Agenda #: 7.1
Meeting Date: January 21, 2025
TO: Honorable Mayor and Members of the City Council
FROM: Daniel Fox, City Manager
TITLE: TRANSMITTAL OF THE FISCAL YEAR 2023/24 ANNUAL
COMPREHENSIVE FINANCIAL REPORT (ACFR).
STRATEGIC
GOAL: Responsible Stewardship of Public Resources
RECOMMENDATION:
Receive and File the Fiscal Year 2023/24 Annual Comprehensive Financial Report.
FINANCIAL IMPACT:
None.
BACKGROUND:
The Fiscal Year (FY) 2023/24 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 2023/24 Annual Comprehensive Financial Report (ACFR). The City’s Audit Subcommittee, which is comprised of Mayor Chia Yu Teng and Mayor Pro Tem Steve Tye, met on January 15, 2025 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, 2024. The auditors indicated that there were no disagreements with management while completing their audit, and that they found no instances of material weaknesses in the City’s internal controls and no instances of non-compliance with certain provisions of laws, regulations, contracts or grants, which could have a material effect on the determination of financial statement amounts. In other words, the City has received a clean audit with no findings.
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 2023/24 ACFR is included as Attachment 1.
ANALYSIS:
Revenues
Citywide revenues for FY 2023/24 from all sources (i.e., all funds) were $45.0 million, which exceeded last year’s total by $0.5 million (or 1.0%).
General Fund revenues were $33.1 million, a decrease of $0.2 million (or -0.7%) from the prior year, yet exceeded the Revised Budget of $31.9. million as a result of outperforming investment returns offset by underperforming sales tax receipts.
Expenditures
Citywide expenditures for all City programs and activities in FY 2023/24 totaled $40.0 million, an increase of $2.5 million over the previous year (or 6.8%).
General Fund expenditures for FY 2023/24 were $33.2 million, an amount that was $5.2 million below the Revised Budget of $38.4 million. Of this amount, $2.4 million of encumbered expenses was appropriated for ongoing programs, initiatives and Capital Improvement Projects that were still underway as of June 30, 2024. These encumbered funds will be carried over and set aside for use in the current FY 2024/25.
Reserve Balances
Taken in aggregate, fund balances for all governmental funds were $66.0 million at the end of FY 2023/24, an increase of $2.8 million compared to FY 2022/23. Of this total, $34.5 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.
The total General Fund reserve balance of $34.5 million represents a decrease of $101 thousand. This is a favorable result considering the Revised Budget assumed an operating deficit of -$6.5 million in order to fund one-time projects. 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 2023/24 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 that an amount of no less than 25% of General Fund expenditures be set aside as a formal commitment of fund balance to be used in the event of a Federal, State or Local emergency.
At June 30, 2024, the amount committed to emergency contingencies totals $8,217,405 (25% of the FY 2024/25 Adopted General Fund Budget). This amount is included within the $34.5 million General Fund reserve balance noted above and is highlighted separately in the below schedule which shows balances for key operating reserves.
As shown in the table above, as of June 30, 2024, the total Unassigned portion of the General Fund Reserve decreased -$1.3 million. This was mainly the result of funding other key reserve funds and General Fund reserve categories throughout the fiscal year. For example, Unassigned Reserves were utilized to shift an additional $236.2 thousand to the Contingency Reserve (25%), and an additional $763.5 thousand was shifted from the Unassigned Reserves to the Capital Improvement Projects Reserve to ensure adequate funding for ongoing capital improvement projects. In addition to this, some Unassigned Reserves were used to transfer $1.2 million to both the Park Development and Building Maintenance & Replacement Funds ($2.4 million total) in early 2024 pursuant to the City’s Fund Balance and Reserves Policy. Total Transfersout were for FY 2023/24 were $6.4 million (see Statement of Revenues, Expenditures, and Changes in Fund Balances on ACFR p. 24 for additional information).
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, 2024 was $1,386,464. However, when taking into account the City’s OPEB trust fund balance of $782,823 (57% of liability) held with the California Employers’ Retiree Benefit Trust (CERBT) the net liability reduces to $603,641. Additional funding in the amount of $313,523 (23% of liability) is also set aside in an OPEB Reserve fund (see table above) held by the City for future contributions to the trust, for a total funding status of 80%, which is an increase from the 74% funding status as of the prior year ending June 30, 2023, and a significant improvement from the 71% funding status the year ending June 30, 2022.
This funding level is considered quite favorable when compared to other cities and meets the City’s desired 80% funding status established in the City’s Fund Balance and Reserves Policy.
Pension Liability
GASB Statement No. 68 requires the inclusion of Net Pension Liability in the Statement of Net Position. As of June 30, 2024, the City reported a total net pension liability of $8,772,989 (an increase from the prior year amount of $7,903,769). As of the most recent valuation date of June 30, 2023, the City’s miscellaneous plan is approximately
75.4% funded, and the PEPRA Miscellaneous plan is 87.0% funded. Both funding amounts have remained flat year-over-year and are favorable when compared to other cities. Changes in the total net pension liability are mostly attributable to the market rate of return on 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 will submit the FY 2023/24 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-eight consecutive years.
PREPARED BY:
REVIEWED BY:
Attachments:
1. 7.1.a City of Diamond Bar FY 2023/24 Annual Comprehensive Financial Report (ACFR)