SFHA Audit Report 2010 by SFHA

HOUSING AUTHORITY OF THE CITY AND COUNTY OF SAN FRANCISCO, CALIFORNIA Basic Financial Statements and Supplemental Information Year ended September 30, 2010

TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS (Required Supplementary Information)

BASIC FINANCIAL STATEMENTS Balance Sheet

Statement of Revenues, Expenses and Changes in Net Assets

Statement of Cash Flows

Combining Balance Sheet for Discrete Component Units

Combining Statement of Revenues, Expenses and Changes In Net Assets for Discrete Component Units

Notes to Basic Financial Statements

REQUIRED SUPPLEMENTARY INFORMATION Schedule of Pension and Other Post Employment Benefits

SUPPLEMENTAL INFORMATION Financial Data Schedule

Schedules of Actual Program Costs and Advances

SINGLE AUDIT SECTION Schedule of Expenditures of Federal Awards and Local Assistance

Note to the Schedule of Expenditures of Federal Awards and Local Assistance

Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133

Schedule of Findings and Questioned Costs

Summary Schedule of Prior Year Audit Findings

Corrective Action Plan

8035 Spyglass Hill Road Melbourne, FL 32940 Phone: 321-757-2020 Fax: 321-242-4844

www.bermanhopkins.com

255 S. Orange Ave. Suite 745 Orlando, FL 32801 Phone: 407-841-8841 Fax: 407-841-8849

INDEPENDENT AUDITORS' REPORT

Board of Commissioners Housing Authority of the City and County of San Francisco, California San Francisco, California We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of the Housing Authority of the City and County of San Francisco, California (the “Authority”), as of and for the year ended September 30, 2010, which collectively comprise the Authority’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Authority’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the following discretely presented component units: Plaza East Associates, L.P., Hayes Valley Apartments L.P., Hayes Valley Apartments II, L.P., and Bernal Housing Associates, L.P., which together represent 100% of the total assets and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Plaza East Associates, L.P., Hayes Valley Apartments L.P., Hayes Valley Apartments II, L.P., and Bernal Housing Associates, L.P., is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted 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 States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of Plaza East Associates, L.P., Hayes Valley Apartments L.P., Hayes Valley Apartments II, L.P., and Bernal Housing Associates, L.P., were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of the Authority as of September 30, 2010, and the respective changes in financial position, and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated June 29, 2011 on our consideration of the Authority’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, and schedule of pension and other post employment benefits, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority’s financial statements as a whole. The accompanying financial data schedule and schedules of actual program costs and advances are presented for purposes of additional analysis as required by the U.S. Department of Housing and Urban Development, and are not a required part of the financial statements of the Authority. The accompanying schedule of expenditures of federal awards and local assistance is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements of the Authority. The information is the responsibility of management and is derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements taken as a whole.

Berman Hopkins Wright & LaHam

June 29, 2011 Melbourne, Florida

CPAs and Associates, LLP

The Housing Authority of the City and County of San Francisco, California Management’s Discussion and Analysis For the Year Ended September 30, 2010 The Housing Authority of the City and County of San Francisco, California (the “Authority”) management’s discussion and analysis report is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the Authority’s financial activity, (c) identify changes in the Authority’s financial position (its ability to address the next and subsequent year challenges), and (d) identify individual program issues or concerns. This financial report is designed to provide an overview of the Authority’s total financial picture for the fiscal year ending September 30, 2010, for those with an interest. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Finance Department, San Francisco Housing Authority, 1815 Egbert Avenue San Francisco, California 94124. Financial Highlights 

The Authority’s net assets increased by $7,626,166 or 4.1% during the fiscal year.



The Authority’s operating revenue increased by $21,452,209 or 11.9% during the fiscal year.



The Authority’s operating expenses increased by $14,991,820 or 7.9% during the fiscal year.



At the close of the current fiscal year, the Authority’s assets exceeded its liabilities by $192,335,272.

Overview of the Financial Statements The financial statements included in this annual report are those of a special-purpose government agency engaged in a single business-type activity prepared on an accrual basis. Over time, significant changes in the Authority’s net assets serve as a useful indicator of whether its financial health is improving or deteriorating. To fully assess the financial health of any authority, the reader must also consider other non-financial factors such as changes in family composition, fluctuations in the local economy, Department of Housing and Urban Development mandated program administrative changes, and the physical condition of capital assets.

Overview of the Financial Statements (continued) The following statements are included: 

Balance Sheet - this statement reports the Authority’s assets, liabilities and net assets at the end of the fiscal year. You can think of the Authority’s net assets as the difference between what the Authority owns (assets) and what the Authority owes (liabilities).



Statement of Revenues, Expenses, and Changes in Net Assets - this statement presents information showing how the Authority’s net assets increased or decreased during the current fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of when the cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will result in cash inflows and cash outflows in future periods.



Statement of Cash Flows - this statement presents information showing the total cash receipts and cash disbursements of the Authority during the current fiscal year. The statement reflects the net changes in cash resulting from operations plus any other cash requirements during the current year (i.e. capital additions, debt service, prior period obligations, etc.). In addition, the statement reflects the receipt of cash that was obligated to the Authority in prior periods and subsequently received during the current fiscal year (i.e. accounts receivable).



Notes to the Basic Financial Statements - notes to the basic financial statements provide additional information that is essential to a full understanding of the data provided. These notes provide greater understanding on the overall activity of the Authority and how values are assigned to certain assets and liabilities and the longevity of these values. In addition, the notes reflect the impact (if any) of any uncertainties the Authority may face.

In addition to the basic financial statements listed above, our report includes supplemental information. This information provides additional detail on the Authority’s various programs and the required information mandated by regulatory bodies that fund the Authority’s various programs.

Financial Analysis

Balance Sheet

Current assets Capital assets, net Other noncurrent assets, net

2010 30,826,357 87,256,115 104,959,616

2009 restated $ 31,207,057 77,768,970 105,268,111

Total Change $ (380,700) 9,487,145 (308,495)

Total assets

223,042,088

$ 214,244,138

8,797,950

Current liabilities Noncurrent liabilities

13,308,876 17,397,940

$ 12,685,182 16,849,850

623,694 548,090

Total liabilities Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets

30,706,816

29,535,032

1,171,784

87,256,115 114,338,344 (9,259,187)

77,768,970 13,324,726 93,615,410

9,487,145 101,013,618 (102,874,597)

Total net assets

192,335,272

184,709,106

7,626,166

223,042,088

$ 214,244,138

Total liabilities and net assets

8,797,950

Current Assets decreased by $380,700 primarily due to a reduction in cash of $1,800,000 offset by increases in receivables of $1,500,000. The decrease in cash was largely attributable to the cost of operations being greater than the subsidy received. Net Capital Assets had an increase of $9,487,145. This increase is a result of capital improvements undertaken by the Authority and administrative equipment purchases, offset by the current depreciation expense. Other Noncurrent Assets decreased by $308,495 primarily due to payments collected on the note receivable. Net Assets are the difference between an organization’s assets and its liabilities is its net assets. Net assets are categorized as one of three types. 

Invested in capital assets, net of related debt - capital assets, net of accumulated depreciation and related debt is due to the capital asset and long-term debt activity.



Restricted - the Authority’s net assets whose use is subject to constraints imposed by law or agreement. The increase of $101,013,618 in restricted net assets is primarily attributable to the reclassification in the current year of the net assets in the HOPE VI program consisting of the notes receivable, investment in joint ventures and accrued interest receivable, which were presented as unrestricted net assets in prior years.



Unrestricted - the Authority’s net assets that are neither invested in capital assets nor restricted, which change principally due to operations. These resources are available to meet the Authority’s ongoing obligations to its residents and creditors.

Financial Analysis (continued)

Statement of Revenues, Expenses and Change in Net Assets 2009 restated 2010 Net Change Operating revenues HUD revenue $ 173,786,226 $ 149,109,905 $ 24,676,321 Other government grants 10,097,402 12,323,655 (2,226,253) Tenant revenue, net 15,588,231 16,817,617 (1,229,386) Other operating revenue 1,677,170 1,445,643 231,527 Total operating revenues Operating expenses Administrative Tenant services Utilities Maintenance Protective services General Depreciation Housing assistance payments

201,149,029

179,696,820

21,452,209

19,924,181 1,351,425 12,060,208 26,654,007 3,234,150 6,487,147 5,307,915 129,902,320

19,237,100 1,308,629 11,838,613 23,233,019 2,520,163 4,341,964 4,049,188 123,400,857

687,081 42,796 221,595 3,420,988 713,987 2,145,183 1,258,727 6,501,463

Total operating expenses

204,921,353

189,929,533

14,991,820

Operating income (loss) Nonoperating revenues (expenses) Interest income Other Total nonoperating revenues Changes in net assets before capital contributions Contributions and distributions HUD capital grants Transfers to component unit

(3,772,324)

(10,232,713)

6,460,389

906,373 -

855,010 327,895

51,363 (327,895)

906,373

1,182,905

(276,532)

(2,865,951)

(9,049,808)

6,183,857

13,111,115 (2,618,998)

16,553,478 (2,549,853)

(3,442,363) (69,145)

Change in net assets Total net assets - beginning Prior period adjustment

7,626,166 184,709,106 -

4,953,817 182,053,469 (2,298,180)

2,672,349 2,655,637 2,298,180

192,335,272

$ 184,709,106

Total net assets - ending

7,626,166

Total Operating Revenues increased by $21,452,209 for the 2010 fiscal year. This increase of operating revenue is due primarily to increases in HUD operating grants, HUD ARRA (Stimulus), administrative fee grants, and grants from the City and County of San Francisco. Operating Expenses are categorized by the Authority as administrative, tenant services, utilities, maintenance, protective services, general, depreciation and housing assistance payments. The increase of $14,991,820 in total operating expenses is primarily attributable to the increase in housing assistance payments of $6,501,463 due to an increase in lease-up, an increase in maintenance expense to improve physical conditions of the development by $3,420,988 and an increase in general expenses of $2,145,183 for the 2010 fiscal year.

Financial Analysis (continued) Nonoperating Revenues (Expenses) decreased by $276,532 mainly due to the effect of the gain on disposal of capital assets in 2009 fiscal year offset by increases in interest income. CAPITAL ASSETS The Authority’s capital assets as of September 30, 2010, amounts to $87,256,115 (net of accumulated depreciation). The investment in capital assets includes land, buildings and improvements, furniture and equipment, construction in progress, and accumulated depreciation. The total increase in the Authority’s capital assets for the current fiscal year was $12,845,693, as a result of construction in progress and administrative equipment, offset by the depreciation expense.

Land Buildings and improvements Furniture, equipment, and machinery Construction in progress Accumulated depreciation

Total

2010 11,678,889 148,212,816 8,064,417 2,681,822 (83,381,829)

2009 $ 8,320,341 134,465,133 7,655,185 2,043,677 (78,073,914)

Total Change $ 3,358,548 13,747,683 409,232 638,145 (5,307,915)

87,256,115

$ 74,410,422

12,845,693

LONG-TERM DEBT At September 30, 2010, the Authority’s noncurrent liabilities consisted principally of $8,070,000 of Multifamily Housing Revenue Refunding Bonds that were issued to finance the Valencia Gardens development, deferred revenue on a long term lease of $4,959,165, accrued compensated absences of $1,727,087, and a deposit received for the Shelter Plus Care program of $300,000. The only noncurrent liability that had a significant change in the year ending September 30, 2010 was the other postemployment benefits liability of $2,341,688, which increased $838,287 during the year. ECONOMIC FACTORS It is expected that the factors listed below will affect the financial condition of the Authority for the fiscal year ending September 30, 2011 and beyond: 

During fiscal year ended September 30, 2010, HUD provided 103% funding level for the public housing operating subsidy. HUD indicated a funding level of 95.6% for the fiscal year ending September 30, 2011 and coupled with the reduction of $1.4 million as a result of failing the “Stop Loss” provisions, operating subsidy is expected to decrease by about $2.6 million.



The Authority is a “decliner” agency under the Operating Fund Rule currently being implemented. The Authority did not pass Year 1 and Year 2 of the “Stop Loss” provisions of the rule which resulted in operating subsidy loss of $6 million up to fiscal year ending September 30, 2011. Currently, the Authority submitted its data for Year 3 “Stop Loss” and is awaiting result of HUD’s review. The Authority could experience a more significant reduction in operating subsidy if it continues to fail this provision of the rule.

ECONOMIC FACTORS (continued) 

There isn’t expected to be any significant reduction of funding in the Capital Fund program from fiscal year 2010 to fiscal year 2011; however, we expect to have a 20% reduction in funding level for fiscal year 2012.



The funding for the Section 8 program reduced by 11% in administrative fee and 1% in housing assistance payments subsidy from fiscal year 2010 to fiscal year 2011.



The Authority was awarded an additional $15.3 million grant under the American Recovery and Reinvestment Act of 2009 Competitive Grant program (ARRA). The entire grant of $33.2 million in ARRA funding was used to modernize existing housing stocks during the fiscal years ending September 30, 2010 and 2011.



The Authority terminated its contract with the San Francisco Department of Human Services for the administration of its Shelter Plus Care program effective July 1, 2011. This will result in a loss of administrative fee income of approximately $500,000 per year.

The Housing Authority of the City and County of San Francisco, California BALANCE SHEET September 30, 2010

ASSETS

CURRENT ASSETS Cash and cash equivalents - unrestricted Cash and cash equivalents - restricted Receivables, net Due from HUD Due from other governments Prepaid expenses Accrued interest receivable, net

Total Primary Government $ 1,719,095 13,450,027 2,028,330 7,155,155 1,852,996 80,884 4,539,870

Total Discrete Component Units (December 31, 2009) $ 191,846 2,462,365 1,030,333 93,777 -

30,826,357

3,778,321

87,256,115 28,570,728 76,387,383 1,505

65,262,020 1,706,541

Total current assets NONCURRENT ASSETS Capital assets, net Investment in joint venture Notes, loans and mortgages receivable Other noncurrent assets Total assets

223,042,088

70,746,882

330,000 4,096,452 1,776,765 591,119 653,037 1,201,625 2,424,475 966,635 1,268,768

46,938 442,097 20,920 271,773 51,223

LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current portion of long-term debt Accounts payable Due to HUD Accrued interest payable Accrued salaries and benefits Accrued liabilities Tenant security deposits Deferred revenue - HUD subsidy FSS escrow Other current liabilities Total current liabilities NONCURRENT LIABILITIES Accrued compensated absences Deferred revenue - lease Long-term debt Other noncurrent liabilities Other post-employment benefits ("OPEB") liability Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net assets Total liabilities and net assets

129,896

13,308,876

962,847

1,727,087 4,959,165 8,070,000 300,000 2,341,688

48,492,593 528,635 -

30,706,816

49,984,075

87,256,115 114,338,344 (9,259,187)

16,722,489 2,190,592 1,849,726

192,335,272

20,762,807

223,042,088

The accompanying notes are an integral part of this financial statement. 9

70,746,882

The Housing Authority of the City and County of San Francisco, California STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year ended September 30, 2010

OPERATING REVENUES HUD operating revenues Other government operating grants Tenant revenue, net Other operating revenue

Total operating revenues OPERATING EXPENSES Administrative Tenant services Utilities Maintenance Protective services General Depreciation Housing assistance payments Total operating expenses OPERATING INCOME (LOSS) NONOPERATING REVENUES (EXPENSES) Mortgage interest income, net Interest income - unrestricted Interest income - restricted Interest expense Total nonoperating revenues (expenses) Change in net assets before capital contributions and transfers CAPITAL AND PARTNER CONTRIBUTIONS AND TRANSFERS HUD capital grants Partner contributions Transfers from primary government Transfers to component unit Change in net assets Total net assets - beginning Total net assets - ending

