STAFF REPORT
________________________________________________________________________
DATE: February 13, 2024
TO: Justin Hess, City Manager
FROM: Jennifer Becker, Financial Services Director
Via: Leana Mkrtchyan, Deputy Financial Services Director By: Heidi Okimoto, Accounting and Audit Manager
Susan Langford, Revenue Manager
SUBJECT: Review of Fiscal Year 2022-23 Annual Comprehensive Financial Report ________________________________________________________________________
RECOMMENDATION
Note and file.
BACKGROUND
The purpose of this report is to provide the City Council (Council) with an overview of the City’s financial status as of the Fiscal Year (FY) ending June 30, 2023, as presented in the Annual Comprehensive Financial Report (ACFR) (Attachment 1).
DISCUSSION
The Annual Comprehensive Financial Report Purpose and Goals The ACFR presents the City’s financial statements with supporting footnote disclosures. This report must follow Generally Accepted Accounting Principles (GAAP) and all pronouncements by the Governmental Accounting Standards Board (GASB). These standards and regulations provide the guidance staff utilizes in preparing the ACFR. Per Section 1040 of the City Charter, this annual audited financial report shall be submitted to Council by the City Manager in such form that may be reviewed by Council . The Financial Services department utilized the independent certified public accounting firm, Lance, Soll & Lunghard, LLP (LSL), to perform the annual audit of the City and its component units. The results of the audit are in the Independent Auditor’s Report, which can be found at the beginning of the Financial Section of the ACFR.
For the FY 2022-23 audit, the City received an unmodified opinion, which is the highest given. An unmodified opinion indicates that the financial statements have been prepared in accordance with GAAP, comply with statutory requirements and regulations , and there is
FINANCIAL
SERVICES
adequate disclosure of all material matters relevant to the proper presentation of the financial statements.
The ACFR provides readers with the necessary information for both financial decision-making and assessment of financial stewardship. By preparing an accurate and well-organized ACFR, the City provides interested parties the opportunity to make these assessments. The City is committed to providing the highest quality AC FR, and to that end , the document will be submitted to the Government Finance Officers Association (GFOA) for an annual national Achievement of Excellence award. To qualify for this award, the City must publish an easily readable and effectively organized ACFR and conform to the rigorous standards established by GFOA. The City has received this award for 39 consecutive years, and staff believes that the 2022-23 report submitted to Council will continue to conform to the standards established by this program. In addition to the GFOA, the AC FR is sent out to numerous gove rnment agencies and financial institutions to comply with various reporting, financial, and subsequent bond disclosure requirements.
ACFR - Statements
The ACFR includes separate sets of financial statements for governmental, proprietary, and fiduciary funds and a set of g overnment-wide financial statements . The fund financial statements are designed to focus on near -term liquidity and current financial resources.
These statements are designed to provide readers with a broad overview of the City’s finances similar to a private- sector business. The government -wide financial statements distinguish functions of the City by segregating the financial results of governmental activities from business -type activities. The City ’s governmental activities include general government, public safety, public services, culture and recreation, and interest on long-term debt. The business -type activities of the City include operations of t he electric, water, wastewater, and solid waste utilities. The combination of all statements and disclosures shows the June 30, 2023, fiscal year-end balances, and overall results of operations for all City funds.
To gain a complete understanding of the Ci ty’s financial position, it is necessary to review all financial statements and the related disclosures.
Governmental Accounting Standards Board (GASB) Statement Changes – GASB 96 For the FY 2022-23 ACFR, the City implemented GASB Statement No. 96 – Subscription- Based Information Technology Arrangements (SBITAs) . The primary objective of this statement is to achieve more accuracy and transparency in the accounting and financial reporting of software subscriptions by state and local governments. Additionally, this statement improves the usefulness of the government financial statements by requiring the recognition of certain SBITAs as right-to-use subscription assets, corresponding liability, and deferred outflow of resources over the subscription term which were previously classified as subscription expense. The implementation of GASB 96 required a substantial number of additional staff hours to complete the data collection and an analysis of over 100+ different contracts to determine whether each had a material impact on the City’s ACFR.
Citywide Financial Status
Chart 1 provides a summary of the net position over the last five years for governmental activities, business activities, and their combined amounts for the citywide net position. The total net position represents the difference between the value of all assets and liabilities.
Chart 1 – Citywide Net Position History
(In $1,000’s)
Over time, increasing or decreasing trends in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. As of June 30, 202 3, the City’s total net position was $1.4 billion, which was a $41 million increase over the prior fiscal year. This growth was attributable to a $42 million increase in governmental activities and a $1 million decrease in business-type a ctivities. Additional indiv idual fund analysis follows later in this report.
