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03-19-2019 - AGENDA ITEM 08 COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) AND OTHER RELATED REPORTS FOR THE YEAR ENDED JUNE 30, 2018
AGENDA ITEM NO. 8 AGENDA STAFF REPORT City of West Covina I Office of the City Manager DATE: March 19, 2019 TO: Mayor and City Council FROM: Nikole Bresciani Acting City Manager SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) AND OTHER RELATED REPORTS FOR THE YEAR ENDED JUNE 30, 2018 RECOMMENDATION: It is recommended that the Finance Department submit to the City Council the following letters and financial reports for the year ended June 30, 2018: • Comprehensive Annual Financial Report; • Government Auditing Standards Letter; • Audit Communication 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. 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, 2018, CAFR, which is officially transmitted herewith to the Audit Committee (Attachment No. 1). This document is an extensive report summarizing the financial activities of the City that occurred from July 1, 2017 through June 30, 2018. The CAFR is prepared in compliance with the Governmental Accounting Standards Board (GASH) 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, 2018. This means that their examination, testing and audit procedures allowed them to conclude that the financial statements fairly present the fmancial position of the City. This is the best opinion the City can receive from its auditors. City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2018 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.........................................170 Maintenance District #6 Special Revenue Fund.........................................171 Maintenance District #7 Special Revenue Fund.........................................172 Citywide Maintenance District Special Revenue Fund...............................173 Sewer Maintenance Special Revenue Fund..............................................174 Auto Plaza Improvement District Special Revenue Fund ...........................175 Non -Major Debt Service Fund: Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: City Debt Service Fund...............................................................................177 Non -Major Capital Projects Funds: Combining Balance Sheet.................................................................................179 Combining Statement of Revenues, Expenditures, and Changes in FundBalances.............................................................................................181 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: City Capital Projects Fund..........................................................................183 Construction Tax Capital Projects Fund.....................................................184 Information Technology Capital Projects Fund............................................185 Park Development Capital Projects Fund....................................................186 Developer Impact Fees Capital Projects Fund............................................187 Internal Service Funds: Combining Statement of Net Position...............................................................189 Combining Statement of Revenues, Expenses, and Changes in Net Position.............................................................................191 Combining Statement of Cash Flows...............................................................193 Pension Trust Funds: Combining Statement of Net Position...............................................................196 Combining Statement of Changes in Net Position...........................................197 Agency Fund: Statement of Changes in Assets and Liabilities...............................................199 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) 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 $ 5,376,792 Interest on the Total Pension Liability 25,330,388 Changes of Benefit Terms - Recognized Differences between Expected and Actual Experience (1,340,269) Plan to Plan Resource Movement - Recognized Changes of Assumptions 3,845,192 Employee Contributions (1,818,024) Projected Earnings on Pension Plan Investments (15,242,796) Recognized Differences between Projected and Actual Earnings on Plan Investments (146,979) Administrative Expense 321,946 Total Pension Expense $ 16,326,250 -80- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALPERS, (continued) D) Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, (continued) As of June 30, 2018, 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 $ Changes of Assumptions Net Difference between Projected and Actual Earnings on Pension Plan Investments Difference in Actual vs Projected Contributions Pension Contributions Subsequent to Measurement Date 755,617 3,892,612 $ 5,915,920 $ (482,963) $22,570,157 $ (2,553,325) - $ (482,963) $ - $ (2,187,195) 3,617,092 - 15,324,767 (366,130) 1,543,211 - 3,352,309 - - 469 These amounts above are net of outflows and inflows recognized in the 2016-17 measurement period expense. The $755,617 and $3,892,612 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 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 2018 $ 3,009,453 $ 4,263,172 2019 1,848,917 8,740,816 2020 668,031 4,855,005 2021 (849,061) (1,734,773) 2022 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, 2018. -81- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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 CalPERS. 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 CalPERS 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 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. -82- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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, 2018 was $60,056. -83- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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, 2017, 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, 2017, 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. -84- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Net Pension Liability. (continued) Actuarial Assumptions The total pension liability at June 30, 2017, the measurement date, was determined using the following actuarial assumptions: EPMC Valuation Date June 30, 2017 Measurement Date June 30, 2017 Actuarial Cost Method Entry Age Normal Actuarial Assumptions: Discount Rate 4.98% (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 3.90 % to 4.98 (2) Plan assets currently invested in PARS diversified moderate portfolio. (3) The probabilities of mortality are derived using CalPERS 1997-2015 experience study. 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. -85- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Net Pension Liability. (continued) Discount Rate, (continued) 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, 2017, measurement date (3.58%) was used. The discount rate used (4.98%) 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. -86- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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 3.58% rate in calculating the pension liability. -87- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Chances 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, 2016 $ 890,000 $ 125,000 $ 765,000 Changes for the year: Service Cost 35,733 - 35,733 Interest 35,268 35,268 Difference between actual and expected experience 98,508 98,508 Assumptions Changes (85,060) - (85,060) Contributions- employer 61,019 (61,019) Contributions- employee - Net Investment Income 10,029 (10,029) Benefit payments and refunds (42,877) (42,877) Administrative Expenses 9,456 9,456 Net Chan es 41,572 18,715 1 22,857 Balance as of June 30, 2017 1 $ 931,572 1 $ 143,715 1 $ 787,857 -88- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Chances 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 % (3.98%) Current Discount Rate (4.98%) Discount Rate + 1 1 (5.98%) Net Pension Liability $ 882,180 $ 787,857 1 $ 708,934 Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2018, the City recognized pension expense of $86,729. At June 30, 2018, 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 $ 86,495 $ (43,200) Changes of Assumptions 119,999 (100,963) Net Difference between Projected and Actual Earnings on Pension Plan 4,244 Employer Contributions Subsequent to Measurement Date 60,056 Total $ 270,794 $ 144,163 -89- City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2018 TABLE OF CONTENTS, (Continued) STATISTICAL SECTION (UNAUDITED): Net Position by Component................................................................................................201 Changesin Net Position......................................................................................................203 Changes in Net Position - Governmental Activities.............................................................207 Changes in Net Position - Business -Type Activities...........................................................209 Fund Balances of Governmental Funds..............................................................................211 Changes in Fund Balances of Governmental Funds..........................................................213 Assessed Value and Estimated Actual Value of Taxable Property....................................215 Direct and Overlapping Property Tax Rates......................................................................217 Principal Property Taxpayers..............................................................................................219 Property Tax Levies and Collections...................................................................................220 Ratios of Outstanding Debt by Type...................................................................................222 Ratios of General Bonded Debt Outstanding......................................................................224 Direct and Overlapping Debt...............................................................................................225 Legal Debt Margin Information............................................................................................226 Pledged -Revenue Coverage...............................................................................................228 Demographic and Economic Statistics................................................................................230 PrincipalEmployers............................................................................................................231 Full-time and Part-time City Employees..............................................................................232 Operating Indicators by Function.......................................................................................233 Capital Asset Statistics by Function/Program.....................................................................235 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) A) EPMC Replacement Supplemental Retirement Plan, (continued) Chances in the Net Pension Liability. (continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions, (continued): The $60,056 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: Measurement Period Ended June 30, 2018 2019 2020 2021 2022 Thereafter Payable to the Pension Plan Deferred Outflows/(Inflows) of Resources, Net PARS $ 14,356 15,356 14,956 12,956 5,343 3,608 The City has no outstanding amount of contributions to the pension plan required for the year ended June 30, 2018. 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. -90- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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 CalPERS 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, 2018 was $74,100. Employees Covered At June 30, 2017, 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 -91- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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, 2017, 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, 2017, the measurement date, was determined using the following actuarial assumptions: Miscellaneous Valuation Date June 30, 2017 Measurement Date June 30, 2017 Actuarial Cost Method Entry Age Normal Actuarial Assumptions: Discount Rate 3.95 % (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 6.25 % to 3.95 % . (2) Plan assets currently invested in PARS diversified moderate portfolio. (3) The probabilities of mortality are derived using CalPERS' 1997-2015 experience study. -92- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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, 2017, measurement date, (3.58%) was used. The discount rate used (3.95%) represents the single equivalent rate of return, as described under GASB 68 (paragraph 31). -93- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) 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: Asset Class Component Equity REITs Fixed Income Cash Total Target Expected Real Allocation Rate of Return 58.00 % 4.82 % 2.00 % 3.76 % 35.00 % 1.47 % 5.00 % 0.06 % 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 3.58% rate in calculating the pension liability. -94- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Chances in the Net Pension Liability The changes in the net pension liability, with a measurement date of June 30, 2017, 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, 2016 $ 2,629,000 $ 633,000 $ 1,996,000 Changes for the year: Service Cost 20,388 - 20,388 Interest 161,327 161,327 Difference between actual and expected experience (111,492) (111,492) Assumptions Changes 803,038 - 803,038 Contributions- employer - 73,467 (73,467) Contributions- employee - Net Investment Income 49,861 (49,861) Benefit payments and refunds (136,317) (136,317) Administrative Expenses 31, 8,431 s 736,944 214 ,0Chan 758,364 Balance as of June 30, 2017 1 $ 3,365,944 1 $ 611,580 1 $ 2,754,364 -95- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Chances 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 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 (2.95%) (3.95%) 1 (4.95%) Net Pension Liability 1 $ 3,327,784 $ 2,754,364 1 $ 2,302,067 Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions: For the year ended June 30, 2018, the City recognized pension expense of $847,251. At June 30, 2018, 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 14,180 Pension Contributions Subsequent to Measurement Date 74,100 Total $ 88,280 1 $ -96- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 14) PUBLIC AGENCY RETIREMENT SYSTEM (PARS), (continued) B) Supplemental Retirement Plan for Executive Staff and City Council, (continued) Chances in the Net Pension Liability. (continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions, (continued) The $74,100 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: Measurement Period Ended June 30, 2018 2019 2020 2021 2022 Thereafter Payable to the Pension Plan Deferred Outflows/(Inflows) of Resources, Net PARS 2,895 9,895 3,895 (2,505) The City has no outstanding amount of contributions to the pension plan required for the year ended June 30, 2018. -97- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 15) 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 $89,012 and covered payroll for the year ended June 30, 2018 totaled $1,131,790. No contributions were made by the City and employees contributed $89,012 (7.5% of current covered payroll). Total plan assets at June 30, 2018 were $802,970. Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries and, therefore, are not included in the financial statements. -98- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 16) 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 -99- Usm!"TV W , Zown IMN MN I 'I Finance Department March 5, 2019 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, 2018. 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 both to 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, Malody & 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 Notes to Basic Financial Statements For the Year Ended June 30, 2018 16) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS, (continued) Emr)lovees Covered As of the June 30, 2018 actuarial valuation, the following current and former employees were covered by the benefit terms under the Plan: Active employees 326 Inactive employees or beneficiaries currently receiving benefits 356 Inactive employees entitled to, but not yet receiving benefits 49 Total 731 Contribution The contribution requirements of plan members and the City are established and may be amended by City Council. The contribution required to be made under City Council and bargaining unit requirements is based on a pay-as-you-go basis (i.e. as medical insurance premiums become due). For fiscal year ended June 30, 2018, the City contributed $2,470,254 to the plan, including $1,958,254, for current premiums (100% of total premiums), and $512,000 of implied subsidy premiums. Net OPEB Liability The City's net OPEB liability was measured as of June 30, 2017 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, 2017 Measurement Date Actuarial Valuation Date June 30, 2017 Contribution Policy Nopre-funding Discount Rate 3.58% 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 100- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 16) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS, (continued) Discount Rate A discount rate of 3.58% was used in the valuation for measurement date June 30, 2017. Chances in the OPEB Liability The changes in the net OPEB liability for the Plan are as follows: (a) (b) (a) - (b) = (c) Plan Total OPEB Fiduciary Net Net OPEB Liability Position Liability Balance at June 30, 2017 (6/30/16 measurement date) $ 65,619,220 $ $ 65,619,220 Changes recognized for the measurement period: Service cost 1,913,541 1,913,541 Interest 1,889,517 1,889,517 Changes of assumptions (7,040,369) (7,040,369) Benefit payments (2,467,893) (2,467,893) Net changes (5,705,204) (5,705,204) Balance at June 30, 2018 (6/30/17 measurement date) $ 59,914,016 $ $ 59,914,016 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, 2017: 1% Decrease Current Discount 1% Increase (2.58%) Rate (3.58%) (4.58%) Net OPEB Liability $ 69,886,942 $ 59,914,016 $ 52,004,534 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, 2017: Current Healthcare 1% Decrease Cost Trend Rates 1% Increase Net OPEB Liability $ 56,403,494 $ 59,914,016 $ 63,829,568 101- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 16) OTHER POST -EMPLOYMENT BENEFITS OTHER THAN PENSIONS, (continued) OPEB Plan Fiduciary Net Position The Plan Fiduciary Net Position was $0 at the June 30, 2017 measurement date, as the City is not prefunding with an OPEB trust. Recognition 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, 2018, the City recognized OPEB expense of $4,930,000. As of fiscal year ended June 30, 2018, the City reported deferred outflows of resources related to OPEB from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Changes of assumptions $ - $ 5,826,512 Contributions to OPEB plan subsequent to the measurement date 2,470,254 Total $ 2,470,254 $ 5,826,512 The $2,470,254 reported as deferred outflows of resources related to contributions subsequent to the June 30, 2017 measurement date will be recognized as a reduction of the net OPEB liability during the fiscal year ending June 30, 2019. Other amounts reported as deferred outflows or inflows of resources related to OPEB will be recognized as expense as follows: Fiscal Year Ended June 30 Deferred Outflows/(Inflows) of Resources 2019 $ (1,213,857) 2020 (1,213,857) 2021 (1,213,857) 2022 (1,213,857) 2023 (971,084) Thereafter 102- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 17) 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. 18) CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES On June 29, 2011, Assembly Bills 1x 26 (the "Dissolution Act') and 1x 27 were enacted as part of the fiscal year 2011-12 state budget package. On June 27, 2012, as part of the fiscal year 2012-13 state budget package, the Legislature passed and the Governor signed AB 1484, which made technical and substantive amendments to the Dissolution Act based on experience to -date at the state and local level in implementing the Dissolution Act. Under the Dissolution Act, each California redevelopment agency (each "Dissolved RDA") was dissolved as of February 1, 2012, and the sponsoring community that formed the Dissolved RDA, together with other designated entities, have initiated the process under the Dissolution Act to unwind the affairs of the Dissolved RDA. A Successor Agency was created for each Dissolved RDA which is the sponsoring community of the Dissolved RDA unless it elected not to serve as the Successor Agency. On January 10, 2012, the City elected to serve as the Successor Agency of the Community Development Commission of the City of West Covina. 103- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 18) CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES, (continued) The Dissolution Act also created oversight boards which monitor the activities of the successor agencies. The roles of the successor agencies and oversight boards is to administer the wind down of each Dissolved RDA which includes making payments due on enforceable obligations, disposing of the assets (other than housing assets) and remitting the unencumbered balances of the Dissolved RDAs to the County Auditor -Controller for distribution to the affected taxing entities. The Dissolution Act allowed the sponsoring community that formed the Dissolved RDA to elect to assume the housing functions and take over certain housing assets of the Dissolved RDA. If the sponsoring community does not elect to become the Successor Housing Agency and assume the Dissolved RDA's housing functions, such housing functions and all related housing assets will be transferred to the local housing authority in the jurisdiction. AB 1484 modified and provided some clarifications on the treatment of housing assets under the Dissolution Act. On January 17, 2012, the City created the City of West Covina Housing Authority to service as the Housing Successor Agency. After the date of dissolution, the housing assets, obligations, and activities of the Dissolved RDA have been transferred and are reported in the Housing Authority Special Revenue Fund in the financial statements of the City. All other assets, obligations, and activities of the Dissolved RDA have been transferred and are reported in a fiduciary fund (private -purpose trust fund) in the financial statements of the City. The Dissolution Act and AB 1484 also establish roles for the County Auditor -Controller, the California Department of Finance (the "DOF") and the California State Controller's office in the dissolution process and the satisfaction of enforceable obligations of the Dissolved RDAs. The County Auditor -Controller is charged with establishing a Redevelopment Property Tax Trust Fund (the "RPTTF") for each Successor Agency and depositing into the RPTTF for each six-month period the amount of property taxes that would have been redevelopment property tax increment had the Dissolved RDA not been dissolved. The deposit in the RPTTF fund is to be used to pay to the Successor Agency the amounts due on the Successor Agency's enforceable obligations for the upcoming six-month period. The Successor Agency is required to prepare a recognized obligation payment schedule (the "BOPS") approved by the oversight board setting forth the amounts due for each enforceable obligation during each six month period. The BOPS is submitted to the DOF for approval. The County Auditor -Controller will make payments to the Successor Agency from the RPTTF fund based on the BOPS amount approved by the DOF. The ROPS is prepared in advance for the enforceable obligations due over the next six months. The process of making RPTTF deposits to be used to pay enforceable obligations of the Dissolved RDA will continue until all enforceable obligations have been paid in full and all non -housing assets of the Dissolved RDA have been liquidated. 104- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 18) CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES, (continued) 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. 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 $9,841,597 in the governmental activities and a receivable of $9,841,597 in the Successor Agency related to the DOF's determination at June 30, 2018. Advances from City of West Covina - AB 1484 specifies the actions to be taken and the method of repayment for advances by the Successor Agency to the various funds of the City. Upon application and approval by the Successor Agency and approval by the Oversight Board, loan agreements (advances) entered into by the former redevelopment agency and the City shall be deemed to be enforceable obligations provided that the Oversight Board makes a finding that the advances were for legitimate redevelopment purposes. The accumulated interest on the remaining amount of advances will be recalculated from origination at the interest rate earned by funds deposited into the Local Agency Investment Fund. The advances are to be repaid with a defined schedule over a reasonable term of years at an interest rate not to exceed the interest rate earned by the funds deposited into the Local Agency Investment Fund. The annual advances repayments are subject to certain limitations. Advance repayments shall not be made prior to the 2014- 2015 fiscal year, are subject to a formula distribution, and have a lower priority for repayment as described in AB 1484 (Health and Safety Code Section 34191.4(2)(A)). The advances related to the borrowing for the SE RAF payment have a priority over repayment of the other advances. 20% of the repayment of the other advances not related to the SERAF advances shall be deducted and transferred to the Low and Moderate Income Housing Asset Fund (Housing Authority). Management of the City has not recorded an allowance for uncollectible advances as all the advances are expected to be repaid. 105- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 18) CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES, (continued) The State Controller of the State of California has been directed to review the propriety of any transfers of assets between Dissolved RDA and other public bodies that occurred after January 1, 2011. If the public body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency. The State Controller completed its review on December 11, 2013, and identified $8,497,720 of unallowable transfers of assets that occurred during the audit between the former Commission and the City. This amount is already included in the amount ordered by DOF to remit to the CAC (see above). On May 2, 2000, the City and the RDA entered into a Financing Agreement establishing a $5,600,000 line of credit to the RDA to achieve project goals within the implementation plan. The City Council and RDA resolutions approved the 2000 Financing Agreement and promissory note. The Financing Agreement authorized the RDA to draw down funds from the line of credit. Specifically, the RDA withdrew $600,000 and $5,000,000 on September 2000 and June 2004, respectively, as substantiated through the financial statements. On March 9, 2016, the DOF found that the loans were for legitimate redevelopment purposes and therefore enforceable obligations. Similarly, on June 15, 2010, the RDA and the City entered into a Cash Flow Loan totaling $2,500,000 to satisfy the RDA's short term cash flow needs. The Agency provided City Council and RDA resolutions and financial statements substantiating the loans in the amount of $2,500,000. On March 9, 2016, the DOF found that the loans were for legitimate redevelopment purposes and therefore enforceable obligations. Management believes, in consultation with legal counsel, that the remaining obligations of the Dissolved RDA due to the City are valid enforceable obligations payable by the Successor Agency under the requirements of the Dissolution Act and AB 1484. The City's position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by an appropriate judicial authority that would resolve this issue unfavorably to the City. 106- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) 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, 2018 was $19,770,000. 