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REDEVELOPMENT AGENCY OF THE CITY OF SAN LEANDRO Management's Discussion and Analysis For the Fiscal Year Ended June 30, 2006 ~~-~'''---.-~--~-------'''''.,~~~~.~_ft_,~~,. The discussion and analysis of the financial perfonnance of the Redevelopment Agency (the "Agency") provides an overall review of the Agency's financial activities for the fiscal year ended June 30, 2006 (FY 2005/06). The intent of this discussion and analysis is to look at the Agency's financial perfonnance as a whole. Readers should also review the basic financial statements, as well as the prior year's rcport ending June 30, 2005, to enhance their understanding of the Agency's financial performance. The financial section of this report has been prepared to show the results of the financial administration, financial condition, and operation of the Agency. The [mancial statements in this report have been audited by the firm Vavrinek, Trine, Day and Co., LLP, whose opinion is included in this report. BASIS OF ACCOUNTING The Agency maintains funds in accordance with accounting principles set forth by the Governmental Accounting Standards Board (GASB) and accounting principles generally accepted in the United States. The accounts of the Agency are organized and operated on the basis of funds, each of which is defined as a separate set of self-balancing accounts that reflect its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. The accounting records of the Agency are maintained on the modified accrual basis of accounting. The modified accrual basis of accounting is defined as the basis of accounting by which expenditures, other than accrued interest on general long-term debt, are reported at the time liabilities are incurred and revenues are recorded when received in cash, except for measurable and available revenues which are accrued to properly reflect taxes levied and revenues earned. FINANCIAL HIGHLIGHTS Agency Wide: The liabilities of the Agency exceeded its assets at fiscal year ending June 30, 2006, close to $7.7 million. Of this amount, $7.4 million is restricted for capital assets net ofrelated debt, and $9.4 million and $2.3 million is, respectively, restricted for capital and debt purposes as specified by entities outside the Agency. Fund Level: For fiscal year 2005-06, excess revenue over expenditures, including operating transfers in and out, of ($6.5) million resulting in a decrease in total fund balance from $18.1 million to $11.7 million. Of the $11.7 million total fund balance, $9.0 million is designated for redevelopment projects, $439 thousand is reserved for low and moderate income housing programs, and $2.3 million is reserved for debt reserves and repayment 2