Total Primary Government 173,786,226 10,097,402 15,588,231 1,677,170

Total Discrete Component Units (December 31, 2009) $ 2,611,785 109,196

201,149,029

2,720,981

19,924,181 1,351,425 12,060,208 26,654,007 3,234,150 6,487,147 5,307,915 129,902,320

1,383,867 853,662 2,438,200 291,076 434,166 2,500,546 -

204,921,353

7,901,517

(3,772,324)

(5,180,536)

626,517 252,245 27,611 -

13,163 (1,072,455)

906,373

(1,059,292)

(2,865,951)

(6,239,828)

13,111,115 (2,618,998)

550,000 2,661,437 -

7,626,166

(3,028,391)

184,709,106

23,791,198

192,335,272

The accompanying notes are an integral part of this financial statement. 10

20,762,807

The Housing Authority of the City and County of San Francisco, California STATEMENT OF CASH FLOWS Year ended September 30, 2010 CASH FLOWS FROM OPERATING ACTIVITIES HUD operating grants received Other government grants received Collections from tenants Collections from other sources Payments to employees Payments to suppliers Housing assistance payments

$ 178,053,784 8,395,721 15,520,195 1,512,693 (34,787,471) (36,659,396) (129,930,612)

Net cash provided by operating activities

2,104,914

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES HUD capital grants received Collections of accrued interest Collections on note receivable Payments on long-term debt Transfers to component units Purchase of property and equipment Net cash used in capital and related financing activities

13,111,115 100,000 310,000 (310,000) (2,618,998) (14,795,060) (4,202,943)

CASH FLOWS FROM INVESTING ACTIVITIES Interest received - unrestricted Interest received - restricted

252,247 27,611

Net cash provided by investing activities

279,858

NET DECREASE IN CASH Cash and cash equivalents at beginning of year

(1,818,171) 16,987,293

Cash and cash equivalents at end of year

AS PRESENTED IN THE ACCOMPANYING BALANCE SHEET: Cash and cash equivalents - unrestricted Cash and cash equivalents - restricted

$ 15,169,122

1,719,095 13,450,027

$ 15,169,122

The accompanying notes are an integral part of this financial statement. 11

The Housing Authority of the City and County of San Francisco, California STATEMENT OF CASH FLOWS (continued) Year ended September 30, 2010 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities Depreciation Provision for bad debt, net of recoveries (Increase) decrease in assets: Receivables, net Due from HUD Due from other governments Prepaid expenses Other noncurrent assets Increase (decrease) in liabilities: Accounts payable Due to HUD Accrued salaries and benefits Accrued liabilities Tenant security deposits Deferred revenue FSS escrow Other current liabilities Other post-employment benefits ("OPEB") liability Net cash provided by operating activities

(560,887)

5,307,915 1,815,708 (2,067,580) 990,734 (1,701,681) 51,864 (1,505) (1,415,473) 852,349 (1,568,454) (441) 19,359 2,424,475 (28,292) 359,973 838,287 $

5,316,351

The accompanying notes are an integral part of this financial statement. 12

The Housing Authority of the City and County of San Francisco, California COMBINING BALANCE SHEET FOR DISCRETE COMPONENT UNITS September 30, 2010

ASSETS

CURRENT ASSETS Cash and cash equivalents - unrestricted Cash and cash equivalents - restricted Receivables, net Prepaid expenses

Discrete Component Units - As of December 31, 2009 Bernal Housing Associates, L.P. $ 13,107 497,254 102,587 21,728

Hayes Valley Apartments, L.P. $ 40,532 818,902 260,690 20,279

Hayes Valley Apartments II, L.P. $ 133,922 956,902 377,131 22,481

Plaza East Associates, L.P. $ 4,285 189,307 289,925 29,289

Total Discrete Component Units $ 191,846 2,462,365 1,030,333 93,777

634,676

1,140,403

1,490,436

512,806

3,778,321

23,048,158 33,752

5,683,677 111,550

10,087,864 373,723

26,442,321 1,187,516

65,262,020 1,706,541

Total current assets NONCURRENT ASSETS Capital assets, net Other noncurrent assets Total assets

23,716,586

6,935,630

11,952,023

28,142,643

70,746,882

150,614 58,103 15,468 8,610

20,416 23,216 8,545 63,087 9,102 47,935

26,522 18,556 12,375 82,312 22,637 10,983

249,711 68,271 4,016 62,368

46,938 442,097 20,920 271,773 51,223 129,896

LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current portion of long-term debt Accounts payable Accrued interest payable Tenant security deposits Deferred revenue Other current liabilities Total current liabilities

232,795

172,301

173,385

384,366

962,847

NONCURRENT LIABILITIES Long-term debt Other noncurrent liabilities

20,201,045 -

4,436,206 304,909

7,806,992 21,926

16,048,350 201,800

48,492,593 528,635

Total liabilities

20,433,840

4,913,416

8,002,303

16,634,516

49,984,075

2,847,113 439,151 (3,518)

1,227,055 755,815 39,344

2,254,350 874,590 820,780

10,393,971 121,036 993,120

16,722,489 2,190,592 1,849,726

3,282,746

2,022,214

3,949,720

11,508,127

20,762,807

NET ASSETS Invested in capital assets, net of related debt Restricted net assets Unrestricted net assets Total net assets Total liabilities and net assets

23,716,586

6,935,630

11,952,023

The accompanying notes are an integral part of this financial statement. 13

28,142,643

70,746,882

The Housing Authority of the City and County of San Francisco, California COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR DISCRETE COMPONENT UNITS Year ended September 30, 2010

Discrete Component Units - Year ended December 31, 2009

OPERATING REVENUES Tenant revenue, net Other operating revenue

Bernal Housing Associates, L.P. $ 455,888 6,377

Hayes Valley Apartments, L.P. $ 747,438 25,422

Hayes Valley Apartments II, L.P. $ 963,925 50,798

Plaza East Associates, L.P. $ 444,534 26,599

Total Discrete Component Units $ 2,611,785 109,196

462,265

772,860

1,014,723

471,133

2,720,981

344,978 207,097 856,370 82,311 830,807

268,197 153,017 360,493 83,306 49,219 254,013

339,466 165,646 686,861 90,516 218,101 402,245

431,226 327,902 534,476 117,254 84,535 1,013,481

1,383,867 853,662 2,438,200 291,076 434,166 2,500,546

2,321,563

1,168,245

1,902,835

2,508,874

7,901,517

(1,859,298)

(395,385)

(888,112)

(2,037,741)

(5,180,536)

736 (22,365)

5,852 (300,633)

6,268 (497,093)

307 (252,364)

13,163 (1,072,455)

Total operating revenues OPERATING EXPENSES Administrative Utilities Maintenance Protective services General Depreciation Total operating expenses OPERATING INCOME (LOSS) NONOPERATING REVENUES (EXPENSES) Interest income - unrestricted Interest expense Total nonoperating revenues (expenses) Change in net assets before capital contributions and transfers CAPITAL AND PARTNER CONTRIBUTIONS AND TRANSFERS Partner contributions Transfers from primary government Change in net assets Total net assets - beginning Total net assets - ending

(21,629)

(294,781)

(490,825)

(252,057)

(1,059,292)

(1,880,927)

(690,166)

(1,378,937)

(2,289,798)

(6,239,828)

550,000 944,431

320,382

410,884

985,740

550,000 2,661,437

(386,496)

(369,784)

(968,053)

(1,304,058)

(3,028,391)

3,669,242

2,391,998

4,917,773

12,812,185

23,791,198

3,282,746

2,022,214

The accompanying notes are an integral part of this financial statement. 14

3,949,720

11,508,127

20,762,807

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Reporting entity The Housing Authority of the City and County of San Francisco, California (the “Authority”), is a public body organized in 1938 under the laws of the State of California for the purpose of engaging in the development, acquisition, leasing and administration of low-cost housing for individuals meeting criteria established by the U.S. Department of Housing and Urban Development (“HUD”). The governing body of the Authority is its Board of Commissioners (the “Board”) composed of seven members appointed by the Mayor of the City and County of San Francisco (the “City and County”). The Mayor of the City and County has the authority to appoint the Board, but not to remove them from office. The Authority is not a component unit of the City, as defined in Governmental Accounting Standards Board Statement No. 14, as amended, The Reporting Entity, (“GASB No. 14”) as the Board independently oversees the Authority’s operations. The definition of the reporting entity as defined by GASB No. 14 is based primarily on the notion of financial accountability. A primary government is financially accountable for the organizations that make up its legal entity. It is also financially accountable for legally separate organizations if its officials appoint a voting majority of an organization’s governing body and either it is able to impose its will on that organization or there is a potential for the organization to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. Blended component units Some component units, despite being legally separate from the primary government, are so integrated with the primary government that they are in substance part of the primary government and are therefore blended with the primary government. The Authority’s operations include four blended component units, which are included in the basic financial statements and consist of legally separate entities for which the Authority is financially accountable and that have the same governing board as the Authority. The blended component units are as follows:    

Plaza East Housing Corporation Hayes Valley Housing Corporation Bernal Housing Corporation SFHA Housing Corporation

All of the above component units are related California not-for-profit corporations created as instrumentalities of the Authority for the purpose of providing and developing affordable housing opportunities.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 1. Reporting entity (continued) Discretely presented component units The following component units meet the criteria for discrete presentation in the Authority’s basic financial statements. A separate “Discrete Component Unit” column is presented to clearly distinguish their balances and transactions from those of the primary government.    

Hayes Valley Apartments L.P. (“Hayes Valley I”) Hayes Valley Apartments II L.P. (“Hayes Valley II”) Plaza East Associates, L.P. (“Plaza East”) Bernal Housing Associates, L.P. (“Bernal Housing”)

All of the above component units are for-profit, limited partnerships. These partnerships were established to develop and operate apartment complexes. In total, these properties provide 547 housing units, of which 469 are ACC units, receiving public housing funding through the Authority. Although they do not follow government accounting, for presentation purposes certain transactions may be reflected differently in these financial statements than in separately issued information in order to conform to the presentation of the primary government. Hayes Valley Housing Corporation (“HVHC”), a blended component unit of the Authority, is one of the general partners of Hayes Valley I and Hayes Valley II. The managing general partner for Plaza East is Plaza East Housing Corporation (“PEHC”), a blended component unit of the Authority. The managing general partner for Bernal Housing is Bernal Housing Corporation (“BHC”), a blended component unit of the Authority. The Authority is accountable for HVHC, PEHC and BHC’s underlying financial interest. Separately issued financial statements for the year ended December 31, 2009, for each discretely presented component unit, can be obtained by contacting the Authority at 1815 Egbert Ave., San Francisco, California 94124. 2. Government-wide and fund financial statements The government-wide financial statements report information about the reporting government as a whole excluding fiduciary activities. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Businesstype activities rely to a significant extent on fees and charges for support. Governments use fund accounting, whereby funds are organized into three major categories: governmental, proprietary and fiduciary. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues and expenditures/expenses. For financial reporting purposes, the Authority reports all of its operations as a single business activity in a single enterprise fund. Therefore, the government-wide and the fund financial statements are the same.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. Government-wide and fund financial statements (continued) Enterprise funds are proprietary funds. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating activity generally arises from providing services in connection with a proprietary fund’s principal activity. The operating revenues of the Authority consist primarily of rental charges to tenants and operating grants from the Department of Housing and Urban Development (“HUD”), and include, to a lesser extent, certain operating amounts of capital grants that offset operating expenses. Operating expenses for the Authority include the cost of administrative, maintenance, tenant services, general, utilities, protective services, depreciation and housing assistance payments. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses, except for capital contributions and transfers, which are presented separately. When restricted resources meet the criteria to be available for use and unrestricted resources are also available for use, it is the Authority’s policy to use restricted resources first, and then unrestricted resources, as needed. 3. Measurement focus and basis of accounting Measurement focus is a term used to describe which transactions are recorded within the various financial statements. The proprietary fund utilizes an economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net assets. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. The basis of accounting used is similar to businesses in the private sector; thus, these funds are maintained on the accrual basis of accounting. Revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. For financial reporting purposes, the Authority considers its HUD grants associated with operations as operating revenue because these funds more closely represent revenues generated from operating activities rather than nonoperating activities. HUD grants associated with capital acquisition and improvements are considered capital contributions and are presented after nonoperating activity on the accompanying statement of revenues, expenses and changes in net assets.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. Summary of programs The accompanying basic financial statements include the activities of several housing programs subsidized by HUD and other federal entities at the Authority. A summary of each significant program is provided below. Low Rent Housing Programs The Low Rent Public Housing Programs include the following: asset management projects (“AMPs”), which collect operating subsidy, Public Housing Capital Fund, Capital Fund Recovery Grants, Hope VI, and various other related HUD grants including the Community Development Block Grant. The purpose of the public housing program is to provide decent and affordable housing to low-income families at reduced rents. The developments are owned, maintained and managed by the Authority. The developments/units are acquired, developed and modernized under HUD’s Development, Hope VI and Capital Fund programs. Funding of the program’s operations and development is provided by annual federal contributions or appropriations, operating subsidies and tenant rentals (determined as a percentage of family income, adjusted for family composition and other allowances). Central Office Cost Center The Central Office Cost Center (“COCC”) is a business unit within the Authority that generates revenue through fee for service from other Authority programs and activities. Housing Assistance Payments (“HAP”) Programs HAP Programs utilize existing privately owned family rental housing units to provide decent and affordable housing to low-income families. HAP programs include Moderate Rehabilitation, Veterans Affairs Supportive Housing (“VASH”), Disaster Voucher, and the Housing Choice Voucher (“Voucher”) programs. The Moderate Rehabilitation program allows for the rehabilitation of housing units, which then must be rented to low-income individuals for a contracted period of time. The program provides owners with sufficient rental income to pay for rehabilitation costs. Developers must obtain their own financing and HUD subsidizes rents once the units are occupied. The Disaster Voucher program provides temporary rental assistance to certain HUD-assisted families and special needs/homeless families displaced as a result of Hurricanes Katrina and Rita. Funding for the Housing Choice Voucher program is provided by federal housing assistance contributions from HUD for the difference between the approved landlord contract rent and the rent paid by the tenant. In addition, the Authority receives an administrative fee to cover operating expenses. The Housing Opportunities for Persons with AIDS (“HOPWA”) program is funded through federal pass through assistance contributions through the City and County. 18

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. Summary of programs (continued) Local Programs Other Federal programs through which the Authority received funding passed through from HUD and other Federal entities during the current year include: the Shelter Plus Care (“SPC”) program, which provides rental assistance for hard-to-serve homeless persons with disabilities in connection with supportive services funded outside the program; HOPE SF, which is a grant the Authority entered into with the City and County of San Francisco to rebuild select housing sites, increase affordable housing and ownership opportunities; Mayor’s Office of Community Development (“MOCD”) and Mayor’s Office of Housing (“MOH”) Programs, which are grants the Authority entered into with the City and County as the recipient of CDBG from HUD to improve the housing stock and finance specific capital improvements; and Special Purpose Grant/Technical Assistance, which is a program that provides assistance to transfer skills and knowledge in planning, developing and administering the Community Development Block Grant (“CDBG”) programs to modernize and revitalize public housing projects. 5. Assets, liabilities and net assets a) Cash and cash equivalents For purposes of the statement of cash flows, the Authority considers all unrestricted highly liquid investments with an initial maturity of three months or less to be cash equivalents. b) Receivables, net and accrued interest receivable, net Receivables consist of revenues earned during the fiscal year and not yet received. Amounts due from HUD and other governments represent reimbursable expenses or grant subsidies earned that have not been collected as of September 30, 2010; these amounts are considered fully collectible. As of September 30, 2010, there are allowances for uncollectible amounts for tenant, fraud and interest receivable in the amounts of $2,523,477, $164,935 and $4,639,866, respectively. Allowances for tenant and fraud receivables are determined by management based on the specific accounts and prior experience. The allowance for interest receivable has been determined by management to be 50% of the total receivable amount.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Assets, liabilities and net assets (continued) c) Capital assets, net The Authority’s policy is to capitalize assets with a value in excess of $5,000 and a useful life in excess of one year. The Authority capitalizes the costs of site acquisition and improvement, structures, equipment and direct development costs meeting the capitalization policy. Assets are valued at historical cost, or estimated historical cost if actual historical cost is not available, and contributed assets are valued at fair market value on the date contributed. Depreciation has been provided using the straight-line method over the estimated useful lives, which range as follows:

