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HomeMy WebLinkAbout01/17/2002 BAKERSFIELD Mike Maggard, Chair Harold Hanson. Mark Salvaggio Staff: Darnell Haynes MEETING NOTICE BUDGET AND FINANCE COMMrFrEE of the City Council- City of Bakersfield Thursday, January 17, 2002 4:00 p.m. City Manager's Conference Room, Suite 201 Second Floor - City Hall, 1501 Truxtun Avenue, Bakersfield, CA AG~EN DA 1. .ROLLCALL 2. ADOPT DECEMBER 6, AGENDA SUMMARY REPORT 3. PUBLIC STATEMENTS 4. DEFERRED BUSINESS A. Staff report and Committee recommendation regarding application of the business license ordinance to commercial and residential rental property businesses - Thiltgen 5. NEW BUSINESS A. Finance Department report and Committee recommendation regarding independent auditors reports and Management Letter for fiscal year ending June 30, 2001, including the following: 1. Comprehensive Annual Financial Report (CAFR) 2. Single Audit Report- Schedule of Federal Expenditures 3. Compliance with contractual requirements relative to the Bakersfield Subregional Wastewater Management Plan 4. Appropriations Limit Worksheet (GANN Limit) 5. Required Communication with Audit Committees in Accordance with Statement of Auditing Standards 6. Independent Auditors Report- Internal Control Structure B. Staff report and Committee recommendation regarding proposed increase in loan limit for single family rehabilitation projects -Kunz C. Staff report and Committee recommendation regarding Economic and Community Development Department's housing guidelines and proposed foreclosure policy - Kurtz 6. COMMITTEE COMMENTS 7. ADJOURNMENT S:~Damell~.OO2Bud& FinanceCom mittee~bfO2jan 17agen.wpd DRAFT BAKERSFIELD Alan Tandy, ci~ager Mike Maggard, Chair Harold Hanson Darnell Haynes, Assistant to the City Manager Mark Salvaggio AGENDA SUMMARY .REPORT BUDGET AND FINANCE COMMITTEE Thursday, December 6, 2001, 4:00 p.m. City Manager's' Conference Room 1. ROLL CALL Call to Order at 4:05 p.m. Present: Councilmembers Mike.Maggard, Chair; and Harold Hanson Absent Councilmember Mark Salvaggio (attending a State Water Board meeting) 2. ADOPT OCTOBER 4, 2001 AGENDA SUMMARY REPORT Adopted as submitted. 3. PUBLIC STATEMENTS 4. -DEFERRED BUSINESS A. Review and Committee recommendation regarding application of the business license ordinance to commercial and residential rental property businesses City Attorney Bart Thiltgen explained this issue was brought forward several months ago as a resultof an enforcement action by the City's Treasury DiviSion against an organization that is running a commercial business, owns a building and leases out the offices. Anthony L. Leggio, Esq. sent correspondence to the City protesting the applicability of the City's business license tax to rental/leasing of commercial and residential property. His contention is a business license is not required as this is a passive investment of an organization under IRS rules. Eventually they did obtain a business license; however, subsequently Mr. Leggio sent a letter to Councilmember Hanson, who requested the item be put on the agenda for further consideration. The City-Attorney's Office has been reviewing and checking with other cities on their business 'licenses for this type of operation. Eight out of ten comparable cities surveyed have a business license tax on leasing or rental of commercial and residential property. The two exceptions were Glendale and Modesto. For residential units, some cities have a.minimum limit on the number AGENDA SUMMARY REPORT BUDGET AND FINANCE COMMITTEE Thursday, December 6, 2001 Page -2- of units allowed before the business license tax is .applicable. Deputy City Attorney Michael AIIford stated the City's past practice has been to apply this type of business license tax to renting and leasing of residential and commercial properties without limitation as to a minimum number of units. This is not a new tax, and therefore, not subject to Proposition 218. A list was handed out with examples of property rental/leasing businesses that currently hold City business tax certificates (licenses). Committee member Hanson stated that Mr. Leggio's dispute seems to be that-this tax is not collected from everyone, and therefore, it is discriminatory and not equitable. City Treasurer Bill Descary stated the technology is currently available to track those who have property rental/leasing businesses. Committee member Hanson expressed that whatever method is decided upon, it needs to be fair and equitably enforced, or not .require the tax. Committee Chair Maggard disagrees in principle with this tax because it is taxing an investment activity, which is passive, it is not earned income, and it is not subject to self-employment tax. It is not different from a home trader doing business on the Internet. Many people make a lot of money in their homes and are afforded the same benefits as anyone else in the community. He feels a business tax should apply to business and not investment activity. He expressed that some businesses, such as Castle and Cooke or Valley Plaza, are clearly in the rental/lease business and if they are paying business tax on the Market Place, for instance, because it is a publicly traded corporation in the business of managing properties, it is earned income to them. However, for those that it is not earned income and clearly passive, it is substantially different and there should be no business tax. Individuals with a few investment rentals are not in the business of renting. According to the IRS, it requires more than 500 hours per year working on an activity to constitute it as "active." City Attorney Bart Thiltgen said this tax .has been in the code for years, but his concern is the equal protection issue. He suggested amending the ordinance to apply to those who have more that three rentals or some set number. Committee Chair Maggard directed the City Attorney's staff to come back to the Committee.with an alternative or standard for residential and commercial properties to define those that are in business versus those that are not in business. B. Staff' report and Committee recommendation regarding~ewer Service User Charges for hospitals Public Works Director Raul Rojas reported that during the budget process, staff brought the sewer rate to the Committee/Council with the issue, of how to fairly distribute the charges throughout all of the users, which go toward paying the