Joint Powers Authorities: Issues of Viability, Control, Transparency, and Solvency*

- Orange County has 18 vertical Joint Powers Authorities created by a city along with its redevelopment agency that no longer exists. The Grand Jury determined that these Joint Power Authorities serve no benefit to the public or the taxpayers and have the potential for misuse or obfuscation of public funds. The City and the CDFA wholly disagree with the finding as it pertains to itself. The CDFA was formed for the purpose of exercising powers common to both members of the CDFA. In the case of the CDFA, the commonality lies in collaboratively issuing and managing debt under one legal entity, rather than multiple entities. In the case of the 1999 Series A and B Variable Rate Demand Revenue Bonds, both Members of the CDFA are responsible for providing a portion of the resources for the repayment of these bonds. While the Grand Jury may not see the benefit of this, the City knows that managing a debt issue and reporting under one entity is more effective, cost efficient, responsible and less confusing than issuing and managing multiple debt issues for the same purpose under different entities. In addition, under the agreement of the CDFA, the debt, liability or obligations of the CDFA are the sole responsibility of the CDFA and not the Members of the CDFA. This legality allows the City to better protect the assets and resources of Mission Viejo taxpayers from issues that may arise from the issuance and management of debt under a separate legal entity. 949-470-3059 200 Civic Center • Mission Viejo, California 92691 FAX 949-581-3528 http://www.cityofmissionviejo.org Orange County Grand Jury Addressing the issue of misuse or obfuscation of public funds, the Joint Exercise of Powers Agreement between the City and the Community Development Agency of the City of Mission Viejo ("CDA") limits the powers of the CDFA to only those powers that its Members have in common; powers that are regulated via bylaws and contractually enforceable agreements. Also, section 6505 (a) of the California Government Code states that Joint Power Authorities shall provide for strict accountability of all funds and transactions and Section 6505 (b) provides for the annual audit of the accounts and records of Joint Power Authorities. Since the creation of the CDFA, the balances and transactions of the CDFA are included in the annual audit of the City's financial statements and financial information is included in the Comprehensive Annual Financial Report ("CAFR") of the City in accordance with Generally Accepted Accounting Principles ("GAAP") and Government Accounting Standards Board Statements ("GASB"). The annual CAFR is presented to the public and the City Council during regular City Council meetings and the City's CAFRs are available to the public on the City's website. In addition, specifically for the CDFA, a budget is adopted annually every July, semi-annual financial reports are prepared as of December 31st and June 30th on CDFA balances and transactions, and monthly treasurer's reports are prepared. The budget, financial reports and treasurer's reports are all presented to the public and the City Council during regular City Council meetings. Finally, the CDFA is subject to the Brown Act and all open government laws and policies. Thus the CDFA, as a Joint Powers Authorities ("JPA") entity, stands on equal process and transparency footing as the separate Member agencies of the CDFA.

– Vertical Joint Powers Authorities with a single controlling entity, such as a City Council, have the potential to use this organizational structure as a shell company to avoid other legal constraints on the controlling entity and to obfuscate taxpayer visibility. The City and CDFA wholly disagree with the finding as it pertains to itself. Please refer to the response under Finding 3.

- Vertical Joint Powers Authorities in which the controlling entity transfers assets from itself to a Joint Powers Authority for the purpose of obtaining additional funding, or signs a long- term lease to a Joint Powers Authority to obtain assets are avoiding transparency and are not acting in the best financial interest of the taxpayers. The City and CDFA wholly disagree with the finding as it pertains to itself. The Members of the CDFA have not transferred any assets to the CDFA for the purpose of obtaining additional funding. Nor have the Members of the CDFA entered a long-term lease with the CDFA to obtain assets.

- 32 of the Joint Powers Authorities identified in Orange County are not complying with the California State reporting requirements in code Section 6500 and SB 282 according to the latest information available from the year 2013. The City and the CDFA wholly disagree with the finding as it pertains to itself. The City completes and submits an annual Special Districts Annual Report to the California State Controller's Office ("SCO") in the format prescribed by the SCO and within reporting timelines. The information from our annual report Reports, located Special Districts Annual at reflected in the SCO is http://www.sco.ca.gov/ard_locarep_districts.html . The City also submits its annual CAFR to both the SCO and the County of Orange Auditor-Controller each fiscal year. Orange County Grand Jury