December 14, 2004

SUBJECT: Fiscal Year 2003/2004 Budgetary Year End Report and Basic Financial Statements of the Sunnyvale Redevelopment Agency 

REPORT IN BRIEF

The Redevelopment Agency of the City of Sunnyvale (Agency) was established by provisions of the community redevelopment laws of the State of California by a resolution of the City Council on November 19, 1957.  The Agency is a component unit of the City of Sunnyvale and the City Council acts as the Agency’s Board.

This report is intended to present the Budgetary Year-end Financial Report and the audited Basic Financial Statements of the Agency for the fiscal year ended June 30, 2004.

The Budgetary Year-end Financial Report summarizes the financial activities of the Agency for the fiscal year ended June 30, 2004. The Agency’s activities consist of accounting for repayments of long-term debt, capital projects, low-and-moderate-income housing, and general administrative functions.  The Agency is financially dependent on the City for its operations. The City makes advances to the Agency for new projects and current cash flow requirements for operating activities. 

The Basic Financial Statements of the Agency were audited by our independent auditors, Caporicci and Larson, who have issued an unqualified opinion on the report.

BACKGROUND

Each year as part of the year-end closing process, staff presents the audited Basic Financial Statements of the Redevelopment Agency and the year-end financial condition and results of operations on a budgetary basis for the preceding fiscal year using audited financial results.

EXISTING POLICY

Action Statement 7.1D.1g of the Fiscal Sun-Element of the General Plan states that staff shall “prepare and provide the City Council with periodic summary financial reports by fund, comparing actual revenues and expenditures to budgeted amounts.”  This report is in accordance with this action statement.  In addition, the City Charter Section 1318 requires that “At the end of each fiscal year, a final audit and report shall be submitted by [a Certified Public Accountant] to the City Council.”  The Agency’s Basic Financial Statements are in accordance with this section.

DISCUSSION

BUDGETARY YEAR-END FINANCIAL REPORT

Staff has reviewed the Agency’s financial results and hereby provides an analysis of the changes between last May’s projected revenues and expenditures and the actual year-end results.

Revenues

The Agency’s revenues for the fiscal year ended June 30, 2004 were as follows:

Description		May Estimate		Actual Revenues		Variance Favorable (Unfavorable)		Percent Variance
Property Taxes		$  3,412,060		$       3,943,107		$     531,047		15.56 %
ERAF Cost		$    (160,591)		$         (160,591)		$                 -		-
Rents & Concessions		$  1,216,678		$       1,216,678		$                 -		-
Misc Private Grants		$         5,000		$              5,000		$                 -		-
Interest Income		$     128,738		$            94,902		$      (33,836)		(26.28)%
Total Revenues		$  4,601,885		$       5,099,096		$     497,211		10.80 %

The Agency’s property taxes consist of tax increment revenues generated from the project area (the downtown area). Tax increment revenues were higher this fiscal year than what was estimated in May and they were higher than amounts collected last fiscal year.  There are two reasons for this higher collection. First, two years ago the owners of the Town Center Mall indicated that the County of Santa Clara had over collected property tax revenues for the Mathilda Avenue garages owned by the City. (Although these facilities are owned by the City, they are subject to Possessory Interest Tax because they are used by a for-profit entity.) Since all taxes from the Mall come to the Redevelopment Agency, we would be responsible for repayment of the over collection if it were determined to be valid. To recognize this possibility, we recorded a liability for the over collection as soon as we became aware of the situation and again last year. During FY 2003/2004, the dispute was resolved in the County's favor and we then reversed the liability.  This resulted in an increase to Property Tax Increment revenues of $249,904.  The second reason for the higher than anticipated level of revenue was that the growth in assessed valuation in the project area was 19.6%, which was higher than we forecast in the recommended budget. A portion of the assessed valuation increase is due to the last portion of the Mozart project being recognized on the assessment rolls in FY 2003/2004.

Funds of  $160,591 were reduced from the Agency's Property Tax Increment and transferred to the Educational Revenue Augmentation Fund (ERAF) as part of the State's budget for FY 2003/2004.

Rents and concessions are amounts paid to the Agency by the City pursuant to a lease agreement for use of the existing two-level parking structure at the Town Center Mall.

Interest income is generated from monies in trust with fiscal agents, which are reserved for debt service payments.  This revenue source was lower due to the lower interest rates and the general condition of the stock market.

