 46,383,564 - 37,410,914 53,670 (585,000) 36,879,584 600,000 25,118,839 32,703 (405,000) 24,746,542 420,000 5,927,263 - (740,636)' 5,186,627 755,449 13,727,340 4,108,702 (5,836,042) 12,000,000 - 16,961,867 28,691 (141,881) 16,848,677 293,414 6,230,000 - (100,000) 6,130,000 105,000 1,950,000 - (100,000) 1,850,000 100,000 17,795,380 4,896,590 (12,691,970) 10,000,000 - 4,584,240 273.762.985 25 7,777 (38,346) 4,553,671 79,300 30 (Z) 264.364.16642 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (8) Tax Allocation Bonds Tax Allocation Refunding Bonds. Series 1994 Tax allocation refunding bonds, Series 1994, in the amount of $26,665,000 were issued by the Agency to refund the outstanding aggregate principal amount of the Agency's Tax Allocation Bonds, Series 1989 and 1990. The remaining proceeds were used to finance certain capital improvements within the La Quinta Redevelopment Project Area No. 1. Interest rates on the bonds range from 3.80% to 8% and are payable semi-annually on March 1 and September 1 of each year until maturity. The interest and principal of the bonds are payable solely from pledged tax increment revenues. The bonds are not subject to redemption prior to maturity. There are certain limitations regarding the issuance of parity debt as further described in the official statement. A portion of the proceeds was used to obtain a surety agreement to satisfy the bond reserve requirement. The principal balance of outstanding bonds at June 30, 2006 is $14,145,O00, Tax Allocation Refunding Bonds, Series 1998 ---Project Area No. 1 Tax allocation refunding bonds, Series 1998, in the amount of $15,760,000 were issued by the Agency to refund the outstanding aggregate principal amount of the Agency's Tax Allocation Bonds, Series 1991. The remaining proceeds were used to finance certain capital improvements within the La Quinta Redevelopment Project Area No. 1. Interest rates on the bonds range from 5.20% to 5.25% and are payable semi-annually on March 1 and September 1 of each year until maturity. The interest and principal of the bonds are payable from pledged tax increment revenues. There are certain limitations regarding the issuance of parity debt as further described in the official statement. Term Bonds maturing September 1, 2028 are subject to mandatory sinking fund redemption, in part by lot, on September 1, 2013 and on each September 1 thereafter, through September 1, 2028, at a price equal to the principal amount thereof plus accrued interest. A portion of the proceeds was used to obtain a surety agreement to satisfy the bond reserve requirement. The principal balance of outstanding bonds at June 30, 2006 is $15,760,000. Tax Allocation Refunding Bonds, Series 1998 - Project Area No. 2 Tax allocation refunding bonds, Series 1998, in the amount of $6,750,000 were issued by the Agency to refund the outstanding aggregate principal amount of the Agency's Tax Allocation Bonds, Series 1992. The remaining proceeds were used to finance certain capital improvements within the La Quinta Redevelopment Project Area No. 2. 26 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 81 Tax Allocation Bonds. (Continued Interest rates on the bonds range from 3.75% to 5.25% and are payable semi-annually on March 1 and September 1 of each year until maturity. The interest and principal of the bonds are payable solely from pledged tax increment revenues of Project Area No. 2. Term Bonds maturing September 1, 2028 and September 1, 2033 are subject to mandatory sinking fund redemption, in part by lot, on September 1, 2009 and September 1, 2019, respectively, and on each September 1 thereafter at a price equal to the principal amount thereof plus accrued interest. There are certain limitations regarding the issuance of parity debt as further described in the official statement. A portion of the proceeds was used to obtain a surety agreement to satisfy the bond reserve requirement. The principal balance of outstanding bonds at June 30, 2006 is $6,130,000. Tax Allocation Bonds, Series 2001 — Project Area No. 1 On August 15, 2001, the Agency issued tax allocation bonds in the amount of $48,000,000 to finance capital projects benefiting the La Quinta Redevelopment Project Area No. 1. The 2001 tax allocation bonds were issued at a discount of $422,400 and issuance costs of $1,517,325. The bonds consist of $17,280,000 of term bonds that accrue interest at 5.00% and mature on September 1, 2021 and $30,720,000 of term bonds that accrue interest at 5.18% and mature on September 1, 2031. The interest and principal on the bonds are payable from pledged tax increment revenues. A portion of the proceeds were used to obtain a surety agreement to satisfy the bond reserve requirement. The principal balance of outstanding bonds at June 30, 2006 is $46,383,564 ($48,000,000 net of unamortized discount and issuance costs of $1,616,436). Tax Allocation Bonds Series 2002 — Project Area No. 1 On June 12, 2002, the Agency issued tax allocation bonds in the amount of $40,000,000 to finance capital projects benefiting the La Quinta Redevelopment Project Area No. 1. The 2002 tax allocation bunds were issued at a discount of $360,000 and issuance costs of $1,250,096. The bonds consist of $6,355,000 of serial bonds and $33,645,000 of term bonds. Interest rates on serial bands range from 1.75% and 4.00% and are payable semi-annually on March 1 and September 1 of each year until maturity. Term bonds accrue interest at 5.00% and 5.125% and mature on September 1, 2022 and September 1, 2023. The interest and principal on the bonds are payable from pledged tax increment revenues. 27 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (8) Tax Allocation Bonds, (Continued) A portion of the proceeds were used to obtain a surety agreement to satisfy the bond reserve requirement. The principal balance of outstanding bonds at June 30, 2006 is $36,879,584 ($38,275,000 net of unamortized discount and issuance costs of $1,395,416). Tax Allocation Bonds. Series 2003 — Proiect Area No. 1 On September 1, 2003, the Agency issued tax allocation bonds in the amount of $26,400,000 to finance capital projects benefiting the La Quinta Redevelopment Project Area No. 1. The 2003 tax allocation bonds were issued at a discount of $277,200 issuance costs of $629,191. Interest is payable semi-annually on March 1 and September 1 of each year, commencing March 1, 2004. Interest payments range from 4.24% to 6.44% per annum. The interest and principal on the bonds are payable from pledged tax increment revenues. Term bonds maturing on September 1, 2013 through September 1, 2032 are subject to mandatory redemption from minimum sinking fund payments, in part by lot, on September 1, 2004, September 1, 2014, and September 1, 2024, respectively, and on each September 1 thereafter at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date. A portion of the proceeds was used to obtain a surety agreement to satisfy the bond reserve requirement. There are certain limitations regarding the issuance of parity debt as further described in the official statement. The principal balance of outstanding bonds at June 30, 2006 is $24,746,542 ($25,605,000 net of unamortized discount and issuance costs of $858,458). 28 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (8) Tax Allocation Bonds, (Continued) The minimum annual requirements (including sinking fund requirements) to amortize the Project Area No. 1 and No. 2 tax allocation bonds as of June 30, 2006 are as follows: June 30: 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Project Area No. 1 Tax Allocation Bonds Principal Interest $ 2,640,000 7,658,900 2,795,000 7,500,554 2,960,000 7,330,189 3,135,000 7,144,063 3,330,000 6,941,435 3,540,000._ 6,724,311 3,765,000 6,491,872 3,515,000 6,281,899 3,690,000 6,095,257 3,885,000 5,896,531 4,090,000 5,687,234 4,305,000 5,466,835 4,530,000 5,234,798 4,770,000 4,990,457 5,020,000 4,733,125 5,285,000 4,462,141 5,565,000 4,175,504 5,860,000 3,871,622 6,170,000 3,549,682 6,505,000 3,209,208 6,850,000 2,850,313 7,220,000 2,472,033 7,610,000 2,073,117 8,015,000 1,653,186 8,445,000 1,211,175 8,905,000 745,023 9,385,000 252,852 $141,785,000 124,703,316 29 Project Area No. 2 Tax Allocation Bonds Principal Interest 105,000 314,785 110,000 310,135 115,000 305,184 120,000 299,550 125,000 293,272 130,000 286,737 140,000 279,819 145,000 272,516 150,000 264,956 160,000 257,013 170,000 248,556 175,000 239,716 185,000 230,491 195,000 220,631 205,000 210,131 215,000 199,106 230,000 187,425 240,000 175,087 255,000 162,094 265,000 148,444 280,000 134,138 