City of Diamond Bar FY 2021/22 Annual Comprehensive Financial Report — Diamond Bar City Council, January 17, 2023

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Andrew Chou Stan Liu Ruth M. Low Chia Yu Teng Steve Tye Mayor Mayor Pro Tem Council Member Council Member Council Member District 3 At-Large At-Large District 4 District 1
City of Diamond Bar I 21810 Copley Drive Diamond Bar CA 91765-4178 www.DiamondBarCA.gov I (909) 839-7000
December 22, 2022
Honorable Mayor and Council Members
City of Diamond Bar
Diamond Bar, California
It is an honor to submit to you the Annual Comprehensive Financial Report (ACFR) of the City of Diamond Bar for the fiscal year ended June 30, 2022. This report consists of management’s representations concerning the finances of the City. Consequently, responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City’s management. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the City’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformance with generally accepted accounting principles (GAAP).

Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide assurance that the financial statements will be free from misstatement.

As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material aspects.

The City’s financial statements have been audited by Lance, Soll, & Lunghard, LLP, a firm of certified public accountants. The goal of the independent audit is to provide reasonable assurance that the financial statements of the City for fiscal year ended June 30, 2022, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation.

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Honorable Mayor and Council Members December 22, 2022
The independent auditor concluded based upon the audit that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements for the fiscal year ended June 30, 2022, were fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report.

GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement and should be read in conjunction with the MD&A. The City’s MD&A can be found immediately following the report of the independent auditors.

PROFILE OF THE CITY OF DIAMOND BAR
The City of Diamond Bar was incorporated on April 18, 1989, and is located at the eastern edge of Los Angeles County in the East San Gabriel Valley. Diamond Bar is primarily a residential community of about 57,000, situated among the meandering hills and valleys of Brea Canyon. Many desired services can be found in Diamond Bar's shopping and business centers. Recreational opportunities within the City include more than 75 acres of developed park facilities, hiking trails, a community center, a County-owned and operated 18-hole public golf course and more than 370 acres of undeveloped publicly owned open space.

Diamond Bar is also strategically located at the junction of the SR-57 and SR-60 freeways with easy access to I-10 and SR-71 freeways. This makes Diamond Bar a desirable and convenient location to live and work within close proximity to Los Angeles, Orange, Riverside and San Bernardino counties.

Diamond Bar is a General Law city and operates under the council-manager form of government. Policy making and legislative authority are vested in a five- member City Council. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing Commissioners, and hiring both the City Manager and contracting for City Attorney services. The Council Members are elected on a non-partisan basis and serve four-year staggered terms, with elections held every other year. Each December, the City Council selects a Mayor and Mayor Pro Tem from its membership. The City Manager is responsible for overseeing the day-to-day operations of the City, and for appointing the heads of the various departments.

The City of Diamond Bar operates primarily as a “contract city” utilizing agreements with other governmental agencies, private sector firms and individuals to provide many of its essential services. This includes police services, animal services, building and safety services, engineering, road maintenance and landscape maintenance.

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Honorable Mayor and Council Members December 22, 2022
The Los Angeles County Fire District provides fire protection, which is independent of the City. Los Angeles County also provides library services through a Library District, and sewer and sanitation services through a Sanitation District. Funds for these services are collected through property tax bills and are disbursed directly by the Los Angeles County Tax Collector's Office to those entities.

Water services for the City are provided by the Walnut Valley Water District.

Refuse collection is provided by private waste collection companies.

Additionally, schools are provided by both the Walnut Valley Unified School District and the Pomona Unified School District. Accordingly, none of these activities are included in this report.

ECONOMIC CONDITION AND OUTLOOK
Following two years of significant economic uncertainty and instability resulting from a global pandemic, the near term outlook is much more favorable. Starting in early 2020, the COVID-19 global pandemic created a devastating worldwide health crisis impacting the United States, including California, Los Angeles County and Diamond Bar. While not totally eradicated, there is optimism that the worst is behind us, thus allowing the State, County and City to restore programs and services to pre-pandemic levels.

