Staff Report Auditor’s Report FY 22-23 Page 1 of 5
STAFF REPORT
TO: Mayor and Members of the City Council
FROM: Renee Eshun, Administrative Services Director
VIA: Dan Barros, City Manager
MEETING DATE: October 23, 2024
SUBJECT: FY 2022-23 Audited Financial Statements and Reports
RECOMMENDATION
Staff recommends that the City Council adopt:
RESOLUTION ACCEPTING AUDITOR’S REPORTS AND FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING JUNE 30, 2023, PURSUANT TO CEQA GUIDELINE 15378
COUNCIL ADOPTED VALUES
Approval of the attached resolution is consistent with the Council’s core value of responsibility because the annual audit process provides an objective, expert assessment of the Town’s financial condition and financial reporting process.
BACKGROUND
The Town’s financial statements are prepared in accordance with the generally accepted accounting principles (GAAP) and reporting requirements of the Governmental Accounting Standard Board (GASB).
For Fiscal Year ending June 30, 2023, the Town engaged O’ Connor & Company formerly R.J.
Ricciardi, CPA to conduct an independent audit and review of the Town’s financial statement for the fiscal year ending June 30, 2023. The audit includes the agreed-upon procedures, review, and audit of various reports. The Auditor’s opinion on the following reports are attached as B through F.
The Basic Financial Report for FY 2022-23,
Management Report for FY 2022-23,
Measure A Fund Component Unit Financial Statements for FY 2022-23, ITEM #8
Staff Report Auditor’s Report FY 22-23 Page 2 of 5
Measure W Fund Component Unit Financial Statements for FY 2022-23, and Appropriations Limit Calculation for FY 2022-23. A representative from the firm will be at the Council meeting to present the audit and answer any questions the Council may have. ANALYSIS Overall, the Town received a “clean” audit for FY 2022-23 with no adverse findings or recommendations. As part of the audit, O’ Connor and Company also assessed the Town’s internal control and noted in Attachment C, FY 2022-23 Management Reports that they did not find any observations. The auditors recommend the Town consider formalizing a capitalization policy for leases and subscription arrangement liabilities and the right to use assets over $40,000. Also, keeping lease terms to month-to-month or annual leases whenever possible. FY 2022-23 Audited Financial Report The FY 2022-23 Audited Financial Report is organized in four main sections, see below. All sections have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) and relevant rules established by the Governmental Accounting Standard Board (GASB). Introductory Section has the Table of Contents, Town Officials, and Town Organization Chart. The FY 2022-23 Financial Report does not include a transmittal letter, as it is embedded in the MD&A. Financial Section contains the Independent Auditors’ Report, Management’s Discussion & Analysis (MD&A), Basic Financial Statements, and Notes to Basic Financial Statements. (p. 1-2) summarizes the auditors’ responsibility regarding the financial statements, their audit opinion, and other matters and information in the Financial Report. As stated above, the Town received a “clean” audit for FY 2022-23. (p. 3-9) provides highlights on the Town’s financial condition, overall economic conditions, and a FY 2022-23 Budget overview. (p. 10-17) presents the Town’s FY 2022-23 finances as dictated by GAAP. This section begins with Governmental-Wide financial statements (p. 10-11) where the financial information within the Fund Financial statements (p. 12-17) are consolidated and adjusted in accordance with GAAP. Reconciliations from the Fund level to Governmental-Wide level can be found on page 14. Additional information on Governmental-Wide and Fund Financial Statements can be found on page 18 (NOTE 1B). The Fund Financial Statements also presents General Fund, Capital Projects Fund and Town Hall Certificate of Participation (COP) funds as Major Funds. Non-major funds are combined and presented as “Other Governmental Funds” (p. 12-13) and in the Supplemental Information Section (p. 50-51).
Staff Report Auditor’s Report FY 22-23 Page 3 of 5
(p. 18-41) provides additional information about the Basic Financial Statements. This includes explanation of the basis of accounting and various accounting terms. It also includes debt schedules, background information on pension and OPEB, and other pertinent information needed to understand the Basic Financial Statements. Required Supplemental Information includes General Fund budgetary comparison (p. 42), Pension and OPEB schedules (p. 43-49), and Balance Sheet and Schedule of Revenues, Expenditures and Changes in Fund Balance for non-major governmental funds (p. 50-51). Key Notes and Changes Town Hall Renovation Project Financing On September 24, 2015, the Town completed a Certificates of Participation (COP) financing of $5.3 Million to fund a portion of the Town Hall Renovation Project. The proceeds from this financing were placed in a separate fund. The net liability as of June 30, 2023, in this fund was $4,295,000. (See Note 4E pages 30-31). Retirement Liabilities This is the ninth year of the requirement to incorporate additional information on retirement plan liabilities as required by Government Accounting Standards Board (GASB) statement No. 68. (See Note 5C on pages 31-36). As shown on page 30 the Net Pension Liability increased by $7.5 million from $5.1 Million in the prior year to an ending balance of $12.7 million as of June 30, 2023. Retiree Medical and Dental (OPEB) Liabilities This is the sixth year of the requirement to incorporate additional information on retirement plan liabilities as required by Government Accounting Standards Board (GASB) statement No. 75. (See Note 7 on pages 38-41). As shown on page 30 the Net OPEB Liability increased by $164,580 from $11.1 Million in the prior year to an ending balance of $11.2 million as of June 30, 2023.Previously, OPEB liabilities were offset by contributions. With the implementation of GASB 75, OPEB liabilities and additional contributions are recorded separately, showing the estimated future OPEB debt. Other Reports Management Report As part of the Audit process the Auditors also review procedures and make recommendations on improvements as part of a Management Report (See Attachment C). The Auditors did not make any reportable findings with the current year work. Measure A Transportation Funds Staff Report Auditor’s Report FY 22-23 Page 4 of 5
