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03-17-2020 - AGENDA ITEM 11 COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) AND OTHER RELATED REPORTS FOR THE YEAR ENDED JUNE 30, 201911/16/2020 Print Staff Report AGENDA ITEM NO. 11 DATE: March 17, 2020 TO: Mayor and City Council FROM: David Carmany City Manager AGENDA STAFF REPORT City of West Covina I Office of the City Manager SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) AND OTHER RELATED REPORTS FOR THE YEAR ENDED JUNE 30, 2019 RECOMMENDATION: It is recommended that the City Council receive and file the following letters and financial reports for the year ended June 30, 2019: • Comprehensive Annual Financial Report; • Audit Communication Letter; • Single Audit (including Government Auditing Standards Letter); • West Covina Housing Authority Fund Financial Report; • West Covina Housing Authority Fund Addendum to the Annual Progress Report; and • Air Quality Improvement Fund Financial Statements. BACKGROUND: A Comprehensive Annual Financial Report (CAFR) is a set of U.S. government financial statements comprising the financial report of a state, municipal or other governmental entity that complies with the accounting requirements promulgated by the Governmental Accounting Standards Board (GASB). GASB provides standards for the content of a CAFR in its annually updated publication Codification of Governmental Accounting and Financial Reporting Standards. The U.S. Federal Government adheres to standards determined by the Federal Accounting Standards Advisory Board. A CAFR is compiled by a state, municipal or other governmental accounting staff and audited by an external American Institute of Certified Public Accountants certified accounting firm utilizing GASB requirements. It is composed of three sections: Introductory, Financial and Statistical. It combines the financial information of fund accounting and Enterprise Authorities accounting. DISCUSSION: Annually, the Finance Department prepares and publishes the City's Comprehensive Annual Financial Report (CAFR) following the completion of an independent and certified audit. Attached is the June 30, 2019, CAFR (Attachment No. 1). This document is an extensive report summarizing the financial activities of the City that https://destinyhosted.00m/print_ag_memo.cfm?seq=718&rev_num=0&mode=Extemal&reloaded=true&id=93782 1/5 City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2019 TABLE OF CONTENTS, (Continued) FINANCIAL SECTION, (Continued): Required Supplementary Information, (continued): Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: GeneralFund..................................................................................................112 West Covina Housing Authority Special Revenue Fund................................114 Notes to Required Supplementary Information.......................................................115 Supplementary Information: Budgeted Other Major Funds: Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: City Debt Service Fund...................................................................................117 Non -Major Governmental Funds: Combining Balance Sheet.................................................................................119 Combining Statement of Revenues, Expenditures, and Changes in FundBalance..............................................................................................120 Non -Major Special Revenue Funds: Combining Balance Sheet.................................................................................124 Combining Statement of Revenues, Expenditures, and Changes in FundBalance..............................................................................................130 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Drug Enforcement Rebate Special Revenue Fund.....................................136 Measure M Special Revenue Fund............................................................137 Air Quality Improvement Special Revenue Fund.........................................138 Proposition A Special Revenue Fund..........................................................139 Proposition C Special Revenue Fund..........................................................140 State Gas Tax Special Revenue Fund........................................................141 Police Donations Special Revenue Fund....................................................142 Transportation Development Act Special Revenue Fund ............................143 AB939 Special Revenue Fund....................................................................144 Public Safety Augmentation Special Revenue Fund...................................145 COPS/SLESA Special Revenue Fund........................................................146 Charter PEG Special Revenue Fund...........................................................147 Art in Public Places Special Revenue Fund...............................................148 Measure R Special Revenue Fund.............................................................149 Inmate Welfare Special Revenue Fund.......................................................150 West Covina Community Services Foundation Special Revenue Fund .....151 Various Grants Special Revenue Fund.......................................................152 Community Development Block Grant Special Revenue Fund ...................153 Maintenance District #1 Special Revenue Fund.........................................154 Maintenance District #2 Special Revenue Fund.........................................155 Coastal Sage Shrub Special Revenue Fund..............................................156 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS) A) EPMC Replacement Supplemental Retirement Plan General Information about the Pension Plan Plan Description and Benefits Effective November 1, 2007, the City established a single -employer defined benefit plan to supplement the current CalPERS retirement benefits that is to be administered for the City by the Public Agency Retirement System (PARS), a third -party administrator. The plan meets the requirements of a pension trust under California Government Code. Phase II Systems is the PARS Trust Administrator. The plan does not issue separate financial reports. The EPMC Replacement Plan was established to replace a long-standing benefit for city employees no longer allowed by CaIPERS. The plan provides for a benefit in an amount equal to the member's years of service, times the member's final pay, times the CaIPERS age factor, times .70% for miscellaneous employees (times .89% for safety employees). At the time of retirement, employees will make an election to receive either a lump sum payment or receive ongoing stipends over their lifetime. Employees shall be eligible to receive benefits under this plan if he or she meets all of the following requirements under one of the following tiers: Tier 1 • Full time miscellaneous employees on or after July 1, 2004 but hired prior to July 1, 2011. • Classified as a department head or city council, employee represented by the Confidential Employees' Association, General Employees' Association, West Covina Maintenance and Crafts Employees' Association, Mid -Management Employees' Association and Non -Sworn Support Employees' Association. • Has had compensable earnings under CalPERS impacted by CalPERS regulation, thereby causing a reduction in CaIPERS benefits. • At least fifty (50) years of age. • Has completed at least one year of employment. • Has terminated employment with the City and concurrently retired under CalPERS under a regular service retirement, and remains in retired status under CaIPERS. • Has applied for benefits under this plan. -78- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued): A) EPMC Replacement Supplemental Retirement Plan, (continued) General Information about the Pension Plan. (continued) Plan Description and Benefits, (continued) Tier 2 • Full time employee: o Fire management employee on or after July 1, 2004 but hired prior to July 1, 2011. o Fire safety employee on or after July 1, 2004 but hired prior to July 1, 2012. o Police management employee on or after July 1, 2004 but hired prior to December 31, 2012, or an employee hired prior to January 1, 2013 who promotes or transfers to police management position on or after January 1, 2013. • Not represented by the West Covina Police Officers Association. • Has had compensable earnings under CalPERS impacted by CalPERS regulation, thereby causing a reduction in CalPERS benefits. • At least fifty (50) years of age. • Has completed at least one year of employment. • Has terminated employment with the City and concurrently retired under CalPERS under a regular service retirement, and remains in retired status under CalPERS. • Has applied for benefits under this plan. Contributions The City makes all contributions to these plans. Participants do not make any contributions. The actuarially required contribution is determined on the funding policy and most recent measurement available when the contribution for the reporting period was adopted. The City is funding the plan to pay the benefit payments payable each year. The City's contribution for the year ended June 30, 2019 was $62,350. -79- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) General Information about the Pension Plan. (continued) Employees Covered At June 30, 2018, the measurement date, the following employees were covered by the benefit terms for the plan: EPMC Inactive employees or beneficiaries currently receiving benefits 25 Active employees 140 Total 165 Net Pension Liability The City's net pension liability for the Plan is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017. A summary of principal assumptions and methods used to determine the net pension liability is shown on the next page. Actuarial Assumptions The total pension liability at June 30, 2018, the measurement date, was determined using the following actuarial assumptions: EPMC Valuation Date June 30, 2017 Measurement Date June 30, 2018 Actuarial Cost Method Entry Age Normal Actuarial Assumptions: Discount Rate 4.86% (1) Inflation 2.75% Salary Increases 3.00% Investment Rate of Return 6.25% (2) Mortality Rate Table (3) (1) Discount Rate was updated from 4.98% to 4.86% (2) Plan assets currently invested in PARS diversified moderate portfolio. (3) The probabilities of mortality are derived using CalPERS 1997-2015 experience study. -80- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Net Pension Liability. (continued) Discount Rate GASB 67 and 68 generally require that a blended discount rate be used to measure the Total Pension Liability (the Actuarial Accrued Liability calculated using the Individual Entry Age Normal Cost Method). The long-term expected return on plan investments may be used to discount liabilities to the extent that the plan's Fiduciary Net Position (fair market value of assets) is projected to cover benefit payments and administrative expenses. A 20-year high quality (AA/Aa or higher) municipal bond rate must be used for periods where the Fiduciary Net Position is not projected to cover benefit payments and administrative expenses. Determining the discount rate under GASB 67 and 68 will often require that the actuary performs complex projections of future benefit payments and asset values. The following circumstances were included in the evaluation of sufficiency for the City: • Annual contributions of 0.7% of payroll (closed group basis) are assumed (beginning with 2015/16). • Benefit payments are annually withdrawn from the Trust until assets are exhausted and then benefit payments made directly by the City. • All cash flows are assumed to occur on average halfway through the year. • The long-term expected rate of return on pension plan investments is 6.25%. • The actuarial assumptions do not change. • GASB 67 and 68 specify that the projections regarding future solvency assume that plan assets earn the assumed rate of return and there are no future changes in the plan provisions or actuarial methods and assumptions, which means that the projections would not reflect any adverse future experience which might impact the plan's funded position. Based on these circumstances, it is the actuary's opinion that a depletion date projection is not appropriate. Therefore, the discount rate is based on the projected portion of the Total Pension Liability funded by the Fiduciary Net Position in each future year. For the funded portion, the long-term expected rate of return on pension plan investments (6.25%) was used. For the unfunded portion, the Bond Buyer 20-Bond Go Index as of the June 30, 2018, measurement date (3.87%) was used. The discount rate used (4.86%) represents the single equivalent rate of return, as described under GASB 68 (paragraph 31). The best -estimate range for the long-term expected rate of return is determined by adding expected inflation to expected long-term real returns and reflecting expected volatility and correlation. -81- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Net Pension Liability. (continued) Discount Rate, (continued) The table below reflects the long-term expected real rate of return by asset class: Target Expected Real Asset Class Component Allocation Rate of Return Equity 58.00% 4.82% REITs 2.00% 3.76% Fixed Income 35.00% 1.47% Cash 5.00% 0.06% Total 100.00% The plan's fiduciary net position was not projected to be available to make all projected future benefit payments of current retirees. Therefore, the discount rate for calculating the total pension liability is equal to the single equivalent rate that results in the same actuarial present value as the long-term expected rate of return applied to benefit payments, to the extent that the plan's fiduciary net position is projected to be sufficient to make projected benefit payments, and the municipal bond rate applied to benefit payments, to the extent that the plan's fiduciary net position is not projected to be sufficient. The City chose the Bond Buyer General Obligation 20-Bond Index resulting is the use of a 3.87% rate in calculating the pension liability. Changes in the Net Pension Liability The changes in the net pension liability for the Plan are as follows: Increase (Decrease) Total Pension Plan Fiduciary Net Net Pension Liability Position Liability (a) (b) (c) _ (a) - (b) Balances as of June 30, 2018 $ 931,572 $ 143,715 $ 787,857 Changes for the year: • Service Cost 29,701 - 29,701 • Interest 46,463 - 46,463 • Difference between actual and expected experience - - - • Assumptions Changes 10,475 - 10,475 • Contributions- employer - 60,056 (60,056) • Contributions- employee - - - • Net Investment Income - 8,234 (8,234) • Benefit payments and refunds (56,554) (56,554) - • Administrative Expenses (775) 775 Net Chan es 30,685 10,961 19,124 Balance as of June 30, 2019 $ 961,657 1 $ 154,676 1 $ 806,981 -82- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Changes in the Net Pension Liability. (continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability (asset) of the City for the Plan, calculated using the discount rate for the Plan, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1- percentage point higher than the current rate: Discount Rate - 1 % Current Discount Rate Discount Rate + 1 (3.86%) (4.86%) (5.86%) Net Pension Liability I $ 903,855 1 $ 806,981 $ 726,015 Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2019, the City recognized pension expense of $83,671. At June 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between Expected and Actual Experience $ 74,482 $ (33,600) Changes of Assumptions 102,530 (85,228) Net Difference between Projected and Actual Earnings on Pension Plan 3,900 Employer Contributions Subsequent to Measurement Date 62,350 Total $ 243,262 1 $ 118,828 -83- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Changes in the Net Pension Liability. (continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions, (continued): The $62,350 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability during the fiscal year ending June 30, 2019. Other amounts reported as deferred inflows of resources related to pensions will be recognized as pension expense as follows: Fiscal Year Ended June 30, 2020 2021 2022 2023 2024 Thereafter Payable to the Pension Plan Deferred Outflows/(Inflows) of Resources, Net PARS $ 16,800 16,400 14,400 6,786 2,917 4,781 The City has no outstanding amount of contributions to the pension plan required for the year ended June 30, 2019. B) Supplemental Retirement Plan for Executive Staff and City Council General Information about the Pension Plan Plan Description and Benefits Effective November 1, 2007, the City established a single -employer defined benefit plan to supplement the current CalPERS retirement benefits that is to be administered for the City by with the Public Agency Retirement System (PARS), a third -party administrator. The plan meets the requirements of a pension trust under California Government Code. Phase II Systems is the PARS Trust Administrator. The plan does not issue separate financial reports and is closed to new hires. -84- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) General Information about the Pension Plan. (continued) Plan Description and Benefits, (continued) This single -employer defined benefit pension plan is separated into three tiers Tier 1 (full-time non -safety Department Head and the City Manager) and Tier 2 (City Council) provides an additional retirement amount to miscellaneous department heads, City Manager and City Council in an amount equal to the amount of $823 per month. This benefit amount increases each year by CPI, up to 2%. In order to be eligible for this benefit, participants must have five years of service with the City and must retire into PERS from the City. Tier 3 (City Manager) provides an increased retirement benefit to a former City Manager consistent with the terms of his contract. It will convert the retirement formula for all years of prior CalPERS service at non -West Covina agencies to the CaIPERS 2.5% @ 55 formula currently in place with the City of West Covina. Contributions All three tiers are combined for funding purposes in this plan. The City makes all contributions to these plans. Participants do not make any contributions. The actuarially required contribution is determined on a pay as you go funding policy and most recent measurement available when the contribution for the reporting period was adopted. The City is funding the plan to pay the benefit payments payable each year. The City's contribution for the year ended June 30, 2019 was $78,102. Employees Covered At June 30, 2018, the measurement date, the following employees were covered by the benefit terms for the plan: Miscellaneous Inactive employees or beneficiaries currently receiving benefits 9 Active employees 1 Total 10 -85- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Net Pension Liabilitv The City's net pension liability for the Plan is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions The total pension liability in the June 30, 2018, the measurement date, was determined using the following actuarial assumptions: Miscellaneous Valuation Date June 30, 2017 Measurement Date June 30, 2018 Actuarial Cost Method Entry Age Normal Actuarial Assumptions: Discount Rate 4.16% (1) Inflation 2.75% Salary Increases 3.00% Investment Rate of Return 6.25% (2) Mortality Rate Table (3) (1) Discount Rate was updated from 3.95% to 4.16%. (2) Plan assets currently invested in PARS diversified moderate portfolio. (3) The probabilities of mortality are derived using CaIPERS' 1997-2015 experience study. -86- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Net Pension Liability. (continued) Discount Rate GASB 67 and 68 generally require that a blended discount rate be used to measure the Total Pension Liability (the Actuarial Accrued Liability calculated using the Individual Entry Age Normal Cost Method). The long-term expected return on plan investments may be used to discount liabilities to the extent that the plan's Fiduciary Net Position (fair market value of assets) is projected to cover benefit payments and administrative expenses. A 20-year high quality (AA/Aa or higher) municipal bond rate must be used for periods where the Fiduciary Net Position is not projected to cover benefit payments and administrative expenses. Determining the discount rate under GASB 67 and 68 will often require that the actuary perform complex projections of future benefit payments and asset values. GASB 67 (paragraph 43) and 68 (paragraph 29) do allow for alternative evaluations of projected solvency, if such evaluation can reliably be made. GASB does not contemplate a specific method for making an alternative evaluation of sufficiency; it is left to professional judgment. The following circumstances justify an alternative evaluation of sufficiency for the City: • The City ceased contributions and withdrawals from the Trust. The City will pay benefits directly to retirees until the trust is sufficient, on an expected basis, to pay all remaining benefits. • All cash flows are assumed to occur on average halfway through the year. • The long-term expected rate of return on pension plan investments is 6.25%. • The actuarial assumptions do not change. • GASB 67 and 68 specify that the projections regarding future solvency assume that plan assets earn the assumed rate of return and there are no future changes in the plan provisions or actuarial methods and assumptions, which means that the projections would not reflect any adverse future experience which might impact the plan's funded position. Based on these circumstances, it is the actuary's opinion that a depletion date projection is not appropriate. Therefore, the discount rate is based on the projected portion of the Total Pension Liability funded by the Fiduciary Net Position in each future year. For the funded portion, the long-term expected rate of return on pension plan investments (6.25%) was used. For the unfunded portion, the Bond Buyer 20-Bond Go Index as of the June 30, 2018, measurement date, (3.87%) was used. The discount rate used (4.16%) represents the single equivalent rate of return, as described under GASB 68 (paragraph 31). -87- City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2019 TABLE OF CONTENTS, (Continued) FINANCIAL SECTION, (Continued): Supplementary Information, (continued): Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Maintenance District #4 Special Revenue Fund.........................................157 Maintenance District #6 Special Revenue Fund.........................................158 Maintenance District #7 Special Revenue Fund.........................................159 Citywide Maintenance District Special Revenue Fund...............................160 Sewer Maintenance Special Revenue Fund..............................................161 Auto Plaza Improvement District Special Revenue Fund ...........................162 Non -Major Capital Projects Funds: Combining Balance Sheet.................................................................................164 Combining Statement of Revenues, Expenditures, and Changes in FundBalances.............................................................................................166 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: City Capital Projects Fund..........................................................................168 Construction Tax Capital Projects Fund.....................................................169 Information Technology Capital Projects Fund............................................170 Park Development Capital Projects Fund....................................................171 Development Impact Fees Capital Projects Fund.......................................172 Internal Service Funds: Combining Statement of Net Position...............................................................174 Combining Statement of Revenues, Expenses, and Changes in Net Position.............................................................................176 Combining Statement of Cash Flows...............................................................178 Pension Trust Funds: Combining Statement of Net Position...............................................................181 Combining Statement of Changes in Net Position...........................................182 Agency Fund: Statement of Changes in Assets and Liabilities...............................................184 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Net Pension Liability. (continued) Discount Rate, (continued) The best -estimate range for the long-term expected rate of return is determined by adding expected inflation to expected long-term real returns and reflecting expected volatility and correlation. The table below reflects the long-term expected real rate of return by asset class: Target Expected Real Asset Class Component Allocation Rate of Return Equity 58.00% 4.82% REITs 2.00% 3.76% Fixed Income 35.00% 1.47% Cash 5.00% 0.06% Total 100.00% The plan's fiduciary net position was not projected to be available to make all projected future benefit payments of current retirees. Therefore, the discount rate for calculating the total pension liability is equal to the single equivalent rate that results in the same actuarial present value as the long-term expected rate of return applied to benefit payments, to the extent that the plan's fiduciary net position is projected to be sufficient to make projected benefit payments, and the municipal bond rate applied to benefit payments, to the extent that the plan's fiduciary net position is not projected to be sufficient. The City chose the Bond Buyer General Obligation 20-Bond Index resulting the use of a 3.87% rate in calculating the pension liability. -88- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Changes in the Net Pension Liability The changes in the net pension liability, with a measurement date of June 30, 2018, for the Plan are as follows: Increase (Decrease) Total Pension Plan Fiduciary Net Net Pension Liability Position Liability (a) (b) (c) _ (a) - (b) Balances as of June 30, 2018 $ 3,365,944 $ 611,580 $ 2,754,364 Changes for the year: Service Cost 12,235 - 12,235 Interest 130,692 130,692 Difference between actual and expected experience - - Assumptions Changes (101,877) - (101,877) Contributions -employer 74,100 (74,100) Contributions- employee - Net Investment Income 36,931 (36,931) Benefit payments and refunds (139,056) (139,056) Administrative Expenses 3,379 3,379 Net Chan es 98,006 31,404 66,602 Balance as of June 30, 2019 1 $ 3,267,938 1 $ 580,176 $ 2,687,762 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City for the Plan, calculated using the discount rate for the Plan, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Discount Rate -1 % I Current Discount Rate Discount Rate + 1 (3.16%) (4.16%) 1 (5.16%) Net Pension Liability 1 $ 3,221,305 1 $ 2,687,762 1 $ 2,263,895 -89- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 13) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Changes in the Net Pension Liability. (continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2019, the City recognized pension expense of $11,067. At June 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between Expected and Actual Experience $ $ Changes of Assumptions Net Difference between Projected and Actual Earnings on Pension Plan 10,611 Pension Contributions Subsequent to Measurement Date 78,102 Total $ 88,713 1 $ The $78,102 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability during the fiscal year ending June 30, 2019. Other amounts reported as deferred inflows of resources related to pensions will be recognized as pension expense as follows: Fiscal Year Ended June 30, 2020 2021 2022 2023 2024 Thereafter Payable to the Pension Plan Deferred Outflows/(Inflows) of Resources, Net PARS $ 9,726 3,726 (2,674) (167) The City has no outstanding amount of contributions to the pension plan required for the year ended June 30, 2019. -90- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 14) DEFINED CONTRIBUTION PENSION PLAN Plan Description During the 1991-1992 fiscal year, the City established the West Covina Part -Time Retirement Plan, a defined contribution retirement plan, for all non -benefited, part-time employees in accordance with Internal Revenue Code Section 457, to conform to Section 3121(b)(7)(F) of the Internal Revenue Code added by the Omnibus Budget Reconciliation Act of 1990. The plan is administered by Nationwide Retirement Solutions. The plan was established by the authority of the City Council who retains the authority to amend the plan. A defined contribution pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual's account are to be determined instead of specifying the amount of benefits the individual is to receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant's account and the returns earned on investments of the contributions. Part-time, non -benefited, non-persable employees of the City must participate in the plan. During 2012-13, 195 part-time employees participated in the plan. All contributions to the plan vest immediately. An employee who leaves the City is entitled to all contributions and earnings applied to the individual's account through the date of separation, less legally required income tax withholding. Contribution levels into the deferred compensation plan were established by City Council resolution at 0% for the City and 7.5% for non -benefited, non-persable part-time employees. During the year, total required and actual contributions amounted to $65,383 and covered payroll for the year ended June 30, 2019 totaled $778,311. No contributions were made by the City and employees contributed $65,383 (8.4% of current covered payroll). Total plan assets at June 30, 2019 were $792,707. Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries and, therefore, are not included in the financial statements. -91- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 15) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS Plan Descriptions Medical The City administers a single -employer defined benefit plan which provides healthcare benefits to eligible retirees and their dependents in accordance with various labor agreements. City paid amounts are capped at varying amounts depending on employee's bargaining unit, as follows: • Police: o$1,005 per month for employees hired before July 1, 2012, with five years of sworn service or hired after July 1, 2012, with more than twenty years of sworn service o PEMHCA minimum amount ($122 and $125 per month in calendar years 2015 and 2016, respectively) for employees hired after July 1, 2012, with less than twenty years of sworn service • Fire o$1,005 per month for employees hired before July 1, 2012, with five years of sworn service o PEMHCA minimum amount ($122 and $125 per month in calendar years 2015 and 2016, respectively) for employees hired after July 1, 2012 • Miscellaneous - At the PEMHCA minimum amount ($122 and $125 per month in calendar years 2015 and 2016, respectively). Life Insurance Eligible retirees, in accordance with various labor agreements, receive life insurance benefits from the City as follows: • $500 Confidential/Exempt, General, Maintenance and Non -Sworn Safety bargaining units • $10,000 Executive Management, Mid -Management, Police Management (retired after September 1, 2006), Fire Management and Fire bargaining units • $10,500 Police bargaining unit Employees Covered As of the June 30, 2019 actuarial valuation, the following current and former employees were covered by the benefit terms under the Plan: Active employees 483 Inactive employees or beneficiaries currently receiving benefits 272 Inactive employees entitled to, but not yet receiving benefits 49 Total 804 -92- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 15) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS, (continued) Contributions The contribution requirements of plan meml amended by City Council. The contribution bargaining unit requirements is based on a premiums become due). For fiscal year $2,398,678 to the plan, including $2,008,056, and $376,000 of implied subsidy premiums. Net OPEB Liability )ers and the City are established and may be required to be made under City Council and pay-as-you-go basis (i.e. as medical insurance ended June 30, 2019, the City contributed for current premiums (100% of total premiums), The City's net OPEB liability was measured as of June 30, 2018 and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation dated June 30, 2017 based on the following actuarial methods and assumptions: Actuarial Assumptions June 30, 2018 Measurement Date Actuarial Valuation Date June 30, 2017 Contribution Policy Nopre-funding Discount Rate 3.87% General Inflation 2.75% Mortality, Retirement, Based on CalPERS 1997-2015 Experience Study Disability, Termination Salary increases 3.00% Medical Trend Non -Medicare — 7.5% for 2020, decreasing to an ultimate rate of 4.00% in 2076 Medicare — 6.5% for 2020, decreasing to an ultimate rate of 4.00% in 2076 Healthcare Participation Actives: 60% for PEMHCA minimum benefits, 95% for 2-party coverage benefits Retirees: 100% if covered, 5% re-elect at 65 if waived Discount Rate A discount rate of 3.87% was used in the valuation for measurement date June 30, 2018. -93- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 15) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS, (continued) Changes in the OPEB Liability The changes in the net OPEB liability for the Plan are as follows: (a) (b) (a) - (b) = (c) Total OPEB Plan Fiduciary Liability Net Position Net OPEB Liability Balance at June 30, 2018 (6/30/17 measurement date) $ 59,914,016 $ $ 59,914,016 Changes recognized for the measurement period: Service cost 1,619,250 - 1,619,250 Interest 2,158,673 - 2,158,673 Changes of assumptions (2,524,608) - (2,524,608) Benefit payments (2,470,254) (2,470,254) Net changes (1,216,939) (1,216,939) Balance at June 30, 2019 (6/30/18 measurement date) $ 58,697,077 $ $ 58,697,077 Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the net OPEB liability of the City if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate, for measurement period ended June 30, 2018: 1% Decrease Current Discount 1% Increase (2.87%) Rate (3.87%) (4.87%) Net OPEB Liability $ 68,171,030 $ 58,697,077 $ 51,144,226 Sensitivity of the Net OPEB Liability to Changes in the Health Care Cost Trend Rates The following presents the net OPEB liability of the City if it were calculated using health care cost trend rates that are one percentage point lower or one percentage point higher than the current rate, for measurement period ended June 30, 2018: Current Healthcare 1% Decrease Cost Trend Rates 1% Increase Net OPEB Liability $ 55,096,584 $ 58,697,077 $ 62,730,764 OPEB Plan Fiduciary Net Position The Plan Fiduciary Net Position was $0 at the June 30, 2018 measurement date, as the City is not prefunding with an OPEB trust. The City does not have assets accumulated in a trust that meets the criteria of GASB 75 to pay related benefits. -94- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 15) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS, (continued) Recoanition of Deferred Outflows and Deferred Inflows of Resources Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense systematically over time. Amounts are first recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future OPEB expense. The net difference between projected and actual earnings on OPEB plan investments is amortized using the straight-line method over 5 years, while all other amounts are amortized over the expected average remaining service lifetime (EARSL) of plan participants. OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the fiscal year ended June 30, 2019, the City recognized OPEB expense of $2,128,789. As of fiscal year ended June 30, 2019, the City reported deferred outflows of resources related to OPEB from the following sources: Deferred Oufflows of Deferred Inflows of Resources Resources Differences between expected and actual experience $ - $ 6,701,986 Contributions to OPEB plan subsequent to the measurement date 2,398,678 Total $ 2,398,678 $ 6,701,986 The $2,398,678 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2018 measurement date will be recognized as a reduction of the net OPEB liability during the fiscal year ending June 30, 2020. Other amounts reported as deferred outflows or inflows of resources related to OPEB will be recognized as expense as follows: Deferred Fiscal Year Ended Outflows/(Inflows) of June 30 Resources 2020 $ (1,649,134) 2021 (1,649,134) 2022 (1,649,134) 2023 (1,406,361) 2024 (348,223) Thereafter -95- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 16) COMMITMENTS AND CONTINGENCIES A) In 1989, in order to assist in the expansion of the Fashion Plaza shopping center, the City enacted an ordinance to allow the Redevelopment Agency of the City of West Covina (the predecessor to the West Covina Community Development Commission) to receive the sales tax generated as a result of the expansion project. At the same time, the City enacted an ordinance providing a credit for sales tax payable by the developer in the amount equal to the sales tax due to the redevelopment agency. These sales tax ordinances and related agreements between the City and the Agency essentially transferred the sales tax increment due to the Fashion Plaza expansion project from the City to the Agency. On July 25, 2005, the Board of Directors of the former West Covina Community Development Commission adopted Resolution No. 2005-50. By this resolution, the Board of Directors authorized the Commission to reimburse the City of West Covina over a period of 17 years for the sales tax revenue that had essentially been shifted from the City to the Agency. These budgeted interfund transfers between the primary government of the City of West Covina and the former Community Development Commission will be recorded in the fiscal year that they result in a flow of current financial resources, as required by the measurement focus prescribed for governmental funds. As a result of the dissolution of the Redevelopment Agency, the Department of Finance has deemed this agreement as an unenforceable obligation. 17) CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES On June 29, 2011, Assembly Bill 1 X 26 (the "Dissolution Act") was enacted as part of the fiscal year 2011-12 state budget package. On December 29, 2011, the California Supreme Court Upheld the Dissolution Act which provided for the dissolution of all redevelopment agencies in the State of California. This action impacted the reporting entity of the City that previously had reported a redevelopment agency within the reporting entity of the City as a blended component unit. The Dissolution Act provided that upon dissolution of a redevelopment agency, either the city or another unit of local government would agree to serve as the successor agency (Successor Agency) to hold the assets until they are distributed to other units of state and local government. On January 10, 2012, the City elected to serve as the Successor Agency of the Community Development Commission of the City of West Covina. After enactment of the law, redevelopment agencies in the State of California cannot enter into new projects, obligations or commitments. Subject to the control of a newly established oversight board, remaining assets can only be used to pay enforceable obligations in existence at the date of dissolution. -96- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 17)CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES, (continued) Senate Bill 107, signed on September 22, 2015, required the creation of consolidated Oversight Boards commencing after July 1, 2018. Effective July 1, 2018 the Successor Agency of the Community Development Commission and 22 other RDAs in the First Supervisorial District of Los Angeles County were consolidated into the First District Consolidated Oversight Board, which has fiduciary responsibility to the holders of enforceable obligations and the taxing entities that benefit from distributions of property tax and other revenue. 18) SUCCESSOR AGENCY DISCLOSURES The assets and liabilities of the Commission's former non -housing redevelopment activities were transferred to the City in its fiduciary capacity as the Successor Agency to the Redevelopment Agency of the City of West Covina on February 1, 2012, as a result of the dissolution of California redevelopment agencies. These assets and liabilities and any activities related to them are reported in the City's fiduciary private -purpose trust fund financial statements. Disclosures related to these assets and liabilities are as follows: Assessment Receivable In connection with the Commission's issuance of its $51,220,000 1996 Special Tax Refunding Bonds, $32,520,000 in assessments receivable was recorded. The assessment is an annual special tax levied on the Community Facilities District No.1989-1 in an amount sufficient to ensure payment of the debt service on the 1996 Special Tax Refunding Bonds. This special tax supplements sales and property tax increment revenues that also support the debt service on the bonds. The assessments receivable outstanding as of June 30, 2019 was $16,465,000. Due from the City of West Covina As part of the dissolution process, AB1484 required the Successor Agency to have due diligence reviews of both the low and moderate income housing funds and all other funds to be completed by October 15, 2012, and January 15, 2013, to compute the funds (cash) which were not needed by the Successor Agency to be retained to pay for existing enforceable obligations. The Successor Agency remitted $1,891,166 to the County Auditor - Controller (CAC) on December 19, 2012, for the low and moderate income housing funds due diligence review. The due diligence review for all other funds was finalized with the final letter of determination issued by the DOF on April 24, 2013. The DOF determined that the principal and interest payments made by the former Community Development Commission totaling $12,205,531 on various loans from the City of West Covina for the period January 1, 2011, to June 30, 2012, were on loans not made within the first two years of the formation of the former redevelopment agency. The DOF ordered the Successor Agency to remit $11,578,351 to the CAC within five days from the date of the letter. -97- City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2019 TABLE OF CONTENTS, (Continued) STATISTICAL SECTION (UNAUDITED): Net Position by Component................................................................................................186 Changesin Net Position......................................................................................................188 Changes in Net Position - Governmental Activities.............................................................192 Changes in Net Position - Business -Type Activities...........................................................194 Fund Balances of Governmental Funds..............................................................................196 Changes in Fund Balances of Governmental Funds..........................................................198 Assessed Value and Estimated Actual Value of Taxable Property....................................200 Direct and Overlapping Property Tax Rates......................................................................202 Principal Property Taxpayers..............................................................................................204 Property Tax Levies and Collections...................................................................................205 Ratios of Outstanding Debt by Type...................................................................................207 Ratios of General Bonded Debt Outstanding......................................................................209 Direct and Overlapping Debt...............................................................................................210 LegalDebt Margin Information............................................................................................211 Pledged -Revenue Coverage...............................................................................................213 Demographic and Economic Statistics................................................................................215 PrincipalEmployers............................................................................................................216 Full-time and Part-time City Employees..............................................................................217 Operating Indicators by Function.......................................................................................218 Capital Asset Statistics by Function/Program.....................................................................220 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 18) SUCCESSOR AGENCY DISCLOSURES, (continued) Due from the City of West Covina, (continued) City management, in consultation with its legal counsel, did not agree with the DOF's decision and filed a lawsuit to contest the decision. The City also did not remit the payments that were disallowed to the CAC. In December 2015, the City entered into a settlement agreement, which requires the City to repay the $11,578,351 over a period of 20 years. See additional details on the long-term payable in Note 8. As the City repays the Successor Agency, the Successor Agency will remit the amounts collected to the CAC. The City reported a long-term liability of $9,262,679 (reported as part of notes payable) in the governmental activities and a receivable of $9,262,679 in the Successor Agency related to the DOF's determination at June 30, 2019. Land Held for Resale Land held for resale is valued at the lower of cost or the sales price per contract with the developer. The land held for resale at June 30, 2019 was comprised of BKK Project in the amount of $139,016. Long -Term Liabilities Long-term liability activity for the year ended June 30, 2019 was as follows: Balance Balance Due Within Successor Agency: June 30, 2018 Additions Deletions June 30, 2019 One Year Lease Revenue Bonds: 1988 Lease Revenue Refunding Bonds $ 670,000 $ - $ (670,000) $ - $ - Special Tax Bonds: 1996 Special Tax Refunding Bonds 19,440,000 - (3,250,000) 16,190,000 3,495,000 Tax Allocation Bonds: 2017 Tax Allocation Revenue Refunding Bonds 13,900,000 - (1,765,000) 12,135,000 1,820,000 Plus deferred amounts: Issuance premium 231,430 (6,807) 224,623 6,807 Total Bonds Payable 34,241,430 - (5,691,807) 28,549,623 5,321,807 Developer agreement payable 60,206,812 4,147,251 (404,040) 63,950,023 358,248 Due to County of Los Angeles 3,082,841 84,180 (1,880,269) 1,286,752 1,286,752 Total $ 97,531,083 $ 4,231,431 $ (7,976,116) $ 93,786,398 $ 6,966,807 -98- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 18) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities, (continued) Lease Revenue Bonds 1988 Lease Revenue Refunding Bonds (The Lakes Public Parking Project) In 1988, the Community Development Commission issued $7,750,000 of Variable Rate Lease Revenue Bonds for the purpose of constructing two multi -story parking structures. The bonds consist of $7,350,000 of current interest bonds and $400,000 of compound interest bonds. The bonds carried interest rates of 6.625% and 7.50%, respectively, until January 31, 1994. On February 1, 1994, the bonds were converted to variable rate bonds. The interest rates vary based on the prevailing financial market conditions beginning on February 1, 1994, to a maximum of 12% over the term of the bonds and are payable monthly. The bonds are subject to mandatory redemption beginning August 1, 1994, and annually thereafter through August 1, 2018. The bonds are secured by the facilities and lease rentals to be received pursuant to a lease agreement between the Commission and the City. The reserve requirement was fully funded at June 30, 2019. There is no outstanding principal balance at June 30, 2019. Special Tax Bonds 1996 Special Tax Refunding Bonds (The Fashion Plaza Project) In 1996, the Community Development Commission issued $51,220,000 of Special Tax Refunding Bonds comprised of $9,980,000 of serial bonds and $41,240,000 of term bonds to finance public parking facilities, street and other improvements located in or adjacent to the Community Development Commission Community Facilities District. The serial bonds matured during the fiscal year ended June 30, 2007. The term bonds bear interest at a rate from 5.75% to 6.0% payable semiannually and are due September 1, 2022. The term bonds are not subject to optional redemption; mandatory redemption begins September 1, 2007, then annually thereafter through September 1, 2022. Interest is payable semiannually on March 1 and September 1 of each year. The bonds are secured by and payable from a portion of the revenues derived from an annual special tax to be levied against all taxable real property within the Special Assessment District. In addition, the Commission has pledged certain other incremental revenues generated within the District consisting of property taxes and sales taxes. In addition, the reserve requirement of $5,002,670 was fully funded at June 30, 2019. There was a bond call on March 1, 2016, for $425,000. The outstanding principal balance of the bonds at June 30, 2019 was $16,190,000. -99- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 18) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities, (continued) Special Tax Bonds, (continued) 1996 Special Tax Refunding Bonds (The Fashion Plaza Project), (continued) The annual debt service requirements on the 1996 Special Tax Bonds as of June 30, 2019 were as follows: Year Ending June 30, Principal Interest Total 2020 $ 3,495,000 $ 866,550 $ 4,361,550 2021 3,735,000 649,650 4,384,650 2022 4,055,000 415,950 4,470,950 2023 4,905,000 147,150 5,052,150 Total $ 16,190,000 $ 2,079,300 $ 18,269,300 Tax Allocation Bonds 2017 Tax Allocation Revenue Refunding Bonds On February 14, 2017, the Successor Agency issued Tax Allocation Revenue Refunding bonds, Series 2017A (Tax -Exempt) and 2017B (Federally Taxable). These bonds refinanced the 1998 Housing Set -Aside Tax Allocation Bonds Series A & B, the 2001 Housing Set -Aside Tax Allocation Revenue Bonds, the 2002 Tax Allocation Refunding Bonds and the 1999 Taxable Variable Rate Demand Tax Allocation Bonds. The bonds are payable from and secured solely from the Trust Estate, which will consist primarily of principal and interest payments on the Local Obligations to be purchased by the Authority as set forth in the Agency Indenture. The interest on the Series A bonds is payable semiannually on September 1 and March 1 of each year at interest rates ranging from 2% to 5%. The principal of the Series A bonds is due annually throughout 2026, in amounts ranging from $400,000 to $670,000. The interest on the Series B bonds is payable semiannually on September 1 and March 1 of each year at interest rates ranging from 1 % to 3.75%. The principal of the Series B bonds is due annually throughout 2032, in amounts ranging from $145,000 to $1,215,000. The required reserve of $1,537,074 at June 30, 2019 was fully funded. The principal balance of outstanding bonds at June 30, 2019 was $12,135,000. As a result of the refunding, the City reduced its debt service cash flow by $1,443,006, resulting in an economic gain of $603,922 (calculated as the difference between the debt service payments under the old and new bonds discounted to present value using the effective interest rate). -100- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 18) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities, (continued) Tax Allocation Bonds, (continued) 2017 Tax Allocation Revenue Refunding Bonds, (continued) The annual debt service requirements on the 2017 Tax Allocation Revenue Refunding Bonds as of June 30, 2019 were as follows: Year Ending June 30, Principal Interest Total 2020 $ 1,820,000 $ 361,413 $ 2,181,413 2021 1,865,000 305,641 2,170,641 2022 1,615,000 253,006 1,868,006 2023 1,425,000 205,613 1,630,613 2024 1,255, 000 160,406 1,415,406 2025-2029 3,475,000 335,866 3,810,866 2030-2032 680,000 25,500 705,500 Total $ 12,135,000 $ 1,647,445 $ 13,782,445 Developer Agreement Payable On June 26, 1989, the Commission entered into an agreement with a developer to share certain future tax revenues generated by the Community Facilities District. Since 1992, the developer's share of revenues totaled $55,372,039, the unpaid balance accrues interest at a rate of 10%. The Commission has made payments to the developer totaling $21,678,037. The balance outstanding at June 30, 2019 was $63,950,023. Due to the County of Los Angeles Based on an agreement dated June 19, 1990, between the Commission and the County, during the first twenty years beginning in 1990, the Commission will retain from the County 50% of the County portion of tax increment. Per the agreement, the Commission must repay all amounts withheld from the County beginning in 2011. The repayment is made annually and is based on a calculation of excess tax increment revenues from the sub -project area. The outstanding balance accrues interest at 7%. The balance at June 30, 2019 was $1,286,752. -101- This page intentionally left blank. REQUIRED SUPPLEMENTARY INFORMATION City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CalPERS Pension Plan - Miscellaneous Last Ten Years' Measurement Period 2013-14 2014-15 2015-16 2016-17 2017-18 TOTAL PENSION LIABILITY Service Cost $ 1,653,769 $ 1.454,757 $ 1.395,164 $ 1,568,756 $ 1,598,999 Interest 9,849,865 10,180,561 10,423,152 10,499,411 10,735,301 Changes of Benefit Terms - - - 8,138,458 - Difference Between Expected and Actual Experience - (134,455) (568,485) (1,086,666) 884,485 Changes of Assumptions - (2,336,836) - - (792,110) Benefit Payments, Including Refunds of Employee Contributions (6,835,867) (7,534,397) (8,197,448) (8,527,256) (9,225,744) Net Change in Total Pension Liability 4,667,767 1,629,630 3,052,383 10,592,703 3,200,931 Total Pension Liability -Beginning 133,922,583 138,590,350 140,219,980 143,272,363 153,865,066 Total Pension Liability- Ending (a) S 138,590,350 S 140,219,980 $ 143,272,363 $153,865,066 $ 157,065,997 PLAN FIDUCIARY NET POSITION Contributions -Employer $ 1,441,234 $ 1,507,469 $ 1,871,710 $ 2,449,585 $ 2,610,696 Contributions -Employee 921'495 714,712 819,011 788,064 785,970 Net Investment Income 17, 189,513 2,500,142 590,110 11,531,815 9,216,240 Benefit Payments, Including Refunds of Employee Contributions IS'835:867) (7,534,397) (8,197,448) (8,527,256) (9,225,744) Plan to Plan Resource Movement - 307 (4,880) - (266) Administrative Expense - (123.626) (66,948) (154,821) (172,889) Other Miscellaneous Incomet(Expense)' (328,320) Net Change in Fiduciary Net Position 12,716,375 (2,935,393) (4,988,445) 6,087,387 2,885,687 Plan Fiduciary Net Position -Beginning 100,069,306 112,785,681 109,850,288 104,861,843 110,949,230 Plan Fiduciary Net Posltlon - Ending (b) $ 112,785,681 $ 109,850,288 $ 104,861,843 $ 110,949,230 $ 113,834,917 Plan Net Pension Liability - Ending (a)-(b) S 25,804,669 S 30,369,692 E 38,410,520 E 42,915,836 $ 43,231,080 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 81.38% 78,34% 73.19% 72,11% 72.48% Covered Payroll $ 10,025,879 $ 9,381,292 $ 9,349,710 $ 14,062,225 $ 12,173,646 Plan Net Pension Liability as a Percentage of Covered Payroll 257.38% 323.73% 410.82% 305.19% 355.12% Measurement data M0I2014 fiscal year 2015) was the first year of implementation. Mditional years will be presented as information becomes available. "'During Fiscal Year 2017-18, as a result of Governmental Accounling Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Poslemployment Benefit Plans Omer than Pensions (GASB 75), CalPERS reported its proportionate share of activity related to postemploymenl benefits for parlicipalion in the State of California's agent OPEB plan. Accordingly, CaIPERS recorded a one-time expense as a result of the adoption of GASS 75. Additionally, CaIPERS employees participate in various State of California agent pension plans and during Fiscal Year 2017-18, CaIPERS recorded a correction to previously reported financial statements tc propedy reflect its proportionate share of activity related to pensions in accordance with CASS Statement No. 68, Accounting and Financial Reporting for Pensions (GASS 68) Changes in Benefit Terms: The figures above do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2016 valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). -102- City of West Covina Required Supplementary Information Schedule of Plan Contributions CalPERS Pension Plan - Miscellaneous Last Ten Years' Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014.15 2015.16 2016.17 2017-18 2018.19 Actuarially Determined Contribution �f.