bonds for Plants No. 2 and No. 3 expansions. The State had threatened sanctions and penalties if the revenue program was not updated in accordance with current State guidelines. DRAFT AGENDA SUMMARY REPORT BUDGET AND 'FINANCE COMMI'I-rEE Thursday, December 6,-2001 Page -3- The Council adopted the rate charges, but one of the issues referred to staff to solve was the charges for hospitals and the care facilities (convalescent homes). The care facilities charges were on a per bed charge, but as they are not filled to capacity another method based on flow (the actual measurement from the water meter) was used and this .resolved the fairness issue for the convalescent homes and satisfies the State. One of the.ideas for the hospitals was to investigate using the actual flow measurement, instead of the per bed charge and staff was directed to monitor the water flow measurement to collect' data. The data shows the water flow measurement method would cause .fees for hospitals to dramatically increase. Staff recommends maintaining the current structure for charging hospitals, which uses the ~per bed method. It is fair and satisfies the State requirements. The Committee unanimously approved staff's recommendation.to maintain the hospitals on the per bed charge. (Committee member Salvaggio absent) Staff was directed to forward the Committee's recommendation to the City Council for approval. 5. NEW :BUSINESS A. Review and Committee recommendation regarding 2002 Budget and Finance Committee meeting schedule The Committee unanimously adopted the 2002 Budget and Finance Committee meeting schedule as presented by staff. (Committee member Salvaggio absent) The Committee noted that for the summer schedule, the 4:00 p.m. time may be changed to noon meetings, if Committee members' schedules permit. The adopted dates are on the following Thursdays: January 17; February 14; March 14; April 18; May 16; June 20; July 18; August 15; September 12; October 10; and .November 14. 6. COMMITTEE COMMENTS 7. ADJOURNMENT The meeting adjourned at 5:05 p.m. Staff present: City Manager Alan Tandy; City Attorney Bart Thiltgen; Assistant City Manager John W. Stinson; Assistant to the City Manager Darnell Haynes; City Treasurer Bill Descary; Public Works Director Raul Rojas; Deputy City_Attorney Michael AIIford; Public Works Civil Engineer Derrill Whitten; Assistant to the Public Works Director Georgina Lorenzi; Public Works Operations Manager Brad Underwood; Wastewater Superintendent Joe Turner; Wastewater Supervisor Wen-Shi 'Cheung Others present: Kerry Cavanaugh, reporter, The Bakersfield Californian cc: Honorable Mayor and City Council DWH:jp S:~Darnel~001 BFCommittee~bf01dec06summary.wpd ADMINISTRATIVE REPORT I MEETING DATE: December 12, 2001 I AGENDA SECTION: Consent Calendar ITEM: 8. z. TO: Honorable Mayor and City Council APPROVED FROM: Gregory J. Klimko, Finance Director DEPARTMENT HEAD DATE: November 26, 2001 CITY ATTORNEY . CITY MANAGER SUBJECT: Audit Reports: 1. Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2001 2. Independent Auditors Report - Single Audit Report - Schedule of Federal Expenditures for the City of Bakersfield for the fiscal year ended June 30, 2001. 3. Independent AuditorS Report - Compliance with Contractual Requirements Relative to the Bakersfield Subregional Wastewater management Plan for the year ended June 30, 2001. 4. Independent Auditors Report on Appropriations Limit Worksheet (GANN Limit) of the City of Bakersfield for the fiscal year ended June 30, 2001. 5. Independent Auditors Report- Required Communication with Audit Committees in Accordance with Statement on Auditing Standards #61. 6. Independent Auditors report on Internal Control Structure of the City of Bakersfield for the Fiscal Year ended June 30, 2001. RECOMMENDATION: Staff recommends referral to the Budget and Finance Committee. BACKGROUND: 1. Attached is the City's Comprehensive Annual Financial Report (CAFR), commonly referred to as the City's Annual Audit Report, for the fiscal year ended June 30, 2001. The CAFR represents the City's financial statements as of June 30, 2001, which are audited by the accounting firm of Brown, Armstrong, Randall, Reyes, Paulden & McCown. 2. Attached is the City's Single Audit Report for the fiscal year ended June 30, 2001. The Single Audit Report pertains to federal program monies expended by the City during the specified fiscal year. An Independent Audit is performed annually to review internal control procedures and compliance with S:\Kim G~.Nelson~admin.cafr2001-1 .wpd klg ADMINISTRATIVE REPORT Page 2 I federal guidelines' in accordance with Office of Management & Budget (OMB) Circular A-133. This annual audit was performed by Brown, ArmStrong, Randall, Reyes, Paulden & McCown as part of their contract to provide auditing services to the City of Bakersfield. The current compliance report, issued by the outside auditors, indicates that the City complied, in all material respects, with federal program guidelines. 3. Contract requirements contained in City of Bakersfield Agreement 76-153 as amended by Agreements 76-153(5), 76-153(4), 77-44, 85-197 and 92-106 apply to operations of the Bakersfield Subregional Wastewater Management Plan. The City's compliance with contract requirements is audited on an. annual basis. The current Compliance Report, issued by the outside auditors, indicates that the City Complied, in all material respects, with the program's guidelines. 4. ' Attached is a letter from the City's independent auditors, Brown, Armstrong, Randall, Reyes, Paulden & McCown indicating they have completed their annual review of the Appropriations Limit Worksheet prepared by the City in accordance with Section 1.5 of Article XIIIB of the California Constitution (GANN Limit). This annual review is performed by the auditors as part of their contract to provide auditing serviceS to the City of Bakersfield. The agreed upon review procedures-are substantially less in scope than an audit and therefore no audit opinion is expressed regarding the calculation. 5. Attached is a letter from the City's independent auditors, .Brown, Armstrong, Randall, Reyes, Paulden & McCown, providing required communication to the Council regarding various topics related to the financial audit. The report outlines the responsibilities of the audit firm and goes on to say there were no reportable issues that were significant. 