Agenda #: 7.1
Meeting Date: January 18, 2022
TO: Honorable Mayor and Members of the City Council
FROM: Daniel Fox, City Manager
TITLE: TRANSMITTAL OF THE FISCAL YEAR 2020-21 ANNUAL
COMPREHENSIVE FINANCIAL REPORT (ACFR) AND
APPROPRIATION OF UNASSIGNED GENERAL FUND RESERVES
TO VARIOUS FUNDS.
STRATEGIC
GOAL: Responsible Stewardship of Public Resources
RECOMMENDATION:
A. Receive and File the Fiscal Year 2020-21 Annual Comprehensive Financial Report; B. Assign $100,000 of Unassigned General Fund Reserves to the Technology Reserve Fund (104);
C. Assign $260,826 of Unassigned General Fund Reserves to the OPEB Reserve Fund (105);
D. Approve an appropriation of Unassigned General Fund Reserves in the amount of $742,536 to the Park & Facility Development Fund (262); and E. Approve an appropriation of Unassigned General Fund Reserves in the amount of $742,536 to the Building Maintenance & Replacement Fund (504).
FINANCIAL IMPACT:
The recommended action to assign funding to the OPEB Reserve Fund and Technology Reserve Fund will have no fiscal impact (these funds are within the General Fund).
The recommended action to appropriate funding to the Park & Facility Development Fund (262) and the Building Maintenance & Replacement Fund (504) will decrease the General Fund unassigned fund balance by $1,485,072.
BACKGROUND:
The Fiscal Year (FY) 2020-21 annual audit has been completed by the City’s independent audit firm of Lance, Soll and Lunghard, LLP (LSL). The City’s Finance Department, in concert with the LSL, has prepared the FY 2020-21 Annual Comprehensive Financial Report (ACFR). The City’s Audit Subcommittee, which is comprised of Mayor Low and Mayor Pro-Tem Chou, met with the City Manager, Finance Director and LSL to discuss the results of the audit.
In the opinion of LSL, the financial statements reflect fairly the financial position and results of operations for the fiscal year ended June 30, 2021.The auditors found no instances of material weaknesses in the City’s internal controls and no instances of noncompliance with certain provisions of laws, regulations, contracts or grants, which could have a material effect on the determination of financial statement amounts. They also indicated that there were no disagreements with management in completing their audit.
The ACFR has been prepared in conformance with the requirements of the Government Accounting Standards Board (GASB) Statement No. 34. As a result, the report format includes the Management Discussion and Analysis, Required Supplementary Information, and the Government-wide Financial Statements which include the Statement of Net Position and Statement of Activities. A copy of the FY 2020-21 ACFR is included as Attachment 1.
ANALYSIS:
For FY 2020-21, the total revenue from all sources was $34,048,571, which is slightly more than last year’s total by $30,534. Virtually all revenues were higher in comparison to the prior FY 2019-20, including sales taxes and property taxes, both of which grew by approximately 5%. The only notable decrease was in Transient Occupancy Taxes, which fell by $330,601 (29%) due to the pandemic.
The total cost of all City programs totaled $34,162,543. Total expenditures were down by $3.1 million over the previous year. This is due to an intentional reduction in the FY 2020-21 budget as part of an overall strategy to mitigate the expected impacts of the pandemic on City revenues, particularly in the General Fund. The City has continued to be very diligent in controlling growth in expenses. The largest declines in spending were in the Parks & Recreation and Public Works Departments, primarily driven by the impacts of the pandemic. In Parks & Recreation, because many of the programs were not provided due to state and county restrictions, the related costs were not incurred, such as seasonal salaries and supplies associated with providing those service. In addition, due to the lack of facility rental activity, related costs to maintain those facilities, including utility costs, were substantially reduced. In the Public Works Department, there was a general reduction in professional service contracts, many of which are tied to streets and other capital improvement projects that were deferred as one of several measures implemented to offset anticipated revenue declines due to the pandemic.
The total General Fund reserve balance as of June 30, 2021 was $27.7 million which represents an increase of $3.1 million compared to last year. This is a favorable result under any circumstances, and more so given that original expectations were for an operational deficit at year-end. The unassigned portion of the General Fund reserve as of June 30, 2021 was approximately $20.9 million, representing an increase of $2.2 million. The General Fund contingency reserve balance assigned for emergencies and economic uncertainty increased by approximately $800,000. A summary of the changes to General Fund reserves and other fund balances is presented in the table below.
