16. Update Re Annual Comprehensive Report for Fiscal Year Ended June 30, 2024

Item No.

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: OFFICE OF THE CITY MANAGER
BY: VANIAH DE ROJAS, ASSISTANT CITY MANAGER

DATE: JANUARY 14, 2025

SUBJECT: UPDATE REGARDING THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) FOR THE FISCAL YEAR ENDED JUNE 30, 2024

EXECUTIVE SUMMARY

The City Council will receive an update regarding the City’s Annual Financial Comprehensive Report (ACFR) for the Fiscal Year Ended June 30, 2024. An ACFR is a collection of financial statements for a government entity that complies with governmental accounting standards. ACFRs are audited by an independent auditor and include three sections: Introductory, Financial, and Statistical. Governmental entities are required by law to complete an annual ACFR.

RECOMMENDATION

That the City Council:

Receive an update regarding the City’s Annual Comprehensive Report (ACFR) for the Fiscal Year Ended June 30, 2024.

BACKGROUND

Each year, the City of Downey develops an Annual Budget to serve as a road map for the City’s accounting for the upcoming fiscal year (July 1 - June 30). The Annual Comprehensive Financial Report (ACFR) is viewed as the final destination of that road map as it includes the actual financial statements that summarizes the City’s financial activity (revenues and expenditures) for the year as prescribed by governmental accounting standards, such as those set by Generally Accepted Accounting Principles (GAAP) and the Governmental Accounting Standards Board (GASB). Further, the ACFR explains the financial position and results of operations of the City as measured by the financial activity of its various funds and account groups. The intent of the ACFR is to give readers a full understanding of the City’s financial affairs.

The ACFR is presented in three sections: introductory, financial, and statistical sections.

The introductory section includes a transmittal letter, the City’s organizational chart, and a list of principal officials. The financial section includes general purpose financial statements and schedules, the independent auditor’s report, and the notes to the financial

UPDATE REGARDING THE ANNUAL COMPREHENSIVE REPORT (ACFR) FOR THE FISCAL YEAR ENDED JUNE 30, 2024
JANUARY 14, 2025
PAGE 2

2 statements. The statistical section includes select financial and demographic information on a multi-year basis.

As part of its system of checks and balances, the City also contracts with an independent auditor to review the financial statements contained in the ACFR.

The Government Finance Officers Association of the United States and Canada (GFOA) awards a Nationally recognized Certificate of Achievement for Excellence in Financial Reporting to local government ACFRs. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized annual comprehensive financial report. The City has received this award for the City’s ACFR for the last 25 consecutive years. The City has submitted this year’s ACFR for consideration and expects the quality to continue to meet the same high standards as it has in the past. Results of these awards are typically released in June, after a lengthy review process. The City’s ability to communicate financial and operational matters in a transparent manner is a City Council priority and component of the Downey Forward Strategic Plan (Fiscal Responsibility – Maintain a financially stable local government).

Effective communication of City finances is critical to building trust with the public. This year’s report is published on the City’s website, along with all prior years’ reports.

ANALYSIS

The City’s independent auditor, LSL, CPA, has completed its audit of the City’s ACFR for Fiscal Year ended June 30, 2024. LSL has issued an unmodified or “clean” opinion dated December 20, 2024, which means: The City’s financial statements are free of any material misstatements; are in accordance with GAAP; and fairly present both the financial position and the results of operations for the year ended June 30, 2024. It should also be noted that receiving an unmodified opinion is the highest level of assurance an entity can receive from its independent auditors (a “clean audit”).

Financial Highlights

In the ACFR, the City’s financial highlights are demonstrated in two formats Government- Wide Financial Statements (Net Position) and Fund Financial Statements (Governmental Funds), this division provides the reader with a broad overview of the City’s finances as described below.

Net Position

The Statement of Net Position presents information on all of the City’s assets and deferred outflows of resources, and liabilities and deferred inflows of resources, including capital assets and long-term liabilities, with the difference between the two reported as net position (in a similar manner to a private-sector businesses). Over time, increases or decreases in the net position may serve as a useful indicator of whether the financial position of the City as a whole is improving or deteriorating.

UPDATE REGARDING THE ANNUAL COMPREHENSIVE REPORT (ACFR) FOR THE FISCAL YEAR ENDED JUNE 30, 2024
JANUARY 14, 2025
PAGE 3

3 • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources, on June 30, 2024, by $246 million (net position).

Of this amount, $30.5 million is restricted for public works projects, $6.0 million for public safety, $4.3 million Low & Mod Housing and $10.4 million for Capital Projects.

• The government's total net position increased by $11.5 million. The main reason are increases in the following revenue categories: Operating Grants and Contributions, Charges for Services, Use of Money and Property, and Property Taxes. Revenue increased from the previous year by $16.6 million, $4.8 million, $2.7 million, and $1.4 million respectively for the aforementioned revenue categories with a cumulative total increase between them of $25.6 million.

• The City's total long-term liabilities increased by $10.7 million during the current fiscal year. The chief reason for the increase is the CalPERS pension liability increased by $14 million this fiscal year. In addition, the OPEB (Other Post- Employment Benefits) liability increased by $3.4 million and Claim and Judgments increased by $2.7 million. However, bond principal balances decreased by $7.9 million.

Governmental Funds

The fund financial statements focus on current available resources and are organized and operated on the basis of individualized funds, similar to the format of the City’s annual budget. Unlike the statement of net position, governmental fund financial statements focus on near-term inflows and outflows of spending resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements.

•The City's governmental funds reported combined ending fund balances of $120.5 million, an increase of $20.7 million in comparison with the prior year. Approximately

54.73% of this total amount, $65.9 million, is available for spending at the government's discretion (committed, assigned, and unassigned fund balance) within the guidelines of the funding sources.