6. Attached is a letter from the City's independent auditors, Brown, Armstrong, Randall, Reyes, Paulden & McCown which reports any findings or reportable conditions related to internal control structure of the City. This letter is commonly referred to as the "Management Letter". One finding is reported in the letter along with City managements response to the finding, which outlines steps that have been taken to correct the issue. S:\Kim G\Nelson~admin.cafr2001-1 .wpd klg CITY OF BAKERSFIELD, CALIFORNIA SINGLE AUDIT REPORTS FOR THE YEAR ENDED JUNE 30, 2001 (With Auditor's Reports Thereon) CITY OF BAKERSFIELD, CALIFORNIA SINGLE AUDIT REPORTS TABLE OF CONTENTS ,Paqe Auditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ............................................1 Auditor's Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 Schedule of Expenditures of Federal Awards .............................................................. - ...................... 5 Notes to Schedule of Expenditures of Federal Awards ...................................................................... 7 Schedule of Findings and Questioned Costs Peter C. Brown, CPA Burton H. Armstrong, CPA, MST Jerry, E. Randall, CPA/ABV, CFP AUDITOR'S 'REPORT ON COMPLIANCE AND ON INTERNAL Benjamin P.. Reyes, CPA CONTROL' OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE Andrew J. Paulden, CPA WITH GOVERN MENT AUDITING STANDARDS Harvey J. McCown, CPA Andrea Rutherford-Hill, CPA Steven R. Starbuck, CPA Aileen K. Keeter, CPA To the Honorable Mayor and Members of the City Council City of Bakersfield, California Lynn R. Krausse, CPA, MST Chris M. Thomburgh, CPA We have audited the financial statements of the City of Bakersfield, California, as of and JoanM. Anderson, CPA for the year ended June 30, 2001, and have issued our report thereon dated October 5, Bradley M. Hankins, CPA 2001. We conducted our audit in accordance with auditing standards generally accepted B. Marie Ebersbacher, CPA, CFE in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United Eric Xin, CEA States. Melinda A. McDaniels, CPA Thomas M. Young, CPA Compliance As part of obtaining reasonable assurance about whether the City of Bakersfield, Vonie L. Chroman, CPA California's, financial statements are free of material misstatement, we performed tests of MichelleL. Go~zales, CPA its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of AmanaaE. Wi~n, CPA financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reportin,q In planning and performing our audit, we considered the City of Bakersfield, California's, internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on .the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively Iow level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. L M[bl8[l~ of SIC Pra~e Section of the American Institute of Certified Public Accountants -, This report is intended for the information of the audit committee, management and federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. BROWN ARMSTRONG RANDALL REYES PAULDEN & McCOWN ACCOUNTANCY CORPORATION Bakersfield, California October 5, 2001 Peter C. Brown, CPA Burton H. Armstrong, CPA, MST ferry E. Randall, CPA/ABV, CFP AU DITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS Benjamin P.. Reyes, CPA APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL Andrew J. Paulaen, CPA CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Harvey J. McCown, CPA Andrea Rutherford-Hill, CPA Steven R. Starbuck, CPA To the Honorable Mayor and Aileen K. Keeter, CPA Members of the City Council City of Bakersfield, California Lynn R. Krausse, CPA, MST Chris M. Thomburgh, CPA Compliance loanM. Anderson, CPA We have audited the compliance of the City of Bakersfield, California, with the ty. pes of compliance requirements described in the U. S. Office of Manaqement and Bud.qet BraaleyM. Hankins, CPA (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major B. MarieEbersbacher, CPA, CFE federal programs for the year ended June'30, 2001. The City of Bakersfield's major r federal programs are identified in the summary of auditor's results section of the EricXin, CPA accompanying schedule of findings and questioned costs. Compliance with the MelindaA. McDaniels, CPA requirements of laws, regulations, contracts and grants applicable to each of its major lhomasM. Young, CPA federal programs is the responsibility of the City of Bakersfield's management. Our responsibility is to express an opinion on the City of Bakersfield's compliance based on Vonie L. Chroman, CPA our audit. Michelle L. Gonzales, CPA AmandaE. Wilson, CPA We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, "Audits-of States, Local Governments, and Non- Profit Orqanizations." Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Bakersfield, California's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City of Bakersfield's compliance with those requirements. In our opinion, the City of Bakersfield, California, complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2001. 3 MEMBER o[ SEC Practice Section of the American Institute o[ Certi[ied Public Accountants Internal Control Over Compliancr, The management of the City of Bakersfield, California, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs' In planning and performing our audit, we considered the City of Bakersfield's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively Iow level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. However, we noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. .Schedule of Expenditures of Federal Award~ We have audited the general purpose financial statements of The City of Bakersfield, California, as of and for the year ended June 30, 2001, and have issued our report thereon dated October 5, 2001. Our audit was performed for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the general purpose financial statements. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general purpose financial statements taken as a whole. This report is intended for the information of the audit committee, m=-nagement and federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is .not limited. BROWN ARMSTRONG RANDALL REYES PAULDEN & McCOWN ACCOUNTANCY CORPORATION Bakersfield, 'California October 5, 2001 CITY OF BAKERSFIELD, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2001 Federal Program Accrued Financial Accrued CFDA or Award Revenue Assislance Olher Disbursements/ Revenue Number Amount .July t, 2000 Reco.qnized Revenue Expendilures June 30, 2001 U.S. Department of Housing and Urban Development: Direct Program - Community Development Block Grant Enlillement 14.218 $ 6,492,331 $ 166,100 $ 2,944,421 $ 136,564 $ 3,119,491 $ 146,250 Emergency Shelter Grant 14.231 166,477 107,693 107,693 Home Program 14.239 2,986,996 31,363 785,965 201,906 999,843 243,428 Total Department of Housing and Urban Development 9,645,804 197,463 3,838,079 .. 