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Home My WebLink About02 - PFC - Review of Annual Financial Statements��poRT CITY OF Us NEWPORT BEACH cq`"'P PUBLIC FACILITIES CORPORATION STAFF REPORT August 22, 2023 Agenda Item No. 2 TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE BOARD OF DIRECTORS FROM: Jason AI -Imam, Finance Director/Treasurer — 949-644-3126 jalimam@newportbeachca.gov PREPARED BY: Trevor Power, Accounting Manager, tpower@newportbeachca.gov PHONE: 949-644-3125 TITLE: Review of Annual Financial Statements ABSTRACT: The bylaws of the Newport Beach Public Facilities Corporation (Corporation) call for an annual meeting of the Board of Directors. The bylaws also specify that the Chief Financial Officer shall maintain adequate financial records concerning the receipts and disbursements of the Corporation and that the Board of Directors is entitled to inspect the associated financial records upon request. The attached financial statements represent the financial position and financial activities of the Corporation for the year ended June 30, 2023. RECOMMENDATIONS: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; and b) Receive and file. DISCUSSION: The Newport Beach Public Facilities Corporation was created on March 9, 1992, by the City of Newport Beach (City) under the authority of California law. The purpose of the Corporation is to assist the City in the financing of public improvements, including in the past the Central Library and the Civic Center. This type of non-profit corporation is utilized to facilitate the issuance of public financing instruments called Certificates of Participation (COPs). COPs are a common California public financing instrument utilized for the acquisition or construction of public facilities and/or equipment. 2-1 Review of Annual Financial Statements August 22, 2023 Page 2 They are structured as a type of lease purchase that requires a third party, the Corporation, as a party to the lease transaction along with the City of Newport Beach. The Corporation assigns all of the rights, obligations and financial transactions associated with the COPs issuance to a trustee bank to facilitate the debt issuance. The Corporation is governed by a Board of Directors that has historically been comprised of the seven City Council Members. Normally, the Mayor serves as Chairperson of the Board, with the Mayor Pro Tern serving as Vice Chairperson. Under the Corporation's bylaws, the City Manager serves the Corporation as President, the City Clerk serves as Secretary, and the Finance Director serves as Chief Financial Officer. In 1992, the City issued $7.5 million of COPs to finance the construction of the Central Library and subsequently refinanced this obligation in 1998. In 2010, the City issued approximately $126.7 million of new COPs. Of this financing, $122.8 million was used for the Civic Center project and $3.9 million was used to refinance the remaining balance of the Central Library COPs. In 2020, the City issued $7.9 million of new COPs to finance the construction of Fire Station No. 2. The Corporation's financial data and transactions are included in the Debt Service Fund in the City's financial statements. The City's Debt Service Fund is used solely to account for the activities of the Corporation and contains no other City debt financing activities. Even though the Corporation is a separate legal entity, it is considered a component unit of the City and is included in the City's Annual Comprehensive Financial Report and its transactions are reviewed as part of the City's annual financial statement audit. The main sources of revenues of the Corporation are lease payments from the City and Federal Build America Bond (BAB) interest subsidy payments for the Civic Center COPs, both of which are pledged for the sole purpose of paying interest and principal on the outstanding COPs. The Corporation has assigned its rights to receive and collect these payments to a trustee bank which makes the semi-annual debt service payments to the bondholders. Therefore, the lease and BAB subsidy payments are received directly by the trustee bank. While the outstanding debt has been issued by the Corporation, ultimately it is an obligation of the City, not the Corporation. The City owns the properties that are encumbered through the COPs lease transactions, which remain encumbered until such time as the outstanding debt has been repaid in full. During the year, the trustee bank received lease payments from the City totaling $8.6 million and Federal Build America Bond (BAB) interest subsidy payments totaling $2.1 million. Together with investment earnings and any restricted funds already on hand with the trustee bank, there were sufficient resources available to satisfy the annual debt service payments totaling $10.8 million. The following table illustrates the remaining combined debt service payment schedule and principal balance outstanding on the Civic Center and Fire Station No. 2 COPs: 2-2 Year Ending June 30 2024 2025 2026 2027 2028 2029-2033 2034-2038 2039-2041 Review of Annual Financial Statements August 22, 2023 Page 3 COP Debt Service Principal Interest Total Balance 4,085,000 6,608,878 10,693,878 93,525,000 4,235,000 6,357,471 10,592,471 89,290,000 4,430,000 6,074,260 10,504,260 84,860,000 4,635,000 5,777,615 10,412,615 80,225,000 4,840,000 5,467,189 10,307,189 75,385,000 25,705,000 22,229,373 47,934,373 49,680,000 28,900,000 12,815,308 41,715,308 20,780,000 20,780,000 2,279,425 23,059,425 - $ 97,610,000 $ 67,609, 119 $ 165,219,519 The combined outstanding principal of the obligations was $97.6 million as of June 30, 2023. The remaining interest of $67.6 million does not yet reflect the remaining expected BAB subsidy of $22.0 million, so the remaining interest net of the BAB subsidy totals $45.6 million. FISCAL IMPACT: As noted previously, sufficient resources are available to satisfy the annual debt service payments. The lease payments are reflected in the adopted budget. ENVIRONMENTAL REVIEW: Staff recommends the Board of Directors of the Public Facilities Corporation find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENT: Attachment A — Financial Statements 2-3 Attachment A Financial Statements 2-4 NEWPORT BEACH PUBLIC FACILITIES CORPORATION Comparative Balance Sheet June 30, 2023 and 2022 Assets Cash with fiscal agent Intergovernmental receivable Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Total Liabilities Deferred Inflows of Resources: Unavailable revenue Total deferred inflows of resources Fund balances: Nonspendable Restricted for: Debt Service Committed Assigned Unassigned Total fund balance Total liabilities and fund balance 2023 2022 $ 8,531,770 $ 8,507,568 $ 8,531,770 $ 8,507,568 8,531,770 8,507,568 8,531,770 8,507,568 $ 8,531,770 $ 8,507,568 2-5 NEWPORT BEACH PUBLIC FACILITIES CORPORATION Comparative Statement of Revenues, Expenditures and Changes in Fund Balances The Fiscal Years Ending June 30, 2023 and 2022 Revenues: Lease revenues Investment income Federal interest subsidy Total revenues Expenditures: Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Fund balance, beginning Fund balance, ending 2023 2022 $ 8,603,642 $ 8,653,711 59,424 5,088 2,133,824 2,194,366 10,796,890 10,853,165 3,940,000 3,940,000 6,832,688 7,057,020 10,772,688 10,997,020 24,202 (143,855) 8,507,568 8,651,423 $ 8,531,770 $ 8,507,568 2-6