EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: January 17, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Tomohito Oku, Finance Director
SUBJECT: Annual Financial Reports for Fiscal Year 2021-22 Recommendation
Adopt a resolution accepting and directing staff to file the Annual Financial Reports for Fiscal Year 2021-22, including:
1. Annual Comprehensive Financial Report (ACFR),
2. Single Audit Report,
3. Measure A Fund Report,
4. Measure C Fund Report,
5. Measure HH Fund Report,
6. Measure W Fund Report, and
7. Report on Agreed-Upon Procedures Applied to Appropriations Limit Schedule (Fiscal Year 2021-22).
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Ø Priority #3: Increase organizational effectiveness and efficiency Ø Priority #5: Improve communications and enhance community engagement Background
State law requires that every general law municipality issue annual financial reports prepared in accordance with generally accepted accounting principles (GAAP), so that the financial position and results of operations of each government entity is publicly available to citizens, legislators, financial institutions, and other interested parties.
Badawi and Associates, Certified Public Accountants, have completed the annual audit and issued the City’s annual financial statements and other required special reports. An auditor representative will be presenting an overview of the audit results and will be available to answer any additional questions regarding the reports. The City received an “unmodified” (clean) audit opinion on the Annual Comprehensive Financial Report for the Fiscal Year ended June 30, 2021. In addition, the special financial reports issued by the City (e.g., Measure A, Single Audit, Measure C, Measure HH, Measure W and Appropriations Limit) met applicable standards and no material exceptions were identified by the auditors.
Fiscal year 2021-22 marks the thirteenth year the City has produced an Annual Comprehensive Financial Report (ACFR). The City has been awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association (GFOA) in each of the preceding years and will submit the Fiscal Year 2021-22 ACFR to the award program. To receive the award, the ACFR must be presented in accordance with Generally Accepted Accounting Principles (GAAP) and meet a higher set of reporting and disclosure standards determined by the GFOA.
Analysis
Below is a summary description of each report published:
1. Annual Comprehensive Financial Report (ACFR):
The ACFR includes three basic sections, as follows:
Introductory Section
Introduces the City’s organization structure and formally transmits and presents the ACFR to the City Council and citizens. The transmittal letter provides information and insights related to the City reporting entity, economic condition and fiscal outlook, and the long-term financial planning process.
Financial Section
The financial section contains the auditors “unmodified” (clean) audit opinion for Fiscal Year 2021-22, Management’s Discussion and Analysis (MD&A), and a complete set of the basic financial statements. In addition, the financial section also includes:
· Notes to the financial statements
· Required Supplementary Information
· Supplementary Information
Management’s Discussion and Analysis (MD&A) provides a high level, summary discussion of major operating activity for both the Government-Wide Financial Statements (prepared on an accrual basis of accounting), the Governmental Fund Financial Statements (prepared on a modified accrual basis which is typically the basis for Council’s adoption of the annual budget), and the Proprietary and Fiduciary Fund Financial Statements (prepared on the accrual basis of accounting).
Information regarding the City’s CalPERS pension plans and funding status is disclosed in Note 10 to the financial statements, as well as, in the required supplementary information.
Statistical Section
This section includes 17 additional information reports, many of which present ten years of historical data. This information helps the reader understand the financial statements in a broader context with the use of historical statistical information.