338,470 4,227,027 389,678 U.S. Department of Transportation: Passed through California: Department of Transportation: Surface Transportation Program 20.205 5,473,553 346,762 792,453 792,453 757,243 Transportation Enhancement Act 20.205 1,146;029 409,971 875,444 875,444 47,743 Congestion Mitigation and Air Quality Program 20.205 4,140,730 1,177,178 1,177,178 825.195 Highway/Bridge Replacement 20.205 230,812 30,233 30,233 13,843 Office of Traffic Safety Emergency Medical Services 20.600 61,940 60,528 60,528 723 Traffic Offender Program 20.600 537,517 40,470 108,477 108,477 6,261 Total Deparlment of Transportation 11,950,581 797,203 3,044,313 3,044,313 1,651,008 Federal Emergency Management Agency: Public Assistance Grant 83.544 18,624 U.S. Department of Justice: Seized Asset Funds - Federal 16.579 26,318 26,318 Bullelproof Vest Partnership Program 16.607 3,945 3,945 Local Law Enforcement Block Grant 16.710 153,303 153,303 Tolal Department of Justice - 183,566 183,566 - TotaIGranls ~ 21,236,385 ~; 1,013,290 ~; 7,065,958 ~; 338,470 $ 7,454,906 $ 2,040,686 The accompanying notes are an integral part of these financial statements. 5 CITY OF BAKERSFIELD, CALIFORNIA NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2001 NOTE 1 - GENERAL The accompanying Schedule of Federal Financial Assistance presents the activity of alt Federal Financial Assistance programs of the City of Bakersfield, California (City). As defined in Note 1 of the Notes to the City's General Purpose Financial Statements, those financial statements and the accompanying Schedule of Expenditures of Federal Awards presents the government and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government's operations and so data from these units are combined with data 'of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the combined financial statements to emphasize that they are legally separate from the Government. Each blended and discretely presented component unit has a June 30 year end. Blended and discretely presented component units are: 1. Discretely Presented Component Unit: The Bakersfield Redevelopment Agency (the Agency) is responsible for the development and financing of projects within (1) the Southeast Bakersfield Project Area, (2) the Old Town Kern-Pioneer Project Area, and (3) the Downtown Bakersfield Project Area. The Agency is governed by a board comprised of members appointed by the City Council. The Agency is reported as a Governmental Fund Type. 2. Bl~,qded Component Unit: The ~' .... ¢' ..~": .... c,o,~eld P~,~,,,c Financing Authority (the Authority) is a joint exercise of powers authority formed on July 7, 1993 by and between the City of Bakersfield, California (the City), and the Bakersfield Redevelopment Agency (the Agency). The Authority was created to assist the City, the Agency and other local public agencies in financing and refinancing, through the issuance of bonds or other instruments of indebtedness, public capital improvements and working capital pursuant to the Marks- Roos Local Bond Pooling Act of 1985. The Authority is authorized to make and enter into Bond Purchase Agreements and to purchase Obligations of any Local Agency. The Authority is governed by a board consisting of the Mayor and the City Council. The Authority is reported as a Governmental Fund Type. Complete financial statements for each of the individual component units may be obtained at the City's Finance Department. ' Federal financial assistance received directly from Federal agencies as well as Federal financial assistance passed through other government agencies are included on the schedule. NOTE 2 - BASIS OF ACCOUNTING The accompanying Schedule of Expenditures of Federal Awards is presented using the modified accrual basis of accounting, which is described in Note 1 of the Notes to the City's General Purpose Financial Statements. NOTE 3 - OTHER REVENUE Amounts reported as other revenue relate primarily to interest income and reimbursements for the year ended June 30, 2001. NOTE 4 - RELATIONSHIP TO FEDERAL FINANCIAL REPORT~ Amounts reported in the accompanying schedule agree with the amounts reported in the related periodic Federal financial reports. NOTE 5 - RECONCILIATION TO GENERAL PURPOSE FINANCIAL STATEMENTS The following is a reconciliation of the amounts listed in the Schedule of Financial Assistance to the City's general purpose financial statements: Federal Grantor/Proqram Tille Federal U.S. Department of Emergency Housing and Urban U.S. Department of Management Development Transpod~lion A.qency U.S. Depadment of Juslice Community Intermodal Surface Office of Bullelproof Vest Local Law Development Transportation and Traffic Safety Seized Partnership Enforcement Block Grant Efficiency Act Grant Assels Program Block Grant Federal Financial Assistance Recognized $ 3,838,079 $ 2,875,308 $ 169,005 $ 26,218 $ 3,945 $ 153,303 Other 338,470 . . Total $ 4,176,549 $ 2,875,308 $ 169,005 $ 26,318 $ 3,945 $ 153,303 Increase in Contributed Capilal Reimbursable Disbursement/Expenditure $ 4,227,027 $ 2,875,308 $ 169,005 $ 26,318 $ 3,945 $ 153,303 Total Disbursement/Expenditure $ 4,227;027 $ 2,8.75,308 $ 169,005 ~ 26,318 $ 3,945 ~; 153,303 Accrued Revenue June 30, 2001 $ 389,678 $ 1,644,024 $ 6,984 Due from Federal Government $ 389,678 $ 1,644,024_ $ 6,984 NOTE 5 - RECONCILIATION TO GENERAL PURPOSE FINANCIAL STATEMENTR (Continued) The following is a reconciliation of the variances between Expenditures and Financial Assistance recognized: Federal Granlor/Proqram Tille Federal U.S. Departmenl of Emergency Housing and Urban U.S. Department of Management Development Transport~lion A.qency U.S. Depadment of Juslice Communily Inlermodal Surface Office of Bullelproof Vest Local Law Development Transportation and Traffic Safely Seized Padnership Enforcement Block Grant Efficiency Act Grant Assets Proqram Block Grant Federal Financial Assistance Recognized $ 3,838,079 $ 2,875,308 $ 169,005 $ 26,318 $ 3,945 $ 153,303 Other 338,470 Total 4,176,549 2,875,308 169,005 26,318 3,945 153,303 Total DisbursemenlJExpenditures 4,227,027 2,875,308 169,005 26,318 3,945 153,303 Variance of Revenues Recognized Overl(Under) Expenditures (50,478) _ . Expended Surplus Program Income 50,478 - . . 