295,000 119,044 310,000 103,163 325,000 86,494 345,000 68,906 360,000 50,400 380,000 30,975 400,000 10,500 6,130,000 5,509,268 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 9 Leans Payable to the City of l,a Quinta Financing AuthorI On June 29, 2004, the La Quinta Financing Authority issued revenue bonds in the amount of $90,000,000 to finance projects benefiting low and moderate income housing in La Quinta Redevelopment Project Area No. 1 and La Quinta Redevelopment Project Area No. 2 and to advance refund the Agency's Redevelopment Project Areas No, 1 and 2, 1995 Housing Tax Allocation Bonds. The La Quinta Financing Authority loaned $90,000,000 of the proceeds of the bonds to the La Quinta Redevelopment Agency. Interest is payable semi-annually on March 1 and September 1 of each year, commencing September 1, 2004. Interest payments range from 3% to 5.25% per annum. The interest and principal on the bonds are payable from pledged tax increment revenues. Term bonds maturing on September 1, 2024, September 1, 2029 and September 1, 2034 are subject to mandatory redemption from minimum sinking fund payments, in part by lot, on September 1, 2017, September 1, 2025, and September 1, 2030, respectively, and on each September I thereafter at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date. A portion of the proceeds was used to obtain a surety agreement to satisfy the bond reserve requirement. There are certain limitations regarding the issuance of parity debt as further described in the official statement. The principal balance of outstanding loans payable to the Financing Authority at June 30, 2006 is $87,282,849 ($89,265,000 net of unamortized discount and issuance casts of 51,982,151). 30 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (9) Loans Payable to the Ci!y of La Quinta Financing Authority, {Continued) The minimum annual requirements to repay the loan to the Financing Authority as of June 30, 2006 are as follows: 31 2004 Series A Revenue Bonds June 30 Principal Interest 2007 $ 1,520,000 4,403,156 2008 1,570,000 4,356,806 2009 1,615,000 4,304,994 2010 1,670,000 4,243,331 2011 1,740,000 4,175,131 2012 1,805,000 4,099,719 2013 1,890,000 4,016,581 2014 1,975,000 3,924,681 2015 2,075,000 3,823,431 2016 2,175,000 3,714,462 2017 2,290,000 3,597,256 2018 2,410,000 3,473,881 2019 2,535,000 3,344,075 2020 2,670,000 3,207,444 2021 2,810,000 3,063,594 2022 2,960,000 2,912,131 2023 3,115,000 2,752,663 2024 3,275,000 2,584,925 2025 3,450,000 2,408,394 2026 3,630,000 2,227,082 2027 3,810,000 2,041,081 2028 4,000,000 1,845,831 2029 4,200,000 1,640,831 2030 4,410,000 1,425,582 2031 4,635,000 1,196,560 2032 4,870,000 952,994 2033 5,120,000 697,000 2034 5,380,000 427,938 2035 5,660,000 145,031 9 26 000 81,006,586 31 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) {1_0) Due to County of Riverside Project Area No. 2 Based on an agreement dated July 5, 1989 between the Agency and the County, until the tax increment reaches $5,000,000 annually in Project Area No. 2, the Agency will pay to the County 50% of the County portion of tax increment. At the County's option, the County's pass-through portion can be retained by the Agency to finance new County facilities or land costs that benefit the County and serve the La Quinta population. Per the agreement, the Agency must repay all amounts withheld from the County. The tax increment is to be paid to the County in amounts ranging from $100,000 to $250,000 over a payment schedule through June 30, 2015. Interest does not accrue on this obligation. The balance at June 30, 2006 is $1,850,000. The minimum annual requirement to amortize Due to County of Riverside as of June 30, 2006 is as follows: June 30 Principal 2007 $ 100,000 2008 150,000 2009 200,000 2010 200,000 2011 200,000 2012 250,000 2013 250,000 2014 250,000 2015 250,000 Kia LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) 11 Pass -throw h A eement Payable to Coachella Valley Unified School District An agreement was entered into in 1991 between the Agency, the City of La Quinta and the Coachella Valley Unified School District (District), which provides for the payment to the District a portion of tax increment revenue associated with properties within District confines. Such payments are subordinate to other