Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we perfonned 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 financial statements. 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.
The City's Response to Findings
Government Auditing Standards requires the auditor to perfonn limited procedures on the City's response to the findings identified in our audit and described in the accompanying schedule of findings and responses. The City's response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit perfonned in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Santa Ana, California
February 13, 2026
2 City of Anderson
Schedule of Findings and Responses
For the Year Ended June 30, 2025
Finding 2025-001 Deficit Fund Balances and Net Position Criteria:
A sound government should adopt rigorous policies, for all operating funds, aimed at achieving and maintaining a structurally balanced budget and avoid operating deficit for each fund. The policy should include parameters for achieving and maintaining structural balance where recurring revenues are equal to recurring expenditures.
Internal Service Funds are permitted to be used "to report any activities that provide goods or services to other funds, departments on a cost-reimbursement basis."
Condition:
As of June 30, 2025, the City continued to report deficits for the following:
• Governmental activities with $(12,002,471) unrestricted deficit • Internal Service Funds with $(3,339,825) deficit net position • Low and Moderate Income Housing Special Revenue Fund with $(91, 714) deficit fund balance • Parks Capital Projects Fund with $(617,166) deficit fund balance • Nonmajor governmental funds:
o $( 185,222) net deficit in the Street Lighting Special Revenue Fund o $(43,589) net deficit in the Vineyards Lighting and Landscape District Special Revenue Fund o $(3 I, I 09) net deficit in the Silvergate Sanitary Assessment District Special Revenue Fund 10 governmental funds, including the General Fund, had expenditures exceeding the appropriation as described in the Note 11 to the basic financial statements. In addition, we also noted many governmental funds, including the General Fund and Low Mod housing fund had final budgeted appropriation exceeding budgeted revenues. • General fund had adopted appropriation exceeding budgeted revenue in the amount of$235,499. • Low and Mod housing fund had no budgeted revenue while adopted appropriation was in the amount of $50,498.
Cause:
The governmental activities unrestricted net deficit was primarily due to the reporting of net pension liability.
The City historically did not frequently evaluate the inter-departmental charges for user departments to address the need of internal service funds. The City started to evaluate the cost recovery calculation for internal service funds after the finding was first reported for the June 30, 2023 year-end audit. Since the deficit has been accumulated over the years, the financial recovery was still on-going as of June 30, 2025.
Monitoring control was inadequate over the Low and Moderate Income Housing Special Revenue Fund's cash position. The fund has had deficit cash balance over the years and the full evaluation of the cash position and the ability to repay short-term borrowing from General Fund has not been performed.
The deficit governmental fund balances and expenditures over appropriations was result of inadequate budgeting process and monitoring process to ensure adherence to budgetary limit and monitoring spending.
J
City of Anderson
Schedule of Findings and Responses (Continued)
For the Year Ended June 30, 2025
Finding 2025-001 Deficit Fund Balances and Net Position (Continued) Effect or Potential Effect:
The General Fund's fund balance may be lower after needed transfers to support deficits in other funds and may not be able to provide essential government services when the unassigned fund balance is depleted. Ongoing structural deficits may reduce the City's financial flexibility and create long-term fiscal sustainability concerns.
Recommendation:
We recommend the City evaluate its use of internal services funds by regularly reviewing cost drivers, and adjusting user fund recovery rates to reflect actual and projected expenses. If full cost recovery is no longer the City's intent, management should consider the appropriateness of using internal service funds for these activities.
Additionally, we recommend that the City implement stronger budgetary controls to ensure all operating funds are balanced, with revenues meeting or exceeding expenditures. This includes analyzing each fund to assess whether future special revenue sources will be sufficient to address fund balance deficits.
We also recommend the City evaluate the cash position of all funds and evaluate the funds' ability to repay the shortterm borrowing. Furthermore, the City should establish clear guidelines and monitoring mechanisms to prevent and address budget overruns, assess the long-term impact of recurring deficits and establish an action plan to achieve structural balance in all funds.
