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REDEVELOPMENT AGENCY OF THE CITY OF REDWOOD CITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 This section of the Redevelopment Agency's annual financial report presents a narrow overview and analysis of the Redevelopment Agency's financial activities for the fiscal year ended June 30, 2006. Please read this overview in conjunction with your reading of the accompanying Basic Component Unit Financial statements. THE PURPOSE OF THE AGENCY The Agency is a component unit of the City of Redwood City; it is controlled by the City, which appoints the Agency's Board of Directors. City employees perform all the duties and functions required of the Agency. The Agency's purpose under California law is to eliminate urban blight in the City of Redwood City; it is given certain powers under the law to assist it in that endeavor. The Agency may condemn property under certain circumstances and only to the extent the City may condemn property as prescribed by the law, and it may incur indebtedness to finance redevelopment of property. The Agency may not assess or receive property taxes, but it may receive any increases in property taxes over amounts received in the year before the property in the Agency's area became subject to redevelopment (called the Base Year). The increases are called Property Tax Increments. One-fifth of the property tax increments received must be used to increase the supply of low and moderate income housing. FINANCIAL 2006 FINANCIAL HIGHLIGHTS Financial highlights of the year include the following: . The Agency's net assets decreased $2.7 million in fiscal year 2005-06, after $1.1 million decrease in the preceding year. At June 30, 2006, the Agency's net assets were $7.495 million. . Total Agency revenues, including transfers and contributions, were $6.126 million, a decrease of $517 thousand, and expenses were $8.8 million, representing an increase of $1 million over the prior year. . Redevelopment Agency Fund revenues and other financing sources decreased $8.5 million and expenditures and other financing uses decreased $3.5 million. Fund balance decreased $14 million. . Low and Moderate Income Housing Fund revenues of $2.1 million were $44 thousand less than the prior year, while expenditures of $1.8 million increased $411 thousand from the prior year, and ending fund balance increased $4 thousand. The Basic Financial Statements The Basic Financial Statements comprise the Agency-wide Financial Statements and the Fund Financial Statements; these two sets of financial statements provide two different views of the Agency's financial activities and financial position. 3