indebtedness of the Agency incurred in furtherance of the Redevelopment Plan for Project Area No. 1. This tax increment is paid to the District over a payment schedule through August 1, 2012 in amounts ranging from $421,166 to $834,076. Tax increment payments outstanding at June 30, 2006 totaled $5,186,627. The District agrees to use such funds to provide classroom and other construction costs, site acquisition, school buses, expansion or rehabilitation of current facilities. The minimum annual requirements to amortize Payable to Coachella Valley Unified School District as of June 30, 2006 are as follows: June 30 Princ�al 2007 $ 755,449 2008 770,558 2009 785,968 2010 801,688 2011 817,722 2012 834,076 2013 421,166 51 2 (12) Advances, from the City of La_Quinta The City of La Quinta advances money to the Redevelopment Agency to cover operating and capital shortfalls. As of June 30, 2006, the amount due to the General Fund from RDA Debt Service — PA No. 1 was $12,000,000. This consists of an outstanding advance of $6,000,000 loaned to the Redevelopment Agency with repayments beginning in 2030/31 and accrues interest at 10% per annum. The other outstanding advance of $6,000,000 loaned to the Redevelopment Agency requires repayments beginning in 2030/31 and accrues interest at 7% per annum. As of June 30, 2006, the amount due to the General Fund from RDA Debt Service — PA No. 2 was $10,000,000. The advance loaned to the Redevelopment Agency requires repayment beginning in 2035/36 and accrues interest at 10% per annum. 33 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (13) Pledged Tax Revenues All tax revenues received by the Agency other than the amount required by law to be deposited in a low and moderate income housing fund, are required to be used to meet debt service requirements of the bond indentures before any payments may be made on other obligations of the Agency. (14) Transfers In and Out The following transfers were made during the year ended June 30, 2006: Transfer In Debt Service — RDA PA No. 1 Debt Service — RDA PA No. 2 Total transfers Transfer Out Low/Mod Income Housing — PA No. 1 Low/Mod Income Housing — PA No. 2 Capital Projects — RDA PA No. 2 Total Debt Service — RDA PA No.2 Amount $3,945.802 (A) 1,706,754 (C) 6,291,900 (B) 7,998,654 $11,944,456 (A) $3,945,802 was transferred from the Low/Moderate Housing Project Area No. 1 Fund to the RDA Debt Service Project Area No, 1 Fund to pay a portion of the 2004 Series A Local Agency Revenue Bond debt service. (B) $6,291,900 was transferred from the RDA Capital Projects Project Area No. 2 Fund to the RDA Debt Service Project Area No. 2 Fund as repayment for a General Fund advance for the purchase of a parcel of land. (C) $1,706,754 was transferred from the Low/Moderate Housing Project Area No. 2 Fund to the RDA Debt Service Project Area No. 2 Fund to pay a portion of the 2004 Series A Local Agency Revenue Bond debt service. 34 LA QUINTA REDEVELOPMENT AGENCY Notes to the Basic Financial Statements (Continued) (15) Due To/From Other Funds The following interfund receivables and payables were made during the year ended June 30, 2006: Due from other funds Due to Other Funds Amount Debt Service — RDA PA No. 2 2004 Low/Mod Bond (A) (A) Short term borrowing to cover temporary cash shortfall. (16) Educational Revenue Augmentation Fund (ER - Payment During fiscal year ended June 30, 2006, Chapter 1127 of the 2002 Statutes of the State of California requires redevelopment agencies to shift $250,000,000 in property tax revenue to kindergarten through twelfth grade schools and community colleges. The State Department of Finance has determined that the La Quinta Redevelopment Agency amount is $2,903,657 of the $250,000,000, which was forwarded to the Riverside County Auditor in accordance with the statute. 