Agenda Report
Fullerton City Council
MEETING DATE: January 17, 2023
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: ELLIS CHANG, DIRECTOR OF ADMINISTRATIVE SERVICES PREPARED BY: Toni Smart, fiscal services Manager
SUBJECT: ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2022
SUMMARY
Staff submits the Annual Comprehensive Financial Report (ACFR) for the City of Fullerton for the fiscal year ended June 30, 2022 to City Council.
RECOMMENDATION
Receive and file report.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statements:
Fiscal and Organizational Stability.
FISCAL IMPACT
No fiscal impact.
CITY MANAGER REMARKS
Staff is presenting the ACFR for FY ending June 30, 2022.
DISCUSSION
Staff annually prepares and publishes the City’s ACFR (previously referred to as the Comprehensive Annual Financial Report or CAFR) following completion of an independent audit. The City’s auditors, Lance, Soll & Lunghard, LLP (LSL), have completed the audit for fiscal year ended June 30, 2022. The City has issued the ACFR and incorporated it as part of this agenda report and posted it on the City’s website. The annual budget and associated quarterly reporting primarily focuses on annual revenue and expenditures and spendable fund balances while the ACFR provides a more exhaustive and comprehensive report of the City’s overall financial condition.
The City prepares the ACFR in compliance with Governmental Accounting Standards Board (GASB) standards and divides the ACFR into three sections: Introductory, Financial and Statistical Pursuant to those guidelines. The Introductory section contains a Letter of Transmittal which includes a brief overview of the City’s economic outlook, operational controls and major initiatives. It also includes the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting, which the City received for fiscal year ended June 30, 2021. The City submitted this year’s ACFR on December 22, 2022 with the expectation of receiving the award again.
The Financial section contains the independent auditor’s opinion letter, Management’s Discussion and Analysis (MD&A) and the Basic Financial Statements. The audit firm of LSL has issued an unmodified audit opinion, meaning that the financial statements present fairly, in all material respects, the financial position of the governmental activities, the business type activities, each major fund and the aggregate remaining fund information of the City as of June 30, 2022. The MD&A provides a narrative of the presentation of the financial report, key highlights of some of the changes in financial position and tables showing comparative information from the fiscal year ended June 30, 2021 to the fiscal year ended June 30, 2022.
The Statistical section presents data useful in analyzing the City’s financial and operation history for comparative purposes. Some of the statistics tracked include financial trends, revenue capacity and debt capacity, which assist in evaluating the City’s financial stability.
ACFR Highlights:
The Government-Wide Financial Statement of Net Position (ACFR Page 15) indicates the City’s overall financial condition. The City’s net position totaled $549.1 million on June 30, 2022, representing an increase of $73.4 million over the previous fiscal year primarily due to increased water rates, sales tax revenue growth, increase in development-related user fees, State grant revenues for the acquisition of land for the West Coyote Hills development project, return on pension plan investments and a decrease in worker’s compensation claim expenses. Of the total net position, the City has $621.1 million invested in capital assets net of related debt (“net investment in capital assets”) with $42.7 million restricted for specific governmental operations, leaving a $114.7 million negative unrestricted balance.
The City’s Governmental Funds (General, Special Revenue, Debt Service and Capital Projects) reported combined ending fund balances of $62.3 million (ACFR Page 19), an increase of $2.1 million in comparison with the prior year. The increase is primarily attributable to sales tax revenue and development-related user fee increases in the General Fund, partially offset by salary wage increases for all labor groups and increases in maintenance and support costs.
The General Fund reflects an assigned fund balance of $18.6 million (ACFR Page 18), which compares to the assigned fund balance of the previous year of $16.1 million. The increase of $2.5 million in assigned fund balance is primarily due to the City Council designation to increase contingency reserves to the City’s goal of maintaining 17% reserve levels. This designation resulted in $4.0 million in unassigned fund balance.
The General Fund ended the fiscal year with a $25.3 million (ACFR Page 18) total fund balance. General Fund revenues totaled $112.1 million (ACFR Page 22), an increase of $10.8 million over the prior year. The increase in revenues was attributed to sales tax revenue growth and increases in development-related user fees. General Fund expenditures totaled $104.2 million, an increase of $6.2 million from the previous fiscal year. The increase is primarily due to salary wage increases approved for all labor groups and increases in maintenance and support costs.
The American Rescue Plan Act (ARPA) Special Revenue Fund (ACFR Page 22) ended the fiscal year with a deficit $636,558 fund balance due to unrealized investment losses from adverse market conditions on the first tranche of $16.3 million received. Staff expects to eliminate the deficit in future years. The City received $32.7 million and received the first $16.3 million in FY 2020-21 and the remaining $16.4 million in May 2022. The City recorded $31.7 million as unearned revenue on the balance sheet pending use for eligible expenditures.
