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Review Draft 6/18/2013 5:11:57 PM • GASB 64 - Derivative Instruments: Application of Hedge Accounting Termination Provisions, an amendment of GASB Statement No. 53 Some governments have entered into interest rate swap agreements and commodity swap agreements in which a swap counterparty, or the swap counterparty’s credit support provider, commits or experiences either an act of default or a termination event as both are described in the swap agreement. Many of those governments have replaced their swap counterparty, or swap counterparty’s credit support providers, either by amending existing swap agreements or by entering into new swap agreements. When these swap agreements have been reported as hedging instruments, questions have arisen regarding the application of the termination of hedge accounting provisions in Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. Those provisions require a government to cease hedge accounting upon the termination of the hedging derivative instrument, resulting in the immediate recognition of the deferred outflows of resources or deferred inflows of resources as a component of investment income. The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty’s credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. Unusual Transactions, Controversial or Emerging Areas: No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. There have been no initial selections of accounting policies and no changes in significant accounting policies or their application during 2012. However, the dissolution of the Redevelopment Agency had a material impact to the financial statements of the City and its component units: As discussed in Note 18 to the financial statements, the State enacted laws which dissolved Redevelopment Agencies effective January 31, 2012. The City elected to become a Housing Successor to the Redevelopment Agency and pursuant to the laws it is recipient to the encumbered housing assets of the former Redevelopment Agency. All other assets were distributed to and all of the Redevelopment Agencies liabilities were assumed by a Successor Agency governed by an Oversight Board. This Successor Agency is reported as a private purpose trust fund. Pursuant to ABx1 26 adopted by the State of California which was validated by the California Supreme Court on December 28, 2011, the Redevelopment Agency has been dissolved and certain assets turned over to and liabilities assumed by a Successor Agency effective February 1, 2012. As discussed in Note 18, the Redevelopment Agency repaid the Plaza Project Area General Fund loan in the amount of $2.1 million in fiscal 2010-11. ABx1 26 directs the State Controller to review the activities of all redevelopment agencies to determine whether an asset transfer between an agency and the sponsoring public agency occurred on or after January 1, 2011 and if such a transfer occurred, the State Controller is to require that the transfer be reversed. As of the date of our report, the review has not been completed and the amount of repayment to be returned, if any, is not determinable at this time.