CITY OF COSTA MESA CALIFORNIA COMPREHENSIVE Front Cover Photographs ANNUAL FINANCIAL REPORT Top right: Northwest corner of City Hall with Coast Redwood Tree in the foreground Center: The Veterans Memorial at Harbor Lawn Memorial Park, Costa Mesa FISCAL YEAR ENDED JUNE 30, 2010 Bottom left: First Methodist Church, built in 1928, on 19th Street in Costa Mesa CITY OF COSTA MESA, CALIFORNIA Comprehensive Annual Financial Report For the fiscal year ended June 30, 2010 Prepared by: Finance Department Colleen O’Donoghue, CPA Assistant Finance Director www.ci.costa-mesa.ca.us CITY OF COSTA MESA, CALIFORNIA Comprehensive Annual Financial Report For the fiscal year ended June 30, 2010 TABLE OF CONTENTS Page INTRODUCTORY SECTION: Letter of Transmittal i List of Principal Officials vi Organizational Chart vii GFOA Certificate of Achievement for Excellence in Financial Reporting viii FINANCIAL SECTION: Independent Auditors’ Report 1 Management’s Discussion and Analysis (Required Supplementary Information) 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 14 Statement of Activities 15 Fund Financial Statements: Governmental Funds: Balance Sheet 18 Reconciliation of the Balance Sheet to the Statement of Net Assets 21 Statement of Revenues, Expenditures and Changes in Fund Balances 22 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 25 Proprietary Funds: Statement of Net Assets 26 Statement of Revenues, Expenses and Changes in Net Assets 27 Statement of Cash Flows 28 Fiduciary Funds: Statement of Fiduciary Assets and Liabilities 29 Notes to the Basic Financial Statements 31 CITY OF COSTA MESA, CALIFORNIA Comprehensive Annual Financial Report For the fiscal year ended June 30, 2010 TABLE OF CONTENTS, (CONTINUED) Page Required Supplementary Information: Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: General Fund 72 Low and Moderate Income Housing Special Revenue Fund 74 Park Development Fees Special Revenue Fund 75 Special Gas Tax Special Revenue Fund 76 HOME Program Special Revenue Fund 77 Notes to Required Supplementary Information 78 Supplementary Schedules: Nonmajor Governmental Funds: Combining Balance Sheet 79 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 80 Nonmajor Special Revenue Funds: Combining Balance Sheet 82 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 84 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Proposition 172 Fund 86 Air Quality Improvement Fund 87 Community Development Fund 88 Drainage Fees Fund 89 Supplemental Law Enforcement Services Fund 90 Traffic Impact Fees Fund 91 Rental Rehabilitation Program Fund 92 Narcotics Forfeiture Fund 93 Fire System Development Fees Fund 94 Local Law Enforcement Block Grant Fund 95 Office of Traffic Safety Fund 96 Homelessness Prevention Fund 97 Major and Nonmajor Debt Service Funds: Comparative Balance Sheet – Nonmajor Debt Service 100 Comparative Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Debt Service 101 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Redevelopment Agency Debt Service Fund 102 CITY OF COSTA MESA, CALIFORNIA Comprehensive Annual Financial Report For the fiscal year ended June 30, 2010 TABLE OF CONTENTS, (CONTINUED) Page Nonmajor Capital Projects Funds: Combining Balance Sheet 104 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 106 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Measure “M” Construction Fund 108 Capital Improvements Fund 109 Parking Districts Fund 110 Redevelopment Projects Fund 111 Internal Service Funds: Combining Statement of Net Assets 114 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets 115 Combining Statement of Cash Flows 116 Agency Funds: Combining Statement of Fiduciary Assets and Liabilities 118 Combining Statement of Changes in Fiduciary Assets and Liabilities 119 STATISTICAL SECTION: Table Net Assets by Component – Last Nine Fiscal Years 1 122 Change in Net Assets – Last Nine Fiscal Years 2 123 Fund Balances of Governmental Funds – Last Ten Fiscal Years 3 124 Changes in Fund Balance of Governmental Funds – Last Ten Fiscal Years 4 125 Tax Revenues by Source, Governmental Funds – Last Ten Fiscal Years 5 126 Taxable Sales by Category – Last Ten Fiscal Years 6 127 Principal Sales Tax Remitters by Category – Current Year and Nine Years Ago 7 128 Direct and Overlapping Sales Tax Rates – Last Ten Fiscal Years 8 129 Property Tax Levies and Collections-General Fund – Last Ten Fiscal Years 9 130 Assessed Value and Estimated Actual Value of Taxable Property – Last Ten Fiscal Years 10 131 CITY OF COSTA MESA, CALIFORNIA Comprehensive Annual Financial Report For the fiscal year ended June 30, 2010 TABLE OF CONTENTS, (CONTINUED) Table Page Direct and Overlapping Property Tax Rates – Last Ten Fiscal Years 11 132 Principal Property Taxpayers – Current Year and Nine Years Ago 12 133 Ratio of General Bonded Debt Outstanding and Legal Debt Margin – Last Ten Fiscal Years 13 134 Ratio of Outstanding Debt by Type - Last Ten Fiscal Years 14 135 Direct and Overlapping Governmental Activities Debt 15 136 Demographic and Economic Statistics – Last Ten Calendar Years 16 137 Principal Employers - Current Year and Nine Years Ago 17 138 Operating Indicators by Function/Program – Last Ten Fiscal Years 18 139 Full Time Equivalent City Government Employees by Function/Program – Last Ten Fiscal Years 19 140 Capital Asset Statistics by Function/Program – Last Ten Fiscal Years 20 141 CITY OF COSTA MESA 77 FAIR DRIVE, P.O. BOX 1200, COSTA MESA, CA 92628-1200 FROM THE OFFICE OF THE DIRECTOR OF FINANCE—CITY TREASURER December 9, 2010 Honorable Mayor, Councilmembers, and City Manager: The Comprehensive Annual Financial Report (CAFR) of the City of Costa Mesa for the fiscal year ended June 30, 2010, is hereby submitted. These statements have been prepared in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards by an independent public accounting firm of licensed certified public accountants. The report consists of management’s representations concerning the finances of the City of Costa Mesa. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with management. To provide a reasonable basis for making these representations, management has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the 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, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the various funds and component units of the City of Costa Mesa. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The City of Costa Mesa’s financial statements for the year ended June 30, 2010, have been audited by Mayer Hoffman McCann P.C., an independent public accounting firm of licensed certified public accountants. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Costa Mesa’s financial statements for the fiscal year ended June 30, 2010, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Costa Mesa’s MD&A can be found immediately following the report of the independent auditors. i PROFILE OF THE GOVERNMENT The City of Costa Mesa, incorporated in 1953, has an estimated population of 113,440 and has a land area of 16.8 square miles. It is located in the southern coastal area of Orange County, California, and is bordered by the cities of Santa Ana, Newport Beach, Huntington Beach, Fountain Valley, and Irvine. The City is approximately 35 miles southeast of Los Angeles and 85 miles northwest of San Diego. At its nearest point, the City is approximately 1.5 miles from the Pacific Ocean. The City is also home to the new world-renowned Henry and Renee Segerstrom Concert Hall, the Orange County Performing Arts Center and the Orange County Fairgrounds. The City has operated under the council-manager form of government since incorporation. Policy making and legislative authority are vested in the City Council, which consists of a Mayor, Mayor Pro Tem, and a three-member Council. The City Council is responsible, among other things, for passing ordinances, adopting the