Agenda #: 7.1
Meeting Date: January 16, 2024
TO: Honorable Mayor and Members of the City Council
FROM: Daniel Fox, City Manager
TITLE: TRANSMITTAL OF THE FISCAL YEAR 2022/23 ANNUAL
COMPREHENSIVE FINANCIAL REPORT (ACFR).
STRATEGIC
GOAL: Responsible Stewardship of Public Resources
RECOMMENDATION:
A. Receive and File the Fiscal Year 2022/23 Annual Comprehensive Financial Report; B. Approve an appropriation of Unassigned General Fund Reserves in the amount of $76,000 to the OPEB Reserve Fund (105);
C. Approve an appropriation of Unassigned General Fund Reserves in the amount of $1,204,585 to the Park & Facility Development Fund (262); and D. Approve an appropriation of Unassigned General Fund Reserves in the amount of $1,204,585 to the Building Maintenance & Replacement Fund (504).
FINANCIAL IMPACT:
The recommended action to appropriate funding in the amount of $76,000 to the OPEB Reserve fund, and $1,204,585 to both the Park & Facility Development Fund (262) and the Building Maintenance & Replacement Fund (504) will decrease the General Fund Unassigned Fund Balance by $2,485,170. The revised General Fund Unassigned Fund Balance will be $20,473,897.
BACKGROUND:
The Fiscal Year (FY) 2022/23 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 LSL, has prepared the FY 2022/23 Annual Comprehensive Financial Report (ACFR). The City’s Audit Subcommittee, which is comprised of Mayor Stan Liu and Mayor Pro Tem Chia Yu Teng, met on January 10, 2024 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, 2023. 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 2022/23 ACFR is included as Attachment 1.
ANALYSIS:
Revenues
Citywide revenues for FY 2022/23 from all sources (i.e., all funds) was $44.5 million, which exceeded last year’s total by $5.3 million (or 13%).
General Fund revenues were $33.4 million, an increase of $3.5 million (or 12%) from the prior year, and consistent with the revised budget of $32.7 million. As with the prior year, $3.4 million in General Fund revenue is attributable to the receipt of a second, and final, installment of ARPA monies. The FY 2022/23 year-over-year increase of $3.5 million is thus primarily a result of revenue growth across key sources such as: property tax in lieu (increased $326 thousand), sales taxes (increased $471 thousand), transient occupancy taxes (increased $103 thousand), property taxes (increased $511 thousand), investment earnings (increased $1.1 million), the Diamond Bar Center (increased $330 thousand) and fees for services related to engineering, building & safety, and recreation classes (increased $375 thousand in aggregate).
Expenditures
Citywide expenditures for all City programs and activities in FY 2022/23 totaled $37.4 million, an increase of $3.9 million over the previous year. The FY 2022/23 budget was developed with the intention 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 2022/23 than in FY 2021/22. Specifically, the FY 2022/23 General Fund budget totaled $32.8 million compared to the FY 2021/22 revised budget of $30.5 million.
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. In FY 2022/23, the City’s capital program increased from $7.5 million to $16.0 million. While much of the funding comes from grants and other restricted revenues, the growth nonetheless helps explain the increase in the overall spending that occurred generally throughout all categories.
General Fund Expenses – Budgetary Comparison
Total General Fund expenditures for FY 2022/23 were $29.0 million, an amount that was $4.7 million below the revised budget of $33.7 million. This budgetary savings is mostly attributed to unutilized funds appropriated for transfer-out in support other funds in the amount of $1.4 million (of which $1.3 million is needed to support on-going capital improvement projects and will be set aside for use in the current FY 2023/24). In addition to these savings, there was a combined savings of $1.9 million for contracted & professional services across all departments, of which $639 thousand has been carried over for re-appropriation in the current FY 2023/24 to meet ongoing contractual obligations (e.g. consultant services for the Town Center Specific Plan). Lastly, personnel and other operating expenditures came in $1.4 million less than budgeted.
General Fund Expenses – Year-Over-Year Comparison
Compared to the prior FY 2021/22, total General Fund expenses increased $1.9 million, mainly due to an increase of $585 thousand in contractual & professional services, an increase of $1.0 million in personnel and other operating expenses, and an increase of $263 thousand in transfer-out to other funds.
Reserve Balances
Taken in aggregate, fund balances for all governmental funds were $63.2 million at the end of FY 2022/23, an increase of $7.3 million compared to FY 2021/22. Of this total, $34.6 million in reserves belong to the City’s General Fund which may be used to meet the City’s ongoing obligations to its citizens and creditors.
Fund FY 2022/23 FY 2021/22 Change
General Fund $ 34,600,596 $ 30,226,704 $4,373,892
Other Governmental Funds 28,582,570 25,664,419 2,918,151 Totals $ 63,183,166 $ 55,891,123 $7,292,043
CITY OF DIAMOND BAR
Changes in Governmental Fund Balance Reserves
The total General Fund reserve balance of $34.6 million represents an increase of $4.4 million compared to last year. This is a favorable result under any circumstances, but should be viewed with the understanding that this amount includes $1.2 million in savings generated by the second tranche of ARPA monies. A history of governmental fund balances for the prior 10 years is shown below. More information on reserve balances can be found in Note 11 of the ACFR and in the Statistical Section.