Buildings Building improvements Furniture and equipment

40 years 15-20 years 3-7 years

d) Accrued compensated absences Employees earn vacation at rates ranging from 10 days per year for the first 5 years of service up to a maximum of 27.5 days per year after 19 years of service. There is no requirement that vacation be taken in the year earned; however, there is a 50-day limit on the number of days an employee may accrue. Sick leave for employees is earned at rates ranging from 13 days per year for the first 9 years of service to 15 days per year for 10 or more years of service. Employees may accrue sick leave to a maximum of 130 days. In addition, the Authority must carry as a liability the payroll taxes due until the leave times are used or cashed out. Upon separation from service, employees are paid for any earned vacation days and eligible employees hired prior to September 30, 1984, are paid for any earned sick leave. In accordance with the provisions of GASB Statement No. 16, Accounting for Compensated Absences, the estimated liability for vested leave benefits is recorded when it is earned as an expense and the cumulative unpaid amount is reported as a liability.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Assets, liabilities and net assets (continued) e) Deferred revenue Deferred revenue consists of $2,424,475 of October 2010 HUD operating subsidy that was received in September 2010 and $4,959,165 of a prepayment received on a long-term ground lease for land adjacent to a public housing property. f)

Eliminations i)

Interprogram due to/from

In the normal course of operations, certain programs may pay for common costs or advance funds for operational shortfalls that create interprogram receivables or payables. The interprogram receivables and payables net to zero and are eliminated for the presentation of the Authority as a whole. For the year ended September 30, 2010, offsetting amounts of $13,262,592 were eliminated. ii)

Fee for service

The Authority’s COCC internally charges fees to the AMPs of the Authority. These charges include management fees, bookkeeping fees, and asset management fees. For financial reporting purposes $14,299,510 of fee for service charges have been eliminated for the year ended September 30, 2010. iii)

Internal rent charges

The Authority internally charges rent to programs within the Authority. For financial reporting purposes $256,200 of internal rent charges have been eliminated for the year ended September 30, 2010.

Net assets In accordance with GASB No. 34, total equity as of September 30, 2010, is classified into three components of net assets: i)

Invested in capital assets, net of related debt

This category consists of capital assets (including restricted capital assets), net of accumulated depreciation and reduced by any outstanding balances of bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, and improvements of those assets. ii)

Restricted net assets

This category consists of net assets restricted in their use by (1) external groups such as grantors, creditors or laws and regulations of other governments; or (2) law through constitutional provisions or enabling legislation. The balance sheet of the Authority reports $114,338,344 of restricted net assets which consists of the following: $72,527,253 of mortgage notes and interest receivable restricted by HUD guidelines, $28,570,728 of Hope VI funds spent in excess of amounts loaned (see Note B-4), $2,955,241 of escrow reserves, and $10,285,122 of unspent housing assistance payments in the Housing Choice Voucher and VASH programs (see Note B-10-c). iii)

Unrestricted net assets

This category includes all of the remaining net assets that do not meet the definition of the other two categories. 6. Tenant revenue and interest income As provided by GASB Statement No. 34 and related guidance, tenant revenue and interest income is presented in the financial statements net of the bad debt expense for uncollectible amounts of $1,815,708 and $626,516, respectively. 7. Application of FASB standards GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, offers the option of following all Financial Accounting Standards Board (“FASB”) standards issued after November 30, 1989, unless the latter conflicts with or contradicts GASB pronouncements, or not following FASB standards issued after such date. The Authority has elected the option to follow FASB pronouncements issued after November 30, 1989, except for those that conflict with or contradict GASB pronouncements.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 8. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 9. Budgets Budgets are prepared on an annual basis for each major program and are used as a management tool throughout the accounting cycle. Budgets are not, however, legally adopted nor required in the basic financial statement presentation. 10. Income taxes Organizations that followed the provisions of FSP FIN 48-3, which delayed the implementation of FIN 48 (FASB ASC 740-10-65), Accounting for Uncertainty for Income Taxes, were required to implement those provisions for the fiscal year ended 2010. The Authority qualifies as a tax-exempt governmental entity and, accordingly, no provision for Federal or State income tax is required. In addition, the blended and discrete component units had no tax liability due as of and for the year ended December 31, 2009. 11. Leasing activities The Authority is the lessor of dwelling units to low-income and market rate residents. The low-income rents under the leases are determined generally by the resident’s income as adjusted for eligible deductions regulated by HUD, although the resident may opt for a flat rent. Leases may be cancelled by the lessee at any time or renewed every year. The Authority may cancel the leases only for cause. A significant majority of the capital assets are used in these leasing activities. Revenues associated with these leases are recorded in the accompanying financial statements and related schedules within tenant revenue.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Hope VI leasing activities a. North Beach Housing Associates (North Beach) The Authority leased the land for 75 years on which the North Beach property is built, located in San Francisco, California, for an annual rent amount of $800,000 beginning January 1, 2005 (see Note B-14). The rent is payable in arrears starting on July 1, 2006 and on July 1 of each succeeding year until the termination of the lease, to the extent of 70% of residual receipts from the preceding year. Additional base rent is also payable to the extent of cash flow generated by North Beach in excess of $114,500 in a particular year to be increased by 3% annually. For the year ended September 30, 2010, the Authority received the ground lease rent of $226,944. b. Valencia Gardens Housing Limited Partnership (Valencia Gardens) The Authority leased the land for 65 years on which the Valencia Gardens complex is built, located in San Francisco, California, for an annual rent amount of $200,000 (see Note B-14). The rent is payable in arrears starting on July 1, 2006 and on July 1 of each succeeding year until the termination of the lease to the extent of 33% of residual receipts from the preceding year. Additional base rent is also payable of the lesser of $100,000 from residual receipts or such amounts as may be permissible under Multifamily Housing Program regulations. Any unpaid base rent shall not accrue. For the year ended September 30, 2010, the Authority did not receive any amounts for the ground lease rent. NOTE B - DETAILED NOTES 1. Deposits As of September 30, 2010, the Authority’s cash and cash equivalents consist of demand deposits of $15,169,122, which includes an overnight repurchase agreement of $9,998,598. In accordance with GASB No. 40, the Authority’s exposure to deposit and investment risk is disclosed as follows: Interest Rate Risk. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Authority’s policy is to manage its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio. As of September 30, 2010, the Authority had no investments, and therefore was not exposed to interest rate risk. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. It is the Authority’s policy to follow the HUD regulations by only having direct investments and investments through mutual funds to direct obligations, guaranteed obligations, or obligations of the agencies of the United States of America. As of September 30, 2010, the Authority mitigated their exposure to credit risk by following HUD regulations. 24

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 1. Deposits (continued) Custodial Credit Risk. Custodial credit risk is the risk that in the event of a bank failure, the Authority’s deposits or investments may not be returned. The Authority does have a deposit and investment policy for custodial credit risk, which requires collateral to be held in the Authority’s name by its agent or by the bank’s trust department. The California Government Code requires California banks to secure deposits of public institutions not covered by federal deposit insurance by pledging government securities as collateral. The market value of pledged securities must equal 110% of the deposits. The collateral must be held at the pledged bank’s trust department or other bank, acting as the pledging bank’s agent. Of the deposits in financial institutions, $250,000 was insured by the Federal Depository Insurance Corporation. The remaining amounts were fully collateralized by the financial institution with governmental securities held either by the financial institution’s trust department or other banks acting as the financial institution’s agent, but were not in the Authority’s name. Restricted Cash As of September 30, 2010, restricted cash consists of:

Voucher HAP reserves Tenant security deposits Section 8 FSS escrow Escrow reserves

8,326,526 1,201,625 966,635 2,955,241

13,450,027

2. Receivables, net As of September 30, 2010, receivables, net as presented in the accompanying balance sheet consist of:

Tenant accounts receivable Fraud recovery Non-dwelling rent receivable Insurance claim receivable Other miscellaneous receivables

3,710,967 330,639 278,761 137,743 258,632 4,716,742

Allowance for doubtful accounts - tenants Allowance for doubtful accounts - fraud

(2,523,477) (164,935) $

2,028,330

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 3. Notes receivable and accrued interest receivable, net The Authority has entered into six limited partnerships under its Hope VI program for the purpose of developing low-income and mixed income housing financed by HUD and private tax credit investors. As part of the project financing structure, the six limited partnerships received HUD Hope VI funds through the Authority or its component unit housing corporations, and issued seven promissory notes payable to the Authority in return for longterm leases on the Authority’s low income land sites. The following is a summary of those transactions. Balance at October 1, 2009 Notes receivable: Hayes Valley I Hayes Valley II Bernal Housing Plaza East North Beach Valencia Gardens Total notes receivable

Reductions

Current Portion

1,600,000 3,250,000 20,107,760 13,464,813 13,848,535 24,426,275

(310,000)

1,600,000 3,250,000 20,107,760 13,464,813 13,848,535 24,116,275

$ 76,697,383

$(310,000)

$ 76,387,383

1,231,449 2,215,928 186,087 2,012,895 2,380,342 8,026,701 (4,013,348)

201,398 349,003 20,298 266,889 415,445 1,253,033 (626,516)

(100,000) (100,000) -

1,432,847 2,564,931 106,385 2,279,784 2,795,787 9,179,734 (4,639,864)

4,013,353

$ 626,517

$(100,000)

Accrued interest receivable: Hayes Valley I Hayes Valley II Bernal Housing Plaza East North Beach Valencia Gardens Subtotal Less allowance Total accrued interest

Additions

Balance at September 30, 2010

4,539,870

1,432,847 2,564,931 106,385 2,279,784 2,795,787 9,179,734 (4,639,864) $

4,539,870

Hayes Valley I The Authority issued a 57-year $1,600,000 promissory note, also referred to as the second mortgage loan, dated November 25, 1996, and maturing on November 24, 2053 to Hayes Valley. Based on the note’s simple interest rate of 12% per annum through December 31, 1997 and compound interest rate of 7.02% per annum thereafter, the Authority has accrued interest of $1,432,847 as of September 30, 2010. The principal and accrued interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. 26

Hayes Valley II The Authority issued a 57-year, $3,250,000 promissory note, also referred to as the second mortgage loan, dated December 1, 1997 and maturing on December 1, 2054 to Hayes Valley II. Based on the note’s simple interest rate of 12% per annum through December 31, 1998 and compound interest rate of 6.31% per annum thereafter, the Authority has accrued interest of $2,564,931 as of September 30, 2010. The principal and interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010.

Bernal Housing The Authority issued a 55-year, $2,465,501 promissory note, also referred to as the predevelopment loan, dated November 23, 1999 and maturing on November 22, 2054 to Bernal Housing Associates (“Bernal”). Due to a partial early repayment of $2,380,861 on the loan and an adjustment increase of $250,000, the principal balance was reduced to $334,640. Based on the note’s compound interest rate of 0.1% per annum, the Authority has calculated a cumulative accrued interest amount of $14,002 as of September 30, 2010. The principal and accrued interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. The Authority issued a 55-year, $4,287,500 promissory note, also referred to as the construction/permanent loan, dated November 23, 1999 and maturing on November 22, 2054 to Bernal. Based on the note’s compound interest rate of 0.1% per annum, the Authority has accrued interest of $39,081 as of September 30, 2010. The principal and accrued interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. The Authority issued a 55-year, $15,500,000 promissory note, also referred to as the permanent loan, dated November 23, 1999 and maturing on November 22, 2054 to Bernal. Based on the note’s compound interest rate of 0.1% per annum, the Authority has accrued interest of $53,304 as of September 30, 2010. The principal and accrued interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. During the fiscal year ended September 30, 2010, Bernal paid $100,000 in accrued interest. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. 27

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 3. Notes receivable and accrued interest receivable, net (continued) d. Plaza East Plaza East Housing Corporation, a blended component unit, issued a 65-year, $2,700,000 Applicable Federal Rate (“AFR”) promissory note dated September 18, 2000 and maturing on September 17, 2065 to Plaza East Associates, L.P. (“Plaza East”). Based on the note’s simple interest rate of 10% per annum through December 31, 2001 and compound interest rate of 6.09% per annum thereafter, the Authority has accrued interest of $1,899,553 as of September 30, 2010. The principal and interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. The Authority, through SFHA Housing Corporation, a blended component unit, issued a 65-year, $10,764,813 promissory note dated September 18, 2000 and maturing on September 17, 2065 to Plaza East. Based on the note’s simple interest rate of 10% per annum through December 31, 2001 and no interest payable thereafter, the Authority has accrued interest of $380,230, as of September 30, 2010. The principal and interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. e. North Beach The Authority issued a 55-year, $13,848,535 promissory note dated December 1, 2002 and maturing on November 30, 2057 to North Beach Development Associates, LLC (“North Beach”). This note was an amendment of the residential promissory note for $4,911,097 and the commercial loan of $313,001, both dated November 28, 2001 to finance the development of the North Beach affordable rental property pursuant to the Hope VI construction/permanent loan agreement. Based on the note’s simple interest rate of 3% per annum, the Authority has calculated a cumulative accrued interest amount of $2,795,787 as of September 30, 2010. The principal and accrued interest is payable only from net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. The Authority has established an allowance for uncollectible interest representing 50% of accrued interest at September 30, 2010. f.

Valencia Gardens The Authority established a partnering agreement with Mission Housing Development Corporation (“MHDC”), a California non-profit public benefit corporation, which gives MHDC the exclusive right to develop and revitalize the Valencia Gardens development funded by the Hope VI grant agreement between the Authority and HUD. The Authority issued a 55-year, $15,716,275 permanent loan to finance the construction and development of the Valencia Gardens development, dated September 1, 2004 and maturing on August 31, 2059. 28

Valencia Gardens (continued) This permanent loan does not provide for the payment of interest, however, if a default occurs, interest at 10% on the principal balance shall accrue. The principal and accrued interest, if any, is payable only from the net available project cash flow, net project proceeds or project condemnation proceeds, as defined in the promissory note. In addition, the Authority has a note receivable of $8,400,000 from Valencia Gardens for repayment of the Multifamily Housing Revenue Bonds that were loaned. The interest and payment terms are identical to those of the bonds issued (see Note B-6-a).

