HomeMy WebLinkAbout10 COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018AGENDA REPORT
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MEETING DATE: JANUARY 15, 2019
TO: JEFFREY C. PARKER, CITY MANAGER
Agenda Item
Reviewed.-
City
eviewed:City Manager
Finance Direc
FROM: JOHN A. BUCHANAN, FINANCE DIRECTOR
JENNY LEISZ, DEPUTY DIRECTOR - FINANCIAL SERVICES
10
SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR
ENDED JUNE 30, 2018
SUMMARY:
The City engages an independent certified public accounting firm to complete an annual
audit of the City's financial records. There are a number of reports such as the
Comprehensive Annual Financial Report (CAFR), produced as a result of the annual audit
and there are actions that are required by the City's governing board (City Council) to
meet the requirements of various auditing standards, such as meeting with the auditing
firm that conducted the audit to discuss the audit and internal control issues.
RECOMMENDATION:
1. Receive and file the CAFR for the year ended June 30, 2018.
2. Discuss the audit and internal controls with the independent certified public
accounting firm, White Nelson Diehl Evans LLP, who conducted the audit.
FISCAL IMPACT:
The independent certified public accounting firm that the City contracted with to complete
the annual audit is White Nelson Diehl Evans LLP. Total cost of the annual audit was
$44,045. Of this amount, $22,022.50 was charged to the Water Enterprise Fund; and
$22,022.50 was charged to the General Fund. In addition, $3,300 was paid to CalPERS
and charged to the General Fund for required GASB 68 information related to pension
liabilities and expenses.
BACKGROUND:
Each year state and local governments prepare a financial report on assets, liabilities,
revenues, and expenditures in a standardized format that must conform to the
Governmental Accounting Standards Board (GASB) accounting and financial reporting
standards. This financial report is called the CAFR. Most people have heard of the budget,
which is the document that plans and authorizes the spending of money. The CAFR
describes what actually was spent and the status of assets and liabilities at the end of the
fiscal year. The CAFR is published annually as best practice for local governments and
serves as evidence of transparency and full disclosure of the City's financial position to
citizens and other stakeholders, including credit rating agencies, providing SEC required
disclosure to investors, and other interested parties.
COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018
Page 2 of 6
The reports that were produced for the fiscal year ending June 30, 2018 are the CAFR; the
City State Controllers report; and the report of the auditor's consideration of the City's
internal control over financial reporting and on their tests of its compliance with certain
provisions of laws, regulations, contracts, grant agreements, and other matters. The
following charts depict revenues and expenditures presented in the governmental activities
statements:
millions
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
1. 20,
Expenses and Program Revenues - Governmental Activities
Year Ending June 30, 2018
GENERAL PUBLIC SAFETY PUBLIC WORKS COMMUNITY OPERATING CAPITAL INTEREST ON
GOVERNMENT SERVICES GRANTS AND GRANTS AND LONG-TERM
CONTRIBUTIONSCONTRIBUTIONS DEBT
1W Expenses IN Revenue
Revenues By Source - Governmental Activities la Property taxes
■ Transient occupancy
taxes
* Business license taxes
■ Othertaxes
Y Sales tax
N Motor vehicle in lieu,
unrestricted
■ Investment income
■ Other general
revenues
■ Gain on sale of land
held for resale
COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018
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The CAFR is a thorough and detailed presentation of the City's financial condition. It reports
on the City's activities and balances for each fiscal year in three major sections:
1. Introductory Section — includes elected and administrative officials, letter of
transmittal, organizational chart, and GFOA Certificate of Achievement for
Excellence in Financial Reporting.
2. Financial Section — includes the independent auditor's report, management's
discussion and analysis (MD & A), notes to the financial statements, required
supplementary information, combining financial statements, and schedules.
a. Government -wide financial statements — long-term view of City finances;
includes all assets such as buildings, streets and long-term debt
b. Governmental funds financial statements — more of a current activity type
view; only cash and items expected to be liquidated and current liabilities to
be paid
3. Statistical Section — includes additional financial, economic, and demographic
information. This year we have added graphs and charts showing demographic,
economic, and operating indicators on pages 147-165.
For local governments, the annual external financial audit provides assurance that the
financial statements are not materially misstated. Whether you are an investor in bonds, a
taxpayer or a Council member, you need assurance that the City's accounting reports are
reliable. The audit firm is also required to provide an annual Management Letter, which
highlights any weaknesses in the City's practices and procedures which might affect the
financial statements, if weaknesses have come to the firm's attention in the course of the
financial audit. The Management Letter also offers comments and recommendations
intended to improve internal control or operating efficiency.
FINANCIAL HIGHLIGHTS:
General Fund financial highlights for the year ended June 30, 2018 (see page 15 of the
Management's Discussion and Analysis section of the 2018 CAFR) are as follows:
• General Fund revenues were $103.6 million, $19 million lower than the prior fiscal
year due to the following significant one-time transactions:
o Gains on sale of Land Held for Resale totaled $33 million from the sale of land
at the Legacy development, an increase of $9.2 million compared with the
previous year's gain on sale of land held for resale. A majority of the gain in
fiscal year 2018 was due to the sale of approximately 14.5 acres (Disposition
Parcel 613/1-ot 19) to CalAtlantic Homes which has been acquired by Lennar
Homes for residential housing within the Legacy development.
o Profit participation decreased $16.3 million from the prior fiscal year due to the
sale of homes in the Greenwood development at the Legacy which generated
$23.5 million in profit participation in fiscal year 2017. In fiscal year 2018, the
City received the final $7.2 million for profit participation. The total profit
participation from this transaction was $30.7 million received from CalAtlantic
Homes.
o Developer Contributions decreased $16.8 million due to prior year Project Fair
Share Contributions in conjunction with the sale of land held for resale at the
Legacy of $10.3 million from Regency Center and $6.5 million from Flight
COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018
Page 4 of 6
Venture LLC.