Reserve Funding
The FY 2022/23 ACFR includes the fund balance reserve reporting methodology set forth in GASB Statement No. 54. It is a long-term goal to of the City to build unrestricted reserve funds to provide flexibility, respond to emergencies, fund new projects and replace and maintain facilities, capital equipment and assets. Therefore, the City Council approved an updated Fund Balance and Reserves 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. A copy of the Fund Balance and Reserves Policy is included as Attachment 2.
At June 30, 2023, the amount committed to emergency contingencies totals $7,981,243 (25% of the FY 2023/24 Adopted General Fund Budget). This amount is included within the $34.6 million General Fund reserve balance noted above and is highlighted separately in the below schedule which shows balances for key operating reserves. 2023 2022 Change
General Fund
Committed Reserves
Contingency Reserve $ 7,981,243 $ 7,864,770 $ 116,473
Assigned Reserves
Community organization support 2,062 - $ 2,062
OPEB Reserve 291,182 353,283 (62,101)
Technology Reserve 591,346 442,418 148,928
Capital Improvement Projects 1,308,920 - 1,308,920
Tres Hermanos Conservancy Reserve 6,910 20,726 (13,816) General Plan Update Reserve 518,504 929,558 (411,054)
Law Enforcement Reserve 941,362 957,126 (15,764)
Unassigned Reserve 22,959,067 19,658,823 3,300,244
Total General Fund 34,600,596 30,226,704 4,373,892
Park Development Fund
Park and Facility Reserve 1,567,641 873,636 694,005
Vehicle Maintenance & Replacement Fund
Maintenance & Replacement Reserve 316,864 230,973 85,891 Building Maintenance & Replacement Fund
Maintenance & Replacement Reserve 1,062,451 1,164,608 (102,157) Computer Equipment Replacement Fund
Equipment Replacement Reserve 2,032,428 1,068,686 963,742 Grand Totals $ 39,579,980 $ 33,564,607 $ 6,015,373
CITY OF DIAMOND BAR
Highlighted Operating Fund Reserves
Fiscal Year Ended June 30,
As shown in the table above, as of June 30, 2023, the total Unassigned portion of the General Fund Reserve increased $3.3 million. Of this amount, $213 thousand has been carried over for re-appropriation in the current FY 2023/24 to meet ongoing contractual obligations, leaving a net increase of $3,087,463 available for funding other reserves pursuant to Section 5 of the aforementioned Fund Balance and Reserves Policy.
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, 2023 was $1,260,651. However, when taking into account the City’s OPEB trust fund balance of $645,436 (51% of liability) held with the California Employers’ Retiree Benefit Trust (CERBT) the net liability reduces to $615,215. Additional funding in the amount of $291,182 (23% of liability) is also set aside in an OPEB Reserve fund held by the City for future contributions to the trust, for a total funding status of 74%, which is an increase from the 71% funding status as of the prior year ending June 30, 2022, and a significant improvement from the 57% funding status the year ending June 30, 2021.
This funding level is considered quite favorable when compared to other cities but still falls below the desired 80% funding status established in the City’s Fund Balance and Reserves Policy. As a result, it is recommended that the City Council appropriate an additional $76,000 to the OPEB Reserve fund balance, bringing total assets to 80% of the liability. More information on OPEB may be found in Note 9 of the ACFR.
Park & Facility Development Fund and Building Facility & Maintenance Fund A key provision (Section 5) of the Fund Balance and Reserves 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 provide that 40% shall be transferred to the Park & Facility Development Fund, 40% shall be transferred to the Building Facility & Maintenance Fund and the remaining 20% shall be returned to the Unassigned General Fund Reserves. A remaining surplus in the amount of $3,011,463 is available for this allocation; therefore, it is recommended that the City Council appropriate $1,204,585 (40%) to both the Park & Facility Development Fund and to the Building Facility & Maintenance Fund consistent with the Fund Balance and Reserves Policy. As a result of all reserve funding recommendations, the General Fund Unassigned Fund Balance will be $20.5 million, a net increase of $815 thousand from the prior year.
Pension Liability
GASB Statement No. 68 requires the inclusion of Net Pension Liability in the Statement of Net Position. As of June 30, 2023, the City reported a total net pension liability of $7,903,769 (an increase from the prior year amount of $3,014,631). As of the most recent valuation date of June 30, 2022, the City’s miscellaneous plan is approximately
75.7% funded, and the PEPRA Miscellaneous plan is 87.7% funded. These funding amounts reflect a decrease from the prior year funding amounts of 87.1% and 105.6%, respectively, and are solely the result of negative fluctuations in the market rate return of the statewide portfolio managed by CalPERS. More information on pensions may be found in Note 8 of the ACFR.
Excellence in Financial Reporting
The Finance Department has submitted the FY 2022/23 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 2022/23 ACFR
2. 7.1.b 2019-01 - Fund Balance and Reserves Policy