The Town receives $50,000 per year in Measure A Transportation Funds from San Mateo County. The Measure A Program requires the Town to complete a separate audit of these funds (See Attachment D). In addition to financial testing of transactions the Auditors do additional review to provide a reasonable assurance that the Town of Colma has complied with certain provisions of Measure A. No Measure A expenditures were made by the Town in FY 2022-23. The balance available in the Measure A Fund as of June 30, 2023 is $162,816. Measure W Transportation Funds The Town receives $30,769 per year in Measure W Transportation Funds from San Mateo County. The Measure W Program requires the Town to complete a separate audit of these funds (See Attachment E). In addition to financial testing of transactions the Auditors do additional review to provide a reasonable assurance that the Town of Colma has complied with certain provisions of Measure W. No Measure W expenditures were made by the Town in FY 2022-23. The current fund balance is $92,622. Staff will allow the fund to accumulate until it is sufficient to be used for a capital project. Appropriations Limit Annually the Town is required to calculate an Appropriations Limit which is presented in the Budget and adopted by the Council. State Law does not require an “Audit” of the proceeds of taxes, but does require a review completing specific procedures. This review was completed by the Auditors with no exceptions being noted (See Attachment F). Reasons For the Recommended Action/Findings Acceptance of the FY 2022-23 audited/reviewed financial statements and reports will authorize Staff to publish and distribute them to various interested parties and ensure compliance with the Town’s debt issuance requirements. FISCAL IMPACT This is for reporting purposes. No fiscal impact. ALTERNATIVES None. In addition to supporting good governance, the completion of Audited Financial Statements is a requirement of the Certificate of Participation (COP) debt issuance and rules imposed by the SEC. CONCLUSION Staff recommends the City Council receive the presentation from the Town’s auditor, then adopt a resolution accepting the Auditor’s reports for Fiscal Year 2022-23.
Staff Report Auditor’s Report FY 22-23 Page 5 of 5
ATTACHMENTS A. Resolution - Accepting Auditor Reports for FY 2022-23 B. FY 2022-23 Basic Financial Reports C. FY 2022-23 Management Report D. FY 2022-23 Measure A Fund Component Unit Financial Statements E. FY 2022-23 Measure W Fund Component Unit Financial Statements F. Independent Accountants’ Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheet
Res. 2024-##, Auditor’s Report Fiscal Year 2022-23 Page 1 of 1 RESOLUTION NO. 2024-##
OF THE CITY COUNCIL OF THE TOWN OF COLMA
RE
SOLUTION ACCEPTING AUDITOR’S REPORTS AND
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING JUNE 30, 2023, PURSUANT TO CEQA GUIDELINE 15378
The City Council of the Town of Colma does hereby resolve as follows:
1. Background
(a) For Fiscal Year ending June 30, 2023, the Town engaged O’ Connor & Company formerly R.J. Ricciardi, CPA to conduct an independent audit and review of the Town’s financial statement for the fiscal year ending June 30, 2023.
(b) Overall, the Town received a “clean” audit for FY 2022-23 with no adverse findings or recommendations. As part of the audit, O’ Connor and Company also assessed the Town’s internal control and noted in Attachment C, FY 2022-23 Management Reports that they did not find any observations. The auditors recommend the Town consider formalizing a capitalization policy for leases and subscription arrangement liabilities and the right to use assets over $40,000. Also, keeping lease terms to month-to-month or annual leases whenever possible.
2. Order
(a) The City Council hereby accepts the Auditor’s reports and Financial Statements for Fiscal Year 2022-23.
Certification of Adoption
I certify that the foregoing Resolution No. 2024-## was duly adopted at a regular meeting of the City Council of the Town of Colma held on October 23, 2024, by the following vote:
N
ame Voting Present, Not Voting Absent
Ay e No Abstain Not Participating
John Irish Goodwin, Mayor
Ken Gonzalez
Carrie Slaughter
Helen Fisicaro
Joanne F. del Rosario
Voting Tally
D
ated: ____________________ _____________________________________ John Irish Goodwin, Mayor
At
test: ____________________________
Michelle Estabillo, City Clerk
ATTACHMENT A
ATTACHMENT B
- i -
TABLE OF CONTENTS PAGE INTRODUCTORY SECTION Table of Contents i-ii Town Officials iii Town of Colma Organizational Chart iv FINANCIAL SECTION Independent Auditors Report 1-2 Managements Discussion and Analysis 3-9 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 10 Statement of Activities 11 Fund Financial Statements: Governmental Funds Balance Sheet 12 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 13 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 14 Propriety Fund Financial Statements: Statement of Net Position Proprietary Funds 15 Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds 16 Statement of Cash Flows Proprietary Funds 17 Notes to Basic Financial Statements 18-41 REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule General Fund 42 Notes to Budgetary Comparison Schedule 43 Schedule of the Local Governments Proportionate Share of Net Pension Liability - Miscellaneous 44 Schedule of the Local Governments Proportionate Share of Net Pension Liability Safety 45 - ii -
TABLE OF CONTENTS PAGE Schedule of Contributions Miscellaneous 46 Schedule of Contributions Safety 47 Schedule of Change in the Net OPEB Liability and Related Ratios 48 Schedule of Town of Colmas Contributions - OPEB 49 SUPPLEMENTARY INFORMATION Nonmajor Governmental Funds Combining Balance Sheet 50 Nonmajor Governmental Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances 51 - iii -
TOWN OF COLMA, CALIFORNIA TOWN OFFICIALS FOR THE FISCAL YEAR JUNE 30, 2023Elected City Officials Mayor John Irish Goodwin Vice Mayor Ken Gonzalez Council Member Joanne F. del Rosario Council Member Carrie Slaughter Council Member Helen Fisicaro Appointed City Officials City Manager Dan Barros City Clerk Michelle Estabillo Chief of Police John Munsey Administrative Services Director Renee Eshun Recreation Manager Angelika Abellana City Services Provided Under Contract Legal Services Best, Best & Krieger Planning, Engineering & Building Services CSG Consultants This document is dedicated to the memory of Raquel "Rae" Gonzalez.