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, 2018 was comprised of BKK Project in the amount of $139,016. 107- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) SUCCESSOR AGENCY DISCLOSURES, (continued) Capital Assets Capital asset activity for the year ended June 30, 2018 was as follows: Balance Balance June 30, 2017 Additions Deletions Transfers June 30, 2018 Capital assets, not being depreciated: Land $ 3,007,802 $ $ (3,007,802) $ $ Total capital assets, not being depreciated 3,007,802 (3,007,802) Capital assets, being depreciated: Buildings and improvements 18,403,609 - - (18,403,609) - Equipmentandvehicles 61,405 (61,405) Total capital assets, being depreciated 18,465,014 (18,465,014) Less accumulated depreciation for: Buildings and improvements (13,556,932) (368,072) - 13,925,004 - Equipmentandvehicles (61,405) 61,405 Total accumulated depreciation (13,618,337) (368,072) 13,986,409 Total capital assets, being depreciated, net 4,846,677 (368,072) (4,478,605) Total capital assets, net $ 7,854,479 $ (368,072) $ (3,007,802) $ (4,478,605) $ 108- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities Long-term liability activity for the year ended June 30, 2018 was as follows: Balance Balance Due Within June 30, 2017 Additions Deletions June 30, 2018 One Year Successor Agency Lease Revenue Bonds: 1988 Lease Revenue Refunding Bonds $ 1,295,000 $ Special Tax Bonds: 1996 Special Tax Redunding Bonds 22,440,000 Tax Allocation Bonds: 2017 Tax Allocation Revenue $ (625,000) $ 670,000 $ 670,000 (3,000,000) 19,440,000 3,250,000 Refunding Bonds 15,380,000 - (1,480,000) 13,900,000 1,765,000 Plus deferred amounts: Issuance premium 238,237 (6,807) 231,430 6,807 Total Bonds Payable 39,353,237 - (5,111,807) 34,241,430 5,691,807 Developer agreement payable 54,858,845 5,872,582 (524,615) 60,206,812 404,040 Due to County of Los Angeles 4,637,140 201,681 (1,755,980) 3,082,841 1,880,270 Total $ 98,849,222 $ 6,074,263 $ (7,392,402) $ 97,531,083 $ 7,976,117 109- 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 elected at - large 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, three community centers, four day care facilities, 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. The challenging economy has created opportunities in the business community to continually reinvent itself for the benefit of the City and its local surroundings. While sales tax revenues are expected to remain flat over the next few years, the City derives significant economic stability from its three major commercial districts: Plaza West Covina, Eastland Center, and The Lakes. Despite the challenging economic climate, the City is making strides to improve the organizational structure through various reorganization efforts to help future budgets. The City is also fully aware that revenue growth is slow, which exacerbates the strain on the City's financial structure. The City must identify sustainable resources to address increasing costs such as retirement, continued rise in medical costs, debt service requirements, and costs for deferred maintenance of facilities and infrastructure. 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. City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) 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, 2018. The outstanding principal balance at June 30, 2018 was $670,000. The annual debt service requirements on the 1988 Lease Revenue Refunding Bonds as of June 30, 2018 were as follows (using a 1.39% interest rate at June 30, 2018): Year Ending June 30, Principal Interest Total 2019 $ 670,000 $ 1,553 $ 671,553 Total $ 670,000 $ 1,553 $ 671,553 110- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities, (continued) 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, 2018. There was a bond call on March 1, 2016, for $425,000. The outstanding principal balance of the bonds at June 30, 2018 was $19,440,000. The annual debt service requirements on the 1996 Special Tax Bonds as of June 30, 2018 were as follows: Year Ending June 30, Principal Interest Total 2019 $ 3,250,000 $ 1,068,900 $ 4,318,900 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 $ 19,440,000 $ 3,148,200 $ 22,588,200 M City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities, (continued) 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, 2018 was fully funded. The principal balance of outstanding bonds at June 30, 2018 was $13,900,000. 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). The annual debt service requirements on the 2017 Tax Allocation Revenue Refunding Bonds as of June 30, 2018 were as follows: Year Ending June 30, Principal Interest Total 2019 $ 1,765,000 $ 405,625 $ 2,170,625 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 2024-2028 4,305,000 462,804 4,767,804 2029-2032 1,105,000 58,969 1,163,969 Total $ 13,900,000 $ 2,053,071 $ 15,953,071 112- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 19) SUCCESSOR AGENCY DISCLOSURES, (continued) Long -Term Liabilities, (continued) 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 $21,697,200. The balance outstanding at June 30, 2018 was $60,206,812. 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, 2018 was $3,082,841. 20) SUBSEQUENT EVENT On November 20, 2018, the City issued Lease Revenue Refunding bonds, Series 2018A (Tax -Exempt) in the amount of $19,310,000 and 2018B (Federally Taxable) in the amount of $4,855,000. These bonds refinanced the 2002 Lease Revenue Refunding Bonds Series B, the 2004 Lease Revenue Bonds Series A & B, and the 2013 Lease Revenue Refunding Bonds Series A. 113- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 21) PRIOR PERIOD RESTATEMENT Change in Accounting Principle As discussed in Note 1, the City implemented GASB Statement No. 75 (GASB 75) effective July 1, 2017. GASB 75, among other provisions, amended prior guidance with respect to the reporting of postemployment benefits other than pensions (OPEB). GASB 75 establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expenses/expenditures. The City's net OPEB liability was not previously recorded on the statement of net position. GASB 75 requires that accounting changes adopted to conform to the provisions of the Statement be applied retroactively by restating financial statements. The cumulative effects of applying the provisions of GASB 75 have been reported as a restatement of beginning net position for the year ended June 30, 2018 in accordance with the Statement as follows: Governmental Activities Beginning net position, as previously reported $ 59,842,490 Prior period restatement - change in accounting principle (38,812,837) Beginning net position, as restated $ 21,029,653 114- This page intentionally left blank. REQUIRED SUPPLEMENTARY INFORMATION 115- 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 TOTAL PENSION LIABILITY Service Cost Interest Changes of Benefit Terms Difference Between Expected and Actual Experience Changes of Assumptions 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 Ne[ Position -Beginning Plan Fiduciary Net Position - Ending (b) Plan Net 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 at Covered Payroll 2013-14 2014-15 2015-16 2016-17 $ 1,653,769 $ 1,454,757 $ 1,395,164 $ 1,568,756 9,849,865 10,180, 561 10, 423,152 10,499,411 - - - 8,138,458 - (134,455) (568,485) (1,086,666) - (2,336,836) - - (6,835,867) (7,534,397) (8,197,448) (8,527,256) 4,667,767 1,629,630 3,052,383 10,592,703 133,922,583 138,590,350 140,219,980 143,272,363 $138,590,350 $140,219,980 $ 143,272,363 $153,865,066 $ 1,441,234 $ 1,507,469 $ 1,871,710 $ 2,449,585 921,495 714,712 819,011 788,064 17,189,513 2,500,142 590,110 11,531,815 (6,835,867) (7,534,397) (8,197,448) (8,527,256) - 307 (4,880) - (123,626) (66,948) (154,821) 12,716,375 (2,935,393) (4,988,445) 6,087,387 100,069,306 112,785,681 109,850,288 104,861,843 $112,785,681 $109,850,288 $ 104,861,843 $110,949,230 $ 25,804,669 $ 30,369,692 $ 38,410,520 $ 42,915,836 81.38% 78.34% 73.19% 72.11% $ 10,025,879 $ 9,381,292 $ 9,349,710 $ 14,062,225 257.38% 323.73% 410.82% 305.19% 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: 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. 116- City of West Covina Required Supplementary Information Schedule of Plan Contributions CaIPERS Pension Plan - Miscellaneous Last Ten Years" Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014.15 2015.16 2016.17 2017.18 Actuarially Determined Contribution 1,507,469 7F 1,8 11,710 7F 2,4 99,585 7F 7 55,617 Contributions in Relation to the Actuarially Determined Contribution (1,507,469) (1,871,710) (2,449,585) (755,617) Contribution Deficiency (Excess) $ - $ - $ $ - Covered Payroll $ 9,381,292 $ 9,349,710 $ 14,062,225 $ 12,173,646 Contributions as a Percentage of Covered Payroll 16.071/ 20.02 % 17.42 % 6.21 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 2017-18 were from the June 30, 2016 Funding Valuation Report. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2013, 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 7.50 % Net of Pension Plan Investment and Administrative Expenses; includes Inflation. Retirement Age The probabilities of Retirement are based on the 2010 CaIPERS Experience Study for the period from 1997 to 2011. Mortality The probabilities of mortality are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Pre -retirement and Post -retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries. 117- City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CaIPERS Pension Plan - Safety Last Ten Years` Measurement Period TOTAL PENSION LIABILITY Service Cost Interest Changes of Benefit Terms Difference Between Expected and Actual Experience Changes of Assumptions 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 Net Position -Beginning Plan Fiduciary Net Position - Ending (b) Plan Net 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 2013-14 2014-15 2015-16 2016-17 $ 4,824,545 $ 4,604,800 $ 4,729,431 $ 5,376,792 23,426,151 24,117,128 24,899,740 25,330,388 - (1,760,971) (145,882) (2,764,123) - (5,858,071) - 21,000,606 (17,362,607) (17,865,208) (18,951,025) (19,858,900) 10,888,089 3,237,678 10,532,264 29,084,763 318,617,717 329,505,806 332,743,484 343,275,748 $ 329,505,806 $ 332,743,484 $ 343,275,748 $ 372,360,511 $ 6,403,118 $ 7,339,064 $ 8,387,165 $ 10,058,079 2,416,548 1,628,630 1,660,160 1,818,024 34,775,710 5,057,426 1,179,228 23,916,665 (17,362,607) (17,865,208) (18,951,025) (19,858,900) - 10,338 4,880 - (254,287) (137,683) (321,946) 26,232,769 (4,084,037) (7,857,275) 15,611,922 203,765,462 229,998,231 225,914,194 218,056,919 $ 229,998,231 $ 225,914,194 $ 218,056,919 $ 233,668,841 $ 99,507,575 $ 106,829,290 $ 125,218,829 $ 138,691,670 69,80 % 67.89 % 63.52% 62.75 % $ 16,974,682 $ 16,517,686 $ 17,288,458 $ 17,084,933 586.21% 646.76% 724.29% 811.789% ` 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: 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. 118- 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 difficult financial times while providing critical services to the public in such areas 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, Marcie Medina Finance Director City of West Covina Required Supplementary Information Schedule of Plan Contributions CaIPERS Pension Plan - Safety Last Ten Years` Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014.15 2015.16 2016.17 2017-18 Actuarially Determined Contribution 7,339,064 7F 8,3 77,165 7F 10,0 88,079 7F 3,8 22,612 Contributions in Relation to the Actuarially Determined Contribution (7,339,064) (8,387,165) (10,058,079) (3,892,612) Contribution in $ - $ - $ - $ - _ Covered Payroll $ 16,517,686 $ 17,288,458 $ 17,084,933 $ 14,051,195 Contributions as a Percentage of Covered Payroll 44.43% 48.51 % 58.879/6 27.70% 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 2017-18 were from the June 30, 2016 Funding Valuation Report. Actuarial Cost Method Entry Age Normal Amortization Method/Period For details, see June 30, 2013, 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 7.50 % Net of Pension Plan Investment and Administrative Expenses; includes Inflation. Retirement Age The probabilities of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2011. Mortality The probabilities of mortality are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Pre -retirement and Post -retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries. 119- City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CaIPERS Pension Plan- EPMC Replacement Supplemental Retirement Plan Last Ten Years" Measurement Period 2013-14 2014-15 2015-16 2016.2017 TOTAL PENSION LIABILITY Service Cost $ 36,000 $ 36,000 $ 40,000 $ 35,733 Interest 36,000 28,000 32,000 35,268 Difference Between Expected and Actual Experience - (72,000) - 98,508 Changes of Assumptions - 200,000 (37,000) (85,060) Changes in benefits - - - - Benefit Payments, Including Refunds of Employee Contributions (64,000) (9,000) (91,000) (42,877) Net Change in Total Pension Liability 8,000 183,000 (56,000) 41,572 Total Pension Liability -Beginning 755,000 763,000 946,000 890,000 Total Pension Liability - Ending (a) $ 763,000 $ 946,000 $ 890,000 $ 931,572 PLAN FIDUCIARY NET POSITION Contributions - Employer $ 65,000 $ 56,000 $ 56,000 $ 61,019 Contributions - Employee - - - Net Investment Income 12,000 3,000 (1,000) 10,029 Benefit Payments, Including Refunds of Employee Contributions (64,000) (9,000) (91,000) (42,877) Plan to Plan Resource Movement - - - - Administrative Expense (3,000) (7,000) (1,000) (9,456) Net Change in Fiduciary Net Position 10,000 43,000 (37,000) 18,715 Plan Fiduciary Net Position - Beginning 109,000 119,000 162,000 125,000 Plan Fiduciary Net Position - Ending (b) $ 119,000 $ 162,000 $ 125,000 $ 143,715 Plan Net Pension Liability - Ending (a) - (b) $ 644,000 $ 784,000 $ 765,000 $ 787,857 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 15.60% 17.12% 14.04% 15.43% Covered Payroll $ $ $ $ - Plan Net Pension Liability as a Percentage of Covered Payroll n/a 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 Terms: None Changes in Assumptions: 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. 120- City of West Covina Required Supplementary Information Schedule of Plan Contributions CaIPERS Pension Plan- EPMC Replacement Supplemental Retirement Plan Last Ten Years" Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014-15 2015-16 2016-17 2017-18 Actuarially Determined Contribution $ 82,000 $ 82,000 $ 105,000 $ 104,000 Contributions in Relation to the Actuarially Determined Contribution (56,000) (56,000) (66,000) (60,056) Contribution Deficiency (Excess) $ 26,000 $ 26,000 $ 39,000 $ 43,944 Covered Payroll $ - $ - $ - $ - Contributions as a Percentage of Covered Payroll n/a 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 Valuation Date June 30, 2015 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 121- City of West Covina Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios CaIPERS 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 Net Position - Beginning Plan Fiduciary Net Position - Ending (b) Plan Net 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 2013-14 2014-15 2015-16 2016-17 $ 112,000 $ 116,000 $ 30,000 $ 20,388 168,000 178,000 141,000 161,327 - (643,000) - (111,492) - 346,000 (455,000) 803,038 (82,000) (104,000) (137,000) (136,317) 198,000 (107,000) (421,000) 736,944 2,959,000 3,157,000 3,050,000 2,629,000 $ 3,157,000 $ 3,050,000 $ 2,629,000 $ 3,365,944 $ 59,000 $ 78,000 $ 78,000 $ 73,467 75,000 13,000 9,000 49,861 (82,000) (104,000) (137,000) (136,317) (6,000) (6,000) (4,000) (8,431) 46,000 (19,000) (54,000) (21,420) 660,000 706,000 687,000 633,000 $ 706,000 $ 687,000 $ 633,000 $ 611,580 $ 2,451,000 $ 2,363,000 $ 1,996,000 $ 2,754,364 22.36 % 22.52 % 24.08 % 18.17 n/a 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 Terms:None Changes in Assumptions: 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 2014, amounts reported were based on the 5.55 percent discount rate. 122- City of West Covina Required Supplementary Information Schedule of Plan Contributions CaIPERS Pension Plan - Supplemental Retirement Plan for Executive Staff Last Ten Years" Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2014-15 2015-16 2016-17 2017-18 Actuarially Determined Contribution $ 439,000 $ 439,000 $ 279,000 $ 278,000 Contributions in Relation to the Actuarially Determined Contribution (78,000) (78,000) (73,000) (74,100) Contribution Deficiency (Excess) $ 361,000 $ 361,000 $ 206,000 $ 203,900 Covered Payroll $ - $ - $ - $ - Contributions as a Percentage of Covered Payroll n/a 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 Valuation Date June 30, 2015 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 123- City of West Covina Required Supplementary Information Schedule of Changes in the Net OPEB Liability and Related Ratios Last Ten Years' Fiscal Year 2017-18 Measurement Period 2016-17 Total OPEB Liability Service cost $ 1,913,541 Interest 1,889,517 Changes of assumptions (7,040,369) Benefit payments (2,467,893) Net change in total OPEB liability (5,705,204) Total OPEB liability - beginning 65,619,220 Total OPEB liability - ending (a) 59,914,016 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) $ 59,914,016 Plan fiduciary net position as a percentage of the total OPEB liability 0.0 % Covered -employee payroll $ 26,527,000 Net OPEB liability as a percentage of covered payroll 225.9 % Notes to Schedule: Changes in assumptions: Discount rate increased from 2.85% at June 30, 2016 to 3.58% at June 30, 2017. 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 124- 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. 125- City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 49,961,100 $ 48,946,100 $ 50,491,403 $ 1,545,303 Licenses and permits 974,871 974,871 1,089,850 114,979 Fines and forfeitures 764,500 764,500 1,290,187 525,687 Investment income 209,433 209,433 (95,022) (304,455) Rental income 638,937 649,137 649,968 831 Revenue from other agencies 2,125,388 2,059,205 2,188,406 129,201 Charges for services 7,267,013 7,082,185 8,003,970 921,785 Other revenues 107,700 493,315 3,577,730 3,084,415 Total revenues 62,048,942 61,178,746 67,196,492 6,017,746 EXPENDITURES Current: General government 5,689,136 6,025,663 5,688,954 336,709 Public safety 47,309,770 50,197,890 49,556,995 640,895 Public works 4,022,962 4,142,388 4,342,778 (200,390) Community services 2,654,963 2,829,299 2,648,557 180,742 Community development 638,383 658,833 648,920 9,913 Total expenditures 60,315,214 63,854,073 62,886,204 967,869 Excess (deficiency) of revenues over (under) expenditures 1,733,728 (2,675,327) 4,310,288 6,985,615 OTHER FINANCING SOURCES (USES) Transfers in 728,710 728,710 518,821 (209,889) Transfers out (2,595,370) (3,993,028) (3,677,624) 315,404 Total other financing sources (uses) (1,866,660) (3,264,318) (3,158,803) 105,515 Net change in fund balance (132,932) (5,939,645) 1,151,485 7,091,130 Fund balance, beginning of year 21,101,346 21,101,346 21,101,346 Fund balance, end of year $ 20,968,414 $ 15,161,701 $ 22,252,831 $ 7,091,130 126- 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. Grants Special Revenue Fund This fund accounts for various Federal, State of California, and local grants that are restricted to expenditures for specific programs and projects. 127- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 396,928 $ 396,928 Revenue from other agencies 50,000 - (50,000) Other revenues 46,013 46,013 Total revenues 50,000 442,941 392,941 EXPENDITURES Current: Public Safety 150,000 160,083 160,083 - Community development 519,294 513,985 418,038 95,947 Total expenditures 669,294 674,068 578,121 95,947 Net change in fund balance (669,294) (624,068) (135,180) 488,888 Fund balance, beginning of year 24,860,396 24,860,396 24,860,396 Fund balance, end of year $ 24,191,102 $ 24,236,328 $ 24,725,216 $ 488,888 128- This page intentionally left blank. City of West Covina Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Grants Special Revenue Fund For the Year Ended June 30, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Revenue from other agencies $ 630,120 $ 903,702 $ 732,402 $ (171,300) Investment income - - 3,394 3,394 Charges for services 45,000 45,000 36,542 (8,458) Total revenues 675,120 948,702 772,338 (176,364) EXPENDITURES Current: Public safety 353,978 603,451 514,901 88,550 Public works 515,739 967,530 934,930 32,600 Community services 282,387 297,572 236,936 60,636 Total expenditures 1,152,104 1,868,553 1,686,767 181,786 Excess (deficiency) of revenues over (under) expenditures (476,984) (919,851) (914,429) 5,422 OTHER FINANCING SOURCES (USES) Transfers out (27,121) (27,121) Net change in fund balance (476,984) (919,851) (941,550) (21,699) Fund balance, beginning of year 186,117 186,117 186,117 Fund balance (deficit), end of year $ (290,867) $ (733,734) $ (755,433) $ (21,699) 129- City of West Covina Notes to Required Supplementary Information June 30, 2018 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. 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. 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 Works $ 4,142,388 $ 4,342,778 $ (200,390) Non -Major Special Revenue Funds: Drug Enforcement Rebate Public safety 1,525,507 1,588,107 (62,600) Proposition A Community services 2,133,566 2,139,868 (6,302) Public Safety Augmentation Public Safety 700,000 701,884 (1,884) Measure R Community services 226,411 228,899 (2,488) Community Development Block Grant Public safety 20,000 20,827 (827) Sewer Maintenance Public works 2,907,536 2,923,843 (16,307) Non -Major Capital Projects Funds: Construction Tax Public works 395,030 395,490 (460) Information Technology Public works 793,958 801,887 (7,929) 130- SUPPLEMENTARY INFORMATION 131- 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. 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. 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. 132- City of West Covina Combining Balance Sheet Non -Major Governmental Funds June 30, 2018 Total Special City Capital Non -Major Revenue Debt Projects Governmental Funds Service Fund Funds Funds ASSETS Cash and investments $ 20,942,751 $ 1,183,282 $ 2,160,136 $ 24,286,169 Cash and investments with fiscal agent - 2,104,064 - 2,104,064 Restricted cash and investments - 502,882 502,882 Receivables, net: Taxes 307,953 - - 307,953 Interest 6,433 1,743 217 8,393 Other 374,491 7,279 - 381,770 Due from other Successor Agency - 1,255,662 1,255,662 Due from other agencies 625,124 625,124 Total assets $ 22,256,752 $ 5,054,912 $ 2,160,353 $ 29,472,017 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ 851,511 $ 21,527 $ 115,808 $ 988,846 Other accrued liabilities 152,597 - 39,650 192,247 Due to other funds 194,835 - 194,835 Advances from other funds 434,372 434,372 Total liabilities 1,633,315 21,527 155,458 1,810,300 Deferred inflows of resources: Unavailable revenue 625,124 625,124 Fund Balances: Restricted: Debt service - 5,033,385 5,033,385 Community services 3,005,968 - 3,005,968 Public safety 3,501,659 3,501,659 Public works 14,001,419 14,001,419 Assigned - 2,004,895 2,004,895 Unassigned (510,733) (510,733) Total fund balances 19,998,313 5,033,385 2,004,895 27,036,593 Total liabilities, deferred inflows of resources, and fund balances $ 22,256,752 $ 5,054,912 $ 2,160,353 $ 29,472,017 133- City of West Covina Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Non -Major Governmental Funds For the Year Ended June 30, 2018 Total Special City Capital Non -Major Revenue Debt Projects Governmental Funds Service Funds Funds Funds REVENUES Taxes $ 8,688,489 $ - $ 75,824 $ 8,764,313 Special assessments 6,077,861 - - 6,077,861 Investment income 167,129 66,049 13,470 246,648 Revenue from other agencies 3,682,173 1,255,662 61,535 4,999,370 Charges for services 224,841 416,351 - 641,192 Other revenues 556,734 49,418 606,152 Total revenues 19,397,227 1,738,062 200,247 21,335,536 EXPENDITURES Current: General government 11,507 - - 11,507 Public safety 2,584,911 - 270,740 2,855,651 Public works 11,160,404 - 1,197,377 12,357,781 Community services 3,853,814 - 235,871 4,089,685 Community development 115,297 - - 115,297 Debt service: Principal - 1,958,918 - 1,958,918 Interest and fiscal charges 1,501,956 1,501,956 Total expenditures 17,725,933 3,460,874 1,703,988 22,890,795 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 1,671,294 (1,722,812) (1,503,741) (1,555,259) 45,882 2,130,561 1,206,792 3,383,235 (9,000) (1,000,000) (518,821) (1,527,821) 36,882 1,130,561 687,971 1,855,414 1,708,176 (592,251) (815,770) 300,155 18,290,137 5,625,636 2,820,665 26,736,438 $ 19,998,313 $ 5,033,385 $ 2,004,895 $ 27,036,593 134- 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. 135- 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. 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 Saae 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. 136- 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. 