*b73�S-5�,87i:7T6 -$ 2,449,E -$ 2,610,696 -$ 3,II41,539 CZd1b bons in Relation to the Actuarially Determined Contribution (1,507,469) (1,871.710) (2,449,585) (2,610,696) (3,041,539) Contribution Deficiency (Excess) $ - $ - $ - $ - $ - Covered Payroll $ 9,381,292 $ 9,349,710 $ 14,062,225 $ 12,173,646 $ 8,498,816 Contributions as a Percentage of Covered Payroll 16.07% 20,02 % 17.42% 21.45% 35.79% ' Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes available. Notes to Schedule; The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2018-19 were from the June 30, 2017 Funding Valuation Report. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2017, Funding Valuation Report. Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2013, Funding Valuation Report. Inflation 2.75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.15% Net of Pension Plan Investment and Administrative Expenses; includes Inflation. Retirement Age The probabilities of Retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015, Mortality The probabilities of mortality are based on the 2014 CaIPERS Experience Study for the period from 1997 to 2015, Pre -retirement and Post -retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries. -103- City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CalPERS Pension Plan - Safety Last Ten Years' Measurement Period 2013-14 2014-15 2015-16 2016-17 2017-18 TOTAL PENSION LIABILITY Service Cost $ 4,824,545 $ 4,604,800 $ 4,729,431 $ 5,376,792 $ 5,300,363 Interest 23,426,151 24,117,128 24,899,740 25,330,388 26,141,448 Changes of Benefit Terms - - - - - Difference Between Expected and Actual Experience - (1,760,971) (145,882) (2,764,123) 2,470,547 Changes of Assumptions - (5,858,071) - 21,000,606 (1,644,342) Benefit Payments, Including Refunds of Employee Contributions (17,362:607) (17,865,208) (18,951,025) (19,858,900) (20,444,515) Net Change in Total Pension Liability 10,888,089 3:237:678 10,532,264 29,084,763 11,823,501 Total Pension Liability- Beginning 318,617,717 329,505,806 332,743,484 343,275,748 372,360,511 Total Pension Liability - Ending (a) $ 329,505,806 S 332,743,484 $ 343,275,748 $ 372,360,511 $ 384,184,012 PLAN FIDUCIARY NET POSITION Contributions - Employer $ 6,403,118 $ 7,339,064 $ 8,387,165 $ 10,058,079 $ 10,515,780 Contributions -Employee 2:416:548 1,628:630 1:660:160 1:818,024 1,830,019 Net Investment Income 34,775,710 5,057.426 1,179,228 23,916,665 19,502,552 Benefit Payments, Including Refunds of Employee Contribution (17,362,607) (17,865,208) (18,951,025) (19,858,900) (20,444,515) Plan to Plan Resource Movement- 10,338 4,880 - (568) Administrative Expense - (254.287) (137,683) (321,946) (364,120) Other Miscellaneous Income/(Expense) (691,471) Net Change in Fiduciary Net Position 26,232,769 (4,084,037) (7,857,275) 15,611,922 10,427,677 Plan Fiduciary Net Position - Beginning 203,765,462 228,898,231 225,914,194 218,056,919 233,668,841 Plan Fiduciary Net Position -Ending (b) $ 229,998,231 $ 225,914,194 $ 218,056,919 $ 233,668,841 $ Z44,096,518 Plan Net Pension Liability - Ending (a) - (b) $ 99,507,575 $ 106,829,290 $ 125,218,829 $ 138,691,670 $140,087,494 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 69.80% 67.89% 63.52% 62.75% 63.54% Covered Payroll $ 16,974,682 $ 16,517,686 $ 17,288,458 $ 17,084,833 $ 14,051,195 Plan Net Pension Liabilityas a Percentage of Covered Payroll 586.21 h 646.76% 724.29% 811.78% 996.98 `Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes "During Fiscal Year 2017-18, as a result of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemploymenl Benefit Plans Other than Pensions (GASB 75), CaIPERS reported its proportionate share of activity related to postemployment benefits for participation in the State of Calffomia's agent OPEB plan. Accordingly, CaIPERS recorded a one-time expense as a result of the adoption of GASB 75. Additionally, CaIPERS employees participate in various State of California agent pension plans and during Fiscal Year 2017-18, CaIPERS recorded a correction to previously reported financial statements to properly reflect its proportionate share of activity related to pensions in accordance with GASB Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68) Changes in Benefit Terms: The figures above do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2016 valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes in Assumptions: In 2017, the accounting discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate. -104- City of West Covina Required Supplementary Information Schedule of Plan Contributions CalPERS Pension Plan - Safety Last Ten Years' Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014-15 2015-16 2016-17 2017-18 2018-19 Actuarially Determined Contribution 7,339,064 8,387,165 10,058,079 10,515,780 11,174,096 Contributions in Relation to the Actuarially Determined Contribution (7,339,064) (8,387,165) (10,058,079) (10,515,780) (11,174,096) Contribution Deficiency (Excess) $ - $ - $ - $ - $ - Covered Payroll $ 16,517,686 $ 17,288,458 $ 17,084,933 $ 14,051,195 $ 16,289,859 Contributions as a Percentage of Covered Payroll 44.43% 48.51% 58.87% 74.84% 68.60% " Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes available. Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2018-19 were from the June 30, 2017 Funding Valuation Report. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2017, Funding Valuation Report. Asset Valuation Method Actuarial Value of Assets. For details, see June 30, 2013, Funding Valuation Report. Inflation 2,75% Salary Increases Varies by Entry Age and Service Payroll Growth 3.00% Investment Rate of Return 7.15% Net of Pension Plan Investment and Administrative Expenses; includes Inflation. Retirement Age The probabilities of Retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Mortality The probabilities of mortality are based on the 2014 CaIPERS Experience Study for the period from 1997 to 2015. Pre -retirement and Post -retirement mortality rates include 20 years of projected mortality improvement using Scale BE published by the Society of Actuaries. -105- Usm!"TV W , Zown IMN MN I 'I Finance Department March 9, 2020 To the Members of the City Council, the City Manager, and the Citizens of the City of West Covina: It is a pleasure to submit the Comprehensive Annual Financial Report (CAFR) of the City of West Covina (City) for the fiscal year ended June 30, 2019. This report consists of management's representations concerning the finances of the City. Management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed to both protect the City's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City's financial statements have been audited by Rogers, Anderson, Melody & Scott, LLP, a firm of certified public accountants. The auditors have issued an unmodified opinion on these financial statements. Their report is located at the front of the financial section of this report. The Management's Discussion and Analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. Profile of the Government The City of West Covina is located in the San Gabriel Valley, 20 miles east of downtown Los Angeles and 15 miles north of Orange County. Incorporated as a general law city in 1923, the City's 16 square miles flourished with walnut groves and orange groves for many decades. The post -World War II building boom rapidly transformed the City, which experienced a significant population increase between 1950 and 1960, from less than 5,000 to more than 50,000 citizens. Subsequent to this rapid population increase, the City has continued to grow at a steady pace with a current population in excess of 110,000. City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CalPERS Pension Plan- EPMC Replacement Supplemental Retirement Plan Last Ten Years' Measurement Period 2013-14 2014-15 2015-16 2016-2017 2017-2018 TOTAL PENSION LIABILITY Service Cost $ 36,000 $ 36,000 $ 40,000 $ 35,733 $ 29,701 Interest 36,000 28000 32,000 35,268 46,463 Difference Between Expected and Actual Experience - (72:000) - 98,508 - Changes of Assumptions - 200,000 (37,000) (85,060) 10,475 Changes in benefits - - - - - Benefit Payments, Including Refunds of Employee Contributions (64,000) (9,000) (91,000) (42,877) (56,554) Net Change in Total Pension Liability 8,000 183,000 (56,000) 41,572 30,085 Total Pension Liability - Beginning 755,000 763,000 946,000 890,000 931,572 Total Pension Liability - Ending (a) $ 763,000 $ 946,000 $ 890,000 $ 931,572 $ 961,657 PLAN FIDUCIARY NET POSITION Contributions -Employer $ 65,000 $ 56,000 $ 56,000 $ 61,019 $ 60,056 Contributions -Employee - - - - - Netlnvestmentlncome 12,000 3,000 (1,000) 10,029 8,234 Benefit Payments, Including Refunds of Employee Contributions (64,000) (9,000) (91,000) (42,877) (56.554) Plan to Plan Resource Movement - - - - - Administrative Expense (3,000) (7,000) (1,000) (9,456) (775) Net Change in Fiduciary Net Position 10,000 43,000 (37,000) 18,715 10,961 Plan Fiduciary Net Position -Beginning 109,000 119,000 162,000 725,000 143,715 Plan Fiduciary Net Position - Ending (b) $ 119,000 $ 162,000 $ 125,000 $ 143,715 $ 154,676 Plan Net Pension Liability - Ending (a) - (b) $ 644,000 $ 784,000 $ 765,000 $ 787,857 $ 806,981 Plan Fiduciary Net Position as a Percentage of the Total Pension Llabll lty 15.60% 17.12% 14,04% 15.43% 16.08% Covered Payroll $ - $ - $ - $ - $ - Plan Net Pension Liability as a Percentage of Covered Payroll Na n/a We We We "Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes available. Notes to Schedule: Changes in Benefit Terms: None Changes in Assumptions: In 2018, the discount rate used of measure the total pension liability was 4.86 percent. In 2017, amounts reported reflect an adjustment of the discount rate from 3.90 percent to 4.98 percent. In 2016, amounts reported reflect an adjustment of the discount rate from 3.50 percent to 3.90 percent. In 2015, amounts reported reflect an adjustment of the discount rate from 4.80 percent to 3.50 percent. In 2014, amounts reported were based on the 4.80 percent discount rate. -106- City of West Covina Required Supplementary Information Schedule of Plan Contributions CalPERS Pension Plan - EPMC Replacement Supplemental Retirement Plan Last Ten Years' Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014-15 2015-16 2016-17 2017-18 2018-19 Actuadally Determined Contribution $ 82,000 $ 82,000 $ 105,000 $ 104,000 $ 134,000 ConMbutions in Relation to the Actuarially Determined Contribution (56,000) (56,000) (66,000) (60,056) (62,350) Contribution Deficiency (Excess) $ 26,000 $ 26,000 $ 39,000 $ 43,944 $ 71,650 Covered Payroll $ - $ - $ - $ - $ - Contributions as a Percentage of Covered Payroll n/a n/a Na n/a We " Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes available. Notes to Schedule Valuation Date June 30, 2017 Actuadal Cost Method Entry Age Normal, Level Percentage of Payroll Amortization Method Level dollar amount 9-year fixed (closed) period for 2017/18 Asset Valuation Method Investment gains and losses spread over 5-year rolling period Discount Rate: 6 All Other Assumptions: Same as those used to develop the TPL -107- City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CalPERS Pension Plan - Supplemental Retirement Plan for Executive Staff Last Ten Years' Measurement Period TOTAL PENSION LIABILITY Service Cost Interest Difference Between Expected and Actual Experience Changes of Assumptions Changes in benefits Benefit Payments, Including Refunds of Employee Contributions Net Change in Total Pension Liability Total Pension Liability -Beginning Total Pension Liability -Ending (a) PLAN FIDUCIARY NET POSITION Contributions - Employer Contributions - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions Plan to Plan Resource Movement Administrative Expense Net Change in Fiduciary Net Position Plan Fiduciary Nel Position -Beginning Plan Fiduciary Net Position -Ending (b) Plan Not Pension Liability - Ending (a) - (b) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability Covered Payroll Plan Net Pension Liability as a Percentage of Covered Payroll $ 112,000 $ 116,000 $ 30,000 $ 20,388 $ 12,235 168,000 178,000 141,000 161,327 130,692 - (643,000) - (111,492) - - 346,000 (455,000) 803,038 (101,877) (82,000) (104,000) (137,000) (136,317) (139,056) 196,000 (117,000) (421,000) 736,944 (96,0a6) 2,959,00. 3,157,000 3,050,000 2,629,000 3,365,944 $ 3,157,000 $ 3,050,000 $ 2,629,000 $ 3,365,944 $ 3,267,938 $ 59,000 $ 78,000 $ 78,000 $ 73,467 $ 74,100 75,000 13,000 9,000 49,861 36,931 (82,000) (104,000) (137,000) (136,317) (139,056) (6,000) (6,000) (4,000) (8,431) (3,379) 46,000 (19,000) (54,000) (21,420) (31,404) 660,000 706,000 687,000 633,000 611,580 $ 706,000 $ 687,000 $ 633,000 $ 611,580 $ 580,176 $ 2,451,000 $ 2,363,000 $ 1,996,000 $ 2,754,364 $ 2,687,762 22.36% 22.52% 24.08% 18.17% 17.75% n/a rue n/a n/a n/a Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes available. Notes to Schedule: Changes in Benefit Ter -None Changes in Assumptions: In 2018, the discount rate used to measure the total pension liabilitywas 4.16 percent. In 2017, amounts reported reflect an adjustment of the discount rate from 6.25 percent to 3.95 percent. In 2016, amounts reported reflect an adjustment of the discount rate from 4.70 percent to 6.25 percent. In 2015, amounts reported reflect an adjustment of the discount rate from 5.55 percent to 4.70 percent. In -108- City of West Covina Required Supplementary Information Schedule of Plan Contributions CalPERS Pension Plan - Supplemental Retirement Plan for Executive Staff Last Ten Years' Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014.15 2015-16 2016=17 2017-18 2018-19 Actuarially Determined Contribution $ 439,000 $ 439,000 $ 279,000 $ 278,000 $ 314,000 Contributions in Relation to the Actuarially Determined Contribution (78,000) (78,000) (73,000) (74,100) (78,102) Contribution Deficiency (Excess) $ 361,000 $ 361.000 $ 206,000 $ 203,900 $ 235,898 Covered Payroll $ - $ - $ - $ - $ - Contributions as a Percentage of Covered Payroll n/a n/a Na n/a n/a Measurement date 6/30/2014 (fiscal year 2015) was the first year of implementation. Additional years will be presented as information becomes available. Notes to Schedule Valuation Date June 30, 2017 Actuarial Cost Method Entry Age Normal, Level Percentage of Payroll Amortization Method Level dollar amount 9-year fixed (closed) period for 2017-18 Asset Valuation Method Investment gains and losses spread over 5-year rolling period Discount Rate: 6 All Other Assumptions: Same as those used to develop the TPL -109- City of West Covina Required Supplementary Information Schedule of Changes in the Net OPEB Liability and Related Ratios Last Ten Years" Fiscal Year End Measurement Period Total OPEB Liability Service cost Interest Changes of assumptions Benefit payments Net change in total OPEB liability Total OPEB liability - beginning Total OPEB liability - ending (a) Plan Fiduciary Net Position Contributions — employer Net investment income Benefit payments Administrative expense Net change in plan fiduciary net position Plan fiduciary net position - beginning Plan fiduciary net position - ending (b) Net OPEB liability - ending (a) - (b) Plan fiduciary net position as a percentage of the total OPEB liability Covered -employee payroll Net OPEB liability as a percentage of covered payroll Notes to Schedule: 6/30/2018 6/30/2019 6/30/2017 6/30/2018 $ 1,913,541 $ 1,619,250 1,889,517 2,158,673 (7,040,369) (2,524,608) (2,467,893) (2,470,254) (5,705,204) (1,216,939) 65,619,220 59,914,016 59,914,016 58,697,077 $ 59,914,016 $ 58,697,077 0.0% 0.0% $ 26,527,000 $ 28,239,505 225.9% 207.9% Changes in assumptions: Discount remained the same at June 30, 2019. Discount rate increased from 3.58% at June 30, 2017 to 3.87% at June 30, 2018. Discount rate increased from 2.85% at June 30, 2016 to 3.58% at June 30, 2017. The City does not have assets accumulated in a trust that meets the criteria of GASB 75 to pay related benefits. Historical information is required only for measurement periods for which GASB 75 is applicable. Future years' information will be displayed up to 10 years as information becomes available. Fiscal Year 2017-18 was the first year of implementation. -110- City of West Covina Required Supplementary Information General Fund General Fund The General Fund is the City's primary operating fund. It accounts for all financial resources of the City except those required to be accounted for in another fund. �ifiE City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 50,923,433 $ 51,756,000 $ 51,458,750 $ (297,250) Licenses and permits 1,058,413 1,043,300 1,140,622 97,322 Fines and forfeitures 820,000 845,000 1,318,333 473,333 Investment income 208,937 - 1,272,435 1,272,435 Rental income 706,347 671,900 647,749 (24,151) Revenue from other agencies 2,302,000 2,217,300 2,373,944 156,644 Charges for services 7,376,518 6,949,832 7,067,877 118,045 Other revenues 291,852 176,400 138,161 (38,239) Total revenues 63,687,500 63,659,732 65,417,871 1,758,139 EXPENDITURES Current: General government Public safety Public works Community services Community development Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over(under)expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balance Fund balance, beginning of year Fund balance, end of year 6,021,671 6,993,008 6,686,570 306,438 50,370,450 52,058,068 53,104,099 (1,046,031) 3,945,758 4,091,381 4,372,731 (281,350) 2,605,561 2,448,198 2,337,601 110,597 605,260 611,536 589,255 22,281 1,628,918 1,218,918 410,000 769,050 319,711 449,339 63,548,700 68,600,159 68,628,885 (28,726) 138,800 (4,940,427) (3,211,014) 1,729,413 2,174,186 2,174,200 140,000 (2,034,200) (1,997,968) (712,757) (121) 712,636 176,218 1,461,443 139,879 (1,321,564) 315,018 (3,478,984) (3,071,135) 407,849 22,252,831 22,252,831 22,252,831 $ 22,567,849 $ 18,773,847 $ 19,181,696 $ 407,849 -112- City of West Covina Required Supplementary Information Major Special Revenue Funds West Covina Housing Authority Special Revenue Fund This fund accounts for assets and related income received from the former Community Development Commission to be used for the administration of providing affordable housing in the City. -113- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual West Covina Housing Authority Special Revenue Fund For the Year Ended June 30, 2019 REVENUES Investment income Revenue from other agencies Other revenues Total revenues EXPENDITURES Current: Public Safety Community development Total expenditures Net change in fund balance Fund balance, beginning of year Fund balance, end of year Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 415,877 $ 415,877 50,000 50,000 29,375 29,375 495,252 495,252 - 139,917 124,183 15,734 527,679 896,197 421,963 474,234 527,679 1,036,114 546,146 489,968 (527,679) (1,036,114) (50,894) 985,220 24,725,216 24,725,216 24,725,216 $ 24,197,537 $ 23,689,102 $ 24,674,322 $ 985,220 -114- City of West Covina Notes to Required Supplementary Information June 30, 2019 1) BUDGETARY INFORMATION The annual budget adopted by the City Council provides for the general operation of the City. The annual budget is adopted in summary by the City Council in June of each year for the General Fund, special revenue funds, debt service funds and capital projects funds. For the fiscal year ending June 30, 2019 the City adopted budgets for the general fund, special revenue funds, debt service fund, and capital projects funds with the exception of the SAFER Grant and Integrated Waste Management Special Revenue Funds. The resolution sets a combined appropriation of the funds for the operation of the City. The City Manager is authorized to transfer budgeted amounts between departments to ensure adequate and proper standards of service. Budgetary revisions, including supplemental appropriations which increase appropriations in individual funds, must be approved by the City Council. The budgetary level of control is at the departmental level for the general fund and at the fund level for all other funds. The budgeted figures used in the financial statements' budget to actual comparisons are the final amended amounts. The budget is formally integrated into the accounting system and employed as a management control device during the year for the General Fund, special revenue funds, debt service funds and capital projects funds. Budgets for governmental fund types are adopted on a basis consistent with generally accepted accounting principles. Operating appropriations lapse at the end of the fiscal year. Capital projects funds are appropriated on a project basis and appropriations are funded by the council to continue until the specific projects are completed. 2) EXPENDITURES IN EXCESS OF APPROPRIATIONS Governmental Funds Final Budget Expenditures Excess Major Fund - General Fund: Public safety $ 52,058,068 $ 53,104,099 $ (1,046,031) Public Works 4,091,381 4,372,731 (281,350) Non -Major Special Revenue Funds: Proposition 2,234,723 2,241,018 (6,295) Park Development 69,098 682,214 (613,116) -115- The City's location and access to major freeways makes West Covina close to many visitor attractions and an ideal business and commercial center. The City has over 32,000 housing units and offers the amenities of a big city location with a high standard of living for its community. Under the Council -Manager form of government, the five City Council members are by districts to overlapping four-year terms. The City Council selects a Mayor from one of its members each November to serve a one-year term. The City Council is responsible for, among other things, passing ordinances, adopting the budget, appointing committees, and hiring both the City Manager and City Attorney. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for appointing the heads of the various departments. The City provides a full range of services to its citizens, including police, fire and emergency medical; construction and maintenance of streets, traffic signalization and other infrastructure; planning and building safety; and social, recreational and cultural activities and events. The City offers sixteen parks, four community centers, a Sports Complex and a county operated library. The City is financially accountable for the Successor Agency to the former Redevelopment Agency of the City of West Covina, a financing authority, and a housing authority, which are combined within the City's financial statements. Additional information regarding all three of these legally separate entities can be found in the notes to the financial statements. The annual budget serves as a foundation for the City's financial planning and control. The City Council holds public hearings and adopts an annual budget for all funds. The budget appropriations are prepared by fund, function, and department. The City Manager is authorized to transfer budgeted amounts within departments to assure adequate and proper standards of service. Budgetary revisions, including supplemental appropriations which increase total appropriations in individual funds must be approved by the City Council. Economic Outlook and Major Objectives From early in its history, the City of West Covina has been noted as a city of beautiful homes. Through its General Plan, the City Council strives to maintain the City's high -quality residential base and living environment. The City's identity is defined by carefully designed entry point elements, landmark areas, and open space areas. Known as the headquarters of the East San Gabriel Valley, the City strives to maintain a prosperous business and commercial climate. Despite the current challenging financial and economic environment, West Covina derives significant economic stability from the City's three major commercial districts: Plaza West Covina, Eastland Center, and The Lakes. The California State Auditor has identified several risks in the City's financial condition, including a major unfunded pension liability, general fund expenditures that have exceeded revenues, and high turnover and reductions in staff in recent years. The City of West Covina continues work to secure the financial future of the City while safeguarding the delivery of great public services. This requires stewardship and a willingness to consider all alternatives in service provision. The City of West Covina will continue to strive to provide the highest level of service to its residents and businesses, so the community can thrive. This page intentionally left blank. SUPPLEMENTARY INFORMATION City of West Covina Other Major Governmental Funds DEBT SERVICE FUNDS — These funds are used to account for the accumulation of resources for, and the payment of, governmental long-term debt principal and interest. City Debt Service — This fund accounts for the payments of principal, interest, and related costs on the City long-term debt issues. -116- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual City Debt Service Fund For the Year Ended June 30. 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ $ 86,598 $ 86,598 Revenue from other agencies 1,293,194 1,287,692 1,287,692 Charges for services 1,151,500 1,151,500 371,388 (780,112) Total revenues 2,444,694 1,151,500 1,745,678 594,178 EXPENDITURES Debt service: Principal 2,703,918 12,135,000 12,135,000 - Interestandfiscalcharges 1,743,744 1,371,605 1,371,605 Bond issuance costs 389,726 389,726 Total expenditures 4,447,662 13,896,331 13,896,331 Deficiency of revenues under expenditures (2,002,968) (12,744,831) (12,150,653) 594,178 OTHER FINANCING SOURCES (USES) Proceeds from debt 24,165,000 24,165,000 - Premium of refunding bonds issued 1,380,718 1,380,718 Payment to refunded bond escrow agent (12,900,000) (12,900,000) Transfers in 2,919,648 921,680 (921,680) Transfers out (1,903,794) (1,903,794) 1,903,794 Total other financing sources (uses) 1,015,854 11,663,604 12,645,718 982,114 Net change in fund balance 916,680 (1,081,227) 495,065 1,576,292 Fund balance, beginning of year 5,033,385 5,033,385 5,033,385 Fund balance, end of year $ 5,950,065 $ 3,952,158 $ 5,528,450 $ 1,576,292 -117- City of West Covina Non -Major Governmental Funds SPECIAL REVENUE FUNDS — These funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. CAPITAL PROJECTS FUNDS — These funds are used to account for the purchase or construction of major capital facilities which are not financed by Proprietary Funds. Capital Projects Funds are ordinarily not used to account for the acquisition of furniture, fixtures, machinery, equipment and other relatively minor or comparatively short-lived capital assets. -118- City of West Covina Combining Balance Sheet Non -Major Governmental Funds June 30, 2019 ASSETS Cash and investments Receivables, net: Accounts Taxes Other Due from other agencies Total assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable Other accrued liabilities Due to other funds Deposit payable Advances from other funds Unearned revenue Total liabilities Fund Balances: Restricted: Community services Public safety Public works Assigned Unassigned Total fund balances Total liabilities, deferred inflows of resources, and fund balances Total Special Capital Non -Major Revenue Projects Governmental Funds Funds Funds $ 28,661,444 $ 1,168,499 $ 29,829,943 311,082 311,082 241,759 241,759 683,504 683,504 6,730 - 6,730 $ 29,904,519 $ 1,168,499 $ 31,073,018 $ 1,811,674 $ 61,361 $ 1,873,035 107,159 107,159 501,259 501,259 340 340 383,781 383,781 55,461 - 55,461 2,859,674 61,361 2,921,035 4,825,023 4,825,023 4,171,026 4,171,026 18,741,101 - 18,741,101 - 1,107,138 1,107,138 (692,305) - (692,305) 27,044,845 1,107,138 28,151,983 $ 29,904,519 $ 1,168,499 $ 31,073,018 -119- City of West Covina Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Non -Major Governmental Funds For the Year Ended June 30, 2019 REVENUES Taxes Special assessments Investment income Revenue from other agencies Charges for services Other revenues Total revenues EXPENDITURES Current: General government Public safety Public works Community services Community development Total expenditures Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balance Fund balances, beginning of year Fund balances, end of year Total Special Capital Non -Major Revenue Projects Governmental Funds Funds Funds $ 10,863,754 $ 154,938 $ 11,018,692 6,347,182 - 6,347,182 226,540 7,521 234,061 8,808,628 60,997 8,869,625 34,658 - 34,658 610,777 364,346 975,123 26,891,539 587,802 27,479,341 141,450 - 141,450 4,823,802 153,713 4,977,515 9,778,573 649,632 10,428,205 4,270,960 682,214 4,953,174 74,910 - 74,910 19,089,695 1,485,559 20,575,254 7,801,844 (897,757) 6,904,087 9,121 9,121 (9,000) (9,000) 121 121 7,801,965 (897,757) 6,904,208 19,242,880 2,004,895 21,247,775 $ 27,044,845 $ 1,107,138 $ 28,151,983 -120- City of West Covina Non -Major Governmental Funds — Special Revenue Funds SPECIAL REVENUE FUNDS are used to account for specific revenues that are legally restricted to expenditure for particular purposes. Drug Enforcement Rebate — This fund accounts for the City's portion of revenue received from drug asset seizures. The revenue is used to enhance the police programs. Measure M — This fund accounts for the 0.5% sales tax collected in Los Angeles County used for transportation projects. Air Quality Improvement — This fund accounts for the City's portion of motor vehicle registration fees collected under AB 2766. This fee was levied to fund programs to reduce air pollution from mobile sources such as cars, trucks and buses. Money is distributed to the cities based on population, and additional discretionary grants are made based on specific requests. Proposition A — This fund accounts for the 0.5% sales tax collected in Los Angeles County which is used for transportation programs and projects. Proposition C — This fund accounts for gasoline taxes which are restricted for transportation programs and projects. State Gas Tax — This fund accounts for the City's proportionate share of gas tax monies collected by the State of California and Proposition 1 B monies which are used for street construction and maintenance. Police Donations — This fund accounts for donations received and expenditures related to various police programs. Transportation Development Act — This fund accounts for regional Transportation Development Act funds received from Los Angeles County which are used for local streets and roads. AB939 — This fund accounts for programs to reduce solid waste deposits in local landfills, pursuant to AB939. Public Safety Augmentation — This fund accounts for sales tax revenue legally restricted for public safety. Revenue is used to augment police operations. COPS/SLESA — This fund accounts for revenue from the State restricted for supplementing police operations. -121- City of West Covina Non -Major Governmental Funds — Special Revenue Funds, (continued) Charter PEG — This fund accounts for monies received from the City's cable television franchisee for a one-time litigation settlement and for cable -related capital expenditures. Art in Public Places — This fund accounts for development fees paid in lieu of acquisition and installation of approved artwork in a development with expenditures restricted to acquisition, installation, maintenance and repair of artworks at approved sites. Measure R — This fund accounts for sales tax revenues collected in Los Angeles County to provide transportation related projects and programs. Inmate Welfare — This fund accounts for any money, refund, rebate or commission received from a telephone call from inmates while incarcerated to meet the requirements of California Penal Code: Part 3; Title 4; Chapter 1; Section 4025. The monies are to be expended for the benefit, education, and welfare of inmates confined within the jail. Any funds that are not needed for the welfare of the inmates may be expended for the maintenance of the jail facilities. West Covina Community Services Foundation — This fund accounts for activity of the West Covina Community Services Foundation, a 501(c) (3) nonprofit organization. Various Grants — This fund accounts for various Federal, State of California, and local grants that are restricted to expenditures for specific programs and projects. Community Development Block Grant (CDBG) — This fund accounts for the activities of the Community Development Block Grant received from the U.S. Department of Housing and Urban Development. SAFER Grant — This fund accounts for personnel costs that are reimbursable through the Staffing for Adequate Fire and Emergency Response (SAFER) Grant. Maintenance District #1 — The City levies special benefit assessments and property taxes upon property within defined districts. Through the Los Angeles County Tax Collector, assessments are placed on the property owner's annual tax bill. These funds are used to maintain and improve the open spaces within the districts by providing landscape maintenance. Maintenance District #2 — The City levies special benefit assessments and property taxes upon property within defined districts. Through the Los Angeles County Tax Collector, assessments are placed on the property owner's annual tax bill. These funds are used to maintain and improve the open spaces within the districts by providing landscape maintenance. Coastal Sane Shrub — This community facilities district was formed to provide for the restoration and ongoing maintenance of sensitive environmental habitat within the development area of a former landfill, including habitat for endangered species such as the California gnatcatcher (Polioptila californica). Maintenance District #4 — The City levies special benefit assessments and property taxes upon property within defined districts. Through the Los Angeles County Tax Collector, assessments are placed on the property owner's annual tax bill. These funds are used to maintain and improve the open spaces within the districts by providing landscape maintenance. -122- City of West Covina Non -Major Governmental Funds — Special Revenue Funds, (continued) Maintenance District #6 — The City levies special benefit assessments and property taxes upon property within defined districts. Through the Los Angeles County Tax Collector, assessments are placed on the property owner's annual tax bill. These funds are used to maintain and improve the open spaces within the districts by providing landscape maintenance. Maintenance District #7 — The City levies special benefit assessments and property taxes upon property within defined districts. Through the Los Angeles County Tax Collector, assessments are placed on the property owner's annual tax bill. These funds are used to maintain and improve the open spaces within the districts by providing landscape maintenance. Citywide Maintenance District — Revenue for the fund comes from annual special benefit assessments from property owners who benefit from covered improvements. This fund provides the majority of funding for the City's street lighting system and street tree program. Sewer Maintenance — This fund supports the City's street sweeping program and maintenance of the City's sewer system. The City also provides services to the City of Covina through this fund. Auto Plaza Improvement District — This fund is an assessment district supported by six of West Covina's automobile dealers to fund the construction, maintenance and operations of a reader board adjacent to Interstate 10. Integrated Waste Management - This fund accounts for landfill local enforcement agency activities and waste management programs, other than AB939. -123- Short-term and Long-term Financial Planning Annually, the City adopts a budget covering operating revenues and expenditures, labor usage, capital expenditures, and other sources and uses of funds. For financial planning purposes, the City conducts comprehensive citywide financial forecasting in conjunction with its revenue consultants and other sources. During the past few years, the City has utilized a range of temporary and permanent cost reduction initiatives, economic development, and revenue generation priorities, outside grants, and the use of fiscal reserves as necessary. As a result, the City has weathered the effects of the recession while providing critical services to the public in areas such as public safety, facility maintenance, parks maintenance, and infrastructure improvement. On June 5, 2018, the City Council adopted a fund balance policy to maintain a minimum unassigned fund balance of 17% of the General Fund operating expenditures. Awards and Acknowledgements The preparation of this report could not have been accomplished without the efficient and dedicated services of the entire staff of the Finance Department. I would like to express my appreciation to all members of the Department who assisted and contributed to the preparation of this report. These are extremely challenging times for local government in which many difficult decisions must be made. Credit also must be given to City Council for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, Robbeyn Bird Finance Director City of West Covina Combining Balance Sheet Non -Major Special Revenue Funds June 30, 2019 Drug Air Enforcement Measure Quality Proposition Rebate M Improvement A ASSETS Cash and investments $ 3,313,523 $ 2,527,057 $ $ 10,214 Receivables, net: Accounts - - 105,323 Taxes - Other 36,399 Due from other agencies Total assets $ 3,313,523 $ 2,527,057 $ 36,399 $ 115,537 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ 37,664 $ 4,097 $ 101,132 $ Other accrued liabilities 3,053 460 - Deposits payable - - - Due to other funds 131,949 Advances from other funds - Uneamed revenue Total liabilities 40,717 4,557 233,081 Fund Balances (Deficit): Restricted: Community services - 2,522,500 115,537 Public safety 3,272,806 - - Public works - Unassigned (196,682) Total fund balances (deficit) 3,272,806 2,522,500 (196,682) 115,537 Total liabilities, deferred inflows of resources, and fund balances $ 3,313,523 $ 2,527,057 $ 36,399 $ 115,537 -124- (continued) State Transportation Public Proposition Gas Police Development Safety C Tax Donations Act AB939 Augmentation COPS/SLESA $ 1,812,919 $ 2,737,334 $ 26,223 $ - $ 509,456 $ 326,874 $ 438,037 - - - 137,624 354,267 140,925 57,948 - $ 1,812,919 $ 3,091,601 $ 26,223 $ 140,925 $ 567,404 $ 464,498 $ 438,037 $ 165,006 $ 257,983 $ 160 $ 122,072 $ 1,171 $ - $ 29,479 3,538 8,401 - 6,425 1,350 9,025 421 72,885 168,544 266,384 160 201,382 2,521 9,025 29,900 1,644,375 - - - - - 26,063 - 455,473 408,137 2,825,217 - 564,883 - - (60,457) 1,644,375 2,825,217 26,063 (60,457) 564,883 455,473 408,137 $ 1,812,919 $ 3,091,601 $ 26,223 $ 140,925 $ 567,404 $ 464,498 $ 438,037 -125- City of West Covina Combining Balance Sheet Non -Major Special Revenue Funds (continued) June 30, 2019 Art in Charter Public Measure Inmate ASSETS Cash and investments $ 151,059 $ 225,141 $ 2,532,013 $ 8,537 Receivables, net: Accounts - - - - Taxes Other Due from other agencies Total assets $ 151,059 $ 225,141 $ 2,532,013 $ 8,537 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ 17,400 $ - $ 25,059 $ Other accrued liabilities - 35,001 771 Deposits payable - - Due to other funds Advances from other funds Unearned revenue Total liabilities 17,400 35,001 25,830 Fund Balances (Deficit): Restricted: Community services 133,659 190,140 - Public safety - - - 8,537 Public works 2,506,183 Unassigned Total fund balances (deficit) 133,659 190,140 2,506,183 8,537 Total liabilities, deferred inflows of resources, and fund balances $ 151,059 $ 225,141 $ 2,532,013 $ 8,537 -126- West Covina Community Services Various Foundation Grants $ 159,195 $ - (continued) Community Development SAFER Maintenance Maintenance Coastal Sage Block Grant Grant District #1 District #2 Shrub $ - $ 10 $ 2,324,502 $ 705,064 $ 344,123 205,759 - - - - - 10,965 1,465 36,403 13,354 44,208 - - 6,730 $ 195,598 $ 225,843 $ 44,208 $ 10 $ 2,335,467 $ 706,529 $ 344,123 $ 4,028 $ 10,769 $ 22,216 $ $ 27,560 $ 124,178 $ 8,609 - 12,334 1,800 6,346 654 279 - 340 - - - 256,207 29,145 55,461 4,028 334,771 53,501 33,906 124,832 8,888 191,570 27,242 31,757 (167,927) (9,293) 191,570 (108,928) (9,293) 10 - - - 2,301,561 581,697 335,235 10 2,301,561 581,697 335,235 $ 195,598 $ 225,843 $ 44,208 $ 10 $ 2,335,467 $ 706,529 $ 344,123 -127- City of West Covina Combining Balance Sheet Non -Major Special Revenue Funds (continued) June 30, 2019 Citywide Maintenance Maintenance Maintenance Maintenance ASSETS Cash and investments $ 2,520,577 $ 260,948 $ 298,033 $ 1,851,080 Receivables, net: Accounts - - - - Taxes 14,657 1,990 2,838 22,660 Other - - - - Due from other agencies Total assets $ 2,535,234 $ 262,938 $ 300,871 $ 1,873,740 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ 164,715 $ 16,827 $ 11,593 $ 585,675 Other accrued liabilities 1,653 425 364 1,652 Deposits payable - - - - Due to other funds Advances from other funds Unearned revenue Total liabilities 166,368 17,252 11,957 587,327 Fund Balances (Deficit): Restricted: Community services - - - - Public safety - - - - Public works 2,368,866 245,686 288,914 1,286,413 Unassigned Total fund balances (deficit) 2,368,866 245,686 288,914 1,286,413 Total liabilities, deferred inflows of resources, and fund balances $ 2,535,234 $ 262,938 $ 300,871 $ 1,873,740 -128- (continued) Total Auto Plaza Integrated Non -Major Sewer Improvement Waste Special Maintenance District Management Revenue Funds $ 5,440,199 $ 139,326 $ $ 28,661,444 - - 311,082 49,560 241,759 - 683,504 6,730 $ 5,489,759 $ 139,326 $ $ 29,904,519 $ 71,863 $ 2,418 $ $ 1,811,674 13,207 - 107,159 - 340 - 11,073 501,259 383,781 - 383,781 55,461 85,070 386,199 11,073 2,859,674 4,825,023 - 4,171,026 5,404,689 18,741,101 (246,873) (11,073) (692,305) 5,404,689 (246,873) (11,073) 27,044,845 $ 5,489,759 $ 139,326 $ $ 29,904,519 -129- City of West Covina Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Non -Major Special Revenue Funds For the Year Ended June 30, 2019 Drug Air Enforcement Measure Quality Proposition Rebate M Improvement A REVENUES Taxes $ $ 1,516,926 $ $ 2,164,464 Special assessments - Investment income 28,546 17,683 - Revenue from other agencies 1,838,779 - 140,400 105,324 Charges for services - - - Other revenues Total revenues 1,867,325 1,534,609 140,400 2,269,788 EXPENDITURES Current: General government Public safety Public works Community services Community development Total expenditures Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning of year Fund balances (deficit), end of year 1,537,063 - - - 84,460 213,563 - - - 2,241,018 1,537,063 84,460 213,563 2,241,018 330,262 1,450,149 (73,163) 28,770 330,262 1,450,149 (73,163) 28,770 2,942,544 1,072,351 (123,519) 86,767 $ 3,272,806 2,522,500 $ (196,682) $ 115,537 -130- (continued) State Transportation Public Proposition Gas Police Development Safety C Tax Donations Act AB939 Augmentation COPS/SLESA $ 1,795,362 $ 1,985,018 $ $ $ $ 794,680 $ 15,914 15,402 245 4,526 1,007 3,746 - 2,071,383 - 140,925 - - 295,773 122,470 1,550 228,049 1,811,276 4,194,273 1,795 140,925 232,575 795,687 299,519 2,457 - - - - - 649 - - 529,465 224,938 227,598 2,021,030 - 129,757 131,144 - - 1,259,068 - - - 11,817 1,498,483 2,023,487 649 129,757 131,144 529,465 224,938 312,793 2,170,786 1,146 11,168 101,431 266,222 74,581 312,793 2,170,786 1,146 11,168 101,431 266,222 74,581 1,331,582 654,431 24,917 (71,625) 463,452 189,251 333,556 $ 1,644,375 $ 2,825,217 $ 26,063 $ (60,457) $ 564,883 $ 455,473 $ 408,137 -131- City of West Covina Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Non -Major Special Revenue Funds (continued) For the Year Ended June 30, 2019 Art in Charter Public Inmate PEG Places Measure R Welfare REVENUES Taxes $ $ $ 1,346,909 $ Special assessments - Investment income 1,991 1,893 22,149 93 Revenue from other agencies - - 9,785 Charges for services - - - Other revenues 83,287 1,498 Total revenues 1,991 85,180 1,378,843 1,591 EXPENDITURES Current: General government 138,993 - - - Public safety - - 4,435 Public works 922,572 - Community services 232,269 Community development Total expenditures 138,993 1,154,841 4,435 Excess of revenues over (under) expenditures (137,002) 85,180 224,002 (2,844) OTHER FINANCING SOURCES (USES) Transfers in - - Transfers out Total other financing sources (uses) Net change in fund balances (137,002) 85,180 224,002 (2,844) Fund balances (deficit), beginning of year 270,661 104,960 2,282,181 11,381 Fund balances (deficit), end of year $ 133,659 $ 190,140 $ 2,506,183 $ 8,537 -132- West Covina Community Community Services Various Development Foundation Grants Block Grant 1,410 1,943 - - 3,498,023 708,236 - 32,330 - 100,592 72,636 102,002 3,532,296 780,872 3,642 2,497,819 21,104 - 142,860 507,348 46,437 245,223 246,945 5,475 50,079 2,885,902 780,872 51,923 646,394 (continued) SAFER Maintenance Grant District #1 Maintenance District #2 Coastal Sage Shrub $ 565,946 20,515 $ 170,834 6,319 $ 107,650 3,064 586,461 177,153 110,714 389,945 283,203 73,162 389,945 283,203 73,162 196,516 (106,050) 37,552 111 10 (9,000) 111 10 (9,000) 51,923 646,505 10 196,516 (115,050) 37,552 139,647 (755,433) (9,303) 10 2,105,045 696,747 297,683 $ 191,570 $ (108,928) $ (9,293) $ 10 $ 2,301,561 $ 581,697 $ 335,235 -133- This page intentionally left blank. City of West Covina Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Non -Major Special Revenue Funds (continued) For the Year Ended June 30, 2019 REVENUES Taxes Special assessments Investment income Revenue from other agencies Charges for services Other revenues Total revenues EXPENDITURES Current: General government Public safety Public works Community services Community development Total expenditures Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning of year Fund balances (deficit), end of year Citywide Maintenance Maintenance Maintenance Maintenance 1,041,687 154,687 173,457 1,634,312 22,204 2,237 2,494 12,175 2,328 1,063,891 156,924 175,951 1,648,815 1,009,738 144,242 146,498 1,482,932 1,009,738 144,242 146,498 1,482,932 54,153 12,682 29,453 165,883 9,000 9,000 63,153 12,682 29,453 165,883 2,305,713 233,004 259,461 1,120,530 $ 2,368,866 $ 245,686 $ 288,914 $ 1,286,413 -134- Auto Plaza Sewer Improvement Maintenance District $ 300,349 $ 115,616 3,343,039 - 39,569 1,415 