1701 NOVATO BLVD, SUITE 302NOVATO, CA 94947 PH. (415) 457-1215 FAX. (415) 457-6735 www.maocpa.com
Capital Other TotalGeneral Improvement Governmental GovernmentalFundProject FundFundsFundsASSETSCash and investments 23,422,276$ 3,011,863$ 3,357,789$ 29,791,928$ Restricted cash and investments 3,584,994 - 386 3,585,380Taxes receivable 3,636,566 - - 3,636,566Accounts receivable 753,336 461 107,124 860,921Accrued interest receivable 145,663- - 145,663Total assets 31,542,835$ 3,012,324$ 3,465,299$ 38,020,458$ LIABILITIESAccounts payable 433,737$ 57,634$ 141,902$ 633,273$ Accrued expenditures 11,819 - - 11,819 Deposits 363,060 - - 363,060 Total liabilities 808,616 57,634 141,902 1,008,152 FUND BALANCESRestricted 3,584,994 - 671,421 4,256,415 Committed 16,664,098 - - 16,664,098 Assigned for disaster response 950,000 2,954,690 2,651,976 6,556,666 Unassigned 9,535,127 - - 9,535,127 Total fund balances 30,734,219 2,954,690 3,323,397 37,012,306 Total liabilities and fund balances 31,542,835$ 3,012,324$ 3,465,299$ 38,020,458$ Total governmental fund balances 37,012,306$ 56,548,694910,080(21,111,504) Net position of governmental activities 73,359,576$ Some liabilities, including bonds, notes, leases and long-term portion of compensated absences are not due and payable in the current period and are therefore not reported in the funds.
Town of ColmaGOVERNMENTAL FUNDSBALANCE SHEETJune 30, 2023 Capital assets used in governmental activities are not reported in the funds.Amounts reported for governmental activities in the statement of net position are different because:The assets and liabilities of the internal service fund are included in the governmentalactivities in the statement of net position.The accompanying notes are an integral part of these financial statements.- 12 -
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 23 -
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) D. Assets, Liabilities and Net Position or Equity (continued) In the fund financial statements, governmental fund balances are reported in the following classifications: Nonspendable fund balance includes amounts that are not in a spendable form, such as prepaid items or supplies inventories, or that are legally or contractually required to remain intact, such as principal endowments. Restricted fund balance includes amounts that are subject to externally enforceable legal restrictions imposed by outside parties (i.e., creditors, grantors, contributors) or that are imposed by law through constitutional provisions or enabling legislation. Committed fund balance includes amounts whose use is constrained by specific limitations that the government imposes upon itself, as determined by a formal action of the highest-level decision-making authority. The Town Council serves as the Towns highest level decision-making authority and has the authority to establish, modify or rescind a fund balance commitment via minutes action. Assigned fund balance includes amounts intended to be used by the Town for specific purposes, subject to change, as established either directly by the Town Council or by management officials to whom the assignment authority has been delegated by the Town Council. Unassigned fund balance is the residual classification that includes the spendable amounts in the General Fund that are available for any purpose. Fund Balance Flow Assumption When expenditures are incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) fund balances are available, the Towns policy specifies that restricted revenues will be applied first. When expenditures are incurred for the purposes for which committed, assigned, or unassigned fund balances are available, the Towns policy is to apply committed fund balances first, then apply assigned fund balances, and finally unassigned fund balances. Stabilization Reserve The Town maintains a Budget Stabilization Reserve in an amount sufficient to ensure continuity of operations in the event of a severe economic downturn, which amount is hereby determined to be one hundred percent (100%), rounded to the nearest $100,000, of the General Fund expenditures for the prior fiscal year, excluding appropriations toward Accrued Leave Liability Reserve, OPEB contribution, and pension contribution. Accrued Leave Reserve The Town maintains an Accrued Leave Reserve committed for vacation payout (and sick leave when related to retirement) when an employee separates from the Town. The amount committed will be determined as part of the budget process. Litigation Reserve The Town maintains a Litigation Reserve, in the amount of $100,000, to pay the Towns costs and attorneys fees necessary for the initiation or defense of new litigation authorized by the Town Council after adoption of a budget for the fiscal year in which the litigation commenced. Insurance Reserve The Town maintains an Insurance Reserve, in the amount of $100,000, to pay for any deductibles charged to the Town by its insurance carrier(s) not accounted for in the adopted budget.