4. Investment in joint venture The HUD grant funds advanced to the entities noted in Note B-3 in excess of promissory notes is recorded as investment in joint ventures of $14,258,463, $5,023,159, $1,665,626, $4,529,460, and $3,094,020 for Hayes Valley, Bernal, Plaza East, North Beach and Valencia Gardens, respectively, totaling $28,570,728 as of September 30, 2010. 5. Capital assets, net A summary of changes in capital assets is as follows: Balance at October 1, 2009 Non-depreciable: Land Construction in progress

$ 11,678,889 2,043,677

Transfers in/ Additions

Transfers out/ Deletions

638,145

Balance at September 30, 2010

$ 11,678,889 2,681,822

Total non-depreciable Depreciated: Buildings and improvements Furniture and equipment Total depreciated

13,722,566

638,145

14,360,711

134,465,133 7,655,185 142,120,318

13,747,683 409,232 14,156,915

148,212,816 8,064,417 156,277,233

Total capital assets

155,842,884

14,795,060

170,637,944

Accumulated depreciation: Buildings and improvements Furniture and equipment Less accumulated depreciation

(71,405,565) (6,668,349) (78,073,914)

(4,938,926) (368,989) (5,307,915)

(76,344,491) (7,037,338) (83,381,829)

$ 87,256,115

Capital assets, net

$ 77,768,970

9,487,145

Bonds payable Accrued compensated absences OPEB liability Deferred revenue - lease Due to government entities Total

Balance at October 1, 2009 $ 8,710,000

Additions $

Balance at September 30, 2010 Reductions $ (310,000) $ 8,400,000

Current Portion $ 330,000

1,891,649 1,503,401 4,959,165 300,000

1,002,920 838,287 -

(993,849) -

1,900,720 2,341,688 4,959,165 300,000

173,633 -

$ 17,364,215

$ 1,841,207

$ (1,303,849)

$ 17,901,573

$ 503,633

a. Multifamily Housing Revenue Bonds (Valencia Gardens) On October 1, 2004, the Authority issued Multifamily Housing Revenue Bonds, Series 2004 (“Permanent Bonds”) in the principal amount of $40,000,000 to provide permanent financing for the Valencia Gardens Development. The Permanent Bonds shall mature on September 1, 2049 and are secured by a deed of trust on the property. Proceeds from the sale of the Permanent Bonds were not received by the Authority, but were deposited with a trustee in accordance with a loan agreement (dated October 1, 2004) between the Authority and Valencia Gardens Housing, L.P. The loan agreement stipulates that Valencia Gardens Housing, L.P. agrees to repay on behalf of the Authority, the loan in the amounts and at times necessary to enable the trustee, on behalf of the Authority, to pay when due all principal, interest and premium, if any, payable with respect to the Permanent Bonds whether at maturity or by redemption or acceleration or otherwise. The loan agreement shall be in full force and effect from the date of execution, and shall continue in effect as long as any of the Permanent Bonds are outstanding. The interest rate on the Permanent Bonds is determined periodically by a Remarketing Agent. As of September 30, 2010, the Permanent Bonds has a balance of $8,400,000.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 6. Noncurrent liabilities (continued) a. Multifamily Housing Revenue Bonds (Valencia Gardens) (continued) The future principal maturities for the bonds payable at September 30 are as follows: Year 2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2037

Principal 330,000 350,000 370,000 360,000 415,000 2,490,000 1,535,000 840,000 1,180,000 530,000 8,400,000

7. Pension plan Plan description: Union member employees of the Authority are eligible for pension benefits in accordance with their respective union contracts. The Authority is required to fund the union pension plans through union dues which call for contributions ranging from $4.85 to $18.03 per work hour. Total union pension costs were $2,041,817 for the year ended September 30, 2010. Beginning March 1, 1961, all non-union employees of the Authority are required to participate in the California State Public Employees Retirement System (“PERS”) Plan, an agent multi-employer defined benefit pension plan that acts as a common investment and administrative agent for participating public entities within the state of California. Benefit provisions and all other requirements are established by State statutes within the Public Employee’s Retirement Law. Copies of the PERS annual financial report may be obtained from their executive office: 400 P Street, Sacramento, California 95814. Eligibility: Authority employees who retire at or after age 50 with five years of service are entitled to an annual retirement benefit payable monthly for life. This monthly benefit is based on years of service, average salary during the last twelve consecutive months of work or another consecutive 12-month period, if higher, and age at retirement. Vesting occurs after five years of service. PERS also provides death and disability benefits.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 7. Pension plan (continued) Funding Policy: Participants are required to contribute 7% of their annual covered salary. The Authority makes the contribution required of their employees on their behalf. The Authority is required to contribute at an actuarially determined rate that is necessary to fund the benefit for its members. The Authority’s required contribution rate for the year ended September 30, 2010 based on the PERS actuarial determination was 9.97% and the amount was $1,511,204. The contribution requirements are established and may be amended by the PERS Board of Administration. Effective March 1, 2002, under a Memorandum of Understanding (“MOU”) between the Authority and the San Francisco Municipal Employee’s Association (“MEA”), the Authority contributes the entire 7% participant’s contribution of certain covered MEA employees. Effective September 30, 2005, under another MOU between the Authority and the Service Employees International Union Local 1021 (“SEIU Local 1021”), the Authority contributes the entire 7% participant’s contribution of all covered SEIU Local 1021 employees. The total of the 7% participant’s contributions for employees covered by the MEA and the SEIU Local 1021 MOUs that was paid by the Authority amounted to $812,737 for the year ended September 30, 2010. Annual pension costs: For the fiscal year ended September 30, 2010, the Authority’s annual pension costs of $1,378,253 for PERS were equal to the Authorities required contributions. The Authority made payments to PERS totaling $2,344,148, which included contributions made to PERS by the Authority on behalf of its employees of $812,737 and amounts contributed by employees of $153,156. The Authority’s annual pension cost for PERS was equal to the Authority’s required and actual contributions which were determined as part of the June 30, 2007, June 30, 2008 and June 30, 2009 actuarial valuations using the entry age normal cost method. Three-year trend information is as follows:

Fiscal Year Annual Pension Ended Cost (APC) 9/30/2008 $ 1,553,257 9/30/2009 $ 1,498,536 9/30/2010 $ 1,378,253

Percentage of APC contributed 100% 100% 100%

Net Pension Obligation $ $ $ -

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 7. Pension plan (continued) Funded Status and Funding Progress: The schedule below shows the balance of the actuarial accrued liability attributable to the Authority, and the unfunded amount as of September 30, 2010:

Actuarial Valuation Date 6/30/2007 6/30/2008 6/30/2009

Actuarial Value of Assets (a) $ 84,422,007 $ 89,076,261 $ 91,597,742

Accrued Liability (b) $ 87,184,213 $ 92,061,114 $ 97,692,648

Unfunded Liability (UL) (b-a) $ 2,762,206 $ 2,984,853 $ 6,094,906

Funded Ratio (a/b) 97% 97% 94%

Annual Covered Payroll ( c) $ 13,340,021 $ 13,770,160 $ 13,768,652

UL as % of Covered Payroll ([b-a]/c) 21% 22% 44%

Actuarial Methods and Assumptions: Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the pension and the annual required contributions by the Authority are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The required schedule of funding progress presented as required supplementary information provides multi-year trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The following summarizes other significant methods and assumptions used in valuing the AAL and benefits under the plan.

Actuarial valuation date Amortization method Remaining amortization period Asset valuation method Actuarial assumptions: Rate of return Projected salary increases Inflation Payroll growth Individual salary growth rate

6/30/09 Level percent of payroll 24 years as of valuation date 15 year smoothed market 7.75% 3.55% to 14.45% dependent on age, service and type of employment 3% 3.25% A merit scale varying by duration of employment coupled with an assumed inflation growth rate of 3% and an annual production growth of 0.25%

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 8. Other postemployment benefits other than pension Plan Description: The Authority participates in an agent multiple-employer defined benefit healthcare plan (the “Plan”) that provides postretirement coverage for the lifetime of the retiree with continuation to eligible surviving spouses whose benefits continue under PERS. Benefits are provided through the PERS Public Employees’ Health Care Fund, which covers both active and retired members. Benefits and contributions are established by the Memorandums of Understanding (the “Agreements”) between the Authority and the San Francisco Municipal Executives’ Association and the SEIU Local 1021 and may only be amended by an approved change to the Agreements. Contributions are subject to minimum contribution levels established by the Plan. The Plan is included in a comprehensive annual financial report that includes financial statements and other required supplemental information. The report may be obtained by contacting the Plan administrator. Eligibility: To be eligible to receive retiree medical benefits, participants must be 50 years of age and have 5 years of covered PERS service or by qualifying for disability retirement status. Funding Policy: The Authority contributes to the Plan 80% of the negotiated medical premiums per the Agreement. For fiscal year 2010, the Authority contributed $605,313 to the plan. The postretirement medical benefits are currently funded on a pay-as-you-go basis. No assets have been segregated and restricted to provide postretirement benefits. Annual OPEB Cost and Net OPEB Obligation: The Authority’s annual other postemployment benefit (“OPEB”) cost (expense) is calculated on the annual required contribution of the employer (“ARC”), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The Authority’s annual OPEB cost for the fiscal year 2010 and the related information for each plan are as follows (dollar amounts in thousands):

Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution

$ 1,461,571 75,170 (93,141)

Annual OPEB cost Contributions made

1,443,600 605,313

Increase in net OPEB obligation Net OPEB obligation - beginning of year

838,287 1,503,401

Net OPEB obligation - end of year 34

$ 2,341,688

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 8. Other postemployment benefits other than pension (continued) The Authority’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for fiscal years 2008, 2009 and 2010 were as follows:

Fiscal Year Ended

Annual OPEB Cost

Percentage of Annual OPEB Cost Contributed

9/30/2008 9/30/2009 9/30/2010

$ 1,280,391 $ 1,271,170 $ 1,443,600

39.8% 42.4% 41.9%

Net OPEB Obligation $ 771,391 $ 1,503,401 $ 2,341,688

Funded Status and Funding Progress: The schedule below shows the balance of the actuarial accrued liability (“AAL”) attributable to the Authority, all of which was unfunded as of September 30, 2010:

Actuarial Valuation Date

Actuarial Value of Assets (a)

Actuarial Accrued Liability (AAL) (b)

Unfunded AAL (UAAL) (b-a)

Funded Ratio (a/b)

Estimated Covered Payroll ( c)

UAAL as % of Covered Payroll ([b-a]/c)

6/30/2008 9/30/2010

$ $

$ 12,022,086 $ 14,182,116

0% 0%

$ 21,987,515 $ 22,251,205

55% 64%

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the plan and the annual required contributions by the Authority are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The required schedule of funding progress presented as required supplementary information provides multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Actuarial Methods and Assumptions: Projections of benefits are based on the substantive plan (the “Plan” as understood by the employer and plan members) and include the types of benefits in force at the valuation date and the pattern of sharing benefit costs between the Authority and the plan members to that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 8. Other postemployment benefits other than pension (continued) The actuarial cost method used in the valuation to determine the Actuarial Accrued Liability (AAL) and the Actuarial Required Contribution (ARC) was the Projected Unit Credit Method with service prorated. Under this method, the total present value of benefits is determined by projecting the benefit to be paid after the expected retirement date (or other event) and discounting those amounts to the valuation date. The normal cost is computed by dividing the total present value of benefits by the participant’s total service (actual plus expected service) at retirement. The AAL under this method represents the total present value of benefits multiplied by the ratio of the participant’s actual service to date and divided by expected service at retirement. The AAL for participants currently receiving payments and deferred vested participants is calculated as the actuarial present value of future benefits expected to be paid. No normal cost for these participants is payable. The AAL and normal cost were calculated at the measurement date, which is the beginning of the applicable fiscal year using standard actuarial techniques. The following summarizes other significant methods and assumptions used in valuing the AAL and benefits under the plan.

Actuarial valuation date Amortization method Remaining amortization period

9/30/10 30 year level dollar, open period 28 years

Actuarial assumptions: Discount rate Return on Assets Health care cost trend period Health care cost trend rates Mortality table

5% 5% Grades down over four years 8% initial to 5% ultimate 1994 Group Annuity Mortality Tables

Further, the valuation assumes that the Authority will continue to fund the liability on a pay-as-you-go basis and that the Authority’s policy is that its per-capita contribution for retiree benefits will remain at the 2010 level. As a result, the retiree contributions will be increased to the extent necessary so that they are sufficient to provide for the difference between the gross costs and the fixed Authority contributions.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 9. Risk management The Authority is exposed to various risks of loss related to torts; theft of, damages to, and destruction of assets; errors and omissions; injuries to employees, and natural disasters. As part of the Authority’s risk management program, certain commercial insurance policies are purchased, and the Authority participates in an insurance pool and a risk retention group for property insurance and workers compensation. The insurance pool and risk retention group are reinsured through other reinsurance companies and are not retrospectively rated and do not pass on risk of loss to participants. The Bay Area Housing Authority Risk Management Agency (BAHARMA) was formed under a joint powers agreement between the Housing Authority of the City and County of San Francisco, California and Oakland Housing Authority. BAHARMA provides no pooling or sharing of risk between its two members. Its purpose is to provide administrative and risk management services to the participating housing authorities for their worker’s compensation self-insurance funds. BAHARMA maintains excess insurance coverage for claims over $500,000 up to $5,000,000 per occurrence to reduce its members’ exposure to large losses in its workers’ compensation program. Claims are paid from the retained earnings of BAHARMA and from contributions remitted from the Authority and the Oakland Housing Authority. The Authority’s and Oakland Housing Authority’s allocated share of the BAHARMA assets and liabilities at September 30, 2010 was 49.5% and 50.5%, respectively. 10. Commitments and contingencies a. Legal In the normal course of operations, the Authority is party to various pending or threatened legal actions. As of the date of this report, the Authority expects all instances to be fully covered by insurance. b. Grants and contracts The Authority participates in various federally and locally-assisted grant programs that are subject to review and audit by the grantor agencies. Entitlements to these resources are generally conditional upon compliance with the terms and conditions of grant agreements and applicable federal and other regulations, including the expenditure of resources for allowable purposes. Any disallowance resulting from a review or audit may become a liability of the Authority; however, as of the date of this report, no such liabilities are reflected in the accompanying basic financial statements.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 10. Commitments and contingencies (continued) c. Housing assistance payment reserves The Authority is no longer required to complete a settlement statement, HUD Form 52681, for the Voucher program. As a result, in accordance with GASB Statement No. 33 and PIH Notice 2008-9, the amount of current year program subsidy received in excess of associated qualifying expenses is presented as net program income or loss with the cumulative excess funding being reflected in restricted net assets in the basic financial statements. As of September 30, 2010, unspent cumulative excess funding of $8,326,526 for Voucher and $1,958,596 for the VASH program are subject to possible future recapture. d. Payment in lieu of taxes (“PILOT”) A cooperative agreement between the City and County and the Authority dated January 21, 1965 exempts all public housing developments of the Authority from all real and personal property taxes and special assessments collected by the local tax collector. During the period of this exemption, the Authority agrees to make alternate payments to the City and County. Such payments are referred to as payments in lieu of taxes (“PILOT”). As specified in the agreements, the Authority’s PILOT equals total rent charged less utilities multipliled by 10%. In order to ease the financial burden on the Authority, the Board of Supervisors waived the PILOT obligation during the fiscal years 1982 through 1990. The Authority, through the Office of the Mayor, requested that the Board of Supervisors waive its PILOT obligations related to the fiscal years 1991-1996. These requests have been forwarded to the Board of Supervisors for approval. The Board of Supervisors has not yet acted on the PILOT waiver request for the fiscal years 1991 through 1996. The Authority has not communicated with the City and County about waiving the payment of PILOT for the fiscal years 1997 through 2010. It is uncertain whether the Authority will be required to pay the PILOT. However, to date, the Authority has not received any subsequent invoices for payment from the Office of the Controller for the City and County of San Francisco. Should payment be required, the obligation to the City and County would be $10,627,335 for the fiscal years 1991 through 2010. The management of the Authority believes the waivers will be approved and PILOT for the fiscal year will not be required by the City and County. Furthermore, the Authority has been making payments to the City and County of San Francisco that management considers a tax or assessment for police services that would offset this contingent liability. Accordingly, no provision for PILOT has been made in the accompanying financial statements.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 10. Commitments and contingencies (continued) e. Funds awarded The Authority receives funding from HUD through Hope VI, Capital Fund Recovery Grants and the Public Housing Capital Fund Program to help subsidize the cost of redevelopment of projects, project repairs, improvements, component unit developments, and certain operating costs. Remaining unspent awards as of September 30, 2010, are as follows: Public Housing Capital Fund Program Capital Fund Stimulus Formula Recovery Act Funded Grant Capital Fund Stimulus Competitive Recovery Act Funded Grant

