CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
2/10/2025
1 SUBJECT:
Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2024 RECOMMENDED ACTION:
Accept the City of Pacifica Annual Comprehensive Financial Report (ACFR), Independent Auditor’s Report, and other related documentation for the fiscal year ended June 30, 2024.
STAFF CONTACT:
Yulia Carter, Assistant City Manager
(650) 501-6004
[email protected]
Marisol Gómez, Administrative Services and Finance Director (650) 501-0257
[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), 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, 2024, 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 (GASB) Statement 34, which requires dual perspective basic financial statements:
1) Government-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) Fund financial view of the results of operations and financial position of each of the City’s major and enterprise (proprietary) funds, reported as follows:
Major Funds
General Fund
General Capital Improvement Fund
Proprietary Funds
Sewer Utility Enterprise Fund
Beach Parking Fund
Internal Service Funds
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The independent auditing firm of Badawi & Associates (Badawi) has completed the City’s Fiscal Year 2023-24 audit in conformity with generally accepted auditing standards that require:
• An independent Certified Public Accounting firm to plan and perform the audit. • Examination of evidence to support the amounts and disclosure in the financial statements.
• Expression of an audit 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.
Section 12410.6 (b) of the Government Code requires the rotation of public accounting firms providing audit services or lead audit partners responsible for performing or reviewing the audit for local agencies every six years to ensure audit independence. Pursuant to this requirement, the City issued an RFP and selected Badawi and Associates as the new audit firm early last year. This marks the first year of their engagement with the City.
FY2024 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, 2024, and that the financial statements were prepared in conformity with generally accepted accounting principles. The auditors noted no 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 appropriate audit procedures for expressing opinions on the financial statements. The auditors did not find any internal control deficiencies and issued a clean opinion.
The City’s Annual Comprehensive Financial Report (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 City's financial condition. 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 Government-wide and fund-level financial statements d. Explanatory notes to financial statements, supplemental schedules e. Supplementary information
• Statistical Section
The transmittal letter provides information regarding the City’s demographics and 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 Management’s Discussion and Analysis (MD&A) that summarizes the financial results for the fiscal year ending June 30, 2024, and provides a brief and easily readable analysis of the City’s fiscal activities, overview of the financial highlights, and a discussion of significant financial changes from the prior year.
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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 city government activities 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 presented in the report's financial section.
DISCUSSION
The statement of Net position presents complete information on the City’s assets and deferred outflows of resources and liabilities and deferred inflows of resources, with the difference reported as net position. Net position may serve as a valuable indicator of the city’s financial position over time. The overall Citywide net assets exceeded its liabilities on June 30, 2024, by $105.5 million, which is a $3.4 million increase from the prior year’s restated net position of $102.1 million, as shown in Table 1 Comparative Statement of Net Position.
Key Changes in Net Positions are as follows:
• Increase in Net Investment in Capital Assets from $112.5 to $124.3 million. The City’s Capital Assets are calculated as the current net book value of the assets, less the outstanding balance of any debt issued to finance these assets. An increase over the prior year of $8.5 million in governmental activities and $3.3 million in business-type activities is a result of the capitalization of the Civic Center Renovation Project, Beach Blvd. Seawall Reconstruction Project, and Linda Mar Pump Station. • Restricted net position increased $1.3 million over the prior year to $22.3 million in governmental funds. The restricted portion of the Net position describes obligations restricted by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions that the City cannot unilaterally alter. This may include capital projects, revolving loan programs, and other various grant programs. • Unrestricted net position describes the portion of a net position that is not restricted to Pacifica City Council 4
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use. The negative net position exists when liabilities exceed assets. As further described in the MD&A, 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. It is important to note that the unfunded pension and OPEB obligations do not represent a liability due and payable immediately. The City’s unrestricted net position had an unfavorable change from negative $28.7 million in the prior year to negative $41.1 million in the current year. Governmental activities accounted for $10.6 million of this change in unrestricted net position as increases in net investments in capital assets, and current and non-current liabilities over the prior year reduce and further worsen unrestricted resources because funds are being allocated to long-term, non-liquid assets rather than general operating needs. Finance staff will continue monitoring year-to-year changes in unrestricted net position, which will remain negative in the future years primarily due to the unfunded pension and OPEB liabilities. The pension and OPEB prefunding policy will also be reviewed during the annual budget process.
Additional information on the changes in net position and net investment in capital assets can be found in Note 10. Net Position and Fund Balances in the ACFR.