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 28 -
NOTE 4 - DETAILED NOTES ON ALL FUNDS (continued) B. Receivables Receivables as of year-end for the governments individual major and nonmajor funds in the aggregate were as follows: General Town Capital Projects Fund Nonmajor Funds Business- Type Funds Total Receivables: Interest $ 145,663 $ - $ - $ - $ 145,663 Taxes 3,636,566 - - - 3,636,566 Accounts 753,336 461 107,124 24,228 885,149 Net total receivables $ 4,535,565 $ 461 $ 107,124 $ 24,228 $ 4,667,378 C. Capital Assets Capital asset activity for the year ended June 30, 2023 was as follows: Beginning Balance Increases Decreases Ending Balance Governmental activities: Capital assets, not being depreciated: Land $ 6,589,376 $ - $ - $ 6,589,376 Construction in progress 205,820 1,573,942 1,259,037 520,725 Total capital assets, not being depreciated 6,795,196 1,573,942 1,259,037 7,110,101 Capital assets, being depreciated Buildings 34,554,590 45,745 - 34,600,335 Improvements other than buildings 3,784,093 391,719 - 4,175,812 Machinery and equipment 3,676,607 207,942 - 3,884,549 Infrastructure - street systems 29,225,909 595,527 - 29,821,436 Total capital assets, being depreciated 71,241,199 1,240,933 - 72,482,132 Less accumulated depreciation for: Buildings (6,198,360) (691,031) - (6,889,391) Improvements other than buildings (2,680,090) (136,095) - (2,816,185) Machinery and equipment (2,389,326) (274,766) - (2,664,092) Infrastructure - street systems (10,130,302) (543,569) - (10,673,871)Total accumulated depreciation (21,398,078) (1,645,461) - (23,043,539)Total capital assets, being depreciated, net 49,843,121 (404,528) - 49,438,593 Governmental activities capital assets net $56,638,317 $ 1,169,414 $ 1,259,037 $56,548,694 Depreciation expense was charged to functions/programs of the Town as follows: Governmental activities: Public works $ 625,660 General government 542,217 Public safety 272,537 Planning 2,911 Recreation 202,136 Total depreciation expense - governmental activities $ 1,645,461 Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 29 -
NOTE 4 - DETAILED NOTES ON ALL FUNDS (continued) C. Capital Assets (concluded) Depreciation expense was charged to functions/programs of the Town as follows: Business-type activities: Sewers $ 21,983 Town properties 75,267 Total depreciation expense - business-type activities $ 97,250 D. Interfund Receivables, Payables and Transfers Interfund transfers at June 30, 2023 were as follows: Transfers In Transfers Out General Fund $ - $ 3,956,083 Local law enforcement 41,728 - Improvement Capital Projects Fund 2,672,997 - Debt service 295,609 - Gas tax - 45,450 Measure A - 71,669 Measure W - 31,950 Town Capital Projects Fund 833,170 - Sewer Fund 261,648 - Totals $ 4,105,152 $ 4,105,152 The transfers out of the General Fund were made for the purpose of financing Street Improvement Capital Projects, Sewer operations and debt service undertaken during the fiscal year.
Beginning Ending Balance Increases Decreases Balance Business-type activities: Capital assets, not being depreciated: Land $ 1,006,095 $ - $ - $ 1,006,095 Total capital assets, not being depreciated: 1,006,095 - - 1,006,095 Capital assets being depreciated: Buildings 2,615,156 - 232,056 2,383,100 Infrastructure 380,910 - - 380,910 Total capital assets, being depreciated 2,996,066 - 232,056 2,764,010 Less accumulated depreciation for: Buildings (1,546,869) (75,267)(232,056) (1,390,080) Infrastructure (205,042) (21,983) - (227,025) Total accumulated depreciation (1,751,911) (97,250) (232,056) (1,617,105) Total capital assets, being depreciated, net 1,244,155 (97,250) - 1,146,905 Business-type activities capital assets net $ 2,250,250 $ (97,250) $ - $ 2,153,000 Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 30 -
NOTE 4 - DETAILED NOTES ON ALL FUNDS (concluded) E. Long-Term Debt Governmental Activities: Changes in Long-Term Liabilities Long-term debt activity for the 2023 fiscal year was as follows: Beginning Balances Additions Reductions Ending Balances Due Within One Year Certificates of Participation $ 4,425,000 $ - $ 130,000 $ 4,295,000 $ 135,000 Net OPEB 11,061,019 164,580 - 11,225,559 - Net Pension Liability 5,133,608 7,546,963 - 12,680,571 - Compensated absences 1,584,523 - 103,818 1,480,705 183,266 Totals $22,204,150 $ 7,711,543 $ 233,818 $29,681,875 $ 318,266 Certificates of Participation On September 24, 2015, the Town issued $5.3 million in Certificates of Participation through Stifel, Nicolaus & Company, Incorporated. The funds and debt service payments are administered under a Trustee Agreement with Bank of New York Mellon. This financing will be used to fund a portion of the Town Hall renovation project. The certificates bear interest at variable rates from 0.38% to 4.12% and payments are due on each May 1. The annual requirements to amortize the debt outstanding as of June 30, 2023, including interest payments, are as follows: Period Ending June 30, Principal Interest Total 2024 $ 135,000 $ 160,669 $ 295,669 2025 135,000 156,619 291,619 2026 140,000 151,219 291,219 2027 145,000 146,319 291,319 2028 150,000 141,969 291,969 2029-2033 835,000 632,601 1,467,601 2034-2038 1,000,000 467,915 1,467,915 2039-2043 1,205,000 258,200 1,463,200 2044-2045 550,000 33,200 583,200 Total $ 4,295,000 $ 2,148,711 $ 6,443,711 NOTE 5 - OTHER INFORMATION A. Risk Management The Town is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the Town obtains insurance coverage. The Town is a member of the ABAG PLAN Corporation (PLAN), which provides a pooled risk sharing insurance program. The PLAN provides the Town with insurance coverage of $15 million per loss for liability claims. The Town has a $50,000 self-insurance retention limit similar to a deductible. The PLAN insurance has two different layers of coverage. Layer 1 is a $5 million self-insured layer shared by participants; Layer 2 is commercial excess insurance coverage for $10 million beyond the $5 million PLAN coverage. The PLAN also provides the Town with $1 million pooled employee dishonesty coverage.