View of Responsible Officials:
The City recognizes this deficiency and has been working to correct the deficits in the nonmajor governmental funds as those arc funded through property tax assessments. The Skyview (Formerly Vineyards) Lighting & Landscape District was dissolved in June 2025 and taken on by the Home Owners Association of the Skyview subdivision. Due to the deficit balance, the city and Skyview HOA have agreed to a 5-year payment plan to pay off the outstanding $43,589. Park Capital has a negative position due to an outstanding reimbursement from FEMNCalOES for the repairs to the Anderson River Park river trail damaged in the 2017 Flood. Since our 2022-2023 audit when the city was made aware of the Internal Service Funds deficit due to past practices, the city has created a plan to bring those balances into a positive state over the next several years. 4 AGENDA ITEM
February 17, 2026 City Council Meeting
heeler, Finance Director/
Treasurer
To:
Through:
Honorable Mayor and Members of the Anderson City Council Joey Forseth•Deshais, City Manager
From:
Date:
!SUBJECT
Cindy Wheeler, Finance Director /Treasurer
February 17, 2026
2025-2026 Budget Update
I RECOMMENDATION
The Finance Director recommends that the City Council:
No action is requested as this is informational only.
I FISCAL IMPACT
This report is informational only.
I DISCUSSION and BACKGROUND
We are almost two-thirds of the way through the 2025-2026 budget; therefore, staff would like to take this time to review how revenues and expenditures are performing at this point in the year. Revenue and expenditure numbers are recorded in January for the general fund because we receive our first installment of property tax in January, which is approximately 58% of the budget year. Generally, when we discuss General Fund Revenues, we discuss the top 3 categories which are Sales Tax, Property Tax, and Transient Occupancy Tax.
ITEM 8.Sb PAGE1 2/17/2026
These three (3) categories make up about 86% of our General Fund Revenues. Below is a table comparing budgeted general fund revenues to actual receipts for the top three (3) revenues through January 2026. Additionally, we have added information from the same time frame in January 2025 as a comparison.
General Fund Revenues
EISl::11.L:t'.EAB
202,.20:.!!:
Revenue Budget Receipts tu Date %
Pro e Tax 3 070,133.00 56% Property Tax 2,804,938.00 1,660,683.41 59% Sales Tax 4 44142.00 1770731.68 39% Sales Tax 4,222,600.00 1,494,528.75 35% Transaction & Use Tax 2 356041.00 938967B7 40% Transaction & Use Ta 2,270,000.00 694,872.73 31% Transient Occupancy Transient Occupancy
Tax 672,559.00 266156.27 40% Tax 665,900.00 204,045.84 31% All other GF Revenue 1,673,742.00 511,301.03 31% All other GI' Revenue 1,574,054.00 566,993.91 36% Total GF Revenue 12,316,617.00 5,196,308.48 42" Total GF Revenue 11,537,492.00 4,621,124.64 40% Revenues are being received below what is expected at this point. Although the Transient Occupancy Tax (TOT) received is higher than mid-year last year, it is still lower than expected due to one hotel continuing to remain delinquent in its TOT payments. Property Tax is on track as predicted. We receive Property Tax payments in slightly uneven payments, with the bulk received in January and the final bulk payment in May. Based on historical trends in property tax disbursements, the May payment received is expected to be 75% of what was received in January. Sales Tax and Transaction and Use Tax are averaging less than expected as well, but it is important to point out that we are trending better in 2025/2026 than the prior year. As mentioned in the last two mid-year updates, two main factors likely affecting these revenues are higher inflation and private-party sales. Although interest rates are set to hold or decrease slightly, housing has remained slow in the City of Anderson, likely due to these factors.
General Fund Expenditures
Total general fund expenditures for 2025-2026 were originally budgeted at $ 12,429,892 with actual expenditures through January 2025 (again which is 58% of the budget year) coming in at $6,613,080.21 or approximately 53%. This is 14% lower than general fund expenditures were at last fiscal year.