137- City of West Covina Combining Balance Sheet Non -Major Special Revenue Funds June 30, 2018 ASSETS Cash and investments Receivables, net: Taxes Interest 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 Advances from other funds Total liabilities Deferred Inflows of Resources: Unavailable revenue Fund Balances (Deficit): Restricted: Community services Public safety Public works Unassigned Total fund balances (deficit) Total liabilities, deterred inflows of resources, and fund balances Drug Air Enforcement Measure Quality Proposition Rebate M Improvement A $ 3,110,584 $ 1,072,022 $ - $ 86,738 954 329 - 29 - - 35,495 - - 554,199 - $ 3,111,538 $ 1,072,351 $ 589,694 $ 86,767 $ 165,302 $ $ 14,043 $ 3,692 44,399 - 100,572 168,994 159,014 554,199 - 1,072,351 86,767 2,942,544 - - - - (123,519) - 2,942,544 1,072,351 (123,519) 86,767 $ 3,111,538 $ 1,072,351 $ 589,694 $ 86,767 138- City of West Covina Organizational Chart Citizens of West Covina City Clerk City Council City Treasurer (Elected) I (Elected) (Elected) City Commissions City Audit Committee Attorn Community and Senior Services Human Resources Planning City Manager Deputy I I I Successor Agency/ City Manager m Community and Economic Development CityClerk's Planning Public Finance 9 Office Works Fire Police Community Human Resources Services -iv- (continued) State Transportation Public Proposition Gas Police Development Safety C Tax Donations Act AB939 Augmentation COPS/SLESA $ 1,462,463 $ 554,526 $ 24,909 $ $ 415,428 $ 64,500 $ 347,055 - - - - 134,076 - 447 - 8 126 34 129 - 228,508 51,225 - - - - - 70,925 - - - $ 1,462,910 $ 783,034 $ 24,917 $ 70,925 $ 466,779 $ 198,610 $ 347,184 $ 127,248 $ 112,717 $ - $ 12,383 $ 1,580 $ - $ 12,874 4,080 15,886 - 1,747 9,359 754 - - 59,242 - - - 131,328 128,603 71,625 3,327 9,359 13,628 - - 70,925 - - - 1,331,582 - - - - - - 24,917 - 189,251 333,556 654,431 - 463,452 - - (71,625) 1,331,582 654,431 24,917 (71,625) 463,452 189,251 333,556 $ 1,462,910 $ 783,034 $ 24,917 $ 70,925 $ 466,779 $ 198,610 $ 347,184 139- City of West Covina Combining Balance Sheet Non -Major Special Revenue Funds (continued) June 30, 2018 Art in Charter Public Measure Inmate ASSETS Cash and investments $ 270,578 $ 142,515 $ 2,303,079 $ 11,377 Receivables, net: Taxes - - - - Interest 83 43 703 4 Other - Due from other agencies Total assets $ 270,661 $ 142,558 $ 2,303,782 $ 11,381 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ $ - $ 16,017 $ Other accrued liabilities 37,598 5,584 Due to other funds - - Advances from other funds Total liabilities 37,598 21,601 Deferred Inflows of Resources: Unavailable revenue Fund Balances (Deficit): Restricted: Community services 270,661 104,960 Public safety - - - 11,381 Public works 2,282,181 Unassigned Total fund balances (deficit) 270,661 104,960 2,282,181 11,381 Total liabilities, deferred inflows of resources, and fund balances $ 270,661 $ 142,558 $ 2,303,782 $ 11,381 140- (continued) West Covina Community Community Services Development SAFER Maintenance Maintenance Coastal Sage Maintenance Foundation Block Grant Grant District #1 District #2 Shrub District #4 $ 122,357 $ $ 10 $ 2,125,610 $ 703,515 $ 303,614 $ 2,385,169 - 29,382 4,463 124 16,409 38 649 214 92 729 22,675 36,588 - - - - $ 145,070 $ 36,588 $ 10 $ 2,155,641 $ 708,192 $ 303,830 $ 2,402,307 $ 5,423 $ 7,888 $ $ 48,983 $ 10,460 $ 5,882 $ 94,635 - 2,982 1,613 985 265 1,959 35,021 - - - - 5,423 45,891 50,596 11,445 6,147 96,594 139,647 - 10 - - - - 2,105,045 696,747 297,683 2,305,713 (9,303) 139,647 (9,303) 10 2,105,045 696,747 297,683 2,305,713 $ 145,070 $ 36,588 $ 10 $ 2,155,641 $ 708,192 $ 303,830 $ 2,402,307 141- City of West Covina Combining Balance Sheet Non -Major Special Revenue Funds (continued) June 30, 2018 ASSETS Cash and investments Receivables, net: Taxes Interest 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 Advances from other funds Total liabilities Deferred Inflows of Resources: Unavailable revenue Fund Balances (Deficit): Restricted: Community services Public safety Public works Unassigned Total fund balances (deficit) Total liabilities, deferred inflows of resources, and fund balances Citywide Maintenance Maintenance Maintenance $ 243,854 $ 290,440 $ 1,232,375 2,602 2,438 34,611 74 88 382 $ 246,530 $ 292,966 $ 1,267,368 $ 12,553 $ 32,153 $ 146,312 973 1,352 526 13,526 33,505 146,838 233,004 259,461 1,120,530 233,004 259,461 1,120,530 $ 246,530 $ 292,966 $ 1,267,368 142- Total Auto Plaza Non -Major Sewer Improvement Special Maintenance District Revenue Funds $ 3,540,516 $ 129,517 $ 20,942,751 83,848 307,953 1,238 40 6,433 - 374,491 625,124 $ 3,625,602 $ 129,557 $ 22,256,752 $ 23,587 $ 1,471 $ 851,511 18,843 - 152,597 - - 194,835 434,372 434,372 42,430 435,843 1,633,315 625,124 3,005,968 - 3,501,659 3,583,172 14,001,419 (306,286) (510,733) 3,583,172 (306,286) 19,998,313 $ 3,625,602 $ 129,557 $ 22,256,752 (continued) 143- 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, 2018 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 Drug Air Enforcement Measure Quality Proposition Rebate M Improvement A $ $ 1,132,879 $ $ 2,012,184 32,080 2,798 2,112 28 251,688 - 138,524 103,655 98,656 - - 1,000 1,700 383,424 1,135,677 142,336 2,115,867 1,588,107 - - - 63,326 936,746 - - - 2,139,868 1,588,107 63,326 936,746 2,139,868 (1,204,683) 1,072,351 (794,410) (24,001) 9,761 9,761 (1,204,683) 1,072,351 (784,649) (24,001) 4,147,227 661,130 110,768 $ 2,942,544 1,072,351 $ (123,519) $ 86,767 144- (continued) State Transportation Public Proposition Gas Police Development Safety C Tax Donations Act AB939 Augmentation COPS/SLESA $ 1,665,220 $ 631,736 $ $ $ $ 758,640 $ 12,694 - 242 3,408 1,138 3,245 - 2,132,512 4,000 84,318 - - 230,437 124,294 - - - - 123,439 1,250 202,362 250 1,677,914 3,011,981 5,492 84,318 205,770 759,778 233,932 - 3,333 - - - - - - - 5,702 - - 701,884 251,275 430,288 2,264,276 - 116,330 159,102 - - 1,187,233 - - - 18,142 1,635,663 2,267,609 5,702 116,330 159,102 701,884 251,275 42,251 744,372 (210) (32,012) 46,668 57,894 (17,343) 42,251 744,372 (210) (32,012) 46,668 57,894 (17,343) 1,289,331 (89,941) 25,127 (39,613) 416,784 131,357 350,899 $ 1,331,582 $ 654,431 $ 24,917 $ (71,625) $ 463,452 $ 189,251 $ 333,556 145- 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, 2018 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 Art in Charter Public Inmate $ $ $ 1,250,103 $ 2,388 1,021 18,555 95 - 8,051 2,245 3,141 2,388 9,072 1,270,903 3,236 8,174 - - - 6,750 285,250 - 228,899 8,174 514,149 6,750 (5,786) 9,072 756,754 (3,514) 27,121 - 27,121 (5,786) 9,072 783,875 (3,514) 276,447 95,888 1,498,306 14,895 $ 270,661 $ 104,960 $ 2,282,181 $ 11,381 146- (continued) West Covina Community Community Services Development SAFER Maintenance Maintenance Coastal Sage Maintenance Foundation Block Grant Grant District #1 District #2 Shrub District #4 $ $ $ $ 523,787 $ 202,505 $ 107,873 $ - - - - 1,041,808 1,043 14 17,349 5,597 2,535 19,603 - 737,039 - - - - 68,502 139,194 1,000 69,545 876,247 541,136 208,102 111,408 1,061,411 7,058 20,827 - - 3,308 - - 103,044 401,065 149,201 87,735 1,122,304 52,669 245,145 - - - - 41,298 59,727 410,314 401,065 149,201 91,043 1,122,304 9,818 465,933 140,071 58,901 20,365 (60,893) 9,000 (9,000) (9,000) 9,000 9,818 465,933 140,071 49,901 20,365 (51,893) 129,829 (475,236) 10 1,964,974 646,846 277,318 2,357,606 $ 139,647 $ (9,303) $ 10 $ 2,105,045 $ 696,747 $ 297,683 $ 2,305,713 147- 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, 2018 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 157,799 171,405 1,638,880 2,381 2,867 8,718 1,891 - - 350 160,180 174,272 1,649,839 232,387 278,555 1,606,952 232,387 278,555 1,606,952 (72,207) (104,283) 42,887 (72,207) (104,283) 42,887 305,211 363,744 1,077,643 $ 233,004 $ 259,461 $ 1,120,530 148- CITY OF WEST COVINA City Officials June 30, 2018 CITY COUNCIL Mayor Lloyd Johnson Mayor Pro Tern Tony Wu Councilman Mike Spence Councilmember James Toma Councilman Corey Warshaw CITY MANAGER Chris Freeland EXECUTIVE MANAGEMENT Kimberly Hall Barlow City Attorney Rosalia Butler City Clerk Nikole Bresciani Community Services Director Laura Minnich Deputy City Manager Judy Lancaster Finance Director (Interim) Larry Whithorn Fire Chief Edward Macias Human Resources Director Jeff Anderson Planning Director Dave Faulkner Police Chief Chino Consunji Public Works Director -v- Total Auto Plaza Non -Major Sewer Improvement Special Maintenance District Revenue Funds $ 287,947 $ 115,615 $ 8,688,489 3,067,969 - 6,077,861 26,130 1,088 167,129 - - 3,682,173 - 224,841 4,250 556,734 3,386,296 116,703 19,397,227 - - 11,507 - 2,584,911 2,923,843 11,160,404 - - 3,853,814 55,857 115,297 2,923,843 55,857 17,725,933 462,453 60,846 1,671,294 45,882 (9,000) 36,882 462,453 60,846 1,708,176 3,120,719 (367,132) 18,290,137 $ 3,583,172 $ (306,286) $ 19,998,313 (continued) 149- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ $ 32,080 $ 32,080 Revenue from other agencies 251,688 251,688 Charges for services 98,656 98,656 Other revenues 1,000 1,000 Total revenues 383,424 383,424 EXPENDITURES Current: Public safety 1,525,507 1,588,107 (62,600) Net change in fund balance (1,525,507) (1,204,683) 320,824 Fund balance, beginning of year 4,147,227 4,147,227 4,147,227 Fund balance, end of year $ 4,147,227 $ 2,621,720 $ 2,942,544 $ 320,824 150- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,343,814 $ 1,343,814 $ 1,132,879 $ (210,935) Investment income 2,798 2,798 Total revenues 1,343,814 1,343,814 1,135,677 (208,137) EXPENDITURES Current: Public works 1,000,000 63,326 63,326 Net change in fund balance 343,814 1,280,488 1,072,351 (208,137) Fund balance, beginning of year Fund balance, end of year $ 343,814 $ 1,280,488 $ 1,072,351 $ (208,137) 151- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 2,112 $ 2,112 Revenue from other agencies 141,000 141,000 138,524 (2,476) Other revenues 1,700 1,700 Total revenues 141,000 141,000 142,336 1,336 EXPENDITURES Current: Public works 28,653 951,302 936,746 14,556 Excess (deficiency) of revenues over (under) expenditures 112,347 (810,302) (794,410) 15,892 OTHER FINANCING SOURCES (USES) Transfers in 9,761 9,761 Net change in fund balance 112,347 (810,302) (784,649) 25,653 Fund balance, beginning of year 661,130 661,130 661,130 Fund balance (deficit), end of year $ 773,477 $ (149,172) $ (123,519) $ 25,653 152- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 2,006,292 $ 2,006,292 $ 2,012,184 $ 5,892 Investment income - - 28 28 Revenue from other agencies 100,000 100,000 103,655 3,655 Total revenues 2,106,292 2,106,292 2,115,867 9,575 EXPENDITURES Current: Community services 2,133,534 2,133,566 2,139,868 (6,302) Net change in fund balance (27,242) (27,274) (24,001) 3,273 Fund balance, beginning of year 110,768 110,768 110,768 Fund balance, end of year $ 83,526 $ 83,494 $ 86,767 $ 3,273 153- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,664,167 $ 1,664,167 $ 1,665,220 $ 1,053 Investment income 12,694 12,694 Total revenues 1,664,167 1,664,167 1,677,914 13,747 EXPENDITURES Current: Public works 319,832 440,881 430,288 10,593 Community services 1,309,346 1,309,187 1,187,233 121,954 Community development 28,528 28,528 18,142 10,386 Total expenditures 1,657,706 1,778,596 1,635,663 142,933 Net change in fund balance 6,461 (114,429) 42,251 156,680 Fund balance, beginning of year 1,289,331 1,289,331 1,289,331 Fund balance, end of year $ 1,295,792 $ 1,174,902 $ 1,331,582 $ 156,680 154- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 622,074 $ 622,074 $ 631,736 $ 9,662 Revenue from other agencies 2,262,337 2,262,337 2,132,512 (129,825) Charges for services - 119,576 124,294 4,718 Other revenues 123,427 123,427 123,439 12 Total revenues 3,007,838 3,127,414 3,011,981 (115,433) EXPENDITURES Current: General government - 4,329 3,333 996 Public works 2,853,258 3,040,764 2,264,276 776,488 Total expenditures 2,853,258 3,045,093 2,267,609 777,484 Net change in fund balance 154,580 82,321 744,372 662,051 Fund balance (deficit), beginning of year (89,941) (89,941) (89,941) Fund balance, end of year $ 64,639 $ (7,620) $ 654,431 $ 662,051 155- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 242 $ 242 Revenue from other agencies 4,000 4,000 - Other revenues 1,250 1,250 Total revenues 5,250 5,492 242 EXPENDITURES Current: Public safety 5,702 5,702 Net change in fund balance (452) (210) 242 Fund balance, beginning of year 25,127 25,127 25,127 Fund balance, end of year $ 25,127 $ 24,675 $ 24,917 $ 242 156- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Revenue from other agencies $ 70,000 $ 70,000 $ 84,318 $ 14,318 EXPENDITURES Current: Public works 70,000 116,330 116,330 - Net change in fund balance - (46,330) (32,012) 14,318 Fund balance (deficit), beginning of year (39,613) (39,613) (39,613) - Fund balance (deficit), end of year $ (39,613) $ (85,943) $ (71,625) $ 14,318 157- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 3,408 $ 3,408 Charges for services 2,000 2,000 - (2,000) Other revenues 170,000 170,000 202,362 32,362 Total revenues 172,000 172,000 205,770 33,770 EXPENDITURES Current: Public works 175,326 189,023 159,102 29,921 Net change in fund balance (3,326) (17,023) 46,668 63,691 Fund balance, beginning of year 416,784 416,784 416,784 Fund balance, end of year $ 413,458 $ 399,761 $ 463,452 $ 63,691 158- ©0 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 PARTNERS Brenda L. Odle, CPA, MST The Honorable City Council Terry P. Shea. CPA of the City of West Covina Scott W. Manna, CPA, CGMA West Covina, California Leena Shanbhag, CPA, MST, CGMA Bradferd A. Welebir, CPA. MBA, CGMA Jay H. Zercher, CPA (Parcner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) INDEPENDENT AUDITOR'S REPORT Kirk A. Franks, CPA (Partner Emeritus) DIRECTORS Report on the Financial Statements Jenny Liu, CPA, MST We have audited the accompanying financial statements of the MANAGERS/STAFF governmental activities, the business -type activities, each major fund, and Seong-Hyea Lee, CPA, MBA the aggregate remaining fund information of the City of West Covina, Charles De Sirm i, CPA Gardenya Duran, CPA California (City), as of and for the year ended June 30, 2018, and the Brianna Schultz, CPA related notes to the financial statements, which collectively comprise the Jingpe Wu. CPA City's basic financial statements as listed in the table of contents. Evelyn Morentin-Barcena, CPA In Gu, CPA, MT Management's Responsibility for the Financial Statements Veronica Hernandez, CPA Tara R. Thorp, CPA. MSA 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. Auditor's Responsibility Our responsibility is to express opinions 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 MEMBERS standards applicable to financial audits contained in Government Auditing American Institute of Certified Public Accountants issued Standards, id b the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable PCPS The AICPAAlliance assurance about whether the financial statements are free from material far CPA Firms misstatement. Governmen[al Audit Quality Center Employee Bene(t Plan Audit Quality Center California Society of Certified Public Accountants -1- STABILITY. ACCURACY. TRUST. 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 700,000 $ - $ 758,640 $ 758,640 Investment income 700,000 1,138 (698,862) Total revenues 700,000 700,000 759,778 59,778 EXPENDITURES Current: Public safety 700,000 700,000 701,884 (1,884) Net change in fund balance - - 57,894 57,894 Fund balance, beginning of year 131,357 131,357 131,357 Fund balance, end of year $ 131,357 $ 131,357 $ 189,251 $ 57,894 159- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ Revenue from other agencies Other revenues _ Total revenues EXPENDITURES Current: Public safety _ Net change in fund balance Fund balance, beginning of year Fund balance, end of year $ - $ 3,245 $ 3,245 164,954 230,437 65,483 250 250 164,954 233,932 68,978 251,276 251,275 1 (86,322) (17,343) 68,979 350,899 350,899 350,899 $ 350,899 $ 264,577 $ 333,556 $ 68,979 160- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ $ 2,388 $ 2,388 EXPENDITURES Current: General government 8,174 8,174 Net change in fund balance (8,174) (5,786) 2,388 Fund balance, beginning of year 276,447 276,447 276,447 Fund balance, end of year $ 276,447 $ 268,273 $ 270,661 $ 2,388 161- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 1,021 $ 1,021 Other revenues 45,000 45,000 8,051 (36,949) Total revenues 45,000 45,000 9,072 (35,928) EXPENDITURES Current: Community development 8,000 8,000 8,000 Net change in fund balance 37,000 37,000 9,072 (27,928) Fund balance, beginning of year 95,888 95,888 95,888 Fund balance, end of year $ 132,888 $ 132,888 $ 104,960 $ (27,928) 162- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,248,150 $ 1,248,150 $ 1,250,103 $ 1,953 Investment income - - 18,555 18,555 Other revenues 2,245 2,245 Total revenues 1,248,150 1,248,150 1,270,903 22,753 EXPENDITURES Current: Public works 5,815,000 297,139 285,250 11,889 Community services 221,808 226,411 228,899 (2,488) Total expenditures 6,036,808 523,550 514,149 9,401 Excess (deficiency) of revenues over(under)expenditures (4,788,658) 724,600 756,754 32,154 OTHER FINANCING SOURCES (USES) Bond proceeds 10,000,000 10,000,000 - (10,000,000) Transfer in 27,121 27,121 Total other financing sources 10,000,000 10,000,000 27,121 (9,972,879) Net change in fund balance 5,211,342 10,724,600 783,875 (9,940,725) Fund balance, beginning of year 1,498,306 1,498,306 1,498,306 Fund balance, end of year $ 6,709,648 $ 12,222,906 $ 2,282,181 $ (9,940,725) 163- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 95 95 Other revenues 6,750 6,750 3,141 (3,609) Total revenues 6,750 6,750 3,236 (3,514) EXPENDITURES Current: Public safety 6,750 6,750 6,750 Net change in fund balance - - (3,514) (3,514) Fund balance, beginning of year 14,895 14,895 14,895 Fund balance, end of year $ 14,895 $ 14,895 $ 11,381 $ (3,514) 164- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 1,043 $ 1,043 Other revenues 34,854 68,502 33,648 Total revenues 34,854 69,545 34,691 EXPENDITURES Current: Public safety 7,058 7,058 - Community services 52,669 52,669 Total expenditures 59,727 59,727 Net change in fund balance (24,873) 9,818 34,691 Fund balance, beginning of year 129,829 129,829 129,829 Fund balance, end of year $ 129,829 $ 104,956 $ 139,647 $ 34,691 165- 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, 2018 REVENUES Investment income Revenue from other agencies Other revenues Total revenues EXPENDITURES Current: Public safety Public works Community development Community services Total expenditures Net change in fund balance Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 14 $ 14 732,715 732,715 737,039 4,324 80,000 80,000 139,194 59,194 812,715 812,715 876,247 63,532 70,000 20,000 20,827 (827) 30,000 103,044 103,044 - 255,804 280,284 245,145 35,139 210,000 341,288 41,298 299,990 565,804 744,616 410,314 334,302 246,911 68,099 465,933 397,834 Fund balance (deficit), beginning of year (475,236) (475,236) (475,236) Fund balance (deficit), end of year $ (228,325) $ (407,137) $ (9,303) $ 397,834 166- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 456,923 $ 456,923 $ 523,787 $ 66,864 Investment income 3,262 3,262 17,349 14,087 Total revenues 460,185 460,185 541,136 80,951 EXPENDITURES Current: Public works 583,586 451,931 401,065 50,866 Net change in fund balance (123,401) 8,254 140,071 131,817 Fund balance, beginning of year 1,964,974 1,964,974 1,964,974 Fund balance, end of year $ 1,841,573 $ 1,973,228 $ 2,105,045 $ 131,817 167- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 143,662 $ 139,885 $ 202,505 $ 62,620 Investment income 5,597 5,597 Total revenues 143,662 139,885 208,102 68,217 EXPENDITURES Current: Public works 382,814 184,809 149,201 35,608 Total expenditures 382,814 184,809 149,201 35,608 Excess (deficiency) of revenues over (under) expenditures (239,152) (44,924) 58,901 103,825 OTHER FINANCING SOURCES (USES) Transfers out (9,000) (9,000) (9,000) Net change in fund balance (248,152) (53,924) 49,901 103,825 Fund balance, beginning of year 646,846 646,846 646,846 Fund balance, end of year $ 398,694 $ 592,922 $ 696,747 $ 103,825 168- 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, 2018 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. Emphasis of Matter Change in Accounting Principle As described in Note 1, the City adopted provisions of Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits other than Pension. Our opinion is not modified with respect to this matter. The cumulative effects of applying the provisions of GASB Statement No. 75 have been reported as a restatement of beginning net position for the year ended June 30, 2018 in accordance with the Statement. 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. -2- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 125,000 $ 125,000 $ 107,873 $ (17,127) Investment income - - 2,535 2,535 Other revenues 1,000 1,000 Total revenues 125,000 125,000 111,408 (13,592) EXPENDITURES Current: Public safety - 3,308 3,308 - Public works 130,834 132,479 87,735 44,744 Total expenditures 130,834 135,787 91,043 44,744 Net change in fund balance (5,834) (10,787) 20,365 31,152 Fund balance, beginning of year 277,318 277,318 277,318 Fund balance, end of year $ 271,484 $ 266,531 $ 297,683 $ 31,152 169- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Special assessments $ 1,037,950 $ 1,037,950 $ 1,041,808 $ 3,858 Investment income 10,000 10,000 19,603 9,603 Total revenues 1,047,950 1,047,950 1,061,411 13,461 EXPENDITURES Current: Public works 1,633,776 1,288,868 1,122,304 166,564 Deficiency of revenues under expenditures (585,826) (240,918) (60,893) 180,025 OTHER FINANCING SOURCES (USES) Transfers in 9,000 9,000 9,000 Net change in fund balance (576,826) (231,918) (51,893) 180,025 Fund balance, beginning of year 2,357,606 2,357,606 2,357,606 Fund balance, end of year $ 1,780,780 $ 2,125,688 $ 2,305,713 $ 180,025 170- 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, 2018 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 $ 157,799 $ 3,099 508 508 2,381 1,873 155,208 155,208 160,180 4,972 270,072 267,364 232,387 34,977 (114,864) (112,156) (72,207) 39,949 305,211 305,211 305,211 $ 190,347 $ 193,055 $ 233,004 $ 39,949 171- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Special assessments $ 165,948 $ 165,948 $ 171,405 $ 5,457 Investment income 2,000 2,000 2,867 867 Total revenues 167,948 167,948 174,272 6,324 EXPENDITURES Current: Public works 358,620 318,879 278,555 40,324 Net change in fund balance (190,672) (150,931) (104,283) 46,648 Fund balance, beginning of year 363,744 363,744 363,744 Fund balance, end of year $ 173,072 $ 212,813 $ 259,461 $ 46,648 172- 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, 2018 REVENUES Special assessments Investment income Charges for services Other revenue Total revenues EXPENDITURES Current: Public works Net change in fund balance Fund balance, beginning of year Fund balance, end of year Budgeted Amounts Original Final Variance with Final Budget Positive (Negative) $ 1,663,639 $ 1,663,639 $ 1,638,880 $ (24,759) 336 336 8,718 8,382 - - 1,891 1,891 350 350 1,663,975 1,663,975 1,649,839 (14,136) Actual 1,771,227 1,779,884 1,606,952 172,932 (107,252) (115,909) 42,887 158,796 1,077,643 1,077,643 1,077,643 $ 970,391 $ 961,734 $ 1,120,530 $ 158,796 173- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 190,000 $ 190,000 $ 287,947 $ 97,947 Special assessments 3,155,862 3,155,862 3,067,969 (87,893) Investment income 2,500 2,500 26,130 23,630 Other revenue 4,250 4,250 Total revenues 3,348,362 3,348,362 3,386,296 37,934 EXPENDITURES Current: Public works 3,540,404 2,907,536 2,923,843 (16,307) Net change in fund balance (192,042) 440,826 462,453 21,627 Fund balance, beginning of year 3,120,719 3,120,719 3,120,719 Fund balance, end of year $ 2,928,677 $ 3,561,545 $ 3,583,172 $ 21,627 174- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 115,666 $ 115,666 $ 115,615 $ (51) Investment income 1,088 1,088 Total revenues 115,666 115,666 116,703 1,037 EXPENDITURES Current: Community development 66,073 66,073 55,857 10,216 Net change in fund balance 49,593 49,593 60,846 11,253 Fund balance (deficit), beginning of year (367,132) (367,132) (367,132) Fund balance (deficit), end of year $ (317,539) $ (317,539) $ (306,286) $ 11,253 175- This page intentionally left blank. City of West Covina Non -Major Governmental Funds — Debt Service 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 payment of principal, interest, and related costs on the City's long-term debt issues. 176- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ $ 66,049 $ 66,049 Revenue from other agencies 1,255,662 1,255,662 Charges for services 1,131,500 1,131,500 416,351 (715,149) Total revenues 1,131,500 1,131,500 1,738,062 606,562 EXPENDITURES Debt service: Principal 2,583,918 2,583,918 1,958,918 625,000 Interest and fiscal charges 1,703,642 1,703,642 1,501,956 201,686 Total expenditures 4,287,560 4,287,560 3,460,874 826,686 Deficiency of revenues under expenditures (3,156,060) (3,156,060) (1,722,812) 1,433,248 OTHER FINANCING SOURCES (USES) Proceeds from debt - 500,000 - (500,000) Transfers in 4,077,740 4,077,740 2,130,561 (1,947,179) Transfers out (500,000) (1,000,000) (500,000) Total other financing sources (uses) 4,077,740 4,077,740 1,130,561 (2,947,179) Net change in fund balance 921,680 921,680 (592,251) (1,513,931) Fund balance, beginning of year 5,625,636 5,625,636 5,625,636 Fund balance, end of year $ 6,547,316 $ 6,547,316 $ 5,033,385 $ (1,513,931) 177- 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, 2017 to the year ended June 30, 2018. 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, 2018 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, 2018, the City's total net position (assets plus deferred outflows of resources less liabilities and less deferred inflows of resources) was $2.8 million. • The City's total net position decreased $56.8 million from the prior year. This is mostly due to the implementation of Governmental Accounting Standards Boards Statement No. 75 (GASB 75), which amended prior guidance with respect to the reporting of post -employment benefits other than pensions (OPEB) and establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expenses/expenditures. • The City's total governmental funds reported a combined ending fund balances of $73.3 million, an increase of $0.4 million in comparison with the prior fiscal year of $72.9 million. Of this, $10 million, or 13.7% of this total is non -spendable (not available for new spending). The restricted fund balance categories of $50.3 million or 68.6% is spendable for restricted purposes. The assigned fund balance of $2.3 million or 2.7% represents amounts that are intended to be used for specific purposes, but are not formally restricted or committed. The unassigned fund balance category of $10.9 million or 14.9% 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 2017-18 of $22,674, compared with $116,660 in operating loss in Fiscal Year 2016-17. The total net position for the computer service enterprise fund is ($275,010). The net position in the prior year was ($252,336). • At the end of the current fiscal year, the City had debt outstanding of $66.4 million. Of this amount, $41.2 million represents outstanding bonds and $25.2 million represents other 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. Government Auditing Standards Letter The Government Auditing Standards Letter (Attachment No. 2) 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. 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 did not identify any deficiencies in internal control over financial reporting that they considered to be material weaknesses. Furthermore, 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. 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. 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 5, 2019, 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. 40ye�cs, %iet.coa, If'Ic.,[ool�� ,�coti� LOP San Bernardino, California Q March 5, 2019 -3- 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. 178- City of West Covina Combining Balance Sheet Non -Major Capital Projects Funds June 30, 2018 ASSETS Cash and investments Receivables, net: Interest Total assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable Other accrued liabilities Total liabilities Fund Balances: Assigned Total fund balances Total liabilities, deferred inflows of resources, and fund balances Construction Information City Tax Technology $ 190,768 $ 107,468 $ 827,848 59 33 $ 190,827 $ 107,501 $ 827,848 $ 8,299 $ 24,998 $ 82,511 3,306 16,930 18,200 11,605 41,928 100,711 179,222 65,573 727,137 179,222 65,573 727,137 $ 190,827 $ 107,501 $ 827,848 179- (continued) Total Development Non -Major Park Impact Capital Projects Development Fees Funds $ 905,910 $ 128,142 $ 2,160,136 125 - 217 $ 906,035 $ 128,142 $ 2,160,353 $ - $ - $ 115,808 1,214 39,650 1,214 155,458 904,821 128,142 2,004,895 904,821 128,142 2,004,895 $ 906,035 $ 128,142 $ 2,160,353 180- 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, 2018 REVENUES Taxes Investment income Revenue from other agencies Other revenues Total revenues EXPENDITURES Current: Public safety Public works Community services Total expenditures Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year Construction Information City Tax Technology $ - $ 75,824 $ 4,925 2,890 50,000 - 11,535 54,925 78,714 11,535 270,740 - - - 395,490 801,887 270,740 395,490 801,887 (215,815) (316,776) (790,352) 706,792 (518,821) - (518,821) 706,792 (734,636) (316,776) (83,560) 913,858 382,349 810,697 $ 179,222 $ 65,573 $ 727,137 181- (continued) Total Development Non -Major Park Impact Capital Projects Development Fees Funds $ - $ $ 75,824 5,655 13,470 - 61,535 - 49,418 49,418 5,655 49,418 200,247 270,740 - 1,197,377 235,871 235,871 235,871 1,703,988 (230,216) 49,418 (1,503,741) 500,000 1,206,792 - (518,821) 500,000 - 687,971 269,784 49,418 (815,770) 635,037 78,724 2,820,665 $ 904,821 $ 128,142 $ 2,004,895 182- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 4,925 $ 4,925 Revenue from other agencies 414,000 50,000 (364,000) Total revenues 414,000 54,925 (359,075) EXPENDITURES Current: Public safety 130,000 270,740 270,740 Deficiency of revenues under expenditures (130,000) 143,260 (215,815) (359,075) OTHER FINANCING SOURCES (USES) Transfers in 567,148 (567,148) Transfers out (518,821) (518,821) (518,821) Net change in fund balance (648,821) 191,587 (734,636) (926,223) Fund balance, beginning of year 913,858 913,858 913,858 Fund balance, end of year $ 265,037 $ 1,105,445 $ 179,222 $ (926,223) 183- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 95,000 $ 95,000 $ 75,824 $ (19,176) Investment income 2,890 2,890 Total revenues 95,000 95,000 78,714 (16,286) EXPENDITURES Current: Public works 48,000 395,030 395,490 (460) Net change in fund balance 47,000 (300,030) (316,776) (16,746) Fund balance, beginning of year 382,349 382,349 382,349 Fund balance, end of year $ 429,349 $ 82,319 $ 65,573 $ (16,746) 184- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Revenue from other agencies $ - $ 3,606 $ 11,535 $ 7,929 EXPENDITURES Current: Public works 706,972 793,958 801,887 (7,929) Deficiency of revenues under expenditures (706,972) (790,352) (790,352) - OTHER FINANCING SOURCES (USES) Transfers in 706,972 706,972 706,792 (180) Net change in fund balance - (83,380) (83,560) (180) Fund balance, beginning of year 810,697 810,697 810,697 - Fund balance, end of year $ 810,697 $ 727,317 $ 727,137 $ (180) 185- 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, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ - $ - $ 5,655 $ 5,655 Other revenues 3,900,000 3,900,000 (3,900,000) Total revenues 3,900,000 3,900,000 5,655 (3,894,345) EXPENDITURES Current: Community services 921,680 1,157,551 235,871 921,680 Excess (deficiency) of revenues over(under)expenditures 2,978,320 2,742,449 (230,216) 921,680 OTHER FINANCING SOURCES (USES) Transfers in - - 500,000 500,000 Net change in fund balance 2,978,320 2,742,449 269,784 (2,472,665) Fund balance, beginning of year 635,037 635,037 635,037 Fund balance, end of year $ 3,613,357 $ 3,377,486 $ 904,821 $ (2,472,665) 186- 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, 2018 REVENUES Other revenues EXPENDITURES Current: Public Safety 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) $ $ $ 49,418 $ 49,418 32,340 (32,340) 49,418 49,418 78,724 78,724 78,724 $ 46,384 $ 78,724 $ 128,142 $ 49,418 187- This page intentionally left blank. 