The Statement of Activities, Table 2, provides information about the City’s revenue and expenses, with an emphasis on measuring net revenues or expenses in each program, explaining in detail the change in Net Position for the year.
Key points regarding the Statement of Activities are as follows:
• Total Revenues - total Citywide revenues were $77.8 million; this is a decrease of $5.5 Pacifica City Council 5
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million or 6.6% from the prior year of $83.3 million, with Governmental and BusinessType activities decreasing by $5.2 million and $0.3 million, respectively.
Revenue is broken down by program revenue, such as charges for services, and general revenues, such as the different types of taxes. o Program Revenue - decreased by $6.5 million from $39.9 million to $33.4 million, primarily due to a decrease in operating revenues and grants, including ARPA funds and a one-time $1.6 million insurance settlement in FY2023, not repeating in FY2024.
o General Revenue - increased by $1.1 million from $43.3 million to $44.4 million, driven by higher property taxes ($3.8M), sales tax ($1.9M), and Franchise Tax ($0.5M), partially offset by declines in transient occupancy ($0.1M), utility user ($0.6M), and Motor Vehicle in Lieu ($2.0M) revenue. Interest allocation revenue rose by $2.1 million due to improved banking contracts. • Total Expenses - Total citywide expenses were $74.5 million; this is an increase of $11.7 million or 18.6% over the prior year of $62.8 million, with Governmental and Business-type Activities increasing $11.3 million and $0.4 million, respectively.
Governmental expenses are reported by categories, such as public works and public safety, and business-type expenses are broken down by sewer and beach parking. o Governmental Expenses - notable changes included an increase to Public Safety of $5.8 million and $3.2 million in Public Works due to accrued pension-related expenses.
o Business-type Expenses - Beach Parking remained relatively flat year over year, while some highlights for Sewer included minor upticks in personnel services ($0.07M) and utility expenses ($0.06M) with decreases in supplies ($0.5 M) and depreciation expense ($0.4M).
• Transfers - Transfers in are shown as a positive amount and Transfers (out) are shown in parenthesis. The purpose of most transfers is to move resources from one fund to another. These transfers are usually approved at budget adoption or during the mid-year review. A summary of all transfers is located in the ACFR Note 9. Interfund Transactions.
o A governmental transfer in of $0.9 million to the Internal Service Fund was received by a business-type transfer (out) from the Sewer Utility fund to pay for a portion of the General Liability insurance costs.
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 a decrease of $2.6 million or 6.2% from the restated prior year balance of $43.2 million to $40.6 million in FY2023-24.
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The decrease is due to a $1.8 million increase in the General Fund, offset by a $4.9 million decrease in the General Capital Improvement Fund, primarily from the completion of the Civic Center Renovation project in the previous year.
The Disaster Accounting Fund and the Debt Service Fund were reclassified from a major fund to a non-major fund and their change in fund balance is now included in the Other Governmental Fund category. The General Fund's beginning balance was restated by $3,663,008, lowering the FY2023 fund balance. The restatement was due to a write-off of a loan receivable from the Pacifica Successor Agency to the Pacifica Redevelopment Agency.
Various loans were made to the redevelopment agency from 1988 to 1994 totaling $3,237,150.
These loans were to be paid back to the General Fund. The State has disallowed the repayment of these loans. The City worked closely with the City Attorney’s Office on this matter. Despite the City's best efforts to demonstrate the validity of these loans, the State continues to deny repayment. This stance is common among other Successor Agencies across the state that have general loans, and there is legal precedent supporting the State’s position. Thus, the remaining loan balance, including accrued interest, of $3,663,008 is no longer recorded as collectible and is reflected as a restatement. Note 13. Prior Period Adjustments in the ACFR provide additional detail of the restatements that were needed to reflect the audited fund balances as of FY2024.
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.
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The General Fund balance of $18.7 million as of June 30, 2024, showed an increase of $1.8 million from the prior fiscal year’s restated balance of $16.9 million. The City Council assigned $5.7 million in reserves for specific purposes, of which $4.7 million is assigned to the Budget Shortfall Reserve, as further described in Note 10b of the Notes to the Basic Financial Statements. A total of $12.6 million of the General Fund balance remains unassigned, showing a positive increase of $1.5 million from the prior year of $11.1 million.