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 31 -
NOTE 5 - OTHER INFORMATION (continued) A. Risk Management (concluded) Property coverage is also provided by the PLAN with the Town having a $10,000 deductible. The PLAN provides the coverage using a self-insured pool to cover losses up to $100,000. The PLAN purchases an insurance policy to cover losses above its $100,000 self-insured retention with a per occurrence coverage for all members combined up to $1 billion. Workers compensation insurance is provided to the Town by EIA (Entity Insurance Authority) at statutory coverage limits, without a deductible. The Town had no significant changes in insurance coverage during the year. For the Fiscal Year ending June 30, 2023, the Town incurred liability claims expenses totaling $73,362. There was one open claim as of June 30, 2023. B. Contingencies and Commitments Litigation The Town is involved in litigation incurred in the normal course of conducting Town business. Town management believes, based upon consultation with its counsel, that these cases, in the aggregate, are not expected to result in a material adverse financial impact on the Town. Disallowed Claims Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the government expects such amounts, if any, to be immaterial. C. Public Employees Retirement System Plan Description - Based on PERS eligibility criteria all qualified permanent and probationary employees are eligible to participate in the Towns following cost-sharing multiple employer defined benefit pension plans (Plans): Town Miscellaneous (Tier 1) Town Miscellaneous (Tier 2) Town Miscellaneous (Tier 3 - PEPRA) Town Safety (Tier 1) Town Safety (Tier 2) Town Safety (Tier 3 - PEPRA) The Plans are administered by the California Public Employees Retirement System (CalPERS). Benefit provisions under the Plans are established by State statute and Town resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided - CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits.
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 32 -
NOTE 5 - OTHER INFORMATION (continued) C. Public Employees Retirement System (continued) All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost-of-living adjustments for each plan are applied as specified by the Public Employees Retirement Law. The applicable PERS plan depends on the employee classification and hire date. In some situations, hiring of an employee who was previously an active member in PERS results in the Classic Plan benefit regardless of the date of hiring. The Plan provisions and benefits in effect at June 30, 2023, are summarized as follows: The Towns Miscellaneous and Safety Rate Plans are part of the public agency cost-sharing multiple-employer defined benefit pension plan (PERF C), which is administered by the California Public Employees Retirement System (CalPERS). PERF C consists of a miscellaneous pool and a safety pool (also referred to as risk pools), which are comprised of individual employer miscellaneous and safety rate plans, respectively. Individual employers may sponsor more than one miscellaneous and safety rate plan. The employer participates in one cost-sharing multiple-employer defined benefit pension plan regardless of the number of rate plans the employer sponsors. The Town sponsors six rate plans (three miscellaneous and three safety).
Town Miscellaneous Hire date Prior to August 1, 2012 8/1/2012 12/31/2012 (or Classic) On or after January 1, 2013 Benefit formula 2.5% @ 55 2% @ 60 2% @ 62 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 63 52 - 67 Monthly benefits, as a % of eligible compensations 2.0% to 2.5% 1.091% to 2.418% 1.0% to 2.5% Required employee contribution rates 8% 7% 6.25% Required employer contribution rates 19.176% 8.005% 6.25% Town Safety Hire date Prior to January 1, 2012 On or after January 1, 2012 (or Classic) On or after January 1, 2013 Benefit formula 3% @ 50 3% @ 55 2.7% @ 57 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 55 50 - 57 Monthly benefits, as a % of eligible compensations 3% 2.4 to 3% 2.0% to 2.7% Required employee contribution rates 9% 9% 11.5% Required employer contribution rates 34.595% 20.774% 11.5% Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 33 -
NOTE 5 - OTHER INFORMATION (continued) C. Public Employees Retirement System (continued) Contributions - Section 20814(c) of the California Public Employees Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The Town is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. In fiscal year 2015, the Town established a Section 115 irrevocable trust with the Public Agency Retirement Systems (PARS). As of June 30, 2023 the Town reported the account balance of $3,584,994 as restricted investments in the General Fund. For the year ended June 30, 2023, the contributions recognized as part of pension expense for each Plan were as follows. As of June 30, 2023, the Town reported net pension liabilities for its proportionate shares of the net pension liability of the Miscellaneous and Safety Plans as follows: The Towns net pension liability for the Plans is measured as a proportionate share of the net pension liability. The net pension liability of the Plans is measured as of June 30, 2022, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2021 rolled forward to June 30, 2022 using standard update procedures. The Towns proportion of the net pension liability was based on a projection of the Towns long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The Towns proportionate share of the net pension liability for each Plan as of June 30, 2021 and 2022 was as follows:
Total Miscellaneous Employer Contributions $501,650 Total SafetyEmployer Contributions $2,209,945 Proportionate Share of Net Pension Liability Miscellaneous $ 2,646,844 Safety 10,033,727 Total Net Pension Liability $ 12,680,571 Town Miscellaneous Plan Miscellaneous Proportion - June 30, 2022 .057% Proportion - June 30, 2023 .058% Change Increase (Decrease) 0.01% Town Safety Plan Safety Proportion - June 30, 2022 .146% Proportion - June 30, 2023 .129% Change Increase (Decrease) (.017%) Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 34 -
NOTE 5 - OTHER INFORMATION (continued) C. Public Employees Retirement System (continued) For the year ended June 30, 2023, the Town recognized pension expense of $2,805,843. At June 30, 2023, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: $2,711,595 reported as deferred outflows of resources related to contributions after measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2024. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Actuarial Assumptions - For the measurement period ended June 30, 2022, the total pension liability was determined by rolling forward the June 30, 2021 total pension liability. The June 30, 2022 total pension liability was based on the following actuarial methods and assumptions: (1) The mortality table used was developed based on CalPERS specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the CalPERS 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) available on CalPERS website. Changes of Assumptions There were no changes of assumptions for measurement date June 30, 2022.
Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 2,711,595 $ - Differences between actual and expected experience 468,413 144,558 Changes in assumptions 1,282,928 - Net differences between projected and actual earnings on plan investments 2,069,297 - Change in proportions and differences between actual Contributions and proportionate share of contributions 1,291,604 971,692 Total $ 7,823,837 $ 1,116.250 Year Ended June 30 2024 $ 1,183,562 2025 991,218 2026 558,128 2027 1,263,084 Total $ 3,995,992 Valuation Date June 30, 2021 Measurement Date June 30, 2022 Actuarial Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 6.90% Inflation 2.50% Projected Salary Increase Varies by Entry Age and Service Mortality Derived using CalPERS Membership Data for all Funds (1) Post Retirement Benefit Contract COLA up to 2.75% until purchasing power Increase protection allowance floor on power applies, 2.75% thereafter Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 35 -
NOTE 5 - OTHER INFORMATION (continued) C. Public Employees Retirement System (continued) Discount Rate The discount rate used to measure the total pension liability was 6.90%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plans fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Long-Term Expected Rate of Return The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits of cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The expected real rates of return by asset class are as follows: Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate - The following presents the Towns proportionate share of the net pension liability for each Plan, calculated using the discount rate for each Plan, as well as what the Towns proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:
Asset Class Assumed Asset Allocation Real Return Years 1-10 1,2 Global equity cap-weighted 30.00% 4.45% Global equity non-cap-weighted 12.00% 3.84% Private Equity 13.00% 7.28% Treasury 5.00% 0.27% Mortgage-backed Securities 5.00% 0.50% Investment Grade Corporates 10.00% 1.56% High Yield 5.00% 2.27% Emerging Market Debt 5.00% 2.48% Private Debt 5.00% 3.57% Real assets 15.00% 3.21% Leverage -5.00% -0.59% 1. An expected inflation of 2.30% used for this period. 2. Figures are based on the 2021-22 Asset Liability Management study.
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 36 -
NOTE 5 - OTHER INFORMATION (continued) C. Public Employees Retirement System (concluded) Amortization of Deferred Outflows and Deferred Inflows of Resources - Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expenses. The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings - 5-year straight-line amortization All other amounts - Straight-line amortization over the average expected remaining services lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period. The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired) in the Public Agency Cost-Sharing Multiple-Employer Plan (PERF C). The EARSL for PERF C for the measurement period ending June 30, 2021, is 3.7 years, which was obtained by dividing the total service years of 561,622 (the sum of remaining service lifetimes of the active employees) by 150,648 (the total number of participants: active, inactive, and retired) in PERF C. Inactive employees and retirees have remaining service lifetimes equal to 0. Total future service is based on the members probability of decrementing due to an event other than receiving a cash refund. Pension Plan Fiduciary Net Position - Detailed information about each pension plans fiduciary net position is available in the separately issued CalPERS financial reports. D. Fund Balance for Governmental Funds Portions of the unassigned fund balance in the fund financial statements may be assigned to indicate tentative plans for financial resources being utilized in a future period, such as for general contingencies or capital projects. Such plans are subject to change, have not been legally authorized, and may not result in expenditure.
