Item 4/2026
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: 2/10/2026
Subject: Receive and file the annual financial reports and related audit items for Fiscal Year 2024–25, and approve additional appropriations for Fiscal Year 2025–26. (Action Item)
OBJECTIVE
For the City Council to receive and file the annual financial reports and related audit items for Fiscal Year 2024–25, and to approve additional appropriations for Fiscal Year 2025–26 funded by the audited Fiscal Year 2024-25 General Fund surplus and available fund balances in other funds.
BACKGROUND
The City’s Municipal Code requires a complete financial statement and report be submitted to the City Council after the close of each fiscal year. In order to ensure the reliability of the information contained within the financial statements, the City contracted with an independent audit firm, Davis Farr LLP, to perform the annual financial audit. The goal of the audit is to provide reasonable assurance that the City’s financial statements are free from material misstatement. Davis Farr LLP issued an unmodified, or clean opinion for the City’ s financial statements for the fiscal year ended June 30, 2025.
To ensure sound fiscal management, Finance periodically reviews citywide departments’ budget performance. Fiscal Year (FY) 2025 -26 mid-year budget review was conducted in conjunction with the FY2024-25 year-end close. During this review, a few funding needs were identified that require appropriations beyond the adopted budget.
DISCUSSION
The annual audits of the financial statements of the City and its component units were completed on D ecember 23, 2025. The financial statements were prepared in accordance with all applicable accounting standards in order to conform to Governmental Accounting Standards Board (GASB) requirements. The independent auditor has issued an unmodified opinion of the City’s financial statements for the fiscal year ended June 30, 2025. An Item 4/2026
unmodified opinion concludes that the financial statements of the City are presented fairly, in all material respects, in accordance with generally accepted accounting principles.
In addition to reviewing and examining the City’s financial records, the auditors also reviewed the internal control framework of the City. Internal control is a set of activities, rules, and procedures implemented by the City to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Internal control mechanism is embedded in the normal operating procedures, designed with the intent of safeguarding assets, minimizing errors, and ensuring that operations ar e conducted in an approved manner. There was no material weakness cited by the auditors during their review of the City internal control over its financial reporting.
Professional auditing standards require independent auditors to communicate with the City Council regarding various matters related to the audit. These include the auditors' responsibilities, the scope and timing of the audit, compliance requirements, identified audit risks, the City's significant accounting practices, any difficulties encountered during the audit, misstatements in the financial reports, disagreements between the auditors and City management, and other relevant information pertaining to the audit engagement. Please refer to Attachment 4 for the auditors' communication letter.
The audited financials show that for Fiscal Year 2024 -25, the City overall had a positive operating result of $31.2 million, due to increases in charges for services, grant funding, and higher investment earnings. Governmental activities’ revenues exceeded expenses by $13.6 million, and business-type activities had an increase of $17.6 million to its net position.
The beginning net position was restated by a reduction of $7.1 million as a result of implementing GASB Statement No. 101, Compensated Absences. This restatement reflects a change in accounting principle and did not affect the City’s operations or have a significant impact on the City’s overall financial position.
The General Fund is the primary operating fund of the City. It accounts for essential municipal services including public safety (police and fire), public works, community planning, economic development, and community and park services. These services are primarily funded by tax revenues and funding is dependent upon revenues collec ted during the same period the services are provided.
For Fiscal Year 2024-25, General Fund revenue exceeded expenditures by $5.9 million. Total tax revenues reported $159.3 million. Property taxes remained the City’s largest revenue source, generating $66.6 million. Sales and use taxes and transient occupancy taxes were the second and third largest sources, contributing $58.4 million and $27.1 million, respectively. Together, these three major taxes accounted for 82.3% of total General Fund revenues. Other taxes, totaling $7.1 million, included business license taxes, franchise taxes, and certain pass-through taxes.
While property tax revenues increased by $1.9 million compared to the prior year, sales and use taxes and transient occupancy taxes declin ed slightly by $0.7 million and $1.4 million, respectively, reflecting signs of a slowing local economy. In prior years, the City had experienced rapid revenue growth following the post -pandemic recovery. However, this Item 4/2026
upward trend has leveled off, and several major revenue sources have begun to show modest declines, signaling a shift toward more stabilized and, in some cases, softening revenue patterns. This trend highlights the importance of ongoing fiscal monitoring and strategic planning to manage potential impacts on the City’s General Fund operations.
Total General Fund expenditures totaled $181.7 million, representing a decrease of $22.8 million from the prior fiscal year. This decline was primarily attributable to two significant one-time expenditures incurred in the previous year: the $20.8 million defeasance of the Garden Grove Public Financing Authority Lease Revenue Bonds, Series 2015A, and the $11.9 million acquisition of an office building in the Civic Center Plaza. Excluding these one -time costs, ongoing General Fund expenditures increased by 5.8 percent compared to the prior year, reflecting continued growth in baseline operating costs.
Consistent with prior years, Public Safety remained the largest expenditure category. Fire services totaled $33.4 million, and Police services totaled $84.1 million, for a combined total of $117.5 million, representing 64.7% of overall General Fund expenditures, including debt service and capital outlay.
During Fiscal Year 2024–25, the General Fund recorded three outgoing transfers. A transfer of $12.6 million was made to the Civic Center Revitalization Capital Project Fund, representing funds originally set aside in Fiscal Year 2020 –21 to initiate the project. During the project’s feasibility phase, related appropriations were maintained in the General Fund. Following the issuance of the 2024 Lease Revenue Bonds and the formal establishment of the Civic Center Revitalization Fund, the remaining General Fund appropriations were transferred to the capital project fund.