9 CITY OF BAKERSFIELD, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS JUNE 30, 2001 1. Summary of Audit Results 1. The auditor's report expresses an unqualified opinion on the general purpose financial statements of the City of Bakersfield, California. 2. No reportable conditions were disclosed during the audit of the financial statements. 3. No instances of non-compliance material to the financial statements of the City of Bakersfield, California were disclosed during the audit. 4. No reportable conditions were disclosed during the audit of the major federal award programs. .5. The auditor's report on compliance for.the major federal award programs for the City of Bakersfield, California expresses an unqualified opinion on all major federal programs. 6. The audit disclosed no findings relative to the major -federal awards programs. 7. The programs tested as major programs included: (1) U.S. Department of Housing and Urban Development Community Development Block Grant - Entitlement (CFDA Number 14.218), (2) Department of Transportation Highway Planning and Construction (CFDA Number 20.205). 8. The threshold for distinguishing Types A and B programs was $300,000. 9. The .City of Bakersfield, California was determined to be a Iow-risk auditee 2. Findin,qs Relatinq to Financial Statements Required Under GAGAS. None. 3. _Findinc~s and Questioned Costs - Maior Federal Award Proqrams Audit None. 10. Peter C. Brown, CPA Burton H. Armstrong, CPA, MST To the Technical Advisory Committee of the Bakersfield Subregional Wastewater Jerry £. Randall, CPA/ABV, CFP Management Plan, the City of Bakersfield, Benjamin P. Reyes, CPA California, the Kern Sanitation Authority, Andrew J. Paulden, CPA and the East Niles Community Services District Harvey J. McCown, CPA AndreaRutherford-Hill, CPA We have applied the procedures enumerated below to determine the City of Bakersfield's compliance with certain provisions of contractual requirements as specified in City of StevenR. Starbuck, CPA Bakersfield Agreement 76-153, as amended by Agreements 76-153(5), 76-153(4), 77-44, AileenK. Keeter, CPA 85-t97, and 92-106, regarding the .Bakersfield Subregional Wastewater Management Plan. These procedures, which were agreed to by the Technical Advisory Committee, were performed solely to assist you in meeting the requirements of City of Bakersfield Agreement Lynn R. Krausse, CPA, MST 76-153, as amended by Agreements 76-153(5), 76-153(4), 77-44, 85-197, and 92-106. This Chris M. Thomburgh, CPA report is intended for the information of the Technical Advisory Committee of the 'Bakersfield Joan M. Anderson, CPA Subregional Wastewater Management Plan, management, appropriate regulatory agencies, and-the .City Council of the City of .Bakersfield, California. This restriction is not intended to Bradley M. Hankins, CPA limit the distribution of this report, which is a matter of public record. B. Marie Ebersbacher, CPA, CFE We reviewed and tested the City of Bakersfield's compliance with certain provisions of Eric Xin, CPA contractual requirements as specified in City of Bakersfield Agreement 76-153, as amended Mel~daA. McDaniels, CPA by Agreements 76-153(5), 76-153(4), 77-44, 85-197, and 92-106. These procedures Thomas M. Young, CPA resulted in no current year findings. VonieL. Chroman, CPA These agreed-upon procedures are substantially less in scope than an audit, the objective MichelleL. Gonzales, CPAof which is the expression of an opinion on the City of Bakersfield's compliance with certain provisions of contractual requirements as specified in City of Bakersfield Agreement 76- Amanda £. Wilson, CPA 1'53, as amended by Agreements 76-153(5), 76-153(4), 77-44, 85-197, and 92-106. Accordingly, we do not express such an opinion. Based on the application of the procedures referred to .above, nothing came to our attention that caused us to believe that the City of Bakersfield had not complied with certain provisions of contractual requirements as specified in City of Bakersfield Agreement 76- 153, as amended by Agreements 76-153(5), 76-153(4), 77-44, 85-197, and 92-106. Had we performed additional procedures or had we made an audit of the City of Bakersfield's compliance with certain provisions of contractual requirements as specified in City of Bakersfield Agreement 76-153, as amended by Agreements 76-153(5), 76-153(4), 77-44, 85-197, and 92-106, matters might have come to our attention that would have been reported to you. BROWN ARMSTRONG RANDALL REYES PAULDEN & McCOWN ACCOUNTANCY CORPORATION Bakersfield, California October 4, 2001 M[MBt~R al SIC Pradice Section of the American Institute o[ Certified Public Accountants Peter C. Brown, CPA Burton H. Armstrong, CPA, MST TO the Honorable Mayor and Members of the City Council Jerry E. Randall, CPA/ABV, CFP City of Bakersfield, California Benjamin P. Reyes, CPA Andrew J. Paulden, CPA HarveyJ. McCown, CPA We have applied the procedures enumerated below to the accompanying Appropriations Limit Worksheet Six of the City of Bakersfield, California, (the AndreaRutherford-Hill, CPA City) for the year ended June 30, 2001. These procedures, which were agreed to StevenR. Starbuck, CPA by the League of California Cities and presented in their Article XIIIB AileenK. Keeter, CPA Appropriations Limitation Uniform Guidelines, were performed solely to assist you in meeting the requirements of Section 1.5 of Article XHIB of the California Lynn R. Krausse, CPA, MST Constitution. This report is intended for the information of management and the ChrisM. Thornburgh, CPA City Council. This restriction is not intended to limit the distribution of this report, which is a matter of public record. Joan M. Anderson, CPA Bradley M. Hankins, CPA The procedures performed and our findings were as follows: B. Marie Ebersbacher, CPA, CFE EricXin, CPA 1. We obtained the City's completed worksheets required to determine that MelindaA. McDaniels, CPA the correct annual adjustment factors were adopted by resolution of the Ihomas M. Young, CPA City Council. Vonie L Chroman, CPA 2. For the accompanying Appropriations Limit Worksheet Six, we added line MichelleL. Gonzales, CPA A, last year's limit, to line E, total adjustments, and agreed the resulting AmandaE. Wilson, CPA amount to line F, this year's limit. We noted that the adjustment for Property Tax Administration Fees exceeded the actual fees charged, causing the Appropriations Limit adopted by the City Council of $132~ 121,267 to be understated by $110,826. 