18,365,207 6,797,658 15,169,647

Total remaining unspent awards

40,332,512

As of September 30, 2010, all Hope VI funds were spent. 11. Concentrations For the year ended September 30, 2010, approximately 86% of revenues and 46% of receivables reflected in the basic financial statements are from HUD. The Authority operates in a heavily regulated environment. The operations of the Authority are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to HUD. Such administrative directives, rules and regulations are subject to change by an act of congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related costs and the additional administrative burden to comply with the changes. 12. Financial data schedule As required by HUD, the Authority prepares its financial data schedule in accordance with HUD requirements in a prescribed format. The schedule’s format excludes depreciation expense, housing assistance payments and extraordinary maintenance expense from operating activities, includes investment revenue, HUD capital grants revenue, gains and losses on the disposal of fixed assets and interest expense in operating activities, differs in classifications of current and noncurrent assets, and reflects tenant and interest revenue separate from bad debt expense, which differs from the presentation of the basic financial statements.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE B - DETAILED NOTES (continued) 13. Subsequent events a. On December 22, 2010, the Authority entered into a $29.7 million, 2-year service agreement with Ameresco, a leading provider of energy efficiency solutions, to implement an Energy Services Capital Improvement Project for utility-related capital needs at the developments. The project leverages public sector funds through the issuance of $34.2 million of both federally-taxable and tax-exempt bonds. b. Construction of the Hunters View development is scheduled to start in August 2011. It is the first public housing project to be revitalized under the HOPE SF program, a partnership between the Mayor’s Office of Housing and the Authority aimed at revitalizing distressed public housing developments. The project has developed a financing plan that leverages available federal, state, local and private funding. The affordable rental housing portion has a total development cost of about $79 million. The Authority utilizes the non-HOPE VI HUD Funding that includes the Capital Fund Formula Grant (ARRA) for $6 million, Replacement Housing Factor Fund of $1,029,323 and the Neighborhood Initiatives Grant of $1,058,400. c. In preparing these financial statements, the Authority has evaluated events and transactions for potential recognition or disclosure through June 29, 2011, the date the financial statements were available to be issued. 14. Related parties As mentioned in Note A-12, Note B-3-e and Note B-3-f, the Authority has entered into ground leases and loans associated with the development of North Beach Place (“NBP”) and Valencia Gardens Housing, LP, (“VGH”). North Beach Development Associates invests in real estate and constructs, operates and leases property. The property consists of a 341 unit rental apartment complex known as NBP. NBP was placed in service in 2004 and fully leased in 2005. VGH was organized to develop, own and operate an apartment complex of 260 units for low income housing. NBP and VGH are not considered to be component units of the Authority as of September 30, 2010.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE C - DISCRETELY PRESENTED COMPONENT UNITS The following partnerships are considered discrete component units of the Authority and are presented in accordance with GASB No. 14. Certain items may have changed for presentation purposes from the separately issued audited financial statements to conform to the Authority’s presentation. The following footnotes are presented pursuant to GASB No. 14, which states that the reporting entity’s financial statements should make those component unit disclosures that are essential to fair presentation of the financial reporting entity’s basic financial statements. The following footnotes are those that are material to the Authority and are not meant to be a full representation of each component unit’s required disclosures. A copy of each component unit’s separately issued audited financial statements can be obtained from the Authority’s management. 1. Bernal Housing Associates, L.P. (“Partnership”) a. Credit risk The Partnership maintains its cash in bank accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk. b. Syndication fee Pursuant to the Partnership Agreement, the Managing General Partner, Bernal Housing Corporation, was paid a syndication fee in the amount of $450,000 for its services in negotiating the terms of the investment by the Investor Limited Partner. The syndication fee was required to be paid out of the capital contributions of the Investor Limited Partner to the extent those funds were not required to pay for project costs. As of December 31, 2009, the entire amount was paid from contributions of the Investor Limited Partner. c. Incentive management fee Pursuant to the Partnership Agreement, the Managing General Partner will be paid an incentive management fee for services in managing the project. In consideration for such services, the Partnership shall pay a fee, solely from Net Cash Flow, and such fee shall not be cumulative. No such fee was accrued or paid by the Partnership during 2009. d. Ground lease The Partnership has executed a 75-year ground lease agreement with the Authority. The lease is subject to various use restrictions and operating requirements, as defined in the agreement, including the requirement that all 160 of the units be continuously set aside during the term of the Regulatory and Operating Agreement for occupancy by public housing eligible households. The terms of the lease provide rent of $10 per year throughout the term of the Regulatory Agreement. Upon expiration of the lease, all improvements, alterations, additions, equipment and fixtures shall become the property of the Authority without cost or charge. 41

Permanent loan A permanent loan of $15,500,000 was provided by the Authority. Under the terms of the loan, interest shall accrue at 0.1%, compounded annually. Interest and principal are payable from net available cash flow, as defined in the Hope VI permanent loan agreement dated November 23, 1999 (the “Hope VI Agreement”). Pursuant to the Hope VI Agreement, the loan matures on November 23, 2054. The Authority and HUD have entered into an Urban Revitalization Demonstration Program Implementation Grant Agreement effective August 12, 1994 providing for a grant to be made by HUD to the Authority to assist in the financing of the construction of the project. Pursuant to the terms of the Hope VI Agreement, the Authority has loaned the funds to the Partnership as permanent financing for the project in order to repay the loan funded through the issuance of the bonds. The permanent loan is secured by a first leasehold deed of trust in favor of the Authority. As of December 31, 2009, the permanent loan principal balance was $15,500,000. During 2009, accrued interest of $100,000 was paid from contributions of the Investor Limited Partner. As of December 31, 2009, accrued interest was $41,600.

ii. Construction loan A construction loan of up to $4,287,500 was provided by the Authority. Under the terms of the loan, interest shall accrue at 0.1%, compounded annually. Interest and principal are payable from net available cash flow, as defined in the loan agreement. The loan is secured by a second deed of trust on the project, and matures on November 23, 2054. As of December 31, 2009, the principal balance was $4,273,120. As of December 31, 2009, accrued interest was $35,857. iii. Predevelopment loan A predevelopment loan of $2,465,501 was provided by the Authority. Under the terms of the loan, interest shall accrue at 0.1%, compounded annually. Interest and principal are payable from net available cash flow, as defined in the loan agreement. The loan is secured by a third deed of trust on the project and matures on November 23, 2054. As of December 31, 2009, the principal balance was $334,640 and accrued interest was $15,828.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE C - DISCRETELY PRESENTED COMPONENT UNITS (continued) 2. Hayes Valley Apartments, L.P. (“Partnership”) a. Credit risk The Partnership maintains its cash in bank accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk. b. Hope VI grant funds Pursuant to the Hope VI Grant and the Hope VI Plus Grant, the Partnership has utilized $5,400,000 and $150,000, respectively, of grant funds advanced by the Authority. Accordingly, construction costs have been reduced by $5,550,000. c. Ground lease The Partnership has executed a ground lease agreement with the Authority. The agreement is subject to various use restrictions and operating requirements, as defined in the agreement, including the requirements that 51 of the units be continuously set aside for occupancy by public housing eligible households and 33 units that will not be reserved as public housing units be restricted for occupancy by tax credit eligible households. The terms of the agreement provide rent of $10 per year throughout the 57-year term. Upon expiration of the agreement, all improvements, alterations, additions, equipment and fixtures shall become the property of the Authority without cost or charge. d. Long-term debt i.

Construction/permanent loan Construction and permanent financing is provided by the Authority under a loan commitment of $1,600,000. The nonrecourse loan is secured by a second leasehold deed of trust on the property. The loan bears interest at an annual rate of 7.02%. At initial closing of the construction loan, the Partnership paid the Authority, solely from syndication proceeds, $235,000 as prepaid interest. All further interest, and all principal, are payable only from net available cash flow of the project, or from Net Proceeds or Condemnation Proceeds, as defined in the loan agreement. Payments are applied first to accrued interest and then against outstanding principal. Unpaid accrued interest compounds annually and is added to principal at the end of each fiscal year. Interest expense amounted to $188,852 in 2009 and total accrued interest added to principal amounted to $1,279,050 at December 31, 2009. The loan matures on November 25, 2053.

Mortgage note During 2008, a loan provided under a loan commitment of $1,633,600 by Midland Loan Services was refinanced with Gershman Investment Corp. under a new loan commitment of $1,601,300. The nonrecourse loan is insured by HUD under Section 221(d)(4) of the National Housing Act and is secured by a first deed of trust on the property. The loan bears interest at an annual rate of 6.5%. Monthly principal and interest payments amount to $10,196. The balance of principal and interest, if any, remaining shall be due and payable January 1, 2038.

3. Hayes Valley Apartments II, L.P. (“Partnership”) a. Credit risk The Partnership maintains its cash in bank accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk. b. Hope VI grant funds Pursuant to the Hope VI Grant and the Hope VI Plus Grant, the Partnership has utilized $3,326,000 and $146,324, respectively, of grant funds advanced by the Authority. Accordingly, construction costs have been reduced by $3,472,324. c. Ground lease The Partnership has executed a ground lease agreement with the Authority. The agreement is subject to various use restrictions and operating requirements, as defined in the agreement, including the requirements that 66 of the units be continuously set aside for occupancy by public housing eligible households and 44 units that will not be reserved as public housing units be restricted for occupancy by tax credit eligible households. The terms of the agreement provide rent of $10 per year throughout the 57-year term. Upon expiration of the agreement, all improvements, alterations, additions, equipment and fixtures shall become the property of the Authority without cost or charge.

Mortgage loan Construction and permanent financing was originally provided by Midland Loan Services under a loan commitment of $2,324,500. The nonrecourse loan was insured by HUD under Section 221(d)(4) of the National Housing Act and is secured by a first deed of trust on the property. The loan bore interest at an annual rate of 8.2%. Interest alone was payable monthly on the first day of January 1998, and on the first day of each month thereafter to and including May 1, 1999. Monthly principal and interest payments of $16,512 began in June 1999. The balance of principal and interest, if any, remaining shall be due and payable on May 1, 2039. In May 2009, the mortgage note was refinanced with a new mortgage financing of $2,297,200, provided by Gershman Investment Corp. The mortgage note remains insured by HUD, bears interest at an annual rate of 6.5%, and is secured by a security deed to the property. Beginning July 1, 2009, monthly principal and interest payments of $14,520 are payable through June 1, 2039.

ii. Authority loan Construction and permanent financing is also provided by the Authority under a loan commitment of $3,250,000. The nonrecourse loan is secured by a second leasehold deed of trust on the property. The loan bore interest at an annual rate of 12% through December 31, 1998, and thereafter bears interest at an annual rate of 6.31%. At initial closing of the construction loan, the Partnership paid the Authority, solely from syndication proceeds, $300,000 as prepaid interest. All further interest, and all principal, are payable only from net available cash flow of the project, or from net proceeds or condemnation proceeds, as defined in the loan agreement. Payments are applied first to accrued interest and then against outstanding principal; unpaid accrued interest compounds annually and is added to principal at the end of each fiscal year. Accrued interest added for the year ended December 31, 2009 amounted to $329,356 and total accrued interest amounted to $2,298,944 at December 31, 2009. The loan matures December 1, 2054. 4. Plaza East Associates, L.P. (“Partnership”) a. Credit risk The Partnership maintains its cash in bank accounts, which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE C - DISCRETELY PRESENTED COMPONENT UNITS (continued) 4. Plaza East Associates, L.P. (“Partnership”) (continued) b. Working capital reserve Plaza East Housing Corp. (a blended component unit of the Authority), the Managing General Partner, has advanced funds to the Partnership for the purpose of funding the Working Capital Reserve. The balance due at December 31, 2009 was $165,000 and is included in other noncurrent liabilities on the balance sheet. c. Ground lease The Partnership has executed a 75-year ground lease agreement with the Authority. The agreement is subject to various use restrictions and operating requirements, as defined in the agreement, including the requirement that all 192 of the units be continuously set aside during the term of the Regulatory and Operating Agreement for occupancy be public housing eligible households. The terms of the agreement provide for rent of $10 per year throughout the term of the regulatory agreement. Upon expiration of the agreement, all improvements, alterations, additions, equipment and fixtures shall become the property of the Authority without cost or charge. d. Long-term debt i.

Plaza East Housing Corporation note Construction and permanent financing is being provided by Plaza East Housing Corporation under a loan commitment of $2,700,000. The nonrecourse loan is secured by a first leasehold deed of trust on the property. Interest accrued on the loan at an annual rate of 10% through December 31, 2001. Thereafter, interest accrues at an annual rate of 6.09%. At initial closing of the construction loan, the Partnership paid Plaza East Housing Corporation, solely from syndication proceeds, $270,000 as prepaid interest. All further interest, and all principal, are payable only from net available cash flow of the project, or from net proceeds or condemnation proceeds, as defined in the loan agreement. Payments are applied first to accrued interest and then against outstanding principal; unpaid accrued interest compounds annually. Unpaid accrued interest added to principal at December 31, 2009 was $1,696,274. The loan matures in September 2065.

Housing Authority of the City and County of San Francisco, California Notes to Basic Financial Statements September 30, 2010 NOTE C - DISCRETELY PRESENTED COMPONENT UNITS (continued) 4. Plaza East Associates, L.P. (“Partnership”) (continued) d. Long-term debt (continued) ii. SFHA Housing Corporation note Construction and permanent financing is also provided by SFHA Housing Corporation under a loan commitment of $11,064,813. The nonrecourse loan is secured by a second leasehold deed of trust on the property. Interest accrued on the loan at an annual rate of 10% through December 31, 2001. No interest shall accrue on the loan thereafter. The Partnership paid SFHA Housing Corporation, from development sources other than public housing funds, $443,000 for interest through December 31, 2001. All further interest, and all principal, are payable only from net available cash flow of the project, or from net proceeds or condemnation proceeds, as defined in the SFHA Loan Agreement. Payments are applied first to unpaid accrued interest, if any, and then against outstanding principal. Unpaid accrued interest at December 31, 2009 was $380,230. The loan matures in September 2065.

REQUIRED SUPPLEMENTARY INFORMATION

The Housing Authority of the City and County of San Francisco, California SCHEDULE OF PENSION AND OTHER POST EMPLOYMENT BENEFITS Year ended September 30, 2010

Pension Pension Pension

Actuarial Valuation Date 6/30/2007 6/30/2008 6/30/2009

Actuarial Value of Assets (a) $ 84,422,007 $ 89,076,261 $ 91,597,742

Actuarial Accrued Liability (AAL) (b) $ 87,184,213 $ 92,061,114 $ 97,692,648

Unfunded AAL (UAAL) (b-a) $ 2,762,206 $ 2,984,853 $ 6,094,906

Funded Ratio (a/b) 97% 97% 94%

Estimated Covered Payroll ( c) $ 13,340,021 $ 13,770,160 $ 13,768,652

UAAL as % of Covered Payroll ([b-a]/c) 21% 22% 44%

OPEB OPEB

6/30/2008 9/30/2010

$ $

$ 12,022,086 $ 14,182,116

0% 0%

$ 21,987,515 $ 22,251,205

55% 64%

Benefit Plan*

* While the annual required contribution (ARC) is calculated using the aggregate actuarial cost method. Information in this schedule is calculated using the entry age actuarial cost method as a surrogate for the funding progress of the Plan.