From a financial perspective, there is reason to be more optimistic. Because of the severe financial impacts to cities across the nation, on March 11, 2021 the President signed the American Rescue Plan Act (ARPA) which is a $1.9 trillion relief package to mitigate the continuing effects of the COVID-19 pandemic. Of that amount, approximately $64 billion has been allocated to provide direct and flexible financial resources for every city and town in the nation.

The City of Diamond Bar received just over $6.8 million in ARPA funds in two equal installments – the first in June 2021 and the second in June 2022. These funds may be used for a broad range of purposes including the replacement of lost revenue, restoration of City programs and services, COVID-19 expenses not otherwise reimbursed, and projects that help build resiliency and financial stability for the residents and businesses of the City.

The first installment of ARPA funds the City received of $3.4 million was used to replace lost revenue, restore many City programs and services, and to balance the fiscal year 2021/22 Budget. The second installment of $3.4 million received in June 2022 has been programmed into the fiscal year 2022/23 Budget for general governmental services to help build resiliency and financial stability for the City, thus generating additional one-time General Fund resources.

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Honorable Mayor and Council Members December 22, 2022
While the receipt of ARPA funds certainly provided a tremendous amount of financial relief, avoiding much more drastic cuts and a significant reduction in reserves, we are also seeing a return to normal growth in some of our key revenues that are linked to economic conditions. In particular, sales tax and transient occupancy tax revenues both grew back to pre-pandemic levels in this reporting period. Sales tax revenues grew 20% and TOT grew by 70% in fiscal year 2021/22.

As a result of both the federal relief funds received and the rebound of City revenues, the Adopted Fiscal Year 2022/23 Budget incorporates a much more positive outlook and continues to restore many City programs and services, advance deferred maintenance and Capital Improvement Projects, and focuses on key initiatives consistent with the City's Long-Term Financial Stability Report and Strategic Plan. However, management remains cautious given the pressure on rising costs driven by a competitive labor market, higher fuel prices and the possibility that the recent steep rise in inflation and interest rates may lead to a recession.

AWARDS
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Diamond Bar for its annual comprehensive financial report for the fiscal year ended June 30, 2021. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local financial reports.

In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized annual comprehensive financial report (ACFR), with contents that conform to program standards. The ACFR must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. The City of Diamond Bar has received the Certificate of Achievement for the last twenty-seven consecutive years (fiscal years ended 1995 through 2021). We believe our current report continues to meet the Certificate of Achievement Program’s requirements and we will be submitting it to GFOA to determine its eligibility for another certificate.

REPORTING ENTITY AND ITS SERVICES
This Annual Comprehensive Financial Report includes all funds of the City. The City directly provides a limited range of services and contracts for several other services. The City's significant reliance on contracted services has the benefit of reducing expenses to the citizens of the City of Diamond Bar while simultaneously providing the City with a high degree of flexibility in responding to changing LY
Honorable Mayor and Council Members December 22, 2022
services include: community development (which includes planning, economic development, building and safety management, and neighborhood improvement), public works (which includes engineering, capital projects administration, street maintenance contract management, traffic and transportation matters, engineering contract management, park maintenance, landscape maintenance and solid waste contract management), parks & recreation (which includes senior services, recreation services, community events and community center operation), public information, subsidized transit ticket sales, grant administration, financial management and administrative management. All of these activities are included in this report.

INTERNAL CONTROLS
The City of Diamond Bar’s accounting system has been developed by giving consideration to the adequacy of internal accounting controls. Internal accounting controls are implemented by the City to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition; and that the City’s financial records used for preparing financial statements are maintained in a reliable fashion. The concept of reasonable assurance recognizes that the cost of these controls should not exceed the benefits derived from them. The City’s internal controls accomplish these objectives.

ACKNOWLEDGEMENTS
The preparation of this Annual Comprehensive Financial Report was made possible by the dedicated service and excellence found within the City's Finance Department staff, and through the cooperation of the entire City staff. Each City staff member has my sincere appreciation for their cooperation and contributions in the preparation of this Report.