•Assigned and unassigned fund balance for the general fund was $50.3 million or

45.55% of total general fund expenditures. This represents an increase of $12.1 million or 24.08%, from the prior year. The key reason was recognition of revenues from the City's Allocation of the American Rescue Plan Act (ARPA) funding.

Measure S

As part of this year’s ACFR, the City incorporated a separate Independent Auditor’s Report on Compliance and on Internal Control Over Compliance specifically for the City’s

UPDATE REGARDING THE ANNUAL COMPREHENSIVE REPORT (ACFR) FOR THE FISCAL YEAR ENDED JUNE 30, 2024
JANUARY 14, 2025
PAGE 4

4 Transactions and Use Tax - Measure S to further enhance transparency regarding the use of these monies. The auditor’s concluded that the City “complied, in all material respects, with the type of compliance requirements” of Measure S. The City is committed to continue to be diligent in using Measure S monies as approved by voters.

This report will be included as part of the ACFR moving forward, along with a similar separate report for the City’s newly passed Transactions and Use Tax - Measure D.

CITY COUNCIL PRIORITIES

Fiscal Responsibility
Public Engagement

FISCAL IMPACT

There is no fiscal impact associated with this report.

ATTACHMENTS

Attachment A: City of Downey Annual Comprehensive Report (ACFR) for the Fiscal Year Ended June 30, 2024

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Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Downey
California
For its Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2023
Executive Director/CEO
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CITY OF DOWNEY, CALIFORNIA
Balance Sheet
Governmental Funds
June 30, 2024
Total Total
Nonmajor Governmental
General Funds Funds
ASSETS
Pooled cash and investments 49,334,833$ 2,951,415$ 9,333$ 54,288,046$ 106,583,627$ Receivables (net of allowance for uncollectible):

Accounts 567,992 - 2,501,345 232,541 3,301,878 Taxes 6,342,855 - - 3,489,709 9,832,564 Accrued interest 743,113 353,371 - - 1,096,484 Notes and loans 908,274 7,287,062 - 5,010,390 13,205,726 Leases 19,496,237 - - - 19,496,237 Due from other funds 2,582,842 - - - 2,582,842 Inventories - - - 13,236 13,236 Prepaid costs 317,870 - - 2,236,239 2,554,109 Due from other governments 2,666,076 - 1,520,184 2,050,518 6,236,778 Restricted assets:

Cash and investments with fiscal agents 198,000 - - 8,265,070 8,463,070 Advances to Successor Agency 7,581,310 1,394,001 - - 8,975,311 Total assets 90,739,402$ 11,985,849$ 4,030,862$ 75,585,749$ 182,341,862$

LIABILITIES
Accounts payable 5,301,057$ -$ 223,989$ 2,524,721$ 8,049,767$ Accrued liabilities 1,234,980 - 22,507 819,712 2,077,199 Unearned revenues 140,845 - 2,697,690 5,286,025 8,124,560 Deposits payable 4,031,945 - - - 4,031,945 Due to other governments - - - 5,365 5,365 Due to other funds - - 206,751 2,376,091 2,582,842 Settlement liability 1,834,744 - - - 1,834,744 Total liabilities 12,543,571 - 3,150,937 11,011,914 26,706,422

DEFERRED INFLOWS OF RESOURCES
Unavailable revenues - 7,640,433 3,288,535 5,136,023 16,064,991 Deferred inflows for leases 19,070,733 - - - 19,070,733 Total deferred inflows of resources 19,070,733 7,640,433 3,288,535 5,136,023 35,135,724

FUND BALANCES (DEFICITS)
Nonspendable 8,807,454 - - 2,249,475 11,056,929 Restricted - 4,345,416 - 39,143,941 43,489,357 Assigned 50,317,644 - - 19,221,079 69,538,723 Unassigned - - (2,408,610) (1,176,683) (3,585,293) Total fund balances (deficits)59,125,098 4,345,416 (2,408,610) 59,437,812 120,499,716 Total liabilities, deferred inflows of resources,
and fund balances (deficits)90,739,402$ 11,985,849$ 4,030,862$ 75,585,749$ 182,341,862$ Housing
Authority
CIP Grant
Fund
Special Revenue Funds
See accompanying notes to financial statements.24

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5. Because basic and debt and rates vary by tax rate area individual rates cannot be summed. The Total Direct Rate is the weighted average of all individu al direct rates applied by the government preparing the statistical section information.

4. Redevelopment Rate is based on the largest RDA tax rate area (RA) and includes only rate(s) from indebtedness adopted prior to 1989 per California State statute. RDA direct and overlapping rate are applied only to the incremental property values. The approved of ABX1 26 eliminated Redevelopment from the State of California for the fiscal year 2012/13 and years thereafter.

3. City's share of 1% Levy is based on the City's share of the general fund tax rate area with the largest net taxable value within the city. ERAF general fund tax shifts may not be included in tax ratio figures.

2. Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners.

1. In 1978, California voters passed Proposition 13 which set the property tax rate at a 1% fixed amount. This 1% is shared by all taxing agencies for which the subject property resides within. In addition to the 1% fxied amount, property owners are charged tax as a percentage of assessed property values for the payment of any voter approved bonds.
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2. Overlapping rates are those of local and county governments that apply to property owners within the City. Not all overlapping rates apply to all city property owners.

1. In 1978, California voters passed Proposition 13 which set the property tax rate at a 1% fixed amount. This 1% is shared by all taxing agencies for whichthe subject property resides within. In addition to the 1% fxied amount, property owners are charged tax as a percentage of assessed property values for the payment of any voter approved bonds.
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Downey City CouncilJanuary 14, 2025

Downey City Council
January 14, 2025