SUPPLEMENTAL INFORMATION

The Housing Authority of the City and County of San Francisco, California FINANCIAL DATA SCHEDULE Year ended September 30, 2010 PHA: CA001 FYE: 09/30/2010

1,201,625 1,201,625

Operating 1,719,095 1,719,095

Revitalization of Severely Distressed Public Housing 14.866 2,955,241 2,955,241

Veterans Affairs Supportive Housing 14.VSH -

4,490,539 442,910 278,761 3,710,967 (2,523,477) 6,399,700

339,743 339,743

(4,639,866) 9,179,736 4,539,870

49,024 1,893,943 9,544,292

29,310 3,089,140 5,177,288

161 Land 162 Buildings 164 Furniture, Equipment & Machinery - Administration 166 Accumulated Depreciation 167 Construction In Progress 160 Total Fixed Assets, Net of Accumulated Depreciation

11,528,244 147,045,070 1,047,755 (76,320,748) 395,845 83,696,166

171 Notes, loans, and mortgages receivable - Noncurrent 174 Other Assets 176 Investment in joint ventures 180 Total Non-Current Assets

1,505 83,697,671

8,326,526 966,635 9,293,161

Section 8 New Construction 14.182 -

56,632 330,639 (164,935) 222,336

1,027,015 8,522,126

1,958,596 1,958,596

2,411 2,556,931 12,074,839

150,645 400,429 6,457,779 (6,749,717) 259,136

259,136

76,387,383 28,570,728 104,958,111

COCC Line Item No. Account Description 111 Cash - Unrestricted 113 Cash - other restricted 114 Cash - Tenant Security Deposits 115 Cash - Restricted for payment of current liability 100 Total Cash 122 Accounts Receivable - HUD Other Projects 124 Accounts Receivable - other government 125 Accounts Receivable - Miscellaneous 126 Accounts Receivable - Tenants - Dwelling Rents 126.1 Allowance for Doubtful Accounts - Dwelling Rents 126.2 Allowance for Doubtful Accounts - Other 128 Fraud recovery 128.1 Allowance for doubtful accounts - fraud 129 Accrued interest receivable 120 Total Receivables, net of allowances for doubtful accounts 142 Prepaid Expenses and Other Assets 144 Interprogram due from 150 Total Current Assets

Total AMPs 14.850

Housing Choice Voucher Program 14.871

State/Local

Disaster Housing Assistance Grant 97.109

Community Development Block Grant/ Technical Assistance 14.227

Community Development Block Grant/ Entitlement Grants 14.218

Shelter Plus Care 14.238

Housing Opportunities Section 8 Disaster for Persons with AIDS Voucher Program 14.241 14.DVP -

Section 8 Consolidated Moderate Rehabilitation 14.856 -

Captial Fund Stimulus Formula Recovery Act Funded 14.885 -

Captial Fund Stimulus Competitive Recovery Act Funded 14.884

Total Component Units (Discretely Presented) 191,846 2,190,592 271,773 2,654,211

REAC Total (Primary Government and Component Units) 1,910,941 13,472,359 1,473,398 966,635 17,823,333

Total Primary Government 1,719,095 11,281,767 1,201,625 966,635 15,169,122

1,989,397 1,989,397

109,108 109,108

7,155,155 1,852,996 675,136 3,710,967 (2,523,477) (4,639,866) 330,639 (164,935) 9,179,736 15,576,351

675,670 354,663 1,030,333

7,155,155 1,852,996 1,350,806 4,065,630 (2,523,477) (4,639,866) 330,639 (164,935) 9,179,736 16,606,684

1,451,124 1,939,392

1,989,397

109,108

(13,262,592) (13,262,592)

80,884 30,826,357

93,777 3,778,321

174,661 34,604,678

11,678,889 148,212,816 8,064,417 (83,381,829) 2,681,822 87,256,115

6,891,306 80,184,210 2,655,507 (24,469,003) 65,262,020

18,570,195 228,397,026 10,719,924 (107,850,832) 2,681,822 152,518,135

76,387,383 1,505 28,570,728 192,215,731

1,706,541 66,968,561

76,387,383 1,708,046 28,570,728 259,184,292

70,746,882

293,788,970

442,097 20,920 271,773 51,223 46,938 129,896 -

4,513,141 25,408 417,486 173,633 20,920 1,776,765 1,473,398 2,475,698 376,938 2,365,299 653,037 -

1,380,270 1,380,270

77,843 77,843

29,816 29,816

488,268 488,268

139 82,208 82,347

923,375 2,303,645

263,548 263,548

77,843

13,687 13,687

3,025 32,841

558,883 (311,364) 247,519

2,285,977 2,285,977

767,317 767,317

247,519

2,285,977

767,317

Elimination

190 Total Assets

93,241,963

5,436,424

113,480,237

1,958,596

12,322,358

82,347

2,303,645

2,549,525

845,160

13,687

32,841

1,939,392

1,989,397

109,108

(13,262,592)

312 Accounts Payable <= 90 Days 313 Accounts Payable >90 Days Past Due 321 Accrued Wage/Payroll Taxes Payable 322 Accrued Compensated Absences 325 Accrued interest payable 331 Accounts Payable - HUD PHA Programs 341 Tenant Security Deposits 342 Deferred Revenues 343 Current portion of L-T debt - capital projects 345 Other current liabilities 346 Accrued Liabilities - Other 347 Interprogram due to

15,400 25,408 177,718 52,294 1,537,297 1,201,625 2,399,612 535,980 450,467 11,246,948

3,892,618 169,742 90,952 24,863 67,339 -

330,000 -

138,796 58,311 30,387 1,217,805 -

6,011

1,975 -

24,230 481,618 -

65,262 37,235

1,332 -

8,408 152,487 26,123 4,720

21,719 1,967,678

109,108 -

(13,262,592)

223,042,088 4,071,044 25,408 417,486 173,633 1,776,765 1,201,625 2,424,475 330,000 2,235,403 653,037 -

310 Total Current Liabilities

17,642,749

4,245,514

330,000

1,445,299

6,011

1,975

505,848

102,497

1,332

191,738

1,989,397

109,108

(13,262,592)

13,308,876

962,847

14,271,723

351 Long-term debt, net of current - capital projects 353 Noncurrent Liabilities - Other 354 Accrued compensated Absences - Non Current 357 Accrued Pension and OPEB Liabilities 350 Total Noncurrent Liabilities

4,959,165 647,046 1,405,011 7,011,222

809,567 234,171 1,043,738

8,070,000 8,070,000

270,474 702,506 972,980

300,000 300,000

8,070,000 5,259,165 1,727,087 2,341,688 17,397,940

48,492,593 528,635 49,021,228

56,562,593 5,787,800 1,727,087 2,341,688 66,419,168

300 Total Liabilities

24,653,971

5,289,252

8,400,000

2,418,279

6,011

301,975

505,848

102,497

1,332

191,738

1,989,397

109,108

(13,262,592)

30,706,816

49,984,075

80,690,891

83,696,166 (15,108,174) 68,587,992

259,136 (111,964) 147,172

104,053,222 1,027,015 105,080,237

1,958,596 1,958,596

247,519 8,326,526 1,330,034 9,904,079

82,347 82,347

(6,011) (6,011)

2,001,670 2,001,670

2,285,977 (242,300) 2,043,677

767,317 (24,654) 742,663

13,687 13,687

31,509 31,509

1,747,654 1,747,654

87,256,115 114,338,344 (9,259,187) 192,335,272

16,722,489 2,190,592 1,849,726 20,762,807

103,978,604 116,528,936 (7,409,461) 213,098,079

93,241,963

5,436,424

113,480,237

1,958,596

12,322,358

82,347

2,303,645

2,549,525

845,160

13,687

32,841

1,939,392

1,989,397

109,108

(13,262,592)

223,042,088

70,746,882

293,788,970

508.1 Invested in capital assets, net of related debt 511.1 Restricted Net Assets 512.1 Unrestricted Net Assets 513 Total Equity 600 Total Liabilities and Equity

The Housing Authority of the City and County of San Francisco, California FINANCIAL DATA SCHEDULE Year ended September 30, 2010 PHA: CA001 FYE: 09/30/2010

Revitalization of Severely Distressed Public Housing 14.866 -

Veterans Affairs Supportive Housing 14.VSH -

COCC Line Item No. Account Description 70300 Net Tenant Rental Revenue 70500 Total Tenant Revenue

Total AMPs 14.850 17,403,939 17,403,939

Operating

Section 8 New Construction 14.182 -

Housing Choice Voucher Program 14.871

State/Local

Disaster Housing Assistance Grant 97.109

Community Development Block Grant/ Technical Assistance 14.227

Community Development Block Grant/ Entitlement Grants 14.218

Shelter Plus Care 14.238 -

Housing Opportunities Section 8 Disaster for Persons with AIDS Voucher Program 14.241 14.DVP -

Section 8 Consolidated Moderate Rehabilitation 14.856 -

Captial Fund Stimulus Formula Recovery Act Funded 14.885 -

Captial Fund Stimulus Competitive Recovery Act Funded 14.884 -

Total Primary Government 17,403,939 17,403,939

Elimination

Total Component Units (Discretely Presented) 2,697,943 2,697,943

REAC Total (Primary Government and Component Units) 20,101,882 20,101,882

70600 HUD PHA Grants 70610 HUD PHA Capital Grants

41,565,458 6,361,731

1,375,039 -

120,029,294 -

830 -

742,663 -

9,288,896 -

784,046 6,640,276

109,108

173,786,226 13,111,115

70710 Management Fee 70720 Asset Management Fee 70730 Book-Keeping Fee 70740 Front Line Service Fee 70700 Total Fee Revenue

7,942,938 89,760 1,304,330 4,962,482 14,299,510

(7,942,938) (89,760) (1,304,330) (4,962,482) (14,299,510)

369,028 232,113 792,562 -

20,132 577,063 -

1,253,033 193,000 7,115

51,027 312,783 20,496

6,498,052 1,410 -

3,230,322 1,057 -

4,468 -

(256,200) -

10,097,402 252,245 1,253,033 51,027 1,626,143 27,611

13,163 3,320,633 -

10,097,402 265,408 1,253,033 51,027 4,946,776 27,611

70000 Total Revenue

66,724,831

14,896,705

1,453,148

1,375,039

120,413,600

830

6,499,462

742,663

3,231,379

9,293,364

7,424,322

109,108

(14,555,710)

217,608,741

6,031,739

223,640,480

91100 Administrative salaries 91200 Auditing fees 91300 Management Fee 91310 Book-Keeping Fee 91500 Employee benefit contributions - administrative 91600 Office Expenses 91700 Legal Expense 91800 Travel 91900 Other

3,345,055 63,085 5,398,225 460,850 1,816,993 464,509 57,990 1,227,656

3,990,737 45,738 2,109,498 1,900 548,301 291,120 1,250,087

5,800 -

2,483,639 31,958 1,451,166 666,503 1,132,062 204,467 21,463 74,828 520,456

103,215 2,604 52,696 36,228 36,081 16,013 7,356

89,501 54,098 36,318 32,503 7,688 -

402,954 14,330 202,706 104,436 155,801 28,032 2,175 155 24,292

784,046 -

(7,942,937) (1,304,335) (429,661) (256,200)

10,415,101 157,715 5,282,938 263,900 606,787 424,093 2,773,647

476,523 36,690 145,125 668,899 56,630

10,891,624 194,405 5,428,063 932,799 606,787 424,093 2,830,277

70800 Other government grants 71100 Investment Income - Unrestricted 71200 Mortgage interest income 71400 Fraud recovery 71500 Other revenue 72000 Investment income - restricted

92000 Asset Management Fee

89,760

(89,760)

92100 Tenant services - salaries 92300 Employee benefit contributions - tenant services 92400 Tenant Services - Other

741,301 124,775 418,624

29,147 5,775 10,897

14,314 5,017 -

1,575

784,762 135,567 431,096

93100 Water 93200 Electricity 93300 Gas 93600 Sewer 93800 Other utilities expense

1,914,393 3,704,158 2,737,789 3,425,474 29,059

16,814 140,954 3,160 28,493

3,709 40,805 1,947 5,934 -

7,519 -

1,934,916 3,893,436 2,742,896 3,431,408 57,552

207,132 114,814 134,151 397,565

2,142,048 4,008,250 2,877,047 3,431,408 455,117

94100 Ordinary Maintenance and Operations - Labor 94200 OMO - Materials and Other 94300 Ordinary Maintenance and Operations - Contract Costs 94500 Employee Benefit Contributions - Ordinary Maintenance

6,860,407 2,558,469 10,128,870 4,279,721

3,050,348 163,906 214,682 1,997,818

136,712 4,809 58,273 59,826

525 3,468 -

955 8,030 4,984 -

(4,532,817) -

10,048,422 2,735,739 5,877,460 6,337,365

362,603 627,617 1,447,980 -

10,411,025 3,363,356 7,325,440 6,337,365

95100 Protective Services - labor 95200 Protective Services - Other Contract Costs

45,401 3,030,215

2,897 39,516

1,835 91,960

48 10,096

48 3,596

8,538

50,229 3,183,921

291,076

50,229 3,474,997

The Housing Authority of the City and County of San Francisco, California FINANCIAL DATA SCHEDULE Year ended September 30, 2010 PHA: CA001 FYE: 09/30/2010

Operating 21,710 1,836 301,579 475,162 14,742,075

Revitalization of Severely Distressed Public Housing 14.866 796,721 626,516 1,429,037

Veterans Affairs Supportive Housing 14.VSH -

Housing Choice Voucher Program 14.871 24,886 82,565 1,568 365,285 158,750 7,644,737

COCC Line Item No. Account Description 96110 Property Insurance 96120 Liability Insurance 96140 All other Insurance 96200 Other General Expenses 96210 Compensated Absences 96400 Bad Debt - Tenant Rents 96600 Bad Debt - Other 96710 Interest of Mortgage (or Bonds) Payable 96900 Total Operating Expenses

Total AMPs 14.850 1,147,570 977,000 5,081 4,270,478 369,008 1,815,708 61,507,624

20,034 20,034

Section 8 New Construction 14.182 -

State/Local

Disaster Housing Assistance Grant 97.109 12,243 12,243

Shelter Plus Care 14.238 1,020 7,239 278,164

Community Development Block Grant/ Technical Assistance 14.227

Community Development Block Grant/ Entitlement Grants 14.218 -

Housing Opportunities Section 8 Disaster for Persons with AIDS Voucher Program 14.241 14.DVP 2,244 225,996

Section 8 Consolidated Moderate Rehabilitation 14.856 3,253 11,348 49,565 1,029,073

Captial Fund Stimulus Formula Recovery Act Funded 14.885 784,046

Captial Fund Stimulus Competitive Recovery Act Funded 14.884 -

(14,555,710)

Total Primary Government 1,200,683 1,078,152 8,485 5,815,905 1,002,920 1,815,708 626,516 73,117,319

Elimination

Total Component Units (Discretely Presented) 230,251 203,915 86,158 1,072,455 6,559,584