I would like to thank Jason Jacobsen, Finance Director, for his prudent fiscal stewardship. In addition, I would also like to thank our independent auditor, Lance, Soll, and Lunghard, LLP, who provided expertise and advice in the preparation of the City's Annual Comprehensive Financial Report.

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Honorable Mayor and Council Members December 22, 2022
In closing, without the leadership and support of the City Council of the City of Diamond Bar, the preparation of this Report would not have been possible.

Sincerely,
Daniel Fox
City Manager
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Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Diamond Bar
California
For its Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2021
Executive Director/CEO
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DIAMOND BAR RESIDENTS

CITY COUNCIL

CITY MANAGER

CITY CLERK

PUBLIC INFORMATION

HUMAN RESOURCES & RISK

MANAGEMENT

FINANCE

INFORMATION SYSTEMS

COMMUNITY DEVELOPMENT PARKS & RECREATION

PUBLIC WORKS

PUBLIC SAFETY

CITY ATTORNEY CITY COMMISSIONS

PLANNING

PARKS & RECREATION

TRAFFIC & TRANSPORTATION
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MANAGEMENT’S DISCUSSION AND ANALYSIS
As management of the City of Diamond Bar, we offer readers this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2022. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal.

FINANCIAL HIGHLIGHTS
x The total revenues from all sources totaled $39,208,771. x The total cost of all City programs totaled $33,520,980. x The assets and deferred outflows of the City of Diamond Bar exceeded its liabilities and deferred inflows at the close of the fiscal year by $387,689,427 (net position). Of this amount, $28,511,364 represents unrestricted net position may be used to meet the City’s ongoing obligations to citizens and creditors.
x As of the close of the current fiscal year, the City of Diamond Bar’s governmental funds reported combined ending fund balances of $55,891,123, an increase of $9,615,849 in comparison with the prior year.

Approximately $21.4 million of the $55.9 million is available for spending at the City’s discretion.
x At the end of the current fiscal year, the Unassigned Fund Balance of the General Fund was $21,566,233 which represents an increase from the prior year amount of $20,950,249. The General Fund Unassigned Fund Balance of $21,566,233 is in addition to a $7,864,770 General Fund 25% reserve for emergencies/contingencies as established by Council Resolution No. 2019-01
x In June 2022 the City received $3.4 million is American Rescue Plan Act funds. This is the second of two equal advances the City has received, with the first installment to be received in June 2021. The funds received in June 2021 were used by the City in fiscal year 2021/22 to replace lost revenue, restore many City programs and services, and to balance the fiscal year 2021/22 Budget.

OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis are intended to serve as an introduction to the City of Diamond Bar’s basic financial statements. The City of Diamond Bar’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements.

This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-wide financial statements – The Government–wide Financial Statements are designed to provide readers with a broad overview of the City of Diamond Bar’s finances, in a manner similar to a private-sector business.

The Statement of Net Position presents financial information on all of the City of Diamond Bar’s assets, liabilities and deferred inflows/outflows of resources with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Diamond Bar is improving or deteriorating.

The Statement of Activities presents information showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).

Both of the government-wide financial statements distinguish functions of the City of Diamond Bar that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Diamond Bar include general government, public safety, highways and streets, community development, and parks and recreation. The City of Diamond Bar currently has no business-type activities or enterprise funds.

The government-wide financial statements include not only the City of Diamond Bar itself, but also a legally separate financing authority. Although legally separate, the Diamond Bar Public Financing Authority is included because the City is financially accountable for it.

Fund financial statements – A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Diamond Bar, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds.

Governmental Funds – Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources available at the end of the fiscal year. Such information may be useful in assessing the near-term financing requirements necessary to finance City programs.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impacts of the City’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City of Diamond Bar adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget.

Proprietary Funds – The type of proprietary funds that the City maintains are internal service funds that are used to allocate costs internally among the various functions of the City. The City of Diamond Bar uses these funds to account for its liability insurance costs and vehicle, building and computer maintenance and replacement costs. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities within the government-wide financial statements.

