Agenda Report
Fullerton City Council
MEETING DATE: January 16, 2024
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, 2023
SUMMARY
This item submits the City of Fullerton Annual Comprehensive Financial Report (ACFR) for Fiscal Year ended June 30, 2023.
RECOMMENDATION
Receive and file report.
CITY MANAGER REMARKS
This is the presentation of the Annual ACFR for the year ending 2023.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
No fiscal impact.
DISCUSSION
Staff annually prepares and publishes the City ACFR (previously called the Comprehensive Annual Financial Report or CAFR) following an independent audit. The auditors, Lance, Soll & Lunghard, LLP (LSL), have completed the audit for fiscal year ended June 30, 2023. The City has issued the ACFR, incorporated as part of this report and made available on the City’s website. The annual budget and associated quarterly reporting focuses on annual revenue and expenditures and spendable fund balances while the ACFR provides a more comprehensive report of the City’s overall financial condition.
Staff prepares the ACFR in compliance with Governmental Accounting Standards Board (GASB) standards, dividing the ACFR into three sections pursuant to GASB guidelines: Introductory, Financial and Statistical. The Introductory section contains a Letter of Transmittal and brief overview of the City economic outlook, operational controls and major initiatives and the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting which the City received for fiscal year ended June 30, 2022. The City submitted this year’s ACFR on December 21, 2023 with the expectation of receiving the award again.
The Financial section contains the independent auditor opinion letter, Management Discussion and Analysis (MD&A) and Basic Financial Statements. LSL issued an unmodified audit opinion, meaning the financial statements present fairly 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, 2023. The MD&A provides a narrative of the financial report presentation, key highlights of some changes in financial position and tables with comparative information from fiscal year ended June 30, 2022 to fiscal year ended June 30, 2023.
The Statistical section presents useful data for analyzing City financial and operational history. Some statistics tracked include financial trends, revenue capacity and debt capacity, useful for evaluating City financial stability.
ACFR Highlights:
The Government-Wide Financial Statement of Net Position (ACFR page 15) indicates the City’s overall financial condition. The net position totaled $591.5 million on June 30, 2023, representing a $42.4 million over the previous fiscal year primarily due to income from water sales, property tax and sales tax revenue growth, increase in development-related user fees and projects and investment earnings offset by increases in pension plan expenses. The City has $642.6 million of total net position invested in capital assets net of related debt (“net investment in capital assets”), with $45.9 million restricted for specific governmental operations, leaving a $97.1 million negative unrestricted balance.
City Governmental Funds (General, Special Revenue, Debt Service and Capital Projects) reported combined $69.9 million ending fund balances (ACFR page 19), a $7.6 million increase in comparison with the prior year. Property and sales tax revenue growth, increase in development-related user fees and projects, application of American Rescue Plan Act (ARPA) for revenue replacement and offset by an increase in public safety salaries and benefits primarily attribute for the increase.
The General Fund reflects $19.8 million assigned fund balance (ACFR page 18), which compares to the $18.6 million previous year assigned fund balance. City Council direction to maintain contingency reserves at 17% reserve levels primarily accounted for the $1.2 million increase in assigned fund balance. This designation resulted in $10.3 million in unassigned fund balance.
The General Fund ended the fiscal year with a $33.5 million (ACFR page 18) total fund balance. General Fund revenues totaled $120.6 million (ACFR page 22), a $8.5 million increase over the prior year. Property and sales tax revenue growth, increases in development-related user fees and projects and application of ARPA for revenue replacement attributed to this increase. General Fund expenditures totaled $114.3 million, a $10.1 million increase from the previous fiscal year. Public safety salary wage and benefit increases, filling positions and high inflation costs for goods and services primarily accounted for the increase.
The American Rescue Plan Act (ARPA) Special Revenue Fund (ACFR page 22) ended the fiscal year with a deficit $129,385 fund. Staff expects to eliminate the deficit next fiscal year. The City received $32.7 million - the first $16.3 million in FY 2020-21 and the remaining $16.4 million in May 2022 - and recorded $23.0 million as unearned revenue on the balance sheet pending use for eligible expenditures.