General Fund highlights are as follows:
• General Fund revenues totaled $46.5 million in the current fiscal year compared to $49.0 million in the prior fiscal year. The $2.5 million or 5.1% decrease is a result of the following factors:
o Increases included $0.2 million in property tax, $1.9 million in sale tax due to the new Measure Y passed by Pacifica’s voters in November 2022, $1.5 million from VLF backfill, and $0.5 million in franchise taxes.
o Declines were driven by decreases in the transient occupancy tax (TOT) ($0.1M), utility user tax ($0.6M), and charges for services ($0.6M), and a nearly $5.0 million drop in the Intergovernmental category for one-time ARPA funds time received in the previous year.
• General Fund expenditures totaled $41.2 million, a $1.7 million or 4% decrease from the $42.9 million in the prior year, which comprised of the following:
o Increases included $0.5 million in police personnel cost (as a result of new MOU Pacifica City Council 8
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provisions and overtime cost in patrol services due to staffing challenges), $0.4 million in Planning contractual services, and $0.2 million in Parks, Beaches, and Recreation for instructional classes.
o Decreases in general government expenditures consisted of a $0.4 million decrease in the retirement health cost and a budget reporting change in the workers’ compensation and general liability insurance. Workers’ compensation and general liability insurance costs, previously reported as a non-departmental expense of the General Fund, and now a transfer out of the General Fund to the Internal Services Risk Management Funds. The Fire and Public Works expenditures each decreased by $0.3 million.
Other areas of importance include but are not limited to, long-term debt, other post-employment benefits (OPEB), and pension plans.
• Long term debt - The City generally incurs debt to finance projects or purchase assets, which will have useful lives equal to or greater than the related debt. The City’s debt issues and transactions related to both governmental and business-type activities are summarized in ACFR Note 5. Long Term Debt. No new debt was issued in FY2024. • OPEB - The City’s total OPEB liability was measured as of June 30, 2023, and was determined by an actuarial valuation as of June 30, 2022, to determine the total net OPEB liability of $4.2 million as of June 30, 2024, which is a $0.2 million decrease from the prior year. Further details are provided in the ACFR Note 6. Other Post-Employment Benefits (OPEB).
• Pension - The City’s current actuarially determined long-term net pension liability of $73.4 million showed a 5.4% increase from the prior fiscal year’s $69.7 million, based on the most recent actuarial valuation and CalPERS Actuarial assumptions, and amortized over a combination of 30 and 20-year schedules. Further details are provided in the ACFR Note 7. Pensions Plans.
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 ACFR, the auditors have prepared and issued an Audit Report on Measure W Funds, Attachment 2, and Measure A funds, Attachment 3, as summarized below.
Audit Report on Measure W Funds
The agreement between the City and San Mateo County Transportation Authority for the 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 requirements for the year ended June 30, 2024.
Additional information is available in Attachment 2.
Audit Report on Measure A Funds
The annual audit report on Measure A funds found that the City has complied, in all material respects, with the requirements for the year ended June 30, 2024. Additional information is available in Attachment 3. These reports include additional financial statements and supplemental data that together with ACFR summarize the results of the operations of all funds and give a comprehensive overview of the City’s financial position for the fiscal year that ended on June 30, 2024.
We would like to take the opportunity to acknowledge the hard work of the Finance Department staff in bringing this report forward. We also appreciate the competence and diligence displayed by the auditors’ team in assisting the City staff with the preparation and timely completion of the Pacifica City Council 9
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ACFR document.
Finally, we would like to thank the entire City Council for their unfailing support of maintaining the highest standards in managing the City’s finances, emphasizing transparency, ethics, and fiscal responsibility.
The City has been a proud recipient of the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association (GFOA) for three consecutive years, and we are confident that the attached document will continue to meet these high standards. We included GFOA recommendations to further improve the quality of this document and plan to submit this ACFR report for the award’s consideration again this year.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
The City's annual audit is a critical check on the City’s financial practices, impacting all City Council Goals.
FISCAL IMPACT:
There is no fiscal impact associated with the Council’s acceptance of the ACFR report. The attached reports present the City's financial results for the last fiscal year 2023-24 that will be factored-in the development of the FY 2024-25 budget.
ALTERNATIVES:
There is no reasonable alternative to the staff recommendation to accept the report, as not accepting the Annual Comprehensive Financial Report will not change the City’s audited financial position as of June 30, 2024.
ORIGINATED BY:
Finance Department
ATTACHMENT LIST:
Attachment 1: Annual Comprehensive Financial Report (ACFR) for Fiscal Year Ended June 30, 2024 (PDF)
Attachment 2: Pacifica FY2023-24 Measure W (PDF)
Attachment 3: Pacifica FY2023-24 Measure A (PDF)