Notes to the Financial Statements – The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

Other Information – In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s budgetary control and accounting and expenditures in excess of appropriations.

GOVERNMENT-WIDE FINANCIAL ANALYSIS
Going into FY 2021/22, there was still a bit uncertainty regarding the impacts of the pandemic on the broader economy and local revenues. Revenues had still not fully recovered and services were not back to pre-pandemic levels. In March of 2021, the President signed the American Rescue Plan Act (ARPA), providing $1.9 trillion in federal relief to mitigate the impacts of the COVID-19 pandemic. Of that amount, approximately $64 billion was provided to provide direct and flexible financial resources for every city and town nationwide. The City received a total of $6.8 million in two installments of approximately $3.4 million each, the first in June 2021 and the second a year later in June of 2022.

The adopted General Fund budget reflected a surplus of $1,897,062, which included approximately $1,688,430 of the $3.4 million in ARPA received in June of 2021 to replace lost revenue and to begin restoring city services and programs back to pre-pandemic levels. Actual results were more favorable as actual revenues exceeded expenditures in the General Fund by $2,773,292.

Much of the favorable results relative to budget were attributable to revenue growth, which exceeded original revenue estimates by almost $2.4 million. In particular, both sales tax and transient occupancy tax revenues together exceeded original estimates by over $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 City and the nation moving much closer to normalcy. In fact, the $1,359,842 in transient occupancy taxes received in FY 2021/22 is well above the previous high of $1,222,925 established in FY 2018/19 and well above the $797,885 received in FY 2020/21 during the height of the pandemic.

On the expenditure side, after scaling back spending in FY 2020/21, including the Capital Improvement program, the City has been able to commit more resources to restore services, programs and capital projects due to the increased revenues and the receipt of ARPA funds during the year. Nevertheless, expenditures still ended the year below budget by more than $2.2 million. The largest savings, totaling $1.15 million, were in contracted/professional services.

City-wide Statement of Net Position – The Statement of Net Position is intended to measure an agency’s financial health at the end of the fiscal year. The “net position” is the net of the agency’s total assets and its total liabilities. At June 30, 2022, the City of Diamond Bar’s net position (total assets and deferred outflows less total liabilities and deferred inflows) was $387,689,427 (see Table 1).

By far the largest portion of the City’s net position (86%) is its investment in capital assets (e.g., land, buildings, infrastructure, machinery, equipment, and construction in progress), net the related outstanding debt used to acquire those assets. The City of Diamond Bar uses these capital assets to provide services to its citizens; consequently, these assets are not available for future spending.

Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. As shown in Table 1 below, the City’s investment in capital assets (net of related debt) decreased by approximately $6.75 million, which was largely the result of $7.9 million in depreciation expense offset by additional investments of $577,863 and a reduction of debt used to finance the capital assets.

Table 1

CITY OF DIAMOND BAR
Statement of Net Position
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The City’s restricted net position, as shown in Table 1, increased by $7.2 million from last year. This is due to the unspent portion of revenues received restricted to a variety of programs and projects, including streets and related infrastructure (sidewalks, street lighting, storm drains, traffic management, etc.), and storm water management. Since it takes more than a year to design and then construct many of the projects, the accumulation of these restricted funds is typical.

The unrestricted portion of the total net position shown in Table 1 represents those funds the City can use at its sole discretion. This portion is often looked at when evaluating a city’s financial health. The unrestricted portion of total net position increased by $4.9 million. This is primarily due to the $1.1 million increase in unrestricted net position in the City’s internal service funds resulting from the budgeted transfers of funds from the General Fund to intentionally build up reserves for maintaining and replacing equipment, vehicles and facilities. Another $2.2 million of the increase is due to the net surplus for the fiscal year generated in the General Fund which, as noted earlier, was the result of a combination of higher than expected revenues and expenditure savings.

Changes in Net Position – Although the Statement of Net Position discussed above is an important measure of financial health, it is only at a specific point in time. A more useful measure is how the City’s financial position is changing over time.

Table 2 below present a summary of the City’s change in net position from the prior year, and the specific revenue and expenditure performance that caused the change.