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. 188- City of West Covina Combining Statement of Net Position Internal Service Funds June 30, 2018 Fleet Management Self -Insurance ASSETS Current Assets: Cash and investments $ 229,351 $ 11,154,334 Receivables, net: Interest - - Other - 494 Inventories 26.949 - Total current assets 2567300 11,154,828 Noncurrent Assets Capital assets: Capital assets 2,087,836 - Less accumulated depreciation (1,938,590) Total capital assets 149,246 Total noncurrent assets 149,246 - Total assets 405,546 11,154,828 LIABILITIES Current Liabilities: Accounts payable 212,127 82,326 Other accrued liabilities 1,912 - Claims and judgements - current portion - 3,257,830 Compensated absences - current portion 5,420 - Total current liabilities 219,459 3,340,156 Noncurrent Liabilities: Claims and judgements - 7,025,844 Compensated absences 2,429 - Total noncurrent liabilities 2,429 7,025,844 Total liabilities 221,888 10,366,000 NET POSITION Net investment in capital assets 149,246 - Unrestricted 34,412 788,828 Total net position $ 183,658 $ 788,828 189- Retiree Health Vehicle Savings Plan Replacement Totals (continued) $ 457,321 $ 584,638 $ 12,425,644 140 180 320 - - 494 26,949 457,461 584,818 12,453,407 586,921 2,674,757 (442,721) (2,381,311) 144,200 293,446 144,200 293,446 457,461 729,018 12, 746, 853 294,453 1,912 3,257,830 5,420 3,559,615 7,025,844 2,429 7,028,273 - 10,587,888 - 144,200 293,446 457,461 584,818 1,865,519 $ 457,461 $ 729,018 $ 2,158,965 190- City of West Covina Combining Statement of Revenues, Expenses, and Changes in Net Position Internal Service Funds For the Year Ended June 30, 2018 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 in Change in net position Net position, beginning of year Net position, end of year Fleet Management Self -Insurance $ 1,526,567 $ 2,765,176 23,026 100 1,549,593 2,765,276 194,004 - 1,156,201 400,616 15,730 - - 2,611,824 1,365,935 3,012,440 183,658 (247,164) 183,658 (247,164) - 1,033,645 183,658 786,481 - 2,347 $ 183,658 $ 788,828 191- Retiree Health Vehicle Savings Plan Replacement Totals (continued) $ $ - $ 4,291,743 3,758 26,884 3,758 4,318,627 56,500 250,504 - - 1,556,817 18,949 34,679 - 2,611,824 56,500 18,949 4,453,824 (56,500) (15,191) (135,197) 4,090 3,126 7,216 4,090 3,126 7,216 (52,410) (12,065) (127,981) 296,865 1,330,510 (52,410) 284,800 1,202,529 509,871 444,218 956,436 $ 457,461 $ 729,018 $ 2,158,965 192- City of West Covina Combining Statement of Cash Flows Internal Service Funds For the Year Ended June 30, 2018 Fleet Management Self -Insurance CASH FLOWS FROM OPERATING ACTIVITIES: Received from user departments $ 1,549,593 $ 2,799,943 Payments to suppliers for goods and services (1,039,310) (3,603,903) Payments to employees for services (200,952) Net cash provided by (used for) operating activities 309,331 (803,960) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Received from other funds - 1,033,645 Paid to other funds (79,980) 12,695 Net cash provided by (used for) noncapital financing activities (79,980) 1,046,340 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received on investments - - Net increase (decrease) in cash and cash equivalents 229,351 242,380 Cash and cash equivalents, beginning of year - 10,911,954 Cash and cash equivalents, ending of year $ 229,351 $ 11,154,334 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Operating income (loss) $ 183,658 $ (247,164) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities: Depreciation 15,730 - (Increase) Decrease in operating assets: Accounts receivable - 35,161 Other receivables (494) Inventories (10,400) - Increase (Decrease) in operating liabilities: Accounts payable 135,680 (288,749) Other accrued liabilities (8,389) Claims and judgments payable (302,714) Compensated absences payable (6,948) Net cash provided by (used for) operating activities $ 309,331 $ (803,960) 193- Retiree Health Vehicle Savings Plan Replacement Totals $ $ 3,758 $ 4,353,294 - (4,643,213) (56,500) - (257,452) (56,500) 3,758 (547,371) 296,865 1,330,510 - (67,285) 296,865 1,263,225 4,060 3,005 7,065 (52,440) 303,628 722,919 509,761 281,010 11,702,725 $ 457,321 $ 584,638 $ 12,425,644 $ (56,500) $ (15,191) $ (135,197) 18,949 34,679 35,161 (494) (10,400) (153,069) (8,389) (302,714) - (6,948) $ (56,500) $ 3,758 $ (547,371) (continued) 194- 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. 195- City of West Covina Combining Statement of Net Position Pension Trust Funds June 30, 2018 ASSETS Cash and investments NET POSITION Held in trust for pension benefits Retirement Supplemental Total Enhancement Retirement Pension Defined Benefit Defined Benefit Trust Pension Fund Pension Fund Funds $ 154,677 $ 580,176 $ 734,853 $ 154,677 $ 580,176 $ 734,853 196- 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, 2018. 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, 2018, the City's total net position (assets plus deferred outflows of resources less liabilities and less deferred inflows of resources) was $2.8 million. The City's total net position decreased $56.8 million from the prior year. This is mostly due to the implementation of Governmental Accounting Standards Boards Statement No. 75 (GASB 75), which amended prior guidance with respect to the reporting of postemployment benefits other than pensions (OPEB) and establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expenses/expenditures. The City's total governmental funds reported combined ending fund balances of $73.3 million, an increase of $0.4 million in comparison with the prior fiscal year of $72.9 million. Of this, $10 million, or 13.7% of this total is non -spendable (not available for new spending). The restricted fund balance categories of $50.3 million or 68.6% is spendable for restricted purposes. The assigned fund balance of $2 million or 2.7% represents amounts that are intended to be used for specific purposes, but are not formally restricted or committed. The unassigned fund balance category of $10.6 million or 14.5% 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) 2017-18 of $22,674, compared with $116,660 in income loss in FY 2016-17. The total net position for the computer service enterprise fund as of June 30, 2018 was ($275,010). The net position in the prior year was ($252,336). OVERVIEW OF THE FINANCIAL STATEMENTS The annual report consists of four parts — managements 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 Combining Statement of Changes in Net Position Pension Trust Funds For the Year Ended June 30, 2018 Retirement Supplemental Total Enhancement Retirement Pension Defined Benefit Defined Benefit Trust Pension Fund Pension Fund Funds ADDITIONS Employer contribution $ 60,056 $ 74,100 $ 134,156 Investment income 8,234 36,932 45,166 Total Additions 68,290 111,032 179,322 DEDUCTIONS Administrative costs 775 3,379 4,154 Benefit distributions 56,554 139,057 195,611 Total Deductions 57,329 142,436 199,765 Change in net position 10,961 (31,404) (20,443) Net Position, beginning of year 143,716 611,580 755,296 Net Position, end of year $ 154,677 $ 580,176 $ 734,853 197- 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. 198- City of West Covina Statement of Changes in Assets and Liabilities Agency Fund For the Year Ended June 30, 2018 Balance Balance June 30, 2017 Additions Deletions June 30, 2018 ASSETS Cash and investments $ 1,548,671 $ 1,022,739 $ 666,230 $ 1,905,180 Receivables, net: Accounts - 6,100 6,100 - Other 410 1,844 758 1,496 Total Assets $ 1,549,081 $ 1,030,683 $ 673,088 $ 1,906,676 LIABILITIES Accounts payable $ 24,355 $ 556,711 $ 561,977 $ 19,089 Deposits 1,524,726 924,093 561,232 1,887,587 Total Liabilities $ 1,549,081 $ 1,480,804 $ 1,123,209 $ 1,906,676 199- 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 201 These schedules contain trend information to help the reader understand how the City's financial performance and well being have changed overtime. Revenue Capacity 215 These schedules contain information to help the reader assess one of the City's most significant local revenue source, the property tax. Debt Capacity 222 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 230 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 233 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. -200- City of West Covina Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2009 2010 2011 2012 Governmental activities: Net investment in capital assets $180,298,472 $184,338,106 $179,236,866 $222,784,189 Restricted 25,937,799 18,316,134 25,286,909 53,331,999 Unrestricted 22,723,726 10,219,814 1,884,827 (27,344,668) Total governmental activities net pension $ 228,959,997 $ 212,874,054 $ 206,408,602 $ 248,771,520 Business -type activities: Net investment in capital assets $ 107,507 $ 42,073 $ - $ - Restricted - - Unrestricted (786,551) (1,128,610) (999,624) (994,560) Total business -type activities net pension $ (679,044) $ (1,086,537) $ (999,624) $ (994,560) Primary government: Net investment in capital assets $ 180,405,979 $ 184,380,179 $179,236,866 $ 222,784,189 Restricted 25,937,799 18,316,134 25,286,909 53,331,999 Unrestricted 21,937,175 9,091,204 (98,187) (28,339,228) Total primary government net pension $ 228,280,953 $ 211,787,517 $ 204,425,588 $ 247,776,960 Source: City of West Covina Finance Department -201- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $164,621,539 $161,771,546 $144,215,248 $148,989,212 $153,784,463 $153,940,332 46,016,224 47,468,277 48,793,821 56,902,504 50,717,656 51,130,936 (297,086) 191,878 (129,152,694) (138,162,202) (144,659,629) (201,951,785) $ 210,340,677 $ 209,431,701 $ 63,856,375 $ 67,729,514 $ 59,842,490 $ 3,119,483 (426,769) 60,922 188,045 (135,676) (252,336) (275,010) $ (I ,769) $ 60,922 $ 188,045 $ (135,676) $ (252,336) $ (275,010) $ 164,621,539 $ 161,771,546 $144,215,248 $148,989,212 $153,784,463 $153,940,332 46,016,224 47,468,277 48,793,821 56,902,504 50,717,656 51,130,936 (723,855) 252,800 (128,964,649) (138,297,878) (144,911,965) (202,226,795) $ 209,913,908 $ 209,492,623 $ 64,044,420 $ 67,593,838 $ 59,590,154 $ 2,844,473 -202- City of West Covina Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2009 2010 2011 2012 Expenses: Governmental activities: General government $ 2,849,501 $ 3,337,547 $ 2,922,898 $ 4,953,340 Public safety 47,682,934 48,151,398 45,253,725 49,369,913 Public works 21,598,894 21,054,241 21,052,423 20,510,387 Community services 7,835,430 6,558,987 6,629,292 6,949,951 Community development 12,867,904 8,619,004 9,414,730 4,071,050 Interest on long-term debt 7,962,089 6,577,544 7,101,037 5,927,002 Total governmental activities expenses 100,796,752 94,298,721 92,374,105 91,781,643 Business -type activities: Computer enterprise 2,633,564 2,507,498 2,086,135 1,701,367 Total business -type activities expenses 2,633,564 2,507,498 2,086,135 1,701,367 Total primary government expenses 103,430,316 96,806,219 94,460,240 93,483,010 Program revenues: Governmental activities: Charges for services: General government 757,678 1,019,690 681,877 599,066 Public safety 3,611,259 3,850,741 3,571,864 3,196,729 Public works 5,818,290 7,041,281 8,043,988 7,046,096 Community services 1,158,644 1,089,227 1,166,675 1,141,162 Community development 266,286 313,639 240,462 255,669 Operating grants and contributions 11,895,355 5,157,956 10,189,050 12,557,141 Capital grants and contributions 578,828 3,574,609 678,827 958,459 Total governmental activities program revenues 24,086,340 22,047,143 24,572,743 25,754,322 Business -type activities: Charges for services: Computer enterprise 1,885,071 2,193,037 2,268,982 1,805,242 Total business -type activities program revenues 1,885,071 2,193,037 2,268,982 1,805,242 Total primary government program revenues 25,971,411 24,240,180 26,841,725 27,559,564 Source: City of West Covina Finance Department -203- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $ 5,519,153 $ 7,472,254 $ 5,676,067 $ 4,963,302 $ 5,775,173 $ 7,523,129 47,323,516 45,443,958 49,813,447 48,410,511 56,169,907 67,734,047 20,372,375 21,109,952 20,586,770 20,259,279 21,243,019 21,161,586 6,878,176 6,437,040 7,035,872 7,368,492 7,926,410 8,926,070 1,127,924 658,082 766,886 753,721 2,190,319 1,618,181 1,652,750 1,677,062 1,353,156 1,572,645 1,575,724 1,515,826 82,873,894 82,798,348 85,232,198 83,327,950 94,880,552 108,478,839 1,435,855 1,284,419 1,427,789 1,638,573 1,575,066 1,305,426 1,435,855 1,284,419 1,427,789 1,638,573 1,575,066 1,305,426 84,309,749 84,082,767 86,659,987 84,966,523 96,455,618 109,784,265 548,333 486,478 885,123 400,051 546,626 814,465 3,018,478 3,037,891 2,825,831 3,170,579 3,201,495 3,610,467 7,781,333 8,878,122 8,278,038 8,271,744 7,714,148 8,967,472 1,195,612 1,180,562 1,275,278 1,365,482 1,491,858 2,110,943 348,112 621,352 502,621 425,013 416,014 264,959 10,344,778 11,021,410 12,405,742 13,317,378 10,955,031 10,285,701 597,405 4,458,250 2,224,864 1,004,826 445,980 151,966 23,834,051 29,684,065 28,397,497 27,955,073 24,771,152 26,205,973 2,105,421 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 2,105,421 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 25,939,472 31,557,701 30,052,631 29,368,187 26,045,470 27,405,135 -204- City of West Covina Changes in Net Position, (continued) Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2009 2010 2011 2012 Net revenues (expenses): Governmental activities $(76,710,412) $(72,251,578) $(67,801,362) $(66,027,321) Business -type activities (748,493) (314,461) 182,847 103,875 net primary government revenues (expenses) (77,458,905) (72,566,039) (67,618,515) (65,923,446) General revenues and other changes in net position: Governmental activities: Taxes: Property taxes 36,387,548 28,849,815 30,888,074 23,313,556 Sales tax 9,261,965 7,791,286 12,550,157 13,177,914 Franchise tax 3,512,830 3,093,538 3,159,080 3,224,053 Othertaxes 5,108,429 5,392,829 5,449,323 7,835,918 Motor vehicle in lieu, unrestricted 383,831 331,289 517,098 55,880 Investment income 4,768,327 4,288,088 2,281,105 1,647,399 Other general revenues 3,200,753 2,077,837 4,412,125 5,193,850 Transfers 78,750 93,140 95,934 98,811 Extraordinary gain (loss) - - - 55,825,872 Total governmental activities 62,702,433 51,917,822 59,352,896 110,373,253 Business -type activities: Investment income 12,814 108 - - Other revenues - - Transfers (78,750) (93,140) (95,934) (98,811) Total business -type activities (65,936) (93,032) (95,934) (98,811) Total primary government 62,636,497 51,824,790 59,256,962 110,274,442 Changes in net position: Governmental activities (14,007,979) (20,333,756) (8,448,466) 44,345,932 Business -type activities (814,429) (407,493) 86,913 5,064 Total primary government change in net position $(14,822,408) $(20,741,249) $ (8,361,553) $ 44,350,996 Source: City of West Covina Finance Department -205- • 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. Reoortina the Citv 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- (continued) 2013 2014 2015 2016 2017 2018 $(58,612,191) $(53,114,283) $(56,834,701) $(55,372,877) $(70,109,400) $(82,272,866) 669,566 589,217 227,345 (225,459) (300,748) (106,264) (57,942,625) (52,525,066) (56,607,356) (55,598,336) (70,410,148) (82,379,130) 20,937,356 20,420,020 21,156,596 22,352,163 23,994,740 25,392,860 13,307,736 14,705,790 15,096,101 17,228, 237 16,503,563 17,449,827 3,361,812 3,478,532 3,635,092 3,540,011 3,698,184 4,011,817 6,265,257 7,451,947 7,433,106 6,485,394 6,725,309 7,692,437 57,902 - - - - - 185,451 695,341 660,157 (566,064) 4,452,938 559,164 7,310,544 5,960,967 6,999,034 4,236,920 6,847,642 9,256,591 101,775 101,775 101,775 101,775 - - (19,629,066) - - 9,789,266 - - 31,898,767 52,814,372 55,081,861 63,167,702 62,222,376 64,362,696 - - 1,553 3,513 2,070 884 - - 182,018 82,706 (101,775) (101,775) (101,775) (101,775) - - (101,775) (101,775) (100,222) (98,262) 184,088 83,590 31,796,992 52,712,597 54,981,639 63,069,440 62,406,464 64,446,286 (26,713,424) (299,911) (1,752,840) 7,794,825 (7,887,024) (17,910,170) 568,040 487,442 127,123 (323,721) (116,660) (22,674) $(26,145,384) $ 187,531 $ (1,625,717) $ 7,471,104 $ (8,003,684) $(17,932,844) -206- 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 Fiscal Year 2009 2010 2011 2012 $ 2,849,501 $ 3,337,547 $ 2,922,898 $ 4,953,340 47,682,934 48,151,398 45,253,725 49,369,913 21,598,894 21,054,241 21,052,423 20,510,387 7,835,430 6,558,987 6,629,292 6,949,951 12,867,904 8,619,004 9,414,730 4,071,050 7,962,089 6,577,544 7,101,037 5,927,002 100,796,752 94,298,721 92,374,105 91,781,643 757,678 1,019,690 681,877 599,066 3,611,259 3,850,741 3,571,864 3,196,729 5,818,290 7,041,281 8,043,988 7,046,096 1,158,644 1,089,227 1,166,675 1,141,162 266,286 313,639 240,462 255,669 11,895,355 5,157,956 10,189,050 12,557,141 578,828 3,574,609 678,827 958,459 Total program revenues 24,086,340 22,047,143 24,572,743 25,754,322 Net program revenues (expenses) (76,710,412) (72,251,578) (67,801,362) (66,027,321) 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 36,387,548 28,849,815 30,888,074 23,313,556 9,261,965 7,791,286 12,550,157 13,177,914 3,512,830 3,093,538 3,159,080 3,224,053 5,108,429 5,392,829 5,449,323 7,835,918 383,831 331,289 517,098 55,880 4,768,327 4,288,088 2,281,105 1,647,399 3,200,753 2,077,837 4,412,125 5,193,850 78,750 93,140 95,934 98,811 55,825,872 62,702,433 51,917,822 59,352,896 110,373,253 $ (14,007,979) $ (20,333,756) _L (8,448,466) $ 44,345,932 Source: City of West Covina Finance Department -207- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $ 5,547,949 $ 7,472,254 $ 5,676,067 $ 4,963,302 $ 5,775,173 $ 7,523,129 47,160,347 45,443,958 49,813,447 48,410,511 56,169,907 67,734,047 20,465,106 21,109,952 20,586,770 20,259,279 21,243,019 21,161,586 6,911,667 6,437,040 7,035,872 7,368,492 7,926,410 8,926,070 708,422 658,082 766,886 753,721 2,190,319 1,618,181 1,652,751 1,677,062 1,353,156 1,572,645 1,575,724 1,515,826 82,446,242 82,798,348 85,232,198 83,327,950 94,880,552 108,478,839 548,333 486,478 885,123 400,051 546,626 814,465 3,018,478 3,037,891 2,825,831 3,170,579 3,201,495 3,610,467 7,781,333 8,878,122 8,278,038 8,271,744 7,714,148 8,967,472 1,195,612 1,180,562 1,275,278 1,365,482 1,491,858 2,110,943 348,112 621,352 502,621 425,013 416,014 264,959 10,344,778 11,021,410 12,405,742 13,317,378 10,955,031 10,285,701 597,405 4,458,250 2,224,864 1,004,826 445,980 151,966 23,834,051 29,684,065 28,397,497 27,955,073 24,771,152 26,205,973 (58,612,191) (53,114,283) (56,834,701) (55,372,877) (70,109,400) (82,272,866) 20,937,356 20,420,020 21,156,596 22,352,163 23,994,740 25,392,860 13,307,736 14,705,790 15,096,101 17,228,237 16,503,563 17,449,827 3,361,812 3,478,532 3,635,092 3,540,011 3,698,184 4,011,817 6,265,257 7,451,947 7,433,106 6,485,394 6,725,309 7,692,437 57,902 - - - - - 185,451 695,341 660,157 (566,064) 4,452,938 559,164 7,310,544 5,960,967 6,999,034 4,236,920 6,847,642 9,256,591 101,775 101,775 101,775 101,775 - - (19,629,066) 9,789,266 31,898,767 52,814,372 55,081,861 63,167,702 62,222,376 64,362,696 $ (26,713,424) $ (299,911) $ (1,752,840) $ 7, 994,825 $ (7,887,024) $ (17,910,170) -208- City of West Covina Changes in Net Position Business -Type Activities Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2009 2010 2011 2012 Expenses: Computer Enterprise $ 2,633,564 $ 2,507,498 $ 2,086,135 $ 1,701,367 Total expenses 2,633,564 2,507,498 2,086,135 1,701,367 Program revenues: Charges for services: Computer Enterprise 1,885,071 2,193,037 2,268,982 1,805,242 Total program revenues 1,885,071 2,193,037 2,268,982 1,805,242 Net revenues (expenses) (748,493) (314,461) 182,847 103,875 General revenues and other changes in net position: Investment income 12,814 108 - - Transfers (78,750) (93,140) (95,934) (98,811) Total general revenues and other changes (65,936) (93,032) (95,934) (98,811) Changes in net position $ (814,429) $ (407,493) $ 86,913 $ 5,064 Source: City of West Covina Finance Department -209- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $ 1,435,606 $ 1,284,419 $ 1,427,789 $ 1,638,573 $ 1,575,066 $ 1,305,426 1,435,606 1,284,419 1,427,789 1,638,573 1,575,066 1,305,426 2,105,421 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 2,105,421 1,873,636 1,655,134 1,413,114 1,274,318 1,199,162 669,815 589,217 227,345 (225,459) (300,748) (106,264) 1,553 3,513 2,070 884 (101,775) (101,775) (101,775) (101,775) 182,018 82,706 (101,775) (101,775) (100,222) (98,262) 184,088 83,590 $ 568,040 $ 487,442 $ 127,123 $ (323,721) $ (116,660) $ (22,674) -210- City of West Covina Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2009 2010 2011 2012 General fund: Reserved $ 22,621,000 $ 24,321,122 $ $ Unreserved 12,846,323 7,246,828 Total general fund $ 35,467,323 $ 31,567,950 $ $ All other governmental funds: Reserved $ 28,675,986 $ 24,916,095 $ $ Unreserved, reported in: Special revenue funds 9,297,969 10,351,716 Capital projects funds (2,380,312) (465,131) Debt service funds 3,085,503 (131,153) Total all other governmental funds $ 38,679,146 $ 34,671,527 $ $ General Fund: Nonspendable $ $ $ 20,827,056 $ 15,580,789 Assigned - - Unassigned 8,786,221 13,187,181 Total general fund $ $ $ 29,613,277 $ 28,767,970 All other governmental funds: Nonspendable $ $ $ 8,210,093 $ 6,200,423 Restricted 38,138,456 31,101,636 Assigned 1,964,946 1,378,401 Unassigned (12,759,988) (110,042) Total all other governmental funds $ $ $ 35,553,507 $ 38,570,418 Source: City of West Covina Finance Department -211- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $ 6,621,695 $ 6,595,326 $ 6,483,924 $ 7,129,779 $ 6,982,268 $ 9,952,978 - - - - - 320,200 4,108,967 5,687,385 20,531,695 15,032,610 14,119,078 11,979,653 $ 10,730,662 $ 12,282,711 $ 27,015,619 $ 22,162,389 $ 21,101,346 $ 22,252,831 $ 6,814,431 $ 157,500 $ 151,923 $ 5,277,203 $ 4,980,450 $ 110,833 32,133,653 56,225,097 59,918,077 51,467,448 45,082,696 49,600,866 893,566 3,891,565 4,930,693 5,065,065 2,820,665 2,004,895 (373,264) (47,867) (438,708) (531,412) (1,100,860) (710,218) $ 39,468,386 $ 60,226,295 $ 64,561,985 $ 61,278,304 $ 51,782,951 $ 51,006,376 -212- City of West Covina Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Fiscal Year 2009 2010 2011 2012 Revenues: Taxes $ 65,186,854 $ 63,270,166 $ 63,663,702 $ 53,636,172 Special assessments 4,180,404 4,871,575 5,210,062 5,270,856 Licenses and permits 1,085,650 904,985 1,099,083 866,642 Fines and forfeitures 1,229,852 1,324,698 1,056,923 1,097,836 Investment income 5,601,091 5,589,739 4,124,960 3,419,665 Rental income 311,997 310,819 468,123 421,521 Intergovernmental 8,848,048 11,321,980 8,363,460 12,481,691 Charges for services 7,021,197 6,845,511 6,779,667 6,732,076 Repayment of notes and loans 794,365 449,045 721,348 332,698 Developer fees - - - - Other 1,824,050 1,112,553 3,781,096 1,720,792 Total revenues 96,083,508 96,001,071 95,268,424 85,979,949 Expenditures Current: General government 4,687,485 4,646,621 4,180,878 4,950,311 Public safety 45,554,204 45,639,257 41,938,421 44,109,598 Public works 17,923,628 19,686,587 15,325,261 18,209,981 Community services 7,189,514 5,390,364 5,412,009 5,917,227 Community development 10,739,465 6,142,905 8,228,653 4,246,590 Pass -through payments 3,468,902 9,724,035 5,863,850 2,112,227 Capital Outlay - - - - Debt service: Principal retirement 3,828,282 4,108,592 4,649,975 5,155,105 Interest and fiscal charges 9,055,221 8,410,803 8,520,890 6,307,988 Cost of issuance - - - - Developer agreement payments 2,181,599 2,002,039 2,317,114 351,444 Total expenditures 104,628,300 105,751,203 96,437,051 91,360,471 Excess (deficiency) of revenues over (under) expenditures (8,544,792) (9,750,132) (1,168,627) (5,380,522) Other financing sources (uses): Transfers in 12,048,364 11,023,152 11,171,460 8,947,657 Transfers out (11,969,614) (9,180,012) (11,075,526) (8,848,846) Acquisition under capital leases Issuance of bonds Payment to refunded bond escrow agent - Extraordinary gain (loss) 7,453,315 Total other financing sources (uses) 78,750 1,843,140 95,934 7,552,126 Net change in fund balances $ (8,466,042) $ (7,906,992) $ (1,072,693) $ 2,171,604 Debt service as a percentage of noncapital expenditures 19.30 % 25.60 % 19.89 % 16.20 Source: City of West Covina Finance Department -213- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $ 46,185,045 $ 48,785,393 $ 50,918,823 $ 54,237,649 $ 55,502,969 $59,255,716 5,511,465 5,513,535 5,595,338 5,550,657 5,318,497 6,077,861 1,156,196 1,717,153 1,419,457 1,156,613 1,037,389 1,089,850 1,048,819 1,036,732 959,606 796,989 894,618 1,290,187 533,388 716,472 679,844 (570,132) 4,448,607 551,948 370,913 367,798 406,350 529,833 604,817 649,968 9,496,633 11,097,551 10,769,196 11,218,711 10,193,278 7,920,178 6,124,201 6,751,541 6,803,615 7,731,236 7,359,139 8,681,704 925,235 26,148 - - - - 5,105,117 6,258,384 5,490,327 1,487,103 2,129,531 4,229,895 76,457,012 82,270,707 83,042,556 82,138,659 87,488,845 89,747,307 5,205,956 7,087,335 5,757,334 5,103,814 6,214,682 5,700,461 42,688,487 43,332,847 45,906,138 50,962,883 54,480,972 53,087,630 16,203,144 17,790,042 13,724,417 15,509,267 15,328,717 17,635,489 5,872,485 5,399,732 5,816,443 6,864,180 10,824,395 6,975,178 666,255 679,007 761,896 898,714 2,198,881 1,182,255 1,773,261 1,870,239 1,866,947 2,027,461 7,931,202 1,958,918 1,659,473 1,666,054 1,360,370 1,574,753 1,566,392 1,501,956 75,193,545 74,069,061 77,825,256 82,941,072 98,545,241 88,041,887 2,387,951 4,445,451 7,849,011 (802,413) (11,056,396) 1,705,420 3,639,400 3,744,115 3,201,793 4,831,038 5,643,232 3,902,056 (3,537,625) (3,642,340) (3,100,018) (10,812,296) (5,643,232) (5,232,566) - 2,568,446 500,000 2,185,000 - - (2,248,061) (19,629,066) 11,578,351 (19,527,291) 38,714 11,680,126 (3,412,812) 500,000 (1,330,510) $(17,139,340) $ 4,484,165 $ 19,529,137 $ (4,215,225) $(10,556,396) $ 374,910 5.21 % 5.18% 4.92% 4.70% 10.29% 4.23% -214- 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 2009 $ 6,549,882 $ 462 $ 15,315 $ (78,464) $ 6,487,195 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 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. Source: HdL Goren & Cone, Los Angeles Assessor 2008/2009 - 2017/2018 Combined Tax Rolls -215- 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. GOVERNMENT -WIDE FINANCIAL STATEMENTS Statement of Net Position As noted earlier, net position may serve over time as a useful indicator of a government's financial position. At June 30, 2018, net position for the City was $2.8 million. Compared to the prior year, the net position of the City decreased by $56.8 million or 95.2%. The City's net position of $2.8 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, $153.9 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, $51.1 million of the City's net position represents resources that are subject to external restrictions on how they may be used. -6- (continued) Successor Agency (SA) of the former Community Development Commission (CDC) City and SA Taxable Total Taxable Total Less: Assessed Assessed Direct Tax Secured Unsecured Exemptions Value Value Rate $ 2,283,051 $ 150,880 $ (143,108) $ 2,290,823 $ 8,778,018 32.247% 2,339,976 163,198 (152,699) 2,350,475 8,569,919 33.284% 2,336,269 157,035 (142,764) 2,350,540 8,552,639 33.326% 2,408,026 152,958 (152,569) 2,408,415 8,717,258 33.518% 2,429,152 160,821 (152,386) 2,437,587 8,832,423 33.456% 2,498,131 161,438 (186,502) 2,473,067 9,084,799 14.083% 2,566,170 161,710 (184,907) 2,542,973 9,577,968 14.116% 2,795,635 162,488 (189,554) 2,768,569 10,145,592 14.138% 3,028,206 165,375 (170,529) 3,023,052 10,763,872 14.165% 3,103,316 163,326 (154,330) 3,112,312 11,266,521 14.109% -216- City of West Covina Direct and Overlapping Property Tax Rates Last Ten Fiscal Years (rate per $100 of assessed value) Fiscal Year 2009 2010 2011 2012 Basic Levy' 1.00000 1.00000 1.00000 1.00000 Baldwin Park Unified 0.15384 0.16101 0.16673 0.17506 Bassett Unified School District 0.08990 0.10877 0.12316 0.11628 County Detention Facilities 1987 Debt 0.00000 0.00000 0.00000 0.00000 Covina Valley Unified School District 0.07863 0.08592 0.09003 0.08999 Hacienda -La Puente Unified 0.05681 0.05973 0.06462 0.06430 LA County Flood Control 0.00000 0.00000 0.00000 0.00000 Metropolitan Water District 0.00430 0.00430 0.00370 0.00370 Mt. San Antonio College 0.02333 0.02571 0.02636 0.02642 Rowland Heights Unified 0.07029 0.06769 0.07538 0.09195 Walnut Valley Unified 0.11297 0.11674 0.11839 0.11735 West Covina Municipal Maint. Dist. 0.17830 0.18180 0.18180 0.18180 West Covina Unified 0.06041 0.05258 0.05920 0.05377 Total Direct & Overlapping2 Tax Rates 1.82876 1.86426 1.90937 1.92061 City Share of 1 % Levy Per Prop 133 0.13820 0.13820 0.13820 0.13820 Redevelopment Rate° 1.00430 1.00430 1.00370 1.00370 Total Tax Rates 0.32247 0.33284 0.33326 0.33518 ' 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 City's share of 1 % Levy is based on the City's 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 the State of California for the fiscal year 2012/13 and years 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 2012/13. For the purpose of this report, residual revenue is assumed to be distributed to the City in the same proportions as general fund revenue. Source: Los Angeles County Assessor 2008/09 - 2017/18 Tax Rate Table -217- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 0.16406 0.15842 0.16519 0.16288 0.10510 0.13039 0.12773 0.11632 0.11539 0.15771 0.16781 0.17443 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.09500 0.11472 0.11426 0.11062 0.12581 0.14205 0.06689 0.06653 0.06432 0.06394 0.06600 0.10531 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00350 0.00350 0.00350 0.00350 0.00350 0.00350 0.02896 0.02023 0.02129 0.02154 0.02400 0.02371 0.10053 0.12297 0.14313 0.12426 0.12444 0.11841 0.12554 0.11342 0.11510 0.09285 0.06601 0.07388 0.18180 0.18310 0.18310 0.18310 0.18310 0.18310 0.04965 0.03626 0.05412 0.04205 0.04914 0.09514 1.94365 1.93547 1.97941 1.96245 1.91492 2.04992 0.13820 0.13820 0.13820 0.13820 0.13820 0.13820 N/A N/A N/A N/A N/A N/A 0.33456 0.14083 0.14116 0.14138 0.14165 0.14109 -218- This page intentionally left blank. City of West Covina Principal Property Taxpayers Current Year and Nine Years Ago 2018 2009 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 $271,881,917 1 2.41% $144,253,338 1 1.64% BRIE DDR BR Eastland California LLC 168,708,946 2 1.50% 0.00% 301 South Glendora Avenue Apts 102,504,008 3 0.91 % - 0.00% PT Enterprises Ile 60,740,782 4 0.54% - 0.00% Walnut Ridge Apartments LP 58,224,198 5 0.52% - 0.00% TPA of NASCH LLC 55,575,956 6 0.49% - 0.00% Glendora Avenue Properties LLC 53,540,399 7 0.48% - 0.00% Deutche Mellon National Asset 38,374,479 8 0.34% - 0.00% Barranca Tower LLC 37,913,400 9 0.34% - 0.00% CIP 2014 SG Covina Owner LLC 34,603,706 10 0.31 % - 0.00% Eastland Shopping Center LLC - 0.00% 100,308,921 2 1.14% Gateway Crescent LLC - 0.00% 55,750,000 3 0.64% SP Torrey Pines LLC - 0.00% 53,069,600 4 0.60% PPC WR Apartments - 0.00% 50,471,235 5 0.57% Eastland Tower Partnership - 0.00% 50,129,940 6 0.57% Legacy Partners Verandas LP - 0.00% 47,236,400 7 0.54% Hassan Real Estate Partnership - 0.00% 34,363,351 8 0.39% PPC AVF III Sunset LLC - 0.00% 30,577,140 9 0.35% KOM BAM Sunset Plaza LLC 0.00% 30,012,850 10 0.34% Totals $882,067,791 7.84% $596,172,775 6.78% Source: HdL Coren & Cone; Los Angeles County Assessor 2007-08 and 2016-17 Combined Tax Rolls and the SBE Non UnitaryTax Roll -219- 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 2009 $ 9,207,210 $ 8,509,721 92.42% $ 104,568 $ 8,614,289 93.56% 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% 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 -220- (continued) Community Development Commission Collected within the Fiscal Taxes Levied Fiscal Year of Levy Collections in Total Collections to Date Year Ended forthe Percent Subsequent Percent June 30 Fiscal Year Amount of Levy Years Amount of Levy 2009 $ 19,346,023 $ 18,610,849 96.20% $ 833,301 $ 19,444,150 100.51 2010 20,058,658 19,121,096 95.33% 349,563 19,470,659 97.079/6 2011 20,132,138 19,147,814 95.11 % 394,313 19,542,127 97.079/6 2012 20,612,835 8,727,674 42.34% 191,262 8,918,936 43.279/. 