v . 0 03 P a g e | 1
March 7, 2023
ITEM TITLE
Annual Report: Acceptance of Audited Annual Comprehensive Financial Report (ACFR) for Fiscal Year Ended June 30, 2022 and Update on General Fund Reserve Funds
Report Number: 23-0041
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 accepting the audited Annual Comprehensive Financial Report (ACFR) for Fiscal Year Ended June 30, 2022, 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, 2022, 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 General Fund reserve funds is also provided.
ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because the proposed activity consists of a govern mental fiscal/administrative activity which does not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is required.
P a g e | 2
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
Pursuant to City Charter Section 101 2, an annual audit of the City's financial records is performed by an independent accounting firm. The ACFR report is included as Attachment 1 to this report. 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 the statements present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, the aggregate remaining fund information of the City as of June 30, 202 2, and the respective changes in financial position and, where applicable, cash flows thereof for the year th en 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 expressing 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 Government Auditing Standards is included in the ACFR for fiscal year 202 2. This was Lance Soll & Lunghard, LLP’s ninth year serving as the City’s independent auditors.
General Fund Reserve Update
Below is an update of various General Fund Reserve funds in accordance with the City of Chula Vista Council Policy General Fund Reserves – Fiscal Health Plan (Policy No. 220-03). The table below reflects the reserve target %, current reserve %, and current reserve amounts as of June 30, 2022 for each General Fund reserve.
General Fund Operating Reserves
The General Fund Operating Reserve s represent unrestricted resources available for appropriation by the City Council to address extraordinary needs of an emergency nature , such as a major storm drain repair, litigation, or settlement costs or an unexpected liability created Federal and Stat e legislative action. This reserve has a minimum level of no less than 15% of annual General Fund budgeted operating expenditures (excluding Measure A and P Sales Taxes).
General Fund Reserve Funds Reserve
Target %
Current
Reserve %
Current
Reserve $
(in millions)
Target Met
General Fund Operating Reserves 15.00% 15.00% $ 27.3 Economic Contingency Reserves 5.00% 5.00% $ 9.1 Catastrophic Event Reserves 3.00% 1.45% $ 2.6 Pension Reserve Fund 15.00% 1.35% $ 2.5
P a g e | 3
The General Fund ended fiscal year 2022 with $27.3 million in the General Fund Operating Reserve. This fully funds the General Fund Operating Reserve of 15% of the fiscal year 2023 budgeted operating expenditures. This is the City’s fifth consecutive year fully funding the General Fund Operating Reserve.
Economic Contingency and Catastrophic Event Reserves
The Economic Contingency Reserves represent monies set aside to mitigate service impacts during a significant downturn in the economy which impacts City revenues such as sales tax and property tax, etc.
This rese rve has a minimum level of no less than 5% of annual General Fund budgeted operating expenditures. The General Fund ended fiscal year 2022 with $ 9.1 million in the Economic Contingency Reserve. This fully funds the Economic Contingency Reserve of 5% of the fiscal year 2023 budgeted operating expenditures. This is the City’s third consecutive year fully funding the Economic Contingency Reserve.
The Catastrophic Event Reserves represent monies set aside to fund unanticipated expenses related to major or natural disaster in the City. T his reserve has a target level of 3% of annual General Fund budgeted operating expenditures. The General Fund ended fiscal year 2022 with $2.6 million in the Catastrophic Event Reserve. This amount is equal to 1.45% of the 3% Catastrophic Event Reserve Emergency target level.
Pension & OPEB (Other Post-Employment Benefits) Reserve Funds The Pension & OPEB (Other Post-Employment Benefits) Reserve Fund Policy established the City’s Pension Reserve Fund (PRF) . This reserve sets aside surplus funds to address future potential pension liability increases and potentially pay off the City’s Pension Obligation Bonds (POBs) debt early. This reserve is to be funded only after funding the 15% minimum reserve level of th e General Fund Operating Reserve. Should the fiscal year result in a surplus, such funds will be split between the PRF (75%) and the other two reserves (25%), the Economic Contingency Reserve and Catastrophic Event Reserves, until all three reserves are fully funded. PRF contributions are transferred to the City’s Section 115 Trust Fund. The General Fund ended fiscal year 2022 with no surplus funds to contribute to the PRF.
