Question:  How often are the City’s financials audited? Who audits them?

Answer:

The City’s financials are audited annually. The City’s current audit firm is Eide Bally.

Question:  What is the role of City staff and City Council during an annual financial audit?

Answer:

Staff work with the auditors to provide them access to the City’s financial system and related documents necessary for the auditors to validate the City’s financial data and evaluate the City’s internal controls. Staff also work with the auditors to record adjustments to the City’s balance sheet. Finally, staff work with the auditors to prepare the City’s Annual Comprehensive Financial Report (ACFR). City Council receives and accepts the final ACFR.

An independent audit firm issued a “clean bill of (financial) health” to the City. Their official opinion (see page 1 of the FY 2022-23 ACFR) was that the City’s financial statements are accurate and fairly presented.

Question:  Is it true that the City “found” millions of dollars during the 2022-23 audit?

Answer:

The City did not find any missing money during the 2022-23 audit. Rather, as described below, at the direction of the City’s auditor the City reclassified low-income housing loans as assets and included low-income housing loans on the City’s balance sheet.

Question:  What is the source of the City’s affordable housing funds?

Answer:

The City uses the following funding sources for the City’s affordable housing loans: Low-income Housing Development Impact fees, former Redevelopment Agency Housing Funds, and grants (federal HOME funds from the U.S. Department of Housing and Urban Development, State of California Permanent Local Housing Allocation funds (PLHA), CalHOME, and BEGIN funds). 

Question:  What types of projects and services are the affordable housing funds spent on?

Answer:  

The projects and services funded through the City’s affordable housing trust provide affordable housing in the City by assisting in the private and nonprofit development and preservation of affordable owner and rental housing and other related programs that help residents enter or remain in affordable housing. 
Project types include:

• The development of new and rehabilitation of existing affordable rental housing 
• Down payment assistance for low and moderate-income first-time homebuyers to purchase homes in Livermore
• Housing support and assistance for people experiencing homelessness

The affordable housing funds are mainly used by the city to issue loans for development, acquisition, rehabilitation, home purchase and downpayment assistance. Current loans in the City’s portfolio include:

Low-income Housing Development: $24.3 million of loans outstanding

The largest outstanding loans include: $5.7 million for Vineyard 2.0 housing on North Livermore, $2.3 million for Eden Housing in downtown, and $10 million for MidPen to construct Avance Housing on 1^st Street.

• Development: Funds expended by the City in a form of flexible payment low-interest loans to nonprofits developing rental housing projects on private or public property. Because affordable rental housing requires a deep subsidy to operate, many loans to nonprofit developers are structured to require repayment only after there is sufficient funding in the project to cover all annual expenses and fund reserves. The City’s loan is considered a permanent investment in the project.

• Example: In 2018, the City provided a $4.587 Million loan to MidPen Housing for permanent housing development financing for the 44-unit Chestnut Square Family Apartments.

• Acquisition: Loans for City-owned properties which reflect the appraised value of the land, but do not involve an exchange of funds for land.

• Example: Eden Housing received both a $500,000 predevelopment loan from Affordable Housing funds and an acquisition loan for the value of the City-owned property which is the site of their downtown apartments.

Inclusionary/Home Ownership: $19.1 million of loans outstanding

Outstanding loans include: Inclusionary, "silent second" loans to first time homebuyers averaging $250,000 per loan.

• Inclusionary: Homebuyer loans recorded as deferred “silent” second mortgages for the buyers of new Below Market priced homes. The value of these loans represents the home developer’s contribution towards the City’s affordable housing requirements and the interest is deferred for the term of loan. These loans may be repaid by the homeowner at resale or may be transferred through the City’s program to another income eligible buyer.

• Example: A developer of a new residential townhouse fulfills the City’s Inclusionary Housing ordinance and sells a 3-bedroom unit at a Below Market Price of $547,000 to a Moderate-Income homebuyer. The market price of the unit is $950,000. The City takes a “silent” second mortgage for the difference of $403,000 which becomes a loan to the homebuyer held by the City.

• Homeownership: Down payment assistance and rehabilitation loans to income eligible buyer/owners. Repayment terms are based on the original source of funds (i.e. State or City) and the income level of the borrowers.

• Example: A low-income, first time homebuyer applies to the City for a Down Payment Assistance loan of $60,000 to buy a market priced condo in Livermore. The City provides the loan to assist with the purchase and because the City used State CalHome funds, no annual payments are due until the owner decides to move out of or sell the home.