In addition, a $4.0 million transfer was made to the Workers’ Compensation Internal Service Fund. As part of the adoption of the Fiscal Years 2026 and 2027 biennial budget in June 2025, the City Council approved this one -time transfer to eliminat e the Workers’ Compensation Fund’s deficit position. For the same purpose, the City Council also approved a $3.0 million transfer to the Risk Management Internal Service Fund.
The City strives to develop a budget that accurately aligns available resources and operational needs. Therefore, all budget variances are carefully reviewed and analyzed. A budget variance is the difference between the budgeted amount of expense or revenue and the actual amount.
The budget variance is favorable when the actual reven ue is higher than budgeted or when the actual expense is less than budgeted. Budget variances can occur for a variety of controllable and uncontrollable reasons, such as personnel savings due to vacancies, increases or decreases in development related activities, unspent funding in the current year due to projects crossing over fiscal years, implementation of technology to reduce cost, and the identification of additional revenue sources during the year.
As of June 30, 2025, the City’s General Fund ended the fiscal year with a favorable revenue variance of $5.9 million, primarily attributable to investment earnings that exceeded budgeted estimates by $6.7 million. On the expenditure side, the General Fund reported a favorable variance of $12.3 million, con sisting of $8.8 million in personnel cost savings resulting from vacancies, and $3.0 million in unspent capital project appropriations. The unspent capital funds will be carried forward into the next fiscal year.
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After considering all revenue, expenditure, and transfer variances, the General Fund reported a net unfavorable budget variance of $0.9 million as of June 30, 2025. Net operating surplus reported for FY2024-25 was $5.9 million.
Staff conducted a mid -year budget review in conjunction with the year -end close and the annual financial audit. As of December 31, 2025, General Fund revenues and expenditures were generally consistent with the adopted budget. However, the review identifie d two additional funding requirements totaling $375,500 that require additional appropriations.
Concrete Replacement Capital Improvement Project – $300,000:
The General Fund annually contributes $300,000 to the Concrete Replacement Capital Improvement Project, which supports the repair of residential sidewalks, driveway approaches, wheelchair ramps, and cross gutters. During the adoption of the FY 2025– 26 budget, a one -time additional appropriation of $400,000 was approved for the Public Works Department’s Street Division to address asphalt and concrete work. In the process, the recurring annual contribution of $300,000 was inadvertently removed from the budget. Finance staff worked with Public Works to reevaluate funding needs for the year and determined that the annual $300,000 contribution remains necessary to carry out the planned concrete repair work in FY 2025–26.
Senate Bill 707 (Brown Act Amendments) – $75,500:
Senate Bill (SB) 707 was signed into law on October 3, 2025, with its primary provisions becoming effective January 1, 2026. Certain expanded teleconferencing requirements will be phased in beginning July 1, 2026, through January 1, 2030. The legislation is intended to enhance public access and participation in local agency meetings, including requirements related to accessibility and meeting accommodations. To comply with SB 707, upgrades are required in the City Council Chamber. Staff estimates the total cost of these upgrades at $75,500. The adopted budget does not include funding for these improvements; therefore, an additional appropriation is necessary.
In addition, the City Council approved a contract in August 2025 with Works of Art by Jennifer for the design and installation of a bronze sculpture at the newly renovated Woodbury Park.
The total cost of the contra ct is $163,125 and will be funded by the Cultural Arts Fee Fund (Fund 213). At the time of contract award, no additional appropriation was requested. The adopted FY 2025–26 budget for Fund 213 cannot absorb this cost. However, the audited FY 2024–25 financial statements reflect sufficient available fund balance in Fund 213 to support this expenditure, and an additional appropriation is therefore requested.
FINANCIAL IMPACT
There is no fiscal impact to receive and file the auditor’s reports related to Fiscal Year 2024- 25 annual financial audit. The fees for auditing services were provided for in the annual operating budgets.
Additional appropriations requested include:
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$300,000 from the General Fund for the Concrete Replac ement Capital Improvement Project;
$75,500 from the General Fund for the implementation of Senate Bill 707 (Brown Act Amendments); and
$163,125 from the Cultural Arts Fee (Fund 213) to fund the contract with Works of Art by Jennifer.
RECOMMENDATION
It is recommended that the City Council:
• Receive and file the City of Garden Grove Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2024-25 (Attachment 1)
• Receive and file the Report on Agreed -Upon Procedures Applied to Appropriation Limit Worksheets – City of Garden Grove (Attachment 2) • Receive and file the Report on Internal Control and Compliance of the Air Quality Improvement Fund (Attachment 3)
• Receive and file the Auditor Communications to the City Council (Attachment 4)
• Approve an additional appropriation of $3 75,500 from the General Fund for the City’s annual Concrete Replacement Capital Improvement Project and implement SB707; and
• Approve an additional appropriation of $163,125 from the Cultural Arts Fee Fund for the design and installation of a bronze sculpture at Woodbury Park.
ATTACHMENT(S)
1. City of Garden Grove Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2024-25
2. Report on Agreed-Upon Procedures Applied to Appropriation Limit Worksheets – City of Garden Grove
3. Report on Internal Control and Compliance of the Air Quality Improvement Fund
4. Auditor Communications to the City Council