The City’s Enterprise Funds account for operations where the City intend to recover of the cost of providing goods or services primarily through user charges. These funds include water, sewer, airport, Brea Dam recreational facilities, parking facilities and CNG station, which ended the year with a net position of $176.1 million on June 30, 2022 (ACFR Page 15), representing an increase of $25.2 million over the previous fiscal year. Changes in net position include $17.5 million in the Water Fund, $2.0 million in the Sewer Fund, $4.7 million in the Airport Fund, negative $541,683 in Other Enterprise Funds and a 1.5 million adjustment for the internal services funds operating gain allocated to the enterprise funds.
The City’s Internal Service Funds account for activity that provides goods and services to other funds or departments on a cost-reimbursement basis, such as liability insurance, vehicle replacement, worker’s compensation, group insurance, equipment maintenance, information technology, building maintenance and facility capital repair. The City’s net position in the Internal Services Funds (ACFR Page 117) increased by $6.3 million to $33.6 million at June 30, 2022. The increase was primarily attributed to a $2.5 million increase in the Vehicle Replacement Fund and a $4.0 million increase in the Worker’s Compensation Fund. The $6.3 million increase in net position was attributed to an increase in budgeted expenses by City Council.
The City had bond and capital lease debt outstanding of $22.5 million on June 30, 2022, an increase of $7.7 million from the prior fiscal year due to the start of the City’s Energy Efficiency project.
PERS Miscellaneous Plan net pension liability decreased by $37.0 million with a resulting 86.66% funding ratio (ACFR Page 87). PERS Safety Plan net pension liability decreased by $48.1 million with a resulting 74.15% funded ratio (ACFR Page 89). The PERS Miscellaneous and Safety Plan net pension liability decreases on June 30, 2022, due to a significant return on pension plan investments resulting in a decrease in the net pension liability. The reduction in the net pension liability decreased pension plan expenses, resulting in $18,377,512 of revenue recorded in the Statement of Activities as return on pension plan investments. Staff expects to offset the pension plan investment increases in FY 2021-22 with investment decreases in the following fiscal years.
OPEB liability increased by $2.8 million and the OPEB funded ratio as of June 30, 2022 is 0.22% (ACFR Page 90). The increase is due to a change in the discount rate from 2.47% on June 30, 2021 to 1.94% on June 30, 2022.
General Fund Ending Fund Balance
Fund Balance
General Fund
FY 2021-22
General Fund
FY 2020-21
Nonspendable:
Inventories
6,528
6,528
Prepaids
706,953
700
Land Held for Resale
-
2,900,768
Total Nonspendable
713,481
2,907,996
Restricted:
Library – Foundation and Friends
738,475
692,770
115 Pension Trust Fund
501,509
589,967
Deferred Compensation
-
55,580
Donations
278,829
175,733
Total Restricted
1,518,813
1,514,050
Committed:
Capital Projects
438,687
-
Total Committed
438,687
-
Assigned:
Contingency Reserve
17,724,874
13,261,185
Building Permit Software
156,566
156,566
Street Projects
677,618
2,644,524
Laguna Lake Project
10,681
77,735
Total Assigned
18,569,739
16,140,010
Unassigned
4,033,848
-
Ending Fund Balance
25,274,568
20,562,056
The General Fund reflects a non-spendable fund balance of $713,481, which compares to the non-spendable fund balance the previous year of $2.9 million; a restricted fund balance of $1.5 million, which compares to the restricted fund balance the previous year of $1.5 million; assigned fund balance of $18.6 million, which compares to assigned fund balance the previous year of $16.1 million and a $4.0 unassigned fund balance compared to $0.0 million the previous fiscal year. The total combined fund balance totals $25.3 million, representing an increase of $4.7 million over the previous fiscal year.
The decrease in the non-spendable fund balance is due to reallocating $2,900,768 in Land Held For Resale to the Successor Agency of the Former RDA.
Committed Fund Balances include amounts that the City can only use for specific purposes pursuant to formal action taken by City Council. City Council approved Ordinance No. 3284, which created a dedicated Infrastructure Fund and set a method to deposit revenues above a designated baseline for secured property and sales tax revenues for the City to make infrastructure improvements. The City had $438,687 committed for these purposes as of June 30, 2022.
City Council action designates assigned fund balances. City Council authorized designating any unassigned balances as contingency reserves to achieve the goal of maintaining 17% reserve levels, resulting in an increase of $2.4 million over the previous fiscal year. The contingency reserve totals $17.7 million as of June 30, 2022, which is 17% of General Fund expenditures. The remaining projects, such as building permit software, street projects and the Laguna Lake Project, fluctuate based on project costs incurred in the fiscal year.
Auditor Communication Letter
The Audit Communication Letter provides City Council with any significant audit findings for the year and noted no such findings. The letter also describes new accounting standards, disagreements with management, limited procedures applied and any other issues deemed appropriate by the auditors and identified no such issues.
Independent Auditors’ Report on Internal Control
The Independent Auditors’ Report on Internal Control provides information on any internal control deficiencies. The auditors noted no deficiencies they would consider material weakness.
Attachments:
Attachment 1 – Annual Comprehensive Financial Report
Attachment 2 – Auditor Communication Letter
Attachment 3 – Report on Internal Controls
cc: City Manager Eric J Levitt
ACFR for Fiscal Year Ended June 30, 2022
January 17, 2023 - Page 4