Fund FY 2021 FY 2020 Change
General Fund $ 27,749,705 $ 24,692,884 $ 3,056,821
Capital Improvement Fund (39,885) (17,227) (22,658)
Other Governmental Funds 18,861,747 14,917,747 3,944,000 Totals $ 46,571,567 $ 39,593,404 $ 6,978,163
CITY OF DIAMOND BAR
Changes in Fund Balance Reserves
Contingency Reserve Fund
The FY 2020-21 ACFR includes the fund balance reserve reporting methodology set forth in GASB Statement No. 54. The City Council approved an updated Fund Balance and Reserve Funding Policy on August 20, 2019 (Res. No. 2019-36) which established an amount of no less than 25% of General Fund expenditures as a formal commitment of fund balance to be set aside as an emergency contingency for Federal, State or Local emergencies. At June 30, 2021, the amount committed to emergency contingencies totals $6,797,181. This amount is included within the $27.7 million General Fund reserve balance noted above. The amount committed for emergency contingencies under the previous Council policy was fixed at $4.5 million. A copy of the Fund Balance and Reserve Funding Policy is included as Attachment 2.
Other Post-Employment Benefits (OPEB) Fund
As required by GASB Statement No. 75, the ACFR includes disclosure of the City’s Other Post-Employment Benefits (OPEB) liability. In connection with the retirement benefits for employees provided through California Public Employees Retirement System (CalPERS), the City provides post-retirement health care benefits to retirees through the CalPERS Health Benefits program. Although the retiree pays most of the cost of this benefit the City is required to pay a small portion of this cost – the City’s OPEB obligation is derived from this benefit. The City’s total OPEB obligation at June 30, 2021 was $1,151,930. However, when taking into account the City’s OPEB trust fund balance of $517,328 (45% of liability) held with the California Employers’ Retiree Benefit Trust (CERBT) the net liability reduces to $634,602. Additional funding in the amount of $143,390 (12% of liability) is also set aside in a reserve fund held by the City for future contributions to the trust for a total funding status of 57%. This funding level is considered favorable compared to other cities. More information on OPEB may be found in Note 8 of the ACFR.
As stated in the City’s Fund Balance and Reserve Funding Policy (Section 4), the City’s OPEB Reserve Fund and OPEB Trust shall have a combined fund balance equal to 80% of the total OPEB liability. Funding for the OPEB liability was postponed in the prior FY 2020-21 due to the economic uncertainty related to the Covid-19 pandemic.
Pursuant to this policy, and in light of the General Fund operational surplus of $3.1 million, staff recommends that the City Council assign $260,826 of the surplus to the City’s OPEB Reserve Fund to bring the funding level up to 80%.
Technology Reserve Fund
The City’s Fund Balance and Reserve Funding Policy (Section 4) also establishes a minimum contribution of $100,000 to the Technology Reserve Fund. Due to the ongoing impacts of the Covid-19 pandemic, funding pursuant to the policy was postponed.
In light of the prior year General Fund operational surplus of $3.1 million staff recommends that the City Council assign $100,000 of the surplus to the City’s Technology Reserve Fund, bringing its fund balance to $301,918.
Park & Facility Development Fund and Building Facility & Maintenance Fund Another provision (Section 5) of the recently adopted Fund Balance and Reserve Funding Policy sets forth that after the minimum requirements set forth in Section 4 of the policy have been met, any remaining surplus at the end of the year shall be allocated to three funds in order to provide for the long-term fiscal sustainability of the City. These allocations include 40% transferred to the Park & Facility Development Fund, 40% transferred to the Building Facility & Maintenance Fund and the remaining 20% returned to the unassigned General Fund reserves. A remaining surplus in the amount of $1,856,340 is available for this allocation. Therefore, staff recommends that the City Council appropriate $742,536 (40%) to the Park & Facility Development Fund and to the Building Facility & Maintenance Fund consistent with the Fund Balance and Reserve Funding Policy.
Pension Liability
GASB Statement No. 68 requires the inclusion of Net Pension Liability in the Statement of Net Position. As of June 30, 2021, the City reported a total net pension liability of $6,563,014. The City’s plan is approximately 75% funded which is considered very good compared to other cities. More information on pensions may be found in Note 7 of the ACFR.
The Finance Department has submitted the FY 2020-21 ACFR to the Government Finance Officers Association (GFOA) for consideration to receive the Certificate of Achievement for Excellence in Financial Reporting program. The City of Diamond Bar has been honored to receive this award for the past twenty-six consecutive years.
PREPARED BY:
REVIEWED BY:
Attachments:
1. 7.1.a City of Diamond Bar Annual Comprehensive Financial Report FY 2020-21
2. 7.1.b Fund Balance and Reserve Funding Policy