CITY OF POINT ARENA
CALIFORNIA
AUDITED
FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED
JUNE 30, 2021
Chavan & Associates, LLP
Certified Public Accountants
15105 Concord Circle, Suite 130
Morgan Hill, CA 95037
CITY OF POINT ARENA, CALIFORNIA
AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
TABLE OF CONTENTS
TITLE PAGE
FINANCIAL SECTION:
Independent Auditor’s Report ........................................................................................................... 1 - 2 Basic Financial Statements:
Government-Wide Financial Statements:
Statement of Net Position ..................................................................................................... 4 Statement of Activities ......................................................................................................... 5 Fund Financial Statements:
Governmental Funds:
Balance Sheet.................................................................................................................... 6 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position .............................................................................................. 7 Statement of Revenues, Expenditures and Changes in Fund Balances ............................. 8 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities - Governmental Activities ............................................................................................. 9 Proprietary Funds – Enterprise Funds:
Statement of Net Position ................................................................................................. 10 Statement of Revenue, Expenses and Changes in Net Position ........................................ 11 Statement of Cash Flows .................................................................................................. 12 Notes to the Basic Financial Statements ...................................................................................... 14 - 33 REQUIRED SUPPLEMENTARY INFORMATION:
Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) - General Fund ....................................................................... 35 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) - Revolving Loan Fund ........................................................... 36 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) - State Gasoline Tax Fund ....................................................... 37
OTHER INDEPENDENT AUDITOR’S REPORTS:
Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ................................................................................................. 39 - 40 FINDINGS AND RECOMMENDATIONS:
Schedule of Findings and Responses .................................................................................................. 42 Financial Section
15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
INDEPENDENT AUDITOR’S REPORT
The Honorable Mayor and Members of the City Council
City of Point Arena, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Point Arena, as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise City of Point Arena’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements City of Point Arena’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Point Arena, as of June 30, 2021, and the respective changes in financial position and, where applicable, cash flows thereof for the year 1 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
then ended in accordance with accounting principles generally accepted in the United States of America.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Management has omitted the management’s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 8, 2022 on our consideration of City of Point Arena’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Point Arena’s internal control over financial reporting and compliance.
July 8, 2022
Morgan Hill, California
2 Basic Financial Statements
3 CITY OF POINT ARENA, CALIFORNIA
STATEMENT OF NET POSITION
JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
Governmental Business-Type
Activities Activities Total
ASSETS
Cash and investments $ 521,741 $ 60,626 $ 582,367
Accounts receivable 403,152 - 403,152
Internal balances 110,544 (110,544) - Long term notes receivables 72,705 - 72,705 Capital assets:
Nondepreciable 451,933 340,614 792,547
Depreciable, net of accumulated depreciation 2,293,144 109,295 2,402,439 Total Assets $ 3,853,219 $ 399,991 $ 4,253,210
LIABILITIES
Accounts payable $ 9,620 $ 10,275 $ 19,895
Accrued payroll and benefits 10,445 - 10,445
Total Liabilities $ 20,065 $ 10,275 $ 30,340
NET POSITION
Net investment in capital assets $ 2,745,077 $ 449,909 $ 3,194,986 Restricted for:
Skate park 8,296 - 8,296
Public Safety 120,052 - 120,052
Lower Income Assistance 386,395 - 386,395
Total Restricted Net Position 514,743 - 514,743
Unrestricted 573,334 (60,193) 513,141
Total Net Position $ 3,833,154 $ 389,716 $ 4,222,870
4 CITY OF POINT ARENA, CALIFORNIA
STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
Operating
Charges for Grants and Governmental Business-Type
Functions/Programs Expenses Services Contributions Activities Activities Total Governmental Activities:
General government $ 331,423 $ 18,801 $ 50,000 $ (262,622) $ (262,622) Public safety 100,785 - 156,727 55,942 55,942
Streets and public works 108,116 - - (108,116) (108,116) Community development 39,065 7,183 - (31,882) (31,882)
Culture and recreation 49,049 - 10,000 (39,049) (39,049) Depreciation unallocated 118,861 - - (118,861) (118,861) Total Governmental Activities 747,299 25,984 216,727 (504,588) (504,588) Business-Type Activities:
Wastewater 323,983 277,417 - $ (46,566) (46,566)
Pier 104,605 68,096 - (36,509) (36,509)
Total Business-Type Activities 428,588 345,513 - (83,075) (83,075) Total $ 1,175,887 $ 371,497 $ 216,727 (504,588) (83,075) (587,663) General revenues and transfers
General Revenues:
Taxes:
Cannabis excise tax 24,293 - 24,293
Property taxes 52,916 - 52,916
Motor vehicle in lieu tax 22,576 - 22,576
Gas taxes 13,494 - 13,494
Sales taxes 79,220 - 79,220
Transient occupancy taxes 135,186 - 135,186
TOT Measure AC 27,037 - 27,037
Franchise taxes 10,748 - 10,748
Other taxes 9,802 - 9,802
VLF Swap 22,245 - 22,245
Investment earnings 10,016 771 10,787
Miscellaneous 4,420 - 4,420
Total general revenues and transfers 411,953 771 412,724 Change in Net Position (92,635) (82,304) (174,939)
Net Position - Beginning 3,925,789 472,020 4,397,809
Net Position - Ending $ 3,833,154 $ 389,716 $ 4,222,870 Program Revenues
Net (Expenses) Revenues and
Change in Net Position
5 CITY OF POINT ARENA, CALIFORNIA
GOVERNMENTAL FUNDS
BALANCE SHEET
JUNE 30, 2021
The notes to the financial statements are an integral part of this statement State
Revolving Gasoline Total
General Loan Tax Governmental
Fund Fund Fund Funds
ASSETS
Cash and Investments $ 81,916 $ 386,395 $ 53,430 $ 521,741 Accounts Receivable 31,265 - 371,887 403,152
Notes Receivable - 72,705 - 72,705
Due from Other Funds 424,589 - - 424,589
Advances to Other Funds - 99,890 - 99,890
Total Assets $ 537,770 $ 558,990 $ 425,317 $ 1,522,077
LIABILITIES
Accounts Payable $ - $ - $ 9,620 $ 9,620
Accrued Payroll and Benefits 8,683 - 1,762 10,445
Due to Other Funds - - 413,935 413,935
Total Liabilities 8,683 - 425,317 434,000
DEFERRED INFLOWS OF REOURCES
Unavailable Resources - 72,705 - 72,705
FUND BALANCE
Nonspendable:
Advances to Other Funds - 99,890 - 99,890
Skate Park 8,296 - - 8,296
Public Safety 120,052 - - 120,052
Lower Income Assistance - 386,395 - 386,395
Self-Insurance 15,000 - - 15,000
TOT Measure AC 36,550 - - 36,550
Unassigned 349,189 - - 349,189
Total Fund Balances 529,087 486,285 1,015,372 - Total Liabilities and Fund Balances $ 537,770 $ 558,990 $ 425,317 $ 1,522,077 6 CITY OF POINT ARENA, CALIFORNIA
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE GOVERNMENT-WIDE STATEMENT OF NET
POSITION – GOVERNMENTAL ACTIVITIES
JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
Fund Balance - Total Governmental Funds $ 1,015,372
Amounts reported for Governmental Activities in the Statement of Net Position are different from those reported in the Governmental Funds because of the following:
CAPITAL ASSETS
Capital assets net of accumulated depreciation, used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds.