2013 N/A N/A N/A N/A N/A N/A 2014 N/A N/A N/A N/A N/A N/A 2015 N/A N/A N/A N/A N/A N/A 2016 N/A N/A N/A N/A N/A N/A 2017 N/A N/A N/A N/A N/A N/A 2018 N/A N/A N/A N/A N/A N/A -221- 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 2009 $58,530,000 $38,745,000 $28,165,000 $34,960,554 $ 2,691,276 $ 163,091,830 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 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 -222- (continued) Business -Type Activities Total Total Percentage Debt Certificates of Business -type Primary of Personal Per Participation Activities Government Income (2) Capita (2) $ $ $163,091,830 6.17% 1,458 162,884,924 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 -223- City of West Covina Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years in thousands (OOOs) Fiscal Year Lease Special Tax Percent of Ended Revenue Assessment Allocation Assessed Per June30 Bonds Bonds(a) Bonds(a) Total Value(1) Capita 2009 $ 58,530 $ 38,745 $ 28,165 $ 125,440 1.43% 523 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 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. Source: City of West Covina Finance Department and Los Angeles County Assessor's Office -224- The remaining deficit balance of unrestricted net position of $202.2 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, 2018, with the comparative data for the fiscal year ended June 30, 2017: Table 1 Statement of Net Position Governmental Activities Business -Type Activities Total 2018 2017 2018 2017 2018 2017 Assets: Current and other assets $ 92,219,443 $ 91,562,563 $ (158,068) $ (83,318) $ 92,061,375 $ 91,479,245 Capital assets 205,471,929 207,274,978 205,471,929 207,274,978 Total assets 297,691,372 298,837,541 (158,068) (83,318) 297,533,304 298,754,223 Deferred Outflows of Resources: Pension related 28,845,151 30,344,516 - - 28,845,151 30,344,516 OPEB related 2,470,254 2,470,254 31,315,405 30,344,516 31,315,405 30,344,516 Liabilities: Long-term debt outstanding 311,496,374 259,244,979 93,543 140,549 311,589,917 259,385,528 Other liabilities 5,383,957 6,829,810 23,399 28,469 5,407,356 6,858,279 Total liabilities 316,880,331 266,074,789 116,942 169,018 316,997,273 266,243,807 Deferred Inflows of Resources: Pension related 3,180,451 3,264,778 - - 3,180,451 3,264,778 OPEB related 5,826,512 5,826,512 9,006,963 3,264,778 9,006,963 3,264,778 Net Position: Net investment in capital assets 153,940,332 153,784,463 - - 153,940,332 153,784,463 Restricted 51,130,936 50,717,656 - - 51,130,936 50,717,656 Unrestricted (201,951,785) (144,659,629) (275,010) (252,336) (202,226,795) (144,911,965) Total net position $ 3,119,483 $ 59,842,490 $ (275,010) $ (252,336) $ 2,844,473 $ 59,590,154 7- City of West Covina Direct and Overlapping Debt June 30, 2018 Estimated Estimated Share Debt Percentage of Overlapping Governmental Unit Outstanding Applicable(1) Debt Debt repaid with Property Taxes: Metropolitan Water District $ 29,354,442 0.744 $ 218,394 Mt. San Antonia CCD DS 2008 Sense 2013A 200,306,691 12.935 25,909,562 ML San Antonia CCD DS 2008 Series 2013B 7,350,000 12.935 950,719 Mt. San Antonia CCD DS 2013 Refunding Series A 63,210,000 12.935 8,176,179 ML San Antonia CCD DS 2013 Refunding Series B 37,010,000 12.935 4,787,223 Mt. San Antonia CCD DS 2008 Sends 2015C 16,750,000 12.935 2,166,603 ML Ben Antonia CCD DS 2015 Refunding Bonds 19,130,000 12.935 2,474,455 Baldwin Park USD 2002 Series 2004 6,455,897 0.294 18,995 Baldwin Park USD 2006 Series 2008 268,630 0.294 790 Baldwin Park USD 2006 Series 2013 23,709,735 0.294 69,760 Baldwin Palk USD 2016 Refunding Bonds 68,060,000 0.294 200,251 Basset USD DS 2004 Series 2005 A 265,953 0.110 292 Basset USD DS 2006 Series B 10,775,729 0.110 11,834 Basset USD DS 2014 Refunding Series A 8,220,000 0.110 9,027 Basset USD DS 2014 Refunding Sends B 6,415,000 0.110 7,045 Basset USD DS 2014 Series A 8,530,000 0.110 9,368 Bassett USD DS 2016 Refunding Bonds 8,645,000 0.110 9,494 Basset USD DS 2014 Series B 20,100,000 0.110 22,074 Covina Valley USD DS 2001 Series B 11,762,939 31.912 3,753,748 Covina Valley USD DS 2006, 07 Series B 1,818,265 31.912 580,238 Covina Valley USD DS 2001 Refunding 2010 Series A 10,320,000 31.912 3,293,282 Covina Valley USD DS 2012 Series A 26,235,000 31.912 8,372,021 Covina Valley USD DS 2013 Refunding Bonds 37,840,000 31.912 12,075,368 Covina Valley USD DS 2012 Series B 36,145,000 31.912 11,534,466 Covina Valley USD DS 2012 Series C 16,970,000 31.912 5,415,407 Covina Valley USD DS 2012 Series D 46,100,000 31.912 14,810,197 Hacienda -La Puente USD DS 2000 Series A 797:400 1.341 10,693 Hacienda -La Puente USD DS 2000 Same 2003E 891,959 1.341 11,962 Hacienda -La Puente USD DS 2005 Refunding Bonds 22:950,000 1.341 307,769 Hacienda -La Puente USD DS 2007 Refunding 53930,000 1.341 723,224 Hacienda -La Puente USD DS 2016 Series 2017A 70,000,000 1.341 938,729 Rowland Heights USD DS 2000 Series A 952,166 15.087 143,653 Rowland Heights USD DS 2005 Refunding Bonds 8:380:456 15.087 1,264,360 Rowland Heights USD DS 2006 Series B 25722549 15.087 3,880,762 Rowland Heights USD DS 2006 Series C (BABB) 12,000,000 15.087 1,810,441 Rowland Heights USD DS 2006 Series D OSCB 17,275,000 15.087 2,606,280 Rowland Heights USD DS 2006 Series E 26,280,000 15.087 3,964,865 Rowland Heights USD DS 2012 Series A 41,295,000 15.087 6,230,179 Rowland Heights USD DS 2013 Refunding Bonds 26,390,000 15.087 3,981,461 Rowland Heights USD DS 2012 Series B 65,999,972 15.087 9,957,419 Rowland Heights USD DS 2015 Refunding Bonds 43:430:000 15.087 6,552,286 Walnut Valley USD DS 201]O Series E 11,428, 114 0.736 84,072 Walnut Valley USD DS 2007 Sends A (Measure S) 4,B36,592 0.736 35,581 Walnut Valley USD DS 2011 Refunding 23,787,265 0.736 174,992 Walnut Valley USD DS 2007 Sends B (Measure S) 535,000 0.736 3,936 Walnut Valley USD DS 2012 Refunding Bonds 1,395,000 0.736 10,262 Walnut Valley USD DS 2007 Series C 130,000 0.736 956 Walnut Valley USD DS 2014 Refunding Bonds Series A 66,920,000 0.736 492,301 Walnut Valley USD DS 2014 Refunding Bonds Series B 40,010,000 0.736 294:336 Walnut Valley USD DS 2016 Refunding Bonds 43,765,000 0.736 321,960 West Covina USD 2002 Refunding Series 10,655,000 95.503 10,175,797 West Covina USD DS 2012 Refunding Bonds 11,745,000 95,503 11,216,775 West Covina USD DS 2016 Series A 74,995,000 95.503 71,622,141 Sub Total Overlapping Debt 241,693,981 City of West Covina Direct Debt - Lease Revenue Bonds 41,190,002 Total Direct and Overlapping Debt $ 282,883,984 Note: Overlapping governments are those that ccri,lde, at least In part with the geographic bountlaries W the Gily. This schedule estimates the portion of the outstanding debt of those overlapping governments that Is borne by the resitleM, antl businesses of Glerdoa This process recognizes that, when considering the Guys ability to issue antl repay long term dbot, the ¢Mire debt buMen borne by the resitlents antl businesses should be taken iMI aaouM. However, thls does MM MMl, that every taxpayer Is a resident and, thereton responsible for Me deli, br each M,M1 Naing government. (1) The percentepe of overlapping debt applicable is eMimated using taxable assessetl properly values. Applicable p bMeges vrere estimated by dsterminirg the potion of the ciMMtys taxable assessed value that is within the governments boundaries and tllviding it by the Gounty's total taxable assessov value. -rim HdL Caren x Cone, Los Angeles, County Assessor and Audibr Comdned 2016 17 Lien Date Tax Rolls -225- City of West Covina Legal Debt Margin Information Last Ten Fiscal Years in thousands (OOOs) Assessed valuation Conversion percentage Adjusted assessed valuation Debt limit percentage Debt limit I otai net debt applicable to limitation Legal debt margin Total debt applicable to the limit as a percentage of debt limit Fiscal Year 2009 2010 2011 2012 $ 6,487,195 $ 6,219,444 $ 6,202,099 $ 6,308,843 25% 25% 25% 25% 1,621,799 1,554,861 1,550,525 1,577,211 243,270 233,229 232,579 236,582 $ 243,270 $ 233,229 $ 232,579 $ 236,582 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 -226- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 $ 6,394,836 $ 6,611,732 $ 7,034,995 $ 7,377,023 $ 7,740,820 $ 8,154,209 25 % 25 % 25 % 25 % 25 % 25 1,598,709 1,652,933 1,758,749 1,844,256 1,935,205 2,038,552 239,806 247,940 263,812 276,638.36 290,280.75 305,782.84 $ 239,806 $ 247,940 $ 263,812 $ 276,638 $ 290,281 $ 305,783 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -227- City of West Covina Pledged -Revenue Coverage Last Ten Fiscal Years in thousands (OOOs) Lease Revenue Bonds and Certificates of Participation Fiscal Year Ended Debt Service June 30 Revenue Principal Interest Coverage 2009 $ 48,251 $ 865 $ 1,675 19.00 2010 44,950 1,310 1,245 17.59 2011 47,672 1,855 1,268 15.26 2012 48,347 1,505 1,155 18.18 2013 53,006 1,605 1,272 18.42 2014 54,753 1,715 1,249 18.47 2015 57,588 1,655 891 22.62 2016 58,133 1,900 1,121 19.24 2017 64,372 4,005 1,185 12.40 2018 67,196 2,005 1,306 20.29 Tax Allocation Bonds Fiscal Year Ended Tax Debt Service June 30 Increment Principal Interest Coverage 2009 $ 19,444 $ 1,005 $ 1,293 8.46 2010 19,564 1,145 1,207 8.32 2011 19,542 1,205 1,127 8.38 2012 17,260 1,250 1,079 7.41 2013 12,152 1,305 1,030 5.20 2014 8,675 1,358 978 3.71 2015 9,260 1,420 920 3.96 2016 15,110 1,480 853 6.48 2017 9,365 19,005 802 0.47 2018 10,256 1,480 - 6.93 Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Operating expenses do not include interest or depreciation expenses. Source: City of West Covina Finance Department -228- (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 -229- 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 2008 111,842 $ 2,642,491 $ 23,627 6.5% 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 Sources: HdL Coren & Cone, California State Department of Finance, and California Employment -230- City of West Covina Principal Employers Current Year and Nine Years Ago 2018 2009 Employer Number of Employees Rank Percent of Total Number of Employment Employees Rank Percent of Total Employment Queen of the Valley Campus 1,617 1 3.16% 1,744 1 3.46% WC Unified School District 1,445 2 2.82% 1,223 2 2.43% City of West Covina 426 3 0.83 % 510 3 1.01 California Respite Care 400 4 0.78 % 265 5 0.53 Macy's 261 5 0.51 % 265 5 0.53 Interspace/Concorde Battery Corporation 230 6 0.45 % 198 8 0.39 Walmart Store #5954 222 7 0.43 Target Store #T1028 214 8 0.42 % 479 4 0.95 Target Store #T-2147 175 9 0.34 JC Penney Corp Inc. #1505-7 173 10 0.34% 241 6 0.481% S G V Newspaper Group 229 7 0.45 B.J 's Restaurant & Brewery 197 9 0.39 Progressive Mgmt Systems 158 10 0.31 Totals 5,163 10.08% 5,509 10.93% 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 -231- 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 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 General government 42 40 39 36 31 31 31 32 42 46 Public safety 306 295 281 264 253 244 268 268 282 259 Public works 83 78 76 72 64 69 71 71 75 56 Community services 55 47 44 44 41 42 41 41 87 64 Community development 24 23 19 16 7 2 2 2 1 1 Total 510 483 459 432 396 389 413 414 487 426 Source: City of West Covina Finance Department -232- 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 Fiscal Year 2009 2010 2011 2012 3,651 3,397 3,210 2,557 82,682 75,752 71,254 71,741 8,009 16,077 15,781 23,579 7,194 6,949 7,454 7,545 3,751 3,603 430 496 2,891 2,334 2,477 2,435 N/A N/A N/A N/A 6,564 7,916 7,041 6,927 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 year 2015-2016. Source: City of West Covina Finance Department -233- Chances in Net Position The City's total revenues of $90.6 million for governmental activities are $17.9 million less than the expenses of $108.5 million. The decrease is a result of slow growth in revenues offset by increases in expenditures, the largest being public safety. A summary of the government -wide statement of activities for the year ended June 30, 2018, with the comparative data for the fiscal year ended June 30, 2017, is as follows: Table 2 Changes in Net Position Governmental Activities Business -Type Activities Total 2018 2017 2018 2017 2018 2017 Revenues Program revenues: Charges for services $ 15,768,306 $ 13,370,141 $ 1,199,162 $ 1,274,318 $ 16,967,468 $ 14,644,459 Operating contributions and grants 10,285,701 10,955,031 - - 10,285,701 10,955,031 Capital contributions and grants 151,966 445,980 - - 151,966 445,980 General revenues: Property taxes 25,392,860 23,994,740 - - 25,392,860 23,994,740 Sales taxes 17,449,827 16,503,563 - - 17,449,827 16,503,563 Othertaxes 11,704,254 10,423,493 - - 11,704,254 10,423,493 Other general revenues 9,815,755 11,300,580 83,590 184,088 9,899,345 11,484,668 Other item: Gain on transfer of land from Successor Agency Total revenues 90,568,669 86,993,528 1,282,752 1,458,406 91,851,421 88,451,934 Expenses General government $ 7,523,129 5,775,173 - - 7,523,129 5,775,173 Public safety 67,734,047 56,169,907 - - 67,734,047 56,169,907 Public works 21,161,586 21,243,019 - - 21,161,586 21,243,019 Community services 8,926,070 7,926,410 - - 8,926,070 7,926,410 Community development 1,618,181 2,190,319 - - 1,618,181 2,190,319 Interest expense 1,515,826 1,575,724 - - 1,515,826 1,575,724 Computer service 1,305,426 1,575,066 1,305,426 1,575,066 Total expenses 108,478,839 94,880,552 1,305,426 1,575,066 109,784,265 96,455,618 Increase (decrease)in net position (17,910,170) (7,887,024) (22,674) (116,660) (17,932,844) (8,003,694) Beginning net position, as restated 21,029,653 67,729,514 (252,336) (135,676) 20,777,317 67,593,838 Ending net position $ 3,119,483 $ 59,842,490 $ (275,010) $ (252,336) $ 2,844,473 $ 59,590,154 Certain reclassifications have been made to FY 2016-17 balances to confirm to classifications used in FY 2017-18. -8- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 2,755 2,537 2,544 2,624 2,818 3,080 65,554 69,874 71,098 72,368 74,898 84,850 19,910 20,014 16,156 N/A N/A N/A 7,871 7,990 8,555 9,494 9,353 9,383 837 749 717 778 816 805 3,882 2,925 3,617 5,038 1,547 1,399 N/A N/A N/A 13,964 6,694 2,391 6,027 6,283 6,487 7,129 7,500 17,902 -234- City of West Covina Capital Asset Statistics by Function/Program Last Ten Fiscal Years Fiscal Year Function 2009 2010 2011 2012 Public Safety: Police: Stations 1 1 1 1 Fire: Stations 5 5 5 5 Public works: Streets (miles) 230.0 230.0 231.0 231.0 Streetlight poles 826 826 826 826 Streelight fixtures 1,109 1,109 1,109 1,109 Traffic signals 116 116 116 117 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 -235- (continued) Fiscal Year 2013 2014 2015 2016 2017 2018 1 1 1 1 1 1 5 5 5 5 5 5 231.0 231.0 231.0 240.3 240.3 240.3 826 826 826 826 674 674 1,109 1,109 1,109 1,109 420 420 117 117 114 114 97 97 1 1 1 1 1 1 16 16 16 16 16 16 4 4 4 4 4 4 238.9 238.9 238.9 238.9 227.0 227.0 42.0 42.0 42.0 42.0 26.0 26.0 -236- This page intentionally left blank. ATTACHMENT NO.2 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 909 889 536 1 F AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN ramsepa.net AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS PARTNERS Brenda L. Odle, CPA, MST Independent Auditor's Report Terry P. Shea, CPA Scott W. Manna, CPA, CGMA To the Honorable Mayor and Members of the City Council Leena Shanbhag, CPA, MST, CGMA Cityof West Covina Bradferd A. Welebir, CPA, MBA, CGMA West Covina, California Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller, CPA (Pawner Emeritus) Kirk A. Franks. CPA(Pawner Emeritus) We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to DIRECTORS financial audits contained in Government Auditing Standards issued by Jenny Liu, CPA. MST the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, each major fund, MANAGERS/STAFF Seong-HyeaLee, and the aggregate remaining fund information of the City of West Covina, CPA. MBA Charles De Simoni, CPA California (the City), as of and for the year ended June 30, 2018, and the Gardenya Duran, CPA related notes to the financial statements, which collectively comprise the Brianna Schultz, CPA City's basic financial statements, and have issued our report thereon Jingle Wu, CPA dated March 5, 2019. Evelyn Morentin-Barcena, CPA Jin Gu, CPA, MT Internal Control Over Financial Reporting Veronica Hernandez, CPA Tara R. Thorp, CPA, MSA In planning and performing our audit of the financial statements, we 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. 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, MEMBERS misstatements on a timely basis. A material weakness is a deficiency, or American Institute of Certified Public Accountants a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial PCPS erms Alliance (or CPA Firms for statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of Governmental Audit Q-hty Center deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with Employee Benefit Plan Audit QaartyCenter governance. California Society of Certified Public Accountants -1- 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 over financial reporting 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 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. Purpose of this Resort 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 entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. k-0 eA.C,, San Bernardino, California March 5, 2019 -2- ATTACHMENT NO. 3 M1ROGERS. 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. Marro, 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, 2018, and have issued our report thereon Bradferd A. Welebir, CPA, MBA, CGMA dated March 5, 2019. Professional standards require that we advise you of Jay H. Zercher, CPA (Partner Emeritus) the following matters relating to our audit. Phillip H. Waller, CPA(P-r Emeritus) Kirk A. Franks, CPA (Partner Emeritus) Our Responsibility in Relation to the Financial Statement Audit DIRECTORS jenny Liu. CPA, MST As communicated in our engagement letter dated May 21, 2018, our responsibility, as described by professional standards, is to form and MANAGERS/STAFF express opinions about whether the financial statements that have been Seong-Hyea Lee, CPA, MBA prepared by management with your oversight are presented fairly, in all Charles De Simon. CPA Gardenya Duran, CPA material respects, in accordance with accounting principles generally Brianna Schultz, CPA accepted in the United States of America. Our audit of the financial jinglie Wu, CPA statements does not relieve you or management of your respective Evelyn Morentin-Barcena, CPA responsibilities. jin Gu, CPA, MT Veronica Hernandez, CPA p y' p y p p Our responsibility, as prescribed b professional standards, is to Ian and Tara R. Thohorp, CPA, MSA 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 opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. MEMBERS We are also responsible for communicating significant matters related to American Institute or the audit that are, in our professional judgment, relevant to your Certified Public Accountants responsibilities in overseeing the financial reporting process. However, we PCPS The AICPA Alliance are not required to design procedures for the purpose of identifying other for CPA Firms matters to communicate to you. Governmental Audit Quality Center Planned Scope and Timing of the Audit Employee Benefit Plan Audit Quality Center We conducted our audit consistent with the planned scope and timing we California Society of previously communicated to you. Certified Public Accountants -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 March 5, 2019. 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. 40geAAr, 4""- -ox, I&Cooly X ,JCCI># LLP. San Bernardino, CA (/ March 5, 2019 -4- 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 decreased by $0.7 million, primarily due to a significant decrease in the drug enforcement revenue arising from delays in the flow of revenue to the City from the U.S. Department of Justice and U.S. Department of Treasury. • Capital contributions and grants decreased by $0.3 million due to a decrease in developer fees. Development fluctuates from year to year and several larger park developments occurred the prior fiscal year, primarily residential developments in West Covina Citrus Collection and Cadanera. • Property taxes, the City's largest revenue source, increased $1.4 million primarily due to an increase in the assessed valuation. • Sales tax, the City's second largest revenue source, increased $0.9 million with the final true up payments of the Sales Tax in Lieu (Triple Flip). • Other general revenues decreased primarily in investment income due to the Department of Finance (DOF) determining that the advances between the City and the Successor Agency were an enforceable obligation on the Recognized Obligation Payment Schedule (BOPS) for FY 2016-17 which resulted in the increase in interest income and the advances owed to the General in the previous fiscal year. • There was an overall increase in expenses of $13.6 million, due to an increase in salaries and benefits, maintenance and operations, and capital improvements. -9- Finance Department March 5, 2019 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, 2018, 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 5, 2019: Financial Statements 1) We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated May 21, 2018, 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) 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. 3) We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud. 4) We acknowledge our responsibility for compliance with the laws, regulations, and provisions of contracts and grant agreements. 5) We have reviewed, approved, and taken responsibility for the financial statements and related notes. 6) We have a process to track the status of audit findings and recommendations. IN 7) We have identified and communicated to you all previous audits, attestation engagements, and other studies related to the audit objectives and whether related recommendations have been implemented. 8) Significant assumptions we used in making accounting estimates, including those measured at fair value, are reasonable. 9) Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP. 10)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. 11) The effects of all known actual or possible litigation, claims, and assessments have been accounted for and disclosed in accordance with U.S. GAAP. 12) All component units are included and related organizations are properly disclosed. 13) All funds and activities are properly classified. 14) 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. 15)All components of net position, nonspendable fund balance, and restricted, committed, assigned, and unassigned fund balance are properly classified and, if applicable, approved. 16) 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. 17)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. 18)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. 19)All interfund and intra-entity transactions and balances have been properly classified and reported. 20) Deposit and investment risks have been properly and fully disclosed. 21) Capital assets, including infrastructure assets, are properly capitalized, reported, and if applicable, depreciated. 22) All required supplementary information is measured and presented within the prescribed guidelines. 23) With regard to investments and other instruments reported at fair value: a) The underlying assumptions are reasonable and they appropriately reflect management's intent and ability to cant' 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. -2- d) There are no subsequent events that require adjustments to the fair value measurements and disclosures included in the financial statements. Information Provided 24) We have provided you with: a) 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. 25)AII transactions have been recorded in the accounting records and are reflected in the financial statements. 26) 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. 27) 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. 28) We have no knowledge of any allegations of fraud or suspected fraud affecting the City's financial statements communicated by employees, former employees, regulators, or others. 29) We have disclosed to you all known actual or possible litigation, claims, and assessments whose effects should be considered when preparing the financial statements and the schedule of expenditures of federal awards. 30) We have disclosed to you the identity of the City's related parties and all the related party relationships and transactions of which we are aware. 31) There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in accounting, internal control, or financial reporting practices. 