CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
1/23/2023
1 SUBJECT:
Accept the City of Pacifica's Annual Comprehensive Financial Report (ACFR) and related financial reports for the fiscal year ended June 30, 2022 RECOMMENDED ACTION:
Accept the City of Pacifica Annual Comprehensive Financial Report (ACFR), Independent Auditor’s Report, and other related financial reports for the fiscal year ended June 30, 2022.
STAFF CONTACT:
Yulia Carter, Assistant City Manager/Administrative Services Director (650) 501-6004
[email protected]
Lucy Xie, Deputy Finance Director
(650) 738-7395
[email protected]
BACKGROUND:
The City of Pacifica annually conducts an independent audit of financial transactions and issues the Annual Comprehensive Financial Report (ACFR), previously known as Comprehensive Annual Financial Reports (CAFR) prepared by the City’s independent auditing firm and the Finance staff. The attached ACFR report reflects the City's financial position as of June 30, 2022 and is presented as an informational item for the Council’s acceptance.
The ACFR Report has been prepared in conformity with the Governmental Accounting and Financial Reporting Standards and with the Governmental Accounting Standards Board Statement 34, which requires dual perspective financial statements. The ACFR report provides two views of the financial statements: 1) an entity-wide view of the City’s financial transactions that distinguishes between governmental activities and business activities, which is prepared on a full accrual basis of accounting, and 2) a governmental fund view of the results of operations and financial position of each of the City’s major funds, which is prepared on a modified accrual basis of accounting.
The independent auditing firm of Maze and Associates (Maze) has completed the City’s fiscal year 2021-22 audit in conformity with General Accepted Auditing Standards. Those standards require that an independent Certified Public Accounting firm (the auditors) is tasked to plan and perform the audit, examine evidence to support the amounts and disclosure in the financial statements, and express an opinion on the fairness of the presentation of the financial position and the results of operations of the basic financial statements of the City, in conformity with Generally Accepted Accounting Principles (GAAP) as applicable to local governments.
The ACFR report has been prepared by Maze & Associates and Finance Department staff. The 2022 ACFR received an unqualified opinion from the auditing firm, which means that it is the opinion of the auditors that the ACFR report represents fairly, in all material respects, the financial position of the City as of June 30, 2022, and that the financial statements were prepared in conformity with generally accepted accounting principles. The auditors noted no Pacifica City Council 2
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material weaknesses or deficiencies. In performing an audit of the financial statements, the auditors also considered the City’s internal controls over financial reporting to determine the audit procedures that are appropriate for the purpose of expressing opinions on the financial statements. The auditors did not find any internal control deficiencies and issued a clean opinion.
The City’s ACFR presents an easily readable and organized report of the City’s financial transactions and provides the users of government financial statements with a wide variety of information needed to help them evaluate the financial condition of the City. The final step in the formal process of preparing these statements is to present them to the City Council for its acceptance.
The ACFR report is composed of the following parts:
• Introductory Section, including the letter of transmittal • Financial Section
a. Independent Auditors’ Report
b. Management Discussion and Analysis (MD&A)
c. Basic City-wide and fund level financial statements
d. Explanatory notes to financial statements, supplemental schedules e. Supplementary information
• Statistical Section
The transmittal letter provides management’s representation of the City’s finances and describes all component units, funds, and activities of the City. The letter also provides a discussion on the City’s budget process, as well as factors affecting the City’s financial conditions, including State budget and local economy, long-term financial planning, risk management, and employee benefit cost.
The Financial Section includes the MD&A that summarizes the financial results for the fiscal year ending June 30, 2022, and provides an overview of the financial highlights and a discussion of significant financial changes from the prior year.
DISCUSSION
The 2022 ACFR report delivers positive news highlighted in the MD&A section of the document.
The overall Citywide net assets exceed its liabilities on June 30, 2022, by $84.4 million, an $11 million increase from the prior year, primarily due to increase in citywide revenue base, including one-time funds from American Rescue Plan Act (ARPA) and Vehicle License Fees backfill, as further described below.
At the same time, the unrestricted net position improved from negative $40.4 million in the prior year to negative $34.3 million in current fiscal year. The negative net position exists when liabilities exceed assets. As further described in the Annual Comprehensive Financial Report, the City’s negative net position figure is a direct result of the City’s recognition of net pension and OPEB liability as required by GASB 68 and 75, respectively, but these obligations do not represent a liability due and payable immediately. The City’s actuarially determined long-term net pension liability was $35.3 million, based on the most recent actuarial valuation and CalPERS Actuarial assumptions and is amortized over a combination of 30 and 20 year schedules. The City’s actuarially determined long-term net OPEB liability increased by $0.6 million from $8.4 to $9.0. In recent years the Council approved prefunding of these obligations through the irrevocable trust with the Public Agency Retirement Services (PARS) to help reduce this liability over time, and the City will start seeing positive impacts of this decision to be Pacifica City Council 3
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reflected in the next ACFR report. It is important to note that the CalPERS Board has adopted a new amortization policy that will go into effect with the next actuarial valuation that will increase the City’s contribution rates and affect the FY 2022-23 ACFR report.