Although expenditures are on track at this point, staff is remaining as conservative as possible. Higher inflation has remained a concern; however, staff is very diligent in researching pricing for needed supplies which is reflective of expenditures remaining closely on target.
Staff continues to identify and implement General Fund savings through measures such as holding selected budgeted positions vacant, redistributing duties among existing personnel, and participating in voluntary time-off programs within the executive management team. Staff is also reviewing contracts to reduce costs and confirm ongoing necessity. In addition, the City Council has contributed to cost-saving efforts by eliminating the training and travel budget for Council activities, and some Councilmembers have voluntarily declined compensation.
ITEM 8.Sb PAGE 2 2/17/2026
During a meeting with our Sales Tax Consultants, HdL earlier this month, was projected that sales tax will be down 1.1 % in the next two quarters.
General Fund Reserve
General Fund reserves are projected to decrease by roughly $135,000 should revenues be received as budgeted and expenditures continue to trend the same. This is only $22,000 over the structurally balanced budget adopted for 2025/26. As always, staff continually monitors both revenues and expenditures for needed adjustments. We just completed our audit for 2024-2025 and the expected decrease to the General Fund Reserve in 2024-2025 by approximately $398,556 for a total of $1,957,812 remaining. A much better outcome than the prior year with a decrease of $1.92 million.
Water and Sewer Revenues
Total Enterprise
Revenue 5,885,050.00 2,559,897.98 43%
Revenue
Water
Sewer
Total Enterprise
Revenue
EISt4I, 1:'.E4B ?n"J.t."Jn?i:
Budaet Recelots to Date 9f,
2,591,341.00 1,491,085.40 57.5%
1,895,577.00 744,712.46 393%
4,486,918.00 2,235,797.86 5096
The Water Fund revenue is trending up from the previous year and is in line with 58% of the budget year, as 59.1 % received. The water rate increases implemented is helping this fund toward finishing the year with an increase to the reserves. Sewer Fund revenues are coming in lower than projected. Sewer revenues are collected with residents' property tax bills, and the City receives these revenues in January and May. The State of California routinely enacts legislation requiring local governments to implement regulations without the necessary funding to finance the regulations. Although the percentage of revenues received is lower than last year, the actual amount received is 3% higher in comparison and relative to the increased budget to the sewer fund of $1,000,000. Staff are diligent in balancing the need to maintain the infrastructure while also managing the costs. The city conducted a wastewater rate study for this reason. Wherever possible, staff are researching grants that can be used to enhance our financing.
Water fund expenditures are budgeted at $2,999,748 and are at 44.4% or $1,331,43.80.
Sewer fund expenditures are budgeted at $3,038,754 and are at 46% or $1,406,414.58.
Gas Tax Funds and Other Funds
State and local gas tax revenues are coming in at $562,397.15 or 37.7% and expenditures are at $494,575.59 or 35.8%. While revenues appear low at this point in the year, expenditures are trending on track with annual gas tax revenues, which are still to be received through June 30. All other funds of the City are performing as expected at this point in the fiscal year. With the exception of the Water Capital Improvement fund, due to the Anderson Park Village Well, Capital Improvement Funds revenues are performing ITEM 8.Sb PAGE3 2/17/2026
lower than anticipated, but expenses are also low; keeping them within a relative net position. With the upcoming Sunrise Cottages development, among other potential projects, this could positively impact these funds in 2025/2026 & 2026/2027.
Potential Economic Factors/Trends:
The following economic factors may have a significant effect on the National and Local economies. Staff is actively monitoring these issues for their possible effect on City operations:
Staffing and recruitment
Supply Chain issues
Fuels Costs
Inflation .
Reduction in Single Family Home Sales
Unfunded reauirements from Le.JJislative Prop 1383
Unfunded State & local mandates . for both water and wastewater Utility Costs
Closures ofloca/ businesses due to economic conditions
ITEM 8.Sb PAGE4 2/17/2026