32) The City has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities. 33) We have disclosed to you all guarantees, whetherwritten or oral, underwhich the City is contingently liable. 34) 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. 35) 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. -3- 36) 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. c) Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by GASB-62. 37) 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. 38) 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. Government —specific 39) 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. 40) 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 41)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. -4- 42) 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. 43) We do not plan to make frequent amendments to the City's pension or other postretirement benefit plans. 44) 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. b) We have provided you a copy (copies) of all approved resolutions related to these actions in accordance with IRS Revenue Ruling 2006-43. Signature: �� Signature: Title: Title: -5- ATTACHMENT NO.4 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, 2018 City of West Covina, California West Covina Housing Authority Fund Table of Contents June 30, 2018 PAGE Independent Auditor's Report Basic Financial Statements Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance Notes to the Financial Statements 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 13 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T 909 889 5361 F ramscpa.net PARTNERS Brenda L. Odle, CPA, MST Terry P. Shea, CPA Kirk A Franks, CPA Scott W. Marro, CPA, CGMA Leena Shanbhag, CPA, MST, CGMA 13ndferd A. Welebir, CPA, MBA, CGMA Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) MANAGERS/STAFF Jenny Liu, CPA, MST Seong-Hyea Lee, CPA MBA Charles De Simon!, CPA Gardenya Duran, CPA Brianna Schultt, CPA Lisa Dongxue Guo, CPA MSA Samuel Singery, CPA Jing Wu, CPA Evelyn Morentin-Barcena, CPA Jin Gu, CPA MT ROGERS. ANDERSON, MALODY & SCOTT. LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 INDEPENDENT AUDITOR'S REPORT The Board of Directors West Covina Housing Authority West Covina, California Report on the Financial Statements We have audited the accompanying financial statements of the West Covina Housing Authority Fund (the Housing Authority), (a component unit of the City of West Covina, California (the City)), as of and for the year ended June 30, 2018, and the related notes to the financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements 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. Auditors Responsibility 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 obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures MEMBERS selected depend on the auditor's judgment, including the assessment of the American Institute of risks of material misstatement of the financial statements, whether due to Certified Public Accountants fraud or error. In making those risk assessments, the auditor considers PCPS The AICPA Ail-- internal control relevant to the entity's preparation and fair presentation of far CPA Firms the financial statements in order to design audit procedures that are Governmental Audit Quality Center appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we Employee Benefit Plan express no such opinion. An audit also includes evaluating the Audn Quaht y Center appropriateness of accounting policies used and the reasonableness of Calilornla Society of significant accounting estimates made by management, as well as Certified Public Accountants 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 Housing Authority, as of June 30, 2018, 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, 2018, 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 20, 2018, 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. k1ogeAc, ><% e �.coa, Is'ia.[ooly 2 &o# LLP. San Bernardino, California (/ December 20, 2018 -3- Revenues by Source — Governmental Activities Operating grants and contributions Capital grants and 11.4% --- Charges for services 16 8°% Other ge revenue 4.5% Other taxes Ja21 z oc' 12.3% The most significant revenues of the governmental activities are property taxes ($25.4 million), sales tax ($17.4 million) and other taxes ($11.7 million). Program revenues are $26.2 million of the total revenues of the governmental activities, which include charges for services ($15.8 million), operating contributions and grants ($10.2 million), and capital grants and contributions ($0.2 million). 10- City of West Covina, California West Covina Housing Authority Fund Balance Sheet June 30. 2018 Assets Cash and investments $ 5,862,949 Interest receivable 1,807 Notes and loans receivable, net 14,510,928 Advances to Successor Agency 4,250,768 Prepaids 110,833 Total assets $ 24,737,285 Liabilities and fund balance Liabilities: Accounts payable $ 4,059 Other accrued liabilities 8,010 Total liabilities 12,069 Fund balance: Nonspendable: Prepaids 110,833 Restricted for: Affordable housing 24,614,383 Total fund balance 24,725,216 Total liabilities and fund balance $ 24,737,285 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 year ended June 30, 2018 Revenues Investment income $ 396,928 Other revenues 46,013 Total revenues 442.941 Expenditures Current: Public safety 160,083 Affordable housing 418,038 Total expenditures 578,121 Net change in fund balance (135,180) Fund balance, beginning of year 24,860,396 Fund balance, end of year $ 24,725,216 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, 2018 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, 2018 consisted of the following: Amount Pooled cash and investments $ 5,862,949 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, 2018, 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. 2018 Note 3 — Notes and Loans Receivable As of June 30, 2018, the following notes and loans receivable were outstanding: Housing rehabilitation $ 364,438 First time home buyers 259,469 Housing preservation program 724,487 Home improvement program 870,131 Lark Ellen Towers 6,259,137 Executive Lodge Apartments Limited Partnership 6,144,192 West Covina Senior Villas, LLC 2,833,333 West Covina Senior Villas II, L.P. 8,513,885 Other loans 608,196 Allowance for doubtful accounts (12,066,340) Total $ 14,510,928 Several housing rehabilitation loans totaling $364,438 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 $259,469. 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, 2018 ranging from $6,866 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 $724,487. 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 86 individual loans outstanding at June 30, 2018 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 $870,131 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, 2018 was $6,259,137. -7- City of West Covina, California West Covina Housing Authority Fund Notes to the Financial Statements For the vear ended June 30. 2018 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, 2018 was $6,144,192. 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, 2018 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, 2018 was $8,513,885. 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 $242,892 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, 2018 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, 2018 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, 2018, 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, 2018 was $2,653,668. (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, 2018 was $1,597,100. 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. 2018 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, 2018 is presented below: West Covina Housing Authority Fund Nonspendable: Prepaids $ 110,833 Restricted for: Affordable housing 24,614,383 Total fund balance $ 24,725,216 10- REQUIRED SUPPLEMENTARY INFORMATION City of West Covina, California West Covina Housing Authority Fund Budgetary Comparison Schedule For the vear ended June 30, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Investment income $ $ - $ 396,928 $ 396,928 Revenue from other agencies 50,000 - (50,000) Other revenues 46,013 46,013 Total revenues 50,000 442,941 392,941 EXPENDITURES Current: Public Safety 150,000 160,083 160,083 - Affordable housing 519,294 513,985 418,038 95,947 Total expenditures 669,294 674,068 578,121 95,947 Net change in fund balance (669,294) (624,068) (135,180) 488,888 Fund balance, beginning of year 24,860,396 24,860,396 24,860,396 Fund balance, end of year $ 24,191,102 $ 24,236,328 $ 24,725,216 $ 488,888 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. 2018 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- Expenses by Function — Governmental Activities The City's expenses cover a range of services whose expenses were as follows: Public safety ($67.7 million), public works ($21.2 million), community services ($8.9 million), general government ($7.5 million), community development ($1.6 million) and interest expense ($1.5 million). These expenses include capital outlays which are now reflected in the City's capital assets. M ©m 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.net ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS PARTNERS Independent Auditor's Report Brenda L. Odle, CPA, MST Terry P. Shea, CPA The Board of Directors Kirk A Franks, CPA West Covina Housing Authority Scott W. Manna, CPA. CGMA West Covina, California Leena Shanbhag, CPA, MST, CGMA Bradferd A. Welebir, CPA, MBA, CGMA Jay H. Zercher, CPA(Pormer Emeritus) We have audited, in accordance with the auditing standards generally Phillip H. Waller, CPA (Partner E—K-) accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by MANAGERS/STAFF the Comptroller General of the United States, the financial statements of Jenny Liu, CPA MST the West Covina HousingAuthority Fund the Housing Authority), a Y ( 9 Y), ( Seong-Hyea Lee, CPA, MBA Charles De Simoni, CPA component unit of the City of West Covina (the City), California), as of Gardenya Duran, CPA and for the year ended June 30, 2018, and the related notes to the Brianna Schultz, CPA financial statements, which collectively comprise the Housing Authority's Lisa Dongxue Guo, CPA MSA basic financial statements, and have issued our report thereon dated Samuel Singery, CPA December 20, 2018. The financial statements present only the Housing Authorityand do not purport to, and do not, resent fair) the financial P P p Y Evelyn Morentin-tinCPA Evelyn Mor the City. /in Gu, CPA. MT position of 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 the circumstances for the purpose of expressing our opinions on the 'YEARS financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Housing Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Housing Authority's internal control. A deficiency in internal control exists when the design or operation of a MEMBERS American institute of control does not allow management or employees, in the normal course Certified Public Accountants of performing their assigned functions, to prevent, or detect and correct PCPS The AICPA Alliance misstatements on a timely basis. A material weakness is a deficiency, or for CPA Firms a combination of deficiencies, in internal control such that there is a Governmental Audit reasonable possibility that a material misstatement of the entity's financial Qaalay Ca^ter statements will not be prevented, or detected and corrected on a timely Employee Benefit Plan basis. A significant deficiency is a deficiency, or a combination of Audit Quality Center deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with Carfornia Society of Certified Public Accountants 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 ajn1y other purpose. p LLP San Bernardino, California December 20, 2018 14- ATTACHMENT NO. 5 Housing Successor of the City of West Covina Addendum to the Annual Progress Report For Fiscal Year Ended June 30, 2018 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T 909 889 5361 F ramscpa.net PARTNERS Brenda L. Odle, CPA, MST Terry P. Shea, CPA Kirk A Franks, CPA Scott W. Marine, CPA, CGMA Leena Shanbhag, CPA, MST, CGMA Bmdferd A. Welebir, CPA, MBA, CGMA Jay H. Zercher, CPA (Partner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) MANAGERS / STAFF jenny Liu, CPA, MST Seong-Hyea Lee, CPA MBA Charles De Simoni, CPA Gardery, Duran, CPA Brianna Schultz, CPA Lisa Dongxue Guo, CPA, MSA Samuel Singery, CPA jing Wu, CPA Evelyn Morentin-Barcena, CPA fin Gu, CPA, MT MEMBERS American Institute of Certified Public Accountants PCPS The AICPA Alliance rar CPA Firms Governmental Audit Quality Center Employee 8—ft, Plan Audit Quality Center California Society of Certified Public Accountants ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 Independent Accountant's Disclaimer Report Applied to the Preparation of the Addendum to the Annual Progress Report of the Housing Successor of the City of West Covina To Management of the Housing Successor of the City of West Covina West Covina, California We have prepared the accompanying Addendum to the Annual Progress Report ("Addendum to the APR") of the Housing Successor of the City of West Covina ("Housing Successor") as of June 30, 2018, and for the year then ended in accordance with the reporting provisions of the California Health & Safety Code Section 34176 as amended by Senate Bill 341 (Chapter 796, Statutes of 2013, effective January 2014) ("SB 341"), and as amended by Senate Bill 107 (Chapter 325, Statutes of 2015, effective January 2016) HSC Section 34176.1(f). The accompanying Addendum to the APR of the Housing Successor as of June 30, 2018, 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 is not intended to be and should not be used by anyone other than this specified party. k10 a ss, klde.�X, 04,[.o 2 ,Zcoyi, LLP. San Bernardino, California �/ December 20, 2018 STABILITY. ACCURACY. TRUST. Housing Successor of the City of West Covina Addendum to the Annual Progress Report For Fiscal Year Ended June 30, 2018 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 $442,940 as of June 30, 2018. 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, 2018, was $24, 725,436 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, 2018, were $417,818 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 $160,083 related to homeless prevention and rapid re -housing services as of June 30, 2018. 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, 2018. 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, 2018. The value of loans and notes receivable in the Housing Successor as of June 30, 2018 is $14,511,148. The sum of the statutory value of real property and the value of loans and notes receivable is $14,511,148. 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. Project Name Status of Project Heritage Park Senior Monitoring of Housing Compliance for 14 multifamily Units Apartment 14 units are restricted for Senior Housing). Lark Ellen Village Monitoring of Housing Compliance for 121 multifamily Units 88 units are restricted for Senior Housing). Mauna Loa Apartments Monitoring of Housing Compliance for 12 multifamily units. The Promenade Monitoring of Housing Compliance for 124 multifamily units. Senior Villas I Monitoring of Housing Compliance for 85 multifamily units 85 units are restricted for Senior Housing). Senior Villas 11 Monitoring of Housing Compliance for 64 multifamily units 64 units are restricted for Senior Housing). Housing Preservation Administer program, process demand payoffs, research Loan Program deed and title search, release of full reconveyance and liens and recordation. Housing Improvement Administer program, process demand payoffs, research Loan Program deed and title search, release of full reconveyance and liens and recordation. First Time Homebuyers Administer program, process release of full reconveyance, liens, and recordation. Process subordination agreement to allow for refinance. Revised Housing Develop revised loan program pursuant to new legislation Preservation Loan (SB341). Administer program, process new loan Program applications, process and record loan documents, approve loans, and manage payment of loan to contractors. 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, 2018, 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, 2018, there were no outstanding obligations pursuant to Section 33413 that remained to be transferred to the Housing Successor on February 1, 2012. http://westcovina. orcildepartments/community-and-economic-development/successor- aaencv/redevelopment-implementation-plan 10)The information required by subparagraph (B) of paragraph (3) of subdivision (a). This item is not applicable to the Housing Successor until the Fiscal Year Ending June 30, 2019. 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, 2018, 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, 2018, or at any point during the fiscal year ended June 30, 2018. 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. N/A 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. N/A 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. N/A 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. N/A ATTACHMENT NO.6 CITY OF WEST COVINA AIR QUALITY IMPROVEMENT SPECIAL REVENUE FUND FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT JUNE 30, 2018 City of West Covina Air Quality Improvement Special Revenue Fund Table of Contents June 30, 2018 Independent Auditor's Report Basic Financial Statements Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance Notes to the Financial Statements Required Supplementary Information Budgetary Comparison Schedule PAGE 10 Note to Required Supplementary Information 11 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 12 Audit Communication Letter The Audit Communication Letter (Attachment No. 3) 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 2017-18 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 2017- 18. 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 2017-18. Air uality Improvement Fund Financial Statements 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. The business -type activity's expenses decreased by $269,641 or 17% from the prior fiscal year. Charges for services and other revenues decreased by $175,654 in FY 2017-18 causing the decrease in net position of $22,674. 12- ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 INDEPENDENT AUDITOR'S REPORT 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 T The Honorable Mayor and 5361 5361 F CityCouncil of the City of West Covina y ramscpa.net ram cp West Covina, California PARTNERS Report on the Financial Statements Brenda L. Odle, CPA, MST Terry P. Shea, CPA Kirk A Franks,CPA We have audited the accompanying financial statements of the Air Quality Scott W. Manno, CPA, CGMA Improvement Special Revenue Fund (the Fund) of the City of West Covina, Leena Shanbhag, CPA, MST, CGMA California (the City), as of and for the year ended June 30, 2018, and the Badferd A. Weleblr, CPA, MBA, CGMA related notes to the financial statements as listed in the table of contents. Jay H. Zercher, CPA (Parmer Emeritus) Phillip H. Waller, CPA (Partner Emeritus) Management's Responsibility for the Financial Statements MANAGERS/STAFF Jenny Liu, CPA, MST Management is responsible for the preparation and fair presentation of Seong-Hyea Lee, CPA MBA these financial statements in accordance with accounting principles Charles De Simoni, CPA generally accepted in the United States of America; this includes the Gardenya Duran, CPA design, implementation, and maintenance of internal control relevant to the Brianna Schultz, CPA preparation and fair presentation of financial statements that are free from Lisa Dongxue Guo, CPA, MSA Samuel Singery, CPA material misstatement, whether due to fraud or error. Jing Wu, CPA Evelyn Morentin-Barcena, CPA Auditor's Responsibility Jin Gu, CPA MT 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 obtain reasonable assurance about whether the financial statements are free from material misstatement. 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 MEMBERS risks of material misstatement of the financial statements, whether due to American Institute of fraud or error. In making those risk assessments, the auditor considers Certified Public Accountants internal control relevant to the entity's preparation and fair presentation of PCPS The AICPA Alliance the Fund's financial statements in order to design audit procedures that are Iii CPA Firms appropriate in the circumstances, but not for the purpose of expressing an Governmental Audit opinion on the effectiveness of the entity's internal control related to the Quollty Center Fund. Accordingly, we express no such opinion. An audit also includes Employee Benefit Plon evaluating the appropriateness of accounting policies used and the Audit Quahty Center reasonableness of significant accounting estimates made by management, California society of as well as evaluating the overall presentation of the financial statements. Certified Public Accountants -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, 2018, 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, 2018, 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 20, 2018, 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. k1ogeAc, ><% e �.coa, Is'ia.[ooly 2 &o# LLP. San Bernardino, California (/ December 20, 2018 -3- City of West Covina Air Quality Improvement Special Revenue Fund Balance Sheet June 30, 2018 Assets Other receivables $ 35,495 Due from other agencies 554,199 Total assets $ 589,694 Liabilities, deferred inflows of resources, and fund balance Liabilities: Accounts payable $ 14,043 Other accrued liabilities 44,399 Due to other funds 100,572 Total liabilities 159,014 Deferred inflows of resources: Unavailable revenue 554,199 Fund balance (deficit): Unassigned (123,519) Total fund balance (deficit) (123,519) Total liabilities, deferred inflows of resources, and fund balance $ 589,694 The accompanying notes are an integral part of these financial statements. -4- 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, 2018 Revenues Investment income $ 2,112 Revenue from other agencies 138,524 Other revenues 1,700 Total revenues 142,336 Expenditures Public works 936,746 Deficiency of revenues under expenditures (794,410) Other Financing Sources Transfers in 9,761 Net change in fund balance (784,649) Fund balance, beginning of year 661,130 Fund balance (deficit), end of year $ (123,519) The accompanying notes are an integral part of these financial statements. -5- 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, 2018 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 Statement of Revenues, Expenditures, and Changes in Fund Balance For the year ended June 30, 2018 Note 2 — Summary of Significant Accounting Policies, (continued) Deferred Outflows and Inflows of Resources, (continued) The Fund's financial statements contain elements that meet the definition of deferred inflow of resources. The amount of deferred inflows of resources is reported in the Balance Sheet as follows: Amount Unavailable revenue $ 554,199 Note 3 — Cash and Investments Cash at June 30, 2018 consisted of the following: Amount 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, 2018, please see the City's Comprehensive Annual Financial Report. Note 4 — Interfund Receivables and Transfers Interfund transactions — Due to/due from interfund borrowings Interfund receivable and payable balances at June 30, 2018 are as follows: Receivable Fund Payable Fund General Fund Air Quality Improvement Special Revenue Fund $ 100,572 The interfund payable represents temporary loans to cover negative cash balances. -7- 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, 2018 Note 4 — Interfund Receivables and Transfers, (continued) Interfund transactions - Transfers The following schedule summarizes the Fund's transfer activity: Transfer In Air Quality Improvement Transfers Out: Special Revenue Fund General Fund $ 9,761 The transfer in represents transfer from General Fund to cover electricity expenditures. 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. -8- 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, 2018 Note 5 — Fund Balance, (continued) 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, 2018 is presented below: Air Quality Improvement Unassigned $ (123,519) Total fund balance (deficit) $ (123,519) -9- REQUIRED SUPPLEMENTARY INFORMATION 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. Major 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 $12 million, while total fund balance was $22.3 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 19.05% of total general fund expenditures, while total fund balance represents 35.4% of that same amount. The non -spendable portion of fund balance in the amount of $10 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, increased $2.8 million while total expenditures, exclusive of fund transfers out, decreased $1.1 million. • Total taxes were up $1.8 million (3.7%) from the prior year. Property taxes increased by $1.4 million (5.9%) and sales tax revenues decreased by $0.2 million (1.1 %). • Investment income decreased by $2.9 million from the prior year. As previously mentioned, DOF determined that the advances between the City and the Successor Agency were an enforceable obligation on the BOPS for FY 2016-17 which resulted in the increase in interest income in the prior year. • Other revenue increased by $2.1 million from the prior year primarily due to the sale of land from Successor Agency. 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 $14.5 million and is due $4.3 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 Grants Special Revenue Fund accounts for various Federal, State of California, and local grants that are restricted to expenditures for specific programs and projects. The fund finished the fiscal year with a total fund deficit of $755,433. The deficit will be eliminated through future grant revenue the City will receive during FY 2018-19. 