Capital assets 4,906,920
Accumulated depreciation (2,161,843) 2,745,077
LONG-TERM NOTES RECEIVABLES
Notes receivables are not available to pay for current period expenditures in the governmental funds. 72,705
Net Position - Governmental Activities $ 3,833,154
7 CITY OF POINT ARENA, CALIFORNIA
GOVERNMENTAL FUNDS
STATEMENT OF REVENUES, EXPENDITURES, AND
CHANGES IN FUND BALANCES
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
State
Revolving Gasoline Total
General Loan Tax Governmental
Fund Fund Fund Funds
REVENUES
Cannabis Excise Tax $ 24,293 -$ -$ $ 24,293
Property Taxes 52,916 - - 52,916
Motor Vehicle In-lieu Tax 22,576 - - 22,576
Gas Taxes - - 13,494 13,494
Sales Taxes 45,009 - 34,211 79,220
Transient Occupancy Taxes 135,186 - - 135,186 VLF Swap 22,245 - - 22,245 TOT Measure AC 27,037 - - 27,037
Other Taxes 1,836 - 7,966 9,802
Intergovernmental 216,727 - - 216,727 Licenses, Permits & Fees 25,984 - - 25,984 Franchise Fees 10,748 - - 10,748
Investment Income:
Interest Income 2,920 9,381 (2,285) 10,016
Use of Property - 10,440 - 10,440
Other 4,420 - - 4,420
Total Revenues 591,897 19,821 53,386 665,104
EXPENDITURES
Current:
General Government 327,140 4,283 - 331,423 Public Safety 100,785 - - 100,785 Streets and Public Works 1,300 - 106,816 108,116 Community Development 26,187 12,878 - 39,065
Culture and Recreation 49,049 - - 49,049
Capital Outlay 43,678 82,455 - 126,133 Total Expenditures 548,139 99,616 106,816 754,571
EXCESS (DEFICIENCY) OF REVENUES
OVER EXPENDITURES 43,758 (79,795) (53,430) (89,467)
OTHER FINANCING SOURCES (USES)
Transfers in - - 53,430 53,430
Transfers (out) (53,430) - - (53,430)
Total Other Financing Sources (Uses) (53,430) - 53,430 - NET CHANGES IN FUND BALANCES (9,672) (79,795) - (89,467) BEGINNING FUND BALANCES 538,759 566,080 - 1,104,839 ENDING FUND BALANCES $ 529,087 $ 486,285 -$ 1,015,372 $ 8 CITY OF POINT ARENA, CALIFORNIA
RECONCILIATION OF THE GOVERNMENTAL FUNDS
STATEMENT OF REVENUES, EXPENDITURES, AND
CHANGES IN FUND BALANCES TO THE GOVERNMENT-WIDE
STATEMENT OF ACTIVITIES – GOVERNMENTAL ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ (89,467) Amounts reported for Governmental Activities in the Statement of Activities are different because of the following:
LONG-TERM RECEIVABLES
In governmental funds, notes receivables are not available to pay for current period expenditures and, therefore, not reported in the fund statements. Principle payments made during the year are recorded as revenue in the fund statements but reduce the balance of the outstanding notes receivables in the government-wide statement net position. (10,440)
CAPITAL ASSET TRANSACTIONS
Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense.
Capital asset additions $ 126,133
Current Year Depreciation (118,861) 7,272
CHANGE IN NET POSITION - GOVERNMENTAL ACTIVITIES $ (92,635) 9 CITY OF POINT ARENA, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF NET POSITION
JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
Wastewater Pier
Enterprise Enterprise
Fund Fund Total
ASSETS
Current Assets:
Cash and investments $ 60,626 -$ $ 60,626
Noncurrent Assets:
Capital assets, net of accumulated depreciation 182,299 267,610 449,909 Total Assets $ 242,925 $ 267,610 $ 510,535
LIABILITIES
Current Liabilities:
Accrued payroll and benefits $ 2,214 $ 3,008 $ 5,222
Accounts Payable 1,650 3,403 5,053
Due to other funds - 10,654 10,654
Total current liabilities 3,864 17,065 20,929
Noncurrent liabilities:
Advances from other funds 49,890 50,000 99,890
Total Liabilities $ 53,754 $ 67,065 $ 120,819
NET POSITION (Note 1)
Net Investment in Capital Assets $ 182,299 $ 267,610 $ 449,909 Unrestricted 6,872 (67,065) (60,193)
Total Net Position $ 189,171 $ 200,545 $ 389,716
10 CITY OF POINT ARENA, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET POSITION
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
Wastewater Pier
Enterprise Enterprise
Fund Fund Total
OPERATING REVENUES
Sewer $ 277,417 -$ 277,417 $
Pier - 34,021 34,021
Other - 34,075 34,075
Total Operating Revenues 277,417 68,096 345,513
OPERATING EXPENSES
Personnel services 144,399 68,552 212,951
Maintenance and operations 81,198 22,858 104,056
Professional fees 14,155 3,403 17,558
Administration 31,986 4,465 36,451
Depreciation 48,128 5,327 53,455
Total Operating Expenses 319,866 104,605 424,471
Operating Income (42,449) (36,509) (78,958)
NONOPERATING REVENUES (EXPENSES)
Interest expense (4,117) - (4,117)
Interest income 395 376 771
Total Nonoperating Revenues (Expenses) (3,722) 376 (3,346) Change in Net Position (46,171) (36,133) (82,304)
BEGINNING NET POSITION 235,342 236,678 472,020
ENDING NET POSITION $ 189,171 $ 200,545 $ 389,716
11 CITY OF POINT ARENA, CALIFORNIA
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
The notes to the financial statements are an integral part of this statement.