35 (This page intentionally left blank) 36 REQUIRED SUPPLEMENTARY INFORMATION 37 LA QUINTA REDEVELOPMENT AGENCY Low/Moderate Income Housing Fund - PA No. 1 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Revenues: Taxes Investment income Rental income Loan repayments Miscellaneous Total revenues Expenditures: Current: Planning and development Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Transfers out Proceeds from sale of capital assets Total other financing sources (uses) Net change in fund balances Fund balances at beginning of year Fund balances at end of year Year ended June 30, 2006 3,786,329 5,620,980 2,050,445 Variance with Prior Budget 5,620,980 2,050,445 Final Budget Year Original Final Actual Positive (ne a five) Actual (1,733,369) (2,478,347) (3,945,802) $ 6,246,300 6,480,979 9,126,550 2,645,571 6,773,423 20,800 20,800 334,912 314,112 80,270 341,000 341,000 284,205 (56,795) 310,574 - - 1,320,719 1,320,719 2,048,855 - - 310,227 310,227 12,392 6,608,100 6,842,779 11,376,613 4,533,834 9,225,514 3,786,329 5,620,980 2,050,445 3,570,535 2,189,402 3,786,329 5,620,980 2,050,445 3,570,535 2,189,402 2,821,771 1,221,799 9,326,168 8,104,369 7,036,112 (1,733,369) (2,478,347) (3,945,802) (1,467,455) (2,478,347) 150,000 990,000 384,812 (605,188) 668„642 (1,583,369) (1,488,347) (3,560,990) 1,238,402 (266,548) 5,765,178 9,036,555 9,036,555 9,036,555 (2,072,643) (1,809,705) 6,031,726 5,226,407 3,810,148 $10,274,957 8,770,007 14,801,733 6,031,726 9,036,555 38 LA QUINTA REDEVELOPMENT AGENCY Low/Moderate Income Housing Fund - PA No, 2 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual Revenues: Taxes Developer fees Investment income Rental income Repayment of loans Total revenues Expenditures: Current: Planning and development Total expenditures Excess (deficiency) of revenues over (under) expenditures Year ended June 30, 2006 5,363,759 6,047,702 769,275 Variance with Prior Budget 6,047,702 769,275 Final Budget Year Original Final Actual Positive (negative) Actual $ 3,115,000 3,345,543 4,962,474 1,616,931 3,509,241 7,054,074 7,054,074 - (7,054,074) - 24,100 24,100 341,917 317,817 140,742 - 15,320 15,320 209,669 - - 301,131 301,131 332,747 10,193,174 10,423,717 5,620,842 (4,802,875) 4,192,399 5,363,759 6,047,702 769,275 5,278,427 1,350,908 5,363,759 6,047,702 769,275 5,278,427 1,350,908 4,829,415 4,376,015 4,851,567 475,552 2,841,491 Other financing sources (uses): Proceeds from sale of capital asset - 8,637,300 _ (8,637,300) 7,897,653 Transfers out (337,867) (4,128,726) (1,706,754) 2,421,972 (4,142,039) Transfers to the City of La Quinta - (3,221,318) (101,544) 3,119,774 (3,221,318) Total other financing sources (uses) (337,867) 1,287,256L 1,808,298) (3,095,554) 534,296 Net change in fund balances 4,491,548 5,663,271 3,043,269 (2,620,002) 3,375,787 Fund balances at beginning of year 9,077,880 9,077,880 9,077,880 - 5,702,093 Fund balances at end of year $ 13,569,428 14.741,151 12,121,149 (2,620,002) 9,077,880 39 LA QUINTA REDEVELOPMENT AGENCY Notes to Required Supplementary Information Year ended June 30, 2006 l Budgets and Budgetary Accountinia The Agency adopts an annual bud,,et prepared on the modified accrual basis of accounting for its governmental funds. The City Manager or his designee is authorized to transfer budgeted amounts between the accounts of any department. Revisions that alter the total appropriations of any department or fund are approved by City Council. Appropriations were $2,518,594 during the year. Prior year appropriations lapse unless they are approved for carryover into the following fiscal year. Expenditures may not legally exceed appropriations at the department level. Reserves for encumbrances are not recorded by the City of La Quinta. 40 Mayer Hoffman McCann PC. An Independent CPA Firm Conrad Government Services Division 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com Board of Directors La Quinta Redevelopment Agency La Quinta, California We have audited the financial statements of the La Quinta Redevelopment Agency as of and for the year ended .lune 30, 2006, and have issued our report thereon dated August 18, 2006. 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether the financial statements of the La Quinta Redevelopment Agency 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. 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. Internal Control Over Financial Re ortin In planning and performing our audit, we considered the La Quinta Redevelopment Agency's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the Audit committee, management, and the State Controller and is not intended to be and should not be used by anyone other than those specified parties. Irvine, California August 18, 2006 41 (This page intentionally left blank) 42