Overall, the City ended the year with an increase to its net position of $5.4 million (net of a restatement adjustment). This is a substantial increase from the $272,089 increase (net of a restatement adjustment) in the prior year when the pandemic was in full force. Although the General Fund contributed a meaningful portion to the overall increase in net position, most of the increase is attributable to the recognition of the first $3.4 million in ARPA grant funds this fiscal year.

Table 2

CITY OF DIAMOND BAR
Changes in Net Position
Many of the reasons leading to these results have already been discussed, but some of the more notable factors are discussed below.

Revenues
As show in Table 2, total revenues on a citywide basis were $39.2 million. This is approximately $5.2 million higher than last year. As previously discussed, the increase is largely due to the $3.4 million in ARPA revenues recognized this fiscal year. However, there are a few other notable revenues that impacted the current fiscal year results.

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The most notable revenue is sale tax revenue. As shown in the accompanying chart, sales taxes grew in FY 2021/22 by 20% from FY 2020/21. This is a tremendous increase from what the City has seen
even in pre-pandemic years. The
impact of the pandemic is visible with
the 2.5% decline in sales tax revenues in
FY 2019/20 when the pandemic
caused closures to those businesses
that generate sales taxes, such as
restaurants and retail outlets.

The sharp and unexpected increase in
sale tax revenues is primarily due to a
corresponding sharp increase in fuel
prices which are also subject to sales
taxes. Last year the City received $712,839 in sales taxes from fuel sales. This year, that rose to $1,244,532 – an increase of 74.6%. The other sector that contributed to the overall increase was restaurants and hotels, which increased by $264,946 (45.7%) to $844,875. The growth in this sector is significant as it signals, for now, a return to more normal conditions where consumers are now back to eating out and staying at hotels after a near collapse of this sector during the pandemic.

Similar to the sales tax revenues described above, which are derived from the Bradley-Burns 1% local share of sales taxes, growth in other sales tax-based revenues, specifically what are termed Local Return funds, grew dramatically from last year. These include Propositions A and C, and Measures M and R. These are all ½ cent sales tax measures approved by voters in Los Angeles County over the last 40 years. Each of these carry restrictions as to their use, with the first of these measures, Proposition C passed in 1980, being the most restrictive, requiring the funds be used for transit-related programs and projects. The other measures provide more flexibility, allowing the funds to be used for transportation-related purposes, including roads, sidewalks, street lighting, etc. In FY2021/22, the City received a total of $4,556,003 in Local Return funds compared to $3,653,495 received last year. In addition to the growth in the 1% sales tax revenues, the growth in these restricted sales tax revenues contributed to the overall strong financial performance this fiscal year on a citywide basis.

Mirroring the growth in sales taxes, the other revenue that saw a strong rebound was transient occupancy tax (TOT) revenue. TOT revenues peaked in FY 2018/19 at $1,222,925. In FY 2020/21, they dropped sharply to $797,785 due to the impacts of the pandemic. Then, in just one year, revenues grew to $1,359,842, representing a 70% increase from last year. However, $1,359,842 represents a growth of 11.2% increase over a two-year period, which is more in line with normal growth rates. &ŝƐĐĂů
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Expenses
The FY 2020/22 budget was developed with the intention of some degree of restoring programs and services across the organization, in particular in the General Fund. As such, fiscal year budgeted and actual expenditures were higher in FY 2021/22 than in FY 2020/21. Specifically, the FY2021/22 General Fund budget as revised totaled $30.6 million compared to the FY 2020/21 revised budget of $25.5 million.

It was also an opportunity to add to existing reserves pursuant to City reserve policies that was not possible in fiscal years 2019/20 or 2020/21. A total of $1.8 million was deposited into the OPEB reserve, Information Technology Replacement reserve, Park Development Fund reserve, and the Building Maintenance reserve. While these are treated as an expenditure of General Fund resources, the monies are being set-aside in those funds for future needs of the City.