Wastewater Pier
Enterprise Enterprise
Fund Fund Total
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers $ 295,756 $ 36,498 $ 332,254
Payments to suppliers (117,554) (35,097) (152,651)
Payments to employees (144,595) (67,104) (211,699)
Net cash provided (used) by operating activities 33,607 (65,703) (32,096)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Receipts from (payments for) interfund loans (due to-from/advances) (17,823) 10,654 (7,169) Interest paid on interfund loans and advances (4,117) - (4,117) Net cash provided (used) by noncapital financing activities (21,940) 10,654 (11,286)
CASH FLOWS FROM CAPITAL RELATED FINANCING ACTIVITIES
Purchases of property, plant and equipment - (42,424) (42,424) Net cash provided (used) by capital related financing activities - (42,424) (42,424)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment income received 395 376 771
Net cash provided (used) by investing activities 395 376 771 Net Increase (Decrease) in Cash and Investments 12,062 (97,097) (85,035) Cash and Investments - Beginning of Year 48,564 97,097 145,661 Cash and Investments - End of Year $ 60,626 -$ $ 60,626 Reconciliation of Operating Income to Cash Flows
from Operating Activities:
Operating Income $ (42,449) $ (36,509) $ (78,958)
Adjustments to reconcile operating income to cash flows from operating activities:
Depreciation 48,128 5,327 53,455
Change in assets and liabilities:
Accounts receivable 18,339 413 18,752
Other assets 8,135 4,553 12,688
Accrued payroll and benefits (196) 1,448 1,252
Unearned revenue - (32,011) (32,011)
Accounts payable and other accrued expenses 1,650 (8,924) (7,274) Cash Flows From Operating Activities $ 33,607 $ (65,703) $ (32,096) 12 Notes to Basic Financial Statements
13 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Financial Reporting Entity
The City of Point Arena (the “City”) operates under a Council-Manager form of government and provides the following services: public safety, streets and public works, community development, culture and recreation, wastewater, and pier (harbor).
The City of Point Arena has a total area of 1.4 square miles. The City itself is built around a small natural inland harbor named Arena Cove and home to the City's Municipal Pier. The City’s population totals 425.
As required by generally accepted accounting principles, these financial statements present the City as the Primary Government. The City did not have any component units for which the City is considered financially accountable as of June 30, 2021.
Basis of Presentation
The City’s Basic Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board (“GASB”) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the U.S.A.
These Statements require that the financial statements described below be presented.
Government-wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government (the City) and its component units, as applicable. These statements include the financial activities of the overall City government, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. These statements distinguish between governmental and business-type activities of the City. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the City’s governmental activities and each segment of the business-type activities of the City. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meet the operational needs of a particular program and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the City's funds.
Separate statements for each fund category—governmental and proprietary—are presented. The 14 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
emphasis of fund financial statements is on major individual governmental funds, each of which is displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds, as applicable.
Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies and investment earnings, result from non-exchange transactions or ancillary activities.
Major Funds
GASB defines major funds and requires that the City’s major governmental funds be identified and presented separately in the fund financial statements. All other funds, called nonmajor funds, are combined and reported in a single column, regardless of their fund-type.
Major funds are defined as funds that have assets, liabilities, revenues or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds.
The City reported the following major governmental funds in the accompanying financial statements:
General Fund – The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund.
Revolving Loan Fund – The Revolving Loan Fund is used to account for revolving loans given to the lower income sector of the community for housing improvements, new construction and economic stimulus.
State Gasoline Tax Fund – The State Gasoline Tax Fund is used to account for gasoline tax and other State transportation related funds, including STIP exchange funds and traffic congestion relief funds.
These resources are restricted for street maintenance and improvements.
The City also reports the following Proprietary funds:
Enterprise Funds – Enterprise funds are used to account for business-like activities provided to the general public. These activities are financed primarily by user charges, and the measurement of financial activity focuses on net income measurement similar to the private sector.
The reporting entity includes the following enterprise funds that are reported as major funds:
Wastewater Fund – The Wastewater Fund accounts for the operating, maintenance, and capital improvement of the wastewater reclamation facility, including collection, treatment, and distribution.
15 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
Pier Fund – The Pier Fund accounts for the operation, maintenance, and capital improvements of the municipal pier facility. The Pier facility provides services for commercial and recreational user groups.
Basis of Accounting
The government-wide and proprietary financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers property tax revenues reported in the governmental funds to be available if the revenues are collected or are reasonably expected to be collected within sixty days after year-end. For revenues other than property taxes, the City generally applies the sixty-day period rule but would make exceptions considering the measurable and available criteria. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which is recognized upon becoming due and payable; and except for claims, judgments and compensated absences, which are recognized when estimable and probable. Governmental capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of governmental long-term debt and acquisitions under capital leases are reported as other financing sources.
Those revenues susceptible to accrual are property and sales taxes, certain intergovernmental revenues, and interest revenue. Fines, forfeitures, licenses and permits, and charges for services are not susceptible to accrual because they are not measurable until received in cash. During the fiscal year, the City received intergovernmental revenue in the amount of $156,727 from OES Grant.
Intergovernmental revenue was 32% of total revenue in the governmental funds as reported on page 9.
Non-exchange transactions, in which the City gives or receives value without directly, receiving or giving equal value in exchange, include taxes, grants, entitlements, and donations. On the accrual basis, revenue from taxes is recognized in the fiscal year for which the taxes are levied or assessed.
Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. In addition, contributions from state and federal agencies, developers and others are recorded as revenue.
The City may fund programs with a combination of cost-reimbursement grants, categorical block grants and general revenues. Thus, both restricted and unrestricted Net Position may be available to finance program expenditures. The City’s policy is to first apply restricted grant resources to such programs followed by general revenues as necessary.
Certain indirect costs are included in program expenses reported for individual functions and activities. 16 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
The City applies all applicable GASB pronouncements for certain accounting and financial reporting guidance including those applicable to accounting and reporting for proprietary operations. In December of 2010, GASB issued GASB No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement incorporates pronouncements issued on or before November 30, 1989 into GASB authoritative literature. This includes pronouncements by the Financial Accounting Standards Board (FASB), Accounting Principles Board Opinions (APB), and the Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure, unless those pronouncements conflict with or contradict with GASB pronouncements. All proprietary funds are accounted for using the accrual basis of accounting, where revenues are recognized when earned and expenses are recognized when incurred. Operating revenues and expenses for proprietary funds result from providing services and producing and delivering goods and/or services. They also include all revenues and expenses not related to capital and related financing, non-capital financing, or investing activities.
