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February 15, 2022
ITEM TITLE
Annual Report: Acceptance of Audited Annual Comprehensive Financial Report (ACFR) for Fiscal Year Ended June 30, 2021 and Update on City Reserve Funds
Report Number: 22-0044
Location: No specific geographical location
Department: Finance
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Adopt a resolution a ccepting the audited Annual Comprehensive Financial Report (ACFR) for Fiscal Year Ended June 30, 2021, and update on City reserve funds.
SUMMARY
Presented for City Council information and acceptance are the audited basic financial statements included in the ACFR for the fiscal year ending June 30, 2021, as prepared by the independent audit firm of Lance Soll & Lunghard, LLP. The audit report submitted for the City has received an unmodified (clean) opinion from the independent audit firm. An update on City reserve funds is also provided.
ENVIRONMENTAL REVIEW
The activity is not a “Project” as defined under Section 15378 of t he California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
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Pursuant to the City Charter Section 1017, an annual audit is performed of the City's financial records by an independent accounting firm. The ACFR report is included as an attachment. The firm of Lance Soll & Lunghard, LLP has audited the basic financial statements of the City of Chula Vista and has issued their opinion that th e statements present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggreg ate remaining fund information of the City as of June 30, 202 1 and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Additionally, Lance Soll & Lunghard, LLP considered the City’s internal control over financial reporting to determine the appropriate audit procedures for expressing opinions on the financial statements, but not for the purpose of expressin g an opinion on the effectiveness of the City’s internal control. The Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Gover nment Auditing Standards is included in the ACFR for fiscal year 2021. This was Lance Soll & Lunghard, LLP’s eighth year serving as the City’s independent auditors.
General Fund Reserve Update
Below is an update of various City Reserve funds:
General Fund Operating Reserve
The unassigned fund balance for the City’s General Fund (Fund 100 only) totaled $28.3 million as of June 30, 2021. This amount reflects an unassigned fund balance of 16.4% of budgeted General Fund operating expenditures (less Measure A a nd Measure P Sales Taxes). This fully funds the General Fund Operating Reserve 15% target. Additionally, this amount includes $2.5 million in surplus funds which per the reserve policy will be recommended as an additional contribution to the Pension Reser ve Fund (PRF). The unassigned fund balance increased from $25.6 million to $28.3 million when compared to June 30, 2020, representing an increase of $2.7 million, and resulted in the City’s fourth consecutive year in full funding of the General Fund Operating Reserves and for the first year resulting in funds for the anticipated contribution to the PRF (per the General Fund Reserves Policy and Pension & OPEB Reserve Fund Policy, respectively).
Economic Contingency and Catastrophic Event Reserves
In addition to the unassigned fund balance, the General Fund ended fiscal year 2020-21 with $8.6 million in the Economic Contingency Reserve, which represents an increase of $0.3 million from the prior fiscal year.
This reserve was also established by the City Council in fiscal year 2009 with the approval of the General Fund Reserves Policy. The additional $0.3 million was funded after fully funding the General Fund Operating Reserve as described above and setting aside 75% of the surplus funds for transfer to the PRF. The reserve policy sets a reserve goal of 5% for the Economic Contingency Reserve. The General Fund ended fiscal year 2020-21 with the full 5% in the Economic Contingency Reserve. The City also has a Catastrophic Event Reserve Fund with a reserve goal of 3%. The City was able to partially fund the Catastrophic Event Reserve in fiscal year 2020-2021 by adding $0.6 million. This amount is equal to 1.9% of the 3% Emergency Reserve policy goal.
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Pension Reserve Fund
The Pension & OPEB Reserve Fund Policy established the City’s Pension Reserve Fund (PRF). Per the policy, upon meeting the 15% General Fund Operating Reserve, 75% of all surplus funds shall be transferred to the PRF. As stated earlier in this report, $2.5 million in surplus funds will be recommended as an additional contribution to the PRF in fiscal year 2021-2022. The policy also states that 75% of the net annual savings from the issuance of Pension Obligation Bonds (determined at bond issuance for years 1 -10, not adjusted annually for any new unfunded liability or change in actuarial assumptions) for bond fiscal years 1 through 10 is required to be transferred to the PRF on an annual basis. The scheduled contribution for net annual savings is projected to be $8.3 million in fiscal year 2021-2022. Pursuant to the policy, the Finance Department is required to provide the following comprehensive PRF status report, including five-year reserve fund balance projections, annu ally to the City Council along with the ACFR. The following report projects the scheduled contributions from net annual savings , additional contributions from surplus funds, projected future costs in unfunded actuarial liability to CalPERS, and the estimated PRF balance over the next five fiscal years.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the real property holdings of the City Council members do not create a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Staff is not independently aware, and has not been informe d by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
INFLOWS FY2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Scheduled Contributions 8,287,643 9,929,907 10,848,629 11,976,156 11,892,443 12,513,429 Additional Contributions* 2,464,336 - - - - - Total Inflows 10,751,979 9,929,907 10,848,629 11,976,156 11,892,443 12,513,429
OUTFLOWS
Miscellaneous Plan UAL** - (630,419) (630,000) (630,000) (630,000) (630,000) Safety Plan UAL** - (323,899) (324,000) (324,000) (324,000) (324,000) Total Outflows - (954,318) (954,000) (954,000) (954,000) (954,000) Savings/(Deficit) 10,751,979 8,975,589 9,894,629 11,022,156 10,938,443 11,559,429 Est. Accumulated Reserve
Balance 10,751,979 19,727,568 29,622,197 40,644,353 51,582,796 63,142,224 * Prior year surplus funds transferred to the Pension Reserve Fund (per Pension & OPEB Reserve Policy) Pension Reserve Fund Balance Projections
COMPREHENSIVE PENSION RESERVE FUND STATUS REPORT
CITY OF CHULA VISTA
** UAL projections are from the CalPERS Actuarial Valuation - June 30, 2020 Report, which may change in future valuation reports issued by CalPERS.
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CURRENT-YEAR FISCAL IMPACT
There is no fiscal impact as a result of accepting the ACFR for Fiscal Year Ended June 30, 2021 report.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact as result of this action.
ATTACHMENTS
Attachment 1: Annual Comprehensive Financial Report for Fiscal Year Ended June 30, 2021 Staff Contact: Sarah Schoen, Finance Director/Treasurer