In addition to restoring programs and services, the City also increased its capital improvement program. In FY 2020/21, the City had to scale back its capital program due to reduced revenues largely tied to the pandemic. In FY 2021/22, the City’s capital program increased from $3.5 million to $7.5 million. While much of the funding comes from grants and other restricted revenues, the growth nonetheless helps explain the increase in the overall spending. 5HVHUYHV
In 2011 the City Council adopted Resolution No. 2011-26 establishing policies related to fund balance and reserves. These policies were amended in August of 2019 with the adoption of Resolution No. 2019-36. In general, reserves are intended to serve a variety of goals and purposes. One of the key reserves set forth in the City’s reserve policies is for emergencies, such as natural disasters (earthquakes, flooding, wildfires, etc.), or unexpected events and circumstances that impact the City’s finances. The recent global pandemic is an excellent example of this type of emergency. Another purpose of reserves is to set aside funds for the replacement of equipment, vehicles, facilities, and other capital needs. The accumulation of such funds over time reduces the need for capital financing and minimizes the financial burden of funding capital items, which often are very expensive, in a single year.

The degree to which a city has set aside reserves for the purposes noted above is an important measure of a city’s financial health. To that end, the City’s reserve policies establish the following reserves:

1. Contingency Reserve – No less than 25% of adopted annual General Fund budgeted expenditures to provide for economic uncertainties, local emergencies or disasters, and other financial hardships or downturns in the local economy, including unforeseen operating or capital needs and cash flow requirements.

2. Other Post-Employment Benefit (OPEB) Reserve Fund – To cover the projected cost of future retiree benefits, the City will maintain a reserve so that the combined amount of the reserve and funds held in an OPEB trust are no less than 80% of the total OPEB liability based on the most recent actuarial valuation.

3. Building Facility and Maintenance Fund – The City will make annual contributions to this fund from the General Fund of no less than $100,000 to provide for the future replacement of systems and equipment at City Hall, the Diamond Bar Center, and other City buildings and facilities. In addition, the City will transfer 40% of the General Fund year-end surplus after funding the other reserves described in this section.

4. Vehicle Maintenance and Replacement Fund – To provide funding for the timely replacement of vehicles and related equipment with an individual cost of $10,000 or more, the City will make an annual contribution from its General Fund to the Vehicle Maintenance and Replacement Fund in an amount equal to the fund’s estimated operating costs plus depreciation, net of any interest earnings and proceeds from the sale of assets.

5. Technology Reserve Fund – The City will maintain a technology reserve fund to accumulate funds for the replacement of essential technology systems and equipment. The annual contribution from the General Fund will be no less than $100,000.

6. Park Development Fund – This fund provides for the development and enhancement of the City’s parks and facilities. The City will transfer 40% of the General Fund year-end surplus after funding the other reserves described in this section.

Table 3

CITY OF DIAMOND BAR
Changes in Reserves
The most striking thing to note from Table 3 above is that total reserves, as set forth in the City’s reserve policies, increased by $4,336,914 (or 14.8%) to a total of $33.6 million, a testament to the City Council’s long-standing commitment to fiscal responsibility. It is important to note that all of these individual reserves listed in Table 3 ultimately derive from the General Fund, either from the allocation of year-end surpluses or annual contributions pursuant to the reserve policies summarized earlier.

The $1,067,589 increase in the Contingency Reserve stems from the requirement that it be set at 25% of budgeted expenditures. This reserve requirement grows commensurately with the growth in the FY2022/23 Adopted Budget relative to the prior year.

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The reserves set aside for the General Plan Update are not tied to reserve policies; they are intended to cover the costs to update and implement the General Plan over the next several years. Virtually all of the reserve balances were funded from a $920,000 transfer from the General Fund during this reporting period, the majority of which was a one-time transfer of monies necessary to fund the cost of developing the City’s new Downtown Specific Plan.

FUND FINANCIAL ANALYSIS
As noted earlier the City of Diamond Bar uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. These are presented starting on page 23 of the financial statements.

Governmental funds - The focus of the City of Diamond Bar’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a city’s net resources available for spending at the end of the fiscal year.