695 3,683,652 117,031 (continued) Total Integrated Non -Major Waste Special Management Revenue Funds $ $10,863,754 6,347,182 226,540 8,808,628 34,658 610,777 26,891,539 - 141,450 4,687 - 4,823,802 1,857,448 11,073 9,778,573 - - - 4,270,960 57,618 74,910 1,862,135 57,618 11,073 19,089,695 1,821,517 59,413 (11,073) 7,801,844 9,121 (9,000) 121 1,821,517 59,413 (11,073) 7,801,965 3,583,172 (306,286) 19,242,880 $ 5,404,689 $ (246,873) $ (11,073) $27,044,845 -135- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Drug Enforcement Rebate Special Revenue Fund For the Year Ended June 30, 2019 REVENUES Investment income Revenue from other agencies Total revenues EXPENDITURES Current: Public safety Net change in fund balance Fund balance, beginning of year Fund balance, end of year Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ $ $ 28,546 $ 28,546 1,838,779 1,838,779 1,867,325 1,867,325 1,892,796 1,537,063 355,733 (1,892,796) 330,262 2,223,058 2,942,544 2,942,544 2,942,544 $ 2,942,544 $ 1,049,748 $ 3,272,806 $ 2,223,058 -136- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Measure M Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,487,800 $ 1,487,800 $ 1,516,926 $ 29,126 Investment income 17,683 17,683 Total revenues 1,487,800 1,487,800 1,534,609 46,809 EXPENDITURES Current: Public works 1,700,000 85,005 84,460 545 Net change in fund balance (212,200) 1,402,795 1,450,149 47,354 Fund balance, beginning of year 1,072,351 1,072,351 1,072,351 Fund balance, end of year $ 860,151 $ 2,475,146 $ 2,522,500 $ 47,354 -137- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Air Quality Improvement Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Revenue from other agencies $ 141,000 $ 141,000 $ 140,400 $ (600) EXPENDITURES Current: Public works 28,653 226,497 213,563 12,934 Net change in fund balance 112,347 (85,497) (73,163) 12,334 Fund balance (deficit), beginning of year (123,519) (123,519) (123,519) Fund balance (deficit), end of year $ (11,172) $ (209,016) $ (196,682) $ 12,334 -138- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Proposition A Special Revenue Fund For the Year Ended June 30, 2019 REVENUES Taxes Revenue from other agencies Total revenues EXPENDITURES Current: Community services Net change in fund balance Fund balance, beginning of year Fund balance, end of year Budgeted Amounts Original Final Actual Variance with Final Budget Positive (Negative) $ 2,110,197 $ 2,110,197 $ 2,164,464 $ 54,267 103,665 103,665 105,324 1,659 2,213,862 2,213,862 2,269,788 55,926 2,234,723 2,234,723 2,241,018 (6,295) (20,861) (20,861) 28,770 49,631 86,767 86,767 86,767 $ 65,906 $ 65,906 $ 115,537 $ 49,631 -139- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Proposition C Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ - $ 1,750,353 $ 1,795,362 $ 45,009 Investment income 1,750,353 15,914 15,914 Total revenues 1,750,353 1,750,353 1,811,276 60,923 EXPENDITURES Current: Public works 1,064,248 272,274 227,598 44,676 Community services 1,448,185 1,467,085 1,259,068 208,017 Community development 13,528 13,528 11,817 1,711 Total expenditures 2,525,961 1,752,887 1,498,483 254,404 Net change in fund balance (775,608) (2,534) 312,793 315,327 Fund balance, beginning of year 1,331,582 1,331,582 1,331,582 Fund balance, end of year $ 555,974 $ 1,329,048 $ 1,644,375 $ 315,327 -140- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual State Gas Tax Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ $ $ 1,985,018 $ 1,985,018 Investment Income - - 15,402 15,402 Revenue from other agencies 2,207,135 2,207,135 2,071,383 (135,752) Other revenues 122,565 122,565 122,470 (95) Total revenues 2,329,700 2,329,700 4,194,273 1,864,573 EXPENDITURES Current: General government 2,500 2,500 2,457 43 Public works 2,158,529 2,186,594 2,021,030 165,564 Total expenditures 2,161,029 2,189,094 2,023,487 165,607 Net change in fund balance 168,671 140,606 2,170,786 2,030,180 Fund balance, beginning of year 654,431 654,431 654,431 Fund balance, end of year $ 823,102 $ 795,037 $ 2,825,217 $ 2,030,180 -141- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Police Donations Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 245 $ 245 Other revenues 1,550 1,550 Total revenues 1,550 1,795 245 EXPENDITURES Current: Public safety 18,507 649 17,858 Net change in fund balance (16,957) 1,146 18,103 Fund balance, beginning of year 24,917 24,917 24,917 Fund balance, end of year $ 24,917 $ 7,960 $ 26,063 $ 18,103 -142- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Transportation Development Act Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Revenue from other agencies $ 70,000 $ 70,000 $ 140,925 $ 70,925 EXPENDITURES Current: Public works 70,000 129,757 129,757 Net change in fund balance - (59,757) 11,168 70,925 Fund balance (deficit), beginning of year (71,625) (71,625) (71,625) Fund balance (deficit), end of year $ (71,625) $ (131,382) $ (60,457) $ 70,925 -143- City of West Covina Organizational Chart -iv- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual AB939 Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 4,526 $ 4,526 Other revenues 170,000 170,000 228,049 58,049 Total revenues 170,000 170,000 232,575 62,575 EXPENDITURES Current: Public works 213,868 216,014 131,144 84,870 Net change in fund balance (43,868) (46,014) 101,431 147,445 Fund balance, beginning of year 463,452 463,452 463,452 Fund balance, end of year $ 419,584 $ 417,438 $ 564,883 $ 147,445 -144- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Public Safety Augmentation Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 750,000 $ 750,000 $ 794,680 $ 44,680 Investment income 1,007 1,007 Total revenues 750,000 750,000 795,687 45,687 EXPENDITURES Current: Public safety 881,000 881,000 529,465 351,535 Net change in fund balance (131,000) (131,000) 266,222 397,222 Fund balance, beginning of year 189,251 189,251 189,251 Fund balance, end of year $ 58,251 $ 58,251 $ 455,473 $ 397,222 -145- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual COPS/SLESA Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 3,746 $ 3,746 Revenue from other agencies 164,514 295,773 131,259 Total revenues 164,514 299,519 135,005 EXPENDITURES Current: Public safety 249,897 224,938 24,959 Net change in fund balance (85,383) 74,581 159,964 Fund balance, beginning of year 333,556 333,556 333,556 Fund balance, end of year $ 333,556 $ 248,173 $ 408,137 $ 159,964 -146- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Charter PEG Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ $ 1,991 $ 1,991 EXPENDITURES Current: General government 13,336 138,993 138,993 Net change in fund balance (13,336) (138,993) (137,002) 1,991 Fund balance, beginning of year 270,661 270,661 270,661 Fund balance, end of year $ 257,325 $ 131,668 $ 133,659 $ 1,991 -147- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Art in Public Places Special Revenue Fund For the Year Ended June 30, 2019 REVENUES Investment income Other revenues Total revenues Net change in fund balance Fund balance, beginning of year Fund balance, end of year Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 1,893 $ 1,893 80,000 80,000 83,287 3,287 80,000 80,000 85,180 5,180 80,000 80,000 85,180 5,180 104,960 104,960 104,960 $ 184,960 $ 184,960 $ 190,140 $ 5,180 -148- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Measure R Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,312,792 $ 1,312,792 $ 1,346,909 $ 34,117 Investment income - - 22,149 22,149 Revenue from other agencies 9,785 9,785 Total revenues 1,312,792 1,312,792 1,378,843 66,051 EXPENDITURES Current: Public works Community services Total expenditures Net change in fund balance Fund balance, beginning of year Fund balance, end of year 1,379,515 1,226,029 922,572 303,457 243,097 295,944 232,269 63,675 1,622,612 1,521,973 1,154,841 367,132 (309,820) (209,181) 224,002 433,183 2,282,181 2,282,181 2,282,181 $ 1,972,361 $ 2,073,000 $ 2,506,183 $ 433,183 -149- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Inmate Welfare Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 93 93 Other revenues 3,000 3,000 1,498 (1,502) Total revenues 3,000 3,000 1,591 (1,409) EXPENDITURES Current: Public safety 13,500 4,435 4,435 Net change in fund balance (10,500) (1,435) (2,844) (1,409) Fund balance, beginning of year 11,381 11,381 11,381 Fund balance, end of year $ 881 $ 9,946 $ 8,537 $ (1,409) -150- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual West Covina Community Services Foundation Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 1,410 $ 1,410 Other revenues 100,593 100,592 (1) Total revenues 100,593 102,002 1,409 EXPENDITURES Current: Public safety 9,215 3,642 5,573 Community services 46,610 46,437 173 Total expenditures 55,825 50,079 5,746 Net change in fund balance 44,768 51,923 7,155 Fund balance, beginning of year 139,647 139,647 139,647 Fund balance, end of year $ 139,647 $ 184,415 $ 191,570 $ 7,155 -151- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Various Grants Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 1,943 $ 1,943 Revenue from other agencies 1,391,916 3,510,601 3,498,023 (12,578) Charges for services 40,000 40,000 32,330 (7,670) Total revenues 1,431,916 3,550,601 3,530,353 (12,578) EXPENDITURES Current: Public safety 417,749 2,581,951 2,497,819 84,132 Public works 765,800 209,134 142,860 66,274 Community services 302,735 302,735 245,223 57,512 Total expenditures 1,486,284 3,093,820 2,885,902 141,644 Excess of revenues over expenditures (54,368) 456,781 644,451 187,670 OTHER FINANCING (USES) Transfers in - 111 111 Net change in fund balance (54,368) 456,781 644,562 187,781 Fund balance (deficit), beginning of year (755,433) (755,433) (755,433) Fund balance (deficit), end of year $ (809,801) $ (298,652) $ (110,871) $ 187,781 -152- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Community Development Block Grant Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Revenue from other agencies $ 766,361 $ 766,361 $ 708,236 $ (58,125) Other revenues 80,000 80,000 72,636 (7,364) Total revenues 846,361 846,361 780,872 (65,489) EXPENDITURES Current: Public safety 20,000 20,000 21,104 (1,104) Public works 541,902 507,348 507,348 - Community development 284,459 284,459 246,945 37,514 Community services 186,652 5,475 181,177 Total expenditures 846,361 998,459 780,872 217,587 Excess (deficiency) of revenues over (under) expenditures (152,098) 152,098 OTHER FINANCING SOURCES Transfers in 10 10 Net change in fund balance (152,098) 10 152,108 Fund balance (deficit), beginning of year (9,303) (9,303) (9,303) Fund balance (deficit), end of year $ (9,303) $ (161,401) $ (9,293) $ 10 -153- CITY OF WEST COVINA City Officials June 30, 2019 CITY COUNCIL Mayor Tony Wu Mayor Pro Tern Letty Lopez-Viado Councilmember Dario Castellanos Councilmember Jessica C. Shwemaker Councilmember Lloyd Johnson CITY MANAGER (Interim) David Carmany EXECUTIVE MANAGEMENT Thomas Duarte City Attorney Nick Lewis City Clerk Nikole Bresciani Public Services Director Robbeyn Bird Finance Director (Interim) Mike Hambel Acting Fire Chief Nikole Bresciani Human Resources Director Jeff Anderson Planning Director Jeff Anderson Community Development Director Richard Bell Acting Chief of Police -v- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Maintenance District #1 Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 460,000 $ 460,000 $ 565,946 $ 105,946 Investment income 11,000 11,000 20,515 9,515 Total revenues 471,000 471,000 586,461 115,461 EXPENDITURES Current: Public works 477,184 456,627 389,945 66,682 Net change in fund balance (6,184) 14,373 196,516 182,143 Fund balance, beginning of year 2,105,045 2,105,045 2,105,045 Fund balance, end of year $ 2,098,861 $ 2,119,418 $ 2,301,561 $ 182,143 -154- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Maintenance District #2 Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 144,000 $ 144,000 $ 170,834 $ 26,834 Investment income 3,000 3,000 6,319 3,319 Total revenues 147,000 147,000 177,153 30,153 EXPENDITURES Current: Public works 272,702 312,764 283,203 29,561 Total expenditures 272,702 312,764 283,203 29,561 Excess (deficiency) of revenues over (under) expenditures (125,702) (165,764) (106,050) 59,714 OTHER FINANCING SOURCES (USES) Transfers out (9,000) (9,000) (9,000) Net change in fund balance (134,702) (174,764) (115,050) 59,714 Fund balance, beginning of year 696,747 696,747 696,747 Fund balance, end of year $ 562,045 $ 521,983 $ 581,697 $ 59,714 -155- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Coastal Sage Shrub Special Revenue Fund For the Year Ended June 30, 2019 REVENUES Taxes Investment income Total revenues EXPENDITURES Current: Public works Total expenditures Net change in fund balance Fund balance, beginning of year Fund balance, end of year Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 110,000 $ 110,000 $ 107,650 $ (2,350) 1,600 1,600 3,064 1,464 111,600 111,600 110,714 (886) 140,098 145,520 73,162 72,358 140,098 145,520 73,162 72,358 (28,498) (33,920) 37,552 71,472 297,683 297,683 297,683 $ 269,185 $ 263,763 $ 335,235 $ 71,472 -156- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Maintenance District #4 Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Special assessments $ 1,037,950 $ 1,037,950 $ 1,041,687 $ 3,737 Investment income 10,000 10,000 22,204 12,204 Total revenues 1,047,950 1,047,950 1,063,891 15,941 EXPENDITURES Current: Public works 1,113,433 1,156,448 1,009,738 146,710 Excess (deficiency) of revenues over(under)expenditures (65,483) (108,498) 54,153 162,651 OTHER FINANCING SOURCES (USES) Transfers in 9,000 9,000 9,000 Net change in fund balance (56,483) (99,498) 63,153 162,651 Fund balance, beginning of year 2,305,713 2,305,713 2,305,713 Fund balance, end of year $ 2,249,230 $ 2,206,215 $ 2,368,866 $ 162,651 -157- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Maintenance District #6 Special Revenue Fund For the Year Ended June 30, 2019 REVENUES Special assessments Investment income Total revenues EXPENDITURES Current: Public works Net change in fund balance Fund balance, beginning of year Fund balance, end of year Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 154,700 $ 154,700 $ 154,687 $ (13) 500 500 2,237 1,737 155,200 155,200 156,924 1,724 210,763 166,879 144,242 22,637 (55,563) (11,679) 12,682 24,361 233,004 233,004 233,004 $ 177,441 $ 221,325 $ 245,686 $ 24,361 -158- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Maintenance District #7 Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Special assessments $ 170,821 $ 170,821 $ 173,457 $ 2,636 Investment income 2,000 2,000 2,494 494 Total revenues 172,821 172,821 175,951 3,130 EXPENDITURES Current: Public works 210,088 175,788 146,498 29,290 Net change in fund balance (37,267) (2,967) 29,453 32,420 Fund balance, beginning of year 259,461 259,461 259,461 Fund balance, end of year $ 222,194 $ 256,494 $ 288,914 $ 32,420 -159- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Citywide Maintenance District Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Special assessments $ 1,678,452 $ 1,678,452 $ 1,634,312 $ (44,140) Investment income 4,000 4,000 12,175 8,175 Charges for services 2,328 2,328 Total revenues 1,682,452 1,682,452 1,648,815 (33,637) EXPENDITURES Current: Public works 1,592,827 1,614,834 1,482,932 131,902 Net change in fund balance 89,625 67,618 165,883 98,265 Fund balance, beginning of year 1,120,530 1,120,530 1,120,530 Fund balance, end of year $ 1,210,155 $ 1,188,148 $ 1,286,413 $ 98,265 -160- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Sewer Maintenance Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 190,000 $ 190,000 $ 300,349 $ 110,349 Special assessments 3,395,003 3,395,003 3,343,039 (51,964) Investment income 10,000 10,000 39,569 29,569 Other revenue 695 695 Total revenues 3,595,003 3,595,003 3,683,652 88,649 EXPENDITURES Current: Public safety 4,577 4,577 4,687 (110) Public works 3,311,543 2,712,768 1,857,448 855,320 Total expenditures 3,316,120 2,717,345 1,862,135 855,210 Net change in fund balance 278,883 877,658 1,821,517 943,859 Fund balance, beginning of year 3,583,172 3,583,172 3,583,172 Fund balance, end of year $ 3,862,055 $ 4,460,830 $ 5,404,689 $ 943,859 -161- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Auto Plaza Improvement District Special Revenue Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 115,668 $ 115,668 $ 115,616 $ (52) Investment income 1,415 1,415 Total revenues 115,668 115,668 117,031 1,363 EXPENDITURES Current: Community development 66,737 66,737 57,618 9,119 Net change in fund balance 48,931 48,931 59,413 10,482 Fund balance (deficit), beginning of year (306,286) (306,286) (306,286) Fund balance (deficit), end of year $ (257,355) $ (257,355) $ (246,873) $ 10,482 -162- City of West Covina Non -Major Governmental Funds — Capital Projects Funds CAPITAL PROJECTS FUNDS are used to account for the purchase or construction of major capital facilities which are not financed by Proprietary Funds. Capital Projects Funds are ordinarily not used to account for the acquisition of furniture, fixtures, machinery, equipment and other relatively minor or comparatively short-lived capital assets. City Capital Projects — This fund accounts for all capital expenditures not being accounted for in the capital projects described below or in other fund types. Construction Tax — This fund accounts for monies received from developers based on the construction of dwelling units and used primarily to construct public domain assets. Information Technology — The funds paid into this fund are to be used for information technology capital outlay projects. Park Development — This fund accounts for park fees received from residential developers to be used for new park construction. Development Impact Fees — This fund accounts for fees received from residential developers to help fund the purchase/replacement of vehicles/equipment along with the repairs and improvements of city facilities. -163- ©© ROGERS, ANDERSON, MALODY & SCOTT, LLP ©© CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T 909 889 5361 F ramscpa.net INDEPENDENT AUDITOR'S REPORT PARTNERS Brenda L. Odle. CPA. MST Terry P. Shea, CPA Scott W. Manno. CPA, CGMA The Honorable City Council Leena Shanbhag, CPA. MST. CGMA of the City of West Covina Bradferd A. Welebir, CPA. MBA, CGMA West Covina, California Jenny W. Liu, CPA, MST Jay H. Zercher. CPA (farmer Emeritus) Phillip H. Waller, CPA (Partner Emeritus) Kirk A. Franks, CPA (Partner Emeritus) Report on the Financial Statements We have audited the accompanying financial statements of the MANAGERS / STAFF governmental activities, the business -type activities, each major fund, and Charles De Simard. CPA the aggregate remaining fund information of the City of West Covina, GardenDuran, CPA California (City), as of and for the year ended June 30, 2019, and the Brianna Schultz, CPA S Jingpe Wu, CPA related notes to the financial statements, which collectively comprise the Evelyn Morentin-Barcena, CPA City's basic financial statements as listed in the table of contents. Veronica Hernandez, CPA Tara R. Thorp, CPA, MSA Management's Responsibility for the Financial Statements Laura Arvizu, CPA Ye Ying Stella Xia, CPA. MSBA Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. MEMBERS American Institute of Certified Public Accountants Auditor's Responsibility PCPS The AICPA Alliance far CPA Firms Our responsibility is to express opinions on these financial statements Governmental Audit based on our audit. We conducted our audit in accordance with auditing Quality Cente, standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Employee Benefit Plan Audit Quality Center Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable of assurance about whether the financial statements are free from material Certified Public Accountants misstatement. M MEEa OF A� E. GROUP A Worldwide Alliance of Independent Accounting, Law and Consulting Firms -1- STABILITY. ACCURACY. TRUST. City of West Covina Combining Balance Sheet Non -Major Capital Projects Funds June 30, 2019 ASSETS Cash and investments Total assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable Total liabilities Fund Balances: Assigned Total fund balances Total liabilities, deferred inflows of resources, and fund balances Construction Information City Tax Technology $ 141,258 $ 140,914 $ 185,076 $ 141,258 $ 140,914 $ 185,076 $ 3,122 $ 3,889 $ 22,726 3,122 3,889 22,726 138,136 137,025 162,350 138,136 137,025 162,350 $ 141,258 $ 140,914 $ 185,076 -164- (continued) Total Development Non -Major Park Impact Capital Projects Development Fees Funds $ 292,938 $ 408,313 $ 1,168,499 $ 292,938 $ 408,313 $ 1,168,499 $ 31,624 $ $ 61,361 31,624 61,361 261,314 408,313 1,107,138 261,314 408,313 1,107,138 $ 292,938 $ 408,313 $ 1,168,499 -165- City of West Covina Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non -Major Capital Projects Funds For the Year Ended June 30, 2019 REVENUES Taxes Investment income Revenue from other agencies Other revenues Total revenues EXPENDITURES Current: Public safety Public works Community services Total expenditures Net change in fund balances Fund balances, beginning of year Fund balances, end of year Construction Information City Tax Technology $ - $ 154,938 $ 1,519 1,359 60,997 - 11,856 - 74,372 156,297 115,458 - - - 84,845 564,787 115,458 84,845 564,787 (41,086) 71,452 (564,787) 179,222 65,573 727,137 $ 138,136 $ 137,025 $ 162,350 -166- Total Development Non -Major Park Impact Capital Projects Development Fees Funds $ - $ $ 154,938 4,643 7,521 - 60,997 34,064 318,426 364,346 38,707 318,426 587,802 38,255 153,713 - - 649,632 682,214 682,214 682,214 38,255 1,485,559 (643,507) 280,171 (897,757) 904,821 128,142 2,004,895 $ 261,314 $ 408,313 $ 1,107,138 (continued) -167- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual City Capital Projects Fund For the Year Ended June 30, 2019 REVENUES Investment income Revenue from other agencies Other revenues Total revenues EXPENDITURES Current: Public safety Deficiency of revenues under expenditures OTHER FINANCING SOURCES (USES) Transfers in Net change in fund balance Fund balance, beginning of year Fund balance, end of year Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ $ $ 1,519 $ 1,519 60,997 60,997 11,856 11,856 74,372 74,372 75,000 418,460 115,458 303,002 (75,000) (418,460) (41,086) 377,374 420,638 (420,638) (75,000) 2,178 (41,086) (43,264) 179,222 179,222 179,222 - $ 104,222 $ 181,400 $ 138,136 $ (43,264) -168- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Construction Tax Capital Projects Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 70,000 $ 70,000 $ 154,938 $ 84,938 Investment income 1,359 1,359 Total revenues 70,000 70,000 156,297 86,297 EXPENDITURES Current: Public works 41,370 88,555 84,845 3,710 Net change in fund balance 28,630 (18,555) 71,452 90,007 Fund balance, beginning of year 65,573 65,573 65,573 Fund balance, end of year $ 94,203 $ 47,018 $ 137,025 $ 90,007 -169- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Information Technology Capital Projects Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) EXPENDITURES Current: Public works $ $ 564,787 $ 564,787 $ Net change in fund balance (564,787) (564,787) Fund balance, beginning of year 727,137 727,137 727,137 Fund balance, end of year $ 727,137 $ 162,350 $ 162,350 $ -170- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Park Development Capital Projects Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 4,643 $ 4,643 Other revenues 3,975,000 3,975,000 34,064 (3,940,936) Total revenues 3,975,000 3,975,000 38,707 (3,936,293) EXPENDITURES Current: Community services 197,000 69,098 682,214 (613,116) Net change in fund balance 3,778,000 3,905,902 (643,507) (4,549,409) Fund balance, beginning of year 904,821 904,821 904,821 Fund balance, end of year $ 4,682,821 $ 4,810,723 $ 261,314 $ (4,549,409) -171- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Development Impact Fees Capital Projects Fund For the Year Ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Other revenues $ 69,776 $ 69,776 $ 318,426 $ 248,650 EXPENDITURES Current: Public Safety 38,255 38,255 Net change in fund balance 69,776 31,521 280,171 248,650 Fund balance, beginning of year 128,142 128,142 128,142 Fund balance, end of year $ 197,918 $ 159,663 $ 408,313 $ 248,650 -172- City of West Covina Internal Service Funds INTERNAL SERVICE FUNDS — These funds are used to account for vehicle and equipment maintenance and replacement, for the City's self-insurance programs, and for retirement health savings plans for qualified City employees. Departments of the City are charged for the services provided or benefits received from these funds. Fleet Management — This fund provides maintenance on materials and supplies for City vehicles and other gasoline or diesel powered equipment. Self -Insurance — This fund accounts for the use of funds that are charged to departments for the administration and payment of claims under the City's self -insured general liability and workers' compensation programs. Retiree Health Savings Plan — This fund accounts for the set aside lump sum benefits for retiring employees. Vehicle Replacement — This fund provides for replacement of City vehicles. -173- 11/16/2020 Print Staff Report occurred from July 1, 2018 through June 30, 2019. The CAFR is prepared in compliance with the Governmental Accounting Standards Board (GASB) standards. Pursuant to GASB guidelines, the City's CAFR is divided into three sections: Introductory, Financial, and Statistical. The Introductory section contains a Letter of Transmittal. This letter includes a brief overview of the City, the economic outlook, operational controls and major initiatives. The Financial section contains the independent auditors' opinion letter, Management's Discussion and Analysis (MD&A), and the Basic Financial Statements. The audit firm of Rogers, Anderson, Malody, & Scott, LLP has issued an unmodified (`clean') opinion on the financial statements for the year ended June 30, 2019. This means that their examination, testing and audit procedures allowed them to conclude that the financial statements present fairly the financial position of the City. This is the best opinion the City can receive from its auditors. The MD&A provides a narrative of how the financial report is presented and key highlights of some of the changes in financial position. The MD&A provides tables showing comparative information from the year ended June 30, 2018 to the year ended June 30, 2019. The final section of the CAFR is the Statistical section. This section presents data useful in analyzing the City's financial and operational history for comparative purposes. Some of the statistics tracked include financial trends, revenue capacity, and debt capacity which are useful for evaluating the City's financial stability. Additional statistics include operating indicators. Financial Highlights The CAFR represents the City of West Covina's financial position at June 30, 2019 and includes financial statements for all of its component units. Financial highlights of the fiscal year are noted in the Financial section of the CAFR and include the following: • At June 30, 2019, the City's total net position (assets plus deferred outflows of resources less liabilities and less deferred inflows of resources) was a deficit balance of $2.5 million. • The City's total net position decreased $5.4 million from the prior year. This is mostly due to a loss of $3.1 million in the General Fund, which was primarily caused by $1.7 million in unanticipated general liability -related expenditures due to claims and legal fees and program expenses. Other factors in the loss included a $0.9 million reduction in a series of revenues during the 2nd quarter review and unanticipated transfers out of $0.7 million to replace the fire station alerting system, and unanticipated expenses related to fleet maintenance, landscape maintenance and utilities. • The City's total governmental funds reported a combined ending fund balances of $77.5 million, an increase of $4.3 million in comparison with the prior fiscal year of $73.3 million. Of this, $9.1 million, or 11.7% of this total is non -spendable (not available for new spending). The restricted fund balance categories of $57.8 million or 74.6% is spendable for restricted purposes. The assigned fund balance of $1.4 million or 1.8% represents amounts that are intended to be used for specific purposes, but are not formally restricted or committed. The unassigned fund balance category of $9.2 million or 11.9% represents the City's fund balance reserves. • The City's business -type computer service enterprise activity (West Covina Service Group) had an operating loss for Fiscal Year 2018-19 of $51,375, compared with a $22,674 operating loss in Fiscal Year 2017-18. The total net position for the computer service enterprise fund as of June 30, 2019 was ($326,385). The net position in the prior year was ($275,010). • At the end of the current fiscal year, the City had debt outstanding of $65.1 million, a decrease of $1.3 million. Of this amount, $41.2 million represents outstanding bonds and $24.1 million represents other https://destinyhosted.com/print_ag_memo.cfm?seq=718&rev_num=0&mode=Extemal&reloaded=true&id=93782 2/5 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2019 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. -2- City of West Covina Combining Statement of Net Position Internal Service Funds June 30, 2019 Fleet Management Self -Insurance ASSETS Current Assets: Cash and investments $ 256,225 $ 11,644,019 Receivables, net: Accounts 196,913 6,595 Due from other funds - 24,698 Inventories 30,174 Total current assets 483,312 11,675,312 Noncurrent Assets Capital assets: Capital assets 2,087,836 - Less accumulated depreciation (1,950,556) Total capital assets 137,280 Total noncurrent assets 137,280 - Total assets 620,592 11,675,312 LIABILITIES Current Liabilities: Accounts payable 142,046 91,356 Other accrued liabilities 2,300 - Claims and judgments - current portion - 5,031,848 Compensated absences - current portion 8,245 - Total current liabilities 152,591 5,123,204 Noncurrent Liabilities: Claims and judgments - 5,024,335 Compensated absences 3,465 Total noncurrent liabilities 3,465 5,024,335 Total liabilities 156,056 10,147,539 NET POSITION Net investment in capital assets 137,280 - Unrestricted 327,256 1,527,773 Total net position $ 464,536 $ 1,527,773 -174- Retiree Health Vehicle Savings Plan Replacement Totals (continued) $ 392,839 $ 305,342 $ 12,598,425 203,508 24,698 30,174 392,839 305,342 12,856,805 841,503 2,929,339 _ (498,038) (2,448,594) _ 343,465 480,745 343,465 480,745 392,839 648,807 13,337,550 82,579 315,981 - 2,300 5,031,848 _ - 8,245 82,579 5,358,374 5,024,335 _ 3,465 5,027,800 82,579 10,386,174 - 343,465 480,745 392,839 222,763 2,470,631 $ 392,839 $ 566,228 $ 2,951,376 -175- City of West Covina Combining Statement of Revenues, Expenses, and Changes in Net Position Internal Service Funds For the Year Ended June 30, 2019 OPERATING REVENUES: Charges for services Other revenues Total operating revenues OPERATING EXPENSES: Personnel services Cost of sales, services and operations Depreciation Insurance and claims paid Total operating expenses Operating income (loss) NONOPERATING REVENUES: Investment income Total nonoperating revenues Fleet Management Self -Insurance $ 1,696,441 $ 6,054,043 31,545 41,641 1,727,986 6,095,684 103,005 - 1,332,137 343,184 11,966 - 5,013,555 1,447,108 5,356,739 280,878 738,945 Gain (loss) before transfers 280,878 738,945 Transfers out Change in net position 280,878 738,945 Net position, beginning of year 183,658 788,828 Net position, end of year $ 464,536 $ 1,527,773 -176- Retiree Health Vehicle Savings Plan Replacement Totals (continued) $ $ - $ 7,750,484 28,800 101,986 28,800 7,852,470 68,499 171,504 - - 1,675,321 55,317 67,283 5,013,555 68,499 55,317 6,927,663 (68,499) (26,517) 924,807 3,877 3,727 7,604 3,877 3,727 7,604 (64,622) (22,790) 932,411 (140,000) (140,000) (64,622) (162,790) 792,411 457,461 729,018 2,158,965 $ 392,839 $ 566,228 $ 2,951,376 -177- City of West Covina Combining Statement of Cash Flows Internal Service Funds For the Year Ended June 30, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Received from user departments Payments to suppliers for goods and services Payments to employees for services Net cash provided by (used for) operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers to other funds Paid to other funds Net cash provided by (used for) noncapital financing activities CASH FLOWS FROM INVESTING ACTIVITIES: Interest received on investments Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, ending of year RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities: Depreciation (Increase) Decrease in operating assets: Accounts receivable Other receivables Inventories Increase (Decrease) in operating liabilities: Accounts payable Other accrued liabilities Claims and judgments payable Compensated absences payable Net cash provided by (used for) operating activities Fleet Management Self -Insurance $ 1,531,073 $ 6,089,583 (1,405,055) (5,575,200) (99,144) 26,874 514,383 (24,698) (24,698) 26,874 489,685 229,351 11,154,334 $ 256,225 $ 11,644,019 $ 280,878 $ 738,945 11,966 (196,913) (6,595) 494 (3,225) - (70,081) 9,030 388 - - (227,491) 3,861 $ 26,874 $ 514,383 -178- Retiree Health Vehicle Savings Plan Replacement Totals $ $ 28,800 $ 7,649,456 82,579 (6,897,676) (68,499) - (167,643) (68,499) 111,379 584,137 (140,000) (140,000) (24,698) (140,000) (164,698) 4,017 3,907 7,924 (64,482) (279,296) 172,781 457,321 584,638 12, 425, 644 $ 392,839 $ 305,342 $ 12,598,425 $ (68,499) $ (26,517) $ 924,807 55,317 67,283 (203,508) 494 - (3,225) 82,579 21,528 - 388 (227,491) - 3,861 $ (68,499) $ 111,379 $ 584,137 (continued) 179- This page intentionally left blank. City of West Covina Pension Trust Funds PENSION TRUST FUNDS are used to account for monies required to be held in trust for the members and beneficiaries of defined benefit pension plans. Retirement Enhancement Defined Benefit Pension Trust Fund - This fund accounts for the assets and activities of the Public Agency Retirement System Enhancement Plan. Supplemental Retirement Defined Benefit Pension Trust Fund - This fund accounts for the assets and activities of the Public Agency Supplemental Retirement Plan. -180- City of West Covina Combining Statement of Net Position Pension Trust Funds June 30, 2019 Retirement Supplemental Total Enhancement Retirement Pension Defined Benefit Defined Benefit Trust Pension Fund Pension Fund Funds ASSETS Cash and investments $ 143,085 $ 534,237 $ 677,322 NET POSITION Held in trust for pension benefits $ 143,085 $ 534,237 $ 677,322 -181- City of West Covina Combining Statement of Changes in Net Position Pension Trust Funds For the Year Ended June 30, 2019 Retirement Supplemental Total Enhancement Retirement Pension Defined Benefit Defined Benefit Trust Pension Fund Pension Fund Funds ADDITIONS Employer contribution $ 62,350 $ 78,102 $ 140,452 Investment income 7,310 31,817 39,127 Total Additions 69,660 109,919 179,579 DEDUCTIONS Administrative costs 770 3,109 3,879 Benefit distributions 80,482 152,749 233,231 Total Deductions 81,252 155,858 237,110 Change in net position (11,592) (45,939) (57,531) Net Position, beginning of year 154,677 580,176 734,853 Net Position, end of year $ 143,085 $ 534,237 $ 677,322 -182- Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and the nonmajor fund budgetary comparison schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 9, 2020, on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City's internal control over financial reporting and compliance. koyeAX, �e t.t�c+, Is1 ,fcoli, LLP. San Bernardino, California March 9, 2020 -3- This page intentionally left blank. City of West Covina Agency Fund AGENCY FUNDS are used to account for monies held by the City in a trustee capacity as an agent for individuals, private organizations and other governmental units. Special Deposits — This fund accounts for developer funds placed on deposit with the City pending either a return to the depositor or disbursement by the City on behalf of the depositor to pay for studies and other developer expenses. -183- City of West Covina Statement of Changes in Assets and Liabilities Agency Fund For the Year Ended June 30, 2019 Balance Balance June 30, 2018 Additions Deletions June 30, 2019 ASSETS Cash and investments $ 1,905,180 $ 702,195 $ 690,328 $ 1,917,047 Receivables, net: Other 1,496 2,128 1,668 1,956 Total Assets $ 1,906,676 $ 704,323 $ 691,996 $ 1,919,003 LIABILITIES Accounts payable $ 19,089 $ 668,354 $ 635,159 $ 52,284 Deposits 1,887,587 708,338 729,206 1,866,719 Total Liabilities $ 1,906,676 $ 1,376,692 $ 1,364,365 $ 1,919,003 -184- City of West Covina Statistical Section This section of the City's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health. CONTENTS Page Financial Trends 186 These schedules contain trend information to help the reader understand how the City's financial performance and well being have changed over time. Revenue Capacity 200 These schedules contain information to help the reader assess one of the City's most significant local revenue source, the property tax. Debt Capacity 207 These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and its ability to issue additional debt in the future. Demographic and Economic Information 215 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take palce. Operating Information 218 These schedules contain service and infastructure data to help the reader understand how the information in the City's financial report relates to the services the government provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. -185- City of West Covina Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2010 2011 2012 2013 Governmental activities: Net investment in capital assets $184,338,106 $179,236,866 $222,784,189 $164,621,539 Restricted 18,316,134 25,286,909 53,331,999 46,016,224 Unrestricted 10,219,814 1,884,827 (27,344,668) (297,086) Total governmental activities net pension $ 212,874,054 $ 206,408,602 $ 248,771,520 $ 210,340,677 Business -type activities: Net investment in capital assets $ 42,073 $ - $ - $ - Restricted - Unrestricted (1,128,610) (999,624) (994,560) (426,769) Total business -type activities net pension $ (1,086,537) $ (999,624) $ (994,560) $ (426,769) Primary government: Net investment in capital assets $184,380,179 $179,236,866 $ 222,784,189 $ 164,621,539 Restricted 18,316,134 25,286,909 53,331,999 46,016,224 Unrestricted 9,091,204 (98,187) (28,339,228) (723,855) Total primary government net pension $ 211,787,517 $ 204,425,588 $ 247,776,960 $ 209,913,908 Source: City of West Covina Finance Department -186- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 $161,771,546 $ 144,215,248 $ 148,989,212 $ 153,784,463 $ 153,940,332 $ 147,204,908 47,468,277 48,793,821 56,902,504 50,717,656 51,130,936 57,782,735 191,878 (129,152,694) (138,162,202) (144,659,629) (201,951,785) (207,212,078) $ 209,431,701 $ 63,856,375 $ 67,729,514 $ 59,842,490 $ 3,119,483 $ (2,224,435) 60,922 188,045 (135,676) (252,336) (275,010) (326,385) $ 60,922 $ 188,045 $ (135,676) $ (252,336) $ (275,010) $ (326,385) $ 161,771,546 $ 144,215,248 $148,989,212 $153,784,463 $153,940,332 $ 147,204,908 47,468,277 48,793,821 56,902,504 50,717,656 51,130,936 57,782,735 252,800 (128,964,649) (138,297,878) (144,911,965) (202,226,795) (207,538,463) $ 209,492,623 $ 64,044,420 $ 67,593,838 $ 59,590,154 $ 2,844,473 $ (2,550,820) -187- City of West Covina Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2010 2011 2012 2013 Expenses: Governmental activities: General government $ 3,337,547 $ 2,922,898 $ 4,953,340 $ 5,519,153 Public safety 48,151,398 45,253,725 49,369,913 47,323,516 Public works 21,054,241 21,052,423 20,510,387 20,372,375 Community services 6,558,987 6,629,292 6,949,951 6,878,176 Community development 8,619,004 9,414,730 4,071,050 1,127,924 Interest on long-term debt 6,577,544 7,101,037 5,927,002 1,652,750 Total governmental activities expenses 94,298,721 92,374,105 91,781,643 82,873,894 Business -type activities: Computer enterprise 2,507,498 2,086,135 1,701,367 1,435,855 Total business -type activities expenses 2,507,498 2,086,135 1,701,367 1,435,855 Total primary government expenses 96,806,219 94,460,240 93,483,010 84,309,749 Program revenues: Governmental activities: Charges for services: General government Public safety Public works Community services Community development Operating grants and contributions Capital grants and contributions Total governmental activities program revenues Business -type activities: Charges for services: Computer enterprise Total business -type activities program revenues Total primary government program revenues Source: City of West Covina Finance Department 1,019,690 681,877 599,066 548,333 3,850,741 3,571,864 3,196,729 3,018,478 7,041,281 8,043,988 7,046,096 7,781,333 1,089,227 1,166, 675 1,141,162 1,195,612 313,639 240,462 255,669 348,112 5,157,956 10,189, 050 12,557,141 10,344,778 3,574,609 678,827 958,459 597,405 22,047,143 24,572,743 25,754,322 23,834,051 2,193,037 2,268,982 1,805,242 2,105,421 2,193,037 2,268,982 1,805,242 2,105,421 24,240,180 26,841,725 27,559,564 25,939,472 -188- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 $ 7,472,254 $ 5,676,067 $ 4,963,302 $ 5,775,173 $ 7,523,129 $ 7,515,920 45,443,958 49,813,447 48,410,511 56,169,907 67,734,047 58,057,784 21,109,952 20,586,770 20,259,279 21,243,019 21,161,586 21,625,190 6,437,040 7,035,872 7,368,492 7,926,410 8,926,070 9,280,450 658,082 766,886 753,721 2,190,319 1,618,181 795,685 1,677,062 1,353,156 1,572,645 1,575,724 1,515,826 1,680,335 82,798,348 85,232,198 83,327,950 94,880,552 108,478,839 98,955,364 1,284,419 1,427,789 1,638,573 1,575,066 1,305,426 1,263,693 1,284,419 1,427,789 1,638,573 1,575,066 1,305,426 1,263,693 84,082,767 86,659,987 84,966,523 96,455,618 109,784,265 100,219,057 486,478 885,123 400,051 546,626 814,465 829,295 3,037,891 2,825,831 3,170,579 3,201,495 3,610,467 3,839,103 8,878,122 8,278,038 8,271,744 7,714,148 8,967,472 9,156,370 1,180,562 1,275,278 1,365,482 1,491,858 2,110,943 1,903,119 621,352 502,621 425,013 416,014 264,959 465,097 11,021,410 12,405,742 13,317,378 10,955,031 10,285,701 12,097,219 4,458,250 2,224,864 1,004,826 445,980 151,966 360,872 29,684,065 28,397,497 27,955,073 24,771,152 26,205,973 28,651,075 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 1,099,028 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 1,099,028 31,557,701 30,052,631 29,368,187 26,045,470 27,405,135 29,750,103 -189- City of West Covina Changes in Net Position, (continued) Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2010 2011 2012 2013 Net revenues (expenses): Governmental activities $(72,251,578) $(67,801,362) $(66,027,321) $(58,612,191) Business -type activities (314,461) 182,847 103,875 669,566 net primary government revenues (expenses) (72,566,039) (67,618,515) (65,923,446) (57,942,625) General revenues and other changes in net position: Governmental activities: Taxes: Property taxes 28,849,815 30,888,074 23,313,556 20,937,356 Sales tax 7,791,286 12,550,157 13,177,914 13,307,736 Franchise tax 3,093,538 3,159,080 3,224,053 3,361,812 Othertaxes 5,392,829 5,449,323 7,835,918 6,265,257 Motor vehicle in lieu, unrestricted 331,289 517,098 55,880 57,902 Investment income 4,288,088 2,281,105 1,647,399 185,451 Other general revenues 2,077,837 4,412,125 5,193,850 7,310,544 Transfers 93,140 95,934 98,811 101,775 Extraordinary gain (loss) 55,825,872 (19,629,066) Total governmental activities 51,917,822 59,352,896 110,373,253 31,898,767 Business -type activities: Investment income 108 Other revenues - Transfers (93,140) (95,934) (98,811) (101,775) Total business -type activities (93,032) (95,934) (98,811) (101,775) Total primary government 51,824,790 59,256,962 110,274,442 31,796,992 Changes in net position: Governmental activities (20,333,756) (8,448,466) 44,345,932 (26,713,424) Business -type activities (407,493) 86,913 5,064 568,040 Total primary government change in net position $(20,741,249) $ (8,361,553) $ 44,350,996 $(26,145,384) Source: City of West Covina Finance Department -190- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 $(53,114,283) $(56,834,701) $(55,372,877) $(70,109,400) $(82,272,866) $(70,304,289) 589,217 227,345 (225,459) (300,748) (106,264) (164,665) (52,525,066) (56,607,356) (55,598,336) (70,410,148) (82,379,130) (70,468,954) 20,420,020 21,156,596 22,352,163 23,994,740 25,392,860 26,365,067 14,705,790 15,096,101 17,228,237 16,503,563 17,449,827 17,464,609 3,478,532 3,635,092 3,540,011 3,698,184 4,011,817 4,207,765 7,451,947 7,433,106 6,485,394 6,725,309 7,692,437 9,158,794 695,341 660,157 (566,064) 4,452,938 559,164 2,016,573 5,960,967 6,999,034 4,236,920 6,847,642 9,256,591 5,747,563 101,775 101,775 101,775 - - - 9,789,266 52,814,372 55,081,861 63,167,702 62,222,376 64,362,696 64,960,371 - 1,553 3,513 2,070 884 1,083 - - 182,018 82,706 112,207 (101,775) (101,775) (101,775) (101,775) (100,222) (98,262) 184,088 83,590 113,290 52,712,597 54,981,639 63,069,440 62,406,464 64,446,286 65,073,661 (299,911) (1,752,840) 7,794,825 (7,887,024) (17,910,170) (5,343,918) 487,442 127,123 (323,721) (116,660) (22,674) (51,375) $ 187,531 $ (1,625,717) $ 7,471,104 $ (8,003,684) $(17,932,844) $ (5,395,293) -191- This page intentionally left blank. City of West Covina Changes in Net Position Governmental Activities Last Ten Fiscal Years (accrual basis of accounting) Expenses: General government Public safety Public works Community services Community development Interest on long-term debt Total expenses Program revenues: Charges for services: General government Public safety Public works Community services Community development Operating grants and contributions Capital grants and contributions 2010 2011 2012 2013 $ 3,337,547 $ 2,922,898 $ 4,953,340 $ 5,547,949 48,151,398 45,253,725 49,369,913 47,160,347 21,054,241 21,052,423 20,510,387 20,465,106 6,558,987 6,629,292 6,949,951 6,911,667 8,619,004 9,414,730 4,071,050 708,422 6,577,544 7,101,037 5,927,002 1,652,751 94,298,721 92,374,105 91,781,643 82,446,242 1,019,690 681,877 599,066 548,333 3,850,741 3,571,864 3,196,729 3,018,478 7,041,281 8,043,988 7,046,096 7,781,333 1,089,227 1,166,675 1,141,162 1,195,612 313,639 240,462 255,669 348,112 5,157,956 10,189,050 12,557,141 10,344,778 3,574,609 678,827 958,459 597,405 Total program revenues 22,047,143 24,572,743 25,754,322 23,834,051 Net program revenues (expenses) (72,251,578) (67,801,362) (66,027,321) (58,612,191) General revenues and other changes in net position: Taxes: Property taxes Sales tax Franchise tax Othertaxes Motor vehicle in lieu, unrestricted Investment income Other general revenues Transfers Extraordinary gain (loss) Total governmental revenues and other changes Changes in net position 28,849,815 30,888,074 23,313,556 20,937,356 7,791,286 12,550,157 13,177,914 13,307,736 3,093,538 3,159,080 3,224,053 3,361,812 5,392,829 5,449,323 7,835,918 6,265,257 331,289 517,098 55,880 57,902 4,288,088 2,281,105 1,647,399 185,451 2,077,837 4,412,125 5,193,850 7,310,544 93,140 95,934 98,811 101,775 55,825,872 (19,629,066) 51,917,822 59,352,896 110,373,253 31,898,767 $ (20,333,756) $ (8.448,466) $ 44.345.932 $ (26,713,424) Source: City of West Covina Finance Department -192- (continued) 2014 2015 2016 2017 2018 2019 $ 7,472,254 $ 5,676,067 $ 4,963,302 $ 5,775,173 $ 7,523,129 $ 7,515,920 45,443,958 49,813,447 48,410,511 56,169,907 67,734,047 58,057,784 21,109,952 20,586,770 20,259,279 21,243,019 21,161,586 21,625,190 6,437,040 7,035,872 7,368,492 7,926,410 8,926,070 9,280,450 658,082 766,886 753,721 2,190,319 1,618,181 795,685 1,677,062 1,353,156 1,572,645 1,575,724 1,515,826 1,680,335 82,798,348 85,232,198 83,327,950 94,880,552 108,478,839 98,955,364 486,478 885,123 400,051 546,626 814,465 829,295 3,037,891 2,825,831 3,170,579 3,201,495 3,610,467 3,839,103 8,878,122 8,278,038 8,271,744 7,714,148 8,967,472 9,156,370 1,180,562 1,275,278 1,365,482 1,491,858 2,110,943 1,903,119 621,352 502,621 425,013 416,014 264,959 465,097 11,021,410 12,405,742 13,317,378 10,955,031 10,285,701 12,097,219 4,458,250 2,224,864 1,004,826 445,980 151,966 360,872 29,684,065 28,397,497 27,955,073 24,771,152 26,205,973 28,651,075 (53,114,283) (56,834,701) (55,372,877) (70,109,400) (82,272,866) (70,304,289) 20,420,020 21,156,596 22,352,163 23,994,740 25,392,860 26,365,067 14,705,790 15,096,101 17,228,237 16,503,563 17,449,827 17,464,609 3,478,532 3,635,092 3,540,011 3,698,184 4,011,817 4,207,765 7,451,947 7,433,106 6,485,394 6,725,309 7,692,437 9,158,794 695,341 660,157 (566,064) 4,452,938 559,164 2,016,573 5,960,967 6,999,034 4,236,920 6,847,642 9,256,591 5,747,563 101,775 101,775 101,775 - - - 9,789,266 52,814,372 55,081,861 63,167,702 62,222,376 64,362,696 64,960,371 $ (299,911) $ (1,752.840) $ 7,794.825 $ (7.887.024) $ (17.910,170) $ (5.343,918) -193- City of West Covina Changes in Net Position Business -Type Activities Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2010 2011 2012 2013 Expenses: Computer Enterprise $ 2,507,498 $ 2,086,135 $ 1,701,367 $ 1,435,606 Total expenses 2,507,498 2,086,135 1,701,367 1,435,606 Program revenues: Charges for services: Computer Enterprise 2,193,037 2,268,982 1,805,242 2,105,421 Total program revenues 2,193,037 2,268,982 1,805,242 2,105,421 Net revenues (expenses) (314,461) 182,847 103,875 669,815 General revenues and other changes in net position: Investment income 108 - - - Transfers (93,140) (95,934) (98,811) (101,775) Total general revenues and other changes (93,032) (95,934) (98,811) (101,775) Changes in net position $ (407,493) $ 86,913 $ 5,064 $ 568,040 -194- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 $ 1,284,419 $ 1,427,789 $ 1,638,573 $ 1,575,066 $ 1,305,426 $1,263,693 1,284,419 1,427,789 1,638,573 1,575,066 1,305,426 1,263,693 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 1,099,028 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 1,099,028 589,217 227,345 (225,459) (300,748) (106,264) (164,665) 1,553 3,513 2,070 884 1,083 (101,775) (101,775) (101,775) 182,018 82,706 112,207 (101,775) (100,222) (98,262) 184,088 83,590 113,290 $ 487,442 $ 127,123 $ (323,721) $ (116,660) $ (22,674) $ (51,375) -195- City of West Covina Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) 2010 2011 2012 2013 General fund: Reserved $ 24,321,122 $ $ $ Unreserved 7,246,828 Total general fund $ 31,567,950 $ $ $ All other governmental funds: Reserved $ 24,916,095 $ $ $ Unreserved, reported in: Special revenue funds 10,351,716 Capital projects funds (465,131) Debt service funds (131,153) Total all other governmental funds $ 34,671,527 $ $ $ General Fund: Nonspendable $ $ 20,827,056 $ 15,580,789 $ 6,621,695 Assigned - - - Unassigned 8,786,221 13,187,181 4,108,967 Total general fund $ $ 29,613,277 $ 28,767,970 $ 10,730,662 All other governmental funds: Nonspendable $ $ 8,210,093 $ 6,200,423 $ 6,814,431 Restricted 38,138,456 31,101,636 32,133,653 Assigned 1,964,946 1,378,401 893,566 Unassigned (12,759,988) (110,042) (373,264) Total all other governmental funds $ $ 35,553,507 $ 38,570,418 $ 39,468,386 Source: City of West Covina Finance Department -196- (continued) 2014 2015 2016 2017 2018 2019 $ 6,595,326 $ 6,483,924 $ 7,129,779 $ 6,982,268 $ 9,952,978 $ 8,976,583 - - - - 320,200 320,200 5,687,385 20,531,695 15,032,610 14,119,078 11,979,653 9,884,913 $ 12,282,711 $ 27,015,619 $ 22,162,389 $ 21,101,346 $ 22,252,831 $19,181,696 $ 157,500 $ 151,923 $ 5,277,203 $ 4,980,450 $ 110,833 $ 99,167 56,225,097 59,918,077 51,467,448 45,082,696 49,600,866 57,840,755 3,891,565 4,930,693 5,065,065 2,820,665 2,004,895 1,107,138 (47,867) (438,708) (531,412) (1,100,860) (710,218) (692,305) $ 60,226,295 $ 64,561,985 $ 61,278,304 $ 51,782,951 $ 51,006,376 $58,354,755 -197- City of West Covina Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2010 2011 2012 2013 Revenues: Taxes $ 63,270,166 $ 63,663,702 $ 53,636,172 $ 46,185,045 Special assessments 4,871,575 5,210,062 5,270,856 5,511,465 Licenses and permits 904,985 1,099,083 866,642 1,156,196 Fines and forfeitures 1,324,698 1,056,923 1,097,836 1,048,819 Investment income 5,589,739 4,124,960 3,419,665 533,388 Rental income 310,819 468,123 421,521 370,913 Intergovernmental 11,321,980 8,363,460 12,481,691 9,496,633 Charges for services 6,845,511 6,779,667 6,732,076 6,124,201 Repayment of notes and loans 449,045 721,348 332,698 925,235 Other 1,112,553 3,781,096 1,720,792 5,105,117 Total revenues 96,001,071 95,268,424 85,979,949 76,457,012 Expenditures Current: General government 4,646,621 4,180,878 4,950,311 5,205,956 Public safety 45,639,257 41,938,421 44,109,598 42,688,487 Public works 19,686,587 15,325,261 18,209,981 16,203,144 Community services 5,390,364 5,412,009 5,917,227 5,872,485 Community development 6,142,905 8,228,653 4,246,590 666,255 Pass -through payments 9,724,035 5,863,850 2,112,227 - Debt service: Principal retirement 4,108,592 4,649,975 5,155,105 1,773,261 Interest and fiscal charges 8,410,803 8,520,890 6,307,988 1,659,473 Cost of issuance - - - - Developer agreement payments 2,002,039 2,317,114 351,444 Total expenditures 105,751,203 96,437,051 91,360,471 74,069,061 Excess (deficiency) of revenues over (under) expenditures (9,750,132) (1,168,627) (5,380,522) 2,387,951 Other financing sources (uses): Transfers in 11,023,152 11,171,460 8,947,657 3,639,400 Transfers out (9,180,012) (11,075,526) (8,848,846) (3,537,625) Acquisition under capital leases Issuance of bonds Premium of refunding bonds issued Payment to refunded bond escrow agent - Extraordinary gain (loss) 7,453,315 (19,629,066) Total other financing sources (uses) 1,843,140 95,934 7,552,126 (19,527,291) Net change in fund balances $ (7,906,992) $ (1,072,693) $ 2,171,604 $(17,139,340) Debt service as a percentage of noncapital expenditures 25.60 % 19.89 % 16.20 % 5.21 Source: City of West Covina Finance Department -198- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 $ 48,785,393 $ 50,918,823 $ 54,237,649 $ 55,502,969 $59,255,716 $62,477,442 5,513,535 5,595,338 5,550,657 5,318,497 6,077,861 6,347,182 1,717,153 1,419,457 1,156,613 1,037,389 1,089,850 1,140,622 1,036,732 959,606 796,989 894,618 1,290,187 1,318,333 716,472 679,844 (570,132) 4,448,607 551,948 2,008,971 367,798 406,350 529,833 604,817 649,968 647,749 11,097,551 10,769,196 11,218,711 10,193,278 7,920,178 12,581,261 6,751,541 6,803,615 7,731,236 7,359,139 8,681,704 7,473,923 26,148 - - - - - 6,258,384 5,490,327 1,487,103 2,129,531 4,229,895 1,142,659 82,270,707 83,042,556 82,138,659 87,488,845 89,747,307 95,138,142 7,087,335 5,757,334 5,103,814 6,214,682 5,700,461 6,828,020 43,332,847 45,906,138 50,962,883 54,480,972 53,087,630 58,205,797 17,790,042 13,724,417 15,509,267 15,328,717 17,635,489 14,800,936 5,399,732 5,816,443 6,864,180 10,824,395 6,975,178 7,290,775 679,007 761,896 898,714 2,198,881 1,182,255 1,086,128 1,870,239 1,866,947 2,027,461 7,931,202 1,958,918 13,353,918 1,666,054 1,360,370 1,574,753 1,566,392 1,501,956 1,691,316 - - - - - 389,726 77,825,256 75,193,545 82,941,072 98,545,241 88,041,887 103,646,616 4,445,451 7,849,011 (802,413) (11,056,396) 1,705,420 (8,508,474) 3,744,115 3,201,793 4,831,038 5,643,232 3,902,056 149,121 (3,642,340) (3,100,018) (10,812,296) (5,643,232) (5,232,566) (9,121) - 2,568,446 500,000 - 2,185,000 - - 24,165,000 - 1,380,718 (2,248,061) (12,900,000) 11,578,351 38,714 11,680,126 (3,412,812) 500,000 (1,330,510) 12,785,718 $ 4,484,165 $ 19,529,137 $ (4,215,225) $(10,556,396) $ 374,910 $ 4,277,244 5.18% 4.92% 4.70% 10.29% 4.18% 15.08 % -199- City of West Covina Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years City Fiscal Year Taxable Ended Less: Assessed June 30 Secured Non -Unitary Unsecured Exemptions Value 2010 $ 6,281,230 $ $ 15,205 $ (76,991) $ 6,219,444 2011 6,276,734 11,705 (86,340) 6,202,099 2012 6,381,873 12,762 (85,792) 6,308,843 2013 6,477,468 10,645 (93,277) 6,394,836 2014 6,670,267 15,080 (73,615) 6,611,732 2015 7,116,733 12,346 (94,084) 7,034,995 2016 7,458,200 14,738 (95,915) 7,377,023 2017 7,829,861 11,212 (100,253) 7,740,820 2018 8,229,924 9,185 (84,900) 8,154,209 2019 8,718,033 10,356 (101,379) 8,627,010 NOTE: In 1978, the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1 % based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2 % ). With few exceptions, property is only reassessed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. -200- Successor Agency (SA) of the former Community Development Commission (CDC) City and SA Taxable Total Taxable Less: Assessed Assessed Secured Unsecured Exemptions Value Value $ 2,339,976 $ 163,198 $ (152,699) $ 2,350,475 $ 8,569,919 2,336,269 157,035 (142,764) 2,350,540 8,552,639 2,408,026 152,958 (152,569) 2,408,415 8,717,258 2,429,152 160,821 (152,386) 2,437,587 8,832,423 2,498,131 161,438 (186,502) 2,473,067 9,084,799 2,566,170 161,710 (184,907) 2,542,973 9,577,968 2,795,635 162,488 (189,554) 2,768,569 10,145,592 3,028,206 165,375 (170,529) 3,023,052 10,763,872 3,103,316 163,326 (154,330) 3,112,312 11,266,521 3,305,249 167,442 (168,062) 3,304,629 11,931,639 (continued) Total Direct Tax Rate 33.284 % 33.326 % 33.518% 33.456% 14.083% 14.116% 14.138% 14.165% 14.109% 14.221 % -201- MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial performance of the City of West Covina (the City) provides an overview of the City's financial activities for the fiscal year ended June 30, 2019. The information presented herein should be considered in conjunction with the transmittal letter and financial statements identified in the accompanying table of contents. FINANCIAL HIGHLIGHTS • As of June 30, 2019, the City's total net position (assets plus deferred outflows of resources less liabilities and less deferred inflows of resources) was a deficit of $2.6 million. • The City's total net position decreased $5.4 million from the prior year. This is mostly due to a loss of $3.1 million in the General Fund, which was primarily caused by $1.7 million in unanticipated general liability -related expenditures due to claims, legal fees and program expenses. Other factors in the loss included a $0.9 million reduction in a series of revenues during the 2nd quarter review and unanticipated transfers out of $0.7 million to replace the fire station alerting system, and unanticipated expenses related to fleet maintenance, landscape maintenance and utilities. • The City's total governmental funds reported combined ending fund balances of $77.5 million, an increase of $4.2 million in comparison with the prior fiscal year of $73.3 million. Of this, $9.1 million, or 11.7% of this total is non -spendable (not available for new spending). The restricted fund balance categories of $57.8 million or 74.6% is spendable for restricted purposes. The assigned fund balance of $1.4 million or 1.8% represents amounts that are intended to be used for specific purposes, but are not formally restricted or committed. The unassigned fund balance category of $9.2 million or 11.9% represents the City's fund balance reserves. • The City's business -type computer service enterprise activity (West Covina Service Group) had an operating loss for fiscal year (FY) 2018-19 of $51,375, compared with a $22,674 operating loss in FY 2017-18. The total net position for the computer service enterprise fund as of June 30, 2019 was ($326,385). The net position in the prior year was ($275,010). OVERVIEW OF THE FINANCIAL STATEMENTS The annual report consists of four parts — management's discussion and analysis (this section), the basic financial statements, required supplementary information, and an optional section that presents combining statements for non -major governmental funds and internal service funds. The basic financial statements include two kinds of statements that present different views of the City: • The first two statements are government -wide financial statements that provide both long- term and short-term information about the City's overall financial status. • The remaining statements are fund financial statements that focus on individual parts of the City government, reporting the City's operations in more detail than the government - wide statements. • The governmental funds statements tell how general government services like public safety were financed in the short-term as well as what remains for future spending. -4- City of West Covina Direct and Overlapping Property Tax Rates Last Ten Fiscal Years (rate per $100 of assessed value) Basic Levy' Baldwin Park Unified Bassett Unified School District County Detention Facilities 1987 Debt Covina Valley Unified School District Hacienda -La Puente Unified LA County Flood Control Metropolitan Water District Mt. San Antonio College Rowland Heights Unified Walnut Valley Unified West Covina Municipal Maint. Dist. West Covina Unified Total Direct & Overlapping' Tax Rates City Share of 1 % Levy Per Prop 13' Redevelopment Rate° Total Tax Rates Fiscal Year 2010 2011 2012 2013 1.00000 1.00000 1.00000 1.00000 0.16101 0.16673 0.17506 0.16406 0.10877 0.12316 0.11628 0.12773 0.00000 0.00000 0.00000 0.00000 0.08592 0.09003 0.08999 0.09500 0.05973 0.06462 0.06430 0.06689 0.00000 0.00000 0.00000 0.00000 0.00430 0.00370 0.00370 0.00350 0.02571 0.02636 0.02642 0.02896 0.06769 0.07538 0.09195 0.10053 0.11674 0.11839 0.11735 0.12554 0.18180 0.18180 0.18180 0.18180 0.05258 0.05920 0.05377 0.04965 1.86426 1.90937 1.92061 1.94365 0.13820 0.13820 0.13820 0.13820 1.00430 1.00370 1.00370 N/A 0.33284 0.33326 0.33518 0.33456 ' In 1978, California voters passed Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of any voter approved bonds. 2 Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlappping rates apply to all city property owners. 3 Citys share of 1 % Levy is based on the Citys share of the general fund tax rate area with the largest net taxable value within the City. ERAF general fund tax shifts may not be included in tax ratio figures. 4 Redevelopment Rate is based on the largest RDA tax rate area and only includes rate(s) from indebtedness adopted prior to 1989 per California State statute. RDA direct and overlapping rates are applied only to the incremental property values. The approval of ABX1 26 eliminated Redevelopment from 5 Total Direct Rate is the weighted average of all individual direct rates applied to by the government preparing the statistical section information and excludes revenues derived from aircraft taxes. Beginning in 2013/14 the Total Direct Rate no longer includes revenue generated from the former redevelopment tax rate areas. Challenges to recognized enforceable obligations are assumed to have been resolved during 2012113. For the purpose of this report, residual revenue is assumed to be distributed to the City in the Source: Los Angeles County Assessor 2009/10 - 2018/19 Tax Rate Table -202- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 0.15842 0.16519 0.16288 0.10510 0.13039 0.12402 0.11632 0.11539 0.15771 0.16781 0.17443 0.16349 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.11472 0.11426 0.11062 0.12581 0.14205 0.13976 0.06653 0.06432 0.06394 0.06600 0.10531 0.10706 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00350 0.00350 0.00350 0.00350 0.00350 0.00350 0.02023 0.02129 0.02154 0.02400 0.02371 0.02435 0.12297 0.14313 0.12426 0.12444 0.11841 0.11861 0.11342 0.11510 0.09285 0.06601 0.07388 0.10582 0.18310 0.18310 0.18310 0.18310 0.18310 0.18310 0.03626 0.05412 0.04205 0.04914 0.09514 0.09795 1.93547 1.97941 1.96245 1.91492 2.04992 2.06766 0.13820 0.13820 0.13820 0.13820 0.13820 0.13820 N/A N/A N/A N/A N/A N/A 0.14083 0.14116 0.14138 0.14165 0.14109 0.14221 -203- This page intentionally left blank. City of West Covina Principal Property Taxpayers Current Year and Nine Years Ago 2019 2010 Percent of Percent of Taxable Total Taxable Taxable Total Taxable Assessed Assessed Assessed Assessed Taxpayer Value Rank Value Value Rank Value Plaza West Covina LLC $277,472,050 1 2.33% $185,530,056 1 2.16% BRE DDR BR Eastland California LLC 177,487,078 2 1.49 % 0.00 Colony at the Lakes 173,046,650 3 1.45% - 0.00% WC MB RE 61,664,432 4 0.52% - 0.00% Walnut Ridge Apartments LP 59,420,485 5 0.50% - 0.00% TPA NASCH LLC 56,830,624 6 0.48% - 0.00% Francisquito Avenue Fee Owner LLC 56,474,030 7 0.47 % - 0.00 624 South Glendora Avenue Owner 54,610,174 8 0.46% - 0.00% Bently Real Estate LLC 41,242,788 9 0.35% - 0.00% Azusa Rowland 39,141,967 10 0.33% - 0.00% Eastland Shopping Center LLC - 0.00% 102,315,093 2 1.19 Gateway Crescent LLC - 0.00% 56,865,000 3 0.66% SP Torrey Pines LLC - 0.00% 54,755,600 4 0.64 PPC WR Apartments - 0.00% 51,483,127 5 0.60% Eastland Tower Partnership - 0.00% 51,132,477 6 0.60% Legacy Partners Verandas LP - 0.00% 48,179,900 7 0.56 CP Lafayette Parc LLC - 0.00% 43,784,280 8 0.51 Hassan Real Estate Partnership - 0.00% 35,050,305 9 0.41 CMF PWC LLC 0.00% 34,141,103 10 0.40% Totals $997,390,278 8.38% $663,236,941 7.73% Source: HdL Conan & Cone; Los Angeles County Assessor 2009-10 and 2018-19 Combined Tax Rolls and the SBE Non UnitaryTax Roll -204- City of West Covina Property Tax Levies and Collections Last Ten Fiscal Years City Collected within the Fiscal Taxes Levied Fiscal Year of Levy Collections in Total Collections to Date Year Ended for the Percent Subsequent Percent June 30 Fiscal Year Amount of Levy Years Amount of Levy 2010 $ 8,913,839 $ 8,152,304 91.46% $ 111,790 $ 8,264,094 92.71% 2011 8,782,946 8,287,440 94.36% 201,261 8,488,701 96.65% 2012 8,961,279 8,280,265 92.40% (167,264) 8,113,001 90.53% 2013 9,094,235 8,853,013 97.35% (75,056) 8,777,957 96.52% 2014 9,119,226 9,105,997 99.85% (67,229) 9,038,768 99.12% 2015 9,702,185 9,491,592 97.83% 34,965 9,526,557 98.19% 2016 10,173,156 9,881,520 97.13% 88,647 9,970,167 98.00% 2017 10,671,800 10,440,321 97.83% 109,928 10,550,250 98.86% 2018 11,679,354 11,040,516 94.53% 267,238 11,307,754 96.82% 2019 12,395,960 11,894,401 95.95% 233,272 12,127,673 97.84% Notes: The amounts presented include City property taxes and Community Development Commission tax increment. This schedule also includes amounts collected by the City and the Community Development Commission that were passed -through to other agencies Fiscal year 2012 collections for Community Development Commission are as of January 1, 2012. This is due to ABx1 26 (RDA Dissolution Bill ) that was effective February 1, 2012. Subsequent to January 1, 2012, there were no property taxes levied under the Community Development Commission. Source: Los Angeles County Auditor Controller's Office - Accounting Division -205- (continued) Community Development Commission Collected within the Taxes Levied Fiscal Year of Levy Collections in Total Collections to Date for the Percent Subsequent Percent Fiscal Year Amount of Levy Years Amount of Levy $ 20,058,658 $ 19,121,096 95.33% $ 349,563 $ 19,470,659 97.07% 20,132,138 19,147,814 95.11% 394,313 19,542,127 97.07% 20,612,835 8,727,674 42.34% 191,262 8,918,936 43.27% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A -206- City of West Covina Ratios of Outstanding Debt by Type Last Ten Fiscal Years Governmental Activities Fiscal Year Lease Special Tax Capital Total Ended Revenue Assessment Allocation Lease Governmental June 30 Bonds Bonds (a) Bonds (1) (a) Loans Obligations Activities 2010 $ 57,515,000 $ 37,355,000 $27,020,000 $ 38,733,523 $ 2,261,401 $ 162,884,924 2011 56,115,000 35,870,000 25,815,000 42,385,673 1,843,538 162,029,211 2012 50,825,000 - - 1,800,221 1,409,134 54,034,355 2013 49,645,000 1,658,532 957,535 52,261,067 2014 48,385,000 1,512,768 773,282 50,671,051 2015 47,225,000 12,941,113 216,342 60,382,455 2016 46,000,000 12,208,103 2,715,337 60,923,440 2017 42,570,000 10,920,515 - 53,490,515 2018 41,190,000 10,341,597 51,531,597 2019 41,007,613 9,762,679 50,770,292 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements (1) The 1994 West Covina Public Financing Authority Water Revenue Bonds were defeased as of June 30, 2000 due to the sale of the City's water system. (2) These ratios are calculated using personal income and population for the prior calendar year. (a) As a result of the dissolution of the Community Development Commission on January 31, 2012 indebtedness was transferred to the Successor Agency. Source: City of West Covina Finance Department -207- (continued) Business -Type Activities Total Total Percentage Debt Certificates of Business -type Primary of Personal Per Participation Activities Government Income (2) Capita (2) $ $ $162,884,924 6.29% $ 1,451 162,029,211 6.35% 1,435 54,034,355 2.02% 506 52,261,067 1.90% 487 50,671,051 1.84% 472 60,382,455 2.24% 560 60,923,440 2.30% 565 53,490,515 2.00% 496 51,531,597 1.90% 478 50,770,292 1.70% 457 -208- City of West Covina Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years inthousands(OOOs) Fiscal Year Lease Special Tax Percent of Ended Revenue Assessment Allocation Assessed Per June30 Bonds Bonds(a) Bonds(a) Total Value(1) Capita 2010 $ 57,515 $ 37,355 $ 27,020 $ 121,890 1.42% $ 512 2011 56,115 35,870 25,815 117,800 1.38% 497 2012 50,825 - - 50,825 0.81% 476 2013 49,645 49,645 0.78% 463 2014 48,385 48,385 0.73% 451 2015 47,225 47,225 0.67% 438 2016 46,000 46,000 0.62% 426 2017 42,570 42,570 0.55% 395 2018 41,190 41,190 0.51 % 381 2019 41,008 41,008 0.46% 367 Notes: General bonded debt is debt payable with governmental fund resources and general obligation bonds recorded in enterprise funds (of which, the City has none). (1) Assessed value has been used because the actual value of taxable property is not readily available in the State of California. (a) As a result of the dissolution of the Community Development Commission on January 31, 2012 indebtedness was transferred to the Successor Agency. -209- City of West Covina Direct and Overlapping Debt June 30, 2019 Estimated Estimated Share Debt Percentage of Overlapping Governmental Unit Outstanding Applicable (1) Debt Debt repaid with Property Taxes: Metropolitan Water District $ 23,317,224 0.739 $ 172,251 Mt. San Antonio CCD DS 2008 Series 2013A 200,306,691 12.878 25,794,969 Mt. San Antonio CCD DS 2008 Series 2013E 6215,000 12.878 800,351 Mt. San Antonio CCD DS 2013 Refunding Series A 58:265000 12.878 7503,214 Mt. San An on CCD DS 2013 Refunding Series B 32,415:000 12.878 4:174,319 Mt. San Antonio CCD DS 2008 Series 2015C 32,515,000 12.878 4,187,196 Mt. San Antonio CCD DS 2015 Refunding Bonds 310,700,000 12.878 40,011,129 Baldwin Park LSD 2002 Series 2004 6051,345 0.290 17,577 Baldwin Park LSD 2016 Refunding Bonds 77:990,000 0.290 226,529 Basset LSD DS 2014 Refunding Series A 1224566 0.062 763 Basset LSD DS 2014 Refunding Series B 4:804:970 0.062 2,993 Basset LSD DS 2014 Series A 8,100,000 0.062 5,045 Bassett LSD DS 2016 Refunding Bonds 27,850,000 0.062 17,346 Covina Valley LSD DS 2001 Series B 10,593,151 31.838 3,372,680 Covina Valley LSD DS 2006, 07 Series B 896,948 31.838 285,573 Covina Valley LSD DS 2001 Refunding 2010 Series A 9,535,000 31.838 3,035,783 Covina Valley LSD DS 2012 Series A 26235,000 31.838 8,352,780 Covina Valley LSD DS 2013 Refunding Bonds 36:890,000 31.838 11,745,152 Covina Valley LSD DS 2012 Series B 36145000 31.838 11,507:91 Covina Valley LSD DS 2012 Series C 32:320:000 31.838 10,290141 Covina Valley LSD DS 2012 Series C 29,720,000 31.838 9,462,345 Covina Valley LSD DS 2012 Series D 14:000:000 31.838 4,457,363 Hacienda -La Puente LSD DS 2005 Refunding Bonds 22600000 1.370 309627 Hacienda -La Puente LSD DS 2007 Refunding 53:580:000 1.370 734:063 Hacienda -La Puente LSD DS 2016 Series 2017A 65,155,000 1.370 892,644 Rowland Heights USD DS 2005 Refunding Bonds 8,283,505 14.704 1,217,994 Rowland Heights USD DS 2006 Series B 24,322,549 14.704 3,576,351 Rowland Heights USD DS 2006 Series C (BABS) 12,000,000 14.704 1,764,462 Rowland Heights USD DS 2006 Series D QSCB 15,725,000 14.704 2,312,180 Rowland Heights USD DS 2006 Series E 557,451 14.704 81,967 Rowland Heights USD DS 2012 Series A 40870,000 14.704 6,009,463 Rowland Heights USD DS 2013 Refunding Bonds 25:240,000 14.704 3,711,251 Rowland Heights USD DS 2012 Series B 6,599,972 14.704 9,704,536 Rowland Heights USD DS 2015 Refunding Bonds 42,505,000 14.704 6:249:871 Walnut Valley USD DS 2011 Refunding 21,396,993 0.745 159,463 Walnut Valley USD DS 2007 Series B (Measure S) 15,937,573 0.745 118,776 Walnut Valley USD DS 2012 Refunding Bands 705,000 0.745 5,254 Walnut Valley USD DS 2007 Series C 15,000,000 0.745 111,789 Walnut Valley USD DS 2014 Refunding Bonds Series A 3,260,000 0.745 24,295 Walnut Valley USD DS 2014 Refunding Bands Series B 3:875,000 0.745 28,879 Walnut Valley USD DS 2016 Refunding Bands 40,010,000 0.745 298,179 Walnut Valley USD DS 2016 Series A 43,765,000 0.745 326,163 West Covina USD 2002 Refunding Series A 9,845,000 95.376 9,389,732 West Covina USD DS 2012 Refunding Bonds 10,840,000 95.376 10,338,720 West Covina USD DS 2016 SodasA 71,455,000 95.376 68,150,668 Sub Total Overlapping Debt 271,020,740 City of West Covina Direct Debt - Lease Revenue Bonds 39,680,000 Total Direct and Overlapping Debt $ 310,700,740 Note: Overlapping governments are Mose that coincide, at least in pad,,ed the geographic b,und,daa of the City. This schedule estimates the potion of the outstanding debt of those overapping g enments that is borne by the residents and businesses of Gland— This process recognizes that, vfien considering the Cdys ability to issue and repay long -tarn, debt, the entire debt burden borne by the residents and businesses should be taken Into account. However, this does not imply that every taxpayer is a resident and, therefore, respon.ibie for the debt, for ... h ... rapping government. (1) The percentage of overlapping debt appiicabi. is estimated using taxabi. assessed prW.dy values. Applicable percentages were estimated by determining the portion of the County'. taxable assessed value that is within the government's boundaries and dividing it by the County'. total taxabi. assessetl value. S.urc.: HEL Conan 8 Cone, Los Angeles, County Assessor and Auditor Combined 2018-19 Lien Date Tax Rolls -210- • Proprietary funds statements offer short- and long-term financial information about the activities that are operated like a business, such as the West Covina Service Group, the City's computer service enterprise. • Fiduciary fund statements provide information about the fiduciary relationships — like the agency funds of the City — in which the City acts solely as an agent or trustee for the benefit of others, to whom the resources in question belong. The financial statements also include notes that provide additional information that is essential to a full understanding of the data provided in the government -wide and fund financial statements. Reporting the City as a Whole The accompanying government -wide financial statements include two statements that present financial data for the City as a whole. The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private -sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City's net position and changes in them. The City's net position is one way to measure the City's financial health, or financial position. Over time, increases and decreases in the City's net position are one indicator of whether its financial health is improving or deteriorating. You will need to consider other non -financial factors, however, such as changes in the City's property tax or sales tax base and the condition of the City's roads, to assess the overall health of the City. The Statement of Net Position and the Statement of Activities are divided into two kinds of activities: Governmental activities — Most of the City's basic services such as public safety, streets and roads, economic development and parks and recreation, are reported here. Sales taxes, property taxes, state subventions, and other revenues finance most of these activities. • Business -type activities — The City charges a fee to customers to help it cover all or most of the cost of the services accounted for in these funds. These activities include the City's computer service enterprise operation. The government -wide financial statements include the West Covina Housing Authority, the West Covina Public Financing Authority, the Parking Authority of the City of West Covina and the West Covina Community Services Foundation (component units), along with the City of West Covina (the primary government). Although legally separate, these component units are important because the City is financially accountable for them. The activities of the Successor Agency of the former redevelopment agency can be found in the Fiduciary Fund Section of the Financial Statements in the Private Purpose Trust Fund. -5- City of West Covina Legal Debt Margin Information Last Ten Fiscal Years in thousands(000s) Assessed valuation Conversion percentage Adjusted assessed valuation Debt limit percentage Debt limit I otal net debt applicable to limitation Legal debt margin Total debt applicable to the limit as a percentage of debt limit Fiscal Year 2010 2011 2012 2013 $ 6,219,444 $ 6,202,099 $ 6,308,843 $ 6,394,836 25% 25% 25% 25% 1,554,861 1,550,525 1,577,211 1,598,709 15% 15% 15% 15% 233,229 232,579 236,582 239,806 $ 233,229 $ 232,579 $ 236,582 $ 239,806 0.0% 0.0% 0.0% 0.0% The Government Code of the State of California provides for a legal debt margin of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981-82 fiscal year, each parcel is now assessed at 100 % of market value (as of the most recent change in ownership for that parcel). Although the statutory debt limit has not been amended by the State since this change, the percentages presented in the above computations have been proprtionately modified to 3.75 (25% of 15%) for the purpose of this calculation in order to be consistent with the computational effect of the debt limit at the time of the state's establishment of the limit. Source: City of West Covina Finance Department Los Angeles County Tax Assessor's Office -211- (continued) Fiscal Year 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 -212- City of West Covina Pledged -Revenue Coverage Last Ten Fiscal Years inthousands(OOOs) Lease Revenue Bonds and Certificates of Participation Fiscal Year Ended Debt Service 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fiscal Year Ended June 30 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue Principal _ $ 48,251 $ 865 $ 44,950 1,310 47,672 1,855 48,347 1,505 53,006 1,605 54,753 1,715 57,588 1,655 58,133 1,900 64,372 4,005 67,196 2,005 65,426 1,255 Interest Coverage 1,675 19.00 1,245 17.59 1,268 15.26 1,155 18.18 1,272 18.42 1,249 18.47 891 22.62 1,121 19.24 1,185 12.40 1,306 20.29 1,918 20.62 Tax Allocation Bonds Tax Debt Service Increment Principal Interest Coverage $ 19,444 $ 1,005 $ 1,293 8.46 19,542 1,205 1,127 8.38 17,260 1,250 1,079 7.41 12,152 1,305 1,030 5.20 8,675 1,358 978 3.71 9,260 1,420 920 3.96 15,110 1,480 853 6.48 9,365 19,005 802 0.47 10,256 1,480 - 6.93 12,625 1,820 361 5.79 -213- City of West Covina Pledged -Revenue Coverage Last Ten Fiscal Years inthousands(OOOs) (continued) Assessment District Bond Fiscal Year Less Net Ended Operating Available Debt Service June 30 Revenue Expenses Revenue Principal Interest Coverage 2009 $ 3,375 $ 333 $ 3,042 $ 1,295 $ 2,358 0.83 2010 3,828 72 3,756 1,390 2,281 1.02 2011 3,591 470 3,121 1,485 2,197 0.85 2012 4,444 70 4,374 1,580 2,105 1.19 2013 5,569 1,027 4,542 1,770 2,004 1.20 2014 5,740 767 4,973 2,055 1,890 1.26 2015 3,305 1,457 1,848 2,340 1,758 0.45 2016 6,911 1,429 5,482 2,940 2,124 1.08 2017 4,596 2,536 2,060 2,745 1,365 0.50 2018 4,596 2,536 2,060 3,000 1,429 0.47 2019 5,304 929 4,375 3,250 1,004 1.03 -214- City of West Covina Demographic and Economic Statistics Last Ten Calendar Years Per Personal Capita Annual Calendar Income Personal Unemployment Year Population (in thousands) Income Rate 2009 112,230 $ 2,591,391 $ 23,090 10.2% 2010 112,890 2,552,782 22,613 11.2% 2011 106,713 2,670,706 25,027 10.9% 2012 107,248 2,751,555 25,656 8.2% 2013 107,828 2,698,504 25,026 6.7% 2014 107,879 2,653,176 24,594 10.1% 2015 107,873 2,680,000 24,844 8.2% 2016 107,813 2,705,736 25,096 6.4% 2017 108,245 2,737,892 25,293 5.2% 2018 108,116 2,916,516 26,975 4.6% -215- City of West Covina Principal Employers Current Year and Nine Years Ago 2019 2010 Employer Number of Employees Rank Percent of Total Number of Employment Employees Rank Percent of Total Employment WC Unified School District 1,732 2 3.38% 1,223 2 2.22% Queen of the Valley Campus 1,617 1 3.16 % 1,782 1 3.23 City of West Covina 426 3 0.83 % 482 3 0.87 California Respite Care 400 4 0.78 Macy's 261 5 0.51 % 271 5 0.49% Interspace/Concorde Battery Corporation 230 6 0.45% 206 8 0.37% Walmart Store #5954 222 7 0.43 Target Store #T1028 214 8 0.42 % 404 4 0.73 Target Store #T-2147 175 9 0.34 JC Penney Corp Inc. #1505-7 173 10 0.34% 257 7 0.47% S G V Newspaper Group 264 6 0.48 B.J's Restaurant & Brewery 201 9 0.36% Sears Roebuck & Company 145 10 0.26 Totals 5,450 10.64% 5,235 9.48% Note: "Total Employment" as used above represents the total employment of all employers located within City limits. Source: Labor Market Info, EDD, State of California HdL Coren & Cone -216- This page intentionally left blank. City of West Covina Full-time and Part-time City Employees By Function Last Ten Fiscal Years Fiscal Year Function 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 General government 40 39 36 31 31 31 32 42 46 36 Public safety 295 281 264 253 244 268 268 282 259 238 Public works 78 76 72 64 69 71 71 75 56 44 Community services 47 44 44 41 42 41 41 87 64 64 Community development 23 19 16 7 2 2 2 1 1 3 Total 483 459 432 396 389 413 414 487 426 385 Source: City of West Covina Finance Department -217- City of West Covina Operating Indicators by Function Last Ten Years Function/Program Public Safety: Police: Total arrests Calls for police service (1) Graffiti sites cleaned Fire: Emergency responses Fire inspections Public works: Building permits issued Graffiti sites cleaned (2) Community Services: Recreation class registrations (3) Fiscal Year 2010 2011 2012 2013 3,397 3,210 2,557 2,755 75,752 71,254 71,741 65,554 16,077 15,781 23,579 19,910 6,949 7,454 7,545 7,871 3,603 430 496 837 2,334 2,477 2,435 3,882 N/A N/A N/A N/A 7,916 7,041 6,927 6,027 Note: (1) Calls received that generated an incident number but not necessarily a police response (2) Due to department restructuring, the responsibility for graffiti abatement was absorbed by the Police Department starting fiscal year 2008-2009 and by Public Works starting fiscal year2015-2016. (3) The increase in recreation class registrations in FY 2018 relates to including daycare classes, which were not previously included Source: City of West Covina Finance Department -218- (continued) Fiscal Year 2014 2015 2016 2017 2018 2019 2,537 2,544 2,624 2,818 3,080 2,538 69,874 71,098 72,368 74,898 84,850 73,713 20,014 16,156 N/A N/A N/A N/A 7,990 8,555 9,494 9,353 9,383 9,289 749 717 778 816 805 1,009 2,925 3,617 5,038 1,547 1,399 2,938 N/A N/A 13,964 6,694 2,391 3,077 6,283 6,487 7,129 7,500 17,902 26,482 -219- Reporting the City's Most Significant Funds The fund financial statements provide detailed information about the City's most significant funds — not the City as a whole. Some funds are required to be established by State law or by bond covenants. However, City Council establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting administrative responsibilities for using certain taxes, grants, or other money (like grants received). The City's two kinds of funds — governmental and proprietary— use different accounting approaches. Governmental funds — Most of the City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year end that are available for spending. These funds are reported using the modified accrual accounting method, which measures cash and all other current financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. We describe the relationship or differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in reconciliations on the pages following the fund financial statements in this report. • Proprietary funds — When the City charges customers for the services it provides, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City's enterprise funds are the same as the business - type activities we report in the government -wide statements but provide more detail and additional information, such as cash flows for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the City's other programs and activities. Reporting the City's Fiduciary Responsibilities The City is an agent for certain assets held for, and under the control of, other organizations and individuals. All of the City's fiduciary activities are reported in separate fiduciary funds. These activities are not included in the government -wide financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. -6- City of West Covina Capital Asset Statistics by Function/Program Last Ten Fiscal Years Fiscal Year Function 2010 2011 2012 2013 Public Safety: Police: Stations 1 1 1 1 Fire: Stations 5 5 5 5 Public works: Streets (miles) 230.0 231.0 231.0 231.0 Streetlight poles 826 826 826 826 Streelight fixtures 1,109 1,109 1,109 1,109 Traffic signals 116 116 117 117 Parks and recreation: Sports Complex 1 1 1 1 Parks 16 16 16 16 Community centers 4 4 4 4 Wastewater: Sanitary sewers (miles) 238.9 238.9 238.9 238.9 Storm sewers (miles) 42.0 42.0 42.0 42.0 Source: City of West Covina -220- Fiscal Year (continued) 2014 2015 2016 2017 2018 2019 1 1 1 1 1 1 5 5 5 5 5 5 231.0 231.0 240.3 240.3 240.3 240.3 826 826 826 674 674 674 1,109 1,109 1,109 420 420 420 117 114 114 97 97 97 1 1 1 1 1 1 16 16 16 16 16 16 4 4 4 4 4 4 238.9 238.9 238.9 227.0 227.0 227.0 42.0 42.0 42.0 26.0 26.0 26.0 -221- This page intentionally left blank. ©© ROGERS, ANDERSON, MALODY & SCOTT, LLP ©© CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T 909 889 5361 F To the Honorable Mayor and Members of the City Council ramscpa.net City of West Covina West Covina, California PARTNERS Brenda L. Odle. CPA. MST We have audited the financial statements of governmental activities, the Terry P. Shea, CPA business -type activities, each major fund, and the aggregate remaining Scott W. Manno. CPA, CGMA fund information of the City of West Covina, California, (the City) as of and Leena Shanbhag. CPA. MST. CGMA for the year ended June 30, 2019, and have issued our report thereon Braciferd A. Welebir, CPA. MBA. CGMA dated Month 9, 2020. Professional standards require that we advise you of Jenny W. Liu, CPA. MST the following matters relating to our audit. fay H. Zercher. CPA (Par[ner Emeritus) Phillip H. Waller. CPA (Partner Emeritus) Kirk A. Franks, CPA (Partner Emeritus) Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated May 31, 2019, our MANAGERS / STAFF responsibility, as described by professional standards, is to form and Charles De ,CPA express opinions about whether the financial statements that have been Garderrya Duran. CA an, P Duran. Brianna Schultz, CPA prepared by management with your oversight are presented fairly, in all Jingpe Wu, CPA material respects, in accordance with accounting principles generally Evelyn Morentin-Barcena, CPA accepted in the United States of America. Our audit of the financial Veronica Hernandez, CPA statements does not relieve you or management of your respective Tara R. Thorp, CPA, MSA responsibilities. Laura Arvizu, CPA Ye Ying Stella Xia, CPA. MSBA Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements 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 MEMBERS American Institute of opinion on the effectiveness of the entity's internal control over financial Certified Public Accountants reporting. Accordingly, as part of our audit, we considered the internal POPS The AICPA Alliance control of the City solely for the purpose of determining our audit far CPA Firms procedures and not to provide any assurance concerning such internal Governmental Audit control. Quality Cente, Employee Benefit Plan We are also responsible for communicating significant matters related to Audit Quality Center the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we California Society of Certified Public Accountants are not required to design procedures for the purpose of identifying other matters to communicate to you. E M MEEE OF A L Planned Scope and Timing of the Audit GROUP A Worldwide Alliance of Independent We conducted our audit consistent with the planned scope and timing we Accounting, Law and Consulting Firms previously communicated to you. -1- STABILITY. ACCURACY. TRUST. Compliance with All Ethics Requirements Regarding Independence The engagement team and others in our firm have complied with all relevant ethical requirements regarding independence. Qualitative Aspects of the City's Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by City is included in Note 1 to the financial statements. There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during the year. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management's current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgments. The most sensitive accounting estimates affecting the financial statements are: Management's estimate of fair market value of investments based on market values provided by outside sources. We evaluated the key factors and assumptions used to develop depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole. Management's estimate of depreciation expense is based on the useful lives of acquired assets. We evaluated the key factors and assumptions used to develop depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole. The estimate of the net pension liability is based on actuarial reports provided by independent actuaries. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole. The estimate of the net OPEB obligation is based on actuarial reports provided by independent actuaries. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole. -2- Financial Statement Disclosures Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City's financial statements relate to: The disclosure of capital assets, net, in Note 7 to the basic financial statements is based on historical information which could differ from actual useful lives of each capitalized item. The disclosure of net pension liability in Note 13 and Note 14 to the financial statements is based on actuarial assumptions. Actual future liabilities may vary from disclosed estimates. The disclosure of net OPEB obligation in Note 16 to the financial statements is based on actuarial assumptions. Actual future liabilities may vary from disclosed estimates. The financial statement disclosures are neutral, consistent, and clear. Significant Difficulties Encountered during the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. None of the misstatements identified by us as a result of our audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to The City's financial statements or the auditor's report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in the attached letter dated Month 9, 2020. Management's Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. -3- Other Significant Matters, Findings, or Issues In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City's auditors. Other Information in Documents Containing Audited Financial Statements Pursuant to professional standards, our responsibility as auditors for other information in documents containing the City's audited financial statements does not extend beyond the financial information identified in the audit report, and we are not required to perform any procedures to corroborate such other information. However, in accordance with such standards: We applied certain limited procedures to the required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplementary information, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements. This information is intended solely for the use of the City Council and management of the City and is not intended to be, and should not be, used by anyone other than these specified parties. k-0 eAAC, coca �'% 2 ,iCof, LLP. Month 9, 2020 -4- March 9, 2020 Rogers, Anderson, Malody & Scott, LLP 735 E. Carnegie Drive, Suite 100 San Bernardino, California 92408 This representation letter is provided in connection with your audit of the financial statements of the City of West Covina, California (the City), which comprise the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information as of June 30, 2019, and the respective changes in financial position and, where applicable, cash flows for the year then ended, and the related notes to the financial statements, for the purpose of expressing opinions as to whether the financial statements are presented fairly, in all material respects, the financial position, results of operations, and cash flows, where applicable, of the various opinion units of the City in accordance with accounting principles generally accepted for governments in the United States of America (U.S. GAAP). Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. We confirm that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves as of March 9, 2020: Financial Statements 1) We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated May 31, 2019, for the preparation and fair presentation of the financial statements of the various opinion units referred to above in accordance with U.S. GAAP. 2) The financial statements referred to above have been fairly presented in accordance with generally accepted accounting principles and include all properly classified funds, required supplementary information, and notes to the basic financial statements. 3) We acknowledge our responsibility for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 4) We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud. 5) With respect to the nonattest services provided, we have performed the following: a) Made all management decisions and performed all management functions; b) Assigned a competent individual to oversee the services; c) Evaluated the adequacy of the services performed; d) Evaluated and accepted responsibility for the result of the service performed; and e) Established and maintained internal controls, including monitoring ongoing activities. 6) Significant assumptions we used in making accounting estimates, including those measured at fair value, are reasonable. 7) Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP. 8) All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. 9) The effects of all known actual or possible litigation, claims, and assessments have been accounted for and disclosed in accordance with U.S. GAAP. 10) With regard to items reported at fair value: a) The underlying assumptions are reasonable and they appropriately reflect management's intent and ability to carry out its stated courses of action. b) The measurement methods and related assumptions used in determining fair value are appropriate in the circumstances and have been consistently applied. c) The disclosures related to fair values are complete, adequate, and in accordance with U.S. GAAP. d) There are no subsequent events that require adjustments to the fair value measurements and disclosures included in the financial statements. 11) All component units are included and related organizations are properly disclosed. 12) All funds and activities are properly classified. 13) All funds that meet the quantitative criteria in GASB Statement No. 34, Basic Financial Statements — and Management's Discussion and Analysis —for State and Local Governments, GASB Statement No. 37, Basic Financial Statements —and Management's Discussion and Analysis —for State and Local Governments: Omnibus as amended, and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, for presentation as major are identified and presented as such and all other funds that are presented as major are considered important to financial statement users. 14)AII net position components and fund balance fund balance classifications have been properly reported. 15)All revenues within the statement of activities have been properly classified as program revenues, general revenues, contributions to term or permanent endowments, or contributions to permanent fund principal. 16)AII expenses have been properly classified in or allocated to functions and programs in the statement of activities, and allocations, if any, have been made on a reasonable basis. 17)All interfund and intra-entity transactions and balances have been properly classified and reported. 18) Deposit and investment risks have been properly and fully disclosed. 19) Capital assets, including infrastructure assets, are properly capitalized, reported, and if applicable, depreciated. 20)All required supplementary information is measured and presented within the prescribed guidelines. 21) Our policy regarding whether to first apply restricted or unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position/fund balance are available is appropriately disclosed and net position/fund balance is properly recognized under the policy. 22) With regard to pensions and OPEB: -2- a) We believe that the actuarial assumptions and methods used to measure pension and OPEB liabilities and costs for financial accounting purposes are appropriate in the circumstances. b) We are unable to determine the possibility of a withdrawal liability from the plan, of which we are a sponsor and are not currently contemplating withdrawing from the plan. c) Increases in benefits, elimination of benefits and all similar amendments have been disclosed in accordance with U.S. GAAP and are included in the most recent actuarial valuation, or disclosed as a subsequent event. Information Provided 23) We have provided you with: Access to all information, of which we are aware, that is relevant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters b) Additional information that you have requested from us for the purpose of the audit. c) Unrestricted access to persons within the City from whom you determined it necessary to obtain audit evidence. 24)AII transactions have been recorded in the accounting records and are reflected in the financial statements. 25) We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. 26) We have no knowledge of any fraud or suspected fraud that affects the City and involves: a) Management; b) Employees who have significant roles in internal control; or c) Others where the fraud could have a material effect on the financial statements. 27) We have no knowledge of any instances, that have occurred or are likely to have occurred, of fraud and noncompliance with provisions of laws and regulations that have a material effect on the financial statements or other financial data significant to the audit objectives, and any other instances that warrant the attention of those charged with governance, whether communicated by employees, former employees, vendors (contractors), regulators, or others. 28) We have no knowledge of any instances that have occurred or are likely to have occurred, of noncompliance with provisions of contracts and grant agreements that has a material effect on the determination of financial statement amounts or other financial data significant to the audit objectives. 29) We have no knowledge of any instances that have occurred or are likely to have occurred of abuse that could be quantitatively or qualitatively material to the financial statements or other financial data significant to the audit objectives. 30) We have taken timely and appropriate steps to remedy fraud, noncompliance with provisions of laws, regulations, contracts, and grant agreements, or abuse that you have reported to us. 31) We have a process to track the status of audit findings and recommendations. 32) We have identified for you all previous audits, attestation engagements, and other studies related to the audit objectives and whether related recommendations have been implemented. 33) We have provided views on your reported audit findings, conclusions, and recommendations, as well as our planned corrective actions, for the report. 34) We have disclosed to you all known actual or possible litigation, claims, and assessments whose effects should be considered when preparing the financial statements. 35) We have disclosed to you the identity of the entity's related parties and all the related party relationships and transactions of which we are aware. 36) We have disclosed to you all communications from regulatory agencies concerning noncompliance with or deficiencies in accounting, internal control, or financial reporting practices. -3- GOVERNMENT -WIDE FINANCIAL STATEMENTS Statement of Net Position As noted earlier, net position may serve overtime as a useful indicator of a government's financial position. At June 30, 2019, net position for the City was a deficit balance of $2.6 million. Compared to the prior year, the net position of the City decreased by $5.3 million or-171.0%. The City's net position of a deficit of $2.6 million is made up of three components: Net investment in Capital Assets, Restricted Net Position and Unrestricted Net Position. The largest portion of the City's net position, $147.2 million, reflects its net investment in capital assets (e.g., infrastructure, land, buildings, machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to the community. As such, these assets are not available for spending. In addition, $57.8 million of the City's net position represents resources that are subject to external restrictions on how they may be used. The remaining deficit balance of unrestricted net position of $207.5 million is a result of the implementation of GASB 68 and GASB 75. The table below reflects the Statement of Net Position for the fiscal year ended June 30, 2019, with the comparative data for the fiscal year ended June 30, 2018: Table 1 Statement of Net Position Governmental Activities Business -Type Activities Total 2019 2018 2019 2018 2019 2018 Assets: Current and other assets $ 95,707,477 $ 92,219,443 $ (211,769) $ (158,068) $ 95,495,708 $ 92,061,375 Capital assets 197,975,200 205,471,929 197,975.200 205,471,929 Total assets 293,682,677 297,691,372 (211,769) (158,068) 293,470,908 297,533.304 Deferred Outnows of Resources: Pension related 27,771,055 28,845,151 OPEB related 2,398,678 2,470,254 30,169,733 31,315,405 Liabilities: Long-term debt outstanding Other liabilities Total liabilities Deferred Inflows of Resources: Pension related OPEB related 27,771.055 28,845.151 2,398,678 2,470,254 30,169,733 31,315,405 310,595,540 311,496,374 91,515 93,543 310,687,055 311,589,917 5,789,689 5,383,957 23,101 23,399 5,812,790 5,407,356 316,385,229 316,880,331 114,616 116.942 316,499.845 316,997.273 2,989,630 3,180,451 - - 2,989,630 3,180,451 6,701.986 5,826,512 6.701.986 5,826,512 9,691.616 9,006,963 9,691.616 9,006.963 Net Position: Net investment in capital assets 147,204,908 153,940,332 - - 147,204.908 153,940.332 Restricted 57,782,735 51,130,936 - - 57,782,735 51,130,936 Unrestricted (207,212,078) (201,951,785) (326,385) (275,010) (207,538,463) (202,226,795) Total net position $ (2,224,435) $ 3119A83 $ (326.385) $ (275.010) $ (2,550.820) $ 2,844.473 37) The City has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities. 38) We have disclosed to you all guarantees, whether written or oral, under which the City is contingently liable. 