Agenda Item No: K.11
AGENDA REPORT
DATE: January 21, 2025
TO: Mayor and Council
FROM: David Gassaway, City Manager
SUBJECT: Resolution 2025-10 FN Fiscal Year 2023-24 Annual Comprehensive Financial Report
Approving the City’s Fiscal Year 2023-24 Annual Comprehensive Financial Report and the Draft Schedule of Expenditures for Federal Awards Report
Funding Source: N/A
Contact: John Furtado, (707) 428-7629
RECOMMENDED ACTION
Adopt resolution.
STATEMENT OF ISSUE
The City Council is being asked to approve the Annual Comprehensive Financial Report (ACFR) for fiscal year (FY) 2023-24, as well as the draft Schedule of Expenditures for Federal Awards Report (Single Audit). The FY 2023 -24 ACFR indicates the City’s finan cial condition as of June 30, 2024, and has been audited by Eide Bailly LLP, an independent audit firm of Certified Public Accountants. The FY 2023 -24 draft Schedule of Expenditures for Federal Awards Report is expected to comply applicable to major federal programs and will be audited in February of this year. Staff will bring forward for approval a revised report if there are any changes to the current draft, and at this time staff is not anticipating any changes to occur.
DISCUSSION
Each year, an indep endent Certified Public Accounting (CPA) firm audits the City’s financial statements (ACFR) and federal grants (Single Audit) in accordance with Generally Accepted Auditing Standards (GAAS).
The Annual Comprehensive Financial Report (ACFR) provides a de tailed overview of the City's financial position, covering all funds. It is prepared in conformity with Generally Accepted
Accounting Principles (GAAP) and designed as a general -purpose report, meeting the informational needs of a wide range of stakeholders.
The Schedule of Expenditures for Federal Awards Report, detailing federal grant expenditures, was prepared by City management and will undergo auditing in February 2025 as part of the Single Audit process. The Single Audit evaluates compliance with t he Federal Office of Management and Budget (OMB) compliance supplement requirements for federal grant recipients.
The auditors have issued an unmodified opinion on the ACFR, the highest level of assurance, indicating that the financial statements fairly represent the City of Fairfield’s financial position.
For further details, refer to the Auditor’s Opinion on page 1 of the ACFR.
A concise summary of the City's financial condition can be found in:
Transmittal Letter and Management’s Discussion and Analysis (MD&A) sections of the ACFR.
Popular Annual Financial Report (PAFR) for FY 2023-24, included in this submission. The PAFR is a simplified, unaudited version of the ACFR that highlights key financial information for ease of understanding.
Additional insights and supporting details are available in the Notes to the Financial Statements within the ACFR.
The following section outlines key financial positions and highlights the City’s major funds.
Government-Wide: At the close of FY 2023-24, the City’s assets plus deferred outflows exceeded its liabilities plus deferred inflows, resulting in a net position of $661 million. Key components of this figure include:
Unrestricted Net Position: A deficit of -$34 million, primarily influenced by:
o The City’s net pension liability, which stands at $249 million. o Increases in compensated absences and claim liabilities. Total Long-Term Liabilities: These increased by $20 million, primarily due to growth in pension costs measured as of June 30, 2023, r eflecting updated actuarial valuations and assumptions.
By fiscal year-end, the City’s governmental funds reported a combined ending fund balance of $249 million, underscoring the City's overall short -term financial stability while acknowledging ongoing challenges tied to long-term obligations.
The City’s governmental funds reported a combined ending fund balance of $249 million, an increase of $15 million or 6.4% over the prior year. Total fund balances include cash and non - cash assets (such as receiva bles and land assets). A notable change in governmental fund balances in FY 2024 was an increase in the Capital Projects funds and Non -Major Governmental funds by $4.7 million and $10.7 million respectively. The Capital Projects fund balances increase was due to the collection of AB1600 Public Facilities and park fees that will be used in the future, while the non-major funds increased due to gas tax and development taxes received that will be used to fund Capital Projects.