Cash and Cash Equivalents
The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition.
State of California statutes authorizes the City to invest in obligations of the U.S. Treasury, its agencies and instrumentalities, collateralized, non-negotiable certificates of deposits, commercial paper rated A-1/P-1, medium-term corporate notes rated A or its equivalent or better by Moody’s or Standard & Poor’s, asset backed corporate notes, bankers’ acceptances, mutual funds, and the State Treasurer’s investment pool (Local Agency Investment Fund).
The City does not enter into repurchase or reverse repurchase agreements.
Investments
Surplus funds are invested by the City in a pooled money investment account held with the State of California in the Local Agency Investment Fund (LAIF). The funds held at LAIF are invested in accordance with Government Code Section 16430 and 16480. The LAIF account is internally allocated between restricted funds and funds reserved by the City for special purposes and general operations.
LAIF issues a separate comprehensive annual financial report. Copies of the LAIF annual report may be obtained from the Local Agency Investment Fund, PO Box 942809, Sacramento, CA 94209-0001.
Investments are recorded at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction. 17 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
In determining this amount, three valuation techniques are available:
Market approach - This approach uses prices generated for identical or similar assets or liabilities.
The most common example is an investment in a public security traded in an active exchange such as the NYSE.
Cost approach - This technique determines the amount required to replace the current asset. This approach may be ideal for valuing donations of capital assets or historical treasures. Income approach - This approach converts future amounts (such as cash flows) into a current discounted amount.
Each of these valuation techniques requires inputs to calculate a fair value. Observable inputs have been maximized in fair value measures, and unobservable inputs have been minimized.
Interfund Activity
Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “advances to/advances from other funds”. All other outstanding balances between funds are reported as “due to/from other funds”.
Interfund activity and balances, if any, are eliminated or reclassified in the government-wide financial statements except for the net residual amounts due between governmental and business-type activities, which are reported as Internal Balances and the net amount of transfers between governmental and business-type activities, which are reported as Transfers-In or Transfers-Out. The effects of interfund services between funds, if any, are not eliminated in the Statement of Activities.
Advances between funds and due from/to other funds are offset by a nonspendable fund balance in applicable City funds to indicate the extent to which they are not available for appropriation and are not expendable available financial resources.
Capital Assets
Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair market value on the date contributed. Capital assets, including infrastructure, are recorded if acquisition or construction costs exceeds $2,500.
As required by GASB, the City depreciates capital assets with limited useful lives over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year’s pro rata share of the cost of capital assets. The City depreciates using the straight line method which means the cost of the asset is divided by its expected useful life in years and the result is charged to expense each year until the asset is fully depreciated. 18 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
The City has assigned the useful lives listed below to capital assets:
Buildings 40-50 years
Improvements 10-25 years
Machinery and equipment 3-20 years
Furniture and fixtures 3-20 years
Infrastructure 30 years
Major capital outlay for capital assets and improvements are capitalized as projects are constructed.
Capital assets may be acquired using federal and state grants, contributions from developers, and contributions or grants from other governments. GASB 34 requires that these contributed assets be accounted for as revenue at the time they are contributed.
In the fund financial statements, capital assets arising from cash transactions acquired for use in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets acquired for use in proprietary fund operations are accounted for the same as in the government-wide statements.
Deferred Compensation Plan
In accordance with California Government Code and Internal Revenue Code Section 408(p), the City has established a Savings Incentive Match Plan IRA, which is a deferred compensation plan, for all employees who have received compensation of at least $5,000 in any prior year and are expected to receive compensation of at least $5,000 in the current year. The City will match contributions equal to the employee’s salary reduction contributions up to a limit of three percent of the employee's base wages for the year.
The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. Deferred compensation plans are not reported as part of the City’s assets or liabilities, as the deferred compensation plan trustees hold those funds in trust on behalf of employees until the employees are eligible to receive the benefits.
Compensated Absences
Accumulated Vacation and Sick Pay are accrued as earned. Upon termination, employees are paid for all unused vacation at their current hourly rates. Employees are not paid sick leave earned upon termination.
19 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
Employees who work at least 21 hours per week earn vacation as follows:
Annual
Vacation
Service Period Earned
0-3 years 80 hours
4-5 years 100 hours
6-7 years 120 hours
8-9 years 140 hours
10 plus years 160 hours
Employees who work at least 21 hours per week earn sick leave at a rate of .04615 per regular hour worked for a total of 96 hours, or 12 days, per year.
The City’s liability for compensated absences is determined annually. For all governmental funds, amounts expected to be paid out of current financial resources are recorded as liabilities of each fund; the long-term portion is recorded in the Statement of Net Position. Compensated absences are liquidated by the fund that has incurred the liability. The long-term portion of governmental activities compensated absences is liquidated primarily by the General Fund. Only compensated absences related to terminated employees are reported in the fund financial statements, as applicable. There were no liabilities recorded for compensated absences as of June 30, 2021.
Unearned Revenue
In the government-wide financial statements, unearned revenue is recognized for transactions for which revenue has not yet been earned. Typical transactions for which unearned revenue is recorded are unearned grant revenues and prepayments from customers.
In the fund financial statements, unearned revenue is recorded when transactions have not yet met the revenue recognition criteria based on the modified accrual basis of accounting. The City records unearned revenue for transactions for which revenues have not been earned, or for which funds are not available to meet current financial obligations. Typical transactions for which unearned revenue is recorded are grants received but not yet earned or available, interest accrued on interfund advances, long-term assessments and long-term loans receivables.
Long-Term Liabilities
In the government-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount.
In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as 20 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.
Deferred Outflows/Deferred Inflows of Resources
Deferred outflows of resources is a consumption of net assets by the City that is applicable to a future reporting period, for example; prepaid items and deferred charges.
Deferred inflows of resources is an acquisition of net assets by the City that is applicable to a future reporting period, for example; certain unearned revenue and advance collections.
Net Position
In the government-wide financial statements, net position is classified in the following categories:
Net Investment in Capital Assets - This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that attributed to the acquisition, construction, or improvement of the assets. In addition, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also are included in the net investment in capital assets component of net position Restricted Net Position - This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments.