City Enterprise Funds account for operations that recover the cost of providing goods or services through user charges including water, sewer, airport, Brea Dam recreational facilities, parking facilities and CNG station. The Fund ended with a $196.4 million net position on June 30, 2023 (ACFR page 15), representing a $20.3 million increase over the previous fiscal year. Changes in net position include $18.7 million in the Water Fund, $0.3 million decrease in the Sewer Fund, $0.5 million increase in the Airport Fund, $21,000 decrease in Other Enterprise Funds and a $5.1 million adjustment for the internal services funds operating gain allocated to the enterprise funds (ACFR page 27).
The Internal Service Funds account for goods and services provided 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 net position in the Internal Services Funds (ACFR page 119) increased by $7.7 million to $41.3 million on June 30, 2023. A $3.1 million Liability Insurance Fund increase, $2.4 million Vehicle Replacement Fund increase and $2.2 million Worker’s Compensation Fund increase primarily attributed to the increase.
An increase in cost allocation (operating expenses) across all city funds increased reserve levels in these internal service funds and attributed for a $7.7 million increase in net position.
The City had $24.1 million in bonds, notes, leases and subscription debt outstanding as of June 30, 2023, a $1.1 million increase from the prior fiscal year, primarily due to GASB Statement No 96, Subscription-Based Information Technology Arrangements implementation which recognized $2.8 million computer subscription liabilities (ACFR page 13 and 27).
PERS Miscellaneous Plan net pension liability increased by $10.1 million with a resulting 74.68% funding ratio (ACFR page 85). PERS Safety Plan net pension liability increased by $27.4 million with a resulting 62.97% funded ratio (ACFR page 87). A decrease in earnings on pension plan investments and a change in pension plan assumptions as the discount rate reduced from 7.15% to 6.90% resulting in an increase in the net pension liability accounted for the PERS Miscellaneous and Safety Plan net pension liability increases on June 30, 2023. The net pension liability increased pension plan expenses by $21.7 million.
OPEB liability decreased by $7.2 million and the OPEB funded ratio as of June 30, 2023 totaled 0.24% (ACFR page 89) due to a discount rate change from 1.94% on June 30, 2022 to 3.69% on June 30, 2023 and changes in mortality rate assumptions.
General Fund Ending Fund Balance
Fund Balance
General Fund
FY 2022-23
General Fund
FY 2021-22
Nonspendable:
Inventories
6,528
6,528
Prepaids
306,182
706,953
Total Nonspendable
312,710
713,481
Restricted:
Opioid Settlement
64,081
-
Library – Foundation and Friends
607,275
738,475
115 Pension Trust Fund
555,438
501,509
Donations
291,918
278,829
Total Restricted
1,518,712
1,518,813
Committed:
Capital Projects
1,535,971
438,687
Total Committed
1,535,971
438,687
Assigned:
Contingency Reserve
19,406,405
17,724,874
Building Permit Software
130,662
156,566
Street Projects
271,737
677,618
Laguna Lake Project
-
10,681
Total Assigned
19,808,804
18,569,739
Unassigned
10,311,002
4,033,848
Ending Fund Balance
33,487,199
25,274,568
The General Fund reflects a $312,710 non-spendable fund balance compared to a $713,481 non-spendable fund balance the previous year, a $1.5 million restricted fund balance compared to a $1.5 million restricted fund balance the previous year, $19.8 million assigned fund balance compared to $18.6 million assigned fund balance the previous year and a $10.3 unassigned fund balance compared to $4.0 million the previous fiscal year. The combined fund balance totals $33.5 million, representing a $8.2 million increase over the previous fiscal year.
Committed Fund Balances include amounts the City can only use for specific purposes pursuant to City Council action. City Council adopted 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 committed $1.5 million for these purposes as of June 30, 2023.
City Council designates assigned fund balances. City Council authorized staff to designate any unassigned balances as contingency reserves to maintain the 17% reserve level goal, resulting in a $1.2 million increase over the previous fiscal year. The contingency reserve holds $19.4 million as of June 30, 2023 which equals 17% of General Fund expenditures. Remaining projects such as building permit software and street projects fluctuate based on project costs incurred in the fiscal year.
Air Quality Improvement Trust Fund Audit Report
Staff has attached the independent auditors report on the Air Quality Improvement Trust Fund.
Attachments:
Attachment 1 – Annual Comprehensive Financial Report
Attachment 2 – Air Quality Improvement Trust Fund Audit Report cc: City Manager Eric J Levitt
ACFR for Fiscal Year Ended June 30, 2023
January 16, 2024 - Page 4