The General Fund balance remained largely unchanged from the prior year, with a modest reduction of $8,000, bringing the ending balance to $57.3 million . General Fund Revenues exceeded the final budget by $2.6 million (1.97%), driven primarily by higher collections in sales and propert y taxes, utility and franchise taxes, and other miscellaneous revenues. However, these gains were partially offset by underperformance in charges for services, licenses, permits, and fines.
Key Revenue Highlights
1. Property Taxes
o Increased by $1.2 million (3%), primarily due to:
New development and rising property values.
A significant adjustment by the County, correcting prior -year uncollected taxes in the assessed rolls.
2. Sales Taxes
o Rose by $303,850 (0.5%) owing to renewed economic activity, particularly in:
Building and construction.
Restaurant sales within the city.
3. Charges for Services
o Decreased by $1.6 million, reflecting:
Growth in planning and building -related fees that fell slightly below projections due to staffing shortages impacting review processes.
Recovery in Parks and Recreation activities, offset by:
Lower revenues from the Fire Department and Public Works operations.
Despite revenue challenges in some areas, the City demonstr ated fiscal resilience, with key revenue streams outperforming expectations and offsetting shortfalls.
General Fund Expenses including transfers out were under budget by $4.8 million or 3.4% after eliminating capital outlay, mainly due to expense credits received from applying ARPA funds ($3.1 million) and higher staff vacancy savings ($1 million), primarily lower spending in Parks and Recreation as the department strategically adjusted operations ($1.2 million). These were offset by increased expenses in Community Development, due to the need for consultants to help carry out work driven by larger planning and building revenues ($0.1 million) and the Fire Department increased overtime from vacancies and injuries ($0.1 million).
Internal Service Fund Liabilities: As shown in the transmittal letter, the table below shows some of the key liabilities of the internal service funds and their associated levels of funding:
The City’s Worker’s Compensation and General Liability funding needs significantly increased due to the number and size of claims and settlements. The General Liability Fund specifically was impacted by the performance of the City’s insurance pool, which also is seeing an increased number and size of claims and settlements that resulted in a one-time assessment and increased premiums to address the funding needs. The City’s Compensated Absences liability also continues to grow due to the addition of more staffing, compounded by labor contract cost of living adjustment increases applied to those outstanding balances.
Intra-governmental Loan Fund : The Intra-governmental Loan Fund balance decreased by $2 million, dropping from $39.4 million to $37.4 million during FY 2023-24. This change was driven by the following factors:
Transfers Out:
o $1.6 million transferred to the Housing Fund, funded by loan repayments received from the former redevelopment agency.
o $2.5 million transferred to the Information Technology Fund to support cybersecurity projects.
Expenditures:
o $0.9 million spent on the general plan update and economic development activities.
Water Funds: The net position of the Water Funds increased by $2.5 million during FY 2023 -24 from $81.3 to $83.9 million. This was mainly due to higher interest income and fair market value adjustments driven by elevated interest rates ($2.5 million). Water revenues dropped due to renewed conservation efforts and a wet winter (0.8 million). The water funds, however, reported an operating loss of $2.1 million. The City currently can pay the shor t-term payments and is working on a rate study to provide information on future rate increases.
Golf Funds: The Golf Funds show an accumulated net position of $14.7 million, mainly consisting of the net capital assets of the golf courses themselves of $13.4 million. Touchstone took over golf course operations in January 2024, also resulting in management of the restaurant operations which was not part of the previous management agreement. Revenues and expenditures grew at similar rates accounting for th e increased cost related to restaurant operations. For the fourth consecutive year, the courses did not require additional support from the City.
Transit: The net position of the Transportation Funds increased by $5.6 million during FY 2023 -
24. This was primarily due to the addition of multiple new buses to the fleet with total net fixed assets increasing by $5.7 million. California’s farebox recovery requirements of 20% have been deferred due to the COVID -19 pandemic with no set date for reinstatement. The total farebox recovery for transit in FY 2023-24 was 4.22%.