3. We agreed the current year information presented in the accompanying Appropriations Limit Worksheet Six to the other worksheets described in #1 above. 4. We were unable to agree the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet Six to the prior year appropriations limit adopted by the City Council during the prior year. These agreed-upon procedures are substantially less in scope than an audit, the objective of which is the expression of an opinion on the accompanying Appropriations Limit Worksheet Six. Accordingly, we do not express such an opinion. M[MI~[R of S[£ Practice Section of the American Institute o[ £erfi[ied Public Accountants ~5.~sed on :'.ne application of the prOcedures referred to above, except as noted, nothing came to · z~:: a::ention that caused us to believe that the accompanying Appropriations Limit Worksheet >tx was not computed in accordance with Article XIIEB of the California Constitution. Had we performed additional procedures or had we made an audit of the accompanying Appropriations Limit Worksheet Six and the other completed worksheets described in #1 above, matters might have come to our attention that would have been reported to you. BROWN ARMSTRONG RANDALL R.EYES PAULDEN & McCOWN ACCOUNTANCY CORPORATION Bakersfield, California September 20, 2001 CITY OF BAKERSFIELD APPROPRIATIONS LIMIT - WORKSHEET SIX FOR THE FISCAL YEAR ENDED JUNE 30, 2001 A. Last year's limit $ 132A21 267 B. Adjustment factors: 1. Population % 1.0491% 2. Inflation % 1.0316% Total adjustment % ~ 8.2252% C. ?mnual adjustment 10,867,238 D. Other adjustments Miscellaneous Booking fees (119,999) 812,353 Property tax administration fees 400 000 '. E. Total adjustments .. 11.959,592 F. This years limit _~ 144.080.859 Peter C. Brown, CPA Burton H. Armstrong, CPA, MST Jer~'E. RandalI, CPA/ABV, CFP To the Honorable Mayor and Members of the City Council Benjamin P. Reyes, CPA City of Bakersfield, California Andrew J. Paulden, CPA HarveyJ. McCown, CPA In planning and performing our audit of the general purpose financial statements of the City of AndreaRutherford-HHI, CPA Bakersfield, California (City) for the year ended June 30, 2001, we considered its internal StevenR.$tarbuck, CPA control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the Aileenr. Keeter, CPA internal control structure. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses or reportable conditions under standards established by the American Institute ,- Lyn~R. Krausse, C?A, MST of Certified Public Accountants. A material weakness is a condition in which the design or ChrisM. Thomburgh, CPA operation of one or more of the internal control structure elements does not reduce to a JoanM. Anderson, C?^ relatively Iow level the risk that errors or irregularities in amounts 'that would be material in relation to the financial statements being audited may occur and not be detected within a BradleyM. Hankins, CPA timely period by employees in the normal course of performing their assigned functions. B. MarieEbersbacher, CPA, CFE However, we noted no matters involving the internal control structure and its operation that Eric Xin, CPA we consider to be material weaknesses as defined above. Mel[~daA. McDaniels, C?,& Reportable conditions involve matters coming to our attention relating to deficiencies in the IhomasM. Young, CPA design or operation of the internal control structure that, in our judgment, could adversely affect the organization's ability to record, process, summarize, and report financial data Vonie L. Chroman, CPA consistent with the assertions of management in the financial statements. However, we noted Michelle b Go,ales, CPAcertain matters involving the internal control over financial reporting and its operation that we Amanda E. Wilson, C?A consider to be reportable conditions. Current Year Findings are as Follows: _F. indin_a 1 The City's year end inventory count for the Corporation Yard and the Police Garage revealed numerous variances between the amount on the records and the actual amount.on hand. The actual amounts on hand for certain vehicle related supplies, such as, diesel fuel, gasoline and transmission fluid, are significantly less than the amounts on the records. Recommendation for Improvement The City needs to investigate the reason of inventory shortage and to improve its controls over inventory processing to prevent potential misappropriation and to avoid errors in counting or recording inventory. .Mana.qement Response Staff is currently taking steps to improve inventory processing for the Public Works Department's Fleet Division. A consultant was hired in July 2001, to prepare a comprehensive report with recommendations to improve the Fleet Division's internal control procedures which include inventory processing. Based upon the Consultant's findings, the City has hired an outside accounting firm to further review the Fleet Division's internal controls, including inventory processing. ~B~R of SEC Practice Section o[ the American institute of Certi[ied PubJic Accountants This report is intended solely for the information and use of the Audit Committee, City Council, management, and other authorized regulatory agencies. However', this report is a matter of public record, and its distribution is not limited. BROWN ARMSTRONG RANDALL REYES PAULDEN & McCOWN ACCOUNTANCY CORPORATION Bakersfield, California October 5, 2001 Peter C. Brown, CPA Burton H. Armstrong, CPA, MST REQUIRED COMMUNICATION WITH AUDIT COMMITTEES Jerry, E. Randall, CPA/ABV, CFP IN ACCORDANCE WITH STATEMENT ON AUDITING Benjamin P. Reyes, CPA STANDARDS NUMBER 61 Andrew J. Paulden, CPA Harvey J. McCown, CPA Andrea Rutherford-Hill, CPA To the Budget and Finance Committee Steven R. Starbuck, CPA City of Bakersfield, California Arleen K. Keeter, CPA We have audited the general purpose financial statements of the City of Bakersfield for the year ended June 30, 2001, and have issued our report thereon dated October 5, LynnR. Krausse, CPA, MST 2001. Professional standards require that we provide you with the following information Chris