Altogether, the City’s long-term net pension liability of $35.3 million and Other Postemployment Benefits (OPEB) obligations of $9.0 million in the FY 2021-22 Statement of Net Position result in the City’s negative unrestricted net position of $34.3 million, which somewhat may limit the City’s future ability to meet ongoing obligations to citizens and creditors and will need to be monitored closely and addressed with the annual review of a funding policy during each budget cycle. It is important to note that these long-term obligations are based on actuarial estimates and do not represent a liability due and payable immediately. Staff will continue evaluating and making recommendations for any necessary adjustments to the City’s funding policy related to these obligations as part of future budget discussions.
Within the above-mentioned unrestricted net assets, $5.0 million is for Business type activities, $4.8 million from Sewer Fund and $0.2 million from Beach Parking Fund.
Total citywide revenues were $71.6 million; this is an increase of $12.1 million (or 20.3%) from the prior year. The increase is primarily due to the one-time $4.6 million in ARPA grant funding, the receipt of $1.8 million of the State’s backfill obligations for the Vehicle License Fees, scheduled $2.9 million increase in sewer rates, restatement of the prior year net fund balance from the Successor Agency fiduciary fund and overall improvement in the City’s revenue base by approximately $1.1 million as a result of COVID recovery. Total City expenses were $61.5 million, an increase of $2.6 million (or 4.4%) over the prior year. The increase is mainly due to depreciation expense in the Sewer Utility Fund.
The Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances presented in the ACFR report is a useful snapshot of the City’s fiscal indicator for the year. Governmental funds include all funds except for proprietary (Sewer) and internal service funds. The Net Change in Fund Balances, reflecting all revenues, expenditures, and transfers, was an increase of $8.25 million from $36.8 million to $45.1 million or by 22.3% in 2021-22, primarily due to the transfers to the General Capital Improvement Fund and the higher than projected allocation of Excess ERAF funds to the Disaster Accounting Special Revenue Fund.
The General Fund is the City’s primary operating fund. It receives unrestricted revenues and provides general administrative services, law enforcement, and animal control services, and land development-related activities such as planning, building, and engineering. The City’s General Fund balance on June 30, 2022, was $16.3 million, which is a decrease of $0.2 million from the prior year. Out of this balance, $3.8 million is non-spendable and relates to RDA obligations, and $0.3 million is restricted for use by outside agencies that cannot be liquidated.
The General Fund Assigned Fund balance of $4.8 million includes budget shortfall reserve of $3.8 million (or 10% of current year general fund operating expenditures), $0.2 million for facilities and maintenance reserve, $0.2 million for Compensated absences, $0.5 million for Child Care reserve, and $0.1 million as a legal reserve per previously approved Council policy.
The remaining unassigned fund balance totaled $7.4 million; which is a $0.6 decrease form from the prior year.
General Fund Revenues of $42.5 million is an increase of $6.8 million or 16% from the prior year of $35.7 million, which is primarily due to the receipt of $4.6 million in ARPA grant funding.
The overall General Fund Expenditures of $38.1 million have increased by $4.1 million or 10.8% over the prior fiscal year primarily due to the increase in benefit costs primarily as a result of implementation of new labor agreements citywide.
Pacifica City Council 4
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FY2022 FY2021 Variance
Revenues
Taxes 24,284,444 25,107,242 -3.4%
Licenses and permits 1,026,381 1,156,946 -12.7%
Fines and forfeitures 167,612 174,048 -3.8%
Use of money and property 222,511 72,884 67.2%
Intergovernmental 10,875,321 4,736,969 56.4%
Charges for current services 3,649,015 3,267,554 10.5%
Recreational programs 456,080 373,390 18.1%
Other 1,840,182 823,842 55.2%
Total 42,521,546 35,712,875 16.0%
Expenditures
General government 7,242,859 6,093,805 15.9%
Public safety 18,582,989 17,098,183 8.0%
Community development 3,056,701 2,409,540 21.2%
Public works 4,371,543 3,812,296 12.8%
Parks, beaches and recreation 4,785,683 4,390,877 8.2%
Capital outlay 60,620 195,640 -222.7%
Total 38,100,395 34,000,341 10.8%
Net Transfers (3,974,956) (1,128,263) 71.6%
Net Change in Fund Balance 446,195 584,271 -30.9%
Fund balance at beginning of year * 15,846,029 15,917,102 -0.4% Fund Balance at end of year 16,292,224 16,501,373 -1.3% Non-spendable 3,768,557 3,864,704 -2.6%
Restricted 342,510 200,755 0.0%
Assigned 4,803,631 4,441,015 7.5%
Unassigned 7,377,526 7,994,899 -8.4%
Total Fund Balance 16,292,224 16,501,373 -1.3%
* The beginning fund balance for both years were restated.
General Fund Revenues, Expenditures and Fund Balance
Additional information on other operating and capital funds can be found in the attached financial report, MD&A section and notes to the financial statements.