13- City of West Covina Air Quality Improvement Special Revenue Fund Budgetary Comparison Schedule For the year ended June 30, 2018 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Investment income $ - $ - $ 2,112 $ 2,112 Revenue from other agencies 141,000 141,000 138,524 (2,476) Other revenues - - 1,700 1,700 Total revenues 141,000 141,000 142,336 1,336 Expenditures Public works 28,653 951,302 936,746 14,556 Excess (deficiency) of revenues over (under) expenditures 112,347 (810,302) (794,410) 15,892 Other Financing Sources Transfersin 9,761 9,761 Net change in fund balance 112,347 (810,302) (784,649) 25,653 Fund balance, beginning of year 661,130 661,130 661,130 Fund balance (deficit), end of year $ 773,477 $ (149,172) $ (123,519) $ 25,653 See accompanying note to required supplementary information. -10- 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. M 735 E. Carnegie Dr. Suite 100 San Bernardino, CA 92408 909 889 0871 T 909 889 5361 F ra scpa.nec PARTNERS Brenda L. Odle, CPA, MST Terry P. Shea, CPA Kirk A Franks, CPA Scott W. Manno, CPA, CGMA Leena Shanbhag, CPA, MST. CGMA Bradferd A. Welebir, CPA, MBA, CGMA Jay H, Zercher, CPA (Permer Emeritus) Phillip H. Waller, CPA (Partner Emeritus) MANAGERS/STAFF Jenny Liu, CPA, MST Seong-Hyea Lee, CPA MBA Charles De Simoni, CPA Gardenya Duran, CPA Brianna Schultz, CPA Lisa Dongxue Guo, CPA, MSA Samuel Singery, CPA Jing Wu, CPA Evelyn Morentin-Barcena, CPA Jin Gu, CPA, MT ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948 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 Independent Auditor's Report The Honorable Mayor and City Council of the City of West Covina West Covina, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Air Quality Improvement Special Revenue Fund (the Fund) of the City of West Covina, California (the City), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Fund's basic financial statements, and have issued our report thereon dated December 20, 2018. The financial statements present only the Fund and do not purport to, and do not, present fairly the 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 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 entity's internal control. Accordingly, we do not express an opinion on the effectiveness of the entity's internal control. A deficiency in internal control exists when the design or operation of a MEMBERS control does not allow management or employees, in the normal course g American Institute er Certified Public Accountants of performing their assigned functions, to prevent, or detect and correct PCPS The AICPA Alliance misstatements on a timely basis. A material weakness is a deficiency, or for CPA Firms a combination of deficiencies, in internal control such that there is a Governmental Audit reasonable possibility that a material misstatement of the entity's financial Q.al;tyCar— statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of Employee Benefit Plan And,, Quahty Cenrer deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with California Society or Certified Public Accountants governance. -12- 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 &, M' cooly 2 ,�c0# LLP. San Bernardino, California (/ December 20, 2018 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 $5.8 million. Taxes in total exceeded the budget by $1,545,303, primarily from property taxes and the residual redevelopment property tax trust fund monies received during the fiscal year. The City budgeted conservatively for these sources of revenue as it may fluctuate from year to year. Other revenue exceeded the budget by $3,084,415 primarily due to the sale of land from Successor Agency. CAPITAL ASSETS Governmental Activities Business -Type Activities Total 2018 2017 2018 2017 2018 2017 Land $ 48,821,968 $ 48,821,968 $ - $ - $ 48,821,968 $ 48,821,968 Buildings and improvements 68,733,069 61,908,591 - - 68,733,069 61,908,591 Equipment and vehicles 8,272,650 8,276,489 - - 8,272,650 8,276,489 Infrastructure 60,635,948 66,806,897 - - 60,635,948 66,806,897 Rights of way 14,376,498 14,376,498 - - 14,376,498 14,376,498 Construction in progress 4,631,796 7,084,535 4,631,796 7,084,535 Total $ 205,471,929 $ 207,274,978 $ $ $ 205,471,929 $ 207,274,978 The major additions to capital assets during the year ended June 30, 2018 were as follows: Construction in progress had a net decrease of $2.5 million. The $4.6 million currently in progress includes the following: • Traffic Signal Modifications ($754,000) • Various Street Projects ($1.35 million) • Various Park Improvements ($203,000) • Various Information Technology Upgrades ($925,000) • Facility Repairs/Improvements ($1.40 million) • Completed fixed asset additions of $6.8 million included: • Orangewood Soccer Park Complex ($3.90 million) • Tiller Quint Fire Truck ($1.34 million) • Sewer and Street Rehabilitation Projects ($779,000) • Palmview Park Improvements ($227,000) • Various Facility Repairs/Improvements ($217,000) • Sewer Camera ($187,000) • Various Information Technology Upgrades ($137,000) • Fire Station 4 - Emergency Generator ($40,000) Additional information on the City's capital assets can be found in Note 7 of this report. 14- LONG-TERM DEBT At the end of the current fiscal year, the City had debt outstanding of $66.5 million. Of this amount, $41.2 million represents outstanding bonds and $25.3 million represents other 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. Outstanding Bonds Governmental Activities 2018 2017 Lease Revenue Bonds $ 41,190,000 $ 42,570,000 Total $ 41,190,000 $ 42,570,000 Additional information on the City's long-term debt 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 16- This page intentionally left blank. City of West Covina Statement of Net Position June 30, 2018 Governmental Business -Type Activities Activities Total ASSETS Cash and investments $ 51,170,511 $ - $ 51,170,511 Cash and investments with fiscal agent 2,104,064 - 2,104,064 Restricted cash and investments 502,882 - 502,882 Receivables, net: Accounts 236,727 4,613 241,340 Taxes 3,524,431 - 3,524,431 Notes and loans 14,510,928 - 14,510,928 Other 2,351,798 6,228 2,358,026 Internal balances 168,909 (168,909) - Inventories 26,949 - 26,949 Advances to Successor Agency 10,639,168 - 10,639,168 Due from other agencies 1,428,299 - 1,428,299 Due from Successor Agency 2,313,738 - 2,313,738 Prepaids and other assets 233,237 - 233,237 Land held for resale 3,007,802 - 3,007,802 Capital assets: Non -depreciable 67,830,262 1,059,120 68,889,382 Depreciable, net 137,641,667 (1,059,120) 136,582,547 Total assets 297,691,372 (158,068) 297,533,304 DEFERRED OUTFLOWS OF RESOURCES Pension related 28,845,151 - 28,845,151 OPEB related 2,470,254 2,470,254 Total deferred outflows of resources 31,315,405 31,315,405 LIABILITIES Accounts payable 2,649,581 6,891 2,656,472 Other accrued liabilities 2,159,484 16,508 2,175,992 Interest payable 115,063 - 115,063 Unearned revenues 195,011 - 195,011 Deposits 264,818 - 264,818 Long-term liabilities: Net OPEB obligation 59,914,016 - 59,914,016 Net pension liability 185,149,727 - 185,149,727 Due within one year 8,415,178 51,369 8,466,547 Due in more than one year 58,017,453 42,174 58,059,627 Total liabilities 316,880,331 116,942 316,997,273 DEFERRED INFLOWS OF RESOURCES Pension related 3,180,451 - 3,180,451 OPEB related 5,826,512 5,826,512 Total deferred inflows of resources 9,006,963 9,006,963 NET POSITION (DEFICIT) Net investment in capital assets 153,940,332 - 153,940,332 Restricted for: Public safety 4,410,835 - 4,410,835 Public works 13,972,112 - 13,972,112 Community services 2,989,388 - 2,989,388 Affordable housing 24,725,216 - 24,725,216 Debt service 5,033,385 - 5,033,385 Unrestricted (201,951,785) (275,010) (202,226,795) Total net position (deficit) $ 3,119,483 $ (275,010) $ 2,844,473 The accompanying notes are an integral part of these financial statements. -17- City of West Covina Statement of Activities For the Year Ended June 30, 2018 Functions/Programs Expenses Program Revenues Operating Charges for Grants and Services Contributions Capital Grants and Contributions Governmental activities: General government $ 7,523,129 $ 814,465 $ - $ Public safety 67,734,047 3,610,467 3,178,172 - Public works 21,161,586 8,967,472 1,384,591 58,140 Community services 8,926,070 2,110,943 5,722,938 93,826 Community development 1,618,181 264,959 - - Interest expense 1,515,826 Total governmental activities 108,478,839 15,768,306 10,285,701 151,966 Business -type activity: Computer service 1,305,426 1,199,162 Total business -type activity 1,305,426 1,199,162 Total $ 109,784,265 $ 16,967,468 $ 10,285,701 $ 151,966 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, restated Net position (deficit), end of year The accompanying notes are an integral part of these financial statements. -18- Net (Expense) Revenue and Chanaes in Net Position (continued) Governmental Business -Type Activities Activities Total $ (6,708,664) $ $ (6,708,664) (60,945,408) (60,945,408) (10,751,383) (10,751,383) (998,363) (998,363) (1,353,222) (1,353,222) (1,515,826) (1,515,826) (82,272,866) (82,272,866) (106,264) (106,264) (106,264) (106,264) (82,272,866) (106,264) (82,379,130) 25,392,860 25,392,860 17,449,827 17,449,827 4,011,817 4,011,817 1,924,885 1,924,885 5,767,552 - 5,767,552 559,164 884 560,048 9,256,591 82,706 9,339,297 64,362,696 83,590 64,446,286 (17,910,170) (22,674) (17,932,844) 21,029,653 (252,336) 20,777,317 $ 3,119,483 $ (275,010) $ 2,844,473 19- City of West Covina Balance Sheet — Governmental Funds June 30, 2018 Special Revenue Funds West Covina General Housing Fund Authority Grants ASSETS Cash and investments $ 8,595,749 $ 5,862,949 $ Cash and investments with fiscal agent - - Restricted cash and investments - Receivables, net: Accounts 118,274 - 118,453 Taxes 3,216,478 - - Interest (10,610) 1,807 90 Notes and loans - 14,510,928 - Other 1,928,056 - 41,478 Due from other funds 460,774 - - Advances to Successor Agency 6,388,400 4,250,768 Advances to other funds 434,372 - - Due from other agencies - - 967,316 Prepaid expenses 122,404 110,833 - Due from Successor Agency 1,058,076 - Land held for resale 3,007,802 Total assets $ 25,319,775 $ 24,737,285 $ 1,127,337 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable $ 711,980 $ 4,059 $ 650,243 Other accrued liabilities 1,905,015 8,010 52,300 Due to other funds - - 97,030 Advances from other funds - - Due to other governments 164,141 Deposits 264,818 - Unearned revenue 20,990 174,021 Total liabilities 3,066,944 12,069 973,594 Deferred inflows of resources: Unavailable revenue 909,176 Fund balances (deficit): Nonspendable 9,952,978 110,833 - Restricted: Affordable housing - 24,614,383 - Debt service - - Community services 98,483 Public safety - - - Public works - Assigned 320,200 Unassigned 11,979,653 (853,916) Total fund balances (deficit) 22,252,831 24,725,216 (755,433) Total liabilities, deferred inflows of resources, and fund balances $ 25,319,775 $ 24,737,285 $ 1,127,337 The accompanying notes are an integral part of these financial statements. -20- 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 (Attachment No. 6). 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, 2018. Prepared by: Todd H. Owens, Accounting Manager Additional Approval: Marcie Medina, Finance Director 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, 2018 Attachment No. 2 - Government Auditing Standards Letter Attachment No. 3 - Audit Communication Letter 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 Non -Major Total Governmental Governmental Funds Funds $ 24,286,169 $ 38,744,867 2,104,064 2,104,064 502,882 502,882 - 236,727 307,953 3,524,431 8,393 (320) - 14,510,928 381,770 2,351,304 - 460,774 10,639,168 - 434,372 625,124 1,592,440 - 233,237 1,255,662 2,313,738 3,007,802 $ 29,472,017 $ 80,656,414 $ 988,846 $ 2,355,128 192,247 2,157,572 194,835 291,865 434,372 434,372 - 164,141 264,818 195,011 1,810,300 5,862,907 625,124 1,534,300 - 10,063,811 - 24,614,383 5,033,385 5,033,385 3,005,968 3,104,451 3,501,659 3,501,659 14,001,419 14,001,419 2,004,895 2,325,095 (510,733) 10,615,004 27,036,593 73,259,207 $ 29,472,017 $ 80,656,414 (continued) -21- 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, 2018 Fund balances for governmental funds $ 73,259,207 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 $293,446): Capital assets $ 425,845,896 Less accumulated depreciation (220,667,413) 205,178,483 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 $10,291,523): Bonds payable (41,190,000) Compensated absences (less internal service $7,849) (4,609,511) Notes payable (10,341,597) Net pension liability (185,149,727) Net OPEB liability (59,914,016) (301,204,851) Accrued interest payable for the current portion of interest due on bonds payable has not been reported in the governmental funds. (115,063) Revenues that are measurable but not available are reported as unavailable revenues under the modified accrual basis of accounting. 1,534,300 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 28,845,151 Deferred outflows of resources - OPEB related 2,470,254 Deferred inflows of resources - pension related (3,180,451) Deferred inflows of resources - OPEB related (5,826,512) 22,308,442 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. -22- 2,158,965 $ 3,119,483 City of West Covina Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds For the Year Ended June 30, 2018 Special Revenue Funds West Covina General Housing Fund Authority Grants REVENUES Taxes $ 50,491,403 $ $ Special assessments - Licenses and permits 1,089,850 Fines and forfeitures 1,290,187 Investment income (95,022) 396,928 3,394 Rental income 649,968 - - Revenue from other agencies 2,188,406 732,402 Charges for services 8,003,970 - 36,542 Other revenues 3,577,730 46,013 Total revenues 67,196,492 442,941 772,338 EXPENDITURES Current: General government 5,688,954 - - Public safety 49,556,995 160,083 514,901 Public works 4,342,778 - 934,930 Community services 2,648,557 - 236,936 Community development 648,920 418,038 - Debt service: Principal - - Interest and fiscal charges Total expenditures 62,886,204 578,121 1,686,767 Excess (deficiency) of revenues over (under) expenditures 4,310,288 (135,180) (914,429) OTHER FINANCING SOURCES (USES) Transfers in 518,821 Transfers out (3,677,624) (27,121) Total other financing sources (uses) (3,158,803) (27,121) Net change in fund balances 1,151,485 (135,180) (941,550) Fund balances, beginning of year 21,101,346 24,860,396 186,117 Fund balances (deficit), end of year $ 22,252,831 $ 24,725,216 $ (755,433) The accompanying notes are an integral part of these financial statements. -23- Non -Major Total Governmental Governmental Funds Funds $ 8,764,313 $ 59,255,716 6,077,861 6,077,861 - 1,089,850 - 1,290,187 246,648 551,948 - 649,968 4,999,370 7,920,178 641,192 8,681,704 606,152 4,229,895 21,335,536 89,747,307 11,507 5,700,461 2,855,651 53,087,630 12,357, 781 17,635,489 4,089,685 6,975,178 115,297 1,182,255 1,958,918 1,958,918 1,501,956 1,501,956 22,890,795 88,041,887 (1,555,259) 1,705,420 3,383,235 3,902,056 (1,527,821) (5,232,566) 1,855,414 (1,330,510) 300,155 374,910 26,736,438 72,884,297 $ 27,036,593 $ 73,259,207 (continued) -24- 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, 2018 Net change in fund balances - total governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: $ 374,910 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 $34,679). Capital outlay $ 5,343,162 Depreciation expense (10,997,787) Transfer from Successor Agency 4,478,605 Construction in progress deemed not viable (592,350) (1,768,370) 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. Principal payments on long-term debt 1,958,918 The Statement of Net Position includes accrued interest on long-term debt. This is the net change in the current year. (13,871) Change in revenues that are measureable but not available are reported as unavailable revenue under the modified accrual basis of accounting. 814,147 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: Changes in OPEB related items (118,947) Change in compensated absences (185,070) Pension expense reported in the governmental funds includes the annual required contributions. In the Statement of Activities, pension expense includes the change in the net pension liability, and related changes in pension amounts for deferred outflows of resources and deferred inflows of resources. (20,174,416) 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. 1,202,529 Change in net position of governmental activities $ (17,910,170) The accompanying notes are an integral part of these financial statements. -25- City of West Covina Statement of Net Position Proprietary Funds June 30, 2018 Business -type Governmental Activity Activities Computer Service Internal Enterprise Service Fund Funds ASSETS Current Assets: Cash and investments $ - $ 12,425,644 Receivables, net Accounts 4,613 - Interest - 320 Other 6,228 494 Inventories 26,949 Total current assets 10,841 12,453,407 Noncurrent Assets: Capital Assets: Capital assets 1,059,120 2,674,757 Less accumulated depreciation (1,059,120) (2,381,311) Total capital assets, net 293,446 Total noncurrent assets - 293,446 Total assets 10,841 12,746,853 LIABILITIES Current Liabilities: Accounts payable 6,891 294,453 Other accrued liabilities 16,508 1,912 Claims and judgments - current portion - 3,257,830 Compensated absences - current portion 51,369 5,420 Due to other funds 168,909 - Total current liabilities 243,677 3,559,615 Noncurrent Liabilities: Claims and judgments - 7,025,844 Compensated absences 42,174 2,429 Total noncurrent liabilities 42,174 7,028,273 Total liabilities 285,851 10,587,888 NET POSITION (DEFICIT) Net investment in capital assets - 293,446 Unrestricted (275,010) 1,865,519 Total net position (deficit) $ (275,010) $ 2,158,965 The accompanying notes are an integral part of these financial statements. -26- City of West Covina Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds For the Year Ended June 30, 2018 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 in 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 $ 1,199,162 $ 4,291,743 82,706 26,884 1,281,868 4,318,627 1,066,558 250,504 238,868 1,556,817 - 34,679 2,611,824 1,305,426 4,453,824 (23,558) (135,197) 884 7,216 884 7,216 (22,674) (127,981) 1,330,510 (22,674) 1,202,529 (252,336) 956,436 $ (275,010) $ 2,158,965 The accompanying notes are an integral part of these financial statements. -27- City of West Covina Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2018 Business -type Governmental Activity Activities Computer Service Internal Enterprise Service Fund Funds CASH FLOWS FROM OPERATING ACTIVITIES Received from customers $ 1,312,071 $ 4,353,294 Payments to suppliers for goods and services (243,938) (4,643,213) Payments to employees for services (1,113,564) (257,452) Net cash provided by (used for) operating activities (45,431) (547,371) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds Paid to other funds Net cash provided by 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 44,547 1,330,510 - (67,285) 44,547 1,263,225 884 7,065 - 722,919 11,702, 725 $ - $ 12,425,644 The accompanying notes are an integral part of these financial statements. -28- City of West Covina Statement of Cash Flows, (Continued) Proprietary Funds For the Year Ended June 30, 2018 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 (23,558) $ (135,197) 34,679 (4,613) 35,161 34,816 (494) - (10,400) 775 (153,069) (5,845) (8,389) (302,714) (47,006) (6,948) $ (45,431) $ (547,371) The accompanying notes are an integral part of these financial statements. -29- I FISCAL YEAR ENDED JUNE 30, 2018 WWW.WEST COVINA.ORG I1 City of West Covina Statement of Fiduciary Net Position Fiduciary Funds June 30, 2018 ASSETS Cash and investments Cash and investments with fiscal agent Restricted cash and investments Receivables, net: Taxes Interest Assessments Other Due from other governments Prepaid expenses Due from City of West Covina Land held for resale Total assets LIABILITIES Accounts payable Accrued liabilities Interest payable Due to the City of West Covina 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 $ 13,219,529 $ 734,853 $ 1,905,180 7,385,025 - - 1,139,647 71,155 18,776 19,770,000 164,141 2,353 9,841,597 139,016 51,751,239 1,496 734,853 $ 1,906,676 36,094 $ 19,089 1,342 - 529,979 2,313,738 80,584 - 21,825 1,887,587 10,639,168 - 9,841,597 7,976,117 89,554,966 120,995,410 $ 1,906,676 (69,244,171) - 734,853 $ (69,244,171) $ 734,853 The accompanying notes are an integral part of these financial statements. -30- City of West Covina Statement of Changes in Fiduciary Net Position Fiduciary Funds For the Year Ended June 30, 2018 Successor Agency Private Pension Purpose Trust Trust Fund Funds ADDITIONS Taxes $ 13,122,970 $ Employer contribution - 134,156 Investment income 438,024 45,166 Rental income 50,000 - Other revenues 633,916 Total additions 14,244,910 179,322 DEDUCTIONS Program administration 15,664,598 - Administrative costs - 4,154 Benefit distributions - 195,611 Interest and fiscal charges 1,871,997 - Depreciation 368,072 Total deductions 17,904,667 199,765 Change in net position before other item (3,659,757) (20,443) OTHER ITEM Loss on transfer of assets to City of West Covina (4,478,605) Change in net position (8,138,362) (20,443) Net position (deficit), beginning of year (61,105,809) 755,296 Net position (deficit), end of year $ (69,244,171) $ 734,853 The accompanying notes are an integral part of these financial statements. -31- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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 Housina 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. -32- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) B) Description of Reporting Entity, (continued) The Parkina 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 -33- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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. -34- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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. -35- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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. -36- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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. -37- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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. Grants Special Revenue Fund This fund accounts for various Federal, State of California, and local grants that are restricted to expenditures for specific programs and projects. 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. -38- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) D) Fund Classifications, (continued) 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. 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 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. 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. -39- ATTACHMENT NO. 1 City of West Covina, California COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2018 Prepared by the West Covina Finance Department City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) 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. 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. -40- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 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. 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. -41- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 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 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 April18 35% Advance May 20 Collection No. 2 July 18 Collection No. 3 -42- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 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, 2018 since the proprietary funds have no debt utilized to construct capital assets. 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 -43- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 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. 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. -44- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 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 CaIPERS 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. 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) June 30, 2016 Measurement Date (MD) June 30, 2017 Measurement Period (MP) July 1, 2016 to June 30, 2017 The following timeframes are used for PARS: Valuation Date (VD) June 30, 2017 Measurement Date (MD) June 30, 2017 Measurement Period (MP) July 1, 2016 to June 30, 2017 -45- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued) E) Financial Statement Elements, (continued) 16) Other Postemployment Benefits (OPEB) 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) June 30, 2017 Measurement Date (MD) June 30, 2017 Measurement Period (MP) July 1, 2016 to June 30, 2017 17) Implementation of New Accounting Principle GASB has issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits other than Pensions. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for other postemployment benefits (OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. This pronouncement has been implemented for purposes of measuring the net OPEB liability and any related deferred outflows/inflows of resources related to OPEB, and OPEB expense/expenditures. -46- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 2) CASH AND INVESTMENTS Cash and investments are classified in the accompanying financial statements as follows: Statement of Net Position: Cash and investments $ 51,170,511 Cash and investments with fiscal agents 2,104,064 Restricted cash and investments 502,882 Statement of Fiduciary Net Position: Cash and investments 15,859,562 Cash and investments with fiscal agents 7,385,025 Restricted cash and investments 1,139,647 Total Cash and Investments $ 78,161,691 Cash and investments at June 30, 2018 consisted of the following: Cash on hand $ 16,300 Deposits with financial institutions 17,434,695 Investments 60,710,696 Total Cash and Investments $ 78,161,691 -47- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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. -48- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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 -49- This page intentionally left blank. City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 2) CASH AND INVESTMENTS, (continued) 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. 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: Investment Type Los Angeles County Investment Pool U.S. Treasury Obligations U.S. Government Sponsored Agency Securities Commercial Paper Supranational U.S. Corporate Money Market Mutual Funds Asset -Backed Securities Less than 1 to 3 3 to 5 1 year Years Years Total $ 29,300,954 $ - $ - $ 29,300,954 447,589 4,605,661 1,637,306 6,690,556 698,506 6,027,196 302,899 - 697,954 1,536,375 2,458,320 4,619,563 1,563,725 - 30,801 931,483 Negotiable Certificates of Deposit 964,294 2,349,199 9,074,901 - 302,899 599,246 2,833,575 862,402 7,940,285 - 1,563,725 342,370 1,304,654 964,294 Subtotal $ 36,465,042 $ 17,720,278 $ 5,790,523 59,975,843 PARS Trust Pool 734,853 Total Investments $ 60,710,696 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 TOW Legal asoi NW Imeslmen[Tyce RatA June 30, 201] AAA M+ PA- AA A+ R A-1 ,300, Los T...sCounty lnveatmerM1 Paul WA § 2S-,950 § $ - $ - $ - $ - $ - § - $29,399,954 U.S.Gmmm Ddgetlona WA 8,899,556 8,899,558 - - - - - - - UAg.-eminent Sllonsoretl Agency Secu,M1ies WA 9,9]4,901 9.074,991 - - - - - - Commamial Paper 11 3g2,899- U.S.C.9anal ARIA-1+ T90,285 2,833,5]5 - - M,n,y porete A ],9 3,285 595,349 989.026 1,J91,12] 291,915 1,919,542 2,413,326 - - Moneymarkatmplualfuntls APA 1,W4,]25 1,563,M - - - - - - - Nsa sacked Securities AA 1,-,654 1,304,656 - - - - - - PARS T11W PNiketes of DeposB WA 964,294 - - - - - - 964,296 PARS W.1 Pool WA 734,853 734,853 Total § 69.710.696 $ 22.062.]fig § 989.026 $1.]91.12] $ 291.915 § 1.919.542 § 2.443.326 $1.26].193 $ 3g.935.897 -50- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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, 2018. 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. -51- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 2) CASH AND INVESTMENTS, (continued) 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. 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, 2018: 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 Commercial Paper Supranational U.S. Corporate Asset -Backed Securities Negotiable Certificates of Deposit Total Investments by Fair Value Level Investments Measured at Net Asset Value (NAV) or not subject to the fair value hierarchy: Los Angeles County Investment Pool Money market mutual funds PARS Trust Pool $ 6,690,556 $ $ 6,690,556 $ 9,074,901 9,074,901 302,899 302,899 2,833,575 2,833,575 7,940,285 7,940,285 1,304,654 1,304,654 964,294 964,294 29,111,164 $ $29,111,164 $ 29,300,954 1,563,725 734,853 Total $ 60,710,696 -52- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 3) INTERFUND RECEIVABLES AND TRANSFERS Interfund transactions — Due to/due from interfund borrowings Interfund receivable and payable balances at June 30, 2018 were as follows: Payable Fund Grants Non -Major Governmental Funds Enterprise Fund Total Receivable Fund General Fund Total $ 97,030 $ 97,030 194,835 194,835 168,909 168,909 $ 460,774 $ 460,774 These interfund payables represent temporary loans to cover negative cash balances. Interfund transactions - Advances Receivable Fund Payable Fund General Fund Non -Major Governmental Funds $ 434,372 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. -53- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 3) INTERFUND RECEIVABLES AND TRANSFERS, (continued) Interfund transactions - Transfers The following schedule summarizes the City's transfer activity: Transfer In Non -major Internal Total General Governmental Service Transfers Transfers Out: Fund Funds Funds Out General Fund $ $ 2,847,114 $ 830,510 $ 3,677,624 Grants 27,121 - 27,121 Non -major Governmental Funds 518,821 509,000 500,000 1,527,821 Total Transfers In: $ 518,821 $ 3,383,235 $ 1,330,510 $ 5,232,566 Of the $2,847,114 the General Fund transferred to Non -major Governmental Funds, $2,130,561 was for debt service payments, $706,792 was for various capital projects, and $9,761 was to cover electricity expenditures. Of the $830,510 the General Fund transferred to Internal Service Funds, $533,645 was for workers' compensation insurance funding and $296,865 was for vehicle replacement. The $27,121 transfer from the Grants Fund to Non -major Governmental Funds was for Amar Road Rehabilitation project. The $518,821 transfer from Non -major Governmental Funds to General Funds was due to the excess funds from the Capital Projects Fund. Of the $509,000 of transfers within Non -major Governmental Funds, $500,000 was for future park acquisition and $9,000 was for shared services. The $500,000 transfer from the Non -major Governmental Funds to Internal Service Funds was to assist in funding ongoing claims. 