At June 30, 2022, the City of Diamond Bar’s governmental funds reported combined ending fund balances of $55.9 million, an increase of $9.3 million in comparison with the prior year.

Approximately 38% of this amount ($21,378,805) constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of the fund balance is either restricted for particular purposes ($26.2 million), committed to contingencies per City policy ($7,864,770), assigned to a technology reserve ($442,418), or unassigned ($21,378,805).

The General Fund is the main operating fund of the City. It is where most traditional services associated with local government, including public safety, recreation, development services, economic development, and public works.

The services are funded primarily from unrestricted tax revenues, such as taxes and charges for services. At the end of the current fiscal year, the unassigned fund balance of the General Fund was approximately $21.6 million, while the total fund balance was $30.2 million. This represents an increase of $2.5 million from last year. As a measure of the General Fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures.

Unassigned fund balance represents 79.7% of total General Fund expenditures for FY2021/22 including transfers out, while total fund balance represents 112% of the same amount.

The factors leading to this increase are largely the same as those discussed above for the City as a whole, including, the use of ARPA revenues, and strong performance in sales tax and TOT revenues.

CAPITAL ASSET AND DEBT ADMINISTRATION
Capital assets - The City of Diamond Bar’s investment in capital assets for its governmental activities as of June 30, 2022 amounts to $340.4 million (net of accumulated depreciation). This investment in capital assets includes land, Right of Way, buildings and improvements, furniture and fixtures, vehicles and equipment, infrastructure and construction in progress.

Table 4
The City’s capital assets decreased in value by approximately $7.3 million during FY 2021/22. This decrease was due primarily to depreciation expense totaling almost $7.9 million, offset by a net increase in construction in progress and other capital assets of $577,863.

Construction in progress at the end of the year included projects in various stages of design or construction. Virtually all of the $2.1 million of construction in progress relates to streets improvement projects, including both residential and arterial roadways.

See footnote 4 on page 44 for more information on capital assets.

Long-term debt – At the end of the current fiscal year, the City of Diamond Bar’s total long-term debt totaled $7,222,925, which includes outstanding bonds payable and accrued compensated absences as shown in the table below. ŝƚǇŽĨŝĂŵŽŶĚĂƌ
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ŽŶƐƚƵĐƚŝŽŶŝŶWƌŽŐƌĞƐƐ Ϯ͕Ϭϱϯ͕ϯϱϳ Ϯ͕ϰϬϰ͕ϳϭϰ
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Table 5
In June 2021 the City issued the 2021 Lease Revenue Refunding Bonds to refinance the 2002 Lease Revenue Bonds. The 2002 bonds were originally issued to finance the construction of a community/senior center (the Diamond Bar Center) and other public improvements. The refunding, which capitalized on historically low interest rates at the time, will result in a savings of $1,736,355 over the remaining life of the bonds.

In addition to the bonds, city employees have accrued leave time (sick and vacation) totaling $942,925 as of June 30, 2022. This liability is primarily paid out as time off or the use of sick time and to this extent does not result in an increase in costs.

See footnote 5 of page 44 for more information on long-term debt.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES
The adopted FY 2022/23 budget incorporates a positive outlook and continues to restore many City programs and services, most notably advances deferred maintenance and capital improvement projects, and focuses on key initiatives consistent with the City's Long-Term Financial Stability Report and Strategic Plan.

Similarly, the revenue outlook is reasonably optimistic, and growth in key General Fund revenues, including property taxes, sales taxes, TOT, and other taxes is expected to be moderate and in line with historic and pre-pandemic growth rates.

The City has budgeted to use the second installment of ARPA funds totaling $3.4 million which has been programmed into the FY 2022/23 budget for general governmental services to help build resiliency and financial stability for the City, thus generating additional one-time General Fund resources. However, the City will need to be cautious given the pressures of rising costs driven by increases in the consumer price index (CPI), a competitive labor market, higher fuel prices, and the possibility that the recent steep rise in inflation may lead to a recession.