M. Thomburgh, CPA related to our audit. Joan M. Anderson, CPA Our Responsibility under Generally Accepted Auditin.q Standards BradleyM. Hankins, CPA As stated in our engagement letter, our responsibility, as described by professional B. MarieEbersbacher, CPA, CFE Standards, is to plan and perform our audit to obtain reasonable, but not absolute, EricXin, CPA assurance that the general purpose financial statements are free of material misstatement and are fairly presented in accordance with accounting principles generally Mel~daA. McDaniels, CPA accepted in the United States of America. Because of the concept of reasonable ThomasM. Voung, CPA assurance and because we did not perform a detailed examination of all transactions, there is a risk that material errors, fraud, or other illegal acts may exist and not be Vonie L. Chroman, CPA detected by us. Michelle L. Gonzales, CPA Amanda E. Wilson, CPA As part of our audit, we considered the internal control of the City of. Bakersfield. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. Significant Accountinq Policies Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City of Bakersfield are described in Note 1 to the general purpose financial statements. No new accounting policies, except requirements under the Government Accounting Standards Board Statement No. 33 i'egarding revenue recognition, were adopted and the application of existing policies was not changed during fiscal year 2001. We noted no transactions entered into by the City of Bakersfield during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. ~[MB[R of $[C Practice Section of the American Institute of Cerfi[ied Public Accountants Accountinq Estimate.~ Accounting estimates are an integral part of the general purpose financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the general purpose financial statements and because of the possibility that future events affecting them may differ significantly from those expected. There were no sensitive estimates affecting the financial statements. ' Sicinificant Audit Adiustments For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the general purpose financial statements that, in our judgment, may not have been detected except through our auditing procedures. These adjustments may include those proposed by us but not recorded by the City of Bakersfield that could potentially cause future financial statements to be materially misstated, even though we have concluded that such adjustments are not material to the current financial statements. We proposed no audit adjustments that could, in our judgment, either individually or in the aggregate, have a significant effect on the City of Bakersfield's financial reporting process. Disaqreements with Manaqement For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the-general purpose financial statements or the auditor's report. We are pleased to 'report that no such disagreements arose during the course of our audit. Consultations with Other Independent Accountant~ In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's general purpose financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. I_ssues Discussed Prior to Retention of Independent Auditom We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City of Bakersfield's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition for our retention. Difficulties Encountered in I~erforminq the Audit We encountered no significant difficulties in dealing with management in performing our audit. This information is intended solely for the use of the City of Bakersfield and management of the City of Bakersfield and is not intended to be and should not be used by anyone other than these specified parties. BROWN ARMSTRONG RANDALL REYES PAULDEN & McCOWN ACCOUNTANCY CORPORATION Bakersfield, California ~ October 5, 2001 BAKERSFIELD Economic and Community Development Department MEMORANDUM Janua~ 11,2002 TO: Budget and Finance Committee /t/- FROM: Donna L. Kunz, Economic Development Director SUBJECT: Single Family Rehabilitation Loan Policy On October 24, 2001, Economic and Community Development staff brought a request to the City Council to provide clarification of the Rehabilitation Loan Policy, staff has reviewed the department housing rehabilitation guidelines and is presenting a revised policy to the Budget and Finance Committee for review and recommendation. dlk:S:\DEBBIE'S\sfr memo for b&f. wpd BAKERSFIELD SINGLE FAMILY REHABILITATION LOAN PROGRAM LOAN LIMIT POLICY ECONOMIC AND COMMUNITY DEVELOPMENT DEPARTMENT INTRODUCTION AND BACKGROUND Each year, the City's Economic and Community Development Department provides deferred and below market interest rate loans for the rehabilitation of single-family dwellings for Iow-income persons through its Home Improvement Program. An average of 15 homes per year are rehabilitated under this program annually, utilizing approximately $400,000 in federal HOME grant funds. The average Single Family Rehabilitation Loan amount is between $25,00 and $35,000. Current Loan Limits: On July 21, 1999 Council approved a request to increase deferred loan and amortized loan limits to $35,000 for each type of loan. Based on existing department guidelines as outlined in the Community Development Housing Procedure Manual, there are two loan repayment options for the assistance being offered: 1) a 4% amortized loan with Iow monthly payments over fifteen years; or 2) a 0% deferred loan with no payments for fifteen years or when title is transferred. Proposed Loan Limits: Economic and Community Development staff has completed a review of existing Single Family Rehabilitation guidelines and is proposing underwriting authority that allows the Department director to approve loans in excess of exiSting limits, provided the combined loans obtained by the client do not exceed the total of $70,000 for each rehabilitation project and are within the loan to value ratio set forth in the program parameters. On rare occasion (twice within the past 3 years), the need arises to exceed the $35,000 loan limit on amortized or deferred loans due to extensive deterioration of the home and severely restricted incomes of the clients. A combination of the two loans is offered when the homeowner's income cannot support the payment of the total amortized loan amount. In addition, a project may require extensive demolition work and rehabilitation of the structure which will