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HomeMy WebLinkAboutJOINT MEETING 06-20-94JOINT MEETING 6220-94; '/'i DATE' JUNE 15, 1994 Inter-Com TO: FROM: SUBJECT: WILLIAM A. HUBTON, CITY MANAGER RONALD A. NAULT, DIRECTOR OF FINANCE 1993 AUDIT COMMITTEE ANNUAL REPORT TO COUNCIL RECOMMENDATION: This report will be discussed with the City Council at their joint meeting with the Audit Committee scheduled for Monday, June 20, 1994. Ron~fld A. Nault Director of Finance RAN:Is Attachment a: annua t93. wah Page 2 Audit Committee Annual Report LON~ TERM FORECASTIN~ Much of the financial integrity of the .City of Tustin is dependent upon the reliability of its long term forecasting. The Audit Committee felt that a review of the methodology and basic assumptions used in the long term forecasts would be useful in increasing the confidence in the forecasts. The Long Term Forecast Subcommittee has completed a review of the Funds portion of the budget and reported its findings at the February, 1994 meeting of the Audit Committee. None of the current funds present any significant financial exposure during the next five to eight years. However, annexations and'development of the Marine Air Station can represent significant financial exposure if not handle handled in a conservative manner. This report is attached to this Annual Report. TheLong Term Forecast Subcommittee will next review the long term forecast of the General Fund. This area of the budget is more complex than the funds portion and therefore, may take longer. recommend that the full Committee closely examine the effect of the AB 3505. If this bill is approved by the State, it would distribute sales tax revenues by population instead of the current distribution by source of sales. This will have a drastic effect on the General Fund. It is critical that. we determine now if we need to take any action to protect Our financial stability if AB 3505 is passed. ANNUAL AUDIT The 1992-1993 Annual Audit went smoothly and efficiently. Besides the routine questions concerning the mechanics of the audit, the auditors were questioned in depth concerning the confirmation of our investments and the monitoring of our internal controls. The Audit Committee accepted the Audit Report as submitted and recommended that the Audit Report be sent to Council. The Audit Committee also recommended that the City Council pass an ordinance to limit the number of continuous years that an audit firm can handle the City audit. This recommendation is intended to be a matter of policy and in not intended to distract from the excellent work done by our current auditors Diehl Evans and Company. S/~mitted Audit Committee Chairman JW: 1Sa:annual94. txt ~UD~T COHM~TTEE LON~ I~.N~E FINANCI~ REVIEW SUB-COI~TTEE FUNDS This report briefly reviews the exposure of financial impact during the next five to eight years to the financial health of the City by various funds other than the General Fund. Ron Nault, Bill Huston and I carefully probed each fund for trends and exposures. We reviewed the reliability of the income into each fund as well as the possibility of unexpected demands on the funds. Since most of these funds are mandated by law, there is little opportunity for unpredictable results. The General Fund will be reviewed at the next meeting of the sub-committee. SUMMARY If our funds are handled in a conservative and prudent manner, there is little financial exposure to the City. However, several of the funds or associated areas,, can expose the City to financial problems if not handled cautiously. FUND AQMD ASSET FORFEITURE MARINE BASE CLOSURE MARINE BASE DEVELOPMENT MEASURE "M" GAS TAX .~ PARK DEVELOPMENT SEWER TRUST BEAUTIFICATION EAST TUSTIN ASSESSMENT DISTRICTS REDEVELOPMENT AGENCY STREET LIGHTING WATER ANNEXATIONS No Some Exposure Exposure Y Y Y Y Significant Exposure Y This is a small 'fund. Expenses can easily be limited to the revenues received from AQMD. Therefore, there is no financial exposure. ASSET FORFEITURE The revenues from this fund are very sporadic from year to year. As long as the revenues are treated as "windfalls" and no debt is created based on future revenues, there is no financial exposure. MARINE BASE CLOSURE The revenues from this fund are used for planning for the Marine Base closure. The matching funds from the Operating Fund can be easily forecasted. Therefore, there is no significant financial exposure. Page 2 Long Range Financial Review MARINE BASE DEVELOPMENT Though there is no specific development fund, the exposure from the development of the Base should be considered at this point. It is assumed that the necessary infrastructure' will be financed by an Assessment District. If the Development Agreement is handled in a manner similar to the East Tustin Project, there should be no major financial exposure. In the East Tustin Project, money absorbing projects were not placed until revenue producing projects were in place. Any deviation from this concept coUld produce significant financial exposure. Before a specific plan is approved for the base development, a financial impact report should be made and reviewed by the Audit Committee. This impact report should include the possible effects of AB 3505 (Redistribution of Sales Tax Revenues). MEASURE "M" These funds are used for capital projects as money is available. Therefore, there is no financial exposure. GAS TAX Apparently, our streets are in good condition and capable of handling' the traffic on them. The Gas Tax Fund has sufficient revenues to cover the maintenance required to keep the streets in good condition. Since there are no major street replacements seen in the next 8 years, there is no significant financial exposure. If there is an earthquake that causes significant damage to the streets, we would expect some aid from State and Federal sources. PARK DEVELOPMENT Ail of the money in this fund will be used to complete the Sports Complex. If development of any other parks or recreational facilities is made within the next three to four years, these commitments would represent financial exposure to the City. SEWER TRUST Since this is a minor fund soon to end, there is no financial expOsure. BEAUTIFICATION Since this is a support of the General Fund, it does not contain any financial exposure. EAST TUSTIN ASSESSMENT DISTRICTS These bonds are basically revenue bonds based on assessments of the property in the East Tustin development project. SinCe there is no reco e no Within the next years, no problem is seen in meeting the debt obligations of the bonds. Page 3 Long Range Financial Review REDEVELOPMENT AGENCY The revenua from the tax increment in the Redevelopment areas is used to pay the Agency bonds. At the present time, the City is getting the full tax increment and is getting sufficient funds to meet its debt obligations. However, the State is looking at this tax increment to offset some of the State deficit. This is a complex area, but it does present the City with financial exposure. STREET LIGHTING The revenues for this fund come from property taxes and is fairly constant and predictable. Most of the street lighting is modern and on stanchions (not attached to power poles). Therefore no major replacement or financial exposure is foreseen. WATER The Water Department is in good shape. Most of the piping has been upgraded. The water rates are being increased to pay for the bonds to upgrade the reservoirs. If an earthquake should cause major damage to the system, there are State, Federal and insurance funds available for repairs. OUr only financial exposure would be a ten year drought which would reduce revenues below the level necessary to handle the debt service. Obviously, we would have a few years warning to make adjustments to thebudget. EXPOSURES NOT COVERED IN BUDGETS Annexations can represent a significant financial exposure to the city. A recently revised General Plan requires a Fiscal Impact Report to be published before any annexation. This report should be reviewed by the Audit Committee for completeness and reasonable assumptions before being submitted to City Council. ~Jerry/Weil, Chairman of Audit Committee and M~mber of the Long Range Financial Review Subcommittee JW:ls a:for~ast.txt Febr~ry 12,