CalPERS and Net Pension Liability : As of June 30, 2024, the City’s combined total Net Pension Liability (NPL) is approximately $249 million, an increase of $16 million (7%) over the prior fiscal year. The NPL is a result of comparing total pension plan assets of $577 million to the total pension liability of $825 million, which reflects that approximately 69.9% of the pension liability has been funded through June 30, 2023, the date of the most recent pension actuarial report provided by CalPERS. This compares to a 70.3% funding level in the prior year. The City’s net liability was impacted by a 5.8% investment return for CalPERS in FY 2022 -23, which missed the target of 6.8% rate of return thereby increasing the City’s NPL. Of the total NPL, $18 million was allocated to the Water fund; $7 million to the North Bay Regional Water Treatment Plant (NBR) Fund; and $3 million to the Transit Fund based upon Full -Time Equivalent Employees (FTEs) allocated to these funds. The remaining NPL relates to the General Fund and other governmental funds ($221 million) and is accounted for in the Government-Wide Statement of Net Position.
Other Reports
Measure P Compliance Report: The City’s independent auditors have completed a Transactions and Use Tax Ordinance Compliance and Internal Control Audit Report. The City is found to comply with the Ordinance (Attachment 8).
User Utility Tax Compliance Report: The City’s municipal code requires that Indep endent auditors perform a Compliance and Internal Control Audit Report. The City is found to comply with the Ordinance (Attachment 9).
Transportation Development Act (TDA) Audit: The California Code of Regulations requires each transportation planning a gency, to transmit to the State Controller, annually and within 12 months of the end of the fiscal year, a report of an audit of its accounts and records by the appropriate county auditor, a certified public accountant, or a public accountant pursuant to Sections 6505 and 26909 of the Government Code. The audit report is attached (Attachment 10).
Audit Findings : For the ACFR, the auditor had one finding in the current year and one management recommendation related to the Information and Technology (IT) department. The auditor has recommended the City document when the periodic review of Munis users and their data access is performed. The City has responded with its implementation plan and is in the process of addressing this issue in the current fiscal year. On the management letter, the auditors have made a recommendation on contracts more details can be found on attachment 5.
Summary: The City received an unmodified opinion and received positive feedback once again from the auditors for the work performed and reports prepared by the City’s Accounting Division. This is also demonstrated by the fact that the City was awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association (GFOA) for the 36th year for FY 2022-23. In addition, the City has also been awarded the Triple Crown, having achieved all three of GFOA’s top certifications i ncluding the Popular Annual Financial Reporting Award and the Distinguished Budget Presentation Award.
FINANCIAL IMPACT
The cost of the audit of the City’s annual ACFR is included as part of the General Fund budget (Fund 101, Division and Responsibility C ode 20300). There is no financial impact resulting from the acceptance of the report.
PUBLIC CONTACT/ADVISORY BODY RECOMMENDATION
On December 17, 2024, the City Council’s Audit Committee met with the independent auditors and reviewed and received the attachments to this report.
ALTERNATIVE ACTION
Do not approve the acceptance of the City’s Annual Comprehensive Financial Report for the fiscal year ending June 30, 2024. However, it should be noted that any changes to the report at this point would result in additional costs incurred by the City.
COORDINATED WITH
N/A
STAFF CONTACT
John Furtado, Director of Finance
(707)428-7629
[email protected]
ATTACHMENTS
Attachment 2: Proposed Resolution
Attachment 3: Auditors’ Report (unmodified opinion on ACFR) Attachment 4: Draft Schedule of expenditures for Federal Awards Report Attachment 5: Letter from Auditors to City Council on Governance Attachment 6: Letter from Auditors to Management
Attachment 7: Auditor’s Report on Internal Control
Attachment 8: Popular Annual Financial Report Fiscal Year 2023-24 Attachment 9: Measure P Compliance Report for 2023-24
Attachment 10: User Utility Tax Compliance Report for 2023-24 Attachment 11: Transportation Development Act (TDA) Audit 2023-24