Enterprise Funds
The City’s Enterprise Funds account for activities that provide services to the public at large on a consumer -charge basis. For Enterprise Funds, the unrestricted net position is the difference between the total net position and the fund’s capital assets. A positive unrestricted net position trend line can indicate long-term fiscal health and sustainability. As of June 30, 2023, the Statement of Net Position for Proprietary Funds’ unrestricted balance for the City’s Enterprise Funds totaled $85.8 million, an increase of $2.4 million from the prior year. On the entity-wide Statement of Net Position , the unrestricted balance is $83.7 million as the entity-wide statement adjusts $62 thousand for Internal Service Funds’ activities related to Enterprise funds. Chart 2 illustrates the five -year history of the Enterprise Funds’ unrestricted net positions. The Electric Fund decrease in FY 2022-23 was mainly due to higher power supply and fuel costs.
Chart 2 – Enterprise Funds: Unrestricted Net Position History (In $1,000’s)
494 – Water Reclamation and Sewer
The Water Recla mation and Sewer Fund ended FY 2022-23 with an u nrestricted net position of $41 million, which was a $3 million or 8% increase over the prior fiscal year.
The t otal net position of the Water Reclamation and Sewer Fund increased by $3 .6 million primarily due to increased service charge revenue and interest income.
496 – Electric Utility
The Electric Utility Fund’s ending unrestricted net position for FY 2022- 23 was $16.3 million, which was a $4 million or 20% decrease over the prior fiscal year. The decrease is attributed to higher fuel and power supply costs due to limited coal supply, a significant increase in natural gas prices, and increasing costs associated with the State of California-mandated renewable resource purchases (an unfunded State mandate). The total net position of the Electric Utility Fund decreased by $7.3 million.
497 – Water Utility
The Water Utility Fund’s ending unrestricted net position for FY 2022- 23 was $12.7 million, which was a $1.7 million or 15% increase over the prior fiscal year. The total net position of the Water Utility Fund increased by $1.8 million, primarily due to increased service charge revenue, lower potable water sales, and higher use of lower -cost water produced by the Burbank Operable Unit (BOU).
498 – Refuse Collection and Disposal
The Refuse Collection and Disposal Fund ended FY 2022-23 with an unrestricted net position of $15.8 million, which was a $ 1.7 million increase over FY 2021- 22. The total net position of the Refuse Collection and Disposal Fund decreased by $338 thousand due to paying off the 2012 Waste Disposal bond and an increase in fuel and operating costs due to inflation.
Municipal Infrastructure Fund (Measure P)
On November 6, 2018, Burbank voters approved a general -purpose 3/4₵ local sales tax known as Measure P. By doing so, the voters approved a new ordinance in the Burbank Municipal Code (BMC) which established the requirement for an annual independent audit to e nsure the proper expenditure of Measure P revenues consistent with the purposes established by the ordinance.
Lance, Soll & Lunghard, LLP (LSL), the City’s external independent auditors, performed additional audit procedures to confirm the City’s compliance with Measure P oversight provisions. The auditors confirmed, without exception, the following:
1) The $4.7 million annual baseline General Fund c ommitment was transferred to the Municipal Infrastructure Fund to ensure that Measure P revenues do not suppl ant previously available General Fund infrastructure funding. 2) Measure P tax revenues received during the fiscal year ended June 30, 2023, totaled $32 million, of which 50% were recorded to the Municipal Infrastructure Fund. 3) Expenditures within the Municipal Infrastructure Fund were solely expended on infrastructure improvements, maintenance, and repairs.
General Fund Revenues
The General Fund’s actual recurring revenues for FY 2022-23 totaled $227.5 million, which was a 7.3% increase over FY 20 21-22 actuals. General Fund revenues ended the year $17.9 million higher than the revised forecast for FY 202 2-23, a difference of 8.5%. Total revenues received, including non-recurring resources, was $216.3 million.
Non-recurring revenues totaling $2.2 million included reimbursements for grants and federal Pandemic relief funding that were offset by the fair market value losses experienced on investments. Most notable was the allocation from the American Rescue Plan Act (ARPA) of 2021 and FEMA funding for the COVID response, totaling $979 thousand for FY 2022-
23. Other sources of non-recurring revenues included reimbursements for fire mutual aid , strike tea m response, and pass-through transactions received for environmental impact reports. Table 1 illustrates the comparison between the forecasted recurring revenues and the actual revenues received for FY 2022-23 and reconciles the General Fund revenues as reported in the ACFR.
Table 1: General Fund Revenues as of June 30, 2023
(In $1,000’s)
Sales Tax
Sales tax revenue for FY 2022-23 was $ 61.7 million.