REAC Total (Primary Government and Component Units) 1,200,683 1,078,152 238,736 6,019,820 1,002,920 1,901,866 626,516 1,072,455 79,676,903

97000 Excess Operating Revenue over Operating Expenses

5,217,207

154,630

24,111

1,375,039

112,768,863

(20,034)

(11,413)

6,221,298

742,663

3,005,383

8,264,291

6,640,276

109,108

144,491,422

(527,845)

143,963,577

97100 Extraordinary Maintenance 97200 Casualty Losses - Non-Capitalized 97300 Housing Assistance Payments 97400 Depreciation Expense 90000 Total Expenses

993,718 198,875 5,211,909 67,912,126

279,090 66,210 15,087,375

1,429,037

1,350,227 1,350,227

181,286 111,777,568 29,796 119,633,387

20,034

12,243

5,916,966 6,195,130

2,975,900 3,201,896

2,052 7,881,659 8,912,784

784,046

(14,555,710)

1,456,146 198,875 129,902,320 5,307,915 209,982,575

2,500,546 9,060,130

1,456,146 198,875 129,902,320 7,808,461 219,042,705

10010 Operating transfers in 10020 Operating transfers out 10030 Operating transfers from/to primary government 10040 Operating transfers from/to component unit 10070 Extraordinary Items, net gain/loss 10100 Total other financing sources (Uses)

5,881,412 (5,881,412) -

10000 Excess (deficiency) of total revenue over (under) total expenses

(1,187,295)

(190,670)

24,111

24,812

780,213

(20,034)

(11,413)

304,332

742,663

29,483

380,580

6,640,276

109,108

7,626,166

(3,028,391)

4,597,775

11020 Debt Principal Payments - Enterprise Funds 11030 Beginning Equity

63,025,903

337,842

105,056,126

1,933,784

9,090,492

102,381

(6,011)

44,787

1,697,338

2,043,677

13,687

2,026

1,367,074

184,709,106

166,594 23,791,198

166,594 208,500,304

11040 Total Prior Period Adjustments, Equity transfer and correction of errors

6,749,384

33,374

(33,374)

(6,640,276)

(109,108)

72,598 69,163

2,100 1,159

1,577,553 8,326,526 90,912 87,918

6,298 6,298

3,359 3,359

13,920 12,408

1,577,553 8,326,526 189,187 180,305

5,640 5,332

1,577,553 8,326,526 194,827 185,637

11270 Excess Cash

(12,754,614)

11620 Building Purchases 11640 Furniture & Equipment - Administrative Purchases

12,133,768 977,347

11170 Administrative Fee Equity 11180 Housing Assistance Payments Equity 11190 Unit Months Available 11210 Number of Unit Months Leased

The Housing Authority of the City and County of San Francisco, California SCHEDULE OF ACTUAL CAPITAL FUND PROGRAM COSTS AND ADVANCES Year ended September 30, 2010

CFP 2006

CFP 2007

CFP 2008

CFP 2009

CFP 2010

TOTAL

$ 13,571,332

$ 13,963,770

$ 13,661,652

$ 13,618,427

$ 13,568,787

$ 68,383,968

$ 13,223,471 347,861

$ 10,211,306 2,443,759

$ 10,681,248 2,069,860

$ 34,116,025 15,439,273

Cumulative as of September 30, 2010 COSTS Prior years Current year

13,571,332

12,655,065

12,751,108

10,577,793

49,555,298

13,339,729 231,603

11,370,369 1,949,844

12,028,521 646,115

1,286,034 10,777,425

38,024,653 13,604,987

Cumulative as of September 30, 2010

13,571,332

13,320,213

12,674,636

12,063,459

51,629,640

PROGRAM BUDGET ADVANCES Cash receipts - prior years Cash receipts - current year

RECEIVABLE (PAYABLE) DUE FROM (TO) HUD SOFT COSTS Prior years Current year

10,577,793

665,148

(76,472)

1,485,666

2,074,342

6,707,779 -

6,736,669 302,797

6,482,167 296,595

1,430 6,643,864

$ 19,928,045 7,243,256

Cumulative as of September 30, 2010 HARD COSTS Prior years Current year

6,707,779

7,039,466

6,778,762

6,645,294

27,171,301

6,631,950 231,603

4,633,700 1,647,047

5,546,354 349,520

1,284,604 4,133,561

18,096,608 6,361,731

Cumulative as of September 30, 2010 CUMULATIVE HARD AND SOFT COSTS

6,863,553

6,280,747

5,895,874

5,418,165

24,458,339

$ 13,571,332

$ 13,320,213

$ 12,674,636

$ 12,063,459

$ 51,629,640

The following RHF grants have been awarded and are unspent as of September 30, 2010: CFP 2006 RHF CFP 2007 RHF CFP 2008 RHF CFP 2009 RHF CFP 2010 RHF

230,070 452,443 461,179 232,064 235,123

1,610,879

The Housing Authority of the City and County of San Francisco, California SCHEDULE OF ACTUAL CAPITAL FUND STIMULUS RECOVERY ACT FUNDED PROGRAM COSTS AND ADVANCES Year ended September 30, 2010

PROGRAM BUDGET ADVANCES Cash receipts - prior years Cash receipts - current year

CA39S001 501-09

CA001 00095509R

CA001 00095609R

CA001 00095709E

TOTAL

STIMULUS FORMULA

STIMULUS COMPETITIVE

17,876,716

8,502,006

3,995,994

2,780,755

15,278,755

9,089,661

Cumulative as of September 30, 2010 COSTS Prior years Current year

9,089,661

3,654,736 7,424,322

109,108

Cumulative as of September 30, 2010

11,079,058

109,108

RECEIVABLE DUE FROM HUD

1,989,397

109,108

SOFT COSTS Prior years Current year

332,249 784,046

Cumulative as of September 30, 2010 HARD COSTS Prior years Current year

1,116,295

3,322,487 6,640,276

109,108

Cumulative as of September 30, 2010 CUMULATIVE HARD AND SOFT COSTS

9,962,763

109,108

11,079,058

109,108

SINGLE AUDIT SECTION

The Housing Authority of the City and County of San Francisco, California SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND LOCAL ASSISTANCE Year ended September 30, 2010 Federal Grantor/Pass-Through Grantor/ Program or Cluster Title

CFDA Number

Federal Expenditures

FEDERAL AWARDS Direct from the U.S. Department of Housing and Urban Development ("HUD"): Section 8 Housing Choice Voucher Program Low Rent Public Housing Program Public Housing Capital Fund Program Section 8 Moderate Rehabilitation Program Capital Fund Stimulus Formula Recovery Act Funded Capital Fund Stimulus Competitive Recovery Act Funded Community Development Block Grants/Technical Assistance Program Disaster Housing Assistance Grant

14.871 14.850 14.872 14.856 14.885 14.884

$ 121,404,333 34,322,202 13,604,987 9,288,896 7,424,322 109,108

14.227 97.109

742,663 830 186,897,341

14.238 14.241

6,498,052 3,230,322

Pass through from the City and County of San Francisco Shelter Plus Care Housing Opportunities for Persons with AIDS TOTAL EXPENDITURES OF FEDERAL AWARDS Grant from the Redevelopment Agency of the City and County of San Francisco TOTAL EXPENDITURES OF FEDERAL AWARDS AND LOCAL ASSISTANCE

196,625,715 369,028 $ 196,994,743

Housing Authority of the City and County of San Francisco, California NOTE TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND LOCAL ASSISTANCE Year ended September 30, 2010 NOTE 1 - BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards and local assistance includes the federal grant activity of the Housing Authority of the City and County of San Francisco, California and is presented on the accrual basis of accounting. The information on this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. In accordance with HUD regulations, HUD considers the Annual Budget Authority for the Section 8 Housing Choice Voucher program (“HCV”) and the Veterans Affairs Supportive Housing program (“VASH”), both CFDA No. 14.871, to be considered an expenditure for the purposes of this schedule. Therefore, the amount in this schedule is the total amount received directly from HUD and not the total expenditures paid by the Authority. The $121,404,333 total for CFDA No. 14.871, as presented above, consists of $120,029,294 from HCV and $1,375,039 from VASH.

8035 Spyglass Hill Road Melbourne, FL 32940 Phone: 321-757-2020 Fax: 321-242-4844

www.bermanhopkins.com

255 S. Orange Ave. Suite 745 Orlando, FL 32801 Phone: 407-841-8841 Fax: 407-841-8849

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Commissioners Housing Authority of the City and County of San Francisco, California San Francisco, California We have audited the financial statements of the business-type activities and the aggregate discretely presented component units of the Housing Authority of the City and County of San Francisco, California (the “Authority”), as of and for the year ended September 30, 2010, which collectively comprise the Authority’s basic financial statements and have issued our report thereon dated June 29, 2011. Our report was modified to include a reference to other auditors. We conducted our audit in accordance with auditing standards generally accepted 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 States. Other auditors audited the financial statements of the Authority’s following discretely presented component units: Hayes Valley Apartments L.P., Hayes Valley Apartments II, L.P., Plaza East Associates, L.P., and Bernal Housing Associates, L.P., as described in our report on the Authority’s financial statements. The financial statements of these entities were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Authority’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control over financial that we consider to be material weaknesses. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned costs to be a material weakness, finding 10-1.

Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of 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 or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the Authority in a separate letter dated June 29, 2011. The Authority’s response to the findings identified in our audit is described in the accompanying corrective action plan. We did not audit the Authority’s response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, the Board of Commissioners, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. June 29, 2011 Melbourne, Florida

Berman Hopkins Wright & LaHam CPAs and Associates, LLP

8035 Spyglass Hill Road Melbourne, FL 32940 Phone: 321-757-2020 Fax: 321-242-4844

www.bermanhopkins.com

255 S. Orange Ave. Suite 745 Orlando, FL 32801 Phone: 407-841-8841 Fax: 407-841-8849

REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Commissioners Housing Authority of the City and County of San Francisco, California San Francisco, California Compliance We have audited the Housing Authority of the City and County of San Francisco, California’s (the “Authority”) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Authority’s major federal programs for the year ended September 30, 2010. The Authority’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Authority’s management. Our responsibility is to express an opinion on the Authority’s compliance based on our audit. 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 Organizations. 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 Authority’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 of the Authority’s compliance with those requirements. As described in items 10-3, 10-4, 10-5, 10-6 and 10-7 in the accompanying schedule of findings and questioned costs, the Authority did not comply with the requirements regarding Eligibility, Allowable Activities/Costs, and certain Special Tests and Provisions (Housing Quality Standards Inspections, Housing Quality Standards Enforcement and the Waiting List) that are applicable to its Section 8 Housing Choice Voucher program. Compliance with such requirements is necessary, in our opinion, for the Authority to comply with the requirements to that program. In our opinion, because of the effects of the noncompliance described in the preceding paragraph, the Authority did not comply, in all material respects, with the requirements referred to above that could have a direct and material effect on the Section 8 Housing Choice Voucher program.

As described in items 10-2 and 10-6 in the accompanying schedule of findings and questioned costs, the Authority did not comply with the requirements regarding Eligibility and Special Tests and Provisions (the Waiting List) that are applicable to its Low Rent Public Housing program. Compliance with such requirements is necessary, in our opinion for the Authority to comply with the requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraphs, the Authority complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, 2010. Internal Control Over Compliance Management of the Authority 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 Authority’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the 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, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control over compliance described in the accompanying schedule of findings and questioned costs as items 10-2, 10-3, 10-5, 10-6 and 10-7 to be material weaknesses. The Authority’s response to the findings identified in our audit is described in the accompanying corrective action plan. We did not audit the Authority’s response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of the Board of Commissioners, management, others within the Authority, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Berman Hopkins Wright & LaHam

June 29, 2011 Melbourne, Florida

CPAs and Associates, LLP

Housing Authority of the City and County of San Francisco, California SCHEDULE OF FINDINGS AND QUESTIONED COSTS September 30, 2010 A. SUMMARY OF AUDITORS’ RESULTS Financial Statements Type of auditors’ report issued: Unqualified Internal control over financial reporting: Material weakness identified? Yes (10-1) Significant deficiency identified that is not considered to be a material weakness? No Noncompliance material to financial statements noted? No Federal Awards Internal control over major programs: Material weakness identified? Yes (10-2, 10-3, 10-5, 10-6, and 10-7) Significant deficiency identified that is not considered to be a material weakness? No Type of auditors’ report issued on compliance for major programs:   

Low Rent Public Housing - Qualified (10-2 and 10-6) Section 8 Housing Choice Voucher Program - Adverse (10-3, 10-4, 10-5, 10-6, and 10-7) Housing Opportunities for Persons with AIDS - Unqualified

Audit findings that are required to be reported in accordance with section 510(a) of Circular A-133 are included in this schedule. The programs tested as major programs are as follows: Low Rent Public Housing - CFDA Number 14.850 Section 8 Housing Choice Voucher Program - CFDA Number 14.871 Housing Opportunities for Persons with AIDS - CFDA Number 14.241 The threshold for distinguishing types A and B programs was $3,000,000 Did the auditee qualify as a low-risk auditee? No

Housing Authority of the City and County of San Francisco, California SCHEDULE OF FINDINGS AND QUESTIONED COSTS September 30, 2010 B. FINDINGS - FINANCIAL STATEMENTS AUDIT 10-1

Financial Reporting Material Weakness in Internal Control Condition: The current audit for the year end September 30, 2010, included several material adjustments, which collectively are identified as a material weakness in accordance with the Statement on Auditing Standards No. 115 (“SAS 115”). There were certain items which should have been detected in the processing and recording of financial information. Criteria: In accordance with SAS 115, these material adjustments should be considered a material weakness because it has a material impact to the financial statements. Effect: The financial information originally reported was materially misstated and numerous audit adjustments were necessary. Cause: During the year, the Authority converted to new accounting software which required a certain amount of dedicated time and effort. Controls were not in place to ensure the proper recording of all financial information in a timely and accurate manner. Auditors’ Recommendation: We recommend that the Authority perform a review of invoices after year end to ensure that all liabilities are properly reported. Furthermore, timely reconciliations of credit cards and bank reconciliations of outstanding items are needed on a timely basis.

Housing Authority of the City and County of San Francisco, California SCHEDULE OF FINDINGS AND QUESTIONED COSTS September 30, 2010 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS 10-2

Eligibility Low Rent Public Housing, CFDA Number 14.850 Material Weakness in Internal Control Material Noncompliance Condition: Out of a total tenant population of approximately 5,764 tenant files, 60 files were tested and the following deficiencies were noted:       

4 files did not have annual recertifications completed timely, 1 file was missing the flat rent option form, 7 files did not properly include and then exclude food stamps, 2 files had incorrect calculations of income, 1 file lacked independent third party verification of income, 7 files lacked proper birth certificates or social security cards, and 1 file did not have a signed U.S. citizen declaration.

Criteria: 24 CFR 960.259 requires the Authority to obtain and document third party verification of income and other factors that affect the determination of rent. 24 CFR 982.516. requires internal controls be in place to ensure compliance with HUD requirements, as well as, complete and accurate tenant records. Effect: The Authority could be charging the incorrect amount of rent or could be housing ineligible tenants. Cause: The Authority did not implement or does not have procedures and controls in place to ensure proper compliance with regards to tenant eligibility requirements, rent calculations and third party verifications. Auditors’ Recommendation: The Authority needs to correct the deficiencies noted in the tested files and perform a quality control review of a larger sample of the population. In addition, the Authority should develop procedures, systems and controls to ensure proper compliance with regards to tenant eligibility requirements, income calculations and third party verifications. In addition, staff needs to be continually trained in regards to the rules and regulations to properly administer eligibility.