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CONTACTING THE CITY’S FINANCIAL MANAGEMENT TEAM
This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the City of Diamond Bar’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City’s Finance Department, at the City of Diamond Bar, 21810 Copley Drive, Diamond Bar, California 91765.

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CITY OF DIAMOND BAR

BUDGETARY COMPARISON SCHEDULE

GENERAL FUND
YEAR ENDED JUNE 30, 2022
Variance with
Final Budget
Budget Amounts Actual Positive
Original Final Amounts (Negative)
Budgetary Fund Balance, July 1, as restated 27,453,412 $ 27,453,412 $ 27,453,412 $- $ Resources (Inflows):

Taxes 13,393,150 14,275,150 15,160,087 884,937
Licenses and Permits 1,979,900 1,979,900 2,016,861 36,961 Intergovernmental 10,407,410 10,407,410 10,388,653 (18,757) Charges for Services 963,545 1,083,815 1,093,828 10,013 Use of Money and Property 425,000 212,500 (627,973) (840,473) Fines and Forfeitures 370,000 370,000 436,610 66,610
Miscellaneous 288,580 288,580 168,333 (120,247)
Transfers In 326,500 1,230,132 1,211,369 (18,763)
Total Resources 28,154,085 29,847,487 29,847,768 281
Amounts Available for Appropriations 55,607,497 57,300,899 57,301,180 281 Charges to Appropriations (Outflow):

General Government
City Council 146,580 192,795 169,818 22,977
City Attorney 251,000 251,000 177,919 73,081
City Manager/Clerk 1,211,177 1,354,077 1,311,914 42,163 Finance 903,462 903,462 825,378 78,084
Human Resources 534,883 537,383 518,006 19,377
Information Systems 1,372,330 1,356,580 1,381,659 (25,079) Public Information 739,970 739,970 643,254 96,716
Contribution to OPEB Trust 88,000 88,000 88,000 -
City Clerk's Office 429,373 431,477 413,404 18,073
Diamond Bar Center 1,412,727 1,438,327 1,212,432 225,895 Subtotal General Government 7,089,502 7,293,071 6,741,784 551,287 Public Safety
Law Enforcement 7,720,419 7,720,419 7,584,721 135,698
Volunteer Patrol 4,000 4,000 - 4,000
Fire Protection 7,500 7,500 7,359 141
Animal Control 292,500 402,500 369,123 33,377
Emergency Preparedness 47,100 47,100 19,666 27,434
Subtotal Public Safety 8,071,519 8,181,519 7,980,869 200,650 Community Development
Community Development & Planning Admin. 820,606 1,748,444 798,193 950,251 Economic Development 257,210 232,210 188,714 43,496
Building & Safety 868,637 923,637 847,254 76,383
Neighborhood Improvement 365,041 365,041 369,509 (4,468) Subtotal Community Development 2,311,494 3,269,332 2,203,670 1,065,662 Parks and recreation
Parks and Recreation Admin. 2,036,231 2,051,231 1,735,837 315,394 Subtotal Parks and recreation 2,036,231 2,051,231 1,735,837 315,394 Public works
Public Works Administration 607,737 607,737 629,469 (21,732) Engineering 632,549 722,960 542,190 180,770
Road Maintenance 1,628,361 1,700,834 1,300,183 400,651
Landscape Maintenance 380,513 380,513 342,855 37,658
Landscape Maint-District #41 - - - -
Parks & Facilities Maintenance 1,670,580 1,626,580 1,510,345 116,235 Civic Center 598,405 598,405 488,541 109,864
Subtotal Public works 5,518,145 5,637,029 4,813,583 823,446 Capital Outlay - 80,000 - 80,000
Transfers Out 1,230,132 3,687,736 3,598,733 89,003
Total Charges to Appropriations 26,257,023 30,199,918 27,074,476 3,125,442 Budgetary Fund Balance, June 30 29,350,474 $ 27,100,981 $ 30,226,704 $ 3,125,723 $ See Notes to Required Supplementary Information. 62
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Diamond Bar City CouncilJanuary 17, 2023

Diamond Bar City Council
January 17, 2023