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, 2018 was as follows: -54- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 4) LONG-TERM RECEIVABLES FROM SUCCESSOR AGENCY, (continued) (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. 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 2017-18 fiscal year were $610,518 and $151,319 respectively. The outstanding balances at June 30, 2018 were as follows: General advances $ 7,985,500 SERAF advances 2,653,668 Total advances to Successor Agency $ 10,639,168 -55- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 5) NOTES AND LOANS RECEIVABLE The following notes and loans receivable were outstanding as of June 30, 2018: Housing rehabilitation $ 364,438 First time home buyers 259,469 Housing preservation program 724,487 Home improvement program 870,131 Lark Ellen Towers 6,259,137 Executive Lodge Apartments Limited Partnership 6,144,192 West Covina Senior Villas, LLC 2,833,333 West Covina Senior Villas II, L.P. 8,513,885 Other loans 608,196 Less allowance for doubtful accounts (12,066,340) Total $ 14,510,928 Several housing rehabilitation loans totaling $364,438 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 $259,469. 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, 2018 ranging from $6,866 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 $724,487. 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 86 individual loans outstanding at June 30, 2018 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 $870,131 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, 2018 was $6,259,137. -56- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 5) 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, 2018 was $6,144,192. 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, 2018 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, 2018 was $8,513,885. 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 accrued interest and are forgiven unless the borrower sells or refinances the property. Additionally, the balance included a note of $242,892 for low income housing which accrues no interest and is forgivable if the owner maintains the low and moderate income housing status. The loan is likely to be forgiven; therefore, the City has included the entire balance in the allowance for doubtful accounts. The outstanding principal at June 30, 2018 was $608,196. 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, 2018 was comprised of land to be used as open space or a municipal golf course in the amount of $3,007,802. -57- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 7) CAPITAL ASSETS Capital asset activity was as follows for the year ended June 30, 2018: Governmental activities: Balance Balance June 30, 2017 Additions Deletions Transfers June 30, 2018 Capital assets, not depreciated: Land $ 48,821,968 $ - $ - $ - $ 48,821,968 Rights of way 14,376,498 - - - 14,376,498 Construction in progress 7,084,535 4,973,253 (7,425,992) 4,631,796 Total capital assets, not depreciated 70,283,001 4,973,253 (7,425,992) 67,830,262 Capital assets, being depreciated: Buildings and improvements 90,194,286 4,348,527 - 18,403,609 112,946,422 Equipment and vehicles 28,965,577 1,964,274 (1,141,474) 61,405 29,849,782 Infrastructure - pavement 194,359,251 - - - 194,359,251 Infrastructure - other 22,644,187 890,750 23,534,937 Total capital assets, being depreciated 336,163,301 7,203,551 (1,141,474) 18,465,014 360,690,392 Less accumulated depreciation for: Buildings and improvements (28,285,695) (2,002,654) - (13,925,004) (44,213,353) Equipment and vehicles (20,689,088) (1,968,113) 1,141,474 (61,405) (21,577,132) Infrastructure - pavement (132,907,838) (6,631,269) - - (139,539,107) Infrastructure - other (17,288,703) (430,430) (17,719,133) Total accumulated depreciation (199,171,324) (11,032,466) 1,141,474 (13,986,409) (223,048,725) Total capital assets, being depreciated, net 136,991,977 (3,828,915) 4,478,605 137,641,667 Total governmental activities $ 207,274,978 $ 1,144,338 $ (7,425,992) $ 4,478,605 $ 205,471,929 Depreciation expense (including $34,679 from Internal Service Funds) was charged to the following functions in the Statement of Activities for the year ended June 30, 2018 as follows: General government $ 69,752 Public safety 1,557,302 Public works 7,723,544 Community services 1,681,868 Total depreciation expense —governmental activities $ 11,032,466 -58- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 7) CAPITAL ASSETS, (continued) Capital asset activity was as follows for the year ended June 30, 2018: Business -type activities: Balance Balance June 30, 2017 Additions Deletions June 30, 2018 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, 2018. 8) LONG-TERM LIABILITIES The following is a summary of changes in long-term liabilities for governmental activities for the year ended June 30, 2018: Balance Balance Due Within June $0, 2017 Additions Deletions June 30, 2018 One Year Governmental activities: Lease Revenue Bonds: 2002 Lease Revenue Refunding Bonds $ 14,035,000 $ - $ (560,000) $ 13,475,000 $ 575,000 2004 Lease Revenue Bonds 9,790,000 - (395,000) 9,395,000 410,000 2006 Lease Revenue Bonds 16,625,000 - (360,000) 16,265,000 405,000 2013 Lease Revenue Refunding Bonds 2,120,000 (65,000) 2,055,000 65,000 Total Lease Revenue Bonds 42,570,000 - (1,380,000) 41,190,000 1,455,000 Compensated absences 4,439,237 4,516,360 (4,338,237) 4,617,360 2,623,430 Claims and judgments payable 10,586,388 2,951,238 (3,253,952) 10,283,674 3,257,830 Notes payable 10,920,515 (578,918) 10,341,597 1,078,918 Total $ 68,516,140 $ 7,467,598 $ (9,551,107) $ 66,432,631 $ 8,415,178 The following is a summary of changes in long-term liabilities for business -type activities for the year ended June 30, 2018: Balance Balance Due Within June 30, 2017 Additions Deletions June 30, 2018 One Year Business -type activities: Compensated absences $ 140,549 $ 112,594 $ (159,600) $ 93,543 $ 51,369 -59- City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2018 TABLE OF CONTENTS RODUCTORY 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: Statement of Net Position..........................................................................................17 Statement of Activities...............................................................................................18 Fund Financial Statements: Balance Sheet - Governmental Funds...................................................................... 20 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position.................................................................................... 22 Statement of Revenues, Expenditures, and Changes in Fund Balances - GovernmentalFunds..........................................................................................23 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...............25 Statement of Net Position - Proprietary Funds..........................................................26 Statement of Revenues, Expenses, and Changes in Fund Net Position - ProprietaryFunds...............................................................................................27 Statement of Cash Flows - Proprietary Funds..........................................................28 Statement of Fiduciary Net Position - Fiduciary Funds.............................................30 Statement of Changes in Fiduciary Net Position - Fiduciary Funds ..........................31 Notes to Basic Financial Statements..............................................................................32 Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - Miscellaneous...........................................................116 Schedule of Plan Contributions - CalPERS Pension Plan - Miscellaneous ............117 Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - Safety........................................................................118 Schedule of Plan Contributions - CalPERS Pension Plan - Safety .........................119 Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - EPMC Replacement Supplemental Retirement Plan................120 Schedule of Plan Contributions - CalPERS Pension Plan - EPMC Replacement Supplemental Retirement Plan..........................................................................121 Schedule of Changes in Net Pension Liability and Related Ratios - CalPERS Pension Plan - Supplemental Retirement Plan for Executive Staff ... 122 Schedule of Plan Contributions - CalPERS Pension Plan - Supplemental Retirement Plan for Executive Staff...................................................................123 Schedule of Changes in the Net OPEB Liability and Related Ratios......................124 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 8) LONG-TERM LIABILITIES, (continued) 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. 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. The outstanding principal balance at June 30, 2018 was $13,475,000. 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 annual debt service requirements on the 2002 Lease Revenue Refunding Bonds as of June 30, 2018 were as follows (using a 2.65891 % interest rate): Year Ending June 30, Principal Interest Total 2019 $ 575,000 $ 358,288 $ 933,288 2020 595,000 342,999 937,999 2021 610,000 327,179 937,179 2022 630,000 310,960 940,960 2023 650,000 294,208 944,208 2024-2028 3,540,000 1,202,093 4,742,093 2029-2033 4,105,000 702,085 4,807,085 2034-2036 2,770,000 148,766 2,918,766 Total $ 13,475,000 $ 3,686,578 $ 17,161,578 -60- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 8) LONG-TERM LIABILITIES, (continued) Lease Revenue Bonds, (continued) 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 outstanding principal balance at June 30, 2018 was $9,395,000. The annual debt service requirements on the 2004 Lease Revenue Bonds as of June 30, 2018 were as follows (using a 1.460% interest rate): Year Ending June 30, Principal Interest Total 2019 $ 410,000 $ 137,167 $ 547,167 2020 430,000 131,181 561,181 2021 450,000 124,903 574,903 2022 465,000 118,333 583,333 2023 490,000 111,544 601,544 2024-2028 2,810,000 443,621 3,253,621 2029-2033 3,530,000 218,489 3,748,489 2034 810,000 11,826 821,826 Total $ 9,395,000 $ 1,297,064 $ 10,692,064 -61- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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, 2018. The outstanding principal balance at June 30, 2018 was $16,265,000. The annual debt service requirements on the 2006 Lease Revenue Bonds as of June 30, 2018 were as follows: Year Ending June 30, Principal Interest Total 2019 $ 405,000 $ 875,692 $ 1,280,692 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 2024-2028 3,875,000 3,287,698 7,162,698 2029-2033 5,040,000 2,116,244 7,156,244 2034-2036 4,725,000 538,526 5,263,526 Total $ 16,265,000 $ 10,080,811 $ 26,345,811 -62- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 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, 2018. The outstanding principal balance at June 30, 2018 was $2,055,000. 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 annual debt service requirements on the 2013 Lease Revenue Refunding Bonds as of June 30, 2018 were as follows (using a 1.560% interest rate): Year Ending June 30, Principal Interest Total 2019 $ 65,000 $ 31,044 $ 96,044 2020 65,000 30,030 95,030 2021 65,000 29,016 94,016 2022 70,000 27,924 97,924 2023 70,000 26,832 96,832 2024-2028 360,000 117,546 477,546 2029-2033 390,000 88,062 478,062 2034-2038 420,000 56,160 476,160 2039-2043 455,000 21,762 476,762 2044 95,000 - 95,000 Total $ 2,055,000 $ 428,376 $ 2,483,376 -63- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 8) LONG-TERM LIABILITIES, (continued) Compensated Absences The liability of $4,617,360 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 $93,543 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. 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 $10,283,674 as of June 30, 2018. Changes in the claims and judgments payable amounts in fiscal years 2017 and 2018 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 2016-2017 $ 9,653,758 $ 1,956,856 $ (1,024,226) $ 10,586,388 2017-2018 10,586,388 2,951,238 (3,253,952) 10,283,674 -64- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 8) LONG-TERM LIABILITIES, (continued) Notes Payable 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, 2018 was $500,000. 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, 2018 was $9,841,597. The annual debt service requirements on the Successor Agency note as of June 30, 2018 were as follows: Year Ending June 30, Principal 2019 $ 578,918 2020 578,918 2021 578,918 2022 578,918 2023 578,918 2024-2028 2,894,590 2029-2033 2,894,590 2034-2035 1,157,827 Total $ 9,841,597 -65- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 9) LETTERS OF CREDIT The City has letters of credit securing the payment of principal and interest on its variable rate bonded debt. The letters of credit are issued in favor of the bond trustees and enable the trustees to make drawings against the letters of credit for payment of principal and interest amounts, if necessary. There were no draws made during fiscal year ended June 30, 2018. The terms of the letters of credit are summarized as follows: Letter of credit Trustee Amount Expiration Date Wells Fargo Bank: 2004 Lease Revenue Bonds US Bank $ 9,571,060 April 30, 2019 Bank of the West: 2013A Lease Revenue Bonds US Bank $ 2,077,971 January 9, 2019 10) 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. 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. -66- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 10) FUND BALANCE CLASSIFICATION, (continued) 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, 2018 were presented below: Special Revenue Funds West Covina Non -Major Total General Housing Governmental Governmental Fund Authority Grants Funds Funds Non -spendable: Prepaid expenses $ 122,404 $ 110,833 $ $ $ 233,237 Advances to other funds 434,372 - 434,372 Advancesto Successor Agency 6,388,400 6,388,400 Land held for resale 3,007,802 - 3,007,802 Restricted: Affordable housing - 24,614,383 24,614,383 Debt service - 5,033,385 5,033,385 Community services 98,483 3,005,968 3,104,451 Public safety - 3,501,659 3,501,659 Public works - 14,001,419 14,001,419 Assigned: Capital projects 320,200 2,004,895 2,325,095 Unassigned 11,979,653 - (853,916) (510,733) 10,615,004 Totals $ 22,252,831 $ 24,725,216 $ (755,433) $ 27,036,593 $ 73,259,207 -67- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 11) ACCUMULATED FUND BALANCES/NET POSITION DEFICITS The following funds reported deficits in fund balances/net position as of June 30, 2018: Deficit Balance Major Fund: Grants Special Revenue Fund $ (755,433) Non -Major Funds: Air Quality Improvement Special Revenue Fund (123,519) Transportation Development Act Special Revenue Fund (71,625) Community Development Block Grant Special Revenue Fund (9,303) Auto Plaza Improvement District Special Revenue Fund (306,286) Enterprise Fund: Computer Service Fund (275,010) The deficit of $755,433 in the Grants Special Revenue Fund, $123,519 in the Air Quality Improvement Special Revenue Fund, $71,625 in the Transportation Development Act Special Revenue Fund, $9,303 in the Community Development Block Grant Special Revenue Fund, and $306,286 in the Auto Plaza Improvement District 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 Service Fund was a result of additional expenses incurred for the development of new software. -68- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 12) 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 12 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 $ 5,915,920 $ 22,570,157 $ 270,794 $ 88,280 $ 28,845,151 Deferred Inflows of Resources - Pension related 482,963 2,553,325 144,163 - 3,180,451 Pension Liability 1 42,915,836 1 138,691,670 1 787,8571 2,754,364 1 185,149,727 13) 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 (CalPERS). 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, 2016 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 CalPERS' audited financial statements are publicly available reports that can be obtained at CalPERS' 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. -69- City of West Covina Comprehensive Annual Financial Report For the Year Ended June 30, 2018 TABLE OF CONTENTS, (Continued) FINANCIAL SECTION, (Continued): Required Supplementary Information, (continued): Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual (continued): GeneralFund..................................................................................................126 West Covina Housing Authority Special Revenue Fund................................128 Grants Special Revenue Fund.......................................................................129 Notes to Required Supplementary Information.......................................................130 Supplementary Information: Non -Major Governmental Funds: Combining Balance Sheet.................................................................................133 Combining Statement of Revenues, Expenditures, and Changes in FundBalance..............................................................................................134 Non -Major Special Revenue Funds: Combining Balance Sheet.................................................................................138 Combining Statement of Revenues, Expenditures, and Changes in FundBalance..............................................................................................144 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Drug Enforcement Rebate Special Revenue Fund.....................................150 Measure M Special Revenue Fund............................................................151 Air Quality Improvement Special Revenue Fund.........................................152 Proposition A Special Revenue Fund..........................................................153 Proposition C Special Revenue Fund..........................................................154 State Gas Tax Special Revenue Fund........................................................155 Police Donations Special Revenue Fund....................................................156 Transportation Development Act Special Revenue Fund ............................157 AB939 Special Revenue Fund....................................................................158 Public Safety Augmentation Special Revenue Fund...................................159 COPS/SLESA Special Revenue Fund........................................................160 Charter PEG Special Revenue Fund...........................................................161 Art in Public Places Special Revenue Fund...............................................162 Measure R Special Revenue Fund.............................................................163 Inmate Welfare Special Revenue Fund.......................................................164 West Covina Community Services Foundation Special Revenue Fund .....165 Community Development Block Grant Special Revenue Fund ...................166 Maintenance District #1 Special Revenue Fund.........................................167 Maintenance District #2 Special Revenue Fund.........................................168 Coastal Sage Shrub Special Revenue Fund..............................................169 City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) 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 CalPERS Board. The Plans' provisions and benefits in effect at June 30, 2018 were 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% 2.0055 2.5% @ 55 2.0 CD 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 compensation 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 7.887% 7.8879/6 7.887% 7.887% Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits, as a % of eligible compensation Required employee contribution rates Required employer contribution rates Employees Covered Safety Plan Prior to Prior to On or After July 1, 2012 January 1, 2013 January 1, 2013 3.0%@50 3.0%@55 2.7%@57 5 years of service 5 years of service 5 years of service monthly for life monthly for life monthly for life 50 & Up 50 - 55+ 50 - 57+ 3.0% 2.4% to 3.0% 2.0% to 2.7% 9.00 % 9.00 % 11.50 19.232 % 19.232 % 19.232 At June 30, 2016, (valuation date), the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total Miscellaneous Safety 413 335 236 67 156 163 805 565 70- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) 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 CalPERS' 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, 2018 were $755,617 and $3,892,612, 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, 2017, using an annual actuarial valuation as of June 30, 2016, rolled forward to June 30, 2017, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is as follows: -71- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALPERS, (continued) B) Net Pension Liability, (continued) Actuarial Methods and Assumptions Used to Determine Total Pension Liability Valuation Date Measurement Date Actuarial Cost Method Asset Valuation Method: Actuarial Assumptions: Discount Rate Inflation Salary Increase (1) Investment Rate of Return (2) Mortality Rate Table (3) Post Retirement Benefit Increase June 30, 2016 June 30, 2017 Entry Age Normal Market Value of Assets 7.15 2.75 3.3 % - 14.2 7.15% Derived using CalPERS' membership data for all funds Contract COLA up to 2.75 % until purchasing power protection allowance floor on purchasing power applies, 2.75 % 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 CalPERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale Be. For more details on the table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2016 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 CaIPERS' website, at www.calpers.ca.gov. Chance in Assumptions In 2017, the accounting discount rate reduced from 7.65 percent to 7.15 percent. 72- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN — CALPERS, (continued) B) Net Pension Liability, (continued) Discount Rate The discount rate used to measure the total pension liability was 7.15 percent. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. The tests revealed the assets would not run out. Therefore, the current 7.15 percent discount rate is appropriate and the use of the municipal bond rate calculation is not deemed necessary. The long-term expected discount rate of 7.15 percent is applied to all plans in the Public Employees Retirement Fund (PERF). The cash flows used in the testing were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. The stress test results are presented in a detailed report called "GASB Crossover Testing Report" that can be obtained at CaIPERS' website under the GASB 68 section. 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, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund (PERF) cash flows. Taking into account historical returns of all the PERF asset classes (which includes the agent plan and two cost -sharing plans or PERF A, B and C funds), expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 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 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 rounded down to the nearest one quarter of one percent. 73- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALPERS, (continued) B) Net Pension Liability, (continued) Discount Rate. (continued) The following table reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. The target allocation shown was adopted by the CalPERS Board effective on July 1, 2014. New Strategic Real Return Real Return Asset Class Allocation Years 1 - 10' Year I W Global Equity 47.0 % 4.90 % 5.38 Global Fixed income 19.0 % 0.80 % 2.27 Inflation Sensitive 6.0% 0.60% 1.39% Private Equity 12.0 % 6.60 % 6.63 Real Estate 11.0 % 2.80 % 5.21 Infrastructure and Forestland 3.0 % 3.90 % 5.36 Liquidity 2.0% (0.40%) (0.90%) Total 100.0 An expected inflation of 2.5 % used for this period 2 An expected inflation of 3.0 % used for this period 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. 74- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALIPERS, (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) La) b c a- b Balance at: 6/30/2016 VD $ 143,272,363 $ 104,861,843 $ 38,410,520 Changes Recognized for the Measurement Period: Service Cost 1,568,756 - 1,568,756 Interest on the Total Pension Liability 10,499,411 10,499,411 Changes of Benefit Terms - - Differences between Expected and Actual Experience (1,086,666) (1,086,666) Changes of Assumptions 8,138,458 8,138,458 Plan to Plan Resource Movement - - - Contributions from the Employer 2,449,585 (2,449,585) Contributions from Employees 788,064 (788,064) Net Investment Income 11,531,815 (11,531,815) Benefit Payments, including Refunds of Employee Contributions (8,527,256) (8,527,256) - Administrative Expense (154,821) 154,821 Net Changes during 2016-17 10,592,703 6,087,387 4,505,316 Balance at: 6/30/2017 MD $ 153,865,066 $ 110,949,230 $ 42,915,836 Valuation Date (VD), Measurement Date (MD). 75- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) 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: 6/30/2016 (VD) $ 343,275,748 $ 218,056,919 $ 125,218,829 Changes Recognized for the Measurement Period: Service Cost 5,376,792 - 5,376,792 Interest on the Total Pension Liability 25,330,388 25,330,388 Changes of Benefit Terms - - Differences between Expected and Actual Experience (2,764,123) (2,764,123) Changes of Assumptions 21,000,606 21,000,606 Plan to Plan Resource Movement - - - Contributions from the Employer 10,058,079 (10,058,079) Contributions from Employees 1,818,024 (1,818,024) Net Investment Income 23,916,665 (23,916,665) Benefit Payments, including Refunds of Employee Contributions (19,858,900) (19,858,900) Administrative Ex ensa - 321,946 321,946 Net Chan es Burin 2016-17 29,084,763 15,611,922 13,472,841 Balance at: 6/30/2017 (MD) $ 372,360,511 $ 233,668,841 1 $ 138,691,670 Valuation Date (VD), Measurement Date (MD). 76- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALIPERS, (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 $ 42,915,836 $ 26,985,082 Sefety Plan's Net Pension Liability $ 189,039,185 $ 138,691,670 $ 97,422,733 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Recognition of Gains and Losses 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). -77- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALIPERS, (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 the 2016-17 measurement period is 1.8 years, which was obtained by dividing the total service years of 1,477 (the sum of remaining service lifetimes of the active employees) by 805 (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 2016-17 measurement period is 3.7 years, which was obtained by dividing the total service years of 2,068 (the sum of remaining service lifetimes of the active employees) by 565 (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. 78- City of West Covina Notes to Basic Financial Statements For the Year Ended June 30, 2018 13) RETIREMENT PLAN - CALPERS, (continued) D) Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions As of the start of the measurement period (July 1, 2016), the net pension liability for Miscellaneous and Safety Plan was $38,410,520 and $125,218,829, respectively. For the measurement period ending June 30, 2017 (the measurement date), the City incurred a pension expense/ (income) of $7,688,742 for the Miscellaneous Plan and $16,326,250 for the Safety Plan. A complete breakdown of the pension expense for Miscellaneous and Safety Plan is as follows: Miscellaneous Plan Description: Amount Service Cost $ 1,568,756 Interest on the Total Pension Liability 10,499,411 Changes of Benefit Terms - Recognized Differences between Expected and Actual Experience (856,363) Plan to Plan Resource Movement - Recognized Changes of Assumptions 4,521,366 Employee Contributions (788,064) Projected Earnings on Pension Plan Investments (7,286,510) Recognized Differences between Projected and Actual Earnings on Plan Investments (124,675) Administrative Expense 154,821 Total Pension Expense $ 7,688,742 79-