Revenues increased by 5.4 % in comparison to the FY 2021- 22 year-end total of $58.5 million. Consumer goods and
restaurants experienced gains due to rising inflation costs .
Fuel and service stations also experienced growth due to the rising prices and sales of jet fuel at the Hollywood Burbank Airport because of increased travel.
1 Sales Tax 58,417$ 61,698$ 3,281$ 105.6% 2 Property Tax 63,287 69,425 6,138 109.7% 3 Utility Users Tax 17,222 18,646 1,424 108.3% 4 Services Charges - Intra City 13,500 13,400 (100) 99.3% 5 Services Charges 18,936 22,729 3,793 120.0% 6 In Lieu Tax 9,103 9,078 (25) 99.7% 7 Interest/Use of Money 2,471 4,004 1,533 162.0% 8 Parking/Traffic/Other Fines 1,370 1,198 (172) 87.5% 9 Transient Occupancy Tax 10,548 12,208 1,660 115.7% 10 Building Permits/License Fees 5,594 5,129 (464) 91.7% 11 Transient Parking Tax 3,699 4,303 604 116.3% 12 Business Taxes 2,400 2,317 (83) 96.5% 13 Franchises 1,471 1,539 68 104.6% 14 Intergovernmental Revenues 1,559 1,824 265 117.0% TOTAL RECURRING REVENUE 209,577$ 227,499$ 17,922$ 108.6%
NON-RECURRING REVENUE
Grants and State Reimbursements 2,334$ 2,334$ Environmental Impact Report 685
PEG Revenue 222
Trust Account from Fund 115 498
GASB 31 Fair Value Adjustment (2,340)
Worker's Comp Reimbursement 568
Miscellaneous Revenue 10 98 TOTAL NON-RECURRING REVENUE 2,344$ 2,065$ TOTAL FY 2022-23 GENERAL FUND REVENUES 211,921$ 229,564$
RECONCILIATION TO ACFR
Services Charges-Intra City (Cost Allocation) - (13,400) TOTAL RECONCILIATION ITEMS -$ (13,400)$ ACFR GENERAL FUND TOTAL REVENUES 211,921$ 216,164$ % OF BUDGET
RECEIVEDNO. RECURRING REVENUE CATEGORY
FINAL BUDGET
RECURRING
FY 2022-23
ACTUAL
RECURRING
6/30/23
ACTUAL VS
BUDGET
Forecast: $58,417,033
Actuals: $61,697,887
% Received: 105.6%
Property Tax
Property taxes received for FY 202 2-23 outperformed
projections by $6,138,416, up by 9.7%. Increases were due to supplemental revenue , real property transfer tax , and post - RDA residual allocations. Supplemental taxes occur when the property changes ownership and the assessed value goes up on the date the title transfers and is received separately from regular property tax disbursements.
Utility Users Tax (UUT)
UUT ended FY 2022-23 above the revised forecast ,
attributable to the return of local businesses to the workplace, the boost in f ilm and television production activity, and the increases in electric rates . Overall, UUT increased by 8.3% from the revised projection.
Service Charges
Service Charge revenues significantly exceeded expectations due to a rise in demand for a variety of City services. The rise in large developments and Accessory Dwelling Units (ADUs) increased permit revenues by 47% over the prior year.
Contributing to the overall growth in Parks and Recreation revenue was a 26.7% increase in golf tournaments and events.
Leisure travel has rebounded faster than anticipated, resulting in an increase in passport revenues by 23%.
General Fund Expenditures
The General Fund’s Adopted Budget for FY 2022-23 was $219.6 million, of which 72% was allocated for salaries and benefits. After the Council approved carryovers and budget amendments, General Fund appropriations for the fiscal year totaled $244.5 million.
For FY 202 2-23, most City Departments remained within approved budget appropriations except for the Fire Department, due to timing delays in strike team reimbursements. The total amount expended in the General Fund in FY 2022-23 was $219 million, which equates to 89.6% of total appropriations. However, $21 million
of the remaining unspent
appropriations were approved for carryover or are currently encumbered. Therefore, the City’s total amount expended and assigned for expenditure was $240 million or 98.2% of
total appropriations. This leaves a General Fund budget savings of $ 3.9 million, primarily due to position vacancies resulting from staffing shortages.
Table 2 provides a summary of the General Fund’s total appropriations and expenditur es by Department for FY 2022-23 including the reconciliation to the ACFR.