39) We have identified and disclosed to you the laws, regulations, and provisions of contracts and grant agreements that could have a direct and material effect on financial statement amounts, including legal and contractual provisions for reporting specific activities in separate funds. 40)There are no: a) Violations or possible violations of laws or regulations, or provisions of contracts or grant agreements whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency, including applicable budget laws and regulations. b) Unasserted claims or assessments that our lawyer has advised are probable of assertion and must be disclosed in accordance with GASB-62, Codification of Accounting and Financial Reporting Guidance Contained in Pre -November 30, 1989 FASB and AICPA Pronouncements. c) Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by GASB-62. 41) The City has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset or future revenue been pledged as collateral, except as disclosed to you. 42) We have complied with all aspects of grant agreements and other contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 43) We have disclosed to you all significant estimates and material concentrations known to management that are required to be disclosed in accordance with GASB-62. Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas forwhich events could occurthat would significantly disrupt normal finances within the next year. 44) We have disclosed to you all significant estimates and material concentrations known to management that are required to be disclosed in accordance with GASB Statement No. 62 (GASB- 62), Codification of Accounting and Financial Reporting Guidance Contained in Pre -November 30, 1989 FASB and AICPA Pronouncements. Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. 45) We have identified and disclosed to you the laws, regulations, and provisions of contracts and grant agreements that could have a direct and material effect on financial statement amounts, including legal and contractual provisions for reporting specific activities in separate funds. There are no: Violations or possible violations of laws or regulations, or provisions of contracts or grant agreements whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency, including applicable budget laws and regulations. Unasserted claims or assessments that our lawyer has advised are probable of assertion and must be disclosed in accordance with GASB-62. Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by GASB-62. 46) The City has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset or future revenue been pledged as collateral, except as disclosed to you. 47) We have complied with all aspects of grant agreements and other contractual agreements that would have a material effect on the financial statements in the event of noncompliance. -4- Government —specific 48) With respect to the City's supplementary information: a) We acknowledge our responsibility for the presentation of the supplementary information in accordance with U.S. GAAP. b) We believe the supplementary information, including its form and content, is fairly presented in accordance with U.S. GAAP. c) The methods of measurement and presentation of the supplementary information have not changed from those used in the prior period. d) We have disclosed to you any significant assumptions or interpretations underlying the measurement and presentation of the supplementary information. e) We acknowledge our responsibility to include the auditor's report on the supplementary information in any document containing the supplementary information and that indicates the auditor reported on such supplementary information. f) We acknowledge our responsibility to present the supplementary information with the audited financial statements or, if the supplementary information will not be presented with the audited financial statements, to make the audited financial statements readily available to the intended users of the supplementary information no later than the date of issuance by the City of the supplementary information and the auditor's report thereon. 49) With respect to the required supplementary information accompanying the financial statements: a) We acknowledge our responsibility for the presentation of the required supplementary information in accordance with U.S. GAAP. b) We believe the required supplementary information, Including its form and content, is measured and fairly presented in accordance with U.S. GAAP. c) The methods of measurement or presentation have not changed from those used in the prior period. d) We have disclosed to you any significant assumptions or interpretations underlying the measurement and presentation of the supplementary information 50)Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances, line of credit, or similar arrangements have been properly disclosed. 51) We believe that the actuarial assumptions and methods used to measure pension and other postemployment benefit liabilities and costs for financial accounting purposes are appropriate in the circumstances. 52) We do not plan to make frequent amendments to the City's pension or other postretirement benefit plans. 53) With respect to Employer -Paid Member Contributions: a) We resolved to provide contributions on behalf of eligible employees, which, although designated as employee contributions, will be paid by the City in lieu of employee contributions. As of that date: 1) The participating employees have not been permitted to have a cash right or a deferred election right with respect to the designated employee contributions. 2) The participating employees have also not been permitted to opt out of the provisions of the resolution to receive the contributed amounts directly instead of having them paid by the City to the plan. -5- b) We have provided you a copy (copies) of all approved resolutions related to these actions in accordance with IRS Revenue Ruling 2006-43. Single Audit 54. With respect to federal awards, we represent the following to you: a. We are responsible for understanding and complying with, and have complied with, the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). b. We are responsible for the preparation and presentation of the schedule of expenditures of federal awards in accordance with the Uniform Guidance. c. We believe the schedule of expenditures of federal awards, including its form and content, is fairly presented in accordance with the Uniform Guidance. d. The methods of measurement or presentation have not changed from those used in the prior period. e. We are responsible for including the auditor's report on the schedule of expenditures of federal awards in any document that contains the schedule and that indicates that the auditor has reported on such information. f. We have identified and disclosed all of our government programs and related activities subject to the Uniform Guidance compliance audit. g. We have notified you of federal awards and funding increments that were received before December 26, 2014 (if any) and differentiated those awards from awards and funding increments received on or after December 26, 2014, and subject to the audit requirements of the Uniform Guidance. h. When the schedule of expenditures of federal awards is not presented with the audited financial statements, we will make the audited financial statements readily available to the intended users of the schedule of expenditures of federal awards no later than the date of issuance by the entity of the schedule of expenditures of federal awards and the auditor's report thereon. i. We have, in accordance with the Uniform Guidance, identified in the schedule of expenditures of federal awards, expenditures made during the audit period for all awards provided by federal agencies in the form of grants, federal cost -reimbursement contracts, loans, loan guarantees, property (including donated surplus property), cooperative agreements, interest subsidies, food commodities, direct appropriations, and other assistance. j. We have provided to you our interpretations of any compliance requirements that are subject to varying interpretations. k. We have made available to you all federal awards (including amendments, if any) and any other correspondence relevant to federal programs and related activities that have taken place with federal agencies or pass -through entities. I. We have received no requests from a federal agency to audit one or more specific programs as a major program. m. We have identified and disclosed to you all amounts questioned and any known noncompliance with the direct and material compliance requirements of federal awards, including the results of other audits or program reviews, or stated that there was no such noncompliance. We also know of no instances of noncompliance with direct and material compliance requirements occurring subsequent to period covered by the auditor's report. -6- n. We have disclosed to you any communications from federal awarding agencies and pass - through entities concerning possible noncompliance with the direct and material compliance requirements, including communications received from the end of the period covered by the compliance audit to the date of the auditor's report. o. We have made available to you all documentation related to compliance with the direct and material compliance requirements, including information related to federal program financial reports and claims for advances and reimbursements. p. Federal program financial reports and claims for advances and reimbursements are supported by the books and records from which the basic financial statements have been prepared (and are prepared on a basis consistent with the schedule of expenditures of federal awards). q. The copies of federal program financial reports provided to you are true copies of the reports submitted, or electronically transmitted, to the respective federal agency or pass -through entity, as applicable. r. We have monitored subrecipients, as necessary, to determine if they have expended subawards in compliance with federal statutes, regulations, and the terms and conditions of the subaward and have met the other pass -through entity requirements of the Uniform Guidance. s. We have issued management decisions for audit findings that relate to federal awards we make to subrecipients and such management decisions are issued within six months of acceptance of the audit report by the FAC. Additionally, we have followed -up ensuring that the subrecipients have taken the appropriate and timely action on all deficiencies detected through audits, on -site reviews, and other means that pertain to the federal award provided to the subrecipient from the pass -through entity. t. We have considered the results of subrecipients' audits and have made any necessary adjustments to our own books and records. u. We have properly classified amounts claimed or used for matching in accordance with related guidelines in the Uniform Guidance, as applicable. v. We have charged costs to federal awards in accordance with applicable cost principles. w. We are responsible for and have accurately prepared the summary schedule of prior audit findings to include all findings required to be included by the Uniform Guidance, and we have provided you with all information on the status of the follow-up on prior audit findings by federal awarding agencies and pass -through entities, including all management decisions. x. We have disclosed to you the findings received and related corrective actions taken for previous audits, attestation engagements, and internal or external monitoring that directly relate to the objectives of the compliance audit, including findings received and corrective actions taken from the end of the period covered by the compliance audit to the date of the auditor's report. y. The reporting package does not contain personally identifiable information. z. We have disclosed all contracts or other agreements with service organizations and disclosed to you all communications from these service organizations relating to noncompliance at the organizations. aa. We have reviewed, approved, and taken responsibility for the financial statements and related notes and an acknowledgment of the auditor's role in the preparation of this information. -7- bb. We have disclosed to you the nature of any subsequent events that provide additional evidence with respect to conditions that existed at the end of the reporting period that affect noncompliance during the reporting period. In addition: cc. We are responsible for understanding and complying with the requirements of federal statutes, regulations, and the terms and conditions of federal awards related to each of our federal programs and have identified and disclosed to you the federal statutes, regulations, and the terms and conditions of federal awards that are considered to have a direct and material effect on each major federal program; and we have complied with these direct and material compliance requirements. dd. We are responsible for establishing and maintaining, and have established and maintained, effective internal control over compliance for federal programs that provide reasonable assurance that we are managing our federal awards in compliance with federal statutes, regulations, and the terms and conditions of the federal award that could have a material effect on our federal programs. Also, no changes have been made in the internal control over compliance or other factors that might significantly affect internal control, including any corrective action taken by management with regard to significant deficiencies and material weaknesses in internal control over compliance, have occurred subsequent to the period covered by the auditor's report. ee. We are responsible for and have accurately completed the appropriate sections of the Data Collection Form and we are responsible for taking corrective action on audit findings of the compliance audit and have developed a corrective action plan that meets the requirements of the Uniform Guidance. Signature: /e�� Signature: Title: 1 na vtrs. rceor Title: -8- City of West Covina, California Single Audit Report on Federal Awards Year Ended June 30, 2019 City of West Covina Single Audit Report on Federal Awards Table of Contents Paqe Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards............................................................1 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards, in Accordance with the Uniform Guidance..............................................3 Schedule of Expenditures of Federal Awards..............................................................................6 Notes to the Schedule of Expenditures of Federal Awards.........................................................7 Schedule of Findings and Questioned Costs: Section I: Summary of Auditor's Results................................................................................8 Section II: Financial Statements Findings..............................................................................9 Section III: Federal Awards Findings and Questioned Costs...............................................11 Summary Schedule of Prior Audit Findings...............................................................................12 CorrectiveAction Plan...............................................................................................................13 ©0 ROGERS, ANDERSON, MALODY & SCOTT, LLP ©© CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING E. Carnegie suite loo AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN San CA 92406 San Bernardino. CA AUDIT OF FINANCIAL STATEMENTS PERFORMED IN 909 889 0871 T 9098895361 F ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS ramscpa.net Independent Auditor's Report PARTNERS Brenda L. Odle. CPA. MST To the Honorable Mayor and Members of City Council Terry P. Shea, CPA of the City of West Covina Scott W. Manno. CPA, CGMA West Covina, California Leena Shanbhag, CPA. MST, CGMA Bradferd A. Welebir, CPA. MBA. CGMA We have audited, In accordance with the auditing standards generally Jenny W. Liu, CPA. MST accepted in the United States of America and the standards applicable to fay H. Zercher. CPA (Par[ner Emeritus) Phillip H. Waller, CPA (Partner Emeraus) financial audits contained in Government Auditing Standards issued by the Kirk A. Franks, CPA (Partner Emeritus) Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of West Covina, MANAGERS / STAFF California (the City), as of and for the year ended June 30, 2019, and the Charles De Simard. CPA related notes to the financial statements, which collectively comprise the an, CPA Garderrya Duran. Brianna Schultz, CPA City's basic financial statements, and have issued our report thereon dated Jingpe Wu, CPA March 9, 2019. Evelyn Morentin-Barcena, CPA Veronica Hernandez, CPA Internal Control Over Financial Reporting Tara R. Thorp, CPA, MSA Laura Arvizu, CPA In planning and performing our audit of the financial statements, we Ye Ying Stella Xia, CPA. MSBA considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. MEMBERS American Institute of Certified Public Accountants A deficiency in internal control exists when the design or operation of a PCPS The AICPA Alliance control does not allow management or employees, in the normal course of (or CPA Firms performing their assigned functions, to prevent, or detect and correct, Governmental Audit misstatements on a timely basis. A material weakness is a deficiency, or a Quality Center combination of deficiencies, in internal control, such that there is a Employee Benefit Plan reasonable possibility that a material misstatement of the entity's financial Audit Quality Center statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of California Society of Certified Public Accountants deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with A� r. governance. GROUP A Worldwide Mlance of Independent Accounting, Law and Consulting Firms STABILITY. ACCURACY. TRUST. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs that we consider to be material weaknesses. Findings are identified as 2019-001 and 2019-002. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. 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. City's Response to Findings The City's response to the findings identified in our audit are described in the accompanying Corrective Action Plan. The City's response was not subjected to the auditing procedures applied in the audit of the financial statements and accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. k-0 eAX, kI-&t 0A San Bernardino, California (/ March 9, 2019 ©© ROGERS, ANDERSON, MALODY & SCOTT, LLP ©© CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 735 E. Carnegie Dr. Suite 100 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL San Bernardino, CA 92406 PROGRAM; REPORT ON INTERNAL CONTROL OVER 909 889 087 1 T COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES 909 889 5361 F OF FEDERAL AWARDS IN ACCORDANCE WITH THE UNIFORM ramscpa.net GUIDANCE PARTNERS Independent Auditor's Report Brenda L. Odle. CPA. MST Terry P. Shea, CPA Scott W. Manno. CPA, CGMA To the Honorable Mayor and Members of City Council Y Y Leena Shanbhag, CPA. MST. CGMA of the City of West Covina Bradferd A. Welebir, CPA. MBA, CGMA West Covina, California Jenny W. Liu, CPA, MST Jay H. Zercher. CPA (ParmerEmerlms) Report on Compliance for Each Major Federal Program Phillip H. Waller, CPA (Partner Emeritus) Kirk A. Franks, CPA(Parmer Emeritus) We have audited the City of West Covina's (the City) compliance with the types of compliance requirements described in the U.S. Office of MANAGERS / STAFF Management and Budget (OMB) Compliance Supplement that could have Charles De Simoni, CPA a direct and material effect on each of the City's major federal programs for Gardenya Duran, CPA the year ended June 30, 2019. The City's major federal programs are Brianna Schultz, CPA identified in the summary of auditor's results section of the accompanying Jingpe Wu, CPA schedule of findings and questioned costs. Evelyn Morentin-Barcena, CPA Veronica Hernandez, CPA Tara R. Thorp, CPA, MSA Management's Responsibility Laura Arvizu, CPA Ye Ying Stella Xia, CPA. MSBA Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility MEMBERS Our responsibility is to express an opinion on compliance for each of the American Institute of Certified Public Accountants City's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in POPS Thearas Alliance accordance with auditing standards generally accepted in the United (or CPA Firms States of America; the standards applicable to financial audits contained in Governmental Audit Quality Center Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Employee BeneePenn Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Audit Quality Center Principles, and Audit Requirements for Federal Awards (Uniform California Society of Guidance). Those standards and the Uniform Guidance require that we Certified Public Accountants plan and perform the audit to obtain reasonable assurance about whether MEMBER OP noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal �-u program occurred. An audit includes examining, on a test basis, evidence I Ic R o u P about the City's compliance with those requirements and performing such A Worldwide Alliance f Independent Accounting, Law and Consulting Firms other procedures as we considered necessary in the circumstances. STABILITY. ACCURACY. TRUST. Changes in Net Position The City's total revenues of $93.6 million for governmental activities are $5.3 million less than the expenses of $99.0 million. The decrease is a result of expenditures, the largest being public safety, that are higher than the slow -growing revenues. A summary of the government -wide statement of activities for the year ended June 30, 2019, with the comparative data for the fiscal year ended June 30, 2018, is as follows: Table 2 Changes in Net Position Governmental Activities Business -Type Activities Total 2019 2018 2019 2018 2019 2018 Revenues Program revenues: Charges for services $ 16,192,984 $ 15,768,306 $ 1,099,028 $ 1,199,162 $ 17,292,012 $ 16,967,468 Operating contributions and grants 12,097,219 10,285,701 - - 12,097,219 10,285,701 Capital contributions and grants 360,872 151,966 - - 360,872 151,966 General revenues: Property taxes 26,365,067 25,392,860 - - 26,365,067 25,392,860 Sales taxes 17,464,609 17,449,827 - - 17,464,609 17,449,827 Other taxes 13,366,559 11,704,254 - - 13,366,559 11,704,254 Other general revenues 7,764,136 9,815,755 113,290 83,590 7,877,426 9,899,345 Total revenues 93,611,446 90,568,669 1,212,318 1,282,752 94,823,764 91,851,421 Expenses General government 7,515,920 7,523,129 - - 7,515,920 7,523,129 Public safety 58,057,784 67,734,047 - - 58,057,784 67,734,047 Public works 21,625,190 21,161,586 - - 21,625,190 21,161,586 Community services 9,280,450 8,926,070 - - 9,280,450 8,926,070 Community development 795,685 1,618,181 - - 795,685 1,618,181 Interest expense 1,680,335 1,515,826 - - 1,680,335 1,515,826 Computer service 1,263,693 1,305,426 1,263,693 1,305,426 Total expenses 98,955,364 108,478,839 1,263,693 1,305,426 100,219,057 109,784,265 Increase (decrease) in net position (5,343,918) (17,910,170) (51,375) (22,674) (5,395,293) (17,932,844) Beginning net position, as restated 3,119,483 21,029,653 (275,010) (252,336) 2,844,473 20,777,317 Ending net position $ (2,224,435) $ 3,119,483 $ (326,385) $ (275,010) $ (2,550,820) $ 2,844,473 P -8- We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City's compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2019. Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item 2019-003. Our opinion on the City's major programs is not modified with respect to these matters. The City's response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The City's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and questioned costs that we consider to be a significant deficiency. Finding is identified as 2019-003. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the City's basic financial statements. We issued our report thereon dated March 9, 2019 which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. k-0 eA.C, � �e�.cocc , 1�'%� to�Cy ,�u� tf, LL P. San Bernardino, California Q March 9, 2020 City of West Covina Schedule of Expenditures of Federal Awards Year Ended June 30, 2019 Federal Grantor/ Federal Program Amount Pass -through Grantor/ CFDA Identification Federal ProNded to Program Title Number Number Expenditures Subrecipients U.S. Department of Puriculture Passed through the State of California Department of Education Summer Food Service Program for Children 10.559 04023-SFSP-19 $ 9,457 $ Total U.S. Department of Agriculture 9,457 U.S. Department of Housing and Urban Development Direct Assistance Community Development Block Grant Cluster 14.218 B-14-MC-06-0532 116,813 - CommunityDevelopmentBlockGrantCluster 14.218 B-15-MC-06-0532 39,655 5 Community Development Block Grant Cluster 14.218 B-16-MC-06-0532 135,918 1,349 Community Development Block Grant Cluster 14.218 B-17-MC-06-0532 401,788 94,198 Community Development Block Grant Cluster 14.218 B-18-MC-06-0533 86,697 6,242 Total U.S. Department of Housing and Urban Development 780,871 101,794 U.S. Department of Justice Direct Assistance Equitable Sharing Program 16.922 CA1975 722,252 Subtotal 722,252 - Edward Byrne Memorial Justice Assistance Grant Program 16.738 2017-DJ-BX-0026 6,730 - Edward Byrne Memorial Justice Assistance Grant Program 16.738 2018-DJ-BX-0166 8,595 Subtotal 15,325 - Total U.S. Department of Justice 737,577 U.S. Department of Transportation Passed through the State of California, Department of Transportation Highway Planning& Construction Cluster 20.205 STPL-5259(027) 36,635 Subtotal 36,635 - Passed through the California Office of Traffic Safety Selective Traffic Enforcement Program 20.608 SSARPL-5259(029) 67,000 Subtotal 67,000 - Total U.S. Department of Transportation 103,635 U.S. Department of Treasury Direct Assistance Equitable Sharing Program 21.016 CA1975 814,810 Total U.S. Department of Treasury 814,810 U.S. Department of Health and Human Services Pass -through from the County of Los Angeles, Department of Community & Senior Citizens Services Special Programs for Aging, Title III, Part C, Nutrition Services 93.045 ENP-1216-018 244,407 Total U.S. Department of Health and Human Services 244,407 U.S. Department of Homeland Security State of California, Office of Emergency Services 2016 Homeland Security Grant 97.067 2016-0102 1,803,903 Total U.S. Department of Health and Human Services 1,803,903 - Total Expenditures of Federal Awards $ 4,494,660 $ 101,794 See accompanying notes to the schedule of expenditures of federal awards. 6 City of West Covina Notes to the Schedule of Expenditures of Federal Awards Year Ended June 30, 2019 BASIS OF PRESENTATION The accompanying Schedule of Expenditures of Federal Awards (SEFA), includes the federal awards activity of the City of West Covina (the City) that are reimbursable under federal programs of federal government for the year ended June 30, 2019. The information in this SEFA is presented in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the SEFA presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position or fund balance, or cash flows of the City. For the purposes of this schedule, federal financial assistance includes both federal financial assistance received directly from a federal agency, as well as federal funds received indirectly by the City from a nonfederal agency or other organization. Only that portion of program expenditures reimbursable with such federal funds are reported in the accompanying schedule. Program expenditures in excess of the maximum federal reimbursement authorized or the portion of the program expenditures that were funded with state, local or other non-federal funds are excluded from the accompanying schedule. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the SEFA are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the SEFA, if any, represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. The City has elected to use the 10-percent de minimis indirect cost rate, where applicable, allowed under the Uniform Guidance. OUTSTANDING LOANS The City has made several housing rehabilitation loans to qualified applicants using Community Development Block Grants/Entitlement Grants (CFDA No. 14.218) funding. These loans bear interest up to 5% and are repaid when title to the property changes. There were new loans funded in the current year of $48,338. The outstanding balance of these loans at June 30, 2019 is $3,657,546. SUBRECIPIENTS During the fiscal year ended June 30, 2019, the City disbursed $101,794 of federal awards to a subrecipients for the Community Development Block Grant (CFDA No. 14.218). City of West Covina Schedule of Findings and Questioned Costs Year Ended June 30, 2019 Section I: Summary of Auditor's Results Financial Statements Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: unmodified Internal control over financial reporting: Material weakness identified? X Yes No Significant deficiencies identified? Yes X None Reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness identified? Yes X No Significant deficiencies identified X Yes None Reported Type of auditor's report issued on compliance for major programs: unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? X Yes No Identification of major programs: CFDA Number Name of Federal Program 21.016 Equitable Sharing Program 97.067 2016 Homeland Security Grant Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low -risk auditee? Yes X No 8 City of West Covina Schedule of Findings and Questioned Costs (continued) Year Ended June 30, 2019 Section II: Financial Statement Findings Finding Number 2019-001 Material Weakness Criteria An important element of internal controls over financial reporting is for the entity to have procedures in place to ensure that all applicable financial reporting guidelines are followed and properly applied. Condition and Context Over the past year, the City has experienced a high turnover at all levels in the Finance Department. As a result, the request for the Actuarial Valuation report for GASB 75 Accounting Information regarding Other Post -Employment Benefits (OPEB) and GASB 68 Accounting and Financial Reporting for Pensions — An Amendment of GASB Statement No. 27 was postponed. This matter has been the cause of significant delays in producing complete, reconciled and properly adjusted financial statements and other information. Cause The City did not maintain the appropriate staffing levels within the Finance Department to ensure that all financial closing procedures were performed. Effect Delay in the completion of the Comprehensive Annual Financial Report. Recommendation We recommend the City maintain appropriate staffing in the Finance Department which will ensure that the policies and procedures in the year-end review process are properly carried out. Views of Responsible Officials and Planned Corrective Action See attached Corrective Action Plan. City of West Covina Schedule of Findings and Questioned Costs (continued) Year Ended June 30, 2019 Section II: Financial Statement Findings (continued) Finding Number 2019-002 Material Weakness Criteria An important element of internal controls over financial reporting is for the entity to have procedures in place for the accurate completion of the Schedule of Expenditures of Federal Awards (SEFA). Condition and Context Over the past year, the City has experienced a high turnover at all levels in the Finance Department. As a result, the SEFA has not been prepared by a consistent person and has required multiple revisions. Cause The City did not maintain the appropriate staffing levels within the Finance Department to allow for the proper preparation of the SEFA, including a responsible individual to perform a review of the completed SEFA. Effect The City could be under/over stating expenditures on the SEFA. Recommendation We recommend the City maintain proper staffing levels within the Finance Department to allow for the proper preparation of the SEFA, including a responsible individual to perform a review of the completed SEFA. Views of Responsible Officials and Planned Corrective Action See attached Corrective Action Plan. 10 City of West Covina Schedule of Findings and Questioned Costs (continued) Year Ended June 30, 2019 Section III: Federal Awards Findings and Questioned Costs Finding Number 2019-003 Significant Deficiency and Noncompliance Federal Program Equitable Sharing Program, CFDA 21.016 Criteria Per 2 CFR Section 180.300, when a non-federal entity enters into a covered transaction with an entity at a lower tier, the non-federal entity must verify that the entity is not suspended or debarred or otherwise excluded. This verification may be accomplished by checking SAM exclusions, collecting a certification from the entity, or adding a clause or condition to the covered transaction with that entity. Condition During the audit, we noted that the City did not perform procedures over suspension and debarment before entering into an agreement. Cause The City did not follow procedures for verifying that a vendor was neither suspended nor debarred prior to entering into an agreement with them. Effect The City may have passed through funds to an ineligible vendor and require to repay funds to the grantor. Questioned Costs None. Identification as a Repeat Finding This is not a repeat finding. Recommendation We recommend the City follow its written procedures for suspension and debarment prior to entering into agreements and maintain the documentation for the required retention period. Views of Responsible Officials See attached Corrective Action Plan. I� City of West Covina Summary Schedule of Prior Audit Findings Year Ended June 30, 2019 Status of Prior Year Findings Section II: Financial Statement Findings Finding Number 2018-001 Status of prior year finding: Repeat finding as 2019-001 Finding Number 2018-002 Status of prior year finding: Repeat finding as 2019-002 Section III: Federal Award Findings and Questioned Costs Finding Number 2018-003 Status of prior year finding: Corrective action has been taken. Finding Number 2018-004 Status of prior year finding: Corrective action has been taken. Finding Number 2018-005 Status of prior year finding: Corrective action has been taken. 12 ,BST COV1ii�, Finance Department CORRECTIVE ACTION PLAN In Response to Findings Relating to the Financial Statements and to the Schedule of Findings and Questioned Costs Year Ended June 30, 2019 March 9, 2020 City of West Covina respectfully submits the following corrective action plan for the year ended June 30, 2019. Name and address of independent public accounting firm: Rogers, Anderson, Malody & Scott, LLP 735 E. Carnegie Drive, Suite 100 San Bernardino, CA 92408 Audit Period: July 1, 2018 — June 30, 2019 The findings from the March 9, 2020 schedule of findings and questioned costs are discussed below. The findings are numbered consistently with the numbers assigned in the schedule. FINDINGS — FINANCIAL STATEMENT AUDIT Finding Number 2019-001 Recommendation We suggest the City maintain appropriate staffing in the Finance Department which will ensure that the policies and procedures in the year-end review process are properly carried out. Corrective Action Taken Management acknowledges the importance of maintaining adequate staffing within the Finance Department. The City has an established contract with an actuary to complete the calculations required for GASB 68 and GASB 75 and these tasks have been added to the task list for the Finance Department to allow for visibility and tracking. Contact will be made with the actuary to track progress of this task earlier on during the year until the project is completed. Proposed Completion Date Already implemented. 1444 W. Garvey Avenue South, Room 308, West Covina CA 91790.Office (626) 939-9438 • Fax (626) 939-8664 13 Governmental Activities Some of the more significant changes in the revenues and expenses of the City's governmental activities presented above are as follows: • Operating contributions and grants increased by $1.8 million, primarily due to a $1.8 million Homeland Security Grant that was not received in the prior year. • Capital contributions and grants increased by $0.2 million due to an increase in developer fees. Development fluctuates from year to year and some larger developments occurred in the current fiscal year, primarily a commercial development for U-Storage on Garvey Ave and a residential development called Cameron 56 by Meritage Homes. • Property taxes, the City's largest revenue source, increased $1.0 million primarily due to an increase in the assessed valuation. • Other taxes, which consists of franchise taxes, transient occupancy taxes and other taxes, increased by $1.7 million, primarily due to a $1.6 million increase in other taxes. That increase primarily relates to $1.3 million in increased funding from SB-1, the Road Maintenance Rehabilitation Act. • Other general revenues decreased $2.0 million due to a $3.5 million decrease in other revenues partially offset by an increase of $1.5 million in investment income. The decrease in other revenues is mostly made up of a $3.0 million gain on property that was transferred to the City by the Successor Agency in the prior fiscal year. The increase in investment income is primarily due to a positive fair value adjustment in FY 18/19 and a significant negative fair value adjustment in the prior fiscal year. • There was an overall decrease in expenses of $9.5 million, primarily due to a $9.7 million decrease in public safety. Public Safety actually increased by $5.1 million in FY 18/19, but that was well more than offset by an increase of $15.6 million in total net pension liability expense in FY 17/18. By comparison, the net pension liability increase related to Public Safety in FY 18/19 was only $0.3 million. -9- Page 2 of 2 FINDINGS —FEDERAL AWARD PROGRAMS AUDIT Finding Number 2019-002 Recommendation We recommend the City maintain proper staffing levels within the Finance Department to allow for the proper preparation of the SEFA, including a responsible individual to perform a review of the completed SEFA. Corrective Action Taken Management acknowledges the importance of maintaining adequate staffing within the Finance Department. Tracking of federal contracts will be maintained and monitored throughout the course of the fiscal year and the results will be reviewed by the Accounting Manager or Finance Director. Proposed Completion Date Already Implemented. Finding Number 2019-003 Recommendation We recommend the City follow its written procedures for suspension and debarment prior to entering into agreements and maintain the documentation for the required retention period. Corrective Action Taken Management acknowledges the importance of reviewing subrecipients for suspension and debarment. The Federal Asset Forfeiture OMB guidance did not require this review prior to the new guide which was implemented in 2018. Going forward we will do SAM exclusion searches for all contractual service vendors paid from equitable sharing/asset forfeiture funds. Proposed Completion Date Already implemented. For any questions regarding this plan, please call Robbeyn Bird, Finance Director at 626-939-8463. Sincerely, Robbeyn Bird Finance Director 14 CITY OF WEST COVINA, CALIFORNIA WEST COVINA HOUSING AUTHORITY FUND (A COMPONENT UNIT OF THE CITY OF WEST COVINA) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT JUNE 30, 2019 City of West Covina, California West Covina Housing Authority Fund Table of Contents June 30, 2019 PAGE Independent Auditor's Report 1 Basic Financial Statements Balance Sheet 4 Statement of Revenues, Expenditures, and Changes in Fund Balance 5 Notes to the Financial Statements 6 Required Supplementary Information Budgetary Comparison Schedule 11 Note to Required Supplementary Information 12 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 13 ROGERS, ANDERSON, MALODY & SCOTT, LLP © CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 INDEPENDENT AUDITOR'S REPORT 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 The Board of Directors 909 889 0871 T 909 889 5361 F West Covina Housing Authority ramscpa.net West Covina, California Report on the Financial Statements PARTNERS Brenda L. Odle, CPA, MST Terry P. Shea. CPA We have audited the accompanying financial statements of the West Scott W. Manno. CPA, CGMA Covina Housing Authority Fund (the Housing Authority), (a component Leena Shanbhag, CPA. MST. CGMA unit of the City of West Covina, California (the City), as of and for the Bradferd A. Welebir, CPA, MBA, CGMA year ended June 30, 2019, and the related notes to the financial Jay CPA (Partner Emeritus) statements as listed in the table of contents. li H. WalleZercher,r, Phillip H. Waller, CPA (Farmer Emeritus) Kirk A. Franks, CPA (Partner Emeritus) Management's Responsibility for the Financial Statements DIRECTORS Jenny Liu, CPA, MST Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles MANAGERS/STAFF generally accepted in the United States of America; this includes the Charles De Simoni, CPA design, implementation, and maintenance of internal control relevant to Gardenya Duran, CPA Brianna Schultz, CPA the preparation and fair presentation of financial statements that are free Jinglie Wu, CPA from material misstatement, whether due to fraud or error. Evelyn Morentin-Barcena, CPA Jin Gu, CPA. MT Auditor's Responsibility Veronica Hernandez, CPA Tara R.Thorp, CPA, MSA Our responsibility is to express an opinion on these financial statements Laura Arvizu. CPA based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to MEMBERS American Institute of obtain reasonable assurance about whether the financial statements are Certified Public Accountants free from material misstatement. PCPS The AICPA Alliance for CPA Firms An audit involves performing procedures to obtain audit evidence about Governmental Audit the amounts and disclosures in the financial statements. The procedures Quality Center selected depend on the auditor's judgment, including the assessment of Employee Benefit Plan the risks of material misstatement of the financial statements, whether Audit Quality Center due to fraud or error. In making those risk assessments, the auditor California Society of considers internal control relevant to the entity's preparation and fair Certified Public Accountants presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the MFM... o, purpose of expressing an opinion on the effectiveness of the entity's ALinternal control. Accordingly, we express no such opinion. An audit also c a o u P includes evaluating the appropriateness of accounting policies used and A Worldwide Alliance of Independent the reasonableness of significant accounting estimates made by Accounting, Law and Consulting Firms management, as well as evaluating the overall presentation of the financial statements. 'i! STABILITY. ACCURACY. TRUST. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Housing Authority, as of June 30, 2019, and the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements present only the Housing Authority and do not purport to, and do not present fairly the financial position of the City as of June 30, 2019, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the budgetary comparison schedule, identified as Required Supplementary Information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statement, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Management has omitted management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of that basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. Our opinion on the basic financial statements is not affected by this missing information. -2- Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated December 23, 2019, on our consideration of the Housing Authority's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Housing Authority's internal control over financial reporting and compliance. k10 &o# LLP. San Bernardino, California (/ December 23, 2019 -3- City of West Covina, California West Covina Housing Authority Fund Balance Sheet June 30, 2019 Assets Cash and investments $ 6,942,668 Notes and loans receivable, net 14,445,588 Advances to Successor Agency 3,198,762 Prepaids 99,166 Total assets $ 24,686,184 Liabilities and fund balance Liabilities: Accounts payable $ 3,687 Other accrued liabilities 8,175 Total liabilities 11,862 Fund balance: Nonspendable: Prepaids 99,166 Restricted for: Affordable housing 24,575,156 Total fund balance 24,674,322 Total liabilities and fund balance $ 24,686,184 The accompanying notes are an integral part of these financial statements. -4- City of West Covina, California West Covina Housing Authority Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the vear ended June 30, 2019 Revenues Investment income $ 415,877 Revenues from other agencies 50,000 Other revenues 29.375 Total revenues 495.252 Expenditures Current: Public safety 124,183 Affordable housing 421,963 Total expenditures 546,146 Net change in fund balance (50,894) Fund balance, beginning of year 24,725,216 Fund balance, end of year $ 24,674,322 The accompanying notes are an integral part of these financial statements. -5- City of West Covina, California West Covina Housing Authority Fund Notes to the Financial Statements For the year ended June 30, 2019 Note 1— Organization and Summary of Significant Accounting Policies The City of West Covina (the City) was incorporated on February 23, 1923, under the laws of the State of California and enjoys all the rights and privileges applicable to a general law city. It is governed by an elected five -member City Council. The following is a summary of the significant accounting policies of the City as they pertain to the West Covina Housing Authority Fund (the Housing Authority). Only the Housing Authority information is included herein and these financial statements, therefore, do not purport to represent the financial position or results of operations of the City. Basis of Accounting These fund financial statements are reported using the modified -accrual basis of accounting. Under the modified -accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e. when they are both measurable and available). "Measurable" means the amount of the transaction can be determined, and "available" means collectible within the current period or soon enough thereafter (within 60 days) to be used to pay liabilities of the current period. Expenditures are generally recognized in the accounting period in which the liability is incurred, if measurable. Use of Estimates in the Preparation of Financial Statements The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Note 2 — Cash and Investments Cash at June 30, 2019 consisted of the following: Amount Pooled cash and investments $ 6,942,668 The City follows the practice of pooling cash and investments for all funds except for funds required to be held by outside fiscal agents under the provisions of bond indentures. For more information on the City's cash and investments as of June 30, 2019, please see the City's Comprehensive Annual Financial Report. -6- City of West Covina, California West Covina Housing Authority Fund Notes to the Financial Statements For the vear ended June 30. 2019 Note 3 — Notes and Loans Receivable As of June 30, 2019, the following notes and loans receivable were outstanding: Housing rehabilitation $ 353,888 First time home buyers 239,516 Housing preservation program 657,739 Home improvement program 782,882 Lark Ellen Towers 6,305,325 Executive Lodge Apartments Limited Partnership 6,207,865 West Covina Senior Villas, LLC 2,833,333 West Covina Senior Villas Il, L.P. 8,513,884 Other loans 608,196 Allowance for doubtful accounts (12,057,040) Total $ 14,445,588 Several housing rehabilitation loans totaling $353,888 have been made to qualified applicants using Community Development Block Grants received by the City and housing set -aside funds of the former Commission's redevelopment activities. These loans bear interest up to 5% and are repaid when title to the property changes. The City has included 5% of the balance in the allowance for doubtful accounts. The Housing Authority has loans to first-time home buyers totaling $239,516. Loans are secured by second trust deeds and bear interest at 5%. Principal and interest are deferred for five years and are due monthly in years 6 through 30. There were 19 individual loans outstanding at June 30, 2019 ranging from $5,710 to $22,407. The City has included 5% of the balance in the allowance for doubtful accounts. The Housing Authority also has housing preservation loans to qualified applicants using housing set -aside funds totaling $657,739. Principal and interest are deferred for ten years; after the tenth year loans bear interest at 5%. Loans are repaid after the tenth year or when title to the property changes. There were 82 individual loans outstanding at June 30, 2019 ranging from $205 to $10,659. The City has included 5% of the balance in the allowance for doubtful accounts. Several housing improvement loans totaling $782,882 have been made to qualified applicants. The loans are secured by second trust deeds. The City has included 5% of the balance in the allowance for doubtful accounts. In May 1997, the Commission loaned $4,270,000 to Lark Ellen Towers. The loan was transferred to the Housing Authority from the dissolved former Commission. The loan is secured by a deed of trust. The loan accrues interest at 3% per annum and requires annual payments equal to the maximum of $35,000 or 50% of net profits earned by the project. The outstanding principal and accrued interest at June 30, 2019 was $6,305,325. -7- Revenues by Source — Governmental Activities Operating grants Capital grants and contributions and contributions 0 12.9% '4% Charges for Property taxes 28 2% services 17.3% Other general Sales taxes revenue Other taxes 18.7% 8.3 /° 14.3% The most significant revenues of the governmental activities are property taxes ($26.4 million), sales tax ($17.5 million) and other taxes ($13.4 million). Program revenues are $28.7 million of the total revenues of the governmental activities, which include charges for services ($16.2 million), operating contributions and grants ($12.1 million), and capital grants and contributions ($0.4 million). 10- City of West Covina, California West Covina Housing Authority Fund Notes to the Financial Statements For the vear ended June 30. 2019 Note 3 — Notes and Loans Receivable, (continued) In April 1998, the Commission loaned $5,622,300 to Executive Lodge Apartments Limited Partnership (Promenade Apartments project). The loan was transferred to the Housing Authority from the dissolved former Commission. The loan is secured by a deed of trust. The loan was amended and restated on April 1, 2017, with a principal of $6,056,621 accruing interest at 2.82% compounded annually and requires annual payments equal to 50% of "Available Cash Flow". The outstanding principal and accrued interest at June 30, 2019 was $6,207,865. In May 2002, the Commission loaned $4,360,000 to West Covina Senior Villas, LLC. The loan is secured by a deed of trust. The loan does not accrue interest. The loan requires annual payments of $141,667 through May 2032 that are forgiven by the City unless the borrower defaults on the agreement. The outstanding principal at June 30, 2019 was $2,833,333. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. In May 2009, the Commission entered into an agreement with West Covina Senior Villas II, L.P. to provide $8,600,000 for the acquisition of real property in the City and construction and maintenance of an approximately 65-unit apartment complex to be rented to low income and very low income senior citizens. The loan is secured by a deed of trust. The loan does not accrue interest and is forgiven so long as the borrower does not default on the loan. The outstanding principal at June 30, 2019 was $8,513,884. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. Other notes consist of affordable housing loans of $400,000. The notes do not accrue interest and are forgiven unless the borrower sells or refinances the property. Additionally, the balance included a note of $208,196 for low income housing which accrues no interest and is forgivable if the owner maintains the low and moderate income housing status. The outstanding principal of these loans combined at June 30, 2019 was $608,196. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. -8- City of West Covina, California West Covina Housing Authority Fund Notes to the Financial Statements For the vear ended June 30. 2019 Note 4 — Advances to the Successor Agency of the City of West Covina Prior to the dissolution of the Commission's redevelopment activities on February 1, 2012, the City authorized several advances to be used for completing redevelopment projects throughout the community. As a result of the dissolution, the liabilities related to these advances were transferred to the Successor Agency. At June 30, 2019, the outstanding receivable side of these advances was as follows: (a) In May 2010, the Commission made an advance of $6,529,308 from its housing assets to satisfy the Commission's Supplemental Educational Revenue Augmentation Fund (SERAF) obligation as allowed by Assembly Bill ABX4-26. The advance bears no interest. In May 2011, the Commission made an advance of $1,344,269 from its housing assets to satisfy SERAF obligation as allowed by Assembly Bill ABX4-26. On February 1, 2012, these advances receivables were transferred to the Housing Authority. The advance bears no interest and the outstanding balance at June 30, 2019 was $2,030,940. (b) The General Fund of the City has made several advances to the Commission totaling $8,100,000 for administrative and capital improvement construction costs. Eighty percent (80%) of the balance is reported in the City's General Fund and remaining twenty percent (20%) balance is reported in the Housing Authority. The outstanding balance at June 30, 2019 was $1,167,822. With regard to repayment of the SERAF advances, repayment was authorized to begin in the 2014-15 fiscal year and annual repayments are capped pursuant to a statutory formula. Successor Agency and the Housing Authority management believes, in consultation with legal counsel, that the SERAF advances are enforceable obligations payable by the Successor Agency under the Dissolution Act's repayment restrictions. Therefore, the Housing Authority has not recorded an allowance for uncollectible advances. That said, the Dissolution Act is a complicated statutory scheme and the State and local agency implementation thereof has been the subject of substantial dispute and litigation. As such, repayment of the SERAF advances cannot be guaranteed. Note 5 — Fund Balance Fund balances in governmental funds are reported in classifications that comprise a hierarchy based primarily on the extent to which the Fund is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The Fund considers restricted fund balance to have been spent first when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Similarly, when an expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the Fund considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts. A City's Council Ordinance or Resolution is the formal action that would effectively commit fund balances for a particular purpose. -9- City of West Covina, California West Covina Housing Authority Fund Notes to the Financial Statements For the vear ended June 30. 2019 Note 5 — Fund Balance, (continued) The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used: • Nonspendable — amounts that are not in a spendable form (such as inventory) or are required to be maintained intact. • Restricted — amounts constrained to specific purposes by their providers (such as grantors, bondholders and higher levels of government), through constitutional provisions or by enabling legislation. • Committed — amounts constrained to specific purposes by a government itself, using the highest level of decision -making authority; to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest level action to remove or change the constraint. • Assigned — amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official or body to which the governing body delegates the authority. • Unassigned — amounts that are for any purpose; positive amounts are reported only in a general fund. The City Council establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance or resolution. The Director of Finance has the authority, granted by the Council, to assign City resources. When both restricted and unrestricted resources are available for use when an expenditure is incurred, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. It is also the City's policy to consider committed amounts as being reduced first, followed by assigned amounts and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used. The Housing Authority's governmental fund balance at June 30, 2019 is presented below: West Covina Housing Authority Fund Nonspendable: Prepaids $ 99,166 Restricted for: Affordable housing 24,575,156 Total fund balance $ 24,674,322 10- REQUIRED SUPPLEMENTARY INFORMATION City of West Covina, California West Covina Housing Authority Fund Budgetary Comparison Schedule For the vear ended June 30. 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 415,877 $ 415,877 Revenue from other agencies 50,000 50,000 Other revenues 29,375 29,375 Total revenues 495,252 495,252 EXPENDITURES Current: Public Safety - 139,917 124,183 15,734 Affordable housing 527,679 896,197 421,963 474,234 Total expenditures 527,679 1,036,114 546,146 489,968 Net change in fund balance (527,679) (1,036,114) (50,894) 985,220 Fund balance, beginning of year 24,725,216 24,725,216 24,725,216 Fund balance, end of year $ 24,197,537 $ 23,689,102 $ 24,674,322 $ 985,220 See accompanying note to required supplementary information. -11- City of West Covina, California West Covina Housing Authority Fund Note to Required Supplementary Information For the vear ended June 30. 2019 Note 1 — Budgetary Data The annual budget adopted by the City Council provides for the general operation of the Housing Authority. The annual budget is adopted in summary by the City Council in June of each year. The resolution sets a combined appropriation of the fund for the operation of the Housing Authority. The City Manager is authorized to transfer budgeted amounts between departments to ensure adequate and proper standards of service. Budgetary revisions, including supplemental appropriations which increase appropriations, must be approved by the City Council. The budgetary level of control is at the fund level. The budgeted figures used in the financial statements' budget to actual comparisons are the final amended amounts. The budget is formally integrated into the accounting system and employed as a management control device during the year. Budgets for governmental fund types are adopted on a basis consistent with generally accepted accounting principles. Operating appropriations lapse at the end of the fiscal year. 12- ROGERS, ANDERSON, MALODY & SCOTT, LLP © CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 909 889 0871 T AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN 909 889 5361 F AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ramscpa.ner ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS PARTNERS Independent Auditor's Report Brenda L. Odle, CPA, MST Terry P. Shea. CPA The Board of Directors Scott W. Manno. CPA, CGMA Leena Shanbhag, CPA. MST. CGMA West Covina Housing Authority Bradferd A. Welebir, CPA, MBA, CGMA West Covina, California Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) We have audited, in accordance with the auditing standards generally Kirk A. Franks, CPA (Partner Emeritus) accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by DIRECTORS the Comptroller General of the United States, the financial statements of Jenny Liu, CPA, MST the West Covina Housing Authority Fund (the Housing Authority), (a MANAGERS/STAFF component unit of the City of West Covina (the City), California), as of Charles De Simoni, CPA and for the year ended June 30, 2019, and the related notes to the Gardenya Duran, CPA financial statements, which collectively comprise the Housing Authority's Brianna Schultz, CPA basic financial statements, and have issued our report thereon dated Wu, CPA December 23, 2019. The financial statements present only the Housing Evelyn Morentin-Barcena, CPA Evel Eve Jin Gu, CPA. MT Authority and do not purport to, and do not, present fairly the financial Veronica Hernandez, CPA position of the City. Tara R. Thorp, CPA, MSA Laura Arvizu. CPA Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Housing Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in MEMBERS the circumstances for the purpose of expressing our opinions on the American Institute of financial statements, but not for the purpose of expressing an opinion on Certified Public Accountants the effectiveness of the Housing Authority's internal control. Accordingly, PCPS The AICPA Alliance we do not express an opinion on the effectiveness of the Housing for CPA Firms Authority's internal control. Governmental Audit Qualify Center A deficiency in internal control exists when the design or operation of a Employee Benefit Plan control does not allow management or employees, in the normal course Audit Quality Center of performing their assigned functions, to prevent, or detect and correct California society of misstatements on a timely basis. A material weakness is a deficiency, or Certified Public Accountants a combination of deficiencies, in internal control such that there is a MFM... o, reasonable possibility that a material misstatement of the entity's financial • statements will not be prevented, or detected and corrected on a timely L basis. A significant deficiency is a deficiency, or a combination of G R o U P deficiencies, in internal control that is less severe than a material A Worldwide Alliance C.Independent Accounting,rldwid Law and Consulting Firms weakness, et important enough to merit attention b those charged with Y P 9 Y 9 governance. -13- STABILITY. ACCURACY. TRUST. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Housing Authority'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. 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Housing Authority's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Housing Authority's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. San Bernardino, California December 23, 2019 14- Housing Successor of the City of West Covina Addendum to the Annual Progress Report For Fiscal Year Ended June 30, 2019 ROGERS, ANDERSON, MALODY & SCOTT, LLP © CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 735 E. Carnegie Dr, Suite 100 San Bernardino, CA 92408 909 B89 0871 T 909 889 5361 F ramscpa.net Independent Accountant's Disclaimer Report Applied to the PARTNERS Preparation of the Addendum to the Annual Progress Report of the Brenda L.Odle, CPA, MST Housing Successor of the City of West Covina Terry P. Shea. CPA Scott W. Manno. CPA, CGMA Leena Shanbhag, CPA. MST. CGMA Bradferd A. Welebir, CPA, MBA, CGMA Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) Kirk A. Franks, CPA (Partner Emerius) To Management of the Housing Successor of the City of West Covina West Covina, California DIRECTORS Jenny Liu, CPA, MST We have prepared the accompanying Addendum to the Annual Progress Report ("Addendum to the APR") of the Housing Successor of the City of MANAGERS / STAFF West Covina ("Housing Successor') as of June 30, 2019, and for the year Charles De Simoni, CPA then ended in accordance with the reporting provisions of the California Gardenya Duran, CPA Health & Safety Code Section 34176 as amended by Senate Bill 341 Brianna Schultz, CPA (Chapter 796, Statutes of 2013, effective January 2014) ("SB 341 "), and Wu, CPA y (Chapter as amended b Senate Bill 107 Cha ter 325, Statutes of 2015, effective Evelyn Morentin-Barcena, CPA Evel Eve Jin Gu, CPA. MT January 2016) HSC Section 34176.1(f). Veronica Hernandez CPA The accompanying Addendum to the APR of the Housing Successor as Tara R. Thorp, CPA, MSA Laura Arvizu. CPA of June 30, 2019, and for the year then ended was not subjected to an audit, review, or compilation engagement by us and, accordingly, we do not express an opinion, conclusion, nor provide any assurance on it. This Addendum to the APR is intended solely for the information and use of management of the Housing Successor of the City of West Covina, and MEMBERS is not intended to be and should not be used by anyone other than this American Institute of specified party. Certified Public Accountants PCPS The AICPA Alliance for CPA Firms Governmental Audit M p -0eA'f/ A N'/ ,,., /�.,r . � # LLP. �`'�' Quality Center v// Employee Benefit Plan San Bernardino, California Audit Quality Center December 23, 2019 California Society of Certified Public Accountants MEMBER OF A� GROUP A Worldwide Alliance of Independent Accounting, Law and Consulting Firms STABILITY. ACCURACY. TRUST. 11/16/2020 Print Staff Report debt such as compensated absences payable, claims and judgments payable, capital lease obligations, and the Successor Agency note. All of the outstanding bonds are lease revenue bonds secured by leases from the General Fund. Audit Communication Letter The Audit Communication Letter (Attachment No. 2) provides certain information related to the audit of the City's financial records including the following: • Qualitative Aspects of Accounting Practices - The letter notes that City management is responsible for the selection and use of appropriate accounting policies. The letter indicates that there have been no significant changes in accounting policies or their application during the fiscal year. The letter also noted that there were no transactions entered into by the City during Fiscal Year 2018-19 for which there was a lack of authoritative guidance, and that all significant transactions were recorded in the proper accounting periods. • Significant Difficulties Encountered during the Audit — The letter communicates the auditors encountered no significant difficulties in dealing with management relating to the performance of the audit. • Uncorrected and Corrected Misstatements — The letter communicates the auditors' responsibility to note all known and likely misstatements identified during the audit. The auditors noted no such misstatements that were material, either individually or in aggregate, to the financial statements taken as a whole. • Disagreements with Management — The auditors are required to communicate any disagreements with management related to an accounting, reporting or auditing matter, whether resolved or not, in the Audit Communication Letter. No such disagreements arose during the course of the audit for Fiscal Year 2018-19. Single Audit Report on Federal Awards As a recipient of Federal grant funds in excess of $750,000, the City's Single Audit Report on Federal Awards (Attachment No. 3) is required to be submitted in compliance with the financial reporting requirement in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The City's Single Audit Report on Federal Awards reported three (3) findings for the year ended June 30, 2019. Finding Number 2019-003 was identified as a significant deficiency in the review of internal control over compliance. The auditors found an instance of not reviewing a subrecipient for suspension and debarment in a federal program that previously didn't require said search, but now does. The City will now complete System for Award Management (SAM) exclusion searches for all contractual service vendors paid with equitable sharing/asset forfeiture funds. Finding Numbers 2019-001 and 2019-002 are identified in the Government Auditing Standards Letter. All findings have been addressed internally and responded to in the Corrective Action Plan at the end of the Single Audit Report. With the exception of Finding Numbers 2019-001 and 2019-002, the three other findings from the Single Audit Report on Federal Awards for the Year ended June 30, 2018 were addressed. Government Auditing Standards Letter The Government Auditing Standards Letter (pages 1-2, of Attachment No. 3) notes any identified deficiencies or weaknesses in internal control over financial reporting that could lead to material misstatements in the City's financial statements as well as any other compliance findings. https://destinyhosted.com/print_ag_memo.cfm?seq=718&rev_num=0&mode=Extemal&reloaded=true&id=93782 3/5 Expenses by Function — Governmental Activities The City's expenses cover a range of services whose expenses were as follows: Public safety ($58.1 million), public works ($21.6 million), community services ($9.3 million), general government ($7.5 million), interest expense ($1.7 million) and community development ($0.8 million). M Housing Successor of the City of West Covina Addendum to the Annual Progress Report For Fiscal Year Ended June 30, 2019 1) The amount the City, County, or City and County received pursuant to subparagraph (A) of paragraph (3) of subdivision (b) of Section 34191.4. No amounts received in pursuant to subparagraph (A) of paragraph (3) of subdivision (b) or Section 34191.4. 2) The amount deposited to the Low and Moderate Income Housing Asset Fund, distinguishing between amounts deposited pursuant to subparagraphs (B) and (C) or paragraph (3) of subdivision (b) of Section 34191.4, amounts deposited for others items listed on the Recognized Obligation Payment Schedule from other amounts deposited. The Housing Successor received $495,252 as of June 30, 2019. None of these amounts were deposited for items listed on the Recognized Obligation Payment Schedule. 3) A statement of the balance in the fund as of the close of the fiscal year, distinguishing any amounts held for items listed on the Recognized Obligation Payment Schedule from other amounts. The balance in the Housing Successor as of June 30, 2019, was $24,674,322. None of which was held for items listed on the Recognized Obligation Payment Schedule. 4) A description of expenditures from the fund by category, including, but not limited to, expenditures a. for monitoring and preserving the long-term affordability of units subject to affordability restrictions or covenants entered into by the redevelopment agency or the housing successor and administering the activities described in paragraphs (2) and (3) of subdivision (a), The Housing Successor's expenditures related to this category as of June 30, 2019, were $421,963 in administrative expenditures. b. for homeless prevention and rapid re -housing services for the development of housing described in paragraph (2) of subdivision (a), and The Housing Successor had $124,183 related to homeless prevention and rapid re -housing services as of June 30, 2019. c. for the development of housing pursuant to paragraph (3) of subdivision (a). The Housing Successor had no expenditures related to the development of housing as of June 30, 2019. 5) As described in paragraph (1) of subdivision (a), the statutory value of real property owned by the housing successor, the value of loans and grants receivable, and the sum of these two amounts. The Housing Successor owned real property with a statutory value of zero, as of June 30, 2019. The value of loans and notes receivable in the Housing Successor as of June 30, 2019 is $14,445,588. The sum of the statutory value of real property and the value of loans and notes receivable is $14,445,588. 6) A description of any transfers made pursuant to paragraph (2) of subdivision (c) in the previous fiscal year and, if still unencumbered, in earlier fiscal years and a description of and status update on any project for which transferred funds have been or will be expended if that project has not yet been placed in service. No transfers occurred pursuant to paragraph (2) of subdivision (c) in the previous fiscal year or earlier fiscal years. 7) A description of any project for which the housing successor receives or holds property tax revenue pursuant to the Recognized Obligation Payment Schedule and the status of that project. The Housing Successor Fund did not receive or hold property tax revenues pursuant to the Recognized Obligation Payment Schedule during the fiscal year ended June 30, 2019. 8) For interests in real property acquired by the former redevelopment agency prior to February 1, 2012, a status update on compliance with Section 33334.16. For interests in real property acquired on or after February 1, 2012, a status update on the project. As of June 30, 2019, the Housing Successor did not hold any property acquired prior to February 1, 2012. No properties were acquired subsequent to February 1, 2012. 9) A description of any outstanding obligations pursuant to Section 33413 that remained to transfer to the housing successor on February 1, 2012, of the housing successor's progress in meeting those obligations, and of the housing successor's plans to meet unmet obligations. In addition, the housing successor shall include in the report posted on its Internet Web site the implementation plans of the former redevelopment agency. As of June 30, 2019, there were no outstanding obligations pursuant to Section 33413 that remained to be transferred to the Housing Successor on February 1, 2012. 10) The information required by subparagraph (B) of paragraph (3) of subdivision (a). As of June 30, 2019, the Housing Successor is in compliance with the requirements of subparagraph (B) of paragraph (3) of subdivision (a). 11) The percentage of units of deed -restricted rental housing restricted to seniors and assisted individually or jointly by the housing successor, its former redevelopment agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed -restricted rental housing assisted individually or jointly by the housing successor, its former redevelopment agency, and its host jurisdiction within the same time period. As of June 30, 2019, the Housing Successor had 59.76% of units of deed -restricted rental housing restricted to seniors and assisted individually or jointed by the housing successor, its former redevelopment agency, and its host jurisdiction within the previous 10 years in relation to the aggregate number of units of deed -restricted rental housing assisted individually or jointly by the housing successor, its former redevelopment agency, and its host jurisdiction within the same time period. 12) The amount of any excess surplus, the amount of time that the successor agency has had excess surplus, and the housing successor's plan for eliminating the excess surplus. The Housing Successor Fund did not have any excess surplus as of June 30, 2019, or at any point during the fiscal year ended June 30, 2019. 13)An inventory of homeownership units assisted by the former redevelopment agency or the housing successor that are subject to covenants or restrictions or to an adopted program that protects the former redevelopment agency's investment of moneys from the Low and Moderate Income Housing Fund pursuant to subdivision (f) of Section 33334.3. a. The number of those units. The Housing Successor assisted with approximately 208 homeownership units that are subject to affordable restrictions b. In the first report pursuant to this subdivision, the number of units lost to the portfolio after February 1, 2012, and the reason or reasons for those losses. For all subsequent reports, the number of the units lost to the portfolio in the last fiscal year and the reason for those losses. The Housing Successor lost 18 units in fiscal year 2018-2019. The loans on these units were paid off in the fiscal year. c. Any funds returned to the housing successor as part of an adopted program that protects the former redevelopment agency's investment of moneys from the Low and Moderate Income Housing Fund. The Housing Successor had funds returned of $180,756 during fiscal year ended June 30, 2019. d. Whether the housing successor has contracted with any outside entity for the management of the units and, if so, the identity of the entity. The Housing Successor has contracted Amerinat Loan Servicing for the management of the 37 loans out of a total of 208 loans during fiscal year ended June 30, 2019. CITY OF WEST COVINA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT JUNE 30, 2019 City of West Covina Air Quality Improvement Special Revenue Fund Table of Contents June 30, 2019 PAGE Independent Auditor's Report 1 Basic Financial Statements Balance Sheet 4 Statement of Revenues, Expenditures, and Changes in Fund Balance 5 Notes to the Financial Statements 6 Required Supplementary Information Budgetary Comparison Schedule 9 Note to Required Supplementary Information 10 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 11 ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 INDEPENDENT AUDITOR'S REPORT 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 The Honorable Mayor and 909 889 0871 T 909 889 5361 F City Council of the City of West Covina ramscpa.net West Covina, California Report on the Financial Statements PARTNERS Brenda L. Odle. CPA. MST Terry P. Shea, CPA We have audited the accompanying financial statements of the Air Scott W. Manno. CPA, CGMA Quality Improvement Special Revenue Fund (the Fund) of the City of Leena Shanbhag, CPA. MST, CGMA West Covina, California (the City), as of and for the year ended June 30, Bradferd A. Welebir, CPA. MBA, CGMA 2019, and the related notes to the financial statements as listed in the Jenny W. Liu, CPA, MST table of contents. Jay H. Zercher. CPA (Parmer Emeritus) Phillip H. Waller, CPA (Partner Emeritus) Kirk A. Franks, CPA (Partner Emeritus) Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of MANAGERS/STAFF these financial statements in accordance with accounting principles Charles Deur,CPA generally accepted in the United States of America; this includes the Garderrya Duran. CA Duran. P Brianna Schultz, CPA design, implementation, and maintenance of internal control relevant to Jingpe Wu, CPA the preparation and fair presentation of financial statements that are free Evelyn Morentin-Barcena, CPA from material misstatement, whether due to fraud or error. Veronica Hernandez, CPA Tara R. Thorp, CPA, MSA Auditor's Responsibility Laura Arvizu, CPA Ye Ying Stella Xia, CPA. MSBA Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to MEMBERS American Institute of obtain reasonable assurance about whether the financial statements are Certified Public Accountants free from material misstatement. PCPS The AICPA Alliance for CPA Firms An audit involves performing procedures to obtain audit evidence about G—inrrentnl Audit the amounts and disclosures in the financial statements. The procedures Qaafity Cente, selected depend on the auditor's judgment, including the assessment of Errtplayee Benefit Plan the risks of material misstatement of the financial statements, whether Audit Quality Center due to fraud or error. In making those risk assessments, the auditor California S°clety of considers internal control relevant to the entity's preparation and fair Certified Public Accountants presentation of the Fund's financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's AL internal control related to the Fund. Accordingly, we express no such c R o u P opinion. An audit also includes evaluating the appropriateness of A Worldwide Alliance of Independent accounting policies used and the reasonableness of significant Accounting, Law and Consulting Firms accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. -1- STABILITY. ACCURACY. TRUST We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund of the City, as of June 30, 2019, and the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 2, the financial statements present only the Fund and do not purport to, and do not present fairly the financial position of the City, as of June 30, 2019, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the budgetary comparison schedule, identified as Required Supplementary Information (RSI) in the accompanying table of contents, be presented to supplement the basic financial statements. Such Information, although not a part of the basic financial statement, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the RSI in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the RSI because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Management has omitted management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of that basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. Our opinion on the basic financial statements is not affected by this missing information. -2- Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated March 9, 2020, on our consideration of the entity's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters related to the Fund. 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 in considering the Fund's internal control over financial reporting and compliance. t LOP Q San Bernardino, California March 9, 2020 -3- City of West Covina Air Quality Improvement Special Revenue Fund Balance Sheet June 30, 2019 Assets Other receivables $ 36,399 Total assets $ 36,399 Liabilities and fund balance Liabilities: Accounts payable $ 101,132 Due to other funds 131,949 Total liabilities 233,081 Fund balance (deficit): Unassigned (196,682) Total fund balance (deficit) (196,682) $ 36,399 The accompanying notes are an integral part of these financial statements. -4- Business -Type Activities The business -type activity is the West Covina Service Group, which provides dispatch and records management software and services to other police departments. $2.0 $1.5 $1.0 $0.5 $- Reveues --- Program Expenses The business -type activity's expenses decreased by $41,733 or 3.2% from the prior fiscal year. Charges for services and other revenues decreased by $70,434 in FY 18-19 causing the decrease in net position of $51,375. 12- City of West Covina Air Quality Improvement Special Revenue Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the year ended June 30, 2019 Revenues Revenue from other agencies $ 140,400 Total revenues 140,400 Expenditures Public works 213,563 Deficiency of revenues under expenditures (73,163) Net change in fund balance (73,163) Fund balance (deficit), beginning of year (123,519) Fund balance (deficit), end of year $ (196,682) The accompanying notes are an integral part of these financial statements. -5- City of West Covina Air Quality Improvement Special Revenue Fund Notes to the Financial Statements For the year ended June 30, 2019 Note 1— General California Assembly Bill 2766 authorizes air pollution control districts to levy fees on motor vehicles. Fees are to be used to reduce air pollution. Under this program, the Department of Motor Vehicles collects the fees and subvenes the amounts to the South Coast Air Quality Management District (SCAQMD) for vehicles registered in the South Coast District. Forty cents of every dollar subvened to SCAQMD is allocated to the cities and counties in the South Coast District proportionately based upon population. The amounts attributable to the City of West Covina (the City), are maintained in the City's Air Quality Improvement Special Revenue Fund (the Fund). Note 2 — Summary of Significant Accounting Policies The following is a summary of the significant accounting policies of the City as they pertain to the Fund. Only the Fund information is included herein and these financial statements, therefore, do not purport to represent the financial position or results of operations of the City. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity with a self -balancing set of accounts. Monies received under Assembly Bill 2766 (AB2766) are recorded in the Fund that is used to account for the proceeds of revenue to be used for the purpose of implementing the California Clean Air Act. Basis of Accounting The Fund is accounted for using the modified -accrual basis of accounting. Under the modified - accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e. when they are both measurable and available). "Measurable" means the amount of the transaction can be determined, and "available" means collectible within the current period or soon enough thereafter (within 60 days) to be used to pay liabilities of the current period. Expenditures are generally recognized in the accounting period in which the liability is incurred, if measurable. Use of Estimates in the Preparation of Financial Statements The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Deferred Outflows and Inflows of Resources Deferred outflows of resources are transactions that result in the consumption of assets in one period that are applicable to future periods and are not considered assets as described by the statement. Deferred outflows of resources are required to be presented separately after assets on the statement of net position. Deferred inflows of resources are transactions that result in the acquisition of assets in one period that are applicable to future periods and are not considered to be liabilities as described by the statement. Deferred inflows of resources are required to be presented separately after liabilities on the statement of net position. -6- City of West Covina Air Quality Improvement Special Revenue Fund Notes to the Financial Statements For the year ended June 30, 2019 Note 3 — Cash and Investments Cash at June 30, 2019 consisted of the following: Amnunt Pooled cash and investments $ The City follows the practice of pooling cash and investments for all funds except for funds required to be held by outside fiscal agents under the provisions of bond indentures. For more information on the City's cash and investments as of June 30, 2019, please see the City's Comprehensive Annual Financial Report. Note 4 — Interfund Receivables Interfund transactions — Due to/due from interfund borrowings Interfund receivable and payable balances at June 30, 2019 are as follows: Receivable Fund Payable Fund General Fund Air Quality Improvement Special Revenue Fund $ 131,949 The interfund payable represents temporary loans to cover negative cash balances. -7- City of West Covina Air Quality Improvement Special Revenue Fund Notes to the Financial Statements For the year ended June 30, 2019 Note 5 — Fund Balance Fund balances in governmental funds are reported in classifications that comprise a hierarchy based primarily on the extent to which the Fund is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The Fund considers restricted fund balance to have been spent first when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Similarly, when an expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the Fund considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts. A City's Council Ordinance or Resolution is the formal action that would effectively commit fund balances for a particular purpose. The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used: • Nonspendable — amounts that are not in a spendable form (such as inventory) or are required to be maintained intact. • Restricted — amounts constrained to specific purposes by their providers (such as grantors, bondholders and higher levels of government), through constitutional provisions or by enabling legislation. • Committed — amounts constrained to specific purposes by a government itself, using the highest level of decision -making fund; to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest level action to remove or change the constraint. • Assigned — amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official or body to which the governing body delegates the fund. • Unassigned — amounts that are for any purpose; positive amounts are reported only in a General Fund. The City Council establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance or resolution. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the City's policy is to apply restricted fund balance first. When an expenditure is incurred for purposes for which committed, assigned or unassigned fund balances are available, the City's policy is to apply committed fund balance first, then assigned fund balance, and finally unassigned fund balance. The Fund's governmental fund balance at June 30, 2019 is presented below: Air Quality Improvement Unassigned $ (196,682) Total fund balance (deficit) $ (196,682) -8- REQUIRED SUPPLEMENTARY INFORMATION City of West Covina Air Quality Improvement Special Revenue Fund Budgetary Comparison Schedule For the year ended June 30, 2019 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Revenue from other agencies $ 141,000 $ 141,000 $ 140,400 $ (600) Expenditures Public works 28,653 226,497 213,563 12,934 Net change in fund balance 112,347 (85,497) (73,163) 12,334 Fund balance (deficit), beginning of year (123,519) (123,519) (123,519) Fund balance (deficit), end of year $ (11,172) $ (209,016) $ (196,682) $ 12,334 See accompanying note to required supplementary information. -9- City of West Covina Air Quality Improvement Special Revenue Fund Note to Required Supplementary Information For the year ended June 30, 2018 Note 1— Budgetary Data The annual budget adopted by the City Council provides for the general operation of the Fund. The annual budget is adopted in summary by the City Council in June of each year. The resolution sets a combined appropriation of the fund for the operation of the City. The City Manager is authorized to transfer budgeted amounts between departments to ensure adequate and proper standards of service. Budgetary revisions, including supplemental appropriations which increase appropriations, must be approved by the City Council. The budgetary level of control is at the fund level. The budgeted figures used in the financial statements' budget to actual comparisons are the final amended amounts. The budget is formally integrated into the accounting system and employed as a management control device during the year. Budgets for governmental fund types are adopted on a basis consistent with generally accepted accounting principles. Operating appropriations lapse at the end of the fiscal year. 10- ©© ROGERS, ANDERSON, MALODY & SCOTT, LLP ©© CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 909 889 5361 F AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN ramscpa.net AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS PARTNERS Brenda L. Odle. CPA. MST Independent Auditor's Report Terry P. Shea, CPA Scott W. Manno. CPA, CGMA The Honorable Mayor and Leena Shanbhag, CPA. MST, CGMA Bradferd A. Welebir, CPA. MBA, CGMA City Council of the City of West Covina fenny W. Liu, CPA, MST West Covina, California Jay H. Zercher. CPA (Parmer Emeritus) Phillip H. Waller, CPA (Partner Emeritus) Kirk A. Franks, CPA (Partner Emeritus) We have audited, In accordance with the auditing standards generally accepted in the United States of America and the standards applicable to MANAGERS/STAFF financial audits contained in Government Auditing Standards issued by Charles De Simard. CPA the Comptroller General of the United States, the financial statements of Gardenya Duran, CPA the Air Quality Improvement Special Revenue Fund (the Fund) of the City Brianna Schultz, CPA of West Covina, California (the City), as of and for the year ended Jingjie Wu, CPA June 30, 2019, and the related notes to the financial statements, which CPA Evelyn MoraHernndez, collectively comprise the Fund's basic financial statements, and have P Veronica Hernandez, CPA Tara R. Thorp, CPA, MSA issued our report thereon dated March 9, 2020. The financial statements Laura Arvizu, CPA present only the Fund and do not purport to, and do not, present fairly the Ye Ying Stella Xia, CPA. MSBA financial position of the City. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the entity's internal control over financial reporting (internal MEMBERS control) to determine the audit procedures that are appropriate in the American Institute of circumstances for the purpose of expressing our opinions on the financial Certified Public Accountants statements, but not for the purpose of expressing an opinion on the POPS The AICPA Alliance effectiveness of the entity's internal control. Accordingly, we do not far CPA Firms express an opinion on the effectiveness of the entity's internal control. Governmental Audit Quality Center A deficiency in internal control exists when the design or operation of a Employee Benefit Plan control does not allow management or employees, in the normal course Audit Quality Center of performing their assigned functions, to prevent, or detect and correct California Society of misstatements on a timely basis. A material weakness is a deficiency, or Certified Public Accountants a combination of deficiencies, in internal control such that there is a mtMaEa or reasonable possibility that a material misstatement of the entity's financial • statements will not be prevented, or detected and corrected on a timely Lbasis. A significant deficiency is a deficiency, or a combination of c R o u P deficiencies, in internal control that is less severe than a material AWorlting, swan of Independent Accounting, Law and Consulting Firms weakness, et important enough to merit attention b those charged with Y P 9 Y 9 governance. -11- STABILITY. ACCURACY. TRUST. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the entity'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. 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Fund's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. k1ooeAs, ltkdet &, &0# LLP. San Bernardino, California (/ March 9, 2020 12- MAJOR FUNDS As noted earlier, the City uses fund accounting to provide proper financial management of the City's resources and to demonstrate compliance with finance -related legal requirements. Maior Governmental Funds The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unassigned fund balance of the General Fund was $9.9 million, while total fund balance was $19.2 million. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 14.4% of total general fund expenditures, while total fund balance represents 32.8% of that same amount. The non -spendable portion of fund balance in the amount of $9.0 million mainly consists of amounts currently owed to the City by the former redevelopment agency. The reasons for significant changes in the revenues and expenditures of the City's General Fund from the prior year are as follows: • Total revenues, exclusive of fund transfers in, decreased $1.8 million while total expenditures, exclusive of fund transfers out, increased $5.7 million. • Total taxes were up $1.0 million (1.9%) from the prior year. Property taxes increased by $1.0 million (3.8%) and sales tax revenues were flat (0.1%). • Investment income increased by $1.4 million from the prior year. A significant write -down in the market value of investments in the prior fiscal year as a result of a rapid interest rate rising environment resulted in a negative investment income. Higher and more stable interest rates, even as they decreased during the fiscal year, resulted in significant investment income in the current fiscal year. • Sales taxes increased by $0.4 million or 3.3%, due to increased economic activity. The West Covina Housing Authority Fund provides for low and moderate income activities that were previously provided by the redevelopment agency. The Authority has outstanding loans receivable of $14.4 million and is due $3.2 million from the Successor Agency for amounts borrowed by the former redevelopment agency to fund the SERAF payments and 20% of the loans made to the former redevelopment agency by the City. The City Debt Service Fund accounts for the payment of principal, interest, and related costs on the City's long-term debt issues. The fund finished the fiscal year with a total fund balance of $5,528,450, all of which is restricted for debt service. In FY 18/19 the City Debt Service Fund issued $24.2 million in 2018 Lease Revenue Refunding Bonds, which were used to redeem the 2002 Lease Revenue Refunding Bonds, 2004 Lease Revenue bonds and 2013 Lease Revenue Refunding Bonds. 13- GENERAL FUND BUDGET There were numerous budget amendments throughout the fiscal year mostly due to clean up items, but the net effect to the General Fund budget was an increase $3.8 million. Taxes in total fell short of the budget by $297,250, due to sales taxes falling $1.0 million shy of budget. This is primarily due to issues surrounding the California Department of Tax and Fee Administration's (CDTFA) implementation of a new accounting system that resulted in the City not receiving sales taxes from a number of local businesses despite the businesses remitting the funds to the CDTFA in a timely manner. Overall revenues did exceed the original budget, but not the adjusted final budget. Investment income exceeded the budget by $1,272,435 primarily due to a budget of $0, and no adverse market value adjustment as occurred in the prior fiscal year. Total revenues exceeded budgeted revenues by $1,758,139, and total expenditures exceeded the budget by $28,726, leaving the city with an excess of revenues over expenditures of $1,729,413. Total Transfers in and out fell short of budget by $1,321,564 due primarily to only $140,000 of transfers in (budgeted at $2,174,200) being received. This was due to budgeted transfer of $1.9 million relating to the sale of Sunset Field not occurring in that fiscal year. The net change in fund balance at the end of the year exceeded the budgeted net change by $407,849. CAPITAL ASSETS Governmental Activities Business -Type Activities Total 2019 2018 2019 2018 2019 2018 Land $ 48,815,622 $ 48,821,968 E - $ - E 48,815,622 E 48,821,968 Buildings and improvements 68,862,050 68,733,069 - - 68,862,050 68,733,069 Equipment and vehicles 8,778,313 8,272,650 - - 8,778,313 8,272,650 Infrastructure 56,067,902 60,635,948 - - 56,067,902 60,635,948 Rights of way 14,376,498 14,376,498 - - 14,376,498 14,376,498 Construction in progress 1,074,815 4,631,796 1,074,815 4,631,796 Total E 197, 775,200 E 205, 771,929 E E E 197,975,200 $ 205,471,929 The major additions to capital assets during the year ended June 30, 2019 were as follows: Construction in progress had a net decrease of $3.6 million. The $1.1 million currently in progress includes the following: • Traffic Signal Server Upgrades ($457,000) • Landscaping Modification ($100,300) • Traffic Control device Installation- Park and School ($124,000) • Upgrade Sewer Lift Station ($117,000) • Traffic Signal -Sunset/ Francisquito ($154,000) • Completed fixed asset additions of $7.4 million included: • EV Charging Stations - City Hall ($1.0 million) • Electric Doors Access - City Hall ($538,000) • Drought Tolerant Landscaping - City Hall ($330,000) • Council & City Hall Network Improvements ($1.1 million) • Police - Equipment Purchase/Technology ($940,000) • Various Traffic Signal Cameras ($40,000) • Various Street Rehabilitation Projects ($1.1 million) • Maintenance - Trucks ($496,000) • Police - Vehicles ($203,000) Additional information on the City's capital assets can be found in Note 7 of this report. -14- LONG-TERM LIABILITIES At the end of the current fiscal year, the City had liabilities outstanding of $65.1 million. Of this amount, $41.2 million represents outstanding bonds and $24.1 million represents other liabilities such as compensated absences payable, claims and judgments payable, and the Successor Agency note. All of the outstanding bonds are lease revenue bonds secured by leases from the General Fund. Outstanding Bonds Governmental Activities 2019 2018 Lease Revenue Bonds $ 41,007,613 $ 41,190,000 Total $ 41,007,613 $ 41,190,000 Additional information on the City's long-term liabilities can be found in Note 8 of this report. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Finance Director, at City of West Covina, 1444 West Garvey Avenue South, West Covina, California 91790. 