Rehabilitation: $1.4 million of loans outstanding

Outstanding loans include: Loans to low-income homeowners for emergency repairs averaging $35,000, and rehabilitation loans to nonprofit housing organizations to rehabilitate affordable rental housing.

• Rehabilitation: loans for rental properties that serve extremely low-income, vulnerable populations operated by nonprofit organizations, and loans for properties owned by individual low-income homeowners. The City has used State grants for these projects.

• Example: Tri-Valley REACH shared home rehabilitations. The City has supported the nonprofit housing provider, Tri-Valley REACH, to renovate and expand shared homes for people with developmental disabilities. The City provided low interest (3%, annual) loans which only require payment after all operating costs and reserves are met so that projects can operate and provide proper support services. In 2023, the City provided REACH with a loan of $116,800 to expand a townhouse from 3 to 4 bedrooms and provide independent housing for an additional Livermore resident with a developmental disability.

Question:  How is the City tracking the use of the affordable housing funds? 

Answer:

To track City homebuyer loans, staff uses a client management system that includes all borrower information. Loans with amortization and required payments are serviced by contract through Amerinat. City staff uses in-house software to track multi-family housing development loans.

Question:  How much money is available to fund low-income housing efforts?

Answer:

As of June 30, 2024, $15 million is available to fund low-income housing efforts.

Fund balance table of affordable housing loan funds:

Question:  Why were these loans reclassified during the audit? 

Answer:

The City’s independent auditors opined that the City could eventually receive repayment of these loans, even though it may be 50 to 100 years in the future. As a result, the auditors determined that these loans should be shown as “assets”. Prior auditors classified these loans as Unavailable Revenue and not as assets since it is unclear when payments will be received for these loans. Audit firms can and do have different approaches to recording financial information.

Question:  Did this change in the classification of housing loans result in any real changes to the City’s financials? Did the change result in any increase (or decrease) in the amount of money that the affordable housing fund has available to invest in additional projects?

Answer:

No, the reclassification of the loans to an asset did not affect the amount of money available for affordable housing projects. In addition, these loans do not have market value. In other words, banks or other financial institutions would not be interested in buying the City’s affordable housing loans mainly because loan repayments are unpredictable and, in some cases, are 50 to 100 years in the future.

Question:  Did the requested change impact the auditors’ official opinion of the quality of the financial statements? 

Answer:

No, the auditors still issued a “clean bill of (financial) health” to the City. Their official opinion (see page 1 of the FY 2022-23 ACFR) was that the City’s financial statements are accurate and fairly presented.

Question:  Are there adequate controls in place to ensure all future accounting for these and similar new assets will be consistent with the new advice from the auditors? 

Answer:

The City continues to have strong internal controls; the independent audits confirmed this during the 2024 audit (see Independent Auditor’s Report on Internal Controls). The reclassification of affordable housing loans was not an internal control issue. Rather, it reflects a change in direction provided by the City’s auditors.

Question:  The independent auditors requested that the City record an additional $4.5 million of affordable housing loans during the 2024 audit. Where were these loans previously accounted for? 

Answer:

These loans were previously accounted for as expenditures in the City’s financial records when the loans were issued.

Question:  Why were the loans not previously recorded as assets in the City’s official financial statements? 

Answer:

As a result of staff turnover in both Finance and Housing, affordable housing loans were not consistently recorded on the City’s official financial statements, even though they were tracked by Housing and recorded as expenditures by Finance. Formal procedures are being put in place to ensure that affordable housing loans are consistently recorded both as expenditures and outstanding assets. 

Question:  Did this change in the classification of housing loans result in any real changes to the City’s financials? Did the change result in any increase (or decrease) in the amount of money that the affordable housing fund has available to invest in additional projects?

Answer:

No, the reclassification of the loans to an asset did not affect the amount of money available for affordable housing projects. In addition, these loans do not have market value. In other words, banks or other financial institutions would not be interested in buying the City’s affordable housing loans mainly because loan repayments are unpredictable and, in some cases, are 50 to 100 years in the future.

Question:  Did the requested change impact the auditors’ official opinion of the quality of the financial statements? 

No, the auditors still issued a “clean bill of (financial) health” to the City. Their official opinion (see page 1 of the FY 2022-23 ACFR) was that the City’s financial statements are accurate and fairly presented.

Question:  Are there adequate controls in place to ensure all future accounting for these and similar new assets will be consistent with the new advice from the auditors? 

The City continues to have strong internal controls; the independent audits confirmed this during the FY 2022-23 audit (see Independent Auditor’s Report on Internal Controls). The reclassification of affordable housing loans was not an internal control issue. Rather, it reflects a change in direction provided by the City’s auditors.