Additionally, the City shall budget a minimum of 75% of the estimated net annual savings from the issuance of POBs to be transferred to the City’s Section 115 Trust Fund. The budgeted contribution for fiscal year 2023 is $9.9 million.
Pursuant to the Pension & OPEB Reserve Fund P olicy, the Finance Department is required to provide th e following comprehensive pension reserve (Section 115 Trust Fund) funds status report, including five-year reserve fund balance projections, annually to the City Council along with the ACFR. The following schedule also includes projected contributions from net annual savings, contributions from surplus funds, trust net investment activity, future costs in unfunded actuarial liability to CalPERS, and trust fees.
P a g e | 4
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the real property holdings of the City Council members do not create a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Staff is not independently aware and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
There is no fiscal impact as a result of accepting the ACFR for Fiscal Year Ended June 30, 2022 report.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact as result of this action.
A ctuals
FY2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
E stimated B eginning Fund B alance
E stimated F und Balance -$ 8,362,116$ 17,449,769$ 28,213,698$ 40,072,854$ 51,812,697$ R eserve Balance - 2,464,336 2,464,336 2,464,336 2,464,336 2,464,336 Total E stimated Fund B alance and R eserves -$ 10,826,452$ 19,914,105$ 30,678,034$ 42,537,190$ 54,277,033$ Inflows
C ity C ontributions - Annual Projected
Savings from Issuance of PO Bs* 8,287,643$ 9,929,907$ 10,848,629$ 11,976,156$ 11,892,443$ 12,513,429$ C ity C ontributions - Pension R eserve F und
(PR F ) from Surplus F unds 2,464,336 - - - - - Trust Net Investment Activity 110,751 133,620 - - - - Total Inflows 10,862,730$ 10,063,527$ 10,848,629$ 11,976,156$ 11,892,443$ 12,513,429$
O UTFLO WS
Miscellaneous Plan UAL*** -$ (609,449)$ -$ -$ -$ -$ Safety Plan UAL*** - (313,125) - - - - Trust F ees (36,278) (53,300) (84,700) (117,000) (152,600) (183,600) Total O utflows (36,278) (975,874) (84,700) (117,000) (152,600) (183,600) Net Inflows(O utflows) 10,826,452$ 9,087,653$ 10,763,929$ 11,859,156$ 11,739,843$ 12,329,829$ E stimated E nding Fund B alance
E stimated F und Balance 8,362,116$ 17,449,769$ 28,213,698$ 40,072,854$ 51,812,697$ 64,142,525$ R eserve Balance 2,464,336 2,464,336 2,464,336 2,464,336 2,464,336 2,464,336 Total E stimated Fund B alance and R eserves10,826,452$ 19,914,105$ 30,678,034$ 42,537,190$ 54,277,033$ 66,606,861$ ** Trust Net Investment Activity includes: interest, dividents, realized gain/loss, and net accrued income. Trust Net Investment Activity in FY 2023 are as of December 31, 2023 and are not projected beyond that date. *** UAL projections are from the CalPERS Actuarial Valuation - June 30, 2021 Report, which may change in future valuation reports issued by CalPERS.
City of Chula Vista Section 115 Trust (Book Value)
Projections
CITY OF CHULA VISTA
COMPREHENSIVE PENSION RESERVE FUNDS STATUS REPORT
* Per the Pension & OPEB Reserve Fund Policy, 75% of the net annual savings from the issuance of POBs (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.
P a g e | 5
ATTACHMENTS
1. Annual Comprehensive Financial Report for Fiscal Year Ended June 30, 2022 Staff Contact: Sarah Schoen, Finance Director/Treasurer