Housing Authority of the City and County of San Francisco, California SCHEDULE OF FINDINGS AND QUESTIONED COSTS September 30, 2010 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS (continued) 10-3

Eligibility Section 8 Housing Choice Voucher Program, CFDA Number 14.871 Material Weakness in Internal Control Material Noncompliance Condition: Out of a total tenant population of approximately 7,326 tenant files, 38 files were tested and the following deficiencies were noted:            

3 files requested to be tested were unable to be located by the Authority, 13 files did not have annual recertifications completed during the year, 2 files did not have annual recertifications completed timely, 1 file did not have a signed U.S. citizen declaration, 1 file lacked proper birth certificates and social security cards, 9 files had incorrect utility allowances, 1 file had incorrect calculation of income, 2 files were missing third party verification of income, 1 file did not properly report third party verification of assets, 1 file did not properly include and then exclude food stamps, 8 files did not have inspections completed timely, and 1 file had incorrect HAP payments.

Criteria: 24 CFR 982.516 requires internal controls to be in place to ensure compliance with HUD requirements, as well as, complete and accurate tenant files. The Authority’s administrative plan also requires following proper procedures for determination of HAP and verification of income. Effect: The Authority is not in compliance with HUD requirements regarding eligibility and tenant recertifications, which could result in incorrect HAP payments to landlords. Cause: Procedures to ensure compliance with HUD requirements are not being followed. Auditors’ Recommendations: The Authority needs to correct the deficiencies noted in the tested files and consider the impact of our results over the entire population. In addition, the Authority should develop procedures, systems and controls to ensure proper compliance with regards to tenant eligibility requirements, income calculations and third party verifications. In addition, staff needs to be continually trained in regards to the rules and regulations to properly administer eligibility. Some of the items above raise an additional concern, such as the incorrect HAP payments and the files that could not be located for inspection, as it could be an indicator of unallowed HAP payments.

Allowable Activities/Costs Section 8 Housing Choice Voucher Program, CFDA Number 14.871 Veterans Affairs Supportive Housing Program, CFDA 14.871 - non-major program Material Noncompliance Condition: It was noted that as of September 30, 2010, the Authority did not have any cash on hand to cover the restricted VASH reserves of $1,958,596, as required by 24 CFR 982.157. In prior years and the current year, the Authority loaned Section 8 Housing Choice Voucher and VASH program funds to other Authority programs. Per the requirements of 24 CFR 982.157, the interprogram borrowings are not allowed. As of September 30, 2010, the balance due to the Section 8 Housing Choice Voucher program was $2,556,931 and the balance due to the VASH program was $1,958,596. Criteria: In accordance with 24 CFR 982.157, the Authority must maintain a system to ensure that the Authority will be able to make housing assistance payments for all participants within the amounts contracted. In addition, program receipts may only be used for housing assistance payments and administrative fees. Questioned Costs: $4,515,527 Effect: The Authority does not have sufficient cash available to cover the restricted reserves of housing assistance payment equity. The Authority is also not in compliance with HUD requirements to only use program receipts for housing assistance payments and administrative fees. Auditors’ Recommendation: We recommend that the Authority maintain funds sufficient to cover the restricted reserves of housing assistance payment equity. In addition, we recommend that the Authority use Section 8 Housing Choice Voucher and VASH program funding in accordance with 24 CFR 982.157.

10-5

Special Tests and Provisions - Housing Quality Standards Inspections Section 8 Housing Choice Voucher Program, CFDA Number 14.871 Material Weakness in Internal Control Material Noncompliance Condition: During our testing of Housing Quality Standards (“HQS”) inspections, we noted that out of the 40 inspections sampled, the Authority was unable to provide the actual inspection forms for 25 of the tenants selected. Of the 25 samples the Authority was unable to provide actual inspections for; the Authority provided us with inspection letters to the residents stating that an inspection had been performed for 18 of the samples, with the Authority unable to provide any documentation for 7 of the tenants selected.

Special Tests and Provision - Housing Quality Standards Inspections (continued) Criteria: In accordance with 24 CFR 982.405, the Authority must inspect the unit leased to a family prior to the initial term of the lease, at least annually during assisted occupancy and at other times as needed, to determine if the unit meets the HQS. Effect: The Authority is not in compliance with the HUD requirements regarding HQS inspections, which could result in tenants living in unsafe units. Cause: The Authority does not have controls in place to ensure that HQS inspections are being performed in a timely manner. Auditors’ Recommendation: We recommend that the Authority develop procedures, systems and controls to ensure proper compliance and documentation with regards to HQS inspections. All inspections need to be maintained for proof of inspection, the letters to the resident regarding the inspections is not sufficient proof of inspections.

10-6

Special Tests and Provisions - Waiting List Low Rent Public Housing, CFDA Number 14.850 Section 8 Housing Choice Voucher Program, CFDA Number 14.871 Material Weakness in Internal Control Material Noncompliance Condition: We were unable to properly test the waiting list for the Low Rent Public Housing and Section 8 Housing Choice Voucher programs. The Authority was unable to provide us with sufficient documentation to perform our tests of the waiting list. Criteria: 



In accordance with 24 CFR Part 5, Subparts E and F, Part 945 and 960.201 through 960.215, the Authority should follow the policies and procedures documented in its Admissions and Continued Occupancy Policy (“ACOP”) for selecting applicants from the waiting list. In accordance with 24 CFR Part 5, Subparts E and F, and Part 982.204, the Authority must maintain information that permits the Authority to select participants from the waiting list in accordance with the Authority’s Section 8 Administrative Plan.

Effect: It could not be determined that the Authority is housing applicants in the proper order on the waiting list. Cause: The Authority was unable to provide sufficient documentation to ensure the waiting list is properly maintained and conforms to the required standards. Auditors’ Recommendation: The Authority should implement systems and controls to adequately maintain a waiting list that ensures applicants are housed, or given the opportunity to be housed in the proper order. The Authority should print the waiting list to an electronic file each month to ensure that documentation exists. 68

Special Tests and Provisions - HQS Enforcement Section 8 Housing Choice Voucher Program, CFDA Number 14.871 Material Weakness in Internal Control Material Noncompliance Condition: During our testing of HQS Enforcement, we were provided a list of approximately 100 units who were under abatement status as of September 30, 2010. Out of the 6 units selected for testing, 3 of the files showed that no abatement of Housing Assistance Payments (“HAP”) had taken place. In addition, one of the files selected was on abatement even though there was a passed inspection in the file. Criteria: In accordance with 24 CFR 982.619, the Authority may not make any housing assistance payments if the contract unit does not meet the HQS, unless any defect is corrected within the required period specified by the Authority and the Authority verifies the correction. Effect: The Authority may be paying HAP to landlords whose units have failed HQS standards. Secondly, the Authority may be incorrectly withholding HAP payments to landlords who passed the most recently completed inspection. Cause: The Authority does not have controls in place to ensure that HQS is being enforced and that abatements are being handled properly. Auditors’ Recommendation: We recommend that the Authority develop proper procedures and strengthen internal controls relating to HQS inspections and any applicable abatements. A list of failed re-inspections should be regularly reviewed to verify that units that have failed are having HAP properly abated and those that have passed re-inspection are properly taken off of abatement.

Housing Authority of the City and County of San Francisco, California SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS September 30, 2010 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS 09-1

Condition: During the review and testing of 25 payroll samples, it was noted 3 instances where temporary employees did not have temporary employment contracts on file for the extension period of temporary employment with the Authority. Auditors’ Recommendation: It is recommended that management strengthen its procedures of monitoring the employment period of temporary employees and updating temporary employment contracts, as necessary. Current Year Status: Cleared.

09-2

Condition: During the testing of collectability of tenant accounts receivable, the following was noted:   

Numerous high balance receivables (over $1,000) that have been long overdue or delinquent for over 12 months; 3 instances where a tenant who entered into a repayment agreement with the Authority either by court stipulation or in-house stipulation did not comply with the such agreement and no further action was done by the Authority; and 18 instances where the tenant who has an outstanding rent balance was neither in legal nor entered into a repayment agreement with the Authority.

Auditors’ Recommendation: It is recommended that management take the following actions to improve tenants’ accounts receivable collection:  

Update the Rent Collections Policy and Procedures to align with the Authority’s experience with handling tenants that are subject to stipulation agreements or eviction procedures; and Strict adherence by the Authority to the Updated Rent Collections Policy and Procedures.

Current Year Status: Reported as a management comment in fiscal year 2010.

Housing Authority of the City and County of San Francisco, California SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS September 30, 2010 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS (continued) 09-3

Condition: During the review of testing of 40 Conventional Housing tenant files for continued occupancy, the following was noted:        

3 instances where the authorization for the release of information was not on file; 1 instance where the authorization for the release of information was not signed by the tenant; 5 instances where the 3rd party verification of income was not performed; 5 instances where the rent calculation worksheet was not on file; 5 instances where the rent calculation was incorrect; 6 instances where the annual recertification was not performed within the HUDmandated 12-month timeframe; 2 instances where the tenant was over-housed; and 1 instance where data input on the Form HUD-50058 was entered as annual recertification instead of interim recertification.

Auditors’ Recommendation: It is recommended that management take the following actions to ensure compliance with HUD regulations:    

Strengthen its file retention procedures to ensure that all essential documents are properly retained in files; Strengthen its procedures for performing timely annual tenant re-examinations and documenting those re-examinations through a complete set of documents obtained from the tenant and/or other sources; Strengthen its procedures over tenant income calculations during annual or interim re-examinations; and Training and retraining of eligibility workers to ensure that they understand the significance of compliance with the eligibility requirements of the Conventional Housing Program.

Current Year Status: Repeated, see Finding 10-2. 09-4

Condition: During the review and testing of 20 admissions from the Conventional Housing waiting list, the following was noted:      

1 instance where the application for Conventional Housing was not on file; 1 instance where the application for Conventional Housing was not entered in a timely manner; 1 instance where the income verification used for rent calculation was 145 days old; 1 instance where the rent calculation worksheet was not on file; 1 instance where an applicant was housed using an incorrect priority of admission from the waiting list; and Numerous inactive/already housed applicants were not purged from the waiting list making it unnecessarily long.

Housing Authority of the City and County of San Francisco, California SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS September 30, 2010 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS (continued) Auditors’ Recommendation: It is recommended that management take the following actions for complying with HUD regulations:    

Strengthen its file retention procedures to ensure that all essential documents are properly completed and retained in files; Strengthen its procedures over timely input of applicant’s information into the waiting list; Adhere to policies on tenant selection and placement of new tenants on the waiting list; and Periodically review, update, and purge the waiting list database.

Current Year Status: Repeated, see Finding 10-6. 09-5

Condition: The Authority has no certification for Section Eight Management Assessment Program (“SEMAP”) for fiscal year 2009. Auditors’ Recommendation: The Authority needs HUD representatives to schedule and complete a confirmatory review in order to remove the “Troubled Agency” status. Current Year Status: HUD did not require SEMAP in 2010 due to recent results of the 2009 RIM review.

09-6

Condition: During the review and testing of 40 Section 8 Housing Assistance Payments (“HAP”) and related tenant files, the following was noted:      

6 instances where the required annual re-examination was not performed within the HUD mandated 12-month timeframe; 2 instances where the annual Housing Quality Standards (“HQS”) inspection was not performed timely; 1 instance where Authorization for the Release of Information, Statement of Understanding, Statement of Family Obligation and Grounds for Termination were not on file; 2 instances where the tenant’s rent was incorrectly calculated; 3 instances where the tenant’s file was not available for review; and 3 instances where the inspection file was not available for review.

Auditors’ Recommendation: It is recommended that management take the following actions for complying with HUD regulations for Section 8 Program administration:  

Strengthen its administrative procedures over annual or interim unit inspections; and Strengthen its procedures for performing timely annual tenant re-examinations and documenting those re-examinations through a complete set of documents obtained from the tenant and/or other sources.

Current Year Status: Repeated, see Finding 10-3. 72

Housing Authority of the City and County of San Francisco, California SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS September 30, 2010 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS (continued) 09-7

Condition: During the review and testing of the Utility Allowance Schedule (“UAS”) that was effective September 14, 2009, the following was noted:    

Other Electric allowance rate for 5-bedroom unit was not properly calculated; Domestic Water Heating allowance rates for 4 and 5-bedroom units were not properly calculated; Space Heating - Natural Gas allowance rates for all types of units were not properly calculated; and Space Heating - Electric allowance rates for all types of units were not properly calculated.

Auditors’ Recommendation: It is recommended that management strengthen review procedures to ensure the accuracy of UAS. Current Year Status: Repeated, see Finding 10-3. 09-8

Condition: The review and test of the 10 samples selected for Housing Quality Standards Inspections (“HQS”) and Quality Control Re-inspections (“QCR”) was not able to be completed. In addition, the total number of QCR inspections performed by the Authority for fiscal year 2009 did not exceed the 5% inspection threshold of total housing vouchers. Auditors’ Recommendation: It is recommended that management perform the following:  

Strengthen its file retention procedures to ensure that all essential documents are properly completed and retained in files; and Conduct HQS/QCRs in a timely manner to ensure fulfillment of the minimum threshold for HQS and QCRs.

Current Year Status: Repeated, see Finding 10-5. 09-9

Condition: During the review and testing of 5 abatement files in the Section 8 program, the following was noted:   

4 instances where HAP was not abated in a timely or an accurate manner; 1 instance where the Authority failed to locate the inspection report; and 4 instances where the Authority failed to locate the notification of change forms.

Auditors’ Recommendation: It is recommended that management strengthen its abatement procedures to ensure that HQS deficiencies are corrected in a timely manner by the landlord. Current Year Status: Repeated, see Finding 10-7.

Housing Authority of the City and County of San Francisco, California SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS September 30, 2010 SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS (continued) 09-10 Condition: During the review and testing of 20 admissions from the Section 8 waiting list, the following was noted:     

15 instances where the entire tenant file was missing; 3 instances where the preference point was not supported; 1 instance where tenant income information used to compute HAP was outdated; 20 instances where the rankings of samples were significantly lower compared to the previous months report; and 4 instances where inactive applicants (already housed or no longer qualified) were not purged from the waiting list.

Auditors’ Recommendation: It is recommended that management perform the following:  

Strengthen its file retention procedures to ensure that all essential documents are properly completed and retained in files; and Conduct system review of the ranking of a sample of applicants to ensure that ranking in the waiting list database is proper.

Current Year Status: Repeated, see Finding 10-6. 09-11 Condition: During the review and testing of 10 Family Self-Sufficiency (“FSS”) files, the following was noted:   

2 instances where the FSS family escrow balances were not updated in accordance with their contract status; 10 instances where the Authority failed to apply correct interest rates for 6 months and did not enter interest rates to CCS for 3 months; and 1 instance where forfeited escrow account balances was not recorded in the general ledger in a timely manner.

Auditors’ Recommendation: It is recommended that management establish an effective communication between the FSS Program Manager and the Finance department in order to timely communicate the correct interest rate for FSS calculation purposes. Current Year Status: Reported as a management comment in fiscal year 2010. 09-12 Condition: During the review and testing of 10 Housing Opportunities for Persons with AIDS (“HOPWA”) files, one instance was noted where HAP was overstated by $167. Auditors’ Recommendation: It is recommended that management strengthen its procedures reviewing tenants’ annual re-examination prepared by staff. Current Year Status: Cleared.

BHWL

Digitally signed by BHWL DN: cn=BHWL, o=BHWL, ou=BHWL, email=info@bermanhopkins.com, c=US Date: 2011.08.12 19:34:39 -04'00'