• The City's General Fund total expenditures were $84.9 million, a decrease of $7.3
million from the prior year's expenditures due to the following:
o In fiscal year 2017, the City paid a $15 million advance to Tustin Unified
School District (TUSD) for the planning and design of the 6-12 School Project
at Tustin Legacy per the School Facilities Implementation, Funding, and
Mitigation Agreement. In accord with the terms of the agreement, the City
funded an additional $5.4 million during fiscal year 2018, contributing to the
decrease in overall General Fund expenditures during the year. Per the terms
of the agreement, the City has the option to advance additional funds for this
project not to exceed $85 million.
o Capital Outlay increased $3.2 million primarily due to the purchase of street
lights from Southern California Edison (SCE) for approximately, $1.8 million
which will result in significant long-term savings, and vehicle purchases
totaling about $1.5 million including a 185 foot boom lift to facilitate restoration
work at the hanger, street sweeper, and 21 other trucks / police cars.
o A decline in expenses related to activity at Tustin Legacy for fiscal year 2018
of $4.2 million over fiscal year 2017. Expenditures in fiscal year 2017 that
were not present in fiscal year 2018 are as follows: $1.6 million for a new
environmental insurance policy; $1.4 million in required maintenance of effort
(MOE); and, $1.2 million in real estate commissions paid at settlement for the
sale of 39 acres to Flight Venture LCC.
• The General Fund balance was $221.8 million as of June 30, 2017, it increased to
$240.5 million as of June 30, 2018. Total revenues of $103.6 million exceeded total
expenditures and transfers by $18.7 million. Of the $240.5 million, $124.2 million
was in nonspendable funds, restricted funds, or future obligations and, $116.3 million
are unassigned and/or spendable funds.
Budgeted General Fund balances used in day-to-day operations which comprise a portion
of the unassigned fund balance discussed above are as follows:
Of the audited $116.3 million unassigned fund balance, the General Fund (fund 100)
ending cash balance was $22.7 million, compared with the projected ending cash
balance of $22 million as of the last budget update in June 2018. A large portion of
the $0.7 million positive variance was due to increases in property taxes and revenue
from federal grants which exceeded budgeted estimates. Overall, City operations
diligently monitored their expenditures during the fiscal year which added to the
positive variance. Discussion of other smaller variances contributing to the overall
change in fund balance will be available at the mid -year budget review planned for
February.
COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018
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Other Financial Highlights for the year ended June 30, 2018 are as follows:
• The City's assets, which encompass all Governmental and Business -Type Activities
(i.e. General Fund, Special Revenue Funds, Capital Projects Funds, and the Water
Enterprise Fund) and deferred out flows of resources as of June 30, 2018, exceeded
its liabilities by $777 million (net position). Net position gives a picture of the City's
long-term financial situation. For example, net position includes receivables that may
not be collected for years and liabilities for employee leave time which may not be
used for years. Net position consists of $522 million net investment in capital assets,
$87.4 million in restricted net position and $167.6 million in unrestricted net position.
• The City's total net position increased by $6.8 million primarily due to $32.7 million
from the sale of land to Lennar Homes (formerly CalAtlantic) for a for -sale residential
project at the Legacy. The gain was offset by higher expenses for public works
projects ($12.8 million) and less revenue from capital grants and contributions ($9.1
million) due to the receipt in the previous year of $16.8 million in developer
contributions from Project Fair Share Contributions in conjunction with the sale of
land held for resale at the Legacy development.
• The City's long-term debt increased $9.7 million mostly due to the increases in both
the post -employment benefits obligation of $5.2 million and pension liabilities of $8.9
million. The City's Net Position as of July 1, 2017, was restated due to
implementation of GASB Statement 75 to record the post -employment benefits
obligation. As a result of GASB 75, the post -employment benefits obligation
increased by $5.2 million. The increase in pension liabilities was comprised of
increases for both the Safety (police) Plans and the Miscellaneous (all other) Plans
of $5 million and $4 million respectively. The increases were mostly due to the
interest on the total pension liability which accrues at the rate determined by
CalPERS of 7.15%. These increases were offset by a decrease of $3.2 million in
Due to Successor Agency to the Tustin Community Redevelopment Agency, for the
final payment of $3.2 million made in December 2017.
A more thorough discussion of the financial activities for the year ended June 30, 2018 is
presented in the MD & A.
The City did not have any audit findings or material misstatements.
nny Leisz � John A. Buchanan
Deputy Director - Financial Services Finance Director
COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2018
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Attachments: CAFR for the year ended June 30, 2018
Management Letter
Governmental Auditing Standards Letter
Appropriations Limit Worksheet