Unrestricted Net Position - This amount is all net position that does not meet the definition of "net investment in capital assets" or "restricted net position." Fund Balances
The City does not have a policy identifying a minimum unassigned fund balance. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints on their use, the remaining fund balances are otherwise unassigned.
In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the City classifies governmental fund balances as follows:
Non-spendable includes fund balance amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints.
Restricted includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation.
21 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
Committed includes fund balance amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision-making authority and does not lapse at year-end. Committed fund balances are imposed by the City Council.
Assigned includes fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Fund balance may be assigned by the City Manager or the Finance Director.
Unassigned includes fund balances within the funds which have not been classified within the above-mentioned categories.
The City uses restricted/committed amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents/contracts that prohibit doing this, such as a grant agreement requiring dollar-for-dollar spending. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting periods. Actual results could differ from those estimates.
Property Tax Levy, Collection and Maximum Rates
State of California Constitution Article XIII A provides that the combined maximum property tax rate on any given property may not exceed 1% of its assessed value unless an additional amount for general obligation debt has been approved by voters. Assessed value is calculated at 100% of market value as defined by Article XIII A and may be adjusted by no more than 2% per year unless the property is sold, transferred, or substantially improved. The State Legislature has determined the method of distribution of receipts from a 1% tax levy among the counties, cities, school districts and other districts.
The County of Mendocino assesses properties, bills for and collects property taxes on the following schedule:
Secured Unsecured
Valuation/lien dates January 1 January 1
Levy dates January 1 January 1
Due dates (delinquent as of) 50% on November 1 (December 10) March 1 (August 31) 50% on February 1 (April 10)
The term "unsecured" refers to taxes on personal property other than land and buildings. These taxes are secured by liens on the property being taxed. Property taxes levied are recorded as revenue and receivables when they are collected during the fiscal year of levy or within 60 days of year-end. 22 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
Franchise Agreements
The City has entered into several agreements to provide services to persons residing inside the City limits. A description of these franchise agreements is as follows:
1. The City has granted Pacific Gas and Electric Company a franchise for electric transmission and distribution.
2. The City has granted Pacific Coast Disposal a franchise for residential and commercial garbage collection and disposal.
Budgets and Budgetary Accounting
The City follows the procedures below when establishing the budgetary data reflected in the financial statements:
1. The City Manager submits to the City Council a proposed operating and capital improvement budget for the fiscal year commencing the following July 1. The budgets include the proposed expenditures and the means of financing them.
2. Public hearings are conducted to obtain taxpayer comments.
3. The budget is legally enacted through adoption of City resolution by Council.
4. The City Manager is authorized to implement the programs as approved in the adopted budget.
Within a specific fund, the City Manager may transfer appropriations between categories, departments, projects and programs as needed to implement the adopted budget, whereas the City Council must authorize budget increases and decreases, and transfers between funds.
5. Budgets are adopted on a basis consistent with generally accepted accounting principles except for proprietary funds which budget for capital outlays but not depreciation. Budgets were adopted for the General Fund, Special Revenue Funds, Internal Service Funds and Capital Projects Funds.
6. Budgeted amounts are as originally adopted or as amended by City Council. Individual amendments were not material in relation to original appropriations.
Encumbrances
Under encumbrance accounting, purchase orders, contract and other commitments for expenditures are recorded in order to reserve that portion of the applicable appropriation. Encumbrance accounting is employed as an extension of formal budgetary integration in all funds. Encumbrances outstanding at year-end are reported as reservations of fund balances since they do not constitute expenditures or liabilities; unexpended and unencumbered appropriations lapse at year end in all funds. Encumbered appropriations are liquidated at the end of each fiscal year.
23 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
Description of Risk Management
The City is exposed to various risks of loss related to torts, theft to, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance for all risks except personal property. Settled claims resulting from these risks have not exceeded commercial insurance coverage in the past three years.
Implemented Accounting Pronouncements
GASB Statement No. 84, Fiduciary Activities
Issued in January 2017, this statement establishes criteria for identifying fiduciary activities for accounting and financial reporting purposes and describes four fiduciary funds that should be reported, This statement did not have a significant impact on the City’s financial statement.
Upcoming Accounting and Reporting Changes
GASB issued Statement No. 87, Leases
The objective of this statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. The requirements of this Statement were initially to be effective for financial statements for periods beginning after December 15, 2019 but have been delayed to periods beginning after December 15, 2021, pursuant to GASB Statement No. 95. Earlier application is encouraged. The City does not believe this statement will have a significant impact on the City’s financial statement.
GASB Statement No. 89, Accounting for Interest Cost Incurred Before the End of the Construction Period
This Statement addresses interest costs incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. The requirements of this Statement were initially to be effective for financial statements for periods beginning after December 15, 2019 but have been delayed to periods beginning after December 15, 2020, pursuant to GASB Statement No. 95. Earlier application is 24 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
encouraged. The City does not believe this statement will have a significant impact on the City’s financial statements.
GASB Statement No. 91, Conduit Debt Obligations
The objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement also clarifies the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitment and voluntary commitments extended by issuers and arrangements associated with the debt obligations; and improving required note disclosures. The requirements of this Statement were initially to be effective for financial statements for periods beginning after December 15, 2020 but have been delayed to periods beginning after December 15, 2021, pursuant to GASB Statement No. 95. Earlier application is encouraged. The City does not believe this statement will have a significant impact on the City’s financial statements.
GASB Statement No. 92, Omnibus 2020
The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This Statement establishes accounting and financial reporting requirements for specific issues related to leases, intra-entity transfers of assets, postemployment benefits, government acquisitions, risk financing and insurance-related activities of public entity risk pools, fair value measurements, and derivative instruments. The requirements of this Statement apply to the financial statements of all state and local governments. The requirements of this Statement were initially to be effective for financial statements for periods beginning after June 15, 2020 but have been delayed to periods beginning after June 15, 2021, pursuant to GASB Statement No. 95. Earlier application is encouraged. The City does not believe this statement will have a significant impact on the City’s financial statements.