15- BASIC FINANCIAL STATEMENTS This page intentionally left blank. City of West Covina Statement of Net Position June 30, 2019 Governmental Business -Type Activities Activities Total ASSETS Cash and investments $ 59,862,168 $ - $ 59,862,168 Cash and investments with fiscal agent 2,565,004 - 2,565,004 Restricted cash and investments 505,820 - 505,820 Receivables, net: Accounts 618,001 58,413 676,414 Taxes 705,515 - 705,515 Notes and loans 14,445,587 - 14,445,587 Other 4,775,925 - 4,775,925 Internal balances 270,182 (270,182) - Inventories 30,174 - 30,174 Advances to Successor Agency 8,657,571 - 8,657,571 Due from other agencies 6,730 - 6,730 Prepaids and other assets 225,358 - 225,358 Land held for resale 3,007,802 - 3,007,802 Capital assets: Non -depreciable 64,266,935 1,059,120 65,326,055 Depreciable, net 133,708,265 (1,059,120) 132,649,145 Total assets 293,682,677 (211,769) 293,470,908 DEFERRED OUTFLOWS OF RESOURCES Pension related 27,771,055 - 27,771,055 OPEB related 2,398,678 2,398,678 Total deferred outflows of resources 30,169,733 30,169,733 LIABILITIES Accounts payable 3,442,902 6,502 3,449,404 Other accrued liabilities 1,839,572 16,599 1,856,171 Interest payable 157,187 - 157,187 Unearned revenues 67,186 - 67,186 Deposits 282,842 - 282,842 Long-term liabilities: Net OPEB liability 58,697,077 - 58,697,077 Net pension liability 186,813,317 - 186,813,317 Due within one year 9,075,897 44,183 9,120,080 Due in more than one year 56,009,249 47,332 56,056,581 Total liabilities 316,385,229 114,616 316,499,845 DEFERRED INFLOWS OF RESOURCES Pension related 2,989,630 - 2,989,630 OPEB related 6,701,986 6,701,986 Total deferred inflows of resources 9,691,616 9,691,616 NET POSITION (DEFICIT) Net investment in capital assets 147,204,908 - 147,204,908 Restricted for: Public safety 6,996,243 - 6,996,243 Public works 15,915,884 - 15,915,884 Community services 4,667,836 - 4,667,836 Affordable housing 24,674,322 - 24,674,322 Debt service 5,528,450 - 5,528,450 Unrestricted (207,212,078) (326,385) (207,538,463) Total net position (deficit) $ (2,224,435) $ (326,385) $ (2,550,820) The accompanying notes are an integral part of these financial statements. -16- City of West Covina Statement of Activities For the Year Ended June 30, 2019 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Governmental activities: General government $ 7,515,920 $ 829,295 $ - $ Public safety 58,057,784 3,839,103 4,430,368 - Public works 21,625,190 9,156,370 1,036,511 18,466 Community services 9,280,450 1,903,119 6,630,340 342,406 Community development 795,685 465,097 - - Interest expense 1,680,335 Total governmental activities 98,955,364 16,192,984 12,097,219 360,872 Business -type activity: Computer service 1,263,693 1,099,028 Total business -type activity 1,263,693 1,099,028 Total $ 100,219,057 $ 17,292,012 $ 12,097,219 $ 360,872 General revenues: Taxes: Property taxes Sales taxes Franchise taxes Transient occupancy taxes Othertaxes Investment income Other revenues Total general revenues and transfers Change in net position Net position (deficit), beginning of year Net position (deficit), end of year The accompanying notes are an integral part of these financial statements. -17- Net (Expense) Revenue and Changes in Net Position Governmental Business -Type Activities Activities Total $ (6,686,625) $ $ (6,686,625) (49,788,313) (49,788,313) (11,413,843) (11,413,843) (404,585) (404,585) (330,588) (330,588) (1,680,335) (1,680,335) (70,304,289) (70,304,289) (164,665) (164,665) (164,665) (164,665) (70,304,289) (164,665) (70,468,954) 26,365,067 26,365,067 17,464,609 17,464,609 4,207,765 - 4,207,765 1,798,120 1,798,120 7,360,674 - 7,360,674 2,016,573 1,083 2,017,656 5,747,563 112,207 5,859,770 64,960,371 113,290 65,073,661 (5,343,918) (51,375) (5,395,293) 3,119,483 (275,010) 2,844,473 $ (2,224,435) $ (326,385) $ (2,550,820) (continued) 18- 11/16/2020 Print Staff Report A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The auditors identified two deficiencies in internal control over financial reporting that they considered to be material weaknesses. Both findings relate to the staffing level and continuity in the Finance Department. The City's response to the findings identified in the audit are described in the Corrective Action Plan (pages 13-14 of Attachment No. 3). The results of the tests performed disclosed no instances of non-compliance or other matters that are required to be reported under Government Auditing Standards. West Covina Housing Authority Annual Financial Report Changes in state law require the Housing Authority, as the Housing Successor, to prepare an annual report regarding the low and moderate income housing asset fund (Report) of the former West Covina Redevelopment Agency (RDA). The law also requires the completion of an independent audit of the low and moderate -income housing asset fund (Fund). The attached annual report includes both the Report and the audit mentioned above (Attachment No. 4). Senate Bill 341 (SB 341), which is partly codified in Health and Safety Code Section 34176.1 and became effective on January 1, 2014, requires each housing successor that assumed the housing functions of a former redevelopment agency, to post a report on its website that contains information regarding the Fund of the former redevelopment agency for the previous fiscal year. Each housing successor is also required to present this report to its governing body. In this case, the City Council designated the Community Development Commission (CDC) as the governing body of the Housing Authority. Because the CDC's membership is the City Council, the Housing Authority, as the housing successor, is required to present the Report on the Fund to the City Council pursuant to SB 341. In addition, the Housing Successor is required to conduct and provide to the City Council an independent financial audit (Audit) of the Fund. Similar to the above, the West Covina Housing Authority assumed the housing functions of the former RDA. The transfer of the functions included the transfer of formerly designated RDA low and moderate -income housing funds together with any funds generated by former RDA housing assets. The funds must be maintained by the Housing Authority in a separate fund and expended in accordance with Health and Safety Code section 34176.1 ("Section 34176.1"). To ensure that the monies in the Fund are expended in accordance with the law, Section 34176.1(f) requires an independent financial audit of the Fund. SB 341 also requires annual reporting and website posting of additional housing information related to the Fund. As noted above, the CDC is the governing body of the Housing Authority and the City Council serves as the membership of the CDC. During their review of our compliance with Senate Bill 341 (Attachment No. 5), the auditors noted no instances of non-compliance for Fiscal Year 2018-19. Air Quality Improvement Fund Financial Statements California Assembly Bill 2766 authorizes air pollution control districts to levy fees on motor vehicles. Fees are to be used to reduce air pollution. Under this program, the Department of Motor Vehicles collects the fees and provides the amounts to the South Coast Air Quality Management District (SCAQMD) for vehicles registered in the South Coast District. Forty cents of every dollar provided to SCAQMD is allocated to the cities and counties in the South Coast District proportionately based upon population. The amounts attributable to the City of West Covina (the City), are maintained in the City's Air Quality Improvement Special Revenue Fund https://destinyhosted.com/print_ag_memo.cfm?seq=718&rev_num=0&mode=Extemal&reloaded=true&id=93782 4/5 City of West Covina Balance Sheet — Governmental Funds June 30, 2019 Special Revenue Funds West Covina General Housing City Debt Fund Authority Service Fund ASSETS Cash and investments $ 8,032,256 $ 6,942,668 $ 2,458,876 Cash and investments with fiscal agent - - 2,565,004 Restricted cash and investments - 505,820 Receivables, net: Accounts 103,411 - Taxes 463,756 Interest 31,640 - Notes and loans - 14,445,587 - Other 4,092,421 - Due from other funds 771,441 - - Advances to Successor Agency 5,458,809 3,198,762 Advances to other funds 383,781 - Due from other agencies - - - Prepaid expenses 126,191 99,167 - Land held for resale 3,007,802 Total assets $ 22,471,508 $ 24,686,184 $ 5,529,700 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ 1,248,949 $ 3,687 $ 1,250 Other accrued liabilities 1,721,938 8,175 - Due to other funds 24,698 - Advances from other funds - Deposits 282,502 Unearned revenue 11,725 Total liabilities 3,289,812 11,862 1,250 Fund balances (deficit): Nonspendable 8,976,583 99,167 - Restricted: Affordable housing - 24,575,155 - Debt service - 5,528,450 Community services - Public safety Public works - Assigned 320,200 Unassigned 9,884,913 Total fund balances (deficit) 19,181,696 24,674,322 5,528,450 Total liabilities, deferred inflows of resources, and fund balances $ 22,471,508 $ 24,686,184 $ 5,529,700 The accompanying notes are an integral part of these financial statements. -19- Non -Major Total Governmental Governmental Funds Funds $ 29,829,943 $ 47,263,743 - 2,565,004 505,820 311,082 414,493 241,759 705,515 - 31,640 - 14,445,587 683,504 4,775,925 - 771,441 8,657,571 - 383,781 6,730 6,730 - 225,358 3,007,802 $ 31,073,018 $ 83,760,410 $ 1,873,035 $ 3,126,921 107,159 1,837,272 501,259 525,957 383,781 383,781 340 282,842 55,461 67,186 2,921,035 6,223,959 9,075,750 24,575,155 5,528,450 4,825,023 4,825,023 4,171,026 4,171,026 18,741,101 18,741,101 1,107,138 1,427,338 (692,305) 9,192,608 28,151,983 77,536,451 $ 31,073,018 $ 83,760,410 (continued) -20- This page intentionally left blank. City of West Covina Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position June 30, 2019 Fund balances for governmental funds Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets and accumulated depreciation, are not considered current financial resources in the governmental funds (this does not include internal service fund net capital assets of $480,745): Capital assets Less accumulated depreciation Long-term debt and compensated absences applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities, both current and long-term are reported in the Statement of Net Position (this does not include internal service fund long-term liabilities of $10,067,893): Bonds payable (including premium) Compensated absences (less internal service $11,710) Notes payable Net pension liability Net OPEB liability Accrued interest payable for the current portion of interest due on bonds payable has not been reported in the governmental funds. $ 77,536,451 $ 429,453,690 (231,959,235) 197,494,455 (41,007,613) (4,246,961) (9,762,679) (186,813,317) (58,697,077) (300,527,647) (157,187) Deferred inflows and outflows of resources related to pensions and OPEB that have not been included in the government fund activity Deferred outflows of resources - pension related 27,771,055 Deferred outflows of resources - OPEB related 2,398,678 Deferred inflows of resources - pension related (2,989,630) Deferred inflows of resources - OPEB related (6,701,986) 20,478,117 Internal service funds were used by management to charge the costs of certain activities, such as vehicle and equipment maintenance and replacement, the City's self-insurance programs and retirement health benefits to individual funds. The assets and liabilities of the internal service funds must be added to the Statement of Net Position. Net position of governmental activities The accompanying notes are an integral part of these financial statements. -21- 2,951,376 $ (2,224,435) City of West Covina Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds For the Year Ended June 30, 2019 Special Revenue Funds West Covina City General Housing Debt Fund Authority Service Fund REVENUES Taxes $ 51,458,750 $ $ Special assessments - Licenses and permits 1,140,622 Fines and forfeitures 1,318,333 - Investment income 1,272,435 415,877 86,598 Rental income 647,749 - - Revenue from other agencies 2,373,944 50,000 1,287,692 Charges for services 7,067,877 - 371,388 Other revenues 138,161 29,375 Total revenues 65,417,871 495,252 1,745,678 EXPENDITURES Current: General government 6,686,570 - - Public safety 53,104,099 124,183 Public works 4,372,731 - Community services 2,337,601 - Community development 589,255 421,963 - Debt service: Principal 1,218,918 - 12,135,000 Interest and fiscal charges 319,711 1,371,605 Bond issuance costs 389,726 Total expenditures 68,628,885 546,146 13,896,331 Excess (deficiency) of revenues over (under) expenditures (3,211,014) (50,894) (12,150,653) OTHER FINANCING SOURCES (USES) Refunding bonds issued 24,165,000 Premium of refunding bonds issued 1,380,718 Payment to refunded bond escrow agent - (12,900,000) Transfers in 140,000 Transfers out (121) - Total other financing sources (uses) 139,879 12,645,718 Net change in fund balances (3,071,135) (50,894) 495,065 Fund balances, beginning of year 22,252,831 24,725,216 5,033,385 Fund balances, end of year $ 19,181,696 $ 24,674,322 $ 5,528,450 The accompanying notes are an integral part of these financial statements. -22- Non -Major Total Governmental Governmental Funds Funds $ 11,018,692 $ 62,477,442 6,347,182 6,347,182 - 1,140,622 - 1,318,333 234,061 2,008,971 - 647,749 8,869,625 12,581,261 34,658 7,473,923 975,123 1,142,659 27,479,341 95,138,142 141,450 6,828,020 4,977,515 58,205,797 10,428,205 14,800,936 4,953,174 7,290,775 74,910 1,086,128 13,353,918 1,691,316 389,726 20,575,254 103,646,616 6,904,087 (8,508,474) 24,165,000 1,380,718 - (12,900,000) 9,121 149,121 (9,000) (9,121) 121 12,785,718 6,904,208 4,277,244 21,247,775 73,259,207 $ 28,151,983 $ 77,536,451 (continued) -23- City of West Covina Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2019 Net change in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: $ 4,277,244 Governmental funds report capital outlay as expenditures. However in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlays and disposals in the current period: (this does not include the following internal service fund activity: depreciation expense of $67,283). Capital outlay $ 3,868,896 Depreciation expense (11,291,821) Capital asset deletion (6,346) Construction in progress deemed not viable (254,758) (7,684,029) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Debt issuance (proceeds and premium) (25,545,718) Principal payments on long-term debt 26,253,918 708,200 The Statement of Net Position includes accrued interest on long-term debt. This is the net change in the current year. (42,124) Change in revenues that are measureable but not available are reported as unavailable revenue under the modified accrual basis of accounting. (1,534,300) Expenses reported in the Statement of Activities which do not require the use of current financial resources are not reported as expenditures in the governmental funds: (this does not include the following internal service fund activity: change in compensated absences of $3,862) Amortization of bond premium 53,105 Change in compensated absences 362,551 Pension & OPEB expense reported in the governmental funds includes the annual required contributions. In the Statement of Activities, pension & OPEB expense includes the in the net pension & net OPEB liability, and related changes in pension & OPEB amounts for deferred outflows of resources and deferred inflows of resources. (2,276,976) Internal service funds are used by management to charge the cost of certain activities, such as vehicle and equipment maintenance and replacement, the City's self-insurance, and retirement health benefits to individual funds. The net revenues (expenses) of the internal service funds is reported with governmental activities. 792,411 Change in net position of governmental activities $ (5,343,918) The accompanying notes are an integral part of these financial statements. -24- City of West Covina Statement of Net Position Proprietary Funds June 30, 2019 Business -type Governmental Activity Activities Computer Service Internal Enterprise Service Fund Funds ASSETS Current Assets: Cash and investments $ - $ 12,598,425 Receivables, net Accounts 58,413 203,508 Due from other funds - 24,698 Inventories 30,174 Total current assets 58,413 12,856,805 Noncurrent Assets: Capital Assets: Capital assets 1,059,120 2,929,339 Less accumulated depreciation (1,059,120) (2,448,594) Total capital assets, net 480,745 Total noncurrent assets 480,745 Total assets 58,413 13,337,550 LIABILITIES Current Liabilities: Accounts payable 6,502 315,981 Other accrued liabilities 16,599 2,300 Claims and judgments - current portion - 5,031,848 Compensated absences - current portion 44,183 8,245 Due to other funds 270,182 Total current liabilities 337,466 5,358,374 Noncurrent Liabilities: Claims and judgments - 5,024,335 Compensated absences 47,332 3,465 Total noncurrent liabilities 47,332 5,027,800 Total liabilities 384,798 10, 386,174 NET POSITION (DEFICIT) Net investment in capital assets - 480,745 Unrestricted (326,385) 2,470,631 Total net position (deficit) $ (326,385) $ 2,951,376 The accompanying notes are an integral part of these financial statements. -25- City of West Covina Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds For the Year Ended June 30, 2019 OPERATING REVENUES Charges for services Other revenues Total operating revenues OPERATING EXPENSES Personnel services Cost of sales, services and operations Depreciation Insurance and claims paid Total operating expenses Operating income (loss) NONOPERATING REVENUES Investment income Total nonoperating revenues Loss before transfers Transfers out Change in net position Net position (deficit), beginning of year Net position (deficit), end of year Business -type Governmental Activity Activities Computer Service Internal Enterprise Service Fund Funds $ 1,099,028 $ 7,750,484 112,207 101,986 1,211,235 7,852,470 965,945 171,504 297,748 1,675,321 - 67,283 5,013,555 1,263,693 6,927,663 (52,458) 924,807 1,083 7,604 1,083 7,604 (51,375) 932,411 (140,000) (51,375) 792,411 (275,010) 2,158,965 $ (326,385) $ 2,951,376 The accompanying notes are an integral part of these financial statements. -26- City of West Covina Statement of Cash Flows, Proprietary Funds For the Year Ended June 30, 2019 Business -type Governmental Activity Activities Computer Service Internal Enterprise Service Fund Funds CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 1,163,663 $ 7,649,456 Payments to suppliers for goods and services (298,046) (6,897,676) Payments to employees for services (967,973) (167,643) Net cash provided by (used for) operating activities (102,356) 584,137 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Due (to) from other funds Transfers to other funds Paid to other funds Net cash provided by (used for) non -capital financing activites CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 101,273 - (140,000) (24,698) 101,273 (164,698) 1,083 7,924 172,781 12,425,644 $ - $ 12,598,425 The accompanying notes are an integral part of these financial statements. -27- 11/16/2020 Print Staff Report (Attachment No. 6). The audit film of Rogers, Anderson, Malody & Scott, LLP has issued an unmodified (`clean') opinion on the financial statements for the year ended June 30, 2019. Prepared by: Stephen Parker, Accounting Manager Additional Robbeyn Bird, Finance Director Approval: Fiscal Impact FISCAL IMPACT: There is no fiscal impact associated with this item. Attachments Attachment No. 1 - Comprehensive Annual Financial Report for the Year Ended June 30, 2019 Attachment No. 2 - Audit Communication Letter Attachment No. 3 - Single Audit Report on Federal Awards for the Year Ended June 30, 2019 Attachment No. 4 - West Covina Housing Authority Fund Financial Report Attachment No. 5 - West Covina Housing Authority Fund Addendum to the Annual Progress Report Attachment No. 6 - Air Quality Improvement Fund Financial Statements CITY Achieve Fiscal Sustainability and Financial Stability COUNCIL Respond to the Global COVID-19 Pandemic GOALS & OBJECTIVES: https://destinyhosted.com/print_ag_memo.cfm?seq=718&rev_num=0&mode=Extemal&reloaded=true&id=93782 5/5 City of West Covina Statement of Cash Flows, (Continued) Proprietary Funds For the Year Ended June 30, 2019 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities: Depreciation (Increase) Decrease in operating assets: Accounts receivable Other receivables Inventories Increase (Decrease) in operating liabilities: Accounts payable Other accrued liabilities Claims and judgments payable Compensated absences payable Net cash provided by (used for) operating activities Business -type Governmental Activity Activities Computer Service Internal Enterprise Service Fund Funds $ (52,458) $ 924,807 67,283 (53,800) (203,508) 6,228 494 - (3,225) (389) 21,528 91 388 - (227,491) (2,028) 3,861 $ (102,356) $ 584,137 The accompanying notes are an integral part of these financial statements. -28- City of West Covina Statement of Fiduciary Net Position Fiduciary Funds June 30, 2019 ASSETS Cash and investments Cash and investments with fiscal agent Restricted cash and investments Receivables, net: Taxes Interest Assessments Other Due from City of West Covina Land held for resale Total assets LIABILITIES Accounts payable Accrued liabilities Interest payable Due to other governments Deposits Advances from the City of West Covina Long-term liabilities: Due to County Auditor Controller Due within one year Due in more than one year Total liabilities NET POSITION (DEFICIT) Held in trust for Successor Agency Held in trust for pension benefits Total net position (deficit) Successor Agency Private Pension Special Purpose Trust Deposits Trust Fund Funds Agency Fund $ 10,305,131 $ 677,322 $ 1,917,047 9,287,734 - - 1,833,407 476,070 2,517 16,465,000 - - 1,956 9,262,679 139,016 47,771,554 677,322 $ 1,919,003 61,933 515 452,343 120,876 8,657,571 9,262,679 6,966,807 86,819,591 112,342,315 $ 52,284 1,866,719 - $ 1,919,003 (64,570,761) - 677,322 $ (64,570,761) $ 677,322 The accompanying notes are an integral part of these financial statements. -29- City of West Covina Statement of Changes in Fiduciary Net Position Fiduciary Funds For the Year Ended June 30, 2019 ADDITIONS Taxes Employer contribution Investment income Rental income Other revenues Total additions DEDUCTIONS Program administration Administrative costs Benefit distributions Interest and fiscal charges Total deductions Change in net position Net position (deficit), beginning of year Net position (deficit), end of year Successor Agency Private Pension Purpose Trust Trust Fund Funds $ 16,100,010 $ - 140,452 612,676 39,127 50,000 - 671,390 17,434,076 179,579 11,248,424 - - 3,879 - 233,231 1,512,242 12,760,666 237,110 4,673,410 (57,531) (69,244,171) 734,853 $ (64,570,761) $ 677,322 The accompanying notes are an integral part of these financial statements. -30- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) Basis of Presentation The basic financial statements of the City of West Covina, California (the City) have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard -setting body for establishing governmental accounting and financial reporting principles. The City's significant accounting policies are described below: B) Description of Reporting Entity The City was incorporated on February 23, 1923 under the general laws of the State of California. The accompanying financial statements present the City and its component units; entities for which the City is considered to be financially accountable. The City is considered to be financially accountable for an organization if the City appoints a voting majority of that organization's governing body and the City is able to impose its will on that organization or there is a potential for that organization to provide specific financial benefits to or impose specific financial burdens on the City. The City is also considered to be financially accountable for an organization if that organization is fiscally dependent (i.e., it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval from the City). In certain cases, other organizations are included as component units if the nature and significance of their relationship with the City are such that their exclusion would cause the City's financial statements to be misleading or incomplete. Because each component unit meets the above -mentioned criteria, included within the financial reporting entity of the City are the City of West Covina Housing Authority, the West Covina Public Financing Authority, the Parking Authority of the City of West Covina, and the West Covina Community Services Foundation, Inc. A brief description of each component unit follows: The West Covina Housing Authority (the Housing Authority) was formed on January 17, 2012 and is responsible for the administration of providing affordable housing in the City. The Housing Authority is administered by a Board which consists of members of the City Council. The transactions of the Housing Authority are reported as a special revenue fund. The West Covina Public Financing Authority (the Authority) was created by a joint powers agreement between the City and the Community Development Commission of the City on June 1, 1990. The purpose of the Authority is to provide, through the issuance of debt, financing necessary for various capital improvements. The Authority is administered by the Board who are the members of the City Council. The Authority's sole source of income is installment sale, loan and lease payments received from the City and former Community Development Commission (the Commission) which are used to meet the debt service requirements on debt issues. The Authority is blended into the debt service fund of the City. -31- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) B) Description of Reporting Entity, (continued) The Parking Authority of the City of West Covina (the Parking Authority) was formed under the provision of the government code of the State of California for the purpose of financing and constructing parking facilities for lease to the City. The City Council acts as the governing body of the Parking Authority and is able to impose its will on the Parking Authority. It is a component unit of the City, and the financial statements of the Parking Authority are included within the financial statements of the City using the blended method. The Parking Authority has been inactive since 1999. The West Covina Community Services Foundation. Inc. (the Foundation) was established on July 26, 2005 as a nonprofit public benefit corporation. It was organized and operates exclusively for charitable purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. The Foundation is administered by the Board of Directors who are the members of the City Council. The Foundation is blended into the special revenue funds of the City. Since the City Council serves as the governing board for these component units, all of the City's component units are considered to be blended component units. Blended component units, although legally separate entities, are in substance, part of the City's operations and so data from these units are reported with the interfund data of the primary government. Except for the Housing Authority, these component units do not issue component unit financial statements. Separate financial statements for the Housing Authority can be obtained from the City of West Covina, City Hall. C) Basis of Accounting and Measurement Focus The basic financial statements of the City are composed of the following: • Government -wide financial statements • Fund financial statements • Notes to basic financial statements -32- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C) Basis of Accounting and Measurement Focus, (continued) 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). 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 City. Interfund services provided and used are not eliminated in the process of consolidation. The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. 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. 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 transactions are recognized in accordance with the requirements of Generally Accepted Accounting Principles. 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 and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. Taxes and other items not included among program revenues are reported as general revenues. Amounts paid to acquire capital assets are capitalized as assets in the government -wide financial statements, rather than reported as an expenditure. Proceeds of long-term debt are recorded as a liability in the government -wide financial statements rather than as an 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. -33- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C) Basis of Accounting and Measurement Focus, (continued) Fund Financial Statements The underlying accounting system of the City 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, deferred outflows of resources, liabilities, deferred inflows of resources, 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 the major funds individually and other governmental funds in the aggregate for governmental funds. Fiduciary statements represent assets held by the City in a custodial capacity for other individuals or organizations in the private purpose trust, pension trust, and agency funds. Governmental Funds In the fund financial statements, governmental funds are presented using the modified - accrual basis of accounting. Their revenues are recognized when they become measurable and available. 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. Revenue recognition is subject to the measurable and available criteria for the governmental funds in the fund financial statements. Significant revenues subject to the criteria include taxes, licenses and permits, and intergovernmental revenues. 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. -34- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C) Basis of Accounting and Measurement Focus, (continued) Governmental Funds, (continued) In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets, deferred outflows of resources, current liabilities and deferred inflows of resources are generally included on their balance sheets. The reported fund balance 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 fund balance. Accordingly, they are said to present a summary of sources and uses of "available spendable resources' during a period. Revenues, expenditures, assets, and liabilities resulting from non -exchange transactions are recognized in accordance with the requirements of Generally Accepted Accounting Principles. The City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Therefore, recognition of governmental fund type revenue represented by receivables is reported as deferred inflows of resources until they meet the "availability" criteria. Sales taxes, property taxes, franchise taxes, revenue from other agencies, rental income, occupancy taxes and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period to the extent normally collected within the availability period. Other revenue items are considered to be measurable and available when cash is received by the government. The availability period for all revenues is 60 days. 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 other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures rather than as a reduction of a fund liability. -35- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) C) Basis of Accounting and Measurement Focus, (continued) Proprietary and Fiduciary Funds The City's enterprise and internal service funds are proprietary funds. In the fund financial statements, the proprietary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets, deferred outflows of resources, liabilities, and deferred inflows of resources (whether current or noncurrent) associated with their activity are included on their statement of net position. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net position. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non -operating revenues, such as subsidies, taxes, and investment earnings result from non -exchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the enterprise fund financial statements rather than reported as an expenditure. Proceeds of long-term debt are recorded as a liability in the enterprise fund financial statements rather than as another financing source. Amounts paid to reduce long-term indebtedness of the enterprise fund are reported as a reduction of the related liability rather than as an expenditure. The City's fiduciary private purpose and pension trust funds are accounted for using the economic resources measurement focus and accrual basis of accounting. The private purpose trust fund accounts for the assets held by the City for the Successor Agency to the former Community Development Commission of the City. The pension trust fund account for assets and activities of the Public Agency Retirement System Enhancement and Supplemental Retirement defined benefit pension plans. The City's fiduciary agency funds have no measurement focus but utilize the accrual basis for reporting its assets and liabilities. Because these funds are not available for use by the City, fiduciary funds are not included in the governmental -wide statements. -36- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D) Fund Classifications The City reports the following major governmental funds: General Fund This fund is the City's primary operating fund. It accounts for all financial resources of the City except those required to be accounted for in another fund. West Covina Housing Authority Special Revenue Fund This fund is used to account for assets and related income received from the former Community Development Commission to be used for the administration of providing affordable housing in the City. Debt Service Fund — City Debt Service This fund accounts for the payment of principal, interest, and related costs on the City's long-term debt issues. The City reports the following major proprietary fund: Computer Service Enterprise Fund This fund is used to account for operations that are financed and operated in a manner similar to private business enterprises. The City's enterprise fund is used to account for computer services provided by the Police Department to other public agencies. Additionally, the City reports the following fund types: Non -Major Governmental Fund Types Special Revenue Funds — These funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. Capital Projects Funds — These funds are used to account for the purchase or construction of major capital facilities which are not financed by Proprietary Funds. Capital Projects Funds are ordinarily not used to account for the acquisition of furniture, fixtures, machinery, equipment and other relatively minor or comparatively short-lived capital assets. -37- CAI/� WEST COVINA CITY OF WEST COVINA COMPREHENSIVE ANNUAL FINANCIAL RIPORT FISCAL YEAR ENDED JUNE 50, WWW.WESTCOVINA.ORG City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D) Fund Classifications, (continued) Proprietary Fund Types Internal Service Funds — These funds are used to account for vehicle and equipment maintenance and replacement, for the City's self-insurance programs, and for retirement health savings plans for qualified City employees. Departments of the City are charged for the services provided or benefits received from these funds. Fiduciary Fund Types Successor Agency Private Purpose Trust Fund — This fund is used to account for the assets and activities of the Successor Agency to Community Development Commission of the City of West Covina. Pension Trust Funds — These funds are used to account for the assets and activities of the Public Agency Retirement System Retirement Enhancement and Supplemental Retirement plans. Special Deposits Agency Fund — This fund accounts for developer funds placed on deposit with the City pending either a return to the depositor or disbursement by the City on behalf of the depositor to pay for studies and other developer expenses. E) Financial Statement Elements 1) Cash, Cash Equivalents, and Investments The City follows the practice of pooling cash and investments of all funds except for funds required to be held by outside fiscal agents under the provisions of bond indentures. Each fund's share in this pool is displayed in the accompanying financial statements as cash and investments. Interest income earned on pooled cash and investments is allocated monthly to the various funds based on the month -end cash and investment balances. Interest income from cash and investments with fiscal agents is credited directly to the related fund. The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Investments are reported at fair value. The State Treasurer's Investment Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares. -38- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 2) Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds' (i.e., the non -current portion of interfund loans). Any residual balances outstanding between the governmental activities and business -type activities are reported in the government -wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. 3) Inventory Inventory is stated at average cost. Physical counts of inventory are taken on a cyclical basis during each fiscal year with perpetual records adjusted to actual at that time. The City uses the consumption method of accounting for inventory. 4) Prepaid Items Certain payments to vendors for costs applicable to future accounting periods are recorded as prepaid items in both government -wide and fund financial statements using the consumption method. 5) Notes Receivable The accompanying financial statements reflect the recording of certain notes receivable that represent loans made to private developers and other parties. In certain cases, the amount of collection is dependent upon future residual receipts to be generated by the property or contingent upon the ability of the owner to sell the property at an amount sufficient to pay all liens against the property. 6) Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position and the governmental funds balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The City has one item that qualifies for reporting in this category, which is the deferred outflow related to pensions. -39- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 6) Deferred Outflows/Inflows of Resources, (continued) In addition to liabilities, the Statement of Net Position and the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The City has two items that qualify for reporting in this category. The first item is unavailable revenues, which arise only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, unavailable revenues are reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from two sources: taxes and grants. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. The second item is a deferred inflow of resources related to pensions. 7) Net Position Flow Assumptions Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government -wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City's practice to consider restricted net position to have been depleted before unrestricted net position is applied. 8) 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 go into a pool, and are then allocated to the cities based on complex formulas. Accordingly, the City of West Covina accrues only those taxes which are received within 60 days after year end. The property tax calendar is as follows: Lien Date: January 1 Levy Date: July 1 Due Dates: First Installment — November 1 Second Installment — February 1 Delinquency Dates: First Installment — December 10 Second Installment —April 10 -40- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 8) Property Taxes, (continued) Taxes are collected by Los Angeles County and are remitted to the City periodically. Dates and percentages are as follows: December 20 40% Advance January 17 10% Advance February 20 Collection No. 1 April 18 35% Advance May 20 Collection No. 2 July 18 Collection No. 3 9) Capital Assets Capital assets greater than $5,000 and infrastructure greater than $100,000 are capitalized and recorded at cost or at an estimated fair value of the assets at the time of acquisition where complete historical records do not exist. Contributed capital assets are valued at their acquisition value at the date of the contribution. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets include public domain infrastructure assets consisting of certain improvements other than buildings, including roads, bridges, curbs and gutters, streets and sidewalks, medians, sewer and storm drains. Depreciation has been provided using the straight-line method over the estimated useful life of the assets in the government -wide financial statements and in the fund financial statements of the proprietary and the private -purpose trust funds. Depreciation starts the year following acquisition. Interest is capitalized on proprietary fund assets acquired with tax-exempt debt. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until completion of the project with interest earned on invested proceeds over the same period. There was no interest capitalized during the year ended June 30, 2019 since the proprietary funds have no debt utilized to construct capital assets. -41- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 9) Capital Assets, (continued) Capital assets are depreciated using the straight-line method over the following estimated useful lives: Governmental activities: Infrastructure - pavement 25 years Infrastructure - other 20-75 years Buildings 20-50 years Improvements other than buildings 20-50 years Equipment and vehicles 5-25 years Business -type activities: Equipment and machinery 5-25 years 10) Claims and Judgments The City records a liability for litigation, judgments, and claims when it is probable that an asset has been impaired or a liability (including claims incurred but not reported) has been incurred prior to year-end and the probable amount of loss (net of any insurance coverage) can be reasonably estimated. This liability is recorded in the internal service fund that accounts for the City's self-insurance activities. 11) Compensated Absences A liability is recorded for unused vacation and similar compensatory leave balances since the employees' entitlement to these balances are attributable to services already rendered and it is probable that virtually all of these balances will be liquidated by either paid time off or payments upon termination or retirement. A liability is recorded for unused sick leave balances only to the extent that it is probable that the unused balances will result in termination payments. This is estimated by including in the liability the unused balances of employees currently entitled to receive termination payment, as well as those who are expected to become eligible to receive termination benefits as a result of continuing their employment with the City. Other amounts of unused sick leave are excluded from the liability since their payment is contingent solely upon the occurrence of a future event (illness) which is outside the control of the City and the employee. The General Fund and Computer Service Enterprise Fund typically have been used to liquidate the liability for compensated absences. -42- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 12) Long -Term Obligations In the government -wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed during the current period. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 13) Reclassifications and Eliminations Interfund balances must generally be eliminated in the government -wide statements except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated so that the expenses are reported only once in the function in which they are allocated. 14) Use of Estimates The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. 15) Pension Plans For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City's California Public Employees' Retirement System (CaIPERS) and Public Agency Retirement System plans (PARS) and additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CalPERS and PARS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. -43- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 15) Pension Plans, (continued) Generally accepted accounting principles require that the reported results for pensions must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used for CaIPERS: Valuation Date (VD) Measurement Date (MD) Measurement Period (MP) The following timeframes are used for PARS: Valuation Date (VD) Measurement Date (MD) Measurement Period (MP) 16) Other Postemployment Benefits (OPEB) June 30, 2017 June 30, 2018 July 1, 2017 to June 30, 2018 June 30, 2017 June 30, 2018 July 1, 2017 to June 30, 2018 For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City's plan (OPEB Plan) and additions to/deductions from the OPEB Plan's fiduciary net position have been determined on the same basis. For this purpose, benefit payments are reported at fair value. Generally accepted accounting principles require that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date (VD) Measurement Date (MD) Measurement Period (MP) June 30, 2017 June 30, 2018 July 1, 2017 to June 30, 2018 -44- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 2) CASH AND INVESTMENTS Cash and investments are classified in the accompanying financial statements as follows: Statement of Net Position: Cash and investments $ 59,862,168 Cash and investments with fiscal agents 2,565,004 Restricted cash and investments 505,820 Statement of Fiduciary Net Position: Cash and investments 12,899,500 Cash and investments with fiscal agents 9,287,734 Restricted cash and investments 1,833,407 Total Cash and Investments $ 86,953,633 Cash and investments at June 30, 2019 consisted of the following: Cash on hand $ 15,900 Deposits with financial institutions 25,800,307 Investments 61,137,426 Total Cash and Investments $ 86,953,633 -45- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 2) CASH AND INVESTMENTS, (continued) Investments Authorized by the California Government Code and the City's Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code and the City's investment policy. This table also identifies certain provisions of the California Government Code (or the City's investment policy, if more restrictive) that addresses interest rate risk and concentrations of credit risk. This table does not address investments of debt proceeds held by bond trustees that are governed by the provisions of debt agreements of the City and investments in the City's retirement enhancement and supplemental retirement defined benefit pension trust funds that are in the Public Agency Retirement Plans (PARS Trust Pool), rather than the general provisions of the California Government Code or the City's investment policy. Authorized Maximum Maximum Investment Types by Investment Maximum Percentage Investment Authorized by State Law Policy Maturity* of Portfolio* in One Issuer* U.S. Treasury Obligations Yes 5 years None None U.S. Government Sponsored Agency Securities Yes 5 years None None Municipal Securities Yes 5 years 30% 5% Supernationals Yes 5 years 30% 10% Medium -Term Notes Yes 5 years 30% 5% Collateralized Certificate of Deposit Yes 5 years 25% 25% Negotiable Certificate of Deposit Yes 5 years 30% 30% Banker's Acceptance Yes 180 days 40% 30% Commercial Paper Yes 270 days 25% 5% Asset -Backed Securities Yes 5 years 20% 20% Money Market Mutual Funds Yes N/A 20% 10% Repurchase Agreements Yes 100 days 20% 20% County Pooled Investment Funds Yes N/A None None Local Agency Investment Fund Yes N/A None $65,000,000 * Based on state law requirements or investment policy requirements whichever is more restrictive. -46- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 2) CASH AND INVESTMENTS, (continued) Investments Authorized by Debt Agreements Investments 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 City's investment policy. The table below identifies the investment types that are generally authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk. Maximum Authorized Investment Type U.S. Treasury Obligations U.S Government Sponsored Agency Securities Certificates of Deposit Banker's Acceptance Commercial Paper Repurchase Agreements Local Agency Investment Fund Investment Agreements Money Market Funds Maximum Maximum Maximum Percentage Investment Maturity Allowed in One Issuer None None None None None None None None None 360 to 365 days None None 180 to 365 days None None 30 days to 6 months None None None None None None None None None None None Investments Authorized by Pension Trust Agreements Investments of pension trust fund contributions held by the trustee are governed by the trust agreements. The City selected an investment strategy allowed by the trust agreements with the objective of providing current income and moderated capital appreciation. The strategic ranges for the investment strategy selected by the City are as follows: 5% Cash 45% Fixed Income 48.50% Equities 1.50% REIT 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 is the sensitivity of its fair value to changes in market interest rates. One of the ways that the City 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. -47- City of West Covina, California COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2019 Prepared by the West Covina Finance Department City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 2) CASH AND INVESTMENTS, (continued) Interest Rate Risk, continued Information about the sensitivity of the fair values of the City'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 City's investments by maturity: Less than 1 to 3 3 to 5 Investment Type 1 year Years Years Total Los Angeles County Investment Pool $ 38,920,208 $ - $ $ 38,920,208 U.S. Treasury Obligations 2,090,874 3,308,282 5,399,156 U.S. Government Sponsored Agency Securities - 7,220,216 7,220,216 Supranational 2,173,931 2,173,931 U.S. Corporate 5,114,025 5,114,025 Money Market Mutual Funds 968,876 - 968,876 Asset -Backed Securities - 663,692 663,692 Subtotal $ 41,979,958 $ 18,480,146 $ 60,460,104 PARS Trust Pool 677,322 Total Investments $ 61,137,426 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 the California Government Code, the City's investment policy, or debt agreements and the actual rating as of year-end by Standard Poor's or Moody for each investment type: Minimum Total Legal as of Not Investment Type Rating' June 30, 2019 AAA AA+ AA- AA A+ A Rated Los Angeles County lnvestrnent Pool N/A $ 38,920,208 $ - $ - $ - $ - $ - $ - $38,920,208 U.S. Treasury Obliga8ans WA 5,399,156 5,399,156 - - - - - - U.S. Ggvemment Sponsored Agency Secur'Nes N/A 7,220.216 7,220,216 - - - - - - Commercial Paper A-1 - - - - - - Sup—ational AA/A-1+ 2.173,931 2,173,931 - U.S.Corpomte A 5,114,025 607,809 501,586 250,017 454,978 371,989 2,927,646 - Money market mutual fund. AAA W8,876 968,876 - - - - - - Asset -Backed Sew b. AA 663,692 663,692 - - - - - PARSTTustPcol WA 677,322 677,322 Total $ 61,137,426 $17,033,680 $ 501,586 $ 250,017 $ 454,978 $ 371,989 $ 2,927,646 $ 39,597,530 -48- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 2) CASH AND INVESTMENTS, (continued) Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. There was no investments in any one issuer (other than U.S. Government Agencies, Supranationals, Money Market Funds, and external investment pools) that represent 5% or more of total City investments. 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 City'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 provisions for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. All the City's deposits are either federally insured or collateralized as of June 30, 2019. Investments held by bond trustee are selected under the terms of the applicable trust agreement. The trustee acquires the investment and holds the investment on behalf of the reporting government. Investment in County Investment Pool The City is a voluntary participant in the Los Angeles County Investment Pool (LACIP) that is regulated by the California Government Code and the Los Angeles County Board of Supervisors under the oversight of the Los Angeles County Treasurer -Tax Collector. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amount based upon the City's pro-rata share of the fair value provided by LACIP for the entire LACIP portfolio. The balance for withdrawal is based on the accounting records maintained by LACIP, which are recorded on an amortized cost basis. -49- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 2) CASH AND INVESTMENTS, (continued) Fair Value Measurements Generally accepted accounting principles requires classifying investments under a fair value hierarchy consisting of three broad levels: Level 1 inputs consist of quoted prices (unadjusted) for identical assets and liabilities in active markets that a government can access at the measurement date, Level 2 inputs consist of inputs other than quoted prices that are observable for an asset or liability, either directly or indirectly, and Level 3 inputs have the lowest priority and consist of unobservable inputs for an asset or liability. The following table presents the balances of the assets measured at fair value on a recurring basis as of June 30, 2019: Fair Value Measurement Using Investments by Fair Value Level Total Level 1 Level 2 Level 3 U.S. Treasury Obligations U.S. Government Sponsored Agency Securities Supranational U.S. Corporate Asset -Backed Securities Total Investments by Fair Value Level Investments Measured at Net Asset Value (NAV) or not subject to the fair value hierarchy: $ 5,399,156 $ - $ 5,399,156 $ 7,220,216 7,220,216 2,173,931 2,173,931 5,114,025 5,114,025 663,692 663,692 20,571,020 $ $ 20,571,020 $ Los Angeles County Investment Pool 38,920,208 Money market mutual funds 968,876 PARS Trust Pool 677,322 Total $ 61,137,426 Level 2 investments are valued using a Continuous Fixed Income Evaluated Pricing service. -50- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 3) INTERFUND RECEIVABLES AND TRANSFERS Interfund transactions — Due to/due from interfund borrowings Interfund receivable and payable balances at June 30, 2019 were as follows: Receivable Fund General Internal Service Payable Fund Fund Funds Total General Fund $ - $ 24,698 $ 24,698 Non -Major Governmental Funds 501,259 - 501,259 Enterprise Fund 270,182 - 270,182 Total $ 771,441 $ 24,698 $ 796,139 These interfund payables represent temporary loans to cover negative cash balances Interfund transactions - Advances Receivable Fund Payable Fund General Fund Non -Major Governmental Funds $ 383,781 Advances between the General Fund and the Auto Plaza Improvement District non -major special revenue fund are for cash advanced for the replacement of the reader board sign at the Auto Plaza. Interfund transactions - Transfers The following schedule summarizes the City's transfer activity: Transfer In Non -Major Total General Governmental Transfers Transfers Out: Fund Funds Out General Fund $ $ 121 $ 121 Non -major Governmental Funds 9,000 9,000 Internal Service Funds 140,000 - 140,000 Total Transfers In: $ 140,000 $ 9,121 $ 149,121 -51- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 3) INTERFUND RECEIVABLES AND TRANSFERS, (continued) Interfund transactions — Transfers, (continued) The $140,000 transfer from Internal Service Funds to General Fund was to cover projected deficit. The $9,000 transfer within Non -major Governmental Funds was for shared services. 