City of Rancho Santa Margarita Ho Santa Ma*

Vertical Joint Powers Authorities with a single controlling entity, such as a city council, have the potential to use this organization structure as a shell company to avoid other legal constraints on the controlling entity and to obfuscate taxpayer visibility. Response: Based on the data, information and analysis provided by the Grand Jury, the PFA disagrees with this finding. In order to establish the City of Rancho Santa Margarita Public Financing Authority (PFA) and issue the Lease Revenue Refunding Bonds, Series 2012 (2012 Bonds), the City complied with all the necessary requirements set by state law, including but not limited to, the posting of all required notices, held official public hearings, and approved resolutions by the order of the City Council and the Board of Directors of the PFA.

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. 22112 El Paseo • Rancho Santa Margarita • California 92688-2824 Phone 949.635.1800 • Fax 949.635.1840 • www.cityofrsm.org Response: Based on the data, information and analysis provided by the Grand Jury, the PFA disagrees with this finding. The PFA followed all the legal requirements pertaining to the establishment of the PFA, the issuance of the 2012 bonds, and all the necessary required pubic noticing. From there, the PFA has and continues to comply with all the necessary disclosure requirements set by the Lease Revenue Refunding Bond documents by annually completing the Continuing Disclosure Annual Report, the Annual State Controller's Report and performing a fiscal year audit by an outside audit firm in order to produce the City of Rancho Santa Margarita's Comprehensive Annual Financial Report (CAFR), which includes the financial data of the PFA. Furthermore, all actions taken by the PFA have been made in and for the best financial interest of the taxpayers.

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. Response: Based on the data, information and analysis provided by the Grand Jury, the PFA partially disagrees with this finding. The PFA completes and submits the required annual reports to the State of California. The PFA was not aware of the requirement to send the CAFR to the Orange County Auditor-Controller and will implement this requirement with the FY 2014-15 CAFR and annually thereafter. RECOMMENDATIONS: