San Luis Obispo City Council
January 18, 2022

TRANSMITTAL MEMORANDUM
Improvement Board, which provides financing for the construction and acquisition of City facilities. The Board is comprised solely of members of the City Council. Activities of the Board are accounted for in the applicable City governmental or enterprise funds.

PROFILE OF THE CITY OF SAN LUIS OBISPO
With a population of 47,063 (2020 Census), the City is located eight miles from the Pacific Ocean and is midway between San Francisco and Los Angeles at the junction of Highway 101 and scenic Highway 1.

The City serves as the commercial, governmental, and cultural hub of San Luis Obispo County. San Luis Obispo is the county seat and a number of Federal and State regional offices and facilities are located within the City and California Polytechnic State University and Cuesta College are in its sphere of influence.

One of California’s oldest communities, the City began with the founding of Mission San Luis Obispo de Tolosa in 1772 by Father Junipero Serra as the fifth mission in the California chain of 21 missions. It was first incorporated in 1856 as a General Law City and became a Charter City in 1876. As a Charter City, San Luis Obispo has more local authority than cities that incorporate under the general laws of the State of California.

The Charter is the City’s governing document, and any changes must be approved by the voters. The City’s Charter has been amended several times since its adoption, most recently in August 2011.

Form of Government
As set forth in the City Charter, the City operates under the “Council-Mayor-City Manager” form of government.

The City Council has the authority to make and enforce all laws and regulations with respect to municipal affairs, subject only to the limitations of the City Charter and the State Constitution. There are four Council members, who are elected at-large and serve overlapping, four-year terms. The Mayor is also elected at-large for a twoyear term and serves as an equal member of the Council. The City Council appoints the City Manager and City Attorney. All other department heads are appointed by the City Manager.

City Services
The City provides a wide range of municipal services, including police and fire protection, water and sewer utilities, street and parks maintenance, public transportation, parking, parks and recreation, planning, building and safety, and other general government services. Financial data for all funds through which services are provided by the City have been included in this report. Several municipal services are provided through other governmental agencies or private utility companies, including:

Service Agency
Courts, Health and Social Services County of San Luis Obispo Elementary and Secondary Schools San Luis Coastal Unified School District Community College San Luis Obispo County Community College District Solid Waste Collection and Disposal San Luis Garbage Company Gas, Electric and Telephone Private Utility Companies
Budgetary Policy and Control
Budgets are legally adopted annually by the City Council by resolution and are prepared for each fund in accordance with its basis of accounting. As provided under the City Charter, the City Manager is responsible for preparing the budget and for its implementation after adoption. Financial reports are presented to the City Council ix

TRANSMITTAL MEMORANDUM
and posted on-line on a quarterly basis. At mid-year, staff prepares a more in-depth status report for the City Council for the first six months of the fiscal year in addition to any fund balance information and long-term forecast based on the concluded annual comprehensive financial report.

Since the City uses a two-year Financial Plan, operating appropriations not expended during the first year may be carried forward into the second year for specific purposes with the approval of the City Manager. When applicable, these amounts are shown as assigned for subsequent year expenditures in the financial statements.

At the end of the second year of the two-year plan, operating appropriations lapse unless they are committed by contract or purchase order. Multi-year budgets are adopted for capital projects as necessary.

The City Council has the legal authority to amend the budget at any time during the fiscal year. The City Manager has the authority to make administrative adjustments to the appropriated budget if those changes will have neither a significant policy impact nor affect budgeted year-end fund balances. The City's budgetary policies are more fully described in Note 1 of the financial statements.

Expenditure and budgeting details are maintained by the City for each fund and department by program area at the line-item level. Budgetary control is exercised through a computerized Enterprise Resource Planning (ERP) system, which interfaces with the City's general ledger. The system maintains an ongoing record of budget balances throughout the year based on actual expenditures and purchase order obligations. Open purchase orders at year-end are reported as assigned fund balance. The ERP system also maintains the City’s list of fixed assets.

It is the City's policy to maintain an operating reserve in the General Fund of at least 20% of operating expenditures which is reflected in the committed fund balance. This policy objective has been achieved for fiscal year 2020-21. The City maintains a similar policy for working capital balances in the water, sewer, and parking enterprise funds. The Fleet Replacement Fund reserve policy is $500,000 and the Information Technology (IT) Replacement Fund reserve policy is $400,000. The goal has been met for these funds in 2020-21. With the 2021- 22 fiscal year, the City also adopted a capital reserve in its capital outlay fund of 20% of budgeted capital investments for the fiscal year. This reserve will be adjusted with each budget adoption, funded from the local sales tax, and is reflected in the Capital Outlay fund.

FACTORS AFFECTING FINANCIAL CONDITION
The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates.

Ongoing Global Pandemic
After the World Health Organization declared the outbreak of coronavirus disease 2019 (COVID-19) a pandemic in March 2020, the individual responses caused global social and economic disruptions under which the City developed its 2020-21 budget. The City itself, declared a local emergency on March 17, 2020, that remained in effect throughout the entire 2020-21 fiscal year.

In California, on March 19, 2020, an Executive Public Health Order directed all Californians to stay home except to go to an essential job or to shop for essential needs. It was modified on May 4, 2020 and on August 28, 2020, the State released the Blueprint for a Safer Economy to permit gradual reopening of certain businesses and activities.
x

TRANSMITTAL MEMORANDUM
In order to respond to the economic uncertainty that came with the pandemic-driven restrictions, the City immediately implemented its Fiscal Health Contingency Plan which triggers a hiring and travel chill, in addition to CIP project deferral considerations and a review of “one-time” operating cost. These short-term efforts allow the organization time to further assess the longer-term ramifications of the conditions necessitating the activation of the plan. The plan activation combined with the third-year measures previously put in place by the City’s Fiscal Health Response Plan, allowed the City to adopt a balanced budget despite the anticipated revenue loss due to the pandemic. The Fiscal Health Response Plan was put in place with the 2018-19 fiscal year and addressed a $8.9 million ($7.5 million from the General Fund and $1.4 million from the Enterprise Funds) budget gap due to increases in the CalPERS pension system.

FEMA. Federal funding for the cost of the City’s pandemic response relies on the emergency declaration. The Federal Emergency Management Agency (FEMA) has indicated that some of the City’s costs are reimbursable expenses. The City has therefore submitted $1,778,104 in labor costs, and $324,839 in purchases of supplies and services for Covid - FEMA eligible expenditures, but at fiscal year-end, no funding was received.

CARES Act. With a population of just under 50,000, the City was not a direct recipient of CARES Act funding other than for its Transit operation. It did however receive an allocation through the State of California in the amount of $566,980. The funding was used in accordance with the CARES Act mandate and the State has already concluded its audit and found that the City’s use of the funding was administered correctly.

ARPA. The congressional American Rescue Plan Act approved $350 billion for state, local, territorial, and Tribal governments in form of the Coronavirus State and Local Fiscal Recovery Funds. As an entitlement city, San Luis Obispo was informed that it will receive $13.5 million in funding directly from the U.S. Treasury. The funding will be paid in two installments and the City received the first 50% on July 6, 2021. $8.7 million of the funding will make good the revenue loss experienced in 2020 and pay for general government services. The remaining funding will be used in accordance with the Interim Final Rule and approved by the City Council via the 2022-23 Budget Supplement resolution in June 2022. None of the funding was received in fiscal year 2020-

21. Major City Goals
With the 2019-21 Financial Plan, the City Council adopted five Major City Goals. These goals were designed to support the highest priority needs and community-wide interests. The five original goals and work programs were dedicated to:
x Housing
x Fiscal Sustainability and Responsibility
x Sustainable Transportation
x Climate Action
x Downtown Vitality
Given the pandemic driven reality facing the City during the preparation of the second-year budget, the City Council adopted the merging of the goal efforts into one overarching goal for Economic Recovery and Resiliency. The goal deployed 10 economic recovery strategies addressing the Community, Businesses, the City Organization, Impacted Industries and Business Neighborhoods, Infrastructure and capital projects, the Downtown core, Cal Poly, Community Partners, the overall quality of life in SLO, and ultimately the required xi

TRANSMITTAL MEMORANDUM
resiliency moving into the future. The 10 strategies included many of the original objectives of the five Major City Goals with a clear emphasis on economic recovery, vibrancy, and resiliency.

Throughout the 2020-21 Fiscal Year, the City organization was asked to remain flexible and adjust to the changing conditions that the pandemic and related health orders presented. Multiple programs were introduced to allow businesses to remain open and Downtown activations for the holidays provided hope and a festive atmosphere for the community to enjoy during a daring time.

Some of the programs implemented through the goal objectives entailed the Open SLO Project, Sidewalk Dining, the Downtown Vacancy Taskforce, the Tenant Improvement program, Fitness in the Parks, Community Hotline, Fee and Tax Deferrals, Shop Local promotions, adjusted Childcare options, virtual Holiday activities, Small Business Relief Fund.

For additional information regarding the City’s response to the pandemic and related investments in the overarching City goal, please see the Management Analysis and Discussion section on page 5.

Economic Indicators for San Luis Obispo in General
Local Economic Environment
Historically, and prior to the aforementioned pandemic driven conditions, the City has experienced a relatively stable economy, largely insulated from economic downturns in other parts of the State or the nation due to major State and federal employers such as the California Polytechnic State University (Cal Poly), California Men’s Colony, California Department of Transportation (Cal Trans) District 5 offices, the Regional Water Control Board, and Camp San Luis. It is also the County seat with significant county administrative offices and the regional courts.

Employment. Employment in the San Luis Obispo County region has historically been stabilized by a large government presence and diversity. As noted above, the State has a major university, correctional facility, and other regional offices located in the community. The County government and school districts are also major employers. Other major employers include two major hospital facilities, several engineering and software companies, and Pacific Gas and Electric. The announcement of the pending closure of the Diablo Canyon Nuclear Power Plan presents some uncertainties and will require adjustment for the region over the coming years as the process takes place. However, the passage of SB1090 and the monetary allocation for economic development from the measure will assist in the transition.

The historically solid base of employment in the County was not immune from the impacts of the pandemic.

The California Employment Development Department (EDD) reported the unemployment rate in San Luis Obispo County at 11.5% in June 2020, down from a high of 14.8% in April 2020 and the height of the “stay at home” orders. However, after July 2020, the unemployment rate started to trend downward and with the State’s Blueprint to Reopening and the return of the colleges to on campus teaching, it reduced to 5.9% by the end of the fiscal year.

Key Revenue Sources. As the commercial, governmental, and cultural hub of San Luis Obispo County, the City is fortunate to attract a diverse array of strong revenue sources. The top three revenue sources for the City are 1) Sales Tax, 2) Property Tax, and 3) Transient Occupancy Tax (TOT). Since 2006, the City’s voters have also approved a local transaction tax of half-a-percent (Local Revenue Measure) to provide for an array of City services.
xii

TRANSMITTAL MEMORANDUM
In November 2020, the City’s voters were asked to consider an increase to the local transaction tax to one and a half percent which was approved with 58% of the votes. The increased tax went into effect on April 1, 2021, and together with the gradual reopening of the economy, the City saw its revenues exceed budgetary assumptions even though at mid-year, they had been tracking close to the adopted budget. Additionally, the City saw its first Cannabis retailer open in August 2020. Together with several delivery businesses, the Cannabis tax contributed to a better than anticipated year-end revenue picture from this tax levy.

There is no question that the pandemic and the resulting directives have taken a toll on the City’s revenue since March 2020 and especially Transient Occupancy Tax remained subdued with only a slight increase over 2019- 20 as it remained 14% below 2018-19 levels. However, all in all, the City’s sales tax revenue, strengthened by the new local transaction tax, ended the year well above adopted budget. Property tax remained strong and experienced a further increase over previous fiscal years. All of the City’s fee revenues recovered immediately, once the restrictions were lifted and the community reengaged in programs and services. Like property tax, development continued strongly and the City’s flexibility in changing its application processes allowed for a seamless transition for development review.

Long-Term Financial Planning.

The City engages in a number of activities focused on long-term financial planning to gauge and adjust to current economic conditions and trends. Different scenarios are developed considering a multitude of information and resources. This effort was even more elaborate due to the uncertainties surrounding the pandemic and assisted the City with the planning to respond to the effects of Covid-19 and the related restrictions.

Long-Term Fiscal Forecast. Before the two-year Financial Plan and budget process begins, the City Council reviews long-term fiscal forecasts for the General and the Enterprise Funds to help set the stage for sustainable decision-making. The purpose of the forecast is to consider long-term fiscal health and to identify the funds’ ability – on an order of magnitude basis – to maintain current services and existing assets and look at the opportunity to fund new initiatives. The 2021-26 forecast was completed in April 2020, before the City Council considered the 2020-21 Budget Supplement. The uncertainty of the pandemic and the restrictions imposed to stop the spread of the Coronavirus, necessitated staff to develop several economic impact scenarios to gauge possible revenue reductions and impacts on the City’s long-term outlook. At the time of the revenue forecast, the multitude of aid packages to residents and businesses that became available was unknown and the City took a conservative approach to its revenue forecast. The Fiscal Health Contingency Plan measures brought the expenditure side in alignment with revenue forecasts and, in concert with changes to the approved capital improvement plan, the City produced a balanced budget and long-term forecast.

CalPERS and the City’s Unfunded Liability
With the Fiscal Health Response plan, the City had prepared a path to pay-down the City’s pension liability over a 20-year term, shortening the duration by 10 years and saving around $19 million in payments. It did so by aligning its expenditures with the revenue forecast that would allow for additional annual payments. A first payment of $4.2 million was made in April 2019 and a second payment of equal amount was scheduled for April 2020. Due to the state of health emergency, the City Council decided to retain any unassigned fund balance until the fiscal situation could be better assessed. It did so again in February 2021 when the next payment of $3 million was scheduled and uncertainties with pandemic driven restrictions continued. Given the City’s commitment to the additional payments and the current fiscal circumstances, the previously earmarked amounts for the past three fiscal years can be now paid through unassigned fund balance, making good on $10.2 million in additional funding toward the City’s pension liability.
xiii

TRANSMITTAL MEMORANDUM
In July 2021, CalPERS announced having ended the 2020-21 Fiscal Year with a 21.3% investment gain. This result triggered the previously adopted Risk Mitigation policy, lowering the future discount rate to 6.8%. The CalPERS board ratified the discount rate in November 2021, and it will become effective for the City with the 2023-24 fiscal year. Staff is reviewing its long-term strategy given this new information to gauge the appropriate level of additional payments moving forward.

FINANCIAL CONDITION OVERVIEW
Despite being economically affected by the Covid-19 pandemic, the City ended the fiscal year 2020-21 in a solid and better fiscal position than originally anticipated. Actual Sales tax revenues performed better than the initial downward adjusted assumptions in April 2020, though several revenue sources saw diminished levels and especially Transient Occupancy Tax remained well behind 2018-19 results. Certain fee revenues in the Parks & Recreation programs were significantly affected by the pandemic but bounced back immediately once restrictions were lifted. The immediate activation of the Fiscal Health Contingency Plan, that remained in effect the entire fiscal year, assisted in counter-acting the revenue losses and lead to a favorable financial picture at year-end. This result was also supported by the additional local transaction tax that went into effect on April 1, 2021, generating an additional $4 million in General Fund revenue.

At June 30, 2021, the total General Fund balance was $47.1 million; an increase of $13 million over 2019-20.

This year-end financial picture is largely due to the aid packages that allowed people to continue to transact and buy, the City Council’s discipline to leave previous unassigned fund balance intact while allowing the City Manager to invest in economic recovery. It should be pointed out that within those financials are the payments to CalPERS, as well as remaining fund balances belonging to the City’s local transaction tax sub-fund and the Insurance fund. The details of how the overall fund balance breaks down is illustrated in the chart below:

General Fund – Fund Balance per June 30, 2021
Non-spendable $41,155
Committed
Contingency Fund – 20% policy level $11,830,380
Local Revenue Measure balance $9,299,971
Insurance Fund $1,955,966
Assigned to:

Encumbrances $4,838,806
115 Trust Fund $2,000,000
Public Safety Replacement fund $929,344
CalPERS Payment $10,200,000
Development Services $710,657
Unassigned $5,311,792
Total Fund Balance $47,118,071
Continue to Focus on Sustainability and Long-term Fiscal Health As part of the fiscal health response plan, the City Council considered the formation of a Section 115 Pension Trust fund to further safeguard the City from changes by CalPERS related to unfunded liabilities and possible fluctuations in the economy and income streams to the City. For that purpose, the City has set aside $2 million from one-time funding available at the end of 2018-19 to seed the trust fund. It was anticipated that the trust would be established in March 2020, however due to the global pandemic, this was deferred, and the amount xiv

TRANSMITTAL MEMORANDUM
remains in the assigned General Fund Balance. City staff is preparing the request for proposal now in order to establish the fund by the final quarter of 2021-22.

Revenue Base Growth. Since the Great Recession, the US had experienced an unprecedented long-term expansion that continued into the larger part of 2019-20. Sales tax (including the local Transaction tax), Property Tax and Transient Occupancy Tax (TOT) account for 69% of all funding sources in the General Fund. All of these revenues have shown slow but steady growth over the past several years with Property Tax seeing the largest increase. However, all of this came to an abrupt halt with the onset of Covid-19 and the resulting global pandemic that place the national and local economy on temporary halt. The forecast was uncertain as the pandemic ultimately influenced the entire 2020-21 fiscal year.

However, quick action by congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, protection from rent and utility payments lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The beginning trends of the migration to online shopping were accelerated and sales tax revenue did not see the originally anticipated decline. Property tax remained strong as the real estate market continued to deliver. Tourism did clearly take a hit but continued to see activity and bounced back due to pent-up demand in the last quarter into the summer months.

Despite the pandemic, development related fee revenue continued to see significant growth as development activity remain at unprecedented levels in the City with two Community Facilities Districts beginning construction and housing continuing as a major City goal. Though development fees follow the planning cycle of development, it is not anticipated that the current activities will see a significant slow-down. By policy, the City of San Luis Obispo has set the cost recovery fees for development activity at 100%. However, in order to aid economic recovery from the pandemic, the City did implement a Tenant Improvement program to assist new tenants to open their businesses quickly. The program began in 2020-21 and carries on in 2021-22.

Containment of Operating Costs. The City’s efforts to control costs are ongoing. With the onset of the pandemic, the City activated its long-standing Fiscal Health Contingency plan to immediately curb spending. This plan remained in effect the entirety of the 2020-21 fiscal year and controlled staffing, travel, and operating cost in addition to carefully selected capital investment. Additionally, the City’s implementation of a 2nd and 3rd tier retirement benefit programs continues to change the City’s annual retirement contributions as 57% of the workforce is now enrolled in those retirement plan tiers. These actions have been instrumental in helping the City contain current costs and long-term liabilities related to retirement benefit programs.

Infrastructure and Facilities Maintenance. As a growing city, San Luis Obispo has seen the need for capital expenditures grow steadily over the past decade. The need to maintain, repair or replace its current structure is met with the need to build amenities for the community at large. In order to deliver on these obligations, the City asked the voters to approve an increase to the local transaction tax measure that had been in place since 2006. In November 2020, the voters did approve the increase thus tripling the revenue from this General Fund source.

The City plans on using 75 to 85% of the revenue for infrastructure improvements and enhancements and the Public Works department is gearing up to deliver the projects.

The funding will be allocated to projects in coordination of a number of adopted plans including the general plan, bicycle transportation plan, downtown concept plan, and mission plaza concept plan. Each plan represents hours of community input and a vision to maintain and improve the San Luis Obispo now and into the future. xv

TRANSMITTAL MEMORANDUM
Ongoing Commitment to Local Transaction Tax Measure Priorities (Essential Services Measure) The City remains committed to the priorities for the use of the local transaction tax measure as identified by the community. They include public safety, senior services, code enforcement, neighborhood street paving, open space preservation, traffic congestion relief and flood protection. The following table summarizes how the local transaction tax measure funds were used during fiscal year 2020-21. The voter approved increase took effect on April 2, 2021, and the table below reflects the increase in revenue in the last quarter of the fiscal year.

Total expenditures during 2020-21 amounted to $14.5 million (including encumbrances and carryovers); the remaining balances of these resources are designated for future year expenditures. A more detailed schedule of local transaction tax measure sources and uses is provided in the Financial Section of this report beginning on page 121.

Local Sales Tax Measure Revenue & Uses Summary
2020-21
Revenues:

Sales and use tax - Measure G add-on tax $ 12,779,713
Use of money and property 1,333
Total Revenues 12,781,046
Uses:

Operating Programs (2,369,931)
Capital Projects (8,301,843)
Total Uses (10,671,774)
Excess of revenues over expenditures 2,109,272
Prior Sales Tax Measure Balance 7,190,699
Encumbered or designated for carryover for future year expenditures (3,908,990) Net available for future year appropriations $ 5,390,981 * Detail of Capital Projects is included with other supplementary information in the financial statements, which can be found on page 121.

RELEVANT FINANCIAL POLICIES
The City of San Luis Obispo has adopted a comprehensive set of budget and financial policies to provide guidance for all fiscal activities and resource allocations. The policies are reviewed, amended, and updated with each Financial Plan adoption and as needed throughout the year. The policies cover virtually every aspect of financial management but several of these policies are particularly relevant to the understanding of the City’s financial performance in 2020-21.

Debt Administration Policies
The City’s Capital Financing and Debt Management policies contain general guidelines for refinancing of outstanding debt. These guidelines call for periodic review of all outstanding debt to determine refinancing opportunities, particularly to create economic benefit such as lower debt service payment or reduction of principal.
xvi

TRANSMITTAL MEMORANDUM
Information on the City’s outstanding debt issues and other long-term liabilities is provided in Note 6 in the notes to the financial statements.

In February 2021, Fitch Ratings, a nationally recognized statistical rating organization, reviewed the City’s financials and fiscal outlook for the rate review of the City’s outstanding lease revenue bonds. On March 16, 2021, Fitch Ratings affirmed the City’s rating at AA+ with a stable rating outlook. Fitch Ratings’ long term credit ratings are assigned on an alphabetic scale from AAA to D. The City’s AA+ bond rating means that the City’s investment grade is “quality”. Specifically, current lease revenue bonds (LRBs) issued by the San Luis Obispo Public Financing Authority remain at an 'AA’ rating and the LRBs issued by the City of San Luis Obispo Capital Improvement Board at an 'AA' rating. At this time, the City of San Luis Obispo has no general obligation debt.

In reaching its decision, Fitch Ratings’ analysts commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative longterm financial planning with a focus on maintaining structural budget balance, maintaining the city's capital assets with minimal debt reliance and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.”
Budgetary Policies
The City of San Luis Obispo has a policy that requires the adoption of a balanced budget over the two-year period of the Financial Plan. This means that operating revenues must fully cover operating expenditures, including debt service. Additionally, ending fund balance (or working capital in the enterprise funds) must meet minimum policy reserve levels. Under this policy it is allowable for total expenditures to exceed revenues in any given year but only when fund balance is used to pay for capital improvement plan projects or other “one-time,” non-recurring expenditures.

Fund Balance and Reserve Policies
The City’s policies recognize the importance of long-range planning in managing the City’s fiscal affairs in order to provide for stable operations, promote more orderly spending patterns, and assure the City’s long-term fiscal health. The reserves contained in the General Fund and Enterprise Funds play a pivotal role in this strategy. The reserve policies call for a minimum fund balance of at least 20% of operating expenditures in the General Fund and a working capital level of 20% of operating expenses in the Water, Sewer, and Parking Enterprise Funds.

The policies also require the Fleet Management Information Technology Replacement Funds to provide for the timely replacement of vehicles and equipment as well as IT equipment and software and a reserve is retained in these funds to safeguard against unforeseen and unfunded issues. All reserve policies continue to be met.

To further strengthen the Water and Sewer fund against revenue fluctuations, both funds carry a Rate Stabilization reserve of 10% of sales revenue for Water and 5% of sales revenue for Sewer.

With 2018-19, the City also implemented a revenue stabilization reserve of $1 million in the General Fund in order to counter-act potential swings in its major revenue sources. This reserve remained intact throughout the three-year period of the Fiscal Health Response Plan but will return to fund balance with the 2021-22 fiscal year.

Additionally, the City retains $2 million for the Section 115 Pension Trust fund which shows in the financial reports as assigned fund balance until the trust fund is established which should happen prior to the 2021-22 fiscal year end.
xvii

TRANSMITTAL MEMORANDUM
Long-Term Liabilities and Maintenance of Infrastructure With the 2017-19 Financial Plan, the City began to incorporate the use of one-time funds above policy reserve to unfunded pension liabilities and infrastructure into the City’s fiscal policies. Additionally, the City began addressing the long-term needs of its capital assets and categorizing asset maintenance, asset replacement, and new assets driven by new development. The City Council received a first presentation of the long-term needs of its infrastructure in early 2018 and the assessment continued into FY 2019-20 with the beginning stages of the SLOForward effort. It culminated in the City Council’s decision to place a measure on the November 2020 ballot for a 1.5 cent local transaction tax measure to supplant the 2006 enacted half-cent measure. The measure was successfully approved by 58% of the voters and the new local transaction tax went into effect on April 1, 2021.

The immediate increase in this revenue stream is part of the favorable financial condition of the City at fiscal year-end and greatly assisted in additional economic recovery efforts at the tail end of the Covid-19 restrictions.

The local transaction tax is estimated to become the City’s largest revenue source and will provide vital funding for the vast infrastructure needs of a growing city.

Pension and Other Post-Employment Benefits
The City contributes to the California Public Employees’ Retirement System (CalPERS), an agent multipleemployer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California.

Benefit provision and all other requirements are established by State statute and City ordinance. The amount of the City’s required annual contribution is determined actuarially and is reported to the City via the Annual Valuation Reports provided by CalPERS for each retirement plan.

It is the policy of the City to fully fund the annual contribution to ensure that the plan will fully meet its obligation to retired employees on a timely basis. Prepaying the City’s unfunded liability will also reduce overall annual cost depending on whether approved actuarial assumptions are realized and are not adjusted by the CalPERS’ Board.

As part of its cost reduction strategy, the City has implemented 2nd Tier and the state mandated 3rd Tier retirement benefit programs for new hires while also requiring all employees to pay at least the full amount of the member share of the annual retirement contribution. Beginning in 2018-19, and increasing in 2019-20, the City negotiated further concessions with employee groups to pay into CalPERS which will help lessen pension impacts to the City’s budget. The City continues to monitor legal developments and legislation that could positively or negatively impact the City’s finances.
xviii

TRANSMITTAL MEMORANDUM
All employees currently pay the full employee contribution and the additional contributions agreed to are listed in the chart below:

Police (Sworn) Employee Contribution Levels to PERS
Retirement
(Percent of Salary)
Safety PERS Tier Jul-20
Tier 1 (3% @ 50) 15%
Tier 2 (2% @ 50) 15%
Tier 3 (2.7% @ 57) 15.75%
Police (Non-Sworn) Employee Contribution Levels to PERS Retirement
(Percent of Salary)
Miscellaneous PERS Tier Jul-20
Tier 1 (2.7% @ 55) 14%
Tier 2 (2% @ 60) 14%
Tier 3 (2% @ 62) 10%
Fire (Sworn) Employee Contribution Levels to PERS
Retirement
Safety PERS Tier Jul-20
Tier 1 (3% @ 50) 12%
Tier 2 (2% @ 50) 12%
Tier 3 (2.7% @ 57) 15.75%
Employee Contribution Levels (includes appointed officials, department heads, unrepresented management,
unrepresented confidential and non-sworn fire employees) to PERS Retirement
Miscellaneous PERS Tier Jul-20
Tier 1 (2.7% @ 55) 11%
Tier 2 (2% @ 60) 10%
Tier 3 (2% @ 62) 10%
Other Post-Employment Benefits (OPEB). The City’s primary OPEB cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program under the “unequal contribution option.”
When the City joined the CalPERS health plan in 1993, it immediately experienced an increase in the plan choices available along with a significant reduction in rates. Due to CalPERS purchasing power, the City continues to experience competitive health care rates. However, as a condition of joining the CalPERS health program, the City agreed to contribute the minimum monthly amount required by law towards retiree health care xix

TRANSMITTAL MEMORANDUM
coverage for both active and retired employees. This allows retired employees to purchase health insurance at the same rate offered to active employees.

Additionally, the City had established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000. There is only one employee remaining who receives one-half of the retiree health insurance premiums paid by the City through the City's group health plan. This provision ceases upon the death of the retired employee or upon the retired employee reaching age 65. These OPEB benefits were financed on a pay-as-you-go basis in the past. As directed by Council in May 2008, the City began fully pre-funding the OPEB obligation via an irrevocable trust in 2008-09.

Additional information on the City’s retirement and post-employment benefits can be found in Note 7 in the notes to the financial statements.

MAJOR INITIATIVES
The City continued its efforts on a number of significant initiatives in 2020-21 which had a beneficial effect on fiscal health and quality of life despite the ongoing impact of the worldwide pandemic.

Local Sales Tax Measure. The local transaction tax revenue of 1.5 cents was approved by City voters with 58% of the vote in November 2020, tripling the revenue stream from this source beginning April 1, 2021. As part of the local transaction tax measure, the Revenue Enhancement Oversight Commission (REOC) was established to review, report, and makes recommendations to the City Council regarding the revenue and expenditures of the City's voter-approved measure. The REOC consists of five members who must be residents and registered voters of the City and continues to serve as a Council advisory body with the new tax levy.

Economic Development Strategic Plan.

The City’s 2012 Economic Development Strategic Plan (EDSP) as revised in March 2015, provides a prioritized list of strategic actions aimed at overcoming barriers to job creation and nurturing the conditions, relationships, and resources that enable and encourage the private sector to create head of household jobs on a consistent basis while continuing to support the broader economy of the City. To create and implement these efforts, the EDSP identified the City’s fee program and the lack of infrastructure in key areas as barriers to overcome and is in the process of implementing strategies to improve the economic environment for job creation in the City. The EDSP builds on the San Luis Obispo County Economic Strategy, which identified five industry clusters with the greatest potential to drive local and regional economic prosperity, and job creation. The EDSP focuses on partnerships and collaborative efforts with community partners including the Economic Vitality Corporation, the Chamber of Commerce, the Small Business Development Center, California Polytechnic State University and Cuesta College. The City had to change course with the onset of the pandemic and is currently concentrating its Economic Development efforts on assisting the community with the recovery and reopening in accordance with State directives. The City invested heavily in these efforts with the following programs:
xx

TRANSMITTAL MEMORANDUM
2020-21 Investment into Covid-19 Relief Efforts
Funded by 4th Quarter Measure G-20 Revenue $ 3,425,000
Shop Local Incentive $ 200,000
Mission Plaza Improvements/Landscaping $ 25,000
Downtown Retail Strategy $ 29,400
Homeless Services Support/Coordination $ 300,000
Small Business Relief Program $ 500,000
Grant Funding Opportunities for Tenant Improvements ** $ 2,000,000 Open SLO Project/Parklets $ 370,600
Funded by CARES Act $ 566,680
Homeless Programs $ 29,132
Open SLO Project/Parklets $ 100,000
Small Business Relief Program $ 200,000
Other Covid-19 Expenditures $ 237,548
Funded by General Fund Balance $ 756,835
Open SLO Project/Parklets $ 329,603
Communications Support $ 60,000
Mini Grants $ 75,000
Childcare Amendments $ 20,000
Grant Writing Services $ 20,000
Homeless Services: Safe Parking, Shelter Capacity Increase $ 101,057 Shower the People Project $ 5,000
Other Covid-19 Expenditures $ 146,175
Total $ 4,748,515
For more information see www.slocity.org/covid19.

The planned closure of Diablo Canyon Nuclear Power Plant catalyzed a study of the economic and fiscal impacts on the region and the City, an updated Economic Development Strategic Plan with identified strategies to address impacts of the closure, and a comprehensive plan of how to invest closure settlement funds to be received under SB1090 and informed by SB 968. The closure is still tracking with the original deadline of 2025.

Downtown Development Projects
The City’s Downtown district remains the cultural and historical center of the City of San Luis Obispo. The City therefore continues to emphasis maintenance and renewal projects that will invigorate the district and keep it clean, attractive, and safe to residents and tourist alike. The pandemic and its required closures of retail and dining businesses hit this district hard as its mainly small businesses and restaurants had to close their doors and tourists and day-time visitors stayed away. The City responded quickly by installing parklets to allow for outdoor dining and other business activities. During the holiday season, the City invested to activate the downtown through lights and interactive displays in Mission Plaza, bringing much needed cheer to the community. This investment was so successful and welcome that it continues in 2021-22. The City also took this opportunity to schedule maintenance projects, such as a critical sidewalk repair, bridge replacement, and prepare for the full reopening of the business district. xxi

TRANSMITTAL MEMORANDUM

AW ARD FOR EXCELLENCE IN FINANCIAL REPORTING
The City submitted its ACFR for the fiscal year ended June 30, 2020, to the Government Finance Officers Association of the United States and Canada (GFOA) Certificate of Achievement for Excellence in Financial Reporting program. Due to the global pandemic, processing of the award applications has been delayed, but on November 16, 2021, the City received the award and certification for its 2019-20 ACFR.

The Award Program
The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of State and local government financial reports.

In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized c annual comprehensive financial report whose contents conform to program standards.

This report must satisfy both U.S. generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. The City has received a Certificate of Achievement each year since 1984. Staff believe that the City's current ACFR continues to conform to the Certificate of Achievement program requirements and will submit it to GFOA to determine its eligibility for another certificate.

Value of Program Participation. There are benefits to participating in these programs beyond simply receiving recognition for the City's efforts. For example, by striving to meet program standards and goals, the City produces better reports. Additionally, as part of the review process, comments for improvement from other municipal finance professionals who review the reports from a "fresh" perspective are received. Staff believes that this results in continuous improvements in reporting the City's financial results to elected officials, staff, and other interested parties such as bondholders, credit agencies, and the public at-large.

ACKNOWLEDGMENTS
The preparation and development of this report would not have been possible without the year-round dedication of the Finance Division staff and their special efforts, working in conjunction with the City's independent auditors, to produce this document.

We would like to take this opportunity to compliment all those staff members within the Finance Department and in the other departments as well as our independent auditors who were associated with the preparation of this report. We would also like to thank the City Council for the continued support and dedication in planning and conducting the financial operations of the City in a fiscally responsible and progressive manner. xxii Page 328 of 714

DIRECTORY OF OFFICIALS AND ADVISORY BODIES

CITY COUNCIL
Heidi Harmon Mayor
Erica A. Stewart Vice Mayor
Carlyn Christianson Council Member
Andy Pease Council Member
Jan Marx Council Member

ADVISORY BODIES
Active Transportation Committee
Administrative Review Board
Architectural Review Commission
Construction Board of Appeals
Council Compensation Committee
Cultural Heritage Committee
Housing Authority
Human Relations Commission
Investment Oversight Committee
Jack House Committee
Mass Transportation Committee
Parks and Recreation Commission
Personnel Board
Planning Commission
Promotional Coordinating Committee
Revenue Enhancement Oversight Commission
Tourism Business Improvement District Board
Tree Committee

APPOINTED OFFICIALS AND DEPARTMENT HEADS
Appointed Officials
Derek Johnson City Manager
J. Christine Dietrick City Attorney
Department Heads
Shelly Stanwyck Assistant City Manager
Greg Hermann Deputy City Manager
Michael Codron Director of Community Development
Brigitte Elke Director of Finance
Keith Aggson Fire Chief
Monica Irons Director of Human Resources
Richard Scott Police Chief
Aaron Floyd Director of Utilities
Greg Avakian Director of Parks & Recreation
Matt Horn Director of Public Works
xxiii

MISSION STATEMENT

SAN LUIS OBISPO STYLE
Quality with Vision WHO ARE WE?
People Serving People
A team that puts high value on each citizen it serves.

Providers of programs that meet basic service needs of each citizen.

Enhancers of the quality of life for the community as a whole.

WHAT DO WE STAND FOR?
Quality in all Endeavors – Pride in Results
Service to the community – the best – at all times.

Respect – for each other and for those we serve.

Value – ensuring delivery of service with value for cost.

Community involvement – the opportunity to participate in attaining the goals of the City.

WHERE ARE WE GOING?
Into the Future with a Design
Planning and managing for levels of service consistent with the needs of the citizens.

Offering skills development and organizational direction for employees in order to improve the delivery of municipal services.

Developing sources of funding and establishing a sound financial management program which will result in fiscal independence and flexibility in the delivery of City services.

Providing the residents of the City with accurate and timely information on issues which affect them, and encouraging the full utilization of City services.

Promoting the City as a regional trade, recreational and tourist center and improving the quality of life for residents and visitor.
xxiv

ORGANIZATIONAL VALUES
We, as an organization, embrace opportunities to improve our services and the quality and effectiveness of our relationships with the community and our teams. The following values guide and inspire our efforts.

Shared Vision, Mission and Goals
We have a sense of common purpose and direction pursued with passion and translated into concrete actions.

Service
We are dedicated to the best use of resources to fulfill identified community goals and needs.

Leadership and Support
We recognize that the ability to lead can be found at all levels and that to create an environment to succeed requires leading by example.

Communication
We foster open and clear discussion that encourages the willingness to speak up and to listen, within a framework of respect and understanding.

Team Players
We encourage effective working relationships within and between departments and the public to address issues and achieve valuable results.

Honesty, Respect and Trust
We honor commitments, acknowledge legitimate differences of opinion and accept decisions reached with integrity.

Initiative and Accountability
We take personal responsibility to do what needs to be done and report the results in a straightforward manner.

Innovation and Flexibility
We are open to change and willing to try new ways to fulfill the organization’s vision, mission, and goals more effectively.
xxv

Employee Development and Recognition
We encourage and support each employee to improve relevant job skills and celebrate personal and team accomplishments.

Stewardship and Ethics
We promote public trust by using City resources wisely, and through consistent fulfillment of these values. xxvi

Patrol Fire, Medical & Haz Mat Natural Resources Recruitment Assistant City Manager Traffic Safety Emergency Response Economic Development Labor Relations Investigations Hazard Prevention Cultural Activities Fair Employment Neighborhood Services Fire Inspections City Clerk Services Risk ManagementAnimal Regulation Disaster Planning General Administration Human Relations Information TechnologyGIS Management
Budget Recreation Programs Water Engineering Long Range Planning Purchasing Ranger Services Sewer Transportation Development ReviewAccounting & Revenue Park Planning Utilities Resource Creek & Flood Protection Building & Safety Support Services Golf Course Conservation Maintenance Services: CDBG AdministrationFinance Administration Public Art Whale Rock Reservoir Streets, Parks, Bldgs Housing Community
Development
Administration
Dept Appointed by the Assistant City Manager
Utilities
Human
Resources
Parks &
Recreation
Public
Works
Community Services

CITIZENS

ADVISORY
BODIES
CITY

MANAGER

MAYOR &

CITY COUNCIL
Appointed by the City Council Appointed by the City Manager Dept CITY

ATTORNEY
Police Fire
Finance
xxvii

Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of San Luis Obispo
California
For its Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2020
Executive Director/CEO
xxviii

FINANCIAL SECTION
xxix

xxx Page 336 of 714
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of San Luis Obispo, California (City) as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements 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.

To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California

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 the City as of June 30, 2021, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, pension plan and OPEB plan information on pages 5-27 and 101-118 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.

Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, local sales tax measure funding schedule, combining and individual nonmajor fund financial statements, budgetary comparison schedules and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules on pages 121-157 are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. 2

To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 23, 2021, on our consideration of the City’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 the City’s internal control over financial reporting and compliance.

Badawi and Associates, CPAs
Berkeley, California
December 23, 2021
3

4

Management’s Discussion and Analysis
Overview of the Financial Statements
The discussion and incorporated analysis in this document are intended to serve as an introduction to the City’s basic financial statements, which include the following components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to financial statements. This report also contains required supplementary information (RSI) as well as other supplemental financial information.

Government-wide Financial Statements. This set of statements is designed to provide readers with a broad overview of the City’s finances, in a manner similar to private-sector business reporting.

The Statement of Net Position presents financial information on all the City’s assets/deferred outflows of sources and liabilities/deferred inflows of sources, with the difference reported as net position. In the private sector, it is similar to a balance sheet.

Over time, increases or decreases in net financial position may serve as a useful indicator of whether the financial position of the City is improving or declining. In conformance with GASB 68, the Statement of Net Position reported for fiscal year 2020-21 considers the City’s long-term pension liabilities, effectively decreasing the City’s net financial position.

The Statement of Activities presents changes in the government’s net position during the most recent fiscal year. All changes in net position are reported during the period when the underlying events giving rise to the change occur, regardless of the timing of the related cash flow. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods such as revenue pertaining to uncollected taxes.

The City’s government-wide financial statements distinguish the functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their cost through user fees or that are required by grantor agencies or City policies to be accounted for in this fashion (business-type activities).

The governmental activities include: (1) public safety, (2) transportation, (3) leisure, cultural and social services, (4) community development and (5) general government support services such as legal services, elections, human resources, risk management, finance, and information technology. The business-type activities of the City include:
(1) water, (2) sewer, (3) parking operations and the (4) transit program.

As required by U.S. Generally Accepted Accounting Principles (GAAP), these financial statements present the City (the primary government) and its component units (entities for which the government is considered to be financially accountable). Blended component units, although legally separate entities, are in substance, part of the government's operations and data from these units are combined with data of the primary government.

The San Luis Obispo Capital Improvement Board (Board) is reported as a blended component unit in these statements.

The Board provides financing for the construction and acquisition of City facilities. The Board consists of members of the City Council. Activities of the Board are accounted for in the applicable City governmental or enterprise funds.

Separate financial statements are not prepared for the San Luis Obispo Capital Improvement Board. The City has no 5

Management’s Discussion and Analysis
component units that require discrete presentation in accordance with Governmental Accounting Standards Board (GASB) standards.

Pension Obligation. Pursuant to GASB Statement No. 68 (GASB 68), Accounting and Financial Reporting for Pensions, the City reports on the unfunded pension liability on the full accrual basis of accounting in the governmentwide financial statements. The reports also include note disclosure requirements and supplementary schedules as required by GASB 68. The measurement date for fiscal year 2020-21 pension liabilities is as of the fiscal year ended June 30, 2020. This date reflects a one-year lag and was used so that these financial statements could be issued in an expedient manner. Activity (i.e., contributions made by the City) occurring during fiscal year 2020-21 are reported as deferred outflows of resources in accordance with GASB Statement No. 71.

Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: (1) governmental funds, (2) proprietary funds, and (3) fiduciary funds.

Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information reflects financial resources available in the near future to finance the City’s programs.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financial decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City maintains several individual governmental funds organized according to their purpose (general, special revenue, debt services, and capital projects). Information is presented in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances. The General Fund is considered as the only major fund. Data from the non-major governmental funds are combined into one aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements in the supplementary information section in this report.

Of the major fund, the City adopts an annual appropriated budget for the fund. A budgetary comparison statement has been provided as required supplementary information to demonstrate compliance with the budget. Budgetary information for non-major governmental funds with annual budgets has been provided with the fund financial statements in the supplementary information section in this report.

Proprietary Funds. Proprietary funds are generally used to account for services for which the City charges customers; either outside customers or internal units/divisions of the City. Proprietary funds provide the same type of information as shown in the government-wide financial statements, only in more detail. 6

Management’s Discussion and Analysis
The only type of proprietary fund the City maintains is enterprise funds. The Water, Sewer, Parking, and Transit Funds are presented as business-type activities in the government-wide financial statements. The City considers all four of its enterprise funds to be major funds.

Fiduciary Funds. Custodial funds are the only type of fiduciary funds maintained by the City. These are used to account for resources held for the benefit of parties outside the primary government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. An example of a custodial fund may include donations provided to the City to be utilized for specific purposes as well as other funds held in trust of another entity to be utilized for a specific purpose. A specific example is the Hazardous Materials Task Force Fund, created to provide special fire services around the County, which is funded by multiple county and city agencies.

The accounting used for fiduciary funds is much like that used for proprietary funds. The Custodial Funds are presented with the fund financial statements in the supplementary information section.

Notes to the Financial Statements. The notes provide additional information that is essential to the reader for a full understanding of the data provided in the government-wide and fund financial statements.

Other Information. In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information including budgetary comparison schedules, reporting of the local transaction tax measure (Measure G and G-20) and more detailed information concerning the City’s net pension liability, schedule of contributions to the pension plan and progress in funding its obligation to provide other post-employment benefits (OPEB).

Statistical Information. The statistical section presents detailed information as a context for understanding what the information in the financial statements, notes disclosures, and required supplementary information indicates about the City’s overall financial health. This information has been adjusted over time to also serve as required bond disclosure information.

The Financial Year in Review
The following information provides a narrative overview and analysis of the financial activities of the City of San Luis Obispo (City) for the fiscal year that ended June 30, 2021. It should be read in conjunction with the accompanying transmittal memorandum and the basic financial statements.

The 2020-21 City financials were influenced by the worldwide pandemic brought on by COVID-19 and the Council decisions made to safeguard the City including the activation of the Fiscal Health Contingency plan and a prudent approach to budgeting during an unprecedented and uncertain time.

Staff had begun the planning efforts for the 2020-21 Budget Supplement when the COVID-19 pandemic significantly slowed economic activity and public health authorities introduced shelter-at-home directives that lasted through various stages until June 2021. Equipped with the savings measures from the third year of the Fiscal Health Response Plan (FHRP) and the immediate activation of the Fiscal Health Contingency Plan, staff further adjusted the operating and capital budget to an adjusted revenue forecast selected from several scenario models. It is important to review the financial information provided in this report with the savings measures and adjustment efforts in mind. 7

Management’s Discussion and Analysis
Overall, the General Fund finished the year in a positive position and experienced about 4% in net expenditure budget savings. The savings can be associated with both the effectiveness of the third year of the Fiscal Health Response Plan and the immediate activation of the Fiscal Health Contingency Plan, and the disciplined adherence to both plans during a pandemic year that also saw wide-ranging social protests. It is therefore important to note that the operating savings were achieved despite unbudgeted expenditures related to the COVID-19 pandemic and the additional cost related to the protests.

The graph below demonstrates expenditure trends over the last five years. While Other Operating Expenses and Contract Services have stayed relatively flat, Salary and Benefit costs have increased steadily over the years. Though cost of living adjustments (COLAs) were given during two of the three FHRP years for most employee groups, the negotiated terms also required a 3% employee contribution toward the CalPERS employer obligation that largely offset the COLAs. The City’s contracts with CalPERS were updated accordingly.

COVID-19 Expenditures
The table below lists the investments into economic recovery and relief efforts related to the COVID-19 pandemic.

This table does not include staffing or overhead costs needed to respond to the health crisis. The City used federal stimulus funding through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) funding to pay for some of these expenditures, but the majority of the funding came from the General Fund undesignated fund balance and the 4th quarter of Measure G-20 revenue as approved by Resolution No. 11203. $-
$10
$20
$30
$40
$50
$60
$70
$80
General Fund
Total
Salaries and
Benefits
Contract Services Other Operating
Expenses
Utilities
16-17 17-18 18-19 Actual* 19-20 20-21
8

Management’s Discussion and Analysis
2020-21 Investment into COVID-19 Relief Efforts
Funded by 4th Quarter Measure G-20 Revenue $ 3,425,000
Shop Local Incentive $ 200,000
Mission Plaza Improvements/Landscaping $ 25,000
Downtown Retail Strategy $ 29,400
Homeless Services Support/Coordination $ 300,000
Small Business Relief Program $ 500,000
Grant Funding Opportunities for Tenant Improvements ** $ 2,000,000 Open SLO Project/Parklets $ 370,600
Funded by CARES Act $ 566,680
Homeless Programs $ 29,132
Open SLO Project/Parklets $ 100,000
Small Business Relief Program $ 200,000
Other COVID-19 Expenditures $ 237,548
Funded by General Fund Balance $ 756,835
Open SLO Project/Parklets $ 329,603
Communications Support $ 60,000
Mini Grants $ 75,000
Childcare Amendments $ 20,000
Grant Writing Services $ 20,000
Homeless Services: Safe Parking, Shelter Capacity Increase $ 101,057 Shower the People Project $ 5,000
Other COVID-19 Expenditures $ 146,175
Total $ 4,748,515
The City has also submitted eligible cost to the Federal emergency Management Agency (FEMA) for reimbursement.

The total request amounts to $2.1 million with $1,778,104 for labor related cost and $324,839 for supplies and service The City has received feedback from FEMA that the submitted applications are under review and are moving through the process toward reimbursement.

Financial Highlights
The following outlines financial highlights for the year which are detailed in the table on page 9 of the Management Discussion and Analysis.
x The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows at June 30, 2021 by $373 million (net position). Fiscal year 2021 was the seventh year of the GASB 68 implementation requiring the disclosure of the City’s net unfunded pension liability which increased by $9.8 million to $167.9 million as of June 2021. The City’s net pension liability is measured as the total pension liability of $451.1 million less the pension’s fiduciary net position of $283.2 million. x Per the City’s Statement of Net Position, total City-wide assets increased by approximately $70.6 million or 12%.

Cash and Investments balances increased by $15.7 million, taxes receivables increased by $6.4 million, and accounts receivables from various sources increased by $1.5 million. The citywide non-depreciable capital assets increased from $87.9 million to $133 million.
9

Management’s Discussion and Analysis
x In business-type activities which include the Water, Sewer, Parking and Transit funds receivable, Cash and Investment balances increased by $5.8 million, Accounts Receivables increased by $2 million while nondepreciable capital assets increased by $45.2 million. x City-wide liabilities increased by $41.2 million during the fiscal year with governmental activities increasing by $4.9 million and business-type activities by $36.3 million. The two major contributors are long-term debt and net pension liability.
x The City’s governmental funds altogether reported combined ending fund balances of $91.4 million.

Approximately $34.6 million or 37.9% of this total amount is not available for new spending as it is either restricted for (1) debt service, (2) grant obligations, or (3) or specific programs like impact fee programs and general capital outlay. Another $28.4 million is assigned as of June 30, 2021, to meet expenditures in subsequent years in the form of purchase orders, encumbrances, and unspent appropriations that have been rolled over into fiscal year 2021-22 in accordance with the City’s budget policies. Per the City’s policy, $12.7 million of the fund balance is assigned to the governmental funds’ 20% operating reserve and minimum fund levels held in the General Fund as well as the Fleet and IT replacement funds. x The total General Fund balance increased by $13.4 million to $47.1 million. The Fund balance combines the following levels:

General Fund – Fund Balance per June 30, 2021
Non-spendable $41,155
Committed
Contingency Fund – 20% policy level $11,830,380
Local Revenue Measure balance $9,299,971
Insurance Fund $1,955,966
Assigned to:

Encumbrances $4,838,806
115 Trust Fund $2,000,000
Public Safety Replacement fund $929,344
CalPERS Payment $10,200,000
Development Services $710,657
Unassigned $5,311,792
Total Fund Balance $47,118,071
The increase in fund balance should be considered with the City Council’s thoughtful decision to leave fund balance from 2018-19 and 2019-20 intact to safeguard the City and to counteract possible adverse effects stemming from pandemic restrictions. Given the stronger than anticipated purchasing behavior, the immediate return of economic activity in the 4th quarter of the fiscal year now allows the City to invest or prepay its unfunded pension liability as previously considered and further economic recovery efforts. 10

Management’s Discussion and Analysis
Government-wide Overall Financial Analysis
Statement of Net Position Net position may serve over time as useful indicator of a government’s financial position.

The following is the condensed statement of net position for the fiscal years ended June 30, 2020 and 2021.

For the Fiscal Year ending on June 30, 2021, the City’s combined total assets and deferred outflows of resources were greater than its liabilities and deferred inflows of resources by $373.5 million. The largest portion of the City’s net position reflects its investment in capital assets in the amount of $345 million (e.g., land, buildings infrastructure, machinery, and equipment), less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A listing of capital assets constructed, replaced, and/or improved can be found on page 64.

A portion of the City’s net position, $37.6 million, is subject to restrictions imposed by external parties and its use is determined by those restrictions and contractual obligations. The governmental activities and business-type activities contributed a $22.3 million and $11.4 million increase, respectively, to the combined net position. The $22.3 million increase in governmental activities includes a prior year restatement totaling $745,000 as outlined in Note 12 in greater detail, resulting in a total net position of $373.5 million on June 30, 2021.

Information about changes in net position for fiscal years 2020-21 and 2019-20 is summarized below. Reasons for the changes are discussed in the following sections for governmental activities and business-type activities. 11

Management’s Discussion and Analysis
Governmental Activities. The City’s net position in the Governmental activities increased by $22.3 million to $155.7 million on June 30, 2021, largely due to $24.1 million in service revenue, $32.8 million in Sales Tax revenue, and capital grants of $5.7 million. In addition, the City continued its efforts to reduce expenses amid COVID-19 uncertainties, which also contributed to the increase in net position. Lastly, the change in net position also reflects a net $-582,547 prior year restatement related to loans receivable, cash, capital assets, accrued payroll, fund reclassification and long-term debt.

Management’s Discussion and Analysis
Governmental Revenues: Revenues are divided into charges for services and general revenues including applicable taxes as listed in the following table. Charges for services are revenues directly related to service activity while operating and capital grants and contributions, and related investment earnings are a mechanism of cost recovery. The total governmental revenue increased from fiscal year 2019-20 by $15.6 million or 17.4% despite the ongoing pandemic conditions that lasted for most of the fiscal year. The increase is due to several factors; property tax remained very strong with new inventory coming online, sales and the local transaction tax stayed stronger throughout the year supported by an acceleration in online shopping and saw immediate recovery in the last quarter. The last quarter also saw the implementation of the new local transaction tax that was approved by the voters in November 2020 and went into effect on April 1, 2021. The City saw the opening of its first Cannabis retailer increasing this new revenue source significantly.
12

Management’s Discussion and Analysis
The City did receive a grant for the replacement of the 100-year-old Marsh Street bridge with the road work completed at the end of 2020. The grant is reflected in the City’s revenue under capital grants and contributions as most of it was received during the 2020-21 fiscal year.

The City uses its general revenues to pay costs of providing program services such as public safety, parks and open space, streetlights and traffic signals, recreation opportunities, economic development and environmental sustainability.

Top Governmental Activity Revenue Sources. As shown in the graph below, the City’s top five tax revenues accounted for almost 61% of total revenues, with service charges accounting for another 23% and ancillary revenue making up the remainder. Despite ongoing pandemic condition and restrictions, most of the City’s main revenue sources performed well and above initial expectations. Though Transient Occupancy remained well below prepandemic revenue levels, it recovered well once restrictions started to lift and a strong fourth quarter propelled this revenue source to above 2019-20 levels. Operating grants can vary from year to year depending on availability and applicable work programs that can benefit from available opportunities. The City continues to pursue additional grant funding sources and will take advantage whenever possible. 13

Management’s Discussion and Analysis
The following narrative addresses the significant variances in key revenues from the prior fiscal year:

Sales Tax. Sales Tax increased by $8.7 million over the prior year. This includes the City’s transaction tax, commonly referred to as the Local Revenue Measure. Revenues performed better than expected due to pent up demand, accumulated savings, economic stimulus and significant increases in consumer spending in the second half of the fiscal year which coincided with the increasing vaccination rates and lifting of state-wide restrictions. Increased online sales kept this revenue source strong throughout the COVID-19 business closures. The City invested heavily in supporting its business community by implementing parklets for outdoor dining, grants to small businesses, and various promotions to support local commerce. This resulted in revenue tracking slightly higher than projected at the end of the third quarter and positioned the City well once vaccination rates increased and restrictions were lifted as seen with a tremendous return of revenue in the fourth quarter. While good news for the City’s economy, this is likely a temporary escalation due to pent-up demand, accumulated savings, economic stimulus and a re-opening economy and travel which is also reflected in the Transient Occupancy Tax.

Local Transaction Tax (G-20). While the local transaction tax largely mirrors the sales tax trends, the fourth quarter of FY 2020-21 saw the voter approved increase and lead to a remittance of $6.2 million for the last three months of the fiscal year. This number alone represents 82% of the previous yearly collection of local revenue measure funding and now positions this tax as the largest General Fund revenue source.

Property Tax. Property tax revenue including the portion in-lieu of vehicle license fees (VLF) increased by $1.3M.

Property tax revenue continues to increase, and the City recorded an all-time high in FY 2020-21, nearly 7% higher than the prior year. The main reason for this growth is the transfer of ownership and the increase in Taxable Assessed Value of homes in the community largely supported by an extremely low interest environment that the Fed continues to nurture to drive economic activity. The County Assessor’s Office anticipates an additional 4% growth in 2021-22 since a change in monetary policy is not expected until 2023 and new inventory from the City’s Community Facility Districts and annexation areas are coming online.

Transient Occupancy Tax (TOT): TOT revenue correlated closely the gradual lifting of social distancing and nonessential travel restrictions. The fourth quarter of FY 2019-20 saw visitor activity and revenue plummet by 70% due to travel restrictions and shelter-at-home directives. Monthly TOT revenues gradually increased as positive COVID19 cases decreased, restrictions were lifted, and vaccination rates gradually increased. As staff had assumed in the forecast, the final three months of the fiscal year recorded all-time highs in TOT due to the full reopening of the state and pent-up demand in leisure travel. As a drive-to destination, San Luis Obispo benefited from a renewed and pentup demand for travel.

Utility User Tax (UUT): In February of 2021, the City turned over the collection of UUT to a third party to pursue collection and apply all permissible penalties and fees to outstanding remittances in accordance with the City’s Municipal Code. Staff are currently working on a reconciliation of UUT revenue and a long-term trend analysis in order to hone-in on why this revenue has been lower than budgeted for the last two years.

Business Tax: Business taxes are collected at the beginning of the fiscal year and are based on the gross receipts of the previous calendar year. FY 2020-21 revenues ended higher than the previous fiscal year since businesses remitted payment based on their 2019 gross receipts. The partial shutdown in 2020 due to COVID-19 could affect businesses taxes in FY 2021-22, but revenues for this fiscal year ended up above the original forecast. This is also due to a change in collection strategy as staff now pursues all outstanding dues in a shorter timeframe and all applicable remedies available in the Municipal Code. The use of electronic communication and the availability of online payments have further facilitated compliance with this revenue stream. 14

Management’s Discussion and Analysis
Cannabis Tax: FY 2020-21 saw the opening of the first Cannabis retailer and the first tax remittance in August 2020.

Since the Cannabis industry was allowed to stay open throughout the pandemic, revenue from the retailer saw a gradual increase in monthly remittances with relatively steady revenue over the last four months of the fiscal year. An aggressive strategy to bring all delivery businesses into tax compliance and seek reimbursement for tax erroneously remitted to the County saw this revenue further exceed initial revenue assumptions despite the opening of the second retailer being delayed well into the next fiscal year. This revenue is partially offset by a reduction in permitting fees the Council approved during the fiscal year.

Charges for Services (including Impact Fees). These revenues increased by approximately $5.4 million over 2019- 20 driven by high development activity and the related impact fees in the non-major governmental funds (see page 32). Hence the largest increase is related to Community Development and the service and impact fee revenue, as well as increases in Parks and Recreation program revenue of $922,000 and increases in public safety revenue of $946,000 largely due to Mutual Aid assignments. These were offset by decreases in charges for services associated with transportation and general government. General Government revenue includes all the City’s non-departmental revenue such as business licenses, interest earnings, and rent revenue. It also includes grant and subvention revenue which often significantly fluctuate year over year. For example, in 2020-21 the City received nearly $2.0 million in Mutual Aid reimbursement for fire assistance to the State under its agreement. This revenue offsets the Fire Department’s overtime expenditures incurred from sending aid to multiple fires throughout the state last summer.

Governmental Activities Program Expenses: Program expenses decreased from the prior fiscal year, ending 2020-21 at $84.4 million. The City took immediate action to curtail spending in light of the uncertainties associated with the pandemic and activated its Fiscal Health Contingency Plan. The plan remained active until June 2021. Under this measure, a hiring, purchasing, and travel chill is activated, and additional approvals are necessary to curtail spending.

In addition, the Fiscal Health Response Plan (FHRP), introduced in 2018-19 and lasting through the end of FY 2021, was maintained which reduced expenditure budgets in all City programs in order to address the City’s pension liability.

Both measures allowed the City to address the uncertainties ahead, begin the fiscal year with a balanced budget, and remain flexible in addressing the changing needs of the community and the organization throughout this extraordinary year.

The following chart compares program revenues and expenses which is useful when reviewing the costs of various governmental activities:

Revenues presented in this chart are related to service fees only. 15

Management’s Discussion and Analysis
Business-Type Activities. The City’s business-type activities are financed through rates for services and should be self-sufficient in covering their expenses with their sales and services revenue. Also called Enterprise funds, the City has four such entities: Water, Sewer, Parking, and Transit.

All four enterprise funds were differently affected by the ongoing pandemic. COVID-19 restrictions changed the consumption pattern for customers of the Water and Sewer utilities as businesses and hospitality had to close and employees began working from home. Both Utilities saw overall consumption remain relatively constant as residential uses increased, and business reduced their use. A rather dry year also saw irrigation of landscaping and parks continue, further increasing water use. To assist economic recovery and support community members, the City Council postponed the previously approved rate increases to February when they were reduced from 5.5% to 3.5%. This action did not adversely affect the funds since, overall, operating revenues for the two Utilities increased by $5.1 million.

The Parking fund, on the other hand, was adversely affected as visitors, shoppers, and employees stayed home, greatly reducing the need for parking downtown. 120 parking spaces were used to establish parklets around downtown to assist restaurants to adjust to pandemic restrictions and free parking was offered through October 2020 to bring people back to enjoy the City’s core; especially to enjoy the extensive holiday activations that the City invested in to bring joy to the community. Combined it resulted in a 22% decrease in Parking Fund revenues from 2019-20.

The City’s transit system was heavily impacted by the pandemic and the resulting reduction in ridership, especially with the closure of CalPoly State University that makes up a large portion of the daily ridership. At fiscal year-end, revenues had decreased by 48%. However, transit systems received support from the CARES act early on which secured ongoing operations and capital expenditures. The support included the temporary suspension of the 20% fare box ratio that is otherwise required to justify the annual state and federal subsidies.

Water revenues. Total operating revenues increased by $2.7 million from prior year. Even through the COVID pandemic, Water Service Charges exceeded budget by approximately $1.6 million. Some of this increase can be attributed to increased water use during an abnormally dry winter, and Cal Poly students being able to return to campus and contributing to higher water consumption in the final quarter of the fiscal year. The Water Fund saw a further increase in impact fee revenue of $1 million due to the high development activities experienced throughout San Luis Obispo.

Sewer revenues. Similar to the Water Fund, total operating revenue for Sewer also increased, ending the fiscal year $2.5 million over the prior year largely driven by increases in development impact fees of just over $1.8 million. The Sewer fund does not usually see increases during dry years due to the sewer cap that applies on all residential accounts.

Most of the increase in charges for sales, amounting to $575,856, are a result of renewed business activities in the last quarter and the applicable rate increase implemented in February 2021.

Parking Fees. In fiscal year 2020-21 the Parking Fund total operating revenue further decreased by $726,000 to 47% of pre-pandemic levels. This was primarily driven by a decrease in service revenues of $575,000 and a decrease in enforcement revenue of $159,000 both of which were a direct result of the ongoing pandemic. Parking fees were waived through October and enforcement efforts reduced for most of the fiscal year in an effort to support the economic activity in the downtown core. Many parking spaces were converted to outdoor dining “parklets” which allowed restaurants to continue operating under the Open SLO program.

Transit Fund. This fund is heavily supported by Federal and State grants that make up most of the funding for the City’s Transit system. However, 20% of the services are historically funded by rider fares. In 2020-21, fare box revenue further decreased by $302,000, or 47.6%.
16

Management’s Discussion and Analysis
Program Expenses: Due to prudent management and the activation of the Fiscal Health Contingency Plan, overall, the program expenses for the business-type activities increased by only $487,000. The increase is attributable to the Sewer Fund with a $2.1 million increase in contract services. This was offset by a $1.9 million decrease in Water contract services while the parking fund expenses remained fairly constant with only a $41,000 increase and the Transit fund increasing by $116,000 over the prior year. All four funds combined ended 2020-21 with an operating net income of $9.7 million. Page 41 provides of the Financial Statements provides further detail for the Business-Type Activities with the Statement of Revenues, Expenses, and Changes in Fund Net Assets.

Financial Analysis of Governmental Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The following funds have been classified as either governmental or proprietary fund types.

Governmental Funds. The focus of the City’s governmental funds is on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance serves as a useful measure of a government’s net resources available for spending at the end of the fiscal year.
x As of June 30, 2021, the City’s governmental funds reported combined ending fund balances of $91.4 million, or an increase of $19.9 million compared to the prior fiscal year. The total fund balance of the governmental funds consists of the following:
o Non-spendable fund balance represents prepaid items. Approximately $41,155 was held in nonspendable at fiscal year-end. o Restricted fund balance of $34.6 million, including reserves for capital outlay, impact fees programs, general government programs, housing and the net balance of the local transaction tax that increased during the last quarter of the fiscal year once pandemic restrictions were lifted. 17

Management’s Discussion and Analysis
o Committed fund balance of $23.1 million, which includes amounts committed by the City Council for specific purposes such as contingency funds (20% minimum reserve), unspent local revenue measure amounts and for risk management.
o Assigned fund balance of $28.4 million, which includes the amounts to be used for specific purposes of the City but do not meet the criteria to be classified as restricted or committed. Funds in this category include payments for pension obligations and funds to be used for Development Services. o Unassigned fund balance of $5.3 million. The unassigned balance is largely due to the City Council’s decision to leave the previous years’ unassigned balances intact due to the economic uncertainty and to make funding available for economic recovery and community support.

Major Governmental Funds. In the fiscal year 2020-21 the City maintained only one major fund: the General Fund.

Changes in the General Fund are highlighted in the Financial Highlights section above.

Non-Major Governmental Funds. The City maintains multiple non-major governmental funds that are presented in the basic financial statements in the aggregate. In 2020-21, the City added several non-major funds for impact fees to better track and account for fees that are subject to AB1600 also knows as the Mitigation Fee Act.

A significant number of these funds represent activity for capital projects. On June 30, 2021, these funds had an aggregate fund balance of $44.3 million. Of this total, $34.6 million is restricted for payment of debt service or specific future capital projects and related funding needs.

The remaining balance of $9.7 million is assigned for contingency reserves, affordable housing loans, and expenditures in subsequent years. More information about these aggregated non-major funds can be found in the combining and individual fund statements and schedules immediately following the required supplementary information.

Business-Type Activities (Proprietary Funds). The City’s four proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Highlights of the annual activity for these funds have already been presented in the discussion of the business-type activities.

General Fund Budgetary Highlights
A detailed budgetary comparison schedule for the year ended June 30, 2021, is presented as required supplementary information following the notes to the financial statements. The final budget amounts include changes that were approved by the City Council through June 30, 2021.

This comparison should be reviewed with the pandemic related uncertainties in mind. When the budget was originally developed, the City took a conservative approach with revenues and addressed expenditures through its Fiscal Health Contingency plan to achieve a balanced budget. Since revenue trends in the major sources continued to perform better than anticipated, the forecast was increased at mid-year to allow the organization the means necessary to respond to a variety of challenges given the COVID-19 situation and protests brought on by the death of George Floyd. 18

Management’s Discussion and Analysis
The following summarizes the original budget compared with the adjusted final budget for fiscal year 2020-21. The adjusted final budget includes Council approved adjustments as well as administrative budget adjustments in accordance with the City’s adopted fiscal policies and procedures.

As discussed below, differences between the original budget and the final amended budget reflect the following key changes:
x Revenue budgets were increased by $9.4 million due to sales tax performing much better than anticipated and the last quarter collection of the new local transaction tax at one-and-a-half cent beginning April 1, 2021.

Property tax was also increased at mid-year due to a strong real-estate market and the revaluation of transfer properties.
x Overall expenditure budgets were also augmented by $12.0 million for the General Fund. The primary increases came from the increased local transaction tax measure funding being allocated to COVID-19 related expenditures related Economic Recovery and Public Health and Safety investments. Additional resources were budgeted in Fire and Environmental Safety for equipment replacement funding, in Public Works for parks maintenance and stormwater efforts, and tree maintenance services. Park and Recreation also requested additional resources to comply with COVID-19 cleaning protocol for its amenities and childcare locations.

Another substantial increase was budgeted at mid-year for Community Development due to very high development and construction activities requiring additional resources for building and safety inspections and development review.

Key revenue source estimates including sales tax, property tax, transient occupancy tax (TOT) and subventions and grants were estimated within a five-year fiscal forecast and updated for each fiscal year through the mid-year review.

Additional amendments to the budget were made with the adoption of the 2019-21 Financial Plan Supplement to reflect refined estimates based on the pandemic.

The following table compares the actual results for revenues, expenditures, and fund balance with the final budget for the General Fund. As the table shows, revenues exceeded the final budget by over $7.8 million, while expenditures ended below the final budget by approximately $11.2 million. The net other sources and uses also ended over the budget by $4.9 million. The net result of these variances is an ending fund balance that was $14.2 greater than anticipated.
19

Management’s Discussion and Analysis
The City’s local transaction and use tax, also known as the Local Revenue Measure (LRM), is a sub-fund of the General Fund. In accordance with the City’s Municipal Code, LRM revenue and expenditures have to be audited separate. The activities reflected in the Financial Statements of this report are provided for information regarding the use of the measure according to the community’s priorities and the recommendation of the City Council’s advisory body overseeing the LRM allocations. For FY 2020-21, the following revenues and expenditures were recorded:
2020-21 Local Revenue Measure Budget to Actual
Budget Actual
Revenue
Transaction Tax $ 11,392,000 $ 12,779,713
Investment Income 1,333
Total $ 11,392,000 $ 12,781,046
Expenditures Budget Actual Encumbrances Carryover
Operating Programs $ 2,369,931 $ 2,369,931 $ - $ -
Capital Programs
Open Space Preservation 448,224 260,267 89,762 98,195
Bike & Pedestrian Impr. 677,354 224,355 40,523 412,476
Traffic Congestion Relief 898,688 13,604 529,425 355,659 Public Safety 2,555,390 1,342,977 774,115 438,298
Street Paving 2,013,648 1,904,645 23,404 85,599
Flood Protection 521,322 439,683 10,708 70,931
P&R / Senior Programs 615,698 275,608 274,828 65,262
Other Vital Services* 4,480,509 3,840,704 228,856 410,949 Total Expenditures $ 14,580,764 $ 10,671,774 $ 1,971,621 $ 1,937,369 *included COVID-19 related Economic Recovery and Public Health and Safety investments General Fund 2020-21
Final Budget
2020-21
Actual
Positive (Negative)
Variance
Revenues 78,905,467 $ $ 86,747,710 $ 7,842,243
Expenditures 83,439,927 72,224,238 11,215,689
Other sources (uses) 3,678,334 (1,203,241) (4,881,575)
Beginning fund balance 33,797,840 33,797,840 -
Ending fund balance $ 32,941,714 $ 47,118,071 $ 14,176,357 Ending fund balance
Nonspendable - 41,155 41,155
Restricted - - -
Committed - 23,086,317 23,086,317
Assigned - 18,678,807 18,678,807
Unassigned - 5,311,792 5,311,792
Total ending fund balance $ 32,941,714 $ 47,118,071 $ 14,176,357

BUDGET - ACTUAL COMPARISON
20

Management’s Discussion and Analysis
Capital Assets and Debt Administration
Capital Assets. Capital assets, including infrastructure, are those assets that are used in the performance of the City’s functions. As of June 30, 2021, the City’s investment in capital assets for its governmental and business type activities amounts increased to $398 million (net of accumulated depreciation).

The investment in capital assets includes open space, park improvements, building maintenance and improvements, vehicles and equipment, streets, bikeways, water, wastewater, and storm drain systems.

Major capital asset1
expenditures during the fiscal year included the following:
x $34.2 million for the Water Resource Recovery Facility upgrade project x $8.1 million for Water Treatment Plant Energy Efficiency project x $3.6 million for the Marsh Street Bridge Replacement
x $2.9 million for the Railroad Safety Trail Taft to Pepper x $714,000 for the Bee Bee, Cuesta, Loomis waterline replacement x $665,000 for the Terrace Hill pipeline and pressure reducing valve rehabilitations x $428,200 for multi-space on-street parking pay stations x $374,100 for the Verde, Luneta, Ramona pipe bursting project x $342,800 for the Bullock Lane CMP replacement
x $326,000 Public Safety Power Shut-offs Emergency Power (e.g., generators) preparedness project x $245,500 for the Prado Road Bridge widening project
x $228,400 for the Palm Nipomo Parking Structure project x $223,900 for water meters and boxes replacements
x $205,000 for Water treatment plant equipment replacements x $175,300 for Broad Street corridor access improvement project Long-Term Debt. At June 30, 2021, the City’s long-term debt had increased by $27.2 million with $102.6 million outstanding. The Sewer Fund incurred new debt of $20.2 million during the year, as part of the $140 million upgrade to the Water Resource Recovery Facility.

Additionally, the City received a loan from the State’s Infrastructure bank in the amount of $12.6 million at a 2.5% interest rate. This loan will be used to construct needed improvements at the Water Treatment Plant 1 Additional information on the City’s capital assets can be found in Note 5 on page 56 to the basic financial statements. 21

Management’s Discussion and Analysis
The California Government Code provides for a limit on debt secured by real property of 3.75% based on market value. The City’s debt management policy, however, sets a lower debt limit of 2% of assessed valuation. As of June 30, 2021, 2% of the assessed valuation was $204,981,123. As of June 30, 2021, the City did not have any general obligation debt subject to the limit. Additional information about the City’s long-term debt can be found in Note 6 to the basic financial statements.

Pension Obligations and Outlook
Fiscal Health Response Plan and Payment of Unfunded Liability With the development of the 2017-19 Financial Plan, it became apparent that the City was facing a structural budget gap due to increases in pension cost. Starting in 2018-19, it implemented an aggressive three-year Fiscal Health Response Plan to pay down the pension obligation. The plan included multiple one-time additional payments to CalPERS to reduce the unfunded liability payment term from 30 to 20 years and the City made it’s first $4.2 additional payment in April of 2019. At the onset of the pandemic, the City had successfully built-up sufficient fund balance in its General Fund to make the second scheduled payment of $4.2 million to CalPERS for 2019-20. However, the City Council decided to retain this funding to cover anticipated revenue shortfalls and to assist with pandemic response and the related economic recovery efforts as the shut-down of the economy and shelter-at-home directives had just taken place and the future financial picture looked precarious. With the prolonged duration of the pandemic and slow reopening of the economy, the third payment scheduled in Spring of 2021 was also postponed. However, due to the prudent approach to its expenditures, the investment in the recovery efforts for the community, and a strong revenue recovery in the 4th quarter, the City is now in a position to catch up on the earmarked payments to send additional payments to CalPERS.

With CalPERS’ investment gains of 21.3% achieved by June 30, 2021, the City’s funding ratio jumped to 70% for both the miscellaneous and the safety plan. With the additional payments of $10.2 million as previously planned, the funding ration would jump to 75%.

The City will reassess its overall strategy considering the activation of CalPERS’ risk mitigation policy due to the

21.3% investment gain. This policy triggered the lowering of the current 7% discount rate to 6.8%. The CalPERS board did approve the rate. The City will see the effects of the change to the discount rate with the 2022-23 contributions. Staff is currently evaluating the impact of the change to adjust its 20-year pay-down strategy.

Economic Factors
On March 18, 2020, the City of San Luis Obispo proclaimed a local emergency following the State of California’s “Shelter in Place” executive order in response to nationwide COVID-19 pandemic. This remained in effect throughout the entire 2020-21 fiscal yar. The pandemic and the resulting directives to curb the spread of the disease have had significant impacts on the City’s operations.
22

Management’s Discussion and Analysis
Employment: Despite a history of stable employment in San Luis Obispo County, the City was adversely affected by the pandemic and the emergency orders that required many businesses to close. However, the City saw signs of recovery in fiscal year 2021 including the gradual reduction in the unemployment rate from 11.5% in June 2020 to

5.9% in June 2021.

Sales Tax: As with most California Cities, the actual sales tax revenues came in higher than initial projections especially in the fourth quarter of fiscal year 2021 reflecting a spike in consumer spending as a result of pent-up demand brought about by the pandemic. Coinciding with increasing vaccination rates and lifting of state-wide restrictions, the City saw signs of economic recovery that will most likely continue into the next fiscal year, but the pandemic will continue to create some uncertainty. The increase of the local transaction tax that became effective on April 1, 2021, further assisted a favorable picture in the City’s largest revenue source.

Tourism: Tourism and hospitality continue to play a large part of the economy in San Luis Obispo contributing to both, sales and transient occupancy tax. Despite being greatly impacted by the COVID-19 pandemic, the tourism industry saw recovery that correlated closely with the statewide reopening schedule. Monthly TOT revenues gradually increased throughout the fiscal year as COVID-19 cases decreased, restrictions were lifted, and vaccination rates increased. The final three months of fiscal year 2021 saw all-time highs in TOT revenues following the full reopening of the state and increased consumer spending as a result of pent-up demand for leisure travel. Restaurants and retail outlets, especially in the downtown core, also saw benefits from recovery in the local tourism industry.

Real Estate: Low mortgage interest rates, coupled with pent-up demand, limited inventory, and rising inflation greatly shaped the housing market in fiscal year 2020-21 despite historically high construction activity. The upcoming years will show the influence of recent State legislation that make housing construction a major goal of the governor.

Housing also continues to be a major city goal during the 2020-21 fiscal year. The County Assessor’s Office anticipates an additional 4% growth in the taxable assessed value of homes in 2021-22 since changes in monetary policy by the Fed are not expected until 2023.

Construction Activity: Continuing the trend from 2020, construction activity and, with it, the City’s development related services, and impact fees have reached all-time highs. Both community facility districts are underway with one having proceeded to vertical construction during the fiscal year. The large Orcutt annexation area enters the final build-out phases with most developed phases already inhabited. It is anticipated that the housing production and infill construction activity will continue into the foreseeable future without much slow-down in the next few years.

Overall, the economic forecast looks positive for the Central Coast. Though the overall re-opening of air travel might see a turn back to more historic travel activity, this is not anticipated until the later part of the new fiscal year. Sales tax trends continue in an upward trajectory, however, supply chain issues especially related to semiconductors could hamper important car sales going into 2022. The City continues to invest in Downtown activation and economic recovery efforts to the community which have seen a great return on investment.

Additionally, along with its regional partners, the City continues to address the closure of the Diablo Canyon Power Plant and prepare for the impacts to the region due to significant loss of jobs and property taxes with the closure in 2025. This has nurtured stronger regional efforts with continued efforts and collaboration into the future.

Next Year’s Budgets and Rates
On June 1, 2021, the City Council adopted the 2021-23 Financial Plan and 2021-22 budget with an appropriation of $173 million for the fiscal year and $346 million over the two-year financial plan period. The appropriated budget is lower due to decreased annual capital project cost with the Water Resource Recovery Facility upgrade now in its third year of construction. This $140 million project required the bulk of the funding in the previous Financial Plan.

However, the overall Financial Plan presents an ambitious work program lead by the four major City goals of 23

Management’s Discussion and Analysis
Economic Recovery, Resiliency, & Fiscal Sustainability, Diversity, Equity, and Inclusion, Housing and Homelessness, and Climate Action, Open Space, and Sustainable Transportation. The overall investment associated with the goal work programs amounts to $100 million over the two-year Financial Plan period.

Local Revenue Measure (LRM). In November 2020, the City’s voters approved the increase of the local transaction and use tax from half-a-cent to one-and-a-half cent, tripling the resources available to the City. The overall categories for measure investments remained the same, investing $49 million in Community Safety and Emergency Preparedness, Creek and Flood protection, Homelessness, safe and clean public areas, Youth and Senior Services and recreational facilities, street maintenance, and open space and natural area preservation and maintenance. The current budget invests roughly 75% of the revenue in capital infrastructure and 25% in operating expenditures.

One of the largest uses of Local Revenue Measuring for capital expenditures is for Neighborhood Street Paving. Other projects include playground equipment replacement, park major maintenance and repairs and pedestrian and bicycle pathway maintenance. A detailed list of the projects funded through the Local Revenue Measure is included in the Financial Plan beginning on page 67.

Local Revenue Measure Uses
Expenditures are broken into the following nine categories developed from the Measure G (Local Revenue Measure) ballot language:

1. Open Space Preservation

2. Bicycle and Pedestrian Improvements

3. Traffic Congestion Relief/Safety Improvements

4. Public Safety

5. Neighborhood Street Paving

6. Code Enforcement

7. Flood Protection

8. Parks and Recreation/Senior Programs and Facilities

9. Other General Services2
For the next two budgets, the expenditures break down as follows:

FY 2021-22 FY 2022-23 2-year Total
Protect Financial Stability $ 328,811 $ 340,809 $ 669,620 Community Safety and Emergency Preparedness 3,368,782 3,076,016 6,444,798 Creek and Flood Protection 1,592,567 1,384,031 2,976,598 Address Homelessness 706,014 667,014 1,373,028
Safe and Clean Public Areas 1,063,271 2,982,650 4,045,921 Economic Development and Business Retention 1,841,188 874,875 2,716,063 Youth/Senior Services and Recreation Facilities 3,422,159 2,193,470 5,615,629 Street Maintenance and Transportation (includes
bicycle and pedestrian improvements)
8,469,882 10,270,918 18,740,800
Open Space/Natural Areas Preservation and
Maintenance
1,982,407 1,033,677 3,016,085
Other Services and Projects 1,376,711 2,212,640 3,589,351 Total $ 24,151,792 $ 25,036,100 $ 49,187,892
2 General services aligned with the ballot measure approved by the voters. 24

Management’s Discussion and Analysis
Based upon the recommendation by the REOC, operating expenditures were budgeted close to the proposed split with 75% for capital and 25% for operating. The balance of capital and operating costs for the 2021-22 budget is listed below:

Capital Expenditure
Percentage
Operating Expenditure
Percentage
FY 2020-21 74% - $17,866,400 26% - $6,285,392
General Fund Revenue. Given the state of the pandemic and the lifting of the restrictions by the State, the City Council adopted a cautiously optimistic two-year Financial Plan with the expectation that most revenue sources would return to pre-pandemic levels. Only for Transient Occupancy Tax did the forecast show a diminished revenue stream due to the uncertainty on how consumers would embrace travelling while the pandemic was ongoing. Together with the increased revenue through the Local Revenue Measure, the long-term forecast allowed the City to include many community priorities in the financial plan. Based on the status of the major revenue sources when this report was drafted, the City Council will be able to upward adjust its Sales, Transaction, and Use tax as well as the Transient Occupancy Tax forecast.

Utility Rates. Alongside the adoption of the two-year Financial Plan, the Utilities Department releases its Proposition 218 notification. Though the 2018 rate study had indicated a 5.5% increase in both years of the Financial Plan, a rate review indicated that 3.5% for Water rates and 3.5% in Sewer rates will be sufficient for the operations and capital needs of both utilities.

Water Rates for 2021-22
Single Family Residential Rate Description Cost
Water Base Fee $23.31 per month
Water Usage Tier 1 (1-5 Units) $6.67per Unit
Water Usage Tier 2 (6-12 Units) $7.77 per Unit
Water Usage Tier 3 (13+ Units) $14.24 per Unit
Multi-Family, Non-Residential, Irrigation Water Rate
Description
Cost
Base Fee by Water Meter Size Monthly Base Fee
3/4 inch or less $23.31
1-inch meter $38.92

1.5-inch meter $77.67
2-inch meter $124.26
3-inch meter $233.15
4-inch meter $388.64
6-inch meter $777.10
8-inch meter $1,243.40
Water Usage Per Unit Cost
Multi-Family $7.62
Non-Residential $9.24
Landscape Irrigation $11.33
25

Management’s Discussion and Analysis
Sewer Rates for 2021-22
Single Family Residential Rate Description Cost
Sewer Base Fee $21.15 per month
All use up to Sewer Cap $8.88 per Unit
Multi-Family, Non-Residential, Irrigation Sewer Rate
Description
Cost
Base Fee by Water Meter Size Monthly Base Fee
3/4 inch or less $21.15
1-inch meter $35.31

1.5-inch meter $70.40
2-inch meter $112.69
3-inch meter $211.43
4-inch meter $352.45
6-inch meter $704.68
8-inch meter $1,127.53
10-inch meter $1,620.99
All use up to Sewer Cap $8.88 per Unit
Parking Fund
The parking fund continued to be greatly affected by the COVID-19 pandemic since it also assisted with the economic recovery; 120 parking spaces are currently used to allow for parklets, and the City is reviewing how to turn this program into a longer-term opportunity for businesses to utilize the public right-of-way. Given the Parking Fund’s Covid experience and the upcoming construction of the fourth and final parking structure, the City Council has therefore adopted an improved revenue strategy that uses a combination of long-term revenue enhancements focused on three main areas: parking garages, on-street and lot parking, and enforcement. To that end, multi-year rate increases are recommended over the next five years as follows:

Parking Garages

1. Eliminate 1st Hour of Free Parking in Parking Garages

2. Implement Deferred Rate Increase in Parking Garages (Approved for July 2020)

3. Reduce Parking Garage Max Daily Rate
On-Street & Lot Parking

4. Implement Paid Parking in Upper Monterey Area

5. Implement Paid Parking in Railroad Square

6. Implement Deferred Rate Increase for On-Street and Lot Parking (Approved for July 2020)

7. Expand Enforcement Hours from 6pm to 9pm for On-Street and Lot Parking

8. Transition to Tier-Based Pricing for On-Street and Lot Parking Enforcement

9. Expand Enforcement Hours from 6pm to 9pm

10. Increase Penalty Schedule for Safety Violation Fine Amounts

11. Implement and Establish Residential Parking Permit District in Old Town and Upper Monterey Area Districts

12. Enforcement of the Old Town Parking District
Further detail can be found in the City’s 2021-23 Financial Plan beginning on page 338. 26

Management’s Discussion and Analysis
Requests for Additional Information
This financial report is designed to provide a general overview of the City’s finances for all those interested. The City also prepares a Popular Annual Financial Report that can be found on the City’s website under the Finance Department’s online documents. Questions concerning any of the information provided in this report should be addressed to the Department of Finance, 990 Palm Street, San Luis Obispo, CA 93401. 27

28

BASIC FINANCIAL STATEMENTS
29

30

Governmental
Activities
Business-Type
Activities Total
Assets
Current assets:

Cash and investments 75,262,025 $ 85,925,177 $ 161,187,202 $ Taxes receivable 12,490,498 - 12,490,498
Accounts receivable 2,573,462 9,544,013 12,117,475
Accrued interest receivable 1,750,147 194,646 1,944,793 Prepaid items and other assets 567,295 - 567,295
Loans receivable 7,786,471 - 7,786,471
Total current assets 100,429,898 95,663,836 196,093,734 Noncurrent assets:

Cash and investments held by fiscal agent 421,509 479,950 901,459 Investment in joint venture - 2,246,331 2,246,331
Nondepreciable capital assets 41,769,864 91,238,405 133,008,269 Depreciable capital assets (net of accumulated
depreciation) 162,999,121 147,232,029 310,231,150
Total noncurrent assets 205,190,494 241,196,715 446,387,209 Total assets 305,620,392 336,860,551 642,480,943
Deferred Outflows of Resources
Other post-employment benefits related 716,241 353,894 1,070,135 Pension related 24,889,137 3,532,914 28,422,051
Unamortized loss on refunding of debt 210,200 201,576 411,776 Total deferred outflows of resources 25,815,578 4,088,384 29,903,962 Liabilities
Current liabilities:

Accounts payable 2,406,454 8,537,789 10,944,243
Accrued salaries 2,713,569 535,472 3,249,041
Unearned revenue 2,035,182 3,235,731 5,270,913
Interest payable 84,018 177,903 261,921
Other liabilities 220,688 - 220,688
Compensated absence - due within one year 2,111,566 429,273 2,540,839 Long-term debt - due within one year 1,434,877 3,131,309 4,566,186 Total current liabilities 11,006,354 16,047,477 27,053,831 Noncurrent liabilities:

Compensated absence - due in more than on year 904,957 183,974 1,088,931 Long-term debt - due in more than one year 19,570,686 74,789,815 94,360,501 Net OPEB liability 3,196,330 1,579,301 4,775,631
Net pension liability 137,962,658 29,927,997 167,890,655 Total noncurrent liabilities 161,634,631 106,481,087 268,115,718 Total liabilities 172,640,985 122,528,564 295,169,549
Deferred Inflows of Resources
Other post-employment benefits related 1,175,156 580,643 1,755,799 Pension related 1,878,245 124,163 2,002,408
Total deferred inflows of resources 3,053,401 704,806 3,758,207 Net Position
Net investment in capital assets 184,205,733 160,750,886 344,956,619 Restricted
Debt service 2,575,367 479,950 3,055,317
Transportation projects 10,519,994 2,013,909 12,533,903 Affordable housing programs 9,292,304 - 9,292,304
Impact fee programs 7,466,378 - 7,466,378
Parkland development programs 3,405,468 - 3,405,468
Public art programs 568,401 - 568,401
Tourism programs 678,554 - 678,554
Public safety 63,418 - 63,418
Claims 567,295 - 567,295
Unrestricted (63,601,328) 54,470,820 (9,130,508)
Total net position $ 217,715,565 155,741,584 $ 373,457,149 $ City of San Luis Obispo, California
Statement of Net Position
June 30, 2021
The accompanying notes are an integral part of these financial statements. Page 367 of 714 Functions/Programs Expenses
Charges for
Services
Operating
Grants and
Contributions
Capital Grants
and
Contributions
Governmental activities:

Public safety $ 35,323,339 $ 3,991,193 $ 702,414 $ -
Transportation 8,040,919 91,509 2,065,558 4,829,273
Culture and recreation 11,122,003 3,430,224 - -
Community development 11,918,019 15,929,420 267,321 -
General government 17,276,491 654,039 566,680 858,927
Interest on long-term debt 731,045 - - -
Total governmental activities 84,411,816 24,096,385 3,601,973 5,688,200 Business-type activities:

Water 21,469,967 28,340,075 326,440 -
Sewer 15,064,551 21,501,547 258,467 -
Parking 4,057,242 2,567,908 - -
Transit 4,023,536 331,352 3,157,687 -
Total business-type activities 44,615,296 52,740,882 3,742,594 - Total primary government $ 76,837,26 129,027,112 $ 7 $ 7,344,567 $ 5,688,200 General revenues and transfers:

General sales and use taxes
Local sales and use tax
Property taxes
Transient occupancy tax (TOT)
Utility users tax
Property tax-in-lieu of vehicle license fees
Franchise taxes
Business tax
Total taxes
Unrestricted investment earnings
Other revenue
Income from investment in joint venture
Transfers
Total general revenues and transfers
Change in net position
Net position, beginning of year
Prior year restatements
Net position, beginning of year, as restated
Net position, end of year
Program Revenues
City of San Luis Obispo, California
Statement of Activities
For the Fiscal Year Ended June 30, 2021
The accompanying notes are an integral part of these financial statements. 32

Governmental
Activities
Business-type
Activities Total
$ - (30,629,732) (30,629,732) $
(1,054,579) (1,054,579) -
(7,691,779) (7,691,779) -
4,278,722 4,278,722 -
(15,196,845) (15,196,845) -
(731,045) (731,045) -
(51,025,258) (51,025,258) -
7,196,548 - 7,196,548
6,695,463 - 6,695,463
(1,489,334) - (1,489,334)
(534,497) - (534,497)
11,868,180 - 11,868,180
(51,025,258) 11,868,180 (39,157,078)
20,067,740 20,067,740 -
12,779,713 12,779,713 -
14,197,869 14,197,869 -
6,960,035 6,960,035 -
5,225,979 5,225,979 -
5,660,661 5,660,661 -
1,796,829 1,796,829 -
3,782,115 3,782,115 -
70,470,941 - 70,470,941
435,243 577,722 1,012,965
1,019,626 1,019,626 -
519,677 - 519,677
1,992,911 (1,992,911) -
73,918,721 (895,512) 73,023,209
22,893,463 10,972,668 33,866,131
133,430,668 206,322,415 339,753,083
(582,547) 420,482 (162,065)
132,848,121 206,742,897 339,591,018
$ 155,741,584 $ 217,715,565 $ 373,457,149
Net Revenues (Expenses) and
Changes in Net Position
33

General
Other
Governmental
Funds
Total
Governmental
Funds
Assets
Cash and investment $ 39,956,449 $ 35,305,577 $ 75,262,026 Taxes receivable 12,110,685 379,813 12,490,498
Accounts receivable 1,410,544 1,086,127 2,496,671
Other receivables 76,791 - 76,791
Due from other funds 45,813 - 45,813
Accrued interest receivable 87,395 1,662,752 1,750,147
Prepaid items 41,155 38,039 79,194
Cash and investments held by fiscal agent - 421,509 421,509 Loans receivable 7,786,471 - 7,786,471
Total assets $ 53,728,832 $ 46,680,288 $ 100,409,120
Liabilities, Deferred Inflows of Resources
and Fund Balance
Liabilities:

Accounts payable $ 1,665,320 $ 741,134 $ 2,406,454
Accrued liabilities 2,702,968 10,601 2,713,569
Due to other funds - 45,813 45,813
Unearned revenue 2,021,785 13,397 2,035,182
Other liabilities 220,688 - 220,688
Total liabilities 6,610,761 810,945 7,421,706
Deferred Inflows of Resources:

Unavailable revenue 1,578,821 - 1,578,821
Fund balance:

Nonspendable 41,155 - 41,155
Restricted for:

Debt service - 2,575,367 2,575,367
Transportation projects - 10,519,994 10,519,994
Affordable housing programs - 9,292,304 9,292,304
Impact fee programs - 7,466,378 7,466,378
Parkland development programs - 3,405,468 3,405,468
Public art programs - 568,401 568,401
Tourism programs - 678,554 678,554
Public safety program - 63,418 63,418
Committed to:

General government programs 9,299,971 - 9,299,971
Risk management 1,955,966 1,955,966 -
Contingency fund 11,830,380 11,830,380 -
Assigned to:

CalPERS pension payment 10,200,000 900,000 11,100,000
Establishment of Section 115 Trust 2,000,000 2,000,000 - Development services 710,657 8,826,420 9,537,077
General government programs 4,838,806 4,838,806 -
Public safety 929,344 - 929,344
Unassigned 5,311,792 (5,782) 5,306,010
Total fund balance 47,118,071 44,290,522 91,408,593
Total liabilities, deferred inflows of resources
and fund balance $ 46,680,288 53,728,832 $ $ 100,409,120 City of San Luis Obispo, California
Balance Sheet
Governmental Funds
June 30, 2021
The accompanying notes are an integral part of these financial statements. 34

Total fund balance - governmental funds $ 91,408,593
Capital assets at estimated historical cost $ 314,917,555 Accumulated depreciation (110,148,570)
204,768,985
1,578,821
716,241
24,889,137
210,200
488,100
Lease revenue bonds $ 18,817,575
Lease purchase financing 734,673
Compensated absences 3,016,523
Conservation loan 232,111
Bond premium 1,221,204
Accrued interest payable 84,018
(24,106,104)
Net pension liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (137,962,658)
Net OPEB liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (3,196,330)
(1,175,156)
(1,878,245)
Total net position - governmental activities $ 155,741,584 City of San Luis Obispo, California
Reconciliation of the Governmental Funds Balance Sheet
to the Government-wide Statement of Net Position
June 30, 2021
Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds.

Other long-term assets are not available to pay for current period expenditures and therefore are not reported in the governmental funds.

Deferred outflows of resources, pension related, are not current asset or resources; and they are not due in the current period and therefore are not reported in the governmental funds.

Deferred outflows of resources, OPEB related, are not current asset or resources; and they are not due in the current period and therefore are not reported in the governmental funds.

Deferred amounts related to the refunding of long-term debt were not current financial resources.

Therefore, they were not reported in the Governmental Funds Balance Sheet.

Unavailable revenue recorded in the fund financial statements resulting from activities in which revenues were earned but funds were not available are reclassified as revenues in the Government-Wide Financial Statements.

Long-term liabilities, including related interest payable, are not due and payable in the current period and therefore are not reported in the funds.

Deferred inflow of resources, pension related, are not current assets or resources; and they are not due in the current period and therefore are not reported in the governmental funds.

Deferred inflow of resources, OPEB related, are not current assets or resources; and they are not due in the current period and therefore are not reported in the governmental funds.

The accompanying notes are an integral part of these financial statements. 35

General
Other
Governmental
Funds
Total
Governmental
Funds
Revenues:

Sales and use tax - general $ 20,067,740 $ 20,067,740 - $ Sales and use tax - Half Percent Sales Tax 12,779,713 12,779,713 - Property tax 14,197,869 14,197,869 -
Transient occupancy tax 6,960,035 6,960,035 -
Utility users tax 5,225,979 5,225,979 -
Property tax in lieu of VLF 5,660,661 5,660,661 -
Franchise taxes 1,796,829 1,796,829 -
Business tax 3,782,115 3,782,115 -
Fines, forfeitures and penalties 223,882 - 223,882
Use of money and property (12,521) 231,924 219,403
Subventions and grants 3,626,087 7,093,611 10,719,698
Charges for services 11,889,285 10,201,194 22,090,479
Miscellaneous 550,036 592,542 1,142,578
Total revenues 86,747,710 18,119,271 104,866,981
Expenditures:

Current:

General government 13,041,242 13,041,242 -
Public safety 31,643,320 71,258 31,714,578
Transportation 3,866,286 584,286 4,450,572
Leisure, cultural and social services 9,091,647 366,801 9,458,448 Community development 9,854,482 1,246,983 11,101,465
Debt service:

Principal 1,602,039 - 1,602,039
Interest and fiscal charges - 808,586 808,586
Capital outlay:

Public safety 107,741 224 107,965
Transportation 2,681,078 8,771,643 11,452,721
Leisure, cultural and social services 497,761 39,357 537,118 Community development 25,795 79,347 105,142
General government 1,414,886 1,077,549 2,492,435
Total expenditures 72,224,238 14,648,073 86,872,311
Revenues over (under) expenditures 14,523,472 3,471,198 17,994,670 City of San Luis Obispo, California
Statements of Revenues, Expenditures, and
Changes in Fund Balances
Governmental Funds
For the Fiscal Year Ended June 30, 2021
The accompanying notes are an integral part of these financial statements. 36

General
Other
Governmental
Funds
Total
Governmental
Funds
Other Financing Sources (Uses):

Transfers in $ 7,128,857 $ 8,332,098 $ 15,460,955
Transfers out (8,332,098) (5,135,946) (13,468,044)
Total other financing sources (uses) (1,203,241) 3,196,152 1,992,911 Net change in fund balance 13,320,231 6,667,350 19,987,581 Fund balance, beginning of year, as restated 33,797,840 37,623,172 71,421,012 Fund balance, end of year $ 47,118,071 $ 44,290,522 $ 91,408,593 City of San Luis Obispo, California
Statements of Revenues, Expenditures, and
Changes in Fund Balances
Governmental Funds
For the Fiscal Year Ended June 30, 2021
The accompanying notes are an integral part of these financial statements. 37

Total net change in fund balance - governmental funds $ 19,987,581 Expenditures for capital outlay - governmental funds $ 12,195,912 Transfer from business-type activities 118,091
Depreciation expense (7,034,731)
5,279,272
Repayments of long-term debt are recognized as expenditures in the governmental funds. In the government-wide statements, repayments of long-term liabilities are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were: 1,698,599 (11,678)
it is due. In the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due. The difference between interest expense paid and interest accrued was: 3,771
85,448
Changes in actuarially determined claim liabilities for uninsured claims do not provide current financial resources and are not reported in the governmental funds. (332,931) governmental funds. In the statement of activities, compensated absences are measured by the amounts earned. The difference between compensated absences paid and compensated absences earned was: (229,530)
215,838
10,152,317
616,425
Pension expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (14,234,373) OPEB expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (337,276) Total change in net position - governmental activities $ 22,893,463 City of San Luis Obispo, California
Current year employer pension contributions are recorded as expenditures in the governmental funds, however, these amounts are reported as a deferred outflow of resources in the Government-Wide Statement of Net Position Current year employer OPEB contributions are recorded as expenditures in the governmental funds, however, these amounts are reported as a deferred outflow of resources in the Government-Wide Statement of Net Position Compensated absences are measured by the amounts paid during the period in the Capital outlay net of depreciation expense and disposal.

Interest on long-term debt is recognized as an expenditure in the governmental funds when Change in unamortized discount/premium (netted with debt) Reconciliation of the Statement of Revenues,
Expenditures and Changes in Fund Balances of
Governmental Funds to the Statement of Activities
For the Fiscal Year Ended June 30, 2021
Deferred amounts related to the refunding of long-term debt were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet.

This amount is to be amortized over the life of the long-term debt. This amount is the current year net amortization expense.

Revenues that are not considered to be available are reported as unavailable revenues in the governmental funds, however, these amounts are recognized in the GovernmentWide Statement of Activities. This amount represents the change in unavailable revenues.

The accompanying notes are an integral part of these financial statements. 38

Water Sewer Parking Transit Totals
Assets
Current assets:

Cash and investment 27,907,514 $ 40,421,023 $ 13,986,566 $ 3,610,074 $ $ 85,925,177 Accounts receivable 3,628,790 3,072,675 33,625 2,808,923 9,544,013 Accrued interest receivable 56,308 95,881 34,056 8,401 194,646 Total current assets 31,592,612 43,589,579 14,054,247 6,427,398 95,663,836 Noncurrent assets:
475,631 278 4,041 - 479,950
Investment in joint venture 2,246,331 - - - 2,246,331
Capital assets:

Land 945,926 2,176,114 5,947,455 - 9,069,495
Infrastructure 105,133,620 92,574,926 29,214,527 221,743 227,144,816 Buildings and improvements 19,140,931 5,025,672 888,420 5,101,506 30,156,529 Equipment 5,842,674 5,793,983 1,103,958 9,021,099 21,761,714 Construction in progress 16,134,586 64,154,729 1,877,413 2,182 82,168,910 Total capital assets 147,197,737 169,725,424 39,031,773 14,346,530 370,301,464 Less accumulated depreciation (60,504,998) (47,462,819) (14,310,534) (9,552,679) (131,831,030) Capital assets, net of
accumulated depreciation 86,692,739 122,262,605 24,721,239 4,793,851 238,470,434 Total noncurrent assets 89,414,701 122,262,883 24,725,280 4,793,851 241,196,715 Total assets 121,007,313 165,852,462 38,779,527 11,221,249 336,860,551 Deferred Outflows of Resources
Pension related 1,639,295 1,448,514 343,273 101,832 3,532,914 152,495 152,958 39,167 9,274 353,894
96,957 6,739 97,880 - 201,576
1,888,747 1,608,211 480,320 111,106 4,088,384
Total deferred outflow of
resources
Cash and investments held by
fiscal agent
Other post-employment benefits
related
Unamortized loss on refunding of
debt
Enterprise Funds
City of San Luis Obispo
Statement of Net Position
Business-Type Activities - Enterprise Funds
June 30, 2021
The accompanying notes are an integral part of these financial statements. 39

Water Sewer Parking Transit Totals
Liabilities
Current liabilities:

Accounts payable 989,178 $ $ 6,911,976 $ 185,750 $ 450,885 $ 8,537,789 Accrued liabilities 228,894 227,902 61,547 17,129 535,472 Compensated absences 213,017 185,110 23,091 8,055 429,273 Unearned revenue - - 3,235,731 - 3,235,731
Interest payable 69,398 35,755 72,750 - 177,903
Due to other funds - - - - -
Current portion of long-term debt 1,588,849 991,974 550,486 - 3,131,309 Total current liabilities 3,089,336 8,352,717 893,624 3,711,800 16,047,477 Noncurrent liabilities:

Compensated absences 91,293 79,333 9,896 3,452 183,974
Lease revenue bonds 9,155,445 306,995 4,461,873 - 13,924,313 Installment sale agreement - 4,257,341 - 4,257,341 -
State loan/note payable 11,453,657 41,684,125 3,470,379 - 56,608,161 Net pension liability 13,232,802 12,658,963 3,282,646 753,586 29,927,997 723,050 650,305 166,519 39,427 1,579,301
Total noncurrent liabilities 34,656,247 59,637,062 11,391,313 796,465 106,481,087 Total liabilities 37,745,583 67,989,779 12,284,937 4,508,265 122,528,564 Deferred Inflows of Resources
Pension related 109,252 11,324 2,899 688 124,163
240,938 257,999 66,064 15,642 580,643
350,190 269,323 68,963 16,330 704,806
Net Position
Net investment in capital assets 64,591,745 75,028,909 16,336,381 4,793,851 160,750,886 Restricted:

Debt service 475,631 278 4,041 - 479,950
Transportation projects - - 2,013,909 - 2,013,909
Unrestricted 19,732,911 24,172,384 10,565,525 - 54,470,820 Total net position $ 84,800,287 $ 99,201,571 $ 26,905,947 $ 6,807,760 $ 217,715,565 Other post-employment benefits
related
Total deferred inflow of
resources
City of San Luis Obispo
Statement of Net Position
Business-Type Activities - Enterprise Funds
June 30, 2021
Enterprise Funds
Net other post-employment benefits
liability
The accompanying notes are an integral part of these financial statements. 40

Water Sewer Parking Transit Total
Operating revenues:

Charges for sales and service $ 23,387,564 $ 17,472,846 $ 2,102,421 $ 328,184 $ 43,291,015 Impact fees 4,744,361 3,834,707 - 8,579,068 -
Fines and forfeitures - 500 442,966 - 443,466
Other revenues 208,150 193,494 22,521 3,168 427,333
Total operating revenues 28,340,075 21,501,547 2,567,908 331,352 52,740,882 Operating expenses:

Salaries and benefits 4,633,488 4,767,288 1,217,084 334,483 10,952,343 Supplies and maintenance 1,335,282 1,723,552 317,966 220,003 3,596,803 Contract services 10,066,890 3,517,931 847,922 2,611,522 17,044,265 General government 1,729,965 1,632,521 710,211 321,727 4,394,424 Depreciation 2,901,077 3,002,166 663,132 535,801 7,102,176 Total operating expenses 20,666,702 14,643,458 3,756,315 4,023,536 43,090,011 Operating income (loss) 7,673,373 6,858,089 (1,188,407) (3,692,184) 9,650,871 Nonoperating revenues (expenses)
Interest on investments, net 65,387 10,019 501,438 878 577,722 Grants 326,440 258,467 - 3,157,687 3,742,594
Interest expense and fiscal charges (803,265) (421,093) (300,927) - (1,525,285) Income (loss) from investment
in joint venture 519,677 - - 519,677 -
Total nonoperating revenues
(expenses) 108,239 (152,607) 200,511 3,158,565 3,314,708 Income (loss) before transfers
and capital contributions 7,781,612 6,705,482 (987,896) (533,619) 12,965,579 Capital Contributions
Transfers out (943,003) (769,208) (280,700) - (1,992,911) Total transfers (943,003) (769,208) (280,700) - (1,992,911) Change in net position 6,838,609 5,936,274 (1,268,596) (533,619) 10,972,668 Net position, beginning of year 77,933,900 92,176,296 28,165,516 8,046,703 206,322,415 Prior year restatements 27,778 1,089,001 9,027 (705,324) 420,482 Net position, beginning of year,
as restated 77,961,678 93,265,297 28,174,543 7,341,379 206,742,897 Net position, end of year $ 84,800,287 $ 99,201,571 $ 26,905,947 $ 6,807,760 $ 217,715,565 Enterprise Funds
City of San Luis Obispo, California
Statement of Revenues, Expenses, and Changes in Fund Net Assets Business-Type Activities - Enterprise Funds
For the Fiscal Year Ended June 30, 2021
The accompanying notes are an integral part of these financial statements. 41

Water Sewer Parking Transit Total
Cash flows from operating activities:

Cash received from customers $ 27,448,814 $ 20,865,756 $ 2,563,337 $ 1,545,095 $ 52,423,002 (11,667,605) (215,304) (1,094,770) (2,765,080) (15,742,759) (1,729,965) (1,632,521) (710,211) (321,727) (4,394,424) (4,061,346) (4,334,994) (1,073,833) (322,583) (9,792,756) Net cash provided by (used in)
operating activities 9,989,898 14,682,937 (315,477) (1,864,295) 22,493,063 Operating grants received 326,440 258,467 - 3,157,687 3,742,594 Transfers to other funds (943,003) (769,208) (280,700) - (1,992,911) (616,563) (510,741) (280,700) 3,157,687 1,749,683
Cash flows from capital and related
financing activities:
(10,717,057) (35,310,069) (755,583) (46,784,889) (2,180) Principal paid on debt financing (1,520,194) (962,404) (531,090) - (3,013,688) Interest paid on debt financing (914,443) (425,104) (324,380) - (1,663,927) Proceeds from issuance of debt 11,029,951 20,211,940 - 31,241,891 - Net cash used in capital and
related financing activities (2,121,743) (16,485,637) (1,611,053) (20,220,613) (2,180) Cash flows from investing activities:

Interest on investments, net 84,436 66,729 528,714 969 680,848 Net cash provided by
investing activities 84,436 66,729 528,714 969 680,848
7,336,028 (2,246,712) (1,678,516) 1,292,181 4,702,981
21,047,117 42,668,013 15,669,123 2,317,893 81,702,146
$ 28,383,145 $ 40,421,301 $ 13,990,607 $ 3,610,074 $ 86,405,127 Enterprise Funds
City of San Luis Obispo, California
Statement of Cash Flows
Business-Type Activities - Enterprise Funds
For the Fiscal Year Ended June 30, 2021
Cash payments to suppliers for goods
and services
Cash payments to General Fund for
interfund services
Cash payments to employees for
services
Acquisition and construction of
capital assets
Cash flows from noncapital financing
activities:

Net change in cash and cash
equivalents
Cash and cash equivalents, beginning
of year, as restated
Cash and cash equivalents, end of
year
Net cash provided by (used in)
noncapital financing activities
The accompanying notes are an integral part of these financial statements. 42

City of San Luis Obispo, California
Statement of Cash Flows
Business-Type Activities - Enterprise Funds
For the Fiscal Year Ended June 30, 2021

Water Sewer Parking Transit Total
Operating income (loss) 7,673,373 $ 6,858,089 $ (1,188,407) $ (3,692,184) $ 9,650,871 $ Depreciation 2,901,077 3,002,166 663,132 535,801 7,102,176 Accounts receivable (891,261) (635,791) (4,265) (475,223) (2,006,540) Prepaid expense 3,245 - - -3,245
Due to (from) other funds - - (306) - (306)
Accounts payable (268,678) 5,026,179 71,118 66,445 4,895,064 Unearned revenue - - 1,688,966 - 1,688,966
130,607 130,549 65,986 (9,403) 317,739
498,375 363,329 93,035 25,037 979,776
(56,840) (61,584) (15,770) (3,734) (137,928)
Net cash provided by (used in)
operating activities $ 14,682,93 9,989,898 $ 7 $ (315,477) $ (1,864,295) $ 22,493,063 Reconciliation of cash and investments to the balance sheet:

Cash and cash equivalents $ 27,907,514 $ 40,421,023 $ 13,986,566 $ 3,610,074 $ 85,925,177 475,631 278 4,041 - 479,950
Total cash and investments $ 28,383,145 $ 40,421,301 $ 13,990,607 $ 3,610,074 $ 86,405,127 Noncash investing, capital, and financing activities:

None
Deferred OPEB and net OPEB
liability
Cash and investments held by fiscal
agent
Reconciliation of operating income
(loss) to net cash provided by (used in)
operating activities:

Adjustments to reconcile operating
income (loss) to net cash provided by
(used in) operating activities:

Change in assets, deferred outflows of
resources, liabilities, and deferred
inflows of resources:

Accrued salaries and
compensated absences
Deferred pensions and net
pension liability
Enterprise Funds
The accompanying notes are an integral part of these financial statements. 43

Custodial Funds
Assets
Current assets:

Cash and investment $ 6,231,948
Investments
Cash and investment held by fiscal agent
Accounts receivable 14,530
Accrued interest receivable 10,818
Prepaid items 49,971
Capital assets, net of accumulated depreciation 854,674 Total assets $ 7,161,941
Liabilities
Accounts payable 190,793
Compensated absence 53,627
Accrued Salaries 26,888
Other liabilities 2,000
Total liabilities 273,308

NET POSITION
Restricted for
Individuals, organizations, and other governments 6,888,633 Total Net Position $ 6,888,633
City of San Luis Obispo, California
Statement of Fiduciary Net Position
Fiduciary Funds
June 30, 2021
The accompanying notes are an integral part of these financial statements. 44

Custodial Funds
ADDITIONS:

Charges for services $ 1,080,607
Charges for public programming 76,901
Contribution from developers 1,771,371
Other revenue 1,145,069
Use of money and property 1,133
Total additions 4,075,081
DEDUCTIONS:

Administration expenses 198,189
Contractual services 985,592
Materials and supplies 72,121
Public programming 8,185
Use of developer deposits 1,452,882
Depreciation 60,809
Total deductions 2,777,778
Change in net position 1,297,303
NET POSITION:

Beginning of year, as restated 5,591,330
End of year $ 6,888,633
City of San Luis Obispo
Statement of Changes in Fiduciary Net Position
Fiduciary Funds
For the year ended June 30, 2021
The accompanying notes are an integral part of these financial statements. 45

46

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021
Page
Note 1: Summary of Significant Accounting Policies 1
Description of the Reporting Entity 1
Government-wide and Fund Financial Statements 1
Measurement Focus, Basis of Accounting and Basis of Presentation 2 Assets, Liabilities, and Net Position or Fund Balance 3 Reconciliation of Government-wide and Fund Financial Statements 6 Budgets and Budgetary Accounting 6
Fair Value Measurements 8
Note 2: Cash and Investments 8
Funds with Fiscal Agent 9
Investments 9
Note 3: Property Taxes 14
Note 4: Loan Receivable 15
Note 5: Capital Assets 16
Note 6: Long Term Debt 19
Summary of Long-Term Debt 19
Governmental Activities Summary: 20
Revenue Bonds 20
Lease-Purchase Financing 21
2014 Energy Sources Conservation State Loan 22
Business-Type Activities Summary: 22
Revenue Bonds 22
Loans 24
Installment Sale Agreements 24
Note 7: Pension Plans 25
Agent-Multiple Employer Plan 25
General Information about the Pension Plan 25
Net Pension Liability 27
Changes in the Net Pension Liability 29
Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 30 Cost-Sharing Employer Plan 31
General Information about the Pension Plan 31
Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 32 Payable to the Pension Plan 36
47

City of San Luis Obispo, California
Notes to the Financial Statements
Table of Contents
June 30, 2021

Page
Note 8: Other Post-Employment Benefits (OPEB) 36
General Information about OPEB 36
Net OPEB Liability 37
Changes in the Net OPEB Liability 38
OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB 39 Payable to the OPEB Plan 40
Note 9: Interfund Transactions 40
Note 9: Interfund Transactions (Continued) 41
Note 10: Joint Ventures, Jointly Governed Organizations and Operating Agreements 41 Whale Rock Commission 41
San Luis Obispo Regional Transit Authority 42
San Luis Obispo Council of Governments 42
Nacimiento Water Supply Project 43
Note 11: Risk Management 44
California Joint Powers Insurance Authority 44
Self-Insurance Programs of the Authority 44
Adequacy of Protection 45
Self-Insurance 45
Note 12: Commitments and Contingencies 45
Litigation 45
Grant Awards 46
Regional Transit Authority Pension Expense 46
Note 13: Construction and Other Significant Commitments 46 Note 14: Fund Balance Deficiency 46
Note 15: Subsequent Events 47
Note 16: New Accounting Standards 47
Accounting Standards Adopted 47
New Accounting Standards 47
Note 17: Prior Period Adjustments 49
Note 18: COVID-19 Pandemic 49
48

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021
Note 1: Summary of Significant Accounting Policies
The basic financial statements of the City of San Luis Obispo (City) have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP), as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles.

The following is a summary of the more significant policies:

Description of the Reporting Entity
The City is a California charter city. It was incorporated on February 19, 1856 and chartered on May 1, 1876. It is organized in accordance with the Council-Mayor-City Manager form of government. With a population of approximately 45,920, the City provides a broad range of municipal services, including police and fire protection, parks and recreation, water and sewer utilities, street maintenance, public transportation, parking, planning, and building and safety.

As required by GAAP, these financial statements present the City (the primary government) and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are in substance part of the government's operations which creates the need to include their financial information with that of the primary government. The City has no component units that require discrete presentation in accordance with GASB standards.

Blended Component Unit. The City has identified The San Luis Obispo Capital Improvement Board (the Board) as a blended component unit in accordance with GASB standards. The Board provides financing for the construction and acquisition of City facilities. The Board consists of members of the City Council. Activities of the Board are accounted for in the applicable City governmental fund and consist of the issuance of debt secured by the lease of property. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement Board.

Government-wide and Fund Financial Statements
The government-wide financial statements (i.e. the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely primarily on fees and charges for services.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment. The indirect expense allocation transfers general support services to operating programs based on the most current Cost Allocation Plan. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. 49

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) Measurement Focus, Basis of Accounting and Basis of Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary funds and fiduciary funds. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the government’s enterprise funds and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period.

For this purpose, the government generally considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. An exception to this timeframe is made to allow for the recognition of the final property tax distributions received from the County, if necessary, as well as for sales tax revenues received in September. This later provision is made in order for the City’s revenue stream to match that recognized by the State of California. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government.

Major Funds and Other Funds. GASB Standards define major funds and require that the City’s major governmental funds be identified and presented separately in the fund financial statements. All other funds, called non-major 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 fundtype total and at least 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 reports the following major governmental funds:

General Fund. This fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The only proprietary funds the City reports are the Enterprise Funds, all of which are major funds. Proprietary funds are accounted for on the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports the following major enterprise funds:

Water Fund. This fund accounts for the provision of water services to the residents of the City as well as some customers in the County. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. 50

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) Sewer Fund. This accounts for the provision of wastewater collection and treatment services to the residents of the City as well as some customers in the County. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service.

Parking Fund. This fund accounts for activities related to the implementation of the Access and Parking Management Plan, including the operation of municipal parking lots, parking structures, parking meters and residential parking districts. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service.

Transit Fund. This fund accounts for the operation and maintenance of the City's transit system. Although user fees are not the primary funding source for the operation of the system, the State of California and the Federal government, which provide the major funding sources for the system, require that local transit systems be accounted for on an enterprise fund basis.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

The City has established nine Custodial Funds, which are used to account for funds held by the City as an agent for private individuals, organizations or other governmental agencies. Custodial funds are accounted for using the accrual basis of accounting.

See supplementary information for a complete list of Custodial Funds.

Assets, Liabilities, and Net Position or Fund Balance
Cash, Cash Equivalents and Investments. The City pools cash resources of its various funds to facilitate cash management. Cash in excess of current requirements is invested and reported as investments. It is the City’s intent to hold investments until maturity.

However, the City may, in response to market conditions, sell investments prior to maturity in order to improve the quality, liquidity or yield of the portfolio.

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. Cash and investments held by fiscal agents are treated as cash equivalents for purposes of the statement of cash flows.

Money markets and non-negotiable certificates of deposit are reported at amortized cost. All other investments are stated at fair value.

Receivables and Payables. Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds”.

All receivables are shown net of any allowance for uncollectible accounts if material. Charges for utility services rendered but unbilled as of June 30 are accrued and are recognized as revenues.

Prepaids and Inventories. The City has no significant inventories. The cost of any inventoriable item has been recorded as an expenditure or expense at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepayments in the governmental funds are accounted for using the consumption method.
51

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) Restricted Assets. Certain proceeds of debt financings, as well as resources set aside for their repayment, are classified as restricted assets on the balance sheet because they are maintained in separate trust bank accounts and their use is limited by applicable debt covenants. Notes 2 and 5 have additional information on funds held by fiscal agents.

Capital Assets. Capital assets, which include property, plant, equipment and infrastructure assets (such as streets, sidewalks and bridges), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements, and in the proprietary funds statement of net position. Capital assets are defined by the City as assets with an initial, individual cost of more than $25,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement would be reported at acquisition value rather than fair value. The costs of normal maintenance and repairs that do not add to the value of assets or materially extend assets’ lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of the business- type activities is included as part of the capitalized value of the assets constructed. Detailed information on the City’s capital assets can be found in Note 4.

Property, plant and equipment of the City are depreciated using the straight line method over the following estimated useful lives:

Deferred Outflows and Inflows of Resources. The City recognizes deferred outflows and inflows of resources in the Statement of Net Position. A deferred outflow of resources is defined as a consumption of net position by the City that is applicable to a future reporting period. The City has deferred outflows of resources related to pensions, other post-employment benefits (OPEB), and unamortized loss on refunding of debt. A deferred inflow of resources is defined as an acquisition of net position by the City that is applicable to a future reporting period. The City has deferred inflows of resources related to pensions and OPEB.

Compensated Absences. City employees are granted vacation and sick leave in varying amounts. In the event of termination, employees are reimbursed for the total value of their accumulated vacation days. Employees are reimbursed for 10% to 30% of the accumulated sick leave only upon retirement and only after at least 10 years of service. In selected cases, similar accumulated sick leave reimbursements may be available after 20 years of continuous employment. An employee's estate is reimbursed for 30% of the employee's accumulated sick leave in the event of death while in the City's employ. A liability for compensated absences is accrued in the government-wide and proprietary funds financial statements.

Long-Term Obligations. In the government-wide financial statements, and proprietary funds in the fund financial statements, longterm debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary funds statement of net position. Bond premiums and discounts and deferred amounts on refunding are deferred and amortized over the life of the bonds. Deferred amounts on refunding are reported separately from assets and liabilities in the Statement of Net Position. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed as incurred.

In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the period they originate. The face amount of debt issued is reported as 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. 52

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) Net Pension Liability. The City recognizes a net pension liability, which represents the excess of the total pension liability over the fiduciary net position of the pension reflected in the actuarial reports provided by the California Public Employees’ Retirement System (CalPERS) plans (Plans). The net pension liability is measured as of the City’s prior fiscal year-end. Changes in the net pension liability are recorded, in the period incurred, as pension expense or as deferred inflows of resources or deferred outflows of resources depending on the nature of the change. The changes in the net pension liability that are recorded as deferred inflows of resources or deferred outflows of resources (that arise from changes in actuarial assumptions or other inputs and differences between expected or actual experience) are amortized over the weighted average remaining service life of all participants in the respective pension plan and are recorded as a component of pension expense beginning with the period in which they are incurred.

For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s CalPERS Plans and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.

Investments are reported at fair value. Projected earnings on pension investments are recognized as a component of pension expense General fund is the governmental fund used to liquidate the pension liabilities of the governmental activities.

Other Post-Employment Benefits (OPEB) Liability. For purposes of measuring net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s plan (OPEB Plan), and additions to or deductions from the OPEB Plan’s fiduciary net position, have been determined on the same basis as they are reported by the California Employer’s Retiree Benefit Trust Program (CERBT). For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with benefit terms.

Investments are reported at fair value. General fund is the governmental fund used to liquidate the OPEB liabilities of the governmental activities.

Generally accepted accounting principles require that the reported OPEB results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used:

Valuation Date June 30, 2019
Measurement Date June 30, 2020
Measurement Period July 1, 2019 to June 30, 2020
Fund Equity. In the fund financial statements, fund balance for governmental funds is reported in classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purpose for which amounts in the funds can be spent. Fund balance is reported in five components in accordance with GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions – nonspendable, restricted, committed, assigned and unassigned. The City Council may take action via minute order to add, delete or amend a fund balance commitment that is not required as a condition of a bond covenant or other external, legal requirement.

Nonspendable. This component includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact.

Restricted. This component consists of amounts that have constraints placed on them either externally by third-parties (creditors, grantors, contributors, or laws or regulations of other governments) or by law through constitutional provisions or enabling legislation. Enabling legislation authorizes the City to assess, levy, charge or otherwise mandate payment of resources (from external resource providers) and includes legally enforceable requirements (compelled by external parties) that those resources be used only for the specific purposes stipulated in the legislation. 53

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) Committed. This component consists of amounts that can only be used for specific purposes pursuant to constraints imposed by minute order authorized by the City Council. Those committed amounts established by minute order cannot be used for any other purpose unless the City Council adopts a new minute order so directing. With respect to encumbered amounts, the City may take steps to cancel the order for goods or services and thereby terminate the obligation.

Assigned. This component consists of amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. The City Manager or Director of Finance are authorized by City Council, via formal action at regular public meetings, to assign amounts to a specific purpose. Constraints imposed on the use of assigned amounts can be removed with no formal Council actions.

Unassigned. This component is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. The General Fund is the only fund that reports a positive unassigned fund balance amount. Other governmental funds may report negative unassigned fund balance, which occurs when a fund has a residual deficit after allocation of fund balance to the nonspendable, restricted, or committed categories.

Fund Balance Spending Practice. The City follows a practice in which restricted, committed, assigned, and unassigned fund balances are spent when more than one amount is available for a specific purpose. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources (committed, assigned and unassigned) as they are needed. When unrestricted resources (committed, assigned and unassigned) are available for use, it is the City’s policy to use committed resources first, then assigned, and then unassigned as they are needed.

Reconciliation of Government-wide and Fund Financial Statements A reconciliation between total fund balance of the governmental funds and total net position of the governmental activities as reported in the government-wide statement of net position is presented in the basic financial statements.

A reconciliation between total net change in fund balance of the governmental funds and total change in net position of governmental activities as reported in the government-wide statement of activities is presented in the basic financial statements.

There are no differences between total net position of the proprietary funds and total net position of the business-type activities as reported in the government-wide statement of net position.

Budgets and Budgetary Accounting
Overview. The City has received national recognition for its use of a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. Significant features of the City's two-year Financial Plan include the integration of Council goal setting into the budgetary process and the extensive use of formal policies and measurable objectives.

The Financial Plan includes operating budgets for two years and a capital improvement plan (CIP) covering five years.

Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. 54

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) Management Policies. The overall goal of the City's Financial Plan is to link what the City wants to accomplish over the next two years with the resources required to do so. Formal statements of budgetary policies and major objectives provide the foundation for achieving this goal. Key budget principles include: maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; making current expenditures with current revenues; maintaining the City's traditional commitment to a strong General Fund; and complying with provisions of the State constitution, City charter, municipal code, and sound fiscal policy. Key revenue policies include: maintaining a diversified and stable revenue base; setting enterprise fund rates at levels that fully recover the total cost of providing services in the Water, Sewer and Parking Funds; and at policy levels for cost recovery in the Transit Fund; charging fees for General Fund programs in accordance with adopted user fee cost recovery goals; and ensuring that new development pays its fair share of the cost of constructing necessary community facilities. x Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval.

Although specific steps will vary from year to year, the following is an overview of the general approach used under the City's two-year budgetary process:
x First Year. The Financial Plan process begins with City Council goal setting to determine major objectives to be accomplished over the next two years. As part of this process, community groups, interested individuals, and Council advisory bodies present their recommendations to the Council. Goals approved by the City Council are incorporated into the budget instructions issued to the operating departments, who are responsible for submitting initial budget proposals. After these proposals are comprehensively reviewed and a detailed financial forecast is prepared, the City Manager issues the Preliminary Financial Plan for public comment. A series of study sessions and public hearings are then held leading to Council adoption of the Financial Plan and Budget prior to the start of the fiscal year.
x Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, adjusts as necessary and approves appropriations for the second fiscal year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Unspent and unencumbered operating appropriations lapse at the end of the second year. The fiscal year which ended June 30, 2021 was the second year of the 2019-21 two-year cycle. x Mid-Year Reviews. The Council formally reviews the City's financial condition and amends appropriations, if necessary, each February.
x Status Reports. Financial reports are prepared monthly to monitor the City's fiscal condition; more formal reports are posted to the City's website on a quarterly basis. Additionally, more focused reports are issued on key revenues, such as sales tax, transient occupancy tax and quarterly reports on investments. The status of major goals and program objectives, including Construction in Progress (CIP) projects, are also formally reported to the Council on an ongoing basis.

Accounting and Budget Administration. Budgets are prepared for each fund in accordance with its respective basis of accounting consistent with U.S. Generally Accepted Accounting Principles (GAAP). All governmental funds have legally adopted budgets annually. While budgets are prepared for the City's capital projects funds, the capital projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented for capital projects funds in the accompanying other supplementary information following the basic financial statements.

As provided under the City Charter, the Council may amend or supplement the budget at any time after its adoption by majority vote of the Council members. The legal level of budgetary control – the level at which expenditures are not to exceed appropriations – is the fund level.
55

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 1: Summary of Significant Accounting Policies (Continued) For management control purposes, the City Manager has the authority to make or approve administrative adjustments to the budget provided those changes will not have a significant policy impact nor affect budgeted year-end fund balances. Department heads have the authority to transfer line-item budgets within the department within a fund. During fiscal year 2021 several supplemental budget appropriations were made to reflect the inclusion of costs related to prior year encumbered amounts as well as the rollover of unspent capital appropriations. Additional appropriations were added to fund a prepayment made to the retirement system as well as to provide additional resources for the Community Development Department to ensure that it maintained a development review process that complied with State law considering the increased demand for services. These adjustments were material when compared to the original appropriations. Both the original and final amended budgets of the General Fund are presented as required supplementary information following the notes to the financial statements. Budget information for non-major governmental funds with annual budgets is presented in other supplementary information following the notes to the financial statements.

Encumbrances. The City uses an encumbrance system as an extension of normal budgetary accounting for the other governmental funds. Under this system, purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of applicable appropriations. Encumbrances outstanding at year-end are recorded as restricted, committed, or assigned fund balances since they do not constitute expenditures or liabilities. Unencumbered appropriations lapse at year-end.

Encumbered appropriations are carried forward in the ensuing year’s budget.

Indirect Cost Reimbursement. All of the City's general government and engineering programs are accounted and budgeted for in the General Fund. However, some of these support service programs also benefit the City's enterprise and custodial fund operations, and accordingly, payments are made from these funds to reimburse the General Fund for these services. The payments are based on a Central Service Cost Allocation Plan prepared for this purpose, which distributes these shared costs in a uniform, consistent manner in accordance with GAAP.

Fair Value Measurements
As defined in GASB Statements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City uses valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

GASB Statements establish a hierarchy of inputs to valuation techniques used to measure fair value. That hierarchy has three levels:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 — Observable inputs, other than Level 1 prices, for the asset or liability, either directly or indirectly.

Level 3 — Unobservable inputs for the asset or liability.

For fiscal year ended June 30, 2021, the application of valuation techniques applied to the City’s financial statements has been consistent.

Note 2: Cash and Investments
The City follows the practice of pooling cash and investments for all funds under its direct daily control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately.

Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund's average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to such funds. 56

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 2: Cash and Investments (Continued)
Funds with Fiscal Agent
The City has monies held by trustees or fiscal agents pledged to the payment or security of certain bonds. The California Government Code provides that these funds, in the absence of specific statutory provisions governing the issuance of bonds, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments its trustees or fiscal agents may make.

These ordinances, resolutions, or indentures are generally more restrictive than the City's general investment policy. In no instance have additional types of investments been authorized which are not permitted by the City's investment policy.

Investments
The City is authorized by its investment policy, in accordance with Section 53601 of the California Government Code, to invest in the following instruments:
x Treasury bills and notes
x Government Sponsored Enterprises
x Commercial paper
x Repurchase agreements
x Bankers' acceptances
x Corporate medium-term notes
x Negotiable certificates of deposit
x Collateralized bank deposits
x Money market mutual funds
x State Local Agency Investment Fund (LAIF)
Investments are stated at fair value, based on quoted market prices, in accordance with GASB standards. Investment income has been adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually. While U.S. generally accepted accounting principles require recording any increases or decreases in the market value of the City’s investments, it is the City’s policy to make all investment decisions based on holding them through maturity, and therefore the City may not realize the gains or losses resulting from the fair value adjustment. As such, changes in market value generally do not affect the long-term results of the portfolio, but they can result in significant fluctuations from year-to-year.

The fair value of the City’s position in the State LAIF pool is the same as the value of the pool shares. The State LAIF pool credit quality is unrated. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute. The State Treasurer’s Office audits the fund annually. 57

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 2: Cash and Investments (Continued)
At June 30, 2021, cash and investments consisted of the following:

At June 30, 2021, cash and investments are reflected in the financial statements as following:

Investment Fair Value Measurements. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. Investment securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Investment securities classified in Level 2 of the fair value hierarchy are valued using matrix pricing or market corroborated pricing. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices.
58

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 2: Cash and Investments (Continued)
The following is a summary of the fair value measurements as of June 30, 2021:

Custodial Credit Risk – Deposits with Financial Institutions. The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the City will not be able to recover deposits. Deposits with financial institutions, including non-negotiable certificates of deposit, totaled $40,582,877 at June 30, 2021 and were insured or collateralized with securities held by the pledging financial institution's trust department or agent in the City's name.

The California Government Code requires California financial institutions to secure the City's deposits by pledging government securities as collateral. The market value of the pledged securities must equal 110% of the City's deposits. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes equal to 150% of the City's deposits or letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105% in excess of the total amount of deposits.

Custodial Credit Risk - Investments. This is the risk that in the event of the failure of a counterparty, the City will not be able to recover the value of its investments that are in the possession of an outside party. All of the City’s investments in securities are insured or registered and held by a counterparty in the City’s name in accordance with the City’s policies.

Fair Value
Investments by fair value hierarchy
U.S. Treasury Bond / Note 49,505,597 $ 49,505,597 $ - $ -$ Federal Agency Bond / Note 30,045,203 30,045,203 - -
Corporate Note 12,616,246 12,616,246 - -
Municipal Bond/Note 2,214,464 2,214,464 - -
Asset-Backed Securities 4,045,197 4,045,197 - -
Negotiable Certificates of Deposit 5,066,867 5,066,867 - - Total investments by fair value hierarchy 103,493,574 $ 53,987,977 49,505,597 $ $ - Investments not subject to fair value hierarchy
State Local Agency Investment Fund 24,051,515
Non-Negotiable Certificates of Deposit 2,024,698
Money Market Funds 927,090
Total investments not subject to fair value hiera 27,003,303 Total investments measured at fair value 130,496,877 $
Q Fair Value Measurements Using
Prices in
Active
Markets for
Identical
Assets (Level
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobserva
ble Inputs
(Level 3)
59

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 2: Cash and Investments (Continued)
Interest Rate Risk. This is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates.

In accordance with its policies in the Investment Management Plan, the City mitigates interest rate risk by:
x Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market before maturity. x Investing operating funds primarily in shorter-term securities.

The City’s investment policy also includes portfolio maturity targets. A minimum of 20% of the portfolio will be invested in securities maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a maturity over one year, with no more than 10% of the portfolio invested in securities with a maturity over five years.

Maturities using the segmented time distribution method for those investments requiring this disclosure are as follows:

Investments held by fiscal agents are structured with maturity dates that correspond to the payment of final debt service of the respective bond indenture.

Credit Risk. This is the risk of loss due to the failure of the security issuer or backer. The City’s policies to mitigate credit risk include:
x Limiting investments to the safest types of securities. As noted above, the California Government Code limits the investment vehicles available to local agencies. The credit risk of these securities is measured by the assignment of a rating by a nationally recognized statistical rating organization. The table below presents the rating for each investment type as provided by Standard & Poor’s except as noted.
x Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business. 60

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 2: Cash and Investments (Continued)
The following table identifies the Standard & Poor’s credit quality ratings for those investments requiring this disclosure as of June 30, 2021:

Concentration Credit Risk. The City’s policies contained in the Investment Policy and Management Plan provide guidelines (by type of investment that limits either the dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment portfolio so that potential losses on individual securities will be minimized.

Type of Investment Rating Total
Federal Agency Bonds / Notes AA+ $ 30,045,203
Corporate Notes AA+ 1,062,543
AA 3,961,866
A+ 3,364,648
A 1,425,225
A- 2,262,581
BBB+ 539,383
Total Corporate Notes 12,616,246
Municipal Bond/Note AAA 610,814
AA+ 315,088
AA 245,748
A+ 214,286
AA- 828,528
Asset-Backed Securities AAA 4,045,197
Negotiable Certificates of Deposit AA- 1,777,452
A 627,936
A+ 1,223,114
A-1 1,438,365
Total Negotiable Certificates of Deposit 5,066,867
Not Applicable:

U.S. Treasury Bonds / Notes 49,505,597
Not Rated:

State Local Agency Investment Fund 24,051,515
Non-Negotiable Certificates of Deposit 2,024,698
Money Market Mutual Funds 927,090
Total Investments $ 130,496,877
61

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 2: Cash and Investments (Continued)
The City’s Investment Management Plan outlines the following criteria related to portfolio diversification:
x No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any financial institution.
x No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial institutions.
x Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute more than 15% of the total assets of the institution; and negotiable certificates of deposit will only be placed with institutions with total assets in excess of $200 million and that maintain a ratio of equity to total assets of at least 5%.

Foreign Currency Risk. The City does not hold any investment that is based on foreign currency exchange rates.

Note 3: Property Taxes
Property taxes in the State of California (State) are administered for all local agencies at the county level, and consist of secured, unsecured and utility tax rolls. The following is a summary of major policies and practices relating to property taxes:
x Property Valuation. Valuations are established by the Assessor of the County of San Luis Obispo (County) for the secured and unsecured property tax rolls; the utility property tax roll is valued by the State Board of Equalization. Under the provisions of Article XIIIA of the State Constitution (Proposition 13 adopted by the voters on June 6, 1978), properties are assessed at 100% of full value. Proposition 13 also modified the value of taxable real property for fiscal 1979 by rolling back values to fiscal 1976 levels. From this base of assessment, subsequent annual increases in valuation are limited to a maximum of 2%. However, increases to full value are allowed for property improvements or upon change in ownership.

Personal property is excluded from these limitations and is subject to annual reappraisal. x Tax Levies. Under the provisions of Proposition 13, the countywide tax levy for general revenue purposes is limited to 1% of full market value, which results in a tax rate of $1.00 per $100 assessed valuation. Tax rates for voter approved indebtedness are excluded from this limitation.
x Tax Levy Dates. All lien dates attach annually on January 1 preceding the fiscal year for which the taxes are levied. The fiscal year begins July 1 and ends June 30 of the following year. Taxes are levied on both real and unsecured personal property as it exists at that time. The lien against real estate as well as the tax on personal property is not relieved by subsequent renewal or change in ownership.
x Tax Collections. The County Treasurer/Tax Collector is responsible for all property tax collections. Taxes and assessments on the secured and utility rolls, which constitute a lien against the property, may be paid in two installments: the first installment is due on November 1 of the fiscal year and is delinquent if not paid by December 10; and the second installment is due on March 1 of the fiscal year and is delinquent if not paid by April 10. Unsecured personal property taxes do not constitute a lien against real property. However, if the taxes become delinquent the lien is attached against anything the individual owns, which could include real property. Payment must be made in one installment, which is delinquent if not paid by August 31 of the fiscal year. Significant penalties are imposed by the County for late payments. x Teeter Plan. In 1993-94 the City elected to receive property tax revenue in accordance with the alternative method of distribution prescribed by Sections 4701-4717 of the California Revenue and Taxation Code, which is commonly known as the “Teeter Plan” whereby the County remits 100% of taxes levied without regard to delinquencies. The County then pursues collection, retaining any delinquent taxes and related penalties and interest. 62

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 3: Property Taxes (Continued)
x Tax Levy Apportionments. Due to the nature of the countywide maximum levy, it is not possible to identify general purpose tax rates for specific entities. Under State legislation adopted after the passage of Proposition 13, apportionments to local agencies are made by the County Auditor Controller based primarily on two factors: the ratio that each agency represented of the total County wide levy for the three years prior to fiscal 1979; and subsequent adjustments to these apportionments and transfers to the “Educational Revenue Augmentation Fund” (ERAF) as determined by the State. x City Property Tax Distribution Policy. Property taxes are recorded in the General Fund as general-purpose revenue.

Transfers are made from the General Fund as needed to support expenditures in the Capital Outlay, Open Space Protection, Fleet Replacement, Information Technology Replacement, Major Facility Replacement and Debt Service Funds. Property taxes receivable at June 30, 2021 have been accrued since they will be collected within 60 days subsequent to year-end.

Note 4: Loan Receivable
Loans receivable, including accrued interest comprised balances from the following programs, all of which are discussed on the following pages.

A. Affordable Housing Loans - The City’s Affordable Housing Fund provides grants and loans to certain development projects that meet the City’s affordability criteria. As of June 30, 2021, the Fund had 15 loans for affordable housing developments with interest rates ranging from 0% to 4% and repayment terms of 30 to 57 years. These loans had a remaining principal balance of $6.9 million, one of the loans for $215,000 is forgivable if certain criteria are met. The Fund has secured more than 350 affordable housing units for City residents.

B. BEGIN Homeownership Loan - The City has provided deferred payment loans utilizing funding from the State of California under the BEGIN program. On June 30, 2021, the Fund had three outstanding loans utilizing this program with a principal balance of $130,000. These loans are provided for a term of 30 years with an annual interest rate of 3%.

C. Down Payment Assistance - The Fund has provided down payment assistance loans to individuals purchasing affordable housing units. As of June 30, 2021, the Affordable Housing Fund had nine outstanding down payment assistance loans with a principal balance of $431,155. These loans are provided for a term of 30 years with an annual interest rate of 3%.

D. Broad Street Place – In addition, the Fund has provided impact fee deferral loans for Broad Street Place Project. As of June 30, 2021, the fund had one outstanding loan with a principal balance of $347,042. These loans are provided for a term of 55 years with an annual interest rate of 3%.
63

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 5: Capital Assets
GASB standards require that the City report in the government-wide statements the value of all capital assets net of accumulated depreciation, including infrastructure assets, in accordance with GAAP. Infrastructure assets are defined as long-lived capital assets that are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets.

The minimum requirement for compliance with GASB standards is to provide infrastructure valuations for all assets constructed, acquired, or placed into service on or after July 1, 1980. Relevant assets for the City were valued at one of two dates: 1) the original date of construction, if available, or 2) the incorporation date of the City. Each asset was reviewed to determine the adequacy of the data to value the asset prior to July 1, 1980 using historical cost or estimated historical cost. 64

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 5: Capital Assets (Continued)
Capital assets activity for the fiscal year ended June 30, 2021 was as follows:
65

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 5: Capital Assets (Continued)
Depreciation expense was charged to functions/programs as follows:
66

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt
Summary of Long-Term Debt
The following is a summary of the City's long-term debt transactions for the year ended June 30, 2021:

Compensated absences in the governmental funds are generally liquidated by the General Fund on a pay as you go basis. For detail of estimated claims and liabilities, see Note 11.

The San Luis Obispo Capital Improvement Board (Board) has entered into a number of lease agreements with the City of San Luis Obispo wherein the City is obligated to make all debt service payments. The transactions between the Board and the City have been eliminated from these financial statements.

Balance
June 30, 2020 Balance Due Within
as restated Additions Deductions June 30, 2021 One Year Governmental activities:
2012 Lease revenue refunding bonds $ 3,230,000 $ - $ (260,000) $ 2,970,000 $ 270,000 2014 Lease revenue bonds 6,805,000 - (170,000) 6,635,000 175,000 2018 Lease revenue refunding bonds 9,743,125 - (530,550) 9,212,575 553,475 19,778,125 - (960,550) 18,817,575 998,475
Add: Unamortized bond premium 1,306,652 - (85,448) 1,221,204 - Total revenue bonds 21,084,777 - (1,045,998) 20,038,779 998,475 Lease-purchase financing 1,381,486 - (646,813) 734,673 344,252 Compensated absences 2,786,993 3,263,168 (3,033,638) 3,016,523 2,111,566 Conservation Loan 323,347 - (91,236) 232,111 92,150
Total long-term debt,
governmental activities $ 25,576,603 $ 3,263,168 $ (4,817,685) $ 24,022,086 $ 3,546,443 Business-type activities:
2012 Water revenue refunding bonds 1,585,000 - (505,000) 1,080,000 530,000 2018 Lease revenue refunding bonds 5,131,875 - (279,450) 4,852,425 291,525 2018 Water revenue refunding bonds 9,225,000 - (440,000) 8,785,000 455,000 15,941,875 - (1,224,450) 14,717,425 1,276,525
Add: Unamortized bond premium 2,243,214 - (188,468) 2,054,746 Total revenue bonds 18,185,089 - (1,412,918) 16,772,171 1,276,525 Loans 26,133,837 31,241,950 (1,146,241) 56,229,546 1,192,720 Installment sale agreements 5,562,462 - (643,055) 4,919,407 662,064 Compensated absences 510,984 638,989 (536,726) 613,247 429,273 Total long-term debt,
business-type activities 50,392,372 31,880,939 (3,738,940) 78,534,371 3,560,582 Total Government-wide $ 75,968,975 $ 35,144,107 $ (8,556,625) $ 102,556,457 $ 7,107,025 67

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt (Continued)
Governmental Activities Summary:

Revenue Bonds
2012 Refunding Lease Revenue Bonds. In 2012, the Board issued refunding lease revenue bonds in the amount of $5,050,000 to refinance the outstanding 2001 lease revenue bonds, Series C. The purpose of these bonds was to purchase property and build athletic fields, purchase property for police station expansion, and purchase Downtown Plan properties. The bonds bear interest from 2.0% to 4.0% and are due in annual installments on December 1 through December 1, 2029 that range from $210,000 to $390,000. At June 30, 2021, the principal amount outstanding on the bonds was $2,970,000. The bond indenture agreement specifies reserve requirements equal to the maximum debt service in any particular year to be held in the Trustee’s reserve funds. The reserve requirement has been met for the year ended June 30, 2021.

In the Statement of Net Position, the 2012 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2012 bonds. At June 30, 2021, the unamortized premium was $162,023. 2014 Lease Revenue Bonds. In 2014, the Board issued lease revenue bonds in the amount of $7,580,000 to finance the expansion of the Los Osos Valley Road interchange at U.S. 101. The bonds bear interest from 3.00% to 4.00% and are due in annual installments on November 1 through November 1, 2044 that range from $145,000 to $410,000. At June 30, 2021, the principal amount outstanding on the bonds was $6,635,000.

In the Statement of Net Position, the 2014 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2014 bonds. At June 30, 2021, the unamortized premium was $142,105. 2018 Lease Revenue Refunding Bonds. In 2018, the Board issued lease revenue bonds in the amount of $16,905,000 to advance refund the outstanding 2005 revenue refunding bonds and the 2006 and 2009 lease revenue bonds, which were originally issued to construct several high priority capital improvement projects and to finance the costs of acquisition and construction of public parking facilities, and the public safety communications and emergency operations center project. Of the original bond issuance, $11,072,775 was used for financing governmental activities related to the original bonds and the remainder was used for business-type activities.

The bonds bear interest from 3.00% to 5.00% and are due in annual installments on June 1, through June 1, 2039 that range from $255,000 to $1,250,000. At June 30, 2021, the principal amount outstanding that pertains to governmental activities was $9,212,515 of the total $14,065,000 outstanding.

In the Statement of Net Position, the 2018 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2018 bonds. At June 30, 2021, the unamortized premium for governmental activities was $917,076.

The refunding resulted in a difference of $374,404 between the reacquisition price and the net carrying value of the old debt and is being amortized to expense through 2039. The City completed the refunding to reduce its total debt service payments over the following 21 years by $3,838,338 and to obtain an economic gain of $2,960,278 (difference between the present values of the old and the new debt service payments).
68

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt (Continued)
At June 30, 2021, the aggregate maturities of the aforementioned governmental activities revenue bonds were as follows:

Lease-Purchase Financing
Fire Engine and Street Sweeper. In 2017 the City obtained lease-purchase financing in the amount of $1,141,468 to purchase a fire truck and street sweeper. The gross amount of assets under this lease is $1,142,712 with accumulated depreciation of $342,877 included in equipment at June 30, 2021. Amortization of the equipment is included in depreciation expense. The lease agreement bears an interest rate of 1.69% due in annual installments on April 28 through April 28, 2021 of $240,067. The city completed the payments of this lease in the fiscal year ending June 30, 2021.

Street Sweeper. In 2018 the City obtained lease-purchase financing in the amount of $330,000 to purchase a street sweeper. The gross amount of assets under this lease is $303,400 with accumulated depreciation of $59,513 included in equipment at June 30, 2021. The lease agreement bears an interest rate of 1.94% due in annual installments on June 1 through December 1, 2020 of $70,614.

The city completed the payments of this lease in the fiscal year ending June 30, 2021.

Fire Truck. In 2018 the City obtained lease-purchase financing in the amount of $673,095 to purchase a fire truck. The gross amount of assets under this lease is $673,095 with $45,366 accumulated depreciation included in equipment at June 30, 2021. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533 beginning December 5, 2018 through September 5, 2023. At June 30, 2021, the principal amount outstanding is $316,104.

Motorola Radios. In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The gross amount of assets under this lease is $636,240 with no accumulated depreciation as it was placed in service at year end. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023. At June 30, 2021, the principal amount outstanding was $418,569.

For the Year Ending June 30, Principal Interest Total
2022 $ 998,475 $ 755,890 $ 1,754,365
2023 1,039,850 715,750 1,755,600
2024 1,091,050 674,056 1,765,106
2025 1,133,975 630,214 1,764,189
2026 1,178,450 578,566 1,757,016
2027-2031 5,169,675 2,164,993 7,334,668
2032-2036 4,521,925 1,172,727 5,694,652
2037-2041 2,134,175 511,170 2,645,345
2042-2045 1,550,000 127,000 1,677,000
$ 18,817,575 $ 7,330,366 $ 26,147,941
69

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt (Continued)
At June 30, 2021, the aggregate maturities of the aforementioned governmental activities lease-purchase financing were as follows:
2014 Energy Sources Conservation State Loan
In 2014, the City obtained a note in the amount of $850,775 for the purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242. At June 30, 2021, the principal amount outstanding is $232,111.

At June 30, 2021, the aggregate maturities of the aforementioned governmental activities conservation loan is as follows:

Business-Type Activities Summary:

Revenue Bonds
2012 Water Revenue Refunding Bonds. In 2012, the City issued water revenue refunding bonds in the amount of $4,960,000 to refund the 2002 water revenue bonds, which were originally issued to fund water system improvements. The bonds bear interest from 2.0% to 4.0% and are due in annual installments on June 1 through June 1, 2023 that range from $340,000 to $550,000. At June 30, 2021, the principal amount outstanding on the bonds was $1,080,000. The bond indenture agreement specifies reserve requirements equal to the maximum debt service in any particular year to be held in the Trustee’s reserve funds. The reserve requirement has been met for the year ended June 30, 2021.

In the Statement of Net Position, the 2012 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2012 bonds. At June 30, 2021, the unamortized premium was $157,014. 70

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt (Continued)
The City has pledged future water system revenues, net of specific operating expenses, to repay the bonds on parity with a pledge that services all parity obligations. The bonds are payable solely from water customer net revenues and any moneys in the bond service fund and the reserve fund. For the year ended June 30, 2021, principal and interest paid, and total customer net revenues were $568,400 and $5,687,266, respectively.
2018 Lease Revenue Refunding Bonds. In 2018, the Board issued lease revenue bonds in the amount of $16,905,000 to advance refund the outstanding 2005 revenue refunding bonds and the 2006 and 2009 lease revenue bonds, which were originally issued to construct several high priority capital improvement projects and to finance the costs of acquisition and construction of public parking facilities, and the public safety communications and emergency operations center project. Of the original bond issuance, $5,832,225 was used for financing business-type activities related to the original bonds and the remainder was used for governmental activities.

The bonds bear interest from 3.00% to 5.00% and are due in annual installments on June 1, through June 1, 2039 that range from $255,000 to $1,250,000. At June 30, 2021, the principal amount outstanding that pertains to business-type activities was $4,852,425 of the total $14,065,000 outstanding.

In the Statement of Net Position, the 2018 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2018 bonds. At June 30, 2021, the unamortized premium that pertains to business-type activities was $483,041.

The refunding resulted in a difference of $374,404 between the reacquisition price and the net carrying value of the old debt and is being amortized to expense through 2039. The City completed the refunding to reduce its total debt service payments over the next 21 years by $3,838,338 and to obtain an economic gain of $2,960,278 (difference between the present values of the old and the new debt service payments).
2018 Water Revenue Refunding Bonds. In 2018, the City issued water revenue refunding bonds the in the amount of $10,095,000 to refund the 2006 water revenue bonds, which were originally issued to fund improvements to the water treatment plant. The bonds bear interest from 4% to 5% and are due in annual installments on June 1 through June 1, 2035 that range from $455,000 to $845,000.

At June 30, 2021, the principal amount outstanding on the bonds was $8,785,000.

The City has pledged future water system revenues, net of specific operating expenses, to repay the bonds on parity with a pledge that services all parity obligations. The bonds are payable solely from water customer net revenues and any moneys in the bond service fund and the reserve fund. For the year ended June 30, 2021, principal and interest paid, and total customer net revenues were $892,300 and $5,687,266, respectively. In the Statement of Net Position, the bonds include the related unamortized premium which is being amortized and charged to expense over the term of the bonds. At June 30, 2021, the unamortized premium was $1,414,691.

At June 30, 2021, the aggregate maturities of the business-type revenue bonds were as follows:
71

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt (Continued)
Loans
2001 CIEDB State Loan. In 2001, the City obtained a note in the amount of $7,765,900 to go towards expanding the March Street parking structure. The note bears an interest rate of 3.37% due in semi-annual installments on February 1 and August 1 through August 31, 2031 that range from $169,000 to $396,000. At June 30, 2021, the principal amount outstanding on the loan was $3,763,140.PAGE
2009 Infrastructure and Economic Development Bank Loan– Tank Farm Lift Station. In 2009, the City obtained a note in the amount of $10,000,000 to go towards the Tank Farm lift station and main sewer project. The note bears an interest rate of 3.25% due in annual installments on December 1 through December 1, 2037 that range from $212,600 to $520,744. At June 30, 2021, the principal amount outstanding on the loan was $6,938,580.

The City has pledged future sewer system revenues, net of specific operating expenses, to repay the loan. The loan is payable solely from sewer customer net revenues. For the year ended June 30, 2021, principal and interest paid, and total customer net revenues were $532,755 and $5,841,161, respectively.
2018 Clean Water State Revolving Fund Loan. In 2018, the City Council approved the Clean Water State Revolving Fund loan agreement between the City of San Luis Obispo and the California State Water Resources Control Board for a $140 million loan for the Water Resource Recovery Facility Project. The City will receive $4 million in principal forgiveness and the remaining $136 million will be repaid over 30 years. The applicable interest rate was set at 1.8%. As of June 30, 2021, the City had drawn down $35,057,710 of the loan funds.
2020 CIEDB State Loan. In 2020, the City obtained a note in the amount of $14,300,000 for improvements to the City’s Water Treatment Plant to provide enhanced reliability and energy and operational efficiencies. The note bears an interest rate of 2.5% and a term of 20 years. At June 30, 2021, the City had partially drawn down the loan and had an outstanding principal balance of $10,470,116.

At June 30, 2021, the aggregate maturities of the aforementioned business-type loans were as follows:

Installment Sale Agreements
2008 Suntrust Bond. In 2008, the Board entered into an installment sale contract financing $2,050,000 to finance the Tank Farm lift station. The terms state an interest rate of 4.2% due in annual installments through 2023 that range from $372,900 to $607,200. At June 30, 2021, the principal amount outstanding on the loan was $515,000.

For the Year Ending June 30, Principal Interest Total
2022 $ 1,192,720 $ 674,970 $ 1,867,690
2023 1,983,281 908,413 2,891,694
2024 2,009,778 866,704 2,876,482
2025 2,057,411 824,028 2,881,439
2026 2,106,955 1,115,545 3,222,500
2027-2031 11,323,325 4,727,654 16,050,978
2032-2036 11,056,481 3,114,792 14,171,273
2037-2041 9,588,516 1,931,545 11,520,061
2042-2046 6,481,749 1,126,487 7,608,237
2047-2051 7,086,533 521,748 7,608,280
2052 1,342,796 26,905 1,369,701
$ 56,229,546 $ 15,838,790 $ 72,068,336
72

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 6: Long Term Debt (Continued)
US Bancorp 2014 Wastewater Lease. In 2013, the Board entered into an installment sale contract financing $7,479,000 to finance the acquisition and installation of improvements to its water reclamation facility. The note bears an interest rate of 2.8994% due in annual installments on June 1 and December 1 through December 1, 2028 that range from $372,900 to $607,200. At June 30, 2021, the principal amount outstanding on the loan was $4,404,407.

At June 30, 2021, the aggregate maturities of the aforementioned business-type installment sale agreements were as follows:

There are a number of limitations and restrictions contained in the various bond indentures. City management believes that the City has complied with the indenture requirements. Security for revenue bonds is paid from receipts or net income and amounts in funds or accounts established under bond indentures.

Note 7: Pension Plans
The City contributes to the California Public Employees’ Retirement System (CalPERS) for its employees. The City participates in one agent multiple-employer plan for its miscellaneous employees (Miscellaneous Plan) and one cost-sharing multiple-employer plan for its safety employees (Safety Plan). The Miscellaneous Plan is described in the first section of the footnote under AgentMultiple Employer Plan and the Safety Plan follows and is described in the second section of the footnote under Cost-Sharing Employer Plan. A summary of the government-wide balances for all Plans at June 30, 2021 are as follows:

Agent-Multiple Employer Plan
General Information about the Pension Plan
Plan Descriptions. As noted above, the City contributes to CalPERS for a defined benefit pension plan for all qualified permanent and probationary employees. CalPERS acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.
73

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment for Tier 1 employees. Tier 2 and PEPRA employees are based on a three-year average of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for the plan are applied as specified by the Public Employees’ Retirement Law.

The Miscellaneous Plan’s provisions and benefits by tier in effect at June 30, 2021, are summarized as follows:

While the City's Miscellaneous Plan is not closed to new entrants, the component option of 2.7% @ 55 is closed to new entrants.

Classic Members as defined by CalPERS entering the City's Miscellaneous Plan would enter the 2% @ 60 option while New Members as defined by CalPERS entering the City Miscellaneous Plan would enter the 2% @ 62 option.

Employees Covered. As of the measurement date June 30, 2020, the following employees were covered by the benefit terms for the Miscellaneous Plan:
74

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employees that are classified as unrepresented management or unrepresented confidential contribute 1.5% of pay toward the cost of the City’s share of the annual required contribution. During the measurement period, the City contributions totaled $7,709,918.

Net Pension Liability
The City’s net pension liability for the Miscellaneous Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2020, using an annual actuarial valuation as of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.

Actuarial Assumptions. The total pension liability in the June 30, 2019 actuarial valuation was determined using the following actuarial assumptions:

Discount Rate. The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.15% discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15% will be applied to all plans in the Public Employees Retirement Fund (PERF). The cash flows used in the testing were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained from the CalPERS website.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which bestestimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.
75

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
In determining the long-term expected rate of return, CalPERS considered both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The table below reflects the long-term expected real rate of return by asset class. 76

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Changes in the Net Pension Liability
The changes in the Net Pension Liability for the Miscellaneous Plan follows:

Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City for the Plan, calculated using the discount rate for each Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:

Pension Plan Fiduciary Net Position. Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.
77

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2021, the City’s pension expense for the Miscellaneous Plan was $10,661,312. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

The deferred outflows of resources related to contributions subsequent to the measurement date of $8,069,806 will be recognized as a reduction of the net pension liability in the year ended June 30, 2022. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Payable to the Pension Plan
At June 30, 2021, the City reported a payable of $0 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2021.
78

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Cost-Sharing Employer Plan
General Information about the Pension Plan
Plan Descriptions. As noted above, the City contributes to CalPERS for a defined benefit pension plan for all qualified permanent and probationary employees. CalPERS acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

The City participates in five tiers of the safety cost-sharing multiple-employer plan. The Safety Plan tiers consist of Safety Tier 1 (police and fire), Police Tier 2, Fire Tier 2, Police PEPRA and Fire PEPRA.

Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits.

All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: The Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost-of-living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The Plan’s provisions and benefits within each tier in effect at June 30, 2021, are summarized as follows:
79

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
The Safety Tier 1 is closed to new entrants.

Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1st following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30th by CalPERS.

The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Members of the Police Officers Association contribute 3% of pay toward the cost of the City's share of the annual required contribution. Members of the International Association of Firefighters, Local 3523 contribute 1.5% of pay toward the cost of the City’s share of the annual required contribution.

For the year ended June 30, 2021, the contributions recognized as part of pension expense were $7,167,638.

Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2021, the City reported a net pension liability for its proportionate share of the Plan’s net pension liability of $78,611,581.

The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2020, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City’s proportionate share of the net pension liability as of the measurement dates of June 30, 2019 and 2020 was as follows:
80

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
For the year ended June 30, 2021, the City recognized pension expense of $10,098,937 for the Safety Plan. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Pension contributions subsequent to the measurement date of $7,631,620 are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2022. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:
81

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Actuarial Assumptions. The total pension liabilities in the June 30, 2019 actuarial valuations for the Safety Plan was determined using the following actuarial assumptions:

Discount Rate. The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress-tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based in the testing, none of the tested plans run out of assets. Therefore, the current 7.15 percent discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which bestestimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.
82

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund (PERF) cash flows. Taking into account historical returns of all the Public Employees Retirement Funds’ asset classes (which includes the agent plan and two cost-sharing plans or PERF A, B, and C funds), expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each PERF fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate. The following presents the City’s proportionate share of the net pension liability, calculated using the discount rate for the Plans as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:
83

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 7: Pension Plans (Continued)
Pension Plan Fiduciary Net Position. Detailed information about each safety plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

Payable to the Pension Plan
At June 30, 2021, the City reported a payable of $0 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2021
Note 8: Other Post-Employment Benefits (OPEB)
General Information about OPEB
Plan Description. The City’s primary other post-employment benefits (OPEB) cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program, an agent multiple-employer defined benefit OPEB plan, under the “unequal contribution option.” The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act (PEMHCA). During the fiscal year ended June 30, 2009, the City entered into an agreement to participate in an irrevocable trust to provide a funding mechanism for retiree health benefits. The Trust, California Employers’ Retiree Benefit Trust (CERBT), is administered by CalPERS and managed by a separately appointed board, which is not under control of the City Council. This Trust is not considered a component unit of the City.

Benefits Provided. The City provides post-employment heath care insurance, in accordance with Memorandums of Understanding, to all employees who retire from the City upon or after attaining age 50 with at least 5 years of service or disability retirement.

Miscellaneous retires who are PEPRA new hires are eligible at age 52. For each retiree enrolled in a CalPERS medical plan, the employer will pay the required statutory PEMHCA minimum, which is $136 per month per retiree in calendar year 2019 and $139 per month per retiree in calendar year 2020. This amount will increase with the health care component of CPI, as announced by the CalPERS Board each year. The retiree must pay the difference between the premium amount, which depends upon the medical plan benefits selected, and the employer-paid minimum. In addition, the City pays 50% of the premium up to the retiree’s age of 65 for one grandfathered executive management retiree hired prior to August 2000.

There is no OPEB provided to terminated vested employees. The employer-paid amount will continue to a surviving spouse if the retiree elects a CalPERS survivor annuity. There are no required employee contributions, although the retiree must pay the difference between the premium and the employer-paid amount. The employer is contributing the full Actuarially Determined Contribution.

Employees Covered. At June 30, 2020, the measurement date, the following number of employees were covered by the benefit terms:

Contributions. The contribution requirements of the plan members and the City are established and may be amended by the City.

The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution. For the measurement period, the City’s contributions totaled $1,656,882.
84

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 8: Other Post-Employment Benefits (OPEB) (Continued) Net OPEB Liability
The City’s net OPEB liability for the Plan is measured as the total OPEB liability less the Plan’s fiduciary net position. The net OPEB liability of the Plan is measured as of June 30, 2020 using an actuarial valuation as of June 30, 2019. The principal assumptions and methods used to determine the net liability are described below.

Change in Assumptions. There were no changes in assumptions for the measurement date June 30, 2020.

Discount Rate. The discount rate used to measure the total OPEB liability was 6.75% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, the actuary performed a stress-test on the Plan that would most likely result in a discount rate that would be different from the actuarially-assumed discount rate. Based on the test, the Plan will not run out of assets. Therefore, the current 6.75% discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 6.75% is applied to the Plan. The stress-test results are presented in the detailed actuarial report, which can be obtained from the City. 85

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 8: Other Post-Employment Benefits (OPEB) (Continued) Investments. The following table reflects the long-term expected real rate of return of the Plan’s investments by asset class. The rates of return are presented as geometric means developed over a twenty year period. These rates of return are net of administrative expenses.

Changes in the Net OPEB Liability
The changes in the net OPEB liability for the June 30, 2020 measurement date are as follows:
86

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 8: Other Post-Employment Benefits (OPEB) (Continued) Sensitivity of Net OPEB Liability to Changes in the Discount Rate. The following presents the net OPEB liability at the current discount rate, as well as what the net OPEB liability would be if it were calculated using a hypothetical discount rate that is one percentage point lower or one percentage point higher than the current rate.

Sensitivity of Net OPEB Liability to Changes in Healthcare Cost Trend Rates. The following presents the net OPEB liability at current healthcare cost trend rates, as well as what the net OPEB liability would be if it were calculated using hypothetical healthcare cost trend rates that are one percentage point lower or one percentage point higher than the current rate.

OPEB Plan Fiduciary Net Position. Detailed information about the OPEB Plan’s fiduciary net position is available in the separately issued CalPERS financial reports on the CERBT.

OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended June 30, 2021, the City’s OPEB expense was $503,923. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

OPEB Plan
1% Decrease 5.75%
Net OPEB Liability 6,420,096 $
Current Discount Rate 6.75%
Net OPEB Liability 4,775,631 $
1% Increase 7.75%
Net OPEB Liability 3,415,789 $
87

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 8: Other Post-Employment Benefits (OPEB) (Continued) OPEB contributions subsequent to the measurement date of $921,000 are reported as deferred outflows of resources and will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2022. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Payable to the OPEB Plan
At June 30, 2021, the City reported a payable of $0 for the outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2021.

Note 9: Interfund Transactions
Interfund receivable and payable balances as of June 30, 2021 consist of the following:

Interfund transfers for the year ended June 30, 2021 consist of the following:
88

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 9: Interfund Transactions (Continued)
Interfund receivables and payables include temporary negative cash balances that result from the timing of cash flows at year end and the time lag between the dates that transactions are recorded in the accounting system and payment between funds are made.

Liquidation of interfund receivables and payables typically occurs in the first quarter of the subsequent fiscal year. Interfund balances between governmental funds are not included in the government-wide Statement of Net Position.

Interfund transfers are used to move revenues from the fund with collection authorization to the debt service fund as debt service principal and interest payments become due or to move unrestricted revenues to finance various programs that the government must account for in other funds in accordance with budgetary authorizations. This may include amounts provided as matching funds for various grant programs.

Note 10: Joint Ventures, Jointly Governed Organizations and Operating Agreements The City participates in three multi-governmental organizations: the Whale Rock Commission, the San Luis Obispo Regional Transit Authority, and the San Luis Obispo Council of Governments. The City also has an operating agreement related to Nacimiento Water Supply Project. The following provides a general description of each of these agencies and operating agreements along with a summary of financial information and indebtedness:

Whale Rock Commission
General Description. The Whale Rock Commission (Commission) was established on December 12, 1960 to govern the operations of the Whale Rock Reservoir. The Commission is composed of six voting members and two non-voting members: three voting members are appointed by the City; one is appointed by California Polytechnic State University; one by California Men's Colony; and one by the Director of Finance, State of California. The two non-voting members are position appointments: the Director of Water Resources, State of California; and the Water Superintendent, City of San Luis Obispo. The Commission is authorized by its respective agencies to establish policies for the operation of the Reservoir, to contract for the sale of excess water, and to approve the annual budget.

The City, in accordance with established policies of the Commission, operates and maintains the Reservoir; prepares and recommends the annual budget; and maintains the fiscal records and funds of the Commission. The Whale Rock Custodial Fund is used to account for the Commission's ongoing operating activities. Ownership in the Reservoir is as follows: 55.05%, City of San Luis Obispo; 33.71%, California Polytechnic State University; and 11.24%, California Men's Colony. The City's share of the Commission's expenses is recorded as expenses of the Water Fund. All receipts and disbursements of the Commission are included in an Custodial Fund.

Financial Information and Indebtedness. In 1959, the City issued general obligation bonds to secure a future water supply to City residents. Some of the proceeds from the bonds were used to participate with the State of California in the development of the Reservoir. Participation, which is in proportion to the original investment, includes continued operation and maintenance of the facilities. Such indebtedness was directly attributable to provision of water service, and as such, all related indebtedness was recorded in the City's Water Enterprise Fund. These bonds matured in August 1999.

The City's original investment in the Reservoir project aggregates $3,900,000 and was amortized on a straight-line basis over thirtyfive years. Separate financial statements are available from the Whale Rock Commission, 879 Morro Street, San Luis Obispo, CA 93401.
89

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 10: Joint Ventures, Jointly Governed Organizations and Operating Agreements (Continued) The following segment financial information for the Whale Rock Commission and the Water Fund’s related investment in the joint venture is presented as of and for the year ended June 30, 2021:

San Luis Obispo Regional Transit Authority
General Description. The City is a member of the San Luis Obispo Regional Transit Authority (Authority), which was established on February 27, 1990, to operate a joint public transportation system. The Authority is composed of the Cities of Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach, and San Luis Obispo, as well as the County of San Luis Obispo.

The Authority is governed by a Board of Directors comprised of representatives of each of the seven cities, in addition to the five members of the Board of Supervisors. Each member of the Board has one vote. The Board has the authority to establish policies for the operation of the transit system and to adopt an annual budget. Each member makes an annual contribution to the agency for funding the adopted budget.

Financial Information. The City allocates a portion of its Transportation Development Act funds directly to the Authority. During 2020-21 the City contributed approximately $709,945 of these funds to the Authority. The City's share of assets, liabilities, and fund equity has not been calculated by the Authority and therefore is not known to the City; however, based on the City's limited financial participation in the Authority, any such assets, liabilities, or equity are not believed to be significant to the basic financial statements taken as a whole. Separate financial statements are available from the Authority, 179 Cross Street, Suite A, San Luis Obispo, CA 93401.

San Luis Obispo Council of Governments
General Description. The San Luis Obispo Council of Governments (SLOCOG) was formed in 1968 through a joint powers agreement among the incorporated cities and the County of San Luis Obispo. It acts as the regional transportation planning agency for the county and is the metropolitan planning organization and the congestion management agency for the region. The governing board consists of twelve delegates, each with one vote that includes the five members of the County Board of Supervisors and one representative from each of the seven cities in the County.

Financial Information. A portion of the City's Transportation Development Act funds are directly allocated to the SLOCOG. The City's share of assets, liabilities, and fund equity has not been calculated by SLOCOG and therefore is not known to the City; however, based on the City's limited financial participation in SLOCOG, any such assets, liabilities, or equity are not believed to be significant to the basic financial statements taken as a whole. Separate financial statements are available from SLOCOG, 1114 Marsh Street, San Luis Obispo, CA 93401.
90

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 10: Joint Ventures, Jointly Governed Organizations and Operating Agreements (Continued) Nacimiento Water Supply Project
General Description. In 2004, the Council adopted a resolution approving an agreement with the San Luis Obispo County Flood Control and Water Conservation District (District) for the design, construction, and operations of the facilities required for the delivery of 5,482 acre-feet of water per year to the City of San Luis Obispo from the Nacimiento Water Supply Project (Project).

The agreement includes conditions relative to the costs associated with the project and how these costs will be shared and paid by the participants in the project.

Each project participant, including the City, has entered into an agreement to provide for the development, financing, construction, operation and maintenance of the Project. The agreement is a “take-or-pay” obligation: the City is obligated to pay amounts specified in the agreement whether or not water is delivered. The City is required to pay an amount equal to its share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Project. The City is also required to pay for its share of operating and maintenance costs. The City records these payments as operating expenses in its water enterprise fund.

The City is required to make payments under its agreement solely from the revenues of its water system. The City agreed to establish and collect rates and charges from the customers of the City’s water enterprise fund at levels sufficient to produce revenues equal to: (1) the costs of operating and maintaining the City’s water enterprise; plus (2) the contract payments, calculated in accordance with the delivery contract including the amounts allocated as the City’s share of capital projects installment debt service; plus (3) the coverage factor for the amounts allocated as the City’s share of capital projects installment debt service; and (4) under certain circumstances, that the City understands and agrees that the delivery contract may impose a surcharge following the occurrence of any payment default.

Financial Information. In September 2007, the District sold water revenue bonds in the amount of $196 million for the construction of the Project. In addition, the District sold water revenue bonds in the amount of $182 million. These bonds were refinanced in May 2018. Based on the City’s share of construction costs, debt service and operating and maintenance, the following summarizes the City’s Project obligations for 2020-21 and five-year projections for the 2018 bonds that will remaining outstanding following the refunding.

Separate financial statements are available from the San Luis Obispo County Flood Control and Water Conservation District, 1050 Monterey Street, San Luis Obispo, CA 93401.

Actual 2021 $ 4,617,128
Projected:
2022 4,610,790
2023 4,609,730
2024 4,619,370
2025 4,621,208
2026-30 23,099,884
2031-35 23,097,433
2036-40 23,188,841
Nacimiento Water Supply Obligations
91

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 11: Risk Management
California Joint Powers Insurance Authority
The City is a member of the California Joint Powers Insurance Authority (Authority). The Authority is composed of 119 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the Authority is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group purchased insurance for property and other lines of coverage. The California JPIA began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a nine-member Executive Committee.

Each member pays an annual contribution to cover estimated losses for the coverage period. This initial funding is paid at the beginning of the coverage period. After the close of the coverage period, outstanding claims are valued. A retrospective deposit computation is then conducted annually thereafter until all claims incurred during the coverage period are closed on a pool-wide basis. This subsequent cost reallocation among members based on actual claim development can result in adjustments of either refunds or additional deposits required.

The total funding requirement for self-insurance programs is estimated using actuarial models and prefunded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) relative to other members of the risk-sharing pool. Additional information regarding the cost allocation methodology is provided below.

Self-Insurance Programs of the Authority
General Liability and Workers’ Compensation. The City is a member of the California Joint Powers Insurance Authority (CJPIA), which provides joint protection programs and group purchased insurance for public entities covering liability, errors and omission losses, auto liability, employment practices liability, crime, pollution, workers’ compensation injuries and coverage for city-owned property. The City has a retained limit of $500,000 per occurrence for liability and no retained limit for workers’ compensation.

Liabilities of the City are reported when it is probable that a loss has occurred, and the amount of the loss can be reasonable estimated.

Liabilities include an amount for claims that have been incurred but not reported (IBNR). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines and damage awards. Accordingly, claims are re-evaluated periodically to consider the effects of economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether or not they are attributable to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claim’s liability estimate.

During the past three fiscal years, none of the protection programs experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured coverage in 2020-21. CJPIA covers workers’ compensation claims up to a pooled limit of $2 million per occurrence and provides excess coverage to statutory limits with a group purchased commercial insurance policy. The City pays an annual contribution to CJPIA and may share in any member refunds in the event that pooled funding exceeds the cost of pooled claims and claim-related expenses, or the City may be required to pay additional contributions based upon CJPIA’s operating results.

Financial statements of CJPIA may be obtained from its administrative office located at 8081 Moody Street, La Palma, California 90623, or by calling (562) 467-8700.

Additional claims and lawsuits have been filed against the City in the normal course of business. It is reasonably possible that the City may be liable for claims not to exceed $500,000. In the opinion of management, the resolution of these matters will not have a material adverse effect on the financial condition of the City. 92

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 11: Risk Management (Continued)
Adequacy of Protection
During the past three fiscal years, none of the above programs of protection experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured liability coverage from coverage in 2020-

21. Self-Insurance
The City retains the risk for workers’ compensation losses incurred prior to joining the California Joint Powers Insurance Authority.

Several member agencies of the now dissolved Central Coast Cities Self-Insurance Fund continue to participate in a non-risk sharing arrangement for claims management and the purchase of excess insurance. The participating agencies share a set of common guidelines and annually set aside premiums to pay their individual losses within their self-insured retentions. Losses are debited and investment income is credited to specific member accounts. The City has not incurred any losses in excess of insurance coverage.

Claims liabilities in the governmental funds are generally liquidated by the General Fund.

The last actuarial study to determine the undiscounted outstanding claims liability was completed for the year ended June 30, 2019.

The liability was estimated based on the actuarial study and considered claims asserted and paid, and the time limitations for filing claims. There are no estimates for claims incurred but not reported because the time limit for filing claims has elapsed. The estimated asset at June 30, 2021 is calculated as follows:

Note 12: Commitments and Contingencies
Litigation
The City is presently involved in certain matters of litigation that have arisen in the normal course of conducting City business. City management believes, based upon consultation with the City Attorney, that these cases, in the aggregate, are adequately covered by insurance and not expected to result in a material adverse financial impact on the City.

Self-insurance activity as of and for the year ended June 30, 2021 is summarized is as follows:

Interest earnings 4,878 $
Claims expense (121,846)
Estimated liability for reported claims and settlement expenses (372,829) Assets on deposit 860,930
Estimated unpaid claims asset 488,101 $
Changes in the balances of claim assets during the past two fiscal years are as follows:

Estimated unpaid claims asset June 30, 2019 751,064 $
Claim payments and related expenditures reimbursement (26,315) Change in estimated claims asset June 30, 2020 73,940
Interest earnings 4,878
Estimated unpaid claims asset June 30, 2020 803,567
Claim payments and related expenditures reimbursement (441,021) Change in estimated claims asset June 30, 2021 120,677
Interest earnings 4,878
Estimated unpaid claims asset June 30, 2021 488,101 $
93

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 12: Commitments and Contingencies (Continued)
Grant Awards
Under the terms of Federal and State grants, audits may be required, and certain costs may be questioned as not being appropriate expenditures under the terms of the grants. Such audits could lead to requests for reimbursement to the grantor agencies. City management believes disallowances, if any, will be immaterial.

Regional Transit Authority Pension Expense
The City is presently a member agency of the San Luis Obispo Regional Transit Authority (SLORTA) (see Note 9), a duly established Joint Powers Authority (JPA) comprised of all local cities and the County of San Luis Obispo. The City’s contractual contribution to that entity is approximately 18% of the total expense. The City was advised that the Regional Transit Authority was working with CalPERS to determine whether it is required to enroll certain previously unenrolled transit employees in the CalPERS pension system and whether the entity may be liable for obligations related to the failure to enroll those employees and make contributions on their behalf. On December 10, 2019 the County Board of Supervisors approved a contract for participation of the JPA in the San Luis Obispo County Pension Trust and the Employees Retirement Plan. The current amount of potential CalPERS unfunded liability for the JPA may reach as high as $4 million. It is not anticipated that the City’s annual payment to the JPA will increase to satisfy this unfunded liability.

Note 13: Construction and Other Significant Commitments Construction and other significant commitments as of June 30, 2021, including encumbrances outstanding at year-end, are as follows:

Long-term construction contracts are billed and paid on a percentage completion basis by construction phase.

Note 14: Fund Balance Deficiency
At June 30, 2021, the City had a negative fund balance in the following funds:
94

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 15: Subsequent Events
Events subsequent to June 30, 2021 have been evaluated through December 23, 2021, which is the date that the financial statements are available to be issued. Management identified no subsequent events that required disclosure.

Note 16: New Accounting Standards
Accounting Standards Adopted
In January 2017, GASB issued Statement No. 84, Fiduciary Activities. Statement No. 84 establishes criteria for identifying fiduciary activities of all state and local governments. Activities meeting the criteria should be reported in a fiduciary fund in the basic financial statements. This Statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the entity to disburse fiduciary resources. The provisions of Statement No. 84 are effective for fiscal years beginning after December 15, 2019. Management has implemented this Statement on its financial statements.

In August 2018, GASB issued Statement No 90, Majority Equity Interests. Statement No. 90 improves the consistency and comparability of reporting a government’s majority equity interest in a legally separate organization and improves the relevance of financial statement information for certain component units. The provisions of Statement No. 90 are effective for fiscal years beginning after December 15, 2019 with earlier implementation encouraged. This Statement is not applicable to the City.

In March 2020, GASB issued Statement GASB No. 93, Replacement of Interbank Offered Rates. Statement No.93 requires a government to terminate hedge accounting when it renegotiates or amends a critical term of a hedging derivative instrument, such as the reference rate of a hedging derivative instrument’s variable payment. In addition, in accordance with Statement No. 87, Leases, as amended, replacement of the rate on which variable payments depend in a lease contract would require a government to apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable. The provisions of Statement No. 93 has multiple effective dates. This Statement is not applicable to the City.

In October 2021, GASB issued Statement GASB No. 98, The Annual Comprehensive Financial Report. Statement No.98 establishes the term annual comprehensive financial report and its acronym ACFR. That new term and acronym replace instances of comprehensive annual financial report and its acronym in generally accepted accounting principles for state and local governments.

Management has implemented this Statement on its financial statements.

New Accounting Standards
In June 2017, GASB issued Statement No. 87, Leases. Statement No. 87 increases the usefulness of entities’ 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. The provisions of Statement No. 87 are effective for fiscal years beginning after December 15, 2020. Management has not yet determined the impact of this Statement on its financial statements.

In June 2018, GASB issued Statement No 89, Accounting for Interest Cost Incurred before the End of a Construction Period.

Statement No. 89 enhances the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and simplifies accounting for interest cost incurred before the end of a construction period. The provisions of Statement No. 89 are effective for fiscal years beginning after December 15, 2020. Management will determine the impact of this statement on its financial statements with the 2021-22 Comprehensive Annual Financial Report. 95

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 16: New Accounting Standards (Continued)
In May 2019, GASB issued Statement No 91, Conduit Debt Obligations. Statement No. 91 provides a single method of reporting conduit debt obligations by issuers and eliminates diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying 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 commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. The provisions of Statement No. 91 are effective for fiscal years beginning after December 15, 2021 with earlier implementation encouraged.

Management has not yet determined the impact of this Statement on its financial statements.

In January 2020, GASB issued Statement No. 92, Omnibus 2020. Statement No. 92 is 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. The provisions of Statement No. 92 has multiple effective dates.

Management has not yet determined the impact of this Statement on its financial statements.

In March 2020, GASB issued GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. Statement No. 94 is to improve financial reporting by addressing issues related to public-private and public-public partnership arrangements (PPPs), and also provides guidance for accounting and financial reporting for availability payment arrangements (APAs). The provisions of Statement No. 94 are effective for fiscal years beginning after June 15, 2022. Management has not yet determined the impact of this Statement on its financial statements.

In May 2020, GASB issued GASB Statement No. 96, Subscription-Based Information Technology Arrangements. Statement No. 96 provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). The provisions of Statement No. 96 are effective for fiscal years beginning after June 15, 2022. Management has not yet determined the impact of this Statement on its financial statements.

In June 2020, GASB issued 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. Statement No. 97 will result in more consistent financial reporting of defined contribution pension plans, defined contribution OPEB plans, and other employee benefit plans, while mitigating the costs associated with reporting those plans. The requirements will also enhance the relevance, consistency, and comparability of (1) the information related to Section 457 plans that meet the definition of a pension plan and the benefits provided through those plans and (2) investment information for all Section 457 plans. The provisions of Statement No. 97 has multiple effective dates. Management has not yet determined the impact of this Statement on its financial statements. 96

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2021

Note 17: Prior Period Adjustments
During 2021, prior period adjustments were made to correct prior year invoices paid from wrong funds, to correct the CUPA revenue coded to wrong fund, to correct payroll errors, to correct depreciation errors, and to properly record the loan receivables in Affordable Housing, which the City expensed in the past years.

Note 18: COVID-19 Pandemic
During December 2019, the Novel Corona Virus Disease (COVID-19) was discovered and subsequently declared a worldwide pandemic by the World Health Organization on March 11, 2020. On March 4, 2020, California State Governor Gavin Newsom proclaimed a State of Emergency as a result of the threat of the COVID-19 in the State of California, leading to the San Luis Obispo County Health Officer issuing a shelter-at-home order on March 18, 2020, and the City Council declaring a health emergency on March 17, 2020. This halted all business activity within San Luis Obispo County outside of essential services and largely stifled economic and tourism activity in the last quarter of the 2019-20 fiscal year.

In order to respond to the economic uncertainty that came with the pandemic-driven restrictions, the City immediately implemented its Fiscal Health Contingency Plan which triggers a hiring and travel chill, in addition to CIP project deferral considerations and a review of “one-time” operating cost. These short-term efforts allow the organization time to further assess the longer-term ramifications of the conditions necessitating the activation of the plan.

Equipped with the savings measures from the third year of the Fiscal Health Response Plan (FHRP) and the immediate activation of the Fiscal Health Contingency Plan, staff further aligned the operating and capital budget to an adjusted revenue forecast selected from several scenario models. These actions allowed the City Council to approve a balanced budget for the 2020-21 Financial Plan Supplement and fiscal year.

Though the COVID-19 pandemic continued to slow economic activity through various stages until June 2021, it immediately increased as the State eliminated some of the restrictions in the fourth quarter. The newly voter-approved local sales tax increase that became effective on April 1, 2021, as well as economic recovery efforts by the City further improved the revenue picture for the City. By relying on its policy framework and the prudent action by the City Council and leadership team, the General Fund ultimately finished the year in a positive position, its reserve levels fully intact, and a healthy fund balance. This can be associated with both the effectiveness of the third year of the Fiscal Health Response Plan and the immediate activation of the Fiscal Health Contingency Plan, and the disciplined adherence to both plans during a pandemic year that also saw wide-ranging social protests. 97

98

REQUIRED SUPPLEMENTARY INFORMATION
(UNAUDITED)
99

100

City of San Luis Obispo, California
Budgetary Comparison Schedule
General Fund
For the Fiscal Year Ended June 30, 2021
Original
Budget
Final
Budget Actual
Variance With
Final Budget
Positive
(Negative)
REVENUES:

Taxes and franchise fees:

Sales and use tax - general $ 15,320,620 $ 16,571,000 $ 20,067,740 $ 3,496,740 Sales and use tax - Local Sales Tax 7,218,000 11,392,000 12,779,713 1,387,713 Property tax 13,253,623 13,926,581 14,197,869 271,288
Transient occupancy tax 6,267,000 6,267,000 6,960,035 693,035 Utility users tax 5,565,000 5,565,000 5,225,979 (339,021) Property tax in lieu of VLF 5,165,280 5,626,977 5,660,661 33,684 Franchise taxes 1,544,000 1,544,000 1,796,829 252,829
Business tax 3,253,740 3,253,740 3,782,115 528,375
Total taxes 57,587,263 64,146,298 70,470,941 6,324,643
Fines, forfeitures and penalties 227,601 227,601 223,882 3,719 Use of money and property 230,000 230,000 (12,521) (242,521) Subventions and grants:

Other State and Federal grants 780,000 3,112,803 3,200,951 88,148 Other subventions and grants 315,163 315,163 425,136 109,973 Total subventions and grants 1,095,163 3,427,966 3,626,087 198,121 101

City of San Luis Obispo, California
Budgetary Comparison Schedule
General Fund, continued
For the Fiscal Year Ended June 30, 2021

Original
Budget
Final
Budget Actual
Variance With
Final Budget
Positive
(Negative)
Charges for services:

Public safety:

Police 496,933 459,583 508,703 49,120
Fire:

Medical emergency recovery 519,109 513,344 534,807 21,463 Fire safety/hazardous materials permits 802,677 838,721 955,639 116,918 Other fire revenues 5,890 39,427 28,659 (10,768)
Community development:

Planning and zoning fees 1,297,000 1,300,140 1,513,792 213,652 Construction plan and check inspections 3,249,000 3,914,087 4,815,415 901,328 Infrastructure plan check and inspections 1,191,721 1,191,721 820,973 (370,748) Culture and recreation:

Adult athletic fees 238,693 17,179 115,860 98,681
Youth athletic fees 581,943 694,857 976,609 281,752
Rental and use fees 325,401 201,035 381,338 180,303
Aquatics 207,257 123,969 201,020 77,051
Golf course 193,461 177,681 248,121 70,440
General government:

Other service charges 732,654 732,654 641,279 (91,375)
Total charges for services 9,841,739 10,204,398 11,742,215 1,537,817 Impact Fees - - 147,070 147,070
Other revenues 475,557 669,204 550,036 (119,168)
Total Revenues 69,457,323 78,905,467 86,747,710 7,849,681 102

City of San Luis Obispo, California
Budgetary Comparison Schedule
General Fund, continued
For the Fiscal Year Ended June 30, 2021

Original
Budget
Final
Budget Actual
Variance With
Final Budget
Positive
(Negative)
Expenditures:

Public Safety:

Police protection:

Administration 1,925,154 1,961,796 1,469,923 491,873
Investigations 2,662,527 2,671,792 2,923,797 (252,005)
Neighborhood services 260,956 259,284 228,265 31,019
Support services 2,524,226 2,534,707 2,381,005 153,702
Patrol services 9,659,843 9,757,729 9,753,373 4,356
Traffic safety 770,156 767,263 862,135 (94,872)
Total police protection 17,802,862 17,952,571 17,618,498 334,073 Fire and environmental safety:

Administration 1,110,836 2,211,075 1,296,916 914,159
Emergency response 10,129,843 11,072,683 11,494,300 (421,617) Fire Apparatus Services 401,966 478,719 377,035 101,684 Hazard protection 825,723 896,884 735,525 161,359
Training 140,550 172,341 82,496 89,845
Disaster preparedness 6,860 91,670 38,550 53,120
Total fire and environmental safety 12,615,778 14,923,373 14,024,822 898,551 Total public safety 30,418,640 32,875,944 31,643,320 1,232,624 Transportation:

Transportation planning and engineering 902,428 992,443 900,676 91,767 Street and sidewalk maintenance 1,426,107 1,407,857 1,348,898 58,959 Traffic signals and street lights 524,166 539,737 553,073 (13,336) Creek and flood protection 1,199,134 1,311,944 1,063,639 248,305 Total transportation 4,051,834 4,251,981 3,866,286 385,695 103

City of San Luis Obispo, California
Budgetary Comparison Schedule
General Fund, continued
For the Fiscal Year Ended June 30, 2021

Original
Budget
Final
Budget Actual
Variance With
Final Budget
Positive
(Negative)
Culture and Recreation:

Recreation programs:

Recreation administration 1,143,903 1,200,430 1,075,581 124,849 Aquatics/Sinsheimer park facilities 483,225 497,083 579,746 (82,663) Children's services 997,873 1,028,573 971,662 56,911
Facilities 238,878 247,990 234,614 13,376
Special events 10,500 10,800 - 10,800
Recreational sports 612,895 615,964 384,912 231,052
Golf course 666,245 664,588 599,587 65,001
Ranger services 525,780 544,686 508,601 36,085
Maintenance programs:

Swim center maintenance 479,743 471,931 449,101 22,830
Parks and landscape maintenance 2,935,567 3,056,264 2,926,873 129,391 Tree maintenance 680,571 881,180 449,130 432,050
Cultural and social service programs: Human relations
Human relations 447,000 571,672 579,489 (7,817)
Cultural activities 337,601 337,601 332,351 5,250
Total leisure, cultural and social services 9,559,781 10,128,760 9,091,647 1,037,113 Community Development:

Planning:

Commissions and communities 51,453 51,453 15,291 36,162 Community development administration 800,126 819,933 901,725 (81,792) Long-range planning - 4,707 - 4,707
Development review 2,576,522 3,310,669 2,516,512 794,157 Natural resource protection 628,149 646,939 646,613 326 Construction regulation:

Building and safety 1,463,365 2,520,761 2,506,262 14,499 CIP project engineering 2,240,356 2,437,337 2,270,953 166,384 Economic health:

Community promotion 404,143 438,811 417,721 21,090
Economic development 297,299 654,523 579,405 75,118
Total community development 8,461,414 10,885,132 9,854,482 1,030,650 104

City of San Luis Obispo, California
Budgetary Comparison Schedule
General Fund, continued
For the Fiscal Year Ended June 30, 2021

Original
Budget
Final
Budget Actual
Variance With
Final Budget
Positive
(Negative)
General Government:

Legislation:

Council 184,977 183,654 173,275 10,379
General administration:

City administration 1,046,504 1,122,298 1,115,952 6,346 Public works administration 860,714 737,829 606,828 131,001 Legal services:

City attorney 778,167 995,832 964,100 31,732
City clerk services:

Administration and records 606,113 643,413 567,513 75,900 Organization support services:

Human resource administration 1,317,975 1,401,863 1,363,656 38,207 Risk management 15,200 15,200 1,598 13,602
Finance and administration 5,812,005 6,930,327 6,298,358 631,969 Revenue management 381,120 380,490 279,887 100,603
Accounting 1,029,539 1,051,847 842,431 209,416
Finance non-departmental 611,285 1,323,377 292,146 1,031,231 Network services 3,163,906 3,061,141 2,856,721 204,420
Wellness program 17,411 16,572 9,226 7,346
Building and vehicle maintenance:

Buildings 1,142,493 1,208,665 1,235,984 (27,319)
Vehicle and equipment maintenance 1,114,498 1,098,347 1,011,969 86,378 Total general government before cost reimburseme 18,081,907 20,170,855 17,619,644 2,551,211 Cost reimbursement (Note 3 to RSI) (4,578,402) (4,578,402) (4,578,402) - Total general government 13,503,505 15,592,453 13,041,242 2,551,211 Capital Outlay:

Public safety 80,000 202,943 107,741 95,202
Transportation 3,067,054 4,661,980 2,681,078 1,980,902
Culture and recreation 589,000 1,147,987 497,761 650,226 Community development - 86,899 25,795 61,104
General government 1,918,700 3,582,792 1,414,886 2,167,906 Total capital outlay 5,454,917 9,705,656 4,727,261 4,978,395 Total Expenditures 71,450,091 83,439,927 72,224,238 11,215,689 Excess of Revenues Over Expenditures (1,992,768) (4,534,460) 14,523,472 19,057,932 105

City of San Luis Obispo, California
Budgetary Comparison Schedule
General Fund, continued
For the Fiscal Year Ended June 30, 2021

Original
Budget
Final
Budget Actual
Variance With
Final Budget
Positive
(Negative)
Other Financing Sources (Uses)
Transfers in 14,307,019 14,307,019 7,128,857 (7,178,162) Transfers out (9,647,895) (10,628,685) (8,332,098) 2,296,587 Total other financing uses 4,659,124 3,678,334 (1,203,241) (4,881,575) Net Change in Fund Balance 2,666,356 (856,126) 13,320,231 14,176,357 Fund Balance, Beginning of the Year, as restated 33,797,840 33,797,840 33,797,840 Fund Balance, End of Year $ 36,464,196 $ 32,941,714 $ 47,118,071 106

107

Fiscal Year 2020-21 2019-20 2018-19
Measurement Period 2019-20 2018-19 2017-18
Total pension liability:

Service Cost $ 3,681,240 $ 4,042,717 $ 4,328,129
Interest on total pension liability 16,160,011 15,531,812 14,778,918 Difference between expected and actual experience 1,869,474 2,966,923 1,445,049 Changes in assumptions - (1,292,326) -
Benefit payments, including refunds of employee contributions (12,892,847) (12,061,701) (10,740,816) Net change in total pension liability 8,817,878 10,479,751 8,518,954 Total pension liability - beginning 228,750,471 218,270,720 209,751,766 Total pension liability - ending (a) $ 237,568,349 $ 228,750,471 $ 218,270,720 Plan fiduciary net position:

Contributions - employer $ 7,709,918 $ 9,361,882 $ 6,693,987 Contributions - employee 1,889,583 1,775,245 1,820,697
Net investment income 7,205,266 9,124,520 10,820,033
Benefit payments (12,892,847) (12,061,701) (10,740,816) Net plan to plan resource movement - - (316)
Administrative expense (203,824) (97,394) (200,184)
Other miscellaneous income/(expense) - 316 (380,153)
Net change in plan fiduciary net position 3,708,096 8,102,868 8,013,248 Plan fiduciary net position - beginning 144,581,179 136,478,311 128,465,063 Plan fiduciary net position - ending (b) $ 148,289,275 $ 144,581,179 $ 136,478,311 Net pension liability (asset) - ending (a) - (b) $ 89,279,074 $ 84,169,292 $ 81,792,409 Plan fiduciary net position as a percentage of the total pension liability 62.42% 63.20% 62.53%
Covered payroll 21,795,380 22,951,725 23,736,588
Net pension liability as percentage of covered payroll 409.62% 366.72% 344.58% * Fiscal year 2021 was the 7th year of implementation. Therefore, only six years are shown. Information is required only for measurement periods for which GASB 68 is applicable. The current measurement period is the year ended June 30, 2020.

Benefit changes. The figures above include any liability impact that may have resulted from voluntary benefit changes that occurred after the June 30, 2019 valuation. However, offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes) that occurred after the June 30, 2019 valuation date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary.

Changes in assumptions. None in 2019 or 2020. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate.

City of San Luis Obispo, California
Schedule of the Changes in the Net Pension Liability and Related Ratios Miscellaneous Agent Multiple-Employer Plan
June 30, 2021
Last 10 Years *
108