In addition to the ACFR, the auditors prepare other financial reports listed below. These reports include additional financial statements and supplemental data that together with ACFR summarize the results of the operations of all funds and give the comprehensive overview of the City’s financial position for the fiscal year ended June 30, 2022:
• Annual Comprehensive Financial Report (ACFR)
• Audit Report on Measure A Funds
• Audit Report on Measure W Funds
Maze's report, which appears on page 1 of the City of Pacifica’s Annual Comprehensive Financial Report, (Attachment 1) is “unmodified” which means that the financial statements Pacifica City Council 5
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present fairly, in all material respects, the financial position of the City at June 30, 2022. This is the highest level of auditor assurance that the City can achieve in an audit.
The auditors also prepare the Management Letter to help identify areas that could help improve the City's organization and controls over financial activities. This letter will be prepared and issued by the auditors together with the final ACFR report by the end of January. However, we are pleased to report that the auditors did not note any significant deficiencies or new matters that merit attention for improving internal controls.
Staff will share this year’s Memorandum on the Internal Control and Required Communication with the Council as soon as it is issued by the auditors, but we are pleased to report that there were no new deficiencies identified by the auditors during this audit process.
Annual Comprehensive Financial Report (ACFR) (Attachment 1) The Annual Comprehensive Financial Report (ACFR) presents financial information on the status of the City’s financial affairs, first on a city-wide basis (Government-wide Financial Statements) in which all City activities are reported as either governmental activities or business-type activities. The second set of statements (Governmental Funds Financial Statements) report separately the activities of the City’s various funds:
Major Funds
General Fund
Disaster Accounting Fund
General Capital Improvement Fund
Debt Service Fund
Proprietary Funds
Sewer Utility Enterprise Fund
Beach Parking Fund
Internal Service Funds
The lead document in the ACFR is the Transmittal Letter, which includes information regarding the City’s demographics, accounting, and budgetary controls, descriptions of the departments within the City, discussion of the economic impact on the City, and summaries of major initiatives currently active within the City.
The Transmittal letter is followed by the Management’s Discussion and Analysis (MD&A). The MD&A is a narrative that provides a brief and easily readable analysis of the City’s fiscal activities for the fiscal year 2021-22. The financial statements and notes to the financial statements are presented next.
Following the financial statements is the statistical section of the report, which includes tables that contain ten years of data that illustrate financial trends and a section with demographic and other data that is useful in analyzing the financial condition and performance of the City.
The comprehensive format of the annual financial report is designed to provide detailed information for all activities of the city government in one document. Rather than reviewing cover to cover, it is suggested that readers initially concentrate on the summary schedules in the MD&A before moving to the full statements, budget comparison statements, and the combined statements that are presented in the financial section of the report.
Audit Report on Measure A Funds (Attachment 2)
The agreement for distribution of San Mateo County Measure A funds for local transportation purposes between the City and San Mateo County Transportation Authority requires the City to Pacifica City Council 6
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submit a compliance audit report on the funds received. The audit report found that the City has complied, in all material respects, with the aforementioned requirements for the year ended June 30, 2022.
Audit Report on Measure W Funds (Attachment 3)
The agreement between the City and San Mateo County Transportation Authority for distribution of San Mateo County Measure W funds for local transportation purposes in accordance with the San Mateo County Congestion Relief Plan requires the City to submit a compliance audit report on the funds received. The audit report found that the City has complied, in all material respects, with the aforementioned requirements for the year ended June 30, 2022.
Single Audit on Federal Awards
The Federal Government requires that any local agency receiving or expending $750,000 or more in combined federal grants, either directly or indirectly in a fiscal year, is subject to a separate audit on those programs, and a separate Single Audit report is issued. The City met this threshold in the fiscal year 2021-2022 and will present this report at a later time.
Staff would like to take an opportunity to acknowledge the hard work of the Finance Department staff in bringing this report forward earlier than the prior years. We also appreciate the competence and diligence displayed by the auditors’ team in assisting the City staff with the preparation and timely completion of this ACFR document. Finally, we would like to express our appreciation to the entire City Council for their attention and unfailing support of maintaining the highest standards of professionalism in managing the City’s finances with the emphasis on transparency, ethics, and fiscal responsibility.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
The City's annual audit is a critical check on the City’s financial practices, which underpin its ability to fund all of the Council Goals.
ALTERNATIVES:
There is no reasonable alternative to the staff recommendation as not accepting the Annual Comprehensive Financial Report will not change the City’s audited financial position as of June 30, 2022.
FISCAL IMPACT:
There is no fiscal impact associated with the Council’s acceptance of the ACFR report. The attached reports present the result of the City's financial operations for the last fiscal year 2021-
22. ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST:
Attachment 1 - Pacifica 2022 ACFR FY 2022 (PDF)
Attachment 2 - Pacifica Measure A FY22 FINAL (PDF)
Attachment 3 - Pacifica Measure W FY22 FINAL (PDF)