increase the overall cost of the project and require additional assistance. The Department Housing Procedures Manual, provides underwriting criteria that requires that the maximum loan-to-value of the home is 90% for homeowners in targeted (Iow/mod income census tracts) areas and 80% elsewhere. Therefore, in an effort to provide more effective services to our clients, staff is requesting authorization for the Economic Development Director to approve both amortized and deferred loans in an amount not to exceed $70,000 per property and not to exceed the maximum loan-to-value ratio as referenced above. This will allow the Department to more effectively handle the special needs cases within the program parameters and allow us to continue to provide decent and suitable living environments for Iow income homeowners. BAKERSFIELD Economic and Community Development Department MEMORANDUM Janua~ 11,2002 TO: Budget and Finance Committee ~'~,~,~... ~,,- FROM: Donna L. Kunz, Economic Development Director SUBJECT: Economic and Community Development Department Foreclosure Policy On January 9, 2002, Economic and Community Development staff brought a request to the City Council to refer a foreclosure policy to the Budget and Finance Committee. Staff has recently completed a comprehensive review of existing Housing guidelines. As a result of this review, staff determined that it was necessary to develop a foreclosure policy which would apply to all loans given by the department to recipients.of the City's various housing programs. Currently, to secure repayment of all loans and grants, the recipient signs a promissory note and executed deed of trust in favor of the City. If at any time during the life of the loan or term of the grant, the recipient is not in compliance with the provisions of such documents including contractual agreements, staff will review the file and make recommendations to the Economic Development Director. A pre-foreclosure analysis will be conducted to determine the best course of action for both the City and the recipient. A written policy has been drafted and is attached for your consideration. dlk:P:\foreclosure poi b&fiwpd FORECLOSURE POLICY ECONOMIC AND COMMUNITY DEVELOPMENT DEPARTMENT INT:RODUCTION AND PREFORECLOSURF_ This .foreclosure policy will apply to all loans and grants given by the Economic and Community Development Department to recipients of the City's housing programs. To secure repayment of all loans, the recipient has signed a promissory note and executed a deed of trust in favor of the City. If, at any time during the life of the loan or the affordability period of the grant, the recipient is not in compliance with the provisions of the Deed of Trust, Promissory Note, or Project Agreement with the City, staff will review the file and make a recommendation to the Economic Development Director. If the recommendation is for foreclosure, the Economic Development Director will determine whether it would be in the City's best interest to foreclose on the property, take legal action against the client with regards to the promissory note, or request that the Finance Director write off the loan as uncollectible based on the criteria listed below. Every effort will be made by staff to ensure that displacement of any Iow-income resident who has received assistance under the City's housing programs will be the option of last resort. The following criteria will be utilized by staff in conducting their pre-foreclosure analysis: 1. The City's lien position (first, second, third, etc.), to determine the degree of risk. 2. The current loan balance, or grant amount, owed to the City. 3. The current dollar amount owed to any senior lien holders on the property. 4. Whether the borrower still owns the property, the client is deceased, or the property has been sold. 5. Whether the property is currently owner-occupied and whether displacement would be an issue in foreclosure. Careful consideration would be given to those cases where displacement would be an issue. 6. The net amount that the City could realize if the property were sold at a Trustee's sale. 7. The costs associated with maintaining the property if the property did not sell at Trustee's sale and the City were forced to take title (and in the process be forced to pay senior lien holders, security, utilities, etc.). 8. The costs necessary to make the property marketable. 9. The current real estate market, such as a buyer's or seller's market. 10. The possibility of hazardous material contamination on the property (such as lead based paint) and the associated clean-up costs. The following factors will also be considered in staff's recommendation: 1. If the senior lien holder initiates foreclosure on a property in which the City is a junior lien holder, the City may choose to advance funds to the senior lien holder to bring the senior lien current, and then begin foreclosure proceedings on behalf of the City's junior lien. S:\DE BBI E'S\ForeclosureFinal.wpd Revised: 9/26/01 2. If an unreported transfer of title takes place on a property upon which the City has a lien, the City may choose to foreclose if demand for payoff is disregarded. 3. If a borrower has been non-responsive to City attempts to provide forbearance, or the borrower's explanation is evaluated as non-responsive by the City, then the City should begin foreclosure proceedings. 4. If the borrower no longer owns the property, the City Attorney's office will review the file and determine whether the borrower has any other assets which may be attached in the event the City Attorney requests permission to file a lawsuit. If the · borrower has no reachable assets, the Finance Director will be requested to write off the loan as uncollectible. FORECLOSURE After the City has exhausted all other remedies to cure the default, under this policy the Economic Development Director will have the authority to initiate foreclosure proceedings. In those cases where the City is a sold out junior lien holder, due to a foreclosure by a senior lien holder, the Economic Development Director may ask the City Attorney to request approval from the City Council to sue the property owner on the promissory note. Finally, if the City has exhausted all options to cure the default, the Economic Development Director may request the Finance Director to write the loan off as uncollectible. S:\DEBBI E'S\ForeclosureFinal.wpd Revised: 9/26/01