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I I I I I I I I I I I I I I I I REPORT TO MANAGEMENT I. CURRENT YEAR FINDINGS AND RECOMMENDATIONS Debt Service Reserve Reauirement Findinq: The XXXXXX is required to maintain a certain balance in the Debt Service Reserve Fund. The requirement has not been met for the Series 1999A Bonds as the XXXXXX utilized part of the Reserve Fund to pay a portion of the debt service on the Bonds in a prior year. The Reserve Fund is underfunded as of September 30, 2006. Recommendation: The XXXXXX should replenish the Debt Service Reserve Fund as required in the Bond Indenture or the XXXXXX should obtain a waiver from the Trustee. Manaqement Response: When the initial developer departed, the XXX XXX acquired the multi-family parcel through deed in lieu of foreclosure. The XXXXXX then marketed and sold the multi-family parcel. The sale proceeds only covered a portion of the total bond indebtedness secured by assessments related to the multi-family parcel. The bondholders executed a Direction and Indemnity Letter instructing the Trustee to use 95% of the 1999 Reserve Account to increase the bondholders' return. This action lowered the balance in the Reserve Account below the required level. The Direction did not include a duty for the XXXXXX to replenish the Reserve Account to the original level. In a conversation, the Trustee acknowledged that the Reserve Account balance is below the required level, that the Direction did not create a duty for the XXXXXX to replenish the balance to the required amount and that the XXXXXX is not in default under these circumstances. Budaet to Actual Observation: Actual expenditures in the general fund exceed budgeted appropriations for the fiscal year ended September 30,2006. Recommendation: The XXXXXX should amend the budget such that actual expenditures do not exceed budgeted appropriations within 60 days subsequent to the end of the fiscal year end. Manaqement Response: Management will review the current year spending to ensure that expenditures do not exceed appropriations. II. PRIOR YEAR FINDINGS AND RECOMMENDATIONS Debt Service Reserve Reauirement Findinq: The XXXXXX is required to maintain a certain balance in the Debt Service Reserve Fund. The requirement has not been met for the Series 1999A Bonds as the XXX XXX utilized part of the Reserve Fund to pay a portion of the debt service on the Bonds in a prior year. The Reserve Fund is underfunded as of September 30, 2005. Recommendation: The XXX XXX should replenish the Debt Service Reserve Fund as required in the Bond Indenture or the XXXXXX should obtain a waiver from the Trustee. I I I Manaqement Response: When the initial developer departed, the XXX XXX acquired the multi-family parcel through deed in lieu of foreclosure. The XXXXXX then marketed and sold the multi-family parcel. The sale proceeds only covered a portion of the total bond indebtedness secured by assessments related to the multi-family parcel. The bondholders executed a Direction and Indemnity Letter instructing the Trustee to use 95% of the 1999 Reserve Account to increase the bondholders' return. This action lowered the balance in the Reserve Account below the required level. The Direction did not include a duty for the XXXXXX to replenish the Reserve Account to the original level. In a conversation, the Trustee acknowledged that the Reserve Account balance is below the required level, that the Direction did not create a duty for the XXXXXX to replenish the balance to the required amount and that the XXXXXX is not in default under these circumstances. Current year status: The matter has not been resolved and will be repeated in the current year.