4) LONG-TERM RECEIVABLES FROM SUCCESSOR AGENCY Prior to the dissolution of the Commission's redevelopment activities on February 1, 2012, the City authorized several advances to be used for completing redevelopment projects throughout the community. As a result of the dissolution, the liabilities related to these advances were transferred to the Successor Agency. See Note 19 for additional information. The outstanding receivable side of these advances at June 30, 2019 was as follows: (a) The General Fund had made the several advances to the Commission totaling $8,100,000 for administrative and capital improvement construction costs ("General Advance"). Eighty percent (80%) of the balance is reported in the General Fund and the remaining twenty percent (20%) balance is reported in the West Covina Housing Authority Special Revenue Fund. (b) In May 2010, the Commission made an advance of $6,529,308 from the Low and Moderate Income Housing Capital Projects Fund to the Citywide Project Area Debt Service Fund to satisfy the Commission's Supplemental Educational Revenue Augmentation Fund (SERAF) obligation as required by Assembly Bill ABX4-26. The advance bears no interest. In May 2011, the Commission made an advance of $1,344,269 from the Low and Moderate Income Housing Capital Projects Fund to the Citywide Project Area Debt Service Fund to satisfy the SERAF obligation as required by Assembly Bill ABX4-26. The advance bears no interest and must be repaid by August 1, 2022. Effective February 1, 2012, the Commission's redevelopment activities were dissolved and the receivable side of these advances were retained by the Housing Authority. The "Dissolution Act" (AB 1x26 as amended by AB 1484) outlines the method of repayment for the General Advances and the SERAF Advances by the Successor Agency. -52- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 4) LONG-TERM RECEIVABLES FROM SUCCESSOR AGENCY, (continued) The Dissolution Act sets a defined schedule by which the general advances may be repaid. The repayment schedule is to span a reasonable term of years, with outstanding balances incurring interest at a rate not to exceed that earned by the funds deposited into the Local Agency Investment Fund ("LAIF"). Repayment of the general advances is subject to additional repayment limitations. Repayment commenced in the 2015-2016 fiscal year, annual payments are capped as determined by a specific formula, repayment of the general advances is on a lower payment priority than other obligations of the Successor Agency, and twenty percent (20%) of the repayment amount must be deposited in the LMIHF for the benefit of the Housing Authority. Total general advance and SERAF advance repayments made in the 2018-19 fiscal year were $622,728 and $2,314,389 respectively. The outstanding balances at June 30, 2019 were as follows: General advances $ 6,626,631 SERAF advances 2,030,940 Total advances to Successor Agency $ 8,657,571 5) NOTES AND LOANS RECEIVABLE The following notes and loans receivable were outstanding as of June 30, 2019: Housing rehabilitation $ 353,887 First time home buyers 239,516 Housing preservation program 657,739 Home improvement program 782,882 Lark Ellen Towers 6,305,325 Executive Lodge Apartments Limited Partnership 6,207,865 West Covina Senior Villas, LLC 2,833,333 West Covina Senior Villas II, L.P. 8,513,884 Other loans 608,196 Less allowance for doubtful accounts (12,057,040) Total $ 14,445,587 Several housing rehabilitation loans totaling $353,887 have been made to qualified applicants using Community Development Block Grants received by the City and housing set -aside funds of the former Commission's redevelopment activities. These loans bear interest up to 5% and are repaid when title to the property changes. The City has included 5% of the balance in the allowance for doubtful accounts. -53- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 5) NOTES AND LOANS RECEIVABLE, (continued) The Housing Authority has loans to first-time home buyers totaling $239,516. Loans are secured by second trust deeds and bear interest at 5%. Principal and interest are deferred for five years and are due monthly in years 6 through 30. There were 19 individual loans outstanding at June 30, 2019 ranging from $5,710 to $22,407. The City has included 5% of the balance in the allowance for doubtful accounts. The Housing Authority also has housing preservation loans to qualified applicants using housing set -aside funds totaling $657,739. Principal and interest are deferred for ten years; after the tenth year loans bear interest at 5%. Loans are repaid after the tenth year or when title to the property changes. There were 82 individual loans outstanding at June 30, 2019 ranging from $205 to $10,659. The City has included 5% of the balance in the allowance for doubtful accounts. Several housing improvement loans totaling $782,882 have been made to qualified applicants. The loans are secured by second trust deeds. The City has included 5% of the balance in the allowance for doubtful accounts. In May 1997, the Commission loaned $4,270,000 to Lark Ellen Towers. The loan was transferred to the Housing Authority from the dissolved former Commission. The loan is secured by a deed of trust. The loan accrues interest at 3% per annum and requires annual payments equal to the maximum of $35,000 or 50% of net profits earned by the project. The outstanding principal and accrued interest at June 30, 2019 was $6,305,325. In April 1998, the Commission loaned $5,622,300 to Executive Lodge Apartments Limited Partnership (Promenade Apartments project). The loan was transferred to the Housing Authority from the dissolved former Commission. The loan is secured by a deed of trust. The loan was amended and restated on April 1, 2017, with a principal of $6,056,621 accruing interest at 2.82% compounded annually and requires annual payments equal to 50% of "Available Cash Flow". The outstanding principal and accrued interest at June 30, 2019 was $6,207,865. In May 2002, the Commission loaned $4,360,000 to West Covina Senior Villas, LLC. The loan is secured by a deed of trust. The loan does not accrue interest. The loan requires annual payments of $141,667 through May 2032 that are forgiven by the City unless the borrower defaults on the agreement. The outstanding principal at June 30, 2019 was $2,833,333. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. In May 2009, the Commission entered into an agreement with West Covina Senior Villas II, L.P. to provide $8,600,000 for the acquisition of real property in the City and construction and maintenance of an approximately 65-unit apartment complex to be rented to low income and very low income senior citizens. The loan is secured by a deed of trust. The loan does not accrue interest and is forgiven so long as the borrower does not default on the loan. The outstanding principal at June 30, 2019 was $8,513,884. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. -54- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 5) NOTES AND LOANS RECEIVABLE, (continued) Other notes consist of affordable housing loans of $400,000. The notes do not accrue interest and are forgiven unless the borrower sells or refinances the property. Additionally, the balance included a note of $208,196 for low income housing which accrues no interest and is forgivable if the owner maintains the low and moderate income housing status. The outstanding principal of these loans combined at June 30, 2019 was $608,196. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. 6) LAND HELD FOR RESALE Land held for resale is valued at the lower of cost or the sales price per contract with the developer. The land held for resale at June 30, 2019 was comprised of land to be used as open space or a municipal golf course in the amount of $3,007,802. 7) CAPITAL ASSETS Capital asset activity was as follows for the year ended June 30, 2019: Governmental activities: Capital assets, not depreciated: Land Rights of way Construction in progress Total capital assets, not depreciated Capital assets, being depreciated Buildings and improvements Equipment and vehicles Infrastructure - pavement Infrastructure - other Total capital assets, being depreciated Less accumulated depreciation for: Buildings and improvements Equipment and vehicles Infrastructure - pavement Infrastructure - other Total accumulated depreciation Total capital assets, being Balance Balance June 30, 2018 Additions Deletions Transfers June 30, 2019 $ 48,821,968 $ - $ (6,346) $ - $ 48,815,622 14,376,498 - - - 14,376,498 4,631,796 3,233,123 (6,790,104) 1,074,815 67,830,262 3,233,123 (6,796,450) 64,266,935 112,946,422 2,101,799 - - 115,048,221 29,849,782 2,751,900 - - 32,601,682 194,359,251 2,533,211 - - 196,892,462 23,534,937 38,792 23,573,729 360,690,392 7,425,702 368,116,094 (44,213,353) (1,972,818) - - (46,186,171) (21,577,132) (2,246,237) - - (23,823,369) (139,539,107) (6,732,597) - - (146,271,704) (17,719,133) (407,452) - - (18,126,585) (223,048,725) (11,359,104) (234,407,829) depreciated, net 137,641,667 (3,933,402) 133,708,265 Total governmental activities $ 205,471,929 $ (700,279) $ (6,796,450) $ $ 197,975,200 Construction in progress not deemed viable of $254,758 is included in the deletions for the current year. -55- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 7) CAPITAL ASSETS, (continued) Depreciation expense (including $67,283 from Internal Service Funds) was charged to the following functions in the Statement of Activities for the year ended June 30, 2019 as follows: General government $ 265,691 Public safety 1,564,201 Public works 7,894,612 Community services 1,634,600 Total depreciation expense —governmental activities $ 11,359,104 Capital asset activity was as follows for the year ended June 30, 2019: Business -type activities: Balance Balance June 30, 2018 Additions Deletions June 30, 2019 Capital assets, being depreciated: Equipment and vehicles $ 1,059,120 $ $ $ 1,059,120 Less accumulated depreciation for: Equipment and vehicles (1,059,120) (1,059,120) Total business -type activities $ $ $ $ There was no depreciation expense charged to the computer service program for the year ended June 30, 2019. -56- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES The following is a summary of changes in long-term liabilities for governmental activities for the year ended June 30, 2019: Balance Balance Due Within Governmental activities: June 30, 2018 Additions Deletions June 30, 2019 One Year Long-term debt Direct borrowing: Notes payable $ 10,341,597 $ $ (578,918) $ 9,762,679 $ 578,918 Lease Revenue Bonds: 2002 Lease Revenue Refunding Bonds 13,475,000 - (13,475,000) - - 2004 Lease Revenue Bonds 9,395,000 - (9,395,000) - - 2006 Lease Revenue Bonds 16265000 - (405,000) 15,860,000 460,000 2013 Lease Revenue Refunding Bonds 2:055:000 (2,055,000) - - 2018 Lease Revenue Refunding Bonds - 24,165,000 (345,000) 23,820,000 795,000 Plus deferred amounts: Issuance premium 1,380,718 (53,105) 1,327,613 53,105 Total Lease Revenue Bonds 41,190,000 25,545,718 (25,728,105) 41,007,613 1,308,105 Subtotal long-term debt 51,531,597 25,545,718 (26,307,023) 50,770,292 1,887,023 Other long-term liabilities Compensated absences 4,617,360 3,376,683 (3,735,372) 4,258,671 2,157,026 Claims and judgments payable 10,283,674 2,507,859 (2,735,350) 10,056,183 5,031,848 Subtotal other long-term liabilities 14,901,034 6,884,542 (6,470,722) 14,314,864 7,188,874 Total long-term liabilities $ 66,432,631 $ 31,430,260 $ (32,777,745) $ 65,085,146 $ 9,075,897 The following is a summary of changes in long-term liabilities for business -type activities for the year ended June 30, 2019: Balance Balance Due Within Business -type activities: June 30, 2018 Additions Deletions June 30, 2019 One Year Compensated absences $ 93,543 $ 86,020 $ (88,048) $ 91,515 $ 44,183 Notes Payable — Direct Borrowing CVHP Note Payable On September 13, 2016, the City entered in to a note agreement for $500,000 with Citrus Valley Health Partners (CVHP) to finance the purchase of certain real property to expand Cameron Park. The promissory note was part of the negotiations for the potential sale of Sunset Field to CVHP and bears no interest. The City has granted to CVHP the option to purchase the Sunset Field before the expiration date as set forth in the Memorandum of Option. The City has the right to prepay the outstanding principal amount in whole or in part without penalty. The full principal amount will be credited to Lender against the purchase price payable if Lender acquires the Sunset Field from the City. The outstanding balance at June 30, 2019 was $500,000. -57- This page intentionally left blank. City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES, (continued) Notes Payable, (continued) Successor Agency Note On December 4, 2015, the City and Successor Agency entered into a settlement agreement with the California Department of Finance (DOF) regarding the Other Funds Due Diligence Review. The agreement requires the City to repay the Successor Agency $11,578,351 for transfers that did not represent enforceable obligations. The Successor Agency will then remit these funds to the Los Angeles County Auditor -Controller for allocation to the affected taxing entities. The amount of the note must be repaid through biannual payments in the amount of $289,459 each January 15th and June 15th until the loan is repaid in full on June 15, 2035. There is no interest charged on this repayment. The outstanding balance at June 30, 2019 was $9,262,679. The annual debt service requirements on the Successor Agency note as of June 30, 2019 were as follows: Year Ending June 30, Principal 2020 $ 578,918 2021 578,918 2022 578,918 2023 578,918 2024 578,918 2025-2029 2,894,590 2030-2034 2,894,590 2035 578,909 Total $ 9,262,679 Lease Revenue Bonds 2002 Lease Revenue Refunding Bonds, Series A and B (Public Facilities Project) On June 25, 2002, the City issued $2,690,000 of Taxable Variable Rate Lease Revenue Refunding Bonds, 2002 Series A and $19,205,000 Variable Rate Lease Revenue Refunding Bonds, 2002 Series B to provide financing for the advance refunding of the City's 1997 Refunding Certificates of Participation. The entire Series A principal amount of $2,690,000 was paid in full in September 2005. -58- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES, (continued) Lease Revenue Bonds, (continued) 2002 Lease Revenue Refunding Bonds, Series A and B (Public Facilities Project), (continued) The Series B bonds initially bear interest at 2.5% per annum and, during the initial rate period, interest on the Series B bonds is payable on March 1, 2003, and semiannually thereafter on September 1 and March 1 of each year until September 1, 2006. Thereafter, interest with respect to the Series B bonds is payable on October 1, 2006, and each month thereafter at a variable rate, and after the fixed rate conversion date at the fixed rates. The Series B bonds have not been converted to the fixed rate as of June 30, 2018. Principal on the Series B bonds is due annually on September 1, in amounts ranging from $495,000 to $950,000. The Series B bonds mature on September 1, 2035. The Series B bonds are payable from lease payments to be made by the City to the Authority as rental for certain public facilities consisting of a portion of the City's Civic Center Complex. In connection with this issuance of the 2002 Lease Revenue Bonds, the City obtained a letter of credit as a credit facility for the bonds. The letter of credit was due to expire on June 26, 2012. Prior to the expiration of the letter of credit, on June 1, 2012, the 2002 Lease Revenue Bonds were directly purchased by Wells Fargo Bank, National Association. The 2002 Lease Revenue Bonds, Series A and B were redeemed of June 30, 2019 2004 Lease Revenue Bonds, Series A and B (Golf Course Project) In August 2004, the City issued $8,165,000 of Variable Rate Lease Revenue Bonds, Series A and $5,335,000 of Variable Rate Lease Revenue Bonds, Series B to provide financing for grading and infrastructure relating to the City's proposed municipal golf course. The Series A bonds mature annually through May 1, 2034, in amounts ranging from $185,000 to $460,000. The Series B bonds mature annually through May 1, 2034, in amounts ranging from $140,000 and $350,000. The Series A and B bonds bear interest at a variable rate reset weekly and at a fixed rate after the fixed rate conversion date. Prior to the fixed rate conversion date, interest is payable on the first business day of each month. Following the fixed rate conversion date, interest is payable on May 1 and November 1 of each year. The Series A and B bonds have not been converted to the fixed rate as of June 30, 2018. The bonds are payable from lease payments as rental for certain public facilities. The 2004 Lease Revenue Bonds, Series A and B were redeemed of June 30, 2019. -59- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES, (continued) Lease Revenue Bonds, (continued) 2006 Lease Revenue Bonds, Series A and B (Big League Dreams Project) In September 2006, the City issued $10,710,000 of Lease Revenue Bonds, Series A and $7,295,000 of taxable Lease Revenue Bonds, Series B to provide financing for facilities and infrastructure related to the Big League Dreams sports park. The Series A bonds mature annually through June 1, 2036, in amounts ranging from $80,000 to $1,270,000, with interest rates that range from 4.0% to a maximum of 5.0% over the term of the bonds. The Series B bonds mature annually through June 1, 2036, in amounts ranging from $115,000 to $550,000, with interest rates that range from 5.39% to a maximum of 6.07% over the term of the bonds. The bonds are payable from lease payments as rental for certain public facilities. The reserve requirement was fully funded at June 30, 2019. The outstanding principal balance at June 30, 2019 was $15,860,000. The annual debt service requirements on the 2006 Lease Revenue Bonds as of June 30, 2019 were as follows: Year Ending June 30, Principal Interest Total 2020 $ 460,000 $ 854,777 $ 1,314,777 2021 515,000 830,990 1,345,990 2022 585,000 804,327 1,389,327 2023 660,000 772,557 1,432,557 2024 695,000 736,880 1,431,880 2025-2029 4,085,000 3,077,749 7,162,749 2030-2034 5,315,000 1,842,255 7,157,255 2035-2036 3,545,000 285,584 3,830,584 Total $ 15,860,000 $ 9,205,119 $ 25,065,119 -60- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES, (continued) Lease Revenue Bonds, (continued) 2013 Lease Revenue Refunding Bonds, Series A (Community Center Project) On January 8, 2014, the City issued $2,185,000 of Variable Rate Lease Revenue Refunding Bonds, 2013 Series to provide financing for the advance refunding of the City's 2003 Lease Revenue Bonds, Series A. The bonds mature annually on August 1 in amounts ranging from $65,000 to $95,000 through August 1, 2043. The bonds bear interest at a variable rate reset weekly and at a fixed rate after the fixed rate conversion date. Prior to the fixed rate conversion date, interest is payable on the first business day of each month. Following the fixed rate conversion date, interest is payable on February 1 and August 1 of each year. The bonds have not been converted to the fixed rate as of June 30, 2019. The City refunded the 2003 Bonds to reduce its total debt service payments over 30 years by $109,604 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of $421,241. The 2013 Lease Revenue Refunding Bonds were redeemed as of June 30, 2019. 2018 Lease Revenue Refunding Bonds, Series A and B On November 20, 2018, the City issued $19,310,000 of Lease Revenue Bonds, Series A and $4,855,000 of taxable Lease Revenue Bonds, Series B to provide financing for the advance refunding of the City's 2002 Lease Revenue Bonds Series A, 2004 Lease Revenue Bonds Series A&B, and the 2013 Lease Revenue Refunding Bonds Series A. The Series A bonds mature annually through May 1, 2044, in amounts ranging from $460,000 to $125,000, with interest rates that range from 4.0% to a maximum of 5.0% over the term of the bonds. The Series B bonds mature annually through May 1, 2030, in amounts ranging from $345,000 to $500,000, with interest rates that range from 2.953% to a maximum of 4.469% over the term of the bonds. The bonds are payable from lease payments as rental for certain public facilities. The reserve requirement was fully funded at June 30, 2019. The outstanding principal balance at June 30, 2019 was $23,820,000. The net savings and economic gain (loss) from this current refunding is unavailable due to those refunded bond series (including 2002 Lease Revenue Bonds Series A, 2004 Lease Revenue Bonds Series A&B, and the 2013 Lease Revenue Refunding Bonds Series A) having variable interest rates. -61- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES, (continued) Lease Revenue Bonds, (continued) 2018 Lease Revenue Refunding Bonds, Series A and B The annual debt service requirements on the 2018 Lease Revenue Bonds as of June 30, 2019 were as follows: Year Ending June 30, Principal Interest Total 2020 2021 2022 2023 2024 2025-2029 2030-2034 2035-2039 2040-2044 Total Compensated Absences $ 795,000 $ 1,062,890 $ 1,857,890 835,000 1,028,098 1,863, 098 870,000 991,076 1,861,076 910,000 952,011 1,862,011 950,000 910,569 1,860,569 5,440,000 3,848,357 9,288,357 6,760,000 2,420,345 9,180,345 6,680,000 808,200 7,488,200 580,000 71,200 651,200 $ 23,820,000 $ 12,092,746 $ 35,912,746 The liability of $4,258,671 represents the governmental activities portion of total unpaid vacation and compensation time earned by employees of the City. There is no fixed payment schedule for earned but unpaid compensated absences. The General Fund typically has been used to liquidate the liability for compensated absences. The liability of $91,515 represents the business -type activity portion of total unpaid vacation and compensation time earned by employees of the City. There is no fixed payment schedule for earned but unpaid compensated absences. Claims and Judgments The City is exposed to various risks of loss related to its operation, including losses associated with errors and omissions, injuries to employees and members of the public. The City's Internal Service Self -Insurance Fund is used to account for and finance its uninsured risks of loss. The City is self -insured for the first $1,000,000 each for general liability and workers' compensation claims against the City. The City purchases excess insurance for general liability and workers' compensation. -62- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 8) LONG-TERM LIABILITIES, (continued) Claims and Judgments, (continued) Settlements for general liability and worker's compensation claims did not exceed the insurance coverage during the last three years. The claims and judgments liability reported in the Internal Service Self -Insurance Fund is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims and judgments be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. Claims and judgments payable, including estimated claims for incurred but not reported claims, amounted to $10,056,183 as of June 30, 2019. Changes in the claims and judgments payable amounts in fiscal year 2019 for the Self - Insurance Fund were as follows: Beginning of Claims and End of Fiscal Year Changes in Claims Fiscal Year Fiscal Year Liability Estimates Payments Liability 2017-2018 $ 10,586,388 $ 2,951,238 $ (3,253,952) $ 10,238,674 2018-2019 10,283,674 2,507,859 (2,735,350) 10,056,183 9) FUND BALANCE CLASSIFICATION The fund balances reported on the fund statements consist of the following categories: Non -spendable Fund Balance - This includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted Fund Balance - This includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation. Committed Fund Balance - This classification includes amounts that can be used only for the specific purposes determined by a formal action of the City's highest level of decision -making authority. The City Council is the highest level of decision -making authority for the City that can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. -63- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 9) FUND BALANCE CLASSIFICATION, (continued) Assigned Fund Balance - This classification includes amounts intended to be used by the City for specific purposes but do not meet the criteria to be classified as committed. The City Council (Council) has by resolution authorized the City Manager to assign fund balance. The Council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year's appropriated budget. Unlike commitments, assignments generally only exist temporarily. Additional formal action does not normally have to be taken for the removal of an assignment. Unassigned Fund Balance - This is the residual classification that includes all spendable amounts not contained in the other classifications When an expenditure is incurred for purposes for which both restricted and unrestricted fund balances are available, the City's policy is to apply restricted fund balance first. When an expenditure is incurred for purposes for which committed, assigned or unassigned fund balances are available, the City's policy is to apply committed fund balance first, then assigned fund balance, and finally unassigned fund balance. The details of fund balance as of June 30, 2019 were presented below: Funds West Covina Non -Major Total General Housing City Debt Governmental Governmental Fund Authority Services Fund Funds Funds Non -spendable: Prepaid expenses $ 126,191 $ 99,167 $ - $ - $ 225,358 Advances to other funds 383,781 - 383,781 Advancesto Successor Agency 5,458,809 - - - 5,458,809 Land held for resale 3,007,802 - - - 3,007,802 Restricted: Affordable housing - 24,575,155 - - 24,575,155 Debt service - - 5,528,450 - 5,528,450 Community services - - - 4,825,023 4,825,023 Public safety - - - 4,171,026 4,171,026 Public works - - - 18,741,101 18,741,101 Assigned: Capital projects 320,200 - - 1,107,138 1,427,338 Unassigned 9,884,913 (692,305) 9,192,608 Totals $ 19,181,696 $ 24,674,322 $ 5,528,450 $ 28,151,983 $ 77,536,451 -64- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 10) ACCUMULATED FUND BALANCES/NET POSITION DEFICITS The following funds reported deficits in fund balances/net position as of June 30, 2019: Deficit Balance Non -Major Funds: Air Quality Improvement Special Revenue Fund $ (196,682) Transportation Development Act Special Revenue Fund (60,457) Various Grants Special Revenue Fund (108,928) Community Development Block Grant Special Revenue Fund (9,293) Auto Plaza Improvement District Special Revenue Fund (246,873) Integrated Waste Management Special Revenue Fund (11,073) Enterprise Fund: Computer Service Fund (326,385) The deficit of $196,682 in the Air Quality Improvement Special Revenue Fund, $60,457 in the Transportation Development Act Special Revenue Fund, $108,928 in the Grants Special Revenue Fund, $9,293 in the Community Development Block Grant Special Revenue Fund, $246,873 in the Auto Plaza Improvement District Special Revenue Fund, and $11,073 in the Integrated Waste Management Special Revenue Fund are the results of expenditures incurred prior to reimbursement from grantors. The deficits will be eliminated through future grant revenues and as the Auto Plaza Improvement District pays back their advance from the General Fund. The deficit in the Computer Services Fund was a result of additional expenses incurred for the development of new software. City Council has approved an agreement to transition the Computer Services Fund to a private vendor. The deficit will be eliminated through future revenues as a part of the transition. -65- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 11) PENSION PLAN SUMMARY The City currently has a total of two pension plans administered by CalPERS and two retirement enhancement plan administered by PARS. The pension plans consist of a miscellaneous agent plan and a safety agent plan (see Note 13 for a full description of the plans). The retirement enhancement plan consists of an EPMC replacement supplemental retirement plan and a supplemental retirement plan for executive staff and City Council (see Note 13 for a full description of the plans). The summary of the pension related liability, deferred inflows of resources and deferred outflows of resources are as follows: Miscellaneous Safety EPMC Exec Total Deferred Outflows of Resources - Pension related $ 3,933,639 $ 23,505,441 $ 243,262 $ 88,713 $ 27,771,055 Deferred Inflows of Resources - Pension related 396,055 2,474,747 118,828 - 2,989,630 Pension Liability 1 43,231,080 1 140,087,494 806,981 1 2,687,762 1 186,813,317 12) RETIREMENT PLAN - CALPERS A) General Information about the Pension Plans Plan Descriptions The Plan is an agent multiple -employer defined benefit pension plan administered by the California Public Employees' Retirement System (CaIPERS). A full description of the pension plan regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the plan's June 30, 2017 Annual Actuarial Valuation Report (funding valuation). Details of the benefits provided can be obtained in Appendix B of the actuarial valuation report. This report and CaIPERS' audited financial statements are publicly available reports that can be obtained at CaIPERS' website, at www.calpers.ca.gov. Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non -duty disability benefits after 5 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. -66- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) A) General Information about the Pension Plans, (continued) Benefits Provided, (continued) The Plan operates under the provisions of the California Public Employees' Retirement Law (PERL), the California Public Employees' Pension Reform Act of 2013 (PEPRA), and the regulations, procedures and policies adopted by the CalPERS Board of Administration. The Plan's authority to establish and amend the benefit terms are set by the PERL and PEPRA, and may be amended by the California state legislature and in some cases require approval by the CaIPERS Board. The Plans' provisions and benefits in effect at June 30, 2019 are summarized as follows: Miscellaneous Plan Prior to After Prior to On or After Hire date January 1, 2011 January 1, 2011 January 1, 2013 January 1, 2013 Benefit formula 2.0% @ 55 2.5% @ 55 2.0% @ 60 2.0% @ 62 Benefit vesting schedule 5 years of service 5 years of service 5 years of service 5 years of service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age 50 - 67+ 50 - 67+ 50 - 67+ 52 - 67+ Monthly benefits, as a % of eligible ompensation 1.426%to 2.418% 2.0% to 2.5% 1.092%to 2.418% 1.0%to 2.5% Required employee contribution rates 0.00 % 8.00% 7.00% 5.50% Required employer contribution rates 7.987% 7.987% 7.987% 7.987% Safety Plan Prior to Prior to On or After Hire date July 1, 2012 January 1, 2013 January 1, 2013 Benefit formula 3.0% @ 50 3.0% @ 55 2.7% @ 57 Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 & Up 50 - 55+ 50 - 57+ Monthly benefits, as a % of eligible compensation 3.0% 2.4% to 3.0% 2.0% to 2.7 % Required employee contribution rates 9.00% 9.00% 11.50% Required employer contribution rates 19.390% 19.390% 19.390% Employees Covered At June 30, 2017, (valuation date), the following employees were covered by the benefit terms: Miscellaneous Safety Inactive employees or beneficiaries currently receiving benefits 424 340 Inactive employees entitled to but not yet receiving benefits 240 69 Active employees 162 160 Total 826 569 -67- City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2019 TABLE OF CONTENTS INTRODUCTORY SECTION: Letterof Transmittal................................................................................................................. i OrganizationalChart .............................................................................................................. iv CityOfficials............................................................................................................................ v FINANCIAL SECTION: Independent Auditor's Report .................................................................................................1 Management's Discussion and Analysis.................................................................................4 Basic Financial Statements: Government -Wide Financial Statements: Statementof Net Position..........................................................................................16 Statementof Activities...............................................................................................17 Fund Financial Statements: Balance Sheet - Governmental Funds......................................................................19 Reconciliation of the Balance Sheet of Governmental Funds to the Statementof Net Position....................................................................................21 Statement of Revenues, Expenditures, and Changes in Fund Balances - GovernmentalFunds..........................................................................................22 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...............24 Statement of Net Position - Proprietary Funds..........................................................25 Statement of Revenues, Expenses, and Changes in Fund Net Position - ProprietaryFunds...............................................................................................26 Statement of Cash Flows - Proprietary Funds..........................................................27 Statement of Fiduciary Net Position - Fiduciary Funds.............................................29 Statement of Changes in Fiduciary Net Position - Fiduciary Funds ..........................30 Notes to Basic Financial Statements.............................................................................. 31 Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - Miscellaneous...........................................................102 Schedule of Plan Contributions - CalPERS Pension Plan - Miscellaneous ............103 Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - Safety........................................................................104 Schedule of Plan Contributions - CalPERS Pension Plan - Safety .........................105 Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - EPMC Replacement Supplemental Retirement Plan................106 Schedule of Plan Contributions - CalPERS Pension Plan - EPMC Replacement Supplemental Retirement Plan..........................................................................107 Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - Supplemental Retirement Plan for Executive Staff ... 108 Schedule of Plan Contributions - CalPERS Pension Plan - Supplemental Retirement Plan for Executive Staff...................................................................109 Schedule of Changes in the Net OPEB Liability and Related Ratios......................110 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) A) General Information about the Pension Plans, (continued) Contributions Section 20814(c) of the California Public Employees' Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CaIPERS' annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions. Employer Contributions to the Miscellaneous and Safety Plan's for the fiscal year ended June 30, 2019 were $3,041,539 and $11,174,096 respectively. B) Net Pension Liability The City's net pension liability for the Plan is measured as the total pension liability, less the pension plan's fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017, rolled forward to June 30, 2018, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is as follows: Actuarial Methods and Assumptions Used to Determine Total Pension Liability Valuation Date June 30, 2017 Measurement Date June 30, 2018 Actuarial Cost Method Entry Age Normal Asset Valuation Method: Market Value of Assets Actuarial Assumptions: Discount Rate 7.15% Inflation 2.50 Salary Increase (1) 3.3 % - 14.2 % Investment Rate of Return (2) 7.65 Mortality Rate Table (3) Derived using CaIPERS' membership data for all funds Post Retirement Benefit Increase Contract COLA up to 2.0 % until purchasing power protection allowance floor on purchasing power applies, 2.5 % thereafter (1) Annual increase vary by category, entry age, and duration of service (2) Net of pension plan investment and administrative expenses; includes inflation (3) The mortality table used was developed based on CaIPERS' specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale 90% of scale MP 2016. For more details on the table, please refer to the December 2017 experience study report (based on CaIPERS demographic data from 1997 to 2015) that can be found on the CalPERS vrebsite. -68- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) B) Net Pension Liability, (continued) Actuarial Methods and Assumptions Used to Determine Total Pension Liability. (continued) All other actuarial assumptions used in the June 30, 2017 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS' website, at www.calpers.ca.gov. Long-term Expected Rate of Return The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CaIPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The expected real rates of return by asset class are as follows New Strategic Real Return Real Return Asset Class' Allocation Years 1 - 102 Year I W Global Equity 50.0% 4.80% 5.98% Fixed income 28.0% 1.00% 2.62% Inflation Assets 0.0% 77.00% 1.81% Private Equity 8.0% 6.30% 7.23% Real Assets 13.0% 3.75% 4.93% Liquidity 1.0% 0.00% (0.92%) Total 100.0% ' In the System's CAFR, fixed income is included in global debt securities; liquidity is included in short-term investments; inflation assets are included in both global equity securities and global debt securities. 2An expected inflation of 2.0% used for this period a An expected inflation of 2.92% used for this period -69- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) B) Net Pension Liability, (continued) Change in Assumptions In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. There were no changes in the discount rate. Discount Rate The discount rate used to measure the total pension liability was 7.15 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Pension Plan Fiduciary Net Position Information about the pension plan's assets, deferred outflows of resources, liabilities, deferred inflows of resources, and fiduciary net position are presented in CaIPERS' audited financial statements, which are publicly available reports that can be obtained at CaIPERS' website, at www.calpers.ca.gov. The plan's fiduciary net position and additions to/deductions from the plan's fiduciary net position have been determined on the same basis used by the pension plan, which is the economic resources measurement focus and the accrual basis of accounting. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investments are reported at fair value. The plan fiduciary net position disclosed in the GASB 68 accounting valuation report may differ from the plan assets reported in the funding actuarial valuation report due to several reasons. First, for the accounting valuations, CalPERS must keep items such as deficiency reserves, fiduciary self-insurance and Other Post -Employment Benefits (OPEB) expense included as assets. These amounts are excluded for rate setting purposes in the funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled reserves. -70- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) C) Changes in the Net Pension Liability and Proportionate Share of Net Pension Liability The following table shows the changes in net pension liability recognized over the measurement period. Miscellaneous Plan: Increase Decrease Total Pension Plan Fiduciary Net Net Pension Liability Position Liability/(Asset) (a) (b) (c) _ (a) - (b) Balance at: 6/30/2017 VD $ 153,865,066 $ 110,949,230 $ 42,915,836 Changes Recognized for the Measurement Period: Service Cost 1,598,999 - 1,598,999 Interest on the Total Pension Liability 10,735,301 10,735,301 Changes of Benefit Terms - - Differences between Expected and Actual Experience 884,485 884,485 Changes of Assumptions (792,110) - (792,110) Plan to Plan Resource Movement (266) 266 Contributions from the Employer 2,610,696 (2,610,696) Contributions from Employees 785,970 (785,970) Net Investment Income 9,216,240 (9,216,240) Benefit Payments, including Refunds of Employee Contributions (9,225,744) (9,225,744) - Administrative Expense (172,889) 172,889 Other Miscellaneous - Income/(Expense)' 328,320 328320 Net Changes during 2017-18 3,200,531 2,885,687 315:244 Balance at: 6/30/2018 (MD) $ 157,065,997 $ 113,834,917 $ 43,231,080 Valuation Date (VD), Measurement Date (MD). 'During Fiscal Year 2017-18, as a result of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemployment Benefit Plans Other than Pensions (GASB 75), CalPERS reported its proportionate share of activity related to postemployment benefits for participation in the State of California's agent OPEB plan. Accordingly, CalPERS recorded a one-time expense as a result of the adoption of GASB 75. Additionally, CalPERS employees participate in various State of Califomia agent pension plans and during Fiscal Year 2017-18, CalPERS recorded a correction to previously reported financial statements to properly reflect its proportionate share of activity related to pensions in accordance with GASB Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68) -71- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) C) Changes in the Net Pension Liability and Proportionate Share of Net Pension Liability, (continued) Safety Plan Increase (Decrease) Total Pension Plan Fiduciary Net Net Pension Liability Position Liability/(Asset) (a) (b) (c) _ (a) - (b) Balance at: 6/30/2017 VD $ 372,360,511 $ 233,668,841 $ 138,691,670 Changes Recognized for the Measurement Period: Service Cost 5,300,363 - 5,300,363 Interest on the Total Pension Liability 26,141,448 26,141,448 Changes of Benefit Terms - - Differences between Expected and Actual Experience 2,470,547 2,470,547 Changes of Assumptions (1,644,342) - (1,644,342) Plan to Plan Resource Movement (568) 568 Contributions from the Employer 10,515,780 (10,515,780) Contributions from Employees 1,830,019 (1,830,019) Net Investment Income 19,582,552 (19,582,552) Benefit Payments, including Refunds of Employee Contributions (20,444,515) (20,444,515) - Administrative Expense (364,120) 364,120 Other Miscellaneous - I ncome/(Expense) 691,471 691,471 Net Changes during 2017-18 11,823,501 10%7,677 1,395,824 Balance at: 6/30/2018 (MD) $ 384,184,012 $ 244,096,518 1 $ 140,087,494 Valuation Date (VD), Measurement Date (MD). 'During Fiscal Year 2017-18, as a result of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemployment Benefit Plans Other than Pensions (GASB 75), CaIPERS reported its proportionate share of activity related to postemployment benefits for participation in the State of California's agent OPEB plan. Accordingly, CalPERS recorded a one-time expense as a result of the adoption of GASB 75. Additionally, CalPERS employees participate in various State of California agent pension plans and during Fiscal Year 2017-18, CalPERS recorded a correction to previously reported financial statements to properly reflect its proportionate share of activity related to pensions in accordance with GASB Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68) -72- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) C) Changes in the Net Pension Liability and Proportionate Share of Net Pension Liability, (continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Miscellaneous and Safety Plan's as of the measurement date, calculated using the discount rate of 7.15 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage -point lower (6.15 percent) or 1 percentage -point higher (8.15 percent) than the current rate: Discount Rate - 1% Current Discount Discount Rate + 1% 6.15%) Rate (7.15%) (8.15%) Miscellaneous Plan's Net Pension Liability $ 62,143,900 $ 43,231,080 $ 27,131,809 Safety Plan's Net Pension Liability $ 191,413,387 $ 140,087,494 $ 97,924,651 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Amortization of Deferred Outflows and Deferred Inflows of Resources Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss: Difference between projected 5 year straight-line amortization and actual earnings All other amounts Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive and retired) as of the beginning of the measurement period The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). -73- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) C) Changes in the Net Pension Liability and Proportionate Share of Net Pension Liability, (continued) Recognition of Gains and Losses. (continued) The EARSL for the Miscellaneous Plan for measurement period ended June 30, 2018 is 2 years, which was obtained by dividing the total service years of 1,677 (the sum of remaining service lifetimes of the active employees) by 826 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members' probability of decrementing due to an event other than receiving a cash refund. The EARSL for the Safety Plan for the 2017-18 measurement period is 3.6 years, which was obtained by dividing the total service years of 2,025 (the sum of remaining service lifetimes of the active employees) by 569 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members' probability of decrementing due to an event other than receiving a cash refund. D) Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions As of the start of the measurement period (July 1, 2017), the net pension liability for Miscellaneous and Safety Plan was $42,915,836 and $138,691,670, respectively. For the measurement period ending June 30, 2018 (the measurement date), the City incurred a pension expense/ (income) of $7,107,235 for the Miscellaneous Plan and $18,179,226 for the Safety Plan. A complete breakdown of the pension expense for Miscellaneous and Safety Plan is as follows: -74- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) D) Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, (continued) Miscellaneous Plan Description: Amount Service Cost $ 1,598,999 Interest on the Total Pension Liability 10,735,301 Changes of Benefit Terms - Recognized Differences between Expected and Actual Experience (40,720) Plan to Plan Resource Movement 266 Recognized Changes of Assumptions 3,221,037 Employee Contributions (785,970) Projected Earnings on Pension Plan Investments (7,693,704) Recognized Differences between Projected and Actual Earnings on Plan Investments (429,183) Administrative Expense 172,889 Other Miscellaneous (Income)/Expense 328,320 Total Pension Expense $ 7,107,235 'During Fiscal Year 2017-18, as a result of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemployment Benefit Plans Other than Pensions (GASB 75), CaIPERS reported is proportionate share of activity related to postemployment benefits for participation in the State of California's agent OPEB plan. Accordingly, CalPERS Zecorded a one-time expense as a result of the adoption of GASB 75. Additionally, CaIPERS employees participate in various State of California agent pension plans and during Fiscal Year 2017-18, CaIPERS recorded a correction to previously reported financial statements to properly reflect its proportionate sham of activity related to pensions in accordance with GASB Statement No. 68, Amounting and Financial Reporting for Pensions (GASB 66) -75- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) D) Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, (continued) Safety Plan Description: Amount Service Cost $ 5,300,363 Interest on the Total Pension Liability 26,141,448 Changes of Benefit Terms - Recognized Differences between Expected and Actual Experience (213,765) Plan to Plan Resource Movement 568 Recognized Changes of Assumptions 4,852,947 Employee Contributions (1,830,019) Projected Earnings on Pension Plan Investments (16,330,523) Recognized Differences between Projected and Actual Earnings on Plan Investments (797,384) Administrative Expense 364,120 Other Miscellaneous (Income)/Expense' 691,471 Total Pension Expense $ 18,179,226 'During Fiscal Year 2017-18, as a result of Governmental Accounting Standards Board Statement (GASS) No. 75, Accounting and Financial Reporting for Posterrployment Benefit Plans Other than Pensions (GASB 75), CalPERS reported to proportionate share of activity related to posterrployment benefils for participation in the State of California's agent OPEB plan. Accordingly, CaIPERS recorded a one -titre expense as a result of the adoption of GASB 75. Additionally, CalPERS errployees participate in various State of California agent pension plans and during Fiscal Year 2017- 18, CaIPH2.S recorded a correction to previously reported financial statements to properly reflect its proportionate share of activity related to pensions in accordance w th GASB Staterrenl W. 68, Accounting and Financial Reporting for Pensions (GASB 68) -76- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2019 12) RETIREMENT PLAN - CALPERS, (continued) D) Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, (continued) As of June 30, 2019, the City has deferred outflows and deferred inflows of resources related to pensions as follows: Miscellaneous Safety Deferred Deferred Outflows of Deferred Inflows Outflows of Deferred Inflows Resources of Resources Resources of Resources Differences between Expected and Actual Experience $ 442,242 $ - $ 1,784,284 $ (1,287,167) Changes of Assumptions - (396,055) 9,648,928 (1,187,580) Net Difference between Projected and Actual Earnings on Pension Plan Investments 449,858 - 897,664 - Difference in Actual vs Projected Contributions - - 469 - Pension Contributions Subsequent to Measurement Date 3,041,539 11,174,096 $ 3,933,639 $ (396,055) $ 23,505,441 $ (2,474,747) These amounts above are net of outflows and inflows recognized in the 2017-18 measurement period expense. The $3,041,539 and $11,174,096 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the upcoming fiscal year. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows: Measurement Deferred Outflows/(Inflows) of Period Ended Resources, Net June 30, Miscellaneous Safety 2019 $ 1,590,597 $ 8,320,380 2020 363,524 4,434,100 2021 (1,153,568) (2,247,477) 2022 (304,508) (650,405) 2023 Thereafter E) Payable to the Pension Plan The City had no outstanding amount of contributions to the pension plan required for the year ended June 30, 2019. -77-