Agenda #: 7.1
Meeting Date: January 17, 2023
TO: Honorable Mayor and Members of the City Council
FROM: Daniel Fox, City Manager
TITLE: TRANSMITTAL OF THE FISCAL YEAR 2021/22 ANNUAL
COMPREHENSIVE FINANCIAL REPORT (ACFR).
STRATEGIC
GOAL: Responsible Stewardship of Public Resources
RECOMMENDATION:
Receive and File the Fiscal Year 2021/22 Annual Comprehensive Financial Report.
FINANCIAL IMPACT:
None.
BACKGROUND:
The Fiscal Year (FY) 2021/22 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 2021/22 Annual Comprehensive Financial Report (ACFR). The City’s Audit Subcommittee, which is comprised of Mayor Andrew Chou and Mayor Pro Tem Stan Liu, met on January 12, 2023 with the City Manager, Finance Director and an LSL representative 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, 2022. 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 2021/22 ACFR is included as Attachment 1.
ANALYSIS:
Citywide Revenues
For FY 2021/22, the total revenue from all sources (i.e., all funds) was $39.2 million, which exceeded last year’s total by $5.16 million (or 15%). General Fund revenues were $29.8 million, which was consistent with the revised budget amount. Much of these favorable results are attributable to the receipt of the first installment of ARPA monies in the amount of $3.4 million, plus revenue growth in sales tax and transient occupancy taxes which exceeded original revenue estimates by almost $1.7 million. In addition, revenues generated by the Diamond Bar Center contributed $270,851 in additional revenues above original estimates. The strong results in these key revenues certainly are reflective of the fact that the economy of the San Gabriel Valley region has moved much closer to normalcy during the last fiscal year.
Citywide Expenditures
The total cost of all City programs and activities totaled $33.5 million, a slight decrease of $0.6 million over the previous year. After scaling back planned spending in the prior FY 2020/21, including the Capital Improvement Program, the City committed more resources to restore services, programs and deferred capital projects in FY 2021/22.
However, expenditures for FY 2021/22 remained relatively flat which is due to various capital improvement projects still being in the design phases or early construction phases as of June 30, 2022. It takes more than a year to design and then construct many of these infrastructure projects; hence, the accumulation of funds designated for capital improvements is typical. Expenditures for the Capital Improvement fund came in $7.1 million below the revised budget for FY 2021/22. Of this amount, $7.0 million has been carried over for appropriation to the current FY 2022/23 for ongoing projects.
Total General Fund expenditures for FY 2021/22 were $27.1 million, an amount that was $3.1 million below the revised budget. This budgetary savings is mostly attributed to contracted/professional services which came in $2.08 million under budget. Of this amount, $1.16 million in encumbered funds, most of which is attributable to the Downtown Specific Plan Update, have been carried over for appropriation to the current FY 2022/23 to meet ongoing obligations.
Reserve Balances
Taken in aggregate, fund balances for all governmental funds is $55.9 million, which is an increase of $9.6 million compared to FY 2021/22, and of which $30.2 million is General Fund reserves which may be used to meet the City’s ongoing obligations to its citizens and creditors.
The total General Fund reserve balance of $30.2 million represents an increase of $2.8 million compared to last year. This is a favorable result under any circumstances, but should be viewed with the understanding that this amount includes savings generated by the first $3.4 million tranche of ARPA monies which were designated to replace lost revenues, fund ongoing public safety services, and restore part-time staffing in FY 2021/22. The City Council has further appropriated, by way of the FY 2022/23 Adopted Budget, any savings generated by ARPA funds to be utilized for various one-time projects. In addition, the use of reserves will be needed to fund the $1.16 million in encumbered General Fund appropriations that have been carried over from FY 2021/22 to FY 2022/23 for ongoing projects. Hence, at this time, there is no General Fund surplus that would be considered available for transfer pursuant to the City’s Fund Balance and Reserve Funding Policy.
The table below displays changes to fund balances for those funds which are relevant to the City’s Fund Balance and Reserve Funding Policy.
The FY 2021/22 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. Of the $2.8 million increase in General Fund Reserves, $1.07 million has been utilized to meet the 25% General Fund Emergency Contingency Reserve requirement for the current FY 2022/23 Adopted Budget.
As of June 30, 2022, the Total Unassigned portion of the General Fund reserve increased $1.3 million to $21.6 million. Within this Unassigned reserve amount, the portion attributed to the General Fund (100) – the main operating fund – increased by $521,464 to $19.7 million. Taken together, the Emergency Contingency reserve and the Unassigned General Fund (100) reserve represent 88% of the FY 2022/23 Adopted Budget of $31,459,080. Also notable is the reserve balance within the General Plan Update Reserve (103) which increased by $863,664 from the prior year. This is due to an appropriation (i.e., transfer) from the General Fund (100) for the Downtown Specific Plan Update. More information on fund balances may be found in Note 10 of the ACFR.
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, 2022 was $1,278,930. However, when taking into account the City’s OPEB trust fund balance of $547,852 (43% of liability) held with the California Employers’ Retiree Benefit Trust (CERBT) the net liability reduces to $731,078. Additional funding in the amount of $353,283 (28% 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 71%, which in an increase from the 57% funding status at June 30, 2021. This funding level is considered favorable compared to other cities. More information on OPEB may be found in Note 8 of the ACFR.
Pension Liability
GASB Statement No. 68 requires the inclusion of Net Pension Liability in the Statement of Net Position. As of June 30, 2022, the City reported a total net pension liability of $3,014,631. As of the most recent valuation date of June 30, 2021, the City’s plan is approximately 87% funded which is considered very good compared to other cities.
More information on pensions may be found in Note 7 of the ACFR.
Excellence in Financial Reporting
The Finance Department has submitted the FY 2021/22 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-seven consecutive years.
PREPARED BY:
REVIEWED BY:
Attachments:
1. 7.1.a City of Diamond Bar FY 2021/22 Annual Comprehensive Financial Report