A summary of the composition, and comparison, of the net change in position reported in the FY 2021-22 ACFR is as follows:
FY 2021-22
(in 000's)
% of
Total
FY 2020-21
(in 000's)
% of
Total Change
Restricted and Commited:
Capital improvement fund (4,473) (1,299) (3,174)
Taxes, grants, and other restricted 2,879 3,496 (617)
Subtotal restricted / capital funds (1,594) -10.2% 2,197 19.5% (3,791) General fund 5,669 36.3% (203) -1.8% 5,872
Total governmental funds activity1
4,075 26.1% 1,994 17.7% 2,081
Accounting method changes:
Capital outlay, net of depreciation, etc. 4,328 7,155 (2,827) Pension expense and related 1,598 (793) 2,391
Revenue recognition 4,613 1,824 2,789
Other net differences 641 (70) 711
Total accounting method changes2 11,180 71.6% 8,116 71.9% 3,064 Statement-wide governmental activities 15,255 97.7% 10,110 89.6% 5,145 Water enterprise 295 1,072 (777)
Garbage enterprise 62 107 (45)
Statement-wide business-type activities3 357 2.3% 1,179 10.4% (822) STATEMENT-WIDE CHANGE IN NET POSITION 15,612 100.0% 11,288 100.0% 4,323 1 Refer to page 32 of FY 2021-22 ACFR
2 Refer to page 33 of FY 2021-22 ACFR
3 Refer to page 37 of FY 2021-22 ACFR
Total Statement-wide Change in Net Position of $15.6M increased $4.3M from the prior year amount of $11.3M with some notable trends underlying the layers of financial information, as follows:
Total Governmental Funds activity of $4.1M in net change in fund balances for all City governmental funds went up from the prior year figure of $2.0M primarily attributable from spending surplus of general fund ($5.7M) offset by deficit from capital improvement fund ($4.5M). The general fund surplus was primarily due to a combination of the increases in property tax revenues ($1.6M) and TOT revenues ($1.0M) and the decrease in personnel costs because of allocation of PD personnel costs to ARPA fund ($3.4M). The deficit in capital project fund was mainly caused by timing differences in revenue recognition of related capital grants.
The Total Accounting Method Changes increase in net change of $3.1M year over year primarily relates to increases from pension activities ($2.4M) and timing differences in accrued revenues ($2.8M) offset by a decrease in governmental capital outlay ($2.8M).
Business-activities Net Changes decreased of $0.8M primarily from water enterprise fund.
2. Measure A Fund Report
This financial statement reports the auditor’s examination of management’s assertion of compliance with the terms of use of Measure A Funds for Local Transportation purposes and finds that the City met such requirements.
3. Single Audit Report
This financial statement reports the audit results on mandated testing of the City’s federal grant expenditures in compliance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
4. Measure C Fund Report
This report is a separately issued financial statement of the City’s Measure C Special Revenue Fund, as required by the November 2006 local voter-approved Measure C parcel tax.
5. Measure HH Fund Report
This financial statement reports the audit results on the City’s Measure HH Special Revenue Fund, as required by the November 2018 local voter-approved Measure HH parcel tax.
6. Measure W Fund Report
This report is a separately issued financial statement of the City’s share of San Mateo County Measure W revenues and expenditures. Measure W is a half-cent sales tax to support countywide transportation projects and programs.
7. Report on Agreed-upon Procedures Applied to Appropriations Limit Schedule This report presents findings of the agreed upon procedures to assist the City in meeting requirements of Section 1.5 of Article XIIIB of the California Constitution, also known as the Gann Appropriations Limit for FY 2022-23.
Public Notice
The public was provided notice of this agenda item by making the agenda and report available at the City’s website.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(3), and (b)(4).
Fiscal Impact
There is no fiscal impact associated with accepting and filing the annual auditor’s reports.
Attachments
1. Resolution
2. Annual Comprehensive Financial Report (ACFR)
3. Single Audit Report
4. Measure A Special Revenue Report
5. Measure C Financial Report
6. Measure HH Financial Report
7. Measure W Financial Report
8. Report on Agreed-Upon Procedures Applied to Appropriations Limit Schedule (FY 2022-23)
Attachments
1. Annual Financial Reports Resolution FY 2021-22
2. East Palo Alto FY2022 ACFR 20221221 - signed
3. East Palo Alto Single Audit FY2022 20221229 1457 - signed
4. East Palo Alto Measure A FY2022 20221220 - signed
5. East Palo Alto Measure C FY2022 20221219 - signed
6. East Palo Alto Measure HH FY2022 20221219 - signed
7. East Palo Alto Measure W FY2022 20221220 -signed
8. East Palo Alto Gann AUP FY2023 20221219 - Final