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Home My WebLink About03 - PFC - Review of Annual Financial StatementsQ �EwPpRT CITY OF s NEWPORT BEACH `q</Fo'P PUBLIC FACILITIES CORPORATION STAFF REPORT August 27, 2024 Agenda Item No. 3 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 - 949-644-3125 tpower@newportbeachca.gov TITLE: Review of Annual Financial Statements ABSTRACT: The bylaws of the Newport Beach Public Facilities Corporation (Corporation) call for an annual meeting of its 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 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, 2024. 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 the annual financial statements for the year ended June 30, 2024. DISCUSSION: The Newport Beach Public Facilities Corporation was created on March 9, 1992, by the City of Newport Beach 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 with 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. They are structured as a type of lease purchase that requires a third party, the Corporation, to be 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. 3-1 Review of Annual Financial Statements August 27, 2024 Page 2 The Corporation is governed by a Board of Directors that has historically been comprised of the seven Newport Beach 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 who 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 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 $10.7 million. The table on the following page illustrates the remaining combined debt service payment schedule and principal balance outstanding on the Civic Center and Fire Station No. 2 COPs. 3-2 Review of Annual Financial Statements August 27, 2024 Page 3 Year Ending COP Debt Service June 30 Principal Interest BAB Subsidy Total Balance 2025 $ 4,235,000 $ 6,357,471 $ (2,027,487) $ 8,564,984 89, 290, 000 2026 4,430,000 6,074,260 (1,943,783) 8,560,477 84,860,000 2027 4,635,000 5,777,615 (1,856,041) 8,556,574 80, 225, 000 2028 4,840,000 5,467,189 (1,764,147) 8,543,042 75, 385, 000 2029 5,060,000 5,142, 526 (1,667,983) 8,534,543 70, 325, 000 2030-2034 25,910,000 20,459,211 (6,728,634) 39,640,577 44,415,000 2035-2039 30, 250, 000 10, 695, 373 (3,530,008) 37, 415, 365 14,165, 000 2040-2041 14,165, 000 1,026,996 (338, 960) 14, 853, 036 - $ 93,525,000 $ 61,000,641 $ (19,857,043) $ 134,668,598 The combined outstanding principal of the obligations was $93.5 million as of June 30, 2024. Of that amount, $87.8 million was related to the 2010 COPs which are payable through 2041, and $5.7 million was related to the 2020 COPs which are payable through 2031. The remaining interest of $61.0 million does not yet reflect the remaining expected BAB subsidy of $19.9 million, so the remaining interest net of the BAB subsidy totals $41.1 million. FISCAL IMPACT: There is no fiscal impact related to this item. 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. LIre'ldralk,rel 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 3-3 Attachment A Financial Statements M NEWPORT BEACH PUBLIC FACILITIES CORPORATION Comparative Balance Sheet June 30, 2024 and 2023 Assets Cash with fiscal agent Intergovernmental receivable Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Total Liabilities Fund balances: Nonspendable Restricted for: Debt Service Committed Assigned Unassigned Total fund balance Total liabilities and fund balance 2024 2023 $ 7,503,160 1,039,804 $ 8,533,482 - $ 8,542,964 $ 8,533,482 8,542,964 8,533,482 8,542,964 8,533,482 $ 8,542,964 $ 8,533,482 3-5 NEWPORT BEACH PUBLIC FACILITIES CORPORATION Comparative Statement of Revenues, Expenditures and Changes in Fund Balances For the Fiscal Years Ending June 30, 2024 and June 30, 2023 2024 2023 Revenues: Lease revenues $ 8,550,011 $ 8,603,642 Investment income 85,741 61,136 Federal interest subsidy 2,073,983 2,133,824 Total revenues 10,709,735 10,798,602 Expenditures: Debt service: Principal 4,085,000 3,940,000 Interest and fiscal charges 6,615,253 6,832,688 Total expenditures 10,700,253 10,772,688 Excess (deficiency) of revenues over expenditures 9,482 25,914 Fund balance, beginning 8,533,482 8,507,568 Fund balance, ending $ 8,542,964 $ 8,533,482 3-6