Forecast: $18,935,990
Actuals: $22,729,064
% Received: 120.0%
Forecast: $17,222,400
Actuals: $18,645,937
% Received: 108.3%
Forecast: $63,286,895
Actuals: $69,425,311
% Received: 109.7%
Table 2 – General Fund Appropriations and Expenditures as of June 30, 2023 (In $1,000’s)
General Fund Year-End Balance
As of June 30, 20 23, the General Fund’s total balance was $140 .7 million, an increase of $10.6 million from the prior fiscal year. Table 3 provides a breakdown of the General Fund’s balances in accordance with the GASB-defined categories.
Table 3 – General Fund Balance as of June 30, 2023
(In $1,000’s)
DEPARTMENT FY 2022-23
APPROPRIATIONS*
FY 2022-23
EXPENDITURES
PERCENT
REALIZED
Police 66,718$ 63,652$ 95.4% Fire 43,497 43,821 100.7% Parks and Recreation 31,888 28,707 90.0% Public Works 19,351 17,330 89.6% Community Development 20,042 13,825 69.0% Library Services 9,290 8,016 86.3% Administrative Services 26,199 22,130 84.5% Non-Departmental 27,539 21,564 78.3% 244,524$ 219,045$ 89.6%
21,055$
GRAND TOTAL 244,524$ 240,100$ 98.2%
RECONCILIATION TO ACFR
Encumbrances & Carryovers -$ (21,055)$ Services of Other Departments (13,399) (13,399) Transfers to Other Funds (12,842)$ (12,824) TOTAL RECONCILIATION ITEMS (26,241)$ (47,278)$ ACFR GENERAL FUND TOTAL EXPENDITURES 218,283$ 192,822$
TOTAL EXPENDITURES
ENCUMBRANCES & CARRYOVERS
* Appropriations include all carryovers as well as any additional General Fund budget amendments approved by the City Council since the adoption of the FY 2022-23 Budget.
CATEGORIES DESCRIPTION FY 2022-23
Nonspendable Amounts that cannot be spent due to their nature such as inventories, prepaid amounts, property, etc.
220$
Restricted Amounts that can only be spent for the specific purposes stipulated by constitution, grants, or through enabling legislation.
18,431
Committed Amounts that can be used only for the specific purposes determined by a formal action of the City Council.
-
Assigned Unencumbered amounts approved by Councilfor manual carryover from FY 2021-22 to FY 2022-23.
11,330
Unassigned Amounts include all spendable amounts not contained in the other classifications.
110,685
140,666$ TOTAL GENERAL FUND BALANCE
The unassigned balance of approximately $110.7 million represents the amount available to the Council for meeting the City’s general needs. Within the unassigned balance, the Council has taken action to set aside certain amounts for specific purposes. Table 4 details the budgetary reserves, outstanding accounts receivable, encumbrances, and the rem aining spendable fund balance available for future appropriations, all of which comprise the total General Fund unassigned balance at the close of FY 2022-23.
Table 4 – General Fund Unassigned Balance as of June 30, 2023 (In $1,000’s)
The
The General Fund spendable balance on June 30, 2023, of approximately $44 million, is significantly higher than the spendable balance projected during the FY 202 2-23 budget process. The difference is attributed to revenue growth in sales tax, assessed value growth in property taxes, and an increase in tourism -based tax revenues. This recurring revenue growth, combined with unanticipated non-recurring revenues, and higher budgetary savings due to staffing shortages , all contributed to the higher ending General Fund spendable balance.
ENVIRONMENTAL REVIEW
This activity has no potential for resulting in either a direct or a reasonably foreseeable indirect physical change in the environment. As such, it is not a “project” subject to the requirements of the California Environmental Quality Act (CEQA) 14 Cal. Code Regs § 15378.
Budgetary Reserves
Emergency Reserve (5%) 10,072$
Working Capital Reserve (15%) 30,216
Budget Stabilization 10,072
Compensated Absences 2,145
RDA Loan Repayments 1,728
Park Development Fees 285
Performing Arts 230
Art In Public Places 1,144
Youth Endowment 13
Burbank Athletic Federation (BAF) 185
General Plan Fee 624
Sub-total of Budgetary Reserves 56,714$
Encumbrances 9,724$
Outstanding Accounts Receivable (22)$
Spendable Fund Balance Available for Future Appropriations 44,269$ JUNE 30, 2022 YEAR-END UNASSIGNED BALANCE 110,685$
CONCLUSION
The City’s overall FY 2022-23 actual financial results were favorable and represent a period of strong economic growth, even during this inflationary period. The increase in Citywide net position at year-end is a positive indicator of the City’s overall financial health and is a result of the strong fiscal policies and strategic goals previously adopted by the Council. Burbank continues to be in a strong financial position and is prepared to face any future fluctuations in the economy.
ATTACHMENTS
Attachment 1 - Annual Comprehensive Financial Report, Fiscal Year Ended June 30, 2023