GASB Statement No. 93, Replacement of Interbank Offered Rates This Statement establishes accounting and financial reporting requirements related to the replacement of IBORs in hedging derivative instruments and leases. It also identifies appropriate benchmark interest rates for hedging derivative instruments. The requirements of this Statement apply to the financial statements of all state and local governments. The requirements of this Statement apply to the financial statements of all state and local governments. The requirements of this Statement were initially to be effective for financial statements for periods beginning after June 15, 2020 but have been delayed to periods beginning after June 15, 2021, pursuant to GASB Statement No. 95. Earlier application is encouraged. The City does not believe this statement will have a significant impact on the City’s financial statements.
25 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
GASB Statement No. 94, Public-Private Partnerships and Public-Public Partnerships and Availability Payment Arrangements
The primary objective of this Statement is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which (1) the operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement. This Statement also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. The requirements of this Statement are to be effective for financial statements for periods beginning after June 15, 2022. Earlier application is encouraged. The City does not believe this statement will have a significant impact on the City’s financial statements.
GASB Statement No. 96, Subscription-Based Information Technology Arrangements Issued in May 2020, the statement provides guidance on the accounting and financial reporting for subscription based information technology arrangements (SBITAs) for governments by (1) defining a SBITA, (2) establishing that a SBITA results in a right-to-use subscription asset-an intangible asset-and a corresponding subscription liability, (3) providing the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA, and (4) requiring note disclosures regarding a SBITA. The statement will be effective beginning fiscal year 2023.
GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32.
Issued in June 2020, the statement will result in more consistent financial reporting of defined contribution pension plans, defined contribution OPEB plans, and other employee benefit plans (e.g., certain Section 457 plans), while mitigating the costs associated with reporting those plans. The statement will be effective beginning fiscal year 2022. 26 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 2 - CASH AND INVESTMENTS
Cash and Investments Defined
The City includes only cash deposits in banks as cash. Investments in LAIF and government securities mutual funds are net in the order of liquidity, since they may be withdrawn without penalty. U.S.
Treasuries, U.S. Agencies and Certificates of Deposit would be the City’s least liquid investments, since they must be held to maturity. LAIF was the only investment vehicle utilized by the City during the fiscal year ended June 30, 2021.
Cash Deposits with Banks and Custodial Credit Risk
California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110% of the City’s cash on deposit or first trust deed mortgage notes with a value of 150% of the deposit as collateral for these deposits. Under California Law this collateral is held in the City’s name and places the City ahead of general creditors of the institution. The City has waived collateral requirements for the portion of deposits covered by Federal Depository Insurance Corporation (FDIC).
The bank balance of the City’s cash deposits was $262,030 as of June 30, 2021. The bank balance and the carrying amount differed due to deposits in transit and outstanding checks. The FDIC insured the bank balances for $250,000 per bank. As of June 30, 2021, the City’s cash balances exceeded insurance by $12,030, but were collateralized as discussed above.
Fair Value Measurements
GASB 72 established a hierarchy of inputs to the valuation techniques above. This hierarchy has three levels:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted market prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are not observable.
Level 3 inputs are unobservable inputs, such as a property valuation or an appraisal.
Investments
The City can invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable pieces of paper called “securities instruments,” or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system.
When applicable, the City employs the trust department of a bank as the custodian of all its investments, regardless of their form, in order to maximize security.
The City invests in the California State Treasurer’s Local Agency Investment Fund (LAIF). LAIF, established in 1977, is regulated by California Government Code Section 16429 and under the day-to-day administration of the State Treasurer. LAIF determines fair value on its investment portfolio based on 27 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
market quotations for those securities where market quotations are readily available, and on amortized cost of best estimate for those securities where market value is not readily available which is exempt from categorization requirements. The City’s investments with LAIF at June 30, 2021 included a portion of the pooled funds invested in structured notes and asset-backed securities. These investments are described as follows:
1. Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and / or that have embedded forwards or options.
2. Asset-Backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables.
As of June 30, 2021, the City had $339,935 invested in LAIF, which had invested less than 1% of the pooled funds in Structured Notes and Asset-Backed Securities. The City valued its investments with LAIF by multiplying its account balance with a fair value factor determined by LAIF. This factor of 1.00008297 was the result of dividing all LAIF participants’ total aggregate fair value by total aggregate amortized cost.
Risk Disclosures
Interest Rate Risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to the changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. To minimize the sensitivity of fair values on the City's investments to market interest rate fluctuations, the City had only invested in LAIF as of June 30, 2021. The weighted average maturity of LAIF was 291 days during the fiscal year ended June 30, 2021.
Credit Risk is the risk of loss due to the failure of the security issuer. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The City had only invested in LAIF as of June 30, 2021 and LAIF is not required to be rated.
Custodial Credit Risk is the risk that in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The City’s investment in LAIF is not categorized as to custodial credit risk.
Concentration of Credit Risk is the risk that the City’s investments are exposed because the types of investments have been too limited. Investments in LAIF or exempt from this rule. The City was in compliance with this rule since it only had invested in LAIF as of June 30, 2021. The following table 28 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
summarizes the State of California statutes related to maturities and concentration of investments:
Maximum
Maximum Portfolio
Investment Type Maturity Percentage
US Treasury Obligations 5 years None
US Agency Obligations 5 years None
Bankers Acceptances 180 days 15%
Commercial Paper 180 days 15%
Medium Term Notes 3/5 years 15%
Collateralized CD's 5 years 15%
CA LAIF NA 65%
Money Market Funds NA 15%
The following is a summary of the City’s Cash and Investments as of June 30, 2021 Cash in banks $ 242,426
Investments in LAIF 339,941
Total Cash and Investments $ 582,367
Governmental activities $ 521,741
Business-type acticities 60,626
Total Cash and Investments $ 582,367
NOTE 3 - ACCOUNTS RECEIVABLE
As of June 30, 2021, the City’s Governmental Funds accounts receivable balance was $403,152 which included $371,887 was the State Gasoline Tax Fund was to accrue RSTP receivables.
NOTE 4 - LONG-TERM NOTES RECEIVABLE/UNEARNED REVENUE
The City had the following long-term notes receivable as of June 30, 2021:
Original
Interest Loan Maturity Loan
Description Rate Date Date Amount Balance
Business Loan 3.25-3.5% 2009 2036 155,000 $ -$
Residential Loan 2.0% 1996 2032 92,470 34,647
Residential Loan 3.0% 1996 2032 92,470 38,058
Total Notes Receivable $ 339,940 72,705$
29 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
The final principal payment of $3,590 was made on the business loan in fiscal year 2020-21.
Revolving loans are given to the lower income sector of the community for housing improvements, new construction and economic stimulus. Notes receivable are not resources currently available for expenditures and are not reported in the governmental funds balance sheet.