Miscellaneous Safety 1% Decrease 5.90% 5.90% Net Pension Liability $4,655,053 $15,600,700 Current Discount Rate 6.90% 6.90% Net Pension Liability $2,646,844 $10,033,727 1% Increase 7.90% 7.90% Net Pension Liability $994,587 $5,483,984 Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 37 -
NOTE 5 - OTHER INFORMATION (concluded) D. Fund Balance for Governmental Funds (concluded) General Fund Capital Improvement Project Fund Other Governmental Funds Total Non-spendable: Prepaid items $ - $ - $ - $ - Restricted: Restricted Pension trust 3,584,994 - - 3,584,994 Debt Service - - 386 386 Capital improvements - - Measure A - - 162,816 162,816 Measure W - - 92,622 92,622 Gas Tax - - 113,642 113,642 Housing impact Fee - - 280,475 280,475 Law enforcement - - 165 165 Public Safety Grant - - 21,315 21,315 Total 3,584,994 - 671,421 4,256,415 Committed fund balances: Debt service costs 600,000 - - 600,000 Compensated absences 1,064,098 - - 1,064,098 General & Economic reserve 15,000,000 - - 15,000,000 Total 16,664,098 - - 16,664,098 Assigned Fund Balances: Litigation 100,000 - - 100,000 Insurance 100,000 - - 100,000 Capital improvements - 2,954,690 2,651,976 5,606,666 Disaster response 750,000 - - 750,000 Total 950,000 2,954,690 2,651,976 6,556,666 Unassigned Fund Balance: General Fund 9,535,127 - - 9,535,127 Grand Total $ 30,734,219 $ 2,954,690 $ 3,323,397 $ 37,012,306 NOTE 6 - DEFERRED COMPENSATION PLAN The Town employees may defer a portion of their compensation under a Town sponsored Deferred Compensation Plan (the Plan) created in accordance with Internal Revenue Code Section 457. Under this Plan, participants are not taxed on the deferred portion of the compensation until it is distributed to them; distributions may be made only at termination, retirement, death or in an emergency as defined by the Plan. Separate from any amounts that employees voluntarily defer, regular employees are eligible to receive a $100 monthly matching contribution made to the Plan as a benefit by the Town. A total of 36 employees received this benefit during the fiscal year ending June 30, 2023. The Towns contributions towards this benefit for the fiscal year ended June 30, 2023 were $39,100.
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 38 -
NOTE 7 - POST-EMPLOYMENT BENEFITS OTHER THAN RETIREMENT The laws governing the Plan assets require Plan assets to be held by a Trust for the exclusive benefits of Plan participants and their beneficiaries. Since the assets held under this Plan are not the Towns property, are not managed by the Town and are not subject to claims by general creditors of the Town, they have been excluded from these financial statements. Other Post-employment Benefits Other Than Pensions (OPEB) For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense information about the fiduciary net position of the Towns Retiree Benefits Plan (the Plan) and additions to/deductions from the Plans fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, the Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Plan Description Benefit Tier A covers POA and PCR employees hired before May 31, 2008, and General employees hired before July 1, 2012. The Town pays 100% of medical premiums. Benefit Tier B covers General employees hired between July 1, 2012, and March 31, 2017, and POA and PCR employees hired after June 1, 2008, but before June 30, 2012. The Town pays the medical premium multiplied by a vesting percentage, ranging from 50% for those with at least 10 years of service to 100% for those who have 20 or more years of service. Benefit Tier C covers POA and PCR employees hired between July 1, 2012, and March 31, 2017. Benefits are the same as Tier B, but the maximum paid by the Town is capped at the highest of the second most costly plan. Benefit Tier D for General, POA, and PCR employees hired after April 1, 2017, the Town pays the PEMHCA minimum for those enrolled in a CalPERS medical plan. As stated in the memorandums of understanding with the POA and PCR, the start date for this Tier was January 1, 2017. The implementation of the required plans delayed the implementation to April 1, 2017. No new employees were eligible between January 1, 2017, and March 31, 2017. The Town pays 100% of the dental premiums for General employees and PCR employees hired before May 1, 2010, and for POA employees hired before June 1, 2008. Employee benefits are governed by the Town Council. Employees Covered by Benefit Terms On June 30, 2022 (the measurement date), the benefit terms covered the following employees: Category Count Inactive employees, spouses, or beneficiaries currently receiving benefit payments: 40 Inactive employees entitled to but not yet receiving benefit payments: 0 Active employees: 48 Total 88 Contributions The Town makes contributions based on an actuarially determined rate. Reporting period contributions $1,385,258 (includes implicit subsidy credit.) Financial Report The Town issues a stand-alone financial report that is available to the public. The report is available at: //www.colma.ca.gov/departments/finance/ Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 39 -
NOTE 7 - POST-EMPLOYMENT BENEFITS OTHER THAN RETIREMENT (continued) Net OPEB Liability The Towns total OPEB liability was valued as of June 30, 2022 and was used to calculate the net OPEB liability measured as of June 30, 2022. Actuarial Assumptions The total OPEB liability in the June 30, 2022 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified: Measurement Date: June 30, 2022 June 30, 2021 Discount Rate 5.00% 4.97% Investment Rate of Return 5.00% 4.97% Inflation 2.30% 5.50% Healthcare Cost Trend Rates Pre-Medicare 6.5% 6.5%* *Trending down to 4.04% over 55 years. Applies to calendar years. Medicare 4.0% 4.0%* Salary Increases 2.80% 2.75%** **Additional merit-based increases based on CalPERS merit salary increase tables. Mortality Rates Based on CalPERS tables. Projections of the sharing of benefit-related costs are based on an established pattern of practice. Experience studies come from the CalPERS