In total, Redevelopment Agency revenues were approximately $500,000, or 10.8% greater than estimated.

Expenditures

The Agency’s expenditures for the fiscal year ended June 30, 2004 were as follows:

Description		Amended Budget		Actual Expenditures		Variance Favorable (Unfavorable)		Percent Variance
Debt Service		$         1,891,021		$       1,669,793		$      221,228		11.70 %
Operations		733,493		658,970		74,523		10.16 %
Projects		2,381,944		326,030		2,055,914		86.31 %
Total Expenditures		5,006,458		2,654,793		2,351,665		46.97 %
Transfers Out
General Fund In-Lieu		27,318		27,318		-		-
To City General Fund for Loan Repayment		1,030,894		2,102,511		(1,071,617)		(103.95)%
Total Transfers Out		1,058,212		2,129,829		(1,071,617)		(101.27)%
Expenditures Grand Total		$         6,064,670		$       4,784,622		$   1,280,048		21.11 %
Project Carryovers		-		1,685,504		1,685,504		0.00%
Operating Carryover		-		14,620		14,620		0.00%
Total		$         6,064,670		$       6,484,746		$     (420,076)		(6.93)%

The Agency’s activities consist of repayment of long-term debt, capital projects, general redevelopment operations, and repayment of advances made to the Agency by the City’s General Fund.

The Agency’s bonded debt consists of two debt issues. The first is the 1998 Parking Facility Certificates of Participation.  At June 30, 2004 the 1998 Certificates of Participation had a balance of $14,965,000 with annual debt service payments of approximately $1.2 million per year.  The second bond issue is the Central Core Redevelopment Project Tax Allocation Refunding Bonds, Series 2003.  These bonds were issued to refund the 1992 Central Core Redevelopment Project Tax Allocation Bonds previously in existence.  The 1992 Bonds have now been defeased and the 2003 Bonds have a balance of $7,893,748 as of June 30, 2004. Annual payments are approximately $600,000.  For FY 2003/2004, the Agency's debt service expenditures were slightly lower than the budgeted amount because of the new debt service schedule for the Refunding Bonds.

Projects appropriated for the Agency are long-term in nature and require several years for completion.  At the end of FY 2003/2004, the Agency’s projects that were not completed were as follows: Redevelopment Plan Amendment, which had unexpended appropriations of $99,372; Redevelopment Implementation Plan, which had unexpended appropriations of $20,000; Downtown Development Economic Analysis, which had unexpended appropriations of $27,709; Outside Counsel Services for RDA, which had unexpended appropriations of $38,596; and  Downtown Public Improvements, which had unexpended appropriations of $1,499,829.  As a result, a total of $1,685,504 was carried over to the next fiscal year.

The Agency’s operations are accounted for in the City’s Economic Prosperity program.  Expenditures for this program were below budgeted amounts.  Operating carryovers in the amount of $14,620 were approved by Council for the Economic Prosperity advertising campaign to promote the City as a good place to do business.

The Agency is also indebted to the City for advances made for improvements and operations under the terms of the First Amended Repayment Contract signed in 1977. This contract legally prescribes the method by which the Agency's revenues are used to pay existing City advances. In short, payments are made to the City from cash available in the Agency General Fund after the Central Core Bond payments are made. A reconciliation is made in August as part of the year-end closing process when all revenues are accounted for, and consequently the repayment may vary significantly from the original budgeted amount. Approximately $1 million more than originally estimated was repaid to the City General Fund advance because additional cash was available at year end.

At June 30, 2004, the Agency’s debt to the City was $48,717,378.  This is an increase of $2.8 million over the prior year.  Although the Agency made a substantial repayment to the General Fund as discussed above, interest continued to accrue on the loan during the fiscal year and the Agency also received additional loans from the City to pay for debt service, operations, and projects.

At June 30, 2004, the Agency's General Fund also owed $5.5 million to the Low and Moderate Income Housing Fund.  The Agency is currently unable to make payments of 20% of its Property Tax Increment revenues to the Low and Moderate Income Housing Fund because of preexisting debt obligations. State law allows the Agency to continue collecting Property Tax Increment revenues after the Project time and tax increment limits are reached in order to fund its housing liability.  It is expected that this debt will be repaid at that time.

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