NOTE 5 - INTERFUND TRANSACTIONS
Interfund Receivables and Payables
Amounts due to or due from other funds reflect interfund balances for services rendered or short-term loans expected to be repaid in the next fiscal year. Advances to or from other funds are long-term loans between funds that are to be repaid in their entirety over several years.
As of June 30, 2021, interfund receivables and payables consisted of the following:
Due from Due to
Other Funds Other Funds
General Fund $ 424,589 -$
State Gasoline Tax Fund - 413,935
Pier Fund - 10,654
Total Due To/From 424,589 424,589
Advances to Advances from
Other Funds Other Funds
Revolving Loan Fund $ 99,890 -$
Pier Fund - 99,890
Total Advances 99,890 99,890
Transfers
Resources may be transferred from one fund to another. Transfers routinely reimburse funds that have made an expenditure on behalf of another fund. Transfers may also be made to pay for capital projects or capital outlays, lease or debt service payments and operating expenses. The General Fund Transferred out $53,430 to the State Gasoline Tax Fund. 30 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 6 - CAPITAL ASSETS
Changes in the governmental activity capital assets during the fiscal year were as follows:
Balance Deletions/ Balance
Capital Assets July 01, 2020 Additions Adjustments June 30, 2021 Non-depreciable:
Land $ 262,540 $ 82,455 -$ 344,995 $
Construction in Progress 63,260 43,678 - 106,938 Total Non-Depreciable 325,800 126,133 - 451,933 Depreciable:
Buildings and Improvements 229,325 - - 229,325
Machinery and Equipment 79,239 - - 79,239
Infrastructure 4,146,423 - - 4,146,423
Total Depreciable 4,454,987 - - 4,454,987 Less Accumulated Depreciation for:
Buildings and Improvements (110,586) (7,134) - (117,720) Machinery and Equipment (58,204) (3,512) - (61,716) Infrastructure (1,874,192) (108,215) - (1,982,407) Total Accumulated Depreciation (2,042,982) (118,861) - (2,161,843) Total Depreciable PPE - Net 2,412,005 (118,861) - 2,293,144 Total PPE - Net $ 2,737,805 $ 7,272 -$ 2,745,077 $
Changes in the business-type activity capital assets during the fiscal year were as follows:
Balance Deletions/ Balance
Capital Assets July 01, 2020 Additions Adjustments June 30, 2021 Non-depreciable:
Land $ 298,190 -$ -$ 298,190 $
Construction in Progress - 42,424 - 42,424 Total Non-Depreciable 298,190 42,424 - 340,614 Depreciable:
Pier 2,123,487 - - 2,123,487
Buildings and Improvements 1,550,274 - - 1,550,274
Machinery and Equipment 335,367 - - 335,367
Total Depreciable 4,009,128 - - 4,009,128 Less Accumulated Depreciation for:
Pier (2,122,550) (304) - (2,122,854) Buildings and Improvements (1,428,210) (38,907) - (1,467,117) Machinery and Equipment (295,618) (14,244) - (309,862) Total Accumulated Depreciation (3,846,378) (53,455) - (3,899,833) Total Depreciable PPE - Net 162,750 (53,455) - 109,295 Total PPE - Net $ 460,940 $ (11,031) -$ 449,909 $
31 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
Depreciation expense related to governmental activities of $118,861 was not allocated by major program or function for the fiscal year ended June 30, 2021, as shown in the statement of activities.
Depreciation expense related to business-type activities was charged to functions and programs based on their usage of the related assets.
The amount allocated to each function or program is as follows:
Wastewater $ 48,128
Pier 5,327
Total Depreciation Expense - Business-type Activities $ 53,455 NOTE 9 - FUND BALANCES
Fund balance for governmental funds is reported in classifications (nonspendable, restricted, committed, assigned, and unassigned) that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. As of June 30, 2021, fund balances were classified as follows:
Restricted
Public Safety fund balances were funded from grants that are legally restricted for public safety.
Skate Park fund balances will be used for the construction, improvements and repairs at the skate park.
Lower Income Assistance Revolving Loan Fund fund balances were restricted for lower income sector assistance for housing, new construction and economic stimulus Assigned
Self-Insurance fund balances were assigned for liability claims made against the City.
TOT Measure AC fund balances were assigned for promotions and marketing, events, maintenance and improvements to the Pier and property at the cove, and downtown park and parking improvements.
NOTE 10 - RISK MANAGEMENT AND JOINT VENTURES (JOINT POWERS AGREEMENT)
The City is currently a member of the Public Agency Risk Sharing Authority of California (PARSAC). Under PARSAC, the City is provided the following insurance coverage: Worker compensation and employers' liability coverage for bodily injury by accident or by disease, including resulting death, arising out of or in the course of the employee’s employment, with the City. Liability coverage for bodily injury, property damage, personal injury or public official's errors and omissions.
The City does not have an equity interest in PARSAC. PARSAC exercises full powers and authority within the scope of the related agreements including the preparation of annual budgets, accountability for all funds, the power to make and execute contracts and the right to sue and be sued. Obligations 32 CITY OF POINT ARENA, CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
JUNE 30, 2021
and liabilities of PARSAC are not those of the City, although the City retains an ongoing financial interest or an ongoing financial responsibility.
Audited financial information of PARSAC, as of and for the year ended June 30, 2021, can be found at http://www.parsac.org/.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The City participates in federal and state grant programs. These are subject to examination by grantors and the amount, if any, of disallowed expenditures cannot be determined at this time. The City expects such amounts, if any, to be immaterial.
The City is subject to litigation arising from the normal course of business. The City Attorney believes there is no pending litigation which is likely to have a material adverse effect on the financial position of the City.
NOTE 12 - COVID-19 PANDEMIC IMPACT
In December 2019, a novel strain of coronavirus surfaced (COVID-19) and spread around the world, with resulting business and social disruption. The operations and business results of the City could be materially and adversely affected in the future, including a reduction in the level of funding and potential impacts from the timing of cash flows. In addition, significant estimates may be materially and adversely impacted by national, state and local events designed to contain the coronavirus. Debt ratings for outstanding issuances may further be impacted. At the date of the issuance of these financial statements, the future impact of the CV19 Crisis cannot be reasonably estimated.