Pension Assumption Model, revised May 14, 2018. Inactive employees (retirees) pay the cost of benefits more than the Towns contribution. There were no ad hoc postemployment benefit changes (including ad hoc COLAs) to the plan. There were no changes between the measurement date and the report date that are expected to have a significant effect on the total OPEB liability. Discount Rate GASB 75 allows the use of a discount rate that is up to the expected long-term rate of return on the assets in the Trust set aside to pay benefits, if the plan sponsor makes regular contributions to the Trust such that the assets are not depleted at any point in the future. If the Plans actuary determines that contributions are not sufficient to keep the Trust funded, a blend of the long-term rate of return and the yield or index rate for 20-year, tax-exempt municipal bonds will be used for the periods when the Trust funds are not sufficient to cover benefit payments. Based on this requirement, and with the approval of the plan sponsor, the discount rate used to measure the total OPEB liability is 5.00% Long-Term Expected Real Rate of Return The long-term expected rate of return is determined using the long-term rates of return that reflects the long term expected rate of return on OPEB investments and the yield rate for the 20-year tax exempt general obligation municipal bonds with a rating of AA/Aa or higher. Asset Class Target Allocation Asset Class Expected Return Equity 29% 4.38% Fixed Income 65% 1.09% Real Estate 1% 3.54% Cash 5% (0.45)% Total/Average 100% Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 40 -
NOTE 7 - POST-EMPLOYMENT BENEFITS OTHER THAN RETIREMENT (continued) Expected Average Remaining Service Lives (EARSL) The effects on the total OPEB liability of (1) changes of economic and demographic assumptions or of other inputs and (2) differences between expected and actual experience are required to be included in OPEB expense in a systematic and rational manner over a closed period equal to the average of the expected remaining service lives of all employees that are provided with benefits through the OPEB plan (active employees and inactive employees), beginning in the current period. The expected average remaining service lives (EARSL) for the current period follows. Note, however, that for calculation purposes, we use 1.0 when calculating amortizations if the EARSL is less than 1 year. EARSL: 5.2 years Changes in the Net OPEB Liability Total OPEB Liability Service cost $ 487,138 Interest 832,569 Benefit payments, included refunds of employee contributions (1,029,468) Change in assumptions (47,315) Difference between actual and expected experience (110,175) Implicit Subsidy Credit - Net change in total OPEB liability 132,749 Total OPEB liability - beginning of year 16,773,253 Total OPEB liability - end of year $ 16,906,002 Plan Fiduciary Net Position Net investment income $ (726,478) Contributions - Employer 1,757,297 Benefit payments, included refunds of employee contributions (1,029,468) Implicit Subsidy Credit - Administrative expense (33,182)Net change in plan fiduciary net position (31,831)Plan fiduciary net position - beginning of year 5,712,234 Plan fiduciary net position - end of year $ 5,680,403 Town's net OPEB liability - end of year $ 11,225,599 Sensitivity of Liabilities to Changes in the Discount Rate and Healthcare Cost Trent Rate Sensitivity of the total and net OPEB liability to changes in the discount rate. The total and net OPEB liability of the Town, as well as what the Towns total and net OPEB liability would be if they were calculated using a discount rate that is one percentage point lower (4.00%) or one percentage point higher (6.00%) follows: 1% Decrease (4.00%) Discount Rate (5.00%) 1% Increase (6.00%) Total OPEB Liability (Asset) $ 13,362,906 $ 11,225,599 $ 9,463,014 Sensitivity of the total OPEB liability to changes in the healthcare cost trend rates. The healthcare trend for this valuation started at 6.50% and decreased to 4.04% over 56 years. The total OPEB liability of the Town, as well as what the Towns total OPEB liability would be if it were calculated using healthcare cost trend rates that are one percentage point lower (5.60%) or one percentage point higher (7.60%) than current healthcare cost trend rates follows:
Town of Colma NOTES TO BASIC FINANCIAL STATEMENTS June 30, 2023 - 41 -
NOTE 7 - POST-EMPLOYMENT BENEFITS OTHER THAN RETIREMENT (concluded) 1% Decrease (5.60%) Trend Rate (6.60%) 1% Increase (7.60%) Total OPEB Liability (Asset) $ 9,304,698 $ 11,225,599 $ 13,575,319 OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2023, the Town recognized an OPEB expense of $849,009. The Town reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: $2,056,978 reported as deferred outflows of resources related to contributions after measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2024. Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Fiscal Year Ended 2024 $ (228,449) 2025 (215,707) 2026 82,536 2027 193,671 2028 (26,245) NOTE 8 - PRIOR PERIOD ADJUSTMENT The California committee on municipal accounting issued a white paper on implementing GASB 75. The whitepaper concluded OPEB Trusts assets of $5,607,591 should not be reported in the Towns financial statements. The prior period adjustment corrected the recording of the assets in compliance with the interpretation.
Deferred Outflows of Resources Deferred Inflows of Resources Contributions after measurement date $ 2,056,978 $ - Differences between actual and expected experience 503,424 619,070 Changes of assumptions 25,063 646,789 Net difference between projected and actual earnings on OPEB plan investments 543,178 - Total $ 3,128,643 $ 1,265,859
REQUIRED SUPPLEMENTARY INFORMATION
ATTACHMENT C
ATTACHMENT D
ATTACHMENT E
1701 NOVATO BLVD, SUITE 302
NOVATO, CA 94947
PH. (415) 457-1215
FAX. (415) 457-6735
www.maocpa.com
ATTACHMENT F
1101 FIFTH AVENUE, SUITE 360 SAN RAFAEL, CA 94901 TEL (415) 457-1215 FAX(415) 457-6735 www.rjrcpa.com R. J. RICCIARDI, INC.CERTIFIED PUBLIC ACCOUNTANTS