NOTE 13 - SUBSEQUENT EVENTS
On September 28, 2021 City Council approved line of credit for the amount of $1,500,000. On October 18, 2021 the line of credit was issued with Redwood Credit Union. 33 Required Supplementary Information
34 Variance With
Final Budget
Original Final Positive
Budget Budget Actual (Negative)
REVENUES
Cannabis Excise Tax $ 37,500 $ 37,500 $ 24,293 $ (13,207) Property Taxes 56,723 56,723 52,916 (3,807)
Motor Vehicle In-lieu Tax 40,000 40,000 22,576 (17,424) Sales Taxes 50,820 50,820 45,009 (5,811)
Transient Occupancy Taxes 68,000 68,000 135,186 67,186
VLF Swap - - 22,245 22,245
TOT Measure AC 13,600 13,600 27,037 13,437
Other Taxes 2,500 2,500 1,836 (664)
Intergovernmental 185,000 240,000 216,727 (23,273)
Fines and Forfeitures 100 100 - (100)
Licenses, Permits & Fees 16,300 16,300 25,984 9,684
Franchise Fees 14,650 14,650 10,748 (3,902)
Investment Income:
Interest Income 4,400 4,400 2,920 (1,480)
Other 6,500 6,500 4,420 (2,080)
Total Revenues 496,093 551,093 591,897 40,804
EXPENDITURES
Current:
General Government 224,136 255,360 327,140 (71,780)
Public Safety 106,971 107,873 100,785 7,088
Streets and Public Works - - 1,300 (1,300)
Community Development 55,579 57,489 26,187 31,302
Culture and Recreation 49,146 57,622 49,049 8,573
Capital Outlay - - 43,678 (43,678)
Total Expenditures 435,832 478,344 548,139 (69,795)
EXCESS (DEFICIT) OF REVENUES
OVER EXPENDITURES 60,261 72,749 43,758 (28,991)
OTHER FINANCING SOURCES (USES)
Operating Transfers In - - - -
Operating Transfers Out (52,689) (77,007) (53,430) 23,577 Total Other Financing Sources (Uses) (52,689) (77,007) (53,430) 23,577 NET CHANGES IN FUND BALANCE $ 7,572 $ (4,258) (9,672) $ (5,414) BEGINNING FUND BALANCE 538,759
ENDING FUND BALANCE $ 529,087
Notes:
The expenditures in excess of appropriations as noted above were offset by unexpended appropriations in other categories and available fund balance.
BUDGET AND ACTUAL (GAAP)
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
CITY OF POINT ARENA
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCE
35 Variance With
Final Budget
Original Final Positive
Budget Budget Actual (Negative)
REVENUES
Investment Income:
Interest Income $ 14,000 $ 12,500 $ 9,381 $ (3,119)
Use of Property 6,446 20,199 10,440 (9,759)
Total Revenues 20,446 32,699 19,821 (12,878)
EXPENDITURES
Current:
General Government 8,956 10,309 4,283 6,026
Community Development 6,295 86,295 12,878 73,417
Capital Outlay - 80,000 82,455 (2,455)
Total Expenditures 15,251 176,604 99,616 76,988
EXCESS (DEFICIT) OF REVENUES
OVER EXPENDITURES 5,195 (143,905) (79,795) 64,110
NET CHANGES IN FUND BALANCE $ 5,195 $ (143,905) (79,795) $ 64,110 BEGINNING FUND BALANCE 566,080
ENDING FUND BALANCE $ 486,285
Notes:
The expenditures in excess of appropriations as noted above were offset by unexpended appropriations in other categories and available fund balance.
CITY OF POINT ARENA
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCE
BUDGET AND ACTUAL (GAAP)
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
REVOLVING LOAN FUND
36 Variance With
Final Budget
Original Final Positive
Budget Budget Actual (Negative)
REVENUES
Gas Taxes $ 16,616 $ 16,616 $ 13,494 $ (3,122)
Sales Taxes 38,099 38,099 34,211 (3,888)
Other Taxes 9,912 9,492 7,966 (1,526)
Intergovernmental 323,921 325,694 - (325,694)
Total Revenues 388,548 389,901 53,386 (336,515)
EXPENDITURES
Current:
General Government 26,869 30,928 - 30,928
Streets and Public Works 71,679 68,973 106,816 (37,843) Capital Outlay 290,000 290,000 - 290,000
Total Expenditures 388,548 389,901 106,816 283,085
EXCESS (DEFICIT) OF REVENUES
CITY OF POINT ARENA
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCE
BUDGET AND ACTUAL (GAAP)
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
STATE GASOLINE TAX FUND
OVER EXPENDITURES - - (53,430) (53,430)
NET CHANGES IN FUND BALANCE $ - $ - - $ -
BEGINNING FUND BALANCE -
ENDING FUND BALANCE $ -
Notes:
The expenditures in excess of appropriations as noted above were offset by unexpended appropriations in other categories and available fund balance.
37 Other Independent Auditor’s Reports
38 15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037 Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
The Honorable Mayor and Members of the City Council
City of Point Arena
We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Point Arena (the City) as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise City’s basic financial statements, and have issued our report thereon dated July 8, 2022.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected, and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider deficiency 2021-1 described in the accompanying schedule of findings and responses to be significant deficiency.
Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion 39 on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
City of Point Arena’s Response to Findings
City of Point Arena’s response to the findings identified in our audit are described in the accompanying schedule of findings and responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
July 8, 2022
Morgan Hill , California
40 Schedule of Findings and Responses
41 CITY OF POINT ARENA, CALIFORNIA
SCHEDULE OF FINDINGS AND RESPONSES
JUNE 30, 2021
Finding Control Area
Type of
Deficiency Criteria Condition Cause Effect Recommendation Responsible Official's
Response Status
2021-1 Cash Receipts Control Deficiency Revenue collected at the pier should issue receipt showing proof of cash
and revenue collected. Then the
receipts should be authorized by an
employee at the pier and reviewed
by an employee independent from
the pier.
During our cash receipt testing,
we found there was no cash
receipt and reviewal process.
The City does not have a written
standard procedure for
processing cash receipts at the
pier and there is a lack of
segregation of duties due to the
size of the City staff and general
lack of resources.
The City has an increased risk of
materially misstated financial
statements due to error and fraud
and in increased risk of asset
misappropriation.
We recommend that the City
prepare and implement a written
procedure that requires written
evidence that an cash receipt
process for the pier and have an
employee independent of the pier
review the process.
City management and officials
agree with the auditor's findings
and recommendations.
Repeat
recommendation, not-implemented
42